1
151 SCRA 208 Political Law The Embrace of Only One Subject
by a Bill
Delegation of Power Delegation to Administrative Bodies
In 1985, Presidential Dedree No. 1987 entitled An Act Creating the
Videogram Regulatory Board was enacted which gave broad powers to
the VRB to regulate and supervise the videogram industry. The said law
sought to minimize the economic effects of piracy. There was a need to
regulate the sale of videograms as it has adverse effects to the movie
industry. The proliferation of videograms has significantly lessened the
revenue being acquired from the movie industry, and that such loss may
be recovered if videograms are to be taxed. Section 10 of the PD imposes a
30% tax on the gross receipts payable to the LGUs.
In 1986, Valentin Tio assailed the said PD as he averred that it is
unconstitutional on the following grounds:
1. Section 10 thereof, which imposed the 30% tax on gross receipts, is a
rider and is not germane to the subject matter of the law.
2. There is also undue delegation of legislative power to the VRB, an
administrative body, because the law allowed the VRB to deputize, upon
its discretion, other government agencies to assist the VRB in enforcing
the said PD.
ISSUE: Whether or not the Valentin Tios arguments are correct.
HELD: No.
1. The Constitutional requirement that every bill shall embrace only one
subject which shall be expressed in the title thereof is sufficiently
complied with if the title be comprehensive enough to include the general
purpose which a statute seeks to achieve. In the case at bar, the
questioned provision is allied and germane to, and is reasonably necessary
for the accomplishment of, the general object of the PD, which is the
regulation of the video industry through the VRB as expressed in its title.
The tax provision is not inconsistent with, nor foreign to that general
subject and title. As a tool for regulation it is simply one of the regulatory
and control mechanisms scattered throughout the PD.
2. There is no undue delegation of legislative powers to the VRB. VRB is not
being tasked to legislate. What was conferred to the VRB was the authority
or discretion to seek assistance in the execution, enforcement, and
implementation of the law. Besides, in the very language of the decree, the
authority of the BOARD to solicit such assistance is for a fixed and limited
period with the deputized agencies concerned being subject to the
direction and control of the [VRB].
Facts:
On September 1, 1986, Valentino Tio (Tio for brevity), on his own behalf
and purportedly on behalf of other videogram operators adversely
affected, filed a petition assailing the constitutionality of Presidential
Decree (P.D.) No. 1987 entitled An Act Creating the Videogram Regulatory
Board with broad powers to regulate and supervise the videogram
industry. The rationale behind the enactment of the aforesaid Decree may
be summarized in its eighth (8th) whereas clause stating that grave
emergencies corroding the moral values of the people and betraying the
national economic recovery program necessitate the adoption of bold
measures with dispatch. On October 23, 1986, the Greater Manila Theaters
Association, Integrated Movie Producers, Importers and Distributors
Association of the Philippines, and Philippine Motion Pictures Producers

Association were permitted by the Supreme Court (SC) to intervene in the
case over Tios opposition upon the allegations that intervention was
necessary for the complete protection of their rights and that their
survival and very existence is threatened by the unregulated proliferation
of film piracy.
Issues:
(1) Whether or not Section 10 of P.D. No. 1987, which imposes a tax of
thirty percent (30%)on the gross receipts payable to the local
government is a rider and the same is not germane to the subject
thereof;
(2) Whether or not the tax imposed is harsh, confiscatory, oppressive
and/or in unlawful restraint of trade in violation of the due process of
the Constitution; and
(3)Whether or not there is undue delegation of power and authority;
Ruling:
As to the first issue, the SC held that Tios contention that the tax provision
of the
Decree is a rider is bereft and devoid of merit because the title of the
Decree, which is the creation of the Videogram Regulatory Board (VRB)
aimed at regulating and controlling the video industry, is comprehensive
enough to include the purposes expressed in its Preamble and reasonably
covers all its provisions. Moreover, it is unnecessary to express all those
objectives in the title or that the latter be an index to the body of the
decree. As to the second issue, the SC held that it is axiomatic that a tax
does not cease to be valid merely because it regulates, discourages, or
even definitely deters the activities taxed. The legislature acts upon its
constituents in imposing a tax; thus, in general, a sufficient security
against erroneous and oppressive taxation is afforded the taxpayer. More
importantly, the tax imposed by the Decree is also a revenue measure. The
tax of 30% is exacted for a public purpose, i.e. to answer the need for
regulating the video industry, particularly because of the rampant film
piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic video tapes. As to the third issue, the SC held
that the grant in Section 11 of the Decree of authority to the VRB to solicit
the direct assistance of other agencies and units of the government and
deputize, for a fixed and limited period, the heads or personnel of such
agencies and units to perform enforcement functions for the Board is not
2
a delegation of the power to legislate but merely a conferment of authority
or discretion as to its execution, enforcement, and implementation.
Facts:
The case is a petition filed by petitioner on behalf of videogram operators
adversely affected by Presidential Decree No. 1987, An Act Creating the
Videogram Regulatory Board with broad powers to regulate and supervise
the videogram industry.
A month after the promulgation of the said Presidential Decree, the
amended the National Internal Revenue Code provided that:
SEC. 134. Video Tapes. There shall be collected on each processed
video-tape cassette, ready for playback, regardless of length, an annual
tax of five pesos; Provided, That locally manufactured or imported blank
video tapes shall be subject to sales tax.
Section 10. Tax on Sale, Lease or Disposition of Videograms.
Notwithstanding any provision of law to the contrary, the province shall
collect a tax of thirty percent (30%) of the purchase price or rental rate, as
the case may be, for every sale, lease or disposition of a videogram
containing a reproduction of any motion picture or audiovisual program.
Fifty percent (50%) of the proceeds of the tax collected shall accrue to the
province, and the other fifty percent (50%) shall accrue to the municipality
where the tax is collected; PROVIDED, That in Metropolitan Manila, the tax
shall be shared equally by the City/Municipality and the Metropolitan
Manila Commission.
The rationale behind the tax provision is to curb the proliferation and
unregulated circulation of videograms including, among others,
videotapes, discs, cassettes or any technical improvement or variation
thereof, have greatly prejudiced the operations of movie houses and
theaters. Such unregulated circulation have caused a sharp decline in
theatrical attendance by at least forty percent (40%) and a tremendous
drop in the collection of sales, contractors specific, amusement and other
taxes, thereby resulting in substantial losses estimated at P450 Million
annually in government revenues.
Videogram(s) establishments collectively earn around P600 Million per
annum from rentals, sales and disposition of videograms, and these
earnings have not been subjected to tax, thereby depriving the
Government of approximately P180 Million in taxes each year.
 3

The unregulated activities of videogram establishments have also affected

powers to regulate and supervise the videogram industry. The Decree
the viability of the movie industry.
promulgated on October 5, 1985, took effect on April 10, 1986, fifteen (15)
Issues:
days after completion of its publication in the Official Gazette.
(1) Whether or not tax imposed by the DECREE is a valid exercise of police
power.
2. PD 1994 issued a month thereafter reinforced PD 1987 and in effect
(2) Whether or nor the DECREE is constitutional. amended the National Internal Revenue Code (NIRC). Petitioner contended

Held: among others that the tax provision of the decree is a rider.

Taxation has been made the implement of the states police power. The
levy of the 30% tax is for a public purpose. It was imposed primarily to ISSUE: Whether or not the PD 1987 is unconstitutional due to the
answer the need for regulating the video industry, particularly because of
tax provision included
the rampant film piracy, the flagrant violation of intellectual property
rights, and the proliferation of pornographic video tapes. And while it was
also an objective of the DECREE to protect the movie industry, the tax RULING: PD 1987 is constitutional.
remains a valid imposition.

We find no clear violation of the Constitution which would justify us in 1. The title of the decree, which calls for the creation of the VRB is
pronouncing Presidential Decree No. 1987 as unconstitutional and void.
While the underlying objective of the DECREE is to protect the moribund comprehensive enough to include the purposes expressed in its Preamble
movie industry, there is no question that public welfare is at bottom of its and reasonably covered in all its provisions. It is unnecessary to express all
enactment, considering the unfair competition posed by rampant film
those objectives in the title or that the latter be an index to the body of the
piracy; the erosion of the moral fiber of the viewing public brought about
by the availability of unclassified and unreviewed video tapes containing decree.
pornographic films and films with brutally violent sequences; and losses in
government revenues due to the drop in theatrical attendance, not to
mention the fact that the activities of video establishments are virtually 2. The foregoing provision is allied and germane to, and is reasonably
untaxed since mere payment of Mayors permit and municipal license fees
necessary for the accomplishment of the general object of the decree,
are required to engage in business.
which is the regulation of the video industry through the VRB as expressed
in its title. The tax provision is not inconsistent with nor foreign to the
WHEREFORE, the instant Petition is hereby dismissed. No costs. general subject and title. As a tool for regulation it is simply one of the
regulatory and control mechanisms scattered throughout the decree.
Facts:

3. The express purpose of PD 1987 to include taxation of the video industry in

1. Petitioner on his own behalf and purportedly on behalf of other videogram
order to regulate and rationalize the heretofore uncontrolled distribution of
operators adversely affected assailed the constitutionality of PD 1987
entitled "An Act Creating the Videogram Regulatory Board" with broad
 4

videos is evident from Preambles 2 and 5. Those preambles explain the

motives of the lawmaker in presenting the measure.

Commissioner of Internal Revenue vs. Algue Inc.
GR No. L-28896 | Feb. 17, 1988
Facts:
Algue Inc. is a domestic corp engaged in engineering, construction and
other allied activities
On Jan. 14, 1965, the corp received a letter from the CIR regarding its
delinquency income taxes from 1958-1959, amtg to P83,183.85
A letter of protest or reconsideration was filed by Algue Inc on Jan 18
On March 12, a warrant of distraint and levy was presented to Algue
Inc. thru its counsel, Atty. Guevara, who refused to receive it on the ground
of the pending protest
Since the protest was not found on the records, a file copy from the
corp was produced and given to BIR Agent Reyes, who deferred service of
the warrant
On April 7, Atty. Guevara was informed that the BIR was not taking any
action on the protest and it was only then that he accepted the warrant of
distraint and levy earlier sought to be served
On April 23, Algue filed a petition for review of the decision of the CIR
with the Court of Tax Appeals
CIR contentions:
- the claimed deduction of P75,000.00 was properly disallowed because it
was not an ordinary reasonable or necessary business expense
- payments are fictitious because most of the payees are members of the
same family in control of Algue and that there is not enough substantiation
of such payments
CTA: 75K had been legitimately paid by Algue Inc. for actual services
rendered in the form of promotional fees. These were collected by the
Payees for their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company.
Issue: W/N the Collector of Internal Revenue correctly disallowed the
P75,000.00 deduction claimed by Algue as legitimate business expenses in
its income tax returns
Ruling:
5
Taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance, made in accordance with law.
RA 1125: the appeal may be made within thirty days after receipt of
the decision or ruling challenged
During the intervening period, the warrant was premature and could
therefore not be served.
Originally, CIR claimed that the 75K promotional fees to be personal
holding company income, but later on conformed to the decision of CTA
There is no dispute that the payees duly reported their respective
shares of the fees in their income tax returns and paid the corresponding
taxes thereon. CTA also found, after examining the evidence, that no
distribution of dividends was involved
CIR suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction
Algue Inc. was a family corporation where strict business procedures
were not applied and immediate issuance of receipts was not required. at
the end of the year, when the books were to be closed, each payee made
an accounting of all of the fees received by him or her, to make up the
total of P75,000.00. This arrangement was understandable in view of the
close relationship among the persons in the family corporation
The amount of the promotional fees was not excessive. The total
commission paid by the Philippine Sugar Estate Development Co. to Algue
Inc. was P125K. After deducting the said fees, Algue still had a balance of
P50,000.00 as clear profit from the transaction. The amount of P75,000.00
was 60% of the total commission. This was a reasonable proportion,
considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual
purchase by it of the Sugar Estate properties.
Sec. 30 of the Tax Code: allowed deductions in the net income
Expenses - All the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business, including a
reasonable allowance for salaries or other compensation for personal
services actually rendered xxx
the burden is on the taxpayer to prove the validity of the claimed
deduction
In this case, Algue Inc. has proved that the payment of the 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 involve themselves in a new business
requiring millions of pesos.
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
Taxation must 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
Algue Inc.s appeal from the decision of the CIR was filed on time with the
CTA in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by Algue Inc. was permitted under the Internal Revenue
Code and should therefore not have been disallowed by the CIR.
Facts:
The Philippine Sugar Estate Development Company (PSEDC) appointed
Algue Inc. as its agent, authorizing it to sell its land, factories, and oil
manufacturing process. The Vegetable Oil Investment Corporation (VOICP)
purchased PSEDC properties. For the sale, Algue received a commission of
P125,000 and it was from this commission that it paid Guevara, et. al.
organizers of the VOICP, P75,000in promotional fees. In 1965, Algue
received an assessment from the Commissioner of Internal Revenue in the
amount of P83,183.85 as delinquency income tax for years 1958 amd
1959. Algue filed a protestor request for reconsideration which was not
acted upon by the Bureau of Internal Revenue (BIR). The counsel for Algue
had to accept the warrant of distrant and levy. Algue, however, filed a
petition for review with the Coourt of Tax Appeals.
Issue: Whether the assessment was reasonable.
Held:
6
Taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance. Every person who is able to pay must
contribute his share in the running of the government. The Government,
for his 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 is an arbitrary method
of exaction by those in the seat of power. Tax collection, however, should
be made in accordance with law as any arbitrariness will negate the very
reason for government itself. For all the awesome power of the tax
collector, he may still be stopped in his tracks if the taxpayer can
demonstrate that the law has not been observed. Herein, the claimed
deduction (pursuant to Section 30[a] [1] of the Tax Code and Section 70 [1]
of Revenue Regulation 2: as to compensation for personal services) had
been legitimately by Algue Inc. It has further proven that the payment of
fees was reasonable and necessary in light of the efforts exerted by the
payees in inducing investors (in VOICP) to involve themselves in an
experimental enterprise or a business requiring millions of pesos. The
assessment was not reasonable.
FACTS:
Private respondent corporation Algue Inc. filed its income tax returns for
1958 and 1959showing deductions, for promotional fees paid, from their
gross income, thus lowering their taxable income. The BIR assessed Algue
based on such deductions contending that the claimed deduction is
disallowed because it was not an ordinary, reasonable and necessary
expense.
ISSUE: Should an uncommon business expense be disallowed as a proper
deduction in computation of income taxes, corollary to the doctrine that
taxes are the lifeblood of the government?
HELD:
No. Private respondent has proved that the payment of the 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 involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was,
sufficiently recompensed. It is well-settled that 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.
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.
FACTS:
The BIR assessed Algue a total amount of delinquency taxes of Php
83,183.85 for the years 1958 and 1959. It contends that the company's
claimed deduction of Php 75,000 in the form of promotional fees is
disallowed because it was not ordinary reasonable or necessary business
expenses. Algue filed a protest.
BIR did not take any action. So, Algue filed a petition for review with the
Court of Tax Appeals which rule in favor of Algue. Thus, the current
petition.
ISSUE: Whether the BIR correctly disallowed the deduction
RULING:
No.
The burden is on the taxpayer to prove the validity of the claimed
7
deduction. Here, the onus has been discharged satisfactorily. Here, the
onus has been discharged satisfactorily. The promotional fees were
necessary and reasonable in the light of the efforts exerted by the payees
in the inducement of investors to venture in an experimental enterprise.
Thus, the payees should be sufficiently recompensed.
FACTS:
The Philippine Sugar Estate Development Company had earlier appointed
Algue as its agent, authorizing it to sell its land, factories and oil
manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez,
worked for the formation of the Vegetable Oil Investment Corporation,
inducing other persons to invest in it. Ultimately, after its incorporation
largely through the promotion of the said persons, this new corporation
purchased the PSEDC properties. For this sale, Algue received as agent a
commission of P126,000.00, and it was from this commission that the
P75,000.00 promotional fees were paid to the aforenamed individuals.
The petitioner contends that the claimed deduction of P75,000.00 was
properly disallowed because it was not an ordinary reasonable or
necessary business expense. The Court of Tax Appeals had seen it
differently. Agreeing with Algue, it held that the said amount had been
legitimately paid by the private respondent for actual services rendered.
The payment was in the form of promotional fees.
ISSUE: Whether or not the Collector of Internal Revenue correctly
disallowed the P75,000.00 deduction claimed by private respondent Algue
as legitimate business expenses in its income tax returns.
RULING:
The Supreme Court agrees with the respondent court that the amount of
the promotional fees was not excessive. The amount of P75,000.00 was
60% of the total commission. This was a reasonable proportion,
considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual
purchase by it of the Sugar Estate properties.
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
 8

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.

