CASE DIGESTS IN TAXATION LAW 1

A. CASES ASSIGNED UNDER GENERAL PRINCIPLES

1. REPUBLIC VS COCFED |GR. No. 147062-64
December 14, 2001
Case Background: The Coco Levy Fund Scam was a controversy in the 1970s and 80's in
the Philippines involving

the former President Ferdinand

Marcos and his cronies. It is alleged that

Marcos, Danding Cojuangco, Juan Ponce Enrile, and others conspired to tax coconut farmers, promising
them the development of the coconut industry and a share of the investments, but on the contrary were
used for personal profit particularly in the purchase of United Coconut Planters Bank (UCPB) and majority
stake in San Miguel Corporation (SMC), to name a few.
The issue has not died today, with coconut farmers fighting for justice against the forced taxation, and a
share of the Coco Levy Funds' investments. The Coco Levy Fund is estimated to have ballooned anywhere
in the range of P100-150 billion in assets.
Facts:
Immediately after the 1986 EDSA Revolution, then President Corazon C. Aquino issued Executive Order
(EO) Nos. 1,2 and 14. "On the explicit premise that 'vast resources of the government have been amassed
by the Marcoses and their close associates both here and abroad.
EO No. 1 created the PCGG to assist the President in the recovery of the ill-gotten wealth.
EO No. 2, on the other hand, shows a list of all the ill-gotten assets found in both in the Philippines and
various countries of the world.
EO No. 14 empowered the PCGG, with the OSGs assistance and other governmental agencies, to file and
prosecute all cases investigated by it under EOs 1 & 2.
Pursuant to these laws, the PCGG issued and implemented numerous sequestrations, freeze orders and
provisional takeovers of allegedly ill-gotten companies, assets and properties, real or personal , which
includes UCPBs shares of stocks registered in the names of the alleged "one million coconut farmers," the
so-called Coconut Industry Investment Fund companies and Eduardo Cojuangco Jr.
In connection with the sequestration of the said UCPB shares, the PCGG, on July 31, 1987, instituted an
action for reconveyance, reversion, accounting, restitution and damages docketed as Case No. 0033 in the
Sandiganbayan.
On November 15, 1990, upon Motion of COCOFED, the Sandiganbayan issued a Resolution lifting the
sequestration of the UCPB shares on the ground that COCOFED and the so-called CIIF companies had not
been impleaded by the PCGG as parties had not been impleaded by the PCGG as parties. The anti-graft
court noted that though these entities were listed in an annex appended to the Complaint, they had not
been named as parties-respondents.
The Sandiganbayan Resolution was challenged by the PCGG in a Petition for Certiorari (GR 96073) in
the Supreme Court. Meanwhile, upon motion of Cojuangco, the anti-graft court ordered the holding of

elections for the Board of Directors of UCPB. However, the PCGG applied for and was granted by this Court
a Restraining Order enjoining the holding of the election. Subsequently, the Court lifted the Restraining
Order and ordered the UCPB to proceed with the election of its board of directors. Furthermore, it allowed
the sequestered shares to be voted by their registered owners. The victory of the registered shareholders
was fleeting because the Court, acting on the solicitor generals Motion for Clarification/Manifestation,
issued a Resolution on 16 February 1993, declaring that the right of COCOFED, et. al. to vote stock in their
names at the meetings of the UCPB cannot be conceded at this time. That right still has to be established
by them before the Sandiganbayan. Until that is done, they cannot be deemed legitimate owners of UCPB
stock and cannot be accorded the right to vote them. On 23 January 1995, the Court rendered its final
Decision in GR 96073, nullifying and setting aside the 15 November 1990 Resolution of the Sandiganbayan
which lifted the sequestration of the subject UCPB shares.
A month thereafter, the PCGG pursuant to an Order of the Sandiganbayan subdivided Case 0033
into eight Complaints (Cases 0033-A to 0033-H). Six years later, on 13 February 2001, the Board of
Directors of UCPB received from the ACCRA Law Office a letter written on behalf of the COCOFED and the
alleged nameless one million coconut farmers, demanding the holding of a stockholders meeting for the
purpose of, among others, electing the board of directors. In response, the board approved a Resolution
calling for a stockholders meeting on 6 March 2001 at 3 p.m. On 23 February 2001, COCOFED, et al. and
Ballares, et al. filed the Class Action Omnibus Motion in Sandiganbayan Civil Cases 0033-A, 0033-B and
0033-F, asking the Sandiganbayan to enjoin the PCGG from voting the UCPB shares of stock registered in
the respective names of the more than one million coconut farmers; and to enjoin the PCGG from voting
the SMC shares registered in the names of the 14 CIIF holding companies including those registered in the
name of the PCGG. On 28 February 2001, the Sandiganbayan, after hearing the parties on oral argument,
issued the Order, authorizing COCOFED, et. al. and Ballares, et. al. as well as Cojuangco, as are all other
registered stockholders of the United Coconut Planters Bank, until further orders from the Court, to
exercise their rights to vote their shares of stock and themselves to be voted upon in the United Coconut
Planters Bank (UCPB) at the scheduled Stockholders Meeting on 6 March 2001 or on any subsequent
continuation or resetting thereof, and to perform such acts as will normally follow in the exercise of these
rights as registered stockholders. The Republic of the Philippines represented by the PCGG filed the
petition for certiorari.
ISSUE: Can the coconut levy funds be considered government funds? Or What is the nature of the Coconut
levy funds?
HELD:

Equally important as the fact that the coconut levy funds were raised through the taxing and

police powers of the State is respondents' effective judicial admission that these levies are government
funds...respondents concede that the Coconut Consumers Stabilization Fund (CCSF) and the Coconut
Investment Development Fund "constitute government funds x x x for the benefit of coconut farmers."
"Collections on both levies constitute government funds. However, unlike other taxes that the
Government levies and collects such as income tax, tariff and customs duties, etc., the collections on the
CCSF and CIDF are, by express provision of the laws imposing them, for a definite purpose, not just for any
governmental purpose. As stated above part of the collections on the CCSF levy should be spent for the

benefit of the coconut farmers. And in respect of the collections on the CIDF levy, P.D. 582 mandatorily
requires that the same should be spent exclusively for the establishment, operation and maintenance of a
hybrid coconut seed garden and the distribution, for free, to the coconut farmers of the hybrid coconut
seed nuts produced from that seed garden.
"On the other hand, the laws which impose special levies on specific industries, for example on the mining
industry, sugar industry, timber industry, etc., do not, by their terms, expressly require that the collections
on those levies be spent exclusively for the benefit of the industry concerned. And if the enabling law thus
so provide, the fact remains that the governmental agency entrusted with the duty of implementing the
purpose for which the levy is imposed is vested with the discretionary power to determine when and how
the collections should be appropriated."
Note: The SC ruled in favor of the REPUBLIC.
To begin with, the Coconut Levy was imposed in the exercise of the States inherent power of taxation. Indeed, the
Coconut Levy Funds partake the nature of TAXES. The Funds were generated by virtue of statutory
enactments by the proper legislative authorities and for public purpose.The Funds were collected to
advance the government avowed policy of protecting the coconut industry.
The SC took judicial notice of the fact that the coconut industry is one of the great economic pillars of
our nation, and coconuts and their byproducts occupy a leading position among the countries export
products.Taxation is done not merely to raise revenues to support the government, but also to provide
means for the rehabilitation and the stabilization of a threatened industry ,which is so affected with public
interest
2. PEPSI-COLA V. MUN. OF TANAUAN | GR. NO. L-31156 | February 27, 1976
Doctrine: The legislative power to create political corporations for purposes of local self-government
courts with it the power to confer on such local government agencies the power to tax.
Facts: Pepsi commenced a complaint with preliminary injunction before the CFI of Leyte for that court to
declare Section 2 of R.A. 2264 (Local Autonomy Act) unconstitutional as an undue delegation of taxing
authority as well as declare Municipal Ordinance Nos. 23 & 27 series of 1962 of Municipality of Tanauan,
Leyte null and void. Municipal Ordinance 23 levies and collects from softdrinks producers and
manufacturers a tai of 1/16th of a centavo for every bottle of softdrink corked. On the other hand,
Municipal Ordinance 27 levies and collects on softdrinks produced or manufactured within the territorial
jurisdiction of the municipality a tax of 1 centavo on each gallon of volume capacity. Both are denominated
as municipal production tax.
Issues:
a) WoN section 2 of R.A. 2264 is an undue delegation of power
b) WoN Ordinances 23 & 27 constitute double taxation and impose percentage or specific tax
c) WoN Ordinances 23 and 27 are unjust and unfair
Held:

a) No, it is true that power of taxation is purely legislative and which the central legislative body cannot
delegate either to the executive or judicial department of the government without infringing upon the
theory of separation of powers but the exception lies in the case of municipal corporations to which the
said theory does not apply. Legislative concerns may be delegated to local governments in respect of
matters of local concerns. By necessary implication, the legislative power to create political corporations
for purposes of local self-government courts with it the power to confer on such local government agencies
the power to tax. The constitution grants local government the autonomous authority to create their own
sources of revenue and to levy taxes.
b) No, the difference between the two ordinances clearly lies in the tax rate of the soft drinks produced: in
Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council of
Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect. Plaintiffappellant in its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. 27,
series of 1962. Undoubtedly, the taxing authority conferred on local governments under Section 2,
Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting those which are
mentioned therein." The limitation applies, particularly to the prohibition against municipalities and
municipal districts to impose "any percentage tax or other taxes in any form based thereon nor impose
taxes on articles subject to specific tax except gasoline, under the provisions of the National Internal
Revenue Code." For purposes of this particular limitation, a municipal ordinance which prescribes a set
ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null
and void for being outside the power of the municipality to enact. But, the imposition of "a tax of one
centavo (P0.01) on each gallon of volume capacity" on all soft drinks produced or manufactured under
Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other taxes in any form
based thereon. The tax is levied on the produce (whether sold or not) and not on the sales. The volume
capacity of the taxpayer's production of soft drinks is considered solely for purposes of determining the tax
rate on the products, but there is not set ratio between the volume of sales and the amount of the tax. Nor
can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such
as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches
firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films,
playing cards, saccharine, opium and other habit-forming drugs. Soft drink is not one of those specified.
c) The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks,
produced or manufactured, or an equivalent of 1- centavos per case, cannot be considered unjust and
unfair. An increase in the tax alone would not support the claim that the tax is oppressive, unjust and
confiscatory. Municipal corporations are allowed much discretion in determining the rates of imposable
taxes. This is in line with the constitutional policy of according the widest possible autonomy to local
governments in matters of local taxation, an aspect that is given expression in the Local Tax Code (PD No.
231, July 1, 1973). Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off
an ordinance as unreasonable. Reluctance should not deter compliance with an ordinance such as

Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were to be realized.
3. GEROCHI V. DEPT. OF ENERGY | 527 SCRA 696
Doctrine: The conservative and pivotal distinction between these two (2) powers, tax and regulation as a
form of police power, rests in the purpose for which the charge is made. If generation of revenue is the
primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary
purpose,the fact that revenue is incidentally raised does not make the imposition a tax.
Facts: RA 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA), which sought
to impose a universal charge on all end-users of electricity for the purpose of funding NAPOCORs projects,
was enacted and took effect in 2001. Petitioners contest the constitutionality of the EPIRA, stating that the
imposition of the universal charge on all end-users is oppressive and confiscatory and amounts to taxation
without representation for not giving the consumers a chance to be heard and be represented.
Issue: Is the universal tax imposed under Sec. 34 of EPIRA a form of taxation?
Held: NO. The assailed universal charge is not a tax, but an exaction in the exercise of the States police
power. That public welfare is promoted may be gleaned from Sec. 2 of the EPIRA, which enumerates the
policies of the State regarding electrification. Moreover, the Special Trust Fund
feature of the universal charge reasonably serves and assures the attainment and perpetuity of the
purposes for which the universal charge is imposed (e.g. to ensure the viability of the electric power
industry), further boosting the position that the same is an exaction primarily in pursuit of the States
police objectives.
If generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a
tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised does not make the
imposition a tax.
The taxing power may be used as an implement of police power. The theory behind the exercise of the
power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting
the general welfare and well-being of the people.
Issue: Was there undue delegation of legislative power to tax on the part of the ERC?
Held: No, there is no undue delegation of powers to the ERC. The EPIRA, read and appreciated in its
entirety, in relation to Sec. 34 thereof, is complete in all its essential terms and conditions, and it contains
sufficient standards.
Although Sec. 34 of the EPIRA merely provides that within one (1) year from the effectivity thereof, a
Universal Charge to be determined, fixed and approved by the ERC, shall be imposed on all electricity endusers, and therefore, does not state the specific amount to be paid as Universal Charge, the amount
nevertheless is made certain by the legislative parameters provided by the law itself when it provided for
the promulgation and enforcement of a National Grid Code, and a Distribution Code.

This is also the case when the EPIRA law authorized the PSALM to compute the stranded debts and
stranded costs of the NPC which is to form the basis of the ERC in determining its universal charge.
As to the second test, the Court had, in the past, accepted as sufficient standards the following: interest
of law and order; adequate and efficient instruction; public interest; justice and equity; public
convenience and welfare; simplicity, economy and efficiency; standardization and regulation of
medical education; and fair and equitable employment practices. Provisions of the EPIRA such as,
among others, to ensure the total electrification of the country and the quality, reliability, security and
affordability of the supply of electric power, and watershed rehabilitation and management meet the
requirements for valid delegation, as they provide the limitations on the ERCs power to formulate the IRR.
These are sufficient standards. (Gerochi, et al. v. Dept. of Energy, et al., G.R. No. 159796, July 17, 2007,
Nachura, J).
4. VALLEY TRADING CO. V CFI | GR. NO. L-49529 | March 31, 1989
Doctrine: There mere fact that a statute is alleged to be unconstitutional or invalid will not entitle a party
to have its enforcement enjoined.
Facts: Valley Trading Co., Inc. filed a complaint to declare null and void Section 2B.02, Sub-paragraph 1,
Letter (A), Paragraph 2 of Ordinance No. T-1, Revenue Code of Cauayan, Isabela, which imposed a
graduated tax on retailers, independent wholesalers and distributors; and for the refund of P23,202.12,
plus interest of 14 % per annum thereon, which petitioner had paid pursuant to said ordinance.
Valley Trading Co. alleges that said ordinance imposes a "graduated fixed tax based on Sales" that "in
effect imposes a sales tax in contravention of Sec. 5, Charter I, par. (L) of P.D. 231 amended by P.D. 426
otherwise known as the Local Tax Code " which prohibits a municipality from imposing a percentage tax on
sales. Petitioner likewise prayed for the issuance of a writ of preliminary prohibitory injunction to enjoin the
collection of said tax.
In response, the CFI of Isabel, citing the ruling of the Acting Secretary of Finance upholding the validity
of said tax on the ground that the same is an annual graduated fixed tax imposed on the privilege to
engage in business, and not a percentage tax on sales which consists of a fixed percentage of the
proceeds realized out of every sale transaction of taxable items sold by the taxpayer, claim that the tax is
an annual fixed business tax, not a percentage tax on sales, imposable by a municipality under Section
19(A-1) of the Local Tax Code.
After a reply to the answer had been filed, the trial court set the case for a pre-trial conference , but
was terminated. It also denied the writ applied for on the ground that the collection of taxes cannot be
enjoined.
Issue: Can the writ of preliminary prohibitory injunction be granted by the Court on the sole justification
that ordinances supposed nullity?
Held: The issuance of a writ of preliminary injunction in the present case, as in any other case, is
addressed to the sound discretion of the court, conditioned on the existence of a clear and positive right of

the movant which should be protected. It is an extraordinary peremptory remedy available only on the
grounds expressly provided by law, specifically Section 3 of Rule 58 of the Rules of Court.
The circumstances required for the writ to issue do not obtain in the case at bar. The damage that may
be caused to the petitioner will not, of course, be irrepairable; where so indicated by subsequent events
favorable to it, whatever it shall have paid is easily refundable. Besides, the damage to its property rights
must perforce take a back seat to the paramount need of the State for funds to sustain governmental
functions. Compared to the damage to the State which may be caused by reduced financial resources, the
damage to petitioner is negligible. The policy of the law is to discountenance any delay in the collection of
taxes because of the oft-repeated but unassailable consideration that taxes are the lifeblood of the
Government and their prompt and certain availability is an imperious need.
Equally pertinent is the rule that courts should avoid issuing a writ of preliminary injunction which, in
effect, would dispose of the main case without trial. In the present case, it is evident that the only ground
relied upon for injunction relief is the alleged patent nullity of the ordinance. If the court should issue the
desired writ, premised on that sole justification therefor of petitioner, it would be a virtual acceptance of
his claim that the imposition is patently invalid or, at the very least, that the ordinance is of doubtful
validity. There would, in effect, be a prejudgment of the main case and a reversal of the rule on the burden
of proof since it would assume the proposition which the petitioner is inceptively duty bound to prove.
Furthermore, such action will run counter to the well settled rule that laws are presumed to be valid
unless and until the courts declare the contrary in clear and unequivocal terms. A court should issue a writ
of preliminary injunction only when the petitioner assailing a statute has made out a case of
unconstitutionality or invalidity strong enough to overcome, in the mind of the judge, the presumption of
validity, aside from a showing of a clear legal right to the remedy sought. The case before Us, however,
presents no features sufficient to overcome such presumption. This must have been evident to the trial
court from the answer of the respondents and the well reasoned ruling of the Acting Secretary of Finance.
There mere fact that a statute is alleged to be unconstitutional or invalid will not entitle a party to
have its enforcement enjoined. Under the foregoing disquisitions, We see no plausible reason to consider
this case as an exception.
5. CIR V. ALGUE | 158 SCRA 9
Doctrine: Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness
will negate the very reason for government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved
Facts: Philippine Sugar Estate Development Company appoints Algue as its agent authorizing it to sell its
land, factories & oil manufacturing process. Family members Guevara et al worked for the formation of
Vegetable Oil Investment Corp inducing persons to invest in it. After its incorporation largely through the
promotion of Guevara et al, VOIC purchased PSEDC properties. For the sale, Algue received as agent a
commission of 126k and it was from this commission that the 75k promotional fees were paid to Guevara
et al.

Issue: : WON Sunga the collector of Internal Revenue correctly disallowed the 75k deduction claimed by
private respondent Algue as legitimate business expensed in its income tax returns?
Held: No, claimed deduction was an ordinary reasonable or necessary business expense. Amount has
been legitimately paid by Algue for actual services rendered.
The payment was in the form of promotional fee and collected by the payees for their in the creation
of VOIC and its subsequent purchase of the properties of the PSEDC. It is immaterial that it was paid to the
family members owning Algue who rendered services as the promotional fee was not excessive. Although
the Solicitor General is correct when he said that the burden is on the taxpayer to prove the validity of
claimed deduction. In the present case, however, SC find that the onus has been discharged satisfactorily.
Algue has proved that the payment of fees was necessary and reasonable in the light of the efforts
exerted by the payees in inducing investors and prominent businessmen to venture in an experimental
enterprise and involved themselves in a new business requiring millions of pesos. This was no mean feat
and should be, as it was, sufficiently recompensed. It is said that taxes are what we pay for civilization
society. Without taxes, the government would be paralyzed for lack of the motive power to activate and
operate it.

