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Delegation of taxation power; input and output tax; uniform and equitability of EVAT

FACTS: Before R.A. No. 9337 took effect (July 1, 2005, petitioners ABAKADA GURO Party
List, et al., filed a petition for prohibition. Petitioners argue that the law is unconstitutional, as it
constitutes abandonment by Congress of its exclusive authority to fix the rate of taxes under
Article VI, Section 28(2) of the 1987 Philippine Constitution. They further contend that
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of
the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12%
when a certain condition is met, constitutes undue delegation of the legislative power to tax. It
. . . That the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax to
twelve percent (12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth percent (2
4/5%); or
(ii) National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 %).

ISSUE: Do Sections 4, 5 and 6 of R.A. No. 9337, giving the President the stand-by
authority to raise the VAT rate from 10% to 12% when a certain condition is met, constitutes
undue delegation of the legislative power to tax?
RULING: There is no undue delegation of legislative power but only of the discretion as to the
execution of a law. Congress does not abdicate its functions or unduly delegate power when it
describes what job must be done, who must do it, and what is the scope of his authority. It is
simply a delegation of ascertainment of facts upon which enforcement and administration of
the increase rate under the law is contingent. A (permissible delegation) is valid only if the
law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or
implemented by the delegate; and (b) fixes a standard the limits of which are sufficiently
determinate and determinable to which the delegate must conform in the performance of
his functions. In this case, the legislature has made the operation of the 12% rate effective
January 1, 2006, contingent upon a specified fact or condition. It leaves the entire operation
or non-operation of the 12% rate upon factual matters outside of the control of the executive.
No discretion would be exercised by the President. Thus, it is the ministerial duty of the
President to immediately impose the 12% rate upon the existence of any of the conditions
specified by Congress.
Notes: There was no delegation of legislative power at all, because the legislature merely
specified factual conditions that must concur before the executive may apply the provision of
the law. Fact-finding processes may be delegated by the Congress to the Executive. The
phrase upon the recommendation of the Sec. of Finance makes the latter an agent of the
Legislature, so his functions as an alter-ego of the Executive are not necessarily affected by
the provision.
FISCAL ADEQUACYthe sources of tax should coincide with the needs of government
expenditures. This is a question of wisdom, which the judiciary cannot take cognizance of.

Output vs Input Tax

OUTPUT VATtax paid when selling a product
INPUT VATtax paid when buying the materials of the thing sold; it is not a property, it is a
statutory privilege which the legislative may remove at any time
VAT Payable = Output VAT - Input VAT
Is the EVAT uniform and equitable?
Yes. A uniform rate of 0%, 12%, or exemption, are respectively imposed on the same
class of goods.

EO 372 was issued by the President of the Philippines which amended the Revenue Code,
adopting the value-added tax (VAT) effective January 1, 1988. Four petitions assailed the
validity of the VAT Law from being beyond the President to enact; for being oppressive,
discriminatory, regressive and violative of the due process and equal protection clauses,
among others, of the Constitution. The Integrated Customs Brokers Association particularly
contend that it unduly discriminate against customs brokers (Section 103r) as the amended
provision of the Tax Code provides that service performed in the exercise of profession or
calling (except custom brokers) subject to occupational tax under the Local Tax Code and
professional services performed by registered general professional partnerships are exempt
from VAT.

Whether the E-VAT law is void for being discriminatory against customs brokers

No. The phrase except custom brokers is not meant to discriminate against custom brokers
but to avert a potential conflict between Sections 102 and 103 of the Tax Code, as amended.
The distinction of the customs brokers from the other professionals who are subject to
occupation tax under the Local Tax Code is based on material differences, in that the activities
of customs partake more of a business, rather than a profession and were thus subjected to
the percentage tax under Section 174 of the Tax Code prior to its amendment by EO 273. EO
273 abolished the percentage tax and replaced it with the VAT. If the Association did not
protest the classification of customs brokers then, there is no reason why it should protest

VAT vs license tax; tax exemption is a privilege; equality and uniformity

FACTS: The Value Added Tax (VAT) is levied on the sale, barter, or exchange of goods as
well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price
or gross value in money of goods or properties sold, bartered or exchanged or of the gross
receipts from the sale or exchange of services. Republic Act No 7716 seeks to widen the tax
base of the existing VAT system and enhance its administration by amending the National
Internal Revenue Code.
Among the petitioners was the Philippine Press which claims RA 7716 violates their press
freedom and liberty having removed them from the exemption to pay Value Added Tax. They
maintain that by withdrawing the exemption granted to print media transactions involving
printing, publication, importation or sale of newspapers, R.A. No. 7716 is a license tax which
singled out the press for discriminatory treatment and that within the class of mass media the
law discriminates against print media by giving broadcast media favoured treatment.

