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Government and the members of the Senate; and that such
• LIMITATIONS ON THE POWER OF construction would benefit Zulueta since it would entail the
TAXATION increase in value of his nearby properties.
• Respondent Zulueta countered that the petition should be
dismissed since petitioners have no legal capacity to sue and the
A. INHERENT LIMITATIONS petition does not state any cause of action.
• The lower court dismissed the petition on the ground that
27. PASCUAL vs SECRETARY OF PUBLIC WORKS Respondent Zulueta is not in anyway directly benefitted from such
G.R. No. L-10405, December 29, 1960 construction and appropriation.
"Inherent limitations of the power to tax - appropriation of funds must
be for public purpose and not for private interests." Issues:
• Whether or not the Zulueta interest is directly affected by the
Case: construction of such feeder roads. (Stated otherwise, whether or
Senator Zulueta donated a parcel of land within Antonio Subdivision, not R.A. 920 can be upheld on the ground that the
Pasig for the construction of the Pasig feeder road terminals. R.A. appropriation of php 85,000 for the construction of Pasig
Sec. 1-C, contained a provision appropriating 85,000 pesos for such feeder roads is made to serve the private interests of Senator
construction. Petitioner sought to nullify R.A. 920 on the ground that Zulueta.)
the appropriation does not serve a public purpose but rather the
interests of Senator Zulueta. The SC ruled that the provision and the Held:
appropriations are void since appropriations by the legislature, • No, appropriations made by the Government must be for
correlative with its right to tax, must be for public purpose. public purpose. This is a constitutional limitation of the taxing
power of the state that the funds so acquired must be
Facts: expended for the benefit of the public.
• Senator Jose Zulueta owned parcels of land within Antonio • It is a general rule that the legislature is without power to
Subdivision, Pasig, Rizal. appropriate public revenue for anything but a public purpose. . . It
is the essential character of the direct object of the expenditure
• Senator Zulueta expressed his intentions to donate the said
parcels of land to the Municipality of Pasig under the condition of which must determine its validity as justifying a tax, and not the
construction, extension and improvement of the Pasig feeder road magnitude of the interest to be affected nor the degree to which
terminals. the general advantage of the community, and thus the public
welfare, may be ultimately benefited by their promotion. Incidental
• In order to effectuate such construction of feeder roads, the
Congress enacted R.A. 920 which under its section 1-C to the public or to the state, which results from the promotion
appropriated 85,000 pesos for the construction of feeder roads in of private interest and the prosperity of private enterprises or
Pasig. business, does not justify their aid by the use public money.
• Petitioner Wenceslao Pascual, Governor of Rizal, sought the • Generally, under the express or implied provisions of the
nullification of R.A. 920, Sec. 1-C, on the ground that such constitution, public funds may be used only for public purpose. The
construction was not for public purpose and meant to serve the right of the legislature to appropriate funds is correlative with its
private interests of Zulueta. right to tax, and, under constitutional provisions against taxation
except for public purposes and prohibiting the collection of a tax for
• Petitioner alleged that the donation contained a condition which
renders it onerous consequently rendering it as a contract, and the one purpose and the devotion thereof to another purpose, no
present Constitution prohibits any contract between the

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appropriation of state funds can be made for other than for a public levied on specified articles as provided by law. Soft drinks is not one
purpose. of them.
• As to petitioner's standing, it is well-stated that the validity of a
statute may be contested only by one who will sustain a direct Facts:
injury in consequence of its enforcement. Yet, there are many • On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling
decisions nullifying, at the instance of taxpayers, laws providing for Company of the Philippines, Inc., commenced a complaint with
the disbursement of public funds, upon the theory that "the preliminary injunction before the Court of First Instance of Leyte for
expenditure of public funds by an officer of the State for the that court to declare Section 2 of Republic Act No. 2264. otherwise
purpose of administering an unconstitutional act constitutes a known as the Local Autonomy Act, unconstitutional as an undue
misapplication of such funds," which may be enjoined at the delegation of taxing authority as well as to declare Ordinances
request of a taxpayer. Nos. 23 and 27, series of 1962, of the municipality of Tanauan,
• In the determination of the degree of interest essential to give the Leyte, null and void.
requisite standing to attack the constitutionality of a statute, the • Both Ordinances Nos. 23 and 27 embrace or cover the same
general rule is that not only persons individually affected, but also subject matter and the production tax rates imposed therein are
taxpayers, have sufficient interest in preventing the illegal practically the same, and second, that on January 17, 1963, the
expenditure of moneys raised by taxation and may therefore acting Municipal Treasurer of Tanauan, Leyte, as per his letter
question the constitutionality of statutes requiring expenditure of addressed to the Manager of the Pepsi-Cola Bottling Plant in said
public moneys. municipality, sought to enforce compliance by the latter of the
provisions of said Ordinance No. 27, series of 1962.
28. PEPSI-COLA BOTTLING CO. vs MUNICIPALITY OF TANUAN • Municipal Ordinance No. 23, of Tanauan, Leyte, which was
G.R. No. L-31156, February 27, 1976 approved on September 25, 1962, levies and collects "from soft
"Limitations of the power to tax - taxation must observe due process" drinks producers and manufacturers a tai of one-sixteenth (1/16) of
a centavo for every bottle of soft drink corked." For the purpose of
Case: computing the taxes due, the person, firm, company or corporation
Pepsi Cola sought the nullification of R.A. 2264 for undue delegation producing soft drinks shall submit to the Municipal Treasurer a
of taxing authority as well as Ordinance Nos. 23 and 27 for monthly report, of the total number of bottles produced and corked
constituting double taxation and being unjust, unfair and oppressive. during the month.
• On the other hand, Municipal Ordinance No. 27, which was
The SC held the constitutionality of R.A. 2264 since under the New approved on October 28, 1962, levies and collects "on soft drinks
Constitution (1973), Municipal Corporation are given the power to produced or manufactured within the territorial jurisdiction of this
create their own sources of revenue and to levy taxes. However, municipality a tax of ONE CENTAVO (P0.01) on each gallon (128
taxation must observe due process in its application otherwise it may fluid ounces, U.S.) of volume capacity." For the purpose of
be invalidated. computing the taxes due, the person, fun company, partnership,
corporation or plant producing soft drinks shall submit to the
Ordinances 23 and 27 do not constitute double taxation as the latter Municipal Treasurer a monthly report of the total number of gallons
is a repeal of the former. Although a municipal corporation has no produced or manufactured during the month.
authority to impose percentage taxes, which in this case based on • On October 7, 1963, the Court of First Instance of Leyte rendered
the ratio, such ordinance is not classified as such since it not judgment "dismissing the complaint and upholding the
imposed on the volume of sales, but rather on the produce. Neither constitutionality of [Section 2, Republic Act No. 2264] declaring
the ordinance can be classified as a specific tax since specific tax is Ordinance Nos. 23 and 27 legal and constitutional; ordering the

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plaintiff to pay the taxes due under the oft the said Ordinances; • Due process is usually violated where the tax imposed is for a
and to pay the costs." private as distinguished from a public purpose; a tax is imposed on
property outside the State, i.e., extraterritorial taxation; and
Issues: arbitrary or oppressive methods are used in assessing and
• Whether or not R.A. 2264 is Constitutional collecting taxes.
• Whether or not Ordinances Nos. 23 and 27 constitute double • There is no validity to the assertion that the delegated authority
taxation and impose percentage or specific taxes can be declared unconstitutional on the theory of double taxation.
It must be observed that the delegating authority specifies the
Held: limitations and enumerates the taxes over which local taxation may
• Yes, taxation power is a power that is purely legislative and not be exercised. The reason is that the State has exclusively
which the central legislative body cannot delegate either to reserved the same for its own prerogative. Moreover, double
the executive or judicial department of the government taxation, in general, is not forbidden by our fundamental law,
without infringing upon the theory of separation of powers. since We have not adopted as part thereof the injunction against
The exception, however, lies in the case of municipal double taxation found in the Constitution of the United States and
corporations, to which, said theory does not apply. Legislative some states of the Union. Double taxation becomes obnoxious
powers may be delegated to local governments in respect of only where the taxpayer is taxed twice for the benefit of the
matters of local concern. same governmental entity or by the same jurisdiction for the
• Under the New Constitution, local governments are granted the same purpose, but not in a case where one tax is imposed by
autonomous authority to create their own sources of revenue and the State and the other by the city or municipality.
to levy taxes. Section 5, Article XI provides: "Each local
government unit shall have the power to create its sources of • No
revenue and to levy taxes, subject to such limitations as may be • Ordinance No. 23, which was approved on September 25, 1962,
provided by law." Withal, it cannot be said that Section 2 of levies or collects from soft drinks producers or manufacturers a tax
Republic Act No. 2264 emanated from beyond the sphere of the of one-sixteen (1/16) of a centavo for .every bottle corked,
legislative power to enact and vest in local governments the power irrespective of the volume contents of the bottle used.
of local taxation. • Ordinance No. 27, approved on October 28, 1962, imposing a tax
• Thus, municipalities may be permitted to tax subjects which for of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of
reasons of public policy the State has not deemed wise to tax for volume capacity.
more general purposes. • The difference between the two ordinances clearly lies in the tax
• This is not to say though that the constitutional injunction rate of the soft drinks produced.
against deprivation of property without due process of law • The intention of the Municipal Council of Tanauan in enacting
may be passed over under the guise of the taxing power, Ordinance No. 27 is thus clear: it was intended as a plain
except when the taking of the property is in the lawful substitute for the prior Ordinance No. 23, and operates as a repeal
exercise of the taxing power, as when: of the latter, even without words to that effect.
• (1) the tax is for a public purpose; • Municipalities and municipal districts are prohibited to impose "any
• (2) the rule on uniformity of taxation is observed; percentage tax or other taxes in any form based thereon nor
• (3) either the person or property taxed is within the impose taxes on articles subject to specific tax except gasoline,
jurisdiction of the government levying the tax; and under the provisions of the National Internal Revenue Code." For
• (4) in the assessment and collection of certain kinds of purposes of this particular limitation, a municipal ordinance which
taxes notice and opportunity for hearing are provided. prescribes a set ratio between the amount of the tax and the

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volume of sale of the taxpayer imposes a sales tax and is null and commerce of man. However, the portions of the property leased to
void for being outside the power of the municipality to enact. private entities are subject to real property tax.
• But, the imposition of "a tax of one centavo (P0.01) on each gallon
(128 fluid ounces, U.S.) of volume capacity" on all soft drinks FACTS:
produced or manufactured under Ordinance No. 27 does not • Petitioner Manila International Airport Authority operates the
partake of the nature of a percentage tax on sales, or other taxes Ninoy Aquino International Airport Complex in Parañaque City
in any form based thereon. The tax is levied on the produce under Executive Order No. 903, issued on 21 July 1983 by then
(whether sold or not) and not on the sales. The volume capacity of President Ferdinand E. Marcos. As operator of the international
the taxpayer's production of soft drinks is considered solely for airport, MIAA administers the land, improvements and equipment
purposes of determining the tax rate on the products, but there is within the NAIA Complex, including the runways and buildings.
not set ratio between the volume of sales and the amount of the • 21 March 1997 -The Office of the Government Corporate
tax. Counsel (OGCC) issued Opinion No. 061. The OGCC opined
• Nor can the tax levied be treated as a specific tax. Specific taxes that the Local Government Code of 1991 withdrew the
are those imposed on specified articles, such as distilled spirits, exemption from real estate tax granted to MIAA under Section 21
wines, fermented liquors, products of tobacco other than cigars of the MIAA Charter.
and cigarettes, matches firecrackers, manufactured oils and other • 17 July 2001 – The City of Parañaque, through its City
fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, Treasurer, issued notices of levy and warrants of levy on the
playing cards, saccharine, opium and other habit-forming drugs. Airport Lands and Buildings threatened to sell at public auction
Soft drink is not one of those specified. the Airport Lands and Buildings should MIAA fail to pay the real
estate tax delinquency.
29. MIAA vs CITY OF PARANAQUE • 1 October 2001 - MIAA filed with the Court of Appeals an original
G.R. No. 155650 July 20, 2006 petition for prohibition and also points out that Section 21 of the
MIAA Charter specifically exempts MIAA from the payment of
REYES NOTES: real estate tax. MIAA insists that it is also exempt from real
Can local governments tax the national government, its estate tax under Section 234 of the Local Government Code
agencies, and instrumentalities? because the Airport Lands and Buildings are owned by the
No. In MIAA v. CA [495 SCRA 591], the Supreme Court, in resolving Republic. To justify the exemption, MIAA invokes the principle
the issue on whether the lands and buildings owned by the Manila that the government cannot tax itself. MIAA points out that the
International Airport Authority were subject to real property tax, ruled reason for tax exemption of public property is that its taxation
in the negative. The Supreme Court opined that since MIAA is not a would not inure to any public advantage, since in such a case
GOCC but instead as government instrumentality vested with the tax debtor is also the tax creditor.
corporate powers or a government corporate entity, it is exempt from
real property tax. By express provision of the Local Government ISSUE: Whether the Airport Lands and Buildings of MIAA are
Code, local governments cannot levy taxes, fees or charges of any exempt from real estate tax under existing laws?
kind on the National Government, its agencies and instrumentalities.
HELD & RATIO:
Furthermore, the said lands and buildings are property of the public YES, MIAA's Airport Lands and Buildings are exempt from real
dominion and therefore owned by the State. They are devoted to estate tax imposed by local governments.
public use. Thus, they cannot be auctioned as they are outside the • First, MIAA is not a government-owned or controlled corporation
but an instrumentality of the National Government and thus

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exempt from local taxation. Second, the real properties of MIAA Source: 2011 Digest
are owned by the Republic of the Philippines and thus exempt
from real estate tax. 30. SEA-LAND SERVICES INC. vs CA
o Since MIAA is neither a stock nor a non-stock GR 122605 April 30, 2001
corporation, MIAA does not qualify as a government-
owned or controlled corporation. MIAA is a government REYES NOTES:
instrumentality vested with corporate powers to perform Note that the principle of comity entails an exchange in benefits.
efficiently its governmental functions. MIAA is like any Thus, in SEA-LAND SERVICE V. CA [357 SCRA 441], the Supreme
other government instrumentality, the only difference is Court ruled that the hauling and transport of household goods and
that MIAA is vested with corporate powers. personal effects of U.S. military personnel were not tax exempt under
• Another rule is that a tax exemption is strictly construed against the RP-US Military Bases Agreement as they do not directly
the taxpayer claiming the exemption. However, when Congress contribute to the defense and security of the Philippines.
grants an exemption to a national government instrumentality
from local taxation, such exemption is construed liberally in favor FACTS:
of the national government instrumentality. • Petitioner Sea-Land Service Incorporated, an American
• There is also no reason for local governments to tax national international shipping company licensed by the Securities and
government instrumentalities for rendering essential public Exchange Commission to do business in the Philippines entered
services to inhabitants of local governments. The only exception into a contract with the United States Government to transport
is when the legislature clearly intended to tax government military household goods and effects of U.S. military personnel
instrumentalities for the delivery of essential public services for assigned to the Subic Naval Base.
sound and compelling policy considerations. There must be • Sea-Land paid its corresponding corporate income tax for the
express language in the law empowering local governments to taxable year 1984 at the rate of 1.5% in accordance with Section
tax national government instrumentalities. Any doubt whether 25(a) (2) of the National Internal Revenue Code in relation to
such power exists is resolved against local governments. Article 9 of the RP-US Tax Treaty.
• The Airport Lands and Buildings are devoted to public use • Subsequently, Sea-Land filed a claim for refund alleging that the
because they are used by the public for international and taxes it paid were made in mistake because under the RP-US
domestic travel and transportation. The fact that the MIAA Military Base Agreement, it is exempt from the payment of taxes.
collects terminal fees and other charges from the public does not
remove the character of the Airport Lands and Buildings as ISSUE: Does the income that petitioner derived from services in
properties for public use. The operation by the government of a transporting the household goods and effects of U.S. military
tollway does not change the character of the road as one for personnel fall within the tax exemption provided in the RP-US Military
public use. Someone must pay for the maintenance of the road, Bases Agreement?
either the public indirectly through the taxes they pay the
government, or only those among the public who actually use the HELD & RATIO:
road through the toll fees they pay upon using the road. The NO. The RP-US Military Bases Agreement exempts from income
tollway system is even a more efficient and equitable manner of taxation the income derived by its corporations or nationals and
taxing the public for the maintenance of public roads. residents from the construction, maintenance, operation and defense
of bases or any tax in nature of a license in respect of any work or
FINAL VERDICT: Petition Granted. service for the US in connection with the construction, maintenance,
operation and defense of bases.

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• Laws granting exemption from tax are construed strictissimi juris commodities, goods, wares and merchandise from various
against the taxpayer and liberally in favor of the taxing power. merchants in the Philippines.
o The law does not look with favor on tax exemptions and • The Commissioner collected a sales tax of 1 1/2 % of the gross
that he who would seek to be thus privileged must justify value of the commodities, etc. from the merchants who sold said
its words too plain to be mistaken and too categorical to commodities to the Exchange. A formal protest was lodged by
be misinterpreted. the Exchange.
o Taxation is the rule and exemption is the exception. • Posadas now persists in demanding and collecting such taxes
• The transport or shipment of household goods and effects of and at the said rate on the sale of merchants to the Post
U.S. military personnel is not included in the term "construction, Exchange. The statutes relied on by Posadas in the collection
maintenance, operation and defense of the bases.” are section 1459 of Act. No. 2711 and Act No. 3243 of the public
• Neither could the performance of this service to the U.S. laws enacted by the Philippine Legislature; also the Act of June
government be interpreted as directly related to the defense and 4, 1918 and the Act of March 3, 1927, enacted by the Congress
security of the Philippine territories of the United States, ratifying the said two enactments of the
Philippine Legislature.
FINAL VERDICT: Petition denied for lack of merit. • Since the taxes are imposed on the gross sales, the effect and
demand of collection would be an increase in the price of
Source: 2015 digest commodities when they are sold to the Post Exchange.

31. 31st INFANTRY POST EXCHANGE vs. POSADAS ISSUE: W/N tax may be levied by the Government of the Philippine
G.R. No. 33403. September 4, 1930 Islands on sales made by merchants to Post Exchange of the United
States Army in the Philippines.
CASE:
st
In the course of its duly authorized business transactions, the 31 HELD & RATIO:
Infantry Post Exchange made many purchases of various and YES, tax may be levied by merchants to Post Exchanges of the US
diverse commodities, goods, wares and merchandise from various Army in the Philippines
merchants in the Philippines. The Commissioner collected a sales • Taxes have been collected from merchants who made sales to
tax of 1 1/2 % of the gross value of the commodities, etc. from the Army Post Exchanges since 1904 (Act 1189, Section 139).
merchants who sold said commodities to the Exchange. A formal Similar taxes are paid by those who sell merchandise to the
protest was lodged by the Exchange. The SC held that An Army Post Philippine Government, and by those who do business with the
Exchange, although an agency within the US Army, cannot secure US Army and Navy in the Philippines.
exemption from taxation for merchants who make sales to the Post • Herein, the merchants who effected the sales to the Post
Exchange. Exchange are the ones who paid the tax; and it is the officers,
soldiers, and civilian employees and their families who are
FACTS: benefited by the post exchange to whom the tax is ultimately
• The 31st Infantry Post Exchange is a post exchange constituted shifted.
in accordance with Army regulations and the laws of the United • An Army Post Exchange, although an agency within the US
States. Juan Posadas is the duly qualified and acting Collector of Army, cannot secure exemption from taxation for merchants who
Internal Revenue of the Philippine Islands. make sales to the Post Exchange.
• In the course of its duly authorized business transactions, the
Exchange made many purchases of various and diverse FINAL VERDICT: Petition dismissed.