Hence, despite the natural reluctance to surrender part of one's hard earned income to the

taxing authorities, every person who is able to must contribute his share in the running of the government.
The government for its part, is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and material values.
This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is
an arbitrary method of exaction by those in the seat of power. But even as we concede the inevitability
and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised
reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to
complain and the courts will then come to his succor.
For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate, as it has here, that the law has not been observed.
6. ROXAS Y CIA V. CTA| 23 SCRA 276
Facts:

Antonio, Eduardo and Jose Roxas, brothers and at the same time partners of the Roxas y

Compania, inherited from their grandparents several properties which included farmlands with a total area
of 19,000 hectares (Nasugbu Farmlands). The tenants therein expressed their desire to purchase from the
brothers the parcels which they actually occupied so the government, pursuant to the constitutional
mandate to acquire big landed estate and apportion them among landless tenants, persuaded the brothers
sell the same. Roxas y Cia. then agreed to sell 13, 500 hectares of the lands but the government, however,
did not have enough funds, so the former allowed the farmers to buy the lands for the same price but by
installment. Subsequently, the CIR demanded from the brothers the payment of deficiency income taxes
resulting from the sale of the farmlands and considered the partnership as engaged in the business of real
estate,hence, 100% of the profits derived therefrom was taxed. The brothers protested the assessment but
the same was denied. On appeal, the Court of Tax Appeals sustained the assessment. Hence, this appeal.

CTA decision: sustained the assessment except the demand for the payment of the fixed tax on dealer of
securities and the disallowance of the deductions for contributions to the Philippine Air Force Chapel and
Hijas de Jesus' Retiro de Manresa.
Issue: Is Roxas y Cia. liable for the payment of deficiency income for the sale of the farmlands?
Held: No. Although they (farmers/ vendees) paid for their respective holdings in installment for a period of
10 years, it would nevertheless not make the vendor Roxas yCia. a real estate dealer during the 10-year
amortization period. It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers
who tilled them for generations was not only in consonance with, but more in obedience to the request
and pursuant to the policy of our Government to allocate lands to the landless. However, the Government
could not comply with its duty for lack of funds so Roxas y Cia. Shouldered the Government's burden, went
out of its way and sold lands directly to the farmers in the same way and under the same terms as would
have been the case had the Government done it itself. For this magnanimous act, the municipal council of
Nasugbu passed a resolution expressing the people's gratitude.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". And, in order to maintain the general public's trust and confidence in
the Government this power must be used justly and not treacherously. It does not conform with Our sense
of justice in the instant case for the Government to persuade the taxpayer to lend it a helping hand and
later on to penalize him for duly answering the urgent call.In fine, Roxas y Cia. cannot be considered a real
estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the
farme rsare capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the
extent of 50%.
7. TOLENTINO V. SEC. OF JUSTICE |249 SCRA 629
Doctrine:
Facts:
Issue:
Held:
8. ABAKADA V. ERMITA |GR. NO. 168730 |September 1, 2005
Facts: On May 24, 2005, the President signed into law Republic Act 9337 or the VAT Reform Act. Before
the law took effect on July 1, 2005, the Court issued a TRO enjoining government from implementing the
law in response to a slew of petitions for certiorari and prohibition questioning the constitutionality of the
new law.
The challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6: That
the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to 12%, after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1%)
Petitioners allege that the grant of stand-by authority to the President to increase the VAT rate is an
abdication by Congress of its exclusive power to tax because such delegation is not covered by Section 28
(2), Article VI Consti. They argue that VAT is a tax levied on the sale or exchange of goods and
services which cant be included within the purview of tariffs under the exemption delegation since this
refers to customs duties, tolls or tribute payable upon merchandise to the government and usually
imposed on imported/exported goods. They also said that the President has powers to cause, influence or
create the conditions provided by law to bring about the conditions precedent. Moreover, they allege that
no guiding standards are made by law as to how the Secretary of Finance will make the recommendation.
Issue: Whether or not the RA 9337's stand-by authority to the Executive to increase the VAT rate,
especially on account of the recommendatory power granted to the Secretary of Finance, constitutes
undue delegation of legislative power?
Held: NO. The powers which Congress is prohibited from delegating are those which are strictly, or
inherently and exclusively, legislative. Purely legislative power which can never be delegated is the
authority to make a complete law- complete as to the time when it shall take effect and as to whom it shall
be applicable, and to determine the expediency of its enactment. It is the nature of the power and not the
liability of its use or the manner of its exercise which determines the validity of its delegation.
The exceptions are:
(a) delegation of tariff powers to President under Constitution
(b) delegation of emergency powers to President under Constitution
(c) delegation to the people at large
(d) delegation to local governments
(e) delegation to administrative bodies
For the delegation to be valid, it must be complete and it must fix a standard. A sufficient standard is one
which defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency
to apply it.
In this case, it is not a delegation of legislative power BUT a delegation of ascertainment of facts upon
which enforcement and administration of the increased rate under the law is contingent. The legislature
has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or
condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of
the control of the executive. No discretion would be exercised by the President. Highlighting the absence of
discretion is the fact that the word SHALL is used in the common proviso. The use of the word SHALL
connotes a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with
the idea of discretion.

Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence
of any of the conditions specified by Congress. This is a duty, which cannot be evaded by the President. It
is a clear directive to impose the 12% VAT rate when the specified conditions are present.
Congress just granted the Secretary of Finance the authority to ascertain the existence of a fact--whether by December 31, 2005, the VAT collection as a percentage of GDP of the previous year exceeds 2
4/5 % or the national government deficit as a percentage of GDP of the previous year exceeds one and 1
%. If either of these two instances has occurred, the Secretary of Finance, by legislative mandate, must
submit such information to the President.
In making his recommendation to the President on the existence of either of the two conditions, the
Secretary of Finance is not acting as the alter ego of the President or even her subordinate. He is acting as
the agent of the legislative department, to determine and declare the event upon which its expressed will
is to take effect. The Secretary of Finance becomes the means or tool by which legislative policy is
determined and implemented, considering that he possesses all the facilities to gather data and
information and has a much broader perspective to properly evaluate them. His function is to gather and
collate statistical data and other pertinent information and verify if any of the two conditions laid out by
Congress is present.
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.
There is no undue delegation of legislative power but only of the discretion as to the execution of a
law. This is constitutionally permissible. Congress did not delegate the power to tax but the mere
implementation of the law.
9. OSMENA V. ORBOS |GR. NO. 99886 |March 31, 1993
Doctrine: " To avoid the taint of unlawful delegation of the power to tax, there must be a standard which
implies that the legislature determines matter of principle and lays down fundamental policy."
Facts: Pres. Marcos created a Special Account in the General Fund (P.D. 1956),designated as the Oil Price
Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for cost increases in crude
oil and imported petroleum products resulting from exchange rate adjustments and from increases in the
world market prices of crude oil. Pres. Aquino, amended and promulgated E.O. No. 137,expanding the
grounds for reimbursement to oil companies for possible cost under recovery incurred as a result of the
reduction of domestic prices of petroleum products, the amount of the under recovery being left for
determination by the Ministry of Finance. The petition claimed that the status of the OPSF as of March 31,
1991 showed a Terminal Balance Deficit of some P12.877 billion and to abate such, the Energy Regulatory
Board issued an Order approving the increase in pump prices of petroleum products. The OPSF deficit
should have been fully covered in a span of 6 months but, Oscar Orbos, in his capacity as Executive
Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his capacity as
Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board are
poised to accept, process and pay claims not authorized under P.D. 1956.
Senator John Osmea assailed the constitutionality of paragraph 1c of PD 1956, as amended by EO
137, empowering the Energy Regulatory Board (ERB) to approve the increase of fuel prices or impose

additional amounts on petroleum products which proceeds shall accrue to the Oil Price Stabilization Fund
(OPSF) established for the reimbursement to ailing oil companies in the event of sudden price increases.
The petitioner avers that the collection on oil products establishments is an undue and invalid delegation
of legislative power to tax. Further, the petitioner points out that since a 'special fund' consists of monies
collected through the taxing power of a State, such amounts belong to the State, although the use thereof
is limited to the special purpose/objective for which it was created. It thus appears that the challenge
posed by the petitioner is premised primarily on the view that the powers granted to the ERB under P.D.
1956, as amended, partake of the nature of the taxation power of the State.
Issue: What is the purpose of the Oil Price Stabilization Fund?
Held: The OPSF is a "Trust Account" which was established for the purpose of minimizing the frequent price
changes brought about by exchange rate adjustment and/or changes in world market prices of crude oil and
imported petroleum products. It is clear that while the funds collected may be referred to as taxes; they are
exacted in the exercise of the police power of the State.
Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is
segregated from the general fund; and while it is placed in what the law refers to as a "trust liability
account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is
satisfied that these measures comply with the constitutional description of a "special fund."The Court cited
Valmonte v. ERB and Gaston v. Republic Planters Bank,
The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to
provide a means for the stabilization of the sugar (petroleum products)industry. The levy is primarily in the
exercise of the police power of the State.
Issue: Is there an undue delegation of the legislative power of taxation?
Held: None. It seems clear that while the funds collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover, that the OPSF as a special fund is plain from the
special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what
the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and
review of the COA. The Court is satisfied that these measures comply with the constitutional description of
a "special fund."

With regard to the alleged undue delegation of legislative power, the Court finds that

the provision conferring the authority upon the ERB to impose additional amounts on petroleum products
provides a sufficient standard by which the authority must be exercised. In addition to the general policy of
the law to protect the local consumer by stabilizing and subsidizing domestic pump rates, P.D. 1956
expressly authorizes the ERB to impose additional amounts to augment the resources of the Fund.
10. CALTEX PHILS. V. COA |208 SCRA 726
Doctrine: A taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of compensation because the government and taxpayer are not
mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or

judgment as is allowed to be set-off.

