ABAKADA Guro Party List vs.

Ermita

G.R. No. 168056 September 1, 2005

Facts:

ABAKADA GURO Party List, et al., filed a petition for prohibition o questioning the constitutionality of
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National
Internal Revenue Code (NIRC).

Section 4 imposes a 10% VAT on sale of goods and properties;

Section 5 imposes a 10% VAT on importation of goods; and

Section 6 imposes a 10% VAT on sale of services and use or lease of properties;

These provisions contain a provision which authorizing the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions
have been satisfied.

Issues:

Whether or not there is a violation of Article VI, Section 24 of the Constitution.

Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the
Constitution.

Whether or not there is a violation of the due process and equal protection of the Constitution.

Ruling:

No, the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill
No. 1950 amending corporate income taxes, percentage, and excise and franchise taxes.

No, there is no undue delegation of legislative power but only of the discretion as to the execution of a law.
This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when
it describes what job must be done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go forward. In this case, it is
not a delegation of legislative power but a delegation of ascertainment of facts upon which enforcement and
administration of the increased rate under the law is contingent.

No, the power of the State to make reasonable and natural classifications for the purposes of taxation has
long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be
levied, or the amounts to be raised, the methods of assessment, valuation and collection, the State’s power is
entitled to presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear
showing of unreasonableness, discrimination, or arbitrariness.
Tolentino v. Secretary of Finance

Arturo Tolentino v. Secretary of Finance and Commissioner of Internal Revenue

G.R. No. 115455; October 30, 1995

Mendoza, J.:

FACTS:

The present case involves motions seeking reconsideration of the Court’s decision dismissing the petitions
for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added
Tax Law. The motions, of which there are 10 in all, have been filed by the several petitioners.

The Philippine Press Institute, Inc. (PPI) contends that by removing the exemption of the press from the
VAT while maintaining those granted to others, the law discriminates against the press. At any rate, it is
averred, “even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional”, citing
in support of the case of Murdock v. Pennsylvania.

Chamber of Real Estate and Builders Associations, Invc., (CREBA), on the other hand, asserts that R.A. No.
7716 (1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt without
reasonable basis and (3) violates the rule that taxes should be uniform and equitable and that Congress shall
“evolve a progressive system of taxation”.

Further, the Cooperative Union of the Philippines (CUP), argues that legislature was to adopt a definite
policy of granting tax exemption to cooperatives that the present Constitution embodies provisions on
cooperatives. To subject cooperatives to the VAT would, therefore, be to infringe a constitutional policy.

ISSUE:

Whether or not, based on the aforementioned grounds of the petitioners, the Expanded Value-Added Tax
Law should be declared unconstitutional.

RULING:

No. With respect to the first contention, it would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime without offense to the Constitution. The reason is
simple: by granting exemptions, the State does not forever waive the exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which
other businesses have long ago been subject. The PPI asserts that it does not really matter that the law does
not discriminate against the press because “even nondiscriminatory taxation on constitutionally guaranteed
freedom is unconstitutional.” The Court was speaking in that case (Murdock v. Pennsylvania) of a license
tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional
because it lays a prior restraint on the exercise of its right. The VAT is, however, different. It is not a license
tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale,
barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of
properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its
right any more than to make the press pay income tax or subject it to general regulation is not to violate its
freedom under the Constitution.

Anent the first contention of CREBA, it has been held in an early case that even though such taxation may
affect particular contracts, as it may increase the debt of one person and lessen the security of another, or
may impose additional burdens upon one class and release the burdens of another, still the tax must be paid
unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract
in its true legal sense. It is next pointed out that while Section 4 of R.A. No. 7716 exempts such transactions
as the sale of agricultural products, food items, petroleum, and medical and veterinary services, it grants no
exemption on the sale of real property which is equally essential. The sale of food items, petroleum, medical
and veterinary services, etc., which are essential goods and services was already exempt under Section 103,
pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is in error in claiming that
R.A. No. 7716 granted exemption to these transactions while subjecting those of petitioner to the payment of
the VAT. Finally, it is contended that R.A. No. 7716 also violates Art. VI, Section 28(1) which provides that
“The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of
taxation”. Nevertheless, equality and uniformity of taxation mean that all taxable articles or kinds of
property of the same class be taxed at the same rate. The taxing power has the authority to make reasonable
and natural classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or
ordinance applies equally to all persons, firms, and corporations placed in similar situation. Furthermore, the
Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive.
What it simply provides is that Congress shall “evolve a progressive system of taxation.” The constitutional
provision has been interpreted to mean simply that “direct taxes are . . . to be preferred [and] as much as
possible, indirect taxes should be minimized.” The mandate to Congress is not to prescribe, but to evolve, a
progressive tax system.

