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TABLE OF CONTENTS

TOPIC PAGE
General Principles 1
Constitutional Limitations 53
Double Taxation & Tax Exemptions 80
Local Taxation 96
Real Property Taxation 110
Tariff and Customs Laws 128
Court of Tax Appeals 143
Comparison of Remedies 152
NIRC Remedies 187
Case Doctrines 227

must be made by the immediate


GENERAL PRINCIPLES representatives of the people.
And where the people have laid
DEFINITIONS AND CONCEPTS the power, there it must remain
and be exercise. (Dimaampao)
Taxation is the power by which
the sovereign, through its law 3. It is subject to constitutional
making body, raises revenue to and inherent limitations.
defray the necessary expenses The power to tax is not
of the government. It is merely a absolute. It is subject to certain
way of apportioning the costs of limitations and restriction. Most
government among those who of these limitations are
in some measures are specifically provided in the
privileged to enjoy its benefit Constitution or implied
and must bear its burdens. therefrom, while the rest are
(Aban) inherent and they are those
which spring from the nature of
Taxes according to Cooley are the taxing power itself although
the enforced proportional they may or may not be
contributions from persons and provided in the Constitution. (De
property levied by the law- Leon)
making body of the State by
virtue of its sovereignty for the Characteristics
support of government and for
public needs. (Aban) 1. It is an enforced contribution
A tax is not a voluntary payment
or donation and its imposition is
Nature of the power of taxation in no way dependent upon the
will or assent, of the taxpayer.
1. It is inherent in sovereignty. (Dimaampo)
The power of taxation is an
incident of sovereignty as it is 2. It is proportionate in character
inherent in the state, belonging It is ordinarily based on the
as a matter of right to every ability of the person to pay.
independent government. It
does not need of constitutional 3. It is payable in money
conferment. (Dimaampo) Taxes should be paid in the form
of money which must be in legal
2. It is legislative in character. tender.
The power to tax is inherent in
the State, and the State is free 4. It is levied on persons or
to select the object of taxation, property
such power being exclusively A tax may also be imposed on
vested in the legislature, acts, transactions rights or
EXCEPT where the Constitution privileges. In each case
provides otherwise. This is however, it is only a person who
based upon the principle that pays the tax. The property is
taxes are a grant of the people resorted to for the purpose of
who are taxed, and the grant ascertaining the amount of tax

that must be paid and of liability gives rise to a civil liability.


enforcing payment in case of (Republic vs. Patanao )
default of the taxpayer. (De
Leon) Aspects of taxation

5. It is levied by the state which 1. Levying or imposition of the tax


has jurisdiction over the which is a legislative act; and
persons or property 2. Collection of the tax levied
The object to be taxed must be which is essentially
subject to the jurisdiction of the administrative in character.
taxing state. (De Leon) The first is taxation, while the
second is tax administration. The
6. It is levied by the law-making two processes together constitute
body of the state the taxation system.
The power to tax is a legislative
power which under the Extent of the legislative power to
Constitution only Congress can tax
exercise through the enactment 1. The person, property or
of tax statutes. Now, local occupation to be taxed
legislative bodies are given 2. The amount or rate of the tax
direct authority to levy taxes, 3. The purposes for which taxes
fees and other charges pursuant shall be levied provided they
to the Constitution subject to are public purpose
such guidelines and limitations 4. The kind of tax to be collected
as may be provided by law. (De 5. The apportionment of the tax
Leon) 6. The situs of taxation; and
7. The means, manner or method
7. It is levied for public of collection
purpose(s).
Taxation involves, and a tax POWER OF TAXATION COMPARED
constitutes, a charge or burden WITH OTHER POWERS
imposed to provide income for
public purposes- the support of The Inherent Powers of the
the government, the State:
administration of the law, or the
payment of public expenses. For 1. Police Power
this reason, the revenues 2. Eminent Domain
derived from taxes cannot be 3. Power of Taxation
used for purely private purposes
or for exclusive benefit of private POLICE POWER is state
persons. (De Leon) authority to enact legislation
that may interfere with
Taxes are personal to taxpayer. personal liberty or property
to promote the general
In taxation, it is ones civil liability to welfare. It is the power
pay taxes that gives rise to criminal vested in the legislature by
liability, not the other way around as the Constitution to make,
in criminal case where criminal ordain, all establish all
manner of wholesome and

reasonable laws for the resulting from is attained


good and welfare of the the protection of
State and its people. his person and
(Ermita Malate Hotel v. property and
City Mayor) welfare of all
4. As to Non-Impairment of
Tests for Valid Exercise of Police Contracts:
Power: Non-impairment
Limitation does
of contracts rule
1. LAWFUL SUBJECT not apply
subsists
- The interests of the public, 5. As to Transfer of Property
not mere particular class, Rights:
require the exercise of police No transfer, but
power Taxes paid only restraint on
become part of the exercise of
2. LAWFUL MEANS the public funds property rights
- The means employed is exists
reasonable necessary for
the accomplishment of the EMINENT DOMAIN is the
purpose and not unduly right of the state through the
oppressive to individuals government to appropriate
or take private property to be
TAXATION V. POLICE POWER used for a public purpose. It
is the process of taking
POLICE known as
TAXATION
POWER EXPROPRIATION.
1. As to Purpose: It is the power of the state to
Exercised to forcibly take private property
Levied for the
promote public for public use upon payment
purpose of
welfare through of just compensation.
raising revenue
regulations It may be exercised by
2. As to Amount of Exaction: private entities with the
Exaction should express valid delegation
only be such as from the legislature. The
to cover the cost power is usually exercised
No limit of regulation, through the formal
issuance of the expropriation proceedings
license or before a court which, when
surveillance granted by the latter, will
3. As to Benefits Received: result to the actual taking of
No special or While no direct the property from its owners
direct benefit is benefits are upon payment of just
received by the received, a compensation.
taxpayer other healthy Private property shall not be
than the fact that economic taken for public use without
the government standard of just compensation. (Sec. 9,
only secures to society known Art. III, 1987 Constitution)
the citizen that as damnum
general benefit absque injuria

Requisites of Taking in Eminent may be subject


Domain: thereto

1. The expropriator must enter a PUBLIC USE is the purpose for


private property which private property can be
2. The entry must be for more than taken or condemned by the
a momentary period government under its power of
3. Entry into the property should eminent domain. It is the use
be under warrant of color of which concerns the whole
legal authority community, as distinguished
4. Property must be devoted to a from a particular individual or a
public use or otherwise particular number of individuals.
informally appropriated or However, it is not necessary
injuriously affected that each and every individual
5. Utilization of the property for member of the society should
public use must be in such a have the same decree of
way as to oust the owner and interest in this use, or be
deprive him all beneficial personally or directly affected
enjoyment of the property. by it, in order to make it public.
(Republic v. Vda. De
Castellvi)
PURPOSES OF TAXATION
TAXATION V. EMINENT DOMAIN
1. Revenue
TAXATION EMINENT
DOMAIN The purpose is to provide funds or
1. As to the Nature of the property with which the State promotes
Power Exercised: the general welfare and protection of
Exercised in Taking of private its citizens. Taxes raise money to
order to raise property for spend on armies, reads, schools and
public revenue public use hospitals, and the like.
2. As to Compensation
Received: 2. Regulation
Payment of Direct benefit
taxes results in results in the It has a regulatory purpose in the case
the general form of just of taxes levied on excises or privileges
benefit of all compensation to like those imposed on tobacco and
citizens and the property alcoholic products, or amusement
inhabitants of a owner places like night clubs.
State
3. As to Non-Impairment of 3. Promotion of General Welfare
Contracts:
Contract may Not so in eminent Taxation may be used as an
not be impaired domain implement of police power in order to
4. As to Persons Affected: promote the general welfare of the
Applies to all Only a particular people
persons, property is
property and comprehended
excises that

constitutional mandate that Congress


4. Reduction of Social Inequality shall evolve a progressive system of
taxation. (Sec. 28(1), Art. VI, 1987
This is made through the progressive Constitution)
system of taxation where the objective
is to prevent the undue concentration It provides that similarly situated
of wealth in the hands of a few taxpayers should pay equal taxes,
individuals. Progressivity is based in while those who have more should pay
the principle that those who are able to more.
pay should shoulder the bigger portion
of the tax burden. 3. Administrative Feasibility
Taxes should be capable of
5. Encourage Economic Growth convenient, just and effective
administration or enforcement of a
It does not only raise public revenue, reasonable cost.
but also grants incentives or
exemptions in order to encourage THEORY AND BASIS OF TAXATION
investments and thereby promote the
countrys economic growth. 1. Lifeblood theory Taxes are the
lifeblood of the government and so
6. Protectionism should be collected without
unnecessary hindrance.
In the case of foreign importations, For this reason:
taxes sometimes provide protection to a. taxes cannot be enjoined by
local industries like protective tariffs injunction,
and customs duties. b. taxes could not be the
subject of compensation or
PRINCIPLES OF SOUND TAX set off, as a rule.
SYSTEM c. a valid tax may result in the
destruction of the taxpayers
1. Fiscal Adequacy property.
d. taxation is an unlimited and
It means that the sources of revenue plenary power.
should be sufficient to meet the
demands of public expenditure. 2. Necessity theory
a. Taxation is a power
The sources of government revenue emanating from necessity.
must be sufficient to meet government b. A tax is a necessary burden
expenditures and other public needs. It to preserve the States
is essential to avoid budgetary deficits sovereignty.
and to minimize foreign and local c. The existence of the
borrowings. government cannot continue
without the means to pay its
2. Theoretical Justice or Equality expenses. And for those
means, the government has
A good tax system must be based in the right to compel all
the taxpayers ability to pay. It citizens and property within
suggests that taxation must be its limits to contribute.
progressive conformably with the

3. Benefits-protection theory of the tax at the time


a. The State demands and the transaction
receives taxes from the
subjects of taxation within its b. Exception
jurisdiction so that it may be Tax laws may be applied
enabled to carry its mandate retroactively provided it is
into effect and perform the (i) expressly declared, or
functions of government, (ii) clearly the legislative
and the citizen pays from his intent
property the portion Reason: It is the prerogative
demanded in order that he of the law-making body.
may, by means thereof, be
secured in the enjoyment of Unless (exception to the
the benefits of organized exception) when retroactive
society. application would be so
b. A tax is not imposed on the harsh and oppressive.
basis of a special or
particular benefit accruing to 2. Imprescriptibility
each citizen in proportion to
the tax paid. Unless otherwise provided by
c. A person cannot object to or the tax law itself, taxes are
resist the payment of taxes imprescriptible.
solely because no personal Reason: The law on
benefit to him cn be pointed prescription, being a remedial
out as arising from the tax. measure, should be liberally
construed in order to afford
Jurisdiction over subject and such protection.
objects
The limited powers of sovereignty are Prescriptive periods found
confined to objects within the under current tax laws:
respective spheres of governmental a. National Internal Revenue
control. These objects are the proper Code - Statute of limitations
subjects or objects of taxation and (Section 203 and 222) in the
none else. assessment and collection
of taxes therein imposed

DOCTRINES IN TAXATION b. Tariff and Customs Code -


when articles have been
1. Prospectivity in tax laws entered and passed free of
duty or final adjustments of
a. General rule duties made, with
Tax laws must be applied subsequent delivery, such
prospectively. entry and passage free of
Reason: The taxpayer duty or settlements of duties
cannot be expected will, after the expiration of
to foresee and one (1) year , from the date
understand the of the final payment of
nature and amount duties, in the absence of
fraud or protest or

compliance audit pursuant to purchaser may shift tax


the provisions of this Code, imposed on him to
be final and conclusive upon retailer by purchasing
all parties, unless the only after the price is
liquidation of the import reduced by the amount
entry was merely tentative of the tax).
(Section 1603)
Onward shifting
c. Local Government Code Tax burden is shifted two
prescribes prescriptive or more times either
periods for the assessment forward or backward.
(5 years) and collection (5
years) of taxes. (Sections (ii) Meaning of impact and
194 and 270) incidence taxation

3. Escape from taxation Impact of taxation is the


point on which a tax is
a. Shifting of tax burden - the originally imposed. In so
transfer of the burden of a far as the law is
tax by the original payer or concerned, the taxpayer,
the one on whom the tax the subject of tax, is the
was assessed or imposed to person who must pay the
someone else. All indirect tax to the government.
taxes may be shifted; direct
taxes cannot be shifted. Incidence of taxation is
the point on which the
Note: What is transferred is tax burden finally rests or
not the payment of the tax settles down. It takes
but the burden of the tax. place when shifting has
(i) Ways of shifting the tax been effected from the
burden statutory taxpayer to
another.
Forward shifting
Tax burden is transferred Distinctions:
from a factor of Impact refers to the
production through the initial burden of the
factors of distribution tax, while incidence
until it finally settles on refers to the ultimate
the ultimate purchaser or burden of the tax.
consumer (e.g. VAT and Impact is at the point
percentage tax). of imposition,
incidence occurs at
Backward shifting the point of
Tax burden is transferred settlement.
from the consumer or Impact of a tax falls
purchaser through the upon the person from
factors of distribution to whom the tax is
the factor of production collected while the
(e.g. Consumer or incidence rests on the

person who pays it Tax evasion employs


eventually. illegal means, thus,
Impact may be shifted punishable by law.
but incidence cannot, 2. The objective of tax
because incidence is avoidance is merely to
the end of the shifting minimize payment of
process. taxes.
The objective of tax
evasion is to escape
b. Tax avoidance - exploitation entirely from payment of
by the taxpayer of legally taxes.
permissible alternative tax
rates or methods of
assessing taxable property 4. Compensation and set-off
or income in order to avoid
or reduce tax liability. a. General rule: Taxes cannot
(sometimes called tax be the subject of set-off or
minimization) compensation.
Reasons:
c. Tax evasion - use by the (i) This would adversely
taxpayer of illegal or affect the government
fraudulent means to defeat revenue system).
or lessen the payment of a (ii) Government and the
tax (also known as tax taxpayer are not
dodging. creditors and debtors of
each other. The payment
Elements of taxes is not a
1. The end to be achieved. contractual obligation but
2. An accompanying state arises out of a duty to
of mind described as pay.
being evil, in bad faith,
willful or deliberate and b. Exception: If the claims
not accidental. against the government
3. A course of action or have been recognized and
failure of action which is an amount has already been
unlawful. appropriated for that
purpose. Where both claims
Note: Since fraud is a state have already become due
of mind, it need not be and demandable as well as
proved by direct evidence fully liquidated,
but may be inferred from the compensation takes place
circumstances of the case. by operation of law under
Article 1290 in relation to
d. Distinctions of tax avoidance Articles 1279 and 1290 of
and tax evasion the New Civil Code, and
1. Tax avoidance uses both debts are extinguished
lawful means, thus, not to the concurrent amount.
punishable by law.

Strictly against the


5. Tax amnesty government, and
Liberally in favor of
Partakes of an absolute the taxpayer
forgiveness or waiver by the Reason: Taxes, being
Government of its right to burdens, they are not
collect what otherwise would to be presumed
be due it. beyond what the
Gives tax evaders, who wish statute expressly and
to relent and are willing to clearly declares
reform, a chance to do so (ii) Exception
and become a part of the Where the language
new society with a clean of the statute is plain
slate. and there is no doubt
Distinguished from tax as to the legislative
exemption intent
1. Tax amnesty is an Where the taxpayer
immunity from all criminal claims exemption
and civil obligations from the tax
arising from non-
payment of taxes. Tax Tax exemption and
exemption is an immunity exclusion
from all civil liability only. (i) General rule
2. Tax amnesty is a general Liberally in favor of
pardon to all taxpayers. the government, and
Tax exemption is a Strictly against the
freedom from a charge or taxpayer
burden to which others Reason: Tax
are subject. exemptions are not
3. Tax amnesty is favored in
retroactive in application. accordance with the
Tax exemption is lifeblood doctrine)
generally prospective in
application. (ii) Exceptions
4. Tax amnesty constitutes When the law itself
revenue loss since there expressly provides for
are taxes due. Only the a liberal construction
collection thereof is in favor of exemption
waived. Tax exemption When the exemption
does not constitute is in favor of the
revenue loss since there government itself or
are no taxes due in the its agencies
first place. Reason: government,
as a general rule, is
6. Construction and exempt from tax.
interpretation of: When the exemption
refers to religious,
a. Tax laws charitable and
(i) General rule

educational A: Eminent domain is the inherent


institutions. power of the state to take or to
Where the language authorize the taking of any property
of the statute is plain within its jurisdiction for public use,
and there is no doubt while expropriation is the process or
as to the legislative procedure for enforcing the power of
intent of granting tax eminent domain. (Feria, 2013).
exemption to the
taxpayer Q: Give two similarities of eminent
domain and taxation.
Tax rules and regulation A: They are legislative in nature and
The construction placed by character, although the actual exercise
the office charged with of the powers is given to the executive
implementing and enforcing authorities, national or local; They are
the provisions of a tax law ways by which the state interferes with
should be given controlling private rights and property. (De Leon,
weight unless such 2009)
interpretation is clearly
erroneous. Q: What are the other similarities of
police power, eminent domain and
Penal provisions of tax laws taxation: (De Leon, 2009)
They are given strict A: They all rest upon necessity
construction. Reason: In because there can be no effective
order not to extend the plain government without them. They all
terms thereof that might underlie and exist independently of the
create offenses by mere Constitution although the conditions for
implication not so intended their exercise may be prescribed by
by the legislative body. the constitution and by law;
They all presuppose an equivalent
CLASS RECITATION WITH compensation received, directly or
SUGGESTED ANSWERS indirectly, by the persons affected by
the exercise of these powers by the
government.
Q: What are Taxes?
A: As defined by Cooley. Q: What is the Constitutional
Taxes according to provision on eminent domain.
Cooley are the enforced A: Art. III Section 9. Private property
proportional contributions shall not be taken for public use
from persons and without just compensation. (1987
property levied by the Constitution)
law-making body of the
State by virtue of its Q: What is the test of public
sovereignty for the purpose?
support of government A: There is no hard and fast rule in
and for public needs. determining public purpose. The
phrase public purpose as applied to
Q: Eminent domain and taxation is now given the broadest
expropriation, are they the same? interpretation so as to include even
indirect public advantage or benefit.

10

The mere fact that the tax will be


directly enjoyed by a private individual As to relationship to the Constitution:
does not make it invalid so long as Taxation: the power is subject to
some link to the public welfare is certain constitutional limitations
established. (Cruz, Constitutional Law, including the prohibitions against the
2007) impairment of the obligation of
contracts. Police power: relatively free
from constitutional limitations and is
Q: Give two distinctions between superior to the impairment provisions.
taxation and police power In appropriate cases, the constitutional
A: As to purpose: Taxation: the injunction against impairment of the
property (generally in the form of obligation of contracts cannot be
money) is taken for the support of the invoked as against the right of the
government; Police power: the use of state to exercise its police power.
property is regulated for the purpose of
promoting the general welfare; hence Q: True or false, only the state can
not compensable. exercise the power of eminent
domain.
As to effect: Taxation: the money A: False. While the power of eminent
contributed in the concept of taxes domain rests primarily with Congress,
becomes part of the public funds. the exercise thereof may be validly
Police power: there is no transfer of delegated to other governmental
title, at most there is restraint on the entities and in fact, even to private
injurious use of property. (De Leon, corporations.
2009)
Q: Aside from Congress, is there
As to other distinctions (De Leon, any other entity that can exercise
2009). As to benefits received: eminent domain?
Taxation: it is assumed that the person
affected receives the equivalent of the Yes. Under existing laws, the
tax in the form of protection and following may exercise the power of
benefits he (it) receives form the eminent domain:
government as such; Police power: the (1) President
persons affected receives no direct (2) Various local legislative
and immediate benefit but only such bodies
as may arise from the maintenance of (3) Certain public corporations,
a healthy economic standard of society like the Land Authority and
and is often referred to as damnum the National Housing
absque injuria (damage without injury). Authority
(4) Quasi-public corporations
As to amount of imposition: Taxation: like the Philippine National
there is no limit on the amount that Railways, the Philippine
may be imposed; Police power: the Long Distance Telephone
amount imposed should not be more Co. and Meralco. (Cruz,
than sufficient to cover the cost of the Constitutional Law, 2007)
license and the necessary expenses of
police surveillance and inspection,
examination, or regulation as nearly as Q: As to benefits, distinguish
the same can be estimated. taxation from eminent domain.

11

A: As to benefits: Taxation: it is 1965, a warrant of distraint and levy


assumed that the person affected was presented to the private
receives the equivalent of the tax in respondent, through Atty. Alberto
the form of protection and benefits he Guevara, Jr., who refused to receive it
(it) receives form the government as on the ground of the pending
such. Eminent domain: the person protest. 3 A search of the protest in the
affected receives the market value of dockets of the case proved fruitless.
the property taken from him (it). Atty. Guevara produced his file copy
and gave a photocopy to BIR agent
CASE DIGESTS: Ramon Reyes, who deferred service of
the warrant. 4 On April 7, 1965, Atty.
COMMISSIONER OF INTERNAL Guevara was finally informed that the
REVENUE, vs. ALGUE, INC., and BIR was not taking any action on the
THE COURT OF TAX APPEALS protest and it was only then that he
accepted the warrant of distraint and
FACTS: levy earlier sought to be served. On
Taxes are the lifeblood of the April 23, 1965, Algue filed a petition for
government and so should be review of the decision of the CIR with
collected without unnecessary the CTA.
hindrance Such collection should be
made in accordance with law as any The above chronology shows that the
arbitrariness will negate the very petition was filed seasonably.
reason for government itself. According to Rep. Act No. 1125, the
appeal may be made within thirty days
ISSUE: after receipt of the decision or ruling
Whether the appeal of the private challenged. 7 It is true that as a rule the
respondent from the decision of the warrant of distraint and levy is "proof of
CIR was made on time and in the finality of the assessment" 8 and
accordance with law. renders hopeless a request for
reconsideration," 9 being "tantamount
Whether the CIR correctly disallowed to an outright denial thereof and
the P75,000.00 deduction claimed by makes the said request deemed
private respondent Algue as legitimate rejected." 10 But there is a special
business expenses in its income tax circumstance in the case at bar that
returns. prevents application of this accepted
doctrine.
PROCEDURAL ISSUE: On January
14, 1965, the private respondent, a Four days after the private respondent
domestic corporation engaged in received the petitioner's notice of
engineering, construction and other assessment, it filed its letter of protest.
allied activities, received a letter from Such protest could not be located in
the petitioner assessing it in the total the office of the petitioner. It was only
amount of P83,183.85 as delinquency after Atty. Guevara gave the BIR a
income taxes for the years 1958 and copy of the protest that it was, if at all,
1959. 1 On January 18, 1965, Algue considered by the tax authorities.
flied a letter of protest or request for During the intervening period, the
reconsideration, which letter was warrant was premature and could
stamp received on the same day in the therefore not be served.
office of the petitioner. 2 On March 12,

12

As the CTA correctly noted," 11 the appointed Algue as its agent,


protest filed by private respondent was authorizing it to sell its land, factories
not pro forma and was based on and oil manufacturing process.
strong legal considerations. It thus had Pursuant to such authority, Alberto
the effect of suspending the Guevara, Jr., Eduardo Guevara, Isabel
reglementary period which started on Guevara, Edith, O'Farell, and Pablo
the date the assessment was received. Sanchez, worked for the formation of
The period started running again only the Vegetable Oil Investment
on April 7, 1965, when the private Corporation, inducing other persons to
respondent was definitely informed of invest in it. 14 Ultimately, this new
the implied rejection of the said protest corporation purchased the PSEDC
and the warrant was finally served on properties. 15 For this sale, Algue
it. Hence, when the appeal was filed received as agent a commission of
on April 23, 1965, only 20 days of the P126,000.00, and it was from this
reglementary period had been commission that the P75,000.00
consumed. promotional fees were paid to the
aforementioned individuals. 16
SUBSTANTIVE ISSUE: CIR contends There is no dispute that the payees
that the claimed deduction of duly reported their respective shares of
P75,000.00 was properly disallowed the fees in their income tax returns and
because it was not an ordinary paid the corresponding taxes
reasonable or necessary business thereon. 17 The CTA also found that no
expense. The CTA, agreeing with distribution of dividends was
Algue, held that the said amount had involved. 18
been legitimately paid by the private The petitioner claims that these
respondent for actual services payments are fictitious because most
rendered. The payment was in the of the payees are members of the
form of promotional fees. These were same family in control of Algue. It is
collected by the Payees for their work argued that no indication was made as
in the creation of the Vegetable Oil to how such payments were made.
Investment Corporation of the The petitioner suggests a tax dodge,
Philippines and its subsequent an attempt to evade a legitimate
purchase of the properties of the assessment by involving an imaginary
Philippine Sugar Estate Development deduction.
Company. These suspicions were adequately met
by the private respondent when its
HELD: President, Alberto Guevara, and the
Parenthetically, it may be observed accountant, Cecilia V. de Jesus,
that the petitioner had originally testified that the payments were not
claimed these promotional fees to be made in one lump sum but periodically
personal holding company and in different amounts as each
income 12 but later conformed to the payee's need arose. 19 It should be
decision of the respondent court remembered that this was a family
rejecting this assertion. The amount corporation where strict business
was earned through the joint efforts of procedures were not applied and
the persons among whom it was immediate issuance of receipts was
distributed. It has been established not required. When the books were to
that the Philippine Sugar Estate be closed, each payee made an
Development Company had earlier accounting of all of the fees received

13

by him or her, to make up the total of deductibility in the case of


P75,000.00. 20 Admittedly, everything compensation payments is whether
seemed to be informal. This they are reasonable and are, in fact,
arrangement was understandable, payments purely for service. This test
however, in view of the close and deductibility in the case of
relationship among the persons in the compensation payments is whether
family corporation. they are reasonable and are, in fact,
SC agreed with CTA that the amount payments purely for service. This test
of the promotional fees was not and its practical application may be
excessive. The total commission paid further stated and illustrated as
by the PSEDC to the private follows:
respondent was P125,000.00. 21After Any amount paid in the form of
deducting the said fees, Algue still had compensation, but not in fact as
a balance of P50,000.00 as clear profit the purchase price of services,
from the transaction. The amount of is not deductible. (a) An
P75,000.00 was 60% of the total ostensible salary paid by a
commission. This was a reasonable corporation may be a
proportion, considering that it was the distribution of a dividend on
payees who did practically everything, stock. This is likely to occur in
from the formation of the Vegetable Oil the case of a corporation having
Investment Corporation to the actual few stockholders, Practically all
purchase by it of the Sugar Estate of whom draw salaries. If in
properties. This finding of the such a case the salaries are in
respondent court is in accord with the excess of those ordinarily paid
following provision of the Tax Code: for similar services, and the
SEC. 30. Deductions from gross excessive payment correspond
income.--In computing net income or bear a close relationship to
there shall be allowed as deductions the stockholdings of the officers
of employees, it would seem
(a) Expenses: likely that the salaries are not
(1) In general.--All the ordinary paid wholly for services
and necessary expenses paid rendered, but the excessive
or incurred during the taxable payments are a distribution of
year in carrying on any trade or earnings upon the stock
business, including a It is worth noting at this point that most
reasonable allowance for of the payees were not in the regular
salaries or other compensation employ of Algue nor were they its
for personal services actually controlling stockholders. 23
rendered; ... 22 The Solicitor General is correct when
and Revenue Regulations No. 2, he says that the burden is on the
Section 70 (1), reading as follows: taxpayer to prove the validity of the
SEC. 70. Compensation for personal claimed deduction. The private
services.--Among the ordinary and respondent has proved that the
necessary expenses paid or incurred payment of the fees was necessary
in carrying on any trade or business and reasonable in the light of the
may be included a reasonable efforts exerted by the payees in
allowance for salaries or other inducing investors and prominent
compensation for personal services businessmen to venture in an
actually rendered. The test of experimental enterprise and involve

14

themselves in a new business Philippines and engaged in the air


requiring millions of pesos. transportation business under a
It is said that taxes are what we pay for legislative franchise. Under its
civilization society. Without taxes, the franchise, PAL is exempt from the
government would be paralyzed for payment of taxes. The pertinent
lack of the motive power to activate provision of the franchise provides as
and operate it. Hence, despite the follows:
natural reluctance to surrender part of Section 13. In consideration of the
one's hard earned income to the taxing franchise and rights hereby granted,
authorities, every person who is able the grantee shall pay to the National
to must contribute his share in the Government during the life of this
running of the government. The franchise a tax of 2% of the gross
government for its part, is expected to revenue or gross earning derived by
respond in the form of tangible and the grantee from its operations under
intangible benefits intended to improve this franchise. Such tax shall be due
the lives of the people and enhance and payable quarterly and shall be in
their moral and material values. lieu of all taxes of any kind, nature or
But even as we concede the description, levied, established or
inevitability and indispensability of collected by any municipal, provincial
taxation, it is a requirement in all or national automobiles, Provided, that
democratic regimes that it be if, after the audit of the accounts of the
exercised reasonably and in grantee by the CIR, a deficiency tax is
accordance with the prescribed shown to be due, the deficiency tax
procedure. shall be payable within the ten days
We hold that the appeal of the private from the receipt of the assessment.
respondent from the decision of the The grantee shall pay the tax on its
petitioner was filed on time with the real property in conformity with existing
respondent court in accordance with law.
Rep. Act No. 1125. And we also find On the strength of an opinion of the
that the claimed deduction by the Secretary of Justice, PAL has, since
private respondent was permitted 1956, not been paying motor vehicle
under the Internal Revenue Code and registration fees.
should therefore not have been Sometime in 1971, however, appellee
disallowed by the petitioner. Commissioner Elevate issued a
CTA decision AFFIRMED in toto. regulation requiring all tax exempt
entities, among them PAL, to pay
PHILIPPINE AIRLINES, INC. vs. motor vehicle registration fees.
ROMEO F. EDU in his capacity as Despite PAL's protestations, the
Land Transportation Commissioner appellee refused to register the
appellant's motor vehicles unless the
FACTS: amounts imposed were paid. The
The disputed registration fees were appellant thus paid under protest, the
imposed by the appellee, amount of P19,529.75 as registration
Commissioner Romeo F. Elevate fees of its motor vehicles.
pursuant to Section 8, Republic Act After paying under protest, PAL
No. 4136, otherwise known as the through counsel, wrote a letter dated
Land Transportation and Traffic Code. May 19, 1971, to Commissioner Edu
PAL is a corporation organized and demanding a refund of the amounts
existing under the laws of the paid, invoking the ruling in Calalang v.

15

Lorenzo where it was held that motor "registration fees." The term is
vehicle registration fees are in reality repeated four times in the body
taxes from the payment of which PAL thereof. Equally so, mention is
is exempt by virtue of its legislative made of the "fee for
franchise. registration." The conclusion is
Appellee Edu denied the request for difficult to resist therefore that
refund basing his action on the the Motor Vehicle Act requires
decision in Republic v. Philippine the payment not of a tax but of
Rabbit Bus Lines, Inc., to the effect a registration fee under the
that motor vehicle registration fees are police power.
regulatory exceptional and not revenue In direct refutation is the ruling
measures and, therefore, do not come in Calalang v. Lorenzo, where the
within the exemption granted to PAL Court, on the other hand, held:
under its franchise. Hence, PAL filed The charges prescribed by the
the complaint against Commissioner Revised Motor Vehicle Law for
Romeo F. Edu and National Treasurer the registration of motor
Carbonell with the CFI of Rizal. vehicles are in section 8 of that
Elevate and Carbonell filed a motion to law called "fees". But the
dismiss alleging that the complaint appellation is no impediment to
states no cause of action. The their being considered taxes if
resolution of the motion to dismiss was taxes they really are. For not
deferred by the Court until after trial on the name but the object of the
the merits. charge determines whether it is
On April 24, 1973, CFI dismissed the a tax or a fee. Taxes are for
appellant's complaint, "moved by the revenue, whereas fees are
later ruling laid down in the case exceptional. for purposes of
of Republic v. Philippine Rabbit Bus regulation and inspection and
Lines, Inc." From this judgment, PAL are for that reason limited in
appealed to CA which certified the amount to what is necessary to
case to us. cover the cost of the services
rendered in that connection.
ISSUE: Hence, a charge fixed by
Whether the motor vehicle statute for the service to be
registration fee is a tax or a person, when by an officer,
regulatory fee. where the charge has no
Whether the respondent relation to the value of the
administrative agency be required services performed and where
to refund the amounts stated in the the amount collected eventually
complaint of PAL finds its way into the treasury of
the branch of the government
HELD: whose officer or officers
TAXES. Resolving the issue in collected the chauffeur, is not a
the Philippine Rabbit case, this Court fee but a tax."
held: As proof that the money
"The registration fee which collected is not intended for the
defendant-appellee had to pay expenditures of that office, the
was imposed by Section 8 of law itself provides that all such
the Revised Motor Vehicle Law. money shall accrue to the funds
Its heading speaks of for the construction and

16

maintenance of public roads, Rep. Act 41383. Simply put, if the


streets and bridges. It is thus exaction under Rep. Act 4136 were
obvious that the fees are not merely a regulatory fee, the imposition
collected for regulatory in Rep. Act 5448 need not be an
purposes, that is to say, as an "additional" tax. Rep. Act 4136 also
incident to the enforcement of speaks of other "fees," such as the
regulations governing the special permit fees for certain types of
operation of motor vehicles on motor vehicles (Sec. 10) and additional
public highways, for their fees for change of registration (Sec.
express object is to provide 11). These are not to be understood as
revenue with which the taxes because such fees are very
Government is to discharge one minimal to be revenue-raising.
of its principal functions the It is quite apparent that vehicle
construction and maintenance registration fees were originally simple
of public highways for exceptional intended only for purposes
everybody's use. They are in the exercise of the State's police
veritable taxes, not merely fees. powers. Over the years, however, as
vehicular traffic exploded in number
It appears that the legislative intent and motor vehicles became absolute
and purpose behind the law requiring necessities without which modem life
owners of vehicles to pay for their as we know it would stand still,
registration is mainly to raise funds for Congress found the registration of
the construction and maintenance of vehicles a very convenient way of
highways and to a much lesser raising much needed revenues.
degree, pay for the operating Without changing the earlier deputy of
expenses of the administering agency. registration payments as "fees," their
Fees may be properly regarded as nature has become that of "taxes."
taxes even though they also serve as In view of the foregoing, the motor
an instrument of regulation. Indeed, vehicle registration fees as at present
taxation may be made the implement exacted pursuant to the Land
of the state's police power. Transportation and Traffic Code are
If the purpose is primarily revenue, or if actually taxes intended for additional
revenue is, at least, one of the real and revenues of government even if one
substantial purposes, then the fifth or less of the amount collected is
exaction is properly called a tax. Such set aside for the operating expenses of
is the case of motor vehicle the agency administering the program.
registration fees. It is patent therefrom
that the legislators had in mind a For the second issue, the answer is
regulatory tax as the law refers to the no. The claim for refund is made for
imposition on the registration, payments given in 1971. It is not clear
operation or ownership of a motor from the records as to what payments
vehicle as a "tax or fee." Thus, even were made in succeeding years. We
Rep. Act 5448 cited by the have ruled that Section 24 of Rep. Act
respondents, speak of an "additional" No. 5448 repealed all earlier tax
tax," where the law could have referred exemptions of corporate taxpayers
to an original tax and not one in found in legislative franchises similar
addition to the tax already imposed on to that invoked by PAL in this case.
the registration, operation, or Any registration fees collected
ownership of a motor vehicle under between June 27, 1968 and April 9,

17

1979, were correctly imposed because (5) All taxes, fees and other
the tax exemption in the franchise of charges on the registration,
PAL was repealed during the period. license, acquisition, and transfer
However, an amended franchise was of airtransport equipment, motor
given to PAL in 1979. Section 13 of vehicles, and all other personal
Presidential Decree No. 1590, now or real property of the gravitates
provides: (Pres. Decree 1590, 75 OG No.
In consideration of the franchise 15, 3259, April 9, 1979).
and rights hereby granted, the PAL's current franchise is clear and
grantee shall pay to the specific. It has removed the ambiguity
Philippine Government during found in the earlier law. PAL is now
the lifetime of this franchise exempt from the payment of any tax,
whichever of subsections (a) fee, or other charge on the registration
and (b) hereunder will result in and licensing of motor vehicles. Such
lower taxes. payments are already included in the
(a) The basic corporate income basic tax or franchise tax provided in
tax based on the grantee's Subsections (a) and (b) of Section 13,
annual net taxable income P.D. 1590, and may no longer be
computed in accordance with exacted.
the provisions of the Internal Petition partially GRANTED. The
Revenue Code; or prayed for refund of registration fees
(b) A franchise tax of two per paid in 1971 is DENIED.
cent (2%) of the gross
revenues, derived by the ESSO STANDARD EASTERN, INC. vs.
grantees from all specific, THE COMMISSIONER OF INTERNAL
without distinction as to REVENUE
transport or nontransport
corporations; provided that with FACTS:
respect to international air CTA Case No. 1251: Petitioner ESSO
transport service, only the gross deducted from its gross income for
passengers, mail, and freight 1959, as part of its ordinary and
revenues. from its outgoing necessary business expenses, the
flights shall be subject to this amount it had spent for drilling and
law. exploration of its petroleum
The tax paid by the grantee concessions which was disallowed by
under either of the above the respondent CIR on the ground that
alternatives shall be in lieu of all the expenses should be capitalized
other taxes, duties, royalties, and might be written off as a loss only
registration, license and other when a "dry hole" should result. ESSO
fees and charges of any kind, then filed an amended return where it
nature or description imposed, asked for the refund of P323,279.00 by
levied, established, assessed, reason of its abandonment as dry
or collected by any municipal, holes of several of its oil wells. Also
city, provincial, or national claimed as ordinary and necessary
authority or government, expenses in the same return was the
agency, now or in the future, amount of P340,822.04, representing
including but not limited to the margin fees it had paid to the Central
following: Bank on its profit remittances to its
New York head office.

18

On August 5, 1964, the CIR granted a necessary business expense. It also


tax credit of P221,033.00 only, claimed an overpayment of its tax by
disallowing the claimed deduction for P434,232.92 in 1960, for the same
the margin fees paid. reason. Additionally, ESSO argued
that even if the amount paid as margin
CTA Case No. 1558: the CIR fees were not legally deductible, there
assessed ESSO a deficiency income was still an overpayment by
tax for the year 1960, in the amount of P39,787.94 for 1960, representing
P367,994.00, plus 18% interest excess interest.
thereon of P66,238.92 for the period After trial, the CTA denied petitioner's
from April 18, 1961 to April 18, 1964, claim for refund of P102,246.00 for
for a total of P434,232.92. The 1959 and P434,234.92 for 1960 but
deficiency arose from the disallowance sustained its claim for P39,787.94 as
of the margin fees of Pl,226,647.72 excess interest. This portion of the
paid by ESSO to the Central Bank on decision was appealed by the CIR but
its profit remittances to its New York was affirmed by this Court
head office. in Commissioner of Internal Revenue
ESSO settled this deficiency v. ESSO. ESSO for its part appealed
assessment on August 10, 1964, by the CTA decision denying its claims for
applying the tax credit of P221,033.00 the refund of the margin fees
representing its overpayment on its P102,246.00 for 1959 and
income tax for 1959 and paying under P434,234.92 for 1960. That is the
protest the additional amount of issue now before us.
P213,201.92. On August 13, 1964, it ISSUE:
claimed the refund of P39,787.94 as Whether R.A. 2009, entitled An Act to
overpayment on the interest on its Authorize the Central Bank of the
deficiency income tax. It argued that Philippines to Establish a Margin Over
the 18% interest should have been Banks' Selling Rates of Foreign
imposed not on the total deficiency of Exchange, is a police measure or a
P367,944.00 but only on the amount of revenue measure.
P146,961.00, the difference between
the total deficiency and its tax credit of HELD:
P221,033.00. POLICE POWER. On the claimed
This claim was denied by the CIR, who legislative intent, the CTA, quoting
insisted on charging the 18% interest established principles, pointed out that
on the entire amount of the deficiency
tax. On May 4,1965, the CIR also The courts may take into consideration
denied the claims of ESSO for refund the facts leading up to, coincident with,
of the overpayment of its 1959 and and in any way connected with, the
1960 income taxes, holding that the passage of the act, in order that they
margin fees paid to the Central Bank may properly interpret the legislative
could not be considered taxes or intent. But it is also well-settled
allowed as deductible business jurisprudence that only in extremely
expenses. doubtful matters of interpretation does
ESSO appealed to the CTA and the legislative history of an act of
sought the refund of P102,246.00 for Congress become important. As a
1959, contending that the margin fees matter of fact, there may be no resort
were deductible from gross income to the legislative history of the
either as a tax or as an ordinary and enactment of a statute, the language

19

of which is plain and unambiguous, exchange and hence should not form
since such legislative history may only part of the exchange rate, suffice it to
be resorted to for the purpose of state that SC held the contrary for the
solving doubt, not for the purpose of reason that a tax is levied to provide
creating it. revenue for government operations,
Apart from the above consideration, while the proceeds of the margin fee
there are at least two cases where we are applied to strengthen our country's
have held that a margin fee is not a tax international reserves.
but an exaction designed to curb the The margin fee was imposed by the
excessive demands upon our State in the exercise of its police
international reserve. power and not the power of taxation.
In Caltex (Phil.) Inc. v. Acting Alternatively, ESSO prays that if
Commissioner of Customs, 2 the Court margin fees are not taxes, they should
stated through Justice Jose P. nevertheless be considered necessary
Bengzon: and ordinary business expenses and
A margin levy on foreign therefore still deductible from its gross
exchange is a form of exchange income. The fees were paid for the
control or restriction designed to remittance by ESSO as part of the
discourage imports and profits to the head office in the Unites
encourage exports, and States. Such remittance was an
ultimately, 'curtail any excessive expenditure necessary and proper for
demand upon the international the conduct of its corporate affairs.
reserve' in order to stabilize the The applicable provision is Section
currency. The different 30(a) of the National Internal Revenue
measures of exchange control Code reading as follows:
or restriction cover different SEC. 30. Deductions from gross
phases of foreign exchange income in computing net income there
transactions, i.e., in quantitative shall be allowed as deductions
restriction, the control is on the (a) Expenses:
amount of foreign exchange (1) In general. All the
allowable. In the case of the ordinary and necessary
margin levy, the immediate expenses paid or incurred
impact is on the rate of foreign during the taxable year in
exchange; in fact, its main carrying on any trade or
function is to control the business, including a
exchange rate without changing reasonable allowance for
the par value of the peso as salaries or other compensation
fixed in the Bretton Woods for personal services actually
Agreement Act. For a member rendered; traveling expenses
nation is not supposed to alter while away from home in the
its exchange rate (at par value) pursuit of a trade or business;
to correct a merely temporary and rentals or other payments
disequilibrium in its balance of required to be made as a
payments. By its nature, the condition to the continued use
margin levy is part of the rate of or possession, for the purpose
exchange as fixed by the of the trade or business, of
government. property to which the taxpayer
As to the contention that the margin has not taken or is not taking
levy is a tax on the purchase of foreign

20

title or in which he has no within the taxable year, and (3)


equity. it must be paid or incurred in
(2) Expenses allowable to non- carrying on a trade or business.
resident alien individuals and In addition, not only must the
foreign corporations. In the taxpayer meet the business
case of a non-resident alien test, he must substantially prove
individual or a foreign by evidence or records the
corporation, the expenses deductions claimed under the
deductible are the necessary law, otherwise, the same will be
expenses paid or incurred in disallowed. The mere allegation
carrying on any business or of the taxpayer that an item of
trade conducted within the expense is ordinary and
Philippines exclusively. necessary does not justify its
In Atlas Consolidated Mining and deduction.
Development Corporation v. CIR, the Ordinarily, an expense will be
Court laid down the rules on the considered 'necessary' where
deductibility of business expenses, the expenditure is appropriate
thus: and helpful in the development
The principle is recognized that of the taxpayer's business. It is
when a taxpayer claims a 'ordinary' when it connotes a
deduction, he must point to payment which is normal in
some specific provision of the relation to the business of the
statute in which that deduction taxpayer and the surrounding
is authorized and must be able circumstances. The term
to prove that he is entitled to the 'ordinary' does not require that
deduction which the law allows. the payments be habitual or
As previously adverted to, the normal in the sense that the
law allowing expenses as same taxpayer will have to
deduction from gross income for make them often; the payment
purposes of the income tax is may be unique or non-recurring
Section 30(a) (1) of the National to the particular taxpayer
Internal Revenue which allows affected.
a deduction of 'all the ordinary There is thus no hard and fast
and necessary expenses paid rule on the matter. The right to a
or incurred during the taxable deduction depends in each
year in carrying on any trade or case on the particular facts and
business.' An item of the relation of the payment to
expenditure, in order to be the type of business in which
deductible under this section of the taxpayer is engaged. The
the statute, must fall squarely intention of the taxpayer often
within its language. may be the controlling fact in
We come, then, to the statutory making the determination.
test of deductibility where it is Assuming that the expenditure
axiomatic that to be deductible is ordinary and necessary in the
as a business expense, three operation of the taxpayer's
conditions are imposed, business, the answer to the
namely: (1) the expense must question as to whether the
be ordinary and necessary, (2) expenditure is an allowable
it must be paid or incurred deduction as a business

21

expense must be determined Company in New York, but


from the nature of the certainly not in the Philippines.
expenditure itself, which in turn ESSO has not shown that the
depends on the extent and remittance to the head office of part of
permanency of the work its profits was made in furtherance of
accomplished by the its own trade or business. The
expenditure. petitioner merely presumed that all
In the light of the above explanation, corporate expenses are necessary and
CTA did not err when it held on this appropriate in the absence of a
issue as follows: showing that they are illegal or ultra
The margin fees are not vires. This is error. ESSO cannot now
expenses in connection with the claim this as an ordinary and
production or earning of necessary expense paid or incurred in
petitioner's incomes in the carrying on its own trade or business.
Philippines. They were CTA decision AFFIRMED.
expenses incurred in the
disposition of said incomes; IN THE MATTER OF A PETITION FOR
expenses for the remittance of DECLARATORY JUDGMENT
funds after they have already REGARDING THE VALIDITY OF
been earned by petitioner's MUNICIPAL ORDINANCE NO. 3659 OF
THE CITY OF MANILA. PHYSICAL
branch in the Philippines for the
THERAPY ORGANIZATION OF THE
disposal of its Head Office in PHILIPPINES, INC. vs. THE MUNICIPAL
New York which is already BOARD OF THE CITY OF MANILA and
another distinct and separate ARSENIO H. LACSON
income taxpayer.
Since the margin fees in FACTS:
question were incurred for the The petitioner-appellant, an
remittance of funds to association of registered massagists
petitioner's Head Office in New and licensed operators of massage
York, which is a separate and clinics in the City of Manila and other
distinct income taxpayer from parts of the country, filed an action in
the branch in the Philippines, for the CFI of Manila for declaratory
its disposal abroad, it can never judgment regarding the validity of
be said therefore that the Municipal Ordinance No. 3659. To
margin fees were appropriate stop the City from enforcing said
and helpful in the development ordinance, the petitioner secured an
of petitioner's business in the injunction upon filing of a bond in the
Philippines exclusively or were sum of P1,000.00. A hearing was held,
incurred for purposes proper to but the parties without introducing any
the conduct of the affairs of evidence submitted the case for
petitioner's branch in the decision on the pleadings, although
Philippines exclusively or for the they submitted written memoranda.
purpose of realizing a profit or Thereafter, the trial court dismissed
of minimizing a loss in the the petition and later dissolved the writ
Philippines exclusively. If at all, of injunction previously issued.
the margin fees were incurred The petitioner appealed said order of
for purposes proper to the dismissal directly to this Court
conduct of the corporate affairs contending, among other things, that
of Standard Vacuum Oil the Ordinance is valid as it does not

22

regulate the practice of massage, that Ordinance No. 3659 has restricted the
the Municipal Board of Manila has the practice of massage to only hygienic
power to enact the Ordinance, and that and aesthetic massage prohibits or
permit fee of P100.00 is moderate and does not allow qualified massagists to
not unreasonable. practice therapeutic massage in their
ORDINANCE No. 3659: AN massage clinics. Appellant also
ORDINANCE REGULATING THE contends that the license fee of
OPERATION OF MASSAGE CLINICS P100.00 for operator in Section 2 of
IN THE CITY OF MANILA AND the Ordinance is unreasonable, nay,
PROVIDING PENALTIES FOR unconscionable.
VIOLATIONS THEREOF.
SEC. 2. Permit Fees. No
person shall engage in the
operation of a massage clinic or
in the occupation of attendant or ISSUE:
helper therein without first Whether the City of Manila has the
having obtained a permit power to regulate and fix the license
therefor from the Mayor. For fees of massagists; Whether the
every permit granted under the license fee of P100.00 is
provisions of this Ordinance, unconscionable.
there shall be paid to the City
Treasurer the following annual HELD:
fees: It appears that the purpose of the
(a) Operator of a Ordinance is not to regulate the
massage P100.00 practice of massage, much less to
(b) Attendant or restrict the practice of licensed and
helper 5.00 qualified massagists of therapeutic
massage in the Philippines. The
Said permit, which shall be renewed purpose is to prevent the commission
every year, may be revoked by the of immorality and the practice of
Mayor at any time for the violation of prostitution in an establishment
this Ordinance. masquerading as a massage clinic
Appellant contends that the City of where the operators thereof offer to
Manila is without authority to regulate massage or manipulate superficial
the operation of massagists and the parts of the bodies of customers for
operation of massage clinics within its hygienic and aesthetic purposes. This
jurisdiction; that under the New intention can readily be understood by
Charter of Manila, Republic Act 409, the building requirements requiring
said power to regulate and fix license that there be separate rooms for male
fees of massagists has been and female customers; that instead of
withdrawn or omitted; that the Director said rooms being separated by
of Health has issued Administrative permanent partitions and swinging
Order No. 10, dated May 5, 1953, doors, there should only be sliding
prescribing "rules and regulations curtains between them, among others.
governing the examination for This intention of the Ordinance was
admission to the practice of massage, correctly ascertained by Judge
and the operation of massage clinics, Hermogenes Concepcion, presiding in
offices, or establishments in the the trial court, in his order of dismissal
Philippines"; that Section 1 (a) of where he said: "What the Ordinance

23

tries to avoid is that the massage clinic marked distinction between


run by an operator who may not be a license fees imposed upon
masseur or massagista may be used useful and beneficial
as cover for the running or maintaining occupations which the
a house of prostitution." sovereign wishes to regulate
As to the authority of the City Board to but not restrict, and those which
enact the Ordinance in question, the are inimical and dangerous to
City Fiscal, calls our attention to public health, morals or safety.
Section 18 of the New Charter of the In the latter case the fee may be
City of Manila, Act No. 409, which very large without necessarily
gives legislative powers to the being a tax.
Municipal Board to enact all Evidently, the Manila Municipal Board
ordinances it may deem necessary considered the practice of hygienic
and proper for the promotion of the and aesthetic massage not as a useful
morality, peace, good order, comfort, and beneficial occupation which will
convenience and general welfare of promote and is conducive to public
the City and its inhabitants. This is morals, and consequently, imposed
generally referred to as the General the said permit fee for its regulation.
Welfare Clause, a delegation in Ordinance is VALID.
statutory form of the police power,
under which municipal corporations, REPUBLIC OF THE PHILIPPINES vs.
are authorized to enact ordinances to MAMBULAO LUMBER COMPANY,
provide for the health and safety, and ET AL.
promote the morality, peace and
general welfare of its inhabitants. We FACTS:
agree with the City Fiscal. Under the first cause of action, for
As regards the permit fee of P100.00, forest charges covering the period
it will be seen that said fee is made from September 10, 1952 to May 24,
payable not by the masseur or 1953, defendants admitted that they
massagist, but by the operator of a have a liability of P587.37, which
massage clinic who may not be a liability is covered by a bond executed
massagist himself. Compared to by defendant General Insurance &
permit fees required in other Surety Corporation for Mambulao
operations, P100.00 may appear to be Lumber Company, jointly and severally
too large and rather unreasonable. in character, on July 29, 1953, in favor
However, much discretion is given to of herein plaintiff. Under the second
municipal corporations in determining cause of action, both defendants
the amount of said fee without admitted a joint and several liability in
considering it as a tax for revenue favor of plaintiff in the sum of P296.70,
purposes: also covered by a bond dated
The amount of the fee or charge November 27, 1953. Under the third
is properly considered in cause of action, both defendants
determining whether it is a tax admitted a joint and several liability in
or an exercise of the police favor of plaintiff for P3,928.30, also
power. The amount may be so covered by a bond dated July 20,
large as to itself show that the 1954. These three liabilities aggregate
purpose was to raise revenue to P4,802.37.
and not to regulate, but in The defense presented by the
regard to this matter there is a defendants is quite unusual in more

24

ways than one. It appears that from for paying the reforestation charges
July 31, 1948 to December 29, 1956, and also explained why not all
defendant Mambulao Lumber denuded areas are being reforested.
Company paid to the Republic of the
Philippines P8,200.52 for 'reforestation ISSUE:
charges' and for the period Whether the sum of P9,127.50 paid by
commencing from April 30, 1947 to defendant-appellant company to
June 24, 1948, said defendant paid plaintiff-appellee as reforestation
P927.08 to the Republic of the charges from 1947 to 1956 may be set
Philippines for 'reforestation charges'. off or applied to the payment of the
These reforestation were paid to the sum of P4,802.37 as forest charges
plaintiff in pursuance of Section 1 of due and owing from appellant to
Republic Act 115 which provides that appellee.
there shall be collected, in addition to It is appellant's contention that said
the regular forest charges provided sum of P9,127.50, not having been
under Section 264 of Commonwealth used in the reforestation of the area
Act 466 known as the NIRC, the covered by its license, the same is
amount of P0.50 on each cubic meter refundable to it or may be applied in
of timber... cut out and removed from compensation of said sum of
any public forest for commercial P4,802.37 due from it as forest
purposes. The total amount of the charges.
reforestation charges paid by
Mambulao Lumber Company is HELD:
P9,127.50, and it is the contention of We find appellant's claim devoid of any
the defendant Mambulao Lumber merit. Section 1 of Republic Act No.
Company that since the RP has not 115, provides:
made use of those reforestation SECTION 1. There shall be
charges collected from it for reforesting collected, in addition to the
the denuded area of the land covered regular forest charges provided
by its license, the RP should refund for under the National Internal
said amount, or, if it cannot be Revenue Code, the amount of
refunded, at least it should be fifty centavos on each cubic
compensated with what Mambulao meter of timber for the first and
Lumber Company owed the RP for second groups and forty
reforestation charges. In line with this centavos for the third and fourth
thought, defendant Mambulao Lumber groups cut out and removed
wrote the director of forestry, on from any public forest for
February 21, 1957 letter and commercial purposes. The
requested "that our account with your amount collected shall be
bureau be credited with all the expended by the Director of
reforestation charges that you have Forestry, with the approval of
imposed on us from July 1, 1947 to the Secretary of Agriculture and
June 14, 1956, amounting to around Natural Resources (commerce),
P2,988.62 ...". This letter was for reforestation and
answered by the director of forestry on afforestation of watersheds,
March 12, 1957, in which the director denuded areas and cogon and
of forestry quoted an opinion of the open lands within forest
secretary of justice, to the effect that reserves, communal forest,
he has no discretion to extend the time national parks, timber lands,

25

sand dunes, and other public of a tax which forms a part of the
forest lands, which upon Reforestation Fund, payable by him
investigation, are found needing irrespective of whether the area
reforestation or afforestation, or covered by his license is reforested or
needing to be under forest not. Said fund, as the law expressly
cover for the growing of provides, shall be expended in
economic trees for timber, carrying out the purposes provided for
tanning, oils, gums, and other thereunder, namely, the reforestation
minor forest products or or afforestation, among others, of
medicinal plants, or for denuded areas needing reforestation
watersheds protection, or for or afforestation.
prevention of erosion and floods Appellant maintains that the principle
and preparation of necessary of a compensation in Article 1278 NCC
plans and estimate of costs and is applicable, such that the sum of
for reconnaissance survey of P9,127.50 paid by it as reforestation
public forest lands and for such charges may compensate its
other expenses as may be indebtedness to appellee in the sum of
deemed necessary for the P4,802.37 as forest charges. But in the
proper carrying out of the view we take of this case, appellant
purposes of this Act. and appellee are not mutually creditors
All revenues collected by virtue and debtors of each other.
of, and pursuant to, the Consequently, the law on
provisions of the preceding compensation is inapplicable.
paragraph and from the sale of And the weight of authority is to the
barks, medical plants and other effect that internal revenue taxes, such
products derived from as the forest charges in question, can
plantations as herein provided be the subject of set-off or
shall constitute a fund to be compensation.
known as Reforestation Fund, A claim for taxes is not such a
to be expended exclusively in debt, demand, contract or
carrying out the purposes judgment as is allowed to be
provided for under this Act. All set-off under the statutes of set-
provincial or city treasurers and off, which are construed
their deputies shall act as uniformly, in the light of public
agents of the Director of policy, to exclude the remedy in
Forestry for the collection of the an action or any indebtedness
revenues or incomes derived of the state or municipality to
from the provisions of this Act. one who is liable to the state or
Note that there is nothing in the law municipality for taxes. Neither
which requires that the amount are they a proper subject of
collected as reforestation charges recoupment since they do not
should be used exclusively for the arise out of the contract or
reforestation of the area covered by transaction sued on.
the license of a licensee or The general rule, based on
concessionaire, and that if not so grounds of public policy is well-
used, the same should be refunded to settled that no set-off is
him. The conclusion seems to be that admissible against demands for
the amount paid by a licensee as taxes levied for general or local
reforestation charges is in the nature governmental purposes. The

26

reason on which the general taxes. Thus, on December 5, 1977, his


rule is based, is that taxes are property was sold at public auction by
not in the nature of contracts the City Treasurer of Pasay City
between the party and party but pursuant to Section 73 of PD No. 464
grow out of a duty to, and are known as the Real Property Tax Code
the positive acts of the in order to satisfy a tax delinquency of
government, to the making and P2,400.00. Ho Fernandez was the
enforcing of which, the personal highest bidder for the property. Francia
consent of individual taxpayers was not present during the auction
is not required. If the taxpayer sale since he was in Iligan City at that
can properly refuse to pay his time helping his uncle ship bananas.
tax when called upon by the On March 3, 1979, Francia received a
Collector, because he has a notice of hearing of "In re: Petition for
claim against the governmental Entry of New Certificate of Title" filed
body which is not included in by Ho Fernandez, seeking the
the tax levy, it is plain that some cancellation of TCT No. 4739 and the
legitimate and necessary issuance in his name of a new
expenditure must be curtailed. If certificate of title. Upon verification
the taxpayer's claim is disputed, through his lawyer, Francia discovered
the collection of the tax must that a Final Bill of Sale had been
await and abide the result of a issued in favor of Ho Fernandez by the
lawsuit, and meanwhile the City Treasurer on December 11, 1978.
financial affairs of the The auction sale and the final bill of
government will be thrown into sale were both annotated at the back
great confusion. of TCT No. 4739 (37795) by the
Trial court decision AFFIRMED. Register of Deeds.
On March 20, 1979, Francia filed a
ENGRACIO FRANCIA vs. complaint to annul the auction sale. On
INTERMEDIATE APPELLATE April 23, 1981, the lower court
COURT and HO FERNANDEZ dismissed the amended complaint and
ordering the RD to issue a new TCT in
FACTS: favor of Ho Fernandez. IAC affirmed
Engracio Francia is the registered the decision of the lower court in toto.
owner of a residential lot and a two- Hence, this petition for review.
story house built upon it situated at
Barrio San Isidro, now District of Sta. ISSUE:
Clara, Pasay City, Metro Manila. The Whether the petitioners obligation to
lot, with an area of about 328 square pay P2,400.00 for supposed tax
meters, is described and covered by delinquency was set-off by the amount
TCT No. 4739 (37795). of P4,116.00 which the government is
On October 15, 1977, a 125 square indebted to the former.
meter portion of Francia's property was Whether the auction sale in question
expropriated by the Republic of the was made without complying with the
Philippines for the sum of P4,116.00 mandatory provisions of the statute
representing the estimated amount governing tax sale.
equivalent to the assessed value of the
aforesaid portion. HELD:
Since 1963 up to 1977 inclusive, NO. There is no legal basis for the
Francia failed to pay his real estate contention. By legal compensation,

27

obligations of persons, who in their to show that there was compliance


own right are reciprocally debtors and with all the prescribed requisites for a
creditors of each other, are tax sale.
extinguished (Art. 1278, Civil Code). The case of Valencia v. Jimenez laid
The circumstances of the case do not down the doctrine that:
satisfy the requirements. Due process of law to be
This principal contention of the followed in tax proceedings
petitioner has no merit. There can be must be established by proof
no off-setting of taxes against the and the general rule is that the
claims that the taxpayer may have purchaser of a tax title is bound
against the government. A person to take upon himself the burden
cannot refuse to pay a tax on the of showing the regularity of all
ground that the government owes him proceedings leading up to the
an amount equal to or greater than the sale.
tax being collected. The collection of a
tax cannot await the results of a There is no presumption of the
lawsuit against the government. regularity of any administrative action
A taxpayer cannot refuse to pay his tax which results in depriving a taxpayer of
when called upon by the collector his property through a tax sale. This is
because he has a claim against the actually an exception to the rule that
governmental body not included in the administrative proceedings are
tax levy. presumed to be regular. But even if the
The tax was due to the city burden of proof lies with the purchaser
government while the expropriation to show that all legal prerequisites
was effected by the national have been complied with, the
government. Moreover, the amount of petitioner cannot, however, deny that
P4,116.00 paid by the national he did receive the notice for the
government for the 125 square meter auction sale.
portion of his lot was deposited with Petitioner was notified about the
the PNB long before the sale at public auction sale. It was negligence on his
auction of his remaining property. part when he ignored such notice. By
Notice of the deposit dated September his very own admission that he
28, 1977 was received by the received the notice, his now coming to
petitioner on September 30, 1977. The court assailing the validity of the
petitioner admitted in his testimony auction sale loses its force.
that he knew about the P4,116.00 As a general rule, gross inadequacy of
deposited with the bank but he did not price is not material. Alleged gross
withdraw it. It would have been an inadequacy of price is not material
easy matter to withdraw P2,400.00 when the law gives the owner the right
from the deposit so that he could pay to redeem as when a sale is made at
the tax obligation thus aborting the public auction, upon the theory that the
sale at public auction. Petitioner had lesser the price, the easier it is for the
one year within which to redeem his owner to effect redemption.
property although, as well be shown We are inclined to believe the
later, he claimed that he pocketed the petitioner's claim that the value of the
notice of the auction sale without lot has greatly appreciated in value.
reading it. Precisely because of the widening of
(2) Ho Fernandez, the purchaser at the Buendia Avenue in Pasay City, which
auction sale, has the burden of proof necessitated the expropriation of

28

adjoining areas, real estate values Whether the judgment in favor of the
have gone up in the area. Government against the estate of
Petition DISMISSED. Walter Scott Price for internal revenue
taxes may be executed.
Commissioner of Internal Revenue
vs. HON. LORENZO C. GARLITOS HELD:
NO. The ordinary procedure by which
FACTS: to settle claims of indebtedness
In Melecio R. Domingo vs. Hon. Judge against the estate of a deceased
S. C. Moscoso (GR No. L-14674, person, as an inheritance tax, is for the
January 30, 1960), the SC declared as claimant to present a claim before the
final and executory the order for the probate court so that said court may
payment by the estate and inheritance order the administrator to pay the
taxes, charges, and penalties, amount thereof.
amounting to P40,058.55, issued by
CFI Leyte in Special Proceedings No. A writ of execution is not the proper
14 entitled In the matter of the procedure allowed by the Rules of
Intestate Estate of the Late Walter Court for the payment of debts and
Scott Price. expenses of administration. The
proper procedure is for the court to
In order to enforce the claims against order the sale of personal estate or the
the estate, the fiscal presented a sale or mortgage of real property of the
petition dated June 21, 1961, to the deceased and all debts or expenses of
CFI for execution of the judgment. This administrator and with the written
was denied holding that the execution notice to all the heirs legatees and
is not justifiable as the Government is devisees residing in the Philippines,
indebted to the estate under according to Rule 89, Section 3, and
administration for P262,200 (as Rule 90, Section 2; and when sale or
payment to the Leyte Cadastral mortgage of real estate is to be made,
Survey, Inc.). Thus, the order of the the regulations contained in Rule 90,
payment of the CIR was deferred until Section 7, should be complied.
the Government shall have paid its
accounts to the administratix, Simeona Execution may issue only where the
Price because it is only fair for the devisees, legatees or heirs have
Government, as a debtor, to its entered into possession of their
accounts to its citizens-creditors before respective portions in the estate prior
it can insist in the prompt payment of to settlement and payment of the debts
the latters account to it, special taking and expenses of administration and it
into consideration that the amount due is later ascertained that there are such
to the Government draws interests debts and expenses to be paid, in
while the credit due to the State does which case "the court having
not accrue any interest. jurisdiction of the estate may, by order
for that purpose, after hearing, settle
Hence, this petition for certiorari and the amount of their several liabilities,
mandamus against CFI Leyte Judge and order how much and in what
Ron Lorenzo C. Garlitos. manner each person shall contribute,
and may issue execution if
ISSUE: circumstances require (Rule 89,
Section 6, Rule 74, Section 4).