Facts: On February 2, 1989, the Commission on Audit (COA) sent a letter to Caltex requesting the latter to
remit its tax contributions amounting to P335,037,649 to Oil Price Stabilization Fund (OPSF) pursuant to
Section 8 of P.D. No. 1956. Another letter was sent to the petitioner, stating that the total amount of its
unremitted tax wasP1,287,668,820.00 from 1986-1988 as verified by the Office of Energy Affairs (OEA).
Denying such request, Caltex answered to COAs letters asking OEA for early release of reimbursement certificates from
OPSF. COA denied petitioners request but instead asked Caltex to remit its collection. As a reply, Caltex gave
a proposal for its payment based on PD 1956, as amended by E.O 137; Department of Finance
Circular No.1-87; the New Civil Code as to compensation; and the Revised Administrative Code.COA
accepted the proposal except those matters involving offsetting the remittances and reimbursements.
Pursuant to such agreement, COA informed OEA as to Caltexs remittances amounting to P1, 505,668,906 to OPSF
and allowing OEA to reimburse Caltex the amount of P1, 959,182,612. Caltex, however, disagreed with
such arrangement. Caltex thereby insisted that its remittances and reimbursements must be offset. But
COA disregarded such contention holding as a basis the case of Francia vs IAC and Fernandez, arguing that
OPSF is not in the form of taxation, therefore not for revenue purposes.
Issue: Whether or not OPSF contributions are for non-revenue purposes of thegovernment and it is still in
the form of taxation?
Held: YES, OPSF are for non-revenue purposes and is in the nature of taxes.
The Supreme Court found no merit in petitioner's contention that the OPSF contributions are not for a
public purpose because they go to a special fund of the government.
Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government;
taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened
industry which is affected with public interest as to be within the police power of the state.
There can be no doubt that the oil industry is greatly imbued with public interest as it vitally affects
the general welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the people
and cause economic crisis of untold proportions. It would have a chain reaction in terms of, among others,
demands for wage increases and upward spiraling of the cost of basic commodities. The stabilization then
of oil prices is of prime concern which the state, via its
police

power,

may

properly

address. Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is
taxation. No amount of semantical juggleries could dim this fact.
11. VILLANUEVA V. CITY OF ILOILO |26 SCRA 578
Facts: Relying on the passage of RA 2264 or the Local Autonomy Act, Iloilo enacted Ordinance 11 Series of
1960, imposing a municipal license tax on tenement houses in accordance with the schedule of payment
provided by therein. Villanueva and the other appellees are apartment owners from whom the city
collected license taxes by virtue of Ordinance 11. Appellees aver that the said ordinance is unconstitutional
for RA 2264does not empower cities to impose apartment taxes; that the same is oppressive and

unreasonable for it penalizes those who fail to pay the apartment taxes; that it constitutes not only double
taxation but treble taxation; and, that it violates uniformity of taxation.
Issues:
1. Does the ordinance impose double taxation?
2. Is Iloilo City empowered by RA 2264 to impose tenement taxes?
Held: While it is true that appellees are taxable under the NIRC as real estate dealers,and taxable under
Ordinance 11, double taxation may not be invoked. This is because the same tax may be imposed by the
national government as well as by the local government. The contention that appellees are doubly taxed
because they are paying real estate taxes and the tenement tax is also devoid of merit. A license tax may
be levied upon a business or occupation although the land or property used in connection therewith is
subject to property tax. In order to constitute double taxation, both taxes must be the same kind or
character. Real estate taxes and tenement taxes are not of the same character.RA 2264 confers local
governments broad taxing powers. The imposition of the tenement taxes does not fall within the
exceptions mentioned by the same law. It is argued however that the said taxes are real estate taxes and
thus, the imposition of more the 1 percent real estate tax which is the limit provided by CA 158, makes the
said ordinance ultra vires. The court ruled that the tax in question is not a real estate tax. It does not have
the attributes of a real estate tax. By the title and the terms of the ordinance, the tax is a municipal tax
which means an imposition or exaction on the right to use or dispose of property, to pursue a business,
occupation or calling, or to exercise a privilege. Tenement houses being offered for rent or lease constitute
a distinct form of business or calling and as such, the imposition of municipal tax finds support in Section2
of RA 2264.
12. CIR V. S.C. JOHNSON |GR. NO. 127105|June 25, 1999
Facts: JOHNSON AND SON, INC 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] wasgranted the right to use the
trademark, patents and technology owned by the latter including the rightto manufacture, package and
distribute the products covered by the Agreement and secure assistance inmanagement, 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 . For the use of the trademark or technology, SC
JOHNSON AND SON, INC 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 1993.00 On October 29,1993, SC
JOHNSON AND SON, USA filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund
of overpaid withholding tax on royalties arguing that, since the agreement was approved by the
Technology Transfer Board, the preferential tax rate of 10% should apply to the respondent. Respondent

submits that royalties paid 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 in relation to the RP-West Germany Tax Treaty. The
Internal Tax Affairs Division of the BIR ruled against SC Johnson and Son, Inc. and an appeal was filed by
the former to the Court of tax appeals.The CTA ruled against CIR and ordered that a tax credit be issued in
favor of SC Johnson and Son, Inc. Unpleased with the decision, the CIR filed an appeal to the CA which
subsequently affirmed in toto the decision of the CTA. Hence, an appeal on certiorari was filed to the SC.
ISSUE: Is SC Johnson and Son, USA entitled to the most favored nation tax rate of 0% on royalties as
provided in the RP-US Tax Treaty in relation to the RP-WEST Germany Tax Treaty?
HELD:
The concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty could not apply to
taxes imposed upon royalties in the RP-US Tax Treaty since the two taxes imposed under the two
tax treaties are not paid under similar circumstances, they are not containing similar provisions on
tax crediting.
The United States is the state of residence since the taxpayer, S. C. Johnson and Son, U. S. A., is based
there. Under the RP-US Tax Treaty, the state of residence and the state of source are both permitted to tax
the royalties, with a restraint on the tax that may be collected by the state of source. Furthermore,the
method employed to give relief from double taxation is the allowance of a tax credit to citizens or residents
of the United States against the United States tax, but such amount shall not exceed the limitations
provided by United States law for the taxable year. The Philippines may impose one of three rates- 25
percent of the gross amount of the royalties; 15 percent when the royalties are paid by a corporation
registered with the Philippine Board of Investments and engaged in preferred areas of activities; or the
lowest rate of Philippine tax that may be imposed on royalties of the same kind paid under similar
circumstances to a resident of a third state.
13. PHILEX V. CIR |294 SCRA 687
Doctrine: That taxes cannot be subject to compensation for the simple reason that the government and
the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and
debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in
its sovereign capacity.
Facts: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8,
1996 in CA-G.R. SP No. 36975 affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated
March 16, 1995 ordering it to pay the amount of P110,677,668.52 as excise tax liability for the period from
the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until
fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. The facts show that on August 5,
1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter of
1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821.982.52. In a letter dated
August 20, 1992, Philex protested the demand for payment of the tax liabilities stating that it has pending
claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of
P119,977,037.02 plus interest. Therefore these claims for tax credit/refund should be applied against the

tax liabilities. In reply, the BIR, in a letter dated September 7, 1992, found no merit in Philex's position.
Since these pending claims have not yet been established or determined with certainty, it follows that no
legal compensation can take place. Hence, the BIR reiterated its demand that Philex settle the amount plus
interest within 30 days from the receipt of the letter. Philex was able to obtain its VAT input credit/refund
not only for the taxable year 1989 to 1991 but also for 1992 and 1994. In view of the grant of its VAT input
credit/refund, Philex now contends that the same should, ipso jure, off-set its excise tax liabilities since
both had already become "due and demandable, as well as fully liquidated;" hence, legal compensation
can properly take p
Issue: WoN Philexs contention is tenable
Held: : No, Philexs contention is not tenable. In several instances prior to the instant case, SC have
already made the pronouncement that taxes cannot be subject to compensation for the simple reason that
the government and the taxpayer are not creditors and debtors of each other. There is a material
distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes
are due to the Government in its sovereign capacity. We find no cogent reason to deviate from the
aforementioned distinction. Prescinding from this premise, in Francia v. Intermediate Appellate Court, we
categorically held that taxes cannot be subject to set-off or compensation, thus: We have consistently
ruled that there can be no offsetting of taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that the government owes him an amount
equal to or greater than the tax being collected. The collection of a tax cannot await the results of a
lawsuit against the government. The ruling in Francia has been applied to the subsequent case of Caltex
Philippines, Inc. v. Commission on Audit, which reiterated that: a taxpayer may not offset taxes due from
the claims that he may have against the government. Taxes cannot be the subject of compensation
because the government and taxpayer are not mutually creditors and debtors of each other and a claim
for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.
14. MERALCO V. VERA |67 SCRA 351
Facts: Meralco is the holder of a franchise to construct, maintain, and operate an electric light, heat, and
power system in the City of Manila and its suburbs. In 1962 and 1963, Meralco imported and received from
abroad copper wires, transformers, and insulators for use in the operation of its business. The Collector of
Customs, as deputy of the Commissioner of Internal Revenue, levied and collected a compensating
tax. Meralco claimed for refund for the said years, but such claims were either not acted upon or denied
by the Commissioner.
Issue:

Whether or not Meralco is exempt from payment of a compensating tax on poles, wires,

transformers and insulators imported by it for use in the operation of its electric light, heat, and power
system.
Held:
Meralco is not exempt from paying the compensation tax provided for in Section 190 of the Tax Code, the

