Constitutional Limitations of Taxation

Bagatsing vs Ramirez:

Revised Charter of the City of Manila and the Local Tax Code

Facts: Federation of Manila Market Vendors, Inc. filed before the CFI of Manila, presided over by
respondent Judge, for the declaration of nullity of Ordinance No. 7522 for the reason that

(a) the publication requirement under the Revised Charter of the City of Manila has not been complied
with;

After due hearing on the merits, respondent Judge rendered its decision, declaring the nullity of
Ordinance on the primary ground of noncompliance with the requirement of publication under the
Revised City Charter.

Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a post-publication
is required by the Local Tax Code; and (b) private respondent failed to exhaust all administrative
remedies before instituting an action in court

review on certiorari.

while the Revised Charter of the City of Manila requires publication before the enactment of the
ordinance and after the approval thereof in two daily newspapers of general circulation in the city, the
Local Tax Code only prescribes for publication after the approval of “ordinances levying or imposing
taxes, fees or other charges” either in a newspaper or publication widely circulated within the
jurisdiction of the local government or by posting the ordinance in the local legislative hall or premises
and in two other conspicuous places within the territorial jurisdiction of the local government.
Petitioners’ compliance with the Local Tax Code rather than with the Revised Charter of the City
spawned this litigation.

ISSUE: Does the delegation of the collection of taxes to a private entity invalidates a tax ordinance and defeats
its public purpose?

HELD:

The fact that one is special and the other general creates a presumption that the special is to be
considered as remaining an exception to the general, one as a general law of the land, the other as the
law of a particular case. However, the rule readily yields to a situation where the special statute refers to
a subject in general, which the general statute treats in particular. That exactly is the circumstance
obtaining in the case at bar. Section 17 of the Revised Charter of the City of Manila speaks of
“ordinance” in general, i.e., irrespective of the nature and scope thereof, whereas, Section 43 of the
Local Tax Code relates to “ordinances levying or imposing taxes, fees or other charges” in particular. In
regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is doubtless
dominant, but, that dominant force loses its continuity when it approaches the realm of “ordinances
levying or imposing taxes, fees or other charges” in particular. There, the Local Tax Code controls. Here
as always, a general provision must give way to a particular provision. Special provision governs. This is
especially true where the law containing the particular provision was enacted later than the one
containing the general provision. The City Charter of Manila was promulgated on June 18, 1949 as
against the Local Tax Code which was decreed on June 1, 1973.

there is no rule which prohibits the repeal even by implication of a special or specific act by a general or
broad one. A charter provision may be impliedly modified or superseded by a later statute, and where a
statute is controlling, it must be read into the charter notwithstanding any particular charter provision.
A subsequent general law similarly applicable to all cities prevails over any conflicting charter provision,
for the reason that a charter must not be inconsistent with the general laws and public policy of the
State.

Exhaustion of administrative remedies before resort to judicial bodies is not an absolute rule. It admits
of exceptions. Where the question litigated upon is purely a legal one, the rule does not apply. The
principle may also be disregarded when it does not provide a plain, speedy and adequate remedy. It
may and should be relaxed when its application may cause great and irreparable damage.

Raising of revenues is the principal object of taxation. An ordinance which imposes rentals, permit fees,
tolls and other fees is a tax ordinance

An ordinance of the City of Manila which regulates the operation of public markets and prescribes fees
for the rentals of stalls thereon does not violate Presidential Decree No, 7 which regulates the collection
of fees and charges on livestock and animal products. he function of the Market Committee created
under the City Charter of Manila is purely recommendatory and its nonparticipation in the enactment of
a tax ordinance prescribing fees for operation of market stalls does not vitiate the said ordinance

The entrusting of the collection of market stall fees to a private firm does not destroy the public purpose
of a tax ordinance. Private respondent bewails that the market stall fees imposed in the disputed
ordinance are diverted to the exclusive private use of the Asiatic Integrated Corporation since the
collection of said fees had been let by the City of Manila to the said corporation in a “Management and
Operating Contract.” The assumption is of course saddled on erroneous premise. The fees collected, do
not go direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the
corporation but for the purpose of raising revenues for the city. That is the object it serves. The
entrusting of the collection of the fees does not destroy the public purpose of the ordinance. x x x The
people may be taxed for a public purpose, although it be under the direction of an individual or private
corporation.
ABAKADA vs Ermita: delegation of powers