ISSUE: Whether or not the purpose of the VAT is similar to a license tax.

RULING: No. A license tax, unlike any ordinary tax, is mainly for regulation. Its imposition on
the press is unconstitutional because it lays a prior restraint on the exercise of its
right. Hence, although its application to others, such those selling goods, is valid, its
application to the press or to religious groups, such as the Jehovah' s Witnesses, in
connection with the latter' s sale of religious books and pamphlets, is unconstitutional. As
the U.S. Supreme Court put it, "it is one thing to impose a tax on income or
property of a preacher. I t is quite another thing to ex act a tax on him for delivering a
sermon." In withdrawing the exemption, the law merely subjects the press to the same
tax burden to which other businesses have long ago been subject.
The VAT is, however, different. It is not a license tax, it is not a tax on the exercise of a
privilege, much less than a constitutional right. It is imposed on the sale, barter, lease, or
exchange of goods or properties or the sale or exchange of services and the lease of
properties purely for revenue purposes. To subject the press to its pay its income tax or
subject it to general regulation is not to violate its freedom under the Constitution.
The exemption of the press was a privilege granted by the State, which has the right
to revoke it by including the Press under the VAT system without offending press freedom
under the Constitution.
Equality and uniformity of taxation means that all taxable articles or kinds of property of
the same class be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is
enough that the statute or ordinance applies equally to all persons, forms and corporations
placed in similar situation.
The VAT is regressive, because it is indirectin other words, its imposition may be
transferred to a person other than it is directed to. In comparison, income tax is
progressive, because it is directit is imposed directly on a person and his ability to pay,
which accordingly puts him in the proper bracket on a previously-fixed scale.

Petitioner is a non-stock, non-profit entity established by virtue of PD No. 1823, seeks
exemption from real property taxes when the City Assessor issued Tax Declarations for the
land and the hospital building. Petitioner predicted on its claim that it is a charitable institution.
The request was denied, and a petition hereafter filed before the Local Board of Assessment
Appeals of Quezon City (QC-LBAA) for reversal of the resolution of the City Assessor.
Petitioner alleged that as a charitable institution, is exempted from real property taxes under
Sec 28(3) Art VI of the Constitution. QC-LBAA dismissed the petition and the decision was
likewise affirmed on appeal by the Central Board of Assessment Appeals of Quezon City. The
Court of Appeals affirmed the judgment of the CBAA.

1. Whether or not petitioner is a charitable institution within the context of PD 1823 and the
1973 and 1987 Constitution and Section 234(b) of RA 7160.

2. Whether or not petitioner is exempted from real property taxes.

1. Yes. The Court hold that the petitioner is a charitable institution within the context of the
1973 and 1987 Constitution. Under PD 1823, the petitioner is a non-profit and non-stock
corporation which, subject to the provisions of the decree, is to be administered by the Office
of the President with the Ministry of Health and the Ministry of Human Settlements. The
purpose for which it was created was to render medical services to the public in general
including those who are poor and also the rich, and become a subject of charity. Under PD
1823, petitioner is entitled to receive donations, even if the gift or donation is in the form of
subsidies granted by the government.

2. Partly No. Under PD 1823, the lung center does not enjoy any property tax exemption
privileges for its real properties as well as the building constructed thereon.
The property tax exemption under Sec. 28(3), Art. VI of the Constitution of the property taxes
only. This provision was implanted by Sec.243 (b) of RA 7160.which provides that in order to
be entitled to the exemption, the lung center must be able to prove that: it is a charitable
institution and; its real properties are actually, directly and exclusively used for charitable
purpose. Accordingly, the portions occupied by the hospital used for its patients are exempt
from real property taxes while those leased to private entities are not exempt from such taxes.

