Tax Cases Page 3

BASIC PRINCIPLES OF A SOUND TAX SYSTEM
Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 76778 June 6, 1990
FRANCISCO I. CHAVEZ, petitioner,

vs.
JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in her capacity as
Acting Municipal Treasurer of the Municipality of Las Pias, respondents, REALTY OWNERS
ASSOCIATION OF THE PHILIPPINES, INC., petitioner-intervenor.
Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice and Oppression (Bonifacio)
for petitioner.
Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners Association.
MEDIALDEA, J.:
The petition seeks to declare unconstitutional Executive Order No. 73 dated November 25, 1986, which We
quote in full, as follows (78 O.G. 5861):
EXECUTIVE ORDER No. 73
PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES BASED ON THE 1984 REAL
PROPERTY VALUES, AS PROVIDED FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX
CODE, AS AMENDED
WHEREAS, the collection of real property taxes is still based on the 1978 revision of property values;
WHEREAS, the latest general revision of real property assessments completed in 1984 has rendered the
1978 revised values obsolete;
WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to take
effect on January 1, 1988 instead of January 1, 1985, thus depriving the local government units of an
additional source of revenue;
WHEREAS, there is an urgent need for local governments to augment their financial resources to meet the
rising cost of rendering effective services to the people;
NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines, do hereby order:
SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors during the
latest general revision of assessments shall take effect beginning January 1, 1987 for purposes of real
property tax collection.
SEC. 2. The Minister of Finance shall promulgate the necessary rules and regulations to implement this
Executive Order.
SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby repealed.
SEC. 4. All laws, orders, issuances, and rules and regulations or parts thereof inconsistent with this
Executive Order are hereby repealed or modified accordingly.
SEC. 5. This Executive Order shall take effect immediately.
On March 31, 1987, Memorandum Order No. 77 was issued suspending the implementation of Executive
Order No. 73 until June 30, 1987.
The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three parcels of land. He alleges the
following: that Executive Order No. 73 accelerated the application of the general revision of assessments to
January 1, 1987 thereby mandating an excessive increase in real property taxes by 100% to 400% on
improvements, and up to 100% on land; that any increase in the value of real property brought about by the
revision of real property values and assessments would necessarily lead to a proportionate increase in real
property taxes; that sheer oppression is the result of increasing real property taxes at a period of time when
harsh economic conditions prevail; and that the increase in the market values of real property as reflected in
the schedule of values was brought about only by inflation and economic recession.
The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national association
of owners-lessors, joins Chavez in his petition to declare unconstitutional Executive Order No. 73, but
additionally alleges the following: that Presidential Decree No. 464 is unconstitutional insofar as it imposes
an additional one percent (1%) tax on all property owners to raise funds for education, as real property tax is
admittedly a local tax for local governments; that the General Revision of Assessments does not meet the
requirements of due process as regards publication, notice of hearing, opportunity to be heard and insofar as
it authorizes "replacement cost" of buildings (improvements) which is not provided in Presidential Decree
No. 464, but only in an administrative regulation of the Department of Finance; and that the Joint Local
Assessment/Treasury Regulations No. 2-86 2 is even more oppressive and unconstitutional as it imposes
successive increase of 150% over the 1986 tax.
The Office of the Solicitor General argues against the petition.
The petition is not impressed with merit.
Petitioner Chavez and intervenor ROAP question the constitutionality of Executive Order No. 73 insofar as
the revision of the assessments and the effectivity thereof are concerned. It should be emphasized that
Executive Order No. 73 merely directs, in Section 1 thereof, that:
property tax collection. (emphasis supplied)
The general revision of assessments completed in 1984 is based on Section 21 of Presidential Decree No.
464 which provides, as follows:
SEC. 21. General Revision of Assessments. Beginning with the assessor shall make a calendar year 1978,
the provincial or city general revision of real property assessments in the province or city to take effect
January 1, 1979, and once every five years thereafter: Provided; however, That if property values in a
province or city, or in any municipality, have greatly changed since the last general revision, the provincial
or city assesor may, with the approval of the Secretary of Finance or upon bis direction, undertake a general
revision of assessments in the province or city, or in any municipality before the fifth year from the
effectivity of the last general revision.
Thus, We agree with the Office of the Solicitor General that the attack on Executive Order No. 73 has no
legal basis as the general revision of assessments is a continuing process mandated by Section 21 of
Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which should be challenged as
constitutionally infirm. However, Chavez failed to raise any objection against said decree. It was ROAP
which questioned the constitutionality thereof. Furthermore, Presidential Decree No. 464 furnishes the
procedure by which a tax assessment may be questioned:
SEC. 30. Local Board of Assessment Appeals. Any owner who is not satisfied with the action of the
provincial or city assessor in the assessment of his property may, within sixty days from the date of receipt
by him of the written notice of assessment as provided in this Code, appeal to the Board of Assessment
Appeals of the province or city, by filing with it a petition under oath using the form prescribed for the
purpose, together with copies of the tax declarations and such affidavit or documents submitted in support of
the appeal.
xxx xxx xxx
SEC. 34. Action by the Local Board of assessment Appeals. The Local Board of Assessment Appeals
shall decide the appeal within one hundred and twenty days from the date of receipt of such appeal. The
decision rendered must be based on substantial evidence presented at the hearing or at least contained in the
record and disclosed to the parties or such relevant evidence as a reasonable mind might accept as adequate
to support the conclusion.
In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer
oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoenaduces tecum. The
proceedings of the Board shall be conducted solely for the purpose of ascertaining the truth without-
necessarily adhering to technical rules applicable in judicial proceedings.
The Secretary of the Board shall furnish the property owner and the Provincial or City Assessor with a copy
each of the decision of the Board. In case the provincial or city assessor concurs in the revision or the
assessment, it shall be his duty to notify the property owner of such fact using the form prescribed for the
purpose. The owner or administrator of the property or the assessor who is not satisfied with the decision of
the Board of Assessment Appeals, may, within thirty days after receipt of the decision of the local Board,
appeal to the Central Board of Assessment Appeals by filing his appeal under oath with the Secretary of the
proper provincial or city Board of Assessment Appeals using the prescribed form stating therein the grounds
and the reasons for the appeal, and attaching thereto any evidence pertinent to the case. A copy of the appeal
should be also furnished the Central Board of Assessment Appeals, through its Chairman, by the appellant.
Within ten (10) days from receipt of the appeal, the Secretary of the Board of Assessment Appeals
concerned shall forward the same and all papers related thereto, to the Central Board of Assessment Appeals
through the Chairman thereof.
xxx xxx xxx
SEC. 36. Scope of Powers and Functions. The Central Board of Assessment Appeals shall have
jurisdiction over appealed assessment cases decided by the Local Board of Assessment Appeals. The said
Board shall decide cases brought on appeal within twelve (12) months from the date of receipt, which
decision shall become final and executory after the lapse of fifteen (15) days from the date of receipt of a
copy of the decision by the appellant.
In the exercise of its appellate jurisdiction, the Central Board of Assessment Appeals, or upon express
authority, the Hearing Commissioner, shall have the power to summon witnesses, administer oaths, take
depositions, and issue subpoenas and subpoenas duces tecum.
The Central Board of assessment Appeals shall adopt and promulgate rules of procedure relative to the
conduct of its business.
Simply stated, within sixty days from the date of receipt of the, written notice of assessment, any owner who
doubts the assessment of his property, may appeal to the Local Board of Assessment Appeals. In case the,
owner or administrator of the property or the assessor is not satisfied with the decision of the Local Board of
Assessment Appeals, he may, within thirty days from the receipt of the decision, appeal to the Central Board
of Assessment Appeals. The decision of the Central Board of Assessment Appeals shall become final and
executory after the lapse of fifteen days from the date of receipt of the decision.
Chavez argues further that the unreasonable increase in real property taxes brought about by Executive
Order No. 73 amounts to a confiscation of property repugnant to the constitutional guarantee of due process,
invoking the cases of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No. L-24693, July 31, 1967, 20
SCRA 849) and Sison v. Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130 SCRA 654).
The reliance on these two cases is certainly misplaced because the due process requirement called for therein
applies to the "power to tax." Executive Order No. 73 does not impose new taxes nor increase taxes.
Indeed, the government recognized the financial burden to the taxpayers that will result from an increase in
real property taxes. Hence, Executive Order No. 1019 was issued on April 18, 1985, deferring the
implementation of the increase in real property taxes resulting from the revised real property assessments,
from January 1, 1985 to January 1, 1988. Section 5 thereof is quoted herein as follows:
SEC. 5. The increase in real property taxes resulting from the revised real property assessments as provided
for under Section 21 of Presidential Decree No. 464, as amended by Presidential Decree No. 1621, shall be
collected beginning January 1, 1988 instead of January 1, 1985 in order to enable the Ministry of Finance
and the Ministry of Local Government to establish the new systems of tax collection and assessment
provided herein and in order to alleviate the condition of the people, including real property owners, as a
result of temporary economic difficulties. (emphasis supplied)
The issuance of Executive Order No. 73 which changed the date of implementation of the increase in real
property taxes from January 1, 1988 to January 1, 1987 and therefore repealed Executive Order No. 1019,
also finds ample justification in its "whereas' clauses, as follows:
rising cost of rendering effective services to the people; (emphasis supplied)
xxx xxx xxx
The other allegation of ROAP that Presidential Decree No. 464 is unconstitutional, is not proper to be
resolved in the present petition. As stated at the outset, the issue here is limited to the constitutionality of
Executive Order No. 73. Intervention is not an independent proceeding, but an ancillary and supplemental
one which, in the nature of things, unless otherwise provided for by legislation (or Rules of Court), must be
in subordination to the main proceeding, and it may be laid down as a general rule that an intervention is
limited to the field of litigation open to the original parties (59 Am. Jur. 950. Garcia, etc., et al. v. David, et
al., 67 Phil. 279).
We agree with the observation of the Office of the Solicitor General that without Executive Order No. 73,
the basis for collection of real property taxes win still be the 1978 revision of property values. Certainly, to
continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the
increases in the value of real properties that have occurred since then, is not in consonance with a sound tax
system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of
revenues must be adequate to meet government expenditures and their variations.
ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Bidin,
Sarmiento, Cortes and Regalado, JJ., concur.
Padilla, J., took no part.
Grio-Aquino, J., is on leave.
B. NATURRE AND LIMITATIONS OF THE POWER OF TAXATION

1. NATURE OF THE POWER OF TAXATION
A. INHERENT IN SOVEREIGNITY

SUPREME COURT
Manila
EN BANC
G.R. No. 76778 June 6, 1990
FRANCISCO I. CHAVEZ, petitioner,

vs.
JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in her capacity as
Acting Municipal Treasurer of the Municipality of Las Pias, respondents, REALTY OWNERS
ASSOCIATION OF THE PHILIPPINES, INC., petitioner-intervenor.
Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice and Oppression (Bonifacio)
for petitioner.
Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners Association.
MEDIALDEA, J.:
The petition seeks to declare unconstitutional Executive Order No. 73 dated November 25, 1986, which We
quote in full, as follows (78 O.G. 5861):
EXECUTIVE ORDER No. 73
PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES BASED ON THE 1984 REAL
PROPERTY VALUES, AS PROVIDED FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX
CODE, AS AMENDED
WHEREAS, the collection of real property taxes is still based on the 1978 revision of property values;
WHEREAS, the latest general revision of real property assessments completed in 1984 has rendered the
1978 revised values obsolete;
rising cost of rendering effective services to the people;
NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines, do hereby order:
property tax collection.
SEC. 2. The Minister of Finance shall promulgate the necessary rules and regulations to implement this
Executive Order.
SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby repealed.
SEC. 4. All laws, orders, issuances, and rules and regulations or parts thereof inconsistent with this
Executive Order are hereby repealed or modified accordingly.
SEC. 5. This Executive Order shall take effect immediately.
On March 31, 1987, Memorandum Order No. 77 was issued suspending the implementation of Executive
Order No. 73 until June 30, 1987.
The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three parcels of land. He alleges the
following: that Executive Order No. 73 accelerated the application of the general revision of assessments to
January 1, 1987 thereby mandating an excessive increase in real property taxes by 100% to 400% on
improvements, and up to 100% on land; that any increase in the value of real property brought about by the
revision of real property values and assessments would necessarily lead to a proportionate increase in real
property taxes; that sheer oppression is the result of increasing real property taxes at a period of time when
harsh economic conditions prevail; and that the increase in the market values of real property as reflected in
the schedule of values was brought about only by inflation and economic recession.
The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national association
of owners-lessors, joins Chavez in his petition to declare unconstitutional Executive Order No. 73, but
additionally alleges the following: that Presidential Decree No. 464 is unconstitutional insofar as it imposes
an additional one percent (1%) tax on all property owners to raise funds for education, as real property tax is
admittedly a local tax for local governments; that the General Revision of Assessments does not meet the
requirements of due process as regards publication, notice of hearing, opportunity to be heard and insofar as
it authorizes "replacement cost" of buildings (improvements) which is not provided in Presidential Decree
No. 464, but only in an administrative regulation of the Department of Finance; and that the Joint Local
Assessment/Treasury Regulations No. 2-86 2 is even more oppressive and unconstitutional as it imposes
successive increase of 150% over the 1986 tax.
The Office of the Solicitor General argues against the petition.
The petition is not impressed with merit.
Petitioner Chavez and intervenor ROAP question the constitutionality of Executive Order No. 73 insofar as
the revision of the assessments and the effectivity thereof are concerned. It should be emphasized that
Executive Order No. 73 merely directs, in Section 1 thereof, that:
property tax collection. (emphasis supplied)
The general revision of assessments completed in 1984 is based on Section 21 of Presidential Decree No.
464 which provides, as follows:
SEC. 21. General Revision of Assessments. Beginning with the assessor shall make a calendar year 1978,
the provincial or city general revision of real property assessments in the province or city to take effect
January 1, 1979, and once every five years thereafter: Provided; however, That if property values in a
province or city, or in any municipality, have greatly changed since the last general revision, the provincial
or city assesor may, with the approval of the Secretary of Finance or upon bis direction, undertake a general
revision of assessments in the province or city, or in any municipality before the fifth year from the
effectivity of the last general revision.
Thus, We agree with the Office of the Solicitor General that the attack on Executive Order No. 73 has no
legal basis as the general revision of assessments is a continuing process mandated by Section 21 of
Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which should be challenged as
constitutionally infirm. However, Chavez failed to raise any objection against said decree. It was ROAP
which questioned the constitutionality thereof. Furthermore, Presidential Decree No. 464 furnishes the
procedure by which a tax assessment may be questioned:
SEC. 30. Local Board of Assessment Appeals. Any owner who is not satisfied with the action of the
provincial or city assessor in the assessment of his property may, within sixty days from the date of receipt
by him of the written notice of assessment as provided in this Code, appeal to the Board of Assessment
Appeals of the province or city, by filing with it a petition under oath using the form prescribed for the
purpose, together with copies of the tax declarations and such affidavit or documents submitted in support of
the appeal.
xxx xxx xxx
SEC. 34. Action by the Local Board of assessment Appeals. The Local Board of Assessment Appeals
shall decide the appeal within one hundred and twenty days from the date of receipt of such appeal. The
decision rendered must be based on substantial evidence presented at the hearing or at least contained in the
record and disclosed to the parties or such relevant evidence as a reasonable mind might accept as adequate
to support the conclusion.
In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer
oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoenaduces tecum. The
proceedings of the Board shall be conducted solely for the purpose of ascertaining the truth without-
necessarily adhering to technical rules applicable in judicial proceedings.
The Secretary of the Board shall furnish the property owner and the Provincial or City Assessor with a copy
each of the decision of the Board. In case the provincial or city assessor concurs in the revision or the
assessment, it shall be his duty to notify the property owner of such fact using the form prescribed for the
purpose. The owner or administrator of the property or the assessor who is not satisfied with the decision of
the Board of Assessment Appeals, may, within thirty days after receipt of the decision of the local Board,
appeal to the Central Board of Assessment Appeals by filing his appeal under oath with the Secretary of the
proper provincial or city Board of Assessment Appeals using the prescribed form stating therein the grounds
and the reasons for the appeal, and attaching thereto any evidence pertinent to the case. A copy of the appeal
should be also furnished the Central Board of Assessment Appeals, through its Chairman, by the appellant.
Within ten (10) days from receipt of the appeal, the Secretary of the Board of Assessment Appeals
concerned shall forward the same and all papers related thereto, to the Central Board of Assessment Appeals
through the Chairman thereof.
xxx xxx xxx
SEC. 36. Scope of Powers and Functions. The Central Board of Assessment Appeals shall have
jurisdiction over appealed assessment cases decided by the Local Board of Assessment Appeals. The said
Board shall decide cases brought on appeal within twelve (12) months from the date of receipt, which
decision shall become final and executory after the lapse of fifteen (15) days from the date of receipt of a
copy of the decision by the appellant.
In the exercise of its appellate jurisdiction, the Central Board of Assessment Appeals, or upon express
authority, the Hearing Commissioner, shall have the power to summon witnesses, administer oaths, take
depositions, and issue subpoenas and subpoenas duces tecum.
The Central Board of assessment Appeals shall adopt and promulgate rules of procedure relative to the
conduct of its business.
Simply stated, within sixty days from the date of receipt of the, written notice of assessment, any owner who
doubts the assessment of his property, may appeal to the Local Board of Assessment Appeals. In case the,
owner or administrator of the property or the assessor is not satisfied with the decision of the Local Board of
Assessment Appeals, he may, within thirty days from the receipt of the decision, appeal to the Central Board
of Assessment Appeals. The decision of the Central Board of Assessment Appeals shall become final and
executory after the lapse of fifteen days from the date of receipt of the decision.
Chavez argues further that the unreasonable increase in real property taxes brought about by Executive
Order No. 73 amounts to a confiscation of property repugnant to the constitutional guarantee of due process,
invoking the cases of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No. L-24693, July 31, 1967, 20
SCRA 849) and Sison v. Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130 SCRA 654).
The reliance on these two cases is certainly misplaced because the due process requirement called for therein
applies to the "power to tax." Executive Order No. 73 does not impose new taxes nor increase taxes.
Indeed, the government recognized the financial burden to the taxpayers that will result from an increase in
real property taxes. Hence, Executive Order No. 1019 was issued on April 18, 1985, deferring the
implementation of the increase in real property taxes resulting from the revised real property assessments,
from January 1, 1985 to January 1, 1988. Section 5 thereof is quoted herein as follows:
SEC. 5. The increase in real property taxes resulting from the revised real property assessments as provided
for under Section 21 of Presidential Decree No. 464, as amended by Presidential Decree No. 1621, shall be
collected beginning January 1, 1988 instead of January 1, 1985 in order to enable the Ministry of Finance
and the Ministry of Local Government to establish the new systems of tax collection and assessment
provided herein and in order to alleviate the condition of the people, including real property owners, as a
result of temporary economic difficulties. (emphasis supplied)
The issuance of Executive Order No. 73 which changed the date of implementation of the increase in real
property taxes from January 1, 1988 to January 1, 1987 and therefore repealed Executive Order No. 1019,
also finds ample justification in its "whereas' clauses, as follows:
rising cost of rendering effective services to the people; (emphasis supplied)
xxx xxx xxx
The other allegation of ROAP that Presidential Decree No. 464 is unconstitutional, is not proper to be
resolved in the present petition. As stated at the outset, the issue here is limited to the constitutionality of
Executive Order No. 73. Intervention is not an independent proceeding, but an ancillary and supplemental
one which, in the nature of things, unless otherwise provided for by legislation (or Rules of Court), must be
in subordination to the main proceeding, and it may be laid down as a general rule that an intervention is
limited to the field of litigation open to the original parties (59 Am. Jur. 950. Garcia, etc., et al. v. David, et
al., 67 Phil. 279).
We agree with the observation of the Office of the Solicitor General that without Executive Order No. 73,
the basis for collection of real property taxes win still be the 1978 revision of property values. Certainly, to
continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the
increases in the value of real properties that have occurred since then, is not in consonance with a sound tax
system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of
revenues must be adequate to meet government expenditures and their variations.
ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Bidin,
Sarmiento, Cortes and Regalado, JJ., concur.
Padilla, J., took no part.
Grio-Aquino, J., is on leave.
NATURE AND LIMITATIONS OF THE POWER OF TAXATION

