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

WHEREFORE, the instant Petition is hereby dismissed. No costs.

3. The express purpose of PD 1987 to include taxation of the video industry in order to regulate
and rationalize the heretofore uncontrolled distribution of videos is evident from Preambles
Facts:
2 and 5. Those preambles explain the motives of the lawmaker in presenting the measure.

1. Petitioner on his own behalf and purportedly on behalf of other videogram operators adversely
affected assailed the constitutionality of PD 1987 entitled "An Act Creating the Videogram
Regulatory Board" with broad powers to regulate and supervise the videogram industry. The
Decree promulgated on October 5, 1985, took effect on April 10, 1986, fifteen (15) days after
completion of its publication in the Official Gazette.

2. PD 1994 issued a month thereafter reinforced PD 1987 and in effect amended the National
Internal Revenue Code (NIRC). Petitioner contended among others that the tax provision of
the decree is a rider.

ISSUE: Whether or not the PD 1987 is unconstitutional due to the tax provision included

RULING: PD 1987 is constitutional.

1. The title of the decree, which calls for the creation of the VRB is comprehensive enough to
include the purposes expressed in its Preamble and reasonably covered in all its provisions. It
is unnecessary to express all those objectives in the title or that the latter be an index to the
body of the decree.

2. The foregoing provision is allied and germane to, and is reasonably necessary for the
accomplishment of the general object of the decree, which is the regulation of the video
industry through the VRB as expressed in its title. The tax provision is not inconsistent with
nor foreign to the general subject and title. As a tool for regulation it is simply one of the
regulatory and control mechanisms scattered throughout the decree.

Commissioner of Internal Revenue vs. Algue Inc.
GR No. L-28896 | Feb. 17, 1988
Facts:
Algue Inc. is a domestic corp engaged in engineering, construction and other allied activities
On Jan. 14, 1965, the corp received a letter from the CIR regarding its delinquency income
taxes from 1958-1959, amtg to P83,183.85
A letter of protest or reconsideration was filed by Algue Inc on Jan 18
On March 12, a warrant of distraint and levy was presented to Algue Inc. thru its counsel,
Atty. Guevara, who refused to receive it on the ground of the pending protest
Since the protest was not found on the records, a file copy from the corp was produced and
given to BIR Agent Reyes, who deferred service of the warrant
On April 7, Atty. Guevara was informed that the BIR was not taking any action on the
protest and it was only then that he accepted the warrant of distraint and levy earlier sought
to be served
On April 23, Algue filed a petition for review of the decision of the CIR with the Court of Tax
Appeals
CIR contentions:
- the claimed deduction of P75,000.00 was properly disallowed because it was not an
ordinary reasonable or necessary business expense
- payments are fictitious because most of the payees are members of the same family in
control of Algue and that there is not enough substantiation of such payments
CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form of
promotional fees. These were collected by the Payees for their work in the creation of the
Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company.
Issue: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by Algue as legitimate business expenses in its income tax returns
Ruling:
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance, made in accordance with law.
RA 1125: the appeal may be made within thirty days after receipt of the decision or ruling
challenged
During the intervening period, the warrant was premature and could therefore not be
served.
4
Originally, CIR claimed that the 75K promotional fees to be personal holding company
income, but later on conformed to the decision of CTA
There is no dispute that the payees duly reported their respective shares of the fees in their
income tax returns and paid the corresponding taxes thereon. CTA also found, after
examining the evidence, that no distribution of dividends was involved
CIR suggests a tax dodge, an attempt to evade a legitimate assessment by involving an
imaginary deduction
Algue Inc. was a family corporation where strict business procedures were not applied and
immediate issuance of receipts was not required. at the end of the year, when the books
were to be closed, each payee made an accounting of all of the fees received by him or her,
to make up the total of P75,000.00. This arrangement was understandable in view of the
close relationship among the persons in the family corporation
The amount of the promotional fees was not excessive. The total commission paid by the
Philippine Sugar Estate Development Co. to Algue Inc. was P125K. After deducting the said
fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount
of P75,000.00 was 60% of the total commission. This was a reasonable proportion,
considering that it was the payees who did practically everything, from the formation of the
Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate
properties.
Sec. 30 of the Tax Code: allowed deductions in the net income – Expenses - All the ordinary
and necessary expenses paid or incurred during the taxable year in carrying on any trade or
business, including a reasonable allowance for salaries or other compensation for personal
services actually rendered xxx
the burden is on the taxpayer to prove the validity of the claimed deduction
In this case, Algue Inc. has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and
prominent businessmen to venture in an experimental enterprise and involve themselves in
a new business requiring millions of pesos.
Taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every
person who is able to must contribute his share in the running of the government. The
government for its part, is expected to respond in the form of tangible and intangible
benefits intended to improve the lives of the people and enhance their moral and material
values
Taxation must be exercised reasonably and in accordance with the prescribed procedure. If
it is not, then the taxpayer has a right to complain and the courts will then come to his succor

Algue Inc.’s appeal from the decision of the CIR was filed on time with the CTA in accordance
with Rep. Act No. 1125. And we also find that the claimed deduction by Algue Inc. was
permitted under the Internal Revenue Code and should therefore not have been disallowed
by the CIR.
Facts:
The Philippine Sugar Estate Development Company (PSEDC) appointed Algue Inc. as its agent,
authorizing it to sell its land, factories, and oil manufacturing process. The Vegetable Oil
Investment Corporation (VOICP) purchased PSEDC properties. For the sale, Algue received a
commission of P125,000 and it was from this commission that it paid Guevara, et. al.
organizers of the VOICP, P75,000in promotional fees. In 1965, Algue received an assessment
from the Commissioner of Internal Revenue in the amount of P83,183.85 as delinquency
income tax for years 1958 amd 1959. Algue filed a protestor request for reconsideration
which was not acted upon by the Bureau of Internal Revenue (BIR). The counsel for Algue
had to accept the warrant of distrant and levy. Algue, however, filed a petition for review
with the Coourt of Tax Appeals.
Issue: Whether the assessment was reasonable.
Held:
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. Every person who is able to pay must contribute his share in the running of the
government. The Government, for his part, is expected to respond in the form of tangible
and intangible benefits intended to improve the lives of the people and enhance their moral
and material values. This symbiotic relationship is the rationale of taxation and should dispel
the erroneous notion that is an arbitrary method of exaction by those in the seat of power.
Tax collection, however, should be made in accordance with law as any arbitrariness will
negate the very reason for government itself. For all the awesome power of the tax collector,
he may still be stopped in his tracks if the taxpayer can demonstrate that the law has not
been observed. Herein, the claimed deduction (pursuant to Section 30[a] [1] of the Tax Code
and Section 70 [1] of Revenue Regulation 2: as to compensation for personal services) had
been legitimately by Algue Inc. It has further proven that the payment of fees was reasonable
and necessary in light of the efforts exerted by the payees in inducing investors (in VOICP) to
involve themselves in an experimental enterprise or a business requiring millions of pesos.
The assessment was not reasonable.
5
FACTS:
Private respondent corporation Algue Inc. filed its income tax returns for 1958 and
1959showing deductions, for promotional fees paid, from their gross income, thus lowering
their taxable income. The BIR assessed Algue based on such deductions contending that the
claimed deduction is disallowed because it was not an ordinary, reasonable and necessary
expense.
ISSUE: Should an uncommon business expense be disallowed as a proper deduction in
computation of income taxes, corollary to the doctrine that taxes are the lifeblood of the
government?
HELD:
No. Private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and
prominent businessmen to venture in an experimental enterprise and involve themselves in
a new business requiring millions of pesos. This was no mean feat and should be, as it was,
sufficiently recompensed. It is well-settled that taxes are the lifeblood of the government
and so should be collected without unnecessary hindrance On the other hand, such
collection should be made in accordance with law as any arbitrariness will negate the very
reason for government itself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxation, which is
the promotion of the common good, may be achieved.
But even as we concede the inevitability and indispensability of taxation, it is a requirement
in all democratic regimes that it be exercised reasonably and in accordance with the
prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts
will then come to his succor. For all the awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not
been observed.
FACTS:
The BIR assessed Algue a total amount of delinquency taxes of Php 83,183.85 for the years
1958 and 1959. It contends that the company's claimed deduction of Php 75,000 in the form
 6

of promotional fees is disallowed because it was not ordinary reasonable or necessary
business expenses. Algue filed a protest.
BIR did not take any action. So, Algue filed a petition for review with the Court of Tax Appeals
which rule in favor of Algue. Thus, the current petition.
ISSUE: Whether the BIR correctly disallowed the deduction
RULING:
The Supreme Court agrees with the respondent court that the amount of the promotional
fees was not excessive. The amount of P75,000.00 was 60% of the total commission. This was
a reasonable proportion, considering that it was the payees who did practically everything,
from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it
of the Sugar Estate properties.

It is said that taxes are what we pay for civilization society. Without taxes, the government
RULING:
would be paralyzed for lack of the motive power to activate and operate it. Hence, despite
the natural reluctance to surrender part of one's hard earned income to the taxing
No. authorities, every person who is able to must contribute his share in the running of the
government.
The burden is on the taxpayer to prove the validity of the claimed deduction. Here, the onus
has been discharged satisfactorily. Here, the onus has been discharged satisfactorily. The
promotional fees were necessary and reasonable in the light of the efforts exerted by the
payees in the inducement of investors to venture in an experimental enterprise. Thus, the
payees should be sufficiently recompensed.

FACTS:

The Philippine Sugar Estate Development Company had earlier appointed Algue as its agent,
authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such
authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo
Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing
other persons to invest in it. Ultimately, after its incorporation largely through the promotion
of the said persons, this new corporation purchased the PSEDC properties. For this sale,
Algue received as agent a commission of P126,000.00, and it was from this commission that
the P75,000.00 promotional fees were paid to the aforenamed individuals.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed
because it was not an ordinary reasonable or necessary business expense. The Court of Tax
Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been
legitimately paid by the private respondent for actual services rendered. The payment was in
the form of promotional fees.

ISSUE: Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by private respondent Algue as legitimate business expenses in its income
tax returns.

CIR v CTA (1994)
CIR v CTA
GR No 106611, July 21, 1994
FACTS:
Citytrust filed a petition with the Court of Tax Appeals claiming the refund of its income tax
overpayments for the years 1983, 1984 and 1985 in the total amount of P19,971,745. The CIR
could not present any evidence due to the repeated failure of the tax credit/refund division
of the BIR to transmit the records of the case and the investigation report to the Solicitor
General. The case was decided in favor of City Trust. Upon motion of reconsideration,
petitioner alleged that through an inter-office memorandum of the Tax Credit/Refund
Division, dated August 8, 1991, he came to know only that Citytrust had outstanding tax
liabilities for 1984 in the amount of P56,588,740.91 representing deficiency income and
business taxes.
ISSUES:
1. Whether the BIR was denied its day in court
2. Whether the CTA erred in denying petitioner’s supplemental motion for reconsideration
alleging bringing to said court’s attention the existence of deficiency income and business
taxes
RULING:
1. Yes, the BIR is denied its day in court. When it was petitioner’s turn to present evident
evidence, several postponements were sought by its counsel, the Solicitor General, due to
the unavailability of the necessary records which were not transmitted by the Refund Audit
Division of the BIR to said counsel. It was under such predicament and in deference to the tax
court that the counsel was constrained to submit the case for decision without presenting
any evidence. It is a long and firmly settled rule of law that the Government is not bound by
the errors committed by its agents.
2. Yes. The fact of such deficiency assessment is intimately related and inextricably
intertwined with the right of the bank. The private respondent cannot be entitled to refund
and at the same time be liable for a deficiency tax assessment for the same year.
FACTS:
Citytrust filed a claim for refund with BIR in the amount of P19,971,745.00 representing the
alleged overpayment of income tax as computed in its final income tax return for the
calendar year ending December 31, 1985. To interrupt the prescriptive period, Citytrust filed
a petition with the Court of Tax Appeals, claiming the refund of its income tax overpayments
for the years 1983, 1984 and 1985. The OSG in their answer contended that the claim of
Citytrust from 1983 was not properly documented and that even if they are entitled for such
7
claim the right to claim the same has prescribed with respect to income tax payments prior
to August 28, 1984, pursuant to Sections 292 and 295 of the National Internal Revenue Code
of 1977, as amended, since the petition was filed only on August 28, 1986. The case was
submitted for decision based solely on the pleadings and evidence submitted by herein
privateer spondent Citytrust because the petitioner failed to present evidence due to the
failure of Tax Credit/Refund Division of the BIR to transmit the records of the case, as well as
the investigation report thereon, to the Solicitor General. The petitioner filed a motion to
suspend the proceedings but the same was denied. The case was decided and the Tax court
ruled in ordering BIR to refund the overpaid tax for the year 1984 and 1985 only. Petitioner
filed a motion for reconsideration contending that Citytrust has an outstanding tax liability
amounting to P56M in 1984. Both parties filed a motion for reconsideration which was
denied by the CA and the court affirmed the decision of CTA. Hence this petition.
Issue: Whether or not the state is bound to the mistakes committed by its agents
Ruling:
It is a long and firmly settled rule of law that the Government is not bound by the errors
committed by its agents.
In the performance of its governmental functions, the State cannot be stopped by the
neglect of its agent and officers. Although the Government may generally be estopped
through the affirmative acts of public officers acting within their authority, their neglect or
omission of public duties as exemplified in this case will not and should not produce that
effect. Nowhere is the aforestated rule more true than in the field of taxation. It is axiomatic
that the Government cannot and must not be estopped particularly in matters involving
taxes.
Taxes are the lifeblood of the nation through which the government agencies continue to
operate and with which the State effects its functions for the welfare of its constituents.
The errors of certain administrative officers should never be allowed to jeopardize the
Government's financial position, especially in the case at bar where the amount involves
millions of pesos the collection whereof, if justified, stands to be prejudiced just because of
bureaucratic lethargy. Wherefore the Judgment of CA is hereby set aside and the case is
remanded to CTA
 8

