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PART I- TAXATION IN GENERAL

CHAPTER I GENERAL PRINCIPLES OF TAXATION
1. TAXATION

1. Definition of Taxation

i. 71 Am Jur. 2
nd
342

Taxation is the act of levying the tax, i.e., the process or means by which the sovereign, through its law-making body,
raises income to defray the necessary expenses of the government. It is merely a way of apportioning the cost if the
government among those who in some measures are privileged to enjoy its benefits and, therefore, must bear its
burdens.

2. Aspects of Taxation
1. Levy or imposition
- Legislative power, includes the determination of the persons, property or excises to be taxed, the sums or
sums to be raised, the due date thereof and manner of levying or collecting taxes. (aban p. 12)
- The term levy or imposition refers to the enactment of tax laws or statutes (dimaampao p. 14)
- tax legislation (beda notes p. 02)

2. Assessment & Collection
- consists of the manner of enforcement of the obligation on the part of those who are taxed. (aban p. 12)
- the act of assessing and collecting of taxes is administrative in character, and therefore ca be delegated.
Nonetheless, the legislative body has laid down certain rules governing the assessement and collection of
taxes in order to prevent its abuse.

First, the law will designate which agency will collect the taxes. Usually, the BIR or Sec. of Finace wield this
power.

Second, the circulars or regulations issued by the Sec. of Finance or the Comm. Of the Internal Revenue
must be in accordance with the tax measures imposed by Congress.
(dimaampao p. 21)
- Tax administration (beda notes p. 02)

3. Payment this signifies an act of compliance by the taxpayer (dimaampao p. 21)


i. CIR vs BOTELHO SHIPPING CORPORATION and GENERAL SHIPPING CO., INC. G.R. Nos. L-
21633-3, June 29, 1967
FACTS: Reparations Commission of the Philippines sold to Botelho the vessel "M/S Maria Rosello" for the amount of P6,798,888.88.
The former likewise sold to General Shipping the vessel "M/S General Lim" at the price of P6,951,666.66. Upon arrival at the port of
Manila, the Bureau of Customs placed the same under custody and refused to give due course [to applications for registration],
unless the aforementioned sums of P483,433 and P494,824 be paid as compensating tax. The buyers subsequently filed with the
CTA their respective petitions for review. Pending the case, Republic Act No. 3079 amended Republic Act No. 1789 the Original
Reparations Act, under which the aforementioned contracts with the Buyers had been executed by exempting buyers of
reparations goods acquired from the Commission, from liability for the compensating tax.
Invoking [section 20 of the RA 3079], the Buyers applied, for the renovation of their utilizations contracts with the Commission,
which granted the application, and, then, filed with the Tax Court, their supplemental petitions for review. The CTA ruled in favor of
the buyers.
[On appeal, the CIR and COC maintain that such proviso should not be applied retroactively], upon the ground that a tax exemption
must be clear and explicit; that there is no express provision for the retroactivity of the exemption, established by Republic Act No.
3079, from the compensating tax; that the favorable provisions, which are referred to in section 20 thereof, cannot include the
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exemption from compensating tax; and, that Congress could not have intended any retroactive exemption, considering that the
result thereof would be prejudicial to the Government.
ISSUE: Whether or not the tax exemption can be applied retroactively
HELD: YES. The inherent weakness of the last ground becomes manifest when we consider that, if true, there could be no tax
exemption of any kind whatsoever, even if Congress should wish to create one, because every such exemption implies a waiver of
the right to collect what otherwise would be due to the Government, and, in this sense, is prejudicial thereto. It may not be amiss to
add that no tax exemption like any other legal exemption or exception is given without any reason therefor. In much the same
way as other statutory commands, its avowed purpose is some public benefit or interest, which the law-making body considers
sufficient to offset the monetary loss entitled in the grant of the exemption. Indeed, section 20 of Republic Act No. 3079 exacts a
valuable consideration for the retroactivity of its favorable provisions, namely, the voluntary assumption, by the end-user who
bought reparations goods prior to June 17, 1961 of "all the new obligations provided for in" said Act.
Furthermore, Section 14 of the Law on Reparations, as amended, exempts from the compensating tax, not particular
persons, but persons belonging to a particular class. Indeed, appellants do not assail the constitutionality of said section 14,
insofar as it grants exemptions to end-users who, after the approval of Republic Act No. 3079, on June 17, 1961, purchased
reparations goods procured by the Commission. From the viewpoint of Constitutional Law, especially the equal protection
clause, there is no difference between the grant of exemption to said end-users, and the extension of the grant to those
whose contracts of purchase and sale mere made before said date, under Republic Act No. 1789.

ii. TAN vs. DEL ROSARIO Jr. 237 SCRA 324
FACTS:
The case involves two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the constitutionality of
Republic Act No. 7496, also commonly known as the Simplified Net Income Taxation Scheme ("SNIT"), amending certain
provisions of the National Internal Revenue Code and, in G.R. No. 109446, the validity of Section 6, Revenue Regulations
No. 2-93, promulgated by public respondents pursuant to said law.
G.R. No. 109289
Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No. 7496, is a misnomer or, at least,
deficient for being merely entitled, "Simplified Net Income Taxation Scheme for the Self-Employed and Professionals
Engaged in the Practice of their Profession" (Petition in G.R. No. 109289).
G.R. No. 109446
The several propositions advanced by petitioners revolve around the question of whether or not public respondents have
exceeded their authority in promulgating Section 6, Revenue Regulations No. 2-93, to carry out Republic Act No. 7496.
ISSUE: WHETHER OR NOT the provision is unconstitutional
HELD:
G.R. No. 109289
Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-rolling legislation intended to unite
the members of the legislature who favor any one of unrelated subjects in support of the whole act, (b) to avoid surprises
or even fraud upon the legislature, and (c) to fairly apprise the people, through such publications of its proceedings as are
usually made, of the subjects of legislation.
1
The above objectives of the fundamental law appear to us to have been
sufficiently met. Anything else would be to require a virtual compendium of the law which could not have been the
intendment of the constitutional mandate.
Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that taxation "shall be uniform
and equitable" in that the law would now attempt to tax single proprietorships and professionals differently from the
manner it imposes the tax on corporations and partnerships. The contention clearly forgets, however, that such a system of
income taxation has long been the prevailing rule even prior to Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation,
similarly situated, are to be treated alike both in privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371).
Uniformity does not forfend classification as long as: (1) the standards that are used therefor are substantial and not
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arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things being equal, to
both present and future conditions, and (4) the classification applies equally well to all those belonging to the same class
(Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 52).
What may instead be perceived to be apparent from the amendatory law is the legislative intent to increasingly shift the
income tax system towards the schedular approach
2
in the income taxation of individual taxpayers and to maintain, by and
large, the present global treatment
3
on taxable corporations. We certainly do not view this classification to be arbitrary and
inappropriate.
G.R. No. 109446
Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships." Ordinarily, partnerships, no
matter how created or organized, are subject to income tax (and thus alluded to as "taxable partnerships") which, for
purposes of the above categorization, are by law assimilated to be within the context of, and so legally contemplated as,
corporations. Except for few variances, such as in the application of the "constructive receipt rule" in the derivation of
income, the income tax approach is alike to both juridical persons. Obviously, SNIT is not intended or envisioned, as so
correctly pointed out in the discussions in Congress during its deliberations on Republic Act 7496, aforequoted, to cover
corporations and partnerships which are independently subject to the payment of income tax.
"Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even considered as
independent taxable entities for income tax purposes. A general professional partnership is such an example.
4
Here, the
partners themselves, not the partnership (although it is still obligated to file an income tax return [mainly for administration
and data]), are liable for the payment of income tax in their individual capacity computed on their respective and
distributive shares of profits. In the determination of the tax liability, a partner does so as an individual, and there is no
choice on the matter. In fine, under the Tax Code on income taxation, the general professional partnership is deemed to be
no more than a mere mechanism or a flow-through entity in the generation of income by, and the ultimate distribution of
such income to, respectively, each of the individual partners.
Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as now so modified
by Republic Act No. 7496 on basically the extent of allowable deductions applicable to all individual income taxpayers on
their non-compensation income. There is no evident intention of the law, either before or after the amendatory legislation,
to place in an unequal footing or in significant variance the income tax treatment of professionals who practice their
respective professions individually and of those who do it through a general professional partnership.
3. Nature of Internal Revenue Laws

i. Hilado v. CIR, 100 Phil. 288
FACTS: Hilado filed his income tax return wherein he claimed the amount of P12,387.65 as a deductible item from his gross income
pursuant to the Collector of Internal Revenues General Circular No. V-123, issued pursuant to certain rules laid down by the
Secretary of Finance.
Subsequently, the new Secretary of Finance, through the CIR, issued General Circular No. V-139 which revoked General Circular No.
V-123 and laid down the rule that property losses which occurred during the World War II are deductible in the year of actual
loss/destruction of said property. As a consequence, the P12,387.65 was disallowed as a deduction from petitioners gross income
for 1951 and the CIR demanded from him the payment of P3,546 as deficiency income tax for the year.

ISSUE: Whether the Secretary of Finance acted with valid authority in revoking General Circular No. V-123 and approving in lieu
thereof, General Circular No. V-139.

HELD:internal revenue laws are not political in nature and as such were continued in force during the period of enemy
occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed
during that period and income tax payment were effected and considered valid and legal.
Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy.

excepting that of a political nature, Law once established continues until changed by some competent legislative power.
It is not changed merely by change of sovereignty.
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4. Scope of Taxation
- It is comprehensive, unlimited, supreme and plenary, but subject to constitutional and inherent limitations.
(http://tax71.blogspot.com/2009/06/nature-and-scope-of-power-of-taxation.html)

a. Sec. 28, Art. VI, 1987 Constitution
SECTION 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts
within the framework of the national development program of the Government.
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all
lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes
shall be exempt from taxation.
(4) No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the
Congress.
b. 71 Am Jur 2 nd 394-395 & 397-398:
c.

In the absence of constitutional restrictions, and subject to the will of the legislative bodies and discretion of
the authorities which exercise it, the power of taxation is regarded as unlimited, plenary and supreme, the principal
check upon its abuse resting in the responsibility of the members of the legislature to their constituents. Although the
power may
be exercised even to the point of destroying the commercial or use value of the thing taxed, it has
been said, on the other hand, that even in the absence of constitutional restrictions, such exercise must rest upon
justice.

Personal property belonging to a foreign sovereign and temporarily located in a particular country is
not subject to state taxation in that country.

a sovereign state has inherent power to determine the subjects of taxation for general or
particular public purposes, and may take appropriate changes in the selections and classifications of the properties
made subject to or exempted from taxation.

d. Sison vs. Ancheta 130 SCRA 654
FACTS:The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the validity of Section I of
Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed provision further amends Section 21 of
the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation
income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other
monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual
partner in the net profits of taxable partnership, (f) adjusted gross income. Petitioner
3
as taxpayer alleges that by virtue thereof, "he
would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his
profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. He characterizes the above section
as arbitrary amounting to class legislation, oppressive and capricious in character
5
For petitioner, therefore, there is a transgression
of both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation.
ISSUE: whether or not Batas Pambansa Blg. 35 is unconstitutional
HELD: PETITION IS DISMISSED.
The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of of
government." It is, of course, to be admitted that for all its plenitude 'the power to tax is not unconfined. There are restrictions. The
Constitution sets forth such limits. Adversely affecting as it does properly rights, both the due process and equal protection clauses
inay properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were otherwise, there would
-be truth to the 1803 dictum of Chief Justice Marshall that
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"the power to tax involves the power to destroy."
In a separate opinion in Graves v. New York, Justice Frankfurter, after referring to it as an 1, unfortunate remark characterized it as
"a flourish of rhetoric [attributable to] the intellectual fashion of the times following] a free use of absolutes." This is merely to
emphasize that it is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web
of unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmes pen:
'The power to tax is not the power to destroy while this Court sits. So it is in the Philippines
It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear abuse
of power. It then becomes the duty of this Court to say that such an arbitrary act amounted to the exercise of an authority not
conferred. That properly calls for the application of the Holmes dictum. It has also been held that where the assailed tax measure is
beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it
is subject to attack on due process grounds.
e. Reyes vs. Alamanzor, 196 SCRA 322
FACTS: Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondo and Sta. Cruz Districts,
City of Manila, which are leased and entirely occupied as dwelling sites by tenants. Said tenants were paying monthly rentals not
exceeding three hundred pesos (P300.00) in July, 1971.
On July 14, 1971, the National Legislature enacted Republic Act No. 6359 prohibiting for one year from its effectivity, an increase in
monthly rentals of dwelling units or of lands on which another's dwelling is located, where such rentals do not exceed three hundred
pesos (P300.00) a month but allowing an increase in rent by not more than 10% thereafter.
On October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the prohibition to increase monthly
rentals below P300.00 and by indefinitely suspending the aforementioned provision of the Civil Code, excepting leases with a
definite period. Consequently, the Reyeses were precluded from raising the rentals and from ejecting the tenants thereof.
The City Assessor of Manila assessed the value of the Reyeses property on the schedule of market values duly reviewed by the
Secretary of Finance. The revision entailed an increase to the tax rates and the petitioners averred that the reassessment imposed
upon them greatly exceeded the annual income derived from their properties.
ISSUE: WON income approach is the method to be used in the tax assessment and not the comparable sales approach.
HELD: The income approach and not the comparable sales approach must be used.
By no strength of the imagination can the market value of properties covered by P.D. No. 20 be equated with the market value of
properties not so covered. The former has naturally a much lesser market value in view of the rental restrictions.
In the case at bar, not even the factors determinant of the assessed value of subject properties under the "comparable sales
approach" were presented by the public respondents, namely: (1) that the sale must represent a bonafide arm's length transaction
between a willing seller and a willing buyer and (2) the property must be comparable property. Nothing can justify or support their
view as it is of judicial notice that for properties covered by P.D. 20 especially during the time in question, there were hardly any
willing buyers. As a general rule, there were no takers so that there can be no reasonable basis for the conclusion that these
properties were comparable with other residential properties not burdened by P.D. 20.

f. Sarasola vs. Trinidad, 40 Phil. 259, GR No. 14595, 11 Oct. 1919

FACTS: The complaint in this case was filed in the Court of First Instance of Manila for the purpose of having an injunction issue to
restrain the defendant, the Collector of Internal Revenue, from the alleged illegal collection of taxes in the amount of P11,739.29.
The defendant interposed a demurrer to the complaint, based on two grounds, namely: (1) that the court had no jurisdiction of the
subject-matter of the action because of the provisions of section 1578 of the Administrative Code of 1917; and (2) that the facts
stated in the complaint did not entitle the plaintiff to the relief demanded.

ISSUE: whether or not legal the provision prohibiting the courts from granting an injunction to retrain the collection of internal
revenue taxes constitutional

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HELD:
The broad principle is that every taxpayer has a right to a remedy for any actual wrong he may have suffered in the collection of
taxes. Usually a party will find a plain and sufficient remedy for the injuries complained of, or threatened, in the courts of law; in
such instances, equity will not take jurisdiction. "Presumptively," Judge Cooley says, "the remedy at law is adequate." (Cool ey on
Taxation, 3d Ed., Vol. 2, pp. 1377, 1412, 1415.) Where, as in the Philippines, the taxpayer is permitted to pay the amount demanded
of him under protest and then maintain an action at law to recover back the whole amount paid or so much of it as was illegal ly
exacted, this is ordinarily regarded as an adequate remedy.

An exceptional circumstance which serves to take cases out of the general rule comes under the head of irreparable injury.

It is well settled both on principle and authority that interest is not to be awarded against a sovereign government, as the United
States or a State, unless its consent has been manifested by an Act of its Legislature or by a lawful contract of its executive officers. If
there be doubt upon the subject, that doubt must be resolved in favor of the State.