purpose of which is to place casual importers, who are not merchants on equal footing with established
merchants who pay sales tax on articles imported by them. Meralcos claim for exemption from payment
of the compensating tax is not clear or expressed, contrary to the rule that exemptions from taxation are
highly disfavored in law, and he who claims exemption must be able to justify his claim by the clearest
grant of organic or statute law. Tax exemption are strictly construed against the taxpayer, they being
highly disfavored and may almost be said to be odious to the law. When exemption is claimed, it must be
shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the
claim.
15. COLLECTOR V. FIREMANS FUND INSURANCE |148 SCRA 315
Doctrine: There is no justification for the government which has already realized the revenue which is the
object of the imposition of subject stamp tax, to require the payment of the same tax for the same
documents. Enshrined in our basic legal principles is the time honored doctrine that no person shall
unjustly enrich himself at the expense of another. It goes without saying that the government is not
exempted from the application of this doctrine.
Facts: From January, 1952 to December, 1958, herein private respondent Fireman's Fund Insurance
Company entered into various insurance contracts involving casualty, fire and marine risks, for which the
corresponding insurance policies were issued. From January, 1952 to 1956, documentary stamps were
bought and affixed to the monthly statements of policies issues; and from 1957 to 1958 documentary
stamps were bought and affixed to the corresponding pages of the policy register, instead of on the
insurance policies issued. On July 3, 1959, respondent company discovered that its monthly statements of
business and policy register were lost. The loss was reported to the Building Administration of Ayala
Building and the National Bureau of Investigation on July 6, 1959. Herein petitioner was also informed of
such loss by respondent company, through the latter's auditors, Sycip, Gorres and Velayo, in a letter dated
July 14, 1959. After conducting an investigation of said loss, petitioner's examiner ascertained that
respondent company failed to affix the required documentary stamps to the insurance policies issued by it
and failed to preserve its accounting records within the time prescribed by Section 337 of the Revenue
Code by using loose leaf forms as registers of documentary stamps without written authority from the
Commissioner of Internal Revenue as required by Section 4 of Revenue Regulations No. V-1. As a
consequence of these findings, petitioner, in a letter dated December 7, 1962, assessed and demanded
from petitioner the payment of documentary stamp taxes for the years 1952 to 1958 in the total amount of
P 79,806.87 and plus compromise penalties, a total of P 81,406.87.
Issue: : WON respondent company may be required to pay again the documentary stamps it has actually
purchased, affixed and canceled?
Held: : No, as correctly pointed out by respondent Court of Tax Appeals, under the National Internal
Revenue Code, documentary tax is deemed paid by: (a) the purchase of documentary stamps; (b) affixture
of documentary stamps to the document or instrument taxed or to such other paper as may be indicated
by law or regulations; and (c) cancellation of the stamps as required by law. It will be observed however,

that the over-riding purpose of these provisions of law is the collection of taxes. The three steps abovementioned are but the means to that end. Thus, the purchase of the stamps is the form of payment made;
the affixture thereof on the document or instrument taxed is to insure that the corresponding tax has been
paid for such document while the cancellation of the stamps is to obviate the possibility that said stamps
will be reused for similar documents for similar purposes. In the case at bar, there appears to be no
dispute on the fact that the documentary stamps corresponding to the various policies were purchased
and paid for by the respondent Company. Neither is there any argument that the same were canceled as
required by law. It is a general rule in the interpretation of statutes levying taxes or duties, that in case of
doubt, such statutes are to be construed most strongly against the government and in favor of the
subjects or citizens, because burdens are not to be imposed or presumed to be imposed beyond what
statutes expressly and clearly import. There is no justification for the government which has already
realized the revenue which is the object of the imposition of subject stamp tax, to require the payment of
the same tax for the same documents. Enshrined in our basic legal principles is the time honored doctrine
that no person shall unjustly enrich himself at the expense of another. It goes without saying that the
government is not exempted from the application of this doctrine.
16. CIR V. MARUBENI CORP. |372 SCRA 577
Facts: Marubeni s a foreign corporation duly organized under the existing laws of Japan and duly licensed
to engage in business under Philippine laws. It has equity investment in the Atlantic Gulf & Pacific Co. of
Manila.
AG&P declared and directly remitted the cash dividends to Marubenis head office in Tokyo net of the
final dividend tax and withholding profit remittance tax.
Thereafter, Marubeni, through SGV, sought a ruling from the BIR on whether or not the dividends it
received from AG&P are effectively connected with its business in the Philippines as to be
consideredbranch profits subject to profit remittance tax.
The Acting Commissioner ruled that the dividends received by Marubeni are not income from
the business activity in which it is engaged. Thus, the dividend if remitted abroad are not considered
branch profits subject to profit remittance tax.
Pursuant to such ruling, petitioner filed a claim for refund for the profit tax remittance erroneously paid
on the dividends remitted by AG& P.
Respondent Commissioner denied the claim. It ruled that since Marubeni is a non resident corporation
not engaged in trade or business in the Philippines it shall be subject to tax on income earned from
Philippine sources at the rate of 35% of its gross income.
On the other hand, Marubeni contends that, following the principal-agent relationship theory, Marubeni
Japan is a resident foreign corporation subject only to final tax on dividends received from a domestic
corporation.
Issue: Whether or not Marubeni is a resident or a non-resident foreign corporation under Philippine laws?
Held: No. The general rule is a foreign corporation is the same juridical entity as its branch office in the
Philippines . The rule is based on the premise that the business of the foreign corporation is conducted

through its branch office, following the principal-agent relationship theory. It is understood that
the branch becomes its agent.
However, when the foreign corporation transacts business in the Philippines independently of its branch,
the principal-agent relationship is set aside. The transaction becomes one of the foreign corporation, not of
the branch. Consequently, the taxpayer is the foreign corporation, not the branch or the resident foreign
corporation.
Thus, the alleged overpaid taxes were incurred for the remittance of dividend income to the head office in
Japan which is considered as a separate and distinct income taxpayer from the branch in the Philippines.
17. PLDT VS PROVINCE OF LAGUNA |467 SCRA 93
Facts: PLDT is a holder of a legislative franchise under Act No. 3436, as amended, to render local and
international telecommunications services. The terms and conditions of its franchise were later
consolidated under Republic Act No. 7082, Section 12 of which embodies the so-called in-lieu-of-all taxes
clause, whereunder PLDT shall pay a franchise tax equivalent to 3% of all its gross receipts, which
franchise tax shall be in lieu of all taxes.
Thereafter, the Local Government Code took effect. Section 137 of the Code, in relation to Section 151
thereof, grants provinces and other local government units the power to impose local franchise tax on
businesses enjoying a franchise. Invoking its authority, the Province of Laguna, through its local legislative
assembly, enacted a provincial ordinance imposing a franchise tax upon all businesses enjoying a
franchise, which includes PLDT. In compliance with the ordinance, PLDT paid the Province of Laguna its
local franchise tax liability for the year 1998 in the amount of P1,081,212.10.
Prior thereto, Congress enacted the Public Telecommunications Policy Act of the Philippines. Then, the
Department of Finance, thru its Bureau of Local Government Finance (BLGF), issued a ruling to the effect
that PLDT, among other telecommunication companies, became exempt from local franchise tax.
Accordingly, PLDT shall be exempt from the payment of franchise and business taxes imposable by LGUs
under Sections 137 and 143, respectively of the Local Government Code, upon the effectivity of RA 7925.
However, PLDT shall be liable to pay the franchise and business taxes on its gross receipts during the
period that PLDT was not enjoying the most favored clause provision of RA 7025.
PLDT then refused to pay the Province of Laguna its local franchise tax liability for the following year
and it even filed with the Office of the Provincial Treasurer a written claim for refund of the amount it paid
as local franchise tax for the previous year.
Issue: Does Section 23 of Rep. Act No. 7925 operate to exempt PLDT from payment of franchise tax?
Held: No. In approving Section 23 of R.A. No. 7925, Congress did not intend it to operate as a blanket tax
exemption to all telecommunications entities. Applying the rule of strict construction of laws granting tax
exemptions and the rule that doubts should be resolved in favor of municipal corporations in interpreting
statutory provisions on municipal taxing powers, we hold that section 23 of R.A. No. 7925 cannot be

considered as having amended petitioners franchise so as to entitle it to exemption from the imposition of
local franchise taxes.
The tax exemption must be expressed in the statute in clear language that leaves no doubt of the
intention of the legislature to grant such exemption. And, even if it is granted, the exemption must be
interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.
Mutatis mutandis also applies to this case: When exemption is claimed, it must be shown indubitably
to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim. It is only
when the terms of the concession are too explicit to admit fairly of any other construction that the
proposition can be supported.
Nor does the term exemption in 23 of R.A. No. 7925 mean tax exemption. The term refers to exemption
from certain regulations and requirements imposed by the National Telecommunications Commission
(NTC).
18. CIR V. BENGUET|463 SCRA 28| July 8, 2005
Facts: Benguet Corporation is a domestic corporation organized and existing by virtue of Philippine laws,
engaged in the exploration, development and operation of mineral resources, and the sale or marketing
thereof to various entities. Respondent is a value added tax (VAT) registered enterprise.
The transaction in question occurred during the period between 1988 and 1991. In January of 1988,
respondent applied for and was granted by the BIR zero-rated status on its sale of gold to Central Bank. On
28 August 1988, Deputy Commissioner of Internal Revenue Eufracio D. Santos issued VAT Ruling No. 378888, which declared that "[t]h sale of gold to Central Bank is considered as export sale subject to zero-rate
pursuant to Section 100[[10]] of the Tax Code, as amended by Executive Order No. 273." The BIR came out
with at least six (6) other issuances reiterating the zero-rating of sale of gold to the Central Bank, the latest
of which is VAT Ruling No. 036-90 dated 14 February1990.
Relying on its zero-rated status and the above issuances, respondent sold gold to the Central Bank
during the period of 1 August 1989 to 31 July 1991 and entered into transactions that resulted in input VAT
incurred in relation to the subject sales of gold. It then filed applications for tax refunds/credits
corresponding to input VAT for the amounts of P46,177,861.12, P19,218,738.44, and P84,909,247.96.
Respondent's applications were either not acted upon or expressly disallowed by petitioner. In addition,
petitioner issued a deficiency assessment against respondent when, after applying respondent's creditable
input VAT costs against the retroactive 10% VAT levy, there resulted a balance of excess output VAT. The
express disallowance of respondent's application for refunds/credits and the issuance of deficiency
assessments against it were based on a BIR ruling-BIR VAT Ruling No. 008-92 dated 23 January 1992-that
was issued subsequent to the consummation of the subject sales of gold to the Central Bank which
provides that sales of gold to the Central Bank shall not be considered as export sales and thus, shall be
subject to 10% VAT. In addition, BIR VAT Ruling No. 008-92 withdrew, modified, and superseded all
inconsistent BIR issuances.
Issue: Whether respondent's sale of gold to the Central Bank during the period when such was classified
by BIR issuances as zero-rated could be taxed validly at 10% rate after the consummation of the

transactions involved.
Held: The Supreme Court upheld the decision of the Court of Appeals favoring respondent's position. In
long line of cases the Court affirmed that the rulings, circular, rules and regulations promulgated by the
Commissioner of Internal Revenue would have no retroactive application if to so apply them would be
prejudicial to the taxpayers. In transactions taxed at a 10% rate, when at the end of any given taxable
quarter the output VAT exceeds the input VAT, the excess shall be paid to the government; when the input
VAT exceeds the output VAT, the excess would be carried over to VAT liabilities for the succeeding quarter
or quarters. On the other hand, transactions which are taxed at zero-rate do not result in any output tax.
Input VAT attributable to zero rated sales could be refunded or credited against other internal revenue
taxes at the option of the taxpayer. Respondent, in this case, has similarly been put on the receiving end of
a grossly unfair deal. Before respondent was entitled to tax refunds or credits based on petitioner's own
issuances. Then suddenly, it found itself instead being made to pay deficiency taxes with petitioner's
retroactive change in the VAT categorization of respondent's transactions with the Central Bank. Tills is the
sort of unjust treatment of a taxpayer which the law in Sec. 246 of the NIRC abhors and forbids.