Commissioner vs. AlgueGRL-28890, 17 February 1988 Facts:

First Division, Cruz (J); 4 concur Luzon Stevedoring Corp. imported various engine parts and other equipment for tugboat
repair and maintenance in 1961 and 1962. It paid the assessed compensation tax under
Facts: protest. Unable to secure a tax refund from the Commissioner (for the amount of
P33,442.13), it filed a petition for review with the Court of Tax Appeals (CTA). The CTA denied
The Philippine Sugar Estate Development Company (PSEDC) appointed Algue Inc. as its agent,
the petition, as well as the motion for reconsideration filed thereafter.
authorizing it to sell its land, factories, and oil manufacturing process. The Vegetable Oil
Investment Corporation (VOICP) purchased PSEDC properties. For the sale, Algue received a Issue: Whether the corporation is exempt from the compensation tax.
commission of P125,000and it was from this commission that it paid Guevara, et. al.
organizers of the VOICP, P75,000 in promotional fees. In 1965, Algue received an assessment Held:
from the Commissioner of Internal Revenue in the amount ofP83,183.85 as delinquency
income tax for years 1958 amd 1959. Algue filed a protest or request for reconsideration As the power of taxation is a high prerogative of sovereignty, the relinquishment of such is
which was not acted upon by the Bureau of Internal Revenue (BIR). The counsel for Algue never presumed and any reduction or dimunition thereof with respect to its mode or its rate,
had to accept the warrant of distrant and levy. Algue, however, filed a petition for review must be strictly.
with the Court of Tax Appeals.
Digests (Berne Guerrero)
Issue: Whether the assessment was reasonable.
Construed, and the same must be couched in dear and unmistakable terms in order that it
Held: may be applied. The corporation’s tugboats do not fall under the categories of passenger or
cargo vessels to avail of the exemption from compensation tax in Section 190 of the Tax
Taxes are the lifeblood of the government and so should be collected without unnecessary Code. It may be further noted that the amendment of Section190 of Republic Act 3176 was
hindrance. Every person who is able to pay must contribute his share in the running of the intended to provide incentives and inducements to bolster the shipping industry and not the
government. The Government, for his part, is expected to respond in the form of tangible business of stevedoring, in which the corporation is engaged in. Luzon Stevedoring Corp. is
and intangible benefits intended to improve the lives of the people and enhance their moral not exempt from compensating tax under Section 190, and is thus not entitled to refund.
and material values. This symbiotic relationship is the rationale of taxation and should dispel
the erroneous notion that is an arbitrary method of exaction by those in the seat of power.
Tax collection, however, should be made in accordance with law as any arbitrariness will
negate the very reason for government itself. For all the awesome power of the tax collector,
he may still be stopped in his tracks if the taxpayer can demonstrate that the law has not
been observed. Herein, the claimed deduction(pursuant to Section 30 [a] [1] of the Tax Code
and Section 70 [1] of Revenue Regulation 2: as to compensation for personal services) had
been legitimately by Algue Inc. It has further proven that the payment of fees was reasonable
and necessary in light of the efforts exerted by the payees in inducing investors (in VOICP) to
involve themselves in an experimental enterprise or a business requiring millions of
pesos.The assessment was not reasonable.

[2]Luzon Stevedoring Corp. vs. Court of Tax AppealsGR L-30232, 29 July 1988

Second Division, Paras (J): 4 concur

 9

[3]Lutz vs. AranetaGR L-7859, 22 December 1955
First Division, Reyes JBL (J): 8 concur
Facts:
A Walter Lutz, as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma,
sought to recover the sum of P14,6666.40 paid by the estate as taxes from the Commissioner
under Section e of Commonwealth Act 567 (the Sugar Adjustment Act), alleging that such tax
is unconstitutional as it levied for the aid and support of the sugar industry exclusively, which
is in his opinion not a public purpose.
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:

Issue: Whether the tax is valid in supporting an industry. 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
Held:
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
The tax is levied with a regulatory purpose, i.e. to provide means for the rehabilitation and
government and is thus pivotal in the plans of a regime committed to a policy of currency
stabilization of the threatened sugar industry. The act is primarily an exercise of police
stability. Its promotion, protection and advancement, therefore redounds greatly to the
power, and is not a pure exercise of taxing power. As sugar production is one of the great
general welfare. Hence it was competent for the legislature to find that the general welfare
industries of the Philippines; and that its promotion, protection and advancement redounds
demanded that the sugar industry be stabilized in turn; and in the wide field of its police
greatly to the general welfare, the legislature found that the general welfare demanded that
power, the law-making body could provide that the distribution of benefits therefrom be
the industry should be stabilized, and provided that the distribution of benefits therefrom be
readjusted among its components to enable it to resist the added strain of the increase in
readjusted among its component to enable it to resist the added strain of the increase in tax
taxes that it had to sustain.
that it had to sustain. Further, it cannot be said that the devotion of tax money to
experimental stations to seek increase of efficiency in sugar production, utilization of by-
The subject tax is levied with a regulatory purpose, to provide means for the rehabilitation
products, etc., as well as to the improvement of living and working conditions in sugar mills
and stabilization of the threatened sugar industry. In other words, the act is primarily a valid
and plantations, without any part of such money being channeled directly to private persons,
exercise of police power.
constitute expenditure of tax money for private purposes. The tax is valid.

FACTS:
FACTS:
Plaintiff Walter Lutz, in his capacity as judicial administrator of the intestate estate of
Appelant in this case Walter Lutz in his capacity as the Judicial Administrator of the intestate
Antionio Ledesma, sought to recover from the CIR the sum of P14,666.40 paid by the estate
of the deceased Antonio Jayme Ledesma, seeks to recover from the Collector of the Internal
as taxes, under section 3 of the CA 567 or the Sugar Adjustment Act thereby assailing its
Revenue the total sum of fourteen thousand six hundred sixty six and forty cents (P 14,
constitutionality, for it provided for an increase of the existing tax on the manufacture of
666.40) paid by the estate as taxes, under section 3 of Commonwealth Act No. 567, also
sugar, alleging that such enactment is not being levied for a public purpose but solely and
known as the Sugar Adjustment Act, for the crop years 1948-1949 and 1949-1950.
exclusively for the aid and support of the sugar industry thus making it void and
Commonwealth Act. 567 Section 2 provides for an increase of the existing tax on the
unconstitutional.
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 The sugar industry situation at the time of the enactment was in an imminent threat of loss
sugarcane and ceded to others for consideration, on lease or otherwise - "a tax equivalent to and needed to be stabilized by imposition of emergency measures.
 10

ISSUE: Is CA 567 constitutional, despite its being allegedly violative of the equal protection subject only to the test of reasonableness; and it is not contended that the means provided
clause, the purpose of which is not for the benefit of the general public but for the of the law bear no relation to the objective pursued or are oppressive in character. If
rehabilitation only of the sugar industry? objective and methods are alike constitutionally valid, no reason is seen why the state may
not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the
HELD: implement of the state's police power. That the tax to be levied should burden the sugar
producers themselves can hardly be a ground of complaint; indeed, it appears rational that
Yes. The protection and promotion of the sugar industry is a matter of public concern, it
the tax be obtained precisely from those who are to be benefited from the expenditure of
follows that the Legislature may determine within reasonable bounds what is necessary for
the funds derived from it. The decision appealed from is affirmed, with costs against
its protection and expedient for its promotion. Here, the legislative discretion must be
appellant.
allowed to fully play, subject only to the test of reasonableness; and it is not contended that
the means provided in the law bear no relation to the objective pursued or are oppressive in
character. If objective and methods are alike constitutionally valid, no reason is seen why the
state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be
made the implement of the state's police power.

FACTS:

Due to the threat to industry by the imminent imposition of export taxes upon sugar as
provided in the Tydings-McDuffe Act, and the "eventual loss of its preferential position in the
United States market"; the National Assembly promulgated Commonwealth Act No. 567,
otherwise known as the Sugar Adjustment Act "to obtain a readjustment of the benefits
derived from the sugar industry by the component elements thereof" and "to stabilize the
sugar industry so as to prepare it for the eventuality of the loss of its preferential position in
the United States market and the imposition of the export taxes." Plaintiff, Walter Lutz, in his
capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma
challenged the legality of the taxes imposed by the said Act. In plaintiff's opinion such tax is
unconstitutional and void, being levied for the aid and support of the sugar industry
exclusively, which is not a public purpose for which a tax may be constitutionally levied. The
action having been dismissed by the Court of First Instance, the plaintiff appealed the case
directly to the Supreme Court.

HELD:

The basic defect in the plaintiff's position is his assumption that the tax provided for in the
said Act is a pure exercise of the taxing power. However, the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization of the threatened sugar
industry. In other words, the act is primarily an exercise of the police power. The protection
and promotion of the sugar industry is a matter of public concern, it follows that the
Legislature may determine within reasonable bounds what is necessary for its protection and
expedient for its promotion. Here, the legislative discretion must be allowed fully play,

GOMEZ v. PALOMAR
GR No. L-23645, October 29, 1968
25 SCRA 827
FACTS:
Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. It
did not bear the special anti-TB stamp required by the RA 1635. It was returned to the
petitioner. Petitioner now assails the constitutionality of the statute claiming that RA 1635
otherwise known as the Anti-TB Stamp law is violative of the equal protection clause because
it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest
of the population and that even among postal patrons the statute discriminatorily grants
exemptions. The law in question requires an additional 5 centavo stamp for every mail being
posted, and no mail shall be delivered unless bearing the said stamp.
ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal
protection clause?
HELD:
No. It is settled that the legislature has the inherent power to select the subjects of taxation
and to grant exemptions. This power has aptly been described as "of wide range and
flexibility." Indeed, it is said that in the field of taxation, more than in other areas, the
legislature possesses the greatest freedom in classification. The reason for this is that
traditionally, classification has been a device for fitting tax programs to local needs and
usages in order to achieve an equitable distribution of the tax burden.
The classification of mail users is based on the ability to pay, the enjoyment of a privilege and
on administrative convenience. Tax exemptions have never been thought of as raising
revenues under the equal protection clause.
FACTS:
Petitioners question the constitutionality of the RA 1635 claiming that the law which helps
raise funds for the Philippine Tuberculosis Society violates the equal protection cause
because it constitutes mail users into a class for tax purposes while leaving untaxed the rest
of the population.
11
ISSUE: Is the equal protection clause violated?
RULING:
No. The legislature has the inherent power to select the subjects of taxation and to grant
exemptions. Traditionally, classification has been a device for fitting tax programs to local
need and usages in order to achieve an equitable distribution of the tax burden.
FACTS:
On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office in
San Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014
Dagohoy Street, Singalong, Manila did not bear the special anti-TB stamp required by the
statute, it was returned to the petitioner. In view of this development, the petitioner brought
suit for declaratory relief in the Court of First Instance of Pampanga, to test the
constitutionality of the statute, as well as the implementing administrative orders issued,
contending that it violates the equal protection clause of the Constitution as well as the rule
of uniformity and equality of taxation. The lower court declared the statute and the orders
unconstitutional. This appeal puts in issue the constitutionality of Republic Act 1635,as
amended by Republic Act 2631, which provides as follows: To help raise funds for the
Philippine Tuberculosis Society, the Director of Posts shall order for the period from August
nineteen to September thirty every year the printing and issue of semi-postal stamps of
different denominations with face value showing the regular postage charge plus the
additional amount of five centavos for the said purpose, and during the said period, no mail
matter shall be accepted in the mails unless it bears such semi-postal stamps: Provided, That
no such additional charge of five centavos shall be imposed on newspapers. The additional
proceeds realized from the sale of the semi-postal stamps shall constitute a special fund and
be deposited with the National Treasury to be expended by the Philippine Tuberculosis
Society in carrying out its noble work to prevent and eradicate tuberculosis. The respondent
Postmaster General, in implementation of the law, thereafter issued four (4) administrative
orders numbered 3 (June 20, 1958), 7 (August 9, 1958),9 (August 28, 1958), and 10 (July 15,
1960). All these administrative orders were issued with the approval of the respondent
Secretary of Public Works and Communications.
ISSUE: Whether or not RA 1635 as amended by RA 2631 and the four Administrative orders
violates the equal protection clause of the Constitution as well as the rule of uniformity and
equality of taxation?
 12

RULING:

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

Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate
rather than a graduated tax. A tax need not be measured by the weight of the mail or the
extent of the service rendered. We have said that considerations of administrative
convenience and cost afford an adequate ground for classification. The same considerations
may induce the legislature to impose a flat tax which in effect is a charge for the transaction,
operating equally on all persons within the class regardless of the amount involved.

