Case Digest - Taxation
CITY ASSESSOR OF CEBU VS. ASSOCIATION OF
BENEVOLA DE CEBU
FACTS:
Benevola de Cebu is a non-stock non-profit
organization which in 1990, a medical arts
building was constructed and in 1998 was
issued with a certification classifying the
building as commercial. City assessor of Cebu
assessed the building with a market value of
Php 28,060,520 and on assessed value of Php
9,821,180 at the assessment level of 35% and
not 10% which is currently imposed on private
respondent herein. Petitioner claimed that the
building is used as commercial clinic/spaces for
renting out to physicians and thus classified as
commercial. Benevola de Cebu contended that
the building is used actually, directly and
exclusively part of hospital and should have an
assessment level of 10%
ISSUE:
Whether or not the new building is liable to pay
the 35% assessment level?
RULING:
We hold that the new building is an integral
part of the hospital and should not be assessed
as commercial. Being a tertiary hospital, it is
mandated to fully departmentalized and be
equipped with the service capabilities needed
to support certified medical specialist and other
licensed physicians. The fact that they are
holding office is a separate building does not
take away the essence and nature of their
services vis-a-vis the overall operation of the
hospital and to its patients.
Under the Local Government Code, Sec. 26: All
lands, buildings and other improvements
thereon actually, directly and exclusively used
for hospitals, cultural or scientific purposes and
those owned and used by local water districts
shall be classified as special.
Associaiton of Customs Brokers vs Manila
GRN L-4376 May 22, 1953
En Banc
FACTS:
The Municipal Board of Manila passed
ordinance No. 3379 which imposes a property
tax that is within the power of the City under its
revised charter. The ordinance was passed by
the Municipal Board under the authority
conferred by section 18 of RA 409
ISSUE:
Whether or not the ordinance infringes on the
uniformity of taxes as ordained by the
Constitution.
RULING:
The Ordinance exacts the tax upon all motor
vehicles operating within Manila and does not
distinguish between a motor vehicle registered
in the City and one registered in another place
nor does it distinguish private of vehicle for
hire. The distinction is important if we note that
the ordinance intends to burden with the tax
only those registered in Manila. There is no
pretense that the Ordinance equally applies to
vehicles who come to Manila for a temporary
purpose.
Enirique Garcia Vs. Executive Secretary
211 SCRA 219 Political Law Congress
Authorizing the President to Tax
In November 1990, President Corazon Aquino
issued Executive Order No. 438 which imposed,
in addition to any other duties, taxes and
charges imposed by law on all articles imported
into the Philippines, an additional duty of 5% ad
valorem tax. This additional duty was imposed
across the board on all imported articles,
including crude oil and other oil products
imported into the Philippines. In 1991, EO 443
increased the additional duty to 9%. In the
same year, EO 475 was passed reinstating the
previous 5% duty except that crude oil and
other oil products continued to be taxed at 9%.
Enrique Garcia, a representative from Bataan,
avers that EO 475 and 478 are unconstitutional
for they violate Section 24 of Article VI of the
Constitution which provides:
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.
He contends that since the Constitution vests
the authority to enact revenue bills in Congress,
the President may not assume such power by
issuing Executive Orders Nos. 475 and 478
which are in the nature of revenue-generating
measures.
ISSUE: Whether or not EO 475 and 478 are
constitutional.
HELD: Under Section 24, Article VI of the
Constitution, the enactment of appropriation,
revenue and tariff bills, like all other bills is, of
course, within the province of the Legislative
rather than the Executive Department. It does
not follow, however, that therefore Executive
Orders Nos. 475 and 478, assuming they may be
characterized as revenue measures, are
prohibited to be exercised by the President,
that they must be enacted instead by the
Congress of the Philippines.
Section 28(2) of Article VI of the Constitution
provides as follows:
(2) The Congress may, by law, authorize the
President to fix within specified limits, and
subject to such limitations and restrictions as it
may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the
national development program of the
Government.
There is thus explicit constitutional permission
to Congress to authorize the President subject
to such limitations and restrictions as
[Congress] may impose to fix within specific
limits tariff rates . . . and other duties or
imposts . . . . In this case, it is the Tariff and
Customs Code which authorized the President
ot issue the said EOs.
CIR v Santos (1997)
GR No 119252, August 18, 1997
FACTS:
Respondent Guild of Philippine Jewelers seek
the nullification of a provision in the Tariff and
Customs Code and to declare such as
unconstitutional for being oppressive in taxing
jewelry compared to other countries.
ISSUE:
Is the tax imposed oppressive?
RULING:
No. The curt may not question the wisdom f the
legislature. The court cannot subscribe to the
theory that the tax rates of other countries
should be used as a yardstick in determining
what may be the proper subjects of taxation in
our country.
American Tobacco v. Camacho (2008)
G.R. No. 163583 August 20, 2008
YNARES-SANTIAGO, J.
Lessons Applicable: Court of Tax Appeals
Jurisdiction, Regional Trial Court Jurisdiction,
Equal Protection and Uniformity of Taxation
(constitutional issue), BIR Power to Conduct
Resurvey and Reclassification (delegated by
express legislation)
Laws Applicable:
FACTS:
June 2001, petitioner British American Tobacco
introduced and sold Lucky Strike, Lucky Strike
Lights and Lucky Strike Menthol Lights
cigarettes w/ SRP P 9.90/pack - Initial assessed
excise tax: P 8.96/pack (Sec. 145 [c])
February 17, 2003: RR 9-2003: Periodic review
every 2 years or earlier of the current net retail
price of new brands and variants thereof for the
purpose of the establishing and updating their
tax classification
March 11, 2003: RMO 6-2003: Guidelines and
procedures in establishing current net retail
prices of new brands of cigarettes and alcohol
products
August 8, 2003: RR 22-2003: Implement the
revised tax classification of certain new brands
introduced in the market after January 1, 1997
based on the survey of their current net retail
prices. This increased the excise tax to P13.44
since the average net retail price is above P
10/pack. This cause petitioner to file before the
RTC of Makati a petition for injunction with
prayer for issuance of a Temporary Restraining
Order and/or Writ of Preliminary Injunction
sought to enjoin the implementation of Sec.
145 of the NIRC, RR No. 1-97, 9-2003, 22-2003
and 6-2003 on the ground that they
discriminate against new brands of cigarettes in
violation of the equal protection and uniformity
provisions of the Constitution
RTC: Dismissed
While petitioner's appeal was pending, RA 9334
amending Sec. 145 of the 1997 NIRC among
other took effect on January 1, 2005 which in
effect increased petitioners excise tax to
P25/pack
Petitioner filed a Motion to Admit attached
supplement and a supplement to the petition
for review assailing the constitutionality of RA
9334 and praying a downward classification of
Lucky Strike products at the bracket taxable at P
8.96/pack since existing brands are still taxed
based on their price as of October 1996
eventhough they are equal or higher than
petitioner's product price.
Philip Morris Philippines Manufacturing
Incorporated, Fortune Tobacco Corp., Mighty
Corp. and JT International Intervened.
Fortune Tobacco claimed that the CTA should
have the exclusive appellate jurisdiction over
the decision of the BIR in tax disputes
ISSUE:
W/N the RTC rather than the CTA has
jurisdiction.
W/N RA 9334 of the classification freeze
provision is unconstitutional for violating the
equal protection and uniformity provisions of
the Constitution
W/N RR Nos. 1-97, 9-2003, 22-2003 and RA
8243 even prior to its amendment by RA 9334
can authorize the BIR to conduct resurvey and
reclassification.
HELD:
1. Yes. The jurisdiction of the CTA id defined in
RA 1125 which confers on the CTA jurisdiction
to resolve tax disputes in general. BUT does
NOT include cases where the constitutionality
of a law or rule is challenged which is a judicial
power belonging to regular courts.
2. No. In Sison Jr. v. Ancheta, the court held that
"xxx 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. If the law
be looked upon in tems of burden on 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. xxx" Thus, classification if rational in
character is allowable. In 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" SC previously held:
"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"
Under the the rational basis test, a legislative
classification, to survive an equal protection
challenge, must be shown to rationally further a
legitimate state interest. The classifications
must be reasonable and rest upon some ground
of difference having a fair and substantial
relation to the object of the legislation
A legislative classification that is reasonable
does not offend the constitutional guaranty of
the equal protection of the laws. The
classification is considered valid and reasonable
provided that: (1) it rests on substantial
distinctions; (2) it is germane to the purpose of
the law; (3) it applies, all things being equal, to
both present and future conditions; and (4) it
applies equally to all those belonging to the
same class.
Moreover, petitioner failed to clearly
demonstrate the exact extent of such impact as
the price is not the only factor that affects
competition.
3. NO. Unless expressly granted to the BIR, the
power to reclassify cigarette brands remains a
prerogative of the legislature which cannot be
usurped by the former. These are however
modified by RA 9334.
Southern Cross Cement vs PCMC, July 8, 2004
writ of attachment shall not issue to enjoin tax
collection
Facts:
Petitioner Southern Cross Cement Corporation
(Southern Cross) is a domestic corporation
engaged in the business of cement
manufacturing, production andimportationOn
22 May 2001, respondent Department of Trade
and Industry (DTI) accepted an application
from Phil cemcor (PCMC), alleging that the
importation of gray Portlandcement in
increased quantities has caused declines in
domestic production, capacity utilization,
market share, sales and employment; as well as
caused depressed local prices. Accordingly, Phil
cemcor sought the imposition at first of
provisional, then later, definitive safeguard
measures on the import of cement pursuant to
the SMA (Rep. Act No. 8800, also known as the
Safeguard Measures Act.
After preliminary investigation, the Bureau of
Import Services of the DTI, determined that
critical circumstances existed justifying the
imposition of provisional measures. The DTI
then issued an Order, imposing a provisional
measure equivalent to Twenty Pesos and Sixty
Centavos (P20.60) per forty (40) kilogram bag
on all importations of gray Portland cement for
a period not exceeding two hundred (200) days
from the date of issuance by the Bureau of
Customs (BOC) of the implementing Customs
Memorandum Order. The corresponding
Customs Memorandum Order was issued on 10
December 2001, to take effect that same day
and to remain in force for two hundred (200)
days
Due to DTIs imposition of the provisional
measure, Southern Cross filed with the Court a
Very Urgent Application for a Temporary
Restraining Order and/or A Writ of Preliminary
Injunction (TRO
Application), seeking to enjoin the DTI
Secretary from enforcing his decision
Issue:
Whether or not a writ of preliminary injunction
enjoining the collection of taxes is proper?
