TAXATION LAW

______________________________

1991 BAR EXAMINATIONS

______________________________

Question No. 1:

1) The police power, the power to tax and the power of eminent domain are inherent powers of government.
May a tax be validity imposed in the exercise of the police power and not of the power to tax? If your answer is
in the affirmative, give an example.

SUGGESTED ANSWER:

The police power may be exercised for the purpose of requiring licenses for which license fees may
have to be paid. The amount of the license fees for the regulation of useful occupations should only be
sufficient to pay for the cost of the license and the necessary expense of police surveillance and regulation.
For non-useful occupations, the license fee may be sufficiently high to discourage the particular activity
sought to be regulated. It is clear from the foregoing that police power may not be exercised by itself alone
for the purpose of raising taxes. However, police power may be exercised jointly with the power of taxation
for the purposes of raising revenues. (Lutz vs. Araneta, 98 Phil. 148)

ALTERNATIVE ANSWER:

Taxation involves the power to raise revenue not only in order to support the existence of
government but likewise to carry out legitimate objects of government. Among such legitimate objects are
those that police power itself can cover. As early as the case of Lutz vs. Araneta (98 Phil, 148), the Supreme
Court has ruled that taxation may be used to implement an object of police power. An illustration of such
exercise would be an imposition of taxes on gambling, the rates of which are made somewhat ornerous in
order to discourage gambling instead of an outright prohibition thereof by an exercise of a police power
measure such as by present provision of the Revised Penal Code.

2) Discuss the meaning and the implications of the following statement: “Taxes are the lifeblood of
government and their prompt and certain availability is an imperious need.”

SUGGESTED ANSWER:

The phrase “taxes are the lifeblood of government, etc.” expresses the underlying basis of taxation
which is governmental necessity, for indeed without taxation, a government can neither exists nor endure.
Taxation is the indispensable and inevitable price for civilized society; without taxes, the government
would be paralyzed. This phrase has been used, for instance, to justify the validity of the laws providing
for summary remedies in the collection of taxes. As a consequence of the above rule, an injunction against
the assessment and collection of taxes is generally withheld be the laws imposing such taxes. Even when it
is not so, under procedural laws such an injunction may not be obtained as held in the case of Valley
Trading Co. vs. CFI (G.R. No. 49529, 31 March `989), where the supreme Court ruled that the damages that
may be caused to the taxpayer by being made to pay the taxes cannot be said to be as irreparable as it would
be against the government’s inability to collect taxes.

Question No. 2:

To provide for rehabilitation and stabilization of the sugar industry so as to prepare it for eventuality of the
loss of the quota allocated to the Philippines resulting from the lifting of U.S. sanctions against an African
country, Congress passes a law increasing the existing tax on the manufacture of sugar on a graduate basis. All
collections made under the law are to accrue to a special fund to be spent only for the purposes enumerated
therein, among which are to place the sugar industry in a position to maintain itself and ultimately to insure its
continued existence despite the loss of that quota, and to improve their working conditions. X, a sugar planter,
files a suit questioning the constitutionality of the law alleging that the tax is not for a public purpose as the
same is being levied exclusively for the aid and support of the sugar industry. Decide the case.

SUGGESTED ANSWER:

The suit filed by the sugar planter questioning the constitutionality of the sugar industry
stabilization measure is untenable. Taxation is no longer merely for raising revenue to support the
existence of government but the power may also be exercised to carry out legitimate objects of the
government. It is a legitimate object of government to protect its local industries on which the national
economy largely depends. Where the aim of the tax measure is to be achieve such a government objective,
the tax imposition can be said to be for a public purpose (Gaston v. Republic Bank, 158 SCRA 626)

Question No. 3:

Apple Computer Corp. (ACC) is a foreign corporation doing business in the Philippines through a local
branch located at Makati, Metro Manila. In 1985, the local branch applied with the Central Bank for authority
to remit to ACC branch profits amounting to P8,000,000.00. after paying the 15% branch remittance tax of
P1,200,000.00, the branch office remitted to ACC the balance of P6,800,000.00. In January 1986, the branch office
was advised by its, legal counsel that it overpaid the branch remittance tax since the basis of the computation
thereof should be the amount actually remitted and not the amount applied for. Accordingly, the branch office
applied for a refund in the amount of P180,000.00.

