1. Commissioner of lnternal Revenue vs. Algue, Inc., 158 SCRA 9, No.

L-28896 February 17, 1988

Taxation; Nature of taxes; Purpose of taxation; Collection of taxes should be made in accordance with
law.—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.

Same; Income Tax; Payments in promotional fees, not fictitious; Claimed deduction of P75,000 proper;
Strict business procedures not applied in a family corporation.—We find that these suspicions were
adequately met by the private respondent when its President, Alberto Guevara, and the accountant,
Cecilia V. de Jesus, testified that the payments were not made in one lump sum but periodically and in
different amounts as each payee's need arose. It should be remembered that this was a family
corporation where strict business procedures were not applied and immediate issuance of receipts was
not required. Even so, at the end of the year, when the books were to be closed, each payee made an
accounting of all of the fees received by him or her, to make up the total of P75,000.00. Admittedly,
everything seemed to be informal. This arrangement was understandable, however, in view of the close
relationship among the persons in the family corporation.

Same; Same; Rationale of taxation.—It is said that taxes are what we pay for civilized society. Without
taxes, the government would be paralyzed for lack of the motive power to activate and operate it.
Hence, despite the natural reluctance to surrender part of one's hard-earned income to the taxing
authorities, every person who is able to must contribute his share in the running of the government. The
government, for its part, is expected to respond in the form of tangible and intangible benefits intended
to improve the lives of the people and enhance their moral and material values, This symbiotic
relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary
method of exaction by those in the seat of power.

2. Philippine Airlines, Inc. vs. Edu, 164 SCRA 320, No. L-41383 August 15, 1988

Taxation; Registration fees of motor vehicles; Motor vehicle registration fees as at present exacted
pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional revenue
of government.—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 (Umali, ed.) Such is the case of motor
vehicle registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587
quoted in the Calalang case. The same provision appears as Section 59(b) in the Land Transportation
Code. It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to the
imposition on the registration, operation or ownership of a motor vehicle as a “tax or fee.” Though
nowhere in Rep. Act 4136 does the law specifically state that the imposition is a tax, Section 59(b)
speaks of “taxes or fees x x x for the registration or operation or on the ownership of any motor vehicle,
or for the exercise of the profession of chauffeur x x x” making the intent to impose a tax more
apparent. Thus, even Rep. Act 5448 cited by the respondents, speaks of an “additional tax,” where the
law could have referred to an original tax and not one in addition to the tax already imposed on the
registration, operation, or ownership of a motor vehicle under Rep. Act 4136. Simply put, if the exaction
under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an
“additional” tax. x x x In view of the foregoing, we rule that motor vehicle registration fees as at present
exacted pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional
revenues of government even if one fifth or less of the amount collected is set aside for the operating
expenses of the agency administering the program.

Same; Same; Same; The purpose behind the law requiring owners of vehicles to pay their registration is
mainly to raise revenue for the construction and maintenance of highways.
Same; Taxes; The nature of an exaction is to be determined by the purpose for which it is being exacted
e.g. if the purpose is primarily revenue, or if revenue is at least one of the substantial purposes, then the
exaction is properly called a tax.

Same; Same; Tax Exemptions; Sec. 24 of RA 5431 dated June 27, 1968 repealed all earlier tax
exemptions of corporate taxpayers found in legislative franchises.—The claim for refund is made for
payments given in 1971. It is not clear from the records as to what payments were made in succeeding
years. We have ruled that Section 24 of Rep. Act No. 5431, dated June 27, 1968, repealed all earlier tax
exemptions of corporate taxpayers found in legislative franchises similar to that invoked by PAL in this
case. In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. This Court ruled: x x
x “An examination of Section 24 of the Tax Code as amended shows clearly that the law intended all
corporate taxpayers to pay income tax as provided by the statute. There can be no doubt as to the
power of Congress to repeal the earlier exemption it granted. Article XIV, Section 8 of the 1935
Constitution and Article XIV, Section 5 of the Constitution as amended in 1973 expressly provide that no
franchise shall be granted to any individual, firm, or corporation except under the condition that it shall
be subject to amendment, alteration, or repeal by the legislature when the public interest so requires.
There is no question as to the public interest involved. The country needs increased revenues. The
repealing clause is clear and unambiguous. There is a listing of entities entitled to tax exemption. The
petitioner is not covered by the provision. Considering the foregoing, the Court Resolved to DENY the
petition for lack of merit. The decision of the respondent court is affirmed.”

3. Esso Standard Eastern, Inc. vs. Comm'r. of Internal Revenue, 175 SCRA 149, G.R. Nos. 28508-9 July
7, 1989

Taxation; Police Power; Margin fee is not a tax but an exaction designed to curb the excessive demands
upon international reserves; Definition of Margin Levy; Distinguished from tax.—Apart from the above
consideration, there are at least two cases where we have held that a margin fee is not a tax but an
exaction designed to curb the excessive demands upon our international reserve. In Caltex (Phil.) Inc. v.
Acting Commissioner of Customs, the Court stated through Justice Jose P. Bengzon: A margin levy on
foreign exchange is a form of exchange control or restriction designed to discourage imports and
encourage exports, and ultimately ‘curtail any excessive demand upon the international reserve’ in
order to stabilize the currency. Originally adopted to cope with balance of payment pressures, exchange
restrictions have come to serve various purposes, such as limiting nonessential imports, protecting
domestic industry—and when combined with the use of multiple currency rates—providing a source of
revenue to the government, and are in many developing countries regarded as a more or less inevitable
concomitant of their economic development programs. The different measures of exchange control or
restriction cover different phases of foreign exchange transactions, i.e., in quantitative restriction, the
control is on the amount of foreign exchange allowable. In the case of the margin levy, the immediate
impact is on the rate of foreign exchange; in fact, its main function is to control the exchange rate
without changing the par value of the peso as fixed in the Bretton Woods Agreement Act. For a member
nation is not supposed to alter its exchange rate (at par value) to correct a merely temporary
disequilibrium in its balance of payments. By its nature, the margin levy is part of the rate of exchange as
fixed by the government. As to the contention that the margin levy is a tax on the purchase of foreign
exchange and hence should not form part of the exchange rate, suffice it to state that We have already
held the contrary for the reason that a tax is levied to provide revenue for government operations, while
the proceeds of the margin fee are applied to strengthen our country’s international reserves.

Same; Same; Same; Export tax; No merit in the argument that the 20% retention of exporter’s foreign
exchange constitutes an export tax; Reasons; Margin Fee imposed in the exercise of police power.

Same; Same; Same; Deductions; Expenses, elements of.—We come, then, to the statutory test of
deductibility where it is axiomatic that to be deductible as a business expense, three conditions are
imposed, namely: (1) the expense must be ordinary and necessary, (2) it must be paid or incurred within
the taxable year, and (3) it must be paid or incurred in carrying on a trade or business. In addition, not
only must the taxpayer meet the business test, he must substantially prove by evidence or records the
deductions claimed under the law, otherwise, the same will be disallowed. The mere allegation of the
taxpayer that an item of expense is ordinary and necessary does not justify its deduction.

Same; Same; Same; Same; Margin fees are not expenses in connection with the business of the
petitioners; Reasons.—There is thus no hard and fast rule on the matter. The right to a deduction
depends in each case on the particular facts and the relation of the payment to the type of business in
which the taxpayer is engaged. The intention of the taxpayer often may be the controlling fact in making
the determination. Assuming that the expenditure is ordinary and necessary in the operation of the
taxpayer’s business, the answer to the question as to whether the expenditure is an allowable deduction
as a business expense must be determined from the nature of the expenditure itself, which in turn
depends on the extent and permanency of the work accomplished by the expenditure.

Same; Same; Same; Same; Rule that claims for deductions are a matter of legislative grace; Burden of
justifying a deduction lies on the taxpayer.—Since the margin fees in question were incurred for the
remittance of funds to petitioner’s Head Office in New York, which is a separate and distinct income
taxpayer from the branch in the Philippines, for its disposal abroad, it can never be said therefore that
the margin fees were appropriate and helpful in the development of petitioner’s business in the
Philippines exclusively or were incurred for purposes proper to the conduct of the affairs of petitioner’s
branch in the Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss in the
Philippines exclusively. If at all, the margin fees were incurred for purposes proper to the conduct of the
corporate affairs of Standard Vacuum Oil Company in New York, but certainly not in the Philippines.

Same; Same; Same; Same; Expenses; Esso, having assumed an expense properly attributable to its head
office, cannot claim the same as an ordinary and necessary expense paid or incurred in carrying on its
own trade or business.

