The general revision of assessments completed in 1984 is based on Section 21 of
C. Attributes of a Sound Tax System
A. Chavez vs Ongpin
LAW:
- EXECUTIVE ORDER No. 73 (PROVIDING FOR THE COLLECTION OF REAL
PROPERTY TAXES BASED ON THE 1984 REAL PROPERTY VALUES, AS
PROVIDED FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX CODE,
AS AMENDED)
WHEREAS, the collection of real property taxes is still based on the 1978
revision of property values;
WHEREAS, the collection of real property taxes based on the 1984 real property
values was deferred to take effect on January 1, 1988 instead of January 1,
1985, thus depriving the local government units of an additional source of
revenue;
WHEREAS, there is an urgent need for local governments to augment their
financial resources to meet the rising cost of rendering effective services to the
people;
FACTS:
- The petition seeks to declare unconstitutional Executive Order No. 73 dated
November 25, 1986.
- On March 31, 1987, Memorandum Order No. 77 was issued suspending the
implementation of Executive Order No. 73 until June 30, 1987.
- The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three parcels of
land. He alleges that Executive Order No. 73 accelerated the application of the
general revision of assessments to January 1, 1987 thereby mandating an
excessive increase in real property taxes by 100% to 400% on improvements, and
up to 100% on land; that any increase in the value of real property brought about by
the revision of real property values and assessments would necessarily lead to a
proportionate increase in real property taxes.
- The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is
the national association of owners-lessors, joins Chavez in his petition to declare
unconstitutional Executive Order No. 73, but additionally alleges the following: that
Presidential Decree No. 464 is unconstitutional insofar as it imposes an additional
one percent (1%) tax on all property owners to raise funds for education, as real
property tax is admittedly a local tax for local governments.
- The Office of the Solicitor General argues that there is no legal basis. It should be
emphasized that Executive Order No. 73 merely directs, in Section 1 thereof, that:
SECTION 1. Real property values as of December 31, 1984 as determined by the local
assessors during the latest general revision of assessments shall take effect beginning
January 1, 1987 for purposes of real property tax collection. (emphasis supplied)
TAX 1. Atty. Ingles
LANDICHO.GOLLA.PANLILIO. BALUGA.CATA-AL.PANTALEON.RAMILO.LUCION.BUNO.NISHIKAWA.TAMARGO.
Presidential Decree No. 464 which provides, as follows:
SEC. 21. General Revision of Assessments. — Beginning with the assessor shall make a
calendar year 1978, the provincial or city general revision of real property assessments in
the province or city to take effect January 1, 1979, and once every five years thereafter:
Provided; however, That if property values in a province or city, or in any municipality, have
greatly changed since the last general revision, the provincial or city assesor may, with the
approval of the Secretary of Finance or upon bis direction, undertake a general revision of
assessments in the province or city, or in any municipality before the fifth year from the
effectivity of the last general revision.
- Chavez argues further that the unreasonable increase in real property taxes brought
about by Executive Order No. 73 amounts to a confiscation of property repugnant to
the constitutional guarantee of due process, invoking the cases of Ermita-Malate
Hotel, et al. v. Mayor of Manila (G.R. No. L-24693, July 31, 1967, 20 SCRA 849)
and Sison v. Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130 SCRA 654).
ISSUE: WON EO 73 IS CONSTITUTIONAL
HELD:YES. It’s just a general revision of assessment and not an imposition of new or
increased tax.
, the court stated that the attack on Executive Order No. 73 has no legal basis as the
general revision of assessments is a continuing process mandated by Section 21 of
Presidential Decree No. 464.
- As to the case laws cited by the petitioner, it is certainly misplaced because the due
process requirement called therein applies to the "power to tax." Executive Order
No. 73 does not impose new taxes nor increase taxes.
We agree with the observation of the OSG that without Executive Order No. 73, the
basis for collection of real property taxes will still be the 1978 revision of property values.
Certainly, to continue collecting real property taxes based on valuations arrived at several
years ago, in disregard of the increases in the value of real properties that have occurred
since then, is not in consonance with a sound tax system.
DOCTRINE:
Fiscal adequacy, which is one of the characteristics of a sound tax system, requires
that sources of revenues must be adequate to meet government expenditures and their
variations.
B. DIAZ VS SECRETARY OF FINANCE
May toll fees collected by tollway operators be subjected to value- added tax?
FACTS:
1
 - Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition
for declaratory relief assailing the validity of the impending imposition of (VAT) by
the (BIR) on the collections of tollway operators.
- Petitioners allege that the BIR attempted during the administration of President
Gloria Macapagal-Arroyo to impose VAT on toll fees. The imposition was deferred,
however, in view of the consistent opposition of Diaz and other sectors to such
move. But, upon President Benigno C. Aquino IIIs assumption of office in 2010, the
BIR revived the idea and would impose the challenged tax on toll fees beginning
August 16, 2010 unless judicially enjoined.
- Petitioners hold the view that Congress did not intend to include toll fees within the
meaning of sale of services that are subject to VAT; that a toll fee is a users tax, not
a sale of services; that to impose VAT on toll fees would amount to a tax on public
service; and that, since VAT was never factored into the formula for computing toll
fees, its imposition would violate the non-impairment clause of the constitution.
- On August 13, 2010 (TRO) was issued.
- OSG stated that the NIRC imposes VAT on all kinds of services of franchise
grantees, including tollway operations, except where the law provides otherwise;
that the Court should seek the meaning and intent of the law from the words used in
the statute; and that the imposition of VAT on tollway operations has been the
subject as early as 2003 of several BIR rulings and circulars. [5]
- The government also argues that petitioners have no right to invoke the non-
impairment of contracts clause since they clearly have no personal interest in
existing toll operating agreements (TOAs) between the government and tollway
operators.
ISSUES:
1. WON petitioners Diaz and Timbol have legal standing to file the action.
2. WON the government is unlawfully expanding VAT coverage by including tollway
operators and tollway operations in the terms franchise grantees and sale of
services under Section 108 of the Code; and
3. Whether or not the imposition of VAT on tollway operators amounts to a tax on tax
and not a tax on services.
4. WON it is not administratively feasible and cannot be implemented.
HELD:
1. NO. Petitioner Timbol has no personality to invoke the non-impairment of contract
clause on behalf of private investors in the tollway projects. She will neither be
prejudiced by nor be affected by the alleged diminution in return of investments that
may result from the VAT imposition.
2. NO. VAT is levied, assessed, and collected, according to Section 108, on the gross
receipts derived from the sale or exchange of services as well as from the use or
lease of properties.
- Section 108 defines sale or exchange of services as follows:
The phrase sale or exchange of services means the
performance of all kinds of services in the Philippines for others for a
fee, remuneration or consideration, including those performed or
2 [Type the document title]
rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property,
whether personal or real; warehousing services; lessors or distributors
of cinematographic films; persons engaged in milling, processing,
manufacturing or repacking goods for others; proprietors, operators or
keepers of hotels, motels, resthouses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment parlors, cafes and
other eating places, including clubs and caterers; dealers in securities;
lending investors; transportation contractors on their transport of goods
or cargoes, including persons who transport goods or cargoes for hire
and other domestic common carriers by land relative to their transport
of goods or cargoes; common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines; sales of electricity by
generation companies, transmission, and distribution
companies; services of franchise grantees of electric utilities, telephone
and telegraph, radio and television broadcasting and all other franchise
grantees except those under Section 119 of this Code and non-life
insurance companies (except their crop insurances), including surety,
fidelity, indemnity and bonding companies; and similar services
regardless of whether or not the performance thereof calls for the
exercise or use of the physical or mental faculties. (Underscoring
supplied)
- It is plain from the above that the law imposes VAT on all kinds of services rendered
in the Philippines for a fee, including those specified in the list. The enumeration of
affected services is not exclusive. When a tollway operator takes a toll fee from a
motorist, the fee, the tollway operator is no different from the following service
providers under Section 108 who allow others to use their properties or facilities for
a fee:
- Tollway operators are franchise grantees and they do not belong to exceptions (the
low-income radio and/or television broadcasting companies with gross annual
incomes of less than P10 million and gas and water utilities) that Section
119[13] spares from the payment of VAT
- Petitioners are wrong when they said that tollway operators cannot be considered
franchise grantees since they do not hold legislative franchises. The term franchise
has been broadly construed as referring, not only to authorizations that Congress
directly issues in the form of a special law, but also to those granted by
administrative agencies.
- Petitioners are also wrong when they contend that the public nature of the services
rendered by tollway operators excludes such services from the term sale of services
under Section 108 of the Code. Nothing in Section 108 supports this contention.
Section 108 opens other companies rendering public service for a fee to the
imposition of VAT
3. Toll fee is not a tax.
Based on the case of Manila International Airport Authority (MIAA) v. Court of
Appeals:[22]
 …The collection of such fees does not change the character
of MIAA as an airport for public use. Such fees are often termed users
tax. This means taxing those among the public who actually use a
public facility instead of taxing all the public including those who never
use the particular public facility. A users tax is more equitable a
principle of taxation mandated in the 1987
Constitution.[23] (Underscoring supplied)
However, the main issue in the MIAA case was whether or
not Paraaque City could sell airport lands and buildings under MIAA administration at
public auction to satisfy unpaid real estate taxes. Since local governments have no power
to tax the national government, the Court held that the City could not proceed with the
auction sale. Thus, its airport lands and buildings are properties of public dominion beyond
the commerce of man.
Further, the discussion in the MIAA case on toll roads and toll fees was made,
not to establish a rule that tollway fees are users tax, but to make the point that airport
lands and buildings are properties of public dominion and that the collection of terminal
fees for their use does not make them private properties.
- Tollway fees are not taxes. Indeed, they are not assessed and collected by the BIR.
In sum, fees paid by the public to tollway operators for use of the tollways, are not
taxes in any sense. A tax is imposed under the taxing power of the government
principally for the purpose of raising revenues to fund public expenditures. [27] Toll
fees, on the other hand, are collected by private tollway operators as reimbursement
for the costs and expenses incurred in the construction, maintenance and operation
of the tollways, as well as to assure them a reasonable margin of income. Although
toll fees are charged for the use of public facilities, therefore, they are not
government exactions that can be properly treated as a tax. Taxes may be imposed
only by the government under its sovereign authority, toll fees may be demanded by
either the government or private individuals or entities, as an attribute of
ownership.[28]
- VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT
as an indirect tax. In indirect taxation, a distinction is made between the liability for
the tax and burden of the tax.
- Under Section 105 of the Code, [31] VAT is imposed on any person who, in the
course of trade or business, sells or renders services for a fee. In other words, the
seller of services, who in this case is the tollway operator, is the person liable for
VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll
fees.
- For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees
were deemed as a users tax.
DOCTRINE:
4. NO. Administrative feasibility is one of the canons of a sound tax system. It simply
means that the tax system should be capable of being effectively administered and
enforced with the least inconvenience to the taxpayer. Non-observance of the
canon, however, will not render a tax imposition invalid except to the extent that
TAX 1. Atty. Ingles
LANDICHO.GOLLA.PANLILIO. BALUGA.CATA-AL.PANTALEON.RAMILO.LUCION.BUNO.NISHIKAWA.TAMARGO.
specific constitutional or statutory limitations are impaired. [34] Thus, even if the
imposition of VAT on tollway operations may seem burdensome to implement, it is
not necessarily invalid unless some aspect of it is shown to violate any law or the
Constitution.
Here, it remains to be seen how the taxing authority will actually implement the
VAT on tollway operations. Any declaration by the Court that the manner of its
implementation is illegal or unconstitutional would be premature.
WHEREFORE, the Court DISMISSES the petitioners Renato V. Diaz and Aurora
Ma. F. Timbols petition for lack of merit.
SO ORDERED.
D. Distinguishing Tax from other Exactions
1. Georochi vs Dept. of Energy
Facts:
- Petitioners pray that Section 34 of Republic Act (RA) 9136, otherwise known as the
Electric Power Industry Reform Act of 2001 (EPIRA), imposing the Universal
Charge, be declared unconstitutional. Petitioners also pray for refund of universal
charge and (TRO) be issued against respondents.
SECTION 34. Universal Charge. Within one (1) year from the effectivity of this
Act, a universal charge to be determined, fixed and approved by the ERC, shall
be imposed on all electricity end-users for the following purposes:
o Payment for the stranded debts[4] in excess of the amount assumed by the
National Government and stranded contract costs of NPC[5] and as well as
qualified stranded contract costs of distribution utilities resulting from the
restructuring of the industry;
o Missionary electrification;[6]
o The equalization of the taxes and royalties applied to indigenous or
renewable sources of energy vis--vis imported energy fuels;
o An environmental charge equivalent to one-fourth of one centavo per
kilowatt-hour (P0.0025/kWh), which shall accrue to an environmental fund
to be used solely for watershed rehabilitation and management.
- The universal charge shall be a non-bypassable charge which shall be
passed on and collected from all end-users on a monthly basis by the
distribution utilities.
- Collections shall be remitted to the PSALM Corp. The PSALM Corp., as
administrator of the fund, shall create a Special Trust Fund STF which
shall be disbursed only for the purposes specified herein in an open and
transparent manner.
- Congress enacted the EPIRA which took effect on June 26, 2001.
- On April 5, 2002, respondent National Power Corporation-Strategic Power Utilities
Group[8] (NPC-SPUG) filed with respondent Energy Regulatory Commission (ERC)
3
 a petition for the availment from the Universal Charge (P119,488,847.59, be
approved from STF) of its share for Missionary Electrification.
- On December 20, 2002, the ERC provisionally approved the share requested.
- On June 26, 2003, the ERC modifying its order and reduced it to P70,000,000.00
subject to the availability of funds.
- On the basis of the said ERC decisions, respondent Panay Electric Company, Inc.
(PECO) charged petitioner Romeo P. Gerochi and all otherend-users with the
Universal Charge as reflected in their respective electric bills starting from the month
of July 2003.[17]
- It was alleged unconstitutional on the following grounds:
1) The universal charge is a tax and the power to tax is strictly a
legislative function and as such, the delegation of said power to
any executive or administrative agency like the ERC is
unconstitutional, giving the same unlimited authority. The assailed
provision clearly provides that the Universal Charge is to be
determined, fixed and approved by the ERC, hence leaving to the
latter complete discretionary legislative authority.
- On the other hand, PSALM through the Office of the Government Corporate
Counsel (OGCC) contends that unlike a tax which is imposed to provide income for
public purposes, Universal Charge is levied for a specific regulatory purpose, which
is to ensure the viability of the country's electric power industry. Thus, an exercise of
its inherent police power. Thus, there is no undue delegation of legislative power to
the ERC.
ISSUES:
1. WON, the Universal Charge imposed under Sec. 34 of the EPIRA is a tax; and
2. WON there is undue delegation of legislative power to tax on the part of
the ERC.[26]
HELD: DISMISSED OUTRIGHT
There was a procedural lapse since petitioners violated the doctrine of hierarchy
of courts when they filed this Complaint directly with SC instead of CA. The Court's
jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, and habeas
corpus, while concurrent with that of the regional trial courts and the Court of Appeals,
does not give litigants unrestrained freedom of choice of forum from which to seek such
relief.[28]
1. No. It’s an exercise of POLICE POWER.
POWER TO TAX
- The power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be
4 [Type the document title]
found only in the responsibility of the legislature which imposes the tax on the
constituency that is to pay it.[30] It is based on the principle that taxes are the
lifeblood of the government, and their prompt and certain availability is an imperious
need.[31] Thus, the theory behind the exercise of the power to tax emanates from
necessity; without taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.[32]
POLICE POWER
- On the other hand, police power is the power of the state to promote public welfare
by restraining and regulating the use of liberty and property. [33] It is the most
pervasive, the least limitable, and the most demanding of the three fundamental
powers of the State. The justification is found in the Latin maxims salus populi est
suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut
alienum non laedas (so use your property as not to injure the property of others). As
an inherent attribute of sovereignty which virtually extends to all public needs, police
power grants a wide panoply of instruments through which the State, as parens
patriae, gives effect to a host of its regulatory powers. [34] We have held that the
power to "regulate" means the power to protect, foster, promote, preserve, and
control, with due regard for the interests, first and foremost, of the public, then of the
utility and of its patrons.[35]
DIFFERENCE:
- If generation of revenue is the primary purpose and regulation is merely incidental,
the imposition is a tax; but if regulation is the primary purpose, the fact that revenue
is incidentally raised does not make the imposition a tax.
The EPIRA resonates such regulatory purposes, thus:
SECTION 2. Declaration of Policy. It is hereby declared the policy of the State:
(a) To ensure and accelerate the total electrification of the country;
(b) To ensure the quality, reliability, security and affordability of the supply of
electric power;
ETC.
From the aforementioned purposes, it can be gleaned that the assailed Universal Charge
is not a tax, but an exaction in the exercise of the State's police power. Public welfare is
surely promoted.
- Moreover, it is a well-established doctrine that the taxing power may be used as an
implement of police power.[38] In Valmonte v. Energy Regulatory Board, et al. [39] and
in Gaston v. Republic Planters Bank,[40] this Court held that the Oil Price
Stabilization Fund (OPSF) and the Sugar Stabilization Fund (SSF) were exactions
made in the exercise of the police power.