If you were the Commissioner of Internal Revenue, would you grant the cliam for refund?

SUGGESTED ANSWER:

If I were the Commissioner of Internal Revenue, I would allow the claim for refund. The remittance
tax should be computed on the amount actually remitted (Marubeni Corporation v. Commissioner, G.R.
No. 76573, 14 September 1989). In the refund of taxes from the time of payment so long as the tax payment
was made before an assessment by the Commissioner has become final (Sec. 230, NIRC).

Question No. 4:

Born of a poor family on 14 February 1944, Mario worked his way through college. After working for more
than 2 years in X manufacturing Corporation, Mario decided to retire and avail of the benefits under the very
reasonable retirement plan maintained by his employer. He planned to invest whatever retirement benefits he
would receive in a business in a business that will provide his employer with the all needed raw materials. On
the day of his retirement on 30 April 1985, he received P400,000.00 as retirement benefit. In addition, his
endowment measure policy, for which he was paying an annual premium of P1,520.00 since 1965, also
matured. He was then paid the face value of his insurance policy in the amount of P50,000.00.

1) Is Mario’s P400,000.00 retirement benefit subject to income tax?

SUGGESTED ANSWER:

Mario’s P400,000.00 retirement benefit is subject to income tax. To be exempt, the retirement pay
must have been extended to an employee who is at least 50 years of age and who have worked for at least
ten (10) years with the employer. The amount cannot be considered as a separation pay that would have
exempted benefits from income tax since it was Mario who had decided to retire instead of being required
to do so (Sec. 28, NIRC)

2) Is his P50,000.00 insurance proceeds exempt from income taxation?

SUGGESTED ANSWER:

The P50,000.00 insurance proceeds is not totally exempt from income tax. The excluded amount is
only that portion which corresponds to the premiums that he had paid since 1965. At the rate of P1,520.00
per year multiplied by twenty (20) years which was the period of the policy, he must have paid a total of
P30,400.00. Accordingly, he will be subject to report as taxable income the amount of P19,600 (Sec. 28,
NIRC)
 Question No. 5:

Delstar Emmanuel Perez, a government employee, retires from the service upon reaching the compulsory
retirement age of 65. Would the amount he is entitled to receive by way of commutation of his accumulated
leave credits, of his terminal leave pay, be subject to income tax?

SUGGESTED ANSWER:

The amount that Emmanuel Perez is to receive should not be subjected to income tax, and such was
the ruling by the Supreme Court in the In re Zialcita Administrative Case (Adm. Matter No. 90-6015-SC, 18
Oct 1990). The ruling apparently repudiated, or at least is inconsistent with, its earlier decision in
Commissioner v. Victoriano (G.R. No. 83176, 10 August 1989).

Question No. 6:

Robert Patterson is an American who first arrived in the Philippines in 1944 as a member of the U.S. Armed
Forces that liberated the Philippines. After the war, he returned to the United States but came back to the
Philippines in 1958 and stayed here up to the present. He is presently employed in the United States Naval
Base, Olongapo City. For the year 1985, he earned US$10,856.00. Sometime in 1986, the District Revenue Office
of the Bureau of Internal Revenue served him a notice informing him that he did not file his income tax return
for the year 1985 and directing him to file said return in 10 days. He refused to file any return claiming that he
is not a resident alien and is therefore not required to file any income tax return.

Is Patterson’s claim correct?

SUGGESTED ANSWER:

Patterson’s claim is not correct. While Patterson is exempt from income tax, an exemption from
income tax does not, however, necessarily mean an exemption likewise from the filing of an income tax
return (Garrison v. Court of Appeals, 187 SCRA 525).

Question No, 7:

Roberto Ruiz and Conrado Cruz bought three (3) parcels of land from Rodrigo Sabado on 4 may 1976. Then on
8 July 1977, they bought two (2) parcels of land from Miguel Sanchez. In 1988, they sold the two parcels of land
to Central Realty, Inc. In 1989, they sold the two (2) parcels of land to Jose Guerrero. Ruiz and Cruz realized a
net profit of P100,000.00 for the sale in 1988 and P150,000.00 for the sale in 1989. The corresponding capital
gains taxes were individually paid by Ruiz and Cruz.