(In transactions taxed at a 10% rate, when at the end of any given taxable quarter the output VAT
exceeds the input VAT, the excess shall be paid to the government; when the input VAT exceeds
the output VAT, the excess would be carried over to VAT liabilities for the succeeding quarter
or quarters.37 On the other hand, transactions which are taxed at zero-rate do not result in any
output tax. Input VAT attributable to zero-rated sales could be refunded or credited against other
internal revenue taxes at the option of the taxpayer.)
(in a zero-rated transaction, when a VAT-registered person ("taxpayer") purchases materials
from his supplier at P80.00, P7.3039 of which was passed on to him by his supplier as the
latters 10% output VAT, the taxpayer is allowed to recover P7.30 from the BIR, in addition to
other input VAT he had incurred in relation to the zero-rated transaction, through tax credits
or refunds.)
(In case of transaction subject to 10% VAT, the taxpayer is allowed to recover both the input
VAT of P7.30 which he paid to his supplier and his output VAT of P2.70 (10% the P30.00 value
he has added to the P80.00 material) by passing on both costs to the buyer. both situations, the
taxpayer has the option not to carry any VAT cost because in the zero-rated transaction, the taxpayer is
allowed to recover input tax from the BIR without need to pay output tax, while in 10% rated VAT, the
taxpayer is allowed to pass on both input and output VAT to the buyer. Thus, there is an elemental
similarity between the two types of VAT ratings)
(In the instant case, the retroactive application of VAT Ruling No. 008-92 unilaterally forfeited
or withdrew this option of respondent. The adverse effect is that respondent became the
unexpected and unwilling debtor to the BIR of the amount equivalent to the total VAT cost of
its product, a liability it previously could have recovered from the BIR in a zero-rated scenario

or at least passed on to the Central Bank had it known it would have been taxed at a 10% rate.
Thus, it is clear that respondent suffered economic prejudice when its consummated sales of gold
to the Central Bank were taken out of the zero-rated category. The change in the VAT rating of
respondents transactions with the Central Bank resulted in the twin loss of its exemption from payment of
output VAT and its opportunity to recover input VAT, and at the same time subjected it to the 10% VAT
sans the option to pass on this cost to the Central Bank, with the total prejudice in money terms being
equivalent to the 10% VAT levied on its sales of gold to the Central Bank.)
TAX CASES SET B EXTRACTS
THE PHILIPPINE GUARANTY CO. INC. vs. THE COMMISSIONER OF INTERNAL REVENUE etc.
-previous decision holding Philippine Guaranty Company liable for the payment of income tax
which it should have withheld and remitted to the Bureau of Internal Revenue in the total sum
of P375,345.00.
- movant's view that the Court of Tax Appeals as well as this Court, found it "innocent of the charges of
violating, willfully or negligently, subsection (c) of Section 53 and Section 54 of the National Internal
Revenue Code." Hence, it cannot subsequently be held liable for the assessment of P375,345.00 based on
said sections.
- SC: The Court of Tax Appeals and this Court did not find that it did not violate Sections 53 (c) and 54 of
the Tax Code. On the contrary, movant was found to have violated Section 53(c) by failing to file the
necessary withholding tax return and to pay tax due. Still, finding that movant's violation was due to a
reasonable cause namely, reliance on the advice of its auditors and opinion of the Commissioner of
Internal Revenue no surcharge to the tax was imposed.
- Section 72 of Tax Code: first half of the above-quoted section covers failure to file a return,
willingly and/or due to negligence, in which case the surcharge is, 50%. In the second part of
the law it covers failure to make and file a return "not due to willful neglect," in which case
only 25% surcharge should be added. As a further concession to the taxpayer the abovequoted section provides that if "it is shown that the failure to file it was due to a reasonable
cause, no such addition shall be made to the tax."
- mere fact that it was exempted from paying the penalty necessarily implies violation of
Section 53(c). Violating Section 53(c) is one thing; imposing the penalty for such violation
under Section 72

**

is another. If it is found that the failure to file is due to a reasonable cause,

then exemption from surcharge sets in but never exemption from payment of the tax due.
- The non-imposition of the 25% surcharge does not carry with it remission of the tax.
- Movant argues that it could not be expected to withhold the tax, for as early as August 18,
1953 the Board of Tax Appeals held in the case of Franklin Baker
premiums in question were not subject to withholding.

that the reinsurance

- Section 200 of the Income Tax Regulations expressly grants protection to him only if and
when he follows strictly what has been provided therein. Section 53 (c) makes the withholding
agent personally liable for the income tax withheld under Section 54. It states:
- The law sets no condition for the personal liability of the withholding agent to attach. The
reason is to compel the withholding agent to withhold the tax under all circumstances. In
effect, the responsibility for the collection of the tax as well as the payment thereof is
concentrated upon the person over whom the Government has jurisdiction.
- With respect to the collection and/or withholding of the tax, he is the Government's agent. In
regard to the filing of the necessary income tax return and the payment of the tax to the
Government, he is the agent of the taxpayer.
- further contends that as agent of the Government it was released from liability for the tax
after it was advised by the Commissioner of Internal Revenue that the reinsurance premiums
involved were not subject to withholding. Basis: Section 200 of Income Tax Regulations.
- Section 200 of ITR relaxes the application of the stringent provisions of Section 53 of the Tax
Code. Accordingly, it grants exemption from tax liability, and in so doing, it lays down steps to
be taken by the withholding agent, namely: (1) that he withholds the tax due; (2) that he
promptly addresses a query to the Commissioner of Internal Revenue for determination
whether or not the income paid to an individual is subject to withholding; and (3) that the
Commissioner of Internal Revenue decides that such income is not subject to withholding. Strict
observance of said steps is required of a withholding agent before he could be released from
liability.
- Section 200 to implement Section 53 of the Tax Code for no other purpose than to enforce its
provisions effectively. Section 53 provided for no exemption from the duty to withhold except
in the cases of tax-free covenant bonds dividends.
- movant didnt comply with Section 200. For, it has not been shown that it withheld the
amount of tax due before it inquired from the Bureau of Internal Revenue as to the taxability of
the reinsurance premiums involved. petitioner did not collect and remit to the Commissioner of
Internal Revenue the withholding tax.
- The requirement in Section 200 that the withholding agent should first withhold the tax before
addressing a query to the Commissioner of Internal Revenue is not without meaning for it is in
keeping with the general operation of our tax laws: payment precedes defense.
TAN VS. DEL ROSARIO
Facts:
Petitioners challenge the constitutionality of RA 7496 or the simplified income taxation scheme (SNIT)
under Arts (26) and (28) and III (1). The SNIT contained changes in the tax schedules and different

treatment in the professionals which petitioners assail as unconstitutional for being isolative of the equal
protection clause in the constitution.
Issue: Is the contention meritorious?
Ruling:
No. uniformity of taxation, like the hindered concept of equal protection, merely requires that all subjects
or objects of taxation similarly situated are to be treated alike both privileges and liabilities. Uniformity,
does not offend classification as long as it rest on substantial distinctions, it is germane to the purpose of
the law. It is not limited to existing only and must apply equally to all members of the same class.
The legislative intent is to increasingly shift the income tax system towards the scheduled approach in
taxation of individual taxpayers and maintain the present global treatment on taxable corporations. This
classification is neither arbitrary nor inappropriate.
Tan v Del Rosario
- petitioner: not uniform and equitable in that the law would now attempt to tax single
proprietorships and professionals differently from the manner it imposes the tax on
corporations and partnerships.
- SC: such a system of income taxation has long been the prevailing rule even prior to Republic
Act No. 7496.
- With the legislature primarily lies the discretion to determine the nature (kind), object
(purpose), extent (rate), coverage (subjects) and situs (place) of taxation. This court cannot
freely delve into those matters which, by constitutional fiat, rightly rest on legislative
judgment. UNLESS unconscionable and unjust as to amount to confiscation of property
- whether or not public respondents have exceeded their authority in promulgating Revenue
Regulations
- The real objection of petitioners is focused on the administrative interpretation of public
respondents that would apply SNIT to partners in general professional partnerships.
- SC: apparent misconception that general professional partnerships are subject to the
payment of income tax or that there is a difference in the tax treatment between individuals
engaged in business or in the practice of their respective professions and partners in general
professional partnerships. FACT: a general professional partnership, unlike an ordinary
business partnership (which is treated as a corporation for income tax purposes and so subject
to the corporate income tax), is not itself an income taxpayer. The income tax is imposed not
on the professional partnership, which is tax exempt, but on the partners themselves in their
individual capacity computed on their distributive shares of partnership profits.