As this is the main rule, the converse proposition must be equally true, that taxes only draw interest as do sums of money when
expressly authorized. A corollary to the principle is also self-evident, that interest cannot be recovered on an abatement unless the
statute provides for it. (1 Cooley on Taxation, 3d Ed., p. 20; 2 Cooley on Taxation, 3d Ed., p. 1392; City of Lowell vs. County
Commissioners of Middlesex [1862], 3 Allen [Mass.], 550.) The only contrary dictum is to the effect that where an illegal tax has been
collected, the citizen who has paid and is obliged to bring suit against the collector is entitled to interest from the time of the illegal
exaction. (Erskine vs. Van Arsdale [1872], 15 Wall., 75; National Home vs. Parrish [1913], 229 U.S., 494; Matter of O'Berry [1904], 179
N.Y., 285.) The distinction undoubtedly arises through the fiction that the suit is against the collector and not against the State,
although the judgment is not to be paid by the collector but directly from the treasury.chanroblesvirtualawlibrary chanrobles virtual
law library
It has been urged that since interest is in the nature of damages, it is proper for allowance. While this may be true in the general run
of cases, it is not necessary true when the sovereign power is concerned. The state is not amenable to judgments for damages or
costs without its consent.

The reason for what superficially seems to be a harsh ruling goes back to the fundamental conception of the nature of taxation. It is
but a truism to restate that taxation is an attribute of sovereignty. It is the strongest of all the powers of government. It involves, as
Chief Justice Marshall in his historical statement said, the power to destroy. (McCulloch vs. Maryland [1819], 4 Wheat., 316; Loan
Association vs.Topeka [1875], 20 Wall., 655.) "The right of taxation where it exists," the court said in Austin vs. Aldermen ([1868], 7
Wall., 694), "is necessarily unlimited in its nature. It carriers with it inherently the power to embarrass and destroy."

it would seem that the legislature has considered that a law providing for the payment of a tax with a right to bring a suit before a
tribunal to recover back the same without interest is a full and adequate remedy for the aggrieved taxpayer. The disallowance of
interest in such case, like the other steps prescribed as conditional to recovery, has been made one of the conditions which the
lawmakers have seen fit to attach to the remedy provided. As the Legislature in the exercise of its wide discretionary power, has
deemed the remedy provided in section 1579 of the Administrative Code to be an adequate mode of testing the validity of an
internal revenue tax and has willed that such a remedy shall be exclusive, the courts not only owe it to a coordinate branch of the
government to respect the opinion thus announced, but have no right to interfere with the enforcement of such a law.






g. CIR vs. Tokyo Shipping, G.R. No. L-68252 May 26, 1995
Facts: Tokyo Shipping a foreign corporation represented in the Philippines by Soriamont Steamship Agencies and owns and operates
M/V Gardenia. NASUTRA
2
chartered M/V Gardenia to load 16,500 metric tons of raw sugar in the Philippines. Soriamont
Agency,
4
paid the required income and common carrier's taxes P59,523.75 and P47,619.00, respectively (Total P107,142.75). Upon
arriving, however, at Guimaras Port of Iloilo, the vessel found no sugar for loading. NASUTRA and Soriamont mutually agreed to have
the vessel sail for Japan without any cargo. Claiming the pre-payment of income and common carrier's taxes as erroneous since no
receipt was realized from the charter agreement, Tokyo instituted a claim for tax credit or refund of the sum P107,142.75 from CIR.
Petitioner failed to act promptly on the claim , hence Tokyo filed a petition for review
6
before Court of Tax Appeals. CTA decided for
Tokyo and denied MR of CIR.
Issue: WON Tokyo Shipping Co. Ltd., is entitled to a refund or tax credit whether it was able to prove that it derived no receipts
from its charter agreement, and hence is entitled to a refund of the taxes it pre-paid to the government.
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Ruling: Yes. Pursuant to Section 24 (b) (2) of the National Internal Revenue Code which at that time, a resident foreign corporation
engaged in the transport of cargo is liable for taxes depending on the amount of income it derives from sources within the
Philippines. Thus, before such a tax liability can be enforced the taxpayer must be shown to have earned income sourced from the
Philippines.
Indeed, a claim for refund is in the nature of a claim for exemption
8
and should be construed in strictissimi juris against the taxpayer.
And Tokyo has the burden of proof to establish the factual basis of its claim for tax refund.
But sufficient evidence has already been adduced by Tokyo proving that it derived no receipt from its charter agreement with
NASUTRA - M/V "Gardenia" arrived in Iloilo on January 10, 1981 but found no raw sugar to load and returned to Japan without any
cargo laden on board.

5. Underlying Theory And basis

a. Lifeblood Theory
- In Commissioner v. Algue, the Supreme Court said that taxes are the lifeblood of the government and
should be collected without necessary hindrance. They are what we pay for a civilized society. Without taxes, the government
would be paralyzed for lack of motive power to activate and operate it. The government, for its part, is expected to respond in
the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material
values. (http://lexestudyante.blogspot.com/2012/06/general-principles-of-taxation.html)

b. Necessity Theory
- Taxes proceeds upon the theory that the existence of government is a necessity; that it
cannot continue without means to pay its expenses; and that for those means it has the right to compel all citizens and
property within its limits to contribute. (Aban p. 07)

- Taxation as stated in the case of Phil. Guaranty Co., Inc. v. Commissioner [13 SCRA 775], is a power predicated upon
necessity. It is a necessary burden to preserve the States sovereignty and a means to give the citizenry an army to resist
aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements for the enjoyment
of the citizenry, and those which come within the States territory and facilities and protection which a government is supposed
to provide. (Dimaampao p. 11)

c. Symbiotic Relationship
- The term culled from the Supreme Court ruling in CIR v. Algue, Inc. [158 SCRA 9], which states
that :
Taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of ones hard-earned income to the taxing authorities, every person who
is able must contribute his share in the burden of running the government. The government for its
part, is expected to respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their material and moral values. (Dimaampao p.12)



d. Benefits-Protection Theory
- According to this theory, the state demands and receives taxes from the subjects of taxation
within its jurisdiction so that it may be enabled to carry its mandate into effect and perform the functions of government, and
the citizen pays from his property the portion demanded in order that he may, b means thereof be secured in the enjoyment of
the organized society. However, the foundation of the obligation to pay taxes is not the privileges enjoyed or the protection
given to a citizen by the government, although the payment of taxes gives a right to protection; both are enjoyed as well by
those members of a state who do not pay taxes because they are not able to do so.
Moreover, as pointed out in the Algue, Inc. case, supra, in exchange for the protection that
the State gives to its citizens, taxes must be correspondingly paid to it. (Aban, p.07)

- Bases the power of the Sate to demand and receive taxes on the reciprocal duties of support
and protection. The citizen supports the State by paying the portion from is property that is demanded in order that he may, by
means thereof, be secured in the enjoyment of the benefits of an organized society. Thus, the taxpayer canot question the
Page 8 of 40

validity of the tax law on the ground that payment of such tax will render him impoverished, or lessen his financial or social
standing, because the obligation to pay taxes is involuntary and compulsory, in exchange for the protection and benefits one
receives from the government. (Dimaampao p. 11-12)

i. 71 Am Jur 2 nd 346-347
The existence of government is a necessity; it cannot continue without means to pay its expenses; and for those means
it has the right to compel all citizens and property within its limits to contribute.
The state demands and receives taxes so that it may be enabled to carry its mandates into effect and perform the functions of
government. The citizen pays from his property the portion demanded, in order that he may, by means thereof, be secured in
the enjoyment of the benefits of organized society.
The general levy of taxes is understood to exact contributions in return for the general benefits of government, and it
promises nothing to the person taxed beyond what may be anticipated from an administration of the laws for individual
protection and the general public good.
Although the duty to pay taxes by the individual is founded in his participation in the benefits arising from the expenditure, it
does not mean that a mans property cannot be taxed unless some benefit to him personally can be pointed out.
ii. CIR v. Algue, inc. L- 28896 Feb. 17, 1988
FACTS: On January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction and other allied
activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the
years 1958 and 1959.

On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp
received on the same day in the office of the petitioner.
ISSUE: whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private
respondent Algue as legitimate business expenses in its income tax returns.
HELD: Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand; such
collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is
therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxation, which is the promotion of the common good, may be achieved.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive
power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing
authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their
moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the
courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the respondent court in
accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the private respondent was permitted under the
Internal Revenue Code and should therefore not have been disallowed by the petitioner.
6. Principles of Sound Tax System
a. Fiscal Adequacy
- That the sources of revenues must be adequate to meet government expenditures, [Chavez v.
Ongpin, 186 SCRA 331], and other public needs. This is in consonance with the doctrine that taxes are the lifeblood of the
Government. (Dimaampao p. 27) (Aban p. 12)
-
b. Administrative Feasibility
- Tax laws must be capable of effective and efficient enforcement. They must not obstruct business growth
and economic development. (Aban p. 13) (Dimaampao p. 27)

Page 9 of 40

c. Theoretical Justice
The tax burden should be in proportion to the taxpayers ability to pay (ability-to-pay principle). This suggests
taxation must be progressive conformably with the constitutional mandate that Congress shall evolve a progressive system of
taxation. (Sec. 28[1], Art. VI, 1987 Constitution) (Aban p. 13)
- The rule of taxation must be uniform and equitable. (Sec. 28[1], Art. VI, 1987 Constitution). Taxation is
said to be equitable when its burden falls on thse better able to pay; taxation is progressive when its rate goes up depending on the
resources of the person affected. (Dimaampao p. 27)


i. Chavez vs. Ongpin, G.R. No. 76778 June 6, 1990

FACTS: The petitioner, Francisco I. Chavez, is a taxpayer and an owner of three parcels of land. He alleges the following: that
Executive Order No. 73 accelerated the application of the general revision of assessments to January 1, 1987 thereby mandating an
excessive increase in real property taxes by 100% to 400% on improvements, and up to 100% on land;

The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national association of owners-lessors, joins
Chavez in his petition to declare unconstitutional Executive Order No. 73.

ISSUE: whether or not Executive Order No. 73 is unconstitutional

HELD: To continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the
value of real properties that have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of
the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures
and their variations.

II. TAXES
1. Definition

a. 71 Am Jur 2
nd
343-346
Taxation is merely a way of apportioning the cost of government among those who in some measure are privileged to enjoy its
benefits and must bear its burdens.

b. Republic vs. PHILIPPINE RABBIT BUS LINES, INC., G.R. No. L-26862 March 30, 1970
FACTS: The complaint of plaintiff-appellant Republic of the Philippines was filed on January 17, 1963 alleging that defendant-
appellee, as the registered owner of two hundred thirty eight (238) motor vehicles, paid to the Motor Vehicles Office in Baguio the
amount of P78,636.17, corresponding to the second installment of registration fees for 1959, not in cash but in the form of
negotiable certificate of indebtedness, the defendant being merely an assignee and not the backpay holder itself. The complaint
sought the payment of such amount with surcharges plus the legal rate of interest from the filing thereof and a declaration of the
nullity of the use of such negotiable certificate of indebtedness to satisfy its obligation. The answer by defendant-appellee, filed on
February 18, 1963, alleged that what it did was in accordance with law, both the Treasurer of the Philippines and the General
Auditing Office having signified their conformity to such a mode of payment. It sought the dismissal of the complaint.

ISSUE: Whether or not the acceptance of the negotiable certificates of indebtedness tendered by defendant bus firms to and
accepted by the Motor Vehicles Office of Baguio City and the corresponding issuance of official receipts therefore acknowledging
such payment by said office is valid and binding on plaintiff Republic.

HELD: A tax refers to a financial obligation imposed by a state on persons, whether natural or juridical, within its jurisdiction, for
property owned, income earned, business or profession engaged in, or any such activity analogous in character for raising the
necessary revenues to take care of the responsibilities of government. An often-quoted definition is that of Cooley: "Taxes are the
enforced proportional contributions from persons and property levied by the state by virtue of its sovereignty for the support of
government and for all public needs.

2. Essential characteristics of Taxes
- forced charge;
Page 10 of 40

- pecuniary burden payable in money;
- levied by the legislature;
- assessed with some reasonable rule of apportionment; (see theoretical justice)
- imposed by the State within its jurisdiction;
- levied for a public purpose.
(beda notes)

a. COMMISSIONER OF INTERNAL REVENUE, vs. CEBU PORTLAND CEMENT COMPANY and
COURT OF TAX APPEALS, G.R. No. L-29059 December 15, 1987
FACTS: By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified on appeal by the Supreme Court
on February 27, 1965, the Commissioner of Internal Revenue was ordered to refund to the Cebu Portland Cement Company the
amount of P 359,408.98, representing overpayments of ad valorem taxes on cement produced and sold by it after October 1957.
On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and the private respondent, the
latter moved for a writ of execution to enforce the said judgment.
The motion was opposed by the petitioner on the ground that the private respondent had an outstanding sales tax liability to which
the judgment debt had already been credited. In fact, it was stressed, there was still a balance owing on the sales taxes in the
amount of P 4,789,279.85 plus 28% surcharge.
Private respondent argues that it cannot be held liable for the sales tax liability for cement is a mineral product and not a
manufactured product.
ISSUE: Whether or not the sales tax is properly imposed upon the private respondent
HELD: The sales tax was properly imposed upon the private respondent for the reason that cement has always been considered a
manufactured product and not a mineral product.
The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency of the need
to collect taxes as "the lifeblood of the government." If the payment of taxes could be postponed by simply questioning their
validity, the machinery of the state would grind to a halt and all government functions would be paralyzed. That is the reason why,
save for the exception already noted, the Tax Code provides:
Sec. 291. Injunction not available to restrain collection of tax. No court shall have authority to grant an injunction to restrain the
collection of any national internal revenue tax, fee or charge imposed by this Code.
It goes without saying that this injunction is available not only when the assessment is already being questioned in a court of justice
but more so if, as in the instant case, the challenge to the assessment is still-and only-on the administrative level. There is all the
more reason to apply the rule here because it appears that even after crediting of the refund against the tax deficiency, a balance of
more than P 4 million is still due from the private respondent.
To require the petitioner to actually refund to the private respondent the amount of the judgment debt, which he will later have the
right to distrain for payment of its sales tax liability, is in our view an idle ritual. We hold that the respondent Court of Tax Appeals
erred in ordering such a charade.
b. MUNICIPALITY OF MAKATI, vs. THE HONORABLE COURT OF APPEALS, G.R. Nos. 89898-99
October 1, 1990
FACTS: The case involves expropriation proceedings initiated by petitioner against private respondent Admiral Finance Creditors
Consortium, Inc., Home Building System & Realty Corporation and one Arceli P. Jo, involving a parcel of land and improvements
thereon located at Mayapis St., San Antonio Village, Makati and registered in the name of Arceli P. Jo under TCT No. S-5499.
A bank account (Account No. S/A 265-537154-3) had been opened with the PNB Buendia Branch under petitioner's name containing
the sum of P417,510.00, made pursuant to the provisions of Pres. Decree No. 42. RTC issued the corresponding amount to be paid
by the petitioner and issued a writ of execution. Consolidated petitions filed before CA were dismissed for lack of merit, sustained
the jurisdiction of respondent RTC judge over the funds contained in petitioner's PNB Account No. 265-537154-3, and affirmed his
authority to levy on such funds. Hence petition to Supreme Court were petitioner, Admitting that its PNB Account No. S/A 265-
537154-3 was specifically opened for expropriation proceedings it had initiated over the subject property, petitioner poses no
objection to the garnishment or the levy under execution of the funds deposited therein amounting to P99,743.94. However, it is
petitioner's main contention that inasmuch as the assailed orders of respondent RTC judge involved the net amount of
Page 11 of 40

P4,965,506.45, the funds garnished by respondent sheriff in excess of P99,743.94, which are public funds earmarked for the
municipal government's other statutory obligations, are exempted from execution without the proper appropriation required under
the law.
ISSUE: WHETHER OR NOT RTC can issue garnishment proceedings on the accounts of petitioner.
HELD: The funds deposited in the second PNB Account No. S/A 263-530850-7 are public funds of the municipal government. In this
jurisdiction, well-settled is the rule that public funds are not subject to levy and execution, unless otherwise provided for by statute
[Republic v. Palacio, supra.; The Commissioner of Public Highways v. San Diego, G.R. No. L-30098, February 18, 1970, 31 SCRA 616].
More particularly, the properties of a municipality, whether real or personal, which are necessary for public use cannot be attached
and sold at execution sale to satisfy a money judgment against the municipality. Municipal revenues derived from taxes, licenses and
market fees, and which are intended primarily and exclusively for the purpose of financing the governmental activities and functions
of the municipality, are exempt from execution [See Viuda De Tan Toco v. The Municipal Council of Iloilo, 49 Phil. 52 (1926): The
Municipality of Paoay, Ilocos Norte v. Manaois, 86 Phil. 629 (1950); Municipality of San Miguel, Bulacan v. Fernandez, G.R. No.
61744, June 25, 1984, 130 SCRA 56]. The foregoing rule finds application in the case at bar. Absent a showing that the munici pal
council of Makati has passed an ordinance appropriating from its public funds an amount corresponding to the balance due under
the RTC decision dated June 4, 1987, less the sum of P99,743.94 deposited in Account No. S/A 265-537154-3, no levy under
execution may be validly effected on the public funds of petitioner deposited in Account No. S/A 263-530850-7.
c. CIR v. Algue GR L-28896 FEB. 17, 1988
FACTS: On January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction and other
allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes
for the years 1958 and 1959.