29

Walter Scott Price. Furthermore, the


The legal basis for such a procedure is petition for certiorari and mandamus is
the fact that in the testate or intestate not the proper remedy for the
proceedings to settle the estate of a petitioner. Appeal is the remedy.
deceased person, the properties
belonging to the estate are under the The petition is, therefore, dismissed,
jurisdiction of the court and such without costs.
jurisdiction continues until said
properties have been distributed DAVAO GULF LUMBER
among the heirs entitled thereto. CORPORATION vs.
During the pendency of the COMMISSIONER OF INTERNAL
proceedings all the estate is REVENUE and COURT OF
in custodia legis and the proper APPEALS
procedure is not to allow the sheriff, in
case of the court judgment, to seize FACTS:
the properties but to ask the court for Davao Gulf Lumber Corporation
an order to require the administrator to (DGLC) is a licensed forest
pay the amount due from the estate concessionaire possessing a Timber
and required to be paid. License Agreement (TLA) granted by
the Ministry of Natural Resources (now
TAXATION: DENR).
The claim of the estate against the
Government has been recognized and From July 1, 1980 to January 31,
an amount of P262,200 has already 1982, DGLC purchased from various
been appropriated for the purpose by a oil companies, refined and
corresponding law (Rep. Act No. manufactured mineral oils as well as
2700). Hence, both the claim of the motor and diesel fuels, which it used
Government for inheritance taxes and exclusively for the exploitation and
the claim of the intestate for services operation of its forest concession. Said
rendered have already become oil companies paid the specific taxes
overdue and demandable is well as imposed under Sections 153 and 156
fully liquidated. Compensation, of the 1977 NIRC, on the sale of said
therefore, takes place by operation of products. Being included in the
law, in accordance with the provisions purchase price of the oil products, the
of Articles 1279 and 1290 of the Civil specific taxes paid by the oil
Code, and both debts are extinguished companies were eventually passed on
to the concurrent amount, thus: the user, DGLC.

ART. 1200. When all the requisites On December 13, 1982, DGLC filed
mentioned in article 1279 are present, before the CIR a claim for refund in the
compensation takes effect by amount of P120,825.11, representing
operation of law, and extinguished 25% of the specific taxes actually paid
both debts to the concurrent amount, on the above-mentioned fuels and oils
even though the creditors and debtors that were used by DGLC in its
are not aware of the compensation. operations as forest concessionaire.
The claim was based on Insular
Therefore, the CIR has no clear right Lumber Co. vs. CTA and Section 5 of
to execute the judgment for taxes RA 1435 which reads:
against the estate of the deceased

30

Section 5. The proceeds of the oil (from July 1, 1980 to January 19,
additional tax on manufactured oils 1981), and on manufactured oils other
shall accrue to the road and bridge than lubricating oils (from July 1, 1980
funds of the political subdivision for to January 4, 1981) had prescribed.
whose benefit the tax is Disallowed on the ground that they
collected: Provided, however, That were not included in the original claim
whenever any oils mentioned above filed before the CIR were the claims for
are used by miners or forest refund on purchases of manufactured
concessionaires in their operations, 25 oils from January 1, 1980 to June 30,
per centum of the specific tax paid 1980 and from February 1, 1982 to
thereon shall be refunded by the June 30, 1982. In regard to the other
Collector of Internal Revenue upon purchases, the CTA granted the
submission of proof of actual use of claim, but it computed the refund
oils and under similar con ditions based on rates deemed paid under RA
enumerated in subparagraphs 1 and 2 1435, and not on the higher rates
of section 1 hereof, amending section actually paid by DGLC under the
142 of the Internal Revenue Code: NIRC.
Provided, further, That no new road
shall be constructed unless the routes Insisting that the basis for computing
or location thereof shall have been the refund should be the increased
approved by the Commissioner of rates prescribed by Sections 153 and
Public Highways after a determination 156 of the NIRC, DGLCr elevated the
that such road can be made part of an matter to the CA, which affirmed the
integral and articulated route in the CTA Decision. Hence, this petition for
Philippine Highway System, as review under Rule 45 of the RoC.
required in section 26 of the Philippine
Highway Act of 1953. ISSUE:
Whether DGLC is entitled under RA
DGLC complied with the procedure for 1435 to the refund of 25% of the
refund, including the submission of amount of specific taxes it actually
proof of the actual use of the paid on various refined and
aforementioned oils in its forest manufactured mineral oils and other oil
concession as required. DGLC, in products taxed under Section 153 and
support of its claim for refund, 156 of the 1977 (Section 142 and 145
submitted to the CIR affidavits of its of the 1939) NIRC. (Whether the
general manager, the president of the refund should be based on the
Philippine Wood Products Association, increased rates of specific taxes which
and 3 disinterested persons, all it actually paid as prescribed in Sec.
attesting that the said manufactured 153 and 156 of the NIRC OR on
diesel and fuel oils were actually used specific taxes deemed paid under Sec.
in the exploitation and operation of its 1 and 2 of RA 1435.)
forest concession.
HELD:
On January 20, 1983, DGLC filed at NO. DGLC is entitled to refund under
the CTA a petition for review. CTA Sec. 5 of RA 1435. DGLC is entitled to
found DGLC entitled to a partial refund a partial refund under Sec. 5 of RA
of specific taxes the latter had paid in 1432 which was enacted to provide
the amount of P2,923.15, ruling that means for increasing the Highway
the claim on purchases of lubricating Special Fund.

31

(b) Lubricating oils, per liter of volume


The rationale for this grant of partial capacity, seven centavos;
refund of specific taxes paid on (c) Naptha, gasoline, and all other
purchases of manufactured diesel and similar products of distillation, per liter
fuel oils rests on the character of the of volume capacity, eight centavos;
Highway Special Fund. The specific and
taxes collected on gasoline and fuel (d) On denatured alcohol to be used
accrue to the Fund, which is to be for motive power, per liter of volume
used for the construction and capacity, one centavo: Provided, That
maintenance of the highway if the denatured alcohol is mixed with
system. But because the gasoline and gasoline, the specific tax on which has
fuel purchased by mining and lumber already been paid, only the alcohol
concessionaires are used within their content shall be subject to the tax
own compounds and roads, and their herein prescribed. For the purpose of
vehicles seldom use the national this subsection, the removal of
highways, they do not directly benefit denatured alcohol of not less than one
from the Fund and its use. Hence, the hundred eighty degrees proof
tax refund gives the mining and the (ninety per centum absolute alcohol)
logging companies a measure of relief shall be deemed to have been
in light of their peculiar situation. When removed for motive power, unless
the Highway Special Fund was shown to the contrary.
abolished in 1985, the reason for the Whenever any of the oils mentioned
refund likewise ceased to exist. Since above are, during the five years from
DGLC purchased the subject June eighteen, nineteen hundred and
manufactured diesel and fuel oils from fifty two, used in agriculture and
July 1, 1980 to January 31, 1982 and aviation, fifty per centum of the specific
submitted the required proof that these tax paid thereon shall be refunded by
were actually used in operating its the Collector of Internal Revenue upon
forest concession, it is entitled to claim the submission of the following:
the refund under Section 5 of RA
1435. (1) A sworn affidavit of the
producer and two disinterested
HOWEVER, RA 1435 provides: persons proving that the said oils were
actually used in agriculture, or in lieu
SECTION 1. Section 142 of the thereof
National Internal Revenue Code, as (2) Should the producer belong to
amended, is further amended to read any producers association or
as follows: federation, duly registered with the
Securities and Exchange Commission,
SEC. 142. Specific tax on the affidavit of the president of the
manufactured oils and other fuels. -- association or federation, attesting to
On refined and manufactured mineral the fact that the oils were actually used
oils and motor fuels, there shall be in agriculture.
collected the following taxes: (3) In the case of aviation oils, a
sworn certificate satisfactory to the
(a) Kerosene or petroleum, per liter of Collector proving that the said oils
volume capacity, two and one-half were actually used in
centavos; aviation: Provided, That no such
refunds shall be granted in respect to

32

the oils used in aviation by citizens and two provisions renumbering them and
corporations of foreign countries which prescribing higher rates. Accordingly,
do not grant equivalent refunds or DGLC paid specific taxes on
exemptions in respect to similar oils petroleum products purchased from
used in aviation by citizens and July 1, 1980 to July 31, 1982 under the
corporations of the Philippines. ff. statutory provisions.

SEC. 2. Section 145 of the National From February 8, 1980 to March 20,
Internal Revenue Code, as amended, 1981, Sections 153 and 156 provided
is further amended to read as follows: as follows:

SEC. 145. Specific Tax on Diesel fuel SEC. 153. Specific tax on
oil. -- On fuel oil, commercially known manufactured oils and other fuels. --
as diesel fuel oil, and on all similar fuel On refined and manufactured mineral
oils, having more or less the same oils and motor fuels, there shall be
generating power, there shall be collected the following taxes which
collected, per metric ton, one peso. shall attach to the articles hereunder
enumerated as soon as they are in
Section 5. The proceeds of the existence as such:
additional tax on manufactured oils (a) Kerosene, per liter of volume
shall accrue to the road and bridge capacity, seven centavos;
funds of the political subdivision for (b) Lubricating oils, per liter of
whose benefit the tax is volume capacity, eighty centavos;
collected: Provided, however, That (c) Naphtha, gasoline and all
whenever any oils mentioned above other similar products of distillation,
are used by miners or forest per liter of volume capacity, ninety-one
concessionaires in their operations, centavos: Provided, That, on premium
twenty-five per centum of the specific and aviation gasoline, the tax shall be
tax paid thereon shall be refunded by one peso per liter of volume capacity;
the Collector of Internal Revenue upon (d) On denatured alcohol to be
submission of proof of actual use of used for motive power, per liter of
oils and under similar conditions volume capacity, one
enumerated in subparagraphs one and centavo: Provided, That, unless
two of section one hereof, amending otherwise provided for by special laws,
section one hundred forty-two of the if the denatured alcohol is mixed with
Internal Revenue Code:Provided, gasoline, the specific tax on which has
further, That no new road shall be already been paid, only the alcohol
constructed unless the route or content shall be subject to the tax
location thereof shall have been herein prescribed. For the purposes of
approved by the Commissioner of this subsection, the removal of
Public Highways after a determination denatured alcohol of not less than one
that such road can be made part of an hundred eighty degrees proof (ninety
integral and articulated route in the per centum absolute alcohol) shall be
Philippine Highway System, as deemed to have been removed for
required in section twenty-six of the motive power, unless shown to the
Philippine Highway Act of 1953. contrary;
(e) Processed gas, per liter of
Subsequently, the 1977 NIRC, PD volume capacity, three centavos;
1672, and EO 672 amended the 1st

33

(f) Thinners and solvents, per premium and aviation gasoline, the tax
liter of volume capacity, fifty-seven shall be one peso and ten centavos
centavos; and one peso, respectively, per liter of
(g) Liquefied petroleum gas, per volume capacity;
kilogram, fourteen (d) On denatured alcohol to be
centavos: Provided, That, liquefied used for motive power, per liter of
petroleum gas used for motive power volume capacity, one
shall be taxed at the equivalent rate as centavo; Provided, That unless
the specific tax on diesel fuel oil; otherwise provided for by special laws,
(h) Asphalts, per kilogram, eight if the denatured alcohol is mixed with
centavos; gasoline, the specific tax on which has
(i) Greases, waxes and already been paid, only the alcohol
petrolatum, per kilogram, fifty content shall be subject to the tax
centavos; herein prescribed. For the purpose of
(j) Aviation turbo jet fuel, per liter this subsection, the removal of
of volume capacity, fifty-five centavos. denatured alcohol of not less than one
(As amended by Sec. 1, P.D. No. hundred eighty degrees proof
1672.) (ninety per centum absolute alcohol)
shall be deemed to have been
SEC. 156. Specific tax on diesel fuel removed for motive power, unless
oil. -- On fuel oil, commercially known shown to the contrary;
as diesel fuel oil, and on all similar fuel (e) Processed gas, per liter of
oils, having more or less the same volume capacity, three centavos;
generating power, per liter of volume (f) Thinners and solvents, per
capacity, seventeen and one-half liter of volume capacity, sixty-one
centavos, which tax shall attach to this centavos;
fuel oil as soon as it is in existence as (g) Liquefied petroleum gas, per
such. kilogram, twenty-one
centavos: Provided, That, liquified
Then on March 21, 1981, these petroleum gas used for motive power
provisions were amended by EO 672 shall be taxed at the equivalent rate as
to read: the specific tax on diesel fuel oil;
(h) Asphalts, per kilogram, twelve
SEC. 153. Specific tax on centavos;
manufactured oils and other fuels. -- (i) Greases, waxes and
On refined and manufactured mineral petrolatum, per kilogram, fifty
oils and motor fuels, there shall be centavos;
collected the following taxes which (j) Aviation turbo-jet fuel, per liter
shall attach to the articles hereunder of volume capacity, sixty-four
enumerated as soon as they are in centavos.
existence as such:
(a) Kerosene, per liter of volume SEC. 156. Specific tax on diesel fuel
capacity, nine centavos; oil. -- On fuel oil, commercially known
(b) Lubricating oils, per liter of as diesel fuel oil, and all similar fuel
volume capacity, eighty centavos; oils, having more or less the same
(c) Naphtha, gasoline and all generating power, per liter of volume
other similar products of distillation, capacity, twenty-five and one-half
per liter of volume capacity, one peso centavos, which tax shall attach to this
and six centavos: Provided, That on

34

fuel oil as soon as it is in existence as WHEREFORE, the petition is hereby


such. DENIED and the assailed Decision of
the Court of Appeals is AFFIRMED.
A tax cannot be imposed unless it is
supported by the clear and express CALTEX PHILIPPINES, INC. vs. THE
language of a statute; on the other HONORABLE COMMISSION ON
hand, once the tax is unquestionably AUDIT
imposed, a claim of exemption from
tax payments must be clearly shown FACTS:
and based on language in the law too Sec. 8 of PD 1956, as amended by EO
plain to be mistaken. 17 provides:

Since the partial refund authorized Sec. 8 . There is hereby created a


under Sec. 5 of RA 1435 is the nature Trust Account in the books of accounts
of a tax exemption, it muse be of the Ministry of Energy to be
construed strictissimi juris against the designated as Oil Price Stabilization
grantee. Hence, DGLCs claim of Fund (OPSF) for the purpose of
refund on the basis of the specific taes minimizing frequent price changes
it actually paid must be expressly brought about by exchange rate
granted in a statute stated in a adjustments and/or changes in world
language too clear to be mistaken. market prices of crude oil and imported
petroleum products. The Oil Price
RA 1435 and the subsequent pertinent Stabilization Fund may be sourced
statutes and found no expression from any of the following:
of a legislative will authorizing a
refund based on the higher rates a) Any increase in the tax collection
claimed by DGLC. The mere fact that from ad valorem tax or customs duty
the privilege of refund was included in imposed on petroleum products
Section 5, and not in Section 1, is subject to tax under this Decree arising
insufficient to support DGLCs from exchange rate adjustment, as
claim. When the law itself does not may be determined by the Minister of
explicitly provide that a refund under Finance in consultation with the Board
RA 1435 may be based on higher of Energy;
rates which were nonexistent at the
time of its enactment, this Court b) Any increase in the tax collection as
cannot presume otherwise. A a result of the lifting of tax exemptions
legislative lacuna cannot be filled by of government corporations, as may
judicial fiat. be determined by the Minister of
Finance in consultation with the Board
ACCORDINGLY, the decision in G.R. of Energy;
Nos. 83583-84 is hereby
MODIFIED. The private respondents c) Any additional amount to be
CLAIM for REFUND is GRANTED, imposed on petroleum products to
computed on the basis of the amounts augment the resources of the Fund
deemed paid under Sections 1 and 2 through an appropriate Order that may
of R.A. NO. 1435, without interest. be issued by the Board of Energy
requiring payment by persons or
companies engaged in the business of

35

importing, manufacturing and/or


marketing petroleum products; Joke lang.: On February 2, 1989, the
COA sent a letter to Caltex directing
d) Any resulting peso cost differentials the latter to remit to the OPSF its
in case the actual peso costs paid by collection, excluding that unremitted
oil companies in the importation of for the years 1986 and 1988, of the
crude oil and petroleum products is additional tax on petroleum products
less than the peso costs computed authorized under Sec. 8 of PD 1956
using the reference foreign exchange which, as of December 31, 1987,
rate as fixed by the Board of Energy. amounted to P335,037,649.00 and
informing it that, pending such
The Fund herein created shall be used remittance, all of its claims for
for the following: reimbursement from the OPSF shall
be held in abeyance.
1) To reimburse the oil companies for
cost increases in crude oil and On March 9, 1989, the COA sent
imported petroleum products resulting another letter to Caltex informing it that
from exchange rate adjustment and/or partial verification with the OEA
increase in world market prices of showed that the grand total of its
crude oil; unremitted collections of the above tax
2) To reimburse the oil companies for is P1,287,668,820.00 (1986-
possible cost under-recovery incurred P233,190,196; 1987- P335,065,650;
as a result of the reduction of domestic 1988- P719,412,254), directing to
prices of petroleum products. The remit the same with interest and
magnitude of the underrecovery, if surcharges thereon, within 60 days
any, shall be determined by the from receipt of the letter, advising it
Ministry of Finance. "Cost that the COA will hold in abeyance the
underrecovery" shall include the audit of all its claims for
following: reimbursement from the OPSF; and
i. Reduction in oil company take directing it to desist from further
as directed by the Board of offsetting the taxes collection against
Energy without the outstanding claims in 1989 and
corresponding reduction in the subsequent periods.
landed cost of oil inventories in
the possession of the oil In its letter of May 3, 1989, Caltex
companies at the time of the requested COA for an early release of
price change; its reimbursement certificates from the
ii. Reduction in internal ad OPSF covering claims with the Office
valorem taxes as a result of of the Energy Affairs since June 1987
foregoing government up to March 1989, invoking COA
mandated price reductions; Circular No. 89-299 on the lifting of
iii. Other factors as may be pre-audit of government transactions
determined by the Ministry of of national government agencies and
Finance to result in cost GOCCs.
underrecovery.
On May 8, 1989, COA denied the
The Oil Price Stabilization Fund request for the early release of the
(OPSF) shall be administered by the reimbursement certificates and
Ministry of Energy. repeated its earlier directive.

36

reimbursements (net of unsubmitted


On May 31, 1989, Caltex submitted to claims) and authorized the OEA to
the COA a proposal for the payment of cause payment of P1,959,182,612 to
the collections and the recovery of Caltex, representing claims initially
claims, since the outright payment of allowed in audit.
the sum of P1.287 billion to the OEA
as a prerequisite for the processing of As presented in the foregoing
said claims against the OPSF will computation the disallowances totalled
cause a very serious impairment of its P387,683,535, which included
cash position. The proposal provides: P130,420,235 representing those
claims disallowed by OEA, details of
We, therefore, very respectfully which is (sic) shown in Schedule 1 as
propose the following: summarized as follows:
1. Any procedural arrangement Disallowance of COA
acceptable to COA to facilitate Particulars Amount
monitoring of payments and Recovery of financing
reimbursements will be charges P162,728,475 /a
administered by the ERB/Finance Product sales
Dept./OEA, as agencies 48,402,398 /b
designated by law to Inventory losses
administer/regulate OPSF. Borrow loan arrangement
2. For the retroactive period, Caltex 14,034,786 /c
will deliver to OEA, P1.287 billion Sales to Atlas/Marcopper
as payment to OPSF, similarly 32,097,083 /d
OEA will deliver to Caltex the same Sales to NPC 558
amount in cash reimbursement
from OPSF. P257,263,300
3. The COA audit will commence Disallowances of OEA
immediately and will be conducted 130,420,235
expeditiously.
4. The review of current claims (1989)
will be conducted expeditiously to Total P387,683,535
preclude further accumulation of
reimbursement from OPSF. The reason for the disallowances are:

On June 7, 1989, COA, with the a. Recovery of Financing Charges


Chairman taking no part, handed down Review of the provisions of P.D. 1596
Decision No. 921 accepting the as amended by E.O. 137 seems to
proposal but prohibiting Caltex from indicate that recovery of financing
further offsetting remittances and charges by oil companies is not among
reimbursements for the current and the items for which the OPSF may be
ensuing years. On August 18, 1989, utilized. Therefore, it is our view that
COA sent a letter to Executive Director recovery of financing charges has no
Wenceslao R. De la Paz of the OEA legal basis. The mechanism for such
informing the OEA that Caltex claims is provided in DOF Circular 1-
shall required to remit to OPSF an 87.
amount of P1,505,668,906,
representing remittances to the OPSF b. Product Sales Sales to
which were offset against its claims International Vessels/Airlines

37

BOE Resolution No. 87-01 dated opinion that LOI 1416 which
February 7, 1987 as implemented by implements the exemption from
OEA Order No. 87-03-095 indicating payment of OPSF imposts as effected
that (sic) February 7, 1987 as the by OEA has no legal basis.
effectivity date that (sic) oil companies
should pay OPSF impost on export It was further emphasized that
sales of petroleum products. Effective payment to Caltex of the amount
February 7, 1987 sales to international authorized shall be subject to
vessels/airlines should not be included availability of funds of OPSF as of May
as part of its domestic sales. Changing 31, 1989 and applicable auditing rules
the effectivity date of the resolution and regulations; and that the
from February 7, 1987 to October 20, aggrieved party has 30 days within
1987 as covered by subsequent ERB which to appeal the decision of the
Resolution No. 88-12 dated November COA with regard to the disallowances
18, 1988 has allowed Caltex to include in accordance with the law.
in their domestic sales volumes to
international vessels/airlines and claim On September 8, 1989, Caltex filed an
the corresponding reimbursements Omnibus Request for Reconsideration
from OPSF during the period. It is our based on the ff. grounds:
opinion that the effectivity of the said 1. COA disallowed claims are
resolution should be February 7, 1987. authorized under existing rules,
orders, resolutions, circulars issued
c. Inventory losses Settlement of by the Department of Finance and
Ad Valorem the ERB pursuant to EO 137.
We reviewed the system of handling 2. Admnistrative interpretations in the
Borrow and Loan (BLA) transactions course of exercise of executive
including the related BLA agreement, power by the Department of
as they affect the claims for Finance and the ERB are legal and
reimbursements of ad valorem taxes. should be respected and applied
We observed that oil companies unless declared null and void by
immediately settle ad valorem taxes courts or repealed by legislation.
for BLA transaction (sic). Loan 3. Legal basis for retention of offset
balances therefore are not tax paid arrangement, as authorized by the
inventories of Caltex subject to executive branch of government,
reimbursements but those of the remains valid.
borrower. Hence, we recommend
reduction of the claim for July, August, On November 6, 1989, Caltex filed
and November, 1987 amounting to with the COA a Supplemental
P14,034,786 Omnibus Request for Reconsideration.
.
d. Sales to Atlas/Marcopper On February 16, 1990, COA, with
LOI No. 1416 dated July 17, 1984 Chairman Domingo taking no part and
provides that "I hereby order and direct with Commissioner Fernandez
the suspension of payment of all taxes, dissenting in part, handed down
duties, fees, imposts and other Decision No. 1171 affirming the
charges whether direct or indirect due disallowance for recovery of financing
and payable by the copper mining charges, inventory losses, and sales to
companies in distress to the national Marcopper and Atlas, while allowing
and local governments." It is our

38

recovery of product sales or those i. Reduction in oil company take as


arising from export sales. directed by the Board of Energy
without the corresponding reduction in
Hence, this petition. the landed cost of oil inventories in the
possession of the oil companies at the
time of the price change;
ii. Reduction in internal ad
ISSUE: valorem taxes as a result of foregoing
1. Whether the Commission on Audit government mandated price
has the authority in disallowing reductions;
Caltexs claim for reimbursement iii. Other factors as may be determined
from the Oil Prize Destabilization by the Ministry of Finance to result in
Fund (OPSF). cost underrecovery.
2. Whether the COA erred in denying
its claims for recovery of financing the "other factors" mentioned therein
charges from the Fund and that may be determined by the Ministry
reimbursement of underrecovery (now Department) of Finance may
arising from sales to the National include financing charges for "in
Power Corporation, Atlas essence, financing charges constitute
Consolidated Mining and unrecovered cost of acquisition of
Development Corporation (ATLAS) crude oil incurred by the oil
and Marcopper Mining Corporation companies," as explained in the 6
(MAR-COPPER), preventing it from November 1989 Memorandum to the
exercising the right to offset its President of the Department of
remittances against its Finance; they "directly translate to cost
reimbursement vis-a-vis the OPSF underrecovery in cases where the
and disallowing its claims which are money market placement rates decline
still pending resolution before the and at the same time the tax on
Office of Energy Affairs (OEA) and interest income increases. The
the Department of Finance (DOF). relationship is such that the presence
of underrecovery or overrecovery is
Caltex dwells on the ff. issuances: directly dependent on the amount and
extent of financing charges."
(1) In view of the expanded role of the
OPSF pursuant to Executive Order No. (2) The claim for recovery of financing
137, which added a second purpose, charges has clear legal and factual
to wit: basis; it was filed on the basis of
Department of Finance Circular No. 1-
2) To reimburse the oil companies for 87, dated 18 February 1987, which
possible cost underrecovery incurred provides:
as a result of the reduction of domestic
prices of petroleum products. The To allow oil companies to recover the
magnitude of the underrecovery, if costs of financing working capital
any, shall be determined by the associated with crude oil shipments,
Ministry of Finance. "Cost the following guidelines on the
underrecovery" shall include the utilization of the Oil Price Stabilization
following: Fund pertaining to the payment of the
foregoing (sic) exchange risk premium

39

and recovery of financing charges will February 5, 1987 and subsequent


be implemented: discussions held by the Price Review
committee on February 6, 1987.
1. The OPSF foreign exchange On the basis of the representations
premium shall be reduced to a flat rate made, the Department of Finance
of one (1) percent for the first (6) recognizes the necessity to reduce the
months and 1/32 of one percent per foreign exchange risk premium
month thereafter up to a maximum accruing to the Oil Price Stabilization
period of one year, to be applied on Fund (OPSF). Such a reduction would
crude oil' shipments from January 1, allow the industry to recover partly
1987. Shipments with outstanding associated financing charges on crude
financing as of January 1, 1987 shall oil imports. Accordingly, the OPSF
be charged on the basis of the fee foreign exchange risk fee shall be
applicable to the remaining period of reduced to a flat charge of 1% for the
financing. first six (6) months plus 1/32% of 1%
per month thereafter up to a maximum
2. In addition, for shipments loaded period of one year, effective January 1,
after January 1987, oil companies 1987. In addition, since the prevailing
shall be allowed to recover financing company take would still leave
charges directly from the OPSF per unrecovered financing charges,
barrel of crude oil based on the reimbursement may be secured from
following schedule: the OPSF in accordance with the
provisions of the attached Department
Financing Period of Finance circular.
Reimbursement Rate
(PBbl.) Acting on this letter, the OEA issued
Less than 180 days None on 4 May 1987 Order No. 87-05-096
180 days to 239 days 1.90 which contains the guidelines for the
241 (sic) days to 299 4.02 computation of the foreign exchange
300 days to 369 (sic) days 6.16 risk fee and the recovery of financing
360 days or more 8.28 charges from the OPSF, to wit:
The above rates shall be subject to
review every sixty days. B. FINANCE CHARGES
1. Oil companies shall be
Pursuant to this circular, the allowed to recover financing
Department of Finance, in its letter of charges directly from the OPSF
18 February 1987, advised the Office for both crude and product
of Energy Affairs as follows: shipments loaded after January
1, 1987 based on the following
HON. VICENTE T. PATERNO rates:
Deputy Executive Secretary Financing Period
For Energy Affairs Reimbursement Rate
Office of the President (PBbl.)
Makati, Metro Manila
Less than 180 days None
Dear Sir: 180 days to 239 days 1.90
240 days to 229 (sic) days 4.02
This refers to the letters of the Oil 300 days to 359 days 6.16
Industry dated December 4, 1986 and 360 days to more 8.28

40

of the COA, particularly in the matter of


2. The above rates shall be allowing or disallowing certain
subject to review every sixty expenditures, is limited to the
days. promulgation of accounting and
auditing rules for, among others, the
Then on 22 November 1988, the disallowance of irregular, unnecessary,
Department of Finance issued Circular excessive, extravagant, or
No. 4-88 imposing further guidelines unconscionable expenditures, or uses
on the recoverability of financing of government funds and properties.
charges, to wit:
(3) Denial of Caltexs claim for
Following are the supplemental rules reimbursement would be inequitable.
to Department of Finance Circular No. Additionally, COAs claim that Caltex is
1-87 dated February 18, 1987 which gaining instead of losing from the
allowed the recovery of financing extension of credit is belatedly raised
charges directly from the Oil Price and not supported by expert analysis.
Stabilization Fund. (OPSF):
HELD:
1. The Claim for reimbursement shall (1) YES. The theory of Caltex that
be on a per shipment basis. such does not extend to the
2. The claim shall be filed with the disallowance of irregular, unnecessary,
Office of Energy Affairs together with excessive, extravagant, or
the claim on peso cost differential for a unconscionable expenditures, or use
particular shipment and duly certified of government funds and properties,
supporting documents provided for but only to the promulgation of
under Ministry of Finance No. 11-85. accounting and auditing rules for,
3. The reimbursement shall be on the among others, such disallowance to
form of reimbursement certificate be untenable in the light of the
(Annex A) to be issued by the Office of provisions of the 1987 Constitution and
Energy Affairs. The said certificate related laws.
may be used to offset against amounts
payable to the OPSF. The oil Section 2, Subdivision D, Article IX of
companies may also redeem said the 1987 Constitution expressly
certificates in cash if not utilized, provides:
subject to availability of funds.
Sec. 2(l). The Commission on Audit
The OEA disseminated this Circular to shall have the power, authority, and
all oil companies in its Memorandum duty to examine, audit, and settle all
Circular No. 88-12-017. accounts pertaining to the revenue and
receipts of, and expenditures or uses
The COA can neither ignore these of funds and property, owned or held
issuances nor formulate its own in trust by, or pertaining to, the
interpretation of the laws in the light of Government, or any of its subdivisions,
the determination of executive agencies, or instrumentalities,
agencies. The determination by the including government-owned and
Department of Finance and the OEA controlled corporations with original
that financing charges are recoverable charters, and on a post-audit basis: (a)
from the OPSF is entitled to great constitutional bodies, commissions
weight and consideration. The function and offices that have been granted

41

fiscal autonomy under this of the Philippines and Administrative


Constitution; (b) autonomous state Code of 1987. Pursuant to its power
colleges and universities; (c) other to promulgate accounting and auditing
government-owned or controlled rules and regulations for the
corporations and their subsidiaries; prevention of irregular, unnecessary,
and (d) such non-governmental excessive or extravagant expenditures
entities receiving subsidy or equity, or uses of funds, 36the COA
directly or indirectly, from or through promulgated on 29 March 1977 COA
the government, which are required by Circular No. 77-55. Since the COA is
law or the granting institution to submit responsible for the enforcement of the
to such audit as a condition of subsidy rules and regulations, it goes without
or equity. However, where the internal saying that failure to comply with them
control system of the audited agencies is a ground for disapproving the
is inadequate, the Commission may payment of the proposed expenditure.
adopt such measures, including
temporary or special pre-audit, as are When the framers of the last two (2)
necessary and appropriate to correct Constitutions conferred upon the COA
the deficiencies. It shall keep the a more active role and invested it with
general accounts, of the Government broader and more extensive powers,
and, for such period as may be they did not intend merely to make the
provided by law, preserve the COA a toothless tiger, but rather
vouchers and other supporting papers envisioned a dynamic, effective,
pertaining thereto. efficient and independent watchdog of
the Government.
(2) The Commission shall have
exclusive authority, subject to the Caltex failed to disprove COAs claim
limitations in this Article, to define the that it had in fact gained in the
scope of its audit and examination, process. Caltex failed to sufficiently
establish the techniques and methods show that it incurred a loss, hence, it
required therefor, and promulgate cannot claim for reimbursement.
accounting and auditing rules and
regulations, including those for the Anent the claims airising from sales to
prevention and disallowance of the National Power Corporation,
irregular, unnecessary, excessive, underrecovery arising from sales to
extravagant, or, unconscionable NPC are reimbursable because NPC
expenditures, or uses of government was granted full exemption from the
funds and properties. payment of taxes; to prove this,
respondents trace the laws providing
The audit power of the Auditor General for such exemption. Fiscal Incentives
under the 1935 Constitution and the Regulatory Board's Resolution No. 17-
Commission on Audit under the 1973 87 of 24 June 1987 provides, in part,
Constitution authorized them to "that the tax and duty exemption
disallow illegal expenditures of funds privileges of the National Power
or uses of funds and property. Our Corporation, including those pertaining
present Constitution retains that same to its domestic purchases of petroleum
power and authority, further and petroleum products . . . are
strengthened by the definition of the restored effective March 10, 1987." In
COA's general jurisdiction in Section a Memorandum issued on 5 October
26 of the Government Auditing Code 1987 by the Office of the President,

42

NPC's tax exemption was confirmed As to the offsetting, there is no merit in


and approved. Futhermore, the Caltexs contention that the OPSF
intention to exempt sales of petroleum contributions are not for a public
products to the NPC is evident in the purpose because they go to a special
recently passed Republic Act No. 6952 fund of the government. Taxation is no
establishing the Petroleum Price longer envisioned as a measure
Standby Fund to support the OPSF. merely to raise revenue to support the
Hence, Caltex can recover its claim existence of the government; taxes
arising from sales of petroleum may be levied with a regulatory
products to the NAPOCOR. purpose to provide means for the
rehabilitation and stabilization of a
With respect to its claim for threatened industry which is affected
reimbursement on sales to Atlas and with public interest as to be within the
Marcopper, Caltex cannot rely on LOI police power of the state. There can be
1416 as such was never published in no doubt that the oil industry is greatly
the OG as required by Art. 2 of the imbued with public interest as it vitally
NCC, and therefore, has no binding affects the general welfare. Any
effect. Also, tax exemptions as a unregulated increase in oil prices could
general rule are construed strictly hurt the lives of a majority of the
against the grantee and liberally in people and cause economic crisis of
favor of the taxing authority. The untold proportions. It would have a
burden of proof rests upon the party chain reaction in terms of, among
claiming exemption to prove that it is in others, demands for wage increases
fact covered by the exemption so and upward spiralling of the cost of
claimed. The party claiming exemption basic commodities. The stabilization
must therefore be expressly mentioned then of oil prices is of prime concern
in the exempting law or at least be which the state, via its police power,
within its purview by clear legislative may properly address.
intent. In the case at bar, Caltex failed
to prove that it is entitled, as a Also, PD 1956 as amended by EO 137
consequence of its sales to ATLAS explicitly provides that the source of
and MARCOPPER, to claim OPSF is taxation. A taxpayer may not
reimbursement from the OPSF under offset taxes due from the claims that
LOI 1416. Though LOI 1416 may he may have against the
suspend the payment of taxes by government.Taxes cannot be the
copper mining companies, it does not subject of compensation because the
give petitioner the same privilege with government and taxpayer are not
respect to the payment of OPSF dues. mutually creditors and debtors of each
other and a claim for taxes is not such
An examination of the records of this a debt, demand, contract or judgment
case shows that Caltex failed to prove as is allowed to be set-off.
or substantiate its contention that the
amount of P130,420,235.00 is still Furthermore, technically, in respect to
pending before the OEA and the DOF. the taxes for the OPSF, the oil
Since the amount has already been companies merely act as agents for
passed upon by the OEA, the ruling of the Government in the latter's
COA disapproving said claim must be collection since the taxes are, in
upheld. reality, passed unto the end-users
the consuming public. In that capacity,

43

the petitioner, as one of such ASSOCIATION OF THE


companies, has the primary obligation PHILIPPINES, INC.
to account for and remit the taxes
collected to the administrator of the FACTS:
OPSF. This duty stems from the YMCA is a non-stock, non-profit
fiduciary relationship between the two; institution which conducts various
petitioner certainly cannot be programs and activities that are
considered merely as a debtor. In beneficial to the public, especially the
respect, therefore, to its collection for young people, pursuant to its religious,
the OPSF vis-a-vis its claims for educational, and charitable objectives.
reimbursement, no compensation is
likewise legally feasible. Firstly, the In 1980, YMCA earned, among others,
Government and the petitioner cannot an income of P676,829.80 from
be said to be mutually debtors and leasing out a portion of its premises to
creditors of each other. Secondly, small shop owners, like restaurants
there is no proof that petitioner's claim and canteen operators, and
is already due and liquidated. P44,259.00 from parking fees
collected from non-members.
That compensation had been the
practice in the past can set no valid On July 2, 1984, the CIR issued an
precedent. Such a practice has no assessment to YMCA in the total
legal basis. Lastly, R.A. No. 6952 does amount of P415,615.01 including
not authorize oil companies to offset surcharge and interest, for deficiency
their claims against their OPSF income tax, deficiency expanded
contributions. Instead, it prohibits the withholding taxes on rentals and
government from paying any amount professional fees and deficiency
from the Petroleum Price Standby withholding tax on wages.
Fund to oil companies which have
outstanding obligations with the YMCA formally protested the
government, without said obligation assessment and, as a supplement to
being offset first subject to the rules on its basic protest, filed a letter dated
compensation in the Civil Code. October 8, 1989.

WHEREFORE, in view of the In reply, the CIR denied the claims of


foregoing, judgment is YMCA.
hereby rendered AFFIRMING the
challenged decision of the YMCA then filed a petition for review at
Commission on Audit, except that the CTA on march 14, 1989 which
portion thereof disallowing petitioner's ruled in favor of YMCA finding that the
claim for reimbursement of leasing of facilities of the YMCA are
underrecovery arising from sales to the reasonably incidental to and
National Power Corporation, which is reasonably necessary for the
hereby allowed. accomplishment of the objectives of
the YMCA.
COMMISSIONER OF INTERNAL
REVENUE vs. COURT OF APPEALS, The CIR elevated the case to the CA
COURT OF TAX APPEALS, and which initially decided in favor of the
YOUNG MENS CHRISTIAN CIR. Upon MR of the YMCA, CA
reversed itself. CIRs MR was denied.

44

Hence, this petition for review under statutory exemption from taxation
Rule 45 of the RoC. should be manifest and unmistakable
from the language of the law on which
ISSUE: it is based. Thus, the claimed
Is the income derived from rentals of exemption must expressly be granted
real property owned by the YMCA in a statute stated in a language too
(established as a welfare, clear to be mistaken.
educational, and charitable non-profit
organization) subject to income tax In the instant case, the exemption
under the NIRC and the Constitution? claimed by the YMCA is expressly
disallowed by the very wording of the
HELD: last paragraph of then Section 27 of
YES. The NIRC provides: the NIRC which mandates that the
income of exempt organizations (such
SEC. 27. Exemptions from tax on as the YMCA) from any of their
corporations. -- The following properties, real or personal, be subject
organizations shall not be taxed under to the imposed by the same
this Title in respect to income received Code. Because the last paragraph of
by them as such -- said section unequivocally subjects to
tax the rent income f the YMCA from
(g) Civic league or organization not its rental property,the Court is duty-
organized for profit but operated bound to abide strictly by its literal
exclusively for the promotion of social meaning and to refrain from resorting
welfare; to any convoluted attempt at
construction.
(h) Club organized and operated
exclusively for pleasure, recreation, A reading of the last par. of Sec. 27
and other non-profitable purposes, no shows that the income from any
part of the net income of which inures property of exempt organizations, as
to the benefit of any private well as that arising from any activity it
stockholder or member; conducts for profit, is taxable. The
phrase any of their activities
Notwithstanding the provision in the conducted for profit does not qualify
preceding paragraphs, the income of the word properties. This makes
whatever kind and character of the income from the property of the
foregoing organization from any of organization taxable, regardless of
their properties, real or personal, or how that income is used -- whether for
from any of their activities conducted profit or for lofty non-profit purposes.
for profit, regardless of the disposition
made of such income, shall be subject The rental income is taxable
to the tax imposed under this Code. regardless of whence such income is
(as amended by Pres. Decree No. derived and how it used or disposed
1457) of. Where the law does not distinguish,
neither should we.
Because taxes are the lifeblood of the
nation, the Court has always applied Under the Constitution, what is
the doctrine of strict interpretation in exempted is not the institution itself;
construing tax those exempted from real estate taxes
exemptions. Furthermore, a claim of are lands, buildings and improvements

45

actually, directly and exclusively used MACTAN CEBU INTERNATIONAL


for religious, charitable or educational AIRPORT AUTHORITY vs. HON.
purposes. The tax exemption covers FERDINAND J. MARCOS
property taxes only. The income tax
exemption claimed by the YMCA finds FACTS:
no basis in Art. VI, Sec. 28(3) of the MCIAA was created by virtue of RA
Constitution. 6958 mandated to principally
undertake the economical, efficient,
Under Art. XIV, Sec. 4(3) of the and effective control, management,
Charter, YMCA is exempt from the and supervision of Mactan
payment of property tax but not International Airport in the Province of
income tax on the rentals from its Cebu and the Lahug Airport in Cebu
property. . The bare allegation alone City., and such airports as may be
that it is a non-stock, non-profit established in the Province of Cebu
educational institution is insufficient to (Sec. 3, RA 6958). It is mandated to:
justify its exemption from the payment a. encourage, promote and develop
of income tax. international and domestic air traffic
in the Central Visayas and
Laws allowing tax exemption are Mindanao regions as a means of
construed strictissimi juris. Hence, for making the regions centers of
the YMCA to be granted the exemption international trade and tourism, and
it claims under the aforecited accelerating the development of
provision, it must prove with the means of transportation and
substantial evidence that (1) it falls communication in the country; and,
under the classification non-stock, b. upgrade the services and facilities
non-profit educational institution; and of the airports and to formulate
(2) the income it seeks to be exempted internationally acceptable
from taxation is used actually, directly, standards of airport
and exclusively for educational accommodation and service.
purposes. However, not a scintilla of
evidence was submitted by YMCA to Since the time of its creation, MCIAA
prove that it met the said requisites. enjoyed the privilege of exemption
from payment of realty taxes in
accordance with Sec. 14 of its Charter:
WHEREFORE, the petition
is GRANTED. The Resolutions of the Sec. 14. Tax Exemptions. -- The
Court of Appeals dated September 28, Authority shall be exempt from realty
1995 and February 29, 1996 are taxes imposed by the National
hereby dated February 16, 1995 Government or any of its political
is REVERSED and SET ASIDE. The subdivisions, agencies and
Decision of the Court of Appeals dated instrumentalities x x x.
February 16, 1995 is REINSTATED,
insofar as it ruled that the income On October 11, 1994, however, Mr.
tax. No pronouncement as to costs. Eustaquio B. Cesa, OIC, Office of the
Treasure of the City of Cebu,
demanded payment for realty taxes on
several parcels of land belonging to
MCIAA located at Barrio Apas and

46

Barrio Kasambagan, Lahug, Cebu


City, in the amount of P2,229,078.79. Section 234. Exemptions from Real
Property Taxes.
MCIAA objected to such demand for
payment as baseless and unjustified, e) Except as provided herein, any
claiming in its favor Sec. 14 of RA exemption from payment of real
6958, which exempts it from payment property tax previously granted to, or
of realty taxes. It was also asserted presently enjoyed by all persons,
that it is an instrumentality of the whether natural or juridical, including
government performing governmental GOCCs are hereby withdrawn upon
functions, citing Section 133 of the the effectivity of this Code.
Local Government Code of 1991 which
puts limitations on the taxing powers of As the City of Cebu was about to issue
local government units: a warrant of levy against the properties
of MCIAA, the latter was compelled to
Section 133. Common Limitations on pay its tax account under protest and
the Taxing Powers of Local thereafter filed a Petition for
Government Units. -- Unless otherwise Declaratory Relief with the RTC of
provided herein, the exercise of the Cebu Branch 20 contending that the
taxing powers of provinces, cities, the taxing powers of local government
municipalities, and barangays shall not units do not extend to the levy of taxes
extend to the levy of the following: or fees of any kind on
an instrumentality of the national
o) Taxes, fees, or charges of any kind government and insisted that while it is
on the National Government, its indeed a government-owned
agencies and instrumentalities, and corporation, it nonetheless stands on
local government units. the same footing as an agency or
instrumentality of the national
The City of Cebu refused to cancel government by the very nature of its
and set aside MCIAAs realty tax powers and functions.
account, insisting that the MCIAA is a
GOCC whose tax exemption privilege The City of Cebu asserted that MCIAA
has been withdrawn by virtue of Sec. is not an instrumentality of the
193 and 234 of the LGC that took government but merely a government-
effect on January 1, 1992: owned corporation performing
proprietary functions. As such, all
Section 193. Withdrawal of Tax exemptions previously granted to it
Exemption Privilege. Unless were deemed withdrawn by operation
otherwise provided in this Code, tax of law, as provided under Sections 193
exemptions or incentives granted to, or and 234 of the Local Government
presently enjoyed by all persons Code when it took effect on January 1,
whether natural or juridical,including 1992.
government-owned or controlled
corporations, except local water The trial court dismissed the petition
districts, cooperatives duly registered finding that a close reading of the New
under RA No. 6938, non-stock and Local Government Code of 1991 or RA
non-profit hospitals and educational 7160 provides the express cancellation
institutions, are hereby withdrawn and withdrawal of exemption of taxes
upon the effectivity of this Code. by government-owned and controlled

47

corporation per Sections after the to tax as a tool for regulation. The
effectivity of said Code on January 1, power to tax which was called by
1992,which provides: Justice Marshall as the power to
destroy cannot be allowed to defeat an
It is hereby declared the policy of the instrumentality or creation of the very
State that the territorial and political entity which has the inherent power to
subdivisions of the State shall enjoy wield it.
genuine and meaningful local
autonomy to enable them to attain Hence, respondent Judge cannot
their fullest development as self-reliant therefore correctly say that the
communities and make them more questioned provisions of the Code do
effective partners in the attainment of not contain any distinction between a
national goals. Toward this end, the government corporation performing
State shall provide for a more governmental functions as against one
responsive and accountable local performing merely proprietary ones
government structure instituted such that the exemption privilege
through a system of decentralization withdrawn under the said Code would
whereby local government units shall apply to all government
be given more powers, authority, corporations. For it is clear from
responsibilities, and resources. The Section 133, in relation to Section 234,
process of decentralization shall of the LGC that the legislature meant
proceed from the national government to exclude instrumentalities of the
to the local government units. x x x national government from the taxing
powers of the local government units.
MR was denied. Hence, this petition
for review under Rule 45 of the RoC. As a general rule, the power to tax is
an incident of sovereignty and is
ISSUE: unlimited in its range, acknowledging
Whether MCIAA is liable to pay real in its very nature no limits, so that
property taxes to the City of Cebu. security against its abuse is to be
found only in the responsibility of the
HELD: legislature which imposes the tax on
YES. Local governments have no the constituency who are to pay it.
power to tax instrumentalities of the Nevertheless, effective limitations
National Government. The states have thereon may be imposed by the people
no power by taxation or otherwise, to through their Constitutions. Our
retard, impede, burden or in any Constitution, for instance, provides that
manner control the operation of the rule of taxation shall be uniform
constitutional laws enacted by and equitable and Congress shall
Congress to carry into execution the evolve a progressive system of
powers vested in the [national] taxation. So potent indeed is the
government. The doctrine emanates power that it was once opined that the
from the supremacy of the national power to tax involves the power to
government over local governments. destroy. Verily, taxation is a
Otherwise, mere creatures of the State destructive power which interferes with
can defeat national policies thru the personal and property rights of the
extermination of what local authorities people and takes from them a portion
may perceive to be undesirable of their property for the support of the
activities or enterprise using the power government. Accordingly, tax statutes

48

must be construed strictly against the rule is where the exemption was
government and liberally in favor of the granted to private parties based on
taxpayer. But since taxes are what we material consideration of a mutual
pay for civilized society, or are the nature, which then becomes
lifeblood of the nation, the law frowns contractual and is thus covered by the
against exemptions from taxation and non-impairment clause of the
statutes granting tax exemptions are Constitution.
thus construed strictissimi juris against
the taxpayer and liberally in favor of The sections of the LGC speak of: (a)
the taxing authority. the limitations on the taxing powers of
local government units and the
Elsewise stated, taxation is the rule, exceptions to such limitations; and (b)
exemption therefrom is the the rule on tax exemptions and the
exception. However, if the grantee of exceptions thereto. The use
the exemption is a political subdivision of exceptions or provisos in these
or instrumentality, the rigid rule of sections, as shown by the following
construction does not apply because clauses:
the practical effect of the exemption is (1) unless otherwise provided
merely to reduce the amount of money herein in the opening paragraph of
that has to be handled by the Section 133;
government in the course of its (2) Unless otherwise provided
operations. in this Code in Section 193;
(3) not hereafter specifically
The power to tax is primarily vested in exempted in Section 232; and
the Congress; however, in our (4) Except as provided herein
jurisdiction, it may be exercised by in the last paragraph of Section 234
local legislative bodies, no longer
merely by virtue of a valid delegation initially hampers a ready
as before, but pursuant to direct understanding of the sections. The
authority conferred by Section 5, aforementioned clause in Section 133
Article X of the Constitution. Under the seems to be inaccurately worded.
latter, the exercise of the power may Instead of the clause unless otherwise
be subject to such guidelines and provided herein, with the herein to
limitations as the Congress may mean, of course, the section, it should
provide which, however, must be have used the clause unless
consistent with the basic policy of local otherwise provided in this Code. The
autonomy. former results in absurdity since the
section itself enumerates what are
Under Section 14 of R.A. No. 6958, beyond the taxing powers of local
MCIAA is exempt from the payment of government units and, where
realty taxes imposed by the National exceptions were intended, the
Government or any of its political exceptions are explicitly indicated in
subdivisions, agencies, and the next.
instrumentalities. Nevertheless, since
taxation is the rule and exemption Thus, reading together Sections 133,
therefrom the exception, the 232, and 234 of the LGC, as a general
exemption may thus be withdrawn at rule, as laid down in Section 133, the
the pleasure of the taxing taxing powers of local government
authority. The only exception to this units cannot extend to the levy of, inter

49

alia, taxes, fees and charges of any


kind on the National Government, its Since the last paragraph of Section
agencies and instrumentalities, and 234 unequivocally withdrew, upon the
local government units; however, effectivity of the LGC, exemptions from
pursuant to Section 232, provinces, payment of real property taxes granted
cities, and municipalities in the to natural or juridical persons,
Metropolitan Manila Area may impose including government-owned or
the real property tax except on, inter controlled corporations, except as
alia, real property owned by the provided in the said section, and the
Republic of the Philippines or any of its petitioner is, undoubtedly, a
political subdivisions except when the government-owned corporation, it
beneficial use thereof has been necessarily follows that its exemption
granted, for consideration or from such tax granted it in Section 14
otherwise, to a taxable person, as of its Charter, R.A. No. 6958, has been
provided in item (a) of the first withdrawn. Any claim to the contrary
paragraph of Section 234. can only be justified if the petitioner
can seek refuge under any of the
As to tax exemptions or incentives exceptions provided in Section 234,
granted to or presently enjoyed by but not under Section 133, as it now
natural or juridical persons, including asserts, since, as shown above, the
government-owned and controlled said section is qualified by Sections
corporations, Section 193 of the LGC 232 and 234.
prescribes the general rule, viz., they
are withdrawn upon the effectivity of The terms Republic of the Philippines
the LGC, exceptthose granted to local and National Government are not
water districts, cooperatives duly interchangeable. The former is
registered under R.A. No. 6938, non- broader and synonymous with
stock and non-profit hospitals and Government of the Republic of the
educational institutions, and unless Philippines which the Administrative
otherwise provided in the LGC. The Code of 1987 defines as the
latter proviso could refer to Section corporate governmental entity through
234 which enumerates the properties which the functions of government are
exempt from real property tax. But the exercised throughout the Philippines,
last paragraph of Section 234 further including, save as the contrary
qualifies the retention of the exemption appears from the context, the various
insofar as real property taxes are arms through which political authority
concerned by limiting the retention is made affective in the Philippines,
only to those enumerated therein; all whether pertaining to the autonomous
others not included in the enumeration regions, the provincial, city, municipal
lost the privilege upon the effectivity of or barangay subdivisions or other
the LGC. Moreover, even as to real forms of local government.[27] These
property owned by the Republic of the autonomous regions, provincial, city,
Philippines or any of its political municipal or barangay subdivisions
subdivisions covered by item (a) of the are the political subdivisions.[28]
first paragraph of Section 234, the On the other hand, National
exemption is withdrawn if the Government refers to the entire
beneficial use of such property has machinery of the central government,
been granted to a taxable person for as distinguished from the different
consideration or otherwise. forms of local governments.[29] The

50

National Government then is SEC. 40. Exemptions from Real


composed of the three great Property Tax. The exemption shall
departments: the executive, the be as follows:
legislative and the judicial.[30] (a) Real property owned by the
Republic of the Philippines or any of its
An agency of the Government refers political subdivisions and any
to any of the various units of the government-owned or controlled
Government, including a department, corporation so exempt by its
bureau, office, instrumentality, or charter: Provided, however, That this
government-owned or controlled exemption shall not apply to real
corporation, or a local government or a property of the above-mentioned
distinct unit therein;[31] while an entities the beneficial use of which has
instrumentality refers to any agency been granted, for consideration or
of the National Government, not otherwise, to a taxable person.
integrated within the department
framework, vested with special as reproduced in Section 234(a), the
functions or jurisdiction by law, phrase and any government-owned or
endowed with some if not all corporate controlled corporation so exempt by its
powers, administering special funds, charter was excluded. The
and enjoying operational autonomy, justification for this restricted
usually through a charter. This term exemption in Section 234(a) seems
includes regulatory agencies, obvious: to limit further tax exemption
chartered institutions and government- privileges, especially in light of the
owned and controlled corporations. general provision on withdrawal of tax
exemption privileges in Section 193
If Section 234(a) intended to extend and the special provision on
the exception therein to the withdrawal withdrawal of exemption from payment
of the exemption from payment of real of real property taxes in the last
property taxes under the last sentence paragraph of Section 234. These
of the said section to the agencies and policy considerations are consistent
instrumentalities of the National with the State policy to ensure
Government mentioned in Section autonomy to local governments[33] and
133(o), then it should have restated the objective of the LGC that they
the wording of the latter. Yet, it did enjoy genuine and meaningful local
not. Moreover, that Congress did not autonomy to enable them to attain
wish to expand the scope of the their fullest development as self-reliant
exemption in Section 234(a) to include communities and make them effective
real property owned by other partners in the attainment of national
instrumentalities or agencies of the goals.[34] The power to tax is the most
government including government- effective instrument to raise needed
owned and controlled corporations is revenues to finance and support
further borne out by the fact that the myriad activities of local government
source of this exemption is Section units for the delivery of basic services
40(a) of P.D. No. 464, otherwise essential to the promotion of the
known as The Real Property Tax general welfare and the enhancement
Code, which reads: of peace, progress, and prosperity of
the people. It may also be relevant to
recall that the original reasons for the
withdrawal of tax exemption privileges

51

granted to government-owned and in respect of this tax is conclusive


controlled corporations and all other proof of the legislative intent to make it
units of government were that such a taxable person subject to all taxes,
privilege resulted in serious tax base except real property tax.
erosion and distortions in the tax
treatment of similarly situated Finally, even if the MCIAA was
enterprises, and there was a need for originally not a taxable person for
these entities to share in the purposes of real property tax, in light of
requirements of development, fiscal or the foregoing disquisitions, it had
otherwise, by paying the taxes and already become, even if it be
other charges due from them.[35] conceded to be an agency or
instrumentality of the Government, a
The airports referred to are the taxable person for such purpose in
Lahug Air Port in Cebu City and the view of the withdrawal in the last
Mactan International Airport in the paragraph of Section 234 of
Province of Cebu,[36] which belonged exemptions from the payment of real
to the Republic of the Philippines, then property taxes, which, as earlier
under the Air Transportation Office adverted to, applies to the MCIAA.
(ATO).[37]
WHEREFORE, the instant petition is
It may be reasonable to assume that DENIED. The challenged decision
the term lands refer to lands in and order of the Regional Trial Court
Cebu City then administered by the of Cebu, Branch 20, in Civil Case No.
Lahug Air Port and includes the CEB-16900 are AFFIRMED.
parcels of land the respondent City of
Cebu seeks to levy on for real property
taxes. This section involves a
transfer of the lands, among other
things, to the petitioner and not just the
transfer of the beneficial use thereof,
with the ownership being retained by
the Republic of the Philippines.

This transfer is actually an absolute


conveyance of the ownership thereof
because the petitioners authorized
capital stock consists of, inter alia, the
value of such real estate owned and/or
administered by the
[38]
airports. Hence, the petitioner is
now the owner of the land in question
and the exception in Section 234(c) of
the LGC is inapplicable.

Moreover, MCIAA cannot claim that it


was never a taxable person under its
Charter. It was only exempted from
the payment of real property
taxes. The grant of the privilege only

52

INHERENT LIMITATIONS THE CONCEPT OF NON


DELEGABILITY AS A LIMITATION
PUBLIC PURPOSE OF TAXES TO TAXATION

First requisite of lawful taxation Generally, the power to tax is


that the purpose for which it is exclusively vested in the legislative
laid shall be a public purpose. body:hence, it may not be delegated.

Important because of all the EXCEPTIONS TO NON-


powers of government, that of DELEGABILITY
taxation is said to be the
strongest as it can be readily 1. Delegation to Local Governement
employed against one class of refers to the power of LGUs to create
individuals in favor of another its own sources of revenue and to levy
so as to ruin one class and give taxes, fees and charges.
unlimited wealth and property to
another. 2. Delegation to the President
there authority of the President to fix
TESTS IN DETERMINING PUBLIC tariff rates, import or export quotas,
PURPOSE tonnage and wharfage dues or other
duties and imposts.
Duty Test Whether the thing
to be furthered by the 3. Delegation to Administrative
appropriation of public revenue Agencies When the delegation
is something which is the duty relates merely to administrative
of the state as a government to implementation that calls for some
provide degree of discretionary powers under
sufficient standards expressed by law
Promotion of General Welfare or implied from the policy and
Test whether the proceeds of purposes of the act:
the tax will directly promote the
welfare of the community in 1. Authority of the Secretary of
equal measure Finance to promulgate
necessary rules and
LEVY FOR PUBLIC PURPOSE regulations for the effective
enforcement of the
1. It is for the welfare of the nation provisions of the law.
or greater promotion of the
population 2. The secretary of finance
may, upon the
2. It affects the area as a recommendation of the
community, rather than as commissioner, require the
individuals withholding of a tax on the
items income payable. What
3. It is designed to support the is delegated is tax
services of the government for administration, non-
some of the recognized objects delegability rule is not
of the country violated. If tax legislation is

53

In determining the situs of


delegated, delegation is taxation, you have to consider
invalid. the nature of the taxes

Examples of non-delegable powers: Examples:

1. Selection of property to be 1. Poll tax, capitation tax-


taxed Residence of the taxpayer
2. Determination of purpose for
which taxes shall be levied 2. Real property tax- Location of
3. Fixing the rate the property
4. Rules of taxation
Note: We can only impose property
Examples of tax administration tax on the properties of a person
whose residence is in the
1. Power to value property for Philippines.
taxation
2. Equalization of assessments Exceptions to territoriality:
3. Collection
1. Where the tax laws operate
TERITORIALITY PRINCIPLE outside territorial jurisdiction
Example: taxation of resident
Tax laws cannot operate citizens on their incomes
beyond a States territorial limits derived from abroad

The government cannot tax a 2. Where tax laws do not operate


particular object of taxation within the territorial jurisdiction
which is not within its territorial of the State
jurisdiction.
3. When exempted by treaty
Property outside ones obligations
jurisdiction does not receive any
protection of the State 4. When exempted by
international comity
If a law is passed by Congress,
Congress must always see to it A. SITUS OF TAX ON REAL
that the object or subject of PROPERTY
taxation is within the territorial
jurisdiction of the taxing LEX REI SITUS or where the
authority property is located
o Ratio: The place where
SITUS OF TAXATION; MEANING the real property is
located gives protection
It is the Place of taxation to the real property,
hence the property or its
The State where the subject to owner should support the
be taxed has a situs may government of that place
rightfully levy and collect the tax

54

B. SITUS OF TAX ON PERSONAL 4. Shares, obligations, bonds


PROPERTY issued by a foreign
corporation which
MOBILIA SEQUNTUR
PERSONAM - movables follow 5. Shares of stock or bonds
the owner or movables follow acquire situs here
the domicile of the owner
6. Rights, interest in a
Other RULES: partnership, business or
industry established in the
TANGIBLE PERSONAL Philippines
PROPERTY where the
property is located These intangible properties
acquire business situs here in
INTANGIBLLE PERSONAL the Philippines, we cannot apply
PROPERTY where the owner the principle of Mobilia
is found, domicile of the owner Sequntur Personam because
EXCEPTION: No, there is an the properties have acquired
exception: Where the intangible situs here.
personal property has acquired
a business situs in another C. SITUS OF INCOME TAX
Jurisdiction
1. DOMICILLARY THEORY- The
The principle of Mobilia location where the income
Sequntur Personam is only for earner resides in the situs of
purposes of convenience. It taxation
must yield to the actual situs of
such property. 2. NATIONALITY THEORY -The
country where the income
Personal intangible properties earner is a citizen is the situs of
which acquires business situs taxation
here in the Philippines:
3. SOURCE RULE - The country
1. Franchise which is exercised which is the source of the
within the Philippines income or where the activity that
produced the income took place
2. Shares, obligations, bonds is the situs of taxation.
issued by a domestic
corporation D. SITUS OF SALE OF PERSONAL
PROPERTY
3. Shares, obligations, bonds
issued by a foreign The place where the sale is
corporation, 85% of its consummated and perfected
business is conducted in the
Philippines

55

E. SITUS OF TAX ON INTEREST Reason: There are several reasons,


INCOME among which are as follows

The residence of the borrower 1. Public policy


who pays the interest
irrespective of the place where 2. Statutory Grants:
the obligation was contracted
a. Sec. 28 (b) (8) (B)of the Tax
Revenue derived by an offline Code which provides that
international carrier without any income derived from any public
flight from the Philippines, from utility or exercise of any
ticket sales through its local essential government function
agent are subject to tax on accruing to the goverrnment is
gross Philippine billings (CIR vs. exempt from income tax
British Overseas Airways
Corporation, 149 SCRA 395) b. Sec. 234 of the Local
Government Code which
F. SITUS OF EXCISE TAX provides that property owned by
the government or any of its
Where the transaction is political subdivisions is exempt
performed from real property tax unless
the beneficial use thereof is
The power to levy an excise upon granted for consideration or
the performance of an act or the otherwise to a taxable person
engaging in an occupation does
not depend upon the domicile of Note: There is no constitutional
the person subject to the prohibition because this is an inherent
exercise, nor upon the physical limitation already.
location of the property or in
connection with the act or May the government tax itself?
occupation taxed, but depends Yes, notwithstanding the immunity, the
upon the place on which the act Government may tax itself as held in
is performed or occupation the case of Bisaya Land
engaged in. Thus, the gauge of Transportation Co. Inc. vs. CIR
taxability does not depend on the wherein the Supreme Court held that
location of the office, but attaches the Congress may tax the Armed
upon the place where the Forces of the Philippines if it wishes to
respective transaction is do so
perfected and consummated
INTERNATIONAL COMITY
TAX EXEMPTIONS OF THE
GOVERNMENT Comity; Definition

Rule: Property of the state and of its The respect accorded by nations to
municipal subdivisions devoted to each other because they are equals
government uses and purposes is
generally deemed exempt from
taxation

56

without due process and this


Basis of International Comity includes means of livelihood.

