II.

CONSTRUCTION OF STATUTORY EXEMPTIONS:

A. General rule;

B. Applicability to Claims for Refund;

C. When exemption statutes are liberally construed;

D. Cases:
E. RODRIGUEZ, INC. V COLLECTOR 28 SCRA 119;
FACTS: Congress enacted RA 333, pursuant to which the Philippines sued the petitioner,
among 4 other defendants for the appropriation of about 1,360,000 sqm of land owned by it
and situated within the area delimited for the new capital city site.

The CFI of QC rendered judgment declaring the Philippines entitled to retain and appropriate
the property and ordering the same to pay defendants as just compensation of the lands to
be taken from them.

After series of negotiations between the Philippines and defendants, the latter agree to the
payment of price awarded by the court. Part of the price was in the form of government bonds
of Php 625,315.90.

On March 1, 29151, E. Rodriguez filed income tax return for the year 1950. In the said return,
it did not include in the sum of Php 625,315.90 received by it from the govt in the form of
bonds in payment of its expropriated properties, in the belief that the said amount was free
or exempt from taxation.

The Collector of Internal Revenue then assessed deficiency income tax of Php 63,980.

The applicant’s main contention is on the basis of Section 9 of RA 333, which provides bonds
shall be exempt from taxation by the Government of the Republic of the Philippines or by any
political or municipal subdivisions thereof, which fact shall be stated upon their face, in
accordance with this Act, under which the said bonds are issued.

The CTA upheld the decision of the collector.

ISSUE: W/N the bonds made in payment of the expropriated property is exempt from income
tax?

HELD:
No, The SC held the ruling of the CTA, to wit: There can be no question that petitioner is
taxable on its income derived from the sale of its property to the Government. The fact that
a portion of the purchase price of the property was paid by the Government in the form of
tax exempt bonds does not operate to exempt said income from income tax. The income from
the sale of the land in question and the bond are two different and distinct taxable items so
that the exemption of one does not operate to exempt the other, unless the law expressly so
provides.

It is alleged that to deny exemption from income tax on the amount represented by the said
bonds would be to nullify the purpose of the law in granting exemption. The question has
been asked: If income or gain derived from the acceptance of such bonds in exchange for
private estates would be taxed, what inducement did such provision of Republic Act No. 333
give to landowners to accept payment in bonds for their properties in the proposed site of the
Capital City? To our mind, there is sufficient inducement, and that is, the exemption not only
of the bonds from documentary stamp tax but also of the interest derived from such bonds.
Section 29(b) (4) of the National Internal Revenue Code exempts interest derived from such
bonds from income tax to the extent provided in the law authorizing the issue thereof.

We find no cogent reasons to disturb the above holding of the Court of Tax Appeals. It has
been the constant and uniform holding of this Court that exemption from taxation is not
favored and is never presumed; in fact, if it is granted, the grant must be strictly construed
against the taxpayer. 4 Affirmatively put, the law requires courts to frown on alleged
exemptions from taxation, hence, an exempting provision in a legislative enactment should
be construed in strictissimi juris 5 against the taxpayer and liberally in favor of the taxing
authority. 6 This Court has been most consistent in this holding.

REPUBLIC FLOUR MILLS V CIR, 31 SCRA 148;

FACTS:

In 1957, the Republic Flour Mills, Inc., a domestic corporation engaged in the business of
manufacturing flour, was granted tax-exemption privileges as a new and necessary industry
pursuant to Republic Act 901, commencing on 28 January 1957 to continue as a diminishing
exemption until 31 December 1962.

In 1958, the corporation imported a quantity of wheat grains, part of which it was not able to
mill and use in the business that year, so that by 1 January 1959 the corporation carried a
surplus of P1,486,616.41 worth of wheat grains from the previous year's importation. These
surplus grains were finally utilized and manufactured into flour and sold in 1959. For the year
1959, the corporation paid manufacturer's sales tax on its produce in the sum of P37,275.55,
in the computation of which the cost of the wheat left over from the 1968 importation was
treated as a deductible item from the gross sales in 1959.

