Tax 1 All told, the Government has two ways of collecting the tax in question.
All told, the Government has two ways of collecting the tax in question. One, by going after all the
General Principles of Taxation
1. Sison v. Ancheta (Constitutional Limitations)
FACTS: Sison challenges the validity of Section 1 of B.P. Blg. 135 amending Section 21 of the
National Internal Revenue Code which provides for rates of tax. Petitioner characterizes the above
section as arbitrary amounting to class legislation, oppressive and capricious in character.
HELD: It is manifest that the field of state activity has assumed much wider scope. Hence, the need for
more revenues. The requirement of uniformity is met when the tax operates with the same force and
effect in every place where the subject may be found. The rule of uniformity does not call for a perfect
equality. What misled the petitioner is his failure to take into consideration the distinction between tax
rate and tax base. It is enough that the classification must rest upon a substantial distinctions that make
real differences.
“The Modified Schedular Income Tax whereby individual income was classified into three different
classes under different tax rates is not a denial of due process because there is no proof of arbitrariness
in the imposition of tax rates.”
“The schedular income tax which imposes graduated rates from 0% to 35% without deductions on
compensation of individuals, and a rate scheme of from 5% to 60% on business and other income with
deductions does not violate rule on equal protection clause since there is no infirmity if classifications
are made to rest on substantial distinctions.”
2. CIR v. Pineda
FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of
whom is Atty. Manuel Pineda. Estate proceedings were had in Court so that the estate was divided
among and awarded to the heirs. Atty Pineda's share amounted to about P2,500.00. After the estate
proceedings were closed, the BIR investigated the income tax liability of the estate for the years 1945,
1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed. Thereupon,
the representative of the Collector of Internal Revenue filed said returns for the estate issued an
assessment and charged the full amount to the inheritance due to Atty. Pineda who argued that he is
liable only to extent of his proportional share in the inheritance.
ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance.
HELD: Yes. The Government can require Atty. Pineda to pay the full amount of the taxes assessed.
The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his
share in the inheritance, for unpaid income taxes for which said estate is liable. By virtue of such lien,
the Government has the right to subject the property in Pineda's possession to satisfy the income tax
assessment. After such payment, Pineda will have a right of contribution from his co-heirs, to achieve
an adjustment of the proper share of each heir in the distributable estate.
heirs and collecting from each one of them the amount of the tax proportionate to the inheritance
received; and second, is by subjecting said property of the estate which is in the hands of an heir or
transferee to the payment of the tax due. This second remedy is the very avenue the Government took
in this case to collect the tax. The Bureau of Internal Revenue should be given, in instances like the
case at bar, the necessary discretion to avail itself of the most expeditious way to collect the tax as may
be envisioned in the particular provision of the Tax Code above quoted, because taxes are the lifeblood
of government and their prompt and certain availability is an imperious need.
3. Phil. Guaranty v. CIR
FACTS: The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance
contracts, on various dates, with foreign insurance companies not doing business in the Philippines.
Petitioner thereby agreed to cede to the foreign reinsurers a portion of the premiums on insurance it has
originally underwritten in the Philippines, in consideration for the assumption by the latter of liability
on an equivalent portion of the risks insured. Said reinsurrance contracts were signed by Philippine
Guaranty Co., Inc. in Manila and by the foregn reinsurers outside the Philippines. Said premiums were
excluded by Philippine Guaranty Co., Inc. from its gross income when it file its incometax returns. It
did not withhold or pay tax on them. Consequently, the CIr assessed against petitioner withholding tax
on the ceded reinsurance premiums.Petitioner protested the assessment on the ground that reinsurance
premiums ceded to foreign reinsurers not doing business in the Philippines are not subject to withholdig
tax.
ISSUE: Whether reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines are subject to tax
HELD: Yes. The reinsurance premiums are subject to tax. The reinsurance contracts show that the
transactions or activities that constituted the undertaking to reinsure Philippine Guaranty Co., Inc.
against loses arising from the original insurances in the Philippines were performed in the Philippines.
Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within the
Philippine.“Sources” means the activity, property, or service giving rise to the income. The original
insurance undertakigs took place in the Philippines. It is not required that the foreign corporation be
engaged in business in the Philippines. What is controlling is no the place of business, but the place of
activity that created the income. Thus, the income is subject to income tax.