1. In par emnon habet imperium - as Two Aspects of Due Process:


between equals there is no
sovereign (Doctrine of Sovereign a. Substantive Due Process the tax
Equality) statute must be within the
constitutional authority of Congress
2. The rule of international law that a and that it must be fair, just and
foreign government may not be reasonable
sued without its consent.
b. Procedural Due Process requires
3. The concept that when a foreign notice and hearing, or at least an
sovereign enters the territorial opportunity to be heard.
jurisdiction of another, it does not
subject itself to the jurisdiction of Due process in taxation requires that
the other. tax must be:

CONSTITUTIONAL LIMITATIONS 1. For public purposes

DUE PROCESS CLAUSE 2. Imposed within territorial


jurisdiction
Sec. 1 Art. III of the Constitution No
person shall be deprived of life, liberty 3. No arbitrariness or oppression
or property without due process of law either in the assessment or
collection
Tolentino v. Secretary of
Finance absence of threat of Illustrative cases of violations of
immediate harm need for due process clause
judicial intervention less
evident. An actual case or Tax amounting to confiscation of
controversy must first exist property, law is imposed for a purpose
before courts can rule over it in other than a public purpose, law
case of constitutionality on the applied retroactively imposes unjust
ground of denial of due process. and oppressive taxes or the law is in
violation of inherent limitations.
Reyes v. Almanzor When
violative of due process in tax EQUAL PROTECTION CLAUSE
cases? When tax is of
confiscatory nature. That it is so Equal Protection
arbitrary that it finds no support
in the Constitution. This Concept insures that all persons
or things similarly situated must be
Villegas v. Hiu Chiong Tsai similarly treated both as to rights
Pao Permit to work of alien - conferred and responsibilities
Court held that aliens, once imposed. It does not demand absolute
admitted in the Philippines equality (Inchong v. Hernandez)
cannot be deprived of life

57

Classifies on the basis of an


Classification inherently suspect
characteristic; or
It means the grouping of persons or
things similar to each other in certain Infringes fundamental
particulars and different from all others constitutional rights
in these same particulars
(International Harvester Co. v. 3. Intermediate Scrutiny Test It is
Missouri) used as a test for evaluating
classifications based on gender
What are the Requisites of a Valid and legitimacy
Classification (SAGE)
FREEDOM OF SPEECH AND OF
1. Such classification rests upon THE PRESS
substantial distinctions
No law shall be passed abridging the
freedom of speech, of expression, or
2. It applies equally to all members of
the same class of the press, or the right of the people
peaceably to assemble and petition
3. It is germane to the purpose of the the government for redress and
law grievances (Sec. 4, Article III, 1987
Constitution)
4. It is not confined to existing
conditions Violation of right

What are the Three Tests in When the tax levied upon constitutes a
Determining Compliance with the PRIOR RESTRAINT to the basic right
Equal Protection Clause? of thought and expression (Tolentino
vs. Secretary of Finance)
1. Rational Basis Test The
guaranty of the equal protection of Prior Restraint
the laws is not violated by
legislation based on reasonable Prior restraint means official
classification. This standard of governmental restrictions on the press
review is quite differential; or other forms of expression in
legislative classifications are advance of actual publication or
presumed to be valid largely for dissemination (Chavez vs. Gonzales,
the reason that the drawing of GR 168338)
lines that create distinctions is
peculiarly a legislative task and The Court held that the separate
unavoidable one (British American sales tax on newspapers with
Tobacco v. Camacho) circulation of over 20,000 imposed was
a deliberate and calculated device in
2. Strict Scrutiny Test It is applied the guise of tax to limit the circulation
when the challenge statute either: of information to which the public is
entitled in virtue of the Constitutional
guarantees. (Grossjean v. American
Press)

58

treatment or which in any way


To apply an ordinance requiring a discriminates against the press
business license to be obtained before on the basis of the content of the
a person could sell newspapers in the publication (Tolentino vs.
streets would be to impose a prior Secretary of Finance).
restraint on press freedom because a
newspaper is not in the same category Example: A tax levied by
as a pineapple or a soap powder. telecommunications network against
(People v. Korin) over-tweeting or use of mobile data
does not constitute prior restraint if
Ratio behind the prohibition: levied for administrative purposes.
Fundamental right of thought and
expression
NON-INFRINGEMENT OF
Is this absolute? What are the RELIGIOUS FREEDOM AND
instances when a fee DOES NOT WORSHIP
CONSTITUTE PRIOR RESTRAINT?
No law shall be made respecting an
When the fee is not imposed for establishment of religion or prohibiting
the exercise of the privilege but the free exercise thereof. The free
only for the purpose of defraying exercise and enjoyment of religious
part of the cost of registration, a profession and worship without
mere administrative fee discrimination or preference shall be
(Tolentino E-VAT case) allowed. No religious test shall be
required for the exercise of civil or
The press is not exempt from political rights (Sec. 5, Art. III, 1987
taxation. Constitution)

The sale of magazines or In the case of American Bible


newspapers, maybe the subject Society v. City of Manila, the
of taxation. Court held that an ordinance of
the City of Manila, which
What is not allowed is to impose imposed a license fee on those
tax on the exercise of an activity engaged in the business of
which has a connection with general merchandise could not
freedom of the press (license be applied to the appellant's
fee). sale of bibles and other
religious literature.
If we impose tax on persons
before they can deliver or The free exercise of religion
broadcast a particular news or clause does not prohibit
information, that is the one which imposing a generally applicable
cannot be taxed. sales and use tax on the sale of
religious materials by a religious
What is prohibited by the organizations.
constitutional guarantee of free
press are laws which single out In the Philippine Airlines case, it
the press or target a group was held that it is one thing to
belonging to the press for special impose a tax on income or

59

property of a preacher. It is is subject to amendment,


quite another thing to exact a alteration, or repeal by Congress
tax on him for delivering a when the common good so
sermon. requires

Sec. 30(E) and (G) of the 1997 3. Impairments are permitted,


Tax Code, exempts from the provided that the legislation:
income on non-stock a. Must serve important and
corporation operated legitimate public interest
exclusively for religious, b. Is a reasonable and
charitable, scientific, athletic or narrowly tailored means
social welfare purposes, no part of promoting that
interest.
of the income of which inures to
the benefit of any member but NON-IMPRISONMENT FOR DEBT
income from activity for profit or OR NON-PAYMENT OF POLL TAX
from any real or personal
property is subject of Tax Code. No person shall be imprisoned for
debt or non-payment of a poll tax (Sec.
Exemption would not apply to 20, Art. III, 1987 Constitution)
income from the productive use
of their properties and from Debt
profitable business pursuits, not
connected with their religious, Any liability to pay money arising out of
chartible or educational a contract, express or implied (Tan
activities. Cong vs. Stewart)

NON INFRINGEMENT OF Poll Tax


CONTRACTS
A tax of fixed amount on individuals
What is impairment of contracts? residing within a specified territory,
whether citizens or not, without regard
To impair the obligation of a contract is to their property or the occupation in
to alter or change the terms and which they may be engaged
effects of the contract, and thus in
contemplation of law, to weaken the Residence Tax
position or rights of one or all of the
parties to it. Tax in the nature of a poll tax which is
now called the community tax
What are the Exceptions to the Non- certificate, are the fixed amount levied
impairment Clause? upon residents of a community

1. When the exemption is Notes:


unilaterally granted by law and The non-imprisonment rule
the same is withdrawn by virtue applies to non-payment of poll
of another law. tax which is punishable only by
a surcharge, but not to other
2. When the exemption is granted violations like falsification of
under a franchise; or a franchise

60

community tax certificate or amendments made are


non-payment of other taxes germane to the purpose of the
house bills which is to raise
The ratio behind the prohibition revenues for the government.
is that this is dictated by a The no-amendment rule refers
sense of humanity and only to the procedure to be
sympathy for the plight of the allowed by each house of the
poorer elements of the Congress with regard to bills
population who cannot even initiated in each of said
afford a cedula or poll tax respective houses, before said
(Vicente G. Sinco, Philippine bill is transmitted to the other
Political Law, 11th ed., p.682) house for its concurrence and
amendment.
RULE REQUIRING THAT Why must appropriation,
APPROPRIATIONS, REVENUE AND revenue or tariff bills originate
TARIFF BILLS SHALL ORIGINATE from Congress?
EXCLUSIVELY FROM THE HOUSE On the theory that the members
OF REPRESENTATIVES of the House of Representatives
can be expected to be more
All appropriation, revenue or tariff sensitive to the local needs and
bills, bills authorizing the increase of problems
the public debt , bills of local
application and private bills shall UNIFORMITY, EQUITABILITY, AND
originate exclusively in the House of PROGRESSIVITY OF TAXATION
Representative but the Senate may
propose or concur with amendments Uniformity
(Sec. 24, Art. VI of the Constitution).
All taxable articles or properties of the
It is not the law but the revenue same class shall be taxed at the same
or tariff bill which is required by rate. A tax is considered to be uniform
the Constitution to originate when it operates with the same force
exclusively in the House of and effect in every place where the
Representatives. A bill subject may be found.
originating in the House may
undergo such extensive Equitability
changes in the Senate that the
result may be rewriting of the Requires that the apportionment of the
whole. tax should consider the taxpayers
ability to shoulder the tax burden,
In the case of Abakada Guro v. usually measured in terms of wealth,
Executive Secretary, the Court and, if warranted, on the basis of the
held that Sec.24, Art. VI of the benefits he receives form the
Constitution does not contain government.
any prohibition or limitation on
the extent of the amendments Progressive System of Taxation
that may be introduced by the
Senate to the House revenue As the resources of the taxpayer
bill. The Senate can propose become higher; his tax rate likewise
amendments and in fact, the increases. It is based on the ability to

61

pay and in implementation of the social impose, tariff rates, import and export
justice principle that the more affluent quotas, tonnage and wharfage dues
should contribute more for the and other duties or imposts, within the
communitys benefit and is best framework of the national development
exemplified by the increase in income program of the Government (Sec. 28
tax rate as net taxable income (2), Art. VI, 1987 Constitution).
increases.
Note: The provision provides that the
The constitution does not really President may increase tariff rates as
prohibit regressive taxes, what it authorized by law even for revenue
provides is that congress shall evolve purposes only
a progressive tax system.
TAX EXEMPTION OF PROPERTIES
Social Justice ACTUALLY, DIRECTLY, AND
EXCLUSIVELY USED FOR
It is neither communism, nor RELIGIOUS, CHARITABLE AND
despotism, nor atomism, nor anarchy, EDUCATIONAL PURPOSES
but the humanization of laws and the
equalization of social and economic Charitable institutions, churches and
force by the State so that justice in its personages or convents appurtenant
rational and objectively secular thereto, mosques, non-profit
conception may at least be cemeteries, and all lands, buildings,
approximated. Social justice means and improvements, actually, directly,
the promotion of the welfare of all the and exclusively used for religious,
people, the adoption by the charitable, or educational purposes
Government of measures calculated to shall be exempt from taxation (Sec.
insure economic stability of all 28(3), Art, VI of the Constitution).
competent elements of society,
through the maintenance of a proper It pertains to exemption from
economic and social equilibrium in the real property taxes only.
interrelations of the members of the
community, constitutionally, through Gifts made in favor of
the adoption of measures legally charitable, religious or
justifiable, or extra constitutionally, educational purposes still
through the exercise of powers subject to donor's gift tax
underlying the existence of all exemption (Lladoc v. CIR)
governments on the time-honored
principle of salus populi est suprema ACTUAL, DIRECT AND EXCLUSIVE;
lex. (Calalang v. Williams) MEANING

LIMITATION ON THE It is the direct and immediate and


CONGRESSIONAL POWER TO actual application of the property itslef
DELEGATE TO THE PRESIDENT to the purposes for which the
THE AUTHORITY TO FIX TARIFF charitable institution is organized. It is
RATES, IMPORT AND EXPORT not the use of the income from the real
QUOTAS, ETC. property that is determinative of
whether the property is used for tax-
The Congress may, by law, authorize exempt purposes.
limitations and restrictions as it may

62

Rules on taxation of non-stock shall be used for administration


corporations for charitable and purposes.
religious purposes:
VOTING REQUIREMENT IN
1. For purposes of income taxation CONNECTION WITH THE
LEGISLATIVE GRANT OF TAX
The income of non-stock EXEMPTIONS
corporations operating
exclusively for charitable and No Law granting any tax exemption
religious purposes, no part of shall be passed without the
which inures to the benefit of concurrence of a majority of all the
any member, organizer or members of congress.
officer or any specific person,
shall be exempt from tax. Reason: To prevent indiscriminate
However, the income of grant of tax exemptions
whatever kind and nature from
any of their properties, real or Rules on Voting
personal or from any of their
activities for profit regardless of Granting Absolute Majority
the disposition made of such Revoking Relative Majority
income shall be subject to tax.
Reason: Taxation is the Rule,
Donations received by religious, Exemption is the exception.
charitable and educational
institutions are considered as NON-IMPAIRMENT OF THE
income but not taxable income JURSIDICTION OF THE SUPREME
as they are items of exclusion. COURT IN TAX CASES
On the part of the donor, such
donations are deductible The Congress shall have the power to
expense provided that no part define, prescribe, and apportion the
of the income of which inures to jurisdiction of the various courts but
the benefit of any private may not deprive the SC of its
stockholder or individual in an jurisdiction over cases enumerated in
amount not exceeding 10% in Sec. 5 hereof (Sec. 2, Art. VIII, 1987
case of an individual, and 5% in Constitution).
case of corporation, of the
taxpayer;s taxable income The SC shall have the following
derived from trade or business powers: xxx. Review, revise, reverse,
or profession. modify or affirm on appeal or certiorari
as the law of the Rules of Court may
2. For purposes of donor's and estate provide, final judgments and orders of
taxation lower courts in: (b) all cases involving
the legality of any tax, impost,
Donations in favor of religious assessment or toll, or any penalty
and charitable institutions are imposed in relation thereto (Sec. 5,
generally not subject to tax Art. VIII, 1987 Constitution).
provided, however, that no
more than 30% of said bequest, Note: This is based on the principle of
devise, or legacy or transfer JUDICIAL NON-INTERFERENCE. It is

63

well-settled that the CTA has exclusive Tax exemptions are not self-
jurisdiction over tax cases except executing. Particular exemption
when there is a violation of the to proprietary educational
constitutional limitations where the institutions will apply only after
Supreme Court may interfere. Congress has laid down the
conditions for its enjoyment.
EXEMPTION FORM TAXES OF THE All grants, donations or
REVENUES AND ASSETS OF contributions used actually for
EDUCATIONAL INSTITUTIONS, educational purposes are tax
INCLUDING GRANTS, exempt where it is non-stock,
ENDOWMENTS, DONATIONS, AND non-profit institution
CONTRIBUTIONS
a. not limited to revenues and
All revenues and assets of non-stock, assets derived from strictly
non-profit educational institutions used school operations but it also
actually, directly, and exclusively for extends to incidental to
educational purposes shall be exempt incidental income
from taxes and duties. Upon the
dissolution or cessation of the b. in case of incidental income
corporate existence of such it must not only owned and
institutions, their assets shall be operated by the school but
disposed of in the manner provided by facilities must be loacated in
law. Proprietary educational the school campus
institutions, including those
cooperatively owned, may likewise be c. unrelated income are
entitled to such exemptions, subject to taxable
the limitations provided by law,
including restrictions on dividends and d. use of school's income must
provisions for reinvestment. and be in consonance with
Subject to conditions prescribed by purposes for which school is
law, all grants, endowments, created
donations, or contributions used
actually, directly, and exclusively for CLASS RECITATION WITH
educational purposes shall be exempt SUGGESTED ANSWERS
from tax (Sec. 4(3) and (4), Art. XIV
of the Constitution) Q: Are income taxes on the
Philippine Daily Inquirer allowed
This does not apply to then?
properties or from any activities
conducted for profit Yes, the press is not exempt from
income taxation
Proprietary educational
institutions shall not be Q: May SBC issue a memorandum
categorized as tax exempt prohibiting the use of social
under Tax Code and their networking sites?
statues will have to be based
only on the Constitution Yes provided that this is done for
regulation purposes, i.e. disciplinary
action in relation to conduct of the

64

students in class and not as a prior respondent Judge, seeking the


restraint in the freedom of speech. declaration of nullity of Ordinance No.
Meaning, memorandum is valid only 7522 for the reason that (a) the
within the campus publication requirement under the
Revised Charter of the City of Manila
Q: May congress pass a bill levied has not been complied with; (b) the
on companies limiting the use of Market Committee was not given any
advertisments in social networks participation in the enactment of the
such as facebook and twitter ordinance, as envisioned by Republic
Act 6039; and (c) the ordinance would
There is a pending debate on the violate Presidential Decree No. 7 of
matter. Proponents of the bill urge that September 30, 1972 prescribing the
additional taxes on the bill will not hurt collection of fees and charges on
the companies as these ads even aid livestock and animal products.
them in generating more income and
hence should be taxed. On the other Resolving the accompanying prayer
hand, companies, especially the low for the issuance of a writ of preliminary
level enterprises argue that this act injunction, respondent Judge issued
constitutes a prior restraint in their an order on March 11, 1975, denying
freedom of expression. They argue the plea for failure of the respondent
that more than business, ads are also Federation of Manila Market Vendors,
a means of keeping the public Inc. to exhaust the administrative
informed and abreast of current events remedies outlined in the Local Tax
and issues. Code.

CASE DIGESTS After due hearing on the merits,


respondent Judge rendered its
HON. RAMON D. BAGATSING vs. decision declaring the nullity of
HON. PEDRO A. RAMIREZ Ordinance No. 7522 of the City of
Manila on the primary ground of non-
FACTS: compliance with the requirement of
On June 12, 1974, the Municipal publication under the Revised City
Board of Manila enacted Ordinance Charter. Petitioners moved for
No. 7522, "AN ORDINANCE reconsideration of the adverse
REGULATING THE OPERATION OF decision, stressing that (a) only a post-
PUBLIC MARKETS AND publication is required by the Local
PRESCRIBING FEES FOR THE Tax Code; and (b) private respondent
RENTALS OF STALLS AND failed to exhaust all administrative
PROVIDING PENALTIES FOR remedies before instituting an action in
VIOLATION THEREOF AND FOR court. On September 26, 1975,
OTHER PURPOSES." The petitioner respondent Judge denied the motion.
City Mayor, Ramon D. Bagatsing, Hence, the present petition for review
approved the ordinance on June 15, on certiorari.
1974.
ISSUES:
On February 17, 1975, respondent 1. What law shall govern the
Federation of Manila Market Vendors, publication of a tax ordinance
Inc. commenced a civil case before the enacted by the Municipal Board of
CFI of Manila presided over by Manila, the Revised City Charter

65

(R.A. 409, as amended), which remaining an exception of the general,


requires publication of the one as a general law of the land, the
ordinance before its enactment and other as the law of a particular
after its approval, or the Local Tax case. However, the rule readily yields
Code (P.D. No. 231), which only to a situation where the special statute
demands publication after refers to a subject in general, which
approval? the general statute treats in particular.
2. Is there a valid delegation? Section 17 of the Revised Charter of
the City of Manila speaks of
HELD: "ordinance" in general, i.e.,
(1) LOCAL TAX CODE. While the irrespective of the nature and scope
Revised Charter of the City of Manila thereof, whereas, Section 43 of the
requires publication before the Local Tax Code relates to "ordinances
enactment of the ordinance and levying or imposing taxes, fees or
after the approval thereof in two daily other charges" in particular. In regard,
newspapers of general circulation in therefore, to ordinances in general, the
the city, the Local Tax Code only Revised Charter of the City of Manila
prescribes for publication after the is doubtless dominant, but, that
approval of "ordinances levying or dominant force loses its continuity
imposing taxes, fees or other charges" when it approaches the realm of
either in a newspaper or publication "ordinances levying or imposing taxes,
widely circulated within the jurisdiction fees or other charges" in particular.
of the local government or by posting There, the Local Tax Code controls.
the ordinance in the local legislative Here, as always, a general provision
hall or premises and in two other must give way to a particular
conspicuous places within the provision. Special provision
territorial jurisdiction of the local governs. This is especially true where
government. Petitioners' compliance the law containing the particular
with the Local Tax Code rather than provision was enacted later than the
with the Revised Charter of the City one containing the general provision.
spawned this litigation. The City Charter of Manila was
promulgated on June 18, 1949 as
There is no question that the Revised against the Local Tax Code which was
Charter of the City of Manila is decreed on June 1, 1973. The law-
a special act since it relates only to the making power cannot be said to have
City of Manila, whereas the Local Tax intended the establishment of
Code is a general law because it conflicting and hostile systems upon
applies universally to all local the same subject, or to leave in force
governments. Blackstone defines provisions of a prior law by which the
general law as a universal rule new will of the legislating power may
affecting the entire community and be thwarted and overthrown. Such a
special law as one relating to particular result would render legislation a
persons or things of a class. And the useless and idle ceremony, and
rule commonly said is that a prior subject the law to the reproach of
special law is not ordinarily repealed uncertainty and unintelligibility.
by a subsequent general law. The fact
that one is special and the other In fact, there is no rule which prohibits
general creates a presumption that the the repeal even by implication of a
special is to be considered as special or specific act by a general or

66

broad one. A charter provision may be taxes, subject to such provisions as


impliedly modified or superseded by a may be provided by law." 13 And one of
later statute, and where a statute is those sources of revenue is what the
controlling, it must be read into the Local Tax Code points to in particular:
charter notwithstanding any particular "Local governments may collect fees
charter provision. A subsequent or rentals for the occupancy or use of
general law similarly applicable to all public markets and premises." They
cities prevails over any conflicting can provide for and regulate market
charter provision, for the reason that a stands, stalls and privileges, and, also,
charter must not be inconsistent with the sale, lease or occupancy thereof.
the general laws and public policy of They can license, or permit the use of,
the state. A chartered city is not an lease, sell or otherwise dispose of
independent sovereignty. The state stands, stalls or marketing privileges.
remains supreme in all matters not
purely local. Otherwise stated, a The non-participation of the Market
charter must yield to the constitution Committee in the enactment of
and general laws of the state, it is to Ordinance No. 7522 supposedly in
have read into it that general law which accordance with Republic Act No.
governs the municipal corporation and 6039, an amendment to the City
which the corporation cannot set aside Charter of Manila, providing that "the
but to which it must yield. When a city market committee shall formulate,
adopts a charter, it in effect adopts as recommend and adopt, subject to the
part of its charter general law of such ratification of the municipal board, and
character. approval of the mayor, policies and
rules or regulation repealing or
The principle of exhaustion of amending existing provisions of the
administrative remedies is strongly market code" does not infect the
asserted by petitioners as having been ordinance with any germ of
violated by private respondent in invalidity. The function of the
bringing a direct suit in court. But, the committee is purely recommendatory
petition below plainly shows that the as the underscored phrase suggests,
controversy between the parties is its recommendation is without binding
deeply rooted in a pure question of effect on the Municipal Board and the
law. In other words, the dispute is City Mayor. Its prior acquiescence of
sharply focused on the applicability of an intended or proposed city ordinance
the Revised City Charter or the Local is not a condition sine qua non before
Tax Code on the point at issue, and the Municipal Board could enact such
not on the legality of the imposition of ordinance. The native power of the
the tax. Exhaustion of administrative Municipal Board to legislate remains
remedies before resort to judicial undisturbed even in the slightest
bodies is not an absolute rule. It degree. It can move in its own initiative
admits of exceptions. and the Market Committee cannot
demur. At most, the Market Committee
Precisely, the raising of revenues is may serve as a legislative aide of the
the principal object of taxation. Under Municipal Board in the enactment of
Section 5, Article XI of the New city ordinances affecting the city
Constitution, "Each local government markets or, in plain words, in the
unit shall have the power to create its gathering of the necessary data,
own sources of revenue and to levy studies and the collection of

67

consensus for the proposal of


ordinances regarding city markets. ABAKADA GURO PARTY LIST vs.
Much less could it be said that ERMITA
Republic Act 6039 intended to
delegate to the Market Committee the FACTS:
adoption of regulatory measures for RA 9337 is a law amending sections of
the operation and administration of the the National Internal Revenue Code of
city markets. Potestas delegata non 1997. It is a consolidation of three bills:
delegare potest. House Bill 3555 (restructuring VAT),
House Bill 3705 (multi-tiered VAT
(2) Private respondent bewails that the system), and Senate Bill 1950 (NIRC
market stall fees imposed in the amendment). These bills have been
disputed ordinance are diverted to the certified by the President as urgent,
exclusive private use of the Asiatic and was approved by the Senate on
Integrated Corporation since the second and third reading. After the
collection of said fees had been let by committee conference, the
the City of Manila to the said consolidated bills were transmitted to
corporation in a "Management and the President, who signed it into law.
Operating Contract." The assumption When the effectivity date came, the
is of course saddled on erroneous Supreme Court issued a TRO because
premise. The fees collected do not go of the confusion in the implementation
direct to the private coffers of the of the law. ABAKADA GURO Party List
corporation. Ordinance No. 7522 was filed a petition for prohibition,
not made for the corporation but for questioning the constitutionality of RA
the purpose of raising revenues for the 9337 on the grounds of the legality of
city. The entrusting of the collection of the bicameral proceedings, and that it
the fees does not destroy the public allows a delegation of legislative power
purpose of the ordinance. So long as to the Executive branch (also known
the purpose is public, it does not as the stand-by authority), violative of
matter whether the agency through sections 24 and 26(2), respectively, of
which the money is dispensed is public Article 6 of the Constitution.
or private. The right to tax depends
upon the ultimate use, purpose and RA 9337, a law amending sections of
object for which the fund is raised. It is the National Internal Revenue Code, is
not dependent on the nature or a consolidation of three bills House
character of the person or corporation Bill 3555, which restructures VAT;
whose intermediate agency is to be House Bill 3705, which implements a
used in applying it. The people may be multi-tiered VAT system; and Senate
taxed for a public purpose, although it Bill 1950 which provides for NRIC
be under the direction of an individual amendment which have been issued
or private corporation. the Presidents Certification as urgent,
Ordinance No. 7522 of the City of approved on the second and third
Manila, dated June 15, 1975, is validly reading by the Senate and transmitted
enacted. to the President after the committee
conference who then signed it into law.
On the effectivity date, the SC issued a
TRO due to confusion in the laws
implementation. Petitioners questioned
the constitutionality of RA 9337 on the

68

grounds of the legality of the bicameral EASTERN THEATRICAL CO., INC.,


committee conference proceedings in ET AL.
violation of sec. 24 of art. VI of the vs. VICTOR, ALFONSO
constitution, and the delegation of
legislative power to the executive FACTS:
branch in violation of sec. 26(2) of art. 12 corporations engaged in motion
VI of the constitution. picture business have initiated this
proceeding through a complaint dated
ISSUES: May 5, 1946, to impugn the validity of
1. Whether or not RA 9337 is Ordinance No. 2958 of the City of
unconstitutional on the grounds of Manila which was enacted by the
the interpretation that it allows a Municipal Board on April 25, 1946,
delegation of legislative power to approved by the Mayor on April 27,
the Executive branch and on the 1946, and took effect on May 1, 1946,
grounds of the legality of bicameral entitled:
proceedings.
2. Whether or not RA 9337 is AN ORDINANCE IMPOSING A FEE
unconstitutional due to the violation ON THE PRICE OF EVERY
of sections 24 and 26[2] of art. VI of ADMISSION TICKET SOLD BY
the constitution. CINEMATOGRAPHS, THEATERS
VAUDEVILLE COMPANIES
HELD: THEATRICAL SHOWS AND BOXING
(1) NO. RA 9337 is NOT EXHIBITION AND PROVIDING FOR
unconstitutional. The law must not be OTHER PURPOSES.
interpreted as a delegation of
legislative power, but it should be Plaintiffs, operators of theaters in
interpreted as a delegation of Manila and distributor of local or
ascertainment of facts upon which imported films, allege that they are
enforcement and administration under interested in the provision of Sec. 1, 2,
the law is contingent, and no discretion and 4 which they impugn as null and
would be exercised by the President. void based on the ff. grounds:
Also, the law follows Rule XII, Sec. 35 For violation of the Constitution,
of the Rules of Senate regarding the particularly the provision re: the
bicameral proceedings, that a uniformity and equality of taxation
conference committee of both Houses and the equal protection of laws;
shall be composed to settle differences The Municipal Board of Manila
and disagreeing provisions. Petition is exceeded and overstepped the
dismissed. power granted it the Charter of the
City of Manila;
(2) NO. sec. 35, Rule XII, of the rules It contravenes, violates, and is
of senate calls bicameral conference consistent with existing national
committee to settle differences and legislation, particularly, revenue
disagreeing provisions between the and tax laws; and
HR and the senate and RA 9337 It is unjust, arbitrary, capricious,
delegates enforcement and unreasonable, oppressive, and is
administration i.e. ascertainment of contrary to, and a violation of our
facts, not legislative power, to the basic and recognized principles of
President. Hence, petitions dismissed. taxation and licensing laws.

69

Defendants allege that: Considering the nature of the


The ordinance was passed by the business of the plaintiffs and the
Municipal Board by virtue of its enormous volume of business they
express legislative power to tax, fix handle the graduated tax fixed by
the license fee, and regulate the the ordinance is not unreasonable.
business of theaters, Since the ordinance took effect,
cinematographs, and further to fix plaintiffs have been charging the
the location of and to tax, fix the theater-going public increased
license fee for and regulate the prices for admission to the
business of theatrical performances cinematographs owned and
public exhibition circus and other operated to the graduated tax
performances and places of imposed by the ordinance and, as
amusement; a result, while refusing to pay said
The graduated tax required by said tax but at the same time collecting
ordinance being applied to all an amount equal to said tax,
cinematographs, theaters, plaintiffs have taken undue
vaudeville companies theatrical advantage of the ordinance to
show and boxing exhibitions realize more profits.
similarly situated and as a class
without distinction or exception the Judge Emilio Pena of CFI Manila
same does not violate the upheld the validity of the ordinance.
prohibition against uniformity and Hence, this petition.
equality of taxation;
The graduated tax on admission ISSUES:
tickets to theaters and other places 1. Whether under Sec. 2444(m) of the
of amusement imposed by the Revised Administrative Code, the
National Internal Revenue Code Municipal Board of the City of
(Commonwealth Act No. 466) is Manila had the power to enact
collected by and for the purposes Ordinance No. 2958.
of the National Government, 2. Whether Ordinance No. 2958
whereas, Ordinance No.2958 violated the principle of equality
imposes and requires the collection and uniformity of taxation enjoined
of a similar tax by and for the by the Constitution (Sec. 22(1), Art.
purposes of the Government of the VI, Constitution).
City of Manila, and there is no case
of double taxation; HELD: (1) YES. The very fact that
The ordinance having been section 2444 (m) of the Revised
enacted under the express power Administrative Code includes theaters,
of the Municipal Board to tax for cinematographs, public billiard tables,
revenue as distinguished from its public pool tables, bowling alleys,
power to license for purely police dance halls, public dancing halls,
purposes, the fact that the amount cabarets, circuses and other similar
collected thereunder are higher places, race tracks, horse races,
than what are needed for police theatrical performances, public
regulation and supervision does not exhibition, circus and other
render said ordinance unfair unjust performances and places of
capricious unreasonable and amusements, will show conclusively
oppressive; that the power to tax amusement is
expressly included within the power

70

granted by section 2444(m) of the cigarettes was conducted as of


Revised Administrative Code. October 1, 1996, the results of which
were embodied in ANNEX D of the
(2) NO. The fact that some places of NIRC as the duly registered, existing,
amusement are not taxed while others, or active brands of cigarettes.
such as cinematographs, theaters,
vaudeville companies, theatrical To implement RA 8240, the BIR issued
shows, and boxing exhibitions and Revenue Regulations No. 1-97 which
other kinds of amusements or places classified the existing brands of
of amusement are taxed, is no cigarettes as those duly registered or
argument at all against the equality active brands prior to January 1,
and uniformity of the tax imposition. 1997. New brands, or those registered
Equality and uniformity of the tax after January 1, 1997, shall be initially
imposition. Equality and uniformity in assessed at their suggested retail
taxation means that all taxable articles price until such time that the
or kinds of property of the same class appropriate survey to determine their
shall be taxed at the same rate. The current net retail price is conducted. .
taxing power has the authority to make
reasonable and natural classifications In June 2001, petitioner British
for purposes of taxation; and the American Tobacco introduced into the
appellants cannot point out what market Lucky Strike Filter, Lucky Strike
places of amusement taxed by the Lights and Lucky Strike c) quoted
ordinance do not constitute a class by above, the Lucky Strike brands were
themselves and which can be initially assessed the excise tax at
confused with those not included in the P8.96 per pack.
ordinance.
On February 17, 2003, Revenue
The judgment of the trial court is Regulations No. 9-2003, amended
affirmed with costs against appellants. Revenue Regulations No. 1-97 by
providing, among others, a periodic
BRITISH AMERICAN TOBACCO vs. review every two years or earlier of the
JOSE ISIDRO N. CAMACHO current net retail price of new brands
and variants thereof for the purpose of
FACTS: establishing and updating their tax
RA 8240, An Act Amending Sections classification.
138, 139, 140, and 142 of the NIRC,
as Amended and For Other Purposes, Pursuant thereto, Revenue
took effect on January 1, 1997. RA Memorandum Order No. 6-2003 was
8424, The Tax Reform Act of 1997, issued on March 11, 2003, prescribing
recodifying the NIRC, was also passed the guidelines and procedures in
thereby renumbering Sec. 142 as Sec. establishing current net retail prices of
145 of the NIRC. new brands of cigarettes and alcohol
products.
Par. (c) of Sec. 145 provides for 4 tiers
of tax rates based on the net retail Subsequently, Revenue Regulations
price per pack of cigarettes. To No. 22-2003 was issued on August 8,
determine the applicable tax rates of 2003 to implement the revised tax
existing cigarette brands, a survey of classification of certain new brands
the net retail prices per pack of introduced in the market after January

71

1, 1997, based on the survey of their Tax Rates Imposed on Alcohol And
current net retail price. Tobacco Products, Amending For The
Purpose Sections 131, 141, 143, 144,
The survey revealed that Lucky Strike 145 and 288 of the NIRC of 1997, As
Filter, Lucky Strike Lights, and Lucky Amended), took effect on January 1,
Strike Menthol Lights, are sold at the 2005. The statute, among others,
current net retail price of P22.54,
P22.61 and P21.23, per pack, (4) provided a legislative freeze on
respectively. Commissioner of the BIR brands of cigarettes introduced
thus recommended the applicable tax between the period January 2, 1997
rate of P13.44 per pack inasmuch as to December 31, 2003, such that said
Lucky Strikes average net retail price cigarettes shall remain in the
is above P10.00 per pack. classification under which the BIR has
determined them to belong as
On September 1, 2003, BAT filed of December 31, 2003, until revised by
before the RTC of Makati, Branch 61, Congress.
a petition for injunction with prayer for
the issuance of a TRO and/or writ of ISSUE:
preliminary injunction seeking to enjoin Whether (1) Section 145 of the
the implementation of the National Internal Revenue Code
aforementioned law, regulations, and (NIRC), as recodified by Republic Act
memorandum order on the ground that (RA) 8424; (2) RA 9334, which further
they discriminate against new brands amended Section 145 of the NIRC
of cigarettes in violation of the equal on January 1, 2005; (3) Revenue
protection and uniformity provisions of Regulations Nos. 1-97, 9-2003, and
the Constitution. CIR filed an 22-2003; and (4) Revenue
Opposition to the application for Memorandum Order No. 6-2003 are
issuance for the TRO. RTC denied the violative of the equal protection and
application for TRO holding that the uniformity clauses of the Constitution.
courts have no authority to restrain the (Whether the classification freeze
collection of taxes. Meanwhile, the provision violates the equal protection
Sec. of Finance filed a Motion to and uniformity of taxation clauses of
Dismiss contending that the petition is the Constitution.)
premature for lack of actual
controversy or urgent necessity to HELD:
justify judicial intervention.
AS TO THE LAW: CONSTITUTIONAL
RTC denied the motion to dismiss and
issued a writ of preliminary injunction The alleged discrimination arising from
to enjoin the implementation of the legislative classification freeze
Revenue Regulations Nos. 1-97, 9- between the brands under Annex D
2003, 22-2003 and Revenue and petitioners newly introduced
Memorandum Order No. 6-2003. RTC brands arose only because the former
later upheld the constitutionality of the were classified based on their current
assailed law, order, and regulations. net retail price as of October 1,
Hence, this petition for review. 1996 and BATs newly introduced
brands were classified based on their
While the petition was pending, RA current net retail price as of 2003.
9334 (An Act Increasing The Excise Without this corresponding freezing of

72

the classification of petitioners newly constitutional guaranty of the equal


introduced brands based on their protection of the laws. The
current net retail price, it would be classification is considered valid and
impossible to establish that a disparate reasonable provided that: (1) it rests
tax treatment occurred between the on substantial distinctions; (2) it is
Annex D brands and petitioners germane to the purpose of the law; (3)
newly introduced brands. it applies, all things being equal, to
both present and future conditions;
In our jurisdiction, the standard and and (4) it applies equally to all those
analysis of equal protection challenges belonging to the same class.
in the main have followed the rational
basis test, coupled with a deferential The first, third and fourth requisites are
attitude to legislative classifications satisfied. The classification freeze
and a reluctance to invalidate a law provision was inserted in the law for
unless there is a showing of a clear reasons of practicality and
and unequivocal breach of the expediency. That is, since a new
Constitution. Within the present brand was not yet in existence at the
context of tax legislation on sin time of the passage of RA 8240, then
products which neither contains a Congress needed a uniform
suspect classification nor impinges on mechanism to fix the tax bracket of a
a fundamental right, the rational-basis new brand. The current net retail
test thus finds application. price, similar to what was used to
classify the brands under Annex D as
Under this test, a legislative of October 1, 1996, was thus the
classification, to survive an equal logical and practical choice. Further,
protection challenge, must be shown with the amendments introduced by
to rationally further a legitimate state RA 9334, the freezing of the tax
interest. The classifications must be classifications now expressly applies
reasonable and rest upon some not just to Annex D brands but to
ground of difference having a fair and newer brands introduced after the
substantial relation to the object of the effectivity of RA 8240 on January 1,
legislation. Since every law has in its 1997 and any new brand that will be
favor the presumption of introduced in the future.
constitutionality, the burden of proof is
on the one attacking the The classification freeze
constitutionality of the law to prove provision could hardly be considered
beyond reasonable doubt that the arbitrary, or motivated by a hostile or
legislative classification is without oppressive attitude to unduly favor
rational basis. The presumption of older brands over newer brands.
constitutionality can be overcome only Congress was unequivocal in its
by the most explicit demonstration that unwillingness to delegate the power to
a classification is a hostile and periodically adjust the excise tax rate
oppressive discrimination against and tax brackets as well as to
particular persons and classes, and periodically resurvey and reclassify the
that there is no conceivable basis cigarette brands based on the increase
which might support it. in the consumer price index to the
DOF and the BIR. Congress doubted
A legislative classification that is the constitutionality of such delegation
reasonable does not offend the of power, and likewise, considered the

73

ethical implications thereof. Curiously, RA 9334 did not alter this classification
the classification freeze provision was freeze provision of RA 8240. On the
put in place of the periodic adjustment contrary, Congress affirmed this
and reclassification provision because freezing mechanism by clarifying the
of the belief that the latter would foster wording of the law. We can thus
an anti-competitive atmosphere in the reasonably conclude, as the
market. Yet, as it is, this same criticism deliberations on RA 9334 readily
is being foisted by BAT upon show, that the administrative concerns
the classification freeze provision. in tax administration, which moved
Congress to enact the classification
The classification freeze provision was freeze provision in RA 8240, were
in the main the result of Congresss merely continued by RA 9334. Indeed,
earnest efforts to improve the administrative concerns may provide a
efficiency and effectivity of the tax legitimate, rational basis for legislative
administration over sin products while classification. In the case at bar, these
trying to balance the same with other administrative concerns in the
state interests. In particular, the measurement and collection of excise
questioned provision addressed taxes on sin products are readily
Congresss administrative concerns apparent as afore-discussed.
regarding delegating too much
authority to the DOF and BIR as this Aside from the major concern
will open the tax system to potential regarding the elimination of potential
areas for abuse and areas for abuse and corruption from
corruption. Congress may have the tax administration of sin products,
reasonably conceived that a tax the legislative deliberations also show
system which would give the least that the classification freeze
amount of discretion to the tax provision was intended to generate
implementers would address the buoyant and stable revenues for
problems of tax avoidance and tax government. With the frozen tax
evasion. classifications, the revenue inflow
would remain stable and the
Congress sought to, among others, government would be able to predict
simplify the whole tax system for sin with a greater degree of certainty the
products to remove these potential amount of taxes that a cigarette
areas of abuse and corruption from manufacturer would pay given the
both the side of the taxpayer and the trend in its sales volume over
government. Without doubt, time. The reason for this is that the
the classification freeze provision was previously classified cigarette brands
an integral part of this overall would be prevented from moving either
plan. This is in line with one of the upward or downward their tax brackets
avowed objectives of the assailed law despite the changes in their net retail
to simplify the tax administration and prices in the future and, as a result, the
compliance with the tax laws that are amount of taxes due from them would
about to unfold in order to minimize remain predictable. The classification
losses arising from inefficiencies and freeze provision would, thus, aid in the
tax avoidance scheme, if not outright revenue planning of the government.
tax evasion.
The classification freeze
provision addressed Congresss

74

administrative concerns in the


simplification of tax administration of AS TO THE
sin products, elimination of potential REGULATIONS/ORDERS:
areas for abuse and corruption in tax UNCONSTITUTIONAL
collection, buoyant and stable revenue
generation, and ease of projection of Revenue Regulations No. 1-97, as
revenues. Consequently, there can be amended by Section 2 of Revenue
no denial of the equal protection of the Regulations 9-2003, and Revenue
laws since the rational-basis test is Memorandum Order No. 6-2003
amply satisfied. unjustifiably emasculate the operation
of Section 145 of the NIRC because
Whether Congress acted improvidently they authorize the Commissioner of
in derogating, to a limited extent, the Internal Revenue to update the tax
states interest in promoting fair classification of new brands every two
competition among the players in the years or earlier subject only to its
industry, while pursuing other state issuance of the appropriate Revenue
interests regarding the simplification of Regulations, when nowhere in Section
tax administration of sin products, 145 is such authority granted to the
elimination of potential areas for abuse Bureau. Unless expressly granted to
and corruption in tax collection, the BIR, the power to reclassify
buoyant and stable revenue cigarette brands remains a prerogative
generation, and ease of projection of of the legislature which cannot be
revenues through the classification usurped by the former.
freeze provision, and whether the
questioned provision is the best means Thus, the amendments introduced by
to achieve these state interests, RA 9334 to RA 8240, insofar as the
necessarily go into the wisdom of the freezing mechanism is concerned,
assailed law which we cannot inquire must be seen merely as underscoring
into, much less the legislative intent already in place
overrule. The classification freeze then, i.e. new brands as being covered
provision has not been shown to be by the freezing mechanism after their
precipitated by a veiled attempt, or classification based on their current
hostile attitude on the part of Congress net retail prices.
to unduly favor older brands over
newer brands. On the contrary, we Unfortunately for petitioner, this result
must reasonably assume, owing to the will not cause a downward
respect due a co-equal branch of reclassification of Lucky Strike. It will
government and as revealed by the be recalled that petitioner introduced
Congressional deliberations, that the Lucky Strike in June 2001. However,
enactment of the questioned provision as admitted by petitioner itself, the BIR
was impelled by an earnest desire to did not conduct the required market
improve the efficiency and effectivity of survey within three months from
the tax administration of sin product launch. As a result, Lucky
products. For as long as the legislative Strike was never classified based on
classification is rationally related to its actual current net retail
furthering some legitimate state price. Petitioner failed to timely seek
interest, as here, the rational-basis test redress to compel the BIR to conduct
is satisfied and the constitutional the requisite market survey in order to
challenge is perfunctorily defeated. fix the tax classification of Lucky

75

Strike. In the meantime, Lucky Strike


was taxed based on its suggested net NEITHER DOES RA 8240, AS
retail price of P9.90 per pack, which is AMENDED BY RA 93334 VIOLATE
within the high-priced tax bracket. It THE GENERAL AGREEMENT ON
was only after the lapse of two years TARIFFS AND TRADE (GATT).
or in 2003 that the BIR conducted a
market survey which was the first The classification freeze
time that Lucky Strikes actual current provision uniformly applies to all newly
net retail price was surveyed and introduced brands in the market,
found to be from P10.34 to P11.53 per whether imported or locally
pack, which is within the premium- manufactured. It does not purport to
priced tax bracket. The case of single out imported cigarettes in order
petitioner falls under a situation where to unduly favor locally produced
there was no reclassification based on ones. Further, petitioners evidence
its current net retail price which would was anchored on the alleged unequal
have been invalid as previously tax treatment between old and new
explained. Thus, we cannot grant brands which involves a different
petitioners prayer for a downward frame of reference vis--vis local and
reclassification of Lucky Strike imported products. Petitioner has,
because it was never reclassified by therefore, failed to clearly prove its
the BIR based on its actual current net case, both factually and legally, within
retail price. the parameters of the GATT.

NEVERTHELESS, Revenue At any rate, even


Regulations No. 9-2003 and Revenue assuming arguendo that petitioner was
Memorandum Order No. 6-2003 able to prove that the classification
should be deemed modified by the freeze provision violates the GATT, the
above provisions from the date of outcome would still be the same. The
effectivity of RA 9334 on January 1, GATT is a treaty duly ratified by the
2005. Philippine Senate and under Article
VII, Section 21of the Constitution, it
Section 4(B)(e)(c), 2nd paragraph of merely acquired the status of a
Revenue Regulations No. 1-97, as statute. Applying the basic principles of
amended by Section 2 of Revenue statutory construction in case of
Regulations 9-2003, and Sections irreconcilable conflict between
II(1)(b), II(4)(b), II(6), II(7), III (Large statutes, RA 8240, as amended by RA
Tax Payers Assistance Division II) II(b) 9334, would prevail over the GATT
of Revenue Memorandum Order No. either as a later enactment by
6-2003, as pertinent to cigarettes Congress or as a special law dealing
packed by machine, are invalid insofar with the taxation of sin products.
as they grant the BIR the power to
reclassify or update the classification WHEREFORE, the petition
of new brands every two years or is PARTIALLY GRANTED and the
earlier. Further, these provisions are decision of the Regional Trial Court of
deemed modified upon the effectivity Makati, Branch 61, in Civil Case No.
of RA 9334 on January 1, 2005 insofar 03-1032, is
as the manner of determining the AFFIRMED with MODIFICATION. As
permanent classification of new brands modified, this Court declares that:
is concerned.

76

(1) Section 145 of the NIRC, as


amended by Republic Act No. 9334, is The rational basis test was properly
CONSTITUTIONAL; and that applied to gauge the constitutionality of
the assailed law in the face of an equal
(2) Section 4(B)(e)(c), 2nd paragraph protection challenge. It has been held
of Revenue Regulations No. 1-97, as that in the areas of social and
amended by Section 2 of Revenue economic policy, a statutory
Regulations 9-2003, and Sections classification that neither proceeds
II(1)(b), II(4)(b), II(6), II(7), III (Large along suspect lines nor infringes
Tax Payers Assistance Division II) II(b) constitutional rights must be upheld
of Revenue Memorandum Order No. against equal protection challenge if
6-2003, insofar as pertinent to there is any reasonably conceivable
cigarettes packed by machine, state of facts that could provide a
are INVALID insofar as they grant the rational basis for the classification.
BIR the power to reclassify or update Under the rational basis test, it is
the classification of new brands every sufficient that the legislative
two years or earlier. classification is rationally related to
achieving some legitimate State
BRITISH AMERICAN TOBACCO vs. interest..
JOSE ISIDRO N. CAMACHO
A tax is uniform when it operates with
FACTS/ISSUES: the same force and effect in every
This is a Motion for Reconsideration place where the subject of it is
for the Decision of the SC rendered on found. It does not signify an intrinsic
August 20, 2008. BAT insists that the but simply a geographical
assailed provisions: uniformity. A levy of tax is not
1. violate the equal protection and unconstitutional because it is not
uniformity of taxation clauses of the intrinsically equal and uniform in its
Constitution; operation. The uniformity rule does not
2. contravene Sec. 19, Art. XII of the prohibit classification for purposes of
Constitution on unfair competition; taxation.
and
3. infringe the constitutional Uniformity of taxation, like the kindred
provisions on regressive and concept of equal protection, merely
inequitable taxation. requires that all subjects or objects of
taxation, similarly situated, are to be
Further, assuming arguendo that the treated alike both in privileges and
assailed provisions are constitutional, liabilities (citations omitted). Uniformity
BAT is entitled to a downward does not forfend classification as long
reclassification of Lucky Strike from as: (1) the standards that are used
the premium-priced to the high-priced therefor are substantial and not
tax bracket. arbitrary, (2) the categorization is
germane to achieve the legislative
HELD: purpose, (3) the law applies, all things
being equal, to both present and future
THE ASSAILED LAW DOES NOT conditions, and (4) the classification
VIOLATE THE EQUAL PROTECTION applies equally well to all those
AND UNIFORMITY OF TAXATION belonging to the same class.
CLAUSES.

77

The classification freeze


provision meets the geographical THE ASSAILED LAW DOES NOT
uniformity requirement because the TRANSGRESS THE
assailed law applies to all cigarette CONSTITUTIONAL PROVISIONS ON
brands in the Philippines. Also, the REGRESSIVE AND INEQUITABLE
above four-fold test has been met in TAXATION.
the present case.
The assailed law imposes an excise
THE ASSAILED PROVISIONS DO tax on cigarettes which is a form of
NOT VIOLATE THE indirect tax, and thus, regressive in
CONSTITUTIONAL PROHIBITION ON character. While there was an attempt
UNFAIR COMPETITION. to make the imposition of the excise
tax more equitable by creating a four-
While a law which imposes substantial tiered taxation system where higher
barriers to the entry and exit of new priced cigarettes are taxed at a higher
players in our downstream oil industry rate, still, every consumer, whether
may be struck down for being violative rich or poor, of a cigarette brand within
of Section 19, Article XII of the a specific tax bracket pays the same
Constitution, if they are insignificant tax rate. To this extent, the tax does
impediments, they need not be not take into account the persons
stricken down. BAT failed to ability to pay. Nevertheless, this does
convincingly prove that there is a not mean that the assailed law may be
substantial barrier to the entry of new declared unconstitutional for being
brands in the cigarette market due to regressive in character because the
the classification freeze provision. Constitution does not prohibit the
Several new brands were introduced in imposition of indirect taxes but merely
the market after the assailed law went provides that Congress shall evolve a
into effect thus negating petitioners progressive system of taxation.
sweeping claim that the classification
freeze provision is an insurmountable Regressivity is not a negative standard
barrier to the entry of new for courts to enforce. What Congress
brands. Also, price is not the only is required by the Constitution to do is
factor affecting competition in the to "evolve a progressive system of
market for there are other factors such taxation." This is a directive to
as taste, brand loyalty, etc. Congress, just like the directive to it to
give priority to the enactment of laws
The totality of the evidence presented for the enhancement of human dignity
by petitioner before the trial court failed and the reduction of social, economic
to convincingly establish the alleged and political inequalities [Art. XIII,
violation of the constitutional Section 1] or for the promotion of the
prohibition on unfair competition. It is right to "quality education" [Art. XIV,
a basic postulate that the one who Section 1]. These provisions are put in
challenges the constitutionality of a law the Constitution as moral incentives to
carries the heavy burden of proof for legislation, not as judicially enforceable
laws enjoy a strong presumption of rights.
constitutionality as it is an act of a co-
equal branch of BAT IS NOT ENTITLED TO A
government. Petitioner failed to carry DOWNWARD RECLASSIFICATION
this burden. OF LUCKY STRIKE.

78

permanent. Otherwise, this would


First, BIR Ruling No. 018-2001 was contravene the clear mandate of the
requested by petitioner for the purpose law which provides that the basis for
of fixing Lucky Strikes initial tax the tax classification of a new brand
classification based on its suggested shall be the current net retail price and
gross retail price relative to its planned not the suggested gross retail price. It
introduction of Lucky Strike in the is a basic principle of law that the State
market sometime in 2001 and not for cannot be estopped by the mistakes of
the conduct of the market survey its agents.
within three months from product
launch. In fact, the said Ruling Last, the issue of timeliness of the
contained an express reservation that market survey was never raised before
the tax classification of Lucky Strike the trial court because petitioners
set therein is without prejudice, theory of the case was wholly
however, to the subsequent conduct of anchored on the alleged
a survey x x x in order to determine if unconstitutionality of the classification
the actual gross retail price thereof is freeze provision. As a consequence,
consistent with [petitioners] suggested no documentary evidence as to the
gross retail price. In short, petitioner actual net retail price of Lucky Strike in
acknowledged that the initial tax 2001, based on a market survey at
classification of Lucky Strike may be least comparable to the one mandated
modified depending on the outcome of by law, was presented before the trial
the survey which will determine the court. Evidently, it cannot be assumed
actual current net retail price of Lucky that had the BIR conducted the market
Strike in the market. survey within three months from its
product launch sometime in 2001,
Second, there was no upward Lucky Strike would have been found to
reclassification of Lucky Strike fall under the high-priced tax bracket
because it was taxed based on its and not the premium-priced tax
suggested gross retail price from the bracket. To so hold would run
time of its introduction in the market in roughshod over the States right to due
2001 until the BIR market survey in process. Verily, petitioner prosecuted
2003. Lucky Strikes actual current net its case before the trial court solely on
retail price was surveyed for the first the theory that the assailed law is
time in 2003 and was found to be unconstitutional instead of merely
from P10.34 toP11.53 per pack, which challenging the timeliness of the
is within the premium-priced tax market survey. The rule is that a party
bracket. There was, thus, no is bound by the theory he adopts and
prohibited upward reclassification of by the cause of action he stands
Lucky Strike by the BIR based on its on. He cannot be permitted after
current net retail price. having lost thereon to repudiate his
theory and cause of action, and
Third, the failure of the BIR to conduct thereafter, adopt another and seek to
the market survey within the three- re-litigate the matter anew either in the
month period under the revenue same forum or on appeal. Having
regulations then in force can in no way pursued one theory and lost thereon,
make the initial tax classification of petitioner may no longer pursue
Lucky Strike based on its suggested another inconsistent theory without
gross retail price thereby trifling with court processes.

79

DOUBLE TAXATION AND TAX DIRECT DUPLICATE TAXATION/


EXEMPTION DOUBLE TAXATION

DOUBLE TAXATION In the objectionable or


prohibited sense (also known as
Taxing the same property twice obnoxious), means that the
when it should be taxed once. same property is taxed twice
when it should be taxed only
Taxing the same person twice once; and that both taxes are
by the same jurisdiction over imposes
the same thing. (Victorias
Milling Co. v. Mun. of Elements of Direct Duplicate
Victorias) Taxation (K-P3AJ)
on the same PROPERTY or
Taxing the same person twice subject matter
by the same jurisdiction for the for the same PURPOSE,
same thing or purpose (US by the same State, Government
Jurisprudence -- Harvey Coal or taxing AUTHORITY
& Coke Co. v. Dillon). within the same taxing
JURISDICTION or taxing district
NO PROHIBITION AGAINST during the same taxing PERIOD
DOUBLE TAXATION and covering the same KIND or
character OF TAX. (Villanueva
There is no Constitutional v. City of Iloilo)
prohibition against it.
(Villanueva v. City of Iloilo) Incidentally, if a real estate tax as well
as a tenement tax are imposed on the
Something not favored, BUT same property, THERE IS NO
nevertheless permissible. OBJECTIONABLE DOUBLE
TAXATION, because the two are not
it is not forbidden by our of the same kind/character of tax.
fundamental law. (Pepsi-Cola (ibid.)
Bottling Co. of the
Philippines, Inc. v. City of INDIRECT DUPLICATE TAXATION
Butuan, et al.).
Not legally objectionable;
KINDS OF DOUBLE TAXATION (D-I2- Illustrated [or arises] in the
L) absence of the elements of
Also known as duplicate direct duplicate taxation
taxation, it may be: [mentioned in the Villanueva
1. Direct or Case].
2. Indirect;
3. International Juridical INTERNATIONAL JUDICIAL
Double Taxation, and TAXATION
4. Local Double Taxation.
the imposition of comparable
taxes

80

in two or more states No Local Double Taxation


on the same taxpayer
in respect of the same subject if the tax is levied by the LGU
matter and and another by the national
for identical periods. government.
(Commissioner v. SC
Johnsons Case) the two are different taxing
authorities. (Pepsi v. Tanauan
Usually takes place when a Case)
person is a resident of the first
contracting state and both METHODS EMPLOYED TO AVOID
states impose taxes on such DOUBLE TAXATION/ METHODS OF
income or capital. REDUCING THE RIGORS OF
DOUBLE TAXATION (CD-RET)
In order to eliminate double
taxation, a tax treaty is entered These are schemes provided by
into by the two contracting our system to avoid or minimize
states. the harsh or burdensome
effects of double taxation.
Only occurs when the state of
residence of the tax payer Sometimes embodied in tax
imposes taxes on the income of treaties or agreements with
said taxpayer within and outside foreign countries while others
their state. are imbedded in statutory
provisions found under our
No International Juridical existing laws.
Double Taxation when the
citizens/nationals are only taxed They are the following:
on their income from sources 1. Tax Credit
within. 2. Tax Deductions
3. Reductions of the Philippine
Reason: To encourage the free Income Tax Rate
flow of goods and services and 4. Tax Exemptions
the movement of capital, 5. Tax Treaties
technology and persons
between countries, conditions TAX CREDIT
deemed vital in creating robust
and dynamic economies. (CIR An amount subtracted from an
v. SC Johnsons Case) individuals (or entitys) tax
liability to arrive at the total tax
LOCAL DOUBLE TAXATION liability.

The imposition of taxes of TAX DEDUCTIONS


similar nature both by the
national government and the The amount of tax is written off
local government unit where the or treated as a deduction from
object of the tax is located. an individual or entitys gross
income on which resulting

81

amount the tax liability is 2. Second Method The state of


calculated. source is given a full or limited
right to tax together with the
Reductions of the Philippine Income state of residence. In this case,
Tax Rate. An example of which is the the treaty makes it incumbent
Tax Sparing Rule. upon the state of residence to
allow relief in order to avoid
Tax Sparing Rule double taxation.

The dividend earned by a non-resident


foreign corporation (NRFC) within the There are Two Ways under the
Philippines is reduced by imposing a Second Method:
lower rate of 15% (in lieu of 30%), ON
THE CONDITION THAT the country to 1. Exemption Method The
which the NRFC is domiciled shall income or capital which is
allow a credit against the tax due from taxable in the state of source (or
the NRFC, which taxes are deemed to situs) is EXEMPTED in the
have been paid in the Philippines. state of residence, although in
(Sec. 28[B][5][b], NIRC; CIR v. Procter some instances it may be taken
& Gamble) into account in determining the
rate of tax applicable to the
TAX EXEMPTIONS taxpayers remaining income or
capital. (this may be done using
A grant of immunity to particular the tax deduction method
persons or corporations from allows foreign income taxes to
the obligation to pay taxes. be deducted from gross income,
in effect exempting the payment
TAX TREATIES from being further taxed.

Agreement between two 2. Credit Method Although the


countries specifying what items income or capital which is taxed
of income will be taxed by the in the state of source is still
authorities of the country where taxable in the state of
the income is earned. residence, tax paid in the former
(source) is credited against the
Under Tax Treaties, we have methods tax levied in the latter
used to eliminate Double Taxation (residence) (CIR v. SC
and they are the following: Johnsons).

1. First Method An exclusive


right to tax is conferred in one of Most Favored Nation Clause in Tax
the contracting states. However, Treaties
for other items of income or
capital, both states are given Its purpose is to grant to the
the right to tax although the contracting party treatment not
amount of tax that may be less favorable than that which
imposed by the state of source has been or may be granted to
is limited. the most favored among other
countries.