Rulings:
The court cannot grant a writ of preliminary
injunction enjoining the collection of taxes, a
preemptory judicial act which is frowned upon,
unless there is a statutory basis for it. In that
regard, Section 218 of the Tax Reform Act of
1997 prohibits any court from granting an
injunction to restrain the collection of any
national internal revenue tax, fee or charge
imposed by the internal revenue code.
Therefore, a writ of attachment shall not issue
to enjoin tax collection
CIR vs. St. Luke's Medical Center, Inc.
FACTS: St. Luke's is a non-stock non-profit
hospital. The BIR assessed St. Luke's based on
the argument that Section 27(B) of the Tax
Code should apply to it and hence all of St.
Luke's income should be subject to the 10% tax
therein as it is a more specific provision and
should prevail over Section 30 which is a
general provision. St. Luke's countered by
saying that its free services to patients was 65%
of its operating income and that no part of its
income inures to the benefit of any individual.
ISSUE: Does Section 27(B) have the effect of
taking proprietary non-profit hospitals out of
the income tax exemption under Section 30 of
the Tax Code and should instead be subject to a
preferential rate of 10% on its entire income?
RULING: No. The enactment of Section 27(B)
does not remove the possible income tax
exemption of proprietary non-profit hospitals.
The only thing that Section 27(B) captures (at
10% tax) in the case of qualified hospitals is in
the instance where the income realized by the
hospital falls under the last paragraph of
Section 30 such as when the entity conducts
any activity for profit. The revenues derived by
St. Luke's from pay patients are clearly income
from activities conducted for profit
ANOTHER DIGEST(same case)
St Lukes Medical Center Inc. (St Lukes) is a
nonprofit hospital in Manila. On 16 December
2002, the Bureau of Internal Revenue (BIR)
assessed St Lukes deficiency taxes amounting
to 76,063,116.06 for 1998, comprising
deficiency income tax, value-added tax,
withholding tax on compensation and expanded
withholding tax. The BIR reduced the amount to
63,935,351.57 during trial in the First Division
of the Court of Tax Appeals (CTA).
This was a review on certiorari under Rule 45 of
the Rules of Court of the Decision of 19
November 2010 of the CTA and its Resolution of
1 March 2011 in CTA Case No. 6746. The
Supreme Court resolved this case on a pure
question of law, which involved the
interpretation of sub-section 27(B) and its
interaction with sub-sections 30(E) and (G) of
the National Internal Revenue Code of the
Philippines (NIRC), on the income tax treatment
of proprietary nonprofit hospitals.
St Lukes stated purposes were:
(a) To establish, equip, operate and maintain a
non-stock, non-profit Christian, benevolent,
charitable and scientific hospital which shall
give curative, rehabilitative and spiritual care to
the sick, diseased and disabled persons;
provided that purely medical and surgical
services shall be performed by duly licensed
physicians and surgeons who may be freely and
individually contracted by patients;
(b) To provide a career of health science
education and provide medical services to the
community through organized clinics in such
specialties as the facilities and resources of the
corporation make possible;
(c) To carry on educational activities related to
the maintenance and promotion of health as
well as provide facilities for scientific and
medical researches which, in the opinion of the
Board of Trustees, may be justified by the
facilities, personnel, funds, or other
requirements that are available;
(d) To cooperate with organized medical
societies, agencies of both government and
private sector; establish rules and regulations
consistent with the highest professional ethics.
The BIR had argued before the CTA that section
27(B) of the NIRC, which imposes a 10%
preferential tax rate on the income of
proprietary nonprofit hospitals, should be
applicable to St Lukes. According to the BIR,
section 27(B), introduced in 1997, is a new
provision intended to amend the exemption on
non-profit hospitals that were previously
categorized as non-stock, non-profit
corporations under Section 26 of the 1997 Tax
Code. It is a specific provision which prevails
over the general exemption on income tax
granted under sub-sections 30(E) and (G) for
non-stock, non-profit charitable institutions and
civic organisations promoting social welfare.
The BIR contended that St Lukes was not really
operating for charitable purposes, but was for
profit, on the basis that only 13% of its
revenues came from its charitable purposes.
St Lukes took the position that the BIR should
not consider its total revenues, because its free
services to patients amounted to 218,187,498
or 65.20% of its 1998 operating income (i.e.
total revenues less operating expenses) of
334,642,615. St Lukes also claimed that its
income did not inure to the benefit of any
individual, and that its making a profit did not
affect its status as exempt from taxation under
sub-sections 30(E) and (G) of the NIRC.
The CTA had held that section 27(B) did not
apply to St Lukes. It was exempt from taxation
on income derived from all services to patients,
whether paying or non-paying. Thus, the sole
issue before the Supreme Court was whether
that decision was correct, i.e. whether section
27(B) did or did not apply. If it did, then St
Lukes would have to pay the 10% reduced tax
rate on the income of proprietary nonprofit
hospitals. The Court held that:
Section 27(B) of the NIRC does not remove the
income tax exemption of proprietary non-profit
hospitals under Section 30(E) and (G). Section
27(B) on one hand, and Section 30(E) and (G) on
the other hand, can be construed together
without the removal of such tax exemption. The
effect of the introduction of Section 27(B) is to
subject the taxable income of two specific
institutions, namely, proprietary non-profit
educational institutions and proprietary non-
profit hospitals, among the institutions covered
by Section 30, to the 10% preferential rate
under Section 27(B) instead of the ordinary 30%
corporate rate under the last paragraph of
Section 30 in relation to Section 27(A)(1).
Section 27(B) of the NIRC imposes a 10%
preferential tax rate on the income of (1)
proprietary non-profit educational institutions
and (2) proprietary non-profit hospitals. The
only qualifications for hospitals are that they
must be proprietary and non-profit.
Proprietary means private Non-profit paying patients. This income was subject to 10%
means no net income or asset accrues to or
benefits any member or specific person, with all
the net income or asset devoted to the
institutions purposes and all its activities
conducted not for profit. Non-profit does not
necessarily mean charitable.
The Court said that charitable institutions were
not automatically granted tax exemptions. Tax
exemptions are given by the Congress under
specific laws (except for exemption from real
property taxation which was given by the
Constitution of the Philippines). Section 30(E) of
the NIRC defines a charitable institution as:
(1) a non-stock corporation or association;
(2) organised exclusively for charitable
purposes;
(3) operated exclusively for charitable purposes;
and
(4) with no part of its net income or assets
belonging to or inuring to the benefit of any
member, organiser, officer or any specific
person.
There was no doubt that St Lukes was
organised as a non-stock, non-profit charitable
institution. However, this did not automatically
exempt it from paying taxes. The last paragraph
of section 30 of the NIRC stated that:
Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and
character of the foregoing organizations 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, shall be subject to tax imposed under
this Code. (emphasis added)
Therefore, the Court said that if a tax exempt
charitable institution conducts any activity for
profit, such activity is not tax exempt even if its
not-for profit activities remain tax exempt. The
Court added that:
The Court cannot expand the meaning of the
words operated exclusively without violating
the NIRC. Services to paying patients are
activities conducted for profit. They cannot be
considered any other way. There is a purpose
to make profit over and above the cost of
services. The 1.73 billion total revenues from
paying patients is not even incidental to St.
Lukes charity expenditure of 218,187,498 for
non-paying patients. (emphasis in original)
The Court therefore held that St Lukes was not
operated exclusively for charitable or social
welfare purposes. It received income from
taxation under section 27(B) of the NIRC. As the
Court held:
St. Lukes fails to meet the requirements under
Section 30(E) and (G) of the NIRC to be
completely tax exempt from all its income.
However, it remains a proprietary non-profit
hospital under Section 27(B) of the NIRC as long
as it does not distribute any of its profits to its
members and such profits are reinvested
pursuant to its corporate purposes. St. Lukes,
as a proprietary non-profit hospital, is entitled
to the preferential tax rate of 10% on its net
income from its for-profit activities.
Thus, St Lukes was liable for tax at the rate of
10% in the 1998 year under section 27(B) of the
NIRC. It was held not liable for surcharges or
interest on the amount of tax owing.
Implications of this case
This case illustrates the position in the
Philippines that income from commercial (for-
profit) activity (in this case, paying patients) is
taxable, but the organisation remains tax-
exempt on income from its actual charitable
activities. The only question is whether an
activity is for-profit (commercial) or not.
Lung Center of the Philippines vs. Quezon City
and Constantino Rosas
The Petitioner is a non-stock, non-profit entity
which owns a parcel of land in Quezon City.
Erected in the middle of the aforesaid lot is a
hospital known as the Lung Center of the
Philippines. The ground floor is being leased to
a canteen, medical professionals whom use the
same as their private clinics, as well as to other
private parties. The right portion of the lot is
being leased for commercial purposes to the
Elliptical Orchids and Garden Center. The
petitioner accepts paying and non-paying
patients. It also renders medical services to out-
patients, both paying and non-paying. Aside
from its income from paying patients, the
petitioner receives annual subsidies from the
government.
Petitioner filed a Claim for Exemption from
realty taxes amounting to about Php4.5 million,
predicating its claim as a charitable institution.
The city assessor denied the Claim. When
appealed to the QC-Local Board of Assessment,
the same was dismissed. The decision of the
QC-LBAA was affirmed by the Central Board of
Assessment Appeals, despite the Petitioners
claim that 60% of its hospital beds are used
exclusively for charity.
ISSUE:
Whether or not the Petitioner is entitled to
exemption from realty taxes notwithstanding
the fact that it admits paying clients and leases
out a portion of its property for commercial
purposes.
HELD:
The Court held that the petitioner is indeed a
charitable institution based on its charter and
articles of incorporation. As a general principle,
a charitable institution does not lose its
character as such and its exemption from taxes
simply because it derives income from paying
patients, whether out-patient or confined in the
hospital, or receives subsidies from the
government, so long as the money received is
devoted or used altogether to the charitable
object which it is intended to achieve; and no
money inures to the private benefit of the
persons managing or operating the institution.
Despite this, the Court held that the portions of
real property that are leased to private entities
are not exempt from real property taxes as
these are not actually, directly and exclusively
used for charitable purposes. (strictissimi juris)
Moreover, P.D. No. 1823 only speaks of tax
exemptions as regards to:
income and gift taxes for all donations,
contributions, endowments and equipment and
supplies to be imported by authorized entities
or persons and by the Board of Trustees of the
Lung Center of the Philippines for the actual use
and benefit of the Lung Center; and
taxes, charges and fees imposed by the
Government or any political subdivision or
instrumentality thereof with respect to
equipment purchases (expression unius est
exclusion alterius/expressium facit cessare
tacitum).
