TAXATION I: CASES
Extent (Amount of rate)
DEFINITION OF TAXATION
Taxation is the power by which the
sovereign raises revenue to defray the
expenses of government. It is a way of
apportioning the cost of government among
those who in some measure are privileged to
enjoy its benefits and must bear its burden.
NATURE OF TAXATION
1. Attribute of Sovereignty
The power of taxation is an essential and
inherent attribute of sovereignty, belonging
as a matter of right to every independent
government, without being expressly
conferred by the people.
2. Legislative in character
The power to tax includes the authority to :
1. Determine the MONES - CA
a. Nature (Kind)
b. Object (Purpose)
c.
d. Coverage (Subjects and
objects)
e. Apportionment of the tax
(general or limited application)
f. Situs (Place) of the imposition
g. Method of Collection
2. Grant tax exemptions or
condonations;
3. Specify or provide for the
administrative as well as judicial
remedies that either the government
or the taxpayers may avail
themselves in the proper
implemetaiton of the tax measure.
Pepsi Cola Bottling Co. Of the Philippines,
Inc. vs. Municipality of Tanauan, 69 SCRA
460
Facts:
Section 2 of Republic Act No. 2264, otherwise known
as the Local Autonomy Act, delegates the power of
taxation to municipalities. As a result, the Municipality of
Tanuan imposed Ordinances 23 and 27 which levies and
collects municipal production tax from soft drinks
producers and manufacturers.
Petitioner then challenged the power of taxation
delegated to municipalities under the Local Autonomy
Act.
Issue: Whether Section 2 of RA 2264 constitutes an
undue delegation of taxation power?
Held:
The power of taxation granted to municipalities
under the Local Autonomy Act is valid.
The power of taxation is an essential and inherent
attribute of sovereignty, belonging as a matter of right to
every independent government, without being expressly
conferred by the people. It is a power that is purely
legislative and which the central legislative body cannot
delegate either to the executive or judicial department of
the government without infringing upon the theory of
separation of powers. The exception, however, lies in the
case of municipal corporations, to which, said theory
does not apply. Legislative powers may be delegated to
local governments in respect of matters of local
concern. This is sanctioned by immemorial practice. By
necessary implication, the legislative power to create
political corporations for purposes of local self-
government carries with it the power to confer on such
local governmental agencies the power to tax.
2. Pepsi-Cola v. Butuan, 24 SCRA 789, GR No.
L-22814, August 28, 1968
"The classification made in the exercise of power to tax,
to be valid, must be reasonable ."
FACTS: Plaintiff-appellant Pepsi-Cola sought to recover
the sums paid by it under protest, to the City of Butuan,
and collected by the latter, pursuant to its Municipal
Ordinance No. 110 which plaintiff assails as null and void
because it partakes of the nature of an import tax,
amounts to double taxation, highly unjust and
discriminatory, excessive, oppressive and confiscatory,
and constitutes an invalid delegation of the power to tax. merchants established outside the City of Butuan, would
The ordinance imposes taxes for every case of be exempt from the disputed tax.
softdrinks, liquors and other carbonated beverages,
It is true that the uniformity essential to the valid
regardless of the volume of sales, shipped to the agents
exercise of the power of taxation does not require identity
and/or consignees by outside dealers or any person or
or equality under all circumstances, or negate the
company having its actual business outside the City.
authority to classify the objects of taxation. The
classification made in the exercise of this authority, to be
valid, must, however, be reasonable and this requirement
ISSUE: Does the tax ordinance violate the uniformity
is not deemed satisfied unless: (1) it is based upon
requirement of taxation?
substantial distinctions which make real differences; (2)
these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to
HELD: Yes. The tax levied is discriminatory. Even
present conditions, but, also, to future conditions
if the burden in question were regarded as a tax on the
substantially identical to those of the present; and (4) the
sale of said beverages, it would still be invalid, as
classification applies equally to all those who belong to
discriminatory, and hence, violative of the uniformity
the same class.
required by the Constitution and the law therefor, since
only sales by "agents or consignees" of outside dealers
would be subject to the tax. Sales by local dealers, not
3. Generally not delegated to executive or
acting for or on behalf of other merchants, regardless of judicial department
the volume of their sales, and even if the same exceeded
Delegation, however, is allowed in the
those made by said agents or consignees of producers or
following cases:
 a. To local governments in respect of matters
of local concern to be exercised by the
local legislative bodies thereof.

Art. X, 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.

b. When allowed by the Constitution

SECTION 28. (1) The rule of taxation shall be

uniform and equitable. The Congress shall evolve
a progressive system of taxation.

(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.

