Taxation and Tax Defined
COMMISSIONER OF INTERNAL REVENUE vs.
ALGUE, INC., and CTA (1988)
Collector of Internal Revenue disallowed the P75K deduction
claimed by private respondent Algue as legitimate business
expenses in its income tax returns. CTA agreed with Algue,
allowing the deduction of P75K as legit business expenses.
Collector of IR appealed CTA’s decision.
Commissioner argues: deduction was not allowed bec it was not
an ordinary reasonable or necessary business expense.
CTA & Algue: the said amount had been legitimately paid by the
Algue for actual services rendered. The payment was in the form
of promotional fees. These were collected by the Payees for their
work in the creation of the Vegetable Oil Investment Corporation of
the Phils (VOICP) and its subsequent purchase of the properties
of the Philippine Sugar Estate Devt Company (PSEDC).
ISSUE: Is the tax deduction proper? YES! HELD: In favor of CTA
& Algue!
The amount was earned through the joint efforts of the persons
among whom it was distributed. It has been established that the
PSEDC had earlier appointed Algue as its agent, authorizing it to
sell its land, factories and oil manufacturing process. Pursuant to
such authority, 5 others worked for the formation of the VOICP,
inducing other persons to invest in it. Ultimately, after its
incorporation largely through the promotion of said 5persons, this
new corporation purchased the PSEDC properties. For this sale,
Algue received as agent a commission of P126k, and it was from
this commission that the P75k promotional fees were paid to the
5persons.
There is no dispute that the payees duly reported their respective
shares of the fees in their ITRs and paid the corresponding taxes
thereon. CTA also found that no distribution of dividends was
18
involved.
Commissioner accuses Algue of tax dodging (attempt to evade a
legitimate assessment by involving an imaginary deduction). He
claimed that these payments are fictitious bec most of the payees
are members of the same family in control of Algue. In fact, no
indication was made as to how such payments were made,
whether by check or in cash, and there is not enough
substantiation of such payments.
However, these suspicions were adequately met by Algue Inc
when its President, Guevara, and the accountant, de Jesus,
testified that the payments were not made in 1 lump sum but
periodically and in different amounts as each payee's need arose.
It should be remembered that Algue Inc was a family corporation
where strict business procedures were not applied and immediate
issuance of receipts was not required. Even so, at the end of the
year, when the books were to be closed, each payee made an
accounting of all of the fees received by him or her, to make up the
total of P75,000.00. Admittedly, everything seemed to be informal.
This arrangement was understandable, however, in view of the
close relationship among the persons in the family corporation.
The CTA was correct that the amount of the promotional fees
was not excessive. The total commission paid by the PSEDC. to
Algue Inc was P125K. After deducting the said fees, Algue still had
a balance of P50K as clear profit from the transaction. The amount
of P75K was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did practically
everything, from the formation of the VOICP to the actual purchase
by it of the PSEDC properties. This finding of the respondent court
is in accord with Sec 30 of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net income there
shall be allowed as deductions —
(a) Expenses: (1) In general.--All the ordinary and necessary expenses paid
or incurred during the taxable year in carrying on any trade or business,
including a reasonable allowance for salaries or other compensation for
personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1):
SEC. 70. Compensation for personal services.--Among the ordinary and
necessary expenses paid or incurred in carrying on any trade or business may
be included a reasonable allowance for salaries or other compensation for
personal services actually rendered. The test of deductibility in the case
of compensation payments is whether they are reasonable and are, in
fact, payments purely for service. This test and deductibility in the case of
compensation payments is whether they are reasonable and are, in fact,
payments purely for service. This test and its practical application may be
further stated and illustrated as follows: Any amount paid in the form of
compensation, but not in fact as the purchase price of services, is not
deductible. (a) An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in the case of a
corporation having few stockholders, Practically all of whom draw
salaries. If in such a case the salaries are in excess of those ordinarily
paid for similar services, and the excessive payment correspond or bear
a close relationship to the stockholdings of the officers of employees, it
would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon
the stock. . . .
It is worth noting at this point that most of the payees were not in
the regular employ of Algue nor were they its controlling
23
stockholders.
SolGen’s correct that the burden is on the taxpayer to prove
the validity of the claimed deduction. In the present case,
however, we find that the onus has been discharged satisfactorily.
The private respondent has proved that the payment of the fees
was necessary and reasonable in the light of the efforts exerted by
the payees in inducing investors and prominent businessmen to
venture in an experimental enterprise and involve themselves in a
new business requiring millions of pesos. This was no mean feat
and should be, as it was, sufficiently recompensed.
Taxes are what we pay for civilization society. Without taxes,
the government would be paralyzed for lack of the motive
power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to
the taxing authorities, every person who is able to must
contribute his share in the running of the government. The
government for its part, is expected to respond in the form of
tangible and intangible benefits intended to improve the lives
of the people and enhance their moral and material values.
This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary
method of exaction by those in the seat of power.
But even as the inevitability and indispensability of taxation is
conceded, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain
and the courts will then come to his succor. For all the awesome
power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate, as it has here, that the law has not
been observed.
PROGRESSIVE DEVT CORP vs.QUEZON CITY 1989
City Council of QC adopted Ordinance No. 7997, Series of 1969,
the Market Code of Quezon City, Section 3 of which provided:
Sec. 3. Supervision Fee.- Privately owned and operated public
markets shall submit monthly to the Treasurer's Office, a certified list
of stallholders showing the amount of stall fees or rentals paid daily by each
stallholder, ... and shall pay 10% of the gross receipts from stall rentals to
the City, ... , as supervision fee
The Market Code was thereafter amended by Ordinance No.
9236, Series of 1972, which reads:
SECTION 1. There is hereby imposed (5 %) tax on gross receipts on
rentals or lease of space in privately-owned public markets in Quezon
City.
xxx xxx xxx
SECTION 3. For the effective implementation of this Ordinance,
owners of privately owned public markets shall submit ... a monthly
certified list of stallholders of lessees of space in their markets xxx
Petitioner Progressive Devt Corp, owner and operator of a public
market known as the "Farmers Market & Shopping Center" filed a
Petition for Prohibition with Preliminary Injunction against
respondent bec the supervision fee or license tax imposed by the
ordinances is in reality a tax on income which QC may not impose,
the same being expressly prohibited by RA 2264
QC answered: it had authority to enact the ordinances,
maintaining that the tax on gross receipts imposed therein is not a
tax on income. SolGen added that the tax on gross receipts was
not a tax on income but one imposed for the enjoyment of the
privilege to engage in a particular trade or business which was
within the power of QC to impose.
LC: dismissed the petition: the questioned imposition is not a tax
on income, but rather a privilege tax or license fee which local
governments, like QC, are empowered to impose and collect.
ISSUE: Whether the tax imposed on gross receipts of stall rentals
is properly characterized as partaking of the nature of an income
tax or, alternatively, of a license fee.
HELD: LICENSE FEE, in favor of QC!
Section 12, Article III RA 537, the Revised Charter of Quezon City,
authorizes the City Council:
xxx xxx xxx
(b) To provide for the levy and collection of taxes and other
city revenues and apply the same to the payment of city
expenses in accordance with appropriations.
(c) To tax, fix the license fee, and regulate the business of
the following:
... preparation and sale of meat, poultry, fish, game, butter,
cheese, lard vegetables, bread and other provisions.
The scope of legislative authority conferred upon the QC Council
in respect of businesses like that of the petitioner, is
comprehensive: the grant of authority is not only" [to] regulate" and
"fix the license fee," but also " to tax"
Also, RA 2264, the Local Autonomy Act, provides that:
Any provision of law to the contrary notwithstanding, all
chartered cities, municipalities and municipal districts shall have
authority to impose municipal license taxes or fees upon persons
engaged in any occupation or business, or exercising privileges in
chartered cities, municipalities or municipal districts by
requiring them to secure licenses at rates fixed by the
municipal board or city council of the city, the municipal
council of the municipality, or the municipal district council
of the municipal district; to collect fees and charges for
service rendered by the city, municipality or municipal
district; to regulate and impose reasonable fees for services
rendered in connection with any business, profession or
occupation being conducted within the city, municipality or
municipal district and otherwise to levy for public purposes
just and uniform taxes licenses or fees: ...
Thus, RA 2264 confers upon local governments broad taxing
authority extending to almost "everything, excepting those which
are mentioned therein," provided that the tax levied is "for public
purposes, just and uniform," does not transgress any constitutional
provision and is not repugnant to a controlling statute.
Both the Local Autonomy Act and the Charter of QC clearly show
that respondent is authorized to fix the license fee collectible from
and regulate the business of petitioner as operator of a privately-
owned public market.
Petitioner, insists: "supervision fee" collected from rentals, being a
return from capital invested in the construction of the Farmers
Market, practically operates as a tax on income, 1 of those
expressly excepted from respondent's taxing authority, and thus
beyond the latter's competence. Petitioner cites the same Section
2 of the Local Autonomy Act :
... Provided, however, That no city, municipality or municipal
district may levy or impose any of the following:
xxx xxx xxx
(g) Taxes on income of any kind whatsoever;
SC HELD: The term "tax" frequently applies to all kinds of
exactions of monies which become public funds. It is often loosely
used to include levies for revenue as well as levies for regulatory
purposes such that license fees are frequently called taxes
although license fee is a legal concept distinguishable from tax:
the former is imposed in the exercise of police power primarily for
purposes of regulation, while the latter is imposed under the taxing
power primarily for purposes of raising revenues. Thus, if the
generating of revenue is the primary purpose and regulation is
merely incidental, the imposition is a tax; but if regulation is the
primary purpose, the fact that incidentally revenue is also obtained
does not make the imposition a tax.
To be considered a license fee, the imposition questioned must
relate to an occupation or activity that so engages the public
interest in health, morals, safety and development as to require
regulation for the protection and promotion of such public interest;
the imposition must also bear a reasonable relation to the probable
expenses of regulation, taking into account not only the costs of
direct regulation but also its incidental consequences as well.
Accordingly, a charge of a fixed sum which bears no relation at all
to the cost of inspection and regulation may be held to be a tax power of the respondent City and where that regulatory power is
rather than an exercise of the police power. expressly accompanied by the taxing power.

ITCAB, the "Farmers Market & Shopping Center" was built by

virtue of Resolution No. 7350.The same resolution imposed upon
petitioner, as a condition for continuous operation, the obligation to
"abide by and comply with the ordinances, rules and regulations
prescribed for the establishment, operation and maintenance of
markets in Quezon City."

The "Farmers' Market and Shopping Center" being a public market

in the' sense of a market open to and inviting the patronage of the
general public, even though privately owned, petitioner's operation
thereof required a license issued by the respondent City, the
issuance of which, applying the standards set forth above, was
done principally in the exercise of the respondent's police power.
The operation of a privately owned market is, as correctly noted by
the Solicitor General, equivalent to or quite the same as the
operation of a government-owned market; both are established for
the rendition of service to the general public, which warrants close
supervision and control by the respondent City, for the protection
of the health of the public.

Thus, the (5%) tax imposed in Ordinance No. 9236 constitutes, not
a tax on income, not a city income tax but rather a license tax or
fee for the regulation of the business in which the petitioner is
engaged. While it is true that the amount imposed by the
questioned ordinances may be considered in determining whether
the exaction is really one for revenue or prohibition, instead of one
of regulation under the police power, it nevertheless will be
presumed to be reasonable. Local' governments are allowed wide
discretion in determining the rates of imposable license fees even
in cases of purely police power measures, in the absence of proof
as to particular municipal conditions and the nature of the business
being taxed as well as other detailed factors relevant to the issue
of arbitrariness or unreasonableness of the questioned rates.

Petitioner has neither shown that the rate of the gross receipts tax
is so unreasonably large and excessive and so grossly
disproportionate to the costs of the regulatory service being
performed by the respondent as to compel the Court to
characterize the imposition as a revenue measure exclusively. The
lower court correctly held that the gross receipts from stall rentals
have been used only as a basis for computing the fees or taxes
due respondent to cover the latter's administrative expensesThe
use of the gross amount of stall rentals as basis for determining
the collectible amount of license tax, does not by itself, upon the
one hand, convert or render the license tax into a prohibited city
tax on income. Upon the other hand, it has not been suggested
that such basis has no reasonable relationship to the probable
costs of regulation and supervision of the petitioner's kind of
business. For, ordinarily, the higher the amount of stall rentals, the
higher the aggregate volume of foodstuffs and related items sold in
petitioner's privately owned market; and the higher the volume of
goods sold in such private market, the greater the extent and
frequency of inspection and supervision that may be reasonably
required in the interest of the buying public. Moreover, what we
started with should be recalled here: the authority conferred upon
the respondent's City Council is not merely "to regulate" but also
embraces the power "to tax" the petitioner's business.