Facts: The Missioner y District of the Philippine Islands, of the Protestant Episcopal Church in
the United States, owns and operates the St. Lukes Hospital in Quezon City, the Brent
Hospital in Zamboanga City, and the St. Stephens High School in Manila. In 1957 to 1959,
the Missionary District received various shipments of materials, supplies, equipment and
other articles intended for use in the construction and operation of the new St. Lukes
Hospital. On these shipments, the Commissioner collected compensation tax. The Missionary
District filed claims for refund, but which was denied by the Commissioner on the ground that
St. Lukes Hospital was not a charitable institution and therefore was not exempt from taxes.

Issue: Whether the shipments for St. Lukes Hospital are tax-exempt.

Held: Under RA 1916, which covers taxes on donations in any form and all articles imported
into the Philippines, requires that the imported articles which have been donated, the donee
must be a duly incorporated or established international civic organization, religious or
charitable society or institution for civic, religious or charitable purposes; and the articles must
have been donated for the use of the organization, society or institution; or for free distribution
and not for sale, barter or hire. As the law does not distinguish or qualify the enjoyment or the
exemption (as the Secretary of Finance did in Department Order 18, series of 1958), the
admission of pay patients does not detract from the charitable character of a hospital, if its
funds are devoted exclusively to the maintenance of the institution. Thus, the shipments are
tax exempt.

Facts: In 1952, the Director of the Bureau of Hospitals authorized Jose V. Herrera and Ester
Ochangco Herrera to establish and operate the St. Catherines Hospital. In 1953, the
Herreras sent a letter to the Quezon City Assessor requesting exemption from payment of
real estate tax on the hospital, stating that the same was established for charitable and
humanitarian purposes and not for commercial gain. The exemption was granted effective
years 1953 to 1955. In 1955, however, the Assessor reclassified the properties from exempt
to taxable effective 1956, as it was ascertained that out 32 beds in the hospital, 12 of which
are for pay-patients. A school of midwifery is also operated within the premises of the hospital.

Issue: Whether St. Catherines Hospital is exempt from realty tax.

Held: The admission of pay-patients does not detract from the charitable character of a
hospital, if all its funds are devoted exclusively to the maintenance of the institution as a
public charity. The exemption in favor of property used exclusively for charitable or
educational purpose is not limited to property actually indispensable therefore, but extends to
facilities which are incidental to and reasonably necessary for the accomplishment of said
purpose, such as in the case of hospitals -- a school for training nurses; a nurses home;
property used to provide housing facilities for interns, resident doctors, superintendents and
other members of the hospital staff; and recreational facilities for student nurses, interns and
residents. Within the purview of the Constitution, St. Catherines Hospital is a charitable
institution exempt from taxation.
Bishop of Segovia v. Prov. Board of Ilocos Norte

Facts: The Roman Catholic Apostolic Church is the owner of a parcel of land in San Nicolas,
Ilocos Norte. On the south side is a part of the Church yard, the convent and an adjacent lost
used for a vegetable garden in which there is a stable and a well for the use of the convent. In
the center is the remainder of the churchyard and the Church. On the north side is an old
cemetery with its two walls still standing, and a portion where formerly stood a tower. The
provincial board assessed land tax on lots comprising the north and south side, which the
church paid under protest. It filed suit to recover the amount.

Issue: Whether the lots are covered by the Churchs tax exemption.

Held: The exemption in favor of the convent in the payment of land tax refers to the home of
the priest who presides over the church and who has to take care of himself in order to
discharge his duties. The exemption includes not only the land actually occupied by the
Church but also the adjacent ground destined to the ordinary incidental uses of man. A
vegetable garden, thus, which belongs to a convent, where its use is limited to the necessity
of the priest, comes under the exemption. Further, land used as a lodging house by the
people who participate in religious festivities, which constitutes an incidental use in religious
functions, likewise comes within the exemption. It cannot be taxed according to its former use,
i.e. a cemetery.

In 1980, YMCA earned an income of 676,829.80 from leasing out a portion of its premises to
small shop owners, like restaurants and canteen operators and 44,259 from parking fees
collected from non-members. On July 2, 1984, the CIR issued an assessment to YMCA for
deficiency taxes which included the income from lease of YMCAs real property. YMCA
formally protested the assessment but the CIR denied the claims of YMCA. On appeal, the
CTA ruled in favor of YMCA and excluded income from lease to small shop owners and
parking fees. However, the CA reversed the CTA but affirmed the CTA upon motion for

Whether the rental income of YMCA is taxable

Yes. The exemption claimed by YMCA is expressly disallowed by the very wording of then
Section 27 of the NIRC which mandates that the income of exempt organizations (such as the
YMCA) from any of their properties, real or personal, be subject to the tax imposed by the
same Code. While the income received by the organizations enumerated in Section 26 of the
NIRC is, as a rule, exempted from the payment of tax in respect to income received by them
as such, the exemption does not apply to income derived from any of their properties, real or
personal or from any of their activities conducted for profit, regardless of the disposition made
of such income.