4. Physical Therapy Org. of the Phil vs. Mun. Board of Manila et al., 101 Phil. 1142, No. L-10448 August
30, 1957

1. MUNICIPAL CORPORATION; MASSAGE CLINICS; PURPOSE OF ORDINANCE No. 3659 CITY OF

MANILA.—The purpose of Ordinance No. 3659 promulgated by the Municipal Board of the City of
Manila is not to regulate the practice of licensed and qualified massagists of therapeutic massage in the
Philippines. What the Ordinance tries to avoid is that the massage clinic ran by a masseur or massagista
may be used as cover for the running or maintaining a house of prostitution.

2.ID. ; AUTHORITY OF CITY BOARD TO ENACT ORDINANCE.—Under the General Welfare Clause,
municipal corporations are authorized to enact ordinances to provide for the health and safety, and
promote the morality, peace and general welfare of its inhabitants.

3.ID; AMOUNT OF LICENSE FEES; USEFUL OCCUPATION; INIMICAL OCCUPATION.—The amount of the
fee or charge is properly considered in determining whether it is a tax or an exercise of the police
power. The amount may be so large as to itself show that the purpose was to raise revenue and not to
regulate, but in regard to this matter there is a marked distinction between license fees imposed upon
useful and beneficial occupations which the sovereign wishes to regulate but not restrict, and those
which are inimical and dangerous to the public, health, morals or safety. In the latter case the fee maybe
very large without necessarily being a tax (Cooley on taxation Vol. IV pp. 3516-17; italics supplied.)
4.ID; ID; PRACTICE OF HYGIENIC AND AESTHETIC MASSAGE INIMICAL OCCUPATION.—The practice of
hygienic and aesthetic massage is not a useful and beneficial occupation which will promote and is
conducive to public morals and the amount of P100 permit fee imposed for its regulation is not
considered as a tax for revenue purposes.

5. Republic vs. Mambulao Lumber Company, 4 SCRA 622, No. L-17725 February 28, 1962

Same; Same; Same.—The amount paid by a icensee as reforestation charges, is in the nature of a tax
which forma part of the Reforestation Fund, payable by him irrespective of whether the area covered by
this license is reforested or not. Said Fund, as the law expressly provided, shall be expended in carrying
out the purposes provided for thereunder, namely, the reforestation or afforestation, among others, of
denuded areas needing reforestation or afforestation.

Same; Same; Internal Revenue Taxes.—Internal Revenue Taxes, such as forest charges, cannot be the
subject of set-off or compensation. It is because taxes are not in the nature of contracts between the
parties but grow out of a duty to, and are positive acts of, the Government, to the making and enforcing
of which, the personal consent of the individual taxpayer is not required.

6. Francia vs. Intermediate Appellate Court, 162 SCRA 753, No. L-67649 June 28, 1988

Taxation; Obligations; Requisites of Legal Compensation under Arts. 1278 and 1279 of Civil Code; Case at
bar.—Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal
compensation. He claims that the government owed him P4,116.00 when a portion of his land was
expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of
October 15, 1977. There is no legal basis for the contention. By legal compensation, obligations of
persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished
(Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article
1279, to wit: “(1) that each one of the obligors be bound principally and that he be at the same time a
principal creditor of the other; xxx xxx xxx “(3) that the two debts be due. xxx xxx xxx.

Taxation; Same; Internal Revenue Taxes can not be subject of setoff or compensation.—This principal
contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of
taxes against the claims that the taxpayer may have against the government. A person cannot refuse to
pay a tax on the ground that the government owes him an amount equal to or greater than the tax
being collected. The collection of a tax cannot await the results of a lawsuit against the government. In
the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes
can not be the subject of set-off or compensation. We stated that: “A claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are
construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness
of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a
proper subject of recoupment since they do not arise out of the contract or transaction sued on. x x x
(80 C.J.S., 73-74). ‘The general rule based on grounds of public policy is well-settled that no set-off is
admissible against demands for taxes levied for general or local governmental purposes. The reason on
which the general rule is based, is that taxes are not in the nature of contracts between the party and
party but grow out of duty to, and are the positive acts of the government to the making and enforcing
of which, the personal consent of individual taxpayer is not required. x x x’ ”

Same; Same; Same; Auction Sale; Purchaser has the burden of proof to show that all prescribed
requisites for tax sale were complied with.—We agree with the petitioner’s claim that Ho Fernandez, the
purchaser at the auction sale, has the burden of proof to show that there was compliance with all the
prescribed requisites for a tax sale.

7. Domingo vs. Garlitos, 8 SCRA 443, No. L-18994 June 29, 1963

Taxation; Inheritance tax; Procedure in enforcement against estate of deceased person; Claim must be
filed before probate court.—The ordinary procedure by which to settle claims or indebtedness against
the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the
probate court sa that said court may order the administrator to pay the amount hereof (Aldamiz vs.
Judge of the Court of First Instance of Mindoro, L-2360, Dec. 29, 1949).

Same; Same; Same; Same; Legal basis.—The legal basis for such a procedure is the fact that in the
testate or intestate proceedings to settle the estate of a deceased person, the properties belonging to
the estate are under the jurisdiction of the court and such jurisdiction continues until said properties
havebeen distributed among the heirs entitled thereto. During the pendency of the proceedings all the
estate is in custodia Iegis and the proper procedure is not to allow the sheriff. in case of a court
judgment, to seize the properties but to ask the court for an order to require the administrator to pay
the amount due from the estate and required to be paid.

Same; Same; Compensation between taxes and claims of intestate recognized and appropriated for by
law.—The fact that the court having jurisdiction of the estate had found that the claim of the estate
against the Government has been appropriated for the purpose by a corresponding law (Rep. Act No.
2700) shows that both the claim of the Government for inheritance taxes and the claim of the intestate
for services rendered have already become overdue and demandable as well as fully liquidated.
Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles
1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount.

8. Davao Gulf Lumber Corporation vs. Commissioner of Internal Revenue, 293 SCRA 76, G.R. No.
117359 July 23, 1998

Taxation; A tax cannot be imposed unless it is supported by the clear and express language of a statute;
Once the tax is unquestionably imposed, “a claim of exemption from tax payments must be clearly
shown and based on language in the law too plain to be mistaken.”—A tax cannot be imposed unless it
is supported by the clear and express language of a statute; on the other hand, once the tax is
unquestionably imposed, “[a] claim of exemption from tax payments must be clearly shown and based
on language in the law too plain to be mistaken.” Since the partial refund authorized under Section 5, RA
1435, is in the nature of a tax exemption, it must be construed strictissimi juris against the grantee.
Hence, petitioner’s claim of refund on the basis of the specific taxes it actually paid must expressly be
granted in a statute stated in a language too clear to be mistaken.

Same; There is no tax exemption solely on the ground of eq-uity.—Petitioner asserts that “equity and
justice demand that the computation of the tax refunds be based on actual amounts paid under Sections
153 and 156 of the NIRC.” We disagree. According to an eminent authority on taxation, “there is no tax
exemption solely on the ground of equity.
9. Caltex Philippines, Inc. vs. Commission on Audit, 208 SCRA 726, G.R. No. 92585 May 8, 1992

Administrative Law; Commission on Audit; The audit power of the Auditor General under the 1935
Constitution and the Commission on Audit under the 1973 Constitution authorized them to disallow
illegal expenditures of funds or uses of funds and property

Civil Law; Taxation; LOI 1416 has no binding force or effect as it was never published in the Official
Gazette after its issuance or at anytime after the decision in the above-mentioned cases.—LOI 1416 has,
therefore, no binding force or effect as it was never published in the Official Gazette after its issuance or
at any time after the decision

Same; Same; Tax exemptions as a general rule are construed strictly against the grantee and liberally in
favor of the taxing authority.—Furthermore, even granting arguendo that LOI 1416 has force and effect,
petitioner’s claim must still fail. Tax exemptions as a general rule are construed strictly against the
grantee and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming
exemption to prove that it is in fact covered by the exemption so claimed. The party claiming exemption
must therefore be expressly mentioned in the exempting law or at least be within its purview by clear
legislative intent.

Same; Same; Though LOI 1416 may suspend the payment of taxes by copper mining companies it does
not give petitioner the same privilege with respect to the payment of OPSF dues.—In the case at bar,
petitioner failed to prove that it is entitled, as a consequence of its sales to ATLAS and MARCOPPER, to
claim reimbursement from the OPSF under LOI 1416. Though LOI 1416 may suspend the payment of
taxes by copper mining companies, it does not give petitioner the same privilege with respect to the
payment of OPSF dues.

