Diaz vs. Secretary of Finance (2011) Facts: Petitioners Renato V. Diaz and Aurora Ma. F.

Timbol (petitioners) filed this petition for declaratory relief assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators. Court treated the case as one of prohibition. Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "user's tax," not a sale of services; that to impose VAT on toll fees would amount to a tax on public service; and that, since VAT was never factored into the formula for computing toll fees, its imposition would violate the non-impairment clause of the constitution. The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including tollway operations; that the Court should seek the meaning and intent of the law from the words used in the statute; and that the imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and circulars. The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway operators. At any rate, the non-impairment clause cannot limit the State's sovereign taxing power which is generally read into contracts. Issue: May toll fees collected by tollway operators be subjected to VAT (Are tollway operations a franchise and/or a service that is subject to VAT)? Ruling: When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter's use of the tollway facilities over which the operator enjoys private proprietary rights that its contract and the law recognize. In this sense, the tollway operator is no different from the service providers under Section 108 who allow others to use their properties or facilities for a fee. Tollway operators are franchise grantees and they do not belong to exceptions that Section 119 spares from the payment of VAT. The word "franchise" broadly covers government grants of a special right to do an act or series of acts of public concern. Tollway operators are, owing to the nature and object of their business, "franchise grantees." The construction, operation, and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of authority from the state. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership.
(1) VAT is imposed on all kinds of services and tollway operators who are engaged in constructing, maintaining, and operating expressways are no different from lessors of property, transportation contractors, etc.

(2) Not only do they fall under the broad term under (1) but also come under those described as all other franchise grantees which is not confined only to legislative franchise grantees since the law does not distinguish. They are also not a franchise grantee under Section 119 which would have made them subject to percentage tax and not VAT. (3) Neither are the services part of the enumeration under Section 109 on VAT-exempt transactions. (4) The toll fee is not a users tax and thus it is permissible to impose a VAT on the said fee. The MIAA case does not apply and the Court emphasized that toll fees are not taxes since they are not assessed by the BIR and do not go the general coffers of the government. Toll fees are collected by private operators as reimbursement for their costs and expenses with a view to a profit while taxes are imposed by the government as an attribute of its sovereignty. Even if the toll fees were treated as users tax, the VAT can not be deemed as a tax on tax since the VAT is imposed on the tollway operator and the fact that it might pass-on the same to the tollway user, it will not make the latter directly liable for VAT since the shifted VAT simply becomes part of the cost to use the tollways. (5) The assertion that the VAT imposed is not administratively feasible given the manner by which the BIR intends to implement the VAT (i.e., rounding off the toll rates and putting any excess collection in an escrow account) is not enough to invalidate the law. Non-observance of the canon of administrative feasibility will not render a tax imposition invalid except to the extent that specific constitutional or statutory limitations are impaired.

CIR v. PLDT Facts: For equipment, machineries and spare parts it imported from October 1, 1992 to May 31, 1994, PLDT paid the BIR the amount of P164,510,953.00, broken down as follows: (a) compensating tax of P126,713,037.00; (b) advance sales tax of P12,460,219.00 and (c) other internal revenue taxes of P25,337,697.00. For similar importations made between March 1994 to May 31, 1994, PLDT paid P116,041,333.00 value-added tax (VAT). (Note: PLDT did not necessarily pay VAT directly to the BIR.) After a ruling was handed down by the BIR to the effect that the PLDT is exempt from paying all taxes on its franchise and earnings including the VAT because of the 3% franchise tax imposed on it by Section 12 of RA 7082, the PLDT claimed from the BIR a tax credit/refund of the VAT, compensating taxes, advance sales taxes and other taxes it had been paying. When its claim was not acted upon by the BIR, PLDT went to the CTA. The CTA ruled for PLDT, but made deductions (refundable amounts which period to claim had already prescribed) from the total tax refund prayed for by PLDT. The CIR appealed to the CA. The CA affirmed the CTAs decision. The CIR appealed to the SC, saying that the CA erred in ruling that because of the 3% franchise tax the PLDT is exempt from paying all taxes, including indirect taxes. Issue: WON the 3% franchise tax exempts the PLDT from paying all other taxes, including indirect taxes. Held: No. 1. Direct taxes are those exacted from the very person who, it is intended or desired, should pay them. They are impositions for which a taxpayer is directly liable on the transaction or business he is engaged in. 2. Indirect taxes are those that are demanded, in the first instance, from, or are paid by, one person in the expectation and intention that he can shift the burden to someone

