TAX 1

1. Explain the requirement of uniformity as a limitation in the imposition and/or

collection of taxes. (1998)

SUGGESTED ANSWER: Uniformity means that in the imposition of taxes and

implementation of tax laws, all persons who are similarly situated should be treated
alike both in privilege conferred and burdens imposed.

A valid classification is allowed.

2. What is the “rational basis” test? Explain briefly. (2010)

SUGGESTED ANSWER: This is a test to determine whether a classification for

purposes of imposing a tax is valid. The classification is valid if it is logically
(rationally) related to or they further a constitutionally permissible state interest.
[White Light Corporation, et al. v. City of Manila, etc., GR No. 122846, January 20,
2009 citing Central Bank Employee’s Association v. Bangko Sentral ng Pilipinas,
487 Phil. 531 (2004)]. The standard for valid classification is satisfied if the
classification or distinction is based on a reasonable foundation or rational basis and
is not palpably arbitrary. [ABAKADA Guro Party List, etc. v. Purisima, etc., et al., GR
No. 166715, August 14, 2008]

The complainant must prove that the classification is “invidious”, “wholly

arbitrary,” or “capricious”, otherwise the classification is presumed to be valid.

3. Choose the correct answer. Tax laws –

a. may be enacted for the promotion of private enterprise or business for as long
as it gives incidental advantage to the public or the State
b. are inherently legislative; therefore, may not be delegated
c. are territorial in nature; hence, they do not recognize the generally-accepted
tenets of international law
d. adhere to uniformity and equality when all taxable articles or kinds of property
of the same class are taxable at the same rate. (2014)

SUGGESTED ANSWER: d

4. A Sangguniang Bayan passed an ordinance imposing an occupational tax of

Php500.00 a year on the occupation of “installation manager”. X happened to be the
only salaried person with such title or designation within the municipality. Can X
successfully challenge the validity of such an ordinance on the ground of
discrimination since at the time of the passage of the ordinance, he was the only one
affected? Reasons for your answer.
SUGGESTED ANSWER: No, because the occupational tax could be imposed on
any person who would in the future be practicing the occupation of “installation
manager”.

5. The Sangguniang Bayan of Taal, Batangas, passed on an ordinance which

reads: “An ordinance imposing upon Asis Candy Company or any other person or
entity operating a candy factory within the municipality an annual tax of
Php3,000.00”. At the time the ordinance was approved, Asis Candy Company was
the only candy factory operating in Taal. Is the ordinance valid? Reasons

SUGGESTED ANSWER: Yes, because the ordinance does not apply to Asis Candy
Company but to all other candy companies within the municipality which are similar
to Asis Candy Company. Furthermore, there is valid classification. Thus, there is no
violation of the requirement on equal protection and uniformity in taxation.

6. It is well-known that charters of various cities created by Congress contain

varying provisions authorizing the said cities respectively to impose taxes different
from those authorized to be imposed by Manila and Baguio. May a taxpayer in
Manila or Baguio object to a tax imposed by these cities which are not imposed by
other cities on the ground that the tax is violative of the constitutional rule on
uniformity in taxation? (1969)

SUGGESTED ANSWER: No. Uniformity in taxation is territorial in character. There

is no violation of uniformity because the taxable subjects are imposed the same rate
by the taxing authority within their respective territorial jurisdictions.

7. The Constitution provides that the rule of taxation shall be uniform. Is this rule
violated in this case?

The City of Manila passed an ordinance imposing a fee on the price of admission
tickets to cinematograph theaters, theatrical shows and boxing exhibitions. Said
ordinance, however, did not tax many more kinds of amusements such as race
tracks, concert halls, circuses and other places of amusements. Corporations
engaged in motion business attacked the validity of the ordinance on the ground that
it is violative of the principle of uniformity of taxation enjoined by the Constitution.
Decide and briefly explain the reasons for your decision.

SUGGESTED ANSWER: No. There was valid classification because there is a

substantial distinction between the subject of the tax and those not subject to the
tax.