3. Executive Secretary v. Southwing Heavy

Industries
C . Administrative Implementation
When the delegation relates merely to
administrative implementation that may call for some
degree of discretionary powers under a set of sufficient
standards expressed by law.
4. CERVANTES v. AUDITOR GENERAL, G.R.
No. L-4043, May 26, 1942
FACTS:
This is a petition for review of a decision of Auditor
General denying petitioners claim for quarters allowance
as manager of the National Abaca and other Fibers Corp.
(NAFCO). Petitioner was the manager of NAFCO in
1949 with an annual salary of P15,000.00. By a
resolution of the Board of Directors, he was granted
quarter allowance of not exceeding P400 a month
effective the first of that month. This allowance was
disapproved by the Central Committee of the government
enterprise council on the strength of the recommendation
of the NAFCO auditor, concurred in by the Auditor
General, (1) that quarters allowance constituted
additional compensation prohibited by the charter of the
NAFCO, which fixes the salary of the general manager
thereof at the sum not to exceed P15,000 a year, and 2)
that the precarious financial condition of the corporation
did not warrant the granting of such allowance.
Petitioner asked the Control Committee to
reconsider its action and approve his claim for allowance
which was again referred by the Control Committee to
the auditor General for comment. The Committee in turn
referred it to the NAFCO auditor, who reaffirmed his
previous recommendation and emphasized that the fact
that the corporations finances had not improved.
Hence, this petition for review.
ISSUE: Whether or not RA No. 51 is null and void
HELD:
NEGATIVE. The rule is that so long as the
Legislature lays down a policy and a standard is
established by the statute there is no undue delegation.
Republic Act No. 51 in authorizing the President of the
Philippines, among others, to make reforms and changes
in government- controlled corporations, lays down a
standard and policy that the purpose shall be to meet the
exigencies attendant upon the establishment of the free
and independent government of the Philippines and to
promote simplicity, economy and efficiency in their
operations. The standard was set and the policy fixed.
The President had to carry the mandate. This he did by
promulgating the executive order in question which,
tested by the rule above cited, does not constitute an
undue delegation of legislative power.
NOTE: RA No. 51 authorizes the President of the
Philippines, among other things, to effect such reforms
and changes in government owned and controlled
corporations for the purpose of promoting simplicity,
economy and efficiency in their operation.
5. G.R. No. 88291 May 31, 1991
ERNESTO M. MACEDA, petitioner,
vs. HON. CATALINO MACARAIG, JR.
FACTS:
Commonwealth Act 120 created NAPOCOR as a
public corporation to undertake the development of
hydraulic power and the production of power from other
sources. RA 358 granted NAPOCOR tax and duty
exemption privileges. RA 6395 revised the charter of the
NAPOCOR, tasking it to carry out the policy of the
national electrification and provided in detail NAPOCORs
tax exceptions. PD 380 specified that NAPOCORs
exemption includes all taxes, etc. imposed directly or
indirectly. PD 938 dated May 27, 1976 further amended
the aforesaid provision by integrating the tax exemption
in general terms under one paragraph.
ISSUE: Whether or not NPC has ceased to enjoy indirect
tax and duty exemption with the enactment of PD 938 on
May 27, 1976 which amended PD 380 issued on January
11, 1974
RULING: It is still exempt.
 NAPOCOR is a non-profit public corporation
created for the general good and welfare, and wholly
owned by the government of the Republic of the
Philippines. From the very beginning of the corporations
existence, NAPOCOR enjoyed preferential tax treatment
to enable the corporation to pay the indebtedness and
obligation and effective implementation of the policy
enunciated in Section 1 of RA 6395. From the preamble
of PD 938, it is evident that the provisions of PD 938
were not intended to be interpreted liberally so as to
enhance the tax exempt status of NAPOCOR.
It is recognized that the rule on strict interpretation
does not apply in the case of exemptions in favor of
government political subdivision or instrumentality. In the
case of property owned by the state or a city or other
public corporations, the express exception should not be
construed with the same degree of strictness that applies
to exemptions contrary to the policy of the state, since as
to such property exception is the rule and taxation the
exception.
4. Subject to Constitutional and Inherent
Limitations
CHARACTERISTICS OF TAXATION (CUPS)
Comprehensive
Unlimited
The power to tax is not the power to
destroy while this court sits
5. SISON VS ANCHETA
130 SCRA 654
Facts: Section 1 of BP Blg 135 amended the Tax
Code and petitioner Antero M. Sison, as taxpayer,
alleges that "he would be unduly discriminated against by
the imposition of higher rates of tax upon his income
arising from the exercise of his profession vis-a-vis those
which are imposed upon fixed income or salaried
individual taxpayers. He characterizes said provision as
arbitrary amounting to class legislation, oppressive and
capricious in character. It therefore violates both the
equal protection and due process clauses of the
Constitution as well asof the rule requiring uniformity in
taxation.
Issue: Whether or not the assailed provision
violates the equal protection and due process clauses of
the Constitution while also violating the rule that taxes
must be uniform and equitable.
RULING: NO.
There is a need for proof of such persuasive character as
would lead to a conclusion that there was a violation of
the due process and equal protection clauses. Absent
such showing, the presumption of validity must prevail.
Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be
taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications
for purposes of taxation. Where the differentiation
conforms to the practical dictates of justice and equity,
similar to the standards of equal protection, it is not
discriminatory within the meaning of the clause and is
therefore uniform.
The power to tax moreover, to borrow from Justice
Malcolm, "is an attribute of sovereignty. It is the strongest
of all the powers of government." It is, of course, to be
admitted that for all its plenitude 'the power to tax is not
unconfined. There are restrictions. The Constitution sets
forth such limits. Adversely affecting as it does properly
rights, both the due process and equal protection clauses
may properly be invoked, all petitioner does, to invalidate
in appropriate cases a revenue measure. If it were
otherwise, it would be true that "the power to tax involves
the power to destroy." Now, according to Justice Holmes,
'The power to tax is not the power to destroy while this
Court sits." So it is in the Philippines.
7. PHIL. HEALTH CARE PROVIDERS, INC
vs. COMMISSIONER OF INTERNAL REVENUE
FACTS: Petitioner is a domestic corporation whose
primary purpose is to establish, maintain, conduct and
operate a prepaid group practice health care delivery
system or a health maintenance organization to take care
of the sick and disabled persons enrolled in the health
care plan and to provide for the administrative, legal, and
financial responsibilities of the organization. On January
27, 2000, respondent CIR sent petitioner a formal deman
letter and the corresponding assessment notices
demanding the payment of deficiency taxes, including
surcharges and interest, for the taxable years 1996 and
1997 in the total amount of P224,702,641.18. The
deficiency assessment was imposed on petitioners
health care agreement with the members of its health
care program pursuant to Section 185 of the 1997 Tax contract of insurance subject to DST under Section 185
Code. Petitioner protested the assessment in a letter of the 1997 Tax Code.
dated February 23, 2000. As respondent did not act on
On August 16, 2004, the CA rendered its decision
the protest, petitioner filed a petition for review in the
which held that petitioners health care agreement was in
Court of Tax Appeals (CTA) seeking the cancellation of
the nature of a non-life insurance contract subject to
the deficiency VAT and DST assessments.
DST. Respondent is ordered to pay the deficiency
On April 5, 2002, the CTA rendered a decision, Documentary Stamp Tax. Petitioner moved for
ordering the petitioner to PAY the deficiency VAT reconsideration but the CA denied it.
amounting to P22,054,831.75 inclusive of 25% surcharge
ISSUES: (1) Whether or not Philippine Health Care
plus 20% interest from January 20, 1997 until fully paid
Providers, Inc. engaged in insurance business.
for the 1996 VAT deficiency and P31,094,163.87
inclusive of 25% surcharge plus 20% interest from
(2) Whether or not the agreements between petitioner
January 20, 1998 until fully paid for the 1997 VAT
and its members possess all elements necessary in the
deficiency. Accordingly, VAT Ruling No. [231]-88 is
insurance contract.
declared void and without force and effect. The 1996 and
1997 deficiency DST assessment against petitioner is HELD:
hereby CANCELLED AND SET ASIDE. Respondent is
NO. Health Maintenance Organizations are not engaged
ORDERED to DESIST from collecting the said DST
in the insurance business. The SC said in June 12, 2008
deficiency tax. Respondent appealed the CTA decision to
decision that it is irrelevant that petitioner is an HMO and
the (CA) insofar as it cancelled the DST assessment. He
not an insurer because its agreements are treated as
claimed that petitioners health care agreement was a
insurance contracts and the DST is not a tax on the
business but an excise on the privilege, opportunity or the meaning of this Code; doing or proposing to do any
facility used in the transaction of the business. Petitioner, business in substance equivalent to any of the foregoing
however, submits that it is of critical importance to in a manner designed to evade the provisions of this
characterize the business it is engaged in, that is, to Code.
determine whether it is an HMO or an insurance
company, as this distinction is indispensable in turn to the
issue of whether or not it is liable for DST on its health
Overall, petitioner appears to provide insurance-type
care agreements. Petitioner is admittedly an HMO. Under
benefits to its members (with respect to its curative
RA 7878 an HMO is an entity that provides, offers or
medical services), but these are incidental to the principal
arranges for coverage of designated health services
activity of providing them medical care. The insurance-
needed by plan members for a fixed prepaid premium.
like aspect of petitioners business is miniscule
The payments do not vary with the extent, frequency or
compared to its noninsurance activities. Therefore, since
type of services provided. Section 2 (2) of PD 1460
it substantially provides health care services rather than
enumerates what constitutes doing an insurance
insurance services, it cannot be considered as being in
business or transacting an insurance businesswhich
the insurance business.
are making or proposing to make, as insurer, any
insurance contract; making or proposing to make, as Plenary
surety, any contract of suretyship as a vocation and not Supreme
as merely incidental to any other legitimate business or
activity of the surety; doing any kind of business, A. Inherent Limitations (P.E.N.I.S.)
including a reinsurance business, specifically recognized 8===>
as constituting the doing of an insurance business within
 i. The levy must be for a PUBLIC
PURPOSE
8. Planters Products, Inc. v. Fertiphil Corp.
Petitioner PLANTERS PRODUCTS INC. and respondent
FERTIPHIL CORP. are private corporations engaged in
importation and distribution of FERTILIZERS,
PESTICIDES & other Agricultural Products. Then
President Marcos issued a Levy Tax through a Letter of
Instruction (LOI No. 1465) imposing capital recovery
component of P10 per bag of fertilizer to be remitted to
FERTILIZER & PESTICIDE AUTHORITY (FPA). The
levy was to continue till adequate capital was raised to
make PPI financially viable. So FertiPhil remitted the
same to said agency, which was then remitted to the
depository bank of PPI. FertiPhil paid roughly P6M to
FPA from 1985 to 1986. After the 1986 EDSA Revolution,
FPA voluntarily stopped the imposition of the P10 levy.
FertiPhil therefore demanded from PPI a full refund of
the amount it remitted, however PPI refused.
As a result FertiPhil filed a complaint for collection and
damages questioning the constitutionality of LOI 1465,
claiming that it was an unjust, unreasonable, oppressive,
invalid and unlawful tax imposition that amounted to a
denial of due process.
PPI argues that FertiPhil has no LOCUS STANDI to
question the constitutionality of LOI No. 1465 because it
doesnt have a personal and substantial interest in the
case. Meaning FertiPhil did not suffer any damage from
the imposition because incidence of the levy fell on the
ultimate consumer or the farmers themselves, not on the
seller fertilizer company.
ISSUE: Whether or not FERTIPHIL has Locus Standi to
question the constitutionality of LOI No. 1465. (What is
POWER OF TAXATION & POLICE POWER?)
RULING:
FERTIPHIL has Locus Standi. It suffered direct injury
because it was a TAX PAYER.
Actually the doctrine of Locus Standi is a mere
procedural technicality which may be waived. In the
Abaya vs. Ebdane case the court even took a liberal
stance stating that a taxpayer need not be a party to the
contract in order to challenge its validity
This is more of a question of whether the imposition
operated under the basis of POLICE POWER or the
POWER TO TAX which are 2 of the inherent powers of
the state.
Police Power is the power of the state to enact legislation
that may interfere with personal liberty or property in or to
promote the general welfare, while Power of Taxation is
the power to levy taxes to be used for public purpose.
The main purpose of each:
Police Power is the regulation of behavior or conduct for
the public welfare. Power of Taxation, on the other hand,
is revenue generation for the public welfare
These powers are distinct and have different tests for
validity. The lawful subject and lawful means tests are
used to determine the validity of a law enacted under the
Police Power. The power of Taxation, on the other hand,
is circumscribed by inherent and constitutional limitations.
While it is true that the power to tax can be used as an
implement of Police Power, the primary purpose of the
levy was revenue generation. If the purpose is primarily
revenue then the exaction is properly called a tax.
9. Pascual v. Secretary of Public Works, 110
Phil. 331
In 1953, Republic Act No. 920 was passed. This law
appropriated P85,000.00 for the construction,
reconstruction, repair, extension and improvement Pasig
feeder road terminals. Wenceslao Pascual, then
governor of Rizal, assailed the validity of the law. He
claimed that the appropriation was actually going to be
used for private use for the terminals sought to be
improved were part of the Antonio Subdivision. The said
Subdivision is owned by Senator Jose Zulueta who was a
member of the same Senate that passed and approved
the same RA. Pascual claimed that Zulueta
misrepresented in Congress the fact that he owns those
terminals and that his property would be unlawfully
enriched at the expense of the taxpayers if the said RA
would be upheld. Pascual then prayed that the Secretary
of Public Works and Communications be restrained from
releasing funds for such purpose. Zulueta, on the other
hand, perhaps as an afterthought, donated the said
property to the City of Pasig.
ISSUE: Whether or not the appropriation is valid.
HELD: No, the appropriation is void for being an
appropriation for a private purpose. The subsequent
donation of the property to the government to make the
property public does not cure the constitutional defect.
The fact that the law was passed when the said property
was still a private property cannot be ignored. In
accordance with the rule that the taxing power must be
exercised for public purposes only, money raised by
taxation can be expanded only for public purposes and
not for the advantage of private individuals. Inasmuch
as the land on which the projected feeder roads were to
be constructed belonged then to Zulueta, the result is
that said appropriation sought a private purpose, and,
hence, was null and void.
10. Lutz v. Araneta, 98 Phil. 148
FACTS:
Appelant in this case, Walter Lutz - in his capacity
as the Judicial Administrator of the intestate of the
deceased Antonio Jayme Ledesma - seeks to recover
from the Collector of the Internal Revenue the total sum
of fourteen thousand six hundred sixty six and forty cents
(P 14, 666.40) paid by the estate as taxes, under section
3 of Commonwealth Act No. 567, also known as the
Sugar Adjustment Act, for the crop years 1948-1949 and
1949-1950. Commonwealth Act. 567 Section 2 provides
for an increase of the existing tax on the manufacture of
sugar on a graduated basis, on each picul of sugar
manufacturer; while section 3 levies on the owners or
persons in control of the land devoted tot he cultivation of
sugarcane and ceded to others for consideration, on
lease or otherwise - "a tax equivalent to the difference
between the money value of the rental or consideration
collected and the amount representing 12 per centum of
the assessed value of such land.
It was alleged that such tax is unconstitutional and
void, being levied for the aid and support of the sugar
industry exclusively, which in plaintiff's opinion is not a