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Source: 2014 digest 1. NO. The sale having taken place on what indisputably is
Philippine territory, petitioner’s liability of the income tax due
32. REAGAN vs. COMMISSIONER OF INTERNAL REVENUE as a result there was unavoidable.
G.R. No. L-26379, 27. December 27, 1969 A. US Military Bases are not foreign territories both in the
political and geographical sense.
REYES NOTES/ CASE: • Philippines’ authority may be exercised over its entire
The Supreme Court held that bases under lease to the US domain
under the Military Bases Agreement remain part of Philippine • Concept of sovereignty as auto-limitation - when the
territory. It is not foreign territory for purposes of income tax state may submit to a restriction of its sovereign rights
legislation. The power to tax has been preserved except for those • The jurisdiction may be diminished BUT IT DID
matters where an appropriate exemption was provided for. NOT DISAPPEAR, it still has authority, and the
status as native soil.
• There is NOTHING in the Military Bases Agreement
FACTS: that states Clark Air Force is foreign soil or territory for
• Petitioner William C. Reagan is a civilian employee of an purposes of income tax legislation
American corporation providing technical assistance to the • A clause provides that a "national of the United
US Air Force in the Philippines. States serving in or employed in the Philippines in
• He imported a tax free 1960 Cadillac valued at $6.4k connection with the construction, maintenance,
• 2 months after he sold it to Willie Johnson Jr., a member of operation or defense of the bases and residing in
the US Marine Corps, for $6,600, which took place at the the Philippines only by reason of such
Clark Field Air Base at Pampanga. employment" is not to be taxed on his income
o He was granted permission to sell the car with the unless "derived from Philippine source or sources
condition that the sale should be made to a member other than the United States sources.”
of the US Armed Forces or a citizen of the US • Purpose to preclude tax evasion
employed in the US military bases in the Philippines • People v. Acierto:
• Johnson Jr. sold the car to Fred Meneses for P32k • "By the [Military Bases] Agreement, it should be
• CIR rendered Reagan liable for P2,979 as income tax noted, the Philippine Government merely consents
• Reagan paid, but sought a refund from CIR claiming he was that the United States exercise jurisdiction in
exempt. certain cases. The consent was given purely as a
• Consequently he filed a case of recovery for such amount matter of comity, courtesy, or expediency over the
with the Court of Tax Appeals. bases as part of the Philippine territory or divested
• CTA Decision: dismissed, CIR legally collected the amount, itself completely of jurisdiction over offenses
hence this petition committed therein.”
• “If anything, it is an emphatic recognition and
ISSUES: reaffirmation of Philippine sovereignty over the
1. Whether or not the Reagan is exempt from tax. bases and of the truth that all jurisdictional rights
granted to the United States and not exercised by
HELD & RATIO: the latter are reserved by the Philippines for itself.”

FINAL VERDICT: Petition is denied. The CTA decision is affirmed.

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pursuant to Section 29 of the tax code and, therefore, exempt from
33. COMMISSIONER OF INTERNAL REVENUE vs MITSUBISHI withholding tax.
METAL CORP.
G.R. No. L-54908. January 22, 1990 HELD & RATIO:
The court ruled in the negative.
REYES NOTES: • Eximbank had nothing to do with the sale of the copper
What is the principle of comity in relation to the power to concentrates since all that Mitsubishi stated in its loan
tax? application with the former was that the amount being procured
would be used as a loan to and in consideration for importing
In CIR v. Mitsubishi Metal Corp [181 SCRA 214], the Supreme copper concentrates from Atlas. Such an innocuous statement of
Court held that scrupulous care must be taken when international purpose could not have been intended for, nor could it legally
comity is invoked on the representation that funds involved in the constitute, a contract of agency. The conclusion is indubitable;
loans are those of a foreign government as we should avoid opening MITSUBISHI, and NOT EXIMBANK, is the sole creditor of
the floodgates to the violation of our tax laws. ATLAS, the former being the owner of the $20 million upon
completion of its loan contract with EXIMBANK of Japan.
FACTS: • It is settled a rule in this jurisdiction that laws granting exemption
• On April 17, 1970, Atlas Consolidated Mining and Development from tax are construed strictissimi juris against the taxpayer and
Corporation entered into a Loan and Sales Contract with liberally in favor of the taxing power. Taxation is the rule and
Mitsubishi Metal Corporation for purposes of the projected exemption is the exception.
expansion of the productive capacity of the former's mines in
Toledo, Cebu.
• Under said contract, Mitsubishi agreed to extend a loan to Atlas 34. COMMISSIONER OF INTERNAL REVENUE vs. MARUBENI
'in the amount of $20,000,000.00, United States currency. Atlas, CORP.
in turn undertook to sell to Mitsubishi all the copper concentrates G.R. No. 137377 December 18, 2001
produced for a period of fifteen (15) years. Mitsubishi thereafter
applied for a loan with the Export-Import Bank of Japan REYES NOTES:
(Eximbank) for purposes of its obligation under said contract. Its What is meant by “territoriality or situs of taxation” as a
loan application was approved on May 26, 1970 in the equivalent limitation on the power of taxation?
sum of $20,000,000.00 in United States currency at the then
prevailing exchange rate. However broad the power of taxation may be as to its character and
• Pursuant to the contract between Atlas and Mitsubishi, interest no matter how searching it is in its extent, such power is necessarily
payments were made by the former to the latter totaling limited only to persons, property or businesses within its
P13,143,966.79 for the years 1974 and 1975. The corresponding jurisdiction.
15% tax thereon in the amount of P1,971,595.01 was withheld
pursuant to Section 24 (b) (1) and Section 53 (b) (2) of the In CIR V. MARUBENI [204 SCRA 377], what was involved was a
National Internal Revenue Code, as amended by Presidential contract on a turn-key basis which the CIR sought to tax as an
Decree No. 131, and duly remitted to the Government. indivisible contract. The Supreme Court held that the contract
actually involved two taxing jurisdictions. While the construction and
ISSUE: Whether or not the interest income from the loans extended installation work were completed in the Philippines, some pieces of
to Atlas by Mitsubishi is excludible from gross income taxation equipment and supplies were completely designed and engineered

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in Japan. These services made and completed in Japan are not availing of the said amnesties because the latter falls under the
subject to contractor’s tax as they are rendered outside the taxing exception in Section 4 (b) of E.O. No. 41.
jurisdiction of the Philippines. • A tax amnesty, much like a tax exemption, is never favored nor
presumed in law. If granted, the terms of the amnesty, like that of
FACTS: a tax exemption, must be construed strictly against the taxpayer
• Respondent Marubeni Corporation is a foreign corporation and liberally in favor of the taxing authority. For the right of
organized and existing under the laws of Japan. It is engaged in taxation is inherent in government. The State cannot strip itself of
general import and export trading, financing and the construction the most essential power of taxation by doubtful words. He who
business. It is duly registered to engage in such business in the claims an exemption (or an amnesty) from the common burden
Philippines and maintains a branch office in Manila. must justify his claim by the clearest grant of organic or state
• Sometime in November 1985, petitioner Commissioner of law. It cannot be allowed to exist upon a vague implication. If a
Internal Revenue issued a letter of authority to examine the doubt arises as to the intent of the legislature, that doubt must be
books of accounts of the Manila branch office of respondent resolved in favor of the state.
corporation for the fiscal year ending March 1985. In the course
of the examination, petitioner found respondent to have
undeclared income from two (2) contracts in the Philippines, both
of which were completed in 1984. One of the contracts was with
the National Development Company (NDC) in connection with
the construction and installation of a wharf/port complex at the
Leyte Industrial Development Estate in the municipality of Isabel,
province of Leyte. The other contract was with the Philippine
Phosphate Fertilizer Corporation (Philphos) for the construction
of an ammonia storage complex also at the Leyte Industrial
Development Estate.
• On March 1, 1986, petitioner's revenue examiners recommended
an assessment for deficiency income, branch profit remittance,
contractor's and commercial broker's taxes. Respondent
questioned this assessment in a letter dated June 5, 1986.

ISSUE: Whether or not the CIR need to assess and collect the tax
despite the tax amnesty availed of by the respondent?

RULING:
• The main controversy in this case lies in the interpretation of the
exception to the amnesty coverage of E.O. Nos. 41 and 64.
There are three (3) types of taxes involved herein — income tax,
branch profit remittance tax and contractor's tax. These taxes are
covered by the amnesties granted by E.O. Nos. 41 and 64.
Petitioner claims, however, that respondent is disqualified from

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effectively discriminated against them, without reasonable or
valid standards, in contravention of the equal protection
B. CONSTITUTIONAL LIMITATIONS guarantee.
(i) UNIFORMITY
ISSUE: Whether the provisions of Executive Order No. 97-A
35. TIU vs CA confining the application of R.A. 7227 granting tax and duty
G.R. NO. 127410. JANUARY 20, 1999 incentives only to businesses and residents within the secured area
and excluding the residents of the zone outside of the secured area
REYES NOTES: is discriminatory or not.
Is there a violation of the uniformity of taxation or equal
protection when the State gives preferential tax treatment to HELD & RATIO:
locators inside special economic zones? NO. We rule in favor of the constitutionality and validity of the
assailed EO.
No. As held in TIU V. CA [301 SCRA 278], there are substantial • Said Order is not violative of the equal protection clause; neither
differences between the big investors who are being lured to is it discriminatory. Rather, we find real and substantive
establish and operate their industries in the special economic zones distinctions between the circumstances obtaining inside and
and those business operators outside the zones. One of these is that those outside the Subic Naval Base, thereby justifying a valid
the former bring in billion-peso investments and thousands of new and reasonable classification.
jobs. The Supreme Court also stated that the equal protection • There are substantial differences between the big investors who
guarantee does not require territorial uniformity of laws. are being lured to establish and operate their industries in the so-
called “secured area” and the present business operators
FACTS: outside the area.
• Congress passed into law RA 7227. Section 12 thereof created o On the one hand, we are talking of billion-peso
the Subic Special Economic Zone and granted thereto special investments and thousands of new jobs.
privileges.The President issued Executive Order No. 97-A (EO o On the other hand, definitely none of such magnitude. In
97-A), specifying the area within which the tax-and-duty-free the first, the economic impact will be national; in the
privilege was operative. second, only local.
• October 26, 1994 -The petitioners challenged before this Court • Even more important, at this time the business activities outside
the constitutionality of EO 97-A for allegedly being violative of the “secured area” are not likely to have any impact in achieving
their right to equal protection of the laws. In a Resolution dated the purpose of the law, which is to turn the former military base
June 27, 1995, this Court referred the matter to the Court of to productive use for the benefit of the Philippine economy.
Appeals, pursuant to Revised Administrative Circular No. 1-95. There is, then, hardly any reasonable basis to extend to them the
• Petitioners contend that the SSEZ encompasses (1) the City of benefits and incentives accorded in RA 7227.
Olongapo, (2) the Municipality of Subic in Zambales, and (3) the
area formerly occupied by the Subic Naval Base. However, EO FINAL VERDICT: Petition denied for lack of merit.
97-A, according to them, narrowed down the area within which
the special privileges granted to the entire zone would apply to Source: 2014 digest
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

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36. JOHN HAY PEOPLES ALTERNATIVE COALITION vs. BCDA o This set out the policy of the government to
October 24, 2003 accelerate the sound and balanced conversion into
alternative productive uses of the former military
REYES NOTES/ CASE: bases under the 1947 Philippines-United States of
Should tax incentives be uniform for all special America Military Bases Agreement, namely, the
economic zones? Clark and Subic military reservations as well as their
Not Necessarily. At issue was the extension of benefits given to the extensions including the John Hay Station (Camp
Subic SEZ under RA 7227 to the John Hay SEZ via a proclamation, John Hay or the Camp) in the city of Baguio.
the Supreme Court ruled that tax exemptions must be strictly and o Created Respondent Bases Conversion and
expressly provided for and that the power to grant exemption is only Development Authority (BCDA),
within Congress. ! Vesting it with powers pertaining to the
multifarious aspects of carrying out the
Congress passed RA 7227 to accelerate the Conversion of Military ultimate objective of utilizing the base areas
Reservations into Productive Uses. These bases are the Clark and in accordance with the declared government
Subic military reservations and their extensions including John Hay policy.
Station. It also gave the President power to create Special Economic o Granted the Subic SEZ incentives ranging from tax
Zones in the areas mentioned. The point of contention is when and duty-free importations, exemption of businesses
President Ramos through a Presidential Proclamation made John therein from local and national taxes, to other
Hay a Special Economic Zone providing it with the same tax hallmarks of a liberalized financial and business
incentives as the Subic SEZ. The Court held that RA 7227 only climate.
allows Subic to have tax exemptions. Only Congress can grant tax o Expressly gave authority to the President to create
exemptions and it must be clearly expressed. through executive proclamation subject to the
concurrence of the local government units directly
affected, other Special Economic Zones (SEZ) in the
Background: areas covered respectively by the Clark military
• This is a petition for prohibition, mandamus and declaratory reservation, the Wallace Air Station in San
relief with prayer for a temporary restraining order (TRO) Fernando, La Union, and Camp John Hay.
and/or write of preliminary injunction.
• Petitioners John Hay People’s Alternative Coalition et al FACTS:
(John Hay) assail the constitutionality of Presidential • BCDA entered into a MOA and Escrow Agreement
Proclamation No. 420, Series of 1994, “Creating and with Tuntex and Asia World Internationale Group
Designating a Portion of the Area Covered by the Former Inc.
Camp John (Hay). As the John Hay Special Economic Zone • MOA and Escrow Agreements are preparatory to the
Pursuant to Republic Act No. 7227”. formation of a joint venture for the development of
• RA 7227 An Act Accelerating the Conversion of Military Poro Point in La Union and Camp John Hay (CJH)
Reservations into other Productive Uses, Creating the Bases as premier tourist destinations and recreation
Conversion and Development Authority for this Purpose, centers.
Providing Funds Therefor and for other Purpose, otherwise • 4 months later, JVA was executed by BCDA,
known as the “Bases Conversion and Development Act of TUNTEX and ASIAWORLD
1992.”

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o They bound themselves to put up a joint NO, the second sentence of Sec 3 granting John Hay incentives
venture company known as the Baguio under Sec 12 of RA 7227 and applicable tax incentives is
International Development and Management unconstitutional.
Corporation which would lease areas within • Section 12 of RA 7227 is only for the Subic SEZ which was
Camp John Haz and Poro Point for the granted by Congress with tax exemption, investment
purpose of turning such places into principal incentives and the like. There is no express extension of the
tourist and recreation spots, as originally aforesaid benefits to other SEZs still to be created at the
envisioned by the parties under the MOAs. time via presidential proclamation.
• Resolution No, 255 seeking and supporting, subjecting to its • The privileges given to Subic SEZ consist principally of
concurrence, the issuance by then President Ramos of a exemption from tariff or custom duties, national and local
Presidential Proclamation declaring an area of 288.1 taxes of business entities therein, free market and trade of
hectares of the cap as a SEZ in accordance with the specified goods or properties, liberalized banking and
provisions of R.A. No.7227. Together with this resolution was finance and relaxed immigration rules for foreign investors.
submitted a draft of the proposed proclamation for • While the grant of economic incentives may be essential to
consideration by the President. the creation and success of SEZs, free trade zones and the
• President Ramos issued Proclamation No. 420, Series of like , the grant thereof to the John Hay SEZ cannot be
1994, “Creating and Designating a Portion of the Area sustained. The incentives under RA 7227 are exclusive only
Covered by the Former Camp John (Hay). As the John Hay to the Subic SEZ, hence, the extension of the same to the
Special Economic Zone Pursuant to Republic Act No. 7227”. John Haz SEZ finds no support therein.
Pertinent provision of section 3 of said proclamation: • The claim of statutory exemption of the John Hay SEZ from
o Sec. 3. Investment Climate in John Hay Special taxation should be manifest and unmistakeable from the
Economic Zone – Pursuant to Section 5(m) and language of the law on which it is based; it must be
Section 15 of RA 7227, the John Haz Poro Point expressly granted in a statute stated in a language that is too
Development Corporation shall implement all clear to be mistaken. Tax exemption cannot be implied as it
necessary policies, rules, and regulations governing must be categorically and unmistakeably expressed.
the zone, including investment incentives, in • Law granting tax exemption must have the concurrence of a
consultation with pertinent government departments. majority of all the members of Convress. In the same way,
Among others, the zone shall have all the applicable the other kinds of privileges extended to the John Hay SEZ
incentives of the Special Economic Zone under are by tradition and usage for Congress to legislate upon.
Section 12 of Republic Act No. 7227 and those • This Court then declares that the grant by Proclamation No.
applicable incentives granted in the Export 420 of tax exemption and other privileges to the John Hay
Processing Zones, the Omnibus Investment Code of SEZ is void for being violative of the Constitution. It is
1987, the Foreign Investment Act of 1991, and new unnecessary to dwell on petitioner’s claim that the same
investment laws that may herein be enacted. grant violates the equal protection guarantee.
• The unconstitutionality of the grant of tax immunity and
ISSUES: Whether or not Proclamation No. 420 is constitutional by financial incentives as containted in the second sentence of
providing for national and local tax exemption within and granting Section 3 of Proclamation No. 420 notwithstanding, the
other economic incentives to the John Hay Special Economic Zone? entire assailed proclamation cannot be declared
unconstitutional, the other parts thereof not being repugnant
HELD & RATIO: to law or to the constitution. The delineation of a portion of