- This feature of the Universal Charge further boosts the position that the same is an
exaction imposed primarily in pursuit of the State's police objectives. The STF
reasonably serves and assures the attainment and perpetuity of the purposes for
 which the Universal Charge is imposed, i.e., to ensure the viability of the country's
electric power industry.
2. NO. A logical corollary to the doctrine of separation of powers is the principle of
non-delegation of powers. In the face of the increasing complexity of modern life,
delegation of legislative power to various specialized administrative agencies is
allowed as an exception to this principle. All that is required for the valid exercise
of this power of subordinate legislation is that the regulation be germane to the
objects and purposes of the law and that the regulation be not in contradiction to,
but in conformity with, the standards prescribed by the law. These requirements
are denominated as the completeness test and the sufficient standard test.
First test - the law must be complete in all its terms and conditions when it leaves the
legislature such that when it reaches the delegate, the only thing he will have to do is to
enforce it.
Second test - mandates adequate guidelines or limitations in the law to determine the
boundaries of the delegate's authority and prevent the delegation from running riot. [49]
The Court finds that the EPIRA is complete in all its essential terms and conditions, and
that it contains sufficient standards. Thus, the law is valid delegation of legislative power.
- EPIRA provides a framework for the restructuring of the industry, including
the privatization of the assets of the National Power Corporation (NPC),
the transition to a competitive structure, and the delineation of the roles of
various government agencies and the private entities. The law ordains the
division of the industry into four (4) distinct
sectors, namely: generation, transmission, distribution and supply.
- Finally, every law has in its favor the presumption of constitutionality, and to justify
its nullification, there must be a clear and unequivocal breach of the
Constitution. Indubitably, petitioners failed to overcome this presumption in favor of
the EPIRA. We find no clear violation of the Constitution which would warrant a
pronouncement that Sec. 34 of the EPIRA and Rule 18 of its IRR are
unconstitutional and void.
#2 SMART vs. Batangas
FACTS:
Smart Communications, Inc. is a domestic corporation engaged in the business of
providing telecommunications services to the general public while respondent Municipality
of Malvar, Batangas is a local government unit created by law.
TAX 1. Atty. Ingles
LANDICHO.GOLLA.PANLILIO. BALUGA.CATA-AL.PANTALEON.RAMILO.LUCION.BUNO.NISHIKAWA.TAMARGO.
In the course of its business, Smart constructed a telecommunications tower within the
territorial jurisdiction of the Municipality. The construction of the tower was for the purpose
of receiving and transmitting cellular communications within the covered area.
On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003, entitled "An
Ordinance Regulating the Establishment of Special Projects." On 24 August 2004, Smart
received from the Permit and Licensing Division of the Office of the Mayor of the
Municipality an assessment letter with a schedule of payment for the total amount of
₱389,950.00 for Smart’s telecommunications tower.
Due to the alleged arrears in the payment of the assessment, the Municipality also caused
the posting of a closure notice on the telecommunications tower.
On 9 September 2004, Smart filed a protest, claiming lack of due process in the issuance
of the assessment and closure notice. In the same protest, Smart challenged the validity of
Ordinance No. 18 on which the assessment was based.
The RTC of Batangas ruled on the validity of the assessment, but not on the legality of the
ordinance, only partly granting Smart’s petition. Smart, then, filed a petition for review with
the Court of Tax Appeals, but such petition was denied on the ground of lack of jurisdiction.
The CTA refuses to take cognizance of this case since it challenges the constitutionality of
Ordinance No. 18, which is outside the province of the CTA.
The question now is whether the trial court resolved a local tax case in order to fall within
the ambit of the CTA’s appellate jurisdiction This question, in turn, depends ultimately on
whether the fees imposed under Ordinance No. 18 are in fact taxes.
ISSUE:
Whether the fees imposed under Ordinance No. 18 are in fact taxes
HELD:
The Court finds that the fees imposed under Ordinance No. 18 are not taxes.
5
In this case, the Municipality issued Ordinance No. 18, which is entitled "An Ordinance
Regulating the Establishment of Special Projects," to regulate the "placing, stringing,
attaching, installing, repair and construction of all gas mains, electric, telegraph and
telephone wires, conduits, meters and other apparatus, and provide for the correction,
condemnation or removal of the same when found to be dangerous, defective or otherwise
hazardous to the welfare of the inhabitant[s]." It was also envisioned to address the
foreseen "environmental depredation" to be brought about by these "special projects" to
the Municipality. Pursuant to these objectives, the Municipality imposed fees on various
structures, which included telecommunications towers.
As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is to
regulate the "placing, stringing, attaching, installing, repair and construction of all gas
mains, electric, telegraph and telephone wires, conduits, meters and other apparatus"
listed therein, which included Smart’s telecommunications tower. Clearly, the purpose of
the assailed Ordinance is to regulate the enumerated activities particularly related to the
construction and maintenance of various structures. The fees in Ordinance No. 18 are not
impositions on the building or structure itself; rather, they are impositions on the activity
subject of government regulation, such as the installation and construction of the
structures.22
Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of
the identified special projects, which included "cell sites" or telecommunications towers, the
fees imposed in Ordinance No. 18 are primarily regulatory in nature, and not primarily
revenue-raising. While the fees may contribute to the revenues of the Municipality, this
effect is merely incidental. Thus, the fees imposed in Ordinance No. 18 are not taxes.
We accordingly say that the designation given by the municipal authorities does not decide
whether the imposition is properly a license tax or a license fee. The determining factors
are the purpose and effect of the imposition as may be apparent from the provisions of the
ordinance. Thus, "[w]hen no police inspection, supervision, or regulation is provided, nor
any standard set for the applicant to establish, or that he agrees to attain or maintain, but
any and all persons engaged in the business designated, without qualification or
hindrance, may come, and a license on payment of the stipulated sum will issue, to do
business, subject to no prescribed rule of conduct and under no guardian eye, but
according to the unrestrained judgment or fancy of the applicant and licensee, the
presumption is strong that the power of taxation, and not the police power, is being
exercised."
Contrary to Smart’s contention, Ordinance No. 18 expressly provides for the standards
which Smart must satisfy prior to the issuance of the specified permits, clearly indicating
that the fees are regulatory in nature.
# 3 Planters Products vs. Fertiphil
FACTS:
Petitioner PPI and private respondent Fertiphil are private corporations incorporated under
Philippine laws. They are both engaged in the importation and distribution of fertilizers,
pesticides and agricultural chemicals.
6 [Type the document title]
On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers,
issued LOI No. 1465 which provided, among others, for the imposition of a capital recovery
component (CRC) on the domestic sale of all grades of fertilizers in the Philippines. The
LOI provides: The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer
pricing formula a capital contribution component of not less than P10 per bag. This capital
contribution shall be collected until adequate capital is raised to make PPI viable. Such
capital contribution shall be applied by FPA to all domestic sales of fertilizers in the
Philippines.
Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic
market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount
collected to the Far East Bank and Trust Company, the depositary bank of PPI. Fertiphil
paid P6,689,144 to FPA from July 8, 1985 to January 24, 1986.
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy.
With the return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid
under LOI No. 1465, but PPI refused to accede to the demand.
Fertiphil filed a complaint for collection and damages against FPA and PPI with the RTC in
Makati. It questioned the constitutionality of LOI No. 1465 for being unjust, unreasonable,
oppressive, invalid and an unlawful imposition that amounted to a denial of due process of
law. Fertiphil alleged that the LOI solely favored PPI, a privately owned corporation, which
used the proceeds to maintain its monopoly of the fertilizer industry.
ISSUES:
1. WON the Php 10-levy was an exercise of the State power of taxation
2. WON such levy served a public purpose, and is, therefore, constitutional
HELD:
1. We agree with the RTC that the imposition of the levy was an exercise by the
State of its taxation power. While it is true that the power of taxation can be used
as an implement of police power, the primary purpose of the levy is revenue
generation. If the purpose is primarily revenue, or if revenue is, at least, one of
the real and substantial purposes, then the exaction is properly called a tax.
The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory
purpose. The levy, no doubt, was a big burden on the seller or the ultimate
consumer. It increased the price of a bag of fertilizer by as much as five percent.
A plain reading of the LOI also supports the conclusion that the levy was for
revenue generation. The LOI expressly provided that the levy was imposed until
adequate capital is raised to make PPI viable.
2. An inherent limitation on the power of taxation is public purpose. Taxes are
exacted only for a public purpose. They cannot be used for purely private
purposes or for the exclusive benefit of private persons.

The power to tax exists for the general welfare; hence, implicit in its power is the
limitation that it should be used only for a public purpose. It would be a robbery
for the State to tax its citizens and use the funds generated for a private purpose.
While the categories of what may constitute a public purpose are continually
expanding in light of the expansion of government functions, the inherent
requirement that taxes can only be exacted for a public purpose still
stands. Public purpose is the heart of a tax law. When a tax law is only a mask to
exact funds from the public when its true intent is to give undue benefit and
advantage to a private enterprise, that law will not satisfy the requirement of
public purpose.
The purpose of a law is evident from its text or inferable from other secondary
sources. Here, We agree with the RTC and that CA that the levy imposed under
LOI No. 1465 was not for a public purpose.
First, the LOI expressly provided that the levy be imposed to benefit PPI, a
private company. The purpose is explicit from Clause 3 of the law, thus:
The Administrator of the Fertilizer Pesticide
Authority to include in its fertilizer pricing formula a capital
contribution component of not less than P10 per bag. This
capital contribution shall be collected until adequate capital is
raised to make PPI viable. Such capital contribution shall be
applied by FPA to all domestic sales of fertilizers in
the Philippines.[48] (Underscoring supplied)
Second, the LOI provides that the imposition of the P10 levy was
conditional and dependent upon PPI becoming financially viable. This suggests
that the levy was actually imposed to benefit PPI. The LOI notably does not fix a
maximum amount when PPI is deemed financially viable. Worse, the liability of
Fertiphil and other domestic sellers of fertilizer to pay the levy is made
indefinite. They are required to continuously pay the levy until adequate capital is
raised for PPI.
Third, the RTC and the CA held that the levies paid under the LOI were directly
remitted and deposited by FPA to Far East Bank and Trust Company, the depositary bank
of PPI.[49] This proves that PPI benefited from the LOI. It is also proves that the main
purpose of the law was to give undue benefit and advantage to PPI.
Fourth, the levy was used to pay the corporate debts of PPI. It is clear from the
Letter of Understanding that the levy was imposed precisely to pay the corporate debts of
PPI. We cannot agree with PPI that the levy was imposed to ensure the stability of the
TAX 1. Atty. Ingles
LANDICHO.GOLLA.PANLILIO. BALUGA.CATA-AL.PANTALEON.RAMILO.LUCION.BUNO.NISHIKAWA.TAMARGO.
fertilizer industry in the country. The letter of understanding and the plain text of the LOI
clearly indicate that the levy was exacted for the benefit of a private corporation.
#4 Ferrer vs. Bautista
FACTS:
Respondent Quezon City Council enacted Ordinance No. SP-2095, S-2011,2 or the
Socialized Housing Tax of Quezon City, Section 3 of which provides:
SECTION 3. IMPOSITION. A special assessment equivalent to one-half percent (0.5%) on
the assessed value of land in excess of One Hundred Thousand Pesos (Php100,000.00)
shall be collected by the City Treasurer which shall accrue to the Socialized Housing
Programs of the Quezon City Government. The special assessment shall accrue to the
General Fund under a special account to be established for the purpose.
Effective for five (5) years, the Socialized Housing Tax ( SHT ) shall be utilized by the
Quezon City Government for the following projects: (a) land purchase/land banking; (b)
improvement of current/existing socialized housing facilities; (c) land development; (d)
construction of core houses, sanitary cores, medium-rise buildings and other similar
structures; and (e) financing of public-private partners hip agreement of the Quezon City
Government and National Housing Authority ( NHA ) with the private sector.
On the other hand, Ordinance No. SP-2235, S-20135 was enacted on December 16, 2013
and took effect ten days after when it was approved by respondent City Mayor. 6 The
proceeds collected from the garbage fees on residential properties shall be deposited
solely and exclusively in an earmarked special account under the general fund to be
utilized for garbage collections.
On the Socialized Housing Tax:
Petitioner claims that the collection of the SHT is tantamount to a penalty imposed on real
property owners due to the failure of respondent Quezon City Mayor and Council to
perform their duty to secure and protect real property owners from informal settlers,
thereby burdening them with the expenses to provide funds for housing. For petitioner, the
SHT cannot be viewed as a "charity" from real property owners since it is forced, not
voluntary.
Also, petitioner argues that the collection of the SHT is a kind of class legislation that
violates the right of property owners to equal protection of the laws since it favors informal
settlers who occupy property not their own and pay no taxes over law-abiding real property
owners who pay income and realty taxes.
On the garbage fee:
7
The subject ordinance, for petitioner, is discriminatory as it collects garbage fee only from
domestic households and not from restaurants, food courts, fast food chains, and other
commercial dining places that spew garbage much more than residential property owners.
Petitioner likewise contends that the imposition of garbage fee is tantamount to double
taxation because garbage collection is a basic and essential public service that should be
paid out from property tax, business tax, transfer tax, amusement tax, community tax
certificate, other taxes, and the IRA of the Quezon City Government. To bolster the claim,
he states that the revenue collection of the Quezon City Government reached Php13.69
billion in 2012. A small portion of said amount could be spent for garbage collection and
other essential services.
It is further noted that the Quezon City Government already collects garbage fee under
Section 4768 of R.A. No. 9003, or the Ecological Solid Waste Management Act of 2000,
which authorizes LGUs to impose fees in amounts sufficient to pay the costs of preparing,
adopting, and implementing a solid waste management plan, and that LGUs have access
to the Solid Waste Management (SWM) Fund created under Section 46 69 of the same law.
Also, according to petitioner, it is evident that Ordinance No. S2235 is inconsistent with
R.A. No. 9003 for while the law encourages segregation, composting, and recycling of
waste, the ordinance only emphasizes the collection and payment of garbage fee; while
the law calls for an active involvement of the barangay in the collection, segregation, and
recycling of garbage, the ordinance skips such mandate. Lastly, in challenging the
ordinance, petitioner avers that the garbage fee was collected even if the required
publication of its approval had not yet elapsed. He notes that on January 7, 2014, he paid
his realty tax which already included the garbage fee.
ISSUES:
1. WON the SHT is a valid imposition of tax and a valid exercise of police
power by the LGU
2. WON the garbage fees are a valid imposition of tax
HELD:
1. The SHT charged by the Quezon City Government is a tax which is within its
power to impose. Aside from the specific authority vested by Section 43 of the
UDHA, cities are allowed to exercise such other powers and discharge such
other functions and responsibilities as are necessary, appropriate, or incidental to
efficient and effective provision of the basic services and facilities which include,
among others, programs and projects for low-cost housing and other mass
dwellings. The collections made accrue to its socialized housing programs and
projects.
The tax is not a pure exercise of taxing power or merely to raise revenue; it is
levied with a regulatory purpose. The levy is primarily in the exercise of the police
power for the general welfare of the entire city. It is greatly imbued with public
interest. Removing slum areas in Quezon City is not only beneficial to the
underprivileged and homeless constituents but advantageous to the real property
owners as well. The situation will improve the value of their property investments,
8 [Type the document title]
fully enjoying the same in view of an orderly, secure, and safe community, and
will enhance the quality of life of the poor, making them law-abiding constituents
and better consumers of business products.
Though broad and far-reaching, police power is subordinate to constitutional
limitations and is subject to the requirement that its exercise must be reasonable
and for the public good.
The reasonableness of Ordinance No. SP-2095 cannot be disputed. It is not
confiscatory or oppressive since the tax being imposed therein is below what the
UDHA actually allows. As pointed out by respondents, while the law authorizes
LGUs to collect SHT on lands with an assessed value of more than ₱50,000.00,
the questioned ordinance only covers lands with an assessed value exceeding
₱100,000.00. Even better, on certain conditions, the ordinance grants a tax credit
equivalent to the total amount of the special assessment paid beginning in the
sixth (6th) year of its effectivity. Far from being obnoxious, the provisions of the
subject ordinance are fair and just.
2. As opposed to petitioner’s opinion, the garbage fee is not a tax. In Smart
Communications, Inc. v. Municipality of Malvar, Batangas, the Court had the
occasion to distinguish these two concepts:
In Progressive Development Corporation v. Quezon City, the Court declared that
"if the generating of revenue is the primary purpose and regulation is merely
incidental, the imposition is a tax; but if regulation is the primary purpose, the fact
that incidentally revenue is also obtained does not make the imposition a tax."
In Victorias Milling Co., Inc. v. Municipality of Victorias, the Court reiterated that
the purpose and effect of the imposition determine whether it is a tax or a fee,
and that the lack of any standards for such imposition gives the presumption that
the same is a tax.