On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was
stamp received on the same day in the office of the petitioner.
ISSUE: whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private
respondent Algue as legitimate business expenses in its income tax returns.
HELD: Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand;
such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It
is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good, may be achieved.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to
the taxing authorities, every person who is able to must contribute his share in the running of the government. The government
for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people
and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the
erroneous notion that it is an arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and
the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate, as it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the respondent
court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the private respondent was
permitted under the Internal Revenue Code and should therefore not have been disallowed by the petitioner.
d. BPI-FAMILY SAVINGS BANK, Inc., vs. COURT OF APPEALS, COURT OF TAX APPEALS and the
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 122480 April 12, 2000
FACTS: It appears from the foregoing 1989 Income Tax Return that petitioner had a total refundable amount of P297,492
inclusive of the P112,491.00 being claimed as tax refund in the present case. However, petitioner declared in the same 1989
Income Tax Return that the said total refundable amount of P297,492.00 will be applied as tax credit to the succeeding taxable
year.
On October 11, 1990, petitioner filed a written claim for refund in the amount of P112,491.00 with the respondent Commissioner
of Internal Revenue alleging that it did not apply the 1989 refundable amount of P297,492.00 (including P112,491.00) to its 1990
Annual Income Tax Return or other tax liabilities due to the alleged business losses it incurred for the same year.
Page 12 of 40

Without waiting for respondent Commissioner of Internal Revenue to act on the claim for refund, petitioner filed a petition for
review with respondent Court of Tax Appeals, seeking the refund of the amount of P112,491.00.
The respondent Court of Tax Appeals dismissed petitioner's petition on the ground that petitioner failed to present as evidence
its corporate Annual Income Tax Return for 1990 to establish the fact that petitioner had not yet credited the amount of
P297,492.00 (inclusive of the amount P112,491.00 which is the subject of the present controversy) to its 1990 income tax liability.
Petitioner filed a motion for reconsideration, however, the same was denied by respondent court in its Resolution dated May 6,
1994. Respondent Courts contend that taxes must be applied strictissimi juris.
ISSUE: Whether or not petitioner is entitled to the refund of P112,491.90, representing excess creditable withholding tax paid for
the taxable year 1989
HELD: Petition granted.
CA gave judgment that is premised on a misapprehension of facts, or when the appellate court failed to notice certain relevant
facts which if considered would justify a different conclusion.
Petitioner claimed that it would apply its excess of withholding tax as a tax credit, however due to its losses it opted to apply for
a tax refund wherein the petitioner filed with the BIR and the latter failed to act on the issue, petitioner then filed wi th CTA and
has presumed that the Petitioner applied the excess of withholding tax as a tax credit for the following year. Respondent courts
have failed to look upon the attached documents for the application of tax credit.
Respondents argue that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the
claimant. Under the facts of this case, we hold that petitioner has established its claim. Petitioner may have failed to stri ctly
comply with the rules of procedure; it may have even been negligent. These circumstances, however, should not compel the
Court to disregard this cold, undisputed fact: that petitioner suffered a net loss in 1990, and that it could not have applied the
amount claimed as tax credits.
Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms, however exalted, should not be
misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding
citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same
standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example of honor,
dignity and uprightness.






3. Taxes distinguished from:
a. Debts
- A tax is not a debt for the reason that a tax does not depend upon the consent of the taxpayer and there is
no express or implied contarct to pay taxes. (Dimaampao p. 32)
Tax Debt

An obligation imposed by law

Created by contract

Due to the government in its sovereign capacity

May be due to the government but in its corporate capacity

Page 13 of 40

Payable in money Payable in money, property or services

Does not draw interest except in case of delinquency

Draws interest if stipulated or delayed

Not assignable

Assignable

Not subject to compensation or set-off

Subject to compensation or set-off under Art. 1278 of the Civil
Code

Non-payment is punished by imprisonment except in poll tax

No imprisonment in case of non-payment (Art. III, Sec. 20 1987
Constitution)

Imposed only by public authority

Can be imposed by private individual
(San Beda Memory Aid p. 05) (Aban p. 18-22) (Dimaampao p. 32-35)

i. 71 Am Jur 2
nd
345-346



ii. Caltex v. COA, 208 SCRA 726

FACTS:The case involves questioning the authority of the Commission on Audit (COA) in disallowing petitioner's claims for
reimbursement from the Oil Price Stabilization Fund (OPSF) and seeking the reversal of said Commission's decision denying its claims
for recovery of financing charges from the Fund and reimbursement of under recovery arising from sales to the National Power
Corporation, Atlas Consolidated Mining and Development Corporation (ATLAS) and Marcopper Mining Corporation (MAR-COPPER),
preventing it from exercising the right to offset its remittances against its reimbursement vis-a-vis the OPSF and disallowing its
claims which are still pending resolution before the Office of Energy Affairs (OEA) and the Department of Finance (DOF).

ISSUE:Whether or not COA is authorized in disallowing petitioners claim for reimbursement

HELD: Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of the Department of Finance to
determine or define "other factors" is to uphold an undue delegation of legislative power, it clearly appearing that the subject
provision does not provide any standard for the exercise of the authority. It is a fundamental rule that delegation of legisl ative
power may be sustained only upon the ground that some standard for its exercise is provided and that the legislature, in making the
delegation, has prescribed the manner of the exercise of the delegated authority.

Respondents, on the other hand, citing Francia vs. IAC and Fernandez,
53
contend that there can be no offsetting of taxes against the
claims that a taxpayer may have against the government, as taxes do not arise from contracts or depend upon the will of the
taxpayer, but are imposed by law. Respondents also allege that petitioner's reliance on Section 21, Book V, Title I-B of the Revised
Administrative Code, is misplaced because "while this provision empowers the COA to withhold payment of a government
indebtedness to a person who is also indebted to the government and apply the government indebtedness to the satisfaction of the
obligation of the person to the government, like authority or right to make compensation is not given to the private person."
54
The
reason for this, as stated in Commissioner of Internal Revenue vs.Algue, Inc.,
55
is that money due the government, either in the form
of taxes or other dues, is its lifeblood and should be collected without hindrance. Thus, instead of giving petitioner a reason for
compensation or set-off, the Revised Administrative Code makes it the respondents' duty to collect petitioner's indebtedness to the
OPSF.

Refuting respondents' contention, petitioner claims that the amounts due from it do not arise as a result of taxation because "P.D.
1956, amended, did not create a source of taxation; it instead established a special fund . . .,"
56
and that the OPSF contributions do
Page 14 of 40

not go to the general fund of the state and are not used for public purpose, i.e., not for the support of the government, the
administration of law, or the payment of public expenses. This alleged lack of a public purpose behind OPSF exactions distinguishes
such from a tax. Hence, the ruling in the Francia case is inapplicable.

We find no merit in petitioner's contention that the OPSF contributions are not for a public purpose because they go to a special
fund of the government. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the
government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened
industry which is affected with public interest as to be within the police power of the state.
57
There can be no doubt that the oil
industry is greatly imbued with public interest as it vitally affects the general welfare. Any unregulated increase in oil prices could
hurt the lives of a majority of the people and cause economic crisis of untold proportions. It would have a chain reaction in terms of,
among others, demands for wage increases and upward spiralling of the cost of basic commodities. The stabilization then of oil
prices is of prime concern which the state, via its police power, may properly address.

It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the
subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for
taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

iii. Francia v. IAC, 162 SCRA 753

FACTS: Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro,
now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about 328 square meters, is described and covered by
Transfer Certificate of Title No. 4739 (37795) of the Registry of Deeds of Pasay City.
On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the
sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sol d at
public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property
Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas.

On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of Title"
filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate of title.
Upon verification through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City
Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795)
by the Register of Deeds.

On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980.

The Intermediate Appellate Court affirmed the decision of the lower court in toto. Hence, this petition for review.

ISSUE: Whether or not the auction sale is valid.

HELD: YES. There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax is being
collected. The collection of a tax cannot await the results of a lawsuit against the government.

In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not be the subject of
set-off or compensation. We stated that:

A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are
construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality
to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise
out of the contract or transaction sued on. ... (80 C.J.S., 7374). "The general rule based on grounds of public policy is well-settled that
no set-off admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general
rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the
positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is not required.
..."

Page 15 of 40

We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the
governmental body not included in the tax levy.

This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal revenue taxes can not be
the subject of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other' under Article
1278 of the Civil Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off."

There are other factors which compel us to rule against the petitioner. The tax was due to the city government while the
expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for
the 125 square meter portion of his lot was deposited with the Philippine National Bank long before the sale at public auction of his
remaining property. Notice of the deposit dated September 28, 1977 was received by the petitioner on September 30, 1977. The
petitioner admitted in his testimony that he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would
have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sal e at
public auction.

iv. Philex Mining Corp. v. CIR, CA and CTA, GR NO. 125704, AUG. 28, 1998
FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CA-G.R. SP No.
36975
1
affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16, 1995
2
ordering it to pay the amount of
P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual
interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977.
ISSUE: Whether or not the tax liability can be offset
HELD: In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be subject to
compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other.
17
There is a
material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the
Government in its sovereign capacity. We find no cogent reason to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court,
19
we categorically held that taxes cannot be subject to
set-off or compensation, thus:
We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than
the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on Audit,
20
which reiterated
that:
. . . a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of
compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes i s
not such a debt, demand, contract or judgment as is allowed to be set-off.
Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc., wherein we ruled that a
pending refund may be set off against an existing tax liability even though the refund has not yet been approved by the
Commissioner,
21
is no longer without any support in statutory law.
It is important to note, that the premise of our ruling in the aforementioned case was anchored on Section 51 (d) of the Nati onal
Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the same provision upon which
the Itogon-Suyoc pronouncement was based was omitted.
22
Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be
invoked by Philex.
We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax law that taxes are the lifeblood of
the government and so should be collected without unnecessary hindrance.
24
Evidently, to countenance Philex's whimsical reason
would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund
or credit against the government which has not yet been granted. It must be noted that a distinguishing feature of a tax is that it is
compulsory rather than a matter of bargain.
25
Hence, a tax does not depend upon the consent of the taxpayer.
26
If any taxpayer can
defer the payment of taxes by raising the defense that it still has a pending claim for refund or credit, this would adversel y affect the
Page 16 of 40

government revenue system. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the
government or that the collection of the tax is contingent on the result of the lawsuit it filed against the government.
27
Moreover,
Philex's theory that would automatically apply its VAT input credit/refund against its tax liabilities can easily give rise to confusion
and abuse, depriving the government of authority over the manner by which taxpayers credit and offset their tax liabilities.
We agree with Philex. While there is no dispute that a claimant has the burden of proof to establish the factual basis of his or her
claim for tax credit or refund,
33
however, once the claimant has submitted all the required documents it is the function of the BIR to
assess these documents with purposeful dispatch. After all, since taxpayers owe honestly to government it is but just that
government render fair service to the taxpayers.
v. Domingo v. Garlitos GR-L18994, june 29, 1963

FACTS: This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Ron. Lorenzo C.
Garlitos, presiding, seeking to annul certain orders of the court and for an order in this Court directing the respondent court
below to execute the judgment in favor of the Government against the estate of Walter Scott Price for internal revenue taxes.

ISSUE: Whether or not the petitioner has a right to execute judgment against the estate

HELD: The petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price.

The petition to set aside the above orders of the court below and for the execution of the claim of the Government against the
estate must be denied for lack of merit. The ordinary procedure by which to settle claims of indebtedness against the estate of a
deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so that said court may
order the administrator to pay the amount thereof.

b. License Fees
Tax License Fee

Based on the power of taxation

Emanates from police power

To generate revenue

Regulatory

Amount is unlimited

Amount is limited to the cost of (1) issuing the license, and
(2) inspection and surveillance

Normally paid after the start of a business

Normally paid before commencement of business

Taxes, being the lifeblood of the State, cannot be
surrendered except for lawful consideration

License fee may be with or without consideration

Non-payment does not make the business illegal but maybe a
ground for criminal prosecution

Non-payment makes the business illegal

(San Beda Memory Aid p. 05) (Dimaampao p. 30-31) (Aban p. 16-18)
i. 71 Am Jur 2
nd
352-353



ii. PROGRESSIVE DEVELOPMENT CORPORATION, vs. QUEZON CITY, G.R. No. L-36081 April
24, 1989
Page 17 of 40

FACTS: On 15 July 1972, petitioner Progressive Development Corporation, owner and operator of a public market known as the
"Farmers Market & Shopping Center" filed a Petition for Prohibition with Preliminary Injunction against respondent before the then
Court of First Instance of Rizal on the ground that the supervision fee or license tax imposed by the above-mentioned ordinances is
in reality a tax on income which respondent may not impose, the same being expressly prohibited by Republic Act No. 2264, as
amended.
In its Answer, respondent, through the City Fiscal, contended that it had authority to enact the questioned ordinances, maintaining
that the tax on gross receipts imposed therein is not a tax on income. The Solicitor General also filed an Answer arguing that
petitioner, not having paid the ten percent (10%) supervision fee prescribed by Ordinance No. 7997, had no personality to question,
and was estopped from questioning, its validity; that the tax on gross receipts was not a tax on income but one imposed for the
enjoyment of the privilege to engage in a particular trade or business which was within the power of respondent to impose.
On 21 October 1972, the lower court dismissed the petition, ruling 3 that the questioned imposition is not a tax on income, but
rather a privilege tax or license fee which local governments, like respondent, are empowered to impose and collect.
ISSUE: whether the tax imposed by respondent on gross receipts of stall rentals is properly characterized as partaking of the nature
of an income tax or, alternatively, of a license fee.
HELD: The term "tax" frequently applies to all kinds of exactions of monies which become public funds. It is often loosely used to
include levies for revenue as well as levies for regulatory purposes such that license fees are frequently called taxes although license
fee is a legal concept distinguishable from tax: the former is imposed in the exercise of police power primarily for purposes of
regulation, while the latter is imposed under the taxing power primarily for purposes of raising revenues. 9 Thus, if the generating of
revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose,
the fact that incidentally revenue is also obtained does not make the imposition a tax.
To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages the public interest
in health, morals, safety and development as to require regulation for the protection and promotion of such public interest; the
imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the costs of
direct regulation but also its incidental consequences as well. When an activity, occupation or profession is of such a character that
inspection or supervision by public officials is reasonably necessary for the safeguarding and furtherance of public health, morals and
safety, or the general welfare, the legislature may provide that such inspection or supervision or other form of regulation shall be
carried out at the expense of the persons engaged in such occupation or performing such activity, and that no one shall engage in
the occupation or carry out the activity until a fee or charge sufficient to cover the cost of the inspection or supervision has been
paid. Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a
tax rather than an exercise of the police power.
We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236 constitutes, not a tax on income, not
a city income tax (as distinguished from the national income tax imposed by the National Internal Revenue Code) within the
meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of the business in whi ch the
petitioner is engaged. While it is true that the amount imposed by the questioned ordinances may be considered in determining
whether the exaction is really one for revenue or prohibition, instead of one of regulation under the police power, it nevertheless
will be presumed to be reasonable. Local' governments are allowed wide discretion in determining the rates of imposable license
fees even in cases of purely police power measures, in the absence of proof as to particular municipal conditions and the nature of
the business being taxed as well as other detailed factors relevant to the issue of arbitrariness or unreasonableness of the
questioned rates.
The use of the gross amount of stall rentals as basis for determining the collectible amount of license tax, does not by itself, upon
the one hand, convert or render the license tax into a prohibited city tax on income. Upon the other hand, it has not been suggested
that such basis has no reasonable relationship to the probable costs of regulation and supervision of the petitioner's kind of
business. For, ordinarily, the higher the amount of stall rentals, the higher the aggregate volume of foodstuffs and related items sold
in petitioner's privately owned market; and the higher the volume of goods sold in such private market, the greater the extent and
frequency of inspection and supervision that may be reasonably required in the interest of the buying public. Moreover, what we
started with should be recalled here: the authority conferred upon the respondent's City Council is not merely "to regulate" but also
embraces the power "to tax" the petitioner's business.
. As a general rule, there must be a statutory grant for a local government unit to impose lawfully a gross receipts tax, that unit not
having the inherent power of taxation. 21The rule, however, finds no application in the instant case where what is involved is an
exercise of, principally, the regulatory power of the respondent City and where that regulatory power is expressly accompanied by
the taxing power.
Page 18 of 40

ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City, Branch 18, is hereby AFFIRMED and the Court
Resolved to DENY the Petition for lack of merit.
iii. PAL v. Edu, 164 SCRA 320
FACTS: The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines and engaged in the ai r
transportation business under a legislative franchise, Act No. 42739, as amended by Republic Act Nos. 25). and 269.1 Under its
franchise, PAL is exempt from the payment of taxes.
On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has, since 1956, not been paying motor
vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all tax exempt entities, among
them PAL to pay motor vehicle registration fees.
ISSUE: Whether or not motor vehicle registration fees are taxes or regulatory fees.
HELD: Fees may be properly regarded as taxes even though they also serve as an instrument of regulation. Taxation may be made
the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148).
If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly
called a tax (Umali, Id.) Such is the case of motor vehicle registration fees. The conclusions become inescapable in view of Section
70(b) of Rep. Act 587 quoted in the Calalang case. The same provision appears as Section 591-593). in the Land Transportation code.
It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to the imposition on the registration,
operation or ownership of a motor vehicle as a "tax or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the
imposition is a tax, Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the ownership of any motor
vehicle, or for the exercise of the profession of chauffeur ..." making the intent to impose a tax more apparent. Thus, even Rep. Act
5448 cited by the respondents, speak of an "additional" tax," where the law could have referred to an original tax and not one in
addition to the tax already imposed on the registration, operation, or ownership of a motor vehicle under Rep. Act 41383. Simply
put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an "additional"
tax. Rep. Act 4136 also speaks of other "fees," such as the special permit fees for certain types of motor vehicles (Sec. 10) and
additional fees for change of registration (Sec. 11). These are not to be understood as taxes because such fees are very minimal to
be revenue-raising. Thus, they are not mentioned by Sec. 591-593). of the Code as taxes like the motor vehicle registration fee and
chauffers' license fee. Such fees are to go into the expenditures of the Land Transportation Commission as provided for in the last
proviso of see. 61, aforequoted.
It is quite apparent that vehicle registration fees were originally simple exceptional. intended only for rigidly purposes in the exercise
of the State's police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absol ute
necessities without which modem life as we know it would stand still, Congress found the registration of vehicles a very convenient
way of raising much needed revenues. Without changing the earlier deputy. of registration payments as "fees," their nature has
become that of "taxes."

iv. ESSO v. CIR, 175 SCRA 149
FACTS: On appeal before us is the decision of the Court of Tax Appeals
1
denying petitioner's claims for refund of overpaid income
taxes of P102,246.00 for 1959 and P434,234.93 for 1960 in CTA Cases No. 1251 and 1558 respectively

ISSUE: whether OR NOT R.A. 2009, entitled An Act to Authorize the Central Bank of the Philippines to Establish a Margin Over Banks'
Selling Rates of Foreign Exchange, is a police measure or a revenue measure.

HELD: Taxation; Police Power; Margin fee is not a tax but an exactiondesigned to curb the excessive demands upon international
reserves; Definition of Margin Levy; Distinguished from tax. Apart from the aboveconsideration, there are at least two cases where
we have held that amargin fee is not a tax but an exaction designed to curb the excessivedemands upon our international reserve. In
Caltex (Phil.) Inc. v. Acting Commissioner of Customs, the Court stated through Justice Jose P.Bengzon: A margin levy on foreign
exchange is a form of exchange control or restriction designed to discourage imports and encourage exports, and ultimately, 'curtail
any excessive demand upon the international reserve' in order to stabilize the currency. Originally adopted to cope with balance of
payment pressures, exchange restrictions have come to serve various purposes, such as limiting non-essential imports, protecting
domestic industry and when combined with the use of multiple currency rates providing a source of revenue to the government, and
are in many developing countries regarded as a more or less inevitable concomitant of their economic development programs. The
Page 19 of 40

different measures of exchange control or restriction cover different phases of foreign exchange transactions, i.e., in quantitative
restriction, the control is on the amount of foreign exchange allowable. In the case of the margin levy, the immediate impact is on
the rate of foreign exchange; in fact, its main function is to control the exchange rate without changing the par value of the peso as
fixed in the Bretton Woods Agreement Act. For a member nation is not supposed to alter its exchange rate (at par value) to correct a
merely temporary disequilibrium in its balance of payments. By its nature, the margin levy is part of the rate of exchange as fixed by
the government.

We conclude then that the margin fee was imposed by the State in the exercise of its police power and not the power of taxation.

The public respondent is correct when it asserts that "the paramount rule is that claims for deductions are a matter of legislative
grace and do not turn on mere equitable considerations ... . The taxpayer in every instance has the burden of justifying the
allowance of any deduction claimed."

c. Special Assessments
- Exemption under Sec. 28 (3), Art. VI of the Constitution does not apply to special
assessments
- Sec. 240 of the LGC, properties which are actually, directly and exclusively used for
religious, charitable and educational purposes are not only exempt from real property taxes but are
exempt from the imposition of Special Assessments as well. (Aban p. 16)
Tax Special Assessment

Imposed on persons, property and excises

Levied only on land

Personal liability attaches on the person assessed in case of non-
payment

Cannot be made a personal liability of the person assessed

Not based on any special or direct benefit

Based wholly on benefit

Levied and paid annually

Exceptional both as to time and locality

Exemption granted is applicable (Art. VI, Sec. 28(3) 1987
Constitution)

Exemption does not apply.
N.B. If property is exempt from Real Property Tax, it is also
exempt from Special Assessment.
(San Beda Memory aid) (Dimaampao p. 30) (Aban p.15-16)

i. Apostolic Prefect of Mt. Province vs Treasurer of Baguio 71 Phil. 547
FACTS: In 1937, an ordinance (Ord. 137) was passed in the City of Baguio. The said ordinance sought to assess properties of property
owners within the defined city limits.
APMP, on the other hand, is a religious corporation duly established under Philippine laws. Pursuant to the ordinance, it
contributed a total amount of P1,019.37. It filed the said contribution in protest. APMP later averred that it should be exempt from
the said special contribution since as a religious institution, it has a constitutionally guaranteed right not to be taxed including its
properties.

ISSUE: Whether or not APMP is exempt from taxes

HELD: The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. Based on Justice
Cooleys words: "While the word 'tax' in its broad meaning, includes both general taxes and special assessments, and in a general
sense a tax is an assessment, and an assessment is a tax, yet there is a recognized distinction between them in that assessment is
confined to local impositions upon property for the payment of the cost of public improvements in its immediate vicinity and levied
with reference to special benefits to the property assessed.
Page 20 of 40


The differences between a special assessment and a tax are that (1) a special assessment can be levied only on land; (2) a special
assessment cannot (at least in most states) be made a personal liability of the person assessed; (3) a special assessment is based
wholly on benefits; and (4) a special assessment is exceptional both as to time and locality.

The imposition of a charge on all property, real and personal, in a prescribed area, is a tax and not an assessment, although the
purpose is to make a local improvement on a street or highway.

A charge imposed only on property owners benefited is a special assessment rather than a tax notwithstanding the statute calls it a
tax." In the case at bar, the Prefect cannot claim exemption because the assessment is not taxation per se but rather a system for
the benefits of the inhabitants of the city.

d. Tolls
Tax Toll

Enforced proportional contributions from persons and property

A sum of money for the use of something, a consideration which
is paid for the use of a property which is of a public nature; e.g.
road, bridge

A demand of sovereignty

A demand of proprietorship/ ownership

No limit as to the amount of tax

Amount of toll depends upon the cost of construction or
maintenance of the public improvement used

Imposed only by the State

May be imposed by:
(1) Government
(2) Private individuals or entities
(San Beda Memory Aid p. 06)(Dimaampao p. 31) (Aban p. 14)

i. 71 Am Jur 2
nd
351



ii. CITY of Ozamiz vs. Lumapas, GR No. L-30727, July 15, 1975
Facts: Lumapas is an operator of transportation buses for passengers and cargoes, with Ozamiz City and Pagadian,Zamboanga del
Sur, as terminal points, by virtue of a certificate of public convenience issued to him by the PublicService Commission.

The Municipal Board of Ozamiz City enacted Ordinance 466 (An Ordinance Imposing Parking Fees for Every MotorVehicle Parked on
any Portion of the Existing Parking Space in the City of Ozamiz).

Sec. 3 thereof defined parking as: "Parking" as used in this ordinance shall be construed to mean, when amotor vehicle of whatever
kind is stopped on any portion of the existing parking areas for the purpose of loading and unloading passengers or cargoes.

Lumapas paid P1,259 under protest and filed a complaint against the City of Ozamiz for recovery of parking fees,alleging that
Ordinance 466 was ulta vires and prayed that judgment be issued nullifying the ordinance.

City of Ozamiz asserted that the parking zone was patrimonial in character; thus, the City was authorized by Section2308 (f) of the
Revised Administrative Code, and Section 15 (y) of the Charter of Ozamiz City (RA 321) to imposeparking fees.

Also, the charter authorizes the Municipal Board to regulate the use of streets which carries with it the powerto impose fees for its
implementation;

Pursuant to such power, the Municipal Board passed said ordinance, the purpose of which is to minimizeaccidents, to avoid
congestion of traffic, to enable the passengers to know the exact time of the departure of trucks;

Page 21 of 40

Section 2 of the Local Autonomy Law (RA 2264) likewise empowers the local governments to impose taxesand fees, except those
that are enumerated therein, and parking fee is not among the exceptions; and

The word "parking" implies a stationary condition and the parking fees provided for in Ordinance No. 466 arefor the privilege of
using the designated parking area, which is owned by the City of Ozamiz, as its patrimonialproperty.


Lumapas insisted that Ozamiz City had no power to impose parking fees on motor vehicles parked on Zulueta Street,which is
property for public use.

Because of this, Ordinance 466 imposing such fees was null and void;

The use of Zulueta Street as a parking place is only incidental to the free passage of motor vehicles and assuch, the prohibi tion to
impose taxes or fees embodied in Section 59[b] of RA 4136 applies to this case;

Section 2308[f] of the Revised Administrative Code and Section 15[y] of the Charter of Ozamiz City (RA 321)do not empower the City
to impose parking fees; and

Since the power to impose parking fees is not among those conferred by the Local Autonomy Act on localgovernment, said City
cannot, therefore, impose such parking fees.

Court rendered judgment declaring the parking fee was in the nature of toll fees for the use of public road and made inviolation of
Section 59[b] of RA 4136 (Land Transportation and Traffic Code), there being no prior approval by thePresident of the Philippines
upon recommendation of the Secretary of Public Works and Communications.

Hence, the present appeal by certiorari.

Issue: Does the ordinance charge a parking fee or a toll fee?

Parking fee, for the regulation of the use of Ozamizs streets.
The buses stop on the extended portion of Zulueta Street beside the public market. As soon as they were loaded, theyproceeded to
the station where a toll clerk collected the parking fee of P1.00 per bus once a day, before said buseswere allowed to proceed to
their destination.
Lumapas insists that this was not parking, but a toll fee for the use of the street.
Since toll fees require authorization from the President, the City was not authorized to impose a toll fee in the guise of a parking fee.
"Parking " ordinarily implies "something more than a mere temporary and momentary stoppage at a curb for the purpose of loading
or unloading passengers or merchandize; it involves the idea of using a portion of the street as storage space for an automobile
However, Section 3 of Ordinance No. 466 defines the word 'parking' to mean the stoppage of a motor vehicle of whatever kind on
any portion of the existing parking areas for the purpose of loading and unloading passengers or cargoes.The word "Toll when used
in connection with highways has been defined as a duty imposed on goods and passengers travelling public roads.
The toll for use of a toll road is for its use in travelling thereon, not for its use as a parking place for vehicles.
Considering that the buses are only charged the fee when they Stop on "any portion of the existing parking areas for the purpose of
loading or unloading passengers or cargoes," the fees collected are actually in the nature of parking fees and not toll fees for the use
of Zulueta Street.
This is clear from the facts which show that fees were not exacted for mere passage thru the street but forstopping in the
designated parking areas therein to unload or load passengers or cargoes.
It was not, therefore a toll fee for the use of public roads, within the context of Section 59[b] of RA 4136, whichrequires the
authorization of the President of the Philippines.
Dispositive:
CFI reversed. Ordinance valid.

e. Penalties
Page 22 of 40

Tax Penalty

Civil liability

Punishment for the Commission of a crime

Enforced proportional contributions from persons and
property

Sanction imposed as a punishment for violation of a law or
acts deemed injurious; violation of tax laws may give rise to
imposition of penalty

Intended to raise revenue

Designed to regulate conduct

May be imposed only by the government

May be imposed by:
(1) Government
(2) Private individuals or entities
(San Beda Memory Aid p. 06)(Dimaampao p. 31-32) (Aban p. 14-15)

i. NDC v. CIR 151 SCRA 472
FACTS: The national Development Company entered into contracts in Tokyo with several Japanese shipbuilding companies for
the construction of twelve ocean-going vessels. 1 The purchase price was to come from the proceeds of bonds issued by the
Central Bank.
2
Initial payments were made in cash and through irrevocable letters of credit.
3
Fourteen promissory notes were
signed for the balance by the NDC and, as required by the shipbuilders, guaranteed by the Republic of the Philippines.
4
Pursuant
thereto, the remaining payments and the interests thereon were remitted in due time by the NDC to Tokyo. The vessels were
eventually completed and delivered to the NDC in Tokyo.
5

The NDC remitted to the shipbuilders in Tokyo the total amount of US$4,066,580.70 as interest on the balance of the purchase
price. No tax was withheld. The Commissioner then held the NDC liable on such tax in the total sum of P5,115,234.74.
Negotiations followed but failed. The BIR thereupon served on the NDC a warrant of distraint and levy to enforce collection of
the claimed amount.
6
The NDC went to the Court of Tax Appeals.
The BIR was sustained by the CTA except for a slight reduction of the tax deficiency in the sum of P900.00, representing the
compromise penalty.
7
The NDC then came to this Court in a petition for certiorari.

