 CIR v. St. Luke’s Medical Center RULINGS:  CIR v. St.
 CIR v. St. Luke’s Medical Center (2012): Tax treatment of the income
 CIR v. St. Luke’s Medical Center (2017): The Doctrine of Stare Decisis
dictates that absent any powerful countervailing considerations, like cases
ought to be decided alike.
 CIR v. St. Luke’s Medical Center (2012): Meaning of “charitable
institution” for purposes of enjoying tax exemption:
To be charitable institution, an organization must meet the substantive
test of charity in “Lung Center.” Charity is essentially a gift to an indefinite
number of persons which lessens the burden of government. In other
words, charitable institutions provide for FREE GOODS AND SERVICES to
the PUBLIC which would otherwise fall on the shoulders of government.
Thus, as a matter of efficiency, the government forgoes taxes which should
have been spent to address public needs, because certain private entities
already assume a part of the burden. This is the rationale of the tax
exemption of charitable institutions. The loss of taxes by the government
is compensated by its relief from doing public works which would have
been funded by appropriations from the Treasury. Henceforth, nonstock
nonprofit corporations which claim to be charitable institutions, yet, they
fail to meet the definition of “charitable” institutions, are not entitled to
income tax exemption under Sec. 30(E), NIRC.
 CIR v. St. Luke’s Medical Center (2017): Rationale for Income Tax
Exemption of Charitable Institution:
A tax exemption is effectively a social subsidy granted by the State
because an exempt institution is spared from sharing in the expenses of
government and yet benefits from them. Tax exemptions for charitable
institutions should therefore be limited to institutions beneficial to the
public and those which improve social welfare. A profit-making entity
should not be allowed to exploit this subsidy to the detriment of the
government and other taxpayers.
derived by a nonstock nonprofit Hospital from its paying patient:
Being organized as a nonstock nonprofit charitable institution
does not ipso facto mean that the hospital is also totally exempt from
income tax. To be exempt from income tax, Sec. 30E, NIRC, requires that a
charitable institution must be “organized and operated exclusively” for
charitable purposes. But, although Sec. 30G provides that the institution
should be “operated exclusively” for charitable purposes, it is nevertheless
allowed to engage in “activities conducted for profit” without losing its tax
exempt status for its not-for-profit activities. The only consequence is that
the “income of whatever kind and character” of a charitable institution “
from any of its activities conducted for profit regardless of the disposition
made of such income, shall be subject to tax.”
Thus, in this case, its income from its paying patients is subject to
income tax, while the income, if any, from its free medical services shall
remain as tax exempt. But being a proprietary nonprofit hospital, it is
entitled to the preferential tax rate of 10% (not 30%) on its net income
from it’s for profitable activities under Sec. 27B of the NIRC. EXCEPT when
its gross income from unrelated trade or business activities EXCEEDS 50%
of the total gross income derived from all sources. In which case, it will be
subject to 30% on the entire taxable income.
 CIR v. St. Luke’s Medical Center (2017): Effect of the introduction of Sec.
27 (B) in the Tax Code of 1997:
Prior to the introduction of Sec. 27 (B), the tax rate on such income
from for-profit activities was the ordinary corporate rate under Section
27(A). With the introduction of Section 27(B), the tax rate is now 10%. Sec.
30, NIRC expressly qualifies that income from activities for profit is taxable
'regardless of the disposition made of such income.
 CIR v. St. Luke’s Medical Center (2017): Meaning of Charitable:
To be a charitable institution, however, an organization must meet
the substantive test of charity in Lung Center. The issue in Lung Center
concerns exemption from real property tax and not income tax. However, it
provides for the test of charity in our jurisdiction. Charity is essentially a
 gift to an indefinite number of persons which lessens the burden of
government. In other words, charitable institutions provide for free goods
and services to the public which would otherwise fall on the shoulders of
government. Thus, as a matter of efficiency, the government forgoes taxes
