Topic: Power to destroy vis--vis Power to Build

SISON vs. ANCHETA

G.R. No. L-59431 July 25, 1984
FACTS: The challenged posed is a suit for declaratory relief or prohibition on the
validity of Section 1 of Batas Pambansa Blg. 135. The assailed provision further
amends Sec. 21 of the NIRC of 1977, which provides for the rate tax on residents or
citizens on (a) taxable compensation income, (b) taxable net income, (c) royalties,
prizes, and other winnings, (d) interests from bank deposits and yield or any other
monetary benefit from deposit substitutes and from trust fund and similar
arrangements, (e) dividends and share from individual partner in the net profits of
taxable partnership, (f) adjusted gross income.
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
differentiation 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 necessary 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.
Topic: Power to destroy vis--vis Power to Build
PHILIPPINE HEALTH CARE PROVIDERS VS. CIR
G.R. NO. 167330 SEPTEMBER 18, 2009
FACTS: Philippine Health Care Providers, Inc. is a domestic corporation whose
primary purpose is "[t]o establish, maintain, conduct and operate a prepaid group
practice health care delivery system or a health maintenance organization to take
care of the sick and disabled persons enrolled in the health care plan and to provide
for the administrative, legal, and financial responsibilities of the organization."
Individuals enrolled in its health care programs pay an annual membership fee and
are entitled to various preventive, diagnostic and curative medical services provided

by its duly licensed physicians, specialists and other professional technical staff
participating in the group practice health delivery system at a hospital or clinic
owned, operated or accredited by it.
January 27, 2000: Commissioner of Internal Revenue (CIR) sent petitioner a
formal demand letter and the corresponding assessment notices demanding the
payment of deficiency taxes, including surcharges and interest, for the taxable
years 1996 and 1997 in the total amount of P224,702,641.18.
ISSUE: W/N the Philippine Health Care Providers, Inc (HMO) was engaged in the
business of insurance during the pertinent taxable years
HELD: NO

Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code)

enumerates what constitutes "doing an insurance business" or "transacting
an insurance business:"
a) making or proposing to make, as insurer, any insurance contract;
b) making or proposing to make, as surety, any contract of suretyship
as a vocation and not as merely incidental to any other legitimate business or
activity of the surety;
c) doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance business
within the meaning of this Code;
d) doing or proposing to do any business in substance equivalent to
any of the foregoing in a manner designed to evade the provisions of this
Code.

No profit is derived from the making of insurance contracts, agreements or

transactions or that no separate or direct consideration is received therefore, shall
not be deemed conclusive to show that the making thereof does not constitute the
doing or transacting of an insurance business
Topic: Importance of Taxation & the Lifeblood Doctrine
COMMISSIONER vs. ALGUE
G.R. no. L-28890 February 17, 1988
FACTS: The Philippine Sugar Estate Development Company (PSEDC) appointed
Algue Inc. as its agent, authorizing it to sell its land, factories, and oil manufacturing
process. The Vegetable Oil Investment Corporation (VOICP) purchased PSEDC
properties. For the sale, Algue received a commission of P125,000 and it was from
this commission that it paid Guevara, et. al. organizers of the VOICP, P75,000 in
promotional fees. In 1965, Algue received an assessment from the Commissioner of
Internal Revenue in the amount of P83,183.85 as delinquency income tax for years
1958amd 1959. Algue filed a protest or request for reconsideration which was not
acted upon by the Bureau of Internal Revenue(BIR). The counsel for Algue had to
accept the warrant of distrait and levy. Algue, however, filed a petition for review
with the Court of Tax Appeals.
ISSUE: Whether the assessment was reasonable?

HELD: NO. Taxes are the lifeblood of the government and so 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 his 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.
Tax collection, however, should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. For all the awesome
power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate that the law has not been observed. Herein, the claimed deduction
(pursuant to Section 30 [a] [1] of the Tax Code and Section 70 [1] of Revenue
Regulation 2: as to compensation for personal services) had been legitimately
proven by Algue Inc. It has further proven that the payment of fees was reasonable
and necessary in light of the efforts exerted by the payees in inducing investors (in
VOICP) to involve themselves in an experimental enterprise or a business requiring
millions of pesos. The assessment was not reasonable.
Topic: Objectives of Taxation: Regulation
PHILIPPINE AIRLINES vs. EDU
G.R. No. L- 41383 August 15, 1988
FACTS: PAL is a corporation organized and existing under the laws of the Philippines
and engaged in the air transportation business under a legislative franchise, Act No.
42739, as amended by Republic Act Nos. 25) and 269.1 Under its franchise, PAL is
exempt from the payment of taxes. On the strength of an opinion of the Secretary of
Justice (Op. No. 307, series of 1956) PAL has, since 1956, not been paying motor
vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued
a regulation requiring all tax exempt entities, among them PAL to pay motor vehicle
registration fees.
Despite PAL's protestations, the appellee refused to register the appellant's
motor vehicles unless the amounts imposed under Republic Act 4136 were paid. The
appellant thus paid, under protest, the amount of P19, 529.75 as registration fees of
its motor vehicles.
PAL demanding a refund of the amounts paid, invoking the ruling in Calalang v.
Lorenzo (97 Phil. 212 [1951]) 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.
Appellee Edu denied the request for refund basing his action on the decision
in Republic v. Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to
the effect that motor vehicle registration fees are regulatory exceptional and not
revenue measures and, therefore, do not come within the exemption granted to PAL
under its franchise. Hence, PAL filed the complaint against Land Transportation
Commission after paying under protest.
ISSUE: Whether or not motor vehicle registration is considered tax?
HELD: Yes, motor vehicle registration fees are now considered revenue or tax
measures. This case reversed the doctrine in the Philippine Rabbit Bus Lines to the

effect that registration fees are regulatory exactions and not revenues. Revised
Motor Vehicle Law itself now regards those fees as taxes, for it provides that "no
other taxes or fees than those prescribed in this Act shall be imposed," thus
implying that the charges therein imposedthough called feesare of the category
of taxes. The provision is contained in section 70, of subsection (b), of the law, as
amended by section 17 of Republic Act 587, which reads:
Sec. 70(b) No other taxes or fees than those prescribed in this Act shall be imposed
for the registration or operation or on the ownership of any motor vehicle, or for the
exercise of the profession of chauffeur, by any municipal corporation, the provisions
of any city charter to the contrary notwithstanding: Provided, however, That any
provincial board, city or municipal council or board, or other competent authority
may exact and collect such reasonable and equitable toll fees for the use of such
bridges and ferries, within their respective jurisdiction, as may be authorized and
approved by the Secretary of Public Works and Communications, and also for the
use of such public roads, as may be authorized by the President of the Philippines
upon the recommendation of the Secretary of Public Works and Communications,
but in none of these cases, shall any toll fee." be charged or collected until and
unless the approved schedule of tolls shall have been posted levied, in a
conspicuous place at such toll station.
Fees may be properly regarded as taxes even though they also serve as an
instrument of regulation. It is possible for an exaction to be both tax and regulation.
License fees are charges looked to as a source of revenue as well as a means of
regulation (Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile
license fees. In such case, the fees may properly be regarded as taxes even though
they also serve as an instrument of regulation. 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. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on
Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta
98 Phil. 198.) These exactions are sometimes called regulatory taxes. (See Secs.
4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code of
1954, which classify taxes on tobacco and alcohol as regulatory taxes.) (Umali,
Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd Edition, 591593).
Indeed, taxation may be made the implement of the state's police power. 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 (Umali, Id.) Such is
the case of motor vehicle registration fees. The conclusions become inescapable in
view of Section 70(b) of Rep. Act 587 quoted in the Calalang case. The same
provision appears as Section 591-593) in the Land Transportation code. It is patent
there from that the legislators had in mind a regulatory tax as the law refers to the
imposition on the registration, operation or ownership of a motor vehicle as a "tax
or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the
imposition is a tax, Section 591-593) speaks of "taxes." or fees ... for the registration
or operation or on the ownership of any motor vehicle, or for the exercise of the
profession of chauffeur ..." making the intent to impose a tax more apparent. Thus,
even Rep. Act 5448 cited by the respondents, speak of an "additional" tax," where
the law could have referred to an original tax and not one in addition to the tax
already imposed on the registration, operation, or ownership of a motor vehicle
under Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136 were merely
a regulatory fee, the imposition in Rep. Act 5448 need not be an "additional" tax.
Rep. Act 4136 also speaks of other "fees," such as the special permit fees for certain

types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec.
11). These are not to be understood as taxes because such fees are very minimal to
be revenue-raising. Thus, they are not mentioned by Sec. 591-593 of the Code as
taxes like the motor vehicle registration fee and chauffers' license fee. Such fees
are to go into the expenditures of the Land Transportation Commission.
It is quite apparent that vehicle registration fees were originally simple exceptional
intended only for rigidly purposes in the exercise of the State's police powers. Over
the years, however, as vehicular traffic exploded in number and motor vehicles
became absolute necessities without which modem life as we know it would stand
still, Congress found the registration of vehicles a very convenient way of raising
much needed revenues. A registration payment as fees, their nature has become
that of "taxes."
In pursuant to the Land Transportation and Traffic Code, taxes can be
intended for additional revenues of government even if one fifth or less of the
amount collected is set aside for the operating expenses of the agency
administering the program.
Topic: Objectives of Taxation: Regulation
TIO vs. VIDEOGRAM REGULATORY BOARD
151 SCRA 208
FACTS: Petitioner, on his own behalf and purportedly on behalf of other videogram
operators adversely affected, assailed the constitutionality of Presidential Decree
No. 1987 entitled An Act Creating the Videogram Regulatory Board with broad
powers to regulate and supervise the videogram industry.
Petitioner questioned the constitutionality of the decree on the grounds that:
(a) Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to
the local government is a rider and the same is not germane to the subject matter
thereof; (b) the tax imposed is harsh, confiscatory, oppressive and/or in unlawful
restraint to trade in violation of the due process clause of the Constitution;(c) there
is undue delegation of power.
ISSUE: Whether or not the assailed Decree is unconstitutional?
HELD: NO. The power to impose taxes is one so unlimited in force and so searching
in extent, that the courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of the authority which
exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in
general, a sufficient security against erroneous and oppressive taxation.
On the other hand, the levy of the 30% tax is for 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.
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 the other.
It is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that inequities which result from a singling

out of one particular class for taxation or exemption infringe no constitutional

limitation. Taxation has been made the implement of the states police power.
With regard to the issue that the Decree contains an undue delegation of
legislative power, there is really no delegation of the power to legislate but merely a
conferment functions of authority or discretion as to its execution, enforcement, and
implementation.
It is important to note that only congressional power or competence, not the
wisdom of the action taken, maybe the basis for declaring a statute invalid. The
principle of separation of powers has in the main wisely allocated the respective
authority to each department and confined its jurisdiction to such a sphere. The
attack on the validity of the challenged provision likewise insofar as there may be
objections, even if valid and cogent on its wisdom cannot be sustained.
Topic: Inherent Limitation: Public Purpose
LUTZ vs. ARANETA
G.R. No. L-7859 December 22, 1955
FACTS: Promulgated in 1940, the law in question opens (section 1) with a
declaration of emergency, due to the threat to our industry by the imminent
imposition of export taxes upon sugar as provided in the Tydings-McDuffie Act, and
the "eventual loss of its preferential position in the United States market";
wherefore, the national policy was expressed "to obtain a readjustment of the
benefits derived from the sugar industry by the component elements thereof" and
"to stabilize the sugar industry so as to prepare it for the eventuality of the loss of
its preferential position in the United States market and the imposition of the export
taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing
tax on the manufacture of sugar, on a graduated basis, on each picul of sugar
manufactures; while section 3 levies on owners or persons in control of lands
devoted to the cultivation of sugar cane and ceded to others for a consideration, on
lease or otherwise.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate
Estate of Antonio Jayme Ledesma, seeks to recover from the Collector of Internal
Revenue the sum of P14,666.40 paid by the estate as taxes, under section 3 of the
Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is
unconstitutional and void, being levied for the aid and support of the sugar industry
exclusively, which in plaintiff's opinion is not a public purpose for which a tax may
be constitutionally levied. The action having been dismissed by the Court of First
Instance, the plaintiffs appealed the case directly to this Court
ISSUE: Whether or not taxes imposed by Commonwealth Act No. 567, otherwise
known as the Sugar Adjustment Act is legal?
HELD: YES. As the protection and promotion of the sugar industry is a matter of
public concern the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here, the legislative
must be allowed full play, subject only to the test of reasonableness; and it is not
contended that the means provided in section 6 of Commonwealth Act No. 567 bear
no relation to the objective pursued or are oppressive in character. If objective and
methods are alike constitutionally valid, no reason is seen why the state may not

levy taxes to raise funds for their prosecution and attainment. Taxation may be
made the implement of the state's police power.
It is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that "inequalities which result from a
singling out of one particular class for taxation or exemption infringe no
constitutional limitation
Topic: Inherent Limitations: Public Purpose
PASCUAL vs. SECRETARY OF PUBLIC WORKS
110 SCRA 331
FACTS: Petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this
action for declaratory relief, with injunction, upon the ground that Republic Act No.
920, entitled "An Act Appropriating Funds for Public Works", approved on June 20,
1953, contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00 "for the
construction, reconstruction, repair, extension and improvement" of Pasig feeder
road terminals. The time of the passage and approval of said Act, the
aforementioned feeder roads were "nothing but projected and planned subdivision
roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . .
Pasig, Rizal", which projected feeder roads "do not connect any government
property or any important premises to the main highway"; that the aforementioned
Antonio Subdivision (as well as the lands on which said feeder roads were to be
construed) were private properties of respondent Jose C. Zulueta, who, at the time
of the passage and approval of said Act, was a member of the Senate of the
Philippines.
Respondent Zulueta, addressed a letter to the Municipal Council of Pasig,
Rizal, offering to donate said projected feeder roads to the municipality of Pasig,
Rizal; the offer was accepted by the council, 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"; that no deed of donation in favor of the municipality of Pasig was, however,
executed.
ISSUE: Whether or not the contested item of Republic Act No. 920 be declared null
and void; and Whether or not the alleged deed of donation of the feeder roads in
question be "declared unconstitutional and, therefore, illegal?
HELD: It is a general rule that the legislature is without power to appropriate public
revenue for anything but a public purpose. It is the essential character of the direct
object of the expenditure which must determine its validity as justifying a tax, and
not the magnitude of the interest to be affected nor the degree to which the general
advantage of the community, and thus the public welfare, may be ultimately
benefited by their promotion. Incidental to the public or to the state, which results
from the promotion of private interest and the prosperity of private enterprises or
business, does not justify their aid by the use public money.
The rule is set forth in Corpus Juris Secundum in the following language: In
accordance with the rule that the taxing power must be exercised for public
purposes only, discussed supra sec. 14, money raised by taxation can be expended
only for public purposes and not for the advantage of private individuals. Generally,
under the express or implied provisions of the constitution, 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 to individuals
might incidentally serve the public.
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.
Referring to the P85,000.00 appropriation for the projected feeder roads in question,
the legality thereof depended upon whether said roads were public or private
property when the bill, which, latter on, became Republic Act 920, was passed by
Congress, or, when said bill was approved by the President and the disbursement of
said sum became effective, or on June 20, 1953 (see section 13 of said Act).
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. The donation to the Government,
over five (5) months after the approval and effectivity of said Act, made, according
to the petition, for the purpose of giving a "semblance of legality", or legalizing, the
appropriation in question, did not cure its aforementioned basic defect.
Consequently, a judicial nullification of said donation need not precede the
declaration of unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is
subject to exceptions. For instance, the creditors of a party to an illegal contract
may, under the conditions set forth in Article 1177 of said Code, exercise the rights
and actions of the latter, except only those which are inherent in his person,
including therefore, his right to the annulment of said contract, even though such
creditors are not affected by the same, except indirectly, in the manner indicated in
said legal provision.
Again, it is well-stated that the validity of a statute may be contested only by
one who will sustain a direct injury in consequence of its enforcement. Yet, there are
many decisions nullifying, at the instance of taxpayers, laws providing for the
disbursement of public funds, upon the theory that "the expenditure of public funds
by an officer of the State for the purpose of administering an unconstitutional act
constitutes a misapplication of such funds," which may be enjoined at the request of
a taxpayer. Although there are some decisions to the contrary, the prevailing view
in the United States is stated in the American Jurisprudence as follows:
In the determination of the degree of interest essential to give the requisite
standing to attack the constitutionality of a statute, the general rule is that not only
persons individually affected, but also taxpayers, have sufficient interest in
preventing the illegal expenditure of moneys raised by taxation and may therefore
question the constitutionality of statutes requiring expenditure of public moneys.
Hence, it is our considered opinion that the circumstances surrounding this
case sufficiently justify petitioners action in contesting the appropriation and
donation in question; that this action should not have been dismissed by the lower
court; and that the writ of preliminary injunction should have been maintained.
Topic: Inherent Limitations: Public Purpose

GOMEZ vs. PALOMAR

G.R. No. L-23645 October 29, 1968
FACTS: On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at
the post office in San Fernando, Pampanga. Because this letter, addressed to a
certain Agustin Aquino of 1014 Dagohoy Street, Singalong, Manila did not bear the
special anti-TB stamp required by the statute, it was returned to the petitioner.
In view of this development, the petitioner brought suit for declaratory relief
in the Court of First Instance of Pampanga, to test the constitutionality of the
statute, as well as the implementing administrative orders issued, contending that it
violates the equal protection clause of the Constitution as well as the rule of
uniformity and equality of taxation.
The lower court declared the statute and the orders unconstitutional.
This appeal puts in issue the constitutionality of Republic Act 1635,as
amended by Republic Act 2631, which provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of
Posts shall order for the period from August nineteen to September thirty every year
the printing and issue of semi-postal stamps of different denominations with face
value showing the regular postage charge plus the additional amount of five
centavos for the said purpose, and during the said period, no mail matter shall be
accepted in the mails unless it bears such semi-postal stamps: Provided, That no
such additional charge of five centavos shall be imposed on newspapers. The
additional proceeds realized from the sale of the semi-postal stamps shall constitute
a special fund and be deposited with the National Treasury to be expended by the
Philippine Tuberculosis Society in carrying out its noble work to prevent and
eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter
issued four (4) administrative orders numbered 3 (June 20, 1958), 7 (August 9,
1958), 9 (August 28, 1958), and 10 (July 15, 1960). All these administrative orders
were issued with the approval of the respondent Secretary of Public Works and
Communications.
ISSUE: Whether or not RA 1635 as amended by RA 2631 and the four
Administrative orders violates the equal protection clause of the Constitution as well
as the rule of uniformity and equality of taxation?
HELD: It is settled that the legislature has the inherent power to select the subjects
of taxation and to grant exemptions. This power has aptly been described as "of
wide range and flexibility. Indeed, it is said that in the field of taxation, more than in
other areas, the legislature possesses the greatest freedom in classification. The
reason for this is that traditionally, classification has been a device for fitting tax
programs to local needs and usages in order to achieve an equitable distribution of
the tax burden.
The classification is based on considerations of administrative convenience.
For it is now a settled principle of law that consideration of practical administrative
convenience and cost in the administration of tax laws afford adequate ground for
imposing a tax on a well recognized and defined class. In the case of the anti-TB
stamps, undoubtedly, the single most important and influential consideration that
led the legislature to select mail users as subjects of the tax is the relative ease and
convenience of collecting the tax through the post offices. The small amount of five

centavos does not justify the great expense and inconvenience of collecting through
the regular means of collection. On the other hand, by placing the duty of collection
on postal authorities the tax was made almost self-enforcing, with as little cost and
as little inconvenience as possible.
The eradication of a dreaded disease is a public purpose, but if by public
purpose the petitioner means benefit to a taxpayer as a return for what he pays,
then it is sufficient answer to say that the only benefit to which the taxpayer is
constitutionally entitled is that derived from his enjoyment of the privileges of living
in an organized society, established and safeguarded by the devotion of taxes to
public purposes. Any other view would preclude the levying of taxes except as they
are used to compensate for the burden on those who pay them and would involve
the abandonment of the most fundamental principle of government that it exists
primarily to provide for the common good.
Nor is the rule of uniformity and equality of taxation infringed by the
imposition of a flat rate rather than a graduated tax. A tax need not be measured by
the weight of the mail or the extent of the service rendered. We have said that
considerations of administrative convenience and cost afford an adequate ground
for classification. The same considerations may induce the legislature to impose a
flat tax which in effect is a charge for the transaction, operating equally on all
persons within the class regardless of the amount involved.
Topic: Inherent Limitations: Inherently Legislative
PEPSI-COLA vs. MUNICIPALITY OF TANAUAN
G.R No. L-31156 February 27, 1976
FACTS: Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a
complaint for the court to declare Section 2 of Republic Act No. 2264 otherwise
known as the Local Autonomy Act, unconstitutional as an undue delegation of
taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of
the municipality of Tanauan, Leyte, null and void.
The parties entered into a Stipulation of Facts, the material portions of which
state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject
matter and the production tax rates imposed therein are practically the same, and
second, that the acting Municipal Treasurer of Tanauan, Leyte, as per his letter
addressed to the Manager of the Pepsi-Cola Bottling Plant in said municipality,
sought to enforce compliance by the latter of the provisions of said Ordinance No.
27, series of 1962. Municipal Ordinance No. 23, of Tanauan, Leyte, levies and
collects "from soft drinks producers and manufacturers, a tax of one-sixteenth
(1/16) of a centavo for every bottle of soft drink corked." For the purpose of
computing the taxes due, the person, firm, company or corporation producing soft
drinks shall submit to the Municipal Treasurer a monthly report, of the total number
of bottles produced and corked during the month. The tax imposed in both
Ordinances Nos. 23 and 27 is denominated as "municipal production tax.
ISSUE: Whether or not the Municipal Ordinances are valid?
HELD: The plenary nature of the taxing power thus delegated, contrary to plaintiffappellant's pretense, would not suffice to invalidate the said law as confiscatory and
oppressive. In delegating the authority, the State is not limited to the exact
measure of that which is exercised by itself. When it is said that the taxing power

