LUTZ

GR

v.
No.

ARANETA

L-7859,

December

22,

1955

98 PHIL 148
FACTS:

This case tests the legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
Plaintiff Walter Lutz, in his capacity as judicial administrator of the intestate estate of Antionio Ledesma, seeks to recover from the
CIR the sum of P14,666.40 paid by the estate as taxes, under section 3 of the CA 567 or the Sugar Adjustment Act. He assailed the
constitutionality of the aforesaid law, for it provided for an increase of the existing tax on the manufacture of sugar, alleging that such
enactment is not being levied for a public purpose but solely and exclusively for the aid and support of the sugar industry thus
making it void and unconstitutional. The sugar industry situation at the time of the enactment was under threat of loss and needed to
be stabilized by imposition of emergency measures like raising of taxes.
ISSUE: WON CA 567 is unconstitutional, for being violative of the equal protection clause?
HELD: No. The protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may
determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative
discretion must be allowed to fully play, subject only to the test of reasonableness; and it is not contended that the means provided in
the law bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally
valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made
the implement of the state's police power.
the protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within
reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be
allowed fully play, subject only to the test of reasonableness; and it is not contended that the means provided in section 6 of the law
(above quoted) bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike
constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment.
Taxation may be made the implement of the state's police power

GOMEZ
GR

v.
No.

L-23645,

PALOMAR
October

29,

1968

25 SCRA 827
FACTS:
This appeal puts in issue the constitutionality of Republic Act 1635,1 as amended by Republic Act 2631.
Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. Bearing no special anti-TB stamp required
by the RA 1635, the letter was returned to the petitioner. Petitioner brought suit for declaratory relief assailing the constitutionality of
the statute claiming that RA 1635 otherwise known as the Anti-TB Stamp law violates the equal protection clause of the Constitution
as well as the rule of uniformity and equality of taxation. The lower court declared the statute and the orders unconstitutional; hence
this appeal by the respondent postal authorities.

of the equal protection clause because it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest
of the population and that even among postal patrons the statute discriminatorily grants exemptions. The law in question requires an
additional 5 centavo stamp for every mail being posted, and no mail shall be delivered unless bearing the said stamp.
ISSUE: WON Anti-TB Stamp Law is unconstitutional, for being allegedly violative of the equal protection clause and the rule on
uniformity of taxation?
HELD: No. It is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions. This
power has aptly been described as "of wide range and flexibility." Indeed, it is said that in the field of taxation, more than in other
areas, the legislature possesses the greatest freedom in classification. The reason for this is that traditionally, classification has been
a device for fitting tax programs to local needs and usages in order to achieve an equitable distribution of the tax burden.
The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on administrative convenience. Tax
exemptions have never been thought of as raising revenues under the equal protection clause.
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather than a graduated tax. A tax need
not be measured by the weight of the mail or the extent of the service rendered. We have said that considerations of administrative
convenience and cost afford an adequate ground for classification. The same considerations may induce the legislature to impose a
flat tax which in effect is a charge for the transaction, operating equally on all persons within the class regardless of the amount
involved

Planters Products Inc vs Fertiphil Corp G.R. No. 166006 March 14, 2008
FACTS:
Petitioner PPI and private respondent Fertiphil are private corporations incorporated under Philippine laws. 3 They are both engaged
in the importation and distribution of fertilizers, pesticides and agricultural chemicals.
Petitioner PPI and respondent Fertiphil are private corporations incorporated under Philippine laws, both engaged in the
importation and distribution of fertilizers, pesticides and agricultural chemicals.
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
Marcos issued Letter of Instruction (LOI) 1465, imposing a capital recovery component of Php10.00 per bag of fertilizer. The levy
was to continue until adequate capital was raised to make PPI financially viable. Fertiphil remitted to the Fertilizer and Pesticide
Authority (FPA), which was then remitted the depository bank of PPI. Fertiphil paid P6,689,144 to FPA from 1985 to 1986.
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. Fertiphil demanded from PPI a refund of
the amount it remitted, however PPI refused. Fertiphil filed a complaint for collection and damages, questioning the
constitutionality of LOI 1465, claiming that it was unjust, unreasonable, oppressive, invalid and an unlawful imposition that
amounted to a denial of due process. PPI argues that Fertiphil has no locus standi to question the constitutionality of LOI No. 1465
because it does not have a "personal and substantial interest in the case or will sustain direct injury as a result of its enforcement." It
asserts that Fertiphil did not suffer any damage from the imposition because "incidence of the levy fell on the ultimate consumer or
the farmers themselves, not on the seller fertilizer company.
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, 1986.6
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.7
Fertiphil filed a complaint for collection and damages8 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.9 Fertiphil alleged that the LOI solely favored PPI, a privately owned corporation, which used the proceeds to
maintain its monopoly of the fertilizer industry

ISSUE: Whether or not Fertiphil has locus standi to question the constitutionality of LOI No. 1465.
What is the power of taxation?
LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF ASSURING THE FERTILIZER SUPPLY AND DISTRIBUTION
IN THE COUNTRY, AND FOR BENEFITING A FOUNDATION CREATED BY LAW TO HOLD IN TRUST FOR MILLIONS OF
FARMERS THEIR STOCK OWNERSHIP IN PPI CONSTITUTES A VALID LEGISLATION PURSUANT TO THE EXERCISE OF
TAXATION AND POLICE POWER FOR PUBLIC PURPOSES.

RULING: Fertiphil has locus standi because it suffered direct injury; doctrine of standing is a mere procedural technicality which
may be waived.
*The imposition of the levy was an exercise of the taxation power of the state. While it is true that the power to tax can be used as an
implement of police power, the primary purpose of the levy was 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.
Police power and the power of taxation are inherent powers of the State. These powers are distinct and have different tests for
validity. Police power is the power of the State to enact legislation that may interfere with personal liberty or property in order to
promote the general welfare, while the power of taxation is the power to levy taxes to be used for public purpose. The main purpose
of police power is the regulation of a behavior or conduct, while taxation is revenue generation. The "lawful subjects" and "lawful
means" tests are used to determine the validity of a law enacted under the police power. The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations.

