GNotes On The General Principles of Taxation 2018-2019

GUIDE NOTES ON THE GENERAL PRINCIPLES OF TAXATION city government of Cabanatuan to impose on NPC the franchise tax
in question.
Q: What is taxation? “Taxes are the lifeblood of the government, for without taxes, the
government can neither exist nor endure. A principal attribute of
* Black’s Law Dictionary defines taxation as “the process of taxing or sovereignty, the exercise of taxing power derives its source from the
imposing a tax.” very existence of the state whose social contract with its citizens
obliges it to promote public interest and common good. The theory
Q: What are taxes? behind the exercise of the power to tax emanates from necessity;
without taxes, government cannot fulfill its mandate of promoting
* Mertens defines taxes as “the enforced proportional contribution the general welfare and well-‐being of the people.
of persons and property levied by the authority of the state for the In recent years, the increasing social challenges of the times
support of the government, and for all public needs.” expanded the scope of state activity, and taxation has become a
tool to realize social justice and the equitable distribution of wealth,
Q: What is the nature of the state’s taxing power? economic progress and the protection of local industries as well as
public welfare and similar objectives. Taxation assumes even
Inherent power of the State greater significance with the ratification of the 1987 Constitution.
Thenceforth, the power to tax is no longer vested exclusively on
* In National Power Corporation v. City of Cabanatuan, relying on Congress; local legislative bodies are now given direct authority to
the fact that it was a government –owned or –controlled levy taxes, fees and other charges xxx.”
corporation whose capital stock was subscribed and paid wholly by [National Power Corporation v. City of Cabanatuan, GR No. 149110,
the National Government, NPC refused to heed the franchise tax 9 April 2003.]
assessment of the city pursuant to Ordinance No. 165-‐92. The
Supreme Court pointed out that the 1991 LGC removed the blanket Legislative power
exclusion of instrumentalities and agencies of the National
Government from the coverage of local taxation. “Although as a * Sarasola v. Trinidad dealt with the issue of whether Section 1579
general rule, LGUs cannot impose taxes, fees or charges of any kind of the 1917 Administrative Code was constitutional. It read:
on the National Government, its agencies and instrumentalities, this “SEC. 1579. Recovery of tax paid under protest. —
rule now admits an exception, i.e., when specific provisions of the When the validity of any tax is questioned, or its
LGC authorize the LGUs to impose taxes, fees or charges on the amount disputed, or other question raised as to
aforementioned entities xxx.” In the case at bar, the Supreme Court liability therefor, the person against whom or against
ruled that Section 151 (scope of taxing powers of cities) in relation whose property the same is sought to be enforced
to Section 137 (franchise tax), both of the 1991 LGC, authorized the shall pay the tax under instant protest, or upon
TAX 1 SYLLABUS PROFESSOR LILY K. GRUBA S/Y 2018-‐2019 1

protest within ten days, and shall thereupon request same effect the Philippine case of De Villata vs. Stanley [1915], 32
the decision of the Collector of Internal Revenue. If Phil., 541; and Churchill and Tait vs. Concepcion [1916], 34 Phil.,
the decision of the Collector of Internal Revenue is 969.).” [Emphasis supplied.]
adverse, or if no decision is made by him within six [Sarasola v. Trinidad, GR No. L-‐14595, 11 October 1919.]
months from the date when his decision was
requested, the taxpayer may proceed, at any time ** At issue in CIR v. Santos was whether the RTC judge could declare
within two years after the payment of the tax, to as inoperative and without force and effect certain laws which
bring an action against the Collector of Internal imposed taxes on jewelry. In this case, in making his declaration that
Revenue for the recovery without interest of the sum the subject laws were inoperative and without force and effect, the
alleged to have been illegally collected, the process to RTC judge cited as basis for his decision unproven comparative data
be served upon him, upon the provincial treasurer, or pertaining to differences between tax rates of various Asian
upon the officer collecting the tax.” [Emphasis countries, and concluding that the jewelry industry in the
supplied.] Philippines suffered as a result of the higher tax rates implemented
The Supreme Court held that the foregoing proviso disallowing in the country. The Supreme Court held that the RTC judge could
interest on internal revenue taxes recovered back was valid because only look into the validity of a provision, i.e., whether it was passed
it still provided an aggrieved taxpayer adequate remedy at law. In according to the procedures laid down by law, and could not inquire
this case, the High Court had occasion to explain the nature of as to the reasons for its existence.
taxation, thus: “In advocating the abolition of local tax and duty on jewelry simply
“Public policy decrees that, since upon the prompt collection of because other countries have adopted such policies, the respondent
revenue there depends the very existence of government itself, judge overlooked the fact that such matters are not for him to
whatever determination shall be arrived at by the Legislature should decide. There are reasons why jewelry, a non-‐essential item, is
not be interfered with, unless there be a clear violation of some taxed as it is in this country, and these reasons, deliberated upon by
constitutional inhibition. xxx Or as said in a New York case, "The our legislature, are beyond the reach of judicial questioning.”
power of taxation being legislative, all the incidents are within the [CIR v. Santos, GR No. 119252, 18 August 1997.]
control of the Legislature." (Genet vs. City of Brooklyn [1885], 99
N.Y., 296.) Or as said by Chief Justice Marshall in McCulloch vs. Q: Explain the lifeblood theory.
Maryland, supra, "The people of a state give to their government a
right of taxing themselves and their property, and as the exigencies * In CIR v. Pineda, when Atanasio Pineda died in 1945, he was
of the Government cannot be limited, they prescribe no limit to the survived by his wife and 15 children, the eldest of whom was
exercise of this right, resting confidently on the interest of the Manuel Pineda. The estate was divided among the heirs and the
legislator and on the influence of the constituents over their estate proceedings terminated in June 1948. Thereafter, it was
representatives, to guard themselves against its abuse." (See to the discovered that the income tax returns of the estate for the years

1945 up to 1948 were not filed. An assessment for deficiency necessary business expense. This fact was adequately proven by
income tax was issued. Manuel Pineda appealed “only that Algue and its officers.
proportionate part or portion pertaining to him as one of the heirs.” “It is said that taxes are what we pay for civilization society. Without
The Supreme Court ruled that the government had two ways of taxes, the government would be paralyzed for lack of the motive
collecting the tax in question. (1) The government could go after all power to activate and operate it. Hence, despite the natural
the heirs and collect from each one of them the amount of the tax reluctance to surrender part of one's hard earned income to the
proportionate to the inheritance received. (2) The government taxing authorities, every person who is able to must contribute his
could subject the property of the estate which was in the hands of share in the running of the government. The government for its
an heir or transferee to the payment of the tax due. [The Court held part, is expected to respond in the form of tangible and intangible
that the government could require Manuel Pineda to pay the full benefits intended to improve the lives of the people and enhance
amount of the taxes assessed under option (2).] their moral and material values. This symbiotic relationship is the
“The Bureau of Internal Revenue should be given, in instances like rationale of taxation and should dispel the erroneous notion that it
the case at bar, the necessary discretion to avail itself of the most is an arbitrary method of exaction by those in the seat of power.
expeditious way to collect the tax as may be envisioned in the But even as we concede the inevitability and indispensability of
particular provision of the Tax Code above quoted, because taxes taxation, it is a requirement in all democratic regimes that it be
are the lifeblood of government and their prompt and certain exercised reasonably and in accordance with the prescribed
availability is an imperious need. And as afore-‐stated in this case the procedure. If it is not, then the taxpayer has a right to complain and
suit seeks to achieve only one objective: payment of the tax. The the courts will then come to his succor. For all the awesome power
adjustment of the respective shares due to the heirs from the of the tax collector, he may still be stopped in his tracks if the
inheritance, as lessened by the tax, is left to await the suit for taxpayer can demonstrate, as it has here, that the law has not been
contribution by the heir from whom the Government recovered said observed.”
tax.” [Emphasis supplied.] [CIR v. Algue, Inc., GR No. L-‐28896, 17 February 1988.]
[CIR v. Pineda, GR No. L-‐22734, 15 September 1967.]
*** In National Power Corporation v. City of Cabanatuan, relying on
** In CIR v. Algue, Inc., the main issue was whether the CIR correctly the fact that it was a government –owned or –controlled
disallowed the deduction claimed by Algue as legitimate business corporation whose capital stock was subscribed and paid wholly by
expenses in its income tax returns. The corollary issue was whether the National Government, NPC refused to heed the franchise tax
the appeal of Algue from the decision of the CIR was made on time assessment of the city pursuant to Ordinance No. 165-‐92. The
and in accordance with law. The Supreme Court found that the Supreme Court pointed out that the 1991 LGC removed the blanket
appeal was filed seasonably. As for the substantive question, the exclusion of instrumentalities and agencies of the National
Supreme Court held that the claimed deduction in the amount of Government from the coverage of local taxation. “Although as a
Php 75,000 as promotional fees was an ordinary, reasonable and general rule, LGUs cannot impose taxes, fees or charges of any kind

on the National Government, its agencies and instrumentalities, this objectives. In answering this question, the Supreme Court discussed
rule now admits an exception, i.e., when specific provisions of the the power of taxation as distinguished from the police power. Citing
LGC authorize the LGUs to impose taxes, fees or charges on the the following reasons, the Supreme Court held that the Universal
aforementioned entities xxx.” In the case at bar, the Supreme Court Charge was not a tax, but an exaction in the exercise of police
ruled that Section 151 (scope of taxing powers of cities) in relation power:
to Section 137 (franchise tax), both of the 1991 LGC, authorized the (1) “The power to tax is an incident of sovereignty and is unlimited
city government of Cabanatuan to impose on NPC the franchise tax in its range, acknowledging in its very nature no limits, so that
in question. security against its abuse is to be found only in the responsibility of
“Taxes are the lifeblood of the government, for without taxes, the the legislature which imposes the tax on the constituency that is to
government can neither exist nor endure. A principal attribute of pay it. It is based on the principle that taxes are the lifeblood of the
sovereignty, the exercise of taxing power derives its source from the government, and their prompt and certain availability is an
very existence of the state whose social contract with its citizens imperious need. Thus, the theory behind the exercise of the power
obliges it to promote public interest and common good. The theory to tax emanates from necessity; without taxes, government cannot
behind the exercise of the power to tax emanates from necessity; fulfill its mandate of promoting the general welfare and well-‐being
without taxes, government cannot fulfill its mandate of promoting of the people.”
the general welfare and well-‐being of the people. (2) “The conservative and pivotal distinction between [the power of
In recent years, the increasing social challenges of the times taxation and the police power] rests in the purpose for which the
expanded the scope of state activity, and taxation has become a charge is made. If generation of revenue is the primary purpose and
tool to realize social justice and the equitable distribution of wealth, regulation is merely incidental, the imposition is a tax; but if
economic progress and the protection of local industries as well as regulation is the primary purpose, the fact that revenue is
public welfare and similar objectives. Taxation assumes even incidentally raised does not make the imposition a tax.”
greater significance with the ratification of the 1987 Constitution. (3) A perusal of the declared policies of the state under the EPIRA as
Thenceforth, the power to tax is no longer vested exclusively on well as the purposes for which the Universal Charge was imposed
Congress; local legislative bodies are now given direct authority to (essentially, to ensure the viability of the country’s electric power
levy taxes, fees and other charges xxx.” industry) reveal that the exaction was regulatory in character.
[National Power Corporation v. City of Cabanatuan, GR No. 149110, (4) Moreover, it is a well-‐established doctrine that the taxing power
9 April 2003.] may be used as an implement of police power.
[Gerochi v. Department of Energy, GR No. 159796, 17 July 2007.]
**** One of the issues tackled in Gerochi v. Department of Energy
was whether the Universal Charge imposed on all electricity end-‐ Q: The power to tax is sometimes called the power to destroy.
users pursuant to the Electric Power Industry Reform Act was a tax Explain.
or an exaction primarily in pursuit of the state’s police power

* In Roxas v. Court of Tax Appeals, in consonance with the prepayment of income and common carrier's taxes as erroneous
constitutional mandate to acquire big landed estates and apportion since no receipt was realized from the charter agreement between
them among landless tenant-‐farmers, the government succeeded in respondent and Nasutra, respondent filed a claim for tax refund or
persuading Roxas y Compañia to sell 13,500 hectares to the credit. The Supreme Court sustained the respondent’s claim as it
government for distribution to actual occupants. However, as it had successfully proven that it derived no receipts from the charter
turned out, the government did not have sufficient funds to pay for agreement. Considering that it took 15 long years for the present
the purchase price. Roxas y Compañia obligingly sold the lands case to come to conclusion, the Supreme Court noted that fair deal
directly to the farmers with the purchase price payable in demands that the BIR should refund without any unreasonable
installments in the course of 10 years. Was Roxas y Compañia delay what it has erroneously collected. Moreover, “[t]he power of
considered a real estate dealer for the sale in question? The CIR taxation is sometimes called also the power to destroy. Therefore it
contended that Roxas y Compañia was a real estate dealer as it was should be exercised with caution to minimize injury to the
engaged in the business of selling real estate. The Supreme Court proprietary rights of a taxpayer. It must be exercised fairly, equally
held that although the vendees paid for their respective holdings in and uniformly, lest the tax collector kill the ‘hen that lays the golden
installment for a period of 10 years, it would not make the vendor egg.’ And, in order to maintain the general public's trust and
(Roxas y Compañia) a real estate dealer in this isolated transaction confidence in the Government this power must be used justly and
with its peculiar circumstances. not treacherously.”
“The power of taxation is sometimes called also the power to [CIR v. Tokyo Shipping Co. Ltd., GR No. L-‐68252, 26 May 1995.]
destroy. Therefore it should be exercised with caution to minimize
injury to the proprietary rights of a taxpayer. It must be exercised *** In Pilipinas Shell Petroleum Corporation v. CIR, from 1988 to
fairly, equally and uniformly, lest the tax collector kill the ‘hen that 1997, PSPC paid part of its excise tax liabilities with Tax Credit
lays the golden egg.’ And, in order to maintain the general public’s Certificates which it acquired through the Department of Finance
trust and confidence in the Government this power must be used One Stop Shop Inter-‐Agency Tax Credit and Duty Drawback Center
justly and not treacherously. It does not conform with Our sense of from other Board of Investment-‐registered companies. However, in
justice in the instant case for the Government to persuade the 1998, the CIR sent a collection letter to PSPC for alleged deficiency
taxpayer to lend it a helping hand and later on to penalize him for excise tax liabilities for the taxable years 1992 and 1994 to 1997,
duly answering the urgent call.” inclusive of delinquency surcharges and interest. As basis for the
[Roxas v. Court of Tax Appeals, GR No. L-‐25043, 26 April 1968.] collection letter, the CIR alleged that PSPC was not a qualified
transferee of the TCCs it acquired from other BOI-‐registered
** The question resolved in CIR v. Tokyo Shipping Co. Ltd. was companies. The Supreme Court found that PSPC was a transferee in
whether respondent was entitled to a tax refund or credit for good faith and for value of the subject TCCs. Furthermore, the
amounts representing prepayment of income and common carrier’s procedures delineated by law for the issuance of assessments were
tax under the 1977 Tax Code, as amended. Claiming the not followed by the CIR, depriving PSPC of due process in contesting

the formal assessment levied against it. The CIR did not issue PSPC a Regulatory and/or revenue purposes
notice for informal conference and a preliminary assessment notice,
as required. “The power of taxation is sometimes called also the * Lutz v. Araneta dealt with the classification of the impositions
power to destroy. Therefore it should be exercised with caution to under the Sugar Adjustment Act (promulgated in 1940). Were they
minimize injury to the proprietary rights of a taxpayer. It must be imposed pursuant to the power of taxation or the police power?
exercised fairly, equally and uniformly, lest the tax collector kill the The Supreme Court stated that the impositions under the subject
‘hen that lays the golden egg.’ And, in the order to maintain the law were taxes levied with a regulatory purpose, i.e., to provide
general public’s trust and confidence in the Government this power means for the rehabilitation and stabilization of the threatened
must be used justly and not treacherously.” sugar industry. (They were not a pure exercise of taxing power). In
[Pilipinas Shell Petroleum Corporation v. CIR, GR No. 172598, 21 this sense, taxation was made the implement of the state’s police
December 2007.] power.
[Lutz v. Araneta, GR No. L-‐7859, 22 December 1955.]
Q: The power to tax is imprescriptible although statutes can provide
for prescriptive period to asses and/or collect. Explain. ** In Tio v. Videogram Regulatory Board, videogram operators were
made to pay 30% tax similar to the 30% amusement tax imposed on
* CIR v. Ayala Securities Corporation dealt with the prescriptive theater owners. The Supreme Court held that the tax was not only a
period of the government’s right to assess and collect the 25% regulatory but also a revenue measure primarily to answer the need
surtax on Ayala Securities Corporation’s unreasonably accumulated for regulating the video industry, particularly because of the
surplus for the fiscal year ended 30 September 1955. The Supreme rampant film piracy, flagrant violation of intellectual property rights,
Court held that at that time there was no express statutory and proliferation of pornographic videotapes. In this sense, taxation
provision limiting such right or providing for its prescription. In was made the implement of the state’s police power.
other words, the government’s right to assess and collect the 25% [Tio v. Videogram Regulatory Board, GR No. L-‐75697, 18 June 1987.]
surtax had not yet prescribed. It must be noted that “limitations
upon the right of the government to assess and collect taxes will not *** What is the nature of motor vehicle registration fees? Are they
be presumed in the absence of clear legislation to the contrary and taxes or regulatory fees? In Philippines Airlines, Inc. v. Edu, PAL was
that where the government has not by express statutory provision made to pay motor vehicle registration fees. PAL denied liability
provided a limitation upon its right to assess unpaid taxes, such arguing that the motor vehicle registration fees were in reality taxes
right is imprescriptible.” from the payment of which PAL was exempt by virtue of its
[CIR v. Ayala Securities Corporation, GR No. L-‐29485, 21 November legislative franchise. On the other hand, Edu as Land Transportation
1980.] Commissioner contended that said fees were regulatory exactions
and not revenue measures and therefore did not come within the
Q: What are the purposes or objectives of taxation? exemption granted to PAL under its franchise. The Supreme Court

ruled that the motor vehicle registration fees then exacted pursuant compensation is not legally feasible, i.e., a taxpayer may not offset
to the Land Transportation and Traffic Code were actually taxes taxes due from the claims that he may have against the
intended for additional revenues of government even if one fifth or government.
less of the amount collected was set aside for the operating [Caltex Philippines, Inc. v. Commission on Audit, GR No. 92585, 8
expenses of the agency administering the program. “If the purpose May 1992.]
is primarily revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly called a tax.” Reduction of social inequity through progressive system of taxation
[Philippine Airlines, Inc. v. Edu, GR No. L-‐41383, 15 August 1988.]
Read Article VI, Section 28(1) of the 1987 Constitution which states
Promotion of general welfare thus:

* One of the issues in Caltex Philippines, Inc. v. Commission on Audit “Section 28. (1) The rule of taxation shall be uniform
was whether the amounts due to the Oil Price Stabilization Fund and equitable. The Congress shall evolve a progressive
(OPSF) from petitioner could be offset against petitioner’s system of taxation.”
outstanding claims from said fund. Petitioner contended, among
others, that the amounts due from it did not arise as a result of * Tolentino v. Secretary of Finance discussed the constitutionality of
taxation, and that the OPSF contributions did not go to the general RA No. 7716 which sought to widen the tax base of the value added
fund of the state and were not used for public purpose. On this tax system and enhance its administration by amending the old Tax
tangent, the Supreme Court stated: “We find no merit in Code. One of the arguments against the constitutionality of said law
petitioner's contention that the OPSF contributions are not for a was that it was regressive and violated the constitutional
public purpose because they go to a special fund of the requirement that the rule of taxation shall be uniform and
government. Taxation is no longer envisioned as a measure merely equitable, and that Congress shall evolve a progressive system of
to raise revenue to support the existence of the government; taxes taxation. The Supreme Court held that: “Indeed, regressivity is not a
may be levied with a regulatory purpose to provide means for the negative standard for courts to enforce. What Congress is required
rehabilitation and stabilization of a threatened industry which is by the Constitution to do is to ‘evolve a progressive system of
affected with public interest as to be within the police power of the taxation.’ This is a directive to Congress, just like the directive to it
state. There can be no doubt that the oil industry is greatly imbued to give priority to the enactment of laws for the enhancement of
with public interest as it vitally affects the general welfare. Any human dignity and the reduction of social, economic and political
unregulated increase in oil prices could hurt the lives of a majority inequities (Art. XIII, §1). These provisions are put in the Constitution
of the people and cause economic crisis of untold proportions.” as moral incentives to legislation, not as judicially enforceable
[Emphasis supplied.] rights.”
In the end, the High Court held that when it comes to taxes, [Tolentino v. Secretary of Justice, GR No. 115544, 25 August 1994.]

** In the second Tolentino v. Secretary of Finance, the Supreme subject to the excise tax rate under the lower tax bracket by virtue
Court expounded on the above principle, thus: “The Constitution of said provision.
does not really prohibit the imposition of indirect taxes which, like Did the legislative classification freeze transgress the constitutional
the VAT, are regressive. What it simply provides is that Congress provisions on regressive and inequitable taxation? The Supreme
shall ‘evolve a progressive system of taxation.’ The constitutional Court answered in the negative. “Anent the issue of regressivity, it
provision has been interpreted to mean simply that ‘direct taxes are may be conceded that the assailed law imposes an excise tax on
. . . to be preferred [and] as much as possible, indirect taxes should cigarettes which is a form of indirect tax, and thus, regressive in
be minimized.” The Supreme Court went on to say that in the case character. While there was an attempt to make the imposition of
of VAT, the law minimizes the regressive effects of the imposition by the excise tax more equitable by creating a four-‐tiered taxation
providing for zero rating of certain transactions, while granting system where higher priced cigarettes are taxed at a higher rate,
exemptions to other transactions. still, every consumer, whether rich or poor, of a cigarette brand
[Tolentino v. Secretary of Justice, GR No. 115544, 30 October 1995.] within a specified tax bracket pays the same tax rate. To this extent,
the tax does not take into account the person’s ability to pay.
*** At issue in British American Tobacco v. Camacho was the Nevertheless, this does not mean that the assailed law may be
legality of the classification freeze provision introduced by RA No. declared unconstitutional for being regressive in character because
8240, as amended by RA No. 9334, in Section 145 of the 1997 Tax the Constitution does not prohibit the imposition of indirect taxes
Code. The law created a four-‐tiered system among low-‐priced, but merely provides that Congress shall evolve a progressive system
medium-‐priced, high-‐priced, and premium-‐priced tax brackets of of taxation.”
cigars and cigarettes. “When a brand is introduced in the market, [British American Tobacco v. Camacho, GR No. 163583, 15 April
the current net retail price is determined through the aforequoted 2009.]
specified procedure. The current net retail price is then used to
classify under which tax bracket the brand belongs in order to finally Encouragement of economic growth
determine the corresponding excise tax rate on a per pack basis.
The assailed feature of this law pertains to the mechanism where, * The subject matter of Philippine Coconut Producers Federation,
after a brand is classified based on its current net retail price, the Inc. (COCOFED) v. Presidential Commission on Good Government
classification is frozen and only Congress can thereafter reclassify were the sequestration orders issued by the PCGG against COCOFED
the same.” [Particular attention was directed to Annex “D” referring and various other enterprises financed with revenues derived from
to those old brands which were classified as of 1 October 1996, or coconut levies “imposed under a succession of laws of the late
prior to the effectivity of RA No. 8240.] The consequence of the dictatorship and are alleged to have been thereafter used as
classification freeze provision was, even if the present day net retail conduits to perpetrate ‘the most stupendous malversation of public
price of a certain brand would make it fall under a higher tax funds n the annals of our history.” Were the coconut levy funds
bracket, the previously classified brand would continue to be public funds? The Supreme Court affirmatively. “The utilization and

proper management of the coconut levy funds, raised as they were However, “[l]egitimate enterprises enjoy the constitutional
by the State’s police and taxing powers, are certainly the concern of protection not to be taxed out of existence. Incurring losses because
the Government. It cannot be denied that it was the welfare of the of a tax imposition may be an acceptable consequence but killing
entire nation that provided the prime moving factor for the the business of an entity is another matter and should not be
imposition of the levy. It cannot be denied that the coconut industry allowed. It is counter-‐productive and ultimately subversive of the
is one of the major industries supporting the national economy. It is, nation’s thrust towards a better economy which will ultimately
therefore, the State’s concern to make it a strong and secure source benefit the majority of our people.”
not only of the livelihood of a significant segment of the population [Philippine Health Care Providers, Inc. v. CIR, GR No. 167330, 18
but also of export earnings the sustained growth of which is one of September 2009.]
the imperatives of economic stability. The coconut levy funds are
clearly affected with public interest.” Q: What is the scope of the legislative taxing power?
[Philippine Coconut Producers Federation, Inc. (COCOFED) v.
Presidential Commission on Good Government, GR No. 75713, 2 * At issue in Tan v. del Rosario was the constitutionality of a law
October 1989.] amending the old Tax Code providing for the simplified net income
taxation scheme (SNITS) and the revenue regulation promulgated
Promotion of protectionism pursuant to said amendatory law. It was argued that there was a
resulting imbalance between the tax liabilities of those covered by
* Are health care agreements of health maintenance organizations the amendatory law and those who were not. In addressing this
subject to documentary stamp tax? Otherwise stated, are health particular point, the Supreme Court said that: “With the legislature
care agreements considered as insurance policies and therefore primarily lies the discretion to determine the nature (kind), object
subject to DST? No. The wording of now Section 185 of the 1997 Tax (purpose), extent (rate), coverage (subjects) and situs (place) of
Code on stamp tax on insurance policies had remained unchanged taxation. This court cannot freely delve into those matters which, by
since 1904. True, when the law imposing the DST was first passed, constitutional fiat, rightly rest on legislative judgment.”
HMOs were yet unknown in the Philippines. However, when the [Tan v. del Rosario, GR Nos. 109289 and 109446, 3 October 1994.]
various amendments to the DST law were enacted, HMOs were
already in existence. If it had been the intent of the legislature to Q: Discuss the constitutional provisions on taxation.
impose DST on health care agreements, it could have done so in
clear and categorical terms. “As a general rule, the power to tax is Article VI, Section 24 of the 1987 Constitution
an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against “Section 24. All appropriation, revenue or tariff bills,
its abuse is to be found only in the responsibility of the legislature bills authorizing increase of public debt, bills of local
which imposes the tax on the constituency who is to pay it.” application, and private bills shall originate exclusively

in the House of Representatives, but the Senate may coequality of the two chambers of Congress.”
propose or concur with amendments.” [Tolentino v. Secretary of Justice, GR No. 115544, 30 October 1995.]

* Tolentino v. Secretary of Finance discussed the constitutionality of Article VI, Section 28 of the 1987 Constitution
RA No. 7716 which sought to widen the tax base of the value added
tax system and enhance its administration by amending the old Tax “Section 28. (1) The rule of taxation shall be uniform
Code. One of petitioners’ contention was that RA No. 7716 did not and equitable. The Congress shall evolve a progressive
originate exclusively in the House of Representatives as required by system of taxation.
the Constitution because it was in fact the result of the (2) The Congress may, by law, authorize the President
consolidation of two distinct bills, i.e., H. No. 11197 and S. No. 1630. to fix within specified limits, and subject to such
In other words, it was petitioners’ understanding that in order to be limitations and restrictions as it may impose, tariff
considered as having originated in the House of Representatives, RA rates, import and export quotas, tonnage and
No. 7716 should have retained the essence of H. No. 11197. wharfage dues, and other duties or imposts within the
The Supreme Court held: “Indeed, what the Constitution simply framework of the national development program of
means is that the initiative for filing revenue, tariff, or tax bills, bills the Government.
authorizing an increase of the public debt, private bills and bills of (3) Charitable institutions, churches and parsonages
local application must come from the House of Representatives on or convents appurtenant thereto, mosques, nonprofit
the theory that, elected as they are from the districts, the members cemeteries, and all lands, buildings, and
of the House can be expected to be more sensitive to the local improvements, actually, directly, and exclusively used
needs and problems. On the other hand, the senators, who are for religious, charitable, or educational purposes shall
elected at large, are expected to approach the same problems from be exempt from taxation.
the national perspective. Both views are thereby made to bear on (4) No law granting any tax exemption shall be passed
the enactment of such laws.” without the concurrence of a majority of all the
[Tolentino v. Secretary of Finance, GR No. 115455, 25 August 1994.] Members of the Congress.”

** In the second Tolentino v. Secretary of Finance, the Supreme * Association of Customs Brokers, Inc. v. City of Manila was a
Court expounded on the above principle, thus: “Thus, because petition for declaratory relief to test the validity of Municipal
revenue bills are required to originate exclusively in the House of Ordinance No. 3379 passed in 1950 levying a property tax on all
Representatives, the Senate cannot enact revenue measures of its motor vehicles operating within the City of Manila. The Supreme
own without such bills. After a revenue bill is passed and sent over Court held that the ordinance infringed the rule of uniformity of
to it by the House, however, the Senate certainly can pass its own taxation because the ordinance exacted tax upon all motor vehicles
version on the same subject matter. This follows from the operating within the City of Manila. “It does not distinguish

between a motor vehicle for hire and one which is purely for private and paid out for such purpose only. If the purpose for
use. Neither does it distinguish between a motor vehicle registered which a special fund was created was created has
in the City of Manila and one registered in another place but been fulfilled or abandoned, the balance, if any, shall
occasionally comes to Manila and uses its streets and public be transferred to the general funds of the
highways.” Government.”
[Association of Customs Brokers, Inc. v. City of Manila, GR No. L-‐
4376, 22 May 1953.] * One of the issues in Caltex Philippines, Inc. v. Commission on Audit
was whether the amounts due to the Oil Price Stabilization Fund
** At issue in Tan v. del Rosario was the constitutionality of a law (OPSF) from petitioner could be offset against petitioner’s
amending the old Tax Code providing for the simplified net income outstanding claims from said fund. Petitioner contended, among
taxation scheme (SNITS) and the revenue regulation promulgated others, that the amounts due from it did not arise as a result of
pursuant to said amendatory law. It was argued that the law taxation, and that the OPSF contributions did not go to the general
attempted to tax single proprietorships and professionals differently fund of the state and were not used for public purpose. On this
from the manner it imposed the tax on corporations and tangent, the Supreme Court stated: “We find no merit in
partnerships. On this tangent, the Supreme Court said that: petitioner's contention that the OPSF contributions are not for a
“Uniformity of taxation, like the kindred concept of equal public purpose because they go to a special fund of the
protection, merely requires that all subjects or objects of taxation, government. Taxation is no longer envisioned as a measure merely
similarly situated, are to be treated alike both in privileges and to raise revenue to support the existence of the government; taxes
liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). may be levied with a regulatory purpose to provide means for the
Uniformity does not forfend classification as long as: (1) the rehabilitation and stabilization of a threatened industry which is
standards that are used therefor are substantial and not arbitrary, affected with public interest as to be within the police power of the
(2) the categorization is germane to achieve the legislative purpose, state. There can be no doubt that the oil industry is greatly imbued
(3) the law applies, all things being equal, to both present and with public interest as it vitally affects the general welfare. Any
future conditions, and (4) the classification applies equally well to all unregulated increase in oil prices could hurt the lives of a majority
those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 of the people and cause economic crisis of untold proportions.”
SCRA 3; Basco vs. PAGCOR, 197 SCRA 52).” [Emphasis supplied.]
[Tan v. del Rosario, GR Nos. 109289 and 109446, 3 October 1994.] In the end, the High Court held that when it comes to taxes,
compensation is not legally feasible, i.e., a taxpayer may not offset
Article VI, Section 29(3) of the 1987 Constitution taxes due from the claims that he may have against the
government.
“Section 29. (3) All money collected on any tax levied [Caltex Philippines, Inc. v. Commission on Audit, GR No. 92585, 8
for a special purpose shall be treated as a special fund May 1992.]