Commissioner vs. Cebu Portland CementGR L-29059, 15 December 1987First Division, Cruz
(J): 4 concur
Facts:
By virtue of a decision of the Court of Tax Appeals, modified by the Supreme Court, the
Commissioner was ordered to refund overpayments of ad valorem taxes on cement
produced and sold by the company after October 1957. The company moved for a writ of
execution, which was opposed by the Commissioner on the ground that the company had an
outstanding sales tax liability to which the judgment debt had already been credited. The
Court of Tax Appeals held that the alleged sales tax liability was still being questioned and
therefore cannot be set-off against the refund.
Issue: Whether the assessment of sales tax liability may be enforced, i.e. to set off against
the refund.
Held:
The argument, that the assessment cannot as yet be enforced because it is still being
contested, loss sight of the urgency of the need to collect taxes as “the life blood of the
government.” If the payment of taxes could be postponed by simply questioning their
validity, the machinery of the state would grind to a halt and all government functions would
be paralyzed. To require the Commissioner to actually refund to the company the amount of
the judgment debt. Which he will later have the right to distrait for payment of its sales tax
liability, is an idle ritual.
Facts:
CTA decision ordered the petitioner CIR to refund to the Cebu Portland Cement Company,
respondent, P 359,408.98 representing overpayments of ad valorem taxes on cement sold by
it. Execution of judgment was opposed by the petitioner citing that private respondent had
an outstanding sales tax liability to which the judgment debt had already been credited. In
fact, there was still a P4 M plus balance they owed. The Court of Tax Appeals, in holding that
the alleged sales tax liability of the private respondent was still being questioned and
therefore could not be set-off against the refund, granted private respondent's motion. The
private respondent questioned the assessed tax based on Article 186 of the Tax Code,
contending that cement was adjudged a mineral and not a manufactured product; and thusly
13
they were not liable for their alleged tax deficiency. Thereby, petitioner filed this petition for
review.
Issue: Whether or not assessment of taxes can be enforced even if there is a case contesting
it.
Held:
The argument that the assessment cannot as yet be enforced because it is still being
contested loses sight of the urgency of the need to collect taxes as "the lifeblood of the
government." If the payment of taxes could be postponed by simply questioning their
validity, the machinery of the state would grind to a halt and all government functions would
be paralyzed. That is the reason why, save for the exception in RA 1125 , the Tax Code
provides that injunction is not available to restrain collection of tax. Thereby, we hold that
the respondent Court of Tax Appeals erred in its order.
FACTS:
By virtue of a decision of the CTA, as modified on appeal by the Supreme Court, the CIR was
ordered to refund to Cebu Portland Cement Company the amount of P 359,408.98,
representing overpayments of ad valorem taxes on cement produced and sold by it. When
respondent moved for a writ of execution, petitioner opposed on the ground that the private
respondent had an outstanding sales tax liability to which the judgment debt had already
been credited. In fact, it was stressed, there was still a balance owing on the sales taxes in
the amount of P 4,789,279.85 plus 28% surcharge. The CTA granted the CIR’s motion.
The CIR claims that the refund should be charged against the tax deficiency of the private
respondent on the sales of cement under Section 186 of the Tax Code. His position is that
cement is a manufactured and not a mineral product and therefore not exempt from sales
taxes. The petitioner also denies that the sales tax assessments have already prescribed
because the prescriptive period should be counted from the filing of the sales tax returns,
which had not yet been done by the private respondent.
Meanwhile, the private respondent disclaims liability for the sales taxes, on the ground that
cement is not a manufactured product but a mineral product. As such, it was exempted from
sales taxes. Also, the alleged sales tax deficiency could not as yet be enforced against it
because the tax assessment was not yet final, the same being still under protest and still to
 14

be definitely resolved on the merits. Besides, the assessment had already prescribed, not
having been made within the reglementary five-year period from the filing of the tax returns.

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

HELD:

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

The argument that the assessment cannot as yet be enforced because it is still being
contested loses sight of the urgency of the need to collect taxes as "the lifeblood of the
government." If the payment of taxes could be postponed by simply questioning their
validity, the machinery of the state would grind to a halt and all government functions would
be paralyzed.

Commissioner of Internal Revenue v. Court of Appeals and YMCA
G.R.No.L-124043 October 14, 1998
FACTS:
Private Respondent YMCA is a non-stock, non-profit institution, which conducts various
programs and activities that are beneficial to the public, especially the young people,
pursuant to its religious, educational and charitable objectives. In 1980, private respondent
earned, among others, an income of P676, 829.80 from leasing out a portion of its premises
to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking
fees collected from non-members. On July 2, 1984, the Commissioner of Internal Revenue
(CIR) issued an assessment to private respondent, in the total amount of P415,615.01
including surcharge and interest, for deficiency income tax, deficiency expanded withholding
taxes on rentals and professional fees and deficiency withholding tax on wages. Private
respondent formally protested the assessment and, as a supplement to its basic protest, filed
a letter dated October 8,1985. In reply, the CIR denied the claims of YMCA. Contesting the
denial of its protest, the YMCA filed a petition for review at the Court of Tax Appeals on
March 14, 1989. In due course, the CTA issued this ruling in favor of the YMCA.
ISSUE: Whether or not the YMCA is exempted from rental income derived from the leaseof
its properties
RULING:
NO.
Petitioner argues that while the income received by the organizations enumerated in Section
27 (now Section 26) of the NIRC is, as a rule, exempted from the payment of tax "in respect
to income received by them as such," the exemption does not apply to income derived "xxx
from any of their properties, real or personal, or from any of their activities conducted for
profit, regardless of the disposition made of such income xxx". The Court agrees with the
commissioner. In the instant case, the exemption claimed by the YMCA is expressly
disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which
mandates that the income of exempt organizations (such as the YMCA) from any of their
properties, real or personal, be subject to the tax imposed by the same Code.
CIR v. YMCA
GR No. 124043, October 14, 1998
298 SCRA 83
15
FACTS:
Private Respondent YMCA--a non-stock, non-profit institution, which conducts various
programs beneficial to the public pursuant to its religious, educational and charitable
objectives--leases out a portion of its premises to small shop owners, like restaurants and
canteen operators, deriving substantial income for such. Seeing this, the Commissioner of
Internal Revenue (CIR) issued an assessment to private respondent for deficiency income tax,
deficiency expanded withholding taxes on rentals and professional fees and deficiency
withholding tax on wages. YMCA opposed arguing that its rental income is not subject to tax,
mainly because of the provisions of Section 27 of NIRC which provides that civic league or
organizations not organized for profit but operate exclusively for promotion of social welfare
and those organized exclusively for pleasure, recreation and other non-profitable businesses
shall not be taxed.
ISSUE: Is the contention of YMCA tenable?
HELD:
No. Because taxes are the lifeblood of the nation, the Court has always applied the doctrine
of strict in interpretation in construing tax exemptions. Furthermore, a claim of statutory
exemption from taxation should be manifest and unmistakable from the language of the law
on which it is based. Thus, the claimed exemption "must expressly be granted in a statute
stated in a language too clear to be mistaken."
Doctrine:
– Rental income derived by a tax-exempt organization from the lease of its properties, real or
personal, is not exempt from income taxation, even if such income is exclusively used for the
accomplishment of its objectives.
– A claim of statutory exemption from taxation should be manifest and unmistakable from
the language of the law on which it is based. Thus, it must expressly be granted in a statute
stated in a language too clear to be mistaken. Verba legis non est recedendum — where the
law does not distinguish, neither should we.
 16

– The bare allegation alone that one is a non-stock, non-profit educational institution is
insufficient to justify its exemption from the payment of income tax. It must prove with
substantial evidence that (1) it falls under the classification non-stock, non-profit educational
institution; and (2) the income it seeks to be exempted from taxation is used actually,
directly, and exclusively for educational purposes.
– The Court cannot change the law or bend it to suit its sympathies and appreciations.
Otherwise, it would be overspilling its role and invading the realm of legislation. The Court,
given its limited constitutional authority, cannot rule on the wisdom or propriety of
legislation. That prerogative belongs to the political departments of government.
Facts:
Private Respondent YMCA is a non-stock, non-profit institution, which conducts various
programs and activities that are beneficial to the public, especially the young people,
pursuant to its religious, educational and charitable objectives.
YMCA earned income from leasing out a portion of its premises to small shop owners, like
restaurants and canteen operators, and from parking fees collected from non-members.
Petitioner issued an assessment to private respondent for deficiency taxes. Private
respondent formally protested the assessment. In reply, the CIR denied the claims of YMCA.
Issue: Whether or not the income derived from rentals of real property owned by YMCA
subject to income tax
Held:
Yes. Income of whatever kind and character of non-stock non-profit organizations from any
of their properties, real or personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income, shall be subject to the tax imposed under
the NIRC.
on which it is based. Thus, the claimed exemption “must expressly be granted in a statute
stated in a language too clear to be mistaken” (Davao Gulf Lumber Corporation v.
Commissioner of Internal Revenue and Court of Appeals, G.R. No. 117359, p. 15 July 23,
1998).
Verba legis non est recedendum. The law does not make a distinction. The rental income is
taxable regardless of whence such income is derived and how it is used or disposed of.
Where the law does not distinguish, neither should we.
Private respondent also invokes Article XIV, Section 4, par. 3 of the Constitution, claiming
that it “is a non-stock, non-profit educational institution whose revenues and assets are used
actually, directly and exclusively for educational purposes so it is exempt from taxes on its
properties and income.” This is without merit since the exemption provided lies on the
payment of property tax, and not on the income tax on the rentals of its property. The bare
allegation alone that one is a non-stock, non-profit educational institution is insufficient to
justify its exemption from the payment of income tax.
For the YMCA to be granted the exemption it claims under the above provision, it must prove
with substantial evidence that (1) it falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be exempted from taxation is used
actually, directly, and exclusively for educational purposes. Unfortunately for respondent, the
Court noted that not a scintilla of evidence was submitted to prove that it met the said
requisites.
The Court appreciates the nobility of respondent’s cause. However, the Court’s power and
function are limited merely to applying the law fairly and objectively. It cannot change the
law or bend it to suit its sympathies and appreciations. Otherwise, it would be overspilling its
role and invading the realm of legislation. The Court regrets that, given its limited
constitutional authority, it cannot rule on the wisdom or propriety of legislation. That
prerogative belongs to the political departments of government.

Rental income derived by a tax-exempt organization from the lease of its properties, real or
personal, is not exempt from income taxation, even if such income is exclusively used for the
accomplishment of its objectives.

Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of
strict in interpretation in construing tax exemptions (Commissioner of Internal Revenue v.
Court of Appeals, 271 SCRA 605, 613, April 18, 1997). Furthermore, a claim of statutory
exemption from taxation should be manifest and unmistakable from the language of the law
 17

VERA v. FERNANDEZ
GR No. L-31364 March 30, 1979
89 SCRA 199

FACTS:

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

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

HELD:

No. The reason for the more liberal treatment of claims for taxes against a decedent's estate
in the form of exception from the application of the statute of non-claims, is not hard to find.
Taxes are the lifeblood of the Government and their prompt and certain availability are
imperious need. (CIR vs. Pineda, 21 SCRA 105). Upon taxation depends the Government
ability to serve the people for whose benefit taxes are collected. To safeguard such interest,
neglect or omission of government officials entrusted with the collection of taxes should not
be allowed to bring harm or detriment to the people, in the same manner as private persons
may be made to suffer individually on account of his own negligence, the presumption being
that they take good care of their personal affairs. This should not hold true to government
officials with respect to matters not of their own personal concern. This is the philosophy
behind the government's exception, as a general rule, from the operation of the principle of
estoppel.
 18

DAVAO GULF LUMBER CORPORATION, petitioner, FACTS:

vs. Republic Act No. 1435 entitles miners and forest concessioners to the refund of 25% of the
specific taxes paid by the oil companies, which were eventually passed on to the user--the
COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents. petitioner in this case--in the purchase price of the oil products. Petitioner filed before
respondent Commissioner of Internal Revenue (CIR) a claim for refund in the amount
FACTS:
representing 25% of the specific taxes actually paid on the above-mentioned fuels and oils
that were used by petitioner in its operations. However petitioner asserts that equity and
Davao Gulf is a concessionaire with TLA granted by the DENR. They purchase mineral oils and
justice demands that the refund should be based on the increased rates of specific taxes
diesel from various oil companies which they use in their exploitation and operation. Oil
which it actually paid, as prescribed in Sections 153 and 156 of the NIRC. Public respondent,
companies paid their specific taxes provided Sections 153 and 156 of the NIRC which were
on the other hand, contends that it should be based on specific taxes deemed paid under
eventually passed to their consumer Davao Gulf. Petitioner filed a claim for refund before the
Sections 1 and 2 of RA 1435.
CIR in the amount of P120,825.11, representing 25% of the specific taxes actually paid on the
above-mentioned fuels and oils that were used by petitioner in its operations as forest
concessionaire. Davao Gulf contended that Section 5 of RA 1435provides that whenever any
oils mentioned above are used by miners or forest concessionaires in their operations, ISSUE: Should the petitioner be entitled under Republic Act No. 1435 to the refund of 25% of
twenty-five per centum of the specific tax paid thereon shall be refunded by the Collector of the amount of specific taxes it actually paid on various refined and manufactured mineral oils
Internal Revenue upon submission of proof of actual use of oils…. The refund was denied by and other oil products, and not on the taxes deemed paid and passed on to them, as end-
the CIR, hence, Davao filed a petition for review before the CTA which granted the petitioner users, by the oil companies?
a partial refund based on the on rates deemed paid under RA 1435, and not on the higher
rates actually paid by petitioner under Art. 153 and 156 of the NIRC. Davao filed an appeal
before the CA which affirms the decision of CTA. Hence this petition.
HELD:
Issue: Whether or not the refund must be computed in favour of the Davao Gulf’s claim
No. According to an eminent authority on taxation, "there is no tax exemption solely on the
Ruling: ground of equity." Thus, the tax refund should be based on the taxes deemed paid. Because
taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly
Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed against the grantee and liberally in favor of the government. Otherwise stated, any
strictly against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the payment of a tax must be clearly stated in the language of the law; it
exemption from the payment of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom.
cannot be merely implied therefrom.A tax cannot be imposed unless it is supported by the
clear and express language of a statute; on the other hand, once the tax is unquestionably
imposed, "[a] claim of exemption from tax payments must be clearly shown and based on
language in the law too plain to be mistaken." Since the partial refund authorized under
Section 5, RA 1435, is in the nature of a tax exemption, it must be construed strictissimi Juris
against the grantee. Hence, petitioner's claim of refund on the basis of the specific taxes it
actually paid must expressly be granted in a statute stated in a language too clear to be
mistaken. WHEREFORE, the petition is hereby DENIED and the assailed Decision of the Court
of Appeals is AFFIRMED.