We accordingly say that the designation given by the municipal authorities does
not decide whether the imposition is properly a license tax or a license
fee.1awp++i1 The determining factors are the purpose and effect of the
imposition as may be apparent from the provisions of the ordinance. Thus,
"[w]hen no police inspection, supervision, or regulation is provided, nor any
standard set for the applicant to establish, or that he agrees to attain or maintain,
but any and all persons engaged in the business designated, without qualification
or hindrance, may come, and a license on payment of the stipulated sum will
issue, to do business, subject to no prescribed rule of conduct and under no
guardian eye, but according to the unrestrained judgment or fancy of the
applicant and licensee, the presumption is strong that the power of taxation, and
not the police power, is being exercised."
In Georgia, U.S.A., assessments for garbage collection services have been
consistently treated as a fee and not a tax.
 In another U.S. case, the garbage fee was considered as a "service charge" Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City
rather than a tax as it was actually a fee for a service given by the city which had the fixed license fees prescribed by Ordinance No. 3358 for the years 1954 to 1957,
previously been provided at no cost to its citizens. inclusive, and, as a wholesale and retail dealer of general merchandise, it also paid
the sales taxes required by Ordinances Nos. 3634, 3301, and 3816.1äwp
Hence, not being a tax, the contention that the garbage fee under Ordinance No.
SP-2235 violates the rule on double taxation must necessarily fail.
It appears that in the year 1954, the City, through its treasurer, addressed a letter to an
Nonetheless, although a special charge, tax, or assessment may be imposed by accounting firm, expressing the view that liquor dealers paying the annual wholesale and
a municipal corporation, it must be reasonably commensurate to the cost of retail fixed tax under City Ordinance No. 3358 are not subject to the wholesale and retail
providing the garbage service. To pass judicial scrutiny, a regulatory fee must not dealers' taxes prescribed by City Ordinances Nos. 3634, 3301, and 3816. Upon learning of
produce revenue in excess of the cost of the regulation because such fee will be said opinion, Tabacalera stopped including its sales of liquor in its quarterly sworn
construed as an illegal tax when the revenue generated by the regulation declarations submitted in accordance with the aforesaid City Ordinances Nos. 3634, 3301,
exceeds the cost of the regulation. and 3816, and on December 3, 1957, it addressed a letter to the City Treasurer demanding
refund of the alleged overpayment. As the claim was disallowed, the present action was
Indeed, the classifications under Ordinance No. S-2235 are not germane to its instituted.
declared purpose of "promoting shared responsibility with the residents to attack
their common mindless attitude in over-consuming the present resources and in
generating waste." Instead of simplistically categorizing the payee into land or
floor occupant of a lot or unit of a condominium, socialized housing project or
apartment, respondent City Council should have considered factors that could
truly measure the amount of wastes generated and the appropriate fee for its Tabacalera's action for refund is based on the theory that, in connection with its liquor
collection. Factors include, among others, household age and size, accessibility sales, it should pay the license fees prescribed by Ordinance No. 3358 but not the
to waste collection, population density of the barangay or district, capacity to pay, municipal sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; and since it
and actual occupancy of the property. R.A. No. 9003 may also be looked into for already paid the license fees aforesaid, the sales taxes paid by it — amounting to the sum
guidance. Under said law, WM service fees may be computed based on of P15,208.00 — under the three ordinances mentioned heretofore is an overpayment
minimum factors such as types of solid waste to include special waste, made by mistake, and therefore refundable.
amount/volume of waste, distance of the transfer station to the waste
management facility, capacity or type of LGU constituency, cost of construction,
cost of management, and type of technology.
The City, on the other hand, contends that, for the permit issued to it granting proper
authority to "conduct or engage in the sale of alcoholic beverages, or liquors" Tabacalera is
With respect to utility rates set by municipalities, a municipality has the right to
subject to pay the license fees prescribed by Ordinance No. 3358, aside from the sales
classify consumers under reasonable classifications based upon factors such as taxes imposed by Ordinances Nos. 3634, 3301, and 3816.
the cost of service, the purpose for which the service or the product is received,
the quantity or the amount received, the different character of the service
furnished, the time of its use or any other matter which presents a substantial
difference as a ground of distinction. 161[A] lack of uniformity in the rate charged is
Issue
not necessarily unlawful discrimination. The establishment of classifications and
the charging of different rates for the several classes is not unreasonable and
WoN Petitioner is entitled to refund
does not violate the requirements of equality and uniformity. Discrimination to be
unlawful must draw an unfair line or strike an unfair balance between those in like
circumstances having equal rights and privileges. Discrimination with respect to
rates charged does not vitiate unless it is arbitrary and without a reasonable fact
Held
basis or justification.

No. What is collected under Ordinance No. 3358 is a license fee for the privilege of
5. COMPANIA GENERAL DE TABACOS DE FILIPINAS v CITY OF MANILA
engaging in the sale of liquor, a calling in which not anyone or anybody may freely engage,
considering that the sale of liquor indiscriminately may endanger public health and morals.
On the other hand, what the three ordinances mentioned heretofore impose is a tax for
revenue purposes based on the sales made of the same article or merchandise. It is
Facts
already settled in this connection that both a license fee and a tax may be imposed on the

TAX 1. Atty. Ingles 9

LANDICHO.GOLLA.PANLILIO. BALUGA.CATA-AL.PANTALEON.RAMILO.LUCION.BUNO.NISHIKAWA.TAMARGO.
same business or occupation, or for selling the same article, this not being in violation of
the rule against double taxation
Doctrine: The fee imposed by a city on liquor vendors for the privilege of selling liquor is a
license fee not a tax; hence, the liquor vendors cannot state that they are subject to double
taxation
6. ANGELES UNIVERSITY FOUNDATION vs. CITY OF ANGELES
Facts
Sometime in August 2005, petitioner filed with the Office of the City Building Official an
application for a building permit for the construction of an 11-storey building of the Angeles
University Foundation Medical Center in its main campus located at MacArthur Highway,
Angeles City, Pampanga. Said office issued a Building Permit Fee Assessment in the
amount of P126,839.20. An Order of Payment was also issued by the City Planning and
Development Office, Zoning Administration Unit requiring petitioner to pay the sum
of P238,741.64 as Locational Clearance Fee. Consequently, petitioner paid under protest.
By reason the payments, petitioner was issued the corresponding Building Permit, Wiring
Permit, Electrical Permit and Sanitary Building Permit. On June 9, 2006, petitioner formally
requested the respondents to refund the fees it paid under protest. Under letters dated
June 15, 2006 and August 7, 2006, respondent City Treasurer denied the claim for refund.
Respondents asserted that the claim of petitioner cannot be granted because its structures
are not among those mentioned in Sec. 209 of the National Building Code as exempted
from the building permit fee. Respondents argued that R.A. No. 6055 should be considered
repealed on the basis of Sec. 2104 of the National Building Code. Since the disputed
assessments are regulatory in nature, they are not taxes from which petitioner is
exempt. As to the real property taxes imposed on petitioners property located in Marisol
Village, respondents pointed out that said premises will be used as a school dormitory
which cannot be considered as a use exclusively for educational activities.
Petitioner countered that the subject building permit are being collected on the basis of Art.
244 of the Implementing Rules and Regulations of the Local Government Code, which
impositions are really taxes considering that they are provided under the chapter on Local
Government Taxation in reference to the revenue raising power of local government units
(LGUs).
TR- ruled in favor of petitioners and against respondents
CA- reversed, holding that while petitioner is a tax-free entity, it is not exempt from the
payment of regulatory fees. The CA noted that under R.A. No. 6055, petitioner was granted
10 [Type the document title]
exemption only from income tax derived from its educational activities and real property used
exclusively for educational purposes. Regardless of the repealing clause in the National
Building Code, the CA held that petitioner is still not exempt because a building permit cannot
be considered as the other charges mentioned in Sec. 8 of R.A. No. 6055 which refers to
impositions in the nature of tax, import duties, assessments and other collections for revenue
purposes, following the ejusdem generisrule.
Issue
Whether petitioner is exempt from the payment of building permit and related fees
imposed under the National Building Code;
Held
No. R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which
converted to non-stock, non-profit educational foundations. Section 8 of said law provides:
SECTION 8. The Foundation shall be exempt from the
payment of all taxes, import duties, assessments, and other charges
imposed by the Government onall income derived from or property, real
or personal, used exclusively for the educational activities of the
Foundation.(Emphasis supplied.)
On February 19, 1977, Presidential Decree (P.D.) No. 1096 was issued adopting the National
Building Code of the Philippines. The said Code requires every person, firm or corporation,
including any agency or instrumentality of the government to obtain a building permit for any
construction, alteration or repair of any building or structure. Building permit refers to a document
issued by the Building Official x x x to an owner/applicant to proceed with the construction,
installation, addition, alteration, renovation, conversion, repair, moving, demolition or other work
activity of a specific project/building/structure or portions thereof after the accompanying
principal plans, specifications and other pertinent documents with the duly notarized
application are found satisfactory and substantially conforming with the National Building
Code of the Philippines x x x and its Implementing Rules and Regulations (IRR). Building
permit fees refers to the basic permit fee and other charges imposed under the National
Building Code.
Exempted from the payment of building permit fees are: (1) public buildings and (2)
traditional indigenous family dwellings. Not being expressly included in the enumeration of
structures to which the building permit fees do not apply, petitioners claim for exemption
rests solely on its interpretation of the term other charges imposed by the National
Government in the tax exemption clause of R.A. No. 6055.
A charge is broadly defined as the price of, or rate for, something, while the word
fee pertains to a charge fixed by law for services of public officers or for use of a privilege
under control of government. As used in the Local Government Code of 1991 (R.A. No.
7160), charges refers to pecuniary liability, as rents or fees against persons or property,
while fee means a charge fixed by law or ordinance for the regulation or inspection of a
business or activity.
That charges in its ordinary meaning appears to be a general term which could
cover a specific fee does not support petitioners position that building permit fees are
among those other charges from which it was expressly exempted. Note that the other
charges mentioned in Sec. 8 of R.A. No. 6055 is qualified by the words imposed by
the Government on all x x x property used exclusively for the educational activities of the
foundation. Building permit fees are not impositions on property but on the activity subject of
government regulation. While it may be argued that the fees relate to particular
properties, i.e., buildings and structures, they are actually imposed on certain activities the
owner may conduct either to build such structures or to repair, alter, renovate or demolish
the same.
Doctrine: Building fees are not taxes or impositions upon property but regulatory fees
imposed by a city for the activity of building or repairing structure. Hence, a foundation
which is exempt from taxes cannot claim that it is exempt from regulatory fees.
7. PROGRESSIVE DEVELOPMENT CORP vs. QUEZON CITY
Facts
The respondent City enacted an ordinance imposing a supervision fee of 5% tax on gross
receipts on rentals or lease of space in privately-owned markets in QC. Petitioner
Corporation, owner and operator of a public market known as the "Farmers Market &
Shopping Center" filed a Petition for Prohibition with Preliminary Injunction against
respondent before the then Court of First Instance of Rizal on the ground that the
supervision fee or license tax imposed by the above-mentioned ordinances is in reality a
tax on income which respondent may not impose, the same being expressly prohibited by
Republic Act No. 2264, as amended. the lower court dismissed the petition, ruling that the
questioned imposition is not a tax on income, but rather a privilege tax or license fee which
local governments, like respondent, are empowered to impose and collect.
Issue
Whether the supervision fee is an income tax or license fee
Held
License fee. To be considered a license fee, the imposition questioned must relate to an
occupation or activity that so engages the public interest in health, morals, safety and
development as to require regulation for the protection and promotion of such public
interest; the imposition must also bear a reasonable relation to the probable expenses of
TAX 1. Atty. Ingles
LANDICHO.GOLLA.PANLILIO. BALUGA.CATA-AL.PANTALEON.RAMILO.LUCION.BUNO.NISHIKAWA.TAMARGO.
regulation, taking into account not only the costs of direct regulation but also its incidental
consequences as well. While it is true that the amount imposed by the questioned
ordinances may be considered in determining whether the exaction is really one for
revenue or prohibition, instead of one of regulation under the police power, it nevertheless
will be presumed to be reasonable. Local' governments are allowed wide discretion in
determining the rates of imposable license fees even in cases of purely police power
measures, in the absence of proof as to particular municipal conditions and the nature of
the business being taxed as well as other detailed factors relevant to the issue of
arbitrariness or unreasonableness of the questioned rates.
The "Farmers' Market and Shopping Center" being a public market in the' sense of a
market open to and inviting the patronage of the general public, even though privately
owned, petitioner's operation thereof required a license issued by the respondent City, the
issuance of which, applying the standards set forth above, was done principally in the
exercise of the respondent's police power. The operation of a privately owned market is, as
correctly noted by the Solicitor General, equivalent to or quite the same as the operation of
a government-owned market; both are established for the rendition of service to the
general public, which warrants close supervision and control by the respondent City, for
the protection of the health of the public by insuring, e.g., the maintenance of sanitary and
hygienic conditions in the market, compliance of all food stuffs sold therein with applicable
food and drug and related standards, for the prevention of fraud and imposition upon the
buying public, and so forth.
8. VILLEGAS VS. HUI CHIONG TSAI PAO HO (1978)
FERNDANDEZ, J.:
FACTS:
 Ordinance No. 6537 was passed and signed by herein Mayor Villegas of Manila.
The ordinance prohibits aliens from being employed or engaged in business
without first securing a permit from the Mayor of Manila and paying the permit fee
of P50.00.
 Hiu Chiong Tsai Pao Ho was employed in Manila. He filed a petition before the
CFI Manila to stop the enforcement of subject ordinance. He prayed that the
ordinance be declared null and void.
 Respondent’s Allegations:
a. The ordinance is violative of the rule on uniformity of taxation;
b. The P50 fee was unreasonable because it was only applied to aliens.
 CFI Manila—declared that the ordinance is null and void.
 Villegas filed a petition and alleged that the Ordinance is not a tax or revenue
measure but an exercise of the police power of the state.
ISSUE:
WON the P50 fee imposed by Ordinance 6537 was a tax.
HELD:
11
YES. While the first part which requires the alien to secure a permit from the office of
Manila is a valid exercise of police power, the part in the provision of the said ordinance
which requires the payment of P50 as employee’s fee is NOT regulatory but a revenue
measure. There is no logic in exacting P50 from aliens who have been cleared for
employment. Such was actually a tax under the guise of regulation. The P50 fee is
unreasonable for being excessive and for being violative of the equal protection clause.
9. CHEVRON VS. BCDA (2010)
VILLARAMA, JR., J.:
FACTS:
 CDC issued and approved the Policy Guidelines on the Movement of Petroleum
Fuel to and from the CSEZ (Clark Special Economic Zone), which provided fees
and charges imposed on a per liter basis on fuel entering the CSEZ.
 CDC sent a letter to Chevron, a corporation supplying fuel to Nanox Philippines
(located inside CSEZ), to inform petitioner that a royalty fee of P0.50 per liter
shall be assessed on its deliveries to Nanox. CDC later billed Chevron for royalty
fees.
 Chevron protested the assessment for royalty fees but to no avail. Petitioner
elevated the case before the BCDA (Bases Conversion Development Authority)
arguing that the royalty fees imposed had no reasonable relation to the probable
expenses of regulation and that the imposition on a per unit measurement of fuel
sales was for a revenue generating purpose, thus the same as tax.
 BCDA- denied the protest.
 Petitioner appealed to Office of the President which dismissed the petition.
 Petitioner elevated the case to the CA, which dismissed the case.
 CA- CDC was exercising its right to regulate the flow of fuel into CSEZ. The
royalty fees imposed are not tax because the primary purpose for such imposition
is regulation and revenue is only incidental.
ISSUE:
WON the fees and charges imposed on a per liter basis on fuel entering the CSEZ is a tax.
HELD:
NO. In the jurisprudence, in distinguishing tax and regulation as a form of police power, the
determining factor is the purpose of the implemented measure. If the purpose is primarily
to raise revenue, then it will be deemed a tax even though the measure results in some
form of regulation. On the other hand, if the purpose is primarily to regulate, then it is
deemed a regulation and an exercise of the police power of the state, even though
incidentally, revenue is created.
In the case at bar, the subject royalty was imposed primarily for regulatory purposes, and
not for the generation of income or profits. The Policy Guidelines on the Movement of
Petroleum Fuel to and From the CSEZ provides that its declaration policy was to “develop
12 [Type the document title]
and maintain the CSEZ as a highly secured zone” and to ensure “free flow or movement of
goods and capital within, into and exported out of the CSEZ.”
10. REPUBLIC VS. MACOLOD- MURCIAL MILLING CO., et. al., (1966)
REGALA, J.:
FACTS:
 RA 632 created the Philippine Sugar Institute (PHILSUGIN), a semi- public
corporation. To raise necessary funds and to achieve the ends of the Philsugin,
Sec. 15 and 16 of the said law imposed a levy on the annual sugar production a
tax of P0.10 per picul of sugar to be collected for a period of 5 years beginning
the crop year 1951-1952.
 During the 5 crop years mentioned in the law, defendants had unpaid balance
each.
 In 1951, the Philsugin acquired the Insular Sugar Refinery for P3.07 million in
installments from the proceeds of the Sugar Tax to be collected under RA 632.
