TAXATION CASE DIGESTS
Based on the 2016 Course Outline of Atty.Donalvo
I. FUNDAMENTALS OF TAXATION
b. Nature and Characteristics
i. Inherent
Pepsi vs. Municipality of Tanauan
(By: Alona Suzell B. Ruyeras)
FACTS:
On February 14, 1963, Pepsi-Cola Bottling
Company of the Philippines, Inc., commenced a complaint for
the court to declare Section 2 of Republic Act No. 2264,
otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as
well as to declare Ordinances Nos. 23 and 27, series of 1962,
of the municipality of Tanauan, Leyte, null and void.
Municipal Ordinance No. 23, of Tanauan, Leyte,
which was approved on September 25, 1962, levies and
collects "from soft drinks producers and manufacturers a tax
of one-sixteenth (1/16) of a centavo for every bottle of soft
drink corked."
On the other hand, Municipal Ordinance No. 27,
which was approved on October 28, 1962, levies and collects
"on soft drinks produced or manufactured within the
territorial jurisdiction of this municipality a tax of ONE
CENTAVO (P0.01) on each gallon of volume capacity."
The tax imposed in both Ordinances Nos. 23 and
27 is denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance
of Leyte upheld the constitutionality of Section 2, Republic
Act No. 2264 declaring Ordinance Nos. 23 and 27 legal and
constitutional.
Hence, this petition.
ISSUE:
Is Section 2, Republic Act No. 2264 an undue
delegation of power, confiscatory and oppressive?
RULING: NO
The power of taxation is an essential and
inherent attribute of sovereignty, belonging as a matter of
right to every independent government, without being
expressly conferred by the people. It is a power that is purely
legislative and which the central legislative body cannot
delegate either to the executive or judicial department of the
government without infringing upon the theory of separation
of powers. The exception, however, lies in the case of
municipal corporations, to which, said theory does not apply.
Legislative powers may be delegated to local governments in
respect of matters of local concern. This is sanctioned by
immemorial practice. By necessary implication, the
legislative power to create political corporations for purposes
of local self-government carries with it the power to confer on
such local governmental agencies the power to tax.
Under the New Constitution, local governments
are granted the autonomous authority to create their own
sources of revenue and to levy taxes. Section 5, Article XI
provides: "Each local government unit shall have the power to
create its sources of revenue and to levy taxes, subject to such
limitations as may be provided by law."
The plenary nature of the taxing power thus
delegated would not suffice to invalidate the said law as
confiscatory and oppressive. When it is said that the taxing
power may be delegated to municipalities and the like, it is
meant that there may be delegated such measure of power to
impose and collect taxes as the legislature may deem
expedient. Thus, municipalities may be permitted to tax
subjects, which for reasons of public policy the State has not
deemed wise to tax for more general purposes.
Tio vs. Videogram
(By: Emmy Buniel)
FACTS:
In 1985, Presidential Dedree No. 1987 entitled “An Act
Creating the Videogram Regulatory Board” was enacted
which gave broad powers to the VRB to regulate and
supervise the videogram industry. The said law sought to
minimize the economic effects of piracy. There was a need to
regulate the sale of videograms as it has adverse effects to the
movie industry. The proliferation of videograms has
significantly lessened the revenue being acquired from the
movie industry, and that such loss may be recovered if
videograms are to be taxed. Section 10 of the PD imposes a
30% tax on the gross receipts payable to the LGUs.
In 1986, Valentin Tio assailed the said PD as he averred that
it is unconstitutional on the ground that the thirty percent
(30%) tax imposed is harsh and oppressive, confiscatory, and
in restraint of trade.
ISSUE:
WON the said 30% tax is oppressive
RULING: NO.
The power to impose taxes is one so unlimited in force and so
searching in extent, that the courts scarcely venture to declare
that it is subject to any restrictions whatever, except such as
rest in the discretion of the authority which exercises it. In
imposing a tax, the legislature acts upon its constituents. This
is, in general, a sufficient security against erroneous and
oppressive taxation.
The levy of the 30% tax is for a public purpose. It was
imposed primarily to answer the need for regulating the video
industry, particularly because of the rampant film piracy, the
flagrant violation of intellectual property rights, and the
proliferation of pornographic video tapes. And while it was
also an objective of the DECREE to protect the movie
industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the
motive which impelled the legislature to impose the tax was
to favor one industry over another.
It is inherent in the power to tax that a state be free to select
the subjects of taxation, and it has been repeatedly held that
“inequities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional
limitation”. Taxation has been made the implement of the
state’s police power.
At bottom, the rate of tax is a matter better addressed to the
taxing legislature.
Philippine Health Care vs CIR
(By: Kim Calatrava)
FACTS:
Philippine Health Care is a domestic corporation
whose primary purpose is "[t]o establish, maintain, conduct
and operate a prepaid group practice health care delivery
system or a health maintenance organization to take care of
the sick and disabled persons enrolled in the health care plan
and to provide for the administrative, legal, and financial
responsibilities of the organization." Individuals enrolled in
its health care programs pay an annual membership fee and
are entitled to various preventive, diagnostic and curative
medical services provided by its duly licensed physicians,
specialists and other professional technical staff participating
in the group practice health delivery system at a hospital or
clinic owned, operated or accredited by it.
On January 27, 2000, CIR sent Philippine Health
Care a formal demand corresponding assessment notices
demanding the payment of deficiency taxes amounting to
P225 Million. The deficiency [documentary stamp tax (DST)]
assessment was imposed on petitioner’s health care agreement
with the members of its health care program pursuant to
Section 185 of the 1997 Tax Code.
The CTA rendered a decision cancelling the DST
assessment against Philippine Health Care. The CA however,
ordered that Philippine Health Care pay the deficiency DST.
Philippine Health Care claims that the assessed
DST which amounts to P376 Million is way beyond its net
worth of P259 Million. They claim that such assessment is
highly oppressive.
ISSUE:
W/N the said assessed DST against Philippine Health Care is
oppressive.
RULING: YES
As a general rule, the power to tax is an incident
of sovereignty and is unlimited in its range, acknowledging in
its very nature no limits, so that security against its abuse is to
be found only in the responsibility of the legislature which
imposes the tax on the constituency who is to pay it. So potent
indeed is the power that it was once opined that "the power to
tax involves the power to destroy."
Petitioner claims that the assessed DST to date
which amounts to P376 million is way beyond its net worth of
P259 million. Respondent never disputed these assertions.
Given the realities on the ground, imposing the DST on
petitioner would be highly oppressive. It is not the
purpose of the government to throttle private business. On
the contrary, the government ought to encourage private
enterprise. Petitioner, just like any concern organized for a
lawful economic activity, has a right to maintain a legitimate
business. As aptly held in Roxas, et al. v. CTA, et al.:
The power of taxation is sometimes called also
the power to destroy. Therefore it should be
exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the
tax collector kill the "hen that lays the golden
egg."
Legitimate enterprises enjoy the constitutional
protection not to be taxed out of existence. Incurring losses
because of a tax imposition may be an acceptable
consequence but killing the business of an entity is another
matter and should not be allowed. It is counter-productive and
ultimately subversive of the nation’s thrust towards a better
economy which will ultimately benefit the majority of our
people.
CIR vs SM Prime Holdings
(By: Peter Vega)
FACTS:
Respondents SM Prime Holdings, Inc. (SM
Prime) and First Asia Realty Development Corporation (First
Asia) are domestic corporations duly organized and existing
under the laws of the Republic of the Philippines. Both are
engaged in the business of operating cinema houses, among
others.
1|Pa g e

The Bureau of Internal Revenue (BIR) sent SM
Prime a Preliminary Assessment Notice (PAN) for value
added tax (VAT) deficiency on cinema ticket sales in the
amount of P119,276,047.40 for taxable year 2000. In
response, SM Prime filed a letter-protest dated December 15,
2003.
CIR argues that the enumeration of services
subject to VAT in Section 108 of the NIRC is not exhaustive
because it covers all sales of services unless exempted by law.
He claims that the CTA erred in applying the rules on
statutory construction and in using extrinsic aids in
interpreting Section 108 because the provision is clear and
unambiguous. Thus, he maintains that the exhibition of
movies by cinema operators or proprietors to the paying
public, being a sale of service, is subject to VAT.
SM, on the other hand, argue that a plain reading
of Section 108 of the NIRC of 1997 shows that the gross
receipts of proprietors or operators of cinemas/theaters
derived from public admission are not among the services
subject to VAT. Respondents insist that gross receipts from
cinema/theater admission tickets were never intended to be
subject to any tax imposed by the national government.
According to them, the absence of gross receipts from
cinema/theater admission tickets from the list of services
which are subject to the national amusement tax under
Section 125 of the NIRC of 1997 reinforces this legislative
intent. Respondents also highlight the fact that RMC No. 28-
2001 on which the deficiency assessments were based is an
unpublished administrative ruling.
ISSUE:
Whether the gross receipts derived by operators or proprietors
of cinema/theater houses from admission tickets are subject to
VAT
RULING: NO.
(Not Related to discussion but this is the main issue)
A cursory reading of section 108 of the National
Internal Revenue Code of 1997 clearly shows that the
enumeration of the “sale or exchange of services” subject to
VAT is not exhaustive. The words “including”, “similar
services” and “shall likewise include”, indicate that the
enumeration is by way of example only. Among those
included in the enumeration is the “lease of motion picture
films, films, tapes and discs.” This, however, is not the same
as the showing or exhibition of motion pictures or films.
(Related to discussion)
The power of taxation is sometimes called also
the power to destroy, therefore, it should be exercised with
caution to minimize injury to the propriety rights of a
taxpayer – it must be exercised fairly, equally and
uniformly, lest the tax collector kill the “Hen that lays the
golden egg.” To hold otherwise would impose an
unreasonable burden on cinema/theater houses operators or
proprietors, who would be paying an additional 10% VAT on
top of the 30% amusement tax imposed by section 140 of the
LGC of 1991, or a total of 40% tax. Such imposition would
result in injustice, as persons taxed under the NIRC of 1997
would be in a better position than those taxed under the LGC
of 1991. We need not belabor that a literal application of a
law must be rejected if it will operate unjustly or lead to
absurd results. Thus we are convinced that the legislature
never intended to include cinema/theater operators in the
coverage of VAT.
Republic vs. Caguioa
(By: Kelvin John Du)
FACTS:
Congress enacted RA 7227 or the Bases
Conversion and Development Act of 1992 which created the
Subic Special Economic and Freeport Zone (SBF) and the
Subic Bay Metropolitan Authority (SBMA).Section 12 of the
law provided:
XXX (b) The Subic Special Economic Zone
shall be operated and managed as a separate
customs territory ensuring free flow or
movement of goods and capital within, into and
exported out of the Subic Special Economic
Zone, as well as provide incentives such as tax
and duty-free importations of raw materials,
capital and equipment. However, exportation or
removal of goods from the territory of the Subic
Special Economic Zone to the other parts of the
Philippine territory shall be subject to customs
duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the
Philippines;
(c) The provisions of existing laws, rules and
regulations to the contrary notwithstanding, no
taxes, local and national, shall be imposed
within the Subic Special Economic Zone. XXX
Pursuant to the law, private respondents Indigo
Distribution Corporation and 13 other domestic corporations
doing business at the SBF, applied for and were granted
Certificates of Registration and Tax Exemption by the
SBMA, entitling them to engage in the business either of
trading, retailing or wholesaling, import and export,
warehousing, distribution and/or transshipment of general
merchandise, including alcohol and tobacco products, and
uniformly granted them tax exemptions.
Based on the 2016 Course Outline of Atty.Donalvo
Congress subsequently passed RA 9334, effective on January
1, 2005, Section 6 of which provides:
Sec. 6. Section 131 of the National Internal
Revenue Code of 1977, as amended, is hereby
amended to read as follows:
Sec. 131. Payment of Excise Taxes on Imported
Articles. –
(A) XXX The provision of any special or general
law to the contrary notwithstanding, the
importation of cigars and cigarettes, distilled
spirits, fermented liquors and wines into the
Philippines, even if destined for tax and duty free
shops, shall be subject to all applicable taxes,
duties, charges, including excise taxes due
thereon. This shall apply to cigars and cigarettes,
distilled spirits, fermented liquors and wines
brought directly into the duly chartered or
legislated freeports of the Subic Economic
Freeport Zone, created under Republic Act No.
7227; XXX
SBMA issued a Memorandum declaring that all
importations of cigars, cigarettes, distilled spirits, fermented
liquors and wines into the SBF shall be treated as ordinary
importations subject to all applicable taxes, duties and
charges, including excise taxes.BIR requested the Customs
Commissioner to collect the excise tax due on imported
alcohol and tobacco products brought to the Duty Free
Philippines (DFP) and Freeport zones.Accordingly, the
Collector of Customs of the port of Subic directed the SBMA
Administrator to require payment of all appropriate duties and
taxes on all importations of cigars and cigarettes, distilled
spirits, fermented liquors and wines.
Thus, private respondent enterprises, brought
before the RTC of Olongapo City a special civil action for
declaratory relief to have certain provisions of R.A. No. 9334
declared as unconstitutional. Alleging that great and
irreparable loss and injury would befall them as a
consequence of the imposition of taxes on alcohol and
tobacco products brought into the SBF, they prayed for the
issuance of a writ of preliminary injunction and/or TRO and
preliminary mandatory injunction to enjoin the directives of
petitioners.
Petitioners argued that (1) tax exemptions are not
presumed and even when granted, are strictly construed
against the grantee; (2) an increase in business expense is not
the injury contemplated by law, it being a case of damnum
absque injuria. Taxes, they stressed, are the lifeblood of the
government and their prompt and certain availability is an
imperious need. They maintained that greater injury would be
inflicted on the public should the writ be granted.
RTC Jude Caguioa granted the application for
the issuance of a writ of preliminary injunction. He declared
TAXATION CASE DIGESTS
that private respondents were entitled to enjoy the benefits of
tax incentives under R.A. No. 7227, particularly the
exemption from local and national taxes under Section 12(c)
of R.A. No. 7227, coupled with the Certificates of
Registration and Tax Exemption from the SBMA, vested in
them a clear and unmistakable right or right in esse that would
be violated should R.A. No. 9334 be implemented.Since R.A.
No. 9334 imposes new tax burdens, whatever doubts arising
therefrom should be resolved against the taxing authority and
in favor of the taxpayer.R.A. No. 9334 violates the terms and
conditions of private respondents’ subsisting contracts with
SBMA, which are embodied in their Certificates of
Registration and Exemptions in contravention of the
constitutional guarantee against the impairment of contractual
obligations.
Petitioners contend that public respondent
peremptorily and unjustly issued the injunctive writ. They
emphatically argue that since the tax exemption previously
enjoyed by private respondents has clearly been withdrawn by
R.A. No. 9334, private respondents do not have any right in
esse nor can they invoke legal injury to stymie the
enforcement of R.A. No. 9334.
ISSUE:
WON respondent enterprises should remain
exempted from tax for the importation of liquor and cigarettes
RULING:
It is beyond cavil that RA 7227 granted private
respondents exemption from local and national taxes,
including excise taxes, on their importations of general
merchandise, for which reason they enjoyed tax-exempt status
until the effectivity of RA 9334.
By subsequently enacting R.A. No. 9334,
however, Congress expressed its intention to withdraw private
respondents’ tax exemption privilege on their importations of
cigars, cigarettes, distilled spirits, fermented liquors and
wines. The old Section 131 of the NIRC expressly provided
that all taxes, duties, charges, including excise taxes shall not
apply to importations of cigars, cigarettes, fermented spirits
and wines brought directly into the duly chartered or
legislated freeports of the SBF.On the other hand, Section
131, as amended by R.A. No. 9334, now provides that such
taxes, duties and charges, including excise taxes,
shall apply to importation of cigars and cigarettes, distilled
spirits, fermented liquors and wines into the SBF.
Without necessarily passing upon the validity of
the withdrawal of the tax exemption privileges of private
respondents, it behooves this Court to state certain basic
principles and observations that should throw light on the
2|Pa g e

