DIAZ vs Sec of Finance

May toll fees collected by tollway operators be subject to

VAT?

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 users 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
users tax, the VAT can not be deemed as a tax on tax since the VAT is imposed on the tollway
operator and the fact that it might pass-on the same to the tollway user, it will not make the latter
directly liable for VAT since the shifted VAT simply becomes part of the cost to use the tollways.
(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 limitations are impaired.

COMMISSIONER OF
INTERNAL REVENUE vs. SM
PRIME HOLDINGS, INC. - Value
Added Tax on Cinemas
ISSUE:
Are the gross receipts derived by operators or proprietors of cinema/theater houses from admission
tickets subject to VAT?

HELD:
NO. While (1) the enumeration under Section 108 on the VAT-taxable services is not exhaustive and
(2) the said list includes the lease of motion picture films, films, tapes and discs, the said activity
however is not the same as showing or exhibition of motion pictures or films. Thus, since the
showing or exhibition of motion pictures or films is not in the enumeration, the CIR must show that it
falls under the phrase similar services.

The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT on
the gross receipts of cinema/theater operators or proprietors derived from admission tickets. The
removal of the prohibition (on the national government to tax certain activities) under the Local Tax
Code did not grant nor restore to the national government the power to impose amusement tax on
cinema/theater operators or proprietors. Neither did it expand the coverage of VAT.

TAMBUNTING PAWNSHOP,
INC. vs. COMMISSIONER OF
INTERNAL REVENUE- Value
Added Tax, Documentary
Stamp Tax
FACTS:
Petitioner was assessed for deficiency Value Added Tax and Documentary Stamp Tax on the
premise that, for the Value Added Tax, it was engaged in the sale of services.

ISSUES:
(1) Is Petitioner liable for the Value Added Tax?
(2) Can the imposition of surcharge and interest be waived on the imposition of deficiency
Documentary Stamp Tax?

HELD:
(1) NO. Since Petitioner is considered a non-bank financial intermediary, it is subject to 10%
VAT for the tax years 1996 to 2002 but since the collection of Value Added Tax from non-bank
financial intermediaries was specifically deferred by law, Petitioner is not liable for Value Added
Tax during these tax years. With the full implementation of the Value Added Tax system on nonbank financial intermediaries starting January 1, 2003, Petitioner is liable for 10% Value Added
Tax for said tax year. And beginning 2004 up to the present, by virtue of R.A. No. 9238,

petitioner is no longer liable for VAT but it is subject to percentage tax on gross receipts from 0%
to 5%, as the case may be.

(2) YES. Petitioner's argument against liability for surcharges and interest that it was in good
faith in not paying documentary stamp taxes, it having relied on the rulings of respondent CIR
and the CTA that pawn tickets are not subject to documentary stamp taxes was found to be
meritorious. Good faith and honest belief that one is not subject to tax on the basis of previous
interpretations of government agencies tasked to implement the tax law are sufficient
justification to delete the imposition of surcharges and interest.