TOLENTINO VS. THE SECRETARY OF FINANCE Case Digest

ARTURO M. TOLENTINO VS. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE
1994
Aug
25
G.R.
No.
115455
235
SCRA
630
FACTS: The valued-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or
exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered
or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax base of
the existing VAT system and enhance its administration by amending the National Internal Revenue Code.
The Chamber of Real Estate and Builders Association (CREBA) contends that the imposition of VAT on sales and leases by virtue of
contracts entered into prior to the effectivity of the law would violate the constitutional provision of non-impairment of contracts.
ISSUE: Whether R.A. No. 7716 is unconstitutional on ground that it violates the contract clause under Art. III, sec 10 of the Bill of
Rights.
RULING: No. The Supreme Court the contention of CREBA, that the imposition of the VAT on the sales and leases of real estate by
virtue of contracts entered into prior to the effectivity of the law would violate the constitutional provision of non-impairment of
contracts, is only slightly less abstract but nonetheless hypothetical. It is enough to say that the parties to a contract cannot, through
the exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not only are existing laws read into
contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is also read into
contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment presupposes the
maintenance of a government which retains adequate authority to secure the peace and good order of society. In truth, the Contract
Clause has never been thought as a limitation on the exercise of the State's power of taxation save only where a tax exemption has
been
granted
for
a
valid
consideration.
Such is not the case of PAL in G.R. No. 115852, and the Court does not understand it to make this claim. Rather, its position, as
discussed above, is that the removal of its tax exemption cannot be made by a general, but only by a specific, law.
Further, the Supreme Court held the validity of Republic Act No. 7716 in its formal and substantive aspects as this has been raised
in
the
various
cases
before
it.
To
sum
up,
the
Court
holds:
(1) That the procedural requirements of the Constitution have been complied with by Congress in the enactment of the statute;
(2) That judicial inquiry whether the formal requirements for the enactment of statutes - beyond those prescribed by the Constitution
have
been
observed
is
precluded
by
the
principle
of
separation
of
powers;
(3) That the law does not abridge freedom of speech, expression or the press, nor interfere with the free exercise of religion, nor
deny
to
any
of
the
parties
the
right
to
an
education;
and

(4) That, in view of the absence of a factual foundation of record, claims that the law is regressive, oppressive and confiscatory and
that it violates vested rights protected under the Contract Clause are prematurely raised and do not justify the grant of prospective
relief
by
writ
of
prohibition.
WHEREFORE, the petitions are DISMISSED.

Tolentino vs. Secretary of Finance G.R. No. 115455, August 25, 1994
Sunday, January 25, 2009 Posted by Coffeeholic WritesLabels: Case Digests, Political Law
Facts:
The value-added tax (VAT) is levied on the sale, barter or exchange of goodsand properties as well as on the sale
or exchange of services. RA 7716 seeks to widenthe tax base of the existing VAT system and enhance its
administration by amendingthe National Internal Revenue Code. There are various suits challenging
theconstitutionality of RA 7716 on various grounds.One contention is that RA 7716 did not originate exclusively in
the House of Representatives as required by Art. VI, Sec. 24 of the Constitution, because it is in factthe result of
the consolidation of 2 distinct bills, H. No. 11197 and S. No. 1630. There isalso a contention that S. No. 1630 did
not pass 3 readings as required by theConstitution.
Issue:
Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the Constitution
Held:
The argument that RA 7716 did not originate exclusively in the House of Representatives as required by Art. VI,
Sec. 24 of the Constitution will not bearanalysis. To begin with, it is not the law but the revenue bill which is
required by theConstitution to originate exclusively in the House of Representatives. To insist that arevenue statute
and not only the bill which initiated the legislative process culminatingin the enactment of the law must
substantially be the same as the House bill would be
to deny the Senates power
not only to concur with amendments but also to proposeamendments. Indeed, what the Constitution simply means
is that the initiative for filingrevenue, tariff or tax bills, bills authorizing an increase of the public debt, private
billsand bills of local application must come from the House of Representatives on thetheory that, elected as they
are from the districts, the members of the House can beexpected to be more sensitive to the local needs and
problems. Nor does theConstitution prohibit the filing in the Senate of a substitute bill in anticipation of itsreceipt of
the bill from the House, so long as action by the Senate as a body is withheldpending receipt of the House bill.The
next argument of the petitioners was that S. No. 1630 did not pass 3 readings onseparate days as required by the
Constitution because the second and third readingswere done on the same day. But this was because the President
had certified S. No.1630 as urgent. The presidential certification dispensed with the requirement not onlyof printing
but also that of reading the bill on separate days. That upon the certificationof a bill by the President the
requirement of 3 readings on separate days and of printing and distribution can be dispensed with is supported by
the weight of legislativepractice.
*****
Tolentino vs. Secretary of Finance
Facts: These are motions seeking reconsideration of our decision dismissing the petitions filed in
these cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as theExpanded Value-Added Tax Law. Now
it is contended by the PPI that by removing the exemption of
the press from the VAT while maintaining those granted to others, the law discriminates against the
press. At any rate, it is averred, "even nondiscriminatory taxation of constitutionally guaranteedfreedom is unconstitutional.
"Issue: Does sales tax on bible sales violative of religious freedom?
Held: No. The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is
mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint
on the exercise of its right. Hence, although its application to others, such those selling goods,
is valid, its application to the press or to religious groups, such as the Jehovah's Witnesses, in
connection with the latter's sale of religious books and pamphlets, is unconstitutional. As the U.S.

Supreme Court put it, "it is one thing to impose a tax on income or property of a preacher. It is quiteanother thing to exact a tax on
him for delivering a sermon."The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege,much
less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of properties purely for revenuepurposes. To subject the press to its
payment is not to burden the exercise of its right any more than
to make the press pay income tax or subject it to general regulation is not to violate its freedomunder the Constitution

Antero Sison Jr. vs Acting BIR Commissioner Ruben Ancheta et al

on November 15, 2010
Equal Protection
Sison assails the validity of BP 135 w/c further amended Sec 21 of the National Internal Revenue Code of 1977. The
law provides that thered be a higher tax impost against income derived from professional income as opposed to
regular income earners. Sison, as a professional businessman, and as taxpayer alleges that by virtue thereof, he
would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the
exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. He
characterizes the above section as arbitrary amounting to class legislation, oppressive and capricious in character.
There is a transgression of both the equal protection and due process clauses of the Constitution as well as of the
rule requiring uniformity in taxation.