NOTE: The foreign insurers' place of business should not be confused with their place of activity.
Business should not be continuity and progression of transactions while may consist of only a single
transaction. An activity may occur outside the place of business.
4. Collector v. Yuseco
FACTS: petitioner did not file income tax returns for the calendar years 1945 and 1946. This fact
having come to the knowledge of revenue examiners, they accordingly made income tax returns for
petitioner upon which respondent assessed against and demanded from petitioner the sums of P134.14
and P7,563.28. CTA issued a warrant of distraint and levy upon petitioner's properties which, however,
was not executed. Petitioner sought the withdrawal and/or reconsideration of said warrant. Meanwhile,
CTA issued a revised assessment notice which reduced the original assessment for the 1946 income tax
to P2,447.30. Then, CTA again issued a warrant of distraint and levy on the properties of petitioner,
this time only to effect collection of the said sum of P2,447.80 as income tax for 1946. The distraint
being still enforce, petitioner on December 12, 1955 filed his petition for prohibition with this Court.
The Collector of Internal Revenue assails the jurisdiction of the respondent Court of Tax Appeals to
take cognizance of the respondent taxpayer's petition that seeks to enjoin him from collecting
petitioner’s income taxes due for the years 1945 and 1946 and surcharges by summary distraint of and
levy upon his personal and real properties. The petitioner's contention is that the respondent taxpayer
cannot bring in the respondent Court an independent special civil action for prohibition without taking
to said Court an appeal from the decision or ruling of the Collector of Internal Revenue in the cases
provided for in sections 7 and 11 of Republic Act No. 1125.
ISSUE: Whether CTAthe jurisdiction to issue writs of prohibition is only in aid of its appellate
jurisdiction
HELD:
These statements made during the proceedings indicate that the intention of Congress was to vest the
Court of Tax Appeals with jurisdiction to issue writs of prohibition and injunction only in aid of its
appellate jurisdiction in cases appealed to it and not to clothe it with original jurisdiction to issue them.
5. McCulloch v. Maryland US
FACTS: After the founding of the United States, one of the first things the new government had to
address was the debt the nation had incurred fighting the Revolutionary War. Secretary of the Treasury
Alexander Hamilton came up with a plan to create a national bank in order to absorb state debts from
the war and to create a national currency. One of the bank’s most vocal opponents was Thomas
Jefferson, who argued that it was not within the federal government’s explicit powers to create a
national bank and that doing so was an overreach of federal power. Despite opposition to the bank,
Congress passed the first charter of the Bank of the United States in 1791, granting it the power to
operate for twenty years.
The government of Maryland did not want a national bank and did not want a branch in Maryland.
Nevertheless, the branch opened in 1817. The state of Maryland decided to tax the Baltimore branch of
the Bank of the United States in an effort to run it out of business.
The bank’s cashier, James W. McCulloch, refused to pay the tax. In response, the state of Maryland
sued him. Both the state trial court and the state supreme court agreed that McCulloch had to pay the
tax. McCulloch appealed to the US Supreme Court, which heard the case in 1819.
ISSUE: Whether US Congress has the power to create a national bank; whether or not Maryland law
unconstitutionally interfere with congressional powers.
HELD: For the first question, the Supreme Court decided that Congress did have the power to establish
a national bank, not as an enumerated, or explicit, power, but as an implied power granted by the
Constitution. The Supreme Court found that the Constitution grants Congress the explicit power to levy
(or collect) taxes and regulate currency, which means that they need to have a way to do that.
The Supreme Court found that the Maryland law did unconstitutionally interfere with Congressional
powers. Seeing as the Court decided that Congress needed the national bank to perform its
constitutional duties, Maryland's attempt to tax the bank was unconstitutional and violated federal
supremacy. The Supreme Court found that federal law had supremacy, or authority, over state laws and
that states could not interfere with federal powers.
Marshall explained the Court’s decision as follows: “If the States may tax one instrument, employed by
the government in the execution of its powers, they may tax any and every other instrument. They may
tax the mail; they may tax the mint; they may tax patent rights; they may tax the papers of the custom-
house; they may tax judicial process; they may tax all the means employed by the government, to an
excess which would defeat all the ends of government. This was not intended by the American people.
