GENERAL PRINCIPLES OF TAXATION GENERAL CONCEPTS 1. What is the power to tax ? Define the power to tax.

What is the concept of taxation, and its nature ? SUGGESTED ANSWER: The power to tax is an inherent power of the state exercised through the legislature imposing burdens upon subjects and objects within its jurisdiction to raise revenues in order to meet the legitimate objects of government. Its nature is that it is both an inherent power of government and an exercise of legislative power. It is inherent in character because it could be exercised even in the absence of a constitutional grant. It is an exercise legislative power because it is that department that promulgate rules and taxation is the promulgation of rules, such as how much tax is to be paid, who pays the tax, to whom should it be paid and when it should be paid. 2. How should the power to tax be exercised ? Explain briefly. SUGGESTED ANSWER: The power of taxation is sometimes called also the power to destroy. Therefore, it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the hen that lays the golden egg. And, in the order to maintain the general publics trust and confidence in the Government this power must be used justly and not treacherously. (Roxas v. Court of Tax Appeals, No. L-25043, April 26, 1968, 23 SCRA 276, 282. cited in Pilipinas Shell Petroleum Corporation v. Commissioner of Internal Revenue, G. R. No. 172598, December 21, 2007) 3. It is said that taxes are the lifeblood of the government and any delay in its collection would impair the rendition of government services. May the collection of taxes be restrained by a court ? SUGGESTED ANSWER: As a general rule, No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge. (Sec. 218, NIRC) However, the Court of Tax Appeals is empowered to enjoin the collection of taxes through administrative remedies when collection could jeopardize the interest of the government or taxpayer. (Sec. 11, Rep. Act No. 1125) 4. What is the procedure before the CTA for issuance of an order suspending the collection of taxes ? SUGGESTED ANSWER: Where the collection of the amount of the taxpayers liability, sought by means of a demand for payment, by levy,

distraint or sale of property of the taxpayer, or by whatever means, as provided under existing laws, may jeopardize the interest of the government or the taxpayer, an interested party may file a motion for the suspension of the collection of the tax liability (Sec. 1, Rule 10, RRCTA effective December 15, 2005) with the Court of Tax Appeals. The motion for suspension of the collection of the tax may be filed together with the petition for review or with the answer, or in a separate motion filed by the interested party at any stage of the proceedings. (Sec. 3, Rule 10, RRCTA effective December 15, 2005) 5. How should tax exemptions be construed ? SUGGESTED ANSWER: Tax exemptions are strictly construed against the taxpayer and liberally in favor of the State and must be clearly shown and based on language in the law too plain to be mistaken (Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue, et al., 293 SCRA 76, 88), because taxes are necessary for the continued existence of the State. 6. Why are tax laws construed strictly against the State and liberally in favor of the State ? SUGGESTED ANSWER: Taxes, as burdens which must be endured by the taxpayer, should not be presumed to go beyond what the law expressly and clearly declares. (Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al., 293 SCRA 92, 99) 7. May a BIR ruling in favor of a taxpayer be reversed so as to subject a taxpayer to tax ? Why ? SUGGESTED ANSWER: A reversal of a BIR ruling favorable to a taxpayer would not necessarily create a perpetual exemption in his favor, for after all the government is never estopped from collecting taxes because of mistakes or errors on the part of its agents. (Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al., 293 SCRA 92, 99) 8. In 1996 Rosemarie, a nonresident citizen, was collected Philippine income taxes on her incomes derived from sources without the Philippines. Upon the enactment of the NIRC of 1997 which took effect on January 1, 1998, she filed a claim for refund of the taxes she paid praying for the retroactive application of the provision that subjects nonresident citizens to tax only on their incomes from within. Should the refund be granted ? SUGGESTED ANSWER: No. Tax laws, unlike remedial laws, are not to be applied retroactively. Revenue laws are substantive laws and their application must not be equated with remedial laws.

Revenue laws are not intended to be liberally construed, and exemptions are not given retroactive application, considering that taxes are the lifeblood of the government. In Holmes memorable metaphor, the price we pay for civilization, tax laws must be faithfully and strictly implemented. (Commissioner of Internal Revenue v. Acosta, etc.,G. R. No. 154068, August 3, 2007) 9. What are the purposes for the exercise of the taxing power ? SUGGESTED ANSWER: The three purposes for the exercise of the taxing power are: a. the revenue purpose (also known as the primary purpose of taxation); b. the sumptuary purpose (implementation of police power objectives);; and c. the compensatory purpose. 10. Explain briefly the revenue purpose of taxation. SUGGESTED ANSWER: One of the purposes of taxation is to raise revenues to meet the recognized objects of purposes of government. Thus, is based the lifeblood theory which posits that the revenues collected constitute the lifeblood that animates the existence of governments, without which governments cannot perform the functions for which they were established. 11. What is the sumptuary purpose of taxation and upon which is it based ? Explain briefly. SUGGESTED ANSWER: The sumptuary purpose of taxation is to promote the general welfare and to protect the health, safety or morals of the inhabitants. It is in the joint exercise of the power of taxation and police power where regulatory taxes are collected. Taxation may be made the implement of the states police power. The motivation behind many taxation measures is the implementation of police power goals. [Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005 citing Lutz v. Araneta, 98 Phil. 148, 152 (1955); in turn citing Great Atl. & Pac. Tea Co. v. Grosjean, 302 U.S. 412; U.S. v. Biutler, 297 U.S. 1; McCulloch v. Maryland, 4 Wheaton 316] The reader should note that the August 3, 2005 Southern Cross case is the decision on the motion for reconsideration of the July 8, 2004 Southern Cross decision. The so-called sin taxes on alcohol and tobacco manufacturers help dissuade the consumers from excessive intake of these potentially harmful products. (Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005)