Petitioner argues: respondent is without power to impose a gross

receipts tax for revenue purposes absent an express grant from
the national government. As a general rule, there must be a
statutory grant for a local government unit to impose lawfully a
gross receipts tax, that unit not having the inherent power of
taxation. The rule, however, finds no application in the instant case
where what is involved is an exercise of, principally, the regulatory
COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, vs. CITY
OF MANILA, 1907
Plaintiff sought to recover of the sum of P134,444.97, which it
alleged was illegally collected by the defendant from the plaintiff as
taxes for the years 1898, 1899, 1900, 1901, 1902, and 1903.
Parties later entered into a stipulation of facts (in Espanol hehe)
ISSUE: Can the sum be recovered?
HELD: NO.
- During the years 1898, 1899, 1900, 1901, 1902, and
1903 the plaintiff paid to the Collector of Internal Revenue
and various provinces, in addition to the contribucion
industrial, a contribucion territorial and contribucion
urbana.
- Plaintiff claims that it was only required, under the laws in
force in the Phils, to pay the industrial tax and this to be
based upon the dividends declared by said plaintiff in
favor of its stockholders. This contention of the plaintiff is
based upon paragraph 4 of tarifa primera of the Industrial
Tax Regulations, dated June 19, 1890. This regulation is
as follows:
Banks and commercial corporations shall pay "5 per cent of the profits or
dividends which may be distributed to the stockholders according to their
respective balances."
- Thus, plaintiff argued that when banks and commercial
associations have paid an industrial tax of 5 per cent
upon the dividends declared, that they will thereby be
relieved from the necessity of paying a territorial and an
urbana tax. Therefore, under this law the plaintiff, being a
commercial association, can not be required to pay more
taxes in the form of territorial and urbana taxes after
having paid an industrial tax in accordance with the
above provisions of said Industrial Tax Regulations.
- The case, however, presents another difficulty. This
action was brought to recover an excess of taxes from
the city of Manila. By the agreed statement of facts
whatever excess was paid, if any, was paid to the Dept of
Internal Revenue. It is not shown that the Dept of Internal
Revenue collected this money for the city of Manila;
neither do the stipulated facts show that the city of Manila
received all the money so paid. Upon the contrary,
however, the stipulated facts in various parts of the
Philippine Islands.
- plaintiff may have an opportunity to show what part, if any, of such
- Note the during the colonial period fiscal system in the
Insular Government was a highly centralized
institution. There was one Government Treasury. All
taxes levied and assessed by the Government were
Insular Taxes and all taxes collected throughout the
Philippine Archipelago were covered into the Insular
Treasury. When a tax levied by the general law was
paid, it was paid once for all. The different
governmental entities, such as provinces, etc., under
the Spanish Government were not supported by
taxes collected by themselves, for themselves, but
were supported by appropriations out of the general
fund so collected for the Central Government. This
method of collecting taxes was somewhat modified
later. Section 1 (8) of Act No. 133, provided:
SEC. 18. In all provides organized under this act the urbana
tax, the industrial tax, the stamp tax, and the sum collected
under the regulations for the cutting of timber upon public
lands, and all other taxes known as inland-revenue taxes, shall
cease to be levied and collected as revenue for the Central
Government of the Archipelago from and after the 30th of
June, 1901, and shall thereafter be collected as provincial and
municipal taxes by the provincial treasurers. One-half of the
taxes so collected shall be paid into the treasuries of the
respective municipalities in which they shall be collected, etc.
- It is clear, then, that whatever taxes the plaintiff paid prior
to the 30th day of June, 1901, to the Province of Manila,
or the other provinces of the Archipelago, were paid to
the agent of the Central Government and certainly the
city of Manila should not be required to refund said taxes,
even granting that they were illegally collected.
-
- With reference to the taxes paid by the plaintiff
subsequent to the 30th of June, 1901, in Manila and the
various provinces, granting that they were illegally
collected, and granting that the city of Manila collected a
part of them (which is not shown in the stipulated facts),
certainly the city of Manila should not be called upon to
refund more than it actually received. The stipulated facts
do not show what part of the taxes paid to the plaintiff
was paid to the city of Manila and what part to the various
provinces. For this reason, granting that the plaintiff has
paid more taxes than it should be required to pay under
the law, we are unable to say from the record what
portion of such illegal collections, if any, was collected or
received by the city of Manila.
- In the last paragraph of the stipulated facts of the plaintiff
admits that it paid "en concepto de contribucion
industrial," corresponding to the years 1901, 1902, and
1903, the sum of 88,698 pesos as taxes imposed upon
the dividends declared by the said plaintiff, in accordance
with paragraph 4 of tariff 1 of the Industrial Tax
Regulations. This is a part of the amount which the
plaintiff attempts to recover. It seems from the admission
of the plaintiff in its stipulated facts that this amount was
collected in accordance with the law of June 19, 1890. If
that is so, certainly the plaintiff should not be permitted to
recover this particular amount.
- From the stipulated facts it appears that the plaintiff has
been required to pay taxes which it should not have been
required to pay in accordance with the provisions of the
law of June 19, 1890. It does not appear, however, to
whom these illegal taxes have been paid. It does not
appear that all, or any part thereof, were paid to the city
of Manila.
Case remanded to the lower court for a new trial, in order that the
illegal taxes were actually collected and received by the city of
Manila.
PAL vs. ROMEO F. EDU in his capacity as Land
Transportation Commissioner, and UBALDO CARBONELL, in
his capacity as National Treasurer
The disputed registration fees were imposed by Commissioner
Elevate pursuant to Section 8, RA4136, the Land Transportation
and Traffic Code.
(PAL) is a corporation is engaged in the air transportation
business under a legislative franchise. Under its franchise, PAL is
exempt from the payment of taxes.
On the strength of an opinion of the Secretary of Justice PAL has,
since 1956, not been paying motor vehicle registration fees.
1971, however, appellee Commissioner Elevate issued a
regulation requiring all tax exempt entities, among them PAL to
pay motor vehicle registration fees.
Despite PAL's protestations, appellee refused to register the
appellant's motor vehicles unless the amounts imposed were paid.
PAL thus paid, under protest, P19,529.75 as registration fees of its
motor vehicles.
After paying under protest, PAL wrote to Commissioner Edu
demanding a refund of the amounts paid, invoking Calalang v.
Lorenzo where it was held that motor vehicle registration fees are
in reality taxes from the payment of which PAL is exempt by virtue
of its legislative franchise.
Edu denied request for refund based on Republic v. Philippine
Rabbit Bus, that motor vehicle registration fees are regulatory and
not revenue measures and, therefore, do not come within the
exemption granted to PAL under its franchise.
PAL filed the complaint against LTC Commissioner Edu and
National Treasurer Carbonell
Respondents contend: Registration fees of motor vehicles are not
taxes, but regulatory fees imposed as an incident of the exercise
of the police power of the state. Yes, Act 4271 exempts PAL from
the payment of any tax except two per cent on its gross revenue or
earnings, but it does not exempt the plaintiff from paying regulatory
fees, such as motor vehicle registration fees.
TC: Ruled for LTC, PAL lost.
ISSUE: What is the nature of motor vehicle registration fees? Are
they taxes or regulatory fees? TAX!!
Motor vehicle registration fees were matters originally governed by
the Revised Motor Vehicle Law. Today, the matter is governed by
Rep. Act 4136 [1968]), the Land Transportation Code.
Section 73 of Commonwealth Act 123 states:
Section 73. Disposal of moneys collected.—Twenty per centum of
the money collected under the provisions of this Act shall accrue to
the road and bridge funds of the different provinces and chartered
cities in proportion to the centum shall during the next previous
year and the remaining eighty per centum shall be deposited in the
Philippine Treasury to create a special fund for the construction and
maintenance of national and provincial roads and bridges. as well
as the streets and bridges in the chartered cities to be alloted by
the Secretary of Public Works and Communications for projects
recommended by the Director of Public Works in the different
provinces and chartered cities. ....
Presently, Sec. 61 of the Land Transportation and Traffic Code
provides:
Sec. 61. Disposal of Mortgage. Collected—Monies collected under
the provisions of this Act shall be deposited in a special trust
account in the National Treasury to constitute the Highway Special
Fund, which shall be apportioned and expended in accordance with
the provisions of the" Philippine Highway Act of 1935. "Provided,
however, That the amount necessary to maintain and equip the
Land Transportation Commission but not to exceed twenty per cent
of the total collection during one year, shall be set aside for the
purpose. (As amended by RA 64-67, approved August 6, 1971).
Thus, the legislative intent and purpose behind the law
requiring owners of vehicles to pay for their registration is
mainly to raise funds for the construction and maintenance of
highways and to a much lesser degree, pay for the operating
expenses of the administering agency.
Fees may be properly regarded as taxes even though they also
serve as an instrument of regulation
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. Such is the case of motor vehicle registration
fees. Section 591-593 Land Transportation codes shows that the
legislators had in mind a regulatory tax as the law refers to the
imposition on the registration, operation or ownership of a motor
vehicle as a "tax or fee." Though nowhere in Rep. Act 4136 does
the law specifically state that the imposition is a tax, Section 591-
593). speaks of "taxes." or fees ... for the registration or operation
or on the ownership of any motor vehicle, or for the exercise of the
profession of chauffeur ..." making the intent to impose a tax more
apparent. Thus, even Rep. Act 5448 cited by the respondents,
speak of an "additional" tax," where the law could have referred
to an original tax and not one in addition to the tax already
imposed on the registration, operation, or ownership of a motor
vehicle under Rep. Act 41383. Simply put, if the exaction under
Rep. Act 4136 were merely a regulatory fee, the imposition in Rep.
Act 5448 need not be an "additional" tax.
Vehicle registration fees were originally intended only for rigid
purposes in the exercise of the State's police powers. Over the
years, however, as vehicular traffic exploded in number and motor
vehicles became absolute necessities without which modem life as
we know it would stand still, Congress found the registration of
vehicles a very convenient way of raising much needed revenues.
Without changing the earlier deputy. of registration payments as
"fees," their nature has become that of "taxes."
Thus, may the respondent administrative agency be required to
refund the paid in 1971? NO.
NB. PAL's current franchise now however is clear and specific.
PAL is now exempt from the payment of any tax, fee, or other
charge on the registration and licensing of motor vehicles. Such
payments are already included in the basic tax or franchise tax
provided in Subsections (a) and (b) of Section 13, P.D. 1590, and
may no longer be exacted.
DECISION: WHEREFORE, the petition is hereby partially
GRANTED. The prayed for refund of registration fees paid in 1971
is DENIED. (LTFRB) is enjoined from collecting any tax, fee, or
other charge on the registration and licensing of PAL’s motor
vehicles from April 9, 1979 as provided in Presidential Decree No.
1590.
PHILEX V. CIR (tax v. ordinary debt)
FACTS:
• BIR asked Philex to pay tax for 1991-1992 in the total
amount of P123,821,982.52. Philex refused stating that it
has pending claims for VAT input credit/refund for the
taxes it paid for the years 1989 to 1991 in the amount of
P119,977,037.02 plus interest. Therefore asking for an off-
set. Philex filed a case with the CTA.
• Philex was able to obtain its VAT input credit/refund not
only for the taxable year 1989 to 1991 but also for 1992
and 1994
• In view of the grant of its VAT input credit/refund, Philex
now contends that the same should, ipso jure, off-set its
excise tax liabilities, since both had already become “due
and demandable, as well as fully liquidated;” hence, legal
compensation can properly take place.
ISSUE: WON there should be an offset?
HELD: NO.
“Taxes cannot be subject to compensation for the simple
reason that the government and the taxpayer are not creditors
and debtors of each other. There is a material distinction
between a tax and debt. DEBTS are due to the Government in
its corporate capacity, while TAXES are due to the
Government in its sovereign capacity.”
Philex’s claim is an outright disregard of the basic principle in
tax law that taxes are the lifeblood of the government and
so should be collected without unnecessary hindrance.
A distinguishing feature of a tax is that it is compulsory rather
than a matter of bargain. Hence, a tax does not depend upon
the consent of the taxpayer. A taxpayer cannot refuse to pay
his taxes when they fall due simply because he has a claim
against the government or that the collection of the tax is
contingent on the result of the lawsuit it filed against the
government.
Moreover, Philex's theory that would automatically apply its
VAT input credit/refund against its tax liabilities can easily give
rise to confusion and abuse, depriving the government of
authority over the manner by which taxpayers credit and offset
their tax liabilities.
MARCOS II V. CA (necessity theory)
FACTS: Ferdinand R. Marcos II, the eldest son of the
decedent, questions the actuation of CIR in assessing, and
collecting through the summary remedy of Levy on Real
Properties, estate and income tax delinquencies upon the
estate and properties of his late father, despite the pendency of
the proceedings on probate of the will of the late president.
ISSUE:WON BIR may collect on estate and income tax of a
deceased pending probate proceedings?
HELD: NO. Under Section 87 of the NIRC, it is the probate or
settlement court which is bidden not to authorize the executor or
judicial administrator of the decedent's estate to deliver any distributive
share to any party interested in the estate, unless it is shown a
Certification by the Commissioner of Internal Revenue that the estate
taxes have been paid. The Government has two ways of collecting the
taxes in question. One, by going after all the heirs and collecting from
each one of them the amount of the tax proportionate to the
inheritance received. Another remedy, pursuant to the lien created by
Section 315 of the Tax Code upon all property and rights to property
belong to the taxpayer for unpaid income tax, is by subjecting said
property of the estate which is in the hands of an heir or transferee to
the payment of the tax due the estate.
It has been repeatedly observed, and not without merit, that
the enforcement of tax laws and the collection of taxes, is of
paramount importance for the sustenance of government.
Taxes are the lifeblood of the government and should be
collected without unnecessary hindrance. However, such
collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself.
It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common
good, may be achieved.
The court recognized the liberal treatment of claims for taxes
charged against the estate of the decedent. Such taxes were
exempted from the application of the statute of non-claims, and
this is justified by the necessity of government funding,
immortalized in the maxim that taxes are the lifeblood of
the government. Vectigalia nervi sunt rei publicae — taxes
are the sinews of the state.
NPC v. City of Cabanatuan (necessity theory)
FACTS:
• NAPOCOR sells electric power to the resident
Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992. City of Cabanatuan assessed
the petitioner a franchise tax amounting to P808,606.41,
representing 75% of 1% of the former’s gross receipts for
the preceding year.
• NPC refused to pay the tax assessment, which argued
that the respondent has no authority to impose tax on
government entities. Petitioner also contend that as a non-
profit organization, it is exempted from the payment of all
forms of taxes, charges, duties or fees.
• The respondent filed a collection suit in the RTC of
Cabanatuan City, demanding that petitioner pay.
Respondent alleged that petitioner’s exemption from local
taxes has been repealed by Sec. 193 of RA 7160 (Local
Government Code).
• The trial court issued an order dismissing the case. On
appeal, the Court of Appeals reversed the decision of the
RTC and ordered the petitioner to pay the city government
the tax assessment.
ISSUE: WON NPC is exempted from franchise tax by the
local government?
HELD: NO.
• Taxes are the lifeblood of the government, for without
taxes, the government can neither exist nor endure. A
principal attribute of sovereignty, the exercise of taxing
power derives its source from the very existence of the
state whose social contract with its citizens obliges it to
promote public interest and common good. The theory
behind the exercise of the power to tax emanates from
necessity; without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being
of the people.
• In recent years, the increasing social challenges of the
times expanded the scope of state activity, and taxation
has become a tool to realize social justice and the
equitable distribution of wealth, economic progress and
the protection of local industries as well as public welfare
33
and similar objectives. Taxation assumes even greater
significance with the ratification of the 1987 Constitution.
Thenceforth, the power to tax is no longer vested
exclusively on Congress; local legislative bodies are
now given direct authority to levy taxes, fees and
34
other charges pursuant to Article X, section 5 of the
1987 Constitution.
• The local government code removed the blanket exclusion
of instrumentalities and agencies of the National
Government from the coverage of local taxation.
• A franchise tax is imposed based not on the ownership but
on the exercise by the corporation of a privilege to do
business. The taxable entity is the corporation which
exercises the franchise, and not the individual
stockholders. By virtue of its charter, petitioner was
created as a separate and distinct entity from the National
Government. It can sue and be sued under its own name,
and can exercise all the powers of a corporation under the
Corporation Code. The ownership by the National
Government of its entire capital stock does not necessarily
imply that petitioner is not engaged in business.
LORENZO V.POSADAS (benefit-received principle)
FACTS:
Thomas Hanley died in Zamboanga, leaving a will and considerable
amount of real and personal properties Proceedings for the probate
of his will and the settlement and distribution of his estate were
begun in the Court of First Instance of Zamboanga.
The court thought it better to appoint a trustee and 10 years after
the death of Hanley, the property shall pass to Matthew Hanley.
Moore was appointed as Trustee, until replaced by Lorenzo.
The Collector filed with the CFI for the collection of P2,052.74 for
the inheritance tax against the estate, which was granted. The
plaintiff paid under protest, and since he was not refunded he went
to court.
ISSUE: WON there is delinquency in payment of the tax?
HELD:YES. The delinquency in payment occurred on the date
when Moore became trustee, because delivery of the estate to the
trustee was in esse delivery of the same estate to the cestui que
trust, the beneficiary in this case. The interest due should be
computed from that date and it is error on the part of the defendant
to compute it one month later. The provision of law requiring the
payment of interest in appropriate cases is mandatory.
The tax and interest due were not paid within ten days after the
date of notice and demand thereof by the Collector, a surcharge of
25% should be added. Demand was made by the Deputy Collector
upon Moore in a communication dated October 16, 1931.The date
fixed for the payment of the tax and interest was November 30,
1931. November 30 being an official holiday, the tenth day fell on
December 1, 1931. As the tax and interest due were not paid on
that date, the estate became liable for the payment of the
surcharge.
IN RELATION TO THE TOPIC:
“The highest considerations of public policy also justify the
conclusion we have reached. Were we to hold that the payment of
the tax could be postponed or delayed by the creation of a trust of
the type at hand, the result would be plainly disastrous. Testators
may provide, as Thomas Hanley has provided, that their estates be
not delivered to their beneficiaries until after the lapse of a certain
period of time. In the case at bar, the period is ten years. The
collection of the tax would then be left to the will of a private
individual, which is detrimental to the State as taxes are essential to
the very existence of government. “
The obligation to pay taxes rests not upon the privileges
enjoyed by, or the protection afforded to, a citizen by the
government, but upon the necessity of money for the support
of the state. For this reason, no one is allowed to object to or resist
the payment of taxes solely because no personal benefit to him can
be pointed out. They also will not place upon tax laws so loose a
construction as to permit evasions on merely fanciful and
insubstantial distinctions.
That taxes must be collected promptly is a policy deeply intrenched
in our tax system. Thus, no court is allowed to grant injunction to
restrain the collection of any internal revenue tax . Any delay in the
proceedings of the officers, upon whom the duty is devolved of
collecting the taxes, may derange the operations of government,
and thereby cause serious detriment to the public."
 CALTEX V. COA (non-revenue purpose; public purpose)
FACTS:
In 1989, COA sent a letter to Caltex, directing it to remit its
collection to the Oil Price Stabilization Fund (OPSF), excluding
that unremitted for 1986 and 188 of the additional tax on
petroleum products authorized under Section 8 of PD 1956;
and that pending such remittance, all its claims for
reimbursement from the OPSF shall be held in abeyance.
Caltex requested COA, notwithstanding an early release of its
reimbursement certificates from the OPSF, which COA denied.
On 31 May 1989, Caltex submitted a proposal to COA for the
payment and the recovery of claims. COA approved the
proposal but prohibited Caltex from further offsetting
remittances and reimbursements for the current and ensuing
years. Caltex moved for reconsideration.
ISSUE: Whether the amounts due from Caltex to the OPSF
may be offsetted against Caltex’ outstanding claims from said
funds.
HELD: NO.
Taxation is no longer envisioned as a measure merely to raise
revenue to support the existence of government; taxes may
be levied with a regulatory purpose to provide means for
the rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the
police power of the state. PD 1956, as amended by EO 137,
explicitly provides that the source of OPSF is taxation.
A taxpayer may not offset taxes due from the claims that he
may have against the government. Taxes cannot be the
subject of compensation because the government and
taxpayer are not mutually creditors and debtors of each other
and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
PASCUAL V. SEC. OF PUBLIC WORKS
(inherent limitation: public purpose)
FACTS:
RA 920 (Act appropriating funds for public works) was enacted in
1953 containing an item (Section 1 c[a]) for the construction,
reconstruction, repair, extension and improvement of Pasig feeder
road terminals (the projected and planned subdivision roads, which
were not yet constructed, within Antonio Subdivision owned by
Senator Jose C. Zulueta). Zulueta “donated” said parcels of land to
the Government 5 months after the enactment of RA 920, on the
condition that if the Government violates such condition the lands
would revert to Zulueta. The provincial governor of Rizal,
Wenceslao Pascual, questioned the validity of the donation and the
Constitutionality of the item in RA 920, it being not for a public
purpose.
ISSUE:
Whether the item in the appropriation is valid.
HELD: NO.
The right of the legislature to appropriate funds is correlative with its
right to tax, 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 validity of a statute depends upon the powers of Congress at
the time of its passage or approval, not upon events occupying, or
acts performed, subsequently thereto, unless the latter consist of
an amendment of the organic law, removing, with retrospective
operation, the constitutional limitation infringed by said statute.
Herein, inasmuch as the land on which the projected feeder roads
were to be constructed belonged to Senator Zulueta at the time RA
920 was passed by Congress, or approved by the President, and
the disbursement of said sum became effective on 20 June 1953
pursuant to Section 13 of the Act, the result is that the
appropriating sough a private purpose and hence, null and
void.
PLANTERS. V. FERTIPHIL CORP (public purpose) Tan v. Del Rosario (inherently legislative)
Facts: Facts:
• Marcos issued LOI 1465, imposing a capital recovery • The constitutionality of RA 7496 – the Simplified Net
component of Php10.00 per bag of fertilizer Income Taxation Scheme (SNIT) violates the following
o Levy to continue until adequate capital is raised provisions of the Constitution:
to make PPI financially viable
Art6, Sec26(1)
• Fertiphil remitted to the Fertilizer and Pesticide Authority • Every bill passed in Congress shall embrace
(FPA), which then remitted said amount to Far East Bank only one subject which shall be expressed in
and Trust Company, the depository bank of PPI the title thereof
o Php6,689,144 was remitted from 1985 to 1986
Art6, Sec28(1)
• After EDSA, Fertiphil demanded from PPI a refund of the • The rule of taxation shall be uniform and
amount it remitted; PPI refused equitable. The congress shall evolve a
• Fertiphil filed a complaint for collection and damages progressive system of taxation
o Questioned constitutionality of LOI 1465
Art3, Sec1