As regards the contention of CUP, it is worth noting that its theory amounts to saying that under the
Constitution cooperatives are exempt from taxation. Such theory is contrary to the Constitution under which
only the following are exempt from taxation: charitable institutions, churches, and parsonages, by reason of
Art. VI, §28 (3), and non-stock, non-profit educational institutions by reason of Art. XIV, §4 (3).

With all the foregoing ratiocinations, it is clear that the subject law bears no constitutional infirmities and is
thus upheld.
REV. FR. CASIMIRO LLADOC v. The COMMISSIONER OF INTERNAL REVENUE and The
COURT of TAX APPEALS. G.R. No. L-19201. June 16, 1965

FACTS:

M.B. Estate, Inc. donated P10,000.00 in cash to the parish priest of Victorias, Negros Occidental, for the
construction of a new Catholic Church in the locality. The total amount was actually spent for the purpose
intended.

A year later, M.B. Estate, Inc., filed the donor's gift tax return. CIR issued an assessment for donee's gift tax
against the parish, of which petitioner was the priest.

Petitioner filed a protest which was denied by the CIR. He then filed an appeal with the CTA citing that he
was not the parish priest at the time of donation, that there is no legal entity or juridical person known as the
"Catholic Parish Priest of Victorias," and, therefore, he should not be liable for the donee's gift tax and that
assessment of the gift tax is unconstitutional.

The CTA denied the appeal thus this case.

ISSUE:

Whether petitioner and the parish are liable for the donee's gift tax.

RULING:

Yes for the parish. The Constitution only made mention of property tax and not of excise tax as stated in
Section 22, par 3. The assessment of the CIR did not rest upon general ownership; it was an excise upon the
use made of the properties, upon the exercise of the privilege of receiving the properties. A gift tax is not a
property tax, but an excise tax imposed on the transfer of property by way of gift inter vivos, the imposition
of which on property used exclusively for religious purposes, does not constitute an impairment of the
Constitution.

No for the petitioner. The Court ordered petitioner to be substituted by the Head of Diocese to pay the said
gift tax after the CIR and Solicitor General did not object to such substitution.
LUNG CENTER OF THE PHIL v. ORTIGAS

G.R. No. 144104 717 SCRA 601 June 29, 2004

FACTS: The petitioner Lung Center of the Philippines is the registered owner of a parcel of land located at
Quezon City and erected in the middle is a hospital known as the Lung Center of the Philippines. The
petitioner accepts paying and non-paying patients. It also renders medical services to out-patients, both
paying and non-paying, as well as private leases. Both the land and the hospital building of the petitioner
were assessed for real property taxes in the amount of P4,554,860 by the City Assessor of Quezon City. The
petitioner filed a Claim for Exemption5 from real property taxes with the City Assessor, stating that it is a
charitable institution within the context of Section 28(3), Article VI of the 1987 Constitution.

ISSUES:

(1) Whether the petitioner is a charitable institution within the context of Presidential Decree No. 1823 and
the 1973 and 1987 Constitutions and Section 234(b) of Republic Act No. 7160; and

(2) whether the real properties of the petitioner are exempt from real property taxes.

RULING: (1) Yes. The Court held that the petitioner is a charitable institution within the context of the 1973
and 1987 Constitutions.

The test whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized in
law as charitable or whether it is maintained for gain, profit, or private advantage. Hence, the Lung Center
was organized for the welfare and benefit of the Filipino people. As a general principle, a charitable
institution does not lose its character as such and its exemption from taxes simply because it derives income
from paying patients, so long as the money received is devoted to charitable objects and no money inures to
the private benefit of the persons managing or operating the institution. As well as the reason of donation in
the form of subsidies granted by the government.

(2) No. Those portions of its real property that are leased to private entities are not exempt from real
property taxes as these are not actually, directly and exclusively used for charitable purposes.

The petitioner failed to prove that the entirety of its real property is actually, directly and exclusively used
for charitable purposes. While portions of the hospital are used for the treatment of patients and the
dispensation of medical services to them, whether paying or non-paying, other portions thereof are being
leased to private individuals for their clinics and a canteen.

Hence, the portions of the land leased to private entities as well as those parts of the hospital leased to
private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by
the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from
real property taxes.