They did not design to make their government dependent on the States.."
6. Roxas y Cia v. CTA
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. 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(which the Commissioner considered
partnership as engaged in the business of real estate), 100% of the profits derived therefrom was taxed.
Deductions from gross income of various business expenses and contributions claimed by Roxas Cia
were disallowed. 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: No. Although they 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 ten-year
amortization period. 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 and
pursuant to the policy of our Government to allocate lands to the landless. The 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 exercised fairly, equally and uniformly, lest the
tax collector kill the "hen that lays the golden egg". 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 the sense of justice for the Government to persuade the taxpayer to lend it a helping hand
and later on penalize him for duly answering the urgent call. In fine, Roxas cannot be considered a real
estate dealer and is not liable for 100% of the sale. 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%.
7. Commissioner v. Algue (Fundamentals in taxation)
FACTS: Private respondent corporation Algue, Inc. filed its income tax returns for 1958 and 1959
showing 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 xperimental 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.
Taxation is a "symbiotic" relationship whereby in exchange for the protection that the
citizens get from the Government, taxes are paid.
Without taxes, the government would be paralyzed for lack of 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 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.
8. Philippine Airlines, Inc. V. Edu (Taxation distinguished from other inpositions)
FACTS: The Philippine Airlines (PAL) is a corporation engaged in the air transportation business
under a legislative franchise, Act No. 42739. Under its franchise, PAL is exempt from the payment of
taxes.
Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate (Elevate) issued a
regulation pursuant to Section 8, Republic Act 4136, otherwise known as the Land and Transportation
and Traffic Code, requiring all tax exempt entities, among them PAL to pay motor vehicle registration
fees.
Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the amounts
imposed under Republic Act 4136 were paid. PAL thus paid, under protest, registration fees of its
motor vehicles. After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to
Land Transportation Commissioner Romeo Edu (Edu) demanding a refund of the amounts paid. Edu
denied the request for refund. Hence, PAL filed a complaint against Edu and National Treasurer
Ubaldo Carbonell (Carbonell).
The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals which in turn
certified the case to the Supreme Court.
ISSUE: Whether or not motor vehicle registration fees are considered as taxes.
HELD: Yes. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees.
The motor vehicle registration fees are actually taxes intended for additional revenues of the
government even if one fifth or less of the amount collected is set aside for the operating expenses of
the agency administering the program. The said fees are taxes because the legislative intent is mainly to
raise funds for the construction and maintenance of highways and, to a much lesser degree, to pay for
the expenses of the Land transportation Office, a regulatory agency of the Government.
9. Tolentino v. Secretary of Finance (Constitutional Limitation)
FACTS: The present case involves motions seeking reconsideration of the Court’s decision dismissing
the petitions for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the
Expanded Value-Added Tax Law.
The Philippine Press Institute, Inc. (PPI) contends 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”, citing in support of the case of Murdock v. Pennsylvania.
Chamber of Real Estate and Builders Associations, Invc., (CREBA), on the other hand, asserts that the
law violates the rule that taxes should be uniform and equitable and that Congress shall “evolve a
progressive system of taxation”.
ISSUE: Whether or not the Expanded Value-Added Tax Law should be declared unconstitutional.
HELD: 1st- No. In withdrawing the exemption, the law merely subjects the press to the same tax burden
to which other businesses have long ago been subject. The PPI asserts that it does not really matter that
the law does not discriminate against the press because “even nondiscriminatory taxation on
constitutionally guaranteed freedom is unconstitutional.” The Court was speaking in that case
(Murdock v. Pennsylvania) 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.
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.
2nd - No. Equality and uniformity of taxation mean 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, firms, and corporations placed in similar situation.
Furthermore, the Constitution does not really prohibit the imposition of indirect taxes which, like the
VAT, are regressive. What it simply provides is that Congress shall “evolve a progressive system of
taxation.”
10. Paseo Realty & Development Corporation v. CA
FACTS: Petitioner filed a its Income Tax Return (ITR) for the calendar year 1989. He later filed with
respondent CTA for a refund of excess creditable taxes withholding (CTW) and income taxes for the
years 1989 and 1990 in the aggregate amount of 147, 036.15.