ISSUE: Whether the imposition of a higher tax rate on taxable net income derived from business or profession than
on compensation is constitutionally infirm.
HELD: The SC ruled against Sison. The power to tax, an inherent prerogative, has to be availed of to assure the
performance of vital state functions. It is the source of the bulk of public funds. Taxes, being the lifeblood of the
government, their prompt and certain availability is of the essence. According to the Constitution: The rule of
taxation shall be uniform and equitable. However, the rule of uniformity does not call for perfect uniformity or
perfect equality, because this is hardly attainable. Equality and uniformity in taxation means that all taxable articles
or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation. Where the differentiation complained of conforms
to the practical dictates of justice and equity it is not discriminatory within the meaning of this clause and is
therefore uniform. There is quite a similarity then to the standard of equal protection for all that is required is that
the tax applies equally to all persons, firms and corporations placed in similar situation.
What misled Sison is his failure to take into consideration the distinction between a tax rate and a tax base. There is
no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time
reducing the applicable tax rate. Taxpayers may be classified into different categories. In the case of the gross
income taxation embodied in BP 135, the discernible basis of classification is the susceptibility of the income to the

application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of
reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart
as a class. As there is practically no overhead expense, these taxpayers are not entitled to make deductions for
income tax purposes because they are in the same situation more or less. On the other hand, in the case of
professionals in the practice of their calling and businessmen, there is no uniformity in the costs or expenses
necessary to produce their income. It would not be just then to disregard the disparities by giving all of them zero
deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. There is ample
justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation
income, while continuing the system of net income taxation as regards professional and business income.

FUNDAMENTALS OF TAXATION
BRITISH AMERICAN TOBACCO, vs. JOSE ISIDRO N. CAMACHO, in his capacity as Secretary of the Departmentof Finance and
GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of the Bureau of Internal Revenues.PHILIP MORRIS PHILIPPINES
MANUFACTURING, INC., FORTUNE TOBACCO CORP., MIGHTY CORPORATION, and JT INTERNATIONAL [G.R. No. 163583. April
15, 2009.]
(Motion for Reconsideration of the 2008 case)Facts:
To efficiently anf effectively implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97, 2 which
classified the existing brands of cigarettes as those duly registered or active brands prior to January 1, 1997. New brands,or those registered after
January 1, 1997, shall be initially assessed at their suggested retail price until such time that theappropriate survey to determine their current net
retail price is conducted. In June 2001 British American Tobacco introduced into the market Lucky Strike Filter, Lucky Strike Lights and Lucky
Strike Menthol Lights cigarettes, with a suggested retail price of P9.90 per pack. 3 Pursuant to Sec. 145 (c) quoted above, the Lucky Strike brands
were initially assessed the excise tax at P8.96 per pack. On February 17, 2003, Revenue Regulations No. 9-2003, amended Revenue Regulations
No. 1-97 by providing, among others, a periodic review every two years or earlier of the current net retail price of new brands and variants
thereof for the purpose of establishing and updating their tax classification. Pursuant thereto, Revenue Memorandum Order No. 6-2003 5 was
issued on March 11, 2003, prescribing the guidelines and procedures in establishing current net retail pricesof new brands of cigarettes and
alcohol products. Subsequently, Revenue Regulations No. 22-2003 6 was issued on August 8, 2003 to implement the revised tax classification
of certain new brands introduced in the market after January 1, 1997, based on the survey of their current net retail price. The survey revealed that
Lucky Strike Filter, Lucky StrikeLights, and Lucky Strike Menthol Lights, are sold at the current net retail price of P22.54, P22.61 and P21.23,
per pack ,respectively. Respondent Commissioner of the Bureau of Internal Revenue thus recommended the applicable tax rate of P13.44 per
pack inasmuch as Lucky Strike's average net retail price is above P10.00 per pack. Thus it filed before the Regional Trial Court (RTC) of Makati,
Branch 61, a petition for injunction with prayer for the issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction,
docketed as Civil Case No. 03-1032. Said petition sought to enjoin the implementation of Section 145 of the NIRC, Revenue Regulations Nos. 197, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003 on the ground that they discriminate against new brands of cigarettes,
in violation of the equal protection and uniformity provisions of the Constitution. The trial court rendered a decision upholding the
constitutionality of Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003
Issue/ Held:
W/N the classification freeze provision violates the equal protection and uniformity of taxation clauses of the Constitution.- NO
Ratio:
the instant case neither involves a suspect classification nor impinges on a fundamental right. Consequently, the rational basis test
was properly applied to gauge the constitutionality of the assailed law in the face of an equal protection challenge. It has been held
that "in the areas of social and economic policy, a statutory classification that neither proceeds along suspect lines nor infringes
constitutional rights must be upheld against equal protection challenge if there is any reasonably conceivable state of facts that
could provide a rational basis for the classification."3 Under the rational basis test, it is sufficient that the legislative classification is
rationally related to achieving some legitimate State interest
To our mind, the classification freeze provision was in the main the result of Congresss earnest efforts to improve the efficiency and
effectivity of the tax administration over sin products while trying to balance the same with other State interests. In particular, the
questioned provision addressed Congresss administrative concerns regarding delegating too much authority to the DOF and BIR as
this will open the tax system to potential areas for abuse and corruption. Congress may have reasonably conceived that a tax
system which would give the least amount of discretion to the tax implementers would address the problems of tax avoidance and
tax evasion.