Claimed it was unjust, unreasonable, • No person shall be deprived of Uproperty
oppressive, invalid and an unlawful without due process of law, nor shall any
imposition that amounted to a denial of person be denied equal protection of the law
due process
• FPA: Issue/s:
o Issuance of LOI 1465 was a valid exercise of
police power of the state in insuring the fertilizer WON RA 7496 violated the constitutional requirement that
industry taxation shall be uniform and equitable in that it attempts to tax
o Fertiphil did not sustain any damage because the single proprietorships and professionals differently from
burden imposed by the levy fell on the ultimate corporations and partnerships
consumer, not the seller
Ratio:
Issues:
• NO. Uniformity of taxation merely requires that all subjects
1. WON the issuance of LOI 1465 was an exercise of
or objects of taxation, similarly situated, are to be treated
the police power of the state
alike both in privileges and liabilities. Such classification is
2. WON the levy was for a public purpose
valid as long as: (1) standards used are substantial and
not arbitrary; (2) categorization is germane to achieve the
Ratio:
legislative purpose; (3) law applies, all things being equal,
1. The imposition of the levy was a exercise of the taxation
to both present and future conditions; and (4) the
power of the state. Both the power of taxation and police
classification applies equally well to all those belonging to
power are inherent powers of the state. But each one is
the same class.
distinct from the other – police power is for the regulation
of a behavior or conduct, while taxation is for revenue • What may be apparent is simply that the amendatory law
generation. reflects he legislative intent to increasingly shift the income
While it is true that the power to tax can be used tax system towards the schedular approach.
as an implement of police power, the primary purpose of • Also, with the legislature primarily lies the discretion to
the levy was revenue generation. If the purpose is determine the nature (kind0, object (purpose), extent
primarily revenue, or if revenue is, at least, one of the real (rate), coverage (subjects), and situs (place) of taxation.
and substantial purposes, then the exaction is properly The court cannot freely delve into these matters, unless
called a tax the tax becomes so unconscionable and unjust as to
In the present case, the imposition of Php10 per amount to confiscation of property. Only then will the
bag is too excessive to serve a mere regulatory purpose. courts able to strike it down.
Even if it was an exercise of the police power of
the state, the LOI would still be invalid as it did not comply
with the test of “lawful subjects” and “lawful means”.
Specifically, that the interest of the public, generally,
requires its exercise, and that the means employed are
reasonably necessary for the accomplishment of the
purpose and not unduly oppressive upon individuals.
2. An inherent limitation on the power of taxation is public
purpose. Taxes are exacted for a purely public purpose,
and thus cannot be used for purely private purposes or for
the exclusive benefit of private persons.
LOI 1465 is not for a public purpose. First, it is
expressly provided that the levy be imposed to benefit a private
company – PPI. Second, the levy was conditional and
dependent on PPI becoming financially viable. Third, the levies
were directly remitted and deposited in FEBTC, the bank of
PPI, which used said remittances to pay of PPI’s debts. All of
these show that the purpose for the issuance of LOI 1465 was
to support a private company which clearly did not comply with
the public purpose requirement for the imposition of taxes.
CIR VS SANTOS (inherently legislative)
FACTS: Guild of Phil Jewellers questions the constitutionality
of certain provisions of the National Internal Revenue Code
1
and Tariff and Customs Code of the Philippines . It is their
contention that present tariff and tax structure increases
manufacturing costs and render local jewelry manufacturers
uncompetitive against other countries. In support of their
position, they submitted what they purported to be an
exhaustive study of the tax rates on jewelry prevailing in other
Asian Countries, in comparison to tax rates levied in the
country.
Judge Santos of RTC Pasig, public respondent
herein, ruled that the laws in question are confiscatory and
oppressive and declared them INOPERATIVE and WITHOUT
FORCE and EFFECT insofar as petitioners are concerned. It
stated:
The Court finds that indeed government taxation
policy trats(sic) hewelry(sic) as non-essential luxury item and
therefore, taxed heavily. Aside from the ten (10%) percent
value added tax (VAT), local jewelry manufacturers contend
with the (manufacturing) excise tax of twenty (20%) percent (to
be applied in stages) customs duties on imported raw
materials, the highest in the Asia-Pacific region. In contrast,
imported gemstones and other precious metals are duty free in
Hongkong, Thailand, Malaysia and Singapore.
Petitioner CIR assailed decision rendered by pub resp
contending that the latter has no authority to pass judgment
upon the taxation policy of the government. Petitioners also
impugn the decision by asserting that there was no showing
that the tax laws on jewelry are confiscatory.
Issue: WON RTC has authority to pass judgment upon
taxation policy of government
Ratio/Held: NO. The case at bar involves a debate on the
WISDOM of the laws in question. This is a matter on which the
RTC is not competent to rule. In Angara vs. Electoral
Commission, Justice Laurel made it clear that "the judiciary
does not pass upon questions of wisdom, justice or expediency
of legislation." In the exercise of judicial power, the court is
allowed only "to settle actual controversies involving rights
which are legally demandable and enforceable", and may not
annul an act of the political departments simply because they
feel it is unwise or impractical.
The policy of the courts is to avoid ruling on constitutional
questions and to presume that the acts of the political
departments are valid in the absence of a clear and
unmistakable showing to the contrary.
This is not to say that RTC have no power whatsoever to
declare a law unconstitutional. But this authority does not
extend to deciding questions which pertain to legislative policy.
RTC have the power to declare the law unconstitutional but
this authority does not extend to deciding questions which
pertain to legislative POLICY. RTC can only look into the
validity of a provision, that is, whether or not it has been
passed according to the procedures laid down by law, and thus
cannot inquire as to the reasons for its existence.
1 (3) Subject to the provisions of Book II of this Code, enact ordinances
It will be noted that, while under the present law (sec 150), jewelry is subject to
a 20% excise tax in addition to a 10% value-added tax under the old law, it was
subjected to 50% percentage tax. It was even subjected to a 70% percentage tax
under then Section 184(a) of the Tax Code, as amended by P.D. 69.
Section 104, Hdg. Nos. 17.01, 17.02, 17.03 and 17.04, Chapter 71 of the Tariff
and Customs Code, as amended by Executive Order No. 470, dated July 20,
1991, imposes import duty on natural or cultured pearls and precious or semi-
precious stones at the rate of 3% to 10% to be applied in stages from 1991 to
1994 and 30% in 1995.
Prior to the issuance of E.O. 470, the rate of import duty in 1988 was 10% to
50% when the petition was filed in the court a quo.
LTO VS CITY OF BUTUAN (Delegation to Loc Gov)
Facts: Respondent City of Butuan asserts that the pertinent
provisions of the Local Government Code allows LGUs to
collect registration fees or charges along with the
corresponding issuance of all kinds of licenses or permits for
the driving of tricycles.
Sec. 129. Power to Create Sources or Revenue. —
Each local government unit shall exercise its power to create
its own sources of revenue and to levy taxes, fees, and
charges subject to the provisions herein, consistent with the
basic policy of local autonomy. Such taxes, fees, and charges
shall accrue exclusively to the local government units.
Sec. 133. Common Limitations on the Taxing
Powers of Local Government Units. — Unless otherwise
provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
xxx xxx xxx
(l) Taxes, fees or charges for the registration of motor
vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof, except tricycles.
In accordance therewith, the City passed an
ordinance which provided for the payment of franchise fees for
the grant of the franchise of tricycles-for-hire, fees for the
registration of the vehicle, and fees for the issuance of a permit
for the driving thereof.
Petitioner LTO, on the other hand, explains that one
of the functions of the national government that has been
transferred to LGUs is the franchising authority over tricycles-
for-hire of the LTFRB, BUT NOT, the authority of LTO to
register all motor vehicles and to issue to qualified persons of
licenses to drive such vehicles.
ISSUE: WON under the present set up, the power of the
LTO to register, tricycles in particular, as well as to issue
licenses for the driving thereof, has likewise devolved to
local government units.
Held/Ratio: NO. Although police power and taxation are
correlative to each other, that does not mean that the grant of
one necessarily carry with it the grant of the other. The two
powers are, by tradition and jurisprudence, separate and
distinct powers, varying in their respective concepts, character,
scopes and limitations. To construe the tax provisions of
Section 133(1) indistinctively would result in the repeal to that
extent of LTO's regulatory power which evidently has not been
intended. If it were otherwise, the law could have just said so in
Section 447 and 458 of Book III of the Local Government Code
in the same manner that the specific devolution of LTFRB's
power on franchising of tricycles has been provided. Repeal by
implication is not favored. The power over tricycles granted
2
under Section 458(8)(3)(VI) of the Local Government Code to
LGUs is the power to regulate their operation and to grant
franchises for the operation thereof. The exclusionary clause
contained in the tax provisions of Section 133(1) of the Local
Government Code must not be held to have had the effect of
withdrawing the express power of LTO to cause the
2
Under the Local Government Code, certain functions of the DOTC
were transferred to the LGUs, thusly:
Sec. 458. Powers, Duties, Functions and Compensation. —
xxx xxx xxx
granting franchises and authorizing the issuance of permits or licenses,
upon such conditions and for such purposes intended to promote the
general welfare of the inhabitants of the city and pursuant to this
legislative authority shall:
xxx xxx xxx
(VI) Subject to the guidelines prescribed by the Department of
Transportation and Communications, regulate the operation of tricycles
and grant franchises for the operation thereof within the territorial
jurisdiction of the city.
registration of all motor vehicles and the issuance of licenses
for the driving thereof. These functions of the LTO are
essentially regulatory in nature, exercised pursuant to the
police power of the State, whose basic objectives are to
achieve road safety by insuring the road worthiness of these
motor vehicles and the competence of drivers prescribed by
law. (Decentralization of registration system will result into
higher incidence of theft and fake licenses.)
"licenses or permits" is no longer vested in the City of
Manila.
(d) SUPREMACY of NATIONAL GOVT. 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.