HELD: The imposition of the deficiency taxes on the NDC is a penalty for its failure to withhold the same from the Japanese
shipbuilders. Such liability is imposed by Section 53(c) of the Tax Code, thus:

Section 53(c). Return and Payment. Every person required to deduct and withhold any tax under this section shall make
return thereof, in duplicate, on or before the fifteenth day of April of each year, and, on or before the time fixed by law for the
payment of the tax, shall pay the amount withheld to the officer of the Government of the Philippines authorized to receive it.
Every such person is made personally liable for such tax, and is indemnified against the claims and demands of any person for
the amount of any payments made in accordance with the provisions of this section. (As amended by Section 9, R.A. No. 2343.)
In Philippine Guaranty Co. v. The Commissioner of Internal Revenue and the Court of Tax Appeals, 13 the Court quoted with
approval the following regulation of the BIR on the responsibilities of withholding agents:

In case of doubt, a withholding agent may always protect himself by withholding the tax due, and promptly causing a query to
be addressed to the Commissioner of Internal Revenue for the determination whether or not the income paid to an individual is
not subject to withholding. In case the Commissioner of Internal Revenue decides that the income paid to an individual is not
subject to withholding, the withholding agent may thereupon remit the amount of a tax withheld. (2nd par., Sec. 200, Income
Tax Regulations).

"Strict observance of said steps is required of a withholding agent before he could be released from liability," so said
Justice Jose P. Bengson, who wrote the decision. "Generally, the law frowns upon exemption from taxation; hence, an
exempting provision should be construed strictissimi juris."
The petitioner was remiss in the discharge of its obligation as the withholding agent of the government and so should
be held liable for its omission.

Page 23 of 40

f. Custom Duties

TAX CUSTOMS DUTY
Coverage More comprehensive than
customs duty
Kind of tax
Object Persons, prop, etc Goods imported
or exported
Charged upon commodities in their
being imported into or exported from a
country.
Custom fees are regulatory imposts on
goods.
(Ateneo Law Reviewer2012 p.14) ( Aban p. 23)


III. CLASSIFICATION OF TAXES
g. TAX CUSTOMS DUT
11.1. As to subject matter or object
a. 71 Am Jur 2
nd
357-361



b. personal, poll or capitation
- Taxes are of fixed amount upon all persons of a certain class within the jurisdiction of the taxing power
without regard to property, occupation or business in which they may be engaged. (Aban p. 23)

c. property
- imposed on property, real or personal, in proportion to its value, or in accordance with some reasonable
method or apportionment. Ex. Real estate Tax (Dimaampao p. 136)

- are taxes assessed on all property or all property of a certain class within the jurisdiction of the taxing power.
(Aban p. 23)

d. Excise
- A tax on the exercise of right or privilege or performance of an act. Ex. Income tax, donors tax and VAT
(Dimaampao p. 136)

- are laid upon the manufacture, sale, or consumption of commodities within the country; upon licenses to
pursue certain occupations and upon corporate privileges. (Aban p. 26)

2. As to incidence or burden
a. 71 Am Jur 2
nd
354



b. Direct
- is a tax for which a taxpayer is directly liable on the transaction or business it engages in. Ex. Ad valorem,
custom duties (Dimaampao p. 134)
- are taxes wherein both the incidence of and liability for the payment of the tax as well as the impact or
burden of the tax falls on the same person. Ex. Income tax, estate and donors tax (Aban p. 23)

c. Indirect
- Is a tax primarily paid by persons who can shift the burden upon someone else. Ex. Excise and ad valorem
tax. The liability to pay lies only with the seller of the goods or services, not in the buyer thereof.
(Dimaampao p. 134)

Page 24 of 40

i. MACEDA V. MACARAIG GR. NO. 88291, JUN 08 1993
FACTS: A Chronological review of the relevant NPC laws, especially with respect to its tax exemption provisions, at the risk of being
repetitious is, therefore, in order. Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the development
of hydraulic power and the production of power from other sources. On June 4, 1949, Republic Act No. 357 was enacted authorizing
the President of the Philippines to guarantee, absolutely and unconditionally, as primary obligor, the payment of any and all NPC
loans.

He was also authorized to contract on behalf of the NPC with the International Bank for Reconstruction and Development (IBRD) for
NPC loans for the accomplishment of NPC's corporate objectives and for the reconstruction and development of the economy of the
country. It was expressly stated that: Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges, contributions
and restrictions of the Republic of the Philippines, its provinces, cities and municipalities. On the same date, R.A. No. 358 was
enacted expressly authorizing the NPC, for the first time, to incur other types of indebtedness, aside from indebtedness incurred by
flotation of bonds. As to the pertinent tax exemption provision, the law stated as follows: To facilitate payment of its indebtedness,
the National Power Corporation shall be exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities. On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax
exemption for real estate taxes. On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120, as
amended. A new section was added to the charter, now known as Section 13, R.A. No. 6395, which declares the non-profit character and tax
exemptions of NPC as follows: The Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as
excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in Section one of this Act, the Corporation is hereby declared
exempt: library (a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees in any court or administrative
proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its provinces, cities, and
municipalities and other government agencies and instrumentalities; (b) From all income taxes, franchise taxes and realty taxes
to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities;
virtual law library (c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign
goods required for its operations and projects; and (d) From all taxes, duties, fees, imposts and all other charges its provinces, cities,
municipalities and other government agencies and instrumentalities, on all petroleum products used by the Corporation in the
generation, transmission, utilization, and sale of electric power. On January 22, 1974, P.D. No. 380 was issued giving extra powers
to the NPC to enable it to fulfill its role under aforesaid P.D.
PD 938integrated the exemptions in favor of GOCCs including their subsidiaries;
however, empowering the President or the Minister of Finance, upon recommendation of the Fiscal Incentives Review Board (FIRB)
to restore, partially or completely, the exemptions withdrawn or revised. The FIRB issued Resolution 10-85 (7 February 1985)
restoring the duty and tax exemptions privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 1-86 (1January
1986) restored such exemption indefinitely effective 1July 1985. EO 93 (1987) again withdrew the exemption. FIRB issued Resolution
17-87 (24 June 1987) restoring NAPOCORs exemption, which was approved by the President on 5 October 1987.Since 1976, oil firms
never paid excise or specific and ad valorem taxes for petroleum products sold and delivered to NAPOCOR. Oil companies started to
pay specific and ad valorem taxes on their sales of oil products to NAPOCOR only in 1984. NAPOCOR claimed for a refund (P468.58
million). Only portion thereof, corresponding to Caltex, was approved and released by way of a tax credit memo. The claim for
refund of taxes paid by PetroPhil, Shell and Caltex amounting to P410.58 million was denied. NAPOCOR moved for reconsideration,
starting that all deliveries of petroleum products to NAPOCOR are tax exempt, regardless of the period of delivery.

ISSUES: 1.Whether NAPOCOR cease to enjoy exemption from indirect tax when PD 938 stated the exemption in general terms2.
Whether or not oil companies have to absorb the taxes they add to the bunker fuel oil they sell to NPC in view of the indirect
tax exemption of the NAPOCOR


RULING:
It should be noted that section 13, R.A. No. 6395, provided for tax exemptions for the following items::
13(a) : court or administrative proceedings
13(b) : income, franchise, realty taxes;c
13(c) : import of foreign goods required for its operations and projects;c
13(d) : petroleum products used in generation of electric power.

P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES, ETC.,", included 13(a) under the "as well as"
clause and added PNOC subsidiaries as qualified for tax exemptions. This is the only conclusion one can arrive at if he has read all the
NPC laws in the order of enactment or issuance as narrated above. President Marcos must have considered all the NPC statutes from
C.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No.395 and P.D. No. 759, AND came up with a very simple Section 13, R.A. No. 6395, as
amended by P.D. No. 938.virtual law
Library One common theme in all these laws is that the NPC must be enable to pay its indebtedness which, as of P.D. No. 938, was
P12Billion in total domestic indebtedness, at any one time, and U$4 Billion in total foreign loans at any one time. The NPC must be
and has to be exempt from all forms of taxes if this goal is to be achieved.

aThe tax exemption on foreign loans found in Section 8(b), R.A. No. 6395 and further amended by P.D. No. 380 which provides: The
loans, credits and indebtedness contracted this subsection and the payment of the principal, interest and other charges thereon, as
well as the importation of machinery, equipment, materials, supplies and services, by the Corporation, paid from the proceeds
Page 25 of 40

of any loan, credit or indebtedness incurred under this Act, shall also be exempt from all direct and indirect taxes, fees, imposts, other
charges and restrictions, including import restrictions previously and presently imposed , and to be imposed by the Republic of the
Philippines, or any of its agencies and political subdivisions.

P.D. No. 938 did not amend the same and so the tax exemption provision in Section 8 (b), R.A. No. 6395, as amended by P.D. No.380,
still stands. Since the subject matter of this particular Section 8 (b) had to do only with loans and machinery imported, pai d for from
the proceeds of these foreign loans, THERE WAS NO OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption stood as is -
with the express mention of "direct and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to
"taxes, fees, imposts, other charges . . . to be imposed" in the future - surely, an indication that the lawmakers wanted the NPC to be
exempt from ALL FORMS of taxes - direct and indirect.virt
ual law library It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both direct and indirect taxes
under P.D. No.938.

On the second issue, according to the Court, tax exemptions are undoubtedly to be construed strictly but not so grudgingly
asknowledge that many impositions taxpayers have to pay are in the nature of indirect taxes. To limit the exemption granted the
National Power Corporation to direct taxes notwithstanding the general and broad language of the statue will be to thwart the
legislative intention in giving exemption from all forms of taxes and impositions without distinguishing between those that are direct
and those that are not. (Emphasis supplied)

In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker fuel oil to NPC have to pay the
taxes imposed upon said bunker fuel oil sold to NPC. By the very nature of indirect taxation, the economic burden of such taxation is
expected to be passed on through the channels of commerce to the user or consumer of the goods sold. Because, however, the NPC
has been exempted from both direct and indirect taxation, the NPC must be held exempted from absorbing the economic burden
of indirect taxation. This means, on the one hand, that the oil companies which wish to sell to NPC absorb all or part of the economic
burden of the taxes previously paid to BIR, which they could shift to NPC if NPC did not enjoy exemption from indirect taxes. This
means also, on the other hand, that the NPC may refuse to pay the part of the "normal" purchase price of bunker fuel oil which represents all or part of the
taxes previously paid by the oil companies to BIR. If NPC nonetheless purchases such oil from the oil companies - because to do so
may be more convenient and ultimately less costly for NPC than NPC itself importing and hauling and storing the oil from overseas -
NPC is entitled to be reimbursed by the BIR for that part of the buying price of NPC which verifiably represents the tax already paid by the oil
company-vendor to the BIR.


ii. ABAKADA GURO V. EXEC. SEC. GR L-168056
FACTS: RA 9337: VAT Reform Act enacted on May 24, 2005. Sec. 4 (sales of goods and properties), Sec. 5 (importation of goods) and
Sec. 6 (services and lease of property) of RA 9337, in collective, granted the Secretary of Finance the authority to ascertain: (a)
whether by 12/31/05, the VAT collection as a percentage of the 2004 GDP exceeds 2.8% or (b)the national government deficit as a
percentage of the 2004 GDP exceeds 1.5%. If either condition is met, the Sec of Finance must inform the President who, in turn,
must impose the 12% VAT rate (from 10%) effective January 1, 2006.

ABAKADA maintained that Congress abandoned its exclusive authority to fix taxes and that RA 9337 contained a uniform proviso
authorizing the President upon recommendation by the DOF Secretary to rasie VAT to 12%.

Sen Pimentel maintained that RA 9337 constituted undue delegation of legislative powers and a violation of due process since the
law was ambiguous and arbitrary. Same with Rep. Escudero.

Pilipinas Shell dealers argued that the VAT reform was arbitrary, oppressive and confiscatory.

Respondents countered that the law was complete, that it left no discretion to the President, and that it merely charged the
President with carrying out the rate increase once any of the two conditions arise.

ISSUE: whether or not indirect tax is prohibited

HELD: As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax (VAT), as the confusion
and inevitably, litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or properties and
services. Being an indirect tax on expenditure, the seller of goods or services may pass on the amount of tax paid to the buyer, with
the seller acting merely as a tax collector. The burden of VAT is intended to fall on the immediate buyers and ultimately, the end-
consumers.

In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in, without transferring
the burden to someone else. Examples are individual and corporate income taxes, transfer taxes, and residence taxes.

Page 26 of 40

In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different mode. Prior to 1978, the
system was a single-stage tax computed under the "cost deduction method" and was payable only by the original sellers. The single-
stage system was subsequently modified, and a mixture of the "cost deduction method" and "tax credit method" was used to
determine the value-added tax payable. Under the "tax credit method," an entity can credit against or subtract from the VAT
charged on its sales or outputs the VAT paid on its purchases, inputs and imports.


It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT system was rationalized by
imposing a multi-stage tax rate of 0% or 10% on all sales using the "tax credit method."

E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law, R.A. No. 8241 or the Improved VAT Law,
17
R.A. No. 8424 or
the Tax Reform Act of 1997, and finally, the presently beleaguered R.A. No. 9337, also referred to by respondents as the VAT Reform
Act.

The Court will now discuss the issues in logical sequence.

The Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply provides is that Congress shall
"evolve a progressive system of taxation." The Court stated in the Tolentino case, thus:

The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simpl y provides
is that Congress shall evolve a progressive system of taxation. The constitutional provision has been interpreted to mean simply
that direct taxes are . . . to be preferred *and+ as much as possible, indirect taxes should be minimized. (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress is not to prescribe, but to evolve, a
progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with
the proclamation of Art. VIII, 17 (1) of the 1973 Constitution from which the present Art. VI, 28 (1) was taken. Sales taxes are also
regressive.

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by
imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this
imposition by providing for zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while granting
exemptions to other transactions. (R.A. No. 7716, 4 amending 103 of the NIRC)


3. As to determination of amount
a. 71 Am Jur 2
nd
355



b. specific
- imposed and based on weight or volume capacity or any other physical unit of measurement
Ex. Excise Tax on distilled spirits, fermented liquors, cigars (Dimaampao p. 136)
c. Ad Valorem taxes
- Is based on selling price or other specified value of the goods. Ex. Excise tax on automobiles and non-
essential goods. (Dimaampao p. 135-136)
- Is a tax upon the value of the article or thing subject to taxation. Ex. Real property tax (Aban p. 27)

SEC 129, NIRC:
SEC.129. Goods subject to Excise Taxes. - Excise taxes apply to goods manufactured or produced in the
Philippines for domestic sales or consumption or for any other disposition and to things imported. The
excise tax imposed herein shall be in addition to the value-added tax imposed under Title IV.

For purposes of this Title, excise taxes herein imposed and based on weight or volume capacity or any
other physical unit of measurement shall be referred to as 'specific tax' and an excise tax herein imposed
and based on selling price or other specified value of the good shall be referred to as 'ad valorem tax.'

i. TAN V. MUNICIPALITY OF PAGBILAO GR L- 14264

Page 27 of 40

FACTS: Defendant municipal corporation was the owner and operator of a wharf (Exhs. E & F). On May 31, 1956, the municipal
council of defendant municipality enacted Ordinance No. 11, series of 1956, imposing certain charges and/or fees on articles or
merchandises landed upon, or loaded from the said wharf and on the strip of shoreline adjacent thereto, measuring 300 meters. The
plaintiffs, who were fishermen, merchants and proprietors of Padre Burgos, Quezon, had to pass Pagbilao in order to bring their
goods consisting of fish, charcoal, copra, firewood and other merchandise to Lucena. The merchandise were transported in bancas
or motor boats from Padre Burgos and unloaded on the Pagbilao wharf or on the shoreline, from where they were brought to
Lucena by trucks.

Pursuant to the Ordinance, defendant municipality required plaintiffs to pay the charges and fees, which they did under protest. On
January 7, 1957, alleging that the Ordinance was ultra vires, in that the fees prescribed therein partake of the nature of import or
export taxes, in the guise of wharfage or rental fees,

The appellees maintain that the appellant municipality was devoid one right to pass the ordinance in question, since the Revi sed
Administrative Code also prohibits the imposition of tax on any goods or merchandise carried into or out of the municipality

ISSUE: Whether or not the ordinance is a valid exercise of imposition of tax.

HELD: In the light of the legal provisions applicable, We are of the opinion that the ordinance in question, is ultra vires, and hence,
null and void. The ordinance calls for a specific tax. It charges a specific sum, ranging from one centavo and up, by the head or
number, and requires no assessment beyond a listing and classification of the objects to be charged..