FACTS:

the President signed into law Republic Act 9337 or the VAT Reform Act. Before the law took effect on
July 1, 2005, the Court issued a TRO enjoining government from implementing the law in response to a
slew of petitions for certiorari and prohibition questioning the constitutionality of the new law.

The challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6: “That the
President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to 12%, after any of the following conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%);

or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1½%)”

Petitioners allege that the grant of stand-by authority to the President to increase the VAT rate is an
abdication by Congress of its exclusive power to tax because such delegation is not covered by Section
28 (2), Article VI Consti. They argue that VAT is a tax levied on the sale or exchange of goods and
services which can’t be included within the purview of tariffs under the exemption delegation since this
refers to customs duties, tolls or tribute payable upon merchandise to the government and usually
imposed on imported/exported goods. They also said that the President has powers to cause, influence
or create the conditions provided by law to bring about the conditions precedent. Moreover, they allege
that no guiding standards are made by law as to how the Secretary of Finance will make the
recommendation.

Issue: Whether or not the RA 9337's stand-by authority to the Executive to increase the VAT rate,
especially on account of the recommendatory power granted to the Secretary of Finance, constitutes
undue delegation of legislative power? NO

Held: The powers which Congress is prohibited from delegating are those which are strictly, or
inherently and exclusively, legislative. Purely legislative power which can never be delegated is the
authority to make a complete law- complete as to the time when it shall take effect and as to whom it
shall be applicable, and to determine the expediency of its enactment. It is the nature of the power and
not the liability of its use or the manner of its exercisewhich determines the validity of its delegation.

The exceptions are:

(a) delegation of tariff powers to President under Constitution

(b) delegation of emergency powers to President under Constitution

(c) delegation to the people at large

(d) delegation to local governments

(e) delegation to administrative bodies

For the delegation to be valid, it must be complete and it must fix a standard. A sufficient standard is
one which defines legislative policy, marks its limits, maps out its boundaries and specifies the public
agency to apply it.

In this case, it is not a delegation of legislative power BUT a delegation of ascertainment of facts upon
which enforcement and administration of the increased rate under the law is contingent. The legislature
has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or
condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside
of the control of the executive. No discretion would be exercised by the President. Highlighting the
absence of discretion is the fact that the word SHALL is used in the common proviso. The use of the
word SHALL connotes a mandatory order. Its use in astatute denotes an imperative obligation and is
inconsistent with the idea of discretion.

Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence
of any of the conditions specified by Congress. This is a duty, which cannot be evaded bythe President. It
is a clear directive to impose the 12% VAT rate when the specified conditions are present.

Congress just granted the Secretary of Finance the authority to ascertain the existence of a fact---
whether by December 31, 2005, the VAT collection as a percentage of GDP of the previous year exceeds
2 4/5 % or the national government deficit as a percentage of GDP of the previous year exceeds one and
1½%. If either of these two instances has occurred, the Secretary of Finance, by legislative mandate,
must submit such information to the President.

In making his recommendation to the President on the existence of either of the two conditions, the
Secretary of Finance is not acting as the alter ego of the President or even her subordinate. He is acting
as the agent of the legislative department, to determine and declare the event upon which its expressed
will is to take effect. The Secretary of Finance becomes the means or tool by which legislative policy is
determined and implemented, considering that he possesses all the facilities to gather data and
information and has a much broader perspective to properly evaluate them. His function is to gather
and collate statistical data and other pertinent information and verify if any of the two conditions laid
out by Congress is present.

Congress does not abdicate its functions or unduly delegate power when it describes what job must be
done, who must do it, and what is the scope of his authority; in our complex economy that is frequently
the only way in which the legislative process can go forward.