public purpose for which a tax may be constitutionally
levied. The action was dismissed by the CFI thus the
plaintiff appealed directly to the Supreme Court.
ISSUE: Whether or not the tax imposition in the
Commonwealth Act No. 567 are unconstitutional.
RULING: Yes, the Supreme Court held that the fact that
sugar production is one of the greatest industry of our
nation, sugar occupying a leading position among its
export products; that it gives employment to thousands of
laborers in the fields and factories; that it is a great
source of the state's wealth, is one of the important
source of foreign exchange needed by our government
and is thus pivotal in the plans of a regime committed to
a policy of currency stability. Its promotion, protection and
advancement, therefore redounds greatly to the general
welfare. Hence it was competent for the legislature to find
that the general welfare demanded that the sugar
industry be stabilized in turn; and in the wide field of its
police power, the law-making body could provide that the
distribution of benefits therefrom be readjusted among its
components to enable it to resist the added strain of the
increase in taxes that it had to sustain.
The subject tax is levied with a regulatory purpose, to
provide means for the rehabilitation and stabilization of
the threatened sugar industry. In other words, the act is
primarily a valid exercise of police power.
11. Gomez vs. Palomar
G.R. No. L-23645 October 29, 1968
Facts:
Petitioner questioned the constitutionality of the
statute, claiming that R.A. 1635 otherwise known as as
the Anti-TB Stamp Law, is violative of the equal
protection clause of the Constitution because it
constitutes mail users into a class for the purpose of the
tax, while leaving untaxed the rest of the population. It
further interposed that even among postal patrons, the
statute grants discriminatory exemptions.
Moreover, petitioner contends that the statutory
classification of taxpayers has no relation to the object
sought by the Anti-TB law. The petitioner further argues
that the tax in question is invalid, first, because it is not
levied for a public purpose as no special benefits accrue
to mail users as taxpayers, and second, because it
violates the rule of uniformity in taxation.
Issue: Whether or not statute in question is for public
purpose.
Ruling:
The eradication of a dreaded disease is a public
purpose, but if by public purpose the petitioner means
benefit to a taxpayer as a return for what he pays, then it
is sufficient answer to say that the only benefit to which
the taxpayer is constitutionally entitled is that derived
from his enjoyment of the privileges of living in an
organized society, established and safeguarded by the
devotion of taxes to public purposes. Any other view
would preclude the levying of taxes except as they are
used to compensate for the burden on those who pay
them and would involve the abandonment of the most
fundamental principle of government that it exists
primarily to provide for the common good.
 Supreme Court reiterated that the legislature has
the inherent power to select the subjects of taxation and
to grant exemptions. The reason for this is that
traditionally, classification has been a device for fitting tax
programs to local needs and usages in order to achieve
an equitable distribution of the tax burden. The legislative
classifications must be reasonable is of course not
denied in this case. The classification of mail users is not
without any reason. It is based on ability to pay, let alone
the enjoyment of a privilege, and on administrative
convenience. The classification is likewise based on
considerations of administrative convenience. For it is
now a settled principle of law that "consideration of
practical administrative convenience and cost in the
administration of tax laws afford adequate ground for
imposing a tax on a well-recognized and defined class.
Lastly, mail users were already a class by
themselves even before the enactment of the statue and
all that the legislature did was merely to select their class.
Legislation is essentially empiric and Republic Act 1635,
as amended, no more than reflects a distinction that
exists in fact. As Mr. Justice Frankfurter said, "to
recognize differences that exist in fact is living law; to
disregard [them] and concentrate on some abstract
identities is lifeless logic."
Taxpayers Suit
12. Tolentino vs. Comelec, 41 SCRA 702,
October 16, 1971
FACTS: Arturo M. Tolentino in his own behalf filed a
petition for prohibition to restrain the Commission on
Elections from undertaking to hold a plebiscite for a
proposed constitutional amendment reducing the voting
age from 21 to 18 pursuant to Organic resolution No. 1 of
the Constitutional Convention of 1971. According to him,
such violates a constitutional mandate that amendment
shall be submitted to the people in a single election or
plebiscite.
ISSUE: Whether or not Tolentino has a legal standing to
file the prohibition.
RULING: Yes. As a general rule, the validity of a
statute may be contested only by one who will sustain a
direct injury in consequence of its enforcement, except, a
taxpayer may cause the nullification of laws providing for
the disbursement of public funds, upon the theory that
the expenditure of public funds by an officer of the State
for the purpose of administering an unconstitutional act
constitutes a misapplication of such funds. Holding a
plebiscite will require using of public funds. A taxpayer
may file a taxpayers suit to prevent illegal expenditure of
moneys raised by taxation.
14. Jumamil v. Mayor Jose J. Caf, G.R. No.
144570, September 21, 2005
Taxpayer Suits; A Taxpayer need not be a party to the
contract to challenge its validity; Parties suing as
taxpayers must specifically prove sufficient interest in
preventing illegal expenditures of money raised by
taxation. Petitioner brought the petition in his capacity
as taxpayer of the Municipality of Panabo, Davao Del
Norte and not in his personal capacity. He was
questioning the official acts of the public respondents in
passing the ordinances and entering into the lease
contracts with private respondents. A taxpayer need not
be a party to the contract to challenge its validity.
Facts: In 1989, petitioner Jumamil filed before the
Regional Trial Court (RTC) of Panabo, Davao del Norte a
petition for declaratory relief with prayer for preliminary
injunction and writ of restraining order against public
respondents Mayor Jose J. Cafe and the members of
the Sangguniang Bayan of Panabo, Davao del Norte. He
questioned the constitutionality of Municipal Resolution
No. 7, Series of 1989 (Resolution No. 7).
Resolution No. 7, enacting Appropriation Ordinance
No. 111, provided for an initial appropriation of P765,000
for the construction of stalls around a proposed terminal
fronting the Panabo Public Market which was destroyed
by fire.
Subsequently, the petition was amended due to the
passage of Resolution No. 49, series of 1989
(Resolution No. 49), denominated as Ordinance No. 10,
appropriating a further amount of P1,515,000 for the
construction of additional stalls in the same public
market.
Prior to the passage of these resolutions, respondent
Mayor Cafe had already entered into contracts with those
who advanced and deposited (with the municipal
treasurer) from their personal funds the sum of P40,000
each. Some of the parties were close friends and/or
relatives of the public respondents. The construction of
the stalls which petitioner sought to stop through the
preliminary injunction in the RTC was nevertheless
finished, rendering the prayer therefor moot and
academic. The leases of the stalls were then awarded by
public raffle which, however, was limited to those who
had deposited P40,000 each. Thus, the petition was
amended anew to include the 57 awardees of the stalls
as private respondents.
Issue:
1) Whether petitioner had the legal standing to
bring the petition for declaratory relief;
2) Whether Resolution Nos. 7 and 49 were
unconstitutional.
Ruling: (the decision of the Court of Appeals in CA-G.R.
CV No. 35082 is AFFIRMED with
the MODIFICATION that the award of attorney's fees to
private respondents is deleted.)
No. The petitioner had no legal standing.
1) Since petitioner had no locus standi to question
the ordinances, the court ruled that there is no
need for us to discuss the constitutionality of said
enactments.
The petition for declaratory relief challenged the
constitutionality of the subject resolutions. There is an
unbending rule that courts will not assume jurisdiction
over a constitutional question unless the requisites are
satisfied.
Legal standing or locus standi :
Is a partys personal and substantial interest in a
case such that he has sustained or will sustain
direct injury as a result of the governmental act
being challenged.
It calls for more than just a generalized
grievance.
The term "interest" means a material interest, an
interest in issue affected by the decree, as
distinguished from mere interest in the question
involved, or a mere incidental interest.
Unless a persons constitutional rights are
adversely affected by the statute or ordinance,
he has no legal standing.
The CA held that petitioner had no standing to challenge
the two resolutions/ordinances because he suffered no
wrong under their terms. It also concluded that "the issue
(was) not the ordinances themselves but the award of the
market stalls to the private respondents on the strength
of the contracts individually executed by them with Mayor
Cafe." Consequently, it ruled that petitioner, who was not
a party to the lease contracts, had no standing to file the
petition for declaratory relief and seek judicial
interpretation of the agreements.
The court did not agree that the petitioner brought
the petition in his capacity as taxpayer of the
Municipality of Panabo, Davao del Norte and not in
his personal capacity. He was questioning the official
acts of the public respondents in passing the ordinances
and entering into the lease contracts with private
respondents.
A taxpayer need not be a party to the contract to
challenge its validity. Parties suing as taxpayers must
specifically prove sufficient interest in preventing the
illegal expenditure of money raised by taxation.
The expenditure of public funds by an officer of the State
for the purpose of executing an unconstitutional act
constitutes a misapplication of such funds.
Petitioner alleged that the ordinances were for the benefit
of respondents because even before they were passed,
respondent Mayor Cafe and private respondents had
already entered into lease contracts for the construction
and award of the market stalls.
Private respondents admitted they deposited P40,000
each with the municipal treasurer, which amounts were
made available to the municipality during the construction
of the stalls. The deposits, however, were needed to
ensure the speedy completion of the stalls after the
public market was gutted by a series of fires. Thus, the
award of the stalls was necessarily limited only to
those who advanced their personal funds for their
construction.
Petitioner did not seasonably allege his interest in
preventing the illegal expenditure of public funds or the
specific injury to him as a result of the enforcement of the
questioned resolutions and contracts. It was only in the
"Remark to Comment" he filed in the Supreme Court
did he first assert that "he was willing to engage in
business and was interested to occupy a market stall."
Such claim was obviously an afterthought.
RULE ON LOCUS STANDI SHOULD NOT BE
RELAXED:
Objections to a taxpayer's suit for lack of
sufficient personality, standing or interest are
procedural matters. Considering the importance
to the public of a suit assailing the constitutionality
of a tax law, and in keeping with the Court's duty,
specially explicated in the 1987 Constitution, to
determine whether or not the other branches of
the Government have kept themselves within the
limits of the Constitution and the laws and that
they have not abused the discretion given to them,
the Supreme Court may brush aside technicalities
of procedure and take cognizance of the suit.
There being no doctrinal definition of
transcendental importance, the following
determinants formulated by former Supreme
Court Justice Florentino P. Feliciano are
instructive:
o (1) the character of the funds or other
assets involved in the case;
 o (2) the presence of a clear case of ii. NON-delegability of the taxing
disregard of a constitutional or statutory power
prohibition by the public respondent agency
or instrumentality of the government; and
o (3) the lack of any other party with a more
direct and specific interest in raising the iii. EXEMPTION of the Government
questions being raised.35
- Government Functions
Nevertheless, petitioner failed to prove the subject - Proprietary Functions
ordinances and agreements to be discriminatory.
Considering that he was asking this Court to nullify the 15. Manila International Airport Authority vs.
acts of the local political department of Panabo, Davao City of Paraaque
del Norte, he should have clearly established that such
ordinances operated unfairly against those who were not Under Executive Order (EO) No. 903, [1] known
notified and who were thus not given the opportunity to as the Revised Charter of the
make their deposits. His unsubstantiated allegation that Manila International Airport Authority (MIAA), petitioner
the public was not notified did not suffice. Furthermore, was created to administer
there was the time-honored presumption of regularity and operate the Ninoy Aquino International Airport
of official duty, absent any showing to the contrary. (NAIA) Complex in Paraaque
City. EO 903 transferred to Petitioner MIAA
approximately 600 hectares of land,
including the runways and buildings under the then
Bureau of Air Transportation.
In 1997, the Office of the Government Corporate Counsel
(OGCC) opined that the Local Government Code of 1991
had withdrawn the exemption from real estate tax
granted to MIAA under Section 21 of EO 903. Hence,
petitioner negotiated with and paid part of the real estate
tax due Respondent City of Paraaque. Subsequently,
MIAA received from respondent Final Notices of Real
Estate Tax Delinquency in the total amount
P624,506,725.42 for the taxable years 1992 to 2001.
Afterwards, upon respondents failure to pay the alleged
tax delinquency; the city issued notices and warrants of
levy on the MIAA land and buildings.
On August 9, 2001, the OGCC clarified its
previous opinion. This time, it
opined that Section 21 of the MIAA Charter, in
conjunction with Section 206 of the
Local Government Code, exempted petitioner from real
estate tax. Thus, MIAA filed with the Court of Appeals
(CA) a Petition for prohibition and injunction, seeking to
restrain the City of Paraaque from imposing real estate
tax on, levying against, and auctioning for public sale the
airport land and buildings. The CA, however, dismissed
the Petition for having been filed out of time. Meanwhile,
respondent published notices in two issues of the
Philippine Daily Inquirer; and posted them at various
public places in the city in January 2003. The notices
announced the public auction sale of the MIAA land and
buildings on February 7, 2003. On that day, however, the
Court -- acting on petitioners Urgent Ex Parte and
of Reiteratory Motion -- issued a temporary restraining order
(TRO), effective immediately. Respondent was ordered
to cease and desist from publicly auctioning the
properties.
Issue: Whether the petitioners airport land and buildings
were exempt
from real estate tax under existing laws.
Ruling:
The Court held that thereal properties of MIAA were
exempt from the real estate tax imposed by local
governments.
First, Petitioner MIAA was not a government-
owned or -controlled corporation
(GOCC), but an instrumentality of the national
government and thus exempt from
local taxation. Second, the real properties of MIAA were
owned by the Republic of
the Philippines and thus exempt from real estate tax.
Under Section 2(13) of the Introductory Provisions of
the AdministrativeCode of 1987, a GOCC must be
organized as a stock or non-stockcorporation.
Petitioner, however, had no capital stock divided into
shares. Neitherdid it have stockholders or voting shares.
[3] Hence, it was not a stock corporation.Neither was
MIAA a nonstock corporation, because it had no
members. Even assuming that its sole member was the
government, this fact did not make MIAA a nonstock
corporation. Although nonstock corporations could not
distribute
any part of their income to their members, Section 11 of
EO 903 mandated MIAA to
remit 20 percent of its annual gross operating income to
the national treasury.
Moreover, the Court noted, Section 88 of the
Corporation Code provided that
nonstock corporations were organized for charitable,
religious, educational,
professional, cultural, recreational, fraternal, literary,
scientific, social, civil service, or
similar purposes, like trade, industry, agriculture and like
chambers. Being a public
utility, petitioner had not been organized for any of these
purposes, but for the
operation of the Manila international and domestic
airports for public use.
MIAA is a government instrumentality vested with
corporate powers. It may exercise the governmental
powers of eminent domain, police authority, and
the levying of fees and charges. At the same time, it may
exercise all the powers of a corporation under the
Corporation Law, in sofar as these powers are not
inconsistent with the provisions of EO 903.
 16. Mactan Cebu International Airport government performing governmental functions, citing