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the area covered by Camp John Hay as a SEZ was well Economic and Free Port Zone under Republic Act No. 7227. The
within the powers of the President by means of a Court held that it is void for being an invalid exercise of
proclamation. The requisite prior concurrence by the Baguio executive legislation. While Section 12 of Republic Act No. 7227
City government to such proclamation appears to have been expressly provides for the grant of incentives to the SSEZ, it fails
given in the form of a duly enacted resolution by the to make any similar grant in favor of other economic zones,
sanggunian. The other provisions of the proclamation had including the CSEZ. Tax and duty-free incentives being in the
been proven to be consistent with RA 7227. nature of tax exemptions, the basis thereof should be
categorically and unmistakably expressed from the language of
FINAL VERDICT: WHEREFORE, the second sentence of Section 3 the statute. (Similar to John Hay case)
of Proclamation No. 420 is hereby declared NULL AND VOID and is II. Executive Order No. 97-A - provides guidelines to govern the
accordingly declared of no legal force and effect. Public respondents tax and duty-free privileges within the Secured Area of the Subic
are hereby enjoined from implementing the aforesaid void provision. Special Economic and Free Port Zone. Business enterprises and
Proclamation No. 420, without the invalidated portion, remains individuals (Filipinos and foreigners) residing within the Secured
valid and effective. Area are free to import raw materials, capital goods, equipment,
and consumer items tax and duty-free. Consumption items,
however, must be consumed within the Secured Area. Removal
Notes/ Source: Copied exactly from Taxation 1 Digests 2A-2015 of raw materials, capital goods, equipment and consumer items
out of the Secured Area for sale to non-SSEFPZ registered
37. COCONUT OIL REFINERS ASSOCIATION, INC. AND REALTY enterprises shall be subject to the usual taxes and duties, except
DEVELOPMENT CORPORATION v. BCDA ET. AL as may be provided herein.
G.R. No. 13252, July 29, 2005 Petitioner contends that Executive Order No. 97-A is violative of their
right to equal protection of the laws for granting incentives to private
REYES NOTES/ CASE: respondents operating inside the SSEZ to the exclusion of the retail
PM REYES Notes just stated that rationale in John Hay Case establishments located outside. The Court held that this issue was
was used in this case. already resolved in the case of Tiu. There is no violation of the
right to equal protection of the laws because substantial
Republic Act No. 7227 was enacted providing for the distinctions lie between the establishments inside and outside
conversion of the Clark and Subic military reservations into special the zone, justifying the difference in their treatment. Certainly, there
economic zones. It also provided for tax incentives and duty-free are substantial differences between the big investors who are being
importations of raw materials, capital and equipment to the Subic lured to establish and operate their industries in the so-called
Special Economic Zone (SSEZ) (note that this incentive was not “secured area” and the present business operators outside the area.
extended to Clark Special Economic Zone (CSEZ)). However,
exportation or removal of goods from the territory of the SSEZ to the
other parts of the Philippine territory shall be subject to customs FACTS:
duties and taxes.
Petitioner assails the constitutionality of 3 issuances related • Republic Act No. 7227 was enacted providing for the
to RA 7227 on the grounds that they amount to executive legislation conversion of the Clark and Subic military reservations into
and violate the equal protection clause. special economic zones. The Subic Special Economic Zone
I. Section 5 of Executive Order No. 80 - declared that Clark shall shall be operated and managed as a separate customs
have all the applicable incentives granted to the Subic Special territory ensuring free flow or movement of goods and capital

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within, into and exported out of the Subic Special Economic Area to other parts of the Philippine territory consumer items
Zone, as well as provide incentives such as tax and duty-free worth not exceeding US$200 per year per person.
importations of raw materials, capital and equipment. • Petitioner assails the constitutionality of these 3 issuances
However, exportation or removal of goods from the territory related to RA 7227 on the grounds that they amount to
of the Subic Special Economic Zone to the other parts of the executive legislation and violate the equal protection clause.
Philippine territory shall be subject to customs duties and
taxes under the Customs and Tariff Code and other relevant ISSUE: Whether or not the assailed issuances are VOID
tax laws of the Philippines
• On April 3, 1993, President Fidel V. Ramos issued HELD & RATIO:
Executive Order No. 80, which declared, among others, I. Topic-related
that Clark shall have all the applicable incentives granted to 1. Section 5 of Executive Order No. 80 – void for being an
the Subic Special Economic and Free Port Zone under invalid exercise of executive legislation.
Republic Act No. 7227. • (John Hay Peoples Alternative Coalition, et al. v. Victor
• Pursuant to the directive under Executive Order No. 80, the Lim, et al) The incentives under Republic Act No. 7227
BCDA passed Board Resolution No. 93-05-034 on May are exclusive only to the SSEZ. The President,
18, 1993. Sec. 4 allows the tax and duty-free sale at retail of therefore, had no authority to extend their application to
consumer goods (duty free shopping) imported via Clark for John Hay. The claimed statutory exemption of the John
consumption outside the CSEZ. Sec. 5 allows for duty-free Hay SEZ from taxation should be manifest and
consumer goods to be brought out of the CSEZ Main Zone unmistakable from the language of the law on which it is
but not to exceed US$200.00 per month per CDC-registered based; it must be expressly granted in a statute stated in
person, similar to the limits imposed in the Subic SEZ. a language too clear to be mistaken. Tax exemption
• Executive Order No. 97-A was issued provides guidelines cannot be implied as it must be categorically and
to govern the tax and duty-free privileges within the unmistakably expressed.
Secured Area of the Subic Special Economic and Free Port • In the present case, while Section 12 of Republic Act No.
Zone. Business enterprises and individuals (Filipinos and 7227 expressly provides for the grant of incentives to the
foreigners) residing within the Secured Area are free to SSEZ, it fails to make any similar grant in favor of other
import raw materials, capital goods, equipment, and economic zones, including the CSEZ. Tax and duty-free
consumer items tax and duty-free. Consumption items, incentives being in the nature of tax exemptions, the
however, must be consumed within the Secured Area. basis thereof should be categorically and unmistakably
Removal of raw materials, capital goods, equipment and expressed from the language of the statute.
consumer items out of the Secured Area for sale to non-
SSEFPZ registered enterprises shall be subject to the usual 2. Executive Order No. 97-A – NOT violative of equal
taxes and duties, except as may be provided herein. protection
However, Sec. 1.2 provides that residents of the SSEFPZ Petitioner contends that it is violative of their right to equal
living outside the Secured Area can purchase and bring out protection of the laws for granting incentives to private
of the Secured Area to other parts of the Philippine territory respondents operating inside the SSEZ to the exclusion of
consumer items worth not exceeding US$100 per month per the retail establishments located outside.
person. Sec. 1.3 provides that Filipinos not residing within
the SSEFPZ can purchase and bring out [of] the Secured • (Tiu v. Court of Appeals) - Upholding the constitutionality
of Executive Order No. 97-A, this Court therein found

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substantial differences between the retailers inside and 1. Executive Order No. 97-A – Secs. 1.2 and 1.3 are null and
outside the secured area, thereby justifying a valid and void for being contrary to Section 12 of Republic Act No. 7227.
reasonable classification. There are substantial Said Section clearly provides that “exportation or removal of
differences between the big investors who are being goods from the territory of the Subic Special Economic Zone to
lured to establish and operate their industries in the so- the other parts of the Philippine territory shall be subject to
called “secured area” and the present business customs duties and taxes under the Customs and Tariff Code
operators outside the area. and other relevant tax laws of the Philippines.”
o On the one hand, we are talking of billion-peso
investments and thousands of new jobs. On the 2. Section 4 of BCDA Board Resolution No. 93-05-034 – Sec.
other hand, definitely none of such magnitude. 4 is VALID. While it is true that Section 12 (b) of Republic Act
o In the first, the economic impact will be national; No. 7227 mentions only raw materials, capital and equipment,
in the second, only local. this does not necessarily mean that the tax and duty-free
o Even more important, at this time the business buying privilege is limited to these types of articles to the
activities outside the “secured area” are not exclusion of consumer goods. To limit the tax-free importation
likely to have any impact in achieving the privilege of enterprises located inside the special economic
purpose of the law, which is to turn the former zone only to raw materials, capital and equipment clearly runs
military base to productive use for the benefit of counter to the intention of the Legislature to create a free port
the Philippine economy. There is, then, hardly where the “free flow of goods or capital within, into, and out of
any reasonable basis to extend to them the the zones” is insured. The phrase “tax and duty-free
benefits and incentives accorded in R.A. 7227. importations of raw materials, capital and equipment” was
o Additionally, as the Court of Appeals pointed out, merely cited as an example of incentives that may be given to
it will be easier to manage and monitor the entities operating within the zone.
activities within the “secured area,” which is
already fenced off, to prevent “fraudulent Sec. 5 is VOID similar to Secs. 1.2 and 1.3 of Executive Order
importation of merchandise” or smuggling. No. 97-A for being contrary to Section 12 of Republic Act No.
7227 and also in so far as it pertains to the CSEZ.
It is well-settled that the equal-protection guarantee
does not require territorial uniformity of laws. As long
as there are actual and material differences between FINAL VERDICT: Petition is PARTLY GRANTED. Section 5 of
territories, there is no violation of the constitutional Executive Order No. 80 and Section 4 of BCDA Board Resolution
clause. No. 93-05-034 are hereby declared NULL and VOID and are
accordingly declared of no legal force and effect. Respondents are
hereby enjoined from implementing the aforesaid void provisions. All
• The classification is germane to the purpose of Republic
portions of Executive Order No. 97-A are valid and effective, except
Act No. 7227. The classification, moreover, is not limited
the second sentences in paragraphs 1.2 and 1.3 of said Executive
to the existing conditions when the law was
Order, which are hereby declared INVALID.
promulgated, but to future conditions as well. And, lastly,
the classification applies equally to all retailers found
Notes/ Source:
within the “secured area.”
Original-made digest; 2015 digest overhauled.
II. Others

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38. ARTURO M. TOLENTINO v. SECRETARY OF FINANCE and Revenue Code.
THE COMMISSIONER OF INTERNAL REVENUE • The value-added tax (VAT) is levied on the sale, barter or
Uniformity exchange of goods and properties as well as on the sale or
exchange of services.
PM Reyes notes: The system of taxation should not always be • It is equivalent to 10% of the gross selling price or gross
progressive. The Supreme Court in this case explained that what value in money of goods or properties sold, bartered or
Congress is required by the Constitution to do is to “evolve a exchanged or of the gross receipts from the sale or exchange of
progressive system of taxation.” This is a directive to Congress, just services.
like the directive to it to give priority to the enactment of laws for the • CREBA asserts that R.A. No. 7716:
enhancement of human dignity and the reduction of social, economic (1) Impairs the obligations of contracts
and political inequalities or for the promotion of the right to “quality • It is claimed that the application of the tax to existing
education.” These provisions are put in the Constitution as moral contracts of the sale of real property by installment or on
incentives to legislation, not as judicially enforceable rights. Thus, deferred payment basis would result in substantial increases
even if the VAT is regressive because it is an indirect tax, it is not in the monthly amortizations to be paid because of the 10%
prohibited by the Constitution. VAT.
• The additional amount is something that the buyer did not
CASE: anticipate at the time he entered into the contract.
(2) Classifies transactions as covered or exempt without
These are motions seeking reconsideration of our decision reasonable basis
dismissing the petitions filed in these cases for the declaration of • It is next pointed out that while Section 4 of R.A. No. 7716
unconstitutionality of R.A. No. 7716, otherwise known as the exempts such transactions as the sale of agricultural
Expanded Value-Added Tax Law. The motions, of which there are 10 products, food items, petroleum, and medical and veterinary
in all, have been filed by the several petitioners in these cases. services, it grants no exemption on the sale of real property
which is equally essential.
The issue in this case is whether or not R.A. No. 7716 violates Art. • The sale of real property for socialized and low-cost housing
VI, Sec. 28 (1) of the Constitution which provides that “The rule of is exempted from the tax, but CREBA claims that real estate
taxation shall be uniform and equitable. The Congress shall evolve a transactions of "the less poor," i.e., the middle class, who are
progressive system of taxation. equally homeless, should likewise be exempted.
(3) Violates the rule that taxes should be uniform and
The Court held that R.A. No. 7716 does not violate Art. VI, Sec. 28 equitable and that Congress shall "evolve a progressive
(1) of the Constitution since it does not really prohibit the imposition system of taxation."
of indirect taxes which are regressive. It simply provides that
Congress shall “evolve a progressive system of taxation.” ISSUES:

1. Whether or not R.A. No. 7716 did "originate exclusively" in the


FACTS: House of Representatives as required by Art. VI Sec. 24 of the
Constitution.
• Petitioners seek to declare R.A. No. 7166 as unconstitutional as 2. Whether or not R.A. No. 7716 is violative of press freedom and
it seeks to widen the tax base of the existing VAT system and religious freedom under Art. III Secs. 4 and 5 of the Constitution.
enhance its administration by amending the National Internal 3. Whether or not R.A. No. 7716 violates Art. VI, Sec. 28 (1) of

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the Constitution which provides that “The rule of taxation 3. NO. R.A. No. 7716 does not violate Art. VI, Sec. 28 (1) of the
shall be uniform and equitable. The Congress shall evolve a Constitution.
progressive system of taxation. (Relevant issue based on PM • Equality and uniformity of taxation means that all taxable articles
Reyes Notes) or kinds of property of the same class be taxed at the same rate.
The taxing power has the authority to make reasonable and
HELD/RATIO: natural classifications for purposes of taxation. To satisfy this
requirement it is enough that the statute or ordinance applies
1. While Art. VI Sec. 24 provides that all appropriation, revenue or equally to all persons, forms and corporations placed in similar
tariff bills, bills authorizing increase of the public debt, bills of situation.
local application, and private bills must "originate exclusively in • The CREBA claims that the VAT is regressive. A similar claim is
the House of Representatives," it also adds, " but the Senate made by the Cooperative Union of the Philippines, Inc. (CUP),
may propose or concur with amendments." In the exercise of this while petitioner Juan T. David argues that the law contravenes
power, the Senate may propose an entirely new bill as a the mandate of Congress to provide for a progressive system of
substitute measure. taxation because the law imposes a flat rate of 10% and thus
• It is noteworthy that, in the particular case of S. No. 1630, places the tax burden on all taxpayers without regard to their
petitioners Tolentino and Roco, as members of the Senate, ability to pay.
voted to approve it on second and third readings. • The Constitution does not really prohibit the imposition of indirect
• On the other hand, amendment by substitution, in the manner taxes which, like the VAT, are regressive.
urged by petitioner Tolentino, concerns a mere matter of form. • What it simply provides is that Congress shall "evolve a
• Because revenue bills are required to originate exclusively in the progressive system of taxation."
HoR, the Senate cannot enact revenue measures of its own o The constitutional provision has been interpreted to
without such bills. After a revenue bill is passed and sent over to mean simply that "direct taxes are . . . to be preferred
it by the House, however, the Senate certainly can pass its own [and] as much as possible, indirect taxes should be
version on the same subject matter. This follows from the minimized."
coequality of the two chambers of Congress • Resort to indirect taxes should be minimized but not avoided
• Without H. No. 11197, the Senate could not have entirely because it is difficult, if not impossible, to avoid them by
enacted S. No. 1630. imposing such taxes according to the taxpayers' ability to pay.
• In the case of the VAT, the law minimizes the regressive effects
2. Since the law granted the press a privilege, the law could take of this imposition by providing for zero rating of certain
back the privilege anytime without offense to the Constitution. transactions (R.A. No. 7716, §3, amending §102 (b) of the
The VAT is not a license tax. It is not a tax on the exercise of a NIRC), while granting exemptions to other transactions. (R.A.
privilege, much less a constitutional right. It is imposed on the No. 7716, §4, amending §103 of the NIRC).
sale, barter, lease or exchange of goods or properties or the sale • Transactions which are subject to the VAT are those which
or exchange of services and the lease of properties purely for involve goods and services which are used or availed of mainly
revenue purposes. To subject the press to its payment is not to by higher income groups.
burden the exercise of its right any more than to make the press
pay income tax or subject it to general regulation is not to violate FINAL VERDICT:
its freedom under the Constitution.
We have now come to the conclusion that the law suffers from none
of the infirmities attributed to it by petitioners and that its enactment

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by the other branches of the government does not constitute a grave taxes under Article VI, Section 28(2) of the 1987
abuse of discretion. Philippine Constitution.
o Pimentel group questions the “stand-by-authority” of
WHEREFORE, the motions for reconsideration are denied with the president to increase the VAT rate to 12% as it
finality and the temporary restraining order previously issued is amounts to an undue delegation of legislative power.
hereby lifted. o Association of Pilipinas Shell Dealers contends that
some provisions of RA 9337 are unconstitutional for
39. ABAKADA GURO PARTYLIST v. ERMITA being arbitrary, oppressive, excessive, and
October 30, 1995 confiscatory.
o Escudero group argues undue delegation, the
REYES NOTES/ CASE: authority of the bicameral conference committee in
This case is a consolidation of five petitions questioning the deleting the “no pass on provisions”, and that
validity of Republic Act No. 9337. appropriation, revenue and tariff bills must originate
from the House of Representatives.
The Supreme Court ruled that the 12% VAT imposition o Lastly, Bataan Governor Enrique T. Garcia
was equitable as it imposes safeguard and limits in the form of challenged the constitutionality of the law
vat exemption granted to gross sales below 1.5 million. contending that that allowing establishments to
pass on the tax to the consumers is inequitable,
in violation of Article VI, Section 28(1) of the
FACTS: Constitution.
• R.A. No. 9337 is a consolidation of three legislative bills
namely, House Bill Nos. 3555 and 3705, and Senate Bill No. ISSUES:
1950. Because of the conflicting provisions of the proposed 1. Whether or not RA 9337 is unconstitutional for violating
bills the Senate agreed to the request of the House of the equitability and uniformity of taxation.
Representatives for a committee conference. The 2. Whether or not the imposition of VAT violates the
Conference Committee on the Disagreeing Provisions of constitutional mandate to evolve a progressive system
House Bill recommended the approval of its report, which the of taxation.
Senate and the House of the Representatives did.
• On May 24, 2005, the President signed into law the HELD & RATIO:
consolidated House and Senate versions as Republic Act 1. NO, it does not violate the uniformity and equitability of
9337. Before the law was to take effect on July 1, 2005, the taxation.
Court issued a temporary restraining order enjoining • Uniformity in taxation means that all taxable articles
government from implementing the law in response to a slew or kinds of property of the same class shall be taxed
of petitions for certiorari and prohibition questioning the at the same rate. Different articles may be taxed at
constitutionality of the new law. different amounts provided that the rate is uniform
• This case in a consolidation of five petitions. on the same class everywhere with all people at all
o Abakada group argues that the law is times. The tax law is uniform as it provides a
unconstitutional, as it constitutes abandonment by standard rate of 0% or 10% (or 12%) on all goods
Congress of its exclusive authority to fix the rate of and services.