else. In other words, indirect taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the price of goods sold or services rendered. 3. The NIRC classifies VAT as an indirect tax the amount of [which] may be shifted or passed on to the buyer, transferee or lessee of the goods. The 10% VAT on importation of goods is in the nature of an excise tax levied on the privilege of importing articles. It is imposed on all taxpayers who import goods. It is not a tax on the franchise of a business enterprise or on its earnings, as stated in Section 2 of RA 7082. 4. Advance sales tax has the attributes of an indirect tax because the tax-paying importer of goods for sale or of raw materials to be processed into merchandise can shift the tax or lay the economic burden of the tax on the purchaser by subsequently adding the tax to the selling price of the imported article or finished product. 5. Compensating tax also partakes of the nature of an excise tax payable by all persons who import articles, whether in the course of business or not. 6. The liability for the payment of the indirect taxes lies with the seller of the goods or services, not in the buyer thereof. Thus, one cannot invoke ones exemption privilege to avoid the passing on or the shifting of the VAT to him by the manufacturers/suppliers of the goods he purchased. Hence, it is important to determine if the tax exemption granted to a taxpayer specifically includes the indirect tax which is shifted to him as part of the purchase price, otherwise it is presumed that the tax exemption embraces only those taxes for which the buyer is directly liable. Since RA 7082 did not specifically include indirect taxes in the exemption granted to PLDT, the latter cannot claim exemption from VAT, advance sales tax and compensating tax. 7. The clause in lieu of all taxes in Section 12 of RA 7082 is immediately followed by the qualifying clause on this franchise or earnings thereof, suggesting that the exemption is limited to taxes imposed directly on PLDT since taxes pertaining to PLDTs franchise or earnings are its direct liability. Accordingly, indirect taxes, not being taxes on PLDTs franchise or earnings, are not included in the exemption provision. 8. PLDTs allegation that the Bureau of Customs assessed the company for advance sales tax and compensating tax for importations entered between October 1, 1992 and May 31, 1994 when the value-added tax system already replaced, if not totally eliminated, advance sales and compensating taxes, is with merit. Pursuant to Executive Order No. 273, a multi-stage value-added tax was put into place to replace the tax on original and subsequent sales tax. Therefore, compensating tax and advance sales tax were no longer collectible internal revenue taxes under the NIRC when the Bureau of Customs made the assessments in question and collected the corresponding tax. Stated a bit differently, PLDT was no longer under legal obligation to pay compensating tax and advance sales tax on its importation from 1992 to 1994. A refund of the amounts paid as such taxes is thus proper.