Without doubt, the classification freeze provision was an integral part of this overall plan. This is in line with one of the avowed
objectives of the assailed law "to simplify the tax administration and compliance with the tax laws that are about to unfold in order to
minimize losses arising from inefficiencies and tax avoidance scheme, if not outright tax evasion." RA 9334 did not alter this
classification freeze provision of RA 8240
In the instant case, there is no question that the classification freeze provision meets the geographical uniformity requirement because the assailed
law applies to all cigarette brands in the Philippines. And, for reasons already advertedto in our August 20, 2008 Decision, the four-fold test has
been met in the present case. As held in the assailed Decision,the instant case neither involves a suspect classification nor impinges on a
fundamental right. Consequently, the rationalbasis test was properly applied to gauge the constitutionality of the assailed law in the face of an
equal protectionchallenge. It has been held that "in the areas of social and economic policy, a statutory classification that neitherproceeds along
suspect lines nor infringes constitutional rights must be upheld against equal protection challenge if thereis any reasonably conceivable state of
facts that could provide a rational basis for the classification." Under the rationalbasis test, it is sufficient that the legislative classification is
rationally related to achieving some legitimate State interest.Petitioner's reliance on Ormoc Sugar Co. is misplaced. In said case, the controverted
municipal ordinance specifically named and taxed only the Ormoc Sugar Company, and excluded any subsequently established sugar central
from itscoverage. Thus, the ordinance was found unconstitutional on equal protection grounds because its terms do not apply tofuture conditions
as well. This is not the case here. The classification freeze provision uniformly applies to all cigarettebrands whether existing or to be introduced
in the market at some future time. It does not purport to exempt any brandfrom its operation nor single out a brand for the purpose of imposition
of excise taxes.

The assailed law does not transgress the constitutional provisions on regressive and inequitable taxation
We note that the points raised by petitioner with respect to alleged inequitable taxation perpetuated by the classification freeze
provision are a mere reformulation of its equal protection challenge. As stated earlier, the assailed provisions do not infringe the
equal protection clause because the four-fold test is satisfied. In particular, the classification freeze provision has been found to
rationally further legitimate State interests consistent with rationality review. Petitioners repackaged argument has, therefore, no
merit.
ABAKADA v. Ermita (Delegation to the President)
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely, whether by December
31, 2005, the value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and
four-fifth percent (24/5%) or the national government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1%). If either of these two instances has occurred, the Secretary of Finance, by legislative mandate, must submit such
information to the President. Then the 12% VAT rate must be imposed by the President effective January 1, 2006. There is no
undue delegation of legislative power but only of the discretion as to the execution of a law. This is constitutionally
permissible.57 Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who
must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which the legislative
process can go forward
Facts:1.RA 9337: VAT Reform Act enacted on May 24, 2005.2.2.Sec. 4 (sales of goods and properties), Sec.
5 (importation of goods) and Sec. 6 (services and lease of property) of RA 9337, in collective, granted the
Secretary of Finance the authority to
ascertain:a . w h e t h e r b y 1 2 / 3 1 / 0 5 , t h e V A T c o l l e c t i o n a s a p e r c e n t a g e o f t h e 2 0 0 4 G D
P exceeds 2.8% orb. the natl govt deficit as a percentage of the 2004 GDP exceeds 1.5% 3.If either
condition is met, the Sec of Finance must inform the President who, in turn, must impose the 12% VAT
rate (from 10%) effective January 1, 2006.4 . A B A K A D A m a i n t a i n e d t h a t C o n g r e s s a b a n d o n e d
i t s e x c l u s i v e a u t h o r i t y t o f i x t a x e s a n d that RA 9337 contained a uniform proviso authorizing the
President upon recommendation by the DOF Secretary to raise VAT to 12%.5.Sen Pimentel maintained that RA
9337 constituted undue delegation of legisla tive powers and a violation of due process since the law was
ambiguous and arbitrary. Same with
Rep.Escudero.6 . P i l i p i n a s S h e l l d e a l e r s a r g u e d t h a t t h e V A T r e f o r m w a s a r b i t r a r y
, o p p r e s s i v e a n d confiscatory.7 . R e s p o n d e n t s c o u n t e r e d t h a t t h e l a w w a s c o m p l e t e , t
h a t i t l e f t n o d i s c r e t i o n t o t h e President, and that it merely charged the President with
carrying out the rate increase once any of the 2 conditions arise.
Issue: WON there was undue delegation
No.Ratio:1 . C o n s t i t u t i o n a l l o w s
a s u n d e r e x e m p t e d d e l e g a t i o n t h e d e l e g a t i o n o f t a r i f f s , c u s t o m s duties, and other tolls, levies on
goods imported and exported. VAT is tax levied on salesof goods and services which could not fall under this
exemption. Hence, its delegation if unqualified is unconstitutional.2.Legislative power is authority to make a

complete law. Thus, to be valid, a law must be complete in itself, setting forth therein the policy and it must
fix a standard, limits of whichare sufficiently determinate and determinable.3.No undue delegation when
congress describes what job must be done who must do it and the scope of the authority given. (Edu v
Ericta)4.Sec of Finance was merely tasked to ascertain the existence of facts. All else was laid out.5.Mainly
ministerial for the sec to ascertain the facts and for the president to carry out the implementation for
the VAT. They were agents of the legislative dept.6.No delegation but mere implementation of the law
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337, amending Sections 110 (A)(2),
110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are arbitrary, oppressive, excessive and
confiscatory. Their argument is premised on the constitutional right against deprivation of life, liberty of property without due process
of law, as embodied in Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection clauses are invoked, considering that they are not fixed rules but
rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion. Absent such a
showing, the presumption of validity must prevail.68

Villegas vs. Hiu

The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22, 1968 and signed by the herein
petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968
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 mayors 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.
City Ordinance No. 6537 is entitled:
AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE PHILIPPINES TO BE
EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO BE ENGAGED IN ANY KIND OF TRADE, BUSINESS
OR OCCUPATION WITHIN THE CITY OF MANILA WITHOUT FIRST SECURING AN EMPLOYMENT PERMIT
FROM THE MAYOR OF MANILA; AND FOR OTHER PURPOSES. 3
THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN RULING THAT
ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE OF UNIFORMITY OF TAXATION.
II
RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR OF LAW IN RULING THAT
ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE AGAINST UNDUE DESIGNATION OF LEGISLATIVE
POWER.
III
RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN RULING
THAT ORDINANCE NO. 6537 VIOLATED THE DUE PROCESS AND EQUAL PROTECTION CLAUSES OF
THE CONSTITUTION.

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

Held: The ordinances 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.