8. “X”, a resident of Metro Manila, filed an action for the refund of amounts paid
representing energy tax collected from him on his electric power consumption under
BP Blg. 36, which imposes a tax on the domestic electric consumption of all Metro
Manila residents, depending on the amount of consumption in accordance with the
schedule provided for in said Batas. BP Blg. 36 is assailed in Court on the ground
that it is violative of (1) the equal protection clause, and (2) the rule on uniformity and
equity of taxation, Will the action prosper? Reasons. (1981)

SUGGESTED ANSWER: No. The action will not prosper.

a. There is valid classification since the tax depends upon the amount of
consumption. There is thus substantial distinctions between those who
consume more and those who consume less.
b. There is no violation of uniformity and equity of taxation because the tax
applies with the same force and effect upon members of the same class.

9. An Executive Order was issued pursuant to law, granting tax and duty incentives
only to businesses and residents within the “secured area” of the Subic Economic
Special Zone, and denying said incentives to those who live within the Zone but
outside such “secured area”. Is the constitutional right to equal protection of the law
violated by the Executive Order? Explain. (2000)

SUGGESTED ANSWER: No. Equal protection of the law clause is subject to

reasonable classification.

There are substantial differences between big investors being enticed to the
“secured area” and the business operators outside that are in accord with the equal
protection clause. (Tiu, et al v. Court of Appeals, et al., GR No. 127410, January 20,
1999)

10. A law was passed exempting doctors and lawyers from the operation of VAT.
Other professionals complained and filed a suit questioning the law for being
discriminatory and violative of the equal protection clause of the Constitution since
complainants were not given the same exemption. Is the suit meritorious or not?
Reason briefly. (2004)

SUGGESTED ANSWER: No. The law was not intended to treat subjects and objects
that are different in a similar manner. So long as there is a valid classification
premised upon substantial distinctions, then there is no violation of the equal
protection clause. The functions that doctors and lawyers perform, being imbued
with quasi-public characteristics, creates for a substantial distinction from the other
professions.

11. RC is a law-abiding citizen who pays his real estate taxes promptly. Due to a
series of typhoons and adverse economic conditions, an ordinance is passed by MM
City granting a 50% discount for payment of unpaid real estate taxes for the
preceding year and the condonation of all penalties on fines resulting from the late
payment.

Arguing that the ordinance rewards delinquent taxpayers and discriminates

against prompt ones, RC demands that he be refunded an amount equivalent to
one-half of the real (estate) taxes he paid. The municipal attorney rendered an
opinion that RC cannot be reimbursed because the ordinance did not provide for
such reimbursement. RC files suit to declare the ordinance void on the ground that it
is a class legislation. Will his suit prosper? Explain your answer briefly. (2004)

SUGGESTED ANSWER: No. There is no class legislation because there is no

violation of the equal protection suit. There is a valid classification between those
who already paid their taxes and those who have not. Furthermore, the taxing
authority has the prerogative to select the subjects and objects of taxation, including
granting a 50% discount in the payment of unpaid real estate taxes, and the
condonation of all penalties on fines resulting from late payment.

12. Heeding the pronouncement of the President that the worsening traffic conditions
in the metropolis was a sign of economic progress, the Congress enacted RA No.
10701, also known as An Act Imposing a Transport Tax on the Purchase of Private
Vehicles.

Under RA 10701, buyers of private vehicles are required to pay a transport tax
equivalent to 5% of the total purchase price per vehicle purchased. RA 10701
provides that the LTO shall not accept for registration any new vehicles without proof
of payment of the 5% transport tax. RA 10701 further provides that existing owners
of private vehicles shall be required to pay a tax equivalent to 5% of the current fair
market value of every vehicle registered with the LTO. However, RA 10701 exempts
owners of public utility vehicles and the Government from the coverage of the 5%
transport tax.

A group of private vehicle owners sue on the ground that the law is
unconstitutional for contravening the Equal Protection Clause of the Constitution.

Rule on the constitutionality and validity of RA 10701. (2017)

SUGGESTED ANSWER: RA 10701 is constitutional and valid.

It is an established principle of constitutional law that the guaranty of the equal

protection of the laws is not violated by a legislation based on a reasonable
classification. [People v. Cayat, 68 Phil. 12 (1939)]

All that is required of a valid classification is that it be reasonable, which means

that (1) the classification should be based on substantial distinctions which make for
real differences, that (2) it must be germane to the purpose of the law; that (3) it
must not be limited to existing conditions only; and that (4) it must apply equally to
each member of the class. [ABAKADA Guro Party List, et al, v. Hon. Purisima, et al.,
584 Phil. 246, 269-270 (2008)]

It is evident that there are substantial distinctions between private vehicles

compared with public utility and government vehicles. The latter group serves public
interest. The classification is germane to the purpose of the law which is to limit the
number of vehicles which cause the worsening traffic condition. There are more
private vehicles than public utility and government vehicles. The 5% tax is applicable
so long as the vehicles are private vehicles and all private vehicles are subject to the
tax.