C. EXCLUSIVELY LEGISLATIVE IN NATURE
I. EXTENT OF LEGISKATIVE POWER TO TAX

SUPREME COURT
Manila
EN BANC
G.R. No. 109289 October 3, 1994
RUFINO R. TAN, petitioner,

vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as
COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 109446 October 3, 1994
CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG,

MANUELITO O. CABALLES, ELPIDIO C. JAMORA, JR. and BENJAMIN A. SOMERA,
JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and JOSE U. ONG, in
his capacity as COMMISSIONER OF INTERNAL REVENUE, respondents.
Rufino R. Tan for and in his own behalf.
Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. 109446.
VITUG, J.:
These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, 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
G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93, promulgated by public
respondents pursuant to said law.
Petitioners claim to be taxpayers adversely affected by the continued implementation of the amendatory
legislation.
In G.R. No. 109289, it is asserted that the enactment of Republic Act

No. 7496 violates the following provisions of the Constitution:
Article VI, Section 26(1) Every bill passed by the Congress shall embrace only one subject which shall
be expressed in the title thereof.
Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
Article III, Section 1 No person shall be deprived of . . . property without due process of law, nor shall
any person be denied the equal protection of the laws.
In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue that public
respondents have exceeded their rule-making authority in applying SNIT to general professional
partnerships.
The Solicitor General espouses the position taken by public respondents.
The Court has given due course to both petitions. The parties, in compliance with the Court's directive, have
filed their respective memoranda.
G.R. No. 109289
Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No. 7496, is a
misnomer or, at least, deficient for being merely entitled, "Simplified Net Income Taxation Scheme for the
Self-Employed
and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No. 109289).
The full text of the title actually reads:
An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and Professionals
Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the National Internal
Revenue Code, as Amended.
The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal Revenue Code, as
now amended, provide:
Sec. 21. Tax on citizens or residents.
xxx xxx xxx
(f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged in the Practice of
Profession. A tax is hereby imposed upon the taxable net income as determined in Section 27 received
during each taxable year from all sources, other than income covered by paragraphs (b), (c), (d) and (e) of
this section by every individual whether
a citizen of the Philippines or an alien residing in the Philippines who is self-employed or practices his
profession herein, determined in accordance with the following schedule:
Not over P10,000 3%
Over P10,000 P300 + 9%

but not over P30,000 of excess over P10,000
Over P30,000 P2,100 + 15%

Over P120,000 P15,600 + 20%

Over P350,000 P61,600 + 30%

of excess over P350,000
Sec. 29. Deductions from gross income. In computing taxable income subject to tax under Sections 21(a),
24(a), (b) and (c); and 25 (a)(1), there shall be allowed as deductions the items specified in paragraphs (a) to
(i) of this section: Provided, however, That in computing taxable income subject to tax under Section 21 (f)
in the case of individuals engaged in business or practice of profession, only the following direct costs shall
be allowed as deductions:
(a) Raw materials, supplies and direct labor;
(b) Salaries of employees directly engaged in activities in the course of or pursuant to the business or
practice of their profession;
(c) Telecommunications, electricity, fuel, light and water;
(d) Business rentals;
(e) Depreciation;
(f) Contributions made to the Government and accredited relief organizations for the rehabilitation of
calamity stricken areas declared by the President; and
(g) Interest paid or accrued within a taxable year on loans contracted from accredited financial institutions
which must be proven to have been incurred in connection with the conduct of a taxpayer's profession, trade
or business.
For individuals whose cost of goods sold and direct costs are difficult to determine, a maximum of forty per
cent (40%) of their gross receipts shall be allowed as deductions to answer for business or professional
expenses as the case may be.
On the basis of the above language of the law, it would be difficult to accept petitioner's view that the
amendatory law should be considered as having now adopted a gross income, instead of as having still
retained the net income, taxation scheme. The allowance for deductible items, it is true, may have
significantly been reduced by the questioned law in comparison with that which has prevailed prior to the
amendment; limiting, however, allowable deductions from gross income is neither discordant with, nor
opposed to, the net income tax concept. The fact of the matter is still that various deductions, which are by
no means inconsequential, continue to be well provided under the new law.
Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-rolling legislation
intended to unite the members of the legislature who favor any one of unrelated subjects in support of the
whole act, (b) to avoid surprises or even fraud upon the legislature, and (c) to fairly apprise the people,
through such publications of its proceedings as are usually made, of the subjects of legislation. 1 The above
objectives of the fundamental law appear to us to have been sufficiently met. Anything else would be to
require a virtual compendium of the law which could not have been the intendment of the constitutional
mandate.
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. The contention clearly
forgets, however, that such a system of income taxation has long been the prevailing rule even prior to
Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or
objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities ( Juan Luna
Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not forfend classification as long as: (1) the
standards that are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve
the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and
(4) the classification applies equally well to all those belonging to the same class (Pepsi Cola vs. City of
Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 52).
What may instead be perceived to be apparent from the amendatory law is the legislative intent to
increasingly shift the income tax system towards the schedular approach 2 in the income taxation of
individual taxpayers and to maintain, by and large, the present global treatment 3 on taxable corporations. We
certainly do not view this classification to be arbitrary and inappropriate.
Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process, what he
believes to be an imbalance between the tax liabilities of those covered by the amendatory law and those
who are not. With the legislature primarily lies the discretion to determine the nature (kind), object
(purpose), extent (rate), coverage (subjects) and situs (place) of taxation. This court cannot freely delve into
those matters which, by constitutional fiat, rightly rest on legislative judgment. Of course, where a tax
measure becomes so unconscionable and unjust as to amount to confiscation of property, courts will not
hesitate to strike it down, for, despite all its plenitude, the power to tax cannot override constitutional
proscriptions. This stage, however, has not been demonstrated to have been reached within any appreciable
distance in this controversy before us.
Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for being
violative of due process must perforce fail. 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.
G.R. No. 109446
The several propositions advanced by petitioners revolve around the question of whether or not public
respondents have exceeded their authority in promulgating Section 6, Revenue Regulations No. 2-93, to
carry out Republic Act No. 7496.
The questioned regulation reads:
Sec. 6. General Professional Partnership The general professional partnership (GPP) and the partners
comprising the GPP are covered by R. A. No. 7496. Thus, in determining the net profit of the partnership,
only the direct costs mentioned in said law are to be deducted from partnership income. Also, the expenses
paid or incurred by partners in their individual capacities in the practice of their profession which are not
reimbursed or paid by the partnership but are not considered as direct cost, are not deductible from his gross
income.
The real objection of petitioners is focused on the administrative interpretation of public respondents that
would apply SNIT to partners in general professional partnerships. Petitioners cite the pertinent deliberations
in Congress during its enactment of Republic Act No. 7496, also quoted by the Honorable Hernando B.
Perez, minority floor leader of the House of Representatives, in the latter's privilege speech by way of
commenting on the questioned implementing regulation of public respondents following the effectivity of
the law, thusly:
MR. ALBANO, Now Mr. Speaker, I would like to get the correct impression of this bill. Do we speak here
of individuals who are earning, I mean, who earn through business enterprises and therefore, should file an
income tax return?
MR. PEREZ. That is correct, Mr. Speaker. This does not apply to corporations. It applies only to individuals.
(See Deliberations on H. B. No. 34314, August 6, 1991, 6:15 P.M.; Emphasis ours).
Other deliberations support this position, to wit:
MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman from Batangas say that this bill is intended to
increase collections as far as individuals are concerned and to make collection of taxes equitable?
MR. PEREZ. That is correct, Mr. Speaker.

(Id. at 6:40 P.M.; Emphasis ours).
In fact, in the sponsorship speech of Senator Mamintal Tamano on the Senate version of the SNITS, it is
categorically stated, thus:
This bill, Mr. President, is not applicable to business corporations or to partnerships; it is only with respect
to individuals and professionals. (Emphasis ours)
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.
We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act No.
7496 as an entirely independent, not merely as an amendatory, piece of legislation. The view can easily
become myopic, however, when the law is understood, as it should be, as only forming part of, and subject
to, the whole income tax concept and precepts long obtaining under the National Internal Revenue Code. To
elaborate a little, the phrase "income taxpayers" is an all embracing term used in the Tax Code, and it
practically covers all persons who derive taxable income. The law, in levying the tax, adopts the most
comprehensive tax situs of nationality and residence of the taxpayer (that renders citizens, regardless of
residence, and resident aliens subject to income tax liability on their income from all sources) and of the
generally accepted and internationally recognized income taxable base (that can subject non-resident aliens
and foreign corporations to income tax on their income from Philippine sources). In the process, the Code
classifies taxpayers into four main groups, namely: (1) Individuals, (2) Corporations, (3) Estates under
Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as to corpus and as to income).
Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships." Ordinarily,
partnerships, no matter how created or organized, are subject to income tax (and thus alluded to as "taxable
partnerships") which, for purposes of the above categorization, are by law assimilated to be within the
context of, and so legally contemplated as, corporations. Except for few variances, such as in the application
of the "constructive receipt rule" in the derivation of income, the income tax approach is alike to both
juridical persons. Obviously, SNIT is not intended or envisioned, as so correctly pointed out in the
discussions in Congress during its deliberations on Republic Act 7496, aforequoted, to cover corporations
and partnerships which are independently subject to the payment of income tax.
"Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even considered
as independent taxable entities for income tax purposes. A general professional partnership is such an
example. 4Here, the partners themselves, not the partnership (although it is still obligated to file an income
tax return [mainly for administration and data]), are liable for the payment of income tax in
their individual capacity computed on their respective and distributive shares of profits. In the determination
of the tax liability, a partner does so as an individual, and there is no choice on the matter. In fine, under the
Tax Code on income taxation, the general professional partnership is deemed to be no more than a mere
mechanism or a flow-through entity in the generation of income by, and the ultimate distribution of such
income to, respectively, each of the individual partners.
Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as
now so modified by Republic Act
No. 7496 on basically the extent of allowable deductions applicable to all individual income taxpayers on
their non-compensation income. There is no evident intention of the law, either before or after the
amendatory legislation, to place in an unequal footing or in significant variance the income tax treatment of
professionals who practice their respective professions individually and of those who do it through a general
professional partnership.
WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno, Kapunan
and Mendoza, JJ., concur.
Padilla and Bidin, JJ., are on leave.
#Footnotes
1 Justice Isagani A. Cruz on Philippine Political Law 1993 edition, pp. 146-147, citing with approval Cooley
on Constitutional Limitations.
2 A system employed where the income tax treatment varies and made to depend on the kind or category of
taxable income of the taxpayer.
3 A system where the tax treatment views indifferently the tax base and generally treats in common all
categories of taxable income of the taxpayer.
4 A general professional partnership, in this context, must be formed for the sole purpose of exercising
a common profession, no part of the income of which is derived from its engaging in any trade business;
otherwise, it is subject to tax as an ordinary business partnership or, which is to say, as a corporation and
thereby subject to the corporate income tax. The only other exempt partnership is a joint venture for
undertaking construction projects or engaging in petroleum operations pursuant to an operating agreement
under a service contract with the government (see Sections 20, 23 and 24, National Internal Revenue Code).

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 119252 August 18, 1997
COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS, petitioners,

