1

| T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
The amount of 'de minimis' benefits conforming to the ceiling herein
prescribed shall not be considered in determining the 30,000.00
1. JAIME N. SORIANO et al v. SECRETARY OF FINANCE ceiling of 'other benefits' excluded from gross income under Section
32 (b) (7) (e) of the Code. Provided that, the excess of the 'de
and the COMMISSIONER OF INTERNAL REVENUE minimis' benefits over their respective ceilings prescribed by these
(G.R. Nos. 184450, 184508, 184538, & 185234, January 24, 2017) regulations shall be considered as part of 'other benefits' and the
employee receiving it will be subject to tax only on the excess over

the 30,000.00 ceiling. Provided, further, that MWEs receiving 'other
benefits' exceeding the 30,000.00 limit shall be taxable on the
Facts:
excess benefits, as well as on his salaries, wages and allowances,
R.A. 9504
just like an employee receiving compensation income beyond the
On 17 June 2008, R.A. 9504 entitled "An Act Amending Sections 22, 24, 34, 35,
SMW. x x x x
51, and 79 of Republic Act No. 8424, as Amended, Otherwise Known as the
National Internal Revenue Code of 1997," was approved and signed into law by
(B) Exemptions from Withholding Tax on Compensation. - The
President Arroyo. The following are the salient features of the new law:
following income payments are exempted from the requirements of
1. It increased the basic personal exemption from 20,000 for a single
withholding tax on compensation:
individual, 25,000 for the head of the family, and 32,000 for a
married individual to P50,000 for each individual.
x x x x
2. It increased the additional exemption for each dependent not
(13) Compensation income of MWEs who work in the private sector
exceeding four from 8,000 to 25,000.
and being paid the Statutory Minimum Wage (SMW), as fixed by
3. It raised the Optional Standard Deduction (OSD) for individual
Regional Tripartite Wage and Productivity Board (RTWPB)/National
taxpayers from 10% of gross income to 40% of the gross receipts
Wages and Productivity Commission (NWPC), applicable to the place
or gross sales.
where he/she is assigned.
4. It introduced the OSD to corporate taxpayers at no more than 40%
of their gross income.
The aforesaid income shall likewise be exempted from income tax.
5. It granted MWEs exemption from payment of income tax on their
minimum wage, holiday pay, overtime pay, night shift differential pay
'Statutory Minimum Wage' (SMW) shall refer to the rate fixed by the
and hazard pay.
Regional Tripartite Wage and Productivity Board (RTWPB), as defined
by the Bureau of Labor and Employment Statistics (BLES) of the
Section 9 of the law provides that it shall take effect 15 days following its
Department of Labor and Employment (DOLE). The RTWPB of each
publication in the Official Gazette or in at least two newspapers of general
region shall determine the wage rates in the different regions based
circulation. Accordingly, R.A. 9504 was published in the Manila Bulletin and
on established criteria and shall be the basis of exemption from
Malaya on 21 June 2008. On 6 July 2008, the end of the 15-day period, the law
income tax for this purpose.
took effect.
Holiday pay, overtime pay, night shift differential pay and hazard
RR 10-2008
pay earned by the aforementioned MWE shall likewise be covered
On 24 September 2008, the BIR issued RR 10-2008, dated 08 July 2008,
by the above exemption. Provided, however, that an employee who
implementing the provisions of R.A. 9504. The relevant portions of the said RR
receives/earns additional compensation such as commissions,
read as follows:
honoraria, fringe benefits, benefits in excess of the allowable
statutory amount of 30,000.00, taxable allowances and other taxable
SECTION 1. Section 2.78.1 of RR 2-98, as amended, is hereby
income other than the SMW, holiday pay, overtime pay, hazard pay
further amended to read as follows:
and night shift differential pay shall not enjoy the privilege of being
a MWE and, therefore, his/her entire earnings are not exempt from
Sec. 2.78.1. Withholding of Income Tax on Compensation Income.
income tax, and consequently, from withholding tax.
x x x x

| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
2 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
MWEs receiving other income, such as income from the conduct of
trade, business, or practice of profession, except income subject to
final tax, in addition to compensation income are not exempted from
income tax on their entire income earned during the taxable year.
This rule, notwithstanding, the SMW, holiday pay, overtime pay,
night shift differential pay and hazard pay shall still be exempt from
withholding tax.
For purposes of these regulations, hazard pay shall mean the amount
paid by the employer to MWEs who were actually assigned to danger
or strife-torn areas, disease-infested places, or in distressed or isolated
stations and camps, which expose them to great danger of contagion
or peril to life. Any hazard pay paid to MWEs which does not satisfy
the above criteria is deemed subject to income tax and consequently,
to withholding tax.
x x x x
SECTION 3. Section 2. 79 of RR 2-98, as amended, is hereby further
amended to read as follows:
Sec. 2.79. Income Tax Collected at Source on Compensation Income.
-
(A) Requirement of Withholding. - Every employer must withhold
from compensation paid an amount computed in accordance with
these Regulations. Provided, that no withholding of tax shall be
required on the SMW, including holiday pay, overtime pay, night
shift differential and hazard pay of MWEs in the private/public sectors
as defined in these Regulations. Provided, further, that an employee
who receives additional compensation such as commissions,
honoraria, fringe benefits, benefits in excess of the allowable
statutory amount of 30,000.00, taxable allowances and other
taxable income other than the SMW, holiday pay, overtime pay,
hazard pay and night shift differential pay shall not enjoy the
privilege of being a MWE and, therefore, his/her entire earnings are
not exempt from income tax and, consequently, shall be subject to
withholding tax.
x x x x
For the year 2008, however, being the initial year of implementation
of R.A. 9504, there shall be a transitory withholding tax table for the
period from July 6 to December 31, 2008 (Annex "D") determined
by prorating the annual personal and additional exemptions under
R.A. 9504 over a period of six months. Thus, for individuals,
regardless of personal status, the prorated personal exemption is
25,000, and for each qualified dependent child (QDC), 12,500.
x x x x
SECTION 9. Effectivity. These Regulations shall take effect beginning
July 6, 2008. (Emphases supplied)
Issues:
Assailing the validity of RR 10-2008, all four Petitions raise common issues, which
may be distilled into three major ones:
First, whether the increased personal and additional exemptions provided by R.A.
9504 should be applied to the entire taxable year 2008 or prorated, considering
that R.A. 9504 took effect only on 6 July 2008.
Second, whether an MWE is exempt for the entire taxable year 2008 or from 6
July 2008 only.
Third, whether Sections 1 and 3 of RR 10-2008 are consistent with the law in
providing that an MWE who receives other benefits in excess of the statutory limit
of 30,000 is no longer entitled to the exemption provided by R.A. 9504.
Held:
I. The personal and additional exemptions established by R.A. 9504 should be
applied to the entire taxable year 2008.
Contrary to respondents' contention, Umali v. Estanislao is applicable.
Umali v. Estanislao supports the stance that R.A. 9504 should be applied on a full-
year basis for the entire taxable year 2008. In Umali, Congress enacted R.A. 7167
amending the 1977 National Internal Revenue Code (NIRC). The amounts of basic
personal and additional exemptions given to individual income taxpayers were
adjusted to the poverty threshold level. R.A. 7167 came into law on 30 January
1992. Controversy arose when the Commission of Internal Revenue (CIR)
promulgated RR 1-92 stating that the regulation shall take effect on compensation
income earned beginning 1 January 1992. The issue posed was whether the
increased personal and additional exemptions could be applied to compensation
income earned or received during calendar year 1991, given that R.A. 7167 came
into law only on 30 January 1992, when taxable year 1991 had already closed.
This Court ruled in the affirmative, considering that the increased exemptions
were already available on or before 15 April 1992, the date for the filing of
individual income tax returns. Further, the law itself provided that the new set
of personal and additional exemptions would be immediately available upon its
effectivity. While R.A. 7167 had not yet become effective during calendar year
1991, the Court found that it was a piece of social legislation that was in part
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
3 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
intended to alleviate the economic plight of the lower-income taxpayers. For that
purpose, the new law provided for adjustments "to the poverty threshold level"
prevailing at the time of the enactment of the law. In Umali, the Court stated that it
can not lose sight of the fact that these personal and additional exemptions are
fixed amounts to which an individual taxpayer is entitled, as a means to cushion
the devastating effects of high prices and a depreciated purchasing power of the
currency. In the end, it is the lower-income and the middle-income groups of
taxpayers (not the high-income taxpayers) who stand to benefit most from the
increase of personal and additional exemptions provided for by Rep. Act 7167. To
that extent, the act is a social legislation intended to alleviate in part the present
economic plight of the lower income taxpayers. It is intended to remedy the
inadequacy of the heretofore existing personal and additional exemptions for
individual taxpayers.
In this case, Senator Francis Escudero's sponsorship speech for Senate Bill No.
2293 reveals two important points about R.A. 9504: (1) it is a piece of social
legislation; and (2) its intent is to make the proposed law immediately applicable,
that is, to taxable year 2008:
[Excerpt]
...It is an attempt to help our people cope with the rising costs of
commodities that seem to be going up unhampered these past few
months....Mr. President, my distinguished colleagues in the Senate, we
wish to provide a higher exemption for our countrymen because of
the incessant and constant increase in the price of goods....Mr.
President, time will perhaps come and we can improve on this
version, but at present, this is the best, I believe, that we can give
our people. But by way of comparison, it is still l0 higher than
what the wage boards were able to give minimum wage earners.
Given that, we were able to increase their take-home pay by the
amount equivalent to the tax exemption we have granted. We urge
our colleagues, Mr. President, to pass this bill in earnest so that we
can immediately grant relief to our people.
Clearly, Senator Escudero expressed a sense of urgency for passing what would
subsequently become R.A. 9504. He was candid enough to admit that the bill
needed improvement, but because time was of the essence, he urged the Senate
to pass the bill immediately. The idea was immediate tax relief to the individual
taxpayers, particularly low-compensation earners, and an increase in their take-
home pay.
In sum, R.A. 9504, like R.A. 7167 in Umali, was a piece of social legislation
clearly intended to afford immediate tax relief to individual taxpayers, particularly
low-income compensation earners. Indeed, if R.A. 9504 was to take effect beginning
taxable year 2009 or half of the year 2008 only, then the intent of Congress to
address the increase in the cost of living in 2008 would have been negated.
Therefore, following Umali, the test is whether the new set of personal and
additional exemptions was available at the time of the filing of the income tax
return. In other words, while the status of the individual taxpayers is determined
at the close of the taxable year, their personal and additional exemptions - and
consequently the computation of their taxable income - are reckoned when the
tax becomes due, and not while the income is being earned or received. The NIRC
is clear on these matters. The taxable income of an individual taxpayer shall be
computed on the basis of the calendar year. The taxpayer is required to file an
income tax return on the 15th of April of each year covering income of the
preceding taxable year. The tax due thereon shall be paid at the time the return
is filed.
The present case is substantially identical with Umali and not with Pansacola.
Respondents argue that Umali is not applicable to the present case. They contend
that the increase in personal and additional exemptions were necessary in that
case to conform to the 1991 poverty threshold level; but that in the present case,
the amounts under R.A. 9504 far exceed the poverty threshold level.
We find the facts of this case to be substantially identical to those of Umali. First,
both cases involve an amendment to the prevailing tax code. Second, the amending
law in both cases reflects an intent to make the new set of personal and additional
exemptions immediately available after the effectivity of the law. Third, both cases
involve social legislation intended to cure a social evil - R.A. 7167 was meant to
adjust personal and additional exemptions in relation to the poverty threshold level,
while R.A. 9504 was geared towards addressing the impact of the global increase
in the price of goods. Fourth, in both cases, it was clear that the intent of the
legislature was to hasten the enactment of the law to make its beneficial relief
immediately available.
Pansacola is not applicable.
In Pansacola v.Commissioner of Internal Revenue, the Court ruled against the
application of the new set of personal and additional exemptions to the previous
taxable year 1997, in which the filing and payment of the income tax was due
on 15 April 1998, even if the NIRC had already taken effect on 1 January 1998.
The court explained that the NIRC could not be given retroactive application, given
the specific mandate of the law that it shall take effect on 1 January 1998; and
given the absence of any reference to the application of personal and additional
exemptions to income earned prior to 1January 1998. The Court further stated that
what the law considers for the purpose of determining the income tax due is the
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
4 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
status at the close of the taxable year, as opposed to the time of filing of the
return and payment of the corresponding tax.
The facts of this case are not identical with those of Pansacola. First, Pansacola
interpreted the effectivity of an entirely new tax code - R.A. 8424, the Tax Reform
Act of 1997. The present case, like Umali, involves a mere amendment of some
specific provisions of the prevailing tax code: R.A. 7167 amending then P.D. 1158
(the 1977 NIRC) in Umali and R.A. 9504 amending R.A. 8424 herein. Second, in
Pansacola, the new tax code specifically provided for an effective date - the
beginning of the following year - that was to apply to all its provisions, including
new tax rates, new taxes, new requirements, as well as new exemptions. The tax
code did not make any exception to the effectivity of the subject exemptions,
even if transitory provisions specifically provided for different effectivity dates for
certain provisions. Third, in Pansacola, the retroactive application of the new rates
of personal and additional exemptions would result in an absurdity - new tax rates
under the new law would not apply, but a new set of personal and additional
exemptions could be availed of.
Nonetheless, R.A. 9504 can still be made applicable to taxable year 2008, even
if we apply the Pansacola test. We stress that Pansacola considers the close of the
taxable year as the reckoning date for the effectivity of the new exemptions. In
that case, the Court refused the application of the new set of personal exemptions,
since they were not yet available at the close of the taxable year. In this case,
however, at the close of the taxable year, the new set of exemptions was already
available. In fact, it was already available during the taxable year - as early as 6
July 2008 - when the new law took effect.
The policy in this jurisdiction is full taxable year treatment.
In R.A. 9504, and there is nothing that expressly provides or even suggests a
prorated application of the exemptions for taxable year 2008. On the other hand,
the policy of full taxable year treatment, especially of the personal and additional
exemptions, is clear under Section 35, particularly paragraph C of R.A. 8424 or
the 1997 Tax Code:
SEC. 35. Allowance of Personal Exemption for Individual Taxpayer.
(a) In General. - For purposes of determining the tax provided in
Section 24(A) of this Title, there shall be allowed a basic personal
exemption as follows:
x x x x
(b) Additional Exemption for Dependents.-There shall be allowed an
additional exemption of...for each dependent not exceeding four
(4).
x x x x
(c) Change of Status. - If the taxpayer marries or should have
additional dependent(s) as defined above during the taxable year,
the taxpayer may claim the corresponding additional exemption,
as the case may be, in full for such year.
If the taxpayer dies during the taxable year, his estate may still
claim the personal and additional exemptions for himself and his
dependent(s) as if he died at the close of such year.
If the spouse or any of the dependents dies or if any of such
dependents marries, becomes twenty-one (21) years old or
becomes gainfully employed during the taxable year, the taxpayer
may still claim the same exemptions as if the spouse or any of
the dependents died, or as if such dependents married, became
twenty-one (21) years old or became gainfully employed at the
close of such year.
Note that paragraph C does not allow the prorating of the personal and additional
exemptions provided in paragraphs A and B, even in case a status-changing event
occurs during the taxable year. Rather, it allows the fullest benefit to the individual
taxpayer. This manner of reckoning the taxpayer's status for purposes of the
personal and additional exemptions clearly demonstrates the legislative intention;
that is, for the state to give the taxpayer the maximum exemptions that can be
availed, notwithstanding the fact that the latter's actual status would qualify only
for a lower exemption if prorating were employed.