** A year later, Osmeña v. Orbos reiterated that the Oil Price the law. And on the taxing power of local government units, the
Stabilization Fund (OPSF) is a special fund. “The OPSF was designed Supreme Court ruled that municipal corporations have no inherent
to reimburse oil companies for cost increases in crude oil and right to impose taxes. The taxing power of local government units
imported petroleum products resulting from exchange rate must “always yield to a legislative act which is superior having been
adjustments and from increases in the world market prices of crude passed upon by the state itself which has the ‘inherent power to
oil.” The Supreme Court categorized the OPSF as a special fund in tax.”
this wise: “Hence, it seems clear that while the funds collected may [Basco v. Philippine Amusements and Gaming Corporation, GR No.
be referred to as taxes, they are exacted in the exercise of the police 91649, 14 May 1991.]
power of the State. Moreover, that the OPSF is a special fund is
plain from the special treatment given it by E.O. 137. It is segregated ** On the other hand, Manila Electric Company v. Province of
from the general fund; and while it is placed in what the law refers Laguna was an illustration of the new rule on the nature of the
to as a ‘trust liability account,’ the fund nonetheless remains subject taxing power of local government units pursuant to the 1987
to the scrutiny and review of the COA. The Court is satisfied that Constitution. In the 1980s, various municipalities of the Province of
these measures comply with the constitutional description of a Laguna issued resolutions through their respective municipal
‘special fund." councils granting franchise in favor of MERALCO for the supply of
[Osmeña v. Orbos, GR No. 99886, 31 March 1993.] electric light, heat and power within their concerned areas. On 1
January 1992, the 1991 LGC took effect. Pursuant to the code,
Article X, Section 5 of the 1987 Constitution Laguna Provincial Ordinance No. 01-‐92 was enacted. At issue in this
case was this ordinance which effectively imposed franchise tax on
“Section 5. Each local government unit shall have the MERALCO. Protesting such imposition, MERALCO contended that it
power to create its own sources of revenues and to was not subject to franchise tax on the basis of PD No. 551 (a law
levy taxes, fees, and charges subject to such enacted earlier than the 1991 LGC) and the non-‐ impairment clause
guidelines and limitations as the Congress may of the Constitution. The Supreme Court ruled that MERALCO’s
provide, consistent with the basic policy of local exemption from payment of franchise tax partook the nature of a
autonomy. Such taxes, fees, and charges shall accrue grant and did not amount to a contractual tax exemption. Hence,
exclusively to the local governments.” Congress was allowed to impair MERALCO’s franchise, as it did
when it enacted the 1991 LGC.
* Basco v. Philippine Amusements and Gaming Corporation spoke of Here, the High Court explained the nature of the taxing power of
the old rule with respect to the power of local government units to local government units. Prior to the 1987 Constitution, the taxing
tax. Petitioners initiated the case seeking to annul the PAGCOR power of LGUs was exercised under limited statutory authority.
Charter because it was allegedly contrary to morals, public policy Under the present Constitution, the taxing power of LGUs is
and order, among others. The Supreme Court upheld the legality of deemed to exist, subject only to specific exceptions that the law

may prescribe. Otherwise stated, the taxing power of LGUs is a (1) the tax is for a public purpose;
direct grant of the Constitution, and is not a delegated power of (2) the rule on uniformity of taxation is observed;
Congress. (3) either the person or property taxed is within the jurisdiction
[Manila Electric Company v. Province of Laguna, GR No. 131359, 5 of the government levying the tax; and
May 1999.] (4) in the assessment and collection of certain kinds of taxes,
notice and opportunity for hearing are provided.
Q: What are the general constitutional limitations on tax? [Pepsi-‐Cola Bottling Co. of the Philippines, Inc. v. Municipality of
Tanauan, Leyte, GR No. L-‐31156, 27 February 1976.]
Due process
** In Sison v. Ancheta, petitioner assailed Section 1 of Batas
* Pepsi-‐Cola Bottling Co. of the Philippines, Inc. v. Municipality of Pambansa Blg. 135 amending the old Tax Code on the ground that
Tanauan, Leyte dealt with the validity of Municipality Ordinance No. he would be unduly discriminated against by the imposition of
27 of Tanauan imposing municipal production tax on soft drinks higher tax rates upon his income arising from the exercise of his
produced or manufactured within the territorial jurisdiction of profession as a lawyer vis-‐à-‐vis those which were imposed upon
Tanauan. This case necessarily touched on the constitutionality of fixed income or salaried individual taxpayers. For petitioner, there
the relevant proviso in the Local Autonomy Act endowing upon local was transgression of both the equal protection and due process
government units the authority to impose municipal license taxes or clauses of the Constitution as well as of the rule requiring uniformity
fees. On whether the relevant proviso in the Local Autonomy Act in taxation.
was confiscatory and oppressive, the Supreme Court held that it At the outset, the Supreme Court said that: “where the due process
was not and that it complied with the due process requirements of and equal protection clauses are invoked, considering that they are
law. “Due process is usually violated where the tax imposed is for a not fixed rules but rather broad standards, there is a need for proof
private as distinguished from a public purpose; a tax is imposed on of such persuasive character as would lead to such a conclusion.
property outside the State, i.e., extraterritorial taxation; and Absent such a showing [as in this case], the presumption of validity
arbitrary or oppressive methods are used in assessing and collecting must prevail.”
taxes. But, a tax does not violate the due process clause, as applied On the due process point, the High Court further stated: “the due
to a taxpayer, although the purpose of the tax will result in an injury process clause may be invoked where a taxing statute is so arbitrary
rather than a benefit to such taxpayer. Due process does not that it finds no support in the Constitution. An obvious example is
require that the property subject to the tax or the amount of tax to where it can be shown to amount to the confiscation of property.
be raised should be determined by judicial inquiry, and a notice and That would be a clear abuse of power. It then becomes the duty of
hearing as to the amount of the tax and the manner in which it shall this Court to say that such an arbitrary act amounted to the exercise
be apportioned are generally not necessary to due process of law.” of an authority not conferred. That properly calls for the application
Otherwise stated, there is lawful exercise of the taxing power when: of the Holmes dictum. It has also been held that where the assailed

tax measure is beyond the jurisdiction of the state, or is not for a and equal protection clauses are invoked, considering that they are
public purpose, or, in case of a retroactive statute is so harsh and not fixed rules but rather broad standards, there is a need for proof
unreasonable, it is subject to attack on due process grounds.” of such persuasive character as would lead to such a conclusion.
[Sison v. Ancheta, GR No. L-‐59431, 25 July 1984.] Absent such a showing [as in this case], the presumption of validity
must prevail.”
*** At issue in Tan v. del Rosario was the constitutionality of a law On the equal protection point, the High Court further stated:
amending the old Tax Code providing for the simplified net income “Equality and uniformity in taxation means that all taxable articles
taxation scheme (SNITS) and the revenue regulation promulgated or kinds of property of the same class shall be taxed at the same
pursuant to said amendatory law. It was argued, among others, that rate. The taxing power has the authority to make reasonable and
there was a resulting imbalance between the tax liabilities of those natural classifications for purposes of taxation.” It is enough that the
covered by the amendatory law and those who were not. classification rests upon substantial distinctions that make real
Essentially, petitioner’s attack on the amendatory law was on the differences.
premise that said law was unconstitutional for being violative of due [Sison v. Ancheta, GR No. L-‐59431, 25 July 1984.]
process. The Supreme Court held that: “The due process clause may
correctly be invoked only when there is a clear contravention of ** At issue in Tan v. del Rosario was the constitutionality of a law
inherent or constitutional limitations in the exercise of the tax amending the old Tax Code providing for the simplified net income
power.” No such transgression was evident in this case. In the end, taxation scheme (SNITS) and the revenue regulation promulgated
the Supreme Court upheld the validity of the amendatory law. pursuant to said amendatory law. It was argued that the law
[Tan v. del Rosario, GR Nos. 109289 and 109446, 3 October 1994.] attempted to tax single proprietorships and professionals differently
from the manner it imposed the tax on corporations and
Equal protection partnerships. On this tangent, the Supreme Court said that:
“Uniformity of taxation, like the kindred concept of equal
* In Sison v. Ancheta, petitioner assailed Section 1 of Batas protection, merely requires that all subjects or objects of taxation,
Pambansa Blg. 135 amending the old Tax Code on the ground that similarly situated, are to be treated alike both in privileges and
he would be unduly discriminated against by the imposition of liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371).
higher tax rates upon his income arising from the exercise of his Uniformity does not forfend classification as long as: (1) the
profession as a lawyer vis-‐à-‐vis those which were imposed upon standards that are used therefor are substantial and not arbitrary,
fixed income or salaried individual taxpayers. For petitioner, there (2) the categorization is germane to achieve the legislative purpose,
was transgression of both the equal protection and due process (3) the law applies, all things being equal, to both present and
clauses of the Constitution as well as of the rule requiring uniformity future conditions, and (4) the classification applies equally well to all
in taxation. those belonging to the same class (Pepsi Cola vs. City of Butuan, 24
At the outset, the Supreme Court said that: “where the due process SCRA 3; Basco vs. PAGCOR, 197 SCRA 52).”

[Tan v. del Rosario, GR Nos. 109289 and 109446, 3 October 1994.] test, a legislative classification, to survive an equal protection
challenge, must be shown to rationally further a legitimate state
*** At issue in British American Tobacco v. Camacho was the interest. The classifications must be reasonable and rest upon some
legality of the classification freeze provision introduced by RA No. ground of difference having a fair and substantial relation to the
8240, as amended by RA No. 9334, in Section 145 of the 1997 Tax object of the legislation.”
Code. The law created a four-‐tiered system among low-‐priced, [British American Tobacco v. Camacho, GR No. 163583, 20 August
medium-‐priced, high-‐priced, and premium-‐priced tax brackets of 2008.]
cigars and cigarettes. “When a brand is introduced in the market,
the current net retail price is determined through the aforequoted Religious freedom
classify under which tax bracket the brand belongs in order to finally * In American Bible Society v. City of Manila, petitioner distributed
determine the corresponding excise tax rate on a per pack basis. and sold bibles and/or gospel portions thereof throughout the
The assailed feature of this law pertains to the mechanism where, Philippines and translated the same into several Philippine dialects.
after a brand is classified based on its current net retail price, the In 1953, the acting City Treasurer of Manila required petitioner to
classification is frozen and only Congress can thereafter reclassify pay municipal tax because it was allegedly engaged in the business
the same.” [Particular attention was directed to Annex “D” referring of general merchandise and therefore covered by Ordinance No.
to those old brands which were classified as of 1 October 1996, or 2529. Was Ordinance No. 2529 applicable, valid and constitutional if
prior to the effectivity of RA No. 8240.] The consequence of the applied to petitioner’s alleged business of sale and distribution of
classification freeze provision was, even if the present day net retail bibles throughout the Philippines? The Supreme Court answered in
price of a certain brand would make it fall under a higher tax the negative. “It may be true that in the case at bar the price asked
bracket, the previously classified brand would continue to be for the bibles and other religious pamphlets was in some instances a
subject to the excise tax rate under the lower tax bracket by virtue little bit higher than the actual cost of the same but this cannot
of said provision. mean that [petitioner] was engaged in the business or occupation of
Did the legislative classification freeze violate the equal protection selling said ‘merchandise’ for profit. For this reason We believe that
and uniformity of taxation clauses of the Constitution? The Supreme the provisions of City of Manila Ordinance No. 2529, as amended,
Court answered in the negative. There could be no denial of the cannot be applied to [petitioner], for in doing so it would impair its
equal protection of the laws since the rational-‐basis test was amply free exercise and enjoyment of its religious profession and worship
satisfied. “[I]n our jurisdiction, the standard and analysis of equal as well as its rights of dissemination of religious beliefs.”
protection challenges in the main have followed the ‘rational basis’ [American Bible Society v. City of Manila, GR No. L-‐9637, 30 April
test, coupled with a deferential attitude to legislative classifications 1957.]
and a reluctance to invalidate a law unless there is a showing of a
clear and unequivocal breach of the Constitution. xxx Under this

Payment of just compensation never been thought as a limitation on the exercise of the State’s
power of taxation save only where a tax exemption has been
* Under RA No. 7432, the 20% discount required to be given to granted for a valid consideration.”
senior citizens is a tax credit, not merely a tax deduction from the [Tolentino v. Secretary of Justice, GR No. 115544, 25 August 1994.]
gross income or gross sale of the establishment concerned. [Note
though that this was the old rule. As it now stands, establishments ** In the 1980s, various municipalities of the Province of Laguna
can claim the discount given as a tax deduction, and not anymore a issued resolutions through their respective municipal councils
tax credit.] CIR v. Central Luzon Drug Corporation discussed the granting franchise in favor of MERALCO for the supply of electric
issue of whether the tax credit allowed under RA No. 7432 to light, heat and power within their concerned areas. On 1 January
establishments as a result of granting 20% discount to senior 1992, the 1991 LGC took effect. Pursuant to the code, Laguna
citizens may be claimed by such establishments even though they Provincial Ordinance No. 01-‐92 was enacted. At issue in Manila
are operating at a loss. The Supreme Court answered affirmatively. Electric Company v. Province of Laguna was this ordinance which
The Court also had occasion to say that: “the tax credit benefit effectively imposed franchise tax on MERALCO. Protesting such
granted to these establishments can be deemed as their just imposition, MERALCO contended that it was not subject to franchise
compensation for private property taken by the State for public tax on the basis of PD No. 551 (a law enacted earlier than the 1991
use.” Moreover, the term “just compensation” “refers not only to LGC) and the non-‐ impairment clause of the Constitution. The
the issuance of a tax credit certificate indicating the correct amount Supreme Court ruled that MERALCO’s exemption from payment of
of the discounts given, but also to the promptness in its release.” franchise tax partook the nature of a grant and did not amount to a
[CIR v. Central Luzon Drug Corporation, GR No. 159647, 15 April contractual tax exemption. Hence, Congress was allowed to impair
2005.] MERALCO’s franchise, as it did when it enacted the 1991 LGC.
Here, the High Court explained the nature of the taxing power of
Non-‐impairment of contracts local government units. Prior to the 1987 Constitution, the taxing
power of LGUs was exercised under limited statutory authority.
* Tolentino v. Secretary of Finance discussed the constitutionality of Under the present Constitution, the taxing power of LGUs is
RA No. 7716 which sought to widen the tax base of the value added deemed to exist, subject only to specific exceptions that the law
tax system and enhance its administration by amending the old Tax may prescribe. Otherwise stated, the taxing power of LGUs is a
Code. One contention of petitioners was that the imposition of the direct grant of the Constitution, and is not a delegated power of
VAT on the sales and leases of real estate by virtue of contracts Congress.
entered into prior to the effectivity of the law would violate the [Manila Electric Company v. Province of Laguna, GR No. 131359, 5
Contract Clause enshrined in the Constitution. “No law impairing May 1999.]
the obligation of contracts shall be passed.” In striking down this
argument, the Supreme Court stated that: “the Contract Clause has Q: What are the inherent limitations on tax?