Cesar Bengzon vs Franklin Drilon
208 SCRA 133 Political Law Veto Power of
the President
In 1990, Congress sought to reenact some old
laws (i.e. Republic Act No. 1797) that were
repealed during the time of former President
Ferdinand Marcos. These old laws provided
certain retirement benefits to retired judges,
justices, and members of the constitutional
commissions. Congress felt a need to restore
these laws in order to standardize retirement
benefits among government officials. However,
President Corazon Aquino vetoed the bill
(House Bill No. 16297) on the ground that the
law should not give preferential treatment to
certain or select government officials.
Meanwhile, a group of retired judges and
justices filed a petition with the Supreme Court
asking the court to readjust their pensions. They
pointed out that RA 1797 was never repealed
(by P.D. No. 644) because the said PD was one
of those unpublished PDs which were subject of
the case of Taada v. Tuvera. Hence, the
repealing law never existed due to non
publication and in effect, RA 1797 was never
repealed. The Supreme Court then readjusted
their pensions.
Congress took notice of the readjustment and
son in the General Appropriations Bill (GAB) for
1992, Congress allotted additional budget for
pensions of retired justices. Congress however
did the allotment in the following manner:
Congress made an item entitled: General Fund
Adjustment; included therein are allotments to
unavoidable obligations in different brances of
the government; among such obligations is the
allotment for the pensions of retired justices of
the judiciary.
However, President Aquino again vetoed the
said lines which provided for the pensions of
the retired justices in the judiciary in the GAB.
She explained that that portion of the GAB is
already deemed vetoed when she vetoed H.B.
16297.
This prompted Cesar Bengzon and several other
retired judges and justices to question the
constitutionality of the veto made by the
President. The President was represented by
then Executive Secretary Franklin Drilon.
ISSUE: Whether or not the veto of the President
on that portion of the General Appropriations
bill is constitutional.
HELD: No. The Justices of the Court have vested
rights to the accrued pension that is due to
them in accordance to Republic Act 1797 which
was never repealed. The president has no
power to set aside and override the decision of
the Supreme Court neither does the president
have the power to enact or amend statutes
promulgated by her predecessors much less to
the repeal of existing laws.
The Supreme Court also explained that the veto
is unconstitutional since the power of the
president to disapprove any item or items in the
appropriations bill does not grant the authority
to veto part of an item and to approve the
remaining portion of said item. It appears that
in the same item, the Presidents vetoed some
portion of it and retained the others. This
cannot be done. The rule is: the Executive must
veto a bill in its entirety or not at all; the
Executive must veto an entire line item in its
entirety or not at all. In this case, the president
did not veto the entire line item of the general
adjustment fund. She merely vetoed the
portion which pertained to the pensions of the
justices but did not veto the other items
covering obligations to the other departments
of the government.
BATANGAS CITY v. PILIPINAS SHELL
PETROLEUM CORPORATION
Before this Court is a Petition for Review on
Certiorari under Rule 45 of the Rules of Court
assailing the Decision[1] dated January 22, 2009
and Resolution[2] dated April 13, 2009 of the
Court of Tax Appeals (CTA) En Banc in CTA EB
No. 350 which affirmed in toto the Amended
Decision[3] dated July 31, 2007 and
Resolution[4] dated November 21, 2007 of the
CTA Second Division in CTA AC Case No. 10.
The facts follow.
Petitioner Batangas City is a local government
unit (LGU) with the capacity to sue and be sued
under its Charter and Section 22(a)(2) of the
Local Government Code (LGC) of 1991.
Petitioners Teodulfo A. Deguito and Benjamin E.
Pargas are the City Legal Officer and City
Treasurer, respectively, of Batangas City.
Respondent Pilipinas Shell Petroleum
Corporation operates an oil refinery and depot
in Tabagao, Batangas City, which manufactures
and produces petroleum products that are
distributed nationwide.
In 2002, respondent was only paying the
amount of P98,964.71 for fees and other
charges which include the amount of P1,180.34
as Mayor's Permit. However, on February 20,
2001, petitioner Batangas City, through its City
Legal Officer, sent a notice of assessment to
respondent demanding the payment of
P92,373,720.50 and P312,656,253.04 as
business taxes for its manufacture and
distribution of petroleum products. In addition,
respondent was also required and assessed to
pay the amount of P4,299,851.00 as Mayor's
Permit Fee based on the gross sales of its
Tabagao Refinery. The assessment was allegedly
pursuant of Section 134 of the LGC of 1991 and
Section 23 of its Batangas City Tax Code of
2002.
In response, respondent filed a protest on April
17, 2002 contending among others that it is not
liable for the payment of the local business tax
either as a manufacturer or distributor of
petroleum products. It further argued that the
Mayor's Permit Fees are exorbitant,
confiscatory, arbitrary, unreasonable and not
commensurable with the cost of issuing a
license.
On May 13, 2002, petitioners denied
respondent's protest and declared that under
Section 14 of the Batangas City Tax Code of
2002, they are empowered to withhold the
issuance of the Mayor's Permit for failure of
respondent to pay the business taxes on its
manufacture and distribution of petroleum
products.
On June 17, 2002, respondent filed a Petition
for Review pursuant to Section 195 of the LGC
of 1991 before the Regional Trial Court (RTC) of
Batangas City.
In its petition, respondent maintained that
petitioners have no authority to impose the said
taxes and fees, and argued that the levy of local
business taxes on the business of
manufacturing and distributing gasoline and
other petroleum products is contrary to law and
against national policy. It further contended
that the Mayor's Permit Fee levied by
petitioners were unreasonable and
confiscatory.
In its Answer, petitioners contended that the
City of Batangas can legally impose taxes on the
business of manufacturing and distribution of
petroleum products, including the Mayor's
Permit Fees upon respondent.
Trial thereafter ensued.
In the interim, respondent paid under protest
the Mayor's Permit Fees for the year 2003
amounting to P774,840.50 as manufacturer and
P3,525,010.50 as distributor. When respondent
applied for the issuance of the Mayor's Permit
in 2004, it offered the amount of PI50,000.00 as
compromise Mayor's Permit Fee without
prejudice to the outcome of the case then
pending, which was rejected by petitioners.
On October 29, 2004, the RTC of Batangas City
rendered a Decision[5] sustaining the
imposition of business taxes by petitioners
upon the manufacture and distribution of
petroleum products by respondent. However,
the RTC withheld the imposition of Mayor's
Permit Fee in deference to the provisions of
Section 147 of the LGC, in relation to Section
143(h) of the same Code, which imposed a limit
to the power of petitioners to collect the said
business taxes. The fallo of said decision reads:
WHEREFORE, in view of the foregoing premises,
this Court hereby renders judgment as follows:
The taxes on the privilege of engaging in the
business of manufacturing, distribution or
dealing in petroleum products in the amount of
P92,373,750.50 and P312,656,253.04,
respectively, imposed by Batangas City on
Pilipinas Shell, is VALID.
Declaring the Mayor's Permit Fee in the amount
of P4,299,851.00 based on gross receipts/sales
as grossly excessive and unreasonable
considering the aforesaid business taxes.
ACCORDINGLY, THE PETITIONER, PILIPINAS
SHELL PETROLEUM CORPORATION (PSPC), IS
HEREBY ORDERED TO PAY THE AMOUNT OF
PHP405,030,003.54 AS TAX ON ITS BUSINESS OF
ENGAGING IN THE MANUFACTURE AND
DISTRIBUTION OF PETROLEUM PRODUCTS,
WHILE THE ASSESSMENT OF PHP4,299,851.00
AS MAYOR'S PERMIT FEE IS HEREBY ORDERED
REVOKED WITHOUT PREJUDICE TO ITS
MODIFICATION BY THE RESPONDENTS,
BATANGAS CITY, ET AL.
SO ORDERED.[6]
Unsatisfied, respondent filed a "Motion for
Partial Reconsideration."
In an Order[7] dated February 28, 2005, the RTC
denied respondent's motion for lack of merit.
Hence, respondent filed a Petition for Review
with Extremely Urgent Application for a
Temporary Restraining Order and/or a Writ of
Preliminary Injunction with the CTA Second
Division on April 27, 2005.
Considering the urgency of the resolution of
respondent's Application for the Issuance of a
Writ of Preliminary Injunction, the CTA Second
Division granted the said application and
ordered petitioners to hold in abeyance the
collection of the questioned manufacturer and
distributor's taxes, conditioned upon the filing
of respondent of a surety bond in the amount
of P500,000,000.00.
In a Decision dated June 21, 2007, the CTA
Second Division granted respondent's petition.
It held that respondent is not subject to the
business taxes on the manufacture and
distribution of petroleum products because of
the express limitation provided under Section
133(h) of the LGC. The dispositive portion of
said Decision reads:
WHEREFORE, premises considered, the
judgment/order of the RTC Branch II of
Batangas City is hereby MODIFIED. As to the
business taxes on the manufacture and
distribution of petroleum products, We find the
[respondent] not liable for the same. As to the
Mayor's permit, We find that it is excessive.
Accordingly, the [petitioner] is hereby (a)
declared legally proscribed from imposing
business taxes on the manufacture and
distribution of petroleum products and (b) to
refund in the form of tax credit the excessive
mayor's permit in the amount of THREE
MILLION FIVE HUDNRED TWENTY-FIVE
THOUSAND TEN PESOS and FIFTY CENTAVOS
(P3,525,010.50)
SO ORDERED.[8]
On July 13, 2007, respondent filed a "Motion for
Clarification" on the exact amount to be
refunded by petitioners as regards the Mayor's
Permit Fees. After a perusal of the "Motion for
Clarification," the CTA Second Division found
the motion partly meritorious. Thus:
Indeed, there is a discrepancy in the amount to
be refunded and to clarify, the amount should
be P3,870,860.00 as written in the body of the
decisions as follows:
Since [petitioners] failed to modify the
computation of the mayor's permit fee and
based on justice and equity, [respondent]
should be refunded with the mayor's permit
fees ordered revoked by the court a quo.
The details of the additional amount of
P4,299,851.00 mayor's permit fees are as
follows:
Manufacturer
Distributor
Mayor's Permit Fee
P704,305.00
P3,166,555.00
License Fee
70,535.50
Prof. Fee Res/Bus 25,000.00 Fire Insp. Fee
1,000.00
Occ./Prof.Tax San Permit & San Insp. Fee
12,000.00
Fire Code Fee
320,455.00
Total Amount
P774,840.50
P3,525,010.50
The amount to be refunded is not the full
amount of P4,299,851.00 but the excessive
mayor's permit for manufacturing and
distributing in the amount of P704,305.00 and
P3,166,555.00, respectively, or in the total
amount of P3,870,860.00.