On 28 March 1961, the Commissioner of Internal Revenue assessed the corporation of

deficiency tax for 1959 in the total sum of P23,170.17. The corporation requested a
reinvestigation of the assessment, and when it was denied filed a petition for review in the
Court of Tax Appeals (CTA Case No. 1151) to contest the assessment of advance sales tax on
the wheat grains imported tax-free in 1958 and the disallowance of the deduction of the cost
of said wheat grains from its gross sales of flour in 1959.

Respondent Commissioner of Internal Revenue defended and maintained the assessment, on

the ground that by 1959 the raw materials used by petitioner in its tax-exempt industry were
already subject to payment of 10% tax thereon.
On 12 December 1965, the Court of Tax Appeals sustained the correctness of the disputed
assessment, and petitioner corporation was ordered to pay the sum of P24,587.98 as
deficiency sales tax and surcharge.

ISSUE:

Whether or not the cost of the tax-free wheat grains used in the manufacture of flour, which
is also tax-exempt, is a deductible item for purposes of computing the percentage tax (10%)
admittedly due on the said manufactured product in 1959.

HELD:

Yes. Petitioner insists that the cost of imported tax-free wheat grains is a deductible item
from its gross sales of the flour, pursuant to Section 186-A of the Internal Revenue Code,
which reads:

SEC. 186-A. Whenever a tax free product is utilized in the manufacture or

production of any article, in the determination of the value of such finished
article, the value of such tax free product shall be deducted.

Respondent Commissioner refutes this contention, saying that, as defined by the Internal
Revenue Office, the term "tax-free product" mentioned in the above-quoted Section 186-A
refers to raw materials purchased from tax-exempt industries, whereas the wheat grains
involved in the case, although used by a tax-exempt industry, were not acquired from one
enjoying tax-exemption privilege under our laws.

We agree with the petitioner that there is actually no cause here calling for an administrative
definition or interpretation of Section 186-A. For no reason exists to read into the provision a
qualification that is not there, nor to give to the phrase "tax-free product" a meaning other
than what it ordinarily and commonly conveys — a material or article exempted from payment
of tax.

It is true that in the construction of tax statutes tax exemptions (and deductions are of this
nature) are not favored in the law, and are construed strictissimi juris against the
taxpayer. However, it is equally a recognized principle that where the provision of the law is
clear and unambiguous, so that there is no occasion for the court's seeking the legislative
intent, the law must be taken as it is, devoid of judicial addition or subtraction. In this case,
we find the provision of Section 186-A — "whenever a tax free product is utilized, etc." — all
encompassing to comprehend tax-free raw materials, even if imported. Where the law
provided no qualification for the granting of the privilege, the court is not at liberty to supply
any.

The decision appealed from is reversed and set aside, and, in accordance with the stipulation
of the parties, petitioner is hereby ordered to pay to respondent Commissioner the sum of
P3,288.16 as deficiency tax, with legal interest thereon from the date the tax became due.
WONDER MECHANICAL ENGINEERING V CTA 64 SCRA 555;
FACTS: Wonder Mechanical Engineering was granted tax exemption privilege under
Republic Act 35 in respect to the "manufacture of machines for making cigarette paper,
pails, lead washers, rivets, nails, candies. chairs, etc.". The tax exemption expired on May
30, 1951. On September 14, 1953, petitioner applied with the Secretary of Finance for
reinstatement of the exemption privilege under the provisions of R.A. 901 approved July 7,
1954, the reinstatement to commence on June 20, 1953, the date Republic Act 901 took
effect.