Respondent Commissioner (CIR) filed an Answer stating some defenses. The Court rendered decision
in favor of the petitioner. However, CIR filed a Motion for Reconsideration (MFR) alleging that the
amount sought to be refunded “has already been included in the 172, 447 which the petitioner applied
as tax credit for the succeeding taxable year 1990.
Upon the respondent Court (RC) dismissed the petition, the petitioner filed MFR which was denied by
the RC. Thus, petitioner filed a petition for Review before the CA. The appellate court held that
petitioner is not entitled to a refund because it appears that the latter did not specify the amount to be
refunded and the amount to be applied as tax credit to the succeeding taxable year, but only marked an
“X” to the box indicating “to be applied as tax credit to the succeeding taxable year” when the latter
filed its income tax return for the year 1989.
The Office of the Solicitor General (OSG) filed a Comment that the claimed refund was to be applied
against its tax liability for 1990.
Petitioner filed a Reply that the issue is not whether the 54,104 was included as tax credit to be applied
against its 1990 income tax liability but whether the same amount was actually applied as tax credit for
1990.
The OSG filed a Rejoinder that petitioner’s 1989 tax return shows that the latter included 1988 excess
credit which had already been segregated for refund and specified that the full amount of Php 172,
479.00 be considered as its tax credit for 1990. The OSG further contended that the remaining tax
credit for 1989 should be the excess credit to be applied against its 1990 tax liability. Hence, petitioner
ask for a refund of its CTW in 1989 because it had been applied against its 1990 tax due.
ISSUE: Whether or not the petitioner should be refunded.
HELD: No. The grant of refund is founded on the assumption that the tax return is valid. Without the
tax return, it is error to grant a refund since it would be impossible to determine whether the proper
taxes have been assessed and paid. In this case, petitioner did not present evidence to prove that its
claimed refund had already been automatically credited against its 1990 tax liability. The burden of
proof to establish the factual basis of claim for tax credit or refund lies on the claimant. Tax refunds are
construed strictly against the taxpayer.
Under the provision, the taxpayer is allowed three (3) options if the sum of its quarterly tax payments
made during the taxable year is not equal to the total tax due for that year:
pay the balance of the tax still due;
carry-over the excess credit; or
be credited or refunded the amount period.
11. CIR v. Botelbo Shipping Corp.
FACTS: Reparations Commission of the Philippines sold to Botelho the vessel "M/S Maria Rosello"
for the amount of P6,798,888.88. The former likewise sold to General Shipping the vessel "M/S
General Lim" at the price of P6,951,666.66. Upon arrival at the port of Manila, the Bureau of Customs
placed the same under custody and refused to give due course [to applications for registration], unless
the aforementioned sums of P483,433 and P494,824 be paid as compensating tax. The buyers
subsequently filed with the CTA their respective petitions for review. Pending the case, Republic Act
No. 3079 amended Republic Act No. 1789 — the Original Reparations Act, under which the
aforementioned contracts with the Buyers had been executed — by exempting buyers of reparations
goods acquired from the Commission, from liability for the compensating tax.
Invoking [section 20 of the RA 3079], the Buyers applied, for the renovation of their utilizations
contracts with the Commission, which granted the application, and, then, filed with the Tax Court, their
supplemental petitions for review. The CTA ruled in favor of the buyers.
[On appeal, the CIR and COC maintain that such proviso should not be applied retroactively], upon the
ground that a tax exemption must be clear and explicit; that there is no express provision for the
retroactivity of the exemption, established by Republic Act No. 3079, from the compensating tax; that
the favorable provisions, which are referred to in section 20 thereof, cannot include the exemption from
compensating tax; and, that Congress could not have intended any retroactive exemption, considering
that the result thereof would be prejudicial to the Government.