To conform to this aforequoted
pronouncement, the dispositive portion of the
assailed decision should be amended so that
the exact amount of the Mayor's Permit Fees to
be refunded be changed from P3,525,010.50 to
P3,870.860.00.
Section 2, Rule 36 of the Rules of Court reads as
follows:
SEC. 2. Entry of Judgments and final orders.- If
no appeal or motion for new trial or
reconsideration is filed within the time provided
in these Rules, the judgment or final order shall
forthwith be entered by the clerk in the book of
entries of judgments. The date of finality of the
judgment or final order shall be deemed to be
the date of its entry.
In this case, PSPC received the Decision on June
28, 2007 and it filed its motion for clarification
(treated as a motion for reconsideration) on
July 13, 2007 which is within the period allowed
by law. In effect, our Decision has not yet
become final and executory. Hence, our
Decision may be amended.
Moreover, pursuant to Section 5(g), Rule 135 of
the Revised Rules of Court that every court shall
have the power to amend or control its process
and orders so as to make them conformable to
law and justice, the Second Division of this
Court resolves to amend its Decision dated June
21, 2007 by making the necessary corrections.
WHEREFORE, in view of the foregoing,
[respondent] 's Motion for Clarification is partly
GRANTED. Accordingly, the dispositive portion
of this Court's Decision dated June 21, 2007 is
hereby AMENDED as follows:
WHEREFORE, premises considered, the
judgment/order of the RTC Branch II of
Batangas City is hereby MODIFIED. As to the
business taxes on the manufacture and
distribution of petroleum products, We find the
[respondent] not liable for the same. As to the
mayor's permit, We find that it is excessive.
Accordingly, the [petitioner] is hereby (a)
declared legally proscribed from imposing
business taxes on the manufacture and
distribution of petroleum products and (b) to
refund in the form of tax credit the excessive
mayor's permit in the amount of THREE
MILLION EIGHT HUNDRED SEVENTY THOUSAND
EIGHT HUDNRED SIXTY PESOS (P3,870,860.00)
SO ORDERED.
SO ORDERED.[9]
Petitioners filed a motion for reconsideration
against said decision but the same was denied
by the CTA Second Division in a Resolution
dated November 21, 2007.
Not satisfied, petitioners filed a Petition for
Review praying for the reversal of the Amended
Decision and Resolution of the CTA Second
Division.
On January 22, 2009, the CTA En Banc
promulgated a Decision affirming in toto the
Amended Decision of the CTA Second Division.
The CTA En Banc found no cogent reason to
disturb the findings and conclusions of the CTA
Second Division. The dispositive portion of said
Decision reads:
WHEREFORE, the instant Petition for Review is
hereby DENIED DUE COURSE and DISMISSED for
lack of merit. Accordingly, the July 31, 2007
Amended Decision and November 21, 2007
Resolution of the CTA Second Division in CTA AC
Case No. 10 entitled, "PILIPINAS SFIELL
PETROLEUM CORPORATION, petitioner vs.
BATANGAS CITY, BENJAMIN E. PARGAS in his
capacity as CITY TREASURER and TEODULFO A.
DEGUITO in his capacity as CITY LEGAL OFFICER
OF BATANGAS CITY, [petitioners]," are hereby
AFFIRMED in toto.
SO ORDERED.[10]
Unfazed, petitioners filed a motion for
reconsideration.
In a Resolution dated April 13, 2009, the CTA En
Bane denied petitioners' motion for
reconsideration for lace of merit.
Hence, this petition.
Petitioner raises the following assignment of
errors:
THE COURT OF TAX APPEALS EN BANC ERRED
IN NOT RULING THAT THE POWER OF LOCAL
GOVERNMENT UNITS TO TAX BUSINESS IS
SOLELY GOVERNED BY SEC. 143 AND 143(h) OF
THE LOCAL GOVENRMENT CODE OF 1991.
THE COURT OF TAX APPEALS EN BANC ERRED
IN NOT RULING THAT THE WORD "TAXES" IN
SEC. 133(h) DOES NOT INCLUDE BUSINESS
TAXES.
THE COURT OF TAX APPEALS EN BANC ERRED IN
DISREGARDING THE DISTINCTION BETWEEN
TAXES ON ARTICLES AND TAXES ON BUSINESS.
THE COURT OF TAX APPEALS EN BANC
INCORRECTLY CONSTRUED A CLEAR PROVISION
OF LAW, SPECIFICALLY SECTION 133(h) OF THE
LOCAL GOVERNMENT CODE OF 1991, AS AN
EXPRESS LIMITATION ON THE POWER OF LOCAL
GOVENRMENT UNITS TO IMPOSE TAXES ON
THE BUSINESS OF MANUFACTURE AND
DISTRIBUTION OF PETROLEUM PRODUCTS."[11]
In essence, the issue is whether a LGU is
empowered under the LGC to impose business
taxes on persons or entities engaged in the
business of manufacturing and distribution of
petroleum products.
It its petition, petitioners assert that any activity
that involves the production or manufacture
and the distribution or selling of any kind or
nature as a means of livelihood or with a view
to profit can be taxed by the LGUs. They posit
that the authority granted to them by Section
143(h) of the LGC is so broad that it practically
covers any business that the sanggunian
concerned may deem proper to tax, even
including businesses which are already subject
to excise, value-added or percentage tax under
the National Internal Revenue Code (NIRC)
provided that the same shall not exceed two
percent of the gross sales or receipts of the
preceding calendar year.
We do not agree.
At the outset, it must be emphasized that
although the power to tax is inherent in the
State, the same is not true for LGUs because
although the mandate to impose taxes granted
to LGUs is categorical and long established in
the 1987 Philippine Constitution, the same is
not all encompassing as it is subject to
limitations as explicitly stated in Section 5,
Article X of the 1987 Constitution, viz.:
SECTION 5. Each local government unit shall
have the power to create its own sources of
revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the
Congress may provide, consistent with the basic
policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local
governments.
In the consolidated cases of City of Manila, et al.
v. Hon. Colet and Malaysian Airline system;
Maersk-Filipinas, Inc., et al. v. City of Manila, et
al,; Eastern Shipping Lines, Inc. v. City Council of
Manila, et al; William Lines, Inc., et al. v.
Regional Trial Court of Manila, et al.; PNOC
Shipping and Transport Corporation v. Hon.
Nabong, et al.; Maersk-Filipinas, Inc., et al. v.
City of Manila, et al, and with Intervenors
William Lines, Inc., et al; Cosco Container Lines
and HEUNG-A Shipping Co., Ltd., et al. v. City of
Manila; Sulpicio Lines, Inc. v. Regional Trial
Court of Manila, et al; Association of
International Shipping Lines, Inc. v. City of
Manila, et al; Dongnama Shipping Co., Ltd., et
al. v. Court of Appeals, et al.,[12] this Court
expounded that the LGUs' power to tax is
subject to the limitations set forth under
Section 133 of the LGC. Thus:
It is already well-settled that although the
power to tax is inherent in the State, the same
is not true for the LGUs to whom the power
must be delegated by Congress and must be
exercised within the guidelines and limitations
that Congress may provide. The Court
expounded in Pelizloy Realty Corporation v. The
Province of Benguet that:
The power to tax "is an attribute of
sovereignty," and as such, inheres in the State.
Such, however, is not true for provinces, cities,
municipalities and barangays as they are not
the sovereign; rather, there are mere
"territorial and political subdivisions of the
Republic of the Philippines."
The rule governing the taxing power of
provinces, cities, municipalities and barangays is
summarized in Icard v. City Council of Baguio:
It is settled that a municipal corporation unlike
a sovereign state is clothed with no inherent
power of taxation. The charter or statute must
plainly show an intent to confer that power or
the municipality, cannot assume it. And the
power when granted is to be construed in
strictissimi juris. Any doubt or ambiguity arising
out of the term used in granting that power
must be resolved against the municipality.
Inferences, implication, deductions - all these-
have no place in the interpretation of the taxing
power of a municipal corporation.
Therefore, the power of a province to tax is
limited to the extent that such power is
delegated to it either by the Constitution or by
statute. Section 5, Article X of the 1987
Constitution is clear on this point:
Per Section 5, Article X of the 1987 Constitution,
"the power to tax is no longer vested exclusively
on Congress; local legislative bodies are now
given direct authority to levy taxes, fees and
other charges." Nevertheless, such authority is
"subject to such guidelines and limitations as
the Congress may provide."
In conformity with Section 3, Article X of the
1987 Constitution, Congress enacted Republic
Act No. 7160, otherwise known as the local
Government Code of 1991. Book II of the LGC
governs local taxation and fiscal matters.
Relevant provisions of Book II of the LGC
establish the parameters of the taxing powers
of LGUs found below.
First, Section 130 provides for the following
fundamental principles governing the taxing
powers of LGUs:
Taxation shall be uniform in each LGU.
Taxes, fees, charges and other impositions shall:
be equitable and based as far as practicable on
the taxpayer's ability to pay;
be levied and collected only for public purposes;
not be unjust, excessive, oppressive
orconfiscatory;
not be contrary to law, public policy, national
economic policy, or in the restraint of
trade.
The collection of local taxes, fees, charges and
other impositions shall in no case be left to any
private person.
The revenue collected pursuant to the
provisions of the LGC shall inure solely to the
benefit of, and be subject to the disposition by,
the LGU levying the tax, fee, charge or other
imposition unless otherwise specifically
provided by the LGC.
Each LGU shall, as far as practicable, evolve a
progressive system of taxation.
Second, Section 133 provides for the common
limitations on the taxing powers of LGUs.
Among the common limitations on the taxing
powers of LGUs under Section 133 of the LGC is
paragraph (h) which states:
SECTION 133. Common Limitations on the
Taxing Powers of Local Government Units. -
Unless otherwise provided herein, the exercise
of taxing powers of provinces, cities,
municipalities, and barangays shall not extend
to the levy of the following:
(h) Excise taxes on articles enumerated under
the National Internal Revenue Code, as
amended, and taxes, fees or charges on
petroleum products.;[13]
From the foregoing, Section 133(h) clearly
specifies the two kinds of taxes which cannot be
imposed by LGUs: (1) excise taxes on articles
enumerated under the NIRC, as amended; and
(2) taxes, fees or charges on petroleum
products.
