taxation digests

1 Taxation I Case Digests

1. Philex Mining Corporation vs. CIR, G.R. No. 125704 August 28, 1998

FACTS:

The Court of Tax Appeals ordered Philex to pay the amount of P110, 677,668.52

as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of

1992 plus 20% annual interest from August 6, 1994 until fully paid.

Philex refused to pay and argued that it had pending claims for VAT input

credit/refund for the taxes it paid for the years 1989-1991 in the amount of

P119,977,037.02 plus interest and therefore should be applied against the said excise

tax liabilities in a manner of a set-off or legal compensation.

ISSUE:

WON taxes could be the subject of a set-off or legal compensation?

RULING:

No. Taxes could not be the subject of a set-off or legal compensation for the

simple reason that the government and the taxpayer are not mutual creditors and

debtors of each other. Claims for taxes are neither debts nor contracts. A

taxpayer cannot refuse to pay his taxes when they fall due simply because he has a

claim against the government that the collection of the tax is contingent on the result of

the lawsuit it filed against the government. In the case at bar, the claims of Philex for

VAT refund is still pending litigation. Moreover, taxes are the lifeblood of the

government and should be collected without unnecessary hindrance.

Citing Francia v. Intermediate Appellate Court, the SC categorically held that

taxes cannot be subject to set-off or compensation, thus:

―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 tax cannot await the results of a lawsuit against the

government.‖


2. ATLAS CONSOLIDATED AND DEVELOPMENT CORPORATION vs.

COMMISSIONER OF INTERNAL REVENUE, G.R. No. 159490, February 18, 2008

FACTS:

Atlas is a corporation duly organized and existing under Philippine laws engaged

in the production of copper concentrates for export. It is registered as a VAT entity and

a VAT Registration Certificate No. 32-0-004622 effective August 15, 1990.

On September 20, 1993, Atlas applied with the BIR for the issuance of a tax

credit certificate or refund under Section 106(b) of the Tax Code. The certificate would

represent the VAT it paid for the first quarter of 1993 in the amount of PhP

7,907,662.53, which corresponded to the input taxes not applied against any output

VAT.

On February 22, 1995, Atlas then filed with the CTA and on October 13, 1997,

the CTA rendered a Decision against Atlas. The CTA held that Atlas failed to present

sufficient evidence to warrant the grant of tax credit or refund for the alleged input taxes

paid by Atlas. It found that the documents submitted by Atlas did not comply with

Revenue Regulation No. 3-88.

Atlas timely filed its Motion for Reconsideration of the above decision contending

that it relied on Sec. 106 of the Tax Code which merely required proof that the foreign

exchange proceeds has been accounted for in accordance with the regulations of the

Central Bank of the Philippines (CBP). Consequently, Atlas asserted that the

documents it presented, coupled with the testimony of its Accounting and Finance

Manager, sufficiently proved its case. The Motion for Reconsideration was denied.

Atlas appealed and the CA denied and dismissed Atlas’ petition on the ground of

insufficiency of evidence to support Atlas’ action for tax credit or refund.

ISSUE: Whether Atlas has sufficiently proven entitlement to a tax credit or refund.

RULING:

No.

The Rules of Court, which is suppletory in quasi-judicial proceedings, particularly

Sec. 349 of Rule 132, Revised Rules on Evidence, is clear that no evidence which has

not been formally offered shall be considered. Thus, where the pertinent invoices or

receipts purportedly evidencing the VAT paid by Atlas were not submitted, the courts a

quo evidently could not determine the veracity of the input VAT Atlas has paid.

Moreover, when Atlas likewise failed to submit pertinent export documents to prove

actual export sales with due certification from accredited banks on the export proceeds

in foreign currency with the corresponding conversion rate into Philippine currency, the


courts a quo likewise could not determine the veracity of the export sales as indicated in

Atlas’ amended VAT return.