vs.
HON. APOLINARIO B. SANTOS, in his capacity as Presiding Judge of the Regional Trial Court,
Branch 67, Pasig City; ANTONIO M. MARCO; JEWELRY BY MARCO & CO., INC., and GUILD
OF PHILIPPINE JEWELLERS, INC., respondents.
HERMOSISIMA, JR., J.:
Of grave concern to this Court is the judicial pronouncement of the court a quo that certain provisions of the
Tariff & Customs Code and the National Internal Revenue Code are unconstitutional. This provokes the
issue: Can the Regional Trial Courts declare a law inoperative and without force and effect or otherwise
unconstitutional? If it can, under what circumstances?
In this petition, the Commissioner of Internal Revenue and the Commissioner of Customs jointly seek the
reversal of the Decision, 1 dated February 16, 1995, of herein public respondent, Hon. Apolinario B. Santos,
Presiding Judge of Branch 67 of the Regional Trial Court of Pasig City.
The following facts, concisely related in the petition 2 of the Office of the Solicitor General, appear to be
undisputed:
1. Private respondent Guild of Philippine Jewelers, Inc., is an association of Filipino jewelers engaged in the
manufacture of jewelries (sic) and allied undertakings. Among its members are Hans Brumann, Inc.,
Miladay Jewels, Inc., Mercelles, Inc., Solid Gold International Traders, Inc., Diagem Trading Corporation,
and private respondent Jewelry by Marco & Co., Inc. Private respondent Antonio M. Marco is the President
of the Guild.
2. On August 5, 1988, Felicidad L. Viray, then Regional Director, Region No. 4-A of the Bureau of Internal
Revenue, acting for and in behalf of the Commissioner of Internal Revenue, issued Regional Mission Order
No. 109-88 to BIR officers, led by Eliseo Corcega, to conduct surveillance, monitoring, and inventory of all
imported articles of Hans Brumann, Inc., and place the same under preventive embargo. The duration of the
mission was from August 8 to August 20, 1988 (Exhibit "1"; Exhibit "A").
3. On August 17, 1988, pursuant to the aforementioned Mission Order, the BIR officers proceeded to the
establishment of Hans Brumann, Inc., served the Mission Order, and informed the establishment that they
were going to make an inventory of the articles involved to see if the proper taxes thereon have been paid.
They then made an inventory of the articles displayed in the cabinets with the assistance of an employee of
the establishment. They listed down the articles, which list was signed by the assistant employee. They also
requested the presentation of proof of necessary payments for excise tax and value-added tax on said articles
(pp. 10-15, TSN, April 12, 1993, Exhibits "2", "2-A", "3", "3-A").
4. The BIR officers requested the establishment not to sell the articles until it can be proven that the
necessary taxes thereon have been paid. Accordingly, Mr. Hans Brumann, the owner of the establishment,
signed a receipt for Goods, Articles, and Things Seized under Authority of the National Internal Revenue
Code (dated August 17, 1988), acknowledging that the articles inventoried have been seized and left in his
possession, and promising not to dispose of the same without authority of the Commissioner of Internal
Revenue pending investigation. 3
5. Subsequently, BIR officer Eliseo Corcega submitted to his superiors a report of the inventory conducted
and a computation of the value-added tax and ad valorem tax on the articles for evaluation and disposition. 4
6. Mr. Hans Brumann, the owner of the establishment, never filed a protest with the BIR on the preventive
embargo of the articles. 5
7. On October 17, 1988, Letter of Authority No. 0020596 was issued by Deputy Commissioner Eufracio D.
Santos to BIR officers to examine the books of accounts and other accounting records of Hans Brumann,
Inc., for "stocktaking investigation for excise tax purposes for the period January 1, 1988 to present"
(Exhibit "C"). In a letter dated October 27, 1988, in connection with the physical count of the inventory
(stocks on hand) pursuant to said Letter of Authority, Hans Brumann, Inc. was requested to prepare and
make available to the BIR the documents indicated therein (Exhibit "D").
8. Hans Brumann, Inc., did not produce the documents requested by the BIR. 6
9. Similar Letter of Authority were issued to BIR officers to examine the books of accounts and other
accounting records of Miladay Jewels, Inc., Mercelles, Inc., Solid Gold International Traders, Inc., (Exhibits
"E", "G" and "N") and Diagem Trading Corporation 7 for "stocktaking/investigation far excise tax purpose
for the period January 1, 1988 to present."
10. In the case of Miladay Jewels, Inc. and Mercelles, Inc., there is no account of what actually transpired in
the implementation of the Letters of Authority.
11. In the case of Solid Gold International Traders Corporation, the BIR officers made an inventory of the
articles in the establishment. 8 The same is true with respect to Diagem Traders Corporation. 9
12. On November 29, 1988, private respondents Antonio M. Marco and Jewelry By Marco & Co., Inc. filed
with the Regional Trial Court, National Capital Judicial Region, Pasig City, Metro Manila, a petition for
declaratory relief with writ of preliminary injunction and/or temporary restraining order against herein
petitioners and Revenue Regional Director Felicidad L. Viray (docketed as Civil Case No. 56736) praying
that Sections 126, 127(a) and (b) and 150(a) of the National Internal Revenue Code and Hdg. No. 71.01,
71.02, 71.03, and 71.04, Chapter 71 of the Tariff and Customs Code of the Philippines be declared
unconstitutional and void, and that the Commissioner of Internal Revenue and Customs be prevented or
enjoined from issuing mission orders and other orders of similar nature. . . .
13. On February 9, 1989, herein petitioners filed their answer to the petition. . . .
14 On October 16, 1989, private respondents filed a Motion with Leave to Amend Petition by including as
petitioner the Guild of Philippine Jewelers, Inc., which motion was granted. . . .
15. The case, which was originally assigned to Branch 154, was later reassigned to Branch 67.
16. On February 16, 1995, public respondents rendered a decision, the dispositive portion of which reads:
In view of the foregoing reflections, judgment is hereby rendered, as follows:
1. Declaring Section 104 of the Tariff and the Customs Code of the Philippines, Hdg. 71.01, 71.02, 71.03,
and 71.04, Chapter 71 as amended by Executive Order No. 470, imposing three to ten (3% to 10%) percent
tariff and customs duty on natural and cultured pearls and precious or semi-precious stones, and Section 150
par. (a) the National Internal Revenue Code of 1977, as amended, renumbered and rearranged by Executive
Order 273, imposing twenty (20%) percent excise tax on jewelry, pearls and other precious stones, as
INOPERATIVE and WITHOUT FORCE and EFFECT insofar as petitioners are concerned.
2. Enforcement of the same is hereby enjoined.
No cost.
SO ORDERED.
Section 150 (a) of Executive Order No. 273 reads:
Sec. 150. Non-essential goods. There shall be levied, assessed and collected a tax equivalent to 20%
based on the wholesale price or the value of importation used by the Bureau of Customs in determining tariff
and customs duties; net of the excise tax and value-added tax, of the following goods:
(a) All goods commonly or commercially known as jewelry, whether real or imitation, pearls, precious and
semi-precious stones and imitations thereof; goods made of, or ornamented, mounted and fitted with,
precious metals or imitations thereof or ivory (not including surgical and dental instruments, silver-plated
wares, frames or mountings for spectacles or eyeglasses, and dental gold or gold alloys and other precious
metals used in filling, mounting or fitting of the teeth); opera glasses and lorgnettes. The term "precious
metals" shall include platinum, gold, silver, and other metals of similar or greater value. The term
"imitations thereof" shall include platings and alloys of such metals.
Section 150 (a) of Executive Order No. 273, which took effect on January 1, 1988, amended the then
Section 163 (a) of the Tax Code of 1986 which provided that:
Sec. 163. Percentage tax on sales of non-essential articles. There shall be levied, assessed and collected,
once only on every original sale, barter, exchange or similar transaction for nominal or valuable
consideration intended to transfer ownership of, or title to, the articles herein below enumerated a tax
equivalent to 50% of the gross value in money of the articles so sold, bartered, exchanged or transferred,
such tax to be paid by the manufacturer or producer:
(a) All articles commonly or commercially known as jewelry, whether real or imitation, pearls, precious and
semi-precious stones, and imitations thereof, articles made of, or ornamented, mounted or fitted with,
precious metals or imitations thereof or ivory (not including surgical and dental instruments, silver-plated
wares, frames or mounting for spectacles or eyeglasses, and dental gold or gold alloys and other precious
metal used in filling, mounting or fitting of the teeth); opera glasses, and lorgnettes. The term "precious
metals" shall include platinum, gold, silver, and other metals of similar or greater value. The term
"imitations thereof" shall include platings and alloys of such metals;
Section 163 (a) of the 1986 Tax Code was formerly Section 194(a) of the 1977 Tax Code and Section 184(a)
of the Tax code, as amended by Presidential Decree No. 69, which took effect on January 1, 1974.
It will be noted that, while under the present law, jewelry is subject to a 20% excise tax in addition to a 10%
value-added tax under the old law, it was subjected to 50% percentage tax. It was even subjected to a 70%
percentage tax under then Section 184(a) of the Tax Code, as amended by P.D. 69.
Section 104, Hdg. Nos. 17.01, 17.02, 17.03 and 17.04, Chapter 71 of the Tariff and Customs Code, as
amended by Executive Order No. 470, dated July 20, 1991, imposes import duty on natural or cultured
pearls and precious or semi-precious stones at the rate of 3% to 10% to be applied in stages from 1991 to
1994 and 30% in 1995.
Prior to the issuance of E.O. 470, the rate of import duty in 1988 was 10% to 50% when the petition was
filed in the court a quo.
In support of their petition before the lower court, the private respondents submitted a position paper
purporting to be an exhaustive study of the tax rates on jewelry prevailing in other Asian countries, in
comparison to tax rates levied on the same in the Philippines. 10
The following issues were thus raised therein:
1. Whether or not the Honorable Court has jurisdiction over the subject matter of the petition.
2. Whether the petition states a cause of action or whether the petition alleges a justiciable controversy
between the parties.
3. Whether Section 150, par. (a) of the NIRC and Section 104, Hdg. 71.01, 71.02, 71.03 and 71.04 of the
Tariff and Customs Code are unconstitutional.
4. Whether the issuance of the Mission Order and Letters of Authority is valid and legal.
In the assailed decision, the public respondent held indeed that the Regional Trial Court has jurisdiction to
take cognizance of the petition since "jurisdiction over the nature of the suit is conferred by law and it is
determine[d] through the allegations in the petition," and that the "Court of Tax Appeals has no jurisdiction
to declare a statute unconstitutional much less issue writs of certiorari and prohibition in order to correct
acts of respondents allegedly committed with grave abuse of discretion amounting to lack of jurisdiction."
As to the second issue, the public respondent, made the holding that there exists a justiciable controversy
between the parties, agreeing with the statements made in the position paper presented by the private
respondents, and considering these statements to be factual evidence, to wit:
Evidence for the petitioners indeed reveals that government taxation policy treats jewelry, pearls, and other
precious stones and metals as non-essential luxury items and therefore, taxed heavily; that the atmospheric
cost of taxation is killing the local manufacturing jewelry industry because they cannot compete with
neighboring and other countries where importation and manufacturing of jewelry is not taxed heavily, if not
at all; that while government incentives and subsidies exit, local manufacturers cannot avail of the same
because officially many of them are unregistered and are unable to produce the required official documents
because they operate underground, outside the tariff and tax structure; that local jewelry manufacturing is
under threat of extinction, otherwise discouraged, while domestic trading has become more attractive; and as
a consequence, neighboring countries, such as: Hongkong, Singapore, Malaysia, Thailand, and other foreign
competitors supplying the Philippine market either through local channels or through the black market for
smuggled goods are the ones who are getting business and making money, while members of the petitioner
Guild of Philippine Jewelers, Inc. are constantly subjected to bureaucratic harassment instead of being given
by the government the necessary support in order to survive and generate revenue for the government, and
most of all fight competitively not only in the domestic market but in the arena of world market where the
real contest is.
Considering the allegations of fact in the petition which were duly proven during the trial, the Court holds
that the petition states a cause of action and there exists a justiciable controversy between the parties which
would require determination of constitutionality of the laws imposing excise tax and customs duty on
jewelry. 11 (emphasis ours)
The public respondent, in addressing the third issue, ruled that the laws in question are confiscatory and
oppressive. Again, virtually adopting verbatim the reasons presented by the private respondents in their
position paper, the lower court stated:
The Court finds that indeed government taxation policy trats(sic) hewelry(sic) as non-essential luxury item
and therefore, taxed heavily. Aside from the ten (10%) percent value added tax (VAT), local jewelry
manufacturers contend with the (manufacturing) excise tax of twenty (20%) percent (to be applied in stages)
customs duties on imported raw materials, the highest in the Asia-Pacific region. In contrast, imported
gemstones and other precious metals are duty free in Hongkong, Thailand, Malaysia and Singapore.
The Court elaborates further on the experiences of other countries in their treatment of the jewelry sector.
MALAYSIA
Duties and taxes on imported gemstones and gold and the sales tax on jewelry were abolished in Malaysia in
1984. They were removed to encourage the development of Malaysia's jewelry manufacturing industry and
to increase exports of jewelry.
THAILAND
Gems and jewelry are Thailand's ninth most important export earner. In the past, the industry was
overlooked by successive administrations much to the dismay of those involved in developing trade.
Prohibitive import duties and sales tax on precious gemstones restricted the growht (sic) of the industry,
resulting in most of the business being unofficial. It was indeed difficult for a government or businessman to
promote an industry which did not officially exist.
Despite these circumstances, Thailand's Gem business kept growing up in (sic) businessmen began to realize
it's potential. In 1978, the government quietly removed the severe duties on precious stones, but imposed a
sales tax of 3.5%. Little was said or done at that time as the government wanted to see if a free trade in
gemstones and jewelry would increase local manufacturing and exports or if it would mean more foreign
made jewelry pouring into Thailand. However, as time progressed, there were indications that local
manufacturing was indeed being encouraged and the economy was earning mom from exports. The
government soon removed the 3% sales tax too, putting Thailand at par with Hongkong and Singapore. In
these countries, there are no more import duties and sales tax on gems. (Cited in pages 6 and 7 of Exhibit
"M". The Center for Research and Communication in cooperation with the Guild of Philippine Jewelers,
Inc., June 1986).
To illustrate, shown hereunder is the Philippine tariff and tax structure on jewelry and other precious and
semi-precious stones compared to other neighboring countries, to wit:
Tariff on imported
Jewelry and (Manufacturing) Sales Tax 10% (VAT)
precious stones Excise tax
Philippines 3% to 10% to be 20% 10% VAT

applied in stages
Malaysia None None None
Thailand None None None
Singapore None None None
Hongkong None None None
In this connection, the present tariff and tax structure increases manufacturing costs and renders the local
jewelry manufacturers uncompetitive against other countries even before they start manufacturing and
trading. Because of the prohibitive cast (sic) of taxation, most manufacturers source from black market for
smuggled goods, and that while manufacturers can avail of tax exemption and/or tax credits from the
(manufacturing) excise tax, they have no documents to present when filing this exemption because, or
pointed out earlier, most of them source their raw materials from the block market, and since many of them
do not legally exist or operate onofficially (sic), or underground, again they have no records (receipts) to
indicate where and when they will utilize such tax credits. (Cited in Exhibit "M" Buencamino Report).
Given these constraints, the local manufacturer has no recourse but to the back door for smuggled goods if
only to be able to compete even ineffectively, or cease manufacturing activities and instead engage in the
tradinf (sic) of smuggled finished jewelry.
Worthy of note is the fact that indeed no evidence was adduced by respondents to disprove the foregoing
allegations of fact. Under the foregoing factual circumstances, the Court finds the questioned statutory
provisions confiscatory and destructive of the proprietary right of the petitioners to engage in business in
violation of Section 1, Article III of the Constitution which states, as follows:
No person shall be deprived of the life, liberty, or property without due process of law . . . . 12
Anent the fourth and last issue, the herein public respondent did not find it necessary to rule thereon, since,
in his opinion, "the same has been rendered moot and academic by the aforementioned pronouncement." 13
The petitioners now assail the decision rendered by the public respondent, contending that the latter has no
authority to pass judgment upon the taxation policy of the government. In addition, the petitioners impugn
the decision in question by asserting that there was no showing that the tax laws on jewelry are confiscatory
and destructive of private respondent's proprietary rights.
We rule in favor of the petitioners.
It is interesting to note that public respondent, in the dispositive portion of his decision, perhaps keeping in
mind his limitations under the law as a trial judge, did not go so far as to declare the laws in question to be
unconstitutional. However, therein he declared the laws to be inoperative and without force and
effect insofar as the private respondents are concerned. But, respondent judge, in the body of his decision,
unequivocally but wrongly declared the said provisions of law to be violative of Section 1, Article III of the
Constitution. In fact, in their Supplemental Comment on the Petition for Review, 14 the private respondents
insist that Judge Santos, in his capacity as judge of the Regional Trial Court, acted within his authority in
passing upon the issues, to wit:
A perusal of the appealed decision would undoubtedly disclose that public respondent did not pass judgment
on the soundness or wisdom of the government's tax policy on jewelry. True, public respondent, in his
questioned decision, observed, inter alia, that indeed government tax policy treats jewelry as non-essential
item, and therefore, taxed heavily; that the present tariff and tax structure increase manufacturing cost and
renders the local jewelry manufacturers uncompetitive against other countries even before they start
manufacturing and trading; that many of the local manufacturers do not legally exist or operate unofficially
or underground; and that the manufacturers have no recourse but to the back door for smuggled goods if
only to be able to compete even if ineffectively or cease manufacturing activities.
BUT, public respondent did not, in any manner, interfere with or encroach upon the prerogative of the
legislature to determine what should be the tax policy on jewelry. On the other hand, the issue raised before,
and passed upon by, the public respondent was whether or not Section 150, paragraph (a) of the National
Internal Revenue Code (NIRC) and Section 104, Hdg. 71.01, 71.02, 71.03 and 71.04 of the Tariff and
Customs Code are unconstitutional, or differently stated, whether or not the questioned statutory provisions
affect the constitutional right of private respondents to engage in business.
It is submitted that public respondent confined himself on this issue which is clearly a judicial question.
We find it incongruous, in the face of the sweeping pronouncements made by Judge Santos in his decision,
that private respondents can still persist in their argument that the former did not overreach the restrictions
dictated upon him by law. There is no doubt in the Court's mind, despite protestations to the contrary, that
respondent judge encroached upon matters properly falling within the province of legislative functions. In
citing as basis for his decision unproven comparative data pertaining to differences between tax rates of
various Asian countries, and concluding that the jewelry industry in the Philippines suffers as a result, the
respondent judge took it upon himself to supplant legislative policy regarding jewelry taxation. In
advocating the abolition of local tax and duty on jewelry simply because other countries have adopted such
policies, the respondent judge overlooked the fact that such matters are not for him to decide. There are
reasons why jewelry, a non-essential item, is taxed as it is in this country, and these reasons, deliberated
upon by our legislature, are beyond the reach of judicial questioning. As held in Macasiano vs. National
Housing Authority: 15
The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of the
political departments are valid in the absence of a clear and unmistakable showing to the contrary. To doubt
is to sustain. This presumption is based on the doctrine of separation of powers which enjoins upon each
department a becoming respect for the acts of the other departments. The theory is that as the joint act of
Congress and the President of the Philippines, a law has been carefully studied and determined to be in
accordance with the fundamental low before it was finally enacted. (emphasis ours)
What we see here is a debate on the WISDOM of the laws in question. This is a matter on which the RTC is
not competent to rule. 16 As Cooley observed: "Debatable questions are for the legislature to decide. The
courts do not sit to resolve the merits of conflicting issues." 17 In Angara vs. Electoral Commission, 18 Justice
Laurel made it clear that "the judiciary does not pass upon questions of wisdom, justice or expediency of
legislation." And fittingly so, for in the exercise of judicial power, we are allowed only "to settle actual
controversies involving rights which are legally demandable and enforceable", and may not annul an act of
the political departments simply because we feel it is unwise or impractical. 19 This is not to say that
Regional Trial Courts have no power whatsoever to declare a law unconstitutional. In J.M. Tuason
and Co.v. Court of Appeals, 20 we said that "[p]lainly the Constitution contemplates that the inferior courts
should have jurisdiction in cases involving constitutionality of any treaty or law, for it speaks of appellate
review of final judgments of inferior courts in cases where such constitutionality happens to be in issue."
This authority of lower courts to decide questions of constitutionality in the first instance reaffirmed in Ynos
v. Intermediate Court of Appeals. 21 But this authority does not extend to deciding questions which pertain to
legislative policy.
The trial court is not the proper forum for the ventilation of the issues raised by the private respondents. The
arguments they presented focus on the wisdom of the provisions of law which they seek to nullify. Regional
Trial Courts can only look into the validity of a provision, that is, whether or not it has been passed
according to the procedures laid down by law, and thus cannot inquire as to the reasons for its existence.
Granting arguendo that the private respondents may have provided convincing arguments why the jewelry
industry in the Philippines should not be taxed as it is, it is to the legislature that they must resort to for
relief, since with the legislature primarily lies the discretion to determine the nature (kind), object (purpose),
extent (rate), coverage (subjects) and situs (place) of taxation. This Court cannot freely delve into those
matters which, by constitutional fiat, rightly rest on legislative judgment. 22
As succinctly put in Lim vs. Pacquing: 23 "Where a controversy may be settled on a platform other than one
involving constitutional adjudication, the court should exercise becoming modesty and avoid the
constitutional question." As judges, we can only interpret and apply the law and, despite our doubts about its
wisdom, cannot repeal or amend it. 24
The respondents presented an exhaustive study on the tax rates on jewelry levied by different Asian
countries. This is meant to convince us that compared to other countries, the tax rates imposed on said
industry in the Philippines is oppressive and confiscatory. This Court, however, cannot subscribe to the
theory that the tax rates of other countries should be used as a yardstick in determining what may be the
proper subjects of taxation in our own country. It should be pointed out that in imposing the aforementioned
taxes and duties, the State, acting through the legislative and executive branches, is exercising its sovereign
prerogative. It is inherent in the power to tax that the State be free to select the subjects of taxation, and it
has been repeatedly held that "inequalities which result from a singling out or one particular class for
taxation, or exemption, infringe no constitutional limitation." 25
WHEREFORE, premises considered, the petition is hereby GRANTED, and the Decision in Civil Case No.
56736 is hereby REVERSED and SET ASIDE. No costs.
SO ORDERED.
Padilla, Bellosillo, Vitug and Kapunan, JJ., concur.