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• Neither does the law make any distinction as to the 2. NO, the Constitution does not really prohibit the
type of industry or trade that will bear the 70% imposition of indirect taxes, like the VAT. What it simply
limitation on the creditable input tax, 5-year provides is that Congress shall "evolve a progressive
amortization of input tax paid on purchase of capital system of taxation."
goods or the 5% final withholding tax by the • Progressive taxation is built on the principle of the
government. taxpayer’s ability to pay. Taxation is progressive
• R.A. No. 9337 is also equitable. The law is when its rate goes up depending on the resources of
equipped with a threshold margin. The VAT rate of the person affected.
0% or 10% (or 12%) does not apply to sales of • The VAT is an antithesis of progressive taxation. By
goods or services with gross annual sales or its very nature, it is regressive. The principle of
receipts not exceeding P1, 500, 000.00. Also, basic progressive taxation has no relation with the VAT
marine and agricultural food products in their original system inasmuch as the VAT paid by the consumer
state are still not subject to tax, thus ensuring the or business for every goods bought or services
prices at the grassroots level remain accessible. enjoyed is the same regardless of income. In other
• It is admitted that R.A. No. 9337 puts a premium on words, the VAT paid eats the same portion of an
businesses with low profit margins, and unduly income, whether big or small.
favors those with high profit margins. Congress was
not oblivious to this. Thus, to equalize the weighty
burden the law entails, the law, under Section 116, FINAL VERDICT: Petition is denied. The CA and RTC decisions are
imposed a 3% percentage tax on VAT-exempt affirmed.
persons under Section 109(v), i.e., transactions with
gross annual sales and/or receipts not exceeding
P1.5 Million. This acts as a equalizer because in Notes/ Source:
effect, bigger businesses that qualify for VAT
coverage and VAT-exempt taxpayers stand on Reference:
equal-footing. http://ustlawreview.com/pdf/vol.L/Cases/ABAKADA_Guro_v._Executi
• Moreover, Congress provided mitigating measures ve_Secretary.pdf and 2015 digest
to cushion the impact of the imposition of the tax on
those previously exempt. Excise taxes on petroleum 40. MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS,
products and natural gas were reduced. Percentage INC. vs. DEPARTMENT OF FINANCE SECRETARY
tax on domestic carriers was removed. Power
producers are now exempt from paying franchise REYES NOTES/ CASE:
tax. Note: No Pierre Reyes notes.
• Aside from these, Congress also increased the
income tax rates of corporations, in order to The BIR issued an RMC clarifying Sec. 103 a and b of the NIRC:
distribute the burden of taxation. All these were copra is a non-food product and the exemption, as such, extends
designed to ease, as well as spread out, the burden only to primary producers. The SC held that there is no violation of
of taxation, which would otherwise rest largely on the the EPC since there is a substantial distinction between coconut
consumers. It cannot therefore be gainsaid that R.A. producers and copra dealers. The latter only sell but not produce
No. 9337 is equitable. coconut.

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traders and dealers are not, although both sell copra in its original
state.
FACTS:
• Petitioner Misamis Oriental Association of Coco Traders, Inc. There is a material or substantial difference between coconut
is a domestic corporation whose members, individually or farmers and copra producers, on the one hand, and copra
collectively, are engaged in the buying and selling of copra in traders and dealers, on the other. The former produce and sell
Misamis Oriental. copra, the latter merely sell copra. The Constitution does not
• Prior to the issuance of Revenue Memorandum Circular 47- forbid the differential treatment of persons so long as there is a
91, petitioner claimed that copra was classified as reasonable basis for classifying them differently.
agricultural food product in the NIRC and, therefore, exempt
from VAT at all stages of production or distribution. FINAL VERDICT: Petition is DISMISSED.
• Under §103(a), as above quoted, the sale of agricultural non-
food products in their original state is exempt from VAT only
if the sale is made by the primary producer or owner of the
land from which the same are produced. The sale made by 41. COMMISSIONER OF INTERNAL REVENUE v. LINGAYEN
any other person or entity, like a trader or dealer, is not GULF ELECTRIC POWER CO., INC.
exempt from the tax. On the other hand, under §103(b) the G.R. No. L-23771 August 4, 1988
sale of agricultural food products in their original state is Uniformity of Taxation
exempt from VAT at all stages of production or distribution
regardless of who the seller is. REYES NOTES/ CASE:
• The RMC classified copra as a non-food product and hence Lingayen Gulf Electric Power Co., Inc. was granted franchise
tax exemption extends only to the primary producer. to operate power plant in municipalities of Lingayen and Binmaley,
Pangasinan. BIR assessed and demanded from Lingayen Gulf the
ISSUES: sums of P19k and P3.6k representing deficiency franchise taxes and
1. Whether or not copra is an agricultural food or non-food? surcharges for the years 1946-1954 and 1959-1961, respectively.
Pending the hearing of the cases, R.A. 3843 was passed granting to
NON-FOOD. Lingayen Gulf a legislative franchise for the operation of the electric
light, heat, and power system in the same municipalities of
The ruling was made by the Commissioner of Internal Revenue in Pangasinan. Petitioner asserts that the said law is unconstitutional
the exercise of his power under § 245 of the NIRC to "make rulings insofar as it provides for the payment by the private respondent
or opinions in connection with the implementation of the provisions of of a franchise tax of 2% of its gross receipts, while other
internal revenue laws, including rulings on the classification of taxpayers similarly situated were subject to the 5% franchise tax
articles for sales tax and similar purposes." imposed in Section 259 of the Tax Code, thereby discriminatory and
violative of the rule on uniformity and equality of taxation.
2. Whether or not there was violation of the EPC? W/N Section 4 of R.A. No. 3843 is unconstitutional for being
violative of the "uniformity and equality of taxation" clause of the
NO. Constitution.
NO, a tax is uniform when it operates with the same
Petitioner claims that the is violative of the equal protection clause force and effect in every place where the subject of it is found.
because while coconut farmers and copra producers are exempt, Uniformity means that all property belonging to the same class

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shall be taxed alike. The Legislature has the inherent power not 3. Whether or not the 5% franchise tax prescribed in Section
only to select the subjects of taxation but to grant exemptions. Tax 259 of the NIRC assessed against the private respondent on
exemptions have never been deemed violative of the equal its gross receipts realized before the effectivity of R.A- No.
protection clause. 3843 is collectible. (Minor tax issue)
4. Whether or not Section 4 of R.A. No. 3843 is
unconstitutional for being violative of the "uniformity
FACTS: and equality of taxation" clause of the Constitution.
• Lingayen Gulf Electric Power Co., Inc. (Lingayen Gulf) (Relevant tax issue)
operates an electric power plant serving the adjoining
municipalities of Lingayen and Binmaley, Pangasinan, HELD & RATIO:
pursuant to the municipal franchise granted it by their 3. NO, by virtue of R.A. 3843, the private respondent was liable
respective municipal councils in 1946 to pay only the 2% franchise tax, effective from the date the
• In 1948, the President of the Philippines approved the original municipal franchise was granted.
franchises granted to the private respondent. • R.A. No. 3843 granted the private respondent a
• In 1955, BIR assessed and demanded from Lingayen Gulf legislative franchise in June, 1963, amending,
the total amount of P19,293.41 representing deficiency altering, or even repealing the original municipal
franchise taxes and surcharges for the years 1946 to 1954 franchises, and providing that the private respondent
applying the franchise tax rate of 5% on gross receipts from should pay only a 2% franchise tax on its gross
March 1, 1948 to December 31, 1954 as prescribed in receipts, "in lieu of any and all taxes and/or
Section 259 of the NIRC, instead of the lower rates as licenses of any kind, nature or description levied,
provided in the municipal franchises (1% of the gross established, or collected by any authority
earnings during the first 20 years and 2% during the whatsoever, municipal, provincial, or national, now
remaining 15 years). or in the future ... and effective further upon the
• In1962, the Commissioner, demanded from the private date the original franchise was granted, no other
respondent the payment of P3,616.86 representing tax and/or licenses other than the franchise tax of
deficiency franchise tax and surcharges for the years 1959 to two per centum on the gross receipts ... shall be
1961 again applying the franchise tax rate of 5% on gross collected, any provision of law to the contrary
receipts as prescribed in Section 259 of the NIRC. notwithstanding."
• In both instances, Lingayen Gulf protested the assessment 4. NO, a tax is uniform when it operates with the same
and requested reconsideration, but the same were denied. force and effect in every place where the subject of it is
Thus, the appeal to CTA. found.
• Pending the hearing of the cases, R.A. 3843 was passed on • Petitioner’s contention:
June 22, 1963, granting to Lingayen Gulf a legislative o The said law is unconstitutional insofar as it
franchise for the operation of the electric light, heat, and provides for the payment by the private
power system in the same municipalities of Pangasinan. respondent of a franchise tax of 2% of its
• CTA ruled that the provisions of R.A. No. 3843 should apply gross receipts, while other taxpayers
and accordingly dismissed the claim of the Commissioner of similarly situated were subject to the 5%
Internal Revenue. franchise tax imposed in Section 259 of the
Tax Code, thereby discriminatory and
ISSUES:

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violative of the rule on uniformity and • Furthermore, the 5% franchise tax rate provided in
equality of taxation. Section 259 of the Tax Code was never intended to
• Court’s ruling: have a universal application.
o A tax is uniform when it operates with the o Section 259 of the Tax Code expressly
same force and effect in every place allows the payment of taxes at rates lower
where the subject of it is found. than 5% when the charter granting the
o Uniformity means that all property franchise of a grantee, like the one granted
belonging to the same class shall be to the private respondent under Section 4 of
taxed alike. R.A. No. 3843, precludes the imposition of a
o The Legislature has the inherent power not higher tax.
only to select the subjects of taxation but to
grant exemptions. Tax exemptions have FINAL VERDICT: The appealed decision of CTA is AFFIRMED.
never been deemed violative of the equal
protection clause.
o It is true that the private respondents 42. KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN
municipal franchises were obtained under NG PILIPINAS, INC. v. TAN
Act No. 6672 of the Philippine Commission, Constitutional Limitations; Uniformity; VAT
but these original franchises have been
replaced by a new legislative franchise, i.e. REYES NOTES/ CASE:
R.A. No. 3843. EO 273 was issued by the President of the Philippines which
o As correctly held by CTA, the latter was amended certain sections of NIRC and adopted the VAT.
granted subject to the terms and conditions Consolidated petitioners herein assail the constitutionality of EO 273
established in Act No. 3636, 3 as amended on the ground that the VAT is oppressive, discriminatory, regressive,
by C.A. No. 132. These conditions Identify and violates the due process and equal protection clauses and other
the private respondent's power plant as provisions of the 1987 Constitution.
falling within that class of power plants • SC: EO 273 is Constitutional. EO 273 satisfies all the
created by Act No. 3636, as amended. requirements of a valid tax.
o The benefits of the tax reduction provided by " FIRST REQ: It is uniform.
law (Act No. 3636 as amended by C.A. No. o The sales tax adopted in EO 273 is applied
132 and R.A. No. 3843) apply to the similarly on all goods and services sold to the
respondent's power plant and others public, which are not exempt, at the constant
circumscribed within this class. R.A-No. rate of 0% or 10%.
3843 merely transferred the petitioner's " SECOND REQ: It is also equitable.
power plant from that class provided for in o It is imposed only on sales of goods or services
Act No. 667, as amended, to which it by persons engage in business with an
belonged until the approval of R.A- No. aggregate gross annual sales exceeding
3843, and placed it within the class falling P200,000.00. Small corner sari-sari stores and
under Act No. 3636, as amended. sales of farm and marine products are
o Thus, it only effected the transfer of a consequently exempt from its application.
taxable property from one class to another. FACTS:

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• This petition seeks to nullify EO 273 issued by the President as well. EO 273 merely increased the VAT on every sale to
of the Philippines on 25 July 1987, to take effect on 1 10%, unless zero-rated or exempt.
January 1988, and which amended certain sections of the
National Internal Revenue Code and adopted the value- ISSUES:
added tax (VAT), for being unconstitutional in that its Whether or not EO 273 was enacted by the president with grave
enactment is not allegedly within the powers of the abuse of discretion and whether or not such law is unconstitutional.
President; that the VAT is oppressive, discriminatory,
regressive, and violates the due process and equal HELD & RATIO:
protection clauses and other provisions of the 1987 NO, EO 273 WAS NOT ENACTED WITH GRAVE ABUSE OF
Constitution. DISCRETION. THE LAW IS CONSTITUTIONAL.
• The VAT is a tax levied on a wide range of goods and • Petitioners have failed to adequately show that the VAT is
services. It is a tax on the value, added by every seller, with oppressive, discriminatory or unjust.
aggregate gross annual sales of articles and/or services, o They claim that EO 273 is in violation of the
exceeding P200,00.00, to his purchase of goods and provisions of Art. VI, sec. 28(1) of the 1987
services, unless exempt. Constitution, which states: “The rule of taxation shall
• VAT is computed at the rate of 0% or 10% of the gross
be uniform and equitable. The Congress shall evolve
selling price of goods or gross receipts realized from the sale
of services. a progressive system of taxation.”
• The VAT is said to have eliminated privilege taxes, multiple o Petitioners merely rely upon newspaper articles
rated sales tax on manufacturers and producers, advance which are actually hearsay and have evidentiary
sales tax, and compensating tax on importations. value. To justify the nullification of a law, there must
• The framers of EO 273 that it is principally aimed to be a clear and unequivocal breach of the
rationalize the system of taxing goods and services; simplify Constitution, not a doubtful and argumentative
tax administration; and make the tax system more equitable,
implication.
to enable the country to attain economic recovery.
• The VAT is not entirely new. It was already in force, in a • As the Court sees it, EO 273 satisfies all the requirements of
modified form, before EO 273 was issued. As pointed out by a valid tax. (TAX ISSUE)
the Solicitor General, the Philippine sales tax system, prior to " FIRST REQ: It is uniform.
the issuance of EO 273, was essentially a single stage value o A tax is considered uniform when it operates with the
added tax system computed under the "cost subtraction same force and effect in every place where the
method" or "cost deduction method" and was imposed only subject may be found.
on original sale, barter or exchange of articles by o Equality and uniformity in taxation means that all
manufacturers, producers, or importers. Subsequent sales of taxable articles or kinds of property of the same
such articles were not subject to sales tax. However, with the class shall be taxed at the same rate. The taxing
issuance of PD 1991 on 31 October 1985, a 3% tax was power has the authority to make reasonable and
imposed on a second sale, which was reduced to 1.5% upon natural classifications for purposes of taxation
the issuance of PD 2006 on 31 December 1985, to take o To satisfy this requirement then, all that is needed is
effect 1 January 1986. Reduced sales taxes were imposed that the statute or ordinance in question "applies
not only on the second sale, but on every subsequent sale, equally to all persons, firms and corporations placed
in similar situation. Inequalities which result from a

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singling out of one particular class for taxation or arrangements, (e) dividends and share of individual partner in
exemption infringe no constitutional limitation the net profits of taxable partnership, (f) adjusted gross income.
o The sales tax adopted in EO 273 is applied • Petitioner as taxpayer alleges that by virtue thereof, "he would be
similarly on all goods and services sold to the unduly discriminated against by the imposition of higher rates of
public, which are not exempt, at the constant tax upon his income arising from the exercise of his profession
rate of 0% or 10%. vis-a-vis those which are imposed upon fixed income or salaried
" SECOND REQ: The disputed sales tax is also equitable. individual taxpayers.
o It is imposed only on sales of goods or services by • He characterizes the above section as arbitrary amounting to
persons engage in business with an aggregate gross class legislation, oppressive and capricious in character.
annual sales exceeding P200,000.00. Small
corner sari-sari stores are consequently exempt from ISSUE: Whether BP 135 violates the due process and equal
its application. Likewise exempt from the tax are protection clauses, and the rule on uniformity in taxation?
sales of farm and marine products, spared as they !
are from the incidence of the VAT, are expected to RULING: !
be relatively lower and within the reach of the NO, petiton dismissed.
general public. • 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
FINAL VERDICT: Petitions are dismissed. and equal protection clauses. Absent such showing, the
presumption of validity must prevail.
Source: 2015 Digest • Equality and uniformity in taxation means that all taxable articles
or kinds of property of the same class shall be taxed at the same
43. SISON vs ANCHETA rate.
G.R. No. L-59431 July 25, 1984 o The taxing power has the authority to make reasonable
and natural classifications for purposes of taxation.
REYES NOTES: o Where the differentiation conforms to the practical
What is meant by “uniformity”? dictates of justice and equity, similar to the standards of
Uniformity requires that all subjects or objects of taxation similarly equal protection, it is not discriminatory within the
situated are to be treated alike or put on equal footing both in meaning of the clause and is therefore uniform.
privileges and liabilities (SISON V. ANCHETA [130 SCRA 654]; see o Taxpayers may be classified into different categories,
also CIR V. LINGAYEN GULF [164 SCRA 27]) such as recipients of compensation income as against
professionals.
FACTS: ! Recipients of compensation income are not
• Petitioner assailed the validity of Section 1 of Batas Pambansa entitled to make deductions for income tax
Blg. 135 which further amends Section 21 of the National purposes as there is no practically no overhead
Internal Revenue Code of 1977, which provides for rates of tax expense, while professionals and businessmen
on citizens or residents on (a) taxable compensation income, (b) have no uniform costs or expenses necessary to
taxable net income, (c) royalties, prizes, and other winnings, (d) produce their income.
interest from bank deposits and yield or any other monetary • There is ample justification to adopt the gross system of income
benefit from deposit substitutes and from trust fund and similar taxation to compensation income, while continuing the system of

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net income taxation as regards professional and business • January 15, 1960-the municipal board of Iloilo City, believing
income. that with passage of the Local Autonomy Act, it had acquired
the authority or power to enact an ordinance similar to that
FINAL VERDICT:Petition dismissed. previously declare by this Court as ultra vires, enacted
Source: 2012 digest Ordinance 11.
• A municipal license tax is imposed on tenement houses in
44. VILLANUEVA VS CITY OF ILOILO accordance with the schedule of payment:
December 28, 1968 o Tenement houses:
! Apartment house made of strong material-
REYES NOTES/ CASE: P20/per door
! Apartment house made of mixed materials-
Petitioners seek to declare Ordinance 11 series of 1960 as invalid for P10 per door
violating the rule on uniformity of taxation since it imposes taxes on ! Rooming house of strong materials-P10 per
tenement houses but not on other buildings in City of Iloilo City. door
! Rooming house of mixed materials- P5per
In determining whether the imposition of a municipal license tax on door
tenement houses violates the equal protection clause as such taxes o Tenement houses partly or wholly engaged in or
are not imposed in other cities, the Supreme Court ruled in the dedicated to business in the ff streets: JM basa,
negative as the rule on uniformity does not require taxes for the Iznart, Aldeguer, Guanco and Ledesma from
same purpose should be imposed in different territorial subdivisions Plazoleto Gay to Valeria St- P30per door
at the same time. It is enough that that tax falls equally and o Tenement houses partly or wholly engaged in or
impartially on all owners or operation of tenement houses similarly dedicated to business in any other street –P12 per
classified or situated. door
o Tenement houses at the street surrounding the
super market as soon as said place is declared
commercial- P24 per door
NOTE: Case digest based on Block A 2015 digests • By virtue of the ordinance in question, the appellant City
FACTS: collected form souses Villanueva for the years 1960-1964
• CFI Iloilo appealed the decision of the CFI of Iloilo which the sum of P5,824.30 and from appellees Pio Melliza,
declared illegal Ordinance 11, series of 1960 which was Teresita Topacio, and Remedios VIlanueva for the years
entitled “An Ordinance Imposing Municipal License Tax on 1960-1964 the sum of Php 1,317.00.
persons Engaged in the Business of Operating Tenement • On July 11, 1962 and April 24, 1964, the plaintffs-appelless
Houses. filed a complaint and an amended complaint, against the City
• September 30 1946 (before the enactment of the local of Iloilo praying that Ordinance 11, series of 1960:
Autonomy Act), the municipal board of Iloilo City enacted o Be declared invalid for being beyond the power of
Ordinance 86, imposing license tax fees, which was declared the Municipal Council of the City of Iloilo to enact
by the court in 1959 as invalid as it was ultra vires, :” it not o And unconstitutional for being violative of the rule as
appearing that the power to tax owners of tenement houses to the uniformity of taxation and for depriving said
is one among those clearly and expressly granted to the City plaintiffs of the equal protection clause of the
of Iloilo by its charter” Constitution