CIR v CTA (1994)
CIR v CTA
GR No 106611, July 21, 1994
FACTS:
Citytrust filed a petition with the Court of Tax Appeals claiming the refund
of its income tax overpayments for the years 1983, 1984 and 1985 in the
total amount of P19,971,745. The CIR could not present any evidence due
to the repeated failure of the tax credit/refund division of the BIR to
transmit the records of the case and the investigation report to the
Solicitor General. The case was decided in favor of City Trust. Upon motion
of reconsideration, petitioner alleged that through an inter-office
memorandum of the Tax Credit/Refund Division, dated August 8, 1991, he
came to know only that Citytrust had outstanding tax liabilities for 1984 in
the amount of P56,588,740.91 representing deficiency income and
business taxes.
ISSUES:
1. Whether the BIR was denied its day in court
2. Whether the CTA erred in denying petitioners supplemental motion for
reconsideration alleging bringing to said courts attention the existence of
deficiency income and business taxes
RULING:
1. Yes, the BIR is denied its day in court. When it was petitioners turn to
present evident evidence, several postponements were sought by its
counsel, the Solicitor General, due to the unavailability of the necessary
records which were not transmitted by the Refund Audit Division of the BIR
to said counsel. It was under such predicament and in deference to the tax
court that the counsel was constrained to submit the case for decision
without presenting any evidence. It is a long and firmly settled rule of law
that the Government is not bound by the errors committed by its agents.
2. Yes. The fact of such deficiency assessment is intimately related and
inextricably intertwined with the right of the bank. The private respondent
cannot be entitled to refund and at the same time be liable for a deficiency
tax assessment for the same year.
FACTS:
Citytrust filed a claim for refund with BIR in the amount of P19,971,745.00
representing the alleged overpayment of income tax as computed in its
final income tax return for the calendar year ending December 31, 1985. To
9
interrupt the prescriptive period, Citytrust filed a petition with the Court of
Tax Appeals, claiming the refund of its income tax overpayments for the
years 1983, 1984 and 1985. The OSG in their answer contended that the
claim of Citytrust from 1983 was not properly documented and that even if
they are entitled for such claim the right to claim the same has prescribed
with respect to income tax payments prior to August 28, 1984, pursuant to
Sections 292 and 295 of the National Internal Revenue Code of 1977, as
amended, since the petition was filed only on August 28, 1986. The case
was submitted for decision based solely on the pleadings and evidence
submitted by herein privateer spondent Citytrust because the petitioner
failed to present evidence due to the failure of Tax Credit/Refund Division
of the BIR to transmit the records of the case, as well as the investigation
report thereon, to the Solicitor General. The petitioner filed a motion to
suspend the proceedings but the same was denied. The case was decided
and the Tax court ruled in ordering BIR to refund the overpaid tax for the
year 1984 and 1985 only. Petitioner filed a motion for reconsideration
contending that Citytrust has an outstanding tax liability amounting to
P56M in 1984. Both parties filed a motion for reconsideration which was
denied by the CA and the court affirmed the decision of CTA. Hence this
petition.
Issue: Whether or not the state is bound to the mistakes committed by its
agents
Ruling:
It is a long and firmly settled rule of law that the Government is not bound
by the errors committed by its agents.
In the performance of its governmental functions, the State cannot be
stopped by the neglect of its agent and officers. Although the Government
may generally be estopped through the affirmative acts of public officers
acting within their authority, their neglect or omission of public duties as
exemplified in this case will not and should not produce that effect.
Nowhere is the aforestated rule more true than in the field of taxation. It is
axiomatic that the Government cannot and must not be estopped
particularly in matters involving taxes.
Taxes are the lifeblood of the nation through which the government
agencies continue to operate and with which the State effects its functions
for the welfare of its constituents.
 10

The errors of certain administrative officers should never be allowed to

jeopardize the Government's financial position, especially in the case at
bar where the amount involves millions of pesos the collection whereof, if
justified, stands to be prejudiced just because of bureaucratic lethargy.
Wherefore the Judgment of CA is hereby set aside and the case is
remanded to CTA
 11

Commissioner vs. AlgueGRL-28890, 17 February 1988 [2]Luzon Stevedoring Corp. vs. Court of Tax AppealsGR L-30232,
29 July 1988
First Division, Cruz (J); 4 concur
Second Division, Paras (J): 4 concur
Facts:

The Philippine Sugar Estate Development Company (PSEDC) appointed

Algue Inc. as its agent, authorizing it to sell its land, factories, and oil Facts:
manufacturing process. The Vegetable Oil Investment Corporation (VOICP)
purchased PSEDC properties. For the sale, Algue received a commission of Luzon Stevedoring Corp. imported various engine parts and other
P125,000and it was from this commission that it paid Guevara, et. al. equipment for tugboat repair and maintenance in 1961 and 1962. It paid
organizers of the VOICP, P75,000 in promotional fees. In 1965, Algue the assessed compensation tax under protest. Unable to secure a tax
received an assessment from the Commissioner of Internal Revenue in the refund from the Commissioner (for the amount of P33,442.13), it filed a
amount ofP83,183.85 as delinquency income tax for years 1958 amd 1959. petition for review with the Court of Tax Appeals (CTA). The CTA denied the
Algue filed a protest or request for reconsideration which was not acted petition, as well as the motion for reconsideration filed thereafter.
upon by the Bureau of Internal Revenue (BIR). The counsel for Algue had to
accept the warrant of distrant and levy. Algue, however, filed a petition for Issue: Whether the corporation is exempt from the compensation tax.
review with the Court of Tax Appeals.
Held:
Issue: Whether the assessment was reasonable.
As the power of taxation is a high prerogative of sovereignty, the
Held: relinquishment of such is never presumed and any reduction or dimunition
thereof with respect to its mode or its rate, must be strictly.
Taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance. Every person who is able to pay must Digests (Berne Guerrero)
contribute his share in the running of the government. The Government,
Construed, and the same must be couched in dear and unmistakable terms
for his part, is expected to respond in the form of tangible and intangible
in order that it may be applied. The corporations tugboats do not fall
benefits intended to improve the lives of the people and enhance their
under the categories of passenger or cargo vessels to avail of the
moral and material values. This symbiotic relationship is the rationale of
exemption from compensation tax in Section 190 of the Tax Code. It may
taxation and should dispel the erroneous notion that is an arbitrary method
be further noted that the amendment of Section190 of Republic Act 3176
of exaction by those in the seat of power. Tax collection, however, should
was intended to provide incentives and inducements to bolster the
be made in accordance with law as any arbitrariness will negate the very
shipping industry and not the business of stevedoring, in which the
reason for government itself. For all the awesome power of the tax
corporation is engaged in. Luzon Stevedoring Corp. is not exempt from
collector, he may still be stopped in his tracks if the taxpayer can
compensating tax under Section 190, and is thus not entitled to refund.
demonstrate that the law has not been observed. Herein, the claimed
deduction(pursuant to Section 30 [a] [1] of the Tax Code and Section 70 [1]
of Revenue Regulation 2: as to compensation for personal services) had
been legitimately by Algue Inc. It has further proven that the payment of
fees was reasonable and necessary in light of the efforts exerted by the
payees in inducing investors (in VOICP) to involve themselves in an
experimental enterprise or a business requiring millions of pesos.The
assessment was not reasonable.
 12

[3]Lutz vs. AranetaGR L-7859, 22 December 1955 the existing tax on the manufacture of sugar on a graduated basis, on each
picul of sugar manufacturer; while section 3 levies on the owners or
First Division, Reyes JBL (J): 8 concur persons in control of the land devoted tot he cultivation of sugarcane and
ceded to others for consideration, on lease or otherwise - "a tax equivalent
Facts: to the difference between the money value of the rental or consideration
collected and the amount representing 12 per centum of the assessed
A Walter Lutz, as Judicial Administrator of the Intestate Estate of Antonio
value of such land. It was alleged that such tax is unconstitutional and
Jayme Ledesma, sought to recover the sum of P14,6666.40 paid by the
void, being levied for the aid and support of the sugar industry exclusively,
estate as taxes from the Commissioner under Section e of Commonwealth
which in plaintiff's opinion is not a public purpose for which a tax may be
Act 567 (the Sugar Adjustment Act), alleging that such tax is
constitutionally levied. The action was dismissed by the CFI thus the
unconstitutional as it levied for the aid and support of the sugar industry
plaintiff appealed directly to the Supreme Court.
exclusively, which is in his opinion not a public purpose.
ISSUE: Whether or not the tax imposition in the Commonwealth Act No.
Issue: Whether the tax is valid in supporting an industry.
567 are unconstitutional.
Held:
RULING:
The tax is levied with a regulatory purpose, i.e. to provide means for the
Yes, the Supreme Court held that the fact that sugar production is one of
rehabilitation and stabilization of the threatened sugar industry. The act is
the greatest industry of our nation, sugar occupying a leading position
primarily an exercise of police power, and is not a pure exercise of taxing
among its export products; that it gives employment to thousands of
power. As sugar production is one of the great industries of the Philippines;
laborers in the fields and factories; that it is a great source of the state's
and that its promotion, protection and advancement redounds greatly to
wealth, is one of the important source of foreign exchange needed by our
the general welfare, the legislature found that the general welfare
government and is thus pivotal in the plans of a regime committed to a
demanded that the industry should be stabilized, and provided that the
policy of currency stability. Its promotion, protection and advancement,
distribution of benefits therefrom be readjusted among its component to
therefore redounds greatly to the general welfare. Hence it was competent
enable it to resist the added strain of the increase in tax that it had to
for the legislature to find that the general welfare demanded that the sugar
sustain. Further, it cannot be said that the devotion of tax money to
industry be stabilized in turn; and in the wide field of its police power, the
experimental stations to seek increase of efficiency in sugar production,
law-making body could provide that the distribution of benefits therefrom
utilization of by-products, etc., as well as to the improvement of living and
be readjusted among its components to enable it to resist the added strain
working conditions in sugar mills and plantations, without any part of such
of the increase in taxes that it had to sustain.
money being channeled directly to private persons, constitute expenditure
of tax money for private purposes. The tax is valid. The subject tax is levied with a regulatory purpose, to provide means for
the rehabilitation and stabilization of the threatened sugar industry. In
other words, the act is primarily a valid exercise of police power.
FACTS:

Appelant in this case Walter Lutz in his capacity as the Judicial

Administrator of the intestate of the deceased Antonio Jayme Ledesma,
seeks to recover from the Collector of the Internal Revenue the total sum
of fourteen thousand six hundred sixty six and forty cents (P 14, 666.40)
paid by the estate as taxes, under section 3 of Commonwealth Act No. 567,
also known as the Sugar Adjustment Act, for the crop years 1948-1949 and
1949-1950. Commonwealth Act. 567 Section 2 provides for an increase of
FACTS:
Plaintiff Walter Lutz, in his capacity as judicial administrator of the intestate
estate of Antionio Ledesma, sought to recover from the CIR the sum of
P14,666.40 paid by the estate as taxes, under section 3 of the CA 567 or
the Sugar Adjustment Act thereby assailing its constitutionality, for it
provided for an increase of the existing tax on the manufacture of sugar,
 13

alleging that such enactment is not being levied for a public purpose but
solely and exclusively for the aid and support of the sugar industry thus
making it void and unconstitutional.
The sugar industry situation at the time of the enactment was in an
imminent threat of loss and needed to be stabilized by imposition of
emergency measures.
ISSUE: Is CA 567 constitutional, despite its being allegedly violative of the
equal protection clause, the purpose of which is not for the benefit of the
general public but for the rehabilitation only of the sugar industry?
HELD:
Yes. The protection and promotion of the sugar industry is a matter of
public concern, it follows that the Legislature may determine within
reasonable bounds what is necessary for its protection and expedient for
its promotion. Here, the legislative discretion must be allowed to fully play,
subject only to the test of reasonableness; and it is not contended that the
means provided in the law bear no relation to the objective pursued or are
oppressive in character. If objective and methods are alike constitutionally
valid, no reason is seen why the state may not levy taxes to raise funds for
their prosecution and attainment. Taxation may be made the implement of
the state's police power.
dismissed by the Court of First Instance, the plaintiff appealed the case
directly to the Supreme Court.
HELD:
The basic defect in the plaintiff's position is his assumption that the tax
provided for in the said Act is a pure exercise of the taxing power.
However, the tax is levied with a regulatory purpose, to provide means for
the rehabilitation and stabilization of the threatened sugar industry. In
other words, the act is primarily an exercise of the police power. The
protection and promotion of the sugar industry is a matter of public
concern, it follows that the Legislature may determine within reasonable
bounds what is necessary for its protection and expedient for its
promotion. Here, the legislative discretion must be allowed fully play,
subject only to the test of reasonableness; and it is not contended that the
means provided of the law bear no relation to the objective pursued or are
oppressive in character. If objective and methods are alike constitutionally
valid, no reason is seen why the state may not levy taxes to raise funds for
their prosecution and attainment. Taxation may be made the implement of
the state's police power. That the tax to be levied should burden the sugar
producers themselves can hardly be a ground of complaint; indeed, it
appears rational that the tax be obtained precisely from those who are to
be benefited from the expenditure of the funds derived from it. The
decision appealed from is affirmed, with costs against appellant.