We therefore see no reason why we should make any distinction between the
income earned prior to the effectivity of the amendment (from 1 January 2008 to
5 July 2008) and that earned thereafter (from 6 July 2008 to 31 December 2008)
as none is indicated in the law. The principle that the courts should not distinguish
when the law itself does not distinguish squarely applies to this case.
The legislative policy of full taxable year treatment of the personal and additional
exemptions has been in our jurisdiction continuously since 1969 (when R.A. 6110
amended Section 23(d) of the 1939 Tax Code). The prorating approach has long since
been abandoned. Had Congress intended to revert to that scheme, then it should
have so stated in clear and unmistakeable terms. There is nothing, however, in
R.A. 9504 that provides for the reinstatement of the prorating scheme. On the
contrary, the change-of status provision utilizing the full-year scheme in the 1997
Tax Code was left untouched by R.A. 9504.
We now arrive at this important point: the policy of full taxable year treatment is
established, not by the amendments introduced by R.A. 9504, but by the provisions
of the 1997 Tax Code, which adopted the policy from as early as 1969. There is,
of course, nothing to prevent Congress from again adopting a policy that prorates
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
5 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
the effectivity of basic personal and additional exemptions. This policy, however,
must be explicitly provided for by law - to amend the prevailing law, which
provides for full-year treatment.
II. The MWE is exempt for the entire taxable year 2008.
As in the case of the adjusted personal and additional exemptions, the MWE
exemption should apply to the entire taxable year 2008, and not only from 6 July
2008 onwards. We see no reason why Umali cannot be made applicable to the
MWE exemption, which is undoubtedly a piece of social legislation. It was intended
to alleviate the plight of the working class, especially the low-income earners. In
concrete terms, the exemption translates to a 34 per day benefit, as pointed out
by Senator Escudero in his sponsorship speech.
As it stands, the calendar year 2008 remained as one taxable year for an individual
taxpayer. Therefore, RR 10-2008 cannot declare the income earned by a minimum
wage earner from 1 January 2008 to 5 July 2008 to be taxable and those earned
by him for the rest of that year to be tax-exempt. To do so would be to contradict
the NIRC and jurisprudence, as taxable income would then cease to be determined
on a yearly basis.
A clarification is proper at this point. Our ruling that the MWE exemption is
available for the entire taxable year 2008 is premised on the fact of one's status
as an MWE; that is, whether the employee during the entire year of 2008 was
an MWE as defined by R.A. 9504. When the wages received exceed the minimum
wage anytime during the taxable year, the employee necessarily loses the MWE
qualification. Therefore, wages become taxable as the employee ceased to be an
MWE. But the exemption of the employee from tax on the income previously
earned as an MWE remains.
As the exemption is based on the employee's status as an MWE, the operative
phrase is "when the employee ceases to be an MWE". Even beyond 2008, it is
therefore possible for one employee to be exempt early in the year for being an
MWE for that period, and subsequently become taxable in the middle of the
same year with respect to the compensation income, as when the pay is increased
higher than the minimum wage. The improvement of one's lot, however, cannot
justly operate to make the employee liable for tax on the income earned as an
MWE.
Additionally, on the question of whether one who ceases to be an MWE may
still be entitled to the personal and additional exemptions, the answer must
necessarily be yes. The MWE exemption is separate and distinct from the personal
and additional exemptions. One's status as an MWE does not preclude enjoyment
of the personal and additional exemptions. Thus, when one is an MWE during a
part of the year and later earns higher than the minimum wage and becomes a
non-MWE, only earnings for that period when one is a non-MWE is subject to
tax. It also necessarily follows that such an employee is entitled to the personal
and additional exemptions that any individual taxpayer with taxable gross income
is entitled. A different interpretation will actually render the MWE exemption a
totally oppressive legislation.
Critical, therefore, is how an employee ceases to become an MWE and thus
ceases to be entitled to an MWE's exemption.
III. The BIR added a requirement not found in the law.
[Please refer to the provisions stated in the facts of the case.] Nowhere in the above
provisions of R.A. 9504 would one find the qualifications prescribed by the assailed
provisions of RR 10-2008. The provisions of the law are clear and precise; they
leave no room for interpretation they do not provide or require any other
qualification as to who are MWEs. To be exempt, one must be an MWE, a term
that is clearly defined. Section 22(HH) says he/she must be one who is paid the
statutory minimum wage if he/she works in the private sector, or not more than
the statutory minimum wage in the non-agricultural sector where he/she is assigned,
if he/she is a government employee. Thus, one is either an MWE or he/she is not.
Simply put, MWE is the status acquired upon passing the "litmus test" - whether
one receives wages not exceeding the prescribed minimum wage. The minimum
wage referred to in the definition has itself a clear and definite meaning. The law
explicitly refers to the rate fixed by the Regional Tripartite Wage and Productivity
Board, which is a creation of the Labor Code.
R.A. 9504 is explicit as to the coverage of the exemption: the wages that are
not in excess of the minimum wage as determined by the wage boards, including
the corresponding holiday, overtime, night differential and hazard pays. In other
words, the law exempts from income taxation the most basic compensation an
employee receives - the amount afforded to the lowest paid employees by the
mandate of law.
By way of review, this 30,000 statutory ceiling on benefits has its beginning in
1994 under R. A. 7833, which amended then Section 28(b )(8) of the 1977 NIRC.
It is substantially carried over as Section 32(B) (Exclusion from Gross Income) of
Chapter VI (Computation of Gross Income) of Title II (Tax on Income) in the 1997
NIRC (R.A. 8424). R.A. 9504 does not amend that provision of R.A. 8424, which
reads:
SEC. 32. Gross Income.
x x x x
(B) Exclusions from Gross Income.- The following items shall not be
included in gross income and shall be exempt from taxation under
this title:
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
6 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
x x x x
(7) Miscellaneous Items.
x x x x
(e) 13th Month Pay and Other Benefits.- Gross benefits received by
officials and employees of public and private entities: Provided,
however, That the total exclusion under this subparagraph shall not
exceed Thirty thousand pesos (30,000) which shall cover:
(i) Benefits received by officials and employees of the national and
local government pursuant to Republic Act No. 668670;
(ii) Benefits received by employees pursuant to Presidential Decree
No. 85171, as amended by Memorandum Order No. 28, dated
August 13, 1986;
(iii) Benefits received by officials and employees not covered by
Presidential decree No. 851, as amended by Memorandum Order
No. 28, dated August 13, 1986; and,
(iv) Other benefits such as productivity incentives and Christmas
bonus: Provided, further, That the ceiling of Thirty thousand pesos
(30,000) may be increased through rules and regulations issued
by the Secretary of Finance, upon recommendation of the
Commissioner, after considering among others, the effect on the
same of the inflation rate at the end of the taxable year.
The exemption granted to MWEs by R.A. 9504 reads:
Provided, That minimum wage earners as defined in Section
22(HH) of this Code shall be exempt from the payment of
income tax on their taxable income: Provided, further, That
the holiday pay, overtime pay, night shift differential pay and
hazard pay received by such minimum wage earners shall
likewise be exempt from income tax.
"Taxable income" is defined as follows:
SEC. 31. Taxable Income Defined.- The term taxable income
means the pertinent items of gross income specified in this
Code, less the deductions and/or personal and additional
exemptions, if any, authorized for such types of income by
this Code or other special laws.
A careful reading of these provisions will show at least two distinct groups
of items of compensation. On one hand are those that are further exempted
from tax by R.A. 9504; on the other hand are items of compensation that
R.A. 9504 does not amend and are thus unchanged and in no need to be
disturbed.
First are the different items of compensation subject to tax prior to R.A.
9504. These are included in the pertinent items of gross income in Section
31. "Gross income" in Section 32 includes, among many other items,
"compensation for services in whatever form paid, including, but not limited
to salaries, wages, commissions, and similar items." R.A. 9504 particularly
exempts the minimum wage and its incidents; it does not provide exemption
for the many other forms of compensation.
Second are the other items of income that, prior to R.A. 9504, were
excluded from gross income and were therefore not subject to tax. Among
these are other payments that employees may receive from employers
pursuant to their employer-employee relationship, such as bonuses and other
benefits. These are either mandated by law (such as the 13th month pay)
or granted upon the employer's prerogative or are pursuant to collective
bargaining agreements (as productivity incentives). These items were not
changed by R.A. 9504.
It becomes evident that the exemption on benefits granted by law in 1994
are now extended to wages of the least paid workers under R.A. 9504.
Benefits not beyond 30,000 were exempted; wages not beyond the SMW
are now exempted as well. Conversely, benefits in excess of 30,000 are
subject to tax and now, wages in excess of the SMW are still subject to
tax.
What the legislature is exempting is the MWE's minimum wage and other
forms statutory compensation like holiday pay, overtime pay, night shift
differential pay, and hazard pay. These are not bonuses or other benefits;
these are wages. Respondents seek to frustrate this exemption granted by
the legislature.
In respondents' view, anyone receiving 13th month pay and other benefits
in excess of 30,000 cannot be an MWE. They seek to impose their own
definition of "MWE" by arguing thus:
It should be noted that the intent of the income tax exemption
of MWEs is to free the low-income earner from the burden of
tax. R.A. No. 9504 and R.R. No. 10-2008 define who are the
low-income earners. Someone who earns beyond the incomes
and benefits above-enumerated is definitely not a low-income
earner.
We do not agree. As stated before, nothing to this effect can be read from
R.A. 9504. The amendment is silent on whether compensation-related
benefits exceeding the 30,000 threshold would make an MWE lose
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
7 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
exemption. R.A. 9504 has given definite criteria for what constitutes an
MWE, and R.R. 10-2008 cannot change this. An administrative agency may
not enlarge, alter or restrict a provision of law. It cannot add to the
requirements provided by law. To do so constitutes lawmaking, which is
generally reserved for Congress. We are not persuaded that RR 10-2008
merely clarifies the law. The CIR' s clarification is not warranted when the
language of the law is plain and clear.
The treatment of bonuses and other benefits that an employee receives from
the employer in excess of the 30,000 ceiling cannot but be the same as
the prevailing treatment prior to R.A. 9504 - anything in excess of 30,000
is taxable; no more, no less. [Note: Excess of the allowed de minimis benefits
are included in the computation for the 30,000 ceiling. PLEASE COMFIRM.]
The government's argument that the RR avoids a tax distortion has no merit.
Again, respondents are venturing into policy-making, a function that properly
belongs to Congress. Besides, the supposed undesirable "income distortion" has
been addressed in the Senate deliberations. The following exchange between
Senators Santiago and Escudero reveals the view that the distortion impacts only
a few-taxpayers who are single and have no dependents:
...I fully subscribe and accept the analysis and computation of the
distinguished Senator, Mr. President, because this was the very
concern of this representation when we were discussing the bill. It
will create wage distortions up to the extent wherein a person is
paying or rather receiving a salary which is only higher by 6,000
approximately from that of a minimum wage earner. So anywhere
between P1 to approximately 6,000 higher, there will be a wage
distortion, although distortions disappears as the salary goes up.
However, Mr. President, as computed by the distinguished Senator,
the distortion is only made apparent if the taxpayer is single or is
not married and has no dependents. Because at two dependents, the
distortion would already disappear; at three dependents, it would not
make a difference anymore because the exemption would already
cover approximately the wage distortion that would be created as far
as individual or single taxpayers are concerned...
Indeed, there is a distortion, one that RR 10-2008 actually engenders. While
respondents insist that MWEs who are earning purely compensation income will
lose their MWE exemption the moment they receive benefits in excess of 30,000,
RR 10-2008 does not withdraw the MWE exemption from those who are earning
other income outside of their employer-employee relationship. [Refer to Sec. 2.78.1(B)
of RR10-2008.]
These provisions of RR 10-2008 reveal a bias against those who are purely
compensation earners. In their consolidated comment, respondents reason:
Verily, the interpretation as to who is a minimum wage earner as
petitioners advance will open the opportunity for tax evasion by the
mere expedient of pegging the salary or wage of a worker at the
minimum and reflecting a worker's other incomes as some other
benefits. This situation will not only encourage tax evasion, it will
likewise discourage able employers from paying salaries or wages
higher than the statutory minimum. This should never be
countenanced.
Again, respondents are delving into policy-making they presume bad faith on the
part of the employers, and then shift the burden of this presumption and lay it on
the backs of the lowest paid workers. This presumption of bad faith does not even
reflect pragmatic reality. It must be remembered that a worker's holiday, overtime
and night differential pays are all based on the worker's regular wage. Thus, there
will always be pressure from the workers to increase, not decrease, their basic
pay.
What is not acceptable is the blatant inequity between the treatment that RR
10-2008 gives to those who earn purely compensation income and that given to
those who have other sources of income. Respondents want to tax the MWEs who
serve their employer well and thus receive higher bonuses or performance
incentives; but exempts the MWEs who serve, in addition to their employer, their
other business or professional interests.
We cannot sustain respondents position. In sum, the proper interpretation of R.A.
9504 is that it imposes taxes only on the taxable income received in excess of
the minimum wage, but the MWEs will not lose their exemption as such. Workers
who receive the statutory minimum wage their basic pay remain MWEs. The receipt
of any other income during the year does not disqualify them as MWEs. They
remain MWEs, entitled to exemption as such, but the taxable income they receive
other than as MWEs may be subjected to appropriate taxes.
R.A. 9504 must be liberally construed.
We are mindful of the strict construction rule when it comes to the interpretation
of tax exemption laws. The canon, however, is tempered by several exceptions,
one of which is when the taxpayer falls within the purview of the exemption by
clear legislative intent. In this situation, the rule of liberal interpretation applies in
favor of the grantee and against the government.
In this case, there is a clear legislative intent to exempt the minimum wage
received by an MWE who earns additional income on top of the minimum wage.
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
8 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
As previously discussed, this intent can be seen from both the law and the
deliberations. Accordingly, we see no reason why we should not liberally interpret
R.A. 9504 in favor of the taxpayers.
R.A. 9504 is a grant of tax relief long overdue.
We do not lose sight of the fact that R.A. 9504 is a tax relief that is long overdue.
Over the years, even with the occasional increase in the basic personal and additional
exemptions, the contribution the government exacts from its MWEs continues to
increase as a portion of their income.
The foregoing demonstrates the effect of inflation. When tax tables do not get adjusted,
inflation has a profound impact in terms of tax burden. "Bracket creep," "the process by
which inflation pushes individuals into higher taxbrackets," occurs, and its deleterious
results may be explained as follows:
[A]n individual whose dollar income increases from one year to the next
might be obliged to pay tax at a higher marginal rate (say 25% instead of
15%) on the increase, this being a natural consequence of rate progression.
If, however, due to inflation the benefit of the increase is wiped out by a
corresponding increase in the cost of living, the effect would be a heavier
tax burden with no real improvement in the taxpayer's economic position.
Wage and salary-earners are especially vulnerable. Even if a worker gets a
raise in wages this year, the raise will be illusory if the prices of consumer
goods rise in the same proportion. If her marginal tax rate also increased,
the result would actually be a decrease in the taxpayer's real disposable
income.