propriety of the issuance of the writ of preliminary injunction
in this case:
XXXSecond. There is no vested right in a tax
exemption, more so when the latest expression of legislative
intent renders its continuance doubtful. Being a mere
statutory privilege, a tax exemption may be modified or
withdrawn at will by the granting authority.
To state otherwise is to limit the taxing power of
the State, which is unlimited, plenary, comprehensive and
supreme. The power to impose taxes is one so unlimited in
force and so searching in extent, it is subject only to
restrictions which rest on the discretion of the authority
exercising it.
Third. As a general rule, tax exemptions are
construed strictissimi juris against the taxpayer and
liberally in favor of the taxing authority. The burden of proof
rests upon the party claiming exemption to prove that it is in
fact covered by the exemption so claimed. In case of doubt,
non-exemption is favored.
Fourth. A tax exemption cannot be grounded
upon the continued existence of a statute which precludes its
change or repeal. Flowing from the basic precept of
constitutional law that no law is irrepealable, Congress, in the
legitimate exercise of its lawmaking powers, can enact a law
withdrawing a tax exemption just as efficaciously as it may
grant the same under Section 28(4) of Article VI of the
Constitution. There is no gainsaying therefore that Congress
can amend Section 131 of the NIRC in a manner it sees fit, as
it did when it passed R.A. No. 9334.
Fifth. The rights granted under the Certificates
of Registration and Tax Exemption of private respondents are
not absolute and unconditional as to constitute rights in esse
– those clearly founded on or granted by law or is enforceable
as a matter of law.
These certificates granting private respondents a
"permit to operate" their respective businesses are in the
nature of licenses, which the bulk of jurisprudence considers
as neither a property nor a property right. The licensee takes
his license subject to such conditions as the grantor sees fit to
impose, including its revocation at pleasure. A license can
thus be revoked at any time since it does not confer an
absolute right.
While the tax exemption contained in the
Certificates of Registration of private respondents may have
been part of the inducement for carrying on their businesses
in the SBF, this exemption, nevertheless, is far from being
contractual in nature in the sense that the non-impairment
clause of the Constitution can rightly be invoked.
Sixth. Whatever right may have been acquired on
the basis of the Certificates of Registration and Tax
Exemption must yield to the State’s valid exercise of police
power. It is well to remember that taxes may be made the
implement of the police power.
It is not difficult to recognize that public welfare
and necessity underlie the enactment of R.A. No. 9334. As
petitioners point out, the now assailed provision was passed
to curb the pernicious practice of some unscrupulous business
enterprises inside the SBF of using their tax exemption
privileges for smuggling purposes. Smuggling in whatever
form is bad enough; it is worse when the same is allegedly
perpetrated, condoned or facilitated by enterprises hiding
behind the cloak of their tax exemption privileges.
XXXNinth. The feared injurious effects of the
imposition of duties, charges and taxes on imported cigars,
cigarettes, distilled spirits, fermented liquors and wines on
private respondents’ businesses cannot possibly outweigh the
dire consequences that the non-collection of taxes, not to
mention the unabated smuggling inside the SBF, would wreak
on the government. Whatever damage would befall private
respondents must perforce take a back seat to the pressing
need to curb smuggling and raise revenues for governmental
functions.
It may not be amiss to add that private
respondents can also opt not to import, or to import less of,
those items which no longer enjoy tax exemption under R.A.
No. 9334 to avoid the payment of taxes thereon.
The power to tax emanates from necessity;
without taxes, government cannot fulfill its mandate of
promoting the general welfare and well-being of the
people. That the enforcement of tax laws and the collection of
taxes are of paramount importance for the sustenance of
government has been repeatedly observed. Taxes being the
lifeblood of the government that should be collected
without unnecessary hindrance,every precaution must be
taken not to unduly suppress it.
CIR v. Hon. Santos
(By: Earvin Alparaque)
FACTS:
Respondents Antonio Marco, Jewelry by Marco
& Co., Inc and Guild of Philippine Jewelers Inc., an
association of Filipino jewelers engaged in the manufacture of
jewelries and allied undertakings, filed with the RTC of Pasig
City a petition for declaratory relief with writ of preliminary
Based on the 2016 Course Outline of Atty.Donalvo
injuction and/or temporary restraining order against
petitioners Commissioner of Internal Revenue and
Commissioner of Customs praying that Sections 126, 127(a)
and (b) and 150(a) of the National Internal Revenue Code and
section 104 of the Tariff and the Customs Code of the
Philippines, among others, be declared unconstitutional and
void. Judge Santos, the presiding judge of the court a quo,
rendered a decision in favor of respondents and declared
Section 150 par. (a) of the NIRC and section 104 of the Tariff
and Customs Code of the Philippines as inoperative and
without force and effect arguing that such law is confiscatory
and abusive as it imposes a huge tax burden on the businesses
of the respondents as compared to other neighboring countries
(Malaysia, Thailand, Singapore and Hongkong). The
petitioners now assail the decision rendered by Judge Santos
contending that the latter has no authority to pass judgment
upon the taxation policy of the government.
Section 150 (a) of Executive Order No. 273
reads:
Sec. 150. Non-essential goods. — There shall be
levied, assessed and collected a tax equivalent to 20% based
on the wholesale price or the value of importation used by
the Bureau of Customs in determining tariff and customs
duties; net of the excise tax and value-added tax, of the
following goods:
(a) All goods commonly or commercially known as jewelry,
whether real or imitation, pearls, precious and semi-precious
stones and imitations thereof; goods made of, or ornamented,
mounted and fitted with, precious metals or imitations thereof
or ivory (not including surgical and dental instruments, silver-
plated wares, frames or mountings for spectacles or
eyeglasses, and dental gold or gold alloys and other precious
metals used in filling, mounting or fitting of the teeth); opera
glasses and lorgnettes. The term "precious metals" shall
include platinum, gold, silver, and other metals of similar or
greater value. The term "imitations thereof" shall include
platings and alloys of such metals.
Section 104, Hdg. Nos. 17.01, 17.02, 17.03 and
17.04, Chapter 71 of the Tariff and Customs Code, as
amended by Executive Order No. 470, dated July 20, 1991,
imposes import duty on natural or cultured pearls and
precious or semi-precious stones at the rate of 3% to 10%
to be applied in stages from 1991 to 1994 and 30% in
1995. Prior to the issuance of E.O. 470, the rate of import
duty in 1988 was 10% to 50% when the petition was filed
in the court a quo.
ISSUE:
TAXATION CASE DIGESTS
Whether or not the decision rendered by Judge
Santos encroached upon matters falling within the powers of
the legislature
RULING: YES
There is no doubt in the Court's mind, despite
protestations to the contrary, that respondent judge
encroached upon matters properly falling within the province
of legislative functions. In citing as basis for his decision
unproven comparative data pertaining to differences between
tax rates of various Asian countries, and concluding that the
jewelry industry in the Philippines suffers as a result, the
respondent judge took it upon himself to supplant legislative
policy regarding jewelry taxation. In advocating the abolition
of local tax and duty on jewelry simply because other
countries have adopted such policies, the respondent judge
overlooked the fact that such matters are not for him to
decide. There are reasons why jewelry, a non-essential item,
is taxed as it is in this country, and these reasons, deliberated
upon by our legislature, are beyond the reach of judicial
questioning.
The trial court is not the proper forum for the
ventilation of the issues raised by the private respondents. The
arguments they presented focus on the wisdom of the
provisions of law which they seek to nullify. Regional Trial
Courts can only look into the validity of a provision, that is,
whether or not it has been passed according to the procedures
laid down by law, and thus cannot inquire as to the reasons
for its existence. Granting arguendo that the private
respondents may have provided convincing arguments why
the jewelry industry in the Philippines should not be taxed as
it is, it is to the legislature that they must resort to for relief,
since with the legislature primarily lies the discretion to
determine the nature (kind), object (purpose), extent (rate),
coverage (subjects) andsitus (place) of taxation.
It should be pointed out that in imposing the
aforementioned taxes and duties, the State, acting through the
legislative and executive branches, is exercising its sovereign
prerogative. It is inherent in the power to tax that the State be
free to select the subjects of taxation, and it has been
repeatedly held that "inequalities which result from a singling
out or one particular class for taxation, or exemption, infringe
no constitutional limitation."
ii. Legislative
ABAKADA vs. Ermita
3|Pa g e

(By: Ray Gingco)
FACTS:
Abakada, et.al. questions the constitutionality of
Sections 4,5 and 6 of RA 9337. Section 4 imposes a 10%
VAT on sale of goods and properties, Section 5 imposes a
10% VAT on importation of goods, and Section 6 imposes a
10% VAT on sale of services and use or lease of properties.
These questioned provisions contain a uniform proviso
authorizing the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate to 12%, effective
January 1, 2006, after any of the following conditions have
been satisfied, to wit:
. . . That the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006,
raisethe rate of value-added tax to twelve percent (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 (1 ½%).
Petitioners argue that the law is unconstitutional, as it
constitutes abandonment by Congress of its exclusive
authority to fix the rate of taxes under Article VI, Section
28(2) of the 1987 Philippine Constitution (non-delegation
clause)
ISSUE:
Whether or not Sections 4, 5 and 6 of RA 9337
violate the non-delegation principle enshrined under the 1987
Constitution.
RULING: NO
In the present case, the challenged section of
R.A. No. 9337 is the common proviso in Sections 4, 5 and 6
which reads as follows:
That the President, upon the recommendation of
the Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent (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 (1 ½%).
NOT A DELEGATION OF LEGISLATIVE POWER
BUT A DELEGATION ONLY OF THE
ASCERTAINMENT OF FACTS UPON WHICH THE
ENFORCEMENT OF THE LAW SHALL BE BASED
The case before the Court is not a delegation of
legislative power. It is simply a delegation of ascertainment of
facts upon which enforcement and administration of the
increase 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 a statute
denotes an imperative obligation and is inconsistent with the
idea of discretion. Where the law is clear and unambiguous, it
must be taken to mean exactly what it says, and courts have
no choice but to see to it that the mandate is obeyed.
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 by the President. Inasmuch as the law
specifically uses the word shall, the exercise of discretion by
the President does not come into play. It is a clear directive to
impose the 12% VAT rate when the specified conditions are
present. The time of taking into effect of the 12% VAT rate is
based on the happening of a certain specified contingency, or
upon the ascertainment of certain facts or conditions by a
person or body other than the legislature itself.
THE LAW DID NOT NULLIFY THE PRESIDENT’S
POWER OF CONTROL OVER THE SECRETARY OF
DOF
(Please see provision above) “xxx upon the recommendation
of the Sec. of DOF...”
The Court finds no merit to the contention of petitioners
ABAKADA GURO Party List, et al. that the law effectively
nullified the President’s power of control over the Secretary
of Finance by mandating the fixing of the tax rate by the
President upon the recommendation of the Secretary of
FinanceWhen one speaks of the Secretary of Finance as the
alter ego of the President, it simply means that as head of the
Department of Finance he is the assistant and agent of the
Chief Executive. The multifarious executive and
administrative functions of the Chief Executive are performed
by and through the executive departments, and the acts of the
secretaries of such departments, such as the Department of
Finance, performed and promulgated in the regular course of
business, are, unless disapproved or reprobated by the Chief
Executive, presumptively the acts of the Chief Executive. The
Secretary of Finance, as such, occupies a political position
and holds office in an advisory capacity.
In the present case, 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. In such instance, he is not
Based on the 2016 Course Outline of Atty.Donalvo
subject to the power of control and direction of the President.
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.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. His
personality in such instance is in reality but a projection of
that of Congress. Thus, being the agent of Congress and not
of the President, the President cannot alter or modify or
nullify, or set aside the findings of the Secretary of
Finance and to substitute the judgment of the former for
that of the latter.
THERE IS NO UNDUE DELEGATION OF THE
LEGISLATIVE POWER BUT ONLY OF THE
DISCRETION AS TO THE EXECUTION OF THE LAW
Congress simply granted the Secretary of Finance the
authority to ascertain the existence of a fact, namely, whether
by December 31, 2005, the value-added tax collection as a
percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (24/5%) or the
national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1½%). If
either of these two instances has occurred, the Secretary of
Finance, by legislative mandate, must submit such
information to the President. Then the 12% VAT rate must be
imposed by the President effective January 1, 2006.
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.
CIR vs. Fortune Tobacco Corp.
(By: Katherina Gumboc)
FACTS:
Fortune Tobacco Corporation is the
manufacturer/producer of cigarette brands with tax rate
classification based on net retail price. Prior to January 1,
1997, its cigarette brands were subject to ad valorem tax
pursuant to Section 142 of the Tax Code of 1977 However, on
January 1, 1997, RA 8240 took effect whereby a shift from
the ad valorem tax (AVT) system to the specific tax system
was made and subjecting the aforesaid cigarette brands to
specific tax under Section 142 thereof, now renumbered as
Section 145 of the Tax Code of 1997.
To implement the provisions for a twelve percent
(12%) increase of excise tax on, among others, cigars and
cigarettes packed by machines by January 1, 2000, the
Secretary of Finance, upon recommendation of the respondent
Commissioner of Internal Revenue, issued Revenue
Regulations No. 17-99, dated December 16, 1999, which
provides the increase on the applicable tax rates on cigar and
TAXATION CASE DIGESTS
cigarettes and the same was incorporated into the Section 145
of the Tax Code.
Revenue Regulations No. 17-99 likewise
provides in the last paragraph of Section 1 thereof, (t)hat the
new specific tax rate for any existing brand of cigars,
cigarettes packed by machine, distilled spirits, wines and
fermented liquor shall not be lower than the excise tax
that is actually being paid prior to January 1, 2000.
Fortune filed a claim for refund or tax credit of
its purportedly overpaid excise tax for the month of January
2000 in the amount of P35,651,410.00. This was granted by
the Court of Tax Appeals.
ISSUE:
Whether the revenue regulation has exceeded the
allowable limits of legislative delegation.
RULING: YES
The table in the Regulation issued by the
Secretary of Finance reflects Section 145 of the Tax Code
insofar as it mandates a 12% increase effective on 1 January
2000 based on the taxes indicated under paragraph C, sub-
paragraph (1)-(4). However, Revenue Regulation No. 17-99
went further and added that [T]he new specific tax rate for
any existing brand of cigars, cigarettes packed by machine,
distilled spirits, wines and fermented liquor shall not be lower
than the excise tax that is actually being paid prior to January
1, 2000.
Parenthetically, Section 145 states that during the
transition period, i.e., within the next three (3) years from the
effectivity of the Tax Code, the excise tax from any brand of
cigarettes shall not be lower than the tax due from each brand
on 1 October 1996. This qualification, however, is
conspicuously absent as regards the 12% increase which is to
be applied on cigars and cigarettes packed by machine,
among others, effective on 1 January 2000. Clearly and
unmistakably, Section 145 mandates a new rate of excise tax
for cigarettes packed by machine due to the 12% increase
effective on 1 January 2000 without regard to whether the
revenue collection starting from this period may turn out to be
lower than that collected prior to this date.
By adding the qualification that the tax due after
the 12% increase becomes effective shall not be lower than
the tax actually paid prior to 1 January 2000, Revenue
Regulation No. 17-99 effectively imposes a tax which is the
higher amount between the ad valorem tax being paid at the
end of the three (3)-year transition period and the specific tax
under paragraph C, sub-paragraph (1)-(4), as increased by
12%a situation not supported by the plain wording of Section
145 of the Tax Code.
4|Pa g e

Batangas Power vs. Batangas City
(By: Peter Vega)
FACTS:
In the early 1990’s, the country suffered from a
crippling power crisis. The government, through the National
Power Corporation (NPC), sought to attract investors in
power plant operations by providing them with incentives,
one of which was the NPC’s assumption of their tax payments
in the Build Operate and Transfer (BOT) Agreement.
On June 29, 1993, Enron Power Development
Corporation (Enron) and NPC entered into a Fast Track BOT
Project. Enron agreed to supply a power station to NPC &
transfer its plant to the latter after 10 years of operation. The
BOT Agreement provided that NPC shall be responsible for
the payment of all taxes imposed on the power station except
income & permit fees. Subsequently, Enron assigned its
obligation under the BOT Agreement to Batangas Power
Corporation (BPC).
On September 23, 1992, the BOI issued a
certificate of registration to BPC as a pioneer enterprise
entitled to a tax holiday of 6 years. On October 12, 1998,
Batangas City sent a letter to BPC demanding payment of
business taxes & penalties. BPC refused to pay citing its tax
exemption as a pioneer enterprise for 6 years under
Sec.133(g) of the LGC. The city’s tax claim was modified
and it demanded payment of business taxes for the years
1998-1999. BPC still refused to pay the tax, insisting that the
6-year tax holiday commenced from the date of its
commercial operation on July 16, 1993, not from the date of
its BOI registration in September 1992.
BPC still refused to pay the tax. It insisted that
its 6-year tax holiday commenced from the date of its
commercial operation on July 16, 1993, not from the date of
its BOI registration in September 1992.5 It furnished the city
with a BOI letter6 wherein BOI designated July 16, 1993 as
the start of BPC’s income tax holiday as BPC was not able to
immediately operate due to force majeure. BPC claimed that
the local tax holiday is concurrent with the income tax
holiday. In the alternative, BPC asserted that the city should
collect the tax from the NPC as the latter assumed
responsibility for its payment under their BOT Agreement.
ISSUE:
Whether NPC’s tax exemption privileges under
its Charter were withdrawn by Section 193 of the Local
Government Code (LGC).
RULING: YES.
The effect of the LGC on the tax exemption privileges of the
NPC has already been extensively discussed and settled in the
recent case of National Power Corporation v. City of
Cabanatuan.21 In said case, this Court recognized the
removal of the blanket exclusion of government
instrumentalities from local taxation as one of the most
significant provisions of the 1991 LGC.Specifically, we
stressed that Section 193 of the LGC,22 an express and
general repeal of all statutes granting exemptions from local
taxes, withdrew the sweeping tax privileges previously
enjoyed by the NPC under its Charter. We explained the
rationale for this provision, thus:
In recent years, the increasing social challenges
of the times expanded the scope of state activity,
and taxation has become a tool to realize social
justice and the equitable distribution of wealth,
economic progress and the protection of local
industries as well as public welfare and similar
objectives. Taxation assumes even greater
significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no
longer vested exclusively on Congress; local
legislative bodies are now given direct authority
to levy taxes, fees and other charges pursuant to
Article X, section 5 of the 1987 Constitution, viz:
Section 5.- Each Local Government
unit shall have the power to create
its own sources of revenue, to levy
taxes, fees and charges subject to
such guidelines and limitations as
the Congress may provide,
consistent with the basic policy of
local autonomy. Such taxes, fees
and charges shall accrue exclusively
to the Local Governments.
This paradigm shift results from the realization
that genuine development can be achieved only
by strengthening local autonomy and promoting
decentralization of governance. For a long time,
the country’s highly centralized government
structure has bred a culture of dependence
among local government leaders upon the
national leadership. It has also "dampened the
spirit of initiative, innovation and imaginative
resilience in matters of local development on the
part of local government leaders. The only way
to shatter this culture of dependence is to give
the LGUs a wider role in the delivery of basic
services, and confer them sufficient powers to
generate their own sources for the purpose. To
achieve this goal, x xx the 1987 Constitution
mandates Congress to enact a local government
code that will, consistent with the basic policy of
local autonomy, set the guidelines and
limitations to this grant of taxing powers x xx."
Manila Electric vs. Province of Laguna
Based on the 2016 Course Outline of Atty.Donalvo
(By: Marry Suan)
FACTS:
Certain municipalities of the Province of Laguna issued
resolutions through their respective municipal councils
granting franchise in favor of Manila Electric Company for
the supply of electric light, heat and power within their
concerned areas. On 19 January 1983, MERALCO was
likewise granted a franchise by the National Electrification
Administration to operate an electric light and power service
in the Municipality of Calamba, Laguna.
On 12 September 1991, Republic Act No. 7160, otherwise
known as the "Local Government Code of 1991," was enacted
to take effect on 01 January 1992 enjoining local government
units to create their own sources of revenue and to levy taxes,
fees and charges, subject to the limitations expressed therein,
consistent with the basic policy of local autonomy.
Pursuant to the provisions of the Code, Province of
Laguna enacted Laguna Provincial Ordinance No. 01-92,
which states: “Sec. 2.09. Franchise Tax. — There is hereby
imposed a tax on businesses enjoying a franchise, at a rate of
fifty percent (50%) of one percent (1%) of the gross annual
receipts, which shall include both cash sales and sales on
account realized during the preceding calendar year within
this province, including the territorial limits on any city
located in the province.”
On the basis of the above ordinance, Provincial Treasurer
sent a demand letter to MERALCO for the corresponding tax
payment. MERALCO paid the tax, which then amounted to
P19,520.628.42, under protest. MERALCO then filed a
formal claim for refund, claiming that the franchise tax it had
paid and continued to pay to the National Government
pursuant to P.D. 551 already included the franchise tax
imposed by the Provincial Tax Ordinance. This was, however,
denied.
On 14 February 1996, MERALCO filed with the Regional
Trial Court of Sta. Cruz, Laguna, a complaint for refund, with
a prayer for the issuance of a writ of preliminary injunction
and/or temporary restraining order, against the Province of
Laguna and also Benito R. Balazo in his capacity as the
Provincial Treasurer of Laguna.
ISSUE:
WON there was valid delegation of power to tax to the
Province of Laguna
TAXATION CASE DIGESTS
RULING:
Yes. Prefatorily, it might be well to recall that local
governments do not have the inherent power to tax except to
the extent that such power might be delegated to them either
by the basic law or by statute. Presently, under Article X of
the 1987 Constitution, a general delegation of that power has
been given in favor of local government units.
Under regime of the 1935 Constitution no similar
delegation of tax powers was provided, and local government
units instead derived their tax powers under a limited
statutory authority.
Under the now prevailing Constitution, where there is
neither a grant nor a prohibition by statute, the tax power
must be deemed to exist although Congress may provide
statutory limitations and guidelines. The basic rationale for
the current rule is to safeguard the viability and self-
sufficiency of local government units by directly granting
them general and broad tax powers. Nevertheless, the
fundamental law did not intend the delegation to be absolute
and unconditional; the constitutional objective obviously is to
ensure that, while the local government units are being
strengthened and made more autonomous, the legislature
must still see to it that (a) the taxpayer will not be over-
burdened or saddled with multiple and unreasonable
impositions; (b) each local government unit will have its fair
share of available resources; (c) the resources of the national
government will not be unduly disturbed; and (d) local
taxation will be fair, uniform, and just.
Indicative of the legislative intent to carry out the
Constitutional mandate of vesting broad tax powers to local
government units, the Local Government Code has effectively
withdrawn under Section 193 thereof, tax exemptions or
incentives theretofore enjoyed by certain entities.
While the Court has, not too infrequently, referred to tax
exemptions contained in special franchises as being in the
nature of contracts and a part of the inducement for carrying
on the franchise, these exemptions, nevertheless, are far from
being strictly contractual in nature. Contractual tax
exemptions, in the real sense of the term and where the non-
impairment clause of the Constitution can rightly be invoked,
are those agreed to by the taxing authority in contracts, such
as those contained in government bonds or debentures,
lawfully entered into by them under enabling laws in which
the government, acting in its private capacity, sheds its cloak
of authority and waives its governmental immunity. Truly, tax
exemptions of this kind may not be revoked without
impairing the obligations of contracts. These contractual tax
5|Pa g e

exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the
nature of a grant which is beyond the purview of the non-
impairment clause of the Constitution. Indeed, Article XII,
Section 11, of the 1987 Constitution, like its precursor
provisions in the 1935 and the 1973 Constitutions, is explicit
that no franchise for the operation of a public utility shall be
granted except under the condition that such privilege shall be
subject to amendment, alteration or repeal by Congress as and
when the common good so requires.
Garcia v. Executive Secretary
(By: JM Banal)
FACTS:
The President issued E.O. 438 which imposed, in
addition to any other duties, taxes and charges imposed by
law, an additional duty of 5% ad valorem (according to
value ), across the board on all imported articles, including
crude oil and other oil products imported into the Philippines.
This was subsequently increased to 9% by E.O. 443.
Meantime, E.O. 475 was issued by the President,
reducing the rate of additional duty from 9% to 5% ad
valorem, except in the cases of crude oil and other oil which
stayed at 9% ad valorem. Upon completion of the public
hearings, the Tariff Commission submitted to the President a
"Report on Special Duty on Crude Oil and Oil Products,
seven days later, the President issued E.O. 478 which levied
(in addition to the 9% ad valorem and all other existing ad
valorem duties) a special duty of P0.95 per liter or P151.05
per barrel of imported crude oil and P1.00 per liter of
imported oil products.
In the present Petition for Certiorari, Prohibition
and Mandamus, petitioner assails the validity of E.O Nos.
475 and 478. He argues that both are violative of Sec. 24,
Art. VI of the 1987 Constitution. He contends that the
Constitution vests the authority to enact revenue bills in the
Congress, the President may not assume such power by
issuing E.O. Nos. 475 and 478 which are in the nature of
revenue-generating measures. which authorizes the
President, to increase, reduce or remove tariff duties or to
impose additional duties only when necessary to protect local
industries or products but not for the purpose of raising
additional revenue for the government.
ISSUE:
WON the enactment E.O Nos. 475 and 478 are
valid?
RULING:
The enactment of appropriation, revenue and
tariff bills, like all other bills is, of course, within the province
of the Legislative rather than the Executive. It does not
follow, however, that therefore E.O. Nos. 475 and 478, are
prohibited to the President, that they must be enacted instead
by Congress. Section 28(2) of Article VI of the Constitution
provides as follows:
(2) The Congress may, by law, authorize the
President to fix within specified limits, and
subject to such limitations and restrictions as it
may impose, tariff rates, import and export
quotas, tonage and wharfage dues, and other
duties or imposts within the framework of the
national development program of the
Government.
There is thus explicit constitutional permission
to Congress to authorize the President "subject to such
limitations and restrictions is [Congress] may impose" to
fix "within specific limits" "tariff rates . . . and other
duties or imposts . . ."
The President explicitly invoked in
promulgating E.O. Nos. 475 and 478, Section 104 and 401 of
the Tariff and Customs Code which provides in relevant part:
Sec. 104. xxx The rates of duty herein provided
or subsequently fixed pursuant to Section 401 of
this Code xxxx may be revised by the President
upon recommendation of the NEDA.
Sec. 401. Flexible Clause. — a. In the interest of
national economy, general welfare and/or
national security, xxxx the President, xxxx, is
hereby empowered: (1) to increase, reduce or
remove existing protective rates of import duty
(including any necessary change in
classification). Xxxx and (3) to impose an
additional duty on all imports not exceeding ten
(10) per cent ad valorem, whenever necessary;
xxx.
(Note: only relatively related to the exception of non-
delegation principles)
Petitioner argues that E.O Nos. 475 and 478
contravene Section 401 of the Tariff and Customs Code,
which authorized the President is to act under the Tariff and
Based on the 2016 Course Outline of Atty.Donalvo
Customs Code only "to protect local industries and products
for the sake of the national economy, general welfare and/or
national security.". That E.O. Nos. 478 and 475 have nothing
to do whatsoever with the protection of local industries and
products for the sake of national economy, general welfare
and/or national security, and on the contrary, they work in
reverse, especially as to crude oil, an essential product which
we do not have to protect, since we produce only minimal
quantities and have to import the rest of what we need.
The Court is not persuaded, there is nothing in
the language of either Section 104 or 401 of the Tariff Code
that suggest such a sharp and absolute limitation of authority.
The entire contention of petitioner is anchored on just two (2)
words, one found in Section 401 (a)(1): "existing protective
rates of import duty," and the second, found at the end of
Section 401 (a): "protection levels granted in Section 104 of
this Code . . . . " We believe that the words
"protective" and ''protection" are simply not enough to
support the very broad and encompassing limitation which
petitioner seeks to rest on those 2 words.
Customs duties which are assessed at the
prescribed tariff rates are very much like taxes which are
frequently imposed for both revenue-raising and for
regulatory purposes. "Customs duties" is "the name given to
taxes on the importation and exportation of commodities, the
tariff or tax assessed upon merchandise imported from, or
exported to, a foreign country." The levying of customs duties
on imported goods may have in some measure the effect of
protecting local industries — where such local industries
actually exist and are producing comparable goods.
Simultaneously, however, the very same customs duties
inevitably have the effect of producing governmental
revenues. In the instant case, since the Philippines in fact
produces ten (10) to fifteen percent (15%) of the crude oil
consumed here, the imposition of increased tariff rates and a
special duty on imported crude oil and imported oil products
may be seen to have some "protective" impact upon
indigenous oil production. For the effective, price of imported
crude oil and oil products is increased. At the same time, it
cannot be gainsaid that substantial revenues for the
government are raised by the imposition of such increased
tariff rates or special duty.
The Petition is hereby DISMISSED for lack of
merit.
Maceda vs. Macaraig
(By: Glorybelle C. Resurreccion)
FACTS:
TAXATION CASE DIGESTS
Petitioner Ernesto Maceda is instituting this suit
in his capacity as a taxpayer and a duly-elected Senator of the
Philippines.
Commonwealth Act No. 120 was enacted
creating the National Power Corporation (NPC), a public
corporation, mainly to develop hydraulic power from all
water sources in the Philippines. Republic Act No. 358
granted NPC tax and duty exemption privileges under its Sec.
2. Republic Act No. 6395 then revised the charter of the NPC
wherein Congress declared as a national policy the total
electrification of the Philippines through the development of
power from all sources to meet the needs of industrial
development and rural electrification. Being a non-profit
corporation, Section 13 of the law provided in detail the
exemption of the NPC from all taxes, duties, fees, imposts
and other charges by the government and its instrumentalities.
Presidential Decree No. 1931later withdrew all
tax exemption privileges granted in favor of GOCCs
including their subsidiaries. However, said law empowered
the President and/or the then Minister of Finance, upon
recommendation of the Fiscal Incentives Review Board
(FIRB) to restore, partially or totally, the exemption
withdrawn, or otherwise revise the scope and coverage of any
applicable tax and duty.FIRB then issued Resolution No. 10-
85 restoring the tax and duty exemption privileges of NPC.
March 10, 1987: Executive Order No. 93 once
again withdrew all tax and duty incentives granted to
government and private entities but was then restoredby FIRB
(Resolution No. 17-87) on June 24, 1987. Respondent
Executive Secretary Macaraig, Jr., confirmed and approved of
this.
Petitioner here stresses that on August 6, 1987
the Secretary of Justice rendered Opinion No. 77 to the effect
that the powers conferred upon the FIRB by Section 2(a), (b),
and (c) and (4) of Executive Order No. 93 "constitute undue
delegation of legislative power and is, therefore,
unconstitutional." Petitioner observes that the FIRB did not
merely recommend but categorically restored the tax and duty
exemption of the NPC so that the memorandum of the
respondent Executive Secretary in October 1987 approving
the same is a surplusage.
ISSUE:
WON there was an undue delegation of
legislative power to FIRB
RULING:
NO. The standards of the delegated power are
clearly provided for in Executive Order No. 93.The required
"standard" need not be expressed. In Edu vs. Ericta and in De
la Llana vs. Alba this Court held: "The standard may be either
express or implied. If the former, the non-delegated objection
is easily met. The standard though does not have to be spelled
out specifically. It could be implied from the policy and
purpose of the act considered as a whole."
6|Pa g e

In People vs. Rosenthal the broad standard of
"public interest" was deemed sufficient. In Calalang vs.
Williams, it was "public welfare" and in Cervantes vs. Auditor
General, it was the purpose of promotion of "simplicity,
economy and efficiency." And, implied from the purpose of
the law as a whole, "national security" was considered
sufficient standard and so was "protection of fish fry or fish
eggs.
The observation of petitioner that the approval of
the President was not even required in said Executive Order
of the tax exemption privilege approved by the FIRB unlike
in previous similar issuances, is not well-taken. On the
contrary, under Section l(f) of Executive Order No. 93, such
tax and duty exemptions extended by the FIRB must be
approved by the President. In this case, FIRB Resolution No.
17-87 was approved by the respondent Executive Secretary,
by authority of the President in October 1987.
Mr. Justice Isagani A. Cruz commenting on the
delegation of legislative power stated —
The latest in our jurisprudence indicates that
delegation of legislative power has become the
rule and its non-delegation the exception. The
reason is the increasing complexity of modern
life and many technical fields of governmental
functions as in matters pertaining to tax
exemptions. This is coupled by the growing
inability of the legislature to cope directly with
the many problems demanding its attention. x xx
The legislative authority could not or is not
expected to state all the detailed situations wherein the tax
exemption privileges of persons or entities would be restored.
The task may be assigned to an administrative body like the
FIRB.
Moreover, all presumptions are indulged in favor
of the constitutionality and validity of the statute. Such
presumption can be overturned if its invalidity is proved
beyond reasonable doubt. Otherwise, a liberal interpretation
in favor of constitutionality of legislation should be adopted.
Ergo, E.O. No. 93 is complete in itself and constitutes a valid
delegation of legislative power to the FIRB
Ferrer vs Bautista
(By: Rea Romero)
FACTS:
In 2011, Quezon City Council enacted Ordinance
No. SP-2095, S-2011,2 or the Socialized Housing Tax of
Quezon City, Section 3 of which provides:
SECTION 3. IMPOSITION. A special
assessment equivalent to one-half percent (0.5%) on the
assessed value of land in excess of One Hundred Thousand
Pesos (Php100,000.00) shall be collected by the City
Treasurer which shall accrue to the Socialized Housing
Programs of the Quezon City Government.
Effective for five (5) years, the Socialized
Housing Tax ( SHT ) shall be utilized by the Quezon City
Government for the following projects: (a) land purchase/land
banking; (b) improvement of current/existing socialized
housing facilities; (c) land development; (d) construction of
core houses, sanitary cores, medium-rise buildings and other
similar structures; and (e) financing of public-private partners
hip agreement of the Quezon City Government and National
Housing Authority ( NHA ) with the private sector.
Ordinance No. SP-2235, S-2013 was enacted.
The proceeds collected from the garbage fees on residential
properties shall be deposited solely and exclusively in an
earmarked special account under the general fund to be
utilized for garbage collections.
Ferrer is a registered co-owner of a property in
Quezon City. In 2014, he paid his realty tax which already
included the garbage fee in the sum of Php100.00
Ferrer claims that the collection of the SHT is
tantamount to a penalty imposed on real property owners due
to the failure of respondent Quezon City Mayor and Council
to perform their duty to secure and protect real property
owners from informal settlers, thereby burdening them with
the expenses to provide funds for housing. Ferrer also argues
that the collection of the SHT is a kind of class legislation that
violates the right of property owners to equal protection of the
laws since it favors informal settlers who occupy property not
their own and pay no taxes over law-abiding real property
owners who pay income and realty taxes.
ISSUE:
1. WON Ordinance SP-2095 violates the rule on equality?
(NO)
2. WON Ordinance SP-2235, S-2013 on Garbage Fee violates
the rule on equality. (YES)
RULING:
1st issue: For the purpose of undertaking a comprehensive and
continuing urban development and housing program, the
disparities between a real property owner and an informal
settler as two distinct classes are too obvious and need not be
discussed at length. The differentiation conforms to the
practical dictates of justice and equity and is not
discriminatory within the meaning of the Constitution.
Based on the 2016 Course Outline of Atty.Donalvo
Notably, the public purpose of a tax may legally exist even if
the motive which impelled the legislature to impose the tax
was to favor one over another. It is inherent in the power to
tax that a State is free to select the subjects of taxation.
Inequities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional
limitation.
2nd issue: For the purpose of garbage collection, there is, in
fact, no substantial distinction between an occupant of a lot,
on one hand, and an occupant of a unit in a condominium,
socialized housing project or apartment, on the other hand.
Most likely, garbage output produced by these types of
occupants is uniform and does not vary to a large degree;
thus, a similar schedule of fee is both just and equitable.
The rates being charged by the ordinance are unjust and
inequitable: a resident of a 200 sq. m. unit in a condominium
or socialized housing project has to pay twice the amount than
a resident of a lot similar in size; unlike unit occupants, all
occupants of a lot with an area of 200 sq. m. and less have to
pay a fixed rate of Php100.00; and the same amount of
garbage fee is imposed regardless of whether the resident is
from a condominium or from a socialized housing project.
Indeed, the classifications under Ordinance No. S-2235 are
not germane to its declared purpose of "promoting shared
responsibility with the residents to attack their common
mindless attitude in over-consuming the present resources and
in generating waste." Instead of simplistically categorizing the
payee into land or floor occupant of a lot or unit of a
condominium, socialized housing project or apartment,
respondent City Council should have considered factors that
could truly measure the amount of wastes generated and the
appropriate fee for its collection.
Ordinance No. SP-2235, S-2013, which collects an annual
garbage fee on all domestic households in Quezon City, is
hereby declared as UNCONSTITUTIONAL AND ILLEGAL.
Respondents are DIRECTED to REFUND with reasonable
dispatch the sums of money collected relative to its
enforcement.
iv. Jurisdiction
2. Situs of Taxation
CIR vs. Baier-Nickel
(By: Charmaine Jala)
FACTS:
Respondent Juliane Baier-Nickel, a non-resident
German citizen, is the President of JUBANITEX, Inc.,.
Through JUBANITEX’s General Manager, Marina Q.
TAXATION CASE DIGESTS
Guzman, the corporation appointed and engaged the services
of respondent as commission agent. It was agreed that
respondent will receive 10% sales commission on all sales
actually concluded and collected through her efforts.
In 1995, respondent received the amount of
P1,707,772.64, representing her sales commission income
from which JUBANITEX withheld the corresponding 10%
withholding tax amounting to P170,777.26, and remitted the
same to the Bureau of Internal Revenue (BIR). On October
17, 1997, respondent filed her 1995 income tax return
reporting a taxable income of P1,707,772.64 and a tax due of
P170,777.26.
On April 14, 1998, respondent filed a claim to refund
the amount of P170,777.26 alleged to have been mistakenly
withheld and remitted by JUBANITEX to the BIR.
Respondent contended that her sales commission income is
not taxable in the Philippines because the same was a
compensation for her services rendered in Germany and
therefore considered as income from sources outside the
Philippines.
Petitioner maintains that the income earned by
respondent is taxable in the Philippines because the source
thereof is JUBANITEX, a domestic corporation located in the
City of Makati. It thus implied that source of income means
the physical source where the income came from. It further
argued that since respondent is the President of JUBANITEX,
any remuneration she received from said corporation should
be construed as payment of her overall managerial services to
the company and should not be interpreted as a compensation
for a distinct and separate service as a sales commission
agent.
Respondent, on the other hand, claims that the income
she received was payment for her marketing services. She
contended that income of nonresident aliens like her is subject
to tax only if the source of the income is within the
Philippines. Source, according to respondent is the situs of the
activity which produced the income. And since the source of
her income were her marketing activities in Germany, the
income she derived from said activities is not subject to
Philippine income taxation.
ISSUE:
Whether respondent’s sales commission income is taxable in
the Philippines.
RULING:
Pursuant to the SEC. 25. of the NIRC, non-resident
aliens, whether or not engaged in trade or business, are
subject to Philippine income taxation on their income
received from all sources within the Philippines.
The underlying theory is that the consideration for
taxation is protection of life and property and that the income
rightly to be levied upon to defray the burdens of the United
States Government is that income which is created by
7|Pa g e