Indisputably, the power of LGUs to impose
business taxes derives from Section 143[14] of
the LGC. However, the same is subject to the
explicit
statutory impediment provided for under
Section 133(h) of the same Code which
prohibits LGUs from imposing "taxes, fees or
charges on petroleum products." It can,
therefore, be deduced that although petroleum
products are subject to excise tax, the same is
specifically excluded from the broad power
granted to LGUs under Section 143(h) of the
LGC to impose business taxes.
Additionally, Section 133(h) of the LGC makes
plain that the prohibition with respect to
petroleum products extends not only to excise
taxes thereon, but all "taxes, fees or charges."
The earlier reference in paragraph 143(h) to
excise taxes comprehends a wider range of
subject of taxation: all articles already covered
by excise taxation under the NIRC, such as
alcohol products, tobacco products, mineral
products, automobiles, and such non-essential
goods as jewelry, goods made of precious
metals, perfumes, and yachts and other vessels
intended for pleasure or sports. In contrast, the
later reference to "taxes, fees and charges"
pertains only to one class of articles of the
many subjects of excise taxes, specifically,
"petroleum products." While LGUs are
authorized to burden all such other class of
goods with "taxes, fees and charges," excepting
excise taxes, a specific prohibition is imposed
barring the levying of any other type of taxes
with respect to petroleum products.[15]
It is likewise irrefutable that the specific
exemption provided under Section 133 of the
LGC prevails over Section 143 of the same Code.
First, Section 133 of the LGC is a specific
provision that explicitly withhold from LGUs the
power to impose taxes, fees and charges on
petroleum products.
Strictly speaking, as long as the subject matter
of the taxing powers of the LGUs is the
petroleum products per se or even the activity
or privilege related to the petroleum products,
such as manufacturing and distribution of said
products, it is covered by the said limitation and
thus, no levy can be imposed.[16]
On the contrary, Section 143 of the LGC defines
the general power of LGUs to tax businesses
within its jurisdiction. Thus, the omnibus grant
of power to LGUs under Section 143(h) of the
LGC cannot overcome the specific exception or
exemption in Section 133(h) of the same Code.
This is in accord with the rule on statutory
construction that specific provisions must
prevail over general ones. A special and specific
provision prevails over a general provision
irrespective of their relative positions in the
statute. Generalia specialibus non derogant.
Where there is in the same statute a particular
enactment and also a general one which in its
most comprehensive sense would include what
is embraced in the former, the particular
enactment must be operative, and the general
enactment must be taken to affect only such
cases within its general language as are not
within the provisions of the particular
enactment.[17]
Second, Article 232(h) of the Implementing
Rules and Regulations (IRR) of the LGC of 1991
states:
ARTICLE 232. Tax on Business. - The
Municipality may impose taxes on the following
businesses:
(h)
On any business not otherwise specified in the
preceding paragraphs which the sanggunian
concerned may deem proper to tax provided
that that on any business subject to the excise
tax. VAT or percentage tax under the NIRC, as
amended, the rate of tax shall not exceed two
percent (2%) of gross sales or receipts of the
preceding calendar year and provided further,
that in line with existing national policy, any
business engaged in the production,
manufacture, refining, distribution or sale of oil,
gasoline, and other petroleum products shall
not be subject to any local tax imposed in this
Article.[18]
Article 232 defines with more particularity the
capacity of a municipality to impose taxes on
businesses. However, it admits of certain
exceptions, specifically, that businesses
engaged in the production, manufacture,
refining, distribution or sale of oil, gasoline, and
other petroleum products, shall not be subject
to any local tax imposed by Article 232.
WHEREFORE, in view of the foregoing, the Court
hereby resolves to DENY present petition. The
Decision dated January 22, 2009 and Resolution
dated April 13, 2009 of the Court of Tax Appeals
En Banc in CTAEB No. 350 are AFFIRMED
LUCENA D. DEMAALA vs. COMMISSION ON
AUDIT, REPRESENTED BY ITS CHAIRPERSON
COMMISSIONER MA. GRACIA M. PULIDO TAN,
The Sangguniang Panlalawigan of Palawan
enacted Provincial Ordinance No. 332-A, Series
of 1995, entitled An Ordinance Approving and
Adopting the Code Governing the Revision of
Assessments, Classification and Valuation of
Real Properties in the Province of Palawan
(Ordinance).Chapter 5, Section 48 of the
Ordinance provides for an additional levy on
real property tax for the special ed-ucation fund
at the rate of one-half percent or 0.5%.
In conformity with Section 48 of the Ordinance,
the Municipality of Narra, Palawan, with
Demaala as mayor, collected from owners of
real properties located within its territory an
annual tax as spe-cial education fund at the rate
of 0.5% of the assessed value of the property
subject to tax. This collection was effected
through the municipal treasurer.
On post-audit, Audit Team Leader Juanito A.
Nostratis issued Audit Observation
Memorandum (AOM) No. 03-005 dated August
7, 2003 in which he noted supposed
deficiencies in the special education fund
collected by the Municipality of Narra. He
questioned the levy of the special educa-tion
fund at the rate of only 0.5% rather than at 1%,
the rate stated in Section 235 of Republic Act
No. 7160, otherwise known as the Local
Government Code of 1991 (Local Government
Code).
After evaluating AOM No. 03-005, Regional
Cluster Director Sy issued NC No. 2004-04-101
dated August 30, 2004 in the amount of
P1,125,416.56. He held Demaala, the municipal
treasurer of Nar-ra, and all special education
fund payors liable for the deficiency in special
education fund collec-tions.
The Municipality of Narra, through Demaala,
filed the Motion for Reconsideration dated
December 2, 2004. It stressed that the
collection of the special education fund at the
rate of 0.5% was mere-ly in accordance with the
Ordinance. On March 9, 2005, Regional Cluster
Director Sy issued an In-dorsement denying this
Motion for Reconsideration.
Following this, the Municipality of Narra,
through Demaala, filed an appeal with the
Commission on Audits Legal and Adjudication
Office. In Local Decision No. 2006-05618 dated
April 19, 2006, this appeal was denied.
The Municipality of Narra, through Demaala,
then filed a Petition for Review with the
Commission on Audit.
In Decision No. 2008-087 dated September 22,
2008, the Commission on Audit ruled against
Demaala and affirmed LAO Local Decision No.
2006-056 with the modification that former
Palawan Vice Governor Joel T. Reyes and the
other members of the Sangguniang
Panlalawigan of Palawan who enacted the
Ordinance were held jointly and severally liable
with Demaala, the municipal treasurer of Narra,
and the special education fund payors.
Thereafter, Demaala, who was no longer the
mayor of the Municipality of Narra, filed a
Motion for Reconsideration. Former Vice
Governor Joel T. Reyes and the other members
of the Sangguniang Panlalawigan of Palawan
who were held liable under Decision No. 2008-
087 filed a separate Motion for
Reconsideration. The Commission on Audits
Decision No. 2011-083 dated November 16,
2011 affirmed its September 22, 2008 Decision.
Demaala then filed with this court the present
Petition for Certiorari.
Respondent Commission on Audit, through the
Office of the Solicitor General, filed its
Comment on April 20, 2012. Petitioner Demaala
filed her Reply on September 6, 2012.
Thereafter, the parties filed their respective
Memoranda.
ISSUE:
(a) Whether respondent committed grave
abuse of discretion amounting to lack or excess
of juris-diction in holding that there was a
deficiency in the Municipality of Narras
collection of the addi-tional levy for the special
education fund. Subsumed in this issue is the
matter of whether a munic-ipality within the
Metropolitan Manila Area, a city, or a province
may have an additional levy on real property for
the special education fund at the rate of less
than 1%?
(b) Assuming that respondent correctly held
that there was a deficiency, whether
respondent committed grave abuse of
discretion amounting to lack or excess or
jurisdiction in holding petition-er personally
liable for the deficiency.
RULING:
(a) YES.
Consistent with the 1987 Constitutions
declared preference, the taxing powers of local
government units must be resolved in favor of
their local fiscal autonomy. In City Government
of San Pablo v. Reyes:
The power to tax is primarily vested in
Congress. However, in our jurisdiction, it may
be exercised by local legislative bodies, no
longer merely by virtue of a valid delegation as
before, but pursuant to direct authority
conferred by Section 5, Article X of the
Constitution.
The limits on the level of additional levy for the
special education fund under Section 235 of the
Local Government Code should be read as
granting fiscal flexibility to local government
units.
Book II of the Local Government Code governs
local taxation and fiscal matters. Title II of Book
II governs real property taxation.
Section 235 of the Local Government Code
allows provinces and cities, as well as
municipalities in Metro Manila, to collect, on
top of the basic annual real property tax, an
additional levy which shall exclusively accrue to
the special education fund.
The operative phrase in Section 235s grant to
municipalities in Metro Manila, cities, and
provinces of the power to impose an additional
levy for the special education fund is prefixed
with may, thus, may levy and collect an
annual tax of one percent (1%).
In Buklod nang Magbubukid sa Lupaing Ramos,
Inc. v. E.M. Ramos and Sons, Inc. the meaning of
may was discussed as follows:
Where the provision reads may, this word
shows that it is not mandatory but
discretionary. It is an auxiliary verb indicating
liberty, opportunity, permission and possibility.
The use of the word may in a statute denotes
that it is directory in nature and generally
permissive only.
Respondent concedes that Section 235s grant
to municipalities in Metro Manila, to cities, and
to provinces of the power to impose an
additional levy for the special education fund
makes its col-lection optional. It is not
mandatory that the levy be imposed and
collected. The controversy which the
Commission on Audit created is not whether
these local government units have discretion to
collect but whether they have discretion on the
rate at which they are to collect.
It is respondents position that the option
granted to a local government unit is limited to
the mat-ter of whether it shall actually collect,
and that the rate at which it shall collect (should
it choose to do so) is fixed by Section 235. In
contrast, it is petitioners contention that the
option given to a local government unit extends
not only to the matter of whether to collect but
also to the rate at which collection is to be
made.
We sustain the position of petitioner. Section
235s permissive language is unqualified.
Moreover, there is no limiting qualifier to the
articulated rate of 1% which unequivocally
indicates that any and all special education fund
collections must be at such rate.
(b) YES.
It was an error amounting to grave abuse of
discretion for respondent to hold petitioner
personally liable for the supposed deficiency.
