C.
ATTRIBUTES OF A SOUND TAX SYSTEM
CHAVEZ VS ONGPIN
FACTS: Section 21 of Presidential Decree 464 provides that every 5
years starting calendar year 1978, there shall be a provincial or city
general revision of real property assessments. The general revision
was completed in 1984.
On November 25, 1986, President Corazon Aquino issued EO 73
stating that beginning January 1, 1987, the 1984 assessments shall
be the basis of real property taxes. Francisco Chavez, a taxpayer and
landowner, questioned the constitutionality of EO 74. He alleges that it
will bring unreasonable increase in real property taxes.
ISSUE: Is EO 73 constitutional?
RULING: Yes. Without EO 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.
Fiscal adequacy, which is one of the characteristics of a sound tax
system, requires that sources of revenue must be adequate to meet
government expenditures and their variations.
DIAZ VS. SECRETARY OF FINANCE
FACTS: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol
(petitioners) filed this petition for declaratory relief assailing the validity
of the impending imposition of value-added tax (VAT) by the Bureau
of Internal Revenue (BIR) on the collections of toll way operators.
Court treated the case as one of prohibition. 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 "user's 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. The government avers that the NIRC imposes VAT on all
kinds of services of franchise grantees, including toll way operations;
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 toll
way operations has been the subject as early as 2003 of several BIR
rulings and circulars. 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 toll way
operators. At any rate, the non-impairment clause cannot limit the
State's sovereign taxing power which is generally read into contracts.
ISSUE: May toll fees collected by tollway operators be subject to
VAT?
RULING: YES.
(1) VAT is imposed on “all kinds of services” and tollway operators
who are engaged in constructing, maintaining, and operating
expressways are no different from lessors of property, transportation
contractors, etc.
(2) Not only do they fall under the broad term under (1) but also come
under those described as “all other franchise grantees” which is not
confined only to legislative franchise grantees since the law does not
distinguish. They are also not a franchise grantee under Section 119
which would have made them subject to percentage tax and not VAT.
(3) Neither are the services part of the enumeration under Section 109
on VAT-exempt transactions.
(4) The toll fee is not a user’s tax and thus it is permissible to impose
a VAT on the said fee. The MIAA case does not apply and the Court
emphasized that toll fees are not taxes since they are not assessed
by the BIR and do not go the general coffers of the government. Toll
fees are collected by private operators as reimbursement for their
costs and expenses with a view to a profit while taxes are imposed by
the government as an attribute of its sovereignty. Even if the toll fees
were treated as user’s tax, the VAT cannot be deemed as a ‘tax on
tax’ since the VAT is imposed on the toll way operator and the fact
that it might pass-on the same to the toll way user, it will not make the
latter directly liable for VAT since the shifted VAT simply becomes
part of the cost to use the toll ways.
(5) The assertion that the VAT imposed is not administratively feasible
given the manner by which the BIR intends to implement the VAT
(i.e., rounding off the toll rates and putting any excess collection in an
escrow account) is not enough to invalidate the law. Non-observance
of the canon of administrative feasibility will not render a tax
imposition invalid “except to the extent that specific constitutional or
statutory limitation is impaired”.
D. DISTINGUISHING TAX FROM OTHER EXACTIONS
GEORCHI VS DEPARTMENT OF ENERGY
FACTS: RA 9136, otherwise known as the Electric Power Industry
Reform Act of 2001 (EPIRA), which sought to impose a universal
charge on all end-users of electricity for the purpose of
funding NAPOCOR’s projects, was enacted and took effect in
2001.Petitioners contest the constitutionality of the EPIRA, stating that
the imposition of the universal charge on all end-users is oppressive
and confiscatory and amounts to taxation without representation for
not giving the consumers a chance to be heard and be represented.
of the purposes for which the universal charge is imposed (e.g. to
ensure the viability of the country’s electric power industry), further
boosting the position that the same is an exaction primarily in pursuit
of the State’s police objectives. If generation of revenue is the primary
purpose and regulation is merely incidental, the impositions a tax;
but if regulation is the primary purpose, the fact that revenue is
incidentally raised does not make the imposition a tax. The taxing
power may be used as an implement of police power. 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.
SMART VS MUNICIPALITY OF MALVAR BATANGAS
PLANTERS PRODUCTS VS FERTIPHIL
Doctrine/s:
(1)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.
(2)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.