activities and property protected by this Government or
obtained by persons enjoying that protection.
The Court reiterates the ruled in several cases that
"source of income" relates to the property, activity or service
that produced the income. With respect to rendition of labor
or personal service, as in the instant case, it is the place where
the labor or service was performed that determines the source
of the income. There is therefore no merit in petitioner’s
interpretation which equates source of income in labor or
personal service with the residence of the payor or the place
of payment of the income.
The decisive factual consideration here is not the
capacity in which respondent received the income, but the
sufficiency of evidence to prove that the services she rendered
were performed in Germany.
In the instant case, the appointment letter of
respondent as agent of JUBANITEX stipulated that the
activity or the service which would entitle her to 10%
commission income, are "sales actually concluded and
collected through [her] efforts."What she presented as
evidence to prove that she performed income producing
activities abroad, were copies of documents she allegedly
faxed to JUBANITEX and bearing instructions as to the sizes
of, or designs and fabrics to be used in the finished products
as well as samples of sales orders purportedly relayed to her
by clients. However, these documents do not show whether
the instructions or orders faxed ripened into concluded or
collected sales in Germany. At the very least, these pieces of
evidence show that while respondent was in Germany, she
sent instructions/orders to JUBANITEX. As to whether these
instructions/orders gave rise to consummated sales and
whether these sales were truly concluded in Germany,
respondent presented no such evidence. Neither did she
establish reasonable connection between the
orders/instructions faxed and the reported monthly sales
purported to have transpired in Germany.
The paucity of respondent’s evidence was even noted
by petitioner’s counsel at the hearing before the Court of Tax
Appeals. She pointed out that respondent presented no
contracts or orders signed by the customers in Germany to
prove the sale transactions therein. The concern raised by
petitioner’s counsel as to the absence of substantial evidence
that would constitute proof that the sale transactions for which
respondent was paid commission actually transpired outside
the Philippines, is relevant because respondent stayed in the
Philippines for 89 days in 1995. Except for the months of July
and September 1995, respondent was in the Philippines in the
months of March, May, June, and August 1995, the same
months when she earned commission income for services
allegedly performed abroad. Furthermore, respondent
presented no evidence to prove that JUBANITEX does not
sell embroidered products in the Philippines and that her
appointment as commission agent is exclusively for Germany
and other European markets.
In sum, we find that the faxed documents presented by
respondent did not constitute substantial evidence, or that
relevant evidence that a reasonable mind might accept as
adequate to support the conclusion that it was in Germany
where she performed the income producing service which
gave rise to the reported monthly sales in the months of
March and May to September of 1995. She thus failed to
discharge the burden of proving that her income was from
sources outside the Philippines and exempt from the
application of our income tax law. Hence, the claim for tax
refund should be denied.
Based on the 2016 Course Outline of Atty.Donalvo
d. Business Tax
CIR vs. Japan Airlines
(By: Alona Suzell B. Ruyeras)
FACTS:
Japan Air Lines, Inc. (JAL for brevity), is a
foreign corporation engaged in the business of international
air carriage. From 1959 to 1963, JAL did not have planes that
lifted or landed passengers and cargo in the Philippines as it
had not been granted then by the Civil Aeronautics Board
(CAB) a certificate of public convenience and necessity to
operate here. However, since mid-July, 1957, JAL had
maintained an office at the Filipinas Hotel, Roxas Boulevard,
Manila. Said office did not sell tickets but was maintained
merely for the promotion of the company's public relations
and to hand out brochures, literature and other information
playing up the attractions of Japan as a tourist spot and the
services enjoyed in JAL planes.
On July 17, 1957, JAL constituted the Philippine
Air Lines (PAL), as its general sales agent in the Philippines.
As an agent, PAL, among other things, sold for and in behalf
of JAL, plane tickets and reservations for cargo spaces which
were used by the passengers or customers on the facilities of
JAL.
On June 2, 1972, JAL received deficiency
income tax assessment notices and a demand letter from
petitioner Commissioner of Internal Revenue (Commissioner
for brevity), all dated February 28, 1972, for a total amount of
P2,099,687.52 inclusive of 50% surcharge and interest, for
years 1959 through 1963.
On June 19, 1972, JAL protested said
assessments alleging that as a non-resident foreign
corporation, it was taxable only on income from Philippine
sources as determined under Section 37 of the Tax Code, and
there being no such income during the period in question, it
was not liable for the deficiency income tax liabilities
assessed. The Commissioner resolved otherwise and denied
JAL's request for cancellaton of the assessment.
JAL therefore, elevated the case to the Court of
Tax Appeals which, in turn, reversed the decision.
Hence, this petition.
ISSUES:
1. W/N PROCEEDS FROM SALES OF JAPAN AIR LINES
TICKETS SOLD IN THE PHILIPPINES ARE TAXABLE
AS INCOME FROM SOURCES WITHIN THE
PHILIPPINES. Yes
TAXATION CASE DIGESTS
2. W/N JAPAN AIR LINES IS A FOREIGN
CORPORATION ENGAGED IN TRADE OR BUSINESS
IN THE PHILIPPINES. Yes
RULING:
Anent the first issue, the landmark case of
Commissioner of Internal Revenue vs. British Overseas
Airways Corporation has categorically ruled:
"The source of an income is the property, activity
or service that produced the income. For the source of income
to be considered as coming from the Philippines, it is
sufficient that the income is derived from activity within the
Philippines. In BOAC's case, the sale of tickets in the
Philippines is the activity that produces the income. The
tickets exchanged hands here and payments for fares were
also made here in Philippine currency. The situs of the source
of payments is the Philippines. The flow of wealth proceeded
from, and occurred within, Philippine territory, enjoying the
protection accorded by the Philippine government. In
consideration of such protection, the flow of wealth should
share the burden of supporting the government.
The absence of flight operations to and from the
Philippines is not determinative of the source of income or the
situs of income taxation. The test of taxability is the `source';
and the source of an income is that activity which produced
the income. The word `source' conveys one essential Idea,
that of origin, and the origin of the income herein is the
Philippines."
Verily, JAL is a resident foreign corporation
under Section 84 (g) of the National Internal Revenue Code
of1939.
The case of CIR vs. American Airlines, Inc.
sums it up as follows:
"x x x, foreign airline companies which sold tickets in the
Philippines through their local agents, whether called liaison
offices, agencies or branches, were considered resident
foreign corporations engaged in trade or business in the
country. Such activities show continuity of commercial
dealings or arrangements and performance of acts or works or
the exercise of some functions normally incident to and in
progressive prosecution of commercial gain or for the purpose
and object of the business organization."
Ilo-ilo Bottlers vs. City of Ilo-ilo
(By: Emmy Buniel)
8|Pa g e

FACTS:
Iloilo Bottlers Inc., a company in the business of bottling and
selling soft drinks, was demanded by the City of Iloilo to pay
an amount of 59,505 in the form of an license tax the city
claims were due to it under an ordinance which was enacted
on January 11, 1960 known as Ordinance No. 5, Series of
1960; which provides that manufacturers, bottlers, and
distributers of soft drinks in Iloilo are subject to a municipal
license tax of 10 centavos per case of 24 bottles.
Iloilo Bottling Inc asserted however that since
their plant base has moved to municipality of Pavia shortly
after the aforementioned ordinance was enacted, they are not
liable for any taxes.
The city however, still demanded taxes and also
demanded back taxes under the claim that Iloilo
Bottlers is still distributing in the city of Iloilo
since its transfer. Iloilo Bottlers paid the demanded license
tax and back taxes under protest.
After bringing the case to court, the courts ruled
in favor of Iloilo Bottlers and declared that Iloilo Bottlers is
free from liability. The city of Iloilo then appealed this ruling,
hence this case.
ISSUE:
WON Iloilo Bottlers Inc.is exempted from paying tax
RULING: NO.
Situs of taxation (place of taxation) depends on
various factors including the nature of the tax and subject
matter thereof both of which must be scrutinized to reach a
fair decision. The tax ordinance enacted by the City of Iloilo
imposes a tax on persons, firms, and corporations engaged in
the business of distribution of soft-drinks, manufacture of
soft-drinks, and bottling of soft drinks within the territorial
jurisdiction of the City of Iloilo.
There is no question that Iloilo Bottlers has
moved out of Iloilo City’s jurisdiction and into the
municipality of Pavia where its plant now stands therefore,
the latter two conditions for taxation are no longer applicable.
The ruling now depends upon whether or not Iloilo Bottlers
can be considered as distributing its products within Iloilo
city. Iloilo Bottlers disclaims liability, saying that it does not
independently distribute but rather actively sells directly to its
consumers. Distribution is therefore only incidental to its
business. However, the courts find that Iloilo Bottlers is
indeed considered as distributing since while the
manufacturing and bottling occurs outside of Iloilo city, the
drinks are sold in Iloilo city to consumers in a “moving store”
fashion. The transactions are considered to occur within the
city. The tax imposed under Ordinance No. 5 is an excise tax.
By its nature, the power to levy an excise tax
depends upon the place where the business is done, or the
occupation is engaged in, or where the transaction took place.
In this case, it is a tax on the privilege of distributing,
manufacturing or bottling soft drinks. Even though the base
of operations is at Pavia, the areas of transactions where it
conducts its business are within Iloilo city limits. The Situs
for excise tax is the area of transaction, not necessarily base
of operation.
CIR vs British Airways Overseas Corp.
(By: Kim Calatrava)
FACTS:
BOAC is a 100% British Government-owned
corporation organized and existing under the laws of the
United Kingdom It is engaged in the international airline
business and is a member-signatory of the Interline Air
Transport Association (IATA). As such it operates air
transportation service and sells transportation tickets over the
routes of the other airline members.During the periods
covered by the disputed assessments, it is admitted that
BOAC had no landing rights for traffic purposes in the
Philippines, and was not granted a Certificate of public
convenience and necessity to operate in the Philippines by the
Civil Aeronautics Board (CAB).
The CIR assessed BOAC the aggregate amount
of P2,498,358.56 for deficiency income taxes covering the
years 1959 to 1953. This was later reduced to P858,307.79
upon protest of BOAC. Subsequently, BOAC was also
assessed deficiency income taxes for the fiscal years 1968-
1969 to 1970-1971 in the amount of P549,327.43 which was
later re-assessed to be P534,132.08.
The Tax Court rendered a decision ruling that the
proceeds of sales of BOAC passage tickets in the Philippines
by Warner Barnes and Company, Ltd., and later by Qantas
Airways, during the period in question, do not constitute
BOAC income from Philippine sources "since no service of
carriage of passengers or freight was performed by BOAC
within the Philippines" and, therefore, said income is not
subject to Philippine income tax. The CTA position was that
income from transportation is income from services so that
the place where services are rendered determines the source.
ISSUE:
Whether or not the revenue derived by private
respondent British Overseas Airways Corporation (BOAC)
Based on the 2016 Course Outline of Atty.Donalvo
from sales of tickets in the Philippines for air transportation,
while having no landing rights here, constitute income of
BOAC from Philippine sources, and, accordingly, taxable.
YES
RULING:
The absence of flight operations to and from
the Philippines is not determinative of the source of
income or the site of income taxation.
Gross income is defined as:
"Gross income" includes gains, profits, and
income derived from salaries, wages or
compensation for personal service of whatever
kind and in whatever form paid, or from
profession, vocations, trades, business,
commerce, sales, or dealings in property,
whether real or personal, growing out of the
ownership or use of or interest in such property;
also from interests, rents, dividends, securities, or
the transactions of any business carried on for
gain or profile, or gains, profits, and income
derived from any source whatever (Sec. 29[3];
Emphasis supplied)
The definition is broad and comprehensive to
include proceeds from sales of transport documents. "The
words 'income from any source whatever' disclose a
legislative policy to include all income not expressly
exempted within the class of taxable income under our laws."
Income means "cash received or its equivalent"; it is the
amount of money coming to a person within a specific time
...; it means something distinct from principal or capital. For,
while capital is a fund, income is a flow. As used in our
income tax law, "income" refers to the flow of wealth. 6
The records show that the Philippine gross
income of BOAC for the fiscal years 1968-69 to 1970-71
amounted to P10,428,368 .00.
The source of an income is the property, activity
or service that produced the income. For the source of
income to be considered as coming from the Philippines, it is
sufficient that the income is derived from activity within the
Philippines. In BOAC's case, the sale of tickets in the
Philippines is the activity that produces the income. The
tickets exchanged hands here and payments for fares were
also made here in Philippine currency. The site of the source
of payments is the Philippines. The flow of wealth proceeded
from, and occurred within, Philippine territory, enjoying the
protection accorded by the Philippine government. In
consideration of such protection, the flow of wealth should
share the burden of supporting the government.
TAXATION CASE DIGESTS
The absence of flight operations to and from the
Philippines is not determinative of the source of income or the
site of income taxation. Admittedly, BOAC was an off-line
international airline at the time pertinent to this case. The test
of taxability is the "source"; and the source of an income is
that activity ... which produced the income. Unquestionably,
the passage documentations in these cases were sold in the
Philippines and the revenue therefrom was derived from an
activity regularly pursued within the Philippines. And even if
the BOAC tickets sold covered the "transport of passengers
and cargo to and from foreign cities", it cannot alter the fact
that income from the sale of tickets was derived from the
Philippines. The word "source" conveys one essential idea
that of origin, and the origin of the income herein is the
Philippines.
v. Purpose of Taxation
2. Secondary Purpose
Batangas Power vs. Batangas City
(By: Peter Vega)
FACTS:
In the early 1990’s, the country suffered from a
crippling power crisis. The government, through the National
Power Corporation (NPC), sought to attract investors in
power plant operations by providing them with incentives,
one of which was the NPC’s assumption of their tax payments
in the Build Operate and Transfer (BOT) Agreement.
On June 29, 1993, Enron Power Development
Corporation (Enron) and NPC entered into a Fast Track BOT
Project. Enron agreed to supply a power station to NPC &
transfer its plant to the latter after 10 years of operation. The
BOT Agreement provided that NPC shall be responsible for
the payment of all taxes imposed on the power station except
income & permit fees. Subsequently, Enron assigned its
obligation under the BOT Agreement to Batangas Power
Corporation (BPC).
On September 23, 1992, the BOI issued a
certificate of registration to BPC as a pioneer enterprise
entitled to a tax holiday of 6 years. On October 12, 1998,
Batangas City sent a letter to BPC demanding payment of
business taxes & penalties. BPC refused to pay citing its tax
exemption as a pioneer enterprise for 6 years under
Sec.133(g) of the LGC. The city’s tax claim was modified
and it demanded payment of business taxes for the years
1998-1999. BPC still refused to pay the tax, insisting that the
6-year tax holiday commenced from the date of its
commercial operation on July 16, 1993, not from the date of
its BOI registration in September 1992.
BPC still refused to pay the tax. It insisted that
its 6-year tax holiday commenced from the date of its
commercial operation on July 16, 1993, not from the date of
its BOI registration in September 1992.5 It furnished the city
9|Pa g e

with a BOI letter6 wherein BOI designated July 16, 1993 as
the start of BPC’s income tax holiday as BPC was not able to
immediately operate due to force majeure. BPC claimed that
the local tax holiday is concurrent with the income tax
holiday. In the alternative, BPC asserted that the city should
collect the tax from the NPC as the latter assumed
responsibility for its payment under their BOT Agreement.
ISSUE:
Whether NPC’s tax exemption privileges under
its Charter were withdrawn by Section 193 of the Local
Government Code (LGC).
RULING: YES.
The effect of the LGC on the tax exemption privileges of the
NPC has already been extensively discussed and settled in the
recent case of National Power Corporation v. City of
Cabanatuan.21 In said case, this Court recognized the
removal of the blanket exclusion of government
instrumentalities from local taxation as one of the most
significant provisions of the 1991 LGC.Specifically, we
stressed that Section 193 of the LGC,22 an express and
general repeal of all statutes granting exemptions from local
taxes, withdrew the sweeping tax privileges previously
enjoyed by the NPC under its Charter. We explained the
rationale for this provision, thus:
In recent years, the increasing social challenges
of the times expanded the scope of state activity,
and taxation has become a tool to realize social
justice and the equitable distribution of wealth,
economic progress and the protection of local
industries as well as public welfare and similar
objectives. Taxation assumes even greater
significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no
longer vested exclusively on Congress; local
legislative bodies are now given direct authority
to levy taxes, fees and other charges pursuant to
Article X, section 5 of the 1987 Constitution, viz:
Section 5.- Each Local Government
unit shall have the power to create
its own sources of revenue, to levy
taxes, fees and charges subject to
such guidelines and limitations as
the Congress may provide,
consistent with the basic policy of
local autonomy. Such taxes, fees
and charges shall accrue exclusively
to the Local Governments.
This paradigm shift results from the realization
that genuine development can be achieved only
by strengthening local autonomy and promoting
decentralization of governance. For a long time,
the country’s highly centralized government
structure has bred a culture of dependence
among local government leaders upon the
national leadership. It has also "dampened the
spirit of initiative, innovation and imaginative
resilience in matters of local development on the
part of local government leaders. The only way
to shatter this culture of dependence is to give
the LGUs a wider role in the delivery of basic
services, and confer them sufficient powers to
generate their own sources for the purpose. To
achieve this goal, x xx the 1987 Constitution
mandates Congress to enact a local government
code that will, consistent with the basic policy of
local autonomy, set the guidelines and
limitations to this grant of taxing powers x xx.”
vi. Public Purpose
Planters Products vs. Fertiphil
(By: Kelvin John Du)
FACTS:
PPI and Fertiphil are private corporations
incorporated under Philippine laws both engaged in the
importation and distribution of fertilizers, pesticides and
agricultural chemicals.
On June 3, 1985, then President Ferdinand
Marcos, exercising his legislative powers, issued LOI No.
1465 which provided for the imposition of a capital recovery
component (CRC) on the domestic sale of all grades of
fertilizers in the Philippines. The LOI provides:
3. The Administrator of the Fertilizer Pesticide
Authority to include in its fertilizer pricing formula a capital
contribution component of not less than P10 per bag. This
capital contribution shall be collected until adequate capital is
raised to make PPI viable. Such capital contribution shall be
applied by FPA to all domestic sales of fertilizers in the
Philippines.
Pursuant to the LOI, Fertiphil paid P10 for every
bag of fertilizer it sold in the domestic market to the Fertilizer
and Pesticide Authority (FPA). After the 1986 Edsa
Revolution, FPA voluntarily stopped the imposition of
the P10 levy. With the return of democracy, Fertiphil
demanded from PPI a refund of the amounts it paid under LOI
No. 1465, but PPI refused to accede to the demand.
Fertiphil filed a complaint for collection and damages against
FPA and PPI questioning the constitutionality of LOI No.
1465. Fertiphil alleged that the LOI solely favored PPI, a
privately owned corporation, which used the proceeds to
maintain its monopoly of the fertilizer industry.
FPA countered that the issuance of LOI No.
1465 was a valid exercise of the police power of the State in
ensuring the stability of the fertilizer industry in the country.
It also averred that Fertiphil did not sustain any damage from
the LOI because the burden imposed by the levy fell on the
ultimate consumer, not the seller.
Based on the 2016 Course Outline of Atty.Donalvo
RTC ruled in favor of Fertiphil. Ruling that the
imposition of the P10 CRC was an exercise of the State’s
inherent power of taxation, the RTC invalidated the levy for
violating the basic principle that taxes can only be levied for
public purpose, viz.:
One of the inherent limitations is that a tax may
be levied only for public purposes:The power to tax can be
resorted to only for a constitutionally valid public purpose. By
the same token, taxes may not be levied for purely private
purposes, for building up of private fortunes, or for the
redress of private wrongs. They cannot be levied for the
improvement of private property, or for the benefit, and
promotion of private enterprises, except where the aid is
incident to the public benefit. It is well-settled principle of
constitutional law that no general tax can be levied except for
the purpose of raising money which is to be expended for
public use. Funds cannot be exacted under the guise of
taxation to promote a purpose that is not of public interest.
Without such limitation, the power to tax could be exercised
or employed as an authority to destroy the economy of the
people. A tax, however, is not held void on the ground of
want of public interest unless the want of such interest is
clear. (71 Am. Jur. pp. 371-372)
CA affirmed the RTC. The CA held that even on
the assumption that LOI No. 1465 was issued under the police
power of the state, it is still unconstitutional because it did not
promote public welfare. The CA explained:
In declaring LOI 1465 unconstitutional, the trial court held
that the levy imposed under the said law was an invalid
exercise of the State’s power of taxation inasmuch as it
violated the inherent and constitutional prescription that taxes
be levied only for public purposes. It reasoned out that the
amount collected under the levy was remitted to the
depository bank of PPI, which the latter used to advance its
private interest.
The CA did not accept PPI’s claim that the levy
imposed under LOI No. 1465 was for the benefit of Planters
Foundation, Inc., a foundation created to hold in trust the
stock ownership of PPI.
PPI insists that LOI No. 1465 is a valid exercise
either of the police power or the power of taxation. It claims
that the LOI was implemented for the purpose of assuring the
fertilizer supply and distribution in the country and for
benefiting a foundation created by law to hold in trust for
millions of farmers their stock ownership in PPI.
Fertiphil counters that the LOI is unconstitutional
because it was enacted to give benefit to a private company.
The levy was imposed to pay the corporate debt of PPI.
Fertiphil also argues that, even if the LOI is enacted under the
police power, it is still unconstitutional because it did not
promote the general welfare of the people or public interest.
ISSUE:
What is one inherent limitation of the power to tax? Taxes
are exacted only for a public purpose. The P10 levy is
unconstitutional because it was not for a public purpose.
The levy was imposed to give undue benefit to PPI.
RULING:
TAXATION CASE DIGESTS
An inherent limitation on the power of
taxation is public purpose. Taxes are exacted only for a
public purpose. They cannot be used for purely private
purposes or for the exclusive benefit of private persons. The
reason for this is simple. The power to tax exists for the
general welfare; hence, implicit in its power is the limitation
that it should be used only for a public purpose. It would be a
robbery for the State to tax its citizens and use the funds
generated for a private purpose. As an old United States case
bluntly put it: "To lay with one hand, the power of the
government on the property of the citizen, and with the other
to bestow it upon favored individuals to aid private
enterprises and build up private fortunes, is nonetheless a
robbery because it is done under the forms of law and is
called taxation."
ISSUE: What do you mean by public purpose?
The term "public purpose" is not defined. It is an
elastic concept that can be hammered to fit modern standards.
Jurisprudence states that "public purpose" should be given a
broad interpretation. It does not only pertain to those
purposes which are traditionally viewed as essentially
government functions, such as building roads and delivery of
basic services, but also includes those purposes designed to
promote social justice. Thus, public money may now be used
for the relocation of illegal settlers, low-cost housing and
urban or agrarian reform.
While the categories of what may constitute a public purpose
are continually expanding in light of the expansion of
government functions, the inherent requirement that taxes can
only be exacted for a public purpose still stands. Public
purpose is the heart of a tax law. When a tax law is only a
mask to exact funds from the public when its true intent is to
give undue benefit and advantage to a private enterprise, that
law will not satisfy the requirement of "public purpose."
ISSUE: Was the levy imposed under LOI No. 1465 for a
public purpose?
No. First, the LOI expressly provided that the
levy be imposed to benefit PPI, a private company. The text
of the LOI is plain that the levy was imposed in order to raise
capital for PPI. The framers of the LOI did not even hide the
insidious purpose of the law. They were cavalier enough to
name PPI as the ultimate beneficiary of the taxes levied under
the LOI. We find it utterly repulsive that a tax law would
expressly name a private company as the ultimate beneficiary
of the taxes to be levied from the public. This is a clear case
of crony capitalism.
Second, the LOI provides that the imposition of
the P10 levy was conditional and dependent upon PPI
becoming financially "viable." This suggests that the levy was
actually imposed to benefit PPI. The LOI notably does not fix
a maximum amount when PPI is deemed financially "viable."
Worse, the liability of Fertiphil and other domestic sellers of
fertilizer to pay the levy is made indefinite. They are required
to continuously pay the levy until adequate capital is raised
for PPI.
10 | P a g e