Facts:
Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1)
unduly discriminated against him by the imposition of higher rates upon his income as a
professional, that it amounts to class legislation, and that it transgresses against the equal
protection and due process clauses of the Constitution as well as the rule requiring
uniformity in taxation.
Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on
uniformity in taxation.
Held:
There is a need for proof of such persuasive character as would lead to a conclusion that
there was a violation of the due process and equal protection clauses. Absent such showing,
the presumption of validity must prevail. Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall be taxed at the same rate. The
taxing power has the authority to make reasonable and natural classifications for purposes of
taxation. Where the differentiation conforms to the practical dictates of justice and equity,
similar to the standards of equal protection, it is not discriminatory within the meaning of the
clause and is therefore uniform. Taxpayers may be classified into different categories, such
as recipients of compensation income as against professionals. Recipients of compensation
income are not entitled to make deductions for income tax purposes as there is no practically
no overhead expense, while professionals and businessmen have no uniform costs or
expenses necessary to produce their income. There is ample justification to adopt the gross
system of income taxation to compensation income, while continuing the system of net
income taxation as regards professional and business income.
Facts:
Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero M. Sison, as taxpayer,
alleges that "he would be unduly discriminated against by the imposition of higher rates of
tax upon his income arising from the exercise of his profession vis-a-vis those which are
imposed upon fixed income or salaried individual taxpayers. He characterizes said provision
as arbitrary amounting to class legislation, oppressive and capricious in character. It
therefore violates both the equal protection and due process clauses of the Constitution as
well as of the rule requiring uniformity in taxation.
Issue: Whether or not the assailed provision violates the equal protection and due process
clauses of the Constitution while also violating the rule that taxes must be uniform and
equitable.
19
Held:
The petition is without merit.
On due process - it is undoubted that it may be invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution. An obvious example is where it can be shown to
amount to the confiscation of property from abuse of power. Petitioner alleges arbitrariness
but his mere allegation does not suffice and there must be a factual foundation of such
unconstitutional taint.
On equal protection - it suffices that the laws operate equally and uniformly on all persons
under similar circumstances, both in the privileges conferred and the liabilities imposed.
On the matter that the rule of taxation shall be uniform and equitable - this requirement is
met when the tax operates with the same force and effect in every place where the subject
may be found." Also, :the rule of uniformity does not call for perfect uniformity or perfect
equality, because this is hardly unattainable." When the problem of classification became of
issue, the Court said: "Equality and uniformity in taxation means that all taxable articles or
kinds of property of the same class shall be taxed the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation..." As
provided by this Court, where "the differentation" complained of "conforms to the practical
dictates of justice and equity" it "is not discriminatory within the meaning of this clause and
is therefore uniform."
Facts:
Petitioners challenged the constitutionality of Section 1 of Batas Pambansa Blg. 135. It
amended Section 21 of the National Internal Revenue Code of 1977, which provides
for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net
income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or
any other monetary benefit from deposit substitutes and from trust fund and
similar arrangements, (e) dividends and share of individual partner in the net profits of
taxable partnership, (f) adjusted gross income.
Petitioner as taxpayer alleged 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 the above section as arbitrary amounting to class legislation, oppressive and
capricious in character.

For petitioner, therefore, there is a transgression of both the equal protection and due
process clauses of the Constitution as well as of the rule requiring uniformity in taxation.
The OSG prayed for dismissal of the petition due to lack of merit.
Issue: Whether the imposition of a higher tax rate on taxable net income derived from
business or profession than on compensation is constitutionally infirm.
(WON there is a transgression of both the equal protection and due process clauses of the
Constitution as well as of the rule requiring uniformity in taxation)
Held:
No. Petition dismissed
Ratio:
The need for more revenues is rationalized by the government's role to fill the gap not done
by public enterprise in order to meet the needs of the times. It is better equipped to
administer for the public welfare. The power to tax, an inherent prerogative, has to be
availed of to assure the performance of vital state functions. It is the source of the bulk of
public funds.
The power to tax is an attribute of sovereignty and the strongest power of the government.
There are restrictions, however, diversely affecting as it does property rights, both the due
process and equal protection clauses may properly be invoked, as petitioner does, to
invalidate in appropriate cases a revenue measure. If it were otherwise, taxation would be a
destructive power.
The petitioner failed to prove that the statute ran counter to the Constitution. He used
arbitrariness as basis without a factual foundation. This is merely to adhere to the
authoritative doctrine that where the due process and equal protection clauses are invoked,
considering that they are not fixed rules but rather broad standards, there is a need for proof
of such persuasive character as would lead to such a conclusion.
20
It is undoubted that the due process clause may be invoked where a taxing statute is
so arbitrary that it finds no support in the Constitution. An obvious example is where it can
be shown to amount to the confiscation of property. That would be a clear abuse of power.
It has also been held that where the assailed tax measure is beyond the jurisdiction of the
state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds.
For equal protection, the applicable standard to determine whether this was denied in the
exercise of police power or eminent domain was the presence of the purpose of hostility or
unreasonable discrimination.
It suffices then that the laws operate equally and uniformly on all persons under similar
circumstances or that all persons must be treated in the same manner, the conditions not
being different, both in the privileges conferred and the liabilities imposed. Favoritism and
undue preference cannot be allowed. For the principle is that equal protection and security
shall be given to every person under circumstances, which if not identical are analogous. If
law be looks upon in terms of burden or charges, those that fall within a class should be
treated in the same fashion, whatever restrictions cast on some in the group equally binding
on the rest.
The equal protection clause is, of course, inspired by the noble concept of approximating the
ideal of the laws's benefits being available to all and the affairs of men being governed by
that serene and impartial uniformity, which is of the very essence of the idea of law.
The equality at which the 'equal protection' clause aims is not a disembodied equality. The
Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract
propositions. They do not relate to abstract units A, B and C, but are expressions of policy
arising out of specific difficulties, addressed to the attainment of specific ends by the use of
specific remedies. The Constitution does not require things which are different in fact or
opinion to be treated in law as though they were the same.

Lutz v Araneta- it is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that 'inequalities which result from a singling out of
one particular class for taxation, or exemption infringe no constitutional limitation.
Petitioner- kindred concept of uniformity- Court- Philippine Trust Company- The rule of
uniformity does not call for perfect uniformity or perfect equality, because this is hardly
attainable
Equality and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation
There is quite a similarity then to the standard of equal protection for all that is required is
that the tax "applies equally to all persons, firms and corporations placed in similar situation"
There was a difference between a tax rate and a tax base. There is no legal objection to a
broader tax base or taxable income by eliminating all deductible items and at the same time
reducing the applicable tax rate.
The discernible basis of classification is the susceptibility of the income to the application of
generalized rules removing all deductible items for all taxpayers within the class and fixing a
set of reduced tax rates to be applied to all of them. As there is practically no overhead
expense, these taxpayers are not entitled to make deductions for income tax purposes
because they are in the same situation more or less.
Taxpayers who are recipients of compensation income are set apart as a class.
On the other hand, in the case of professionals in the practice of their calling and
businessmen, there is no uniformity in the costs or expenses necessary to produce their
income. It would not be just then to disregard the disparities by giving all of them zero
deduction and indiscriminately impose on all alike the same tax rates on the basis of gross
income.
21
There was a lack of a factual foundation, the forcer of doctrines on due process and equal
protection, and he reasonableness of the distinction between compensation and taxable net
income of professionals and businessmen not being a dubious classification.
FACTS:
Batas Pambansa 135, which amends Section 21 of the National Internal Revenue Code of
1977, which provides for the
rates of tax on citizens or residents, was enacted. Petitioner as taxpayer alleges that by virtue
thereof, he would be unduly discriminated against by the imposition of higher rates of tax
upon his income arising from the exercise of his profession vis-à-vis those which are imposed
upon fixed income or salaried individual taxpayers.
ISSUE: Whether BP 135 transgresses both the equal protection and due process clauses of
the Constitution as well as of the rule requiring uniformity in taxation
RULING:
No. The presumption of validity must prevail. The taxing power has the authority to make
reasonable and natural
classifications for purposes of taxation. Recipients of compensation income are not entitled
to make deductions for income tax purposes as there is practically no overhead expense,
while professionals and businessmen have no uniform costs or expenses necessary to
produce their income. There is ample justification to adopt the gross system of income
taxation to compensation income, while continuing the system of net income taxation as
regards professional and business income.

Bagatsing v. Ramirez
G.R. No. L-41631 (December 17, 1976)
FACTS:
The Municipal Board of Manila enacted Ordinance No. 7522, “An Ordinance Regulating the
Operation of Public Markets and Prescribing Fees for the Rentals of Stalls and Providing
Penalties for Violation thereof and for other Purposes.” Respondent were seeking the
declaration of nullity of the Ordinance for the reason that a) the publication requirement
under the Revised Charter of the City of Manila has not been complied with, b) the Market
Committee was not given any participation in the enactment, c) Sec. 3(e) of the Anti-Graft
and Corrupt Practices Act has been violated, and d) the ordinance would violate P.D. 7
prescribing the collection of fees and charges on livestock and animal products.
ISSUE:
What law shall govern the publication of tax ordinance enacted by the Municipal Board
of Manila, the Revised City Charter or the Local Tax Code.
HELD:
The fact that one is a special law and the other a general law creates the presumption that
the special law is to be considered an exception to the general. The Revised Charter of
Manila speaks of “ordinance” in general whereas the Local Tax Code relates to “ordinances
levying or imposing taxes, fees or other charges” in particular. In regard therefore, the Local
Tax Code controls.
Bagatsing v Ramirez
GR No L-41631, December 17, 1976
FACTS:
In 1974, the Municipal Board of Manila enacted Ordinance 7522, regulating the operation of
public markets and prescribing fees for the rentals of stalls and providing penalties for
violation thereof. The Federation of Manila Market Vendors Inc. assailed the validity of the
ordinance, alleging among others the noncompliance to the publication requirement under
the Revised Charter of the City of Manila. CFI-Manila declared the ordinance void. Thus, the
present petition.
22
ISSUE:
1. What law should govern the publication of a tax ordinance, the Revised City
Charter, which requires publication of the
ordinance before its enactment and after its approval, or the Local Tax Code, which
only demands publication after
approval?
2. Is the ordinance valid?
RULING:
1. The Local Tax Code prevails. There is no question that the Revised Charter of the
City of Manila is a special act since it relates only to the City of Manila whereas the
Local Tax Code is a general law because it applies universally to all local
governments. The fact that one is special and the other general creates a
presumption that the special is to be considered as remaining an exception of the
general, one as a general law of the land, the other as the law of a particular case.
However, the rule readily yields to a situation where the special statute refers to a
subject in general, which the general statute treats in particular. The Revised
Charter of the City prescribes a rule for the publication of “ordinance” in general,
while the Local Tax Code establishes a rule for the publication of “ordinance levying
or imposing taxes fees or other charges” in particular.
2. The ordinance is valid.
BAGATSING
vs.
RAMIREZ74 SCRA 306G.R. No. L-41631 December 17, 1976MARTIN,
Facts:
Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE REGULATING
THEOPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE RENTALS OF
STALLSAND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES."
The petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance. Respondent
Federation of Manila Market Vendors, Inc. commenced a Civil Case before the CFI by
respondent Judge, seeking the declaration of nullity of Ordinance No. 7522 for the reason
that (a)the publication requirement under the Revised Charter of the City of Manila has not
been complied with; (b) the Market Committee was not given any participation in the
enactment of the ordinance, as envisioned by Republic Act 6039; (c) Section 3 (e) of the Anti-
Graft and Corrupt Practices Act has been violated; and (d) the ordinance would violate