A tax which imposes a specific sum by the head or number, or some standard weight or measurement, and which requires no
assessment beyond a listing and classification of the objects to be taxed is specific tax. (We Wa Yu v. City of Lipa, G.R. No. L-9167,
Sept. 27, 1956)

Aside from being a specific tax, its nature as wharfage fee is also clear from the import of the ordinance, specifically paragraph 1,
which recites -.

PANGKAT 1. Ang lahat na mayari o tagapangasiwa ng mga sasakyan sa pantalang bayan, ay dapat magbigay-alam
sa kinauukulang katiwala ng pamahalaan, upang maisaayos ang pagdaung, pagbaba at pagsakay ng mga
kargamentos at iba pa.

The phraseology of the above paragraph points to the fact that the charges collected pursuant thereto, correspond to the words
"berthing, unloading and loading of cargoes or merchandise" which fall under the category of wharfage fees. The change or the
designation of the said fees as "rental of municipal property" did not change their basic character as "wharfage fees". Being a
specific tax, the municipality has no right to impose the same, for taxation is an attribute of sovereignty which municipal
corporation do not enjoy (Santo Lumber Co., et al v. City of Cebu, et al., L-10196, Jan. 22, 1958; 54 O.G. 5327; Saldana v. City of
Iloilo, L-10470, June 26, 1958). It shall not be in the power of the council to impose a tax in any form whatever upon goods and
merchandise carried into the municipality or out of the same, and any attempt to impose such tax in the guise of wharfage fee or
charge is void (Sec. 2287, Rev. Adm. Code). And being wharfage fee (Phil. Sugar Central v. Coll. of Customs, 51 Phil. 131), i t is
likewise beyond the power of the municipal council and municipal district council to impose (Sec. 3, Comm. Act No. 472, supra).
In the case at bar, aside from the fact that the right of the municipality to collect wharfage fees is doubtful for, at most, its claim is
based merely by inference, implications and deductions, which have no place in the interpretation of the power to tax of a
municipal corporation (Icard v. City Council of Baguio, et al., 46 Off. Gaz., Suppl. No. 11, p. 320; Medina, et al. v. City of Baguio, 48
Off. Gaz., 11, p. 4729) no less than two Secretaries of the Department of Justice, (Secretaries Jose Abad Santos & Bengzon)
expressed the opinion that, "in view of section 3, paragraph (t), Commonwealth Act No. 472, which expressly forbids municipalities
from imposing wharfage fees, a municipal ordinance levying wharfage or berthing fees is illegal and void, ... (Opinion No. 373, series
of 1940 and No. 165, series of 1951). Opinions and rulings of officials of the government called upon to execute or implement
administrative laws command much respect and weight (Regalado v. Yulo, 61 Phil. 173; Grapilon v. Mun. Council of Carigara, L-
12347, May 30, 1961)

It should be noted that previous to the ordinance in question (No. 11), ordinance No. 9 was enacted by the same municipal council,
providing for "wharfage fees" for goods and merchandise only. But because the Provincial Board ruled the to be null and void,
because the prescribed fees were unreasonable and were obviously export or import taxes in the guise of wharfage fees which are
contrary to the provisions of section 2287 of the Administrative Code, the municipal council of Pagbilao enacted Ordinance No. 11,
providing for the wharfage of boats and vessels and of goods and merchandise; and while it fixed the fees or charges for loading
and unloading goods and merchandise, it did not state the berthing fees for boats and vessels carrying the goods, all of which go to
Page 28 of 40

show that the council wanted only to impose specific tax on the goods and merchandise, which was the same objective it had,
when the annulled Ordinance No. 9 was promulgated.

4. As to purpose
a. 71 Am JUr 2
nd
355-356



b. General or fiscal
- imposed solely to raise revenue for the government. Ex. Income tax, VAT (Dimaampao p. 136)

c. Special, Regulatory or Sumptuary
- is imposed and collected to achieve a particular legitimate object of the government (Dimaampao p. 136)
- Sec. 29 [3], Art VI, 1987 Constitution provides, All money collected on any tax levied for a special purpose
shall be treated as a special fund and paid out for such purpose only. If the purpose for which a special fund was created has
been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the Government. (Aban p. 27)


i. PAL V. EDU
FACTS: Philippine Airlines Inc. is engaged in air transportation business under a legislative franchise wherein it is exempt from tax
payment. PAL has not been paying motor vehicle registration since 1956. Subsequently, the Land Registration Commissioner
required all tax exempt entities including PAL to pay motor vehicle registration fees.

ISSUE: whether or not PAL is exempted from paying motor registration fees.

HELD: The legislative intent and purpose behind the law requiring owners of vehicles to pay for their registration is mainly to raise
funds for the construction and maintenance of highways and, to a much lesser degree, pay for the operating expenses of the
administering agency. It is possible for an exaction to be both a tax and a regulation. License fees are charges, looked to as a source
of revenue as well as a means of regulation. The fees may properly be regarded as taxes even though they also serve as an
instrument of regulation. If the purpose is primarily revenue, or if revenue is at least one of the real and substantial purposes, then
the exaction is properly called a tax.


5. As to scope

a. National
- imposed by the national government ex. NIRC, custom duties (Dimaampao p. 136)
- Sec. 6, Art. X of the Constitution provides, Local government units shall have a just share, as determined by
law, in the national taxes which shall be automatically released to them. (Aban p. 27)


b. Local
- levied and collected by the local governments ex. Real Property tax, Business tax(Dimaampao p. 136)
- Sec 5, Art. X, 1987 Constitution provides Each local government CTSunit shall have the power to create its
own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments. (Aban p. 27)

i. MERALCO SECURITIES V. CBAA GR. L-46245 MAY 31, 982

FACTS: pursuant to a pipeline concession issued under the Petroleum Act of 1949, Republic Act No. 387, Meralco Securities installed
from Batangas to Manila a pipeline system consisting of cylindrical steel pipes joined together and buried not less than one meter
below the surface along the shoulder of the public highway. The portion passing through Laguna is about thirty kilometers long.

Page 29 of 40

The pipes for white oil products measure fourteen inches in diameter by thirty-six feet with a maximum capacity of 75,000 barrels
daily. The pipes for fuel and black oil measure sixteen inches by forty-eight feet with a maximum capacity of 100,000 barrels daily.

Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial assessor of Laguna treated the pipeline as real property
and issued Tax Declarations Nos. 6535-6537, San Pedro; 7473-7478, Cabuyao; 7967-7971, Sta. Rosa; 9882-9885, Bian and 15806-
15810, Calamba, containing the assessed values of portions of the pipeline.

Meralco Securities appealed the assessments to the Board of Assessment Appeals of Laguna composed of the register of deeds as
chairman and the provincial auditor as member. That board in its decision of June 18, 1975 upheld the assessments (pp. 47-49,
Rollo).

Meralco Securities brought the case to the Central Board of Assessment Appeals. As already stated, that Board, composed of Acting
Secretary of Finance Pedro M. Almanzor as chairman and Secretary of Justice Vicente Abad Santos and Secretary of Local
Government and Community Development Jose Roo as members, ruled that the pipeline is subject to realty tax (p. 40, Rollo).

The contention of Meralco Securities is that the Petroleum Law exempts it from the payment of realty taxes.

ISSUE: Whether or not Meralco is exempt from the payment of realty taxes.

HELD: Meralco Securities argues that the realty tax is a local tax or levy and not a tax of general application. This argument is
untenable because the realty tax has always been imposed by the lawmaking body and later by the President of the Phili ppines in
the exercise of his lawmaking powers, as shown in section 342 et seq. of the Revised Administrative Code, Act No. 3995,
Commonwealth Act No. 470 and Presidential Decree No. 464.

The realty tax is enforced throughout the Philippines and not merely in a particular municipality or city but the proceeds of the tax
accrue to the province, city, municipality and barrio where the realty taxed is situated (Sec. 86, P.D. No. 464). In contrast, a local tax
is imposed by the municipal or city council by virtue of the Local Tax Code, Presidential Decree No. 231, which took effect on July 1,
1973 (69 O.G. 6197).

We hold that the Central Board of Assessment Appeals did not act with grave abuse of discretion, did not commit any error of law
and acted within its jurisdiction in sustaining the holding of the provincial assessor and the local board of assessment appeals that
Meralco Securities' pipeline system in Laguna is subject to realty tax.


6. As to graduation of rates.
a. Progressive
- is one whereby the rate increases as the tax base (amount) increases. Ex. Income tax, estate an donors tax
under NIRC. (Dimaampao p. 137) (Aban p. 27)

b. Regressive
- The rate of tax decreases as the tax base increases. (Dimaampao p. 137) (Aban p. 28)

c. Mixed
- the rate of the tax increases as the tax base or bracket increases ex. Income tax, estate tax, donors tax

d. proportional
- based on a fixed proportion of the value of the subject being taxed ex. Real estate tax (Aban p. 28)




Page 30 of 40

IV. DOCTRINES IN TAXATION
1. PROSPECTIVITY OF TAX LAWS

The general rule uder the Civil Code that laws shall have prospective application applies to tax laws. Retroactive
application of revenue laws may be allowed if it will not amount to denial of due process. There is violation of due
process when the tax law imposes harsh and oppressive tax. (Dimaampao p.146)


a. Hydro resources v. CA, Gr no. 80276, Dec. 21, 1990
FACTS: Hydro Resources Contractors Corporation entered into a contract of sale with the National Irrigation Authority (NIA) for the
construction of Magat River Multipurpose Project in Isabella in August 1978. The contract provided that Hydro will import parts,
construction equipment and tools and taxes and duties to be paid by NIA. Tools and equipment arrived during 1978 and 1979. NI A
reneged on the contract. Therefore causing the transfer its sale to Hydro in separate dates in December 6, 1982 and March 24, 1983.
Executive Order 860 took effect during December 21, 1982 provided for3% ad valorem tax on importations and it specifically
provided that it should have no retroactive effect. During the contract of sale execution, Hydro was assessed and paid the said 3% ad
valorem tax worth P 281,591 under protest. The Hydro when filing for refund with Customs Commissioner who indorsed the
approval of the refund but was denied by the Secretary of Finance and motion was denied by the Court of Tax Appeals.

ISSUE Whether or not should the Executive Order 860 should have a retroactive effect.

HELD: The Court of Tax Appeals erred in applying a retroactive effect for the Executive Order therefore should not have been
subject to the additional 3% ad valorem tax. In general tax laws are not retroactive in nature. Not only that Executive Order 860
specifically provides that it is not retroactive in nature, but also when the conditional contract of sale was executed, its had a
suspensive condition contemplated in the Civil Code (Article 1187) where it returned ownership to the seller Hydro because NIA was
not able to comply with its part of the contract, it was deemed executed as if during the constitution of the obligation which was in
1978 and not in 1982.


b. CIR V. BENGUET CORP. GR 134587 JULY 08 2005
Facts: Benguet Corporation is a domestic corporation engaged in the exploration, development and operation of mineral
resources, and the sale or marketing thereof to various entities. It is a VAT registered enterprise.

The transactions in question occurred during the period between 1988 and 1991. Under Sec. 99 of NIRC as amended by E.O. 273
s. 1987 then in effect, any person who, in the course of trade or business, sells, barters or exchanges goods, renders services, or
engages in similar transactions and any person who imports goods is liable for output VAT at rates of either 10% or 0% (zero-
rated) depending on the classification of the transaction under Sec. 100 of the NIRC.

In January of 1988, Benguet applied for and was granted by the BIR zero-rated status on its sale of gold to Central Bank. On 28
August 1988 VAT Ruling No. 3788-88 was issued which declared that the sale of gold to Central Bank is considered as export sale
subject to zero-rate pursuant to Section 100 of the Tax Code, as amended by EO 273.

Relying on its zero-rated status and the above issuances, Benguet sold gold to the Central Bank during the period of 1 August
1989 to 31 July 1991 and entered into transactions that resulted in input VAT incurred in relation to the subject sales of gold. It
then filed applications for tax refunds/credits corresponding to input VAT.

However, such request was not granted due to BIR VAT Ruling No. 008-92 dated 23 January 1992 that was issued subsequent to
the consummation of the subject sales of gold to the Central Ban`k which provides that sales of gold to the Central Bank
shall not be considered as export sales and thus, shall be subject to 10% VAT. BIR VAT Ruling No. 008-92 withdrew, modified, and
superseded all inconsistent BIR issuances.
Both petitioner and Benguet agree that the retroactive application of VAT Ruling No. 008-92 is valid only if such application
would not be prejudicial to the Benguet pursuant Sec. 246 of the NIRC.

Page 31 of 40

Issues: (1) WON Benguets sale of gold to the Central Bank during the period when such was classified by BIR issuances as zero
rated could be taxed validly at a 10% rate after the consummation of the transactions involved; (2) WON there was prejudice to
Benguet Corp due to the new BIR VAT Ruling.

Held: (1) NO. At the time when the subject transactions were consummated, the prevailing BIR regulations relied upon by
Benguet ordained that gold sales to the Central Bank were zero-rated. Benguet should not be faulted for relying on the BIRs
interpretation of the said laws and regulations.

While it is true, as CIR alleges, that government is not estopped from collecting taxes which remain unpaid on account of the
errors or mistakes of its agents and/or officials and there could be no vested right arising from an erroneous interpretation of
law, these principles must give way to
exceptions based on and in keeping with the interest of justice and fair play. (then the Court cited the ABS-CBN case).

(2) YES. The adverse effect is that Benguet Corp became the unexpected and unwilling debtor to the BIR of the amount
equivalent to the total VAT cost of its product, a liability it previously could have recovered from the BIR in a zero-rated scenario
or at least passed on to the Central Bank had it known it would have been taxed at a 10% rate. Thus, it is clear that Benguet
suffered economic prejudice when it consummated sales of gold to the Central Bank were taken out of the zero-rated
category. The change in the VAT rating of Benguets transactions with the Central Bank resulted in the twin loss of its exemption
from payment of output VAT and its opportunity to recover input VAT, and at the same time subjected it to the 10% VAT sansthe
option to pass on this cost to the Central Bank, with the total prejudice in money terms being equivalent to the 10% VAT levied
on its sales of gold to the Central Bank.

Even assuming that the right to recover Benguets excess payment of income tax has not yet prescribed, this relief would only
address Benguets overpayment of income tax but not the other burdens discussed above. Verily, this remedy is not a feasible
option for Benguet because the very reason why it was issued a deficiency tax assessment is that its input VAT was not enough
to offset its retroactive output VAT. Indeed, the burden of having to go through an unnecessary and cumbersome refund
process is prejudice enough. http://purplehorn.blogspot.com/2012/01/digested-cases-in-taxatin.html

c. CIR V. BURMEISTER GR 153205
Facts: A foreign consortium, parent company of Burmeister, entered into an O&M contract with NPC. The foreign entity then
subcontracted the actual O&M to Burmeister. NPC paid the foreign consortium a mixture of currencies while the consortium, in
turn, paid Burmeister foreign currency inwardly remitted into the Philippines. BIR did not want to grant refund since the services are
not destined for consumption abroad (or the destination principle).

Issue: Are the receipts of Burmeister entitled to VAT zero-rated status?

Held: PARTIALLY. Respondent is entitled to the refund prayed for BUT ONLY for the period covered prior to the filing of CIRs Answer
in the CTA.

The claim has no merit since the consortium, which was the recipient of services rendered by Burmeister, was deemed doing
business within the Philippines since its 15-year O&M with NPC can not be interpreted as an isolated transaction.

In addition, the services referring to processing, manufacturing, repacking and services other than those in (1) of Sec. 102 both
require (i) payment in foreign currency; (ii) inward remittance; (iii) accounted for by the BSP; AND (iv) that the service recipient is
doing business outside the Philippines. The Court ruled that if this is not the case, taxpayers can circumvent just by stipulating
payment in foreign currency.

