c.

Uniformity and equity in taxation

classification of taxpayers, subject or items to be taxed

Sec. 28 (1), Art. VI, 1987 Constitution

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

Tolentino v. Sec. of Finance

GR No. 115455 October 30, 1995

VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No. 7716 merely expands
the base of the tax.

EO 273 satisfies all the requirements of a valid tax. It is uniform.

The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are
not exempt, at the constant rate of 0% or 10%.

Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be
taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for
purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all
persons, forms and corporations placed in similar situation.

Mla. Race Horse v. dela Fuente

GR No. L-2947 January 11, 1951

Nature:
This is an action for declaratory relief premised on the ground that petitioners are owners of boarding stables for
race horses and that their rights as such are affected by Ordinance No. 3065 of the City of Manila. They made the
Mayor of Manila defendant and prayed that said ordinance be declared invalid as violative of the Philippine
Constitution.

Facts:
The ordinance under consideration is a tax on race horses as distinct from boarding stables.

The tax is assessed not on the owners of the horses but on the owners of the stables, which is based the number of
race horses kept or maintained in the boarding stables to be paid by the maintainers.

Issue:
Whether the ordinance in question violates the constitutional mandate on uniformity and equity in taxation.

Ruling:
No.

In taxing only boarding stables for race horses the ordinance does not makes arbitrary classification. It was said
there is equality and uniformity in taxation if all articles or kinds of property of the same class are taxed at
the same rate.

The owners of boarding stables for race horses and the race horse owners themselves are a class by themselves
and appropriately taxed where owners of other kinds of horses are taxed less or not at all, considering that equity
in taxation is generally conceived in terms of ability to pay in relation to the benefits received by the taxpayer and
by the public from the business or property taxed.
Race horses are devoted to gambling if legalized, their owners derive fat income and the public hardly any profit
from horse racing, and this business demands relatively heavy police supervision. Taking everything into account,
the differentiation against which the plaintiffs complain conforms to the practical dictates of justice and equity and
is not discriminatory within the meaning of the Constitution.

Eastern Theatrical v. Alfonso

GR No. L-1104 May 31, 1949

Nature:
This is an appeal from the decision of CFI – Manila in upholding the validity of the ordinance in question which the
petitioner assails to be violative of the constitution, more specifically the uniformity and equality of taxation and
the equal protection of the laws.

Facts:

Issue:
Whether the assailed ordinance is violative on the constitutional mandate of uniformity and equality of taxation and
the equal protection of the laws.

Ruling:
No.

The fact that some places of amusement are not taxed while others, such as cinematographs, theaters, vaudeville
companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of amusement are
taxed, is no argument at all against the equality and uniformity of the tax imposition equality and uniformity of the
tax imposition.

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; and the appellants cannot point out what places of amusement taxed by
the ordinance do not constitute a class by themselves and which can be confused with those not included in the
ordinance.

Pepsi Cola v. City of Butuan

GR No. L-22814 August 28, 1968

In imposing a “tax on any person, association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola”, the SC said:

The same is discriminatory, and hence, violative of the uniformity required by the Constitution and the law
therefor, since only sales by "agents or consignees" of outside dealers would be subject to the tax.

Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales, and
even if the same exceeded those made by said agents or consignees of producers or merchants established outside
the City of Butuan, would be exempt from the disputed tax.

It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or
equality under all circumstances, or negate the authority to classify the objects of taxation. The classification made
in the exercise of this authority, to be valid, must, however, be reasonable and this requirement is not deemed
satisfied unless: (1) it is based upon substantial distinctions which make real differences; (2) these are germane
to the purpose of the legislation or ordinance; (3) the classification applies, not only to present conditions, but,
also, to future conditions substantially identical to those of the present; and (4) the classification applies equally all
those who belong to the same class.

These conditions are not fully met by the ordinance in question. Indeed, if its purpose were merely to levy a
burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by sealers other
than agents or consignees of producers or merchants established outside the City of Butuan should be exempt from
the tax.
Shell v. Vano, Mun. Treas. of Cordova, Cebu
GR No. L-6093 February 24, 1954

Nature:
This is an appeal from the judgment of holding the ordinances valid which the plaintiff-appellant assails to be ultra
vires.