BASCO VS PAGCOR (1991) (Delegation to Loc Gov) PAGCOR has a dual role, to operate and to regulate
Facts: Petitioners filed the instant petition seeking to annul gambling casinos. The latter role is governmental, which
places it in the category of an agency or instrumentality of
PAGCOR Charter (PD 1869) because it is allegedly contrary to
the Government. Being an instrumentality of the
morals, public policy and order, and because —
Government, PAGCOR should be and actually is exempt
a. It constitutes a waiver of a right prejudicial to a third
from local taxes. Otherwise, its operation might be
person with a right recognized by law. It waived the Manila City
burdened, impeded or subjected to control by a mere
government's right to impose taxes and license fees, which is
Local government.
recognized by law;
(e) Petitioners also argue that the Local Autonomy Clause of
b. For the same reason stated in the immediately
the Constitution will be violated by P.D. 1869. This is a
preceding paragraph, the law has intruded into the local
pointless argument. Article X of the 1987 Constitution (on
government's right to impose local taxes and license fees.
Local Autonomy) provides:
This, in contravention of the constitutionally enshrined principle
Sec. 5. Each local government unit shall have the power
of local autonomy;
to create its own source of revenue and to levy taxes,
c. It violates the equal protection clause of the
fees, and other charges subject to such guidelines and
constitution in that it legalizes PAGCOR — conducted
limitation as the congress may provide, consistent with the
gambling, while most other forms of gambling are outlawed,
basic policy on local autonomy. Such taxes, fees and
together with prostitution, drug trafficking and other vices;
charges shall accrue exclusively to the local government.
d. It violates the avowed trend of the Cory
(emphasis supplied)
government away from monopolistic and crony economy, and
toward free enterprise and privatization. (p. 2, Amended
The power of local government to "impose taxes and fees"
Petition; p. 7, Rollo)
is always subject to "limitations" which Congress may
ISSUE (relevant to tax): WON the Charter has intruded into the provide by law. Since PD 1869 remains an "operative" law
until "amended, repealed or revoked" (Sec. 3, Art. XVIII,
local government’s right to impose taxes and license fees
1987 Constitution), its "exemption clause" remains as an
Held/Ratio: NO Petitioners contend that the exemption clause exception to the exercise of the power of local
governments to impose taxes and fees. It cannot therefore
in P.D. 1869 is violative of the principle of local autonomy.
be violative but rather is consistent with the principle of
They must be referring to Section 13 par. (2) of P.D. 1869
local autonomy.
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."

Their contention is without merit for the following reasons:

(a) The City of Manila, being a mere Municipal corporation
has no inherent right to impose taxes. Thus, "the Charter
or statute must plainly show an intent to confer that power
or the municipality cannot assume it.” Its "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"
(b) 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" which has
the power to "create and abolish municipal corporations"
due to its "general legislative powers." Congress,
therefore, has the power of control over Local
governments. And 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.
(c) The City of Manila's power to impose license fees on
gambling, has long been revoked. As early as 1975, the
power of local governments to regulate gambling thru the
grant of "franchise, licenses or permits" was withdrawn by
P.D. No. 771 and was vested exclusively on the National
Government. Therefore, only the National Government has
the power to issue "licenses or permits" for the operation
of gambling. Necessarily, the power to demand or collect
license fees which is a consequence of the issuance of
GARCIA V. EXEC SEC (Delegation to the President)
FACTS:
ABAKADA v. Ermita (Delegation to the President)
Facts:
1. RA 9337: VAT Reform Act enacted on May 24, 2005.
2. Sec. 4 (sales of goods and properties), Sec. 5 (importation
of goods) and Sec. 6 (services and lease of property) of
RA 9337, in collective, granted the Secretary of Finance
the authority to ascertain:
a. whether by 12/31/05, the VAT collection as a
percentage of the 2004 GDP exceeds 2.8% or
b. the nat’l gov’t deficit as a percentage of the 2004
GDP exceeds 1.5%
3. If either condition is met, the Sec of Finance must inform
the President who, in turn, must impose the 12% VAT rate
(from 10%) effective January 1, 2006.
4. ABAKADA maintained that Congress abandoned its
exclusive authority to fix taxes and that RA 9337 contained
a uniform proviso authorizing the President upon
recommendation by the DOF Secretary to rasie VAT to
12%.
5. Sen Pimentel maintained that RA 9337 constituted undue
delegation of legislative powers and a violation of due
process since the law was ambiguous and arbitrary. Same
with Rep. Escudero.
6. Pilipinas Shell dealers argued that the VAT reform was
arbitrary, oppressive and confiscatory.
7. Respondents countered that the law was complete, that it
left no discretion to the President, and that it merely
charged the President with carrying out the rate increase
once any of the 2 conditions arise.
Issue: WON there was undue delegation – No.
Ratio:
1. Constitution allows as under exempted deligation the
delegation of tariffs, customs duties, and other tolls, levies
on goods imported and exported. VAT is tax levied on
sales of goods and services which could not fall under this
exemption. Hence, its delegation if unqualified is
unconstitutional.
2. Legislative power is authority to make a complete law.
Thus, to be valid, a law must be complete in itself, setting
forth therein the policy and it must fix a standard, limits of
which are sufficiently determinate and determinable.
3. No undue delegation when congress describes what job
must be done who must do it and the scope of the
authority given. (Edu v Ericta)
4. Sec of Finance was merely tasked to ascertain the
existence of facts. All else was laid out.
5. Mainly ministerial for the sec to ascertain the facts and for
the president to carry out the implementation for the vat.
They were agents of the legislative dept.
6. No delegation but mere implementation of the law.
 Maceda v. Macaraig (Delegation to Admin Agencies)
Facts:
1. Senator Maceda, through this taxpayer’s suit, sought to
prevent the Fiscal Incentives Review Board (FIRB) from
processing and granting the tax refunds/credits claimed by
the National Power Corp (NPC).
2. The NPC used to enjoy an absolute and unqualified tax
exemption under RA 358 so as to allow the NPC to
accomplish its task of nationwide electrification. Such
exemption was withdrawn and reinstated partially or
completely, with provisions qualified or unqualified, several
times.
3. Most pertinent was E.O. # 93 which once again withdrew
all tax and duty incentives to all government and private
entities including the NPC. Moreover, E.O. # 93 gave the
authority to the FIRB to restore, revise the scope and
prescribe the date of effectivity of such tax/duty
exemptions. (Sec 2 (a), (b) and (d) of E.O. # 93)
4. FIRB issued Resolution # 17-87 which restored NPC’s tax
and duty exemption privileges.
Issue: WON E.O. # 93 was unconstitutional for being an
undue delegation of legislative power – No; E.O. # 93 was
complete in itself and was valid; the FIRB Resolution
restoring NPC tax exemptions was also valid.
Ratio:
1. Though the Secretary of Justice opined that Sec. 2 (a) to
(d) of E.O. # 93 constituted undue delegation of legislative
power, he was overruled by the respondent Executive
Secretary. The Executive Secretary has the power to
modify, alter or reverse the statutory construction given by
a dept secretary.
2. STANDARD: Greater national interest along with the
rest of Sec. 3 of E.O. # 93: effect on relative price levels,
contribution of beneficiary to revenue generation and
nature of the beneficiary’s activities
3. The maxim delegatus non potest delegare has been
relaxed to adapt itself to the complexities of modern
government. (admin law: why is it important? – time, org’z
aptitute and expertise)
4. HOW THE CASE WAS DECIDED: The petition itself was
dismissed for lack of merit. NPC should be granted the tax
refunds it asked for because the legislative intent was for
the NPC to enjoy extensive, if not absolute, tax exemption
so as to expedite its task of nationwide electrification. The
allegation that this in effect allowed tax evasion by the 3 oil
companies which supplied NPC with crude oil was refuted.
Osmeña v. Orbos (Delegation to Admin Agencies)
Facts:
1. Petitioner, John Osmeña, filed R65 certiorari to assail the
constitutionality of the provision (§ 8, paragraph 1 (c) of
P.D. No. 1956) conferring the authority upon the Energy
Regulatory Board (ERB) to impose additional amounts on
petroleum products as an undue delegation of
legislative power.
2. PD 1956 created the Oil Price Stabilization Fund (OPSF) –
basically a buffer fund which is to reimburse the oil
companies from their losses brought about by the
government’s artificial maintenance of oil prices.
3. OPSF drew funds through duty collections on petroleum
products and additional amounts imposed on
petroleum products
Sub Issue: (baka lang kasi itanong) WON powers granted to
the ERB under PD 1956 partake of the nature of the taxation
power of the State – No; while the funds collected may be
referred to as taxes, they are exacted in the exercise of the
police power of the state.
Main Issue: WON there was undue delegation of legislative
power – No; the delegation was valid.
Ratio:
1. For a valid delegation of power, it is essential that the law
delegating the power must be:
a. Complete in itself; it must set forth the policy to
be executed by the delegate and
b. It must fix a standard – limits of which are
sufficiently determinate or determinable to which
the delegate must conform
2. The standard indicates the circumstances under which the
legislative comand is to be effected. Thereafter, the
administrative agency may in pursuance of the standard
promulgate supplemental rules and regulations. (Edu v.
Ericta was cited)
3. Standard may be express or implied from the policy and
purpose of the act considered as a whole.
4. In this case, STANDARD was so long as there exists
the need to protect the general public and the
petroleum industry from the adverse consequences of
pump rate fluctuations. The assailed provision expressly
authorized the ERB to impose additional amounts to
augment the OPSF resources using this standard.
 Commissioner v. CA (Delegation to Admin Agency)
Facts:
1. RA 7654 was enacted by Congress on June 10, 1993 and
took effect July 3, 1993. It amended partly Sec. 142 (c)
3
of the NIRC
2. Fortune Tobacco manufactured the following cigaretter
brands: Hope, More and Champion. Prior to RA 7654,
these 3 brands were considered local brands subjected to
an ad valorem tax of 20 to 45%. Applying the amendment
and nothing else, (see footnote below) the 3 brands
should fall under Sec 142 (c) (2) NIRC and be taxed at 20
to 45%.
3. However, on July 1, 1993, petitioner Commissioner of
Internal Revenue issued Revenue Memorandum
Circular37-93 which reclassified the 3 brands as locally
manufactured cigarettes bearing a foreign brand subject to
the 55% ad valorem tax. The reclassification was before
RA 7654 took effect.
4. In effect, the memo circular subjected the 3 brands to
the provisions of Sec 142 (c) (1) NIRC imposing upon
these brands a rate of 55% instead of just 20 to 45%
under Sec 142 (c) (2) NIRC.
5. There was no notice and hearing. CIR argued that the
memo circular was merely an interpretative ruling of the
BIR which did not require notice and hearing.
Issue: WON RMC 37-93 was valid and enforceable – No; lack
of notice and hearing violated due process required for
promulgated rules. Moreover, it infringed on uniformity of
taxation / equal protection since other local cigarettes
bearing foreign brands had not been included within the
scope of the memo circular.
Ratio:
1. Contrary to petitioner’s contention, the memo was not a
mere interpretative rule but a legislative rule in the nature
of subordinate legislation, designed to implement a
primary legislation by providing the details thereof.
Promulgated legislative rules must be published.
2. On the other hand, interpretative rules only provide
guidelines to the law which the administrative agency is in
charge of enforcing.
3. BIR, in reclassifying the 3 brands and raising their
applicable tax rate, did not simply interpret RA 7654 but
legislated under its quasi-legislative authority.
4. BELLOSILLO separate opinion: the administrative
issuance was not quasi-legislative but quasi-judicial. Due
process should still be observed of course but use Ang
Tibay v. CIR.
3
Sec. 142 (c) ... There shall be... collected on cigarettes... a tax at the rates
prescribed below... :
(1) On locally manufactured cigarettes which are currently classified
and taxed at 55%  55%
(2) On other locally manufactured cigarettes (already at 20 to 45%)
 20 to 45%
Iloilo Bottlers v. City of Iloilo (Territorial)
Facts:
1. The City of Iloilo implemented a tax ordinance imposing an
excise tax on the privilege of distributing, bottling or
manufacturing softdrinks within its territorial jurisdiction.
2. Iloilo Bottlers formerly complied with this tax ordinance but
it stopped paying when it transferred its plant to Pavia,
Iloilo which is outside Iloilo City.
3. The defendant, Iloilo City, demanded payment from the
plaintiff.
4. Plaintiff paid under protest so as not to disrupt its business
operations.
Issue: WON Iloilo Bottlers was liable under the tax ordinance –
Yes; plaintiff bottled and manufactured outside Iloilo City
but it distributed within the city’s territory.
Ratio:
1. Excise taxes can be levied by the taxing authority only
when the acts, privileges or businesses are done or
performed within the jurisdiction of said authority. The
situs of the act of distributing, bottling or
manufacturing softdrinks must be within city limits,
before an entity engaged in any of the activities may
be taxed in Iloilo City.
2. There is no question that after it transferred its plant to
Pavia, Iloilo, Iloilo Bottlers no longer manufactured and
bottled its softdrinks within Iloilo City. Thus it can only be
taxed if it could be considered to distribute softdrinks in
Iloilo City.
3. For tax purposes, there are 2 types of marketing systems:
a. 1st system – all sales are made and entered into
in the main office; no warehouse sales; no
separate stores maintained for selling.
b. 2nd system – sales are entered into at stores or
warehouses maintained by the company.
4. Those following the 1st system are not considered
engaged in the separate business of selling or dealing in
their products, the distribution process merely an incident
or a necessary consequence of the primary business. In
other words, the Court recognizes that the right to
manufacture implies the right to sell.
5. Plaintiff was found to be under the 2nd system. It must be
considered to be engaged in the separate business of
selling. Plaintiff’s fleet of delivery trucks did not merely
deliver goods already sold but also served as rolling
stores. Route salesmen sold goods independently from
the main store.
Commissioner v. BOAC (Territorial)
Facts:
1. Commissioner of Internal Revenue (CIR) questioned a
ruling by the Court of Tax Appeals wherein the CTA set
aside the CIR’s assessment of deficiency income taxes
against respondent British Overseas Airways Corporation
(BOAC).
2. BOAC is a UK government-owned corporation engaged in
the international airline business. It did not have landing
rights in the Philippines nor was it granted a certificate of
public convenience by the Civil Aeronautics Board. It did
not have flight operations in the Philippines; it did not
carry passengers or cargo.
3. However, it maintained a general sales agent. (Warner
Barnes and Co. at first then Qantas Airways) The agent
sold BOAC tickets covering passengers and cargoes.
Issue:
1. WON BOAC is a resident foreign corporation. (tax scheme
is different for a nonresident foreign corporation) – Yes;
BOAC is a resident corporation doing business in the
Philippines.
2. WON the revenue derived by BOAC from sales of its
tickets, while having no flight operations in the Philippines,
is taxable. – Yes; the revenue constitutes income from
Philippine sources so it is taxable.
Ratio:
1. Sec 20 of the 1977 Tax Code defines a resident foreign
corporation as a foreign corporation engaged in trade or
business within the Philippines or having an office or place
of business therein.
2. BOAC was engaged in business in the Philippines through
a local agent during the period covered by the CIR’s
assessments. It is a resident foreign corporation
subject to tax upon its total net income received in the
preceding taxable year from all sources within the
Philippines. (Sec 24(b), (2), Tax Code as amended
3. Tax Code provides that for revenue to be taxable, it must
constitute income from Philippine sources (see
previous paragraph)
4. Income is broadly and comprehensively defined as cash
received or its equivalent or the amount of money comint
to a person within a specific time.
5. Source of an income is the property, activity or
service that produced the income. For the source to
be considered as from the Philippines, it is sufficient
that the income is derived from activity within the
Philippines.
6. In this case, the sale of the tickets in the Philippines is the
source of income. The situs of the source of payments is
the Philippines.
Hopewell Power Corp v. CIR (Territorial)
Facts:
1. Petitioner sought for tax credit/refund of input value-added
tax (VAT) paid on capital goods. Hopewell Power Corp. Is
a domestic corporation engaged in the business of power
generation and sale.
2. The basis for asking for such refund is Sec 106 (b) of the
Tax Code as amended by RA 7716. (petitioner actually
relied on Sec 106 (c) of the 1994 Tax Code which was the
law governing at that time; same content anyway)
3. Sec 106 (c) of the 1994 Tax Code requires that an
applicant for refund prove that
a. It is a VAT registered person
b. Input taxes claimed was paid on capital goods
c. Input taxes have not been applied against output
tax liability
d. Administrative claim was seasonably filed (2 yr
prescriptive period)
4. Of its 6 claims, 4 had prescribed and 2 had been filed
seasonably. Court was also convinced that requisites (a)
and (c) had been met.
Issue: WON there should be a refund/WON the input taxes
claimed was paid on capital goods – Yes; the expenditures
were properly considered as capital goods. The amount
was recomputed and reduced though.
Ratio:
1. Capital goods refer to goods with estimated useful life
greater than 1 year and which are treated as depreciable
assets under Sec 29(f), used directly or indirectly in the
production and sale of taxable goods or services.
2. Statutorily, capital expenditures are specified as amounts
paid out for a new building or for permanent improvements
or betterments made to increase the value of any property
or amounts expended in restoring property.
3. Hopewell spent for engineering and structural services
for the purpose of constructing power plant facilities
needed in the production of electricity, which is its
chief product. Such expenses were necessary and, as
such, should form part of the cost of the power plant
facilities.
Smith v. CIR (Territorial) Tanada v. Angara (International Comity)
May 2, 1997

Facts:
- Sec. Rizalino Navarro (DTI Secretary) representing the
Philippines government, signed the Final Act Embodying the
Result of the Uruguay Round of Multilateral Negotiations,
which created the World Trade Organization.
- By signing such act, the Philippines agreed to adopt the
ministerial declarations and decisions of the WTO, and to
submit the WTO agreement for the consideration and approval
- President Ramos sent two letters to the Philippine Senate,
stating that the Uruguay Rounds Final Act is submitted for its
4
concurrence pursuant to sec. 21 Article VII of the constitution.
- The Senate adopted resolution no. 97, wherein the Senate
concurred in the ratification of the President.
- The petition was filed seeking to nullify the act of the Philippine
Senate, arguing inter alia that:
o It contravenes sec. 10 Art. II and sec. 12 Article XII of
the Constitution
o The WTO proviso derogates from the power to tax,
which is lodged in the Congress

Issues
1. WON the act of the Phil. Senate contravenes the Constitution?
NO
2. WON it limits, impairs and restricts the exercise of legislative
power by congress (specifically the power to tax)? NO

1. NO, it does not contravene the constitution

- The Petitioners cited the WTO agreement place nationals and
products of member countries on the same footing as Filipinos
and local products. They argue that this is in contravention with
the “Filipino First” Policy of the Constitution. See sec. 10 Art. II
5
and sec. 12 Article XII of the Constitution
- First, these provisions are not self-executing. These are merely
statements of principles and policies. A law should be passed
by congress to clearly define and effectuate such principles.
The reason for denying this a cause of action are sourced from
basic considerations of due process and the lack of judicial
authority to wade into uncharted ocean of social and economic
policy making the said provisions should be read and
understood in relation to the other section, especially sec 1 and
6
sec 13.

4
Art VII Section 21. No treaty or international agreement shall be valid
and effective unless concurred in by at least two-thirds of all the
Members of the Senate.

5
Art II Section 10. The State shall promote social justice in all phases
of national development.

Article XII Section 12. The State shall promote the preferential use of Filipino
labor, domestic materials and locally produced goods, and adopt measures
that help make them competitive.