FACTS:

Due to the threat to industry by the imminent imposition of export taxes

upon sugar as provided in the Tydings-McDuffe Act, and the "eventual loss
of its preferential position in the United States market"; the National
Assembly promulgated Commonwealth Act No. 567, otherwise known as
the Sugar Adjustment Act "to obtain a readjustment of the benefits derived
from the sugar industry by the component elements thereof" and "to
stabilize the sugar industry so as to prepare it for the eventuality of the
loss of its preferential position in the United States market and the
imposition of the export taxes." Plaintiff, Walter Lutz, in his capacity as
Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma
challenged the legality of the taxes imposed by the said Act. In plaintiff's
opinion such tax is unconstitutional and void, being levied for the aid and
support of the sugar industry exclusively, which is not a public purpose for
which a tax may be constitutionally levied. The action having been

GOMEZ v. PALOMAR
GR No. L-23645, October 29, 1968
25 SCRA 827
FACTS:
Petitioner Benjamin Gomez mailed a letter at the post office in San
Fernando, Pampanga. It did not bear the special anti-TB stamp required by
the RA 1635. It was returned to the petitioner. Petitioner now assails the
constitutionality of the statute claiming that RA 1635 otherwise known as
the Anti-TB Stamp law is violative of the equal protection clause because it
constitutes mail users into a class for the purpose of the tax while leaving
untaxed the rest of the population and that even among postal patrons the
statute discriminatorily grants exemptions. The law in question requires an
additional 5 centavo stamp for every mail being posted, and no mail shall
be delivered unless bearing the said stamp.
ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly
violative of the equal protection clause?
HELD:
No. It is settled that the legislature has the inherent power to select the
subjects of taxation and to grant exemptions. This power has aptly been
described as "of wide range and flexibility." Indeed, it is said that in the
field of taxation, more than in other areas, the legislature possesses the
greatest freedom in classification. The reason for this is that traditionally,
classification has been a device for fitting tax programs to local needs and
usages in order to achieve an equitable distribution of the tax burden.
The classification of mail users is based on the ability to pay, the
enjoyment of a privilege and on administrative convenience. Tax
exemptions have never been thought of as raising revenues under the
equal protection clause.
FACTS:
Petitioners question the constitutionality of the RA 1635 claiming that the
law which helps raise funds for the Philippine Tuberculosis Society violates
14
the equal protection cause because it constitutes mail users into a class for
tax purposes while leaving untaxed the rest of the population.
ISSUE: Is the equal protection clause violated?
RULING:
No. The legislature has the inherent power to select the subjects of
taxation and to grant exemptions. Traditionally, classification has been a
device for fitting tax programs to local need and usages in order to achieve
an equitable distribution of the tax burden.
FACTS:
On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at
the post office in San Fernando, Pampanga. Because this letter, addressed
to a certain Agustin Aquino of 1014 Dagohoy Street, Singalong, Manila did
not bear the special anti-TB stamp required by the statute, it was returned
to the petitioner. In view of this development, the petitioner brought suit
for declaratory relief in the Court of First Instance of Pampanga, to test the
constitutionality of the statute, as well as the implementing administrative
orders issued, contending that it violates the equal protection clause of the
Constitution as well as the rule of uniformity and equality of taxation. The
lower court declared the statute and the orders unconstitutional. This
appeal puts in issue the constitutionality of Republic Act 1635,as amended
by Republic Act 2631, which provides as follows: To help raise funds for the
Philippine Tuberculosis Society, the Director of Posts shall order for the
period from August nineteen to September thirty every year the printing
and issue of semi-postal stamps of different denominations with face value
showing the regular postage charge plus the additional amount of five
centavos for the said purpose, and during the said period, no mail matter
shall be accepted in the mails unless it bears such semi-postal stamps:
Provided, That no such additional charge of five centavos shall be imposed
on newspapers. The additional proceeds realized from the sale of the semi-
postal stamps shall constitute a special fund and be deposited with the
National Treasury to be expended by the Philippine Tuberculosis Society in
carrying out its noble work to prevent and eradicate tuberculosis. The
respondent Postmaster General, in implementation of the law, thereafter
issued four (4) administrative orders numbered 3 (June 20, 1958), 7
(August 9, 1958),9 (August 28, 1958), and 10 (July 15, 1960). All these
administrative orders were issued with the approval of the respondent
Secretary of Public Works and Communications.
 15

ISSUE: Whether or not RA 1635 as amended by RA 2631 and the four induce the legislature to impose a flat tax which in effect is a charge for
Administrative orders violates the equal protection clause of the the transaction, operating equally on all persons within the class regardless
Constitution as well as the rule of uniformity and equality of taxation? of the amount involved.

RULING:

It is settled that the legislature has the inherent power to select the
subjects of taxation and to grant exemptions. This power has aptly been
described as "of wide range and flexibility. Indeed, it is said that in the field
of taxation, more than in other areas, the legislature possesses the
greatest freedom in classification. The reason for this is that traditionally,
classification has been a device for fitting tax programs to local needs and
usages in order to achieve an equitable distribution of the tax burden. The
classification is based on considerations of administrative convenience. For
it is now a settled principle of law that consideration of practical
administrative convenience and cost in the administration of tax laws
afford adequate ground for imposing a tax on a well recognized and
defined class. In the case of the anti-TB stamps, undoubtedly, the single
most important and influential consideration that led the legislature to
select mail users as subjects of the tax is the relative ease and
convenience of collecting the tax through the post offices. The small
amount of five centavos does not justify the great expense and
inconvenience of collecting through the regular means of collection. On the
other hand, by placing the duty of collection on postal authorities the tax
was made almost self-enforcing, with as little cost and as little
inconvenience as possible. The eradication of a dreaded disease is a public
purpose, but if by public purpose the petitioner means benefit to a
taxpayer as a return for what he pays, then it is sufficient answer to say
that the only benefit to which the taxpayer is constitutionally entitled is
that derived from his enjoyment of the privileges of living in an organized
society, established and safeguarded by the devotion of taxes to public
purposes. Any other view would preclude the levying of taxes except as
they are used to compensate for the burden on those who pay them and
would involve the abandonment of the most fundamental principle of
government-that it exists primarily to provide for the common good.

Nor is the rule of uniformity and equality of taxation infringed by the

imposition of a flat rate rather than a graduated tax. A tax need not be
measured by the weight of the mail or the extent of the service rendered.
We have said that considerations of administrative convenience and cost
afford an adequate ground for classification. The same considerations may

Commissioner vs. Cebu Portland CementGR L-29059, 15 December
1987First Division, Cruz (J): 4 concur
Facts:
By virtue of a decision of the Court of Tax Appeals, modified by the
Supreme Court, the Commissioner was ordered to refund overpayments of
ad valorem taxes on cement produced and sold by the company after
October 1957. The company moved for a writ of execution, which was
opposed by the Commissioner on the ground that the company had an
outstanding sales tax liability to which the judgment debt had already been
credited. The Court of Tax Appeals held that the alleged sales tax liability
was still being questioned and therefore cannot be set-off against the
refund.
Issue: Whether the assessment of sales tax liability may be enforced, i.e.
to set off against the refund.
Held:
The argument, that the assessment cannot as yet be enforced because it is
still being contested, loss sight of the urgency of the need to collect taxes
as the life blood of the government. If the payment of taxes could be
postponed by simply questioning their validity, the machinery of the state
would grind to a halt and all government functions would be paralyzed. To
require the Commissioner to actually refund to the company the amount of
the judgment debt. Which he will later have the right to distrait for
payment of its sales tax liability, is an idle ritual.
Facts:
CTA decision ordered the petitioner CIR to refund to the Cebu Portland
Cement Company, respondent, P 359,408.98 representing overpayments
of ad valorem taxes on cement sold by it. Execution of judgment was
opposed by the petitioner citing that private respondent had an
outstanding sales tax liability to which the judgment debt had already been
credited. In fact, there was still a P4 M plus balance they owed. The Court
of Tax Appeals, in holding that the alleged sales tax liability of the private
respondent was still being questioned and therefore could not be set-off
against the refund, granted private respondent's motion. The private
16
respondent questioned the assessed tax based on Article 186 of the Tax
Code, contending that cement was adjudged a mineral and not a
manufactured product; and thusly they were not liable for their alleged tax
deficiency. Thereby, petitioner filed this petition for review.
Issue: Whether or not assessment of taxes can be enforced even if there is
a case contesting it.
Held:
The argument that the assessment cannot as yet be enforced because it is
still being contested loses sight of the urgency of the need to collect taxes
as "the lifeblood of the government." If the payment of taxes could be
postponed by simply questioning their validity, the machinery of the state
would grind to a halt and all government functions would be paralyzed.
That is the reason why, save for the exception in RA 1125 , the Tax Code
provides that injunction is not available to restrain collection of tax.
Thereby, we hold that the respondent Court of Tax Appeals erred in its
order.
FACTS:
By virtue of a decision of the CTA, as modified on appeal by the Supreme
Court, the CIR was ordered to refund to Cebu Portland Cement Company
the amount of P 359,408.98, representing overpayments of ad valorem
taxes on cement produced and sold by it. When respondent moved for a
writ of execution, petitioner opposed on the ground that the private
respondent had an outstanding sales tax liability to which the judgment
debt had already been credited. In fact, it was stressed, there was still a
balance owing on the sales taxes in the amount of P 4,789,279.85 plus
28% surcharge. The CTA granted the CIRs motion.
The CIR claims that the refund should be charged against the tax
deficiency of the private respondent on the sales of cement under Section
186 of the Tax Code. His position is that cement is a manufactured and not
a mineral product and therefore not exempt from sales taxes. The
 17

petitioner also denies that the sales tax assessments have already
prescribed because the prescriptive period should be counted from the
filing of the sales tax returns, which had not yet been done by the private
respondent.

Meanwhile, the private respondent disclaims liability for the sales taxes, on
the ground that cement is not a manufactured product but a mineral
product. As such, it was exempted from sales taxes. Also, the alleged sales
tax deficiency could not as yet be enforced against it because the tax
assessment was not yet final, the same being still under protest and still to
be definitely resolved on the merits. Besides, the assessment had already
prescribed, not having been made within the reglementary five-year period
from the filing of the tax returns.

ISSUE: Whether or not sales tax was properly imposed upon private
respondent.

HELD:

Yes, because cement has always been considered a manufactured product

and not a mineral product. This matter was extensively discussed and
categorically resolved in Commissioner of Internal Revenue v. Republic
Cement Corporation, decided on August 10, 1983, stating that cement qua
cement was never considered as a mineral product within the meaning of
Section 246 of the Tax Code, notwithstanding that at least 80% of its
components are minerals, for the simple reason that cement is the product
of a manufacturing process and is no longer the mineral product
contemplated in the Tax Code (i.e.; minerals subjected to simple
treatments) for the purpose of imposing the ad valorem tax.

The argument that the assessment cannot as yet be enforced because it is

still being contested loses sight of the urgency of the need to collect taxes
as "the lifeblood of the government." If the payment of taxes could be
postponed by simply questioning their validity, the machinery of the state
would grind to a halt and all government functions would be paralyzed.

Commissioner of Internal Revenue v. Court of Appeals and YMCA
G.R.No.L-124043 October 14, 1998
FACTS:
Private Respondent YMCA is a non-stock, non-profit institution, which
conducts various programs and activities that are beneficial to the public,
especially the young people, pursuant to its religious, educational and
charitable objectives. In 1980, private respondent earned, among others,
an income of P676, 829.80 from leasing out a portion of its premises to
small shop owners, like restaurants and canteen operators, and P44,259.00
from parking fees collected from non-members. On July 2, 1984, the
Commissioner of Internal Revenue (CIR) issued an assessment to private
respondent, in the total amount of P415,615.01 including surcharge and
interest, for deficiency income tax, deficiency expanded withholding taxes
on rentals and professional fees and deficiency withholding tax on wages.
Private respondent formally protested the assessment and, as a
supplement to its basic protest, filed a letter dated October 8,1985. In
reply, the CIR denied the claims of YMCA. Contesting the denial of its
protest, the YMCA filed a petition for review at the Court of Tax Appeals on
March 14, 1989. In due course, the CTA issued this ruling in favor of the
YMCA.
ISSUE: Whether or not the YMCA is exempted from rental income derived
from the leaseof its properties
RULING:
NO.
Petitioner argues that while the income received by the organizations
enumerated in Section 27 (now Section 26) of the NIRC is, as a rule,
exempted from the payment of tax "in respect to income received by them
as such," the exemption does not apply to income derived "xxx from any of
their properties, real or personal, or from any of their activities conducted
for profit, regardless of the disposition made of such income xxx". The
Court agrees with the commissioner. In the instant case, the exemption
claimed by the YMCA is expressly disallowed by the very wording of the
last paragraph of then Section 27 of the NIRC which mandates that the
income of exempt organizations (such as the YMCA) from any of their
properties, real or personal, be subject to the tax imposed by the same
Code.
18
CIR v. YMCA
GR No. 124043, October 14, 1998
298 SCRA 83
FACTS:
Private Respondent YMCA--a non-stock, non-profit institution, which
conducts various programs beneficial to the public pursuant to its religious,
educational and charitable objectives--leases out a portion of its premises
to small shop owners, like restaurants and canteen operators, deriving
substantial income for such. Seeing this, the Commissioner of Internal
Revenue (CIR) issued an assessment to private respondent for deficiency
income tax, deficiency expanded withholding taxes on rentals and
professional fees and deficiency withholding tax on wages. YMCA opposed
arguing that its rental income is not subject to tax, mainly because of the
provisions of Section 27 of NIRC which provides that civic league or
organizations not organized for profit but operate exclusively for promotion
of social welfare and those organized exclusively for pleasure, recreation
and other non-profitable businesses shall not be taxed.
ISSUE: Is the contention of YMCA tenable?
HELD:
No. Because taxes are the lifeblood of the nation, the Court has always
applied the doctrine of strict in interpretation in construing tax exemptions.
Furthermore, a claim of statutory exemption from taxation should be
manifest and unmistakable from the language of the law on which it is
based. Thus, the claimed exemption "must expressly be granted in a
statute stated in a language too clear to be mistaken."
Doctrine:
Rental income derived by a tax-exempt organization from the lease of its
properties, real or personal, is not exempt from income taxation, even if
such income is exclusively used for the accomplishment of its objectives.

A claim of statutory exemption from taxation should be manifest and
unmistakable from the language of the law on which it is based. Thus, it
must expressly be granted in a statute stated in a language too clear to be
mistaken. Verba legis non est recedendum where the law does not
distinguish, neither should we.
The bare allegation alone that one is a non-stock, non-profit educational
institution is insufficient to justify its exemption from the payment of
income tax. It must prove with substantial evidence that (1) it falls under
the classification non-stock, non-profit educational institution; and (2) the
income it seeks to be exempted from taxation is used actually, directly,
and exclusively for educational purposes.
The Court cannot change the law or bend it to suit its sympathies and
appreciations. Otherwise, it would be overspilling its role and invading the
realm of legislation. The Court, given its limited constitutional authority,
cannot rule on the wisdom or propriety of legislation. That prerogative
belongs to the political departments of government.
Facts:
Private Respondent YMCA is a non-stock, non-profit institution, which
conducts various programs and activities that are beneficial to the public,
especially the young people, pursuant to its religious, educational and
charitable objectives.
YMCA earned income from leasing out a portion of its premises to small
shop owners, like restaurants and canteen operators, and from parking
fees collected from non-members. Petitioner issued an assessment to
private respondent for deficiency taxes. Private respondent formally
protested the assessment. In reply, the CIR denied the claims of YMCA.
Issue: Whether or not the income derived from rentals of real property
owned by YMCA subject to income tax
Held:
Yes. Income of whatever kind and character of non-stock non-profit
organizations from any of their properties, real or personal, or from any of
19
their activities conducted for profit, regardless of the disposition made of
such income, shall be subject to the tax imposed under the NIRC.
Rental income derived by a tax-exempt organization from the lease of its
properties, real or personal, is not exempt from income taxation, even if
such income is exclusively used for the accomplishment of its objectives.
Because taxes are the lifeblood of the nation, the Court has always applied
the doctrine of strict in interpretation in construing tax exemptions
(Commissioner of Internal Revenue v. Court of Appeals, 271 SCRA 605,
613, April 18, 1997). Furthermore, a claim of statutory exemption from
taxation should be manifest and unmistakable from the language of the
law on which it is based. Thus, the claimed exemption must expressly be
granted in a statute stated in a language too clear to be mistaken (Davao
Gulf Lumber Corporation v. Commissioner of Internal Revenue and Court of
Appeals, G.R. No. 117359, p. 15 July 23, 1998).
Verba legis non est recedendum. The law does not make a distinction. The
rental income is taxable regardless of whence such income is derived and
how it is used or disposed of. Where the law does not distinguish, neither
should we.
Private respondent also invokes Article XIV, Section 4, par. 3 of the
Constitution, claiming that it is a non-stock, non-profit educational
institution whose revenues and assets are used actually, directly and
exclusively for educational purposes so it is exempt from taxes on its
properties and income. This is without merit since the exemption provided
lies on the payment of property tax, and not on the income tax on the
rentals of its property. The bare allegation alone that one is a non-stock,
non-profit educational institution is insufficient to justify its exemption from
the payment of income tax.
For the YMCA to be granted the exemption it claims under the above
provision, it must prove with substantial evidence that (1) it falls under the
classification non-stock, non-profit educational institution; and (2) the
income it seeks to be exempted from taxation is used actually, directly,
and exclusively for educational purposes. Unfortunately for respondent, the
Court noted that not a scintilla of evidence was submitted to prove that it
met the said requisites.
The Court appreciates the nobility of respondents cause. However, the
Courts power and function are limited merely to applying the law fairly
and objectively. It cannot change the law or bend it to suit its sympathies
 20

and appreciations. Otherwise, it would be overspilling its role and invading

the realm of legislation. The Court regrets that, given its limited
constitutional authority, it cannot rule on the wisdom or propriety of
legislation. That prerogative belongs to the political departments of
government.
 21

VERA v. FERNANDEZ should not hold true to government officials with respect to matters not of
GR No. L-31364 March 30, 1979 their own personal concern. This is the philosophy behind the
89 SCRA 199 government's exception, as a general rule, from the operation of the
principle of estoppel.
FACTS:

The BIR filed on July 29, 1969 a motion for allowance of claim and for
payment of taxes representing the estate's tax deficiencies in 1963 to
1964 in the intestate proceedings of Luis Tongoy. The administrator
opposed arguing that the claim was already barred by the statute of
limitation, Section 2 and Section 5 of Rule 86 of the Rules of Court which
provides that all claims for money against the decedent, arising from
contracts, express or implied, whether the same be due, not due, or
contingent, all claims for funeral expenses and expenses for the last
sickness of the decedent, and judgment for money against the decedent,
must be filed within the time limited in the notice; otherwise they are
barred forever.