Authority v. Marcos 261 SCRA 667 (1996) Section 133 of the Local Government Code of 1991.

Section 133. Common limitations on the Taxing Powers

Facts:
of Local Government Units.
Petitioner Mactan Cebu International Airport Authority
was created by virtue of R.A. 6958, mandated to
The exercise of the taxing powers of the provinces, cities,
principally undertake the economical, efficient, and
barangays, municipalities shall not extend to the levi of
effective control, management, and supervision of the
the following:
Mactan International Airport and Lahug Airport, and such
other airports as may be established in Cebu.
xxx Taxes, fees or charges of any kind in the National
Government, its agencies and instrumentalities, and
Since the time of its creation, petitioner MCIAA
LGUs. xxx
enjoyed the privilege of exemption from payment of realty
taxes in accordance with Section 14 of its charter.
Respondent City refused to cancel and set aside
However, on October 11, 1994, Mr. Eustaquio B. Cesa,
petitioners realty tax account, insisting that the MCIAA is
Officer in Charge, Office of the Treasurer of the City of
a government-controlled corporation whose tax
Cebu, demanded payment from realty taxes in the total
exemption privilege has been withdrawn by virtue of
amount of P2229078.79. Petitioner objected to such
Sections 193 and 234 of Labor Code that took effect on
demand for payment as baseless and unjustified claiming
January 1, 1992.
in its favor the afore cited Section 14 of R.A. 6958. It was
also asserted that it is an instrumentality of the
Issue: Whether or not the petitioner is a taxable person
Ruling:
Taxation is the rule and exemption is the
exception. MCIAAs exemption from payment of taxes is
withdrawn by virtue of Sections 193 and 234 of Labor
Code. Statutes granting tax exemptions shall be strictly
construed against the taxpayer and liberally construed in
favor of the taxing authority.
The petitioner cannot claim that it was never a taxable
person under its Charter. It was only exempted from the
payment of realty taxes. The grant of the privilege only in
respect of this tax is conclusive proof of the legislative
intent to make it a taxable person subject to all taxes,
except real property tax.
In practice, a taxable person is generally a
business, sole trader or professional. With this status,
they are responsible for charging, collecting and paying
VAT to the tax authorities, and documenting all this in a
VAT return. Employees are not treated as taxable
persons (Article 10 VAT Directive).
RA 7160
Section 133. Common Limitations on the Taxing Powers
of Local Government Units. - Unless otherwise provided
herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to
the levy of the following:
(a) Income tax, except when levied on banks and other
financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and
other acquisitions mortis causa, except as otherwise
provided herein;
(d) Customs duties, registration fees of vessel and
wharfage on wharves, tonnage dues, and all other kinds
of customs fees, charges and dues except wharfage on
wharves constructed and maintained by the local
government unit concerned;
(e) Taxes, fees, and charges and other impositions upon
goods carried into or out of, or passing through, the
territorial jurisdictions of local government units in the
guise of charges for wharfage, tolls for bridges or
otherwise, or other taxes, fees, or charges in any form
whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic
products when sold by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the
Board of Investments as pioneer or non-pioneer for a
period of six (6) and four (4) years, respectively from the
date of registration;
(h) Excise taxes on articles enumerated under the
national Internal Revenue Code, as amended, and taxes,
fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters
or exchanges or similar transactions on goods or
services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation
contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air,
land or water, except as provided in this Code;
(k) Taxes on premiums paid by way or reinsurance or
retrocession;
(l) Taxes, fees or charges for the registration of motor
vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products
actually exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and
Barangay Business Enterprises and cooperatives duly
registered under R.A. No. 6810 and Republic Act
Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938)
otherwise known as the "Cooperative Code of the
Philippines" respectively; and

(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and local
government units.
Section 193. Withdrawal of Tax Exemption Privileges. -
Unless otherwise provided in this Code, tax exemptions
or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including
government-owned or controlled corporations, except
local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the
effectivity of this Code.
Section 234. Exemptions from Real Property Tax. - The
following are exempted from payment of the real property
tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or
convents appurtenant thereto, mosques, non-profit or
religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;
(c) All machineries and equipment that are actually,
directly and exclusively used by local water districts and
government owned or controlled corporations engaged in
the supply and distribution of water and/or generation
and transmission of electric power;
(d) All real property owned by duly registered
cooperatives as provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control
and environmental protection.
Except as provided herein, any exemption from payment
of real property tax previously granted to, or presently
enjoyed by, all persons, whether natural or juridical,
including all government-owned or controlled
corporations are hereby withdrawn upon the effectivity of
iv. INTERNATIONAL Comity
SECTION 2. The Philippines renounces war
as an instrument of national policy, adopts
the generally accepted principles of
international law as part of the law of the

this Code. land and adheres to the policy of peace,

equality, justice, freedom, cooperation, and
amity with all nations.
DEFINITION of 'Instrumentality' An organization that
v. SITUS (Territorial Jurisdiction)
serves a public purpose and is closely tied to federal
and/or state government, but is not a government Situs of Taxation the place or
agency. Many instrumentalities are private companies, authority that has the right to
and some are chartered directly by state or federal impose and collect taxes
government.

19. CIR v. Marybeni Corp. G.R. No. 137377

Definition of strictissimi juris. : of or by the strictest
law : having the law or the instrument or transaction
creating the rights in question construed most
strictly in favor of one and against the other party.

17. MIAA v. Paranaque, July 20 2006

18. MIAA v. Pasay City
B. CONSTITUTIONAL LIMITATIONS Issue: Whether or Not Ordinance no.6537 violates the

1. No person shall be deprived of life, liberty or due process and equal protection clauses of the

property without the due process of law (Sec. 1, Art. Constitution.

III of the Constitution)

Held: It is a revenue measure. The city ordinance
which imposes a fee of 50.00 pesos to enable aliens
20. Villegas v, Hin Chiong Tsai Pao Ho, 86
generally to be employed in the city of Manila is not only
SCRA 270
for the purpose of regulation.
Facts: The controverted Ordinance no. 6537 was
passed by the Municipal Board of Manila on February 22,
While it is true that the first part which requires the
1968 and signed by Mayor Villegas. It is an ordinance
alien to secure an employment permit from the Mayor
making it unlawful for any person not a citizen of the
involves the exercise of discretion and judgment in
Philippines to be employed in any place of employment
processing and approval or disapproval of application is
or to be engaged in any kind of trade business or
regulatory in character, the second part which requires
occupation within the city of Manila without securing an
the payment of a sum of 50.00 pesos is not a regulatory
employment permit from the Mayor of Manila and for
but a revenue measure.
other purposes.

Ordinance no. 6537 is void and unconstitutional.

Hiu Chiong Tsai Pao Ho, who was employed in Manila
This is tantamount to denial of the basic human right of
filed a petition praying for the writ of preliminary injunction
the people in the Philippines to engaged in a means of
and restraining order to stop the enforcement of said
livelihood. While it is true that the Philippines as a state is
ordinance.
not obliged to admit aliens within it's territory, once an
alien is admitted he cannot be deprived of life without due
process of law. This guarantee includes the means of
livelihood. Also it does not lay down any standard to
guide the City Mayor in the issuance or denial of an alien
employment permit fee.
the government collects income tax even when the net
income has not yet been determined. They contravene
the equal protection clause as well because the CWT is
being levied upon real estate enterprises but not on other
business enterprises, more particularly those in the
manufacturing sector.

21. CREBA, Inc. v. Hon. Exec. Sec. Romulo

ISSUE: whether or not the imposition of the MCIT on
G.R. No. 160756 March 9, 2010
domestic corporations is unconstitutional and;
Whether or not the imposition of CWT on income from
FACTS: Petitioner is an association of real estate
sales of real properties classified as ordinary assets
developers and builders in the Philippines. Petitioner
under RRs 2-98, 6-2001 and 7-2003, is unconstitutional.
assails the validity of the imposition of minimum
HELD:
corporate income tax (MCIT) on corporations and
The Supreme Court held that, the constitutional
creditable withholding tax (CWT) on sales of real
safeguard of due process is embodied in the fiat [no]
properties classified as ordinary assets. Section 27(E) of
person shall be deprived of life, liberty or property without
RA 8424 provides for MCIT on domestic corporations
due process of law. In Sison, Jr. v. Ancheta, et al., we
and is implemented by RR 9-98.
held that the due process clause may properly be
Petitioner argues that the MCIT violates the due
invoked to invalidate, in appropriate cases, a revenue
process clause because it levies income tax even if there
measure when it amounts to a confiscation of property.
is no realized gain. Petitioner also asserts that the
But in the same case, we also explained that we will not
enumerated provisions of the subject revenue regulations
strike down a revenue measure as unconstitutional (for
violate the due process clause because, like the MCIT,
being violative of the due process clause) on the mere
allegation of arbitrariness by the taxpayer. There must be
a factual foundation to such an unconstitutional taint. This
merely adheres to the authoritative doctrine that, where
the due process clause is invoked, considering that it is
not a fixed rule but rather a broad standard, there is a
need for proof of such persuasive character.
Certainly, an income tax is arbitrary and
confiscatory if it taxes capital because capital is not
income. In other words, it is income, not capital, which is
subject to income tax.However, the MCIT is not a tax on
capital.
The MCIT is imposed on gross income which is
arrived at by deducting the capital spent by a corporation
in the sale of its goods, i.e., the cost of goods and other
direct expenses from gross sales. Clearly, the capital is
not being taxed.
The equal protection clause under the Constitution
means that no person or class of persons shall be
deprived of the same protection of laws which is enjoyed
by other persons or other classes in the same place and
in like circumstances. Stated differently, all persons
belonging to the same class shall be taxed alike. It
follows that the guaranty of the equal protection of the
laws is not violated by legislation based on a reasonable
classification. 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.
The taxing power has the authority to make reasonable
classifications for purposes of taxation. Inequalities which
result from a singling out of one particular class for
taxation, or exemption, infringe no constitutional
limitation. The real estate industry is, by itself, a class
and can be validly treated differently from other business
enterprises.
22. City of Baguio v. De Leon, 25 SCRA 938
Facts: Fortunato De Leon, a real estate dealer
with property worth more than p10,000 but not in excess
of p50,000, was obligated to pay p50 as an annual fee
under a city ordinance. A complaint was filed against De
Leon by the City Attorney of Baguio for his failure to pay
the amount of p300 as a license fee from the year 1958
to 1962, in spite repeated demands. De Leon assailed
the validity of the ordinance imposing a license fee on
any person, firm, entity or corporation doing business in
Baguio City. The source of authority of the ordinance is
RA 329, amending the city charter of Baguio empowering
it to fix the license fee and regulate businesses, trades,
and occupations as may be established or practiced in
the city. It has now the power to tax, to license, and to
regulate provided that the subject affected be one of
those included in the charter.
Issue: Whether the challenged ordinance is valid or not.
Held: Yes. RA 329 was enacted amending Sec 2553 of
the Revised Administrative Code empowering the city
council not only to impose a license fee but to levy a tax
for purposes of revenue, thus the ordinance cannot be
considered ultra vires for there is more than ample
statutory authority for the enactment thereof. An
argument against double taxation may not be invoked
where one tax is imposed by the State and the other
imposed by the City, and that there is nothing inherently
obnoxious in the requirement that license fees or taxes
be exacted with respect to the same occupation, calling
or activity by both the State and the political subdivisions
thereof. Double taxation is not violative of due process
since the Congress has clearly expressed its intention,
the statute must be sustained even though double
taxation results. Lastly, 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.
23. C.I.R v. M.J. LHULLIER PAWNSHOP
FACTS: On March 11, 1991, the CIR issued
Revenue Memorandum Order No. 15-91 imposing a 5%
lending investors tax on pawnshops and since
pawnshops are considered as lending investors, they are
also subject to documentary stamp tax.
On September 11, 1997, the BIR issued an
assessment notice to Lhullier demanding payment of
deficiency percentage tax in the sum of Php3,360,335 for
1994. On October 3, 1997, Lhullier diled an
administrative protest contending that pawnshops are
different from lending investors and therefore are not
subject to the 5% lending investors tax and that only
Congress could enact additional tax measures and that
RMO No. 15-91 is a class legislation because it singles
out pawnshops among other lending and financial
institutions.
ISSUE: WON pawnshops are subject to 5% lending
investors tax.
HELD:
While it is true that pawnshops are engaged in the
business of lending money, they are not considered
lending investors for the purpose of imposing 5% tax
because:
1. Under the NIRC pawnshops and lending investors
were subjected to different tax treatments.
2. Congress never intended pawnshops to be treated
in the same way as lending investors because both the
NIRC of 1986 and 1977 dealt with them differently.
3. Section 116 of NIRC of 1977 subjects to
percentage tax dealers in securities and lending investors
only. No mention of pawnshops.
4. The BIR had ruled several times prior to the
issuance of RMO No. 15-91 that pawnshops were not
subject to the 5% tax imposed by Section 116 of the
NIRC of 1977.
Furthermore, when an administrative rule
substantially burdens those governed, the agency should
accord at least to those directly affected a chance to be
heard and thereafter to be duly informed before such is
given force and effect of law. RMO No. 15-91 cannot be
viewed simply as implementing rules or corrective
measures revoking in the process the previous rulings of
past commissioners. Specifically, they would have been
amendatory provisions applicable to pawnshops. This
would mean, the CIR did not simply interpret the law. The
due observance of the requirements of notice, hearing
and publication should not have been ignored.
 2. Nor shall any person be denied the equal
protection of the laws (Sec 1, Article III, 1987
Constitution).
24. Commissioner of Customs v. Hypermix
when the regulation treated non-flour millers differently
with flour millers for no reason at all.
The RTC ruled for the Corporation stating that
since they are regular importers and would later be
subjected to the same regulation for their future
transactions, the petition for declaratory relief is proper.