 The operation of the refinery for 1954 to 1957 was disastrous as the Philsugin
suffered tremendous losses.
 Contending that the purchase of refinery with money from the Philsugin’s fund
was not authorized under RA 632, and that the continued operation of the
refinery is inimical to their interest, herein defendants refused to continue their
contribution to the said fund.
 Trial court found defendants liable under RA 632. Hence, this petition.
ISSUE:
WON the special assessment or levy was a tax.
HELD:
NO. The special assessment or levy for the Philsugin fund is not an exercise of the power
of taxation, nor imposition of a special assessment but an exercise of police power for the
general welfare of the entire country. The purpose of the special levies/ assessment is to
finance the improvement of particular properties, with the benefits of the improvement
accruing or inuring to the owners thereof who have paid the assessment.
11. G.R. No. 19300
RENATO V. DIAZ and AURORA MA. F. TIMBOL vs THE SECRETARY OF FINANCE
and THE COMMISSIONER OF INTERNAL REVENUE,
July 19, 2011
FACTS:
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for
declaratory relief[1] assailing the validity of the impending imposition of value-added tax
(VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend
to include toll fees within the meaning of sale of services that are subject to VAT; that a toll
fee is a users tax, not a sale of services; that to impose VAT on toll fees would amount to a
tax on public service;
On August 13, 2010 the Court issued a temporary restraining order (TRO),
enjoining the implementation of the VAT. Office of the Solicitor General filed the
governments comment The government avers that the NIRC imposes VAT on all kinds of
services of franchise grantees, including tollway operations, except where the law provides
otherwise; that the Court should seek the meaning and intent of the law from the words
used in the statute; and that the imposition of VAT on tollway operations has been the
subject as early as 2003 of several BIR rulings and circulars.
In their reply[6] to the governments comment, petitioners point out that tollway
operators cannot be regarded as franchise grantees under the NIRC since they do not hold
legislative franchises. Further, the BIR intends to collect the VAT by rounding off the toll
rate and putting any excess collection in an escrow account. But this would be illegal since
only the Congress can modify VAT rates and authorize its disbursement. Finally, BIR
Revenue Memorandum Circular 63-2010 (BIR RMC 63-2010), which directs toll companies
to record an accumulated input VAT of zero balance in their books as of August 16, 2010,
contravenes Section 111 of the NIRC which grants entities that first become liable to VAT
a transitional input tax credit of 2% on beginning inventory. For this reason, the VAT on toll
fees cannot be implemented.
ISSUE: Whether or not the imposition of VAT on tollway operators amounts to a tax on tax
and not a tax on services;
HELD:
Petitioners argue that a toll fee is a users tax and to impose VAT on toll fees is tantamount
to taxing a tax.[21] Actually, petitioners base this argument on the following discussion
in Manila International Airport Authority (MIAA) v. Court of Appeals:[22]
No one can dispute that properties of public dominion
mentioned in Article 420 of the Civil Code, like roads, canals, rivers,
torrents, ports and bridges constructed by the State, are owned by the
State. The term ports includes seaports and airports.
The MIAA Airport Lands and Buildings constitute a port constructed by
the State. Under Article 420 of the Civil Code,
the MIAA Airport Lands and Buildings are properties of public dominion
and thus owned by the State or the Republic of the Philippines.
x x x The operation by the government of a tollway does not
change the character of the road as one for public use. Someone must
pay for the maintenance of the road, either the public indirectly through
the taxes they pay the government, or only those among the public who
actually use the road through the toll fees they pay upon using the
road. The tollway system is even a more efficient and equitable manner
of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the
character of the property whether it is for public dominion or not. Article
420 of the Civil Code defines property of public dominion as one
intended for public use. Even if the government collects toll fees, the
road is still intended for public use if anyone can use the road under the
TAX 1. Atty. Ingles
LANDICHO.GOLLA.PANLILIO. BALUGA.CATA-AL.PANTALEON.RAMILO.LUCION.BUNO.NISHIKAWA.TAMARGO.
same terms and conditions as the rest of the public. The charging of
fees, the limitation on the kind of vehicles that can use the road, the
speed restrictions and other conditions for the use of the road do not
affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the
landing fees MIAA charges to airlines, constitute the bulk of the income
that maintains the operations of MIAA. The collection of such fees does
not change the character of MIAA as an airport for public use. Such
fees are often termed users tax. This means taxing those among the
public who actually use a public facility instead of taxing all the public
including those who never use the particular public facility. A users tax
is more equitable a principle of taxation mandated in the 1987
Constitution.[23] (Underscoring supplied)
Petitioners assume that what the Court said above, equating terminal fees to a
users tax must also pertain to tollway fees. But the main issue in the MIAA case was
whether or not Paraaque City could sell airport lands and buildings under MIAA
administration at public auction to satisfy unpaid real estate taxes. Since local
governments have no power to tax the national government, the Court held that the City
could not proceed with the auction sale. MIAA forms part of the national government
although not integrated in the department framework.[24] Thus, its airport lands and
buildings are properties of public dominion beyond the commerce of man under Article
420(1)[25] of the Civil Code and could not be sold at public auction.
As can be seen, the discussion in the MIAA case on toll roads and toll fees was
made, not to establish a rule that tollway fees are users tax, but to make the point that
airport lands and buildings are properties of public dominion and that the collection of
terminal fees for their use does not make them private properties. Tollway fees are not
taxes. Indeed, they are not assessed and collected by the BIR and do not go to the general
coffers of the government.
It would of course be another matter if Congress enacts a law imposing a users
tax, collectible from motorists, for the construction and maintenance of certain
roadways. The tax in such a case goes directly to the government for the replenishment of
resources it spends for the roadways. This is not the case here. What the government
seeks to tax here are fees collected from tollways that are constructed, maintained, and
operated by private tollway operators at their own expense under the build, operate, and
transfer scheme that the government has adopted for expressways.[26] Except for a
fraction given to the government, the toll fees essentially end up as earnings of the tollway
operators.
In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in
any sense. A tax is imposed under the taxing power of the government principally for the
purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are
collected by private tollway operators as reimbursement for the costs and expenses
incurred in the construction, maintenance and operation of the tollways, as well as to
assure them a reasonable margin of income. Although toll fees are charged for the use of
public facilities, therefore, they are not government exactions that can be properly treated
as a tax. Taxes may be imposed only by the government under its sovereign authority, toll
fees may be demanded by either the government or private individuals or entities, as an
attribute of ownership.[28]
13
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the
nature of VAT as an indirect tax. In indirect taxation, a distinction is made between the
liability for the tax and burden of the tax. The seller who is liable for the VAT may shift or
pass on the amount of VAT it paid on goods, properties or services to the buyer. In such a
case, what is transferred is not the sellers liability but merely the burden of the VAT.
Thus, the seller remains directly and legally liable for payment of the VAT, but the
buyer bears its burden since the amount of VAT paid by the former is added to the selling
price. Once shifted, the VAT ceases to be a tax[30] and simply becomes part of the cost
that the buyer must pay in order to purchase the good, property or service.
Consequently, VAT on tollway operations is not really a tax on the tollway user,
but on the tollway operator. Under Section 105 of the Code, [31] VAT is imposed on any
person who, in the course of trade or business, sells or renders services for a fee. In other
words, the seller of services, who in this case is the tollway operator, is the person liable
for VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll
fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees
were deemed as a users tax. VAT is assessed against the tollway operators gross receipts
and not necessarily on the toll fees. Although the tollway operator may shift the VAT
burden to the tollway user, it will not make the latter directly liable for the VAT. The shifted
VAT burden simply becomes part of the toll fees that one has to pay in order to use the
tollways.[32]
WHEREFORE, the Court DENIES respondents Secretary of Finance and
Commissioner of Internal Revenues motion for reconsideration of its August 24, 2010
resolution, DISMISSES the petitioners Renato V. Diaz and Aurora Ma. F. Timbols petition
for lack of merit, and SETS ASIDE the Courts temporary restraining order dated August
13, 2010. SO ORDERED.
E. IMPACT AND INCIDENCE OF TAXATION
G.R. No. 140230
COMMISSIONER OF INTERNAL REVENUE VS PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY,
December 15, 2005
FACTS:
PLDT is a grantee of a franchise under R.A. 7082 to install, operate and maintain
a telecommunications system throughout the Philippines. For equipment, machineries and
spare parts it imported for its business on different dates from October 1, 1992 to May 31,
1994, PLDT paid the BIR the amount of P164,510,953.00, broken down as follows: (a)
compensating tax of P126,713,037.00; advance sales tax of P12,460,219.00 and other
internal revenue taxes of P25,337,697.00. For similar importations made between March
1994 to May 31, 1994, PLDT paid P116,041,333.00 value-added tax (VAT). PLDT
addressed a letter to the BIR seeking a confirmatory ruling on its tax exemption privilege
under Section 12 of R.A. 7082, which reads:
14 [Type the document title]
Sec. 12. The grantee shall be liable to pay the same taxes on
their real estate, buildings, and personal property, exclusive of this
franchise, as other persons or corporations are now or hereafter may
be required by law to pay. In addition thereto, the grantee, shall pay a
franchise tax equivalent to three percent (3%) of all gross receipts of
the telephone or other telecommunications businesses transacted
under this franchise by the grantee, its successors or assigns, and the
said percentage shall be in lieu of all taxes on this franchise or earnings
thereof: Provided, That the grantee shall continue to be liable for
income taxes payable under Title II of the National Internal Revenue
Code pursuant to Sec. 2 of Executive Order No. 72 unless the latter
enactment is amended or repealed, in which case the amendment or
repeal shall be applicable thereto. (Emphasis supplied).
Responding, the BIR issued on April 19, 1994 Ruling No. UN-140-94,[3] pertinently
reading, as follows:
PLDT shall be subject only to the following taxes, to wit:
xxx xxx xxx
7. The 3% franchise tax on gross receipts which shall be in
lieu of all taxes on its franchise or earnings thereof.
The in lieu of all taxes provision under Section 12 of RA 7082
clearly exempts PLDT from all taxes including the 10% value-added tax
(VAT) prescribed by Section 101 (a) of the same Code on its
importations of equipment, machineries and spare parts necessary in
the conduct of its business covered by the franchise, except the
aforementioned enumerated taxes for which PLDT is expressly made
liable.
In view thereof, this Office hereby holds that PLDT, is exempt from VAT
on its importation of equipment, machineries and spare parts needed in
its franchise operations.
PLDT a claim for tax credit/refund of the VAT, compensating taxes, advance sales taxes
and other taxes it had been paying in connection with its importation of various equipment,
machineries and spare parts needed for its operations. With its claim not having been
acted upon by the BIR, and obviously to forestall the running of the prescriptive period
therefor, PLDT filed with the CTA a petition for review, seeking a refund of, or the issuance
of a tax credit certificate in, the amount of P280,552,286.00, representing compensating
taxes, advance sales taxes, VAT and other internal revenue taxes alleged to have been
erroneously paid on its importations from October 1992 to May 1994. CTA rendered a
decision granting PLDTs petition, pertinently saying:
We find that the petitioner is entitled to the reduced amount
of P223,265,276.00 after excluding from the final computation those
taxes that were paid prior to December 16, 1992 as they fall outside the
two-year prescriptive period for claiming for a refund as provided by
 law. The computation of the refundable amount is summarized as
follows:
TOTAL AMOUNT REFUNDABLE P223,265,276.00,
and accordingly disposed, as follows: Accordingly, respondent is hereby
ordered to REFUND or to ISSUE in favor of petitioner a Tax Credit
Certificate in the reduced amount of P223,265,276.00 representing
erroneously paid value-added taxes, compensating taxes, advance sales
taxes and other BIR taxes on its importation of equipments (sic),
machineries and spare parts for the period covering the taxable years 1992
to 1994.
Associate Judge Amancio Q. Saga who maintained that the phrase in lieu of all
taxes found in Section 12 of R.A. No. 7082, supra, refers to exemption from direct taxes
only and does not cover indirect taxes, such as VAT, compensating tax and advance sales
tax.
ISSUE: Whether or not PLDT, given the tax component of its franchise, is exempt from
paying VAT, compensating taxes, advance sales taxes and internal revenue taxes on its
importations.
HELD:
Based on the possibility of shifting the incidence of taxation, or as to who shall bear the
burden of taxation, taxes may be classified into either direct tax or indirect tax.
In context, direct taxes are those that are exacted from the very person who, it is
intended or desired, should pay them;[19] they are impositions for which a taxpayer is
directly liable on the transaction or business he is engaged in.[20]
On the other hand, indirect taxes are those that are demanded, in the first
instance, from, or are paid by, one person in the expectation and intention that he can shift
the burden to someone else.[21] Stated elsewise, indirect taxes are taxes wherein the
liability for the payment of the tax falls on one person but the burden thereof can be shifted
or passed on to another person, such as when the tax is imposed upon goods before
reaching the consumer who ultimately pays for it. When the seller passes on the tax to his
buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part
of the price of goods sold or services rendered.
To put the situation in graphic terms, by tacking the VAT due to the selling price,
the seller remains the person primarily and legally liable for the payment of the tax. What is
shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of
the tax.[22] Stated differently, a seller who is directly and legally liable for payment of an
indirect tax, such as the VAT on goods or services, is not necessarily the person who
ultimately bears the burden of the same tax. It is the final purchaser or end-user of such
goods or services who, although not directly and legally liable for the payment thereof,
ultimately bears the burden of the tax.[23]
There can be no serious argument that PLDT, vis--vis its payment of internal revenue
taxes on its importations in question, is effectively claiming exemption from taxes not falling
TAX 1. Atty. Ingles
LANDICHO.GOLLA.PANLILIO. BALUGA.CATA-AL.PANTALEON.RAMILO.LUCION.BUNO.NISHIKAWA.TAMARGO.
under the category of direct taxes. The claim covers VAT, advance sales tax and
compensating tax.
The NIRC classifies VAT as an indirect tax the amount of [which] may be shifted
or passed on to the buyer, transferee or lessee of the goods.[24] As aptly pointed out by
Judge Amancio Q. Saga in his dissent in C.T.A. Case No. 5178, the 10% VAT on
importation of goods partakes of an excise tax levied on the privilege of importing articles.
It is not a tax on the franchise of a business enterprise or on its earnings. It is imposed on
all taxpayers who import goods (unless such importation falls under the category of an
exempt transaction under Sec. 109 of the Revenue Code) whether or not the goods will
eventually be sold, bartered, exchanged or utilized for personal consumption. The VAT on
importation replaces the advance sales tax payable by regular importers who import
articles for sale or as raw materials in the manufacture of finished articles for sale.[25]
Advance sales tax has the attributes of an indirect tax because the tax-paying
importer of goods for sale or of raw materials to be processed into merchandise can shift
the tax or, to borrow from Philippine Acetylene Co, Inc. vs. Commissioner of Internal
Revenue,[26] lay the economic burden of the tax, on the purchaser, by subsequently
adding the tax to the selling price of the imported article or finished product.
Compensating tax also partakes of the nature of an excise tax payable by all
persons who import articles, whether in the course of business or not.[27] The rationale for
compensating tax is to place, for tax purposes, persons purchasing from merchants in the
Philippines on a more or less equal basis with those who buy directly from foreign
countries.[28]
It bears to stress that the liability for the payment of the indirect taxes lies only
with the seller of the goods or services, not in the buyer thereof. Thus, one cannot invoke
ones exemption privilege to avoid the passing on or the shifting of the VAT to him by the
manufacturers/suppliers of the goods he purchased.[29]Hence, it is important to determine
if the tax exemption granted to a taxpayer specifically includes the indirect tax which is
shifted to him as part of the purchase price, otherwise it is presumed that the tax
exemption embraces only those taxes for which the buyer is directly liable.[30]
Time and again, the Court has stated that taxation is the rule, exemption is the
exception. Accordingly, statutes granting tax exemptions must be construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority.[31] To him, therefore,
who claims a refund or exemption from tax payments rests the burden of justifying the
exemption by words too plain to be mistaken and too categorical to be misinterpreted.[32]
As may be noted, the clause in lieu of all taxes in Section 12 of RA 7082 is
immediately followed by the limiting or qualifying clause on this franchise or earnings
thereof, suggesting that the exemption is limited to taxes imposed directly on PLDT since
taxes pertaining to PLDTs franchise or earnings are its direct liability. Accordingly, indirect
taxes, not being taxes on PLDTs franchise or earnings, are outside the purview of the in
lieu provision.