MM Mayor Antonio Villegas vs Hiu Chiong Tsai Pao Ho

on November 15, 2010
Equal Protection Delegation of Powers Administrative Bodies
Pao Ho is a Chinese national employed in the City of Manila. On 27 March 1968, then Manila Mayor Antonio Villegas
signed Ordinance No. 6537. The said ordinance prohibits foreign nationals to be employed within the City of Manila
without first securing a permit from the Mayor of Manila. The permit will cost them P50.00. Pao Ho, on 04 May 1968
filed a petition for prohibition against the said Ordinance alleging that as a police power measure, it makes no
distinction between useful and non-useful occupations, imposing a fixed P50.00 employment permit, which is out of
proportion to the cost of registration and that it fails to prescribe any standard to guide and/or limit the action of
the Mayor, thus, violating the fundamental principle on illegal delegation of legislative powers. Judge Arca of Manila
CFI ruled in favor of Pao Ho and he declared the Ordinance as being null and void.

ISSUE: Whether or not there a violation of equal protection by virtue Ord 6537.
HELD: The decision of Judge Arca is affirmed. Ordinance No. 6537 does not lay down any criterion or standard to
guide the Mayor in the exercise of his discretion. Hence an undue delegation of power.
Further, the P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid
substantial differences in situation among individual aliens who are required to pay it. Although the equal protection
clause of the Constitution does not forbid classification, it is imperative that the classification, should be based on
real and substantial differences having a reasonable relation to the subject of the particular legislation. The same
amount of P50.00 is being collected from every employed alien, whether he is casual or permanent, part time or full
time or whether he is a lowly employee or a highly paid executive. Requiring a person before he can be employed
to get a permit from the City Mayor of Manila who may withhold or refuse it at will is tantamount to denying him the
basic right of the people in the Philippines to engage in a means of livelihood. While it is true that the Philippines as
a State is not obliged to admit aliens within its territory, once an alien is admitted, he cannot be deprived of life
without due process of law. This guarantee includes the means of livelihood. The shelter of protection under the due
process and equal protection clause is given to all persons, both aliens and citizens.
Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide the mayor in the exercise of
the power which has been granted to him by the ordinance.

The ordinance in question violates the due process of law and equal protection rule of the Constitution.
Requiring a person before he can be employed to get a permit from the City Mayor of Manila who may withhold or refuse it at will is
tantamount to denying him the basic right of the people in the Philippines to engage in a means of livelihood. While it is true that the
Philippines as a State is not obliged to admit aliens within its territory, once an alien is admitted, he cannot be deprived of life without
due process of law. This guarantee includes the means of livelihood. The shelter of protection under the due process and equal
protection clause is given to all persons, both aliens and citizens. 13
Province of Abra vs Hernando
Political Law Exemption From Taxes The Church
The Province of Abra sought to tax the properties of the Roman Catholic Bishop, Inc. of Bangued. Judge Hernando
dismissed the petition of Abra without hearing its side. Hernando ruled that there is no question that the real
properties sought to be taxed by the Province of Abra are properties of the respondent Roman Catholic Bishop of
Bangued, Inc. Likewise, there is no dispute that the properties including their produce are actually, directly and
exclusively used by the Roman Catholic Bishop of Bangued, Inc. for religious or charitable purposes. The proper
remedy of the petitioner is appeal and not this special civil action.

ISSUE: Whether or not the properties of the church (in this case) is exempt from taxes.
HELD: The Constitution provides that charitable institutions, mosques, and non-profit cemeteries and required
that for the exemption of lands, buildings, and improvements, they should not only be exclusively but also
actually and directly used for religious or charitable purposes. The exemption from taxation is not favored and
is never presumed, so that if granted it must be strictly construed against the taxpayer. In this case, there is no
showing that the said properties are actually and directly used for religious or charitable uses. Further, there is no
merit in Abras contention that

the validity of a tax assessment may be questioned before the Local Board of

Assessment Appeals and not with a court.

Abra vs. Hernando

Facts: The provincial assessor made a tax assessment on the properties of the Roman Catholic Bishop of Bangued. The bishop
claims tax exemption from real estate tax, through an action for declaratory relief. A summary judgment was made granting the
exemption without hearing the side of the Province of Abra. It was the submission of counsel that an action for declaratory relief
would be proper only before a breach or violation of any statute, executive order or regulation. 5 Moreover, there being a tax
assessment made by the Provincial Assessor on the properties of respondent Roman Catholic Bishop, petitioner failed to exhaust
the administrative remedies available under Presidential Decree No. 464 before filing such court action. Further, it was pointed out
to respondent Judge that he failed to abide by the pertinent provision of such Presidential Decree which provides as follows: "No
court shall entertain any suit assailing the validity of a tax assessed under this Code until the taxpayer, shall have paid, under
protest, the tax assessed against him nor shall any court declare any tax invalid by reason of irregularities or informalities in the
proceedings of the officers charged with the assessment or collection of taxes, or of failure to perform their duties within this time
herein specified for their performance unless such irregularities, informalities or failure shall have impaired the substantial rights of
the taxpayer; nor shall any court declare any portion of the tax assessed under the provisions of this Code invalid except upon
condition that the taxpayer shall pay the just amount of the tax, as determined by the court in the pending proceeding." 6
Issue: Whether the properties of the Bishop of Bangued are tax-exempt.
Held: The 1935 and the 1973 Constitutions differ in language as to the exemption of religious property from taxes as they should not
only be exclusively but also actually and directly used for religious purposes. Herein, the judge accepted at its face the
allegation of the Bishop instead of demonstrating that there is compliance with the constitutional provision that allows an exemption.

10

There was an allegation of lack of jurisdiction and of lack of cause of action, which should have compelled the judge to accord a
hearing to the province rather than deciding the case immediately in favor of the Bishop. Exemption from taxation is not favored and
is never presumed, so that if granted, it must be strictly construed against the taxpayer. There must be proof of the actual and direct
use of the lands, buildings, and improvements for religious (or charitable) purposes to be exempted from taxation. Respondent
Judge would not have erred so grievously had he merely compared the provisions of the present Constitution with that appearing in
the 1935 Charter on the tax exemption of "lands, buildings, and improvements." There is a marked difference. Under the 1935
Constitution: "Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements
used exclusively for religious, charitable, or educational purposes shall be exempt from taxation."