9. P87,257,031.00 of compensating tax + P7,416,391.00 advanced sales tax = P94,673,422.00 total refund.
ASIA INTL AUCTIONEERS INC vs CIR Pascual vs Secretary of Public Works Case Digest
WENCESLAU PASCUAL, AS PROVINCIAL GOVERNOR VS. SECRETARY OF PUBLIC WORKS FACTS: On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An Act Appropriating Funds for Public Works", approved on June 20, 1953, an item of P85,000.00, "for the construction, reconstruction, repair, extension and improvement" of "Pasig feeder road terminals"; that, at the time of the passage and approval of said Act, the aforementioned feeder roads were "nothing but projected and planned subdivision roads, not yet constructed, within the Antonio Subdivision situated at Pasig, Rizal" which projected feeder roads "do not connect any government property or any important premises to the main highway"; that the aforementioned Antonio Subdivision were private properties of respondent Jose C. Zulueta, who, at the time of the passage and approval of said Act, was a member of the Senate of the Philippines; that on May 29, 1953, respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal, offering to donate said projected feeder roads to the municipality of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council, subject to the condition "that the donor would submit a plan of the said roads and agree to change the names of two of them"; that no deed of donation in favor of the municipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote another letter to said council, calling attention to the approval of Republic Act No. 920, and the sum of P85,000.00 appropriated therein for the construction of the projected feeder roads in question; that the municipal council of Pasig endorsed said letter of respondent Zulueta to the District Engineer of Rizal, who, up to the present "has not made any endorsement thereon"; that inasmuch as the projected feeder roads in question were private property at the time of the passage and approval of Republic Act No. 920, the appropriation of P85,000.00 therein made, for the construction, reconstruction, repair, extension and improvement of said projected feeder roads, was "illegal and, therefore, void ab initio"; that said appropriation of P85,000.00 was made by Congress because its members were made to believe that the projected feeder roads in question were "public roads and not private streets of a private subdivision'"; that, "in order to give a semblance of legality, when there is absolutely none, to the aforementioned appropriation", respondent Zulueta executed, on December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed of donationcopy of which is annexed to the petitionof the four (4) parcels of land constituting said projected feeder roads, in favor of the Government of the Republic of the Philippines; that said alleged deed of donation was, on the same date, accepted by the then Executive Secretary; that being subject to an onerous condition, said donation partook of the nature of a contract; that, as such, said donation violated the provision of our fundamental law prohibiting members of Congress from being directly or indirectly financially interested in any contract with the Government, and, hence, is unconstitutional, as well as null and void ab initio, for the construction of the projected feeder roads in question with public funds would greatly enhance or increase the value of the aforementioned subdivision of respondent Zulueta, "aside from relieving him from the burden of constructing his subdivision streets or roads at his own expense"; that the construction of said projected feeder roads was then being undertaken by the Bureau of Public Highways; and that, unless restrained by the court, the respondents would continue to execute, comply with, follow and implement the aforementioned illegal provision of law, "to the irreparable damage, detriment and prejudice not only to the petitioner but to the Filipino nation." ISSUE: Whether or not the statute is unconstitutional and void? HELD: "It is a general rule that the legislature is without power to appropriate public revenue for anything but a public purpose. * * * It is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax, and not the magnitude of the interests to be affected nor the degree to which the general advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion. Incidental advantage to the public or to the state, which results from the promotion of private interests and the prosperity of private enterprises or business, does not justify their aid by the use of public money." (25 R.L.C. pp. 398-400; Italics supplied.) The rule is set forth in Corpus Juris Secundum in the following language: "In accordance with the rule that the taxing power must be exercised for public purposes only, money raised by taxation can be expended only for public purposes and not for the advantage of private individuals." Explaining the reason underlying said rule, Corpus Juris Secundum states: "Generally, under the express or implied provisions of the constitution, public funds may be used only for a public purpose. The right of the legislature to appropriate funds is correlative with its right to tax, and, under constitutional

provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than a public purpose. * * * "The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interests, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals might incidentally serve the public. * * * ." (81 C.J.S. p. 1147; italics supplied.) The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon events occurring, or acts performed, subsequently thereto. Referring to the P85,000.00 appropriation for the projected feeder roads in question, the legality thereof depended upon whether said roads were public or private property when the bill, which, later on, became Republic Act No. 920, was passed by Congress, or, when said bill was approved by the President and the disbursement of said sum became effective, or on June 20, 1953. Inasmuch as the land on which the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private purpose, and, hence, was null and void.4 The donation to the Government, over five (5) months after the approval and effectivity of said Act, made, according to the petition, for the purpose of giving a "semblance of legality", or legalizing, the appropriation in question, did not cure its aforementioned basic defect. Consequently, a judicial nullification of said donation need not precede the declaration of unconstitutionality of said appropriation.

Tio Vs. Videogram Regulatory Board Case Digest

Tio Vs. Videogram Regulatory Board 151 SCRA 208 G.R. No. L-75697 June 18, 1987]

Facts: The case is a petition filed by petitioner on behalf of videogram operators adversely affected by Presidential Decree No. 1987, An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram industry. A month after the promulgation of the said Presidential Decree, the amended the National Internal Revenue Code provided that: "SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette, ready for playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or imported blank video tapes shall be subject to sales tax." "Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision of law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case may be, for every sale, lease or disposition of a videogram containing a reproduction of any motion picture or audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and the other fifty percent (50%) shall accrue to the municipality where the tax is collected; PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila Commission. The rationale behind the tax provision is to curb the proliferation and unregulated circulation of videograms including, among others, videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced the operations of movie houses and theaters. Such unregulated circulation have caused a sharp decline in theatrical attendance by at least forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific, amusement and other taxes, thereby resulting in substantial losses estimated at P450 Million annually in government revenues. Videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and disposition of videograms, and these earnings have not been subjected to tax, thereby depriving the Government of approximately P180 Million in taxes each year. The unregulated activities of videogram establishments have also affected the viability of the movie industry.