12. Distinguish taxation from police power. SUGGESTED ANSWER: a. Purpose: Taxation is for revenue while police power is for general welfare. b. Amount: In taxation, the amount of tax collected is practically unlimited while under police power, the license fee should not exceed cost of regulation. c. Compensation: In taxation, the enjoyment of public services while in police power, the feeling of having done something good for society in general. d. Property taken: In taxation, generally money while under police power, any property, other than money, which is the source of the danger health, safety or morals. e. What is done with the property taken: Taxation is constructive because the money collected is spent for building infrastructure or providing public services while police power is destructive. The property taken is usually destroyed. f. Relation to the non-impairment clause: Taxation is inferior to the nonimpairment clause and could not override the same while police power is superior to the non-impairment clause. g. Scope. Taxation interferes with property rights only while police power regulates both liberty and property. h. Surrender. Taxation may be bargained away through a contract such that if the government issues a tax-exempt bond, it could not withdraw the exemption because it would violate the non-impairment clause while police power cannot be bargained away. 13. What is the relation between the power of taxation and police power ? Explain. SUGGEWTED ANSWER: The motivation behind many taxation measures is the implementation of police power goals. Progressive income taxes alleviate the margin between rich and poor; the socalled sin-taxes on alcohol and tobacco manufacturers help dissuade the consumers from excessive intake of these potentially harmful products. Taxation is distinguishable from police power as to the means employed to implement these public good goals. Those doctrines that are unique to taxation arose from peculiar considerations such as those especially punitive effects of taxation, and the belief that taxes are the lifeblood of the state.

These considerations necessitated the evolution of taxation as a distinct legal concept from police power. Yet at the same time, it has been recognized that taxation may be made the implement of the states police power. [Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005 citing Lutz v. Araneta, 98 Phil. 148, 152 (1955) in turn citing Great Atl.,& Pac. Tea Co. v. Grosjean, 301 U.S. 412, U.S. v. Butler, 297 U.S. 1; McCulloch v. Maryland, 4 Wheaton 316] 14. What are the similarities between the power of taxation and police power ? SUGGESTED ANSWER: a. Both are inherent in the State and may be exercised even if there is no specific authority granted by the Constitution. b. Without these powers the State could not attain the purposes for which it is established. Otherwise stated, the very existence of the State is dependent upon the exercise of these powers. c. The powers are to be exercised by the legislative department. d. Both interfere with ownership and use of private property. 15. What is the nature of the Sugar Adjustment Act which increased the existing taxes on sugar ? Explain briefly. SUGGESTED ANSWER: The Sugar Adjustment Act which increased existing taxes on sugar was enacted to stabilize the sugar industry to prepare it for the loss of its quota in the U.S. market was levied for a regulatory purpose to protect and promote the sugar industry which is also for a public purpose. (Lutz v. Araneta, 98 Phil. 148) The Philsugin fund, an imposition on sugar, to raise funds to conduct research for the improvement of the sugar industry, is for the purpose of stabilizing the sugar industry which one of the pillars of the Philippine economy which affects the welfare of the State. The levy is not so much an exercise of the power of taxation, nor the imposition of a special levy, but the exercise of police power which is for the general welfare of the entire country, therefore for a public purpose. (Republic v. Bacolod-Murcia Co., et al., G.R. No. L-19824, July 9, 1966) 16. Section 40 (g) of the Public Service Act authorizes the collection of x x x fees as reimbursement of its expenses in the authorization, supervision and/or regulation of the public services: x x x g) For each permit, authorizing the increase in equipment, the installation of new units or authorizing the increase of capacity, or the extension of means or general extensions in the services, twenty centavos for each one hundred pesos or fraction of the additional capital necessary to carry out the permit. (paraphrasing supplied) Is the imposition a tax measure ? Explain.

SUGGESTED ANSWER: No. It is not a tax measure but a simple regulatory provision for the collection of fees imposed pursuant to the exercise of the States police power. A tax is imposed under the taxing power of government principally for the purpose of raising revenues. The law in question, however, merely authorizes and requires the collection of fees for the reimbursement of the Commissions expenses in the authorization, supervision and/or regulation of public services. (Republic, etc., v. International Communications Corporation (ICC), G. R. No. 141667, July 17, 2006) 17. Explain the compensatory purpose of taxation. SUGGESTED ANSWER: The compensatory purpose of taxation is to implement the social justice provisions of the constitution through the progressive system of taxation, which would result to equal distribution of wealth, etc. Progressive income taxes alleviate the margin between rich and poor. (Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005) 18. May the power of taxation be used to implement the power of eminent domain ? Explain. SUGGESTED ANSWER: Yes. The power of taxation can also be used to implement power of eminent domain. Tax measures are but enforced contributions exacted on pain of penal sanctions and clearly imposed for public purpose. In most recent years, the power to tax has indeed become a most effective tool to realize social justice, public welfare, and the equitable distribution of wealth. (Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, April 16, 2005) 19. The senior citizens discount. The senior citizens shall be entitled to the grant of twenty percent (20%) discount from all establishments relative to the utilization of services in hotels and similar lodging establishments, restaurants and recreation centers, and purchase of medicines in all establishments for the exclusive use or enjoyment of senior citizens, [Expanded Senior Citizens Act of 2003, Sec. 4 (a)] 20. The Senior Citizens Act is a legitimate exercise of police power. The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its object (Carlos Superdrug Corp., etc., et al, G. R. No. 166494, June 29, 2007) 21. Senior citizens discount not allowed anymore as a tax credit but as a deduction from gross income. It ought to be noted, however, that on February 26, 2004, RA 9257, or The Expanded Senior Citizens Act of 2003, amending RA 7432, was signed into law, ushering in, upon its effectivity on March 21, 2004, a new tax treatment for sales discount purchases of qualified senior citizens of medicines. The establishment may claim the discounts granted to senior citizens as tax deduction based on the net cost of the goods sold or services 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. Provided, further, That the total amount of the claimed tax deduction net of value added tax if applicable, shall be