ISSUE: Does the statute of non-claims of the Rules of Court bar the claim
of the government for unpaid taxes?

HELD:

No. The reason for the more liberal treatment of claims for taxes against a
decedent's estate in the form of exception from the application of the
statute of non-claims, is not hard to find. Taxes are the lifeblood of the
Government and their prompt and certain availability are imperious need.
(CIR vs. Pineda, 21 SCRA 105). Upon taxation depends the Government
ability to serve the people for whose benefit taxes are collected. To
safeguard such interest, neglect or omission of government officials
entrusted with the collection of taxes should not be allowed to bring harm
or detriment to the people, in the same manner as private persons may be
made to suffer individually on account of his own negligence, the
presumption being that they take good care of their personal affairs. This

DAVAO GULF LUMBER CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS,
respondents.
FACTS:
Davao Gulf is a concessionaire with TLA granted by the DENR. They
purchase mineral oils and diesel from various oil companies which they use
in their exploitation and operation. Oil companies paid their specific taxes
provided Sections 153 and 156 of the NIRC which were eventually passed
to their consumer Davao Gulf. Petitioner filed a claim for refund before the
CIR in the amount of P120,825.11, representing 25% of the specific taxes
actually paid on the above-mentioned fuels and oils that were used by
petitioner in its operations as forest concessionaire. Davao Gulf contended
that Section 5 of RA 1435provides that whenever any oils mentioned above
are used by miners or forest concessionaires in their operations, twenty-
five per centum of the specific tax paid thereon shall be refunded by the
Collector of Internal Revenue upon submission of proof of actual use of
oils. The refund was denied by the CIR, hence, Davao filed a petition for
review before the CTA which granted the petitioner a partial refund based
on the on rates deemed paid under RA 1435, and not on the higher rates
actually paid by petitioner under Art. 153 and 156 of the NIRC. Davao filed
an appeal before the CA which affirms the decision of CTA. Hence this
petition.
Issue: Whether or not the refund must be computed in favour of the
Davao Gulfs claim
Ruling:
Because taxes are the lifeblood of the nation, statutes that allow
exemptions are construed strictly against the grantee and liberally in favor
of the government. Otherwise stated, any exemption from the payment of
a tax must be clearly stated in the language of the law; it cannot be merely
implied therefrom.A tax cannot be imposed unless it is supported by the
clear and express language of a statute; on the other hand, once the tax is
unquestionably imposed, "[a] claim of exemption from tax payments must
be clearly shown and based on language in the law too plain to be
mistaken." Since the partial refund authorized under Section 5, RA 1435, is
in the nature of a tax exemption, it must be construed strictissimi Juris
against the grantee. Hence, petitioner's claim of refund on the basis of the
22
specific taxes it actually paid must expressly be granted in a statute stated
in a language too clear to be mistaken. WHEREFORE, the petition is hereby
DENIED and the assailed Decision of the Court of Appeals is AFFIRMED.
FACTS:
Republic Act No. 1435 entitles miners and forest concessioners to the
refund of 25% of the specific taxes paid by the oil companies, which were
eventually passed on to the user--the petitioner in this case--in the
purchase price of the oil products. Petitioner filed before respondent
Commissioner of Internal Revenue (CIR) a claim for refund in the amount
representing 25% of the specific taxes actually paid on the above-
mentioned fuels and oils that were used by petitioner in its operations.
However petitioner asserts that equity and justice demands that the refund
should be based on the increased rates of specific taxes which it actually
paid, as prescribed in Sections 153 and 156 of the NIRC. Public respondent,
on the other hand, contends that it should be based on specific taxes
deemed paid under Sections 1 and 2 of RA 1435.
ISSUE: Should the petitioner be entitled under Republic Act No. 1435 to
the refund of 25% of the amount of specific taxes it actually paid on
various refined and manufactured mineral oils and other oil products, and
not on the taxes deemed paid and passed on to them, as end-users, by the
oil companies?
HELD:
No. According to an eminent authority on taxation, "there is no tax
exemption solely on the ground of equity." Thus, the tax refund should be
based on the taxes deemed paid. Because taxes are the lifeblood of the
nation, statutes that allow exemptions are construed strictly against the
grantee and liberally in favor of the government. Otherwise stated, any
exemption from the payment of a tax must be clearly stated in the
language of the law; it cannot be merely implied therefrom.

Facts:
Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its
provision (Section 1) unduly discriminated against him by the imposition of
higher rates upon his income as a professional, that it amounts to class
legislation, and that it transgresses against the equal protection and due
process clauses of the Constitution as well as the rule requiring uniformity
in taxation.
Issue: Whether BP 135 violates the due process and equal protection
clauses, and the rule on uniformity in taxation.
Held:
There is a need for proof of such persuasive character as would lead to a
conclusion that there was a violation of the due process and equal
protection clauses. Absent such showing, the presumption of validity must
prevail. Equality and uniformity in taxation means that all taxable articles
or kinds of property of the same class shall be taxed at the same rate. The
taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. Where the differentiation conforms
to the practical dictates of justice and equity, similar to the standards of
equal protection, it is not discriminatory within the meaning of the clause
and is therefore uniform. Taxpayers may be classified into different
categories, such as recipients of compensation income as against
professionals. Recipients of compensation income are not entitled to make
deductions for income tax purposes as there is no practically no overhead
expense, while professionals and businessmen have no uniform costs or
expenses necessary to produce their income. There is ample justification to
adopt the gross system of income taxation to compensation income, while
continuing the system of net income taxation as regards professional and
business income.
Facts:
Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero M.
Sison, as taxpayer, alleges that "he would be unduly discriminated against
by the imposition of higher rates of tax upon his income arising from the
exercise of his profession vis-a-vis those which are imposed upon fixed
income or salaried individual taxpayers. He characterizes said provision as
arbitrary amounting to class legislation, oppressive and capricious in
character. It therefore violates both the equal protection and due process
23
clauses of the Constitution as well as of the rule requiring uniformity in
taxation.
Issue: Whether or not the assailed provision violates the equal protection
and due process clauses of the Constitution while also violating the rule
that taxes must be uniform and equitable.
Held:
The petition is without merit.
On due process - it is undoubted that it may be invoked where a taxing
statute is so arbitrary that it finds no support in the Constitution. An
obvious example is where it can be shown to amount to the confiscation of
property from abuse of power. Petitioner alleges arbitrariness but his mere
allegation does not suffice and there must be a factual foundation of such
unconstitutional taint.
On equal protection - it suffices that the laws operate equally and
uniformly on all persons under similar circumstances, both in the privileges
conferred and the liabilities imposed.
On the matter that the rule of taxation shall be uniform and equitable - this
requirement is met when the tax operates with the same force and effect
in every place where the subject may be found." Also, :the rule of
uniformity does not call for perfect uniformity or perfect equality, because
this is hardly unattainable." When the problem of classification became of
issue, the Court said: "Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall be taxed the
same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation..." As provided by this Court,
where "the differentation" complained of "conforms to the practical
dictates of justice and equity" it "is not discriminatory within the meaning
of this clause and is therefore uniform."
Facts:
Petitioners challenged the constitutionality of Section 1 of Batas Pambansa
Blg. 135. It amended Section 21 of the National Internal Revenue Code of
1977, which provides for rates of tax on citizens or residents on (a) taxable
compensation income, (b) taxable net income, (c) royalties, prizes, and
other winnings, (d) interest from bank deposits and yield or any other
 24

monetary benefit from deposit substitutes and from trust fund and The power to tax is an attribute of sovereignty and the strongest power of
similar arrangements, (e) dividends and share of individual partner in the the government. There are restrictions, however, diversely affecting as it
net profits of taxable partnership, (f) adjusted gross income. does property rights, both the due process and equal protection clauses
may properly be invoked, as petitioner does, to invalidate in appropriate
Petitioner as taxpayer alleged that "he would be unduly discriminated cases a revenue measure. If it were otherwise, taxation would be a
against by the imposition of higher rates of tax upon his income arising destructive power.
from the exercise of his profession vis-a-vis those which are imposed upon
fixed income or salaried individual taxpayers." He characterizes the above The petitioner failed to prove that the statute ran counter to the
section as arbitrary amounting to class legislation, oppressive and Constitution. He used arbitrariness as basis without a factual foundation.
capricious in character. This is merely to adhere to the authoritative doctrine that where the due
For petitioner, therefore, there is a transgression of both the equal process and equal protection clauses are invoked, considering that they
protection and due process clauses of the Constitution as well as of the are not fixed rules but rather broad standards, there is a need for proof of
rule requiring uniformity in taxation. such persuasive character as would lead to such a conclusion.
The OSG prayed for dismissal of the petition due to lack of merit.
It is undoubted that the due process clause may be invoked where a taxing
Issue: Whether the imposition of a higher tax rate on taxable net income statute is so arbitrary that it finds no support in the Constitution. An
derived from business or profession than on compensation is obvious example is where it can be shown to amount to the confiscation of
constitutionally infirm. property. That would be a clear abuse of power.
(WON there is a transgression of both the equal protection and due process
clauses of the Constitution as well as of the rule requiring uniformity in It has also been held that where the assailed tax measure is beyond the
taxation) jurisdiction of the state, or is not for a public purpose, or, in case of a
retroactive statute is so harsh and unreasonable, it is subject to attack on
Held: due process grounds.

No. Petition dismissed
Ratio:
The need for more revenues is rationalized by the government's role to fill
the gap not done by public enterprise in order to meet the needs of the
times. It is better equipped to administer for the public welfare. The power
to tax, an inherent prerogative, has to be availed of to assure the
performance of vital state functions. It is the source of the bulk of public
funds.
For equal protection, the applicable standard to determine whether this
was denied in the exercise of police power or eminent domain was the
presence of the purpose of hostility or unreasonable discrimination.
It suffices then that the laws operate equally and uniformly on all persons
under similar circumstances or that all persons must be treated in the
same manner, the conditions not being different, both in the privileges
conferred and the liabilities imposed. Favoritism and undue preference
cannot be allowed. For the principle is that equal protection and security
shall be given to every person under circumstances, which if not identical

are analogous. If law be looks upon in terms of burden or charges, those
that fall within a class should be treated in the same fashion, whatever
restrictions cast on some in the group equally binding on the rest.
The equal protection clause is, of course, inspired by the noble concept of
approximating the ideal of the laws's benefits being available to all and the
affairs of men being governed by that serene and impartial uniformity,
which is of the very essence of the idea of law.
The equality at which the 'equal protection' clause aims is not a
disembodied equality. The Fourteenth Amendment enjoins 'the equal
protection of the laws,' and laws are not abstract propositions. They do not
relate to abstract units A, B and C, but are expressions of policy arising out
of specific difficulties, addressed to the attainment of specific ends by the
use of specific remedies. The Constitution does not require things which
are different in fact or opinion to be treated in law as though they were the
same.
Lutz v Araneta- it is inherent in the power to tax that a state be free to
select the subjects of taxation, and it has been repeatedly held that
'inequalities which result from a singling out of one particular class for
taxation, or exemption infringe no constitutional limitation.
Petitioner- kindred concept of uniformity- Court- Philippine Trust Company-
The rule of uniformity does not call for perfect uniformity or perfect
equality, because this is hardly attainable
Equality and uniformity in taxation means that all taxable articles or kinds
of property of the same class shall be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications for
purposes of taxation
25
There is quite a similarity then to the standard of equal protection for all
that is required is that the tax "applies equally to all persons, firms and
corporations placed in similar situation"
There was a difference between a tax rate and a tax base. There is no legal
objection to a broader tax base or taxable income by eliminating all
deductible items and at the same time reducing the applicable tax rate.
The discernible basis of classification is the susceptibility of the income to
the application of generalized rules removing all deductible items for all
taxpayers within the class and fixing a set of reduced tax rates to be
applied to all of them. As there is practically no overhead expense, these
taxpayers are not entitled to make deductions for income tax purposes
because they are in the same situation more or less.
Taxpayers who are recipients of compensation income are set apart as a
class.
On the other hand, in the case of professionals in the practice of their
calling and businessmen, there is no uniformity in the costs or expenses
necessary to produce their income. It would not be just then to disregard
the disparities by giving all of them zero deduction and indiscriminately
impose on all alike the same tax rates on the basis of gross income.
There was a lack of a factual foundation, the forcer of doctrines on due
process and equal protection, and he reasonableness of the distinction
between compensation and taxable net income of professionals and
businessmen not being a dubious classification.
FACTS:
Batas Pambansa 135, which amends Section 21 of the National Internal
Revenue Code of 1977, which provides for the
rates of tax on citizens or residents, was enacted. Petitioner as taxpayer
alleges that by virtue thereof, he would be unduly discriminated against by
 26

the imposition of higher rates of tax upon his income arising from the
exercise of his profession vis--vis those which are imposed upon fixed
income or salaried individual taxpayers.

ISSUE: Whether BP 135 transgresses both the equal protection and due
process clauses of the Constitution as well as of the rule requiring
uniformity in taxation

RULING:

No. The presumption of validity must prevail. The taxing power has the
authority to make reasonable and natural
classifications for purposes of taxation. Recipients of compensation income
are not entitled to make deductions for income tax purposes as there is
practically no overhead expense, while professionals and businessmen
have no uniform costs or expenses necessary to produce their income.
There is ample justification to adopt the gross system of income taxation to
compensation income, while continuing the system of net income taxation
as regards professional and business income.