10

may be delegated to municipalities and the like, it is meant that there may be
delegated such measure of power to impose and collect taxes as the legislature
may deem expedient. Thus, municipalities may be permitted to tax subjects which
for reasons of public policy the State has not deemed wise to tax for more general
purposes.
Due process is usually violated where the tax imposed is for a private as
distinguished from a public purpose; a tax is imposed on property outside the State,
i.e., extraterritorial taxation; and arbitrary or oppressive methods are used in
assessing and collecting taxes. But, a tax does not violate the due process clause,
as applied to a particular taxpayer, although the purpose of the tax will result in an
injury rather than a benefit to such taxpayer. Due process does not require that the
property subject to the tax or the amount of tax to be raised should be determined
by judicial inquiry, and a notice and hearing as to the amount of the tax and the
manner in which it shall be apportioned are generally not necessary to due process
of law.
Topic: Inherent Limitations: Coverage, Object, Nature, Extent, Situs
PEPSI-COLA vs. CITY OF BUTUAN
G.R No. L-22814 August 28, 1968
FACTS: Pepsis warehouse in the City of Butuan serves as a storage for its products
the "Pepsi-Cola" soft drinks for sale to customers in the City of Butuan and all the
municipalities in the Province of Agusan. These "Pepsi-Cola Cola" soft drinks are
bottled in Cebu City and shipped to the Butuan City warehouse of plaintiff for
distribution and sale in the City of Butuan and all municipalities of Agusan. .
On August 16, 1960, the City of Butuan enacted Ordinance No. 110 which
was subsequently amended by Ordinance No. 122. That Ordinance No. 110 as
amended, imposes a tax on any person, association, etc., of P0.10 per case of 24
bottles of Pepsi-Cola and the plaintiff paid under protest the amount of P4,926.63
from August 16 to December 31, 1960 and the amount of P9,250.40 from January 1
to July 30, 1961.
The plaintiff then filed the foregoing complaint for the recovery of the total
amount of P14,177.03 paid under protest and those that if may later on pay until
the termination of this case on the ground that Ordinance No. 110 as amended of
the City of Butuan is illegal, that the tax imposed is excessive and that it is
unconstitutional.
ISSUE: Whether or not Ordinance No. 122 is unconstitutional?
HELD: It is true that the uniformity essential to the valid exercise of the power of
taxation does not require identity or equality under all circumstances, or negate the
authority to classify the objects of taxation. The classification made in the exercise
of this authority, to be valid, must, however, be reasonable and this requirement is
not deemed satisfied unless: (1) it is based upon substantial distinctions which
make real differences; (2) these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to present conditions, but, also, to
future conditions substantially identical to those of the present; and (4) the
classification applies equally all those who belong to the same class.
These conditions are not fully met by the ordinance in question. Indeed, if its
purpose was merely to levy a burden upon the sale of soft drinks or carbonated

11

beverages, there is no reason why sales thereof by sealers other than agents or
consignees of producers or merchants established outside the City of Butuan should
be exempt from the tax.
Topic: Tax Exemption of the Government
LIGHT RAIL TRANSIT AUTHORITY vs. CENTRAL BOARD OF ASSESSMENT
GR NO. 127316 October 12, 2000
FACTS: The LRTA is a government-owned and controlled corporation created and
organized under Executive Order No. 603, dated July 12, 1980 primarily responsible
for the construction, operation, maintenance and/or lease of light rail transit system
in the Philippines, giving due regard to the reasonable requirements of the public
transportation of the country'. By reason of Executive Order 603, LRTA acquired real
properties constructed structural improvements, such as buildings, carriageways,
passenger terminal stations, and installed various kinds of machinery and
equipment and facilities for the purpose of its operations;
For an effective maintenance, operation and management, it entered into a
Contract of Management with the Meralco Transit Organization in which the latter
undertook to manage, operate and maintain the Light Rail Transit System owned by
the LRTA subject to the specific stipulations contained in said agreement, including
payments of a management fee and real property taxes.That it commenced its
operations in 1984, and that sometime that year, Respondent-Appellee City
Assessor of Manila assessed the real properties of petitioner, consisting of lands,
buildings, carriageways and passenger terminal stations, machinery and equipment
which he considered real property under the Real Property Tax Code, to commence
with the year 1985;That petitioner paid its real property taxes on all its real property
holdings, except the carriageways and passenger terminal stations including the
land where it is constructed on the ground that the same are not real properties
under the Real Property Tax Code, and if the same are real property, these are for
public use/purpose, therefore, exempt from realty taxation, which claim was denied
by the Respondent-Appellee City Assessor of Manila; and Petitioner, aggrieved by
the action of the Respondent-Appellee City Assessor, filed an appeal with the Local
Board of Assessment Appeals of Manila. Appellee, herein, after due hearing, in its
resolution dated June 26, 1992, denied petitioner's appeal, and declared that
carriageways and passenger terminal stations are improvements, therefore, are real
property under the Code, and not exempt from the payment of real property tax.
ISSUE: Whether or not petitioner is exempt from payment of real property taxes?
HELD: In any event, there is another legal justification for upholding the assailed CA
Decision. Under the Real Property Tax Code, real property "owned by the Republic of
the Philippines or any of its political subdivisions and any government-owned or
controlled corporation so exempt by its charter, provided, however, that this
exemption shall not apply to real property of the abovenamed entities the beneficial
use of which has been granted, for consideration or otherwise, to a taxable person."
Executive Order No. 603, the charter of petitioner, does not provide for any
real estate tax exemption in its favor. Its exemption is limited to direct and indirect
taxes, duties or fees in connection with the importation of equipment not locally
available, as the following provision shows:
"ARTICLE 4

12

TAX AND DUTY EXEMPTIONS

Sec. 8.Equipment, Machineries, Spare Parts and Other Accessories and Materials. The importation of equipment, machineries, spare parts, accessories and other
materials, including supplies and services, used directly in the operations of the
Light Rails Transit System, not obtainable locally on favorable terms, out of any
funds of the authority including, as stated in Section 7 above, proceeds from foreign
loans credits or indebtedness, shall likewise be exempted from all direct and indirect
taxes, customs duties, fees, imposts, tariff duties, compensating taxes, wharfage
fees and other charges and restrictions, the provisions of existing laws to the
contrary notwithstanding."
Even granting that the national government indeed owns the carriageways
and terminal stations, the exemption would not apply because their beneficial use
has been granted to petitioner, a taxable entity.
Taxation is the rule and exemption is the exception. Any claim for tax
exemption is strictly construed against the claimant. LRTA has not shown its
eligibility for exemption; hence, it is subject to the tax.

Topic: Tax Exemption of the Government

MACTAN CEBU INTERNATIONAL AIRPORT vs. MARCOS
G.R. No. 120082 September 11, 1996
FACTS: MCIAA was created by virtue of Republic Act 6958. Since the time of its
creation, MCIAA enjoyed the privilege of exemption from payment of realty taxes in
accordance with Section 14 of its Charter. However on 11 October 1994, the Office
of the Treasurer of Cebu, demanded for the payment of realty taxes on several
parcels of land belonging to the petitioner. Petitioner objected to such demand for
payment as baseless and unjustified. It also asserted that it is an instrumentality of
the government performing governmental functions, which puts limitations on the
taxing powers of local government units. It nonetheless stands in the same footing
as an agency or instrumentality of the national government by the very nature of its
powers and functions. The City refused to cancel and set aside petitioners realty
tax account, insisting that the MCIAA is a government controlled corporation whose
tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of
the Local Government Code, and not an instrumentality of the government but
merely a government owned corporation performing proprietary functions. MCIAA
paid its tax account under protest when City is about to issue a warrant of levy
against the MCIAAs properties.
On 29 December 1994, MCIAA filed a Petition of Declaratory Relief with the
Cebu Regional Trial Court contending that the taxing power of local government
units do not extend to the levy of taxes or fees on an instrumentality of the national
government. It contends that by the nature of its powers and functions, it has the
footing of an agency or instrumentality of the national government; which claim the
City rejects. On 22 March 1995, the trial court dismissed the petition, citing that
close reading of the LGC provides the express cancellation and withdrawal of tax
exemptions of Government Owned and Controlled Corporations. MCIAAs motion for

13

reconsideration having been denied by the trial court in its 4 May 1995 order, the
petitioner filed the instant petition.
ISSUE: Whether the MCIAA is exempted from realty taxes?
HELD: Tax statutes are construed strictly against the government and liberally in
favor of the taxpayer. But since taxes are paid for civilized society, or are the
lifeblood of the nation, the law frowns against exemptions from taxation and
statutes granting tax exemptions are thus construed strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. A claim of exemption from tax
payments must be clearly shown and based on language in the law too plain to be
mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the
exception. However, if the grantee of the exemption is a political subdivision or
instrumentality, the rigid rule of construction does not apply because the practical
effect of the exemption is merely to reduce the amount of money that has to be
handled by the government in the course of its operations. Further, since taxation is
the rule and exemption therefrom the exception, the exemption may be withdrawn
at the pleasure of the taxing authority. The only exception to this rule is where the
exemption was granted to private parties based on material consideration of a
mutual nature, which then becomes contractual and is thus covered by the nonimpairment clause of the Constitution.
MCIAA is a taxable person under its Charter (RA 6958), and was only
exempted from the payment of real property taxes. The grant of the privilege only
in respect of this tax is conclusive proof of the legislative intent to make it a taxable
person subject to all taxes, except real property tax. Since Republic Act 7160 or the
Local Government Code expressly provides that All general and special laws, acts,
city charters, decrees, executive orders, proclamations and administrative
regulations, or part of parts thereof which are inconsistent with any of the provisions
of this Code are hereby repealed or modified accordingly. With that repealing
clause in the LGC, the tax exemption provided for in RA 6958 had been expressly
repealed by the provisions of the LGC. Therefore, MCIAA has to pay the assessed
realty tax of its properties effective after January 1, 1992 until the present.
Topic: Tax Exemption of the Government
MANILA INTERNATIONAL AIRPORT AUTHORIT vs. CITY OF PARAAQUE
G.R. No. 155650 July 20, 2006
FACTS: Petitioner Manila International Airport Authority operates the Ninoy Aquino
International Airport Complex in Paraaque City under Executive Order No. 903,
issued on 21 July 1983 by then President Ferdinand E. Marcos. As operator of the
international airport, MIAA administers the land, improvements and equipment
within the NAIA Complex, including the runways and buildings.
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC)
issued Opinion No. 061. The OGCC opined that the Local Government Code of 1991
withdrew the exemption from real estate tax granted to MIAA under Section 21 of
the MIAA Charter.
On 17 July 2001, the City of Paraaque, through its City Treasurer, issued
notices of levy and warrants of levy on the Airport Lands and Buildings threatened
to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the
real estate tax delinquency.

14

On 1 October 2001, MIAA filed with the Court of Appeals an original petition
for prohibition and also points out that Section 21 of the MIAA Charter specifically
exempts MIAA from the payment of real estate tax. MIAA insists that it is also
exempt from real estate tax under Section 234 of the Local Government Code
because the Airport Lands and Buildings are owned by the Republic. To justify the
exemption, MIAA invokes the principle that the government cannot tax itself. MIAA
points out that the reason for tax exemption of public property is that its taxation
would not inure to any public advantage, since in such a case the tax debtor is also
the tax creditor.
ISSUE: Whether the Airport Lands and Buildings of MIAA are exempt from real
estate tax under existing laws?
HELD: MIAA's Airport Lands and Buildings are exempt from real estate tax imposed
by local governments.
First, MIAA is not a government-owned or controlled corporation but an
instrumentality of the National Government and thus exempt from local taxation.
Second, the real properties of MIAA are owned by the Republic of the Philippines
and thus exempt from real estate tax.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not
qualify as a government-owned or controlled corporation. MIAA is a government
instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only
difference is that MIAA is vested with corporate powers.
Another rule is that a tax exemption is strictly construed against the taxpayer
claiming the exemption. However, when Congress grants an exemption to a national
government instrumentality from local taxation, such exemption is construed
liberally in favor of the national government instrumentality.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for sound
and compelling policy considerations. There must be express language in the law
empowering local governments to tax national government instrumentalities. Any
doubt whether such power exists is resolved against local governments.
The Airport Lands and Buildings are devoted to public use because they are
used by the public for international and domestic travel and transportation. The fact
that the MIAA collects terminal fees and other charges from the public does not
remove the character of the Airport Lands and Buildings as properties for public use.
The operation by the government of a tollway does not change the character of the
road as one for public use. Someone must pay for the maintenance of the road,
either the public indirectly through the taxes they pay the government, or only
those among the public who actually use the road through the toll fees they pay
upon using the road. The tollway system is even a more efficient and equitable
manner of taxing the public for the maintenance of public roads.
Topic: Tax Exemption of the Government
MIAA VS. CITY OF PASAY
April 02, 2009 G.R. No. 163072
FACTS: Petitioner Manila International Airport Authority (MIAA) operates and
administers the Ninoy Aquino International Airport (NAIA) Complex under Executive

15

Order No. 903 (EO 903),3otherwise known as the Revised Charter of the Manila
International Airport Authority, issued by then President Ferdinand E. Marcos. The
NAIA Complex is located along the border between Pasay City and Paraaque City.
MIAA received Final Notices of Real Property Tax Delinquency from the City of Pasay
for the taxable years 1992 to 2001. The Court of Appeals upheld the power of the
City of Pasay to impose and collect realty taxes on the NAIA Pasay properties. MIAA
filed a motion for reconsideration, which the Court of Appeals denied.
ISSUE: The issue raised in this petition is whether the NAIA Pasay properties of
MIAA are exempt from real property tax.
HELD: The Supreme Court held that the Airport Lands and Buildings of MIAA are
properties devoted to public use and thus are properties of public
dominion. Properties of public dominion are owned by the State or the
Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for public use, and are intended
for some public service or for the development of the national wealth.
The term "ports x x x constructed by the State" includes airports and seaports. The
Airport Lands and Buildings of MIAA are intended for public use, and at the very
least intended for public service. Whether intended for public use or public service,
the Airport Lands and Buildings are properties of public dominion. As properties of
public dominion, the Airport Lands and Buildings are owned by the Republic and
thus exempt from real estate tax under Section 234(a) of the Local Government
Code.
Topic: Constitutional Limitations: Due Process Clause
CREBA vs. THE SECRETARY OF AGRARIAN REFORM
G.R. No. 183409 June 18, 2010
FACTS: The Secretary of Agrarian Reform issued "Omnibus Rules and Procedures
Governing Conversion of Agricultural Lands to Non-Agricultural Uses," which
consolidated all existing implementing guidelines related to land use conversion.
The aforesaid rules embraced all private agricultural lands regardless of tenurial
arrangement and commodity produced, and all untitled agricultural lands and
agricultural lands reclassified by Local Government Units (LGUs) into nonagricultural uses after 15 June 1988. Subsequently, on 30 March 1999, the Secretary
of Agrarian Reform issued DAR AO No. 01-99, entitled "Revised Rules and
Regulations on the Conversion of Agricultural Lands to Non-agricultural Uses,"

16

amending and updating the previous rules on land use conversion. Its coverage
includes the following agricultural lands, to wit: (1) those to be converted to
residential, commercial, industrial, institutional and other non-agricultural purposes;
(2) those to be devoted to another type of agricultural activity such as livestock,
poultry, and fishpond the effect of which is to exempt the land from the
Comprehensive Agrarian Reform Program (CARP) coverage; (3) those to be
converted to non-agricultural use other than that previously authorized; and (4)
those reclassified to residential, commercial, industrial, or other non-agricultural
uses on or after the effectivity of Republic Act No. 6657 on 15 June 1988 pursuant to
Section 20 of Republic Act No. 7160 and other pertinent laws and regulations, and
are to be converted to such uses.
To address the unabated conversion of prime agricultural lands for real estate
development, the Secretary of Agrarian Reform further issued Memorandum No. 88
on 15 April 2008, which temporarily suspended the processing and approval of all
land use conversion applications. By reason thereof, petitioner claims that there is
an actual slow down of housing projects, which, in turn, aggravated the housing
shortage, unemployment and illegal squatting problems to the substantial prejudice
not only of the petitioner and its members but more so of the whole nation.
ISSUES:
WON [DAR AO NO. 01-02, AS AMENDED] violates the Due Process and Equal
Protection clauses, and WON Memorandum NO. 88 is a valid exercise of Police
Power.
HELD: The petition was dismissed. The authority of the Secretary of Agrarian
Reform to include "lands not reclassified as residential, commercial, industrial or
other non-agricultural uses before 15 June 1988" in the definition of agricultural
lands finds basis in jurisprudence. In Ros v. Department of Agrarian Reform, this
Court has enunciated that after the passage of Republic Act No. 6657, agricultural
lands, though reclassified, have to go through the process of conversion, jurisdiction
over which is vested in the DAR. However, agricultural lands, which are already
reclassified before the effectivity of Republic Act No. 6657 which is 15 June 1988,
are exempted from conversion.It bears stressing that the said date of effectivity of
Republic Act No. 6657 served as the cut-off period for automatic reclassifications or
rezoning of agricultural lands that no longer require any DAR conversion clearance
or authority. It necessarily follows that any reclassification made thereafter can be
the subject of DARs conversion authority. Having recognized the DARs conversion
authority over lands reclassified after 15 June 1988, it can no longer be argued that
the Secretary of Agrarian Reform was wrongfully given the authority and power to
include "lands not reclassified as residential, commercial, industrial or other nonagricultural uses before 15 June 1988" in the definition of agricultural lands. Such
inclusion does not unduly expand or enlarge the definition of agricultural lands;
instead, it made clear what are the lands that can be the subject of DARs
conversion authority, thus, serving the very purpose of the land use conversion
provisions of Republic Act No. 6657.It is clear from the aforesaid distinction between
reclassification and conversion that agricultural lands though reclassified to
residential, commercial, industrial or other non-agricultural uses must still undergo
the process of conversion before they can be used for the purpose to which they are
intended.

17

The petitioners argument that DAR Memorandum No. 88 is unconstitutional,

as it suspends the land use conversion without any basis, stands on hollow ground.
It bears emphasis that said Memorandum No. 88 was issued upon the
instruction of the President in order to address the unabated conversion of prime
agricultural lands for real estate development because of the worsening rice
shortage in the country at that time. Such measure was made in order to ensure
that there are enough agricultural lands in which rice cultivation and production
may be carried into. The issuance of said Memorandum No. 88 was made pursuant
to the general welfare of the public, thus, it cannot be argued that it was made
without any basis.
Topic: Constitutional Limitations: Due Process Clause
VILLEGAS vs. HIU CHIONG TSAI PAO HO
G.R No. L-29646 November 10, 1978
FACTS: On 22 February 1968, Ordinance 6537 was passed by the Municipal Board
of Manila and signed by Manila Mayor Antonio J. Villegas on March 27, 1968.
Ordinance 6537, entitled An ordinance making it unlawful for any person not a
citizen of the Philippines to be employed in any place of employment or to be
engaged in any kind of trade, business or occupation within the City of Manila
without first securing an employment permit from the mayor of Manila; and for
other purposes. Law prohibits aliens from employment and trade in the City of
Manila without the requisite mayors permit). Exceptions to law are persons
employed in the diplomatic or consular missions of foreign countries, or in the
technical assistance programs of both the Philippine Government and any foreign
government, and those working in their respective households, and members of
religious orders or congregations, sect or denomination, who are not paid
monetarily or in kind. Permit fee is P50. Penalty is imprisonment of 3 to 6 months or
fine of P100-200, or both.
On 4 May 1968, Hiu Chiong Tsai Pao Ho, who was employed in Manila, filed a
petition, with the CFI Manila (Civil Case 72797), praying for (1) the issuance of the
writ of preliminary injunction and restraining order to stop the implementation of
the ordinance, and (2) judgment to declare the ordinance null and void.
On 24 May 1968, Judge Francisco Arca (CFI Manila, Branch I) issued the writ
of preliminary injunction and on 17 September 1968, the Judge rendered a decision
declaring the ordinance null and void, and the preliminary injunction is made
permanent. Mayor Villegas filed a petition for certiorari to review the decision of the
CFI.
ISSUES:
1. Whether or not there is a violation of due process and equal protection
clauses?
2. Whether or not there was an illegal delegation of legislative powers?
3. Whether or not there is a violation of the principle of Uniformity of
Taxation?
HELD:
1. Due process and equal protection clauses

18

The ordinance is arbitrary, oppressive and unreasonable, being applied only

to aliens who are thus, deprived of their rights to life, liberty and property and
therefore, violates the due process and equal protection clauses of the Constitution.
Requiring a person, before he can be employed, to get a permit from the City Mayor
of Manila, who may withhold or refuse it at will is tantamount to denying him the
basic right of the people in the Philippines to engage in a means of livelihood. Once
an alien is admitted by the State within its territory, he cannot be deprived of life
without due process of law, including the means of livelihood. The shelter of
protection under the due process and equal protection clause is given to all persons,
both aliens and citizens.
2. Police Power, illegal delegation of legislative powers
The ordinance does not lay down any criterion or standard to guide the Mayor
in the exercise of his discretion, thus conferring upon the mayor arbitrary and
unrestricted powers. The ordinance does not provide a standard to guide or limit the
mayors action, expresses no purpose to be attained by requiring a permit, and
enumerates no conditions for its grant or refusal.
3. Uniformity of Taxation, discriminatory and violative
The ordinances purpose is clearly to raise money under the guise of
regulation by exacting P50 from aliens who have been cleared for employment. The
amount is unreasonable and excessive because it fails to consider differences in
situation among aliens required to pay it, i.e. being casual, permanent, full-time,
part-time, rank-and-file or executive.
Topic: Constitutional Limitations: Due Process Clause
CITY OF BAGUIO vs. DE LEON
Gr. No. 24756 October 31, 1968
FACTS: In this appeal, a lower court decision upholding the validity of an ordinance
1 of the City of Baguio imposing a license fee on any person, firm, entity or
corporation doing business in the City of Baguio is assailed by defendant-appellant
Fortunato de Leon. He was held liable as a real estate dealer with a property therein
worth more than P10,000, but not in excess of P50,000, and therefore obligated to
pay under such ordinance the P50 annual fee. That is the principal question. In
addition, there has been a firm and unyielding insistence by defendant-appellant of
the lack of jurisdiction of the City Court of Baguio, where the suit originated, a
complaint having been filed against him by the City Attorney of Baguio for his
failure to pay the amount of P300 as license fee covering the period from the first
quarter of 1958 to the fourth quarter of 1962, allegedly, in spite of repeated
demands. Nor was defendant-appellant agreeable to such a suit being instituted by
the City Treasurer without the consent of the Mayor, which for him was
indispensable. The lower court was of a different mind.
It declared the above ordinance as amended, valid and subsisting, and held
defendant- appellant liable for the fees therein prescribed as a real estate dealer.
Hence, this appeal. Assume the validity of such ordinance, and there would be no
question about the liability of defendant-appellant for the above license fee, it being
shown in the partial stipulation of facts, that he was "engaged in the rental of his
property in Baguio" deriving income therefrom during the period covered by the first
quarter of 1958 to the fourth quarter of 1962.