SUPREME COURT
Manila
EN BANC
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,

vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA,
Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner,
Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO,
Chairman, Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the
validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The
assailed provision further amends Section 21 of the National Internal Revenue Code of 1977, which
provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income,
(c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary
benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of
individual partner in the net profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as
taxpayer alleges that by virtue thereof, "he would be unduly discriminated against by the imposition of
higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are
imposed upon fixed income or salaried individual taxpayers. 4He characterizes the above sction as arbitrary
amounting to class legislation, oppressive and capricious in character 5 For petitioner, therefore, there is a
transgression of both the equal protection and due process clauses 6 of the Constitution as well as of the rule
requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from
notice. Such an answer, after two extensions were granted the Office of the Solicitor General, was filed on
May 28, 1982. 8The facts as alleged were admitted but not the allegations which to their mind are "mere
arguments, opinions or conclusions on the part of the petitioner, the truth [for them] being those stated [in
their] Special and Affirmative Defenses." 9 The answer then affirmed: "Batas Pambansa Big. 135 is a valid
exercise of the State's power to tax. The authorities and cases cited while correctly quoted or paraghraph do
not support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set
forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and
initiative and which the government was called upon to enter optionally, and only 'because it was better
equipped to administer for the public welfare than is any private individual or group of individuals,' continue
to lose their well-defined boundaries and to be absorbed within activities that the government must
undertake in its sovereign capacity if it is to meet the increasing social challenges of the times." 11 Hence
the need for more revenues. The power to tax, an inherent prerogative, has to be availed of to assure the
performance of vital state functions. It is the source of the bulk of public funds. To praphrase a recent
decision, taxes being the lifeblood of the government, their prompt and certain availability is of the
essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the
strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its plenitude 'the
power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits . Adversely
affecting as it does properly rights, both the due process and equal protection clauses inay properly be
invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were otherwise, there
would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to
destroy." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1,
unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of the
times following] a free use of absolutes." 16 This is merely to emphasize that it is riot and there cannot be
such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun
from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The power to
tax is not the power to destroy while this Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative
or executive, act that runs counter to it. In any case therefore where it can be demonstrated that the
challenged statutory provision as petitioner here alleges fails to abide by its command, then this Court
must so declare and adjudge it null. The injury thus is centered on the question of whether the imposition of
a higher tax rate on taxable net income derived from business or profession than on compensation is
constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here.
does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void or its face, he has not made out a case. This is
merely to adhere to the authoritative doctrine that were the due process and equal protection clauses are
invoked, considering that they arc not fixed rules but rather broad standards, there is a need for of such
persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity
must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it
finds no support in the Constitution. An obvious example is where it can be shown to amount to the
confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Court to say
that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the
application of the Holmes dictum. It has also been held that where the assailed tax measure is beyond the
jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the lice power or the power of eminent
domain is to demonstrated that the governmental act assailed, far from being inspired by the attainment of
the common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no
support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar
circumstances or that all persons must be treated in the same manner, the conditions not being different, both
in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed.
For the principle is that equal protection and security shall be given to every person under circumtances
which if not Identical are analogous. If law be looked upon in terms of burden or charges, those that fall
within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally
binding on the rest." 20 That same formulation applies as well to taxation measures. The equal protection
clause is, of course, inspired by the noble concept of approximating the Ideal of the laws benefits being
available to all and the affairs of men being governed by that serene and impartial uniformity, which is of the
very essence of the Idea of law. There is, however, wisdom, as well as realism in these words of Justice
Frankfurter: "The equality at which the 'equal protection' clause aims is not a disembodied equality. The
Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions.
They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific
difficulties, address to the attainment of specific ends by the use of specific remedies. The Constitution does
not require things which are different in fact or opinion to be treated in law as though they were the
same."21 Hence the constant reiteration of the view that classification if rational in character is allowable. As
a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far
as to hold "at any rate, 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.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of
taxation shag be uniform and equitable." 24 This requirement is met according to Justice Laurel in Philippine
Trust Company v. Yatco, 25 decided in 1940, when the tax "operates with the same force and effect in every
place where the subject may be found. " 26 He likewise added: "The rule of uniformity does not call for
perfect uniformity or perfect equality, because this is hardly attainable." 27 The problem of classification did
not present itself in that case. It did not arise until nine years later, when the Supreme Court held: "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, ... . 28 As clarified by Justice Tuason, where "the differentiation" complained of
"conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this
clause and is therefore uniform." 29 There is quite a similarity then to the standard of equal protection for all
that is required is that the tax "applies equally to all persons, firms and corporations placed in similar
situation." 30
8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the
distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable
income by eliminating all deductible items and at the same time reducing the applicable tax rate. Taxpayers
may be classified into different categories. To repeat, it. is enough that the classification must rest upon
substantial distinctions that make real differences. In the case of the gross income taxation embodied in
Batas Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of the income to the
application of generalized rules removing all deductible items for all taxpayers within the class and fixing a
set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income
are set apart as a class. As there is practically no overhead expense, these taxpayers are e not entitled to
make deductions for income tax purposes because they are in the same situation more or less. On the other
hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in
the costs or expenses necessary to produce their income. It would not be just then to disregard the disparities
by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis
of gross income. There is ample justification then for the Batasang Pambansa 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.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of factual
foundation to show the arbitrary character of the assailed provision; 31 (2) the force of controlling doctrines
on due process, equal protection, and uniformity in taxation and (3) the reasonableness of the distinction
between compensation and taxable net income of professionals and businessman certainly not a suspect
classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and
Cuevas, JJ., concur.
Teehankee, J., concurs in the result.
Plana, J., took no part.
Separate Opinions
AQUINO, J., concurring:
I concur in the result. The petitioner has no cause of action for prohibition.
ABAD SANTOS, J., dissenting:
This is a frivolous suit. While the tax rates for compensation income are lower than those for net income
such circumtance does not necessarily result in lower tax payments for these receiving compensation
income. In fact, the reverse will most likely be the case; those who file returns on the basis of net income
will pay less taxes because they claim all sort of deduction justified or not I vote for dismissal.
Separate Opinions
AQUINO, J., concurring:
I concur in the result. The petitioner has no cause of action for prohibition.
ABAD SANTOS, J., dissenting:
This is a frivolous suit. While the tax rates for compensation income are lower than those for net income
such circumtance does not necessarily result in lower tax payments for these receiving compensation
income. In fact, the reverse will most likely be the case; those who file returns on the basis of net income
will pay less taxes because they claim all sort of deduction justified or not I vote for dismissal.


SUPREME COURT
Manila
EN BANC
G.R. No. 81311 June 30, 1988
KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC.,

HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C.
VILLANUEVA, petitioners,
vs.
HON. BIENVENIDO TAN, as Commissioner of Internal Revenue, respondent.
G.R. No. 81820 June 30, 1988
KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated labor federations and
alliances,petitioners,
vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE COMMISSIONER OF
INTERNAL REVENUE, and SECRETARY OF BUDGET, respondents.
G.R. No. 81921 June 30, 1988
INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE PHILIPPINES and JESUS B.

BANAL, petitioners,
vs.
The HON. COMMISSIONER, BUREAU OF INTERNAL REVENUE, respondent.
G.R. No. 82152 June 30, 1988
RICARDO C. VALMONTE, petitioner,

vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, COMMISSIONER OF INTERNAL
REVENUE and SECRETARY OF BUDGET, respondent.
Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311.
Jaime C. Opinion for individual petitioners in G.R. No. 81311.

Banzuela, Flores, Miralles, Raeses, Sy, Taquio and Associates for petitioners in G.R. No 81820.
Union of Lawyers and Advocates for Peoples Right collaborating counsel for petitioners in G.R. No 81820.
Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921.
PADILLA, J.:
These four (4) petitions, which have been consolidated because of the similarity of the main issues involved
therein, seek to nullify Executive Order No. 273 (EO 273, for short), 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 (VAT, for short), for being unconstitutional
in that its enactment is not alledgedly 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.
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 wether 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.
But, before resolving the issues raised, a brief look into the tax law in question is in order.
The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller,
with aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his purchase of goods
and services, unless exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of goods or
gross receipts realized from the sale of services.
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers,
advance sales tax, and compensating tax on importations. The framers of EO 273 that it is principally aimed
to rationalize the system of taxing goods and services; simplify tax administration; and make the tax system
more equitable, to enable the country to attain economic recovery.
The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As
pointed out by the Solicitor General, the Philippine sales tax system, prior to the issuance of EO 273, was
essentially a single stage value added tax system computed under the "cost subtraction method" or "cost
deduction method" and was imposed only on original sale, barter or exchange of articles by manufacturers,
producers, or importers. Subsequent sales of such articles were not subject to sales tax. However, with the
issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second sale, which was reduced to
1.5% upon the issuance of PD 2006 on 31 December 1985, to take effect 1 January 1986. Reduced sales
taxes were imposed not only on the second sale, but on everysubsequent sale, as well. EO 273 merely
increased the VAT on every sale to 10%, unless zero-rated or exempt.
Petitioners first contend that EO 273 is unconstitutional on the Ground that the President had no authority to
issue EO 273 on 25 July 1987.
The contention is without merit.
It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole
legislative authority was vested upon the President. Art. II, sec. 1 of the Provisional Constitution states:
Sec. 1. Until a legislature is elected and convened under a new Constitution, the President shall continue to
exercise legislative powers.
On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for the Republic of
the Philippines which was ratified in a plebiscite conducted on 2 February 1987. Article XVIII, sec. 6 of said
Constitution, hereafter referred to as the 1987 Constitution, provides:
Sec. 6. The incumbent President shall continue to exercise legislative powers until the first Congress is
convened.
It should be noted that, under both the Provisional and the 1987 Constitutions, the President is vested with
legislative powers until a legislature under a new Constitution is convened. The first Congress, created and
elected under the 1987 Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on 25
July 1987, two (2) days before Congress convened on 27 July 1987, was within the President's constitutional
power and authority to legislate.
Petitioner Valmonte claims, additionally, that Congress was really convened on 30 June 1987 (not 27 July
1987). He contends that the word "convene" is synonymous with "the date when the elected members of
Congress assumed office."
The contention is without merit. The word "convene" which has been interpreted to mean "to call together,
cause to assemble, or convoke," 1 is clearly different from assumption of office by the individual members of
Congress or their taking the oath of office. As an example, we call to mind the interim National Assembly
created under the 1973 Constitution, which had not been "convened" but some members of the body, more
particularly the delegates to the 1971 Constitutional Convention who had opted to serve therein by voting
affirmatively for the approval of said Constitution, had taken their oath of office.
To uphold the submission of petitioner Valmonte would stretch the definition of the word "convene" a bit too
far. It would also defeat the purpose of the framers of the 1987 Constitutional and render meaningless some
other provisions of said Constitution. For example, the provisions of Art. VI, sec. 15, requiring Congress
to convene once every year on the fourth Monday of July for its regular session would be a contrariety, since
Congress would already be deemed to be in session after the individual members have taken their oath of
office. A portion of the provisions of Art. VII, sec. 10, requiring Congress to convene for the purpose of
enacting a law calling for a special election to elect a President and Vice-President in case a vacancy occurs
in said offices, would also be a surplusage. The portion of Art. VII, sec. 11, third paragraph, requiring
Congress to convene, if not in session, to decide a conflict between the President and the Cabinet as to
whether or not the President and the Cabinet as to whether or not the President can re-assume the powers
and duties of his office, would also be redundant. The same is true with the portion of Art. VII, sec. 18,
which requires Congress to convene within twenty-four (24) hours following the declaration of martial law
or the suspension of the privilage of the writ of habeas corpus.
The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the
framers of said Constitution had intended to terminate the exercise of legislative powers by the President at
the beginning of the term of office of the members of Congress, they should have so stated (but did not) in
clear and unequivocal terms. The Court has not power to re-write the Constitution and give it a meaning
different from that intended.
The Court also finds no merit in the petitioners' claim that EO 273 was issued by the President in grave
abuse of discretion amounting to lack or excess of jurisdiction. "Grave abuse of discretion" has been
defined, as follows:
Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is equivalent to
lack of jurisdiction (Abad Santos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in other words, where the
power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must
be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty
enjoined or to act at all in contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz. 62). 2
Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or
despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT
had been extensively discussed by this framers and other government agencies involved in its
implementation, even under the past administration. As the Solicitor General correctly sated. "The signing of
E.O. 273 was merely the last stage in the exercise of her legislative powers. The legislative process started
long before the signing when the data were gathered, proposals were weighed and the final wordings of the
measure were drafted, revised and finalized. Certainly, it cannot be said that the President made a jump, so
to speak, on the Congress, two days before it convened." 3
Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in violation of
the provisions of Art. VI, sec. 28(1) of the 1987 Constitution, which states:
Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation.
The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their
conclusions. They have failed to adequately show that the VAT is oppressive, discriminatory or unjust.
Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To
justify the nullification of a law. there must be a clear and unequivocal breach of the Constitution, not a
doubtful and argumentative implication. 4
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The court, in City of
Baguio vs. De Leon, 5 said:
... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, speaking for the Court, stated: "A tax
is considered uniform when it operates with the same force and effect in every place where the subject may
be found."
There was no occasion in that case to consider the possible effect on such a constitutional requirement where
there is a classification. The opportunity came in Eastern Theatrical Co. v. Alfonso (83 Phil. 852, 862). Thus:
"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; . . ." About two years later, Justice Tuason, speaking for this Court in
Manila Race Horses Trainers Assn. v. de la Fuente (88 Phil. 60, 65) incorporated the above excerpt in his
opinion and continued; "Taking everything into account, the differentiation against which the plaintiffs
complain conforms to the practical dictates of justice and equity and is not discriminatory within the
meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another case decided two years later, (Uy
Matias v. City of Cebu, 93 Phil. 300) is that the statute or ordinance in question "applies equally to all
persons, firms and corporations placed in similar situation." This Court is on record as accepting the view in
a leading American case (Carmichael v. Southern Coal and Coke Co., 301 US 495) that "inequalities which
result from a singling out of one particular class for taxation or exemption infringe no constitutional
limitation." (Lutz v. Araneta, 98 Phil. 148, 153).
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. 6
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 contested provision states:
Sec. 103. Exempt transactions. The following shall be exempt from the value-added tax:
xxx xxx xxx
(r) Service performed in the exercise of profession or calling (except customs brokers) subject to the
occupation tax under the Local Tax Code, and professional services performed by registered general
professional partnerships;
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. Pertinent provisions of Sec. 102
read:
Sec. 102. Value-added tax on sale of services. There shall be levied, assessed and collected, a value-
added tax equivalent to 10% percent of gross receipts derived by any person engaged in the sale of services.
The phrase sale of services" means the performance of all kinds of services for others for a fee, remuneration
or consideration, including those performed or rendered by construction and service contractors; stock, real
estate, commercial, customs and immigration brokers; lessors of personal property; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for
others; and similar services regardless of whether or not the performance thereof call for the exercise or use
of the physical or mental faculties: ...
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 (like those of stock, real estate and immigration 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.
The Court takes note that EO 273 has been in effect for more than five (5) months now, so that the fears
expressed by the petitioners that the adoption of the VAT will trigger skyrocketing of prices of basic
commodities and services, as well as mass actions and demonstrations against the VAT should by now be
evident. The fact that nothing of the sort has happened shows that the fears and apprehensions of the
petitioners appear to be more imagined than real. It would seem that the VAT is not as bad as we are made to
believe.
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.
WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs.
SO ORDERED.
Yap, C.J., Fernan, Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes
and Grio-Aquino, JJ., concur.
Gutierrez, Jr. and Medialdea, JJ., are on leave.

SUPREME COURT
Manila
EN BANC
G.R. Nos. L-49839-46 April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,

vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROO, in their capacities as appointed
and Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H.
NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed and
Acting Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS CATIIL in
his capacity as City Assessor of Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.
PARAS, J.:
This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board of
Assessment Appeals1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v. Board of
Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29, 1976 decision of
the Board of Tax Assessment Appeals2 in BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E, "Jose Reyes, et
al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros Reyes v. City Assessor of Manila"
upholding the classification and assessments made by the City Assessor of Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondo and
Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling sites by tenants. Said
tenants were paying monthly rentals not exceeding three hundred pesos (P300.00) in July, 1971. On July 14,
1971, the National Legislature enacted Republic Act No. 6359 prohibiting for one year from its effectivity,
an increase in monthly rentals of dwelling units or of lands on which another's dwelling is located, where
such rentals do not exceed three hundred pesos (P300.00) a month but allowing an increase in rent by not
more than 10% thereafter. The said Act also suspended paragraph (1) of Article 1673 of the Civil Code for
two years from its effectivity thereby disallowing the ejectment of lessees upon the expiration of the usual
legal period of lease. On October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by making
absolute the prohibition to increase monthly rentals below P300.00 and by indefinitely suspending the
aforementioned provision of the Civil Code, excepting leases with a definite period. Consequently, the
Reyeses, petitioners herein, were precluded from raising the rentals and from ejecting the tenants. In 1973,
respondent City Assessor of Manila re-classified and reassessed the value of the subject properties based on
the schedule of market values duly reviewed by the Secretary of Finance. The revision, as expected, entailed
an increase in the corresponding tax rates prompting petitioners to file a Memorandum of Disagreement with
the Board of Tax Assessment Appeals. They averred that the reassessments made were "excessive,
unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them
greatly exceeded the annual income derived from their properties. They argued that the income approach
should have been used in determining the land values instead of the comparable sales approach which the
City Assessor adopted (Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals, however, considered the
assessments valid, holding thus:
WHEREFORE, and considering that the appellants have failed to submit concrete evidence which could
overcome the presumptive regularity of the classification and assessments appear to be in accordance with
the base schedule of market values and of the base schedule of building unit values, as approved by the
Secretary of Finance, the cases should be, as they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment Appeals.1wphi1 They submitted, among others,
the summary of the yearly rentals to show the income derived from the properties. Respondent City
Assessor, on the other hand, submitted three (3) deeds of sale showing the different market values of the real
property situated in the same vicinity where the subject properties of petitioners are located. To better
appreciate the locational and physical features of the land, the Board of Hearing Commissioners conducted
an ocular inspection with the presence of two representatives of the City Assessor prior to the healing of the
case. Neither the owners nor their authorized representatives were present during the said ocular inspection
despite proper notices served them. It was found that certain parcels of land were below street level and
were affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive portion of
which reads:
WHEREFORE, the appealed decision insofar as the valuation and assessment of the lots covered by Tax
Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD-266, the appealed
Decision is modified by allowing a 20% reduction in their respective market values and applying therein the
assessment level of 30% to arrive at the corresponding assessed value.
SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied, hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES APPROACH"

METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS' PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the properties in question. Petitioners
maintain that the "Income Approach" method would have been more realistic for in disregarding the effect
of the restrictions imposed by P.D. 20 on the market value of the properties affected, respondent Assessor of
the City of Manila unlawfully and unjustifiably set increased new assessed values at levels so high and
successive that the resulting annual real estate taxes would admittedly exceed the sum total of the yearly
rentals paid or payable by the dweller tenants under P.D. 20. Hence, petitioners protested against the levels
of the values assigned to their properties as revised and increased on the ground that they were arbitrarily
excessive, unwarranted, inequitable, confiscatory and unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that the income
approach is used in determining land values in some vicinities, it maintains that when income is affected by
some sort of price control, the same is rejected in the consideration and study of land values as in the case of
properties affected by the Rent Control Law for they do not project the true market value in the open market
(Rollo, p. 21). Thus, respondents opted instead for the "Comparable Sales Approach" on the ground that the
value estimate of the properties predicated upon prices paid in actual, market transactions would be a
uniform and a more credible standards to use especially in case of mass appraisal of properties (Ibid.).
Otherwise stated, public respondents would have this Court completely ignore the effects of the restrictions
of P.D. No. 20 on the market value of properties within its coverage. In any event, it is unquestionable that
both the "Comparable Sales Approach" and the "Income Approach" are generally acceptable methods of
appraisal for taxation purposes (The Law on Transfer and Business Taxation by Hector S. De Leon, 1988
Edition). However, it is conceded that the propriety of one as against the other would of course depend on
several factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila v. Wenceslao Trinidad,
G.R. No. 19297 (44 Phil. 383), it has been stressed that the assessors, in finding the value of the property,
have to consider all the circumstances and elements of value and must exercise a prudent discretion in
reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only be
uniform, but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property of the same
class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of taxation
required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221, Second Edition). Thus,
the need to examine closely and determine the specific mandate of the Constitution.
Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is progressive
when its rate goes up depending on the resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of government.
But for all its plenitude the power to tax is not unconfined as there are restrictions. Adversely effecting as it
does property rights, both the due process and equal protection clauses of the Constitution may properly be
invoked to invalidate in appropriate cases a revenue measure. If it were otherwise, there would be truth to
the 1903 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." The web or
unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmes pen,
thus: "The power to tax is not the power to destroy while this Court sits. So it is in the Philippines " (Sison,
Jr. v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 439
[1985]).
In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary that it finds no
support in the Constitution. An obvious example is where it can be shown to amount to confiscation of
property. That would be a clear abuse of power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and natural classification for purposes of taxation
but the government's act must not be prompted by a spirit of hostility, or at the very least discrimination that
finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under
similar circumstances or that all persons must be treated in the same manner, the conditions not being
different both in the privileges conferred and the liabilities imposed (Ibid., p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first Fundamental
Principle to guide the appraisal and assessment of real property for taxation purposes is that the property
must be "appraised at its current and fair market value."
By no strength of the imagination can the market value of properties covered by P.D. No. 20 be equated with
the market value of properties not so covered. The former has naturally a much lesser market value in view
of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the assessed value of subject properties
under the "comparable sales approach" were presented by the public respondents, namely: (1) that the sale
must represent a bonafide arm's length transaction between a willing seller and a willing buyer and (2) the
property must be comparable property (Rollo, p. 27). Nothing can justify or support their view as it is of
judicial notice that for properties covered by P.D. 20 especially during the time in question, there were
hardly any willing buyers. As a general rule, there were no takers so that there can be no reasonable basis for
the conclusion that these properties were comparable with other residential properties not burdened by P.D.
20. Neither can the given circumstances be nonchalantly dismissed by public respondents as imposed under
distressed conditions clearly implying that the same were merely temporary in character. At this point in
time, the falsity of such premises cannot be more convincingly demonstrated by the fact that the law has
existed for around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.
However, such collection should be made in accordance with law as any arbitrariness will negate the very
reason for government itself It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxations, which is the promotion of the common
good, may be achieved (Commissioner of Internal Revenue v. Algue Inc., et al., 158 SCRA 9 [1988]).
Consequently, it stands to reason that petitioners who are burdened by the government by its Rental Freezing
Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be penalized by
the same government by the imposition of excessive taxes petitioners can ill afford and eventually result in
the forfeiture of their properties.
By the public respondents' own computation the assessment by income approach would amount to only
P10.00 per sq. meter at the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public respondents
are REVERSED and SET ASIDE; and (e) the respondent Board of Assessment Appeals of Manila and the
City Assessor of Manila are ordered to make a new assessment by the income approach method to guarantee
a fairer and more realistic basis of computation (Rollo, p. 71).
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, Grio-Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.
II. NON DELEGABILITY OF POWER TO TAX
EXCEPT: DEVOLVED POWER TO LGUS, EXPRESS GRANT IN LEGISLATIVE FRANCHISE