There is no undue delegation of legislative power but only of the discretion as to the execution of a law.
This is constitutionally permissible. Congress did not delegate the power to tax but the mere
implementation of the law.
Eastern theatrical vs Alfonso:

Theatre tix

Facts
 The Municipal Board of the City of Manila enacted Ordinance No. 2958 which imposes a fee on
the price of every admission ticket sold by theaters and other similar amusement
establishments. The fees imposed are graduated according to the price of the ticket sold.
 Twelve corporations (Petitioners) engaged in the motion picture business instituted a complaint
in the CFI to impugn the validity of the ordinance.
 CFI upheld the validity of the ordinance and held that:
o Under Sec 2444(m) of the Revised Administrative Code (RAC), the City of Manila had the
power to enact the ordinance.
o Sec 2444(m) of the RAC was not repealed by the NIRC nor the power granted by it
withdrawn.
o Ordinance did not violate the principle of equality and uniformity of taxation.

Issues and Arguments:

1. WON ordinance was enacted beyond the charter powers of the City of Manila?
 Petitioners: Sec 2444(m) of the Revised Administrative Code, which grants to the City
the power to regulate theaters, confers only the power to tax on business but not on
amusement.
2. WON Sec 2444(m) of the RAC has been impliedly repealed by the NIRC?
 Petitioners: Since the NIRC was passed later the RAC and since both taxing powers cover
the same field of legislation, Sec 2444(m) of the RAC must have been repealed by the
NIRC and consequently, the power to regulate theaters granted to the City was
withdrawn.
3. WON the ordinance violates the principle of equality and uniformity of taxation enjoined by
the Constitution?
 Petitioners: Ordinance does not tax other kinds of amusements (e.g. race tracks,
cockpits, cabarets, concert halls)

Held and Ratio:

1. NO. The tax imposed by Sec 2444(m) cannot be defined as and be restricted to tax on business.
The fact that said section includes theaters and similar amusement establishments shows that
the power to tax amusement is expressly included within the power granted by Sec 2444(m).
2. NO. Both provisions of law may stand together and enforced at the same time.
3. NO. Equality and uniformity of taxation means that all taxable articles or kinds of property of
the same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation. Petitioners cannot point out
what places of amusement do not constitute a class by themselves and which can be confused
with those not included in the ordinance.
British American Tobacco vs Camacho: Classification if rational in character is allowable. The taxing
power has the authority to make reasonable and natural classifications for purposes of taxation.

Facts:

 R.A. 8240 was passed recodifying the NIRC where Sec 142 was renumbered Sec 145.

 British American Tobacco assailed the validity of Sec. 145 of the NIRC (amended by RA 8240), arguing
that the said provisions are violative of the equal protection and uniformity clause of the Constitution.

 Section 145 provides for a four-tier tax rate based on net retail price per pack of cigarettes: (1) low-
priced, (2) medium-priced, (3) high-priced, and (4) premiumpriced.

 Section 145 further provides that NEW BRANDS (registered after January 1, 1997) of cigarettes shall be
taxed at their current retail price. If the current net retail price has not been established, the suggested
net retail price shall be used to determine the specific tax classification.

 On the other hand, old or existing brands (registered before January 1, 1997) shall be taxed at their net
retail price as of October 1, 1996. o Net retail price = price @ which cigarettes are sold on retail in 20
supermarkets in MM o Suggested net retail price = net retail price @ which brands of cigarettes are
intended by the manufacturer to be sold

 To implement RA 8240, BIR issued a Revenue Regulation (RR No. 1-97) classifying existing brands of
cigarettes as those existing or active (old) brands prior to January 1, 1997, while new brands of
cigarettes are those registered after January 1, 1997. Another Revenue Regulation was issued amending
the first (RR No. 9-2003) by providing BIR with the power to periodically review every two years / earlier
the current net retail price of new brands to ESTABLISH / UPDATE their tax classification.