82

factors of distribution until it


It is intended to establish the finally settles on the ultimate
principle of equality of purchaser or consumer.
international treatment by b. Backward when the
providing that the citizens or burden is transferred from
subjects of the contracting the consumer through the
nations may enjoy the privileges factors of distribution to the
accorded by either party to factors of production.
those of the most favored c. Onward when the tax is
nation. shifted two or more times
either forward or backward.
FORMS OF ESCAPE FROM
TAXATION (SC-TE2A) Capitalization
1. Shifting,
2. Capitalization, The reduction in the price of the
3. Transformation, taxed object equal to the
4. Tax Exemption, capitalized value of future taxes
5. Tax Avoidance and which the purchaser expects to
6. Tax Evasion. be called upon to pay. Example:
capital expenses incurred by
Shifting private educational institutions
for the expansion of school
The transfer of the burden of tax facilities (Sec. 34[A][2], NIRC).
by the original payer or the one
whom the tax was assessed. Transformation

Only INDIRECT Taxes may be The manufacturer or producer


shifted. They are those that are upon whom the tax has been
demanded in the first instance imposed, fearing the loss of his
from one person in the market if he should add the tax
expectation and intention that to the price, PAYS THE TAX
he can shift the burden to and endeavors to recoup
someone else, NOT AS TAX, himself by improving his
but as part of the purchase process of production, thereby
price. Examples of which are producing his units at a lower
VAT, excise, other percentage cost.
tax, documentary stamp tax.
Tax Exemption
DIRECT TAXES cannot be
shifted. They are those that are Grant of immunity, express or
exacted from the very person implied (or contractual) to
who, it is intended or desired, particular persons or
should pay them. corporations of a particular
class from a tax which persons
There are three kinds of shifting or corporations generally within
and they are as follows (FOB): the same state or taxing district
a. Forward the burden of tax are obliged to pay.
is transferred from a factor
of production through the

83

The inherent power of the state f. If there is an express mention or if


to impose tax naturally carries the taxpayer falls within the purview
with it the power to grant tax of the exemption by clear
exemption. legislative intent (CIR v. Amoldus
Carpentry)
Principle of Strictissimi Juris
KINDS OF TAX EXEMPTION (ICE)
Laws granting tax exemption are They are as follows:
construed in strictissimijuris against 1. Express those that are expressly
the tax payer. The law does not look granted by the Constitution,
with favor on tax exemptions; he who statutes, treaties, franchise, or
would seek to be thus privileged must similar legislative acts.
justify it by words too plain to be 2. Implied whenever particular
mistaken and too categorical to be persons, properties or excise are
misinterpreted (Land Service v. Court deemed exempt as they FALL
of Appeals) OUTSIDE the scope of the taxing
provision itself.
REASONS FOR APPLICATION IF 3. Contractual in consideration of a
THIS THEORY/ PRINCIPLE (LMR): contractual agreement with the
government.
1. Lifeblood theory,
2. To minimize differential treatment Revocation of Tax Exemptions
and to foster impartiality, fairness
and equality among taxpayers Since the GENERAL RULE is taxation
(Maceda v. Macaraig Case), and (and the exception is exemption), the
3. taxation is a high prerogative of exemption may thus be withdrawn at
sovereignty whose relinquishment the pleasure of the taxing authority
is never presumed (Luzon (MIAA v. Marcos Case)
Stevedoring v. CA).
BUT if it is from a binding contract for
EXCEPTIONS TO THE valuable consideration, the
APPLICATION OF THIS PRINCIPLE government cannot unilaterally revoke
(RPG-S2E): it.

a. When the statute granting Restrictions on Revocations (NAS)


exemption provided for liberal
construction thereof; a. Non-Impairment Clause where
b. In cases of special taxes relating the tax exemption was granted to
to special cases and affecting only private parties based on material
special classes of persons; consideration of a mutual nature, it
c. If exemptions refer to public then becomes contractual and is
property; covered by this clause in the
d. In cases of exemptions granted to Constitution.
religious, charitable abd b. Adherence to Form if the tax
educational institutions or their exemption is granted by the
property; Constitution, its revocation can be
e. In cases of tax exemptions in favor effected only by amending the
of the government, its political Constitution.
subdivisions or instrumentalities;

84

c. Special Law where it is in the COULD ONLY BE GRANTED


form of special law, it cannot be by Congress.
revoked by a general law.
c. Defense of Tax Amnesty, like
insanity, is a personal defense.
Tax Refunds It relates circumstances of a
particular accused.
In the nature of tax exemptions.
They are regarded as in Requisites of Tax Amnesty
derogation of sovereign
authority and to be construed in 1. Taxpayer must have voluntarily
strictissimi juris against the one disclosed his previously untaxed
claiming it. income and

Tax Amnesty 2. Must have paid the corresponding


tax thereon.
General or intentional
overlooking by the state of its Constructions of Tax Exemptions
authority to impose penalties on
persons otherwise guilty of Not presumed; when granted, strictly
evasion or violation of a construed against the grantee.
revenue or tax law;
Tax Avoidance
Partakes of an absolute
forgiveness, or waiver of Also known as tax minimization;
government of its right to It is the exploitation by the taxpayer
collect; of the legally permissible
alternative tax rates or methods of
To give tax evaders, who wish assessing taxable property or
to relent and willing to reform, a income, in order to avoid/reduce
chance to do so. tax liability;
Tax saving device within the means
Rules on Tax Amnesty sanctioned by law;
Should be used in good faith.
a. Tax Amnesty
1. Like tax exemption, it is never Tax Evasion
favored nor presumed;
2. Construed strictly against tax An illegal means of escaping
payer. taxation;
It connotes fraud through the
b. The government is not estopped use of pretenses and forbidden
from questioning the tax liability devices to lessen or defeat
even if amnesty tax payments were taxes;
already received. Hence, it subjects the taxpayer
There could be no tax amnesty to further civil or criminal
granted by the President, liabilities;
because the same is in the Also known as Tax Dodging;
nature of tax exemption WHICH

85

If the tax imposed is not of the same


Elements of Tax Evasion (SEC): kind or character, double taxation will
not be a defense. Double taxation
1. The End to be achieved, i.e. standing alone and not being forbidden
payment of less than that known to is not a valid defense against the
the taxpayer to be legally due, or legality of a tax measure. (Pepsi-Cola
paying no tax when it is shown that Bottling Company vs. Municipality
tax is due; of Tanauan, Leyte)
2. Accompanying State of mind,
which is described as being evil, in Q: Is there a violation of the
bad faith, willful, or deliberate and Constitution in case of double
not coincidental; and taxation?
3. A Course of action which is
unlawful. A: Constitutional limitations govern the
right to tax and it must be noted that
Proof of Tax Evasion these Constitutional provisions only
limit the governments pervasive power
1. Failure to declare for taxation to impose tax. There is no provision in
purposes true and actual income the Constitution specifically prohibiting
derived from business for two (2) double taxation (Justice Isagani Cruz
consecutive years; Constitutional Law 2007 P. 91)
2. Substantial under declaration of
income in the tax returns of the tax However despite the lack of a specific
payer for four (4) consecutive years prohibition double taxation will not be
coupled with overstated allowed when it violates the equal
deductions. protection clause. Case in point:
Punzalan v. Municipal Board of Manila

CLASS RECITATION WITH The petitioners in the said case


SUGGESTED ANSWERS averred that they are being
discriminated upon by being subjected
Q: What if properties in the same to an additional tax for practicing their
territory have been taxed twice, for profession in Manila when
the same purpose, and the same professionals practicing elsewhere
year? were not subjected to the same
imposition. It was ruled that there
A: In order for double taxation to exists substantial distinction between
become a valid defense against a tax them and those professionals
imposition of the government, the practicing outside Manila.
same subject must be taxed twice in
such a way that both taxes are Q: Will there be a violation of the
imposed for due process clause in case of
1. the same purpose double taxation?
2. by the same taxing authority
3. within the same jurisdiction A: The due process clause of our
4. for the same taxable period and Constitution serves as a limitation on
5. for the same kind and character of the governments power to tax.
tax Applying this limitation on the subject
of double taxation, we can argue that if

86

the act of imposing a second tax would Used for religious, charitable, or
be of such nature that it is educational purposes.
confiscatory, then the second tax will
be invalid.

However, we must also note that the


power to tax may involve the power to Analysis of the exemption
destroy. The government may opt to The true test is USAGE. Regardless
resort to tax measures (in this case of ownership, if the property is not
taxing the same subject twice or more) being used for religious, charitable, or
in order to destroy the subject which educational purposes; the property
the government sees as noxious. shall not be exempt
Exemption from this kind of taxation
Q: What if there is an ordinance does not import the idea that the
asking for taxes for the third time? subject property shall be exempt from
every kind of tax.
A: Double taxation standing alone and Case in point: Lladoc vs
not being forbidden is not a valid Commissioner
defense against the legality of a tax A gift tax being an excise tax cannot
measure. (Pepsi-Cola Bottling be the tax contemplated by Sec. 28
Company vs. Municipality of (3), Art. III, 1987 Consitution. A gift tax
Tanauan, Leyte) is not a property tax, rather it is an
excise tax)
Hence it follows that no matter how The word exclusive means primarily.
many times the government subjects a Case in point: Hospital de San Juan
property to a tax, the taxpayer may not de Dios v. Pasay City
impugn the validity of a tax measure The admission of pay patients does
unless it constitutes a Direct Duplicate not detract from the charitable
Taxation character of a hospital. As long as all
of its funds are devoted to the
Q: What are the different kinds of maintenance of the institution as a
tax exemptions? public charity, the property would still
1. Constitutional be exempt from property tax.
2. Statutory Exemption extends to facilities which
3. Express are incidental and reasonably
4. Implied necessary for the accomplishment of
Example of a Constitutional Tax its religious, charitable, or educational
Exemption: purposes.
Tax exemption of properties for
religious, charitable, and educational Q: What is tax evasion? What is tax
purposes avoidance? Are they the same?
(Sec. 28 (3), Art. III, 1987
Constitution) A: Tax evasion and tax avoidance are
the two most common ways by which
NOTES: We should always remember a taxpayer escapes/lessens his tax
that the property must be; liabilities. The important distinguishing
1. Actually factor between the two is the legality of
2. Directly and the act. Tax avoidance is the tax
3. Exclusively saving device within the means

87

sanctioned by law. This method should legislative enactment for its


be used by the taxpayer in good faith government to enforce tax liabilities. In
and at arms length. our jurisdiction, it must be noted that
the Constitutional provisions regarding
Tax evasion on the other hand is a the power to tax are just mere
scheme used outside of the lawful limitations on the power. There is no
means and when availed of it subjects Constitutional provision that expressly
the taxpayer to further or additional states that the government is (hereby)
civil or criminal liabilities. Tax evasion granted the power to enforce payment
connotes the integration of three from its citizens.
factors;
1. The end to be achieved Therefore, since it can be said that the
2. An accompanying state of mind power to tax is the rule, the taxpayer
described as being evil, in bad must thereby point to a specific law
faith, willful, or deliberate which limits the pervasive power of the
3. A course of action or failure of a government. Otherwise, he is
course of action which is unlawful presumed to be liable to pay the tax
assessed against him.
Q: What are the other forms of
avoidance from taxation? Q: How do we construe a law
granting tax exemption?
1. Shifting the transfer of the tax
burden by the original payer to A: Tax laws granting tax exemption are
someone else. What is being to be construed strictly against the
transferred is not the payment, taxpayer. The taxpayer must point out
rather it is the burden of the tax. a clear and express provision of a
2. Capitalization reduction in the statute which grants him the
price of the taxed object equal to exemption from any kind of taxation.
the capitalized value of future taxes
3. Transformation this is achieved Case in point: Commissioner Of
by improving the method of Internal Revenue V. CA Issue:
production and cutting down on whether containers and packaging
other production cost materials can be credited against the
millers tax deficiency
Note:
Another method allowed by law to Ruled: No. The law speaks only strictly
reduce a taxpayers liability is the proof of raw material, containers and
of tax exemption of the taxpayer. packaging materials are not raw
However in order to avail of this, the materials.
taxpayer must point out to a specific
law which expressly grants him the Q: What are the exceptions to the
exemption from taxation. rule that statutes granting tax
exemption are construed strictly
Q: Why is tax exemption highly against the grantee?
disfavored?
1. When the law itself provides for a
A: It is to be noted that the power to liberal interpretation
tax is an inherent right of sovereignty. 2. In case of exemption granted under
Hence there is no need for any special circumstances

88

3. Exemptions in favor of the of the Freeport, of all types of used


government, its political motor vehicles is prohibited, except
subdivisions or instrumentalities xxx" Southwing Heavy Industries, Inc.,
4. Exemptions granted to traditionally an entity classified as a Subic Bay
exempted taxpayers Freeport Enterprise and engaged in
5. When the exemption refers to a the business of, among others,
public property importing and/or trading used motor
vehicles,' sought declaratory relief
Q: Who signs tax treaties? before for the unconstitutionality of the
above-cited Section mainly contending
A: The power to sign negotiate treaties that the importation ban is illogical and
with other states is vested in the unfair because it unreasonably drives
President of the Philippines. However, them out of business to the prejudice
pursuant to the 1987 Constitution, in of the national economy. The
order to be valid and effective the Government contends that the
treaty must be concurred by at least application of EO 156 should be
two-thirds of all the members of the extended to the Freeport because the
Senate. guarantee of RA 7227 on the free flow
of goods into the Freeport Zone is
As head of the State, the President is merely an exemption from customs
supposed to be the spokesperson of duties and taxes on items brought into
the nation on external affairs. In this the Freeport and not an open
capacity, he may deal with foreign floodgate for all kinds of goods and
states and governments, extend or materials without restriction.
withhold recognition, maintain
diplomatic relations, enter into treaties, ISSUE:
and otherwise transact business of Whether or not the prohibition may be
foreign relations. (Justice Isagani Cruz, applied to entities operating in the
Philippine Political Law 2002 Edition p. Freeport Zone
239)
HELD:
CASE DIGESTS No. RA 7227 was enacted providing
for, among other things, (1) the sound
1. HON. EXECUTIVE SECRETARY, and balanced conversion of the Clark
ET AL. v. SOUTHWING HEAVY and Subic military reservations and
INDUSTRIES, INC., ET AL. their extensions into alternative
productive uses in the form of Special
FACTS: Economic and Freeport Zone, or the
On December 12, 2002, President Subic Bay Freeport, (2) in order to
Gloria Macapagal-Arroyo, through promote the economic and social
Executive Secretary Alberto G. development of Central Luzon in
Romulo, issued EO156, entitled particular and the country in general.
"Providing for a comprehensive The Rules and Regulations
industrial policy and directions for the Implementing RA 7227 specifically
motor vehicle development program defines the territory comprising the
and its implementing guidelines." The Subic Bay Freeport, referred to as the
challenged provision states, among Special Economic and Freeport Zone
others, "Article 2, Section 3.1. The in Section 12 of RA 7227 as a
importation into the country, inclusive separate customs territory xxx.

89

Mindful of the legislative intent to


attract investors, enhance investment The all encompassing application of
and boost the economy, the legislature the assailed provision to the Freeport
could not have limited the enticement which is outside the customs territory
only to exemption from taxes. The is illogical. As long as the used motor
minimum interference policy of the vehicles do not enter the customs
government on the Freeport extends to territory, the injury or harm sought to
the kind of business that investors may be prevented or remedied will not
embark on and the articles, which they arise. To apply the proscription to the
may import or export into and out of Freeport would not serve the purpose
the zone. A contrary interpretation of the EO. Instead of improving the
would defeat the very purpose of the general economy of the country, the
Freeport and drive away investors. It application of the importation ban in
does not mean, however, that the right the Freeport would subvert the avowed
of Freeport enterprises to import all purpose of RA 7227 which is to create
types of goods and article is absolute. a market that would draw investors
Such right is of course subject to the and ultimately boost the national
limitation that articles absolutely economy. As to the constitutionality of
prohibited by law cannot be imported the assailed provision, said provision is
into the Freeport. Nevertheless, in declared VALID insofar as it applies to
determining whether the prohibition the Philippine territory outside the
would apply to the Freeport, resort to presently fenced-in former Subic Naval
the purpose of the prohibition is Base area and VOID with respect to its
necessary. The President issued EO application to the secured fenced-in
156 to prevent further erosion of the former Subic Naval Base area.
already depressed market base of the
local motor vehicle industry and to 2. JOHN HAY PEOPLES
curtail the harmful effects of the ALTERNATIVE COALITION vs. LIM
increase in the importation of used
motor vehicles. The subject matter of FACTS:
the laws authorizing the President to RA 7227 or the Bases Conversion and
regulate or forbid importation of used Development Act of 1992, set out the
motor vehicles, is the domestic policy of the govt to accelerate the
industry. EO 156, however, exceeded sound and balance conversion into
the scope of its application by alternative prouctive uses of bases. It
extending the prohibition on the granted Subic SEZ incentives ranging
importation of used cars to the from tax and duty-free importations
Freeport, which RA 7227, considers to and exemptions of business therein
some extent, a foreign territory. The from local and national taxes. It also
domestic industry which the EO seeks expressly gave authority to the
to protect is actually the customs President to create other SEZ
territory which is defined under the including Clark military reservation, the
Rules and Regulations Implementing Wallace Air Station in SF, La Union,
RA 7227, as the portion of the and Camp John Hay. through
Philippines outside the Subic Bay executive proclamations subject to
Freeport where the Tariff and Customs concurrence of the local govt directly
Code of the Philippines and other affected. BCDA, TUNEX and
national tariff and customs laws are in ASIAWORLD executed a JVA to put
force and effect. up a JV company which would lease

90

areas within Camp John Hay and Poro granting tax exemption must have the
Point for purposes of turning those concurrence of a majority of all the
places into principal tourist and members of Congress. Tax
recreation spots. President Ramos exemptions cannot be implied as it
issued Proclamation No. 420 which must be categorically and
established a SEZ on 288.1 hectares unmistakeably expressed.
of CJH. Under Section 3 of said act,
CJH was given all the applicable 3. DELPHER TRADES
incentives of the SEZ under Section 12 CORPORATION v. IAC
of RA 7227 and those applicable
incentives granted to the Export FACTS:
Processing Zones, the Omnibus Petitioner Delpher Trades Corp. and
Investment Code of 1987, the Foreign Delphin Pacheco were the owners of
Investment Act of 1991, and the new the Malinta Estate in the Municipality
investment laws that may hereinafter of Polo, who leased to Construction
be enacted. RESPONDENTS contend Components International Inc. the
that by extending the CJH SEZ same property and providing that
economic incentives similar to those during the existence or after the term
enjoyed by SUBIC SEZ, the of this lease the lessor should he
proclamation is merely implementing decide to sell the property leased shall
the legislative intent of said law and first offer the same to the lessee and
underscore that the govt s policy of the letter has the priority to buy under
bases conversion cannot be achieved similar conditions. Respondent Hydro
without extending the same tax Pipes on the other hand, was assigned
exemptions granted. with the rights and obligations of
Construction Components under the
ISSUE: above lease contract with the signed
Whether the grant of exemption to conformity and consent of lessors
CHJ SEZ is valid Delfin and Pelagia. Delpher Trades
acquired the property from Pelagia
HELD: Pacheco and Delphin Pacheco (a
While the grant of economic incentives deed of exchange was executed
may be essential to the creation and between lessors Delfin and Pelagia
success of SEZs, the grant thereof to Pacheco and defendant Delpher
CHJ SEZ cannot be sustained. The Trades Corporation whereby the
incentives under RA 7227 are former conveyed to the latter the
exclusive only to the SUBIC SEZ.It is leased property together with another
the legislature, unless limited by a parcel of land also located in Malinta
provision in the Constitution, that has Estate for 2,500 shares of stock of
full power to exempt any person or defendant corporation with a total
corporation or a class of property from value of P1,500,000.00). Respondent
taxation, its power to exempt being as however filed an amended complaint
broad as its power to tax. Other than for reconveyance in its favor on the
Congress, the Constitution may itself ground that it was not given the first
provide for specific tax exemptions, or option to buy the leased property
local govt may pass ordinances on pursuant to the proviso in the lease
exemption only from local taxes. The agreement.
challenged grant would circumvent the
Constitutions imposition that a law ISSUE:

91

Whether the "Deed of Exchange" of insurance coverage upon the


the properties executed by the attainment of a certain age by the
Pachecos on the one hand and the insured w/o the need of issuing a new
Delpher Trades Corporation on the policy. The clause was to take effect in
other was meant to be a contract of 1984. Subsequently, petitioner CIR
sale issued deficiency documentary stamps
tax assessment for 1984,
HELD: corresponding to the (a) amount of
No the Deed of Exchange was not automatic increase of the sum assured
meant to be a contract of sale. As on the policy issued by Lincoln and (b)
explained by Eduardo Neria, a CPA the amount corresponding to the book
and son-in-law of the late Pelagia value in excess of the par value of the
Pacheco who testified that Delpher stock dividends. CIR argues that the
Trades Corp. is a family corporation automatic increase clause in the
[organized by the children of the two subject insurance policy is separate
spouses (spouses Pelagia Pacheco and distinct from the main agreement
and Benjamin Hernandez and spouses and involves another transaction; and
Delfin Pacheco and Pilar Angeles) who that while no new policy was issued,
owned in common the parcel of land the original policy was essentially re-
leased to Hydro Pipes Philippines in issued when additional obligation was
order to perpetuate their control over assumed upon the effectivity of the
the property through the corporation automatic increase clause in 1984.
and to avoid taxes then used the said Hence, a deficiency assessment
Deed of Exchange. As stated in based on the additional insurance not
Section 35 of the National Internal covered in the main policy is in order.
Revenue Code under par. C-sub-par.
(2) Exceptions regarding the provision: ISSUE:
"No gain or loss shall also be Whether Lincoln should be made liable
recognized if a person exchanges his to pay for the assessed tax
property for stock in a corporation of deficiencies
which as a result of such exchange
said person alone or together with HELD:
others not exceeding four persons Although the automatic increase was
gains control of said corporation." to take effect later on, the date of its
effectivity as well as the amount was
4. COMMISSIONER OF INTERNAL already definite at the time of the
REVENUE v. LINCOLN issuance of the policy. THUS, the
PHILIPPINE LIFE INSURANCE amount insured by the policy at the
time of issuance necessarily included
FACTS: the additional sum covered by the
Lincoln Philippine Life Insurance Co. is automatic increase clause because it
a domestic corp. engaged in life was already determinable at the time
insurance business. In the years prior the transaction was entered into and
to 1984, Lincoln issued a special kind formed part of the policy. The clause is
of life insurance policy known as the in the nature of a conditional
JUNIOR ESTATE BUILDER POLICY, obligation, by which the increase of the
the distinguishing feature of which is a insurance coverage shall depend upon
clause which provides for an automatic the happening of the event constituting
increase in the amount of life the obligation. In the instant case, the

92

additional insurance that took effect in deficiency income tax for the year
1984 was an obligation subject to a 1989 in the amount of 79,099,999.22.
suspensive condition, but still a part of The new CIC asked for
the insurance sold to which Lincoln reconsideration, asserting that the
was liable for the payment of the assessment should be directed against
documentary stamp tax. the old CIC and not against the new
CIC which is owned by an entirely
While tax avoidance schemes and different set of stockholders; moreover
arrangements are not prohibited, tax Toda had undertaken to hold the buyer
laws cannot be circumvented in order free from all tax liabilities for the fiscal
to evade the payment of just taxes. In years 1987-1989.
the case at bar, to claim that the
increase in the amount insured by On 27 January 1995, the estate of
virtue of the automatic increase clause Benigno P. Toda received an
should not be included in the assessment notice dated 9 January
computation of the DST dues on the 1995 form the CIR. The estate
policy would be a clear evasion of the thereafter filed a letter of protest which
law requiring that the tax can be was dismissed by the CIR, stating that
computed on the basis of the amount Toda by covering up the additional
insured by the policy. gain of 100 million, which resulted in
the change of income structure of the
5. CIR VS. ESTATE OF BENIGNO proceeds of the sale of the two parcels
TODA of land and the building thereon to an
individual capital gains tax, thus
FACTS: evading the higher corporate income
On March 2, 1989 CIC authorized tax rate of 35%.
Benigno P. Toda, Jr. President and
owner of 99.991% of its issued and ISSUE:
outstanding capital stock, to sell the Whether or not there was tax evasion
building and the two parcels of land for
an amount not less than 90 million. On HELD:
30 August 1989, Toda purportedly sold Yes. Tax avoidance and Tax evasion
the property for 100 million to Rafael are the two most common ways used
A. Altonga, who in turn sold the same by taxpayers in escaping from
property on the same day to Royal taxation. Tax avoidance is the tax
Match Inc. for 200 million. For the sale saving device within the means
of the property to RMI altonga paid sanctioned by law. Tax evasion on the
capital gains tax of 10 million. other hand is a scheme used outside
those lawful means and when availed
On April 16, 1990 CIC filed its of, it usually subjects the taxpayer to
corporate annual income tax return of further or additional civil or criminal
the year 1989, declaring among other liabilities.
things its gain form the sale of real
property in the amount of 75,728.021. Tax evasion connotes the integration
On July 20 1990, Toda sold his entire of three factors (1) the end to be
shares of stocks in CIC to Le Hun T. achieved (2) an accompanying state of
Choa for 12.5 million. On 29 March mind which is described as being evil,
1994, the BIR sent an assessment in bad faith, willful, deliberate and not
notice and demand letter to the CIC of

93

accidental (3) a course of action or (Public Telecoms Act) whose Section


failure of action which is unlawful. 23 declares that any existing privilege,
incentive, advantage, or exemption
All these factors are present in the granted under existing franchises shall
instant case. The scheme resorted to ipso facto become part of previously
by CIC in making it appear that there granted-telecommunications franchise.
were two sales of the subject SMART contends that by virtue of
properties, from CIC to Altonaga, and Section 23, tax exemptions granted by
then from ALtonaga to RMI cannot be the legislature to other holders of
considered legitimate tax planning. telecommunications franchise may be
Fraud in its general sense, is deemed extended to and availed of by SMART.
to compromise anything calculated
and concealment involving a breach of The petitioner posits that SMARTs
legal or equitable duty, trust or claim for exemption under its franchise
confidence justly reposed, resulting in is not equivocal enough to prevail over
the damage to another, or by which an the specific grant of power to local
undue and unconscionable advantage government units to exact taxes from
is taken of another. In a nut shell the businesses operating within its
intermediary transaction, the sale of territorial jurisdiction under Section 137
altonaga, which was prompted more in relation to Section 151 of the LGC.
on the mitigation of tax liabilities thatn
for legitimate business purposes ISSUE:
constitutes one of tax evasion. Whether SMART is exempt from the
payment of local franchise and
6. THE CITY OF ILOILO v. SMART business taxes under Section 9 of its
COMMUNICATIONS, INC. (SMART) franchise and Section 23 of the Public
Telecoms Act.
FACTS:
SMART received a letter of HELD:
assessment dated February 12, 2002 The basic principle in the construction
from petitioner requiring it to pay of laws granting tax exemptions is he
deficiency local franchise and business who claims an exemption from his
taxes, in the amount of P764,545.29, share of the common burden of
which it incurred for the years 1997 to taxation must justify his claim by
2001. SMART protested the showing that the Legislature intended
assessment, claiming exemption from to exempt him by words too plain to be
payment of local franchise and beyond doubt or mistake.
business taxes based on Section 9 of
its legislative franchise under Republic The court fail to find a categorical and
Act (R.A.) No. 7294 (SMARTs encompassing grant of tax exemption
franchise). Under SMARTs franchise, to SMART covering exemption from
it was required to pay a franchise tax both national and local taxes since
equivalent to 3% of all gross receipts, R.A. No 7294 does not expressly
which amount shall be in lieu of all provide what kind of taxes SMART is
taxes. SMART contends that the in exempted from. It is not clear whether
lieu of all taxes clause covers local the in lieu of all taxes provision in the
franchise and business taxes. SMART franchise of SMART would include
similarly invoked R.A. No. 7925 or the exemption from local or national
Public Telecommunications Policy Act taxation. What is clear is that SMART

94

shall pay franchise tax equivalent to Code. The provision exempts from real
three percent (3%) of all gross receipts property tax all machineries and
of the business transacted under its equipment that are actually, directly,
franchise. But whether the franchise and exclusively used by the local water
tax exemption would include districts and GOCCs engaged in the
exemption from exactions by both the supply and distribution of water or
local and the national government is generation of electric power.
not unequivocal.
The LBAA denied the petition for
The uncertainty in the in lieu of all exemption.
taxes clause in R.A. No. 7294 on
whether SMART is exempted from ISSUE:
both local and national franchise tax Whether the machineries and
must be construed strictly against equipment are exempted from real
SMART which claims the exemption. property tax
SMARTs claim for exemption from
local business and franchise taxes HELD:
based on Section 9 of its franchise is Sec. 234(c) of the LGC is clear and
therefore unfounded. unambiguous. It grants tax exemption
to machineries and equipment that are
7. NAPOCOR v. CENTRAL BOARD actually, directly, and exclusively used
OF ASSESSMENT APPEALS by GOCCs. NAPOCOR is not the one
(CBAA) actually and directly using the
machines but BPPC. Further, applying
FACTS: the strictissimi juris standard,
First Private Power Corporation NAPOCOR failed to prove its claim for
(FPPC) entered into a BOT agreement exemption. Strictissimi juris provides
with NAPOCOR for the construction of that the claimant must show beyond
the 215 Megawatt Bauang Diesel doubt with clear and convincing
Power Plant in Payocpoc, Bauang, La evidence, the factual basis of the
Union. The agreement provided for the claim. The terms of the BOT provides
creation of the Bauang Private Power that actual, direct, and immediate
Plant Corporation (BPPC), which will ownership of the machineries lies with
own, manage, and operate the power BPPC while that of NAPOCOR is only
plant. BPPC will convert NAPOCORs contingent and not sufficient to support
supplied diesel fuel into electricity for a its claim for exemption. Hence, the
fee. BPPCs machineries were machineries and equipment are not tax
declared tax exempt by the Municipal exempt.
Assessors Office. This tax exemption
was questioned by Bauangs Vice
Mayor. The Deputy Executive Director
of the Department of Finance declared
that the machineries and equipment
are subject to real property tax.
Thereafter, a Notice of Assessment
was given to BPPC. NAPOCOR filed a
petition with the La Union Board of
Assessment Appeals (LBAA) invoking
Sec. 234(c) of the Local Government

95

LOCAL GOVERNMENT TAXATION GRANT OF LOCAL TAXING


AUTHORITY UNDER EXISITING
(SEC. 128-196, RA 7160) LAW
Each local government unit shall have
the power: Power to create sources of
revenue- Each local government
1. To create its own source of unit shall exercise its power to
revenue and; create its own sources of revenue
and to levy taxes, fees, and
2. To levy taxes, fees and charges subject to the provisions
charges herein, consistent with the basic
a. Subject to such policy of local autonomy. Such
guidelines and taxes, fees, and charges shall
limitations as the accrue exclusively to the local
Congress may government units (Sec 129, RA
provide 7160)
b. Consistent with the
basic policy of local LGUs also have the power to:
autonomy
c. Such taxes, fees and 1. Prescribe penalties for
charges shall accrue tax violations (Sec. 516,
exclusively to the RA 7160)
local government 2. Grant local tax
(Sec 5, Art. X of the exemptions (Sec. 192,
Constitution) RA 7160)
3. Adjust local tax rates
The power to tax by the local (Sec. 191, RA 7160)
governments is no longer
merely by nature of valid DUAL STATUS OF LOCAL
delegation as before but GOVERNMENTS
pursuant to direct authority
conferred by the Constitution. 1. In their public or
governmental aspect - They
Where there is neither a grant are agents of the state and for
nor a prohibition by statute, tax that purpose exercise by
power is deemed to exist delegation a part of the
although Congress may provide sovereignty of the state such as
statutory limitations and in the imposition and collection
guidelines. The rationale behind of taxes, preservation of peace
this rule is to safeguard the and order, and establishment of
viability and self-sufficiency of schools.
local government units.
2. In their private or corporate
aspect They are mere legal
entities performing functions not
strictly governmental. They act
for their own purpose and not
as subdivisions of the state.

96

NATURE OF TAXING POWER 5. Each LGU shall evolve a


progressive system of
Not inherent Unlike a sovereign taxation.
state, municipal corporations have no
inherent power to tax. Being mere COMMON REVENUE RAISING
creatures of law, they may exercise POWERS
the power only if delegated to them by
the national legislature or conferred by 1. Local government units may
the Constitution itself. impose and collect such
reasonable fees and charges
Limitations of local tax power (SEC. for services rendered. (Sec.
5, RA 7160) 153, RA 7160)
a. In reference to Section
1. The taxpayer will not be 131: "Charges" refers to
over-burdened with pecuniary liability, as
unreasonable impositions. rents or fees against
persons or property;
2. Local taxation is to be "Fee" means a charge
uniform and just. fixed by law or ordinance
for the regulation or
3. Each LGU will have its fair inspection of a business
share of available resources. or activity

FUNDAMENTAL PRINCIPLES 2. Local government units may fix


(SEC. 130, RA 7160) the rates for the operation of
public utilities owned, operated
1. Taxation shall be uniform in and maintained by them within
each LGU. their jurisdiction. (Sec. 154, RA
2. Taxes, fees, charges and 7160)
other impositions shall be:
a. Equitable and based 3. The sanggunian concerned
on taxpayers ability may prescribe the terms and
to pay. conditions and fix the rates for
b. For public purpose. the imposition of toll fees or
c. Not unjust, excessive, charges for the use of any
oppressive or public road, pier, or wharf,
confiscatory. waterway, bridge, ferry or
d. Not contrary to law, telecommunication system
public policy, national funded and constructed by the
economic policy, or in local government unit
restraint of trade. concerned: Provided, That no
3. Not let to any private person such toll fees or charges shall
4. Inure solely to the local be collected from officers and
government levying except: enlisted men of the Armed
a. Tax on Sand, Gravel, Forces of the Philippines and
Quarry members of the Philippine
b. Amusement Tax National Police on mission,
c. Community Tax post office personnel delivering

97

mail, physically-handicapped, through the territorial jurisdiction


and disabled citizens who are of LGUs in the guise of charges
sixty-five (65) years or older. for wharfage, tolls for bridges or
(Sec. 155, RA 7160) other taxes, fees, or charges in
any form whatever upon such
goods or merchandise.
COMMON LIMITATIONS ON THE 10. Taxes, fees, or charges on
TAXING POWER OF THE LGU agricultural and aquatic
(SEC. 133, RA 7160) products when sold by marginal
farmers or fishermen.
Exercise of the taxing power of 11. Taxes on business enterprises
provinces, cities, municipalities, and certified by the Board of
barangays shall not extend to the levy Investments as pioneer or non-
of the following: pioneer who enjoy tax holidays
1. Income tax for a period of 6 and 4 years
2. Documentary stamp tax respectively.
3. Tax on estates, inheritance, 12. Taxes on premiums paid by
gifts, legacies and other way of reinsurance or
acquisitions mortis causa retrocession.
4. Excise taxes on Alcoholic, 13. Taxes, fees, or other charges
Tobacco, Petroleum, on Philippine products actually
Miscellaneous and Mineral exported.
products. 14. Taxes, fees, or charges on
5. Taxes, fees or charges on countryside and barangay
petroleum products business enterprises and
6. Percentage or VAT on sales, cooperatives duly registered
barters, or exchanges or similar under RA 6810 and RA 6938.
transactions on goods or 15. Taxes, fees or charges of any
services exchanges or similar kind on the National
transactions on goods or Government, its agencies and
services exchanges or similar instrumentalities, and LGUs.
transactions on goods or 16. Taxes, fees or charges for
services except as otherwise registration of motor vehicles
provided herein. and for the issuance of all kinds
7. Taxes on the gross receipts of of licenses or permits for
transportation of contractors driving.
and persons engaged in the 17. Taxes, fees and charges
transportation of passengers or imposed under the Tariff and
freight by hire and common Customs Code and other
carriers by air, land or water special laws.
except as provided by the code. 18. Taxes, fees and charges and
8. Custom duties, registration fees other impositions which
of vessels and wharfage on contravene existing government
wharves, tonnage dues and all policies or which are violative of
other kinds of custom fees, the Fundamental Principles of
charges and dues. Taxation.
9. Taxes, fees and charges and
other impositions upon goods
carried into or out of, or passing

98

receipts, pamphlets, and


TAXING AND OTHER REVENUE- other similar in nature.
RAISING POWERS OF PROVINCES b. The tax rate is not
AND CITIES exceeding 50% of 1% of
the gross annual receipts
Scope of Power for the preceding
calendar year.
1. Tax on the transfer of real c. For newly started
property ownership. (Sec. 135, business, the tax rate
RA 7160) shall not exceed 1/20 of
1% of the capital
a. Refers only to lands, investment. In the
improvements, buildings succeeding calendar
and machineries year, regardless of when
intended by the owner for the business started to
an industry or works operate, the tax shall be
which may be carried on based on the gross
in a building or on a receipts for the preceding
piece of land and which calendar year, or any
tend directly to meet the fraction thereof, as
needs of the industry or provided herein.
works. d. The receipts from the
b. Only transactions of sale, printing and/or publishing
barter or any other of books or other reading
modes of transferring materials prescribed by
ownership are taxed. DEPED as school text or
c. The tax rate is not more references are
than 50% of 1% of the exempted.
total consideration
involved or the FMV, 3. Franchise Tax (Sec. 137, RA
whichever is higher. 7160)
d. Lands sold, transferred
or disposed under CARL a. Franchise a privilege,
are exempted. affected with public
e. Tax shall be paid within interest which is
60 days from date of conferred upon private
execution of the deed or persons or corporations,
date of decedents death. under such terms and
conditions as the
2. Tax on the business of printing government and its
and publication (Sec. 136, RA political subdivisions may
7160) impose in the interest of
public welfare, security
a. Transaction taxed is the and safety.
business of printing and b. The tax rate shall not
publication of books, exceed 50% of 1% of
cards, posters, leaflets, gross receipts. If a newly
handbills, certificates, started business, 1/20 of

99

1% of the capital Professional basketball games


investment. are not subject to amusement
tax. (PBA v. CA, digest found at
4. Tax on sand, gravel and quarry end of the chapter)
resources (Sec. 138, RA 7160) Amusement taxes under the
NIRC, which cannot be imposed
a. The subjects of tax are by the province or the city,
ordinary stones, sand, include taxes collected from the
gravel, earth, and other proprietor, lessee or operator of
quarry resources cockpits, cabarets, night or day
extracted from public clubs, boxing exhibitions,
lands or from the beds of professional basketball games,
seas, lakes, rivers, Jai-Alai and racetracks. (Sec.
streams, creeks or other 125, NIRC).
public waters.
b. The tax rate shall not be 7. Annual fixed tax per delivery
more than 10% of FMV truck or van manufacturers or
per cubic meter. producers and wholesalers of
c. Distribution of the dealers or retailers in certain
proceeds shall be 30% products (Sec. 141, RA 7160)
province, 30% city
municipality where the TAXING AND OTHER REVENUE-
earth is extracted and RAISING POWERS OF
40% to the barangay MUNICIPALITIES
where the earth is
extracted. Municipal taxes Municipalities may
impose taxes on the following
5. Professional tax (Sec. 139, RA business (Sec. 143, RA 7160)
7160)
1. On manufacturers, assemblers,
a. The tax rate shall be at repackers, processors, brewers,
such annual amount and distillers, rectifiers, and
reasonable classification compounders of liquors, distilled
as the Sanggunian may spirits and wines or
determine which in no manufacturers of any articles of
case exceed P300. commerce of whatever kind or
b. The tax shall only apply nature.
to natural or physical
persons. a. The tax rate shall be at
c. The tax shall be paid graduated annual fixed
annually on or before rate based on gross
Jan. 31 sales or receipts for the
d. The tax shall be paid on preceding calendar year
the place where you in an amount not to
practice your profession. exceed P6.5M or more, a
rate not exceeding 37.5
6. Amusement tax (Sec. 140, RA of 1% imposed.
7160)
Notes:

100

2. Wholesalers, distributors or a. The tax rate shall not


dealers in any article of exceed 50pesos per
commerce. peddler annually.

a. The tax rate shall be a 8. Any business not otherwise


graduated annual fixed specified
rate based on gross
sales or receipts not a. As the sanggunian may
exceeding P2M or more, deem proper.
the rate not exceeding
50% of 1%. RULES ON PAYMENT OF
BUSINESS TAXES
3. Exporters, manufacturers, (SEC. 146, RA 7160)
millers, producers of essential
commodities. The taxes imposed under
Section 143 shall be payable for
a. The tax rate shall not every separate or distinct
exceed of the rate establishment or place where
prescribed in 1 and 2. business subject to the tax is
conducted.
4. Retailers
The tax on business must be
a. The rate shall be at an paid by the person conducting
annual tax of 2% on the same.
gross sales or receipts
totalling P400,000 2 or more business subject to
the same tax rate and operated
5. Contractors and other by same person combined
independent contractors total gross sales or receipts of
the said 2 or more related
a. The tax rate shall be a businesses.
graduated annual fixed
rate when the gross 2 or more business with
receipts exceed P2M, the different tax rates operated by
rate is not to exceed 50% same person gross sales and
of 1%. receipts shall be separately
reported.
6. Banks and other financial
institutions Rates of tax within Metro Manila
area shall not exceed 50% the
a. The tax rate shall not maximum rates prescribed in
exceed 50% of 1% on Sec. 143.
the gross receipts of
preceding calendar year. SITUS OF LOCAL BUSINESS TAX
7. Peddlers 1. Sales of branch or sales office
Recorded at branch or sales
office. No allocation.

101

2. Sales with no branch or sales 3. Barangay clearance No


office Recorded at principal city/municipality may issue any
office. No allocation. license/permit for any
3. With plantation and factory in business/activity is located. For
the sale location Allocation to such clearance, the
principal office 30% and sangguniang brgy. may impose
allocation to plantation and reasonable fees.
factory 70% 4. Other fees and charges may
4. Plantation and factory in levy reasonable fees and
different location 30% to charges:
principal office while 60% of a. On commercial breeding
70% to factory and 40% of 70% of fighting cocks and
to plantation. cockpit.
b. On places of recreation
TAXING AND OTHER REVENUE- which charge admission
RAISING POWERS OF CITIES fees.
c. On billboards, sign
Scope of Power Cities are boards, neon signs and
authorized specifically to impose outdoor advertisement.
taxes, fees and charges that provinces
and municipalities may levy (Sec. 151,
RA 7160) The tax rate may be above MISCELLANEOUS RULES
the maximum established for
provinces and municipalities but not A revenue measure may only
exceeding 50% of such maximum be imposed through an
rates. appropriate ordinance and
require prior public hearing.
TAXING AND OTHER REVENUE-
RAISING POWERS OF BARANGAYS LGUs have the power to adjust
taxes subject to a limit of once
Scope of Power The barangay may every 5 years and shall not
levy taxes, fees and charges which exceed 10% of that fixed by RA
shall accrue exclusively to them: 7160.

1. Taxes on retailers or stores The interpretation of laws


with the fixed establishments granting tax powers to LGU is to
with the gross sales or receipts be liberally construed but
of the preceding calendar year doubts on the liability of
of P50,000 or less in the cities taxpayer shall be construed
and P30,000 in municipalities. strictly against the LGU.
a. The rate shall not exceed
1% on such gross sales COMMUNITY TAX
and receipts.
2. Service fees/charges It may A tax imposed upon certain
collect reasonable fees or inhabitants of the Philippines
charges for services rendered in without regard to the property or
connection with the regulation occupation in which they are
or the use of barangay owned engaged.
property or facility.

102

Cities may levy a community tax Five hundred pesos (P500.00)


as well as the rates and accrual and an annual additional tax,
of proceeds thereof. which, in no case, shall exceed
Ten thousand pesos
The place of payment is the (P10,000.00). (Sec. 158, RA
place of residence of the 7160)
individual or in the place where
the principal office of the EXEMPTIONS FROM COMMUNITY
juridical entity is located. TAX

Time of payment shall be on Diplomatic and consular


January 1 of each year representatives; and transient
visitors when their stay in the
WHO ARE LIABLE FOR Philippines does not exceed
COMMUNITY TAX three (3) months. Are exempt
from community tax. (Sec. 159,
Every inhabitant of the RA 7160)
Philippines eighteen (18) years
of age or over who has been COLLECTION OF TAXES
regularly employed on a wage
or salary basis for at least thirty ALL local taxes, fees and
(30) consecutive working days charges shall be the calendar
during any calendar year, or year. Such taxes, fees and
who is engaged in business or charges may be paid in
occupation, or who owns real quarterly installments. (Sec.
property with an aggregate 165, RA 7160), BUT they shall
assessed value of One accrue on the first (1st) day of
thousand pesos (P1,000.00) or January of each year. However,
more, or who is required by law new taxes, fees or charges, or
to file an income tax return shall changes in the rates thereof,
pay an annual additional tax of shall accrue on the first (1st)
Five pesos (P5.00) and an day of the quarter next following
annual additional tax of One the effectivity of the ordinance
peso (P1.00) for every One imposing such new levies or
thousand pesos (P1,000.00) of rates. (Sec. 166, RA 7160)
income regardless of whether
from business, exercise of Unless otherwise provided in
profession or from property this Code, all local taxes, fees,
which in no case shall exceed and charges shall be paid within
Five thousand pesos the first twenty (20) days of
(P5,000.00). (Sec. 157, RA January or of each subsequent
7160) quarter, as the case may be.
The sanggunian concerned
Every corporation no matter may, for a justifiable reason or
how created or organized, cause, extend the time for
whether domestic or resident payment of such taxes, fees, or
foreign, engaged in or doing charges without surcharges or
business in the Philippines shall penalties, but only for a period
pay an annual community tax of not exceeding six (6) months.

103

(Sec. 167, RA 7160). So, this Government unit for the


means that generally, taxes collection of revenues.
may be paid on the first twenty o Administrative action
days of January, April, July, and Distraint of
October. Personal Property
(Sec. 175, RA
For unpaid taxes, the 7160)
sanggunian may impose a Levy Upon Real
surcharge not exceeding Property (Sec.
twenty-five (25%) of the amount 176, RA 7160)
of taxes, fees or charges xxx Compromise
and an interest at the rate not o Judicial Action (Sec. 138
exceeding two percent (2%) per and Sec. 194, RA 7160)
month until such amount is fully
paid but in no case shall the CLASS RECITATION WITH
total thirty-six (36%) months. SUGGESTED ANSWERS
(Sec. 168, RA 7160)
Q: Is an illegal business subject to
Who shall collect the taxes, fees local tax?
and charges? According to Sec.
170, all local taxes, fees, and A: Yes. To answer otherwise is to
charges shall be collected by favor businesses established and/or
the provincial, city, municipal, or maintained contrary to law by
barangay treasurer, or their duly burdening those which complied to the
authorized deputies. (Sec. 170, requirements of the law with taxes.
RA 7160) BUT it may be
designated to the barangay Q: What is the taxation situs in the
treasurer. case of trucks delivering soft drinks
to places belonging to different
REMEDIES UNDER LOCAL TAXES cities or municipalities?

The following are the remedies A: Section 150 (a) of the Local
available to the taxpayer PRIOR Government Code is instructive in the
to assessment: case at bar: For purposes of collection
o Question the legality of of the taxes under Section 143 of this
ordinances (Sec. 187, Code, manufacturers, assemblers,
RA 7160) repackers, brewers, distillers, rectifiers
and compounders of liquor, distilled
The following are the remedies spirits and wines, millers, producers,
available to the taxpayer exporters, wholesalers, distributors,
AFTER assessment: dealers, contractors, banks, and others
o Protest of assessment financial institutions, and other
(Sec. 195, RA 7160) businesses, maintaining or operating
o Refund (Sec 196, RA branch or sales outlet making the sale
7160) or transaction, and the tax thereon
shall accrue and shall be paid to the
The following are the civil municipality where such branch or
remedies available to the Local sales outlet is located. In cases where
there is no such branch or sales outlet

104

in the city or municipality where the sold-out status of their units is


sale or transaction is made, the sale valid?
shall be duly recorded in the principal
office and the taxes due shall accrue A: The company may still declare zero
and shall be paid to such city or sales in its financial statements
municipality. because its absolute control over the
money represented by the earnings
Pursuant to the cited provision, the from the sale of the houses is subject
place where the declaration of sales to a suspensive condition imposed
shall be made will depend on whether by the local government unit
or not the company has a branch, concerned.
sales outlet or warehouse in the place
where the products are delivered. If Article 1181 of the New Civil Code
the answer is in the affirmative, the states: In conditional obligations, the
situs of taxation is the city or composition of rights, as well as the
municipality where the place of extinguishment or loss of those
delivery is situated. Otherwise, the already acquired, shall depend upon
situs is the city or municipality where the happening of the event which
the branch, sales outlet, or warehouse constitutes the condition.
(from which the products were The existence of the escrow
withdrawn) belongs. agreement bars the obligation of the
company to declare the sales for
Q: There is a subdivision developed taxation purposes.
by a company in Quezon City with
its model house located in San Q: What if the sale took place in the
Juan, and the sales office is in sales office or model house? In
Manila. In its self-assessment, the which city shall the sale be
company declared zero sales for the declared?
taxable period. When the assessor
went to the developer companys A: In the city where the sales office
sales office however, it was belongs under the Local Government
discovered that all the units were Code.
already sold. It was also found out
that the developer company entered Section 150 (a) of the Local
into an escrow agreement with the Government Code states: For
local government unit concerned purposes of collection of the taxes
where it was agreed upon that until under Section 143 of this Code,
the company fulfills a certain manufacturers, assemblers, repackers,
condition, the sales pertaining to brewers, distillers, rectifiers and
the houses in the subdivision shall compounders of liquor, distilled spirits
be under the custody of the said and wines, millers, producers,
local government unit. exporters, wholesalers, distributors,
Consequently, the non-fulfillment of dealers, contractors, banks, and others
the condition will result in the financial institutions, and other
refund of the payments made by the businesses, maintaining or operating
purchasers of the units. branch or sales outlet making the sale
How will you defend the stand of or transaction, and the tax thereon
the company that their declaration shall accrue and shall be paid to the
of zero sales notwithstanding a

105

municipality where such branch or however, That such appeal shall not
sales outlet is located xxx have the effect of suspending the
effectivity of the ordinance and the
CASE DIGESTS: accrual and payment of the tax, fee, or
charge levied therein: Provided, finally,
1. HON. FRANKLIN M. DRILON VS. That within thirty (30) days after receipt
MAYOR ALFREDO S. LIM of the decision or the lapse of the
sixty-day period without the Secretary
FACTS: of Justice acting upon the appeal, the
Four oil companies and a taxpayer aggrieved party may file appropriate
filed a petition questioning the legality proceedings with a court of competent
of Ordinance 7794 of the City of jurisdiction.
Manila, or the Manila Revenue Code.
The Secretary of Justice ruled against The assailed decision of the lower
the government, on the grounds that it court declares that the said section is
is procedurally infirm for non- unconstitutional because it grants the
compliance with the requirements of Secretary of Justice the power to
the law and that it is contrary to public review tax ordinances and
policy. This decision was reversed by consequently annul them, if found not
the Regional Trial Court. It also legal. As an offshoot, this grants him a
declared Section 187 of the Local power of control, which is in violation
Government Code as unconstitutional. of Article 10 of the 1987 Constitution.

ISSUE: This view was not shared by the


Whether or not Section 187 of the Supreme Court, as quoted: Section
Local Government Code is 187 authorizes the Secretary of Justice
constitutional. to review only the constitutionality or
legality of the tax ordinance and, if
HELD: warranted, to revoke it on either or
As an excerpt, Section 187 of the both of these grounds. When he alters
Local Government Code provides: or modifies or sets aside a tax
Procedure For Approval And Effectivity ordinance, he is not also permitted to
Of Tax Ordinances And Revenue substitute his own judgment for the
Measures; Mandatory Public Hearings. judgment of the local government that
The procedure for approval of local enacted the measure. The Secretary
tax ordinances and revenue measures was only determining if the functions of
shall be in accordance with the the local government unit were being
provisions of this Code: Provided, That performed properly. The Court ruled
public hearings shall be conducted for that such an act was still in exercise of
the purpose prior to the enactment supervision and not of control.
thereof; Provided, further, That any
question on the constitutionality or 2. THE PROVINCE OF BULACAN
legality of tax ordinances or revenue vs. THE HONORABLE COURT
measures may be raised on appeal OF APPEALS (FORMER
within thirty (30) days from the SPECIAL 12TH DIVISION),
effectivity thereof to the Secretary of PUBLIC CEMENT
Justice who shall render a decision CORPORATION
within sixty (60) days from the date of
receipt of the appeal: Provided, FACTS:

106

As mandated under the Revenue Revenue Code. The province can,


Code of Bulacan, Section 21, the however, impose a tax on stones,
SangguniangPanlalawigan of Bulacan sand, gravel, earth and other quarry
assessed Republic Cement resources extracted from public land
Corporation, private respondent, for because it is expressly empowered to
taxes on stones, sand, gravel, earth do so under the Local Government
and other quarry resources from Code. As to stones, sand, gravel,
private lands for the period 3Q 1992 to earth and other quarry resources
2Q 1993. Republic Cement contested extracted from private land, however, it
the same, but this was denied by the may not do so, because of the
Provincial Treasurer. A petition for limitation provided by Section 133 of
declaratory relief was filed with the the Code in relation to Section 151 of
Regional Trial Court of Bulacan, which the National Internal Revenue Code.
was met with a motion to dismiss from
the province. The latter was granted by 3. FIRST PHILIPPINE INDUSTRIAL
the Trial Court, ruling that the petition CORPORATION, vs. COURT OF
for declaratory relief was improper. APPEALS,
Republic Cement then filed a petition
for certiorari, praying for the reversal of FACTS:
the Trial Courts decision. First Philippine Industrial Corporation
(FPIC) applied for a mayors permit
A warrant of levy was issued by the with the Office of the Mayor of
Province of Bulacan against Republic Batangas. It is a grantee of a pipieline
Cement for the amount of unpaid concession under RA 387. However,
taxes. A compromise amount was the City Treasurer required FPIC to
reached upon payment under protest. pay local taxes based on gross
The Court of Appeals ruled against the receipts first before the permit may be
Province, stating that the latter cannot granted. FPIC filed a protest, claiming
impose taxes on minerals extracted that as an entity engaged in the
from private lands. transportation of petroleum, it may not
be taxed for the same. The protest
ISSUE: was denied because FPIC was not
Whether or not the Province of considered as engaged in the
Bulacan may impose taxes on transportation business.
minerals extracted from private lands.
ISSUE:
HELD: Whether or not FPIC is exempted from
As quoted from the Courts decision, it paying local taxes.
is clearly apparent from the above
provision (Section 151 of the NIRC) HELD:
that the National Internal Revenue The petition is granted. FPIC is
Code levies a tax on all quarry considered as a common carrier under
resources, regardless of origin, Article 1732 of the Civil Code. It is
whether extracted from public or engaged in the business of transferring
private land. Thus, a province may not goods, which in this case are
ordinarily impose taxes on stones, petroleum products. The Bureau of
sand, gravel, earth and other quarry Internal Revenue, in BIR Ruling 069-
resources, as the same are already 83, also considered the petitioner as a
taxed under the National Internal common carrier. This is relevant

107

because under Section 133 of the a grantee, it shall pay the tax
Local Government Code, common represented by 2% of gross earnings.
carriers are exempted from the taxing
authority of LGUs. To wit: RA 7160, upon its enactment, then
authorized local government units to
"Section 133. Common Limitations on impose a tax on business enjoying a
the Taxing Powers of Local franchise of 50% of 1% of the gross
Government Units. - Unless otherwise annual receipts for the preceding year.
provided herein, the exercise of the The City Treasurer of San Pablo city,
taxing powers of provinces, cities, acting under its Revenue Code,
municipalities, and barangays shall not imposed a business tax on
extend to the levy of the following : MERALCO. The latter paid under
xxx x protest, and filed an action with the
xx x xx Regional Trial Court to declare the
(j) Taxes on the gross Revenue Code of San Pablo City null
receipts of transportation and void. The Court Ruled in favor of
contractors and persons MERALCO.
engaged in the
transportation of ISSUE:
passengers or freight by Whether or not the City of San Pablo
hire and common may impose a local franchise tax
carriers by air, land or pursuant to the LGC upon the Manila
water, except as Electric Company which pays a tax
provided in this Code." equal to two percent of its gross
receipts in lieu of all taxes and
Petition granted. assessments of whatever nature
imposed by any national or local
4. CITY GOVERNMENT OF SAN authority on savings or income.
PABLO, LAGUNA vs. HONORABLE
BIENVENIDO V. REYES, in his HELD:
capacity as Presiding Judge, There is an implied repeal by the Local
Regional Trial Court Government Code of the Meralco
franchise insofar as the latter impose a
FACTS: 2% tax in lieu of all taxes and
Escudero Electric Services Company assessments of whatever nature.
was granted a legislative franchise to Section 137 of the LGC grants the
maintain and operate an electric light local government unit the authority to
and power system in the City of San impose franchise taxes
Pablo and nearby municipalities. notwithstanding any exemption
Under Section 10 of Act 3648, the granted by any law or other special
municipalities shall be paid by the laws." Likewise, under Section 193, to
grantee a tax equal to two percentum wit: unless otherwise provided in this
of the gross earnings from the electric Code, tax exemptions or incentives
current sold or supplied, and the same granted to, or presently enjoyed by all
shall be in lieu of all taxes and persons, whether natural or juridical,
assessments. The franchise was including government-owned or
subsequently transferred to Manila controlled corporations, except local
Electric Company (MERALCO) under water districts, cooperatives duly
Republic Act 2340. Under PD 551, as registered under R.A. 6938, non-stock

108

and non-profit hospitals and amusement. The provision does not


educational institutions, are hereby include the authority to tax basketball
withdrawn upon the effectivity of this games. Consequently, PD 1959, under
Code, tax exemption privileges are Section 268, provides that proprietors,
already deemed withdrawn. lessees or operators of professional
basketball games should pay the
The Local Government Code may amusement tax, national tax, to the
impose the local tax. Petition granted. Bureau of Internal Revenue.
Professional basketball games are not
5. PHILIPPINE BASKETBALL within the scope of other places of
ASSOCIATION, vs. COURT OF amusement of Section 13, which,
APPEALS, consequently, is the provision granting
the province the authority to levy
FACTS: taxes.
The Philippine Basketball Association
(PBA), petitioner, was assessed by the Petitioner is liable to pay amusement
Commissioner of Internal Revenue tax to the national government.
with a deficiency on amusement taxes,
surcharges and interest included,
amounting to P5,864,260.94. The
amount was based from the gross
receipts from the sale of admission
tickets for the year 1987. The amount
was protested by the petitioner, but the
same was denied by the
Commissioner. The decision was
affirmed by the Court of Tax Appeals
and, subsequently, the Court of
Appeals.

Petitioner contends that the Local Tax


Code of 1973, transferred authority on
levying amusements taxes from the
national government to the local
governments.

ISSUE:
Whether or not the amusement tax on
admission tickets is a national or local
tax

HELD:
The Local Tax Code of 1973,
particularly Section 13, states that the
province shall impose a tax on
admission to be collected from the
proprietors, lessees, or operators of
theaters, cinematographs, concert
halls, circuses and other places of

109

impact and incidence of taxation


REAL PROPERTY TAX devolves on the same person. It
is an ad valorem tax. Value is
REAL PROPERTY TAX the tax base.
It is proportionate because the
A direct tax on the ownership of tax is calculated on the basis of
lands and buildings or other a certain percentage of the
improvements thereon not value assessed.
specifically exempted and is It creates a single, indivisible
payable regardless of whether obligation.
the property is used or not, It is a local tax.
although the value may vary in
accordance with such factor. Nature and Scope of the Local
The tax is usually single or Taxation Power in Real Property
indivisible, although the land Taxation
and building or improvements
erected thereon are assessed The Taxing power of local
separately, except when the governments in real property
land and building or taxation is a delegated power.
improvements belong to The delegation by Congress of
separate owners. (Villanueva, its power to tax in this particular
et al. v. City of Iloilo) filed of taxation can be seen in
the provisions of Sec. 232 of the
A fixed proportion of the Local Government Code.
assessed value of the property Sec. 232. Power to Levy
taxed and requires, therefore, Real Property Tax
the intervention of assessors. It A province or city or a
is collected or payable at municipality within the
appointed times, and it Metropolitan Manila Area
constitutes a superior lien on may levy an annual ad
and is enforceable against the valorem tax on real
property subject to such property such as land,
taxation and not by building, machinery and
imprisonment of the owner. other improvements not
herein specifically
However, it is worthwhile to exempted
note that in one decided case, It necessary to note that
the Supreme Court observed under the said provision only
that the policy of taxing real provinces and cities as well as
property is on the basis of municipalities within Metro
actual use even if the user is Manila Area are authorized to
not the owner. (Province of tax real property.
Nueva Ecijavs Imperial
Mining Co., Inc.) Provinces, cities and
municipalites in the Metro
Characteristics: Manila may also fix real estate
tax rates.
It is a direct tax on the o Section 233 - Rates of
ownership of real property. The Levy

110

A province or city or a grant tax exemptions,


municipality within the incentives, or reliefs, they
Metropolitan Manila Area seems to be bereft of this
shall fix a uniform rated authority insofar as realty taxes
of basic real property tax are concerned.
applicable to their Section 234 of the Local
respective localities as Government Code specifies
follows: what particular properties are
exempt, it follows by clear
a) In the case of a implication that the law has
province, at the rate withheld from local
not exceeding one governments the power to
percent (1%) of the exempt following the latin
assessed value of maxim expression unius est
real property; and exclusion alterius
b) In the case of a city or Although provinces, cities and
a municipality within Metro Manila municipalities
the Metropolitan have no power to grant realty
Manila Area, at the tax exemption, them may,
rate not exceeding however, exempt idle lands
two percent (2%) of from the additional 5% tax by
the assessed value of reason of:
real property. o Force majeure
o Civil disturbance
Local taxing power also include o Natural calamity
the imposition of the special o Any cause or
levies: circumstance which
o a) 1% additional real physically or legally
estate tax to finance the prevents the owner of the
Special Education Fund property or person
(SEF) which is levied on having legal interest
an ad valorem basis therein form improving,
(Sec. 235, RA 7160) utilizing or cultivating the
o b) 5% additional tax on same. (Sec. 238, RA
idle lands likewise 7160)
imposed on an ad
valorem basis (Sec. 236, REMEDIES IN REAL PROPERTY
LGC) TAXATION UNDER THE LOCAL
o c) special levy or special GOVERNMENT CODE
assessment which is not
actually a tax. (Sec. 240, A. LGUs Tax Remedies
RA 7160) 1. Administrative
i. Tax Lien
Question of Tax Exemption ii. Levy (real property)
Properties exempt from Tax iii. Distraint (personal
Unlike in the case of local taxes property)
where Sec. 192 of the Local 2. Judicial
Government Code explicitly
authorizes local government to

111

place in the barangay


B. Taxpayers Remedies where the property is
1. Administrative located; AND
i. Protest ii. Publication once a
ii. Tax Refund and Tax week for two weeks
Credit d. Before the date of the sale,
iii. Redemption the owner may stop the
2. Judicial proceedings by paying the
delinquent tax, interest, and
LGUs TAX REMEDIES expenses of sale (Legal
Pre-Emption)
A. ADMINISTRATIVE e. Sale is held
Extrajudicial i. At the main entrance
of the LGU bldg.., or
1. Tax Lien superior to all liens, ii. At the place where
charges, encumbrances and is the property to be
enforceable by administrative or sold is found, or
judicial action. It is extinguished iii. Any other property
upon payment of tax and other specified in the notice
expenses (Sec. 257, RA 7160) f. If there is a bidder and
highest bid is sufficient to
2. Levy after the expiration of pay real property tax and
the time required to pay the tax related interest and cost,
levied, the real property subject bidder pays and treasurer
to the tax may be levied upon reports sale to the
(Secs. 258-262, RA 7160) Sanggunian 30 days after
the sale. The Local
How to Levy: Treasurer will deliver to
When time for payment for real purchaser the Certificate of
property tax expires, Sale (only).
a. Issuance of Warrant by the i. Legal Redemption
Local Treasurer on or before within 1year from
or simultaneously with the sale, owner may
institution of civil action for redeem upon
the collection of delinquent payment of:
tax. delinquent tax,
b. The warrant is mailed or interest, and
served upon the delinquent expenses of sale
owner (from the date of
i. the written notice is delinquency to date of
mailed/served upon sale), and additional
the City Assessor and interest of 2% per
the Register of Deeds month on the date of
of the LGU) sale to date of
c. Advertise for sale or auction redemption
i. Posting of notice at
the main entrance of Note: Legal owner retains possession
LGU hall/building and and right to the fruits.
in a conspicuous

112

g. Forfeiture - If there is NO
bidder or highest bid is TAXPAYERS REMEDIES
insufficient to pay real
property tax and related A. Administrative
interest and costs, the Local
Treasurer shall purchase the 1. Protest on Tax Assessments
property in behalf of the
LGU. Process in Protest:
Notes: Legal Redemption within 1 a. File a petition under oath
year from forfeiture, owner may within 60days from the
redeem property by paying to treasurer receipt of the written notice
full amount of tax, interest, costs of of assessment to the Local
sale, otherwise ownership shall vest to Board of Assessment of
LGU. (Sec. 263, RA 7160). Appeals (LBAA) (Sec.
Sanggunian concerned may, by 229[a], RA 7160)
ordinance duly approved and with b. The LBAA shall decide the
notice of not less 20days, sell/dispose protest within 120 days from
by public auction of property acquired receipt of the appeal
by forfeiture (Sec. 264, RA 7160) c. The aggrieved taxpayer may
appeal to the Central Board
h. Further Levy levy may be of Assessment Appeals
repeated until full amount within 30days after receipt of
due, including all expenses, the adverse decision by the
is collected. LBAA or within 30days after
the 120-day period of the
3. Distraint of Personal Property LBAA to decide (Sec.
with notice of delinquency 229[a], RA 7160)
posted and published, personal d. The adverse decision of the
property may be distrained to CBAA may be appealed to
effect payment (Sec. 254, LGC) CTA en banc within 30days
from the receipt of notice
B. JUDICIAL (R.A.9282)
e. Appeal to the SC within 15
1. Civil Action judicial action days from receipt of adverse
filed by the Local Treasurer: decision of the CTA en banc
a. Within 5 years from the (Rule 43, Rules of Court)
date the tax is due (Sec.
266, RA 7160), or Note: Payment under Protest - No
b. 10 years from the protest shall be entertained unless the
DISCOVERY of fraud or tax be first paid (Sec. 252, RA 7160).
intent to evade payment Payment of the tax assessed under
(Sec. 270, RA 7160) protest is a condition sine qua non
before the trial court could assume
Note: A formal demand for payment of jurisdiction over the petition and for
the delinquent tax is not required for failure to do so, the RTC has no
the initiation of either remedy. It is jurisdiction to entertain it Under the
enough that a notice of delinquency is Doctrine of Exhaustion of
made, to be posted and published as Administrative Remedies, an error in
required under Sec. 254 of the LGC. the assessment must be

113

administratively pursued to the price from the date of sale to


exclusion of the ordinary courts whose the date of redemption
decisions would be void for lack of
jurisdiction (Manila Electric Company
vs. Barlis, 357 SCRA 832) CLASS RECITATION WITH
SUGGESTED ANSWERS
2. Tax Refund or Tax Credit
Q: What are the Fundamental
When to file tax refund or Principles of Real Property
credit? Taxation?
- The taxpayer may file a
written claim for refund or A: Section 198 of Local Government
credit to taxes and interests Code provides:
with the provincial or city
treasure within 2 years from Fundamental Principles The
the date the taxpayer is appraisal, assessment, levy and
entitled to such reduction or collection of real property tax
assessment (Sec. 253, RA shall be guided by the following
7160) fundamental principles:
- The Local Treasurer has 60 a) Real property shall be
days to decide the claim appraised at its current
from receipt thereof. and fair market value
If Local Treasure denies claim b) Real property shall be
for tax refund or credit? classified for
- Appeal the claim to the assessment purposes on
LBAA (as in protest cases). the basis of its actual
If LBAA gives an adverse use
decision, appeal to CBAA. c) Real property shall be
assessed on the basis of
3. Redemption of Real Property a uniform classification
within each local
When to redeem? government unit;
- Within 1year from the date d) The appraisal,
of sale assessment, levy and
Who can redeem? collection of real
- The owner of the delinquent property tax shall not be
real property OR person let to any private person;
having legal interest thereon and
or his representative e) The appraisal and
What should be paid? assessment of real
- Amount of the delinquent property shall be
tax; equitable
- Interest thereon;
- Expense of sale from date of Q: Can a property be used for only
delinquency to date of sale; one purpose or can be used for
and more than one?
- Interest of not more than 2%
per month on the purchase A: Yes. According to the case of LUNG
CENTER OF THE PHILS v QUEZON

114

CITY (GR No.144104, June 29, 2004) Multiplied by assessment


Almost one-half of the entire area on level (x%)
the left side of the building Assessed Value
along Quezon Avenue is vacant and xxx
idle, while a big portion on the right Multiplied by Rate of tax
side, at the corner of Quezon (x%)
Avenue and Elliptical Road, is being Real Property Tax
leased for commercial purposes to a xxx
private enterprise known as the `
Elliptical Orchids and Garden Center. Q: What is fair market value?
The Supreme Court held that the
portions of the land leased to private A: Section 199 of the Local
entities as well as those parts of the Government Code defines Fair Market
hospital leased to private individuals Value as the price at which a property
are not exempt from such taxes. On may be sold by a seller who is not
the other hand, the portions of the land compelled to sell and bought by a
occupied by the hospital and portions buyer who is not compelled to buy.
of the hospital used for its patients,
whether paying or non-paying, are Q: What is the assessment level?
exempt from real property taxes.
A: Assessment Level is the percentage
Q: How will you determine the applied to the fair market value to
classification of the land if used for determine the taxable value of the
more than one purposes? property. (Section 199, LGC)

A: Predominant test: Principal use of Q: How many classifications of land


the land under the Local Government Code?