Feeds Corporation, G.R. No. 179579, February On the matter of the regulation itself, the court found that
the regulation did not follow the basic requirements of
1, 2012
hearing and publication and the classification based on
FACTS:
the importers and port of discharge, thus violating the
The HFC questioned the tariff classification of wheat by
right to due process.
the Commissioner of Customs through CMO 27-2003.
The CA upheld the decision of the RTC adding
CMO 27-2003 classified wheat as either food grade or
that since the regulation affected the substantial rights of
feed grade with the corresponding tariff of 3% and 7%
importers, the requirements of notice, hearing and
respectively based on the (1) importer or consignee; (2)
publication should be observed.
country of origin; and (3) port of discharge. Thus, the
ISSUE:
regulation provided an exclusive list of corporations, ports
Whether CMO 27-2003 violates the equal protection
of discharge, commodity descriptions and countries of
clause of the Constitution.
origin.
HELD:
A month after the issuance of the CMO, HFC filed
CMO 27-2003 is deemed unconstitutional for being
a Petition for Declaratory Relief with the Las Pinas City
violative of the equal protection clause.
RTC. The Corporation alleged, among others, the
violation of the equal protection clause of the Constitution
The equal protection clause means that no person or
class of persons shall be deprived of the same protection 25. ABAKADA Guro Partylist vs. Hon. Cesar
of laws enjoyed by other persons or other classes in the Purisima, 14 October 2008
same place in like circumstances. Thus, the guarantee of
Syllabus: Rational Basis Test
the equal protection of laws is not violated if there is a
Facts : A petition for prohibition was filed by Abakada
reasonable classification. For a classification to be
Guro Partylist et al., invoking their right as taxpayers, to
reasonable, it must be shown that (1) it rests on
prevent the implementation of RA 9335, the Attrition Act
substantial distinctions; (2) it is germane to the purpose
of 2005. RA 9335 was enacted to optimize the revenue
of the law; (3) it is not limited to existing conditions only;
generation capability and collection of the BIR and BOC.
and (4) it applies equally to all members of the same
The law intends to encourage the officials and employees
class.
of BIR and BOC to exceed their revenue targets by
The CMO failed to meet the requirements. The
providing a system of rewards and incentives through the
Court cannot see how the quality of wheat is affected by
creation of the rewards and incentives fund. It covers all
who imports it and where it is discharged or where it
officials and employees of BIR and BOC with at least six
came from. The CMO fails to achieve the goal of closely
years of experience regardless of employment status.
monitoring the wheat importation and actually causes a
The fund will be sourced from the collection of the BIR
disadvantage to both the importers and the state. The
and BOC in excess of their revenue targeta. Any
importers are burdened to prove that they do carry food
incentive and rewad will be tken from the fun and will be
grade wheat even if they are classified as feed grade
distributed to the BIR and BOC in proportion to their
wheat while the State is supposed to prove that food
contribution to the excess.
grade wheat importers are indeed carrying feed grade
The petitioners contend that the creation of such
wheat.
system would transform the officials and employees into
mercenaries and bounty hunters as they will do their best
only in consideration of such reward. The system also
invites corruption. They also contend that limiting the
scope of the system of rewards and incentives to
employees of BIR and BOC only violates the
constitutional guarantee of equal protection. There is no
valid basis of classification as to why such system is not
applied in other government agencies and
instrumentalities.
The respondent contends that there is valid
classification because the function of the BIR and BOC is
distinct from the functions of other government agencies
and instrumentalities.
Issue: Whether or not there is a valid classification
Held: Yes. There is a valid classification.
The requisites of a valid classification are the following:
1) there must be a substantial distinction whichmake for
real difference; 2) it must be germane to the purpose of
the law; 3) it must not apply to existing conditions only; 4)
it must apply to all members of the same class. The
standard is satisfied if the classification is based on a
reasonable foundation or rational basis and is not
palpably arbitrary. The law concerns only the BIR and
BOC because they have the common distinct primary
function of generating revenues for the national
government for the collection of taxes, custom duties,
fees and charges. The classifiction fully satisfies the
requiremnet of equal protection.
All that is required of a valid classification is that it
be reasonable, which means that the classification
should be based on substantial distinctions which make
for real differences, that it must be germane to the
purpose of the law; that it must not be limited to existing
conditions only; and that it must apply equally to each
member of the class. This Court has held that the
standard is satisfied if the classification or distinction is
based on a reasonable foundation or rational basis and is
not palpably arbitrary.
 26. Kapatiran ng mga Naglilingkod sa ISSUE:

Pamahalaan v. Tan, G.R. No. 81311, June 30, Whether the E-VAT law is void for being discriminatory
against customs brokers
1988

RULING:
FACTS:
No. The phrase except custom brokers is not meant to
EO 372 was issued by the President of the
discriminate against custom brokers but to avert a
Philippines which amended the Revenue Code, adopting
potential conflict between Sections 102 and 103 of the
the value-added tax (VAT) effective January 1, 1988.
Tax Code, as amended. The distinction of the customs
Four petitions assailed the validity of the VAT Law from
brokers from the other professionals who are subject to
being beyond the President to enact; for being
occupation tax under the Local Tax Code is based on
oppressive, discriminatory, regressive and violative of the
material differences, in that the activities of customs
due process and equal protection clauses, among others,
partake more of a business, rather than a profession and
of the Constitution. The Integrated Customs Brokers
were thus subjected to the percentage tax under Section
Association particularly contend that it unduly
174 of the Tax Code prior to its amendment by EO 273.
discriminate against customs brokers (Section 103r) as
EO 273 abolished the percentage tax and replaced it with
the amended provision of the Tax Code provides that
the VAT. If the Association did not protest the
service performed in the exercise of profession or calling
classification of customs brokers then, there is no reason
(except custom brokers) subject to occupational tax
why it should protest now.
under the Local Tax Code and professional services
performed by registered general professional
partnerships are exempt from VAT.
 27. Tan v. Del Rosario, 3 October 1994
3. Petitioners contended that public respondents

Facts: exceeded their rule-making authority in applying SNIT to

1. Two consolidated cases assail the validity of RA 7496 general professional partnerships. Petitioner contends

or the Simplified Net Income Taxation Scheme ("SNIT"), that the title of HB 34314, progenitor of RA 7496, is

which amended certain provisions of the NIRC, as well deficient for being merely entitled, "Simplified Net Income

as the Rules and Regulations promulgated by public Taxation Scheme for the Self-Employed and

respondents pursuant to said law. Professionals Engaged in the Practice of their

Profession" (Petition in G.R. No. 109289) when the full

2. Petitioners posit that RA 7496 is unconstitutional as it text of the title actually reads,

allegedly violates the following provisions of the 'An Act Adopting the Simplified Net Income Taxation

Constitution: Scheme For The Self-Employed and Professionals

Engaged In The Practice of Their Profession, Amending

-Article VI, Section 26(1) Every bill passed by the Sections 21 and 29 of the National Internal Revenue

Congress shall embrace only one subject which shall be Code,' as amended. Petitioners also contend it violated

expressed in the title thereof. due process.

- Article VI, Section 28(1) The rule of taxation shall be

uniform and equitable. The Congress shall evolve a 5. The Solicitor General espouses the position taken by

progressive system of taxation. public respondents.

- Article III, Section 1 No person shall be deprived of . . 6. The Court has given due course to both petitions.