On 20 September 1990, however, Ruiz and Cruz received a letter from the Commissioner of Internal Revenue
assessing them deficiency corporate income taxes for the years 1988 and 1989 because, according to the
Commissioner, during said years they, as co-owners in the real estate transactions, formed an unregistered
partnership or joint venture taxable as a coporation and that the unregistered partnership was subject to
corporate income tax, as distinguished from profits derived from the partnership by them, which is subject to
individual income tax.

Are Robert Ruiz and Conrado Cruz liable for deficiency corporate income tax?

SUGGESTED ANSWER:

Roberto Ruiz and Conrado Cruz are not liable for corporate income tax. Abandoning evidently the
Gatchalian rule, the Supreme Court in a recent ruling (Pascual v. Court of Tax Appeals, G.R. No. 78133, 18
Oct 1988), held that isolated transactions by two or more persons do not warrant their being considered as
mere co-owners: no corporate income tax is due on mere co-ownerships. It was therefore correct for Ruiz
and Cruz to merely pay their individual income tax liabilities on the real estate transactions.

Question No.8:

ABC Computer Corp. purchased some years ago Membership Certificate No. 7 from the Calabar Golf Club,
Inc. for P300,000.00. In 4 September 1985, it transferred the same to Mr. John Johnson, its American computer
consultant, to enable him to avail of the facilities of the Club during his stay here. The consultancy agreement
expired two(2) years later. In the meantime, the value of the Club share appreciated and what was purchased
by the corporation at P300,000.00, commanded a market value of P800,000.00 in 1987. Before he returned home
a few days after his tenure ended. Mr. Johnson transferred the subject share to Mr. Robert James, the new
consultant of the firm and the newly designated playing representative, under a Deed of Declaration of Trust
and Assignment of Shares wherein the former acknowledged the absolute ownership was without any
consideration, and that the share was placed in his name because the Club required it to be done.

1) Is the assignment/transfer of the shares from Johnson to James subject to income tax?

SUGGESTED ANSWER:

The assignment or transfer of shares form Johnson to James is not subject to income tax. There had
been no real change of ownership that took place. There having been no actual sale or exchange, no income
tax incident can be said to have occurred. In addition, there was really no income realized or received
considering that in the Deed of Declaration of Trust and Assignment of Shares, the absolute ownership of
ABC Computer Corporation was explicitly recognized.

2) Is the said assignment a gift and therefore, subject to gift tax>

SUGGESTED ANSWER:

The assignment can neither be held to be a gift. To be considered a gift within the context of the
NIRC, there must be a transfer of ownership or a quantifiable interest. More importantly, the transfer of
the membership certificate was merely a designation of the consultant to be the “playing representative” of
ABC Computer Corporation in the Calabar Golf Club.

Question No. 9:

Newtex International (Phils.) Inc. is an American firm duly authorized to engage in business in the Philippines
as a branch office. In its activity of acting as a buying agent for foreign buyers of shirts and dresses abroad and
performing liaison work between ifts home office and the Filipino Garment manufacturers and exporters.
Newtex does not generate any income. To finance its office expenses here, it head office abroad regularly
remits to it the needed amount. To oversee its operations and manage its office here, which had been in
operation for two (2) years, the head office assigned three (3) foreign personnel.

1) Is Newtex International (Phils.) Inc. subject to VAT?

SUGGESTED ANSWER:

Newtex International (Phils.) Inc., is not subject to VAT. The VAT is imposed on sellers and not
on buyers. The branch office did not derive any income or compensation for services rendered. In addition,
since the transactions are direct export sales, the VAT does not apply. Export Sales are among those that are
either zero or exempt from VAT (Secs. 99-100, NIRC)

2) Are the three foreign personnel subject to Philippine income tax?

SUGGESTED ANSWER:

The three (3) foreign personnel are subject to tax on the income that they receive for services
rendered in the Philippines. Non-resident aliens are subject to tax on income derived from sources within
the country when it is earned for services rendered in the Philippines (Sec. 22 in relation to Sec. 36 NIRC)

Question No. 10:

Calawin Marketing Corp. (CMC) sells goods and renders services to Pinatubo Inc., a contractor for the U.S.
base. CMC applies for zero rate. Is it qualified for zero rating under the pertinent Tax Code provisions on
VAT?