Third, the RTC and the CA held that the levies
paid under the LOI were directly remitted and deposited by
FPA to Far East Bank, the depositary bank of PPI. This
proves that PPI benefited from the LOI and that the main
purpose of the law was to give undue benefit and advantage to
PPI.
Fourth, the levy was used to pay the corporate
debts of PPI. A reading of the Letter of Understanding dated
May 18, 1985 signed by then Prime Minister Cesar Virata
reveals that PPI was in deep financial problem because of its
huge corporate debts. There were pending petitions for
rehabilitation against PPI before the Securities and Exchange
Commission. The government guaranteed payment of PPI’s
debts to its foreign creditors. To fund the payment, President
Marcos issued LOI No. 1465.
We cannot agree with PPI that the levy was
imposed to ensure the stability of the fertilizer industry in the
country. The levy imposed under LOI No. 1465 was not for a
public purpose. LOI No. 1465 failed to comply with the
public purpose requirement for tax laws.
ISSUE: Is the LOI still unconstitutional even if enacted under
the police power?
Yes, it did not promote public interest.The law was enacted to
give undue advantage to a private corporation. It would still
be invalid for failing to comply with the test of "lawful
subjects" and "lawful means." Jurisprudence states the test as
follows: (1) the interest of the public generally, as
distinguished from those of particular class, requires its
exercise; and (2) the means employed are reasonably
necessary for the accomplishment of the purpose and not
unduly oppressive upon individuals.To quote the CA:
To be sure, ensuring the continued supply and distribution of
fertilizer in the country is an undertaking imbued with public
interest. However, the method by which LOI 1465 sought to
achieve this is by no means a measure that will promote the
public welfare. The government’s commitment to support the
successful rehabilitation and continued viability of PPI, a
private corporation, is an unmistakable attempt to mask the
subject statute’s impartiality. There is no way to treat the self-
interest of a favored entity, like PPI, as identical with the
general interest of the country’s farmers or even the Filipino
people in general. Well to stress, substantive due process
exacts fairness and equal protection disallows distinction
where none is needed. When a statute’s public purpose is
spoiled by private interest, the use of police power becomes a
travesty which must be struck down for being an arbitrary
exercise of government power. To rule in favor of appellant
would contravene the general principle that revenues derived
from taxes cannot be used for purely private purposes or for
the exclusive benefit of private individuals.
Here, We do not find anything iniquitous in ordering PPI to
refund the amounts paid by Fertiphil under LOI No. 1465. It
unduly benefited from the levy. It was proven during the trial
that the levies paid were remitted and deposited to its bank
account. We cannot allow PPI to profit from an
unconstitutional law. Justice and equity dictate that PPI must
refund the amounts paid by Fertiphil.
Pambansang Koalisyon vs. Executive Secretary
(By: Earvin Alparaque)
FACTS:
On June 19, 1971 Congress enacted Republic
Act (R.A.) 6260 that established a Coconut Investment Fund
(CI Fund) for the development of the coconut industry
through capital financing. For this purpose, the law imposed a
levy of P0.55 on the coconut farmer’s first domestic sale of
every 100 kilograms of copra, or its equivalent.
On August 20, 1973 President Ferdinand E.
Marcos issued Presidential Decree (P.D.) 276, which
established a Coconut Consumers Stabilization Fund (CCS
Fund), to address the crisis at that time in the domestic market
for coconut-based consumer goods. The CCS Fund was to be
built up through the imposition of a P15.00-levy for every
first sale of 100 kilograms of copra resecada.
On November 14, 1974 President Marcos issued
P.D. 582, creating a permanent fund called the Coconut
Industry Development Fund (CID Fund) to channel for the
ultimate direct benefit of coconut farmers part of the levies
that they were already paying. Under P.D. 582, the Philippine
National Bank (PNB), then owned by the Government, was to
receive on deposit, administer, and use the CID Fund. P.D.
582 authorized the PNB to invest the unused portion of the
CID Fund in easily convertible investments, the earnings of
which were to form part of the Fund.
On July 14, 1976 President Marcos enacted P.D.
961, the Coconut Industry Code, which consolidated and
codified existing laws relating to the coconut industry. P.D.
961 also provided that the coconut levy funds (coco-levy
funds) shall be owned by the coconut farmers in their private
capacities. This was reiterated in the PD 1468 amendment of
June 11, 1978.
In November 2000 then President Joseph Estrada
issued Executive Order (E.O.) 312, establishing a Sagip
Niyugan Program which sought to provide immediate income
supplement to coconut farmers and encourage the creation of
a sustainable local market demand for coconut oil and other
coconut products. The Executive Order sought to establish
a P1-billion fund by disposing of assets acquired using coco-
levy funds or assets of entities supported by those funds. At
about the same time, President Estrada issued E.O.
313, which created an irrevocable trust fund known as the
Coconut Trust Fund (the Trust Fund). This aimed to provide
financial assistance to coconut farmers, to the coconut
industry, and to other agri-related programs.
On January 26, 2001, however, former President
Gloria Macapagal-Arroyo ordered the suspension of E.O.s
312 and 313. This notwithstanding, on March 1, 2001
petitioner organizations and individuals brought the present
Based on the 2016 Course Outline of Atty.Donalvo
action in G.R. 147036-37 to declare E.O.s 312 and 313 as
well as Article III, Section 5 of P.D. 1468 unconstitutional.
On April 24, 2001 the other sets of petitioner organizations
and individuals instituted G.R. 147811 to nullify Section 2 of
P.D. 755 and Article III, Section 5 of P.D.s 961 and 1468 also
for being unconstitutional.
ISSUE:
Whether or not the coco-levy funds can be
considered as an exercise of the power of taxation and/or
police power -YES
Whether or not the coco-levy funds are public
funds – YES
RULING:
For some time, different and conflicting notions
had been formed as to the nature and ownership of the coco-
levy funds. The Court, however, finally put an end to the
dispute when it categorically ruled in Republic of the
Philippines v. COCOFED that these funds are not only
affected with public interest; they are, in fact, prima facie
public funds.
The Court was satisfied that the coco-levy funds
were raised pursuant to law to support a proper governmental
purpose. They were raised with the use of the police and
taxing powers of the State for the benefit of the coconut
industry and its farmers in general. The COA reviewed the
use of the funds. The Bureau of Internal Revenue (BIR)
treated them as public funds and the very laws governing
coconut levies recognize their public character.
The Court has also recently declared that the
coco-levy funds are in the nature of taxes and can only be
used for public purpose. Taxes are enforced proportional
contributions from persons and property, levied by the State
by virtue of its sovereignty for the support of the government
and for all its public needs. Here, the coco-levy funds were
imposed pursuant to law, namely, R.A. 6260 and P.D. 276.
The funds were collected and managed by the PCA, an
independent government corporation directly under the
President. And, as the respondent public officials pointed out,
the pertinent laws used the term levy, which means to tax in
describing the exaction.
Unlike ordinary revenue laws, R.A. 6260 and
P.D. 276 did not raise money to boost the government’s
general funds but to provide means for the rehabilitation and
stabilization of the coconut industry which is so affected with
public interest as to be within the police power of the State.
Unlike in SSS, SSS members do not lose
ownership of their contributions. The government merely
holds these in trust, together with his employer’s contribution,
to answer for his future benefits. The coco-levy funds, on the
other hand, belong to the government and are subject to its
administration and disposition. Thus, these funds, including
its incomes, interests, proceeds, or profits, as well as all its
TAXATION CASE DIGESTS
assets, properties, and shares of stocks procured with such
funds must be treated as public funds.
Lastly, the coco-levy funds are evidently special
funds. The fees were levied for a special purpose and,
therefore, constituted special fund when collected. It was
segregated from the general fund and placed in what the law
referred to as a trust account.
b. Comparison with Other Powers
i. Police Powers
Gerochi vs. Department of Energy
(By: Ray Gingco)
INTRO:
SECTION 34. Universal Charge. — Within one
(1) year from the effectivity of this Act, a universal charge to
be determined, fixed and approved by the ERC, shall be
imposed on all electricity end-users for the following
purposes:
(a) Payment for the stranded debts4 in excess of
the amount assumed by the National Government
and stranded contract costs of NPC5 and as well
as qualified stranded contract costs of
distribution utilities resulting from the
restructuring of the industry;
(b) Missionary electrification;6
(c) The equalization of the taxes and royalties
applied to indigenous or renewable sources of
energy vis-à-vis imported energy fuels;
(d) An environmental charge equivalent to one-
fourth of one centavo per kilowatt-hour
(P0.0025/kWh), which shall accrue to an
environmental fund to be used solely for
watershed rehabilitation and management. Said
fund shall be managed by NPC under existing
arrangements; and
(e) A charge to account for all forms of cross-
subsidies for a period not exceeding three (3)
years.
The universal charge shall be a non-bypassable
charge which shall be passed on and collected from all end-
users on a monthly basis by the distribution utilities.
Collections by the distribution utilities and the TRANSCO in
any given month shall be remitted to the PSALM Corp. on or
before the fifteenth (15th) of the succeeding month, net of any
amount due to the distribution utility. Any end-user or self-
generating entity not connected to a distribution utility shall
remit its corresponding universal charge directly to the
TRANSCO. The PSALM Corp., as administrator of the fund,
shall create a Special Trust Fund which shall be disbursed
only for the purposes specified herein in an open and
11 | P a g e

transparent manner. All amount collected for the universal
charge shall be distributed to the respective beneficiaries
within a reasonable period to be provided by the ERC.
FACTS:
 Congress enacted the EPIRA on June 8, 2001; on June
26, 2001, it took effect.
 National Power Corporation-Strategic Power Utilities
Group8 (NPC-SPUG) filed with Energy Regulatory
Commission (ERC) a petition for the availment from the
Universal Charge of its share for Missionary
Electrification (UC-ME) , ERC Case No. 2002-165.
 On May 7, 2002, NPC filed another petition with ERC,
ERC Case No. 2002-194, praying that the proposed
share from the Universal Charge for the Environmental
charge be approved for withdrawal from the Special
Trust Fund (STF) managed by respondent Power Sector
Assets and Liabilities Management Group
(PSALM)10 for the rehabilitation and management of
11
watershed areas.
 On December 20, 2002, the ERC issued an Order12 in
ERC Case No. 2002-165 provisionally approving the
computed amount of P0.0168/kWh as the share of the
NPC-SPUG from the Universal Charge for Missionary
Electrification and authorizing the National
Transmission Corporation (TRANSCO) and Distribution
Utilities to collect the same from its end-users on a
monthly basis.
 June 26, 2003, the ERC rendered its Decision13 (for ERC
Case No. 2002-165) modifying its Order of December
20, 2002: additional amount of P0.0205 per kWh should
be added to the P0.0168 kWh. Total amount of P0.0373
per kilowatt-hour is APPROVED for withdrawal from
the STF as its share from the UC-ME. TRANSCO and
Dus are directed to collect the UC-ME in the amount
of P0.0373 per kilowatt-hour and remit the same to
PSALM on or before the 15th day of the succeeding
month. NPC-SPUG is directed to submit a detailed
report to include Audited Financial Statements and
physical status (percentage of completion) of the projects
using the prescribed format.1avvphi1
 On August 13, 2003, NPC-SPUG filed a MR to set aside
the Decision. which the ERC granted in its Order dated
October 7, 2003. NPC-SPUG is directed to submit a
quarterly report.
 April 2, 2003, ERC decided ERC Case No. 2002-194,
authorizing the NPC to draw up toP70,000,000.00 from
PSALM for its 2003 Watershed Rehabilitation Budget
subject to the availability of funds for the Environmental
Fund component of the Universal Charge.
 On the basis of the said ERC decisions, respondent
Panay Electric Company, Inc. (PECO) charged petitioner
Romeo P. Gerochi and all other end-users with the
Universal Charge as reflected in their respective electric
bills starting from the month of July 2003.17
 Hence, this original action.
Petitioners submit that the assailed provision of law and its
IRR which sought to implement the same are unconstitutional
on the following grounds:
1) The universal charge provided for under Sec. 34
of the EPIRA and sought to be implemented
under Sec. 2, Rule 18 of the IRR of the said law
is a tax which is to be collected from all electric
end-users and self-generating entities. The power
to tax is strictly a legislative function and as
such, the delegation of said power to any
executive or administrative agency like the ERC
is unconstitutional, giving the same unlimited
authority. The assailed provision clearly provides
that the Universal Charge is to be determined,
fixed and approved by the ERC, hence leaving to
the latter complete discretionary legislative
authority.
2) The ERC is also empowered to approve and
determine where the funds collected should be
used.
3) The imposition of the Universal Charge on all
end-users is oppressive and confiscatory and
amounts to taxation without representation as the
consumers were not given a chance to be heard
and represented.
Respondent PSALM through the Office of the Government
Corporate Counsel (OGCC) and Respondents Department of
Energy (DOE), ERC, and NPC, through the Office of the
Solicitor General (OSG) contends:
1) Unlike a tax which is imposed to provide income
for public purposes, the assailed Universal
Charge is levied for a specific regulatory
purpose, which is to ensure the viability of the
country's electric power industry.
2) It is exacted by the State in the exercise of its
inherent police power. On this premise, PSALM
submits that there is no undue delegation of
legislative power to the ERC since the latter
merely exercises a limited authority or discretion
as to the execution and implementation of the
provisions of the EPIRA.
3) Universal Charge does not possess the essential
characteristics of a tax, that its imposition would
redound to the benefit of the electric power
industry and not to the public, and that its rate is
uniformly levied on electricity end-users, unlike
a tax which is imposed based on the individual
taxpayer's ability to pay.
4) Imposition of the Universal Charge is not
oppressive and confiscatory since it is an
exercise of the police power of the State and it
complies with the requirements of due process.
TAXATION CASE DIGESTS
Based on the 2016 Course Outline of Atty.Donalvo
 PECO argues that it is duty-bound to collect and remit
the amount pertaining to the Missionary
Electrification and Environmental Fund components
of the Universal Charge, pursuant to Sec. 34 of the
EPIRA and the Decisions in ERC Case Nos. 2002-194
and 2002-165.Otherwise, PECO could be held liable
under Sec. 46[24] of the EPIRA, which imposes fines
and penalties for any violation of its provisions or its
IRR.
 Petitioners Romeo P. Gerochi, Katulong Ng
Bayan (KB), and Environmentalist Consumers
Network, Inc. (ECN) (petitioners), come before this
Court in this original action praying that Section 34 of
Republic Act (RA) 9136, otherwise known as the
Electric Power Industry Reform Act of 2001 (EPIRA),
imposing the Universal Charge, and Rule 18 of the
Rules and Regulations (IRR) which seeks to
implement the said imposition, be declared
unconstitutional.
 Petitioners also pray that the Universal Charge
imposed upon the consumers be refunded and that a
preliminary injunction and/or temporary restraining
order (TRO) be issued directing the respondents to
refrain from implementing, charging, and collecting
the said charge.
ISSUES:
1) Whether or not, the Universal Charge
imposed under Sec. 34 of the EPIRA is a
tax
2) Whether or not there is undue delegation
of legislative power to tax on the part of
the ERC.
RULING:
1). Universal Charge is not a tax, but an exaction in the
exercise of the State's police power. Public welfare is
surely promoted.
 The power to tax is an incident of sovereignty and is
unlimited in its range, acknowledging in its very
nature no limits, so that security against its abuse is to
be found only in the responsibility of the legislature
which imposes the tax on the constituency that is to
pay it.30 It is based on the principle that taxes are the
lifeblood of the government, and their prompt and
certain availability is an imperious need.31 Thus, the
theory behind the exercise of the power to tax
emanates from necessity; without taxes, government
cannot fulfill its mandate of promoting the general
welfare and well-being of the people.32
 On the other hand, police power is the power of the
state to promote public welfare by restraining and
regulating the use of liberty and property.33 It is the
most pervasive, the least limitable, and the most
demanding of the three fundamental powers of the
State. The justification is found in the Latin
maxims saluspopuliest suprema lex (the welfare of the
people is the supreme law) and sic uteretuoutalienum
non laedas (so use your property as not to injure the
property of others). As an inherent attribute of
sovereignty which virtually extends to all public
needs, police power grants a wide panoply of
instruments through which the State, as parenspatriae,
gives effect to a host of its regulatory powers.34 We
have held that the power to "regulate" means the
power to protect, foster, promote, preserve, and
control, with due regard for the interests, first and
foremost, of the public, then of the utility and of its
patrons.35
 The conservative and pivotal distinction between these
two powers rests in the purpose for which the charge
is made. If generation of revenue is the primary
purpose and regulation is merely incidental, the
imposition is a tax; but if regulation is the primary
purpose, the fact that revenue is incidentally raised
does not make the imposition a tax.36
 In exacting the assailed Universal Charge through Sec.
34 of the EPIRA, the State's police power, particularly
its regulatory dimension, is invoked. Such can be
deduced from Sec. 34 which enumerates the purposes
for which the Universal Charge is imposed37 and
which can be amply discerned as regulatory in
character.
 Taxing power may be used as an implement of police
power.
 Evidently, the establishment and maintenance of the
Special Trust Fund, under the last paragraph of
Section 34, R.A. No. 9136, is well within the
pervasive and non-waivable power and responsibility
of the government to secure the physical and
economic survival and well-being of the community,
that comprehensive sovereign authority we designate
as the police power of the State.46
 This feature of the Universal Charge further boosts the
position that the same is an exaction imposed
primarily in pursuit of the State's police objectives.
The STF reasonably serves and assures the attainment
and perpetuity of the purposes for which the Universal
Charge is imposed, i.e., to ensure the viability of the
country's electric power industry.
2.) There is no undue delegation of legislative power to
the ERC.
 Valid exercise of this power of subordinate legislation
is that the regulation be germane to the objects and
purposes of the law and that the regulation be not in
contradiction to, but in conformity with, the standards
prescribed by the law. These requirements are
denominated as the completeness test and the
sufficient standard test.
12 | P a g e