Same; Same; It is settled that a taxpayer may not affect taxes due from the claims that he may have
against the government.—It is settled that a taxpayer may not offset taxes due from the claims that he
may have against the government. Taxes cannot be the subject of compensation because the
government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is
not such a debt, demand, contract or judgment as is allowed to be set-off.

10. Commissioner of Internal Revenue vs. Court of Appeals, 298 SCRA 83, G.R. No. 124043 October 14,
1998

Taxation; Court of Tax Appeals; Factual findings of the CTA, when supported by substantial evidence, will
not be disturbed on appeal unless it is shown that the court committed gross error in the appreciation of
facts.—Indeed, it is a basic rule in taxation that the factual findings of the CTA, when supported by
substantial evidence, will not be disturbed on appeal unless it is shown that the said court committed
gross error in the appreciation of facts. In the present case, this Court finds that the February 16, 1994
Decision of the CA did not deviate from this rule. The latter merely applied the law to the facts as found
by the CTA and ruled on the issue raised by the CIR: “Whether or not the collection or earnings of rental
income from the lease of certain premises and income earned from parking fees shall fall under the last
paragraph of Section 27 of the National Internal Revenue Code of 1977, as amended.”

Same; Tax Exemptions; Court has always applied the doctrine of strict interpretation in construing tax
exemptions.—Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of
strict interpretation in construing tax exemptions. Furthermore, a claim of statutory exemption from
taxation should be manifest and unmistakable from the language of the law on which it is based. Thus,
the claimed exemption “must expressly be granted in a statute stated in a language too clear to be
mistaken.”

Same; Same; The exemption claimed by the YMCA is expressly disallowed by the very wording of the last
paragraph of then Section 27 of the NIRC; Court is duty-bound to abide strictly by its literal meaning and
to refrain from resorting to any convoluted attempt at construction.—In the instant case, the exemption
claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section
27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of
their properties, real or personal, be subject to the tax imposed by the same Code. Because the last
paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its real
property, the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to
any convoluted attempt at construction.

Same; Same; Private respondent is exempt from the payment of property tax, but not income tax on the
rentals from its property.—Private respondent also invokes Article XIV, Section 4, par. 3 of the Charter,
claiming that the YMCA “is a non-stock, non-profit educational institution whose revenues and assets
are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its
properties and income.” We reiterate that private respondent is exempt from the payment of property
tax, but not income tax on the rentals from its property. The bare allegation alone that it is a non-stock,
non-profit educational institution is insufficient to justify its exemption from the payment of income tax.

Same; Constitutional Law; YMCA is not a school or an 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.” The Court has examined the “Amended Articles of Incorporation”
and “By-Laws” of the YMCA, but found nothing in them that even hints that it is a school or an
educational institution.

Taxation; Court of Tax Appeals; Court held and found YMCA to be an educational institution exclusively
devoted to educational and charitable purposes and not operated for profit.—In YMCA of Manila v.
Collector of Internal Revenue this Court categorically held and found YMCA to be an educational
institution exclusively devoted to educational and charitable purposes and not operated for profit. The
purposes of the Association as set forth in its charter and constitution are “to develop the Christian
character and usefulness of its members, to improve the spiritual, intellectual, social and physical
condition of young men and to acquire, hold, mortgage and dispose of the necessary lands, buildings
and personal property for the use of said corporation exclusively for religious, charitable and
educational purposes, and not for investment or profit.”

11. Pascual vs. Secretary of Public Works, 110 Phil. 331, No. L-10405 December 29, 1960

CONSTITUTIONAL LAW; LEGISLATIVE POWERS; APPROPRIATION OF PUBLIC REVENUES ONLY FOR PUBLIC
PURPOSES; WHAT DETERMINES VALIDITY OF A PUBLIC EXPENDITURE.—"It is a general rule that the
legislature is without power to appropriate public revenues for anything but a public purpose. * * * It is
the essential character of the direct object of the expenditure which must determine its validity as
justifying a tax and not the magnitude of the interests to be affected nor the degree to which the
general advantage of the community, and thus the public welfare, may be ultimately benefited by their
promotion. Incidental advantage to the public or to the state, which results from the promotion of
private interests, and the prosperity of private enterprises or business, does not justify their aid by the
use of public money." (23 R. L. C. pp. 398-450).

2.ID.; ID.; ID.; UNDERLYING REASON FOR THE RULE.—Generally, under the express or implied provisions
of the constitution, public funds may be used only for a public purpose. The right of the legislature to
appropriate public funds is correlative with its right to tax, and, under constitutional provisions against
taxation except for public purposes and prohibiting the collection of a tax for one purpose and the
devotion thereof to another purpose, no appropriation of state funds can be made for other than a
public purpose. (81 C. J. S. p. 1147).

3.ID.; ID.; ID.; TEST OF CONSTITUTIONALITY.—The test of the constitutionality of a statute requiring the
use of public funds is whether the statute is designed to promote the public interests, as opposed to the
furtherance of the advantage of individuals, although such advantage to individuals might incidentally
serve the public. (81 C. J. S. p. 1147).

4.ID.; ID.; ID.; ID.; POWERS OF CONGRESS AT THE TIME OF PASSAGE OF A STATUTE SHOULD BE
CONSIDERED.—The validity of a statute depends upon the powers of Congress at the time of its passage
or approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter
consist of an amendment of the organic law, removing, with retrospective operation, the constitutional
limitation infringed by said statute.

5.ID.; ID.; ID.; APPROPRIATION FOR A PRIVATE PURPOSE NULL AND VOID; SUBSEQUENT DONATION TO
GOVERNMENT NOT CURATIVE OF DEFECT.—Where the land on which projected feeder roads are to be
constructed belongs to a private person, an appropriation made by Congress for that purpose is null and
void, and a donation to the Government, made over five (5) months after the approval and effectivity of
the Act for the purpose of giving a "semblance of legality" to the appropriation, does not cure the basic
defect. Consequently, a judicial nullification of said donation need not precede the declaration of
unconstitutionality of said appropriation.

6.ID.; ID.; ID.; ID.; RIGHT OF TAXPAYERS TO CONTEST CONSTITUTIONALITY OF A LEGISLATION.—The

relation between the people of the Philippines and its taxpayers, on the one hand, and the Republic of
the Philippines, on the other, is not identical to that obtaining between the people and taxpayers of the
U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that existing between the
people and taxpayers of each state and the government thereof, except that the authority of the
Republic of the Philippines over the people of the Philippines is more fully direct than that of the states
of the Union, insofar as the simple and unitary type of our national government is not subject to
limitations analogous to those imposed by the Federal Constitution upon the states of the Union, and
those imposed upon the Federal Government in the interest of the states of the Union. For this reason,
the rule recognizing the right of taxpayers to assail the constitutionality of a legislation appropriating
local or state public funds—which has been upheld by the Federal Supreme Court (Crampton vs.
Zabriskie, 101 U.S. 601)—has greater application in the Philippines than that adopted with respect to
acts of Congress of the United States appropriating federal funds.

12. Mactan Cebu International Airport Authority vs. Marcos, 261 SCRA 667, G.R. No. 120082
September 11, 1996

Taxation; As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax on the constituency who are to pay it.—As a
general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging
in its very nature no limits, so that security against its abuse is to be found only in the responsibility of
the legislature which imposes the tax on the constituency who are to pay it. Nevertheless, effective
limitations thereon may be imposed by the people through their Constitutions. Our Constitution, for
instance, provides that the rule of taxation shall be uniform and equitable and Congress shall evolve a
progressive system of taxation. So potent indeed is the power that it was once opined that “the power
to tax involves the power to destroy.”

Same; Statutory Construction; Since taxation is a destructive power which interferes with the personal
and property rights of the people and takes from them a portion of their property for the support of the
government, tax statutes must be construed strictly against the government and liberally in favor of the
taxpayer; But since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law
frowns against exemptions from taxation and statutes granting tax exemptions are thus construed
strictissimi juris against the taxpayer and liberally in favor of the taxing authority.—Verily, taxation is a
destructive power which interferes with the personal and property rights of the people and takes from
them a portion of their property for the support of the government. Accordingly, tax statutes must be
construed strictly against the government and liberally in favor of the taxpayer. But since taxes are what
we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from
taxation and statutes granting tax exemptions are thus construed stricissimi juris against the taxpayer
and liberally in favor of the taxing authority. A claim of exemption from tax payments must be clearly
shown and based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule,
exemption therefrom is the exception. However, if the grantee of the exemption is a political subdivision
or instrumentality, the rigid rule of construction does not apply because the practical effect of the
exemption is merely to reduce the amount of money that has to be handled by the government in the
course of its operations.