SUGGESTED ANSWER:

CMC is not qualified for zero rating. The goods and services rendered to Pinatubo, Inc. evidently a
domestic corporation cannot be considered as an export sale. Pinatubo Inc. is but a contractor for the U.S.
base.

The sales which are subject of the zero rate are export sales and sales to persons or entities whose
exemption under special laws or bay n International Agreement where the Philippines is a signatory
effectively subjects such sales to zero rate (Sec. 100, NIRC)

Question No. 11:

Cebu Development Inc. (CDI) has an authorized capital stock of P5,000,000.00 divided into 50,000 shares with
a par value of One Hundred Pesos (P100.00) per share. Of the authorized capital stock, twenty-five thousand
(25,000) shares have been subscribed. Mr. Juan Legaspi is a stockholder of CDI where he has subscription
amounting to 13,000 shares. To fully pay his unpaid subscription in the amount of P950,000.00, Mr. Legaspi
transferred to the corporation a parcel of land that he owns by virtue of a Deed of Assignment. Upon
investigation, the BIR discovered that Mr. Legaspi acquired said property for only P500,000.00.

1) Is Mr. Legaspi liable for any taxable gain?

SUGGESTED ANSWER:

The transfer by Mr. Legaspi to the corporation of the parcel of land in payment of his unpaid
subscription did not increase his stockholding in the corporation. I cannot be said that he acquired control
of the corporation by virtue of the transfer of the land. His percentage of stockholdings in the capital stock
of the corporation remains the same after the transfer as before. Therefore, Mr. Legaspi derived taxable gain
for his income gain which was realized by virtue of the exchange of the land for the liability for the
subscriprion.

ALTERNATIVE ANSWER:

Mr. legaspi is not liable for any taxable gain. The transaction amounted to an exchange of shares of
property for shares of stock as a result of which the property transferor acquired control of the corporation.
The 13,000 shares of stock acquired in exchange of property was more than fifty percent (50%) of the total
subscribed capital stock of Cebu Development, Inc. (CDI) that qualified the transaction as a tax exempt
under the provisions of Sec. 34 © (2) of the National Internal revenue Code.

2) Is the CDI liable for any taxable gain?

SUGGESTED ANSWER:

CDI itself is not liable for any taxable gain since subscription payments are not considered as
taxable income being merely investments in the corporation. However, a taxable incidence may occur as
and when the corporation sells the parcel of land for a price over and above the value of the shares of stock
or in this case over and above P950,000.00. Until such time, however, there is no realizable income on the
part of the corporation.

Question No. 12:

Antonio Cruz was appointed by the Regional Trial Court as administrator in the testate proceedings for the
settlement of the estate of his deceased father. On 12 February 1987, the Commissioner of Internal Revenue
issued a deficiency estate tax assessment for the estate in question in the amount of P2,816,514,60. The notice of
deficiency assessment was received by the Commissioner, dated 21 February 1987, which was received by the
latter’s office two (2) days later, the Administrator requested for a reconsideration of the assessment on the
ground that the same is contrary to law and is not supported by sufficient evidence. He also requested for a
period of fifteen (15) days within which to submit the estate’s position paper.
On 4 August 1988, not having received the promise position paper, the Commissioner filed with the Court a
motion for allowance of claim and for an order of payment of estate taxes, praying therein that the
administrator be directed to pay the BIR the aforementioned deficiency tax. The Administrator opposed the
motion alleging that by reasons of the pendency of his request for reconsideration, the deficiency assessment
has not become final and executory and, therefore, the absence of a decision on the disputed assessment is a
bar against collection of taxes. He further argued that it is the Court of Tax Appeals, and not the Regional Trial
Court, which has exclusive jurisdiction over the claim

Resolve the motion and issues raised.