Bagatsing v. Ramirez
G.R. No. L-41631 (December 17, 1976)
FACTS:
The Municipal Board of Manila enacted Ordinance No. 7522, An
Ordinance Regulating the Operation of Public Markets and Prescribing Fees
for the Rentals of Stalls and Providing Penalties for Violation thereof and for
other Purposes. Respondent were seeking the declaration of nullity of the
Ordinance for the reason that a) the publication requirement under the
Revised Charter of the City of Manila has not been complied with, b) the
Market Committee was not given any participation in the enactment, c)
Sec. 3(e) of the Anti-Graft and Corrupt Practices Act has been violated, and
d) the ordinance would violate P.D. 7 prescribing the collection of fees and
charges on livestock and animal products.
ISSUE:
What law shall govern the publication of tax ordinance enacted by
the Municipal Board of Manila, the Revised City Charter or the Local Tax
Code.
HELD:
The fact that one is a special law and the other a general law creates
the presumption that the special law is to be considered an exception to
the general. The Revised Charter of Manila speaks of ordinance in
general whereas the Local Tax Code relates to ordinances levying or
imposing taxes, fees or other charges in particular. In regard therefore,
the Local Tax Code controls.
Bagatsing v Ramirez
GR No L-41631, December 17, 1976
FACTS:
In 1974, the Municipal Board of Manila enacted Ordinance 7522, regulating
the operation of public markets and prescribing fees for the rentals of stalls
and providing penalties for violation thereof. The Federation of Manila
Market Vendors Inc. assailed the validity of the ordinance, alleging among
others the noncompliance to the publication requirement under the
27
Revised Charter of the City of Manila. CFI-Manila declared the ordinance
void. Thus, the present petition.
ISSUE:
1. What law should govern the publication of a tax ordinance, the
Revised City Charter, which requires publication of the
ordinance before its enactment and after its approval, or the Local
Tax Code, which only demands publication after
approval?
2. Is the ordinance valid?
RULING:
1. The Local Tax Code prevails. There is no question that the Revised
Charter of the City of Manila is a special act since it relates only to
the City of Manila whereas the Local Tax Code is a general law
because it applies universally to all local governments. The fact
that one is special and the other general creates a presumption
that the special is to be considered as remaining an exception of
the general, one as a general law of the land, the other as the law
of a particular case. However, the rule readily yields to a situation
where the special statute refers to a subject in general, which the
general statute treats in particular. The Revised Charter of the City
prescribes a rule for the publication of ordinance in general, while
the Local Tax Code establishes a rule for the publication of
ordinance levying or imposing taxes fees or other charges in
particular.
2. The ordinance is valid.
BAGATSING
vs.
RAMIREZ74 SCRA 306G.R. No. L-41631 December 17, 1976MARTIN,
Facts:
Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE
REGULATING THEOPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES

FOR THE RENTALS OF STALLSAND PROVIDING PENALTIES FOR VIOLATION
THEREOF AND FOR OTHER PURPOSES."
The petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance.
Respondent Federation of Manila Market Vendors, Inc. commenced a Civil
Case before the CFI by respondent Judge, seeking the declaration of nullity
of Ordinance No. 7522 for the reason that (a)the publication requirement
under the Revised Charter of the City of Manila has not been complied
with; (b) the Market Committee was not given any participation in the
enactment of the ordinance, as envisioned by Republic Act 6039; (c)
Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated;
and (d) the ordinance would violate Presidential Decree No. 7 of September
30, 1972prescribing the collection of fees and charges on livestock and
animal products. Private respondent also bewails that the market stall fees
imposed in the disputed ordinance are diverted to the exclusive private
use of the Asiatic Integrated Corporation since the collection of said fees
had been let by the City of Manila to the said corporation in a
"Management and Operating Contract."Resolving the accompanying prayer
for the issuance of a writ of preliminary injunction, respondent Judge issued
an order denying the plea for failure of the respondent Federation of Manila
Market Vendors, Inc. to exhaust the administrative remedies outlined in the
Local Tax Code. After due hearing on the merits, respondent Judge
rendered another decision, declaring the nullity of Ordinance No. 7522 of
the City of Manila on the primary ground of non-compliance with the
requirement of publication under the Revised City Charter. Petitioners
moved for reconsideration of the adverse decision, stressing that (a) only a
post-publication is required by the Local Tax Code; and (b) private
respondent failed to exhaust all administrative remedies before instituting
an action in court. Respondent Judge denied the motion. Hence petitioners
brought the matter to the Supreme Court through the a petition for review
on certiorari.
Issue: What law shall govern the publication of a tax ordinance enacted by
the Municipal Board of Manila, the Revised City Charter (R.A. 409, as
amended), which requires publication of the ordinance before its
enactment and after its approval, or the Local Tax Code (P.D. No. 231),
which only demands publication after approval.
Held:
There is no question that the Revised Charter of the City of Manila is a
special act since it relates only to the City of Manila, whereas the Local Tax
Code is a general law because it applies universally to all local
28
governments. Blackstone defines general law as a universal rule affecting
the entire community and special law as one relating to particular persons
or things of a class. And the rule commonly said is that a prior special law
is not ordinarily repealed by a subsequent general law. The fact that one is
special and the other general creates a presumption that the special is to
be considered as remaining an exception of the general, one as a general
law of the land, the other as the law of a particular case. However, the rule
readily yields to a situation where the special statute refers to a subject in
general, which the general statute treats in particular. The exactly is the
circumstance obtaining in the case at bar. Section 17 of the Revised
Charter of the City of Manila speaks of "ordinance" in general, i.e.,
irrespective of the nature and scope thereof, whereas, Section43 of the
Local Tax Code relates to "ordinances levying or imposing taxes, fees or
other charges" in particular.
In regard, therefore, to ordinances in general, the Revised Charter of the
City of Manila is doubtless dominant, but, that dominant force loses its
continuity when it approaches the realm of "ordinances levying or imposing
taxes, fees or other charges" in particular. There, the Local Tax Code
controls. Here, as always, a general provision must give way to a particular
provision. Special provision governs. This is especially true where the law
containing the particular provision was enacted later than the one
containing the general provision. The City Charter of Manila was
promulgated on June 18, 1949 as against the Local Tax Code which was
decreed on June 1, 1973.The law-making power cannot be said to have
intended the establishment of conflicting and hostile systems upon the
same subject, or to leave in force provisions of a prior law by which the
new will of the legislating power may be thwarted and overthrown. Such a
result would render legislation a useless and Idle ceremony, and subject
the law to the reproach of uncertainty and unintelligibility. It is maintained
by private respondent that the subject ordinance is not a "tax ordinance,"
because the imposition of rentals, permit fees, tolls and other fees is not
strictly a taxing power but a revenue-raising function, so that the
procedure for publication under the Local Tax Code finds no application.
The pretense bears its own marks of fallacy. Precisely, the raising of
revenues is the principal object of taxation. Under Section 5, Article XI of
the New Constitution, "Each local government unit shall have the power to
create its own sources of revenue and to levy taxes, subject to such
provisions as may be provided by law." And one of those sources of
revenue is what the Local Tax Code points to in particular: "Local
governments may collect fees or rentals for the occupancy or use of public
markets and premises * * *."
 29

14

They can provide for and regulate market stands, stalls and privileges, and,
also, the sale, lease or occupancy thereof. They can license, or permit the
use of, lease, sell or otherwise dispose of stands, stalls or marketing
privileges. Private respondent bewails that the market stall fees imposed in
the disputed ordinance are diverted to the exclusive private use of the
Asiatic Integrated Corporation since the collection of said fees had been let
by the City of Manila to the said corporation in a "Management and
Operating Contract."The assumption is of course saddled on erroneous
premise. The fees collected do not go direct to the private coffers of the
corporation. Ordinance No. 7522 was not made for the corporation but for
the purpose of raising revenues for the city. That is the object it serves. The
entrusting of the collection of the fees does not destroy the public purpose
of the ordinance. So long as the purpose is public, it does not matter
whether the agency through which the money is dispensed is public or
private. The right to tax depends upon the ultimate use, purpose and
object for which the fund is raised. It is not dependent on the nature or
character of the person or corporation whose intermediate agency is to be
used in applying it. The people may be taxed for a public purpose,
although it be under the direction of an individual or private corporation.
ACCORDINGLY, the decision of the court below is hereby reversed and set
aside. Ordinance No.7522 is held validly enacted.
 30

TOLENTINO VS. THE SECRETARY OF FINANCE Case Digest

ARTURO M. TOLENTINO VS. THE SECRETARY OF FINANCE and THE
COMMISSIONER OFINTERNAL REVENUE1994 Aug 25G.R. No.
115455235 SCRA 630
FACTS:
The valued-added tax (VAT) is levied on the sale, barter or exchange of
goods and properties as well as on the sale or exchange of services. It is
equivalent to 10% of the gross selling price or gross value in money of
goods or properties sold, bartered or exchanged or of the gross receipts
from the sale or exchange of services. Republic Act No. 7716 seeks to
widen the tax base of the existing VAT system and enhance its
administration by amending the National Internal Revenue Code. The
Chamber of Real Estate and Builders Association (CREBA) contends that
the imposition of VAT on sales and leases by virtue of contracts entered
into prior to the effectivity of the law would violate the constitutional
provision of non-impairment of contracts.
ISSUE: Whether R.A. No. 7716 is unconstitutional on ground that it violates
the contract clause under Art. III, sec 10 of the Bill of Rights.
RULING:
Such is not the case of PAL in G.R. No. 115852, and the Court does not
understand it to make thisclaim. Rather, its position, as discussed above, is
that the removal of its tax exemption cannot bemade by a general, but
only by a specific, law.Further, the Supreme Court held the validity of
Republic Act No. 7716 in its formal and substantive aspects as this has
been raised in the various cases before it. To sum up, the Court holds:(1)
That the procedural requirements of the Constitution have been complied
with by Congress in the enactment of the statute;(2) That judicial inquiry
whether the formal requirements for the enactment of statutes beyond
those prescribed by the Constitution - have been observed is precluded by
the principle of separation of powers;(3) That the law does not abridge
freedom of speech, expression or the press, nor interfere with the free
exercise of religion, nor deny to any of the parties the right to an
education; and(4) That, in view of the absence of a factual foundation of
record, claims that the law is regressive, oppressive and confiscatory and
that it violates vested rights protected under the Contract Clause are
prematurely raised and do not justify the grant of prospective relief by writ
of prohibition. WHEREFORE, the petitions are DISMISSED.
Tolentino vs. Secretary of Finance G.R. No. 115455, August 25,
1994

No. The Supreme Court the contention of CREBA, that the imposition of the Sunday, January 25, 2009 Political Law
VAT on the sales and leases of real estate by virtue of contracts entered
Facts:
into prior to the effectivity of the law would violate the constitutional
provision of non-impairment of contracts, is only slightly less abstract but
The value-added tax (VAT) is levied on the sale, barter or exchange of
nonetheless hypothetical. It is enough to say that the parties to a contract
goods and properties as well as on the sale or exchange of services. RA
cannot, through the exercise of prophetic discernment, fetter the exercise
7716 seeks to widen the tax base of the existing VAT system and enhance
of the taxing power of the State. For not only are existing laws read into
its administration by amending the National Internal Revenue Code. There
contracts in order to fix obligations as between parties, but the reservation
are various suits challenging the constitutionality of RA 7716 on various
of essential attributes of sovereign power is also read into contracts as a
grounds. One contention is that RA 7716 did not originate exclusively in
basic postulate of the legal order. The policy of protecting contracts against
the House of Representatives as required by Art. VI, Sec. 24 of the
impairment presupposes the maintenance of a government which retains
Constitution, because it is in fact the result of the consolidation of 2distinct
adequate authority to secure the peace and good order of society. In truth,
bills, H. No. 11197 and S. No. 1630. There is also a contention that S. No.
the Contract Clause has never been thought as a limitation on the exercise
1630 did not pass 3readings as required by the Constitution.
of the State's power of taxation save only where a tax exemption has been
granted for a valid consideration. Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the
Constitution

Held:

The argument that RA 7716 did not originate exclusively in the House of
Representatives as required by Art. VI, Sec. 24 of the Constitution will not
bear analysis. To begin with, it is not the law but the revenue bill which is
required by the Constitution to originate exclusively in the House of
Representatives. To insist that a revenue statute and not only the bill which
initiated the legislative process culminating in the enactment of the law
must substantially be the same as the House bill would be to deny the
Senates power not only to concur with amendments but also to propose
amendments. Indeed, what the Constitution simply means is that the
initiative for filing revenue, tariff or tax bills, bills authorizing an increase of
the public debt, private bills and bills of local application must come from
the House of Representatives on the theory that, elected as they are from
the districts, the members of the House can be expected to be more
sensitive to the local needs and problems. Nor does the Constitution
prohibit the filing in the Senate of a substitute bill in anticipation of its
receipt of the bill from the House, so long as action by the Senate as a
body is withheld pending receipt of the House bill. The next argument of
the petitioners was that S. No. 1630 did not pass 3 readings on separate
days as required by the Constitution because the second and third
readings were done on the same day. But this was because the President
had certified S. No. 1630 as urgent. The presidential certification dispensed
with the requirement not only of printing but also that of reading the bill on
separate days. That upon the certification of a bill by the President the
requirement of 3 readings on separate days and of printing and distribution
can be dispensed with is supported by the weight of legislative practice
Facts:
These are motions seeking reconsideration of our decision dismissing the
petitions filed in these cases for the declaration of unconstitutionality of
R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law.
Now it is contended by the PPI that by removing the exemption of the press
from the VAT while maintaining those granted to others, the law
discriminates against the press. At any rate, it is averred, "even
nondiscriminatory taxation of constitutionally guaranteed freedom is
unconstitutional."
Issue: Does sales tax on bible sales violative of religious freedom?
Held:
No. The Court was speaking in that case of a license tax, which, unlike an
ordinary tax, is mainly for regulation. Its imposition on the press is
31
unconstitutional because it lays a prior restraint on the exercise of its right.
Hence, although its application to others, such those selling goods, is valid,
its application to the press or to religious groups, such as the Jehovah's
Witnesses, in connection with the latter's sale of religious books and
pamphlets, I unconstitutional. As the U.S. Supreme Court put it, "it is one
thing to impose a tax on income or property of a preacher. It is quite
another thing to exact a tax on him for delivering a sermon."The VAT is,
however, different. It is not a license tax. It is not a tax on the exercise of a
privilege, much less a constitutional right. It is imposed on the sale, barter,
lease or exchange of goods or properties or the sale or exchange of
services and the lease of properties purely for revenue purposes. To
subject the press to its payment is not to burden the exercise of its right
any more than to make the press pay income tax or subject it to general
regulation isnot to violate its freedom under the Constitution.
FACTS:
Petitioners (Tolentino, Kilosbayan, Inc., Philippine Airlines, Roco, and
Chamber of Real Estate and Builders Association) seek reconsideration of
the Courts previous ruling dismissing the petitions filed for the declaration
of unconstitutionality of R.A. No. 7716, the Expanded Value-Added Tax Law.
Petitioners contend that the R.A. did not originate exclusively in the HoR
as required by Article 6, Section 24 of the Constitution. The Senate
allegedly did not pass it on second and third readings, instead passing its
own version. Petitioners contend that it should have amended the House
bill by striking out the text of the bill and substituting it with the text of its
own bill, so as to conform with the Constitution.
ISSUE: W/N the R.A. is unconstitutional for having originated from the
Senate, and not the HoR.
HELD:
Petition is unmeritorious. The enactment of the Senate bill has not been
the first instance where the Senate, in the exercise of its power to propose
amendments to bills (required to originate in the House), passed its own
version. An amendment by substitution (striking out the text and
substituting it), as urged by petitioners, concerns a mere matter of form,
and considering the petitioner has not shown what substantial difference it
would make if Senate applied such substitution in the case, it cannot be
 32

applied to the case at bar. While the aforementioned Constitutional

provision states that bills must originate exclusively in the HoR, it also
adds, but the Senate may propose or concur with amendments. The
Senate may then propose an entirely new bill as a substitute measure.
Petitioners erred in assuming the Senate version to be an independent and
distinct bill. Without the House bill, Senate could not have enacted the
Senate bill, as the latter was a mere amendment of the former. As such, it
did not have to pass the Senate on second and third readings. Petitioners
question the signing of the President on both bills, to support their
contention that such are separate and distinct. The President certified the
bills separately only because the certification had to be made of the
version of the same revenue bill which AT THE MOMENT was being
considered. Petitioners question the power of the Conference Committee to
insert new provisions. The jurisdiction of the conference committee is not
limited to resolving differences between the Senate and the House. It may
propose an entirely new provision, given that such are germane to the
subject of the conference, and that the respective houses of Congress
subsequently approve its report. Petitioner PAL contends that the
amendment of its franchise by the withdrawal of its exemption from VAT is
not expressed in the title of the law, thereby violating the Constitution. The
Court believes that the title of the R.A. satisfies the Constitutional
Requirement.