ISSUE: W/N the universal charge is a tax

RULING: NO. The assailed universal charge is not a tax, but an

exaction in the exercise of the State’s police power. That public
welfare is promoted may be gleaned from Sec. 2 of the EPIRA, which
enumerates the policies of the State regarding electrification.
Moreover, the Special Trust Fund feature of the universal
charge reasonably serves and assures the attainment and perpetuity
FERRER VS BAUTISTA

FACTS

Respondent Quezon City Council enacted an ordinance, Socialized

Housing Tax of Quezon City, which will collect 0.5% on the assessed
value of land in excess of Php 100,000.00. This shall accrue to the
Socialized Housing Programs of the Quezon City Government. The
special assessment shall go to the General Fund under a special
account to be established for the purpose. On the other hand,
Ordinance No. SP-2235 and S-2013 was enacted collecting garbage
fees on residential properties which shall be deposited solely and
exclusively in an earmarked special account under the general fund to 2. No. Pursuant to Section 16 of the LGC and in the proper exercise
be utilized for garbage collections. Petitioner, a Quezon City property of its corporate powers under Section 22 of the same, the
owner, questions the validity of the said ordinances. Sangguniang Panlungsod of Quezon City, like other local legislative
bodies, is empowered to enact ordinances, approve resolutions, and
appropriate funds for the general welfare of the city and its
ISSUES inhabitants. In this regard, the LGUs shall share with the national
government the responsibility in the management and maintenance of
1. Whether the Socialized Housing Tax is valid. ecological balance within their territorial jurisdiction. The Ecological
2. Whether the ordinance on Garbage Fee violates the rule on Solid Waste Management Act of 2000, affirms this authority as it
expresses that the LGUs shall be primarily responsible for the
double taxation.
implementation and enforcement of its provisions. Necessarily, LGUs
are statutorily sanctioned to impose and collect such reasonable fees
and charges for services rendered. The fee imposed for garbage
RULING collections under Ordinance No. SP-2235 is a charge fixed for the
regulation of an activity as provided by the same. As opposed to
1. The SHT is valid. The tax is within the power of Quezon City
petitioner’s opinion, the garbage fee is not a tax. Hence, not being a
Government to impose. LGUs may be considered as having properly
tax, the contention that the garbage fee under Ordinance No. SP-
exercised their police power only if there is a lawful subject and a
2235 violates the rule on double taxation must necessarily fail.
lawful method. Herein, 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. On COMPANIA GENERAL VS CITY OF MANILA
the question of inequality, the disparities between a real property
owner and an informal settler as two distinct classes are too obvious https://www.scribd.com/doc/299159102/Compania-vs-City-of-Manila-
and need not be discussed at length. The differentiation conforms to tax-1-digest
the practical dictates of justice and equity and is not discriminatory
within the meaning of the Constitution. Notably, 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 over another. Further,
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. Even better, on certain
conditions, the ordinance grants a tax credit.