Presidential Decree No. 7 of September 30, 1972prescribing the collection of fees and
charges on livestock and animal products. Private respondent also bewails that the market
stall fees imposed in the disputed ordinance are diverted to the exclusive private use of the
Asiatic Integrated Corporation since the collection of said fees had been let by the City of
Manila to the said corporation in a "Management and Operating Contract."Resolving the
accompanying prayer for the issuance of a writ of preliminary injunction, respondent Judge
issued an order denying the plea for failure of the respondent Federation of Manila Market
Vendors, Inc. to exhaust the administrative remedies outlined in the Local Tax Code. After
due hearing on the merits, respondent Judge rendered another decision, declaring the nullity
of Ordinance No. 7522 of the City of Manila on the primary ground of non-compliance with
the requirement of publication under the Revised City Charter. Petitioners moved for
reconsideration of the adverse decision, stressing that (a) only a post-publication is required
by the Local Tax Code; and (b) private respondent failed to exhaust all administrative
remedies before instituting an action in court. Respondent Judge denied the motion. Hence
petitioners brought the matter to the Supreme Court through the a petition for review on
certiorari.
Issue: What law shall govern the publication of a tax ordinance enacted by the Municipal
Board of Manila, the Revised City Charter (R.A. 409, as amended), which requires publication
of the ordinance before its enactment and after its approval, or the Local Tax Code (P.D. No.
231), which only demands publication after approval.
Held:
There is no question that the Revised Charter of the City of Manila is a special act since it
relates only to the City of Manila, whereas the Local Tax Code is a general law because it
applies universally to all local governments. Blackstone defines general law as a universal rule
affecting the entire community and special law as one relating to particular persons or things
of a class. And the rule commonly said is that a prior special law is not ordinarily repealed by
a subsequent general law. The fact that one is special and the other general creates a
presumption that the special is to be considered as remaining an exception of the general,
one as a general law of the land, the other as the law of a particular case. However, the rule
readily yields to a situation where the special statute refers to a subject in general, which the
general statute treats in particular. The exactly is the circumstance obtaining in the case at
bar. Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" in general,
i.e., irrespective of the nature and scope thereof, whereas, Section43 of the Local Tax Code
relates to "ordinances levying or imposing taxes, fees or other charges" in particular.
In regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is
doubtless dominant, but, that dominant force loses its continuity when it approaches the
realm of "ordinances levying or imposing taxes, fees or other charges" in particular. There,
23
the Local Tax Code controls. Here, as always, a general provision must give way to a
particular provision. Special provision governs. This is especially true where the law
containing the particular provision was enacted later than the one containing the general
provision. The City Charter of Manila was promulgated on June 18, 1949 as against the Local
Tax Code which was decreed on June 1, 1973.The law-making power cannot be said to have
intended the establishment of conflicting and hostile systems upon the same subject, or to
leave in force provisions of a prior law by which the new will of the legislating power may be
thwarted and overthrown. Such a result would render legislation a useless and Idle
ceremony, and subject the law to the reproach of uncertainty and unintelligibility. It is
maintained by private respondent that the subject ordinance is not a "tax ordinance,"
because the imposition of rentals, permit fees, tolls and other fees is not strictly a taxing
power but a revenue-raising function, so that the procedure for publication under the Local
Tax Code finds no application. The pretense bears its own marks of fallacy. Precisely, the
raising of revenues is the principal object of taxation. Under Section 5, Article XI of the New
Constitution, "Each local government unit shall have the power to create its own sources of
revenue and to levy taxes, subject to such provisions as may be provided by law." And one of
those sources of revenue is what the Local Tax Code points to in particular: "Local
governments may collect fees or rentals for the occupancy or use of public markets and
premises * * *."
14
They can provide for and regulate market stands, stalls and privileges, and, also, the sale,
lease or occupancy thereof. They can license, or permit the use of, lease, sell or otherwise
dispose of stands, stalls or marketing privileges. Private respondent bewails that the market
stall fees imposed in the disputed ordinance are diverted to the exclusive private use of the
Asiatic Integrated Corporation since the collection of said fees had been let by the City of
Manila to the said corporation in a "Management and Operating Contract."The assumption is
of course saddled on erroneous premise. The fees collected do not go direct to the private
coffers of the corporation. Ordinance No. 7522 was not made for the corporation but for the
purpose of raising revenues for the city. That is the object it serves. The entrusting of the
collection of the fees does not destroy the public purpose of the ordinance. So long as the
purpose is public, it does not matter whether the agency through which the money is
dispensed is public or private. The right to tax depends upon the ultimate use, purpose and
object for which the fund is raised. It is not dependent on the nature or character of the
person or corporation whose intermediate agency is to be used in applying it. The people
may be taxed for a public purpose, although it be under the direction of an individual or
private corporation. ACCORDINGLY, the decision of the court below is hereby reversed and
set aside. Ordinance No.7522 is held validly enacted.

TOLENTINO VS. THE SECRETARY OF FINANCE Case Digest
ARTURO M. TOLENTINO VS. THE SECRETARY OF FINANCE and THE COMMISSIONER
OFINTERNAL REVENUE1994 Aug 25G.R. No. 115455235 SCRA 630
FACTS:
The valued-added tax (VAT) is levied on the sale, barter or exchange of goods and properties
as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price
or gross value in money of goods or properties sold, bartered or exchanged or of the gross
receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax
base of the existing VAT system and enhance its administration by amending the National
Internal Revenue Code. The Chamber of Real Estate and Builders Association (CREBA)
contends that the imposition of VAT on sales and leases by virtue of contracts entered into
prior to the effectivity of the law would violate the constitutional provision of “non-
impairment of contracts.”
ISSUE: Whether R.A. No. 7716 is unconstitutional on ground that it violates the contract
clause under Art. III, sec 10 of the Bill of Rights.
RULING:
No. The Supreme Court the contention of CREBA, that the imposition of the VAT on the sales
and leases of real estate by virtue of contracts entered into prior to the effectivity of the law
would violate the constitutional provision of non-impairment of contracts, is only slightly less
abstract but nonetheless hypothetical. It is enough to say that the parties to a contract
cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing
power of the State. For not only are existing laws read into contracts in order to fix
obligations as between parties, but the reservation of essential attributes of sovereign power
is also read into contracts as a basic postulate of the legal order. The policy of protecting
contracts against impairment presupposes the maintenance of a government which retains
adequate authority to secure the peace and good order of society. In truth, the Contract
Clause has never been thought as a limitation on the exercise of the State's power of taxation
save only where a tax exemption has been granted for a valid consideration.
Such is not the case of PAL in G.R. No. 115852, and the Court does not understand it to make
thisclaim. Rather, its position, as discussed above, is that the removal of its tax exemption
cannot bemade by a general, but only by a specific, law.Further, the Supreme Court held the
24
validity of Republic Act No. 7716 in its formal and substantive aspects as this has been raised
in the various cases before it. To sum up, the Court holds:(1) That the procedural
requirements of the Constitution have been complied with by Congress in the enactment of
the statute;(2) That judicial inquiry whether the formal requirements for the enactment of
statutes – beyond those prescribed by the Constitution - have been observed is precluded by
the principle of separation of powers;(3) That the law does not abridge freedom of speech,
expression or the press, nor interfere with the free exercise of religion, nor deny to any of
the parties the right to an education; and(4) That, in view of the absence of a factual
foundation of record, claims that the law is regressive, oppressive and confiscatory and that
it violates vested rights protected under the Contract Clause are prematurely raised and do
not justify the grant of prospective relief by writ of prohibition. WHEREFORE, the petitions
are DISMISSED.
Tolentino vs. Secretary of Finance G.R. No. 115455, August 25, 1994
Sunday, January 25, 2009 Political Law
Facts:
The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties
as well as on the sale or exchange of services. RA 7716 seeks to widen the tax base of the
existing VAT system and enhance its administration by amending the National Internal
Revenue Code. There are various suits challenging the constitutionality of RA 7716 on various
grounds. One contention is that RA 7716 did not originate exclusively in the House of
Representatives as required by Art. VI, Sec. 24 of the Constitution, because it is in fact the
result of the consolidation of 2distinct bills, H. No. 11197 and S. No. 1630. There is also a
contention that S. No. 1630 did not pass 3readings as required by the Constitution.
Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the Constitution
Held:
The argument that RA 7716 did not originate exclusively in the House of Representatives as
required by Art. VI, Sec. 24 of the Constitution will not bear analysis. To begin with, it is not
the law but the revenue bill which is required by the Constitution to originate exclusively in
the House of Representatives. To insist that a revenue statute and not only the bill which
initiated the legislative process culminating in the enactment of the law must substantially be
the same as the House bill would be to deny the Senate’s power not only to concur with
amendments but also to propose amendments. Indeed, what the Constitution simply means
is that the initiative for filing revenue, tariff or tax bills, bills authorizing an increase of the
public debt, private bills and bills of local application must come from the House of
Representatives on the theory that, elected as they are from the districts, the members of

the House can be expected to be more sensitive to the local needs and problems. Nor does
the Constitution prohibit the filing in the Senate of a substitute bill in anticipation of its
receipt of the bill from the House, so long as action by the Senate as a body is withheld
pending receipt of the House bill. The next argument of the petitioners was that S. No. 1630
did not pass 3 readings on separate days as required by the Constitution because the second
and third readings were done on the same day. But this was because the President had
certified S. No. 1630 as urgent. The presidential certification dispensed with the requirement
not only of printing but also that of reading the bill on separate days. That upon the
certification of a bill by the President the requirement of 3 readings on separate days and of
printing and distribution can be dispensed with is supported by the weight of legislative
practice
Facts:
These are motions seeking reconsideration of our decision dismissing the petitions filed in
these cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as
the Expanded Value-Added Tax Law. Now it is contended by the PPI that by removing the
exemption of the press from the VAT while maintaining those granted to others, the law
discriminates against the press. At any rate, it is averred, "even nondiscriminatory taxation of
constitutionally guaranteed freedom is unconstitutional."
Issue: Does sales tax on bible sales violative of religious freedom?
Held:
No. The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is
mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior
restraint on the exercise of its right. Hence, although its application to others, such those
selling goods, is valid, its application to the press or to religious groups, such as the Jehovah's
Witnesses, in connection with the latter's sale of religious books and pamphlets, I
unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income
or property of a preacher. It is quite another thing to exact a tax on him for delivering a
sermon."The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of
a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or
exchange of goods or properties or the sale or exchange of services and the lease of
properties purely for revenue purposes. To subject the press to its payment is not to burden
the exercise of its right any more than to make the press pay income tax or subject it to
general regulation isnot to violate its freedom under the Constitution.
25
FACTS:
Petitioners (Tolentino, Kilosbayan, Inc., Philippine Airlines, Roco, and Chamber of Real Estate
and Builders Association) seek reconsideration of the Court’s previous ruling dismissing the
petitions filed for the declaration of unconstitutionality of R.A. No. 7716, the Expanded
Value-Added Tax Law. Petitioners contend that the R.A. did not “originate exclusively” in the
HoR as required by Article 6, Section 24 of the Constitution. The Senate allegedly did not pass
it on second and third readings, instead passing its own version. Petitioners contend that it
should have amended the House bill by striking out the text of the bill and substituting it with
the text of its own bill, so as to conform with the Constitution.
ISSUE: W/N the R.A. is unconstitutional for having “originated” from the Senate, and not the
HoR.
HELD:
Petition is unmeritorious. The enactment of the Senate bill has not been the first instance
where the Senate, in the exercise of its power to propose amendments to bills (required to
originate in the House), passed its own version. An amendment by substitution (striking out
the text and substituting it), as urged by petitioners, concerns a mere matter of form, and
considering the petitioner has not shown what substantial difference it would make if Senate
applied such substitution in the case, it cannot be applied to the case at bar. While the
aforementioned Constitutional provision states that bills must “originate exclusively in the
HoR,” it also adds, “but the Senate may propose or concur with amendments.” The Senate
may then propose an entirely new bill as a substitute measure. Petitioners erred in assuming
the Senate version to be an independent and distinct bill. Without the House bill, Senate
could not have enacted the Senate bill, as the latter was a mere amendment of the former.
As such, it did not have to pass the Senate on second and third readings. Petitioners question
the signing of the President on both bills, to support their contention that such are separate
and distinct. The President certified the bills separately only because the certification had to
be made of the version of the same revenue bill which AT THE MOMENT was being
considered. Petitioners question the power of the Conference Committee to insert new
provisions. The jurisdiction of the conference committee is not limited to resolving
differences between the Senate and the House. It may propose an entirely new provision,
given that such are germane to the subject of the conference, and that the respective houses
of Congress subsequently approve its report. Petitioner PAL contends that the amendment of
its franchise by the withdrawal of its exemption from VAT is not expressed in the title of the
law, thereby violating the Constitution. The Court believes that the title of the R.A. satisfies
the Constitutional Requirement.
 26

Petitioners claim that the R.A. violates their press freedom and religious liberty, having
removed them from the exemption to pay VAT. Suffice it to say that since the law granted
the press a privilege, the law could take back the privilege anytime without offense to the
Constitution. By granting exemptions, the State does not forever waive the exercise of its
sovereign prerogative. Lastly, petitioners contend that the R.A. violates due process, equal
protection and contract clauses and the rule on taxation. Petitioners fail to take into
consideration the fact that the VAT was already provided for in E.O. No. 273 long before the
R.A. was enacted. The latter merely EXPANDS the base of the tax. Equality and uniformity in
taxation means that all taxable articles or kinds of property of the same class be taxed at the
same rate, the taxing power having authority to make reasonable and natural classifications
for purposes of taxation. It is enough that the statute applies equally to all persons, forms
and corporations placed in s similar situation
 27

Facts:

The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties
as well as on the sale or exchange of services. RA 7716 seeks to widen the tax base of the
existing VAT system and enhance its administration by amending the National Internal
Revenue Code. There are various suits challenging the constitutionality of RA 7716 on various
grounds.