If we were to adhere to the appellate courts interpretation of the law that the in
lieu of all taxes clause encompasses the totality of all taxes collectible under the Revenue
Code, then, the immediately following limiting clause on this franchise and its
earnings would be nothing more than a pure jargon bereft of effect and meaning
whatsoever. Needless to stress, this kind of interpretation cannot be accorded a governing
15
sway following the familiar legal maxim redendo singula singulis meaning, take the words
distributively and apply the reference. Under this principle, each word or phrase must be
given its proper connection in order to give it proper force and effect, rendering none of
them useless or superfluous. [33]
Significantly, in Manila Electric Company [Meralco] vs. Vera,[34] the Court declared the
relatively broader exempting clause shall be in lieu of all taxes and assessments of
whatsoever nature upon the privileges earnings, income franchise ... of the grantee written
in par. # 9 of Meralcos franchise as not so all encompassing as to embrace indirect tax,
like compensating tax. There, the Court said:
It is a well-settled rule or principle in taxation that a
compensating tax is an excise tax one that is imposed on the
performance of an act, the engaging in an occupation, or the enjoyment
of a privilege. A tax levied upon property because of its ownership is a
direct tax, whereas one levied upon property because of its use is an
excise duty. .
The compensating tax being imposed upon MERALCO, is an impost on
its use of imported articles and is not in the nature of a direct tax on the
articles themselves, the latter tax falling within the exemption. Thus,
in International Business Machine Corporation vs. Collector of Internal
Revenue, which involved the collection of a compensating tax from the
plaintiff-petitioner on business machines imported by it, this Court
stated in unequivocal terms that it is not the act of importation that is
taxed under section 190 but the uses of imported goods not subjected
to a sales tax because the compensating tax was expressly designated
as a substitute to make up or compensate for the revenue lost to the
government through the avoidance of sales taxes by means of direct
purchases abroad.
xxx xxx xxx
xxx If it had been the legislative intent to exempt MERALCO from
paying a tax on the use of imported equipments, the legislative body
could have easily done so by expanding the provision of paragraph 9
and adding to the exemption such words as compensating tax or
purchases from abroad for use in its business, and the like.
It may be so that in Maceda vs. Macaraig, Jr.[35] the Court held that an exemption from all
taxes granted to the National Power Corporation (NPC) under its charter[36] includes both
direct and indirect taxes. But far from providing PLDT comfort, Maceda in fact supports the
case of herein petitioner, the correct lesson of Maceda being that an exemption from all
taxes excludes indirect taxes, unless the exempting statute, like NPCs charter, is so
couched as to include indirect tax from the exemption. Wrote the Court:
xxx However, the amendment under Republic Act No. 6395
enumerated the details covered by the exemption. Subsequently, P.D.
380, made even more specific the details of the exemption of NPC to
cover, among others, both direct and indirect taxes on all petroleum
products used in its operation. Presidential Decree No. 938 [NPCs
amended charter) amended the tax exemption by simplifying the same
law in general terms. It succinctly exempts NPC from all forms of taxes,
duties fees .
16 [Type the document title]
The use of the phrase all forms of taxes demonstrate the intention of
the law to give NPC all the tax exemptions it has been enjoying before.
.
xxx xxx xxx
It is evident from the provisions of P.D. No. 938 that its purpose is to
maintain the tax exemption of NPC from all forms of taxes including
indirect taxes as provided under R.A. No. 6395 and P.D. 380 if it is to
attain its goals. (Italics in the original; words in bracket added)
Of similar import is what we said in Borja vs. Collector of Internal Revenue.[37] There, the
Court upheld the decision of the CTA denying a claim for refund of the compensating taxes
paid on the importation of materials and equipment by a grantee of a heat and power
legislative franchise containing an in lieuprovision, rationalizing as follows:
xxx Moreover, the petitioners alleged exemption from the payment of
compensating tax in the present case is not clear or expressed; unlike
the exemption from the payment of income tax which was clear and
expressed in the Carcar case. Unless it appears clearly and manifestly
that an exemption is intended, the provision is to be construed strictly
against the party claiming exemption. xxx.
Jurisprudence thus teaches that imparting the in lieu of all taxes clause a literal meaning,
as did the Court of Appeals and the CTA before it, is fallacious. It is basic that in construing
a statute, it is the duty of courts to seek the real intent of the legislature, even if, by so
doing, they may limit the literal meaning of the broad language.[38]
It cannot be over-emphasized that tax exemption represents a loss of revenue to
the government and must, therefore, not rest on vague inference. When claimed, it must
be strictly construed against the taxpayer who must prove that he falls under the exception.
And, if an exemption is found to exist, it must not be enlarged by construction, since the
reasonable presumption is that the state has granted in express terms all it intended to
grant at all, and that, unless the privilege is limited to the very terms of the statute the favor
would be extended beyond dispute in ordinary cases.[39]
All told, we fail to see how Section 12 of RA 7082 operates as granting PLDT blanket
exemption from payment of indirect taxes, which, in the ultimate analysis, are not taxes on
its franchise or earnings. PLDT has not shown its eligibility for the desired exemption.
None should be granted.
As a final consideration, the Court takes particular stock, as the CTA earlier did, of PLDTs
allegation that the Bureau of Customs assessed the company for advance sales tax and
compensating tax for importations entered between October 1, 1992 and May 31, 1994
when the value-added tax system already replaced, if not totally eliminated, advance sales
and compensating taxes.[40] Indeed, pursuant to Executive Order No. 273[41] which took
effect on January 1, 1988, a multi-stage value-added tax was put into place to replace the
tax on original and subsequent sales tax.[42] It stands to reason then, as urged by PLDT,
that compensating tax and advance sales tax were no longer collectible internal revenue
taxes under the NILRC when the Bureau of Customs made the assessments in question
and collected the corresponding tax. Stated a bit differently, PLDT was no longer under
legal obligation to pay compensating tax and advance sales tax on its importation from
1992 to 1994.
Parenthetically, petitioner has not made an issue about PLDTs allegations concerning the
abolition of the provisions of the Tax Code imposing the payment of compensating and
advance sales tax on importations and the non-existence of these taxes during the period
under review. On the contrary, petitioner admits that the VAT on importation of goods
has replace[d] the compensating tax and advance sales tax under the old Tax Code.[43]
Given the above perspective, the amount PLDT paid in the concept of advance sales tax
and compensating tax on the 1992 to 1994 importations were, in context, erroneous tax
payments and would theoretically be refundable. It should be emphasized, however, that,
such importations were, when made, already subject to VAT.
Factoring in the fact that a portion of the claim was barred by prescription, the CTA had
determined that PLDT is entitled to a total refundable amount of P94,673,422.00
(P87,257,031.00 of compensating tax + P7,416,391.00 = P94,673,422.00). Accordingly, it
behooves the BIR to grant a refund of the advance sales tax and compensating tax in the
total amount of P94,673,422.00, subject to the condition that PLDT present proof of
payment of the corresponding VAT on said transactions.
WHEREFORE, the petition is partially GRANTED. The Decision of the Court of
Appeals in CA-G.R. No. 47895 dated September 17, 1999 is MODIFIED. The
Commissioner of Internal Revenue is ORDERED to issue a Tax Credit Certificate or to
refund to PLDT only the of P94,673,422.00 advance sales tax and compensating tax
erroneously collected by the Bureau of Customs from October 1, 1992 to May 31, 1994,
less the VAT which may have been due on the importations in question, but have
otherwise remained uncollected. SO ORDERED.
F. INHERENT LIMITATIONS
G.R. No. L-10405 December 29, 1960
WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal VS
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL.,
FACTS:
Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for declaratory
relief, with injunction, upon the ground that RA. 920, entitled "An Act Appropriating Funds
for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an
item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and
improvement" of Pasig feeder road terminals"; that, at the time of the passage and
approval of said Act, the aforementioned feeder roads were "nothing but projected and
planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . .
situated at . . . Pasig, Rizal", which projected feeder roads "do not connect any government
property or any important premises to the main highway"; that the aforementioned Antonio
Subdivision (as well as the lands on which said feeder roads were to be construed) were
private properties of respondent Jose C. Zulueta, who, at the time of the passage and
approval of said Act, was a member of the Senate of the Philippines;
Zulueta wrote another letter to council Pasig, calling attention to the approval of Republic
Act. No. 920, and the sum of P85,000.00 appropriated therein for the construction of the
projected feeder roads in question; that the municipal council of Pasig endorsed said letter
TAX 1. Atty. Ingles
LANDICHO.GOLLA.PANLILIO. BALUGA.CATA-AL.PANTALEON.RAMILO.LUCION.BUNO.NISHIKAWA.TAMARGO.
of respondent Zulueta to the District Engineer of Rizal, who, up to the present "has not
made any endorsement thereon" that inasmuch as the projected feeder roads in question
were private property at the time of the passage and approval of Republic Act No. 920, the
appropriation of P85,000.00 therein made, for the construction, reconstruction, repair,
extension and improvement of said projected feeder roads, was illegal and, therefore,
void ab initio"; that said appropriation of P85,000.00 was made by Congress because its
members were made to believe that the projected feeder roads in question were "public
roads and not private streets of a private subdivision"'
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared
null and void. Respondents moved to dismiss the petition upon the ground that said
respondent is " not aware of any law which makes illegal the appropriation of public funds
for the improvements of . . . private property
ISSUE: Whether or not RA 920 is unconstitutional
HELD:
According to said petition, respondent Zulueta is the owner of several parcels of residential
land situated in Pasig, Rizal, and known as the Antonio Subdivision, certain portions of
which had been reserved for the projected feeder roads aforementioned, which,
admittedly, were private property of said respondent when Republic Act No. 920,
appropriating P85,000.00 for the "construction, reconstruction, repair, extension and
improvement" of said roads, was passed by Congress, as well as when it was approved by
the President on June 20, 1953. The petition further alleges that the construction of said
roads, to be undertaken with the aforementioned appropriation of P85,000.00, would have
the effect of relieving respondent Zulueta of the burden of constructing his subdivision
streets or roads at his own expenses, 1and would "greatly enhance or increase the value
of the subdivision" of said respondent. The lower court held that under these
circumstances, the appropriation in question was "clearly for a private, not a public
purpose."
As regards the legal feasibility of appropriating public funds for a public purpose, the
principle according to Ruling Case Law, is this:
It is a general rule that the legislature is without power to appropriate public revenue
for anything but a public purpose. . . . It is the essential character of the direct object
of the expenditure which must determine its validity as justifying a tax, and not the
magnitude of the interest to be affected nor the degree to which the general
advantage of the community, and thus the public welfare, may be ultimately benefited
by their promotion. Incidental to the public or to the state, which results from the
promotion of private interest and the prosperity of private enterprises or business,
does not justify their aid by the use public money. (25 R.L.C. pp. 398-400; Emphasis
supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for public
purposes only, discussed suprasec. 14, money raised by taxation can be
expended only for public purposes and not for the advantage of private individuals.
(85 C.J.S. pp. 645-646; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the constitution, public funds
may be used only for public purpose. The right of the legislature to appropriate funds
is correlative with its right to tax, and, under constitutional provisions against taxation
17
 except for public purposes and prohibiting the collection of a tax for one purpose and
the devotion thereof to another purpose, no appropriation of state funds can be made
for other than for a public purpose.
xxx xxx xxx
The test of the constitutionality of a statute requiring the use of public funds is whether
the statute is designed to promote the public interest, as opposed to the furtherance of
the advantage of individuals, although each advantage to individuals
might incidentally serve the public. (81 C.J.S. pp. 1147; emphasis supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from
being patently sound, are a necessary corollary to our democratic system of government,
which, as such, exists primarily for the promotion of the general welfare. Besides, reflecting
as they do, the established jurisprudence in the United States, after whose constitutional
system ours has been patterned, said views and jurisprudence are, likewise, part and
parcel of our own constitutional law.
Wherefore, the decision appealed from is hereby reversed, and the records are remanded
to the lower court for further proceedings not inconsistent with this decision, with the costs
of this instance against respondent Jose C. Zulueta. It is so ordered.
2. VALENTIN TIO vs VIDEOGRAM REGULATORY BOARD
Facts: Petitoner and other affected videogram operators assail the constitutionality of PD
1987 (“An Act Creating the Videogram Regulatory Board”) with broad powers to regulate
and supervise the videogram industry. Following its promulgation is the annual tax of 30%
on gross receipts payable to the local government. Petitioners now attack the
constitutionality of the decree on the grounds that the imposition of tax is a rider and is
harsh and confiscatory, oppressive and/or unlawful restraint of trade. It is also alleged that
the imposition of taxes is invalid since the title of the bill said only for the creation of the
Videogram Regulatory Board, not for the imposition of taxes. According to the petitioners,
this violates the One-Subject-One-Title Rule.
Issue: Whether or not the imposition of taxes is invalid in the promulgation of PD No. 1987.
Ruling: NO. The levy of the 30% tax is for a public purpose. It was imposed primarily to
answer the need for regulating the video industry, particularly because of the rampant film
piracy, the flagrant violation of intellectual property rights, and the proliferation of
pornographic video tapes. And while it was also an objective of the DECREE to protect the
movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the
legislature to impose the tax was to favor one industry over another.
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it
has been repeatedly held that "inequities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional limitation". Taxation has been
made the implement of the state's police power.
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
18 [Type the document title]
3. PEPSI-COLA BOTTLING COMPANY vs. MUNICIPALITY OF TANAUAN, LEYTE, THE
MUNICIPAL MAYOR, ET AL.
Facts: Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September
1962, the Municipality approved two ordinaces which are: first, Ordinance No. 23 which
levies and collects “from soft drinks producers and manufacturers a tai of one-sixteenth
(1/16) of a centavo for every bottle of soft drink corked.” In December 1962, the
Municipality also approved Ordinance No. 27 which levies and collects “on soft drinks
produced or manufactured within the territorial jurisdiction of this municipality a tax of one
centavo P0.01) on each gallon of volume capacity.” For the purpose of computing the
taxes due, the person, firm, company or corporation producing soft drinks shall submit to
the Municipal Treasurer a monthly report, of the total number of bottles produced and
corked during the month.
Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute double
taxation because the two ordinances cover the same subject matter and impose practically
the same tax rate. Furthermore, according to the petitioners the said ordinances
constitutes double taxation because the two ordinances impose percentage or specific
taxes.
Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for the
delegation of taxing powers to local government units; that allowing local governments to
tax companies like Pepsi Cola is confiscatory and oppressive.
The Municipality assailed the arguments presented by Pepsi Cola. It argued, among
others, that only Ordinance No. 27 is being enforced and that the latter law is an
amendment of Ordinance No. 23, hence there is no double taxation.
Issues:
1. Is Section 2, Republic Act No. 2264 an undue delegation of power,
confiscatory and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose
percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
Held:
1. NO. The power of taxation is an essential and inherent attribute of sovereignty,
belonging as a matter of right to every independent government, without being
expressly conferred by the people. 6 It is a power that is purely legislative and
which the central legislative body cannot delegate either to the executive or
judicial department of the government without infringing upon the theory of
separation of powers. The exception, however, lies in the case of municipal
corporations, to which, said theory does not apply. Legislative powers may be
 delegated to local governments in respect of matters of local concern. 7 This is
sanctioned by immemorial practice. 8 By necessary implication, the legislative
power to create political corporations for purposes of local self-government
carries with it the power to confer on such local governmental agencies the
power to tax. 9 Under the New Constitution, local governments are granted the
autonomous authority to create their own sources of revenue and to levy taxes.
Section 5, Article XI provides: "Each local government unit shall have the power
to create its sources of revenue and to levy taxes, subject to such limitations as
may be provided by law." Withal, it cannot be said that Section 2 of Republic Act
No. 2264 emanated from beyond the sphere of the legislative power to enact and
vest in local governments the power of local taxation.
As to the ordinances being confiscatory and oppressive: The taking of property
without due process of law may not be passed over under the guise of taxing
power. This is not to say though that the constitutional injunction against
deprivation of property without due process of law may be passed over under the
guise of the taxing power, except when the taking of the property is in the lawful
exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the
rule on uniformity of taxation is observed; (3) either the person or property taxed
is within the jurisdiction of the government levying the tax; and (4) in the
assessment and collection of certain kinds of taxes notice and opportunity for
hearing are provided. Due process does not require that the property subject to
the tax or the amount of tax to be raised should be determined by judicial inquiry,
and a notice and hearing as to the amount of the tax and the manner in which it
shall be apportioned are generally not necessary to due process of law.
As to the municipal ordinance being invalid on the ground of double taxation
resulting for delegation by the National Government: There is no validity to the
assertion that the delegated authority can be declared unconstitutional on the
theory of double taxation. It must be observed that the delegating authority
specifies the limitations and enumerates the taxes over which local taxation may
not be exercised. Double taxation becomes obnoxious only where the taxpayer is
taxed twice for the benefit of the same governmental entity or by the same
jurisdiction for the same purpose, but not in a case where one tax is imposed by
the State and the other by the city or municipality.
2. NO. There is no validity to the assertion that the delegated authority can be
declared unconstitutional on the theory of double taxation. Ordinance No. 23, the
first tax, levies or collects from soft drinks producers or manufacturers a tax of
one-sixteen (1/16) of a centavo for every bottle corked, irrespective of the volume
contents of the bottle used. When it was discovered that the producer or
manufacturer could increase the volume contents of the bottle and still pay the
same tax rate, the Municipality of Tanauan enacted Ordinance No. 27 imposing a
tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity. The difference between the two ordinances clearly lies in the tax rate of
the soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every
bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128
fluid ounces, U.S.) of volume capacity.