Q: What is the Formula for Real A: Under section 218 of the Local
Property Tax? Government Code the classification of
lands for purposes of assessment are
A: 1) Ascertain the assessment level of Commercial, Agricultural, Residential,
the property Mineral, Industrial, Timberland, and
2) Multiply the market value by the Special lands.
applicable assessment level of the
property Q: What is the difference between a
3) Find the tax rate which corresponds Commercial land and Industrial
to the class (use) of the property and land?
multiply the assessed value by the
applicable tax rates. (Lopez v City of A: Section 199 of the Local
Manila, et al.) Government Code provides that a
Commercial land is one devoted
For easy reference the formula for principally for the object of profit, and
computation of real property tax is set is not classified as agricultural,
forth, thus industrial, mineral, timber, or
residential land while Industrial land is
Market Value one devoted principally to industrial
xxx activity as capital investment and is not

115

classified as agricultural, commercial, things which should generally be


timber, mineral or residential land. regarded as personal property. For
real property tax purposes such
Q: Are improvements taxed personal properties may be considered
separately? as real property, if they are
incorporated or permanently attached
A: Yes. The real property tax is to an immovable in a fixed manner in
imposed on real property such as land, such a way that it cannot be separated
buildings, machinery and other therefrom without breaking the
improvements not otherwise material or deterioration of the object
specifically exempted under the code.
(Sec. 232, RA 7160) Q: How would you know if a
Corporation is a GOCC?
Q: What is the collection and
levying date of Real Property Tax? A: The introductory provisions of
Executive Order 292 (Administrative
A: The basic real property tax and Code of the Philippines), specifically
other tax levied under this title shall be paragraph 13 provides:
collected within five years form the Government-owned or
date they become due. No action for controlled corporation
the collection of the tax, whether refers to any agency
administrative or judicial, shall be organized as a stock or
instituted after the expiration of such non-stock corporation,
period. In case of fraud or intent to vested with functions
evade payment of the tax, such action relating to public needs
may be instituted for the collection of whether governmental or
the same within 10 years from the proprietary in nature, and
discovery of such fraud or intent to owned by the
evade payment.(Sec. 270, RA 7160) Government directly or
through its
Q: Are machineries owned by non- instrumentalities either
stock, non-profit educational wholly, or, where
institutions, taxable? applicable as in the case
of stock corporations, to
A: Machines are considered assets, the extent of at least fifty-
therefore they are not taxable. Article one (51) per cent of its
14 section 3 (3) of the constitution capital stock
provides that All revenues and assets
of non-stock, non-profit educational Q: What is machinery for purposes
institutions used actually, directly, and of Real Property Taxation?
exclusively for educational purposes
shall be exempt from taxes and A: Section 199 of LGC defines
duties. machinery as those that embraces
machines, equipment, mechanical
Q: Air-conditioner owned by the contrivances, instruments, appliances
school, are they taxable? or apparatus which may or may not be
attached, permanently or temporarily,
A: It depends. For purposes of taxation to the real property, the installations
the term real property may include and appurtenant service facilities,

116

those which are mobile, self-powered religious, charitable, or educational


or self-propelled, and those not purposes shall be exempt from
permanently attached to the real taxation
property which are actually, directly,
and exclusively used to meet the Q: Are Nursery schools exempt
needs of the particular industry, from real property tax?
business, or activity and which by their
very nature and purpose are designed A: Charitable institutions, churches,
for, or necessary to its manufacturing, parsonages or convents appurtenant
mining, logging, commercial, industrial thereto, mosques, nonprofit or
or agricultural purposes. religious cemeteries and all lands,
building, and improvements actually,
Q: Is article 415 of the New Civil directly and exclusively used for
Code relevant to Local Government religious, charitable or educational
Code? purposes

A: Real Properties mentioned in the Q: Are Vocational schools like


Article 415 of the Civil Code are TESDA, exempt from Real Property
referred to by suppletory effect since Taxation?
the Local Government Code did not
provide for a definition of real property. A: Real property owned by the
(Benguet Corp. v. Central Board of Republic of the Philippines or any of its
Assessment Appeals, 218 SCRA political subdivision except when the
271) beneficial use thereof has been
granted, for consideration or
Q: What are the grounds for otherwise, to a taxable person.
Condonation in Real Property?
Q: What are exempt from Real
A: In case of a general failure of crops Property Tax? Is the list exclusive?
Substantial decrease in the
price of agricultural or agri- A: The following are exempted from
based products payment of the real property tax:
Calamity in any province, city a) Real property owned by the
or municipality (Section 276, Republic of the Philippines or
RA 7160) any of its political subdivision
except when the beneficial use
Q: Are all educational institution thereof has been granted, for
exempted from Real Property tax? consideration or otherwise, to a
taxable person
A: No. Unless they are exclusively, b) Charitable institutions,
directly and actually uses for churches, parsonages or
educational purposes. Article VI convents appurtenant thereto,
section 28 (3) of the 1987 Constitution mosques, nonprofit or religious
provides that charitable institutions, cemeteries and all lands,
churches and parsonages or convents building, and improvements
appurtenant thereto, mosques, non- actually, directly and exclusively
profit cemeteries, and all lands, used for religious, charitable or
buildings, and improvements, actually, educational purposes
directly, and exclusively used for

117

c) All machineries and equipment as taxable in the assessment roll.


that are actually, directly and However, if the property shall be
exclusively used by local water proven to be tax exempt, the same
districts and government-owned shall be dropped from the assessment
or controlled corporations roll. (Sec.206, RA 7160)
engaged in the supply and
distribution of water and/or Q: What is the consequence of not
generation and transmission of paying real property tax on time?
electric power
d) All property owned by duly A: In case of failure to pay the basic
registered cooperatives as real property tax or any other tax
provided for under R.A. No. levied under Real Property taxation
6938 and upon the expiration of the periods as
e) Machinery and equipment used provided in section 250, or when due,
for pollution control and as the case may be, shall subject the
environmental protection. taxpayer to the payment of interest at
Except as provided herein, any the rate of two percent (2%) per month
exemption from payment of real on the unpaid amount or a fraction
property tax previously granted thereof, until the delinquent tax shall
to, or presently enjoyed by, all have been fully paid: Provided,
persons, whether natural or however, that in no case shall the total
juridical, including all interest on the unpaid tax or portion
government-owned or thereof exceed 36 months. (Sec. 255,
controlled corporations are RA 7160)
hereby withdrawn upon the
effectivity of the LGC (Section Q: How to be exempted from idle
234-Exemptions from Real lands tax?
Property)
A: A province or city or a municipality
Q: What are the requirements to within the Metropolitan Manila Area
claim exemption from Real Property may exempt idle lands form the
Taxation? additional levy by reason of force
majeure, civil disturbance, natural
A: Every person by or for whom real calamity or any cause or
property is declared who shall claim circumstances which physically or
tax exemption for such property under legally prevents the owner of the
Real Property taxation shall file with property or person having legal
the provincial, city or municipal interest therein from improving,
assessor within 30 days from the date utilizing, or cultivating the same
of the declaration of real property (Section 238-Idle Lands Exempt
sufficient documentary evidence in from tax, RA 7160)
support of such claim including
corporate charters, title of ownership, Q: What are special lands?
articles of incorporation, by-laws,
contracts, affidavits, certifications and A: All lands, buildings, and other
mortgage deeds, and similar improvements thereon actually,
documents. If the required evidence is directly and exclusively used for
not submitted within the period herein hospitals, cultural, or scientific
prescribed, the property shall be listed purposes, and hose owned and used

118

by local water districts, and complimentary to the main or primary


government owned and controlled purpose of the other (Abra Valley
corporations rendering essential public College, Inc v Hon. Aquino). Then
services in the supply and distribution the classification would depend upon
of water and/or generation and the primary use of the land without
transmission of electric power shall be regard to the other.
classified as special (Sec. 216, RA
7160) Q: Your client constructed an
Industrial warehouse in a
Q: A building where the first floor is commercial area, how would you
used for commercial purposes and classify the land?
the second floor is for residential
purposes, how can you classify the A: The property shall be considered
land or building for the purpose of Industrial. The Local Government
Real Property Taxation? Code states that Real Property shall
be classified, valued and assessed on
A: The Local Government Code states the basis of its actual use regardless of
that Real Property shall be classified, where located, whoever owns it, and
valued and assessed on the basis of whoever uses it (Sec. 217, RA 7160)
its actual use regardless of where
located, whoever owns it, and whoever Q: A land originally for agricultural
uses it. (Sec. 217, RA 7160) Hence, purposes then converted to a world
the first floor is commercial and the class memorial park, is it taxable?
second floor is residential unless under Do you need to classify the land
the doctrine of incidental use, one is from agricultural to something
complimentary to the main or primary else?
purpose of the other (Abra Valley
College, Inc v Hon. Aquino). Then A: Yes. Section 217 of the LGC
the classification would depend upon provides that real property shall be
the primary use of the land without classified, valued and assessed on the
regard to the other. basis of its actual use regardless of
where located, whoever owns it, and
Q: What if the structure is whoever uses it
horizontal, the left side is for
commercial purposes and the right Yes. The basis of real property
side is for residential purposes? taxation is actual use. In the case at
What is the classification of the land bar, the actual use of the land is
or building for the purpose of Real converted hence the need to re-
Property Taxation? classify from agricultural to
commercial.
A: The Local Government Code states
that Real Property shall be classified, Q: A land originally used for
valued and assessed on the basis of agricultural purposes was bought
its actual use regardless of where by Eternal Gardens and constructed
located, whoever owns it, and whoever a world class memorial park,
uses it (Sec. 217, RA 7160) Hence, thereby converting it to a
the left side is commercial and the commercial land. It is the policy of
right side is residential unless under Eternal Garden that if a person wish
the doctrine of incidental use, one is to have a memorial lot, he should

119

buy the same and not just to lease Moreover, under article VI section 28
the lot, the titles are given to the (3) all lands and buildings actually,
buyer. What is the status of the land directly and exclusively used for
with respect to the buyer? religious purposes shall be exempt
from taxation. When the property was
Q: An accounting firm employs leased to dating daan and dating daan
3000 employees, 2500 of them were used it for exclusively religious
given laptops, are they taxable as purposes it is still exempt from real
real property? Are they considered property tax. However, when
machineries? datinddaan subleased the property to
another religious sect for profit it was
A: For purposes of taxation the term divested of its exempted status. Thus,
real property may include things dating daan is liable to pay real
which should generally be regarded as property tax.
personal property. For real property
tax purposes such personal properties Q: In a cinema, are the machineries
may be considered as real property, if used taxable? Is the Projector
they are essential and principal taxable? Are the bolted chairs
elements of the business being taxable?
conducted in the said land or building A: Yes. The real property tax is
(Caltex Phils. v. Central board of imposed on real property such as land,
assessments appeals et. al., 114 buildings, machinery and other
SCRA 296) improvements not otherwise
They are considered machineries specifically exempted under the code.
because the latter includes mobile (Sec. 232, RA 7160)
equipment, which are essential to an
industry. The projector is taxable. For purposes
of taxation the term real property may
Q: A property owned by The include things which should generally
Republic of the Philippines is be regarded as personal property. For
leased to Dating Daanfor purposes real property tax purposes such
of the latters weekly gathering. Is personal properties may be considered
the property taxable or not? The as real property, if they are essential
head of Dating Daan intended to and principal elements of the business
sublease the land to another being conducted in the said land or
religious sect for profit. Is it building (Caltex Phils. v. Central
taxable? board of assessments appeals et.
al., 114 SCRA 296), in the case at bar
A: First and foremost the following are projectors are necessary in cinemas.
exempt from real property taxes under
section 243 of the LGC (a) Real The bolted chairs for purposes of
property owned by the Republic of the taxation are taxable because they are
Philippines or any of its political considered real property under Article
subdivisions except when the 415 (3) of the New Civil Code. It is
beneficial use thereof has been attached to an immovable in a fixed
granted, for consideration or manner in such a way that it cannot be
otherwise, to a taxable person, the real separated therefrom without breaking
property prior to being leases to dating the material or deterioration of the
daan is exempt from real property tax. object.

120

CASE DIGESTS
Q: Is an Elevator considered
machinery or improvements? 1. CALTEX PHILIPPINES v CBAA

A: It depends. If the elevator would be FACTS:


necessary to meet the needs of a The machines and equipment consists
particular industry, business or activity of underground tanks, elevated tank,
and which by their very nature and elevated water tanks, water tanks,
purpose are designed for it is gasoline pumps, computing pumps,
considered as machinery. On the other water pumps, car washer, car hoists,
hand, if the elevator is intended only to truck hoists, air compressors and tire
enhance the structures value, beauty flators. The said machines and
or utility or to adapt it for new or further equipment are loaned by Caltex to gas
purposes then it is considered as an station operators under an appropriate
improvement. lease agreement or receipt. It is
stipulated in the lease contract that the
Example: An elevator in a two-storey operators, upon demand, shall return
warehouse as to an elevator in a two- to Caltex the machines and equipment
storey house. The former is in good condition as when received,
considered machinery since it is ordinary wear and tear excepted. The
necessary for moving especially heavy lessor of the land, where the gas
parcels while the latter is considered station is located, does not become
as an improvement to enhance the the owner of the machines and
value of the house. (Sec. 199, RA equipment installed therein. Caltex
7160) retains the ownership thereof during
the term of the lease.
Q: Is a profitable cemetery for the
burial of monks and priest taxable The city assessor of Pasay City
or not? characterized the said items of gas
station equipment and machinery as
A: Article VI, Section 28 (3) of the taxable realty. The city board of tax
Constitution provides that Cemeteries appeals ruled that they are personalty.
are exempt from the payment of taxes The assessor appealed to the Central
because of the difficulty of collecting a Board of Assessment Appeals. The
tax thereon and the obvious Board held in its decision that the said
impropriety of selling the graves of the machines and equipment are real
dead to defray the expenses of property within the meaning of
carrying on the government of the sections 3(k) & (m) and 38 of the Real
living. The aforesaid provision however Property Tax Code, Presidential
pertains to non-profit cemeteries, Decree No. 464 and that the
excluding profitable cemeteries making definitions of real property and
it taxable. Since the basis of real personal property in articles 415 and
property taxation is actual use and the 416 of the Civil Code are not
operation of the cemetery is to applicable to this case. Caltex's motion
produce profit, the profitable cemetery for reconsideration was denied.
is not included in the exemptions from Hence, this petition for certiorari
real property tax provided in Section praynig to set aside the Board's
234 of the Local Government Code. decision and for a declaration that the

121

said machines and equipment are We hold that the said equipment and
personal property subject to realty tax. machinery, as appurtenances to the
gas station building or shed owned by
ISSUE: Caltex (as to which it is subject to
Whether or not the questioned realty tax) and which fixtures are
property are real property to be subject necessary to the operation of the gas
to realty tax. station, for without them the gas
station would be useless, and which
HELD: have been attached or affixed
Section 2 of the Assessment Law permanently to the gas station site or
provides that the realty tax is due "on embedded therein, are taxable
real property, including land, buildings, improvements and machinery within
machinery, and other improvements" the meaning of the Assessment Law
not specifically exempted in section 3 and the Real Property Tax Code.
thereof. This provision is reproduced Improvements on land are commonly
with some modification in the Real taxed as realty even though for some
Property Tax Code which provides: purposes they might be considered
SEC. 38. Incidence of Real Property personalty (84 C.J.S. 181-2, Notes 40
Tax. There shall be levied, assessed and 41). "It is a familiar phenomenon
and collected in all provinces, cities to see things classed as real property
and municipalities an annual ad for purposes of taxation which on
valorem tax on real property, such as general principle might be considered
land, buildings, machinery and other personal property" (Standard Oil Co. of
improvements affixed or attached to New York vs. Jaramillo, 44 Phil. 630,
real property not hereinafter 633).
specifically exempted.
The Code contains the following 2. LUNG CENTER OF THE PHILS v
definitions in its section 3: QUEZON CITY
k) Improvements is a valuable
addition made to property or an FACTS:
amelioration in its condition, amounting The petitioner Lung Center of
to more than mere repairs or the Philippines is a non-stock and non-
replacement of waste, costing labor or profit entity established on January 16,
capital and intended to enhance its 1981 by virtue of Presidential Decree
value, beauty or utility or to adapt it for No. 1823. It is the registered owner of
new or further purposes. a parcel of land, particularly described
m) Machinery shall embrace as Lot No. RP-3-B-3A-1-B-1, SWO-04-
machines, mechanical contrivances, 000495, located at Quezon Avenue
instruments, appliances and apparatus corner Elliptical Road, Central District,
attached to the real estate. It includes Quezon City. Erected in the middle of
the physical facilities available for the aforesaid lot is a hospital known as
production, as well as the installations the Lung Center of the Philippines. A
and appurtenant service facilities, big space at the ground floor is being
together with all other equipment leased to private parties, for canteen
designed for or essential to its and small store spaces, and to medical
manufacturing, industrial or agricultural or professional practitioners who use
purposes (See sec. 3[f], Assessment the same as their private clinics for
Law). their patients whom they charge for
their professional services. Almost

122

one-half of the entire area on the left HELD:


side of the building along Quezon On the first issue, we hold that the
Avenue is vacant and idle, while a big petitioner is a charitable institution
portion on the right side, at the corner within the context of the 1973 and
of Quezon Avenue and Elliptical Road, 1987 Constitutions. To determine
is being leased for commercial whether an enterprise is a charitable
purposes to a private enterprise known institution/entity or not, the elements
as the Elliptical Orchids which should be considered include
and Garden Center. the statute creating the enterprise, its
corporate purposes, its constitution
On June 7, 1993, both the land and and by-laws, the methods of
the hospital building of the petitioner administration, the nature of the actual
were assessed for real property taxes work performed, the character of the
in the amount of P4,554,860 by the services rendered, the indefiniteness
City Assessor of Quezon of the beneficiaries, and the use and
City. On August 25, 1993, the occupation of the properties.
petitioner filed a Claim for
Exemption from real property taxes As a general principle, a charitable
with the City Assessor, predicated on institution does not lose its character
its claim that it is a charitable as such and its exemption from taxes
institution. The petitioners request simply because it derives income from
was denied, and a petition was, paying patients, whether out-patient, or
thereafter, filed before the Local Board confined in the hospital, or receives
of Assessment Appeals of Quezon subsidies from the government, so
City for the reversal of the resolution of long as the money received is devoted
the City Assessor. The petitioner or used altogether to the charitable
alleged that under Section 28, object which it is intended to achieve;
paragraph 3 of the 1987 Constitution, and no money inures to the private
the property is exempt from real benefit of the persons managing or
property taxes. It averred that a operating the institution.
minimum of 60% of its hospital beds
are exclusively used for charity Even as we find that the petitioner is a
patients and that the major thrust of its charitable institution, we hold, anent
hospital operation is to serve charity the second issue, that those portions
patients. The petitioner contends that of its real property that are leased to
it is a charitable institution and, as private entities are not exempt from
such, is exempt from real property real property taxes as these are not
taxes. actually, directly and exclusively used
for charitable purposes.
ISSUE:
Whether the petitioner is a charitable The settled rule in this jurisdiction is
institution within the context of that laws granting exemption from tax
Presidential Decree No. 1823 and the are construed strictissimi juris against
1973 and 1987 Constitutions and the taxpayer and liberally in favor of
Section 234(b) of Republic Act No. the taxing power. Taxation is the rule
7160; and whether the real properties and exemption is the exception. The
of the petitioner are exempt from real effect of an exemption is equivalent to
property taxes. an appropriation. Hence, a claim for
exemption from tax payments must be

123

clearly shown and based on language paying or non-paying, other portions


in the law too plain to be mistaken. thereof are being leased to private
individuals for their clinics and a
Under the 1973 and 1987 canteen. Further, a portion of the land
Constitutions and Rep. Act No. 7160 in is being leased to a private individual
order to be entitled to the exemption, for her business enterprise under the
the petitioner is burdened to prove, by business name Elliptical Orchids
clear and unequivocal proof, that (a) it and Garden Center.
is a charitable institution; and (b) its
real properties Accordingly, we hold that the portions
are ACTUALLY, DIRECTLY and EXCL of the land leased to private entities as
USIVELY used for charitable well as those parts of the hospital
purposes. Exclusive is defined as leased to private individuals are not
possessed and enjoyed to the exempt from such taxes. On the other
exclusion of others; debarred from hand, the portions of the land occupied
participation or enjoyment; and by the hospital and portions of the
exclusively is defined, hospital used for its patients, whether
in a manner to exclude; paying or non-paying, are exempt from
as enjoying a privilege exclusively. If real property taxes.
real property is used for one or more
commercial purposes, it is not 3. MIAA v CA
exclusively used for the exempted
purposes but is subject to FACTS:
taxation. The words dominant use or Petitioner Manila International Airport
principal use cannot be substituted Authority (MIAA) operates the Ninoy
for the words used exclusively Aquino International Airport (NAIA)
without doing violence to the Complex in Paraaque City. As
Constitutions and the law. Solely is operator of the international airport,
synonymous with exclusively. MIAA administers the land,
improvements and equipment within
What is meant by actual, direct and the NAIA Complex. The MIAA Charter
exclusive use of the property for transferred to MIAA approximately 600
charitable purposes is the direct and hectares of land, including the runways
immediate and actual application of and buildings ("Airport Lands and
the property itself to the purposes for Buildings") then under the Bureau of
which the charitable institution is Air Transportation. The MIAA Charter
organized. It is not the use of the further provides that no portion of the
income from the real property that is land transferred to MIAA shall be
determinative of whether the property disposed of through sale or any other
is used for tax-exempt purposes. mode unless specifically approved by
the President of the Philippines.
The petitioner failed to discharge its
burden to prove that the entirety of its On 21 March 1997, OGCC opined that
real property is actually, directly and the Local Government Code of 1991
exclusively used for charitable withdrew the exemption from real
purposes. While portions of the estate tax granted to MIAA under
hospital are used for the treatment of Section 21 of the MIAA Charter. Thus,
patients and the dispensation of MIAA negotiated with respondent City
medical services to them, whether of Paraaque to pay the real estate tax

124

imposed by the City. MIAA then paid mention of one person, thing, or act
some of the real estate tax already excludes all others. An international
due. airport is not among the exceptions
mentioned in Section 193 of the Local
MIAA admits that the MIAA Charter Government Code. Thus, respondents
has placed the title to the Airport assert that MIAA cannot claim that the
Lands and Buildings in the name of Airport Lands and Buildings are
MIAA. However, MIAA points out that it exempt from real estate tax.
cannot claim ownership over these
properties since the real owner of the Respondents also cite the ruling of this
Airport Lands and Buildings is the Court in Mactan International Airport v.
Republic of the Philippines. The MIAA Marcos where we held that the Local
Charter mandates MIAA to devote the Government Code has withdrawn the
Airport Lands and Buildings for the exemption from real estate tax granted
benefit of the general public. Since the to international airports. Respondents
Airport Lands and Buildings are further argue that since MIAA has
devoted to public use and public already paid some of the real estate
service, the ownership of these tax assessments, it is now estopped
properties remains with the State. The from claiming that the Airport Lands
Airport Lands and Buildings are thus and Buildings are exempt from real
inalienable and are not subject to real estate tax.
estate tax by local governments.
ISSUE:
MIAA also points out that Section 21 of Whether the Airport Lands and
the MIAA Charter specifically exempts Buildings of MIAA are exempt from
MIAA from the payment of real estate real estate tax under existing laws.
tax. MIAA insists that it is also exempt
from real estate tax under Section 234 HELD:
of the Local Government Code The Airport Lands and Buildings of
because the Airport Lands and MIAA are property of public dominion
Buildings are owned by the Republic. and therefore owned by the State or
To justify the exemption, MIAA invokes the Republic of the Philippines.
the principle that the government
cannot tax itself. MIAA points out that No one can dispute that properties of
the reason for tax exemption of public public dominion mentioned in Article
property is that its taxation would not 420 of the Civil Code, like "roads,
inure to any public advantage, since in canals, rivers, torrents, ports and
such a case the tax debtor is also the bridges constructed by the State," are
tax creditor. owned by the State. The term "ports"
includes seaports and airports. The
Respondents invoke Section 193 of MIAA Airport Lands and Buildings
the Local Government Code, constitute a "port" constructed by the
which expressly withdrew the tax State. Under Article 420 of the Civil
exemption privileges of "government- Code, the MIAA Airport Lands and
owned and-controlled corporations" Buildings are properties of public
upon the effectivity of the Local dominion and thus owned by the State
Government Code. Respondents also or the Republic of the Philippines.
argue that a basic rule of statutory
construction is that the express

125

Section 234(a) of the Local (CHH) in Cebu City. In the late 1990s,
Government Code exempts from real respondent constructed the CHH
estate tax any "[r]eal property owned Medical Arts Center
by the Republic of the Philippines." (CHHMAC). Thereafter Certificate of
Section 234(a) provides: Occupancy was issued to the center
with a classification of Commercial
SEC. 234. Exemptions from Real Clinic.
Property Tax. The following are
exempted from payment of the real Petitioner City Assessor of Cebu City
property tax: assessed the CHHMAC building as
(a) Real property owned by the commercial with a market value of
Republic of the Philippines or any of its PhP 28,060,520 and an assessed
political subdivisions except when the value of PhP 9,821,180 at the
beneficial use thereof has been assessment level of 35% for
granted, for consideration or commercial buildings, and not at the
otherwise, to a taxable person; 10% special assessment currently
xxx. imposed for CHH and its other
separate buildingsthe CHHs Dietary
This exemption should be read in and Records Departments.
relation with Section 133(o) of the
same Code, which prohibits local Thus, respondent asserting that
governments from imposing "[t]axes, CHHMAC is part of CHH and ought to
fees or charges of any kind on the be imposed the same special
National Government, its agencies assessment level of 10% with that of
and instrumentalities x xx." The real CHH. Respondent further contended in
properties owned by the Republic are its position paper that CHHMAC
titled either in the name of the building is actually, directly, and
Republic itself or in the name of exclusively part of CHH and should
agencies or instrumentalities of the have a special assessment level of
National Government. The 10% as provided under City Tax
Administrative Code allows real Ordinance LXX. Respondent asserted
property owned by the Republic to be that the CHHMAC building is similarly
titled in the name of agencies or situated as the buildings of CHH,
instrumentalities of the national housing its Dietary and Records
government. Such real properties Departments, are completely separate
remain owned by the Republic and from the main CHH building and are
continue to be exempt from real estate imposed the 10% special assessment
tax. level. In fine, respondent argued that
the CHHMAC, though not actually
4. CITY ASSESSOR OF CEBU v indispensable, is nonetheless
ASSOCIATION OF BENEVOLA De incidental and reasonably necessary to
CEBU CHHs operations.

FACTS: ISSUE:
Respondent Association of Benevola Whether or not CHHMAC building is
de Cebu, Inc. is a non-stock, non-profit liable to pay the 35% assessment
organization organized under the laws level.
of the Republic of the Philippines and
is the owner of Chong Hua Hospital HELD:

126

We so hold that CHHMAC is an Sec. 216 in relation with Sec. 215 of


integral part of CHH. It is undisputed the Local Government Code on the
that the doctors and medical proper classification of the subject
specialists holding clinics in CHHMAC CHHMAC building as special and not
are those duly accredited by CHH, that commercial. Secs. 215 and 216
is, they are consultants of the hospital pertinently provide:
and the ones who can treat CHHs
patients confined in it. This fact alone SEC. 215. Classes of Real
takes away CHHMAC from being Property for Assessment Purposes.
categorized as commercial since a For purposes of assessment, real
tertiary hospital like CHH is required by property shall be classified as
law to have a pool of physicians who residential, agricultural, commercial,
comprises the required medical industrial, mineral, timberland
departments in various medical fields. or special.
xxxx
These accredited physicians normally SEC. 216. Special Classes of
hold offices within the premises of the Real Property.All lands, buildings,
hospital; in which case there is no and other improvements thereon
question as to the conduct of their actually, directly and exclusively
business in the ambit of diagnosis, used for hospitals, cultural or
treatment and/or confinement of scientific purposes, and those owned
patients. This was the case before and used by local water districts, and
1998 and before CHHMAC was government-owned or controlled
built. Verily, their transfer to a more corporations rendering essential public
spacious and, perhaps, convenient services in the supply and distribution
place and location for the benefit of the of water and/or generation and
hospitals patients does not remove transmission of electric power shall be
them from being an integral part of the classified as special.
overall operation of the hospital. Thus, applying the above provisos in
line with City Tax Ordinance LXX of
Conversely, it would have been Cebu City, the 10% special
different if CHHMAC was also open for assessment should be imposed for the
non-accredited physicians, that is, any CHHMAC building which should be
medical practitioner, for then classified as special.
respondent would be running a
commercial building for lease only to
doctors which would indeed subject
the CHHMAC to the commercial level
of 35% assessment. Moreover, the
CHHMAC, being hundred meters away
from the CHH main building, does not
denigrate from its being an integral
part of the latter.

the CHHMAC facility, while seemingly


not indispensable to the operations of
CHH, is definitely incidental to and
reasonably necessary for the
operations of the hospital.

127

penalties accruing under the


TARRIFF AND CUSTOMS LAW tariffs and customs laws.
5. The supervision and control
TARIFFS AND CUSTOMS DEFINED over the handling of foreign
mails arriving in the Philippines
Tariff means taxes while Customs 6. The supervision and control of
refer to the required procedure for all import and export cargoes
importation to and exportation from the 7. The exercise of exclusive
Philippines of articles. original jurisdiction over seizure
and forfeiture cases under the
Tariffs and Customs Laws tariffs and customs laws.

1. Tariff and Customs Code of the TERRITORIAL JURISDICTION OF


Philippines (TCCP) THE BOC
2. Other laws and regulations
subject to the enforcement by 1. Right of supervision and police
the Bureau of Customs or authority
otherwise within its jurisdiction. 2. Over all seas within the
3. Bangko Sentral Circulars in jurisdiction of the Phils.
relation to importation 3. Over all coasts, ports, airports,
harbors, bays, rivers and inland
BUREAU OF CUSTOMS (BOC) waters whether navigable or not
from the sea.
The principal government agency
which has the general duties, powers, KINDS OF TARIFFS OR CUSTOMS
and jurisdiction of the Bureau of DUTIES
Customs include among others the
enforcement of the tariff and customs 1. Regular Tariffs or customs
laws and all other laws, rules and duties
regulations relating to Tariffs and 2. Special Tariffs or customs
Customs administration (Sec. 602 [d], duties
TCCP).
Regular Tariffs defined
FUNCTIONS OF THE BOC:
Taxes that are imposed or assessed
1. The prevention and suppression upon merchandise from, or exported
of smuggling and other frauds to, a foreign country
upon the customs.
2. The supervision and control Purpose of Regular Tariffs
over the entrance and
clearance of vessels and 1. To raise revenues
aircraft engaged in foreign 2. To serves as protective barriers
commerce. 3. To discourage the exportation
3. The enforcement of tariffs and of certain articles, usually raw
customs laws materials, in order to promote
4. The assessment and collection their manufacture into finished
of the lawful revenues from products
imported articles and all other
dues, fees, charges, fines, and

128

2. To protect domestic industries


and producers from increased
KINDS OF REGULAR CUSTOMS imports which inflict or could
DUTIES inflict serious injury on them.

1. Ad valorem customs duties


2. Specific customs duties KINDS OF SPECIAL CUSTOMS
3. Mixed or compound customs DUTIES
duties
1. Under the TCCP:
Ad valorem customs duties a. Anti-dumping duty
b. Countervailing duty
Customs duties that are c. Marking duty
computed on the basis of value. d. Discriminatory duty
The present basis for ad 2. Under the Safeguard
valorem duties is the Measures Act (R.A. 8800):
transaction value of the a. Additional tariffs imposed as
imported article. a safeguard measure

Specific customs duties Anti-dumping duty defined

Customs duties that are 1. A special duty


computed on the basis of a unit 2. Imposed on the importation of a
of measure such as per product, commodity or article of
kilogram, per piece, per dozen, commerce into the Philippines
per liter etc. 3. At less than its normal value
when destined for domestic
Mixed or compound customs duties consumption in the exporting
country.
Customs duties that impose 4. Which importation is causing or
both ad valorem and specific is threatening to cause material
customs duties. Ex. 50% ad injury to a domestic industry or
valorem plus P350.00 per materially retards the
piece. establishment of a domestic
industry producing the like
Special Tariffs product.
5. The anti-dumping duty is the
Additional import duties difference between export price
imposed specific kinds of and the normal value of such
imported articles under certain product, commodity or article.
conditions. (Sec. 301 [a] [s] [1] TCCP as
amended by R.A. 8752 Anti-
Purpose of Special Tariffs Dumping Act of 1999)

1. Imposed for the protection of When is Anti-dumping duty


consumers and manufacturers imposed?
as well as Philippine products
from undue competition posed 1. Where a product, commodity or
by foreign made products. article of commerce

129

a. Is exported into the under Sec. 301 and 302 of the TCCP
Philippines fall within the exclusive appellate
b. At a price less than its jurisdiction of the Court of Tax Appeals
normal value (CTA)
c. When destined for domestic
consumption Amount of anti-dumping duty
2. And such exportation
a. Is causing or The difference between the export
b. Is threatening to cause price and the normal value of such
material injury to a domestic product, commodity or article.
industry or
c. Materially retards the Countervailing duty defined
establishment of a domestic
industry producing the like 1. Additional customs duties
product. imposed on
2. Any product, commodity or
What is the normal value for article of commerce
purposes of anti-dumping? 3. Which is granted directly or
indirectly
a. The comparable price a. By the government in the
b. At the date of sale country of origin or
c. Of like product, commodity or exportation
article b. Any kind or form of specific
d. In the ordinary course of trade subsidy
e. When destined for consumption c. Upon the production,
in the country of export manufacture or exportation
of such product, commodity
Who is the imposing authority of or article and
Anti-dumping duties? 4. The importation of such
subsidized product, commodity
a. The Secretary of Trade and or article
Industry in the case of non- a. Has caused or
agricultural product, commodity b. Threatens to cause material
or article injury to a domestic industry
b. The Secretary of Agriculture in c. Has materially retarded the
the case of agricultural product, growth or prevents the
commodity or article after formal establishment of a domestic
investigation and affirmative industry
finding of the Tariff Commission
c. The decision on whether or not Kinds of specific subsidies
to impose a definitive anti-
dumping duty remains the 1. Bounty
prerogative of the Tariff - Cash award paid to an
Commission. exporter or manufacturer
2. Subsidy
Where to appeal? - Fiscal incentives not in the
form of direct cash award to
The decisions of the DTI and DA encourage manufacturers or
Secretaries involving dumping duties exporters

130

3. Subvention
- Any assistance other than a Imposing authority for marking
bounty or subsidy given by a duties
government for the
manufacture and/or - Commissioner of Customs
exportation of an article
Instances when the Commissioner
Amount of countervailing duty of the BOC may except imported
article from the marking
The duty shall be equivalent to the requirement:
bounty, subsidy or subvention.
1. Such article is incapable of
Imposing authority for being marked
countervailing duties 2. Such article cannot be marked
prior to shipment to the
1. The DTI Secretary in the case Philippines without injury
of non-agricultural product, 3. Such article cannot be marked
commodity or article or prior shipment to the Philippines
2. The DA Secretary in the case of except at an expense
agricultural product, commodity economically prohibitive of its
or article after formal importation
investigation and affirmative 4. The marking of a container will
finding of the Tariff Commission reasonably indicate the origin of
3. The decision on whether or not such article
to impose a definitive 5. Such article is a crude
countervailing duty remains the substance
prerogative of the Tariff 6. Such article is imported for use
Commission. by the importer and not
intended for sale in its imported
Marking Duty defined or any other form
7. Such article is to be processed
1. Additional customs duties into the Philippines by the
imposed on foreign articles or importer for his account
its container if the article itself otherwise then for the purpose
cannot be marked of concealing the origin of such
a. Not marked in any official article and in such manner that
language of the Philippines any mark contemplated would
b. In a conspicuous place be necessarily be obliterated,
i. As legibly, indelibly and destroyed or permanently
permanently concealed
ii. In such manner as to 8. An ultimate purchaser by
indicate to an ultimate reason of the character of such
purchaser in the article must necessarily know
Philippines the name of the country of origin of such
the country of origin article even though it is not
2. The duty shall be five percent marked to indicate its origin
(5%) ad valorem of the articles 9. Such article was produced more
than twenty (20) years prior to

131

its importation into the b. In such manner as to


Philippines place the commerce of
10. Such article cannot be marked the Philippines at a
after importation except at an disadvantage compard
expense which is economically with the commerce of
prohibitive and the failure to any foreign country
mark the article before c. The duty shall not
importation was not due to any exceed 100% ad valorem
purpose of the importer, of the article
producer, seller or shipper to
avoid compliance with the Who is the imposing authority of
section. discriminatory duties?
The President of the Philippines (Sec.
Discriminatory duty 304 TCCP)

New or additional customs duly What are Safeguard Measures


imposed upon articles wholly or under R.A. 8800 or the Safeguard
in part of the growth or product Measures Act?
of or imported in a vessel of any These are emergency measures
foreign country which including tariffs, to protect domestic
industries and producers from
1. Imposes directly or indirectly increased imports which inflict or could
upon the disposition or inflict serious injury on them.
transportation in transit Other safeguard measure may include
through or re-exportation tariff rate, quotas or quantitative
from such country of any restrictions on the importation of
article wholly or in part the product into the country.
growth of product in the
Philippinws Who has authority to impose
a. Any unreasonable safeguard measure?
charge, exaction,
regulation or limitation 1. The DA Secretary if the
which is not equally questioned article is an
enforced upon like agricultural product
articles of every foreign 2. The DTI Secretary if the
country or questioned article is a non-
agricultural product
2. Discriminates against the 3. The final determination shall be
commerce of the Philippines the prerogative of the Tariff
directly or indirectly by law Commission
or administrative regulation
or practice by or in respect What is the Flexible Tariff Clause?
to any
a. Customs, tonnage or port 1. The Congress may by law
duty, fee, charge, authorize the President to fix within
exaction, classification, specified limits and subject to such
regulation, condition, limitations and restrictions as it may
restriction or prohibition impose

132

a. Tariff rates, import and


export quota, tonnage and
wharfage dues and
b. Other duties or imposts
within the framework of the
national development
program of the Government

2. In the interest of national economy;


general welfare and or national
security, the President upon
recommendation of the NEDA is
empowered.
a. To increase, reduce or
remove existing protective
rates of import duty,
provided that the increase
should not be higher than
100% ad valorem.
b. To establish import quota or
to ban imports to any
commodity.
c. To impose additional duty on
all imports not exceeding
10% ad valorem.
d. To modify the forms of duty
whether ad valorem or
specific.

133

Regular Duties Special Duties


Definition
Taxes that are imposed or assessed upon Additional import duties imposed specific kinds of
merchandise from, or exported to, a foreign imported articles under certain conditions.
country.
Purpose
1) To raise revenues 1) Imposed for the protection of consumers
2) To serves as protective barriers and manufacturers as well as Philippine
3) To discourage the exportation of certain products from undue competition posed by
articles, usually raw materials, in order to foreign made products.
promote their manufacture into finished 2) To protect domestic industries and
products producers from increased imports which
inflict or could inflict serious injury on them.
Kinds
a) Ad valorem customs duties 1) Under the TCCP:
b) Specific customs duties a) Anti-dumping duty
c) Mixed or compound customs duties b) Countervailing duty
c) Marking duty
d) Discriminatory duty
2) Under the Safeguard Measures Act (R.A.
8800):
- Additional tariffs imposed as a safeguard
measure

134


Anti-Dumping Countervailing Discriminatory Safeguard
Marking Duty Flexible Tariff Clause
Duty Duty Duty Measures
Definition
Additional Additional Imposes directly
A special duty
customs duties customs duties or indirectly upon
imposed on the
imposed on any imposed on the disposition or
importation of a
product, foreign articles or transportation in
product,
commodity or its container if the transit through or
commodity or 2) In the interest of national
article of article itself not re-exportation
article of economy; general welfare and
commerce which marked in any from such
commerce into or national security, the
is granted directly official language country of any
the Philippines at President upon
or indirectly by of the Philippines article wholly or These are
less than its recommendation of the NEDA
the government in a conspicuous in part the growth emergency
normal value is empowered:
in the country of place as legibly, of product in the measures
when destined for a) To increase, reduce or
origin or indelibly and Philippines any including tariffs,
domestic remove existing protective rates
exportation any permanently unreasonable to protect
consumption in of import duty, provided that the
kind or form of in such manner charge, exaction, domestic
the exporting increase should not be higher
specific subsidy as to indicate to regulation or industries and
country which than 100% ad valorem.
upon the an ultimate limitation which is producers from
importation is b) To establish import
production, purchaser in the not equally increased imports
causing or is quota or to ban imports to any
manufacture or Philippines the enforced upon which inflict or
threatening to commodity.
exportation of name of the like articles of could inflict
cause material c) To impose additional
such product, country of origin. every foreign serious injury on
injury to a duty on all imports not
commodity or country or them.
domestic industry exceeding 10% ad valorem.
article and the discriminates
or materially d) To modify the forms of
importation of against the
retards the duty whether ad valorem or
such subsidized commerce of the
establishment of specific.
product, Philippines
a domestic
commodity or directly or
industry
article has indirectly by law
producing the like
caused or or administrative
product.
threatens to regulation or

135

cause material practice by or in


injury to a respect to any
domestic industry customs, tonnage
or has materially or port duty, fee,
retarded the charge, exaction,
growth or classification,
prevents the regulation,
establishment of condition,
a domestic restriction or
industry prohibition in
such manner as
to place the
commerce of the
Philippines at a
disadvantage
compard with the
commerce of any
foreign country
Law Governing
TCCP TCCP TCCP TCCP RA 8800 TCCP
Imposed on
a. General goods
or products
imported in
Goods from Any import as determined by
Imported good increased
Imported goods Goods enjoying a countries that the President upon
not properly quantities.
sold below its subsidy in the discriminate investigation of the Tariff
marked as b. Special volume
normal value exporting country against Philippine commission and
regards its origin of imports exceed
products recommendation of NEDA
a base trigger
level or price falls
below a trigger

136

price level.
Purpose
Protect local Protect local Prevent possible Protect domestic
Protect interest of national
industries from industries from deceptions as to Protect national industries and
economy, general welfare and
undue undue the origin of interest producers from
national security.
competition competition goods increased imports
Amount/Rate of Duty
5% ad valorem a. sufficient to
redress or
Difference
Not exceeding prevent injury to
between export Amount of Shall not exceed 10% ad
100% of ad domestic
price and normal subsidy valorem
valorem industries
price
b. Volume Test or
Price Test

137

CLASS RECITATION WITH to the BMW shop and ask for


SUGGESTED ANSWERS documents regarding properties
subject to custom?
Q: Are US dollar bills subject to
forfeiture when a tourist fails to declare Yes. Provided that the BMW shop
such items? does not serve as a dwelling house.
A: Yes. US Dollar bills are not legal Section 2209 states that, For the
tender in the Philippines and are more effective discharge of his official
considered as merchandise within the duties, he may also at anytime enter,
ambit of Sec. 1363 (f) of the TCCP. pass through, or search any land or
(Bastida vs Commissioner of inclosure or any warehouse, store or
Customs) other building not being a dwelling
house. A warehouse, store or other
Q: Bureau of Customs contains building or inclosure does not become
laptop bags, seized from a shipment a dwelling house merely by reason of
of laptops by it. What can you do as the fact that a person employed as
counsel of the owner of the seized watchman lives in the place, nor will
property? the fact that his family stays there with
him alter the case (Section 2208, TCC)
A: Ensure that the Collector of
Customs has given a written notice of Q: Importation of religious artifacts,
the hearing to the owner of the seized are they subject to custom duties?
articles. The failure of which is
tantamount to a denial of due process, They are conditionally free
cognizable before ordinary courts of importations and are therefore
justice. exempt.

Represent the owner during the CASE DIGESTS


hearing before the Collector. Should
the judgment be adverse to the owner, 1. HONORABLE SECRETARY v.
perfect an appeal before the SOUTHWING HEAVY
Commissioner of Customs within 15 INDUSTRIES
days from notice thereof. Should the
same be still adverse, file a petition for FACTS:
review before the CTA within the 30- This instant consolidated petitions
day reglementary period (Section 2402 seek to annul the decisions of the RTC
of TCC in relation to Section 7 of RA which declared Article 2, Section 3.1 of
1125). In seizure cases (not n protest Executive Order 156 unconstitutional.
cases) file a motion for injunction Said EO 156 prohibits the importation
before the Tax Court to enjoin any of used vehicles in the country
actions of the Bureau of Customs. inclusive of the Subic Bay Freeport
Zone.
Apply for the settlement of the case by President Arroyo issued Executive
payment of fine or redemption of Order 156 entitled prohibiting the
forfeited properties (Section 2307 of importation of all types of used motor
the TCCP). vehicles in the country including the
Subic Bay Freeport, or the Freeport
Q: Can a port collector go anytime Zone, subject to a few exceptions.

138

Consequently, three separate actions respondents have the legal standing to


for declaratory relief were filed by assail the validity of EO 156.2.
Southwing and Motor Vehicle
Importers Association of Subic Bay 2. NO. However Police power is
Freeport Inc. praying that judgment be inherent in a government to enact
rendered declaring Article 2, laws, within constitutional limits, to
Section3.1 of the EO 156 promote the order, safety, health,
unconstitutional and illegal. The RTC morals, and general welfare of society.
rendered a summary judgment It is lodged primarily with the
declaring the such unlawful usurpation legislature. By virtue of a valid
of legislative power vested by the delegation of legislative power, it may
Constitution with Congress and that also be exercised by the President and
the proviso is contrary to the mandate administrative boards, as well as the
of the Bases Conversion and lawmaking bodies on all municipal
Development Act of 1992 which allows levels, including the barangay. Such
the free flow of goods and capital delegation confers upon the President
within the Freeport. quasi-legislative power which may be
CA denied the appeal on the defined as the authority delegated by
ground of lack of any statutory basis the law-making body to the
for the President to issue the same. It administrative body to adopt rules and
held that the prohibition on the regulations intended to carry out the
importation of use motor vehicles is an provisions of the law and implement
exercise of police power vested on the legislative policy provided that it must
legislature hence the Presidents act is comply with the following requisites:
void. (1) Its promulgation must be
authorized by the legislature
ISSUES: 1. It must be promulgated in
1. Whether or not the Private accordance with the prescribed
Respondents has the capacity to sue? procedure;
2. Whether or not Article 2, Section 3.1 2. It must be within the scope of the
of EO 156 is void? authority given by the legislature; and
3. It must be reasonable.
HELD:
1. YES. The broad subject of the 2. TRANSGLOBE INTERNATIONAL
prohibited importation is all types of v. CA
used motor vehicles. Respondents
would definitely suffer a direct injury FACTS:
from the implementation of EO 156 A shipment from Hong Kong arrived in
because their certificate of registration the Port of Manila on board the "S/S
and tax exemption authorize them to Sea Dragon." Its Inward Foreign
trade and/or import new and used Manifest indicated that the shipment
motor vehicles and spare parts, except contained 1,054 pieces of various
used cars. Other types of motor hand tools. Acting on information that
vehicles imported and/or traded by the shipment violated certain
respondents and not falling within the provisions of the Tariff and Customs
category of used cars would thus be Code as amended, agents of the
subjected to the ban to the prejudice of Economic Intelligence and
their business. Undoubtedly, Investigation Bureau seized the
shipment while in transit to the Trans

139

Orient container yard-container freight On the same date, respondent


station. An examination thereof yielded Maglipon coordinated with the local
significant results. Consequently, a police substations to assist them in the
warrant of seizure and distraint was execution of the respective warrants of
issued by the District Collector. seizure and detention. Thereafter, the
team searched the two premises.
For failure of petitioner, to appear
during the hearing despite due notice, They were barred from entering the
collector decreed the forfeiture of the place, but some members of the team
shipment in favor of the government. were able to force themselves inside.
They were able to inspect the
ISSUE: premises and noted that some articles
Whether or not Transglobe should be were present which were not included
allowed to redeem the forfeited in the list contained in the warrant..
shipments? Hence, amended warrants of seizure
and detention were issued.
HELD:
Yes. In the absence of fraud, the Customs personnel started hauling the
importation is not absolutely prohibited articles pursuant to the amended
and the release of the property would warrants. This prompted petitioners to
not be contrary to law, the Court file a case for Injunction before the
deems it proper to allow the Regional Trial Court of Makati against
redemption of the forfeited shipment respondents. The trial court issued a
by petitioner upon payment of its Temporary Restraining Order.
computed domestic market value. This Respondents filed a Motion to Dismiss
is to expedite the collection of on the ground that the Regional Trial
revenues and hasten the release of Court has no jurisdiction over the
cargoes under seizure proceedings to subject matter of the complaint. Trial
the end that importers and exporters Court denied.
will benefit in the form of reduction in
expenditures and assurance of return The Court of Appeals set aside the
of their investments that have been questioned orders of the trial court.
tied up with their importations. Hence this petition.

3. JAO v. CA ISSUE
Whether or not the Bureau of Customs
FACTS: has lost jurisdiction to order the
Bureau of Customs, received seizure of the items?
information regarding the presence of
allegedly untaxed vehicles and parts in HELD
the premises owned by a certain Pat No. The Collector of Customs when
Hao. After conducting a surveillance of sitting in forfeiture proceedings
the two places. District Collector of constitutes a tribunal expressly vested
Customs issued the warrants of by law with jurisdiction to hear and
seizure and detention upon determine the subject matter of such
recommendation of respondent proceedings without any interference
Maglipon. from the Court of First Instance.

140

4. ACTING COMMISSIONER OF
CUSTOMS v. CA HELD:
Yes. Upon the facts of the case, the
FACTS: requirement of the law that the
Andrulis representing himself as an existence of probable cause should
American businessman on joint first be shown before firing of the
ventures with his Filipino forfeiture proceedings, had been fully
counterparts, arrived in Manila and met. When Andrulis was apprehended
checked in at the Century Park at the MIA and was found to have in
Sheraton Hotel. Two days later he left his possession the various foreign
the hotel surreptitiously without paying currencies, he could not produce the
for his bills. The Chief Security Officer required Central Bank authorization
of the Hotel, immediately tipped-off the allowing him to bring them out of the
Customs authorities on Andrulis country. This constituted prima facie
intention to abscond. MIA, the evidence of infringement of the
Customs authorities looked for provisions of CB Circular No. 534 and
Andrulis from among the passengers provided sufficient basis for the seizure
who were already on board Philippine of the said foreign exchange.
Airlines bound for Singapore. Probable cause having been shown,
Apprehensive, Andrulis locked himself the burden of proof was upon Andrulis
inside the airplanes comfort room. to establish that he fell within the
After some negotiations Andrulis finally purview of the exception prescribed in
yielded to the authorities and the second paragraph of the Section 3
surrendered the luggage he was of CB Circular No. 534 in that he
carrying which, when opened by the actually brought into the country the
authorities, contained various foreign foreign currencies and was just taking
currencies. them out.

A criminal charge was filed for violation 5. DELA FUENTE vs DE VEYRA


of CB Circular No. 534. The Assistant
City Fiscal dismissed the charge . FACTS:
Acting District Collector of Customs M/V Lucky Star I, owned by the private
rendered a Decision, which found respondent Lucky Star Shipping Co.,
Andrulis to have violated Central Bank was unloading cargo to several small
Circular No. 534 in relation to section watercrafts alongside the vessel off the
2530(f) of the Tariff and Customs coast of Zambales approximately thirty
Code. Acting Commissioner affirmed (30) nautical miles east of
the same. CTA reversed. Hence the Scarborough Shoal. Q-boat spotted
instant Petition for Review on certiorari the same and as it was approaching
by the Acting Commissioner of the M/V Lucky Star I, it was met by
Customs represented by the Solicitor gunfire from the smaller watercrafts
General. which immediately fled from the scene.
Only the M/V Lucky Star I was
ISSUE: apprehended.
Whether or not Andrulis has the
burden of proof to show that the Upon boarding the vessel, coast guard
foreign currencies seized from him officers discovered several foreign
were brought into the Philippines by made "Champion, menthol, filter-
him? tipped, king-size cigarettes". The

141

captain of the ship was not able to without any interference from the Court
present documents or papers for the of First Instance.
"Champion" cigarettes. He and the
crew were arrested for smuggling.
Lucky Star I was also seized. from import duties after complying with
the formalities prescribed by the
A warrant of seizure and detention was regulations as promulgated by the
issued by the Collector of Customs Commissioner of Customs. (Section
against the vessel and articles seized 105, TCC)
for violation of Section 2530 (a) of the
Tariff and Customs Code as to the
vessel.

The Acting Provincial Fiscal filed


before the Court of First Instance of
Zambales, Branch II, an information for
violation of Section 101 of the Tariff
and Customs Code .
Meanwhile, private respondents filed
before the Court of First Instance of
Manila, a complaint for injunction and
recovery of personal property against
the petitioners praying for the release
of the M/V Lucky Star I. On June 23,
1972, the respondent judge issued an
order releasing the vessel from
detention.

ISSUE:
Whether or not the Court of First
Instance has jurisdiction to take
cognizance of the complaint for the
release of the vessel M/V Lucky Star I,
which is the subject of a seizure and
forfeiture proceedings before the
Collector of Customs?

HELD:
No. The exclusive jurisdiction over
seizure and forfeiture cases vested in
the Collector of Customs precludes a
Court of First Instance from assuming
cognizance over such cases. The
Collector of Customs when sitting in
forfeiture proceedings constitutes a
tribunal expressly vested by law with
jurisdiction to hear and determine the
subject matter of such proceedings

142

Regular Duties Special Duties


Definition
Taxes that are imposed or assessed upon Additional import duties imposed specific kinds of
merchandise from, or exported to, a foreign imported articles under certain conditions.
country.
Purpose
1) To raise revenues 1) Imposed for the protection of consumers
2) To serves as protective barriers and manufacturers as well as Philippine
3) To discourage the exportation of certain products from undue competition posed by
articles, usually raw materials, in order to foreign made products.
promote their manufacture into finished 2) To protect domestic industries and
products producers from increased imports which
inflict or could inflict serious injury on them.
Kinds
a) Ad valorem customs duties 1) Under the TCCP:
b) Specific customs duties a) Anti-dumping duty
c) Mixed or compound customs duties b) Countervailing duty
c) Marking duty
d) Discriminatory duty
2) Under the Safeguard Measures Act (R.A.
8800):
- Additional tariffs imposed as a safeguard
measure

134


Anti-Dumping Countervailing Discriminatory Safeguard
Marking Duty Flexible Tariff Clause
Duty Duty Duty Measures
Definition
Additional Additional Imposes directly
A special duty
customs duties customs duties or indirectly upon
imposed on the
imposed on any imposed on the disposition or
importation of a
product, foreign articles or transportation in
product,
commodity or its container if the transit through or
commodity or 2) In the interest of national
article of article itself not re-exportation
article of economy; general welfare and
commerce which marked in any from such
commerce into or national security, the
is granted directly official language country of any
the Philippines at President upon
or indirectly by of the Philippines article wholly or These are
less than its recommendation of the NEDA
the government in a conspicuous in part the growth emergency
normal value is empowered:
in the country of place as legibly, of product in the measures
when destined for a) To increase, reduce or
origin or indelibly and Philippines any including tariffs,
domestic remove existing protective rates
exportation any permanently unreasonable to protect
consumption in of import duty, provided that the
kind or form of in such manner charge, exaction, domestic
the exporting increase should not be higher
specific subsidy as to indicate to regulation or industries and
country which than 100% ad valorem.
upon the an ultimate limitation which is producers from
importation is b) To establish import
production, purchaser in the not equally increased imports
causing or is quota or to ban imports to any
manufacture or Philippines the enforced upon which inflict or
threatening to commodity.
exportation of name of the like articles of could inflict
cause material c) To impose additional
such product, country of origin. every foreign serious injury on
injury to a duty on all imports not
commodity or country or them.
domestic industry exceeding 10% ad valorem.
article and the discriminates
or materially d) To modify the forms of
importation of against the
retards the duty whether ad valorem or
such subsidized commerce of the
establishment of specific.
product, Philippines
a domestic
commodity or directly or
industry
article has indirectly by law
producing the like
caused or or administrative
product.
threatens to regulation or

135

cause material practice by or in


injury to a respect to any
domestic industry customs, tonnage
or has materially or port duty, fee,
retarded the charge, exaction,
growth or classification,
prevents the regulation,
establishment of condition,
a domestic restriction or
industry prohibition in
such manner as
to place the
commerce of the
Philippines at a
disadvantage
compard with the
commerce of any
foreign country
Law Governing
TCCP TCCP TCCP TCCP RA 8800 TCCP
Imposed on
a. General goods
or products
imported in
Goods from Any import as determined by
Imported good increased
Imported goods Goods enjoying a countries that the President upon
not properly quantities.
sold below its subsidy in the discriminate investigation of the Tariff
marked as b. Special volume
normal value exporting country against Philippine commission and
regards its origin of imports exceed
products recommendation of NEDA
a base trigger
level or price falls
below a trigger

136

price level.
Purpose
Protect local Protect local Prevent possible Protect domestic
Protect interest of national
industries from industries from deceptions as to Protect national industries and
economy, general welfare and
undue undue the origin of interest producers from
national security.
competition competition goods increased imports
Amount/Rate of Duty
a. sufficient to
redress or
Difference
Not exceeding prevent injury to
between export Amount of Shall not exceed 10% ad
5% ad valorem 100% of ad domestic
price and normal subsidy valorem
valorem industries
price
b. Volume Test or
Price Test

137

CLASS RECITATION WITH to the BMW shop and ask for


SUGGESTED ANSWERS documents regarding properties
subject to custom?
Q: Are US dollar bills subject to
forfeiture when a tourist fails to declare Yes. Provided that the BMW shop
such items? does not serve as a dwelling house.
A: Yes. US Dollar bills are not legal Section 2209 states that, For the
tender in the Philippines and are more effective discharge of his official
considered as merchandise within the duties, he may also at anytime enter,
ambit of Sec. 1363 (f) of the TCCP. pass through, or search any land or
(Bastida vs Commissioner of inclosure or any warehouse, store or
Customs) other building not being a dwelling
house. A warehouse, store or other
Q: Bureau of Customs contains building or inclosure does not become
laptop bags, seized from a shipment a dwelling house merely by reason of
of laptops by it. What can you do as the fact that a person employed as
counsel of the owner of the seized watchman lives in the place, nor will
property? the fact that his family stays there with
him alter the case (Section 2208, TCC)
A: Ensure that the Collector of
Customs has given a written notice of Q: Importation of religious artifacts,
the hearing to the owner of the seized are they subject to custom duties?
articles. The failure of which is
tantamount to a denial of due process, They are conditionally free
cognizable before ordinary courts of importations and are therefore
justice. exempt.