St. Lukes Medical Center, Inc. (St. Lukes) is a hospital organized as a non-stock and non-
profit corporation. St. Lukes accepts both paying and non-paying patients. The BIR assessed
St. Lukes deficiency taxes for 1998 comprised of deficiency income tax, value-added tax, and
withholding tax. The BIR claimed that St. Lukes should be liable for income tax at a
preferential rate of 10% as provided for by Section 27(B). Further, the BIR claimed that St.
Lukes was actually operating for profit in 1998 because only 13% of its revenues came from
charitable purposes. Moreover, the hospitals board of trustees, officers and employees
directly benefit from its profits and assets.
On the other hand, St. Lukes maintained that it is a non-stock and non-profit institution for
charitable and social welfare purposes exempt from income tax under Section 30(E) and (G)
of the NIRC. It argued that the making of profit per se does not destroy its income tax

The sole issue is whether St. Lukes is liable for deficiency income tax in 1998 under
Section 27(B) of the NIRC, which imposes a preferential tax rate of 10% on the income of
proprietary non-profit hospitals.

Section 27(B) of the NIRC does not remove the income tax exemption of proprietary
non-profit hospitals under Section 30(E) and (G). Section 27(B) on one hand, and Section
30(E) and (G) on the other hand, can be construed together without the removal of
such tax exemption.
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1)
proprietary non-profit educational institutions and (2) proprietary non-profit hospitals. The
only qualifications for hospitals are that they must be proprietary and non-profit. Proprietary
means private, following the definition of a proprietary educational institution as any private
school maintained and administered by private individuals or groups with a government
permit. Non-profit means no net income or asset accrues to or benefits any member or
specific person, with all the net income or asset devoted to the institutions purposes and all
its activities conducted not for profit.
Non-profit does not necessarily mean charitable. In Collector of Internal Revenue v. Club
Filipino Inc. de Cebu, this Court considered as non-profit a sports club organized for
recreation and entertainment of its stockholders and members. The club was primarily funded
by membership fees and dues. If it had profits, they were used for overhead expenses and
improving its golf course. The club was non-profit because of its purpose and there was no
evidence that it was engaged in a profit-making enterprise.
The sports club in Club Filipino Inc. de Cebu may be non-profit, but it was not charitable. The
Court defined charity in Lung Center of the Philippines v. Quezon City 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 [by] otherwise lessening the burden of
government. However, despite its being a tax exempt institution, any income such institution
earns from activities conducted for profit is taxable, as expressly provided in the last
paragraph of Sec. 30.
To be a charitable institution, however, an organization must meet the substantive test of
charity in Lung Center. The issue in Lung Center concerns exemption from real property
tax and not income tax. However, it provides for the test of charity in our jurisdiction. Charity is
essentially a gift to an indefinite number of persons which lessens the burden of government.
In other words, charitable institutions provide for free goods and services to the public
which would otherwise fall on the shoulders of government. Thus, as a matter of efficiency,
the government forgoes taxes which should have been spent to address public needs,
because certain private entities already assume a part of the burden. This is the rationale for
the tax exemption of charitable institutions. The loss of taxes by the government is
compensated by its relief from doing public works which would have been funded by
appropriations from the Treasury
The Constitution exempts charitable institutions only from real property taxes. In the NIRC,
Congress decided to extend the exemption to income taxes. However, the way Congress
crafted Section 30(E) of the NIRC is materially different from Section 28(3), Article VI of the
Section 30(E) of the NIRC defines the corporation or association that is exempt from income
tax. On the other hand, Section 28(3), Article VI of the Constitution does not define a
charitable institution, but requires that the institution actually, directly and exclusively use the
property for a charitable purpose.
To be exempt from real property taxes, Section 28(3), Article VI of the Constitution requires
that a charitable institution use the property actually, directly and exclusively for charitable
To be exempt from income taxes, Section 30(E) of the NIRC requires that a charitable
institution must be organized and operated exclusively for charitable purposes. Likewise,
to be exempt from income taxes, Section 30(G) of the NIRC requires that the institution be
operated exclusively for social welfare.
However, the last paragraph of Section 30 of the NIRC qualifies the words organized and