WHEREFORE, the Court resolves to:
(a) GRANT the Petitions for Certiorari, Prohibition, and Mandamus; and,
(b) DECLARE NULL and VOID the following provisions of Revenue Regulations
No. 10-2008:
(i) Sections 1 and 3, insofar as they disqualify MWEs who earn purely
compensation income from the privilege of the MWE exemption in case
they receive bonuses and other compensation-related benefits exceeding the
statutory ceiling of 30,000;
(ii) Section 3 insofar as it provides for the prorated application of the personal
and additional exemptions under R.A. 9504 for taxable year 2008, and for
the period of applicability of the MWE exemption to begin only on 6 July
2008.
(c) DIRECT respondents Secretary of Finance and Commissioner of Internal Revenue
to grant a refund, or allow the application of the refund by way of withholding
tax adjustments, or allow a claim for tax credits by (i) all individual taxpayers
whose incomes for taxable year 2008 were the subject of the prorated increase
in personal and additional tax exemption; and (ii) all MWEs whose minimum wage
incomes were subjected to tax for their receipt of the 13th month pay and other
bonuses and benefits exceeding the threshold amount under Section 32(B)(7)(e) of
the 1997 Tax Code.
2. CIR vs. MANILA HOME TEXTILE, INC.
G.R. No. 203057, June 06, 2016
Facts:
MANILA HOME TEXTILE, INC (MHT) is a duly organized domestic corporation and
registered with the Securities and Exchange Commission (SEC) under SEC; that its primary
purpose is to engage, among others, in the business of manufacturing, buying, selling,
exporting, importing and otherwise dealing in home textiles, apparels of all kinds.
In line with the governments' campaign against tax evasion, BIR conducted an inquiry or
preliminary investigation to determine the MHIs tax compliance. In the course of this
inquiry or preliminary investigation, data or information culled by the petitioner from
certified copies of the Income Tax Return, the VAT, and other returns which the MHI was
required to file with the appropriate revenue district office/s, indeed indicated that the
MHI might have understated its purchases/importations for the years 2001 and 2002; that
the MHI declared in its audited financial statements purchases/importations to the tune of
P976,123.00 for 2002 and P3,355,853.00 for 2001; that by contrast, data from the BIR's
Amended Information, Tax Exemption and Incentives Division (ATTEID) showed that the
MHTs importations and/or purchases were P555,778,491.00 for 2002, and
P431,764,487.00 for 2001; which thus indicates that the MHI and its President, Thelma
and Vice-President Samuel, deliberately understated the amounts of importations and/or
purchases by as much as P428,408,634.00 for 2001, and P554,802,368.00 for 2002; and
that this explains why the MHI and its responsible corporate officers are being charged
with violations of Sections 254, 255, 257 and 267 vis-a-vis Sections 52(A), 105 and 114(A)
of the NIRC.
In refutation of the foregoing charges, Thelma and Samuel averred that they merely
received on consignment the raw materials valued at P431,764,487.00 and
P555,778,497.00, which were brought to the Philippines tax-free; that these raw materials
were then processed at the MHTs customs bonded warehouse and eventually re-exported
as finished handbags, under what is known in the export industry as cut, make and trim
or (CMT) invoices that under which, MHI could not dispose of any of its products it
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
9 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
produced out of the imported raw materials; that if they did not declare the imported raw
materials as purchases, it was because they did not in fact purchase these imported raw
materials which, to repeat, were merely consigned to them tax-free; and that considering
that the importations and re-exportation of these raw materials happened four or five years
ago, their records are no longer available.
The investigating prosecutor ruled that respondents have not been shown to have
intended to deliberately understate the importation and/or purchases in their income tax
returns for the years 2001 and 2002. It recommended that the complaint against
respondents Thelma U. Lee and Samuel U. Lee for tax evasion and perjury be dismissed.
Petitioner filed a MR but this motion was denied. Petitioner appealed to the Secretary of
Justice who resolved to dismiss the appeal.
Thereafter, petitioner instituted a Petition for Certiorari before the CA, which ruled that
private respondents were able to substantiate their claim that the amount they failed to
include are not purchases/importations subject to tax but consignments exclusively used
for the manufacture of its finished products for export, and hence duty-free. While it is
true that no direct evidence was presented by private respondent to prove such fact, the
records are however replete with strong circumstantial evidence inexorably leading to the
same conclusion. The burden is upon the complainant to prove the cause of action and
show to the satisfaction of the state prosecutor the facts and law upon which the claim is
based.
Hence, this Petition for Certiorari.
Issue:
Whether or not there is probable cause to indict the respondents for tax evasion and/or
perjury under the pertinent provisions of the NIRC and other penal statutes.
Held:
YES. Petitioner has clearly made out a prima facie case or shown probable cause to indict
respondents for tax evasion under the pertinent sections of the NIRC. Indeed, we believe
that by themselves the annexes appended to the records of this case, Annexes "A" to "M",
submitted in amplification of petitioner's affidavit-complaint do already provide viable
support to petitioner's plea for the indictment of the said respondents for tax evasion. By
contrast, respondents' argument in this case is the nebulous, murky and unsubstantiated
claim of "consignment" with an alleged tax-free guaranty, not a shred or scintilla of which
has been adduced in this case. To repeat, respondents have not produced even a slip of
paper purporting to prove that the raw materials valued at hundreds of millions of pesos
were delivered to them on "consignment."
Corollary thereto, it must be borne in mind that tax exemptions, which respondents
obviously want or desire to avail of in this case, are strictissimi juris. Indeed, taxation is
the rule and tax exemption the exception. Tax exemptions should be granted only by
clear and unequivocal provision of law on the basis of language too plain to be
misunderstood. We hold that in this case respondents have utterly failed to make out even
a prima facie for tax exemption in their favor.
Nevertheless, we must hasten to add at this juncture that we are here only to determine
probable cause, as to whether respondents are guilty of tax evasion and/or perjury under
the pertinent provisions of the NIRC and other penal statutes is an issue that must be
resolved during the trial of the criminal case/s where the quantum of proof required is
proof beyond reasonable doubt.
On top of these, we must stress that our ailing in this ease should not be construed as an
unbridled license for our tax officials to engage in fishing expeditions and witch-hunting.
They should not abuse their investigative powers and should exercise the same within the
parameters and ambit of the law. By no means is this Court signalling that it is opening
the floodgates to inundate the courts of justice with frivolous and malicious tax suits.
WHEREFORE, this Petition is hereby GRANTED. The Decision of the Court of Appeals
are REVERSED and SET ASIDE. The Resolutions of State Prosecutor II as well as the
Resolution of Department of Justice Undersecretary are also REVOKED and NULLIFIED,
The Prosecutor General of the Department of Justice is hereby directed to promptly file
the appropriate information/s for tax evasion and perjury under the pertinent provisions
of the NIRC and other relevant penal statutes against the respondents.
3. CIR v. Nippon Express Corporation
September 16, 2015
Facts:
Nippon is a domestic corporation duly organized under PH laws which is primarily
engaged in the business of freight forwarding, in the international and domestic air and
sea freight. It has a Value-Added Tax Identification number and as such it filed its quarterly
VAT returns for the year 2002. It maintained that during the said period (2002) it incurred
input VAT attributable to its zero-rated sales in the amount of Php 28,405,167.60 from
which only Php 3,760,600.74 was applied as tax credit, thus reflecting refundable excess
input VAT in the amount of Php 24,644,506.86.
Nippon then filed a claim of refund of its unutilized input VAT for the year 2002 before
the BIR. Then it filed a judicial claim for tax refund, by way of petition for review before
the CTA.
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
10 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
The CIR asserted however that the amounts claimed by Nippon were not properly
documented, hence, should be denied.
The CTA partially granted Nippons claim for tax refund and thereby ordered the CIR to
issue a tax credit certificate in the reduced amount of Php 2, 614,296.84. It found that
while Nippon filed its claim within the 2 year prescriptive period, it however, failed to
show that the recipients of its services which in this case, were mostly PH Economic Zone
Authority registered enterprises- were non residents doing business outside the PH.
Hence, the CTA held that Nippons purported sales therefrom could not qualify as zero-
rated sales, thus the said reduction was awarded.
Before its receipt of the CTA decision, Nippon filed a motion to withdraw, considering
that the BIR already issed a tax credit certificate in the amount of Php 21,675,128.91.
CIR after it received the CTA decision moved for reconsideration and filed its
comment/opposition to Nippons motion to withdraw asserting among others that the CTA
division had already resolved the factual issue and it was proven that Nippons claim of
refund should only be P2,614,296.84.
Nippon sought motion for reconsideration and praying that the CTA decision be set aside
and render judgment ordering the CIR to issue a tax credit worth Php 24 M or in the
alternative grant its motion to withdraw.
The CTA division granted Nippons motion and considered the case closed. It found that
pursuant to Revenue Memorandum Circular No. 49-03 (RMC No. 49-03) dated August
15, 2003, Nippon correctly availed of the proper remedy notwithstanding the
promulgation of the August 10, 2011 Decision.
CTAs En Banc Ruling
The CTA En Banc affirmed the CTA division ruling. It noted that the RMC- No. 49-03 did
not expressly require a taxpayer to inform the BIR of its assent nor prescribe a definite
period for filing a motion to withdraw. It also observed that the CIR did not deny the
existence and issuance of the July 27, 2011 Tax Credit Certificate. In this regard, the same
may be taken judicial notice of, and the need for its formal offer dispensed with.
Issue:
Whether or not the CTA properly granted Nippons motion to withdraw.
Held:
No. The petition is granted.
Ratio:
A perusal of the Revised Rules of the Court of Tax Appeals (RRCT A) reveals the lack of
provisions governing the procedure for the withdrawal of pending appeals before the CT
A. Hence, pursuant to Section 3, Rule 1 of the RRCTA, the Rules of Court shall suppletorily
apply.
Rule 50 of the Rules of Court - an adjunct rule to the appellate procedure in the CA under
Rules 42, 43, 44, and 46 of the Rules of Court which are equally adopted in the RRCTA -
states that when the case is deemed submitted for resolution, withdrawal of appeals made
after the filing of the appellee's brief may still be allowed in the discretion of the court.
Impelled by the BIR's supervening issuance of the July 27, 2011 Tax Credit Certificate,
Nippon filed a motion to withdraw the case. The CTA Division allowed the withdrawal
of Nippon's appeal thereby ordering the case closed and terminated, notwithstanding the
fact that the said motion was filed after the promulgation of its August 10, 2011 Decision.
While it is true that the CT A Division has the prerogative to grant a motion to withdraw
under the authority of the foregoing legal provisions, the attendant circumstances in this
case should have incited it to act otherwise.
First, it should be pointed out that the August 10, 2011 Decision was rendered by the CT
A Division after a full-blown hearing in which the parties had already ventilated their
claims. Thus, the findings contained therein were the results of an exhaustive study of the
pleadings and a judicious evaluation of the evidence submitted by the parties, as well as
the report of the commissioned certified public accountant.
The primary reason, however, that militates against the granting of the motion to withdraw
is the fact that the CT A Division, in its August 10, 2011 Decision, had already determined
that Nippon was only entitled to refund the reduced amount of P2,614,296.84 since it
failed to prove that the recipients of its services were non-residents "doing business
outside the Philippines"; hence, Nippon's purported sales therefrom could not qualify as
zero-rated sales, necessitating the reduction in the amount of refund claimed.
Therefore, as aptly pointed out by Associate JusticeDe Castro during the deliberations on
this case, the massive discrepancy alone between the administrative and judicial
determinations of the amount to be refunded to Nippon should have already raised a red
flag to the CTA Division. Clearly, the interest of the government, and, more significantly,
the public, will be greatly prejudiced by the erroneous grant of refund - at a substantial
amount at that - in favor of Nippon. Hence, under these circumstances, the CT A Division
should not have granted the motion to withdraw.
In this relation, it deserves mentioning that the CIR is not estopped from assailing the
validity of the July 27, 2011 Tax Credit Certificate which was issued by her subordinates
in the BIR. In matters of taxation, the government cannot be estopped by the mistakes,
errors or omissions of its agents for upon it depends the ability of the government to serve
the people for whose benefit taxes are collected.
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
11 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
Obiter Dictum:
Finally, the Court has observed that based on the records, Nippon's administrative claim
for the first taxable quarter of 2002 which closed on March 31, 2002 was already time-
barred for being filed on April 22, 2004, or beyond the two (2)-year prescriptive period
pursuant to Section 112(A) of the National Internal Revenue Code of 1997. Although
prescription was not raised as an issue, it is well-settled that if the pleadings or the
evidence on record show that the claim is barred by prescription, the Court may motu
proprio order its dismissal on said ground.
4. MANILA ELECTRIC COMPANY v. CITY
ASSESSOR
GR No. 166102, Aug 05, 2015
Facts:
MERALCO received from the City Assessor of Lucena a copy of Tax Declaration covering
the following electric facilities, classified as capital investment, of the company: (a)
transformer and electric post; (b) transmission line; (c) insulator; and (d) electric meter,
these electric facilities had a market value of P81,811,000.00 and an assessed value of
P65,448,800.00, and were subjected to real property tax as of 1985.
MERALCO appealed the Tax Declaration before the LBAA but the latter rendered a
Decision finding that under its franchise, MERALCO was required to pay the City
Government of Lucena a tax equal to 5% of its gross earnings, and said tax shall be due
and payable quarterly x x x, on its poles, wires, insulators, transformers and structures,
installations, conductors, and accessories, x x x, from which taxes the grantee (MERALCO)
is hereby expressly exempted.
As regards the issue of whether or not the poles, wires, insulators, transformers, and
electric meters of MERALCO were real properties, (1) the steel towers fell within the term
"poles" expressly exempted from taxes under the franchise of MERALCO; and (2) the steel
towers were personal properties under the provisions of the Civil Code and, hence, not
subject to real property tax.
The City Assessor of Lucena filed an appeal with the CBAA and the latter affirmed the
LBAA judgment and it became final and executory.
MERALCO received a letter on 1997 from the City Treasurer of Lucena, which stated that
the company was being assessed real property tax delinquency on its machineries
beginning 1990, in the total amount of P17,925,117.34
MERALCO appealed Tax Declaration before the LBAA of Lucena City and asked it to
nullify the Notice of Assessment and declare the properties covered by Tax Declaration
exempt from real property tax and posted a surety bond dated December 10, 1997 to
guarantee payment of its real property tax delinquency.
the LBAA refused to apply as res judicata its earlier judgment, as affirmed by the CBAA,
because it involved collection of taxes from 1985 to 1989, while the present case
concerned the collection of taxes from 1989 to 1997.
MERALCO went before the CBAA on appeal, but CBAA agreed with the LBAA that
MERALCO could no longer claim exemption from real property tax on its machineries
with the enactment of Republic Act No. 7160, otherwise known as the Local Government
Code of 1991.
xxxx
The pivotal point where the difference lie between the former and the current case is that
by the very wordings of [Section 199(0)], the ground being anchored upon by MERALCO
concerning the properties in question being personal in nature does not hold anymore for
the sole reason that these come now within the purview and new concept of Machineries.
The new law has treated these in an unequivocal manner as machineries in the sense that
they are instruments, mechanical contrivances or apparatus though not attached
permanently to the real properties of [MERALCO] are actually, directly and exclusively
used to meet their business of distributing electricity.
xxxx
Clearly, [Section 234 of the Local Government Code] lists exclusively down the instances
of exemption in real property taxation.
In the given facts, it has been manifested that the Municipal Board of Lucena extended
the franchise of MERALCO to operate in Lucena city an electric light system for 35 years,
and electric light, heat and power system for 20 years which should have expired on
November 9, 1992. Under those franchises, they were only bound to pay franchise taxes
and nothing more.