- no distinction in income tax liability between a person who practices his profession alone or
individually and one who does it through partnership (whether registered or not) with others
in the exercise of a common profession. all individuals deriving income from any source
whatsoever are treated in almost invariably the same manner and under a common set of
rules.
- the phrase "income taxpayers" is an all embracing term used in the Tax Code, and it
practically covers all persons who derive taxable income. The law, in levying the tax, adopts
the most comprehensive tax situs of nationality and residence of the taxpayer (that renders
citizens, regardless of residence, and resident aliens subject to income tax liability on their income from all
sources) and of the generally accepted and internationally recognized income taxable base (that
can subject non-resident aliens and foreign corporations to income tax on their income from Philippine
sources).
- Code classifies taxpayers into four main groups, namely: (1) Individuals, (2) Corporations, (3)
Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as to corpus and
as to income).
- Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships."
Ordinarily, partnerships, no matter how created or organized, are subject to income tax which,
for purposes of the above categorization, are by law assimilated to be within the context of,
and so legally contemplated as, corporations.
- Obviously, SNIT is not intended or envisioned, as so correctly pointed out in the discussions
in Congress during its deliberations on Republic Act 7496, aforequoted, to cover corporations
and partnerships which are independently subject to the payment of income tax.
- "Exempt partnerships," upon the other hand, are not similarly identified as corporations nor
even considered as independent taxable entities for income tax purposes. A general
professional partnership is such an example. Here, the partners themselves, not the partnership
(although it is still obligated to file an income tax return [mainly for administration and data]),
are liable for the payment of income tax in their individual capacity computed on their
respective and distributive shares of profits.
- under the Tax Code on income taxation, the general professional partnership is deemed to be
no more than a mere mechanism or a flow-through entity in the generation of income by, and
the ultimate distribution of such income to, respectively, each of the individual partners.
- There is no evident intention of the law, either before or after the amendatory legislation, to
place in an unequal footing or in significant variance the income tax treatment of professionals
who practice their respective professions individually and of those who do it through a general
professional partnership.

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES INC. vs. CITY OF BUTUAN etc.
- Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and
principal place of business in Quezon City. The defendants are the City of Butuan, its City
Mayor, the members of its municipal board and its City Treasurer.
- Pepsi-Colas warehouse in the City of Butuan serves as a storage for its products the "PepsiCola" soft drinks for sale to customers in the City of Butuan and all the municipalities in the
Province of Agusan. These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City and shipped
to the Butuan City warehouse of plaintiff for distribution and sale in the City of Butuan and all
municipalities of Agusan.
- Pepsi: Ordinance 110 null and void because: (1) it partakes of the nature of an import tax; (2)
it amounts to double taxation; (3) it is excessive, oppressive and confiscatory; (4) it is highly
unjust and discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority of
which it was enacted, is an unconstitutional delegation of legislative powers.
- double taxation, in general, is not forbidden by our fundamental law. Then, again, the
general principle against delegation of legislative powers, in consequence of the theory of
separation of powers2 is subject to one well-established exception, namely: legislative powers
may be delegated to local governments to which said theory does not apply 3 in respect of
matters of local concern. tax of "P0.10 per case of 24 bottles," of soft drinks or carbonated drinks is
manifestly too small to be excessive, oppressive, or confiscatory.
- tax imposed upon dealers "engaged in selling" soft drinks or carbonated drinks. Seemingly,
intent was then to levy a tax upon the sale of said merchandise. tax is, however, imposed only
upon "any agent and/or consignee of any person, association, partnership, company or
corporation engaged in selling ... soft drinks or carbonated drinks." a consignee of agent shall
mean any person, association, partnership, company or corporation who acts in the place of
another by authority from him or one entrusted with the business of another or to whom is
consigned or shipped no less than 1,000 cases of hard liquors or soft drinks every month for
resale, either retail or wholesale.
- merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the tax,
unless they are agents and/or consignees of another dealer, who, in the very nature of things,
must be one engaged in business outside the City. tax would not be applicable to such agent
and/or consignee, if less than 1,000 cases of soft drinks are consigned or shipped to him every
month. tax "shall be based and computed from the cargo manifest or bill of lading ... showing
the number of cases" not sold but "received" by the taxpayer, the intention to limit the
application of the ordinance to soft drinks and carbonated drinks brought into the City from
outside thereof becomes apparent. Tax therefore partakes of the nature of an import duty,
which is beyond defendant's authority to impose by express provision of law.

- Even however, if the burden in question were regarded as a tax on the sale of said
beverages, it would still be invalid, as discriminatory, and hence, violative of the uniformity
required by the Constitution and the law therefor, since only sales by "agents or consignees"
of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on
behalf of other merchants, regardless of the volume of their sales, and even if the same
exceeded those made by said agents or consignees of producers or merchants established
outside the City of Butuan, would be exempt from the disputed tax.
- valid classification: (1) it is based upon substantial distinctions which make real differences;
(2) these are germane to the purpose of the legislation or ordinance; (3) the classification
applies, not only to present conditions, but, also, to future conditions substantially identical to
those of the present; and (4) the classification applies equally all those who belong to the
same class.
- not fully met by ordinance. no reason why sales thereof by sealers other than agents or
consignees of producers or merchants established outside the City of Butuan should be
exempt from the tax. Ordinance null and void for being unconstitutional.
AMERICAN BIBLE SOCIETY vs. CITY OF MANILA
- AMERICAN BIBLE SOCIETY is foreign, non-stock, non-profit, religious, missionary corporation
duly registered and doing business in the Philippines through its Philippine agency established
in Manila. ABSs Philippine agency has been distributing and selling bibles and/or gospel
portions thereof (except during the Japanese occupation) throughout the Philippines and
translating the same into several Philippine dialects. City Treasurer of the City of Manila
informed plaintiff that it was conducting the business of general merchandise since November,
1945, without providing itself with the necessary Mayor's permit and municipal license, in
violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364, and required
plaintiff to secure, within three days, the corresponding permit and license fees, together with
compromise covering the period from xxx to xxx.
- plaintiff sold for the use of the purchasers at its principal office at 636 Isaac Peral, Manila,
Bibles, New Testaments, bible portions and bible concordance in English and other foreign
languages imported by it from the United States as well as Bibles, New Testaments and bible
portions in the local dialects imported and/or purchased locally; that from the fourth quarter
of 1945 to the first quarter of 1953 inclusive the sales made
- The issues. As may be seen from the proceeding statement of the case, the issues involved
in the present controversy may be reduced to the following: (1) whether or not the ordinances
of the City of Manila, Nos. 3000, as amended, and 2529, 3028 and 3364, are constitutional and
valid; and (2) whether the provisions of said ordinances are applicable or not to the case at
bar.

- Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines,
provides that:
(7) No law shall be made respecting an establishment of religion, or prohibiting the free
exercise thereof, and the free exercise and enjoyment of religious profession and
worship, without discrimination or preference, shall forever be allowed. No religion test
shall be required for the exercise of civil or political rights.
- unconstitutional and illegal in so far as its society is concerned, because they provide for
religious censorship and restrain the free exercise and enjoyment of its religious profession, to
wit: the distribution and sale of bibles and other religious literature to the people of the
Philippines.
- This Ordinance 3000 is of general application and not particularly directed against
institutions like the plaintiff, and it does not contain any provisions whatever prescribing
religious censorship nor restraining the free exercise and enjoyment of any religious
profession.
- Therefore, the necessity of the permit is made to depend upon the power of the City to
license or tax said business, trade or occupation.
- license fees required to be paid quarterly in Section 1 of said Ordinance No. 2529, as
amended, are not imposed directly upon any religious institution but upon those engaged in
any of the business or occupations therein enumerated, such as retail "dealers in general
merchandise" which, it is alleged, cover the business or occupation of selling bibles, books,
etc.
- The question that now remains to be determined is whether said ordinances are inapplicable,
invalid or unconstitutional if applied to the alleged business of distribution and sale of bibles
to the people of the Philippines by a religious corporation like the American Bible Society,
plaintiff herein.
- The constitutional guaranty of the free exercise and enjoyment of religious profession and
worship carries with it the right to disseminate religious information. Any restraints of such
right can only be justified like other restraints of freedom of expression on the grounds that
there is a clear and present danger of any substantive evil which the State has the right to
prevent".
- In the case at bar the license fee herein involved is imposed upon appellant for its
distribution and sale of bibles and other religious literature: The power to impose a license tax
on the exercise of these freedom is indeed as potent as the power of censorship which this
Court has repeatedly struck down. . . . It is not a nominal fee imposed as a regulatory measure
to defray the expenses of policing the activities in question. It is in no way apportioned. It is

flat license tax levied and collected as a condition to the pursuit of activities whose enjoyment
is guaranteed by the constitutional liberties of press and religion and inevitably tends to
suppress their exercise.
- "When we balance the constitutional rights of owners of property against those of the people
to enjoy freedom of press and religion, as we must here, we remain mindful of the fact that
the latter occupy a preferred position.
- SEC27 OF THE NIRC: SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. The following
organizations shall not be taxed under this Title in respect to income received by them as such

(e) Corporations or associations organized and operated exclusively for religious,

charitable, . . . or educational purposes, . . .: Provided, however, That the income of whatever
kind and character from any of its properties, real or personal, or from any activity conducted
for profit, regardless of the disposition made of such income, shall be liable to the tax imposed
under this Code;
- It may be true that in the case at bar the price asked for the bibles and other religious
pamphlets was in some instances a little bit higher than the actual cost of the same but this
cannot mean that appellant was engaged in the business or occupation of selling said
"merchandise" for profit. For this reason We believe that the provisions of City of Manila
Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so it would
impair its free exercise and enjoyment of its religious profession and worship as well as its
rights of dissemination of religious beliefs.
- ORDINANCE 3000 requires the obtention the Mayor's permit before any person can engage in
any of the businesses, trades or occupations enumerated therein, We do not find that it
imposes any charge upon the enjoyment of a right granted by the Constitution, nor tax the
exercise of religious practices.
- No. 3000 cannot be considered unconstitutional, even if applied to plaintiff Society. But as
Ordinance No. 2529 of the City of Manila, as amended, is not applicable to plaintiff-appellant and
defendant-appellee is powerless to license or tax the business of plaintiff Society involved herein
for, as stated before, it would impair plaintiff's right to the free exercise and enjoyment of its
religious profession and worship, as well as its rights of dissemination of religious beliefs, We
find that Ordinance No. 3000, as amended is also inapplicable to said business, trade or
occupation of the plaintiff.
PHILIPPINE PRESS INSTITUTE VS. CHATO, JUST A REDUNDANCY. SEE TOLENTINO V SEC OF
JUSTICE OR SEC OF FINANCE, NOT SURE.
LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY etc.