19

ISSUE: Whether or not the ordinance is valid?

HELD: The challenged ordinance cannot be considered ultra vires as there is more
than ample statutory authority for the enactment thereof. Nonetheless, its validity
on constitutional grounds is challenged because of the allegation that it imposed
double taxation, which is repugnant to the due process clause, and that it violated
the requirement of uniformity. We do not view the matter thus.
As to why double taxation is not violative of due process, Justice Holmes
made clear in this language: "The objection to the taxation as double may be laid
down or one side. . . . The 14th Amendment [the due process clause] no more
forbids double taxation than it does doubling the amount of a tax, short of
confiscation or proceedings unconstitutional on other grounds." With that decision
rendered at a time when American sovereignty in the Philippines was recognized, it
possesses more than just a persuasive effect. To some, it delivered the coup de
grace to the bogey of double taxation as a constitutional bar to the exercise of the
taxing power. It would seem though that in the United States, as with us, its ghost,
as noted by an eminent critic, still stalks the juridical stage. In a 1947 decision,
however, 9 we quoted with approval this excerpt from a leading American decision:
10 "Where, as here, Congress has clearly expressed its intention, the statute must
be sustained even though double taxation results."
At any rate, it has been expressly affirmed by us that such an "argument against
double taxation may not be invoked where one tax is imposed by the state and the
other is imposed by the city . . ., it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or taxes be exacted with
respect to the same occupation, calling or activity by both the state and the political
subdivisions thereof. The above would clearly indicate how lacking in merit is this
argument based on double taxation.
Now, as to the claim that there was a violation of the rule of uniformity
established by the Constitution. According to the challenged ordinance, a real estate
dealer who leases property worth P50,000 or above must pay an annual fee of
P100. If the property is worth P10,000 but not over P50,000, then he pays P50 and
P24 if the value is less than P10,000. On its face, therefore, the above ordinance
cannot be assailed as violative of the constitutional requirement of uniformity. A tax
is considered uniform when it operates with the same force and effect in every
place where the subject may be found."
It is thus apparent from the above that in much the same way that the plea of
double taxation is unavailing, the allegation that there was a violation of the
principle of uniformity is inherently lacking in persuasiveness. There is no need to
pass upon the other allegations to assail the validity of the above ordinance, it
being maintained that the license fees therein imposed "is excessive, unreasonable
and oppressive" and that there is a failure to observe the mandate of equal
protection. A reading of the ordinance will readily disclose their inherent lack of
plausibility.
Topic: Constitutional Limitations: Due Process Clause
COMMISSIONER OF INTERNAL REVENUE vs. CA & FORTUNE TOBACCO CORP.
G.R. No. 119322 June 4, 1996

20

FACTS: A task force was created on June 1, 1993 to investigate tax liabilities of
manufacturers engaged in tax evasion schemes. On July 1, 1993, the CIR issued
Rev. Memo Circ. No. 37-93 which reclassified certain cigarette brands manufactured
by private respondent Fortune Tobacco Corp. (Fortune) as foreign brands subject to
a higher tax rate. On August 3, 1993, Fortune questioned the validity of said
reclassification as being violative of the right to due process and equal protection of
laws. The CTA, on September 8, 1993 resolved that said reclassification was of
doubtful legality and enjoined its enforcement.
In the meantime, on August 3, 1993, Fortune was assessed deficiency
income, ad valorem and VAT for 1992 with payment due within 30 days from
receipt. On September 12, 1993, private respondent moved for reconsideration of
said assessment. Meanwhile on September 7, 1993, the Commissioner filed a
complaint with the DOJ against private respondent Fortune, its corporate officers
and 9 other corporations and their respective corporate officers for alleged
fraudulent tax evasion for non-payment of the correct income, ad valorem and VAT
for 1992. The complaint was referred to the DOJ Task Force on revenue cases which
found sufficient basis to further investigate the charges against Fortune.
A subpoena was issued on September 8, 1993 directing private respondent
to submit their counter-affidavits. But it filed a verified motion to dismiss or
alternatively, a motion to suspend but was denied and thus treated as their counteraffidavit. All motions filed thereafter were denied.
On January 4, 1994, private respondents filed a petition for certiorari and
prohibition with prayer for preliminary injunction praying the CIRs complaint and
prosecutors orders be dismissed/set aside or alternatively, that the preliminary
investigation be suspended pending determination by CIR of Fortunes motion for
reconsideration/reinvestigation of the August 13, 1993 assessment of taxes due.
The trial court granted the petition for a writ of preliminary injunction to
enjoin the preliminary investigation on the complaint for tax evasion pending before
the DOJ, ruling that the tax liability of private respondents first be settled before any
complaint for fraudulent tax evasion can be initiated.
ISSUE: Whether or not the basis of private respondents tax liability should first be
settled before any complaint for fraudulent tax evasion can be initiated?
HELD: Fraud cannot be presumed. If there was fraud on willful attempt to evade
payment of ad valorem taxes by private respondent through the manipulation of the
registered wholesale price of the cigarettes, it must have been with the connivance
of cooperation of certain BIR officials and employees who supervised and monitored
Fortunes production activities to see to it that the correct taxes were paid. But
there is no allegation, much less evidence, of BIR personnels malfeasance at the
very least, there is the presumption that BIR personnel performed their duties in the
regular course in ensuring that the correct taxes were paid by Fortune.
Before the tax liabilities of Fortune are finally determined, it cannot be
correctly asserted that private respondents have willfully attempted to evade or
defeat any tax under Secs. 254 and 256, 1997 NIRC. The fact that a tax is due must
first be proved.
Topic: Constitutional Limitations: Due Process Clause
COMMISSIONER OF INTERNAL REVENUE vs. M. J. LHUILLIER PAWNSHOP,
INC.

21

G.R. No. 150947 July 15, 2003

FACTS: CIR Jose U. Ong issued Revenue Memorandum Order No. 15-91 imposing a
5% lending investors tax on pawnshops; thus:
A restudy of P.D. [No.] 114 shows that the principal activity of pawnshops is
lending money at interest and incidentally accepting a "pawn" of personal property
delivered by the pawner to the pawnee as security for the loan. Clearly, this makes
pawnshop business akin to lending investors business activity which is broad
enough to encompass the business of lending money at interest by any person
whether natural or juridical. Such being the case, pawnshops shall be subject to the
5% lending investors tax based on their gross income pursuant to Section 116 of
the Tax Code, as amended.
This RMO was clarified by Revenue Memorandum Circular No. 43-91. Since
pawnshops are considered as lending investors, they also become subject to
documentary stamp taxes prescribed in Title VII of the Tax Code. BIR Ruling No. 32588 is hereby revoked.
Pursuant to these issuances, the BIR issued Assessment Notice No. 81-PT-1394-97-9-118 against Lhuillier demanding payment of deficiency percentage tax in
the sum of P3,360,335.11 for 1994 inclusive of interest and surcharges. Lhuillier
filed an administrative protest with the Office of the Revenue Regional Director
contending that (1) neither the Tax Code nor the VAT Law expressly imposes 5%
percentage tax on the gross income of pawnshops; (2) pawnshops are different from
lending investors, which are subject to the 5% percentage tax under the specific
provision of the Tax Code; (3) RMO No. 15-91 is not implementing any provision of
the Internal Revenue laws but is a new and additional tax measure on pawnshops,
which only Congress could enact; (4) RMO No. 15-91 impliedly amends the Tax Code
and is therefore taxation by implication, which is proscribed by law; and (5) RMO No.
15-91 is a "class legislation" because it singles out pawnshops among other lending
and financial operations.
Lhuillier, on the other hand, maintains that before and after the amendment
of the Tax Code by E.O. No. 273, which took effect on 1 January 1988, pawnshops
and lending investors were subjected to different tax treatments. Pawnshops were
required to pay an annual fixed tax of only P1,000, while lending investors were
subject to a 5% percentage tax on their gross income in addition to their fixed
annual taxes. Accordingly, during the period from April 1982 up to December 1990,
the CIR consistently ruled that a pawnshop is not a lending investor and should not
therefore be required to pay percentage tax on its gross income.
ISSUE: Are pawnshops considered "lending investors" for the purpose of the
imposition of the lending investors tax?
HELD: RMO No. 15-91 and RMC No. 43-91 were issued in accordance with the
power of the CIR to make rulings and opinions in connection with the
implementation of internal revenue laws, which was bestowed by then Section 245
of the NIRC of 1977, as amended by E.O. No. 273. Such power of the CIR cannot be
controverted. However, the CIR cannot, in the exercise of such power, issue
administrative rulings or circulars not consistent with the law sought to be applied.
Indeed, administrative issuances must not override, supplant or modify the law, but
must remain consistent with the law they intend to carry out. Only Congress can
repeal or amend the law.

22

While it is true that pawnshops are engaged in the business of lending

money, they are not considered "lending investors" for the purpose of imposing the
5% percentage taxes. The definition of lending investors found in Section 157 (u) of
the NIRC of 1986 is not found in the NIRC of 1977, as amended by E.O. No. 273,
where Section 116 invoked by the CIR is found. However, both the NIRC of 1986 and
the NIRC of 1977 dealt with pawnshops and lending investors differently. Verily then,
it was the intent of Congress to deal with both subjects differently. Hence, we must
likewise interpret the statute to conform with such legislative intent.
Further, if pawnshops were covered within the term lending investor, there
would have been no need to introduce such amendment to include owners of
pawnshops. At any rate, such proposed amendment was not adopted. Instead, the
approved bill which became R.A. No. 7716repealed Section 116 of NIRC of 1977, as
amended, which was the basis of RMO No. 15-91 and RMC No. 43-91. Since Section
116 of the NIRC of 1977, which breathed life on the questioned administrative
issuances, had already been repealed, RMO 15-91 and RMC 43-91, which depended
upon it, are deemed automatically repealed. Hence, even granting that pawnshops
are included within the term lending investors, the assessment from 27 May 1994
onward would have no leg to stand on. Adding to the invalidity of the RMC No. 4391 and RMO No. 15-91 is the absence of publication. While the rule-making
authority of the CIR is not doubted, like any other government agency, the CIR may
not disregard legal requirements or applicable principles in the exercise of quasilegislative powers.
A legislative rule is in the nature of subordinate legislation, designed to
implement a primary legislation by providing the details thereof. An interpretative
rule, on the other hand, is designed to provide guidelines to the law which the
administrative agency is in charge of enforcing. 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. When, on the other hand, the administrative rule goes beyond merely
providing for the means that can facilitate or render least cumbersome the
implementation of the law but substantially increases the burden of those governed,
it behooves the agency to accord at least to those directly affected a chance to be
heard, and thereafter to be duly informed, before that new issuance is given the
force and effect of law.
RMO No. 15-91 and RMC No. 43-91 cannot be viewed simply as implementing
rules or corrective measures revoking in the process the previous rulings of past
Commissioners. Specifically, they would have been amendatory provisions
applicable to pawnshops. Without these disputed CIR issuances, pawnshops would
not be liable to pay the 5% percentage tax, considering that they were not
specifically included in Section 116 of the NIRC of 1977, as amended. In so doing,
the CIR did not simply interpret the law. The due observance of the requirements of
notice, hearing, and publication should not have been ignored.
Topic: Constitutional Limitations: Equal Protection Clause
ABAKADA Guro Party List v Purisima
G.R. No. 166715, August 14, 2008
FACTS: This petition for prohibition seeks to prevent respondents from
implementing and enforcing Republic Act (RA) 9335 (Attrition Act of 2005).RA 9335
was enacted to optimize the revenue-generation capability and collection of the

23

Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC). The law intends
to encourage BIR and BOC officials and employees to exceed their revenue targets
by providing a system of rewards and sanctions through the creation of a Rewards
and Incentives Fund (Fund) and a Revenue Performance Evaluation Board (Board). It
covers all officials and employees of the BIR and the BOC with at least six months
of service, regardless of employment status
Petitioners, invoking their right as taxpayers filed this petition challenging the
constitutionality of RA 9335, a tax reform legislation. They contend that, by
establishing a system of rewards and incentives, the law "transform[s] the officials
and employees of the BIR and the BOC into mercenaries and bounty hunters" as
they will do their best only in consideration of such rewards. Petitioners also assail
the creation of a congressional oversight committee on the ground that it violates
the doctrine of separation of powers, for it permits legislative participation in the
implementation and enforcement of the law.
ISSUE: WON the joint congressional committee is valid and constitutional
HELD: YES. R.A. No. 9335 is constitutional, except for Section 12 of the law which
creates a Joint Congressional Oversight Committee to review the laws IRR.
That RA No. 9335 will turn BIR and BOC employees and officials into bounty
hunters and mercenaries is purely speculative as the law establishes safeguards by
imposing liabilities on officers and employees who are guilty of negligence, abuses,
malfeasance, etc. Neither is the equal protection clause violated since the law
recognizes a valid classification as only the BIR and BOC have the common distinct
primary function of revenue generation. There are sufficient policy and standards to
guide the President in fixing revenue targets as the revenue targets are based on
the original estimated revenue collection expected of the BIR and the BOC.
However, the creation of a Joint Congressional Oversight Committee for the purpose
of reviewing the IRR formulated by agencies of the executive branch (DOF, DBM,
NEDA, etc.) is unconstitutional since it violates the doctrine of separation of powers
since Congress arrogated judicial power upon itself.
As for The questions of Equal Protection, the Equality guaranteed under the equal
protection clause is equality under the same conditions and among persons
similarly situated; it is equality among equals, not similarity of treatment of persons
who are classified based on substantial differences in relation to the object to be
accomplished.19When things or persons are different in fact or circumstance, they
may be treated in law differently
The equal protection clause recognizes a valid classification, that is, a classification
that has a reasonable foundation or rational basis and not arbitrary. 22 With respect
to RA 9335, its expressed public policy is the optimization of the revenue-generation
capability and collection of the BIR and the BOC. 23 Since the subject of the law is the
revenue- generation capability and collection of the BIR and the BOC, the incentives
and/or sanctions provided in the law should logically pertain to the said agencies.
Moreover, the law concerns only the BIR and the BOC because they have the
common distinct primary function of generating revenues for the national
government through the collection of taxes, customs duties, fees and charges.

24

Both the BIR and the BOC are bureaus under the DOF. They principally perform the
special function of being the instrumentalities through which the State exercises
one of its great inherent functions taxation. Indubitably, such substantial
distinction is germane and intimately related to the purpose of the law. Hence, the
classification and treatment accorded to the BIR and the BOC under RA 9335 fully
satisfy the demands of equal protection.
Topic: Constitutional Limitations: Equal Protection Clause
ASSOCIATION OF CUSTOMS BROKERS, INC. vs. THE MUNICIPAL BOARD
93 PHIL 107
FACTS: The disputed ordinance was passed by the Municipal Board of the City of
Manila under the authority conferred by section 18 (p) of Republic Act No. 409. Said
section confers upon the municipal board the power "to tax motor and other
vehicles operating within the City of Manila the provisions of any existing law to the
contrary notwithstanding." It is contended that this power is broad enough to confer
upon the City of Manila the power to enact an ordinance imposing a property tax on
motor vehicles operating within the city limits. The Association of Customs Brokers,
Inc., which is composed of all brokers and public service operators of motor vehicles
in the City of Manila, and G. Manlapit, Inc., a member of said association, also a
public service operator of trucks in said City, challenge the validity of ordinance on
the ground that (1) while it levies a so-called property tax it is in reality a license tax
which is beyond the power of the Municipal Board of the City of Manila; (2) said
ordinance offends against the rule of uniformity of taxation; and (3) it constitutes
double taxation. The respondents, represented by the city fiscal, contend on their
part that the challenged ordinance imposes a property tax which is within the power
of the City of Manila to impose under its Revised Charter [Section 18 (p) of Republic
Act No. 409], and that the tax in question does not violate the rule of uniformity of
taxation, nor does it constitute double taxation.
ISSUE: Whether or not the ordinance violates the rule on uniformity?
HELD: While as a rule an ad valorem tax is a property tax, and this rule is
supported by some authorities, the rule should not be taken in its absolute sense if
the nature and purpose of the tax as gathered from the context show that it is in
effect an excise or a license tax. Thus, it has been held that "If a tax is in its nature
an excise, it does not become a property tax because it is proportioned in amount
to the value of the property used in connection with the occupation, privilege or act
which is taxed. Every excise necessarily must finally fall upon and be paid by
property and so may be indirectly a tax upon property; but if it is really imposed
upon the performance of an act, enjoyment of a privilege, or the engaging in an
occupation, it will be considered an excise." It has also been held that "The
character of a tax as a property tax or a license or occupation tax must be
determined by its incidents, and from the natural and legal effect of the language
employed in the act or ordinance, and not by the name by which it is described, or
by the mode adopted in fixing its amount. If it is clearly a property tax, it will be so
regarded, even though nominally and in form it is a license or occupation tax; and,
on the other hand, if the tax is levied upon persons on account of their business, it
will be construed as a license or occupation tax, even though it is graduated
according to the property used in such business, or on the gross receipts of the

25

business." The ordinance in question falls under the foregoing rules. While it refers
to property tax and it is fixed ad valorem yet we cannot reject the idea that it is
merely levied on motor vehicles operating within the City of Manila with the main
purpose of raising funds to be expended exclusively for the repair, maintenance and
improvement of the streets and bridges in said city. This is precisely what the Motor
VehicleLaw intends to prevent, for the reason that, under said Act, municipal
corporations already participate in the distribution of the proceeds that are raised
for the same purpose of repairing, maintaining and improving bridges and public
highways. This prohibition is intended to prevent duplication in the imposition of
fees for the same purpose. It is for this reason that we believe that the ordinance in
question merely imposes a license fee although under the cloak of an ad valorem
tax to circumvent the prohibition above adverted to.
It is also our opinion that the ordinance infringes the rule of uniformity of
taxation ordained by our Constitution. Note that the ordinance exacts the tax upon
all motor vehicles operating within the City of Manila. It does not distinguish
between a motor vehicle for hire and one which is purely for private use. Neither
does it distinguish between a motor vehicle registered in the City of Manila and one
registered in another place but occasionally comes to Manila and uses its streets
and public highways. The distinction is important if we note that the ordinance
intends to burden with the tax only those registered in the City of Manila as may be
inferred from the word "operating" used therein. The word "operating" denotes a
connotation which is akin to a registration, for under the Motor Vehicle Law no
motor vehicle can be operated without previous payment of the registration fees.
There is no pretense that the ordinance equally applies to motor vehicles who come
to Manila for a temporary stay or for short errands, and it cannot be denied that
they contribute in no small degree to the deterioration of the streets and public
highways. The fact that they are benefited by their use they should also be made to
share the corresponding burden. And yet such is not the case. This is an inequality
which we find in the ordinance, and which renders it offensive to the Constitution.
Topic: Constitutional Limitations: Equal Protection Clause
SHELL vs. VAO
G.R. No. L-6093 February 24, 1954

FACTS: The Municipal Council of Cordova, Cebu adopted Ordinance 10 which

imposes an annual tax on occupation or the exercise of the privilege of installation
manager and Ordinance 11 imposing an annual tax on tin can factories having a
maximum output capacity of 30,000 tin cans. Shell, a foreign corporation, disputed
the ordinances and contended that: first, installation manager is a designation
made by the company and such designation cannot be deemed to be a calling as
defined in Sec 178 of NIRC and that the installation manager employed by Shell is a
salaried employee which may not be taxed by the municipal council under the
provisions of NIRC; second, the ordinance is discriminatory and hostile because
there is no other person in the locality who exercises such designation or calling;
and third, the imposition of tax on tin can factories having a 30,000 maximum
output capacity is unlawful because it is a percentage tax and falls under the
exceptions provided in the Tax Code.