Petitioners claim that the R.A. violates their press freedom and religious
liberty, having removed them from the exemption to pay VAT. Suffice it to
say that since the law granted the press a privilege, the law could take
back the privilege anytime without offense to the Constitution. By granting
exemptions, the State does not forever waive the exercise of its sovereign
prerogative. Lastly, petitioners contend that the R.A. violates due process,
equal protection and contract clauses and the rule on taxation. Petitioners
fail to take into consideration the fact that the VAT was already provided
for in E.O. No. 273 long before the R.A. was enacted. The latter merely
EXPANDS the base of the tax. Equality and uniformity in taxation means
that all taxable articles or kinds of property of the same class be taxed at
the same rate, the taxing power having authority to make reasonable and
natural classifications for purposes of taxation. It is enough that the statute
applies equally to all persons, forms and corporations placed in s similar
situation
 33

Facts:
The value-added tax (VAT) is levied on the sale, barter or exchange of
goods and properties as well as on the sale or exchange of services. RA
7716 seeks to widen the tax base of the existing VAT system and enhance
its administration by amending the National Internal Revenue Code. There
are various suits challenging the constitutionality of RA 7716 on various
grounds.
certification dispensed with the requirement not only of printing but also
that of reading the bill on separate days. That upon the certification of a
billby the President the requirement of 3 readings on separate days and of
printing and distribution can be dispensed with is supported by the
weightof legislative practice.

One contention is that RA 7716 did not originate exclusively in the House
of Representatives as required by Art. VI, Sec. 24 of the Constitution,
because it is in fact the result of the consolidation of 2 distinct bills, H. No.
11197 and S. No. 1630. There is also a contention that S. No. 1630 did not
pass 3 readings as required by the Constitution.

Issue:

Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) ofthe
Constitution

Held:

The argument that RA 7716 did not originate exclusively in the House of
Representatives as required by Art. VI, Sec. 24 of the Constitution will not
bear analysis. To begin with, it is not the law but the revenue bill which is
required by the Constitution to originate exclusively in the House of
Representatives. To insist that a revenue statute and not only the bill which
initiated the legislative process culminating in the enactment of the law
must substantially be the same as the House bill would be to deny the
Senates power not only to concur with amendments but also to propose
amendments. Indeed, what the Constitution simply means is that the
initiative for filing revenue, tariff or tax bills, bills authorizing an increase of
the public debt, private bills and bills of local application must come from
the House of Representatives on the theory that, elected as they are from
the districts, the members of the House can be expected to be more
sensitive to the local needs and problems. Nor does the Constitution
prohibit the filing in the Senate of a substitute bill in anticipation of its
receipt of the bill from the House, so long as action by the Senate as a
body is withheld pending receipt of the House bill.

The next argument of the petitioners was that S. No. 1630 did not pass 3
readings on separate days as required by the Constitution because the
second and third readings were done on the same day. But this was
because the President had certified S. No. 1630 as urgent. The presidential
 34

235 SCRA 630 (1994) 249 SCRA 635 (1995) Political Law Senate thus violating Article VI, Sections 24 and 26(2) of the Constitution,
Origination of Revenue Bills EVAT Amendment by Substitution respectively.

Arturo Tolentino et al are questioning the constitutionality of RA 7716

otherwise known as the Expanded Value Added Tax (EVAT) Law. Tolentino
averred that this revenue bill did not exclusively originate from the House
of Representatives as required by Section 24, Article 6 of the Constitution.
Even though RA 7716 originated as HB 11197 and that it passed the 3
readings in the HoR, the same did not complete the 3 readings in Senate
for after the 1st reading it was referred to the Senate Ways & Means
Committee thereafter Senate passed its own version known as Senate Bill
1630. Tolentino averred that what Senate could have done is amend HB
11197 by striking out its text and substituting it with the text of SB 1630 in
that way the bill remains a House Bill and the Senate version just
becomes the text (only the text) of the HB. (Its ironic however to note
that Tolentino and co-petitioner Raul Roco even signed the said Senate
Bill.)
ISSUE: Whether or not the EVAT law is procedurally infirm.
HELD:
Art. VI, Section 24: All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills shall
originate exclusively in the House of Representatives, but the Senate may
propose or concur with amendments.
Art. VI, Section 26(2): No bill passed by either House shall become a law
unless it has passed three readings on separate days, and printed copies
thereof in its final form have been distributed to its Members three days
before its passage, except when the President certifies to the necessity of
its immediate enactment to meet a public calamity or emergency. Upon
the last reading of a bill, no amendment thereto shall be allowed, and the
vote thereon shall be taken immediately thereafter, and the yeas and nays
entered in the Journal.
ISSUE: Whether or not RA 7716 violated Art. VI, Section 24 and Art. VI,
Section 26(2) of the Constitution.

No. By a 9-6 vote, the Supreme Court rejected the challenge, holding that HELD:
such consolidation was consistent with the power of the Senate to propose
or concur with amendments to the version originated in the HoR. What the No. The phrase originate exclusively refers to the revenue bill and not to
Constitution simply means, according to the 9 justices, is that the initiative the revenue law. It is sufficient that the House of Representatives initiated
must come from the HoR. Note also that there were several instances the passage of the bill which may undergo extensive changes in the
before where Senate passed its own version rather than having the HoR Senate.
version as far as revenue and other such bills are concerned. This practice
SB. No. 1630, having been certified as urgent by the President need not
of amendment by substitution has always been accepted. The proposition
meet the requirement not only of printing but also of reading the bill on
of Tolentino concerns a mere matter of form. There is no showing that it
separate days.
would make a significant difference if Senate were to adopt his over what
has been done.

RA 7716, otherwise known as the Expanded Value-Added Tax Law, is an act

that seeks to widen the tax base of the existing VAT system and enhance
its administration by amending the National Internal Revenue Code. There
are various suits questioning and challenging the constitutionality of RA
7716 on various grounds.

Tolentino contends that RA 7716 did not originate exclusively from the
House of Representatives but is a mere consolidation of HB. No. 11197 and
SB. No. 1630 and it did not pass three readings on separate days on the

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 tenantstherein 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.
Issue: Is Roxas y Cia. liable for the payment of deficiency income for the
sale of the farmlands?
Ruling:
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 y Cia. 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
35
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 inquestion. Hence, pursuant toSection 34 of the Tax Code the lands
sold to the farmers are capital assets, and the gain derived from the sale
thereof is capital gain, taxable only to the extent of 50%.
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. The tenants expressed their desire to
purchase the farmland. The tenants, however, did not have enough funds,
so the Roxases agreed to a purchase by installment. Subsequently, the CIR
demanded from the brothers the payment of deficiency income taxes
resulting from the sale, 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
petition.
ISSUE: Is Roxas liable?
RULING:
No. It should be borne in mind that the sale of the farmlands 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.
In order to maintain the general publics trust and confidence in the
Government this power must be used justly and not treacherously. It does
not conform with the sense of justice for the Government to persuade the
taxpayer to lend it a helping hand and later on penalize him for duly
answering the urgent call.
In fine, Roxas cannot be considered a real estate dealer and is not liable for
100% of the sale. Pursuant to Section 34 of the Tax Code, the lands sold to
the farmers are capital assets and the gain derived from the sale thereof is
capital gain, taxable only to the extent of 50%.
Facts:

Don Pedro Roxas and Dona Carmen Ayala, both Spanish, transmitted
to their grandchildren by hereditary succession the following properties:
a. Agricultural lands with a total area of 19,000 hectares in Nasugbu,
Batangas
- Tenants who have been tilling the lands expressed their desire to
purchase from Roxas y Cia, the parcels which they actually occupied
- The govt, in line with the constitutional mandate to acquire big
landed estates and apportion them among landless tenants-farmers,
persuaded the Roxas brothers to part with their landholdings
- The brothers agreed to sell 13,500 hec to the govt for P2.079Mn,
plus 300K survey and subdivision expenses
- Unfortunately, the govt did not have funds
- A special arrangement was made with the Rehabilitation Finance
Corporation to advance to Roxas y Cia the amount of P1.5Mn as loan
- Under the arrangement, Roxas y Cia. allowed the farmers to buy the
lands for the same price but by installment, and contracted with the RFC to
pay its loan from the proceeds of the yearly amortizations paid by the
farmers
- In 1953 and 1955, Roxas y Cia. derived from said installment
payments a net gain of P42,480.83 and P29,500.71. 50% of said net gain
was reported for income tax purposes as gain on the sale of capital asset
held for more than one year pursuant to Sec. 34 of the Tax Code
b. Residential house and lot at Wright St., Malate, Manila
- After the marriage of Antonio and Eduardo, Jose lived in the house
where he paid rentals of 8K/year to Roxas y Cia
c. Shares of stocks in different corporations
To manage the properties, Antonio Roxas, Eduardo Roxas and Jose
Roxas, the children, formed a partnership called Roxas y Compania
On 1958, CIR demanded from Roxas y Cia the payment of real estate
dealer's tax for 1952 amtg to P150.00 plus P10.00 compromise penalty for
late payment, and P150.00 tax for dealers of securities plus P10.00
compromise penalty for late payment.
36
- Basis: house rentals received from Jose, pursuant to Art. 194 of the
Tax Code stating that an owner of a real estate who derives a yearly rental
income therefrom in the amount of P3,000.00 or more is considered a real
estate dealer and is liable to pay the corresponding fixed tax
The Commissioner further assessed deficiency income taxes against
the brothers for 1953 and 1955, resulting from the inclusion as income of
Roxas y Cia of the unreported 50% of the net profits derived from the sale
of the Nasugbu farm lands to the tenants, and the disallowance of
deductions from gross income of various business expenses and
contributions claimed by Roxas y Cia and the Roxas brothers
The brothers protested the assessment but was denied, thus
appealing to the CTA
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: Should Roxas y Cia be considered a real estate dealer because it
engaged in the business of selling real estate
Ruling:
NO, being an isolated transaction
Real estate dealer: any person engaged in the business of buying,
selling, exchanging, leasing or renting property on his own account as
principal and holding himself out as a full or part-time dealer in real estate
or as an owner of rental property or properties rented or offered to rent for
an aggregate amount of three thousand pesos or more a year:
Section 194 of the Tax Code, in considering as real estate dealers
owners of real estate receiving rentals of at least P3,000.00 a year, does
not provide any qualification as to the persons paying the rentals
The fact that there were hundreds of vendees and them being paid
for their respective holdings in installment for a period of ten years, it

would nevertheless not make the vendor Roxas y Cia. a real estate dealer
during the 10-year amortization period
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
It was the duty of the Government to pay the agreed compensation
after it had persuaded Roxas y Cia. to sell its haciendas, and to
subsequently subdivide them among the farmers at very reasonable terms
and prices. But due to the lack of funds, 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
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
Therefore, 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 farmers are capital assets, and the gain derived from the
sale thereof is capital gain, taxable only to the extent of 50%
As to the deductions
a. P40 tickets to a banquet given in honor of Sergio Osmena and P28
San Miguel beer given as gifts to various persons representation
expenses
Representation expenses: deductible from gross income as
expenditures incurred in carrying on a trade or business
In this case, the evidence does not show such link between the
expenses and the business of Roxas y Cia
b. Contributions to the Pasay police and fire department and other
police departments as Christmas funds
Contributions to the Christmas funds are not deductible for the
reason that the Christmas funds were not spent for public purposes but as
Christmas gifts to the families of the members of said entities
37
Under Section 39(h), a contribution to a government entity is
deductible when used exclusively for public purposes
As to the contribution to the Manila Police trust fund, such is an
allowable deduction for said trust fund belongs to the Manila Police, a
government entity, intended to be used exclusively for its public functions.
c. Contributions to the Philippines Herald's fund for Manila's neediest
families
The contributions were not made to the Philippines Herald but to a
group of civic spirited citizens organized by the Philippines Herald solely for
charitable purposes
There is no question that the members of this group of citizens do
not receive profits, for all the funds they raised were for Manila's neediest
families. Such a group of citizens may be classified as an association
organized exclusively for charitable purposes mentioned in Section 30(h) of
the Tax Code
d. Contribution to Our Lady of Fatima chapel at the FEU
University gives dividends to its stockholders
Located within the premises of the university, the chapel in question
has not been shown to belong to the Catholic Church or any religious
organization
The contributions belongs to the Far Eastern University, contributions
to which are not deductible under Section 30(h) of the Tax Code for the
reason that the net income of said university injures to the benefit of its
stockholders.
No deficiency income tax is due for 1953 from Antonio Roxas, Eduardo
Roxas and Jose Roxas. For 1955 they are liable to pay deficiency income
tax in the sum of P109.00, P91.00 and P49.00, respectively.
 38

Chavez v Ongpin land-owner, questioned the constitutionality of Executive Order No. 73. He
GR No 76778, June 6, 1990 alleges that it will bring unreasonable increase in real property taxes. In
fact, according to him, the application of the assailed order will cause an
FACTS: excessive increase in real property taxes by 100% to 400% on
improvements and up to 100% on land.

Section 21 of Presidential Decree 464 provides that every 5 years starting
calendar year 1978, there shall be a provincial or city general revision of
real property assessments. The general revision was completed in 1984.
On November 25, 1986, President Corazon Aquino issued EO 73 stating
that beginning January 1, 1987, the 1984 assessments shall be the basis of
real property taxes. Francisco Chavez, a taxpayer and landowner,
questioned the constitutionality of EO 74. He alleges that it will bring
unreasonable increase in real property taxes.
ISSUE: Is EO 73 constitutional?
RULING:
ISSUE:
Whether or not Executive Order no. 73 imposes unreasonable increase in
real property taxes, thus, should be declared unconstitutional.
RULING:
The attack on Executive Order No. 73 has no legal basis as the general
revision of assessments is a continuing process mandated by Section 21 of
Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which
should be challenged as constitutionally infirm. However, Chavez failed to
raise any objection against said decree. Without Executive Order No. 73,
the basis for collection of real property taxes will still be the 1978 revision
of property values.