6
Article XII Section 1. The goals of the national economy are a more
equitable distribution of opportunities, income, and wealth; a sustained
increase in the amount of goods and services produced by the nation
for the benefit of the people; and an expanding productivity as the key
to raising the quality of life for all, especially the under-privileged.
- Hence, the Consitution ordains the ideals of economic
nationalism, but it also takes into account the realities of the
outside world. It did not intent to pursue an isolationist policy. It
did not shut out foreign investments, goods and services in the
development of the Phil. Economy. In fact, it allow the
exchange on the basis of equality and reciprocity, frowning
only on foreign competition which is unfair
2. No, it does not limit the power of the congress
- the WTO agreement provides that each member shall ensure
the conformity of its laws, regulations and administrative
procedure.
- By their nature, treaties really limit or restrict the absoluteness
of sovereignty. But by their voluntary acts, nations may
surrender some aspects of their state power in exchange for
greater benefits granted by or derived from a convention or
pact.
- Certain restrictions include:
o Limitations imposed by the very nature of
membership in the family of nations.
o Limitations imposed by treaty stipulations.
- Doctrine of incorporation. The constitution states that it adopts
the generally accepted principles of international law as part of
the law of the land and adheres to the policy of peace, equity,
justice, freedom, cooperation and amity.
The State shall promote industrialization and full employment based on
sound agricultural development and agrarian reform, through industries
that make full and efficient use of human and natural resources, and
which are competitive in both domestic and foreign markets. However,
the State shall protect Filipino enterprises against unfair foreign
competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions
of the country shall be given optimum opportunity to develop. Private
enterprises, including corporations, cooperatives, and similar collective
organizations, shall be encouraged to broaden the base of their
ownership.
Article XII Section 13. The State shall pursue a trade policy that serves the
general welfare and utilizes all forms and arrangements of exchange on the
basis of equality and reciprocity.
Manila International Airport Authority vs. CA
July 20, 2006 (Exemption of Gov’t Entities, Agencies, and
Instrumentality)
Facts:
- MIAA operates the NAIA Complex; it administers the
land, improvements, and equipment within the NAIA
Complex.
- The Office of the Government Corporate Counsel
(OGCC) opined that the Local Gov. Code withdrew
the exemption from real estate tax granted to MIAA by
its Charter (sec 21). MIAA negotiated with the City of
Paranaque
- The MIAA failed to pay real estate tax delinquency
despite having received final notices of real estate tax
delinquency from the City of Paranaque for the
taxable years 1992-2001. Then in July 2001, the City
of Paranaque issued notices of levy and warrants on
Airport lands and Buildings, and the mayor threatened
to sell at public auction.
- MIAA filed petition to restrain the city from imposing real
estate tax on the airport lands and buildings. It argued
that:
o The real owner is the Republic of the Phil.
o It is for the benefit of the general public;
hence it is for public use and public service
o Sec 21 of the MIAA charter exempts them
- The City of Paranaque argued that Sec 193 of the
LGC withdrew the tax exemption privileges of GOCCs
Issue
1. WON MIAA is a GOCC? NO
2. WON exempt from real estate tax? YES
1. No; MIAA is an instrumentality of the National
Government
- GOCCs are NOT exempt from real estate tax.
However, MIAA is not a GOCC
- A GOCC must be organized as a stock or non-stock
corporation. MIAA is neither.
o It is not a stock corporation since even if it
has capital, it is not divided into shares of
stocks. It also has no stock holders or voting
shares
o It is not a non-stock corporation either. It has
no members. Even if we assume that the
government is its member, it is still not a
non-stock corporations because 20% of its
gross operating income goes to the national
treasury. Non-stock corporations are not
supposed to disturbute any part of its income
to its member. Furthermore, MIAA is neither
organized for charitable, religious,
educational, professional etc purposes.
- HENCE, MIAA IS A GOVERNMENT
INSTRUMENTALITY. The only difference with other
instrumentalities is that it is vested with corporate
powers
o It remains part of the government machinery
although not integrated with development
framework
- Sec 133 (o) of the LGC recognizes the basic principle
that LGUs cannot tax the national government, which
merely delegated to local governments the power to
tax. The tax powers of the LGUs s granted by the
constitution, but are subject to such guidelines and
limitations as the Congress may provide.
- General Rule: tax exemption is construed against the
taxpayer claiming exemption
 - Exemption: The power to tax national government
instrumentalities is construed against the local
government. Any doubts whether a person, article, or
acitivity is taxable is resolved against taxation
- Also, there is also no reason for LGUs to tax
instrumentalities rendering essential public services to
inhabitants of local governments. The only exemption
is when Congress clearly intended to tax
instrumentalities for the delivery of public services for
sound and compelling policy considerations.
2. Yes, it is exempted from real estate tax since MIAA is
owned by the republic of the Phil.
- the Airport buildings and lands are property of public
dominion, according to Article 420 of Civil Code which
states which are property of public dominion. (those
intended for public use, like ports)
- the lands and buildings of MIAA are devoted to public
use because they are used by the public for
international and domestic travel. The fact that MIAA
collects terminal fees and other charges does not
remove the character as property for public use.
Someone must pay for the maintenance. Such fees
are often termed user’s tax. This means taxing those
among the public who actually use a public facility
instead of taxing all the public.
- Since they are for public use, they are outside the
commerce of men. They canot be subject to levy,
encumbrance or dispotition.
- Unless the president issues a proclamation
withdrawing the land and buildings from public use,
they remain public dominion and are inalienable.
- The minority asserts that MIAA is not exempt from
real estate tax because section 193 of the LGC
withdrew tax exemption from all persons. They argue
that MIAA is a juridical person. The minority is flawed.
Sec 193 of the LGC withdrew tax exemption of all
persons exempt when otherwise provided in the
Code. Sec 133 (o) expressly provides otherwise.
- Hence even if MIAA fails to pay the real property
taxes, said portion cannot be sold at public auction
HELD: the real property tax assessments and notices of
delinquencies issued by the city of pasay to MIAA are voide;
except those pertaining to portions of the aiport which are
leased to private properties. This is based on Section 234 (a)
Dissent of Tinga
- they pretended that Mactan International Airport Case
does not exist. Such a case states that airports are
taxable. The majority does not even engage in the
Mactan case in anyway.
- There is really no prohibition against the government
taxing itself, and nothing obscene with allowng
government entities exercising propriety functions to
be taxed for the purposes of raising the coffers of the
LGU
Philippine Fisheries Development Authority vs. CA
July 31, 2007 (Exemption of Gov’t Entities, Agencies, and
Instrumentality)
Facts:
- the Ministry of Public Works and Highways reclaimed
from the sea a 21 hectare parcel of land (termed as
the Iloilo Fishing Port Complex or IFPC). Upon its
completion, it turned over the IFPC to the Philippine
Fisheries Development Authority, the petitioner.
- Thereafter, the petitioner leased portions of IFPC to
private firms and individuals engaged in fishing
business.
- The city of Iloilo assessed the entire IFPC for real
property tax. It scheduled the sale at public auction to
satisfy its tax delinquency. The petitioner filed an
injunction case.
1. WON petitioner is a GOCC? NO
2. WON public dominion? YES
1. it is not a GOCC, but rather an instrumentality of the
national government. Hence, it is generally exempt
from payment of real property tax. However, said
exemption does not apply to portions of the IFPC
which was leased to private entities
- to be considered a GOCC, it must be organized either
as a stock or non-stock corporation.
- To be a stock corporation:
o It has stock capital divided into shares
o Authorized to distribute dividends and
allotments of surpluses and profits to its
stockholders
- To be non-stock
o They must have members
o Must not distribute any part of income to
members
- Since, petitioner is neither, it is classified as an
national government instrumentality, which is defined
as an agency of the national government, not
integrated within the department framework, vested
with special functions or jurisdiction by law, endowed
with some if not all corporate powers.
o Instrumentalities are exempt from local taxes
pursuant to sec 133 (o) of LGC
- However, when an instrumentality grants to a taxable
person the beneficial use of a real property, then said
instrumentality becomes liable to pay the real property
tax. This is pursuant to sec 234(a) of the LGC
2. YES, it is property of public dominion.
- Art 420 of the Civil Code says that ports are part of
public dominion
- The Iloilo fishing port is a port constructed for public
use and public service. As such, it cannot be subject
to execution and foreclosure sale, even if the
petitioner fails to pay its taxes, if there is no
Congressional authorization.
 - The statute under consideration imposes a tax of P2
FRANCIS A. CHURCHILL and STEWART TAIT, ET AL, vs. per square meter or fraction thereof upon every
VENANCIO CONCEPCION, as Acting Collector of Internal electric sign, bill-board, etc., wherever found in the
Revenue, (Uniformity in Taxation) Philippine Islands. Or in other words, "the rule of
taxation" upon such signs is uniform throughout the
- Section 100 of Act 2339 (promulgated 1914) imposed Islands. The rule, which we have just quoted from the
an annual tax of P4 per square meter upon electric Philippine Bill, does not require taxes to be graded
signs, billboards, and spaces used for posting or according to the value of the subject or subjects upon
displaying temporary signs, and all signs displayed on which they are imposed, especially those levied as
premises not occupied by buildings. The section was privilege or occupation taxes. We can hardly see
amended by Act 2432, reducing the tax to P2 per wherein the tax in question constitutes double
square meter. The taxes imposed by Act 2432 were taxation.
ratified by the US Congress on 4 March 1915.
- Francis A. Churchill and Stewart Tait, co-partners in
Mercantile Advertising Agency, owed a billboard to
which they were taxed at P104. The tax was paid
under protest. Churchill and Tait instituted the action
to recover the amount. It is now urged that the trial
court erred:
o (1) In not holding that the tax as imposed
constitutes deprivation of property without
compensation or due process of law,
because it is confiscatory and unjustly
discriminatory
o (2) in not holding that the said tax is void for
lack of uniformity, because it is not graded
according to value; because the
classification on which it is based on any
reasonable ground; and furthermore,
because it constitutes double taxation.

WON confiscatory as to the business of the plaintiff? NO

- plaintiffs argued that it is confiscatory because they
cannot afford to raise the rental fees of the billboards
since the merchants could not afford to pay more
- It will thus be seen that the contention that the rates
charged for advertising cannot be raised is purely
hypothetical, based entirely upon the opinion of the
plaintiffs, unsupported by actual test, and that the
plaintiffs themselves admit that a number of other
persons have voluntarily and without protest paid the
tax herein complained of.
- In Chicago and Grand Trunk Railway Co. vs.
Wellman, it was held that While the protection of
vested rights of property is a supreme duty of the
courts, it has not come to this, that the legislative
power rests subservient to the discretion of any
railroad corporation which may, by exorbitant and
unreasonable salaries, or in some other improper
way, transfer its earnings into what it is pleased to call
`operating expenses.'