. property without due process of law, nor shall any

person be denied the equal protection of the laws.
ISSUE: Whether or not the tax law is unconstitutional for
violating due process
NO. The due process clause may correctly be invoked
only when there is a clear contravention of inherent or
constitutional limitations in the exercise of the tax power.
No such transgression is so evident in herein case.
1. Uniformity of taxation, like the concept of equal
protection, merely requires that all subjects or objects of
taxation, similarly situated, are to be treated alike both in
privileges and liabilities. Uniformity does not violate
classification as long as: (1) the standards that are used
therefor are substantial and not arbitrary, (2) the
categorization is germane to achieve the legislative
purpose, (3) the law applies, all things being equal, to
both present and future conditions, and (4) the
classification applies equally well to all those belonging to
the same class.
2. What is apparent from the amendatory law is the
legislative intent to increasingly shift the income tax
system towards the schedular approach in the income
taxation of individual taxpayers and to maintain, by and
large, the present global treatment on taxable
corporations. The Court does not view this classification
to be arbitrary and inappropriate.
3. The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive
system of taxation. (Sec. 28(1), Article III, 1987
Constitution)
28. Punzalan v. Mun. Board of Manila, 96 Phil.
46
Facts: Petitioners, who are professionals in the
city, assail Ordinance No. 3398 together with the law
authorizing it (Section 18 of the Revised Charter of the
City of Manila). The ordinance imposes a municipal
occupation tax on persons exercising various professions
in the city and penalizes non-payment of the same. The
law authorizing said ordinance empowers the Municipal
Board of the city to impose a municipal occupation tax on
personsengaged in various professions.
 Petitioners, having already paid their occupation imposed by the state and the other is imposed by the
tax under section 201 of the National Internal Revenue city.
Code,paid the tax under protest as imposed
It is widely recognized that there is nothing
by Ordinance No. 3398. The lower court declared
inherently terrible in the requirement that taxes be
the ordinance invalid and affirmed the validity of the law
exacted with respect to the same occupation by both the
authorizing it.
state and the political subdivisions thereof. Judgment of
the lower court is reversed with regards to
Issue: Whether or Not the ordinance and law authorizing
the ordinance and affirmed as to the law authorizing it.
it constitute class legislation, and authorize what amounts
to double taxation.

29. ARTURO M. TOLENTINO, petitioner,

Held: The Legislature may, in its

vs.THE SECRETARY OF FINANCE and THE
discretion, select what occupations shall be taxed, and in COMMISSIONER OF INTERNAL REVENUE,
its discretion may tax all, or select classes of occupation respondents.
for taxation, and leave others untaxed. It is not for the
FACTS: The value-added tax (VAT) is levied on the sale,
courts to judge which cities or municipalities should be
barter or exchange of goods and properties as well as on
empowered to impose occupation taxes aside from that
the sale or exchange of services. It is equivalent to 10%
imposed by the National Government. That matter is
of the gross selling price or gross value in money of
within the domain of political departments. The argument
goods or properties sold, bartered or exchanged or of the
against double taxation may not be invoked if one tax is
gross receipts from the sale or exchange of services.
Republic Act No. 7716 seeks to widen the tax base of the
existing VAT system and enhance its administration by Just as vigorously as it is asserted that the law is
amending the National Internal Revenue Code. regressive, the opposite claim is pressed by respondents
that in fact it distributes the tax burden to as many goods
ISSUES:
and services as possible particularly to those which are
Whether or not RA 7716 violates due process of within the reach of higher-income groups, even as the
taxpayers. law exempts basic goods and services. It is thus
equitable.
HELD:

There is, however, no justification for passing upon the

claims that the law also violates the rule that taxation 30. BRITISH AMERICAN TOBACCO vs. JOSE
must be progressive and that it denies petitioners' right to ISIDRO N. CAMACHO, G.R. No. 163583
due process and that equal protection of the laws.
April 15, 2009
Thus, the broad argument against the VAT is that
it is regressive and that it violates the requirement that
"The rule of taxation shall be uniform and equitable [and] Facts: Paragraph (c) of Section 145 of RA 8424
Congress shall evolve a progressive system of taxation." (NIRC) provides for four tiers of tax rates based on the
net retail price per pack of cigarettes. To determine the
Petitioners contend that as a result of the uniform
applicable tax rates of existing cigarette brands, a survey
10% VAT, the tax on consumption goods of those who
of the net retail prices per pack of cigarettes was
are in the higher-income bracket, which before were
conducted as of October 1, 1996, the results of which
taxed at a rate higher than 10%, has been reduced, while
were embodied in Annex D of the NIRC as the duly
basic commodities, which before were taxed at rates
registered, existing or active brands of cigarettes.
ranging from 3% to 5%, are now taxed at a higher rate.
 In June 2001, petitioner British American Tobacco
introduced into the market Lucky Strike Filter, Lucky
Strike Lights and Lucky Strike Menthol Lights cigarettes,
with a suggested retail price of P9.90 per pack. Pursuant
to Sec. 145 (c), the Lucky Strike brands were initially
assessed the excise tax at P8.96 per pack.
Under RA 9334, which amended RA 8424, the
excise tax due on petitioners products was increased to
P25.00 per pack. In the implementation thereof,
respondent Commissioner assessed petitioners
importation of 911,000 packs of Lucky Strike cigarettes at
the increased tax rate of P25.00 per pack, rendering it
liable for taxes in the total sum of P22,775,000.00.
Hence, petitioner filed a Motion to Admit Attached
Supplement and a Supplement to the petition for review,
assailing the constitutionality of RA 9334 insofar as it
retained Annex D and praying for a downward
classification of Lucky Strike products at the bracket
taxable at P8.96 per pack. Petitioner contended that the
continued use of Annex D as the tax base of existing
brands of cigarettes gives undue protection to said
brands which are still taxed based on their price as of
October 1996 notwithstanding that they are now sold at
the same or even at a higher price than new brands like
Lucky Strike. Thus, old brands of cigarettes such as
Marlboro and Philip Morris which, like Lucky Strike, are
sold at or more than P22.00 per pack, are taxed at the
rate of P10.88 per pack, while Lucky Strike products are
taxed at P26.06 per pack.
Issue: Whether the classification freeze provision
violates the equal protection clause of the constitution.
Held: No. Aside from the major concern regarding the
elimination of potential areas for abuse and corruption
from the tax administration of sin products, the legislative
deliberations also show that the classification freeze
provision was intended to generate buoyant and stable
revenues for government. With the frozen tax
classifications, the revenue inflow would remain stable
and the government would be able to predict with a
greater degree of certainty the amount of taxes that a
cigarette manufacturer would pay given the trend in its
sales volume over time. The reason for this is that the
previously classified cigarette brands would be prevented
from moving either upward or downward their tax
brackets despite the changes in their net retail prices in
the future and, as a result, the amount of taxes due from
them would remain predictable. The classification freeze
provision would, thus, aid in the revenue planning of the
government.
All in all, the classification freeze provision
addressed Congresss administrative concerns in the
simplification of tax administration of sin products,
elimination of potential areas for abuse and corruption in
tax collection, buoyant and stable revenue generation,
and ease of projection of revenues. Consequently, there
can be no denial of the equal protection of the laws since
the rational-basis test is amply satisfied.
4. No law impairing the obligation of contracts shall
be passed (Sec. 10, Art. III, 1987 Constitution)
31. G.R. No. 3473 March 22, 1907
J. CASANOVAS v. JNO S. HORD
FACTS: In January 1897, the Spanish Government,
in accordance with the provisions of the royal decree of
the 14th of May 1867, granted Casanovas certain mines
in the Province of Ambos Camarines.
In the contract granting the concession of the
mines, there is a stipulation on the payment of taxes on
the mine and its output as prescribed in the royal decree.
Defendant Hord, the Collector of Internal
Revenue, in accordance with Section 134 of the Internal
Revenue Act (Act No. 1189), imposed upon the
properties of Casanovas taxes which the latter paid on
protest. Section 134 of Act No. 1189 imposes an annual
tax and ad valorem tax on all perfected mining
concessions granted prior to April 11, 1899.
ISSUE: Is Section 134 valid? Does it impair the obligation
of contracts?
HELD: No, it is not valid. Section 134 impairs the 32. RCPI v. Provincial Assessor of South
obligation of the contracts granted by the Spanish Cotabato, 13 April 2005
Government to the plaintiff.
Facts: In 1957, RA 2036 granted RCPI a fifty year
The deed constituted a contract between the
franchise. Section 14 of RA 2036 as amended by
Spanish Government and Casanovas. Also, Article 81 of
RA4054 provides:
the contract provides an express declaration that no
other taxes shall be imposed upon the mines. In consideration of the franchise and rights hereby
granted and any provision of law to the contrary
Furthermore, the section conflicts with Section 60
notwithstanding, the grantee shall pay the same taxes as
of the Act of Congress of July 1, 1902, which indicate that
are now or hereafter required by law from other
concessions can be cancelled only by reason of illegality
individuals, copartnerships, private, public, quasi-public
in the procedure by which they were obtained, or for
associations, on real estate, buildings, and other
failure to comply with the conditions prescribed as
personal properties except radio equipment, machinery
requisites for their retention in the laws under which they
and spare parts needed in connection with the business
were granted. The grounds were not shown nor claimed
of the grantee, shall be exempt from customs duties,
in the case.
tariffs, taxes, as well as other properties declared exempt
by this section. In consideration of the franchise, the
grantee shall pay taxes equal to 1 per centum of its all
gross receipt . . . . . . . .

