competition and trade practices including anti-dumping measures, countervailing
[31] Tañada v. Angara
GR No. 118295 | May 2, 1997| Protectionism | AJ
Petitioner: Wigberto E. Tañada And Anna Dominique Coseteng, as members of the
Philippine Senate and as taxpayers etc.
Respondents: Edgardo Angara, Alberto Romulo, Leticia Ramos-Shahani, Heherson
Alvarez, Agapito Aquino, Rodolfo Biazon, Neptali Gonzales, Ernesto Herrera, Jose
Lina, Gloria Macapagal-Arroyo, Orlando Mercado, Blas Ople, John Osmeña,
Santanina Rasul, Ramon Revilla, Raul Roco, Francisco Tatad And Freddie Webb, in
their respective capacities as members of the Philippine Senate who concurred in
the ratification by the President of the Philippines of the Agreement Establishing
the World Trade Organization etc.
Recit-Ready:
Petitioners question the constitutionality of the WTO Agreement ratified by
President Fidel Ramos. Petitioners claim that WTO proviso1 derogates from the
power to tax, which is lodged in the Congress. They further argue that these
provisions contravene constitutional limitations on the role exports play in national
development and negate the preferential treatment accorded to Filipino labor,
domestic materials and locally produced goods.
The issue is whether the provisions of the WTO Agreement contravene the
Constitution. The SC said that the Constitution did not intend to pursue an
isolationist policy. It did not shut out foreign investments, goods and services in
the development of the Philippine economy. While the Constitution does not
encourage the unlimited entry of foreign goods, services and investments into the
country, it does not prohibit them either.
The basic principles underlying the WTO Agreement recognize the need of
developing countries like the Philippines to "share in the growth in international
trade commensurate with the needs of their economic development." The General
Agreement on Tariffs and Trade has provided built-in protection from unfair foreign
1
The WTO Agreement provides that" (e)ach Member shall ensure the conformity of
its laws, regulations and administrative procedures with its obligations as provided
in the annexed Agreements."
measures and safeguards against import surges.
By ratifying the treaty, the Philippines has effectively agreed to limit the exercise
of its sovereign powers of taxation, eminent domain and police power.
Doctrine:
The Constitution does not rule out foreign competition in local markets.
Protectionism may be limited in the context of globalization.
FACTS:
1. April 15, 1994 - Rizalino Navarro, then Secretary of the Department of
Trade and Industry representing the Government of the Republic of the
Philippines, signed in Marrakesh, Morocco, the Final Act Embodying the
Results of the Uruguay Round of Multilateral Negotiations.
2. President Fidel Ramos ratified the Agreement, and was concurred by the
Senate.
3. Petitioners vigorously argue that the "letter, spirit and intent" of the
Constitution mandating "economic nationalism" are violated by the so-
called "parity provisions" and "national treatment" clauses of the
Agreement.
ISSUE: W/N the provisions of the WTO contravene the Constitution? NO.
RATIO:
1. The constitutional policy of a "self-reliant and independent national
economy" does not necessarily rule out the entry of foreign investments,
goods and services. It contemplates neither "economic seclusion" nor
"mendicancy in the international community."
2. The WTO reliance on "most favored nation," "national treatment," and
"trade without discrimination" cannot be struck down as
unconstitutional as in fact they are rules of equality and reciprocity that
apply to all WTO members. Aside from envisioning a trade policy based
on "equality and reciprocity," the fundamental law encourages industries
that are "competitive in both domestic and foreign markets," thereby
demonstrating a clear policy against a sheltered domestic trade
environment, but one in favor of the gradual development of robust
industries that can compete with the best in the foreign markets. Indeed,
Filipino managers and Filipino enterprises have shown capability and
tenacity to compete internationally. And given a free trade environment,
Filipino entrepreneurs and managers in Hongkong have demonstrated
the Filipino capacity to grow and to prosper against the best offered
under a policy of laissez faire.
 violates the rule on uniformity since it only applies to those vehicles registered or “operating”
in MM but not tho those who are registered in another place but frequent MM.
[32] ASSOCIATION OF CUSTOM BROKERS V. MUNICIPAL BOARD
GR No. L-4376 | May 22, 1953 | Uniformity of Taxation | Irish
Petitioner: ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC.
Respondents: THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY
ASSESSOR and THE CITY MAYOR, all of the City of Manila
Recit-Ready: Municipal Board of Manila passed Ordinance No. 3379, which
imposes taxes on motor vehicles operating within Manila with the main purpose of
raising funds to be expended exclusively for the repair, maintenance and
improvement of the streets and bridges in said city. The Association of Customs
Brokers, Inc., composed of all brokers and public service operators of motor
vehicles in Manila, and G. Manlapit, Inc. (a member of said association and operator
of trucks in Manila) challenge the validity of the Ordinance as it infringes on the rule
of uniformity of taxation.
Doctrine: The Court held that the Ordinance also infringes the rule of the uniformity
of taxation ordained by our Constitution. Since the Ordinance exacts the tax upon
all motor vehicles operating within Manila, it does not distinguish between a motor
vehicle registered in Manila and one registered in another place but occasionally
comes to Manila and uses its streets and public highways.
A distinction is important since the purpose of the Ordinance is only to burden those
registered in Manila. The ordinance equally applies to motor vehicles who come to
Manila for a temporary stay or for short errands, and it cannot be denied that they
contribute in no small degree to the deterioration of the streets and public highway.
The fact that they are benefited by their use they should also be made to share the
corresponding burden. And yet such is not the case. This is an inequality which
renders it offensive to the Constitution.
FACTS:
1. The Municipal Board of the City of Manila passed Ordinance No. 3379
under the authority conferred by section 18 (p) of Republic Act No. 409
(Charter), which confers upon the municipal board the power "to tax motor
and other vehicles operating within the City of Manila the provisions of
any existing law to the contrary notwithstanding."
2. The Association of Customs Brokers, Inc., composed of all brokers and
public service operators of motor vehicles in Manila, and G. Manlapit, Inc.
(a member of said association and operator of trucks in Manila) challenge
the validity of Ordinance No. 3379 on the following grounds: (1) while it
levies a property tax, it is in reality a license tax which is beyond the power
of the Municipal Board of Manila; (2) the ordinance offends against the
rule of uniformity of taxation; and (3) it constitutes double taxation.
3. It is also contended that this power is broad enough to confer upon the
City of Manila the power to enact an ordinance imposing the property tax
on motor vehicles operating within the city limits.
4. The Municipal Board contends that the Ordinance imposes a property tax
which is within the power of the City of Manila to impose under its Revised
Charter [Section 18 (p) of R.A. 409], and that the tax in question does not
violate the rule of uniformity of taxation, nor does it constitute double
taxation.
5. The CFI of Manila dismissed the petition. Hence, this appeal.
ISSUES: WoN the imposition of a property tax on motor vehicles operating in
Manila infringed on the rule of uniformity of taxation – YES.
RATIO:
1. Sec. 70(b) of the Motor Vehicles Law provides that no fees may be
exacted or demanded for the operation of any motor vehicle other than
those therein provided, the only exception being that which refers to the
property tax which may be imposed by a municipal corporation. This
provision applies to all motor vehicles.
2. Hence, Sec. 70(b) of the Motor Vehicles Law should be construed as
limiting the broad grant of power conferred upon the City of Manila by its
Charter to impose taxes.
3. While the Ordinance refers to property tax and it is fixed ad valorem, it is
merely levied on motor vehicles operating within Manila with the main
purpose of raising funds to be expended exclusively for the repair,
maintenance and improvement of the streets and bridges in said city.
4. The Motor Vehicle Law intends to prevent this, as the municipal
corporation already raises proceeds for the same purpose. Thus, this
prohibition is intended to prevent duplication in the imposition of fees for
the same purpose. The Ordinance merely imposes a license fee although
under the cloak of an ad valorem tax to circumvent the prohibition.
5. The Ordinance also infringes the rule of the uniformity of taxation
ordained by our Constitution (Art. VI, Sec. 28).
6. Since the Ordinance exacts the tax upon all motor vehicles operating
within Manila, it does not distinguish between a motor vehicle for hire and
 one which is purely for private use. Neither does it distinguish between a
motor vehicle registered in Manila and one registered in another place but
occasionally comes to Manila and uses its streets and public highways.
7. A distinction is important since the purpose of the Ordinance is only to
burden those registered in Manila as may be inferred from the word
"operating" used therein.
8. The word "operating" denotes a connotation which is akin to a Operating connotes registration because a motor
registration, for under the Motor Vehicle Law no motor vehicle can be vehicle cannot be operated without paying the pr-
oper registration fees.
operated without previous payment of the registration fees.
9. The ordinance equally applies to motor vehicles who come to Manila for
a temporary stay or for short errands, and it cannot be denied that they
contribute in no small degree to the deterioration of the streets and public
highway.
10. The fact that they are benefited by their use they should also be made to
share the corresponding burden. And yet such is not the case. This is an
inequality which renders it offensive to the Constitution.
The uniformity rule does not forbid classification as long as it’s not arbitrary. The legislature has the
power to decide the nature, object, coverage, rate, and place of taxation.
a. Article  6,  Section  26(1)  —  Every  bill  passed  by  the  Congress 
[33] Tan v Del Rosario  shall embrace only one subject… (Not IMPT) 
G.R. No. 109289 | October 3, 1994 | Uniformity of Taxation | Abi  b. Article  6,  Section  28(1)  —  The  rule of taxation shall be uniform 
and  equitable. The Congress shall evolve a progressive system 
G.R. No. 109289 
of taxation. 
PETITIONER: ​Rufino R. Tan 
c. Article  3,  Section  1  —  No  person  shall  be  deprived  of  .  .  . 
G.R. No. 109446 
property without due process of law… (NOT IMPT) 
PETITIONER:  ​Carag,  Caballes,  Jamora  snd  Somera  Law  Offices,  Carlo  A.  Carag, 
3. G.R.  No.  109446:  Assails  Section  6  of  Revenue  Regulations  No.  2-93, 
Manuelito O. Caballes, Elpidio C. Jamora, Jr. and Benjamin A. Somera, Jr 
argue  that  respondents  have  exceeded  their  rule-making  authority  in 
vs 
applying S​ NIT to general professional partnerships. 
RESPONDENT: ​Ramon R. Del Rosario, Jr., as Secretary of Finance & Jose U. Ong, 
4. Petitioners  intimates  that  SNIT  desecrates  the  constitutional 
as Commissioner Of Internal Revenue 
requirement  that  taxation "shall be uniform and equitable" in that the law 
 
would  now  attempt  to  tax  single  proprietorships  and  professionals 
Recit-Ready:  ​2  petitions  were  filed challenging the constitutionality of RA 7496 or 
differently  from  the  manner  it  imposes  the  tax  on  corporations  and 
the  ​Simplified  Net  Income  Taxation  Scheme  ("SNIT").  The  petitioners  assails  that 
partnerships. ISSUES:  ​Whether  taxing  single  proprietorship  and 
the  SNIT  violates  the  constitutional  rule  on  Uniformity of Taxation by taxing single 
professional  different  from  corporations and panterships violate the rule 
proprietorship  and  professionals  differently  from  corporations  and  partnerships. 
on uniformity of taxation? No.  
The SC ruled that there is no constitutional violation on the uniformity of taxation.  
RATIO: 
 
5. Uniformity  of  taxation  merely  requires  that  all  subjects  or  objects  of 
Doctrine:  ​Uniformity  of  taxation,  like  the  kindred  concept  of  equal  protection, 
taxation,  similarly  situated,  are  to  be  treated  alike  both  in  privileges and 
merely  requires  that  all  subjects  or  objects of taxation, similarly situated, are to be 
liabilities. Uniformity does not forfend classification as long as:  
treated  alike  both  in  privileges  and  liabilities.  Uniformity  does  not  forfend 
a. the  standards  that  are  used  therefor  are  substantial  and  not 
classification as long as:  
arbitrary,  
1. the standards that are used therefor are substantial and not arbitrary,  
b. the categorization is germane to achieve the legislative purpose,  
2. the categorization is germane to achieve the legislative purpose,  
c. the  law  applies,  all  things  being  equal,  to  both  present  and 
3. the  law  applies,  all  things  being  equal,  to  both  present  and  future 
future conditions, and 
conditions, and 
d. the  classification  applies  equally  well  to  all  those  belonging  to 
4. the  classification  applies  equally  well  to  all  those  belonging  to  the  same 
the same class  
class  
6. The  legislative  intent  is  to  increasingly  shift  the  income  tax  system 
[This  is  a  repeat  case.  See  case  number  10.  This  Digest  will  focus  on  the  doctrine 
towards  the  schedular  approach  in  the  income  taxation  of  individual 
emphasized in the Book.  
taxpayers  and  to  maintain  the  present  global  treatment  on  taxable 
corporations.  We  certainly  do  not  view  this  classification  to  be  arbitrary 
FACTS:  and inappropriate. 
7. Petitioners  gives  a  fairly  extensive  discussion  on  the  merits  of  the  law, 
1. Two  consolidated  special  civil  actions  for  prohibition  challenge  the  illustrating,  in  the  process, what he believes to be an imbalance between 
constitutionality  of  Republic  Act  No.  7496, also commonly known as the  the  tax  liabilities  of those covered by the amendatory law and those who 
Simplified  Net  Income  Taxation  Scheme  ("SNIT"),  amending  certain  are  not.  However,  It  should  be  noted  that  it  is  with  the  legislature 
provisions  of  the  National  Internal  Revenue  Code  and  the  validity  of  primarily  lies  the  discretion  to  determine  the  nature  (kind),  object 
Section  6,  Revenue  Regulations  No.  2-93,  promulgated  by  CIR  pursuant  (purpose),  extent  (rate),  coverage  (subjects)  and ​situs​ (place)  of 
to said law.  taxation.  This  court  cannot  freely  delve  into  those  matters  which,  by 
2. G.R. No. 109289: it is asserted that the enactment of Republic Act  constitutional fiat, rightly rest on legislative judgment.  
No. 7496 violates the following provisions of the Constitution: 
The Cabinet’s resolution is valid. Royalty fees can take the form of tariffs. They acted
within the authority provided by CA 728.
2. The President thereafter promulgated Executive Order No. 3, prohibiting 
[34] Marc Donnelly v Agregado  the exportation of materials therein enumerated (such as scrap metal) 
unless an export license is first obtained from the Philippine Sugar 
GR No. L-4510 | 1954 May 31 | Constitutional Provisions on Tax | Francis  Administration. 
Petitioner:   3. The Chief of the Executive Office, by authority of the President, sent a 
Respondents:   communication to the Philippine Sugar Administration authorizing the 
  exportation of scrap metals upon payment of a fee of PHP 10 per ton of 
Recit-Ready:    the metals to be exported. Subsequently, the Cabinet, upon 
  recommendation of the National Development Company, approved a 
1. Congress enacted CA No. 728 which made unalwful the exportation of  resolution fixing the schedule of royalty rates to be charged on metal 
agricultural or indusrtrial products without a permit from the President.  exports. 
2. The President promulgated EO No. 3 prohibiting the exportation of scrap  4. Marc Donnelly and Associates (MDA) exported large amounts of scrap 
metals (among others) without an export license.  iron, brass, copper, and aluminum during the period from December 
3. Cabinet thereafter issued a resolution fixing the schedule of royalty rates  1947 to September 1948, for which it paid by way of ​royalty fees​ the 
chargable on metal exports.  total amount of PHP 54,862.84. 
4. Having paid almost PHP 55 K on royalty fees, Marc Donnelly and  5. The amount was collected by the Sugar Quota Office under the authority 
Associates questioned the validity of the authority of the Cabinet to fix  granted by the Chief of the Executive Office and the resolution of the 
royalty fees as such they allege, constitutes an a
​ d valorem​ tax.  Cabinet above mentioned. 
5. The SC held that the Cabinet was well within its authority as they issued  6. MDA appealed to the SC the decision of the Auditor General who denied 
the resolution pursuant to CA No. 728 which gave the President authoriry  the request for refund of the royalty fees. 
to regulate the export of products.  7. MDA contends that the resolution of the Cabinet fixing the schedule of 
6. Further the Constitution itself allowed the President to fix export quotas  royalty rates on metal exports and providing for their collection 
and tonnage and wharfage dues.  constitutes an undue delegation of legislative powers as it creates and 
  imposes an a ​ d valorem​ tax. 
 