26

ISSUE: W/N an installation manager, although a salaried employee, is liable for

occupation tax
HELD: Yes. Even if the installation manager is a salaried employee of the
corporation, still it is an occupation. Further, one occupation or line of business
does not become exempt by being conducted with some other occupation or
business for which such tax has been paid. The occupation tax must be paid by
each individual engaged in a calling subject to it.
ISSUE 2: W/N the ordinance is unconstitutional because it is hostile and
discriminatory
HELD: No. The fact that there is no other person in the locality who exercises such
a designation or calling does not make the ordinance discriminatory and hostile,
inasmuch as it is and will be applicable to any person or firm who exercises such
calling or occupation named or designated as installation manager.
ISSUE 3: W/N the annual tax imposition on tin can factories having an annual
output capacity of 30,000 is valid
HELD: Yes. It is not a percentage tax because the maximum annual output
capacity is not a percentage. It is not a share or a tax based on the amount of the
proceeds realized out of the sale of the tin cans manufactured therein but on the
business of manufacturing tin cans having a maximum annual output capacity of
30,000 tin cans.
Topic: Constitutional Limitations: Equal Protection Clause
KAPATIRAN vs. TAN
G.R No. 109289 June 30, 1988
FACTS: 4 petitions, which have been consolidated because of the similarity of the
main issues involved therein, seek to nullify Executive Order No. 273, issued by the
President of the Philippines on 25 July 1987, to take effect on 1 January 1988, and
which amended certain sections of the National Internal Revenue Code and adopted
the value-added tax for being unconstitutional in that its enactment is not allegedly
within the powers of the President; that the VAT is oppressive, discriminatory,
regressive, and violates the due process and equal protection clauses and other
provisions of the 1987 Constitution.
The Solicitor General prays for the dismissal of the petitions on the ground
that the petitioners have failed to show justification for the exercise of its judicial
powers, viz. (1) the existence of an appropriate case; (2) an interest, personal and
substantial, of the party raising the constitutional questions; (3) the constitutional
question should be raised at the earliest opportunity; and (4) the question of
constitutionality is directly and necessarily involved in a justiciable controversy and
its resolution is essential to the protection of the rights of the parties. According to
the Solicitor General, only the third requisite that the constitutional question
should be raised at the earliest opportunity has been complied with. He also
questions the legal standing of the petitioners who, he contends, are merely asking
for an advisory opinion from the Court, there being no justiciable controversy for
resolution.

27

Objections to taxpayers' suit for lack of sufficient personality standing, or

interest are, however, in the main procedural matters. Considering the importance
to the public of the cases at bar, and in keeping with the Court's duty, under the
1987 Constitution, to determine whether or not the other branches of government
have kept themselves within the limits of the Constitution and the laws and that
they have not abused the discretion given to them, the Court has brushed aside
technicalities of procedure and has taken cognizance of these petitions.
ISSUE: Whether or not E.O. 273 violated the equal protection clause?
HELD: The sales tax adopted in EO 273 is applied similarly on all goods and
services sold to the public, which are not exempt, at the constant rate of 0% or
10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods
or services by persons engage in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from
its application. Likewise exempt from the tax are sales of farm and marine products,
spared as they are from the incidence of the VAT, are expected to be relatively
lower and within the reach of the general public.
The Court likewise finds no merit in the contention of the petitioner
Integrated Customs Brokers Association of the Philippines that EO 273, more
particularly the new Sec. 103 (r) of the National Internal Revenue Code, unduly
discriminates against customs brokers.
The phrase "except customs brokers" is not meant to discriminate against customs
brokers. It was inserted in Sec. 103(r) to complement the provisions of Sec. 102 of
the Code, which makes the services of customs brokers subject to the payment of
the VAT and to distinguish customs brokers from other professionals who are subject
to the payment of an occupation tax under the Local Tax Code.
With the insertion of the clarificatory phrase "except customs brokers" in Sec.
103(r), a potential conflict between the two sections, (Secs. 102 and 103), insofar as
customs brokers are concerned, is averted.
At any rate, the distinction of the customs brokers from the other
professionals who are subject to occupation tax under the Local Tax Code is based
upon material differences, in that the activities of customs brokers partake more of
a business, rather than a profession and were thus subjected to the percentage tax
under Sec. 174 of the National Internal Revenue Code prior to its amendment by EO
273. EO 273 abolished the percentage tax and replaced it with the VAT. If the
petitioner Association did not protest the classification of customs brokers then, the
Court sees no reason why it should protest now.
In any event, if petitioners seriously believe that the adoption and continued
application of the VAT are prejudicial to the general welfare or the interests of the
majority of the people, they should seek recourse and relief from the political
branches of the government. The Court, following the time-honored doctrine of
separation of powers, cannot substitute its judgment for that of the President as to
the wisdom, justice and advisability of the adoption of the VAT. The Court can only
look into and determine whether or not EO 273 was enacted and made effective as
law, in the manner required by, and consistent with, the Constitution, and to make
sure that it was not issued in grave abuse of discretion amounting to lack or excess
of jurisdiction; and, in this regard, the Court finds no reason to impede its
application or continued implementation.

28

Constitutional Limitations: Equal Protection Clause

TAN vs. DEL ROSARIO
G.R. No. 109289 October 3, 1994
FACTS: A special civil actions for prohibition challenge the constitutionality of
Republic Act No. 7496, also commonly known as the Simplified Net Income Taxation
Scheme ("SNIT"), amending certain provisions of the National Internal Revenue
Code and, in Petitioners claim to be taxpayers adversely affected by the continued
implementation of the amendatory legislation.
Petitioner intimates that Republic Act No. 7496 desecrates the constitutional
requirement that taxation "shall be uniform and equitable" in that the law would
now attempt to tax single proprietorships and professionals differently from the
manner it imposes the tax on corporations and partnerships.
ISSUE: Whether Republic Act No. 7496 is unconstitutional?
HELD: The due process clause may correctly be invoked only when there is a clear
contravention of inherent or constitutional limitations in the exercise of the tax
power. No such transgression is so evident to us.
The Court, first of all, should like to correct the apparent misconception that
general professional partnerships are subject to the payment of income tax or that
there is a difference in the tax treatment between individuals engaged in business
or in the practice of their respective professions and partners in general professional
partnerships. The fact of the matter is that a general professional partnership,
unlike an ordinary business partnership (which is treated as a corporation for
income tax purposes and so subject to the corporate income tax), is not itself an
income taxpayer. The income tax is imposed not on the professional partnership,
which is tax exempt, but on the partners themselves in their individual capacity
computed on their distributive shares of partnership profits. Section 23 of the Tax
Code, which has not been amended at all by Republic Act 7496, is explicit:
Sec. 23.Tax liability of members of general professional partnerships. (a)
Persons exercising a common profession in general partnership shall be liable for
income tax only in their individual capacity, and the share in the net profits of the
general professional partnership to which any taxable partner would be entitled
whether distributed or otherwise, shall be returned for taxation and the tax paid in
accordance with the provisions of this Title.
(b) In determining his distributive share in the net income of the partnership, each
partner
(1) Shall take into account separately his distributive share of the partnership's
income, gain, loss, deduction, or credit to the extent provided by the pertinent
provisions of this Code, and
(2) Shall be deemed to have elected the itemized deductions, unless he declares his
distributive share of the gross income undiminished by his share of the deductions.
There is, then and now, no distinction in income tax liability between a person
who practices his profession alone or individually and one who does it through
partnership (whether registered or not) with others in the exercise of a common
profession. Indeed, outside of the gross compensation income tax and the final tax
on passive investment income, under the present income tax system all individuals
deriving income from any source whatsoever are treated in almost invariably the
same manner and under a common set of rules.

29

Topic: Constitutional Limitations: Equal Protection Clause

ORMOC SUGAR COMPANY vs. TREASURER OF ORMOCCITY
G.R. No. L-23794 February 17, 1968
FACTS: On 29 January 1964, the Municipal Board of Ormoc City passed Ordinance
4, Series of 1964, imposing on any and all productions of centrifugal sugar milled
at the Ormoc Sugar Company, Inc., in Ormoc City a municipal tax equivalent to one
per centum (1%) per export sale to the United States of America and other foreign
countries. Payments for said tax were made, under protest, by Ormoc Sugar
Company, Inc. on 20 March 1964 for P7,087.50 and on 20 April 1964 for P5,000.00,
or a total of P12,087.50.
On 1 June 1964, the company filed before the CFI Leyte, with service of a
copy upon the Solicitor General, a complaint against the City of Ormoc as well as its
Treasurer, Municipal Board and Mayor (Hon. Esteban C. Conejos), alleging that the
ordinance is unconstitutional for being violative of the equal protection clause (Sec.
1[1], Art. III, Constitution) and the rule of uniformity of taxation (Sec. 22[1], Art.VI,
Constitution), aside from being an export tax forbidden under Section 2287 of the
Revised Administrative Code. It further alleged that the tax is neither a production
nor a license tax which Ormoc City under Section 15-kk of its charter and under
Section 2 of RA 2264, otherwise known as the Local Autonomy Act, is authorized to
impose; and that the tax amounts to a customs duty, fee or charge in violation of
paragraph 1 of Section 2 of RA 2264 because the tax is on both the sale and export
of sugar. After pre-trial and submission of the case on memoranda, the CFI, on 6
August 1964, rendered a decision that upheld the constitutionality of the ordinance
and declared the taxing power of chartered city broadened by the Local Autonomy
Act to include all other forms of taxes, licenses or fees not excluded in its charter.
Appeal therefrom was directly taken to the Supreme Court.
ISSUE: Whether or not the ordinance is violative of the equal protection of laws?
HELD: The Constitution in the bill of rights provides: . . . nor shall any person be
denied the equal protection of the laws. (Sec. 1[1], Art. 111) In Felwa v. Salas, the
Court ruled that the equal protection clause applies only to persons or things
identically situated and does not bar a reasonable classification of the subject of
legislation, and a classification is reasonable where (1) it is based on substantial
distinctions which make real differences; (2) these are germane to the purpose of
the law; (3) the classification applies not only to present conditions but also to
future conditions which are substantially identical to those of the present; (4) the
classification applies only to those who belong to the same class.
Classification reasonable should in terms applicable to future conditions as
well
The Ordinance taxes only centrifugal sugar produced and exported by the Ormoc
Sugar Company Inc. and none other. At the time of the taxing ordinances
enactment, Ormoc Sugar Company, it is true, was the only sugar central in the city
of Ormoc. Still, the classification, to be reasonable, should be in terms applicable to
future conditions as well. The taxing ordinance should not be singular and exclusive
as to exclude any subsequently established sugar central, of the same class as the
Central, from the coverage of the tax. As it is now, even if later a similar company is

30

set up, it cannot be subject to the tax because the ordinance expressly points only
to Ormoc Sugar Company as the entity to be levied upon.
Interest on refund not due as collection was not arbitrary; Ordinance
constitutional until declared otherwise Ormoc Sugar Company, however, is not
entitled to interest on the refund because the taxes were not arbitrarily collected
(Collector of Internal Revenue v. Binalbagan). At the time of collection, the
ordinance provided a sufficient basis to preclude arbitrariness, the same being then
presumed constitutional until declared otherwise.
Topic: Constitutional Limitations: Equal Protection Clause
PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC., vs.
SECRETARY OF DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT
GR. No. 143076 June 10, 2003
FACTS: On May 23, 2003, a class suit was filed by petitioners in their own behalf
and in behalf of other electric cooperatives organized and existing under PD 269
which are members of petitioner Philippine Rural Electric Cooperatives Association,
Inc. The other petitioners, electric cooperatives of Agusandel Norte, Iloilo 1, and
Isabela 1 are non-stock, non-profit electric cooperatives organized and existing
under PD 269, as amended, and registered with the National Electrification
Administration.
Under Sec. 39 of PD 269 electric cooperatives shall be exempt from the
payment of all National Government, local government, and municipal taxes and
fee, including franchise, fling recordation, license or permit fees or taxes and any
fees, charges, or costs involved in any court or administrative proceedings in which
it may be party. From 1971to 1978, in order to finance the electrification projects
envisioned by PD 269, as amended, the Philippine Government, acting through the
National Economic council and the NEA, entered into six loan agreements with the
government of the United States of America, through the United States Agency for
International Development with electric cooperatives as beneficiaries. The loan
agreements contain similarly worded provisions on the tax application of the loan
and any property or commodity acquired through the proceeds of the loan.
Petitioners allege that with the passage of the Local Government Code their
tax exemptions have been validly withdrawn. Particularly, petitioners assail the
validity of Sec. 193 and 234 of the said code. Sec. 193 provides for the withdrawal
of tax exemption privileges granted to all persons, whether natural or juridical,
except cooperatives duly registered under RA 6938, while Sec. 234 exempts the
same cooperatives from payment of real property tax.
ISSUE: Does the Local Government Code violate the equal protection clause since
the provisions unduly discriminate against petitioners who are duly registered
cooperatives under PD 269, as amended, and no under RA 6938 or the Cooperatives
Code of the Philippines?
HELD: No. The guaranty of the equal protection clause is not violated by a law
based on a reasonable classification. Classification, to be reasonable must (a) rest
on substantial classifications; (b) germane to the purpose of the law; (c) not limited
to the existing conditions only; and (d) apply equally to all members of the same
class. We hold that there is reasonable classification under the Local Government

31

Code to justify the different tax treatment between electric cooperatives covered by
PD 269 and electric cooperatives under RA 6938.
First, substantial distinctions exist between cooperatives under PD 269 and
those under RA 6938. In the former, the government is the one that funds those socalled electric cooperatives, while in the latter, the members make equitable
contribution as source of funds.
Second, the classification of tax-exempt entities in the Local Government
Code is germane to the purpose of the law. The Constitutional mandate that every
local government unit shall enjoy local autonomy, does not mean that the exercise
of the power by the local governments is beyond the regulation of Congress. Sec.
193 of the LGC is indicative of the legislative intent to vet broad taxing powers upon
the local government units and to limit exemptions from local taxation to entities
specifically provided therein. Finally, Sec. 193 and 234 of the LGC permit reasonable
classification as these exemptions are not limited to existing conditions and apply
equally to all members of the same class.
It is ingrained in jurisprudence that the constitutional prohibition on the
impairment of the obligations of contracts does not prohibit every change in
existing laws. To fall within the prohibition, the change must not only impair the
obligation of the existing contract, but the impairment must be substantial.
Moreover, to constitute impairment, the law must affect a change in the rights of
the parties with reference to each other and not with respect to non-parties.
The quoted provision under the loan agreement does not purport to grant any
tax exemption in favor of any party to the contract, including the beneficiaries
thereof. The provisions simply shift the tax burden, if any, on the transactions under
the loan agreements to the borrower and/or beneficiary of the loan. Thus, the
withdrawal by the Local Government Code under Sec. 193 and 234 of the tax
exemptions previously enjoyed by petitioners does not impair the obligation of the
borrower, the lender or the beneficiary under the loan agreements as, in fact, no tax
exemption is granted therein.
Topic: Constitutional Limitations: Equal Protection Clause
JUDY ANN SANTOS vs. PEOPLE PF THE PHILIPPINES
G.R. 173176 August 26, 2008
FACTS: On 19 May 2005, then Bureau of Internal Revenue Commissioner Guillermo
L. Parayno, Jr. wrote to the Department of Justice Secretary Raul M. Gonzales a
letter regarding the possible filing of criminal charges against petitioner. Allegedly
petitioner, in her Annual Income Tax Return for taxable year 2002 filed with the BIR,
declared an income of P8,033,332.70 derived from her talent fees solely from ABSCBN. Initial documents gathered from the BIR offices and those given by petitioner's
accountant and third parties, however, confirmed that petitioner received in 2002
income in the amount of at least P14,796,234.70, not only from ABS-CBN, but also
from other sources, such as movies and product endorsements. The estimated tax
liability arising from petitioner's under declaration amounted to P1,718,925.52,
including incremental penalties; the non-declaration by petitioner of an amount
equivalent to at least 84.18% of the income declared in her return was considered a
substantial under declaration of income, which constituted prima facie evidence of
false or fraudulent return under Section 248(B) of the NIRC, as amended.

32

ISSUE: Whether a resolution of a CTA division denying a motion to quash is a

proper subject of an appeal to the CTA EN BANC under sec. 11 of RA 9282 amending
sec 18 of RA 1125?
HELD: The court ruled in the negative. Section 18 of Republic Act No. 1125, as
amended by Republic Act No. 9282, provides; No civil proceedings involving
matters arising under the National Internal Revenue Code, the Tariff and Customs
Code or the Local Government Code shall be maintained, except as herein provided,
until and unless an appeal has been previously filed with the CTA and disposed of in
accordance with the provisions of this Act.
A party adversely affected by a resolution of a Division of the CTA on a
motion for reconsideration or new trial, may file a petition for review with the
CTA en banc.
The provision speaks of resolutions that constitutes final disposition of the
case. As a General rule, the denial of a motion to quash is an interlocutory order
which is not the proper subject of an appeal or a petition for certiorari. There is no
dispute that a court order denying a motion to quash is interlocutory. The denial of
the motion to quash means that the criminal information remains pending with the
court, which must proceed with the trial to determine whether the accused is guilty
of the crime charged therein. Equally settled is the rule that an order denying a
motion to quash, being interlocutory is not immediately appealable, nor can it be
the subject of a petition for certiorari. Such order may only be reviewed in the
ordinary course of law by an appeal from the judgment after trial.
Topic: Freedom of Religion: Free Exercise Clause
AMERICAN BIBLE SOCIETY vs. CITY OF MANILA
G.R. No. L-9637 April 30, 1957
FACTS: Plaintiff's Philippine agency has been distributing and selling bibles and/or
gospel portions thereof throughout the Philippines and translating the same into
several Philippine dialects. On May 29 1953, the acting City Treasurer of the City of
Manila informed plaintiff that it was conducting the business of general merchandise
since November, 1945, without providing itself with the necessary Mayor's permit
and municipal license, in violation of Ordinance No. 3000, as amended, and
Ordinances Nos. 2529, 3028 and 3364, and required plaintiff to secure, within three
days, the corresponding permit and license fees, together with compromise
covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the
total sum of P5,821.45.
Plaintiff protested against this requirement, but the City Treasurer demanded
that plaintiff deposit and pays under protest the sum of P5, 891.45, if suit was to be
taken in court regarding the same. To avoid the closing of its business as well as
further fines and penalties in the premises on October 24, 1953, plaintiff paid to the
defendant under protest the said permit and license fees in the aforementioned
amount, giving at the same time notice to the City Treasurer that suit would be
taken in court to question the legality of the ordinances under which, the said fees
were being collected which was done on the same date by filing the complaint that
gave rise to this action. In its complaint plaintiff prays that judgment be rendered
declaring the said Municipal Ordinance No. 3000, as amended, and Ordinances Nos.
2529, 3028 and 3364 illegal and unconstitutional, and that the defendant be
ordered to refund to the plaintiff the sum of P5, 891.45 paid under protest, together

33

with legal interest thereon, and the costs, plaintiff further praying for such other
relief and remedy as the court may deem just equitable.
Defendant answered the complaint, maintaining in turn that said ordinances
were enacted by the Municipal Board of the City of Manila by virtue of the power
granted to it by section 2444, subsection (m-2) of the Revised Administrative Code,
superseded on June 18, 1949, by section 18, subsection (1) of Republic Act No. 409,
known as the Revised Charter of the City of Manila.
ISSUE: Whether or not the ordinances were unconstitutional and provide for
religious censorship and restrain the free exercise and enjoyment of its religious
profession?
HELD:
Section 1, subsection (7) of Article III of the Constitution of the Republic
of the Philippines, provides that: No law shall be made respecting an establishment
of religion, or prohibiting the free exercise thereof, and the free exercise and
enjoyment of religious profession and worship, without discrimination or preference,
shall forever be allowed. No religion test shall be required for the exercise of civil or
political rights.
Article III, section 1, clause (7) of the Constitution of the
Philippinesaforequoted, guarantees the freedom of religious profession and worship.
"Religion has been spoken of as a profession of faith to an active power that binds
and elevates man to its Creator".It has reference to one's views of his relations to
His Creator and to the obligations they impose of reverence to His being and
character, and obedience to His Will. The constitutional guaranty of the free
exercise and enjoyment of religious profession and worship carries with it the right
to disseminate religious information. Any restraints of such right can only be
justified like other restraints of freedom of expression on the grounds that there is a
clear and present danger of any substantive evil which the State has the right to
prevent". In the case at bar the license fee herein involved is imposed upon
appellant for its distribution and sale of bibles and other religious literature.
It may be true that in the case at bar the price asked for the bibles and other
religious pamphlets was in some instances a little bit higher than the actual cost of
the same but this cannot mean that appellant was engaged in the business or
occupation of selling said "merchandise" for profit. For this reason, we believe that
the provisions of City of Manila Ordinance No. 2529, as amended, cannot be applied
to appellant, for in doing so it would impair its free exercise and enjoyment of its
religious profession and worship as well as its rights of dissemination of religious
beliefs.
With respect to Ordinance No. 3000, as amended, which requires the Mayor's permit
before any person can engage in any of the businesses, trades or occupations
enumerated therein, we do not find that it imposes any charge upon the enjoyment
of a right granted by the Constitution, nor tax the exercise of religious practices.
It seems clear, therefore, that Ordinance No. 3000(mayors permit) cannot be
considered unconstitutional, even if applied to plaintiff Society. But as Ordinance No.
2529( license fee) of the City of Manila, as amended, is not applicable to plaintiffappellant and defendant-appellee is powerless to license or tax the business of
plaintiff Society involved herein for, as stated before, it would impair plaintiff's right
to the free exercise and enjoyment of its religious profession and worship, as well as
its rights of dissemination of religious beliefs, We find that Ordinance No. 3000, as
amended is also inapplicable to said business, trade or occupation of the plaintiff.