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

Issue:

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

Held:

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

The next argument of the petitioners was that S. No. 1630 did not pass 3 readings on
separate days as required by the Constitution because the second and third readings were
done on the same day. But this was because the President had certified S. No. 1630 as
urgent. The presidential certification dispensed with the requirement not only of printing but
also that of reading the bill on separate days. That upon the certification of a billby the
President the requirement of 3 readings on separate days and of printing and distribution
can be dispensed with is supported by the weightof legislative practice.
 28

235 SCRA 630 (1994) – 249 SCRA 635 (1995) – Political Law – Origination of Revenue Bills –
EVAT – Amendment by Substitution
Arturo Tolentino et al are questioning the constitutionality of RA 7716 otherwise known as
the Expanded Value Added Tax (EVAT) Law. Tolentino averred that this revenue bill did not
exclusively originate from the House of Representatives as required by Section 24, Article 6
of the Constitution. Even though RA 7716 originated as HB 11197 and that it passed the 3
readings in the HoR, the same did not complete the 3 readings in Senate for after the 1st
reading it was referred to the Senate Ways & Means Committee thereafter Senate passed its
own version known as Senate Bill 1630. Tolentino averred that what Senate could have done
is amend HB 11197 by striking out its text and substituting it with the text of SB 1630 in that
way “the bill remains a House Bill and the Senate version just becomes the text (only the
text) of the HB”. (It’s ironic however to note that Tolentino and co-petitioner Raul Roco even
signed the said Senate Bill.)
ISSUE: Whether or not the EVAT law is procedurally infirm.
HELD:
No. By a 9-6 vote, the Supreme Court rejected the challenge, holding that such consolidation
was consistent with the power of the Senate to propose or concur with amendments to the
version originated in the HoR. What the Constitution simply means, according to the 9
justices, is that the initiative must come from the HoR. Note also that there were several
instances before where Senate passed its own version rather than having the HoR version as
far as revenue and other such bills are concerned. This practice of amendment by
substitution has always been accepted. The proposition of Tolentino concerns a mere matter
of form. There is no showing that it would make a significant difference if Senate were to
adopt his over what has been done.
Art. VI, Section 24: All appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills shall originate exclusively in the House
of Representatives, but the Senate may propose or concur with amendments.
Art. VI, Section 26(2): No bill passed by either House shall become a law unless it has passed
three readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the President certifies
to the necessity of its immediate enactment to meet a public calamity or emergency. Upon
the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall
be taken immediately thereafter, and the yeas and nays entered in the Journal.
ISSUE: Whether or not RA 7716 violated Art. VI, Section 24 and Art. VI, Section 26(2) of the
Constitution.
HELD:
No. The phrase “originate exclusively” refers to the revenue bill and not to the revenue law.
It is sufficient that the House of Representatives initiated the passage of the bill which may
undergo extensive changes in the Senate.
SB. No. 1630, having been certified as urgent by the President need not meet the
requirement not only of printing but also of reading the bill on separate days.

RA 7716, otherwise known as the Expanded Value-Added Tax Law, is an act that seeks to
widen the tax base of the existing VAT system and enhance its administration by amending
the National Internal Revenue Code. There are various suits questioning and challenging the
constitutionality of RA 7716 on various grounds.

Tolentino contends that RA 7716 did not originate exclusively from the House of
Representatives but is a mere consolidation of HB. No. 11197 and SB. No. 1630 and it did not
pass three readings on separate days on the Senate thus violating Article VI, Sections 24 and
26(2) of the Constitution, respectively.
 29

Facts: FACTS:

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

Issue: Is Roxas y Cia. liable for the payment of deficiency income for the sale of the
farmlands? No. It should be borne in mind that the sale of the farmlands to the very farmers who tilled
them for generations was not only in consonance with, but more in obedience to the request
Ruling: and pursuant to the policy of our Government to allocate lands to the landless.

No. Although they (farmers/ vendees) paid for their respective holdings in installment for a
In order to maintain the general public’s trust and confidence in the Government this power
period of 10 years, it would nevertheless not make the vendor Roxas y Cia. a real estate
must be used justly and not treacherously. It does not conform with the sense of justice for
dealer during the 10-year amortization period. It should be borne in mind that the sale of the
the Government to persuade the taxpayer to lend it a helping hand and later on penalize him
Nasugbu farm lands to the very farmers who tilled them for generations was not only in
for duly answering the urgent call.
consonance with, but more in obedience to the request and pursuant to the policy of our
Government to allocate lands to the landless. However, the Government could not comply
In fine, Roxas cannot be considered a real estate dealer and is not liable for 100% of the sale.
with its duty for lack of funds so Roxas y Cia. Shouldered the Government's burden, went out
Pursuant to Section 34 of the Tax Code, the lands sold to the farmers are capital assets and
of its way and sold lands directly to the farmers in the same way and under the same terms
the gain derived from the sale thereof is capital gain, taxable only to the extent of 50%.
as would have been the case had the Government done it itself. For this magnanimous act,
the municipal council of Nasugbu passed a resolution expressing the people's gratitude. The Facts:
power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be · Don Pedro Roxas and Dona Carmen Ayala, both Spanish, transmitted to their
exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden grandchildren by hereditary succession the following properties:
egg". And, in order to maintain the general public's trust and confidence in the Government
this power must be used justly and not treacherously. It does not conform with Our sense of a. Agricultural lands with a total area of 19,000 hectares in Nasugbu, Batangas
justice in the instant case for the Government to persuade the taxpayer to lend it a helping
- Tenants who have been tilling the lands expressed their desire to purchase from Roxas
hand and later on to penalize him for duly answering the urgent call. In fine, Roxas y Cia.
y Cia, the parcels which they actually occupied
cannot be considered a real estate dealer for the sale inquestion. Hence, pursuant toSection
34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from
the sale thereof is capital gain, taxable only to the extent of 50%.

- The govt, in line with the constitutional mandate to acquire big landed estates and
apportion them among landless tenants-farmers, persuaded the Roxas brothers to part with
their landholdings
- The brothers agreed to sell 13,500 hec to the govt for P2.079Mn, plus 300K survey and
subdivision expenses
- Unfortunately, the govt did not have funds
- A special arrangement was made with the Rehabilitation Finance Corporation to
advance to Roxas y Cia the amount of P1.5Mn as loan
- Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the
same price but by installment, and contracted with the RFC to pay its loan from the proceeds
of the yearly amortizations paid by the farmers
- In 1953 and 1955, Roxas y Cia. derived from said installment payments a net gain of
P42,480.83 and P29,500.71. 50% of said net gain was reported for income tax purposes as
gain on the sale of capital asset held for more than one year pursuant to Sec. 34 of the Tax
Code
b. Residential house and lot at Wright St., Malate, Manila
- After the marriage of Antonio and Eduardo, Jose lived in the house where he paid
rentals of 8K/year to Roxas y Cia
c. Shares of stocks in different corporations
· To manage the properties, Antonio Roxas, Eduardo Roxas and Jose Roxas, the children,
formed a partnership called Roxas y Compania
· On 1958, CIR demanded from Roxas y Cia the payment of real estate dealer's tax for
1952 amtg to P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax for
dealers of securities plus P10.00 compromise penalty for late payment.
- Basis: house rentals received from Jose, pursuant to Art. 194 of the Tax Code stating
that an owner of a real estate who derives a yearly rental income therefrom in the amount of
P3,000.00 or more is considered a real estate dealer and is liable to pay the corresponding
fixed tax
· The Commissioner further assessed deficiency income taxes against the brothers for
1953 and 1955, resulting from the inclusion as income of Roxas y Cia of the unreported 50%
of the net profits derived from the sale of the Nasugbu farm lands to the tenants, and the
30
disallowance of deductions from gross income of various business expenses and
contributions claimed by Roxas y Cia and the Roxas brothers
· The brothers protested the assessment but was denied, thus appealing to the CTA
· CTA decision: sustained the assessment except the demand for the payment of the
fixed tax on dealer of securities and the disallowance of the deductions for contributions to
the Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa
Issue: Should Roxas y Cia be considered a real estate dealer because it engaged in the
business of selling real estate
Ruling:
NO, being an isolated transaction
· Real estate dealer: any person engaged in the business of buying, selling, exchanging,
leasing or renting property on his own account as principal and holding himself out as a full
or part-time dealer in real estate or as an owner of rental property or properties rented or
offered to rent for an aggregate amount of three thousand pesos or more a year:
· Section 194 of the Tax Code, in considering as real estate dealers owners of real estate
receiving rentals of at least P3,000.00 a year, does not provide any qualification as to the
persons paying the rentals
· The fact that there were hundreds of vendees and them being paid for their respective
holdings in installment for a period of ten years, it would nevertheless not make the vendor
Roxas y Cia. a real estate dealer during the 10-year amortization period
· the sale of the Nasugbu farm lands to the very farmers who tilled them for generations
was not only in consonance with, but more in obedience to the request and pursuant to the
policy of our Government to allocate lands to the landless
· It was the duty of the Government to pay the agreed compensation after it had
persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among the
farmers at very reasonable terms and prices. But due to the lack of funds, Roxas y Cia.
shouldered the Government's burden, went out of its way and sold lands directly to the
farmers in the same way and under the same terms as would have been the case had the
Government done it itself
 31

· The power of taxation is sometimes called also the power to destroy. Therefore it d. Contribution to Our Lady of Fatima chapel at the FEU
should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It
must be exercised fairly, equally and uniformly · University gives dividends to its stockholders

· Therefore, Roxas y Cia. cannot be considered a real estate dealer for the sale in
question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are
capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the
extent of 50%
As to the deductions
· Located within the premises of the university, the chapel in question has not been
shown to belong to the Catholic Church or any religious organization
· The contributions belongs to the Far Eastern University, contributions to which are not
deductible under Section 30(h) of the Tax Code for the reason that the net income of said
university injures to the benefit of its stockholders.

a. P40 tickets to a banquet given in honor of Sergio Osmena and P28 San Miguel beer
given as gifts to various persons – representation expenses
· Representation expenses: deductible from gross income as expenditures incurred in
carrying on a trade or business
No deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose Roxas.
For 1955 they are liable to pay deficiency income tax in the sum of P109.00, P91.00 and
P49.00, respectively.

· In this case, the evidence does not show such link between the expenses and the
business of Roxas y Cia

b. Contributions to the Pasay police and fire department and other police departments as
Christmas funds

· Contributions to the Christmas funds are not deductible for the reason that the
Christmas funds were not spent for public purposes but as Christmas gifts to the families of
the members of said entities

· Under Section 39(h), a contribution to a government entity is deductible when used

exclusively for public purposes

· As to the contribution to the Manila Police trust fund, such is an allowable deduction
for said trust fund belongs to the Manila Police, a government entity, intended to be used
exclusively for its public functions.

c. Contributions to the Philippines Herald's fund for Manila's neediest families

· The contributions were not made to the Philippines Herald but to a group of civic
spirited citizens organized by the Philippines Herald solely for charitable purposes

· There is no question that the members of this group of citizens do not receive profits,
for all the funds they raised were for Manila's neediest families. Such a group of citizens may
be classified as an association organized exclusively for charitable purposes mentioned in
Section 30(h) of the Tax Code
 32

Chavez v Ongpin taxes. In fact, according to him, the application of the assailed order will cause an excessive
GR No 76778, June 6, 1990 increase in real property taxes by 100% to 400% on improvements and up to 100% on land.