ISSUE: Whether or not the tax exemption can be applied retroactively
HELD: YES. The inherent weakness of the last ground becomes manifest when we consider that, if
true, there could be no tax exemption of any kind whatsoever, even if Congress should wish to create
one, because every such exemption implies a waiver of the right to collect what otherwise would be
due to the Government, and, in this sense, is prejudicial thereto. It may not be amiss to add that no tax
exemption — like any other legal exemption or exception — is given without any reason therefor. In
much the same way as other statutory commands, its avowed purpose is some public benefit or interest,
which the law-making body considers sufficient to offset the monetary loss entitled in the grant of the
exemption. Indeed, section 20 of Republic Act No. 3079 exacts a valuable consideration for the
retroactivity of its favorable provisions, namely, the voluntary assumption, by the end-user who bought
reparations goods prior to June 17, 1961 of "all the new obligations provided for in" said Act.
Furthermore, Section 14 of the Law on Reparations, as amended, exempts from the compensating tax,
not particular persons, but persons belonging to a particular class. Indeed, appellants do not assail the
constitutionality of said section 14, insofar as it grants exemptions to end-users who, after the approval
of Republic Act No. 3079, on June 17, 1961, purchased reparations goods procured by the
Commission. From the viewpoint of Constitutional Law, especially the equal protection clause, there is
no difference between the grant of exemption to said end-users, and the extension of the grant to those
whose contracts of purchase and sale mere made before said date, under Republic Act No. 1789.
12. Tan v. Del Rosario (Uniformity, Equitabiity and Progressivity of Taxation)
Uniformity of taxation, like the kindred concept of equal protection, merely requires that
all subjects or objects of taxation, similarly situated are to be treated alike both in privileges and
liabilities.
FACTS:
1. Two consolidated cases assail the validity of RA 7496 or the Simplified Net Income Taxation
Scheme ("SNIT"), which amended certain provisions of the NIRC, as well as the Rules and
Regulations promulgated by public respondents pursuant to said law.
2. Petitioners posit that RA 7496 is unconstitutional as it allegedly violates the following provisions of
the Constitution:
-Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only one subject which
shall be expressed in the title thereof.
- Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.
- Article III, Section 1 — No person shall be deprived of . . . property without due process of law, nor
shall any person be denied the equal protection of the laws.
3. Petitioners contended that public respondents exceeded their rule-making authority in applying
SNIT to general professional partnerships. Petitioner contends that the title of HB 34314, progenitor of
RA 7496, is deficient for being merely entitled, "Simplified Net Income Taxation Scheme for the Self-
Employed and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No. 109289)
when the full text of the title actually reads,
'An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and
Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the
National Internal Revenue Code,' as amended. Petitioners also contend it violated due process.
5. The Solicitor General espouses the position taken by public respondents.
6. The Court has given due course to both petitions.
ISSUE 1: Whether or not the tax law is unconstitutional for violating due process
NO. The due process clause may correctly be invoked only when there is a clear contravention of
inherent or constitutional limitations in the exercise of the tax power. No such transgression is so
evident in herein case.
1. Uniformity of taxation, like the concept of equal protection, merely requires that all subjects or
objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities.
Uniformity does not violate classification as long as: (1) the standards that are used therefor are
substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the
law applies, all things being equal, to both present and future conditions, and (4) the classification
applies equally well to all those belonging to the same class.
2. What is apparent from the amendatory law is the legislative intent to increasingly shift the income
tax system towards the schedular approach in the income taxation of individual taxpayers and to
maintain, by and large, the present global treatment on taxable corporations. The Court does not view
this classification to be arbitrary and inappropriate.
ISSUE 2: Whether or not public respondents exceeded their authority in promulgating the RR
No. There is no evident intention of the law, either before or after the amendatory legislation, to place
in an unequal footing or in significant variance the income tax treatment of professionals who practice
their respective professions individually and of those who do it through a general professional
partnership.
13. Mactan Cebu International Airport Authority v. Marcos
Since the last paragraph of the LGC unequivocally withdrew, upon 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 Mactan Cebu
International Airport Authority is a government-owned corporation, it necessarily follows that its
exemption from such tax granted it by Section 14 of its Charter RA 6958, has been withdrawn.
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 petitionen 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.
14. Pepsi-Cola Bottling Company of the Ph v. Municipality of Tanauan, Leyte
FACTS: The municipality of Tanauan, Leyte enacted two ordinances in 1962:
The first one, Municipal Ordinance No. 23 levies and collects "from soft drinks producers and
manufacturers a tax of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked." For the
purpose of computing the taxes due, the person, firm, company or corporation producing soft drinks
shall submit to the Municipal Treasurer a monthly report, of the total number of bottles produced and
corked during the month.