Granting arguendo that there is no express revocation of the exemption under the
franchise of [MERALCO] since [MERALCO] is a recipient of another franchise granted this
time by the National Electrification Commission such conferment does not automatically
include and/or award exemption from taxes, nor does it impliedly give the franchisee the
right to continue the privileges like exemption granted under its previous franchise. It is
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
12 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
just a plain and simple franchise. In countless times, the Supreme Court has ruled that
exemption must be clear in the language of the law granting such exemption for it is
strictly construed and favored against the person invoking it.
Looking into the law creating the National Electrification Administration (Commission)
nowhere in those laws can we find such authority to bestow upon the grantee any tax
exemption of whatever nature except those of cooperatives. This we believe is basically
in consonance with the provisions of the Local Government Code more particularly
Section 234.
Yet, the CBAA modified the ruling of the LBAA by excluding from the real property tax
deficiency assessment the years 1990 to 1991, considering that:
In the years 1990 and 1991, the exemption granted to MERALCO under its franchise
which incidentally expired upon the effectivity of the Local Government Code of 1991
classifying its poles, wires, insulators, transformers and electric meters as personal
property was still controlling as the law of the case. So, from 1990 to 1991, it would be
inappropriate and illegal to make the necessary assessment on those properties, much
more to impose any penalty for nonpayment of such.
But, assessments made beginning 1992 until 1997 by the City Government of Lucena is
legal. When R.A. 7160, which incorporated amended provisions of the Real Property Tax
Code, took effect on January 1, 1992, the nature of the aforecited questioned properties
considered formerly as personal metamorphosed to machineries and the exemption being
invoked was automatically withdrawn pursuant to the letter and spirit of the law. x x x.
MERALCO sought recourse from the Court of Appeals which the latter rejected.
Issue:
WON CA ERRED IN AFFIRMING THAT THE SUBJECT PROPERTIES ARE REAL
PROPERTIES SUBJECT TO REAL PROPERTY TAX; AND THAT ASSESSMENT ON THE
SUBJECT PROPERTIES SHOULD BE MADE TO TAKE EFFECT RETROACTIVELY FROM
1992 UNTIL 1997, WITH PENALTIES.
Held:
The Court finds that the transformers, electric posts, transmission lines, insulators, and
electric meters of MERALCO are no longer exempted from real property tax and may
qualify as "machinery" subject to real property tax under the Local Government Code.
Nevertheless, the Court declares null and void the appraisal and assessment of said
properties of MERALCO by the City Assessor in 1997 for failure to comply with the
requirements of the Local Government Code and, thus, violating the right of MERALCO
to due process.
LBAA herein correctly took cognizance to the appeal of Tax Declaration of MERALCO.
In the 1964 MERALCO case, the City Assessor of Quezon City considered the steel towers
of MERALCO as real property and required MERALCO to pay real property taxes for the
said steel towers for the years 1952 to 1956.
The conclusion of the CTA that the steel supports in question are embraced in the term
"poles" is not a novelty. Several courts of last resort in the United States have called these
steel supports "steel towers", and they have denominated these supports or towers, as
electric poles. In their decisions the words "towers" and "poles" were used interchangeably,
and it is well understood in that jurisdiction that a transmission tower or pole means the
same thing.
Similarly, it was clear that under the 20-year franchise granted to MERALCO by the
Municipal Board of Lucena City he transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO were exempt from real property tax.
The CBAA in its Decision sustained the exemption of the said properties of MERALCO
from real property tax on the basis of paragraph 13 of Resolution and the 1964 MERALCO
case.
Just when the franchise of MERALCO in Lucena City was about to expire, the Local
Government Code took effect on January 1, 1992, Sections 193 and 234 of which provide:
Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and nonprofit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code.
Section 234. Exemptions from Real Property Tax. - The following are exempted
from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, nonprofit or religious cemeteries and all lands, buildings,
and improvements actually, directly, and exclusively used for religious,
charitable or educational purposes;
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
13 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
(c) All machineries and equipment that are actually, directly and exclusively
used by local water districts and government-owned or controlled
corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and,
(e) Machinery and equipment used for pollution control and environmental
protection.
Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by, all persons, whether natural or juridical, including all
government-owned or controlled corporations are hereby withdrawn upon the effectivity
of this Code.
The Local Government Code, in addition, contains a general repealing clause that any
laws which are inconsistent with any of the provisions of this Code are hereby repealed
or modified accordingly.
The last paragraph of Section 234 had unequivocally withdrawn, upon the effectivity of
the Local Government Code, exemptions from payment of real property taxes granted to
natural or juridical persons, including government-owned or controlled corporations,
except as provided in the same section.
MERALCO, a private corporation engaged in electric distribution, do not qualify under
exemptions enumerated in Section 234 of the Local Government Code, therefor the
exemption under its franchise was among the exemptions withdrawn upon the effectivity
of the LGC.
The transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO may qualify as "machinery" under the Local Government Code subject to
real property tax.
MERALCO is a public utility engaged in electric distribution, and its transformers, electric
posts, transmission lines, insulators, and electric meters constitute the physical facilities
through which MERALCO delivers electricity to its consumers. Each may be considered
as one or more of the following: a "machine, equipment, contrivance, instrument,
appliance, apparatus, or installation.
The conclusions of the Court in the 1964 MERALCO case do not hold true anymore under
the Local Government Code.
Article 415, states of immovables by incorporation. Paragraph (3) of the Civil Code:
"everything attached to an immovable in a fixed manner, in such a way that it
cannot be separated therefrom without breaking the material or deterioration of
the object,"
paragraph (5)
"machinery, receptacles, instruments or implements intended by the owner of
the tenement for an industry or works which may be carried on in a building or
on a piece of land, and which tend directly to meet the needs of the said industry
or works."
In contrast, the Local Government Code considers as real property machinery which
"may or may not be attached, permanently or temporarily to the real property," and even
those which are "mobile."
As between the Civil Code, a general law governing property, and the Local Government
Code, a special law granting local government units the power to impose real property
tax, then the latter shall prevail. Therefore, for determining whether machinery is real
property subject to real property tax, the definition and requirements under the Local
Government Code are controlling.
Nevertheless, the appraisal and assessment of the transformers, electric posts,
transmission lines, insulators, and electric meters of MERALCO as machinery under Tax
Declarations were not in accordance with the Local Government Code and in violation
of the right to due process of MERALCO and, therefore, null and void.
The CA blames MERALCO for the lack of information regarding its transformers, electric
posts, transmission lines, insulators, and electric meters for appraisal and assessment
purposes because MERALCO failed to file a sworn declaration of said properties as
required by Section 202 of the Local Government Code. As MERALCO explained, it
cannot be expected to file such a declaration when all the while it believed that said
properties were personal or movable properties not subject to real property tax.
The exercise of the power of taxation constitutes a deprivation of property under the due
process clause, and the taxpayer's right to due process is violated when arbitrary or
oppressive methods are used in assessing and collecting taxes.
WHEREFORE, premises considered, the Court PARTLY GRANTS the instant Petition
and AFFIRMS with MODIFICATION
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
14 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
5. LG ELECTRONICS PHILIPPINES vs. CIR
G.R. No. 165451, December 3, 2014 Petitioner filed a Manifestation dated January 29, 2008 stating that it availed itself of the
Facts:
On March 21, 1998, LG received a formal assessment notice and demand letter from the
Bureau of Internal Revenue. LG was assessed deficiency income tax of 267,365,067.41
for the taxable year of 1994.
The deficiency was computed on the basis of (a) disallowed interest expenses for being
unsupported; (b) disallowed salary expenses for not being subjected to withholding tax
on compensation; (c) imputation of alleged undeclared sales; and (d) disallowed
brokerage fees for not being subjected to expanded withholding tax.
LG, through its external auditor, Sycip Gorres Velayo & Company (SGV), filed on April
17, 1998 an administrative protest with the Bureau of Internal Revenue against the tax
assessment. On June 16, 1998, LG filed a supplemental protest. It requested for a
reconsideration and reinvestigation of the tax assessment. It claimed that the assessment
did not have factual and legal bases. LG also subsequently submitted supporting
documents.
Without waiting for the Commissioner of Internal Revenues resolution of the protest, LG
filed a Petition for Review before the Court of Tax Appeals on January 11, 1999.
The Commissioner of Internal Revenue argued before the Court of Tax Appeals that the
assessment issued was in accordance with law since the interest expenses claimed by LG
were unsupported by sufficient proof. LG had undeclared income. Brokerage fees and
other charges were not subjected to expanded withholding tax. Moreover, the details in
the assessment notice substantially complied with the provisions of Section 228 of the
Tax Code, the taxpayer having been informed in writing of the law and the facts on which
the assessment was based. Meanwhile, the Commissioner of Internal Revenue issued the
Report dated March 3, 1999, which recommended the reduction of LGs liability for
deficiency income tax to 10,557,736.28.
In its Decision dated May 11, 2004, the Court of Tax Appeals ruled that LG was liable for
the payment of 27,181,887.82, representing deficiency income tax for taxable year 1994,
including 20% delinquency interest computed from March 18, 1998.
LG filed a Motion for Partial Reconsideration on June 4, 2004. On September 22, 2004,
the Court of Tax Appeals partially granted the Motion. It reduced LGs liability to
27,054,879.11.
On November 18, 2004, LG filed the present Petition for Review on Certiorari. On
January 19, 2005, the Commissioner of Internal Revenue was required to file its Comment.
tax amnesty provided under Republic Act No. 948028 by paying the total amount of
8,647,565.50.29 In addition, the Bureau of Internal Revenue, through Assistant
Commissioner James Roldan, issued a ruling on January 25, 2008, which held that
petitioner complied with the provisions of Republic Act No. 9480. Petitioner is, thus,
entitled to the immunities and privileges provided for under the law including "civil,
criminal or administrative penalties under the National Internal Revenue Code of 1997 . . .
arising from the failure to pay any and all internal revenue taxes for taxable year 2005
and prior years.
Respondent was required to comment on the Manifestation within 10 days from notice.
According to respondent, petitioner cannot claim the tax amnesty provided under
Republic Act No. 9480 for the following reasons: (1) accounts receivable by the Bureau
of Internal Revenue as of the date of amnesty are not covered since these constitute
government property; (2) cases that have already been favorably ruled upon by the trial
court or appellate courts prior to the availment of tax amnesty are not covered; and (3)
petitioners case involves withholding taxes that are not covered by the Tax Amnesty Act
Issue:
Whether petitioner is entitled to the immunities and privileges under the Tax Amnesty
Law or Republic Act No. 9480.
Held:
Petitioner is found entitled to the immunities and privileges granted under the tax amnesty
program, the issue on the assessed deficiency income taxes is, thus, moot and academic.
WHEREFORE, in view of petitioner LG Electronics Philippines, Inc.'s availment of the tax
amnesty program under Republic Act No. 9480, the petition is DENIED for being MOOT
and ACADEMIC. Petitioner's deficiency taxes for taxable year 2005 and prior years are
deemed fully settled.
I. This court finds that petitioner has properly availed itself of the tax amnesty granted
under Republic Act No. 9480.
Taxpayers who availed themselves of the tax amnesty program are entitled to the
immunities and privileges under Section 6 of the law:
Taxpayers who availed themselves of the tax amnesty program are entitled
to the immunities and privileges under Section 6 of the law:
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
15 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
SEC. 6. Immunities and Privileges. Those who availed themselves of the tax
amnesty under Section 5 hereof, and have fully complied with all its
conditions shall be entitled to the following immunities and privileges:
(a) The taxpayer shall be immune from the payment of taxes, as well as
additions thereto, and the appurtenant civil, criminal or administrative
penalties under the National Internal Revenue Code of 1997, as amended,
arising from the failure to pay any and all internal revenue taxes for taxable
year 2005 and prior years.
(b) The taxpayer's Tax Amnesty Return and the SALN as of December 31,
2005 shall not be admissible as evidence in all proceedings that pertain to
taxable year 2005 and prior years, insofar as such proceedings relate to
internal revenue taxes, before judicial, quasi-judicial or administrative bodies
in which he is a defendant or respondent, and except for the purpose of
ascertaining the networth beginning January 1, 2006, the same shall not be
examined, inquired or looked into by any person or government office.
However, the taxpayer may use this as a defense, whenever appropriate, in
cases brought against him.
(c) The books of accounts and other records of the taxpayer for the years
covered by the tax amnesty availed of shall not be examined: Provided, That
the Commissioner of Internal Revenue may authorize in writing the
examination of the said books of accounts and other records to verify the
validity or correctness of a claim for any tax refund, tax credit (other than
refund or credit of taxes withheld on wages), tax incentives, and/or
exemptions under existing laws.
In several cases, this court explained the nature of a tax amnesty. In Metropolitan Bank
and Trust Co. v. Commissioner of Internal Revenue:
A tax amnesty is a general pardon or the intentional overlooking by the State
of its authority to impose penalties on persons otherwise guilty of violation
of a tax law. It partakes of an absolute waiver by the government of its right
to collect what is due it and to give tax evaders who wish to relent a chance
to start with a clean slate. A tax amnesty, much like a tax exemption, is never
favored or presumed in law. The grant of a tax amnesty, similar to a tax
exemption, must be construed strictly against the taxpayer and liberally in
favor of the taxing authority.
This court in Commissioner of Internal Revenue v. Gonzalez47 further described the role
of tax amnesties in the governments collection of taxes:
Tax amnesty is a general pardon to taxpayers who want to start a clean tax
slate. It also gives the government a chance to collect uncollected tax from
tax evaders without having to go through the tedious process of a tax case.
Under Republic Act No. 9480 and BIR Revenue Memorandum Circular No. 55-2007, the
qualified taxpayer may immediately avail of the immunities and privileges upon
submission of the required documents. This is clear from Section 2 of Republic Act No.
9480:
SEC. 2. Availment of the Amnesty. Any person, natural or juridical, who
wishes to avail himself of the tax amnesty authorized and granted under this
Act shall file with the Bureau of Internal Revenue (BIR) a notice and Tax
Amnesty Return accompanied by a Statement of Assets, Liabilities and
Networth
(SALN) as of December 31, 2005, in such form as may be prescribed in the
implementing rules and regulations (IRR) of this Act, and pay the applicable
amnesty tax within six months from the effectivity of the IRR.
In Philippine Banking Corporation (Now: Global Business Bank, Inc.) v. Commissioner of
Internal Revenue, this court ruled that the completion of the requirements and compliance
with the procedure laid down in the law and the implementing rules entitle the taxpayer
to the privileges and immunities under the tax amnesty program.
In this case, petitioner showed that it complied with the requirements laid down in
Republic Act No. 9480. Pertinent documents were submitted to the Bureau of Internal
Revenue and attached to the records of this case. Petitioners compliance was also
affirmed by the Bureau of Internal Revenue in its ruling dated January 25, 2008. Petitioner
is, therefore, entitled to the immunities and privileges granted under Section 6 of Republic
Act No. 9480.
II. Respondent erred when it relied on the answers to questions numbered 47 and 49 of
BIR Revenue Memorandum Circular No. 69-2007.
The law is clear. Only final and executory judgments are excluded from the coverage of
the tax amnesty program.
We hold that only cases that involve final and executory judgments are excluded from
the tax amnesty program.