Represent the owner during the CASE DIGESTS


hearing before the Collector. Should
the judgment be adverse to the owner, 1. HONORABLE SECRETARY v.
perfect an appeal before the SOUTHWING HEAVY
Commissioner of Customs within 15 INDUSTRIES
days from notice thereof. Should the
same be still adverse, file a petition for FACTS:
review before the CTA within the 30- This instant consolidated petitions
day reglementary period (Section 2402 seek to annul the decisions of the RTC
of TCC in relation to Section 7 of RA which declared Article 2, Section 3.1 of
1125). In seizure cases (not n protest Executive Order 156 unconstitutional.
cases) file a motion for injunction Said EO 156 prohibits the importation
before the Tax Court to enjoin any of used vehicles in the country
actions of the Bureau of Customs. inclusive of the Subic Bay Freeport
Zone.
Apply for the settlement of the case by President Arroyo issued Executive
payment of fine or redemption of Order 156 entitled prohibiting the
forfeited properties (Section 2307 of importation of all types of used motor
the TCCP). vehicles in the country including the
Subic Bay Freeport, or the Freeport
Q: Can a port collector go anytime Zone, subject to a few exceptions.

138

Consequently, three separate actions respondents have the legal standing to


for declaratory relief were filed by assail the validity of EO 156.2.
Southwing and Motor Vehicle
Importers Association of Subic Bay 2. NO. However Police power is
Freeport Inc. praying that judgment be inherent in a government to enact
rendered declaring Article 2, laws, within constitutional limits, to
Section3.1 of the EO 156 promote the order, safety, health,
unconstitutional and illegal. The RTC morals, and general welfare of society.
rendered a summary judgment It is lodged primarily with the
declaring the such unlawful usurpation legislature. By virtue of a valid
of legislative power vested by the delegation of legislative power, it may
Constitution with Congress and that also be exercised by the President and
the proviso is contrary to the mandate administrative boards, as well as the
of the Bases Conversion and lawmaking bodies on all municipal
Development Act of 1992 which allows levels, including the barangay. Such
the free flow of goods and capital delegation confers upon the President
within the Freeport. quasi-legislative power which may be
CA denied the appeal on the defined as the authority delegated by
ground of lack of any statutory basis the law-making body to the
for the President to issue the same. It administrative body to adopt rules and
held that the prohibition on the regulations intended to carry out the
importation of use motor vehicles is an provisions of the law and implement
exercise of police power vested on the legislative policy provided that it must
legislature hence the Presidents act is comply with the following requisites:
void. (1) Its promulgation must be
authorized by the legislature
ISSUES: 1. It must be promulgated in
1. Whether or not the Private accordance with the prescribed
Respondents has the capacity to sue? procedure;
2. Whether or not Article 2, Section 3.1 2. It must be within the scope of the
of EO 156 is void? authority given by the legislature; and
3. It must be reasonable.
HELD:
1. YES. The broad subject of the 2. TRANSGLOBE INTERNATIONAL
prohibited importation is all types of v. CA
used motor vehicles. Respondents
would definitely suffer a direct injury FACTS:
from the implementation of EO 156 A shipment from Hong Kong arrived in
because their certificate of registration the Port of Manila on board the "S/S
and tax exemption authorize them to Sea Dragon." Its Inward Foreign
trade and/or import new and used Manifest indicated that the shipment
motor vehicles and spare parts, except contained 1,054 pieces of various
used cars. Other types of motor hand tools. Acting on information that
vehicles imported and/or traded by the shipment violated certain
respondents and not falling within the provisions of the Tariff and Customs
category of used cars would thus be Code as amended, agents of the
subjected to the ban to the prejudice of Economic Intelligence and
their business. Undoubtedly, Investigation Bureau seized the
shipment while in transit to the Trans

139

Orient container yard-container freight On the same date, respondent


station. An examination thereof yielded Maglipon coordinated with the local
significant results. Consequently, a police substations to assist them in the
warrant of seizure and distraint was execution of the respective warrants of
issued by the District Collector. seizure and detention. Thereafter, the
team searched the two premises.
For failure of petitioner, to appear
during the hearing despite due notice, They were barred from entering the
collector decreed the forfeiture of the place, but some members of the team
shipment in favor of the government. were able to force themselves inside.
They were able to inspect the
ISSUE: premises and noted that some articles
Whether or not Transglobe should be were present which were not included
allowed to redeem the forfeited in the list contained in the warrant..
shipments? Hence, amended warrants of seizure
and detention were issued.
HELD:
Yes. In the absence of fraud, the Customs personnel started hauling the
importation is not absolutely prohibited articles pursuant to the amended
and the release of the property would warrants. This prompted petitioners to
not be contrary to law, the Court file a case for Injunction before the
deems it proper to allow the Regional Trial Court of Makati against
redemption of the forfeited shipment respondents. The trial court issued a
by petitioner upon payment of its Temporary Restraining Order.
computed domestic market value. This Respondents filed a Motion to Dismiss
is to expedite the collection of on the ground that the Regional Trial
revenues and hasten the release of Court has no jurisdiction over the
cargoes under seizure proceedings to subject matter of the complaint. Trial
the end that importers and exporters Court denied.
will benefit in the form of reduction in
expenditures and assurance of return The Court of Appeals set aside the
of their investments that have been questioned orders of the trial court.
tied up with their importations. Hence this petition.

3. JAO v. CA ISSUE
Whether or not the Bureau of Customs
FACTS: has lost jurisdiction to order the
Bureau of Customs, received seizure of the items?
information regarding the presence of
allegedly untaxed vehicles and parts in HELD
the premises owned by a certain Pat No. The Collector of Customs when
Hao. After conducting a surveillance of sitting in forfeiture proceedings
the two places. District Collector of constitutes a tribunal expressly vested
Customs issued the warrants of by law with jurisdiction to hear and
seizure and detention upon determine the subject matter of such
recommendation of respondent proceedings without any interference
Maglipon. from the Court of First Instance.

140

4. ACTING COMMISSIONER OF
CUSTOMS v. CA HELD:
Yes. Upon the facts of the case, the
FACTS: requirement of the law that the
Andrulis representing himself as an existence of probable cause should
American businessman on joint first be shown before firing of the
ventures with his Filipino forfeiture proceedings, had been fully
counterparts, arrived in Manila and met. When Andrulis was apprehended
checked in at the Century Park at the MIA and was found to have in
Sheraton Hotel. Two days later he left his possession the various foreign
the hotel surreptitiously without paying currencies, he could not produce the
for his bills. The Chief Security Officer required Central Bank authorization
of the Hotel, immediately tipped-off the allowing him to bring them out of the
Customs authorities on Andrulis country. This constituted prima facie
intention to abscond. MIA, the evidence of infringement of the
Customs authorities looked for provisions of CB Circular No. 534 and
Andrulis from among the passengers provided sufficient basis for the seizure
who were already on board Philippine of the said foreign exchange.
Airlines bound for Singapore. Probable cause having been shown,
Apprehensive, Andrulis locked himself the burden of proof was upon Andrulis
inside the airplanes comfort room. to establish that he fell within the
After some negotiations Andrulis finally purview of the exception prescribed in
yielded to the authorities and the second paragraph of the Section 3
surrendered the luggage he was of CB Circular No. 534 in that he
carrying which, when opened by the actually brought into the country the
authorities, contained various foreign foreign currencies and was just taking
currencies. them out.

A criminal charge was filed for violation 5. DELA FUENTE vs DE VEYRA


of CB Circular No. 534. The Assistant
City Fiscal dismissed the charge . FACTS:
Acting District Collector of Customs M/V Lucky Star I, owned by the private
rendered a Decision, which found respondent Lucky Star Shipping Co.,
Andrulis to have violated Central Bank was unloading cargo to several small
Circular No. 534 in relation to section watercrafts alongside the vessel off the
2530(f) of the Tariff and Customs coast of Zambales approximately thirty
Code. Acting Commissioner affirmed (30) nautical miles east of
the same. CTA reversed. Hence the Scarborough Shoal. Q-boat spotted
instant Petition for Review on certiorari the same and as it was approaching
by the Acting Commissioner of the M/V Lucky Star I, it was met by
Customs represented by the Solicitor gunfire from the smaller watercrafts
General. which immediately fled from the scene.
Only the M/V Lucky Star I was
ISSUE: apprehended.
Whether or not Andrulis has the
burden of proof to show that the Upon boarding the vessel, coast guard
foreign currencies seized from him officers discovered several foreign
were brought into the Philippines by made "Champion, menthol, filter-
him? tipped, king-size cigarettes". The

141

captain of the ship was not able to without any interference from the Court
present documents or papers for the of First Instance.
"Champion" cigarettes. He and the
crew were arrested for smuggling.
Lucky Star I was also seized. from import duties after complying with
the formalities prescribed by the
A warrant of seizure and detention was regulations as promulgated by the
issued by the Collector of Customs Commissioner of Customs. (Section
against the vessel and articles seized 105, TCC)
for violation of Section 2530 (a) of the
Tariff and Customs Code as to the
vessel.

The Acting Provincial Fiscal filed


before the Court of First Instance of
Zambales, Branch II, an information for
violation of Section 101 of the Tariff
and Customs Code .
Meanwhile, private respondents filed
before the Court of First Instance of
Manila, a complaint for injunction and
recovery of personal property against
the petitioners praying for the release
of the M/V Lucky Star I. On June 23,
1972, the respondent judge issued an
order releasing the vessel from
detention.

ISSUE:
Whether or not the Court of First
Instance has jurisdiction to take
cognizance of the complaint for the
release of the vessel M/V Lucky Star I,
which is the subject of a seizure and
forfeiture proceedings before the
Collector of Customs?

HELD:
No. The exclusive jurisdiction over
seizure and forfeiture cases vested in
the Collector of Customs precludes a
Court of First Instance from assuming
cognizance over such cases. The
Collector of Customs when sitting in
forfeiture proceedings constitutes a
tribunal expressly vested by law with
jurisdiction to hear and determine the
subject matter of such proceedings

142

Concurrence or
CTA Laws Composition Division Quorum Affirmative Jurisdiction
Vote
1 Presiding Judge Exclusive
R.A. 1125 2
2 Associate Judges Appellate

2 Divisions with 3
1 Presiding Justice Justices each
Exclusive
5 Associate
Appellate
Justices Chairmen: en banc 4 en banc 4
R.A. 9282
1. Presiding Justice Division 2 Division 2
Exclusive
May sit en banc or (1st Division)
Original
in 2 Divisions 2. Most Senior
Associate Justice
3 Divisions with 3
Justices each
1 Presiding Justice
Exclusive
8 Associate Chairmen:
Appellate
Justices 1. Presiding Justice en banc 5 en banc 5
R.A 9503
(1st Division) Division 2 Division 2
Exclusive
May sit en banc or 2. 2 Most Senior
Original
in 3 Divisions Associate
Justices

143

(2) Local tax cases decided by


THE COURT OF TAX APPEALS the Regional Trial Courts in the
exercise of their original
CTA LAWS jurisdiction; and
1. R.A. 1125 (3) Tax collection cases decided
a. The act creating the by the Regional Trial Courts in
Court of Tax Appeals the exercise of their original
2. R.A. 9282 jurisdiction involving final and
a. Expanded the jurisdiction executory assessments for
of the CTA taxes, fees, charges and
b. Elevated the rank of the penalties, where the principal
CTA to the level of a amount of taxes and penalties
collegiate court with claimed is less than one million
special jurisdiction pesos;
c. Provides for a larger
membership (b) Decisions, resolutions or orders of
3. R.A. 9503 the Regional Trial Courts in local tax
a. Enlarged the cases decided or resolved by them in
organizational structure the exercise of their appellate
of the CTA jurisdiction;
4. A.M. No. 05-11-07-CTA
a. Revised Rules of Court (c) Decisions, resolutions or orders of
of Tax Appeals the Regional Trial Courts in tax
b. The Rules of Court shall collection cases decided or resolved
apply suppletorily by them in the exercise of their
appellate jurisdiction;
JURISDICTION OF THE COURT OF
TAX APPEALS (d) Decisions, resolutions or orders on
motions for reconsideration or new trial
Jurisdiction of the Court of of the Court in Division in the exercise
Tax Appeals (En Banc) of its exclusive original jurisdiction over
tax collection cases;
Under A.M. No. 05-11-07-CTA Sec 2.
The Court en banc shall exercise (e) Decisions of the Central Board of
exclusive appellate jurisdiction to Assessment Appeals (CBAA) in the
review by appeal the following: exercise of its appellate jurisdiction
over cases involving the assessment
(a) Decisions or resolutions on motions and taxation of real property originally
for reconsideration or new trial of the decided by the provincial or city board
Court in Divisions in the exercise of its of assessment appeals;
exclusive appellate jurisdiction over:
(1) Cases arising from (f) Decisions, resolutions or orders on
administrative agencies motions for reconsideration or new trial
Bureau of Internal Revenue, of the Court in Division in the exercise
Bureau of Customs, of its exclusive original jurisdiction over
Department of Finance, cases involving criminal offenses
Department of Trade and arising from violations of the National
Industry, Department of Internal Revenue Code or the Tariff
Agriculture; and Customs Code and other laws

144

administered by the Bureau of Internal


Revenue or Bureau of Customs; 2. In tax collection cases involving final
and executory assessments for taxes,
(g) Decisions, resolutions or orders on fees, charges and penalties, where the
motions for reconsideration or new trial principal amount of taxes and fees,
of the Court in Division in the exercise exclusive of charges and penalties,
of its exclusive appellate jurisdiction claimed is One million pesos
over criminal offenses mentioned in (P1,000,000.00) or more.
the preceding subparagraph; and
B. Exclusive appellate jurisdiction
(h) Decisions, resolutions or orders of
the Regional trial Courts in the 1. Decisions of the Commissioner of
exercise of their appellate jurisdiction Internal Revenue in cases involving
over criminal offenses mentioned in disputed assessments, refunds of
subparagraph (f). internal revenue taxes, fees or other
charges, penalties in relation thereto,
This is in relation with SEC. 11and 18 or other matters arising under the
(2) of RA 1125 as amended by RA National Internal Revenue or other
9282 which states that with respect to laws administered by the Bureau of
decisions or rulings of the Central Internal Revenue;
Board of Assessment Appeals and the
Regional Trial Court in the exercise of 2. Inaction by the Commissioner of
its appellate jurisdiction appeal shall Internal Revenue in cases involving
be made by filing a petition for review disputed assessments, refunds of
under a procedure analogous to that internal revenue taxes, fees or other
provided for under rule 43 of the 1997 charges, penalties in relations thereto,
Rules of Civil Procedure with the CTA, or other matters arising under the
which shall hear the case en banc. National Internal Revenue Code or
"A party adversely affected by a other laws administered by the Bureau
resolution of a Division of the CTA on of Internal Revenue, where the
a motion for reconsideration or new National Internal Revenue Code
trial, may file a petition for review with provides a specific period of action, in
the CTA en banc." which case the inaction shall be
deemed a denial;
Jurisdiction of the Court of
Tax Appeals (Division) 3. Decisions, orders or resolutions of
the Regional Trial Courts in local tax
A. Exclusive original jurisdiction cases originally decided or resolved by
them in the exercise of their original or
1. All criminal offenses arising from appellate jurisdiction;
violations of the National Internal
Revenue Code or Tariff and Customs 4. Decisions of the Commissioner of
Code and other laws administered by Customs in cases involving liability for
the Bureau of Internal Revenue or the customs duties, fees or other money
Bureau of Customs, where the charges, seizure, detention or release
principal amount o taxes and fees, of property affected, fines, forfeitures
exclusive of charges and penalties, or other penalties in relation thereto, or
claimed is One million pesos other matters arising under the
(P1,000,000.00) or more. Customs Law or other laws

145

administered by the Bureau of Municipal Circuit Trial Courts in


Customs; their respective jurisdiction.
c. Over cases decided by the
5. Decisions of the Central Board of regular courts where there is no
Assessment Appeals in the exercise of specified amount claimed
its appellate jurisdiction over cases
involving the assessment and taxation 9. In tax collection cases:
of real property originally decided by a. Over appeals from the
the provincial or city board of judgments, resolutions or orders
assessment appeals; of the Regional Trial Courts in
tax collection cases originally
6. Decisions of the Secretary of decided by them, in their
Finance on customs cases elevated to respective territorial jurisdiction.
him automatically for review from b. Over petitions for review of
decisions of the Commissioner of the judgments, resolutions or
Customs which are adverse to the orders of the Regional Trial
Government under Section 2315 of the Courts in the Exercise of their
Tariff and Customs Code; appellate jurisdiction over tax
collection cases originally
7. Decisions of the Secretary of Trade decided by the Metropolitan
and Industry, in the case of Trial Courts, Municipal Trial
nonagricultural product, commodity or Courts and Municipal Circuit
article, and the Secretary of Agriculture Trial Courts, in their respective
in the case of agricultural product, jurisdiction
commodity or article, involving
dumping and countervailing duties PROCEDURE BEFORE THE COURT
under Section 301 and 302, OF TAX APPEALS
respectively, of the Tariff and Customs
Code, and safeguard measures under What is the meaning of exercise of
Republic Act No. 8800, where either original jurisdiction?
party may appeal the decision to
impose or not to impose said duties. It is the authority of the court to
take judicial cognizance of a
8. In criminal offenses: case filed for judicial action for
a. Over appeals from the the first time under conditions
judgments, resolutions or orders provided for by law.
of the Regional Trial Courts in
tax cases originally decided by What is the meaning of exercise of
them, in their respected appellate jurisdiction?
territorial jurisdiction.
b. Over petitions for review of It is the power of the court to re-
the judgments, resolutions or examine the judgment or final
orders of the Regional Trial order of a lower court which is
Courts in the exercise of their now brought for judicial review.
appellate jurisdiction over tax (Yamane v BA Lepanto
cases originally decided by the Condominium, G.R. No.
Metropolitan Trial Courts, 154993, October 25, 2005).
Municipal Trial Courts and

146

Are CTA proceedings strictly the same had been


governed by rules court? made before the Court.

No. R.A. 1125 explicitly states Upon the recommendation of such


that proceedings before it shall hearing such member, he shall
not be constrained by technical promptly submit to the Court his report
rules of evidence. in writing, stating his findings and
conclusions; and thereafter, the Court
In what cases does the CTA may shall render its decisions on the case,
receive evidence? adopting, modifying, or rejecting the
report in whole or in part, as the case
In all cases falling within the may be, or the Court may, in its
original jurisdiction of the court discretion recommit it with instructions,
in division in accordance with or receive further evidence. (Sec.12,
Sec. 3, Rule 4 of these rules. R.A. 1125).

In appeals in both civil and What is the procedure for the taking
criminal cases where the Court of evidence by a justice?
grants a new trial in accordance
with Sec. 2, Rule 53 and Sec. Taking of evidence by a
12, Rule 124 of the rules of justice. The Court may,
court (Sec. 2, Rule 12, Revised motuproprio or upon proper
Rules of the Court of Tax motion, direct that a case, or
Appeals). any issue therein, be assigned
to one of its members for the
What is the procedure for the taking taking of evidence, when the
of evidence? determination of a question of
fact arises at any stage of the
The Court may, upon proper proceedings, or when the taking
motion on or its initiative, direct of an account is necessary, or
that a case, or any issue when the determination of an
thereof, be assigned to one of issue of fact requires the
its members for the taking of examination of a long account.
evidence: The hearing before such justice
o when the determination shall proceed in all respects as
of a question of fact though the same had been
arises upon motion or made before the Court.
otherwise in any stage of
the proceedings, or Upon the completion of such
o when the taking of an hearing, the justice concerned
account is necessary, or shall promptly submit to the
o when the determination Court a written report thereon,
of an issue of fact stating therein his findings and
requires the examination conclusions. Thereafter, the
of a long account. The Court shall render its decision
hearing before such on the case, adopting,
member shall proceed in modifying, or rejecting the
all respects as though report in whole or in part, or, the
Court may, in its discretion,

147

recommit it to the justice with What are the Decisions, resolutions


instructions, or receive further or orders of the CTA in division that
evidence. (Sec. 3, Rule 12, may be subject of a motion for
Revised Rules of the Court of reconsideration or new trial filed
Tax Appeals). with the division itself?

Can evidence not formally offered Decisions or resolutions on motions for


be admitted in evidence? reconsideration or new trial of the
Court in Divisions in the exercise of its
General Rule No.Offer of exclusive appellate jurisdiction over:
evidence. The court shall (1) Cases arising from administrative
consider no evidence which has agencies Bureau of Internal
not been formally offered. The Revenue, Bureau of Customs,
purpose for which the evidence Department of Finance, Department of
is offered must be specified. Trade and Industry, Department of
Agriculture; xxx xxx
Exception: When the evidence (d) Decisions, resolutions or
is identified by testimony, duly orders on motions for
recorded and incorporated in reconsideration or new trial of
the records of the case. (Onate the Court in Division in the
v Court of Appeals, et al.). exercise of its exclusive original
jurisdiction over tax collection
Is a notice of admission proper if its cases; xxx xxx xxx
subject were matters that have been (f) Decisions, resolutions or
previously alleged in the pleadings orders on motions for
and specifically denied by the reconsideration or new trial of
adverse party? the Court in Division in the
exercise of its exclusive original
Admission by the opposing jurisdiction over cases involving
party as a mode of discovery criminal offenses arising from
contemplates interrogatories violations of the National
that would explain and tend to Internal Revenue Code or the
shed light on the truth or falsity Tariff and Customs Code and
of allegations in a pleading, and other laws administered by the
does not refer to mere Bureau of Internal Revenue or
reiteration of what has been Bureau of Customs;
already alleged in the (g) Decisions, resolutions or
pleadings; otherwise, it orders on motions for
constitutes an utter redundancy reconsideration or new trial of
and will be useless, pointless the Court in Division in the
process. Hence, there is no exercise of its exclusive
need for a second denial of appellate jurisdiction over
those matters already alleged in criminal offenses mentioned in
the answers, as the request for the preceding subparagraph;
admissions were mere and xxx. (Sec.2, Rule 4
reproductions of the matter Revised Rules of Court of Tax
already alleged in the Appeals).
pleadings. (CIR v Manila
Mining Corporation).

148

Who may file a motion for new trial 5, Rule 15, Revised Rules of
or reconsideration? Court of Tax Appeals)

Any aggrieved party may seek a What is the mistake allowed as a


reconsideration or new trial of ground for new trial?
any decision, resolution or order
of the Court. He shall file a The mistake that is allowable is
motion for reconsideration or that which ordinary prudence
new trial within fifteen days from could not have guarded against.
the date he received notice of (Philippine Phosphate
the decision, resolution or order Fertilizer Corporation v CIR).
of the Court in question. (Sec. 1
Rule 15, Revised Rules of What is excusable negligence that
Revised Rules of Court of Tax justifies a ground for new trial?
Appeals).
It must be one which ordinary
What is the period for filing a diligence and prudence could
motion for new trial or not have guarded against and
reconsideration? by reason of which the rights of
an aggrieved party could have
15 days from the receipt of the been impaired. (Philippine
notice of decision, resolution or Phosphate Fertilizer
order of the court in question. Corporation v CIR).
(Sec. 1 Rule 15, Revised
Rules of Court of Tax What are the contents of a motion
Appeals). for new trial or reconsideration?

What are grounds of requisites of a The motion shall be in writing


motion for new trial? stating its grounds, a written
notice of which shall be served
Fraud, accident, mistake or by the movant on the adverse
excusable negligence which party.
ordinary prudence could not
have guarded against and by A motion for new trial shall be
reason of which such aggrieved proved in the manner provided
party has probably been for proof of motions. A motion
impaired in his rights; or for the cause mentioned in
subparagraph (a) of the
Newly discovered evidence, preceding section shall be
which he could not, with supported by affidavits of merits
reasonable diligence, have which may be rebutted by
discovered and produced at the counter-affidavits. A motion for
trial and, which, if presented, the cause mentioned in
would probably alter the result. subparagraph (b) of the
preceding section shall be
A motion for new trial shall supported by affidavits of the
include all grounds then witnesses by whom such
available and those not included evidence is expected to be
shall be deemed waived. (Sec. given, or by duly authenticated

149

documents which are proposed 1. When after the lapse of 180


to be introduced in evidence. days from the submission of all
documents, the Commissioner
A motion for reconsideration or has not acted upon a protested
new trial that does not comply assessment. The taxpayer may,
with the foregoing provisions within 30 days from the lapse of
shall be deemed pro forma, the 180-day period, appeal to
which shall not toll the the CTA.
reglementary period for appeal. 2. When the Commissioner has
(Sec. 6, Rule 15, Revised not acted in a refund case and
Rules of Court of Tax the 2-year prescriptive period is
Appeals). about to expire.
3.
What are the votes required for Q: If the principal amount of taxes
reversal of decisions of division on and fees, exclusive of charges and
a motion for reconsideration or new penalties, is less than 1 million
trial? pesos (P1,000,000), where should
the appeal be filed?
The affirmative votes of five (5)
members of the Court en banc A: In tax collection cases where the
shall be necessary to reverse a principal amount of taxes, exclusive of
decision of a Division but a penalties and charges, the appeal
simple majority of the Justices shall be filed:
present necessary to 1. In the RTC if the principal
promulgate a resolution or amount exceeds P300,000
decision in all other cases or (P400,000 if in Metro Manila)
two (2) members of a Division, 2. In the MTC if the principal
as the case may be, shall be amount is P300,000 or less
necessary for the rendition of a 3. In the Metropolitan Trial Court if
decision or resolution in the the case is in Metro Manila and
Division Level." (Sec. 2, R.A. the principal amount is
9503). P400,000 or less

CLASS RECITATION WITH Q: Instances where the CTA has no


SUGGESTED ANSWERS jurisdiction

Q:Does the Court of Tax Appeals A: The following are instances where
have jurisdiction over tax cases the CTA has no jurisdiction:
where an appeal was filed before 1. The CTA has no power motu
the Commissioner of Internal proprio to review tax cases. It
Revenue has rendered a decision? can resolve cases only in aid of
its original or appellate
A: Generally, the Court of Tax Appeals jurisdiction.
cannot acquire jurisdiction over the 2. Questions of unfair competition
case in the absence of the decision of involving the use of simplified
the BIR Commissioner because it can bookkeeping records. Reason:
only review on appeal the decision of The case does not involve any
the Commissioner. The exceptions assessment or refund of tax, or
are: other matter under the NIRC.

150

3. CTA has no appellate Q: How are decisions promulgated


jurisdiction over a decision by the CTA en banc?
rendered by the Philippine Ports
Authority. The collection of port A: The affirmative votes of five (5)
charges ceased to be an members of the Court en banc shall be
administrative function of the necessary to reverse a decision of a
Bureau of Customs. Being a Division. A simple majority of the
court of special jurisdiction and Justices present shall be necessary to
the absence of a provision in promulgate a resolution or decision in
P.D. 857 (Act creating the PPA) all other cases.
for appeal to the CTA involving
decisions of the PPA and in
R.A.1125, no appellate
jurisdiction over PPA decisions
may be vested in the CTA by
mere implication (Philippine
Ports Authority et al v. Judge
Fuentes, 195 SCRA 790, as
cited by Domondon).

Q: What is meant by the other


matters arising under the National
Internal Revenue Code or other
laws administered by the BIR?

A: Other matters may be taken to


mean as cases related to a tax
assessment.
An example is where the taxpayer has
paid its taxes, but it turns out that the
payments were supported by
spurious/fake receipts and the BIR
issued an assessment notice to collect
the amount allegedly paid (Benguet
Corporation v. Commissioner of
Internal Revenue, CTA Case No.
4795, July 1996, as cited by
Domondon). The CTA may also
determine if the warrant of distraint
and levy issued by the BIR is valid.

Q: What is the quorum for the Court


of Tax Appeals?

A: Five Justices for cases heard en


Banc
Two Justices for cases heard by a
division

151

REMEDIES OF THE GOVERNMENT


Remedies of the Tariff and Customs National Internal
Local Taxation Real Property Taxation
Government Code Revenue Code

Superior to all liens, charges Lien on the property subject Attaches on the goods Ground
or encumbrances to tax superior to all liens, regardless of the ownership
charges or encumbrances while the goods are still in Lien shall not valid against
the custody or control of the any mortgagee, purchaser,
government or judgment creditor until
Extinguished upon full notice of such lien shall be
payment of delinquent local Extinguished upon payment filed by the Commissioner in
taxes, fees, and charges plus of the tax and the related the office of the Register of
1. Governments Lien surcharge and interest interests and expenses Applicable only when the Deeds of the province or city
(Section 173, LGC) (Section 257, LGC) importation is neither where the property of the
prohibited nor improperly taxpayer is situated or
made located.

The proceeds are applied to


the tax liability, surcharges
and costs of the sale. The
excess goes to the taxpayer.
Taxpayer is required to make
good any deficiency.

152

REMEDIES OF THE GOVERNMENT


Remedies of the Tariff and Customs National Internal
Local Taxation Real Property Taxation
Government Code Revenue Code

General Rule: The lien is


beyond the reach of the
regular courts.

Exception: When the goods


are released and the tax lien
is lost, in which case, a
judicial action against the
importer may be instituted.

Properties that can be The notice of delinquency - Grounds


distrained shall specify the date upon
which the tax became Actual Distraint (Sec. 207(A),
Goods, chattels, or effects, delinquent and shall state NIRC)
2. Distraint and other personal property that personal property may
including stocks and other Failure of the persons owing
be distrained to effect
securities, debts, credits, any delinquent tax or
payment (Section 254[b],
bank accounts, and interest delinquent revenue to pay
LGC)
in and rights to personal the same at the time required
property (Section 174, LGC)
Constructive Distraint (Sec.
206, NIRC)

153

REMEDIES OF THE GOVERNMENT


Remedies of the Tariff and Customs National Internal
Local Taxation Real Property Taxation
Government Code Revenue Code

1. Delinquent taxpayer is
retiring from any
business subject to tax
2. Delinquent taxpayer is
intending to leave the
Philippines
3. Delinquent taxpayer is
intending to remove his
property therefrom
4. Delinquent taxpayer is
intending to hide or
conceal his property
5. Delinquent taxpayer is
intending to perform any
act tending to obstruct
the proceedings for
collecting the tax due or
which may be due from
him

3. Levy Real property and interest in After the expiration of the - Ground
and rights to real property time required to pay the
(Section 174, LGC) basic real property tax or any After the expiration of the
other tax, real property time required to pay the

154

REMEDIES OF THE GOVERNMENT


Remedies of the Tariff and Customs National Internal
Local Taxation Real Property Taxation
Government Code Revenue Code

subject to such tax may be delinquent tax or delinquent


levied upon through the revenue
issuance of a warrant on or
before, or simultaneously
with, the institution of the civil
action for the collection of the
delinquent tax (Section 258,
LGC)

155

REMEDIES OF THE GOVERNMENT


Remedies of the Tariff and Customs National Internal
Local Taxation Real Property Taxation
Government Code Revenue Code

Local taxes, fees, or charges The LGU concerned may Judicial action (civil and Form and Mode of
may be collected within five enforce the collection of the criminal) is normally availed Proceeding:
(5) years from the date of basic real property tax by of when the tax lien is lost
assessment by administrative civil action in any court of through the release of the Instituted in behalf of the
or judicial action (Section competent jurisdiction. The goods. government
194[c], LGC) civil action shall be filed in Enforced by the BIR
accordance with Section 270 Brought in the name of
of the LGC (Section 266, the Government of the
Judicial action and Republic of the
LGC)
proceedings instituted in Philippines
behalf of the Government Conducted by legal

shall be subject to the officers of the BIR
4. Judicial Action supervision and control of Approval of the
the Commissioner. Commissioner required
(Sec. 220, NIRC)
Remedy for enforcement
Civil and criminal actions are of statutory penal
instituted in the name of the provisions shall be
government and shall be subject to the approval of
conducted by customs the Commissioner (Sec.
officers. No civil or criminal 221, NIRC)
action for recovery of duties
nor the enforcement of any
fine, penalty or forfeiture
shall be filed in court without

156

REMEDIES OF THE GOVERNMENT


Remedies of the Tariff and Customs National Internal
Local Taxation Real Property Taxation
Government Code Revenue Code

the Commissioners approval


(Sec. 2410, TCCP, as
amended by RA 9135).

- - a. Administrative Fines -
-applied when the
importation is unlawful or
involves articles which are
prohibited from being
imported, including the
vessel

5. Other Remedies b. Seizure, Search, Arrest


(Secs. 2205, 2210, 2211,
TCCP).

c. Surcharges (Secs. 2502-


2504, TCCP)

d. Fines (Secs. 2505-2529,


TCCP).

e. Forfeitures

157

REMEDIES OF THE GOVERNMENT


Remedies of the Tariff and Customs National Internal
Local Taxation Real Property Taxation
Government Code Revenue Code

Jurisdiction: Bureau of
Customs (exclusive and
original), from the moment
the goods are actually in the
possession or control, even
as no warrant of seizure or
detention had previously
been issued by the Collector
of Customs in connection
with the seizure and
forfeiture proceedings
(Republic v. CFI, GR No. L-
43747).

Note: RTCs are devoid of


any competence to pass
upon the validity or regularity
of seizure and forfeiture
proceedings conducted by
the BOC and to enjoin or
otherwise interfere with these
proceedings (SBMA v.
Merlino Rodriguez and
WIRA International Trading
Corp., GR No. 160270).

158

REMEDIES OF THE GOVERNMENT


Remedies of the Tariff and Customs National Internal
Local Taxation Real Property Taxation
Government Code Revenue Code

Nature: Administrative and


civil, directed against the
thing itself. In this
proceeding, it is in legal
contemplation the property
itself which commits the
violation and is treated as the
offender, without reference
whatsoever to the character
or conduct of the owner
(Transglobe International
Inc. v. Court of Appeals,
G.R. No. 126634).

Forfeiture is in rem, whereas


a criminal action is in
personam. Conviction in the
criminal action is not a bar on
forfeiture. Results of a
criminal proceeding on the
evidence therein will not
necessarily render judgment
in forfeiture proceedings
(Commissioner of
Customs v. CTA, GR No. L-
31733).

159

REMEDIES OF THE TAXPAYER


Remedies of the National Internal
Local Taxation Real Property Taxation Tariff and Customs Code
Taxpayer Revenue Code

Within 60 days from receipt Appeal to the Local Board Availed of when the legality The assessment that will be
of the notice of assessment, of Assessment Appeals: or correctness of the the subject of the protest of
the taxpayer may file a assessment or appraisal is the taxpayer is the Formal
written protest with the local Any owner or person having questioned by the importer. Letter of Demand or the Final
treasurer; otherwise, the legal interest in the property
Assessment Notice
assessment shall be final who is not satisfied with the
and executor assessment of the provincial,
city, or municipal assessor Payment under protest, as
may, within 60 days from the well as the payment of the
date of the receipt of the corresponding docket fees is
If the local treasurer finds the written notice, appeal to the required (Sec. 2308, TCCP).
protest to be wholly or Board of Assessment
1. Protest against
assessment partially meritorious, he shall Appeals of the province or
issue a notice cancelling, city by filing a petition under General Rule: Any importer
wholly or partially, the oath together with the copies or interested party, if
assessment. of tax declarations and such dissatisfied with the
affidavits to support the published value, may within
appeal (Section 226, LGC) 15 days from the date of
If the local treasurer finds the publication or within 15 days
assessment to be wholly or from the date the importer is
partially correct, he shall Appeal to the Central entitled to refund if payment
deny the protest wholly or Board of Assessment is rendered erroneous or
partially with notice to Appeals: illegal by events occurring

160

REMEDIES OF THE TAXPAYER


Remedies of the National Internal
Local Taxation Real Property Taxation Tariff and Customs Code
Taxpayer Revenue Code

taxpayer. The owner of the property or after the payment may file a
the person having legal protest.
interest therein who is not
satisfied with the decision of
the LBAA may, within 30
Effect of non-filing of protest:
days after receipt of the
The action of the collector
decision of LBAA, appeal to
shall be final and conclusive
the CBAA.
against him, except as to
matters collectible for
manifest clerical error.

Exception: No protest is
required in seizure cases.

Grounds
A written claim for refund or When an assessment is Drawback (Secs. 1701-
credit shall be filed with the found to be illegal or 1708, TCCP) 1. Taxes are erroneously or
local treasurer within two (2) erroneous and the tax is illegally received or
2. Tax Refund or Tax Credit years from the date of the accordingly reduced or An allowance made by the penalties imposed
government upon the duties without authority
payment of the tax, fee, or adjusted, the taxpayer may
due on the imported 2. Value of internal revenue
charge OR from the date the file a written claim for the stamps when they are
taxpayer is entitled to a refund or credit for taxes and merchandise when the
retuned in good condition
importer, instead of selling it

161

REMEDIES OF THE TAXPAYER


Remedies of the National Internal
Local Taxation Real Property Taxation Tariff and Customs Code
Taxpayer Revenue Code

refund or credit (Section interest with the provincial or here, re-exports it or by the purchaser, and, in
196, LGC) city treasurer within two (2) refunding of such duties if his discretion, redeem or
years from the date the already paid. This allowance change unused stamps
that have been rendered
taxpayer is entitled to such amounts, in some cases, to
unfit for use (Sec. 204,
reduction or adjustment. the whole of the original NIRC)
duties; in others, to a part
only (Blacks Law
Dictionary).
The provincial or city
treasurer is required to How
decide within 60 days from Taxpayer files in writing
with the Commissioner a
the receipt thereof. If the
claim for credit or refund
claim is denied or not acted within 2 YEARS after the
upon within 60 days, the payment of the tax or
taxpayer may appeal with the penalty.
regular courts and NOT Commissioner may, even
Court of Tax Appeals without a written claim
(Section 253, LGC) therefor, refund or credit
any tax, where on the
face of the return upon
which payment was
made. (Sec. 228, NIRC)

Forfeiture (Sec. 230, NIRC)


Cash Refund

If refund check or warrant


remains unclaimed or
uncashed within 5 YEARS

162

REMEDIES OF THE TAXPAYER


Remedies of the National Internal
Local Taxation Real Property Taxation Tariff and Customs Code
Taxpayer Revenue Code

from the date the said


warrant or check was mailed
or delivered

Tax Credit

If tax credit certificate remain


unutilized after 5 YEARS
from the date of issue,
UNLESS revalidated

Effect: Amount shall revert to


the general fund.

- -
Grounds
General Rule: No abatement
of duties made on account of 1. The tax or any portion
damage incurred or thereof appears to be
deterioration suffered during unjustly or excessively
3. Abatement
the voyage of importation assessed
and duties will be assessed 2. The administration and
on the actual quantity collection costs involved do
imported (Sec. 1701, TCCP). not justify the collection of
the amount due

163

REMEDIES OF THE TAXPAYER


Remedies of the National Internal
Local Taxation Real Property Taxation Tariff and Customs Code
Taxpayer Revenue Code

Exceptions:

1. When any package or


packages appearing on the
manifest or bill of lading are
missing, a remission or
refund of the duty thereon
shall be made if it is shown
by proof satisfactory to the
Collector that the package
or packages in question
have not been imported
into the Philippines (Sec.
1702, TCCP).
2. If, upon opening any
package, a deficiency or
absence of any article, or
of part of the contents
thereof, as called for by the
invoice shall be found to
exist, such deficiency shall
be certified to the Collector
by the appraiser; and upon
the production of proof
satisfactory to the Collector
showing that the shortage
occurred before the arrival
of the article in the
Philippines, the proper
abatement or refund of the
duty shall be made (Sec.

164

REMEDIES OF THE TAXPAYER


Remedies of the National Internal
Local Taxation Real Property Taxation Tariff and Customs Code
Taxpayer Revenue Code

1703, TCCP).
3. Upon satisfactory proof of
the injury, destruction, or
loss by theft, fire or other
causes of any article as
follows:
a. While within the limits
of any port of entry
prior to unlading under
customs supervision
b. While remaining in
customs custody after
unlading
c. While in transit under
bond from the port of
entry to any port in the
Philippines.
d. While released under
bond to export, except
in case of loss by theft
(Sec. 1704, TCCP).

- -

Subject to the approval of the Grounds


4. Compromise Secretary of Finance, the
Commissioner of Customs 1. A reasonable doubt as to
may compromise cases the validity of the claim
involving the imposition of against the taxpayer

165

REMEDIES OF THE TAXPAYER


Remedies of the National Internal
Local Taxation Real Property Taxation Tariff and Customs Code
Taxpayer Revenue Code

fines, surcharges, and exists


forfeitures unless otherwise 2. The financial position of
specified by law (Sec. 2316, the taxpayer
TCCP). demonstrates a clear
inability to pay the
assessed tax

Minimum Compromise Rate


10% - financial incapacity
40% - other cases

Authority
Commissioner of Internal
Revenue

Subject to the approval of the


Evaluation Board
(Commissioner + 4 Deputy
Commissioners) where the
basic tax involved exceeds
P1MILLION (Sec. 204,
NIRC)

5. Appeal to the Courts Appeal to the RTC Appeal to the Court of Appeal to the Court of Appeal to the Court of
Appeals Appeals Appeals
The taxpayer shall have 30

166

REMEDIES OF THE TAXPAYER


Remedies of the National Internal
Local Taxation Real Property Taxation Tariff and Customs Code
Taxpayer Revenue Code

days from the receipt of the The party adversely affected Within 30 days from the If the protest is denied in
denial of the protest OR from by the decision of the CBAA receipt of the decision of the whole or in part or not acted
the lapse of the 60-day may appeal such decision to Commissioner or the upon within 180 DAYS from
period prescribed within the Court of Appeals within Secretary of Finance to the submission of documents
which to appeal with the 15 from receipt of the division of the Court of Tax within 30 DAYS from the
Regional Trial Court CBAAs decision (Rule 43, Appeals (Sec. 2403, TCCP; receipt of the decision or
(Section 195, LGC) Rules of Court) Sec. 7, RA 1125 as from the lapse of the 180
amended by Sec. 9, RA DAY-period
9282)


6. Other Remedies
a. Protest against newly Protest against newly a. Settlement of any
enacted ordinance enacted ordinance Seizure by Payment of
To the Secretary of Justice, Fine or Redemption (Sec.
within 30 days from the To the Secretary of Justice, 2307, TCCP).
effectivity; within 30 days from the
effectivity; b. Abandonment
The renunciation by an
importer of all his interests
Decision of the Secretary of and property rights in
Justice must be rendered Decision of the Secretary of imported articles (Sec. 180,
within 60 days from the date Justice must be rendered TCCP). It can be express
of the receipt of the appeal; within 60 days from the date (Sec. 1801[a]) or implied
of the receipt of the appeal; (Sec. 1801[b]).

.
Taxpayer must file an

167

REMEDIES OF THE TAXPAYER


Remedies of the National Internal
Local Taxation Real Property Taxation Tariff and Customs Code
Taxpayer Revenue Code

appropriate action with the Taxpayer must file an


Regional Trial Court within appropriate action with the
30 days from the receipt of Regional Trial Court within
the decision of the Secretary 30 days from the receipt of
of Justice OR after the lapse the decision of the Secretary
of the 60-day period to of Justice OR after the lapse
decide of the 60-day period to
decide

NOTE:
NOTE:
*The appeal to the Secretary
of Justice shall not suspend *The appeal to the Secretary
the effectivity of the of Justice shall not suspend
ordinance the effectivity of the
ordinance

b.Declaratory Relief

168

PERIOD TO ASSESS AND COLLECT


Internal Revenue Taxes Local Taxes Real Property Taxes

Concept An assessment is a finding by the


taxing authority that the taxpayer has
not paid his correct taxes. The Assessment in real property taxation
Also a finding by the taxing authority
ultimate purpose of assessment is to means the act or process of
that the taxpayer has not paid his
ascertain the amount that a taxpayer determining the value of the property
correct taxes
should pay. This is the context in subject to tax (Sec. 219, LGC).
which assessment is issued for
internal revenue taxation.

Internal revenue taxes shall be


Prescriptive period to assess assessed within 3 years after the last Local taxes shall be assessed within
day prescribed by law for filing a 5 years from the date they become No express provision.
return, or from the date of actual due.
filing, whichever comes later.

1. In case of false or fraudulent


return or failure to file a return:
within 10 years after discovery of
falsity, fraud or omission. Local taxes, fees, and charges which
2. Waiver of Statute of Limitation:
accrued before the effectivity of the
Exceptions (to assessment period) before the expiration of the time -
prescribed, the Commissioner and LGC: 3 years from the date they
the taxpayer have agreed in became due
writing to its assessment after
such time, the tax may be
assessed within the period agreed
upon.
Prescriptive period to collect 1. Normal Assessment: the 1. Local taxes, fees, or charges may 1. Basic real property tax shall

169

PERIOD TO ASSESS AND COLLECT


Internal Revenue Taxes Local Taxes Real Property Taxes

prescriptive period for collection be collected within 5 years from be collected within 5 years from the
would be 3 years from the date of the date of assessment by date they become due.
assessment. administrative or judicial action. 2. In case of fraud or intent to
2. Any internal revenue tax which has 2. In case of fraud or intent to evade evade payment, such action may
been assessed within the period of payment within 10 years from be instituted for the collection of the
limitation as prescribed in Sec. discovery of fraud. same within 10 years from the
222(a), within 5 years following the discovery of such fraud or intent to
assessment of the tax. evade payment.
3. False or fraudulent return or non-
filing of return: the BIR may file an
ordinary action to collect even
without an assessment. The
period to collect is 10 years,
reckoned from the date of
discovery of falsity or fraud or non-
filing.
4. Waiver of the Statute of
Limitations: Within the period
agreed upon between the
Commissioner and the taxpayer.
1. The Commissioner is prohibited The prescriptive periods shall be The period of prescription within
from making the assessment or suspended during which: which to collect shall be suspended
beginning distraint or levy or a for the time during which:
proceeding in court and for 60 days 1. The treasurer is legally prevented
thereafter; from making the assessment or 1. The treasurer is legally
Suspension of Prescriptive
2. When the taxpayer requests for collection; prevented from collecting the tax;
Periods
reinvestigation which is granted by 2. The taxpayer requests for 2. The owner of the property or
the Commissioner; reinvestigation and executes a the person having legal interest
3. When the taxpayer cannot be waiver in writing before the therein requests for reinvestigation
located in the address given by him expiration of the period within and executes a waiver in writing
in the return filed upon which the which to assess or collect; before the expiration of the period
tax is being assessed or collected; 3. The taxpayer is out of the country within which to collect;

170

PERIOD TO ASSESS AND COLLECT


Internal Revenue Taxes Local Taxes Real Property Taxes

4. When the warrant of distraint or or otherwise cannot be located 3. The owner of the property or
levy is duly served upon the (Sec. 194, LGC). the person having legal interest
taxpayer, his authorized therein is out of the country or
representative, or a member of his otherwise cannot be located (Sec.
household with sufficient discretion 270, LGC).
and no property could be located;
5. When the taxpayer is out of
the Philippines.

171

LOCAL GOVERNMENT CODE first (31st)(Section 250,


(Local Taxes and Real Property Tax) LGC)

Authority to impose taxes Accrual of Tax

Provinces, cities, municipalities, and Local taxes


barangays are authorized to impose General Rule: first (1st) day of
taxes. For real property tax, all local January of each year
government units are allowed to
impose taxes except barangays. - Exceptions: Unless
otherwise provided in the
Manner and Time of Payment Local Government Code,
new taxes, fees or
Local Taxes charges, or changes in
Taxes, fees, and charges may the rates thereof, shall
be paid in quarterly installments accrue on the first (1st)
(Section 165, LGC) day of the quarter next
following the effectivity of
General Rule: Paid within the the ordinance imposing
first twenty (20) days of January such new levies or rates
or of each subsequent quarter, (Section 166, LGC)
as the case may be.
Real property tax
o Exception: Unless The real property tax for any
otherwise provided in the year shall accrue on the first
Local Government Code (1st) day of January (Section
246, LGC)
The sanggunian concerned
may, for a justifiable reason or PROCEDURE FOR DISTRAINT FOR
cause, extend the time for PURPOSES OF SATISYING LOCAL
payment of such taxes, fees, or TAXES (Section 175, LGC)
charges without surcharges or
penalties, but only for a period 1) Seizure the local treasurer or his
not exceeding six (6) months deputy may, upon written notice,
(Section 167, LGC) seize or confiscate any personal
property belonging to the
Real Property Tax delinquent taxpayer sufficient in
In four (4) equal installments: quantity to satisfy the tax, fee, or
- first installment, to be charge
due and payable on or
before March Thirty-first 2) Accounting of distrained goods
(31st);
- second installment, on or 3) Publication- the officer executing
before June Thirty (30); the distraint shall cause a
- third installment, on or notification to be exhibited in not
before September Thirty less than three (3) conspicuous
(30); and places in the territory of the LGU
- last installment on or where distraint is made. The time
before December Thirty- of sale shall not be less than twenty

172

(20) days after the notice to the the property is located, and to the
owner and the publication and delinquent taxpayer
posting of the notice Note:
a) if delinquent taxpayer
4) Release of distrained property is absent from the Philippines,
upon payment prior to sale to his agent or the manager of
the business in respect to which
5) Sale- If no payment has been the liability arose;
made as mentioned in the b) if no agent or manager,
preceding number, the officer to the occupant of the property
conducting the sale shall sell the in question.
goods distrained at public auction
to the highest bidder for cash. 3) If the levy was not issued before or
Within five (5) days after the sale, simultaneously with the warrant of
the local treasurer shall make distraint of the personal property
report of the proceedings in writing and the personal property is not
to the local chief executive sufficient to cover the delinquency,
concerned. Should the said the provincial, city or municipal
property be not disposed of within treasurer shall proceed with the
120 days from the date of distraint, levy within 30 days after execution
the same shall be considered as of the distraint.
sold to the LGU concerned
4) Publication- Within 30 days after
6) Disposition of proceeds- the the levy, the local treasurer shall
proceeds shall be applied to the to publicly advertise for sale or
satisfy the tax plus the surcharges, auction the property to satisfy the
interest and other penalties incident claim and the cost of sale. Such
to the delinquency and the advertisement shall cover 30 days.
expenses of the distraint and sale. The notice of advertisement shall
The excess shall be returned to the be posted at the main entrance of
owner of the property sold the municipal building or city hall
AND in a public and conspicuous
PROCEDURE FOR LEVY FOR place in the barangay where the
PURPOSES OF SATISYING LOCAL real property is located, and by
TAXES (Sections 176-180, LGC) publication once a week for three
weeks in a newspaper of general
1) Provincial, city or municipal circulation in the province, city or
treasurer shall prepare a duly municipality where the property is
authenticated certificate showing located
the name of the taxpayer, the tax,
fee, or charge due. It shall operate 5) Sale- held at the main entrance of
with force throughout the the of the provincial, city or
Philippines. municipal building, or on the
property to be sold, or at any place
2) Written notice of the levy shall be as determined by the local
mailed to or served upon the treasurer conducting the sale
assessor AND the Register of
Deeds of the province or city where

173

6) Report of the sale- within 30 days PROCEDURE FOR LEVY FOR


after the sale to the sanggunian PURPOSES OF SATISFYING REAL
concerned PROPERTY TAXES (Sections 258-
265, LGC)
7) Delivery of the certificate of sale-
local treasurer shall make and 1) Warrant of Levy shall be issued by
deliver the certificate of sale to the the Local Treasurer which has the
purchaser force of legal execution in the LGU
concerned
8) Redemption of property sold-
within 1 year from the date of sale, 2) Warrant shall be mailed to or
the delinquent taxpayer or his served upon the delinquent owner.
representative shall have the right Written notice and warrant of the
to redeem the property upon levy is mailed/served upon the
payment of the taxes, fees, and assessor and the Register of
charges Deeds.

9) In case of failure to redeem as 3) Thirty (30) days from the service of


mentioned in the preceding the warrant, the local treasurer
number, the local treasurer shall shall advertise sale of the property
execute a deed conveying to the by posting a notice at main
purchaser entrance of the LGU hall/ building
and in a conspicuous place in the
NOTE: barangay where the property is
*Either remedy, distraint or levy, may located AND publication once a
be used concurrently or week for two weeks in the
simultaneously at the discretion of the newspaper of general circulation in
LGU (Section 174, LGC) the said province or city where the
property is located.
*The taxpayer may stay the
proceedings of sale by paying the 4) Owner may stay the proceedings of
taxes, fees, charges, penalties and the sale by paying the delinquent
interests ANY TIME BEFORE the date taxes, interests and expenses.
fixed for the sale. (Section 178, LGC)
5) If payment was not made as
*The owner shall not be deprived of the mentioned in the preceding
possession of the property and shall number, sale shall be held at the
be entitled to the rentals and other main entrance of the LGU
income until the expiration of the time building/hall or on the property to
allowed for redemption (Section 179, be sold or any other place specified
LGC) in the notice.

*The remedies by distraint and levy 6) If there is a bidder and the bid is
may be repeated if necessary until the sufficient to cover the delinquent
full amount due, including all taxes, interests and costs, the
expenses, is collected (Section 184, bidder pays and the local treasurer
LGC) shall report the sale to the
sanggunian within 30 days after the
sale. The local treasurer shall

174

deliver the certificate of sale to the


purchaser. Excess of the proceeds
is given back to the owner.

NOTE: Within 1 year from the sale,


the owner may redeem the property
upon payment of the delinquent
tax, interest due, and expenses of
sale, and additional of interest of
2% per month

7) If there is no bidder or the bid is


insufficient to cover the delinquent
taxes, interests, and costs, the local
treasurer shall purchase the
property in behalf of the LGU.

NOTE: Within 1 year from


forfeiture, the owner may redeem
the property by paying to the
treasurer full amount of tax,
interests, cost of sale

Levy may be repeated until full


amount due, including all
expenses, is collected

175

TARIFF AND CUSTOMS CODE


CUSTOMS SEIZURE AND FORFEITURES
Determination of probable cause and the issuance of the warrant


Actual seizure of the articles; Listing of description, appraisal
and classification of seized property


Report of the seizure to the Commissioner of Customs and the Chairman of the Commissioner on

Audit

Issuance by the Collector of a Warrant of Detention

Notification to known/ unknown


owner or importer


Settlement through payment Formal hearing

District Collector issues the decision

DECISION IS ADVERSE TO THE PROTESTANT DECISION IS ADVERSE TO THE GOVERNMENT

Review by the Commissioner within 15 days Automatic Review of the Commissioner


from notice
If DECISION IS ADVESE If DECISION IS ADVESE

If DECISION IS ADVESE If DECISION IS ADVESE TO THE PROTESTANT, TO THE GOVERNMENT,
TO
THE PROTESTANT, TO THE GOVERNMENT, appeal with the CTA an automatic review
appeal with the CTA an automatic review division will be conducted by
division within 30 days will be conducted by the Secretary of
the Secretary of Finance.

Finance.

If SOF decision is If SOF decision is If SOF decision is If SOF decision is


adverse to the adverse to the adverse to the adverse to the
government, the protestant, appeal government, the protestant, appeal
decision shall be must be had with the decision shall be must be had with the

final and CTA Division within final and CTA Division within
EXECUTORY 30 days from notice EXECUTORY 30 days from notice

176

CUSTOMS PROTESTS

Entry at the customhouse (Appraisal,


Classification, Asessment and Payment)


Payment under Protest within 30 days after the discharge of the last package


Filing of the Protest with the Collector within 15 days after the
payment and payment of docket


Issuance of the order of hearing by the collector within 15 days from receipt

When the protest is in the proper from in a case where protest is


required, the Collector shall reexamine the matter presented. The

period to decide shall be 30 days.


If the DECISION of the COLLECTOR is ADVERSE If COLLECTOR SUSTAINS the PROTEST (renders
to the taxpayer, the adverse party must file a a decision adverse to the
NOTICE OF APPEAL with the COLLECTOR, copy government(importers protest is granted),
furnished the Commissioner, within 15 days such decision, together with the entire records
from notification. of the case, shall be automatically elevated to

the Commissioner of Customs for automatic
review within 5 days from the promulgation
thereof.
The Collector shall transmit all records of the
proceedings to the Commissioner. No appeal
shall be heard if filed beyond the period to AUTOMATIC REVIEW BY THE COMMISSIONER.
appeal The Commissioner shall render a decision
within 30 days from the receipt of the records
If the decision of the If the decision is of the case from the collector and shall notify
Commissioner is adverse to the the appellant or aggrieved party.
adverse to the government,
taxpayer, appeal to automatic appeal to
the CTA within 30 the Secretary of
If the Commissioner If the Commissioner
days from receipt of Finance
reversed the decision of affirms the decision of
the decision the Collector, the the Collector or no
person aggrieved by the decision was rendered
decision has 30 days within 30 days,
If there is NO DECISION after 30 days or if the
from receipt of the automatic review by the
DECISION is ADVERSE to the GOVERNMENT, the
decision to appeal to SOF. Period to decide
decision appealed from becomes FINAL and
the CTA shall be 30 days.
EXECUTORY. If the decision of the commissioner is
ADVERSE to the taxpayer, the person aggrieved by
the decision has 30 days from receipt of the 177
decision to appeal to the CTA

NATIONAL INTERNAL REVENUE COD


DISTRAINT AND LEVY

DISTRAINT

Kinds ACTUAL DISTRAINT CONSTRUCTIVE DISTRAINT

Grounds 1. Delinquent taxpayer is retiring


from any business subject to
Failure of the persons owing any tax
delinquent tax or delinquent revenue to 2. Delinquent taxpayer is
pay the same at the time required. intending to leave the
Philippines
3. Delinquent taxpayer is
intending to remove his
property therefrom
4. Delinquent taxpayer is
intending to hide or conceal
his property
5. Delinquent taxpayer is
intending to perform any act
tending to obstruct the
proceedings for collecting the
tax due or which may be due
from him
Authority CIR / Authorized Representative CIR / Authorized Revenue Officer
(if >P1MILLION)
Revenue District Officer
(if P1MILLION)
How 1. Actual Seizure and Distraint / 1. Sign RECEIPT.
Effected Garnishment 2. LIST, if refused to sign.
a. Accounting of personal
properties
b. Service of the copy of the
warrant of distraint
i. Taxpayer
ii. President/manager/t
reasurer/other
responsible officer of
the corporation,
company, or
association
iii. Persons owing the
debts or having in
his possession or
under his control
such credits/agent
iv. President/manager/t
reasurer/other
responsible officer of
the bank (Sec. 208,
NIRC)

178

2. Submission of Report within 10


DAYS by distraining officer to
Revenue District Officer / Revenue
Regional Director
3. Submission of Consolidated Report
by Revenue Regional Director to the
Commissioner, if required
4. Sale of Property Distrained and
Disposition of Proceeds
a. Posting of Notice in not less
than 2 public places
b. Notify owner/possessor of
the property 20 days before
the sale
c. Conduct of public auction
d. Execution of bill of sale in
case of stocks and other
securities
e. Entry of the bill of sale in the
books by the
corporation/company/associ
ation
f. Transfer of stocks and other
securities sold in the name
of the buyer
i. Issuance of
corresponding
Certificate of stocks
or other securities
(Sec. 209, NIRC)
5. Report of sale to the BIR within 2
DAYS after the sale (Sec. 211,
NIRC)
6. Turnover of excess to the owner.
Release If at any time prior to the consummation of the sale, all proper charges are
paid to the officer conducting the sale, all proper charges are paid to the
officer conducting the sale, the goods or effects distrained shall be restored to
the owner. (Sec. 210, NIRC)

Government Ground: When the amount bid for the property under distraint is not equal to
Purchase the amount of the tax or is very much less than the actual market value of the
articles offered for sale(Sec. 212, NIRC)

How Effected: Purchase then resell.

Forfeiture to Why?
Government
For want of bidder (if the highest bid is for an amount insufficient to pay
(Sec. 215, the taxes, penalties, and costs)
NIRC) How?

Internal Revenue Officer shall declare the property forfeited to the


Government in satisfaction of the claim.
2 DAYS after, the Internal Revenue Officer shall make a return.
Register with the Register of Deeds.
Transfer title without necessity of an order from a competent court.

179

Redemption

Period?

1 YEAR from date of forfeiture


Who?

Taxpayer or any one for him


How?

Paying to the Commissioner / Revenue Collection Officer the full amount


of the taxes and penalties plus interest, cost of sale

Remedy for Enforcement (Sec. 224, NIRC)

How?

REAL: By a judgment of condemnation and the sale in a legal action or


proceeding, civil or criminal
PERSONAL: By the seizure and sale, or destruction of the specific
forfeited property
o SALE: Same requirement for the sale of personal property
distrained (Sec. 225, NIRC)
o DESTRUCTION: when the sale of the same for consumption or
use would be injurious to public health or prejudicial to the
enforcement of the law, 20 DAYS after seizure
distilled spirits
liquors
cigars
cigarettes
other manufactured products of tobacco
all apparatus used in or about the illicit production of
such articles
Dies for the printing or making of internal revenue stamps
and labels which are in imitation of or purport to be lawful
stamps, or labels (Sec. 225, NIRC)

Action to Contest Forfeiture of Chattel (Sec. 231, NIRC)

Bring an action against the person seizing the property or having


possession thereof to recover the same and upon giving proper BOND
may enjoin the sale or
After the sale within 6 MONTHS, he may bring an action to recover the
net proceeds realized at the sale.
Further Repeat of distraint until the full amount due, including all expenses, is
Distraint collected. (Sec. 217, NIRC)

LEVY

(Sec. 207(B), NIRC)

Grounds After the expiration of the time required to pay the delinquent tax or delinquent
revenue

180

Authority Any officer designated by the Commissioner or his duly authorized


representative

How Before/simultaneously/after the distraint of personal property


Effected
1. Preparation of CERTIFICATE
2. Writing of description upon the Certificate
3. Mailing/service of written notice to Register of Deeds and delinquent
taxpayer/agent/manager of the business/occupant of the property
4. Submission of Report within 10 DAYS after receipt of the warrant to
Commissioner/representative
5. Submission of Consolidated Report by Revenue Regional Director to the
Commissioner, if required
6. Advertisement for sale within 20 DAYS after levy for at least 30 DAYS.
a. Posting of Notice in 2 public places i.e. (1) entrance of
municipal/city hall and (2) conspicuous place where property is
located
b. Publication once a week for 3 weeks in a newspaper of general
circulation in the municipality/city where property is located
7. Sale.
8. Entry of Report within 5 DAYS after the sale.
9. Make out/Deliver to the purchaser a certificate of sale.
10. Turnover of excess to the owner. (Sec. 213, NIRC)

*If after distraint of personal property proceed with levy after 30 DAYS after
execution of the distraint.

Release At any time before the day fixed for the sale, the taxpayer may discontinue all
proceedings by paying the taxes, penalties, and interest. (Sec. 213, NIRC)

Redemption When?

(Sec. 214, Within 1 YEAR from the date of sale


NIRC) How much?

amount of public taxes, penalties, and interest (rate: 15%/annum)


Forfeiture to Why?
Government
For want of bidder (if the highest bid is for an amount insufficient to pay
(Sec. 215, the taxes, penalties, and costs)
NIRC)
How?

Internal Revenue Officer shall declare the property forfeited to the


Government in satisfaction of the claim.
2 DAYS after, the Internal Revenue Officer shall make a return.
Register with the Register of Deeds.
Transfer title without necessity of an order from a competent court.

Redemption

Period?

1 YEAR from date of forfeiture


Who?

Taxpayer or any one for him

181

How?

Paying to the Commissioner / Revenue Collection Officer the full amount


of the taxes and penalties plus interest, cost of sale

Remedy for Enforcement (Sec. 224, NIRC)

How?