10

The present Constitution added

"charitable institutions, mosques, and non-profit cemeteries" and required that for the exemption of ":lands, buildings, and
improvements," they should not only be "exclusively" but also "actually and "directly" used for religious or charitable purposes. 11The
Constitution is worded differently. The change should not be ignored. It must be duly taken into consideration. Reliance on past
decisions would have sufficed were the words "actually" as well as "directly" not added. There must be proof therefore of
the actual and direct use of the lands, buildings, and improvements for religious or charitable purposes to be exempt from taxation
The case was remanded to the lower court for a trial on merits.

CIR vs. Lingayen Gulf Electric Power Co & CTA copy the written.
Facts: Lingayen operates an electric power plant, in which its municipal franchise imposes upon it the payment of not more than
2% franchise tax. Subsequently its franchise was approved by the Pres of the Phil. As such, the BIR demanded from it the
payment of deficiency taxes applying franchise tax rates of 5% on gross receipts. Lingayen refused, as according to it, it made
overpayment. Pending the cases, RA 3843 was approved which granted Lingayen legislative franchises for the operation of the
electric light, etc., which imposed upon it the payment of only 2% franchise tax, effective from the date the original municipal
franchise was granted. Thus, the CTA absolved Lingayen from all its liabilities. The CIR submits that RA 3843 in so far as it
grants Lingayen the payment of only 2% Franchise tax is discriminatory and hence, violative of the rule on equality and
uniformity of taxation as others are subject to 5% franchise tax.
Issue: WON the SC may determine the validity of RA 3843 as to its imposition of a 2% franchise tax in favor of Lingayen.
Held: Negative.
The SC has no authority to inquire into the wisdom of such act. 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.

Ormoc sugar v. ormoc

BENGZON,

J.P.,

J.:

Ormoc city passed an ordinance which provides:

"There shall be paid to the City Treasurer on any and all productions of centrifugal sugar milled at the Ormoc Sugar Company,
Incorporated, in Ormoc City, a municipal tax equivalent to one per centum (1%) per export sale to the United States of America and
other foreign countries."
Ormoc Sugar Company filed a complaint against the city of Ormoc, alleging that the afore-stated ordinance is
unconstitutional for being violative of the equal protection clause (Sec. 1[1], Art. III, Constitution) and the rule of
uniformity of taxation (Sec. 22[1]), Art. VI, Constitution)

11

On January 29, 1964, the Municipal Board of Ormoc City passed 1 Ordinance No. 4, Series of 1964, imposing "on any and all
productions of centrifugal sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City a municipal tax equivalent to one per
centum (1%) per export sale to the United States of America and other foreign countries." 2
Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. on March 20, 1964 for P7,087.50 and on
April 20, 1964 for P5,000, or a total of P12,087.50.
On June 1, 1964, Ormoc Sugar Company, Inc. filed before the Court of First Instance of Leyte, with service of a copy upon
the Solicitor General, a complaint 3 against the City of Ormoc as well as its Treasurer, Municipal Board and Mayor, alleging that the
afore-stated ordinance is unconstitutional for being violative of the equal protection clause (Sec. 1[1], Art. III, Constitution) and the
rule of uniformity of taxation (Sec. 22[1]), Art. VI, Constitution), aside from being an export tax forbidden under Section 2287 of the
Revised Administrative Code. It further alleged that the tax is neither a production nor a license tax which Ormoc City under Section
15-kk of its charter and under Section 2 of Republic Act 2264, otherwise known as the Local Autonomy Act, is authorized to impose;
and that the tax amounts to a customs duty, fee or charge in violation of paragraph 1 of Section 2 of Republic Act 2264 because the
tax is on both the sale and export of sugar.

ISSUE: W/N the ordinance violates the equal protection clause and the uniformity of taxation/
RULING: YES
The equal protection clause applies only to persons or things identically situated and does not bar a reasonable
classification of the subject of legislation, and a classification is reasonable where (1) it is based on substantial
distinctions which make real differences; (2) these are germane to the purpose of the law; (3) the classification
applies not only to present conditions but also to future conditions which are substantially identical to those of the
present; (4) the classification applies only to those who belong to the same class.
A perusal of the requisites instantly shows that the questioned ordinance does not meet them, for it taxes only
centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and none other. At the time of the
taxing ordinance's enactment, Ormoc Sugar Company, Inc., it is true, was the only sugar central in the city of
Ormoc. Still, the classification, to be reasonable, should be in terms applicable to future conditions as well. The
taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar central, of
the same class as plaintiff, for the coverage of the tax. As it is now, even if later a similar company is set up, it
cannot be subject to the tax because the ordinance expressly points only to Ormoc City Sugar Company, Inc. as
the entity to be levied upon
Ormoc Sugar Company Inc. vs Ormoc City et al
on November 15, 2010
Equal Protection
In 1964, Ormoc City passed a bill which read: There shall be paid to the City Treasurer on any and all productions
of centrifugal sugar milled at the Ormoc Sugar Company Incorporated, in Ormoc City a municipal tax equivalent to
one per centum (1%) per export sale to the United States of America and other foreign countries. Though referred
to as a production tax, the imposition actually amounts to a tax on the export of centrifugal sugar produced at
Ormoc Sugar Company, Inc. For production of sugar alone is not taxable; the only time the tax applies is when the
sugar produced is exported. Ormoc Sugar paid the tax (P7,087.50) in protest averring that the same is violative of

12

Sec 2287 of the Revised Administrative Code which provides: It shall not be in the power of the municipal council
to impose a tax in any form whatever, upon goods and merchandise carried into the municipality, or out of the
same, and any attempt to impose an import or export tax upon such goods in the guise of an unreasonable charge
for wharfage, use of bridges or otherwise, shall be void. And that the ordinance is violative to equal protection as it
singled out Ormoc Sugar As being liable for such tax impost for no other sugar mill is found in the city.

ISSUE: Whether or not there has been a violation of equal protection.