ANGELES UNIVERSITY VS CITY OF ANGELES
Facts:
Angeles University was converted into a non-stock, non-profit
education foundation under the provisions of Republic Act(R.A.) No.
6055. Petitioner filed with the Office of the City Building Official an
application for a building permit for theconstruction of an 11-storey
building of the Angeles University Foundation Medical Center in its
main campus the saidoffice issue a Building permit fee and
Locational Clearance Fee. Petitioner make a letter to respondent
City Tresurer JulietG. Quinssat and City Building Official Donato Z.
Dizon alleging that it is exempt from payment of the building permit
andlocational clearance fee. Petitioner also reminded the respondent
that they have previously issued building permit acknowledging such
exemption from payment of building permit fees. The DOJ and trial
court render decision in favor to petitioner for exempting in payment.
But the CA reverse the decision of court in favor to respondent.
Petitioner file a MR but it was denied by CA.
Issue:
WON the Angeles University is exempted in Building permit fee
and Locational Clearance Fee.
Ruling:No.
Under R.A. No. 6055, petitioner was granted 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 ejus dem generis rule. The CA further stated that petitioner has
not shown that the fees collected were excessive and more than the
cost of surveillance, inspection and regulation. And while petitioner
may be exempt from the payment of real property tax, petitioner in this
case merely alleged that “the subject property is to be used actually,
directly and exclusively for educational purposes,” declaring merely
that such premises is intended to house the sports and other facilities
of the university but by reason of the occupancy of informal settlers on
the area, it cannot yet utilize the same for its intended use. Thus, the
CA concluded that petitioner is not entitled to the refund of building
permit and related fees, as well as real property tax it paid
under protest. 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
on all income derived from or property, real or personal, used
exclusively for the educational activities of the Foundation.(Emphasis
supplied.)
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.
PROGRESSIVE DEVELOPMENT VS QC
Facts:
The City Council of QC passed an ordinance known as the Market
Code of QC, which imposed a5% supervision fee on gross receipts
on rentals or lease of privately-owned market spaces in QC. In case
of failure of the owners of the market spaces to pay the tax for three
consecutive months, the City shall revoke the permit of the privately-
owned market to operate.
Progressive Development Corp, owner and operator of Farmer’s
Market, filed a petition for prohibition against QC on the ground that
the tax imposed by the Market Code was in reality a tax on income,
which the municipal corporation was prohibited by law to impose.
Issue:
Whether or not the supervision fee is an income tax or a license fee
Held:
It is a license fee. A LICENSE FEE is imposed in the exercise of the
police power primarily for purposes of regulation, while TAX is
imposed under the taxing power primarily for purposes of
raisingrevenues.If the generating of revenue is the primary purpose
and regulation is merely incidental, the imposition is a tax; but if
regulation is the primary purpose, the fact that incidentally, revenue is
also obtained does not make the imposition a tax. To be considered a
license fee, the imposition must relate to an occupation or activity that
so engages the public interest in health, morals, safety, and
development as to require regulation for the protection and promotion
of such public interest; the imposition must also bear a reasonable
relation to the probable expenses of regulation, taking into account
not only the costs of direct regulation but also its incidental
consequences.
In this case, the Farmers’ Market is a privately
-owned market established for the rendition of service to the general
public. It warrants close supervision and control by the City for the
protection of the health of the public by insuring the maintenance of
sanitary conditions, prevention of fraud upon the buying public, etc.
Since the purpose of the ordinance is primarily regulation and not
revenue generation, the tax is a license fee. The use of the gross
amount of stall rentals as basis for determining the collectible amount
of license tax does not, by itself, convert the license tax into a
prohibited tax on income. Such basis actually has a reasonable
relationship to the probable costs of regulation and supervision of
Progressive’s kind of business, since ordinarily, the higher the amount
of rentals, the higher the volume of items sold. The higher the volume
of goods sold, the greater the extent and frequency of supervision and
inspection may be required in the interest of the buying public.
VILLEGAS VS HUI CHIONG TSAI PO HO
Facts: The Municipal Board of Manila enacted Ordinance 6537
requiring aliens (except those employed in the diplomatic and
consular missions of foreign countries, in technical assistance
programs of the government and another country, and members of
religious orders or congregations) to procure the requisite mayor’s
permit so as to be employed or engage in trade in the City of Manila.
The permit fee is P50, and the penalty for the violation of the
ordinance is 3 to 6 months imprisonment or a fine of P100 to P200, or
both.

Issue: Whether the ordinance imposes a regulatory fee or a tax.

Held: The ordinance’s purpose is clearly to raise money under the

guise of regulation by exacting P50 from aliens who have been
cleared for employment. The amount is unreasonable and excessive
because it fails to consider difference in situation among aliens
required to pay it, i.e. being casual, permanent, part-time, rank-and-
file or executive.

[ The Ordinance was declared invalid as it is arbitrary, oppressive and

unreasonable, being applied only to aliens who are thus deprived of
their rights to life, liberty and property and therefore violates the due
process and equal protection clauses of the Constitution. Further, the
ordinance does not lay down any criterion or standard to guide the
Mayor in the exercise of his discretion, thus conferring upon the
mayor arbitrary and unrestricted powers. ]