ISSUES:   
 
1. WON the Cabinet resolution fixing the schedule of royalty rates on metal 
Doctrine: 
exports and providing for their collection constitutes an undue 
1. The Congress may by law authorize the President, subject to such 
delegation of legislative powers as it creates and imposes an a​ d valorem 
limitations and restrictions, as it may impose, to fix, within specified limits, 
tax. 
tariffs rates, import or export quotas, and tonnage and wharfage dues. 
- NO! 
 

RATIO: 
FACTS:   
1. Commonwealth Act No. 728, made it unlawful for to export agricultural  1. Article VI, section 22 (2), of the 1935 Constitution provides: 
or industrial products without a permit from the President of the  The Congress may by law authorize the President, subject to such 
Philippines. The Act confers upon the President authority to "​regulate,  limitations and restrictions, as it may impose, to fix, within specified 
curtail, control, and prohibit the exportation of materials abroad and to  limits, tariffs rates, import or export quotas, and tonnage and wharfage 
issue such rules and regulations as may be necessary to carry out the  dues. 
provisions of this Act, through such department or office as he may  2. Congress may by law authorize the President, subject to certain 
designate.​"  limitations, to fix, within specified limits, tariff rates, import or export 
 quotas, and tonnage and wharfage dues. Congress validly approved 
Commonwealth Act No. 728.  
3. Implementing this broad authority, the Cabinet approved the resolution 
authorizing the levy and collection of royalty fees as a condition for the 
exportation of scrap metals and other merchandise. 
4. The rule which forbids delegation of legislative power is not absolute. 
This case however is an exception in that the Constitution expressly 
authorizes such delegation. This is so because the royalty rates may 
take the form of tariff rates. Commonwealth Act No. 728 confers upon 
the President authority to regulate, curtail, control, and prohibit the 
exportation of scrap metals, and in this authority is deemed included the 
power to exact royalties for permissive or lawful use of property right. 
 
 
 
 Even though YMCA is an exempt organisation, the constitution provides that any of its
income from activities conducted for profit is subject to income tax.
2. YMCA  earned  an  income  of  P676,829.80  from  leasing  out  a  portion  of  its 
35 CIR v. CA  premises  to  small  shop  owners,  like  restaurants  and  canteen  operators,  and 
P44,259 from parking fees collected from non-members.  
GR 124043 | Oct. 14, 1998 | Tax exemption | Reina   3. The  commissioner  of  internal  revenue  (CIR)  issued  an  assessment  to  private 
Petitioner: COMMISSIONER OF INTERNAL REVENUE  respondent  including  surcharge  and  interest,  for  deficiency  income  tax, 
Respondent:  COURT  OF  APPEALS,  COURT  OF  TAX  APPEALS  and  YOUNG  MEN'S  deficiency  expanded  withholding  taxes  on  rentals  and  professional  fees  and 
CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC. (YMCA)  deficiency withholding tax on wages.  
  4. YMCA  formally  protested  the  assessment  and,  as  a  supplement  to  its  basic 
Recit-Ready:    protest. The CIR denied the claims of YMCA. 
YMCA  is  a  non-stock,  non-profit  institution,  which  conducts  various  programs  and  5. The  YMCA  filed  a  petition  for  review  at  the  Court  of  Tax  Appeals  (CTA)  and  the 
activities  that  are  beneficial  to  the  public.  YMCA  earned  income  from  leasing  out  a  latter  ruled  in  favor  of  YMCA  stating  that  he  leasing  of  [private  respondent's] 
portion  of  its  premises  to  small  shop  owners,  like  restaurants  and  canteen  operators,  facilities  to  small  shop  owners,  to  restaurant  and  canteen  operators  and  the 
and  from  parking  fees  collected  from  non-members.  CIR  issued  an  assessment  to  operation  of  the  parking  lot  are  reasonably  incidental  to  and  reasonably 
YMCA  for  deficiency  income tax, deficiency expanded withholding taxes on rentals and  necessary  for  the  accomplishment  of  the  objectives  of  the  YMCA and that there 
professional fees and deficiency withholding tax on wages.   was no legal basis for the imposition of deficiency fixed tax and contractor's tax. 
  6. CIR  elevated  the  case  to  the  CA  where  it  initially  decided  in  favor  of  the  CIR  but 
The  issue  is  w/n  the  income  derived  from rentals of YMCA’s real property is subject to  then  reversed  itself  and  decided  that  the  CTA did not err in saying that the rental 
income tax. (YES)  from small shops and parking fees do not result in the loss of the exemption. 
 
ISSUES: 
The exemption claimed by the YMCA is ​expressly disallowed by the very wording of the 
last  paragraph  of  then  Sec.  27  which  mandates  that  the  income  of  exempt 
Whether  or  not  the  income  derived  from  rentals  of  real  property  owned  by  YMCA  is 
organizations  from  any  of  their  properties  be  subject  to  the  tax  imposed  by  the  same 
subject to income tax. (YES) 
Code.  As  for  the  exemption  of  charitable  institutions,  what  is  exempted  is  not  the 
institution  itself  because  those  exempted  from  real  estate  taxes  are  only  lands, 
RATIO: 
buildings  and  improvements  ​actually,  directly  and  exclusively  used  for  religious, 
Sec.  27  of  the  NIRC  provides  that,  “The  following  organizations  shall  not  be  taxed 
charitable  or educational purposes. ​YMCA is exempt from the payment of property tax, 
under this Title in respect to income received by them as such — 
BUT not income tax on the rentals from its property​. 
 
 
(g)  Civic  league  or  organization  not  organized  for  profit  but  operated  exclusively  for 
Doctrine: 
the promotion of social welfare; 
Justice  Davide  stressed  during  the  Concom  debates  that  what  is  exempted  is  not  the 
(h)  Club  organized  and  operated  exclusively  for  pleasure,  recreation,  and  other 
institution  itself;  those  exempted  from  real  estate  taxes  are  lands,  buildings  and 
non-profitable  purposes,  no  part  of  the  net  income  of  which  inures  to  the  benefit  of 
improvements  ​actually,  directly  and  exclusively  used  for  religious,  charitable  or 
any private stockholder or member; 
educational  purposes​.  Father  Bernas  adhered  to  the  same  view  that  the  exemption 
 
created by said provision p ​ ertained only to property taxes. 
Notwithstanding  the  provisions  in  the  preceding  paragraphs, ​the income of whatever 
kind  and  character  of  the  foregoing  organizations  from  any  of  their  properties, real 
FACTS:  or  personal,  or  from  any  of  their  activities  conducted  for  profit,  regardless  of  the 
disposition  made  of  such  income,  shall  be  SUBJECT  TO  THE  TAX  imposed  under 
1. YMCA  is  a  non-stock,  non-profit  institution,  which  conducts  various  programs  this Code.” 
and  activities  that  are  beneficial  to  the  public,  especially  the  young  people,   
pursuant to its religious, educational and charitable objectives.  The  exemption  claimed  by  the  YMCA  is  ​expressly  disallowed  by  the  very  wording of 
the  last  paragraph  of  then  Sec.  27  which  mandates  that  the  income  of  exempt 
organizations  (such  as  the  YMCA)  from  any  of  their  properties,  real  or  personal,  be  "By-Laws"  of  YMCA,  but  it  found  nothing  in  them  that  even  hints  that  YMCA  is  a 
subject  to  the  tax  imposed  by  the  same  Code.  Because  the  last  paragraph  of  said  school or an educational institution.  
section  unequivocally  subjects  to  tax  the  rent  income  of  the  YMCA  from  its  real   
property,  the  Court  is  duty-bound  to  abide  strictly  by  its literal meaning and to refrain  The  SC  also  stated  that  the  former  did  not submit proof of the proportionate amount 
from resorting to any convoluted attempt at construction.  of  the  subject  income  that  was  actually,  directly and exclusively used for educational 
  purposes.  Article  XIII,  Section  5  of  the  YMCA  by-laws,  which  formed  part  of  the 
YMCA’s  argument:  last paragraph of Sec. 27 should be "subject to the qualification that  evidence  submitted, is patently insufficient, since the same merely signified that "[t]he 
the income from the properties must arise from activities 'conducted for profit' before it  net  income  derived  from the rentals of the commercial buildings shall be apportioned 
may be considered taxable"   to  the  Federation  and  Member  Associations  as  the  National  Board  may  decide."  In 
This  argument  is  erroneous. A reading of said paragraph shows that the income from  sum,  there  is  no  basis  for  granting  the  YMCA  exemption  from  income  tax  under  the 
any  property  of  exempt  organizations,  as  well  as  that  arising  from  any  activity  it  constitutional provision invoked. 
conducts  for  profit,  is  ​taxable​. The phrase "any of their activities conducted for profit"   
does  not  qualify  the  word  "properties."  This  makes  from  the  property  of  the 
organization  taxable,  regardless  of  how  that  income  is  used  —  whether  for  profit  or 
for lofty non-profit purposes. 
 
YMCA’s  argument:  NIRC  and  Article  VI,  Sec. 28 of the Constitution exempts "charitable 
institutions"  from  the  payment  not  only  of  property  taxes  but  also  of  income  tax  from 
any source 
Justice  Davide,  a  former  constitutional  commissioner,  stressed  during  the  Concom 
debates  that  what  is  exempted  is  not  the  institution  itself;  those  exempted from real 
estate  taxes  are  lands,  buildings  and improvements ​actually, directly and exclusively 
used  for  religious,  charitable  or educational purposes​." Father Bernas adhered to the 
same  view  that  the  exemption  created  by  said  provision  ​pertained  only  to  property 
taxes. 
 
YMCA’s  argument:  under  Article  XIV,  Sec.  4, par. 3 of the Constitution, it is a non-stock, 
non-profit  educational  institution  whose revenues and assets are used actually, directly 
and  exclusively  for  educational  purposes  so  it  is  exempt  from  taxes  on  its  properties 
and income 
YMCA is exempt from the payment of property tax, ​BUT not income tax on the rentals 
from  its  property​.  Laws  allowing  tax  exemption  are  construed  strictissimi  juris. 
Hence,  for  the  YMCA  to  be  granted  the  exemption,  it  must  prove  with  substantial 
evidence that: 
(1) it falls under the classification non-stock, non-profit educational institution;  
(2) the  income  it  seeks  to  be  exempted  from  taxation  is  used  actually,  directly, 
and exclusively for educational purposes.  
However, YMCA did NOT submit any evidence to prove that it met the said requisites. 
 
YMCA  is  not  an  educational  institution  within  the purview of Article XIV, Sec. 4, par. 3 
of  the  Constitution.  The  Court  examined  the  "Amended Articles of Incorporation" and 
 Used exclusively has been extended to incidental use. Abra Valley should be taxed because of
its leasing a portion of its lot to commercial enterprises.
[36] ABRA VALLEY V. AQUINO
G.R. No. L-39086 | June 15, 1988 | Tax Exemption | Dee
Petitioner: Abra Valley College, Inc.
Respondents: Hon. Juan P. Aquino, Judge, Court Of First Instance, Abra; Armin
M. Cariaga, Provincial Treasurer, Abra; Gaspar V. Bosque, Municipal Treasurer,
Bangued, Abra; Heirs Of Paterno Millare
! 4.
Recit-Ready:
Abra Valley College filed a complaint to annul and declare void the Notice of
Seizure and Notice of Sale of its lot and building for its non-payment of real
estate taxes and penalties. The petitioner contends that it should be exempted
from property taxes as its primary use of the lot and building is for educational
purposes. The respondents, on the other hand, contend that Abra Valley should
be answerable to unpaid taxes, as its college lot and building are used for the
residence of the school’s Director and its ground floor is used for commercial
purposes, as it is rented by a commercial establishment. The issue is WON the
lot and building in question are used exclusively for educational purposes
(NO). The SC ruled that Abra Valley College should be taxed not because the
second floor of the same is being used by the Director and his family for
residential purposes, as it may be considered as incidental use, but because
the first floor thereof is being used for commercial purposes.
Doctrine:
The phrase “used exclusively” is not limited to property actually indispensable
therefor, but extends to facilities, which are incidental to and reasonably
necessary for the accomplishment of said purposes. However, while the Court
allows a more liberal and non-restrictive interpretation of the phrase
"exclusively used for educational purposes,” reasonable emphasis has always
been made that exemption extends to facilities which are incidental to and
reasonably necessary for the accomplishment of the main purposes.
Otherwise stated, the use of the school building or lot for commercial
purposes is neither contemplated by law, nor by jurisprudence.
FACTS:
1. Abra Valley College, an educational corporation and institution of higher
learning filed a complaint  to annul and declare void the "Notice of Seizure'
and the "Notice of Sale" of its lot and building located at Bangued, Abra, for
non-payment of real estate taxes and penalties amounting to P5, 140.31.
2. Said "Notice of Seizure" of the college lot and building by respondents
Municipal Treasurer and Provincial Treasurer was issued for the satisfaction
of the said taxes thereon.
3. Petitioner contends that the primary use of the lot and building for
educational purposes, and not the incidental use thereof, determines and
exemption from property taxes under Section 22 (3), Article VI of the 1935
Constitution. Hence, the seizure and sale of subject college lot and building,
which are contrary thereto as well as to the provision of Commonwealth Act
No. 470, otherwise known as the Assessment Law, are without legal basis
and therefore void.
On the other hand, private respondents maintain that the college lot and
building in question which were subjected to seizure and sale to answer for
the unpaid tax are used: (1) for the educational purposes of the college; (2)
as the permanent residence of the President and Director thereof, Mr. Pedro
V. Borgonia, and his family including the in-laws and grandchildren; and (3)
for commercial purposes because the ground floor of the college building is
being used and rented by a commercial establishment, the Northern
Marketing Corporation.
ISSUES:
Whether or not the lot and building in question are  used exclusively for
educational purposes. (NO)
RATIO:
Due to its time frame, the constitutional provision which finds application in the
case at bar is Section 22, paragraph 3, Article VI, of the then 1935 Philippine
Constitution, which expressly grants exemption from realty taxes for "Cemeteries,
churches and parsonages or convents appurtenant thereto, and all lands,
buildings, and improvements  used exclusively  for religious, charitable or
educational purposes.
Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as
amended by Republic Act No. 409, otherwise known as the Assessment Law,
provides that the following are exempted from real property tax under the
Assessment Law:
(c) churches and parsonages or convents appurtenant thereto, and all
lands, buildings, and improvements  used exclusively  for religious,
charitable, scientific or educational purposes.
In a long line of cases, the SC clarified that the phrase “used exclusively” also
considers incidental use. It must be stressed however, that while this Court
allows a more liberal and non-restrictive interpretation of the phrase "exclusively
used for educational purposes" as provided for in Article VI, Section 22,
paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has
always been made that exemption extends to facilities which are incidental to
and reasonably necessary for the accomplishment of the main purposes.
Otherwise stated, the use of the school building or lot for commercial purposes is
neither contemplated by law, nor by jurisprudence. Thus, while the use of the
second floor of the main building in the case at bar for residential purposes of
the Director and his family, may find justification under the concept of incidental
use, which is complimentary to the main or primary purpose—educational, the
lease of the first floor thereof to the Northern Marketing Corporation cannot by
any stretch of the imagination be considered incidental to the purpose of
education.
Under the 1935 Constitution, the trial court correctly arrived at the conclusion
that the school building as well as the lot where it is built, should be taxed, not
because the second floor of the same is being used by the Director and his family
for residential purposes, but because the first floor thereof is being used for
commercial purposes. However, since only a portion is used for purposes of
commerce, it is only fair that half of the assessed tax be returned to the school
involved.