Same; Local Government Units; The power to tax is primarily vested in the Congress but in our
jurisdiction, it may be exercised by local legislative bodies, no longer merely by virtue of a valid
delegation but pursuant to direct authority conferred by the Constitution.— The power to tax is
primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local legislative
bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority
conferred by Section 5, Article X of the Constitution. Under the latter, the exercise of the power may be
subject to such guidelines and limitations as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy.

Same; Same; Non-Impairment Clause; Since taxation is the rule and exemption therefrom the exception,
the exemption may be withdrawn at the pleasure of the taxing authority, the only exception being
where the exemption was granted to private parties based on material consideration of a mutual
nature, which then becomes contractual and thus covered by the non-impairment clause of the
Constitution.

Same; Same; Same; Since the last paragraph of Section 234 of the LGC unequivocally withdrew, upon
the effectivity of the LGC, exemptions from payment of real property taxes granted to natural or
juridical persons, including government-owned or controlled corporations, except as provided in the
said section, and Mactan Cebu International Airport Authority is a government-owned corporation, it
necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A 6958, has
been withdrawn.

Same; Words and Phrases; The terms “Republic of the Philippines” and “National Government” are not
interchangeable—the former is broader and synonymous with “Government of the Republic of the
Philippines” while the latter refers “to the entire machinery of the central government, as distinguished
from the different forms of local governments.
Same; Local Government Units; Local Autonomy; The power to tax is the most effective instrument to
raise needed revenues to finance and support myriad activities of local government units for the
delivery of basic services essential to the promotion of the general welfare and the enhancement of
peace, progress, and prosperity of the people.

Same; Mactan Cebu International Airport Authority cannot claim that it was never a “taxable person”
under its Charter—it was only exempted from the payment of real property taxes.—Moreover, the
petitioner cannot claim that it was never a “taxable person” under its Charter. It was only exempted
from the payment of real property taxes. The grant of the privilege only in respect of this tax is
conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real
property tax.

13. Bagatsing vs. Ramirez, 74 SCRA 306, No, L-41631 December 17, 1976

Statutory interpretation; Taxation; Local Government; Where a special statute refers to a subject in
general, which the general statute treats in particular, the provision of the latter, in case of conflict, will
prevail.—The fact that one is special and the other general creates a presumption that the special is to
be considered as remaining an exception to the general, one as a general law of the land, the other as
the law of a particular case. However, the rule readily yields to a situation where the special statute
refers to a subject in general, which the general statute treats in particular. That exactly is the
circumstance obtaining in the case at bar. Section 17 of the Revised Charter of the City of Manila speaks
of “ordinance” in general, i.e., irrespective of the nature and scope thereof, whereas, Section 43 of the
Local Tax Code relates to “ordinances levying or imposing taxes, fees or other charges” in particular. In
regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is doubtless
dominant, but, that dominant force loses its continuity when it approaches the realm of “ordinances
levying or imposing taxes, fees or other charges” in particular. There, the Local Tax Code controls. Here
as always, a general provision must give way to a particular provision. Special provision governs. This is
especially true where the law containing the particular provision was enacted later than the one
containing the general provision. The City Charter of Manila was promulgated on June 18, 1949 as
against the Local Tax Code which was decreed on June 1, 1973.

Same; Same; Same; No rule prohibits the repeal even by implication of a special or specific act by a
general or broad one.—In fact, there is no rule which prohibits the repeal even by implication of a
special or specific act by a general or broad one. A charter provision may be impliedly modified or
superseded by a later statute, and where a statute is controlling, it must be read into the charter
notwithstanding any particular charter provision. A subsequent general law similarly applicable to all
cities prevails over any conflicting charter provision, for the reason that a charter must not be
inconsistent with the general laws and public policy of the State.

Same; Same; Same; Raising of revenues is the principal object of taxation. An ordinance which imposes
rentals, permit fees, tolls and other fees is a tax ordinance.—It is maintained by private respondent that
the subject ordinance is not a “tax ordinance”, because the imposition of rentals, permit fees, toils and
other fees is not strictly a taxing power but a revenue-raising function, so that the procedure for
publication under the local Tax Code finds no application. The pretense bears its own marks of fallacy.
Precisely, the raising of revenues is the principal object of taxation.

Same; Same; Same; An ordinance of the City of Manila which regulates the operation of public markets
and prescribes fees for the rentals of stalls thereon does not violate Presidential Decree No, 7 which
regulates the collection of fees and charges on livestock and animal products.
Same; Same; Same; The function of the Market Committee created under the City Charter of Manila is
purely recommendatory and its non-participation in the enactment of a tax ordinance prescribing fees
for operation of market stalls does not vitiate the said ordinance.—The non-participation of the Market
Committee in the enactment of Ordinance No. 7522 supposedly in accordance with Republic Act No.
6039, an amendment to the City Charter of Manila, providing that “the market committee shall
formulate, recommend and adopt, subject to the ratification of the municipal board, and approval of the
mayor, policies and rules or regulation repealing or amending existing provisions of the market code”
does not infect the ordinance with any germ of invalidity. The function of the committee is purely
recommendatory as the underscored phrase suggests, its recommendation is without effect on the
Municipal Board and the City Mayor. Its prior acquiescence of an intended or proposed city ordinance is
not a condition sine qua non before the Municipal Board could enact such ordinance. The native power
of the Municipal Board to legislate remains undisturbed even in the slightest degree. It can move in its
own initiative and the Market Committee cannot demur.

Same; Same; Same; The entrusting of the collection of market stall fees to a private firm does not
destroy the public purpose of a tax ordinance.—Private respondent bewails that the market stall fees
imposed in the disputed ordinance are diverted to the exclusive private use of the Asiatic Integrated
Corporation since the collection of said fees had been let by the City of Manila to the said corporation in
a “Management and Operating Contract.” The assumption is of course saddled on erroneous premise.
The fees collected, do not go direct to the private coffers of the corporation. Ordinance No. 7522 was
not made for the corporation but for the purpose of raising revenues for the city. That is the object it
serves. The entrusting of the collection of the fees does not destroy the public purpose of the ordinance.
x x x The people may be taxed for a public purpose, although it be under the direction of an individual or
private corporation.

14. Abakada Guro Party List vs. Ermita, 469 SCRA 14, G.R. No. 168056, G.R. No. 168207, G.R. No.
168461, G.R. No. 168463, G.R. No. 168730 September 1, 2005

Taxation; Value-Added Tax (VAT); Words and Phrases; The VAT is a tax on spending or consumption—it
is levied on the sale, barter, exchange or lease of goods or properties and services; Being an indirect tax
on expenditure, the seller of goods or services may pass on the amount of tax paid to the buyer; In
contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
engages in, without transferring the burden to someone else.—As a prelude, the Court deems it apt to
restate the general principles and concepts of value-added tax (VAT), as the confusion and inevitably,
litigation, breeds from a fallacious notion of its nature. The VAT is a tax on spending or consumption. It is
levied on the sale, barter, exchange or lease of goods or properties and services. Being an indirect tax on
expenditure, the seller of goods or services may pass on the amount of tax paid to the buyer, with the
seller acting merely as a tax collector. The burden of VAT is intended to fall on the immediate buyers
and ultimately, the end-consumers. In contrast, a direct tax is a tax for which a taxpayer is directly liable
on the transaction or business it engages in, without transferring the burden to someone else. Examples
are individual and corporate income taxes, transfer taxes, and residence taxes.

Same; Same; Same; In the Philippines, the value-added system of sales taxation has long been in
existence, albeit in a different mode—prior to 1978, the system was a single-stage tax computed under
the “cost deduction method” and was payable only by the original sellers, then the single-stage system
was subsequently modified, and a mixture of the “cost deduction method” and “tax credit method” was
used to determine the value-added tax payable; Under the “tax credit method,” an entity can credit
against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs
and imports.—In the Philippines, the value-added system of sales taxation has long been in existence,
albeit in a different mode. Prior to 1978, the system was a single-stage tax computed under the “cost
deduction method” and was payable only by the original sellers. The single-stage system was
subsequently modified, and a mixture of the “cost deduction method” and “tax credit method” was
used to determine the value-added tax payable. Under the “tax credit method,” an entity can credit
against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs
and imports. It was only in 1987, when President Corazon C. Aquino issued Ex-ecutive Order No. 273,
that the VAT system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using
the “tax credit method.” E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law, R.A. No.
8241 or the Improved VAT Law, R.A. No. 8424 or the Tax Reform Act of 1997, and finally, the presently
beleaguered R.A. No. 9337, also referred to by respondents as the VAT Reform Act.