Commissioner of Internal Revenue, sometime in 1955, caused the investigation of petitioner

for the purpose of ascertaining whether or not it had any tax liability. During the investigation
it was found that during the years 1953 and 1954 Wonder Mech was engaged in the business
of manufacturing various articles, namely, auto spare parts, flourescent lamp shades, rice
threshers, post clips, radio screws, washers, electric irons, kerosene stoves and other articles;
that it also engaged in business of electroplating and in repair of machines; that although it
was engaged in said business, it did not provide itself with the proper privilege tax receipts
as required by Section 182 of the Tax Code and did not pay the sales tax on its gross sales of
articles manufactured by it and the percentage tax due on the gross receipts of its
electroplating and repair business pursuant to Sections 183, 185, 186 and 191 of the same
Code".

The Commissioner of Internal Revenue on October 6, 1961, assessed against the petitioner
"the payment of P25,080.91 as deficiency percentage taxes and 25% surcharge for 1957 to
1960 and suggested the payment of P5,020.00 as total compromise penalty in extrajudicial
settlement of the various violations of the Tax Code and Bookkeeping Regulation (pp. 28-29
B.I.R. rec.).

Regarding the compromise penalty suggested by respondent Bureau of Internal Revenue in

both G.R. L-22805 and L-27858, it does not appear that petitioner accepted the imposition of
the compromise amounts.

Wonder Mechanical Engineering contended that it was exempted from paying said taxes.

ISSUE: W/N Wonder Mech is exempted from paying taxes?

HELD:

No, The cardinal rule in taxation that exemptions therefrom are highly disfavored in law and
he who claims tax exemption must be able to justify his claim or right thereto by the dearest
grant of organic or statute law" as succinctly stated in the decision of the respondent Court
of Tax Appeals in C.T.A. No. 1265 (L-27858).

Tax exemption must be clearly expressed and cannot be established by implication.

Exemption from a common burden cannot be permitted to exist upon vague implication.

Republic Act 35, approved on September 30, 1946, grants to persons "who or which shall
engage in a new and necessary industry", for a period of four years from the date of the
organization of such industry, exemption "from the payment of all internal revenue taxes
directly payable by such person". Republic Act 901, approved on June 20, 1953, which
amended Republic Act 35 by extending the period of tax exemption, elaborated on the
meaning of "new and necessary industry" as follows:
 Sec. 2. For the purposes of this Act, a "new industry is one not existing or
operating on a commercial scale prior to January first, nineteen hundred and
forty-five. Where several applications for exemptionare filed in connection with
the same kind of industry, the Secretary of Finance shall approve them in the
order in which they have been filed until the total output or production of those
already granted exemption for that particular kind of industry is sufficient to
meet local demand or consumption: Provided, That the limitation shall not
apply to products intended for export. (Emphasis for emphasis)

Sec. 3. For the purposes of this Act, a "necessary" industry is one complying
with the following requirements:

(1) Where the establishment of the industry will contribute to the

attainment of a stable and balanced national economy.

(2) Where the industry will operate on a commercial scale in

conformity with up-to-date practices and will make its products
available to the general public in quantities and at prices which
justify its operation with a reasonable degree of permanency.

(3) Where the imported raw materials represent a value not

exceeding sixty percentum of the manufacturing cost plus
reasonable selling price and administrative expenses:Provided,
That a grantee of tax exemption shall use materials of domestic
origin, growth, or manufacture wherever the same are available
or could be made available in reasonable quantity and quality
and at reasonable prices. ... (Emphasis for emphasis)

It is clear that an industry to be entitled to tax exemption must be "new and necessary" and
that the tax exemption was granted to new and necessary industries as an incentive to greater
and adequate production of products made scarce by the second world war which wrought
havoc on our national economy, a production "sufficient to meet local demand or
consumption"; that will contribute "to the attainment of a stable and balanced national
economy"; an industry that "will make its products available to the general public in quantities
and at prices which will justify its operation."

Viewed in the light of the foregoing reasons for the State grant of tax exemption, We are
firmly convinced that petitioner was granted tax exemption in the manufacture and sale "of
machines for making cigarette paper, pails, lead washers, nails, rivets, candies, etc.", as
explicitly stated in the Certificate of Exemption (Annex A of the petition in G.R. No. L-22805),
but certainly not for the manufacture and sale of the articles produced by those machines.