Public purpose ** Lutz v. Araneta dealt with the classification of the impositions
under the Sugar Adjustment Act (promulgated in 1940). Were they
* Pepsi-‐Cola Bottling Co. of the Philippines, Inc. v. Municipality of imposed pursuant to the power of taxation or the police power?
Tanauan, Leyte dealt with the validity of Municipality Ordinance No. The Supreme Court stated that the impositions under the subject
27 of Tanauan imposing municipal production tax on soft drinks law were taxes levied with a regulatory purpose, i.e., to provide
produced or manufactured within the territorial jurisdiction of means for the rehabilitation and stabilization of the threatened
Tanauan. This case necessarily touched on the constitutionality of sugar industry. (They were not a pure exercise of taxing power). In
the relevant proviso in the Local Autonomy Act endowing upon local this sense, taxation was made the implement of the state’s police
government units the authority to impose municipal license taxes or power.
fees. On whether the relevant proviso in the Local Autonomy Act [Lutz v. Araneta, GR No. L-‐7859, 22 December 1955.]
was confiscatory and oppressive, the Supreme Court held that it
was not and that it complied with the due process requirements of *** In Tio v. Videogram Regulatory Board, videogram operators
law. “Due process is usually violated where the tax imposed is for a were made to pay 30% tax similar to the 30% amusement tax
private as distinguished from a public purpose; a tax is imposed on imposed on theater owners. The Supreme Court held that the tax
property outside the State, i.e., extraterritorial taxation; and was not only a regulatory but also a revenue measure primarily to
arbitrary or oppressive methods are used in assessing and collecting answer the need for regulating the video industry, particularly
taxes. But, a tax does not violate the due process clause, as applied because of the rampant film piracy, flagrant violation of intellectual
to a taxpayer, although the purpose of the tax will result in an injury property rights, and proliferation of pornographic videotapes. In this
rather than a benefit to such taxpayer. Due process does not sense, taxation was made the implement of the state’s police
require that the property subject to the tax or the amount of tax to power.
be raised should be determined by judicial inquiry, and a notice and [Tio v. Videogram Regulatory Board, GR No. L-‐75697, 18 June 1987.]
hearing as to the amount of the tax and the manner in which it shall
be apportioned are generally not necessary to due process of law.” **** Citizens’ Alliance for Consumer Protection v. Energy Regulatory
Otherwise stated, there is lawful exercise of the taxing power when: Board is a series of cases that struck at the laws establishing and
(1) the tax is for a public purpose; creating the Oil Price Stabilization Fund (OPSF). Did the OPSF serve a
(2) the rule on uniformity of taxation is observed; public purpose? The Supreme Court answered in the affirmative,
(3) either the person or property taxed is within the jurisdiction thus: “the establishment and maintenance of the OPSF is well within
of the government levying the tax; and that pervasive and non-‐waivable power and responsibility of the
(4) in the assessment and collection of certain kinds of taxes, government to secure the physical and economic survival and well-‐
notice and opportunity for hearing are provided. being of the community, that comprehensive sovereign authority
[Pepsi-‐Cola Bottling Co. of the Philippines, Inc. v. Municipality of we designate as the police power of the state. The stabilization and
Tanauan, Leyte, GR No. L-‐31156, 27 February 1976.] subsidy of domestic prices of petroleum products and fuel oil –

clearly critical in importance considering, among other things, the ** Basco v. Philippine Amusements and Gaming Corporation spoke
continuing high level of dependence of the country on imported of the old rule with respect to the power of local government units
crude oil – are appropriately regarded as public purposes.” to tax. Petitioners initiated the case seeking to annul the PAGCOR
[Citizens’ Alliance for Consumer Protection v. Energy Regulatory Charter because it was allegedly contrary to morals, public policy
Board, GR Nos. L-‐78888-‐90, 23 June 1988.] and order, among others. The Supreme Court upheld the legality of
the law. And on the taxing power of local government units, the
Non-‐delegability of the power to tax Supreme Court ruled that municipal corporations have no inherent
right to impose taxes. The taxing power of local government units
* The issue in People v. Vera was the constitutionality of Act No. must “always yield to a legislative act which is superior having been
4221, otherwise known as the Probation Law, which was challenged passed upon by the state itself which has the ‘inherent power to
on several principal grounds such as that it constituted an undue tax.”
delegation of legislative power. The Supreme Court held that [Basco v. Philippine Amusements and Gaming Corporation, GR No.
Section 11 of the Probation Law constituted an improper and 91649, 14 May 1991.]
unlawful delegation of legislative authority to the provincial boards.
Hence, it was unconstitutional and void. In making this *** On the other hand, Manila Electric Company v. Province of
determination, the Supreme Court stated that the non-‐delegability Laguna was an illustration of the new rule on the nature of the
of the legislative power was the general rule. However, it admitted taxing power of local government units pursuant to the 1987
of several exceptions, i.e., such power could be delegated to local Constitution. In the 1980s, various municipalities of the Province of
authorities, the people at large, or the President. Laguna issued resolutions through their respective municipal
[People v. Vera, GR No. L-‐45685, 16 November 1937.] councils granting franchise in favor of MERALCO for the supply of
electric light, heat and power within their concerned areas. On 1
Article X, Section 5 of the 1987 Constitution reads: January 1992, the 1991 LGC took effect. Pursuant to the code,
Laguna Provincial Ordinance No. 01-‐92 was enacted. At issue in this
“Section 5. Each local government unit shall have the case was this ordinance which effectively imposed franchise tax on
power to create its own sources of revenues and to MERALCO. Protesting such imposition, MERALCO contended that it
levy taxes, fees, and charges subject to such was not subject to franchise tax on the basis of PD No. 551 (a law
guidelines and limitations as the Congress may enacted earlier than the 1991 LGC) and the non-‐ impairment clause
provide, consistent with the basic policy of local of the Constitution. The Supreme Court ruled that MERALCO’s
autonomy. Such taxes, fees, and charges shall accrue exemption from payment of franchise tax partook the nature of a
exclusively to the local governments.” grant and did not amount to a contractual tax exemption. Hence,
Congress was allowed to impair MERALCO’s franchise, as it did
when it enacted the 1991 LGC.

Here, the High Court explained the nature of the taxing power of Tax exemption of the State
local government units. Prior to the 1987 Constitution, the taxing
power of LGUs was exercised under limited statutory authority. * The National Power Corporation was tasked to undertake
Under the present Constitution, the taxing power of LGUs is development of hydroelectric generation of power and production
deemed to exist, subject only to specific exceptions that the law of electricity from other sources, as well as the transmission of
may prescribe. Otherwise stated, the taxing power of LGUs is a electric power on a nationwide basis. The question in Maceda v.
direct grant of the Constitution, and is not a delegated power of Macaraig was: under the relevant laws, was NPC exempt from
Congress. payment of indirect taxes and duties? Considering the amendments
[Manila Electric Company v. Province of Laguna, GR No. 131359, 5 to the relevant laws, petitioner invoked the rule on strictissimi juris
May 1999.] with respect to the interpretation of statutes granting tax
exemptions to NPC. On this point, the Supreme Court held that
Territoriality indeed, in general, the rule on strictissimi juris must be followed.
“The basis for applying the rule of strict construction to statutory
* In Iloilo Bottlers, Inc. v. City of Iloilo, petitioner maintained a provisions granting tax exemptions or deductions, even more
bottling plant in Pavia, Iloilo, but sold softdrinks in Iloilo City by obvious than with reference to the affirmative or levying provisions
means of a fleet of delivery trucks, called “rolling stores,” which of tax statutes, is to minimize differential treatment and foster
went directly to customers. At issue was whether petitioner was impartiality, fairness, and equality of treatment among taxpayers.”
liable under the tax ordinance of Iloilo City which imposed a However, the rule on strictissimi juris does not apply in the case of
municipal license tax on distributors/sellers of softdrinks in the area. exemptions in favor of a government political subdivision or
The Supreme Court found that petitioner was engaged in the instrumentality. “The reason for the rule does not apply in the case
business of distributing/selling softdrinks in Iloilo City through its of exemptions running to the benefit of the government itself or its
rolling stores where sales transactions with customers were entered agencies. In such case the practical effect of an exemption is merely
into and sales were perfected and consummated by route salesmen. to reduce the amount of money that has to be handled by the
Hence, petitioner was subject to the municipal license tax. “Being an government in the course of its operations.”
excise tax, it can be levied by the taxing authority only when the [Maceda v. Macaraig, GR No. 88291, 31 May 1991.]
acts, privileges or businesses are done or performed within the
jurisdiction of said authority. xxx the situs of the act of distributing, ** In Manila International Airport Authority v. Court of Appeals,
bottling or manufacturing softdrinks must be within city limits, MIAA received Final Notices of Real Estate Tax Delinquency for the
before an entity engaged in any of the activities may be taxed in taxable years 1992 to 2001. The main issue was whether MIAA’s
Iloilo City.” airport lands and buildings were exempt from real estate tax
[Iloilo Bottlers, Inc. v. City of Iloilo, GR No. L-‐52019, 19 August 1988.] imposed by local government units. The Supreme Court held that it
was exempt from payment of real estate tax for the following

reasons: (1) MIAA was not a government-‐owned or –controlled based on the rationale that the Philippines ‘adopts the generally
corporation; and (2) MIAA’s airport lands and buildings were owned accepted principles of international law as part of the law of the
by the Republic. Anent item (1), the Supreme Court ruled that MIAA land and adheres to the policy of x x x cooperation and amity with
was not a GOCC, and was in fact a government instrumentality. all nations.”
Pursuant to Section 133(o) of the 1991 LGC, as a rule, local [Tañada v. Angara, GR No. 118295, 2 May 1997.]
governments cannot tax the National Government, “unless a sound
and compelling policy requires such transfer of public funds from Q: What are the other recognized limitations on tax?
one government pocket to another.”
[Manila International Airport Authority v. Court of Appeals, GR No. Reconciliation of conflicting interests of taxing authority and
155650, 20 July 2006.] taxpayer

Principle of comity * In Roxas v. Court of Tax Appeals, in consonance with the
constitutional mandate to acquire big landed estates and apportion
* Tañada v. Angara prayed for the nullification of the concurrence them among landless tenant-‐farmers, the government succeeded in
of the Philippine Senate in the ratification of the Philippine persuading Roxas y Compañia to sell 13,500 hectares to the
President of the Agreement Establishing the World Trade government for distribution to actual occupants. However, as it
Organization (WTO Agreement). Did the provisions of the WTO turned out, the government did not have sufficient funds to pay for
Agreement and its three annexes limit, restrict, or impair the the purchase price. Roxas y Compañia obligingly sold the lands
exercise of legislative power by Congress? This was one of the issues directly to the farmers with the purchase price payable in
tackled in the present case. The Supreme Court answered in this installments in the course of 10 years. Was Roxas y Compañia
sense: “when the Philippines joined the United Nations as one of its considered a real estate dealer for the sale in question? The CIR
51 charter members, it consented to restrict its sovereign rights contended that Roxas y Compañia was a real estate dealer as it was
under the ‘concept of sovereignty as auto-‐limitation.” Moreover, engaged in the business of selling real estate. The Supreme Court
the Philippines executed the UN Treaty and other international held that although the vendees paid for their respective holdings in
pacts that involved limitations on Philippine sovereignty. “In the installment for a period of 10 years, it would not make the vendor
foregoing treaties, the Philippines has effectively agreed to limit the (Roxas y Compañia) a real estate dealer in this isolated transaction
exercise of its sovereign powers of taxation, eminent domain and with its peculiar circumstances.
police power. The underlying consideration in this partial surrender “The power of taxation is sometimes called also the power to
of sovereignty is the reciprocal commitment of the other destroy. Therefore it should be exercised with caution to minimize
contracting states in granting the same privilege and immunities to injury to the proprietary rights of a taxpayer. It must be exercised
the Philippines, its officials and its citizens.” Hence, “a portion of fairly, equally and uniformly, lest the tax collector kill the ‘hen that
sovereignty may be waived without violating the Constitution, lays the golden egg.’ And, in order to maintain the general public’s

trust and confidence in the Government this power must be used Revised Administrative Code, as amended by Act No. 3606 (which
justly and not treacherously. It does not conform with Our sense of took effect in 1930). The Supreme Court held that the governing law
justice in the instant case for the Government to persuade the at the time of death of the decedent was definitely not Act No.
taxpayer to lend it a helping hand and later on to penalize him for 3606. It was Section 1544 of the Revised Administrative Code, as
duly answering the urgent call.” amended by Act No. 3031 (which was effective on 9 March 1922).
[Roxas v. Court of Tax Appeals, GR No. L-‐25043, 26 April 1968.] “A statute should be considered as prospective in its operation,
whether it enacts, amends, or repeals an inheritance tax, unless the
** In Gala v. Ellice Agro-‐Industrial Corporation, petitioners sought to language of the statute clearly demands or expresses that it shall
disregard the separate juridical personalities of two corporations, have a retroactive effect.”
namely, Ellice Agro-‐Industrial Corporation and Margo Management [Lorenzo v. Posadas, GR No. L-‐43082, 18 June 1937.]
and Development Corporation, for the purpose of treating all
property purportedly owned by said corporations as property solely Promptness in payment
owned by the Gala Spouses. Among their arguments were: (1) said
corporations were organized for purpose of exempting the property * In Churchill v. Rafferty, one of the issues dealt with the
of the Gala Spouses from the coverage of land reform laws; and (2) interpretation of Sections 139 and 140 of Act No. 2339. The first
the two corporations were meant to be used as mere tools for the expressly prohibited the use of injunction to stay the collection of
avoidance of estate taxes. Ultimately, the Supreme Court upheld any internal revenue tax. The second provided a remedy for any
the two corporations’ separate juridical personalities. The legality of wrong in connection with such taxes, precluding the remedy by
the purposes for which the two corporations were formed should injunction. The Supreme Court confirmed that the inhibition applied
be threshed out in an administrative case before the Securities and to all internal revenue taxes. The mere fact that a tax was illegal or
Exchange Commission. Moreover, on contention (2), “suffice it say that the law by virtue of which it was imposed was unconstitutional
that the legal right of a taxpayer to reduce the amount of what did not authorize a court of equity to restrain its collection by
otherwise could be his taxes or altogether avoid them, by means injunction. “There must be a further showing that there are special
which the law permits, cannot be doubted.” circumstances which bring the case under some well recognized
[Gala v. Ellice Agro-‐Industrial Corporation, GR No. 156819, 11 head of equity jurisprudence, such as that irreparable injury,
December 2003.] multiplicity of suits, or a cloud upon title to real estate will result,
and also that there is, as we have indicated, no adequate remedy at
Prospective application law.” Furthermore, “it is upon taxation that the Government chiefly
relies to obtain the means to carry on its operations, and it is of the
* In Lorenzo v. Posadas, respondent as the CIR levied and assessed utmost importance that the modes adopted to enforce the
the inheritance tax due from the estate of Thomas Hanley (who died collection of the taxes levied should be summary and interfered
on 27 May 1922) under the provisions of Section 1544 of the with as little as possible. No government could exist if every litigious

man were permitted to delay the collection of its taxes. This No injunction against collection of taxes
principle of public policy must be constantly borne in mind in
determining cases such as the one under consideration.” * In Churchill v. Rafferty, one of the issues dealt with the
[Churchill v. Rafferty, GR No. L-‐10572, 21 December 1915.] interpretation of Sections 139 and 140 of Act No. 2339. The first
expressly prohibited the use of injunction to stay the collection of
** Philippine Guaranty Co., Inc. v. CIR discussed in part Section 200 any internal revenue tax. The second provided a remedy for any
of the Income Tax Regulations which stated: “In case of doubt, a wrong in connection with such taxes, precluding the remedy by
withholding agent may always protect himself by withholding the injunction. The Supreme Court confirmed that the inhibition applied
tax due, and promptly causing a query to be addressed to the to all internal revenue taxes. The mere fact that a tax was illegal or
Commissioner of Internal Revenue for the determination of whether that the law by virtue of which it was imposed was unconstitutional
or not the income paid to an individual is not subject to withholding. did not authorize a court of equity to restrain its collection by
In case the Commissioner of Internal Revenue decides that the injunction. “There must be a further showing that there are special
income paid to an individual is not subject to withholding, the circumstances which bring the case under some well recognized
withholding agent may thereupon remit the amount of tax head of equity jurisprudence, such as that irreparable injury,
withheld.” In this case, petitioner denied liability for payment of multiplicity of suits, or a cloud upon title to real estate will result,
income tax which it should have withheld and remitted to the BIR. and also that there is, as we have indicated, no adequate remedy at
The Supreme Court, however, found that petitioner failed to comply law.” Furthermore, “it is upon taxation that the Government chiefly
with Section 200 of the Income Tax Regulations. It was not shown relies to obtain the means to carry on its operations, and it is of the
that it withheld the amount of tax due before it inquired from the utmost importance that the modes adopted to enforce the
BIR as to the taxability of the reinsurance premiums involved. The collection of the taxes levied should be summary and interfered
rule is that payment precedes defense. “The legislature, in adopting with as little as possible. No government could exist if every litigious
such measures in our tax laws, only wanted to be assured that taxes man were permitted to delay the collection of its taxes. This
are paid and collected without delay. For taxes are the lifeblood of principle of public policy must be constantly borne in mind in
government. Also, such measures tend to prevent collusion determining cases such as the one under consideration.”
between the taxpayer and the tax collector. By questioning a tax’s [Churchill v. Rafferty, GR No. L-‐10572, 21 December 1915.]
legality without first paying it, a taxpayer, in collusion with Bureau
of Internal Revenue officials, can unduly delay, if not totally evade, ** On whether the courts can restrain the collection of taxes on the
the payment of such tax.” ground that their validity is disputed by the taxpayer, David v.
[Philippine Guaranty Co., Inc. v. CIR, GR No. L-‐22074, 6 September Ramos answered in the negative. Here, Castro questioned the CIR’s
1965.] intention to sell her properties at public auction to satisfy the war
profits tax assessed against her. She prayed that a preliminary
injunction be issued enjoining the CIR from proceeding with the

sale. The CFI of Manila was declared without jurisdiction to proceed the collection of local taxes are frowned upon.
with trial pursuant to the rule on prohibition against injunctions. [Angeles City v. Angeles Electric Corporation, GR No. 166134, 29
[See survey of cases discussing the prohibition against injunctions June 2010.]
that restrain the collection of taxes.]
[David v. Ramos, GR No. L-‐4300, 31 October 1951.] No estoppel against the State