In the recent case of CS Garment Inc., v. Commissioner of Internal Revenue56 we
declared that:
While tax amnesty, similar to a tax exemption, must be construed strictly
against the taxpayer and liberally in favor of the taxing authority, it is also a
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
16 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
well-settled doctrine that the rule-making power of administrative agencies
cannot be extended to amend or expand statutory requirements or to
embrace matters not originally encompassed by the law. Administrative
regulations should always be in accord with the provisions of the statute they
seek to carry into effect, and any resulting inconsistency shall be resolved in
favor of the basic law. We thus definitively declare that the exception
"[i]ssues and cases which were ruled by any court (even without finality) in
favor of the BIR prior to amnesty availment of the taxpayer" under BIR RMC
19-2008 is invalid, as the exception goes beyond the scope of the provisions
of the 2007 Tax Amnesty Law.
III. Furthermore, contrary to respondents argument, the case does not involve
withholding taxes. This is readily seen in Republic Act No. 9480 and BIR Revenue
Memorandum Circular No. 55-2007. Section 8 of Republic Act No. 9480 provides:
SEC. 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not
extend to the following persons or cases existing as of the effectivity of this
Act:
(a) Withholding agents with respect to their withholding tax liabilities[.]
(Emphasis supplied) Similarly, BIR Revenue Memorandum Circular No. 55-
2007 states:
SEC. 5. Exceptions. The tax amnesty shall not extend to the following
persons or cases existing as of the effectivity of RA 9480:
1. Withholding agents with respect to their withholding tax liabilities[.]
Income tax is different from withholding tax, with both operating in distinct systems.
In the seminal case of Fisher v. Trinidad, this court defined income tax as "a tax on the
yearly profits arising from property, professions, trades, and offices."
Otherwise stated, income tax is the "tax on all yearly profits arising from property,
professions, trades or offices, or as a tax on a persons income, emoluments, profits and
the like."
On the other hand, withholding tax is a method of collecting income tax in advance. "In
the operation of the withholding tax system, the payee is the taxpayer, the person on
whom the tax is imposed, while the payor, a separate entity, acts no more than an agent
of the government for the collection of the tax in order to ensure its payment.
In Rizal Commercial Banking Corporation v. Commissioner of Internal Revenue, this court
ruled that "the liability of the withholding agent is independent from that of the taxpayer."
Further:
The [withholding agent] cannot be made liable for the tax due because it is the [taxpayer]
who earned the income subject to withholding tax. The withholding agent is liable only
insofar as he failed to perform his duty to withhold the tax and remit the same to the
government. The liability for the tax, however, remains with the taxpayer because the
gain was realized and received by him.
In this case, petitioner was assessed for its deficiency income taxes due to the
disallowance of several items for deduction. Petitioner was not assessed for its liability as
withholding agent. The two liabilities are distinct from and must not be confused with
each other.
Furthermore, we find it appropriate to pronounce that the Bureau of Internal Revenue
Legal Division is not the proper representative of respondent.
We observe that respondent is represented by a lawyer from the Legal Division of
Revenue Region No. 7 of the Bureau of Internal Revenue and not by the Office of the
Solicitor General. We are mindful of Section 220 of Republic Act No. 8424 or the Tax
Reform Act of 1997, which provides that legal officers of the Bureau of Internal Revenue
are the ones tasked to institute the necessary civil or criminal proceedings on behalf of
the government.
From the foregoing, we find that the Office of the Solicitor General is the proper party to
represent the interests of the government through the Bureau of Internal Revenue.
6. Fort Bonifacio Development Corporation
v Commissioner of Internal Revenue
(GR. No. 175707, November 19, 2014)
Facts:
Petitioner FBDC (petitioner) is a domestic corporation duly registered and existing under
Philippine laws. Its issued and outstanding capital stock is owned in part by the Bases
Conversion Development Authority, a wholly-owned government corporation created by
Republic Act No. 7227. The remaining 55% is owned by Bonifacio Land Corporation, a
consortium of private domestic corporations. The Respondent is the CIR.
The parties entered into a Stipulation of Facts, Documents, and Issue before the CTA for
each case. It was established before the CTA that petitioner is engaged in the
development and sale of real property. It is the owner of, and is developing and selling,
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
17 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
parcels of land within a newtown development area known as the Fort Bonifacio Global
City (the Global City), located within the former military camp known as Fort Bonifacio,
Taguig, Metro Manila. The National Government, by virtue of Republic Act No. 722716
and Executive Order No. 40,17 was the one that conveyed to petitioner these parcels of
land on February 8, 1995.
In May 1996, petitioner commenced developing the Global City, and since October 1996,
had been selling lots to interested buyers. At the time of acquisition, value-added tax (VAT)
was not yet imposed on the sale of real properties. Republic Act No. 7716 (the Expanded
Value-Added Tax [E-VAT] Law), which took effect on January 1, 1996, restructured the
VAT system by further amending pertinent provisions of the NIRC. Section 100 of the old
NIRC was so amended by including real properties in the definition of the term goods
or properties, thereby subjecting the sale of real properties to VAT. The provision,
as amended, reads:
SEC. 100. Value-Added Tax on Sale of Goods or Properties. (a) Rate and Base of
Tax. There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, a value-added tax equivalent to 10% of the gross
selling price or gross value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor.
(1) The term goods or properties shall mean all tangible and intangible objects
which are capable of pecuniary estimation and shall include:
(A) Real properties held primarily for sale to customers or held for lease in
the ordinary course of trade or business[.]
While prior to Republic Act No. 7716, real estate transactions were not subject to VAT,
they became subject to VAT upon the effectivity of said law. Thus, the sale of the parcels
of land by petitioner became subject to a 10% VAT, and this was later increased to 12%,
pursuant to Republic Act No. 9337. Petitioner afterwards became a VAT-registered
taxpayer.
On September 19, 1996, in accordance with Revenue Regulations No. 7-95
(Consolidated VAT Regulations), petitioner submitted to respondent BIR, Revenue District
No. 44, Taguig and Pateros, an inventory list of its properties as of February 29, 1996.
The total book value of petitioners land inventory amounted to P71,227,503,200.00.21
On the basis of Section 105 of the NIRC,22 petitioner claims a transitional or presumptive
input tax credit of 8% of P71,227,503,200.00, the total value of the real properties listed
in its inventory, or a total input tax credit of P5,698,200,256.00.23 After the value of the
real properties was reduced due to a reconveyance by petitioner to BCDA of a parcel of
land, petitioner claims that it is entitled to input tax credit in the reduced amount of
P4,250,475,000.48.24
What petitioner seeks to be refunded are the actual VAT payments made by it in cash,
which it claims were either erroneously paid by or illegally collected from it. Each Claim
for Refund is based on petitioners position that it is entitled to a transitional input tax
credit under Section 105 of the old NIRC, which more than offsets the aforesaid VAT
payments.
G.R. No. 180035
The petition in G.R. No. 180035 seeks to correct the unauthorized limitation of the term
real properties to improvements thereon by Revenue Regulations 7-95 and the error of
the Court of Tax Appeals and Court of Appeals in sustaining the aforesaid Regulations.
This theory of petitioner is the same for all three cases now before us.
G.R. No. 181092
On January 23, 2014, petitioner filed a Motion to Resolve these consolidated cases,
alleging that the parties had already filed their respective memoranda; and, more
importantly, that the principal issue in these cases, whether petitioner is entitled to the 8%
transitional input tax granted in Section 105 (now Section 111[A]) of the NIRC based on
the value of its inventory of land, and as a consequence, to a refund of the amounts it
paid as VAT for the periods in question, had already been resolved by the Supreme Court
En Banc in its Decision dated April 2, 2009 in G.R. Nos. 158885 and 170680, as well as
its Decision dated September 4, 2012 in G.R. No. 173425.
Petitioner claims that by definition, the term goods was limited to movable, tangible
objects which is appropriable or transferable and that said term did not originally include
real property. It was previously defined as follows under Revenue Regulations No. 5-
87:
(p) Goods means any movable, tangible objects which is appropriable or
transferrable.
Republic Act No. 7716 (E-VAT Law, January 1, 1996) expanded the coverage of the
original VAT Law (Executive Order No. 273), specifically Section 100 of the old NIRC.
According to petitioner, while under Executive Order No. 273, the term goods did not
include real properties, Republic Act No. 7716, in amending Section 100, explicitly
included in the term goods real properties held primarily for sale to customers or held
for lease in the ordinary course of trade or business. Consequently, the sale, barter, or
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
18 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
exchange of real properties was made subject to a VAT equivalent to 10% (later increased
to 12%, pursuant to Republic Act No. 9337) of the gross selling price of real properties.
Among the new provisions included by Executive Order No. 273 in the NIRC was the
following:
SEC. 105. Transitional Input Tax Credits. A person who becomes liable to
value-added tax or any person who elects to be a VAT-registered person shall,
subject to the filing of an inventory as prescribed by regulations, be allowed
input tax on his beginning inventory of goods, materials and supplies equivalent
to 8% of the value of such inventory or the actual value-added tax paid on such
goods, materials and supplies, whichever is higher, which shall be creditable
against the output tax.
According to petitioner, the E-VAT Law, Republic Act No. 7716, did not amend Section
105. Thus, Section 105, as quoted above, remained effective even after the enactment of
Republic Act No. 7716.
Previously, or on December 9, 1995, the Secretary of Finance and the CIR issued Revenue
Regulations No. 7-95, which included the following provisions:
SECTION 4.100-1. Value-added tax on sale of goods or properties. VAT is
imposed and collected on every sale, barter or exchange or transactions deemed
sale of taxable goods or properties at the rate of 10% of the gross selling price.
Gross selling price means the total amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in consideration of the sale,
barter or exchange of the goods or properties, excluding the value-added tax. The
excise tax, if any, on such goods or properties shall form part of the gross selling
price. In the case of sale, barter or exchange of real property subject to VAT, gross
selling price shall mean the consideration stated in the sales document or the zonal
value whichever is higher. Provided however, in the absence of zonal value, gross
selling price refers to the market value shown in the latest declaration or the
consideration whichever is higher.
Taxable sale refers to the sale, barter, exchange and/or lease of goods or
properties, including transactions deemed sale and the performance of service
for a consideration, all of which are subject to tax under Sections 100 and 102 of
the Code.
Any person otherwise required to register for VAT purposes who fails to
register shall also be liable to VAT on his sale of taxable goods or properties as
defined in the preceding paragraph. The sale of goods subject to excise tax is also
subject to VAT, except manufactured petroleum products (other than lubricating
oil, processed gas, grease, wax and petrolatum).
Goods or properties refer to all tangible and intangible objects which are
capable of pecuniary estimation and shall include:
1. Real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business.
xxxx
SECTION 4.104-1. Credits for input tax.
Input tax means the value-added tax due from or paid by a VAT-registered
person on importation of goods or local purchases of goods or services,
including lease or use of property, from another VAT-registered person in the
course of his trade or business. It shall also include the transitional or
presumptive input tax determined in accordance with Section 105 of the Code.
xxxx
SECTION 4.105-1. Transitional input tax on beginning inventories.
Taxpayers who became VAT-registered persons upon effectivity of RA No.
7716 who have exceeded the minimum turnover of P500,000.00 or who
voluntarily register even if their turnover does not exceed P500,000.00 shall
be entitled to a presumptive input tax on the inventory on hand as of December
31, 1995 on the following; (a) goods purchased for sale in their present
condition; (b) materials purchased for further processing, but which have not
yet undergone processing; (c) goods which have been manufactured by the
taxpayer; (d) goods in process and supplies, all of which are for sale or for use
in the course of the taxpayer's trade or business as a VAT-registered person.
However, in the case of real estate dealers, the basis of the presumptive input
tax shall be the improvements, such as buildings, roads, drainage systems, and
other similar structures, constructed on or after effectivity of E.O. 273 (January
1, 1988).
The transitional input tax shall be 8% of the value of the inventory or
actual VAT paid, whichever is higher, which amount may be allowed as tax
credit against the output tax of the VAT-registered person.
The value allowed for income tax purposes on inventories shall be the
basis for the computation of the 8% excluding goods that are exempt from VAT
under SECTION 103. Only VAT-registered persons shall be entitled to
presumptive input tax credits.
xxxx
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
19 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
Petitioner argues that Section 4.100-1 of Revenue Regulations No. 7-95 explicitly limited
the term goods as regards real properties to improvements, such as buildings, roads,
drainage systems, and other similar structures, thereby excluding the real property itself
from the coverage of the term goods as it is used in Section 105 of the NIRC. This has
brought about, as a consequence, the issues involved in the instant case.
Petitioner notes that Section 4.105-1 of Revenue Regulations No. 6- is but a reenactment
of Section 4.105-1 of Revenue Regulations No. 7-95, with the only difference being that
the following paragraph in Revenue Regulations No. 7-95 was deleted:
However, in the case of real estate dealers, the basis of the presumptive input tax
shall be the improvements, such as buildings, roads, drainage systems, and other
similar structures, constructed on or after the effectivity of E.O. 273 (January 1,
1988).
Petitioner calls this an express repeal, and with the deletion of the above paragraph, what
stands and should be applied is the statutory definition in Section 100 of the NIRC of the
term goods in Section 105 thereof.
Petitioner contends that the relevant provision now states that [t]he transitional input tax
credit shall be eight percent (8%) of the value of the beginning inventory x x x on such
goods, materials and supplies. It no longer limits the allowable transitional input tax
credit to improvements on the real properties. The amendment recognizes that the
basis of the 8% input tax credit should not be confined to the value of the improvements.
Petitioner further contends that the Commissioner of Internal Revenue has in fact
corrected the mistake in Revenue Regulations No. 7-95.
Petitioner assigns another error: the Court of Appeals erred in holding that Revenue
Regulations No. 7-95 is a valid implementation of the NIRC and in according it great
respect, and should have held that the same is invalid for being contrary to the provisions
of Section 105 of the NIRC.
Issues:
A.) The main issue before us now iswhether or not petitioner is entitled to a refund of
the amounts of: 1) P486,355,846.78 in G.R. No. 175707, 2) P77,151,020.46 for G.R.
No. 180035, and 3) P269,340,469.45 in G.R. No. 181092, which it paid as value-
added tax, or to a tax credit for said amounts.
To resolve the issue stated above, it is also necessary to determine:
1.) Whether the transitional/presumptive input tax credit under Section 105 of the
NIRC may be claimed only on the improvements on real properties;
2.) Whether there must have been previous payment of sales tax or value-added tax
by petitioner on its land before it may claim the input tax credit granted by
Section 105 of the NIRC;
3.) Whether Revenue Regulations No. 7-95 is a valid implementation of Section
105 of the NIRC; and
4.) Whether the issuance of Revenue Regulations No. 7-95 by the BIR, and
declaration of validity of said Regulations by the Court of Tax Appeals and the
Court of Appeals, was in violation of the fundamental principle of separation of
powers.
Ruling:
1.) Whether the transitional/presumptive input tax credit under Section 105 of
the NIRC may be claimed only on the improvements on real properties;
NO. Rep. Act No. 7716, which significantly is also known as the Expanded Value-Added
Tax (EVAT) law, expanded the coverage of the VAT by amending Section 100 of the Old
NIRC in several respects, some of which we will enumerate. First, it made every sale,
barter or exchange of goods or properties subject to VAT. Second, it generally defined
goods or properties as all tangible and intangible objects which are capable of
pecuniary estimation. Third, it included a non-exclusive enumeration of various objects
that fall under the class goods or properties subject to VAT, including real properties
held primarily for sale to customers or held for lease in the ordinary course of trade or
business.
From these amendments to Section 100, is there any differentiated VAT treatment on real
properties or real estate dealers that would justify the suggested limitations on the
application of the transitional input tax on them? We see none.