34

Topic: Freedom of Religion: Free Exercise Clause

TOLENTINO vs. THE SECRETARY OF FINANCE
G.R. No. 115455 August 25, 1994
FACTS: The valued-added tax is levied on the sale, barter or exchange of goods and
properties as well as on the sale or exchange of services. It is equivalent to 10% of
the gross selling price or gross value in money of goods or properties sold, bartered
or exchanged or of the gross receipts from the sale or exchange of services.
Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and
enhance its administration by amending the National Internal Revenue Code.
ISSUES:
a. Whether or not the law violates the provision of the constitution regarding
the freedom of religion and its exercise thereof?
b. Whether or not the law violates the provisions of the constitution regarding
the Uniformity, Equitability and Progressivity of Taxation?
HELD:
a. Claims of Freedom of Thought and Religious Freedom
The case of American Bible Society v. City of Manila is cited by both the PBS
and the PPI in support of their contention that the law imposes censorship. There,
this Court held that an ordinance of the City of Manila, which imposed a license fee
on those engaged in the business of general merchandise, could not be applied to
the appellant's sale of bibles and other religious literature. This Court relied on
Murdock v. Pennsylvania in which it was held that, as a license fee is fixed in
amount and unrelated to the receipts of the taxpayer, the license fee, when applied
to a religious sect, was actually being imposed as a condition for the exercise of the
sect's right under the Constitution. For that reason, it was held, the license fee
"restrains in advance those constitutional liberties of press and religion and
inevitably tends to suppress their exercise."
But, in this case, the fee in although a fixed amount (P1,000), is not imposed
for the exercise of a privilege but only for the purpose of defraying part of the cost
of registration. The registration requirement is a central feature of the VAT system.
It is designed to provide a record of tax credits because any person who is subject
to the payment of the VAT pays an input tax, even as he collects an output tax on
sales made or services rendered. The registration fee is thus a mere administrative
fee, one not imposed on the exercise of a privilege, much less a constitutional right.
For the foregoing reasons, we find the attack on Republic Act No. 7716 on the
ground that it offends the free speech, press and freedom of religion guarantees of
the Constitution to be without merit. For the same reasons, we find the claim of the
Philippine Educational Publishers Association (PEPA) in G.R. No. 115931 that the
increase in the price of books and other educational materials as a result of the VAT

35

would violate the constitutional mandate to the government to give priority to

education, science and technology (Art. II, sec. 17) to be untenable.
b. Claims of Progressivity, Denial of Due Process, Equal Protection, and
Impairment of Contracts
There is basis for passing upon claims that on its face the statute violates the
guarantees of freedom of speech, press and religion. The possible "chilling effect"
which it may have on the essential freedom of the mind and conscience and the
need to assure that the channels of communication are open and operating
importunately demand the exercise of this Court's power of review.
There is, however, no justification for passing upon the claims that the law
also violates the rule that taxation must be progressive and that it denies
petitioners' right to due process and the 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 moments 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."
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 or for
the promotion of the right to "quality education". These provisions are put in the
Constitution as moral incentives to legislation, not as judicially enforceable rights.
To sum it all up, we hold that the procedural requirements of the Constitution
have been complied with by Congress in the enactment of the statute; that judicial
inquiry whether the formal requirements for the enactment of statutes - beyond
those prescribed by the Constitution - have been observed is precluded by the
principle of separation of powers; that the law does not abridge freedom of speech,
expression or the press, nor interfere with the free exercise of religion, nor deny to
any of the parties the right to an education; and that, in view of the absence of a
factual foundation of record, claims that the law is regressive, oppressive and
confiscatory and that it violates vested rights protected under the Contract Clause
are prematurely raised and do not justify the grant of prospective relief by writ of
prohibition.
Topic: Constitutional Limitations: Uniformity, Equitability, Progressivity of
Taxation
CITY OF BAGUIO vs. DE LEON Gr. No. 24756 October 31, 1968 (Supra pp. 17
18)
TOPIC: Prohibition against impairment of obligation of contracts
CASSANOVA vs. HORD
8 PHIL 125
FACTS: On January 1897, the Spanish government granted to the Plaintiff certain
mines in the Province of Ambos, Camarines, of which mines the Plaintiff is now the

36

owner. The said mines were granted by virtue of the royal decree of the 14 th of May,
1967 which provided among others, that the grantee shall pay annually a fixed tax
of 40 escudos and a further tax of 3% on the gross earnings. Furthermore, the
decree also provided that no other taxes than those mentioned shall be imposed
upon mining and metallurgical industries.
However, the defendant Collector of Internal Revenue, considered the
questioned mining concessions to fall within the provisions of Sec. 134 of the
Internal Revenue Act which imposes on all valid perfected mining concessions
granted prior to April 11, 1899, an annual tax of P100 and an ad valorem tax equal
to 3% of the actual market value of the gross output.
The defendant accordingly imposed upon these properties the tax mentioned
and thereafter the plaintiff paid under protest. The plaintiff brought this action
against the defendant to recover the sum paid under protest. Judgment was
rendered in favor of the defendant and from that judgment plaintiff appealed.
ISSUE: Whether or not Sec. 134 of the Internal Revenue Act is valid.
HELD: No. This is because it is violative of the provision of Sec. 5 of the Act of
Congress of July 1, 1902, which provides that no law impairing the obligation of
contracts shall be enacted. It seems that the Deed covering this particular mining
concessions constituted a contract between the Spanish government and the
Plaintiff, the obligation of which was impaired by the enactment of Sec. 134 of the
Internal Revenue Act, thereby infringing the provisions of said Act of Congress.
Therefore, the said provision of law is void.
Topic: Non-impairment Clause
CAGAYAN ELECTRIC POWER & LIGHT CO., INC. vs
COMMISSIONER OF INTERNAL REVENUE
G.R. No. L-60126 September 25, 1985
FACTS: The petitioner is the holder of a legislative franchise, Republic Act No. 3247,
under which its payment of 3% tax on its gross earnings from the sale of electric
current is "in lieu of all taxes and assessments of whatever authority upon
privileges, earnings, income, franchise, and poles, wires, transformers, and
insulators of the grantee, from which taxes and assessments the grantee is hereby
expressly exempted"
On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code
by making liable for income tax all corporate taxpayers not specifically exempt
under paragraph (c) (1) of said section and section 27 of the Tax Code
notwithstanding the "provisions of existing special or general laws to the contrary".
Thus, franchise companies were subjected to income tax in addition to franchise
tax.
However, in petitioner's case, its franchise was amended by Republic Act No.
6020, effective August 4, 1969, by authorizing the petitioner to furnish electricity to
the municipalities of Villanueva and Jasaan, Misamis Oriental in addition to Cagayan

37

de Oro City and the municipalities of Tagoloan and Opol. The amendment reenacted
the tax exemption in its original charter or neutralized the modification made by
Republic Act No. 5431 more than a year before. By reason of the amendment to
section 24 of the Tax Code, the Commissioner of Internal Revenue in a demand
letter dated February 15, 1973 required the petitioner to pay deficiency income
taxes for 1968-to 1971. The petitioner contested the assessments. The
Commissioner cancelled the assessments for 1970 and 1971 but insisted on those
for 1968 and 1969.
ISSUE: Whether or not the imposing of the franchise tax is valid?
HELD: We hold that Congress could impair petitioner's legislative franchise by
making it liable for income tax from which heretofore it was exempted by virtue of
the exemption provided for in section 3 of its franchise. The Constitution provides
that a franchise is subject to amendment, alteration or repeal by the Congress when
the public interest so requires.
Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is
subject to the provisions of the Constitution and to the terms and conditions
established in Act No. 3636 whose section 12 provides that the franchise is subject
to amendment, alteration or repeal by Congress.
Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting
to income tax all corporate taxpayers not expressly exempted therein and in section
27 of the Code, had the effect of withdrawing petitioner's exemption from income
tax.
The Tax Court acted correctly in holding that the exemption was restored by
the subsequent enactment on August 4, 1969 of Republic Act No. 6020 which
reenacted the said tax exemption. Hence, the petitioner is liable only for the income
tax for the period from January 1 to August 3, 1969 when its tax exemption was
modified by Republic Act No. 5431.
It is relevant to note that franchise companies, like the Philippine Long
Distance Telephone Company, have been paying income tax in addition to the
franchise tax.
However, it cannot be denied that the said 1969 assessment appears to be
highly controversial. The Commissioner at the outset was not certain as to
petitioner's income tax liability. It had reason not to pay income tax because of the
tax exemption in its franchise.
For this reason, it should be liable only for tax proper and should not be held
liable for the surcharge and interest.
Topic: Constitutional Limitations: Non-impairment Clause
MERALCO vs PROVINCE OF LAGUNA
G.R. No. 131359 May 5, 1999
FACTS: On various dates certain Municipalities of the Province of Laguna issued
resolutions granting franchise in favor of petitioner MERALCO for the supply of
electric light heat and power within their concerned areas. National Electrification
Administration on January light and power service in the Municipality of Calamba
Laguna.
Pursuant to the Provisions of the LGC of 1991 the respondent province
enacted Laguna Provincial Ordinance no. 01-92 effective January 1 1993, proving:

38

sec. 2.09 Franchise Tax- there is hereby imposed a tax on businesses enjoying a
franchise, at a rate of 50% of 1% of the gross annual receipts which shall include
both cash sales and sales on account realized during the preceding calendar year
within this province including the territorial limits on any city located in the
province.
On the basis of this ordinance respondent provincial Treasurer sent a demand
letter to MERALCO for its corresponding tax payment.
Under protest MERALCO paid the tax in the amount of 19 Million Pesos.
A claim for refund was thereafter sent by Meralco to Provincial Treasurer of
Laguna claiming that the franchise tax that it has paid and continued to pay to the
National Government pursuant to PD 551 already included franchise tax imposed by
the Provincial Tax Ordinance. MERALCO contended that the imposition of a franchise
tax under Sec 2.09 of LPO 01-92 contravened the provisions of section 1 of PD 551.
ISSUE: Whether the imposition of a franchise tax under sec 2.09 of LPO 01-92 is
violative of the non-impairment clause of the Constitution and sec 1 of PD 551?
HELD: Under the now prevailing Constitution, where there is neither a grant nor a
prohibition by statute, the tax power must be deemed to exist although Congress
may provide statutory limitations and guidelines. The basic rationale for the current
rule is to safeguard the viability and self-sufficiency of local government units by
directly granting them general and broad tax powers. Nevertheless, the
fundamental law did not intend the delegation to be absolute and unconditional; the
constitutional objective obviously is to ensure that, while the local government units
are being strengthened and made more autonomous,the legislature must still see to
it that (a) the taxpayer will not be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local government unit will have its fair share of
available resources; (c) the resources of the national government will not be unduly
disturbed; and (d) local taxation will be fair, uniform, and just.
While the Court has, not too infrequently, referred to tax exemptions
contained in special franchises as being in the nature of contracts and a part of the
inducement for carrying on the franchise, these exemptions, nevertheless, are far
from being strictly contractual in nature. Contractual tax exemptions, in the real
sense of the term and where the non-impairment clause of the Constitution can
rightly be invoked, are those agreed to by the taxing authority in contracts, such as
those contained in government bonds or debentures, lawfully entered into by them
under enabling laws in which the government, acting in its private capacity, sheds
its cloak of authority and waives its governmental immunity. Truly, tax exemptions
of this kind may not be revoked without impairing the obligations of contracts.
These contractual tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the nature of a grant
which is beyond the purview of the non-impairment clause of the Constitution.
Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions
in the 1935 and the 1973 Constitutions, is explicit that no franchise for the
operation of a public utility shall be granted except under the condition that such
privilege shall be subject to amendment, alteration or repeal by Congress as and
when the common good so requires.
Topic: Constitutional Limitations: Non-impairment Clause
RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. vs.
PROVINCIAL ASSESOR OF SOUTH COTABATO

39

G.R. No. 144486 April 13, 2005

FACTS: In 1957, Republic Act No. 2036 granted RCPI a fifty-year franchise.
Thereafter, the municipal treasurer of Tupi, South Cotabato assessed RCPI real
property taxes from 1981 to 1985. The municipal treasurer demanded that RCPI pay
P166,810 as real property tax on its radio station building in Barangay Kablon, as
well as on its machinery shed, radio relay station tower and its accessories, and
generating sets, based on the following tax declarations.
RCPI protested the assessment before the Local Board of Assessment
Appeals. RCPI claimed that all its assessed properties are personal properties and
thus exempt from the real property tax. Assuming that the assessed properties are
real property, they are still exempt from real property taxes. Section 3 of
Presidential Decree No. 464 states that to be taxable, the machinery should be
attached to the real estate and essential for manufacturing, commercial, mining,
industrial, or agricultural purposes. RCPI claimed that the assessed properties are
not used for manufacturing, commercial, mining, industrial, or agricultural
purposes. Besides, the assessed properties are attached to a building on a lot not
owned by RCPI.
RCPI also pointed out that its franchise exempts RCPI from paying any and
all taxes of any kind, nature or description in exchange for its payment of tax equal
to one and one-half per cent on all gross receipts from the business conducted
under its franchise. RCPI further claimed that any deviation from its franchise
would violate the non-impairment of contract clause of the Constitution. Finally,
RCPI stated that the value of the properties assessed has depreciated since their
acquisition in the 1960s.
ISSUE: Whether or not the assessment of the Provincial assessor was violative of
the non-impairment clause?
HELD: As found by the appellate court, RCPIs radio relay station tower, radio
station building, and machinery shed are real properties and are thus subject to the
real property tax. Section 14 of RA 2036, as amended by RA 4054, states that in
consideration of the franchise and rights hereby granted and any provision of law to
the contrary notwithstanding, the grantee shall pay the same taxes as are now or
may hereafter be required by law from other individuals, copartnerships, private,
public or quasi-public associations, corporations or joint stock companies, on real
estate, buildings and other personal property The clear language of Section 14
states that RCPI shall pay the real estate tax.
The in lieu of all taxes clause in Section 14 of RA 2036, as amended by RA
4054, cannot exempt RCPI from the real estate tax because the same Section 14
expressly states thatRCPI shall pay the same taxes xx---x on real estate,
buildings xx--x. The in lieu of all taxes clause in the third sentence of Section
14 cannot negate the first sentence of the same Section 14, which imposes the real
estate tax on RCPI. The Court must give effect to both provisions of the same
Section 14. This means that the real estate tax is an exception to the in lieu of all
taxes clause.
Subsequent legislations have radically amended the in lieu of all taxes
clause in franchises of public utilities. As RCPI correctly observes, the Local
Government Code of 1991 withdrew all the tax exemptions existing at the time of
its passage including that of RCPIs with respect to local taxes like the real

40

property tax. Also, Republic

telecommunications companies
tax, RA 7716 imposed a 10
companies under Section 102 of

Act No. 7716 abolished the franchise tax on

effective 1 January 1996. To replace the franchise
percent value-added-tax on telecommunications
the National Internal Revenue Code.

Topic: Constitutional Limitations: Non-impairment Clause

THE CITY GOVERNMENT OF QUEZON CITYvs BAYANTEL
G.R. No. 162015 March 6, 2006
FACTS: Bayantel is a legislative franchise holder under Republic Act No. 3259to
establish and operate radio stations for domestic telecommunications, radiophone,
broadcasting and telecasting. On July 20, 1992, barely few months after the LGC
took effect, Congress enacted Rep. Act No. 7633, amending Bayantels original
franchise.
It is undisputed that within the territorial boundary of Quezon City, Bayantel
owned several real properties on which it maintained various telecommunications
facilities. In 1993, the government of Quezon City, pursuant to the taxing power
vested on local government units by Section 5, Article X of the 1987 Constitution,
infra, in relation to Section 232 of the LGC, supra, enacted City Ordinance No. SP-91,
S-93, otherwise known as the Quezon City Revenue Code imposing, under Section 5
thereof, a real property tax on all real properties in Quezon City, and, reiterating in
its Section 6, the withdrawal of exemption from real property tax under Section 234
of the LGC.
Conformably with the Citys Revenue Code, new tax declarations for
Bayantels real properties in Quezon City were issued by the City Assessor and were
received by Bayantel on August 13, 1998.
ISSUE: Whether or not the Quezon City Revenue Code violated the non-impairment
of contracts?
HELD: The power to tax is primarily vested in the Congress; however, in our
jurisdiction, it may be exercised by local legislative bodies, no longer merely be
virtue of a valid delegation as before, but pursuant to direct authority conferred by
Section 5, Article X of the Constitution. Under the latter, the exercise of the power
may be subject to such guidelines and limitations as the Congress may provide
which, however, must be consistent with the basic policy of local autonomy.
Indeed, the grant of taxing powers to local government units under the
Constitution and the LGC does not affect the power of Congress to grant exemptions
to certain persons, pursuant to a declared national policy. The legal effect of the
constitutional grant to local governments simply means that in interpreting
statutory provisions on municipal taxing powers, doubts must be resolved in favor
of municipal corporations.
As we see it, then, the issue in this case no longer dwells on whether
Congress has the power to exempt Bayantels properties from realty taxes by its
enactment of Rep. Act No. 7633 which amended Bayantels original franchise. The
more decisive question turns on whether Congress actually did exempt Bayantels
properties at all by virtue of Section 11 of Rep. Act No. 7633.
Admittedly, Rep. Act No. 7633 was enacted subsequent to the LGC. Perfectly
aware that the LGC has already withdrawn Bayantels former exemption from realty

41

taxes, Congress opted to pass Rep. Act No. 7633 using, under Section 11 thereof,
exactly the same defining phrase "exclusive of this franchise" which was the basis
for Bayantels exemption from realty taxes prior to the LGC. In plain language,
Section 11 of Rep. Act No. 7633 states that "the grantee, its successors or assigns
shall be liable to pay the same taxes on their real estate, buildings and personal
property, exclusive of this franchise, as other persons or corporations are now or
hereafter may be required by law to pay." The Court views this subsequent piece of
legislation as an express and real intention on the part of Congress to once again
remove from the LGCs delegated taxing power, all of the franchisees (Bayantels)
properties that are actually, directly and exclusively used in the pursuit of its
franchise.
Topic: Constitutional Limitations: Non-impairment Clause
SMART COMMUNICATIONS, INC., vs. THE CITY OF DAVAO, represented
herein by its Mayor HON. RODRIGO R. DUTERTE, and the SANGGUNIANG
PANLUNGSOD OF DAVAO CITY.
[G.R. No. 155491. September 16, 2008.]
FACTS: Smart filed a special civil action for declaratory relief 3 under Rule 63 of the
Rules of Court, for the ascertainment of its rights and obligations under the Tax
Code of the City of Davao. Smart contends that its telecenter in Davao City is
exempt from payment of franchise tax to the City, on the following grounds: (a) the
issuance of its franchise under Republic Act (R.A.) No. 7294 subsequent to R.A. No.
7160 shows the clear legislative intent to exempt it from the provisions of R.A.
7160; (b) Section 137 of R.A. No. 7160 can only apply to exemptions already
existing at the time of its effectivity and not to future exemptions; (c) the power of
the City of Davao to impose a franchise tax is subject to statutory limitations such
as the "in lieu of all taxes" clause found in Section 9 of R.A. No. 7294; and (d) the
imposition of franchise tax by the City of Davao would amount to a violation of the
constitutional provision against impairment of contracts. RTC denied the petition.
ISSUE: WON Smart is exempt from franchise and local taxes.
HELD: No. We pay heed that R.A. No. 7294 is not definite in granting exemption to
Smart from local taxation. Section 9 of R.A. No. 7294 imposes on Smart a franchise
tax equivalent to three percent (3%) of all gross receipts of the business transacted
under the franchise and the said percentage shall be in lieu of all taxes on the
franchise or earnings thereof. R.A. No 7294 does not expressly provide what kind of
taxes Smart is exempted from. It is not clear whether the "in lieu of all taxes"
provision in the franchise of Smart would include exemption from local or national
taxation. What is clear is that Smart shall pay franchise tax equivalent to three
percent (3%) of all gross receipts of the business transacted under its franchise. But
whether the franchise tax exemption would include exemption from exactions by
both the local and the national government is not unequivocal In this case, the
doubt must be resolved in favor of the City of Davao. The "in lieu of all taxes" clause
applies only to national internal revenue taxes and not to local taxes.
Another argument of Smart is that the imposition of the local franchise tax by
the City of Davao would violate the constitutional prohibition against impairment of
contracts. The franchise, according to petitioner, is in the nature of a contract
between the government and Smart.