!

[G.R. No. 144104] LUNG CENTER OF PH v QUEZON CITY
G.R. No. 144104| June 29, 2004| Tax Exemption for Charitable Institutions |
De Jesus
Petitioner: Lung Center of the Philippines
Respondents: Quezon City and CONSTANTINO P. ROSAS, in his capacity as
City Assessor of
Quezon City
Recit-Ready: Lung Center of the Philippines (LCP) is a non-stock and non-profit
entity established by PD. 1823. The City Assessor of QC assessed the land and
building of LCP for its real property taxes. LCP filed a Claim for Exemption from
real property taxes with the City Assessor, based on its claim that it is a
charitable institution. But this was denied by QC-LBAA and subsequently by
QC-LBAA. LCP contends that it should be exempted from real estate taxes
since it is a charitable institution.
ISSUES: 1) W/N LCP is a charitable institution and 2) W/N the real properties of
LCP are exempt from real property taxes.
RULING: The Court held that – while LCP is indeed a charitable institution within
the context of the 1973 and 1987 Constitutions. According to the SC, LCP is still
burdened to prove, by clear and unequivocal proof, that (a) it is a charitable
institution; and (b) its real properties are ACTUALLY, DIRECTLY and
EXCLUSIVELY used for charitable purposes, pursuant to the constitution.
However, LCP failed to prove that its ENTIRE real property is actually, directly
and exclusively used for charitable purposes Therefore, only those 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. While, 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.
Doctrine:
The settled rule in this jurisdiction is that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing
power. Taxation is the rule and exemption is the exception. The effect of an
exemption is equivalent to an appropriation. Hence, a claim for exemption from
tax payments must be clearly shown and based on language in the law too plain
to be mistaken.
FACTS:
1. The petitioner Lung Center of the Philippines (LCP) is a non-stock and
non-profit entity established on January 16, 1981 by virtue of Presidential
Decree No. 1823. It is the registered owner of a parcel land in Quezon
City and erected on said lot is a hospital known as the Lung Center of the
PH.
2. LCP caters to both paying and non-paying patients and it also receives
annual subsidies from the government.
3. On June 7, 1993, both the land and the hospital building of the LCP
were assessed for real property taxes in the amount of P4,554,860 by
the City Assessor of QC. Wherein, two tax declarations was issued for
the land and the hospital building.
4. LCP filed a Claim for Exemption from real property taxes with the City
Assessor, based on its claim that it is a charitable institution.
5. LCP’s request was denied, consequently it filed a petition before the
Local Board of Assessment Appeals of Quezon City (QC-LBAA) for
the reversal of the resolution of the City Assessor.
6. LCP alleged that under Section 28, paragraph 3 of the 1987
Constitution, the property is exempt from real property taxes. Since it’s
a charitable institution and thus, exempt from real property taxes. It
argued that a minimum of 60% of its hospital beds are exclusively
used for charity patients and that the major thrust of its hospital
operation is to serve charity patients
7. However, QC-LBAA dismissed the petition of LCP and ruled that it is
liable to pay the real property taxes. This decision was affirmed on
appeal by the Central Board of Assessment Appeals of QC which
ruled that LCP was not a charitable institution and that its real
properties were not actually, directly and exclusively used for
charitable purposes
ISSUES:
1) W/N LCP is a charitable institution. – Yes, LCP is a charitable institution
within the context of the 1973 and 1987 Constitutions
2) W/N the real properties of LCP are exempt from real property taxes.
- 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. While, 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.
RATIO:
 1) Yes, LCP is a charitable institution1 within the context of the 1973
and 1987 Constitutions
a. 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.
b. Under P.D. No. 1823, LCP is a non-profit and non-stock
corporation administered by the Office of the President of the
Philippines with the Ministry of Health and the Ministry of
Human Settlements. It was organized for the welfare and
benefit of the Filipino people.
c. According to LCP’s Article of Incorporation, the purpose LCP
was created is to render the public medical services.
Therefore, LCP is considered as a charitable institution.
d. Further, under P.D. No. 1823, LCP is entitled to receive
donations. LCP does not lose its character as a charitable
institution simply because the gift or donation is in the form of
subsidies granted by the government.
e. Since the Court ruled that 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, or receives subsidies from the government,
so long as the money received is devoted or used altogether
to the charitable object which it is intended to achieve.”
2) However, even if LCP is a charitable institution – SC ruled that 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.
a. Based on Sec. 2 of PD No. 1823 relied by LCP – LCP does
not enjoy any property tax exemption privileges for its real
properties as well as the building constructed on said land.
Since Sec. 2 only grants tax exemption on income and gift
taxes and payment of taxes, fees imposed by the Gov’t with
respect to equipment purchases by LCP.
1 “To determine whether an enterprise is a charitable institution/entity or not, the
elements which should be considered include the statute creating the enterprise, its
corporate purposes, its constitution and by-laws, the methods of administration, the
nature of the actual work performed, the character of the services rendered, the
indefiniteness of the beneficiaries, and the use and occupation of the properties.”
b. Pursuant to the rule of expressio unius est exclusio alterius
(express mention of one person, thing, or consequence
implies the exclusion of all others) – since property taxes are
not mentioned in the grant of exemptions in Sec. 2. Therefore,
Sec. 2 does not grant an exemption on LCP’s property taxes.
3) Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in
order to be entitled to the exemption, LCP is burdened to prove, by
clear and unequivocal proof, that (a) it is a charitable institution; and
(b) its real properties are ACTUALLY, DIRECTLY and
EXCLUSIVELY2 used for charitable purposes.
a. IMPORTANT: “What is meant by actual, direct and exclusive
use of the property for charitable purposes is the direct and
immediate and actual application of the property itself to the
purposes for which the charitable institution is organized. It is
NOT the use of the income from the real property that is
determinative of whether the property is used for tax-exempt
purposes.
b. In the present case, LCP failed to prove that its ENTIRE real
property is actually, directly and exclusively used for
charitable purposes.Since portions of the hospital are leased
to private individuals as clinics and canteen. Also, a portion of
the land is leased to a private individual for her business
enterprise under the business name "Elliptical Orchids and
Garden Center."
c. Thus, 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.
d. While, 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.
2
“Exclusive is defined as possessed and enjoyed to the exclusion of others; If real
property is used for one or more commercial purposes, it is not exclusively used for the
exempted purposes but is subject to taxation. Solely is synonymous with exclusively.”
 St. Luke’s other activities are subject to income tax at the rate of 10%
For a charitable institution to be fully exempt, it must be ORGANIZED
AND OPERATED EXCLUSIVELY FOR SUCH PURPOSES.
180-day  period  under  Sec.  228  of  the  National  Internal  Revenue  Code 
[38] CIR v. St. Lukes Medical Center, Inc.  (NIRC). Thus, St. Luke's appealed to the CTA. 
3. The  BIR  argued  before  the  CTA  that  Section  27  (B)  of  the  NIRC,  which 
G.R. No. 195909 | September 26, 2012 | Tax Exemption | Vica  imposes  a  10%  preferential  tax  rate  on  the  income  of  proprietary 
Petitioner: ​COMMISSIONER OF INTERNAL REVENUE  non-profit  hospitals,  should  be  applicable  to  St. Luke's. According to the 
Respondents: ​ST. LUKE'S MEDICAL CENTER, INC.  BIR,  Section  27  (B),  introduced  in  1997,  "is  a  new  provision  intended  to 
  amend  the  exemption  on  non-profit  hospitals  that  were  previously 
Recit-Ready:  ​St.  Luke's  is  a  hospital  organized  as  a  non-stock  and  non-  profit  categorized  as  non-stock,  non-profit  corporations  under  Section  26  of 
corporation.  The  BIR  assessed  that St. Luke’s has deficiency taxes, as they argued  the  1997  Tax  Code  .  .  .  ."  5  It  is  a  specific  provision  which  prevails  over 
that  Sec.  27  (B)  of  the  NIRC,  which  imposes  a  10%  preferential  tax  rate  on  the  the  general  exemption  on  income  tax  granted  under  Section  30  (E)  and 
income  of  proprietary  non-profit  hospitals,  should  be  applicable  to  St.  Luke's.  On  (G)  for  non-stock,  non-profit  charitable  institutions  and  civic 
the  other  hand,  St.  Luke’s  claimed  they  are  exempt  from  paying  the  taxes  under  organizations promoting social welfare. 
Sec.  30  (E)  and  (G)  of  the  same  code.  The  SC  agreed  that  St.  Luke’s  is  indeed  a  4. The  BIR  claimed  that  St.  Luke's  was  actually  operating for profit in 1998 
non-stock  and  non-profit  charitable  institution  that  falls  under  Sec.  30.  However,  because  only  13%  of  its  revenues  came  from  charitable  purposes. 
they  noted  that  Sec.  30  also  provides  that  if  a  tax  exempt  charitable  institution  Moreover,  the  hospital's  board  of  trustees,  officers  and  employees 
conducts  “any”  activity  for  profit,  such  activity  is  not  tax  exempt  even  as  its  directly  benefit  from  its  profits  and  assets. St. Luke's had total revenues 
not-for-profit  activities  remain  tax  exempt.  Since  St. Luke’s had revenue from their  of  P1,730,367,965 or approximately P1.73 billion from patient services in 
paying patients, they’re liable to pay the deficiency income tax. However, instead of  1998.  
30%, they are subject to 10% preferential rate pursuant to Sec. 27. 
ISSUES:  ​W/N  St.  Luke’s  is  liable  for  deficiency  income tax in 1998 under Section 
 