TAX 1. Atty. Ingles
LANDICHO.GOLLA.PANLILIO. BALUGA.CATA-AL.PANTALEON.RAMILO.LUCION.BUNO.NISHIKAWA.TAMARGO.
The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus
clear: it was intended as a plain substitute for the prior Ordinance No. 23, and operates as
a repeal of the latter, even without words to that effect. Moreover, the municipality
mentioned in its letter that it was only seeking to enforce Ordinance No. 27, series of 1962.
As to the remaining Ordinance No. 27 imposes a percentage or a specific tax?
Undoubtedly, the taxing authority conferred on local governments under Section 2,
Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting
those which are mentioned therein." As long as the tax levied under the authority of a city
or municipal ordinance is not within the exceptions and limitations in the law, the same
comes within the ambit of the general rule. The limitation applies, particularly, to the
prohibition against municipalities and municipal districts to impose "any percentage tax or
other taxes in any form based thereon nor impose taxes on articles subject to specific
tax except gasoline, under the provisions of the National Internal Revenue Code." For
purposes of this particular limitation, a municipal ordinance which prescribes a set ratio
between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax
and is null and void for being outside the power of the municipality to enact.
The imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity" on all soft drinks produced or manufactured under Ordinance No. 27
does not partake of the nature of a percentage tax on sales, or other taxes in any form
based thereon. The tax is levied on the produce (whether sold or not) and not on the sales.
The volume capacity of the taxpayer's production of soft drinks is considered solely for
purposes of determining the tax rate on the products, but there is not set ratio between the
volume of sales and the amount of the tax.
Nor can the tax levied on softdrinks be treated as a specific tax. Specific taxes are those
imposed on specified articles, such as distilled spirits, wines, fermented liquors, products of
tobacco other than cigars and cigarettes, matches firecrackers, manufactured oils and
other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards,
saccharine, opium and other habit-forming drugs. Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity on all softdrinks, produced or manufactured, or an equivalent of 1-½ centavos per
case is not unjust and unfair. Municipal corporations are allowed much discretion in
determining the rates of imposable taxes. This is in line with the constitutional policy of
according the widest possible autonomy to local governments in matters of local taxation.
Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an
ordinance as unreasonable.
4. MANILA INTERNATIONAL AIRPORT AUTHORITY, vs. COURT OF APPEALS
Facts: Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Parañaque City.
As operator of the international airport, MIAA administers the land, improvements and
equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately
600 hectares of land,... The MIAA Charter further provides that no portion of the land
19
transferred to MIAA shall be disposed of through sale or any other mode unless specifically
approved by the President of the Philippines.
The Office of the Government Corporate Counsel (OGCC) Office of the Government
Corporate Counsel (OGCC) issued Opinion No. 061 . The OGCC opined that the Local
Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA
under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of
Parañaque to pay the real estate tax imposed by the City. MIAA then paid some of the real
estate tax already due.
MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque.
MIAA then settled some of the amount. When MIAA failed to settle the entire amount, the
officers of Par anaque Cit y thr eat ened t o levy and subject to auction t he
land and buil dings of MI AA, which they did. MIAA sought for a Temporary Restraining
Order from the CA but failed to do so within the 60 days reglementary period, so the
petition was dismissed. MIAA then sought for the TRO with the Supreme Court a day
before the public auction, MIAA was granted with the TRO but unfortunately the TRO was
received by the Paranaque City officers 3 hours after the public auction. MIAA claims that
although the charter provides that the title of the land and building are with MIAA still the
owners hip is wit h t he Republic of the Phili ppines. . The MIAA Charter mandates
MIAA to devote the Airport Lands and Buildings for the benefit of the general public. Since
the Airport Lands and Buildings are devoted to public use and public service, the
ownership of these properties remains with the State. The Airport Lands and Buildings are
thus inalienable and are not subject to real estate tax by local governments.
MIAA also c ont ends t hat it is an instrumentality of the government and as such
exempted from real estate tax under Section 234 of the Local Government Code because
the Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA
invokes the principle that the government cannot tax itself. MIAA points out that the reason
for tax exemption of public property is that its taxation would not inure to any public
advantage, since in such a case the tax debtor is also the tax creditor. And, that the land
and buildings of MIAA are of public domini on theref ore cannot be subjected t o
levy and aucti on sal e. On the ot her hand, the officers of Paranaque City claim that
MIAA is a government owned and controlled corporation therefore not exempted from real
estate tax
Issue: Whether or not the Airport Lands and Buildings of MIAA are exempt from real estate
tax under existing laws.
Held: YES. MIAA is not a government-owned or controlled corporation but
an instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines
and thus exempt from real estate tax.
1. MIAA is not a government-owned or controlled corporation but an instrumentality of the
National Government
There is no dispute that a government-owned or controlled corporation is not exempt from
real estate tax. However, MIAA is not a government-owned or controlled corporation.
20 [Type the document title]
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a
government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any agency organized
as a stock or non-stock corporation, vested with functions relating to public needs
whether governmental or proprietary in nature, and owned by the Government
directly or through its instrumentalities either wholly, or, where applicable as in
the case of stock corporations, to the extent of at least fifty-one (51) percent of its
capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or non-stock
corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a
stock corporation because it has no capital stock divided into shares. MIAA has no
stockholders or voting shares as provided under Section 10 of the MIAA Charter.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock
is divided into shares and x x x authorized to distribute to the holders of such shares
dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no
stockholders or voting shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers." A non-stock corporation
must have members. Even if we assume that the Government is considered as the sole
member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations
cannot distribute any part of their income to their members. Section 11 of the MIAA Charter
mandates MIAA to remit 20% of its annual gross operating income to the National
Treasury.11 This prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary,
scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like
chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is
organized to operate an international and domestic airport for public use. Since MIAA is
neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned
or controlled corporation.
The legal status of MIAA within the National Government is a government
instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that
MIAA is vested with corporate powers.
A government instrumentality like MIAA falls under Section 133(o) of the Local
Government Code, which states:
 SEC. 133. Common Limitations on the Taxing Powers of Local Government [G.R. NOS. 193407-08]
Units. – Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of the COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. CBK POWER COMPANY
following: LIMITED, Respondent.

xxxx
Facts:
(o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalitiesand local government units.(Emphasis and underscoring CBK Power is a limited partnership duly organized and existing under the laws of the
supplied) Philippines, and primarily engaged in the development and operation of the Caliraya,
Botocan, and Kalayaan hydroelectric power generating plants in Laguna (CBK Project). It
is registered with the Board of Investments (BOI) as engaged in a preferred pioneer area
Section 133(o) recognizes the basic principle that local governments cannot tax the of investment under the Omnibus Investment Code of 1987.
national government, which historically merely delegated to local governments the power
to tax. While the 1987 Constitution now includes taxation as one of the powers of local To finance the CBK Project, CBK Power obtained in August 2000 a syndicated loan from
governments, local governments may only exercise such power "subject to such guidelines several foreign banks,8 i.e., BNP Paribas, Dai-ichi Kangyo Bank, Limited, Industrial Bank of
and limitations as the Congress may provide. Japan, Limited, and Societe General (original lenders), acting through an Inter-Creditor
Agent, Dai-ichi Kangyo Bank, a Japanese bank that subsequently merged with the
When local governments invoke the power to tax on national government instrumentalities, Industrial Bank of Japan, Limited (Industrial Bank of Japan) and the Fuji Bank, Limited (Fuji
such power is construed strictly against local governments. The rule is that a tax is never Bank), with the merged entity being named as Mizuho Corporate Bank (Mizuho Bank).
presumed and there must be clear language in the law imposing the tax. Any doubt One of the merged banks, Fuji Bank, had a branch in the Philippines, which became a
whether a person, article or activity is taxable is resolved against taxation. This rule applies branch of Mizuho Bank as a result of the merger. The Industrial Bank of Japan and Mizuho
with greater force when local governments seek to tax national government Bank are residents of Japan for purposes of income taxation, and recognized as such
instrumentalities. under the relevant provisions of the income tax treaties between the Philippines and
Japan.
There is also no reason for local governments to tax national government instrumentalities Certain portions of the loan were subsequently assigned by the original lenders to various
for rendering essential public services to inhabitants of local governments. The only other banks, including Fortis Bank (Nederland) N.V. (Fortis-Netherlands) and Raiffesen
exception is when the legislature clearly intended to tax government instrumentalities for Zentral Bank Osterreich AG (Raiffesen Bank). Fortis-Netherlands, in turn, assigned its
the delivery of essential public services for sound and compelling policy considerations. portion of the loan to Fortis Bank S.A./N.V. (Fortis-Belgium), a resident of Belgium. Fortis-
There must be express language in the law empowering local governments to tax national Netherlands and Raiffesen Bank, on the other hand, are residents of Netherlands and
government instrumentalities. Any doubt whether such power exists is resolved against Austria, respectively.
local governments.
In February 2001, CBK Power borrowed money from Industrial Bank of Japan, Fortis-
2. the real properties of MIAA are owned by the Republic of the Philippines and thus Netherlands, Raiffesen Bank, Fortis-Belgium, and Mizuho Bank for which it remitted
exempt from real estate tax. interest payments from May 2001 to May 2003.11 It allegedly withheld final taxes from said
payments based on the following rates, and paid the same to the Revenue District Office
No. 55 of the Bureau of Internal Revenue (BIR): (a) fifteen percent (15%) for Fortis-
The court held that the land and buildings of MIAA are part of the public dominion. Since Belgium, Fortis-Netherlands, and Raiffesen Bank; and (b) twenty percent (20%) for
theairport is devoted for public use, for the domestic and international travel and Industrial Bank of Japan and Mizuho Bank.12chanRoblesvirtualLawlibrary
transportation. Even if MIAA charge fees, this is for support of its operation and for
regulation and does not change the character of the land and buildings of MIAA as part of However, according to CBK Power, under the relevant tax treaties between the Philippines
the public dominion. As part of the public dominion the landand buildings of MIAA are and the respective countries in which each of the banks is a resident, the interest income
outside the commerce of man. To subject them to levy and public auction iscontrary to derived by the aforementioned banks are subject only to a preferential tax rate of
public policy. Unless the President issues a proclamation withdrawing the airport land and 10%, viz.:13chanRoblesvirtualLawlibrary
buildings from public use, these properties remain to be of public dominion and are
inalienable. As longas the land and buildings are for public use the ownership is with the
Republic of the Philippines. BANK COUNTRY OF PREFERENTIAL RATE
RESIDENCE UNDER THE RELEVANT TAX TREATY
#5 CBK POWER COMPANY LIMITED, Petitioner, v. COMMISSIONER OF INTERNAL Fortis Bank S.A./N.V. Belgium 10% (Article 111, RP-Belgium Tax Treaty)
REVENUE, Respondent. Industrial Bank of Japan Japan 10% (Article 113, RP-Japan Tax Treaty)

TAX 1. Atty. Ingles 21

LANDICHO.GOLLA.PANLILIO. BALUGA.CATA-AL.PANTALEON.RAMILO.LUCION.BUNO.NISHIKAWA.TAMARGO.
Raiffesen Zentral Bank Austria 10% (Article 113, RP-Austria Tax Treaty)
Osterreich AG
Mizuho Corporate Bank Japan 10% (Article 113, RP-Japan Tax Treaty)
Accordingly, on April 14, 2003, CBK Power filed a claim for refund of its excess final
withholding taxes allegedly erroneously withheld and collected for the years 2001 and
2002 with the BIR Revenue Region No. 9. The claim for refund of excess final withholding
taxes in 2003 was subsequently filed on March 4, 2005.
The Commissioner of Internal Revenue’s (Commissioner) inaction on said claims
prompted CBK Power to file petitions for review before the CTA.
CTA First Division: Confirming CBK Power’s claim that the interest payments it made to
Industrial Bank of Japan and Raiffesen Bank were subject to a final withholding tax rate
of only 10% of the gross amount of interest, pursuant to Article 11 of the Republic of the
Philippines (RP)-Austria and RP-Japan tax treaties. however, upon motion for
reconsideration23 filed by the Commissioner, the CTA First Division amended its earlier
decision by reducing the amount of the refund from P15,672,958.42 to P14,835,720.39 on
the ground that CBK Power failed to obtain an ITAD ruling with respect to its transactions
with Fortis-Netherlands.
CTA En Banc: affirmed the ruling of the CTA First Division that a prior application with the
ITAD is indeed required by Revenue Memorandum Order (RMO) 1-2000,35which
administrative issuance has the force and effect of law and is just as binding as a tax
treaty. Further held that CBK Power’s petitions for review were filed within the two-year
prescriptive period provided under Section 22937 of the National Internal Revenue Code of
199738(NIRC), and that it was proper for CBK Power to have filed said petitions without
awaiting the final resolution of its administrative claims for refund before the BIR;
otherwise, it would have completely lost its right to seek judicial recourse if the two-year
prescriptive period lapsed with no judicial claim filed.
Issue:
Whether the BIR may add a requirement – prior application for an ITAD ruling – that is not
found in the income tax treaties signed by the Philippines before a taxpayer can avail of
preferential tax rates under said treaties.
Held:
No. Bearing in mind the rationale of tax treaties, the period of application for the availment
of tax treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement
to the relief as it would constitute a violation of the duty required by good faith in complying
with a tax treaty. The denial of the availment of tax relief for the failure of a taxpayer to
apply within the prescribed period under the administrative issuance would impair the
value of the tax treaty. At most, the application for a tax treaty relief from the BIR
should merely operate to confirm the entitlement of the taxpayer to the relief.
Since CBK Power had requested for confirmation from the ITAD on June 8, 2001 and
October 28, 200250 before it filed on April 14, 2003 its administrative claim for refund of its
excess final withholding taxes, the same should be deemed substantial compliance with
RMO No. 1-2000.
22 [Type the document title]
The obligation to comply with a tax treaty must take precedence over the objective of RMO
No. 1-2000
As pointed out in Deutsche Bank, the underlying principle of prior application with the BIR
becomes moot in refund cases – as in the present case – where the very basis of the claim
is erroneous or there is excessive payment arising from the non-availment of a tax treaty
relief at the first instance. Just as Deutsche Bank was not faulted by the Court for not
complying with RMO No. 1-2000 prior to the transaction,46 so should CBK Power. In
parallel, CBK Power could not have applied for a tax treaty relief 15 days prior to its
payment of the final withholding tax on the interest paid to its lenders precisely because it
erroneously paid said tax on the basis of the regular rate as prescribed by the NIRC, and
not on the preferential tax rate provided under the different treaties.
The controversy centers on the construction of the aforementioned section of the Tax
Code which reads:ChanRoblesVirtualawlibrary
SEC. 306. Recovery of tax erroneously or illegally collected. — No suit or proceeding shall
be maintained in any court for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, or of any sum alleged to have been
excessive or in any manner wrongfully collected, until a claim for refund or credit has been
duly filed with the Collector of Internal Revenue; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under protest or
duress. In any case, no such suit or proceeding shall be begun after the expiration of two
years from the date of payment of the tax or penalty.
Nowhere and in no wise does the law imply that the Collector of Internal Revenue must act
upon the claim, or that the taxpayer shall not go to court before he is notified of the
Collector’s action. x x x. We understand the filing of the claim with the Collector of Internal
Revenue to be intended primarily as a notice of warning that unless the tax or penalty
alleged to have been collected erroneously or illegally is refunded, court action will follow. x
x x.61 (Emphases supplied)
That being said, the foregoing refund claims of CBK Power should all be granted.
#6 SEA-LAND SERVICE, INC., petitioner, vs. COURT OF APPEALS and
COMMISSIONER OF INTERNAL REVENUE, respondents
Facts:
The facts, as found by the Court of Appeals, are as follows:
Sea-Land Service Incorporated (SEA-LAND), an American international shipping company
licensed by the Securities and Exchange Commission to do business in the Philippines
entered into a contract with the United States Government to transport military household
goods and effects of U. S. military personnel assigned to the Subic Naval Base.
From the aforesaid contract, SEA-LAND derived an income for the taxable year 1984
amounting to P58,006,207.54. During the taxable year in question, SEA-LAND filed with
the Bureau of Internal Revenue (BIR) the corresponding corporate Income Tax Return
(ITR) and paid the income tax due thereon of 1.5% as required in Section 25 (a) (2) of the
National Internal Revenue Code (NIRC) in relation to Article 9 of the RP-US Tax Treaty,
amounting to P870,093.12.
Claiming that it paid the aforementioned income tax by mistake, a written claim for refund
was filed with the BIR on 15 April 1987.However, before the said claim for refund could be
acted upon by public respondent Commissioner of Internal Revenue, petitioner-appellant
filed a petition for review with the CTA docketed as CTA Case No. 4149, to judicially
pursue its claim for refund and to stop the running of the two-year prescriptive period under
the then Section 243 of the NIRC.
On 21 February 1995, CTA rendered its decision denying SEA-LANDs claim for refund of
the income tax it paid in 1984.[2]
On March 30, 1995, petitioner appealed the decision of the Court of Tax Appeals to
the Court of Appeals.[3]
After due proceedings, on October 26, 1995, the Court of Appeals promulgated its decision
dismissing the appeal and affirming in toto the decision of the Court of Tax Appeals.