42

However, we find that there is no violation of Article III, Section 10 of the

1987 Philippine Constitution. As previously discussed, the franchise of Smart does
not expressly provide for exemption from local taxes. Absent the express provision
on such exemption under the franchise, we are constrained to rule against it. The
"in lieu of all taxes" clause in Section 9 of R.A. No. 7294 leaves much room for
interpretation. Due to this ambiguity in the law, the doubt must be resolved against
the grant of tax exemption.
Moreover, Smarts franchise was granted with the express condition that it is
subject to amendment, alteration, or repeal. As held in Tolentino v. Secretary of
Finance:
It is enough to say that the parties to a contract cannot, through the exercise
of prophetic discernment, fetter the exercise of the taxing power of the State. For
not only are existing laws read into contracts in order to fix obligations as between
parties, but the reservation of essential attributes of sovereign power is also read
into contracts as a basic postulate of the legal order. The policy of protecting
contracts against impairment presupposes the maintenance of a government which
retains adequate authority to secure the peace and good order of society.
In truth, the Contract Clause has never been thought as a limitation on the
exercise of the States power of taxation save only where a tax exemption has been
granted for a valid consideration. x x x.
Topic: Constitutional Limitations: Tax Exemption of traditional Exemptees
QUEZON CITY and THE CITY TREASURER OF QUEZON CITYs, vs. ABS-CBN
BROADCASTING CORPORATION.
[G.R. No. 166408. October 6, 2008.]
FACTS: Under Section 31, Article 13 of the Quezon City Revenue Code of 1993, 3 a
franchise tax was imposed on businesses operating within its jurisdiction. ABS-CBN
had been paying local franchise tax imposed by Quezon City. However, in view of
the provision in R.A. No. 9766 that it "shall pay a franchise tax . . . in lieu of all
taxes", the corporation developed the opinion that it is not liable to pay the local
franchise tax imposed by Quezon City. Consequently, ABS-CBN paid under protest
the local franchise tax imposed by Quezon City on the dates, in the amounts and
under the official receipts. For failure to obtain any response from the Quezon City
Treasurer, ABS-CBN filed a complaint before the RTC in Quezon City seeking the
declaration of nullity of the imposition of local franchise tax by the City Government
of Quezon City for being unconstitutional. It likewise prayed for the refund of local
franchise tax. RTC and CA rendered judgment declaring as invalid the imposition on
and collection from ABS-CBN of local franchise tax.
ISSUE: WON ABS-CBN is liable for franchise taxes imposed by a local government
unit.
HELD: Yes. The "in lieu of all taxes" provision in the franchise of ABS-CBN does not
expressly provide what kind of taxes ABS-CBN is exempted from. It is not clear
whether the exemption would include both local, whether municipal, city or
provincial, and national tax. What is clear is that ABS-CBN shall be liable to pay
three (3) percent franchise tax and income taxes under Title II of the NIRC. But
whether the "in lieu of all taxes provision" would include exemption from local tax is
not unequivocal.

43

The right to exemption from local franchise tax must be clearly established
and cannot be made out of inference or implications but must be laid beyond
reasonable doubt. Verily, the uncertainty in the "in lieu of all taxes" provision should
be construed against ABS-CBN. ABS-CBN has the burden to prove that it is in fact
covered by the exemption so claimed. ABS-CBN miserably failed in this regard.
The franchise failed to specify the taxing authority from whose jurisdiction
the taxing power is withheld, whether municipal, provincial, or national. In fine,
since ABS-CBN failed to justify its claim for exemption from local franchise tax, by a
grant expressed in terms "too plain to be mistaken" its claim for exemption for local
franchise tax must fail.
Also, the "in lieu of all taxes" clause in the franchise of ABS-CBN has
become functus officio with the abolition of the franchise tax on
broadcasting companies with yearly gross receipts exceeding Ten Million
Pesos.
On January 1, 1998, R.A. No. 8424 was passed confirming the 10%
VAT liability of radio and/or television companies with yearly gross receipts
exceeding P10,000,000.00. R.A. No. 9337 was subsequently enacted and
became effective on July 1, 2005. The said law further amended the NIRC by
increasing the rate of VAT to 12%.
In consonance with the above survey of pertinent laws on the matter,
ABS-CBN is subject to the payment of VAT. It does not have the option to
choose between the payment of franchise tax or VAT since it is a
broadcasting company with yearly gross receipts exceeding Ten Million
Pesos (P10,000,000.00).
VAT is a percentage tax imposed on any person whether or not a
franchise grantee, who in the course of trade or business, sells, barters,
exchanges, leases, goods or properties, renders services. It is also levied on
every importation of goods whether or not in the course of trade or
business. The tax base of the VAT is limited only to the value added to such
goods, properties, or services by the seller, transferor or lessor. Further, the
VAT is an indirect tax and can be passed on to the buyer.
The franchise tax, on the other hand, is a percentage tax imposed
only on franchise holders. It is imposed under Section 119 of the Tax Code
and is a direct liability of the franchise grantee.
The clause "in lieu of all taxes" does not pertain to VAT or any other
tax. It cannot apply when what is paid is a tax other than a franchise tax.
Since the franchise tax on the broadcasting companies with yearly gross
receipts exceeding ten million pesos has been abolished, the "in lieu of all
taxes" clause has now become functus officio, rendered inoperative.
In sum, ABS-CBN's claims for exemption must fail on twin grounds.
First, the "in lieu of all taxes" clause in its franchise failed to specify the
taxes the company is sought to be exempted from. Neither did it
particularize the jurisdiction from which the taxing power is withheld.
Second, the clause has become functus officio because as the law now
stands, ABS-CBN is no longer subject to a franchise tax. It is now liable for
VAT.
Topic: Constitutional Limitations: Tax Exemption of traditional Exemptees
REV. FR. CASIMIRO LLADOC vs. COMMISSIONER OF INTERNAL
G.R. No. L-19201 June 16, 1965

44

FACTS: Sometime in 1957, the M.B. Estate, Inc., of BacolodCity, donated

P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then parish priest of Victorias, Negros
Occidental, and predecessor of herein petitioner, for the construction of a new
Catholic Church in the locality. The total amount was actually spent for the purpose
intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return.
Under date of April 29, 1960, the respondent Commissioner of Internal Revenue
issued an assessment for donee's gift tax against the Catholic Parish of Victorias,
Negros Occidental, of which petitioner was the priest. The tax amounted to
P1,370.00 including surcharges, interests of 1% monthly from May 15, 1958 to June
15, 1960, and the compromise for the late filing of the return.
Petitioner lodged a protest to the assessment and requested the withdrawal
thereof. The protest and the motion for reconsideration presented to the
Commissioner of Internal Revenue were denied. The petitioner appealed to the
Court of Tax Appeals on November 2, 1960. In the petition for review, the Rev. Fr.
Casimiro Lladoc claimed, among others, that at the time of the donation, he was not
the parish priest in Victorias; that there is no legal entity or juridical person known
as the "Catholic Parish Priest of Victorias," and, therefore, he should not be liable for
the donee's gift tax. It was also asserted that the assessment of the gift tax, even
against the Roman Catholic Church, would not be valid, for such would be a clear
violation of the provisions of the Constitution.
ISSUE: WON petitioner should be liable for the assessed donee's gift tax on the
P10,000.00 donated for the construction of the Victorias Parish Church?
HELD: Yes. The Constitution of the Philippines, exempts from taxation cemeteries,
churches and parsonages or convents, appurtenant thereto, and all lands, buildings,
and improvements used exclusively for religious purposes. The exemption is only
from the payment of taxes assessed on such properties enumerated, as property
taxes, as contra distinguished from excise taxes.
In the present case, what the Collector assessed was a donee's gift tax; the
assessment was not on the properties themselves. It did not rest upon general
ownership; it was an excise upon the use made of the properties, upon the exercise
of the privilege of receiving the properties. A gift tax is not a property tax, but an
excise tax imposed on the transfer of property by way of gift inter vivos, the
imposition of which on property used exclusively for religious purposes, does not
constitute an impairment of the Constitution. As well observed by the learned
respondent Court, the phrase "exempt from taxation," as employed in the
Constitution should not be interpreted to mean exemption from all kinds of taxes.
And there being no clear, positive or express grant of such privilege by law, in favor
of petitioner, the exemption herein must be denied.
Topic: Constitutional Limitations: Tax Exemption of traditional Exemptees
Abra Valley College v. Aquino
GR L-39086 15 June 1988
FACTS: Petitioner, an educational corporation and institution of higher learning duly
incorporated with the Securities and Exchange Commission in 1948, filed a
complaint to annul and declare void the Notice of Seizure and the Notice of Sale
of its lot and building located at Bangued, Abra, for non-payment of real estate

45

taxes and penalties amounting to P5,140.31. Said Notice of Seizure by

respondents Municipal Treasurer and Provincial Treasurer, defendants below, was
issued for the satisfaction of the said taxes thereon.
The parties entered into a stipulation of facts adopted and embodied by the
trial court in its questioned decision. The trial court ruled for the government,
holding that the second floor of the building is being used by the director for
residential purposes and that the ground floor used and rented by Northern
Marketing Corporation, a commercial establishment, and thus the property is not
being used exclusively for educational purposes. Instead of perfecting an appeal,
petitioner availed of the instant petition for review on certiorari with prayer for
preliminary injunction before the Supreme Court, by filing said petition on 17 August
1974.
ISSUE: Whether or not the lot and building are used exclusively for educational
purposes.
HELD: No. Section 22, paragraph 3, Article VI, of the then 1935 Philippine
Constitution, expressly grants exemption from realty taxes for cemeteries, churches
and parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable or educational purposes.
Reasonable emphasis has always been made that the exemption extends to
facilities which are incidental to and reasonably necessary for the accomplishment
of the main purposes. The use of the school building or lot for commercial purposes
is neither contemplated by law, nor by jurisprudence. In the case at bar, the lease of
the first floor of the building to the Northern Marketing Corporation cannot by any
stretch of the imagination be considered incidental to the purpose of education. The
test of exemption from taxation is the use of the property for purposes mentioned in
the Constitution.
The decision of the CFI Abra (Branch I) is affirmed subject to the modification
that half of the assessed tax be returned to the petitioner. The modification is
derived from the fact that the ground floor is being used for commercial purposes
(leased) and the second floor being used as incidental to education (residence of
the director).
Topic: Constitutional Limitations: Tax Exemption of traditional Exemptees
Herrera vs. The Quezon City Board Of Assessment Appeals
G.R. No. L-15270 September 30, 1961
FACTS: Petitioners Jose and Ester Herrera were authorized by the Director of the
Bureau of Hospitals to establish and operate the St. Catherine's Hospital. In 1953,
the petitioners sent a letter to the Quezon City Assessor requesting exemption from
payment of real estate tax on the lot, building and other improvements comprising
the hospital stating that the same was established for charitable and humanitarian
purposes and not for commercial gain which was granted effective the years 1953
to 1955. Subsequently, however, in a letter dated August 10, 1955 the Quezon City
Assessor notified the petitioners that the aforesaid properties were re-classified
from exempt to "taxable" and thus assessed for real property taxes effective 1956.
The petitioners appealed the assessment to the Quezon City Board of Assessment

46

Appeals, which, affirmed the decision of the City Assessor. A motion for
reconsideration thereof was denied. From this decision, the petitioners instituted the
instant appeal.
The building involved in this case is principally used as a hospital. From the
evidence presented by petitioners, it is made to appear that there are two kinds of
charity patients (a) those who come for consultation only ("out-charity patients");
and (b) those who remain in the hospital for treatment ("lying-in-patients").
Petitioners also operate within the premises of the hospital the "St. Catherine's
School of Midwifery" which was granted government recognition by the Secretary of
Education. The students practice in the St. Catherine's Hospital, as well as in the St.
Mary's Hospital, which is also owned by the petitioners. A separate set of
accounting books is maintained by the school for midwifery distinct from that kept
by the hospital. However, the petitioners have refused to submit a separate
statement of accounts of the school.
ISSUE: Whether or not the said properties are used exclusively for charitable or
educational purposes which are exempt from real property tax
HELD: Yes. The Court of Tax Appeals decided the issue in the negative, upon the
ground that the St. Catherine's Hospital has a pay ward for ... pay-patients, who are
charged for the use of the private rooms, operating room, laboratory room, delivery
room, etc., like other hospitals operated for profit and that petitioners and their
family occupy a portion of the building for their residence.
It should be noted, however, that, according to the very statement of facts
made in the decision appealed from, of the thirty-two (32) beds in the hospital,
twenty (20) are for charity-patients; that the income realized from pay-patients is
spent for improvement of the charity wards; and that petitioners, Dr. Ester
Ochangco Herrera, as directress of said hospital, does not receive any salary,
although its resident physician gets a monthly salary of P170.00. It is well settled, in
this connection, that the admission of pay-patients does not detract from the
charitable character of a hospital, if all its funds are devoted exclusively to the
maintenance of the institution as a public charity. In other words, where rendering
charity is its primary object, and the funds derived from payments made by patients
able to pay are devoted to the benevolent purposes of the institution, the mere fact
that a profit has been made will not deprive the hospital of its benevolent character.
Moreover, the exemption in favor of property used exclusively for charitable
or educational purposes is not limited to property actually indispensable therefor
but extends to facilities which are incidental to and reasonably necessary for the
accomplishment of said purposes, such as, in the case of hospitals, a school for
training nurses, a nurses' home, property use to provide housing facilities for
interns, resident doctors, superintendents, and other members of the hospital staff,
and recreational facilities for student nurses, interns and residents.
Within the purview of the Constitutional exemption from taxation, the St.
Catherine's Hospital is, therefore, a charitable institution, and the fact that it admits
pay-patients does not bar it from claiming that it is devoted exclusively to
benevolent purposes, it being admitted that the income derived from pay-patients is
devoted to the improvement of the charity wards, which represent almost two-thirds

47

(2/3) of the bed capacity of the hospital, aside from "out-charity patients" who come
only for consultation.
Topic: Constitutional Limitations: Tax Exemption of traditional Exemptees
Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte
GR 27588, 31 December 1927
FACTS: The Roman Catholic Apostolic Church is the owner of a parcel of land in San
Nicolas, Ilocos Norte. On the south side is a part of the Church yard, the convent
and an adjacent lost used for a vegetable garden in which there is a stable and a
well for the use of the convent. In the center is the remainder of the churchyard and
the Church. On the north side is an old cemetery with its two walls still standing,
and a portion where formerly stood a tower. The provincial board assessed land tax
on lots comprising the north and south side, which the church paid under protest.
The plaintiff filed this action for the recovery of the sum paid by to the defendants
by way of land tax, alleging that the collection of this tax is illegal.
The lower court absolved the defendants from the complaint in regard to the
lot adjoining convent and declared that the tax collected on the lot, which formerly
was the cemetery and on the portion where the lower stood, was illegal. Both
parties appealed from this judgment.
ISSUE: Whether or not the subject lots are exempted from taxation.
HELD: Yes. The exemption in favor of the convent in the payment of land tax refers
to the home of the priest who presides over the church and who has to take care of
himself in order to discharge his duties. The exemption includes not only the land
actually occupied by the Church but also the adjacent ground destined to the
ordinary incidental uses of man. A vegetable garden, thus, which belongs to a
convent, where its use is limited to the necessity of the priest, comes under the
exemption. Further, land used as a lodging house by the people who participate in
religious festivities, which constitutes an incidental use in religious functions,
likewise comes within the exemption. It cannot be taxed according to its former use,
i.e. a cemetery. The judgment appealed from is reversed in all it parts and it is held
that both lots are exempt from land tax and the defendants are ordered to refund to
plaintiff whatever was paid as such tax, without any special pronouncement as to
costs.
Topic: Constitutional Limitations: Tax Exemption of traditional Exemptees
LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY
G.R. No. 144104 June 29, 2004
FACTS: The petitioner, a non-stock and non-profit entity is the registered owner of a
parcel of land where erected in the middle of the aforesaid lot is a hospital known as
the Lung Center of the Philippines. A big space at the ground floor is being leased to
private parties, for canteen and small store spaces, and to medical or professional
practitioners who use the same as their private clinics for their patients whom they
charge for their professional services. Almost one-half of the entire area on the left
side of the building along Quezon Avenue is vacant and idle, while a big portion on
the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased

48

for commercial purposes to a private enterprise known as the Elliptical Orchids and
Garden Center.
On June 7, 1993, both the land and the hospital building of the petitioner
were assessed for real property taxes in the amount of P4, 554,860 by the City
Assessor of Quezon City but the former filed a Claim for Exemption from real
property taxes with the City Assessor, predicated on its claim that it is a charitable
institution.
ISSUE: Whether or not the petitioners real properties are exempted from realty tax
exemptions.
HELD: Even if the petitioner is a charitable institution, those portions of its real
property that are leased to private entities are not exempt from real property taxes
as these are not actually, directly and exclusively used for charitable purposes.
What is meant by actual, direct and exclusive use of the property for charitable
purposes is the direct and immediate and actual application of the property itself to
the purposes for which the charitable institution is organized.
Hence, a claim for exemption from tax payments must be clearly shown and
based on language in the law too plain to be mistaken. Under Section 2 of
Presidential Decree No. 1823, the petitioner does not enjoy any property tax
exemption privileges for its real properties as well as the building constructed
thereon. If the intentions were otherwise, the same should have been among the
enumeration of tax exempt privileges under Section 2. Accordingly, the portions
occupied by the hospital used for its patients are exempt from real property taxes
while those leased to private entities are not exempt from such taxes.
Topic: Constitutional Limitations: Tax Exemption of Non-stock non-profit
Educational Institutions
Commissioner of Internal Revenue v. Court of Appeals and YMCA
G.R.No.L-124043 October 14, 1998
FACTS: Private Respondent YMCA is a non-stock, non-profit institution, which
conducts various programs and activities that are beneficial to the public, especially
the young people, pursuant to its religious, educational and charitable objectives. In
1980, private respondent earned, among others, an income of P676, 829.80 from
leasing out a portion of its premises to small shop owners, like restaurants and
canteen operators, and P44,259.00 from parking fees collected from non-members.
On July 2, 1984, the Commissioner of Internal Revenue (CIR) issued an assessment
to private respondent, in the total amount of P415,615.01 including surcharge and
interest, for deficiency income tax, deficiency expanded withholding taxes on
rentals and professional fees and deficiency withholding tax on wages. Private
respondent formally protested the assessment and, as a supplement to its basic
protest, filed a letter dated October 8, 1985. In reply, the CIR denied the claims of
YMCA. Contesting the denial of its protest, the YMCA filed a petition for review at
the Court of Tax Appeals on March 14, 1989. In due course, the CTA issued this
ruling in favor of the YMCA.
ISSUE: Whether or not the YMCA is exempted from rental income derived from the
lease of its properties

49

HELD: NO. Petitioner argues that while the income received by the organizations
enumerated in Section 27 (now Section 26) of the NIRC is, as a rule, exempted from
the payment of tax "in respect to income received by them as such," the exemption
does not apply to income derived "xxx from any of their properties, real or personal,
or from any of their activities conducted for profit, regardless of the disposition
made of such income xxx".
The Court agrees with the commissioner. In the instant case, the exemption
claimed by the YMCA is expressly disallowed by the very wording of the last
paragraph of then Section 27 of the NIRC which mandates that the income of
exempt organizations (such as the YMCA) from any of their properties, real or
personal, be subject to the tax imposed by the same Code.
Topic: Constitutional Limitations: Origin of Revenue, Appropriation and
Tarriff Bills
ABAKADA Guro Party List vs. Ermita
G.R. No. 168056 September 1, 2005
FACTS: Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et
al., filed a petition for prohibition on May 27, 2005 questioning the constitutionality
of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a
10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a 10% VAT on sale of services and use
or lease of properties. These questioned provisions contain a uniform proviso
authorizing the President, upon recommendation of the Secretary of Finance, to
raise the VAT rate to 12%, effective January 1, 2006, after specified conditions have
been satisfied. Petitioners argue that the law is unconstitutional.
ISSUES: Whether or not there is a violation of Article VI, Section 24 of the
Constitution.
Whether or not there is undue delegation of legislative power in violation of Article
VI Sec 28(2) of the Constitution.
HELD:
1. Since there is no question that the revenue bill exclusively originated in the
House of Representatives, the Senate was acting within its constitutional power to
introduce amendments to the House bill when it included provisions in Senate Bill
No. 1950 amending corporate income taxes, percentage, and excise and franchise
taxes.
2. There is no undue delegation of legislative power but only of the discretion
as to the execution of a law. This is constitutionally permissible. Congress does not
abdicate its functions or unduly delegate power when it describes what job must be
done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go
forward.
3. The power of the State to make reasonable and natural classifications for
the purposes of taxation has long been established. Whether it relates to the
subject of taxation, the kind of property, the rates to be levied, or the amounts to be
raised, the methods of assessment, valuation and collection, the States power is