Congress; Bicameral Conference Committee; Legislative Rules; It should be borne in mind that the
power of internal regulation and discipline are intrinsic in any legislative body, and pursuant to this
inherent constitutional power to promulgate and implement its own rules of procedure, the respective
rules of each house of Congress provided for the creation of a Bicameral Conference Committee.—
Petitioners now beseech the Court to define the powers of the Bi-cameral Conference Committee. It
should be borne in mind that the power of internal regulation and discipline are intrinsic in any
legislative body for, as unerringly elucidated by Justice Story, “[i]f the power did not exist, it would be
utterly impracticable to transact the business of the nation, either at all, or at least with decency,
deliberation, and order.” Thus, Article VI, Section 16 (3) of the Constitution provides that “each House
may determine the rules of its proceed-ings.” Pursuant to this inherent constitutional power to
promulgate and implement its own rules of procedure, the respective rules of each house of Congress
provided for the creation of a Bicameral Conference Committee.

Same; Same; Same; Separation of Powers; Judicial Review; Congress is the best judge of how it should
conduct its own business expeditiously and in the most orderly manner; If a change is desired in the
practice [of the Bicameral Conference Committee] it must be sought in Congress since this question is
not covered by any constitutional provision but is only an internal rule of each house; Even the
expanded jurisdiction of the Supreme Court cannot apply to questions regarding only the internal
operation of Congress, thus, the Court is wont to deny a review of the internal proceedings of a co-equal
branch of government.—Akin to the Fariñas case, the present petitions also raise an issue regarding the
actions taken by the conference committee on matters regarding Congress’ compliance with its own
internal rules. As stated earlier, one of the most basic and inherent power of the legislature is the power
to formulate rules for its proceedings and the discipline of its members. Congress is the best judge of
how it should conduct its own business expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if it believes
that said members violated any of its rules of proceedings. Even the expanded jurisdiction of this Court
cannot apply to questions regarding only the internal operation of Congress, thus, the Court is wont to
deny a review of the internal proceedings of a co-equal branch of government. Moreover, as far back as
1994 or more than ten years ago, in the case of Tolentino vs. Secretary of Finance, the Court already
made the pronouncement that “[i]f a change is desired in the practice [of the Bicameral Conference
Committee] it must be sought in Congress since this question is not covered by any constitutional
provision but is only an internal rule of each house.”To date, Congress has not seen it fit to make such
changes adverted to by the Court. It seems, therefore, that Congress finds the practices of the bicameral
conference committee to be very useful for purposes of prompt and efficient legislative action.

Same; Same; Same; Words and Phrases; The term “settle” is synonymous to “reconcile” and
“harmonize”; To reconcile or harmonize disagreeing provisions, the Bicameral Conference Committee
may then (a) adopt the specific provisions of either the House bill or Senate bill, (b) decide that neither
provisions in the House bill or the provisions in the Senate bill would be carried into the final form of the
bill, and/or (c) try to arrive at a compromise between the disagreeing provisions.

Same; Same; Same; It is within the power of a conference committee to include in its report an entirely
new provision that is not found either in the House bill or in the Senate bill—if the committee can
propose an amendment consisting of one or two provisions, there is no reason why it cannot propose
several provisions, collectively considered as an “amendment in the nature of a substitute,” so long as
such amendment is germane to the subject of the bills before the committee. Thus, in the Tolentino
case, it was held that: . . . it is within the power of a conference committee to include in its report an
entirely new provision that is not found either in the House bill or in the Senate bill. If the committee
can propose an amendment consisting of one or two provisions, there is no reason why it cannot
propose several provisions, collectively considered as an “amendment in the nature of a substitute,” so
long as such amendment is germane to the subject of the bills before the committee. After all, its report
was not final but needed the approval of both houses of Congress to become valid as an act of the
legislative department. The charge that in this case the Conference Committee acted as a third
legislative chamber is thus without any basis.

Same; Same; Same; “No Amendment” Rule; The “no-amend-ment rule” refers only to the procedure to
be followed by each house of Congress with regard to bills initiated in each of said respective houses,
before said bill is transmitted to the other house for its concurrence or amendment—Art. VI, Sec. 26 (2)
of the Constitution cannot be taken to mean that the introduction by the Bicameral Conference
Committee of amendments and modifications to disagreeing provisions in bills that have been acted
upon by both houses of Congress is prohibited.—The Court reiterates here that the “no-amendment
rule” refers only to the procedure to be followed by each house of Congress with regard to bills initiated
in each of said respective houses, before said bill is transmitted to the other house for its concurrence or
amendment.

Same; Origin of Bills; Revenue Bills; Since there is no question that the revenue bill originated in the
House of Representatives, the Senate was acting within its constitutional power to introduce
amendments to the House bill when it included provisions in Senate Bill No. 1950 amending corporate
income taxes, percentage, excise and franchise taxes—Article VI, Section 24 of the Constitution does not
contain any prohibition or limitation on the extent of the amendments that may be introduced by the
Senate to the House revenue bill.—In the present cases, petitioners admit that it was indeed House Bill
Nos. 3555 and 3705 that initiated the move for amending provisions of the NIRC dealing mainly with the
value-added tax. Upon transmittal of said House bills to the Senate, the Senate came out with Senate
Bill No. 1950 proposing amendments not only to NIRC provisions on the value-added tax but also
amendments to NIRC provisions on other kinds of taxes. Is the introduction by the Senate of provisions
not dealing directly with the value-added tax, which is the only kind of tax being amended in the House
bills, still within the purview of the constitutional provision authorizing the Senate to propose or concur
with amendments to a revenue bill that originated from the House? * * * Since there is no question that
the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate
Bill No. 1950 amending corporate income taxes, percentage, excise and franchise taxes. Verily, Article
VI, Section 24 of the Constitution does not contain any prohibition or limitation on the extent of the
amendments that may be introduced by the Senate to the House revenue bill.

Same; Same; Same; The main purpose of the bills emanating from the House of Representatives is to
bring in sizeable revenues for the government to supplement our country’s serious financial problems,
and improve tax administration and control of the leakages in revenues from income taxes and value-
added taxes, and the Senate, approaching the measures from the point of national perspective, can
introduce amendments within the purposes of those bills, like providing ways that would soften the
impact of the VAT measure on the consumer.

Same; Same; Same; Germaneness Rule; The amendments made on provisions in the tax on income of
corporations are germane to the purpose of the house bills which is to raise revenues for the
government, and the sections referring to other percentage and excise taxes are germane to the
reforms to the VAT system, as these sections would cushion the effects of VAT on consumers.

Separation of Powers; Delegation of Powers; A logical corollary to the doctrine of separation of powers
is the principle of non-delegation of powers, a doctrine based on the ethical principle that such as
delegated power constitutes not only a right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the intervening mind of another.

Same; Same; Exception to the Non-Delegation of Legislative Powers; Words and Phrases; The powers
which Congress is prohibited from delegating are those which are strictly, or inherently and exclusively,
legislative—appertaining exclusively to the legislative department; Purely legislative power has been
described as the authority to make a complete law—complete as to the time when it shall take effect
and as to whom it shall be applicable—and to determine the expediency of its enactment; It is the
nature of the power, and not the liability of its use or the manner of its exercise, which determines the
validity of its delegation.—With respect to the Legislature, Section 1 of Article VI of the Constitution
provides that “the Legislative power shall be vested in the Congress of the Philippines which shall consist
of a Senate and a House of Representatives.” The powers which Congress is prohibited from delegating
are those which are strictly, or inherently and exclusively, legislative. Purely legislative power, which can
never be delegated, has been described as the authority to make a complete law—complete as to the
time when it shall take effect and as to whom it shall be applicable—and to determine the expediency of
its enactment. Thus, the rule is that in order that a court may be justified in holding a statute
unconstitutional as a delegation of legislative power, it must appear that the power involved is purely
legislative in nature—that is, one appertaining exclusively to the legislative department. It is the nature
of the power, and not the liability of its use or the manner of its exercise, which determines the validity
of its delegation. Nonetheless, the general rule barring delegation of legislative powers is subject to the
following recognized limitations or exceptions: (1) Delegation of tariff powers to the President under
Section 28 (2) of Article VI of the Constitution; (2) Delegation of emergency powers to the President
under Section 23 (2) of Article VI of the Constitution; (3) Delegation to the people at large; (4)
Delegation to local governments; and (5) Delegation to administrative bodies.

Same; Same; Same; Tests of Valid Delegation; A delegation is valid only if the law (a) is complete in itself,
setting forth therein the policy to be executed, carried out, or implemented by the delegate, and (b)
fixes a standard—the limits of which are sufficiently determinate and determinable—to which the
delegate must conform in the performance of his functions; A sufficient standard is one which defines
legislative policy, marks its limits, maps out its boundaries and specifies the public agency to apply it.