27(B)  of  the  NIRC,  which  imposes a preferential tax rate of 10% on the income of 
Doctrine:  ​A  charitable  institution  that  is  “organized  and  operated  exclusively”  for 
proprietary non-profit hospitals. Y ​ ES 
charitable  purposes  is  allowed  to  engage  in  activities conducted for profit without 
losing its tax exempt status for its not-for-profit activities. The only consequence is 
RATIO: 
that  the  income  of whatever kind and character of a charitable institution from any 
of  its  activities  conducted  for  profit,  regardless  of  the  disposition  made  of  such 
1. There  is  no  dispute  that  St.  Luke’s  is  organized  as  a  non-stock  and 
income,  shall  be  subject  to  tax.  Such  income  from  for-profit  activities,  under  the 
non-profit  charitable  institution.  However,  this  does  not  automatically 
last  paragraph  of  Section  30,  is  merely  subject  to  income  tax,  previously  at  the 
exempt  St.  Luke’s  from  paying taxes. Even if St. Luke’s meets the test of 
ordinary  corporate  rate  but  now  at  the  preferential  10%  rate  pursuant  to  Section 
charity,  a  charitable  institution  is  not  ipso  facto  tax  exempt.  To  be 
27(B).  
exempt  from  income  taxes,  Sec.  30(E)  of  the  NIRC  requires  that  a 
charitable  institution  ​must  be  “organized  and  operated  exclusively”  for 
FACTS:  charitable  purposes​.  Likewise,  to  be  exempt  from  income  taxes,  Sec. 
30(G)  of  the  NIRC  requires  that  the  institution  be  “operated  exclusively” 
1. St.  Luke's  is  a  hospital  organized  as  a  non-stock  and  non-  profit  for  social  welfare.  However,  Sec.  30  also  provides  that  ​if  a  tax  exempt 
corporation.  The  Bureau  of  Internal  Revenue  (BIR)  assessed  St.  Luke's  charitable  institution  conducts  “any”  activity  for  profit,  such  activity  is 
deficiency  taxes  amounting  to  P76,063,116.06  for  1998.  This  is  not tax exempt even as its not-for-profit activities remain tax exempt​.  
comprised  of  deficiency  income  tax, value-added tax, withholding tax on  2. Thus,  even  if  the  charitable  institution  must  be  “organized and operated 
compensation  and  expanded  withholding  tax.  The  BIR  reduced  the  exclusively”  for  charitable purposes, it is nevertheless allowed to engage 
amount to P63,935,351.57 during trial in the First Division of the CTA.   in  “activities  conducted  for  profit”  without  losing  its  tax  exempt  status 
2. St.  Luke's  filed  an  administrative  protest  with  the  BIR  against  the  for  its  not-for-profit  activities.  The  only  consequence is that the “income 
deficiency tax assessments. The BIR did not act on the protest within the  of  whatever  kind  and  character”  of  a  charitable  institution  “from  any  of 
 its  activities  conducted  for  profit,  regardless  of  the  disposition  made  of 
such income, shall be subject to tax.” 
3. In 1998, St. Luke’s had total revenues of P1,730,367,965 from services to 
paying  patients.  It  cannot  be  disputed  that  a  hospital  which  receives 
approximately  P1.73  billion  from  paying  patients  is  not  an  institution 
“operated  exclusively”  for  charitable  purposes.  Clearly,  revenues  from 
paying  patients  are  income  received  from  “activities  conducted  for 
profit.”  Services  to  paying  patients  are  activities  conducted  for  profit. 
They  cannot  be  considered  any  other  way.  There  is  a  “purpose  to make 
profit over and above the cost” of services. 
4. The  Court  finds  that  St.  Luke’s  is  a  corporation  that  is  ​not  “operated 
exclusively”  for  charitable  or  social  welfare  purposes  insofar  as  its 
revenues  from  paying  patients  are  concerned​.  This  ruling  is  based  not 
only  on  a  strict  interpretation  of  a  provision  granting  tax  exemption, but 
also  on  the  clear  and  plain  text  of  Section  30(E)  and  (G).  Section  30(E) 
and  (G)  of  the  NIRC  requires that an institution be “operated exclusively” 
for  charitable  or  social  welfare  purposes  to  be  completely  exempt  from 
income  tax.  An  institution  under  Section  30(E)  or  (G)  does  not  lose  its 
tax  exemption  if  it  earns  income  from  its  for-profit  activities.  ​Such 
income  from  for-profit  activities,  under  the  last  paragraph  of  Section 
30, is merely subject to income tax, previously at the ordinary corporate 
rate but now at the preferential 10% rate pursuant to Section 27(B)​. 
 DLSU is exempt from the taxes on its assets and revenues since it is a non stock, non profit
institution which income is used actually, directly, and exclusively for educational purposes.
[39] DLSU v. CIR
CTA EB No. 671 | June 8, 2011 | Consti provision on Taxation | Kathleen
Petitioner: De La Salle University Incorporated
Respondents: Commissioner of Internal Revenue
Recit-Ready: DLSU is a non-stock, non-profit domestic corporation and educational
institution, organized and existing under and by virtue of the laws of the Republic of
the Philippines. It is being assessed by the CIR for deficiency income tax, VAT, and
DST. DLSU filed a Partial motion for reconsideration which the Special First Division
granted. As a result, DLSU was able to present additional documents and
substantiate that certain portions of its rental income was used actually, directly,
and exclusively for educational purposes. The SC held that pursuant to the
Constitution, those income used actually, directly, and exclusively for educational
purposes are exempt from taxes and duties.
Doctrine: "All revenues and assets of non-stock, non-profit educational institutions
used actually, directly, and exclusively for educational purposes shall be exempt
from taxes and duties.” Section 4(3), Article XIV of the Constitution.
FACTS:
1. DLSU is a non-stock, non-profit domestic corporation and educational
institution, organized and existing under and by virtue of the laws of the
Republic of the Philippines.
2. DLSU received a Preliminary Assessment Notice ("PAN") from the Special
LT Task Force on Educational Institution of the BIR, dated May 19, 2004.
3. On July 16, 2004, petitioner disputed the PAN, but on October 12, 2004,
petitioner received a Formal Letter of Demand dated August 18, 2004,
assessing petitioner of deficiency income tax, Value Added Tax ("VAT"),
and Documentary Stamp Tax ("DST") for fiscal years ending May 31, 2001,
2002, and 2003, in the total amount of Pl7,303,001.12, inclusive of
applicable surcharge, interest and penalties.
4. Petitioner protested the assessments. For failure to act of respondent CIR
on the protest, petitioner filed its Petition for Review with the Special First
Division, within the 30-day period to appeal.
5. After trial on the merits, the division rendered a decision partially granting
the petition cancelling the DST assessment on loan transactions.
6. CIR filed a Motion for Reconsideration praying that petitioner be ordered
to pay the cancelled DST assessment. On the other hand, petitioner filed
a Motion for Partial Reconsideration and requested to mark additional
documents.
7. The Special First Division denied the CIR and allowed DLSU to present
additional documents. It then granted the partial motion on the ground
that it found that petitioner's rental income from MTO-PE Sports Complex
and La Casita, which were transmitted and used for the payment of the
PTC loan on the PE-Sports Complex, was used actually, directly and
exclusively for educational purpose.
8. Not satisfied, on petitioner filed the instant Petition for Review before the
Court En Banc
ISSUE: (relevant to topic only)
Whether or not the evidence adduced by petitioner proved the disbursement for
educational purposes – YES
RATIO:
Petitioner is a non-stock, non-profit educational institution is governed by Section
4(3), Article XIV of the Constitution, which provides, "All revenues and assets of
non-stock, non-profit educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from taxes and duties. The
case of Abra Valley College, Inc. vs. Aquino does not apply because it involves
exemption from payment of real property taxes only.
The case of CIR v. CA laid down the requirements for an educational institution to
be entitled to the exemption in the aforecited constitutional provision:
1. it falls under the classification of non-stock, non-profit educational
institution; - No question that petitioner meets this requirement
2. the income it seeks to be exempted from taxation is used actually,
directly, and exclusively for educational purposes. - Petitioner's rental
income from MTO-PE Sports Complex and La Casita, which were
transmitted and used for the payment of the PTC loan on the PE-Sports
Complex, were used actually, directly and exclusively for educational
purposes
As regards petitioner's rental income from Alarey, Inc., Zaide Food Corp., Capri
International and MTO Book which were transmitted to the CF-CPA Account,
petitioner again failed to fully account for and substantiate all the
disbursements from the CF -CPA Account. The Court’s findings showed that
only 26.68% of the disbursements were substantiated. Hence, this percentage
was multiplied to the total rent income of P6.68 million to get P1.76 million or
the rent income exempt from tax.
PD 1869 does not constitute as a waiver on the part of the City of Manila. Since it is a mere municipal
corp, it has no inherent right to tax and thus the power to tax must yield to a legis, act since it is passed
by the State, which has the inherent right to tax. PAGCOR is an instrumentality hence it should not be
taxed.
[40] Basco v. PAGCOR
GR No. 91649 | Date: May 14, 1991 | Esguerra
PETITIONER: Attorneys Humberto Basco, Edilberto Balce, Socrates Maranan
and Lorenzo Sanchez
 assessments of any kind, nature or description, levied, established or
RESPONDENTS: Philippine Amusements and Gaming Corporation
(PAGCOR)
Recit Ready: Petitioners contend that P.D. 1869 constitutes a waiver of the
right of the City of Manila to impose taxes and legal fees. They refer to
Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise
holder from paying any "tax of any kind or form, income or otherwise, as
well as fees, charges or levies of whatever nature, whether National or Local.
The issue is W/N the PD 1869 constitutes a waiver of the right of the City of
Manila to impose taxes and legal fees? — No. The City of Manila, being a
mere Municipal corporation has no inherent right to impose taxes…the
power to tax" therefore must always yield to a legislative act which is
superior having been passed upon by the state itself which has the "inherent
power to tax
DOCTRINE: The power to tax which was called by Justice Marshall as the
"power to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to
defeat an instrumentality or creation of the very entity which has the inherent
power to wield it.
FACTS:
1. Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City
of Manila to impose taxes and legal fees; that the exemption clause in P.D.
1869 is violative of the principle of local autonomy. They refer to Section 13
par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from
paying any "tax of any kind or form, income or otherwise, as well as fees,
charges or levies of whatever nature, whether National or Local.
2. Contested provision:
• (2) Income and other taxes. — a) Franchise Holder: No tax of any kind
or form, income or otherwise as well as fees, charges or levies of
whatever nature, whether National or Local, shall be assessed and
collected under this franchise from the Corporation; nor shall any form
or tax or charge attach in any way to the earnings of the Corporation,
except a franchise tax of five (5%) percent of the gross revenues or
earnings derived by the Corporation from its operations under this
franchise. Such tax shall be due and payable quarterly to the National
Government and shall be in lieu of all kinds of taxes, levies, fees or
collected by any municipal, provincial or national government
authority (Section 13 [2]).
ISSUE/s:
1. W/N the PD 1869 constitutes a waiver of the right of the City of Manila to
impose taxes and legal fees? — No.
RATIO:
1. The City of Manila, being a mere Municipal corporation has no inherent
right to impose taxes…the power to tax" therefore must always yield to a
legislative act which is superior having been passed upon by the state itself
which has the "inherent power to tax
2. The Charter of the City of Manila is subject to control by Congress. It should
be stressed that "municipal corporations are mere creatures of Congress…if
Congress can grant the City of Manila the power to tax certain matters, it can
also provide for exemptions or even take back the power.
3. Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation
with an original charter, PD 1869. All of its shares of stocks are owned by the
National Government.
4. PAGCOR has a dual role, to operate and to regulate gambling casinos. The
latter role is governmental, which places it in the category of an agency or
instrumentality of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt from local taxes.
Otherwise, its operation might be burdened, impeded or subjected to control
by a mere Local government.
5. The states have no power by taxation or otherwise, to retard, impede, burden
or in any manner control the operation of constitutional laws enacted by
Congress to carry into execution the powers vested in the federal
government. (MC Culloch v. Marland, 4 Wheat 316, 4 L Ed. 579)
6. The power to tax which was called by Justice Marshall as the "power to
destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent power to
wield it.
 The imposition of Laguna of the franchise tax is valid since the constitution specifically gave
them the general power to do so. Such tax exemption is seen as a grant and not a contractual
one (bonds) hence it is outside the purview of the non-impairment clause.
areas.  MERALCO  was  likewise  granted  a franchise by the National Electrification 
[41] Manila Electric Company v Province of Laguna  Administration  to  operate  an  electric  light  and  power  service  in  the  Municipality 
of Calamba, Laguna.  
GR No. 131359| May 5, 1999 | Tax Principles | Ma. Hazel Joy M. Faco  2.  The  "Local  Government  Code  of  1991"  was  enacted  enjoining  local 
Petitioner: MANILA ELECTRIC COMPANY  government  units  to  create  their  own  sources  of  revenue  and  to  levy  taxes, fees 
Respondents:  PROVINCE  OF  LAGUNA  and  BENITO  R.  BALAZO, in his capacity as  and  charges,  subject  to  the  limitations  expressed  therein,  consistent  with  the 
Provincial Treasurer of Laguna  basic policy of local autonomy.  
3.  Pursuant  to  the  provisions  of  the  Code,  respondent  province  enacted  Laguna 
Recit-Ready:  ​Certain  municipalities  of  the  Province  of Laguna, issued resolutions  Provincial  Ordinance  No.  01-92  which  provides  for  a  Franchise  Tax  at  a  rate  of 
through their respective municipal councils granting franchise in favor of petitioner  50% of one percent of the gross annual receipts.  
MERALCO  for  the  supply  of  electric  light,  heat  and  power  within  their  concerned  4.  The  Province  of  Laguna  sent  a  demand  letter  to  MERALCO  for  the 
areas.  MERALCO  was  likewise  granted  a  franchise  by  the  National  Electrification  corresponding  tax  payment.  Petitioner  MERALCO  paid  the  tax  under  protest.  A 
Administration  to  operate  an  electric  light  and power service in the Municipality of  formal  claim  for  refund  was  thereafter  sent  by  MERALCO  to  the  Provincial 
Calamba,  Laguna.  The  "Local  Government  Code  of  1991"  was  enacted  enjoining  Treasurer  of  Laguna  claiming  that  the  franchise  tax  it  had paid and continued to 
local  government  units  to  create  their  own  sources  of  revenue  and  to  levy  taxes,  pay  to  the  National  Government  pursuant  to  P.D.  551  already  included  the 
fees  and  charges,  subject  to  the  limitations  expressed therein, consistent with the  franchise  tax  imposed  by  the  Provincial  Tax  Ordinance.  MERALCO,  contended 
basic  policy of local autonomy. Pursuant to the provisions of the Code, respondent  that  the  imposition  of  a  franchise  tax  under  Section  2.09  of  Laguna  Provincial 
province  enacted  Laguna  Provincial  Ordinance  No.  01-92  which  provides  for  a  Ordinance  No.  01-92,  insofar  as  it  concerned  MERALCO,  contravened  the 
1
Franchise  Tax  at  a  rate  of  50%  of  one  percent  of  the  gross  annual  receipts.  The  provisions of Section 1 of P.D. 551   
Province  of  Laguna  sent  a  demand  letter  to  MERALCO  for  the  corresponding  tax 
payment.  Petitioner  MERALCO  paid  the  tax  under  protest.  A  formal  claim  for  ISSUES:  ​Whether  the  imposition of a franchise tax under Section 2.09 of Laguna 
refund  was  thereafter  sent  by  MERALCO  to  the  Provincial  Treasurer  of  Laguna  Provincial  Ordinance  No.  01-92,  insofar  as  petitioner  is  concerned,  is violative of 
claiming  that  the  franchise  tax  it  had  paid  and  continued  to  pay  to  the  National  the  non-impairment  clause  of  the  Constitution  and  Section  1  of  Presidential 
Government  pursuant  to  P.D.  551  already  included  the  franchise  tax  imposed  by  Decree No. 551. 
the  Provincial  Tax  Ordinance.  MERALCO,  contended  that  the  imposition  of  a 
franchise  tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar  1
​Any provision of law or local ordinance to the contrary notwithstanding, the 
as  it  concerned  MERALCO,  contravened  the  provisions  of  Section  1  of  P.D.  551.  franchise tax payable by all grantees of franchises to generate, distribute and sell 
The  issue  in  this  case  is  whether  the  imposition  of  a  franchise  tax  under  Section  electric current for light, heat and power shall be two per cent (2%) of their gross 
2.09  of  Laguna  Provincial  Ordinance  No.  01-92,  insofar as petitioner is concerned,  receipts received from the sale of electric current and from transactions incident 
is  violative  of  the  non-impairment  clause  of  the  Constitution  and  Section  1  of  to the generation, distribution and sale of electric current. 
Presidential  Decree  No. 551. ​Local governments do not have the inherent power to   
tax  4  except  to  the  extent  that  such  power  might  be  delegated  to  them  either  by  Such franchise tax shall be payable to the Commissioner of Internal Revenue or 
the  basic  law  or  by  statute.  Presently,  under  Article  X  of  the  1987  Constitution,  a  his duly authorized representative on or before the twentieth day of the month 
general delegation of that power has been given in favor of local government units.  following the end of each calendar quarter or month, as may be provided in the 
respective franchise or pertinent municipal regulation and shall, any provision of 
the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of 
FACTS: 
all taxes and assessments of whatever nature imposed by any national or local 
1.  Certain  municipalities  of  the  Province  of  Laguna,  issued  resolutions  through 
authority on earnings, receipts, income and privilege of generation, distribution 
their  respective  municipal  councils  granting  franchise  in  favor  of  petitioner 
and sale of electric current. 
MERALCO  for  the  supply  of  electric  light,  heat  and  power  within  their concerned 

[Type here]
RATIO: 

1.  Local  governments  do  not  have  the  inherent  power  to  tax  4  except  to  the 
extent  that  such  power  might  be  delegated  to  them  either  by the basic law or by 
statute.  Presently,  under  Article  X  of  the  1987  Constitution,  a  general  delegation 
of that power has been given in favor of local government units. 
2.  The  1991  Code  explicitly  authorizes  provincial  governments,  notwithstanding 
"any  exemption  granted  by  any  law  or  other  special  law,  .  . . (to) impose a tax on 
businesses enjoying a franchise." 
3.  While  the  Court  has, not too infrequently, referred to tax exemptions contained 
in  special  franchises  as  being  in  the  nature  of  contracts  and  a  part  of  the 
inducement  for  carrying  on the franchise, these exemptions, nevertheless, are far 
from  being  strictly  contractual  in  nature.  Contractual  tax  exemptions,  in  the  real 
sense  of  the  term  and  where  the  non-impairment  clause  of  the  Constitution can 
rightly  be  invoked,  are  those  agreed  to  by  the  taxing  authority  in  contracts,  such 
as  those  contained  in  government  bonds  or  debentures,  lawfully  entered  into  by 
them  under  enabling  laws  in  which the government, acting in its private capacity, 
sheds  its  cloak  of  authority  and  waives  its  governmental  immunity.  Truly,  tax 
exemptions  of  this  kind  may  not  be  revoked  without  impairing the obligations of 
contracts.  ​These  contractual  tax  exemptions,  however,  are  not  to  be  confused 
with  tax  exemptions  granted  under  franchises.  A  franchise  partakes  the nature 
of  a  grant  which  is  beyond  the  purview  of  the  non-impairment  clause  of  the 
Constitution. 
4.  Indeed,  Article  XII,  Section  11,  of  the  1987  Constitution,  like  its  precursor 
provisions  in the 1935 and the 1973 Constitutions, is explicit that no franchise for 
the  operation  of  a  public  utility  shall  be  granted  except  under  the  condition  that 
such  privilege shall be subject to amendment, alteration or repeal by Congress as 
and when the common good so requires. 
 