SUGGESTED ANSWER:

Evidently, the request for reconsideration did not express or specify the grounds therefor. A request
for reconsideration in the tenor stated in the problem is insufficient, not being substantiated, to stop the
running of the 30-day period within which the assessment may be disputed (Dayrit vs. Cruz, G.R No.
39919, 26 September 1988). The failure of the taxpayer to submit the promised position paper within the
said 30-day period had the effect of rendering the assessment final and executory. In addition, the
pendency of a decision on a disputed assessment does not bar the collection of the NIRC taxes, and no
injunction may be issued by any court (except by the Court of Tax Appeals which may be brought by a
taxpayer within thirty (30) days from the receipt of the final decision of the Commissioner, the Court of Tax
Appeals has no jurisdiction to take cognizance thereof (See Sec. 11, R.A 1125). Premises considered, the
action taken by the Commissioner with the Regional Trial Court was appropriate and in accordance with
law.

ALTERNATIVE ANSWER:

Once a request for reconsideration is made by the taxpayer or an assessment of the BIR within 30
days from receipt thereof, the Commissioner is bound to make a decision thereon. That decision is the one
appealable to the Court of Tax Appeals. But if the taxpayers does not appeal within the 30-day period, the
assessment becomes final and executorty and demandable. The implication of this new provision in the
NIRC is that the Commissioner cannot collect the tax as long as the taxpayer has still the right to appeal
from the Commissioner’s action.

Question No. 13:

Sometime in 15 September 1990, a shipment of 150 packages of imported goods and personal effects arrived
and was unloaded at the Port of Manila. After the amount of P15,887.00 was paid by the consigree as customs
duties, internal revenue fees, and other charges the packages were released from the Customs house. As the
packages were being transported from the Customs area to their destination the truck carrying them was
intercepted at T.M. Kalaw St., Ermita. Manila by agents of the Economic Intelligence & Investigation Bureau
(EIIB). In a formal communication, EIIB informed the Collector of Customs that the packages were relased
from the customs zone without proper appraisal to the damage of the Government and requested for the
issuance of the necessary warrant of seizure. Seizure proceedings (S.I No. 796) was then insititued and the
Collector issued a warrant of seizure and detention.

During the progress of the search and seizure, and while the goods were being removed by the Customs
agents from the bodegas where they were stored, the consigree filed a Petition (Civil Case No. 234) with the
Regional Trial Court of Manila asking that the Collector of Customs and all his agents be restained from
further enforcing the aforesaid warrant and from proceeding with the trial of S.I 796, and that said warrant be
declared null and void since the Collector no longer had jurisdiction to issue the same considering that the
customs duties and taxes had already been paid and the goods had left the control and jurisdiction of the
Bureau of Customs.

1) Did the Collector of Customs have jurisdiction to issue the warrant of seizure and detention?

SUGGESTED ANSWER:

On the assumption that the goods were released from Customs custody without proper appraisal as
contended by EIIB, the Collector of Customs had jurisdiction to issue the warrant of seizure and detention.
This remedy is generally available in importations tainted with irregularity (Sec. 2531, TCC; Viduya vs.
Berdiago, 73 SCRA 553).

2) Did the payment of the customs duties, taxes etc. render illegal and improper the issuance of said warrant?

SUGGESTED ANSWER:

In seizure and forfeiture, the payment of customs duties, taxes, etc., does not necessarily render as
irregular and improper the issuance of a warrant of seizure and detention. What is legally consequential is
whether there was, in fact, an irregularly committed in the importation of the articles and their release from
customs.

3) Has the Regional Trial Court jurisdiction to hear and decide Civil Case No. 234?

SUGGESTED ANSWER:

No, the RTC has no jurisdiction. In the case od seizures and forfeitures, an ordinary court may not
take cogniznance of the case and, therefore, said courts would be berefit of jurisdiction to hear and decide
the same. The jurisdiction of the Collector of Customs in seizure and forfeiture proceedings is exclusive of
all other courts. The proper remedy would be to go through with the hearing of the case with the Collector
of Customs from whose decision an appeal may be made to the Commissioner of Customs and, thereafter,
if the taxpayer still feels aggrieved, to the Court of Tax Appeals.

Observations:

The problem does not not indicate that the claim of EIIB was in fact the case. Since the factual settings did not
state categorically that the importation was irregular, it is possible that an examinee would have considered
the importation as falling under the administrative remedy of enforcement of tax lien. In this remedy, the
collector’s jurisdiction lies only while the goods are in customs custody; hence, upon the release of the goods
from customs custody a warrant of seizure and forfeiture would not be justified. The problem did not indicate
that there was any intention to smuggle or even an attempt to smuggle the imported goods.