REAL: By a judgment of condemnation and the sale in a legal action or


proceeding, civil or criminal
PERSONAL: By the seizure and sale, or destruction of the specific
forfeited property
o SALE: Same requirement for the sale of personal property
distrained (Sec. 225, NIRC)
o DESTRUCTION: when the sale of the same for consumption or
use would be injurious to public health or prejudicial to the
enforcement of the law, 20 DAYS after seizure
distilled spirits
liquors
cigars
cigarettes
other manufactured products of tobacco
all apparatus used in or about the illicit production of
such articles
Dies for the printing or making of internal revenue stamps
and labels which are in imitation of or purport to be lawful
stamps, or labels (Sec. 225, NIRC)
Resale (Sec. How?
216, NIRC)
Posting and Service of notice not less than 20 days before sale.
Public auction / private sale.
Accounting of proceeds.
Deposit of proceeds with the National Treasury.
Further Levy Repeat of levy until the full amount due, including all expenses, is collected.
(Sec. 217, NIRC)

PROCEDURE FOR PROTEST OF INTERNAL REVENUE TAXES

1. Notice to the Taxpayer of the Commissioners findings


2. Pre-Assessment Notice
Exceptions:
When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return
When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent
When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities for the
taxable quarter(s) of the succeeding taxable year
When the excise tax due on exercisable articles has not been paid

182

When an article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries, and spare parts, has been sold,
traded, or transferred to non-exempt persons
Taxpayers shall be informed in writing of the law and the facts on which the assessment
is made; otherwise the assessment shall be void.
3. Taxpayers Reply (within 15 days from notice)
4. Issuance of Final Assessment Notice (upon failure to reply)
5. PROTEST
File request for reconsideration or reinvestigation within 30 DAYS from receipt of the
assessment.
Submit all relevant supporting documents within 60 DAYS from filing of protest.
6. Appeal to the CTA
If the protest is denied in whole or in part or not acted upon within 180 DAYS from
submission of documents within 30 DAYS from the receipt of the decision or from the
lapse of the 180 DAY-period
If not appealed, the decision shall become final, executory, and demandable.

183

OTHER COMPARISONS

DISTRAINT OF PERSONAL PROPERTY

Internal Revenue Taxes Local Taxes

Constructive Distraint Yes None

1. Commissioner of Internal Revenue


(If amount of tax due is more than
Issuing authority Local Treasurer
P1M
2. Revenue District Officer (If amount
of tax due is P1M or less)
Notification to be exhibited in not
less than three public and
Notification to be exhibited in not less
conspicuous places in the
than two public places in the
territory of the LGU where
Posting of notices municipality where distraint is made.
distraint is made. One place for
One place for posting is the office of
the posting of the notice shall be
the Mayor.
at the office of the chief executive
of the LGU.

Within 2 days after the sale, the


Within 5 days after the sale, the
officer making the same shall make a
local treasurer shall make a
report of the proceedings in writing to
Report of sale report of the proceedings in
the Commissioner and shall himself
writing to the local chief
preserve a copy of such report as an
executive concerned.
official record.

Not less than 20 days after notice to Not less than 20 days after notice
the owner or possessor of the to the owner and possessor and
Time of sale
property and the publication or the publication or posting of such
posting of such notice. notice.

1. The amount of bid is not equal to Should the property distrained be


the amount of the tax. not disposed of within 120 days
Purchase of distrained 2. The amount of bid is very much less from the date of distraint, the
property by the than the actual market value of the same shall be considered as sold
Government articles offered for sale. to the LGU concerned for the
3. The Commissioner may purchase amount of the assessment made
the same in behalf of the National thereon by the Committee.
Government.

184

LEVY UPON REAL PROPERTY

Internal Revenue Taxes Local Taxes / Real Property Tax

Within 30 days after the levy, the local


Within 20 days after the levy, the officer
treasurer shall proceed to publicly
conducting the proceedings shall
advertise for sale or auction the
Advertisement advertise the property or a usable
property or a usable portion thereof as
portion thereof as may be necessary to
may be necessary to satisfy the claim
satisfy the claim and the cost of sale.
and the cost of sale.

Levy shall be effected by writing upon


the duly authenticated certificate the
Levy shall be effected by writing upon
description of the property upon which
the duly authenticated certificate a
the levy is made; At the same time, a
description of the property upon which
written notice of levy shall be mailed to
How levy is effected levy is made; At the same time, written
or served upon the: (1) Assessor and
notice of levy shall be mailed or served
Register of Deeds to annotate the levy
upon the (1) Register of Deeds and (2)
on the tax declaration and the
Delinquent taxpayer.
certificate of title and (2) delinquent
taxpayer.

1.Posting a notice at the main entrance 1.Posting a notice at the main entrance
of the municipal building; and of the municipal building;
2.In a public and conspicuous place in 2.In a public and conspicuous place in
the barrio or district in which the real the barrio or district in which the real
Posting and Publication
estate lies; and estate lies; and
3.By publication once a week for three 3.By publication once a week for three
weeks in a newspaper of general weeks in a newspaper of general
circulation in the municipality or city circulation in the municipality or city
where the property is located. where the property is located.
The Revenue Collection Officer may, The local treasurer may, by ordinance
upon approval of the Revenue District duly approved, advance an amount
Advance of the cost Officer, advance an amount sufficient sufficient to defray the costs of
to defray the costs of collection by collection by means of the remedies
means of summary remedies. provided in the law.

1.If there is no bidder for real property


1. If there is no bidder for the real
exposed for sale, or
property advertised for sale, or
2.The highest bid is for an amount
2. If the highest bid is for an amount
insufficient to pay the taxes, penalties
insufficient to pay the taxes, fees, or
and costs,
charges,
3.The Internal Revenue Officer shall
3. The local treasurer conducting the
Forfeiture in favor of the declare the property forfeited to the
sale shall purchase the property in
Government Government in satisfaction of the
behalf of the local government unit.
claim
4. It shall be the duty of the Register of
4.It shall be the duty of the Register of
Deeds concerned, upon registration
Deeds concerned, upon registration
with his office of the declaration of
with his office of the declaration of
forfeiture to transfer the title of the
forfeiture to transfer the title of the
property to the Government without
property to the Government without
the necessity of court order.
the necessity of court order.

185

Internal Revenue Taxes Local Taxes / Real Property Tax

1. Upon giving of not less than 20


days notice, the Commissioner may 1. The Sanggunian concerned, by
sell and dispose of the real property. an ordinance duly approved and
2. Sale may be at public auction upon notice of not less than 20 days,
Resale of real estate taken or in a private sale (upon approval of may sell and dispose of the real
for taxes the Secretary ff Finance) property.
3. Proceeds of the sale shall be 2. Sale is only by public auction.
deposited with the national treasurer 3. The proceeds of the sale shall
and an accounting of the same shall accrue to the general fund of the
be rendered to the Chairman of the LGU concerned.
Commission on Audit.
The redemption price shall be:
The redemption price shall be:
1. Amount of public taxes, penalties,
Interest rate on the 1. Amount of public taxes, penalties,
and interest thereon from the date of
and interest thereon from the date of
redemption price delinquency to the date of sale.
delinquency to the date of sale.
2. Interest on the purchase price at the
2. Interest on the purchase price at the
rate of 15% per annum from the date
rate of 2% per month from the date of
of purchase to the date of
purchase to the date of redemption.
redemption.

PROTEST

Tariff And Custom


Protest NIRC Local Taxes Real Property Tax
Code

General Rule: Not


required.

Exception: If the
taxpayer only
disputes or protests
against the validity General Rule:
of some of the Required.
issues raised, the
taxpayer shall be
required to pay the Exception: Where
Payment in deficiency tax or the question raised is
Not Required Required
Protest taxes attributable to
on the very authority
the undisputed
and power of the
issues. No action
assessor to impose
shall be taken on
the assessment and
the taxpayers
of the treasurer to
disputed issues collect the tax.
until the taxpayer
has paid the
deficiency tax or
taxes attributable to
the undisputed
issues (RR12-99).

186

NIRC: REMEDIES IN GENERAL 2. Tax credit.


B. Judicial remedies
OUTLINE OF REMEDIES
REMEDIES OF THE GOVERNMENT
REMEDIES OF THE GOVERNMENT
Importance of Tax Remedies
Basic remedies:
Assessment; and While taxes are the lifeblood of the
Collection. government and so should be
collected without unnecessary
Other classifications: hindrance. However, such collection
should be made in accordance with
I. As to procedure law as any arbitrariness will negate the
very reason for government itself It is
A. Collection with assessment; or therefore necessary to reconcile the
B. Collection without assessment. apparently conflicting interests of the
authorities and the taxpayers so that
II. As to the nature of the real purpose of taxations, which is
proceeding the promotion of the common good,
may be achieved. (Reyes v.
A. Administrative remedies Almanzor)
1. Distraint of personal property
including garnishment and ASSESSMENT
deposit;
2. Summary remedy of levy on Assess means to impose a tax; to
real property; charge with a tax; to declare a tax to
3. Forfeiture to the government; be payable; to apportion a tax to be
4. Tax lien; paid or contributed, to fix a rate; to fix
5. Compromise and abatement; or settle a sum to be paid by way of
and tax; to set, fix or charge a certain sum
6. Penalties and fines. to each taxpayer; to settle determine
or fix the amount of tax to be paid (84
B. Judicial remedies C.J.S 74-750)
1. Civil; and
2. Criminal. An assessment is the notice to the
effect that the amount therein stated is
REMEDIES OF THE TAXPAYER due from a taxpayer as a tax with a
demand for payment of the same
I. Before payment of tax within a stated period of time.
A. Administrative remedies (Commissioner v. CTA, 27 SCRA
1. Protest; 1159)
2. Compromise; and
3. Abatement. An assessment contains not only a
B. Judicial remedies computation of tax liabilities, but also a
demand for payment within a
II. After payment of tax prescribed period. It also signals the
A. Administrative remedy time when penalties and interests
1. Tax refund; and begin to accrue against the

187

taxpayer. To enable the taxpayer to reinvestigation which is granted by


determine his remedies thereon, due the Commissioner;
process requires that it must be served 3. When the taxpayer cannot be
on and received by the taxpayer. (CIR located in the address given by him
v. PASCOR Realty and Development in the return filed upon which a tax
Corporation) is being assessed or collected,
BUT if the taxpayer informs the
When Assessment is Made Commissioner of any change in
address, the running of the statute
Prescriptive Period for Assessment of limitations shall not be
(Sec. 203, NIRC) suspended;
4. When the warrant of distraint or
If the taxpayer filed a return: Internal levy is duly served upon the
revenue taxes shall be assessed taxpayer, his authorized
within three years after the last day representative, or a member of his
prescribed by law for the filing of the household with sufficient discretion,
return. and no property is located; and
5. When the taxpayer is out of the
If a return is filed beyond the period Philippines.
prescribed by law: The three-year
period shall be counted from the day Assessment Procedure
the return was filed.
Exceptions: FIRST STEP: Issuance of Letter of
o False return; Authority
o Fraudulent return with Revenue officers examine the books of
intent to evade tax; account and other accounting records
o Failure to file a return. of taxpayers to determine the correct
(Sec. 222, NIRC) tax liability. This is through the
issuance of a Letter of Authority.
Waiver of Period for Assessment
The taxpayer and the Commissioner Letter of Authority (LA) The Letter
may agree in writing, before the of Authority refers to the letter
expiration of the time prescribed in informing a taxpayer that a certain
Sec. 203, to extend the period of revenue officer is authorized to
assessment. The period so agreed examine the books of accounts and
upon may be extended by subsequent other accounting record of said
written agreement made before the taxpayer for the purpose of verifying
expiration of the period previously his tax liabilities during a taxable year.
agreed upon. (Sec. 222(b), NIRC) (ABAN, Law of Basic Taxation in the
Philippines, p. 196)
Suspension of Running of Statute
of Limitations (Sec. 223, NIRC) SECOND STEP: Service of LA; Tax
1. Period during which the Audit
Commissioner is prohibited from The LA must be served to the taxpayer
making the assessment or within thirty (30) days from its issue;
beginning distraint or levy or a otherwise, it becomes null and void
proceeding in court, and for sixty and the taxpayer has all the right to
(60) days thereafter ; refuse its service. (ABAN, supra at
2. When the taxpayer requests for a 196)

188

A Revenue Officer shall, within 120 FOURTH STEP: Reply to PAN


days from the date of issuance and The taxpayer has 15 days from the
service of the LA, conduct his audit date of receipt of PAN to reply (RR No.
and submit his report of investigation 18-2013, Sec. 3.1.1).
(ibid).
Requisites of a valid reply:
Effect of failure to complete the 120- 1. Must be made within the said 15-
day period day period (RR No. 18-2013, Sec.
1. Audit will continue without the need 3.1.1); and
to revalidate the LA; but 2. Must be filed by the taxpayer or his
2. The officer concerned shall be duly authorized representative, in
subjected to administrative person or through registered mail
sanctions (RMC No. 23-2009; with return card, with the Office of
RMO No. 44-2010). the duly authorized representative
of the CIR (Regional Director,
THIRD STEP: Issuance of ACIR-LTS, ACIR-Enforcement
Preliminary Assessment Notice Service) who signed the PAN
(PAN) (RMC No. 11-2014, RMC No. 39-
A PAN is issued to the taxpayer 2013).
informing him of the findings of the
Revenue Officer if after review and Effect of failure to submit valid
evaluation of taxpayers records, there reply to PAN
found a sufficient basis to assess the 1. Taxpayer shall be considered in
taxpayer for any deficiency taxes (RR default and a FLD/FAN will be
No. 18-2013, Sec. 3.1.1). issued (Sec. 228, par. 3, NIRC).
2. Taxpayer can still file a protest to
Prior to issuance of PAN, the taxpayer FLD/FAN (Sec. 228, par. 4, NIRC).
may be allowed to make voluntary
payments of probable deficiency taxes FIFTH STEP: Issuance of a Formal
and penalties (RMC No. 11-2014). Letter of Demand and Final
Assessment Notice (FLD/FAN)
Rationale: If the taxpayer was not able to refute
To give the taxpayer the opportunity to the findings in PA, or if he is in default,
refute the findings of the examiner and FLD/FAN shall be issued.
give a more accurate and detailed
explanation regarding the FLD/FAN
assessment(s) (Sony Philippines v. A notice of assessment constituting a
CIR, CTA Case No. 6185). computation of deficiency taxes and a
demand issued to the taxpayer. This is
Note: The issuance of a Notice of the notice of assessment and not the
Informal Conference under RR No. 12- PAN that must be made within the
99 before issuing PAN is already prescriptive period of assessment and
dispensed with pursuant to RR No. 18- which MUST be protested by the
2013 issued on November 28, 2013. taxpayer, otherwise, the assessment
shall become final, executory and
demandable.

189

reply to PAN (Oakwood


Requisites of a valid FLD/FAN: Management Services v. CIR);
1. Must be issued by the CIR or 3. Within 15 days after
his duly authorized representative. filing/submission of the response to
The duly authorized PAN (RR No. 18-2013, Sec. 3.1.1);
representatives refer to the same 4. After 15 days after
persons who are authorized to filing/submission of the response to
issue PAN (RR No. 18-2013, Sec. PAN (RMC No. 11-2014).
3.1.3; RMC No. 11-2014);
2. Must be issued after issuance Exceptions: In the following
of a valid PAN, except for the instances where PAN is not required,
instances where a PAN is not a FLD/FAN shall be issued outright:
required (Sec. 228, par. 1 & 2, (RR No. 18-2013)
NIRC; RR No. 18-2013, Sec. 1. When the finding for any
3.1.2); deficiency tax is the result of
3. Must be served to the taxpayer mathematical error in the
personally and if not practicable, by computation of the tax as
substituted service or by mail (RR appearing on the face of the
No. 18-2013, Sec. 3.1.6); return;
4. Must be served to the taxpayer 2. When the excise tax due on
before the lapse of the prescriptive excisable articles has not been
period of making assessment (Sec. paid;
203, NIRC); 3. When a discrepancy has been
5. Must be in writing and contain determined between the tax
the facts and the law on which the withheld and the amount actually
assessment is made (RR No. 18- remitted by the withholding agent;
2013, Sec. 3.1.3) 4. When an article locally
purchased or imported by an
Period to Issue FLD/FAN exempt person, such as, but not
Rule: FAN can be issued only after a limited to, vehicles, capital
PAN was issued. The taxpayer must equipment, machineries and
first be informed that he is liable for spare parts, has been sold,
deficiency taxes through the sending traded or transferred to non-
of PAN. Absence of PAN renders exempt persons; and
nugatory any assessment made by 5. When a taxpayer who opted to
the tax authorities (CIR v. Metro claim a refund or tax credit of
Superama, Inc,; SVI Information v. excess creditable withholding tax
CIR). for a taxable period was
determined to have carried over
After the issuance of the PAN, the and automatically applied the
FAN may be issued in any of the same amount claimed against the
following cases/periods: estimated tax liabilities for the
1. After the lapse of the 15-day taxable quarter or quarters of the
period to respond to PAN without succeeding taxable year
the taxpayer submitting a reply (RR
No. 18-2013, Sec. 3.1.1); When Assessment is Deemed
2. Before the lapse of the 15-day Made
period to respond to PAN and the The assessment is deemed to
taxpayer has not yet submitted a have been made on the date when

190

the demand letter or notice of (See discussions on Remedies of the


assessment is released, mailed or Taxpayer for a more detailed
sent, even though the same is explanation)
actually received by the taxpayer
after the expiration of the COLLECTION
prescriptive period (Basilan
Estates v. CIR). It is the actual effort exerted by the
government to effect the exaction of
Rule: When a mail matter is sent what is due from the taxpayer.
by registered mail, there exists a
presumption that it was received in Rule on No Injunction to Restrain
the regular course of mail Tax Collection
(Republic v. CA). Generally: No court shall have the
authority to grant an injunction to
Sixth Step: Protesting the restrain the collection of any internal
Assessment; Questioning the revenue tax, fee, or charge imposed
Validity of FLD/FAN by this Code. (Sec. 218, NIRC)
After the FLD/FAN was made, the
taxpayer may question the validity of Exceptions:
the imposition of the deficiency taxes When the all of the following conditions
as shown in the notice of assessment concur:
within 30 days from receipt thereof. 1. It is an appeal to the CTA from a
(Sec. 228, NIRC) decision of the CIR, or
Commissioner of Customs or the
Failure to File a Valid Protest RTC, provincial, city or municipal
If the taxpayer fails to file a valid treasurer or the Secretary of
protest against the FLD/FAN within 30 Finance, the case may be; and
days from the date of receipt thereof, 2. In the opinion of the Court of Tax
the assessment shall become final, Appeals, the collection may
executory and demandable. No jeopardize the interest of the
request for reconsideration or Government and/or the taxpayer.
reinvestigation shall be granted on tax (Sec. 11, R.A. 1125 as amended
assessments that have already by R.A. 9282)
become final, executory and
demandable. No Injunction Rule Applicable Only
to National Taxes; No Express
Seventh Step: Administrative Action Prohibition in LGC
on Protested Assessment The prohibition on the issuance of a
The power to decide disputed writ of injunction to enjoin the
assessments, refunds of internal collection of taxes applies only to
revenue taxes, fees or other charges, national internal revenue taxes, and
penalties imposed in relation thereto, not to local taxes. (Angeles City v.
or other matters is vested in the Angeles Electric Corporation)
Commissioner, subject to the exclusive
appellate jurisdiction of the Court of When the Government May Avail of
Tax Appeals. the Remedies of Collection
Generally: When the assessment
shall have become final, executory and
demandable. No proceeding in court

191

without the assessment for the A. DISTRAINT OF PERSONAL


collection of such taxes shall be PROPERTY
commenced.
Remedy enforced on the goods,
When Assessed Taxes Become chattels, or effects, and other personal
Collectible property of whatever character
1. Failure to protest FLD/FAN within including stocks and other securities,
the prescribed period; debts, credits, bank accounts, and
2. Failure to appeal FDDA within the interest in and rights to personal
prescribed period; property. (Sec. 205 (a), NIRC)
3. Failure to appeal an adverse
decision of the court within the Kinds of Distraint
prescribed period. 1. Actual Distraint
2. Constructive Distraint
Exception: In case of false or
fraudulent return with intent to evade Actual Distraint
tax or of failure to file a return, a A collection remedy resorted to when
proceeding in court for collection may delinquency in the payment sets in,
be filed without assessment within 10 i.e., when at the time required for
years from discovery of falsity, fraud or payment, a person fails to pay his tax
omission. (Sec. 222(a), NIRC) obligation. It consists of the actual
seizure and distraint of personal
ADMINISTRATIVE REMEDIES property of taxpayer in sufficient
quantity to satisfy the tax or charge.
Administrative Remedies of the (ABAN supra at 238)
Government in Collection
A. Distraint of personal property Procedure for Actual Distraint
including garnishment and deposit; 1. Commencement of Distraint
B. Summary remedy of levy on real Proceedings
property; More than P1M by the
C. Forfeiture to the government; Commissioner or his duly
D. Tax lien; authorized representative;
E. Compromise and abatement; and P1M or less by the Revenue
F. Penalties and fines. Officer (RO)
(Sec. 207 (A), NIRC)
Distraint and Levy Distinguished
Distraint is a remedy whereby the 2. Service of Warrant of Distraint
collection of taxes is enforced on the The officer serving the warrant of
goods, chattels or effects and other distraint shall make or cause to be
personal property of whatever made an account of the goods,
character of a taxpayer. chattels, effects, or other personal
property distrained, a copy of
Levy, on the other hand, means the which, signed by himself, shall be
collection enforcement is effected on left either with the owner or person
the real property and interests in or from whose possession such
rights to real property of the delinquent goods, chattels, or effects, or other
taxpayer. (ABAN supra at 238; Sec. place of business of such person
205 (a), NIRC;) and with someone of suitable age
and discretion, to which list shall be

192

added a statement of the sum distrained properties shall be restored


demanded and not of the time and to the owner. (Sec. 210, NIRC)
place of sale. (Sec. 208, NIRC)
Right of Redemption: There is NO
3. Notice of Sale of Distrained right of redemption in sale of personal
Property property distrained. (SABABAN,
The RO or his duly authorized Taxation Law Review, 2008)
representative, other than the
officer referred to in Sec. 208 of Purchase by the government at sale
NIRC, shall, according to rules and upon distraint (Sec. 212, NIRC)
regulations prescribed by the When the amount bid for the distrained
Secretary of Finance, upon property is:
recommendation of the 1. NOT equal to the amount of tax; or
Commissioner, forthwith cause a 2. Very much LESS than the actual
notification to be exhibited in not market value of the property
less than two (2) public places in offered for sale.
the municipality or city where the
distraint is made, specifying the The CIR or his deputies may purchase
time and place of sale and the in behalf of the National Government
articles distrained. The time of sale for the amount of taxes, penalties and
shall not be less than twenty (20) cost due thereon.
days after notice to the owner or
possessor of the property as above Property so purchased may be resold
specified and the publication or by the CIR or his deputy; the net
posting of such notice. One place proceeds shall be remitted to the
for the posting of such notice shall National Treasury and accounted as
be at the Office of the Mayor of the internal revenue.
city or municipality in which the
property is distrained. (Sec. 209, Constructive Distraint
NIRC) A remedy where no actual delinquency
is necessary before the same is
4. Sale of Distrained Property resorted to. It is a preventive remedy
At the time and place fixed in such the aim of which is to forestall a
notice, the said revenue officer possible dissipation of the taxpayers
shall sell the goods, chattels, or assets when delinquency takes place.
effects, or other personal property, (ABAN supra at 238)
including stocks and other
securities so distrained, at public Grounds for Constructive Distraint
auction, to the highest bidder for When in the opinion of the
cash, or with the approval of the Commissioner:
Commissioner, through duly 1. The taxpayer is retiring from any
licensed commodity or stock business subject to tax; or
exchanges. (Sec. 209, NIRC) 2. He intends to leave the Philippines;
or
Right of Pre-emption: If at any time 3. He intends to remove his property
prior to the consummation of the sale, or to hide his property therefrom; or
ALL proper charges are paid to the 4. He performs any act tending to
officer conducting the sale, all the obstruct the proceedings for

193

collecting the tax due or which may 3. Bank accounts shall be


be due from him (Sec. 206, NIRC) garnished by serving a warrant of
garnishment upon the taxpayer and
Procedure for Constructive Distraint upon the president, manager,
The constructive distraint of personal treasurer, or other responsible
property shall be effected requiring the officer of the bank
taxpayer or any person having
possession or control of such property Garnishment
to sign a receipt covering the property The taking of personal properties,
distrained and obligate himself to usually cash or sums of money, owned
preserve the same intact and by a delinquent taxpayer which is in
unaltered and not dispose of the same the possession of a third party.
in any manner whatsoever without the
express authority of the B. SUMMARY REMEDY OF LEVY
Commissioner. ON REAL PROPERTY LEVY

In case the taxpayer or the person When levy may be effected


having possession and control of the After the expiration of the time required
property sought to be placed under to pay the delinquent tax, real property
constructive distraint refuses or fails to may be levied upon before,
sign the receipt, the revenue officer simultaneously, or after the distraint of
effecting the constructive distraint shall personal property belonging to the
proceed to prepare a list of such delinquent taxpayer (Sec. 207(B),
property and in the presence of two NIRC);
witnesses leave a copy thereof in the
premises where the property distrained Further distraint or levy
is located after which said property The remedy by distraint and levy may
shall be deemed to have been placed be repeated if necessary until the full
under constructive distraint. (Sec. 206, amount, including all expenses, is
NIRC) collected (Sec. 217, NIRC).

Distraint of Intangible Properties Levy after distraint


Intangible properties which can be the In case the warrant of levy is not
subject of distraint are: issued before or simultaneously with
1. Stocks and other securities the warrant of distraint and the
shall be distrained by serving a personal property of the taxpayer is
copy of the warrant of distraint not sufficient to satisfy his tax
upon the taxpayer and upon the delinquency, the Commissioner or his
president, manager, treasurer, or duly authorized representative shall,
other responsible officer of the within thirty (30) days after the
corporation, company or execution of the distraint, proceed with
association, which issued the said the levy on taxpayers real property
stocks or securities (Sec. 207(B), NIRC).
2. Debts and credits shall be
distrained by leaving with the Procedure for Levy
person owning the debts or having 1. Issuance of Warrant of Levy
in his possession or under his The IR officer designated by the
control such credits, or his agent, a Commissioner or his duly
copy of the warrant of distraint

194

authorized representative shall property is located, once a week for


prepare a: three (3) weeks.
i. DULY AUTHENTICATED CONTENTS of notice: statement of
CERTIFICATE showing the name amount of taxes, and penalties due,
of the taxpayer and the amounts time and place of sale, name of
of tax and penalty due from him. taxpayer, short description of
ii. This certificate shall operate with property. (Sec. 213, NIRC)
the force of LEGAL EXECUTION
throughout the Philippines. 4. Sale
iii. The certificate shall contain a Right of pre-emption: The
description of the property upon taxpayer may discontinue all the
which levy is made. (Sec. 207(B), proceedings by paying the taxes,
NIRC) penalties and interest at any time
before the day fixed for the sale.
2. Service of Warrant
Levy shall be effected by writing The sale shall be held either at the
upon said certificate a description main entrance of the municipal or
of the property upon which levy is city hall or on the premises to be
made. sold. Property will be awarded to
At the same time, written notice of the highest bidder. In case the
the levy shall be mailed to or proceeds of the sale exceed the
served upon the Register of Deeds claim and costs of sale, the excess
of the province or city where the shall be turned over to the owner of
property is located and upon the the property. (Sec. 213, NIRC)
taxpayer (If he is absent from the
Philippines: to his agent or A Certificate of Sale shall be
manager of business in respect to delivered to the purchaser.
which the liability arose or to the
occupant of the property in If the proceeds of the sale exceed
question). (Sec. 207(B), NIRC) the claim and cost of sale, the
excess shall be turned over to the
3. Advertisement of Sale owner of the property.
Within twenty (20) days after the
levy, the officer conducting the 5. Redemption of property (Sec.
proceedings shall proceed to 214, NIRC)
advertise for SALE the property or Period: Within 1 year from the date
a portion as may be necessary to of sale. The one-year period for
satisfy the claim and costs of sale. redemption begins from the
Such advertisement shall cover a registration of the deed of sale
period of at least thirty (30) days. (Santos v. RFC).
The notice shall be posted at the
main entrance of the city or Who may redeem: The delinquent
municipal all AND in a public and taxpayer or any one for him
conspicuous place in the barrio or To whom made: To the Revenue
district where the real property lies. District Officer
The notice must also be published How made: Upon payment of the
in a newspaper of general taxes, penalties and interest
circulation in the place where the thereon from the date of
delinquency to the date of sale,

195

together with interest on purchase 3. Dies and other equipment used for
price at 15% per annum from the the printing or making of any
date of sale to the date of internal revenue stamp, label or tag
redemption. which is in imitation of or purports
The owner shall not, however, be to be a lawful stamp, label or tag.
deprived of the possession of said (Sec. 268, NIRC)
property and shall be entitled to the 4. All tax-paid articles which are
rents and other income thereof until allowed to remain in a distillery,
the expiration of the time allowed distillery warehouse, bonded
for its redemption. warehouse or other place where
made unless specially authorized
C. FORFEITURE IN FAVOR OF THE (Sec. 268, NIRC);
GOVERNMENT 5. Articles withdrawn from said place
or from Customs custody or
If there is no bidder for the real imported into the country without
property or if the highest bid is not payment of the requisite tax (Sec.
sufficient to pay the taxes, penalties 268, NIRC).
and costs, the Internal Revenue
Officer conducting the sale shall Enforcement of the remedy of
declare the property forfeited to the forfeitures
Government in satisfaction of the 1. Forfeiture of personal property,
claim. (Sec. 215, NIRC) chattels and removable fixtures:
Enforced by the seizure, sale or
Resale of real estate taken for taxes destruction of the specific forfeited
The Commissioner shall have charge property.
of any real estate obtained by the 2. Forfeiture of real property:
Government in payment of taxes, Enforced by a judgment of
penalties or costs arising under this condemnation and sale in a legal
Code or in compromise or adjustment action or proceeding civil or
of any claim. criminal as the case may require
(Sec. 224, NIRC)
The Commissioner may:
1. Sell and dispose of the same at a When property to be sold or
public auction upon giving of not destroyed
less than 20 days notice; or 1. Forfeited chattels and removable
2. Dispose of the same at a private fixtures sold in the same manner
sale with the approval of the and under the same conditions as
Secretary of Finance (Sec. 216, the public notice and the time and
NIRC). manner of sale as are prescribed
for sales of personal property
Specific Instances Where Forfeiture distrained for the non-payment of
is Imposed taxes;
1. Liquor or tobacco shipped under a 2. Distilled spirits, liquors, cigars,
false name or brand (Sec. 262, cigarettes, other manufactured
NIRC); products of tobacco and all
2. All chattels, machinery, and apparatus used in or about the illicit
removable fixtures of any sort used production of such articles
in the unlicensed production of destroyed by the order of the
articles (Sec. 268, NIRC); Commissioner when the sale or

196

use would be injurious to public rights to property belonging to the


health or prejudicial to the taxpayer (Sec. 219, NIRC).
enforcement of the law;
3. All other articles subject to excise Paramount Lien or Superior Claim
tax manufactured or removed in The claim of the government
violation of the Code, dies for the predicated on a tax lien is superior to
printing or making of internal the claim of a private litigant
revenue stamps and labels sold predicated on a judgment
or destroyed in the discretion of the (Commissioner of Internal Revenue
Commissioner; v. NLRC)
4. Forfeited property shall not be
destroyed until at least 20 days Civil Law Concept of Lien and Tax
after seizure. (Sec. 225, NIRC) Lien; Distinguished
The general rule of the Civil Law:
Disposition of funds recovered in Possession of movables is not
legal proceedings or obtained from necessary to the validity of a lien,
forfeiture whether created by contract or by act
All judgments and monies recovered of law. Such lien will attach upon
and received for taxes, costs, movable property, even in the hands of
forfeitures, fines and penalties shall be a bona fide purchaser without notice.
paid to the Commissioner or his
authorized deputies as the taxes Law of Taxation: The tax lien does
themselves are required to be paid, not establish itself upon property which
and except as specially provided, shall has been transferred to an innocent
be accounted for and dealt within the purchaser prior to demand. A demand
same way. (Sec. 226, NIRC) is necessary to create and bring the
lien into operation. In order that the
D. TAX LIEN lien may follow the property into the
hands of a third party, it is further
A lien is understood to denote a legal essential that the latter should have
claim or charge on property, either real notice, either actual or constructive.
or personal, as security for the (Hongkong & Shanghai Banking
payment of some debt or obligation. Its Corporation v. Rafferty)
meaning is more extensive than the
jus retentionis of the civil law. When does the lien in favor of the
(Hongkong & Shanghai Banking Government arise:
Corporation v. Rafferty) 1. With respect to personal property
from the time the tax became due
Nature and Extent of Tax Lien and payable (Commissioner of
When a taxpayer neglects or refuses Internal Revenue v. NLRC); and
to pay his internal revenue tax liability 2. With respect to real property from
after demand (issuance of FAN), the the time of registration with the
amount so demanded shall be a lien in Register of Deeds. (Sec. 219,
favor of the government from the time NIRC)
the assessment was made by the
Commissioner until paid with interest, Validity of a tax lien
penalties and costs that may accrue in The lien shall be valid against any
addition thereto upon all property and mortgagee purchaser or judgment
creditor only when notice of such lien

197

shall be filed by the CIR in the office of Commissioner and four (4) Deputy
the Register of Deeds of the province Commissioners.
or city where the property of the
taxpayer is situated or located (Sec. Authority of the Commissioner to
219, NIRC). Abate Taxes (Sec. 204 (B), NIRC)

E. COMPROMISE AND Grounds


ABATEMENT; DISTINGUISHED 1. When the tax or any portion thereof
appears to be unjustly or
Compromise involves a reduction of excessively assessed; or
the taxpayers liability, while 2. When the administration and
abatement of tax means that the entire collection costs involved do not
tax liability of the taxpayer is cancelled. justify the collection of the amount
(ABAN, at 235) due.

Authority of the Commissioner to F. PENALTIES AND FINES


Compromise the Payment of
Taxes (Sec. 204 (A), NIRC) General Considerations
1. Incidents to the commission of a
Grounds tax offense Any person convicted
The Commissioner may compromise of a crime penalized under the Tax
the payment of any internal revenue Code shall, in addition to being
tax in the following cases: liable for the payment of the tax, be
1. A reasonable doubt as to the subject to the penalties imposed
validity of the claim against the thereunder. Payment of the tax due
taxpayer exists; or after apprehension shall not
2. The financial position of the constitute a valid defense in any
taxpayer demonstrates a clear prosecution for violation of any
inability to pay the assessed tax. provision of the Tax Code, or in
any action for the forfeiture of
Limits of the Commissioners power untaxed articles (Sec. 253(a),
to compromise NIRC)
1. For cases of financial incapacity: a
minimum compromise rate 2. Criminal liability of accomplices
equivalent to ten percent (10%) of Any person who willfully aids or
the basic assessed tax; abets in the commission of a crime
2. For other cases: a minimum penalized under the Tax Code or
compromise rate equivalent to forty who causes the commission of any
percent (40%) of the basic such offense by another shall be
assessed tax liable I the same manner as the
principal. (Sec. 253(b), NIRC)
Note: When the basic tax involved
exceeds One Million Pesos
(P1,000,000), or where the settlement 3. Other incidents in the case of
offered is less than the prescribed offenders who are aliens, public
minimum rates, the compromise must officers or employees, or CPAs - If
be approved by the Evaluation Board the offender is not a citizen of the
which shall be composed of the Philippines, he shall be deported
immediately after serving the

198

sentence without further of claims against the deceased


proceedings for deportation. If he is taxpayer with the probate court.
a public officer or employee, the
maximum penalty prescribed for Two ways to enforce civil liability
the offense shall be imposed and , through civil action:
in addition, he shall be dismissed 1. By filing a civil case for
from the public service and collection of a sum of money with
perpetually disqualified from proper regular court (NIRC, Secs.
holding any public office, to vote 203 & 222); or
and to participate in any election. If 2. By filing an answer to the
the offender is a CPA, his petition for review filed by taxpayer
certificate as a CPA shall, upon with CTA (Fernandez Hermanos
conviction, be automatically Inc. v. CIR).
revoked or cancelled. (Sec. 253(c),
NIRC) Form and mode of proceeding:
1. Civil actions shall be brought in
4. Offenses committed by the name of the Government of the
associations, partnerships or Philippines;
corporations In the case of 2. It shall be conducted by legal
associations, partnerships or officers of the BIR;
corporations, the penalty shall be 3. No civil or criminal action for the
imposed on the partner, president, recovery of taxes shall be filed in
general manager, branch manager, court without the approval of the
treasurer, officer-in-charge and CIR. However, under Sec. 7 of the
employees responsible for the NIRC, the Commissioner may
violation. (Sec. 253(d), NIRC) delegate such power to a Regional
Director (Sec. 220, NIRC)
5. Penal liability of corporations and
other entities Any corporation, Jurisdiction:
association or general co- 1. Court of Tax Appeals where
partnership liable for any of the the principal amount of taxes and
acts or omissions penalized under fees, exclusive of charges and
the Tax Code, in addition to the penalties claimed is P1,000,000
penalties imposed therein upon the and above.
responsible corporation officers,
partners or employees shall, upon 2. Regional Trial Court,
conviction for each act or omission, Municipal Trial Court,
be fined for not less than Fifty Metropolitan Trial Court where
thousand pesos (P50,000) but not the principal amount of taxes and
more than One hundred thousand fees, exclusive of charges and
pesos (P100,000). penalties claimed is less than
P1,000,000.00 (Sec. 7, R.A. No.
JUDICIAL REMEDIES 9282).

I. CIVIL ACTION II. CRIMINAL ACTION


For tax remedy purposes, these are Criminal action in violation of the
actions instituted by the government NIRC also constitutes a collection
to COLLECT internal revenue taxes method because the judgment in the
including the filing by the government criminal case shall not only impose

199

the penalty but shall also order the independent of any attempt on the
payment of the taxes subject of the part of the tax payer to evade
criminal case as finally decided by payment. It is neither a mere
the CIR (Sec. 205, NIRC). consequence of the felonious acts
charged nor is it a mere civil liability
Any person convicted of a crime derived from a crime (Republic v.
penalized by the NIRC shall, in Patanao).
addition to being liable for the
payment of the tax, be subject to the The civil liability to pay taxes arises
penalties imposed herein (Sec. not because of felony but upon
253(a), NIRC). taxpayers failure to pay taxes.
Criminal liability in taxation arises
Form and mode of proceeding as a result of ones liability to pay
Same with civil action (Sec. 220, taxes.
NIRC)
2. Effect of subsequent
Jurisdiction: satisfaction of civil liability
1. Court of Tax Appeals on The subsequent satisfaction of civil
criminal offenses arising from liability by payment or prescription
violations of the NIRC or TCC and DOES NOT extinguish the
other laws administered by the BIR taxpayers criminal liability (People
and the BOC where the principal v. Tierra).
amount of taxes and fees exclusive
of charges and penalties claimed 3. No subsidiary imprisonment
isP1,000,000 and above. In case of insolvency on the part of
2. Regional Trial Court, the taxpayer, subsidiary
Municipal Trial Court, imprisonment CANNOT be
Metropolitan Trial Court on imposed as regards the tax which
criminal offenses arising from he is sentenced to pay.
violations of the NIRC or TCC and
other laws administered by the BIR However, it may be imposed in
and the BOC, where the principal cases of failure to pay the fine
amount of taxes and fees, imposed (Sec. 280, NIRC).
exclusive of charges and penalties
claimed is less than P1,000,000 4. Criminal action may be filed
OR where there is no specified despite the lapse of the period to
amount claimed (Sec. 7, R.A. No. file a civil action for collection of
9282). taxes.
When the civil action arising from
Important principles on criminal tax delinquency has prescribed, the
actions BIR has only 5 years from
1. Effect of acquittal of the assessment within which to collect
taxpayer in a criminal action the tax through criminal action in
It does NOT necessarily result in which case, would prescribe after
the exoneration of said taxpayer lapse of 5 years from discovery of
from his civil liability to pay taxes. crime AND institution of
proceedings (Sec. 281, NIRC).
Rationale: The duty to pay tax is
imposed by statute prior to and

200

5. Assessment is not a 1. Within 3 years after the last day


prerequisite in the filing of a prescribed by law for the filing of
criminal action. the return; or
Rule: What is involved here is not 2. From the date of actual filing of the
the collection of taxes where the return, whichever comes later.
assessment of the CIR may be (Sec. 203, NIRC)
reviewed by the CTA, but a criminal
prosecution for violations of the Note: The period applicable when the
NIRC which is within the law does not require the filing of any
cognizance of the MTC/RTC. While return, and the tax is such that its
there can be no civil action to amount cannot be ascertained without
enforce collection before the the data is pertinent thereto, the
assessment procedures provided in Commissioner may, by appropriate
the Code have been followed, there regulations, require the filing of the
is no requirement for the precise necessary returns. (Bisaya Land
computation and assessment of the Transportation Co. Inc. v. CIR)
tax before there can be a criminal
prosecution under the Code Exceptions:
(Ungab v. Cusi). 1. Extraordinary or abnormal
assessment
6. Filing of a criminal action is In case of false or fraudulent return
not an implied assessment by with intent to evade tax or failure to
the CIR file a return within 10 years after
An affidavit, which was executed by the discovery of the falsity, fraud or
revenue officers stating the tax omission (Sec. 222(a), NIRC);
liabilities of a taxpayer and
attached to a criminal complaint for False Return and Fraudulent
tax evasion, cannot be deemed an Return
assessment. (CIR v. PASCOR The difference between a false
Realty and Development return and a fraudulent return is
Corporation) that a false return merely implies a
deviation from the truth or fact
The recommendation letter of the whether intentional or not, whereas
Commissioner (addressed to the a fraudulent return is intentional
DOJ for the filing of a criminal and deceitful with the aim of
complaint against the taxpayer) evading the correct tax due (Aznar
cannot be considered a formal v. Commissioner).
assessment. It merely as the prima
facie basis for filing criminal Note: It is to the interest of the
information that the taxpayers had taxpayer to file said returns even
violated (penal provisions) of the without [the appropriate
Tax Code (Adamson, v. CA). regulations] if he wishes to avail
himself of the benefits of the three-
STATUTE OF LIMITATIONS year prescriptive period. If this
notwithstanding, he does not file a
ASSESSMENT return at all, then an assessment
Generally: Ordinary or normal may be made within the ten-year
assessment prescriptive period. (Bisaya Land
Transportation Co. Inc. v. CIR)

201

tax return (Butuan Sawmill, Inc. v.


2. Waiver of the Statute of CTA).
Limitations
In case of a valid waiver up to the Effect of amendment of tax return
extended period agreed upon (Sec. Rule: The following shall govern in
222(b), NIRC). case there is an amendment of the
return:
Note: The prescriptive period for 1. If the amendment is substantial, the
making assessment shall also apply counting of the prescriptive period
when the Government makes an shall be reckoned on the date the
erroneous refund of internal revenue substantial amendment was made.
taxes. (ABAN, supra at 286) 2. If the amendment was superficial, the
counting of the prescriptive period is
Construction of statutory provision still the original period (CIR v.
on prescription Phoenix Assurance).
The law of prescription being a
remedial measure should be Rationale: To prevent taxpayers from
interpreted in a way conducive to evading the payment of taxes by
bringing about the beneficient purpose simply reporting in their original return
of affording protection to the taxpayer heavy losses and amending the same
within the contemplation of the more years later when the CIR has lost
Commission which recommend the his authority to assess the proper tax
approval of the law (Republic v. thereunder. The object of the NIRC is
Ablaza). to impose taxes for the needs of the
Government and not to enhance tax
Burden of proof that a return was avoidance to its prejudice (CIR v.
filed to apply the 3-year period Phoenix Assurance, supra).
It is incumbent on the taxpayer to
prove that a return had been filed by Exception: If the return is sufficiently
him in order that the 3-year complete to enable the CIR to
prescriptive period may apply intelligently determine the proper
(Republic v. Marsman Devt.) amount of tax to be assessed, then the
because the prescription of the prescriptive period for assessment
Governments right to assess taxes is starts from the filing of the original
an affirmative defense (Taligaman return (A.L. Ammen Trasnportation
Lumber v. CIR). v. Collector).

Requisites in order that a return Tax Returns Warranting Application


may be considered filed for of Ten-Year Prescriptive Period
purposes of starting the running of
the prescriptive period: A. False Return
1. The return must be valid it Example of a falsity warranting the 10-
must comply substantially with the year prescriptive period to apply is a
requirements of the law; and substantial under-remittance of
2. The return must be appropriate withholding tax on compensation
it is a return for the particular tax (Samar-I Electric Cooperative, Inc. v.
required by law. Thus, an income tax CIR)
return cannot be considered as the
equivalent of the VAT or percentage

202

COLLECTION
B. Fraudulent return The following rules shall govern for the
For the 10-year prescriptive period to prescriptive period of collection of
apply based on fraud, such must first taxes:
be proved as a fact by the BIR.
1. Collection under a normal or
Such fact in a fraud assessment which ordinary assessment (one with the
has already become final and 3-year period to assess)
executory shall be judicially taken
cognizance of in a civil or criminal Two (2) views:
action for the collection thereof (Sec. First view: 5 years from the time the
222(a), NIRC). assessment was made. Under the
old Tax Code, the prescriptive period
The following instances negate the for collection under both normal and
existence of fraud and preclude the abnormal assessment is 3 years.
application of the 10-year prescriptive
period: Under the new Tax Code, the
1. The CIR failed to impute fraud prescriptive period for collection
in the assessment notice or demand under abnormal assessment is 5
for payment; years, hence it can be concluded
2. The CIR failed to allege fraud in that the prescriptive period under
his answer to the taxpayers petition normal assessment is also 5 years.
for review when the case is appealed (SABABAN, Taxation Law Review
to the CTA (ABAN, supra at pp. (2008), p.182)
274-275);
3. Mere understatement of gross Second view: 3 years from the time
earnings does not of itself prove the assessment was made. The 5-
fraud (Yutivo Sons v. CTA). year period refers to an instance
where there is an assessment issued
C. Failure to file a return on the basis of false or fraudulent
return or the absence of a return
The following constitutes failure to file (Sec. 222(c), NIRC in relation to
to warrant the 10-year prescriptive Sec. 222(a), NIRC) or in the instance
period: of an extended assessment under
1. A deficient return which prevented Sec. 222(d) of the NIRC. The
the CIR from computing taxes dues. interpretation should be in favor of
Such defective return is the same as the taxpayer, providing for a shorter
if no return is filed at all (CIR v. period of 3 years from the issuance
Gonzales); and of an assessment, because the 5-
2. Failure to report income in the year period places a law-abiding
returns which were clearly not taxpayer in the same category as
exempted from tax. The Court did not one who is not law-abiding, i.e.,
treat this as a simple omission as the who files a false or fraudulent return,
same involved substantial sums or one who does not file a tax return,
(Standard Chartered Bank v. CIR). etc. (DOMONDON, Bar Reviewer in
Taxation, Vol. I (2008), pp.414-415).

203

avoiding multiplicity of suits and the


2. Collection under an abnormal rule of lis pendens (Republic v. Ker
or extraordinary assessment (one & Co.).
with the 10-year period to assess)
5 years from the time the This may happen when there is a
assessment was made (Sec. 222(c), pending petition for review in the
NIRC) CTA from the decision on the
protested assessment, the filing of
3. Collection without such petition interrupts the running of
assessment through judicial the prescriptive period for collection.
action 10 years after discovery of The interruption is from the time the
the falsity, fraud or omission to file a appeal is filed in the CTA until its
return termination in the Supreme Court
should there be an appeal to a
Note: The aforementioned rules shall higher court (Republic v. Ker & Co.,
likewise be applied for filing claims Ltd., supra).
against the estate for the unpaid taxes
(Vera v. Fernandez) BUT shall not be This also happens when the CTA
applicable on the following: suspends the collection of the tax
1. Where the Governments action liability of the taxpayer (ABAN,
is on a bond which the taxpayer supra at 288).
executes in order to secure the
payment of his obligation, the If the collection is made judicially,
applicable period is 10 years under then the prescription period is
Art. 1144(1) of the Civil Code suspended but if the collection is
(ABAN, supra at 282). made by levy or distraint, then it is
2. When the Government not suspended, hence the
proceeds by court action to forfeit a Government can run after the
bond, the action for the enforcement taxpayers property even if the case
of a contractual obligation shall is appealed to the CTA.
prescribe in 10 years (Republic v.
Arcache). 2. When the taxpayer requests for
a reinvestigation which is granted by
Grounds for suspension of the the CIR;
running of the Statute of
Limitations: (Sec. 223, NIRC) Requisites:
1. When the CIR is Prohibited 1. There must be request for
from making the assessment or reinvestigation and not a request
beginning the distraint or levy or a for reconsideration (see discussion
proceeding in court, AND for sixty 60 of forms of protest under Remedies
days thereafter; of the Taxpayer) (CIR v. Philippine
Global Communications); and
Illustration: When a case is on 2. The request for reinvestigation
appeal to the CTA, the CIR is must be granted or acted upon by
prevented from filing an ordinary the CIR (BPI v. CIR, citing CIR v.
action to collect the tax in the regular Suyoc Consolidated Mining
courts; for if this were not so, Company, 104 Phil. 819, 1958;
collection in the regular courts would Bravo Alabang, Inc. v. CIR).
run counter to the judicial policy of

204

Note: The burden of proof that the


request for reinvestigation had Necessity of judicial proceeding
been actually granted shall be on The Supreme Court held that in case
the CIR. Such grant may be of falsity or fraud with intent to evade
expressed in its communications the tax, the right of the government
with the taxpayer or implied from to collect through criminal action is
the action of the CIR or his imprescriptible because the said
authorized representative in remedy of collection through criminal
response to the request for action is only deemed instituted from
reinvestigation (BPI v. CIR, supra). discovery thereof and the institution
3. When the taxpayer cannot be of judicial proceedings for its
located in the address given by him investigation and punishment (Lim v.
in the return, UNLESS he informs the CA)
CIR of any change in his address;
4. When the warrant of distraint or Interruption of prescriptive period
levy is duly served, AND NO property The period shall be interrupted:
is located; and 1. When proceedings are
5. When the taxpayer is out of the instituted against the guilty persons;
Philippines. or
2. When the offender is absent
CRIMINAL CASES from the Philippines (Sec. 281,
NIRC)
All violations of any provision of this
Code shall prescribe after 5 years Note: In No. 1, the period shall begin
(Sec. 281, NIRC). to run again if the proceedings are
dismissed for reasons not constituting
When does it begin to run jeopardy (Sec. 281, NIRC).
1. From the day of the commission
of the violation of the law (Sec. 281, REMEDIES OF THE TAXPAYER
NIRC); or The 5-year prescriptive
period for violation of any provision of PROTEST
the Tax Code should be reckoned
from the date of the final notice and I. Protesting the Assessment
demand for payment of the After the FLD/FAN was made, the
deficiency taxes that the cause of taxpayer may question the validity of
action on the part of the BIR accrued. the imposition of the deficiency taxes
This is because prior to the receipt of as shown in the notice of
the letter-assessment, no violation assessment within 30 days from
has yet been committed by the receipt thereof.
taxpayers (DIZON, Q&A in Taxation
citing Lim, Sr. v. Court of Forms of protest
Appeals). 1. Request for reconsideration
2. If the same be not known at the a plea for a reevaluation of an
time, from the discovery thereof AND assessment on the basis of existing
the institution of judicial proceedings records without need of additional
for its investigation and punishment evidence which may involve a
(Sec. 281, NIRC). question of fact or law or both
2. Request for reinvestigation
a plea for the re-evaluation of an

205

assessment on the basis of the c. Taxable periods covered;


newly-discovered or additional d. Assessment number;
evidence that a taxpayer intends to e. Date of receipt of assessment
present in the reinvestigation which notice or letter of demand;
may also involve a question of law f. Itemized statement of the findings
or fact or both (RR No. 18-2013, to which the taxpayer agrees as a
Sec. 3.1.4) basis for computing the tax due,
which amount should be paid
Requisites of a valid protest: immediately upon the filing of the
1. Must be in writing (RR No. 18- protest;
2013, Sec. 3.1.4); g. Itemized schedule of the
2. Must be addressed to the CIR adjustments with which the
or his duly authorized taxpayer does not agree; and
representative (RR No. 18-2013, h. Statement of the facts and law
Sec. 3.1.4); in support of the protest
3. Must be submitted within thirty
(30) days from receipt of FLD/FAN Pro-forma protest
(RR No. 18-2013, Sec. 3.1.4); A pro-forma protest is not valid. The
4. Must be filed by the taxpayer or alleged protest letter basically
his duly authorized representative, informing CIR that it had already
in person or through registered mail written or answered the PAN and
with return card, with the Office of that it explained its position to the tax
the duly authorized representative assessment is neither a request for
of the CIR (Regional Director, reinvestigation nor a request for
ACIR-LTS, ACIR-Enforcement reconsideration. It must be
Service) who signed the FLD/FAN emphasized that a protest to the
(RMC No. 11-2014, RMC No. 39- PAN is not the same as the protest
2013); required in reply to the FAN
(Security Bank Corporation v.
Note: The revenue officials who CIR).
received the protests shall submit a
report on all protests filed to the Effect of failure to file a valid
CIR. The Office of the CIR shall protest
then create a database of these. If The assessment shall become final,
the protest filed is not included in executory and demandable and no
the database, the same shall be request for reconsideration or
considered as NOT officially filed, reinvestigation shall be granted (RR
hence, without force and effect No. 18-2013, Sec. 3.1.4).
(RMC No. 39-2013).
Payment in protest
5. Must Contain the following: 1. If there are several issues
a. Name of the taxpayer and involved in the FLD/FAN but the
address for the immediate past 3 taxpayer only protests against the
taxable years; validity of some of the issues
b. Nature of request whether raised, the assessment attributable
reinvestigation or reconsideration to the undisputed issues shall
specifying newly discovered become final, executory and
evidence he intends to present if demandable. The taxpayer shall be
it is a request for reinvestigation; required to pay the deficiency taxes

206

attributable thereto (RR No. 18- which taxpayer could not produce
2013, Sec. 3.1.4). (Standard Chartered Bank v. CIR).

Note: Previously under RR No. 12- Effect of failure to submit


99, no action shall be taken on the documents
disputed issues unless there is a Non-submission of the documents
payment of deficiency taxes renders the assessment final (RR
attributable to the undisputed ones. No. 18-2013, Sec. 3.1.4).
However, this has already been
deleted under the current rules and The phrase the assessment shall
regulations for protesting become final means the FLD/FAN
assessment under RR No. 18- shall become final by operation of
2013. law. The taxpayer shall be barred
from disputing the correctness of the
2. If there are several issues issued assessment by introduction of
involved in the disputed newly discovered or
assessment and the taxpayer fails
to state the facts and the law in additional evidence because it is
support of the protest against some deemed to have lost its jurisdiction to
of the several issues on which the present these evidence. The BIR
assessment is based, the same shall then deny the request for
shall be considered undisputed reinvestigation through the issuance
issues, in which case the of an FDDA (RMC No. 11-2014).
assessment shall become final,
executory and demandable. The Note: It will not render the
taxpayer shall be required to pay assessment executory and
the deficiency taxes attributable demandable because the taxpayer
thereto (RR No. 18-2013, Sec. can still avail of his remedies after
3.1.4). the issuance of the FDDA (Please
see later discussion below regarding
II. Submission of documents after FDDA and remedies of the taxpayer).
protest
Within 60 days from date of filing of III. Administrative action on the
request for reinvestigation only, the disputed assessment
taxpayer shall submit all relevant
supporting documents. This does not Disputed assessment happens
apply to request for reconsideration when a valid protest against
(RR N. 18-2013, Sec. 3.1.4). FLD/FAN was submitted

Relevant supporting documents After the taxpayer submitted a


Those documents necessary to protest and the relevant supporting
support the legal and factual bases documents, as the case may be, the
in disputing a tax assessment as CIR or his duly authorized
determined by the taxpayer (RR No. representative may exercise the
18-2013, Sec. 3.1.4) following:
1. Direct grant or denial of protest
Rationale: Taxpayer would be render a decision through FDDA
placed at the mercy of the BIR which granting or denying the protest
may require production of documents within the prescribed period to act

207

upon it (RR No. 18-2013, Sec.


3.1.5); Direct grant or denial of protest
2. Indirect denial of protest deny Final Decision on Disputed
the protest in another way without Assessment (FDDA)
rendering a decision through It is the administrative decision on
FDDA; or the disputed assessment.
3. Inaction not act upon it within
the prescribed period (RR No. 18- Requisites of a valid FDDA:
2013, Sec. 3.1.4). 1. Must be issued by the CIR or
his duly authorized representative.
Period to act upon the protest The duly authorized
The CIR or his duly authorized representatives refer to the same
representative has the following persons who are authorized to
periods to act upon the protest or issue PAN and FLD/FAN (RR No.
administrative appeal, as the case 18-2013, Sec. 3.1.5; RMC No. 11-
may be: 2014);
1. By CIR in case of protest, 2. Must be served to the taxpayer
within 180 days from filing of personally and if not practicable, by
protest (regardless of the form of substituted service or by mail (RR
protest); in case of administrative No. 18-2013, Sec. 3.1.6);
appeal, within 180 days from filing 3. Must be in writing and contain
of the administrative appeal the facts and the law on which the
assessment is made (RR No. 18-
Administrative appeal request 2013, Sec. 3.1.5); and
for reconsideration filed with the 4. Must state that the same is his
CIR to elevate the denial of protest final decision (RR No. 18-2013,
made by his duly authorized Sec. 3.1.5).
representative
Rationale: To avoid any confusion
2. By duly authorized that could adversely affect the
representative rights and interest of the taxpayer
a. Request for reinvestigation (Allied Banking Corp. v. CIR).
within 180 days from submission
of the relevant documents What constitutes final decision
b. Request for reconsideration denying the protest (Tenor of
within 180 days from filing of Finality Rule)
protest (RR No. 18-2013, Sec. If the tenor of the letter shows the
3.1.4) firm stand of the BIR against the
reconsideration of the disputed
Failure to act upon the protest or assessment, the letter should be
administrative appeal within the considered the final decision of the
abovementioned 180-day period BIR on the taxpayers
constitutes inaction. However, the administrative protest or the FDDA
CIR or his duly authorized (Cagayan Corn Products
representative may render at a later Corporation v. CIR).
period a decision through FDDA,
subject to the Statute of Limitations That final decision is the letter of
on collection (RR No. 18-2013, Sec. denial where the CIR not only
3.1.4). demanded payment of the amount

208

assessed but wherein he also gave period to appeal to the CTA (RR
the warning that in the event the No. 18-2013, Sec. 3.1.4).
taxpayer failed to pay the same, he
would be constrained to enforce Effect of failure to appeal to the
the collection thereof by means of CTA within the 30-day period:
the remedies prescribed by law The assessment shall become
(Reyes v. CIR). final, executory and demandable
(RR No. 18-2013, Sec. 3.1.4).
Example: Final Notice Before
Seizure. The very title expressly 2. FDDA by duly authorized
indicated that it was final notice representative either:
prior to seizure of property. The a. File administrative appeal to the
letter itself clearly stated that the CIR within 30 days from receipt of
taxpayer was being given this the FDDA through request for
LAST OPPORTUNITY to pay; reconsideration (RR No. 18-2013
otherwise, its properties would be Sec. 3.1.4); or
subjected to distraint and levy (CIR
v. Isabela Cultural Corp.). Note: No request for
reinvestigations shall be allowed
Indirect denial of protest (without in administrative appeal and only
FDDA) issues raised in the decision of
Without rendering an FDDA on the the CIRs duly authorized
merits of the protest, the CIR or his representative shall be
duly authorized representative entertained by the CIR (RR No.
nevertheless executed administrative 18-2013 Sec. 3.1.4).
actions which the Court considered
as denial thereof b. Appeal to the CTA within 30
days from receipt of FDDA (RR
IV. Remedies of the taxpayer in case No. 18-2013 Sec. 3.1.4).
of denial of protest or
administrative appeal or in case of Effect of filing the administrative
inaction appeal: The administrative appeal
filed with the CIR will toll the 30-day
Direct denial of protest through period and the denial of the
FDDA administrative appeal or the
1. FDDA by CIR either: inaction of the CIR is the one
a. File a motion for reconsideration appealable to the CTA (CIR v.
with the CIR (RR No. 18-2013, International Pharmaceuticals,
Sec. 3.1.4, Fishweath Canning Inc.).
Corp. v. CIR, G.R. No. 179343,
January 21, 2010); or Effect of failure to file the
b. Appeal to the CTA within 30 administrative appeal or appeal
days from receipt of FDDA (RR to the CTA within the 30-day
No. 18-2013, Sec. 3.1.4). period: The assessment shall
become final, executory and
BUT: The motion for demandable.
reconsideration of the decision with
the CIR will NOT toll the 30-day Direct denial of administrative
appeal through FDDA

209

In case the administrative appeal is b. Await the final decision of the


denied, the taxpayer may either: duly authorized representative on
1. File a motion for reconsideration the disputed assessment (RR 18-
of the administrative appeal with 2013, Sec. 3.1.4). .
the CIR; or
2. Appeal to the CTA within 30 The options are mutually exclusive
days from receipt of the decision and resort to one bars the
(RR No. 18-2013, Sec. 3.1.4) application of the other (RR No. 18-
2013, Sec. 3.1.4; Rizal Commercial
BUT: The motion for reconsideration Banking Corp. v. CIR, G.R. No.
of the decision with the CIR will NOT 168498, April 24, 2007; Lascona
toll the 30-day period to appeal to the Land Co. v. CIR, G.R. No. 171251,
CTA (RR No. 18-2013, Sec. 3.1.4). March 5, 2012).

Effect of failure to appeal to the Effect of failure to appeal the


CTA within the 30-day period: The inaction to the CTA within 30-day
assessment shall become final, period: It will not result in the finality
executory and demandable (RR No. of the FLD/FAN, as the taxpayer can
18-2013, Sec. 3.1.4). wait for the decision (Rizal
Commercial Banking Corp., supra).
Indirect forms of denial of protest
or administrative appeal (without JUDICIAL REMEDIES
FDDA) A. Judicial appeal
The remedies available to the B. By way of special civil action
taxpayer in case of direct denial of C. Action to contest forfeiture of
protest or administrative appeal by chattel
the CIR or his duly authorized D. Action for damages
representative through FDDA are E. Injunction
applicable to indirect forms of denial.
A. Judicial appeal
Inaction by CIR or duly authorized 1. Appeal to the CTA (Division)
representative within 30 days from receipt of
1. Inaction by the CIR either decision on the denial of protest or
a. Appeal to the CTA within 30 administrative appeal or from the
days from the expiration of the lapse of 180 days due to inaction
180-day period; or of the CIR or his duly authorized
b. Await the final decision of the representative, as discussed in the
CIR on the disputed assessment, immediately preceding topic
and then appeal such final (Procedure No. IV under Protest)
decision to the CTA within 30
days after the receipt of a copy of Administrative decisions of the
such decision (RR 18-2013, Sec. CIR or his duly authorized
3.1.4). representative in tax
assessment cases appealable
2. Inaction by duly authorized to CTA (Division)
representative either: Rule: Such Court can take
a. Appeal to the CTA within 30 cognizance of decisions in cases
days after the expiration of the involving only disputed
180-day period; or assessments (FDDA) (R.A. No.

