CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATION Vs.

ROMULO et al

RULING:

1. MCIT is not violative of due process of law

Petitioner contends that the MCIT sec. 27E of RA 8424 is unconstitutional because it is highly oppressive,
arbitrary, confiscatory which amounts to deprivation of property without due process of law. The
Petitioner avers that GROSS INCOME as defined under the said provision only considers Cost of goods
sold and other direct expenses, other expenses such as administrative costs and interest expense are
not taken into consideration.Thus, pegging the tax base of the MCIT to a corporations gross income is
tantamount to a CONFISCATION of capital because Gross Income unlike Net Income, is not realized gain.

The Court ruled otherwise. The Court held that Taxes are the lifeblood of the government. Taxation is an
inherent attribute of sovereignty . It is purely legislative. This means that the legislature has the power
to determine the nature (kind), object(purpose), extent(rate), coverage (subject) and situs(place) of
Taxation.

Also, an Income tax is arbitratry and confiscatory if it taxes CAPITAL. However, MCIT is not a tax on
CAPITAL. MCIT is imposed on GROSS INCOME which is computed by deducting the capital spent by a
corporation in the sale of goods (COGS and other direct costs). Clearly, the capital is not taxed.

MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income tax, and only if
the normal income tax is suspiciously LOW. Furthermore, even though the tax base is Gross Income, the
rate used is pegged at a very reduced rate of 2% instead of 32% under the Normal Net Income tax.

2. CWT is not unconstitutional.

Petitoner avers that CWT on GSP/FMV of real estate classified as ordinary assets deprives members of
their property without due process of law, because in their line of business, gain is never assured by
mere receipt of the selling price. As a result, the government is collecting tax from net income not yet
gained or earned.

The Court ruled that CWT is creditable (deductible) against the tax due of the seller at the end of the
taxable year. The seller will be able to claim tax refunds if its net income tax is less than the taxes
withheld. Nothing is taken that is not due so there is no confiscation of property repugnant to the due
process constitutional guarantee. More importantly, the due process requirement applies to the power
to tax. CWT does not impose new taxes nor does it increases taxes. It relates entirely to the method and
time of payment. Petitioner’s lamentations that tax refunds take so long, or that the taxes withheld
could be used otherwise to pay labor and other expenses which would save the entity from obtaining
loans do not affect the constitutionality of the CWT. These complaints is best addressed to executive or
legislative body and is not a fundamental right which can be demanded form the court or from the
government.

There is no violation of equal protection.

Petitiones claims that the revenue regulations violate equal protection clause because CWT is being
levied only on real estate enterprises and not on manufacturing enterprises. Real estate enterprises and
manufacturing enterprises are not much different because they both involve a continuous process of
production and incurs expenses on a regular basis. That they just produced house and lot units.

The court ruled that the equal protection clause means that NO PERSON OR CLASS OF PERSONS SHALL
BE DEPRIVED OF THE SAME PROTECTION OF LAWS WHICH IS ENJOYED BY OTHER PERSONS OR OTHER
CLASSES IN THE SAME PLACE AND IN LIKE CIRCUMSTANCES. ALL PERSONS BELONGING TO SAME CLASS
SHALL BE TAXED ALIKE.

THE taxing authority has the power to make reasonable classifications for purposes of taxation.
Inequalities which result from the singling out of one particular class for taxation, or, exemption,
infringe no constitutional limitation.

The petitioner insists that they be treated like manufacturing enterprises on the basis of their
production processes but the court ruled that the basis of classification for purposes of the CWT, is not
their production processes but the prices of their goods sold and the number of transactions involved.
The income from the sale of a real property is bigger and the frequency of transaction limited, making it
less cumbersome for parties to comply with the withholding tax scheme. As discussed, the Secretary
may adopt any reasonable means to carry out its functions and may choose what to subject to CWT.
KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC. Vs. Hon. Bienvenido Tan

Padilla,J.

FACTS:

The president issued EO 273 which increased the VAT on every sale to 10% unless zero-rated or exempt.