Rep. Act No. 7716 clarifies that it is the real properties held primarily for sale to
customers or held for lease in the ordinary course of trade or business that are subject to
the VAT, and not when the real estate transactions are engaged in by persons who do not
sell or lease properties in the ordinary course of trade or business. It is clear that those
regularly engaged in the real estate business are accorded the same treatment as the
merchants of other goods or properties available in the market. In the same way that a
milliner considers hats as his goods and a rancher considers cattle as his goods, a real
estate dealer holds real property, whether or not it contains improvements, as his goods.
By limiting the definition of goods to improvements in Section 4.105-1, the BIR not
only contravened the definition of goods as provided in the Old NIRC, but also the
definition which the same revenue regulation itself has provided.
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
20 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
2.) Whether there must have been previous payment of sales tax or value-added
tax by petitioner on its land before it may claim the input tax credit granted by
Section 105 of the NIRC;
NO. Section 105 states that the transitional input tax credits become available either to
(1) a person who becomes liable to VAT; or (2) any person who elects to be VAT-registered.
The clear language of the law entitles new trades or businesses to avail of the tax credit
once they become VAT-registered. The transitional input tax credit, whether under the
Old NIRC or the New NIRC, may be claimed by a newly-VAT registered person such as
when a business as it commences operations.
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered
persons, whether or not they previously paid taxes in the acquisition of their beginning
inventory of goods, materials and supplies.
The Court En Banc in its Resolution in G.R. No. 173425 likewise discussed the question
of prior payment of taxes as a prerequisite before a taxpayer could avail of the transitional
input tax credit. The Court found that petitioner is entitled to the 8% transitional input
tax credit, and clearly said that the fact that petitioner acquired the Global City property
under a tax-free transaction makes no difference as prior payment of taxes is not a
prerequisite. We quote pertinent portions of the resolution below:
This argument has long been settled. To reiterate, prior payment of taxes is not
necessary before a taxpayer could avail of the 8% transitional input tax credit. This
position is solidly supported by law and jurisprudence, viz.:
First . Section 105 of the old National Internal Revenue Code (NIRC) clearly
provides that for a taxpayer to avail of the 8% transitional input tax credit, all that is
required from the taxpayer is to file a beginning inventory with the Bureau of Internal
Revenue (BIR). It was never mentioned in Section 105 that prior payment of taxes is a
requirement. x x x.
Second. Since the law (Section 105 of the NIRC) does not provide for prior
payment of taxes, to require it now would be tantamount to judicial legislation which,
to state the obvious, is not allowed.
Third. A transitional input tax credit is not a tax refund per se but a tax credit.
Logically, prior payment of taxes is not required before a taxpayer could avail of
transitional input tax credit. As we have declared in our September 4, 2012 Decision,
[t]ax credit is not synonymous to tax refund. Tax refund is defined as the money that
a taxpayer overpaid and is thus returned by the taxing authority. Tax credit, on the
other hand, is an amount subtracted directly from one's total tax liability. It is any
amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage
investment.
Fourth. The issue of whether prior payment of taxes is necessary to avail of
transitional input tax credit is no longer novel. It has long been settled by
jurisprudence. x x x.
Fifth . Moreover, in Commissioner of Internal Revenue v. Central Luzon Drug
Corp., this Court had already declared that prior payment of taxes is not required in
order to avail of a tax credit. (Citations omitted, emphases ours.)
3.) Whether Revenue Regulations No. 7-95 is a valid implementation of Section
105 of the NIRC;
NO. In the April 2, 2009 Decision in G.R. Nos. 158885 and 170680, the Court struck
down Section 4.105-1 of Revenue Regulations No. 7-95 for being in conflict with the law.
The decision reads in part as follows:
[There] is no logic that coheres with either E.O. No. 273 or Rep. Act No. 7716 which
supports the restriction imposed on real estate brokers and their ability to claim the
transitional input tax credit based on the value of their real properties. In addition, the
very idea of excluding the real properties itself from the beginning inventory simply runs
counter to what the transitional input tax credit seeks to accomplish for persons engaged
in the sale of goods, whether or not such goods take the form of real properties or more
mundane commodities.
Under Section 105, the beginning inventory of goods forms part of the valuation of the
transitional input tax credit. Goods, as commonly understood in the business sense, refers
to the product which the VAT-registered person offers for sale to the public. With respect
to real estate dealers, it is the real properties themselves which constitute their goods.
Such real properties are the operating assets of the real estate dealer.
Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of goods or properties
such real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business. Said definition was taken from the very statutory language
of Section 100 of the Old NIRC. By limiting the definition of goods to improvements in
Section 4.105-1, the BIR not only contravened the definition of goods as provided in
the Old NIRC, but also the definition which the same revenue regulation itself has
provided.
Indeed, the CIR has no power to limit the meaning and coverage of the term goods
in Section 105 of the Old NIRC absent statutory authority or basis to make and justify
such limitation. A contrary conclusion would mean the CIR could very well moot the
law or arrogate legislative authority unto himself by retaining sole discretion to
provide the definition and scope of the term goods.
4.) Whether the issuance of Revenue Regulations No. 7-95 by the BIR, and
declaration of validity of said Regulations by the CTA and the Court of Appeals,
was in violation of the fundamental principle of separation of powers.
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
21 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
Yes (partly). As mandated by Article 7 of the Civil Code, an administrative rule or
regulation cannot contravene the law on which it is based. RR 7-95 is inconsistent with
Section 105 insofar as the definition of the term goods is concerned. This is a legislative
act beyond the authority of the CIR and the Secretary of Finance. The rules and regulations
that administrative agencies promulgate, which are the product of a delegated legislative
power to create new and additional legal provisions that have the effect of law, should
be within the scope of the statutory authority granted by the legislature to the objects and
purposes of the law, and should not be in contradiction to, but in conformity with, the
standards prescribed by law.
To be valid, an administrative rule or regulation must conform, not contradict, the
provisions of the enabling law. An implementing rule or regulation cannot modify,
expand, or subtract from the law it is intended to implement. Any rule that is not consistent
with the statute itself is null and void.
To recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as basis of
transitional input tax credit under Section 105 is a nullity.
Thus, we find that petitioner is entitled to a refund of the amounts of: 1)
P486,355,846.78 in G.R. No. 175707, 2) P77,151,020.46 in G.R. No. 180035, and 3)
P269,340,469.45 in G.R. No. 181092, which petitioner paid as value-added tax, or to a
tax credit for said amounts.
7. . NURSERY CARE CORPORATION et petitioners under Section 21 is not a tax against the business of the petitioners (as
al v. ANTHONY ACEVEDO or end-users of the articles sold by petitioners. This is plain from a reading of the
G.R. No. 180651, July 30, 2014 modifying paragraph of Section 21 which says:
There is double taxation when the same taxpayer is taxed twice when he should
be taxed only once for the same purpose by the same taxing authority within the
same jurisdiction during the same taxing period, and the taxes are of the same
kind or character. Double taxation is obnoxious.
Facts:
The City of Manila assessed and collected taxes from the individual petitioners
pursuant to Section 15 (Tax on Wholesalers, Distributors, or Dealers) and Section
17 (Tax on Retailers) of the Revenue Code of Manila. At the same time, the City
of Manila imposed additional taxes upon the petitioners pursuant to Section 21 of
the Revenue Code of Manila, as amended, as a condition for the renewal of their
respective business licenses for the year 1999.
Section 21 of the Revenue Code of Manila stated: Section 21. Tax
on Business Subject to the Excise, Value-Added or Percentage Taxes
under the NIRC - On any of the following businesses and articles of
commerce subject to the excise, value-added or percentage taxes
under the National Internal Revenue Code, hereinafter referred to as
NIRC, as amended, a tax of FIFTY PERCENT (50%) OF ONE PERCENT
(1%) per annum on the gross sales or receipts of the preceding
calendar year is hereby imposed:
A) On person who sells goods and services in the course of trade
or businesses; x x x PROVIDED, that all registered businesses in the
City of Manila already paying the aforementioned tax shall be
exempted from payment thereof.
To comply with the City of Manilas assessment of taxes under Section 21, the
petitioners paid under protest.
Proceeding in the RTC (which decided in favor of respondents):
The Court perceives of no instance of the constitutionally proscribed double
taxation, in the strict, narrow or obnoxious sense, imposed upon the petitioners
under Section 15 and 17, on the one hand, and under Section 21, on the other,
of the questioned Ordinance. The tax imposed under Section 15 and 17, as against
that imposed under Section 21, are levied against different tax objects or subject
matter. The tax under Section 15 is imposed upon wholesalers, distributors or
dealers, while that under Section 17 is imposed upon retailers. In short, taxes
imposed under Section 15 and 17 is a tax on the business of wholesalers,
distributors, dealers and retailers. On the other hand, the tax imposed upon herein
wholesalers, distributors, dealers or retailers) but is rather a tax against consumers
"The tax shall be payable by the person paying for the services
rendered and shall be paid to the person rendering the services who
is required to collect and pay the tax within twenty (20) days after
the end of each quarter."
In effect, the petitioners only act as the collection or withholding agent of the
City while the ones actually paying the tax are the consumers or end-users of the
articles being sold by petitioners. The taxes imposed under Sec. 21 represent
additional amounts added by the business establishment to the basic prices of its
goods and services which are paid by the end-users to the businesses. It is actually
not taxes on the business of petitioners but on the consumers.
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
22 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
Petitioners, likewise, pray the Court to direct respondents to cease and desist from
implementing Section 21 of the questioned Ordinance. That the Court cannot do,
without doing away with the mandatory provisions of Section 187 of the Local
Government Code which distinctly commands that an appeal questioning the
constitutionality or legality of a tax ordinance shall not have the effect of suspending
the effectivity of the ordinance and the accrual and payment of the tax, fee or
charge levied therein. This is so because an ordinance carries with it the
presumption of validity.
Proceeding in the CA:
The present case involves a question of law that would not lend itself to an
examination or evaluation by this Court of the probative value of the evidence
presented. An appeal erroneously taken to the Court of Appeals shall not be
transferred to the appropriate court but shall be dismissed outright.
Issues:
1. Whether or not the CA properly denied due course to the appeal for raising
pure questions of law.
2. Whether or not the petitioners were entitled to the tax credit or tax refund for
the taxes paid under Section 21.
Held:
1. The CA did not err in dismissing the appeal; but the rules should be liberally
applied for the sake of justice and equity. (There were discussions on the provisions
of the Rules of Court and related jurisprudence. But, I doubt if it would be asked.)
2. Collection of taxes pursuant to Section 21 of the Revenue Code of Manila
constituted double taxation.
Double taxation means taxing the same property twice when it should be taxed
only once; that is, "taxing the same person twice by the same jurisdiction for the
same thing." It is obnoxious when the taxpayer is taxed twice, when it should be
but once. Otherwise described as "direct duplicate taxation," the two taxes must
be imposed on the same subject matter, for the same purpose, by the same taxing
authority, within the same jurisdiction, during the same taxing period; and the
taxes must be of the same kind or character. Using the aforementioned test, the
Court finds that there is indeed double taxation if respondent is subjected to the
taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are
being imposed:
(1) on the same subject matter the privilege of doing business in
the City of Manila;
(2) for the same purpose to make persons conducting business
within the City of Manila contribute tocity revenues;
(3) by the same taxing authority petitioner Cityof Manila;
(4) within the same taxing jurisdiction within the territorial
jurisdiction of the City of Manila;
(5) for the same taxing periods per calendar year; and,
(6) of the same kind or character a local business tax imposed
on gross sales or receipts of the business.
The distinction petitioners attempt to make between the taxes under Sections 14
and 21 of Tax Ordinance No. 7794 is specious. The Court revisits Section 143 of
the LGC, the very source of the power of municipalities and cities to impose a
local business tax, and to which any local business tax imposed by petitioner City
of Manila must conform. It is apparent from a perusal thereof that when a
municipality or city has already imposed a business tax on manufacturers, etc.of
liquors, distilled spirits, wines, and any other article of commerce, pursuant to
Section 143(a) of the LGC, said municipality or city may no longer subject the
same manufacturers, etc.to a business tax under Section 143(h) of the same Code.
Section 143(h) may be imposed only on businesses that are subject to excise tax,
VAT, or percentagetax under the NIRC, and that are "not otherwise specified in
preceding paragraphs." In the same way, businesses such as respondents, already
subject to a local business tax under Section 14 of Tax Ordinance No. 7794
[which is based on Section 143(a) of the LGC], can no longer be made liable for
local business tax under Section 21 of the same Tax Ordinance [which is based
on Section 143(h) of the LGC].
Accordingly, respondents assessment under both Sections 14 and 21 had no basis.
Petitioner is indeed liable to pay business taxes to the City of Manila; nevertheless,
considering that the former has already paid these taxes under Section 14 of the
Manila Revenue Code, it is exempt from the same payments under Section 21 of
the same code. Hence, payments made under Section 21 must be refunded in
favor of petitioner.
In fine, the imposition of the tax under Section 21 of the Revenue Code of Manila
constituted double taxation, and the taxes collected pursuant thereto must be
refunded.
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
23 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
8. CIR vs. THE INSULAR LIFE ASSURANCE avail of the exemptions granted under Section 199 of the 1997 NIRC, as amended.
CO. LTD Ruling:
(G.R. No. 197192, June 4, 2014) NO. The Court has pronounced in Republic of the Philippines v. Sunlife Assurance
[Time and again, the Court has held that it is a very desirable and necessary judicial
practice that when a court has laid down a principle of law as applicable to a certain state
of facts, it will adhere to that principle and apply it to all future cases in which the facts
are substantially the same. Stare decisis et non quieta movere. Stand by the decisions and
disturb not what is settled. Stare decisis simply means that for the sake of certainty, a
conclusion reached in one case should be applied to those that follow if the facts are
substantially the same, even though the parties may be different. It proceeds from the first
principle of justice that, absent any powerful countervailing considerations, like cases
ought to be decided alike. Thus, where the same questions relating to the same event
have been put forward by the parties similarly situated as in a previous case litigated and
decided by a competent court, the rule of stare decisisis a bar to any attempt to relitigate
the same issue.]
Facts:
Respondent The Insular Life Assurance, Co., Ltd. is a corporation duly organized and
existing under and by virtue of the laws of the Republic of the Philippines. It received an
Assessment Notice with Formal Letter of Demand both dated July 29, 2004, assessing
respondent for deficiency DST on its premiums on direct business/sums assured for
calendar year 2002. Thereafter, respondent filed its Protest Letter on which was
subsequently denied by petitioner in a Final Decision for lack of factual and legal bases.
Apparently, respondent received the aforesaid Final Decision on Disputed Assessment.
Respondent filed a Petition for Review before CTA which rendered a Decision in favor of
respondent, thus, granting the Petition for Review and held, among others, that
respondent sufficiently established that it is a cooperative company and therefore, it is
exempt from the DST on the insurance policies it grants to its members.
Consequently, petitioner filed a Motion for Reconsideration which was denied for lack of
merit. It held, among others, that the Supreme Court in Republic of the Philippines vs.
Sunlife Assurance Company of Canada already laid down the rule that registration with
the Cooperative Development Authority is not essential before respondent may avail of
the exemptions granted under Section 199 of the 1997 NIRC, as amended.
Undaunted, petitioner filed a Petition for Review before the CTA en banc The CTA en
banc denied the petition. Hence, this Petition for Certiorari.