FACTS: ISSUE:

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

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

FACTS:

Section 21 of Presidential Decree No. 464 provides that every five years starting calendar
year 1978, there shall be a provincial or city general revision of real property assessments.
The revised assessment shall be the basis for the computation of real property taxes for the
five succeeding years. On the strength of the aforementioned law, the general revision of
assessments was completed in 1984. However, Executive Order No. 1019 was issued, which
deferred the collection of real property taxes based on the 1984 values to January 1,1988
instead of January 1, 1985.On November 25, 1986, President Corazon Aquino issued
Executive order No.73. It states that beginning January 1, 1987, the 1984 assessments shall
be the basis of the real property collection. Thus, it effectively repealed Executive Order No.
1019.Francisco Chavez, a taxpayer and a land-owner, questioned the constitutionality of
Executive Order No. 73. He alleges that it will bring unreasonable increase in real property
 33

Diaz vs. Secretary of Finance (2011) reasonable margin of income. Although toll fees are charged for the use of public facilities,
therefore, they are not government exactions that can be properly treated as a tax. Taxes
Facts: may be imposed only by the government under its sovereign authority, toll fees may be
demanded by either the government or private individuals or entities, as an attribute of
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for
ownership.
declaratory relief assailing the validity of the impending imposition of value-added tax (VAT)
by the Bureau of Internal Revenue (BIR) on the collections of tollway operators. Court treated May toll fees collected by tollway operators be subject to VAT?
the case as one of prohibition. Petitioners hold the view that Congress did not, when it
enacted the NIRC, intend to include toll fees within the meaning of "sale of services" that are YES.
subject to VAT; that a toll fee is a "user's tax," not a sale of services; that to impose VAT on
toll fees would amount to a tax on public service; and that, since VAT was never factored into (1) VAT is imposed on “all kinds of services” and tollway operators who are engaged in
the formula for computing toll fees, its imposition would violate the non-impairment clause constructing, maintaining, and operating expressways are no different from lessors of
of the constitution. The government avers that the NIRC imposes VAT on all kinds of services property, transportation contractors, etc.
of franchise grantees, including tollway operations; that the Court should seek the meaning
(2) Not only do they fall under the broad term under (1) but also come under those described
and intent of the law from the words used in the statute; and that the imposition of VAT on
as “all other franchise grantees” which is not confined only to legislative franchise grantees
tollway operations has been the subject as early as 2003 of several BIR rulings and circulars.
since the law does not distinguish. They are also not a franchise grantee under Section 119
The government also argues that petitioners have no right to invoke the non-impairment of
which would have made them subject to percentage tax and not VAT.
contracts clause since they clearly have no personal interest in existing toll operating
agreements (TOAs) between the government and tollway operators. At any rate, the non-
(3) Neither are the services part of the enumeration under Section 109 on VAT-exempt
impairment clause cannot limit the State's sovereign taxing power which is generally read
transactions.
into contracts.
(4) The toll fee is not a user’s tax and thus it is permissible to impose a VAT on the said fee.
Issue: May toll fees collected by tollway operators be subjected to VAT (Are tollway
The MIAA case does not apply and the Court emphasized that toll fees are not taxes since
operations a franchise and/or a service that is subject to VAT)?
they are not assessed by the BIR and do not go the general coffers of the government. Toll
fees are collected by private operators as reimbursement for their costs and expenses with a
Ruling:
view to a profit while taxes are imposed by the government as an attribute of its sovereignty.
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter's Even if the toll fees were treated as user’s tax, the VAT can not be deemed as a ‘tax on tax’
use of the tollway facilities over which the operator enjoys private proprietary rights that its since the VAT is imposed on the tollway operator and the fact that it might pass-on the same
contract and the law recognize. In this sense, the tollway operator is no different from the to the tollway user, it will not make the latter directly liable for VAT since the shifted VAT
service providers under Section108 who allow others to use their properties or facilities for a simply becomes part of the cost to use the tollways.
fee. Tollway operators are franchise grantees and they do not belong to exceptions that
(5) The assertion that the VAT imposed is not administratively feasible given the manner by
Section 119 spares from the payment of VAT. The word "franchise" broadly covers
which the BIR intends to implement the VAT (i.e., rounding off the toll rates and putting any
government grants of a special right to do an act or series of acts of public concern. Tollway
excess collection in an escrow account) is not enough to invalidate the law. Non-observance
operators are, owing to the nature and object of their business, "franchise grantees." The
of the canon of administrative feasibility will not render a tax imposition invalid “except to
construction, operation, and maintenance of toll facilities on public improvements are
the extent that specific constitutional or statutory limitations are impaired”.
activities of public consequence that necessarily require a special grant of authority from the
state. A tax is imposed under the taxing power of the government principally for the purpose
of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by
private tollway operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as to assure them a
 34

Kapatiran ng mga Naglilingkod sa Pamahalaan v Tan GR No 81311 June 30, 1988

FACTS:

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

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

RULING:

No. The phrase “except custom brokers” is not meant to discriminate against custom brokers
but to avert a potential conflict between Sections 102 and 103 of the Tax Code, as amended.
The distinction of the customs brokers from the other professionals who are subject to
occupation tax under the Local Tax Code is based on material differences, in that the
activities of customs partake more of a business, rather than a profession and were thus
subjected to the percentage tax under Section 174 of the Tax Code prior to its amendment
by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the
Association did not protest the classification of customs brokers then, there is no reason why
it should protest now.

PASCUAL vs. SECRETARY OF PUBLIC WORKS
110 PHIL 331
GR No. L-10405, December 29, 1960
"A law appropriating the public revenue is invalid if the public advantage or benefit, derived
from such expenditure, is merely incidental in the promotion of a particular enterprise."
FACTS: Governor Wenceslao Pascual of Rizal instituted this action for declaratory relief, with
injunction, upon the ground that RA No. 920, which apropriates funds for public works
particularly for the construction and improvement of Pasig feeder road terminals. Some of
the feeder roads, however, as alleged and as contained in the tracings attached to the
petition, were nothing but projected and planned subdivision roads, not yet constructed
within the Antonio Subdivision, belonging to private respondent Zulueta, situated at Pasig,
Rizal; and which projected feeder roads do not connect any government property or any
important premises to the main highway. The respondents' contention is that there is public
purpose because people living in the subdivision will directly be benefitted from the
construction of the roads, and the government also gains from the donation of the land
supposed to be occupied by the streets, made by its owner to the government.
ISSUE: Should incidental gains by the public be considered "public purpose" for the purpose
of justifying an expenditure of the government?
HELD:
No. It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude of
the interest to be affected nor the degree to which the general advantage of the community,
and thus the public welfare, may be ultimately benefited by their promotion. Incidental to
the public or to the state, which results from the promotion of private interest and the
prosperity of private enterprises or business, does not justify their aid by the use public
money.
The test of the constitutionality of a statute requiring the use of public funds is whether the
statute is designed to promote the public interest, as opposed to the furtherance of the
35
advantage of individuals, although each advantage to individuals might incidentally serve the
public.
110 Phil. 331 – Political Law – Appropriation For Private Use Not Allowed
In 1953, Republic Act No. 920 was passed. This law appropriated P85,000.00 “for the
construction, reconstruction, repair, extension and improvement Pasig feeder road
terminals”. Wenceslao Pascual, then governor of Rizal, assailed the validity of the law. He
claimed that the appropriation was actually going to be used for private use for the terminals
sought to be improved were part of the Antonio Subdivision. The said Subdivision is owned
by Senator Jose Zulueta who was a member of the same Senate that passed and approved
the same RA. Pascual claimed that Zulueta misrepresented in Congress the fact that he owns
those terminals and that his property would be unlawfully enriched at the expense of the
taxpayers if the said RA would be upheld. Pascual then prayed that the Secretary of Public
Works and Communications be restrained from releasing funds for such purpose. Zulueta, on
the other hand, perhaps as an afterthought, donated the said property to the City of Pasig.
ISSUE: Whether or not the appropriation is valid.
HELD:
No, the appropriation is void for being an appropriation for a private purpose. The
subsequent donation of the property to the government to make the property public does
not cure the constitutional defect. The fact that the law was passed when the said property
was still a private property cannot be ignored. “In accordance with the rule that the taxing
power must be exercised for public purposes only, money raised by taxation can be
expanded only for public purposes and not for the advantage of private individuals.”
Inasmuch as the land on which the projected feeder roads were to be constructed belonged
then to Zulueta, the result is that said appropriation sought a private purpose, and, hence,
was null and void.

NPC v Albay
FACTS:
The province of Albay sought to sell Napocor properties in order for the proceeds to be
applied to the real property taxes Napocor allegedly owned the Albay provincial government.
Napocor opposed alleging that it was immune from taxes citing Resolution 17-87 of the Fiscal
Incentives Review Board (FIRB).
ISSUE: Whether the granting of exemption by the FIRB constituted undue delegation of
taxing power
RULING:
Yes, it is undue delegation. It has no authority to impose taxes or revoke existing ones, which,
after all, under the
constitution, only the legislature may accomplish.
Petition to reconsider decision of Court promulgated on May 31, 1991Facts:This case is
regarding a matter of indirect tax exemption of the private respondent National Power
Corporation (NPC) which is brought to the Supreme Court (SC) a second time by petitioner
Senator Ernesto Maceda.On November 3, 1936, Commonweath Act No. 120 (An Act Creating
The “National Power Corporation,” And Prescribing Its Powers And
Activities, Appropriating The Necessary Funds Therefore, And Reserving The Unappropriated
Public Waters For Its Use) was enacted creating the NPC, which is a public corporation,
mainly to develop hydraulic power and the production of power from other sources in the
Philippines (Com. Act No. 120, secs 1 & 2(g)).The main source of funds for the NPC was the
flotation of bonds in the capital markets and such bonds were exempt from payment of all
taxesin order for the corporation to facilitate payment of its indebtedness. On September 10,
1971, Republic Act No. 6395 (An Act Revising The Charter Of The National Power
Corporation) was enacted, which tasked NPC to carry out the policy of national
electrification, and provided for the details of NPC’s tax exemption.On January 22, 1974,
Presidential Decree No. 380 was issued and specified that NPC’s tax exemption includes all
taxes imposed “directly and indirectly” on all petroleum products used by NPC in its
operation.On May 27, 1976, Presidential Decree 938 amended R.A 6395 which integrated the
tax exemption privilege of NPC in general terms –
“Section10 … To enable the Corporation to pay its indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in Section One of this Act,
the Corporation, including its subsidiaries, is hereby declared exempt from the payment of all
36
forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees,
appeal bonds, supersedeas bonds, in any court or administrative proceedings.”
After a series of withdrawal and restoration of NPC’s tax exemption, the Fiscal Incentives
Review Board, possessing the power restore tax exemptions, issued Resolution 10-85
(February 7, 1985) restoring NPC’s exemption from June 11, 1984 to June 30, 1985.Since
1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products sold
and delivered to NPC. Such taxes were paid on their sales of oil products to NPC only in 1984.
NPC claimed for a refund of P468.58 Million (1984-1986), and only a portion was approved
and released by Caltex. The claim for the refund of taxes paid by PetroPhil, Shell and Caltex
was denied. NPC moved for reconsideration, stating that all the deliveries of petroleum
products to NPC are tax exempt.
Petitioner contends that Presidential Decree No. 938 (1976) repealed the indirect tax
exemption of NPC as Sec 10 thereof does not expressly include “indirect taxes”.
Issue: Whether the National Power Corporation still possessed indirect tax exemption after
the repeal made in PD 938
Held:
Yes, NPC still possess the exemption to indirect taxes.NPC laws show that it has been the
lawmaker’s intention that the NPC was to be completely tax exempt from all forms of taxes –
direct and indirect. One common theme in all these laws is that the NPC must be able topay
its indebtedness which, as of P.D. No. 938, was P12 Billion in total domestic indebtedness, at
any one time, and U$4 Billion in total foreign loans at any one time. The NPC must be and has
to be exempt from all forms of taxes if this goal is to be achieved. In addition to this, the then
President Marcos mandated that 200 Million pesos be appropriated annually to NPC, such
amount should be taken from the general fund of the government. It does not stand to
reason that the then President would order 200 million pesos to be taken partially or totally
from the tax money to be used to pay the government subscription in the NPC on one hand
and order NPC to pay its indirect tax. Furthermore, section 10 of PD 938 was intended to be
in its general form, President Marcos must have considered all the NPC statutes from C.A 120
up to its latest amendments, PD 380, PD 395 and PD 758 and came up with a very simple
Section 13, RA 6395, as amended by PD 938.When construing a series of statutes, they shall
be taken and construed together, as in statutes in pari materia. And in addition, repeal by
implication is not favoured unless it is manifest that the legislature so intended.
Facts:
The petition seeks to nullify certain decisions, orders, ruling, and resolutions of the
respondents (Macaraig et. al) for exempting the National Power Corporation (NPC) from
 37

indirect tax and duties. Commonwealth Act 120 created NPC as a public corporation. RA 6395
revised the charter of NPC and provided in detail the exemption of NPC from all taxes, duties
and other charges by the government. There were many resolutions and decisions that
followed after RA 6395 which talked about the exemption and non-exemption from taxes of
NPC.

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

Held:

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

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

Some Notes on Direct and Indirect Taxes:

Direct Taxes – those which a taxpayer is directly liable on the transaction or business it
engages in. Examples are: custom duties, ad valorem taxes paid by oil companies for
importation of crude oil

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

Examples are: ad valorem taxes that oil companies pay to BIR upon removal of petroleum
products from its refinery can be shifted to its buyer, like the NPC

Dissenting Opinion of Justice Sarmiento: The fact that NPC has been tasked with the
enormous undertaking to improve the quality of life, is no reason, to include indirect taxes,
within the coverage of its preferential tax treatment. The deletion of “indirect taxes” as
stated in one of the assailed orders (PD 938), is significant, because if said law truly intends to
exempt NPC from indirect taxes, it would have said so specifically.
 38

BOARD OF ASSESSMENT APPEALS OF LAGUNA vs. CTA, NWSA which to defray the cost of the operation of the Government, and a tax on property of the
8 SCRA 224 Government, whether national or local, would merely have the effect of taking money from
GR No. L-18125, May 31, 1963 one pocket to put it in another pocket. Hence, it would not serve, in the final analysis, the
main purpose of taxation. What is more, it would tend to defeat it, on account of the paper
"A tax on property of the Government, whether national or local, would merely have the work, time and consequently, expenses it would entail.
effect of taking money from one pocket to put it in another pocket."

FACTS:

National Waterworks and Sewerage Authority (NWSA), a public corporation owned by the
Government of the Philippines as well as all property comprising waterworks and sewerage
systems placed under it, took over the Cabuyao-Sta. Rosa-Biñan Waterworks System in 1956.
It was assessed by the Provincial Assessor of Laguna, for purposes of real estate taxes, on the
real properties owned by Cabuyao Waterworks. The respondent protested claiming it is
exempted from the payment of real estate taxes in view of the nature and kind of said
property and functions and activities of petitioner. The petitioner denied the protest arguing
that such real properties are subject to real estate tax because although said properties
belong to the Republic of the Philippines, the same holds it, not in its governmental, political
or sovereign capacity, but in a private, proprietary or patrimonial character, which, allegedly,
is not covered by the exemption contained in section 3(a) of Republic Act No. 470.