[Type here]
The ordinances are valid since the power of taxation may be delegated to local government units
since they may be permitted to tax subjects which the state has not deemed to tax for more
general purposes. The power of the congress to create LGUs carries with it the power to give
them the authority to tax. The ordinances do not violate the due process clause just because the
said  that  the  taxing  power  may be delegated to municipalities and the like, it 
rate is higher than what it was before. [42] Pepsi v Tanauan 
is  meant  that there may be delegated such measure of power to impose and 
collect  taxes  as  the  legislature  may  deem  expedient.  Thus,  municipalities 
GR No.L-31156 | February 27, 1976 | Due Process | Genoveza 
may be permitted to tax subjects which for reasons of public policy the State 
Petitioner:  PEPSI-COLA  BOTTLING  COMPANY  OF  THE  PHILIPPINES,  INC.|||  has  not  deemed  wise  to  tax  for  more  general  purposes.  This  is  not  to  say 
Respondents:MUNICIPALITY  OF  TANAUAN,  LEYTE,  THE  MUNICIPAL  MAYOR,  though  that  the  constitutional  injunction  against  deprivation  of  property 
ET AL|||   without due process of law may be passed over under the guise of the taxing 
Recit-Ready:    power,  except  when  the  taking of the property is in the lawful exercise of the 
Pepsi-Cola  Bottling  Company  of  the  Philippines,  Inc.,  filed  a  complaint  with  taxing  power,  as  when  (1)  the  tax  is  for  a  public  purpose;  (2)  the  rule  on 
preliminary  injunction  before  the  Court  of  First  Instance  of  Leyte  to  declare  uniformity  of  taxation  is  observed;  (3)  either  the  person  or  property taxed is 
Section  2  of  ​R.A.  No.  2264​,  (known  as  the  ​Local  Autonomy  Act​)  within  the  jurisdiction  of  the  government  levying  the  tax;  and  (4)  in  the 
unconstitutional  as  an  undue  delegation  of  the  taxing  authority  and  declare  assessment  and  collection  of  certain  kinds  of  taxes  notice  and  opportunity 
null  and  void  Municipal  Ordinance  No.  23,  which  levies  and  collects  from soft  for  hearing  are  provided.  Due  process  is  usually  violated  where  the  tax 
drinks  producers  and  manufactures  a  tax  of 1/16 of a centavo for every bottle  imposed  is  for  a  private  as  distinguished  from  a  public  purpose;  a  tax  is 
of  soft  drinks  corked,  and  Municipal  Ordinance  No.  27  which  levies  and  imposed  on  property  outside  the  State,  i.e.,  extra-territorial  taxation;  and 
collects  on  soft  drinks  produced  or  manufactured  within  the  territorial  arbitrary  or  oppressive  methods  are  used  in  assessing and collecting taxes. 
jurisdiction  a  tax  of  one  centavo  on  each  gallon  of  volume  capacity.  The  trial  But,  a  tax  does  not  violate  the  due  process clause, as applied to a particular 
court  dismissed  the  complaint  and  upheld  the  constitutionality  of  Sec.  2  of  taxpayer,  although  the  purpose  of  the tax will result in an injury rather than a 
R.A.  No.  2264  and  declared  Municipal  Ordinances  Nos.  27  valid  and  benefit  to  such  taxpayer.  Due  process  does  not  require  that  the  property 
constitutional.  It  ratiocinated  that  the  power  of  taxation  is  an  essential  and  subject  to  the  tax  or  the amount of tax to be raised should be determined by 
inherent  attribute  of  sovereignty,  belonging  as  a  matter  of  right  to  every  judicial  inquiry,  and  a  notice  and  hearing as to the amount of the tax and the 
independent  government,  without  being  expressly conferred by the people.It is  manner  in  which  it  shall  be  apportioned  are  generally  not  necessary  to  due 
a  power  that  is  purely  legislative  and which the central legislative body cannot  process of law 
delegate  either  to  the  executive  or  judicial  department  of  the  government 
Doctrine​:  ​Due  process  is  usually  violated  where  the  tax  imposed  is  for  a 
without  infringing  upon  the  theory  of  separation  of  powers.  The  exception, 
private  as  distinguished  from  a  public  purpose;  a  tax  is  imposed on property 
however,  lies  in  the  case  of  municipal corporations, to which, said theory does 
outside  the  State,  i.e.,  extra-territorial  taxation;  and  arbitrary  or  oppressive 
not  apply.  Legislative  powers  may  be  delegated  to  local  governments  in 
methods  are  used  in  assessing  and  collecting  taxes.  But,  a  tax  does  not 
respect  of  matters  of  local  concern.  By  necessary  implication,  the  legislative 
violate  the  due  process  clause,  as  applied  to  a  particular  taxpayer,  although 
power  to  create  political  corporations  for  purposes  of  local  self-government 
the  purpose  of  the  tax  will  result  in  an  injury  rather  than  a  benefit  to  such 
carries  with  it  the  power  to  confer  on  such  local  governmental  agencies  the 
taxpayer.  
power  to  tax.  Under  the  New  ​Constitution​,  local  governments  are granted the 
autonomous  authority  to  create  their  own  sources  of  revenue  and  to  levy 
taxes.  Section 5, Article XI provides: "Each local government unit shall have the  FACTS: 
power  to  create  its  sources  of  revenue  and  to  levy  taxes,  subject  to  such 
limitations  as  may  be  provided  by  law." Withal, it cannot be said that Section 2  1.Pepsi  filed  a  complaint  before  the  CFI  to  declare  SEC  2  ofRA  No.  2264  (Local 
of  ​Republic  Act  No.  2264  emanated  from  beyond  the  sphere  of the legislative  Autonomy  Act)  as  unconstitutional  andas  an  undue  delegation  of  taxing 
power to enact and vest in local governments the power of local taxation.  authority.  Pepsi  also  sought  to  have  Ordinances  23  and  27  by  the  Municipality 
ofTanauan be declared as null and void 
The  plenary  nature  of  the  taxing  power  thus  delegated,  contrary  to 
plaintiff-appellant's  pretense,  would  not  suffice  to  invalidate  the  said  law as 
2.  In  a  Stipulation  of  Facts  entered  into  by  the  parties:a.Ordinances  No.  23  and 
confiscatory  and  oppressive.  In  delegating  the  authority,  the  State  is  not 
27  cover  the  same  subject  matter  and  the  imposed  production  tax  are  the 
limited  to  the  exact  measure  of  that  which  is  exercised  by  itself.  When  it  is 
same.b.The  Municipal  Treasurer  is  seeking  to  enforce  compliance  by  Pepsi  of  No. 2264​ emanated from beyond the sphere of the legislative power to enact and 
Ordinance No. 27 alone  vest in local governments the power of local taxation.||| Second Issue: 

3.Ordinance  No.  23  -  levies  and  collects  from  soft  drinks  producers  and  The plaintiff-appellant submits that Ordinance Nos. 23 and 27 constitute double 
manufacturers at tax of 1/16 of a centavo for every bottle of soft drink corked.  taxation, because these two ordinances cover the same subject matter and 
impose practically the same tax rate. The thesis proceeds from its assumption 
4.Ordinance  No.  27  –  levies  and  collects  “on  soft  drinks  produced  or  that both ordinances are valid and legally enforceable. This is not so. As earlier 
manufactured  within  the  territorial  jurisdiction  of  the  municipality  a  tax  of  1  quoted, Ordinance No. 23, which was approved on September 25, 1962, levies or 
centavo on each gallon of volume capacity.  collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16) 
of a centavo for every bottle corked, irrespective of the volume contents of the 
5.Tax  imposed  on  both  Ordinances  No.  23  and  27  is denominated as “municipal  bottle used. When it was discovered that the producer or manufacturer could 
production tax”  increase the volume contents of the bottle and still pay the same tax rate, the 
Municipality of Tanauan enacted Ordinance No. 27, approved on October 28, 
ISSUES:    1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, 
1. Is Section 2, ​Republic Act No. 2264​ an undue delegation of power,  U.S.) of volume capacity. The difference between the two ordinances clearly lies 
confiscatory and oppressive?  in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a 
centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on 
2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose 
each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the 
percentage or specific taxes? 
Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was 
3. Are Ordinances Nos. 23 and 27 unjust and unfair?  intended as a plain substitute for the prior Ordinance No. 23, and operates as a 
repeal of the latter, even without words to that effect.|||  
Ratio:  
Third Issue:  
First Issue: 
The tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume 
The power of taxation is an essential and inherent attribute of sovereignty,  capacity on all soft drinks, produced or manufactured, or an equivalent of 1-1/2 
belonging as a matter of right to every independent government, without being  centavos per case, cannot be considered unjust and unfair. An increase in the 
expressly conferred by the people. It is a power that is purely legislative and  tax alone would not support the claim that the tax is oppressive, unjust and 
which the central legislative body cannot delegate either to the executive or  confiscatory. Municipal corporations are allowed much discretion in determining 
judicial department of the government without infringing upon the theory of  the rates of imposable taxes. This is in line with the constitutional policy of 
separation of powers. The exception, however, lies in the case of municipal  according the widest possible autonomy to local governments in matters of local 
corporations, to which, said theory does not apply. Legislative powers may be  taxation, an aspect that is given expression in the ​Local Tax Code​ (​PD No. 231, 
delegated to local governments in respect of matters of local concern. 7 ​ ​ This is  July 1, 1973​). Unless the amount is so excessive as to be prohibitive, courts will 
sanctioned by immemorial practice. By necessary implication, the legislative  go slow in writing off an ordinance as unreasonable. Reluctance should not 
power to create political corporations for purposes of local self-government  deter compliance with an ordinance such as Ordinance No. 27 if the purpose of 
carries with it the power to confer on such local governmental agencies the  the law to further strengthen local autonomy were to be realized.  
power to tax. Under the New C ​ onstitution​, local governments are granted the 
autonomous authority to create their own sources of revenue and to levy taxes. 
Section 5, Article XI provides: "Each local government unit shall have the power to 
create its sources of revenue and to levy taxes, subject to such limitations as 
may be provided by law." Withal, it cannot be said that Section 2 of R ​ epublic Act 
The custom regulations were struck down for not being published and circulated as this violates the
due process clause. The regulations were substantive and not merely interpretative.

Depending  on  these  factors,  wheat  would  be  further  classified  as  food 
[43] COC v Hypermix Feeds Corporation  grade or feed grade 
2. The tariff rates are as follows: 
GR No. 179579 | 2012 February 1 | Tax - Due Process | Vince  a. Food Grade = 3% 
Petitioner:   b. Feed Grade = 7% 
Respondents:   3. Nutrimix filed a petition for Declaratory Relief before the RTC  
  4. It argued the following 
Recit-Ready:    a. The  regulation  was  issued  without  following  provisions  of  the 
  Admin  Code  such  as  public  participation,  prior  notice,  and 
The COC issued a regulation imposing a tariff on wheat depending on factors such  publication (​important) 
as the importer, country of origin, and port of discharge. Food grade wheat has a  b. Violation of the equal protection clause (Not as important) 
rate of 3%. Feed Grade wheat has a rate of 7%.  5. The RTC granted the petition and declared the regulation invalid 
  6. Hence, this case 
Nutrimix assails this regulation, arguing that it does not comply with the 
ISSUES:   
requirements said in the Administrative Code.  
 
 
W/N the COC regulation is valid. ​NO. 
The court ruled that the regulation is ​invalid​. The administrative code requires that 
rules that affect substantive rights of citizens must be published in at least 2 
RATIO: 
NOGCs, notices thereof be circulated to interested parties, and a copy thereof 
 
submitted to the UP Law Center. The importance of this is to give the interested 
The Regulation is Invalid for 
parties a chance to be heard, for it would be the “height of injustice to punish or 
Not following the provisions of 
otherwise burden a citizen for a transgression of a law which he had no notice 
The Administrative Code 
whatsoever, not even constructive.” 
 
 
The admin code requires that every agency shall file with the UP Law centers 
Doctrine: 
copies of rules adopted by it. It also requires the agency to publish and circulate 
 
notices of the proposed rules to interested parties. With regard to publication, it 
When  an  administrative  rule  is  merely  interpretative  in  nature,  its  applicability 
must be published in at least 2 NOGCs before the first hearing.  
needs nothing further than its bare issuance, for it gives no real consequence more 
 
than  what  the  law  itself  has  already  prescribed.  When,  on  the  other  hand,  the 
When an administrative rule is merely interpretive, the applicability needs only its 
administrative  rule  goes  beyond  merely  providing  for the means that can facilitate 
bare issuance. ​On the other hand​, when an administrative rule goes beyond and 
or  render  least  cumbersome  the  implementation  of  the  law  but  ​substantially 
increases the burden on those governed, t​ he concerned agency must at least 
increases  the  burden  of  thhose  governed,  it  behooves  the  agency  to  accord  at 
afford those affected a chance to be heard and informed before the rule is given 
least  to  those  directly  affected  a  chance  to  be  heard,  and  thereafter  to  be  duly 
the force and effect of law 
informed, before that new issuance is given the force and effect of law 
 
 
Citing ​Tanada v Tuvera 
It is important to give notice to the public because it would be the height of 
FACTS:  injustice to punish or burden citizens for a violation of law which they had no 
notice of. Without publication, the public has no knowledge that a law has been 
1. The  Commissioner  of  Customs  issued  a  Memorandum  classifying  passed.  
wheat  according  to  importer,  country  of  origin  and  port  of  discharge.   
Because the COC failed to follow the requirements in the Admin Code, the 
regulation ​must be struck down  
 
 