*** Previously, Section 131 of the 1997 Tax Code exempted from * Philippine National Oil Company v. Court of Appeals stemmed
payment of tax all importations of cigars, cigarettes, distilled spirits, from Savellano’s letter informing the BIR that the Philippine
fermented liquors, and wines into the Subic Special Economic National Bank failed to withhold the 15% final tax on interest
Freeport Zone. Section 6 of RA No. 9334, which was enacted in earnings and/or yields from the money placements of PNOC with
2005, amended Section 131 of the 1997 Tax Code, effectively said bank. Then CIR Tan accepted a compromise from the involved
imposing tax on all importations of the abovementioned products in taxpayers pursuant to EO No. 44. Savellano was paid the informer’s
to the Subic Special Economic Freeport Zone. At issue in Republic v. reward in an amount equivalent to 15% of the actual tax collected
Caguioa was the preliminary injunction granted by Judge Caguioa by the BIR from PNOC and PNB. Savellano argued that the
which stayed the implementation of RA No. 9334. The Supreme informer’s reward should have been 15% of the original assessment
Court nullified Judge Caguioa’s order granting the preliminary against PNOC and PNB. Savellano then struck at the compromise
injunction on the ground that no clear case of abuse was agreement which then CIR Tan entered into. The Supreme Court
established. Moreover, the Supreme Court stated that the held that the compromise should have been made not under EO No.
suspension of the implementation of the assailed law was 44, but pursuant to Section 246 of the 1977 Tax Code. The High
tantamount to an injunction that restrained the collection of taxes. Court also affirmed then CIR Ong’s decision to set aside the
[Republic v. Caguioa, GR No. 168584, 15 October 2007.] compromise agreement which his predecessor, Tan, had entered
into after finding that said agreement was without legal basis.
**** In Angeles City v. Angeles Electric Corporation, the ruling of the “Upon taxation depends the Government’s ability to serve the
Supreme Court was that the prohibition on the issuance of a writ of people for whose benefit taxes are collected. To safeguard such
injunction to enjoin the collection of taxes applied only to national interest, neglect or omission of government officials entrusted with
internal revenue taxes, not to local taxes. Section 218 of the 1997 the collection should not be allowed to bring harm or detriment to
Tax Code does not have a counterpart provision in the 1991 Local the people, in the same manner as private persons may be made to
Government Code. Thus, the Supreme Court upheld the RTC’s suffer individually on account of his own negligence, the
decision in ordering the issuance of the writ of preliminary presumption being that they take good care of their personal
injunction enjoining Angeles City and its City Treasurer from levying, affairs. This should not hold true to government officials with
selling, and disposing the properties of Angeles Electric Corporation. respect to matters not of their own personal concern. This is the
However, the High Court likewise noted that injunctions enjoining philosophy behind the government’s exception, as a general rule,

from the operation of the principle of estoppel.” cost of Php 1.1 million, “estoppel generally finds no application
[Philippine National Oil Company v. Court of Appeals, GR Nos. against the State when it acts to rectify mistakes, errors,
109976 and 112800, 26 April 2005.] irregularities, or illegal acts, of its officials and agents, irrespective of
rank. This ensures efficient conduct of the affairs of the State
** In Secretary of Finance v. Oro Maura Shipping Lines, Glory without any hindrance on the part of the government from
Shipping Lines applied for an authority to import a vessel, i.e., M/V implementing laws and regulations, despite prior mistakes or even
Haruna, with a declared dutiable value of almost Php 6.2 million. illegal acts of its agents shackling government operations and
Less than a year later, without paying the customs tax and duty due allowing others, some by malice, to profit from official error or
on the importation of M/V Haruna, Glory Shipping Lines offered to misbehavior. The rule holds true even if the rectification prejudices
sell the vessel to Oro Maura Shipping Lines. The latter applied for an parties who had meanwhile received benefits.”
authority to import the vessel based on an acquisition cost of Php [Secretary of Finance v. Oro Maura Shipping Lines, GR No. 156946,
1.1 million (the difference between Php 6.2 million and Php 1.1 15 July 2009.]
million allegedly making allowance for depreciation). The Collector
of the Port of Manila accepted the declared value of the vessel at No legal compensation between taxes and debts
Php 1.1 million and assessed the corresponding duties and taxes
based on the same, which amount was duly paid by Oro Maura * One of the issues in Caltex Philippines, Inc. v. Commission on Audit
Shipping Lines. After discovering that the vessel had been sold to was whether the amounts due to the Oil Price Stabilization Fund
Oro Maura Shipping Lines, the Collector of the Port of Mactan (OPSF) from petitioner could be offset against petitioner’s
demanded payment of the unpaid customs duties and charges of outstanding claims from said fund. Petitioner contended, among
Glory Shipping Lines (based on the higher Php 6.2 million). others, that the amounts due from it did not arise as a result of
Consequently, the Collector of the Port of Mactan ordered the taxation, and that the OPSF contributions did not go to the general
forfeiture of the vessel in favor of the government after finding that fund of the state and were not used for public purpose. On this
both Glory Shipping Lines and Oro Maura Shipping Lines acted tangent, the Supreme Court stated: “We find no merit in
fraudulently in the transaction. Could the Secretary of Finance order petitioner's contention that the OPSF contributions are not for a
a re-‐assessment of the vessel? The Supreme Court ruled in the public purpose because they go to a special fund of the
affirmative. (1) Depreciation is not a factor in determining the government. Taxation is no longer envisioned as a measure merely
dutiable value of an article. (2) Even assuming that the depreciated to raise revenue to support the existence of the government; taxes
value of the vessel could be considered in determining the vessel’s may be levied with a regulatory purpose to provide means for the
dutiable value, the decrease of 80% from the original price after the rehabilitation and stabilization of a threatened industry which is
passage of only 19 months was found to be incredible. (3) Assuming affected with public interest as to be within the police power of the
further that the MARINA and the Collector of the Port of Manila state. There can be no doubt that the oil industry is greatly imbued
committed a mistake in approving the vessel’s proposed acquisition with public interest as it vitally affects the general welfare. Any

unregulated increase in oil prices could hurt the lives of a majority Price? As a general rule, when it comes to taxes, compensation is
of the people and cause economic crisis of untold proportions.” not legally feasible, i.e., a taxpayer may not offset taxes due from
[Emphasis supplied.] the claims that he may have against the government. In this
In the end, the High Court held that when it comes to taxes, instance, the Supreme Court ruled otherwise because the claim of
compensation is not legally feasible, i.e., a taxpayer may not offset the estate against the government had been recognized and the
taxes due from the claims that he may have against the entire amount of indebtedness had already been appropriated for
government. “Firstly, the Government and the petitioner cannot be the purpose by a corresponding law (RA No. 2700). “Under the
said to be mutually debtors and creditors of each other. Secondly, above circumstances, both the claim of the Government for
there is no proof that petitioner’s claim is already due and inheritance taxes and the claim of the intestate for services
liquidated. Under Article 1279 of the Civil Code, in order that rendered have already become overdue and demandable as well as
compensation may be proper, it is necessary that: fully liquidated. Compensation, therefore, takes place by operation
(1) each one of the obligors be bound principally, and that he of law xxx.”
be at the same time a principal creditor of the other; [Domingo v. Garlitos, GR No. L-‐18994, 29 June 1963.]
(2) both debts must consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of Q: Explain the statutory construction rule in regard of tax statutes.
the same quality if the latter has been stated;
(3) the two (2) debts be due; * Are health care agreements of health maintenance organizations
(4) they be liquidated an demandable; subject to documentary stamp tax? Otherwise stated, are health
(5) over neither of them there be any retention or controversy, care agreements considered as insurance policies and therefore
commenced by third persons and communicated in due subject to DST? No. The wording of now Section 185 of the 1997 Tax
time to the debtor.” Code on stamp tax on insurance policies had remained unchanged
[Caltex Philippines, Inc. v. Commission on Audit, GR No. 92585, 8 since 1904. True, when the law imposing the DST was first passed,
May 1992.] HMOs were yet unknown in the Philippines. However, when the
various amendments to the DST law were enacted, HMOs were
** In Domingo v. Garlitos, the estate of Walter Scott Price was already in existence. If it had been the intent of the legislature to
ordered to pay estate and inheritance taxes, charges and penalties. impose DST on health care agreements, it could have done so in
In order to enforce the claims against the estate, the pronvincial clear and categorical terms. In construing now Section 185 of the
fiscal filed a petition to the court for the execution of the judgment. 1997 Tax Code, “we should be guided by the principle that tax
The petition was, however, denied by the court which held that the statutes are strictly construed against the taxing authority. This is
execution was not justifiable as the government was indebted to because taxation is a destructive power which interferes with the
the estate under administration. Did the CIR have a clear right to personal and property rights of the people and takes from them a
execute the judgment for taxes against the estate of Walter Scott portion of their property for the support of the government. Hence,

tax laws may not be extended by implication beyond the clear is the rule, exemption is the exception. The burden of proof rests
import of their language, nor their operation enlarged so as to upon the party claiming the exemption to prove that it is in fact
embrace matters not specifically provided.” covered by the exemption so claimed.”
[Philippine Health Care Providers, Inc. v. CIR, GR No. 167330, 18 [Quezon City v. ABS-‐CBN Broadcasting Corporation, GR No. 166408,
September 2009.] 6 October 2008.]

Q: Explain the statutory construction rule with respect to tax Q: What is the exception to the rule on tax exemptions?
exemptions.
* The National Power Corporation was tasked to undertake
* At issue in Quezon City v. ABS-‐CBN Broadcasting Corporation was development of hydroelectric generation of power and production
the validity of the imposition and collection of local franchise tax by of electricity from other sources, as well as the transmission of
the City Treasurer of Quezon City on ABS-‐CBN. Under the Quezon electric power on a nationwide basis. The question in Maceda v.
City Revenue Code of 1993, a franchise tax was imposed on Macaraig was: under the relevant laws, was NPC exempt from
businesses operating within the jurisdiction. In 1995, ABS-‐CBN was payment of indirect taxes and duties? Considering the amendments
granted a franchise to install and operate radio and television to the relevant laws, petitioner invoked the rule on strictissimi juris
broadcasting stations in the Philippines under RA No. 7966. Under with respect to the interpretation of statutes granting tax
Section 8 of RA No. 7966, ABS-‐CBN shall pay a 3% franchise tax on exemptions to NPC. On this point, the Supreme Court held that
all gross receipts and said percentage tax shall be in lieu of all taxes indeed, in general, the rule on strictissimi juris must be followed.
on the franchise or earnings thereof. Did the phrase “in lieu of all “The basis for applying the rule of strict construction to statutory
taxes” serve to exempt ABS-‐CBN from payment of the local provisions granting tax exemptions or deductions, even more
franchise tax imposed by Quezon City? The Supreme Court obvious than with reference to the affirmative or levying provisions
answered in the negative. “First, the ‘in lieu of all taxes’ clause in its of tax statutes, is to minimize differential treatment and foster
franchise failed to specify the taxes the company is sought to be impartiality, fairness, and equality of treatment among taxpayers.”
exempted from. Neither did it particularize the jurisdiction from However, the rule on strictissimi juris does not apply in the case of
which the taxing power is withheld. Second, the clause has become exemptions in favor of a government political subdivision or
functus officio because as the law now stands, ABS-‐CBN is no longer instrumentality. “The reason for the rule does not apply in the case
subject to a franchise tax. It is now liable for VAT.” of exemptions running to the benefit of the government itself or its
On the matter of statutory construction, the Supreme Court stated agencies. In such case the practical effect of an exemption is merely
that: “statutes granting tax exemptions are construed stricissmi juris to reduce the amount of money that has to be handled by the
against the taxpayer and liberally in favor of the taxing authority. A government in the course of its operations.”
claim of tax exemption must be clearly shown and based on [Maceda v. Macaraig, GR No. 88291, 31 May 1991.]
language in law too plain to be mistaken. Otherwise stated, taxation

** In Manila International Airport Authority v. Court of Appeals, prevailing in our legal system. This applies not only to individuals
MIAA received Final Notices of Real Estate Tax Delinquency for the but to the State as well. In the field of taxation where the State
taxable years 1992 to 2001. The main issue was whether MIAA’s exacts strict compliance upon its citizens, the State must likewise
airport lands and buildings were exempt from real estate tax deal with taxpayers with fairness and honesty. The harsh power of
imposed by local government units. The Supreme Court held that it taxation must be tempered with evenhandedness. Hence, under the
was exempt from payment of real estate tax for the following principle of solution indebiti, the Government has to restore to
reasons: (1) MIAA was not a government-‐owned or –controlled petitioner the sums representing erroneous payments of taxes.”
corporation; and (2) MIAA’s airport lands and buildings were owned [Filinvest Development Corporation v. CIR, GR No. 146941, 9 August
by the Republic. Anent item (1), the Supreme Court ruled that MIAA 2007.]
was not a GOCC, and was in fact a government instrumentality.
Pursuant to Section 133(o) of the 1991 LGC, as a rule, local Q: What are the aspects of taxation?
governments cannot tax the National Government, “unless a sound
and compelling policy requires such transfer of public funds from * There are two aspects of taxation, namely, (1) levy, and (2)
one government pocket to another.” assessment and collection. Levy means the imposition of taxes
[Manila International Airport Authority v. Court of Appeals, GR No. which is essentially legislative in nature. On the other hand,
155650, 20 July 2006.] assessment and collection deal with the processes and remedies
available to the government in respect of these taxes which are
Q: Discuss the principle of solutio indebiti in tax cases. basically administrative in nature.

Read Article 2154 of the Civil Code provides: ** Under the 1977 Tax Code, the government had five (5) years to
assess and another five (5) years to collect. By virtue of a 1984
“If something is received when there is no right to amendment to the 1977 Tax Code, the assessment and collection
demand it, and it was unduly delivered through periods were both reduced to three (3) years. Today, under the
mistake, the obligation to return it arises.” 1997 Tax Code, the government has three (3) years to assess and
five (5) years to collect.
* Filinvest Development Corporation v. CIR was a claim for tax
refund or credit filed by petitioner of its alleged excess creditable Q: What are the basis principles of a sound tax system?
withholding taxes for taxable years 1994 to 1996. Was petitioner
entitled to relief under the present petition? Yes. The Supreme Fiscal adequacy
Court found that petitioner complied with all the requirements to
prove its claim for tax refund or credit. “That no one shall unjustly * In Chavez v. Ongpin, petitioners questioned the constitutionality
enrich oneself at the expense of another is a long-‐standing principle of EO No. 73 updating the 1978 real property values through a

newer 1984 revision. The Supreme Court found that the petition should be capable of being effectively administered and enforced
was without legal basis and that petitioners should have challenged with the least inconvenience to the taxpayer. Non-‐observance of
PD No. 464, EO No. 73’s enabling law. Moreover, “without Executive the canon, however, will not render a tax imposition invalid ‘except
Order No. 73, the basis for collection of real property taxes will still to the extent that specific constitutional or statutory limitations are
be the 1978 revision of property values. Certainly, to continue impaired."
collecting real property taxes based on valuations arrived at several [Diaz v. Secretary of Finance, GR No. 193007, 19 July 2011.]
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.”
[Chavez v. Ongpin, GR No. 76778, 6 June 1990.]