- Lung Center of the Philippines is a non-stock and non-profit entity established on January 16,
1981 by virtue of Presidential Decree registered owner of a parcel of land. Erected in the
middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A big
space at the ground floor is being leased to private parties, for canteen and small store
spaces, and to medical or professional practitioners who use the same as their private clinics
for their patients whom they charge for their professional services. Almost one-half of the
entire area on the left side of the building along Quezon Avenue is vacant and idle, while a big
portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased
for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden
Center.
- accepts paying and non-paying patients. It also renders medical services to out-patients,
both paying and non-paying. Aside from its income from paying patients, the petitioner
receives annual subsidies from the government.
- both the land and the hospital building of the petitioner were assessed for real property
taxes by the City Assessor of Quezon City. filed a Claim for Exemption 5 from real property
taxes with the City Assessor, predicated on its claim that it is a charitable institution. The
petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the property is
exempt from real property taxes. It averred that a minimum of 60% of its hospital beds are
exclusively used for charity patients and that the major thrust of its hospital operation is to
serve charity patients. The petitioner contends that it is a charitable institution and, as such,
is exempt from real property taxes.
- The issues for resolution are the following: (a) whether the petitioner is a charitable
institution within the context of Presidential Decree No. 1823 and the 1973 and 1987
Constitutions and Section 234(b) of Republic Act No. 7160; and (b) whether the real properties
of the petitioner are exempt from real property taxes.
- we hold that the petitioner is a charitable institution within the context of the 1973 and 1987
Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the
elements which should be considered include the statute creating the enterprise, its corporate
purposes, its constitution and by-laws, the methods of administration, the nature of the actual
work performed, the character of the services rendered, the indefiniteness of the
beneficiaries, and the use and occupation of the properties.
- The word "charitable" is not restricted to relief of the poor or sick. 14 The test of a charity and
a charitable organization are in law the same. The test whether an enterprise is charitable or
not is whether it exists to carry out a purpose reorganized in law as charitable or whether it is
maintained for gain, profit, or private advantage.
- Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject

to the provisions of the decree, is to be administered by the Office of the President of the
Philippines with the Ministry of Health and the Ministry of Human Settlements. It was
organized for the welfare and benefit of the Filipino people principally to help combat the high
incidence of lung and pulmonary diseases in the Philippines.
- Hence, the medical services of the petitioner are to be rendered to the public in general in
any and all walks of life including those who are poor and the needy without discrimination.
After all, any person, the rich as well as the poor, may fall sick or be injured or wounded and
become a subject of charity.
- As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, whether outpatient, or confined in the hospital, or receives subsidies from the government, so long as the
money received is devoted or used altogether to the charitable object which it is intended to
achieve; and no money inures to the private benefit of the persons managing or operating the
institution.
- The money received by the petitioner becomes a part of the trust fund and must be devoted
to public trust purposes and cannot be diverted to private profit or benefit.
- Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not
lose its character as a charitable institution simply because the gift or donation is in the form
of subsidies granted by the government.
- In this case, the petitioner adduced substantial evidence that it spent its income, including
the subsidies from the government for 1991 and 1992 for its patients and for the operation of
the hospital. It even incurred a net loss in 1991 and 1992 from its operations.
- Even as we find that the petitioner is a charitable institution, we hold, anent the second
issue, that those portions of its real property that are leased to private entities are not
exempt from real property taxes as these are not actually, directly and exclusively used for
charitable purposes.
- Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides
that the petitioner shall enjoy the tax exemptions and privileges: It is plain as day that under
the decree, the petitioner does not enjoy any property tax exemption privileges for its real
properties as well as the building constructed thereon. If the intentions were otherwise, the
same should have been among the enumeration of tax exempt privileges under Section 2:
- The tax exemption under this constitutional provision covers property taxes only.33 As Chief
Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained:
". . . what is exempted is not the institution itself . . .; those exempted from real estate taxes

are lands, buildings and improvements actually, directly and exclusively used for religious,
charitable or educational purposes."
- We note that under the 1935 Constitution, "... all lands, buildings, and improvements used
exclusively for charitable purposes shall be exempt from taxation." 36 However, under the
1973 and the present Constitutions, for "lands, buildings, and improvements" of the charitable
institution to be considered exempt, the same should not only be "exclusively" used for
charitable purposes; it is required that such property be used "actually" and "directly" for such
purposes.37
- Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a
charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY
used for charitable purposes.
- What is meant by actual, direct and exclusive use of the property for charitable purposes is
the direct and immediate and actual application of the property itself to the purposes for
which the charitable institution is organized. It is not the use of the income from the real
property that is determinative of whether the property is used for tax-exempt purposes. 44
- failed to discharge its burden to prove that the entirety of its real property is actually,
directly and exclusively used for charitable purposes. While portions of the hospital are used
for the treatment of patients and the dispensation of medical services to them, whether
paying or non-paying, other portions thereof are being leased to private individuals for their
clinics and a canteen. Further, a portion of the land is being leased to a private individual for
her business enterprise under the business name "Elliptical Orchids and Garden Center."
- portions of the land leased to private entities as well as those parts of the hospital leased to
private individuals are not exempt from such taxes.45 On the other hand, the portions of the land
occupied by the hospital and portions of the hospital used for its patients, whether paying or
non-paying, are exempt from real property taxes.
ARTURO M. TOLENTINO vs. THE SECRETARY OF FINANCE etc.
- (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 PPI questions the law insofar as it has withdrawn the exemption previously granted to
the press under 103 (f) of the NIRC. Although the exemption was subsequently restored by
administrative regulation with respect to the circulation income of newspapers, the PPI

presses its claim because of the possibility that the exemption may still be removed by mere
revocation of the regulation of the Secretary of Finance. PBS goes so far as to question the
Secretary's power to grant exemption for two reasons: (1) The Secretary of Finance has no
power to grant tax exemption because this is vested in Congress and requires for its exercise
the vote of a majority of all its members

26

and (2) the Secretary's duty is to execute the law.

- Republic Act No. 7716 amended 103 by deleting (f) with the result that print media
became subject to the VAT with respect to all aspects of their operations.
- Secretary of Finance issued Revenue Regulations No. 11-94, dated June 27, 1994, exempting
the "circulation income of print media pursuant to 4 Article III of the 1987 Philippine
Constitution guaranteeing against abridgment of freedom of the press, among others." The
exemption of "circulation income" has left income from advertisements still subject to the VAT.
- we are not dealing here with a statute that on its face operates in the area of press freedom.
The PPI's claim is simply that, as applied to newspapers, the law abridges press freedom. Even
with due recognition of its high estate and its importance in a democratic society, however,
the press is not immune from general regulation by the State.
- petitioner: by withdrawing the exemption previously granted to print media transactions
involving printing, publication, importation or sale of newspapers, Republic Act No. 7716 has
singled out the press for discriminatory treatment and that within the class of mass media the
law discriminates against print media by giving broadcast media favored treatment. In the
cases petitioner cited, the discriminatory purpose was clear either from the background of the
law or from its operation.
- SC: unable to find a differential treatment of the press by the law, much less any censorial
motivation for its enactment.
- Other transactions, likewise previously granted exemption, have been delisted as part of the
scheme to expand the base and the scope of the VAT system. The law would perhaps be open
to the charge of discriminatory treatment if the only privilege withdrawn had been that
granted to the press. But that is not the case.
- unless justified, the differential treatment of the press creates risks of suppression of
expression. In contrast, in the cases at bar, the statute applies to a wide range of goods and
services. The argument that, by imposing the VAT only on print media whose gross sales
exceeds P480,000 but not more than P750,000, the law discriminates

33

is without merit since

it has not been shown that as a result the class subject to tax has been unreasonably
narrowed.
- this limitation does not apply to the press along but to all sales.

- print media and broadcast media are treated differently. The press is taxed on its
transactions involving printing and publication, which are different from the transactions of
broadcast media. There is thus a reasonable basis for the classification.
- the Free Exercise of Religion Clause does not prohibit imposing a generally applicable sales
and use tax on the sale of religious materials by a religious organization.
- There, this Court held that an ordinance of the City of Manila, which imposed a license fee on
those engaged in the business of general merchandise, could not be applied to the appellant's
sale of bibles and other religious literature. But, in this case, the fee in 107, although a fixed
amount (P1,000), is not imposed for the exercise of a privilege but only for the purpose of
defraying part of the cost of registration. The registration requirement is a central feature of
the VAT system. It is designed to provide a record of tax credits because any person who is
subject to the payment of the VAT pays an input tax, even as he collects an output tax on sales
made or services rendered. The registration fee is thus a mere administrative fee, one not
imposed on the exercise of a privilege, much less a constitutional right.
- For the same reasons, we find the claim of the Philippine Educational Publishers Association
(PEPA) in G.R. No. 115931 that the increase in the price of books and other educational
materials as a result of the VAT would violate the constitutional mandate to the government to
give priority to education, science and technology (Art. II, 17) to be untenable.
- Lacking empirical data on which to base any conclusion regarding these arguments, any
discussion whether the VAT is regressive in the sense that it will hit the "poor" and middleincome group in society harder than it will the "rich," as the Cooperative Union of the
Philippines (CUP) claims in G.R. No. 115873, is largely an academic exercise.
- Indeed, regressivity is not a negative standard for courts to enforce. What Congress is
required by the Constitution to do is to "evolve a progressive system of taxation." This is a
directive to Congress, just like the directive to it to give priority to the enactment of laws for
the enhancement of human dignity and the reduction of social, economic and political
inequalities (Art. XIII, 1), or for the promotion of the right to "quality education" (Art. XIV,
1). These provisions are put in the Constitution as moral incentives to legislation, not as
judicially enforceable rights.
- 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.

- 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.
- In the preceeding pages we have endeavored to discuss, within limits, the validity of
Republic Act No. 7716 in its formal and substantive aspects as this has been raised in the
various cases before us. To sum up, we hold:
(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.