operated exclusively by providing that:
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or
from any of their activities conducted for profit regardless of the disposition made of
such income, shall be subject to tax imposed under this Code.
In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution
conducts any activity for profit, such activity is not tax exempt even as its not-for-profit
activities remain tax exempt.
Thus, even if the charitable institution must be organized and operated exclusively for
charitable purposes, it is nevertheless allowed to engage in activities conducted for profit
without losing its tax exempt status for its not-for-profit activities. The only consequence is
that the income of whatever kind and character of a charitable institution from any of
its activities conducted for profit, regardless of the disposition made of such income, shall
be subject to tax. Prior to the introduction of Section 27(B), the tax rate on such income from
for-profit activities was the ordinary corporate rate under Section 27(A). With the introduction
of Section 27(B), the tax rate is now 10%.
The Court finds that St. Lukes is a corporation that is not operated exclusively for charitable
or social welfare purposes insofar as its revenues from paying patients are concerned. This
ruling is based not only on a strict interpretation of a provision granting tax exemption, but
also on the clear and plain text of Section 30(E) and (G). Section 30(E) and (G) of the NIRC
requires that an institution be operated exclusively for charitable or social welfare purposes
to be completely exempt from income tax. An institution under Section 30(E) or (G) does not
lose its tax exemption if it earns income from its for-profit activities. Such income from for-
profit activities, under the last paragraph of Section 30, is merely subject to income tax,
previously at the ordinary corporate rate but now at the preferential 10% rate pursuant to
Section 27(B).
St. Lukes fails to meet the requirements under Section 30(E) and (G) of the NIRC to be
completely tax exempt from all its income. However, it remains a proprietary non-profit
hospital under Section 27(B) of the NIRC as long as it does not distribute any of its profits to
its members and such profits are reinvested pursuant to its corporate purposes. St. Lukes, as
a proprietary non-profit hospital, is entitled to the preferential tax rate of 10% on its net income
from its for-profit activities.
St. Lukes is therefore liable for deficiency income tax in 1998 under Section 27(B) of the
NIRC. However, St. Lukes has good reasons to rely on the letter dated 6 June 1990 by the
BIR, which opined that St. Lukes is a corporation for purely charitable and social welfare
purposes and thus exempt from income tax.
In Michael J. Lhuillier, Inc. v. Commissioner of Internal Revenue, the Court said that good
faith and honest belief that one is not subject to tax on the basis of previous interpretation of
government agencies tasked to implement the tax law, are sufficient justification to delete the
imposition of surcharges and interest.
WHEREFORE, St. Lukes Medical Center, Inc. is ORDERED TO PAY the deficiency
income tax in 1998 based on the 10% preferential income tax rate under Section 27(8) of
the National Internal Revenue Code. However, it is not liable for surcharges and interest
on such deficiency income tax under Sections 248 and 249 of the National Internal
Revenue Code. All other parts of the Decision and Resolution of the Court of Tax Appeals

FACTS: St. Luke's is a non-stock non-profit hospital. The BIR assessed St. Luke's based on
the argument that Section 27(B) of the Tax Code should apply to it and hence all of St. Luke's
income should be subject to the 10% tax therein as it is a more specific provision and should
prevail over Section 30 which is a general provision. St. Luke's countered by saying that its
free services to patients was 65% of its operating income and that no part of its income inures
to the benefit of any individual.

ISSUE: Does Section 27(B) have the effect of taking proprietary non-profit hospitals out of the
income tax exemption under Section 30 of the Tax Code and should instead be subject to a
preferential rate of 10% on its entire income?

RULING: No. The enactment of Section 27(B) does not remove the possible income tax
exemption of proprietary non-profit hospitals. The only thing that Section 27(B) captures (at
10% tax) in the case of qualified hospitals is in the instance where the income realized by the
hospital falls under the last paragraph of Section 30 such as when the entity conducts any
activity for profit. The revenues derived by St. Luke's from pay patients are clearly income
from activities conducted for profit.
Sison v. Ancheta

Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision
(Section 1) unduly discriminated against him by the imposition of higher rates upon his
income as a professional, that it amounts to class legislation, and that it transgresses against
the equal protection and due process clauses of the Constitution as well as the rule requiring
uniformity in taxation.

Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule
on uniformity in taxation.

Held: There is a need for proof of such persuasive character as would lead to a conclusion
that there was a violation of the due process and equal protection clauses. Absent such
showing, the presumption of validity must prevail. 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. Where the differentiation conforms to the practical dictates of justice and
equity, similar to the standards of equal protection, it is not discriminatory within the meaning
of the
clause and is therefore uniform. Taxpayers may be classified into different categories, such as
recipients of compensation income as against professionals. Recipients of compensation
income are not entitled to make deductions for income tax purposes as there is no practically
no overhead expense, while professionals and businessmen have no uniform costs or
expenses necessary to produce their income. There is ample justification to adopt the gross
system of income taxation to compensation income, while continuing the system of net
income taxation as regards professional and business income.
Tiu v. CA

The constitutionality and validity of EO 97-A, that provides that the grant and enjoyment of the
tax and duty incentives authorized under RA 7227 were limited to the business enterprises
and residents within the fenced-in area of the Subic Special Economic Zone (SSEZ), was

Nature of the case: A petition for review to reverse the decision of the Court of Appeals
which upheld the constitutionality and validity of the E.O. 97-A.

Facts of the case: The petitioners assail the constitutionality of the said Order claiming that
they are excluded from the benefits provided by RA 7227 without any reasonable standards
and thus violated the equal protection clause of the Constitution. The Court of Appeals upheld
the validity and constitutionality and denied the motion for reconsideration. Hence, this
petition was filed.

Issue: WON E.O. 97-A violates the equal protection clause of the Constitution

Arguments: Petitioners contend that the SSEZ encompasses (1) the City of Olongapo, (2)
the Municipality of Subic in Zambales, and (3) the area formerly occupied by the Subic Naval
Base. However, EO 97-A, according to them, narrowed down the area within which the
special privileges granted to the entire zone would apply to the present fenced-in former
Subic Naval Base only. It has thereby excluded the residents of the first two components of
the zone from enjoying the benefits granted by the law. It has effectively discriminated
against them, without reasonable or valid standards, in contravention of the equal protection

The solicitor general defends the validity of EO 97-A, arguing that Section 12 of RA 7227
clearly vests in the President the authority to delineate the metes and bounds of the SSEZ.
He adds that the issuance fully complies with the requirements of a valid classification.

Decision: Panganiban J., The Court held that the classification was based on valid and
reasonable standards and does not violate the equal protection clause.

The fundamental right of equal protection of the laws is not absolute, but is subject to
reasonable classification. If the groupings are characterized by substantial distinctions that
make real differences, one class may be treated and regulated differently from another. The
classification must also be germane to the purpose of the law and must apply to all those
belonging to the same class.

Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the
purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all
members of the same class.

Ruling: Petition denied. The challenge decision and resolution were affirmed.
John Hay v. Lim

Strict application of tax exemption; power to exempt comes from power to tax

FACTS: Then President Ramos issued Proclamation No. 420 which created the John Hay
Special Economic Zone pursuant to Republic Act No. 7227 entitled Bases and Development
Act of 1992. Said Republic Act created the Subic Special Economic Zone and also granting it
exemptions from local and national taxes. Proclamation No. 420 also grants tax exemptions
similar to that which is granted to the Subic SEZ by RA 7227.

ISSUE: Is this constitutional?

RULING: No. Under RA 7227 it is only the Subic SEZ1 which was granted by Congress with
tax exemptions, investment incentives and the like. The grant of economic incentives to John
Hay SEZ cannot be sustained. The incentives under RA 7227 are exclusive only to Subic
SEZ, hence the extension of the same to the John Hay SEZ finds no support. More
importantly, the nature of most of the assailed privileges is one of tax exemption. It is the
legislatureunless limited by the provision of the state Constitutionthat has full
power to exempt any person or corporation or class of property from taxation, its
power to exempt2 being as broad as its power to tax. Other than Congress, the
Constitution may itself provide for specific tax exemptions, or local governments may pass
ordinance on exemption only from local taxes. The challenged grant of tax exemption would
circumvent the Constitutions imposition that a law granting any tax exemption must have the
concurrence of a majority of all the members of Congress.
Tax exempt character of an SEZ proceeds from statutory provision; hence, an SEZ may not
necessarily be tax exempt

1 Special Economic Zones are made to encourage investment. They are

considered separate tax customs territory and follow different rules. Buying in
SEZs has a similar effect of importing into the Philippines.

