2.

Phil Health Care Providers Inc vs CIR

Facts: Phil Health Care Providers is a corporationengaged in providing medical/health care
programs to its members who pay annual membership fees. The CIR demanded from the
corporation deficiency taxes, constituting Documentary Stamp Tax (DST) imposed upon on
its health care agreements. The corporation sought the cancellation of the DST assessments,
among others, contending that it is a Health Maintenance Org (HMO) and not an insurance
company, thus, not liable for DST on its health care agreements. It also asserts that the
assessed DST which amounts to P376 million is way beyond its net worth ofP259 million.
Issue: WON the corporation is liable for the payment of DST on its health care agreements.
Held: Negative.
As a general rule, 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 found
only in the responsibility of the legislature which imposes the tax on the constituency who is
to pay it.So potent indeed is the power that it was once opined that the power to tax involves
the power to destroy.
Given the realities on the ground, imposing the DST on petitioner would be highly
oppressive. It is not the purpose of the government to throttle private business. On the
contrary, the government ought to encourage private enterprise. The corporation, just like
any concern organized for a lawful economic activity, has a right to maintain a legitimate
business. As aptly held in Roxas, et al. v. CTA, et al.:
The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill the hen that lays the golden
egg.
Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence.
Incurring losses because of a tax imposition may be an acceptable consequence but killing
the business of an entity is another matter and should not be allowed. It is counter-productive
and ultimately subversive of the nations thrust towards a better economy which will
ultimately benefit the majority of our people.
4May 11, 2008
NPC v. City of Cabanatuan
G.R. No. 149110, April 9, 2003

TAXATION: The most effective means to raise revenues; LGU's Power of Taxation,
exception to Non-delegation of taxing power; Tax Exemptions, construed strongly
against the claimant

Facts:

NPC, a GOCC, created under CA 120 as amended, selling electric power, was assessed by the
City of Cabanatuan forfranchise tax pursuant to sec. 37 of Ordinance No. 165-92. NPC
refused to pay the tax assessment on the grounds that the City of Cabanatuan has no authority
to impose tax on government entities and also that it is exempted as a non-profit organization.
For its part, the City government alleged that NPCs exemption from local taxes has been
repealed by sec. 193 of RA 7160.

Issue:
Whether NPC is liable to pay an annual franchise tax to the City government

Held:

One of the most significant provisions of the LGC is the removal of the blanket exclusion of
instrumentalities and agencies of the national government from the coverage of local taxation.
Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities, this rule now admits an exception, i.e.,
when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities.

As commonly used, a franchise tax is "a tax on the privilege of transacting business in the
state and exercising corporate franchises granted by the state." It is not levied on the
corporation simply for existing as a corporation, upon its property or its income, but on its
exercise of the rights or privileges granted to it by the government. Hence, a corporation need
not pay franchise tax from the time it ceased to do business and exercise its franchise. It is
within this context that the phrase "tax on businesses enjoying a franchise" in section 137 of
the LGC should be interpreted and understood. Verily, to determine whether the petitioner is
covered by the franchise tax in question, the following requisites should concur: (1) that
petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is
exercising its rights or privileges under this franchise within the territory of the respondent city
government.

NPC fulfills both requisites. To stress, a franchise tax is imposed based not on the ownership
but on the exercise by the corporation of a privilege to do business. The taxable entity is the
corporation which exercises the franchise, and not the individual stockholders. By virtue of its
charter, petitioner was created as a separate and distinct entity from the National Government.
It can sue and be sued under its own name, and can exercise all the powers of a corporation
under the Corporation Code.

We also do not find merit in the petitioner's contention that its tax exemptions under its charter
subsist despite the passage of the LGC.

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be
shown to exist clearly and categorically, and supported by clear legal provisions. In the case at
bar, the petitioner's sole refuge is section 13 of Rep. Act No. 6395 exempting from, among
others, "all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities."

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances
duly approved, to grant taxexemptions, initiatives or reliefs.77 But in enacting section 37 of
Ordinance No. 165-92 which imposes an annual franchise tax "notwithstanding
any exemption granted by law or other special law," the respondent city government clearly did
not intend to exempt the petitioner from the coverage thereof.

Doubtless, the power to tax is the most effective instrument to raise needed revenues
to finance and support myriad activities of the local government units for the delivery of basic
services essential to the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. As this Court observed in the Mactan case, "the original
reasons for the withdrawal of tax exemption privileges granted to government-owned or
controlled corporations and all other units of government were that such privilege resulted in
serious tax base erosion and distortions in the tax treatment of similarly situated enterprises."
With the added burden of devolution, it is even more imperative for government entities to
share in the requirements of development, fiscal or otherwise, by paying taxes or other charges
due from them.

"IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of
the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby
AFFIRMED."