SUPREME COURT
Manila
EN BANC
G.R. No. 96266 July 18, 1991
ERNESTO M. MACEDA, petitioner,

vs.
ENERGY REGULATORY BOARD, CALTEX (Philippines), INC., PILIPINAS SHELL
PETROLEUM CORPORATION AND PETRON CORPORATION, respondents.
G.R. No. 96349 July 18, 1991
EUGENIO O. ORIGINAL, IRENEO N. AARON, JR., RENE LEDESMA, ROLANDO VALLE,

ORLANDO MONTANO, STEVE ABITANG, NERI JINON, WILFREDO DELEONIO, RENATO
BORRO, RODRIGO DE VERA, ALVIN BAYUANG, JESUS MELENDEZ, NUMERIANO CAJILIG
JR., RUFINO DE LA CRUZ AND JOVELINO G. TIPON, petitioners,
vs.
ENERGY REGULATORY BOARD, CALTEX (Philippines), INC., PILIPINAS SHELL
PETROLEUM CORPORATION AND PETRON CORPORATION, respondents.
G.R. No. 96284 July 18,1991
CEFERINO S. PAREDES, JR., petitioner,

vs.
ENERGY REGULATORY BOARD, CALTEX (Philippines), INC., PILIPINAS SHELL, INC. AND
PETROPHIL CORPORATION, respondents.
RESOLUTION
MEDIALDEA, J.:p
In G.R. No. 96266, petitioner Maceda seeks nullification of the Energy Regulatory Board (ERB) Orders
dated December 5 and 6, 1990 on the ground that the hearings conducted on the second provisional increase
in oil prices did not allow him substantial cross-examination, in effect, allegedly, a denial of due process.
The facts of the case are as follows:
Upon the outbreak of the Persian Gulf conflict on August 2, 1990, private respondents oil companies filed
with the ERB their respective applications on oil price increases (docketed as ERB Case Nos. 90-106, 90-
382 and 90-384, respectively).
On September 21, 1990, the ERB issued an order granting a provisional increase of P1.42 per liter.
Petitioner Maceda filed a petition for Prohibition on September 26, 1990 (E. Maceda v. ERB, et al., G.R.
No. 95203), seeking to nullify the provisional increase. We dismissed the petition on December 18, 1990,
reaffirming ERB's authority to grant provisional increase even without prior hearing, pursuant to Sec. 8 of
E.O. No. 172, clarifying as follows:
What must be stressed is that while under Executive Order No. 172, a hearing is indispensable, it does not
preclude the Board from ordering, ex-parte, a provisional increase, as it did here, subject to its final
disposition of whether or not: (1) to make it permanent; (2) to reduce or increase it further; or (3) to deny the
application. Section 3, paragraph (e) is akin to a temporary restraining order or a writ of preliminary
attachment issued by the courts, which are given ex-parte and which are subject to the resolution of the main
case.
Section 3, paragraph (e) and Section 8 do not negate each other, or otherwise, operate exclusively of the
other, in that the Board may resort to one but not to both at the same time. Section 3(e) outlines the
jurisdiction of the Board and the grounds for which it may decree a price adjustment, subject to the
requirements of notice and hearing. Pending that, however, it may order, under Section 8, an authority to
increase provisionally, without need of a hearing, subject to the final outcome of the proceeding. The Board,
of course, is not prevented from conducting a hearing on the grant of provisional authority-which is of
course, the better procedure however, it cannot be stigmatized later if it failed to conduct one. (pp. 129-
130, Rollo) (Emphasis supplied)
In the same order of September 21, 1990, authorizing provisional increase, the ERB set the applications for
hearing with due notice to all interested parties on October 16, 1990. Petitioner Maceda failed to appear at
said hearing as well as on the second hearing on October 17, 1990.
To afford registered oppositors the opportunity to cross-examine the witnesses, the ERB set the continuation
of the hearing to October 24, 1990. This was postponed to November 5, 1990, on written notice of petitioner
Maceda.
On November 5, 1990, the three oil companies filed their respective motions for leave to file or admit
amended/supplemental applications to further increase the prices of petroleum products.
The ERB admitted the respective supplemental/amended petitions on November 6, 1990 at the same time
requiring applicants to publish the corresponding Notices of Public Hearing in two newspapers of general
circulation (p. 4, Rollo and Annexes "F" and "G," pp. 60 and 62, Rollo).
Hearing for the presentation of the evidence-in-chief commenced on November 21, 1990 with ERB ruling
that testimonies of witnesses were to be in the form of Affidavits (p. 6, Rollo). ERB subsequently outlined
the procedure to be observed in the reception of evidence, as follows:
CHAIRMAN FERNANDO:
Well, at the last hearing, applicant Caltex presented its evidence-in-chief and there is an understanding or it
is the Board's wish that for purposes of good order in the presentation of the evidence considering that these
are being heard together, we will defer the cross-examination of applicant Caltex's witness and ask the other
applicants to present their evidence-in-chief so that the oppositors win have a better Idea of what an of these
will lead to because as I mentioned earlier, it has been traditional and it is the intention of the Board to act on
these applications on an industry-wide basis, whether to accept, reject, modify or whatever, the Board win
do it on an industry wide basis, so, the best way to have (sic) the oppositors and the Board a clear picture of
what the applicants are asking for is to have all the evidence-in-chief to be placed on record first and then
the examination will come later, the cross-examination will come later. . . . (pp. 5-6, tsn., November 23,
1990, ERB Cases Nos. 90-106, 90382 and 90-384). (p. 162, Rollo)
Petitioner Maceda maintains that this order of proof deprived him of his right to finish his cross-examination
of Petron's witnesses and denied him his right to cross-examine each of the witnesses of Caltex and Shell.
He points out that this relaxed procedure resulted in the denial of due process.
We disagree. The Solicitor General has pointed out:
. . . The order of testimony both with respect to the examination of the particular witness and to the general
course of the trial is within the discretion of the court and the exercise of this discretion in permitting to be
introduced out of the order prescribed by the rules is not improper (88 C.J.S. 206-207).
Such a relaxed procedure is especially true in administrative bodies, such as the ERB which in matters of
rate or price fixing is considered as exercising a quasi-legislative, not quasi-judicial, function As such
administrative agency, it is not bound by the strict or technical rules of evidence governing court
proceedings (Sec. 29, Public Service Act; Dickenson v. United States, 346, U.S. 389, 98 L. ed. 132, 74 S. St.
152). (Emphasis supplied)
In fact, Section 2, Rule I of the Rules of Practice and Procedure Governing Hearings Before the ERB
provides that
These Rules shall govern pleadings, practice and procedure before the Energy Regulatory Board in all
matters of inquiry, study, hearing, investigation and/or any other proceedings within the jurisdiction of the
Board. However, in the broader interest of justice, the Board may, in any particular matter, except itself from
these rules and apply such suitable procedure as shall promote the objectives of the Order.
(pp. 163-164, Rollo)
Petitioner Maceda also claims that there is no substantial evidence on record to support the provisional
relief.
We have, in G.R. Nos. 95203-05, previously taken judicial notice of matters and events related to the oil
industry, as follows:
. . . (1) as of June 30, 1990, the OPSF has incurred a deficit of P6.1 Billion; (2) the exchange rate has fallen
to P28.00 to $1.00; (3) the country's balance of payments is expected to reach $1 Billion; (4) our trade
deficit is at P2.855 Billion as of the first nine months of the year.
. . . (p. 150, Rollo)

The Solicitor General likewise commented:
Among the pieces of evidence considered by ERB in the grant of the contested provisional relief were: (1)
certified copies of bins of lading issued by crude oil suppliers to the private respondents; (2) reports of the
Bankers Association of the Philippines on the peso-dollar exchange rate at the BAP oil pit; and (3) OPSF
status reports of the Office of Energy Affairs. The ERB was likewise guided in the determination of
international crude oil prices by traditional authoritative sources of information on crude oil and petroleum
products, such as Platt's Oilgram and Petroleum Intelligence Weekly. (p. 158, Rollo)
Thus, We concede ERB's authority to grant the provisional increase in oil price, as We note that the Order of
December 5, 1990 explicitly stated:
in the light, therefore, of the rise in crude oil importation costs, which as earlier mentioned, reached an
average of $30.3318 per barrel at $25.551/US $ in September-October 1990; the huge OPSF deficit which,
as reported by the Office of Energy Affairs, has amounted to P5.7 Billion (based on filed claims only and net
of the P5 Billion OPSF) as of September 30, 1990, and is estimated to further increase to over P10 Billion
by end December 1990; the decision of the government to discontinue subsidizing oil prices in view of
inflationary pressures; the apparent inadequacy of the proposed additional P5.1 Billion government
appropriation for the OPSF and the sharp drop in the value of the peso in relation to the US dollar to P28/US
$, this Board is left with no other recourse but to grant applicants oil companies further relief by increasing
the prices of petroleum products sold by them. (p. 161, Rollo)
Petitioner Maceda together with petitioner Original (G.R. No. 96349) also claim that the provisional
increase involved amounts over and above that sought by the petitioning oil companies.
The Solicitor General has pointed out that aside from the increase in crude oil prices, all the applications of
the respondent oil companies filed with the ERB covered claims from the OPSF.
We shall thus respect the ERB's Order of December 5, 1990 granting a provisional price increase on
petroleum products premised on the oil companies' OPSF claims, crude cost peso differentials, forex risk for
a subsidy on sale to NPC (p. 167, Rollo), since the oil companies are "entitled to as much relief as the fact
alleged constituting the course of action may warrant," (Javellana v. D.O. Plaza Enterprises, Inc., G.R. No.
L-28297, March 30, 1970, 32 SCRA 261 citing Rosales v. Reyes, 25 Phil. 495; Aguilar v. Rubiato, 40 Phil.
470) as follows:
Per Liter
Weighted
Petron Shell Caltex Average
Crude Cost P3.11 P3.6047 P2.9248 P3.1523
Peso Cost
Diffn'l 2.1747 1.5203 1.5669 1.8123
Forex Risk
Fee -0.1089 -0,0719 -0.0790 -0.0896
Subsidy on
Sales to NPC 0.1955 0.0685 0.0590 0.1203

Total Price
Increase
Applied for P59.3713 P5.1216 P4.4717 P4.9954
Less: September 21 Price
Relief
Actual Price Increase P1.42
Actual Tax Reduction:
Ad Valorem Tax
(per Sept. 1, 1990
price build-up) P1.3333
Specific Tax (per
Oct. 5, 1990 price
build-up) .6264 .7069 2.1269
Net Price Increase
Applied for 2.8685
Nonetheless, it is relevant to point out that on December 10, 1990, the ERB, in response to the President's
appeal, brought back the increases in Premium and Regular gasoline to the levels mandated by the
December 5, 1990 Order (P6.9600 and P6.3900, respectively), as follows:
Product In Pesos Per Liter
OPSF
Premium Gasoline 6.9600
Regular Gasoline 6.3900
Avturbo 4.9950
Kerosene 1.4100
Diesel Oil 1.4100
Fuel Oil/Feedstock 0.2405
LPG 1.2200
Asphalt 2.5000
Thinner 2.5000
In G.R. No. 96349, petitioner Original additionally claims that if the price increase will be used to augment
the OPSF this will constitute illegal taxation. In the Maceda case, (G.R. Nos. 95203-05, supra) this Court
has already ruled that "the Board Order authorizing the proceeds generated by the increase to be deposited to
the OPSF is not an act of taxation but is authorized by Presidential Decree No. 1956, as amended by
Executive Order No. 137.
The petitions of E.O. Original et al. (G.R. No. 96349) and C.S. Povedas, Jr. (G.R. No. 96284), insofar as
they question the ERB's authority under Sec. 8 of E.O. 172, have become moot and academic.
We lament Our helplessness over this second provisional increase in oil price. We have stated that this "is a
question best judged by the political leadership" (G.R. Nos. 95203-05, G.R. Nos. 95119-21, supra). We wish
to reiterate Our previous pronouncements therein that while the government is able to justify a provisional
increase, these findings "are not final, and it is up to petitioners to demonstrate that the present economic
picture does not warrant a permanent increase."
In this regard, We also note the Solicitor General's comments that "the ERB is not averse to the idea of a
presidential review of its decision," except that there is no law at present authorizing the same. Perhaps, as
pointed out by Justice Padilla, our lawmakers may see the wisdom of allowing presidential review of the
decisions of the ERB since, despite its being a quasi-judicial body, it is still "an administrative body under
the Office of the President whose decisions should be appealed to the President under the established
principle of exhaustion of administrative remedies," especially on a matter as transcendental as oil price
increases which affect the lives of almost an Filipinos.
ACCORDINGLY, the petitions are hereby DISMISSED.
SO ORDERED.
Narvasa, Melencio-Herrera, Feliciano, Gancayco, Bidin, Grio-Aquino and Regalado, JJ., concur.
Davide, J., concurs in the result.
Fernan, C.J., took no part.
Separate Opinions
PARAS, J., dissenting:
I dissent. As I have long previously indicated, the ERB has absolutely no power to tax which is solely the
prerogative of Congress. This is what the ERB is precisely doing by getting money from the people
to ultimatelysubsidize the ravenous oil companies. Additionally, the stubborn refusal of the ERB to
effectively rollback oil prices is a continuing bestial insult to the intelligence of our countrymen, and a gross
abandonment of the people in their hour of economic misery. I therefore vote for a complete and effective
rollback of all oil prices.
Cruz, J., concurs.
PADILLA, J., dissenting:
I regret that I can not concur in the majority opinion.