Question No. 14:

In view of the unfavorable balance of payment condition and the increasing budget deficit, the President of the
Philippines, upon recommendation of the National Economic and Development Authority, issues during a
recess of Congress an Executive Order imposing an additional duty on all impoted at the rate of ten (10%)
percent ad valorem. The Executive Orders provides that the same shall take effect immediately. Ricardo San
Miguel, an importer, questions the legality of the Executive Order on the grounds that only Congress has the
authority to fix the rates of import duties and, in any event, such an Executive Order can take effect only thirty
(30) days after promulgation and the President has no authority to shorten said period.

Are the objections of Mr. San Miguel tenable?

SUGGESTED ANSWER:

No, the objections are not tenable as the Executive Order cannot take effect “immediately”. Being an
“external” law and having the effect of law, the Executive Order cannot become effective without
publication, requirement of due process (Tanada vs. Twera, 136 SCRA 27: Executive Order No. 202).

ALTERNATIVE ANSWER:

Under the Flexible Tariff Clause (Sec. 401, Tariff and Customs Code). Any order issued by the
President thereunder can generally take effect only thirty (30) days after its issuance. In cases however of an
order imposing additional import duties, the law provides that the same can take effect immediately.

Question No. 15:

The Municipality of Malolos passed an ordinance imposing a tax on any sale or transfer of real property
located within the municipality at a rate of one-fourth (1/4) of one percentum (1%) of the total consideration of
such transaction. X sold a parcel of land in Malolos which he inherited from his decreased parents and refused
to pay the aforesaid tax. He instead filed appropriate case asking that the ordinance be declared null and void
since such a tax can only be collected by the national government, as in fact he has paid BIR the required
capital gains tax. The Municipality countered that under the Constitution, each local government is vested
with the power to create its own sources of revenue and to levy taxes, and it imposed the subject tax in the
exercise of said consititutional authority.

Resolve the controversy.

SUGGESTED ANSWER:

The ordinance passed by the Municipality of Malolos imposing a tax on the sale or transfer of real
property is void. The Local Tax Code only allows provinces and cities to impose a tax on the transfer o
ownership of real property (Sec. 7, and Sec. 23, Local Tax Code). Municipalities are prohibited from
imposing said tax that provinces are specifically authorized to levy. (Sec. 22, Local Tax Code).

While it is true that the Constitution has given broad powers of taxation to local government units,
this delegation, however, is subject to such limitations as may be provided by law (Sec. 5, Art, 1987
Constitution).

Question No. 16:

The Municipality of Argao, Province of Cebu passed a tax ordinace requiring all professionals practicing in the
municipality to pay a tax equivalent to two (2%) percent of their gross income. A certified true copy of the
ordinance was sent to the Secretary of Finance for review on 1 March 1989 and was received by him on the
same day. On 15 August 1989, even as the tax ordinance remained unacted upon by the Secretary of Finance,
the municapility questioned the legality of the ordinance and sought the suspension of the collection of the tax,
but the municipality argued that since the Secretary has not taken any action on the ordinance for more than
one hundred twenty days after his receipt thereof, the legality of the ordinance can no longer be questioned
and instead on the collecton of the tax.

1) Is the tax ordinance in question legal?

SUGGESTED ANSWER:

No, the tax ordinance is not legal as the Local Tax Code allows provinces and cities, to the exclusion
of municipalities, to impose an annual occupation tax on all persons engaged in the exercise or practice of
their profession or calling in specified amounts which in the case of lawyers is P75.00 per annum (Secs. 11
and 12 in relation to Sec. 23, Local Tax Code). A person authorized to practice his proffesion or calling shall
pay the tax to the province where he practices his profession or calling or maintains his office.

No local government unit can impose a tax on income (Sec. 5, Local Tax Code).

2) Is the Municipality correct in insisting on collecting the tax?

SUGGESTED ANSWER:

No, the Municipality was incorrect in insisting on t collection of the tax. Once the tax on occupation
is paid as stated in paragraph (a). above, the lawyer is entitled to practice his profession or calling in all
parts of the Philippines without being subject to any other national or local tax, license or fee for the
practice of such profession or calling.

3) Will the inaction of the Secretary of Finance bar the professionals in the Municipality from questioning the
legality of that ordinance?