Issue:
Whether or not registration with CDA is necessary before a respondent cooperative may
Company of Canada that "[u]nder the Tax Code although respondent is a cooperative,
registration with the CDA is not necessary in order for it to be exempt from the payment
of both percentage taxes on insurance premiums, under Section 121; and documentary
stamp taxes on policies of insurance or annuities it grants, under Section 199."
Section 199 of the NIRC of 1997 provides:
Sec. 199. Documents and Papers Not Subject to Stamp Tax. The provisions of
Section 173 to the contrary notwithstanding, the following instruments,
documents and papers shall be exempt from the documentary stamp tax:
(a) Policies of insurance or annuities made or granted by a fraternal or
beneficiary society, order, association or cooperative company, operated on
the lodge system or local cooperation plan and organized and conducted solely
by the members thereof for the exclusive benefit of each member and not for
profit.
x x x x (Emphasis ours)
As regards the applicability of Sunlife to the case at bar, the CTA, through records, has
established the following similarities between the two which call for the application of
the doctrine of stare decisis:
1. Sunlife Assurance Company of Canada and the respondent are both engaged in mutual
life insurance business in the Philippines;
2. The structures of both corporations were converted from stock life insurance
corporation to non-stock mutual life insurance for the benefit of its policyholders pursuant
to Section 266, Title 17 of the Insurance Code of 1978 and they were made prior to the
effectivity of Republic Act (R.A.) No. 6938, otherwise known as the Cooperative Code
of the Philippines;
3. Both corporations claim to be a purely cooperative corporation duly licensed to engage
in mutual life insurance business;
4. Both corporations claim exemption from payment of the documentary stamp taxes
(DST) under Section 199(1) of the Tax Code (now Section 199[a] of the NIRC of 1997, as
amended); and,
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
24 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
5. Petitioner CIR requires registration with the CDA before it grants tax exemptions under
the Tax Code.
The petitioner submitted that the doctrine in Sunlife should be reconsidered and not be
applied because the same failed to consider Section 3(e) of R.A No. 6939 which provides
that CDA has the power to register all cooperatives.
A perusal of Section 3(e) of R.A. No. 6939 evidently shows that it is merely a statement
of one of the powers exercised by CDA. Neither Section 3(e) of R.A. No. 6939 nor any
other provision in the aforementioned statute imposes registration with the CDA as a
condition precedent to claiming DST exemption. Even then, R.A. No. 6939 is
inapplicable to the case at bar.
The NIRC of 1997 defined a cooperative company or association as conducted by the
members thereof with the money collected from among themselves and solely for their
own protection and not for profit. Consequently, as long as these requisites are satisfied,
a company or association is deemed a cooperative insofar as taxation is concerned. In
this case, the respondent has sufficiently established that it conforms with the elements of
a cooperative as defined in the NIRC of 1997 in that it is managed by members, operated
with money collected from the members and has for its main purpose the mutual
protection of members for profit.
The Court presented three justifications in Sunlife why registration with the CDA is not
necessary for cooperatives to claim exemption from DST.
First, the NIRC of 1997 does not require registration with the CDA. No tax provision
requires a mutual life insurance company to register with that agency in order to enjoy
exemption from both percentage and DST. Although a provision of Section 8 of the
Revenue Memorandum Circular (RMC) No. 48-91 requires the submission of the
Certificate of Registration with the CDA before the issuance of a tax exemption certificate,
that provision cannot prevail over the clear absence of an equivalent requirement under
the Tax Code.
The respondent correctly pointed out that in other provisions of the NIRC, registration
with the CDA is expressly required in order to avail of certain tax exemptions or
preferential tax treatment- a requirement which is noticeably absent in Section 199 of the
NIRC. Quoted below are examples of cooperatives which are expressly mandated by law
to be registered with the CDA before their transactions could be considered as exempted
from value added tax:
Sec. 109. Exempt Transactions. The following shall be exempt from the value-
added tax:
xxxx
(r) Sales by agricultural cooperatives duly registered with the Cooperative
Development Authority to their members as well as sale of their produce,
whether in its original state or processed form, to non-members; their
importation of direct farm inputs, machineries and equipment, including spare
parts thereof, to be used directly and exclusively in the production and/or
processing of their produce;
(s) Sales by electric cooperatives duly registered with the Cooperative
Development Authority or National Electrification Administration, relative to
the generation and distribution of electricity as well as their importation of
machineries and equipment, including spare parts, which shall be directly used
in the generation and distribution of electricity;
(t) Gross receipts from lending activities by credit or multi-purpose cooperatives
duly registered with the Cooperative Development Authority whose lending
operation is limited to their members;
(u) Sales by non-agricultural, non-electric and non-credit cooperatives duly
registered with the Cooperative Development Authority: Provided, That the
share capital contribution of each member does not exceed Fifteen thousand
pesos ([P]15,000) and regardless of the aggregate capital and net surplus ratably
distributed among the members;
x x x x (Emphasis ours)
This absence of the registration requirement under Section 199 clearly manifests the
intention of the Legislative branch of the government to do away with registration before
the CDA for a cooperative to benefit from the DST exemption under this particular section.
Second, the provisions of the Cooperative Code of the Philippines do not apply. The
history of the Cooperative Code was amply discussed in Sunlife where it was noted that
cooperatives under the old law, Presidential Decree (P.D.) No. 175 referred only to an
organization composed primarily of small producers and consumers who voluntarily
joined to form a business enterprise that they themselves owned, controlled, and
patronized. The Bureau of Cooperatives Development under the Department of Local
Government and Community Development (later Ministry of Agriculture) had the
authority to register, regulate and supervise only the following cooperatives:
(1) barrio associations involved in the issuance of certificates of land transfer; (2) local or
primary cooperatives composed of natural persons and/or barrio associations; (3)
federations composed of cooperatives that may or may not perform business activities;
and (4) unions of cooperatives that did not perform any business activities. Respondent
does not fall under any of the abovementioned types of cooperatives required to be
registered under [P.D. No.] 175.
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
25 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
Thus, when the subsequent law, R.A. No. 6939, concerning cooperatives was enacted,
the respondent was not covered by said law and was not required to be registered, viz:
When the Cooperative Code was enacted years later, all cooperatives that
were registered under PD 175 and previous laws were also deemed registered
with the CDA. Since respondent was not required to be registered under the
old law on cooperatives, it followed that it was not required to be registered
even under the new law.
x x x Only cooperatives to be formed or organized under the Cooperative Code
needed registration with the CDA. x x x. (Emphasis ours)
The distinguishing feature of a cooperative enterprise is the mutuality of cooperation
among its member-policyholders united for that purpose. So long as respondent meets
this essential feature, it does not even have to use and carry the name of a cooperative to
operate its mutual life insurance business. Gratia argumenti that registration is mandatory,
it cannot deprive respondent of its tax exemption privilege merely because it failed to
register. The nature of its operations is clear; its purpose well-defined. Exemption when
granted cannot prevail over administrative convenience.
Third, the Insurance Code does not require registration with the CDA. The provisions
of this Code primarily govern insurance contracts; only if a particular matter in question
is not specifically provided for shall the provisions of the Civil Code on contracts and
special laws govern.
There being no cogent reason for the Court to deviate from its ruling in Sunlife, the Court
holds that the respondent, being a cooperative company not mandated by law to be
registered with the CDA, cannot be required under RMC No. 48-91, a mere circular, to
be registered prior to availing of DST exemption.
While administrative agencies, such as the Bureau of Internal Revenue, may issue
regulations to implement statutes, they are without authority to limit the scope of the
statute to less than what it provides, or extend or expand the statute beyond its terms, or
in any way modify explicit provisions of the law. Indeed, a quasi-judicial body or an
administrative agency for that matter cannot amend an act of Congress. Hence, in case
of a discrepancy between the basic law and an interpretative or administrative ruling, the
basic law prevails.
9. CIR v. Philippine Airlines, Inc
February 22, 2017
Facts:
PALs importations of alcohol and tobacco products which were intended for use in its
commissary supplies during international flights were subjected to excise taxes. The
payment of excise taxes on imported articles was imposed because of RA 9334 which
took effect on January 1, 2005 of which amended the Section 131 of the NIRC. The
amendment in summary increased the rates of excise tax imposed on alcohol and tobacco
products. It also removed the exemption from taxes, duties and charges, including excise
taxes, on importations of cigars, cigarettes, distilled spirits, wines and fermented liquor
into the Philippines.
For the said importations done by PAL, PAL was assessed excise taxes amounting to a
total of P6,319,735.21. PAL paid such taxes under protest. But it later filed an
administrative claim for refund contending that it is entitled to tax privileges under Section
13 of PD 1590. Basically such section invoked by PAL provided among others the
granting of franchise and rights by the Republic to PAL and its tax privileges.
Considering that the two-year prescriptive period for filing a judicial claim for refund was
about to expire and the BIR was yet to act on its claims, PAL filed a judicial claim for
refund, via a petition for review.
The CTA Second Division issued a decision partially granting PALs claim for refund. It
found that PAL was able to sufficiently prove its exemption from the payment of excise
taxes pertaining to its importation of alcoholic products and since it already paid the
disputed excise taxes on the subject importation, it is entitled to refund. However, the tax
court ruled that, with respect to its subject importation of tobacco products, PAL failed to
discharge its burden of proving that the said product were not locally available in
reasonable quantity, quality or price, in accordance with the requirements of the law.
Thus, it is not entitled to refund for the excise taxes paid on such importation.
CTA En Banc affirmed in toto the CTA Decision.
Issue:
Whether or not the tax privilege of PAL provided in Section 13 of PD1950 has been
revoked by Section 131 of the NIRC of 1977, as amended by Section 6 of RA 9334.
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
26 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
Held:
No. The franchise of PAL remains the governing law on its exemption from taxes.
Ratio:
1. It is a basic principle of statutory construction that a later law, general in terms and
not expressly repealing or amending a prior special law, will not ordinarily affect the
special provisions of such earlier statute. So it must be here. Indeed, as things stand, PD
1590 has not been revoked by the NIRC of 1997, as amended. Or to be more precise, the
tax privilege of PAL provided in Sec. 13 of PD 1590 has not been revoked by Sec. 131 of
the NIRC of 1997, as amended by Sec. 6 of RA 9334.
2. That the Legislature chose not to amend or repeal [PD] 1590 even after PAL was
privatized reveals the intent of the Legislature to let PAL continue to enjoy, as a private
corporation, the very same rights and privileges under the terms and conditions stated in
said charter.
3. While it is true that Sec. 6 of RA 9334 as previously quoted states that "the provisions
of any special or general law to the contrary notwithstanding," such phrase left alone
cannot be considered as an express repeal of the exemptions granted under PAL's
franchise because it fails to specifically identify PD 1590 as one of the acts intended to
be repealed.
4. Lastly, petitioners in the present petition again raise the issue regarding PAL's alleged
failure to comply with the conditions set by Section 13 of PD 1590 for its imported
tobacco and alcohol products to be exempt from excise tax. These conditions are: (1)
such supplies are imported for the use of the franchisee in its transport/non- transport
operations and other incidental activities; and (2) they are not locally available in
reasonable quantity, quality and price.
However, as this Court has previously held, the matter as to PAL's supposed
noncompliance with the conditions set by Section 13 of P.D. 1590 for its imported
supplies to be exempt from excise tax, are factual determinations that are best left to
the CTA, which found that PAL had, in fact, complied with the above conditions. The
CTA is a highly specialized body that reviews tax cases and conducts trial de nova. Thus,
without any showing that the findings of the CTA are unsupported by substantial evidence,
its findings are binding on this court.
10. CIR VS ST LUKES
(GR No. 203415, February 13, 2017)
Facts:
St. Lukes was assessed by the BIR a deficiency income tax of P41 million for taxable year
2006. St. Lukes claimed that as a non-stock, non-profit charitable and social welfare
organization under Section 30(E) and (G) of the 1997 NIRC, it is exempt from paying
income tax. St. Lukes protested the assessment but the same was denied by the BIR,
prompting the hospital to elevate the matter to the Court of Tax Appeals (CTA). St. Lukes
scored a victory at the CTA as it cancelled and set aside the assessment of the BIR. The
BIR appealed the case to the Supreme Court contending that the CTA erred in exempting
St. Lukes from the payment of income tax.
Issue:
WON St. Lukes is liable for income tax under Section 27(B) of the 1997 NIRC insofar as
its revenues from paying patients are concerned.
Held:
The Supreme Court ruled against St. Lukes. While the court recognizes the income tax
exemption of proprietary non-profit hospitals under Section 30(E) and (G) of the Tax Code,
it pointed out that Section 27(B) has the effect of subjecting the taxable income of two
specific institutions, namely, proprietary non-profit educational institutions and
proprietary non-profit hospitals, to a 10% preferential income tax rate. The Court said that
the word proprietary means private while the word non-profit means no net income
or asset accrues to or benefits any member or specific person, with all the net income or
asset devoted to the institutions purposes and all its activities conducted not for profit.
The claim of St. Lukes that it is exempted from income tax since it is a charitable
institution was rejected by the Court. To be a charitable institution, an organization must
meet the substantive test of charity. Charity is essentially a gift to an indefinite number of
persons which lessens the burden of government. In other words, charitable institutions
provide for free goods and services to the public which would otherwise fall on the
shoulders of government. Thus, as a matter of efficiency, the government foregoes taxes
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
27 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
which should have been spent to address public needs, because certain entities already
assume a part of the burden.
The Constitution exempts charitable institutions only from real property taxes. In the NIRC,
Congress decided to extend the exemption to income taxes. Section 30(E) of the NIRC
provides that a charitable institution must be: (1) a non-stock corporation or association;
(2) organized exclusively for charitable purposes; (3) operated exclusively for charitable
purposes; and (4) no part of its net income or asset shall belong to or inure to the benefit
of any member, organizer, officer or any specific person.
The Court pointed out that under Section 30 of the NIRC, there is a qualifying phrase
which provides that if a tax exempt charitable institution conducts any activity for profit,
such activity is not tax exempt even as its non-profit activities remain exempt.
The Court noted that St. Lukes had total revenues of P1.73 billion from services to paying
patients in 2006, hence, it cannot be disputed that a hospital which receives such amount
from paying patients is not an institution operated exclusively for charitable purposes.
Clearly, revenues from paying patients are income received from activities conducted for
profit. St. Lukes, therefore, cannot hide behind its corporate form as a non-stock, non-
profit charitable institution.
Discussion:
The issue of whether SLMC is liable for income tax under Section 27(B) of the 1997 NIRC
insofar as its revenues from paying patients are concerned has been settled in G.R. Nos.
195909 and 195960 (Commissioner of Internal Revenue v. St. Luke's Medical Center,
Inc.), where the Court ruled that:
x x x We hold that Section 27(B) of the NIRC does not remove the income tax exemption
of proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B) on one hand,
and Section 30(E) and (G) on the other hand, can be construed together without the
removal of such tax exemption. The effect of the introduction of Section 27(B) is to subject
the taxable income of two specific institutions, namely, proprietary non-profit educational
institutions and proprietary non-profit hospitals, among the institutions covered by
Section 30, to the 10% preferential rate under Section 27(B) instead of the ordinary 30%
corporate rate under the last paragraph of Section 30 in relation to Section 27(A)(l).
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1)
proprietary non-profit educational institutions and (2) proprietary non-profit hospitals. The
only qualifications for hospitals are that they must be proprietary and non-profit.