[44] Sison v. Ancheta
G.R. No. L-59431| July 25, 1984 | Equal Protection | Sha
Petitioner: ANTERO M. SISON, JR.
Respondents: RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal
Revenue; ROMULO VILLA, Deputy Commissioner, Bureau of Internal Revenue;
TOMAS TOLEDO Deputy Commissioner, Bureau of Internal Revenue; MANUEL
ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on
Audit, and CESAR E. A. VIRATA, Minister of Finance
difference in the treatment between net income and
Recit-Ready: compensation income
Petitioner assails Sec. 1 of BP Blg. 135 as it is a transgression of equal protection,
due process and the rule on uniformity in taxation (basically he was questioning why
there are different treatments for compensation income and net income).
The issue is WON it is a valid exercise of the State’s Power to tax. (Yes)
What misled petitioner is his failure to take into consideration the distinction
between a tax rate and a tax base. Taxpayers may be classified into different
categories. It is enough that the classification must rest upon substantial
distinctions. Taxpayers who are recipients of compensation income are set apart
as a class. As there is practically no overhead expense, these taxpayers are not
entitled to make deductions for income tax purposes. On the other hand, in the
case of professionals in the practice of their calling and businessmen, there is no
uniformity in the costs or expenses necessary to produce their income. It would not
be just then to disregard the disparities by giving all of them zero deduction and
indiscriminately impose on all alike the same tax rates on the basis of gross
income.
Doctrine: Equality and uniformity in taxation means that all taxable articles or kinds
of property of the same class shall be taxed at the same rate. The taxing power has
the authority to make reasonable and natural classifications for purposes of
taxation.
Higher rates are imposed on income arising from the practice of a profession as
FACTS: compared to those imposed on fixed income or salaried individual taxpayers.
1. Petitioner as taxpayer alleges that Sec. 1 of BP Blg. 135 discriminates
against him by the imposition of higher rates of tax on his income arising
from the exercise of his profession vis-à-vis those which are imposed
upon fixed income or salaried individual taxpayers.
a. For petitioner, there is a transgression of both the equal
protection and due process clauses of the Constitution as
well as of the rule requiring uniformity in taxation.
2. Section I of Batas Pambansa Blg. 135
"Sec. 21. Rates of tax on citizens or residents. –
(a) On taxable compensation income
XXXX
Not over P2,500 0%
Over P2,500 but not over P5,000 1%
Over P5,000 but not over P10,000 P25 + 3% of excess over P5,000
Over P10,000 but not over P20,000 P175 + 7% of excess over P10,000
Over P20,000 but not over P40,000 P875 + 11% of excess over P20,000
Over P40,000 but not over P60,000 P3,075 + 15% of excess over P40,000
Over P60,000 but not over P100,000 P6,075 + 19% of excess over P60,000
Over P100,000 but not over P250,000 P13,657 + 24% of excess over P100,000
Over P250,000 but not over P500,000 P49,675 + 29% of excess over P250,000
Over P500,000 P122,175 + 35% of excess over P500,000
(b) On taxable net income.
XXXX
Not over P10,000 5%
Over P10,000 but not over P30,000 P500 + 15% of excess over P10,000
Over P30,000 but not over P150,000 P3,500 + 30% of excess over P30,000
Over P150,000 but not over P500,000 P39,500 + 45% of excess over P150,000
Over P500,000 P197,000 + 60% of excess over P500,000
XXXX”
ISSUES: WON BP blg. 135 is a valid exercise of the State’s power to tax
(YES, it does not violate equal protection)
RATIO: Equal protection- It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different, both in the
privileges conferred and the liabilities imposed. Favoritism and undue preference
cannot be allowed. For the principle is that equal protection and security shall be
given to every person under circumstances which if not identical are analogous. If
law be looked upon in terms of burden or charges, those that fall within a
class should be treated in the same fashion, whatever restrictions cast on
some in the group equally binding on the rest." That same formulation applies
as well to taxation measures. In Lutz V. Araneta, this Court held that “at any rate,
it is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that 'inequalities which result from
a singling out of one particular class for taxation, or exemption infringe no
constitutional limitation.”
Uniformity- This requirement is met when the tax "operates with the same force
and effect in every place where the subject may be found XXXX The rule of
uniformity does not call for perfect uniformity or perfect equality, because this is
hardly attainable." (Philippine Trust Company v. Yatco) Moreover, the SC held:
"Equality and uniformity in taxation means that all taxable articles or kinds
of property of the same class shall be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications for
purposes of taxation.
Due process- It is undoubted that the due process clause may be invoked where
a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious
example is where it can be shown to amount to the confiscation of property. That
would be a clear abuse of power. It has also been held that where the assailed tax
measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in
case of a retroactive statute is so harsh and unreasonable, it is subject to attack
on due process grounds.
Petitioner failed to consider the distinction between a tax rate and tax
What misled petitioner is his failure to take into consideration the distinction base.
between a tax rate and a tax base. There is no legal objection to a broader tax
base or taxable income by eliminating all deductible items and at the same time
reducing the applicable tax rate. Taxpayers may be classified into different
categories. It is enough that the classification must rest upon substantial
distinctions that make real differences. In the case of the gross income taxation
embodied in BP Blg. 135, the discernible basis of classification is the susceptibility
of the income to the application of generalized rules removing all deductible items Taxpayers who are recipients of compensation income have no overhead expense, hence
for all taxpayers within the class and fixing a set of reduced tax rates to be applied they are not entitled to make deductions for income tax purposes because they are in the
to all of them. Taxpayers who are recipients of compensation income are set same situation, more or less.
apart as a class. As there is practically no overhead expense, these
On the other hand, those professionals in their practice have no uniformity in the costs or
taxpayers are e not entitled to make deductions for income tax purposes
expenses necessary to produce their income.
because they are in the same situation more or less. On the other hand, in
the case of professionals in the practice of their calling and businessmen,
there is no uniformity in the costs or expenses necessary to produce their
income. It would not be just then to disregard the disparities by giving all of them
zero deduction and indiscriminately impose on all alike the same tax rates on the
basis of gross income.

There is ample justification then for the Batasang Pambansa to adopt the gross
system of income taxation to compensation income, while continuing the system
of net income taxation as regards professional and business income.
 The imposition of taxes and requirement of a license is inapplicable to ABS
since it impairs the free exercise of religion clause guaranteed by the BoR.
[45] AMERICAN BIBLE SOCIETY v. CITY OF MANILA
GR No. L-9637 | April 30, 1957 | Constitutional Provisions | Mart
Petitioner: AMERICAN BIBLE SOCIETY
Respondents: CITY OF MANILA
Recit-Ready: Petitioner ABS is engaged in the selling of bibles. It is registered
in the City of Manila. The city classified it as a dealer in general merchandise
without securing the necessary Mayor’s permit and municipal license in violation
of the City’s ordinances, forcing it to pay penalties. ABS paid under protest,
giving notice that a suit will be filed. During the hearing, ABS proved that it was
never required to pay any municipal license fee or tax before the war. The lower
court dismissed the case. Hence, this case which was certified by the CA to the
Supreme Court. IS ABS COVERED BY THE ORDINANCES – NO. The Bill of
Rights guarantees the free exercise of religion, and the free exercise and
enjoyment of religious profession and worship. Any restraint can only be justified
on the ground that there is a clear and present danger of any substantive evil
which the State has the right to prevent. In another case, the court held that “It
is one thing to impose a tax on the income or property of a preacher. It is quite
another to exact a tax from him for the privilege of delivering a sermon. The
power to tax the exercise of a privilege is the power to control or suppress its
enjoyment.” Further, the Tax Code at the time exempts from tax religious
associations or corporations. Thus, the Court held that the license fees under
the ordinances, as amended, cannot be applied to appellant, for in doing so it
would impair its free exercise and enjoyment of its religious profession and
worship as well as its rights of dissemination of religious beliefs.
Doctrine: The Bill of Rights guarantees the free exercise of religion, and
the free exercise and enjoyment of religious profession and worship. Any
restraint can only be justified on the ground that there is a clear and
present danger of any substantive evil which the State has the right to
prevent.
FACTS:
1. The American Bible Society (ABS) is a foreign, non-stock, non-profit,
religious, missionary corporation duly registered and doing business
in the Philippines through its Philippine Agency in Manila, with its
principal office located in the same city. It has been distributing and
selling bibles and/or gospel portions thereof.
allegedly conducting general merchandise
without permit.
2. The City Treasurer of Manila informed ABS that it was conducting the
business of general merchandise without providing itself with the
necessary Mayor’s permit and municipal license, in violation of
Ordinance No. 3000, 2529, 3028, and 3364.
3. ABS protested, but the City Treasurer demanded payment, forcing
ABS to pay under protest, and at the same time giving notice to the
City Treasurer that suit would be taken in court.
4. When the case was set for hearing, ABS proved that it was never
required to pay any municipal license fee or tax before the war, nor
does the ABS in the United States pay any license fee or sales tax for
the sale of bibles therein. The lower court dismissed the case. Hence
this petition, which the CA certified to the Supreme Court
ISSUES: W/N THE PROVISIONS OF SAID ORDINANCES ARE
APPLICABLE OR NOT TO ABS – NO.
RATIO:
1. ABS IS NOT COVERED BY THE ORDINANCES BECAUSE OF THE
BILL OF RIGHTS.
Section 1, subsection (7) of Article III of the Constitution of the Republic of
the Philippines, provides that:
(7) No law shall be made respecting an establishment of religion, or
prohibiting the free exercise thereof, and the free exercise and enjoyment of
religious profession and worship, without discrimination or preference, shall
forever be allowed. No religion test shall be required for the exercise of civil
or political rights.
The records show that the City Treasurer required ABS to secure a mayor’s
permit in connection to its business of selling bibles, and to pay permit dues
required by Ordinance No. 3000, which provides that “It shall be unlawful for
any person or entity to conduct or engage in any of the businesses, trades, or
occupations enumerated in Section 3 of this Ordinance or other businesses,
trades, or occupations for which a permit is required WITHOUT FIRST
HAVING OBTAINED A PERMIT THEREFOR FROM THE MAYOR AND THE
NECESSARY LICENSE FROM THE CITY TREASURER.
The business of ABS is not mentioned in Section 3. But said section contains
item No. 79, which covers all other businesses, trades, or occupations not
mentioned, except those the City is not empowered to license or Tax.
As to the license fees, Ordinance No. 2529, as amended by Ordinances No.
2779, 2821, and 3028 prescribe that “there shall be paid to the City Treasurer
for engaging in any of the businesses or occupations below enumerated,
quarterly, license fees based on gross sales or receipts realized during the
preceding quarter in accordance with the rates herein prescribed” and covers
retailers in general merchandise. It is not directly imposed upon any religious
institution but only upon dealers of general merchandise, which allegedly cover
the business of selling of bibles.
ABS contends that the Ordinance is unconstitutional because it restrains the
free exercise and enjoyment of the religious profession and worship of ABS.
The Constitution guarantees the freedom of religious profession and worship.
It carries with it the right to disseminate religious information. Any restraint can
only be justified on the ground that there is a clear and present danger of any
substantive evil which the State has the right to prevent. In this case, the
license fee is imposed for ABS’ distribution and sale of bibles.
In Murdock v. Pennsylvania, the court held that an ordinance requiring that a
license be obtained before a person could canvass or solicit orders for goods,
paintings, pictures, wares or merchandise cannot be made to apply to
members of Jehovah's Witnesses who went about from door to door
distributing literature and soliciting people to "purchase" certain religious books
and pamphlets, all published by the Watch Tower Bible & Tract Society, saying
that “We have here something quite different, for example, from a tax on the
income of one who engages in religious activities or a tax on property used or
employed in connection with activities. It is one thing to impose a tax on the
income or property of a preacher. It is quite another to exact a tax from him for
the privilege of delivering a sermon. The tax imposed by the City of Jeannette
is a flat license tax, payment of which is a condition of the exercise of these
constitutional privileges. The power to tax the exercise of a privilege is the
power to control or suppress its enjoyment. Those who can tax the exercise of
this religious practice can make its exercise so costly as to deprive it of the
resources necessary for its maintenance. Those who can tax the privilege of
engaging in this form of missionary evangelism can close all its doors to all
those who do not have a full purse.” And concluding that “When we balance
the constitutional rights of owners of property against those of the people to
enjoy freedom of press and religion, as we must here, we remain mindful of
the fact that the latter occupy a preferred position.”
Further, The Tax Code at the time exempts Corporations or associations
organized and operated exclusively for religious purposes. Provided that
income from any activity conducted for profit will be taxed.
It may be true that in the case at bar the price asked for the bibles and other
religious pamphlets was in some instances a little bit higher than the actual
cost of the same but this cannot mean that appellant was engaged in the
business or occupation of selling said "merchandise" for profit. For this reason
We believe that the provisions of City of Manila Ordinance No. 2529, as
amended, cannot be applied to appellant, for in doing so it would impair its free
exercise and enjoyment of its religious profession and worship as well as its
rights of dissemination of religious beliefs.
With respect to Ordinance No. 3000, as amended, which requires the
obtention the Mayor's permit before any person can engage in any of the
businesses, trades or occupations enumerated therein, We do not find that it
imposes any charge upon the enjoyment of a right granted by the Constitution,
nor tax the exercise of religious practices, citing Coleman v. Griffin, which said
that “An ordinance declaring a nuisance the selling of literature of any kind
without first obtaining permission from the city manager, does not deprive
defendant in his constitutional right of the free exercise and enjoyment of
religious profession and worship.
It seems clear, therefore, that Ordinance No. 3000 cannot be considered
unconstitutional, even if applied to plaintiff Society. But as Ordinance No. 2529
of the City of Manila, as amended, is not applicable to plaintiff-appellant and
defendant-appellee is powerless to license or tax the business of plaintiff
Society involved herein for, as stated before, it would impair plaintiff's right to
the free exercise and enjoyment of its religious profession and worship, as well
as its rights of dissemination of religious beliefs, We find that Ordinance No.
3000, as amended is also inapplicable to said business, trade or occupation
of the plaintiff.
 [46] CIR v. Central Luzon Drug Corporation purposes and from their gross sales for value-added tax or other
GR No. 159647 | April 15, 2005 | Payment of Just Compensation | Menghrajani percentage tax purposes"
3. CLDC filed its annual Income Tax Return for taxable year 1996 declaring
net losses.
Petitioner: COMMISSIONER OF INTERNAL REVENUE
4. CLDC then filed with petitioner a claim for tax refund/credit of ₱
904,769.00 allegedly arising from the 20% sales discount. Unable to
Respondents: CENTRAL LUZON DRUG CORPORATION [CLDC]
obtain affirmative response from the CIR, CLDC elevated its claim to the
Court of Tax Appeals.
Recit-Ready: CLDC is a private company that is engaged in selling medicines.
5. The CTA upon reconsideration of an initial dismissal of the case, ordered
Pursuant to RA 7432, CLDC granted 20% discount to all senior citizen customers.
the CIR to issue a Tax Credit Certificate in favor of CLDC citing the CA
In one of the years they reported a loss, CLDC claimed for a tax credit to which the
decision in a similar case that said “Sec. 229 of RA 7432 deals
CIR refuted such claim because of a revenue regulation that provided for tax
exclusively with illegally collected or erroneously paid taxes but that
credits as a subtraction from gross income instead of its use in the business
there are other situations which may warrant a tax credit/refund.
sense, which is a deduction from the tax due. The CIR also opined that the tax
6. The CA affirmed the CTA’s decision reasoning that RA 7432 required
credit may not be claimed when an entity incurs a net loss. The SC ruled that the
neither a tax liability nor a payment of taxes by private establishments
revenue regulation by the BIR is void for it instead defines a tax deduction but RA
prior to the availment of a tax credit. Moreover, such credit is not
7432 contemplates a tax credit. The tax credits may be claimed despite the net
tantamount to an unintended benefit from the law, but rather a just
loss incurred by a corporation but it cannot be availed of during a period of net
compensation for the taking of private property for public use.
loss. Further, the tax credits are deemed to be a form of just compensation for the
taking of private property for public use or subsidy.
ISSUES:
1. Whether or not respondent, despite incurring a net loss, may still claim
Doctrine:
the 20% sales discount as a tax credit – YES.
The 20 percent discount required by the law to be given to senior citizens is a tax
2. Whether the tax credit serves as just compensation for the taking of
credit, not merely a tax deduction from the gross income or gross sale of the
private property for public use - YES.
establishment concerned. A tax credit is used by a private establishment only after
the tax has been computed; a tax deduction, before the tax is computed. RA 7432
RATIO:
unconditionally grants a tax credit to all covered entities. Thus, the provisions of
1. CLDC may still claim the tax credit despite it incurring a net loss for the
the revenue regulation that withdraw or modify such grant are void. Basic is the
year.
rule that administrative regulations cannot amend or revoke the law.
a. Sec. 4a of RA 7432 is a tax credit.
i. The law grants to senior citizens the privilege of
The permanent reduction in their total revenues is a forced subsidy corresponding
obtaining a 20% discount on their purchase of medicine
to the taking of private property for public use or benefit. As a result of the 20 from any private establishment in the country. The
percent discount imposed by RA 7432, respondent becomes entitled to a just latter may then claim the cost of the discount as a tax
compensation. This term refers not only to the issuance of a tax credit certificate credit. Such credit can be claimed even if the
indicating the correct amount of the discounts given, but also to the promptness in establishment operates at a loss.
its release. ii. Tax credit - refers to an amount that is “subtracted
directly from one’s total tax liability.” It is an “allowance
against the tax itself” or “a deduction from what is
FACTS: owed” by a taxpayer to the government.
1. CLDC operated 6 drugstores in the name of “Mercury Drug.” From b. Difference between tax credit and tax deduction
January to December 1996 respondent granted 20% sales discount to i. Tax deduction is a subtraction “from income for tax
qualified senior citizens on their purchases of medicines pursuant to RA purposes,” or an amount that is “allowed by law to
7432 for a total of ₱ 904,769. reduce income prior to the application of the tax rate to
2. The BIR, on the other hand, provided for guidelines on claiming tax compute the amount of tax which is due
credits from RA 7432. One of the guidelines defined tax credits as “the ii. A tax credit reduces the tax due, tax deduction reduces
amount representing the 20 percent discount that "shall be deducted by the income subject to tax in order to arrive at the
the said establishments from their gross income for income tax taxable income
 iii. A tax credit is used to reduce directly the tax that is indeed become a most effective tool to realize social
due, there ought to be a tax liability before the tax credit justice, public welfare, and the equitable distribution of wealth.
can be applied e. A private establishment that merely breaks even - without the
iv. Without that liability, any tax credit application will be
discounts yet - - will surely start to incur losses because of such
useless. There will be no reason for deducting the latter
when there is, to begin with, no existing obligation to discounts. The same effect is expected if its mark-up is less
the government than 20 percent, and if all its sales come from retail purchases
c. Tax liability is required for tax credit by senior citizens. It will also be grossly unfair to an
i. If a net loss is reported by, and no other taxes are establishment if the discounts will be treated merely as
currently due from, a business establishment, there will deductions from either its gross income or its gross sales.
obviously be no tax liability against which any tax credit f. Operating at a loss through no fault of its own, it will realize that
can be applied.
the tax credit limitation under RR 2-94 is inutile, if not improper.
ii. For the establishment to choose the immediate
availment of a tax credit will be premature and Worse, profit-generating businesses will be put in a better
impracticable. position if they avail themselves of tax credits denied those that
d. The existence of a tax credit or its grant by law is not the same are losing, because no taxes are due from the latter.
as the availment or use of such credit
i. While the grant is mandatory, the availment or use is
not.
ii. The existence or grant solely of such credit, neither a
tax liability nor a prior tax payment is needed. The Tax
Code is in fact replete with provisions granting or
allowing tax credits, even though no taxes have been
previously paid.
2. The tax credit benefit deemed just compensation
a. The permanent reduction in their total revenues is a forced
subsidy corresponding to the taking of private property
for public use or benefit.
b. As a result of the 20 percent discount imposed by RA 7432,
respondent becomes entitled to a just compensation. This term
refers not only to the issuance of a tax credit certificate
indicating the correct amount of the discounts given, but also to
the promptness in its release.
c. Equivalent to the payment of property taken by the State, such
issuance - - when not done within a reasonable time from the
grant of the discounts - - cannot be considered as just
compensation. In effect, respondent is made to suffer the
consequences of being immediately deprived of its revenues
while awaiting actual receipt, through the certificate, of the
equivalent amount it needs to cope with the reduction in its
revenues.
d. Taxation power can also be used as an implement for the
exercise of the power of eminent domain. Tax measures are but
"enforced contributions exacted on pain of penal sanctions" and
"clearly imposed for a public purpose." The power to tax has
[47] COMMISSIONER OF INTERNAL REVENUE v. CENTRAL LUZON DRUG
CORPORATION
GR No. 159610| June 12, 2008 |Tax Deduction | Sam
Petitioner: ​Commissioner of Internal Revenue
Respondents: ​Central Luzon Drug Corporation
Recit-Ready:
Central Luzon Drug Corp., a domestic corporation engaged in the retail of
medicines and other pharmaceutical products under the business name of
“Mercury Drug”, filed with the CIR a claim for refund or credit of overpaid income
tax for taxable year 1997 in the amount of P2,660,829.00 since the sales discount
it granted to senior citizens totaled to P2,798,508.00.
The issue in this case is W/N the 20% discount to senior citizens granted by the
Central Luzon under the Expanded Senior Citizens Act of 2003 is a tax credit? The
Court ruled that RA 9257 specifically provides that the discount should be treated
as tax deduction from gross income and not anymore a tax credit as was granted
in RA 7432 (old law). However, since the contested taxable year was in 1997 the
old law, RA 7432 which considers the discounts as tax credit, should apply
because RA 9257 only became effective on March 21, 2004.
Doctrine:
RA 9257 provides that the establishments may claim discounts granted under (a)
The grant of 20% discount from all establishments relative to the purchase of
medicines in all establishments for the exclusive use of enjoyment of senior citizens as
tax deduction​ based on the net cost of the goods sold or service rendered
4. On 19 March 1999, respondent filed with the CIR a claim for refund or
credit of overpaid income tax for taxable year 1997 in the amount of
P2,660,829.00.
ISSUES:
1. W/N the 20% discount to senior citizens granted by the Central Luzon
under the Expanded Senior Citizens Act of 2003 is a tax credit? ​[NO]
RATIO:
1. The Court ruled that the senior citizen’s discount is now treated as a tax
deduction.
2. RA 9257 amended RA 7432. It provides that the establishments may
claim discounts granted under (a)1, (f), (g) and (h) as ​tax deduction
based on the net cost of the goods sold or service rendered: Provided,
that the cost of the discount shall be allowed as deduction from gross
income for the same taxable year that the discount is granted.
3. RA 9257specifically provides that the discount should be treated as tax
deduction from gross income. However, since the contested taxable
year was in 1997 the old law, RA 7432 which considers the discounts as
tax credit should apply because RA 9257 only became effective on
March 21, 2004.