 In June 2001, British American Tobacco introduced the Lucky Strike Filter, Lucky Strike Lights and Lucky
Strike Menthol Lights. Lucky Strike was taxed based on its suggested gross retail price from the time of
its introduction in the market in 2001 until the BIR market survey in 2003. The brands were sold at
P22.54, P22.61 and P21.23 so the applicable tax rate is P13.44 per pack. BAT now argues that the
"classification freeze provision" violates the equal protection and uniformity of taxation clauses because
the Lucky Strike brands are taxed based on their 1996 net retail prices while new brands are taxed based
on their present day net retail prices. Thus, Lucky Strike suffers from higher taxes while its competitors
pay a lower amount.

 BAT further argued that the tobacco excise law was discriminatory because under it, brands that
entered the market after 1996 were imposed taxes based on their current retail prices while older
brands paid taxes based on their 1996 retail prices. Meanwhile, Philip Morris, Fortune Tobacco, Mighty
Corp. and JT International (respodnents-in-intervention) claim that no inequality exists between
cigarettes and that nullification of said annex would bring about tremendous loss.

Issue
 I: 1. W/n Sec. 145 of the NIRC violates EPC and uniformity of taxation clauses. NIRC is constitutional

 W/N the Revenue Regulations are invalid in so far as they empower BIR to reclassify and update the
classification of new brands every two years or earlier . NIRC is constitutional but the RRs are invalid for
granting the BIR the power to reclassify and update the classification

 R: Sec 145. The classification freeze provision does not violate the equal protection and uniformity of
taxation. It meets the standards for valid classification:

rests on a substantial distinction,

is germane to the purpose of the law,

applies to present and future conditions and

applies equally to all those belonging to the same class.

 (NOTE: The second condition, however, was not fully satisfied as it failed to promote fair competition
among the players in the industry. However, this does not make the assailed law unconstitutional)

 The classification freeze provision was done in good faith and is germane to the purpose of the law. It
was inserted for reasons of practicality and expediency.

 Since a new brand was not yet in existence at the time of the passage of RA 8240, then Congress
needed a uniform mechanism to fix the tax bracket of a new brand. The current net retail price, similar
to what was used to classify the brands as of October 1, 1996, was thus the logical and practical choice.

 With the amendments introduced by RA 9334, the freezing of the tax classifications now expressly
applies not just to old brands (cigarettes which are taxed on the basis of average net retail price as of
October 1, 1996) but to newer brands introduced after the effectivity of RA 8240 on January 1, 1997 and
any new brand that will be introduced in the future.

 Thus, the classification freeze provision could hardly be considered biased towared older brands over
newer brands.

 Congress was even willing to delegate the power to periodically adjust the excise tax rate and tax
brackets as well as to periodically resurvey and reclassify the cigarette brands based on the increase in
the consumer price index to the DOF and the BIR.

 Thus, the provision was the result of Congress’s earnest efforts to improve the efficiency and
effectivity of the tax administration over sin products while trying to balance the same with other State
interests.

 On Uniformity: Uniformity of taxation requires that all subjects or objects of taxation, similarly
situated, are to be treated alike both in privileges and liabilities. In the instant case, there is no question
that the CFP meets the geographical uniformity requirement because the assailed law applies to ALL
CIGARETTE BRANDS n the Philippines.

 On Inequitablity and Regressivity: BAT claims that the use of different tax bases for old brands as
against new brands is discriminatory / inequitable, and that the CFP is regressive in character. This
cannot be sustained because the CFP meets the requirements of the EPC.

 On regressivity -- the excise tax imposed on cigarettes is an indirect tax, and thus, regressive in
character. HOWEVER, this does not mean that the law may be declared unconstitutional because the
Constitution does not prohibit the imposition of indirect taxes but merely provides that Congress shall
EVOLVE progressive system of taxation.

 The BIR RR is invalid because the NIRC does NOT authorize the BIR to update the tax classification of
new brands every 2 years or earlier.

 The power to reclassify cigarette brands remains in Congress.

 Allowing the periodic reclassification of brands might tempt cigarette manufacturers to manipulate
their brands' price levels or bribe the tax implementers to allow their brands to be classified as a lower
tax bracket.