In the matter of price increases of oil products, which vitally affects the people, especially those in the
middle and low income groups, any increase, provisional or otherwise, should be allowed only after the
Energy Regulatory Board (ERB) shall have fully determined, through bona fide and full-dress hearings, that
it is absolutely necessary and by how much it shall be effected. The people, represented by reputable
oppositors, deserve to be given full opportunity to be heard in their opposition to any increase in the prices
of fuel. The right to be heard includes not only the right to present one's case and submit evidence in support
thereof, but also the right to confront and cross-examine the witnesses of the adverse parties.
Because of the procedure adopted by the ERB in the reception of evidence leading to the price increases of 5
and 6 December 1990, petitioner Maceda was not able to finish his cross-examination of Petron's sole
witness. And, even before each of the witnesses of Shell and Caltex could be cross-examined by petitioners
and before they could present evidence in support of their opposition to the increase, the ERB had already
issued its 5 December 1990 order allowing a "provisional increase" sought by the oil companies in their
respective supplemental applications.
That there were postponements of scheduled hearings before the ERB, at the instance of oppositor Maceda,
did not justify a denial of the right of oppositors to be heard. The postponements were not intended to delay
the proceedings. In fact, the resetting of the scheduled hearings on November 14, 15 and 16 to a later date,
upon motion of petitioner Maceda, was to enable him to file a written opposition to the supplemental
applications filed by the oil companies.
The ERB acted hastily in granting the provisional increases sought by the oil companies even before the
oppositors could submit evidence in support of their opposition. The fact that the questioned orders merely
allowed a provisional increase is beside the point, for past experiences have shown that so-called provisional
increases" allowed by the ERB ultimately became permanent.
ERB's claim that the second provisional increase was duly supported by evidence, is belied by its own act of
modifying said order (of provisional increase) not only once but twice, upon the "request" of the President.
First, the ERB rolled back the prices of fuel just a day after it issued the questioned order, altering the
allocation of the increase. Second, on 10 December 1990, the ERB further modified the price of petroleum
products resulting in reduction of the weighted average provisional increase from P2.82 to P2.05 per liter,
but only after the President had announced that she would meet with the leaders of both Houses of Congress,
to discuss the creation of a special fund to be raised from additional taxes, to subsidize the prices of
petroleum products. 1
These acts of the ERB ostensibly sparked by "presidential requests" clearly demonstrate that the evidence
did not, in the first place, justify the price increases it had ordered on 5 and 6 December 1990. Furthermore,
the ERB never came out with a categorical and official declaration of how much was the so-called deficit of
the Oil Price Stabilization Fund (OPSF) and how much of the oil price increases was intended to cover such
deficit.
In the midst of a national crisis related to oil price increases, each and every one is called upon to assume
his/its share of continuing sacrifices. The public, the government, as well as the oil companies should work
hand in hand in solving the present problem that confronts us. We are not unmindful of the fact that the oil
companies are profit-oriented. However, profits should not be their only concern in times of deepening
inability of the people to cope with their prices with "built-in-margins". A reduction of profits during these
crucial and trying times, is certainly in order considering that in the past, the oil companies had
unquestionably made tremendous profits.
In view of the foregoing, I vote to GRANT the petition for the nullification of the 5 and 6 December 1990
orders of the ERB and for a roll-back of the prices of oil products to levels existing before 5 and 6 December
1990 until hearings before the ERB are finally concluded.
Before closing, I also would like to submit for congressional consideration two (2) proposals in the public
interest. They are:
(1) to do away with the present scheme of allowing provisional price increases of oil products. This scheme,
to my mind, is misleading and serves as an excuse for unilateral and arbitrary ERB-action. As already noted,
these provisional price increases are, to all intents and purposes, permanent when fixed. To that extent, the
scheme is a fraud on the people.
(2) all decisions and orders of the ERB should be expressly made appealable by statute to the President of
the Philippines whose decisions shall be final, except in cases involving questions of law or grave abuse of
discretion which may be elevated to the Supreme Court in a special civil action for certiorari under Rule 65
of the Rules of Court.
While at present, decisions and orders of the ERB are, in my considered opinion, appealable to the President
under the principle of "exhaustion of administrative remedies", it is nevertheless desirable that the
appealability of ERB decisions and orders to the President be placed beyond any and all doubts. In this way,
the President of the Philippines has to assume full responsibility for all price increases in oil products, which
should be the case because the matter involved is not only one of national interest but profoundly one of
people's survival.
Gutierrez, Jr. and Cruz, JJ., concur.
SARMIENTO, J., separate opinion:
I would like to point out a few things in view of the majority's reliance on the first Maceda case. 1
The first Maceda case was a challenge on provisional oil price increases decreed by the Energy Regulatory
Board (ERB). This Court sustained the Board, as it is sustaining the Board in this case, on a few economic
outputs, namely, the Oil Price Stabilization Fund (OPSF) deficit, the deteriorating exchange rate, and the
balance of payments and trade gaps.
As I held in my dissent in yet another Maceda case, Maceda v. Macaraig, 2 the current oil price increases
were (are) also the result of the devaluation of the currency, since a devalued peso forced oil companies to
pay more pesos for oil worth in dollars.
I simply wish to state what has apparently been left unstated in the course of debate and perhaps, the real
score behind recurring oil price hikes and why the ERB has been very quick in granting them.
The truth is that petroleum prices have been dictated by the Government's economic maneuvers, and not
rather the vagaries of the world market. The truth is that the recent oil hikes have nothing to do with Saddam
Hussein or the Gulf crisis (during which oil prices in fact dropped) and are, rather, the natural consequences
of calculated moves by the Government in its effort to meet so-called International Monetary Fund (IMF)
targets.
In 1989, the Government of the Republic of the Philippines submitted its letter of intent to the IMF outlining
the country's economic program from 1989 through 1992. In its paragraph 19, it states that:
The Government intends to continue with the floating exchange rate system established in October
1984 . . . 3
Since exchange control was abolished and the floating rate system was established, the Philippine peso has
seen a series of devaluations that have progressively pushed up prices, significantly, prices of petroleum.
According to one authority, devaluation has been a "standard prescription" to correct balance of payments
(BOP) deficits. 4 It makes dollars expensive, discourages import and encourages exports, and forces dollars
conservation. 5
It is a matter of opinion whether or not devaluation has been good for the country and whether or not it has
realized these objectives. The truth is that, whatever it has accomplished, oil which is imported has
been subject to the effects of devaluation.
Early this year, Governor Jose Cuisia of the Central Bank, Secretary Jesus Estanislao of the Department of
Finance, and Secretary Guillermo Carague of the Budget and Management Department, wrote Mr. Michael
Camdessus of the International Monetary Fund (the letter of intent) and informed him of the country's
"Economic Stabilization Plan, 1991-92". The Plan recognized certain economic imbalances that have
supposedly inhibited growth, in particular, inflation and an increasing balance of payments deficit, and drew
a program centered on "a strong effort to bring down the overall fiscal deficit "through, among other things,
"the gradual elimination of the deficit of the Oil Price Stabilization Fund." 6 It spelled out, among other
things, a "[r]estoration of a sustainable external position requir[ing] the continuation of a flexible exchange
rate policy . . . " 7 and described in detail an "Oil Price and Energy Policy" focused on wiping out the OPSF
deficit, to wit:
xxx xxx xxx
A substantial erosion in the overall fiscal position occurred in 1989 and 1990 as a result of official price
support for oil products provided through the OPSF. Despite a lowering of the excise tax on oil in September
1990 and average domestic oil price increases of about 30 percent in September and 32 percent in December
1990, the fund continued to incur a deficit during the second half of 1990. The cumulative OPSF deficit
(excluding unfiled claims) at end December 1990 is estimated at P8.8 billion, and this deficit will rise in the
first part of 1991. However the cumulative OPSF deficit is to be eliminated by the end of the third quarter of
1991. To this end, the Government intends to follow a pricing policy that ensures attainment of zero balance
within the specific time. In particular, the Government will maintain present price levels despite projected
world price declines. In addition, a budgetary transfer of P5 billion will be provided in 1991 to settle
outstanding claim of the OPSF.
15. Full deregulation of oil prices continues to be an important objective of the Government once calm has
been restored to world oil markets. Meanwhile the technical and legal groundwork is being laid with a view
to full deregulation as soon as practicable.
16. The principal objectives of the Government's policy in the energy sector are: (i) the development of
economically viable indigenous energy resources, mainly thermal, geothermal and hydro-electric power,
together with ensuring adequate maintenance of existing facilities; (ii) promoting more efficient use of
energy resources through various energy conservation measures; and (ii) the elimination of distortions in
every resource allocation through appropriate pricing policies. 8
xxx xxx xxx
As I said, Philippine oil prices today have nothing to do with the law on supply and demand, if they had
anything to do with it in recent years. (I also gather that the Government is intending to re-adjust the prices
of gasoline and diesel fuel soon since apparently, low diesel prices have reduced the demand for gasoline
resulting in "distortions".)
As the Court held in the first Maceda v. Energy Regulatory Board, 9 oil pricing "is a question best judged by
the political leadership" and oil prices are (and have been apparently), political, rather than economic,
decisions.
I am not to be mistaken as accepting the "letter of intent" as a correct prescription much less a necessary
medicine although I will be lacking in candor if I did not say that it is a bitter pill to swallow. What I must
be understood as saying is that "oil" is a political card to be played on a political board rather than the courts,
so long, of course, as nobody has done anything illegal.
The "politics of oil" as spelled out in the Government's letter of intent likewise bring to light the true nature
of the ERB Under the Memorandum on Philippine Economic Stabilization Plan:
xxx xxx xxx
In the past, energy prices had been set to broadly reflect the average cost of supply. However, the lack of
transparency of the pricing mechanism and subsidization of consumption have increasingly become a cause
for concern. To alleviate some of these problems, in mid-1987, the Government established the Energy
Regulatory Board ERB a quasi-judicial body empowered with the setting and regulation of the pricing of
petroleum products and electricity tariffs, the regulation of additions to oil refining capacity, and the
regulation of importing, transporting, processing and distributing all energy resources. (Petroleum pricing
policy is described in paragraphs 14 and 15.) In addition to the full pass-through of changes in oil prices to
power tariffs, the Government is committed to the adoption of longrun marginal cost pricing for electricity.
To this end, NPC intends to introduce a marginal cost imported-has tariff structure to ensure that it meets its
target of achieving a rate of return of eight percent on its rate base. 10
it is apparent that the Board, in spite of its "independence" (from the Office of the President), is bound by
the terms of the program and that it has after all, no genuine discretion to deny requests for price adjustments
by oil companies. I seriously doubt whether or not it is possessed of that discretion judging, first, from its
performance since 1987 (in which it has not overruled the Government on "oil cases") and the fact that the
exchange rate, the balance of payment deficit, and the OPSF deficiency are matters of simple arithmetic.
And certainly, the Board can not possibly overrule the Government's "letter of intent."
The first Maceda case sustained the grant of provisional price increases ex parte not only because Section 8
of Executive Order No. 172 authorized the grant of provisional relief without a hearing but because
fluctuations in the foreign exchange rates, for instance, were, and are, a matter of judicial notice, and a
hearing thereafter was necessary only to see whether or not the ERB determined the rates correctly.
This likewise brings to light the necessity for an ERB to fix rates since it does not, after all fix (meaning
decide) rates but merely announces their imminence on demonstrable figures of higher rates. The Court
however can not question the wisdom of a statute and after all, I suppose the Government can make use of
an accountant.
I agree with Justice Padilla insofar as he refers to the "present scheme of allowing provisional price
increase" as a "scheme [to defraud] the people." I would like to go further. As I indicated the ERB does no
more than to punch calculators for the Government-which decides oil price increases. The comedy of
December, 1990, when the Board adjusted prices in a matter of days, is a confirmation of this point. As
Justice Padilla noted, the re-adjustment of December 10, 1990 was in fact prompted by "presidential
requests" which does not speak well of the Board's independence and which in fact bares the truth as to who
really makes the decision. (The readjustment, consisting in the reduction in diesel fuel and a corresponding
increase in gasoline, sought to mollify the indignation of the public.)
I agree with Justice Padilla that it amounts to fraud on the people to make them believe that the ERB can
give them a fair hearing, indeed, if it can do anything at all.
I agree, finally, with Justice Padilla that the nation is one in crisis, and evidently, the "ravenous" oil
companies Justice Paras refers to, have not helped any. I submit however that we have not succeeded in
fingering the real villain the letter of intent. Saddam's Middle East folly has nothing to do with that.
Separate Opinions
PARAS, J., dissenting:

I dissent. As I have long previously indicated, the ERB has absolutely no power to tax which is solely the
prerogative of Congress. This is what the ERB is precisely doing by getting money from the people
to ultimatelysubsidize the ravenous oil companies. Additionally, the stubborn refusal of the ERB to
effectively rollback oil prices is a continuing bestial insult to the intelligence of our countrymen, and a gross
abandonment of the people in their hour of economic misery. I therefore vote for a complete and effective
rollback of all oil prices.
Cruz, J., concurs.
PADILLA, J., dissenting:
I regret that I can not concur in the majority opinion.
In the matter of price increases of oil products, which vitally affects the people, especially those in the
middle and low income groups, any increase, provisional or otherwise, should be allowed only after the
Energy Regulatory Board (ERB) shall have fully determined, through bona fide and full-dress hearings, that
it is absolutely necessary and by how much it shall be effected. The people, represented by reputable
oppositors, deserve to be given full opportunity to be heard in their opposition to any increase in the prices
of fuel. The right to be heard includes not only the right to present one's case and submit evidence in support
thereof, but also the right to confront and cross-examine the witnesses of the adverse parties.
Because of the procedure adopted by the ERB in the reception of evidence leading to the price increases of 5
and 6 December 1990, petitioner Maceda was not able to finish his cross-examination of Petron's sole
witness. And, even before each of the witnesses of Shell and Caltex could be cross-examined by petitioners
and before they could present evidence in support of their opposition to the increase, the ERB had already
issued its 5 December 1990 order allowing a "provisional increase" sought by the oil companies in their
respective supplemental applications.
That there were postponements of scheduled hearings before the ERB, at the instance of oppositor Maceda,
did not justify a denial of the right of oppositors to be heard. The postponements were not intended to delay
the proceedings. In fact, the resetting of the scheduled hearings on November 14, 15 and 16 to a later date,
upon motion of petitioner Maceda, was to enable him to file a written opposition to the supplemental
applications filed by the oil companies.
The ERB acted hastily in granting the provisional increases sought by the oil companies even before the
oppositors could submit evidence in support of their opposition. The fact that the questioned orders merely
allowed a provisional increase is beside the point, for past experiences have shown that so-called provisional
increases" allowed by the ERB ultimately became permanent.
ERB's claim that the second provisional increase was duly supported by evidence, is belied by its own act of
modifying said order (of provisional increase) not only once but twice, upon the "request" of the President.
First, the ERB rolled back the prices of fuel just a day after it issued the questioned order, altering the
allocation of the increase. Second, on 10 December 1990, the ERB further modified the price of petroleum
products resulting in reduction of the weighted average provisional increase from P2.82 to P2.05 per liter,
but only after the President had announced that she would meet with the leaders of both Houses of Congress,
to discuss the creation of a special fund to be raised from additional taxes, to subsidize the prices of
petroleum products. 1
These acts of the ERB ostensibly sparked by "presidential requests" clearly demonstrate that the evidence
did not, in the first place, justify the price increases it had ordered on 5 and 6 December 1990. Furthermore,
the ERB never came out with a categorical and official declaration of how much was the so-called deficit of
the Oil Price Stabilization Fund (OPSF) and how much of the oil price increases was intended to cover such
deficit.
In the midst of a national crisis related to oil price increases, each and every one is called upon to assume
his/its share of continuing sacrifices. The public, the government, as well as the oil companies should work
hand in hand in solving the present problem that confronts us. We are not unmindful of the fact that the oil
companies are profit-oriented. However, profits should not be their only concern in times of deepening
inability of the people to cope with their prices with "built-in-margins". A reduction of profits during these
crucial and trying times, is certainly in order considering that in the past, the oil companies had
unquestionably made tremendous profits.
In view of the foregoing, I vote to GRANT the petition for the nullification of the 5 and 6 December 1990
orders of the ERB and for a roll-back of the prices of oil products to levels existing before 5 and 6 December
1990 until hearings before the ERB are finally concluded.
Before closing, I also would like to submit for congressional consideration two (2) proposals in the public
interest. They are:
(1) to do away with the present scheme of allowing provisional price increases of oil products. This scheme,
to my mind, is misleading and serves as an excuse for unilateral and arbitrary ERB-action. As already noted,
these provisional price increases are, to all intents and purposes, permanent when fixed. To that extent, the
scheme is a fraud on the people.
(2) all decisions and orders of the ERB should be expressly made appealable by statute to the President of
the Philippines whose decisions shall be final, except in cases involving questions of law or grave abuse of
discretion which may be elevated to the Supreme Court in a special civil action for certiorari under Rule 65
of the Rules of Court.
While at present, decisions and orders of the ERB are, in my considered opinion, appealable to the President
under the principle of "exhaustion of administrative remedies", it is nevertheless desirable that the
appealability of ERB decisions and orders to the President be placed beyond any and all doubts. In this way,
the President of the Philippines has to assume full responsibility for all price increases in oil products, which
should be the case because the matter involved is not only one of national interest but profoundly one of
people's survival.
Gutierrez, Jr. and Cruz, JJ., concur.
SARMIENTO, J., separate opinion:
I would like to point out a few things in view of the majority's reliance on the first Maceda case. 1
The first Maceda case was a challenge on provisional oil price increases decreed by the Energy Regulatory
Board (ERB). This Court sustained the Board, as it is sustaining the Board in this case, on a few economic
outputs, namely, the Oil Price Stabilization Fund (OPSF) deficit, the deteriorating exchange rate, and the
balance of payments and trade gaps.
As I held in my dissent in yet another Maceda case, Maceda v. Macaraig, 2 the current oil price increases
were (are) also the result of the devaluation of the currency, since a devalued peso forced oil companies to
pay more pesos for oil worth in dollars.
I simply wish to state what has apparently been left unstated in the course of debate and perhaps, the real
score behind recurring oil price hikes and why the ERB has been very quick in granting them.
The truth is that petroleum prices have been dictated by the Government's economic maneuvers, and not
rather the vagaries of the world market. The truth is that the recent oil hikes have nothing to do with Saddam
Hussein or the Gulf crisis (during which oil prices in fact dropped) and are, rather, the natural consequences
of calculated moves by the Government in its effort to meet so-called International Monetary Fund (IMF)
targets.
In 1989, the Government of the Republic of the Philippines submitted its letter of intent to the IMF outlining
the country's economic program from 1989 through 1992. In its paragraph 19, it states that:
The Government intends to continue with the floating exchange rate system established in October
1984 . . . 3
Since exchange control was abolished and the floating rate system was established, the Philippine peso has
seen a series of devaluations that have progressively pushed up prices, significantly, prices of petroleum.
According to one authority, devaluation has been a "standard prescription" to correct balance of payments
(BOP) deficits. 4 It makes dollars expensive, discourages import and encourages exports, and forces dollars
conservation. 5
It is a matter of opinion whether or not devaluation has been good for the country and whether or not it has
realized these objectives. The truth is that, whatever it has accomplished, oil which is imported has
been subject to the effects of devaluation.
Early this year, Governor Jose Cuisia of the Central Bank, Secretary Jesus Estanislao of the Department of
Finance, and Secretary Guillermo Carague of the Budget and Management Department, wrote Mr. Michael
Camdessus of the International Monetary Fund (the letter of intent) and informed him of the country's
"Economic Stabilization Plan, 1991-92". The Plan recognized certain economic imbalances that have
supposedly inhibited growth, in particular, inflation and an increasing balance of payments deficit, and drew
a program centered on "a strong effort to bring down the overall fiscal deficit "through, among other things,
"the gradual elimination of the deficit of the Oil Price Stabilization Fund." 6 It spelled out, among other
things, a "[r]estoration of a sustainable external position requir[ing] the continuation of a flexible exchange
rate policy . . . " 7 and described in detail an "Oil Price and Energy Policy" focused on wiping out the OPSF
deficit, to wit:
xxx xxx xxx
A substantial erosion in the overall fiscal position occurred in 1989 and 1990 as a result of official price
support for oil products provided through the OPSF. Despite a lowering of the excise tax on oil in September
1990 and average domestic oil price increases of about 30 percent in September and 32 percent in December
1990, the fund continued to incur a deficit during the second half of 1990. The cumulative OPSF deficit
(excluding unfiled claims) at end December 1990 is estimated at P8.8 billion, and this deficit will rise in the
first part of 1991. However the cumulative OPSF deficit is to be eliminated by the end of the third quarter of
1991. To this end, the Government intends to follow a pricing policy that ensures attainment of zero balance
within the specific time. In particular, the Government will maintain present price levels despite projected
world price declines. In addition, a budgetary transfer of P5 billion will be provided in 1991 to settle
outstanding claim of the OPSF.
15. Full deregulation of oil prices continues to be an important objective of the Government once calm has
been restored to world oil markets. Meanwhile the technical and legal groundwork is being laid with a view
to full deregulation as soon as practicable.
16. The principal objectives of the Government's policy in the energy sector are: (i) the development of
economically viable indigenous energy resources, mainly thermal, geothermal and hydro-electric power,
together with ensuring adequate maintenance of existing facilities; (ii) promoting more efficient use of
energy resources through various energy conservation measures; and (ii) the elimination of distortions in
every resource allocation through appropriate pricing policies. 8
xxx xxx xxx
As I said, Philippine oil prices today have nothing to do with the law on supply and demand, if they had
anything to do with it in recent years. (I also gather that the Government is intending to re-adjust the prices
of gasoline and diesel fuel soon since apparently, low diesel prices have reduced the demand for gasoline
resulting in "distortions".)
As the Court held in the first Maceda v. Energy Regulatory Board, 9 oil pricing "is a question best judged by
the political leadership" and oil prices are (and have been apparently), political, rather than economic,
decisions.
I am not to be mistaken as accepting the "letter of intent" as a correct prescription much less a necessary
medicine although I will be lacking in candor if I did not say that it is a bitter pill to swallow. What I must
be understood as saying is that "oil" is a political card to be played on a political board rather than the courts,
so long, of course, as nobody has done anything illegal.
The "politics of oil" as spelled out in the Government's letter of intent likewise bring to light the true nature
of the ERB Under the Memorandum on Philippine Economic Stabilization Plan:
xxx xxx xxx
In the past, energy prices had been set to broadly reflect the average cost of supply. However, the lack of
transparency of the pricing mechanism and subsidization of consumption have increasingly become a cause
for concern. To alleviate some of these problems, in mid-1987, the Government established the Energy
Regulatory Board ERB a quasi-judicial body empowered with the setting and regulation of the pricing of
petroleum products and electricity tariffs, the regulation of additions to oil refining capacity, and the
regulation of importing, transporting, processing and distributing all energy resources. (Petroleum pricing
policy is described in paragraphs 14 and 15.) In addition to the full pass-through of changes in oil prices to
power tariffs, the Government is committed to the adoption of longrun marginal cost pricing for electricity.
To this end, NPC intends to introduce a marginal cost imported-has tariff structure to ensure that it meets its
target of achieving a rate of return of eight percent on its rate base. 10
it is apparent that the Board, in spite of its "independence" (from the Office of the President), is bound by
the terms of the program and that it has after all, no genuine discretion to deny requests for price adjustments
by oil companies. I seriously doubt whether or not it is possessed of that discretion judging, first, from its
performance since 1987 (in which it has not overruled the Government on "oil cases") and the fact that the
exchange rate, the balance of payment deficit, and the OPSF deficiency are matters of simple arithmetic.
And certainly, the Board can not possibly overrule the Government's "letter of intent."
The first Maceda case sustained the grant of provisional price increases ex parte not only because Section 8
of Executive Order No. 172 authorized the grant of provisional relief without a hearing but because
fluctuations in the foreign exchange rates, for instance, were, and are, a matter of judicial notice, and a
hearing thereafter was necessary only to see whether or not the ERB determined the rates correctly.
This likewise brings to light the necessity for an ERB to fix rates since it does not, after all fix (meaning
decide) rates but merely announces their imminence on demonstrable figures of higher rates. The Court
however can not question the wisdom of a statute and after all, I suppose the Government can make use of
an accountant.
I agree with Justice Padilla insofar as he refers to the "present scheme of allowing provisional price
increase" as a "scheme [to defraud] the people." I would like to go further. As I indicated the ERB does no
more than to punch calculators for the Government-which decides oil price increases. The comedy of
December, 1990, when the Board adjusted prices in a matter of days, is a confirmation of this point. As
Justice Padilla noted, the re-adjustment of December 10, 1990 was in fact prompted by "presidential
requests" which does not speak well of the Board's independence and which in fact bares the truth as to who
really makes the decision. (The readjustment, consisting in the reduction in diesel fuel and a corresponding
increase in gasoline, sought to mollify the indignation of the public.)
I agree with Justice Padilla that it amounts to fraud on the people to make them believe that the ERB can
give them a fair hearing, indeed, if it can do anything at all.
I agree, finally, with Justice Padilla that the nation is one in crisis, and evidently, the "ravenous" oil
companies Justice Paras refers to, have not helped any. I submit however that we have not succeeded in
fingering the real villain the letter of intent. Saddam's Middle East folly has nothing to do with that.