50

entitled to presumption of validity. As a rule, the judiciary will not interfere with such
power absent a clear showing of unreasonableness, discrimination, or arbitrariness.
Topic: Forms of Escape from Taxation
REPUBLIC OF THE PHILIPPINES vs. HEIRS OF CESAR JALANDONI, ET AL.
G.R. No. L-18384 September 20, 1965
FACTS: Isabel Ledesma died intestate leaving real properties situated in the
provinces of Negros Occidental and Rizal and in the cities of Manila and Baguio, and
personal properties consisting of shares of stock in various domestic corporations.
She left as heirs her husband Bernardino and three children, namely, Cesar, Angeles
and Delfin.
Cesar, one of the heirs, filed an estate and inheritance tax return and this
return also shows that no testamentary or intestate proceedings were instituted.
On the basis of this return the Bureau of Internal Revenue made an assessment as
estate and inheritance taxes, respectively, stating therein that the assessment was
"to be considered partial pending investigation of the return." These sums were paid
by Cesar. After a preliminary investigation was made of the properties reported in
the abovementioned return, a second assessment was made by the Bureau of
Internal Revenue as deficiency estate and inheritance taxes, respectively, for which
reason a demand was made on Bernardino stating therein that the same was still
"to be considered partial pending further investigation of the return," which
amounts were paid by Bernardino. The third assessment was made against the
estate wherein the heirs were required to pay the amounts of P29,995.30 and
P49,842.05 as deficiency estate and inheritance taxes, respectively, including
accrued interests, with the warning that failure on their part to pay the same would
subject them to the payment of surcharge, interest, and penalty for late payment of
the tax.
ISSUE: Whether or not the heirs of the deceased have committed any act indicative
of an intention to evade the payment of the inheritance or estate taxes due the
government
HELD: Record shows that the three lots alleged to have been excluded in the return
were already declared in the earlier return submitted by Bernardino Jalandoni as
part of his property and his wife for purposes of income tax, there is reason to
believe that their omission from the return submitted by Cesar Jalandoni was merely
due to an honest mistake or inadvertence as properly explained by appellants. We
can hardly dispute this conclusion as it would be stretching too much the
imagination if we would find that, because of such inadvertence, which appears to
be inconsequential, the heirs of the deceased deliberately omitted from the return
the three lots with the only purpose of defrauding the government after declaring
therein as asset of the estate property worth P1,324,555.80.
The same thing may be said with regard to the alleged undervaluation of
certain sugar and rice lands reported by Cesar Jalandoni for the same can at most
be considered as the result of an honest difference of opinion and not necessarily an
intention to commit fraud.
Finally, SC finds it unreasonable to impute with regard to the appraisal made
by appellants of the shares of stock of the deceased simply because Cesar Jalandoni

51

placed in his return an aggregate market value instead of mentioning the book
value declared by said corporations in the returns filed by them with the Bureau of
Internal Revenue. The fact that the value given in the returns did not tally with the
book value appearing in the corporate books is not in itself indicative of fraud
especially when it is taken into consideration the circumstance that said book value
only became known several months after the death of the deceased. Moreover, it is
a known fact that stock securities frequently fluctuate in value and a mere
difference of opinion in relation thereto cannot serve as proper basis for assessing
an intention to defraud the government.
Having reached the conclusion that the heirs of the deceased have not
committed any act indicative of an intention to evade the payment of the
inheritance or estate taxes due the government, as evidenced by their willingness
in the past to pay all the taxes properly assessed against them, it is evident that the
instant claim of appellee has already prescribed under Section 331 of the National
Internal Revenue Code. And with this conclusion, a discussion of the other errors
assigned by appellants would seem to be unnecessary.
Topic: Forms of Escape from Taxation
YUTIVO SONS HARDWARE COMPANY vs. COURT OF TAX APPEALS
G.R. No. L-13203 January 28, 1961
FACTS: Petitioner was engaged, prior to the last world war, in the importation and
sale of hardware supplies and equipment. After the liberation, it resumed its
business and bought a number of cars and trucks from General Motors Overseas, an
American corporation licensed to do business in the Philippines. As importer, GM
paid sales tax prescribed by sections 184, 185 and 186 of the Tax Code on the basis
of its selling price to Yutivo. Said tax being collected only once on original sales,
Yutivo paid no further sales tax on its sales to the public.
On June 13, 1946, the Southern Motors, Inc. (SM) was organized to engage in
the business of selling cars, trucks and spare parts. Its original authorized capital
stock was P1,000,000 divided into 10,000 shares with a par value of P100 each.
After the incorporation of SM and until the withdrawal of GM from the Philippines in
the middle of 1947, the cars and tracks purchased by Yutivo from GM were sold by
Yutivo to SM which, in turn, sold them to the public in the Visayas and Mindanao.
When General Motors Overseas Corporation (GM) decided to withdraw from
the Philippines in the middle of 1947, the U.S. manufacturer of GM cars and trucks
appointed Yutivo as importer for the Visayas and Mindanao, and Yutivo continued its
previous arrangement of selling exclusively to Southern Motors, Inc. (SM). In the
same way that GM used to pay sales taxes based on its sales to Yutivo, the latter, as
importer, paid sales tax prescribed on the basis of its selling price to SM, and since
such sales tax, as already stated, is collected only once on original sales, SM paid no
sales tax on its sales to the public.
The Collector of Internal Revenue made an assessment upon Yutivo and
demanded from the latter P1,804,769.85 as deficiency sales tax plus surcharge. The
assessment was disputed by the petitioner.
ISSUES:
1. Whether or not fraud is present.

52

2. Whether or not imposition of 5% fraud surcharge is correct.

3. Whether or not sales tax already paid by Yutivo should first be deducted
from the selling price of SM in computing the sales tax due on each
vehicle
HELD:
1. NO. The Court inclined to rule that the Court of Tax Appeals was not
justified in finding that SM was organized for no other purpose than to
defraud the Government of its lawful revenues. In the first place, this
corporation was organized in June, 1946 when it could not have caused
Yutivo any tax savings. The sales tax liability of Yutivo did not arise until
July 1, 1947 when it became the importer and simply continued its
practice of selling to SM. The decision, therefore, of the Tax Court that SM
was organized purposely as a tax evasion device runs counter to the fact
that there was no tax to evade. In the second place, SM was organized
and it operated, under circumstance that belied any intention to evade
sales taxes. The transactions between Yutivo and SM, however, have
always been in the open, embodied in private and public documents,
constantly subject to inspection by the tax authorities. In the third place,
sections 184 to 186 of the said Code provides that the sales tax shall be
collected "once only on every original sale, barter, exchange . . , to be
paid by the manufacturer, producer or importer." In this connection, it
should be stated that a taxpayer has the legal right to decrease the
amount of what otherwise would be his taxes or altogether avoid them by
means which the law permits.
2. NO. The Court found merit in petitioner's contention that the Court of Tax
Appeals erred in the imposition of the 5% fraud surcharge because no element of
fraud is present. Pursuant to Section 183 of the National Internal Revenue Code the
50% surcharge should be added to the deficiency sales tax "in case a false or
fraudulent return is willfully made." Although the sales made by SM are in substance
by Yutivo this does not necessarily establish fraud nor the willful filing of a false or
fraudulent return.
3. NO. The Court likewise found that the Tax Court erred in computing the
alleged deficiency sales tax on the selling price of SM without previously deducting
therefrom the sales tax due thereon. The sales tax provisions impose a tax on
original sales measured by "gross selling price" or "gross value in money". These
terms, as interpreted by the respondent Collector, do not include the amount of the
sales tax, if invoiced separately. This is the exact amount which, according to
Presiding Judge Nable of the Court of Tax Appeals, Yutivo would pay, exclusive of the
surcharges.
Topic: Forms of Escape from Taxation
COMMISSIONER OF INTERNAL REVENUE vs. NORTON and HARRISON
COMPANY

53

G.R. No. L-17618 August 31, 1964

FACTS: Under date of July 27, 1948. Norton and Jackbilt entered into an agreement
whereby Norton was made the sole and exclusive distributor of concrete blocks
manufactured by Jackbilt. Pursuant to this agreement, whenever an order for
concrete blocks was received by the Norton & Harrison Co. from a customer, the
order was transmitted to Jackbilt which delivered the merchandise direct to the
customer. Payment for the goods is, however, made to Norton, which in turn pays
Jackbilt the amount charged the customer less a certain amount, as its
compensation or profit. In the case of the sale of 420 pieces of concrete blocks to
the American Builders on April 1, 1952, the purchaser paid to Norton the sum of
P189.00 the purchase price. Out of this amount Norton paid Jackbilt P168.00, the
difference obviously being its compensation. As per records of Jackbilt, the
transaction was considered a sale to Norton. It was under this procedure that the
sale of concrete blocks manufactured by Jackbilt was conducted until May 1, 1953,
when the agency agreement was terminated and a management agreement
between the parties was entered into. The management agreement provided that
Norton would sell concrete blocks for Jackbilt, for a fixed monthly fee of P2,000.00,
which was later increased to P5,000.00.
The Commissioner of Internal Revenue, after conducting an investigation,
assessed the respondent Norton & Harrison for deficiency sales tax and surcharges
in the amount of P32,662.90, making as basis thereof the sales of Norton to the
Public. In other words, the Commissioner considered the sale of Norton to the public
as the original saleand not the transaction from Jackbilt.

ISSUE: Whether the basis of the computation of the deficiency sales tax should be
the sale of the blocks to the public and not to Norton.

HELD: If the income of Norton should be considered separate from the income of
Jackbilt, then each would declare such earning separately for income tax purposes
and thus pay lesser income tax. The combined taxable Norton-Jackbilt income
would subject Norton to a higher tax. Based upon the 1954-1955 income tax return
of Norton and Jackbilt , and assuming that both of them are operating on the same
fiscal basis and their returns are accurate, we would have the following result:
Jackbilt declared a taxable net income of P161,202.31 in which the income tax due
was computed at P37,137.00; whereas Norton declared as taxable, a net income of
P120,101.59, on which the income tax due was computed at P25,628.00. The total
of these liabilities is P50,764.84. On the other hand, if the net taxable earnings of
both corporations are combined, during the same taxable year, the tax due on their
total which is P281,303.90 would be P70,764.00. So that, even on the question of
income tax alone, it would be to the advantages of Norton that the corporations
should be regarded as separate entities.
Topic: Forms of Escape from Taxation

54

PHILIPPINE ACETYLENE CO., INC. vs. CIR and COURT OF TAX APPEALS
G.R. No. L-19707August 17, 1967
FACTS: The petitioner is a corporation engaged in the manufacture and sale of
oxygen and acetylene gases. It made various sales of its products to the National
Power Corporation and to the Voice of America an agency of the United States
Government. The sales to the NPC amounted to P145, 866.70, while those to the
VOA amounted to P1,683, on account of which the respondent Commission of
Internal Revenue assessed against, and demanded from, the petitioner the payment
of P12,910.60 as deficiency sales tax and surcharge, pursuant to the Sec.186 of the
National Internal Revenue Code.
The petitioner denied liability for the payment of the tax on the ground that
both the NPC and the VOA are exempt from taxation.
ISSUE: Whether or not petitioner is exempt from paying tax on sales it made to the:
1) NPC
2) VOA
HELD:
1) NO. SC holds that the tax imposed by section 186 of the National Internal
Revenue Code is a tax on the manufacturer or producer and not a tax on
the purchaser except probably in a very remote and inconsequential
sense. Accordingly its levy on the sales made to tax-exempt entities like
the NPC is permissible.
2) NO. Only sales made "for exclusive use in the construction, maintenance,
operation or defense of the bases," in a word, only sales to the
quartermaster, are exempt under Article V from taxation. Sales of goods
to any other party even if it be an agency of the United States, such as the
VOA, or even to the quartermaster but for a different purpose, are not free
from the payment of the tax.

Topic: Forms of Escape from Taxation

Commissioner vs. American Rubber
GR L-19667, 29 November 1966
FACTS: American Rubber Company sold its rubber products locally and as
prescribed by the Commissioners regulation, the company declared the same for
tax purposes in which the Commissioner accordingly assessed. The company paid
under protest the corresponding sales taxes thereon, claiming exemption under
Section 188 (b) of the Tax Code, and subsequently claimed refund. With the
Commissioner refusing to do so, the case was brought before the Court of Tax
Appeals, which upheld the Commissioners stand that the company is not entitled to
recover the sales tax that had been separately billed to its customers, and paid by
the latter.

55

ISSUE: Whether the company can recover the sales tax paid.
HELD: No. The sales tax is by law imposed directly, not on the thing sold, but on
the act (sale) of the manufacturer, producer, or importer, who is exclusively made
liable for its timely payment. Where the tax money paid by the company came from
is really no concern of the Government, but solely a matter between the company
and its customers. Once recovered, the company must hold the refunded taxes in
trust for the individual purchasers who advanced payment thereof, and whose
names must appear in company records. Herein, the company sales between 24
August 1956 (approval of RA 1612) to 22 June 1957 (when RA 1856 restored the
exemption of agricultural products whether in their original form or not) were
properly taxed. Such amount corresponding to the period is not recoverable.
Topic: Forms of Escape from Taxation
COMMISSIONER OF INTERNAL REVENUE vs. JOHN GOTAMCO & SONS,
INC. and THE COURT OF TAX APPEALS
G.R. No. No. L-31092 February 27, 1987
FACTS: The World Health Organization (WHO for short) is an international
organization which has a regional office in Manila. An agreement was entered into
between the Republic of the Philippines and the said Organization on July 22, 1951.
Section 11 of that Agreement provides, inter alia, that "the Organization, its assets,
income and other properties shall be: (a) exempt from all direct and indirect taxes.
The WHO decided to construct a building to house its own offices, as well as the
other United Nations offices stationed in Manila. A bidding was held for the building
construction. The WHO informed the bidders that the building to be constructed
belonged to an international organization exempted from the payment of all fees,
licenses, and taxes, and that therefore their bids "must take this into account and
should not include items for such taxes, licenses and other payments to
Government agencies." Thereafter, the construction contract was awarded to John
Gotamco& Sons, Inc. (Gotamco for short). Subsequently, the Commissioner of
Internal Revenue sent a letter of demand to Gotamco demanding payment of for the
3% contractor's tax plus surcharges on the gross receipts it received from the WHO
in the construction of the latter's building. WHO. The WHO issued a certification that
the bid of John Gotamco&Sons, should be exempted from any taxes in connection
with the construction of the World Health Organization office building because such
can be considered as an indirect tax to WHO. However, The Commissioner of
Internal Revenue contends that the 3% contractor's tax is not a direct nor an
indirect tax on the WHO, but a tax that is primarily due from the contractor, and
thus not covered by the tax exemption agreement.
ISSUE: Whether or not the said 3% contractors tax imposed upon petitioner is
covered by the direct and indirect tax exemption granted to WHO by the
government.
HELD: Yes. The 3% contractors tax imposed upon petitioner is covered by the
direct and indirect tax exemption granted to WHO. Hence, petitioner cannot be
held liable for such contractors tax. The Supreme Court explained that direct taxes

56

are those that are demanded from the very person who, it is intended or desired,
should pay them; while indirect taxes are those that are demanded in the first
instance from one person in the expectation and intention that he can shift the
burden to someone else. While it is true that the contractor's tax is payable by the
contractor, However in the last analysis it is the owner of the building that shoulders
the burden of the tax because the same is shifted by the contractor to the owner as
a matter of self-preservation. Thus, it is an indirect tax against the WHO because,
although it is payable by the petitioner, the latter can shift its burden on the WHO. It
is the WHO that will pay the tax indirectly through the contractor and it certainly
cannot be said that 'this tax has no bearing upon the World Health Organization.
Accordingly, finding no reversible error committed by the respondent Court of Tax
Appeals, the Supreme Court affirmed the appealed decision.
Topic: Forms of Escape from Taxation
MACEDA vs. MACARAIG, JR., et al.
G.R. No. No. 88291 May 31, 1991 and G.R. No. No. 88291 June 8, 1993
FACTS: Commonwealth Act No. 120 created the NPC as a public corporation to
undertake the development of hydraulic power and the production of power from
other sources. Several laws were enacted granting NPC tax and duty exemption
privileges such as taxes, duties, fees, imposts, charges and restrictions of the
Republic of the Philippines, its provinces, cities and municipalities "directly or
indirectly," on all petroleum products used by NPC in its operation. However P.D. No.
1931 withdrew all tax exemption privileges granted in favour of government-owned
or controlled corporations including their subsidiaries but empowered the President
and/or the then Minister of Finance, upon recommendation of the FIRB to restore,
partially or totally, the exemption withdrawn. BIR ruled that the exemption privilege
enjoyed by NPC under said section covers only taxes for which it is directly liable
and not on taxes which are only shifted to it.
In 1986, BIR Commissioner Tan, Jr. states that all deliveries of petroleum
products to NPC are tax exempt, regardless of the period of delivery. Thereafter, the
FIRB issued several Resolutions in different occasions restoring the tax and duty
exemption privileges of NPC indefinite period due to the restoration of the tax
exemption privileges of NPC, NPC applied with the BIR for a "refund of Specific Taxes
paid on petroleum products. On August 6, 1987, the Secretary of Justice, Opinion
opined that "the power conferred upon Fiscal Incentives Review Board constitute
undue delegation of legislative power and, therefore, unconstitutional. However,
respondents Finance Secretary and the Executive Secretary declared that "NPC
under the provisions of its Revised Charter retains its exemption from duties and
taxes imposed on the petroleum products purchased locally and used for the
generation of electricity. Thereafter investigations were made for the refund of the
tax payments of the NPC which includes Millions of pesos Tax refund. Petitioner, as
member of the Philippine Senate introduced as Resolution Directing the Senate Blue
Ribbon Committee, In Aid of Legislation, to conduct a Formal and Extensive Inquiry
into the Reported Massive Tax Manipulations and Evasions by Oil Companies,
particularly Caltex (Phils.) Inc., Pilipinas Shell and Petrophil, Which Were Made
Possible By Their Availing of the Non Existing Exemption of National Power

57

Corporation (NPC) from Indirect Taxes, Resulting Recently in Their Obtaining A Tax
Refund Totalling P1.55 Billion From the Department of Finance.
ISSUE: Whether or not respondent NPC is legally entitled to the questioned tax and
duty
refunds.
HELD: Yes. In G.R. No. No. 88291 the Supreme Court ruled in favour of exempting
NPC to the said taxes. Also in G.R. No. No. 88291 the Supreme Court ruled in favour
of respondents. NPC under the provisions of its Revised Charter retains its
exemption from duties and taxes imposed on the petroleum products purchased
locally and used for the generation of electricity. Presidential Decree No. 938
amended the tax exemption of NPC by simplifying the same law in general terms. It
succinctly exempts NPC from "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." the NPC electric power rates did not carry
the taxes and duties paid on the fuel oil it used. The point is that while these levies
were in fact paid to the government, no part thereof was recovered from the sale of
electricity produced. As a consequence, as of our most recent information, some
P1.55 B in claims represents amounts for which the oil suppliers and NPC are "outof-pocket. There would have to be specific order to the Bureaus concerned for the
resumption of the processing of these claims.
Topic: Forms of Escape from Taxation
COMMISSIONER OF INTERNAL REVENUE vs. PLDT
G.R. No. 140230December 15, 2005
FACTS: PLDT is a grantee of a franchise under Republic Act (R.A.) No. 7082 to
install, operate and maintain a telecommunications system throughout the
Philippines. For equipment, machineries and spare parts it imported for its
business on different dates from October 1, 1992 to May 31, 1994, PLDT paid the
BIR the amount of P 164,510,953.00, broken down as follows:
(a) compensating tax of P126,713,037.00; advance sales tax of P12,460,219.00 and
other internal revenue taxes of P25,337,697.00. For similar importations made
between March 1994 to May 31, 1994, PLDT paid P 116,041,333.00 value-added tax
(VAT).
PLDT filed on December 2, 1994 a claim for tax credit/refund of the VAT,
compensating taxes, advance sales taxes and other taxes it had been paying in
connection with its importation of various equipment, machineries and spare parts
needed for its operations. With its claim not having been acted upon by the BIR,
PLDT filed with the CTA a petition for review therein seeking a refund of, or the
issuance of a tax credit certificate in, the amount of P280,552,286.00, representing
compensating taxes, advance sales taxes, VAT and other internal revenue taxes
alleged to have been erroneously paid on its importations from October 1992 to
May 1994.
The CTA granted the PLDTs petition. The CA dismissed the BIRs petition,
thereby effectively affirming the CTAs judgment.
ISSUE: Whether or not respondent is exempt from the payment of VAT,
compensating taxes, advance sales taxes and other BIR taxes on its importations by

58

virtue of the provision in its franchise that the 3% franchise tax on its gross receipts
shall be in lieu of all taxes on its franchise or earnings thereof.
HELD: No. There can be no serious argument that PLDT, vis--vis its payment of
internal revenue taxes on its importations in question, is effectively claiming
exemption from taxes not falling under the category of direct taxes. The claim
covers VAT, advance sales tax and compensating tax. It bears to stress that the
liability for the payment of the indirect taxes lies only with the seller of the goods or
services, not in the buyer thereof. Thus, one cannot invoke ones exemption
privilege to avoid the passing on or the shifting of the VAT to him by the
manufacturers/suppliers of the goods he purchased. Hence, it is important to
determine if the tax exemption granted to a taxpayer specifically includes the
indirect tax which is shifted to him as part of the purchase price, otherwise it is
presumed that the tax exemption embraces only those taxes for which the buyer is
directly liable.
As may be noted, the clause in lieu of all taxes in Section 12 of RA 7082 is
immediately followed by the limiting or qualifying clause on this franchise or
earnings thereof, suggesting that the exemption is limited to taxes imposed
directly on PLDT since taxes pertaining to PLDTs franchise or earnings are its direct
liability. Accordingly, indirect taxes, not being taxes on PLDTs franchise or earnings,
are outside the purview of the in lieu provision.
All told, the Court fails to see how Section 12 of RA 7082 operates as granting
PLDT blanket exemption from payment of indirect taxes, which, in the ultimate
analysis, are not taxes on its franchise or earnings. PLDT has not shown its
eligibility for the desired exemption.
Topic: Forms of Escape from Taxation
SILKAIR (SINGAPORE) PTE, LTD. vs. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 173594 February 6, 2008
FACTS: Petitioner, Silkair (Singapore) Pte. Ltd. (Silkair), a corporation organized
under the laws of Singapore which has a Philippine representative office, is an
online international air carrier operating the Singapore-Cebu-Davao-Singapore,
Singapore-Davao-Cebu-Singapore, and Singapore-Cebu-Singapore routes. On
December 19, 2001, Silkair filed with the Bureau of Internal Revenue (BIR) a written
application for the refund of P4,567,450.79 excise taxes it claimed to have paid on
its purchases of jet fuel from Petron Corporation from January to June 2000.
As the BIR had not yet acted on the application as of December 26, 2001,
Silkair filed a Petition for Review before the CTA. By Decision of May 27, 2005, the
CTA denied Silkairs petition on the ground that as the excise tax was imposed on
Petron Corporation as the manufacturer of petroleum products, any claim for refund
should be filed by the latter; and where the burden of tax is shifted to the
purchaser, the amount passed on to it is no longer a tax but becomes an added cost
of the goods purchased.
ISSUE: Whether or not petitioner is the proper party to claim for refund or tax credit

59

HELD: No. The proper party to question, or seek a refund of, an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and who paid the
same even if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC
provides that "[u]nless otherwise specifically allowed, the return shall be filed and
the excise tax paid by the manufacturer or producer before removal of domestic
products from place of production." Thus, Petron Corporation, not Silkair, is the
statutory taxpayer which is entitled to claim a refund based on Section 135 of the
NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and
Singapore.
Even if Petron Corporation passed on to Silkair the burden of the tax, the
additional amount billed to Silkair for jet fuel is not a tax but part of the price which
Silkair had to pay as a purchaser.
The exemption granted under Section 135 (b) of the NIRC of 1997 and Article
4(2) of the Air Transport Agreement between RP and Singapore cannot, without a
clear showing of legislative intent, be construed as including indirect taxes. Statutes
granting tax exemptions must be construed in strictissimi juris against the taxpayer
and liberally in favor of the taxing authority, and if an exemption is found to exist, it
must not be enlarged by construction.