Having established the propriety of imposing an
additional levy for the special education fund at
the rate of 0.5%, it follows that there was
nothing erroneous in the Municipality of Narras
having acted pursuant to Section 48 of the
Ordinance. It could thus not be faulted for
collecting from owners of real properties
located within its territory an annual tax as
special education fund at the rate of 0.5% of the
assessed value subject to tax of the property.
Likewise, it follows that it was an error for
respondent to hold petitioner personally liable
for the supposed deficiency in collec-tions.
Even if a contrary ruling were to be had on the
propriety of collecting at a rate less than 1%, it
would still not follow that petitioner is
personally liable for deficiencies.
The actions of the officials of the Municipality of
Narra are consistent with the rule that
ordinances are presumed valid.
The mayors actions were done pursuant to an
ordinance which, at the time of the collection,
was yet to be invalidated.
It is basic that laws and local ordinances are
presumed to be valid unless and until the
courts de-clare the contrary in clear and
unequivocal terms.Thus, the concerned
officials of the Municipality of Narra, Palawan
must be deemed to have conducted themselves
in good faith and with regularity when they
acted pursuant to Chapter 5, Section 48 of
Provincial Ordinance No. 332-A, Series of 1995,
and collected the additional levy for the special
education fund at the rate of 0.5%. Accordingly,
it was improper for respondent to attribute
personal liability to petitioner and to require
her to personally answer to the deficiency in
special education fund collections.
PIMENTAL VS AGUIRE
In 1997, President Ramos issued AO 372 which:
(1) required all government departments and
agencies, including SUCs, GOCCs and LGUs to
identify and implement measures in FY 1998
that will reduce total expenditures for the year
by at least 25% of authorized regular
appropriations for non--personal services items
(Section 1) and (2) ordered the withholding of
10% of the IRA to LGUs (Section 4) . On 10
December 1998, President Estrada issued AO
43, reducing to 5% the amount of IRA to be
withheld from LGU.
Issues:
1. Whether or not the president committed
grave abuse of discretion in ordering all LGUS to
adopt a 25% cost reduction program in violation
of the LGU'S fiscal autonomy
2. Whether Section 4 of the same issuance,
which withholds 10 percent of their internal
revenue allotments, are valid exercises of the
President's power of general supervision over
local governments
Held:
1. Section 1 of AO 372 does not violate local
fiscal autonomy. Local fiscal autonomy does not
rule out any manner of national government
intervention by way of supervision, in order to
ensure that local programs, fiscal and
otherwise, are consistent with national goals.
Significantly, the President, by constitutional
fiat, is the head of the economic and planning
agency of the government, primarily
responsible for formulating and implementing
continuing, coordinated and integrated social
and economic policies, plans and programs for
the entire country. However, under the
Constitution, the formulation and the
implementation of such policies and programs
are subject to "consultations with the
appropriate public agencies, various private
sectors, and local government units." The
President cannot do so unilaterally.
Consequently, the Local Government Code
provides:
"x x x [I]n the event the national government
incurs an unmanaged public sector deficit, the
President of the Philippines is hereby
authorized, upon the recommendation of [the]
Secretary of Finance, Secretary of the Interior
and Local Government and Secretary of Budget
and Management, and subject to consultation
with the presiding officers of both Houses of
Congress and the presidents of the liga, to make
the necessary adjustments in the internal
revenue allotment of local government units
but in no case shall the allotment be less than
thirty percent (30%) of the collection of national
internal revenue taxes of the third fiscal year
preceding the current fiscal year x x x."
There are therefore several requisites before
the President may interfere in local fiscal
matters: (1) an unmanaged public sector deficit
of the national government; (2) consultations
with the presiding officers of the Senate and the
House of Representatives and the presidents of
the various local leagues; and (3) the
corresponding recommendation of the
secretaries of the Department of Finance,
Interior and Local Government, and Budget and
Management. Furthermore, any adjustment in
the allotment shall in no case be less than thirty
percent (30%) of the collection of national
internal revenue taxes of the third fiscal year
preceding the current one.
Petitioner points out that respondents failed to
comply with these requisites before the
issuance and the implementation of AO 372. At
the very least, they did not even try to show
that the national government was suffering
from an unmanageable public sector deficit.
Neither did they claim having conducted
consultations with the different leagues of local
governments. Without these requisites, the
President has no authority to adjust, much less
to reduce, unilaterally the LGU's internal
revenue allotment.
AO 372, however, is merely directory and has
been issued by the President consistent with his
power of supervision over local governments. It
is intended only to advise all government
agencies and instrumentalities to undertake
cost-reduction measures that will help maintain
economic stability in the country, which is
facing economic difficulties. Besides, it does not
contain any sanction in case of noncompliance.
Being merely an advisory, therefore, Section 1
of AO 372 is well within the powers of the
President. Since it is not a mandatory
imposition, the directive cannot be
characterized as an exercise of the power of
control.
2. Section 4 of AO 372 cannot be upheld. A
basic feature of local fiscal autonomy is the
automatic release of the shares of LGUs in the
national internal revenue. This is mandated by
no less than the Constitution. The Local
Government Code specifies further that the
release shall be made directly to the LGU
concerned within five (5) days after every
quarter of the year and "shall not be subject to
any lien or holdback that may be imposed by
the national government for whatever
purpose." As a rule, the term "shall" is a word of
command that must be given a compulsory
meaning. The provision is, therefore,
imperative.
ALTERNATIVE CENTER FOR
ORGANIZATIONAL REFORMS AND
DEVELOPMENT, INC., VS. ZAMORA
G.R. No. 144256
Subject: Public Corporation
Doctrine: Automatic release of IRA
Facts:
Pres. Estrada, pursuant to Sec 22, Art VII
mandating the Pres to submit to Congress a
budget of expenditures within 30 days
before the opening of every regular session,
submitted the National Expenditures
program for FY 2000. The President
proposed an IRA of P121,778,000,000. This
became RA 8760, AN ACT
APPROPRIATING FUNDS FOR THE
OPERATION OF THE GOVERNMENT
OF THE REPUBLIC OF THE
PHILIPPINES FROM JANUARY ONE TO
DECEMBER THIRTY-ONE, TWO
THOUSAND, AND FOR OTHER
PURPOSES also known as General
Appropriations Act (GAA) for the Year
2000. It provides under the heading
ALLOCATIONS TO LOCAL
GOVERNMENT UNITS that the IRA for
local government units shall amount to
P111,778,000,000.
In another part of the GAA, under the
heading UNPROGRAMMED FUND, it is
provided that an amount of P10,000,000,000
(P10 Billion), apart from the
P111,778,000,000 mentioned above, shall be
used to fund the IRA, which amount shall be
released only when the original revenue
targets submitted by the President to
Congress can be realized based on a
quarterly assessment to be conducted by
certain committees which the GAA
specifies, namely, the Development Budget
Coordinating Committee, the Committee on
Finance of the Senate, and the Committee on
Appropriations of the House of
Representatives.
Thus, while the GAA appropriates
P111,778,000,000 of IRA as Programmed
Fund, it appropriates a separate amount of
P10 Billion of IRA under the classification
of Unprogrammed Fund, the latter amount
to be released only upon the occurrence of
the condition stated in the GAA.
On August 22, 2000, a number of NGOs and
POs, along with 3 barangay officials filed
with this Court the petition at bar, for
Certiorari, Prohibition and Mandamus With
Application for Temporary Restraining
Order, against respondents then Executive
Secretary Ronaldo Zamora, then Secretary
of the Department of Budget and
Management Benjamin Diokno, then
National Treasurer Leonor Magtolis-
Briones, and the Commission on Audit,
challenging the constitutionality of provision
XXXVII (ALLOCATIONS TO LOCAL
GOVERNMENT UNITS) referred to by
petitioners as Section 1, XXXVII (A), and
LIV (UNPROGRAMMED FUND) Special
Provisions 1 and 4 of the GAA (the GAA
provisions)
Petitioners contend that the said provisions
violates the LGUs autonomy by unlawfully
reducing the IRA allotted by 10B and by
withholding its release by placing the same
under Unprogrammed funds. Although the
effectivity of the Year 2000 GAA has
ceased, this Court shall nonetheless proceed
to resolve the issues raised in the present
case, it being impressed with public interest.
Petitioners argue that the GAA violated the
constitutional mandate of automatically
releasing the IRAs when it made its release
contingent on whether revenue collections
could meet the revenue targets originally
submitted by the President, rather than
making the release automatic.
ISSUE: WON the subject GAA violates
LGUs fiscal autonomy by not automatically
releasing the whole amount of the allotted
IRA.
HELD:
Article X, Section 6 of the Constitution
provides:
SECTION 6. Local government units shall
have a just share, as determined by law, in
the national taxes which shall be
automatically released to them.
Petitioners argue that the GAA violated this
constitutional mandate when it made the
release of IRA contingent on whether
revenue collections could meet the revenue
targets originally submitted by the President,
rather than making the release automatic.
Respondents counterargue that the above
constitutional provision is addressed not to
the legislature but to the executive, hence,
the same does not prevent the legislature
from imposing conditions upon the release
of the IRA.
Respondents thus infer that the subject
constitutional provision merely prevents the
executive branch of the government from
unilaterally withholding the IRA, but not
the legislature from authorizing the
executive branch to withhold the same. In
the words of respondents, This essentially
means that the President or any member of
the Executive Department cannot
unilaterally, i.e., without the backing of
statute, withhold the release of the IRA.
As the Constitution lays upon the executive
the duty to automatically release the just
share of local governments in the national
taxes, so it enjoins the legislature not to pass
laws that might prevent the executive from
performing this duty. To hold that the
executive branch may disregard
constitutional provisions which define its
duties, provided it has the backing of statute,
is virtually to make the Constitution
amendable by statute a proposition which
is patently absurd. If indeed the framers
intended to allow the enactment of statutes
making the release of IRA conditional
instead of automatic, then Article X, Section
6 of the Constitution would have been
worded differently.
Since, under Article X, Section 6 of the
Constitution, only the just share of local
governments is qualified by the words as
determined by law, and not the release
thereof, the plain implication is that
Congress is not authorized by the
Constitution to hinder or impede the
automatic release of the IRA.
In another case, the Court held that the only
possible exception to mandatory automatic
release of the IRA is, as held in Batangas:
if the national internal revenue collections
for the current fiscal year is less than 40
percent of the collections of the preceding
third fiscal year, in which case what should
be automatically released shall be a
proportionate amount of the collections for
the current fiscal year. The adjustment may
even be made on a quarterly basis depending
on the actual collections of national internal
revenue taxes for the quarter of the current
fiscal year.