HELD: The SC held in favor of Ormoc Sugar. The SC noted that even if Sec 2287 of the RAC had already been
repealed by a latter statute (Sec 2 RA 2264) which effectively authorized LGUs to tax goods and merchandise
carried in and out of their turf, the act of Ormoc City is still violative of equal protection. The ordinance is
discriminatory for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and
none other. At the time of the taxing ordinances enactment, Ormoc Sugar Company, Inc., it is true, was the only
sugar central in the city of Ormoc. Still, the classification, to be reasonable, should be in terms applicable to future
conditions as well. The taxing ordinance should not be singular and exclusive as to exclude any subsequently
established sugar central, of the same class as plaintiff, from the coverage of the tax. As it is now, even if later a
similar company is set up, it cannot be subject to the tax because the ordinance expressly points only to Ormoc
Sugar Company, Inc. as the entity to be levied upon.
CIR vs. SC Johnson
Facts: Respondent is a domestic corporation organized and operating under the Philippine Laws, entered into a
licensed agreement with the SC Johnson and Son, USA, a non-resident foreign corporation based in the USA
pursuant to which the respondent was granted the right to use the trademark, patents and technology owned by
the later including the right to manufacture, package and distribute the products covered by the Agreement and
secure assistance in management, marketing and production from SC Johnson and Son USA.
For the use of trademark or technology, respondent was obliged to pay SC Johnson and Son, USA royalties based
on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments which
respondent paid for the period covering July 1992 to May 1993 in the total amount of P1,603,443.00.
On October 29, 1993, respondent filed with the International Tax Affairs Division (ITAD) of the BIR a claim for
refund of overpaid withholding tax on royalties arguing that, the antecedent facts attending respondents case fall
squarely within the same circumstances under which said MacGeorge and Gillette rulings were issued. Since the
agreement was approved by the Technology Transfer Board, the preferential tax rate of 10% should apply to the
respondent. So, royalties paid by the respondent to SC Johnson and Son, USA is only subject to 10% withholding
tax.
The Commissioner did not act on said claim for refund. Private respondent SC Johnson & Son, Inc. then filed
a petition for review before the CTA, to claim a refund of the overpaid withholding tax on royalty payments from
July 1992 to May 1993.
On May 7, 1996, the CTA rendered its decision in favor of SC Johnson and ordered the CIR to issue a tax

13

credit certificate in the amount of P163,266.00 representing overpaid withholding tax on royalty payments
beginning July 1992 to May 1993.
The CIR thus filed a petition for review with the CA which rendered the decision subject of this appeal on November
7, 1996 finding no meritin the petition and affirming in toto the CTA ruling.
[Respondent], a domestic corporation organized and operating under the Philippine laws, entered into a license
agreement with SC Johnson and Son, United States of America (USA), a non-resident foreign corporation
based in the U.S.A. pursuant to which the [respondent] was granted the right to use the trademark, patents and
technology owned by the latter including the right to manufacture, package and distribute the products covered
by the Agreement and secure assistance in management, marketing and production from SC Johnson and Son,
U. S. A.
The said License Agreement was duly registered with the Technology Transfer Board of the Bureau of Patents,
Trade Marks and Technology Transfer under Certificate of Registration No. 8064 (Exh. "A").
For the use of the trademark or technology, [respondent] was obliged to pay SC Johnson and Son, USA
royalties based on a percentage of net sales and subjected the same to 25% withholding tax on royalty
payments which [respondent] paid for the period covering July 1992 to May 1993 in the total amount of
P1,603,443.00 (Exhs. "B" to "L" and submarkings).
On October 29, 1993, [respondent] filed with the International Tax Affairs Division (ITAD) of the BIR a claim for
refund of overpaid withholding tax on royalties arguing that, "the antecedent facts attending [respondent's] case
fall squarely within the same circumstances under which said MacGeorge and Gillete rulings were issued. Since
the agreement was approved by the Technology Transfer Board, the preferential tax rate of 10% should apply to
the [respondent]. We therefore submit that royalties paid by the [respondent] to SC Johnson and Son, USA is
only subject to 10% withholding tax pursuant to the most-favored nation clause of the RP-US Tax Treaty [Article
13 Paragraph 2 (b) (iii)] in relation to the RP-West Germany Tax Treaty [Article 12 (2) (b)]" (Petition for Review
[filed with the Court of Appeals], par. 12). [Respondent's] claim for there fund of P963,266.00 was computed as
follows:
Issue: Double Taxation THE COURT OF APPEALS ERRED IN RULING THAT SC JOHNSON AND SON, USA IS ENTITLED TO
THE "MOST FAVORED NATION" TAX RATE OF 10% ON ROYALTIES AS PROVIDED IN THE RP-US TAX TREATY IN RELATION
TO THE RP-WEST GERMANY TAX TREATY.
Whether or not tax refunds are considered as tax exemptions.

Held:
We are unable to sustain the position of the Court of Tax Appeals, which was upheld by the Court of Appeals, that the phrase "paid
under similar circumstances in Article 13 (2) (b), (iii) of the RP-US Tax Treaty should be interpreted to refer to payment of royalty,
and not to the payment of the tax, for the reason that the phrase "paid under similar circumstances" is followed by the phrase "to a
resident of a third state".
The purpose of a most favored nation clause is to grant to the contracting party treatment not less favorable than that which has
been or may be granted to the "most favored" among other countries. 25 The most favored nation clause is intended to establish the
principle of equality of international treatment by providing that the citizens or subjects of the contracting nations may enjoy the
privileges accorded by either party to those of the most favored nation. 26 The essence of the principle is to allow the taxpayer in one
state to avail of more liberal provisions granted in another tax treaty to which the country of residence of such taxpayer is also a
party provided that the subject matter of taxation, in this case royalty income, is the same as that in the tax treaty under which the
taxpayer is liable. Both Article 13 of the RP-US Tax Treaty and Article 12 (2) (b) of the RP-West Germany Tax Treaty, above-quoted,
speaks of tax on royalties for the use of trademark, patent, and technology. The entitlement of the 10% rate by U.S. firms despite the
absence of a matching credit (20% for royalties) would derogate from the design behind the most grant equality of international
treatment since the tax burden laid upon the income of the investor is not the same in the two countries. The similarity in the
circumstances of payment of taxes is a condition for the enjoyment of most favored nation treatment precisely to underscore the
need for equality of treatment.
We accordingly agree with petitioner that since the RP-US Tax Treaty does not give a matching tax credit of 20 percent for the taxes
paid to the Philippines on royalties as allowed under the RP-West Germany Tax Treaty, private respondent cannot be deemed

14

entitled to the 10 percent rate granted under the latter treaty for the reason that there is no payment of taxes on royalties under
similar circumstances.
It bears stress that tax refunds are in the nature of tax exemptions. As such they are registered as in derogation
of sovereign authority and to be construed strictissimi juris against the person or entity claiming
the exemption. The burden of proof is upon him who claims the exemption in his favor and he must be able to
justify his claim by the clearest grant of organic or statute law. Private respondent is claiming for a refund of
the alleged overpayment of tax on royalties; however there is nothing on record to support a claim that the tax on
royalties under the RP-US Treaty is paid under similar circumstances as the tax on royalties under the RP-West
Germany Tax Treaty.