Theoretical justice or equality

Administrative feasibility

* In Diaz v. Secretary of Finance, petitioners filed a petition for
declaratory relief assailing the validity of then impending imposition
of value added tax by the BIR on the collections of tollway
operators. It was argued, among others, that the substantiation
requirements for claiming input VAT made the VAT tollway
operations impractical and incapable of implementation. The name,
address and TIN of the tollway user would have to be indicated in
the VAT receipt or invoice. Thus, according to petitioners, the VAT
on tollway operations was not administratively feasible. The
Supreme Court held that even if the imposition of the VAT on Q: How are taxes classified?
tollway operations would seem burdensome to implement, it was
not necessarily invalid unless some aspect of it was shown to violate According to scope of the tax: national tax and local tax
any law or the Constitution. “Administrative feasibility is one of the
canons of a sound tax system. It simply means that the tax system * In Philippine Basketball Association v. Court of Appeals, PBA

received an assessment letter from the CIR for the payment of to pay. In addition thereto, the grantee, its successors or assigns
deficiency amusement tax for the taxable year 1987. PBA shall pay a franchise tax equivalent to three percent (3%) of all gross
maintained that it was the local governments which had the receipts of the business transacted under this franchise by the
authority to collect amusement taxes from the sale of admission grantee, its successors or assigns and the said percentage shall be in
tickets to places of amusement. The Supreme Court held that it was lieu of all taxes on this franchise or earnings thereof xxx.”
the National Government which could collect amusement taxes The Supreme Court held that: “aside from the national franchise tax,
from PBA. The 1977 Tax Code explicitly stated: “There shall be the franchisee is still liable to pay the local franchise tax, unless it is
collected from the proprietor, lessee or operator of cockpits, expressly and unequivocally exempted from the payment thereof
cabarets, night or day clubs, boxing exhibitions, professional under its legislative franchise. The ‘in lieu of all taxes’ clause in a
basketball games xxx.” Moreover, the Local Tax Code provided that: legislative franchise should categorically state that the exemption
“The province may levy an amusement tax to be collected from the applies to both local and national taxes; otherwise, the exemption
proprietors, lessees, or operators of theaters, cinemas, concert claimed should be strictly construed against the taxpayer and
halls, circuses, boxing stadia, and other places of amusement xxx.” liberally in favor of the taxing authority.” Moreover, “[t]he
Under the principle of ejusdem generis, “[p]rofessional basketball imposition of local franchise tax is not inconsistent with the advent
games do not fall under the same category as theaters, of the Vat, which renders functus officio [only] the franchise tax paid
cinematographs, concert halls and circuses as the latter basically to the national government. VAT inures to the benefit of the
belong to artistic forms of entertainment while the former caters to national government, while a local franchise tax is a revenue of the
sports and gaming.” local government unit.” [Emphasis supplied.]
[NOTE: The 1977 Tax Code and the 1997 Tax Code, as well as the [Smart Communications, Inc. v. City of Davao, GR No. 155491, 21
Local Tax Code and the 1991 LGC, contain similarly worded July 2009.]
provisions on amusement tax.] According to who shoulders the tax burden: direct tax and indirect
[Philippine Basketball Association v. Court of Appeals, GR No. tax
119122, 8 August 2000.]
* In Contex Corporation v. CIR, petitioner was engaged in the
** Was Smart Communications, Inc. liable to pay local franchise tax business of manufacturing hospital textiles and garments and other
to the City of Davao? This was the issue in Smart Communications, hospital supplies for export. It was duly registered with the Subic
Inc. v. City of Davao. Section 9 of Smart’s legislative franchise Bay Metropolitan Authority as a Subic Bay Freeport Enterprise
contained the contentious “in lieu of all taxes” clause. It read: pursuant to RA No. 7227. As an SBMA-‐registered firm, petitioner
“Section 9. Tax provisions. – The grantee, its successors or assigns was exempt from all local and national internal revenue taxes
shall be liable to pay the same taxes on their real estate buildings except for preferential tax provided in RA No. 7227. Petitioner was
and personal property, exclusive of this franchise, as other persons also registered with the BIR as a non-‐VAT taxpayer. Did the
or corporations which are now or hereafter may be required by law exemption from all local and national internal revenue taxes

provided in RA No. 7227 cover the value added tax paid by for the payment thereof, ultimately bears the burden of the tax.”
petitioner on its purchase of supplies and materials? The CIR argued [Contex Corporation v. CIR, GR No. 151135, 2 July 2004.]
that it did not, i.e., SBFZ locators were not relieved from the indirect
taxes that might be shifted to them by a VAT-‐registered seller. The ** In Silkair (Singapore) Pte. Ltd. v. CIR, petitioner purchased
Supreme Court held that petitioner’s VAT exemption under RA No aviation jet fuel from Petron for use on its international flights.
7227 was limited to the VAT on which it was directly liable as a Contending that it was exempt from payment of excise taxes, it filed
seller and hence, it could not claim any refund or exemption for any a claim for refund with the CIR. Petitioner relied on Section 135 of
input VAT it paid, if any, on its purchases of raw materials and the 1997 Tax Code and Article 4 of the Air Transport Agreement
supplies. The High Court had occasion to differentiate between a between the Philippines and Singapore. Was petitioner the proper
direct and an indirect tax, to wit: party to claim a refund for the excise taxes paid? The Supreme
“At this juncture, it must be stressed that the VAT is an indirect tax. Court it was not. “[T]he proper party to question, or seek a refund
As such, the amount of tax paid on the goods, properties or services of an indirect tax is the statutory taxpayer, the person on whom the
bought, transferred, or leased may be shifted or passed on by the tax is imposed by law and who paid the same even if he shifts the
seller, transferor, or lessor to the buyer, transferee or lessee. Unlike burden thereof to another.” Moreover, “even if Petron Corporation
a direct tax, such as the income tax, which primarily taxes an passed on to Silkair the burden of the tax, the additional amount
individual’s ability to pay based on his income or net wealth, an billed to Silkair for jet fuel is not a tax but part of the price which
indirect tax, such as the VAT, is a tax on consumption of goods, Silkair had to pay as a purchaser.” Citing CIR v. Philippine Long
services, or certain transactions involving the same. The VAT, thus, Distance Company,1 the Supreme Court explained the concept of
forms a substantial portion of consumer expenditures. indirect taxes, thus:
Further, in indirect taxation, there is a need to distinguish between “Based on the possibility of shifting the incidence of taxation, or as
the liability for the tax and the burden of the tax. As earlier pointed to who shall bear the burden of taxation, taxes may be classified
out, the amount of tax paid may be shifted or passed on by the into either direct tax or indirect tax.
seller to the buyer. What is transferred in such instances is not the In context, direct taxes are those that are exacted from the very
liability for the tax, but the tax burden. In adding or including the person who, it is intended or desired, should pay them; they are
VAT due to the selling price, the seller remains the person primarily impositions for which a taxpayer is directly liable on the transaction
and legally liable for the payment of the tax. What is shifted only to or business he is engaged in.
the intermediate buyer and ultimately to the final purchaser is the On the other hand, indirect taxes are those that are demanded, in
burden of the tax. Stated differently, a seller who is directly and the first instance, from, or are paid by, one person in the
legally liable for payment of an indirect tax, such as the VAT on expectation and intention that he can shift the burden to someone
goods or services is not necessarily the person who ultimately bears else. Stated elsewise, indirect taxes are taxes wherein the liability
the burden of the same tax. It is the final purchaser or consumer of

such goods or services who, although not directly and legally liable 1
CIR v. Philippine Long Distance Company, GR No. 140230, 15 December 2005.

for the payment of the tax falls on one person but the burden tollway user, but on the tollway operator.”
thereof can be shifted or passed on to another person, such as [Diaz v. Secretary of Finance, GR No. 193007, 19 July 2011.]
when the tax is imposed upon goods before reaching the consumer
who ultimately pays for it. When the seller passes on the tax to his According to subject matter: personal/poll/capitation tax, property
buyer, he, in effect, shifts the tax burden, not the liability to pay it, tax and license/occupation tax
to the purchaser as part of the price of goods sold or services
rendered.” [Emphasis supplied.] * Association of Customs Brokers, Inc. v. City of Manila was a
[Silkair (Singapore) Pte. Ltd. v. CIR, GR Nos. 171383 and 172379, 14 petition for declaratory relief to test the validity of Municipal
November 2008.] Ordinance No. 3379 passed in 1950 levying a property tax on all
motor vehicles operating within the City of Manila. The Supreme
*** In Diaz v. Secretary of Finance, petitioners filed a petition for Court held that although the imposition was denominated a
declaratory relief assailing the validity of then impending imposition property tax, it was in reality a license tax with the main purpose of
of value added tax by the BIR on the collections of tollway raising funds to be expended exclusively for the repair, maintenance
operators. It was argued that VAT on tollway fees amounted to a tax and improvement of the streets and bridges in said city. Such kind
on tax. The Supreme Court stated that toll fees were not taxes of imposition was prohibited by then prevailing Motor Vehicle Law
because they were collected by private tollway operators as which already imposed fees for the same purpose. “The character of
reimbursement for the cost and expenses incurred in the the tax as a property tax or a license or occupation tax must be
construction, maintenance and operation of the tollways, as well as determined by its incidents, and from the natural and legal effect of
to assure them a reasonable margin of income. Moreover, VAT on the language employed in the act or ordinance, and not by the
tollway fees did not constitute to a tax on tax due to the nature of name by which it is described, or by the mode adopted in fixing its
VAT as an indirect tax. “In indirect taxation, a distinction is made amount. If it is clearly a property tax, it will be so regarded, even
between the liability for the tax and burden of the tax. The seller though nominally and in form it is a license or occupation tax; and,
who is liable for the VAT may shift or pass on the amount of VAT it on the other hand, if the tax is levied upon persons on account of
paid on goods, properties or services to the buyer. In such a case, their business, it will be construed as a license or occupation tax,
what is transferred is not the seller’s liability but merely the burden even though it is graduated according to the property used in such
of the VAT. business, or on the gross receipts of the business.”
Thus, the seller remains directly and legally liable for payment of the [Association of Customs Brokers, Inc. v. City of Manila, GR No. L-‐
VAT, but the buyer bears its burden since the amount of VAT paid 4376, 22 May 1953.]
by the former is added to the selling price. Once shifted, the VAT
ceases to be a tax and simply becomes part of the cost that the ** In Villanueva v. City of Iloilo, at issue was the legality of Municipal
buyer must pay in order to purchase the good, property or service. Ordinance No. 11 imposing municipal license tax on persons
Consequently, VAT on tollway operations is not really a tax on the engaged in the business of operating tenement houses in the City of

Iloilo. Petitioners were owners of tenement houses. By virtue of said or engaging in a certain business or profession are not, however,
ordinance, the city collected municipal license taxes from poll taxes.”
petitioners for the years 1960-‐64. Petitioners contended that the
tax involved was a real estate tax or a property tax which, according According to manner of computing the tax: specific tax, ad valorem
to them, made the ordinance ultra vires as it imposed a levy in tax and mixed tax
excess of the 1% real estate tax allowable under Section 38 of the
Iloilo City Charter. The Supreme Court found it necessary to * In Republic Cement Corporation v. CIR, petitioner was engaged in
determine the true nature of the municipal license tax imposed the mining, from mineral lands held by it under lease and/or
under the subject ordinance. It consequently held that the temporary permit from the government, of limestone, silica and
municipal license tax was not a real estate tax because “[a] real other minerals used in the production of cement. For the period
estate tax is a direct tax on the ownership of lands and buildings or from May 1957 to December 1959, petitioner paid ad valorem taxes
other improvements thereon, not specifically exempted, and is based on the value of the raw materials or minerals it had extracted
payable regardless of whether the property is used or not, although and later used in the manufacture of cement. Upon the theory that
the value may vary in accordance with such factor.” The Supreme said ad valorem taxes should be assessed on the market value of the
Court said that it was plain from the context of the ordinance that cement produced and sold by petitioner as finished product, the CIR
the intention was to impose a license tax on the operation of assessed petitioner for deficiency ad valorem taxes. The question
tenement houses, which was a form of business or calling, and that revolved around the correct tax base for the ad valorem tax. The
the imposition found authority in the Local Autonomy Act. Supreme Court explained the nature of ad valorem tax, to wit: “Ad
“The character of a tax is not to be fixed by any isolated words that valorem tax is a tax not on the minerals, but upon the privilege of
may be employed in the statute creating it, but such words must be severing or extracting the same from the earth, the government’s
taken in the connection in which they are used, and the true right to exact the said impose springing from the Regalian theory of
character is to be deduced from the nature and essence of the State ownership of its natural resources.” In addition, “the law
subject.” intended to impose the ad valorem tax upon the market value of
[Villanueva v. City of Iloilo, GR No. L-‐26521, 28 December 1968.] the component mineral products in their original state before
processing into cement. xxx [It] is due and payable upon removal of
*** Villanueva v. City of Iloilo2 defined a poll tax as “a tax of a fixed the mineral product from its bed or mine.” Lastly, the ad valorem
amount upon all persons, or upon all persons of a certain class, tax must be computed based on the actual market value of the
resident within a specified territory, without regard to their minerals, and not on the cost of extraction of said minerals.
property or the occupations in which they may be engaged.” “Taxes [Republic Cement Corporation v. CIR, GR No. L-‐20660, 13 June
of a specified amount upon each persons performing a certain act 1968.]

2
Villanueva v. City of Iloilo, GR No. L-26521, 28 December 1968. According to purpose: revenue purpose and/or regulatory purpose

to the Land Transportation and Traffic Code were actually taxes

* Lutz v. Araneta dealt with the classification of the impositions intended for additional revenues of government even if one fifth or
under the Sugar Adjustment Act (promulgated in 1940). Were they less of the amount collected was set aside for the operating
imposed pursuant to the power of taxation or the police power? expenses of the agency administering the program. “If the purpose
The Supreme Court stated that the impositions under the subject is primarily revenue, or if revenue is, at least, one of the real and
law were taxes levied with a regulatory purpose, i.e., to provide substantial purposes, then the exaction is properly called a tax.”
means for the rehabilitation and stabilization of the threatened [Philippine Airlines, Inc. v. Edu, GR No. L-‐41383, 15 August 1988.]
sugar industry. (They were not a pure exercise of taxing power). In
this sense, taxation was made the implement of the state’s police According to graduation of tax rates: proportional tax, progressive
power. tax and regressive tax
[Lutz v. Araneta, GR No. L-‐7859, 22 December 1955.]
* Tolentino v. Secretary of Finance discussed the constitutionality of
** In Tio v. Videogram Regulatory Board, videogram operators were RA No. 7716 which sought to widen the tax base of the value added
made to pay 30% tax similar to the 30% amusement tax imposed on tax system and enhance its administration by amending the old Tax
theater owners. The Supreme Court held that the tax was not only a Code. One of the arguments against the constitutionality of said law
regulatory but also a revenue measure primarily to answer the need was that it was regressive and violated the constitutional
for regulating the video industry, particularly because of the requirement that the rule of taxation shall be uniform and
rampant film piracy, flagrant violation of intellectual property rights, equitable, and that Congress shall evolve a progressive system of
and proliferation of pornographic videotapes. In this sense, taxation taxation. The Supreme Court held that: “Indeed, regressivity is not a
was made the implement of the state’s police power. negative standard for courts to enforce. What Congress is required
[Tio v. Videogram Regulatory Board, GR No. L-‐75697, 18 June 1987.] by the Constitution to do is to ‘evolve a progressive system of
taxation.’ This is a directive to Congress, just like the directive to it
*** What is the nature of motor vehicle registration fees? Are they to give priority to the enactment of laws for the enhancement of
taxes or regulatory fees? In Philippines Airlines, Inc. v. Edu, PAL was human dignity and the reduction of social, economic and political
made to pay motor vehicle registration fees. PAL denied liability inequities (Art. XIII, §1). These provisions are put in the Constitution
arguing that the motor vehicle registration fees were in reality taxes as moral incentives to legislation, not as judicially enforceable
from the payment of which PAL was exempt by virtue of its rights.”
legislative franchise. On the other hand, Edu as Land Transportation [Tolentino v. Secretary of Justice, GR No. 115544, 25 August 1994.]
Commissioner contended that said fees were regulatory exactions
and not revenue measures and therefore did not come within the ** In the second Tolentino v. Secretary of Finance, the Supreme
exemption granted to PAL under its franchise. The Supreme Court Court expounded on the above principle, thus: “The Constitution
ruled that the motor vehicle registration fees then exacted pursuant does not really prohibit the imposition of indirect taxes which, like