 The Court finds that the EPIRA, read and appreciated
in its entirety, in relation to Sec. 34 thereof, is
complete in all its essential terms and conditions, and
that it contains sufficient standards.
 1st test - Although Sec. 34 of the EPIRA merely
provides that within one (1) year from the effectivity
thereof, a Universal Charge to be determined, fixed
and approved by the ERC, shall be imposed on all
electricity end-users, and therefore, does not state the
specific amount to be paid as Universal Charge, the
amount nevertheless is made certain by the legislative
parameters provided in the law itself. Moreover,
contrary to the petitioners contention, the ERC does
not enjoy a wide latitude of discretion in the
determination of the Universal Charge. Thus, the law
is complete and passes the first test for valid
delegation of legislative power.
 2nd test - Provisions of the EPIRA such as, among
others, to ensure the total electrification of the country
and the quality, reliability, security and affordability
of the supply of electric power[59] and watershed
rehabilitation and management[60] meet the
requirements for valid delegation, as they provide the
limitations on the ERCs power to formulate the IRR.
These are sufficient standards.
 Petitioners failed to pursue in their Memorandum the
contention in the Complaint that the imposition of the
Universal Charge on all end-users is oppressive and
confiscatory, and amounts to taxation without
representation. Hence, such contention is deemed
waived or abandoned. Moreover, the determination of
whether or not a tax is excessive, oppressive or
confiscatory is an issue which essentially involves
questions of fact, and thus, this Court is precluded
from reviewing the same.
 Finally, every law has in its favor the
presumption of constitutionality, and to
justify its nullification, there must be a
clear and unequivocal breach of the
Constitution and not one that is doubtful,
speculative, or
argumentative. Indubitably, petitioners
failed to overcome this presumption in
favor of the EPIRA. We find no clear
violation of the Constitution which would
warrant a pronouncement that Sec. 34 of
the EPIRA and Rule 18 of its IRR are
unconstitutional and void.
Chevron vs. Bases Conversion
(By: Katherina Gumboc)
FACTS:
The Board of Directors of respondent Clark
Development Corporation (CDC) issued and approved Policy
Guidelines on the Movement of Petroleum Fuel to and from
the Clark Special Economic Zone (CSEZ), which provided
for the payment of Royalty Fees from Supplies delivering fuel
from outside sources.
CDC sent a letter to petitioner Chevron that a
royalty fee of P0.50 per liter shall be assessed on its deliveries
to Nanox Philippines amounting to P115k. Chevron paid the
amount under protest. Chevron filed a claim for refund
arguing that the royalty fees imposed had no reasonable
relation to the probable expenses of regulation and that the
imposition on a per unit measurement of fuel sales was for a
revenue generating purpose, thus, akin to a tax. Chevron
stresses that the royalty fee imposed by CDC is not regulatory
in nature but a revenue generating measure to increase CDC’s
profits and to further enhance its exclusive right to market and
distribute fuel in CSEZ. Chevron further contended that CDC
does not have any power to impose royalty fees on sale of
fuel inside the CSEZ on the basis of purely income generating
functions and its exclusive right to market and distribute
goods inside the CSEZ.
Respondent BCDA argued that the main purpose
of the royalty fees is to regulate the flow of fuel to and from
the CSEZ and revenue (if any) is just an incidental product.
Hence, the imposition cannot be considered a tax. Also, the
regulation is a valid exercise of police power since it is aimed
at promoting the general welfare of the public. They claim
that being the administrator of the CSEZ, CDC is responsible
for the safe distribution of fuel products inside the CSEZ.
ISSUE: W/N the royalty fees imposed are akin to tax.
RULING: NO, valid exercise of State’s police power
In distinguishing tax and regulation as a form of
police power, the determining factor is the purpose of the
implemented measure. If the purpose is primarily to raise
revenue, then it will be deemed a tax even though the measure
results in some form of regulation. On the other hand, if the
purpose is primarily to regulate, then it is deemed a regulation
and an exercise of the police power of the state, even though
incidentally, revenue is generated.
In the case at bar, the subject royalty fee was
imposed primarily for regulatory purposes, and not for the
generation of income or profits. The Policy Guidelines was
issued to ensure the safety, security, and good condition of the
petroleum fuel industry within the CSEZ. The questioned
royalty fees form part of the regulatory framework to ensure
Based on the 2016 Course Outline of Atty.Donalvo
free flow or movement of petroleum fuel to and from the
CSEZ. The fact that respondents have the exclusive right to
distribute and market petroleum products within CSEZ
pursuant to its JVA with SBMA and CSBTI does not
diminish the regulatory purpose of the royalty fee for fuel
products supplied by petitioner Chevron to its client at the
CSEZ. Being the administrator of CSEZ, the responsibility of
ensuring the safe, efficient and orderly distribution of fuel
products within the Zone falls on CDC.
There can be no doubt that the oil industry is
greatly imbued with public interest as it vitally affects the
general welfare In addition, fuel is a highly combustible
product which, if left unchecked, poses a serious threat to life
and property. Also, the reasonable relation between the
royalty fees imposed on a per liter basis and the regulation
sought to be attained is that the higher the volume of fuel
entering CSEZ, the greater the extent and frequency of
supervision and inspection required to ensure safety, security,
and order within the Zone.
Republic vs. Bacolod-Murcia
(By: Lyzzaik Laguialam)
FACTS:
RA 632 is the charter of the Philippine Sugar
Institute (Philsugin). ToTo raise the necessary funds to
carry out its purposes, Philsugin is allowed to levy on
the annual sugar production a tax of .10 centavo per picul of
sugar to be collected for a period of 5 years. The amount shall
be borne by the sugar cane planters and the sugar centrals in
the proportion of their corresponding milling share, and said
levy shall constitute a lien on their sugar quedans and/or
warehouse receipts. The proceeds of the levy shall constitute
a special fund to be known as the "Sugar Researchand
Stabilization Fund," which shall be available exclusively for
the use of the corporation. Bacolod Murcia Milling Co., Inc.,
Ma-ao Sugar Central Co., Inc., andTalisay-Silay Milling Co.
contributed to Philsugin. However, Philsugin incurred
tremendous losses when it acquired the Insular Sugar
Refinery for a total consideration of P3,070,909.60.
Contending that the purchase of the
Insular Sugar Refinery with money from the Philsugin
Fund was not authorized by Republic Act 632and that the
continued operation of the said refinery was inimical to their
interests, Bacolod et al refused to continue with their
contributions and maintained that their obligation to
contribute or pay to the said Fund subsists only to
the limit and extent that they are benefited by such
TAXATION CASE DIGESTS
contributions since Republic Act 632 is not a revenue
measure but an Act which establishes a "Special
assessments." Being a special assessment, the proceeds
thereof may be devoted only to the specific purpose for
which the assessment was authorized. It is not a tax measure
intended to raise revenues for the Government.
Consequently, once it has been determined that no
benefit accrues or inures to the property owners
paying the assessment, or that the proceeds from the said
assessment are being misapplied to the prejudice of those
against whom it has been levied, then the authority to insist
on the payment of the said assessment ceases. They also
demanded that they be refunded of the amount they
contributed to Philsugin.
ISSUE:
Whether or not the 10 centavo per picul is an
exercise of power of taxation.
RULING: No
The special assessment at bar may be considered
as similarly as the above, that is, that the levy for the
Philsugin Fund is not so much an exercise of the power of
taxation, nor the imposition of a special assessment, but, the
exercise of the police power for the general welfare of the
entire country. It is, therefore, an exercise of a sovereign
power which no private citizen may lawfully resist.
The tax is levied with a regulatory purpose, to
provide means for the rehabilitation and stabilization of the
threatened sugar industry. In other words, the act is primarily
an exercise of the police power. Sugar production is one of
the great industries of our nation, sugar occupying a
leading position among its export products; that it
gives employment to thousands of laborers in fields and
factories; that it is a great source of the state's wealth, is
one, of the important sources to foreign exchange needed
by our government, and is thus pivotal in the plans of a
regime committed to a policy of currency stability.
Its promotion, protection and advancement,
therefore redounds greatly to the general welfare. Hence, it
was competent for the Legislature to find that the general
welfare demanded that the sugar industry should be
stabilized in turn; and in the wide field of its police power, the
law-making body could provide that the distribution of
benefits there from be readjusted among its components, to
enable it to resist the added strain of the increase in taxes that
it had to sustain Once it is conceded, as it must that the
protection and promotion of the sugar industry is a
matter of public concern, it follows that the
Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its
promotion. Here, the legislative discretion must be
13 | P a g e

allowed full play, subject only to the test of
reasonableness.
Republic vs. International Communications
(By: Marry Suan)
FACTS:
International Communications Corp., holder of a
legislative franchise under RA 7633 to operate domestic
telecommunications, filed with the National
Telecommunications Commission an application for a
Certificate of Public Convenience and Necessity to install,
operate, and maintain an international telecommunications
leased circuit service between the Philippines and other
countries, and to charge rates therefor, with provisional
authority for the purpose.
Subsequently, NTC approved the application subject,
among others, to the condition that ICC shall pay a permit fee
in the amount of P1,190,750 in accordance with Sec. 40(g) of
the Public Service Act.
ICC filed a motion for partial reconsideration of the Order
insofar as it required payment of a permit fee. NTC denied the
motion.
ICC went to CA on a petition for certiorari with prayer for
TRO and preliminary injunction.
NTC’s contention: the fee in question is not in the nature
of a tax but is a mere regulatory measure.
ISSUE:
Whether the permit fee is in the nature of a tax or
a regulatory measure
RULING:
Regulatory measure. Sec. 40 of the Public Service Act
reads: “The Commission is authorized and ordered to charge
and collect from any public service or applicant, as the case
may be, the following fees as reimbursement of its expenses in
the authorization, supervision and/or regulation of the public
services…”
Clearly, Section 40(g) of the Public Service Act is not a
tax measure but a simple regulatory provision for the
collection of fees imposed pursuant to the exercise of the
State’s police power. A tax is imposed under the taxing power
of government principally for the purpose of raising revenues.
The law in question, however, merely authorizes and requires
the collection of fees for the reimbursement of the
Commission's expenses in the authorization, supervision
and/or regulation of public services. There can be no doubt
then that petitioner NTC is authorized to collect such fees.
However, the amount thereof must be reasonably related to
the cost of such supervision and/or regulation.
PAL v. Romeo F. Edu
(By: JM Banal)
FACTS:
The Philippine Airlines (PAL) is a corporation
engaged in the air transportation business under a legislative
franchise, Act No. 42739, as amended by Republic Act Nos.
25 and 269. Under its franchise, PAL is exempt from the
payment of taxes. On the strength of an opinion of the
Secretary of Justice, PAL has, since 1956, not been paying
motor vehicle registration fees.
Sometime in 1971, however, Commissioner
Romeo F. Elevate issued a regulation requiring all tax exempt
entities, among them PAL to pay motor vehicle registration
fees. Despite PAL's protestations, the appellee refused to
register the appellant's motor vehicles unless the amounts
imposed under RA 4136 were paid. The appellant thus paid,
under protest, the amount of P19,529.75 as registration fees of
its motor vehicles.
After paying under protest, PAL through
counsel, wrote a letter dated May 19,1971, to Commissioner
Edu demanding a refund of the amounts paid, invoking the
ruling in Calalang v. Lorenzo (97 Phil. 212 [1951]) where it
was held that motor vehicle registration fees are in reality
taxes from the payment of which PAL is exempt by virtue of
its legislative franchise. Edu denied the request for refund
basing his action on the decision in Republic v. Philippine
Rabbit Bus Lines, Inc., to the effect that motor vehicle
registration fees are regulatory exactions and not revenue
measures and, therefore, do not come within the exemption
granted to PAL under its franchise. Hence, PAL filed the
complaint against Commissioner Romeo F. Edu and National
Treasurer Ubaldo.
ISSUE:
Whether motor registration fees are taxes?
RULING:
TAXATION CASE DIGESTS
Based on the 2016 Course Outline of Atty.Donalvo
YES, therefore PAL therefore is exempt from In view of the foregoing, we rule that motor
payment vehicle registration fees as at present exacted pursuant to the
Land Transportation and Traffic Code are actually taxes
intended for additional revenues. of government even if one
CA 123, Section 73. Disposal of moneys collected.—Twenty
fifth or less of the amount collected is set aside for the
per centum of the money xxx shall accrue to the
operating expenses of the agency administering the program.
road and bridge funds of the different
provinces and chartered cities xxx and the
remaining eighty per centum shall be deposited May the respondent administrative agency be
in the Philippine Treasury to create a special required to refund PAL?
fund for the construction and maintenance of
national and provincial roads and bridges. as well
as the streets and bridges in the chartered cities The answer is NO.
xxx. .... :
We have ruled that Section 24 of Rep. Act No.
Land Transportation and Traffic Code, Sec. 61. Disposal of 5448 dated June 27, 1968, repealed all earlier tax exemptions
Mortgage. Collected—Monies collected under Of corporate taxpayers found in legislative franchises similar
the provisions of this Act shall xxx be to that invoked by PAL in this case. Any registration fees
apportioned and expended in accordance with the collected between June 27, 1968 and April 9, 1979, were
provisions of the" Philippine Highway Act of correctly imposed because the tax exemption in the franchise
1935. "Provided, however, That the amount of PAL was repealed during the period.
necessary to maintain and equip the Land
Transportation Commission but not to exceed
However, an amended franchise was given to
twenty per cent of the total collection during one
PAL in 1979. PAL's current franchise is clear and specific. It
year, shall be set aside for the purpose.
has removed the ambiguity found in the earlier law. PAL is
now exempt from the payment of any tax, fee, or other
It appears clear from the above provisions that charge on the registration and licensing of motor vehicles.
the legislative intent and purpose behind the law requiring Such payments are already included in the basic tax or
owners of vehicles to pay for their registration is mainly to franchise tax provided in Subsections (a) and (b) of Section
raise funds for the construction and maintenance of 13, P.D. 1590, and may no longer be exacted.
highways and to a much lesser degree, pay for the
operating expenses of the administering agency.
The prayed for refund of registration fees paid in
1971 is DENIED. The Land Transportation Franchising and
Fees may be properly regarded as taxes even Regulatory Board (LTFRB) is enjoined functions-the
though they also serve as an instrument of regulation. collecting any tax, fee, or other charge on the registration and
Taxation may be made the implement of the state's police licensing of the petitioner's motor vehicles from April 9, 1979
power. If the purpose is primarily revenue, or if revenue as provided in P.D. 1590.
is, at least, one of the real and substantial purposes, then
the exaction is properly called a tax. Such is the case of
Planters Products vs. Fertiphil
motor vehicle registration fees. It is patent therefrom that
(By: Kelvin John Du)
the legislators had in mind a regulatory tax as the law refers to
FACTS:
the imposition on the registration, operation or ownership of a
PPI and Fertiphil are private corporations
motor vehicle as a "tax or fee." Though nowhere in Rep. Act
incorporated under Philippine laws both engaged in the
4136 does the law specifically state that the imposition is a
importation and distribution of fertilizers, pesticides and
tax, Section 591-593). speaks of "taxes." or fees ... for the
agricultural chemicals.
registration or operation or on the ownership of any motor
vehicle, or for the exercise of the profession of chauffeur ..."
making the intent to impose a tax more apparent. It is quite
On June 3, 1985, then President Ferdinand
apparent that vehicle registration fees were originally simple
Marcos, exercising his legislative powers, issued LOI No.
exceptional, intended only for rigidly purposes in the exercise
1465 which provided for the imposition of a capital recovery
of the State's police powers. Over the years, however, as
component (CRC) on the domestic sale of all grades of
vehicular traffic exploded in number and motor vehicles
fertilizers in the Philippines. The LOI provides:
became absolute necessities without which modem life as we
3. The Administrator of the Fertilizer Pesticide
know it would stand still, Congress found the registration of
Authority to include in its fertilizer pricing formula a capital
vehicles a very convenient way of raising much needed
contribution component of not less than P10 per bag. This
revenues.
capital contribution shall be collected until adequate capital is
raised to make PPI viable. Such capital contribution shall be
14 | P a g e