3. MELECIO R. DOMINGO, as Commissioner of Internal Revenue vs. HON.

LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of

Leyte, and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late

Walter Scott Price, G.R. No. L-18994, June 29, 1963

FACTS:

In Domingo vs. Moscoso, the Supreme Court declared as final and executory the

order of the lower court for the payment of estate and inheritance taxes, charges and

penalties amounting to Php 40,058.55 by the estate of the of the late Walter Price. The

petitioner for execution filed by the fiscal was denied by the lower court. The court held

that the execution is unjustified as the Government is indebted to the estate for Php

262, 200 and ordered the amount of inheritance taxes can be deducted from the

Government’s indebtedness to the estate.

ISSUE: Whether or not a tax and a debt may be compensated.

RULING: The court having jurisdiction of the Estate had found that the claim of the

Estate against the government has been recognized and the amount has already been

appropriated by a corresponding law, Rep. Act No. 2700. 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 takes place

by operation of law and both debts are extinguished to the concurrent amount. Therefore the

petitioner has no clear right to execute the judgment for taxes against the estate of the deceased

Walter Price.


4. Commissioner vs. Algue, GR L-28890, 17 February 1988

Facts: The Philippine Sugar Estate Development Company (PSEDC) appointed Algue

Inc. as its agent, authorizing it to sell its land, factories, and oil manufacturing process.

The Vegetable Oil Investment Corporation (VOICP) purchased PSEDC properties. For

the sale, Algue received a commission of P125,000 and it was from this commission

that it paid Guevara, et. al. organizers of the VOICP, P75,000 in promotional fees. In

1965, Algue received an assessment from the Commissioner of Internal Revenue in the

amount of P83,183.85 as delinquency income tax for years 1958 amd 1959. Algue filed

a protest or request for reconsideration which was not acted upon by the Bureau of

Internal Revenue (BIR). The counsel for Algue had to accept the warrant of distrant and

levy. Algue, however, filed a petition for review with the Court of Tax Appeals.

Issue: Is the Collector of the Internal Revue correct in disallowing the P75,000

deduction claimed by Algue as a legitimate business expense on account that it was not

an ordinary, reasonable and necessary expense?

RULING:

No. The Supreme Court ruled in favor of the CTA and Algue. The amount in

question is a legitimate business expense. The burden on the part of the tax payer to

prove that said expenses were necessary and reasonable were satisfactorily complied

with. With this in mind, the court expounded on the purpose and rationale of taxation,

Tax collection should be made in accordance with law as any arbitrariness will

negate the very reason for government itself. For all the awesome power of the tax

collector, he may still be stopped in his tracks if the taxpayer can demonstrate that the

law has not been observed. Herein, the claimed deduction (pursuant to Section 30 [a]

[1] of the Tax Code and Section 70 [1] of Revenue Regulation 2: as to compensation for

personal services) had been legitimately by Algue Inc. It has further proven that the

payment of fees was reasonable and necessary in light of the efforts exerted by the

payees in inducing investors (in VOICP) to involve themselves in an experimental

enterprise or a business requiring millions of pesos.


5. NPC vs. City of Cabanatuan G.R. No. 149110, April 9, 2003

Facts:

National Power Corporation, a Government Owned and Controlled Corporation

was assessed by the City of Cabanatuan for franchise tax pursuant to sec. 37 of

Ordinance No. 165-92. NPC refused to pay the tax assessment on the grounds that the

City of Cabanatuan has no authority to impose tax on government entities and also that

it is exempted as a non-profit organization. For its part, the City government alleged that

NPC’s exemption from local taxes has been repealed by sec. 193 of RA 7160.

Issue: Whether or not NPC is liable to pay an annual franchise tax to the City

government.

RULING:

One of the most significant provisions of the Local Government Code is the

removal of the blanket exclusion of instrumentalities and agencies of the national

government from the coverage of local taxation. Although as a general rule, LGUs

cannot impose taxes, fees or charges of any kind on the National Government, its

agencies and instrumentalities, this rule now admits an exception, i.e., when specific

provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the

aforementioned entities.