210

1125, Sec. 7) and which are instead of protest,


prejudicial to the taxpayer (Sec. reinvestigation or
228, NIRC). reconsideration. Although there
was no direct reference for the
To reiterate, there is disputed taxpayer to bring the matter
assessment when there is a valid directly to the CTA, it cannot be
protest against denied that the word appeal
under prevailing tax laws refers to
FLD/FAN. Hence, unless there is the filing of a petition for review
a valid protest to FLD/FAN, the with the CTA and the terms
taxpayer cannot elevate the case protest, reinvestigation and
to said Court. This is in reconsideration refer to the
consonance with the rule on administrative remedies of the
exhaustion of administrative taxpayer (Allied Banking Corp. v.
remedies. CIR, supra).

Exception: Administrative actions of the


When the government is CIR or his duly authorized
estopped, by issuing a FLD/FAN, representative in tax
partly read as follows: assessment cases appealable
It is requested that the above to CTA (Division)
deficiency tax be paid immediately In sum, they are the following:
. . . This is our final decision based 1. Direct denial of protest or
on investigation. If you disagree, administrative appeal through
you may appeal the final decision FDDA;
within thirty (30) days from receipt 2. Indirect denial of protest or
hereof, otherwise said deficiency administrative appeal;
tax assessment shall become 3. Inaction by the CIR or his duly
final, executory and demandable. authorized representative; and
4. Decision on undisputed
The taxpayer, taking a cue from assessment, as previously
the tenor of the letter, filed a discussed.
petition for review with the CTA
instead of filing a protest against To emphasize, indirect denial of
FLD/FAN. protest or administrative appeal is
different from a decision on
The SC held, however, that the undisputed assessment in that the
petition was not premature and former, there was a valid protest
held the jurisdiction of the CTA filed, while the in the latter, there
over the matter. It appeared from was no such protest, hence,
the demand letter that the CIR has undisputed.
already made a final decision on
the matter and the remedy of the 2. Appeal to the CTA en banc
taxpayer is to appeal the final the party adversely affected by the
decision. CTA Divisions decision may file
one motion for
Moreover, the SC cannot ignore reconsideration/new trial within 15
the fact that in the FLD/FAN, the days from receipt of the decision
BIR used the word appeal with the CTA Division. If the MR is

211

denied, file a petition for review Compromise


Compromise
with the CTA en banc. penalty
Nature
3. Appeal to the Supreme Court
within 15 days from the receipt Amount of Amount paid by
of the decision of the CTA en banc money paid by the taxpayer to
(Please refer to CTA jurisdiction the taxpayer to compromise a
for further discussion) settle his tax violation and
deficiency taxes paid in lieu of
B. By way of special civil action criminal
Petition for certiorari, prohibition prosecution
and mandamus to the Supreme
Court in cases of grave abuse of Amount
discretion, lack of jurisdiction or
excess of jurisdiction. Fixed amount or
C. Action to contest forfeiture of Fixed
based on a
chattel, at any time before the sale percentage rate
graduated table
or destruction thereof, to recover depending on
depending
the same, and upon giving proper the ground for
usually on the
bond, enjoin the sale; or after the compromise
gross annual
sale and within 6 months, an action which is
sales, earnings
to recover the net proceeds computed
or receipts of
realized at the sale (Sec. 231, based on the
the taxpayer
NIRC) basic assessed
(RMO No. 19-
D. Action for damages against a tax
2007)
revenue officer by reason of any
act done in the performance of Remedy in case of non-payment
official duty (Sec. 227, NIRC) by the taxpayer
E. Injunction to be issued by the 1. Enforce the
CTA if collection may jeopardize compromise;
the interest of the government or
and/or the taxpayer (R.A. No. 1125 2. Treat it as
as amended by R.A. No. 9282). rescinded Institute a
and insist criminal action
COMPROMISE upon the (RMO No. 19-
A contract whereby the parties, by original 2007, III(5))
making reciprocal concessions, avoid demand
litigation or put an end to one already (CIVIL
commenced. (CIVIL CODE, Art. 2028) CODE, Art.
In case of tax assessment, it is a 2041).
contract between the government and
the taxpayer to settle the liability. Approving authority in compromise
of taxes:
Note: Compromise discussed herein is 1. Commissioner general power of
different from compromise penalty. compromise of tax liability
2. National Evaluation Board (NEB)
the basic tax involved exceeds P1M
or the settlement offered is less than
the prescribed minimum rates

212

3. Regional Evaluation Board (REB) reduction in the original assessment


offers of compromise of assessments and the taxpayer is agreeable by
issued by the Regional Offices signing the agreement form;
involving basic deficiency taxes of 6. Cases which become final and
P500,000 or less or minor criminal executory after final judgment of a
violations discovered by the Regional court, where compromise is
and District Offices (Sec. 204(A) & requested on the ground of doubtful
7(c), NIRC) validity of the assessment; and
7. Estate tax cases where
Grounds compromise is requested on the
1. Doubtful validity reasonable ground of financial incapacity of the
doubt as to the validity of claim taxpayer (RR No. 30-2002, Sec. 2).
against the taxpayer exists; and
2. Financial incapacity when ABATEMENT
the financial position of the taxpayer Cancellation of the entire tax liability of
demonstrates a clear inability to pay the taxpayer (NIRC, Sec. 204(B))
the assessed tax (Sec. 204(A),
NIRC). Who has the authority to abate
The CIR has the sole authority to
Cases that may be compromised abate or cancel:
1. Delinquent accounts; 1. Surcharge;
2. Cases under administrative 2. Interest; and
protest after issuance of the FAN; 3. Compromise penalties (RR No.
3. Civil tax cases being disputed 13-2001, Sec. 4)
before the courts;
4. Collection cases filed in courts; Grounds:
and 1. The tax or any portion thereof
5. Criminal violations except those appears to be unjustly or excessively
already filed in court or those assessed; or
involving criminal tax fraud (RR No. 2. The administration and
30-2002, Sec. 2) collection costs involved do not
justify the collection of the amount
Cases that are not subject to due.
compromise
1. Withholding tax cases, unless Compromise Abatement
the applicant taxpayer invokes Nature
provisions of law that cast doubt on
the taxpayers obligation to withhold; Involves the
2. Criminal tax fraud cases Involves a
cancellation of
confirmed as such by the CIR or his reduction of the
the entire tax
duly authorized representative; taxpayers
liability of a
3. Criminal violations already filed liability.
taxpayer.
in court;
4. Delinquent accounts with duly Officer/s authorized to
approved schedule of installment compromise/abate
payments; CIR, NEB and
5. Cases where final reports of CIR
REB
reinvestigation or reconsideration Grounds
have been issued resulting to 1. Reasonable 1. The tax or

213

Compromise Abatement The taxpayer to


An option not
doubt as to any portion whom the tax is
proximately
validity of thereof appears refunded would
available if the
assessment; to be unjustly or have the option,
taxpayer
or excessively among others, to
chooses instead
2. Financial assessed; or invest for profit
to receive a tax
incapacity of 2. The the returned
credit.
taxpayer administration sum.
and collection Period of collectability
costs involved 2-year period
2-year period to
do not justify the starts from the
file claim with
collection of the date such credit
the CIR starts
amount due was allowed (in
after the
case credit is
payment of the
REMEDIES AFTER PAYMENT wrongfully
tax or penalty.
1. Tax refund actual made).
reimbursement of the tax. A refund
is a written claim for the payment of Grounds for filing a claim for tax
cash for taxes erroneously or illegally refund or tax credit: (EPS)
paid by the taxpayer to the 1. Tax is erroneously or illegally
government. assessed or collected;
2. Tax credit the government 2. Penalty is collected without
issues a tax credit certificate (TCC) authority;
or a tax credit memo covering the 3. Sum collected is excessive or in
amount determined to be any manner wrongfully collected
reimbursable after proper verification (Sec. 229, NIRC)
and the same may be applied
against any sum that may be due Requisites of tax refund or credit:
and collectible from the taxpayer 1. There must be a legal ground or
basis for tax refund or tax credit
All TCCs issued by the BIR shall not (Sec. 229, NIRC).
be allowed to be transferred or 2. There must be a written claim
assigned to any person (RR No. 14- for refund or credit filed by the
2011, Sec. 2) taxpayer with CIR (Sec. 229, NIRC;
Vda. de Aguinaldo v. CIR).
Tax Refund Tax Credit
Formality Exceptions:
The taxpayer a. A return filed showing an
The taxpayer overpayment shall be considered
asks that the
asks for as a written claim for credit or
money so paid
restitution of the refund (Sec.204(C), NIRC);
be applied to his
money paid as b. The CIR may, even without the
existing tax
tax. written claim therefor, refund or
liability.
Practical consideration credit any tax where on the face of
the return upon which the payment
was made, such payment appears
clearly to have been erroneously
paid (Sec.229, NIRC).

214

3. The claim for refund must be a Submission of documents in


categorical demand for support for the tax refund or credit
reimbursement (Bermejo v. The submission of complete
Collector of Internal Revenue). supporting documents is necessary to
4. The claim for refund with the support a claim for refund or for
CIR and the 30-day period to appeal issuance of tax credit. However, failure
to the CTA (R.A. No. 1125, Sec. 2) to submit documents in support of a
must be filed within 2 years from the taxpayers claim for refund at the
date of payment of the tax or penalty. administrative level DOES NOT
Rule: The administrative claim must prevent the CTA from entertaining the
be filed within the said 2-year period, appeal. Non-submission of documents
regardless of any supervening cause in the administrative level is NOT
(Sec. 229, NIRC). FATAL to a judicial claim for refund.
The cases filed before the CTA are
If the CIR takes time in deciding the litigated de novo and party litigants
claim, and the period of 2 years is should prove every minute aspect of
about to end, the suit or proceeding their cases (CIR v. Philippine Bank of
for a refund must be started in the Communications, CTA EB No. 933
CTA before the end of the 2-year re: CTA Case No. 7915, October 7,
period even without the decision of 2013).
the CIR (Gibbs v. CIR).
Interest on tax refunds
Exception: Rule: Government cannot be required
The 2-year prescriptive period may to pay interest on taxes refunded to
be suspended when: the taxpayer in the absence of a
a. There is a pending litigation statutory provision clearly or expressly
between the Government and the directing or authorizing such payment
taxpayer; and (CIR v. Sweeney).
b. The CIR in that litigated case
agreed to abide by the decision of Exceptions:
the SC as to the collection of taxes 1. When the CIR acted with patent
relative thereto (Panay Electric arbitrariness. Arbitrariness
Co. v. Collector). presupposes inexcusable or
obstinate disregard of legal
Note: A claim for refund or credit for provisions (Commissioner v.
excess input VAT is governed by Victorias Milling).
another provision wherein the appeal 2. Refunds and credits of income
to the CTA need not be made within taxes withheld on the wages of the
the 2-year prescriptive period (Sec. employees (Sec. 72(C), NIRC).
112(C), NIRC).
Forfeiture of tax refund/tax credit
5. Prior payment of the tax must 1. Forfeiture of refund a refund
be proven. There must be actual check or warrant which remains
collection and receipt by the unclaimed or uncashed within 5
government of the tax sought to be years from date of mailing or delivery
recovered and this requires factual shall be forfeited in favor of the
proof (Collector of Internal government and the amount thereof
Revenue v. Li Yao). shall revert to the general fund.

215

2. Forfeiture of tax credit a TCC refund and to bring an action for


which remains unutilized after 5 recovery of such claim (CIR v.
years from date of issue, shall unless Smart Communication, Inc.).
revalidated, be invalid and shall not
be allowed as payment for internal Note: While the withholding agent
revenue taxes and the amount has the right to recover the taxes
covered by the certificate shall revert erroneously or illegally collected, he
to the general fund (Sec. 230, NIRC). nevertheless has the obligation to
remit the same to the principal
Note: Unutilized TCCs may be taxpayer.
converted into cash refund during the
validity period of the TCC (RR No. 05- Tax refund or tax credit or carry-
2000). over of excess income tax
payments
Other considerations In case of excess income tax
1. Payment under protest not payments, the corporation is given
required any suit or proceeding for another option aside from tax credit or
refund or credit may be maintained refund. Such excess payments may be
whether or not such tax, penalty, or carried-over and credited against the
sum has been paid under protest or estimated quarterly income tax
duress (Sec. 229, NIRC). liabilities for the taxable quarters of the
2. The remedy of tax refund succeeding taxable years (Sec.76,
cannot be availed of to revive the NIRC).
right to contest the validity of an
assessment once the same has been The options are mutually exclusive.
lost not only by failure to appeal but Once the option to carry-over the
by the lapse of the reglementary excess payments was made, such
period within which appeal could shall be considered irrevocable for that
have been taken (CIR v. taxable period and no application for
Concepcion). refund or issuance of a tax credit
3. A withholding agent has a legal certificate shall be allowed (Sec. 76,
right to file a claim for refund for the NIRC).
following reasons:
He is considered a taxpayer It should be emphasized that the
as he is personally liable for the irrevocability rule applies only to the
withholding tax as well as for option of carry-over (Stablewoods
deficiency assessments, Philippines, Inc. v. CIR).
surcharges, and penalties,
should the amount of the tax For that taxable period refers to the
withheld be finally found to be excess income tax, subject of the
less than the amount that option, by referring to the taxable
should have been withheld period when it was acquired by the
under law; and taxpayer (United International
As an agent of the taxpayer, his Pictures AB v. CIR).
authority to file the necessary
income tax return and to remit
the tax withheld to the
government impliedly includes
the authority to file a claim for

216

within 20 days after giving notice to the


CLASS RECITATION WITH owner or possessor of the
SUGGESTED ANSWERS property/properties. The notice must
be published and posted in not less
Q: What is a distraint proceeding? than two public places in the city or
A: A distraint proceeding is one of the municipality where the proceeding was
remedies of the Government in made.
enforcing the collection of delinquent A sale at public auction follows, held at
taxes. It is enforced on the goods, the time and place indicated in the
chattels, and other personal property notice. The sale may be conducted by
or effects of whatever character of the the Revenue Officer or through a
taxpayer. Debts, credits, bank licensed commodity or stock
accounts and interests and rights can exchange. The property must be sold
be covered by distraint proceedings. to the highest bidder for cash. Any
residue over and above the required
Q: What is distraint under the Tax claim must be returned to the owner of
Code? Explain the process. the property sold.
A: Under Section 205 (a) of the NIRC,
the civil remedies for the collection of Q: What are other summary
internal revenue taxes, fees, or remedies?
charges, and any increment thereto A: Other summary remedies include
resulting from delinquency shall be: a) Levy on real property.
By distraint of goods, chattels, effects,
and other personal property of Q: Example, karaoke? May this be a
whatever character, including stocks subject of distraint?
and other securities, debts, credits, A: A karaoke may be a proper subject
bank accounts, and interest in and of distraint. The NIRC expressly states
rights to personal property, and by levy that such proceeding may be enforced
upon real property and interest in or on any kind of personal property of
rights to real property. whatever character.
This proceeding is commenced by the
Commissioner or his duly authorized Q: Explain the concept of the
representative where the amount warrant of distraint.
involved is in excess of P1 Million; by A: A warrant of distraint is a document
the Revenue District Officer when the served by the distraining officer,
amount involved is P1Million or less. A stating therein the amount claimed,
warrant of distraint validly issued and and served upon the owner/possessor
signed by the proper authority is of the property to be distrained. This
served upon the taxpayer, stating commences the distraint proceedings.
therein the personal property subject
of the distraint. After that, a report will Q: Floor of a basketball court, may
be submitted by the distraining officer it be a subject of distraint?
to the Revenue District Officer A: A floor of a basketball court may not
concerned within 10 days from the be a proper subject of distraint
receipt of the warrant. Thereafter, the because it is not considered a
notice of sale of distrained properties personal property.
shall be made by specifying the time
and place of the sale and the articles
involved. The time period of the sale is

217

Q: Distinguish Compromise and between him and the commissioner


Abatement; State the grounds for shall be observed.
each. The prescriptive period to assess
A: A compromise, according to the under the NIRC is within 3 years after
provisions of the NIRC, is one where the last day prescribed by law for filing
the Commissioner is authorized to do the return. There are exceptions such
upon the following grounds: as in case of filing of false or
1) A reasonable doubt as to the fraudulent return, where the period is
validity of the claim against the 10 years after discovery of the fraud,
taxpayer exists; or falsity or omission and when there is a
2) The financial position of the waiver of the Statute of Limitations.
taxpayer demonstrates a clear
inability to pay the assessed Q: Fraud? What kind of fraud?
tax. A: The kind of fraud contemplated
An abatement on the other hand is under the NIRC is an actual fraud.
when:
1) The tax or any portion thereof Q: In case of doubt, whether or not
appears to be unjustly or to apply 3 years or 10 years, do we
excessively assessed; or follow strict interpretation? How do
2) The administration and we construe that?
collection costs involved do not A: Such must be construed liberally in
justify the collection of the order to safeguard the taxpayer from
amount due. any unreasonable assessments,
examination or investigation.
Q: Tax Lien vs. Tax Levy
A: A tax lien is a legal claim or charge Q: Before assessment, what do they
upon a property of the delinquent issue? Letter of Authority. What
taxpayer. It is considered as a security happens next?
upon the property, in favor of the A: Under the revenue regulations 12-
government from the time the 99, a letter of authority issued by the
assessment was made until paid with Commissioner of Internal Revenue or
interests, penalties and costs. the Revenue Regional Director,
A tax levy is a remedy whereby the thereafter the officer shall conduct a
collection of delinquent taxes is tax investigation, if no deficiency was
effected or enforced upon the real found, the audit ends. If there is, the
property of the taxpayer. officer shall make an audit report. If the
taxpayer disputes the audit report, a
Q: Prescriptive period to collect, to notice of informal conference is made
assess? to the taxpayer, which the taxpayer
A: The prescriptive period to collect has 15 days to explain his side of the
under the NIRC is 3 years in case of a matter. If he does not respond, he will
Normal Assessment, from the date of be considered in default.
the assessment; in case of false or A review of the assessment is then
fraudulent return or non-filing, the made. If there is no sufficient basis for
period to collect is 10 years reckoned the assessment, case shall be
from the date of discovery of falsity or dismissed. If there is a basis, a
fraud or non-filing. In cases where the Preliminary Assessment Notice (PAN)
taxpayer has waived the Statute of shall be issued. The taxpayer may
Limitations, that period agreed upon request for a re-examination of the

218

assessment. The taxpayer has 15 vehicles, capital equipment,


days to file a letter contesting the machineries and spare parts, has been
proposed assessment. If he does not sold, traded or transferred to non-
reply to the PAN, he will be considered exempt persons.
in default. Failure to file the PAN shall
not bar the taxpayer from "The taxpayers shall be informed in
subsequently contesting or protesting writing of the law and the facts on
the Final Assessment of the Bureau of which the assessment is made;
Internal Revenue. otherwise, the assessment shall be
void.
Q: What is Section 228?
A: Section 228 of the NIRC states: "Within a period to be prescribed by
"SECTION 228. Protesting of implementing rules and regulations,
Assessment. - When the the taxpayer shall be required to
Commissioner or his duly authorized respond to said notice. If the taxpayer
representative finds that proper taxes fails to respond, the Commissioner or
should be assessed, he shall first his duly authorized representative shall
notify the taxpayer of his findings: issue an assessment based on his
Provided, however, That a findings.
preassessment notice shall not be
required in the following cases: "Such assessment may be protested
administratively by filing a request for
"(a) When the finding for any reconsideration or reinvestigation
deficiency tax is the result of within thirty (30) days from receipt of
mathematical error in the computation the assessment in such form and
of the tax as appearing on the face of manner as may be prescribed by
the return; or implementing rules and regulations.
Within sixty (60) days from filing of the
"(b) When a discrepancy has been protest, all relevant supporting
determined between the tax withheld documents shall have been submitted;
and the amount actually remitted by otherwise, the assessment shall
the withholding agent; or become final.

"(c) When a taxpayer who opted to "If the protest is denied in whole or in
claim a refund or tax credit of excess part, or is not acted upon within one
creditable withholding tax for a taxable hundred eighty (180) days from
period was determined to have carried submission of documents, the
over and automatically applied the taxpayer adversely affected by the
same amount claimed against the decision or inaction may appeal to the
estimated tax liabilities for the taxable Court of Tax Appeals within thirty (30)
quarter or quarters of the succeeding days from receipt of the said decision,
taxable year; or or from the lapse of the one hundred
eighty (180)-day period; otherwise, the
"(d) When the excise tax due on decision shall become final, executory
excisable articles has not been paid; or and demandable.

"(e) When an article locally


purchased or imported by an exempt
person, such as, but not limited to,

219

Q: Remedies of a taxpayer under CASE DIGESTS


the NIRC:
A: The taxpayer has a remedy, before 1. Commissioner of Internal
payment, of abatement of taxes; to Revenue (CIR) vs Isabela Cultural
protest against the assessment; and to Corporation
enter into a compromise. He also has
judicial remedies. After payment, the FACTS:
taxpayer may claim for a tax refund or On February 23, 1990, ISABELA
a tax credit. received from the CIR a final an
assessment letter, demanding
Q: Who approves abatement payment of deficiency income tax and
applications? expanded withholding tax inclusive of
A: Abatement applications are surcharge and interest. On March 22,
approved by the Commissioner of 1990, ISABELA filed with the CIRs
Internal Revenue. office a request for reconsideration of
the subject assessment. On April 18,
Q: Distinctions between 1990, filed a supplemental letter to the
reconsideration vs. reinvestigation protest to which were attached certain
A: In a protest, there can be a request documents supportive of its protest,
for a reconsideration or reinvestigation. and indicating, among others, a period
In a request for reconsideration, the for the CIR within which to assess and
taxpayer asks for a reevaluation of the collect the taxes that may be found
assessment on the basis of the due from ISABELA after the
existing records, without need of reinvestigation. On February 9, 1995,
additional evidence which may involve ISABELA received a Final Notice
a question of fact or law or both. Before Seizure from the CIR giving
In reinvestigation, the taxpayer asks ISABELA the last opportunity to pay
for reinvestigation on the basis of the assessed deficiency tax. In said
newly found or discovered and letter, the CIR demanded payment of
additional evidence that a taxpayer the subject assessment within ten (10)
intends to present. It may also involve days from receipt thereof. Otherwise,
a question of fact or law, or both. the CIR shall be constrained to collect
the subject assessment through
Q: Filing of the Motion for summary remedies. Accordingly,
Reconsideration and or Motion for ISABELA treated the said notice as the
Reinvestigation toll the running of CIRs final decision and, therefore,
the period? proceeded with proceedings for
A: In reconsideration, the period is not appeal. CIR maintains that this Final
tolled; in a reinvestigation, the period is Notice was a mere reiteration of the
tolled as such requires the delinquent taxpayers obligation to pay
examination of the newly discovered the taxes due. It was supposedly a
evidence the taxpayer presents. mere demand that should not have
been mistaken for a decision on a
protested assessment.

ISSUE:
Whether or not the Final Notice Before
Seizure on February 9, 1995

220

constitutes the CIRs final decision and P583,155.22 as deficiency income


a denial of the request for taxes due for the years 1971 and
reconsideration or reinvestigation, 1972. Said letter was received on
thus, appealable to the Court of Tax January 4, 1975, and in a letter dated
Appeals (CTA). January 10, 1975, received by
petitioner on January 13, 1975, private
HELD: respondent protested the assessment.
Yes. A final demand letter from the Petitioner, without ruling on the
Bureau of Internal Revenue, reiterating protest, issued a Warrant of Distraint
to the taxpayer the immediate payment and Levy, which was served on private
of a tax deficiency assessment respondent's counsel, Clemente
previously made, is tantamount to a Celso, on November 25, 1976.
denial of the taxpayers request for In a letter dated November 27, 1976,
reconsideration. Such letter amounts received by petitioner on November
to a final decision on a disputed 29, 1976 private respondent reiterated
assessment and is thus appealable to its request for reinvestigation of the
the CTA. assessment and for the
reconsideration of the summary
In this case, the Final Notice Before collection thru the Warrant of Distraint
Seizure cannot but be considered as and Levy. Petitioner, again, without
the CIRs decision disposing of the acting on the request for
request for reconsideration filed by reinvestigation and reconsideration of
ISABELA, who received no other the Warrant of Distraint and Levy, filed
response to its request. Not only was a collection suit against private
the Notice the only response received; respondent. Summons in the said
its content and tenor supported the collection case was issued to private
theory that it was the CIRs final act respondent on December 28, 1978.
regarding the request for On January 10, 1979, private
reconsideration. The letter itself clearly respondent filed with respondent court
stated that respondent was being its Petition for Review of the
given "this LAST OPPORTUNITY" to petitioner's assessment of its
pay; otherwise, its properties would be deficiency income taxes in a letter
subjected to distraint and levy. How dated December 27, 1974, docketed
then could it have been made to therein as CTA Case No. 2989,
believe that its request for wherein it prays that after hearing,
reconsideration was still pending judgment be rendered holding that it is
determination, despite the actual threat not liable for the payment of the
of seizure of its properties? income tax herein involved, or which
may be due from foreign shipowner
2. Commissioner of Internal Yee Fong Hong, Ltd.; to which
Revenue vs. Union Shipping petitioner filed his answer on March
29, 1979.
FACTS: Respondent Tax Court, in a decision
In a letter dated December 27, 1974 dated December 9, 1983, ruled in
herein petitioner Commissioner of favor of private respondent. Hence, the
Internal Revenue assessed against instant petition.
Yee Fong Hong, Ltd. and/or herein
private respondent Union Shipping
Corporation, the total sum of

221

consequently, the collection of the


ISSUE: amount demanded as taxes by
(1)Whether the issuance of a warrant repeated requests for recomputation
of distraint and levy is proof of the and reconsideration. On the part of the
finality of an assessment Commissioner, this would encourage
(2)Whether petitioner could be held his office to conduct a careful and
liable for the taxes assessed thorough study of every questioned
assessment and render a correct and
HELD: definite decision thereon in the first
The main thrust of this petition is that instance. This would also deter the
the issuance of a warrant of distraint Commissioner from unfairly making
and levy is proof of the finality of an the taxpayer grope in the dark and
assessment because it is the most speculate as to which action
drastic action of all media of enforcing constitutes the decision appealable to
the collection of tax, and is tantamount the tax court. Of greater import, this
to an outright denial of a motion for rule of conduct would meet a pressing
reconsideration of an assessment. need for fair play, regularity, and
On this issue, this Court had already orderliness in administrative action.
laid down the dictum that the (Surigao Electric Co., Inc. v. C.T.A., 57
Commissioner should always indicate SCRA 523, 528, [1974]).
to the taxpayer in clear and Under the circumstances, the
unequivocal language what constitutes Commissioner of Internal Revenue,
his final determination of the disputed not having clearly signified his final
assessment. action on the disputed assessment,
Specifically, this Court ruled: legally the period to appeal has not
. . . we deem it appropriate to state commenced to run. Thus, it was only
that the Commissioner of Internal when private respondent received the
Revenue should always indicate to the summons on the civil suit for collection
taxpayer in clear and unequivocal of deficiency income on December 28,
language whenever his action on an 1978 that the period to appeal
assessment questioned by a taxpayer commenced to run.
constitutes his final determination on The request for reinvestigation and
the disputed assessment, as reconsideration was in effect
contemplated by sections 7 and 11 of considered denied by petitioner when
Republic Act 1125, as amended. On the latter filed a civil suit for collection
the basis of this statement indubitably of deficiency income. So. that on
showing that the Commissioner's January 10, 1979 when private
communicated action is his final respondent filed the appeal with the
decision on the contested assessment, Court of Tax Appeals, it consumed a
the aggrieved taxpayer would then be total of only thirteen (13) days well
able to take recourse to the tax court within the thirty day period to appeal
at the opportune time. Without pursuant to Section 11 of R.A. 1125.
needless difficulty, the taxpayer would On the merits, it was found fully
be able to determine when his right to substantiated by the Court of Tax
appeal to the tax court accrues. This Appeals that, respondent corporation
rule of conduct would also obviate all is the husbanding agent of the vessel
desire and opportunity on the part of Yee Fong Hong, Ltd. as follows:
the taxpayer to continually delay the (2) On the same issue, the
finality of the assessment and, Commissioner of Internal Revenue

222

Misael P. Vera, on query of provides that the tax may be collected


respondent's counsel, opined that by distraint or levy or by a judicial
respondent corporation being merely a proceeding begun within 5 years after
husbanding agent is not liable for the the assessment of the tax.
payment of the income taxes due from
the foreign ship owners loading ISSUE:
cargoes in the Philippines. Whether or not the prescriptive period
Neither can private respondent be had already elapsed due to the failure
liable for withholding tax under Section to enforce the warrant of distraint and
53 of the Internal Revenue Code since levy.
it is not in possession, custody or
control of the funds received by and HELD:
remitted to Yee Fong Hong, Ltd., a No. The taxpayer received on June 19,
non-resident taxpayer. As correctly 1973 and March 5, 1974, the
ruled by the Court of Tax Appeals, "if deficiency assessments herein. The
an individual or corporation like the warrants were served on April 18 and
petitioner in this case, is not in the May 25, 1975, or within five years after
actual possession, custody, or control the assessment of the tax. Obviously,
of the funds, it can neither be the warrants were issued to interrupt
physically nor legally liable or obligated the 5-year prescriptive period. Its
to pay the so-called withholding tax on enforcement was not implemented
income claimed by Yee Fong Hong, because of the pending protests of the
Ltd.". taxpayer and its requests for
withdrawal of the warrants. The
3. Advertising Associates, Inc. v. Commissioner should always indicate
Court of Tax Appeals to the taxpayer in clear and
unequivocal language what constitutes
FACTS: his final determination of the disputed
On June 18, 1973 and March 5, 1974 assessment. That procedure is
Advertising Associates received a demanded by the pressing need for
deficiency tax assessment. They were fair play, regularity and orderliness in
required to pay taxes for being a administrative action
business agent and independent
contractor. April 18 and May 25, 1978, 4. Commissioner of Internal
the warrants of distraint and levy were Revenue vs Metro Star Superama,
served upon Advertising Associates. Inc.
Advertising Associates filed a protest
and there were subsequent litigation FACTS:
about the nature of Advertising Metro Star Superama Inc's books of
Associates's business. The accounts and other accounting records
enforcement of the warrant of distraint was to be examined for income tax
and levy was not implemented. When and other internal revenue taxes for
the issue was finally resolved, the CIR the taxable year 1999. For MetroStars
sought to collect the taxes. Again, failure to comply with several requests
Advertising filed an opposition claiming for the presentation of records and
that the collection of tax had already Subpoena Duces Tecum, [the] OIC of
prescribed because it was done BIR Legal Division issued an
beyond the 5-year period. According to Indorsement informing Revenue
Advertising, Sec, 319 of the Tax Code District Officer of Revenue Region No.

223

67, Legazpi City to proceed with the mail shifts the burden upon the party
investigation based on the best favored by the presumption to prove
evidence obtainable preparatory to the that the mailed letter was indeed
issuance of assessment notice. received by the addressee. It also
found that there was no clear showing
The Revenue District Officer issued a that Metro Star actually received the
Preliminary 15-day Letter, which stated alleged PAN. It, accordingly, ruled that
that a post audit review was held and it the Formal Letter of Demand in 2002,
was ascertained that there was as well as the Warrant of Distraint
deficiency value-added and and/or Levy dated in 2003 were void,
withholding taxes due from MetroStar. as Metro Star was denied due
MetroStar received a Formal Letter of process.
Demand from Revenue District No. 67,
Legazpi City, assessing petitioner the The CIR sought reconsideration of the
amount of P292,874.16. for deficiency decision of the CTA-Second Division,
value-added and withholding taxes for but the motion was denied. Aggrieved,
the taxable year 1999. Subsequently, the CIR filed a petition for review with
Revenue District Office No. 67 sent a the CTA-En Banc, but the petition was
copy of the Final Notice of Seizure, dismissed. The motion for
giving MetroStar last opportunity to reconsideration filed by the CIR was
settle its deficiency tax liabilities within likewise denied by the CTA-En Banc.
ten (10) [days] from receipt thereof, The CIR, insisting that Metro Star
otherwise the BIR shall be constrained received the PAN, dated January 16,
to serve and execute the Warrants of 2002, and that due process was
Distraint and/or Levy and Garnishment served nonetheless because the latter
to enforce collection. received the Final Assessment Notice
(FAN), comes now before this Court
MetroStar received from Revenue with the sole
District Office No. 67 a Warrant of
Distraint and/or Levy demanding ISSUE:
payment of deficiency value-added tax Whether or not Metro Star was denied
and withholding tax payment in the due process.
amount of P292,874.16. MetroStar
filed with the Office of the HELD:
Commissioner a Motion for The Court agrees with the CTA that the
Reconsideration, which was denied. CIR failed to discharge its duty and
present any evidence to show that
Denying that it received a Preliminary Metro Star indeed received the PAN
Assessment dated January 16, 2002. It could have
Notice (PAN) and claiming that it was simply presented the registry receipt or
not accorded due process, Metro the certification from the postmaster
Star filed a petition for review with the that it mailed the PAN, but failed.
CTA. The CTA-Second Division Neither did it offer any explanation on
granted the petition of Metro Star, why it failed to comply with the
stating that [w]hile there [is] a requirement of service of the PAN. It
disputable presumption that a mailed merely accepted the letter of Metro
letter [is] deemed received by the Stars chairman dated April 29, 2002,
addressee in the ordinary course of that stated that he had received the
mail, a direct denial of the receipt of FAN dated April 3, 2002, but not

224

the PAN; that he was willing to pay the procedural rights and the failure of the
tax as computed by the CIR; and that CIR to strictly comply with the
he just wanted to clarify some matters requirements laid down by law and its
with the hope of lessening its tax own rules is a denial of Metro Stars
liability. right to due process. Thus, for its
failure to send the PAN stating the
This now leads to the question: Is the facts and the law on which the
failure to strictly comply with notice assessment was made as required by
requirements prescribed under Section Section 228 of R.A. No. 8424, the
228 of the National Internal Revenue assessment made by the CIR is void.
Code of 1997 and Revenue
Regulations (R.R.) No. 12-99 The Court need not belabor to discuss
tantamount to a denial of due process? the matter of Metro Stars failure to file
Specifically, are the requirements of its protest, for it is well-settled that a
due process satisfied if only the FAN void assessment bears no fruit.
stating the computation of tax liabilities PETITION is DENIED. #
and a demand to pay within the
prescribed period was sent to the 5. Lacsona Land vs. Commissioner
taxpayer? of Internal Revenue

Section 228 of the Tax Code clearly FACTS:


requires that the taxpayer must first be On March 37, 1998 the CIR issued an
informed that he is liable for deficiency assessment notice against Lascona
taxes through the sending of a PAN. land informing the latter of its alleged
He must be informed of the facts and deficiency income tax for the year
the law upon which the assessment is 1993 in the amount of 753,266.56.
made. The law imposes a substantive, Consequently, on April 20 1998,
not merely a formal, requirement. To Lascona file a letter protest, but was
proceed heedlessly with tax collection denied by Norberto R. Odulio, OIC,
without first establishing a valid Regional Director, BIR. On April 12,
assessment is evidently violative of the 1999 Lascona appealed the decision
cardinal principle in administrative before the CTA. Lascona alleged that
investigations - that taxpayers should the Regional Director erred in ruling
be able to present their case and that the failure to appeal to the CTA
adduce supporting evidence. within 30 days from the lapse of the
180 day period rendered the
The sending of a PAN to taxpayer to assessment final and executory.
inform him of the assessment made is
but part of the due process On January 4, 2000, the CTA nullified
requirement in the issuance of a the subject assessment holding that
deficiency tax assessment, the sec. 228 of the NIRC provided two
absence of which renders nugatory options for the taxpayer:
any assessment made by the tax 1. Appeal to the CTA within 30
authorities. The use of the word shall days from the lapse of 180 day period
in subsection 3.1.2 of the Revenue 2. wait until the CIR decides on
Regulations describes the mandatory his protest before he elevates the
nature of the service of a PAN. The case.
persuasiveness of the right to due
process reaches both substantial and

225

The CIR moved for reconsideration, for review with the CTA within 30 days
which was denied. Dissatisfied the CIR after the expiration of the 180 day
appealed to the CA, which granted the period 2.) Await the final decision of
petition. Lascana moved for the CIR on the disputed assessment
reconsideration in the appellate court and appeal such final decision to the
which was denied. Hence this petition. CTA within 30 days after the receipt of
a copy of such decision. These options
ISSUE: are mutually exclusive and resort to
Whether or not the subject one bars the application of the other.
assessment has become final after the
alpse of the 30 day period of appeal
from the lapse of the 180 day period of
inaction

HELD:
No. Under Sec. 228 of the NIRC, if the
protest is denied in whole or in part, or
is not acted upon within 180 days from
submission of documents, the
taxpayer adversely affected by the
decision or inaction may appeal to the
CTA within 30 days from the receipt of
said decision or from the lapse of 180
days; otherwise the decision shall
become final, executor and
demandable.

In arguing that the assessment


become final and executor by the sole
reason that petitioner failed to appeal
the inaction of the CIR within 30 days
after the 180 day reglementary period,
respondent, in effect limited the
remedy of Lascona, as a taxpayer,
under Sec 228 of the NIRC, to just one
that is to appeal the inaction of the
CIR on its protested assessment after
the lapse of the 180 day period.

Therefore, as in Section 228, when the


law provided for the remedy to appeal
the inaction of the CIR, it did not intend
to limit it to a single remedy of filing of
an appeal after the lapse of the 180
day prescribed period. It must be
emphasized that in case of the inaction
of the CIR on the protested
assessment, the taxpayer has 2
options, either: 1.) File a petition

226

regulation and inspection


GENERAL PRINCIPLES and are for that reason
limited in amount to what is
1. Commissioner of Internal necessary to cover the cost
Revenue vs. Algue, Inc. of the services rendered in
GR No. L-28896, February 17, that connection. Fees may
1988 properly be regarded as
The burden is on the taxes even though they also
taxpayer to prove the validity serve as an instrument of
of the claimed deduction. regulation. Taxation may be
Taxes are the lifeblood of made the implement of the
the government and so states police power. It is
should be collected without possible for an exaction to
unnecessary hindrance but be both a tax and a
such collection should be regulation. License fees are
made in accordance with charges looked to as a
law as any arbitrariness will source of revenue as well as
negate the very reason for a means of regulation. The
government itself. It is fees may be properly
necessary to reconcile the regarded as taxes even
apparently conflicting though they also serve as an
interests of the authorities instrument of regulation. If
and the taxpayers so that the purpose is primarily
the real purpose of taxation, revenue, of if revenue is, at
which is the promotion of the least, one of the real and
common good, may be substantial purposes, then
achieved. Taxes are what the exaction is properly
we pay for civilization called a tax.
society. Without taxes, the
government would be 3. Esso Standard Eastern, Inc. vs.
paralyzed for lack of the Commissioner of Internal
motive power to activate and Revenue
operate it Hence, despite the GR No. L-28508-9, July 7, 1989
natural reluctance to A margin fee is not a tax but
surrender part of ones hard an exaction designed to curb
earned income to the taxing the excessive demands
authorities, every person upon our international
who is able to must reserve. A tax is levied to
contribute his share in the provide revenue for
running of the government. government operations
while the proceeds of the
2. Philippine Airlines, Inc. vs. Edu margin fee are applied to
GR No. L-41383, August 15, 1988 strengthen our countrys
The object, not the name, of international reserves. The
the charge, determines margin fee was imposed by
whether it is a tax or a fee. the State in the exercise of
Taxes are for revenue, police power and not the
whereas fees are power of taxation.
exceptional for purposes of

227

4. Physical Therapy Organization well-settled that no set-off is


of the Philippines vs. Municipal admissible against demands
Board of the City of Manila for taxes levied for general
GR No. L-10448, August 30, 1957 or local governmental
The amount of the fee or purposes. Taxes are not in
charge is properly the nature of contracts
considered in determining between the party and the
whether is is a tax or an party but grow out of a duty
exercise of police power. to, and are the positive acts
The amount may be so large of the government, to the
as to itself show that the making and enforcing of
purpose was to raise which, the personal consent
revenue and not to regulate. of individual taxpayers is not
There is a marked distinction required. If the taxpayer can
between license fees properly refuse to pay his
imposed upon useful and tax when called upon by the
beneficial occupations which Collector, because he has a
the sovereign wishes to claim against the
regulate but not restrict, and governmental body which is
those which are inimical and not included in the tax levy,
dangerous to public health, it is plain that some
morals, or safety. In the legitimate and necessary
latter case, the fee may be expenditure must be
very large without curtailed. If the taxpayers
necessarily being a tax. claim is disputed, the
collection of the tax must
5. Republic of the Philippines vs. await and abide the result of
Mambulao Lumber Company the lawsuit, and meanwhile
GR No. L-17725, February 28, the financial affairs of the
1962 government will be thrown
A claim for taxes is not such into great confusion.
a debt, demand, contract, or
judgment as is allowed to be 6. Francia vs. Intermediate
set-off under the statutes of Appellate Court
set-off, which are construed GR No. L-67649, June 28, 1988
uniformly, in the light of There can be no off-setting
public policy, to exclude the of taxes against the claims
remedy in an action or any that the taxpayer may have
indebtedness of the state or against the government. A
municipality to one who is person cannot refuse to pay
liable to the state or a tax on the ground that the
municipality for taxes. government owes him an
Neither are they a proper amount equal to or greater
subject of recoupment since than the tax being collected.
they do not arise out of the The collection of a tax
contract or transaction sued cannot await the results of a
on. lawsuit against the
The general rule, based on government.
grounds of public policy, is

228

7. Domingo vs. Garlitos exemption must therefore be


GR No. L-18994, June 29, 1963 expressly mentioned in the
When both the claim of the exempting law or at least
Government for inheritance within its purview by clear
taxes and the claim of the legislative intent.
intestate for services Taxes is no longer
rendered have been envisioned as a measure
recognized and appropriated merely to raise revenue to
and have already become support the existence of the
overdue and demandable as government; taxes may be
well as fully liquidated, levied with a regulatory
compensation takes place purpose to provide means
by operation of law, in for the rehabilitation and
accordance with Article 1279 stabilization of a threatened
and 1290 of the Civil Code, industry which is affected
and both debts are with public interest as to be
extinguished to the within the police power of
concurrent amount. the state.
A taxpayer may not offset
8. Davao Gulf Lumber Corporation taxes due from the claims
vs. Commissioner of Internal that he may have against
Revenue the government. Taxes
GR No. 117359, July 23, 1998 cannot be the subject of
Because taxes are the compensation because the
lifeblood of the nation, government and taxpayer
statutes that allow are not mutually creditors
exemptions are construed and debtors of each other
strictly against the grantee and a claim for taxes is not
and liberally in favor of the such a debt, demand,
government. Any exemption contract, or judgment as is
from the payment of a tax allowed to be set-off.
must be clearly stated in the
language of the law; it 10. Commissioner of Internal
cannot be merely implied Revenue vs. Court of Appeals
therefrom. GR No. 124043, October 14, 1998
Because taxes are the
9. Caltex Philippines, Inc. vs. lifeblood of the nation, courts
Commission on Audit have always applied the
GR No. 92585, May 8, 1992 doctrine of strict
Tax exemptions, as a interpretation (strictissimi
general rule, are construed juris) in construing tax
strictly against the grantee exemptions. A claim of
and liberally in favor of the statutory exemption should
taxing authority. The burden be manifest and
of proof rests upon the party unmistakable from the
claiming exemption to prove language of the law on
that it is in fact covered by which it is based. Thus, the
the exemption so claimed. claimed exemption must
The party claiming expressly be granted in a

229

statute stated in a language and may therefore question


too clear to be mistaken. the constitutionality of
statutes requiring
INHERENT LIMITATIONS expenditure of public
moneys.
1. Pascual vs. Secretary of Public
Works and Communications 2. Mactan Cebu International
GR No. L-10405, December 29, Airport Authority vs. Marcos
1960 GR No. 120082, September 11,
Generally, under the 1996
express or implied Taxation is the rule and
provisions of the exemption therefrom is the
constitution, public funds exception. However, if the
may be used only for public grantee of the exemption is
purpose. The right of the a political subdivision or
legislature to appropriate instrumentality, the rigid rule
funds is correlative with its of construction does not
right to tax, and, under apply because the practical
constitutional provisions effect of the exemption is
against taxation except for merely to reduce the amount
purposes and prohibiting the of money that he has to be
collection of a tax for one handled by the government
purpose and the devotion in the course of its
thereof to another purpose, operations.
no appropriation of state Since taxation is the rule
funds can be made for other and exemption therefrom is
than for a public purpose. the exception, the exemption
The test of constitutionality may thus be withdrawn at
of a statute requiring the use the pleasure of the taxing
of public funds is whether authority. The only exception
the statute is designed to to this rule is where the
promote public interest, as exemption was granted to
opposed to the furtherance private parties based on
of the advantage of material consideration of a
individuals, although each mutual nature, which then
advantage to individuals becomes contractual and is
might incidentally serve the thus covered by the non-
public. impairment clause of the
In the determination of the constitution.
degree of interest essential Congress did not wish to
to give the requisite standing expand the scope of the
to attack the constitutionality exemption in Section 234(a)
of a statute, the general rule of the Local Government
is that not only persons Code to include real
individually affected, but also property owned by other
taxpayers, have sufficient instrumentalities or agencies
interest in preventing the of the government including
illegal expenditure of government-owned and
moneys raised by taxation controlled corporations.

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nothing legislative in
CONSTITUTIONAL LIMITATIONS ascertaining the existence of
facts or conditions as the
1. Bagatsing vs. Ramirez basis of the taking into effect
GR No. L-41631, December 17, of the law. The power to
1976 make laws necessarily
Under the Constitution, each involves a discretion as to
local government unit shall what it shall be, which
have the power to create its constitutionality may not be
own sources of revenue and done, and delegation of
to levy taxes, subject to such authority or discretion as to
provisions as may be its execution be exercised
provided by law. under and in pursuance of
The entrusting of the the law, to which no valid
collection of the fees does objection can be made.
not destroy the public The power of the State to
purpose of the ordinance. make reasonable and
So long as the purpose is natural classifications for
public, it does not matter purposes of taxation has
whether the agency through long been established and
which the money is the judiciary will not interfere
dispensed is public or with such prerogative.
private. The right to tax There is no arbitrary and
depends upon the ultimate confiscatory imposition of
use, purpose, and object for tax burden in the imposition
which the fund is raised. It is of the VAT because as the
not dependent on the nature buyer pays the input tax to
or character of the person or the seller, the seller will
corporation whose subsequently remit such
intermediate agency is to be input tax to the BIR, thus,
used in applying it. The there is no retention of any
people may be taxed for a tax collection.
public purpose, although it Uniform taxation does not
be under the direction of an preclude the Congress from
individual or private exercising its power to
corporation. classify subjects of taxation
and only demands uniformity
2. ABAKADA GURO Party List vs. within a particular class.
Ermita The Constitution does not
GR No. 168056, October 18, 2005 really prohibit the imposition
Delegation of legislative of indirect taxes like the
power is different from VAT. What it simply provides
delegation of ascertainment is that Congress shall evolve
of facts upon which a progressive system of
enforcement and taxation.
administration under the law
is contingent. The former 3. Eastern Theatrical Co., Inc. vs.
cannot be delegated while Alfonso
the latter can be. There is GR No. L-1104, May 31, 1949

231

Equality and uniformity in overcome only by the most


taxation means that all explicit demonstration that a
taxable articles or kinds of classification is a hostile and
property of the same class oppressive discrimination
shall be taxed at the same against particular persons
rate. The taxing power has and classes, and that there
the authority to make is no conceivable basis
reasonable and natural which might support it.
classifications for purposes A legislative classification
of taxation. that is reasonable does not
offend the constitutional
4. British American Tobacco vs. guaranty of the equal
Camacho protection of the laws. The
GR No. 163583, August 20, 2008 classification is considered
In our jurisdiction, the valid and reasonable
standard and analysis of provided that: (1) it rests on
equal protection challenges substantial distinctions; (2) it
in the main have followed is germane to the purpose of
the rational basis test, the law; (3) it applies, all
coupled with a deferential things being equal, to both
attitude to legislative present and future
classifications and a conditions; and (4) it applies
reluctance to invalidate a equally to all those
law unless there is a belonging to the same class.
showing of a clear and
unequivocal breach of the 5. British American Tobacco vs.
Constitution.Under this test, Camacho
a legislative classification, to GR No. 163583, April 15, 2009
survive an equal protection A tax is uniform when it
challenge, must be shown to operates with the same
rationally further a legitimate force and effect in every
state interest. The place where the subject of it
classifications must be is found. It does not signify
reasonable and rest upon an intrinsic but simply a
some ground of difference geographical uniformity. A
having a fair and substantial levy of tax is not
relation to the object of the unconstitutional because it is
legislation. Since every law not intrinsically equal and
has in its favor the uniform in its operation. The
presumption of uniformity rule does not
constitutionality, the burden prohibit classification for
of proof is on the one purposes of taxation.
attacking the constitutionality Uniformity of taxation, like
of the law to prove beyond the kindred concept of equal
reasonable doubt that the protection, merely requires
legislative classification is that all subjects or objects of
without rational basis. The taxation, similarly situated,
presumption of are to be treated alike both
constitutionality can be in privileges and liabilities.

232

Uniformity does not forfid such as an executive order,


classification as long as: (1) must comply with the
the standards that are used following requisites:
therefor are substantial and (1) Its promulgation must
not arbitrary, (2) the be authorized by the
categorization is germane to legislature;
achieve the legislative (2) It must be
purpose, (3) the law applies, promulgated in
all things being equal, to accordance with the
both present and future prescribed procedure;
conditions, and (4) the (3) It must be within the
classification applies equally scope of the authority
well to all those belonging to given by the
the same class. legislature; and
(4) It must be
DOUBLE TAXATION and TAX reasonable.
EXEMPTION The Secured
Area consisting of the
1. Executive Secretary vs. presently fenced-in
Southwing Heavy Industries former Subic Naval Base
GR No. 164171, February 20, 2006 shall be the only completely
Police power is inherent in a tax and duty-free area in the
government to enact laws, SSEFPZ. Business
within constitutional limits, to enterprises and individuals
promote the order, safety, (Filipinos and foreigners)
health, morals, and general residing within the Secured
welfare of society. It is Area are free to import raw
lodged primarily with the materials, capital goods,
legislature. By virtue of a equipment, and consumer
valid delegation of legislative items tax and dutry-
power, it may also be free. Consumption items,
exercised by the President however, must be consumed
and administrative boards, within the Secured
as well as the lawmaking Area. Removal of raw
bodies on all municipal materials, capital goods,
levels, including equipment and consumer
the barangay. Such items out of the Secured
delegation confers upon the Area for sale to non-
President quasi-legislative SSEFPZ registered
power which may be enterprises shall be subject
defined as the authority to the usual taxes and
delegated by the law-making duties, except as may be
body to the administrative provided herein (E.O. No.
body to adopt rules and 97-A). this provision limiting
regulations intended to carry the special privileges on tax
out the provisions of the law and duty-free importation in
and implement legislative the presently fenced-in
policy. To be valid, an former Subic Naval Base
administrative issuance, has been declared valid and

233

constitutional and in To claim that the increase in


accordance with RA 7227. the amount insured (by
virtue of the automatic
2. John Hay Peoples Alternative increase clause incorporated
Coalition vs. Lim into the policy at the time of
GR No. 119775, October 24, 2003 issuance) should not be
It is the legislature, unless included in the computation
limited by a provision in the of the documentary stamp
Constitution, that has full taxes due on the policy
power to exempt any person would be a clear evasion of
or corporation or a class of the law requiring that the tax
property from taxation, its be computed on the basis of
power to exempt being as the amount insured by the
broad as its power to tax. policy.
Other than the Congress,
the Constitution may itself 5. Commissioner of Internal
provide for specific tax Revenue vs. Estate of Benigno
exemptions. Local Toda
governments may also pass GR No. 147188, September 14,
ordinances on exemption 2004
from local taxes. A law ax avoidance and tax
granting tax exemption must evasion are the two most
have the concurrence of a common ways used by
majority of all the members taxpayers in escaping from
of the legislative body taxation. Tax avoidance is
granting the same. the tax saving device within
the means sanctioned by
3. Delpher Trades Corporation and law. This method should be
Pacheco vs. Intermediate used by the taxpayer in
Appellate Court good faith and at arms
GR No. L-69259, January 26, 1988 length. Tax evasion, on the
The legal right of a taxpayer other hand, is a scheme
to decrease the amount of used outside of those lawful
what otherwise could be his means and when availed of,
taxes or altogether avoid it usually subjects the
them, by means which the taxpayer to further or
law permits, cannot be additional civil or criminal
doubted. liabilities.
Tax evasion connotes the
4. Commissioner of Internal integration of three factors:
Revenue vs. Lincoln Philippine (1) the end to be
Life Insurance achieved, i.e., the payment
GR No. 119176, March 19, 2002 of less than that known by
While tax avoidance the taxpayer to be legally
schemes and arrangements due, or the non-payment of
are not prohibited,tax laws tax when it is shown that a
cannot be circumvented in tax is due; (2) an
order to evade the payment accompanying state of mind
of just taxes. which is described as being

234

evil, in bad faith, willful, would be useless, and which


or deliberate and not have been attached or affixed
accidental; and (3) a course permanently to the gas station
of action or failure of action site or embedded therein, are
which is unlawful. taxable improvements and
machinery within the meaning
6. City of Iloilo vs. Smart of the Assessment Law and the
Communications Real Property Tax Code.
GR No. 167260, February 27, 2009 Improvements on land are
The grant of tax exemption commonly taxed as realty even
should be stated in clear and though for some purposes they
unequivocal language too might be considered as
plain to be beyond doubt or personalty.
mistake. The Central Board of
Assessment Appeals, and not
7. National Power Corporation vs. the Court of Tax Appeals has
Central Board of Assessment appellate jurisdiction over
Appeals decisions of the provincial or
GR No. 171470, January 30, 2009 city board of assessment
Taxation is the rule and appeals
exemption is the exception. The Real Property Tax Code
The law does not look with does not provide for Supreme
favor on tax exemptions and Court review of decisions of the
the entity that would seek to Central Board of Assessment
be thus privileged must Appeals. The only remedy for
justify it by words too plain to Supreme Court review of the
be mistaken and too Central Boards decision is by
categorical to be Special Civil Action of Certiorari.
misinterpreted. Under this
standard, the claimant must 2. Lung Center of the
show beyond doubt, with Philippines vs. Quezon City
clear and convincing GR No. 144104, June 29, 2004
evidence, the factual basis To determine whether and
for the claim. enterprise is a charitable
institution / entity or not, the
REAL PROPERTY TAXATION elements which should be
considered include the statute
1. Caltex Philippines vs. CBAA creating the enterprise, its
GR No. L-50466, May 31, 1982 corporate purpose, its
Gasoline station equipment and constitution and by-laws, the
machineries are permanent methods of administration, the
fixtures for purposes of realty nature of the actual work
taxation. Said equipment and performed, the character of the
machinery, as appurtenances to services rendered, the
the gas station building or shed indefiniteness of the
owned by Caltex and which beneficiaries, and the use and
fixtures are necessary to the occupation of the properties
operation if the gas station, for In a legal sense, charity may be
without them the gas station fully defined as a gift to be

235

applied consistently to a The real properties of MIAA are


number of persons, either by owned by the Republic of the
bringing their minds and hearts Philippines and thus exempt
under the influence of education from real estate tax.
or religion, by assisting them to There is also no reason for local
establish themselves in life or governments to tax national
otherwise lessening the burden government instrumentalities for
of the government. The test rendering essential public
whether an enterprise is services to inhabitants of local
charitable or not is whether it governments, the only
exists to carry out a purpose exception being when the
recognized in law as charitable legislature clearly intended to
or whether it is maintained for tax government
gain, profit, or private instrumentalities for the delivery
advantage of essential services for sound
As a general principle, a and compelling policy
charitable institution does not considerations
lose its character as such and
its exemption from taxes simply 4. City Assessor of Cebu vs.
because it derives income from Association of Benevola de
paying patients, whether out Cebu
patient, or confined in the GR No. 152904, June 8, 2007
hospital, or receives subsidies The exemption in favor of
from the government, so long property used exclusively for
as the money received is charitable or educational
devoted or used altogether to purposes is not limited to
the charitable object which is property actually indispensable
intended to achieve, and no therefore but extends to
money inures to the private facilities which are incidental to
benefit of the persons managing and reasonably necessary for
or operating the institution the accomplishment of said
Those portions of real property purposes, such as, in the case
that are leased to private of hospitals, a school for
entities are not exempt from training nurses home, property
real property taxes as these are use to provide housing facilities
not actually, directly and for interns, resident doctors,
exclusively used for charitable superintendents, and other
purposes members of the hospital staff,
and recreational facilities for
3. Manila International Airport student nurses
Authority vs. CA A hospitals charge of rentals for
GR No. 155650, July 20, 2008 the offices and clinics its
Government-owned or accredited physicians occupy
controlled-corporation is not cannot be equated to a
exempt from real estate tax. commercial venture. The
MIAA is not a government- charging of rentals in the case
owned or controlled-corporation at bar is a practical necessity to
and hence are exempt from tax recoup the maintain the building
imposed by local governments. facilities, among other functions

236

legal contemplation the property


TARIFF AND CUSTOMS itself which commits the
violation itself which commits
1. Executive Secretary vs. the violation and is treated as
Southwing Heavy Industries the offender, without reference
GR No. 164171, February 20, whatsoever to the conduct of
2006 the owner.
To be valid, an administrative The fraud contemplated by law
issuance, such as an executive must be actual and not
order, must comply with the constructive it must be
following requisites: 1. Its intentional, consisting of
promulgation must be deception willfully and
authorized by the legislature; 2. deliberately done or resorted to
It must be promulgated in in order to induce another to
accordance with the prescribed give up some right
procedure; 3. It must be within
the scope of the authority; 4. It 3. Jao vs. CA
must be reasonable. The GR No. 104604, October 6,
importation ban in the case at 1995
bar runs afoul the third requisite Regional Trial Courts are
because it modifies existing devoid of any competence to
laws and exceeds the intended pass upon the validity or
scope. The proscription in the regularity of seizure and
importation of used motor forfeiture proceedings
vehicles should be operative conducted by the Bureau of
only outside the Freeport and Customs and to enjoin or
the inclusion of the said zone otherwise interfere with these
within the ambit of the proceedings. The Collector of
prohibition is an invalid Customs has exclusive
modification of RA 7227. jurisdiction to hear and
determine all questions
2. Transglobe International, Inc. touching on the seizure and
vs. CA forfeiture of dutiable goods.
GR No. 126634, January 25, Actions of the Collector of
1999 Customs are appealable to the
As a means of redemption of Commissioner of Customs,
forfeited property is unavailing whose decision in turn is
in three instances, namely, 1. subject to the exclusive
When there is fraud, 2. Where appellate jurisdiction of the
the importation is absolutely Court of Appeals and from there
prohibited or where the release to the Court of Appeals.
of the property would be
contrary to law 4. Acting Commissioner of
Forfeiture of seized goods in the Customs vs. CTA
Bureau of Customs is a GR No. 62636, April 27, 1984
proceeding against the goods The failure of a foreigner to
and not against the owner it is produce a Central Bank
in the nature of a proceeding in authorization allowing him to
rem. In this proceeding, it is in bring out of the Philippines

237

foreign currencies, prima facie


evidence of infringement of CB NIRC REMEDIES
Circular 534 and a basis for
seizure of foreign exchange. 1. Commissioner on Internal
The acquittal of accused in a Revenue vs. Isabela Cultural
criminal charge for violation of Corporation
CB Circular No. 534 before the 361 SCRA 71
fiscals office is not res judicata A Final Notice Before Seizure
in seizure or forfeiture cannot be considered as the
proceedings. commissioners decision
Tourists are not precluded from disposing of the request for
submitting proof other than a reconsideration. On the other
currency declaration to show hand, a final demand letter for
legitimate source of currency in payment of delinquent taxes
their possession. Resolution may be considered a decision
No. 594 of the CB must be on a disputed or protested
deemed superseded by assessment.
Resolution No. 1412, dated July A delinquent taxpayer may
16, 1976, which requires that nevertheless directly appeal a
persons taking or transmitting or disputed assessment, if its
attempting to take or transmit request for reconsideration
foreign exchange out of the remains unacted upon 180 days
Philippines must have after submission thereof.
authorization from the Central A final demand letter for
Bank allowing them to do so. payment of delinquent taxes
may be considered a decision
5. De la Fuente vs. De Veyra on a disputed or protested
GR No. L-35385, January 31, assessment
1983
A claim that a seizure of a 2. Commissioner of Internal
vessel by the Customs Collector Revenue vs. Union Shipping
was made outside the territorial Corp
jurisdiction of the Philippines 185 SCRA 547
should be raised as a defense The Commissioner on Internal
before the Collector of Revenue must state whether his
Customs, not by a separate action on questioned
action before the CFI because assessment is final. It cannot be
the Customs Collector has implied from mere issuance of
exclusive jurisdiction over warrant of distraintand levy.
seizure and forfeiture cases. Also, a filing of a collection suit
It is well-settled that the may be considered a final
exclusive jurisdiction over denial of a request for
seizure and forfeiture cases reconsideration of tax
vested in the Collector of assessment.
Customs precludes a Court of A mere husbanding agent
First Instance from assuming cannot be liable for income tax
cognizance over such cases. due from principal nore can it be
liable for withholding tax where
it does not have actual control

238

or custody of the latters procedural rights and the failure


income. of the CIR to strictly comply with
the requirements laid down by
3. Advertising Associates, Inc. law and its own rules is a denial
vs. CA of Metro Stars right to due
133 SCRA 765 process.
The directive in the form of a
letter in the case at bar, 5. Lascona Land vs.
embodies the Commissioners Commissioner of Internal
final decision within the Revenue
meaning of section 7 of RA GR No. 171251, March 5, 2012
1125. Hence, the reviewable The case cited RCBC vs
decision of the BIR CIRwhich states the remedies
Commissioner is that letter of a taxpayer in case the CIR
where he clearly directed the fails to act on the disputed
taxpayer to appeal to the Tax assessment within the 180-day
Court, and not the warrants of period from the date of the
distraint and levy. submission of the documents.
A firm which leases neon signs The taxpayer can either: 1. File
and billboards is a business a petition for review with the
agent and independent CTA within 30 days after the
contractor under Sec. 191 and expiration of the 180-day
194 (v) of the Tax Code period; or 2. Await the final
The issuance of warrants of decision of the Commissioner
distraints interrupts the 5-year on the disputed assessments
period of prescription for tax and appeal such final decision
collection, to the CTA within 30 days after
receipt of a copy of such
4. Commissioner of Internal decision.
Revenue vs. Metro Star Taxes are the lifeblood of the
Superama Inc. government and so should be
GR No. 185371, December 8, collected without unnecessary
2010 hindrance. On the other hand,
The sending of a Preliminary such collection should be made
Assessment Notice (PAN) to in accordance with law as any
taxpayer to inform him of the arbitrariness will negate the
assessment made is but part of very reason for government
the due process requirement in itself. It is therefore necessary
the issuance of a deficiency tax to reconcile the apparently
assessment, the absence of conflicting interests of the
which renders nugatory any authorities and the taxpayers so
assessment made by the tax that the real purpose of
authorities. taxation, which is the promotion
The use of the word shall in of common good, may be
the law describes the achieved.
mandatory nature of the service
of PAN. The persuasiveness of
the right of due process
reached both substantial and

239

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