On June 10, 1985, Municipal Treasurer of Tupi

South Cotabato assessed RCPIs properties from 1981-
1985 and demanded payment of real property taxes.
 RCPI protested before LBAA. They claimed that
the properties assessed are all personal property, thus
exempted from real property tax. They also claimed that
they are paying 1 of all its gross receipt. LBAA ruled
that the RCPI should pay taxes.
CBAA affirmed the rulings of LBAA.
CA modified the rulings.
ISSUE: Whether RCPI properties are exempted from real
property tax under section 14 of RA 2036 as amended.
RULING:
NO.
As found by the appellate court, RCPIs radio relay
station tower, radio station building, and machinery shed
are real properties and are thus subject to the real
property tax. Section 14 of RA 2036, as amended by RA
4054, states that [i]n consideration of the franchise and
rights hereby granted and any provision of law to the
contrary notwithstanding, the grantee shall pay the same
taxes as are now or may hereafter be required by law
from other individuals, copartnerships, private, public or
quasi-public associations, corporations or joint stock
companies, on real estate, buildings and other personal
property x x x. The clear language of Section 14 states
that RCPI shall pay the real estate tax.
The in lieu of all taxes clause in Section 14 of RA
2036, as amended by RA 4054, cannot exempt RCPI
from the real estate tax because the same Section 14
expressly states that RCPI shall pay the same taxes x x x
on real estate, buildings x x x. The in lieu of all taxes
clause in the third sentence of Section 14 cannot negate
the first sentence of the same Section 14, which imposes
the real estate tax on RCPI. The Court must give effect to
both provisions of the same Section 14. This means that
the real estate tax is an exception to the in lieu of all
taxes clause.
Subsequent legislations have radically amended
the in lieu of all taxes clause in franchises of public
utilities. As RCPI correctly observes, the Local
Government Code of 1991 withdrew all the tax
exemptions existing at the time of its passage including
that of RCPIs with respect to local taxes like the real
property tax. Also, Republic Act No. 7716 (RA 7716)
abolished the franchise tax on telecommunications
companies effective 1 January 1996. To replace the
franchise tax, RA 7716 imposed a 10 percent value-
added-tax on telecommunications companies under
Section 102 of the National Internal Revenue Code.
33.City Government of Quezon City v.
Bayantel, 06 March 2006
FACTS: Respondent Bayan Telecommunications,
Inc. (Bayantel) is a legislative franchise holder under
Republic Act (R.A.) No. 3259 (1961) to establish and
operate radio stations for domestic telecommunications,
radiophone, broadcasting and telecasting. Section 14 (a)
of R.A. No. 3259 states: The grantee shall be liable to
pay the same taxes on its real estate, buildings and
personal property, exclusive of the franchise, xxx. In
1992, R.A. No. 7160, otherwise known as the Local
Government Code of 1991 (LGC) took effect. Section
232 of the Code grants local government units within the
Metro Manila Area the power to levy tax on real
properties. Barely few months after the LGC took effect,
Congress enacted R.A. No. 7633, amending Bayantels
original franchise. The Section 11 of the amendatory
contained the following tax provision: The grantee, its
successors or assigns shall be liable to pay the same
taxes on their real estate, buildings and personal
property, exclusive of this franchise, xxx. In 1993, the
government of Quezon City enacted an ordinance
otherwise known as the Quezon City Revenue Code
withdrawing tax exemption privileges.
ISSUE: Whether or not Bayantels real properties in
Quezon City are exempt from real property taxes under
its franchise.
RULING: YES. A clash between the inherent taxing
power of the legislature, which necessarily includes the
power to exempt, and the local governments delegated
power to tax under the aegis of the 1987 Constitution
must be ruled in favor of the former. The grant of taxing
powers to LGUs under the Constitution and the LGC
does not affect the power of Congress to grant
exemptions to certain persons, pursuant to a declared
national policy. The legal effect of the constitutional grant
to local governments simply means that in interpreting
statutory provisions on municipal taxing powers, doubts
must be resolved in favor of municipal corporations.
The legislative intent expressed in the phrase
exclusive of this franchise cannot be construed other
than distinguishing between two (2) sets of properties, be
they real or personal, owned by the franchisee, namely,
(a) those actually, directly and exclusively used in its
radio or telecommunications business, and (b) those
properties which are not so used. It is worthy to note that
the properties subject of the present controversy are only
those which are admittedly falling under the first
category.
Since R. A. No. 7633 was enacted subsequent to
the LGC, perfectly aware that the LGC has already
withdrawn Bayantels former exemption from realty taxes,
the Congress using, Section 11 thereof with exactly the
same defining phrase exclusive of this franchise is the
basis for Bayantels exemption from realty taxes prior to
the LGC. In plain language, the Court views this
subsequent piece of legislation as an express and real
intention on the part of Congress to once again remove
from the LGCs delegated taxing power, all of the
franchisees (Bayantels) properties that are actually,
directly and exclusively used in the pursuit of its
franchise.
34. SMART COMMUNICATIONS, INC v. THE
CITY OF DAVAO, represented by its Mayor HON.
RODRIGO R. DUTERTE, and the SANGGUNIANG
PANLUNGSOD OF DAVAO CITY
G.R. No. 155491
September 16, 2008
FACTS:
Based on the Tax Code of the City of Davao, it shall
impose taxes on business enjoying a franchise , at a rate of
75% of 1% of the gross annual receipts for the preceding
calendar year based on the income or receipts realized
within the territorial jurisdiction of Davao City. This tax shall
be collected notwithstanding any exemption granted by any
law or other special law. In relation to this, Davao demanded
payment of tax from SMART.
 However, SMART contended that it must not pay for local
taxes. Smart alleges that the in lieu of all taxes clause in
Section 9 of RA7294 provides that as long as it pays 3% of
the national franchise, it is exempted from all taxes, both
local and national, except the national franchise tax (now
VAT), income tax, and real property tax. SMART has raised
various issues but the issue important to our topic is about
the non-impairment of contract clause of the Constitution.
ISSUE: Whether or not the imposition of franchise tax by the
City of Davao would amount to a violation of the
constitutional provision against the non-impairment of
contracts.
HELD: NO, there is no violation of the Non-Impairment
Clause.
The franchise of Smart does not expressly provide
for exemption from local taxes. If it is really the intention
of the Congress to include local tax exemption, it should
expressly mentioned such. Absent the express provision
on such exemption under the franchise, we are
constrained to rule against it. The in lieu of all taxes
clause in Section 9 of R.A. No. 7294 leaves much room
for interpretation. Due to this ambiguity in the law, the
doubt must be resolved against the grant of tax
exemption. The policy of protecting contracts against
impairment presupposes the maintenance of a
government which retains adequate authority to secure
the peace and good order of society
The taxing power of Davao is valid and constitutional.
However, the franchise tax that the City of Davao collects
does not comply with Sections 137 of R.A. No. 7160 as it
collects 75% of 1% of the gross annual receipt. Thus, the
local franchise tax that may be imposed by the City must not
exceed 50% of 1% of the gross annual receipts for the
preceding calendar year based on the income on receipts
realized within the territorial jurisdiction of Davao.
35. Quezon City vs. ABS-CBN
Facts:
Under Sec. 31 of the Quezon City Revenue Code, any
person, corporation, partnership or association, enjoying a
franchise, whether issued by the national government or
local government, and doing business in Quezon City, shall
pay a franchise tax. ABS-CBN was granted a franchise to
install and operate radio and television broadcasting stations
in the Philippines in Quezon City under RA 7966. According
to Sec. 8 of RA 7966, providing for the tax liabilities of ABS-
CBN, it shall pay a franchise tax of 3% of all gross receipts
to the national government and the percentage tax shall be
in lieu of all taxes on this franchise or earnings thereof.
ABS-CBN was in the opinion that they are
exempted from local franchise tax as imposed by Quezon
City because of the provision in lieu of all taxes as provided
by RA 7966. Despite such opinion, they still paid the local
franchise tax to Quezon City from 1995-1997 amounting to
P19, 944, 672.66
ABS-CB wrote a claim of refund twice to Quezon
City for the P19,944,672.66 paid as local franchise tax but
was denied. Therefore, they filed before the RTC to 1.)
declare the nullity of the imposition of local franchise tax by
Quezon City for being unconstitutional and 2.) for the refund
of the P19, 944, 672.66.
Quezon City contended that 1.) RA 7966 does not
prevail over a constitutional mandate to ensure the viability
and self-sufficiency of the local government units, 2.) taxes
collectible and payable to the local government are distinct
from those collectible and payable to the national
government and 3.) the exemption claimed by ABS-CBN
under RA 7966 was withdrawn by the Congress when the
Local Government Code was passed. (Sec. 193, Local
Government Code tax exemptions or incentives granted to
or presently enjoyed by all persons, whether national or
juridical, including GOCCs, except local water districts,
cooperatives, non-stock and non-profit hospitals and
educational institutions, are withdrawn.)
RTCs Ruling: The imposition of local franchise tax by
Quezon City to ABS CBN is INVALID because:
1.) RA 7966, as having enacted after the Local Government
Code, absolutely exempted ABS-CBN from paying local
franchise tax to Quezon City. Whenever there is a conflict
between a special law and a general law, the special law
constitutes as an exception to the general act.
2.) The imposition of another local franchise tax by Quezon
City would constitute as an impairment of ABS-CBNs
charter which is a private contract between it and the
national government. Quezon City filed a Motion for
Reconsideration but was denied so they filed an appeal
before the Court of Appeals.
CAs Ruling: The Court of Appeals dismissed the case
because it involves purely legal questions which are
cognizable by the Supreme Court.
ISSUES:
1. Whether in lieu of all taxes exempts ABS-CBN from
paying local franchise tax to Quezon City
2. Whether the local franchise tax is an impairment of ABS-
CBNs private contract with the national government.
SCs Ruling:
1. No. The clause in lieu of all taxes does not exempt ABS-
CBN from paying local franchise tax to Quezon City. Well-
founded is the principle that the power of Congress to grant
tax exemptions is over and above the power of the local
government s delegated power to tax. However, RA 7966
does not intend to exempt ABS-CBN from paying local
franchise tax because the clause in lieu of all taxes does
not expressly provide what kind of taxes ABS-CBN is
exempt from. It is not clear whether the exemption would
include local (whether municipal, city or provincial) and
national tax.
The right to exemption from local franchise tax must be
clearly established and cannot be made out of inference or
implication. Such uncertainty must be construed against
ABS-CBN and it has the burden of proof what specific
exemption it is but failed.
2. No. The payment of local franchise tax is not an
impairment of the private contract between ABS-CBN and
the national government because the exemption provided by
RA 7966 is NOT SPECIFIC and therefore does not excuse
ABS-CBN from paying local franchise tax to Quezon City.
However, the clause in lieu of all taxes has now
become functus officio (expired/ended) because of the
abolition of the franchise tax on broadcasting companies
with yearly gross receipts above P10,000,000 by RA
7716, also known as the EVAT Law. According to such
law, which was further amended by RA 9377, they shall
pay 12% VAT instead of a franchise tax.
Therefore, ABS-CBNs claim fails on two grounds:
1.) the exemption provided by 7966 is NOT specific and
2.) such exemption has now become functus officio because
they have to pay VAT instead of franchise tax
5. The free exercise and enjoyment of religious
profession and worship, without discrimination or
preference, shall forever be allowed (Sec 5, Art III, 1987
Constitution)
36. AMERICAN BIBLE SOCIETY vs. CITY OF
MANILA, G.R. No. L-9637 April 30, 1957
Facts: Plaintiff-appellant 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 Republic
Act No. 409, known as the Revised Charter of the City of
Manila.
In the course of its ministry, plaintiff's Philippine
agency has been distributing and selling bibles and/or
gospel portions thereof (except during the Japanese
occupation) throughout the Philippines and translating
the same into several Philippine dialects. On May 29
1953, the acting City Treasurer of the City of Manila
informed plaintiff that it was conducting the business of
general merchandise since November, 1945, without
providing itself with the necessary Mayor's permit and
municipal license, in violation of Ordinance No. 3000, as
amended, and Ordinances Nos. 2529, 3028 and 3364,
and required plaintiff to secure, within three days, the
corresponding permit and license fees, together with
compromise covering the period from the 4th quarter of
1945 to the 2nd quarter of 1953, in the total sum of
P5,821.45 (Annex A).
Plaintiff protested against this requirement, but the
City Treasurer demanded that plaintiff deposit and pay
under protest the sum of P5,891.45To avoid the closing
of its business as well as further fines and penalties in
the premises on October 24, 1953, plaintiff paid to the
defendant under protest the said permit and license fees
in the aforementioned amount, giving at the same time
notice to the City Treasurer that suit would be taken in
court
Issue: Whether or Not the said ordinances are
constitutional and valid (contention: it restrains the free
exercise and enjoyment of the religious profession and
worship of appellant).'
Held: Section 1, subsection (7) of Article III of the
Constitution, provides that: No law shall be made
respecting an establishment of religion, or prohibiting the
free exercise thereof, and the free exercise and
enjoyment of religious profession and worship, without
discrimination or preference, shall forever be allowed. No
religion test shall be required for the exercise of civil or
political rights.
The provision aforequoted is a constitutional
guaranty of the free exercise and enjoyment of religious
profession and worship, which carries with it the right to
disseminate religious information. It may be true that in
the case at bar the price asked for the bibles and other
religious pamphlets was in some instances a little bit
higher than the actual cost of the same but this cannot
mean that appellant was engaged in the business or
occupation of selling said "merchandise" for profit. For
this reason, the Court believe that the provisions of City
of Manila Ordinance No. 2529, as amended, cannot be
applied to appellant, for in doing so it would impair its free
exercise and enjoyment of its religious profession and
worship as well as its rights of dissemination of religious
beliefs. With respect to Ordinance No. 3000, as
amended, the Court do not find that it imposes any
charge upon the enjoyment of a right granted by the
Constitution, nor tax the exercise of religious practices .It
seems clear, therefore, that Ordinance No. 3000 cannot
be considered unconstitutional, however inapplicable to
said business, trade or occupation of the plaintiff. As to
Ordinance No. 2529 of the City of Manila, as amended, is
also not applicable, so defendant is powerless to license
or tax the business of plaintiff Society .WHEREFORE,
defendant shall return to plaintiff the sum of P5,891.45
unduly collected from it.
37. Tolentino vs. Secretary of Finance,
(235 SCRA 630)
FACTS: (consolidated case)
The Philippine Press Institute (PPI), petitioner in
G.R. No. 115544, is a nonprofit organization of
newspaper publishers established for the improvement of
journalism in the Philippines. On the other hand,
petitioner in G.R. No. 115781, the Philippine Bible
Society (PBS), is a nonprofit organization engaged in the
printing and distribution of bibles and other religious
articles. Both petitioners claim violations of their rights
under Sec 4 and 5 of the Bill of Rights as a result of the
enactment of the VAT Law.
PPI questions the law insofar as it has withdrawn
the exemption previously granted to the press under Sec
103 (f) of the NIRC. Although the exemption was
subsequently restored by administrative regulation with
respect to the circulation income of newspapers, the PPI
presses its claim because of the possibility that the
exemption may still be removed by mere revocation of
the regulation of the Secretary of Finance.
 Sec 103 of the NIRC contains list of transactions
exempted from VAT.
(f) Printing, publication, importation or sale of books and
any newspaper, magazine, review, or bulletin which
appears at regular intervals with fixed prices for
subscription and sale and which is devoted principally to
the publication of advertisements.
Through the enactment of Republic Act No. 7716,
it amended Sec 103 by deleting (f) with the result that
print media became subject to the VAT with respect to all
aspects of their operations. Later, however, based on a
memorandum of the Secretary of Justice, respondent
Secretary of Finance issued Revenue Regulations No.
11-94, dated June 27, 1994, exempting the "circulation
income of print media pursuant to Sec 4 Article III of the
1987 Philippine Constitution guaranteeing against
abridgment of freedom of the press, among others." The
exemption of "circulation income" has left income from
advertisements still subject to the VAT.
PBS questions the Secretary's power to grant
exemption for two reasons: (1) The Secretary of Finance
has no power to grant tax exemption because this is
vested in Congress and requires for its exercise the vote
of a majority of all its members and (2) the Secretary's
duty is to execute the law.
ISSUE: W/N, there has been a violation of sec 4 and 5 of
the Bill of Rights.
HELD: NO. The Press is not immune from the general
regulation of the State. The PPI's claim is simply that, as
applied to newspapers, the law abridges press freedom.
Even with due recognition of its high estate and its
importance in a democratic society, however, the press is
not immune from general regulation by the State. It has
been held that the publisher of a newspaper has no
immunity from the application of general laws. He has no
special privilege to invade the rights and liberties of
others. He must answer for libel. He may be punished for
contempt of court. Like others, he must pay equitable and
nondiscriminatory taxes on his business.
On the contention that by withdrawing the
exemption previously granted to print media transactions
involving printing, publication, importation or sale of
newspapers, Republic Act No. 7716 has singled out the
press for discriminatory treatment and that within the
class of mass media the law discriminates against print
media by giving broadcast media favored treatment.
Based on careful examination, the court was
unable to find a differential treatment of the press by the
law, much less any censorial motivation for its
enactment. If the press is now required to pay a value-
added tax on its transactions, it is not because it is being
singled out, much less targeted, for special treatment but
only because of the removal of the exemption previously
granted to it by law. The withdrawal of exemption is all
that is involved in these cases. Other transactions,
likewise previously granted exemption, have been
delisted as part of the scheme to expand the base and
the scope of the VAT system. The law would perhaps be
open to the charge of discriminatory treatment if the only
privilege withdrawn had been been unreasonably
narrowed. The fact is that this limitation is does not apply
to press alone but to all sales. The press is taxed on its
transaction involving printing and publication, which are
different from the transaction of the broadcast media
On the contention of PBS that said removal of
exemption of printing, publication or importation of books
and religious articles violates freedom of though and
conscience. As held in Jimmy Swaggart Ministries v.
Board of Equalization, it was held that the Free Exercise
of Religion Clause does not prohibit imposing a generally
applicable sales and use tax on sale of religious
materials by a religious organization.
For the foregoing reasons, the Court finds the
attack on Republic Act No. 7716 on the ground that it
offends the free speech, press and freedom of religion
guarantees of the Constitution to be without merit.
6. Freedom of the Press
SECTION 4. No law shall be passed abridging the
freedom of speech, of expression, or of the press, or the
right of the people peaceably to assemble and petition
the government for redress of grievances.
38. Philippine Press Institute, et al. v. Chato,
et al., G.R. No. 115754, August 25, 1994
RA 7716 amended Section 103 of Tax Code
resulting to print media becoming subject to VAT with
respect to all aspects of their operations. However due to treatment or which in any way discriminate against press
a memorandum from DOJ Secretary, Revenue on the basis of the content of the publication. RA 7716
Regulations No. 11-94 was issued by Secretary of has none of these as its objective.
Finance. The regulation resulted in exemption of of
If the press is now required to pay VAT on its
circulation income of print media from being taxed;
transactions, it is only because of the removal of the
income from advertisements, though, are still subject to
transaction previously granted to it by law. The purpose
VAT.
of the withdrawal of exemption is to expand the base and
PPI, as a non-profit organization of newspaper scope of VAT System.
publishers, questions RA 7716 insofar as it has
withdrawn the exemption previously granted to the press.
Moreso, by withdrawing the exemption previously 7. Tax exemption of properties
granted to print media transactions the law discriminates
against print media.