Facts:
The Municipal Council of Cordova, Province of Cebu, implemented an ordinance which imposes an annual tax of
P150 on occupation or the exercise of the privilege of installation manager.

Petitioner contends that the ordinance is discriminatory and hostile because there is no other person in the locality
who exercises such "designation" or occupation.

Issue:
Whether the ordinance is discriminatory and hostile for it taxes only a specific person.

Ruling:
No.

The fact that there is no other person in the locality who exercises such a "designation" or calling does not make
the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any person or firm who
exercises such calling or occupation named or designated as "installation manager."

City of Baguio v. de Leon

GR No. L-24756 October 31, 1968

Nature:
This is an appeal from the decision of CFI – Baguio in upholding the validity of an ordinance of the City of Baguio
imposing a license fee on any person, firm, entity or corporation doing business in the City of Baguio.

Facts:
The city of Baguio implemented an ordinance which imposes a tax on real estate dealer who leases property worth
P50,000 or above must pay an annual fee of P100. If the property is worth P10,000 but not over P50,000, then he
pays P50 and P24 if the value is less than P10,000.

Petitioner contends that the same constitutes a violation of the rule of uniformity established by the constitution.

Issue:
Whether the ordinance violates the uniformity of tax as required by the constitution.

Ruling:
No.

A tax is considered uniform when it operates with the same force and effect in every place where the subject may
be found.

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.

All that is needed is that the statute or ordinance in question "applies equally to all persons, firms and
corporations placed in similar situation." Inequalities which result from a singling out of one particular class for
taxation or exemption infringe no constitutional limitation."
Kapatiran v. Tan
GR No. 81311 June 30, 1988

On the allegation that EO 273 is oppressive, discriminatory, unjust which violates the constitutional grant on
“uniformity and equality” of taxation:

EO 273 satisfies all the requirements of a valid tax. It is uniform.

The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are
not exempt, at the constant rate of 0% or 10%.

Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be
taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for
purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all
persons, forms and corporations placed in similar situation.

Villanueva v. City of Iloilo

G.R. No. L-26521 December 28, 1968

On the claim that the ordinance is violative of the grant of “uniformity of taxation” because while the owners of the
other buildings only pay real estate tax and income taxes the ordinance imposes aside from these two taxes an
apartment or tenement tax:

Since tenement houses constitute a distinct class of property, the fact that the owners of other classes of
buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is not violative of
uniformity and equality of the tax imposition.

Neither is the rule of equality and uniformity violated by the fact that tenement taxes are not imposed in other
cities, for the same rule does not require that taxes for the same purpose should be imposed in different
territorial subdivisions at the same time. So long as the burden of the tax falls equally and impartially on all
owners or operators of tenement houses similarly classified or situated, equality and uniformity of taxation is
accomplished.

Asso. of Customs Brokers v. Mun. Board

GR No. L-4376 May 22, 1953

On the claim that the ordinance violates the uniformity of taxation for it indiscriminately imposes tax to motor
vehicles who come to Manila:

The ordinance infringes the rule of the uniformity of taxation.

The ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish
between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish
between a motor vehicle registered in the City of Manila and one registered in another place but
occasionally comes to Manila and uses its streets and public highways.

The ordinance equally applies to motor vehicles that come to Manila for a temporary stay or for short errands, and
it cannot be denied that they contribute in no small degree to the deterioration of the streets and public highway.
The fact that they are benefited by their use they should also be made to share the corresponding burden.

4. Prohibition against imprisonment for non-payment of poll tax

Sec. 20, Art. III, 1987 Constitution

No person shall be imprisoned for debt or non-payment of a poll tax.

community tax v. poll tax

Sec. 156-164, R. A. 7160

Individuals Liable to Community Tax:

Natural Person (Sec 157)

1. every inhabitant of the Philippines
2. at least eighteen (18) years of age
3. who:
a. has been regularly employed for at least 30 consecutive working days
b. engaged in business or occupation
c. owns real property
d. required by law to file an income tax return

Rate:
1. ₱5; and
2. ₱1 for every ₱1,000 income
3. which shall not exceed ₱5,000

Place of payment (Sec 160) - residence

Juridical Person (Sec 158)

1. every corporation - no matter how created or organized, whether domestic or resident foreign
2. engaged in or doing business in the Philippines

Rate:
1. ₱500
2. ₱2 for every ₱5,000 worth of real property
3. ₱2 for every ₱5,000 gross receipts
4. Shall not exceed ₱10,000

Place of payment (Sec 160) - principal office

5. Prohibition against impairment of obligation of contracts

Sec. 10, Art. III, 1987 Constitution

No law impairing the obligation of contracts shall be passed.