Same; Same; Taxation; While the power to tax cannot be delegated to executive agencies, details as to
the enforcement and administration of an exercise of such power may be left to them, including the
power to determine the existence of facts on which its operation depends, the rationale being that the
preliminary ascertainment of facts as basis for the enactment of legislation is not of itself a legislative
function but is simply ancillary to legislation; The Constitution as a continuously operative charter of
government does not require that Congress find for itself every fact upon which it desires to base
legislative action or that it make for itself detailed determinations which it has declared to be
prerequisite to application of legislative policy to particular facts and circumstances impossible for
Congress itself properly to investigate.
Same; Same; Same; Statutory Construction; The case before the Court is not a delegation of legislative
power—it is simply a delegation of ascertainment of facts upon which enforcement and administration
of the increase rate under the law is contingent; No discretion would be exercised by the President; The
use of the word “shall” connotes a mandatory order.

Same; Same; Taxation; Value-Added Tax; The intent and will to increase the VAT rate to 12% came from
Congress and the task of the President is to simply execute the legislative policy.—As to the argument of
petitioners ABAKADA GURO Party List, et al. that delegating to the President the legislative power to tax
is contrary to the principle of republicanism, the same deserves scant consideration. Congress did not
delegate the power to tax but the mere implementation of the law. The intent and will to increase the
VAT rate to 12% came from Congress and the task of the President is to simply execute the legislative
policy. That Congress chose to do so in such a manner is not within the province of the Court to inquire
into, its task being to interpret the law.

Taxation; Value-Added Tax; Fiscal Adequacy; Words and Phrases; The principle of fiscal adequacy as a
characteristic of a sound tax system, which was originally stated by Adam Smith in his Canons of
Taxation, simply means that sources of revenues must be adequate to meet government expenditures
and their variations.— That the first condition amounts to an incentive to the President to increase the
VAT collection does not render it unconstitutional so long as there is a public purpose for which the law
was passed, which in this case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need for a
raise in revenue. The principle of fiscal adequacy as a characteristic of a sound tax system was originally
stated by Adam Smith in his Canons of Taxation (1776), as: IV. Every tax ought to be so contrived as both
to take out and to keep out of the pockets of the people as little as possible over and above what it
brings into the public treasury of the state. It simply means that sources of revenues must be adequate
to meet government expenditures and their variations.

Same; Same; Due Process; Equal Protection; Where the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad standards, there is a need for proof
of such persuasive character as would lead to such a conclusion.—The doctrine is that where the due
process and equal protection clauses are invoked, considering that they are not fixed rules but rather
broad standards, there is a need for proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail.

Same; Same; Words and Phrases; Input Tax is defined under Section 110(A) of the NIRC, as amended, as
the value-added tax due from or paid by a VAT-registered person on the importation of goods or local
purchase of good and services, including lease or use of property, in the course of trade or business,
from a VAT-registered person, and Output Tax is the value-added tax due on the sale or lease of taxable
goods or properties or services by any person registered or required to register under the law.—Section
8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of input tax
that may be credited against the output tax. It states, in part: “[P]rovided, that the input tax inclusive of
the input VAT carried over from the previous quarter that may be credited in every quarter shall not
exceed seventy percent (70%) of the output VAT: …”” Input Tax is defined under Section 110(A) of the
NIRC, as amended, as the value-added tax due from or paid by a VAT-registered person on the
importation of goods or local purchase of good and services, including lease or use of property, in the
course of trade or business, from a VAT-registered person, and Output Tax is the value-added tax due on
the sale or lease of taxable goods or properties or services by any person registered or required to
register under the law.
Same; Same; Due Process; Vested Rights; The input tax is not a property or a property right within the
constitutional purview of the due process clause—a VAT-registered person’s entitlement to the
creditable input tax is a mere statutory privilege; The right to credit input tax as against the output tax is
clearly a privilege created by law, a privilege that also the law can remove or limit; The distinction
between statutory privileges and vested rights must be borne in mind for persons have no vested rights
in statutory privileges.

Same; Same; Congress admitted that the spread-out of the creditable input tax in this case amounts to a
4-year interest-free loan to the government; For whatever is the purpose of the 60-month amortization,
this involves executive economic policy and legislative wisdom in which the Court cannot intervene.

Same; Same; With regard to the 5% creditable withholding tax imposed on payments made by the
government for taxable transactions, Section 114 (C) of the National Internal Revenue Code merely
provides a method of collection, or as stated by respondents, a more simplified VAT withholding
system—the government in this case is constituted as a withholding agent with respect to their
payments for goods and services.

Same; Same; Words and Phrases; In tax usage, “final,” as opposed to creditable, means full; As applied
to value-added tax, taxable transactions with the government are subject to a 5% tax rate, which
constitutes as full payment of the tax payable on the transaction.

Same; Same; It is clear that Congress intended to treat differently transactions with the government;
Since it has not been shown that the class subject to the final 5% final withholding tax has been
unreasonably narrowed, there is no reason to invalidate the provision.

Same; Same; Equal Protection; The power of the State to make reasonable and natural classifications for
the purposes of taxation has long been established.

Same; Same; Same; Uniformity of Taxation; The rule of uniform taxation does not deprive Congress of
the power to classify subjects of taxation, and only demands uniformity within the particular class.—
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be
taxed at the same rate. Different articles may be taxed at different amounts provided that the rate is
uniform on the same class everywhere with all people at all times. In this case, the tax law is uniform as
it provides a standard rate of 0% or 10% (or 12%) on all goods and services. Sections 4, 5 and 6 of R.A.
No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate of 10% (or
12%) on sale of goods and properties, importation of goods, and sale of services and use or lease of
properties. These same sections also provide for a 0% rate on certain sales and transaction. Neither does
the law make any distinction as to the type of industry or trade that will bear the 70% limitation on the
creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5% final
withholding tax by the government. It must be stressed that the rule of uniform taxation does not
deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the
particular class.

Same; Same; Equitable Taxation; R.A. No. 9337 is equitable.— R.A. No. 9337 is also equitable. The law is
equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods
or services with gross annual sales or receipts not exceeding P1,500,000.00. Also, basic marine and
agricultural food products in their original state are still not subject to the tax, thus ensuring that prices
at the grassroots level will remain accessible. As was stated in Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. vs. Tan: The disputed sales tax is also equitable. It is imposed only on sales
of goods or services by persons engaged in business with an aggregate gross annual sales exceeding
P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise
exempt from the tax are sales of farm and marine products, so that the costs of basic food and other
necessities, spared as they are from the incidence of the VAT, are expected to be relatively lower and
within the reach of the general public.

Same; Same; Progressive Taxation; Progressive taxation is built on the principle of the taxpayer’s ability
to pay—taxation is progressive when its rate goes up depending on the resources of the person
affected.—Petitioners contend that the limitation on the creditable input tax is anything but regressive.
It is the smaller business with higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayer’s ability to pay. This principle was also lifted
from Adam Smith’s Canons of Taxation, and it states: I. The subjects of every state ought to contribute
towards the support of the government, as nearly as possible, in proportion to their respective abilities;
that is, in proportion to the revenue which they respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person affected.

Same; Same; Same; The VAT is an antithesis of progressive taxation—by its very nature, it is regressive;
The principle of progressive taxation has no relation with the VAT system inasmuch as the VAT paid by
the consumer or business for every goods bought or services enjoyed is the same regardless of income.

Same; Same; Same; The Constitution does not really prohibit the imposition of indirect taxes, like the
VAT.—The Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it
simply provides is that Congress shall “evolve a progressive system of taxation.” The Court stated in the
Tolentino case, thus: 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.’ The constitutional provision has been interpreted to mean simply that ‘direct taxes are . . . to
be preferred [and] as much as possible, indirect taxes should be minimized.

15. Eastern Theatrical Co. vs. Alfonso, 83 Phil., 852, No. L-1104 May 31, 1949

1.Taxation ; Statutory Construction ; Tax on Business and on Amusement; Provisions of Section 2444 (m)
of the Revised Administrative Code, Construed.—The whole argument of plaintiffs hinges on the
assumption that the power granted to the City of Manila by section 2444 (ra) of the Revised
Administra-tive Code is limited to the authority to impose a tax on business, with exclusion of the power
to impose a tax on amusement; but, the assumption is based on an arbitrary labeling of the kind of tax
authorized by said section 2444 (m). The distinction as to the power to tax business and the power to
tax. amusement has no ground under the provisions of section 2444 (m) of the Revised Administrative
Code. The tax therein authorized can-not be defined as tax on business and cannot be restricted within a
smaller scope than what is authorized by the words used, to the extent of excluding what plaintiffs
describe as tax on amusement.