Municipal Ordinance No. 27 levies and collects "on soft drinks produced or manufactured within the
territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity." For the purpose of computing the taxes due, the person, firm,
company, partnership, corporation or plant producing soft drinks shall submit to the Municipal
Treasurer a monthly report of the total number of gallons produced or manufactured during the month.
Pepsi-Cola commenced a complaint with preliminary injunction before the Court of First Instance of
Leyte for that court to declare Section 2 of the Local Autonomy Act unconstitutional as an undue
delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27 null and void. Section 2
of the Local Autonomy Act of 1959 provides: “xxx, all chartered cities, municipalities and municipal
district shall have authority to impose municipal license taxes or fees upon persons engaged in any
occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts
xxxx.” Pepsi said both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the
production tax rates imposed therein are practically the same, and second, that on January 17, 1963, the
acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager of the Pepsi-
Cola Bottling Plant in said municipality, sought to enforce compliance by the latter of the provisions of
said Ordinance No. 27 series of 1962.
Issues: 1. — Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and
oppressive and invalid as double taxation? 2. — Do Ordinances Nos. 23 and 27 constitute double
taxation and impose percentage or specific taxes? 3. — Are Ordinances Nos. 23 and 27 unjust and
unfair?
Held: 1. As to undue delegation: The rule is that the power of taxation is purely legislative and cannot
be delegated. The exception, however, lies in the case of municipal corporations. Legislative powers
may be delegated to local governments in respect of matters of local concern. By necessary implication,
the legislative power to create political corporations for purposes of local self-government carries with
it the power to confer on such local governmental agencies the power to tax. Moreover, under the New
Constitution, local governments are granted the autonomous authority to create their own sources of
revenue and to levy taxes. The plenary nature of the taxing power thus delegated, contrary to plaintiff-
appellant's pretense, would not suffice to invalidate the said law as confiscatory and oppressive.
As to the ordinances being confiscatory and oppressive: The taking of property without due process of
law may not be passed over under the guise of taxing power. This is not to say though that the
constitutional injunction against deprivation of property without due process of law may be passed over
under the guise of the taxing power, except when the taking of the property is in the lawful exercise of
the taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is
observed; (3) either the person or property taxed is within the jurisdiction of the government levying
the tax; and (4) in the assessment and collection of certain kinds of taxes notice and opportunity for
hearing are provided. Due process does not require that the property subject to the tax or the amount of
tax to be raised should be determined by judicial inquiry, and a notice and hearing as to the amount of
the tax and the manner in which it shall be apportioned are generally not necessary to due process of
law.
As to the municipal ordinance being invalid on the ground of double taxation resulting for delegation
by the National Government: There is no validity to the assertion that the delegated authority can be
declared unconstitutional on the theory of double taxation. It must be observed that the delegating
authority specifies the limitations and enumerates the taxes over which local taxation may not be
exercised. 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.
2. There is no double taxation here. Ordinance No. 23, the first tax, levies or collects from soft drinks
producers or manufacturers a tax of one-sixteen (1/16) of a centavo for every bottle corked, irrespective
of the volume contents of the bottle used. When it was discovered that the producer or manufacturer
could increase the volume contents of the bottle and still pay the same tax rate, the Municipality of
Tanauan enacted Ordinance No. 27 imposing a tax of one centavo (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity. The difference between the two ordinances clearly lies in the tax rate
of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in
Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity.
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, and operates as a repeal of the latter, even
without words to that effect. Moreover, the municipality mentioned in its letter that it was only seeking
to enforce Ordinance No. 27, series of 1962.