Sec. 11, Art. XII, 1987 Constitution

No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines,
at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or
right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the
Congress when the common good so requires. The State shall encourage equity participation in public utilities by
the general public. The participation of foreign investors in the governing body of any public utility enterprise shall
be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation
or association must be citizens of the Philippines.
Tolentino v. Sec. of Finance

On CREBA’s claim 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 constitute “impairment of contracts” which is proscribed in our
constitution. The SC explained 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.

6. Prohibition against infringement of religious freedom

Sec. 5, Art. III, 1987 Constitution

No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof. The free
exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be
allowed. No religious test shall be required for the exercise of civil or political rights.

Am. Bible Society v. City of Manila

GR No. L-9637 April 30, 1957

Facts:
Plaintiff-appellant is a religious, missionary corporation. In the course of its ministry, plaintiff's Philippine agency
has been distributing and selling bibles and/or gospel portions.

The acting City Treasurer of the City of Manila then informed plaintiff that it was conducting the business of general
merchandise since November, 1945, without providing itself with the necessary Mayor's permit and municipal
license, in violation of Ordinance No. 3000 and Ordinances Nos. 2529, 3028 and 3364, and required plaintiff to
secure the corresponding permit and license fees.

Issue:
Whether the said ordinances offends the plaintiff’s freedom of religion.

Ruling:
Yes.

The power to impose a license tax on the exercise of these freedoms is indeed as potent as the power of
censorship. In doing so would impair its free exercise and enjoyment of its religious profession and worship as well
as its rights of dissemination of religious beliefs.

The constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it
the right to disseminate religious information. Any restraints of such right can only be justified like other restraints
of freedom of expression on the grounds that there is a clear and present danger of any substantive evil which the
State has the right to prevent".

Tolentino v. Sec. of Finance

GR No. 115455 October 30, 1995

On the claim that VAT is violates the freedom of religion for it constitutes prior restraint upon the exercise of the
same:
VAT is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right.

While the imposition of “license tax” on the press and religious article is unconstitutional because it lays a prior
restraint on the exercise of its right. "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."

VAT 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 is not
to violate its freedom under the Constitution.

7. Prohibition against appropriation of proceeds of taxation

Sec. 29, Art. VI, 1987 Constitution

1. No money shall be paid out of the Treasury except in pursuance of an appropriation made by law.

2. No public money or property shall be appropriated, applied, paid, or employed, directly or indirectly, for
the use, benefit, or support of any sect, church, denomination, sectarian institution, or system of religion,
or of any priest, preacher, minister, other religious teacher, or dignitary as such, except when such priest,
preacher, minister, or dignitary is assigned to the armed forces, or to any penal institution, or government
orphanage or leprosarium.

3. All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out
for such purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned,
the balance, if any, shall be transferred to the general funds of the Government.

Use of tax levied for a special purpose

If a special tax is collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special
fund' to be used only for the purpose indicated.

Osmena v. Orbos

On the claim that OPSF is a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is
collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used
only for the purpose indicated, and not channeled to another government objective:

While the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the
State.

The OPSF is a "Trust Account" which was established "for the purpose of minimizing the frequent price changes
brought about by exchange rate adjustment and/or changes in world market prices of crude oil and imported
petroleum products."

It is also segregated from the general fund.

8. Prohibition against taxation of religious, charitable and educational entities

Sec. 28 (3), Art. VI, 1987 Constitution

Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries,
and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable,or
educational purposes shall be exempt from taxation.

Abra Valley College v. Aquino

G.R. No. L-39086 June 15, 1988

Nature:
This is a petition for review on certiorari of the decision of the CFI-Abra in upholding the distraint seizure and sale
of the petitioner’s lot and building for non-payment of real estate taxes.

Facts:
Petitioner is an educational corporation and institution of higher learning.