2 In the same way that the imposition of a tax must be explicit, the provisions for
a tax exemption must also be explicit. No law granting any tax exemption shall
be passed without the concurrence of a majority of all the Members of Congress.
Art VI, Sec. 28, 1987 Charter
BOCEA v. Teves


Facts: On 30 September 1946, the Municipal Board of Iloilo City enacted Ordinance 86
imposing license tax fees upon tenement house (P25); tenemen house partly engaged or
wholly engaged in and dedicated to business in Baza, Iznart, and Aldeguer Streets (P24 per
apartment); and tenement house, padtly or wholly engaged in business in other streets (P12
per apartment). The validity of such ordinance was challenged by Eusebio and Remedios
Villanueva, owners of four tenement houses containing 34 apartments. The Supreme Court
held the ordinance to be ultra vires. On 15 January 1960, however, the municipal board,
believing that it acquired authority to enact an ordinance of the same nature pursuant to the
Local Autonomy Act, enacted Ordinance 11 (series of 1960), Eusebio and Remedios
Villaniueva assailed the ordinance anew.

Issue: Whether Ordinance 11 violate the rule of uniformity of taxation.

Held: The Court has ruled that tenement houses constitute a distinct class of property; and
that taxes are uniform and equal when imposed upon all property of the same class or
character within the taxing authority. The fact that the owners of the other classes of buildings
in Iloilo are not imposed upon by the ordinance, or that tenement taxes are imposed in other
cities do not violate the rule of equality and uniformity. The rule does not require that taxes for
the same purpose should be imposed in different territorial subdivisions at the same time. So
long as the burden of tax falls equally and impartially on all owners or operators of tenement
houses similarly classified or situated, equality and uniformity is accomplished. The
presumption that tax statutes are intended to operate uniformly and equally was not
overthrown herein.

Facts: In 1964, the Municipal Board of Ormoc City passed Ordinance 4, imposing on any and
all productions of centrifuga sugar milled at the Ormoc Sugar Co. Inc. in Ormoc City a
municpal tax equivalent to 1% per export sale to the United States and other foreign
countries. The company paid the said tax under protest. It subsequently filed a case seeking
to invalidate the ordinance for being unconstitutional.

Issue: Whether the ordinance violates the equal protection clause.

Held: The Ordinance taxes only centrifugal sugar produced and exported by the Ormoc Sugar
Co. Inc. and none other. At the time of the taxing ordinances enacted, the company was the
only sugar central in Ormoc City. The classification, to be reasonable, should be in terms
applicable to future conditions as well. The taxing ordinance should not be singular and
exclusive as to exclude any subsequently established sugar central, of the same class as the
present company, from the coverage of the tax. As it is now, even if later a similar company is
set up, it cannot be subject to the tax because the ordinance expressly points only to the
company as the entity to be levied upon.


Facts: In the course of its ministry, the Philippine agency of the American Bible Society has
been distributing and selling bibles and/or gospel portions thereof throughout the Philippines
and translating the same into several Philippine dialects. The acting City Treasurer of Manila
required the society to secure the corresponding Mayors permit and municipal license fees,
together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter
of 1953. The society paid such under protest, and filed suit questioning the legality of the
ordinances under which the fees are being collected.

Issue: Whether the municipal ordinances violate the freedom of religious profession and

Held: A tax on the income of one who engages in religious activities is different from a tax on
property used or employed in connection with those activities. It is one thing to impose a tax
on the income or property of a preacher, and another to exact a tax for him for the privilege of
delivering a sermon. The power to tax the exercise of a privilege is the power to control or
suppress its enjoyment. Even if religious groups and the press are not altogether free from
the burdens of the government, the act of distributing and selling bibles is purely religious and
does not fall under Section 27 (e) of the Tax Code (CA 466). The fact that the price of bibles,
etc. are a little higher than actual cost of the same does not necessarily mean it is already
engaged in business for profit. Ordinance 2529 and 3000 are not applicable to the Society.