This Court recognizes that the passage of the
GAA provisions by Congress was motivated
by the laudable intent to lower the budget
deficit in line with prudent fiscal
management. The pronouncement in
Pimentel, however, must be echoed: [T]he
rule of law requires that even the best
intentions must be carried out within the
parameters of the Constitution and the law.
Verily, laudable purposes must be carried
out by legal methods.
WHEREFORE, the petition is GRANTED.
XXXVII and LIV Special Provisions 1 and
4 of the Year 2000 GAA are hereby declared
unconstitutional insofar as they set apart a
portion of the IRA, in the amount of P10
Billion, as part of the UNPROGRAMMED
FUND.
Angeles Univ. Foundation vs. City Of Angeles
Petitioner is a non-stock, non-profit educational
foundation. It received a building permit fee
assessment for the construction of the AUF
Medical Center but claimed exemption from the
same as well as from other permits and fees by
virtue of Republic Act No. 6055. Respondent
disputed the claimed exemption by stating that
the impositions are regulatory in nature and not
taxes from which petitioner is exempt under
the said law.
ISSUE: Is the building permit fee a tax from
which petitioner is exempt?
RULING: No. It is a regulatory fee. The DPWH
has in fact issued implementing rules which
provide the bases for assessment of fees and
petitioner has failed to show that they were
arbitrarily determined or unrelated to the
activity being regulated. Neither has there been
proof that the fee was unreasonable or in
excess of the cost of regulation or inspection.
The Court added that even if there was
incidental revenue, the same is deemed not to
change the nature of the charge. Thus, the City
of Angeles was justified in its assessment.
Tiu v Ca G.R. No. 127410. January 20, 1999
J. Panganiban
Facts:
On March 13, 1992, Congress, with the approval
of the President, passed into law RA 7227. This
was for the conversion of former military bases
into industrial and commercial uses. Subic was
one of these areas. It was made into a special
economic zone.
In the zone, there were no exchange controls.
Such were liberalized. There was also tax
incentives and duty free importation policies
under this law.
On June 10, 1993, then President Fidel V.
Ramos issued Executive Order No. 97 (EO 97),
clarifying the application of the tax and duty
incentives. It said that
On Import Taxes and Duties. Tax and duty-
free importations shall apply only to raw
materials, capital goods and equipment brought
in by business enterprises into the SSEZ
On All Other Taxes. In lieu of all local and
national taxes (except import taxes and duties),
all business enterprises in the SSEZ shall be
required to pay the tax specified in Section
12(c) of R.A. No. 7227.
Nine days after, on June 19, 1993, the President
issued Executive Order No. 97-A (EO 97-A),
specifying the area within which the tax-and-
duty-free privilege was operative.
Section 1.1. The Secured Area consisting of
the presently fenced-in former Subic Naval Base
shall be the only completely tax and duty-free
area in the SSEFPZ. Business enterprises and
individuals (Filipinos and foreigners) residing
within the Secured Area are free to import raw
materials, capital goods, equipment, and
consumer items tax and duty-free.
Petitioners challenged the constitutionality of
EO 97-A for allegedly being violative of their
right to equal protection of the laws. This was
due to the limitation of tax incentives to Subic
and not to the entire area of Olongapo. The
case was referred to the Court of Appeals.
The appellate court concluded that such being
the case, petitioners could not claim that EO 97-
A is unconstitutional, while at the same time
maintaining the validity of RA 7227.
The court a quo also explained that the
intention of Congress was to confine the
coverage of the SSEZ to the "secured area" and
not to include the "entire Olongapo City and
other areas mentioned in Section 12 of the law.
Hence, this was a petition for review under Rule
45 of the Rules of Court.
Issue:
Whether the provisions of Executive Order No.
97-A confining the application of R.A. 7227
within the secured area and excluding the
residents of the zone outside of the secured
area is discriminatory or not owing to a
violation of the equal protection clause.
Held. No. Petition dismissed.
Ratio:
Citing Section 12 of RA 7227, petitioners
contend that the SSEZ encompasses (1) the City
of Olongapo, (2) the Municipality of Subic in
Zambales, and (3) the area formerly occupied
by the Subic Naval Base. However, they claimed
that the E.O. narrowed the application to the
naval base only.
OSG- The E.O. Was a valid classification.
Court- The fundamental right of equal
protection of the laws is not absolute, but is
subject to reasonable classification. If the
groupings are characterized by substantial
distinctions that make real differences, one
class may be treated and regulated differently
from another. The classification must also be
germane to the purpose of the law and must
apply to all those belonging to the same class.
Inchong v Hernandez- Equal protection does not
demand absolute equality among residents; it
merely requires that all persons shall be treated
alike, under like circumstances and conditions
both as to privileges conferred and liabilities
enforced.
Classification, to be valid, must (1) rest on
substantial distinctions, (2) be germane to the
purpose of the law, (3) not be limited to existing
conditions only, and (4) apply equally to all
members of the same class.
RA 7227 aims primarily to accelerate the
conversion of military reservations into
productive uses. This was really limited to the
military bases as the law's intent provides.
Moreover, the law tasked the BCDA to
specifically develop the areas the bases
occupied.
Among such enticements are: (1) a separate
customs territory within the zone, (2) tax-and-
duty-free importations, (3) restructured income
tax rates on business enterprises within the
zone, (4) no foreign exchange control, (5)
liberalized regulations on banking and finance,
and (6) the grant of resident status to certain
investors and of working visas to certain foreign
executives and workers. The target of the law
was the big investor who can pour in capital.
Even more important, at this time the business
activities outside the "secured area" are not
likely to have any impact in achieving the
purpose of the law, which is to turn the former
military base to productive use for the benefit
of the Philippine economy. Hence, there was no
reasonable basis to extend the tax incentives in
RA 7227.
It is well-settled that the equal-protection
guarantee does not require territorial
uniformity of laws. As long as there are actual
and material differences between territories,
there is no violation of the constitutional clause.
Besides, the businessmen outside the zone can
always channel their capital into it.
RA 7227, the objective is to establish a "self-
sustaining, industrial, commercial, financial and
investment center. There will really be
differences between it and the outside zone of
Olongapo.
The classification of the law also applies equally
to the residents and businesses in the zone.
They are similarly treated to contribute to the
end goal of the law.
Philippine Amusement and Gaming
Corporation vs The Bureau of Internal
Revenue(COA)
645 SCRA 338 Taxation Law Income Taxation
Corporate Taxpayers PAGCOR is not exempt
from income taxation
Political Law Equal Protection Clause
The Philippine Amusement and Gaming
Corporation (PAGCOR) was created by P.D. No.
1067-A in 1977. Obviously, it is a government
owned and controlled corporation (GOCC).
In 1998, R.A. 8424 or the National Internal
Revenue Code of 1997 (NIRC) became effective.
Section 27 thereof provides that GOCCs are
NOT EXEMPT from paying income taxation but
it exempted the following GOCCs:
1. GSIS
2. SSS
3. PHILHEALTH
4. PCSO
5. PAGCOR
But in May 2005, R.A. 9337, a law amending
certain provisions of R.A. 8424, was passed.
Section 1 thereof excluded PAGCOR from the
exempt GOCCs hence PAGCOR was subjected to
pay income taxation. In September 2005, the
Bureau of Internal Revenue issued the
implementing rules and regulations (IRR) for
R.A. 9337. In the said IRR, it identified PAGCOR
as subject to a 10% value added tax (VAT) upon
items covered by Section 108 of the NIRC (Sale
of Services and Use or Lease of Properties).
PAGCOR questions the constitutionality of
Section 1 of R.A. 9337 as well as the IRR.
PAGCOR avers that the said provision violates
the equal protection clause. PAGCOR argues
that it is similarly situated with SSS, GSIS, PCSO,
and PHILHEALTH, hence it should not be
excluded from the exemption.
ISSUE: Whether or not PAGCOR should be
subjected to income taxation.
HELD: Yes. Section 1 of R.A. 9337 is
constitutional. It was the express intent of
Congress to exclude PAGCOR from the exempt
GOCCs hence PAGCOR is now subject to income
taxation.
PAGCORs contention that the law violated the
constitution is not tenable. The equal
protection clause provides that all persons or
things similarly situated should be treated alike,
both as to rights conferred and responsibilities
imposed.
The general rule is, ALL GOCCs are subject to
income taxation. However, certain classes of
GOCCs may be exempt from income taxation
based on the following requisites for a valid
classification under the principle of equal
protection:
1) It must be based on substantial distinctions.
2) It must be germane to the purposes of the
law.
3) It must not be limited to existing conditions
only.
4) It must apply equally to all members of the
class.
When the Supreme Court looked into the
records of the deliberations of the lawmakers
when R.A. 8424 was being drafted, the SC found
out that PAGCORs exemption was not really
based on substantial distinctions. In fact, the
lawmakers merely exempted PAGCOR from
income taxation upon the request of PAGCOR
itself. This was changed however when R.A.
9337 was passed and now PAGCOR is already
subject to income taxation.
Anent the issue of the imposition of the 10%
VAT against PAGCOR, the BIR had overstepped
its authority. Nowhere in R.A. 9337 does it state
that PAGCOR is subject to VAT. Therefore, that
portion of the IRR issued by the BIR is void. In
fact, Section 109 of R.A. 9337 expressly exempts
PAGCOR from VAT. Further, PAGCORs charter
exempts it from VAT.
To recapitulate, PAGCOR is subject to income
taxation but not to VAT.
REYES VS. ALMANZOR
Petitioner are owners of parcels of land leased
to tenants. RA 6359 was enacted prohibiting for
one year an increase in monthly rentals of
dwelling units and said Act also disallowed
ejectment of lessees upon the expiration of the
usual period of lease. City assessor of Manila
assessed the value of petitioners property
based on the schedule of market values duly
reviewed by the Secretary of Finance. The
revision entailed an increase to the tax rates
and petitioners averred that the reassessment
imposed upon them greatly exceeded the
annual income derived from their properties.
ISSUE:
Whether or not income approach is the method
to be used in the tax assessment and not the
comparable sales approach.
RULING:
By no stretch of the imagination can the market
value of properties covered by PD 20 be
equated with the market value of properties
not so covered. In the case at bar, not even
factors determinant of the assessed value of
subject properties under the comparable sales
approach were presented by respondent
namely:
1. That the sale must represent a bonafide
arms length transaction between a willing
seller and a willing buyer
2. The property must be comparable property.
As a general rule, there were no takers so that
there can be no reasonable basis for the
conclusion that these properties are
comparable.