Luzon Stevedoring Corp. v CTA 163 SCRA 647;

FACTS: Petitioner is engaged in the business of unloading and loading of a vessel in port and
towing of barges containing cargoes. It imported various engine parts and other equipment
for the repair and maintenance of its tugboats. CIR assessed compensating tax for such
imports, which petitioner paid under protest. Unable to secure a tax refund from the CIR, it
filed a Petition for Review with the CTA, which the latter denied.

ISSUE: W/N petitioner’s tugboats can be interpreted to be included in the term “cargo
vessels” for purposes of the tax exemption provided for in Section 190 of the NIRC?
HELD:
No, Section 190 of the NIRC on compensating tax provides that the tax imposed in this section
shall not apply to articles to be used by the importer himself in the manufacture or preparation
of articles subject to specific tax or those for consignment abroad and are to form part thereof
or to articles to be used by the importer himself as passenger and/or cargo vessel, whether
coastwise or oceangoing, including engines and spare parts of said vessel.

Petitioner contends that tugboats are embraced and included in the term cargo vessel under
the tax exemption provisions of Section 190 of the Revenue Code, as amended by Republic
Act. No.3176. He argues that in legal contemplation, the tugboat and a barge loaded with
cargoes with the former towing the latter for loading and unloading of a vessel in part,
constitute a single vessel. Accordingly, it concludes that the engines, spare parts and
equipment imported by it and used in the repair and maintenance of its tugboats are exempt
from compensating tax.

On the other hand, respondents-appellees counter that petitioner-appellant's "tugboats" are

not "Cargo vessel" because they are neither designed nor used for carrying and/or
transporting persons or goods by themselves but are mainly employed for towing and pulling
purposes.

This Court has laid down the rule that "as the power of taxation is a high prerogative of
sovereignty, the relinquishment is never presumed and any reduction or diminution thereof
with respect to its mode or its rate, must be strictly construed, and the same must be coached
in clear and unmistakable terms in order that it may be applied.” More specifically stated,
the general rule is that any claim for exemption from the tax statute should be strictly
construed against the taxpayer.

Under the definition of a tugboat, petitioner's tugboats clearly do not fall under the categories
of passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction
that where a provision of law speaks categorically, the need for interpretation is obviated, no
plausible pretense being entertained to justify non-compliance.

And, even if construction and interpretation of the law is insisted upon, following another
fundamental rule that statutes are to be construed in the light of purposes to be achieved and
the evils sought to be remedied, it will be noted that the legislature in amending Section 190
of the Tax Code by Republic Act 3176, as appearing in the records, intended to provide
incentives and inducements to bolster the shipping industry and not the business of
stevedoring.

Under the circumstances, there appears to be no plausible reason to disturb the findings and
conclusion of the Court of Tax Appeals. As a matter of principle, this Court will not set aside
the conclusion reached by an agency such as the Court of Tax Appeals, which is, by the very
nature of its function, dedicated exclusively to the study and consideration of tax problems
and has necessarily developed an expertise on the subject unless there has been an abuse or
improvident exercise of authority, which is not present in the instant case.

Floro Cement v Hen. Gorospe 200 SCRA 480;

FACTS: The municipality of Lugait, province of Misamis Oriental, filed a verified complaint for
collection of manufacturer’s and exporter’s taxes against Floro Cement Corporation, engaged
in the manufacture and selling, including exporting, of cement. The municipality alleged that
the imposition and collection of these taxes is based on its Municipal Ordinance No. 5
(Municipal Revenue Code of 1974) which was passed pursuant to PD No. 231 and also
Municipal Ordinance No. 10 pursuant to PD No. 426, amending PD No. 231.