included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to the provisions of the National Internal Revenue Code, as amended. [M.E. Holding Corporation v. Court of Appeals, et al., G.R. No. 160193, March 3, 2008 citing Expanded Senior Citizens Act of 2003, Sec. 4 (a)] 22. Just compensation, defined. The full and fair equivalent of the property taken from its owner by the expropriator. The measure is not the takers gain but the owners loss. The word just is used to intensify the meaning of the word compensation, and to convey the idea that the equivalent to be rendered for the property to be taken shall be real, substantial, full and ample. (Carlos Superdrug Corp., etc., et al, G. R. No. 166494, June 29, 2007) THE LIMITATIONS ON THE EXERCISE OF THE POWER OF TAXATION; GROUNDS FOR THE NULLIFICATION OF TAX MEASURES 1. What criteria should be used by the judiciary in quashing a legislative act ? SUGGESTED ANSWER: Subject to the determination of the courts as to what is a proper exercise of police power using the due process clause and the equal protection clause as yardsticks, the State may interfere wherever the public interests demand it, and in this particular a large discretion is necessarily vested in the legislature to determine, not only what interests of the public require, but what measures are necessary for the protection of such interests [Carlos Superdrug Corp., etc., et al, G. R. No. 166494, June 29, 2007 citing U.S. v. Toribio, 15 Phil.85 at 98 (1910) in turn citing Lawton v. Steele, 152 U.S. 133,136; Barbier v. Connoly, 113 U.S. 27; Kidd v. Pearson, 128 U.S. 1] 2. What is meant by a taxpayers suit ? SUGGESTED ANSWER: A taxpayers suit is a case where the act complained of directly involves the illegal disbursement of public funds derived from taxation. (Justice Melo, dissenting in Kilosbayan, Inc. v. Guingona, Jr., 232 SCRA 110) 3. What is locus standi ? SUGGESTED ANSWER: Locus standi is a right of appearance in a court of justice on a given question. (Abaya v. Ebdane, G. R. No. 167919, February 14, 2007) It is a partys personal and substantial interest in the case, such that the party has sustained or will sustain (Ibid.)direct injury as a result of the government act being challenged. It calls for more than just a generalized grievance. A party need not be a party to the contract to challenge its validity. (Ibid.)

4. Rationale for locus standi. The rationale for requiring a party who challenges the constitutionality of a statute to allege such a personal stake in the outcome of the controversy is to ensure that a concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of different constitutional questions. (Abaya v. Ebdane, G. R. No. 167919, February 14, 2007) 5. What are the requirements that must be met before taxpayers, concerned citizens and legislators may be accorded standing to sue ? SUGGESTED ANSWER: a. The case should involve constitutional issues; b. For taxpayers, there must be a claim of illegal disbursement of public funds or that the tax measure is unconstitutional. c. For voters, there must be a showing of obvious interest in the validity of the election law in question. d. For concerned citizens, there must be a showing that the issues raised are of transcendental importance which must be settled early. e. For legislators, there must be a claim that the official action complained of infringes upon their prerogatives as legislators. (David, et al., v. President Gloria MacapagalArroyo, etc., et al., G. R. No. 171396, May 3, 2006) 6. Requisites for challenging constitutionality of law. The party bringing suit must show not only that the law or act is invalid, but also that he has sustained or is in immediate, or imminent danger of sustaining some direct injury as a result of its enforcement and not merely that he suffers thereby in some indefinite way. (Soriano III v. Lista, et al., G. R. No. 153881, March 24, 2003) 7. Alternative statement of doctrine of brushing aside locus standi. In cases of paramount importance where serious constitutional questions are involved, the standing requirements may be relaxed and a suit may be allowed to prosper even where there is no direct injury to the party claiming the right of judicial review. [Coconut Oil Refiners Association, Inc., etc., et al., vs. Torres, etc., et al., G. R. No. 132527, July 29, 2005 citing Bayan (Bagong Alyansang Makabayan) v. Zamora, G. R. No. 138570, October 10, 2000, 342 SCRA 449, in turn citing Kilosbayan, Inc. v. Guingona, Jr., G. R. No. 113375, May 5, 1994, 232 SCRA 110] 8. Locus standi being merely a matter of procedure, have been waived in certain instances where a party who is not personally injured may be allowed to bring suit. Give some examples. SUGGESTED ANSWER: The following are examples of instances where suits have been brought by parties who have not have been personally injured by the operation of

a law or any other government act but by concerned citizens, taxpayers or voters who actually sue in the public interest: a. Taxpayers suits to question contracts entered into by the national government or government-owned or controlled corporations allegedly in contravention of the law. b. A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that public money is being deflected to any improper purpose, or that there is a wastage of public funds through the enforcement of an invalid or unconstitutional law. (Abaya v. Ebdane, G. R. No. 167919, February 14, 2007) 9. What is the rationale behind the inherent and constitutional limitations on the power of taxation ? SUGGESTED ANSWER: The inherent and constitutional limitations to the power of taxation are safeguards which would prevent abuse in the exercise of this otherwise unlimited and plenary power. 10. What are the inherent limitations upon the power of taxation ? SUGGESTED ANSWER: The inherent limitations are a. Public purpose. The revenues collected from taxation should be devoted to a public purpose. b. No improper delegation of legislative authority to tax. Only the legislature can exercise the power of taxes unless the same is delegated to some other governmental body by the constitution or through a law which does not violate any provision of the constitution. c. Territoriality. The taxing power should be exercised only within territorial boundaries of the taxing authority. d. Recognition of government exemptions; and e. Observance of the principle of comity. Comity is the respect accorded by nations to each other because they are equals. On the other hand taxation is an act of sovereign. Thus, the power should be imposed upon equals out of respect. Some authorities include no double taxation. 11. What are some of the principles to consider in the determination of whether tax revenues are devoted for a public purpose ? SUGGESTED ANSWER:

a. The tax revenues are for a public purpose if utilized for the benefit of the community in general. An alternative meaning is that tax proceeds should be utilized only to attain the objectives of government. b. Public use is no longer confined to the traditional notion of use by the public but held synonymous with public interest, public benefit, public welfare, and public convenience. (Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, April 16, 2005) c. The tax revenues are for a public purpose if utilized for the benefit of the community in general. An alternative meaning is that tax proceeds should be utilized only to attain the objectives of government. Public use is no longer confined to the traditional notion of use by the public but held synonymous with public interest, public benefit, public welfare, and public convenience. (Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, April 16, 2005) 12. The petitioners impugn the validity of the establishment of tax and duty-free shops within the Subic Special Economic Zone (SSEZ) and the removal of consumer goods and items from the zones without payment of corresponding duties and taxes for the reason that this constitute executive legislation in violation of the rule on separation of powers, that only raw material, capital and equipment should be allowed the privilege. Rule on the objections and reason out your answer briefly. SUGGESTED ANSWER: The objections should not be given credence. It is legal to setup duly authorized duty-free shops in the SSEZ to sell tax and duty-free consumer items in the Secured Area. This is in line with the policy enunciated in the law that the Subic Special Economic Zone shall be developed into a self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments. While it is true that Section 12 (b) of Rep. Act No. 7227 mentions only raw materials, capital and equipment, this does not necessarily mean that the tax and duty free buying privilege is limited to these types of articles to the exclusion of consumer goods. It must be remembered that in construing statutes, the proper course is to start out and follow the true intent of the Legislature and to adopt that sense which harmonizes best with the context and promotes to the fullest manner the policy and objects of the Legislature. The concept of inclusio unius est exclusio alterius does not find application because the phrase tax and duty-free importations of raw materials, capital and equipment was merely cited as an example of incentives that the SSEZ is authorized to grant, in line with its being a free port zone. Thus, the legislative intent is that consumer goods entering the SSEZ which satisfy the needs of the zone and are consumed there are not

subject to duties and taxes in accordance with Philippine law. (Coconut Oil Refiners Association, Inc., etc., et al., v. Torres, etc., et al., G. R. No. 132527, July 29, 2005) ` Would your answer be the same if a Presidential Proclamation allowed for the limited withdrawal from the Clark Special Economic Zone or the John Hay Economic Zone of consumer goods tax and duty-free ? SUGGESTED ANSWER: The answer would not be the same. This time the Presidential Proclamation would be invalid as the statutory tax exempt privilege was granted only to the Subic Special Economic Zone and not to John Hay or Clark. This is so because the Constitution mandates that no law granting tax exemption shall be passed without the concurrence of a majority of all the members of Congress. (Coconut Oil Refiners Association, Inc., etc., et al., v. Torres, etc., et al., G. R. No. 132527, July 29, 2005 citing John Hay Peoples Alternative Coalition, et al., v. Lim, etc., et al., G.R. No. 119775, October 24, 2003, 414 SCRA 356) Furthermore, the law is very clear that the exportation or removal of goods from the territory of the Subic Special Economic Zone to other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines. (Ibid.) 13. The VAT law provides that, the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of valueadded tax to twelve percent (12%) after any of the following conditions have been satisfied. (i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or (ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %). Was there an invalid delegation of legislative power ? SUGGESTED ANSWER: No. There is no undue delegation of legislative power but only of the discretion as to the execution of the law. This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority. In the above case the Secretary of Finance becomes merely the agent of the legislative department, to determine and declare the even upon which its expressed will takes place. The President cannot set aside the findings of the Secretary of Finance, who is not under the conditions acting as the execute alter ego or subordinate. . [Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases citing various cases]] 14. Juliane a non-resident alien appointed as a commission agent by a domestic corporation with a sales commission of 10% all sales actually concluded and collected through her efforts. The local company withheld the amount of P107,000 from her sales commission and remitted the same to the BIR.

She filed a claim for refund alleging that her sales commission is not taxable because the same was a compensation for her services rendered in Germany and therefore considered as income from sources outside the Philippines. Is her contention correct ? SUGGESTED ANSWER: Yes. The important factor which determines the source of income of personal services is not the residence of the payor, or the place where the contract for service is entered into, or the place of payment, but the place where the services were actually performed. Since the activity of securing the sales were in Germany, then the income did not originate from sources from within the Philippines. (Commissioner of Internal Revenue v. Baier-Nickel, G. R. No. 153793, August 29, 2006) 15. A domestic insurance company decided to reinsure with a foreign reinsurer the risks it has undertaken with its local clients. The foreign reinsurer does not have an office, neither does it do business in the Philippines. Are the reinsurance premiums subject to Philippine income taxation ? SUGGESTED ANSWER: Yes because the undertaking of the foreign insurance company to indemnify the local insurance company is the activity that produced the income. The reinsurance premiums remitted to the foreign reinsurer had for their source the undertaking to indemnify the local insurer against liability. Said undertaking is the activity that produced there insurance premiums, and the same took place in the Philippines. The reinsured, the liabilities insured and the risk originally undertaken by the local insurance company, upon which the reinsurance premiums and indemnity were based, were all situated in the Philippines. (Alexander Howden & Co., Ltd. v. Collector of Internal Revenue, 121 Phil. 579; 13 SCRA 601 (1965) cited in Baier-Nickel) 16. BOAC, a foreign airline company which does not maintain any flight to and from the Philippines sold air tickets in the Philippines, through a general sales agent, relating to the carriage of passengers and cargo between two points, both outside the Philippines. Is BOAC subject to income taxes on the sale of the tickets ? SUGGESTED ANSWER: Yes. The source of income which is taxable is that activity which produced the income. The sale of tickets in the Philippines is the activity that determines whether such income is taxable in the Philippines. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The situs of the source of payments is the Philippines. the flow of wealth proceeded from and occurred, within the Philippine territory, enjoying the protection accorded by the Philippine Government. In consideration of such protection, the flow of wealth should share the burden of supporting the government.