Issue: Whether RA 7716 is unconstitutional

39. Hospital de San Juan de Dios v. Pasay
City, 16 SCRA 226

Ruling: Even if no exemption has been granted to

print media transaction, there is no violation of freedom of
the press. The press is not immune from general
regulation by the state. What the constitutional guarantee
of press prohibits are laws which single out the press or
target a group belonging to the press for special

40. G.R. No. 124043 October 14, 1998
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. COURT OF APPEALS, COURT OF TAX APPEALS
and YOUNG MEN'S CHRISTIAN ASSOCIATION OF
THE PHILIPPINES, INC., respondents
FACTS:
Private Respondent YMCA is a non-stock, non-
profit institution, which conducts various programs and
activities that are beneficial to the public, especially the
young people, pursuant to its religious, educational and
charitable objectives.
In 1980, private respondent earned, among
others, an income of P676,829.80 from leasing out a
portion of its premises to small shop owners, like
restaurants and canteen operators, and P44,259.00 from
parking fees collected from non-members. On July 2,
1984, the commissioner of internal revenue (CIR) issued
an assessment to private respondent, in the total amount
of P415,615.01 including surcharge and interest, for
deficiency income tax, deficiency expanded withholding
taxes on rentals and professional fees and deficiency
withholding tax on wages. Private respondent formally
protested the assessment and, as a supplement to its
basic protest, filed a letter dated October 8, 1985.
The leasing of private respondent's facilities to
small shop owners, to restaurant and canteen operators
and the operation of the parking lot are reasonably
incidental to and reasonably necessary for the
accomplishment of the objectives of the private
respondents. The respondent further alleged that they
should be exempted as provided by the constitutions
specifically Article XIV, Section 4, paragraph and Article
VI Section 28 of paragraph. In reply, the CIR denied the
claims of YMCA.
ISSUE: Whether the income derived from rentals of real
property owned by YMCA subject to income tax.
HELD: Yes. Income of whatever kind and character of
non-stock, non-profit organizations from any of their
properties, real or personal, or from any other activities
conducted for profit, regardless of the disposition made of
such income, shall be subject to the tax because taxes
are the life-blood of the government, a claim of statutory
exemption from taxation should be manifest and
unmistakable from the language of the law which it is
based.
Article XIV section 4, paragraph 3 of the
Constitution non-stock, non-profit educational institutions
whose revenues and assets are used actually, directly
and exclusively for educational purposes is exempted
from payment of taxes on its properties and income is
without merit since the exemption provided lies on the
payment of property taxes and not on income tax on its
rentals of its property. The bare allegation alone that one
is a non-stock, non-profit educational institution is
insufficient to justify its exemption from the payment of
income tax.
For the YMCA to be granted the exemption it claims
under the above provision, it must be proved with
substantial evidence that (1) it falls under the
classification of a non-stock and non-profit educational
institution and (2) the income derived is used actually,
directly and exclusively for educational purposes.
Unfortunately, the court noted that not a scintilla of
evidence was submitted to prove that it met the
requirements.
Article VI section 28 of paragraph 3 of the
Constitutions which exempts charitable institutions from
the payment not only of property taxes but also of income
tax from any source, the tax exemption cover only the
property taxes which are the buildings, lands,
improvements actually, directly and exclusively used for
religious, charitable or educational purposes. Indeed, the
income tax exemption claimed by the respondent finds
no basis in this article.
41- Lung Center of the Philippines v. Quezon
City, 433 SCRA 119 [2004]

42. Abra Valley College v. Aquino, 15 June
1988, G.R. No. L-39086 (1988)
Facts:
Petitioner, an educational corporation and
institution of higher learning duly incorporated with the
SEC in 1948, filed a complaint to annul and declare void
the Notice of Seizure and the Notice of Sale of its lot Held:
and building located at Bangued, Abra, for non-payment
of real estate taxes and penalties amounting to
P5,140.31. Said Notice of Seizure by respondents
Municipal Treasurer and Provincial Treasurer,
defendants below, was issued for the satisfaction of the
said taxes thereon.
The parties entered into a stipulation of facts
adopted and embodied by the trial court in its questioned
decision. The trial court ruled for the government, holding
that the second floor of the building is being used by the
director for residential purposes and that the ground floor
used and rented by Northern Marketing Corporation, a
commercial establishment, and thus the property is not
being used exclusively for educational purposes. Instead
of perfecting an appeal, petitioner availed of the instant
petition for review on certiorari with prayer for preliminary
injunction before the SC, by filing said petition on 17
August 1974.
Issue: Are the lot and building in question used
exclusively for educational purposes?
The test of exemption from taxation is the use of
the property and not the ownership - for purposes
mentioned in the Constitution.
While the SC allows a more liberal and non-
restrictive interpretation of the phrase "exclusively used
for educational purposes" as provided for in Article VI,
Section 22, paragraph 3 of the 1935 Philippine
Constitution, reasonable emphasis has always been
made that exemption extends to facilities which are
incidental to and reasonably necessary for the
accomplishment of the main purposes. Otherwise stated,
the use of the school building or lot for commercial
purposes is neither contemplated by law, nor by
jurisprudence. Thus, while the use of the second floor of 43-CIR v. St. Lukes Medical Center, GR Nos.
the main building in the case at bar for residential 195909 and 195960, 26 September 2012
purposes of the Director and his family, may find
justification under the concept of incidental use, which is
complimentary to the main or primary purpose 44. ABAKADA Guro Party List v. Hon. Exec.
educational, the lease of the first floor thereof to the
Sec. Ermita, 01 September 2005
Northern Marketing Corporation cannot by any stretch of
the imagination be considered incidental to the purpose
of education.
Under the 1935 Constitution, the trial court
correctly arrived at the conclusion that the school building
as well as the lot where it is built, should be taxed, not
because the second floor of the same is being used by
the Director and his family for residential purposes, but
because the first floor thereof is being used for
commercial purposes. However, since only a portion is
used for purposes of commerce, it is only fair that half of
the assessed tax be returned to the school involved.