applied by FPA to all domestic sales of fertilizers in the
Philippines.
Pursuant to the LOI, Fertiphil paid P10 for every
bag of fertilizer it sold in the domestic market to the Fertilizer
and Pesticide Authority (FPA). After the 1986 Edsa
Revolution, FPA voluntarily stopped the imposition of
the P10 levy. With the return of democracy, Fertiphil
demanded from PPI a refund of the amounts it paid under LOI
No. 1465, but PPI refused to accede to the demand.
Fertiphil filed a complaint for collection and
damages against FPA and PPI questioning the
constitutionality of LOI No. 1465. Fertiphil alleged that the
LOI solely favored PPI, a privately owned corporation, which
used the proceeds to maintain its monopoly of the fertilizer
industry.
FPA countered that the issuance of LOI No.
1465 was a valid exercise of the police power of the State in
ensuring the stability of the fertilizer industry in the country.
It also averred that Fertiphil did not sustain any damage from
the LOI because the burden imposed by the levy fell on the
ultimate consumer, not the seller.
RTC ruled in favor of Fertiphil. Ruling that the
imposition of the P10 CRC was an exercise of the State’s
inherent power of taxation, the RTC invalidated the levy for
violating the basic principle that taxes can only be levied for
public purpose, viz.: One of the inherent limitations is that a
tax may be levied only for public purposes:The power to
tax can be resorted to only for a constitutionally valid public
purpose. By the same token, taxes may not be levied for
purely private purposes, for building up of private
fortunes, or for the redress of private wrongs. They
cannot be levied for the improvement of private property,
or for the benefit, and promotion of private enterprises,
except where the aid is incident to the public benefit. It is
well-settled principle of constitutional law that no general tax
can be levied except for the purpose of raising money which
is to be expended for public use. Funds cannot be exacted
under the guise of taxation to promote a purpose that is not of
public interest. Without such limitation, the power to tax
could be exercised or employed as an authority to destroy the
economy of the people. A tax, however, is not held void on
the ground of want of public interest unless the want of such
interest is clear. (71 Am. Jur. pp. 371-372)
CA affirmed the RTC. The CA held that even on
the assumption that LOI No. 1465 was issued under the police
power of the state, it is still unconstitutional because it did not
promote public welfare. The CA explained:
In declaring LOI 1465 unconstitutional, the trial court held
that the levy imposed under the said law was an invalid
exercise of the State’s power of taxation inasmuch as it
violated the inherent and constitutional prescription that taxes
be levied only for public purposes. It reasoned out that the
amount collected under the levy was remitted to the
depository bank of PPI, which the latter used to advance its
private interest.
The CA did not accept PPI’s claim that the levy
imposed under LOI No. 1465 was for the benefit of Planters
Foundation, Inc., a foundation created to hold in trust the
stock ownership of PPI.
PPI insists that LOI No. 1465 is a valid exercise
either of the police power or the power of taxation. It claims
that the LOI was implemented for the purpose of assuring the
fertilizer supply and distribution in the country and for
benefiting a foundation created by law to hold in trust for
millions of farmers their stock ownership in PPI.
Fertiphil counters that the LOI is unconstitutional
because it was enacted to give benefit to a private company.
The levy was imposed to pay the corporate debt of PPI.
Fertiphil also argues that, even if the LOI is enacted under the
police power, it is still unconstitutional because it did not
promote the general welfare of the people or public interest.
ISSUE:
Is the Php10 levy under the LOI an exercise of police power
or the power of taxation?
RULING: The P10 levy under LOI No. 1465 is an exercise
of the power of taxation. Police power and the power of
taxation are inherent powers of the State. These powers are
distinct and have different tests for validity. Police power is
the power of the State to enact legislation that may
interfere with personal liberty or property in order to
promote the general welfare, while the power of taxation
is the power to levy taxes to be used for public purpose.
The main purpose of police power is the regulation of a
behavior or conduct, while taxation is revenue generation.
The "lawful subjects" and "lawful means" tests are used
to determine the validity of a law enacted under the police
power. The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations.
We agree with the RTC that the imposition of the
levy was an exercise by the State of its taxation power. While
it is true that the power of taxation can be used as an
implement of police power, the primary purpose of the levy is
revenue generation. If the purpose is primarily revenue, or if
revenue is, at least, one of the real and substantial purposes,
then the exaction is properly called a tax.
In Philippine Airlines, Inc. v. Edu, it was held that the
imposition of a vehicle registration fee is not an exercise by
the State of its police power, but of its taxation power, thus:
Taxation may be made the implement of the state's police
power (Lutz v. Araneta, 98 Phil. 148). If the purpose is
primarily revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly called a
tax. Such is the case of motor vehicle registration fees.
The P10 levy under LOI No. 1465 is too
excessive to serve a mere regulatory purpose. The levy, no
doubt, was a big burden on the seller or the ultimate
consumer. It increased the price of a bag of fertilizer by as
much as five percent. A plain reading of the LOI also supports
the conclusion that the levy was for revenue generation. The
LOI expressly provided that the levy was imposed "until
adequate capital is raised to make PPI viable."
ISSUE: Is the LOI still unconstitutional even if enacted under
the police power?
Yes, it did not promote public interest.The law
was enacted to give undue advantage to a private corporation.
Based on the 2016 Course Outline of Atty.Donalvo
It would still be invalid for failing to comply with the test of
"lawful subjects" and "lawful means." Jurisprudence states the
test as follows: (1) the interest of the public generally, as
distinguished from those of particular class, requires its
exercise; and (2) the means employed are reasonably
necessary for the accomplishment of the purpose and not
unduly oppressive upon individuals.To quote the CA:
To be sure, ensuring the continued supply and distribution of
fertilizer in the country is an undertaking imbued with public
interest. However, the method by which LOI 1465 sought to
achieve this is by no means a measure that will promote the
public welfare. The government’s commitment to support the
successful rehabilitation and continued viability of PPI, a
private corporation, is an unmistakable attempt to mask the
subject statute’s impartiality. There is no way to treat the self-
interest of a favored entity, like PPI, as identical with the
general interest of the country’s farmers or even the Filipino
people in general. Well to stress, substantive due process
exacts fairness and equal protection disallows distinction
where none is needed. When a statute’s public purpose is
spoiled by private interest, the use of police power becomes a
travesty which must be struck down for being an arbitrary
exercise of government power. To rule in favor of appellant
would contravene the general principle that revenues derived
from taxes cannot be used for purely private purposes or for
the exclusive benefit of private individuals.
Here, We do not find anything iniquitous in ordering PPI to
refund the amounts paid by Fertiphil under LOI No. 1465. It
unduly benefited from the levy. It was proven during the trial
that the levies paid were remitted and deposited to its bank
account. We cannot allow PPI to profit from an
unconstitutional law. Justice and equity dictate that PPI must
refund the amounts paid by Fertiphil.
Pambansang Koalisyon vs. Executive Secretary
(By: Earvin Alparaque)
FACTS:
On June 19, 1971 Congress enacted Republic
Act (R.A.) 6260 that established a Coconut Investment Fund
(CI Fund) for the development of the coconut industry
through capital financing. For this purpose, the law imposed a
levy of P0.55 on the coconut farmer’s first domestic sale of
every 100 kilograms of copra, or its equivalent.
On August 20, 1973 President Ferdinand E.
Marcos issued Presidential Decree (P.D.) 276, which
established a Coconut Consumers Stabilization Fund (CCS
Fund), to address the crisis at that time in the domestic market
for coconut-based consumer goods. The CCS Fund was to be
built up through the imposition of a P15.00-levy for every
first sale of 100 kilograms of copra resecada.
TAXATION CASE DIGESTS
On November 14, 1974 President Marcos issued
P.D. 582, creating a permanent fund called the Coconut
Industry Development Fund (CID Fund) to channel for the
ultimate direct benefit of coconut farmers part of the levies
that they were already paying. Under P.D. 582, the Philippine
National Bank (PNB), then owned by the Government, was to
receive on deposit, administer, and use the CID Fund. P.D.
582 authorized the PNB to invest the unused portion of the
CID Fund in easily convertible investments, the earnings of
which were to form part of the Fund.
On July 14, 1976 President Marcos enacted P.D.
961, the Coconut Industry Code, which consolidated and
codified existing laws relating to the coconut industry. P.D.
961 also provided that the coconut levy funds (coco-levy
funds) shall be owned by the coconut farmers in their private
capacities. This was reiterated in the PD 1468 amendment of
June 11, 1978.
In November 2000 then President Joseph Estrada
issued Executive Order (E.O.) 312, establishing a Sagip
Niyugan Program which sought to provide immediate income
supplement to coconut farmers and encourage the creation of
a sustainable local market demand for coconut oil and other
coconut products. The Executive Order sought to establish
a P1-billion fund by disposing of assets acquired using coco-
levy funds or assets of entities supported by those funds. At
about the same time, President Estrada issued E.O.
313, which created an irrevocable trust fund known as the
Coconut Trust Fund (the Trust Fund). This aimed to provide
financial assistance to coconut farmers, to the coconut
industry, and to other agri-related programs.
On January 26, 2001, however, former President
Gloria Macapagal-Arroyo ordered the suspension of E.O.s
312 and 313. This notwithstanding, on March 1, 2001
petitioner organizations and individuals brought the present
action in G.R. 147036-37 to declare E.O.s 312 and 313 as
well as Article III, Section 5 of P.D. 1468 unconstitutional.
On April 24, 2001 the other sets of petitioner organizations
and individuals instituted G.R. 147811 to nullify Section 2 of
P.D. 755 and Article III, Section 5 of P.D.s 961 and 1468 also
for being unconstitutional.
ISSUE:
Whether or not the coco-levy funds can be
considered as an exercise of the power of taxation and/or
police power -YES
Whether or not the coco-levy funds are public
funds – YES
RULING:
For some time, different and conflicting notions
had been formed as to the nature and ownership of the coco-
levy funds. The Court, however, finally put an end to the
dispute when it categorically ruled in Republic of the
Philippines v. COCOFED that these funds are not only
15 | P a g e

affected with public interest; they are, in fact, prima facie
public funds.
The Court was satisfied that the coco-levy funds
were raised pursuant to law to support a proper governmental
purpose. They were raised with the use of the police and
taxing powers of the State for the benefit of the coconut
industry and its farmers in general. The COA reviewed the
use of the funds. The Bureau of Internal Revenue (BIR)
treated them as public funds and the very laws governing
coconut levies recognize their public character.
The Court has also recently declared that the
coco-levy funds are in the nature of taxes and can only be
used for public purpose. Taxes are enforced proportional
contributions from persons and property, levied by the State
by virtue of its sovereignty for the support of the government
and for all its public needs. Here, the coco-levy funds were
imposed pursuant to law, namely, R.A. 6260 and P.D. 276.
The funds were collected and managed by the PCA, an
independent government corporation directly under the
President. And, as the respondent public officials pointed out,
the pertinent laws used the term levy, which means to tax in
describing the exaction.
Unlike ordinary revenue laws, R.A. 6260 and
P.D. 276 did not raise money to boost the government’s
general funds but to provide means for the rehabilitation and
stabilization of the coconut industry which is so affected with
public interest as to be within the police power of the State.
Unlike in SSS, SSS members do not lose
ownership of their contributions. The government merely
holds these in trust, together with his employer’s contribution,
to answer for his future benefits. The coco-levy funds, on the
other hand, belong to the government and are subject to its
administration and disposition. Thus, these funds, including
its incomes, interests, proceeds, or profits, as well as all its
assets, properties, and shares of stocks procured with such
funds must be treated as public funds.
Lastly, the coco-levy funds are evidently special
funds. The fees were levied for a special purpose and,
therefore, constituted special fund when collected. It was
segregated from the general fund and placed in what the law
referred to as a trust account.
Manila Memorial vs. DSWD
By: Glorybelle C. Resurreccion
FACTS:
Petitioners Manila Memorial Park, Inc. and La
Funeraria Paz-Sucat, Inc. are domestic corporations engaged
in the business of providing funeral and burial services. They
assail the constitutionality of Section 4 of Republic Act (RA)
No. 7432,as amended by RA 9257,and the implementing rules
and regulations issued by the DSWD and DOF insofar as
these allow business establishments to claim the 20%
discount given to senior citizens as a tax deduction.
Petitioners likewise seek a reversal of the ruling
in Carlos Superdrug Corporationthat the tax deduction
scheme adopted by the government is justified by police
power.
Petitioners also contend that the tax deduction
scheme violates Article XV, Section and Article XIII, Section
11of the Constitution because it shifts the State’s
constitutional mandate or duty of improving the welfare of the
elderly to the private sector.Under the tax deduction scheme,
the private sector shoulders 65% of the discount because only
35% of it is actually returned by the
government.Consequently, the implementation of the tax
deduction scheme prescribed under Section 4 of RA 9257
affects the businesses of petitioners.
Petitioners posit that the resolution of this case
lies in the determination of whether the legally mandated 20%
senior citizen discount is an exercise of police power or
eminent domain. If it is police power, no just compensation is
warranted. But if it is eminent domain, the tax deduction
scheme is unconstitutional because it is not a peso for peso
reimbursement of the 20% discount given to senior citizens.
Thus, it constitutes taking of private property without
payment of just compensation.
Petitioners further argue that the Supreme Court
has previously ruled in Central Luzon Drug Corporation that
the 20% discount is an exercise of the power of eminent
domain, thus, requiring the payment of just compensation.
They urge us to re-examine our ruling in Carlos Superdrug
Corporation which allegedly reversed the ruling in Central
Luzon Drug Corporation
ISSUE:
WON the tax deduction scheme is a legitimate
exercise of the State’s police power
RULING:
YES. The 20% senior citizen discount is an
exercise of police power.
The 20% discount is intended to improve the
welfare of senior citizens who, at their age, are less likely to
be gainfully employed, more prone to illnesses and other
disabilities, and, thus, in need of subsidy in purchasing basic
commodities. As to its nature and effects, the 20% discount is
a regulation affecting the ability of private establishments to
price their products and services relative to a special class of
individuals, senior citizens, for which the Constitution affords
preferential concern.
Based on the 2016 Course Outline of Atty.Donalvo
In turn, this affects the amount of profits or
income/gross sales that a private establishment can derive
from senior citizens. In other words, the subject regulation
affects the pricing, and, hence, the profitability of a private
establishment. However, it does not purport to appropriate or
burden specific properties, used in the operation or conduct of
the business of private establishments, for the use or benefit
of the public, or senior citizens for that matter, but merely
regulates the pricing of goods and services relative to, and the
amount of profits or income/gross sales that such private
establishments may derive from, senior citizens. The subject
regulation may be said to be similar to, but with substantial
distinctions from, price control or rate of return on investment
control laws which are traditionally regarded as police power
measures.
The obiter in Central Luzon Drug
Corporation, however, describes the 20% discount as an
exercise of the power of eminent domain and the tax credit,
equivalent to the amount of discount given as the just
compensation therefor. The reason is that (1) the discount
would have formed part of the gross sales of the
establishment were it not for the law prescribing the 20%
discount, and (2) the permanent reduction in total revenues is
a forced subsidy corresponding to the taking of private
property for public use or benefit.
The flaw in this reasoning is in its premise. It
presupposes that the subject regulation, which impacts the
pricing and, hence, the profitability of a private establishment,
automatically amounts to a deprivation of property without
due process of law. If this were so, then all price and rate of
return on investment control laws would have to be
invalidated because they impact, at some level, the regulated
establishment’s profits or income/gross sales, yet there is no
provision for payment of just compensation.
It would also mean that government cannot set
price or rate of return on investment limits, which reduce the
profits or income/gross sales of private establishments, if no
just compensation is paid even if the measure is not
confiscatory. The obiter is, thus, at odds with the settled
doctrine that the State can employ police power measures to
regulate the pricing of goods and services, and, hence, the
profitability of business establishments in order to pursue
legitimate State objectives for the common good, provided
that the regulation does not go too far as to amount to
"taking."
There is no compelling reason has been
proffered to overturn, modify or abandon the ruling in
Carlos Superdrug Corporation.
We note that the above-quoted disquisition on
eminent domain in Central Luzon Drug Corporationis obiter
dicta and, thus, not binding precedent. A fair reading of
Carlos Superdrug Corporationwould show that we
categorically ruled therein that the 20% discount is a valid
exercise of police power. Thus, even if the current law,
through its tax deduction scheme (which abandoned the tax
TAXATION CASE DIGESTS
credit scheme under the previous law), does not provide for a
peso for peso reimbursement of the 20% discount given by
private establishments, no constitutional infirmity obtains
because, being a valid exercise of police power, payment of
just compensation is not warranted. We have carefully
reviewed the basis of our ruling in Carlos Superdrug
Corporation and we find no cogent reason to overturn, modify
or abandon it.
Ferrer vs Bautista
(By: Rea Romero)
FACTS:
In 2011, Quezon City Council enacted Ordinance
No. SP-2095, S-2011,2 or the Socialized Housing Tax of
Quezon City, Section 3 of which provides:
SECTION 3. IMPOSITION. A special assessment equivalent
to one-half percent (0.5%) on the assessed value of land in
excess of One Hundred Thousand Pesos (Php100,000.00)
shall be collected by the City Treasurer which shall accrue to
the Socialized Housing Programs of the Quezon City
Government.
Effective for five (5) years, the Socialized
Housing Tax ( SHT ) shall be utilized by the Quezon City
Government for the following projects: (a) land purchase/land
banking; (b) improvement of current/existing socialized
housing facilities; (c) land development; (d) construction of
core houses, sanitary cores, medium-rise buildings and other
similar structures; and (e) financing of public-private partners
hip agreement of the Quezon City Government and National
Housing Authority ( NHA ) with the private sector.
Ordinance No. SP-2235, S-2013 was enacted.
The proceeds collected from the garbage fees on residential
properties shall be deposited solely and exclusively in an
earmarked special account under the general fund to be
utilized for garbage collections.
Ferrer is a registered co-owner of a property in
Quezon City. In 2014, he paid his realty tax which already
included the garbage fee in the sum of Php100.00
Ferrer claims that the imposition of the SHT and
the garbage fee cannot be justified by the Quezon City
Government as an exercise of its power to create sources of
income under Section 5, Article X of the 1987 Constitution.
Ferrer further claims that the annual property tax is an ad
valorem tax, a percentage of the assessed value of the
property, which is subject to revision every three (3) years in
order to reflect an increase in the market value of the property
ISSUE:
WON The imposition of the garbage fee is proper (YES)
16 | P a g e