Respondents issued "Notice of Seizure' and the "Notice of Sale" of its lot and building located at Bangued, Abra, for
non-payment of real estate taxes. The properties were later auctioned where the Municipal Mayor offered the
highest bid.

The deficiency was mainly anchored on the ground that the premises were not used exclusively for educational
purposes since the same is being used for:

(1) for the educational purposes of the college;

(2) as the permanent residence of the President and his family including the in-laws and grandchildren;
(3) for commercial purposes because the ground floor of the college building is being used and rented by
a commercial establishment, the Northern Marketing Corporation

Issue:
Whether the premises were being used exclusively for educational purposes, which would therefore mean that the
petitioner is exempt from real property taxes.

Ruling:
No.

The exemption in favor of property used exclusively for charitable or educational purposes is 'not limited to
property actually indispensable' therefor, but extends to facilities which are incidental to and reasonably
necessary for the accomplishment of said purposes, such as in the case of hospitals, "a school for training
nurses, a nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents,
and other members of the hospital staff, and recreational facilities for student nurses, interns, and residents' , such
as "Athletic fields" including "a firm used for the inmates of the institution.

Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the
Director and his family, may find justification under the concept of incidental use, which is complimentary to the
main or primary purpose—educational, the lease of the first floor thereof to the Northern Marketing Corporation
cannot by any stretch of the imagination be considered incidental to the purpose of education.

Since only a portion is used for purposes of commerce, it is only fair that half of the assessed tax be returned to
the school involved.

9. Prohibition against taxation of non-stock, non-profit educational institutions

Sec. 4 (3, 4), Art. XIV, 1987 Constitution

3. All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively
for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the
corporate existence of such institutions, their assets shall be disposed of in the manner provided by law.
 Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such
exemptions, subject to the limitations provided by law, including restrictions on dividends and provisions for
reinvestment.

4. Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually,
directly, and exclusively for educational purposes shall be exempt from tax.

Sec. 28 (3), Art. VI, Constitution

Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries,
and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation.

Sec. 27 (B) and 30 (H)

Proprietary educational institutions and hospitals which are nonprofit shall pay a tax of ten percent (10%) on their
taxable income except those covered by Subsection (D) hereof: Provided, that if the gross income from 'unrelated
trade, business or other activity' exceeds fifty percent (50%) of the total gross income derived by such educational
institutions or hospitals from all sources, the tax prescribed in Subsection (A) hereof shall be imposed on the entire
taxable income. For purposes of this Subsection, the term 'unrelated trade, business or other activity' means any
trade, business or other activity, the conduct of which is not substantially related to the exercise or performance by
such educational institution or hospital of its primary purpose or function. A 'proprietary educational institution' is
any private school maintained and administered by private individuals or groups with an issued permit to operate
from the Department of Education, Culture and Sports (DECS) [17], or the Commission on Higher Education
(CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance
with existing laws and regulations.

SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed under this Title in
respect to income received by them as such:

(h) A nonstock and nonprofit educational institution

DOF Order No. 137-87 and 149-95

CIR v. CA, CTA and YMCA

GR No. 124043 October 14, 1998

Nature:
This is a petition for review on certiorari challenging two decision of CA on affirming the Decision of the CTA
allowing the YMCA to claim tax exemption its income from the lease of its real property.

Facts:
YMCA leased out a portion of its premises to small shop owners, like restaurants and canteen operators, and
collected parking fees from non-members.

The 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.

Issue:
Whether YMCA’s income from renting out properties taxable.

Ruling:
Yes.

The provision on Article VI, Section 28 of par. 3 of the 1987 Constitution pertains only to property taxes.
YMCA also does not qualify as an educational institution within the purview of Article XIV, Section 4, par. 3 of the
Constitution.

Further, last par of Sec. 27 of the NIRC expressly disallows the exemption claimed by the YMCA which mandates
that the income of exempt organizations from any of their properties, real or personal, be subject to the tax
imposed by NIRC. "Rental income derived by a tax-exempt organization from the lease of its properties, real or
personal therefore, is not exempt from income taxation, even if such income is exclusively used for the
accomplishment of its objectives.

Additional Notes:

1. On the claim that Article VI, Section 28 of par. 3 of the 1987 Constitution, exempts "charitable
institutions" from the payment not only of property taxes but also of income tax from any source:

Justice Hilario G. Davide, Jr., a former constitutional commissioner explained that “what is exempted is
not the institution itself . . .; those exempted from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for religious, charitable or educational purposes.”