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o And that the City be ordered to refund the amounts • It is a well-settled rule that license tax may be levied upon a
collected form them under the said ordinance . business or occupation although the land or property used in
connection therewith is subject to property tax
ISSUES: • The State may collect an ad valorem tax on property used in
5. WON Ordinance 11 violates the rule on uniformity of a calling and at the same impose a license tax on the calling,
taxation (main issue; the one indicated in Reyes) the imposition of that latter kind of tax being in no sense a
• NO double tax
• This court has already ruled that tenement houses constitute • In order to constitute double taxation in the objectionable or
a distinct class of property prohibited sense, the same property must be:
• It has likewise ruled that taxes are uniform and equal when 1. Taxed twice when it should be taxed but once
imposed upon all property of the same class or character 2. Both taxes must be imposed on the same property or
within the taxing authority subject-matter
• The fact therefore that the owners of other classes of 3. For the same purpose
buildings in the city of Iloilo do not pay the taxes imposed by 4. By the same State, Government or taxing authority
the Ordinance in question is no argument at all against 5. Within the same jurisdiction or taxing district
uniformity and equity of the tax imposition 6. During the same taxing period
• Neither is the rule of equality and uniformity violated by the 7. They must be the same kind of character of tax
fact that tenement taxes are not imposed in other cities, for
the same rule does not require that taxes for the same • It has been shown that real estate tax and the tenement tax
purpose should be imposed in different territorial imposed by the ordinance, although imposed by the same
subdivisions at the same time taxing authroity are not of the same kind or character.
• So long as the burden of the tax falls equally and impartially • There is no constitutional prohibition against double taxation
on all owners or operators of tenement houses similarly in the Philippines
classified or situated, equality and uniformity of taxation is • It is something not favored, but is permissible, provided
accomplished some other constitutional requirement is not thereby violated,
• The plaintiffs-appellees, as owners of tenement hoses in the such as uniformity of taxation
City of Iloilo have not shown that the tax burden is NOT
equally or uniformly distributed among them, to overthrow FINAL VERDICT: The judgment a quo is reversed and the
the presumption that tax statutes are intended to operate ordinance in question being valid, the complaint is hereby
uniformly and equally dismissed. .

6. WON Ordinance 11 constitutes double taxation (included it


just in case)
• NO 45. PEPSI-COLA BOTTLING COMPANY OF THE PHIL., INC. V.
• The same tax may be imposed by the national government MUNICIPALITY OF TANAUAN (MR)
as well as by the local government. There is nothing
inherently obnoxious in the exaction of license fees or taxes REYES NOTES:
with respect to eh same occupation, calling or activity by A municipal ordinance was passed imposing a tax on the sale of
both the State and a political subdivision thereof. soft drinks or carbonated beverages by agents/consignees of

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dealers doing business outside the municipality. Is there a o Ord. No. 23 and 27 embrace or cover the same
violation of the equal protection clause? subject matter and the production tax rates imposed
Yes. As held in PEPSI-COLA V. CITY OF BUTUAN [24 SCRA 789], therein are practically the same
under the said municipal ordinance, sales of local dealers not acting o That the acting Municipal Treasurer of Tanauan,
for or on behalf of merchants established outside the municipality Leyte, as per his letter addressed to the Manager of
would be exempt from the tax while those acting as agents and the Pepsi-Cola Bottling Plant in said municipality,
consignees of dealers outside the municipality would have to pay the sought to enforce compliance by the latter of the
tax. The Supreme Court ruled that this was a violation of the provisions of said Ord. No. 27
uniformity required by the Constitution. o Both Ord. 23 and Ord. 27 are denominated
“municipal production taxes”
CASE:
Petitioner was arguing that the Local Autonomy Act was an undue ISSUES:
delegation of taxing power and that Ord. 23 and Ord. 27 cover the 1. Is the Local Autonomy Act an undue delegation of
same subject matter (Ord. 23 - every bottle of soft drink corked, Ord. taxing power? NO.
27 - ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) 2. Does Ord. 23 and 27 constitute double taxation? NO.
of volume capacity) but was found out that Ord. 27 was meant to 3. Are these taxes oppressive? No.
repeal Ord. 23. There was no undue delegation of taxing power, no
double taxation, and the taxation is not oppressive. HELD & RATIO:
5. The delegated power of taxation
• Power of taxation is an essential attribute of
FACTS: sovereignty
• Pepsi commenced a complaint with preliminary injunction • It’s purely legislative and may not be delegated to
with the CFI to declare unconstitutional the 2 other branches, EXCEPT in the case of
o Sec. 2 RA 2264 (Local Autonomy Act) – embodies municipal corporations.
the power conferred upon chartered cities, o Legislative powers may be delegated to
municipalities and municipal districts to impose local governments in respect of matters of
municipal license taxes and fees… - for being undue local concern
delegation of taxing power o Local governments are granted the
o Ord. No. 23 – levels and collects “from the soft autonomous authority to crate their sources
drinks producers and manufacturers a tax of one- of revenue and to levy taxes. (Sec. 5, Art. XI
sixteenth (1/16) of a centavo for every bottle of soft Consti)
drink corked” o When it is said that the taxing power may be
o Ord. No. 27 – levies and collects “on soft drinks delegated to municipalities and the like, it is
produces or manufactured within the territorial meant that there may be delegated such
jurisdiction of this municipality a tax of ONE measure of power to impose and collect
CENTAVO (P0.01) on each gallon (128 fluid ounces, taxes as the legislature may deem
U.S.) of volume capacity. expedient. Thus, municipalities may be
• Stipulation of facts by the parties: permitted to tax subjects which for reasons
of public policy the State has not deemed
wise to tax for more general purposes.

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o Taking of the property is in the lawful • Under the NIRC, there is a prohibition against
exercise of the taking as when (1) the tax if municipalities and municipal districts to impose “any
for a public purpose (2) the rule on percentage tax on sales or other taxes in any form
uniformity of taxation is observed (3) either based thereon nor impose taxes on articles subject
the person or property taxed is within the to specific tax, except gasoline
jurisdiction of the government levying the tax • For purposes of this particular limitation, a municipal
and (4) in the assessment and collection of ordinance which prescribes a set ration between the
certain kinds of taxes notice and opportunity amount of the tax and the volume of sale of the
of hearing are provided taxpayer imposes a sales tax and is null and void for
o Due process does not require that the being outside the power of the municipality to enact.
property subject to the tax of the amount of But, the imposition of tax on volume capacity on all
tax to be raised should be determined by soft drinks produced or manufactured under Ord. 27
judicial inquiry, and a notice and hearing as does not partake of the nature of a percentage tax
to the amount of the tax and the manner in on sales, or other taxes in any form based thereon.
which it shall be apportioned are generally The tax is levied on the PRODUCE (whether sold of
not necessary to due process of law not) and not the sales. The volume capacity of the
o A law is not necessarily invalid just because taxpayer’s production of soft drinks is considered
there’s double taxation. Double taxation is solely for purposes of determining the tax rate on the
only forbidden when the taxpayer is made to products, but there is not set ration between the
pay twice for the benefit of the same volume of sales and the amount of the tax
governmental entity, but not when, for • Nor can the tax levied be treated as a specific tax.
example, one tax is imposed by state and Specific taxes are those imposed on specified
one by a municipality articles, such as distilled spirits, wines, fermented
6. Ord. 27 was meant to repeal Ord. 23 liqueurs… soft drinks is not one of those specified.
• Ord. 23 (see facts) is a tax on every bottle corked. It • It was also mentioned in passing that the validity of
was discovered by the municipality though that the ordinance 27 does not affect ordinance 54 (already
manufacturers could increase the volume of the in effect) because municipalities have the power to
drink in the bottle and pay the same tax rate. So it impose not only municipal license taxes, but also
enacted Ord. 27, which is a tax on the volume of the just and uniform taxes. Ord. 27 comes under the
drink. So the intention of ordinance 27 is actually, latter.
without saying it, to repeal ordinance 23.
• This further strengthened by the fact the municipal
treasurer only sought to enforce ordinance 27, not FINAL VERDICT: Petition is denied.
23
7. Ord. 27 does not impose a percentage or specific tax.
• The power to tax is given to municipalities in the Notes/ Source: From “Taxation 1 Digests 2A-2015”
Local Autonomy Act is so broad as to cover
anything, except those which are exempt and limited
by law

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46. ORMOC SUGAR COMPANY, INC. v. TREASURER OF ISSUES:
ORMOC CITY and MUNICIPAL BOARD OF ORMOC CITY 7. Whether the constitutional limits on the power of taxation,
specifically the equal protection clause and rule of uniformity
REYES NOTES/ CASE: of taxation were infringed
A municipal ordinance was passed imposing a municipal tax
on productions of centrifugal sugar milled at the Ormoc Sugar HELD & RATIO: Yes.
Company. Petitioner paid under protest, and insisted that the On Equal Protection
ordinance is violative of the equal protection clause and rule on • The equal protection clause applies only to persons or
uniformity of taxation. things identically situated and does not bar a reasonable
[Reyes Notes] The Court held that a reasonable classification.
classification should be in terms applicable to future conditions. The • A classification is reasonable where
taxing ordinance should not be singular and exclusive as to exclude o it is based on substantial distinctions which
any subsequently established entity from the coverage of the tax make real differences;
o these are germane to the purpose of the
law;
o the classification applies not only to
FACTS: present conditions but also to future
• In 1964, the Municipal Board of Ormoc City passed conditions which are substantially
Ordinance No. 4 imposing “on any and all productions of identical to those of the present;
centrifugal sugar milled at the Ormoc Sugar Company, Inc. o the classification applies only to those who
in Ormoc City a municipal tax equivalent to 1% per export belong to the same class.
sale to USA and other foreign countries.” • A perusal of the requisites instantly shows that the
• Payments for said tax were made, under protest, by Ormoc questioned ordinance does not meet them, for it taxes
Sugar Company, Inc. only centrifugal sugar produced and exported by
• Ormoc Sugar Company, Inc. filed before the CFI of Leyte a Ormoc Sugar Company, Inc.
complaint against the City of Ormoc, its treasurer, Municipal • The classification, to be reasonable, should be in terms
Board and Mayor, alleging that the ordinance is applicable to future conditions as well.
unconstitutional for being violative of the equal protection
clause and the rule of uniformity of taxation. On Uniformity of Taxation
• Defendants asserted that the tax ordinance was within • The taxing ordinance should not be singular and
defendant city’s power to enact under the Local Autonomy exclusive as to exclude any subsequently established
Act (LCA) and that the same did not violate the afore-cited sugar central, of the same class as plaintiff, for the
constitutional limitations. coverage of the tax.
• CFI upheld the constitutionality of the ordinance and • As it is now, even if later a similar company is set up, it
declared the taxing power of defendant chartered city cannot be subject to the tax because the ordinance
broadened by the LCA to include all others forms of taxes, expressly points only to Ormoc Sugar Company as the
licenses or fees not excluded in its charter. entity to be levied upon.
• Ormoc Sugar brought the case directly to the Supreme
Court. FINAL VERDICT: The decision appealed from is reversed, the
challenged ordinance is declared unconstitutional.

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• Philippine Trust Company stoutly maintain that although the
foregoing provision is of general application and operates on
Notes/ Source: Taxation 1 Digests 2A-2015 all banks of the same kind doing business in the Philippines,
the exemption of the National City Bank of New York from
47. PHILIPPINE TRUST COMPANY v. YATCO the impositions therein specifically provided (National City
January 23, 1940 Bank of New York v. Posadas [296 U.S. 497, 80 Law ed.
351], makes the law discriminatory and violates the rule of
CASE: uniformity in taxation
*Not in Reyes notes
Philippine Trust Company challenge the constitutionality of ISSUES:
sec. 1499 of the Revised Administrative Code for violation of the rule 1. Whether or not the said section of the Revised
against uniformity of taxes for the exemption of the National City Administrative Code violates the rule on uniformity of
Bank of New York from certain tax impositions. taxation.

Sec. 1499 does NOT violate the rule against uniformity of taxes. A HELD & RATIO:
tax is considered uniform when it operates with the same force and 1. NO, A tax is considered uniform when it operates with the
effect in every place where the subject may be found. Sec. 1499 same force and effect in every place where the subject may
operates on all banks in the Philippines without distinction and be found.
discrimination. The National City Bank of New York is exempted from
its operation because it is a federal instrumentality subject only to the • Section 1499 of the Revised Administrative Code, as
authority of Congress. amended, applies uniformly to, and operates on, all
banks in the Philippines without distinction and
A state may impose a different rate of taxation upon a foreign discrimination, and if the National City Bank of New
corporation for the privilege of doing business within the State than it York is exempted from its operation because it is a
applies to its own corporations upon franchise, which the state grants federal instrumentality subject only to the authority of
in creating them. Congress, that alone could have the effect of
rendering it violative of the rule of uniformity.
FACTS: • In every well-regulated and enlightened state or
• Prior to the filing of these suits, and for a number of years, government, certain descriptions of property and
the Philippine Trust Company had been paying capital and also certain institutions are exempt from taxation, but
deposit taxes without protest: these exemptions have never been regarded as
o formerly under section 111 of Act No. 1189, disturbing the rules of taxation, even where the
o and later under section 1499 of the Revised fundamental law had ordained that it should be
Administrative Code of 1917, as amended. uniform.
• Philippine Trust Company challenge the constitutionality of • The rule of uniformity does not call for perfect
the aforesaid section of the Revised Administrative Code, uniformity or perfect equality, because it is hardly
principally on the grounds that it violates the rule regarding unattainable.
uniformity of taxation, and that it is discriminatory, and • The method of assessment prescribed in section
therefore violative of the equal protection clause of the 1502, in relation to section 1499, of the Revised
Constitution. Administrative Code, for domestic banks while

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different from that prescribed for foreign banks is o (3) Revenue Regulations Nos. 1-97, 9-2003, and 22-
permissible. A state may impose a different rate of 2003; and
taxation upon a foreign corporation for the privilege o (4) Revenue Memorandum Order No. 6-2003
1
of doing business within the State than it applies to • Paragraph (c) of Section 145 provides for four tiers of tax
its own corporations upon franchise, which the state rates based on the net retail price per pack of cigarettes. To
grants in creating them. determine the applicable tax rates of existing cigarette
brands, a survey of the net retail prices per pack of
FINAL VERDICT: Petition is denied. cigarettes was conducted as of October 1, 1996. The results
Notes/ Source: Ratio from 2A-2015 Digests of which were embodied in Annex "D" of the NIRC as the
duly registered, existing or active brands of cigarettes.
48. BRITISH AMERICAN TOBACO vs CAMACO o The law further provided that as such, new brands of
G.R. No. 163583 August 20, 2008 cigarettes are taxed according to their current net
Constitutional Limits to Taxation; Uniformity retail price while existing or "old" brands shall be
taxed based on their net retail price as of October
REYES NOTES: 1, 1996.
The petition seeks to declare Sec. 145 of the NIRC, as
amended by RA 9334 as unconstitutional because it establishes a A. IMPLEMENTATION: CLASSIFICATION OF CIGARETTE
freeze on the classification of certain cigarette brands in the 4-tier BRANDS
tax-rate classification scheme—making new brands, such as • To implement RA 8240, the Bureau of Internal Revenue
petitioner’s Lucky Strike cigarettes, subject to higher taxes, while old (BIR) issued Revenue Regulations No. 1-97, which
brands, such as Marlboro, subject to the same tax rate despite the classified the existing brands of cigarettes as those duly
raising of their retail price. registered or active brands prior to January 1, 1997.
The classification freeze (on what cigarettes to tax) does not o New brands, or those registered after January 1,
violate the equal protection clause as it passes the rational basis test 1997, shall be initially assessed at their suggested
and is meant to improve the efficiency and effectivity of the tax retail price until such time that the appropriate
administration over sin products while trying to balance the same survey to determine their current net retail price is
with state interests. It addresses the concerns of simplification of tax conducted.
administration of sin products, elimination of potential areas for
abuse and corruption in tax collection, buoyant and stable revenue B. MATTER OF CONTENTION:
generation, and ease of project revenues. • In June 2001, petitioner British American Tobacco
introduced into the market Lucky Strike Filter, Lucky Strike
FACTS: Lights and Lucky Strike Menthol Lights cigarettes, with a
• Petition for review assails the validity of the following as suggested retail price of P9.90 per pack. Pursuant to Sec.
VIOLATIVE OF THE EQUAL PROTECTION CLAUSE. 145 (c) quoted above, the Lucky Strike brands were initially
o (1) Section 145 of the National Internal Revenue assessed the excise tax at P8.96 per pack (P8.96 is fixed
Code (NIRC), as recodified by Republic Act (RA) by law, pls see NOTES).
8424;
o (2) RA 9334, which further amended Section 145 of • On February 17, 2003, Revenue Regulations No. 9-
4
the NIRC on January 1, 2005; 2003, amended Revenue Regulations No. 1-97 by
providing, among others, a periodic review every two