SUGGESTED ANSWER:

The inaction of the Secretary of Finance does not bar the professionals in the Municipality from
questioning the legality of the ordinance. While it is true that the Secretary of Finance may himself
suspend the tax ordinance within a 120-day period from receipt thereof, his failure to do so, howver, has no
preclusive effect on taxpayers who may be adversely affected by the ordinance.

4) What remedies are available to the taxpayer to enable him to question the legality of that ordinance?
SUGGESTED ANSWER:

The taxpayer may pursue his remedies either administratively or judicially. He may, as the case
warrants, file a formal protest with the Secretary of Finance or query with the Provincial Fiscal whose
opinion is appealable to the Secretary of Justice whose decision may be constested in the proper court. The
other remedy would be to file a special civil action for declaration relief (if circumstances still warrant) or
to pay the tax and thereafter to file an action for refund within six (6) years after such payment.

ALTERNATIVE ANSWER:

On the basis of the facts of the problems, it would appear that the administrative remedy is no
longer available since there is already an attempt to enforce collection. The only remedy of the taxpayer is
to pay the tax and sue for its recovery in the ordinary court.

Question No. 17:

In view of the street widening and cementing of roads and the improvement of drainage and sewers in the
district of Ermita, the City of Manila passed an ordinance imposing and collecting a special levy on lands in
the district. Jose Reyes, a landowner and resident of Ermita, submitted a protest against the special levy fifteen
(15) days after the last publication of the ordinance alleging that the special levy was exorbitant since the rate
thereof was more than the maximum rate of two (2%) percent of the assessed value of the real properties
allowed by Section 39 of P.D 464, as amended.

Assuming that Jose Reyes is able to prove that the rate of the special levy is more than the aforesaid percentage
limitation of 2%, will his protest prosper?

SUGGESTED ANSWER:

The special levy under the Real Property Tax Code on lands, specially benefited by the proposed
infrastructure, may not exceed sixty percent (60%) of the cost of said improvement. All lands comprised
within the district benefited are subject to the special levy except lands exempt from the real property tax
(Sec. 47, RPT). The protest shall be filed not later than 30 days after the publication of the ordinance and
may be submitted to the City Sangguian signed by a majority of the landowners affected by the proposed
work. If no such protest is filed in the manner above specified, the city ordinance shall become final and
effective. The levy imposed under the ordinance should be within the limit of sixty percent (60%) of the
total cost of the proposed improvement. The rate of two percent (2%) of the assessend value under (Sec., 39
of P.D 464 refers to the real property tax and not to special levies.

Question No. 18:

Dagat-dagatan Shipping Corp. (DSC) brought into the country two (2) non-propelied foreign barges which
DSC chartered for use in the Philippine coastwise trade under a Temporary Certificate of Philippine
Registration, to be returned to the foreign owner upon termination of the charter period but not beyond 1999,
pursuant to P.D No. 760, as amended. Upon their arrival, the barges were subjected to duty by the Bureau if
Customs. DSC refused to pay any customs duty contending that the charter or lease of the barges which will
be returned to the foreign owner when the charter expires, is not an importation and, therefore cannot be
subjected to any customs duty.

1) Is DSC’s refusal with or without legal basis?

SUGGESTED ANSWER:

DSC’s refusal is without legal basis. The term imposition includes the entry into the country of any
article from a foreign country. The fact that imported goods are to be re-exported does not mean that the
customs duties may not be imposed, although, in certain cases and subject to limitations prescribed by the
Tariff and Customs Code a drawback may be available to the taxpayer so as to be able to obtain in the
manufacture of products for export within three (3) years after the importation.

2) On what is the dutiable value of any imported article based?

SUGGESTED ANSWER:
 The dutiable value of imported articles is the home consumption cost value i.e., the cost of fair
market value or price of the imported articles in wholesale quantities in the principal market of the
exporting country or country of origin, including expenses collected from importation such as insurance
freight, packaging, loading and unloading charges but excluding internal excise taxes. In case such value is
unascertainable, the Commissioner may also determine the home comsumption value from any reliable
and available data (Sec. 201, TCC, as amended: Commissioner vs. Court of Tax Appeals, G.R No. 72069, 21
May 1988).