ISSUE and RULING:

EO 273 is unconstitutional because:

1. Petitioner contends that President has no authority to issue EO 273 on July 25, 1987.
The Court ruled that the president has the power under the Provisional Constitution and the
1987 Constitution, which conferred such power to the president until the first congress is
convened. The first congress under the 1987 Consitution was convened on July 27, 1987.
2. The EO 273 violates the uniformity and equitable rule on taxation. The Court ruled that EO 273
satisfies all the requirements of a valid tax. It is uniform because it operates with the same force
and effect in every place where the subject may be found. The sales tax adopted is applied
uniformly on all goods and services sold to the public, which are not exempt, at a constant rate
of 0% or 10%.
3. The disputed sales tax is also equitable because it is imposed only on sales of goods or services
by persons engage in business with an aggregate annual sales exceeding P200,000.00. Those
whose annual sales fall below the threshold are not subjected to the sales tax.
4. The Integrated Customs Brokers Association of the Philippines also contends that EO 273
particularly sec. 103 (r) of the NIRC, unduly discriminates against customs brokers.
Sec. 103 (r) provides for exemption from value added tax of services performed by professionals
except customs brokers subject to occupation tax under the Local Tax Code.
The Court ruled that the phrase “ except customs brokers” is not meant to discriminate against
customs brokers but to complement the provisions of sec. 102 of the NIRC, which makes the
services of customs brokers subject to VAT and to distinguish them from other professionals
who are subjected to occupational tax. The insertion of the clarificatory phrase in Sec. 103(r),
averted a potential conflict between Sec. 103 and 102.
The distinction of the customs brokers from other professionals is based upon material
differences. The activities of customs brokers like those of stock, real estate and immigration
brokers, partake more of a business, rather than a profession, which were subjected to
percentage tax prior to the amendment by EO 273 which subjected them to VAT instead of
Percentage tax.
G.R. No. L-21183 September 27, 1968

VICTORIAS MILLING CO., INC., plaintiff-appellant,

vs.THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS OCCIDENTAL,
defendant-appellant.

Hilado & Hilado for plaintiff-appellant.

The Provincial Fiscal of Negros Occidental for defendant-appellant.

SANCHEZ, J.:

FACTS:

The municipal Council of Victorias on September 22, 1956 approved Ordinance No. 1,
series of 1956 which is labeled "An Ordinance Amending Ordinance No. 25, Series of
1953 and Ordinance No. 18, Series of 1947 on Sugar Central by Increasing the Rates
on Sugar Refinery Mill by Increasing the Range of Graduated Schedule on Capacity
Annual Output Respectively". It was, as the ordinance itself states, enacted pursuant to
the taxing power conferred by Commonwealth Act 472.

The changes were: with respect to sugar centrals, by increasing the rates of license
taxes; and as to sugar refineries, by increasing the rates of license taxes as well as the
range of graduated schedule of annual output capacity.

Of importance are the provisions of Section 1(m) relating to sugar centrals and Section
2(m) covering sugar refineries with specific reference to the maximum annual license
tax, viz:

Section No. 1 — Any person, corporation or other forms of Companies, operating

Sugar Central or engage[d] in the manufacture of centrifugal sugar shall be
required to pay the following annual municipal license tax, payable quarterly, to
wit:

xxx xxx xxx

(m) Sugar Central with mill having a capacity of producing an annual output of
from 1,500,001 piculs or more shall be required to pay an annual municipal
license tax of — P40,000.00.

Section No. 2 — Any person, corporation or other forms of Companies shall be

required to pay an annual municipal license tax for the operation of Sugar
Refinery Mill at the following rates:

xxx xxx xxx

 (m) Sugar Refinery with mill having a capacity of producing an annual output of
from 1,750,001 bags of 100 lbs. or more shall be required to pay an annual
municipal license tax of — P40,000.00.

For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its
sugar refinery located in the Municipality of Victorias comes within these items in the
schedule.

ISSUE:

WON Ordinance No. 1, series of 1956 is null and void in violation of the equitable
protection clause. Petitioner avers that it is discriminatory since it singles out plaintiff
which is the only operator of a sugar central and a sugar refinery within the jurisdiction
of defendant municipality;

RULING:

1. We first grapple with the threshold question: Was Ordinance No. 1, series of 1956,
passed by defendant's municipal council as a regulatory enactment or as a revenue
measure?

The ordinance itself recites that its source of taxing power emanates from
Commonwealth Act 472, Section 1 of which reads:

Section 1. A municipal council or municipal district council shall have authority to

impose municipal license taxes upon persons engaged in any occupation or
business, or exercising privileges in the municipality or municipal district, by
requiring them to secure licenses at rates fixed by the municipal council, or
municipal district council, and to collect fees and charges for services rendered
by the municipality or municipal district and shall otherwise have power to levy for
public local purposes, and for school purposes, including teachers' salaries, just
and uniform taxes other than percentage taxes and taxes on specified articles.