Floro Cement Corporation set up the defense that it is not liable to pay manufacturer's and
exporter's taxes alleging among others that the municipality’s power to levy and collect taxes,
fees, rentals, royalties or charges of any kind whatsoever has been limited or withdrawn by
Section 52 of PD No. 463.
Sec. 52. Power to Levy Taxes on Mines, Mining Corporation and Mineral Products.—
Any law to the contrary notwithstanding, no province, city, municipality, barrio or
municipal district shall levy and collect taxes, fees, rentals, royalties or charges of any
kind whatsoever on mines, mining claims, mineral products, or on any operation,
process or activity connected therewith.

CFI: Ordered Floro Cement Corporation to pay the manufacturer’s and exporter’s taxes.

ISSUE: W/N Ordinances Nos. 5 and 10 of Lugait, Misamis Oriental apply to petitioner Floro
Corporation notwithstanding the limitation on the taxing power of local government as
provided for in Sec. 5 of P.D. 231 and Sec. 52 of P.D. 463?

HELD:
Yes, Cement is not a mineral product but rather a manufactured product.

As the power of taxation is a high prerogative of sovereignty, the relinquishment is never

presumed and any reduction or diminution thereof with respect to its mode or its rate, must
be strictly construed, and the same must be coached in clear and unmistakable terms in order
that it may be applied. More specifically stated, the general rule is that any claim for
exemption from the tax statute should be strictly construed against the taxpayer. He who
claims an exemption must be able to point out some provision of law creating the right; it
cannot be allowed to exist upon a mere vague implication or inference. It must be shown
indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to
the claim. Floro Cement Corporation failed to meet this requirement.

The exemption mentioned in Sec. 52 of P.D. No. 463 refers only to machineries, equipment,
tools for production, etc., as provided in Sec. 53 of the same decree. The manufacture and
the export of cement does not fall under the said provision for it is not a mineral product. It
is not cement that is mined only the mineral products composing the finished product.

By the parties’ own stipulation of facts submitted before the CFI, it is admitted that Floro
Cement Corporation is engaged in the manufacturing and selling, including exporting of
cement. As such, and since the taxes sought to be collected were levied on these activities
pursuant to Sec. 19 of P.D. No. 231, Ordinances Nos. 5 and 10, which were enacted pursuant
to P.D. No. 231 and P.D. No. 426, respectively, properly apply to Floro Cement Corporation.

CIR v Ledesma 31 SCRA 95;

FACTS: 1st- Carlos Ledesma, Julieta Ledesma and the spouses Amparo Ledesma and Vicente
Gustilo Jr purchased from their parents a sugar plantation known as Hacienda Fortuna
consisting of 36 parcels of land, located in San Carlos, Negros Occidental, with an area of
1202 hectares and with a sugar quota of 79,211.17 piculs.

2nd- By virtue of the purchase, Carlos Ledesma acquired the one-third undivided portion of
the plantation for the price of P 144,043.00, Julieta Ledesma acquired another one-third of
the undivided portion for the same price and respondents Amparo and Vicente acquired the
remaining one-third portion for the same price.

3rd- Prior to the purchase, the sugar quota of 79,211.17 piculs was registered in the names
of the vendors Julio and Florentina Ledesma, under Plantation Audit 38-101 of the milling
district of San Carlos Milling Co. By virtue of the purchase Plantation Audit No. 58-101 was
cancelled, and during the sugar crop year 1948-1949 the said sugar quota of 79,211.17 piculs
was transferred to, apportioned among, and separately registered in the names of, the
respondents, as follows: one-third to Vicente Gustilo, Jr. and Amparo Ledesma de Gustilo,
under Plantation Audit No. 38-246; one-third to Carlos Ledesma, under Plantation Audit No.
38-247; and one-third to Julieta Ledesma under Plantation Audit No. 38248.