which should have been spent to address public needs, because certain
private entities already assume a part of the burden. This is the rationale
for the tax exemption of charitable institutions. The loss of taxes by the
government is compensated by its relief from doing public works which
would have been funded by appropriations from the Treasury.
 CIR v. St. Luke’s Medical Center (2017): Treatment for tax exemption for
charitable and educational institutions:
A tax exemption is effectively a social subsidy granted by the State
because an exempt institution is spared from sharing in the expenses of
government and yet benefits from them. Tax exemptions for charitable
institutions should therefore be limited to institutions beneficial to the
public and those which improve social welfare. A profit-making entity
should not be allowed to exploit this subsidy to the detriment of the
government and other taxpayers.
 TAX AMNESTY VS. TAX EXEMPTION
A TAX AMNESTY is a general pardon or intentional overlooking
by the State of its authority to impose penalties on persons otherwise guilty
of evasion or violation of a revenue or tax law. It partakes of an absolute
forgiveness or waiver by the government of its right to collect what is due
it and to give tax evaders who wish to relent a chance to start with a clean
slate. A tax amnesty, much like a tax exemption, is never favored nor
presumed in law. The grant of a tax amnesty, similar to a tax exemption,
must be construed strictly against the taxpayer and liberally in favor of the
taxing authority. [CIR v. Phil. Aluminum Wheels, Inc., GR 216161, Aug. 9,
2017]
TAX EXEMPTION, on the other hand, is the "freedom from a duty,
liability or other requirement" or "a privilege given to a judgment debtor
by law, allowing the debtor to retain a certain property without liability."
 JURISDICTION OF THE SECRETARY OF FINANCE
Where what is assailed is the validity or constitutionality of a law,
or a rule or regulation issued by the administrative agency in the
performance of its quasi-legislative function, the same is subject to the
exclusive review by the Seretary of Finance, consistent with the doctrine
on exhaustion of administrative remedies, and ultimately by the REGULAR
COURTS.
 MINIMUM WAGE EARNERS
Minimum wage earner refers to a worker in the private sector
paid the SMW, or to an employee in the public sector with compensation
income of not more than the SMW in the non-agricultural sector where
he is assigned.
 TAX TREATMENT OF INCOME DERIVED BY MWES:
MWEs shall be EXEMPT from the payment of INCOME TAX derived from
the following:
1. SMW;
2. Overtime Pay;
3. Holiday Pay;
4. Night Shift Differential Pay; and
5. Hazard Pay.
 BRACKET CREEP:
Bracket creep is the process by which inflation pushes individuals
into higher tax bracket. It occurs when a higher tax rate applies to a
taxpayer, as the income increases over time, but tax thresholds are held
steady.
Bracket creep reduces the progressivity of the individuals’ income
tax scales over time. This is because the tax increase for individuals with
lower incomes is greater as a proportion of their income than for those at
higher incomes. For some people, particularly those on relatively low
incomes, bracket creep may reduce incentives to work. At higher incomes,
bracket creep increases the incentives for tax planning and structuring, and
even overseas relocation.
 Bracket creep diminishes progressivity, and exacerbates the other
problems in the individuals’ income tax system, such as reward for effort
and incentives for tax planning, over time. This phenomenon of "bracket
creep" could be prevented through the inclusion of an indexation
provision, in which the graduated tax rates are adjusted periodically
without need of amending the tax law. The 1997 Tax Code, however, has
no such indexation provision. It should be emphasized that indexation to
inflation is now a standard feature of a modern tax code. [Soriano v. Sec. of
Finance, Jan. 2017]

 DOUBLE TAXATION

DOUBLE TAXATION in the strict sense (or Direct Duplicate Taxation) –

means that 2 TAXES are imposed:
 On the SAME PERSON, property or activity ;
 For the SAME PURPOSE;
 By the SAME TAXING AUTHORITY
 During the SAME TAXING PERIOD;
 WITHIN the SAME TAXING JURISDICTION; and
 Tax imposed is of SAME KIND OR CHARACTER
 It is obnoxious when the taxpayer is taxed twice, when it should
be taxed but once. [Nursery Care Corp. v. Anthony Acevedo & the
City of Manila, GR 180651, July 30, 2014.]