Issue:
Whether petitioner is exempted from the payment of income tax on its revenue
earned from the transport or shipment of household goods and effects of US personnel
assigned at Subic Naval Base.
Held. No. Under Article XII (4) of the RPUS Military Bases Agreement, the Philippine
Government agreed to exempt from payment of Philippine income tax nationals of the
United States, or corporations organized under the laws of the United States, residents in
the United States in respect of any profit derived under a contract made in the United
States with the Government of the United States in connection with the construction,
maintenance, operation and defense of the bases.
It is obvious that the transport or shipment of household goods and effects of U. S.
military personnel is not included in the term construction, maintenance, operation and
defense of the bases. Neither could the performance of this service to the U. S.
government be interpreted as directly related to the defense and security of the Philippine
territories. When the law speaks in clear and categorical language, there is no reason for
interpretation or construction, but only for application. [9] Any interpretation that would give it
an expansive construction to encompass petitioners exemption from taxation would be
unwarranted.
The avowed purpose of tax exemption is some public benefit or interest, which the
lawmaking body considers sufficient to offset the monetary loss entailed in the grant of the
exemption.[10] The hauling or transport of household goods and personal effects of U. S.
military personnel would not directly contribute to the defense and security of the
Philippines.
We see no reason to reverse the ruling of the Court of Appeals, which affirmed the
decision of the Court of Tax Appeals.
Additional Note: Laws granting exemption from tax are construed strictissimi juris against
the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is
the exception.[7] The law does not look with favor on tax exemptions and that he who would
seek to be thus privileged must justify it by words too plain to be mistaken
and too categorical to be misinterpreted.
#7 MITSUBISHI CORPORATION-MANILA BRANCH v. CIR
TAX 1. Atty. Ingles
LANDICHO.GOLLA.PANLILIO. BALUGA.CATA-AL.PANTALEON.RAMILO.LUCION.BUNO.NISHIKAWA.TAMARGO.
Facts:
On June 11, 1987, the governments of Japan and the Philippines executed an Exchange
of Notes,[5] whereby the former agreed to extend a loan amounting to Forty Billion Four
Hundred Million Japanese Yen (¥40,400,000,000) to the latter through the then Overseas
Economic Cooperation Fund (OECF, now Japan Bank for International Cooperation) for
the implementation of the Calaca II Coal-Fired Thermal Power Plant Project (Project).[6] In
Paragraph 5 (2) of the Exchange of Notes, the Philippine Government, by itself or through
its executing agency, undertook to assume all taxes imposed by the Philippines on
Japanese contractors engaged in the Project:
Consequently, the OECF and the Philippine Government entered into Loan Agreement No.
PH-P76[8] dated September 25, 1987 for Forty Billion Four Hundred Million Japanese Yen
(¥40,400,000,000). Due to the need for additional funding for the Project, they also
executed Loan Agreement No. PH-P141[9] dated December 20, 1994 for Five Billion Five
Hundred Thirteen Million Japanese Yen (¥5,513,000,000). [10]
Meanwhile, on June 21, 1991, the National Power Corporation (NPC), as the executing
government agency, entered into a contract with Mitsubishi Corporation (i.e., petitioner's
head office in Japan) for the engineering, supply, construction, installation, testing, and
commissioning of a steam generator, auxiliaries, and associated civil works for the Project
(Contract).[11] The Contract's foreign currency portion was funded by the OECF loans.[12] In
line with the Exchange of Notes, Article VIII (B) (1) of the Contract indicated NPC's
undertaking to pay any and all forms of taxes that are directly imposable under the
Contract:
Article VIII (B) (1)
B. FOR ONSHORE PORTION.
1.) [The] CORPORATION (NPC) shall, subject to the provisions under the Contract
[Document] on Taxes, pay any and all forms of taxes which are directly imposable under
the Contract including VAT, that may be imposed by the Philippine Government, or any of
its agencies and political subdivisions.
On July 15, 1998, petitioner filed its Income Tax Return for the fiscal year that ended on
March 31, 1998 with the Bureau of Internal Revenue (BIR). Petitioner included in its
income tax due[15] the amount of P44,288,712.00, representing income from the OECF-
funded portion of the Project.[16] On the same day, petitioner also filed its Monthly
Remittance Return of Income Taxes Withheld and remitted P8,324,100.00 as BPRT for
branch profits remitted to its head office in Japan out of its income for the fiscal year that
ended on March 31, 1998.[17]
On June 30, 2000, petitioner filed with the respondent Commissioner on Internal Revenue
(CIR) an administrative claim for refund of Fifty Two Million Six Hundred Twelve Thousand,
Eight Hundred Twelve Pesos (P52,612,812.00), representing the erroneously paid
amounts of P44,288,712.00 as income tax and P8,324,100.00 as BPRT corresponding to
the OECF-funded portion of the Project.[18] To suspend the running of the two-year period
to file a judicial claim for refund, petitioner filed on July 13, 2000 a petition for
review[19]before the CTA pursuant to Section 229 of the National Internal Revenue Code
(NIRC), which was docketed as C.T.A. Case No. 6139. [20]Petitioner anchored its claim for
refund on BIR Ruling No. DA-407-98 dated September 7, 1998,[21] which interpreted
paragraph 5 (2) of the Exchange of Notes.
23
CTA Division granted the petition and ordered the CIR to refund to petitioner the amounts it
erroneously paid as income tax and BPRT
CTA En Banc reversed the CTA Division's rulings and declared that petitioner is not
entitled to a refund of the taxes it paid to the CIR.
Issues:
(a) Whether petitioner is entitled to a refund; and (b) if in the affirmative, from which
government entity should the refund be claimed.
Held:
A) Yes. In this case, it is fairly apparent that the subject taxes in the amount of
P52,612,812.00 was erroneously collected from petitioner, considering that the
obligation to pay the same had already been assumed by the Philippine
Government by virtue of its Exchange of Notes with the Japanese Government.
Case law explains that an exchange of notes is considered as an executive
agreement, which is binding on the State even without Senate concurrence.
Sections 204 (C) of the NIRC grants the CIR the authority to credit or refund
taxes which are erroneously collected by the government.
Significantly, an exchange of notes is considered a form of an executive agreement,
which becomes binding through executive action without the need of a vote by the
Senate or Congress.[38]
Paragraph 5 (2) of the Exchange of Notes provides for a tax assumption
provision whereby:
The Government of the Republic of the Philippines will, itself or through its executing
agencies or instrumentalities, assume all fiscal levies or taxes imposed in the
Republic of the Philippines on Japanese firms and nationals operating as suppliers,
contractors or consultants on and/or in connection with any income that may accrue
from the supply of products of Japan and services of Japanese nationals to be
provided under the Loan. (Emphases and underscoring supplied)
Thus, contrary to the CTA En Banc's opinion, the constitutional provisions on tax
exemptions would not apply.
As explicitly worded, the Philippine Government, through its executing agencies (i.e.,
NPC in this case) particularly assumed "all fiscal levies or taxes imposed in the
Republic of the Philippines on Japanese firms and nationals operating as suppliers,
contractors or consultants on and/or in connection with any income that may accrue
from the supply of products of Japan and services of Japanese nationals to be
provided under the [OECF] Loan." The Philippine Government's assumption of "all
fiscal levies and taxes," which includes the subject taxes, is clearly a form of
concession given to Japanese suppliers, contractors or consultants in consideration of
the OECF Loan, which proceeds were used for the implementation of the Project. As
part of this, NPC entered into the June 21, 1991 Contract with Mitsubishi Corporation
(i.e., petitioner's head office in Japan) for the engineering, supply, construction,
installation, testing, and commissioning of a steam generator, auxiliaries, and
associated civil works for the Project, [41] which foreign currency portion was funded by
24 [Type the document title]
the OECF loans.[42] Thus, in line with the tax assumption provision under the
Exchange of Notes, Article VIII (B) (1) of the Contract states that NPC shall pay any
and all forms of taxes that are directly imposable under the Contract.
Therefore, considering that petitioner paid the subject taxes in the aggregate amount of
P52,612,812.00, which it was not required to pay, the BIR erroneously collected such
amount. Accordingly, petitioner is entitled to its refund.
b) Refund shall be claimed to CIR. The NIRC vests upon the CIR, being the head of the
BIR, the authority to credit or refund taxes which are erroneously collected by the
government. This specific statutory mandate cannot be overridden by averse
interpretations made through mere administrative issuances, such as RMC No. 42-99,
which - as argued by the CIR - shifts to the executing agencies (particularly, NPC in this
case) the power to refund the subject taxes.
All told, petitioner correctly filed its claim for tax refund under Sections 204 and 229 of the
NIRC to recover the erroneously paid taxes amounting to P44,288,712.00 as income tax
and P8,324,100.00 as BPRT from the BIR. To reiterate, petitioner's entitlement to the
refund is based on the tax assumption provision in the Exchange of Notes. Given that this
is a case of tax assumption and not an exemption, the BIR is, therefore, not without
recourse; it can properly collect the subject taxes from the NPC as the proper party that
assumed petitioner's tax liability.
#8 Reagan v CIR Facts: William Reagan, a US citizen and an employee of Bendix Radio was
assigned at Clark Air Base, Ph. Petitioner imported a tax free 1960 Cadillac car. 2 months
later, he requested the Base Commander that he be allowed to sell the car. His request was
granted provided that sale was to be done with a US citizen or a member of the US Armed
Forces employed in the US Military bases in the PH. Raegan sold the car to a certain William
Johnson. As a result of the transaction, the CIR held him liable for income tax. He filed a
complaint with the CTA comtending that since the sale was done in Clark Air Base, it was
therefore done on foreign soil. Issue: WoN the income tax was legally collected by the CIR.
Held: No. There is nothing in the Military Bases Agreement that lends support to the assertion
that Clark Air Base became foreign soil or territory. PH’s jurisdictional rights therein, including
the power to tax, have been preserved. In this case, since it has been established that Clark
Air Base is not foreign soil, Raegan was liable for the income tax arising from the sale of his
automobile.
#9Manila Electric Company v AL Yatco
Facts: Manila Electric Company ensured with the city of NY Insurance Company and the US
Guaranty Company certainreal and personal properties situated in the PH. Plaintiff paid, in
NY, to said insurance company premiums. The CIR, under authority of sec 192 of Act 2427
assessed and levied a tax of one per centum on said premiums, which appelant paid under
protest. The protest was overruled, thus it instituted the present action to recover the tax.
Appellant maintains that the 2nd paragraph of Sec 192 is unconstitutional and has been
declared unconstitutional in one of the cases decided by the US SC. Issue: WoN the
collection done by the CIR on the premiums were illegal.
Held: No. In this case, the risk insured against is within the PH and certain incidents of the
contract are to be attended in the PH, e.g. payment of dividends, sending of an unjuster in
the PH in case of dispute or making of proof of loss. Thus, the Commonwealth of the PH has
the power to impose tax on the insured regardless whether the contract is executed in a
foreign country and with a foreign corporation. Under such circumstances, substantial
elements of the contract may be said to be so situated in the PH as to give its government
the power to tax.
#10 CIR v Marubeni
Facts: Marubeni Corporation is a foreign corporation organized and existing under the laws of
Japan. It is engaged in general import and export trading, financing and the construction
business. It is duly registered to engage in such business in the Philippines and maintains a
branch office in Manila. Sometime in November 1985, petitioner Commissioner of Internal
Revenue issued a letter of authority to examine the books of accounts of the Manila branch
office of respondent corporation for the fiscal year ending March 1985. In the course of the
examination, petitioner found respondent to have undeclared income from two (2) contracts
in the Philippines, both of which were completed in 1984. One of the contracts was with the
National Development Company (NDC) in connection with the construction and installation of
a wharf/port complex at the Leyte Industrial Development Estate in the municipality of Isabel,
province of Leyte. The other contract was with the Philippine Phosphate Fertilizer Corporation
(Philphos) for the construction of an ammonia storage complex also at the Leyte Industrial
Development Estate. On March 1, 1986, petitioners revenue examiners recommended an
assessment for deficiency income, branch profit remittance, contractors and commercial
brokers taxes. Respondent questioned this assessment in a letter dated June 5, 1986. On
August 27, 1986, respondent corporation received a letter dated August 15, 1986 from
petitioner assessing respondent several deficiency taxes. On September 26, 1986,
respondent filed two (2) petitions for review with the Court of Tax Appeals. The first petition,
CTA Case No. 4109, questioned the deficiency income, branch profit remittance and
contractors tax assessments in petitioners assessment letter. The second, CTA Case No.
4110, questioned the deficiency commercial brokers assessment in the same letter. Almost
ten (10) years after filing of the case, the Court of Tax Appeals rendered a decision in CTA
Case No. 4109. The tax court found that respondent had properly availed of the tax amnesty
under E.O. Nos. 41 and 64 and declared the deficiency taxes subject of said case as deemed
cancelled and withdrawn.
Issue: Whether or not respondent is liable to pay the income, branch profit remittance, and
contractors taxes assessed by petitioner. Held: The turnkey contracts were actually divisible
contracts which each had different stages, with each stage having a different tax implication.
The stages involving the design, engineering and procurement of equipment and supplies
were all done in Japan. Thus, they are outside the taxing authority of the Philippines. On the
other hand, the stages involving installation and construction were all done within the PH.
Thus, they are within the taxing authority of the PH.
G. CONSTITUTIONAL PROVISIONS
# 1 TIU V CA
FACTS:
TAX 1. Atty. Ingles
LANDICHO.GOLLA.PANLILIO. BALUGA.CATA-AL.PANTALEON.RAMILO.LUCION.BUNO.NISHIKAWA.TAMARGO.
Congress passed into law RA 7227 also known as An Act Accelerating the Conversion of
Military Reservations Into Other Productive Uses, Creating the Bases Conversion and
Development Authority for this Purpose, Providing Funds Therefor and other Purposes.
The scope of the conversion includes the areas of Subic making it into a special economic
zone pursuant to Section 12 of the said law. In relation to RA 7227, EO 97 was enacted by
the President to clarify the application of tax and duty incentive under RA 7227. Thereafter,
the President issued again EO 97-A which delineate the area which the tax and duty
incentive excluding the area of Olongapo.
Now, the petitioners question the constitutionality of EO 97-A for allegedly violating their
right to equal protection due to the limitation of tax and duty incentives to Subic area only
and not the entire area of Olongapo.
ISSUE: W/N the limitation of tax and duty incentive imposed by the President by virtue of
EO 97-A in pursuant to RA 7227 is constitutional.
RULING:
The Supreme Court ruled that the right to equal protection is not absolute, but subject to
reasonable classification. If the groupings are characterized by substantial distinctions that
make real differences, one class may be treated and regulated differently from another.
Classification to be valid must (1) rest on substantial distinctions, (2) be germane to the
purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all
members of the same class.
Further, the SC believed that the delineation was reasonable as the law intends to
transform and develop those abandoned naval facilities into a self-sustaining industrial and
commercial zone located in the specified area. Therefore, the law is germane to its
purpose.
Lastly, the classification applies equally to all the resident individuals and businesses
within the area. The residents, being in like circumstances or contributing directly to the
achievement of the end purpose of the law, are not categorized further. Instead, they are
similarly treated, both in privileges granted and in obligations required.
25
2. CIR V LINGAYEN
FACTS:
The respondent taxpayer operates an electric power plant serving the adjoining
municipalities of Lingayen and Binmaley, both in the province of Pangasinan, pursuant to
the municipal franchise granted it by their respective municipal councils, under Resolution
Nos. 14 and 25 of June 29 and July 2, 1946, respectively where it provides that the
grantee of the franchise shall only pay 1% of gross earnings obtained during the first 20
years and 2% during the remaining 15 years of the life of the franchise.
However, Bureau of Internal Revenue (BIR) assessed against and demanded from the
private respondent deficiency franchise taxes and surcharges amounting 19,293 for the
years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts from March 1,
1948 to December 31, 1954 as prescribed in Section 259 of the National Internal Revenue
Code, instead of the lower rates as provided in the municipal franchises. Hence, the
private respondent protested the said assessment and protested before the Court of Tax
Appeal for failure to reach an amicable settlement. In addition, the Commissioner also
demanded payment of 3,616 representing the deficiency franchise tax and surcharges for
the years 1959 to 1961 again applying 5% franchise tax rate on gross receipts as
prescribed by Sec 259 of NIRC. Private respondent then again protested which later on
comes also before the Court of Tax Appeal.
Pending the hearing, RA 3843 was passed granting the private respondent a legislative
franchise for its operation. Therefore, CTA applied the provisions of the said law and
dismissed the claim of CIR.
ISSUE: W/N RA 3843 should be applied retroactively, assuming it is valid, to render
uncollectible the taxes in questions which were assessed before its enactment
RULING:
The SC ruled that RA 3843 is valid and can be applied retroactively. A tax is uniform when
it operates with the same force and effect in every place where the subject of it is found.