(Commissioner of Internal Revenue v. British Overseas Airways Corporation (BOAC), 149 SCRA 395 cited in Bauer-Nickel) 17. Give some of the general or indirect constitutional limitations. SUGGESTED ANSWER: The general or indirect constitutional limitations are the following: a. Due process clause;

e. The President shall have the power to veto any particular item or items in an appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object; f. Delegated power of the President to impose tariff rates, import and export quotas, tonnage and wharfage dues: 1) Delegation by Congress 2) Through a law

b. Equal protection clause; 3) Subject to Congressional limits and restrictions c. Freedom of the press; 4) Within the framework of national development program. d. Religious freedom; e. No taking of private property without just compensation; f. Non-impairment clause; g. Law-making process: 1) Bill should embrace only one subject expressed in the title thereof; 2) Three (3) readings on three separate days; 3) Printed copies in final form distributed three (3) days before passage. h. Presidential power to grant reprieves, commutations and pardons and remittal of fines and forfeiture after conviction by final judgment. 18. The specific or direct constitutional limitations are the following: a. No imprisonment for non-payment of a poll tax; b. Taxation shall be uniform and equitable; c. Congress shall evolve a progressive system of taxation; d. All appropriation, revenue or tariff bills shall originate exclusively in the House of Representatives, but the Senate may propose and concur with amendments; k. The Supreme Court's power to review judgments or orders of lower courts in all cases involving the legality of any tax, impose, assessment or toll or the legality of any penalty imposed in relation to the above; l. Authority of local government units to create their own sources of revenue, to levy taxes, fees and other charges subject to guidelines and limitations imposed by Congress consistent with the basic policy of local autonomy; m. Automatic release of local government's just share in national taxes; n. Tax exemption of all revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes; o. Tax exemption of all revenues and assets of proprietary or cooperative educational institutions subject to limitations provided by law including restrictions on dividends and provisions for reinvestment of profits; g. Tax exemption of charitable institutions, churches, parsonages and convents appurtenant thereto, mosques, and all lands, buildings and improvements of all kinds actually, directly and exclusively used for religious, charitable or educational purposes; h. No tax exemption without the concurrence of majority vote of all members of Congress; i. No use of public money or property for religious purposes except if priest is assigned to the armed forces, penal institutions, government orphanage or leprosarium; j. Money collected on tax levied for a special purpose to be used only for such purpose, balance if any, to general funds;

p. Tax exemption of grants, endowments, donations or contributions used actually, directly and exclusively for educational purposes subject to conditions prescribed by law. 19. Equal protection of the law clause is subject to reasonable classification. If the groupings are characterized by substantial distinctions that make real differences, one class may be treated and regulated differently from another. The classification must also be germane to the purpose of the law and must apply to all those belonging to the same class. (Tiu, et al., v. Court of Appeals, et al., G.R. No. 127410, January 20, 1999) 20. Classification, to be valid, must (a) rest on substantial distinctions, (b) be germane to the purpose of the law, (c) not be limited to existing conditions only, and (d) apply equally to all members of the same class. (Tiu, et al., v. Court of Appeals, et al., G.R. No. 127410, January 20, 1999) 21. The law grant of tax and duty-free status under Rep. Act No. 7227, to retailers inside the SSEZ without granting the same to those outside the SSEZ. Is there a violation of the equal protection clause ? SUGGESTED ANSWER: There is no violation of equal protection because there exists a valid classification as shown below: a. Significant distinctions exist between the two groups. Those outside of the SSEZ maintain their business within Philippine customs territory while those within the SSEZ operate within the so-called separate customs territory. To grant the same privileges would clearly defeat the statues intent to carve a territory out of the military reservations in Subic Bay where free flow of goods and capital is maintained. b. The classification is germane to the purpose of Rep. Act No. 7227. As held in Tiu, the real concern of the law is to convert the lands formerly occupied by the US military bases into economic or industrial areas. In furtherance of such objective, Congress deemed it necessary to extend economic incentives, in terms of a complete package of tax incentives and other benefits, to the establishments within the zone to attract and encourage foreign and local investors. c. The classification is not limited to the existing conditions when the law was promulgated but to future conditions as well, inasmuch as the law envisioned the former military reservation to ultimately develop into a self-sustaining investment center. d. The classification applies equally to all retailers found within the secured area. As ruled in Tiu, the individuals and businesses within the secured area, being in like circumstances or contributing directly to the achievement of the end purposes of the law, are not categorized further. They are all similarly treated, both in privileges granted and in obligations required. (Coconut Oil Refiners Association, Inc., etc., et al., v. Torres, etc., et al., G. R. No. 132527, July 29, 2005 citing Tiu, et al., v. Court of Appeals, et al., G.R. No. 127410, January 20, 1999, 301 SCRA 278)