Yes. Without EO 73, the basis for collection of real property taxes will still
be the 1978 revision of property values. Certainly, to continue collecting
real property taxes based on valuations arrived at several years ago, in
disregard of the increases in the value of real properties that have occurred
since then is not in consonance with a sound tax system.
Fiscal adequacy, which is one of the characteristics of a sound tax system,
requires that sources of revenue must be adequate to meet government
expenditures and their variations.
Certainly, to continue collecting real property taxes based on valuations
arrived at several years ago, in disregard of the increases in the value of
real properties that have occurred since then, is not in consonance with a
sound tax system. Fiscal adequacy, which is one of the characteristics of a
sound tax system, requires that sources of revenues must be adequate to
meet government expenditures and their variations.

FACTS:

Section 21 of Presidential Decree No. 464 provides that every five years
starting calendar year 1978, there shall be a provincial or city general
revision of real property assessments. The revised assessment shall be the
basis for the computation of real property taxes for the five succeeding
years. On the strength of the aforementioned law, the general revision of
assessments was completed in 1984. However, Executive Order No. 1019
was issued, which deferred the collection of real property taxes based on
the 1984 values to January 1,1988 instead of January 1, 1985.On
November 25, 1986, President Corazon Aquino issued Executive order
No.73. It states that beginning January 1, 1987, the 1984 assessments
shall be the basis of the real property collection. Thus, it effectively
repealed Executive Order No. 1019.Francisco Chavez, a taxpayer and a

Diaz vs. Secretary of Finance (2011)
Facts:
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this
petition for declaratory relief assailing the validity of the impending
imposition of value-added tax (VAT) by the Bureau of Internal Revenue
(BIR) on the collections of tollway operators. Court treated the case as one
of prohibition. Petitioners hold the view that Congress did not, when it
enacted the NIRC, intend to include toll fees within the meaning of "sale of
services" that are subject to VAT; that a toll fee is a "user's tax," not a sale
of services; that to impose VAT on toll fees would amount to a tax on public
service; and that, since VAT was never factored into the formula for
computing toll fees, its imposition would violate the non-impairment clause
of the constitution. The government avers that the NIRC imposes VAT on all
kinds of services of franchise grantees, including tollway operations; that
the Court should seek the meaning and intent of the law from the words
used in the statute; and that the imposition of VAT on tollway operations
has been the subject as early as 2003 of several BIR rulings and circulars.
The government also argues that petitioners have no right to invoke the
non-impairment of contracts clause since they clearly have no personal
interest in existing toll operating agreements (TOAs) between the
government and tollway operators. At any rate, the non-impairment clause
cannot limit the State's sovereign taxing power which is generally read into
contracts.
Issue: May toll fees collected by tollway operators be subjected to VAT
(Are tollway operations a franchise and/or a service that is subject to VAT)?
Ruling:
When a tollway operator takes a toll fee from a motorist, the fee is in effect
for the latter's use of the tollway facilities over which the operator enjoys
private proprietary rights that its contract and the law recognize. In this
sense, the tollway operator is no different from the service providers under
Section108 who allow others to use their properties or facilities for a fee.
Tollway operators are franchise grantees and they do not belong to
exceptions that Section 119 spares from the payment of VAT. The word
"franchise" broadly covers government grants of a special right to do an
act or series of acts of public concern. Tollway operators are, owing to the
nature and object of their business, "franchise grantees." The construction,
operation, and maintenance of toll facilities on public improvements are
activities of public consequence that necessarily require a special grant of
39
authority from the state. A tax is imposed under the taxing power of the
government principally for the purpose of raising revenues to fund public
expenditures. Toll fees, on the other hand, are collected by private tollway
operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as to
assure them a reasonable margin of income. Although toll fees are charged
for the use of public facilities, therefore, they are not government
exactions that can be properly treated as a tax. Taxes may be imposed
only by the government under its sovereign authority, toll fees may be
demanded by either the government or private individuals or entities, as
an attribute of ownership.
May toll fees collected by tollway operators be subject to VAT?
YES.
(1) VAT is imposed on all kinds of services and tollway operators who are
engaged in constructing, maintaining, and operating expressways are no
different from lessors of property, transportation contractors, etc.
(2) Not only do they fall under the broad term under (1) but also come
under those described as all other franchise grantees which is not
confined only to legislative franchise grantees since the law does not
distinguish. They are also not a franchise grantee under Section 119 which
would have made them subject to percentage tax and not VAT.
(3) Neither are the services part of the enumeration under Section 109 on
VAT-exempt transactions.
(4) The toll fee is not a users tax and thus it is permissible to impose a VAT
on the said fee. The MIAA case does not apply and the Court emphasized
that toll fees are not taxes since they are not assessed by the BIR and do
not go the general coffers of the government. Toll fees are collected by
private operators as reimbursement for their costs and expenses with a
view to a profit while taxes are imposed by the government as an attribute
of its sovereignty. Even if the toll fees were treated as users tax, the VAT
can not be deemed as a tax on tax since the VAT is imposed on the
tollway operator and the fact that it might pass-on the same to the tollway
user, it will not make the latter directly liable for VAT since the shifted VAT
simply becomes part of the cost to use the tollways.
(5) The assertion that the VAT imposed is not administratively feasible
given the manner by which the BIR intends to implement the VAT (i.e.,
rounding off the toll rates and putting any excess collection in an escrow
 40

account) is not enough to invalidate the law. Non-observance of the canon

of administrative feasibility will not render a tax imposition invalid except
to the extent that specific constitutional or statutory limitations are
impaired.
 41

Kapatiran ng mga Naglilingkod sa Pamahalaan v Tan GR No 81311

June 30, 1988

FACTS:

EO 372 was issued by the President of the Philippines which amended the
Revenue Code, adopting the value-added tax (VAT) effective January 1,
1988. Four petitions assailed the validity of the VAT Law from being beyond
the President to enact; for being oppressive, discriminatory, regressive and
violative of the due process and equal protection clauses, among others, of
the Constitution. The Integrated Customs Brokers Association particularly
contend that it unduly discriminate against customs brokers (Section 103r)
as the amended provision of the Tax Code provides that service
performed in the exercise of profession or calling (except custom brokers)
subject to occupational tax under the Local Tax Code and professional
services performed by registered general professional partnerships are
exempt from VAT.

ISSUE: Whether the E-VAT law is void for being discriminatory against
customs brokers

RULING:

No. The phrase except custom brokers is not meant to discriminate

against custom brokers but to avert a potential conflict between Sections
102 and 103 of the Tax Code, as amended. The distinction of the customs
brokers from the other professionals who are subject to occupation tax
under the Local Tax Code is based on material differences, in that the
activities of customs partake more of a business, rather than a profession
and were thus subjected to the percentage tax under Section 174 of the
Tax Code prior to its amendment by EO 273. EO 273 abolished the
percentage tax and replaced it with the VAT. If the Association did not
protest the classification of customs brokers then, there is no reason why it
should protest now.

PASCUAL vs. SECRETARY OF PUBLIC WORKS
110 PHIL 331
GR No. L-10405, December 29, 1960
"A law appropriating the public revenue is invalid if the public advantage or
benefit, derived from such expenditure, is merely incidental in the
promotion of a particular enterprise."
FACTS: Governor Wenceslao Pascual of Rizal instituted this action for
declaratory relief, with injunction, upon the ground that RA No. 920, which
apropriates funds for public works particularly for the construction and
improvement of Pasig feeder road terminals. Some of the feeder roads,
however, as alleged and as contained in the tracings attached to the
petition, were nothing but projected and planned subdivision roads, not yet
constructed within the Antonio Subdivision, belonging to private
respondent Zulueta, situated at Pasig, Rizal; and which projected feeder
roads do not connect any government property or any important premises
to the main highway. The respondents' contention is that there is public
purpose because people living in the subdivision will directly be benefitted
from the construction of the roads, and the government also gains from the
donation of the land supposed to be occupied by the streets, made by its
owner to the government.
ISSUE: Should incidental gains by the public be considered "public
purpose" for the purpose of justifying an expenditure of the government?
HELD:
No. It is a general rule that the legislature is without power to appropriate
public revenue for anything but a public purpose. It is the essential
character of the direct object of the expenditure which must determine its
validity as justifying a tax, and not the magnitude of the interest to be
affected nor the degree to which the general advantage of the community,
and thus the public welfare, may be ultimately benefited by their
promotion. Incidental to the public or to the state, which results from the
42
promotion of private interest and the prosperity of private enterprises or
business, does not justify their aid by the use public money.
The test of the constitutionality of a statute requiring the use of public
funds is whether the statute is designed to promote the public interest, as
opposed to the furtherance of the advantage of individuals, although each
advantage to individuals might incidentally serve the public.
110 Phil. 331 Political Law Appropriation For Private Use Not
Allowed
In 1953, Republic Act No. 920 was passed. This law appropriated
P85,000.00 for the construction, reconstruction, repair, extension and
improvement Pasig feeder road terminals. Wenceslao Pascual, then
governor of Rizal, assailed the validity of the law. He claimed that the
appropriation was actually going to be used for private use for the
terminals sought to be improved were part of the Antonio Subdivision. The
said Subdivision is owned by Senator Jose Zulueta who was a member of
the same Senate that passed and approved the same RA. Pascual claimed
that Zulueta misrepresented in Congress the fact that he owns those
terminals and that his property would be unlawfully enriched at the
expense of the taxpayers if the said RA would be upheld. Pascual then
prayed that the Secretary of Public Works and Communications be
restrained from releasing funds for such purpose. Zulueta, on the other
hand, perhaps as an afterthought, donated the said property to the City of
Pasig.
ISSUE: Whether or not the appropriation is valid.
HELD:
 43

No, the appropriation is void for being an appropriation for a private

purpose. The subsequent donation of the property to the government to
make the property public does not cure the constitutional defect. The fact
that the law was passed when the said property was still a private property
cannot be ignored. In accordance with the rule that the taxing power must
be exercised for public purposes only, money raised by taxation can be
expanded only for public purposes and not for the advantage of private
individuals. Inasmuch as the land on which the projected feeder roads
were to be constructed belonged then to Zulueta, the result is that said
appropriation sought a private purpose, and, hence, was null and void.

NPC v Albay
FACTS:
The province of Albay sought to sell Napocor properties in order for the
proceeds to be applied to the real property taxes Napocor allegedly owned
the Albay provincial government. Napocor opposed alleging that it was
immune from taxes citing Resolution 17-87 of the Fiscal Incentives Review
Board (FIRB).
ISSUE: Whether the granting of exemption by the FIRB constituted undue
delegation of taxing power
RULING:
Yes, it is undue delegation. It has no authority to impose taxes or revoke
existing ones, which, after all, under the
constitution, only the legislature may accomplish.
Petition to reconsider decision of Court promulgated on May 31,
1991Facts:This case is regarding a matter of indirect tax exemption of the
private respondent National Power Corporation (NPC) which is brought to
the Supreme Court (SC) a second time by petitioner Senator Ernesto
Maceda.On November 3, 1936, Commonweath Act No. 120 (An Act
Creating
The National Power Corporation, And Prescribing Its Powers And
Activities, Appropriating The Necessary Funds Therefore, And Reserving
The Unappropriated Public Waters For Its Use) was enacted creating the
NPC, which is a public corporation, mainly to develop hydraulic power and
the production of power from other sources in the Philippines (Com. Act No.
120, secs 1 & 2(g)).The main source of funds for the NPC was the flotation
of bonds in the capital markets and such bonds were exempt from
payment of all taxesin order for the corporation to facilitate payment of its
indebtedness. On September 10, 1971, Republic Act No. 6395 (An Act
Revising The Charter Of The National Power Corporation) was enacted,
which tasked NPC to carry out the policy of national electrification, and
provided for the details of NPCs tax exemption.On January 22, 1974,
Presidential Decree No. 380 was issued and specified that NPCs tax
exemption includes all taxes imposed directly and indirectly on all
petroleum products used by NPC in its operation.On May 27, 1976,
Presidential Decree 938 amended R.A 6395 which integrated the tax
exemption privilege of NPC in general terms
44
Section10 To enable the Corporation to pay its indebtedness and
obligations and in furtherance and effective implementation of the policy
enunciated in Section One of this Act, the Corporation, including its
subsidiaries, is hereby declared exempt from the payment of all forms of
taxes, duties, fees, imposts as well as costs and service fees including
filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings.
After a series of withdrawal and restoration of NPCs tax exemption, the
Fiscal Incentives Review Board, possessing the power restore tax
exemptions, issued Resolution 10-85 (February 7, 1985) restoring NPCs
exemption from June 11, 1984 to June 30, 1985.Since 1976, oil firms never
paid excise or specific and ad valorem taxes for petroleum products sold
and delivered to NPC. Such taxes were paid on their sales of oil products to
NPC only in 1984. NPC claimed for a refund of P468.58 Million (1984-1986),
and only a portion was approved and released by Caltex. The claim for the
refund of taxes paid by PetroPhil, Shell and Caltex was denied. NPC moved
for reconsideration, stating that all the deliveries of petroleum products to
NPC are tax exempt.
Petitioner contends that Presidential Decree No. 938 (1976) repealed the
indirect tax exemption of NPC as Sec 10 thereof does not expressly include
indirect taxes.
Issue: Whether the National Power Corporation still possessed indirect tax
exemption after the repeal made in PD 938
Held:
Yes, NPC still possess the exemption to indirect taxes.NPC laws show that it
has been the lawmakers intention that the NPC was to be completely tax
exempt from all forms of taxes direct and indirect. One common theme in
all these laws is that the NPC must be able topay its indebtedness which,
as of P.D. No. 938, was P12 Billion in total domestic indebtedness, at any
one time, and U$4 Billion in total foreign loans at any one time. The NPC
must be and has to be exempt from all forms of taxes if this goal is to be
achieved. In addition to this, the then President Marcos mandated that 200
Million pesos be appropriated annually to NPC, such amount should be
taken from the general fund of the government. It does not stand to reason
that the then President would order 200 million pesos to be taken partially
or totally from the tax money to be used to pay the government
subscription in the NPC on one hand and order NPC to pay its indirect tax.
Furthermore, section 10 of PD 938 was intended to be in its general form,
 45

President Marcos must have considered all the NPC statutes from C.A 120 Examples are: ad valorem taxes that oil companies pay to BIR upon
up to its latest amendments, PD 380, PD 395 and PD 758 and came up removal of petroleum products from its refinery can be shifted to its buyer,
with a very simple Section 13, RA 6395, as amended by PD 938.When like the NPC
construing a series of statutes, they shall be taken and construed together,
as in statutes in pari materia. And in addition, repeal by implication is not
favoured unless it is manifest that the legislature so intended.
Dissenting Opinion of Justice Sarmiento: The fact that NPC has been tasked
Facts: with the enormous undertaking to improve the quality of life, is no reason,
to include indirect taxes, within the coverage of its preferential tax
The petition seeks to nullify certain decisions, orders, ruling, and treatment. The deletion of indirect taxes as stated in one of the assailed
resolutions of the respondents (Macaraig et. al) for exempting the National orders (PD 938), is significant, because if said law truly intends to exempt
Power Corporation (NPC) from indirect tax and duties. Commonwealth Act NPC from indirect taxes, it would have said so specifically.
120 created NPC as a public corporation. RA 6395 revised the charter of
NPC and provided in detail the exemption of NPC from all taxes, duties and
other charges by the government. There were many resolutions and
decisions that followed after RA 6395 which talked about the exemption
and non-exemption from taxes of NPC.

Issue: Whether or not NPC is really exempt from indirect taxes

Held:

Yes. NPC is a non-profit public corporation created for the general good and
welfare of the people. From the very beginning of its corporate existence,
NPC enjoyed preferential tax treatment to enable it to pay its debts and
obligations. From the changes made in the NPC charter, the intention to
strengthen its preferential tax treatment is obvious. The tax exemption is
intended not only to insure that the NPC shall continue to generate
electricity for the country but more importantly, to assure cheaper rates to
be paid by consumers.