Under the statute just quoted and pertinent jurisprudence, a municipality is authorized to
impose three kinds of licenses: (1) license for regulation of useful occupations or
enterprises; (2) license for restriction or regulation of non-useful occupations or
enterprises; and (3) license for revenue. 12 The first two easily fall within the broad police
power granted under the general welfare clause. 13 The third class, however, is for
revenue purposes. It is not a license fee, properly speaking, and yet it is generally so
termed. It rests on the taxing power. That taxing power must be expressly conferred by
statute upon the municipality. 14 It is so granted under Commonwealth Act 472.

What are these taxes for? Resolution No. 60 of the municipal council of Victorias, 17
adopted also on September 22, 1956 in conjunction with Ordinance No. 1, series of
1956, furnishes a ready answer. :
 WHEREAS, the Municipal Treasurer informed the Municipal Council of the
revenue of the Municipality and the heavy obligations which confront it because
of the implementation of Minimum Wage Law on the salaries and wages it
pays to its municipal employees and laborers thus greatly draining the
Municipal Treasury;

WHEREAS, this local administration is committed to the plan of ameliorating the

deplorable situation existing in the barrios, sitios and rural areas by giving them
essential and necessary facilities calculated to improve conditions thereat thru
improvements of roads and feeder roads;

WHEREAS, one of the causes of the municipality's financial difficulty is low rates
of municipal taxes imposed by some of the ordinances enacted by the local
legislative body;

We should not hang so heavy a meaning on the use of the term "municipal license tax".
This does not necessarily connote the idea that the tax is imposed — as the lower court
would want it — to mean a revenue measure in the guise of a license tax. For really,
this runs counter to the declared purpose to make money.

We, accordingly, rule that Ordinance No. 1, series of 1956, of the Municipality of
Victorias, was promulgated not in the exercise of the municipality's regulatory power but
as a revenue measure — a tax on occupation or business. The authority to impose
such tax is backed by the express grant of power in Section 1 of Commonwealth Act
472.

5. Upon the averment that in the Municipality of Victorias plaintiff is the only operator of
a sugar central and sugar refinery, plaintiff now presses its argument that Ordinance
No. 1, series of 1956, is discriminatory. The ordinance does not single out Victorias as
the only object of the ordinance. Said ordinance is made to apply to any sugar central or
sugar refinery which may happen to operate in the municipality.The fact that plaintiff is
actually the sole operator of a sugar central and a sugar refinery does not make
the ordinance discriminatory.

No discrimination exists.

Judgment is hereby rendered: (a) declaring valid and subsisting Ordinance No. 1, series
of 1956, of the Municipality of Victorias, Province of Negros Occidental; and (b)
dismissing plaintiff's complaint as supplemented and amended. Costs against plaintiff.
G.R. No. L-23771 August 4, 1988

THE COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
LINGAYEN GULF ELECTRIC POWER CO., INC. and THE COURT OF TAX
APPEALS, respondents.

Angel Sanchez for Lingayen Electric Power Co., Inc.

SARMIENTO, J.:

FACTS:

This is an appeal by CIR from the decision * of the Court of Tax Appeals (C.T.A.,
for brevity) dated September 15, 1964 in C.T.A. Cases Nos. 581 and 1302, which
were jointly heard upon agreement of the parties, absolving the respondent
taxpayer from liability for the deficiency percentage, franchise, and fixed taxes
and surcharge assessed against it in the sums of P19,293.41 and P3,616.86 for
the years 1946 to 1954 and 1959 to 1961, respectively.

The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc., 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.

Section 10 of these franchises provide that:

...The said grantee, shall pay quarterly into the Provincial Treasury of Pangasinan, one
per centum of the gross earnings obtained thru this privilege during the first twenty
years and two per centum during the remaining fifteen years of the life of said
franchise.

On February 24, 1948, the President of the Philippines approved the franchises
granted to the private respondent.

On November 21, 1955, the Bureau of Internal Revenue (BIR) assessed against and
demanded from the private respondent the total amount of P19,293.41 representing
deficiency franchise taxes and surcharges 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.

Sec. 4 of RA 3843 provides that respondent shall pay into the Internal Revenue office
of each Municipality in which it is supplying electric current to the public under this
franchise, a tax equal to two per centum of the gross receipts from electric current
sold or supplied under this franchise. Said tax shall be due and payable quarterly
and shall be in lieu of any and all taxes and/or licenses of any kind, nature or
description levied, established, or collected by any authority whatsoever,
municipal, provincial or national, now or in the future, on its poles, wires,
insulator ... and on its franchise, rights, privileges, receipts, revenues and profits,
from which taxes and/or licenses, the grantee is hereby expressly exempted and
effective further 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 as provided for in the original franchise shall be collected, any provision
of law to the contrary notwithstanding.