22. Is the statutory grant of tax and duty-free importation into the Subic Special Economic Zone violative the preferential use concept of the Constitution ? SUGGESTED ANSWER: No. The mere fact that the law authorizes the importation and trade of foreign goods does not suffice to declare it unconstitutional on this ground. While the Constitution does not encourage the unlimited entry of foreign goods, services and investments into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only in foreign competition that is unfair. (Coconut Oil Refiners Association, Inc., etc., et al., v. Torres, etc., et al., G. R. No. 132527, July 29, 2005 citing Tanada v. Angara, G. R. No. 118295, May 2, 1997, 272 SCRA 18) 23. It is inherent in the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that, "inequalities which result from a singling out of one particular class of taxation, or exemption, infringe no constitutional limitation." (Commissioner of Internal Revenue, et al., v. Santos, et al., 277 SCRA 617) 24. A lawful tax on a new subject, or an increased tax on an old one, does not interfere with a contract or impairs its obligation, within the meaning of the constitution. Even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must be paid unless prohibited by the constitution, nor can it be said that it impairs the obligations of any existing contract in its true and legal sense. (Tolentino v. Secretary of Finance, et al., and companion cases, 235 SCRA 630) 25. Under the now prevailing Constitution, where there is neither a grant nor prohibition by statute, the taxing power of local governments must be deemed to exist although Congress may provide statutory limitations and guidelines in order to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers. (City Government of San Pablo, Laguna, et al., v. Reyes, et al., G.R. No. 127708, March 25, 1999) 26. The Local Government Code explicitly authorizes provinces and cities, notwithstanding any exemption granted by any law or other special law to impose a tax on businesses enjoying a franchise. Indicative of the legislative intent to carry out the constitutional mandate of vesting broad tax powers to local government units, the Local Government Code has withdrawn tax exemptions or incentives theretofore enjoyed by certain entities. (City Government of San Pablo, Laguna, et al., v. Reyes, et al., G.R. No. 127708, March 25, 1999) 27. Philippine Long Distance Telephone Company, Inc., v. City of Davao, et al., etc., G. R. No. 143867, August 22, 2001, upheld the authority of the City of Davao, a local government unit, to impose and collect a local franchise tax because the Local Government has withdrawn all tax exemptions previously enjoyed by all persons and

authorized local government units to impose a tax on business enjoying a franchise tax notwithstanding the grant of tax exemption to them. 28. Paradigm shift from exclusive Congressional power to direct grant of taxing power to local legislative bodies. The power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges pursuant to Article X, section 5 of the 1987 Constitution. (Batangas Power Corporation v. Batangas City, et al. G. R. No. 152675, and companion case, April 28, 2004 citing National Power Corporation v. City of Cabanatuan, G. R. No. 149110, April 9, 2003) 29. The fundamental law did not intend the direct grant to local government units to be absolute and unconditional, the constitutional objective obviously is to ensure that, while local government units are being strengthened and made more autonomous, the legislature must still see to it that: a. the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions; b. each local government unit will have its fair share of available resources; c. the resources of the national government will be unduly disturbed; and d. local taxation will be fair, uniform and just. (Manila Electric Company v. Province of Laguna, et al., G.R. No. 131359, May 5, 1999) 30. The withdrawal of a tax exemption should not be construed as prohibiting future grants of exemption from all taxes. Indeed, the grant of taxing powers to local government units under the Local Government Code does not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared national policy. The legal effect of the constitutional grant to local governments simply means that in interpreting statutory provisions on municipal taxing powers, doubts must be resolved in favor of municipal corporations. (Philippine Long Distance Telephone Company, Inc., v. City of Davao, et al., etc., G. R. No. 143867, August 22, 2001) 31. When Congress approved a provision that, Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized by the franchise. (Underscoring supplied) there was no intention for it to operate as a blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxation, it was held that said provisions cannot be considered as extending its application to franchises such as that of PLDT. (Philippine Long Distance Telephone Company, Inc., v. City of Davao, et al., etc., G. R. No. 143867, August 22, 2001)

32. When an item of income is taxed in the Philippines and the same income is taxed in another country, this would be known as international juridical double taxation which is the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical grounds. (Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc., et al., G.R. No. 127105, June 25, 1999) 33. A tax deduction is defined as a subtraction fro income for tax purposes, or an amount that is allowed by law to reduce income prior to the application of the tax rate to compute the amount of tax which is due. A tax deduction reduces the income that is subject to tax in order to arrive at taxable income. (Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G. R. No. 159647, April 15, 2005) 34. The petitioners allege that the R-VAT law is constitutional because the Bicameral Conference Committed has exceeded its authority in including provisions which were never included in the versions of both the House and Senate such as inserting the stand-by authority to the President to increase the VAT from 10% to 12%; deleting entirely the no pass-on provisions found in both the House and Senate Bills; inserting the provision imposing a 70% limit on the amount of input tax to be credited against the output tax; and including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in addition to the value-added tax. Thus, there was a violation of the constitutional mandate that revenue bills shall originate exclusively from the House of Representatives. Are the contentions of such weight as to constitute grave abuse of discretion which may invalidate the law ? Explain briefly. SUGGESTED ANSWER: No. There was no grave abuse of discretion because all the changes and modifications made by the Bicameral Conference Committee were germane to subjects of the provisions referred to it for reconciliation. The Bicameral Conference Committee merely exercised the judicially recognized longstanding legislative practice of giving said conference committee ample latitude for compromising differences between the Senate and the House. [Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases citing Philippine Judges Association v. Pardo, G. R. No. 105371, November 11, 1993, 227 SCRA 703; Tolentino v. Secretary of Finance, et al., G. R. No. 115455, August 25, 1994, 235SCRA 630] 35. The VAT is assailed as being regressive and therefore violative of the mandate to evolve a progressive system of taxation. Do you agree ? Explain your answer. SUGGESTED ANSWER: No. The VAT does not violate the progressive system of taxation. The mandate to Congress is not to prescribe but to evolve a progressive system of taxation. Otherwise, sales taxes which perhaps are the oldest form of indirect