4.Constitutional Law; Equality and Uniformity of Taxation; Validity of Ordinance No. 2958.—Appellants
point out to the fact that the ordinance in question does not tax "many more kinds of amusements"
than those therein specified, such as "race tracks, cockpits, cabarets, concert halls, circuses, and other
places of amusement." The argument has absolutely no merit. The fact that some places of
amusement are not taxed while others, such as cinematographs, theaters, vaudeville companies,
theatri-cal shows, and boxing exhibitions and other kinds of amuse-ments or places of amusement are
taxed, is no argument at all against the equality and uniformity of the tax imposition. Equality and
uniformity in taxation means that all taxable arti-cles or kinds of property of the same class shall be
taxed at the same rate. The taxing power has the authority to make reason-able 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.
16. British American Tobacco vs. Camacho, 562 SCRA 511, G.R. No. 163583 August 20, 2008

Court of Tax Appeals; Jurisdiction; Where what is assailed is the validity or constitutionality of a law, or a
rule or regulation issued by the administrative agency in the performance of its quasi-legislative
function, the regular courts have jurisdiction to pass upon the same.

Taxation; Legislative Classification Freeze Scheme; The assailed feature of this law pertains to the
mechanism where, after a brand is classified based on its current net retail price, the classification is
frozen and only Congress can thereafter reclassify the same.—As can be seen, the law creates a four-
tiered system which we may refer to as the low-priced, medium-priced, high-priced, and premium-
priced tax brackets. When a brand is introduced in the market, the current net retail price is determined
through the aforequoted specified procedure. The current net retail price is then used to classify under
which tax bracket the brand belongs in order to finally determine the corresponding excise tax rate on a
per pack basis. The assailed feature of this law pertains to the mechanism where, after a brand is
classified based on its current net retail price, the classification is frozen and only Congress can
thereafter reclassify the same. From a practical point of view, Annex “D” is merely a by-product of the
whole mechanism and philosophy of the assailed law. That is, the brands under Annex “D” were also
classified based on their current net retail price, the only difference being that they were the first ones
so classified since they were the only brands surveyed as of October 1, 1996, or prior to the effectivity of
RA 8240 on January 1, 1997. Due to this legislative classification scheme, it is possible that over time the
net retail price of a previously classified brand, whether it be a brand under Annex “D” or a new brand
classified after the effectivity of RA 8240 on January 1, 1997, would increase (due to inflation, increase
of production costs, manufacturer’s decision to increase its prices, etc.) to a point that its net retail price
pierces the tax bracket to which it was previously classified. Consequently, even if its present day net
retail price would make it fall under a higher tax bracket, the previously classified brand would continue
to be subject to the excise tax rate under the lower tax bracket by virtue of the legislative classification
freeze.

Same; Same; Equal Protection; Requisites; In our jurisdiction, the standard and analysis of equal
protection challenges in the main have followed the “rational basis” test, coupled with a deferential
attitude to legislative classifications and a reluctance to invalidate a law unless there is a showing of a
clear and unequivocal breach of the Constitution; A legislative classification, to survive an equal
protection challenge, must be shown to rationally further a legitimate state interest—the classifications
must be reasonable and rest upon some ground of difference having a fair and substantial relation to
the object of the legislation.

Same; Same; Same; It is quite evident that the classification freeze provision could hardly be considered
arbitrary, or motivated by a hostile or oppressive attitude to unduly favor older brands over newer
brands; The classification freeze provision was in the main the result of Congress’s earnest efforts to
improve the efficiency and effectivity of the tax administration over sin products while trying to balance
the same with other state interests.

Same; Same; Same; The legislative deliberations also show that the classification freeze provision was
intended to generate buoyant and stable revenues for government; Since the classification freeze
provision addressed Congress’s administrative concerns in the simplification of tax administration of sin
products, elimination of potential areas for abuse and corruption in tax collection, buoyant and stable
revenue generation, and ease of projection of revenues, there can be no denial of the equal protection
of the laws as the rational-basis test is amply satisfied.
17. Executive Secretary vs. Southwing Heavy Industries, Inc., 482 SCRA 673, G.R. No. 164171, G.R. No.
164172, G.R. No. 168741 February 20, 2006

Same; Police Power; Police power is primarily lodged with the legislature; By virtue of a valid delegation
of legislative power, it may also be exercised by the President and administrative boards, as well as the
lawmaking bodies on all municipal levels, including the barangay; Requisites for an Administrative
Issuance to be Valid; Executive Order (EO) 156 has both constitutional and statutory basis.

Same; Same; Article 2, Section 3.1 of Executive Order (EO) 156 is void insofar as it is made applicable to
the presently secured fenced-in former Subic Naval Base area as stated in Section 1.1 of EO 97-A;
Section 3.1 is declared valid insofar as it applies to the customs territory or the Philippine territory
outside the presently secured fenced-in former Subic Naval Base as stated in Section 1.1 of EO 97-A.
The Court finds that Article 2, Section 3.1 of EO 156 is void insofar as it is made applicable to the
presently secured fencedin former Subic Naval Base area as stated in Section 1.1 of EO 97-A. Pursuant to
the separability clause of EO 156, Section 3.1 is declared valid insofar as it applies to the customs
territory or the Philippine territory outside the presently secured fenced-in former Subic Naval Base area
as stated in Section 1.1 of EO 97-A. Hence, used motorvehicles that come into the Philippine territory via
the secured fenced-in former Subic Naval Base area may be stored, used or traded therein, or exported
out of the Philippine territory, but they cannot be imported into the Philippine territory outside of the
secured fenced-in former Subic Naval Base area.

18. John Hay Peoples Alternative Coalition vs. Lim, 414 SCRA 356, G.R. No. 119775 October 24, 2003

Same; Same; Same; The transformation of a portion of the area covered by Camp John Hay into a Special
Economic Zone (SEZ) is not simply a re-classification of an area, a mere ascription of a status to a place—
it involves turning the former US military reservation into a focal point for investments by both local and
foreign entities.

Separation of Powers; Bases Conversion and Development Authority; Tax Exemptions; The incentives
under R.A. No. 7227 are exclusive only to the Subic SEZ, hence, the extension of the same to the John
Hay SEZ finds no support therein, and neither does the same grant of priveleges to the John Hay SEZ find
support in the other laws specified under Section 3 of Proclamation No. 420.—As gathered from the
earlier-quoted Section 12 of R.A. No. 7227, the privileges given to Subic SEZ consist principally of
exemption from tariff or customs duties, national and local taxes of business entities therein
[paragraphs (b) and (c)], free market and trade of specified goods or properties (paragraph d), liberalized
banking and finance (paragraph f), and relaxed immigration rules for foreign investors (paragraph g).
Yet, apart from these, Proclamation No. 420 also makes available to the John Hay SEZ benefits existing in
other laws such as the privilege of export processing zone-based businesses of importing capital
equipment and raw materials free from taxes, duties and other restrictions; tax and duty exemptions,
tax holiday, tax credit, and other incentives under the Omnibus Investments Code of 1987; and the
applicability to the subject zone of rules governing foreign investments in the Philippines. While the
grant of economic incentives may be essential to the creation and success of SEZs, free trade zones and
the like, the grant thereof to the John Hay SEZ cannot be sustained. The incentives under R.A. No. 7227
are exclusive only to the Subic SEZ, hence, the extension of the same to the John Hay SEZ finds no
support therein. Neither does the same grant of privileges to the John Hay SEZ find support in the other
laws specified under Section 3 of Proclamation No. 420, which laws were already extant before the
issuance of the proclamation or the enactment of R.A. No. 7227.
Same; Same; Same; It is the legislature, unless limited by a provision of the Constitution, that has full
power to exempt any person or corporation or class of property from taxation, its power to exempt
being as broad as its power to tax.—More importantly, the nature of most of the assailed privileges is
one of tax exemption. It is the legislature, unless limited by a provision of the state constitution, that has
full power to exempt any person or corporation or class of property from taxation, its power to exempt
being as broad as its power to tax. Other than Congress, the Constitution may itself provide for specific
tax exemptions, or local governments may pass ordinances on exemption only from local taxes. The
challenged grant of tax exemption would circumvent the Constitution’s imposition that a law granting
any tax exemption must have the concurrence of a majority of all the members of Congress. In the same
vein, the other kinds of privileges extended to the John Hay SEZ are by tradition and usage for Congress
to legislate upon.