The refund was partially allowed since Burmeister secured a ruling from the BIR allowing zero-rating of its sales to foreign
consortium. However, the ruling is only valid until the time that CIR filed its Answer in the CTA which is deemed revocation of the
Page 32 of 40

previously-issued ruling. The Court said the revocation can not retroact since none of the instances in Section 246 (bad faith,
omission of facts, etc.) are present. http://purplehorn.blogspot.com/2012/01/digested-cases-in-taxatin.html

2. Imprescriptibility of Taxes

As a rule, taxes are imprescriptible as they are the lifeblood of the government. However, tax statutes may
provide for statute of limitations.

NIRC- 3 yrs. From actual filing if filed within 3yrs from the last day prescribed by law for the fililing of the return or if filed after
the last day.
Any internal revenue tax which has been assessed within the period of limitation as prescribed in par. (a) of
Sec. 222 may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the
tax.

Tariff and Customs Code does not express any general statute of limitation it provides , however that When articles have
been entered and passed free of duty or final adjustments of duties made, with subsequent delivery, such entry and passage
free of duty or settlements of duties will, after the expiration of three (3) years from the date of the final payment of duties, in
the absence of fraud or protest or compliance audit pursuant to the provisions of this Code, be final and conclusive upon all
parties, unless the liquidation of the import entry was merely tentative. (Sec. 4, R.A. 9135)

LGC Local taxes, fees, or charges shall be assessed within 5 yrs. From the date they became due. In case of fraud or intent to
evade the payment of taxes, fees or charges the same may be assessed within 10 yrs from discovery of the fraud or intent to
evade payment. They shall also be collected either by administrative or judicial action within five years from the date of
assessment (Sec. 194, LGC)
(Dimaampao p. 145-146)

Unless otherwise provided by the tax law itself, taxes in general are not cancelable Commissioner v. Ayala
Securities Corporation, [101 SCRA 231]. (2012 ATENEO BAROPS p. 7)


a. CIR V. AYALA SECURITIES CORP. GR NO. L-29485, NOV. 21 1980

Facts: Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus so Ayala was charged with 25% surtax by
the Commissioner of internal Revenue. The CTA (Court of Tax Appeals) reversed the Commissioners decision and held that the
assessment made against Ayala was beyond the 5-yr prescriptive period as provided in section 331 of the National Internal
Revenue Code. Commissioner now files a motion for reconsideration of this decision. Ayala invokes the defense of prescription
against the right of the Commissioner to assess the surtax.

Issue: Whether or not the right to assess and collect the 25% surtax has prescribed after five years.

Held: No. There is no such time limit on the right of the Commissioner to assess the 25% surtax since there is no express
statutory provision limiting such right or providing for its prescription. Hence, the collection of surtax is imprescriptible. The
underlying purpose of the surtax is to avoid a situation where the corporation unduly retains its surplus earnings instead of
declaring and paying dividends to its shareholders. SC reverses the ruling of the CTA.
http://digmydigests.blogspot.com/2011/11/commissioner-of-internal-revenue-v.html









Page 33 of 40

3. Double Taxation

There is double taxation where one tax is imposed by the State and the other is imposed
by the city.

Kinds of Double Taxation

DIRECT - constitutes double taxation in the objectionable or prohibited sense. This occurs
when the same property is taxed twice when it should be taxed once; both taxes must be imposed on the
same property or subject matter, for the same purpose, by the same State, Government, or taxing
authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be
of the same kind or character of tax.

INDIRECT Is permissible double taxation. This is allowed if the taxes are of different
nature or character, imposed by different taxing authorities.

DOMESTIC This arises when the taxes are imposed by the local or national government
(within the same state).

INTERNATIONAL refers to the imposition of comparable taxes in two or more states on
the same taxpayer in respect of the same subject matter and for identical periods.
(Dimaampao p. 137 - 138)

a. DEFINITION AND NATURE 71 Am 2
nd
362 365



b. VILLANUEVA V. CITY OF ILOILO, GR NO. L-26521, DEC. 28 1968
FACTS: Relying on the passage of RA 2264 or the Local Autonomy Act, Iloilo enacted Ordinance 11 Series of 1960, imposing a
municipal license tax on tenement houses in accordance with the schedule of payment provided by therein. Villanueva and the
other appellees are apartment owners from whom the city collected license taxes by virtue of Ordinance 11. Appellees aver that the
said ordinance is unconstitutional forRA 2264 does not empower cities to impose apartment taxes; that the same is oppressive and
unreasonable for it penalizes those who fail to pay the apartment taxes; that it constitutes not only double taxation but treble
taxation; and, that it violates uniformity of taxation.

Issues: 1. Does the ordinance impose double taxation? 2. Is Iloilo city empowered by RA 2264 to impose tenement taxes?

Held:
1. While it is true that appellees are taxable under the NIRC as real estate dealers, and taxable under Ordinance 11, double taxation
may not be invoked. This is because the same tax may be imposed by the national government as well as by the local government.
The contention that appellees are doubly taxed because they are paying real estate taxes and the tenement tax is also devoid of
merit. A license tax may be levied upon a business or occupation although the land or property used in connection therewith is
subject to property tax. In order to constitute double taxation, both taxes must be the same kind or character. Real estate taxes and
tenement taxes are not of the same character.

2. RA 2264 confers local governments broad taxing powers. The imposition of the tenement taxes does not fall within the exceptions
mentioned by the same law. It is argued however that the said taxes are real estate taxes and thus, the imposition of more the 1 per
centum real estate tax which is the limit provided by CA 158, makes the said ordinance ultra vires. The court ruled that the tax in
question is not a real estate tax. It does not have the attributes of a real estate tax. By the title and the terms of the ordinance, the
tax is a municipal tax which means an imposition or exaction on the right to use or dispose of property, to pursue a business,
occupation or calling, or to exercise a privilege. Tenement houses being offered for rent or lease constitute a distinct form of
business or calling and as such, the imposition of municipal tax finds support in Section 2 of RA 2264. http://philippinelaw.info/case-
digests/villanueva-v-city-of-iloilo.html


Page 34 of 40

c. SANCHEZ V. CIR 97 PHIL. 687, GR NO. 139786, OCTOBER 18, 1955

FACTS: Appellant Veronica Sanchez is the owner of a two-story, four-door "accessoria" building at 181 Libertad Street, Pasay City,
which she constructed in 1947. The building has an assessed value of P21,540 and the land is assessed at P7,980, or a total value of
P29,540 (Exhibit 2). While appellant lives in one of the apartments, she is renting the rest to other persons. In 1949, she derived an
income therefrom of P7,540 (Exhibit 1). Appellant also runs a small dry goods store in the Pasay market, from which she derives an
annual income of about P1,300 (also Exhibit 1).
In the early part of 1951, the Collector of Internal Revenue made demand upon appellant for the payment of P163.51 as income tax
for the year 1950, and P637 as real estate dealer's tax for the year 1946 to 1950, plus the sum of P50 as compromise (Exhibit 4).
Appellant paid the taxes demanded under protest, and on October 16, 1951 filed action in the Court of First Instance of Manila (C. C.
No. 14957) against the Collector of Internal Revenue for the refund of the taxes paid, claiming that she is not a real estate dealer.
The lower Court, after trial, found appellant to be such a dealer, as defined by section 194 (s) of the National Internal Revenue Code,
as amended by Republic Act Nos. 42 and 588, and declared the collection of the taxes in question legal and in accordance with said
provision. Wherefore, Veronica Sanchez appealed to this Court.
At the outset, it should be noted that while appellant claims the refund of the amount of P825 allegedly paid by her to the Collector
of Internal Revenue as real estate dealer's tax, it appears that the sum of P163.31 thereof corresponds to her income tax for the year
1949 (Exhibit 4), so that the amount of tax actually involved herein is only P687, paid by appellant as real estate dealer's tax for the
year 1946 to 1950. We notice also that the lower Court, in deciding this case, applied the definition of "real estate dealer" in section
194 (s) of the National Internal Revenue Code, as amended by Republic Acts Nos. 42 and 588. Republic Act No. 588 took effect only
on September 22, 1950, while the tax in question was paid by appellant for the year 1946 to 1950. Hence, the law applicable to this
case is section 194 (s) of the Tax Code before it was amended by Republic Act No. 588, which defines real estate dealers as follows:
"Real estate dealers" includes all persons who for their own account are engaged in the sale of lands, buildings or interests
therein or in leasing real estate. (R. A. No. 42)
Does appellant fall within the above definition? We are of the opinion that she does. The kind of nature of the building constructed
by herwhich is a four-door "accessoria"shows that it was from the beginning intended for lease as a source of income or profit
to the owner; and while appellant resides in one of the apartments, it appears that she always rented the other apartments to other
persons from the time the building was constructed up to the time of the filing of this case.
ISSUE: WHETHER OR NOT THE TAX IMPOSED IS A FORM OF DOUBLE TAXATION
HELD: Appellant argues that she is already paying real estate taxes on her property, as well as income tax on the income derive
therefrom, so that to further subject its rentals to the "real estate dealers' tax" amounts to double taxation. This argument has
already been rejected by this Court in the case of People vs. Mendaros, et al., L-6975, promulgated May 27, 1955, wherein we held
that "it is a well settled rule that license tax may be levied upon a business or occupation although the land or property used there in
is subject to property tax", and that "the state may collect an ad valorem tax on property used in a calling, and at the same time
impose a license tax on the pursuit of that calling", the imposition of the latter kind of tax being in no sense a double tax.
The evidence shows, however, that the apartment house in question was constructed only in 1947, while the real estate dealer' s tax
demanded of and paid by appellant was for the year 1946 to 1950 (see Exhibit 4). Wherefore, appellant is entitled to a refund of the
tax paid for the year 1946, amounting to P37.50.
With the modification that the appellee Collector of Internal Revenue is ordered to refund to appellant Veronica Sanchez the
amount of P37.50 paid as real estate dealer's tax for the year 1946, the decision appealed from is, in all other respects, affirmed.
Costs against appellants. So ordered.

d. PUNSALAN V. MUN. BOARD OF MANILA 95 PHIL. 46
FACTS: The ordinance in question, which was approved by the municipal board of the City of Manila on July 25, 1950, imposes a
municipal occupation tax on persons exercising various professions in the city and penalizes nonpayment of the tax. Having al ready
paid their occupation tax under section 201 of the National Internal Revenue Code, plaintiffs, upon being required to pay the
additional tax prescribed in the ordinance, paid the same under protest and then brought the present suit .

ISSUE: whether or not the ordinance constitutes double taxation

RULING: Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination within a class in that
while professionals with offices in Manila have to pay the tax, outsiders who have no offices in the city but practice their profession
therein are not subject to the tax. Plaintiffs make a distinction that is not found in the ordinance. The ordinance imposes the tax
upon every person "exercising" or "pursuing" in the City of Manila naturally any one of the occupations named, but does not
Page 35 of 40

say that such person must have his office in Manila. What constitutes exercise or pursuit of a profession in the city is a matter of
judicial determination. The argument against double taxation may not be invoked where one tax is imposed by the state and the
other is imposed by the city, it being widely recognized that there is nothing inherently obnoxious in the requirement that l icense
fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the politi cal subdivisions
thereof.

e. CIR V. CITYTRUST Investment PHILS. INC., GR NO. 139786, SEPT. 27, 2006

FACTS: Does the twenty percent (20%) final withholding tax (FWT) on a banks passive income form part of the taxable gross receipts
for the purpose of computing the five percent (5%) gross receipts tax (GRT)? This is the central issue in the present two (2)
consolidated petitions for review.

In G.R. No. 139786, petitioner Commissioner of Internal Revenue (Commissioner) assails the Court of Appeals Decision dated August
17, 1999 in CA-G.R. SP No. 52707 affirming the Court of Tax Appeals (CTA) Decision ordering the refund or issuance of tax credit
certificate in favor of respondent Citytrust Investment Philippines., Inc. (Citytrust). In G.R. No. 140857, petitioner Asianbank
Corporation (Asianbank) challenges the Court of Appeals Decision dated November 22, 1999 in CA-G.R. SP No. 51248 reversing the
CTA Decision ordering a tax refund in its (Asianbanks) favor.

ISSUE: The imposition of the 20% FWT on the banks passive income and the 5% GRT on its taxable gross receipts, which include the
banks passive income, does not constitute double taxation

HELD: Double taxation means taxing for the same tax period the same thing or activity twice, when it should be taxed but once, for
the same purpose and with the same kind of character of tax. This is not the situation in the case at bar. The GRT is a percentage
tax under Title V of the Tax Code ([Section 121], Other Percentage Taxes), while the FWT is an income tax under Title II of the Code
(Tax on Income). The two concepts are different from each other. In Solidbank Corporation,
[27]
this Court defined that a
percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold,
bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services. It is not subject to
withholding. An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable
year. It is subject to withholding. Thus, there can be no double taxation here as the Tax Code imposes two different kinds of taxes.

f. PEPSI V. MUN. OF TANAUAN GR. NO. 31156 FEB. 27 1976

FACTS: Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September 1962, the Municipality approved
Ordinance No. 23 which levies and collects from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo
for every bottle of soft drink corked.

In December 1962, the Municipality also approved Ordinance No. 27 which levies and collects on soft drinks produced or
manufactured within the territorial jurisdiction of this a tax of one centavo P0.01) on each gallon of volume capacity.

Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute double taxation in two instances: a) double
taxation because Ordinance No. 27 covers the same subject matter and impose practically the same tax rate as with Ordinance No.
23, b) double taxation because the two ordinances impose percentage or specific taxes.
Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for the delegation of taxing powers to local
government units; that allowing local governments to tax companies like Pepsi Cola is confiscatory and oppressive.

The Municipality assailed the arguments presented by Pepsi Cola. It argued, among others, that only Ordinance No. 27 is being
enforced and that the latter law is an amendment of Ordinance No. 23, hence there is no double taxation.

ISSUE: Whether or not there is double taxation.

HELD: There is no double taxation. The argument of the Municipality is well taken. Further, Pepsi Colas assertion that the delegation
of taxing power in itself constitutes double taxation cannot be merited. It must be observed that the delegating authority specifies
the limitations and enumerates the taxes over which local taxation may not be exercised. The reason is that the State has exclusively
reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law unlike in
other jurisdictions. Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same
governmental entity or by the same jurisdiction for the same purpose, but not in a case where one tax is imposed by the State and
the other by the city or municipality.

Page 36 of 40

g. CIR V. SC JOHNSON & SONS, INC. GR. NO. 127105 JUNE 25, 1999

FACTS: JOHNSON AND SON, INC a domestic corporation organized and operating under thePhilippine laws, entered into a license
agreement with SC Johnson and Son, United States of America(USA), a non-resident foreign corporation based in the U.S.A. pursuant
to which the [respondent] wasgranted the right to use the trademark, patents and technology owned by the latter including the
rightto manufacture, package and distribute the products covered by the Agreement and secure assistance in management,
marketing and production from SC Johnson and Son, U. S. A.The said License Agreement was duly registered with the Technology
Transfer Board of the Bureau of Patents, Trade Marks and Technology Transfer under Certificate of Registration No. 8064 . For the
use of the trademark or technology, SC JOHNSON AND SON, INC was obliged to pay SC Johnson and Son, USA royalties based on a
percentage of net sales and subjected the same to 25% withholding tax on royalty payments which respondent paid for the period
covering July 1992 to May 1993.00 On October 29,1993, SC JOHNSON AND SON,

USA filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties
arguing that, since the agreement was approved by the Technology Transfer Board, the preferential tax rate of 10% should apply to
the respondent. Respondent submits that royalties paid to SC Johnson and Son, USA is only subject to 10%withholding tax pursuant
to the most-favored nation clause of the RP-US Tax Treaty in relation to the RP-West Germany Tax Treaty. The Internal Tax Affairs
Division of the BIR ruled against SC Johnson and Son, Inc. and an appeal was filed by the former to the Court of tax appeals. The CTA
ruled against CIR and ordered that a tax credit be issued in favor of SC Johnson and Son, Inc. Unpleased with the decision, the CIR
filed an appeal to the CA which subsequently affirmed in toto the decision of the CTA. Hence, an appeal on certiorari was filed to the
SC.