After their purchase of the plantation, herein respondents took over the sugar cane farming
on the plantation beginning with the crop year 1948-1949. For the crop year 1948- 1949 the
San Carlos Milling Co., Ltd. credited the respondents with their shares in the gross sugar
production, Gross Production:

Amparo Ledesma and

Vicente Gustilo, Jr. 21,308.30 piculs
Carlos Ledesma 21,308.30 "
Julieta Ledesma 21,308.30 "
TOTAL 63,924.90 piculs
Planters' Share:
Amparo Ledesma and
Vicente Gustilo, Jr. 13,317.70 piculs
Carlos Ledesma 13,317.70 "
Julieta Ledesma 13,317.70 "
TOTAL 39,953.10 piculs

The respondents shared equally the expenses of production, on the basis of their respective
one-third undivided portions of the plantation. In their individual income tax returns for the
year 1949 the respondents included as part of their income their respective net profits derived
from their individual sugar production from the "Hacienda Fortuna," as herein-above stated.

On July 11, 1949, the respondents organized themselves into a general co-partnership under
the firm name "Hacienda Fortuna", for the "production of sugar cane for conversion into sugar,
palay and corn and such other products as may profitably be produced on said hacienda,
which products shall be sold or otherwise disposed of for the purpose of realizing profit for
the partnership." The articles of general co-partnership were registered in the commercial
register of the office of the Register of Deeds in Bacolod City, Negros Occidental, on July 14,
1949. Paragraph 14 of the articles of general partnership provides that the agreement shall
have retroactive effect as of January 1, 1949.

ISSUE: W/N respondent operated the “Hacienda Fortuna” as partnership prior to the exe-
cution of articles of co-partnership?

HELD:
Yes, Respondents operated the "Hacienda Fortuna" as a partnership prior to the execution of
the articles of general co-partnership based on their intention as clearly shown in paragraph
14 of the articles of general co-partnership which provides that the partnership agreement
"shall beretroactive as of January 1, 1949.
RESINS, INC. V AUDITOR GEN. 25, SCRA 754;
FACTS: Resins Incorporated seeks a refund from Central Bank on the claim that it was exempt
from the margin fee under Republic Act No. 2609 for the importation of urea and
formaldehyde, as separate units, used for the production of synthetic glue of which it was a
manufacturer. The specific language of the Act speak of "urea formaldehyde," and petitioner
Resins admittedly did import urea and formaldehyde separately.

ISSUE: W/N Resins should be exempt from payment of margin fee under RA 2609?

HELD:
Since a refund undoubtedly partakes of a nature of an exemption, it cannot be allowed unless
granted in the most explicit and categorical language. It has been the constant and uniform
holding that exemption from taxation is not favored and is never presumed, so that if granted
it must be strictly construed against the taxpayer. Affirmatively put, the law frowns on
exemption from taxation, hence, an exempting provision should be construed strictissimi
juris." Certainly, whatever may be said of the statutory language found in Republic Act 2609,
it would be going too far to assert that there was such a clear and manifest intention of
legislative will as to compel such a refund. 'urea formaldehyde' is clearly a finished product,
which is patently distinct and different from 'urea' and 'formaldehyde', as separate articles
used in the manufacture of the synthetic resins known as 'urea formaldehyde'.

CIR v. CA & YMCA 298 SCRA 83;

FACTS: Private Respondent YMCA--a non-stock, non-profit institution, which conducts various
programs beneficial to the public pursuant to its religious, educational and charitable
objectives--leases out a portion of its premises to small shop owners, like restaurants and
canteen operators, deriving substantial income for such. Seeing this, the Commissioner of
Internal Revenue (CIR) issued an assessment to private respondent for deficiency income
tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency
withholding tax on wages. YMCA opposed arguing that its rental income is not subject to tax,
mainly because of the provisions of Section 27 of NIRC which provides that civic league or
organizations not organized for profit but operate exclusively for promotion of social welfare
and those organized exclusively for pleasure, recreation and other non-profitble businesses
shall not be taxed.

ISSUE: W/N the contention of YMCA tenable?

HELD:
No, Because taxes are the lifeblood of the nation, the Court has always applied the doctrine
of strict in interpretation in construing tax exemptions. Furthermore, a claim of statutory
exemption from taxation should be manifest and unmistakable from the language of the law
on which it is based. Thus, the claimed exemption "must expressly be granted in a statute
stated in a language too clear to be mistaken."