Facts: Cagayan Electric Power and light Co, Inc. (CEPALCO) was granted a franchise in
1961 under RA 3247 to install, operate and maintain an electric light, heat and power system
in Cagayan de Oro and its suburbs. In 1973, the Local Tax Code (PD 231) was promulgated,
where Section 9 thereof providing for a franchise tax. Pursuant thereto, the province of
Misamis Oriental enacted Provincial Revenue Ordinance 19, whose Section 12 also provides
for a franchise tax. The Provincial Treasurer demanded payment of the provincial franchise
tax from CEPALCO. CEPALCO paid under protest.

Issue: Whether CEPALCO is exempt from the provincial franchise tax.

Held: Local Tax Regulation 3-75 issued by the Secretary of Finance in 1976 made it clear that
the franchise tax provided in the Local Tax Code may only be imposed on companies with
franchise that do not contain the exempting clause, i.e. in-lieu-of-all-taxes-proviso.
CEPALCOs franchise i.e. RA 3247, 3571 and 6020 (Section 3 thereof), uniformly provides
that in consideration of the franchise and rights hereby granted, the grantee shall pay a
franchise tax equal to 3% of the gross earnings for electric current sold under the franchise, of
which 2% goes to the national Treasury and 1% goes into the treasury of the municipalities of
Tagoloan, Opol, Villanueva, Jasaan, and Cagayan de Oro, as the case may be: Provided, that
the said franchise tax of 3% of the gross earnings shall be in lieu of all taxes and
assessments of whatever authority upon privileges, earnings, income, franchise and poles,
wires, transformers, and insulators of the grantee from which taxes and assessments the
grantee is hereby expressly exempted.


Facts: The City Council of Quezon City adopted Ordinance 7997 (1969) where privately
owned and operated public markets to pay 10% of the gross receipts from stall rentals to the
City, as supervision fee. Such ordinance was amended by Ordinance 9236 (1972), which
imposed a 5% tax on gross receipts on rentals or lease of space in privately-owned public
markets in Quezon City. Progressive Development Corp., owned and operator of Farmers
Market and Shopping Center, filed a petition for prohibition against the city on the ground that
the supervision fee or license tax imposed is in reality a tax on income the city cannot impose.

Issue: Whether the supervision fee / license tax is a tax on income.

Held: The 5% tax imposed in Ordinance 9236 does not constitute a tax on income, nor a city
income tax (distinguished from the national income tax by the Tax Code) within the meaning
of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of
business in which the company is engaged. To be considered a license fee, the imposition
must relate to an occupation or activity that so engages the public interest in health, morals,
safety and development as to require regulations for the protection and promotion of such
public interest; the imposition must also bear a reasonable relation to the probable expenses
of the regulation, taking into account not only the costs of direct regulation but also its
incidental consequences as well. The gross receipts from stall rentals have been used only as
a basis for computing the fees or taxes due to the city to cover the latters administrative
expenses. The use of the gross amount of stall rentals, as basis for the determination of the
collectible amount of license tax, does not by itself convert or render the license tax into a
prohibited city tax on income. For ordinarily, the higher the amount of stall rentals, the higher
the aggregate volume of foodstuffs and related items sold in the privately owned market; and
the higher the volume of goods sold in such market, the greater extent and frequency of
inspection and supervision that may be reasonably required in the interest of the buying




Facts: The Apostolic Prefect is a corporation sole, of religious character, organized under the
Philippine laws, and with residence in Baguio, The City imposed a special assessment
against properties within its territorial jurisdiction, including those of the Apostolic Prefect,
which benefits from its drainage and sewerage system. The Apostolic Prefect contends that
its properties should be free of tax.

Issue: Whether the Apostolic Prefect, as a religious entity, is exempt from the payment of the
special assessment.

Held: In its broad meaning, tax includes both general taxes and special assessment. Yet
actually, there is a recognized distinction between them in that assessment is confined to
local impositions upon property for the payment of the cost of public improvements in its
immediate vicinity and levied with reference to special benefits to the property assessed. A
special assessment is not, strictly speaking, a tax; and neither the decree nor the Constitution
exempt the Apostolic Prefect from payment of said special assessment. Furthermore,
arguendo that exemption may encompass such assessment, the Apostolic Prefect cannot
claim exemption as it has not proven the property in question is used exclusively for religious
purposes; but that it appears that the same is being used to other non-religious purposes.
Thus, the Apostolic Prefect is required to pay the special assessment.