SUPREME COURT
Manila
EN BANC
G.R. No. 91649 May 14, 1991
ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN AND

LORENZO SANCHEZ,petitioners,
vs.
PHILIPPINE AMUSEMENTS AND GAMING CORPORATION (PAGCOR), respondent.
H.B. Basco & Associates for petitioners.

Valmonte Law Offices collaborating counsel for petitioners.
Aguirre, Laborte and Capule for respondent PAGCOR.
PARAS, J.:
A TV ad proudly announces:
"The new PAGCOR responding through responsible gaming."
But the petitioners think otherwise, that is why, they filed the instant petition seeking to annul the Philippine
Amusement and Gaming Corporation (PAGCOR) Charter PD 1869, because it is allegedly contrary to
morals, public policy and order, and because
A. It constitutes a waiver of a right prejudicial to a third person with a right recognized by law. It waived the
Manila City government's right to impose taxes and license fees, which is recognized by law;
B. For the same reason stated in the immediately preceding paragraph, the law has intruded into the local
government's right to impose local taxes and license fees. This, in contravention of the constitutionally
enshrined principle of local autonomy;
C. It violates the equal protection clause of the constitution in that it legalizes PAGCOR conducted
gambling, while most other forms of gambling are outlawed, together with prostitution, drug trafficking and
other vices;
D. It violates the avowed trend of the Cory government away from monopolistic and crony economy, and
toward free enterprise and privatization. (p. 2, Amended Petition; p. 7, Rollo)
In their Second Amended Petition, petitioners also claim that PD 1869 is contrary to the declared national
policy of the "new restored democracy" and the people's will as expressed in the 1987 Constitution. The
decree is said to have a "gambling objective" and therefore is contrary to Sections 11, 12 and 13 of Article II,
Sec. 1 of Article VIII and Section 3 (2) of Article XIV, of the present Constitution (p. 3, Second Amended
Petition; p. 21, Rollo).
The procedural issue is whether petitioners, as taxpayers and practicing lawyers (petitioner Basco being also
the Chairman of the Committee on Laws of the City Council of Manila), can question and seek the
annulment of PD 1869 on the alleged grounds mentioned above.
The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D. 1067-A
dated January 1, 1977 and was granted a franchise under P.D. 1067-B also dated January 1, 1977 "to
establish, operate and maintain gambling casinos on land or water within the territorial jurisdiction of the
Philippines." Its operation was originally conducted in the well known floating casino "Philippine Tourist."
The operation was considered a success for it proved to be a potential source of revenue to fund
infrastructure and socio-economic projects, thus, P.D. 1399 was passed on June 2, 1978 for PAGCOR to
fully attain this objective.
Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government to
regulate and centralize all games of chance authorized by existing franchise or permitted by law, under the
following declared policy
Sec. 1. Declaration of Policy. It is hereby declared to be the policy of the State to centralize and integrate
all games of chance not heretofore authorized by existing franchises or permitted by law in order to attain
the following objectives:
(a) To centralize and integrate the right and authority to operate and conduct games of chance into one
corporate entity to be controlled, administered and supervised by the Government.
(b) To establish and operate clubs and casinos, for amusement and recreation, including sports gaming pools,
(basketball, football, lotteries, etc.) and such other forms of amusement and recreation including games of
chance, which may be allowed by law within the territorial jurisdiction of the Philippines and which will: (1)
generate sources of additional revenue to fund infrastructure and socio-civic projects, such as flood control
programs, beautification, sewerage and sewage projects, Tulungan ng Bayan Centers, Nutritional Programs,
Population Control and such other essential public services; (2) create recreation and integrated facilities
which will expand and improve the country's existing tourist attractions; and (3) minimize, if not totally
eradicate, all the evils, malpractices and corruptions that are normally prevalent on the conduct and
operation of gambling clubs and casinos without direct government involvement. (Section 1, P.D. 1869)
To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines. Under its
Charter's repealing clause, all laws, decrees, executive orders, rules and regulations, inconsistent therewith,
are accordingly repealed, amended or modified.
It is reported that PAGCOR is the third largest source of government revenue, next to the Bureau of Internal
Revenue and the Bureau of Customs. In 1989 alone, PAGCOR earned P3.43 Billion, and directly remitted to
the National Government a total of P2.5 Billion in form of franchise tax, government's income share, the
President's Social Fund and Host Cities' share. In addition, PAGCOR sponsored other socio-cultural and
charitable projects on its own or in cooperation with various governmental agencies, and other private
associations and organizations. In its 3 1/2 years of operation under the present administration, PAGCOR
remitted to the government a total of P6.2 Billion. As of December 31, 1989, PAGCOR was employing
4,494 employees in its nine (9) casinos nationwide, directly supporting the livelihood of Four Thousand
Four Hundred Ninety-Four (4,494) families.
But the petitioners, are questioning the validity of P.D. No. 1869. They allege that the same is "null and
void" for being "contrary to morals, public policy and public order," monopolistic and tends toward "crony
economy", and is violative of the equal protection clause and local autonomy as well as for running counter
to the state policies enunciated in Sections 11 (Personal Dignity and Human Rights), 12 (Family) and 13
(Role of Youth) of Article II, Section 1 (Social Justice) of Article XIII and Section 2 (Educational Values) of
Article XIV of the 1987 Constitution.
This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the most deliberate
consideration by the Court, involving as it does the exercise of what has been described as "the highest and
most delicate function which belongs to the judicial department of the government." (State v. Manuel, 20
N.C. 144; Lozano v. Martinez, 146 SCRA 323).
As We enter upon the task of passing on the validity of an act of a co-equal and coordinate branch of the
government We need not be reminded of the time-honored principle, deeply ingrained in our jurisprudence,
that a statute is presumed to be valid. Every presumption must be indulged in favor of its constitutionality.
This is not to say that We approach Our task with diffidence or timidity. Where it is clear that the legislature
or the executive for that matter, has over-stepped the limits of its authority under the constitution, We should
not hesitate to wield the axe and let it fall heavily, as fall it must, on the offending statute (Lozano v.
Martinez, supra).
In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr. Justice Zaldivar
underscored the
. . . thoroughly established principle which must be followed in all cases where questions of constitutionality
as obtain in the instant cases are involved. All presumptions are indulged in favor of constitutionality; one
who attacks a statute alleging unconstitutionality must prove its invalidity beyond a reasonable doubt; that a
law may work hardship does not render it unconstitutional; that if any reasonable basis may be conceived
which supports the statute, it will be upheld and the challenger must negate all possible basis; that the courts
are not concerned with the wisdom, justice, policy or expediency of a statute and that a liberal interpretation
of the constitution in favor of the constitutionality of legislation should be adopted. (Danner v. Hass, 194
N.W. 2nd 534, 539; Spurbeck v. Statton, 106 N.W. 2nd 660, 663; 59 SCRA 66; see also e.g. Salas v.
Jarencio, 46 SCRA 734, 739 [1970]; Peralta v. Commission on Elections, 82 SCRA 30, 55 [1978]; and Heirs
of Ordona v. Reyes, 125 SCRA 220, 241-242 [1983] cited in Citizens Alliance for Consumer Protection v.
Energy Regulatory Board, 162 SCRA 521, 540)
Of course, there is first, the procedural issue. The respondents are questioning the legal personality of
petitioners to file the instant petition.
Considering however the importance to the public of the case 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 this
petition. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163 SCRA 371)
With particular regard to the requirement of proper party as applied in the cases before us, We hold that the
same is satisfied by the petitioners and intervenors because each of them has sustained or is in danger of
sustaining an immediate injury as a result of the acts or measures complained of. And even if, strictly
speaking they are not covered by the definition, it is still within the wide discretion of the Court to waive the
requirement and so remove the impediment to its addressing and resolving the serious constitutional
questions raised.
In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to question the
constitutionality of several executive orders issued by President Quirino although they were involving only
an indirect and general interest shared in common with the public. The Court dismissed the objection that
they were not proper parties and ruled that "the transcendental importance to the public of these cases
demands that they be settled promptly and definitely, brushing aside, if we must technicalities of procedure."
We have since then applied the exception in many other cases. (Association of Small Landowners in the
Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).
Having disposed of the procedural issue, We will now discuss the substantive issues raised.
Gambling in all its forms, unless allowed by law, is generally prohibited. But the prohibition of gambling
does not mean that the Government cannot regulate it in the exercise of its police power.
The concept of police power is well-established in this jurisdiction. It has been defined as the "state
authority to enact legislation that may interfere with personal liberty or property in order to promote the
general welfare." (Edu v. Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an imposition or restraint
upon liberty or property, (2) in order to foster the common good. It is not capable of an exact definition but
has been, purposely, veiled in general terms to underscore its all-comprehensive embrace. (Philippine
Association of Service Exporters, Inc. v. Drilon, 163 SCRA 386).
Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it could be
done, provides enough room for an efficient and flexible response to conditions and circumstances thus
assuming the greatest benefits. (Edu v. Ericta, supra)
It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the charter.
Along with the taxing power and eminent domain, it is inborn in the very fact of statehood and sovereignty.
It is a fundamental attribute of government that has enabled it to perform the most vital functions of
governance. Marshall, to whom the expression has been credited, refers to it succinctly as the plenary power
of the state "to govern its citizens". (Tribe, American Constitutional Law, 323, 1978). The police power of
the State is a power co-extensive with self-protection and is most aptly termed the "law of overwhelming
necessity." (Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 708) It is "the most essential, insistent, and
illimitable of powers." (Smith Bell & Co. v. National, 40 Phil. 136) It is a dynamic force that enables the
state to meet the agencies of the winds of change.
What was the reason behind the enactment of P.D. 1869?
P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize thru an
appropriate institution all games of chance authorized by existing franchise or permitted by law" (1st
whereas clause, PD 1869). As was subsequently proved, regulating and centralizing gambling operations in
one corporate entity the PAGCOR, was beneficial not just to the Government but to society in general. It
is a reliable source of much needed revenue for the cash strapped Government. It provided funds for social
impact projects and subjected gambling to "close scrutiny, regulation, supervision and control of the
Government" (4th Whereas Clause, PD 1869). With the creation of PAGCOR and the direct intervention of
the Government, the evil practices and corruptions that go with gambling will be minimized if not totally
eradicated. Public welfare, then, lies at the bottom of the enactment of PD 1896.
Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and
legal fees; that the exemption clause in P.D. 1869 is violative of the principle of local autonomy. They must
be referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from
paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever
nature, whether National or Local."
(2) Income and other taxes. a) Franchise Holder: No tax of any kind or form, income or otherwise as well
as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected
under this franchise from the Corporation; nor shall any form or tax or charge attach in any way to the
earnings of the Corporation, except a franchise tax of five (5%) percent of the gross revenues or earnings
derived by the Corporation from its operations under this franchise. Such tax shall be due and payable
quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of
any kind, nature or description, levied, established or collected by any municipal, provincial or national
government authority (Section 13 [2]).
Their contention stated hereinabove is without merit for the following reasons:
(a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes (Icard v.
City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v. Municipality of Caloocan,
7 SCRA 643). Thus, "the Charter or statute must plainly show an intent to confer that power or the
municipality cannot assume it" (Medina v. City of Baguio, 12 SCRA 62). Its "power to tax" therefore must
always yield to a legislative act which is superior having been passed upon by the state itself which has the
"inherent power to tax" (Bernas, the Revised [1973] Philippine Constitution, Vol. 1, 1983 ed. p. 445).
(b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal
corporations are mere creatures of Congress" (Unson v. Lacson, G.R. No. 7909, January 18, 1957) which
has the power to "create and abolish municipal corporations" due to its "general legislative powers"
(Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541). Congress, therefore, has the power
of control over Local governments (Hebron v. Reyes, G.R. No. 9124, July 2, 1950). And if Congress can
grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take
back the power.
(c) The City of Manila's power to impose license fees on gambling, has long been revoked. As early as 1975,
the power of local governments to regulate gambling thru the grant of "franchise, licenses or permits" was
withdrawn by P.D. No. 771 and was vested exclusively on the National Government, thus:
Sec. 1. Any provision of law to the contrary notwithstanding, the authority of chartered cities and other local
governments to issue license, permit or other form of franchise to operate, maintain and establish horse and
dog race tracks, jai-alai and other forms of gambling is hereby revoked.
Sec. 2. Hereafter, all permits or franchises to operate, maintain and establish, horse and dog race tracks, jai-
alai and other forms of gambling shall be issued by the national government upon proper application and
verification of the qualification of the applicant . . .
Therefore, only the National Government has the power to issue "licenses or permits" for the operation of
gambling. Necessarily, the power to demand or collect license fees which is a consequence of the issuance
of "licenses or permits" is no longer vested in the City of Manila.
(d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a
government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are
owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also
exercises regulatory powers thus:
Sec. 9. Regulatory Power. The Corporation shall maintain a Registry of the affiliated entities, and shall
exercise all the powers, authority and the responsibilities vested in the Securities and Exchange Commission
over such affiliating entities mentioned under the preceding section, including, but not limited to
amendments of Articles of Incorporation and By-Laws, changes in corporate term, structure, capitalization
and other matters concerning the operation of the affiliated entities, the provisions of the Corporation Code
of the Philippines to the contrary notwithstanding, except only with respect to original incorporation.
PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental,
which places it in the category of an agency or instrumentality of the Government. Being an instrumentality
of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation
might be burdened, impeded or subjected to control by a mere Local government.
The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the
operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal
government. (MC Culloch v. Marland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over local governments.
Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part
of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them. (Antieau, Modern Constitutional Law, Vol. 2, p. 140,
emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for
regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the
inherent power to wield it.
(e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be violated by P.D. 1869.
This is a pointless argument. Article X of the 1987 Constitution (on Local Autonomy) provides:
Sec. 5. Each local government unit shall have the power to create its own source of revenue and to levy
taxes, fees, and other charges subject to such guidelines and limitation as the congress may provide,
consistent with the basic policy on local autonomy. Such taxes, fees and charges shall accrue exclusively to
the local government. (emphasis supplied)
The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress
may provide by law. Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec.
3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the
power of local governments to impose taxes and fees. It cannot therefore be violative but rather is consistent
with the principle of local autonomy.
Besides, the principle of local autonomy under the 1987 Constitution simply means "decentralization" (III
Records of the 1987 Constitutional Commission, pp. 435-436, as cited in Bernas, The Constitution of the
Republic of the Philippines, Vol. II, First Ed., 1988, p. 374). It does not make local governments sovereign
within the state or an "imperium in imperio."
Local Government has been described as a political subdivision of a nation or state which is constituted by
law and has substantial control of local affairs. In a unitary system of government, such as the government
under the Philippine Constitution, local governments can only be an intra sovereign subdivision of one
sovereign nation, it cannot be an imperium in imperio. Local government in such a system can only mean a
measure of decentralization of the function of government. (emphasis supplied)
As to what state powers should be "decentralized" and what may be delegated to local government units
remains a matter of policy, which concerns wisdom. It is therefore a political question. (Citizens Alliance for
Consumer Protection v. Energy Regulatory Board, 162 SCRA 539).
What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is a State concern
and hence, it is the sole prerogative of the State to retain it or delegate it to local governments.
As gambling is usually an offense against the State, legislative grant or express charter power is generally
necessary to empower the local corporation to deal with the subject. . . . In the absence of express grant of
power to enact, ordinance provisions on this subject which are inconsistent with the state laws are void.
(Ligan v. Gadsden, Ala App. 107 So. 733 Ex-Parte Solomon, 9, Cals. 440, 27 PAC 757 following in re Ah
You, 88 Cal. 99, 25 PAC 974, 22 Am St. Rep. 280, 11 LRA 480, as cited in Mc Quinllan Vol. 3 Ibid, p. 548,
emphasis supplied)
Petitioners next contend that P.D. 1869 violates the equal protection clause of the Constitution, because "it
legalized PAGCOR conducted gambling, while most gambling are outlawed together with prostitution,
drug trafficking and other vices" (p. 82, Rollo).
We, likewise, find no valid ground to sustain this contention. The petitioners' posture ignores the well-
accepted meaning of the clause "equal protection of the laws." The clause does not preclude classification of
individuals who may be accorded different treatment under the law as long as the classification is not
unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil. 1155). A law does not have to operate in equal
force on all persons or things to be conformable to Article III, Section 1 of the Constitution (DECS v. San
Diego, G.R. No. 89572, December 21, 1989).
The "equal protection clause" does not prohibit the Legislature from establishing classes of individuals or
objects upon which different rules shall operate (Laurel v. Misa, 43 O.G. 2847). The Constitution does not
require situations which are different in fact or opinion to be treated in law as though they were the same
(Gomez v. Palomar, 25 SCRA 827).
Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the equal protection is not
clearly explained in the petition. The mere fact that some gambling activities like cockfighting (P.D 449)
horse racing (R.A. 306 as amended by RA 983), sweepstakes, lotteries and races (RA 1169 as amended by
B.P. 42) are legalized under certain conditions, while others are prohibited, does not render the applicable
laws, P.D. 1869 for one, unconstitutional.
If the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other
instances to which it might have been applied. (Gomez v. Palomar, 25 SCRA 827)
The equal protection clause of the 14th Amendment does not mean that all occupations called by the same
name must be treated the same way; the state may do what it can to prevent which is deemed as evil and stop
short of those cases in which harm to the few concerned is not less than the harm to the public that would
insure if the rule laid down were made mathematically exact. (Dominican Hotel v. Arizona, 249 US 2651).
Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory Government away from
monopolies and crony economy and toward free enterprise and privatization" suffice it to state that this is
not a ground for this Court to nullify P.D. 1869. If, indeed, PD 1869 runs counter to the government's
policies then it is for the Executive Department to recommend to Congress its repeal or amendment.
The judiciary does not settle policy issues. The Court can only declare what the law is and not what the law
should be.1wphi1 Under our system of government, policy issues are within the domain of the political
branches of government and of the people themselves as the repository of all state power. (Valmonte v.
Belmonte, Jr., 170 SCRA 256).
On the issue of "monopoly," however, the Constitution provides that:
Sec. 19. The State shall regulate or prohibit monopolies when public interest so requires. No combinations
in restraint of trade or unfair competition shall be allowed. (Art. XII, National Economy and Patrimony)
It should be noted that, as the provision is worded, monopolies are not necessarily prohibited by the
Constitution. The state must still decide whether public interest demands that monopolies be regulated or
prohibited. Again, this is a matter of policy for the Legislature to decide.
On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12 (Family) and 13 (Role
of Youth) of Article II; Section 13 (Social Justice) of Article XIII and Section 2 (Educational Values) of
Article XIV of the 1987 Constitution, suffice it to state also that these are merely statements of principles
and, policies. As such, they are basically not self-executing, meaning a law should be passed by Congress to
clearly define and effectuate such principles.
In general, therefore, the 1935 provisions were not intended to be self-executing principles ready for
enforcement through the courts. They were rather directives addressed to the executive and the legislature. If
the executive and the legislature failed to heed the directives of the articles the available remedy was not
judicial or political. The electorate could express their displeasure with the failure of the executive and the
legislature through the language of the ballot. (Bernas, Vol. II, p. 2)
Every law has in its favor the presumption of constitutionality (Yu Cong Eng v. Trinidad, 47 Phil. 387; Salas
v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82 SCRA 30; Abbas v. Comelec, 179 SCRA 287). Therefore,
for PD 1869 to be nullified, it must be shown that there is a clear and unequivocal breach of the
Constitution, not merely a doubtful and equivocal one. In other words, the grounds for nullity must be clear
and beyond reasonable doubt. (Peralta v. Comelec, supra) Those who petition this Court to declare a law, or
parts thereof, unconstitutional must clearly establish the basis for such a declaration. Otherwise, their
petition must fail. Based on the grounds raised by petitioners to challenge the constitutionality of P.D. 1869,
the Court finds that petitioners have failed to overcome the presumption. The dismissal of this petition is
therefore, inevitable. But as to whether P.D. 1869 remains a wise legislation considering the issues of
"morality, monopoly, trend to free enterprise, privatization as well as the state principles on social justice,
role of youth and educational values" being raised, is up for Congress to determine.
As this Court held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA
521
Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in any case, in its favor the
presumption of validity and constitutionality which petitioners Valmonte and the KMU have not overturned.
Petitioners have not undertaken to identify the provisions in the Constitution which they claim to have been
violated by that statute. This Court, however, is not compelled to speculate and to imagine how the assailed
legislation may possibly offend some provision of the Constitution. The Court notes, further, in this respect
that petitioners have in the main put in question the wisdom, justice and expediency of the establishment of
the OPSF, issues which are not properly addressed to this Court and which this Court may not
constitutionally pass upon. Those issues should be addressed rather to the political departments of
government: the President and the Congress.
Parenthetically, We wish to state that gambling is generally immoral, and this is precisely so when the
gambling resorted to is excessive. This excessiveness necessarily depends not only on the financial resources
of the gambler and his family but also on his mental, social, and spiritual outlook on life. However, the mere
fact that some persons may have lost their material fortunes, mental control, physical health, or even their
lives does not necessarily mean that the same are directly attributable to gambling. Gambling may have been
the antecedent, but certainly not necessarily the cause. For the same consequences could have been
preceded by an overdose of food, drink, exercise, work, and even sex.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.
Fernan, C.J., Narvasa, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Bidin, Sarmiento, Grio-Aquino,
Medialdea, Regalado and Davide, Jr., JJ., concur.
Separate Opinions
PADILLA, J., concurring:
I concur in the result of the learned decision penned by my brother Mr. Justice Paras. This means that I agree
with the decision insofar as it holds that the prohibition, control, and regulation of the entire activity known
as gambling properly pertain to "state policy." It is, therefore, the political departments of government,
namely, the legislative and the executive that should decide on what government should do in the entire area
of gambling, and assume full responsibility to the people for such policy.
The courts, as the decision states, cannot inquire into the wisdom, morality or expediency of policies
adopted by the political departments of government in areas which fall within their authority, except only
when such policies pose a clear and present danger to the life, liberty or property of the individual. This case
does not involve such a factual situation.
However, I hasten to make of record that I do not subscribe to gambling in any form. It demeans the human
personality, destroys self-confidence and eviscerates one's self-respect, which in the long run will corrode
whatever is left of the Filipino moral character. Gambling has wrecked and will continue to wreck families
and homes; it is an antithesis to individual reliance and reliability as well as personal industry which are the
touchstones of real economic progress and national development.
Gambling is reprehensible whether maintained by government or privatized. The revenues realized by the
government out of "legalized" gambling will, in the long run, be more than offset and negated by the
irreparable damage to the people's moral values.
Also, the moral standing of the government in its repeated avowals against "illegal gambling" is fatally
flawed and becomes untenable when it itself engages in the very activity it seeks to eradicate.
One can go through the Court's decision today and mentally replace the activity referred to therein
as gambling, which is legal only because it is authorized by law and run by the government, with the activity
known asprostitution. Would prostitution be any less reprehensible were it to be authorized by law,
franchised, and "regulated" by the government, in return for the substantial revenues it would yield the
government to carry out its laudable projects, such as infrastructure and social amelioration? The question, I
believe, answers itself. I submit that the sooner the legislative department outlaws all forms of gambling, as
a fundamental state policy, and the sooner the executive implements such policy, the better it will be for the
nation.
Melencio-Herrera, J., concur.