The issues raised for resolution are:

1. Whether or not the 5% franchise tax prescribed in Section 259 of the National
Internal Revenue Code assessed against the private respondent on its gross
receipts realized before the effectivity of R.A- No. 3843 is collectible.

The petitioner contends that the private respondent's original franchises did not
contain the proviso that the tax provided therein "shall be in lieu of all taxes;"
moreover, the franchises contained a reservation clause that they shag be
subject to amendment, alteration, or repeal, but even in the absence of such
cause, the power of the Legislature to alter, amend, or repeal any franchise is
always deemed reserved. The franchise of the private respondent have been
modified or amended by Section 259 of the Tax Code.

The court ruled that R.A. No. 3843 granted the private respondent a legislative
franchise in June, 1963, amending, altering, or even repealing the original
municipal franchises, and providing that the private respondent should pay only a
2% franchise tax on its gross receipts, "in lieu of any and all taxes and/or licenses
of any kind, nature or description levied, established, or collected by any
authority whatsoever, municipal, provincial, or national, now or in the future ...
and effective further 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 of law to the contrary
notwithstanding." Thus, by virtue of R.A- No. 3843, the private respondent was
liable to pay only the 2% franchise tax, effective from the date the original
municipal franchise was granted.

2. Whether or not Section 4 of R.A. No. 3843 is unconstitutional for being violative of the
"uniformity and equality of taxation" clause of the Constitution.

The petitioner submits that the said law is unconstitutional insofar as it provides for
the payment by the private respondent of a franchise tax of 2% of its gross
receipts, while other taxpayers similarly situated were subject to the 5% franchise
tax imposed in Section 259 of the Tax Code, thereby discriminatory and violative
of the rule on uniformity and equality of taxation.

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.

The Court have no authority to inquire into the wisdom of such act. Furthermore, the 5%
franchise tax rate provided in Section 259 of the Tax Code was never intended to
have a universal application. 4

Section 259 of the Tax Code expressly allows the payment of taxes at rates lower
than 5% when the charter granting the franchise of a grantee, like the one granted
to the private respondent under Section 4 of R.A. No. 3843, precludes the imposition of
a higher tax.

R.A. No. 3843 did not only fix and specify a franchise tax of 2% on its gross receipts,
but made it "in lieu of any and all taxes, all laws to the contrary notwithstanding,"
thus, leaving no room for doubt regarding the legislative intent.

"Charters or special laws granted and enacted by the Legislature are in the nature of
private contracts. They do not constitute a part of the machinery of the general
government. They are usually adopted after careful consideration of the private rights in
relation with resultant benefits to the State ... in passing a special charter the attention
of the Legislature is directed to the facts and circumstances which the act or charter is
intended to meet. The Legislature consider (sic) and make (sic) provision for all the
circumstances of a particular case." 5 In view of the foregoing, we find no reason to
disturb the respondent court's ruling upholding the constitutionality of the law in
question.
PUNSALAN V. MUNICIPAL BOARD OF CITY
OF MANILA
Facts: Petitioners, who are professionals in the city, assail Ordinance No.
3398 together with the law authorizing it (Section 18 of the Revised Charter
of the City of Manila). The ordinance imposes a municipal occupation tax on
persons exercising various professions in the city and penalizes non-
payment of the same. The law authorizing said ordinance empowers the
Municipal Board of the city to impose a municipal occupation tax on persons
engaged in various professions. Petitioners, having already paid their
occupation tax under section 201 of the National Internal Revenue Code,
paid the tax under protest as imposed by Ordinance No. 3398. The lower
court declared the ordinance invalid and affirmed the validity of the law
authorizing it.

Issue: Whether or Not the ordinance and law authorizing it constitute class
legislation, and authorize what amounts to double taxation.

Held: The Legislature may, in its discretion, select what occupations shall be
taxed, and in its discretion may tax all, or select classes of occupation for
taxation, and leave others untaxed. It is not for the courts to judge which
cities or municipalities should be empowered to impose occupation taxes
aside from that imposed by the National Government. That matter is within
the domain of political departments. The argument against double taxation
may not be invoked if one tax is imposed by the state and the other is
imposed by the city. It is widely recognized that there is nothing inherently
terrible in the requirement that taxes be exacted with respect to the same
occupation by both the state and the political subdivisions thereof. Judgment
of the lower court is reversed with regards to the ordinance and affirmed as
to the law authorizing it.