FACTS:

1. Central Luzon Drug Corp. is a domestic corporation engaged in the retail

of medicines and other pharmaceutical products under the business
name of “Mercury Drug”.

2. Pursuant to the provisions of RA 7432 and Revenue Regulations No.

(RR) 2-947 issued by the BIR, respondent granted 20% sales discount
to qualified senior citizens on their purchases of medicines covering the
calendar year 1997. The sales discount granted to senior citizens totaled
P2,798,508.00.

3. On 15 April 1998, respondent filed its 1997 Corporate Annual Income 1

(a) The grant of 20% discount from all establishments relative to the utilization of services
Tax Return reflecting an income tax liability due to net loss incurred from in hotels and similar lodging establishments, restaurants, and recreation centers and
business operations of P2,405,140.00. for purchase of medicines in all establishments for the exclusive use of enjoyment of
senior citizens, including funeral and burial services for the death of senior citizens
 The  LOI  expressly  provided  that  the  levy  be  imposed  to  benefit  PPI,  a  private 
[48] PLANTERS PRODUCTS, INC. v. FERTIPHIL CORP. 
company.  The  RTC  and  the  CA  held  that  the  levies  paid  under  the  LOI  were 
GR No. 166006 | Mar 14, 2008 | Invalid Taxation | Lii  directly  remitted  and  deposited  by  FPA  to  Far  East Bank and Trust Company, the 
depositary  bank  of  PPI.  This  proves  that PPI benefited from the LOI. The tax was 
Petitioner: Planters Products, Inc.  used  to  pay  the  corporated  debts  of  PPI.

Even  if the LOI was enacted under the 
Respondents: Fertiphil Corp.   police  power  of  the  State,  it  would  still  be  invalid  for  failing  to  comply  with  the 
  test  of  "lawful  subjects"  and  "lawful  means".  Jurisprudence  states  the  test  as 
Recit-Ready:    follows:  (1)  the  interest  of  the  public  generally,  as  distinguished  from  those  of 
President  Ferdinand  Marcos  issued  LOI  No.  1465  which  provided  for  the  particular  class,  requires  its  exercise;  and  (2)  the  means  employed  are 
imposition  of  a  capital  recovery  component  (CRC)  on  the  domestic  sale  of  all  reasonably  necessary  for  the  accomplishment  of  the  purpose  and  not  unduly 
grades of fertilizers in the Philippines.  oppressive  upon  individuals.

The  general  rule  is  that  an  unconstitutional  law is 
  void.  It produces no rights, imposes no duties and affords no protection. It has no 
Pursuant  to  the  LOI,  Fertiphil  paid  P10  for  every  bag  of  fertilizer  it  sold  in  the  legal  effect.  It  is  inoperative  as  if  it  has  not  been  passed.  Being  void, Fertiphil is 
domestic  market  to  the  Fertilizer  and  Pesticide  Authority  (FPA).  FPA  then  not required to pay the levy. All levies paid should be refunded in accordance with 
remitted  the  amount  collected  to  the  Far  East  Bank  and  Trust  Company,  the  the  general  civil  code  principle  against  unjust  enrichment.

The  doctrine  of 
depositary  bank  of  PPI.  Fertiphil  paid  P6,689,144  to  FPA  from  July  8,  1985  to  operative  fact,  as  an  exception  to  the  general  rule,  only  applies  as  a  matter  of 
January 24, 1986.   equity  and  fair  play.  It  nullifes  the  effects  of  an  unconstitutional  law  by 
  recognizing  that  the  existence  of  a  statute  prior  to  a  determination  of 
After  the  1986  Edsa  Revolution,  FPA  voluntarily  stopped  the  imposition  of  the  unconstitutionality  is  an  operative  fact  and  may  have  consequences  which 
P10  levy.  Fertiphil  demanded  from  PPI  a  refund  of the amounts it paid under LOI  cannot always be ignored.
 
No. 1465, but PPI refused to accede to the demand.   Doctrine: 
  A tax imposed not for a public purpose is unconstitutional. 
The issues of the case are: 
1. Whether or not LOI 1465 constitutes a valid legislation pursuant to the exercise 
of taxation and police power for public purposes.  FACTS: 
2.  Whether  or  not  the  amount  collected  under  the  CRC can be refunded by virtue 
President  Ferdinand  Marcos  issued  LOI  No.  1465  which  provided  for  the 
of the principle of “operative fact.”  
imposition  of  a  capital  recovery  component  (CRC)  on  the  domestic  sale  of  all 
  grades of fertilizers in the Philippines. 
The  P10  levy  under  LOI  No.  1465  is  an  exercise  of  the  power  of  taxation. Police 
power  is  the  power  of  the  State  to  enact  legislation  that  may  interfere  with  Pursuant  to  the  LOI,  Fertiphil  paid  P10  for  every  bag  of  fertilizer  it  sold  in  the 
personal  liberty  or  property  in  order  to  promote  the  general  welfare,  while  the  domestic  market  to  the  Fertilizer  and  Pesticide  Authority  (FPA).  FPA  then 
power  of  taxation  is  the  power  to  levy  taxes  to  be  used  for  public  purpose.  The  remitted  the  amount  collected  to  the  Far  East  Bank  and  Trust  Company,  the 
main  purpose  of  police  power  is  the  regulation  of  a  behavior  or  conduct,  while  depositary  bank  of  PPI.  Fertiphil  paid  P6,689,144  to  FPA  from  July  8,  1985  to 
taxation is revenue generation.   January 24, 1986.  
 
After  the  1986  Edsa  Revolution,  FPA  voluntarily  stopped  the  imposition  of  the 
The  imposition  of  the  levy  was  an  exercise  by  the State of its taxation power. An 
P10 levy. Fertiphil demanded from PPI a refund of the amounts it paid under LOI 
inherent  limitation  on  the  power  of  taxation  is public purpose. Taxes are exacted  No. 1465, but PPI refused to accede to the demand.  
only  for  a  public  purpose.  They  cannot  be used for purely private purposes or for 
the  exclusive  benefit  of  private  persons.  The  power  to  tax  exists  for  the  general   
welfare;  hence,  implicit  in  its  power  is  the  limitation  that  it  should  be  used  only 
for a public purpose.
  ISSUES:   
 subjects"  and  "lawful  means".  Jurisprudence  states  the  test  as  follows:  (1)  the 
1.  Whether  or  not  LOI  1465  constitutes  a  valid  legislation  pursuant  to  the  interest  of  the  public  generally,  as  distinguished  from  those of particular class, 
exercise of taxation and police power for public purposes.  requires  its  exercise;  and  (2) the means employed are reasonably necessary for 
the  accomplishment  of  the  purpose  and  not  unduly  oppressive  upon 
2.  Whether or not the amount collected under the CRC can be refunded by virtue  individuals.

The general rule is that an unconstitutional law is void. It produces 
of the principle of “operative fact.” 
no  rights,  imposes  no  duties  and  affords  no  protection.  It has no legal effect. It 
  is inoperative as if it has not been passed. Being void, Fertiphil is not required to 
pay  the  levy.  All  levies  paid  should  be  refunded  in  accordance  with the general 
RATIO:  civil  code  principle  against  unjust  enrichment.

The  doctrine  of  operative  fact, 
  as  an  exception  to  the  general  rule,  only  applies  as  a  matter  of  equity  and  fair 
The  P10  levy  under  LOI  No.  1465 is an exercise of the power of taxation. Police  play.  It  nullifies  the  effects  of  an  unconstitutional  law  by  recognizing  that  the 
power and the power of taxation are inherent powers of the State. These powers  existence  of  a  statute  prior  to  a  determination  of  unconstitutionality  is  an 
are distinct and have different tests for validity. Police power is the power of the  operative  fact  and  may  have  consequences  which  cannot  always  be 
State  to  enact  legislation  that  may  interfere  with  personal  liberty  or property in  ignored.