Father Joaquin G. Bernas, also a member of ConCom adhered to the same view that the exemption
created by said provision pertained only to property taxes.

Justice Jose C. Vitug concurs, stating that "[t]he tax exemption covers property taxes only." Indeed,
the income tax exemption claimed by private respondent finds no basis in Article VI, Section 26, par. 3 of
the Constitution.

2. The meaning of educational institution:

The term "educational institution" or "institution of learning" has acquired a well-known technical
meaning, of which the members of the Constitutional Commission are deemed cognizant. Under the
Education Act of 1982, such term refers to schools. The school system is synonymous with formal
education, which "refers to the hierarchically structured and chronologically graded learnings organized
and provided by the formal school system and for which certification is required in order for the learner to
progress through the grades or move to the higher levels."

Furthermore, under the Education Act of 1982, even non-formal education is understood to be school-
based and "private auspices such as foundations and civic-spirited organizations" are ruled out. It is
settled that the term "educational institution," when used in laws granting tax exemptions, refers to a ". .
. school seminary, college or educational establishment.

CIR v. CA, CTA and Ateneo

GR No. 115349 April 18, 1997

Nature:
This is a petition for review questioning the decision of the CA in nullifying the assessment for deficiency
contractor's tax made by the CIR.

Facts:
The Institute of Philippine Culture is one of the auxiliary unit of Ateneo which has no legal personality separate and
distinct from that of private respondent.

The IPC is engaged in social science studies of Philippine society and culture. Occasionally, it accepts sponsorships
for its research activities from international organizations, private foundations and government agencies.

Respondents received from CIR a demand letter assessing private respondent for alleged deficiency contractor's
tax and an assessment for alleged deficiency income tax.
Issue:
Whether Institute of Philippine Culture of Ateneo is liable for contractor’s tax.

Ruling:
No.

 To impose the three percent contractor's tax on Ateneo's Institute of Philippine Culture, it should be sufficiently
proven that the private respondent is indeed selling its services for a fee in pursuit of an independent
business.

 The funds received by the Ateneo de Manila University are technically not a fee. They may however fall as
gifts or donations which are tax-exempt" as shown by Ateneo’s compliance with the requirement of Section
123 of the NIRC providing for the exemption of such gifts to an educational institution.

It cannot be deemed either as a contract of sale or a contract of a piece of work.

The contract to be one of sale or one for a piece of work, a transfer of ownership is involved and a party
necessarily walks away with an object.

In the case at bench there was no transfer of ownership over the research data obtained or the results of
research projects undertaken by the Institute of Philippine Culture.

 The Institute of Philippine Culture is not an independent juridical entity that is separate and distinct form
the Ateneo.

Additional Notes:

1. Interpretation of tax laws:

A statute will not be construed as imposing a tax unless it does so clearly, expressly, and
unambiguously.

A tax cannot be imposed without clear and express words for that purpose.

Accordingly, the general rule of requiring adherence to the letter in construing statutes applies with
peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by implication.

While tax statutes are construed strictly against the government and liberally in favor of the taxpayer, as
to exemptions:

In United Garment Co., Inc. v CTA it was held that "tax statutes must be strictly construed against the one
claiming the exemption, and that the rule that a tax statute granting exemption must be strictly construed
against the one claiming the exemption is similar to the rule that a statute granting taxing power is to be
construed strictly, with doubts resolved against its existence".

To put it differently, "taxation is the rule and exemption therefrom is the exception".

This is because taxes are what we pay for civilized society (Compania General v. CIR) or are the lifeblood
of the nation (CIR v. Algue), the law frowns against exemptions from taxation and statutes granting tax
exemptions are thus construed strictissimi juris (strictly) against the taxpayers and liberally in favor of the
taxing authority.

2. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and
to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent."

In a contract for a piece of work, "the contractor binds himself to execute a piece of work for the
employer, in consideration of a certain price or compensation. If the contractor agrees to produce the
 work from materials furnished by him, he shall deliver the thing produced to the employer and transfer
dominion over the thing.

"Independent contractors" are those engaged in selling its services for a fee in pursuit of an
independent business.