As commonly used, a franchise tax is "a tax on the privilege of transacting

business in the state and exercising corporate franchises granted by the state." It is not

levied on the corporation simply for existing as a corporation, upon its property or its

income, but on its exercise of the rights or privileges granted to it by the government.

Hence, a corporation need not pay franchise tax from the time it ceased to do business

and exercise its franchise. It is within this context that the phrase "tax on businesses

enjoying a franchise" in section 137 of the LGC should be interpreted and understood.

Verily, to determine whether the petitioner is covered by the franchise tax in question,

the following requisites should concur:

(1) That petitioner has a "franchise" in the sense of a secondary or special

franchise; and

(2) That it is exercising its rights or privileges under this franchise within

the territory of the respondent city government.

NPC fulfills both requisites. To stress, a franchise tax is imposed based not on

the ownership but on the exercise by the corporation of a privilege to do business. The

taxable entity is the corporation which exercises the franchise, and not the individual

stockholders. By virtue of its charter, petitioner was created as a separate and distinct


entity from the National Government. It can sue and be sued under its own name, and

can exercise all the powers of a corporation under the Corporation Code.

The Supreme COurt also did not find merit in the petitioner's contention that its

tax exemptions under its charter subsist despite the passage of the LGC.

As a rule, tax exemptions are construed strongly against the claimant.

Exemptions must be shown to exist clearly and categorically, and supported by clear

legal provisions. In the case at bar, the petitioner's sole refuge is section 13 of Rep. Act

No. 6395 exempting from, among others, "all income taxes, franchise taxes and realty

taxes to be paid to the National Government, its provinces, cities, municipalities and

other government agencies and instrumentalities."

It is worth mentioning that section 192 of the LGC empowers the LGUs, through

ordinances duly approved, to grant tax exemptions, initiatives or reliefs. But in enacting

section 37 of Ordinance No. 165-92 which imposes an annual franchise tax

"notwithstanding any exemption granted by law or other special law," the respondent

city government clearly did not intend to exempt the petitioner from the coverage

thereof.


6. Lorenzo vs. Posadas, 64 Phil 353

Facts:

Thomas Hanley died in 1922 in Zamboanga leaving a will w/c provided that:

Any money left be given to nephew Matthew

All real estate shall not be sold or disposed of 10 years after his death. It

shall be managed by the executors. The proceeds shall be given to

nephew Matthew in Ireland to be used only for the education of Hanley’s

brother's children and their descendants.

10 years after Thomas’ death, his property be given to Matthew to be

disposed of in the way he thinks most advantageous.

In 1924, the CFI appointed an administrator, Moore, eventually replaced by

Lorenzo (after Moore resigned). CIR assessed the estate inheritance taxes from the

time of Thomas’ death including penalties for deliquency in payment (P2k+). CIR

filed a motion before the CFI praying that the Lorenzo be ordered to pay the said

amount. The motion was granted. Lorenzo paid under protest and asked for a refund.

CIR refused to refund.

Issues: (a) When does the inheritance tax accrue and when must it be satisfied?

(b) Should the inheritance tax be computed on the basis of the value of

the estate at the time of the testator's death, or on its value ten years later?

(a)UPON DEATH

Lorenzo asserts that article 657 of the Civil Code (―the rights to the succession of

a person are transmitted from the moment of his death‖) operates only in so far as

forced heirs are concerned.

HOWEVER, there is no distinction between different classes of heirs. The

Administrative Code imposes the tax upon the transmission of property of a decedent,

made effective by his death. An excise or privilege tax is imposed on the right to

succeed to, receive, or take property by or under a will or the intestacy law, or deed,

grant, or gift to become operative at or after death. The property belongs to the heirs at

the moment of the death of the ancestor as completely as if the ancestor had executed

and delivered to them a deed for the same before his death.