CHAPTER IV: SOURCES AND CONSTRUCTION OF TAX LAWS:

I. SOURCES OF TAX LAW;

A. Statutes;
B. Revenue Regulations

C. Revenue Memorandum Circulars/Orders;

BIR Revenue Administrative Order (RAO) No. 2-2001;

D. BIR Rulings;
BIR Revenue Administrative Order (RAO) No. 2-2001;

Revenue Regulation 5-2012;

E. Opinions of the Secretary of Justice;

F. Legislative Materials;

G. Court Decision;

II. THE STATUTE:

A. Existing Tax Law;

1. National;

a. National Internal revenue Code of 1997;

b. Tariff and Customs Code;

2. Local;
a. Book II, 1991 Local Government Code
III. REVENUE REGULATIONS:

A. BIR-RR;

1. Authority to promulgate. S244;

2. Specific provisions to be contained in RR. S245;

3. What is the force and effect of RR?;

Art. 7, Civil Code

Case:
Asturias Sugar Central v Comm., 29 SCRA 617;

IV. BIR RULINGS:

A. Power of CIR to Interpret Tax Laws. S4;

B. Non-Retroactivity of Rulings; S246;

Cases:
CIR v Burroughs Ltd., G.R. 66653. June 19, 1986;

CIR v Mega Gen. Merchandising 166 SCRA 166;

1. Exceptions

Case:
PBCOM vs. CIR 302 SCRA 241

V. CONSTRUCTION OF TAX LAW:

A. General Rules of Construction of Tax Laws;

Case:
Stevedoring v Trinidad, 43 Phil. 803;
FACTS: Luzon Stevedoring Corp imported various engine parts and other equipment for
tugboat repair and maintenance in 1961 and 1962. It paid the assessed compensation tax
under protest. Unable to secure a tax refund from the Commissioner for the amount of
P33,442.13, it filed a petition for review with the Court of Tax Appeals. The CTA denied the
petition as well as the motion for reconsideration filed thereafter. Hence, this petition.

ISSUE: W/N the Corporation exempt from compensation tax?

HELD:
No, As the power of taxation is a high prerogative of sovereignty, the relinquishment of such
is never presumed and any reduction or diminution thereof with respect to its mode or its
rate, must be strictly construed, and the same must be couched in clear and unmistakable
terms in order that it may be applied.

The corporation’s tugboats do not fall under the categories of passenger or cargo vessels to
avail of the exemption from compensation tax in Section 190 of the Tax Code. It may be
further noted that the amendment of Section 190 of Republic Act of 3176 was intended to
provide incentives and inducements to bolster the shipping industry and not in the business
of stevedoring, in which the corporation is engaged in.

Thus, Luzon Stevedoring Corp is not exempt from compensation tax under Section 190, and
is thus not entitled to refund.

B. Mandatory vs. Directory Provisions;

A Mandatory provision declares or imposes a duty or requirement that must be followed.

A Directory provision sets forth procedures or " confers discretion on the legislature" for
its implementation.

Case:
SERAFICA V TREASURER OF ORMOC CITY, 27 SCRA 110;
FACTS: Serafica seeks to nullify Ordinance 13 imposing a tax on every 1,000 board feet of
lumber. He contends that the charter of Ormoc authorizes it to regulate and not tax. He
alleges that the tax on the lumber constitutes double taxation.

ISSUE: W/N the city authorized to tax?

HELD:
Yes, Under the Local Autonomy Act, the power is broad and sufficiently plenary to cover
everything, except those mentioned. Regulation and taxation are two different things, the
first being an exercise of police power and the latter is not. Double taxation is not prohibited
in the Philippines.

C. Application of Tax Laws;

Tax law in the Philippines covers national and local taxes. National taxes refer to national
internal revenue taxes imposed and collected by the national government through the Bureau
of Internal Revenue (BIR) and local taxes refer to those imposed and collected by the local
government.