10. Others

i. Grant of tax exemption (more on this under D4)

Sec. 28 (4), Art. VI, 1987 Constitution

No law granting any tax exemption shall be passed without the concurrence of a majority of all the
Members of the Congress.

Chavez v. PCGG
GR No. 130716 December 9, 1998

The PCGG commits to exempt from all forms of taxes the properties to be retained by the Marcos
heirs:

is a clear violation of the Construction. The power to tax and to grant tax exemptions is vested in the
Congress and, to a certain extent, in the local legislative bodies.

The PCGG has absolutely no power to grant tax exemptions, even under the cover of its
authority to compromise ill-gotten wealth cases.

ii. Veto of appropriation, revenue or tariff bills

Sec. 27 (2), Art. VI, 1987 Constitution

The President shall have the power to veto any particular item or items in an appropriation, revenue,
or tariff bill, but the veto shall not affect the item or items to which he does not object.

Gonzales v. Macaraig
GR No. 87636 November 19, 1990

Nature:
This is Petition for Prohibition/ Mandamus contesting the Constitutionality of the Veto by the President of Section
55 of the General Provisions in 1989 General Appropriations Bill.

Facts:
Congress passed House Bill No. 19186, or the General Appropriations Bill for the Fiscal Year 1989. As passed, it
eliminated or decreased certain items included in the proposed budget submitted by the President.

The President signed the Bill into law, and declared the same to have become Rep. Act No. 6688. In the process,
seven (7) Special Provisions and Section 55, a "General Provision," were vetoed.

The pertinent section states:

SEC. 55. Prohibition Against the Restoration or Increase of Recommended Appropriations Disapproved and/or
Reduced by Congress: No item of appropriation recommended by the President in the Budget submitted to
Congress pursuant to Article VII, Section 22 of the Constitution which has been disapproved or reduced in this Act
shall be restored or increased by the use of appropriations authorized for other purposes by augmentation. An item
of appropriation for any purpose recommended by the President in the Budget shall be deemed to have been
disapproved by Congress if no corresponding appropriation for the specific purpose is provided in this Act.

Petitioners’ cause is anchored on the ground that the President exceeded the item-veto power accorded by the
Constitution when she vetoed Section 55. Petitioner alleges that “when a provision of an appropriation bill affects
one or more items of the same, the President cannot veto the provision without at the same time vetoing the
particular item or items to which it relates”.

Issue:
Whether the President may veto the said section.

Ruling:
Yes.

An ITEM in a bill refers to the particulars, the details, the distinct and severable parts of the bill. It is an indivisible
sum of money dedicated to a stated purpose "that an ‘item’ of an appropriation bill obviously means an item which
in itself is a specific appropriation of money, not some general provision of law, which happens to be put into an
appropriation bill.

PROVISION on the other hand should relate specifically to some" particular appropriation" therein.

The challenged "provisions" fall short of the requirement that the same must relate to any particular or distinctive
appropriation to be properly called a “provision” since they apply generally to all items disapproved or reduced by
Congress in the Appropriations Bill.

The vetoed Sections are more of an expression of Congressional policy in respect of augmentation from savings
rather than a budgetary appropriation. The vetoed sections although labeled as "provisions," are actually
inappropriate provisions that should be treated as items for the purpose of the President’s veto power.

The President’s constitutional power to veto bills of general legislation cannot be abridged by the careful placement
of such measures in a general appropriation bill, thereby forcing the President to choose between approving
unacceptable substantive legislation or vetoing ‘items’ of expenditure essential to the operation of government.

The legislature cannot by location of a bill give it immunity from executive veto. Nor can it circumvent the
President’s veto power over substantive legislation by artfully drafting general law measures so that they appear to
be true conditions or limitations on an item of appropriation. Otherwise, the legislature would be permitted to
impair the constitutional responsibilities and functions of a co-equal branch of government in contravention of the
separation of powers doctrine.

In order to avoid this result, we hold that, when the legislature inserts inappropriate provisions in a general
appropriation bill, such provisions must be treated as ‘items’ for purposes of the President’s item veto
power over general appropriation bills.

