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Tax exemption

CIR vs. PLDT

1. From 1992-1994, PLDT paid taxes amounting to more than 164 M


pesos for equipment, machineries, and spare parts it imported for its
business and also paid VAT amounting to more than 116 M pesos for
similar importations.
2. It then sought a confirmatory ruling on its tax exemption privileges
under S. 12, RA 7082- the law that granted its franchise.
3. BIR then responded by saying that the said company shall only be
subjected to 3% franchise tax on gross receipts in lieu of all taxes.
Thus, it shall also be exempted from VAT.
4. Armed by this ruling, PLDT claimed for tax refund amounting to more
than 280 M pesosesoses representing the compensating taxes,
advance sales taxes, VAT and other internal revenue taxes alleged to
have been erroneously paid on its importations.
5. Not having been acted upon by the BIR, it filed a petition for review
before the CTA which ruled in its favour but reduced the total amount
to 223M+ pesoses. CTA associate judge Saga dissented and said that
the phrase in lieu of all taxes in the aforementioned provision only
covers direct taxes.
6. On appeal, the CA affirmed the CTA decision. Hence, this petition.

Issue: W/N the phrase in lieu of all taxes found in S. 12 of RA 7082


granting the tax exemption to PLDT also covers indirect taxes and therefore
exempts the company from paying VAT and other indirect taxes.

Held:

The court started out by explaining the difference between direct and
indirect taxes.

Direct taxes are those that are exacted from the very person who, it is
intended or desired, should pay them; they are impositions for which a
taxpayer is directly liable on the transaction or business he is engaged in.

On the other hand, indirect taxes are those that are demanded, in the first
instance, from, or are paid by, one person in the expectation and intention
that he can shift the burden to someone else.
It then went on by saying that VAT is an indirect tax- the amount of which
may be shifted to the buyer, transferee, or lessee of goods and is imposed on
all taxpayers who import goods unless under exempted transactions under S.
109 of the Revenue code.

It was also revealed that VAT on importation replaced advance sales tax paid
by regular importers. The court then explained the concepts of the following:

1. Advance sales tax- having attributes of indirect tax, laying the


economic burden on the purchaser;
2. Compensation tax- an excise tax to place, for tax purposes, persons
purchasing from merchants in the PH on a more or less equal basis
withose who buy directly from foreign countries.

It further ruled that the liability of indirect tax payment lies only with the
seller who cannot invoke the exemption privileges to avoid passing VAT to
him by manufacturers or suppliers of goods bought. Thus, it is important to
determine if tax exemption includes indirect taxes. Otherwise, the
presumption is such exemption only includes direct taxes.

As a rule, exemption is the exception. Statutes granting it must be construed


in strictissimi juris (in the strictest letter of the law.) It must be
interepreted strictly against the taxpayer and liberally in favour of the taxing
authority. The burden of justifying exemption lies on the one claiming for the
refund or exemption.

In this case, the phrase: in lieu of all taxes was immediately followed by:
on this franchise or earnings thereof which is considered as a limiting
phrase.

The SC also used the maxim: Redendo singular singulis which means: take
the words distributively and apply the reference; each word or phrase must
be given its proper connection in order to give it proper force and effect
rendering none of them useless or superfluous.

Hence, the CTA and CA decisions practice of employing the literal meaning
of the provision is entirely fallacious. Tax exemption means a loss of revenue
to the government and should not rest on vague reference.

As for the refund of advance sales tax and compensating tax amounting to
more than 94 M pesos, it was granted by the SC since it was admitted by the
BIR that VAT on importations already replaced these taxes.
Thus, the petition was just partially granted.

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