[As to the remaining Ordinance No. 27 imposes a percentage or a specific tax? Undoubtedly, the taxing
authority conferred on local governments under Section 2, Republic Act No. 2264, is broad enough as
to extend to almost "everything, accepting those which are mentioned therein." As long as the tax
levied under the authority of a city or municipal ordinance is not within the exceptions and limitations
in the law, the same comes within the ambit of the general rule. The limitation applies, particularly, to
the prohibition against municipalities and municipal districts to impose "any percentage tax or other mayor’s permit fee and sanitary permit inspection fees from 1975 to 1984. PPC, however, have already
taxes in any form based thereon nor impose taxes on articles subject to specific tax except gasoline, paid the last named fees starting 1985.
under the provisions of the National Internal Revenue Code." For purposes of this particular limitation,
a municipal ordinance which prescribes a set ratio between the amount of the tax and the volume of
sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the
ISSUE: Whether or not the Municipality may validly impose taxes on petitioner’s business.
municipality to enact.

The imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity" on all soft drinks produced or manufactured under Ordinance No. 27 does not partake of the HELD: No. While section 2 of PD 436 prohibits the imposition of local taxes on petroleum products,
nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the said decree did not amend sections 19 and 19 (a) of PD 231 as amended by PD 426, wherein the
produce (whether sold or not) and not on the sales. The volume capacity of the taxpayer's production of municipality is granted the right to levy taxes on business of manufacturers, importers, producers of
soft drinks is considered solely for purposes of determining the tax rate on the products, but there is not any article of commerce of whatever kind or nature. A tax on business is distinct from a tax on the
set ratio between the volume of sales and the amount of the tax. article itself. Thus, if the imposition of tax on business of manufacturers, etc. in petroleum products
contravenes a declared national policy, it should have been expressly stated in PD No. 436.
Nor can the tax levied on softdrinks be treated as a specific tax. Specific taxes are those imposed on
specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than
cigars and cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil,
diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-forming The exercise by local governments of the power to tax is ordained by the present constitution. To allow
drugs. Soft drink is not one of those specified.] the continuous effectivity of the prohibition set forth in PC no. 26-73 would be tantamount to
restricting their power to tax by mere administrative issuances. Under section 5, article X of the 1987
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, constitution, only guidelines and limitations that may be established by congress can define and limit
produced or manufactured, or an equivalent of 1-½ centavos per case is not unjust and unfair. such power of local governments.
Municipal corporations are allowed much discretion in determining the rates of imposable taxes. This
is in line with the constitutional policy of according the widest possible autonomy to local governments
in matters of local taxation. Unless the amount is so excessive as to be prohibitive, courts will go slow
The storage permit fee being imposed by Pilillia’s tax ordinance is a fee for the installation and keeping
in writing off an ordinance as unreasonable.
in storage of any flammable, combustible or explosive substances. In as much as said storage makes
use of tanks owned not by the Municipality of Pilillia but by petitioner PPC, same is obviously not a
charge for any service rendered by the municipality as what is envisioned in section 37 of the same
15. Petron v. Pililla code.
FACTS: Philippine Petroleum Corporation is a business enterprise engaged in the manufacture of
lubricated oil base stocks which is a petroleum product, with its refinery plant situated at Malaya,
Pilillia Rizal, conducting its business activities within the territorial jurisdiction of municipality of
Pilillia, Rizal and is in continuous operation up to the present. PPC owns and maintains an oil refinery
including 49 storage tanks for its petroleum products in Malaya, Pililla, Rizal. Under section 142 of
NIRC of 1939, manufactured oils and other fuels are subject to specific tax. Respondent municipality
of Pilillia, Rizal through municipal council resolution no. 25-s-1974 enacted municipal tax ordinance
no. 1-s-1974 otherwise known as “The Pililla Tax Code Of 1974” on June 14, 1974 which took effect
on July 1, 1974. Sections 9 and 10 of the said ordinance imposed a tax on business, except for those
which fixed taxes are provided in the local tax code on manufacturers, importers, or producers of any
article of commerce of whatever kind or nature, including brewers, distiller, rectifiers, repackers and
compounders of liquors distilled spirits and/or wines in accordance with the schedule found in the local
tax code, as well as mayor’s permit sanitary inspection fee and storage permit fee for flammable,
combustible or explosive substances, while section 139 of the disputed ordinance imposed surcharges
and interests on unpaid taxes, fees or charges. Enforcing the provisions of the above mentioned
ordinance, the respondent filed a complaint on April 4, 1986 docketed as civil case no. 057-T against
PPC for the collection of the business tax from 1979 to 1986; storage permit fees from 1975 to 1986;