Uniformity means that all property belonging to the same class shall be taxed alike The
Legislature has the inherent power not only to select the subjects of taxation but to grant
exemptions. Tax exemptions have never been deemed violative of the equal protection
clause. It is true that the private respondent’s municipal franchises were obtained under
26 [Type the document title]
Act No. 667 of the Philippine Commission, but these original franchises have been
replaced by a new legislative franchise, i.e. R.A. No. 3843.
The question of whether a statute operates retrospectively or only prospectively depends
on the legislative intent. In the instant case, Act No. 3843 provides that “effective … upon
the date the original franchise was granted, no other tax and/or licenses other than the
franchise tax of two per centum on the gross receipts … shall be collected, any provision to
the contrary notwithstanding.” Republic Act No. 3843 therefore specifically provided for the
retroactive effect of the law.
3. AMERICAN BIBLE SOCIETY V CITY OF MANILA
FACTS:
In the course of its ministry, American Bible Society has been distributing and selling bibles
and/or gospel portions throughout the Philippines and translating the same into several
Philippine dialect. Sometime in May, City Treasurer of Manila informed American Bible
Society that it was violating several Ordinances for operating without the necessary permit
and license, thereby requiring the corporation to secure the permit and license fees
covering the period from 4th quarter of 1945 to the 2nd quarter of 1953 in total amount of 5,
821. To avoid closing of its business, American Bible Society paid the City of Manila its
permit and license fees under protest Thereafter, American Bible filed a complaint,
questioning the constitutionality and legality of the Ordinances 2529 and 3000, and prayed
for a refund of the payment made to the City of Manila. They contended that had been in
the Philippines since 1899 and were not required to pay any license fee or sales tax as
well as it never made any profit from the sale of its bibles. The lower court ruled against
their favor. Hence, this present case.
ISSUE: W/N Ordinances 2529 and 3000 of City of Manila as amended, and 2529, 3028,
3364 are valid and constitutional and whether such is applicable to the case at bar.
RULING:
The SC ruled that the provisions of 2529 City Ordinance cannot be applied to the appellant
for it would impair its free exercise and enjoyment of its religious profession and worship as
well as its rights to dissemination of religious beliefs guaranteed by our Constitution under
Art 3 Section 1(7). It explained that it may be true the price for the bibles and other
religious pamphlets was in some instances a little bit higher than the actual cost of the
same but this cannot man that appellant was engaged in the business or occupation of
selling the said merchandise for profit.
4. G.R. No. 168584, October 15, 2007
REPUBLIC OF THE PHILIPPINES vs. HON. RAMON S. CAGUIOA
FACTS: In 1992 Congress enacted Republic Act (R.A) No. 7227 or the Bases Conversion
and Development Act of 1992 which, among other things, created the Subic Special
Economic and Freeport Zone (SBF) and the Subic Bay Metropolitan Authority (SBMA).
Section 12 (c) of the RA 7227 provided: The provisions of existing laws, rules and
regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed
within the Subic Special Economic Zone…
Pursuant to the law, private respondents Indigo Distribution Corporation, et. al. applied for
and were granted Certificates of Registration and Tax Exemption by the SBMA. These
certificates allowed them to engage in the business either of trading, retailing or
wholesaling, import and export, warehousing, distribution and/or transshipment of general
merchandise, including alcohol and tobacco products, and uniformly granted them tax
exemptions for such importations
Congress subsequently passed R.A. No. 9334, however, effective on January 1, 2005,
Section 6 amended Section 131 of the National Internal Revenue Code of 1977: Sec. 131.
Payment of Excise Taxes on Imported Articles.
(A) Persons Liable. - Excise taxes on imported articles shall be paid by the owner or
importer to the Customs Officers…
The provision of any special or general law to the contrary notwithstanding, the importation
of cigars and cigarettes, distilled spirits, fermented liquors and wines into the Philippines,
even if destined for tax and duty free shops, shall be subject to all applicable taxes, duties,
charges, including excise taxes due thereon. This shall apply to cigars and cigarettes,
distilled spirits, fermented liquors and wines brought directly into the duly chartered or
legislated freeports of the Subic Economic Freeport Zone, created under Republic Act No.
7227.
Accordingly, the Collector of Customs of the port of Subic directed the SBMA Administrator
to require payment of all appropriate duties and taxes on all importations of cigars and
cigarettes, distilled spirits, fermented liquors and wines. private respondent enterprises
brought before the RTC of Olongapo City a special civil action for declaratory relief to have
certain provisions of R.A. No. 9334 declared as unconstitutional.
Alleging that great and irreparable loss and injury would befall them as a consequence of
the imposition of taxes on alcohol and tobacco products brought into the SBF, private
respondents prayed for the issuance of a writ of preliminary injunction and/or Temporary
Restraining Order (TRO) and preliminary mandatory injunction to enjoin the directives of
herein petitioners.
On May 11, 2005, the trial court issued a Writ of Preliminary Injunction directing petitioners
and the SBMA Administrator as well as all persons assisting or acting for and in their
TAX 1. Atty. Ingles
LANDICHO.GOLLA.PANLILIO. BALUGA.CATA-AL.PANTALEON.RAMILO.LUCION.BUNO.NISHIKAWA.TAMARGO.
behalf to… cease and desist from implementing the pertinent provisions of R.A. No. 9334
by not compelling [private respondents] to immediately pay duties and taxes on said
alcohol and tobacco products as a condition to their removal from the port area for transfer
to the warehouses of [private respondents].
The trial court reasoned (among other things), that R.A. No. 9334 violates the terms and
conditions of private respondents' subsisting contracts with SBMA, which are embodied in
their Certificates of Registration and Exemptions in contravention of the constitutional
guarantee against the impairment of contractual obligations.
ISSUE: Whether the issuance of the writ of preliminary injunction by public respondent is
valid?
HELD: No. The rights granted under the Certificates of Registration and Tax Exemption of
private respondents are not absolute and unconditional as to constitute rights in esse -
those clearly founded on or granted by law or is enforceable as a matter of law. These
certificates granting private respondents a "permit to operate" their respective businesses
are in the nature of licenses, which are neither a property nor a property right. The licensee
takes his license subject to such conditions as the grantor sees fit to impose, including its
revocation at pleasure. A license can thus be revoked at any time since it does not confer
an absolute right.
While the tax exemption contained in the Certificates of Registration of private respondents
may have been part of the inducement for carrying on their businesses in the SBF, this
exemption, nevertheless, is far from being contractual in nature in the sense that the non-
impairment clause of the Constitution can rightly be invoked.
Whatever right may have been acquired on the basis of the Certificates of Registration and
Tax Exemption must yield to the State's valid exercise of police power. It is well to
remember that taxes may be made the implement of the police power. It is not difficult to
recognize that public welfare and necessity underlie the enactment of R.A. No. 9334. As
petitioners point out, the now assailed provision was passed to curb the pernicious practice
of some unscrupulous business enterprises inside the SBF of using their tax exemption
privileges for smuggling purposes. Smuggling in whatever form is bad enough; it is worse
when the same is allegedly perpetrated, condoned or facilitated by enterprises hiding
behind the cloak of their tax exemption privileges.
The feared injurious effects of the imposition of duties, charges and taxes on imported
cigars, cigarettes, distilled spirits, fermented liquors and wines on private respondents'
businesses cannot possibly outweigh the dire consequences that the non-collection of
taxes, not to mention the unabated smuggling inside the SBF, would wreak on the
government. Whatever damage would befall private respondents must perforce take a
back seat to the pressing need to curb smuggling and raise revenues for governmental
functions.
NOTE: The Constitutionality of RA 9334 was NOT ruled upon by the court.
27
5. G.R. No. L-60126 September 25, 1985
CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner,
vs. COMMISSIONER OF INTERNAL REVENUE, respondent.
FACTS: The petitioner is the holder of a legislative franchise, Republic Act No. 3247, under
which its payment of 3% tax on its gross earnings from the sale of electric current is "in lieu
of all taxes and assessments of whatever authority upon privileges, earnings, income,
franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes
and assessments the grantee is hereby expressly exempted.
On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code by making
liable for income tax all corporate taxpayers not specifically exempt under it… Thus,
franchise companies were subjected to income tax in addition to franchise tax.
However, in petitioner's case, its franchise was amended by Republic Act No. 6020,
effective August 4, 1969,…The amendment reenacted the tax exemption in its original
charter or neutralized the modification made by Republic Act No. 5431 more than a year
before. By reason of the amendment to section 24 of the Tax Code, the Commissioner of
Internal Revenue required the petitioner to pay deficiency income taxes for 1968-to 1971.
The petitioner contested the assessments.
The petitioner filed a petition for review with the Tax Court, which on February 26, 1982
held the petitioner liable only for the income tax for the period from January 1 to August 3,
1969 or before the passage of Republic Act No. 6020 which reiterated its tax exemption.
The petitioner appealed to the Supreme Court.
ISSUE: What is the tax liability of petitioner Cagayan Electric Power & Light Co., Inc.?
HELD: The petitioner is liable only for the income tax for the period from January 1 to
August 3, 1969 when its tax exemption was modified by Republic Act No. 5431.
Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is subject to the
provisions of the Constitution and to the terms and conditions established in Act No. 3636
whose section 12 provides that the franchise is subject to amendment, alteration or repeal
by Congress.
Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to income
tax all corporate taxpayers not expressly exempted therein and in section 27 of the Code,
had the effect of withdrawing petitioner's exemption from income tax.
The Tax Court acted correctly in holding that the exemption was restored by the
subsequent enactment on August 4, 1969 of Republic Act No. 6020 which reenacted the
said tax exemption. However, it cannot be denied that the said 1969 assessment appears
to be highly controversial. The Commissioner at the outset was not certain as to
petitioner's income tax liability. It had reason not to pay income tax because of the tax
exemption in its franchise. For this reason, it should be liable only for tax proper and
should not be held liable for the surcharge and interest.
28 [Type the document title]
6. [G.R. No. 131359. May 5, 1999]
MANILA ELECTRIC COMPANY, petitioner vs. PROVINCE OF LAGUNA and BENITO R.
BALAZO, in his capacity as Provincial Treasurer of Laguna, respondents.
FACTS: On various dates, certain municipalities of the Province of Laguna by virtue of
existing laws then in effect, issued resolutions through their respective municipal councils
granting franchise in favor of petitioner Manila Electric Company (MERALCO) for the
supply of electric light, heat and power within their concerned areas.
On 12 September 1991, Republic Act No. 7160, otherwise known as the Local
Government Code of 1991, was enacted enjoining local government units to create their
own sources of revenue and to levy taxes, fees and charges, subject to the limitations
expressed therein. Pursuant to the provisions of the Code, respondent province enacted
Laguna Provincial Ordinance No. 01-92, effective 01 January 1993, providing, in part, as
follows:
Sec. 2.09. Franchise Tax. There is hereby imposed a tax on businesses enjoying a
franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual
receipts…including the territorial limits on any city located in the province[1]
On the basis of the above ordinance, respondent Provincial Treasurer sent a demand letter
to MERALCO for the corresponding tax payment. Petitioner MERALCO paid the tax, which
then amounted to P19,520,628.42, under protest. A formal claim for refund was thereafter
sent by claiming that the franchise tax it had paid and continued to pay to the National
Government pursuant to P.D. 551 already included the franchise tax imposed by the
Provincial Tax Ordinance. MERALCO contended that the imposition of a franchise tax
under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it concerned
MERALCO, contravened the provisions of Section 1 of P.D. 551 which reads:
…Such franchise tax shall be payable to the Commissioner of Internal Revenue
… any provision of the Local Tax Code or any other law to the contrary
notwithstanding, be in lieu of all taxes and assessments of whatever nature
imposed by any national or local authority on earnings, receipts, income and
privilege of generation, distribution and sale of electric current.
The claim for refund of petitioner was denied. In denying the claim, respondents relied on a
more recent law, i.e., Republic Act No. 7160 or the Local Government Code of 1991, than
P.D. 551 invoked by petitioner.
MERALCO filed with the RTC Sta Cruz, Laguna, a complaint for refund, with a prayer for
the issuance of a writ of preliminary injunction and/or temporary restraining order, against
the Province of Laguna. The trial court, dismissed the complaint.
ISSUE: Whether MERALCO is liable to pay the franchise tax under the said Ordinance no.
01-92?
HELD: Yes. The Local Government Code repealed P.D. 551, hence MERALCO is liable to
pay the franchise tax under Ord. 01-92.
The Code contains a general repealing clause in its Section 534:
Section 534. Repealing Clause. x x x.
 (f) All general and special laws, acts, city charters, decrees, executive orders,
proclamations and administrative regulations, or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or
modified accordingly.
This is consistent with the State policy to ensure autonomy to local governments and the
objective of the LGC that they enjoy genuine and meaningful local autonomy to enable
them to attain their fullest development...The power to tax is the most effective instrument
to raise needed revenues to finance and support myriad activities of local government
units.
The phrase in lieu of all taxes have to give way to the peremptory language of the Local
Government Code specifically providing for the withdrawal of such exemptions, privileges,
and that upon the effectivity of the Local Government Code all exemptions except only as
provided therein can no longer be invoked by MERALCO to disclaim liability for the local
tax.
While the Court has, not too infrequently, referred to tax exemptions contained in special
franchises as being in the nature of contracts and a part of the inducement for carrying on
the franchise, these exemptions, nevertheless, are far from being strictly contractual in
nature. Contractual tax exemptions, in the real sense of the term and where the non-
impairment clause of the Constitution can rightly be invoked, are those agreed to by the
taxing authority in contracts, such as those contained in government bonds or debentures,
lawfully entered into by them under enabling laws in which the government, acting in its
private capacity, sheds its cloak of authority and waives its governmental immunity. Truly,
tax exemptions of this kind may not be revoked without impairing the obligations of
contracts.[14] These contractual tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the nature of a grant which is
beyond the purview of the non-impairment clause of the Constitution.
#7 Baguio v. de Leon
FACTS:
The City of Baguio is imposing a license fee on any person, firm, entity or corporation
doing business in the City of Baguio. This is assailed by defendant-appellant Fortunato de
Leon. He was held liable as a real estate dealer with a property therein worth more than
P10,000, but not in excess of P50,000, and therefore obligated to pay under such
ordinance the P50 annual fee.
In its decision of December 19, 1964, the lower court declared the above ordinance as
amended, valid and subsisting, and held defendant-appellant liable for the fees therein
prescribed as a real estate dealer.
TAX 1. Atty. Ingles
LANDICHO.GOLLA.PANLILIO. BALUGA.CATA-AL.PANTALEON.RAMILO.LUCION.BUNO.NISHIKAWA.TAMARGO.
Its validity on constitutional grounds is also challenged because of the allegation that it
imposed double taxation, which is repugnant to the due process clause, and that it violated
the requirement of uniformity. Hence, this appeal.
ISSUES:
1. WON the City of Baguio is clothed with authority to impose the license fee
2. WON the the license fee is unconstitutional due to double taxation
HELD:
1. Appellants apparently have in mind section 2553, paragraph (c) of the Revised
Administrative Code, which empowers the City of Baguio merely to impose a
license fee for the purpose of rating the business that may be established in the
city. The power as thus conferred is indeed limited, as it does not include the
power to levy a tax. But on July 15, 1948, Republic Act No. 329 was enacted
amending the charter of said city and adding to its power to license the power to
tax and to regulate. And it is precisely having in view this amendment that
Ordinance No. 99 was approved in order to increase the revenues of the city. In
our opinion, the amendment above adverted to empowers the city council not
only to impose a license fee but also to levy a tax for purposes of revenue, more
so when in amending section 2553 (b), the phrase 'as provided by law' has been
removed by section 2 of Republic Act No. 329. The city council of Baguio,
therefore, has now the power to tax, to license and to regulate provided that the
subjects affected be one of those included in the charter. In this sense, the
ordinance under consideration cannot be considered ultra vires whether its
purpose be to levy a tax or impose a license fee. The terminology used is of no
consequence."
It would be an undue and unwarranted emasculation of the above power thus
granted if defendant-appellant were to be sustained in his contention that no such
statutory authority for the enactment of the challenged ordinance could be
discerned from the language used in the amendatory act.
2. As to why double taxation is not violative of due process, Justice Holmes made
clear in this language: "The objection to the taxation as double may be laid down
on one side. ... The 14th Amendment [the due process clause] no more forbids
double taxation than it does doubling the amount of a tax, short of confiscation or
proceedings unconstitutional on other grounds. "With that decision rendered at a
time when American sovereignty in the Philippines was recognized, it possesses
more than just a persuasive effect. To some, it delivered the coup de grace to the
bogey of double taxation as a constitutional bar to the exercise of the taxing
power. It would seem though that in the United States, as with us, its ghost as
noted by an eminent critic, still stalks the juridical state. In a 1947 decision,
however, we quoted with approval this excerpt from a leading American
decision: "Where, as here, Congress has clearly expressed its intention, the
statute must be sustained even though double taxation results.”
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 At any rate, it has been expressly affirmed by us that such an "argument against
double taxation may not be invoked where one tax is imposed by the state and
the other is imposed by the city ..., it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or taxes be exacted
with respect to the same occupation, calling or activity by both the state and the
political subdivisions thereof.”

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