Since Thomas Hanley died on May 27, 1922, the inheritance tax accrued as of

the date. However, it does not follow that the obligation to pay the tax arose as of the

date. The time for the payment on inheritance tax is fixed by the Revised Administrative

Code w/c provides that the payment must be made before entrance into possession of


the property of the fideicommissary or cestui que trust. Thus, the tax should have been

paid before the delivery of the properties to Moore as trustee in 1924.

(b) AT THE TIME OF DEATH

Plaintiff contends that the estate of Thomas Hanley could not legally pass to

Matthew until after the expiration of 10 years from the death of the testator in 1922 and

the inheritance tax should be based on the value of the estate in 1932.

Upon the death of the decedent, succession takes place and the right of the

estate to tax vests instantly. The tax should be measured by the value of the estate as

it stood at the time of the decedent's death, regardless of any subsequent contingency

value of any subsequent increase or decrease in value, or the postponement of the

actual possession or enjoyment of the estate by the beneficiary.


(4) Commissioner vs. Algue

As to purpose or objective of taxation:

―It is said that taxes are what we pay for civilization society. Without taxes, the

government would be paralyzed for lack of the motive power to activate and operate it.

Hence, despite the natural reluctance to surrender part of one's hard earned income to

the taxing authorities, every person who is able to must contribute his share in the

running of the government. The government for its part, is expected to respond in the

form of tangible and intangible benefits intended to improve the lives of the people and

enhance their moral and material values. 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.‖


7. PAL vs. EDU, 164 SCRA 320

FACTS:

Philippine Airlines Inc. is engaged in air transportation business under a

legislative franchise wherein it is exempt from tax payment. PAL has not been paying

motor vehicle registration since 1956. Subsequently, the Land Registration

Commissioner required all tax exempt entities including PAL to pay motor vehicle

registration fees.

ISSUE: Whether or not registration fees as to motor vehicles are taxes to which PAL is

exempted.

RULING:

Taxes are for revenue whereas fees are exactions for purposes of regulation and

inspection, and are for that reason limited in amount to what is necessary to cover the

cost of the services rendered in that connection. It is the object of the charge, and not

the name, that determines whether a charge is a tax or a fee. The money collected

under Motor Vehicle Law is not intended for the expenditures of the MV Office but

accrues to the funds for the construction and maintenance of public roads, streets and

bridges.

As fees are not collected for regulatory purposes as an incident to the enforcement of

regulations governing the operation of motor vehicles on public highways but to provide

revenue with which the Government is to construct and maintain public highways for

everyone’s use, they are veritable taxes, not merely fees. PAL is thus exempt from

paying such fees, except for the period between June 27, 1968 to April 9, 1979 where

its tax exemption in the franchise was repealed.


8. Tolentino vs. Secretary of Finance, (235 SCRA 630, 249 SCRA 628)

August 25, 1994; October 30, 1995

Facts:

There are various suits challenging the constitutionality of RA 7716 on various

grounds.

The value-added tax (VAT) is levied on the sale, barter or exchange of goods

and properties as well as on the sale or exchange of services. It is equivalent to 10% of

the gross selling price or gross value in money of goods or properties sold, bartered or

exchanged or of the gross receipts from the sale or exchange of services. Republic Act

No. 7716 seeks to widen the tax base of the existing VAT system and enhance its

administration by amending the National Internal Revenue Code.

Among the Petitioners was the Philippine Press Institute which claim that R.A.

7716 violates their press freedom and religious liberty, having removed them from the

exemption to pay Value Added Tax. It is contended by the PPI that by removing the

exemption of the press from the VAT while maintaining those granted to others, the law

discriminates against the press. At any rate, it is averred, "even nondiscriminatory

taxation of constitutionally guaranteed freedom is unconstitutional." PPI argued that the

VAT is in the nature of a license tax.

Issue: Whether or not the purpose of the VAT is the same as that of a license tax.

Ruling:

A license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition

on the press is unconstitutional because it lays a prior restraint on the exercise of its

right. Hence, although its application to others, such those selling goods, is valid, its

application to the press or to religious groups, such as the Jehovah’s Witnesses, in

connection with the latter’s sale of religious books and pamphlets, is unconstitutional.