2. Is the tax void for lack of uniformity? NO

- Section 5 of the Philippine Bill, wherein it is declared
"that the rule of taxation in said Islands shall be
uniform."
- Uniformity in taxation — says Black on Constitutional
Law, page 292 — means that all taxable articles or
kinds of property, of the same class, shall be taxed at
the same rate. It does not mean that lands, chattels,
securities, incomes, occupations, franchises,
privileges, necessities, and luxuries, shall all be
assessed at the same rate. Different articles may be
taxed at different amounts, provided the rate is
uniform on the same class everywhere, with all
people, and at all times.
- A tax is uniform when it operates with the same force
and effect in every place where the subject of it is
found
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC.
vs. CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL
BOARD, THE CITY MAYOR and THE CITY TREASURER, all
of the CITY OF BUTUAN, (Valid Classification of
taxpayers/subject matter to be taxed)
- On August 16, 1960, the City of Butuan enacted
Ordinance No. 110. Ordinance No. 110 as amended,
imposes a tax on any person, association, etc., of
P0.10 per case of 24 bottles of Pepsi-Cola
- the plaintiff paid under protest the amount of
P4,926.63 from August 16 to December 31, 1960 and
the amount of P9,250.40 from January 1 to July 30,
1961.
- plaintiff filed the foregoing complaint for the recovery
of the total amount of P14,177.03 paid under protest
and those that if may later on pay until the termination
of this case on the ground that Ordinance No. 110 as
amended of the City of Butuan is illegal, that the tax
imposed is excessive and that it is unconstitutional.
- Plaintiff maintains that the disputed ordinance is null
and void because: (1) it partakes of the nature of an
import tax; (2) it is highly unjust and discriminatory;
1. YES, it is an important tax, something which cannot
be imposed by the city of Butuan
- Under Ordinance 110, merchants engaged in the sale
of soft drink or carbonated drinks, are not subject to
the tax, unless they are agents and/or consignees of
another dealer, who, in the very nature of things, must
be one engaged in business outside the City.
- The intention of the law was to limit the application of
the ordinance to soft drinks brought into the city from
outside sources. Viewed from this angle, the tax
partakes of the nature of an import duty, which is
beyond defendant's authority to impose by express
provision of law.
2. Yes it is unjust and discriminatory
- only sales by "agents or consignees" of outside
dealers would be subject to the tax. Sales by local
dealers, not acting for or on behalf of other
merchants, regardless of the volume of their sales,
and even if the same exceeded those made by said
agents or consignees of producers or merchants
established outside the City of Butuan, would be
exempt from the disputed tax.
- The classification made in the exercise of this
authority, to be valid, must, however, be reasonable
and this requirement is not deemed satisfied unless:
o (1) it is based upon substantial distinctions
which make real differences;
o (2) these are germane to the purpose of the
legislation or ordinance;
o (3) the classification applies, not only to
present conditions, but, also, to future
conditions substantially identical to those of
the present; and
o (4) the classification applies equally all those
who belong to the same class.
These conditions are not fully met by the ordinance in
question.
Manila Race Horce v. Dela Fuente (valid
classification of taxpayers/subject matter to be taxed)
Facts: Ordinance No. 3065 of the City of Manila imposes a tax
on stable owners based on the number of race horses kept or
maintained in the stables (P10/year for each race horce).
Manila Race Horce Trainers Association, Inc., a group of
owners of boarding stables for race horses wants to declare
the Ordinance invalid for being violative of the Constitution. It is
argued that the ordinance taxes race horses and not boarding
stables (Sec. 2 of the Ordinance does not impose a license fee
on empty stables).
Held. Ordinance VALID. The spirit, rather than the letter, of an
ordinance determines the construction thereof, and the court
looks less to its words and more to the context, subject matter,
consequence and effect. The tax is assessed not on the
owners of the horses but on the owners of the stables, as
counsel admit in their brief, although there is nothing, of
course, to stop stable owners from shifting the tax to the horse
owners in the form of increased rents or fees, which is
generally the case.
It is also plain from the text of the whole ordinance that the
number of horses is used in the assessment purely as a
method of fixing an equitable and practical distribution of the
burden imposed by the measure. Far from being obnoxious,
the method is fair and just. It is but fair and just that for a
boarding stable where only one horse is maintained
proportionately less amount should be exacted than for a
stable where more horses are kept and from which greater
income is derived.
In taxing only boarding stables for race horses, we do not
believe that the ordinance makes arbitrary classification. it was
said there is equality and uniformity in taxation if all articles or
kinds of property of the same class are taxed at the same rate.
From the viewpoint of economics and public policy the taxing
of boarding stables for race horses to the exclusion of boarding
stables for horses dedicated to other purposes is not
indefensible. The owners of boarding stables for race horses
and, for that matter, the race horse owners themselves, who in
the scheme of shifting may carry the taxation burden, are a
class by themselves and appropriately taxed where owners of
other kinds of horses are taxed less or not at all, considering
that equity in taxation is generally conceived in terms of ability
to pay in relation to the benefits received by the taxpayer and
by the public from the business or property taxed. Race horses
are devoted to gambling if legalized, their owners derive fat
income and the public hardly any profit from horse racing, and
this business demands relatively heavy police supervision.
Taking everything into account, the differentiation against
which the plaintiffs complain conforms to the practical dictates
of justice and equity and is not discrimatory within the meaning
of the Constitution.
Eastern Theatrical v. Alfonso(valid classification of
taxpayers/subject matter to be taxed)
Facts. 12 corporations involved in the motion picture business
are impugning the validity of City of Manila Ordinance 2958
which imposes a fee on the price of every admission ticket sold
by cinemas, theaters, theatrical shows and boxing exhibitions
for violative of the consti provision regarding the uniformity and
equality of taxation, and the equal protection of the laws. It is
also argued that based on Sec 2444(m) of the Revised Admin
Code, the ordinance was enacted beyond the powers of the
City of Manila.
Held. The whole argument of plaintiffs hinges, therefore, on
the assumption that the power granted to the City of Manila by
section 2444(m) of the Revised Administrative Code is limited
to the authority to impose a tax on business, with exclusion of
the power to impose a tax amusement; but, the assumption is
based on an arbitrary labeling of the kind of tax authorized by
said section 2444(m).
The very fact that section 2444 (m) of the Revised
Administrative Code includes theaters, cinematographs, public
billiard tables, public pool tables, bowling alleys, dance halls,
public dancing halls, cabarets, circuses and other similar
places, race tracks, horse races, theatrical performances,
public exhibition, circus and other performances and places of
amusements, will show conclusively that the power to tax
amusement is expressly included within the power granted by
section 2444(m) of the Revised Administrative Code.
Appellantts point out to the fact that the ordinance in question
does not tax "many more kinds of amusements" than those
therein specified, such as "race tracks, cockpits, cabarets,
concert halls, circuses, and other places of amusement." the
argument has absolutely no merit. The fact that some places of
amusement are not taxed while others, such as
cinematographs, theaters, vaudeville companies, theatrical
shows, and boxing exhibitions and other kinds of amusements
or places of amusement are taxed, is no argument at all
against the equality and uniformity of the tax imposition.
Equality and uniformity of the tax imposition. 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; and the appellants
cannot point out what places of amusement taxed by the
ordinance do not constitute a class by themselves and which
can be confused with those not included in the ordinance.
---------------------------------------
Section 2444 (m) of the Revised Administrative code reads as follows:
To tax fix the license fee and regulate the business of hotels restaurants refreshment places,
cafes, lodging houses, boarding houses livery garages warehouses, pawnshops theaters,
cinematographs; and further to fix the location of and to tax fix the license fee for and regulate
the businessof lively stables, the license fee for and regulate the business of livery stable,
boarding stables, embalmers, public billiard table public pool tables, bowling alleys, dance
halls, public dancing halls, cabarets, circusand other similar parades, public vehicles, race
tracks, horse races,Junk dealers, theatrical performances, public exhibitions, circus andother
performances and places of amusements, match factories, blacksmith shops, foundries, steam
boilers, lumber yards, shipyards, thestorage and sale of gunpowder, tar, pitch, resin, coal, oil,
gasoline,benzene, turpentine, 'hemp, cotton, nitroglycerin, petroleum or any Ofthe products
thereof and of all other highly combustible or explosivematerials and other establishment likely
to endanger the public safety or give rise to conflagration or explosion and subject to the
provision of ordinance issue by the (Philippines Health Service) Bureau of Health in
accordance with law tanneries, renders tallow chandlers bone factories and soap factories.
Shell v. Municipality of Cordova(valid classification of
taxpayers/subject matter to be taxed)
Facts:The Municipality of Cordova, Cebu adopted a series of
ordinances, one of which is Ordinance 10 which imposes an
annual tax of P150 on occupation or the exercise of the
privilege of installation manager. Shell, Co. wants to refund the
taxes paid by it on the ground that the ordinances imposing the
taxes are ultra vires.
Held. The ordinances are valid.
Ordinance No. 10 which imposes an annual tax of P150 on
"installation manager" comes under the provisions of
Commonwealth Act No. 472. The claim that "installation
manager" is a designation made by the plaintiff and such
designation cannot be deemed to be a "calling" as defined in
section 178 of the National Internal Revenue Code (Com. Act
No. 466), and that the installation manager employed by the
plaintiff is a salaried employee which may not be taxed by the
municipal council under the provisions of Commonwealth Act
No. 472 is without merit.
Even if the installation manager is a salaried employee of the
plaintiff, still it is an occupation "and one occupation or line of
business does not become exempt by being conducted with
some other occupation or business for which such tax has
been paid'1 and the occupation tax must be paid "by each
individual engaged in a calling subject thereto." And pursuant
to section 179 of the National Internal Revenue Code, "The
payment of . . . occupation tax shall not exempt any person
from any tax, . . . provided by law or ordinance in places where
such . . . occupation in . . . regulated by municipal law, nor
shall the payment of any such tax be held to prohibit any
municipality from placing a tax upon the same . . . occupation,
for local purposes, where the imposition of such tax is
authorized by law."
The contention that the ordinance is discriminatory and hostile
because there is no other person in the locality who exercises
such "designation" or occupation is also without merit, because
the fact that there is no other person in the locality who
exercises such a "designation" or calling does not make the
ordinance discriminatory and hostile, inasmuch as it is and will
be applicable to any person or firm who exercises such calling
or occupation named or designated as "installation manager."
Abra Valley College v. Aquino (Prohibition Against
Taxation of Religious, Charitable Entities and Educational
Entities)
Facts: The Municipal Treasurer of Bangued, Abra caused to
be seized and sold the lot and building of Abra Valley Junior
College for its failure to pay taxes (P5140.31).
Petitioner school wants to declare the notice of sale and notice
of seizure annulled. The lot and the building was sold at public
auction to the mayor.
Provincial fiscal: building and lot used for educational purposes
are exempted from the payment of taxes.
RTC: not exempted since the second floor is used by the
Director of the school for residential purposes;
Respondent: (raised for the first time in the SC but still
considered in the interest of substantial justice) for commercial
purposes because the ground floor of the college building is
being used and rented by a commercial establishment, the
Northern Marketing Corporation
Issue: Is the school exclusively used for educational
purposes?
Held. NO (leased to commercial establishment)
Section 22, paragraph 3, Article VI, of the then 1935 Philippine
Constitution, exempts "Cemeteries, churches and parsonages
or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable or
educational purposes ... from real taxes.
The Assessment Law also exempts from real property tax (c)
churches and parsonages or convents appurtenant thereto,
and all lands, buildings, and improvements used exclusively for
religious, charitable, scientific or educational purposes.
It was clarified that the term "used exclusively" also considers
incidental use. The exemption in favor of property used
exclusively for charitable or educational purposes is 'not limited
to property actually indispensable' but extends to facilities
which are incidental to and reasonably necessary for the
accomplishment of said purposes,
The test of exemption from taxation is the use of the property
for purposes mentioned in the Constitution.
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. 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.
Lung Center v. QC(Prohibition Against Taxation of
Religious, Charitable Entities and Educational Entities)
Facts: Lung Center of the Philippines (both land and hospital)
was assessed for tax purposes.
In the middle of the lot is the hospital. A big space at the
ground floor is being leased to private parties, for canteen and
small store spaces, and to medical or professional practitioners
who use the same as their private clinics for their patients
whom they charge for their professional services. The corner
right side of Quezon Avenue and Elliptical Road, is being
leased for commercial purposes to Elliptical Orchids and
Garden Center.
The petitioner accepts paying and non-paying patients. The
petitioner receives annual subsidies from the government.
The institution filed a claim for exemption predicated on its
claim that it’s a charitable institution.
It averred 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. The petitioner
contends that it is a charitable institution and, as such, is
exempt from real property taxes.
Central Board of Assessment Appeals of Quezon City thinks
otherwise: Before a patient is admitted for treatment in the
Center, first impression is that it is pay-patient and required to
pay a certain amount as deposit. That even if a patient is living
below the poverty line, he is charged with high hospital bills.
Held: 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. 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.
Petitioner is a charitable institution within the context of the
1973 and 1987 Constitutions. 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.
In the legal sense, a charity may be fully defined as a gift, to be
applied consistently with existing laws, for the benefit of an
indefinite number of persons, either by bringing their minds and
hearts under the influence of education or religion, by assisting
them to establish themselves in life or otherwise lessening the
burden of government. It may be applied to almost anything
that tend to promote the well-doing and well-being of social
man. It embraces the improvement and promotion of the
happiness of man. The word "charitable" is not restricted to
relief of the poor or sick. The test of a charity and a charitable
organization are in law the same. 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.
Under P.D. No. 1823, the petitioner is a non-profit and non-
stock corporation which, subject to the provisions of the
decree, organized for the welfare and benefit of the Filipino
people principally to help combat the high incidence of lung
and pulmonary diseases in the Philippines.
The general purpose of its creation is to ease the burden burdened to prove, by clear and unequivocal proof, that (a) it is
among the Filipinos from contracting respiratory illnesses a charitable institution; and (b) its real properties are
which are considered as among the most prevalent in the ACTUALLY, DIRECTLY and EXCLUSIVELY used for
country. charitable purposes. "Exclusive" is defined as possessed and
Hence, the medical services of the petitioner are to be enjoyed to the exclusion of others; debarred from participation
rendered to the public in general in any and all walks of life or enjoyment; and "exclusively" is defined, "in a manner to
including those who are poor and the needy without exclude; as enjoying a privilege exclusively."40 If real property
discrimination. is used for one or more commercial purposes, it is not
As a general principle, a charitable institution does not lose its exclusively used for the exempted purposes but is subject to
character as such and its exemption from taxes simply taxation.41 The words "dominant use" or "principal use" cannot
because it derives income from paying patients, or receives be substituted for the words "used exclusively" without doing
subsidies from the government, so long as the money received violence to the Constitutions and the law.42 Solely is
is devoted or used altogether to the charitable object which it is synonymous with exclusively.43
intended to achieve; and no money inures to the private benefit What is meant by actual, direct and exclusive use of the
of the persons managing or operating the institution property for charitable purposes is the direct and immediate
The fundamental ground upon which all exemptions in favor of and actual application of the property itself to the purposes for
charitable institutions are based is the benefit conferred upon which the charitable institution is organized. It is not the use of
the public by them, and a consequent relief, to some extent, of the income from the real property that is determinative of
the burden upon the state to care for and advance the interests whether the property is used for tax-exempt purposes.44
of its citizens.20 The petitioner failed to discharge its burden to prove that the
Subsidies are like a gift or donation of any other kind except entirety of its real property is actually, directly and exclusively
they come from the government. The crux is the presence or used for charitable purposes. While portions of the hospital are
absence of material reciprocity. used for the treatment of patients and the dispensation of
Therefore, the fact that subsidization of part of the cost of medical services to them, whether paying or non-paying, other
furnishing such housing is by the government rather than portions thereof are being leased to private individuals for their
private charitable contributions does not dictate the denial of a clinics and a canteen. Further, a portion of the land is being
charitable exemption if the facts otherwise support such an leased to a private individual for her business enterprise under
exemption, as they do here. the business name "Elliptical Orchids and Garden Center."
In this case, the petitioner adduced substantial evidence that it
spent its income, including the subsidies from the government
for 1991 and 1992 for its patients and for the operation of the
hospital. It even incurred a net loss in 1991 and 1992 from its
operations.
Even as we find that the petitioner is a charitable institution, we
hold, 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.
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. Hence, a
claim for exemption from tax payments must be clearly shown
and based on language in the law too plain to be mistaken.
Section 28(3), Article VI of the 1987 Philippine Constitution
provides, thus:
(3) Charitable institutions, churches and parsonages or
convents appurtenant thereto, mosques, non-profit cemeteries,
and all lands, buildings, and improvements, actually, directly
and exclusively used for religious, charitable or educational
purposes shall be exempt from taxation.32