Taxes are lifeblood of government, however,
such collection should be made in accordance
with the law and therefore necessary to
reconcile conflicting interests of the authorities
so that the real purpose of taxation, promotion
of the welfare of common good can be
achieved.
American Bible Society vs. City of Manila
American Bible Society is a foreign, non-
stock, non-profit, religious, missionary
corporation duly registered and doing business
in the Philippines through its Philippine agency
established in Manila in November, 1898
City of Manila is a municipal corporation
with powers that are to be exercised in
conformity with the provisions of Republic Act
No. 409, known as the Revised Charter of the
City of Manila
American Bible Society has been
distributing and selling bibles and/or gospel
portions throughout the Philippines and
translating the same into several Philippine
dialect
City Treasurer of Manila informed
American Bible Society that it was violating
several Ordinances for operating without the
necessary permit and license, thereby requiring
the corporation to secure the permit and
license fees covering the period from 4Q 1945-
2Q 1953
To avoid closing of its business, American
Bible Society paid the City of Manila its permit
and license fees under protest
American Bible filed a complaint,
questioning the constitutionality and legality of
the Ordinances 2529 and 3000, and prayed for a
refund of the payment made to the City of
Manila. They contended:
a. They had been in the Philippines since
1899 and were not required to pay any license
fee or sales tax
b. it never made any profit from the sale of
its bibles
City of Manila prayed that the complaint
be dismissed, reiterating the constitutionality of
the Ordinances in question
Trial Court dismissed the complaint
American Bible Society appealed to the
Court of Appeals
Issue: WON American Bible Society liable to pay
sales tax for the distribution and sale of bibles
Ruling: NO
Under Sec. 1 of Ordinance 3000, one of
the ordinance in question, person or entity
engaged in any of the business, trades or
occupation enumerated under Sec. 3 must
obtain a Mayors permit and license from the
City Treasurer. American Bible Societys
business is not among those enumerated
However, item 79 of Sec. 3 of the
Ordinance provides that all other businesses,
trade or occupation not mentioned, except
those upon which the City is not empowered to
license or to tax P5.00
Therefore, the necessity of the permit is
made to depend upon the power of the City to
license or tax said business, trade or
occupation.
2 provisions of law that may have bearing
on this case:
a. Chapter 60 of the Revised Administrative
Code, the Municipal Board of the City of Manila
is empowered to tax and fix the license fees on
retail dealers engaged in the sale of books
b. Sec. 18(o) of RA 409: to tax and fix the
license fee on dealers in general merchandise,
including importers and indentors, except those
dealers who may be expressly subject to the
payment of some other municipal tax. Further,
Dealers in general merchandise shall be
classified as (a) wholesale dealers and (b) retail
dealers. For purposes of the tax on retail
dealers, general merchandise shall be classified
into four main classes: namely (1) luxury
articles, (2) semi-luxury articles, (3) essential
commodities, and (4) miscellaneous articles. A
separate license shall be prescribed for each
class but where commodities of different
classes are sold in the same establishment, it
shall not be compulsory for the owner to secure
more than one license if he pays the higher or
highest rate of tax prescribed by ordinance.
Wholesale dealers shall pay the license tax as
such, as may be provided by ordinance
The only difference between the 2
provisions is the limitation as to the amount of
tax or license fee that a retail dealer has to pay
per annum
As held in Murdock vs. Pennsylvania, The
power to impose a license tax on the exercise of
these freedoms provided for in the Bill of
Rights, is indeed as potent as the power of
censorship which this Court has repeatedly
struck down. It is not a nominal fee imposed as
a regulatory measure to defray the expenses of
policing the activities in question. It is in no way
apportioned. It is flat license tax levied and
collected as a condition to the pursuit of
activities whose enjoyment is guaranteed by
the constitutional liberties of press and religion
and inevitably tends to suppress their exercise.
That is almost uniformly recognized as the
inherent vice and evil of this flat license tax.
Further, the case also mentioned that the
power to tax the exercise of a privilege is the
power to control or suppress its enjoyment.
Those who can tax the exercise of this religious
practice can make its exercise so costly as to
deprive it of the resources necessary for its
maintenance. Those who can tax the privilege
of engaging in this form of missionary
evangelism can close all its doors to all those
who do not have a full purse
Under Sec. 27(e) of Commonwealth Act
No. 466 or the National Internal Revenue Code,
Corporations or associations organized and
operated exclusively for religious, charitable, . .
. or educational purposes, . . .: Provided,
however, That the income of whatever kind and
character from any of its properties, real or
personal, or from any activity conducted for
profit, regardless of the disposition made of
such income, shall be liable to the tax imposed
under this Code shall not be taxed
The price asked for the bibles and other
religious pamphlets was in some instances a
little bit higher than the actual cost of the same
but this cannot mean that American Bible
Society was engaged in the business or
occupation of selling said "merchandise" for
profit
Therefore, the Ordinance cannot be
applied for in doing so it would impair American
Bible Societys free exercise and enjoyment of
its religious profession and worship as well as
its rights of dissemination of religious beliefs.
Wherefore, and on the strength of the
foregoing considerations, We hereby reverse
the decision appealed from, sentencing
defendant return to plaintiff the sum of
P5,891.45 unduly collected from it
Arturo Tolentino vs Secretary of Finance
235 SCRA 630 (1994) 249 SCRA 635 (1995)
Political Law Origination of Revenue Bills
EVAT Amendment by Substitution
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: No. By a 9-6 vote, the Supreme Court
rejected the challenge, holding that 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 Constitution simply means,
according to the 9 justices, is that the initiative
must come from the HoR. Note also that there
were several instances before where Senate
passed its own version rather than having the
HoR version as far as revenue and other such
bills are concerned. This practice of amendment
by substitution has always been accepted. The
proposition of Tolentino concerns a mere
matter of form. There is no showing that it
would make a significant difference if Senate
were to adopt his over what has been done.
Coconut Oil Refiners vs Torres GR 132527 29
Facts: This is a Petition to enjoin and prohibit
the public respondent Ruben Torres in his
capacity as Executive Secretary from allowing
other private respondents to continue with the
operation of tax and duty-free shops located at
the Subic Special Economic Zone (SSEZ) and the
Clark Special Economic Zone (CSEZ). The
petitioner seeks to declare Republic Act No.
7227 as unconstitutional on the ground that it
allowed only tax-free (and duty-free)
importation of raw materials, capital and
equipment. It reads:
The Subic Special Economic Zone shall be
operated and managed as a separate customs
territory ensuring free flow or movement of
goods and capital within, into and exported out
of the Subic Special Economic Zone, as well as
provide incentives such as tax and duty-free
importations of raw materials, capital and
equipment. However, exportation or removal of
goods from the territory of the Subic Special
Economic Zone to the other parts of the
Philippine territory shall be subject to customs
duties and taxes under the Customs and Tariff
Code and other relevant tax laws of
thePhilippines [RA 7227, Sec 12 (b)].
Petitioners contend that the wording of
Republic Act No. 7227 clearly limits the grant of
tax incentives to the importation of raw
materials, capital and equipment only thereby
violating the equal protection clause of the
Constitution.
He also assailed the constitutionality of
Executive Order No. 97-A for being violative of
their right to equal protection. They asserted
that private respondents operating inside the
SSEZ are not different from the retail
establishments located outside.
Issue: Whether or not Republic Act No. 7227 is
valid on the ground that it violates the equal
protection clause.
Decision: The SC ruled in the negative. The
phrase tax and duty-free importations of raw
materials, capital and equipment was merely
cited as an example of incentives that may be
given to entities operating within the zone.
Public respondent SBMA correctly argued that
the maxim expressio unius est exclusio alterius,
on which petitioners impliedly rely to support
their restrictive interpretation, does not apply
when words are mentioned by way of example.
The petition with respect to declaration of
unconstitutionality of Executive Order No. 97-A
cannot be, likewise, sustained. The guaranty of
the equal protection of the laws is not violated
by a legislation based which was based on
reasonable classification. A classification, to be
valid, must (1) rest on substantial distinction, (2)
be germane to the purpose of the law, (3) not
be limited to existing conditions only, and (4)
apply equally to all members of the same class.
Applying the foregoing test to the present case,
this Court finds no violation of the right to equal
protection of the laws. There is a substantial
distinctions lying between the establishments
inside and outside the zone. There are
substantial differences in a sense that, investors
will be lured to establish and operate their
industries in the so-called secured area and the
present business operators outside the area.
There is, then, hardly any reasonable basis to
extend to them the benefits and incentives
accorded in R.A. 7227.
ABAKADA Guro Party List vs. Ermita
Before R.A. No. 9337 took effect, petitioners
ABAKADA GURO Party List, et al., filed a petition
for prohibition on May 27, 2005 questioning the
constitutionality of Sections 4, 5 and 6 of R.A.
No. 9337, amending Sections 106, 107 and 108,
respectively, of the National Internal Revenue
Code (NIRC). Section 4 imposes a 10% VAT on
sale of goods and properties, Section 5 imposes
a 10% VAT on importation of goods, and Section
6 imposes a 10% VAT on sale of services and use
or lease of properties. These questioned
provisions contain a uniformp ro v is o
authorizing the President, upon
recommendation of the Secretary of Finance, to
raise the VAT rate to 12%, effective January 1,
2006, after specified conditions have been
satisfied. Petitioners argue that the law is
unconstitutional.
ISSUES:
1. Whether or not there is a violation of Article
VI, Section 24 of the Constitution.
2. Whether or not there is undue delegation of
legislative power in violation of Article VI Sec
28(2) of the Constitution.
3. Whether or not there is a violation of the due
process and equal protection under Article III
Sec. 1 of the Constitution.
RULING:
1. Since there is no question that the revenue
bill exclusively originated in the House of
Representatives, the Senate was acting within
its constitutional power to introduce
amendments to the House bill when it included
provisions in Senate Bill No. 1950 amending
corporate income taxes, percentage, and excise
and franchise taxes.
2. There is no undue delegation of legislative
power but only of the discretion as to the
execution of a law. This is constitutionally
permissible. Congress does not abdicate its
functions or unduly delegate power when it
describes what job must be done, who must do
it, and what is the scope of his authority; in our
complex economy that is frequently the only
way in which the legislative process can go
forward.
3. The power of the State to make reasonable
and natural classifications for the purposes of
taxation has long been established. Whether it
relates to the subject of taxation, the kind of
property, the rates to be levied, or the amounts
to be raised, the methods of assessment,
valuation and collection, the States power is
entitled to presumption of validity. As a rule,
the judiciary will not interfere with such power
absent a clear showing of unreasonableness,
discrimination, or arbitrariness.