------------------

Some Notes on Direct and Indirect Taxes:

Direct Taxes those which a taxpayer is directly liable on the transaction or

business it engages in. Examples are: custom duties, ad valorem taxes
paid by oil companies for importation of crude oil

Indirect Taxes paid by persons who can shift the burden upon someone
else.
 46

BOARD OF ASSESSMENT APPEALS OF LAGUNA vs. CTA, NWSA clearly showing that the lawmaker intended the contrary, but no such facts
8 SCRA 224 and circumstances have been brought to our attention. Indeed, the noun
GR No. L-18125, May 31, 1963 "property" and the verb "owned" used in said section 3(a) strongly suggest
that the object of exemption is considered more from the view point of
"A tax on property of the Government, whether national or local, would dominion, than from that of domain.
merely have the effect of taking money from one pocket to put it in Moreover, taxes are financial burdens imposed for the purpose of raising
another pocket." revenues with which to defray the cost of the operation of the Government,
and a tax on property of the Government, whether national or local, would
FACTS: merely have the effect of taking money from one pocket to put it in
another pocket. Hence, it would not serve, in the final analysis, the main
National Waterworks and Sewerage Authority (NWSA), a public corporation purpose of taxation. What is more, it would tend to defeat it, on account of
owned by the Government of the Philippines as well as all property the paper work, time and consequently, expenses it would entail.
comprising waterworks and sewerage systems placed under it, took over
the Cabuyao-Sta. Rosa-Bian Waterworks System in 1956. It was assessed
by the Provincial Assessor of Laguna, for purposes of real estate taxes, on
the real properties owned by Cabuyao Waterworks. The respondent
protested claiming it is exempted from the payment of real estate taxes in
view of the nature and kind of said property and functions and activities of
petitioner. The petitioner denied the protest arguing that such real
properties are subject to real estate tax because although said properties
belong to the Republic of the Philippines, the same holds it, not in its
governmental, political or sovereign capacity, but in a private, proprietary
or patrimonial character, which, allegedly, is not covered by the exemption
contained in section 3(a) of Republic Act No. 470.

ISSUE: Are the real properties owned by the respondent public corporation
subject to real estate tax?

HELD:

No. Republic Act No. 470 makes no distinction between property held in a
sovereign, governmental or political capacity and those possessed in a
private, proprietary or patrimonial character. And where the law does not
distinguish neither may we, unless there are facts and circumstances

Pepsi-Cola Bottling Company of the Phils, Inc v Tanauan GR No. L-
31156, February 27, 1976
FACTS:
Pepsi Cola Bottling Company commenced a complaint with preliminary
injunction before the Court of First Instance of
Leyte for the court to declare Section 2 of RA 2264 (Local Autonomy Act)
unconstitutional as an undue delegation of taxing authority as well as to
declare Ordinances Nos 23 and 27 of municipality of Tanauan, Leyte.
Municipal Ordinance No. 23 (9/25/1962) levies and collects from softdrinks
producers and manufacturers a tax of 1/16 of a centavo for every bottle of
softdrink corked. Municipal ordinance no. 27 (10/28/1962) levies and
collects on softdrinks produced or manufactured within the territorial
jurisdiction of this municipality a tax of 1 centavo on each gallon of volume
capacity. The taxes imposed are denominated as municipal production
tax. CFI-Leyte dismissed the complaint. Hence, this petition.
ISSUES:
1. Is Section 2 of RA 2264 an undue delegation of power, confiscatory
and oppressive?
2. Do ordinances nos. 23 and 27 constitute double taxation and
impose percentage or specific taxes?
3. Are ordinance nos. 23 and 27 unjust and unfair?
RULING:
1. No. Under the New Constitution, local governments are granted the
autonomous authority to create their own sources of
revenue and to levy taxes. Section 5, Article XI provides: Each
local government unit shall have the power to create its sources of
revenue and to levy taxes, subject to such limitations as may be
provided by law. Thus, legislative powers may be delegated to
local governments in respect of matters of local concern.
47
2. No. 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. The tax is not a
percentage tax as the volume capacity of the taxpayers
production of softdrinks is considered solely for purposes of
determining the tax rate on the products but there is no set ratio
between volume of sales and amount of the tax. Nor can the tax
levied be treated as a specific tax. Softdrink is not one of those
specified articles.
3. No. 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.
4. 69 SCRA 460 Taxation Delegation to Local Governments
Double Taxation
5. Pepsi Cola has a bottling plant in the Municipality of Tanauan,
Leyte. In September 1962, the Municipality approved Ordinance
No. 23 which levies and collects from soft drinks producers and
manufacturers a tai of one-sixteenth (1/16) of a centavo for every
bottle of soft drink corked.
6. In December 1962, the Municipality also approved Ordinance No.
27 which levies and collects on soft drinks produced or
manufactured within the territorial jurisdiction of this municipality a
tax of one centavo P0.01) on each gallon of volume capacity.
7. Pepsi Cola assailed the validity of the ordinances as it alleged that
they constitute double taxation in two instances: a) double
taxation because Ordinance No. 27 covers the same subject matter
and impose practically the same tax rate as with Ordinance No. 23,
b) double taxation because the two ordinances impose percentage
or specific taxes.
 48

8. Pepsi Cola also questions the constitutionality of Republic Act 2264 10. There is no double taxation. The argument of the Municipality is
which allows for the delegation of taxing powers to local well taken. Further, Pepsi Colas assertion that the delegation of
government units; that allowing local governments to tax taxing power in itself constitutes double taxation cannot be
companies like Pepsi Cola is confiscatory and oppressive. merited. It must be observed that the delegating authority
specifies the limitations and enumerates the taxes over which local
9. The Municipality assailed the arguments presented by Pepsi Cola. It taxation may not be exercised. The reason is that the State has
argued, among others, that only Ordinance No. 27 is being exclusively reserved the same for its own prerogative. Moreover,
enforced and that the latter law is an amendment of Ordinance No. double taxation, in general, is not forbidden by our fundamental
23, hence there is no double taxation. law unlike in other jurisdictions. Double taxation becomes
obnoxious only where the taxpayer is taxed twice for the benefit of
ISSUE: Whether or not there is undue delegation of taxing powers.
the same governmental entity or by the same jurisdiction for the
Whether or not there is double taxation.
same purpose, but not in a case where one tax is imposed by the
State and the other by the city or municipality.

HELD:

No. There is no undue delegation. The Constitution even allows such

delegation. Legislative powers may be delegated to local governments in
respect of matters of local concern. By necessary implication, the
legislative power to create political corporations for purposes of local self-
government carries with it the power to confer on such local governmental
agencies the power to tax. Under the New Constitution, local governments
are granted the autonomous authority to create their own sources of
revenue and to levy taxes. Section 5, Article XI provides: Each local
government unit shall have the power to create its sources of revenue and
to levy taxes, subject to such limitations as may be provided by law.
Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated
from beyond the sphere of the legislative power to enact and vest in local
governments the power of local taxation.

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY V. FERDINAND
J. MARCOS (Presiding Judge of RTC Cebu)
FACTS
Mactan Cebu International Airport Authority was created by virtue of RA
6958 to manage the Mactan International Airport and the Lahug Airport.
Since the time of its creation, petitioner MCIAA enjoyed the privilege of
exemption from payment of realty taxes. In Section 14 of its Charter
provides that the Authority shall be exempt from realty taxes imposed by
the National Government or any of its political subdivisions, agencies and
instrumentalities.
In 1994, however, the Office of the Treasurer of the City of Cebu demanded
payment for realty taxes on several parcels of land belonging to petitioner.
Petitioner objected to such demand, citing Sec. 14. It asserted that it is an
instrumentality of the government which performs governmental functions,
citing Sec. 133 of the Local Government Code which puts limitations on the
taxing powers of local government units. Sec. 133, LGC provides that the
exercise of the taxing powers of provinces, cities, municipalities and
barangays shall not extend to the levy of... taxes, fees or charges of any
kind on the National government, its agencies and instrumentalities and
local government units. The Respondent City refused to cancel and set
aside the realty tax account, insisting that the MCIAA is a GOCC whose tax
exemption privilege has been withdrawn by virtue of Sections 193 and 234
of the LGC. Sec. 193 provides that tax exemptions or incentives granted to
or presently enjoyed by all persons, whether natural or juridical, including
GOCCs except local water districts, cooperatives duly registered under RA
6938, non-stock and non-profit hospitals and educational institutions are
hereby withdrawn upon the effectivity of this Code. Section 234 meanwhile
provides that exemption from payment of real property tax previously
granted to or presently enjoyed by all persons, whether natural or juridical,
including GOCCs are hereby withdrawn upon the effectivity of the LGC.
Because the City of Cebu was about to issue a warrant of levy against the
properties of MCIAA, the latter was compelled to pay its tax account under
protest. MCIAA likewise filed a petition for declaratory relief with the RTC of
Cebu, contending that the taxing powers of local government units do not
extend to the levy of taxes or fees of any kind on an instrumentality of the
national government. MCIAA insisted that while it is indeed a GOCC, it
nontheless stands on the same footing as an agency or instrumentality of
the national government by the very nature of its powers and functions.
The City however maintained that MCIAA is not an instrumentality of the
49
government but merely a GOCC performing proprietary functions, and
hence, the exemptions granted to it were deemed withdrawn by virtue of
Secs. 193 and 234 of the LGC.
The trial court dismissed the petition. MR denied. Hence this petition.
Petitioner asserts that although it is a GOCC, it is mandated to perform
functions in the same category as an instrumentality of the government.
An instrumentality of the Government is one created to perform
governmental functions primarily to promote certain aspects of the
economic life of the people. Petitioner further contends that being an
instrumentality of the National Government, respondent City of Cebu has
no power nor authority to impose realty taxes upon it in accordance with
Sec. 133 of the LGC. In Basco v. PAGCOR, the SC said the local
governments have no power to tax instrumentalities of the National Gov't
like PAGCOR, which has a dual role (its role to regulate gambling casinos is
governmental, placing it in the category of an agency or instrumentality of
the Government which should be exempt from local taxes. Petitioner thus
concludes that there is a distinction in the LGC between a GOCC
performing gov't functions as against one performing merely proprietary
ones, and it is clear from Secs. 133 and 234, LGC that the legislature
meant to exclude instrumentalities of the national government from the
taxing powers of LGUs.
ISSUE: Whether petitioner is exempted from payment of taxes or not
RULING:
No. Taxation is the rule and exemption is the exception. Thus, the
exemption may be withdrawn at the pleasure of the taxing authority. The
only exception to this rule is where the exemption was granted to private
parties based on material consideration of a mutual nature, which then
becomes contractual and is thus covered by the non-impairment clause of
the Constitution. The general rule, as laid down in Section 133 of the LGC
is that the taxing powers of LGUs cannot extend to the levy of, inter alia,
taxes, fees and charges of any kind on the National Government, its
agencies, and instrumentalities, and LGUs. However, pursuant to Section
232, provinces, cities and municipalities in the Metro Manila Area MAY
impose real property taxes except on inter alia, real property owned by the
Republic of the Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted for consideration or otherwise,
to a taxable person (Sec. 234a).

As to tax exemptions/incentives granted to or presently enjoyed by natural
or juridical persons, including GOCCs,
GENERAL RULE: Tax exemptions or incentives are withdrawn upon the
effectivity of the LGC
EXCEPTION: Those granted to local water districts, cooperatives duly
registered under RA 6938, non-stock and non-profit hospitals and educ
institutions, and unless otherwise provided in the LGC. This latter proviso
could refer to Section 234 enumerating the properties exempt from real
property tax. The last paragraph of Section 234 further qualifies the
retention of the exemption insofar as real property taxes are concerned by
limiting the retention only to those enumerated therein; all others not
included in the enumeration therefore lost the privilege upon the effectivity
of the LGC. Even as to real property owned by the Rep. Of the Philippines
or any of its political subdivisions covered by item (a) of the first paragraph
of Section 234, the exemption is withdrawn if the beneficial use of such
property has been granted to a taxable person for consideration or
otherwise. Since the last paragraph of Section 234 unequivocally withdrew,
upon the effectivity of the LGC, exemptions from payment of real property
taxes granted to natural or juridical persons, including government-owned
or controlled corporations, except as provided in the said section, and the
petitioner is, undoubtedly, a government-owned corporation, it necessarily
follows that its exemption from such tax granted it by its charter has been
withdrawn.
Mactan Cebu International Airport Authority v Marcos GR No 120082,
September 11, 1996
FACTS:
Petitioner was created by virtue of RA 6958. Section 1 thereof states that
the authority shall be exempt from realty taxes imposed by the National
Government or any of its political subdivisions, agencies and
instrumentalities. However, the Treasurer of Cebu City demanded payment
for realty taxes from petitioner. Petitioner filed a declaratory relief before
the Regional Trial Court. The trial court dismissed the petitioner ruling that
the Local Government Code withdrew the tax exemption granted to
Government owned and controlled corporation.
ISSUE: Whether the city of Cebu has the power to impose taxes on
petitioner
50
RULING:
Yes. Taxation is the rule and exemption is the exception, the exemption
may thus be withdrawn at the pleasure of the taxing authority. As to tax
exemptions or incentives granted to or presently enjoyed by natural or
juridical persons, including government- owned and controlled
corporations, section 193 of the LGC prescribes the general rule, viz, they
are withdrawn upon the effectivity of the LGC, except those granted to
local water districts, cooperatives, duly registered under RA 6938, non
stock and nonprofit hospitals and educational institutions and unless
otherwise provided in the LGC.
Facts:
Petitioner Mactan Cebu International Airport Authority was created by
virtue of R.A. 6958, mandated to principally undertake the economical,
efficient, and effective control, management, and supervision of the
Mactan International Airport and Lahug Airport, and such other airports as
may be established in Cebu.
Since the time of its creation, petitioner MCIAA enjoyed the privilege of
exemption from payment of realty taxes in accordance with Section 14 of
its charter. However, on October 11, 1994, Mr. Eustaquio B. Cesa, Officer in
Charge, Office of the Treasurer of the City of Cebu, demanded payment
from realty taxes in the total amount of P2229078.79. Petitioner objected
to such demand for payment as baseless and unjustified claiming in its
favor the afore cited Section 14 of R.A. 6958. It was also asserted that it is
an instrumentality of the government performing governmental functions,
citing Section 133 of the Local Government Code of 1991.
Section 133. Common limitations on the Taxing Powers of Local
Government Units.
The exercise of the taxing powers of the provinces, cities, barangays,
municipalities shall not extend to the levi of the following:
xxx Taxes, fees or charges of any kind in the National Government, its
agencies and instrumentalities, and LGUs. xxx
Respondent City refused to cancel and set aside petitioners realty tax
account, insisting that the MCIAA is a government-controlled corporation

whose tax exemption privilege has been withdrawn by virtue of Sections
193 and 234 of Labor Code that took effect on January 1, 1992.
Issue: Whether or not the petitioner is a taxable person
Rulings:
Taxation is the rule and exemption is the exception. MCIAAs exemption
from payment of taxes is withdrawn by virtue of Sections 193 and 234 of
Labor Code. Statutes granting tax exemptions shall be strictly construed
51
against the taxpayer and liberally construed in favor of the taxing
authority.
The petitioner cannot claim that it was never a taxable person under its
Charter. It was only exempted from the payment of realty taxes. The grant
of the privilege only in respect of this tax is conclusive proof of the
legislative intent to make it a taxable person subject to all taxes, except
real property tax.