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years or earlier of the current net retail price of new brands docketed as Civil Case No. 03-1032. Said petition sought to
and variants thereof for the purpose of establishing and enjoin the implementation of Section 145 of the NIRC,
updating their tax classification, thus: Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and
o For the purpose of establishing or updating the tax Revenue Memorandum Order No. 6-2003 on the ground
classification of new brands and variant(s) thereof, that they discriminate against new brands of cigarettes,
their current net retail price shall be reviewed in violation of the equal protection and uniformity
periodically through the conduct of survey or any provisions of the Constitution.
other appropriate activity, as mentioned above,
every two (2) years unless earlier ordered by the B.2 RA 9334, FURTHER AMENDMENTS TO SEC. 145 OF THE
Commissioner. However, notwithstanding any NIRC:
increase in the current net retail price, the tax
classification of such new brands shall remain in
• While the petition was pending, RA 9334 (An Act Increasing
force until the same is altered or changed through
The Excise Tax Rates Imposed on Alcohol And Tobacco
the issuance of an appropriate Revenue
Products, Amending For The Purpose Sections 131, 141,
Regulations.
143, 144, 145 and 288 of the NIRC of 1997, As Amended),
o Pursuant thereto, Revenue Memorandum Order
took effect on January 1, 2005. The statute, among others,–
No. 6-2003 was issued on March 11, 2003, (1) increased the excise tax rates provided in paragraph
prescribing the guidelines and procedures in (c) of Section 145;
establishing current net retail prices of new brands of
cigarettes and alcohol products.
(2) mandated that new brands of cigarettes shall initially be
classified according to their suggested net retail price,
• Subsequently, Revenue Regulations No. 22-2003 was
until such time that their correct tax bracket is finally
issued on August 8, 2003 to implement the revised tax
determined under a specified period and, after which,
classification of certain new brands introduced in the market
their classification shall remain in force until revised by
after January 1, 1997, based on the survey of their current
Congress;
net retail price. The survey revealed that Lucky Strike Filter,
Lucky Strike Lights, and Lucky Strike Menthol Lights, are
(3) retained Annex "D" as tax base of those surveyed as
sold at the current net retail price of P22.54, P22.61 and of October 1, 1996 including the classification of brands
P21.23, per pack, respectively. for the same products which, although not set forth in
o Respondent Commissioner of the Bureau of Internal
said Annex "D," were registered on or before January 1,
Revenue thus recommended the applicable tax rate
1997 and were being commercially produced and
of P13.44 per pack inasmuch as Lucky Strike’s
marketed on or after October 1, 1996, and which
average net retail price is above P10.00 per pack. continue to be commercially produced and marketed
after the effectivity of this Act. Said classification shall
B.1 T.R.O.: remain in force until revised by Congress; and

• Thus, on September 1, 2003, petitioner filed before the (4) provided a legislative freeze on brands of cigarettes
Regional Trial Court (RTC) of Makati, Branch 61, a petition introduced between the period January 2, 1997 to
for injunction with prayer for the issuance of a temporary December 31, 2003, such that said cigarettes shall
restraining order (TRO) and/or writ of preliminary injunction, remain in the classification under which the BIR has

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determined them to belong as of December 31, 2003, is classified based on its current net
until revised by Congress. retail price, the classification is frozen
and only Congress can thereafter
• Hence, petitioner filed a Motion to Admit Attached reclassify the same.
Supplement and a Supplement to the petition for review, ! Due to this legislative classification scheme, it
assailing the constitutionality of RA 9334 insofar as it is possible that over time the net retail price of a
retained Annex "D" and praying for a downward classification previously classified brand, whether it be a
of Lucky Strike products at the bracket taxable at P8.96 per brand under Annex "D" or a new brand classified
pack. after the effectivity of RA 8240 on January 1,
o (CONTENTION AS TO THE VIOLATION OF 1997, would increase (due to inflation, increase
EQUAL PROTECTION) Petitioner contended that of production costs, manufacturer’s decision to
the continued use of Annex "D" as the tax base of increase its prices, etc.) to a point that its net
existing brands of cigarettes gives undue protection retail price pierces the tax bracket to which it
to said brands which are still taxed based on their was previously classified. Consequently, even
price as of October 1996 notwithstanding that they if its present day net retail price would make
are now sold at the same or even at a higher price it fall under a higher tax bracket, the
than new brands like Lucky Strike. Thus, old brands previously classified brand would continue
of cigarettes such as Marlboro and Philip Morris to be subject to the excise tax rate under the
which, like Lucky Strike, are sold at or more than lower tax bracket by virtue of the legislative
P22.00 per pack, are taxed at the rate of P10.88 per classification freeze.
pack, while Lucky Strike products are taxed at
P26.06 per pack. o DOES THIS VIOLATE THE E.P.C./UNIFORMITY OF
TAXATION? NO.
! Within the present context of tax legislation on
ISSUE: sin products which neither contains a suspect
Whether or not the tax classification freeze violates the Equal classification nor impinges on a fundamental
Protection Clause? (or the limitation of Uniformity of Taxation) No. right, the rational-basis test thus finds
application. Under this test, a legislative
RULING: classification, to survive an equal protection
o EFFECT OF CLASSIFICATION SCHEME: challenge, must be shown to rationally further a
! When a brand is introduced in the market, the legitimate state interest.
current net retail price is determined through the
aforequoted specified procedure. ! A legislative classification that is reasonable
• The current net retail price is then used does not offend the constitutional guaranty of the
to classify under which tax bracket the equal protection of the laws. The classification is
brand belongs in order to finally considered valid and reasonable provided that:
determine the corresponding excise tax (1) it rests on substantial distinctions;
rate on a per pack basis. (2) it is germane to the purpose of the
• The assailed feature of this law pertains law;
to the mechanism where, after a brand

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(3) it applies, all things being equal, to • "Equality and uniformity in taxation means that all
both present and future conditions; and taxable articles or kinds of property of the same
(4) it applies equally to all those class shall be taxed at the same rate. The taxing
belonging to the same class. power has the authority to make reasonable and
• The first, third and fourth requisites are satisfied. natural classifications for purposes of taxation.
The classification freeze provision was inserted o As clarified by Justice Tuason, where "the
in the law for reasons of practicality and differentiation" complained of "conforms to the
expediency. That is, since a new brand was not practical dictates of justice and equity" it "is not
yet in existence at the time of the passage of RA discriminatory within the meaning of this clause and
8240, then Congress needed a uniform is therefore uniform." There is quite a similarity then
mechanism to fix the tax bracket of a new brand. to the standard of equal protection for all that is
The current net retail price, similar to what was required is that the tax "applies equally to all
used to classify the brands under Annex "D" as persons, firms and corporations placed in similar
of October 1, 1996, was thus the logical and situation
practical choice. Further, with the amendments
introduced by RA 9334, the freezing of the tax ! THE CLASSIFICATION FREEZE PROVISION HAS
classifications now expressly applies not just to SUFFICIENT RATIONAL BASIS
Annex "D" brands but to newer brands • Administrative concerns-the classification freeze
introduced after the effectivity of RA 8240 on provision was in the main the result of Congress’s
January 1, 1997 and any new brand that will be earnest efforts to improve the efficiency and
introduced in the future effectivity of the tax administration over sin products
while trying to balance the same with other state
! In Sison, Jr. v. Ancheta, the Court explained interests.
the applicable standard in deciding equal o In particular, the questioned provision addressed
protection and uniformity of taxation challenges: Congress’s administrative concerns regarding
• The Constitution does not require things which delegating too much authority to the DOF and BIR
are different in fact or opinion to be treated in as this will open the tax system to potential areas for
law as though they were the same. abuse and corruption.
o Hence the constant reiteration of the view that o Congress may have reasonably conceived that a tax
classification if rational in character is allowable. system which would give the least amount of
As a matter of fact, in a leading case of Lutz v. discretion to the tax implementers would address the
Araneta, this Court, through Justice J.B.L. Reyes, problems of tax avoidance and tax evasion.
went so far as to hold "at any rate, it is inherent in
the power to tax that a state be free to select the • Discourages culture of Corruption-Congress
subjects of taxation, and it has been repeatedly held could have reasonably foreseen that, under the
that 'inequalities which result from a singling out of DOF proposal and the Senate Version, the
one particular class for taxation, or exemption periodic reclassification of brands would tempt the
infringe no constitutional limitation. cigarette manufacturers to manipulate their price
levels or bribe the tax implementers in order to
allow their brands to be classified at a lower tax

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nd
bracket even if their net retail prices have already (2) Section 4(B)(e)(c), 2 paragraph of Revenue Regulations No. 1-
migrated to a higher tax bracket after the 97, as amended by Section 2 of Revenue Regulations 9-2003, and
adjustment of the tax brackets to the increase in Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance
the consumer price index. Presumably, this could Division II) II(b) of Revenue Memorandum Order No. 6-2003, insofar
be done when a resurvey and reclassification is as pertinent to cigarettes packed by machine, are INVALID insofar
forthcoming. as they grant the BIR the power to reclassify or update the
classification of new brands every two years or earlier.
• Stable Revenues- Aside from the major concern
regarding the elimination of potential areas for NOTES:
abuse and corruption from the tax administration
of sin products, the legislative deliberations also 1
o Paragraph (c) of Section 145, states –
show that the classification freeze provision was
SEC. 145. Cigars and cigarettes. –
intended to generate buoyant and stable revenues
xxxx
for government. With the frozen tax classifications,
(c) Cigarettes packed by machine. – There shall be levied,
the revenue inflow would remain stable and the
assessed and collected on cigarettes packed by machine a
government would be able to predict with a greater
tax at the rates prescribed below:
degree of certainty the amount of taxes that a
cigarette manufacturer would pay given the trend (1) If the net retail price (excluding the excise tax and the
in its sales volume over time.
value-added tax) is above Ten pesos (P10.00) per pack,
the tax shall be Thirteen pesos and forty-four centavos
! All in all, the classification freeze provision
(P13.44) per pack;
addressed Congress’s administrative concerns in
the simplification of tax administration of sin
(2) If the net retail price (excluding the excise tax and the
products, elimination of potential areas for abuse
value-added tax) exceeds Six pesos and fifty centavos
and corruption in tax collection, buoyant and stable
(P6.50) but does not exceed Ten pesos (10.00) per
revenue generation, and ease of projection of
pack, the tax shall be Eight pesos and ninety-six
revenues. Consequently, there can be no denial
centavos (P8.96) per pack;
of the equal protection of the laws since the
rational-basis test is amply satisfied. (3) If the net retail price (excluding the excise tax and the
value-added tax) is Five pesos (P5.00) but does not
FINAL VERDICT:
exceed Six pesos and fifty centavos (P6.50) per pack,
the tax shall be Five pesos and sixty centavos (P5.60)
WHEREFORE, the petition is PARTIALLY GRANTED and the per pack;
decision of the Regional Trial Court of Makati, Branch 61, in Civil
Case No. 03-1032, is AFFIRMED with MODIFICATION. As modified, (4) If the net retail price (excluding the excise tax and the
this Court declares that: value-added tax) is below Five pesos (P5.00) per pack,
the tax shall be One peso and twelve centavos (P1.12)
(1) Section 145 of the NIRC, as amended by Republic Act No. 9334, per pack.
is CONSTITUTIONAL; and that

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Variants of existing brands of cigarettes which are introduced o These contentions are without merit and a rehash of
in the domestic market after the effectivity of this Act shall be petitioner’s previous arguments before this Court. As
taxed under the highest classification of any variant of that held in the assailed Decision, the instant case neither
brand. involves a suspect classification nor impinges on a
fundamental right. Consequently, the rational basis test
xxxx was properly applied to gauge the constitutionality of the
New brands shall be classified according to their current assailed law in the face of an equal protection challenge.
net retail price. It has been held that “in the areas of social and
economic policy, a statutory classification that neither
For the above purpose, net retail price shall mean the price proceeds along suspect lines nor infringes constitutional
at which the cigarette is sold on retail in 20 major rights must be upheld against equal protection challenge
supermarkets in Metro Manila (for brands of cigarettes if there is any reasonably conceivable state of facts that
marketed nationally), excluding the amount intended to cover could provide a rational basis for the classification.
the applicable excise tax and the value-added tax. For
brands which are marketed only outside Metro Manila, the B. Petitioner argues that the classification freeze provision is a form
net retail price shall mean the price at which the cigarette is of regressive and inequitable tax system which is proscribed under
sold in five major supermarkets in the region excluding the Article VI, Section 28(1) of the Constitution. It claims that people in
amount intended to cover the applicable excise tax and the equal positions should be treated alike. The use of different tax
value-added tax. bases for brands under Annex “D” vis-à-vis new brands is
discriminatory, and thus, iniquitous. Petitioner further posits that the
The classification of each brand of cigarettes based on classification freeze provision is regressive in character. It asserts
its average net retail price as of October 1, 1996, as set that the harmonization of revenue flow projections and ease of tax
forth in Annex "D" of this Act, shall remain in force until administration cannot override this constitutional command.
revised by Congress. o As stated earlier, the assailed provisions do not infringe
the equal protection clause because the four-fold test is
*(MOTION FOR RECONSIDERATION)* satisfied. In particular, the classification freeze provision
BRITISH AMERICAN TOBACCO vs. CAMACHO has been found to rationally further legitimate State
interests consistent with rationality review. Petitioner’s
RULING: repackaged argument has, therefore, no merit.
o Anent the issue of regressivity, it may be conceded that
A.Petitioner argues that the classification freeze provision violates the assailed law imposes an excise tax on cigarettes
the equal protection and uniformity of taxation clauses because
which is a form of indirect tax, and thus, regressive in
Annex “D” brands are taxed based on their 1996 net retail
character. While there was an attempt to make the
prices while new brands are taxed based on their present day
imposition of the excise tax more equitable by creating a
net retail prices. Citing Ormoc Sugar Co. v. Treasurer of Ormoc
four-tiered taxation system where higher priced
City,1[2] petitioner asserts that the assailed provisions accord a
cigarettes are taxed at a higher rate, still, every
special or privileged status to Annex “D” brands while at the
consumer, whether rich or poor, of a cigarette brand
same time discriminate against other brands
within a specific tax bracket pays the same tax rate. To
this extent, the tax does not take into account the
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
person’s ability to pay.
!

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! Nevertheless, this does not mean that the • So This a petition for prohibition which seeks to prevent the
assailed law may be declared unconstitutional for respondents from implementing and enforcing RA
being regressive in character because the 9335(Attrition Act of 2005).
Constitution does not prohibit the imposition of • RA 9335 was enacted to optimize the revenue generation
indirect taxes but merely provides that Congress capability and collection of BIR and BOC. The law
shall evolve a progressive system of taxation. encourage the said agencies’ officials and employee to
! in Tolentino v. Secretary of Finance: exceed their revenue targets by providing a system of
[R]egressivity is not a negative standard for reward and sanctions through the creation of a Rewards and
courts to enforce. What Congress is required by Incentives Fund (the Fund) and a Revenue Performance and
the Constitution to do is to "evolve a progressive Evaluation (the Board). It covers all officials and employees
system of taxation." This is a directive to with at least six months of service regardless of status.
Congress, just like the directive to it to give • The Fund is sourced from the collection of the BIR and BoC
priority to the enactment of laws for the in excess of their revenue targets for the year as determined
enhancement of human dignity and the reduction by the Development Budget and Coordinating Committee
of social, economic and political inequalities [Art. (DBCC).
XIII, Section 1] or for the promotion of the right to • The Board is composed of the Sec and Usec. of DOF, Sec.
"quality education" [Art. XIV, Section 1]. These and Usec. of DBM and Director General and Deputy Director
provisions are put in the Constitution as moral General of NEDA, the BIR and BoC Commissioners, the
incentives to legislation, not as judicially representatives from the rank and file employees and a
enforceable rights. representative from the officials nominated by the non-
recognized organization.
49. ABAKADA GROUP vs PURISIMA • The Board prescribes the allocation, distribution and release
of the Fund, criteria and procedures for removing officials
REYES NOTES/ CASE: and employees falling short of the collection target, terminate
the said personnel, issue rules and regulations and report
Attrition Law which gives incentives to BORT employees does not annually to Congress.
violate equal protection clause. Equal protection clause recognizes a • The Petitioners contend that: this system transforms the
valid classification, that is, classification that has reasonable officials and employees of BIR and BoC into mercenaries
foundation or rational basis and not arbitrary. The subject of the and bounty hunters for the rewards. This invites corruption of
Attrition Law was revenue generation and collection if BIR and BOC, the constitutional duty of the personnel.
thus the incentives and sanctions should logically pertain to them • Limiting the scope of the system of rewards and incentives
and not to other government agencies. Moreover, the law concerns only to officials and employees of the BIR and BoC violates
only the BIR and the BOC because they have the common distinct equal protection.
primary function of generating revenues for the national government • The President lacks sufficient standard to fix the revenue
through the collection of taxes, customs duties, fees and charges targets and may impose unrealistic and unattainable target in
order to dismiss BIR and BoC personnel.
• The creation of the Congressional Oversight Committee
violates the doctrine of separation of powers. The committee
FACTS: permits legislative participation in the implementation and
enforcement of the law.

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• The Solicitor General commented on the Petition and stated Equality guaranteed under the equal protection clause is
that there is no actual case or controversy yet. The assertion equality under the same conditions and among persons
of the personnel becoming mercenaries and bounty hunters similarly situated; it is equality among equals, not similarity of
is mere speculation and does not suffice to invalidate the treatment of persons who are classified based on substantial
law. There is also sufficient standard that will guide the differences in relation to the object to be accomplished.
executive in the implementation of its standard. The
Committee does not violate separation of powers but The Constitution does not require that things which are
enhances it to check any over accumulation of power. different in fact be treated in law as though they were the
same. The equal protection clause does not forbid
discrimination as to things that are different. It does not
ISSUES: prohibit legislation which is limited either in the object to
1. Is the case already ripe for adjudication? which it is directed

2. Is the equal protection clause violated? (RELEVANT) A law is not invalid because of simple inequality. The very
idea of classification is that of inequality, so that it goes
3. Is there undue delegation of powers? without saying that the mere fact of inequality in no manner
determines the matter of constitutionality. All that is required
4. Is the existence of the Joint Congressional Oversight of a valid classification is that it be reasonable, which means
Committee constitutional? that the classification should be based on substantial
distinctions which make for real differences, that it must be
HELD & RATIO: germane to the purpose of the law; that it must not be limited
1. NO, case is not ripe for adjudication. A constitutional to existing conditions only; and that it must apply equally to
question must be ripe for adjudication when the each member of the class. This Court has held that the
governmental act being challenged has direct adverse effect standard is satisfied if the classification or distinction is
on the individual challenging it. The petitioners fail to assert based on a reasonable foundation or rational basis and is
any specific and concrete legal term or to demonstrate any not palpably arbitrary.
adverse effect of the law on them. The grave nature of their
allegations tends to cast a cloud on the presumption of In the exercise of its power to make classifications for the
constitutionality in favor the law. purpose of enacting laws over matters within its jurisdiction,
the state is recognized as enjoying a wide range of
Public office is a public trust. It must be discharged by its discretion.
holder for not for his own personal gain but for the benefit of
the public whom he holds it in trust. The presumption cannot The equal protection clause recognizes a valid
be overturned by mere conjecture or denied in advance classification, that is, a classification that has a
specially in this case where it is an underlying principle to reasonable foundation or rational basis and not
advance a declared public policy. Public service is its own arbitrary.
reward.
With respect to RA 9335, its expressed public policy is
2. NO, Equal protection clause is not violated. (RELEVANT) the optimization of the revenue-generation capability
and collection of the BIR and the BOC.23 Since the