Issue: Whether or not tax imposed by the DECREE is a valid exercise of police power. Whether or nor the DECREE is constitutional . Held: Taxation has been made the implement of the state's police power. The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie industry, the tax remains a valid imposition. We find no clear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 as unconstitutional and void. While the underlying objective of the DECREE is to protect the moribund movie industry, there is no question that public welfare is at bottom of its enactment, considering "the unfair competition posed by rampant film piracy; the erosion of the moral fiber of the viewing public brought about by the availability of unclassified and unreviewed video tapes containing pornographic films and films with brutally violent sequences; and losses in government revenues due to the drop in theatrical attendance, not to mention the fact that the activities of video establishments are virtually untaxed since mere payment of Mayor's permit and municipal license fees are required to engage in business." WHEREFORE, the instant Petition is hereby dismissed. No costs.

Pepsi Cola Bottling Company vs Municipality of Tanauan Facts: Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September 1962, the Municipality approved Ordinance No. 23 which levies and collects from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked. In December 1962, the Municipality also approved Ordinance No. 27 which levies and collects on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of one centavo P0.01) on each gallon of volume capacity. Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute double taxation in two instances: a) double taxation because Ordinance No. 27 covers the same subject matter and impose practically the same tax rate as with Ordinance No. 23, b) double taxation because the two ordinances impose percentage or specific taxes. Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for the delegation of taxing powers to local government units; that allowing local governments to tax companies like Pepsi Cola is confiscatory and oppressive. The Municipality assailed the arguments presented by Pepsi Cola. It argued, among others, that only Ordinance No. 27 is being enforced and that the latter law is an amendment of Ordinance No. 23, hence there is no double taxation. ISSUE: Whether or not there is undue delegation of taxing powers. Whether or not there is double taxation. HELD: No. There is no undue delegation. As a rule the power of taxation being legislative in character cannot be delegated. However Legislative powers may be delegated to local governments in respect of matters of local concern. By necessary implication, the legislative power to create political corporations for purposes of local self-government carries with it the power to confer on such local governmental agencies the power to tax. Under the New Constitution, local governments are granted the autonomous authority to create their own sources of revenue and to levy taxes. Section 5, Article XI provides: Each local government unit shall have the power to create its sources of revenue and to levy taxes, subject to such limitations as may be provided by law. Withal, it cannot be said that Section 2 of Republic Act No. 2264

emanated from beyond the sphere of the legislative power to enact and vest in local governments the power of local taxation. Moreover a tax measure becomes confiscatory only when when these guidelines was not complied with: (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is observed; (3) either the person or property taxed is within the jurisdiction of the government levying the tax; and (4) in the assessment and collection of certain kinds of taxes notice and opportunity for hearing are provided. In this case there is no showing that the tax measure was for other purpose hence violative of the constitutional mandate. Due process is usually violated where the tax imposed is for a private as distinguished from a public purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation; and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a tax does not violate the due process clause, as applied to a particular taxpayer, although the purpose of the tax will result in an injury rather than a benefit to such taxpayer. Due process does not require that the property subject to the tax or the amount of tax to be raised should be determined by judicial inquiry, and a notice and hearing as to the amount of the tax and the manner in which it shall be apportioned are generally not necessary to due process of law. There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of double taxation. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. The reason is that the State has exclusively reserved the same for its own prerogative. There is no double taxation. The argument of the Municipality is well taken. Further, Pepsi Colas assertion that the delegation of taxing power in itself constitutes double taxation cannot be merited. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. The reason is that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law unlike in other jurisdictions. Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the same purpose, but not in a case where one tax is imposed by the State and the other by the city or municipality. MIAA vs CITY OF PARANAQUE DEUTSCHE BANK vs CIR SEA-LAND SERVICES, INC vs CA MANILA ELECTRIC COMPANY vs YATCHO REAGAN vs CIR CIR vs MITSUBISHI METAL CORP. CIR vs MARUBENI CORP COMMISSIONER OF CUSTOMS vs CTA TIU vs CA CIR vs LINGAYEN GULF ELECTRIC POWER CO. CITY OF BAGUIO ns DELEON SISON vs ANCHETA VILLANUEVA vs CITY OF ILOILO