The  doctrine  is  applicable  when  a  declaration  of  unconstitutionality 
order to promote the general welfare, while the power of taxation is the power to  will  impose  an  undue  burden  on  those  who  have  relied on the invalid law. Here, 
levy  taxes  to  be  used  for  public  purpose.  The  main  purpose  of  police  power  is  there  is  nothing  iniquitous  in  ordering  PPI  to  refund  the  amounts  paid  by 
the  regulation  of  a  behavior  or  conduct,  while  taxation  is  revenue  generation.  Fertiphil under LOI No. 1465. In fact, it unduly benefited from the levy. 
The  "lawful subjects" and "lawful means" tests are used to determine the validity 
of  a  law  enacted  under  the  police  power.  The  power  of  taxation,  on  the  other 
hand, is circumscribed by inherent and constitutional limitations. 
 
The  imposition  of  the  levy  was  an  exercise  by  the  State  of  its  taxation  power. 
While  the  power  of  taxation  can  be  used  as  an  implement  of  police  power,  the 
primary  purpose  of  the  levy  is  revenue  generation.  If  the  purpose  is  primarily 
revenue,  or  if  revenue  is, at least, one of the real and substantial purposes, then 
the exaction is properly called a tax.  
 
An  inherent  limitation  on  the  power  of  taxation  is  public  purpose.  Taxes  are 
exacted  only  for  a  public  purpose.  They  cannot  be  used  for  purely  private 
purposes  or  for the exclusive benefit of private persons. The power to tax exists 
for  the  general  welfare;  hence,  implicit  in  its  power  is  the  limitation  that  it 
should be used only for a public purpose.
 
The  LOI  expressly  provided  that  the  levy  be  imposed  to  benefit  PPI,  a  private 
company.  The  LOI  provides  that  the  imposition  of  the  P10 levy was conditional 
and  dependent  upon  PPI  becoming  ‫ﰆ‬nancially  "viable."  This  suggests  that  the 
levy  was  actually  imposed  to  benefit  PPI.  the  RTC  and  the  CA  held  that  the 
levies  paid  under  the  LOI  were  directly  remitted  and  deposited  by  FPA  to  Far 
East  Bank  and  Trust  Company,  the  depositary bank of PPI. This proves that PPI 
benefited  from  the  LOI.  The  tax  was  used  to  pay  the  corporated  debts  of  PPI. 
This  also  proves that the main purpose of the law was to give undue benefit and 
advantage  to  PPI.  

Even  if  the  LOI  was  enacted  under  the  police  power  of the 
State,  it  would  still  be  invalid  for  failing  to  comply  with  the  test  of  "lawful 
 CITIZENS' ALLIANCE FOR CONSUMER PROTECTION
vs ENERGY REGULATORY BOARD
G.R. Nos. 78888-90. | June 23, 1988 | Trust Fund | Wayne Novera
Petitioner: CITIZENS' ALLIANCE FOR CONSUMER PROTECTION,
Respondents: ERB
Recit-Ready: Caltex filed with ERB an application to provisionally increase the prices
of its petroleum products. Petitioner Valmonte, suing in his capacity as taxpayer and
citizen sought to enjoin ERB from accepting the application of Caltex. However, ERB still
issued a resolution despite the filing of the case of Valmonte. He, then, now argues
before the SC that the Oil Price Stabilization Fund (OPSF) is a tax imposed on
consumers which is "not intended for public purpose or for government operations but to
answer for the losses of oil companies.”
ISSUE: W/N OPSF is Unconstitutional for not being used for a public purpose? NO
HELD/DOCTRINE: The Court said that the OPSF is a "Trust Account" which was
established "for the purpose of minimizing frequent price changes brought about by
exchange rate adjustment and/or changes in World market prices of crude oil and
imported petroleum products."
Freight rates for hauling crude oil and petroleum products from sources of supply to
the Philippines may also vary from time to time. These fluctuations in world market
prices and in tanker rates and foreign exchange rates would in a completely free
market translate into corresponding adjustments in domestic prices of oil and
petroleum products with sympathetic frequency
The OPSF was established precisely to protect local consumers from the adverse
consequences that such frequent oil price adjustments may have upon the
economy.
OPSF is thus a buffer mechanism through which the domestic consumer prices of
oil and petroleum products are stabilized, instead of fluctuating every so often, and
oil companies are allowed to recover those portions of their costs which they would
not otherwise recover given the level of domestic prices existing at any given time.
FACTS:
• Private respondent Caltex Philippines, Inc. filed with the public respondent
Energy Regulatory Board (ERB) an Application formally seeking a provisional
increase in the prices of its petroleum products
• Petitioner Ricardo C. Valmonte, suing in his capacity as taxpayer and citizen
of the Republic, filed with this Court a Petition with Preliminary Injunction
o Seeking to enjoin enforcement of that portion of public respondent
Board's order directing the private respondent oil companies to pay
the amount of thirty-one point one centavos (P0.311) per liter out of
the price increases granted to the Oil Price Stabilization Fund
(OPSF).
o Petitioner Valmonte in essence assailed as unconstitutional both the
OPSF and the laws establishing said Fund
• ERB issued a resolution
o With the recommendation of the President, this Board hereby Orders
a reduction in the wholesale posted prices (WPP) of petroleum
products authorized herein applicants
PETITIONER
• Petitioner Valmonte argues that the Oil Price Stabilization Fund (OPSF) is a
tax imposed on consumers which is "not intended for public purpose or for
government operations but to answer for the losses of oil companies."
ISSUE: W/N OPSF is Unconstitutional for not being used for a public purpose? NO
RATIO:
• The Court said that the OPSF is a "Trust Account" which was established
"for the purpose of minimizing frequent price changes brought about by
exchange rate adjustment and/or changes in World market prices of crude
oil and imported petroleum products."
• Under P.D. No. 1956, as amended by Executive Order No. 137 dated 27
February 1987, this Trust Account may be funded from any of the
following sources:
o “(d) Any resulting peso costs differentials in case the actual peso
costs paid by oil companies in the importation of crude oil and
petroleum products is less than the peso costs computed using
the reference foreign exchange rate as fixed by the Board of
Energy."
• Upon the other hand, funds may be drawn from said Trust Account only
for the following purposes:
o "1) To reimburse the oil companies for cost increases in crude oil
and imported petroleum products resulting from exchange rate
adjustment and/or increase in world market prices of crude oil”
• Freight rates for hauling crude oil and petroleum products from sources of
supply to the Philippines may also vary from time to time.
• These fluctuations in world market prices and in tanker rates and foreign
exchange rates would in a completely free market translate into
corresponding adjustments in domestic prices of oil and petroleum
products with sympathetic frequency
 • The OPSF was established precisely to protect local consumers from the
adverse consequences that such frequent oil price adjustments may have
upon the economy.
o OPSF serves as a pocket, as it were, into which a portion of the
purchase price of oil and petroleum products paid by consumers
as well as some tax revenues are inputted and from which
amounts are drawn from time to time to reimburse oil companies,
when appropriate situations arise, for increases in, as well as
underrecovery of, costs of crude importation.
o OPSF is thus a buffer mechanism through which the domestic
consumer prices of oil and petroleum products are stabilized,
instead of fluctuating every so often, and oil companies are
allowed to recover those portions of their costs which they would
not otherwise recover given the level of domestic prices existing
at any given time.

The stabilization and subsidy of domestic prices of petroleum product and fuel oil
— clearly critical in importance considering, among other things, the continuing
high level of dependence of the country on imported crude oil — are appropriately
regarded as public purposes.

[50] CITY OF PASIG V REPUBLIC
GR No. 185023 | Aug 24 2011 | LGC RPT Exemption | Jacob
Petitioner: CITY OF PASIG, REPRESENTED BY THE CITY TREASURER AND
THE CITY ASSESSOR
Respondents: REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
Recit-Ready:
MPLDC was acquired by the RoP as the PCGG identified it as ill-gotten wealth of
President Marcos. Portions of its properties were leased to several businesses.
Pasig City sent notices of tax delinquency to MPLDC, and eventually bought the
properties at public auction since MPLDC did not pay the taxes, insisting it is tax
exempt. The PCGG filed a petition for prohibition against Pasig City, which was
granted and upheld by the CA. Pasig City was ordered to collect the taxes from the
lessees and not MPLDC.
W/N Pasig City should collect the RPT from the lessees – NO
Portions leased by MPLDC to taxable persons are subject to RPT and can be sold
to satisfy the tax delinquency. The portions are not part of the public dominion since
they are not for public use or service. MPLDC leases portions of the properties to
different business establishments. Thus, the portions of the properties leased to
taxable entities are not only subject to real estate tax, they can also be sold at public
auction to satisfy the tax delinquency.
Doctrine:
No tax exemption for taxable persons with beneficial use
• Section 234 (a) of Republic Act No. 7160 states that properties owned by
the Republic of the Philippines are exempt from real property tax "except
when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person."
• Thus, the portions of the properties not leased to taxable entities are
exempt from real estate tax while the portions of the properties leased to
taxable entities are subject to real estate tax. The law imposes the liability
to pay real estate tax on the Republic of the Philippines for the portions of
the properties leased to taxable entities
FACTS:
1. Mid-Pasig Land Development Corporation (MPLDC) owned 2 parcels of
land in Pasig City, portions of which are leased to different businesses.
Jose Campos, as registered owner of MPLDC, surrendered the company
to the Republic of the Philippines in 1986.
2. Pasig City sent MPLDC 2 Notices of Tax Delinquency for failure to pay
RPTs. MPLDC replied that it was exempt from tax from 1987.
3. MPLDC received 2 warrants of levy on the properties in 2005.
4. The RoP, through the PCGG, filed a petition for prohibition to enjoin Pasig
City from auctioning the properties.
a. The properties were actually acquired by the PCGG since the
properties were identified as ill-gotten wealth by President
Marcos, but named under Jose Campos.
5. At public auction, since there were no other bidders. Pasic City bought the
properties.
6. PCGG filled with the RTC an amended petition for certiorari, prohibition,
and mandamus against Pasig City.
7. RTC granted the petition of the PCGG.
a. “FURTHER, the City of Pasig is hereby PROHIBITED from
further:
i. 1) Assessing real property taxes and penalties charges
[sic] on the said properties;
ii. 2) Collecting said taxes and penalty charges from the
State;
iii. 3) Disposing or encumbering the subject properties or
any portion thereof;
b. FURTHER, the City of Pasig is hereby COMMANDED:
i. 1) To return or effect the refund of the amount of Two
Million Pesos (Php2,000,000.00) paid under protest by
Mid-Pasig Land Development Corporation on October
20, 2005, or credit the same amount to any outstanding
tax liability that said corporation may have with the City
of Pasig; and
ii. 2) To assess and collect from the actual occupants or
beneficial users of the subject properties, and not from
the State, whatever real property taxes and penalties
that may be due on the respective areas occupied by
them.”
8. The CA set aside the RTC decision. PCGG filed an MR, the CA reversed
itself.
a. “We are convinced that the subject properties were not
sequestered by the government so as to amount to a deprivation
of property without due process of law; instead, they were
voluntarily surrendered to the State by Campos, a self admitted
crony of the then President Marcos. The relinquishment of the
subject properties to the State as ill-gotten wealth of Marcos, as
 recognized by the Supreme Court, makes a judicial declaration
that the same were ill-gotten unnecessary. By virtue of said
relinquishment, the State correctly exercised dominion over the
subject properties. Indubitably, the subject properties, being ill
gotten wealth, belong to the State. By its nature, ill-gotten wealth
is owned by the State. As a matter of fact, the Republic continues
to exercise dominion over the subject properties.”
9. Pasig City filed this present petition for review on certiorari
ISSUES:
W/N Pasig City should assess and collect real property tax from the lessees of the
properties - NO
RATIO:
The RoP owns MPLDC and its properties
• The Republic of the Philippines owns the properties. Campos voluntarily
surrendered MPLDC, which owned the properties, to the Republic of the
Philippines.
• In Republic of the Philippines v. Sandiganbayan, the Court stated:
o “Undoubtedly, this resolution embodies a compromise
agreement between the PCGG on one hand and Jose Y.
Campos on the other. Hence, in exchange for the voluntary
surrender of the ill-gotten properties acquired by the then
President Ferdinand E. Marcos and his family which were in Jose
Campos' control, the latter and his family were given full immunity
in both civil and criminal prosecutions”
No tax exemption for taxable persons with beneficial use
• Section 234 (a) of Republic Act No. 7160 states that properties owned by
the Republic of the Philippines are exempt from real property tax "except
when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person."
• Thus, the portions of the properties not leased to taxable entities are
exempt from real estate tax while the portions of the properties leased to
taxable entities are subject to real estate tax. The law imposes the liability
to pay real estate tax on the Republic of the Philippines for the portions of
the properties leased to taxable entities.
• It is, of course, assumed that the Republic of the Philippines passes on
the real estate tax as part of the rent to the lessees.
Only portions held by taxable persons can be answerable to tax delinquency
• In Philippine Fisheries Development Authority v. Court of Appeals, the
Court held:
o The real property tax assessments issued by the City of Iloilo
should be upheld only with respect to the portions leased to
private persons. In case the Authority fails to pay the real property
taxes due thereon, said portions cannot be sold at public auction
to satisfy the tax delinquency.
o In Chavez v. Public Estates Authority, it was held that reclaimed
lands are lands of the public dominion and cannot, without
Congressional fiat, be subject of a sale, public or private
Portions leased by MPLDC to taxable persons are subject to RPT and can be
sold to satisfy the tax delinquency
• In the present case, the parcels of land are not properties of public
dominion because they are not "intended for public use, such as roads,
canals, rivers, torrents, ports and bridges constructed by the State, banks,
shores, roadsteads."
• Neither are they "intended for some public service or for the development
of the national wealth."
• MPLDC leases portions of the properties to different business
establishments. Thus, the portions of the properties leased to taxable
entities are not only subject to real estate tax, they can also be sold at
public auction to satisfy the tax delinquency.
Pasig City must issue new RPT assessments
• In sum, only those portions of the properties leased to taxable entities are
subject to real estate tax for the period of such leases.
• Pasig City must, therefore, issue to respondent new real property tax
assessments covering the portions of the properties leased to taxable
entities.
• If the Republic of the Philippines fails to pay the real property tax on the
portions of the properties leased to taxable entities, then such portions
may be sold at public auction to satisfy the tax delinquency.
“WHEREFORE, the petition is PARTIALLY GRANTED. The Court SETS ASIDE
the 17 October 2008 Decision of the Court of Appeals in CA-G.R. SP No. 97498
and declares VOID the 30 September 2002 real property tax assessment issued
by Pasig City on the subject properties of Mid-Pasig Land Development
Corporation, the 8 November 2005 warrants of levy on the properties, and the 2
December 2005 auction sale.
Pasig City is DIRECTED to issue to respondent new real property tax assessments
covering only the portions of the properties actually leased to taxable entities, and
only for the period of such leases. Interests and penalties on such new real
property tax assessment shall accrue only after receipt of such new assessment
by respondent.”