Issue: WON SC Johnson can refund.

Ruling: NO. The tax rates on royalties and the circumstances of payment thereof are the same for all the recipients of such royalti es
and there is no disparity based on nationality in the circumstances of such payment. 6 On the other hand, a cursory reading of the
various tax treaties will show that there is no similarity in the provisions on relief from or avoidance of double taxation 7 as this is a
matter of negotiation between the contracting parties. This dissimilarity is true particularly in the treaties between the Philippines
and the United States and between the Philippines and West Germany. The RP-US Tax Treaty is just one of a number of bilateral
treaties which the Philippines has entered into for the avoidance of double taxation. 9 The purpose of these international
agreements is to reconcile the national fiscal legislations of the contracting parties in order to help the taxpayer avoid si multaneous
taxation in two different jurisdictions. 10 More precisely, the tax conventions are drafted with a view towards the elimination of
international juridical double taxation, which is defined as the imposition of comparable taxes in two or more states on the same
taxpayer in respect of the same subject matter and for identicalperiods. 11 The apparent rationale for doing away with double
taxation is of encourage the free flow of goods and services and the movement of capital, technology and persons between
countries, conditions deemed vital in creating robust and dynamic economies.

Double taxation usually takes place when a person is resident of a contracting state and derives income from, or owns capital in, the
other contracting state and both states impose tax onthat income or capital. In order to eliminate double taxation, a tax treaty
resorts to several methods. First, it sets out the respective rights to tax of the state of source or situs and of the state of residence
with regard to certain classes of income or capital. In some cases, an exclusive right to tax is conferred on one of the contracting
states; however, for other items of income or capital, both states are given the right to tax, although the amount of tax that may be
imposed by the state of source is limited.

Double taxation usually takes place when a person is resident of a contracting state and derives income from, or owns capital in, the
other contracting state and both states impose tax on that income or capital. In order to eliminate double taxation, a tax treaty
resorts to several methods. First, it sets out the respective rights to tax of the state of source or situs and of the state of residence
with regard to certain classes of income or capital. In some cases, an exclusive right to tax is conferred on one of the contracting
states; however, for other items of income or capital, both states are given the right to tax, although the amount of tax that may be
imposed by the state of source is limited. On the other hand, in the credit method, although the income or capital which is taxed in
the state of source is still taxable in the state of residence, the tax paid in the former is credited against the tax levied in the latter.
The difference between the two methods is that in the exemption method, the focus is on the income or capital itself, whereas the
credit method focuses upon the tax.

The phrase "royalties paid under similar circumstances" in the most favored nation clause of the US-RP Tax Treaty necessarily
contemplated "circumstances that are tax-related". In the case at bar, the state of source is the Philippines because the royalties are
paid for the right to use property or rights, i.e. trademarks, patents and technology, located within the Philippines. 17 The United
States is the state of residence since the taxpayer, S. C. Johnson and Son, U. S. A., is based there. Under the RP-US Tax Treaty, the
state of residence and the state of source are both permitted to tax the royalties, with a restraint on the tax that may be collected by
the state of source. The concessional tax rate of 10 percent provided for in the RP Germany
Tax Treaty should apply only if the taxes imposed upon royalties in the RP-US Tax Treaty and in the R Germany Tax Treaty are paid
under similar circumstances.

Page 37 of 40

This would mean that private respondent must prove that the RP-US Tax Treaty grants similar tax reliefs to residents of the United
States in respect of the taxes imposable upon royalties earned from sources within the Philippines as those allowed to their German
counterparts under the RP-Germany Tax Treaty.

The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting. If the rates of tax are lowered
by the state of source, in this case, by the Philippines, there should be a concomitant commitment on the part of the state of
residence to grant some form of tax relief, whether this be in the form of a tax credit or exemption. 24 Otherwise, the tax which
could have been collected by the Philippine government will simply be collected by another state, defeating the object of the tax
treaty since the tax burden imposed upon the investor would remain unrelieved. If the state of residence does not grant some form
of tax relief to the investor, no benefit would redound to the Philippines, i.e., increased investment resulting from a favorable tax
regime, should it impose a lower tax rate on the royalty earnings of the investor, and it would be better to impose the regular rate
rather than lose much-needed revenues to another country.

The entitlement of the 10% rate by U.S. firms despite the absence of a matching credit (20% for royalties) would derogate from the
design behind the most grant equality of international treatment since the tax burden laid upon the income of the investor is not the
same in the two countries.

The similarity in the circumstances of payment of taxes is a condition for the enjoyment of most favored nation treatment precisely
to underscore the need for equality of treatment. Respondent cannot be deemed entitled to the 10 percent rate granted under the
RP-West Germany Tax Treaty for the reason that there is no payment of taxes on royalties under similar circumstances in RP-US
treaty.

4. Methods of Avoiding the occurrence of double taxation

a. Tax Treaty
STATE OF RESIDENCE WITH REGARD TO CERTAIN CLASSES OF INCOME OR CAPITAL. IN SOME CASES, AN EXCLUSIVE RIGHT TO TAX IS
CONFERRED IN ONE OF THE CONTRACTING STATES; HOWEVER, FOR OTHER ITEMS OF INCOME OR CAPITAL, BOTH STATES ARE GIVEN THE RIGHT TO TAX
ALTHOUGH THE AMOUNT OF TAX THAT MAY BE IMPOSED BY THE STATE OF SOURCE IS LIMITED. (2012 ATENEO BAROPS)


TWO METHODS OF RELIEF:

EXEMPTION METHOD the income or capital which is taxable in the state of source or situs is
exmpted in the state of residence, although in some instances it may be taken into account in determining the rate of tax
applicable to the taxpayers remaining income or capital.

CREDIT METHOD the tax paid in the state of source is credited aganst the tax levied in the state of
residence.
The basic difference between the two methods is that in the exemption method, the focusis
on the income or capital itself, whereas the credit method focuses upon the tax.
(Dimaampao p. 139)

CIR V. SC JOHNSON & SONS, INC. GR. NO. 127105 JUNE 25, 1999

Facts: SC. JOHNSON AND SON, INC., a domestic corporation organized and operating under the Philippine laws, entered into a
license agreement with SC Johnson and Son, United States of America (USA), a non-resident foreign corporation was granted
the right to use the trademark, patents and technology owned by the latter including the right to manufacture, package and
distribute the products. License Agreement was duly registered with the Technology Transfer Board of the Bureau of Patents,
Trade Marks and Technology Transfer under Certificate of Registration No. 8064. SC. JOHNSON AND SON, INC was obliged to
pay SC Johnson and Son, USA royalties based on a percentage of net sales and subjected the same to 25% withholding tax on
royalty payments which [respondent] paid from July 1992 to May 1993. Respondent filed with the International Tax Affairs
Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties arguing that Since the agreement was
approved by the Technology Transfer Board, the preferential tax rate of 10% should apply hence royalties paid by the
[respondent] to SC Johnson and Son, USA is only subject to 10% withholding tax pursuant to the most-favored nation clause of
the RP-US Tax Treaty.
The Commissioner did not act on said claim for refund. Respondent filed a petition for review before the CTA to claim a refund
of the overpaid withholding tax on royalty payments. CTA decided for Respondent and ordered CIR to issue a tax credit
certificate in the amount of P963,266.00 representing overpaid withholding tax on royalty payments, beginning July, 1992 to
May, 1993. CIR filed a petition for review with CA. CA upheld CTA.
Page 38 of 40

CIR contends that under RP-US Tax Treaty, which is known as the "most favored nation" clause, the lowest rate of the Philippine
tax at 10% may be imposed on royalties derived by a resident of the United States from sources within the Philippines only if the
circumstances of the resident of the United States are similar to those of the resident of West Germany. Since the RP-US Tax
Treaty contains no "matching credit" provision as that provided in RP-West Germany Tax Treaty, the tax on royalties under the
RP-US Tax Treaty is not paid under similar circumstances as those obtaining in the RP-West Germany Tax Treaty. Also petitioner
argues that since S.C. Johnson's invocation of the "most favored nation" clause is in the nature of a claim for exemption from
the application of the regular tax rate of 25% for royalties, the provisions of the treaty must be construed strictly against it.
Respondent countered that the "most favored nation" clause under the RP-US Tax Treaty refers to royalties paid under similar
circumstances as those royalties subject to tax in other treaties; that the phrase "paid under similar circumstances" does not
refer to payment of the tax but to the subject matter of the tax, that is, royalties, because the "most favored nation" clause is
intended to allow the taxpayer in one state to avail of more liberal provisions contained in another tax treaty wherein the
country of residence of such taxpayer is also a party thereto, subject to the basic condition that the subject matter of taxation in
that other tax treaty is the same as that in the original tax treaty under which the taxpayer is liable; thus, the RP-US Tax Treaty
speaks of "royalties of the same kind paid under similar circumstances".
Issue: WON SC Johnson can refund.
Ruling: NO. The tax rates on royalties and the circumstances of payment thereof are the same for all the recipients of such
royalties and there is no disparity based on nationality in the circumstances of such payment.

On the other hand, a cursory
reading of the various tax treaties will show that there is no similarity in the provisions on relief from or avoidance of double
taxation as this is a matter of negotiation between the contracting parties. This dissimilarity is true particularly in the treaties
between the Philippines and the United States and between the Philippines and West Germany.
The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines has entered into for the avoidance of
double taxation. The purpose of these international agreements is to reconcile the national fiscal legislations of the contracting
parties in order to help the taxpayer avoid simultaneous taxation in two different jurisdictions. More precisely, the tax
conventions are drafted with a view towards the elimination of international juridical double taxation, which is defined as the
imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for
identical periods. The apparent rationale for doing away with double taxation is of encourage the free flow of goods and
services and the movement of capital, technology and persons between countries, conditions deemed vital in creating robust
and dynamic economies.
Double taxation usually takes place when a person is resident of a contracting state and derives income from, or owns capital in,
the other contracting state and both states impose tax on that income or capital. In order to eliminate double taxation, a tax
treaty resorts to several methods. First, it sets out the respective rights to tax of the state of source or situs and of the state of
residence with regard to certain classes of income or capital. In some cases, an exclusive right to tax is conferred on one of the
contracting states; however, for other items of income or capital, both states are given the right to tax, although the amount of
tax that may be imposed by the state of source is limited.
Double taxation usually takes place when a person is resident of a contracting state and derives income from, or owns capital in,
the other contracting state and both states impose tax on that income or capital. In order to eliminate double taxation, a tax
treaty resorts to several methods. First, it sets out the respective rights to tax of the state of source or situs and of the state of
residence with regard to certain classes of income or capital. In some cases, an exclusive right to tax is conferred on one of the
contracting states; however, for other items of income or capital, both states are given the right to tax, although the amount of
tax that may be imposed by the state of source is limited. On the other hand, in the credit method, although the income or
capital which is taxed in the state of source is still taxable in the state of residence, the tax paid in the former is credi ted against
the tax levied in the latter. The basic difference between the two methods is that in the exemption method, the focus is on the
income or capital itself, whereas the credit method focuses upon the tax.

The phrase "royalties paid under similar circumstances" in the most favored nation clause of the US-RP Tax Treaty necessarily
contemplated "circumstances that are tax-related".
In the case at bar, the state of source is the Philippines because the royalties are paid for the right to use property or ri ghts, i.e.
trademarks, patents and technology, located within the Philippines.
17
The United States is the state of residence since the
taxpayer, S. C. Johnson and Son, U. S. A., is based there. Under the RP-US Tax Treaty, the state of residence and the state of
source are both permitted to tax the royalties, with a restraint on the tax that may be collected by the state of source.
the concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty should apply only if the taxes imposed upon
royalties in the RP-US Tax Treaty and in the RP-Germany Tax Treaty are paid under similar circumstances. This would mean that
private respondent must prove that the RP-US Tax Treaty grants similar tax reliefs to residents of the United States in respect of
the taxes imposable upon royalties earned from sources within the Philippines as those allowed to their German counterparts
under the RP-Germany Tax Treaty. The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax
crediting.
Page 39 of 40

If the rates of tax are lowered by the state of source, in this case, by the Philippines, there should be a concomitant commitment
on the part of the state of residence to grant some form of tax relief, whether this be in the form of a tax credit or
exemption. Otherwise, the tax which could have been collected by the Philippine government will simply be collected by
another state, defeating the object of the tax treaty since the tax burden imposed upon the investor would remain unrelieved. If
the state of residence does not grant some form of tax relief to the investor, no benefit would redound to the Philippines, i.e.,
increased investment resulting from a favorable tax regime, should it impose a lower tax rate on the royalty earnings of the
investor, and it would be better to impose the regular rate rather than lose much-needed revenues to another country.
The entitlement of the 10% rate by U.S. firms despite the absence of a matching credit (20% for royalties) would derogate from
the design behind the most grant equality of international treatment since the tax burden laid upon the income of the investor
is not the same in the two countries. The similarity in the circumstances of payment of taxes is a condition for the enjoyment of
most favored nation treatment precisely to underscore the need for equality of treatment.
Respondent cannot be deemed entitled to the 10 percent rate granted under the RP-West Germany Tax Treaty for the reason
that there is no payment of taxes on royalties under similar circumstances in RP-US treaty.

b. Tax Credit

- An amount subtracted from an individuals or entitys tax liability to arrive at the total tax liability (San
Beda p. 15)

Instances under the NIRC:
For VAT purposes, the tax on inputs or items that go into the manufacture of finished products (which are eventually
sold) may be credited against or deducted from the output tax or tax on the finished product.
Foreign income taxes may be credited against the Phil. Income tax, subject to certain limitations, by citizens, including
members of general professional partnerships or beneficiaries of estates or trusts (pro rata), as well as domestic
corporations.
A tax credit is granted for estate taxes paid to a foreign country on the estate of citizens and resident aliens subject to
certain limitations.
The donors tax imposed upon a citizen or a resident shall be credited with the amount of any donors tax imposed by
the authority of a foreign country, subject to certain limitations.
(San Beda Memory Aid p. 12)
GROSS INCOME
LESS: ALLOWABLE DEDUCTIONS EXCLUDING FOREIGN TAXES PAID
INCOME SUBJECT TO TAX MULTIPLIED BY RATE
INCOME TAX DUE LESS: FOREIGN TAXES
NET INCOME TAX DUE

CIR V. LEDNICKY, GR Nos. L-18262 and L-21434, 1964

FACTS: Spouses are both American citizens residing in the Philippines and have derived all their income from Philippine sources
for taxable years in question.

On March, 1957, filed their ITR for 1956, reporting gross income of P1,017,287.65 and a net income of P 733,809.44. On March
1959, file an amended claimed deduction of P 205,939.24 paid in 1956 to the United States government as federal income tax of
1956.


ISSUE: Whether a citizen of the United States residing in the Philippines, who derives wholly from sources within the Philippines,
may deduct his gross income from the income taxes he has paid to the United States government for the said taxable year?


HELD:
An alien resident who derives income wholly from sources within the Philippines may not deduct from gross income the income
taxes he paid to his home country for the taxable year. The right to deduct foreign income taxes paid given only
where alternative right to tax credit exists.

Page 40 of 40

Section 30 of the NIRC, Gross Income Par. C (3): Credits against tax per taxes of foreign countries.

If the taxpayer signifies in his return his desire to have the benefits of this paragraph, the tax imposed by this shall be credited
with: Paragraph (B), Alien resident of the Philippines; and, Paragraph C (4), Limitation on credit.

An alien resident not entitled to tax credit for foreign income taxes paid when his income is derived wholly from sources within
the Philippines.

Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity. In
the present case, although the taxpayer would have to pay two taxes on the same income but the Philippine government only
receives the proceeds of one tax, there is no obnoxious double taxation.

c. Reciprocity
Such foreign country must grant same privilege to Phil. Agencies.

The country in which the nonresident foreign corporation is domiciled, shall allow a credit against the
tax due from the nonresident foreign corporation taxes deemed to have been paid in the Philippines equivalent to the regular
income tax on corporations and the 15% tax on dividends. (Ateneo Law Bar reviewer 2012 p. 59)