"The Constitution is a limitation upon the power of the legislative department of the government, but in this
respect it is a grant of power to the executive department. The Legislature has the affirmative power to enact laws;
the Chief Executive has the negative power by the constitutional exercise of which he may defeat the will of the
Legislature, which is the President’s power to veto.

Additional Notes:

 Presidents Power to Veto

Article VI, Section 27 of the 1987 Constitution:

Par 1 of refers to the general veto power of the President and if exercised would result in the veto of the entire bill,
as a general rule.
Par 2 is what is referred to as the item-veto power or the line-veto power. It allows the exercise of the veto over
a particular item or items in an appropriation, revenue, or tariff bill. As specified, the President may not veto less
than all of an item of an Appropriations Bill. In other words, the power given the executive to disapprove any item
or items in an Appropriations Bill does not grant the authority to veto a part of an item and to approve the
remaining portion of the same item.

 Item or Provision

An ITEM in a bill refers to the particulars, the details, the distinct and severable parts of the bill. It is an indivisible
sum of money dedicated to a stated purpose "that an ‘item’ of an appropriation bill obviously means an item which
in itself is a specific appropriation of money, not some general provision of law, which happens to be put into an
appropriation bill.

PROVISION on the other hand should relate specifically to some" particular appropriation" therein.

 Inappropriate Provisions

The legislature cannot by location of a bill give it immunity from executive veto. Nor can it circumvent the
President’s veto power over substantive legislation by artfully drafting general law measures so that they appear to
be true conditions or limitations on an item of appropriation. Otherwise, the legislature would be permitted to
impair the constitutional responsibilities and functions of a co-equal branch of government in contravention of the
separation of powers doctrine.

Legislative control cannot be exercised in such a manner as to encumber the general appropriation bill with veto-
proof ‘logrolling measure,’ special interest provisions which could not succeed if separately enacted, or ‘riders,’
substantive pieces of legislation incorporated in a bill to insure passage without veto

These provisions should be treated as items for the purpose of the President’s veto power.

 Inappropriate Conditions/Restrictions

Inherent in the power of appropriation is the power to specify how money shall be spent; and that in addition to
distinct "items" of appropriation, the Legislature may include in Appropriation Bills qualifications, conditions,
limitations or restrictions on expenditure of funds.

The Executive is not allowed to veto a condition or proviso of an appropriation while allowing the appropriation
itself to stand.

For the rule to apply, restrictions should be such in the real sense of the term, not some matters which are more
properly dealt with in a separate legislation. Restrictions or conditions in an Appropriations Bill must exhibit a
connection with money items in a budgetary sense in the schedule of expenditures.

Inappropriate Conditions/Restrictions are those "artfully drafted" to appear as true conditions or limitations,
they are actually general law measures more appropriate for substantive and, therefore, separate
legislation.

iii. Non-impairment of the jurisdiction of the Supreme Court

Sec. 2, 5 (b), Art. VIII, 1987 Constitution

The Supreme Court shall have the following powers:

1. Xxx
2. Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of Court
may provide, final judgments and orders of lower courts in:
 a. Xxx
b. All cases involving the legality of any tax, impost, assessment, or toll, or any penalty
imposed in relation thereto.

CIR v. Santos
GR No. 119252 August 18, 1997

In declaring that Section 104 of the Tariff and the Customs Code, imposing 3% to 10% percent tariff and customs
duty on natural and cultured pearls and precious or semi-precious stones, and Section 150 par. (a) the National
Internal Revenue Code of 1977, as amended, imposing 20% percent excise tax on jewelry, pearls and other
precious stones, as INOPERATIVE and WITHOUT FORCE and EFFECT:

This is a matter on which the RTC is not competent to rule.

As Cooley observed: "debatable questions are for the legislature to decide. The courts do not sit to resolve
the merits of conflicting issues."

In Angara vs. Electoral Commission, Justice Laurel made it clear that "the judiciary does not pass upon questions of
wisdom, justice or expediency of legislation." And fittingly so, for in the exercise of judicial power, we are allowed
only "to settle actual controversies involving rights which are legally demandable and enforceable", and may not
annul an act of the political departments simply because we feel it is unwise or impractical.

This is not to say that Regional Trial Courts have no power whatsoever to declare a law unconstitutional. In J.M.
Tuason and Co. v. Court of Appeals, we said that "[p]lainly the Constitution contemplates that the inferior courts
should have jurisdiction in cases involving constitutionality of any treaty or law, for it speaks of appellate
review of final judgments of inferior courts in cases where such constitutionality happens to be in issue."