'Proprietary' means private, following the definition of a 'proprietary educational
institution' as 'any private school maintained and administered by private individuals or
groups' with a government permit. 'Non-profit' means no net income or asset accrues to
or benefits any member or specific person, with all the net income or asset devoted to the
institution's purposes and all its activities conducted not for profit.
'Non-profit' does not necessarily mean 'charitable.' In Collector of Internal Revenue v.
Club Filipino, Inc. de Cebu, this Court considered as non-profit a sports club organized
for recreation and entertainment of its stockholders and members. The club was primarily
funded by membership fees and dues. If it had profits, they were used for overhead
expenses and improving its golf course. The club was non-profit because of its purpose
and there was no evidence that it was engaged in a profit-making enterprise.
The sports club in Club Filipino, Inc. de Cebu may be non-profit, but it was not charitable.
To be a charitable institution, however, an organization must meet the substantive test of
charity in Lung Center. The issue in Lung Center concerns exemption from real property
tax and not income tax. However, it provides for the test of charity in our jurisdiction.
Charity is essentially a gift to an indefinite number of persons which lessens the burden
of government. In other words, charitable institutions provide for free goods and services
to the public which would otherwise fall on the shoulders of government. Thus, as a
matter of efficiency, the government forgoes taxes which should have been spent to
address public needs, because certain private entities already assume a part of the burden.
This is the rationale for the tax exemption of charitable institutions. The loss of taxes by
the government is compensated by its relief from doing public works which would have
been funded by appropriations from the Treasury.
Charitable institutions, however, are not ipso facto entitled to a tax exemption. The
requirements for a tax exemption are specified by the law granting it. The power of
Congress to tax implies the power to exempt from tax.
As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, so long as
the money received is devoted or used altogether to the charitable object which it is
intended to achieve; and no money inures to the private benefit of the persons managing
or operating the institution.
The Constitution exempts charitable institutions only from real property taxes. In the
NIRC, Congress decided to extend the exemption to income taxes. However, the way
Congress crafted Section 30(E) of the NIRC is materially different from Section 28(3),
Article VI of the Constitution. Section 30(E) of the NIRC defines the corporation or
association that is exempt from income tax. On the other hand, Section 28(3), Article VI
of the Constitution does not define a charitable institution, but requires that the institution
'actually, directly and exclusively' use the property for a charitable purpose.
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
28 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
Section 30(E) of the NIRC provides that a charitable institution must be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
(4) No part of its net income or asset shall belong to or inure to the benefit of any member,
organizer, officer or any specific person.
Thus, both the organization and operations of the charitable institution must be devoted
'exclusively' for charitable purposes. The organization of the institution refers to its
corporate form, as shown by its articles of incorporation, by-laws and other constitutive
documents. Section 30(E) of the NIRC specifically requires that the corporation or
association be non-stock, thus no part of its income is distributable as dividends to its
members, trustees, or officers' and that any profit 'obtain[ed] as an incident to its
operations shall, whenever necessary or proper, be used for the furtherance of the purpose
or purposes for which the corporation was organized.' However, under Lung Center, any
profit by a charitable institution must not only be plowed back 'whenever necessary or
proper,' but must be 'devoted or used altogether to the charitable object which it is
intended to achieve.'
There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable
institution. However, this does not automatically exempt St. Luke's from paying taxes.
This only refers to the organization of St. Luke's. Even if St. Luke's meets the test of charity,
a charitable institution is not ipso facto tax exempt. To be exempt from real property
taxes, Section 28(3), Article VI of the Constitution requires that a charitable institution use
the property 'actually, directly and exclusively' for charitable purposes. To be exempt
from income taxes, Section 30(E) of the NIRC requires that a charitable institution must
be 'organized and operated exclusively' for charitable purposes. Likewise, to be exempt
from income taxes, Section 30(G) of the NIRC requires that the institution be 'operated
exclusively' for social welfare.
However, the last paragraph of Section 30 of the NIRC qualifies the words 'organized and
operated exclusively' by providing that:
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind
and character of the foregoing organizations from any of their properties, real or personal,
or from any of their activities conducted for profit regardless of the disposition made of
such income, shall be subject to tax imposed under this Code.
Thus, even if the charitable institution must be 'organized and operated exclusively' for
charitable purposes, it is nevertheless allowed to engage in 'activities conducted for profit'
without losing its tax exempt status for its not-for-profit activities. The only consequence
is that the 'income of whatever kind and character' of a charitable institution 'from any of
its activities conducted for profit, regardless of the disposition made of such income, shall
be subject to tax.' Prior to the introduction of Section 27(B), the tax rate on such income
from for-profit activities was the ordinary corporate rate under Section 27(A). With the
introduction of Section 27(B), the tax rate is now 10%.
In 1998, St. Luke's had total revenues of l,730,367,965 from services to paying patients.
It cannot be disputed that a hospital which receives approximately l.73 billion from
paying patients is not an institution 'operated exclusively' for charitable purposes. Clearly,
revenues from paying patients are income received from 'activities conducted for profit.'
Indeed, St. Luke's admits that it derived profits from its paying patients. St. Luke's declared
l,730,367,965 as 'Revenues from Services to Patients' in contrast to its 'Free Services'
expenditure of 218,187,498. In its Comment in G.R. No. 195909, St. Luke's showed the
following 'calculation' to support its claim that 65.20% of its 'income after expenses was
allocated to free or charitable services' in 1998.
xxxx
The Court cannot expand the meaning of the words 'operated exclusively' without
violating the NIRC. Services to paying patients are activities conducted for profit. There is
a 'purpose to make profit over and above the cost' of services. The l.73 billion total
revenues from paying patients is not even incidental to St. Luke's charity expenditure of
2l8,187,498 for non-paying patients.
St. Luke's claims that its charity expenditure of 218,187,498 is 65.20% of its operating
income in 1998. However, if a part of the remaining 34.80% of the operating income is
reinvested in property, equipment or facilities used for services to paying and non-paying
patients, then it cannot be said that the income is 'devoted or used altogether to the
charitable object which it is intended to achieve.' The income is plowed back to the
corporation not entirely for charitable purposes, but for profit as well.
St. Luke's fails to meet the requirements under Section 30(E) and (G) of the NIRC to be
completely tax exempt from all its income.
St. Luke's is therefore liable for deficiency income tax in 1998 under Section 27(B) of the
NIRC. However, St. Luke's has good reasons to rely on the letter dated 6 June 1990 by
the BIR, which opined that St. Luke's is 'a corporation for purely charitable and social
welfare purposes' and thus exempt from income tax.
A careful review of the pleadings reveals that there is no countervailing consideration for
the Court to revisit its aforequoted ruling in G.R. Nos. 195909 and 195960 (Commissioner
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
29 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
of Internal Revenue v. St. Luke's Medical Center, Inc.). Thus, under the doctrine of stare
decisis, which states that "[o]nce a case has been decided in one way, any other case
involving exactly the same point at issue x x x should be decided in the same manner,"
the Court finds that SLMC is subject to l0% income tax insofar as its revenues from paying
patients are concerned.
To be clear, for an institution to be completely exempt from income tax, Section 30(E)
and (G) of the 1997 NIRC requires said institution to operate exclusively for charitable
or social welfare purpose. But in case an exempt institution under Section 30(E) or (G)
of the said Code earns income from its for-profit activities, it will not lose its tax
exemption. However, its income from for-profit activities will be subject to income tax
at the preferential 10% rate pursuant to Section 27(B) thereof.
11. PAGCOR vs. BIR
(G.R. No. 215427, December 10, 2014)
Facts:
On April 17, 2006, petitioner filed before this Court a Petition for Review on Certiorari
and Prohibition seeking the declaration of nullity of Section 12 of RA No. 93373 insofar
as it amends Section 27(C)4 of R.A. No. 8424,5 otherwise known as the National Internal
Revenue Code (NIRC) by excluding petitioner from the enumeration of government-
owned or controlled corporations (GOCCs) exempted from liability for corporate income
tax.
On March 15, 2011, the SC partly granted the petition insofar as it held that the BIR
Revenue Regulations No. 16-2005 which subjects PAGCOR to 10% VAT is null and void
for being contrary to the NIRC of 1997, as amended by RA 9337. It also held that Section
1 of RA 9337 is valid and constitutional in excluding petitioner PAGCOR from the
enumeration of GOCC exempted from corporate income tax.
BIR issued RMC No. 33-2013 on April 17, 2013 pursuant to the Decision dated March
15, 2011 and the Resolution dated May 31, 2011, which clarifies the "Income Tax and
Franchise Tax Due from the Philippine Amusement and Gaming Corporation (PAGCOR),
its Contractees and Licensees.
RMC No. 33-2013 now no longer exempts PAGCOR from corporate income tax as it has
been effectively omitted from the list of GOCCs that are exempt from income tax. It
subjects the income from PAGCORs operations and licensing of gambling casinos,
gaming clubs and other similar recreation or amusement places, gaming pools, and other
related operations, to corporate income tax under NIRC.
It subjects PAGCOR to a franchise tax of five percent (5%) of the gross revenue or earnings
it derives from its operations and licensing of gambling casinos, gaming clubs and other
similar recreation or amusement places, gaming pools, and other related operations.
Petitioner wrote the BIR Commissioner requesting for reconsideration of the tax treatment
of its income from gaming operations and other related operations under RMC No. 33-
2013. The request was, however, denied by the BIR Commissioner.
On August 4, 2011, the Decision dated March 15, 2011 became final and executory and
was, accordingly, recorded in the Book of Entries of Judgment.
Consequently, petitioner filed a Motion for Clarification alleging that RMC No. 33-2013
is an erroneous interpretation and application of the aforesaid Decision.
Issue:
1. Whether or not PAGCORs gaming income is subject to both 5% franchise tax
and income tax?
2. Whether or not PAGCORs income from operation of related services is subject
to both income tax and 5% franchise tax?
Held:
PAGCORs income from gaming operations is subject only to five percent (5%) franchise
tax under P.D. 1869, as amended, while its income from other related services is subject
to corporate income tax pursuant to P.D. 1869, as amended, as well as R.A. No. 9337.
1. Gaming Operations Income: Franchise Tax YES; Income Tax NO.
2. Income from Other Related Services: Franchise Tax NO; Income Tax YES.
Under P.D. 1869, as amended, petitioner is subject to income tax only with respect to its
operation of related services. Accordingly, the income tax exemption ordained under
Section 27(c) of R.A. No. 8424 clearly pertains only to petitioners income from operation
of related services. Such
income tax exemption could not have been applicable to petitioners income from
gaming operations as it is already exempt therefrom under P.D. 1869.
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |
30 | T a x a t i o n | 2 0 1 7
Atty. Galera | Case Digests
The grant of tax exemption or the withdrawal thereof assumes that the person or entity
involved is subject to tax. This is the most sound and logical interpretation because
petitioner could not have been exempted from paying taxes which it was not liable to pay
in the first place. This is clear from the wordings of P.D. 1869, as amended, imposing a
franchise tax of five percent (5%) on its gross revenue or earnings derived by petitioner
from its operation under the Franchise in lieu of all taxes of any kind or form, as well as
fees, charges or levies of whatever nature, which necessarily include corporate income
tax.
In other words, there was no need for Congress to grant tax exemption to petitioner with
respect to its income from gaming operations as the same is already exempted from all
taxes of any kind or form, income or otherwise, whether national or local, under its
Charter, save only for the five percent (5%) franchise tax. The exemption attached to the
income from gaming operations exists independently from the enactment of R.A. No.
8424. To adopt an assumption otherwise would be downright ridiculous, if not
deleterious, since petitioner would be in a worse position if the exemption was granted
(then withdrawn) than when it was not granted at all in the first place.
Every effort must be exerted to avoid a conflict between statutes; so that if reasonable
construction is possible, the laws must be reconciled in that manner.
there is no conflict between P.D. 1869, as amended, and R.A. No. 9337. The former lays
down the taxes imposable upon petitioner, as follows: (1) a five percent (5%) franchise
tax of the gross revenues or earnings derived from its operations conducted under the
Franchise, which shall be due and payable in lieu of all kinds of taxes, levies, fees or
assessments of any kind, nature or description, levied, established or collected by any
municipal, provincial or national government authority;15 (2) income tax for income
realized from other necessary and related services, shows and entertainment of
petitioner.16 With the enactment of R.A. No. 9337, which withdrew the income tax
exemption under R.A. No. 8424, petitioners tax liability on income from other related
services was merely reinstated.
It cannot be gain said, therefore, that the nature of taxes imposable is well defined for
each kind of activity operation. There is no inconsistency between the statutes; and in
fact, they complement each other.
Even assuming that an inconsistency exists, P.D. 1869, as amended, which expressly
provides the tax treatment of petitioners income prevails over R.A. No. 9337, which is a
general law. It is a canon of statutory construction that a special law prevails over a
general law regardless of their dates of passage and the special is to be considered
as remaining an exception to the general.
The Court agrees with petitioner that if the lawmakers had intended to withdraw
petitioners tax exemption of its gaming income, then Section 13(2)(a) of P.D. 1869 should
have been amended expressly in R.A. No. 9487, or the same, at the very least, should
have been mentioned in the repealing clause of R.A. No. 9337.21 However, the repealing
clause never mentioned petitioners Charter as one of the laws being repealed. On the
other hand, the repeal of other special laws, namely, Section 13 of R.A. No. 6395 as well
as Section 6, fifth paragraph of R.A. No. 9136, is categorically provided under Section 24
(a) (b) of R.A. No. 9337.
When petitioners franchise was extended on June 20, 2007 without revoking or
withdrawing itstax exemption, it effectively reinstated and reiterated all of petitioners
rights, privileges and authority granted under its Charter. Otherwise, Congress would have
painstakingly enumerated the rights and privileges that it wants to withdraw, given that a
franchise is a legislative grant of a special privilege to a person. Thus, the extension of
petitioners franchise under the same terms and conditions means a continuation of its tax
exempt status with respect to its income from gaming operations. Moreover, all laws, rules
and regulations, or parts thereof, which are inconsistent with the provisions of P.D. 1869,
as amended, a special law, are considered repealed, amended and modified, consistent
with Section 2 of R.A. No. 9487.
Given that petitioners Charter is not deemed repealed or amended by R.A. No. 9337,
petitioners income derived from gaming operations is subject only to the five percent
(5%)franchise tax, in accordance with P.D. 1869, as amended. With respect to petitioners
income from operation of other related services, the same is subject to income tax only.
The five percent (5%) franchise tax finds no application with respect to petitioners
income from other related services, in view of the express provision of Section 14(5) of
P.D. 1869, as amended.
Thus, it would be the height of injustice to impose franchise tax upon petitioner for its
income from other related services without basis therefor.
For proper guidance, the first classification of PAGCORs income under RMC No. 33-
2013 (i.e., income from its operations and licensing of gambling casinos, gaming clubs
and other similar recreation or amusement places, gambling pools) should be interpreted
in relation to Section 13(2) of P.D. 1869, which pertains to the income derived from
issuing and/or granting the license to operate casinos to PAGCORs contractees and
licensees, as well as earnings derived by PAGCOR from its own operations under the
Franchise. On the other hand, the second classification of PAGCORs income under RMC
No. 33-2013 (i.e., income from other related operations) should be interpreted in relation
to Section 14(5) of P.D. 1869, which pertains to income received by PAGCOR from its
contractees and licensees in the latters operation of casinos, as well as PAGCORs own
income from operating necessary and related services, shows and entertainment.
| ABAN | BANTUAS | DADANG | OGUIS | RAMOS | SINDIONG |