the VAT, are regressive. What it simply provides is that Congress provisions on regressive and inequitable taxation? The Supreme
shall ‘evolve a progressive system of taxation.’ The constitutional Court answered in the negative. “Anent the issue of regressivity, it
provision has been interpreted to mean simply that ‘direct taxes are may be conceded that the assailed law imposes an excise tax on
. . . to be preferred [and] as much as possible, indirect taxes should cigarettes which is a form of indirect tax, and thus, regressive in
be minimized.” The Supreme Court went on to say that in the case character. While there was an attempt to make the imposition of
of VAT, the law minimizes the regressive effects of the imposition by the excise tax more equitable by creating a four-‐tiered taxation
providing for zero rating of certain transactions, while granting system where higher priced cigarettes are taxed at a higher rate,
exemptions to other transactions. still, every consumer, whether rich or poor, of a cigarette brand
[Tolentino v. Secretary of Justice, GR No. 115544, 30 October 1995.] within a specified tax bracket pays the same tax rate. To this extent,
the tax does not take into account the person’s ability to pay.
*** At issue in British American Tobacco v. Camacho was the Nevertheless, this does not mean that the assailed law may be
legality of the classification freeze provision introduced by RA No. declared unconstitutional for being regressive in character because
8240, as amended by RA No. 9334, in Section 145 of the 1997 Tax the Constitution does not prohibit the imposition of indirect taxes
Code. The law created a four-‐tiered system among low-‐priced, but merely provides that Congress shall evolve a progressive system
medium-‐priced, high-‐priced, and premium-‐priced tax brackets of of taxation.”
cigars and cigarettes. “When a brand is introduced in the market, [British American Tobacco v. Camacho, GR No. 163583, 15 April
the current net retail price is determined through the aforequoted 2009.]
classify under which tax bracket the brand belongs in order to finally Q: Differentiate between tax and license fee.
determine the corresponding excise tax rate on a per pack basis.
The assailed feature of this law pertains to the mechanism where, * Cuunjieng v. Patstone was a petition for a writ of mandamus to
after a brand is classified based on its current net retail price, the compel the city engineer of Manila to issue a building permit.
classification is frozen and only Congress can thereafter reclassify Plaintiff wanted to erect a warehouse on Azcarraga Street but was
the same.” [Particular attention was directed to Annex “D” referring denied a building permit until he should have made provision for
to those old brands which were classified as of 1 October 1996, or the construction of an arcade over the sidewalk in front of the
prior to the effectivity of RA No. 8240.] The consequence of the building, and until he should have paid a fee of ½ of the assessed
classification freeze provision was, even if the present day net retail value of the city land covered by the arcade. On the charge of ½ of
price of a certain brand would make it fall under a higher tax the assessed value imposed on applicants for building permits, the
bracket, the previously classified brand would continue to be Supreme Court classified it as a license fee for the regulation of a
subject to the excise tax rate under the lower tax bracket by virtue useful enterprise, which amount should have been limited to the
of said provision. cost of licensing, regulating, and surveillance. As it exceeded the
Did the legislative classification freeze transgress the constitutional limit for such license fees, the Municipal Board of Manila exceeded

its powers. other parts of the country, filed an action for declaratory relief
There are three kinds of licenses with their corresponding regarding the validity of Municipal Ordinance No. 3659. One
quantitative limits: contentious provision in said ordinance required operators of
(1) licenses for the regulation of useful occupations/enterprises massage clinics to first obtain a permit and pay the corresponding
– “It is well settled that in the absence of special authority permit fee of Php 100. Was Php 100 too large and unreasonable?
to impose a tax for revenue the fee for this class of licenses The Supreme Court did not think so. “The amount of the fee or
may only be of sufficient amount to include the expense of charge is properly considered in determining whether it is a tax or
issuing the license and the cost of the necessary inspection an exercise of the police power. The amount may be so large as to
or police surveillance, taking into account not only the itself show that the purpose was to raise revenue and not to
expense of direct regulation but also incidental regulate, but in regard to this matter there is a marked distinction
consequences.” between license fees imposed upon useful and beneficial
(2) licenses for the regulation or restriction of non-‐useful occupations which the sovereign wishes to regulate but not restrict,
occupations/enterprises – “[I]n fixing the amount of the and those which are inimical and dangerous to public health, morals
license fees the municipal corporations are allowed a much or safety. In the latter case the fee may be very large without
wider discretion in this class of cases than in the former, necessarily being a tax.” Evidently, according to the Court, the
and aside from applying the well-‐known legal principle that permit fee was a license fee for the regulation of a non-‐useful
municipal ordinances must not be unreasonable, oppressive occupation.
or tyrannical, courts have, as a general rule, declined to [Physical Therapy Organization of the Philippines v. Municipal Board
interfere with such discretion.” of the City of Manila, GR No. L-‐10448, 30 August 1957.]
(3) licenses for revenue only – “The legislature of the state is
not without power to impose a tax on a business in the form *** In dispute in Victorias Milling Co., Inc. v. Municipality of
of a license fee, when it deems such to be warranted by Victorias, Negros Occidental was Municipal Ordinance No. 1 which
considerations of public interest and for the general increased the rates of license taxes with respect to sugar centrals
welfare, and the only limitation upon its exercise of power, and increased the rates of license taxes as well as the range of
in that respect, is that there shall be no discrimination or graduated schedule of annual output capacity in respect of sugar
oppression, and that the burden shall be equally charged refineries. The Supreme Court found it necessary to first identify the
upon all persons in similar circumstances.” nature of the imposition contained in Municipal Ordinance No. 1.
[Cuunjieng v. Patstone, GR No. 16254, 21 February 1922.] Was it a regulatory enactment or a revenue measure? “[A]
municipality is authorized to impose three kinds of licenses: (1)
** In Physical Therapy Organization of the Philippines v. Municipal license for regulation of useful occupations; (2) license for
Board of the City of Manila, petitioner, an association of registered restriction or regulation of non-‐useful occupations or enterprises;
massagists and licensed operators of massage clinics in Manila and and (3) license for revenue.” The Supreme Court held that it was a

tax on occupation or business falling under item (3), i.e., a levy for is also obtained does not make the imposition a tax.” “To be
revenue purposes. considered a license fee, the imposition questioned must relate to
“Besides, the term ‘license tax’ has not acquired a fixed meaning. It an occupation or activity that so engages the public interest in
is often ‘used indiscriminately to designate impositions exacted for health, morals, safety and development as to require regulation for
the exercise of various privileges.’ It does not refer solely to a the protection and promotion of such public interest; the imposition
license for regulation. In many instances, it refers to ‘revenue-‐ must also bear a reasonable relation to the probable expenses of
raising exactions on privileges or activities.’ On the other hand, regulation, taking into account not only the costs of direct
license fees are commonly called taxes. But, legally speaking, the regulation but also its incidental consequences as well.” Finally, “a
latter are ‘for the purpose of raising revenues,’ in contrast to the charge of a fixed sum which bears no relation at all to the cost of
former which are imposed ‘in the exercise of police power for inspection and regulation may be held to be a tax rather than an
purposes of regulation.’ How do you make the distinction between exercise of the police power.”
a license tax and a license fee? The determining factors are the [Progressive Development Corporation v. Quezon City, GR No.
purpose and effect of the imposition as may be apparent from the 36081, 24 April 1989.]
provisions of the ordinance or law.
[Victorias Milling Co., Inc. v. Municipality of Victorias, Negros ***** By way of summary:
Occidental, GR No. L-‐21183, 27 September 1968.]

**** In Progressive Development Corporation v. Quezon City,
petitioner was the owner and operator of a public market known as
the Farmers’ Market and Shopping Center. It questioned certain
provisos in the Market Code of Quezon City, as amended, which
imposed a tax on gross receipts from stall rentals. It argued that the
supervision fee was a tax on income, one of those expressly
excepted from the taxing power of the local government unit
concerned. The Supreme Court found that the supervision fee was
not a tax on income, but was a privilege tax or a license fee that was
imposed by the city government on the enjoyment of the privilege
to engage in a particular trade or business. It further ruled that the
rate of gross receipts tax was presumed reasonable.
“Thus, if the generating of the 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 incidentally revenue

license and license fee on

Point of License Fee Tax cost of a useful
Comparison necessary occupation
Useful Non-‐Useful inspection or
Occupation Occupation police
Constitutional Police Power Police Power Power of surveillance
Basis Taxation
Constitutional Amount of Amount of Amount of Q: Differentiate between tax and special assessment.
Limitation imposition imposition imposition need
must bear must bear not bear * Apostolic Prefect of the Mountain Province v. Treasurer of Baguio3
reasonable reasonable reasonable made a distinction between tax and special assessment in this wise:
relation to relation to relation to “While the word ‘tax’ in its broad meaning, includes both general
probable probable probable taxes and special assessments, and in a general sense a tax is an
expenses of expenses of expenses of assessment, and an assessment is a tax, yet there is a recognized
regulation regulation, regulation, distinction between them in that assessment is confined to local
but wider provided there impositions upon property for the payment of the cost of public
discretion in is no improvements in its immediate vicinity and levied with reference to
impositions discrimination special benefits to the property assessed. The differences between a
on a non-‐ nor oppression special assessment and a tax are that (1) a special assessment can
useful and the burden be levied only on land; (2) a special assessment cannot (at least in
occupation is equally most states) be made a personal liability of the person assessed; (3)
than in a charged upon a special assessment is based wholly on benefits; and (4) a special
useful all persons in assessment is exceptional both as to time and locality. The
occupation similar imposition of a charge on all property, real and personal, in a
circumstances prescribed area, is a tax and not an assessment, although the
(i.e., equal purpose is to make a local improvement on a street or highway. A
protection and charge imposed only on property owners benefited is a special
uniformity) assessment rather than a tax notwithstanding the statute calls it a
Amount of Enough to Less than a Any amount tax.”
Imposition cover expense tax but
of issuing greater than a
3
Apostolic Prefect of the Mountain Province v. Treasurer of Baguio, GR No. L-47252,
18 April 1941.

Q: Differentiate between tax and penalty. outstanding claims from said fund. Petitioner contended, among
others, that the amounts due from it did not arise as a result of
* In Republic v. Patanao, defendant was engaged in the business of taxation, and that the OPSF contributions did not go to the general
producing logs and lumber for sale during the years 1951-‐1955. The fund of the state and were not used for public purpose. On this
CIR issued an assessment against defendant for deficiency income tangent, the Supreme Court stated: “We find no merit in
taxes and additional residence taxes for the aforesaid years. petitioner's contention that the OPSF contributions are not for a
Defendant moved to dismiss the complaint on the ground, among public purpose because they go to a special fund of the
others, that the action was barred by prior judgment, defendant government. Taxation is no longer envisioned as a measure merely
having been acquitted in two criminal cases of the same court, to raise revenue to support the existence of the government; taxes
which were prosecutions for failure to file income tax returns and may be levied with a regulatory purpose to provide means for the
for nonpayment of income taxes. The Supreme Court held that it rehabilitation and stabilization of a threatened industry which is
was error to rule that the judgment in the two criminal cases served affected with public interest as to be within the police power of the
to discharge defendant from the duty of paying the taxes which the state. There can be no doubt that the oil industry is greatly imbued
law required to be paid. The duty to pay taxes was imposed by with public interest as it vitally affects the general welfare. Any
statute prior to and independently of any attempts by the taxpayer unregulated increase in oil prices could hurt the lives of a majority
to evade payment. of the people and cause economic crisis of untold proportions.”
“Under the Penal Code the civil liability is incurred by reason of the [Emphasis supplied.]
offender’s criminal act. Stated differently, the criminal liability gives In the end, the High Court held that when it comes to taxes,
birth to the civil obligation such that generally, if one is not compensation is not legally feasible, i.e., a taxpayer may not offset
criminally liable under the Penal Code, he cannot become civilly taxes due from the claims that he may have against the
liable thereunder. The situation under the income tax law is the government. “Firstly, the Government and the petitioner cannot be
exact opposite. Civil liability to pay taxes arises from the fact, for said to be mutually debtors and creditors of each other. Secondly,
instance, that one has engaged himself in business, and not because there is no proof that petitioner’s claim is already due and
of any criminal act committed by him. The criminal liability arises liquidated. Under Article 1279 of the Civil Code, in order that
upon failure of the debtor to satisfy his civil obligation.” compensation may be proper, it is necessary that:
[Republic v. Patanao, GR No. L-‐22356, 21 July 1967.] (1) each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other;
Q: Differentiate between tax and debt. (2) both debts must consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of
* One of the issues in Caltex Philippines, Inc. v. Commission on Audit the same quality if the latter has been stated;
was whether the amounts due to the Oil Price Stabilization Fund (3) the two (2) debts be due;
(OPSF) from petitioner could be offset against petitioner’s (4) they be liquidated an demandable;

(5) over neither of them there be any retention or controversy, or concessions existing and in force on January first, nineteen
commenced by third persons and communicated in due hundred and forty-‐two, and which minerals were lost by reason of
time to the debtor.” the war or circumstances arising therefrom, are hereby condoned:
[Caltex Philippines, Inc. v. Commission on Audit, GR No. 92585, 8 Provided, That if said minerals had been or shall be recovered by the
May 1992.] miner or producer, such royalties, ad valorem or specific taxes on
the same shall be immediately due and demandable.”
** In Domingo v. Garlitos, the estate of Walter Scott Price was In Surigao Consolidated Mining Co., Inc. v. CIR, petitioner sought the
ordered to pay estate and inheritance taxes, charges and penalties. refund of a certain amount representing ad valorem tax paid on
In order to enforce the claims against the estate, the pronvincial minerals removed from the mines but alleged to have been lost in
fiscal filed a petition to the court for the execution of the judgment. transit on account of the war. Petitioner argued that since the law
The petition was, however, denied by the court which held that the condoned the taxes due from taxpayers who failed to pay their
execution was not justifiable as the government was indebted to taxes, it would be unfair to deny this benefit to those taxpayers who
the estate under administration. Did the CIR have a clear right to had been prompt in paying theirs. The Supreme Court held that it
execute the judgment for taxes against the estate of Walter Scott was clear the law referred only to the condonation of unpaid taxes.
Price? As a general rule, when it comes to taxes, compensation is “The condonation of a tax liability is equivalent and is in the nature
not legally feasible, i.e., a taxpayer may not offset taxes due from of a tax exemption. Being so, it should be sustained only when
the claims that he may have against the government. In this expressed in explicit terms, and it cannot be extended beyond the
instance, the Supreme Court ruled otherwise because the claim of plain meaning of those terms.”
the estate against the government had been recognized and the [Surigao Consolidated Mining Co., Inc. v. CIR, GR No. L-‐14878, 26
entire amount of indebtedness had already been appropriated for December 1963.]
the purpose by a corresponding law (RA No. 2700). “Under the
above circumstances, both the claim of the Government for Q: What is a tax amnesty?
inheritance taxes and the claim of the intestate for services
rendered have already become overdue and demandable as well as * In CIR v. Marubeni Corporation, the CIR issued an assessment
fully liquidated. Compensation, therefore, takes place by operation against Marubeni Corporation for deficiency income, branch profit
of law xxx.” remittance, contractor’s and commercial broker’s taxes. After
[Domingo v. Garlitos, GR No. L-‐18994, 29 June 1963.] having availed of its administrative remedies, Marubeni Corporation
filed its judicial claims on 26 September 1986. Earlier, on 2 August
Q: Explain the concept of tax condonation or remission? 1986, EO No. 41 declaring a one-‐time amnesty covering unpaid
income taxes for the years 1981 to 1985 was issued. In accordance
* Section 1(d) of RA No. 81 provided: “All unpaid royalties, ad with EO No. 41, Marubeni Corporation filed its tax amnesty return
valorem or specific taxes on all minerals mined from mining claims dated 30 October 1986. On 17 November 1986, the scope and

coverage of EO No. 41 were expanded by EO No. 64. In addition to a parcel of land to Delpher Trades Corporation, a business conduit
the income tax amnesty for the years 1981 to 1985, EO No. 64 of the Pacheco Spouses, in exchange for 2,500 shares of stock in
included estate, donor’s and business taxes also covering the said corporation. By the ownership of the Pacheco Spouses of 2,500
aforesaid years. In view thereof, Marubeni Corporation filed a no par shares of stock, the couple had control of the corporation.
supplemental tax amnesty return. In both laws, excepted from the Their equity capital was 55% as against 45% of the other
coverage of the tax amnesty were those taxpayers with tax cases stockholders, who also belonged to the same family group. The
already filed in court as of the effectivity of such laws. The Supreme Supreme Court held that there was nothing wrong or objectionable
Court held that while Marubeni Corporation could avail of the about the “estate planning” scheme resorted to by the Pacheco
income tax amnesty in EO No. 41, it was disqualified from availing of Spouses. What they did was to invest their properties and change
the business tax amnesty granted in EO No. 64. the nature of their ownership from unincorporated to incorporated
“E.O. Nos. 41 and 64 are tax amnesty issuances. A tax amnesty is a form by organizing Delpher Trades Corporation to take control of
general pardon or intentional overlooking by the State of its their properties and at the same time save on inheritance taxes.
authority to impose penalties on persons otherwise guilty of evasion “The legal right of a taxpayer to decrease the amount of what
or violation of a revenue or tax law. It partakes of an absolute otherwise could be his taxes or altogether avoid them, by means
forgiveness or waiver by the government of its right to collect what which the law permits, cannot be doubted.”
is due it and to give tax evaders who wish to relent a chance to start [Delpher Trades Corp. v. Intermediate Appellate Court, GR No. L-‐
with a clean slate. A tax amnesty, much like a tax exemption, is 69259, 26 January 1988.]
never favored nor presumed in law. If granted, the terms of the
amnesty, like that of a tax exemption, must be construed strictly *** In Gala v. Ellice Agro-‐Industrial Corporation, petitioners sought
against the taxpayer and liberally in favor of the taxing authority.” to disregard the separate juridical personalities of two corporations,
[CIR v. Marubeni Corporation, GR No. 137377, 18 December 2001.] namely, Ellice Agro-‐Industrial Corporation and Margo Management
and Development Corporation, for the purpose of treating all
Q: What is meant by tax avoidance? property purportedly owned by said corporations as property solely
owned by the Gala Spouses. Among their arguments were: (1) said
* CIR v. Estate of Benigno P. Toda4 defined tax avoidance as a tax corporations were organized for purpose of exempting the property
saving device within the means sanctioned by law which should be of the Gala Spouses from the coverage of land reform laws; and (2)
used by the taxpayer in good faith and at arm’s length. the two corporations were meant to be used as mere tools for the
avoidance of estate taxes. Ultimately, the Supreme Court upheld
** In Delpher Trades Corp. v. Intermediate Appellate Court, at issue the two corporations’ separate juridical personalities. The legality of
was the deed of exchange whereby the Pacheco Spouses conveyed the purposes for which the two corporations were formed should
be threshed out in an administrative case before the Securities and