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

HELD:

No. Republic Act No. 470 makes no distinction between property held in a sovereign,
governmental or political capacity and those possessed in a private, proprietary or
patrimonial character. And where the law does not distinguish neither may we, unless there
are facts and circumstances clearly showing that the lawmaker intended the contrary, but no
such facts and circumstances have been brought to our attention. Indeed, the noun
"property" and the verb "owned" used in said section 3(a) strongly suggest that the object of
exemption is considered more from the view point of dominion, than from that of domain.
Moreover, taxes are financial burdens imposed for the purpose of raising revenues with
 39

Pepsi-Cola Bottling Company of the Phils, Inc v Tanauan GR No. L-31156, February 27, 1976
5. Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September
FACTS: 1962, the Municipality approved Ordinance No. 23 which levies and collects “from
Pepsi Cola Bottling Company commenced a complaint with preliminary injunction before the
soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo
Court of First Instance of
Leyte for the court to declare Section 2 of RA 2264 (Local Autonomy Act) unconstitutional as for every bottle of soft drink corked.”
an undue delegation of taxing authority as well as to declare Ordinances Nos 23 and 27 of
municipality of Tanauan, Leyte. Municipal Ordinance No. 23 (9/25/1962) levies and collects 6. In December 1962, the Municipality also approved Ordinance No. 27 which levies
from softdrinks producers and manufacturers a tax of 1/16 of a centavo for every bottle of
softdrink corked. Municipal ordinance no. 27 (10/28/1962) levies and collects on softdrinks and collects “on soft drinks produced or manufactured within the territorial
produced or manufactured within the territorial jurisdiction of this municipality a tax of 1 jurisdiction of this municipality a tax of one centavo P0.01) on each gallon of
centavo on each gallon of volume capacity. The taxes imposed are denominated as
“municipal production tax”. CFI-Leyte dismissed the complaint. Hence, this petition. volume capacity.”

ISSUES: 7. Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute
double taxation in two instances: a) double taxation because Ordinance No. 27
1. Is Section 2 of RA 2264 an undue delegation of power, confiscatory and
covers the same subject matter and impose practically the same tax rate as with
oppressive?
2. Do ordinances nos. 23 and 27 constitute double taxation and impose percentage or Ordinance No. 23, b) double taxation because the two ordinances impose
specific taxes?
percentage or specific taxes.
3. Are ordinance nos. 23 and 27 unjust and unfair?
8. Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows
RULING:
for the delegation of taxing powers to local government units; that allowing local
1. No. Under the New Constitution, local governments are granted the autonomous governments to tax companies like Pepsi Cola is confiscatory and oppressive.
authority to create their own sources of
revenue and to levy taxes. Section 5, Article XI provides: “Each local government 9. The Municipality assailed the arguments presented by Pepsi Cola. It argued, among
unit shall have the power to create its sources of revenue and to levy taxes, subject
others, that only Ordinance No. 27 is being enforced and that the latter law is an
to such limitations as may be provided by law.” Thus, legislative powers may be
delegated to local governments in respect of matters of local concern. amendment of Ordinance No. 23, hence there is no double taxation.
2. No. The intention of the Municipal Council of Tanauan in enacting Ordinance No.
27 is thus clear: it was intended as a plain substitute for the prior ordinance no. 23 ISSUE: Whether or not there is undue delegation of taxing powers. Whether or not there is
and operates as a repeal of the latter, even without words to that effect. The tax is
not a percentage tax as the volume capacity of the taxpayer’s production of double taxation.
softdrinks is considered solely for purposes of determining the tax rate on the
products but there is no set ratio between volume of sales and amount of the tax.
Nor can the tax levied be treated as a specific tax. Softdrink is not one of those
specified articles. HELD:
3. No. Municipal corporations are allowed much discretion in determining the rates of
imposable taxes. This is in line with the constitutional policy of according the No. There is no undue delegation. The Constitution even allows such delegation. Legislative
widest possible autonomy to local governments in matters of local taxation, an powers may be delegated to local governments in respect of matters of local concern. By
aspect that is given expression in the Local Tax Code.
necessary implication, the legislative power to create political corporations for purposes of
4. 69 SCRA 460 – Taxation – Delegation to Local Governments – Double Taxation
local self-government carries with it the power to confer on such local governmental
agencies the power to tax. Under the New Constitution, local governments are granted the
 40

autonomous authority to create their own sources of revenue and to levy taxes. Section 5,
Article XI provides: “Each local government unit shall have the power to create its sources of
revenue and to levy taxes, subject to such limitations as may be provided by law.” Withal, it
cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of
the legislative power to enact and vest in local governments the power of local taxation.

10. There is no double taxation. The argument of the Municipality is well taken.
Further, Pepsi Cola’s assertion that the delegation of taxing power in itself
constitutes double taxation cannot be merited. It must be observed that the
delegating authority specifies the limitations and enumerates the taxes over which
local taxation may not be exercised. The reason is that the State has exclusively
reserved the same for its own prerogative. Moreover, double taxation, in general,
is not forbidden by our fundamental law unlike in other jurisdictions. Double
taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit
of the same governmental entity or by the same jurisdiction for the same
purpose, but not in a case where one tax is imposed by the State and the other by
the city or municipality.

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY V. FERDINAND J. MARCOS (Presiding
Judge of RTC Cebu)
FACTS
Mactan Cebu International Airport Authority was created by virtue of RA 6958 to manage the
Mactan International Airport and the Lahug Airport. Since the time of its creation, petitioner
MCIAA enjoyed the privilege of exemption from payment of realty taxes. In Section 14 of its
Charter provides that “the Authority shall be exempt from realty taxes imposed by the
National Government or any of its political subdivisions, agencies and instrumentalities.”
In 1994, however, the Office of the Treasurer of the City of Cebu demanded payment for
realty taxes on several parcels of land belonging to petitioner. Petitioner objected to such
demand, citing Sec. 14. It asserted that it is an instrumentality of the government which
performs governmental functions, citing Sec. 133 of the Local Government Code which puts
limitations on the taxing powers of local government units. Sec. 133, LGC provides that the
exercise of the taxing powers of provinces, cities, municipalities and barangays shall not
extend to the levy of... taxes, fees or charges of any kind on the National government, its
agencies and instrumentalities and local government units. The Respondent City refused to
cancel and set aside the realty tax account, insisting that the MCIAA is a GOCC whose tax
exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the LGC. Sec.
193 provides that tax exemptions or incentives granted to or presently enjoyed by all
persons, whether natural or juridical, including GOCCs except local water districts,
cooperatives duly registered under RA 6938, non-stock and non-profit hospitals and
educational institutions are hereby withdrawn upon the effectivity of this Code. Section 234
meanwhile provides that exemption from payment of real property tax previously granted to
or presently enjoyed by all persons, whether natural or juridical, including GOCCs are hereby
withdrawn upon the effectivity of the LGC.
Because the City of Cebu was about to issue a warrant of levy against the properties of
MCIAA, the latter was compelled to pay its tax account under protest. MCIAA likewise filed a
petition for declaratory relief with the RTC of Cebu, contending that the taxing powers of
local government units do not extend to the levy of taxes or fees of any kind on an
instrumentality of the national government. MCIAA insisted that while it is indeed a GOCC, it
nontheless stands on the same footing as an agency or instrumentality of the national
government by the very nature of its powers and functions. The City however maintained
that MCIAA is not an instrumentality of the government but merely a GOCC performing
proprietary functions, and hence, the exemptions granted to it were deemed withdrawn by
virtue of Secs. 193 and 234 of the LGC.
41
The trial court dismissed the petition. MR denied. Hence this petition. Petitioner asserts that
although it is a GOCC, it is mandated to perform functions in the same category as an
instrumentality of the government. An instrumentality of the Government is one created to
perform governmental functions primarily to promote certain aspects of the economic life of
the people. Petitioner further contends that being an instrumentality of the National
Government, respondent City of Cebu has no power nor authority to impose realty taxes
upon it in accordance with Sec. 133 of the LGC. In Basco v. PAGCOR, the SC said the local
governments have no power to tax instrumentalities of the National Gov't like PAGCOR,
which has a dual role (its role to regulate gambling casinos is governmental, placing it in the
category of an agency or instrumentality of the Government which should be exempt from
local taxes. Petitioner thus concludes that there is a distinction in the LGC between a GOCC
performing gov't functions as against one performing merely proprietary ones, and it is clear
from Secs. 133 and 234, LGC that the legislature meant to exclude instrumentalities of the
national government from the taxing powers of LGUs.
ISSUE: Whether petitioner is exempted from payment of taxes or not
RULING:
No. Taxation is the rule and exemption is the exception. Thus, the exemption may be
withdrawn at the pleasure of the taxing authority. The only exception to this rule is where
the exemption was granted to private parties based on material consideration of a mutual
nature, which then becomes contractual and is thus covered by the non-impairment clause
of the Constitution. The general rule, as laid down in Section 133 of the LGC is that the taxing
powers of LGUs cannot extend to the levy of, inter alia, “taxes, fees and charges of any kind
on the National Government, its agencies, and instrumentalities, and LGUs.” However,
pursuant to Section 232, provinces, cities and municipalities in the Metro Manila Area MAY
impose real property taxes except on inter alia, real property owned by the Republic of the
Philippines or any of its political subdivisions except when the beneficial use thereof has
been granted for consideration or otherwise, to a taxable person (Sec. 234a).
As to tax exemptions/incentives granted to or presently enjoyed by natural or juridical
persons, including GOCCs,
GENERAL RULE: Tax exemptions or incentives are withdrawn upon the effectivity of the LGC
EXCEPTION: Those granted to local water districts, cooperatives duly registered under RA
6938, non-stock and non-profit hospitals and educ institutions, and unless otherwise
provided in the LGC. This latter proviso could refer to Section 234 enumerating the
properties exempt from real property tax. The last paragraph of Section 234 further qualifies
the retention of the exemption insofar as real property taxes are concerned by limiting the

retention only to those enumerated therein; all others not included in the enumeration
therefore lost the privilege upon the effectivity of the LGC. Even as to real property owned by
the Rep. Of the Philippines or any of its political subdivisions covered by item (a) of the first
paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property
has been granted to a taxable person for consideration or otherwise. Since the last paragraph
of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from
payment of real property taxes granted to natural or juridical persons, including government-
owned or controlled corporations, except as provided in the said section, and the petitioner
is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption
from such tax granted it by its charter has been withdrawn.
Mactan Cebu International Airport Authority v Marcos GR No 120082, September 11, 1996
FACTS:
Petitioner was created by virtue of RA 6958. Section 1 thereof states that the authority shall
be exempt from realty taxes imposed by the National Government or any of its political
subdivisions, agencies and instrumentalities. However, the Treasurer of Cebu City demanded
payment for realty taxes from petitioner. Petitioner filed a declaratory relief before the
Regional Trial Court. The trial court dismissed the petitioner ruling that the Local Government
Code withdrew the tax exemption granted to Government owned and controlled
corporation.
ISSUE: Whether the city of Cebu has the power to impose taxes on petitioner
RULING:
Yes. Taxation is the rule and exemption is the exception, the exemption may thus be
withdrawn at the pleasure of the taxing authority. As to tax exemptions or incentives granted
to or presently enjoyed by natural or juridical persons, including government- owned and
controlled corporations, section 193 of the LGC prescribes the general rule, viz, they are
withdrawn upon the effectivity of the LGC, except those granted to local water districts,
cooperatives, duly registered under RA 6938, non stock and nonprofit hospitals and
educational institutions and unless otherwise provided in the LGC.
Facts:
Petitioner Mactan Cebu International Airport Authority was created by virtue of R.A. 6958,
mandated to principally undertake the economical, efficient, and effective control,
42
management, and supervision of the Mactan International Airport and Lahug Airport, and
such other airports as may be established in Cebu.
Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from
payment of realty taxes in accordance with Section 14 of its charter. However, on October
11, 1994, Mr. Eustaquio B. Cesa, Officer in Charge, Office of the Treasurer of the City of Cebu,
demanded payment from realty taxes in the total amount of P2229078.79. Petitioner
objected to such demand for payment as baseless and unjustified claiming in its favor the
afore cited Section 14 of R.A. 6958. It was also asserted that it is an instrumentality of the
government performing governmental functions, citing Section 133 of the Local Government
Code of 1991.
Section 133. Common limitations on the Taxing Powers of Local Government Units.
The exercise of the taxing powers of the provinces, cities, barangays, municipalities shall not
extend to the levi of the following:
xxx Taxes, fees or charges of any kind in the National Government, its agencies and
instrumentalities, and LGU’s. xxx
Respondent City refused to cancel and set aside petitioner’s realty tax account, insisting that
the MCIAA is a government-controlled corporation whose tax exemption privilege has been
withdrawn by virtue of Sections 193 and 234 of Labor Code that took effect on January 1,
1992.
Issue: Whether or not the petitioner is a “taxable person”
Rulings:
Taxation is the rule and exemption is the exception. MCIAA’s 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.