CIR v. CA
GR. No. 124043, Oct. 14, 1998
Facts: Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are
beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives.
In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a portion of its premises to small
shop owners, like restaurants and canteen operators, and P44,259.00 from parking fees collected from non-members. On July 2,
1984, the commissioner of internal revenue (CIR) issued an assessment to private respondent, in the total amount of P415,615.01
including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees
and deficiency withholding tax on wages. Private respondent formally protested the assessment and, as a supplement to its basic
protest, filed a letter dated October 8, 1985. In reply, the CIR denied the claims of YMCA.
Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax Appeals (CTA) on March 14, 1989. In due
course, the CTA issued this ruling in favor of the YMCA:
Issue: Is the income derived from rentals of real property owned by the Young Men's Christian Association of the Philippines, Inc.
(YMCA) established as "a welfare, educational and charitable non-profit corporation" subject to income tax under the National
Internal Revenue Code (NIRC) and the Constitution?
Held:
We reiterate that private respondent is exempt from the payment of property tax, but not income tax on the rentals from its property.
The bare allegation alone that it is a non-stock, non-profit educational institution is insufficient to justify its exemption from the
payment of income tax.
As previously discussed, laws allowing tax exemption are construed strictissimi juris. Hence, for the YMCA to be granted the
exemption it claims under the aforecited provision, it must prove with substantial evidence that (1) it falls under the
classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually,
directly, and exclusively for educational purposes. However, the Court notes that not a scintilla of evidence was submitted by private
respondent to prove that it met the said requisites.

ABRA VALLEY COLLEGE, INC. VS AQUINO JUNE 15 1988PARAS,J.

FACTS:

15

Abra Valley College, an educational corporation and institution of higher learning duly incorporated with the SEC
filed a complaint to annul and declare void the Notice of Seizure and the Notice of Sale of its lot and building located at
Bangued, Abra, for non-payment of real estat e taxes and penalties. Paterno Millare filed through counsel
a motion to dismiss the complaint. The provincial fiscal filed a memorandum for the government wherein they opined that
based on the evidence, the laws applicable, court decisions and jurisprudence, the
schoolb u i l d i n g a n d t h e s c h o o l l o t u s e d f o r e d u c a t i o n a l p u r p o s e s o f t h e A b r a V a l l e y
C o l l e g e a r e e x e m p t e d f r o m p a y m e n t o f t a x e s . N o n e t h e l e s s , t h e t r i a l c o u r t disagreed because of the use of
the second floor by the Director of the said school f o r r e s i d e n t i a l p u r p o s e . H e t h u s r u l e d f o r t h e g o v e r n m e n t
a n d r e n d e r e d t h e assailed decision.
ISSUE: W h e t h e r o r n o t t h e l o t a n d b u i l d i n g i n q u e s t i o n a r e u s e d e x c l u s i v e l y f o r educational purposes?
HELD: NO. It must be stressed that while the court allows a more liberal and nonr e s t r i c t i v e i n t e r p r e t a t i o n o f t h e p h r a s e e x c l u s i v e l y u s e d f o r e d u c a t i o n a l purposes as
provided for in the Article VI, Section 22, Paragraph 3 of the
1935P h i l i p p i n e C o n s t i t u t i o n , r e a s o n a b l e e m p h a s i s h a s a l w a y s b e e n m a d e t h a t exemption
extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main
purpose. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor
by jurisprudence. Thus, while the use of the second floor of the main build ing in the case at bar for residential
purposes of the Director and his family, may find justification under the concept of incidental use, which is
complimentary to the main or primary purpose educational, the lease of the first floor thereof to
theN o r t h e r n M a r k e t i n g C o r p o r a t i o n c a n n o t b y a n y s t r e t c h o f t h e i m a g i n a t i o n b e considered incidental to the
purposes of
education.U n d e r t h e 1 9 3 5 C o n s t i t u t i o n , t h e r i a l c o u r t c o r r e c t l y a r r i v e d a t t h e conclusion
that the school building as well as the lot where it is built, should be taxed, not because the second floor of the same is
being used by the director and his family for residential purposes, but because the first floor thereof is being used for commercial
purposes. However, since only a portion is used for purposes of c o m m e r c e , i t i s o n l y f a i r t h a t h a l f o f t h e
a s s e s s e d t a x b e r e t u r n t o t h e s c h o o l involved
, the only issue left for the Court to determine and as agreed by the parties, is whether or not the lot and building in question
are used exclusively for educational purposes. (Rollo, p. 20)
Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use thereof,
determines and exemption from property taxes under Section 22 (3), Article VI of the 1935 Constitution. Hence, the seizure and sale
of subject college lot and building, which are contrary thereto as well as to the provision of Commonwealth Act No. 470, otherwise
known as the Assessment Law, are without legal basis and therefore void.
On the other hand, private respondents maintain that the college lot and building in question which were subjected to seizure and
sale to answer for the unpaid tax are used: (1) for the educational purposes of the college; (2) as the permanent residence of the
President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and grandchildren; and (3) for commercial
purposes because the ground floor of the college building is being used and rented by a commercial establishment, the Northern
Marketing Corporation (See photograph attached as Annex "8" (Comment; Rollo, p. 90]).
Held: It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase
"exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution,
reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary
for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is
neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for
residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary
to the main or primary purposeeducational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any
stretch of the imagination be considered incidental to the purpose of education.

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