But this authority does not extend to deciding questions which pertain to legislative policy.

San Miguel Corp. v. Avelino

GR No. L-39699 March 14, 1979

Nature:
This is a petition for certiorari and prohibition for directed against the respondent judge for not granting the
petitioner’s motion to dismiss on the ground of lack of jurisdiction.

Facts:
Challenging the constitutionality of an ordinance, the petitioner questioned the same with the City Fiscal pursuant
to PD 231 and was appealed to the Secretary of Justice who rendered an the opinion that it is "of doubtful validity."

A suit for collection was thereafter filed by the City where it squarely put in issue the validity of such ordinance,
thus contesting the opinion of the Acting Secretary of Justice.

Petitioner mainly anchors their argument that instead of filing an action for collection the City should’ve made an
appealed the decision of Secretary of Justice in a court of competent jurisdiction as provided in the last sentence of
Section 47. Hence, the action for collection does not constitute an appeal.

Issue:
Whether the respondent judge validly took cognizance of the matter.

Ruling:
Yes.

It is undoubted that under the Constitution, even the legislative body cannot deprive this Court of its appellate
jurisdiction over all cases coming from inferior courts where the constitutionality or validity of an ordinance or the
legality of any tax, impost, assessment, or toll is in question. It is likewise expressly provided in Section 43 of the
Judiciary Act that the original jurisdiction over all civil actions involving the legality of any tax, impost or
assessment appertains to the Court of First Instance.

The validity of a statute, an executive order or ordinance is a matter for the judiciary to decide and that
whenever in the disposition of a pending case such a question becomes unavoidable, then it is not only the power
but the duty of the Court to resolve such a question.

The declaration made by the Acting Secretary of Justice betrays a realization that unless and until the judiciary
speaks in no uncertain terms, the presumption of validity continues misgivings as to the likelihood of an alleged
infringement of any binding norm do not suffice.

iv. Revenue bills shall originate from the House of Representatives

Sec. 24, Art. VI, 1987 Constitution

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.

Tolentino v. Sec. of Finance

GR No. 115455 August 25, 1994

On the contention that RA 7716 it did not originate exclusively in the House of Representatives as required by Art.
VI, §24 of the Constitution, because it is in fact the result of the consolidation of two distinct bills, a House and a
Senate Bill:

A bill originating in the House may undergo such extensive changes in the Senate that the result may be a
rewriting of the whole. As a result of the Senate action, a distinct bill may be produced.

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." It would be to violate the coequality of
legislative power of the two houses of Congress and in fact make the House superior to the Senate.

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.

Consequently, Section 55 (FY ‘89) and Section 16 (FY ‘90) although labelled as "provisions," are
actually inappropriate provisions that should be treated as items for the purpose of the President’s
veto power.

v. Infringement of press freedom

Sec. 4, Art. III, 1987 Constitution

No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of
the people peaceably to assemble and petition the government for redress of grievances.

Tolentino v. Sec. of Finance

G.R. No. 115455 October 30, 1995
On the claim that press freedom is violated upon the imposition of VAT:

Imposition of license tax on the press is unconstitutional because it lays a prior restraint on the exercise of its
right.

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 is not to violate its freedom under the Constitution.

vi. Grant of Franchise

Sec. 11, Art. XII, 1987 Constitution

No franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the
laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall
such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the common good so requires. The
State shall encourage equity participation in public utilities by the general public. The participation of
foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.

Tolentino v. Sec. of Finance

G.R. No. 115455 October 30, 1995

PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific reference to
P.D. No. 1590.

It is unnecessary to do this in order to comply with the constitutional requirement, since it is already stated in the
title that the law seeks to amend the pertinent provisions of the NIRC, among which is §103(q), in order to widen
the base of the VAT. Actually, it is the bill which becomes a law that is required to express in its title the subject of
legislation. The titles of H. No. 11197 and S. No. 1630 in fact specifically referred to §103 of the NIRC as among
the provisions sought to be amended. We are satisfied that sufficient notice had been given of the pendency of
these bills in Congress before they were enacted into what is now R.A. No. 7716.