The tax exemption under this constitutional provision covers

property taxes only.33 As Chief Justice Hilario G. Davide, Jr.,
then a member of the 1986 Constitutional Commission,
explained: ". . . 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."34
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160
in order to be entitled to the exemption, the petitioner is
Gaston v. Republic Planters Bank (Prohibition on
Use of Tax Levied for Special Purpose)
Philippine Sugar Commission (PHILSUCOM) which was
tasked with the function of regulating and supervising the sugar
industry was abolished.
P. D. No. 388, promulgated on February 2,1974, which created
the PHILSUCOM, provided for the collection of a Stabilization
Fund for the purpose of financing the growth and development
of the sugar industry market to be administered in trust by the
Commission and deposited in the Philippine National Bank
derived by collecting 2 pesos/picul produced and milled for 5
years, and 1 peso/picul produced and milled every year
thereafter.
Petitioners filed a mandamus to compel the distribution of
shares of stock in PNB, in the name of PHILSUCOM to the
sugar producers, planters and millers who contributed in the
Stabilization fund.
Petitioners say that the fees collected were held in trust for the
sugar planters and millers (belonging to them) and not public
funds (belonging to PHILSUCOM) which should be transferred
to the general funds of the government upon dissolution of the
Commission.
Section 7 of P.D. No. 388 does provide that the stabilization
fees collected "shall be administered in trust by the
Commission." However, while the element of an intent to
create a trust is present, a resulting trust in favor of the sugar
producers, millers and planters cannot be said to have ensued
because the presumptive intention of the parties is not
reasonably ascertainable from the language of the statute
itself.
No implied trust in favor of the sugar producers either can be
deduced from the imposition of the levy. It is not clearly shown
from the statute itself that the PHILSUCOM imposed on itself
the obligation of holding the stabilization fund for the benefit of
the sugar producers.
Petitioners maintain that this infusion of fresh capital was
accomplished by PHILSUCOM, using the proceeds of the
P1.00 per picul stabilization fund to pay for its subscription in
shares of stock of respondent Bank. It is petitioners'
submission that all shares were placed in PHILSUCOM's name
only out of convenience and necessity and that they are the
true and beneficial owners thereof.
But, while it is true that the collected stabilization fees were set
aside by PHILSUCOM to pay its subscription to RPB, it did not
collect said fees for the account of the sugar producers. That
stabilization fees are charges/levies on sugar produced and
milled which accrued to PHILSUCOM under PD 338, as
amended. ...
The stabilization fees collected are in the nature of a tax, which
is within the power of the State to impose for the promotion of
the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They
constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections
made accrue to a "Special Fund," a "Development and
Stabilization Fund," almost Identical to the "Sugar Adjustment
and Stabilization Fund" created under Section 6 of
Commonwealth Act 567. 1 The tax collected is not in a pure
exercise of the taxing power. It is levied with a regulatory
purpose, to provide means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police
power of the State (Lutz vs. Araneta, supra.).
The stabilization fees in question are levied by the State upon
sugar millers, planters and producers for a special purpose —
that of "financing the growth and development of the sugar
industry and all its components, stabilization of the domestic
market including the foreign market. the fact that the State has
taken possession of moneys pursuant to law is sufficient to
constitute them state funds, even though they are held for a
special purpose. Having been levied for a special purpose, the
revenues collected are to be treated as a special fund, to be, in
the language of the statute, "administered in trust' for the
purpose intended. Once the purpose has been fulfilled or
abandoned, the balance, if any, is to be transferred to the
general funds of the Government. That is the essence of the
trust intended (See 1987 Constitution, Article VI, Sec. 29(3),
lifted from the 1935 Constitution, Article VI, Sec. 23(l]). 2
The character of the Stabilization Fund as a special fund is
emphasized by the fact that the funds are deposited in the
Philippine National Bank and not in the Philippine Treasury,
moneys from which may be paid out only in pursuance of an
appropriation made by law (1987) Constitution, Article VI, Sec.
29[1],1973 Constitution, Article VIII, Sec. 18[l]).
That the fees were collected from sugar producers, planters
and millers, and that the funds were channeled to the purchase
of shares of stock in respondent Bank do not convert the funds
into a trust fired for their benefit nor make them the beneficial
owners of the shares so purchased. It is but rational that the
fees be collected from them since it is also they who are to be
benefited from the expenditure of the funds derived from it. The
investment in shares of respondent Bank is not alien to the
purpose intended because of the Bank's character as a
commodity bank for sugar conceived for the industry's growth
and development. Furthermore, of note is the fact that one-
half, (1/2) or PO.50 per picul, of the amount levied under P.D.
No. 388 is to be utilized for the "payment of salaries and wages
of personnel, fringe benefits and allowances of officers and
employees of PHILSUCOM" thereby immediately negating the
claim that the entire amount levied is in trust for sugar,
producers, planters and millers.
To rule in petitioners' favor would contravene the general
principle that revenues derived from taxes cannot be used for
purely private purposes or for the exclusive benefit of private
persons. The Stabilization Fund is to be utilized for the benefit
of the entire sugar industry, "and all its components,
stabilization of the domestic market," including the foreign
market the industry being of vital importance to the country's
economy and to national interest.
San Miguel Corp. v. Avelino (Non-Impairment of
Jurisdiction of the Supreme Court)
Facts: San Miguel challenged the existing Ordinance of the
Tax Code of the City of Mandaue. This was on the ground that
Section 12(e) (7) in relation to Section 12(e) (1) and (2),
Mandaue City Ordinance No. 97, is illegal and void because it
imposed a specific tax beyond its territorial jurisdiction. The
validity of the ordinance was sustained by the City Fiscal.
However, when the case appealed to the Secretary Justice,
Macaraig, the challenged ordinance was deemed “of doubtful
validity”.
Respondent City filed a suit for collection on the issue of the
validity of the ordinance which had the effect of questioning the
opinion of the Justice Secretary. San Miguel filed a petition for
certiorari and prohibition to oppose the suit and have it
dismissed. It claimed that under Section 47, which states that
"The decision of the Secretary of Justice shall be final and
executory unless, within thirty days upon receipt thereof, the
aggrieved party contents the same in a court of competent
jurisdiction”, the suit for collection was not the appeal allowed
by the law.
Issue: WON the courts are ousted its jurisdiction over
questions of law because the mode of appeal by the
Respondent city was improper.
Held: No. The validity of a statute, an executive order or
ordinance is a matter for the judiciary to decide and that
whenever in the disposition of a pending case such a question
becomes unavoidable, then it is not only the power but the duty
of the Court to resolve such a question. To construe Section
47 narrowly would be to raise a serious constitutional question.
For it would in effect bar what otherwise would be a proper
case cognizable by a court precisely is the exercise of the
conceded power of judicial review just because the procedure
contended for which is that of an "appeal," under the
circumstances a term vague and ambiguous, was not followed.
Tan v. Del Rosario (Due Process)
Sec.1 Art 3 Constitution
Facts: Petitioners challenge the constitutionality of RA 7496
aka Simplified Net Income Taxation Scheme (SNIT) under Arts
VI secs. 26 and 28, and III sec. 1 “No person shall be deprived
of . . . property without due process of law, nor shall any
person be denied the equal protection of the laws”. Essentially,
petitioners argue that general professional partnerships and
general partnerships/corporations must be uniformly taxed.
Issue: WON the changes in the tax schedules present in
RA 7496 and the different treatment in Professional
Partnerships and Corporations and Partnerships, are
unconstitutional.
Held: No. Petitioner gives a fairly extensive discussion on the
merits of the law, illustrating, in the process, what he believes
to be an imbalance between the tax liabilities of those covered
by the amendatory law and those who are not. With the
legislature primarily lies the discretion to determine the nature
(kind), object (purpose), extent (rate), coverage (subjects) and
situs (place) of taxation. This court cannot freely delve into
those matters which, by constitutional fiat, rightly rest on
legislative judgment. Of course, where a tax measure becomes
so unconscionable and unjust as to amount to confiscation of
property, courts will not hesitate to strike it down, for, despite
all its plenitude, the power to tax cannot override constitutional
proscriptions. The due process clause may correctly be
invoked only when there is a clear contravention of inherent or
constitutional limitations in the exercise of the tax power. No
such transgression is so evident to us.
Sison v. Ancheta (Due Process)
(Sec 1, Art III, Consti)
Facts: In a suit for declaratory relief and probation, petitioner
alleges arbitrariness in Sec. 1, BP 135. He reasons that he
would be unduly discriminated against by the imposition of
higher rates of tax upon his income arising from the exercise of
his profession vis-a-vis those which are imposed upon fixed
income or salaried individual taxpayers.
Issue: Whether the imposition of a higher tax rate on taxable
net income derived from business or profession than on
compensation is constitutionally infirm.
Held: No. The Constitution as the fundamental law overrides
any legislative or executive act that runs counter to it. In any
case therefore where it can be demonstrated that the
challenged statutory provision - as petitioner here alleges - fails
to abide by its command, then this Court must so declared and
adjudge it null.
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 then becomes the duty of this Court to say
that such an arbitrary act amounted to the exercise of an
authority not conferred. That properly calls for the application
of the Holmes dictum. It has also been held that where the
assailed tax measure is beyond the jurisdiction of the state, or
is not for a public purpose, or, in case of a retroactive statute is
so harsh and unreasonable, it is subject to attack on due
process grounds.
Now for equal protection. The applicable standard to avoid the
charge that there is a denial of this constitutional mandate
whether the assailed act is in the exercise of the police power
or the power of eminent domain is to demonstrate "that the
governmental act assailed, far from being inspired by the
attainment of the common weal was prompted by the spirit of
hostility, or at the very least, discrimination that finds to support
in reason. 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.
In the case at bar, petitioner failed to make a case that the
challenged law was constitutionally infirm because the
classifications were valid for tax purposes, and the it is not
arbitrary and confiscatory.
American Bible Society v. City of Manila (Religious
Freedom)
(Sec. 5, Art. III, Consti)
Facts: Plaintiff Bible Society challenges the City’s imposition of
license fees and refuses to pay taxes on the bible it sold in the
region.
Plaintiff further tried to establish that it never made any profit
from the sale of its bibles, which are disposed of for as low as
one third of the cost, and that in order to maintain its operating
cost it obtains substantial remittances from its New York office
and voluntary contributions and gifts from certain churches,
both in the United States and in the Philippines, which are
interested in its missionary work. Defendant retorts, however,
that they do obtain profit from selling the bibles.
Issue: Nevertheless, the issue in this case is whether tax
imposition and a fee (Ordinances Nos. 2529 and 3000
respectively) on activities religious in characters and on
religious materials are tantamount to religious censorship and
abridgment by the state.
Held: Ordinance No. 2529 which taxes the sale of assorted
merchandise does not apply to the sale of religious materials in
the exercise of the right to freedom of religion. The right to
enjoy freedom of the press and religion occupies a preferred
position as against the constitutional right of property owners.
Otherwise, 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.
Spreading religious beliefs in this ancient and honorable
manner would thus be denied the needy.
With respect to Ordinance No. 3000, as amended, which
requires the obtention of 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. The fee does not
deprive defendant of his constitutional right of the free exercise
and enjoyment of religious profession and worship, even
though it prohibits him from introducing and carrying out a
scheme or purpose which he sees fit to claim as a part of his
religious system.
Tolentino v. Sec. of Finance (Religious Freedom)
(Sec. 5, Art. III, Consti)
Commissioner v. CA (KINDS OF TAXES:Privilege Tax)
Facts: Atlas Consolidated Mining and Development
Corporation (ACMDC) claims exception from the
Manufacturer’s tax since it uses the steel balls it manufactures
for its purpose.
Issue: WON ACMDC is liable for Manufacturer’s tax
Held: No. ACMDC cannot be said to be engaged in the sale,
barter or exchange of personal property and as such liable
under the Manufacturer’s tax.
Manufacturer’s tax: SEC. 186. There shall be levied, assessed
and collected once only on every original sale, barter,
exchange, or similar transaction either for nominal or valuable
consideration, intended to transfer ownership of, or title to, the
articles
“Privilege taxes on business" are taxes imposed upon the
privilege of engaging in business. They are essentially excise
taxes. To be held liable for the payment of a privilege tax, the
person or entity must be engaged in business.
"To engage" is to embark on a business or to employ oneself
therein. The word "engaged" connotes more than a single act
or a single transaction; it involves some continuity of action.
"To engage in business" is uniformly construed as signifying an
employment or occupation which occupies one's time,
attention, and labor for the purpose of a livelihood or profit. The
expressions "engage in business," "carrying on business" or
"doing business" do not have different meanings, but
separately or connectedly convey the idea of progression,
continuity, or sustained activity. "Engaged in business" means
occupied or employed in business; "carrying on business" does
not mean the performance of a single disconnected act, but
means conducting, prosecuting, and continuing business by
performing progressively all the acts normally incident thereto;
while "doing business" conveys the idea of business being
done, not from time to time, but all the time.
The foregoing notwithstanding, it has likewise been ruled that
one act may be sufficient to constitute carrying on a business
according to the intent with which the act is done. A single sale
of liquor by one who intends to continue selling is sufficient to
render him liable for "engaging in or carrying on" the business
of a liquor dealer.
There may be a business without any sequence of acts, for if
an isolated transaction, which if repeated would be a
transaction in a business, is proved to have been undertaken
with the intent that it should be the first of several transactions,
that is, with the intent of carrying on a business, then it is a first
transaction in an existing business.
Under the tax code then in force, the 7% manufacturer's sales
tax is imposed on the manufacturer for every original sale,
barter, exchange and other similar transaction intended to
transfer ownership of articles.
Thus, a manufacturer, in order to be subjected to the necessity
of paying the percentage tax imposed by Section 186 of the tax
code, must be 'engaged' in the sale, barter or exchange of
personal property. Under a statute which imposes a tax on
persons engaged in the sale, barter or exchange of
merchandise, a person must be occupied or employed in the
sale, barter or exchange of personal property. A person can
hardly be considered as occupied or employed in the sale,
barter or exchange of personal property when he has made
one purchase and sale only.
In the case at bar, ACMDC claims exemptions from the
payment of manufacturer's tax. It asserts that it is not engaged
in the business of selling grinding steel balls, but it only
produces grinding steel balls solely for its own use, or
consumption. However, it admits having lent its grinding steel
balls to other entities but only in very isolated cases.
After a careful review of the records and on the basis of the
legal concept of "engaging in business" hereinbefore
discussed, we are inclined to agree with ACMDC that it should
not and cannot be held liable for the payment of the
manufacturer's tax.