Topic: Forms of Escape from Taxation

CONTEX CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 151135 July 2, 2004
FACTS: Petitioner is a duly registered with the Subic Bay Metropolitan Authority
(SBMA) as a Subic Bay Freeport Enterprise, pursuant to the provisions of Republic
Act No. 7227. As an SBMA-registered firm, petitioner is exempt from all local and
national internal revenue taxes except for the preferential tax provided for in
Section 12 (c) of Rep. Act No. 7227. Petitioner also registered with the Bureau of
Internal Revenue (BIR) as a non-VAT taxpayer.
From January 1, 1997 to December 31, 1998, petitioner purchased various
supplies and materials necessary in the conduct of its manufacturing business. The
suppliers of these goods shifted unto petitioner the 10% VAT on the purchased
items, which led the petitioner to pay input taxes in the amounts of P539,411.88
and P504,057.49 for 1997 and 1998, respectively. Acting on the belief that it was
exempt from all national and local taxes, including VAT, pursuant to Rep. Act No.
7227, petitioner filed two applications for tax refund or tax credit of the VAT it paid,
which were denied. Unfazed by the denial, it filed another application for tax
refund/credit. When no response was forthcoming from the BIR Regional Director,
petitioner then elevated the matter to the Court of Tax Appeals, which granted the
petitioner a partial refund. The Court of Appeals reversed the decision of the CTA.
ISSUE: Whether or not petitioner is entitled to a tax credit or tax refund of the VAT
paid on its purchases of supplies and raw materials for the years 1997 and 1998.

60

HELD: No. While it is true that the petitioner should not have been liable for the
VAT inadvertently passed on to it by its supplier since such is a zero-rated sale on
the part of the supplier, the petitioner is not the proper party to claim such VAT
refund. Since the transaction is deemed a zero-rated sale, petitioners supplier may
claim an Input VAT credit with no corresponding Output VAT liability. Congruently, no
Output VAT may be passed on to the petitioner.
It may not be amiss to re-emphasize that the petitioner is registered as a
NON-VAT taxpayer and thus, is exempt from VAT. As an exempt VAT taxpayer, it is
not allowed any tax credit on VAT (input tax) previously paid. In fine, even if
assuming that exemption from the burden of VAT on petitioners purchases did
exist, petitioner is still not entitled to any tax credit or refund on the input tax
previously paid as petitioner is an exempt VAT taxpayer. Rather, it is the petitioners
suppliers who are the proper parties to claim the tax credit and accordingly refund
the petitioner of the VAT erroneously passed on to the latter.
Topic: Forms of Escape from Taxation
COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY
(PHILIPPINES)
G.R. No. 153866. February 11, 2005
FACTS: Respondent is registered with the Philippine Export Zone Authority (PEZA)
and has been issued PEZA Certificate No. 97-044 pursuant to Presidential Decree
No. 66, as amended, to engage in the manufacture of recording components
primarily used in computers for export. Such registration was made on 6 June 1997.
It is also a VAT-registered entity and VAT returns for the period 1 April 1998 to 30
June 1999 have been filed. An administrative claim for refund of VAT input taxes in
the amount of P28,369,226.38 with supporting documents was filed on 4 October
1999. No final action has been received by respondent from petitioner on its claim
for VAT refund.
The Court of Tax Appeals rendered a decision granting the claim for refund.
The CA affirmed the Decision of the CTA granting the claim for refund or issuance of
a tax credit certificate (TCC) in favor of respondent in the reduced amount of
P12,122,922.66. This sum represented the unutilized but substantiated input VAT
paid on capital goods purchased for the period covering April 1, 1998 to June 30,
1999.
ISSUE: Whether or not respondent is entitled to the refund or issuance of Tax Credit
Certificate in the amount of P12,122,922.66 representing alleged unutilized input
VAT paid on capital goods purchased for the period April 1, 1998 to June 30, 1999.
HELD: Yes. No doubt, as a PEZA-registered enterprise within a special economic
zone, respondent is entitled to the fiscal incentives and benefits provided for in
either PD 66 or EO 226. It shall, moreover, enjoy all privileges, benefits, advantages
or exemptions under both Republic Act Nos. (RA) 7227 and 7844.
From the above-cited laws, it is immediately clear that petitioner enjoys
preferential tax treatment. It is not subject to internal revenue laws and regulations
and is even entitled to tax credits. The VAT on capital goods is an internal revenue
tax from which petitioner as an entity is exempt. Although the transactions
involving such tax are not exempt, petitioner as a VAT-registered person, however,
is entitled to their credits.

61

To summarize, special laws expressly grant preferential tax treatment to

business establishments registered and operating within an ecozone, which by law
is considered as a separate customs territory. As such, respondent is exempt from
all internal revenue taxes, including the VAT, and regulations pertaining thereto. It
has opted for the income tax holiday regime, instead of the 5 percent preferential
tax regime. As a matter of law and procedure, its registration status entitling it to
such tax holiday can no longer be questioned. Its sales transactions intended for
export may not be exempt, but like its purchase transactions, they are zero-rated.
No prior application for the effective zero rating of its transactions is necessary.
Being VAT-registered and having satisfactorily complied with all the requisites for
claiming a tax refund of or credit for the input VAT paid on capital goods purchased,
respondent is entitled to such VAT refund or credit.
Topic: Forms of Escape from Taxation
COMMISSIONER OF INTERNAL REVENUE vs. THE ESTATE OF BENIGNO P.
TODA, JR
G.R. No. 147188 September 14, 2004
FACTS:
Cibeles Insurance Corporation (CIC) authorized Benigno P. Toda, Jr., President
and owner of 99.991% of its issued and outstanding capital stock, to sell the Cibeles
Building and the two parcels of land on which the building stands for an amount of
not less than P90 million and subsequently sold the property for P100 million to
Rafael A. Altonaga, who, in turn, sold the same property on the same day to Royal
Match Inc. (RMI) for P200 million. The BIR sent an assessment notice and demand
letter to the CIC for deficiency income tax for the year 1989 in the amount of
P79,099,999.22. The new CIC asked for a reconsideration, asserting that the
assessment should be directed against the old CIC, and not against the new CIC,
which is owned by an entirely different set of stockholders; moreover, Toda had
undertaken to hold the buyer of his stockholdings and the CIC free from all tax
liabilities for the fiscal years 1987-1989.
The CTA held that the Commissioner failed to prove that CIC committed fraud
to deprive the government of the taxes due it. The Court of Appeals affirmed the
decision of the CTA, reasoning that the CTA, being more advantageously situated
and having the necessary expertise in matters of taxation, is "better situated to
determine the correctness, propriety, and legality of the income tax assessments
assailed by the Toda Estate."
ISSUE: Whether or not respondent committed fraud with intent to evade the tax on
the sale of the properties of Cibeles Insurance Corporation.
HELD: Yes. Tax evasion connotes the integration of three factors: (1) the end to be
achieved, i.e., the payment of less than that known by the taxpayer to be legally
due, or the non-payment of tax when it is shown that a tax is due; (2) an
accompanying state of mind which is described as being "evil," in "bad faith,"
"willfull," or "deliberate and not accidental"; and (3) a course of action or failure of
action which is unlawful. All these factors are present in the instant case. Here, it is
obvious that the objective of the sale to Altonaga was to reduce the amount of tax

62

to be paid especially that the transfer from him to RMI would then subject the
income to only 5% individual capital gains tax, and not the 35% corporate income
tax. Altonagas sole purpose of acquiring and transferring title of the subject
properties on the same day was to create a tax shelter. Altonaga never controlled
the property and did not enjoy the normal benefits and burdens of ownership. The
sale to him was merely a tax ploy, a sham, and without business purpose and
economic substance. Doubtless, the execution of the two sales was calculated to
mislead the BIR with the end in view of reducing the consequent income tax liability.
CIC is therefore liable to pay a 35% corporate tax for its taxable net income in
1989. The 5% individual capital gains tax provided for in Section 34 (h) of the NIRC
of 198635 (now 6% under Section 24 (D) (1) of the Tax Reform Act of 1997) is
inapplicable. Hence, the assessment for the deficiency income tax issued by the BIR
must be upheld.
Topic: Forms of Escape from Taxation
JOHN HAY vs. LIM
G.R. No. 119775. October 24, 2003

FACTS: RA No. 7227 created the Bases Conversion and Development Authority
(BCDA), which also created the Subic Special Economic Zone (Subic SEZ). Aside
from granting incentives to Subic SEZ, RA 7227 also granted the President an
express authority to create other SEZs in the areas covered respectively by the
Clark military reservation, the Wallace Air Station in San Fernando, La Union, and
Camp John Hay through executive proclamations.
The Bases Conversion and Development Authority (BCDA) entered into a MOA
and Escrow Agreement with TUNTEX and ASIAWORLD, private corporations under
the laws of the British Virgin Islands, preparatory to the formation of a joint venture
for the development of Poro Point La Union and Camp John Hay as premier tourist
destinations and recreation centers.
BCDA, TUNTEX and ASIAWORLD executed a Joint Venture Agreement to put
up the Baguio International Development and Management Corporation which
would lease areas within Camp John Hay and Poro Point for the attainment of the
tourist and recreation spots in La Union and Camp John Hay.
President Ramos issued Proclamation No. 420 which established a SEZ on a
portion of Camp John Hay. 2nd sentence of Section 3 of said Proclamation provided
for national and local tax exemption within and graned other economic incentives to
the John Hay Special Economic Zone.
Section 3: Investment Climate in John Hay Special Economic Zone.Pursuant to Section 5(m) and Section 15 of RA No. 7227, the John Hay Poro Point
Development Corporation shall implement all necessary policies, rules, and
regulations governing the zone, including investment incentives, in consultation
with pertinent government departments. Among others, the zone shall have all the
applicable incentives of the Special Economic Zone under Section 12 of Republic Act
No. 7227 and those applicable incentives granted in the Export Processing Zones,
the Omnibus Investment Code of 1987, the Foreign Investment Act of 1991, and
new investment laws that may hereinafter be enacted.

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Petitioners filed this case to enjoin the respondents from implementing Proc.
420. Claiming it is unconstitutional on grounds of:
o For being illegal and invalid in so far as it grants tax exemptions thus
amounting to unconstitutional exercise of by the President of power granted only to
legislature
o Limits powers and interferes with the autonomy of the city
o Violates rule that all taxes should be uniform and equitable
ISSUE: WON the grant by Proclamation No. 420 of tax exemption and other
privileges to the John Hay SEZ is void for being violative of the Constitution.
HELD: Yes. The 2nd Sentence of SECTION 3 of Proclamation No. 420 is hereby
declared NULL and VOID and is accordingly declared of no legal force and effect.
Proclamation No. 420, WITHOUT THE INVALIDATED PORTION, REMAINS VALID and
effective.
Public respondents are hereby enjoined from implementing the aforesaid
void provision. Proclamation No. 420, without the invalidated portion, remains valid
and effective.
Under Section 12 of RA No. 7227 it is clear that ONLY THE SUBIC SEZ which
was granted by Congress with tax exemption, investment incentives and the like.
THERE IS NO EXPRESS EXTENSION OF THE SAID PROVISION IN PRESIDENTIAL
PROCLAMATION No. 420. (Section 12 kept mentioning Subic Special Economic Zone,
specifically) Also found in the deliberations of the Senate, a confirmation of the
exclusivity of the tax and investment privileges to Subic SEZ.
Senator Angara: The Gentleman is absolutely correct. Mr. President. SO WE
MUST CONFINE THESE POLICIES ONLY TO SUBIC.
It is the legislature, unless limited by a provision of the state constitution
that has full power to exempt any person, corporation or class of property from
taxation, its power to exempt being as broad as its power to tax. Other than the
Congress, the Constitution may itself provide for specific tax exemptions, or local
governments may pass ordinances on exemption only from local taxes. The
challenged grant of tax exemption must have concurrence of a majority of all
members of Congress. In same vein, the other kinds of privileges extended to the
John Hay SEZ are by tradition and usage for Congress to legislate upon.
Tax exemption cannot be implied as it must be categorically and un
mistakably expressed if it were the intent of the legislature to grant to the John
Hay SEZ the same tax exemption and incentives given to Subic SEZ, it would have
so expressly provided in RA 7227.
With respect to the final issue raised by petitioners -- that Proclamation No.
420 is unconstitutional for being in derogation of Baguio City's local autonomy,
Petitioners' arguments are bereft of merit. BCDA, under R.A 7227, is expressly
entrusted with broad rights of ownership and administration over Camp John Hay,
as the governing agency of the John Hay SEZ and virtually has control over it,
subject to certain limitations provided for by law. By designating BCDA as the
governing agency of the John Hay SEZ, the law merely emphasizes or reiterates the
statutory role or functions it has been granted.

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The unconstitutionality of the grant of tax immunity and financial incentives

as contained in the second sentence of Section 3 of Proclamation No. 420
notwithstanding, the entire assailed proclamation cannot be declared
unconstitutional, the other parts thereof not being repugnant to law or the
Constitution. Where part of a statute is void as contrary to the Constitution, while
another part is valid, the valid portion, if separable from the invalid, may stand and
be enforced

Topic: Forms of Escape from taxation

Commissioner of Internal Revenue vs. Courts of Tax Appeal, Ateneo, et al
G.R. No. 115349 April 18, 1997
FACTS: Ateneo de Manila is an educational institution with auxiliary units and
branches all over the Philippines. One such auxiliary unit is the Institute of Philippine
Culture (IPC), which has no legal personality separate and distinct from that of
private respondent. The IPC is a Philippine unit engaged in social science studies of
Philippine society and culture. Occasionally, it accepts sponsorships for its research
activities from international organizations, private foundations and government
agencies.
On July 8, 1983, private respondent received from petitioner Commissioner of
Internal Revenue a demand letter dated June 3, 1983, assessing private respondent
the sum of P174,043.97 for alleged deficiency contractor's tax.
Denying said tax liabilities, Ateneo sent CIR a letter-protest contesting the
validity of the assessments. CIR rendered a letter-decision canceling the assessment
for deficiency income tax but modified the assessment for deficiency contractors
tax by increasing the amount due to P190k+.
Ateneo requested for a reconsideration or reinvestigation of the modified
assessment. At the same time, it filed in the CTA a petition for review of the said
letter-decision. While the petition was pending before the CTA, CIR issued a final
decision reducing the assessment for deficiency contractors tax from P190k+ to
P46k+, exclusive of surcharge and interest. CTA canceled the deficiency
contractors tax assessment, w/c was affirmed by the CA. CIR filed a petition for
review before the SC.
ISSUE: Whether or not Ateneo de Manila University, through its auxiliary unit or
branch the Institute of Philippine Culture is performing the work of an
independent contractor and, thus, subject to the three percent contractor's tax
levied by then Section 205 of the National Internal Revenue Code
HELD: No. The Supreme Court held that Ateneo de Manila University is not subject
to the contractors tax. It explained that to fall under its coverage, Section 205 of
the National Internal Revenue Code requires that the independent contractor be
engaged in the business of selling its services. The Court, however, found no
evidence that Ateneo's Institute of Philippine Culture ever sold its services for a fee

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to anyone or was ever engaged in a business apart from and independently of the
academic purposes of the university.
Moreover, the Court of Tax Appeals accurately and correctly declared that the
funds received by the Ateneo de Manila University are technically not a fee. They
may however fall as gifts or donations which are tax-exempt" as shown by private
respondent's compliance with the requirement of Section 123 of the National
Internal Revenue Code providing for the exemption of such gifts to an educational
institution.
Topic: Retroactivity of Tax Laws
CIR vs ROSEMARIE ACOSTA
G.R. No. 154068 August 3, 2007

FACTS: Respondent is an employee of Intel Manufacturing Phils., Inc. (Intel). For the
period January 1, 1996 to December 31, 1996, respondent was assigned in a foreign
country. During that period, Intel withheld the taxes due on respondents
compensation income and remitted to the Bureau of Internal Revenue (BIR) the
amount ofP308,084.56.
On March 21, 1997, respondent and her husband filed with the BIR their Joint
Individual Income Tax Return for the year 1996. Later, on June 17, 1997,
respondent, through her representative, filed an amended return and a NonResident Citizen Income Tax Return, and paid the BIR P17,693.37 plus interests in
the amount ofP14,455.76. On October 8, 1997, she filed another amended return
indicating an overpayment of P358,274.63.
Claiming that the income taxes withheld and paid by Intel and respondent resulted
in an overpayment of P340,918.92, respondent filed on April 15, 1999 a petition for
review docketed as C.T.A. Case No. 5828 with the Court of Tax Appeals (CTA). The
Commissioner of Internal Revenue (CIR) moved to dismiss the petition for failure of
respondent to file the mandatory written claim for refund before the CIR.
The CTA dismissed respondents petition. For one, the CTA ruled that
respondent failed to file a written claim for refund with the CIR, a condition
precedent to the filing of a petition for review before the CTA.Second, the CTA noted
that respondents omission, inadvertently or otherwise, to allege in her petition the
date of filing the final adjustment return, deprived the court of its jurisdiction over
the subject matter of the case.
Upon review, the Court of Appeals reversed the CTA and directed the latter to
resolve respondents petition for review. Applying Section 204(c) of the 1997
National Internal Revenue Code (NIRC), the Court of Appeals ruled that respondents
filing of an amended return indicating an overpayment was sufficient compliance
with the requirement of a written claim for refund.

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ISSUE: WON the 1997 NIRC can be applied retroactively.

HELD: No. Petitioner argues that the 1997 NIRC cannot be applied retroactively as
the instant case involved refund of taxes withheld on a 1996 income. Respondent,
however, points out that when the petition was filed with the CTA on April 15, 1999,
the 1997 NIRC was already in effect, hence, Section 204(c) should apply, despite the
fact that the refund being sought pertains to a 1996 income tax. Note that the issue
on the retroactivity of Section 204(c) of the 1997 NIRC arose because the last
paragraph of Section 204(c) was not found in Section 230 of the old Code. After a
thorough consideration of this matter, we find that we cannot give retroactive
application to Section 204(c) above cited. We have to stress that tax laws are
prospective in operation, unless the language of the statute clearly provides
otherwise.
Moreover, it should be emphasized that a party seeking an administrative remedy
must not merely initiate the prescribed administrative procedure to obtain relief, but
also pursue it to its appropriate conclusion before seeking judicial intervention in
order to give the administrative agency an opportunity to decide the matter itself
correctly and prevent unnecessary and premature resort to court action.This the
respondent did not follow through. Additionally, it could not escape notice that at
the time respondent filed her amended return, the 1997 NIRC was not yet in effect.
Hence, respondent had no reason at that time to think that the filing of an amended
return would constitute the written claim for refund required by applicable law.
Furthermore, as the CTA stressed, even the date of filing of the Final
Adjustment Return was omitted, inadvertently or otherwise, by respondent in her
petition for review. This omission was fatal to respondents claim, for it deprived the
CTA of its jurisdiction over the subject matter of the case.
Finally, we cannot agree with the Court of Appeals finding that the nature of
the instant case calls for the application of remedial laws. Revenue statutes are
substantive laws and in no sense must their application be equated with that of
remedial laws. As well said in a prior case, revenue laws are not intended to be
liberally construed.Considering that taxes are the lifeblood of the government and in
Holmess memorable metaphor, the price we pay for civilization, tax laws must be
faithfully and strictly implemented.

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