4
CIR v. Estate of Benigno Toda, GR No. 147188, 14 September 2004. Exchange Commission. Moreover, on contention (2), “suffice it say

that the legal right of a taxpayer to reduce the amount of what ** Sixteen years later, the decision in CIR v. Court of Appeals was
otherwise could be his taxes or altogether avoid them, by means promulgated. In this case, the complaints filed before the DOJ for
which the law permits, cannot be doubted.” investigation charged private respondents with fraudulent
[Gala v. Ellice Agro-‐Industrial Corporation, GR No. 156819, 11 concealment of the actual price of products sold, through
December 2003.] declaration of registered wholesale prices lower than the actual
wholesale prices resulting in underpayment of income, ad valorem,
Q: What constitutes tax evasion? and value-‐added taxes.
In holding that Ungab v. Cusi was inapplicable, the Supreme Court
* In Ungab v. Cusi, the Supreme Court held that an assessment of a clarified the Ungab v. Cusi decision in this wise: “Reading [Ungab v.
deficiency is not necessary to a criminal prosecution for willful Cusi] carefully, the pronouncement therein that deficiency
attempt to defeat and evade the income tax. The facts of this case assessment is not necessary prior to prosecution is pointedly and
are as follows: Upon examination of the income tax returns filed by deliberately qualified by the Court with the following statement
Ungab for the calendar year ended 31 December 1973, the BIR quoted from Guzik v. U.S.: ‘The crime is complete when the violator
examiner discovered that Ungab failed to declare his income has knowingly and willfully filed a fraudulent return with intent to
derived from banana saplings. Ungab received an assessment evade and defeat a part or all of the tax.’ In plain words, for criminal
representing income tax, business tax, and forest charges, which he prosecution to proceed before assessment, there must be a prima
filed a protest against. Meanwhile, six informations were filed facie showing of a willful attempt to evade taxes. There was a willful
against Ungab. His contention was that the filing of the informations attempt to evade tax in [Ungab v. Cusi] because of the taxpayer’s
was premature because the CIR had not yet resolved his protest on failure to declare in his income tax return ‘his income derived from
the assessment. The Supreme Court ruled that while there can be banana saplings.’ In the mind of the trial court and the Court of
no civil action to enforce collection before the assessment Appeals, Fortune’s situation is quite apart factually since the
procedures have been followed, there is no requirement for the registered wholesale price of the goods, approved by the BIR, is
precise computation and assessment of the tax before there can be presumed to be the actual wholesale price, therefore, not
a criminal prosecution. “A crime is complete when the violator has fraudulent and unless and until the BIR has made a final
knowingly and wilfullly filed a fraudulent return with intent to evade determination of what is supposed to be the correct taxes, the
and defeat the tax. The perpetration of the crime is grounded upon taxpayer should not be placed in the crucible of criminal
knowledge on the part of the taxpayer that he has made an prosecution. Herein lies a whale of difference between [Ungab v.
inaccurate return, and the government's failure to discover the Cusi] and the case at bar.”
error and promptly to assess has no connections with the [CIR v. Court of Appeals, GR No. 119322, 4 June 1996.]
commission of the crime.”
[Ungab v. Cusi, GR Nos. L-‐41919-‐24, 30 May 1980.] *** In Adamson v. Court of Appeals, respondents were involved in
sales of common shares of stock for which they had paid capital

gains tax and value-‐added tax. Later, the CIR sent them a “Notice of should be the (lower) registered wholesale price or the (higher)
Taxpayer” informing them of deficiencies on their payment of actual wholesale price. Otherwise stated, the CIR failed to point to a
capital gains tax and value-‐added tax. Meanwhile, the CIR filed a specific law or rule which required that the tax base must be the
complaint for violation of the criminal provisions of the Tax Code. (higher) actual wholesale price, non-‐compliance of which was
Respondents sought to suspend the criminal proceedings as there tantamount to a criminal violation.]
was yet no final assessment on their tax liability. (The “Notice of
Taxpayer” they had earlier received was not equivalent to a formal **** In CIR v. Estate of Benigno Toda, Cibeles Insurance Corporation
assessment.) authorized Toda, president and owner of 99.991% of its issued and
The issue was whether the filing of the criminal complaints by the outstanding capital stock, to sell certain properties for an amount
DOJ was premature for lack of a formal assessment. The Supreme not less than Php 90 million. Subsequently, Toda sold the properties
Court held that when fraudulent tax returns are involved, now for Php 100 million to Altonaga, who in turn sold said properties on
Section 222(a) of the 1997 Tax Code says that “a proceeding in court the same day to Royal Match, Inc. for Php 200 million. The two
for the collection of such tax may be filed without assessment, at transactions were evidenced by deeds of absolute sale notarized on
any time within ten (10) years from discovery of the falsity, fraud or the same day by the same notary public. The Supreme Court found
omission.” An assessment of a deficiency is not necessary to a that the scheme resorted to by CIC could not be considered a
criminal prosecution for willful attempt to defeat and evade the tax. legitimate tax planning. The objective of the intermediary
Here, the Supreme Court said, “[a]rguably, the gross disparity in the transaction, i.e., the sale from Toda to Altonaga, was to reduce the
taxes due and the amounts actually declared by the private amount of tax to be paid especially that the transfer from Altonaga
respondents constitutes badges of fraud.” The Supreme Court to RMI would then subject the income to only 5% individual capital
likewise confirmed the applicability of and upheld the decision in gains tax, and not the 35% corporate income tax. The execution of
Ungab v. Cusi. the two sales was calculated to mislead the BIR with the end in view
[Adamson v. Court of Appeals, GR No. 120935, 21 May 2009.] of reducing the consequent income tax liability. It constituted tax
evasion.
[NOTE: Reconciling these three cases together, it appears that the “Tax avoidance and tax evasion are the two most common ways
general rule still is that a gross disparity in the taxes due and the used by taxpayers in escaping from taxation. Tax avoidance is the
amounts actually declared by the taxpayer gives cause for the CIR to tax saving device within the means sanctioned by law. This method
pursue his/its criminal prosecution for filing a fraudulent tax return, should be used by the taxpayer in good faith and at arm’s length.
regardless of whether a deficiency assessment has been made. Tax evasion, on the other hand, is a scheme used outside of those
The second case, CIR v. Court of Appeals, was decided differently lawful means and when availed of, it usually subjects the taxpayer
because the facts surrounding it varied from the situation in Ungab to further or additional civil or criminal liabilities.
v. Cusi and Adamson v. Court of Appeals. In CIR v. Court of Appeals, Tax evasion connotes the integration of three factors: (1) the end to
there arose a legal question on the proper tax base, i.e., whether it be achieved, i.e., the payment of less than that known by the

taxpayer to be legally due, or the non-‐payment of tax when it is Q: Explain the concept of double taxation.
shown that a tax is due; (2) an accompanying state of mind which is
described as being ‘evil’ in ‘bad faith,’ ‘willfull,’ or ‘deliberate and * In City of Manila v. Coca-‐Cola Bottlers Philippines, Inc., the issue
not accidental’; and (3) a course of action or failure of action which was whether payment of taxes under Sections 14 and 21 of Manila
is unlawful.” City’s Tax Ordinance No. 7794 constituted double taxation. The
[CIR v. Estate of Benigno Toda, GR No. 147188, 14 September 2004.] Supreme Court ruled in the affirmative. Section 14 of Tax Ordinance
No. 7794 imposed local business tax on manufacturers, et. al., of
Q: What makes a fraudulent return? A false return? liquors, distilled spirits, wines, and any other article of commerce.
On the other hand, the local business tax under Section 21 of Tax
* In Aznar v. Court of Tax Appeals, the late Matias Aznar, now Ordinance No. 7794 was imposed upon persons selling goods and
represented by the administrator of his estate, allegedly filed services in the course of trade or business, and those importing
fraudulent income tax returns with intent to evade taxes for the goods for business or otherwise who were subject to excise tax,
years 1946 to 1951. A distinction must be made between false value-‐added tax, or percentage tax. “Double taxation means taxing
returns (due to mistake, carelessness or ignorance) and fraudulent the same property twice when it should be taxed only once; that is,
returns (with intent to evade taxes). The Supreme Court held that ‘taxing the same person twice by the same jurisdiction for the same
no fraud on the part of the taxpayer was proven. “The fraud thing.’ It is obnoxious when the taxpayer is taxed twice, when it
contemplated by law is actual and not constructive. It must be should be but once. Otherwise described as ‘direct duplicate
intentional fraud, consisting of deception willfully and deliberately taxation,’ the two taxes must be imposed on the same subject
done or resorted to in order to induce another to give up some legal matter, for the same purpose, by the same taxing authority, within
right. Negligence, whether slight or gross, is not equivalent to the the same jurisdiction, during the same taxing period; and the taxes
fraud with intent to evade the tax contemplated by the law. It must must be of the same kind or character.
amount to intentional wrong-‐doing with the sole object of avoiding Using the aforementioned test, the Court finds that there is indeed
the tax. It necessarily follows that a mere mistake cannot be double taxation if respondent is subjected to the taxes under both
considered as fraudulent intent, and if both petitioner and Sections 14 and 21 of Tax Ordinance No. 7794, since these are being
respondent Commissioner of Internal Revenue committed mistakes imposed: (1) on the same subject matter – the privilege of doing
in making entries in the returns and in the assessment, respectively, business in the City of Manila; (2) for the same purpose – to make
under the inventory method of determining tax liability, it would be persons conducting business within the City of Manila contribute to
unfair to treat the mistakes of the petitioner as tainted with fraud city revenues; (3) by the same taxing authority – petitioner City of
and those of the respondent as made in good faith.” Manila; (4) within the same taxing jurisdiction – within the
[Aznar v. Court of Tax Appeals, GR No. L-‐20569, 23 August 1974.] territorial jurisdiction of the City of Manila; (5) for the same taxing
periods – per calendar year; and (6) of the same kind or character –
a local business tax imposed on gross sales or receipts of the

business.” taxpayers’ right to security against prolonged and unscrupulous

[City of Manila v. Coca-‐Cola Bottlers Philippines, Inc., GR No. investigations and must therefore be carefully and strictly
181845, 4 August 2009.] construed. The waiver of the statute of limitations is not a waiver of
the right to invoke the defense of prescription as erroneously held
Q: Define prescription in tax cases. by the Court of Appeals. It is an agreement between the taxpayer
and the BIR that the period to issue an assessment and collect the
* In Republic v. Ablaza, an assessment was issued against Ablaza for taxes due is extended to a date certain. The waiver does not mean
deficiency income taxes covering the years 1945 to 1948. The that the taxpayer relinquishes the right to invoke prescription
government consequently filed an action to recover said taxes. unequivocally particularly where the language of the document is
Ablaza’s defense was that the government’s right to collect the equivocal. For the purpose of safeguarding taxpayers from any
taxes had already prescribed. The Supreme Court agreed. “The law unreasonable examination, investigation or assessment, our tax law
prescribing a limitation of actions for the collection of the income provides a statute of limitations in the collection of taxes. Thus, the
tax is beneficial both to the Government and to its citizens; to the law on prescription, being a remedial measure, should be liberally
Government because tax officers would be obliged to act promptly construed in order to afford such protection. As a corollary, the
in the making of assessment, and to citizens because after the lapse exceptions to the law on prescription should perforce be strictly
of the period of prescription citizens would have a feeling of security construed.”
against unscrupulous tax agents who will always find an excuse to In this case, the Supreme Court found that the waiver of the statute
inspect the books of taxpayers, not to determine the latter's real of limitations was invalid and not binding for the following reasons:
liability, but to take advantage of every opportunity to molest (1) the waiver did not specify a definite agreed date between the
peaceful, law-‐abiding citizens. Without such legal defense taxpayers BIR and the taxpayer within which the former could assess and
would furthermore be under obligation to always keep their books collect revenue taxes; (2) it was signed only by a revenue district
and keep them open for inspection subject to harassment by officer, and not by the CIR; (3) the date of acceptance by the BIR
unscrupulous tax agents. The law on prescription being a remedial could not be ascertained; and (4) the taxpayer was not furnished a
measure should be interpreted in a way conducive to bringing about copy of the waiver.
the beneficient purpose of affording protection to the taxpayer [Philippine Journalists, Inc. v. CIR, GR No. 162852, 16 December
within the contemplation of the Commission which recommend the 2004.]
approval of the law.”
[Republic of the Philippines v. Ablaza, GR No. L-‐14519, 26 July 1960.] *** In CIR v. Philippine National Bank, the bank issued to the BIR a
check for Php 180 million, representing its advance income tax
** Philippine Journalists, Inc. v. CIR explained the rationale of a payment for its 1991 operations and was remitted in response to
waiver of the statute of limitations, thus: “A waiver of the statute of the late President Aquino’s call to generate more revenues for
limitations under the NIRC, to a certain extent, is a derogation of the national development. Thereafter, the bank requested that it be

allowed to apply its unutilized advance income tax payment of (2) There exists a manifest incompatibility in the manner of
about Php 73.3 million to its future gross receipts tax liability. The computing legal periods under the two laws. However, given that
CIR denied the bank’s request. The bank appealed to the CTA, but the Administrative Code of 1987 is the more recent law, its
the latter dismissed the judicial claim for having been filed beyond treatment of a year, i.e., 24 calendar months, governs the
the two-‐year prescriptive period under Section 229 of the 1997 Tax computation of legal periods. Hence, the taxpayer’s claim was filed
Code. The Supreme Court ruled in favor of the bank, holding that an within the reglementary period.
availment of tax credit due for reasons other than the erroneous or [CIR v. Primetown Property Group, Inc., GR No. 162155, 28 August
wrongful collection of taxes, as in this case, would not be covered 2007.]
by the two-‐year prescriptive period. By virtue of Article 1144 of the
Civil Code, the period would be 10 years. Hence, the bank’s claim
for tax credit was not yet barred by prescription.
[CIR v. Philippine National Bank, GR No. 161997, 25 October 2005.]

**** In CIR v. Primetown Property Group, Inc., the taxpayer filed a
claim for tax refund or credit of income tax paid in 1997. Pursuant
to Section 229 of the 1997 Tax Code, it had 2 years from the filing of
its final adjusted return to file a claim for tax refund or credit. The
CIR’s argument was hinged on Article 13 of the Civil Code which
states that a year is understood to mean 365 days. Hence, the
taxpayer had 730 days to file its claim for tax refund or credit. The
CIR maintained that the taxpayer filed its claim beyond the two-‐year
prescriptive period, i.e., on the 731st day, given that the year 2000
was a leap year. On the other hand, the taxpayer’s contention was
based on Section 31, Chapter VIII, Book I of the Administrative Code
of 1987 which says that a year consists of 12 calendar months.
Having filed its claim on the last day of the 24th calendar month
from the filing of its final adjusted return, it maintained that its
claim was filed within the prescriptive period.
Clarifying the difference in treatment of legal periods by the Civil
Code and the Administrative Code of 1987, the Supreme Court held
that: (1) Under the Civil Code, a year is equivalent to 365 days,
whether it be a regular year or a leap year.

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to the Land Transportation and Traffic Code were actually taxes

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license and license fee on

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business.” taxpayers’ right to security against prolonged and unscrupulous

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