SUPREME COURT
Manila
EN BANC
G.R. No. L-22814 August 28, 1968
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant,

vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF BUTUAN, defendants-
appellees.
Sabido, Sabido and Associates for plaintiff-appellant.

The City Attorney of Butuan City for defendants-appellees.
CONCEPCION, C.J.:
Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing plaintiff's
complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and
principal place of business in Quezon City. The defendants are the City of Butuan, its City Mayor, the
members of its municipal board and its City Treasurer. Plaintiff seeks to recover the sums paid by it to the
City of Butuan hereinafter referred to as the City and collected by the latter, pursuant to its Municipal
Ordinance No. 110, as amended by Municipal Ordinance No. 122, both series of 1960, which plaintiff
assails as null and void, and to prevent the enforcement thereof. Both parties submitted the case for decision
in the lower court upon a stipulation to the effect:
1. That plaintiff's 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. .
2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was subsequently
amended by Ordinance No. 122 and effective November 28, 1960. A copy of Ordinance No. 110, Series of
1960 and Ordinance No. 122 are incorporated herein as Exhibits "A" and "B", respectively.
3. 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.
4. That the plaintiff 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.
5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has prepared a form
to be accomplished by the plaintiff for the computation of the tax. A copy of the form is enclosed herewith as
Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 to July 30, 1961 of
its warehouse in Butuan City is incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit and
Loss Statement, the defendants claim that the plaintiff is not entitled to a depreciation of P3,052.63 but only
P1,202.55 in which case the profit of plaintiff will be increased from P1,254.44 to P3,104.52. The plaintiff
differs only on the claim of depreciation which the company claims to be P3,052.62. This is in accordance
with the findings of the representative of the undersigned City Attorney who verified the records of the
plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was increased to P1.92
which price is uniform throughout the Philippines. Said increase was made due to the increase in the
production cost of its manufacture.
8. That the parties reserve the right to submit arguments on the constitutionality and illegality of Ordinance
No. 110, as amended of the City of Butuan in their respective memoranda.
xxx xxx x x x1wph1.t
Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the purview
thereof. Section 2 provides for the payment by "any agent and/or consignee" of any dealer "engaged in
selling liquors, imported or local, in the City," of taxes at specified rates. Section 3 prescribes a tax of P0.10
per case of 24 bottles of the soft drinks and carbonated beverages therein named, and "all other soft drinks or
carbonated drinks." Section 3-A, defines the meaning of the term "consignee or agent" for purposes of the
ordinance. Section 4 provides that said taxes "shall be paid at the end of every calendar month." Pursuant to
Section 5, the taxes "shall be based and computed from the cargo manifest or bill of lading or any other
record showing the number of cases of soft drinks, liquors or all other soft drinks or carbonated drinks
received within the month." Sections 6, 7 and 8 specify the surcharge to be added for failure to pay the taxes
within the period prescribed and the penalties imposable for "deliberate and willful refusal to pay the tax
mentioned in Sections 2 and 3" or for failure "to furnish the office of the City Treasurer a copy of the bill of
lading or cargo manifest or record of soft drinks, liquors or carbonated drinks for sale in the City." Section 9
makes the ordinance applicable to soft drinks, liquors or carbonated drinks "received outside" but "sold
within" the City. Section 10 of the ordinance provides that the revenue derived therefrom "shall be alloted as
follows: 40% for Roads and Bridges Fund; 40% for the General Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an
import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and confiscatory; (4) it is highly
unjust and discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority of which it was
enacted, is an unconstitutional delegation of legislative powers.
The second and last objections are manifestly devoid of merit. Indeed independently of whether or not
the tax in question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts to
double taxation, on which we need not and do not express any opinion - double taxation, in general, is not
forbidden by our fundamental law. We have not adopted, as part thereof, the injunction against double
taxation found in the Constitution of the United States and of some States of the Union. 1 Then, again, the
general principle against delegation of legislative powers, in consequence of the theory of separation of
powers2 is subject to one well-established exception, namely: legislative powers may be delegated to local
governments to which said theory does not apply3 in respect of matters of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft drinks or
carbonated drinks in the production and sale of which plaintiff is engaged or less than P0.0042 per
bottle, is manifestly too small to be excessive, oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In this connection, it is noteworthy
that the tax prescribed in section 3 of Ordinance No. 110, as originally approved, was imposed upon dealers
"engaged in selling" soft drinks or carbonated drinks. Thus, it would seem that the intent was then to levy a
tax upon the sale of said merchandise. As amended by Ordinance No. 122, the tax is, however, imposed only
upon "any agent and/or consignee of any person, association, partnership, company or corporation engaged
in selling ... soft drinks or carbonated drinks." And, pursuant to section 3-A, which was inserted by said
Ordinance No. 122:
... Definition of the Term Consignee or Agent. For purposes of this Ordinance, a consignee of agent
shall mean any person, association, partnership, company or corporation who acts in the place of another by
authority from him or one entrusted with the business of another or to whom is consigned or shipped no less
than 1,000 cases of hard liquors or soft drinks every month for resale, either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the
tax,unless they are agents and/or consignees of another dealer, who, in the very nature of things, must be
one engaged in business outside the City. Besides, the tax would not be applicable to such agent and/or
consignee, if less than 1,000 cases of soft drinks are consigned or shipped to him every month. When we
consider, also, that the tax "shall be based and computed from the cargo manifest or bill of lading ... showing
the number of cases" not sold but "received" by the taxpayer, the intention to limit the application of
the ordinance to soft drinks and carbonated drinks brought into the City from outside thereof becomes
apparent. Viewed from this angle, the tax partakes of the nature of an import duty, which is beyond
defendant's authority to impose by express provision of law.4
Even however, if the burden in question were regarded as a tax on the sale of said beverages, it would still
be invalid, as discriminatory, and hence, violative of the uniformity required by the Constitution and the law
therefor, since only sales by "agents or consignees" of outside dealers would be subject to the tax. Sales by
local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales, and even
if the same exceeded those made by said agents or consignees of producers or merchants established outside
the City of Butuan, would be exempt from the disputed tax.
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. 5 The
classification made in the exercise of this authority, to be valid, must, however, be reasonable 6 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.7
These conditions are not fully met by the ordinance in question. 8 Indeed, if its purpose were merely to levy a
burden upon the sale of soft drinks or carbonated 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.
WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered annulling
Ordinance No. 110, as amended by Ordinance No. 122, and sentencing the City of Butuan to refund to
plaintiff herein the amounts collected from and paid under protest by the latter, with interest thereon at the
legal rate from the date of the promulgation of this decision, in addition to the costs, and defendants herein
are, accordingly, restrained and prohibited permanently from enforcing said Ordinance, as amended. It is so
ordered.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. 1wph1.t
Footnotes
1
De Villata v. Stanley, 32 Phil. 541; City of Manila v. Inter-Island Gas Service, 99 Phil. 847, 854; Syjuco v.
Municipality of Paraaque, L-11265, Nov. 27, 1959; City of Bacolod v. Gruet, L-18290, Jan. 31, 1963.
2
U.S. v. Bull, 15 Phil. 7, 27; Kilbourn v. Thompson, 103 U.S. 168, 26 L. ed. 377.
3
State v. City of Mankato, 136 N.W. 264; People v. Provinces, 34 Cal. 520; Stoutenburgh v. Hennick 129
U.S. 141, 32 L. ed. 637.
4
Section 2(i), Republic Act No. 2264; Panaligan v. City of Tacloban, L- 9319, Sept. 27, 1957, 102 Phil.
1162-1163; East Asiatic Co. v. City of Davao, L-16253, August 21, 1962. .
5
Tan Tim Kee v. Court of Tax Appeals, L-18080, April 22, 1963; Nin Bay Mining Co. v. Municipality of
Roxas, L-20125, July 20, 1965. .
6
Felwa v. Salas, L-26511, October 29, 1966; Aleja v. GSIS, L-18529, February 26, 1965; People v. Solon, L-
14864, November 23, 1960; People v. Cayat, 68 Phil. 12; People v. Vera, 65 Phil. 56; Laurel v. Misa, 42
O.G. 2847.
7
Commissioner of Int. Rev. v. Botelho Shipping Corp., L-21633-34, June 29, 1967; Ermita-Malate Hotel &
Motel Operators Ass'n. v. City Mayor, L-24693, October 23, 1967; Rafael v. Embroidery & Apparel Control
& Inspection Board, L-19978, September 29, 1967; Meralco v. Public Utilities Employee Ass'n., 79 Phil.
409. .
8
Viray v. City of Caloocan, L-23118, July 26, 1967; PHILCONSA v. Gimenez, L-23326, December 18,
1965; Ormoc Sugar Co. v. Treasurer of Ormoc City, L-23794, February 17, 1968.

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BASIC PRINCIPLES OF A SOUND TAX SYSTEM

Republic of the Philippines

G.R. No. 76778 June 6, 1990

FRANCISCO I. CHAVEZ, petitioner,

EXECUTIVE ORDER No. 73

NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines, do hereby order:

SEC. 5. This Executive Order shall take effect immediately.

The Office of the Solicitor General argues against the petition.

The petition is not impressed with merit.

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

Padilla, J., took no part.

Grio-Aquino, J., is on leave.

B. NATURRE AND LIMITATIONS OF THE POWER OF TAXATION

Republic of the Philippines

G.R. No. 76778 June 6, 1990

FRANCISCO I. CHAVEZ, petitioner,

NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines, do hereby order:

SEC. 5. This Executive Order shall take effect immediately.

The Office of the Solicitor General argues against the petition.

The petition is not impressed with merit.

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.

Padilla, J., took no part.

Grio-Aquino, J., is on leave.

NATURE AND LIMITATIONS OF THE POWER OF TAXATION

Republic of the Philippines

G.R. No. 109289 October 3, 1994

RUFINO R. TAN, petitioner,

G.R. No. 109446 October 3, 1994

CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG,

Rufino R. Tan for and in his own behalf.

In G.R. No. 109289, it is asserted that the enactment of Republic Act

The Solicitor General espouses the position taken by public respondents.

G.R. No. 109289

The full text of the title actually reads:

Sec. 21. Tax on citizens or residents.

xxx xxx xxx

Not over P10,000 3%

Over P10,000 P300 + 9%

Over P30,000 P2,100 + 15%

Over P120,000 P15,600 + 20%

Over P350,000 P61,600 + 30%

(c) Telecommunications, electricity, fuel, light and water;

(d) Business rentals;

G.R. No. 109446

The questioned regulation reads:

Other deliberations support this position, to wit:

MR. PEREZ. That is correct, Mr. Speaker.

WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs.

Padilla and Bidin, JJ., are on leave.

Republic of the Philippines

G.R. No. 119252 August 18, 1997

COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS, petitioners,

HERMOSISIMA, JR., J.:

In view of the foregoing reflections, judgment is hereby rendered, as follows:

2. Enforcement of the same is hereby enjoined.

Section 150 (a) of Executive Order No. 273 reads:

The following issues were thus raised therein:

Philippines 3% to 10% to be 20% 10% VAT

Malaysia None None None