taxes, would have been prohibited with the proclamation of the constitutional provision. Sales taxes are also regressive. [Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases citing Tolentino v. Secretary of Finance, et al., G. R. No. 115455, August 25, 1994, 235 SCRA 630] CONSTITUTIONAL TAX EXEMPTIONS 1. What constitutional exemptions are enjoyed by real property ? SUGGESTED ANSWER: Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings and improvements that are actually, directly and exclusively used for religious, charitable or educational purposes are exempt from taxation. [Sec.28 (3) Article VI, 1987 Constitution] 2. The above constitutional tax exemptions refer only to real property that are actually, directly and exclusively used for religious, charitable or educational purposes, and that the only constitutionally recognized exemption from taxation of revenues are those earned by non-profit, non-stock educational institutions which are actually, directly and exclusively used for educational purposes. (Commissioner of Internal Revenue v. Court of Appeals, et al., 298 SCRA 83) The constitutional tax exemption covers property taxes only. 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. (Lung Center of the Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29, 2004 citing Justice Davide) 3. The 1935 Constitution stated that the lands, buildings, and improvements are used exclusively but the present Constitution requires that the lands, buildings and improvements are actually, directly and exclusively used. The change should not be ignored. Reliance on past decisions would have sufficed were the words actually as well as :directly are not added. There must be proof therefore of the actual and direct use to be exempt from taxation. (Lung Center of the Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29, 2004 citing Province of Abra v. Hernando, 107 SCRA 105) 4. 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. If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purpose but is subject to taxation,. The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitution and the law. Solely is synonymous with exclusively. (Lung Center of the Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29, 2004)

5. Portions of the land of a charitable institution, such as a hospital, leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from real property taxes. On the other hand, the portion 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. (Lung Center of the Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29, 2004) 6. Distinction between Lung Center and City Assessor of Cebu. The ruling in City Assessor of Cebu v. Association of Benevola de Cebu, Inc.., G. R. No. 152904, June 8, 2007 was not an interpretation of tax exemption. Furthermore, the doctors offices in City Assessor of Cebu were exclusively used by doctors duly accredited with the hospital. No such showing was made in Lung Center. 7. 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, whether out-patient, or confined in the hospital, 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; and no money inures to the private benefit of the persons managing or operating the institution. (Lung Center of the Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29, 2004) 8. All revenues and assets of non-stock, non-profit educational institutions that are actually, directly and exclusively used for educational purposes shall be exempt from taxation. 9.. Revenues and assets of proprietary educational institutions, including those which are cooperatively owned, may be entitled to exemptions subject to limitations provided by law including restrictions on dividends and provisions for reinvestments. There is no law at the present which grants exemptions, other the exemptions granted to cooperatives. 10. The NIRC recognizes the exemption from tax of the incomes of civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, as well as clubs organized and operated exclusively for pleasure, recreation, and other non-profitable purposes where no part of the net income inures to the benefit of any private stockholder or member. 11. The tax exemption so recognized does not flow to income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, which shall be subject to income taxes. (Commissioner of Internal Revenue v. Court of Appeals, et al., 298 SCRA 83) OTHER CONCEPTS: 1. What is a tax amnesty ?

SUGGESTED ANSWER: A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or a tax law. (Commissioner of Internal Revenue v. Marubeni Corporation, G.R. No. 137377, December 18, 2001) 2. The purpose of tax amnesty is to a. give tax evaders who wish to relent a chance to start a clean slate, and to b. give the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case. (Banas, Jr. v. Court of Appeals, et al., G.R. No. 102967, February 10, 2000) c. To improve tax collection. 3. Distinguish tax amnesty from tax exemption. SUGGESTED ANSWER: a. Tax amnesty is an immunity from all criminal, civil and administrative liabilities arising from nonpayment of taxes (People v. Castaneda, G.R. No. L-46881, September 15, 1988) WHILE a tax exemption is an immunity from civil liability only. It is an immunity or privilege, a freedom from a charge or burden to which others are subjected. (Florer v. Sheridan, 137 Ind. 28, 36 NE 365) b. Tax amnesty applies only to past tax periods, hence of retroactive application (Castaneda, supra) WHILE tax exemption has prospective application. 4. Define tax avoidance and tax evasion. SUGGESTED ANSWER: Tax avoidance is the use of legally permissible means to reduce the tax while tax evasion is the use of illegal means to escape the payment of taxes. 5. Tax evasion connotes the integration of three factors: a. the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; b. an accompanying state of mind which is described as being evil on bad faith, willful, or deliberate and not accidental; and c. a course of action or failure of action which is unlawful. (Commissioner of Internal Revenue v. The Estate of Benigno P. Toda, Jr., , etc., G. R. No. 147188, September 14, 2004)