ALTERNATIVE ANSWER: RA 10701 is unconstitutional because it violates the

equal protection clause.

While classification is allowed, the classification is valid if it is logically (rationally)

related to or they further a constitutionally permissible state interest. [White Light
Corporation et al v. City of Manila, etc., GR No. 122846, January 20, 2009 citing
Central Bank Employee’s Association v. Bangko Sentral ng Pilipinas, 487 Phil. 531
(2004)]. The standard for valid classification is satisfied if the classification or
distinction is based on a reasonable foundation or rational basis and is not palpably
arbitrary. [ABAKADA Guro Party List, etc. v. Purisima, etc., et al., GR No. 166715,
August 14, 2008]

In the problem, the classification (imposing the tax on private vehicles and not
imposing the tax on public utility vehicles) is “invidious,” “wholly arbitrary,” or
“capricious.” Indeed, the classification under RA 10701 is not germane to its
declared purpose of “Heeding the pronouncement of the President that the
worsening traffic condition in the metropolis was a sign of economic progress.”

Public utility vehicles also contribute to the “worsening traffic conditions,” hence
to economic progress but they are not subject to tax. [Association of Customs
Brokers, Inc. v. Municipal Board, L-4376 (1953)]; Lindsley v. Natural Carboinic Gas
Co., 220 US 61; McGowan v. Maryland, 366 US 420; United States Railroad
Retirement Board v. Fritz, 449 US 166)

13. San Antonio Colleges Foundation, Inc. (SACFI) is a non-stock, non-profit

educational institution. Xxx (3) import 30 computers for use in its computer courses.

Xxx xxx xxx

d. Will SACFI be subject to taxes and duties on the importation of 30 computers?

Explain.

SUGGESTED ANSWER: No, because the computers are assets which are actually,
directly and exclusively used for educational purposes; hence, tax-exempt.

14. Does the Constitution provide for any limitation on the exercise of the power of
Congress to grant tax exemptions? Explain. (1989)
SUGGESTED ANSWER: Yes. “No law granting any tax exemption shall be passed
without the concurrence of a majority of all the Members of the Congress.” [1987
Philippine Constitution, Article VI, Sec. 28 (4)]

15. Money collected from taxation shall not be paid to any religious dignitary except
when

a. the religious dignitary is assigned to the Philippine Army.

b. i is paid by a local government unit.
c. the payment is passed in audit by the COA.
d. it is part of a lawmaker’s pork barrel. (2011)

SUGGESTED ANSWER: a

16. The Constitution says: “The rule of taxation shall be uniform and equitable.
Congress shall evolve a progressive system of taxation.” What is meant by
“progressive system of taxation” Illustrate. (1983)

SUGGESTED ANSWER: Progressive system of taxation means that as the

resources of the taxpayer becomes higher, his tax rate likewise increases. Under
this system of taxation, the tax rate increases much faster than the tax base. The tax
liability increases much faster than the income upon which the tax is computed.

This is exemplified by the income tax rate which increases as the net taxable
increases.

It is based on the ability to pay and in implementation of the social justice

principle that the more affluent should contribute more to the community’s benefit.

The progressive system of taxation is constitutionally imposed to achieve social

justice through redistribution of income. Progressive income taxes alleviate the
margin between rich and poor. (Southern Cross Cement Corporation v. Cement
Manufacturers Association of the Philippines, et al, GR No. 158540, August 3, 2005)

17. An example of a tax where the concept of progressivity finds application is the

a. income tax on individuals.

b. excise tax on petroleum products.
c. VAT on certain articles.
d. amusement tax on boxing exhibitions.