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subject of the law is the revenue- generation capability affecting the level of collection. This standard is analogous to
and collection of the BIR and the BOC, the incentives inefficiency and incompetence in the performance of official
and/or sanctions provided in the law should logically duties, a ground for disciplinary action under civil service
pertain to the said agencies. Moreover, the law concerns laws.
only the BIR and the BOC because they have the
common distinct primary function of generating 4. The issue of its alleged encroachment on the executive
revenues for the national government through the function of implementing and enforcing the law may be
collection of taxes, customs duties, fees and charges. considered moot and academic.
• Broadly defined, the power of oversight embraces all
Both the BIR and the BOC are bureaus under the DOF. They activities undertaken by Congress to enhance its
principally perform the special function of being the understanding of and influence over the implementation of
instrumentalities through which the State exercises one of its legislation it has enacted. Clearly, oversight concerns post
great inherent functions – taxation. Indubitably, such enactment measures undertaken by Congress: (a) to monitor
substantial distinction is germane and intimately related to bureaucratic compliance with program objectives, (b) to
the purpose of the law. Hence, the classification and determine whether agencies are properly administered, (c) to
treatment accorded to the BIR and the BOC under RA 9335 eliminate executive waste and dishonesty, (d) to prevent
fully satisfy the demands of equal protection. executive usurpation of legislative authority, and (d) to
assess executive conformity with the congressional
3. NO, there is no undue delegation of power. Two tests perception of public interest. It is intrinsic in the grant of
determine the validity of delegation of legislative power: (1) legislative power itself and integral to the checks and
the completeness test and (2) the sufficient standard test. A balances inherent in a democratic system of government.
law is complete when it sets forth therein the policy to be
executed, carried out or implemented by the delegate. It lays The acts done by Congress purportedly in the exercise of its
down a sufficient standard when it provides adequate oversight powers may be divided into three categories,
guidelines or limitations in the law to map out the boundaries namely: scrutiny, investigation and supervision.
of the delegate’s authority and prevent the delegation from
running riot. To be sufficient, the standard must specify the
limits of the delegate’s authority, announce the legislative a. Scrutiny Congressional scrutiny implies a lesser intensity
policy and identify the conditions under which it is to be and continuity of attention to administrative operations. Its
implemented. primary purpose is to determine economy and efficiency of
the operation of government activities. In the exercise of
RA 9335 adequately states the policy and standards to guide legislative scrutiny, Congress may request information and
the President in fixing revenue targets and the implementing report from the other branches of government. It can give
agencies in carrying out the provisions of the law. recommendations or pass resolutions for consideration of
the agency involved.
Clearly, RA 9335 in no way violates the security of tenure of
officials and employees of the BIR and the BOC. In the case b. Congressional investigation
of RA 9335, it lays down a reasonable yardstick for removal
(when the revenue collection falls short of the target by at While congressional scrutiny is regarded as a passive
least 7.5%) with due consideration of all relevant factors process of looking at the facts that are readily available,

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congressional investigation involves a more intense digging confirmation
of facts.
B.) Investigation and monitoring of the implementation of
c. Legislative supervision laws pursuant to the power of Congress to conduct inquiries
in aid of legislation.
The third and most encompassing form by which Congress
exercises its oversight power is thru legislative supervision. Legislative veto is a statutory provision requiring the
Supervision connotes a continuing and informed awareness President or an administrative agency to present the
on the part of a congressional committee regarding proposed implementing rules and regulations of a law to
executive operations in a given administrative area. While Congress which, by itself or through a committee formed by
both congressional scrutiny and investigation involve inquiry it, retains a right or power to approve or disapprove such
into past executive branch actions in order to influence future regulations before they take effect. As such, a legislative
executive branch performance, congressional supervision veto in the form of a congressional oversight committee is in
allows Congress to scrutinize the exercise of delegated law the form of an inward turning delegation designed to attach a
making authority, and permits Congress to retain part of that congressional leash (other than through scrutiny and
delegated authority. investigation) to an agency to which Congress has by law
initially delegated broad powers. It radically changes the
Congress exercises supervision over the executive agencies design or structure of the Constitution’s diagram of power as
through its veto power. It typically utilizes veto provisions it entrusts to Congress a direct role in enforcing, applying or
when granting the President or an executive agency the implementing its own laws.
power to promulgate regulations with the force of law. These
provisions require the President or an agency to present the Congress has two options when enacting legislation to
proposed regulations to Congress, which retains a right to define national policy within the broad horizons of its
approve or disapprove any regulation before it takes effect. legislative competence. It can itself formulate the details or it
Such legislative veto provisions usually provide that a can assign to the executive branch the responsibility for
proposed regulation will become a law after the expiration of making necessary managerial decisions in conformity with
a certain period of time, only if Congress does not those standards. In the latter case, the law must be complete
affirmatively disapprove of the regulation in the meantime. in all its essential terms and conditions when it leaves the
Less frequently, the statute provides that a proposed hands of the legislature. Thus, what is left for the executive
regulation will become law if Congress affirmatively approves branch or the concerned administrative agency when it
it. formulates rules and regulations implementing the law is to
fill up details (supplementary rule-making) or ascertain facts
However any post enactment congressional measure should necessary to bring the law into actual operation (contingent
be limited to scrutiny and investigation. rule-making). Administrative regulations enacted by
administrative agencies to implement and interpret the law
A.) Scrutiny based primarily on Congress’ power of which they are entrusted to enforce have the force of law
appropriation and the budget hearings conducted in and are entitled to respect. Such rules and regulations
connection with it, its power to ask heads of departments to partake of the nature of a statute and are just as binding as if
appear before and be heard by either of its Houses on any they have been written in the statute itself. As such, they
matter pertaining to their departments and its power of have the force and effect of law and enjoy the presumption

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of constitutionality and legality until they are set aside with and the BOC by providing for a system of rewards and sanctions
finality in an appropriate case by a competent court. through the Rewards and Incentives Fund and a Revenue
Congress, in the guise of assuming the role of an overseer, Performance Evaluation Board.
may not pass upon their legality by subjecting them to its
stamp of approval without disturbing the calculated balance
of powers established by the Constitution. In exercising
discretion to approve or disapprove the IRR based on a
determination of whether or not they conformed with the 50. COMMISSIONER OF INTERNAL REVENUE V. FORTUNE
provisions of RA 9335, Congress arrogated judicial power TOBACCO CORPORATION
unto itself, a power exclusively vested in this Court by the G.R. 180006; September 28, 2011
Constitution. Uniformity

(The case further discusses the process of how a bill is PM REYES NOTES:
passed but it is not directly related to our tax subject) The court ruled that the higher tax rule only applies on the
transition period. To implement the higher tax rule on the January 1,
Source: 2000 increase would violate the rule of uniformity since brands
2015 Digests (with some additions) belonging to the same category would be imposed with different tax
rates.
ADDITIONAL NOTES: CASE:
Under the Philippine Tax Laws, manufacturers of
cigarettes are subject to pay excise taxes on their products. Prior to
The general rule is that where part of a statute is void as repugnant January 1, 1997, the excises taxes on these products were in the
to the Constitution, while another part is valid, the valid portion, if form of ad valorem taxes, pursuant to Section 142 of the 1977 Tax
separable from the invalid, may stand and be enforced. The Code. But, beginning January 1, 1997, Republic Act No. (RA)
presence of a separability clause in a statute creates the 8240 took effect and a shift from ad valorem to specific taxes was
presumption that the legislature intended separability, rather than made. To implement the 12% increase in specific taxes mandated
complete nullity of the statute. The exception to the general rule is under Section 145 of the 1997 Tax Code and pursuant to its rule-
that when the parts of a statute are so mutually dependent and making powers, the CIR issued Revenue Regulation No. (RR) 17-
connected, as conditions, considerations, inducements, or 99. It included a proviso which states that “Provided, however, that
compensations for each other, as to warrant a belief that the the new specific tax rate for any existing brand of cigars [and]
legislature intended them as a whole, the nullity of one part will vitiate cigarettes packed by machine, distilled spirits, wines and fermented
the rest. liquors shall not be lower than the excise tax that is actually being
paid prior to January 1, 2000.” Pursuant to the abovementioned
The separability clause of RA 9335 reveals the intention of the laws, Fortune Tobacco paid in advance excise taxes for the year
legislature to isolate and detach any invalid provision from the other 2003 in the amount of P11.15 billion, and for the period covering
provisions so that the latter may continue in force and effect. The January 1 to May 31, 2004 in the amount of P4.90 billion. Fortune
valid portions can stand independently of the invalid section. Without Tobacco’s claim for refund of overpaid excise taxes is based
Section 12, the remaining provisions still constitute a complete, primarily on what it considers as an “unauthorized
intelligible and valid law which carries out the legislative intent to administrative legislation” on the part of the CIR.
optimize the revenue-generation capability and collection of the BIR

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The relevant issue in this case is whether or not the rule of billion, and for the period covering January 1 to May 31, 2004 in
uniformity of taxation is violated by the proviso in Sec 1 of RR the amount of P4.90 billion.
17-99 (in applying the higher tax rule on the January 1, 2000 • In June 2004, Fortune Tobacco filed an administrative claim for
increase). The court ruled that yes, the proviso in Sec 1 of RR tax refund with the CIR for erroneously and/or illegally collected
17-99 is violative of the rule of uniformity of taxation. The court taxes in the amount of P491 million.
ruled that the higher tax rule only applies on the transition o Fortune Tobacco’s claim for refund of overpaid
period. To implement the higher tax rule on the January 1, 2000 excise taxes is based primarily on what it considers
increase would violate the rule of uniformity since brands as an “unauthorized administrative legislation” on
belonging to the same category would be imposed with different the part of the CIR.
tax rates. " Fortune Tobacco assails the proviso in Section 1 of
FACTS: RR 17-99. It claimed that by including the proviso,
• Under Philippine Tax Laws, manufacturers of cigarettes are the CIR went beyond the language of the law and
subject to pay excise taxes on their products. usurped Congress’ power.
o Prior to January 1, 1997, the excises taxes on these
ISSUES:
products were in the form of ad valorem taxes, pursuant
1. Whether or not the proviso of Sec 1 of RR 17-99 is an
to Section 142 of the 1977 Tax Code.
“unauthorized administrative legislation” on the part of CIR.
o Beginning January 1, 1997, Republic Act No. (RA)
2. Whether or not the rule of uniformity of taxation is violated
8240 took effect and a shift from ad valorem to specific
by the proviso in Sec 1 of RR 17-99
taxes was made.
• According to Sec 145 of The National Internal Revenue Code of RULING:
1997 (Tax Code of 1997):!
1. Yes, the proviso in Section 1 of RR 17-99 clearly went
“The specific tax from any brand of cigarettes within the next beyond the terms of the law it was supposed to implement,
three (3) years of effectivity of this Act shall not be lower than the and therefore entitles Fortune Tobacco to claim a refund of
tax [which] is due from each brand on October 1, 1996 xxxx The the overpaid excise taxes collected pursuant to this
rates of specific tax on cigars and cigarettes under paragraphs provision.
(1), (2), (3) and (4) hereof, shall be increased by twelve percent • The said proviso clearly went beyond the terms of the law it
(12%) on January 1, 2000.”
was supposed to implement.
• To implement the 12% increase in specific taxes mandated
under Section 145 of the 1997 Tax Code and pursuant to its rule- Section 145 states that during the transition period, i.e.,
making powers, the CIR issued Revenue Regulation No. (RR) within the next three (3) years from the effectivity of the Tax
17-99. Code, the excise tax from any brand of cigarettes shall not
o It included a proviso which states that “Provided, be lower than the tax due from each brand on 1 October
however, that the new specific tax rate for any existing 1996.This qualification, however, is conspicuously absent as
brand of cigars [and] cigarettes packed by machine, regards the 12% increase which is to be applied on cigars
distilled spirits, wines and fermented liquors shall not be and cigarettes packed by machine, among others, effective
lower than the excise tax that is actually being paid prior on 1 January 2000. Clearly and unmistakably, Section 145
to January 1, 2000.” mandates a new rate of excise tax for cigarettes packed by
• Pursuant to the abovementioned laws, Fortune Tobacco paid in machine due to the 12% increase effective on 1 January
advance excise taxes for the year 2003 in the amount of P11.15 2000 without regard to whether the revenue collection
starting from this period may turn out to be lower than that

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collected prior to this date. By adding the proviso in RR 17- directly filed against Margarito Teves in his capacity as Sec
99, it effectively imposes a situation not supported by the of Dept of Finance (DOF).
wordings of Sec 145 of the Tax Code of 1997. [As ruled in • Pursuant to the mandate of law, the high-ranking officials of
CIR v. Fortune Tobacco Corporation (2008)] BOC started disseminating Performance Contracts for lower
2. Yes, the Rule of uniformity of taxation is violated by the ranking officials and rank-and-file employees to sign.
proviso in Section 1, RR 17-99. • Performance Contract provides stipulation which sets a
• The Constitution requires that taxation should be uniform criteria and procedures for removing from service Officials
and equitable. Uniformity in taxation requires that all subjects and Employees whose revenue collection fall short of the
or objects of taxation, similarly situated, are to be treated target (must not be 7.5% of the target).
alike both in privileges and liabilities. • BOCEA alleged that they were coerced to sign the contract
and opined it was impossible to meet the revenue target due
o This requirement, however, is unwittingly violated when
to Government’s own policies on reduced tariff rates and tax
the proviso in Section 1 of RR 17-99 is applied in certain
breaks to big businesses, the occurrence of natural
cases. calamities and because of other economic factors.
o In the process, the CIR also perpetuated the unequal tax Furthermore, it is unduly oppressive of BIR and BOC
treatment of similar goods that was supposed to be employees as it shifts the extreme burden upon their
cured by the shift from ad valorem to specific taxes. shoulders which is ultimately discriminatory to them
NOTE: An illustration is provided for in the original case, please refer ISSUES:
to it for better understanding of the uniformity issue. THANKS! 8. Whether or not RA 9335 and IRR violates the right’s of
the BOCEA members to a. equal protection b. security of
51. BUREAU OF CUSTOMS EMPLOYEES’ ASSOCIATION V. tenure c. due process?
TEVES
HELD & RATIO:
REYES NOTES/ CASE: • NO. Equal protection simply provides that all persons or things
The equal protection clause recognizes a valid classification, similarly situated should be treated in a similar manner, both as
that is, a classification that has a reasonable foundation or rational to rights conferred and responsibilities imposed. Classification
basis and not arbitrary. The subject of Attrition Law was revenue was founded on reasonableness and not arbitrariness as the law
generation and collection of the BIR and COB, thus, the incentives concerns only the BIR and the BOC because they have the
and sanctions should logically pertain to them an not to other common distinct primary function of generating revenues for the
government agencies. national government through the collection of taxes, customs
duties, fees and charges.
• NO. It does not violate security of tenure, as guarantee of
FACTS: security of tenure only means that an employee cannot be
• On January 25, 2005, former President Gloria Macapagal- dismissed from the service for causes other than those provided
Arroyo signed into law R.A. No. 9335 (Attrition Act of 2005). by law and only after due process is accorded the employee, the
• Bureau of Customs Employees Association (BOCEA), law gives a reasonable yardstick for removal (falls short of at
association of rank-and-file employees of Bureau of Customs least 7.5%) with due consideration of all relevant factors affecting
(BOC) assail the constitutionality of the law and its IRR and the level of collection. This standard is analogous to inefficiency

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and incompetence in the performance of official duties, a ground
for disciplinary action under civil service laws.
• NO. It does not violate due process or right to be heard. Clearly
give due consideration to all relevant factors that may affect the
level of collection and exemptions were also made and is given
the right to appeal.

FINAL VERDICT: Petition is denied. This was directly filed with the
SC.

Notes/ Source:

The constitutionality of this law was already challenged in Abakada


Guro Party List v. Purisima, wherein declared Section 12 of R.A. No.
9335 creating a Joint Congressional Oversight Committee to approve
the IRR as unconstitutional and violative of the principle of
separation of powers. However, the constitutionality of the remaining
provisions were upheld
1
Enacted to optimize the revenue-generation capability and
collection of the Bureau of Internal Revenue (BIR) and the Bureau of
Customs (BOC). The law intends to encourage BIR and BOC
officials and employees to exceed their revenue targets by providing
a system of rewards and sanctions

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On the basis of R.A. No. 9334, SBMA issued a
(ii) NON-IMPAIRMENT •
Memorandum declaring that effective January 1, 2005, all
importations of cigars, cigarettes, distilled spirits, fermented
52. PEOPLE v. CAGUIOA liquors and wines into the SBF, including those intended to
Tax Exemption; Non-impairment be transshipped to other free ports in the Philippines, shall
be treated as ordinary importations subject to all applicable
REYES NOTES/CASE: taxes, duties and charges, including excise taxes.
Is a tax exemption a vested right? • Meanwhile, on February 3, 2005, former Bureau of Internal
Revenue (BIR) Commissioner Guillermo L. Parayno, Jr.
No. The Supreme Court in REPUBLIC V. CAGUIOA [536 SCRA 194] requested then Customs Commissioner George M. Jereos to
held that there is no vested right in a tax exemption and more so immediately collect the excise tax due on imported alcohol
when the latest expression of legislative intent renders it continuance and tobacco products brought to the Duty Free Philippines
doubtful. In the said case, RA 7227 granted private domestic (DFP) and Freeport zones.
corporations doing business in the Subic SEZ tax exemptions on • Accordingly, the Collector of Customs of the port of Subic
importations of general merchandise. However, RA 9334 withdrew directed the SBMA Administrator to require payment of all
the tax exemption on the importations of cigars, cigarettes, distilled appropriate duties and taxes on all importations of cigars and
spirits, fermented liquors and wines. cigarettes, distilled spirits, fermented liquors and wines; and
Text for all transactions involving the said items to be covered
from then on by a consumption entry and no longer by a
FACTS: warehousing entry.
• In 1992, Congress enacted Republic Act (R.A) No. 7227 or • Respondents herein question the validity or constitutionality
the Bases Conversion and Development Act of 1992 which, of RA 9334 which withdrew tax exemption on the
among other things, created the Subic Special Economic importations of cigars, cigarettes, distilled spirits, fermented
and Freeport Zone (SBF) and the Subic Bay Metropolitan liquors and wines arguing the following, That:
Authority (SBMA) (3) the assailed law violates the one bill-one subject rule
• R.A. No. 7227 envisioned the SBF to be developed into a embodied in Section 26(1), Article VI of the Constitution as
"self-sustaining, industrial, commercial, financial and well as the constitutional proscription against the impairment
investment center to generate employment opportunities in of the obligation of contracts.
and around the zone and to attract and promote productive
foreign investments.” ISSUES:
1. Whether or not Tax exemption is a vested right.
Section 12 of the law provided: 2. Whether or not the assailed law (RA 9334) violates the
The provisions of existing laws, rules and regulations to the constitutional proscription against the impairment of the
contrary notwithstanding, no taxes, local and national, shall obligation of contracts.
be imposed within the Subic Special Economic Zone.
HELD & RATIO:
• Subsequently, RA 9334 was passed. It withdrew the tax 1. NO.
exemption on the importations of cigars, cigarettes, distilled • There is no vested right in a tax exemption, more
spirits, fermented liquors and wines. so when the latest expression of legislative
intent renders its continuance doubtful. Being a

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mere statutory privilege, a tax exemption may be • The rights granted under the Certificates of
modified or withdrawn at will by the granting Registration and Tax Exemption of private
authority. respondents are not absolute and unconditional as
to constitute rights in esse – those clearly founded
To state otherwise is to limit the taxing power of the on or granted by law or is enforceable as a matter of
State, which is unlimited, plenary, comprehensive law.
and supreme. The power to impose taxes is one so
unlimited in force and so searching in extent, it is • These certificates granting private respondents a
subject only to restrictions which rest on the "permit to operate" their respective businesses are in
discretion of the authority exercising it. the nature of licenses, which the bulk of
jurisprudence considers as neither a property nor a
• Whatever right may have been acquired on the basis property right. The licensee takes his license subject
of the Certificates of Registration and Tax Exemption to such conditions as the grantor sees fit to impose,
must yield to the State’s valid exercise of police including its revocation at pleasure. A license can
power. It is well to remember that taxes may be thus be revoked at any time since it does not confer
made the implement of the police power. an absolute right.