6. What are the reasons why national taxes cannot be the subject of compensation and set-off with debts ? SUGGESTED ANSWER: a. The lifeblood theory; b. Taxes are not contractual obligations but arise out of a duty to, and are the positive acts of government, to the making and enforcing of which the personal consent of the individual taxpayer is not required. (Republic v. Mambulao Lumber Co., 4 SCRA 622) c. The government and the taxpayer are not mutually creditors and debtors of each other and a claim for taxes is no such debt, demand, contract or judgment as is allowed to be set-off. (Caltex Philippines, Inc. v. Commission on Audit, 208 SCRA 726, 756) 7. Compensation takes place by operation of law, where the local government and the taxpayer are in their own right reciprocally debtors and creditors of each other, and that the debts are both due and demandable, in consequence of Articles 1278 and 1279 of the Civil Code. (Domingo v. Garlitos, 8 SCRA 443) 8. In case of a tax overpayment, where the BIRs obligation to refund or set-off arises from the moment the tax was paid under the principle of solutio indebeti. (Commissioner of Internal Revenue v. Esso Standard Eastern, Inc, 172 SRCA 364) 9. But note Nestle Phil. v. Court of Appeals, et al., G.R. No. 134114, July 6, 2001 which held that in order for the rule on solutio indebeti to apply it is an essential condition that the petitioner must first show that its payment of the customs duties was in excess of what was required by the law at the time the subject 16 importations of milk and milk products were made. Unless shown otherwise, the disputable presumption of regularity of performance of duty lies in favor of the Collector of Customs. 10. A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in, without transferring the burden to someone else. Examples are individual and corporate income taxes, transfer taxes, and residence taxes. (Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases, citing Maceda v. Macaraig, Jr., G.R. No. 88291, June 8, 1993, 223 SCRA 217) 11. Acesite is the owner and operator of restaurant which caters to the patrons of a casino operated by PAGCOR within its premises. it billed PAGCOR for the cost of the food and beverages consumed by the PAGCORs patrons as well as the lease of the premises plus the VAT on these items. PAGCOR paid Acesite minus the VAT claiming exemption while Acesite, in order to avoid legal implications, paid the P30 million tax and applied for a refund on the ground of solutio indebeti.

Acesite cites the tax exemption grant in PAGCORs franchise as follows: The exemptions herein granted for earnings derived from the operations conducted under the franchise specifically from the payment of any tax, income, or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association (s), agency (cies), or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino (s) authorized to be conducted under this Franchise and to those receiving compensation or other remuneration from the Corporation or operator as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator. (emphasis supplied) The BIR denied the claim on the ground that PAGCOR is exempt only from direct taxes and not from indirect taxes so Acesite may not avail of the exemption. Is this correct ? SUGGESTED ANSWER: No. As the law is worded the exemption flows to Acesite. The law is clear that the exemption extends the exemption to entities or individuals dealing with PAGCOR. (Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation, G. R. No. 147295, February 16, 2007) 12. Silkair (Singapore) PTE, Ltd., an international carrier, purchased aviation gas from Petron Corporation, which it uses for its operations. It now claims for refund or tax credit for the excise taxes it paid claiming that it is exempt from the payment of excise taxes under the provisions of Sec. 135 of the NIRC of 1997 which provides that petroleum products are exempt from excise taxes when sold to Exempt entities or agencies covered by tax treaties, conventions, and other international agreements for their use and consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies Silkair further anchors its claim on Article 4(2) of the Air Transport Agreement between the Government of the Republic of the Philippines and the Government of the Republic of Singapore (Air Transport Agreement between RP and Singapore) which reads: Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or taken on board aircraft in the territory of one Contracting party by, or on behalf of, a designated airline of the other Contracting Party and intended solely for use in the operation of the agreed services shall, with the exception of charges corresponding to the service performed, be exempt from the same customs duties, inspection fees and other duties or taxes imposed in the territories of the first Contracting Party , even when these supplies are to be used on the parts of the journey performed over the territory of the Contracting Party in which they are introduced into or taken on board. The materials referred to above may be required to be kept under customs supervision and control. Silkair likewise argues that it is exempt from indirect taxes because the Air Transport Agreement between RP and Singapore grants exemption from the same customs duties, inspection fees and other duties or taxes imposed in the territory of the first Contracting Party. It invokes Maceda v. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771.which upheld the claim for tax credit or

refund by the National Power Corporation (NPC) on the ground that the NPC is exempt even from the payment of indirect taxes. Is Silkair entitled to the tax refund or credit it seeks ? Reason out your answer. SUGGESTED ANSWER: Silkair is not entitled to tax refund or credit for the following reasons: a. The excise tax on aviation fuel is an indirect tax. The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. (Philippine Geothermal, Inc. v. Commissioner of Internal Revenue, G.R. No. 154028, July 29, 2005, 465 SCRA 308, 317-318) The NIRC provides that the excise tax should be paid by the manufacturer or producer before removal of domestic products from place of production. Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore. Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser. [Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue, 127 Phil. 461, 470 (1967)] b. Silkair could not seek refuge under Maceda v. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771.which upheld the claim for tax credit or refund by the National Power Corporation (NPC) on the ground that the NPC is exempt even from the payment of indirect taxes.
In Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company, G.R. No. 140230, December 15, 2005, 478 SCRA 61 the Supreme Court clarified the ruling in Maceda v. Macaraig, Jr., viz: It may be so that in Maceda vs. Macaraig, Jr., the Court held that an exemption from all taxes granted to the National Power Corporation (NPC) under its charter includes both direct and indirect taxes. An exemption from all taxes excludes indirect taxes, unless the exempting statute, like NPCs charter, is so couched as to include indirect tax from the exemption. The amendment under Republic Act No. 6395 enumerated the details covered by NPCs exemption. Subsequently, P.D. 380, made even more specific the details of the exemption of NPC to cover, among others, both direct and indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 [NPCs amended charter] amended the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from all forms of taxes, duties[,] fees The use of the phrase all forms of taxes demonstrates the intention of the law to give NPC all the tax exemptions it has been enjoying before. The exemption granted under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore cannot, without a clear showing of legislative intent, be construed as including indirect taxes. Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, and if an exemption is found to exist, it must not be enlarged by construction. (Silkair (Singapore) PTE, Ltd., v. Commissioner of Internal Revenue, G.R. No. 173594, February 6, 2008)