RULING:
In the United States of America, it has been held
that the authority of a municipality to regulate garbage falls
within its police power to protect public health, safety, and
welfare. As opined, the purposes and policy underpinnings of
the police power to regulate the collection and disposal of
solid waste are: (1) to preserve and protect the public health
and welfare as well as the environment by minimizing or
eliminating a source of disease and preventing and abating
nuisances; and (2) to defray costs and ensure financial
stability of the system for the benefit of the entire community,
with the sum of all charges marshalled and designed to pay
for the expense of a systemic refuse disposal scheme.
Ordinances regulating waste removal carry a
strong presumption of validity. A municipality has an
affirmative duty to supervise and control the collection of
garbage within its corporate limits. In this jurisdiction,
pursuant to Section 16 of the LGC and in the proper exercise
of its corporate powers under Section 22 of the same, the
SangguniangPanlungsod of Quezon City, like other local
legislative bodies, is empowered to enact ordinances, approve
resolutions, and appropriate funds for the genera l welfare of
the city and its inhabitants.
ii. Eminent Domain
CIR vs. Central Luzon
(By: Charmaine Jala)
FACTS:
Respondent (Central Luzon Drug Corporation) is a
domestic corporation primarily engaged in retailing of
medicines and other pharmaceutical products. In 1996, it
operated six (6) drugstores under the business name and style
‘Mercury Drug.’
From January to December 1996, respondent, Central
Luzon Drug Corporation (Drugstore: Mercury Drug), which
is engaged in retailing of medicines and other pharmaceutical
products, granted twenty (20%) percent sales discount to
qualified senior citizens on their purchases of medicines
pursuant to Republic Act No. [R.A.] 7432 and its
Implementing Rules and Regulations.
On April 15, 1997, respondent filed its Annual Income
Tax Return for taxable year 1996 declaring therein that it
incurred net losses from its operations.
On January 16, 1998, respondent filed with petitioner,
Commissioner of Internal Revenue a claim for tax
refund/credit in the amount of P904,769.00 allegedly arising
from the 20% sales discount granted by respondent to
qualified senior citizens in compliance with [R.A.] 7432.
Unable to obtain affirmative response from petitioner,
respondent elevated its claim to the Court of Tax Appeals
which was also denied.
However, through a MFR, CTA ordered the issuance
of a tax credit certificate in favor of respondent.
Note: tax credit generally refers to an amount that is
"subtracted directly from one’s total tax liability." It is an
"allowance against the tax itself" or "a deduction from what is
owed" by a taxpayer to the government.
ISSUE:
Under what inherent power of the State is the tax credit being
exercised in this case?
RULING:
Tax Credit Benefit Deemed Just Compensation
Sections 2.i and 4 of RR 2-94 deny the exercise by the
State of its power of eminent domain. Be it stressed that the
privilege enjoyed by senior citizens does not come directly
from the State, but rather from the private establishments
concerned. Accordingly, the tax credit benefit granted to
these establishments can be deemed as their just
compensation for private property taken by the State for
public use.
The concept of public use is no longer confined to the
traditional notion of use by the public, but held synonymous
with public interest, public benefit, public welfare, and public
convenience. The discount privilege to which our senior
citizens are entitled is actually a benefit enjoyed by the
general public to which these citizens belong. The discounts
given would have entered the coffers and formed part of the
gross sales of the private establishments concerned, were it
not for RA 7432. The permanent reduction in their total
revenues is a forced subsidy corresponding to the taking of
private property for public use or benefit.
As a result of the 20 percent discount imposed by RA
7432, respondent becomes entitled to a just compensation.
This term refers not only to the issuance of a tax credit
certificate indicating the correct amount of the discounts
given, but also to the promptness in its release. Equivalent to
the payment of property taken by the State, such issuance --
when not done within a reasonable time from the grant of the
discounts -- cannot be considered as just compensation. In
effect, respondent is made to suffer the consequences of being
immediately deprived of its revenues while awaiting actual
receipt, through the certificate, of the equivalent amount it
needs to cope with the reduction in its revenues.
Besides, the taxation power can also be used as an
implement for the exercise of the power of eminent domain.
Tax measures are but "enforced contributions exacted on pain
of penal sanctions" and "clearly imposed for a public
purpose." In recent years, the power to tax has indeed become
Based on the 2016 Course Outline of Atty.Donalvo
a most effective tool to realize social justice, public welfare,
and the equitable distribution of wealth.
While it is a declared commitment under Section 1 of
RA 7432, social justice "cannot be invoked to trample on the
rights of property owners who under our Constitution and
laws are also entitled to protection. The social justice
consecrated in our [C]onstitution [is] not intended to take
away rights from a person and give them to another who is
not entitled thereto." For this reason, a just compensation for
income that is taken away from respondent becomes
necessary. It is in the tax credit that our legislators find
support to realize social justice, and no administrative body
can alter that fact.
To put it differently, a private establishment that
merely breaks even -- without the discounts yet -- will surely
start to incur losses because of such discounts. The same
effect is expected if its mark-up is less than 20 percent, and if
all its sales come from retail purchases by senior citizens.
Aside from the observation we have already raised earlier, it
will also be grossly unfair to an establishment if the discounts
will be treated merely as deductions from either its gross
income or its gross sales. Operating at a loss through no fault
of its own, it will realize that the tax credit limitation under
RR 2-94 is inutile, if not improper. Worse, profit-generating
businesses will be put in a better position if they avail
themselves of tax credits denied those that are losing, because
no taxes are due from the latter.
Carlos Superdrug vs. Velasco, Jr.
(By: Alona Suzell B. Ruyeras)
*Observation: I think the title of the case should be Carlos
Superdrug vs. DSWD; Velasco, Jr. is one of the justices who
decided ata. Please verify. 
FACTS:
Petitioners are domestic corporations and
proprietors operating drugstores in the Philippines.
Public respondents, on the other hand, include
the DSWD, DOH, DOF, DOJ, and the DILG which have been
specifically tasked to monitor the drugstores compliance with
the law; promulgate the implementing rules and regulations
for the effective implementation of the law; and prosecute and
revoke the licenses of erring drugstore establishments. (See
*Observation)
On February 26, 2004, R.A. No. 9257, amending R.A. No.
7432, was signed into law by President Gloria Macapagal-
Arroyo and it became effective on March 21, 2004. Section
4(a) of the Act states:
“SEC. 4. Privileges for the Senior Citizens. The
senior citizens shall be entitled to the following:
(a) the grant of twenty percent (20%) discount from
all establishments relative to the utilization of services in
hotels and similar lodging establishments, restaurants and
TAXATION CASE DIGESTS
recreation centers, and purchase of medicines in all
establishments for the exclusive use or enjoyment of senior
citizens, including funeral and burial services for the death of
senior citizens; xxx”
Petitioners assert that Section 4(a) of the law is
unconstitutional because it constitutes deprivation of private
property. Compelling drugstore owners and establishments to
grant the discount will result in a loss of profit and capital
because 1) drugstores impose a mark-up of only 5% to 10%
on branded medicines; and 2) the law failed to provide a
scheme whereby drugstores will be justly compensated for the
discount.
Examining petitioners’ arguments, it is apparent that what
petitioners are ultimately questioning is the validity of the tax
deduction scheme as a reimbursement mechanism for the
twenty percent (20%) discount that they extend to senior
citizens.
ISSUE:
Whether the State, in promoting the health and
welfare of a special group of citizens, can impose upon
private establishments the burden of partly subsidizing a
government program
RULING: Yes
The Senior Citizens Act was enacted primarily to maximize
the contribution of senior citizens to nation-building, and to
grant benefits and privileges to them for their improvement
and well-being as the State considers them an integral part of
our society.
As a form of reimbursement, the law provides
that business establishments extending the twenty percent
discount to senior citizens may claim the discount as a tax
deduction.
The law is a legitimate exercise of police power
which, similar to the power of eminent domain, has general
welfare for its object. Police power is not capable of an exact
definition, but has been purposely veiled in general terms to
underscore its comprehensiveness to meet all exigencies and
provide enough room for an efficient and flexible response to
conditions and circumstances, thus assuring the greatest
benefits. Accordingly, it has been described as the most
essential, insistent and the least limitable of powers,
extending as it does to all the great public needs. It is [t]he
power vested in the legislature by the constitution to make,
ordain, and establish all manner of wholesome and reasonable
laws, statutes, and ordinances, either with penalties or
without, not repugnant to the constitution, as they shall judge
to be for the good and welfare of the commonwealth, and of
the subjects of the same.
For this reason, when the conditions so demand
as determined by the legislature, property rights must bow to
17 | P a g e

the primacy of police power because property rights, though
sheltered by due process, must yield to general welfare.
Police power as an attribute to promote the
common good would be diluted considerably if on the mere
plea of petitioners that they will suffer loss of earnings and
capital, the questioned provision is invalidated. Moreover, in
the absence of evidence demonstrating the alleged
confiscatory effect of the provision in question, there is no
basis for its nullification in view of the presumption of
validity which every law has in its favor.
Given these, it is incorrect for petitioners to insist
that the grant of the senior citizen discount is unduly
oppressive to their business, because petitioners have not
taken time to calculate correctly and come up with a financial
report, so that they have not been able to show properly
whether or not the tax deduction scheme really works greatly
to their disadvantage.
In treating the discount as a tax deduction,
petitioners insist that they will incur losses because, referring
to the DOF Opinion, for every P1.00 senior citizen discount
that petitioners would give, P0.68 will be shouldered by them
as only P0.32 will be refunded by the government by way of a
tax deduction.
Petitioners’ computation is flawed. Here,
petitioners tried to show a loss on a per transaction basis,
which should not be the case. An income statement, showing
an accounting of petitioners’ sales, expenses, and net profit
(or loss) for a given period could have accurately reflected the
effect of the discount on their income. Absent any financial
statement, petitioners cannot substantiate their claim that they
will be operating at a loss should they give the discount. In
addition, the computation was erroneously based on the
assumption that their customers consisted wholly of senior
citizens. Lastly, the 32% tax rate is to be imposed on income,
not on the amount of the discount.
d. Principles of a Sound Tax System
iii. Theoretical Justice
Chavez vs. Ongpin
(By: Emmy Buniel)
FACTS:
Section 21 of Presidential Decree 464 provides
that every 5 years starting calendar year 1978, there shall be a
provincial or city general revision of real property
assessments. In 1986, the computation for real property
assessment was still based on 1978 values.
Since the government noticed that the local
government were missing out on revenue, EO 73 was issued
on November 25, 1986 by President Corazon Aquino stating
that beginning January 1, 1987, the 1984 assessments shall be
the basis of real property taxes.
Chavez, a tax payer and owner of 3 parcels of
land, attacked the constitutionality of EO, claiming that the
acceleration would be oppressive since the taxes will spike
from 100% to 400%. Chavez also claimed that his right to due
process was violated.
ISSUE:
Is EO 73 unconstitutional?
RULING: NO.
The due process requirement called for by
Chavez applies to the “power to tax”. EO 73 does not impose
new taxes nor does it increase taxes. It merely hastens the
effectivity of legal process mandated by PD 464, wherein the
LGU are tasked to revise real property assessments from 1979
and every 5 years thereafter.
Executive Order No. 73 which changed the date
of implementation of the increase in real property taxes from
January 1, 1988 to January 1, 1987 and therefore repealed
Executive Order No. 1019, also finds ample justification in its
"whereas' clauses, as follows:
WHEREAS, the collection of real property taxes
based on the 1984 real property values was deferred to take
effect on January 1, 1988 instead of January 1, 1985, thus
depriving the local government units of an additional source
of revenue;
WHEREAS, there is an urgent need for local
governments to augment their financial resources to meet the
rising cost of rendering effective services to the people;
Executive Order No. 73, the basis for collection
of real property taxes win still be the 1978 revision of
property values. Certainly, to continue collecting real property
taxes based on valuations arrived at several years ago, in
disregard of the increases in the value of real properties that
have occurred since then, is not in consonance with a sound
tax system. Fiscal adequacy, which is one of the
characteristics of a sound tax system, requires that sources of
revenues must be adequate to meet government expenditures
and their variations.
ABAKADA vs. Ermita
(By: Ray Gingco)
FACTS:
Based on the 2016 Course Outline of Atty.Donalvo
Association of Pilipinas Shell Dealers, et. al.,
assails the following provisions of RA 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC,
requiring that the input tax on depreciable goods shall be
amortized over a 60-month period, if the acquisition,
excluding the VAT components, exceeds One Million Pesos
(P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing
a 70% limit on the amount of input tax to be credited against
the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC,
authorizing the Government or any of its political
subdivisions, instrumentalities or agencies, including GOCCs,
to deduct a 5% final withholding tax on gross payments of
goods and services, which are subject to 10% VAT under
Sections 106 (sale of goods and properties) and 108 (sale of
services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are
unconstitutional for being arbitrary, oppressive, excessive,
and confiscatory.Also, petitioners contend that the 70% limit
is anything but progressive, violative of Article VI, Section
28(1) of the Constitution, and that it is the smaller businesses
with higher input tax to output tax ratio that will suffer the
consequences thereof for it wipes out whatever meager
margins the petitioners make.
ISSUE:
Whether Sections 8 and 12 of RA 9337 violate
Article 6 Section 28 (par. 1) of the 1987 Constitution on
uniformity, equitability and progressivity of taxation.
RULING:
No.
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
UNIFORMITY TAXATION
Uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at
the same rate. Different articles may be taxed at different
amounts provided that the rate is uniform on the same class
everywhere with all people at all times.
In this case, the tax law is uniform as it provides
a standard rate of 0% or 10% (or 12%) on all goods and
services. Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108, respectively, of the NIRC, provide
for a rate of 10% (or 12%) on sale of goods and properties,
importation of goods, and sale of services and use or lease of
TAXATION CASE DIGESTS
properties. These same sections also provide for a 0% rate on
certain sales and transaction.
Neither does the law make any distinction as to
the type of industry or trade that will bear the 70% limitation
on the creditable input tax, 5-year amortization of input tax
paid on purchase of capital goods or the 5% final withholding
tax by the government. It must be stressed that the rule of
uniform taxation does not deprive Congress of the power to
classify subjects of taxation, and only demands uniformity
within the particular class.
EQUITABILITY OF TAXATION
R.A. No. 9337 is also equitable. The law is
equipped with a threshold margin. The VAT rate of 0% or
10% (or 12%) does not apply to sales of goods or services
with gross annual sales or receipts not exceeding
P1,500,000.00. Also, basic marine and agricultural food
products in their original state are still not subject to the tax,
thus ensuring that prices at the grassroots level will remain
accessible.
It is admitted that R.A. No. 9337 puts a premium
on businesses with low profit margins, and unduly favors
those with high profit margins. Congress was not oblivious to
this. Thus, to equalize the weighty burden the law entails, the
law, under Section 116, imposed a 3% percentage tax on
VAT-exempt persons under Section 109(v), i.e., transactions
with gross annual sales and/or receipts not exceeding P1.5
Million. This acts as an equalizer because in effect, bigger
businesses that qualify for VAT coverage and VAT-exempt
taxpayers stand on equal-footing.
Moreover, Congress provided mitigating
measures to cushion the impact of the imposition of the tax on
those previously exempt. Excise taxes on petroleum products
and natural gas were reduced. Percentage tax on domestic
carriers was removed.93 Power producers are now exempt
from paying franchise tax.
Aside from these, Congress also increased the
income tax rates of corporations, in order to distribute the
burden of taxation. Domestic, foreign, and non-resident
corporations are now subject to a 35% income tax rate, from a
previous 32%. Intercorporate dividends of non-resident
foreign corporations are still subject to 15% final withholding
tax but the tax credit allowed on the corporation’s domicile
was increased to 20%. The Philippine Amusement and
Gaming Corporation (PAGCOR) is not exempt from income
taxes anymore. Even the sale by an artist of his works or
services performed for the production of such works was not
spared.
PROGRESSITIVITY
Petitioners contend that the limitation on the
creditable input tax is anything but regressive. It is the
smaller business with higher input tax-output tax ratio
that will suffer the consequences.
18 | P a g e

Progressive taxation is built on the principle
of the taxpayer’s ability to pay. This principle was also
lifted from Adam Smith’s Canons of Taxation, and it states:
The subjects of every state ought to contribute towards the
support of the government, as nearly as possible, in
proportion to their respective abilities; that is, in proportion
to the revenue which they respectively enjoy under the
protection of the state.
The VAT is an antithesis of progressive taxation.
By its very nature, it is regressive. The principle of
progressive taxation has no relation with the VAT system
inasmuch as the VAT paid by the consumer or business for
every goods bought or services enjoyed is the same regardless
of income. In other words, the VAT paid eats the same
portion of an income, whether big or small. The disparity lies
in the income earned by a person or profit margin marked by
a business, such that the higher the income or profit margin,
the smaller the portion of the income or profit that is eaten by
VAT. A Converso, the lower the income or profit margin, the
bigger the part that the VAT eats away. At the end of the day,
it is really the lower income group or businesses with low-
profit margins that is always hardest hit.
Nevertheless, the Constitution does not really
prohibit the imposition of indirect taxes, like the VAT.
What it simply provides is that Congress shall "evolve a
progressive system of taxation." The Constitution does not
really prohibit the imposition of indirect taxes which, like the
VAT, are regressive. What it simply provides is that Congress
shall ‘evolve a progressive system of taxation.’ The
constitutional provision has been interpreted to mean simply
that ‘direct taxes are . . . to be preferred [and] as much as
possible, indirect taxes should be minimized.’Indeed, the
mandate to Congress is not to prescribe, but to evolve, a
progressive tax system. Otherwise, sales taxes, which perhaps
are the oldest form of indirect taxes, would have been
prohibited with the proclamation of Art. VIII, Sec 17 (1) of
the 1973 Constitution from which the present Art. VI, Sec 28
(1) was taken. Sales taxes are also regressive. Resort to
indirect taxes should be minimized but not avoided entirely
because it is difficult, if not impossible, to avoid them by
imposing such taxes according to the taxpayers' ability to pay.
In the case of the VAT, the law minimizes the regressive
effects of this imposition by providing for zero rating of
certain transactions while granting exemptions to other
transactions.
Diaz vs. Secretary of Finance
(By: Kim Calatrava)
FACTS:
Renato Diaz and Aurora Ma. Timbol in this case
assails the validity of the impending imposition of the Value-
Added Tax or VAT. They claim that since the VAT would
result in increased toll fees, they have an interest as regular
users of tollways in stopping the BIR action.
TAXATION CASE DIGESTS
Based on the 2016 Course Outline of Atty.Donalvo
Diaz and Timbolhold the view that Congress did
not, when it enacted the NIRC, intend to include toll fees
within the meaning of "sale of services" that are subject to
VAT; that a toll fee is a "user’s tax," not a sale of services; ~END OF 1st Set~
that to impose VAT on toll fees would amount to a tax on
public service; and that, since VAT was never factored into
the formula for computing toll fees, its imposition would “Only those who have patience to do simple things
violate the non-impairment clause of the constitution. perfectly ever acquire the skill to do difficult things
easily.” ~ James J. Corbett
Diaz and Timbolassert that the substantiation
requirements for claiming input VAT make the VAT on
tollway operations impractical and incapable of
implementation. They cite the fact that, in order to claim input
VAT, the name, address and tax identification number of the
tollway user must be indicated in the VAT receipt or invoice.
The manner by which the BIR intends to implement the VAT
– by rounding off the toll rate and putting any excess
collection in an escrow account – is also illegal, while the
alternative of giving "change" to thousands of motorists in
order to meet the exact toll rate would be a logistical
nightmare. Thus, according to them, the VAT on tollway
operations is not administratively feasible.
ISSUE:
Whether or not the imposition of VAT on
tollway operators is not administratively feasible and cannot
be implemented. NO.
RULING:
Administrative feasibility is one of the canons of
a sound tax system. It simply means that the tax system
should be capable of being effectively administered and
enforced with the least inconvenience to the taxpayer. Non-
observance of the canon, however, will not render a tax
imposition invalid "except to the extent that specific
constitutional or statutory limitations are impaired."Thus,
even if the imposition of VAT on tollway operations may
seem burdensome to implement, it is not necessarily invalid
unless some aspect of it is shown to violate any law or the
Constitution.
Here, it remains to be seen how the taxing
authority will actually implement the VAT on tollway
operations. Any declaration by the Court that the manner of
its implementation is illegal or unconstitutional would be
premature. Although the transcript of the August 12, 2010
Senate hearing provides some clue as to how the BIR intends
to go about it, the facts pertaining to the matter are not
sufficiently established for the Court to pass judgment on.
Besides, any concern about how the VAT on tollway
operations will be enforced must first be addressed to the BIR
on whom the task of implementing tax laws primarily and
exclusively rests. The Court cannot preempt the BIR’s
discretion on the matter, absent any clear violation of law or
the Constitution.
19 | P a g e