It is not difficult to recognize that public welfare and


necessity underlie the enactment of R.A. No. 9334. 53. MERALCO v. PROVINCE OF LAGUNA and BALAZO
As petitioners point out, the now assailed provision May 5, 1999
was passed to curb the pernicious practice of some
unscrupulous business enterprises inside the SBF of REYES NOTES/ CASE:
using their tax exemption privileges for smuggling Meralco was granted a franchise to operate an electric light
purposes. Smuggling in whatever form is bad and power service in Calamba, Laguna. In 1991, the Local
enough; it is worse when the same is allegedly Government Code was enacted to enjoin LGUs to create their own
perpetrated, condoned or facilitated by enterprises source of revenue and to levy taxes, fees and charges, as consistent
hiding behind the cloak of their tax exemption with local autonomy. Pursuant to this, a provincial ordinance was
privileges. enacted imposing a franchise tax, which is why the Provincial
Treasurer demanded Meralco to pay its corresponding tax. Meralco
2. NO. reluctantly paid and subsequently filed a claim for refund, which was
• While the tax exemption contained in the denied. The issue is whether or not the imposition of a franchise tax
Certificates of Registration of private under the challenged provincial ordinance is violative of the non-
respondents may have been part of the impairment clause of the Constitution and Sec. 1 of PD No. 551
inducement for carrying on their businesses in which provided for a different franchise tax that Meralco is paying.
the SBF, this exemption, nevertheless, is far The Court held the negative and explained that the LGC effectively
from being contractual in nature in the sense withdrew the tax exemption privilege through its Secs. 193 and 534.
that the non-impairment clause of the Also, the non-impairment clause does not apply to tax exemptions
Constitution can rightly be invoked. granted under franchises.

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FACTS: transactions incident to the generation, distribution
• January 19, 1983: Meralco was granted a franchise by the and sale of electric current.
National Electrification Administration to operate an electric o Such franchise tax shall be payable to the
light and power service in Calamba, Laguna. Commissioner of Internal Revenue or his duly
• September 12, 1991: The Local Government Code of 1991 authorized representative on or before the twentieth
(LGC) was enacted to take effect on January 1, 1992 day of the month following the end of each calendar
enjoining local government units to create their own sources quarter or month, as may be provided in the
of revenue and to levy taxes, fees and charges, subject to respective franchise or pertinent municipal regulation
the limitations expressed therein, consistent with the basic and shall, any provision of the Local Tax Code or
policy of local autonomy. any other law to the contrary notwithstanding, be in
• Pursuant to the provisions of the Code, respondent province lieu of all taxes and assessments of whatever nature
enacted Laguna Provincial Ordinance No. 01-92, effective 01 imposed by any national or local authority on
January 1993, providing, in part, as follows: earnings, receipts, income and privilege of
o Sec. 2.09. Franchise Tax. — There is hereby generation, distribution and sale of electric current.
imposed a tax on businesses enjoying a franchise, • August 28, 1995: The claim for refund was denied by the
at a rate of fifty percent (50%) of one percent (1%) of governor, relying on the LGC as a more recent law than the
the gross annual receipts, which shall include both old decree invoked by Meralco.
cash sales and sales on account realized during the
preceding calendar year within this province, ISSUES:
including the territorial limits on any city located in 1. Whether or not the imposition of a franchise tax under Sec.
the province. 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as
• On the basis of that ordinance, respondent Provincial Meralco is concerned, is violative of the non-impairment clause
Treasurer (Balazo) sent a demand letter to Meralco for the of the Constitution and Sec. 1 of P.D. No. 551.
corresponding tax payment.
• Meralco paid the tax which amounted to P19,520,628.42 HELD & RATIO:
under protest. 1. NO, the tax exemption granted under franchise is deemed
• Meralco sent a formal claim for refund to Balazo claiming repealed under the LGC. Also, such tax exemption partakes the
that the franchise tax it had paid and continued to pay to the nature of a grant which is beyond the purview of the non-impairment
National Government pursuant to P.D. 551 already included clause of the Constitution.
the franchise tax imposed by the Provincial Tax Ordinance. It • Under the now prevailing Constitution, where there is neither a
averred that the imposition of a franchise tax under the grant nor a prohibition by statute, the tax power must be deemed
ordinance, with regard to Meralco, contravened the to exist although Congress may provide statutory limitations and
provisions of Sec. 1 of PD 551. guidelines. Nevertheless, the fundamental law did not intend the
o Any provision of law or local ordinance to the delegation to be absolute and unconditional; the constitutional
contrary notwithstanding, the franchise tax payable objective obviously is to ensure that, while the local government
by all grantees of franchises to generate, distribute units are being strengthened and made more autonomous, the
and sell electric current for light, heat and power legislature must still see to it that
shall be two per cent (2%) of their gross receipts o (a) the taxpayer will not be over-burdened or saddled
received from the sale of electric current and from with multiple and unreasonable impositions;

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o (b) each local government unit will have its fair share of no franchise for the operation of a public utility shall be granted
available resources; except under the condition that such privilege shall be subject to
o (c) the resources of the national government will not be amendment, alteration or repeal by Congress as and when the
unduly disturbed; and common good so requires.
o (d) local taxation will be fair, uniform, and just.
• Indicative of the legislative intent to carry out the Constitutional FINAL VERDICT: Petition is dismissed
mandate of vesting broad tax powers to local government units,
the Local Government Code has effectively withdrawn tax
exemptions or incentives theretofore enjoyed by certain entities. 54. MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS,
o Sec. 193. Withdrawal of Tax Exemption Privileges — INC. vs. DEPARTMENT OF FINANCE SECRETARY
Unless otherwise provided in this Code, tax exemptions
or incentives granted to, or presently enjoyed by all REYES NOTES/ CASE:
persons, whether natural or juridical, including Note: No Pierre Reyes notes.
government-owned or controlled corporations, except
local water districts, cooperatives duly registered under The BIR issued an RMC clarifying Sec. 103 a and b of the NIRC:
R.A. No. 6938, non-stock and non-profit hospitals and copra is a non-food product and the exemption, as such, extends
educational institutions, are hereby withdrawn upon the only to primary producers. The SC held that there is no violation of
effectivity of this Code. the EPC since there is a substantial distinction between coconut
• The LGC also contains a repealing clause. producers and copra dealers. The latter only sell but not produce
o Sec. 534. Repealing Clause. — . . .(f) All general coconut.
and special laws, acts, city charters, decrees, executive
orders, proclamations and administrative regulations, or
part or parts thereof which are inconsistent with any of FACTS:
the provisions of this Code are hereby repealed or • Petitioner Misamis Oriental Association of Coco Traders, Inc.
modified accordingly. is a domestic corporation whose members, individually or
• Contractual tax exemptions, in the real sense of the term and collectively, are engaged in the buying and selling of copra in
where the non-impairment clause of the Constitution can rightly Misamis Oriental.
be invoked, are those agreed to by the taxing authority in • Prior to the issuance of Revenue Memorandum Circular 47-
contracts, such as those contained in government bonds or 91, petitioner claimed that copra was classified as
debentures, lawfully entered into by them under enabling laws in agricultural food product in the NIRC and, therefore, exempt
which the government, acting in its private capacity, sheds its from VAT at all stages of production or distribution.
cloak of authority and waives its governmental immunity. Truly, • Under §103(a), as above quoted, the sale of agricultural non-
tax exemptions of this kind may not be revoked without impairing food products in their original state is exempt from VAT only
the obligations of contracts. These contractual tax exemptions, if the sale is made by the primary producer or owner of the
however, are not to be confused with tax exemptions granted land from which the same are produced. The sale made by
under franchises. A franchise partakes the nature of a grant any other person or entity, like a trader or dealer, is not
which is beyond the purview of the non-impairment clause of the exempt from the tax. On the other hand, under §103(b) the
Constitution. sale of agricultural food products in their original state is
• Article XII, Section 11, of the 1987 Constitution, like its precursor exempt from VAT at all stages of production or distribution
provisions in the 1935 and the 1973 Constitutions, is explicit that regardless of who the seller is.

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• The RMC classified copra as a non-food product and hence A tax exemption embodied in a legislative franchise is not a
tax exemption extends only to the primary producer. contractual tax exemption. A franchise does not take the nature of a
contractual tax exemption, which cannot be revoked without
ISSUES: impairing the obligations of contracts. A legislative franchise can be
3. Whether or not copra is an agricultural food or non- withdrawn through amendment or repeal.
food?

NON-FOOD.
FACTS:
The ruling was made by the Commissioner of Internal Revenue in • This is about the liability of petitioner Cagayan Electric
the exercise of his power under § 245 of the NIRC to "make rulings Power & Light Co., Inc. for income tax amounting to
or opinions in connection with the implementation of the provisions of P75,149.73 for the more than seven-month period of the
internal revenue laws, including rulings on the classification of year 1969 in addition to franchise tax.
articles for sales tax and similar purposes." • CEPL is the holder of a legislative franchise, R.A. 3247,
under which its payment of 3% tax on its gross earnings from
4. Whether or not there was violation of the EPC? the sale of electric current is "in lieu of all taxes and
assessments of whatever authority upon privileges,
NO. earnings, income, franchise, and poles, wires,
transformers, and insulators of the grantee, from which
Petitioner claims that the is violative of the equal protection clause taxes and assessments the grantee is hereby expressly
because while coconut farmers and copra producers are exempt, exempted" (Sec. 3).
traders and dealers are not, although both sell copra in its original • R.A. 5431 amended section 24 of the Tax Code by making
state. liable for income tax all corporate taxpayers not
specifically exempt under paragraph (c) (1) of said section
There is a material or substantial difference between coconut and section 27 of the Tax Code notwithstanding the
farmers and copra producers, on the one hand, and copra "provisions of existing special or general laws to the
traders and dealers, on the other. The former produce and sell contrary".
copra, the latter merely sell copra. The Constitution does not • Thus, franchise companies were subjected to income tax in
forbid the differential treatment of persons so long as there is a addition to franchise tax. CEPL’s franchise was amended by
reasonable basis for classifying them differently. R.A. 6020, effective 1969, by authorizing CEPL to furnish
electricity to the municipalities of Villanueva and
FINAL VERDICT: Petition is DISMISSED. Jasaan, Misamis Oriental in addition to Cagayan de Oro
City and the municipalities of Tagoloan and Opol.
• The amendment reenacted the tax exemption in its original
charter. Due to the amendment made to section 24 of the
55. CAGAYAN ELECTRIC POWER & LIGHT CO. vs Tax Code, the CIR required CEPL in 1973 to pay deficiency
COMMISSIONER OF INTERNAL REVENUE income taxes for 1968-to 1971. CIR cancelled the
assessments for 1970 and 1971 but insisted on those for
REYES NOTES/ CASE: 1968 and 1969. CEPL filed a petition for review with the Tax
Court Tax court - CEPL liable only for the income tax for the

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period from January 1 to August 3, 1969 or before the The Spanish Government, in accordance with the provisions of the
passage of Republic Act No. 6020 which reiterated its tax royal decree of the 14th of May, 1867, granted to J. Casanovas
exemption. The petitioner appealed to this Court. certain mines in the said Province of Ambos Camarines, of which
mines the Casanovas is now the owner. The Royal Decree states
that aside from the tax imposed therein, J. Casanovas shall be
ISSUES: exempt from all other taxes. Later on, in accordance with Act No.
1189 (INternal Revenue Act), Hord, the collector of Revenue
Whether or not the petitioner's franchise is a contract that can be imposed additional taxes, apart from those imposed in the Royal
impaired by such implied repeal Decree to J. Casanovas in the amount of 9600 php. Casanovas, paid
under protest such tax. Casanovas challenged Sec 134 of the
HELD & RATIO: Internal Revenue Act stating that it is void since it comes within the
provision of section 5 of the act of Congress of July 1, 1902 which
YES, such franchise can be impaired by the implied repeal. A tax provides "that no law impairing the obligation of contracts shall be
exemption embodied in a legislative franchise is not a contractual tax enacted”.
exemption. A franchise does not take the nature of a contractual tax
exemption, which cannot be revoked without impairing the SC, after affirming that the deed between the Spanish Government
obligations of contracts. and J. Casanovas is a contract, ruled that since Sec 134 of the
Internal Revenue Act imposes additional taxes, aside from those
• Congress could impair CEPL’s legislative franchise by imposed in the Royal Decree, it impairs the contract between
making it liable for income tax from which before it was Casanovas and the Spanish Government, the said law is void as to
exempted by virtue of the exemption provided for in section 3 him. SC further stated that the fact that this concession was made by
of its franchise. (R.A. 3247) the Government of Spain, and not by the Government of the United
• The Constitution provides that a franchise is subject to States, is not important (note that the case was decided when the
amendment, alteration or repeal by the Congress when the Philippines was under the American Regime).
public interest so requires (Sec. 8, Art. XIV, 1935
Constitution; Sec. 5, Art. XIV, 1973 Constitution),
• Sec 1 R.A. 3247 provides that the grantee is subject to the FACTS:
provisions of the Constitution and to the terms and • In January, 1897, the Spanish Government, in accordance with
conditions established in Act No. 3636 whose section 12 the provisions of the royal decree of the 14th of May, 1867,
provides that the franchise is subject to amendment, granted to J. Casanovas certain mines in the said Province of
alteration or repeal by Congress. Ambos Camarines, of which mines the Casanovas is now the
owner.
o Hord, the collector of internal revenue conceded that
Source: 2015 Digests there were valid perfected mining concessions granted
prior to the 11th of April, 1899.
56. J. CASANOVAS V. HORD • The Royal Decree states that each mining claim of 60,000 sam
G.R. No. 34733; March 22, 1907 there shall be paid an annual fixed that of about 20 pesos and a
10 peso fixed tax for 150,000 sqm. It is further provided in this
CASE: Decree that the pertencia of iron mines and mines of
combustible minerals shall be exempt from the said annual tax

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for a period of 30 years from the date of publication of this 1. Yes, Sec 134 of Act No. 1189 violated the non-impairment of
decree. Most importantly, Art. 81 of this Decree states that “No contracts clause indicated in Sec 5 of the Act of Congress
other taxes than those herein mentioned shall be imposed upon of July 1, 1902.
mining and metallurgical industries.” • Petitioner’s Contention:
o Simply put, aside from the tax imposed by this Royal " Sec 134 of Act No. 1189 is void because it comes within
Decree, J. Casanovas is exempt from all other taxes. the provision of section 5 of the act of Congress of July
• The deed granted to J. Casanovas by the Spanish Gov’t 1, 1902 which provides "that no law impairing the
indicated that he shall pay taxes on the mine and its output as obligation of contracts shall be enacted.”
prescribed in the royal decree. It also stated that he shall comply • SC Ruling:
with all the requirements contained in the royal decree and in the " The court ruled that it seems clear that the deed
regulations for concessions of the same nature as the present. granted by the Spanish Government to J. Casanovas
• Act. No. 1189 (Internal Revenue Act) was passed and Sec 134 constituted a contract between the Spanish
of such states that: Government and Casanovas the obligation of which
“SEC. 134. On all valid perfected mining concessions contract was impaired by the enactment of section
granted prior to April eleventh, eighteen hundred and ninety- 134 of the Internal Revenue Law, thereby infringing
nine, there shall be levied and collected on the after January the provisions above quoted from section 5 of the
first, nineteen hundred and five, the following taxes: act of Congress of July 1, 1902 as it imposed
2. (a) On each claim containing an area of sixty thousand additional taxes to J. Casanovas, aside from those
square meters, an annual tax of one hundred pesos; (b) and stated in the royal decree.
at the same rate proportionately on each claim containing an o The fact that this concession was made by the
area in excess of, or less than, sixty thousand square Government of Spain, and not by the
meters. Government of the United States, is not
3. On the gross output of each an ad valorem tax equal to important.
three per centum of the actual market value of such output. " According to SC, Sec 134 of Act No. 1189 is also void
• Hord, as the collector of the internal revenue, accordingly because it is in conflict with section 60 of the act of
imposed upon J. Casanovas the tax mentioned in section 134 Congress of July 1, 1902. Sec 60 of such seems to
(totalling to Php 9,600), which tax, as has before been stated, J. indicate that concessions, like those in question, can be
Casanovas paid under protest. canceled only by reason of illegality in the procedure by
• J. Casanovas brought this action against the Hord to recover the which they were obtained, or for failure to comply with
sum of P9,600, paid by him under protest as taxes on certain the conditions prescribed as requisite for their retention
mining claims owned by him in the Province of Ambos in the laws under which they were granted. There is
Camarines. nothing in the section which indicates that they can be
canceled for failure to comply with the conditions
ISSUE: prescribed by subsequent legislation. In fact, the real
1. Whether or not Sec 134 of Act No. 1189 violated the non- intention of the act seems to be that such concession
impairment of contracts clause indicated in Sec 5 of the Act of should be subject to the former legislation and not to any
Congress of July 1, 1902. subsequent legislation.
o There is no claim in this case that there was any
RATIO: illegality in the procedure by which these
concessions were obtained, nor is there any

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claim that J. Casanovas has not complied with
the conditions prescribed in the said royal
decree of 1867.
" SC further stated that it from the above ruling of the
court it is not necessary anymore to consider the further
claim of J. Casanovas that the taxes imposed by article
134, are in violation of the part of section 5 of the act of
July 1, 1902, which declares "that the rule of taxation in
said Islands shall be uniform.”
" (According to the 2A 2015 Digest: own words nung
gumawa) Â state can grant tax exemptions. If they grant
one, we must determine first if the grant is a contract or
not. If it is a contract between the state and the grantee,
then the tax exemption can’t just be removed by the
state through a subsequent legislation at will.
" As in the case at bar, the state granted a tax exemption
through a contract and IT CANNOT BE IMPAIRED
UNLESS FOR A VALID REASON. A subsequent law
cannot be passed infringing such contract.

FINAL VERDICT: The judgment of the court below is reversed, and


judgment is ordered in favor of the plaintiff and against the defendant
for P9,600, with interest thereon, at 6 per cent, from the 21st day of
February, 1906, and the costs of the Court of First Instance. No costs
will be allowed to either party in this court.

Source: I lifted a specific portion from 2A 2015 Digest.

Note: I did not include the other jurirsprudence cited in the case.

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