As the U.S. Supreme Court put it, ―it is one thing to impose a tax on income or property

of a preacher. It is quite another thing to exact a tax on him for delivering a sermon.‖

The VAT is, however, different. It is not a license tax. It is not a tax on the

exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter,

lease or exchange of goods or properties or the sale or exchange of services and the

lease of properties purely for revenue purposes. To subject the press to its payment is

not to burden the exercise of its right any more than to make the press pay income tax

or subject it to general regulation is not to violate its freedom under the Constitution.


9. COCOFED vs. Republic, GR Nos. 177857-58, January 24, 2012

FACTS:

In 1971, Republic Act No. 6260 was enacted creating the Coconut Investment

Fund (CIF). The source of the CIF was a P0.55 levy on the sale of every 100 kg. of

copra. The Philippine Coconut Administration was tasked to collect and administer the

Fund. Out of the 0.55 levy, P0.02 was placed at the disposition of the COCOFED, the

recognized national association of coconut producers declared by the PCA. Cocofund

receipts were ought to be issued to every copra seller.

During the Martial Law regime, then President Ferdinand Marcos issued several

Presidential Decrees purportedly for the improvement of the coconut industry. The most

relevant among these is P.D. No. 755 which permitted the use of the Fund for the

―acquisition of a commercial bank for the benefit of coconut farmers and the

distribution of the shares of the stock of the bank it [PCA] acquired free to the

coconut farmers‖ (Sec.2).

Thus, the PCA acquired the First United Bank, later renamed the United Coconut

Planters Bank (UCPB). The PCA bought the 72.2% of PUB’s outstanding capital stock

or 137,866 shares at P200 per share (P27, 573,200.00) from Pedro Cojuangco in behalf

of the coconut farmers.” The rest of the Fund was deposited to the UCPB interest free.

Farmers who had paid the CIF and registered their receipts with PCA were given

their corresponding UCPB stock certificates. Only 16 million worth of COCOFUND

receipts were registered and a large number of the coconut farmers opted to sell all/part

of their UCPB shares to private individuals.

Simply put, parts of the coconut levy funds went directly or indirectly to various

projects and/or was converted into different assets or investments through the years.

After the EDSA Revolution, President Corazon Aquino issued Executive Order 1

which created the Presidential Commission on Good Government (PCGG).

The PCGG aimed to assist the President in the recovery of ill-gotten wealth

accumulated by the Marcoses and their cronies. PCGG was empowered to file cases

for sequestration in the Sandiganbayan.

Among the sequestered properties were the shares of stock in the UCPB

registered in the name of ―over a million coconut farmers‖ held in trust by the PCA. The

Sandiganbayan allowed the sequestration by ruling in a Partial Summary Judgment that

the Coconut Levy Funds are prima facie public funds and that Section 1 and 2 of PD

No. 755 (and some other PDs) were unconstitutional.

The COCOFED representing the ―over a million coconut farmers‖ via Petition for

review under Rule 45 sought the reversal of the ruling contending among others that the


sequestration amounted to ―taking of private property without just compensation and

impairment of vested right of ownership.‖

ISSUE: What is the NATURE of the Coconut Levy Fund?

RULING:

The SC ruled in favor of the REPUBLIC.

To begin with, the Coconut Levy was imposed in the exercise of the State’s

inherent power of taxation. Indeed, the Coconut Levy Funds partake the nature of

TAXES. The Funds were generated by virtue of statutory enactments by the proper

legislative authorities and for public purpose.

The Funds were collected to advance the government avowed policy of

protecting the coconut industry. The SC took judicial notice of the fact that the

coconut industry is one of the great economic pillars of our nation, and coconuts and

their byproducts occupy a leading position among the countries’ export products.

Taxation is done not merely to raise revenues to support the government, but also to

provide means for the rehabilitation and the stabilization of a threatened industry,

which is so affected with public interest.