SUGGESTED ANSWER: a

18. The House of Representative introduced HB 7000 which envisioned to levy a tax
on various transactions. After the bill was approved by the House, the bill was sent
to the Senate as so required by the Constitution. In the upper house, instead of a
deliberation on the House Bill, the Senate introduced SB 8000 of the same tax. The
Senate deliberated on this Senate Bill and approved the same. The House Bill and
the Senate Bill were then consolidated in the Bicameral Committee. Eventually, the
consolidated bill was approved and sent to the President who signed the same. The
private sectors affected by the new law questioned the validity of the enactment on
the ground that the constitutional provision requiring that all revenue bills should
originate from the House of Representative had been violated. Resolve the issue.
(1997)

SUGGESTED ANSWER: There is no constitutional violation.

What is prohibited is for the bill to originate from the Senate. The bill that
originates from the House need not be the one that should finally be enacted into
law. This is so because the Senate is empowered to propose and concur with
amendments. Thus, the bill that originates from the House may undergo some
changes during the deliberations in the Senate.

19. “X” corporation was the recipient in 2010 of two tax exemption both from
Congress, one law exempting the company’s bond issues from taxes and the other
exempting the company from taxes in the operation of its public utilities. The two
laws extending the tax exemption were revoked by Congress before their expiry
dates.

Was the revocation constitutional?

SUGGESTED ANSWER: Yes. There is no contractual relation, because the grants

of tax exemptions were gratuitous in character which could be withdrawn at any time
without impairing the obligation of contracts.

20. A law was passed granting tax exemption to certain industries and investments
for a period of five years. But three years later, the law was repealed. With the
repeal, the exemptions were considered revoked by the BIR, which assessed the
investing companies for unpaid taxes effective on the date of the repeal of the law.

NPV and KTR companies questioned the assessments on the ground that,
having made their investments in full reliance with the period of exemption granted
by the law, its repeal violated their constitutional right against the impairment of the
obligations of contract. Is the contention of the companies tenable or not? Reason
briefly. (2004)

SUGGESTED ANSWER: No. The contention of the two companies is not tenable.

There is no contractual relation entered into between the two companies and the
State. A contract which is protected by the non-impairment clause is one in which
the Government, acting in a private capacity sheds its cloak of authority and waives
its government immunity. (Manila Electric Company v. Province of Laguna, et al.,
GR No. 131359, May 5, 1999). There was no material consideration received by the
government as a result of the tax exemption. The grant of tax exemptions does not
fall within the purview of a contract protected by the non-impairment clause.

Finally, granting arguendo that there was a contractual relation created when the
law was passed granting tax exemption, it was once held that a contract clause has
never been thought as a limitation on the exercise at the state’s power of taxation,
save only where a tax exemption has been granted for a valid consideration.
(Tolentino v. Secretary of Finance, 235 SCRA 630, 685-686), which does not exist in
the problem.

21. During the period of the deficiency but prior to assessment, a law was passed
providing that interest would be collectible on the amount of income tax not paid.
Accordingly, the Commissioner of Internal Revenue included such amount in the
assessment made. The taxpayer refused to pay contending that to require him to
pay such interest would be to violate the prohibition against ex post facto laws.
Decide the case with reasons. (1972)

SUGGESTED ANSWER: The taxpayer’s contention is without merit. The ex post

facto prohibition finds application only to penal laws.

Laws on taxation are civil and not penal in character and the prohibition against
ex post facto laws does not apply.

22. What is meant by situs of taxation?

SUGGESTED ANSWER: The situs of taxation is the place or authority that has the
right to impose and collect taxes. (Commissioner of Internal Revenue v. Marubeni
Corporation, GR No. 137377, Dec. 18, 2001)

23. Do tax laws operate beyond the jurisdictional limits of a country?

SUGGESTED ANSWER: As a general rule, tax laws do not operate beyond the
jurisdictional limits of a country. This is so because taxation is an act of sovereignty
which could only be exercised within a country’s territorial limits. This is the result of
the concept that taxes are paid for the protection and services provided by the taxing
authority which could not be provided outside the territorial boundaries of the taxing
state.

24. Enumerate the three (3) stages or aspects of taxation. Explain each. (2006)

SUGGESTED ANSWER: The three (3) stages or aspects of taxation are:

a. Levy which is the imposition of the tax.

b. Assessment and collection, which refers to the determination of the tax to be
paid and the implementation of the tax law.
 c. Payment is the compliance by the taxpayer with the tax laws.

25. The actual effort exerted by the government to effect the exaction of what is due
from the taxpayer is known as

a. assessment.
b. levy.
c. payment.
d. collection. (2011)

SUGGESTED ANSWER: d