Same; Same; Same; Tax exemption cannot be implied as it must be categorically and unmistakably
expressed—if it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption
and incentives given to the Subic SEZ, it would have so expressly provided in R.A. No. 7227.—Contrary to
public respondents’ suggestions, the claimed statutory exemption of the John Hay SEZ from taxation
should be manifest and unmistakable from the language of the law on which it is based; it must be
expressly granted in a statute stated in a language too clear to be mistaken. Tax exemption cannot be
implied as it must be categorically and unmistakably expressed. If it were the intent of the legislature to
grant to the John Hay SEZ the same tax exemption and incentives given to the Subic SEZ, it would have
so expressly provided in the R.A. No. 7227.

19. Delpher Trades Corp. vs. Intermediate Appellate Court, 157 SCRA 349, No. L-69259 January 26,
1988

Same; Taxation; Tax Avoidance; The legal right of a taxpayer to decrease the amount of what otherwise
could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted.—The
records do not point to anything wrong or objectionable about this “estate planning” scheme resorted
to by the Pachecos. “The legal right of a taxpayer to decrease the amount of what otherwise could be
his taxes or altogether avoid them, by means which the law permits, cannot be doubted.” (Liddell & Co.,
Inc. v. The Collector of Internal Revenue, 2 SCRA 632 citing Gregory v. Halvering, 293 U.S. 465, 7 L. ed.
596)

20. Commissioner of Internal Revenue vs. Lincoln Philippine Life Insurance Company, Inc., 379 SCRA
423, G.R. No. 119176 March 19, 2002

Same; Taxation; Documentary Stamp Taxes; The payment of documentary stamp taxes is done at the
time the act is done or transaction had and the tax base for the computation of documentary stamp
taxes on life insurance policies under Section 183 of the Insurance Code is the amount fixed in policy,
unless the interest of a person insured is susceptible of exact pecuniary measurement; The amount fixed
in the policy is the figure written on its face and whatever increases will take effect in the future by
reason of any “automatic increase clause” embodied in the policy without the need of another
contract.—The subject insurance policy at the time it was issued contained an “automatic increase
clause.” Although the clause was to take effect only in 1984, it was written into the policy at the time of
its issuance. The distinctive feature of the “junior estate builder policy” called the “automatic increase
clause” already formed part and parcel of the insurance contract, hence, there was no need for an
execution of a separate agreement for the increase in the coverage that took effect in 1984 when the
assured reached a certain age. It is clear from Section 173 that the payment of documentary stamp
taxes is done at the time the act is done or transaction had and the tax base for the computation of
documentary stamp taxes on life insurance policies under Section 183 is the amount fixed in policy,
unless the interest of a person insured is susceptible of exact pecuniary measurement. What then is the
amount fixed in the policy? Logically, we believe that the amount fixed in the policy is the figure written
on its face and whatever increases will take effect in the future by reason of the “automatic increase
clause” embodied in the policy without the need of another contract.

Same; Same; Tax Avoidance; Tax Evasion; While tax avoidance schemes and arrangements are not
prohibited, tax laws cannot be circumvented in order to evade the payment of just taxes.—It should be
emphasized that while tax avoidance schemes and arrangements are not prohibited, tax laws cannot be
circumvented in order to evade the payment of just taxes. In the case at bar, to claim that the increase
in the amount insured (by virtue of the automatic increase clause incorporated into the policy at the
time of issuance) should not be included in the computation of the documentary stamp taxes due on the
policy would be a clear evasion of the law requiring that the tax be computed on the basis of the
amount insured by the policy.

21. Commissioner of Internal Revenue vs. Estate of Benigno P. Toda, Jr., 438 SCRA 290, G.R. No.
147188 September 14, 2004

Taxation; Tax Avoidance Distinguished from Tax Evasion.— Tax avoidance and tax evasion are the two
most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device
within the means sanctioned by law. This method should be used by the taxpayer in good faith and at
arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when
availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities.

Same; Same; Factors to Determine Tax Evasion.—Tax evasion connotes the integration of three factors:
(1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due,
or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is
described as being “evil,” in “bad faith,” “willfull,” or “deliberate and not accidental”; and (3) a course of
action or failure of action which is unlawful.

Same; Same; Same; The intermediary transaction in this case constitutes one of tax evasion.—In a
nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the
mitigation of tax liabilities than for legitimate business purposes constitutes one of tax evasion.

Same; Prescriptions; The period within which to assess tax in cases of fraudulent returns, false returns
and failure to file a return is ten years from discovery of the fraud, falsification or omission.—Put
differently, in cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3) failure to
file a return, the period within which to assess tax is ten years from discovery of the fraud, falsification
or omission, as the case may be.

Same; Same; The issuance of the correct assessment for deficiency income tax was well within the
prescriptive period.—As stated above, the prescriptive period to assess the correct taxes in case of false
returns is ten years from the discovery of the falsity. The false return was filed on 15 April 1990, and the
falsity thereof was claimed to have been discovered only on 8 March 1991. The assessment for the 1989
deficiency income tax of CIC was issued on 9 January 1995. Clearly, the issuance of the correct
assessment for deficiency income tax was well within the prescriptive period.
22. City of Iloilo vs. SMART Communications, Inc., 580 SCRA 332, G.R. No. 167260 February 27, 2009

Statutory Construction; Taxation; Tax Exemptions; This Court has declared that he who claims an
exemption from his share of the common burden of taxation must justify his claim by showing that the
Legislature intended to exempt him by words too plain to be beyond doubt or mistake.—The basic
principle in the construction of laws granting tax exemptions has been very stable. As early as 1916, in
the case of Government of the Philippine Islands v. Monte de Piedad, 35 Phil. 42 (1916), this Court has
declared that he who claims an exemption from his share of the common burden of taxation must
justify his claim by showing that the Legislature intended to exempt him by words too plain to be
beyond doubt or mistake. This doctrine was repeated in the 1926 case of Asiatic Petroleum v. Llanes, 49
Phil. 466 (1926), as well as in the case of Borja v. Commissioner of Internal Revenue (CIR), 3 SCRA 591
(1961), decided in 1961. Citing American jurisprudence, the Court stated in E. Rodriguez, Inc. v. CIR, 28
SCRA 1119 (1969): The right of taxation is inherent in the State. It is a prerogative essential to the
perpetuity of the government; and he who claims an exemption from the common burden, must justify
his claim by the clearest grant of organic or statute law xxx When exemption is claimed, it must be
shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal
to the claim; it is only when the terms of the concession are too explicit to admit fairly of any other
construction that the proposition can be supported.

Same; Same; Same; A tax exemption cannot arise from vague inference—tax exemptions must be clear
and unequivocal; A taxpayer claiming a tax exemption must point to a specific provision of law
conferring on the taxpayer, in clear and plain terms, exemption from a common burden.—In the recent
case of Digital Telecommunications, Inc. v. City Government of Batangas, et al., 573 SCRA 605 (2008), we
adhered to the same principle when we said: A tax exemption cannot arise from vague inference…Tax
exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point to a specific
provision of law conferring on the taxpayer, in clear and plain terms, exemption from a common burden.
Any doubt whether a tax exemption exists is resolved against the taxpayer.

Local Government Code (LGC); Taxation; Tax Exemptions; All tax exemption privileges then enjoyed by
all persons, save those expressly mentioned, have been withdrawn effective January 1, 1992, however,
the withdrawal of exemptions, whether under Section 193 or 137 of the Local Government Code (LGC),
pertains only to those already existing when the LGC was enacted—the intention of the legislature was
to remove all tax exemptions or incentives granted prior to the LGC.—We have indeed ruled that by
virtue of Section 193 of the LGC, all tax exemption privileges then enjoyed by all persons, save those
expressly mentioned, have been withdrawn effective January 1, 1992—the date of effectivity of the LGC.
The first clause of Section 137 of the LGC states the same rule. However, the withdrawal of exemptions,
whether under Section 193 or 137 of the LGC, pertains only to those already existing when the LGC was
enacted. The intention of the legislature was to remove all tax exemptions or incentives granted prior to
the LGC. As SMART’s franchise was made effective on March 27, 1992—after the effectivity of the LGC—
Section 193 will therefore not apply in this case.

23. National Power Corporation vs. Central Board of Assessment Appeals (CBAA), 577 SCRA 418, G.R.
No. 171470 January 30, 2009

Taxation; Tax Exemptions; Time and again, the Supreme Court has stated that taxation is the rule and
exemption is the exception. The law does not look with favor on tax exemptions and the entity that
would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to
be misinterpreted.—Time and again, the Supreme Court has stated that taxation is the rule and
exemption is the exception. The law does not look with favor on tax exemptions and the entity that
would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to
be misinterpreted. Thus, applying the rule of strict construction of laws granting tax exemptions, and the
rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is considered a
taxable entity.