10. John Osmena vs. Oscar Orbos, 220 SCRA 703

G.R. No: 99886, March 31, 1993

Facts:

Pres. Marcos created Special Account in the General Fund (P.D. 1956),

designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to

reimburse oil companies for cost increases in crude oil and imported petroleum

products resulting from exchange rate adjustments and from increases in the world

market prices of crude oil.. Pres. Aquino, amended and promulgated E.O. No. 137,

expanding the grounds for reimbursement to oil companies for possible cost

underrecovery incurred as a result of the reduction of domestic prices of petroleum

products, the amount of the underrecovery being left for determination by the Ministry of

Finance. The petition claimed that the status of the OPSF as of March 31, 1991 showed

a ―Terminal Balance Deficit‖ of some P12.877 billion and to abate such, the Energy

Regulatory Board issued an Order approving the increase in pump prices of petroleum

products. The OPSF deficit should have been fully covered in a span of 6 months but

Oscar Orbos, in his capacity as Executive Secretary;Jesus Estanislao, in his capacity as

Secretary of Finance; Wenceslao de la Paz, in his capacity as Head of the Office of

Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board — are

poised to accept, process and pay claims not authorized under P.D. 1956.

Issue: What is the purpose of the Oil Price Stabilization Fund?

RULING:

The OPSF is a "Trust Account" which was established ―for the purpose of

minimizing the frequent price changes brought about by exchange rate adjustment

and/or changes in world market prices of crude oil and imported petroleum products.‖ It

is clear that while the funds collected may be referred to as taxes; they are exacted in

the exercise of the police power of the State. Moreover, that the OPSF is a special fund

is plain from the special treatment given it by E.O. 137. It is segregated from the general

fund; and while it is placed in what the law refers to as a "trust liability account," the fund

nonetheless remains subject to the scrutiny and review of the COA. The Court is

satisfied that these measures comply with the constitutional description of a "special

fund."

The Court cited Valmonte v. ERB and Gaston v. Republic Planters Bank, ―The

tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory

purpose, to provide a means for the stabilization of the sugar (petroleum products)

industry. The levy is primarily in the exercise of the police power of the State.


11. CALTEX PHILIPPINES, INC. vs. THE HONORABLE COMMISSION ON AUDIT,

HONORABLE COMMISSIONER BARTOLOME C. FERNANDEZ and HONORABLE

COMMISSIONER ALBERTO P. CRUZ, G.R. No. 92585, May 8, 1992

FACTS: On February 2, 1989, the Commission on Audit (COA) sent a letter to

Caltex requesting the latter to remit its tax contributions amounting to P335,037,649 to

Oil Price Stabilization Fund (OPSF) pursuant to Section 8 of P.D. No. 1956. Another

letter was sent to the petitioner, stating that the total amount of its unremitted tax was

P1,287,668,820.00 from 1986-1988 as verified by the Office of Energy Affairs (OEA).

Denying such request, Caltex answered to COA’s letters asking OEA for early

release of reimbursement certificates from OPSF. COA denied petitioner’s request but

instead asked Caltex to remit its collection. As a reply, Caltex gave a proposal for its

payment based on PD 1956, as amended by E.O 137; Department of Finance Circular

No.

1-87; the New Civil Code as to compensation; and the Revised Administrative Code.

COA accepted the proposal except those matters involving offsetting the remittances

and reimbursements.

Pursuant to such agreement, COA informed OEA as to Caltex’s remittances

amounting to P1, 505,668,906 to OPSF and allowing OEA to reimburse Caltex the

amount of P1, 959,182,612. Caltex, however, disagreed with such arrangement. Caltex

thereby insisted that its remittances and reimbursements must be offset. But COA

disregarded such contention holding as a basis the case of Francia vs. IAC and

Fernandez, arguing that OPSF is not in the form of taxation, therefore not for revenue

purposes.

ISSUE: Whether or not OPSF contributions are for non-revenue purposes of the

government and it is still in the form of taxation.

RULING:

YES, OPSF are for non-revenue purposes and is in the nature of taxes.

The Supreme Court found no merit in petitioner's contention that the OPSF

contributions are not for a public purpose because they go to a special fund of the

government. Taxation is no longer envisioned as a measure merely to raise

revenue to support the existence of the government; taxes may be levied with a

regulatory purpose to provide means for the rehabilitation and stabilization of a

threatened industry which is affected with public interest as to be within the

police power of the state. There can be no doubt that the oil industry is greatly imbued

with public interest as it vitally affects the general welfare. Any unregulated increase in


oil prices could hurt the lives of a majority of the people and cause economic crisis of

untold proportions. It would have a chain reaction in terms of, among others, demands

for wage increases and upward spiralling of the cost of basic commodities. The

stabilization then of oil prices is of prime concern which the state, via its police power,

may properly address.

Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the

source of OPSF is taxation. No amount of semantical juggleries could dim this fact.


12. ESSO STANDARD EASTERN, INC., (formerly, Standard-Vacuum Oil

Company), vs. THE COMMISSIONER OF INTERNAL REVENUE. G.R. Nos. L-28508-

9 July 7, 1989

Facts: The CTA denied ESSO’s claims for refund of overpaid income taxes of

P102, 246.00 for 1959 and P434,234.93 for 1960 in CTA Cases No. 1251 and 1558

respectively.

In CTA Case No. 1251, petitioner ESSO deducted from its gross income for

1959, as part of its ordinary and necessary business expenses, the amount it had spent

for drilling and exploration of its petroleum concessions. This claim was disallowed by

the respondent Commissioner of Internal Revenue on the ground that the expenses

should be capitalized and might be written off as a loss only when a "dry hole" should

result. ESSO then filed an amended return where it asked for the refund of P323,279.00

by reason of its abandonment as dry holes of several of its oil wells and claimed as

ordinary and necessary expenses the margin fees paid to the Central Bank on profit

remittances to its New York head office.

In CTA Case No. 1558, the CR assessed ESSO a deficiency income tax for the

year 1960 arising from the disallowance of the margin fees paid by ESSO to the Central

Bank on its profit remittances to its New York head office. ESSO settled the same by

applying as tax credit its overpayment on its income tax in 1959 and paying under

protest the remaining amount.

The CIR denied the claims for refund of the overpayment of its 1959 and 1960

income taxes, holding that the margin fees paid to the Central Bank could not be

considered taxes or allowed as deductible business expenses.

Issue: WON the margin fees were deductible from gross income as a tax or an ordinary

and necessary business expense.

RULING:

The margin fee was imposed by the State in the exercise of its police power

and not the power of taxation. 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. By

its nature, the margin levy is part of the rate of exchange as fixed by the


government.―Moreover, it has been settled 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.

The margin fees are not ordinary and necessary business expenses.

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.

The Court held that the CTA was correct in saying that the margin fees are not

expenses in connection with the production or earning of petitioner's incomes in the

Philippines. ―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.‖


(8) Tolentino vs. Secretary of Finance, (235 SCRA 630, 249 SCRA 628)

As to Indirect and Direct Taxes

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 [&] as much as possible, indirect

taxes should be minimized." Indeed, the mandate to Congress is not to prescribe, but

to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the

oldest form of indirect taxes, would have been prohibited… Sales taxes are also

regressive.

―Resort to indirect taxes should be minimized but not avoided entirely because it

is difficult, if not impossible, to avoid them by imposing such taxes according to the

taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive

effects of this imposition by providing for zero rating of certain transactions, while

granting exemptions to other transactions.‖


13. Ernesto M. Maceda, vs. Hon. Catalino Macaraig, Jr., G.R. No. 88291 May 31,

1991

Facts:

Commonwealth Act 120 created NAPOCOR as a public corporation to undertake

the development of hydraulic power and the production of power from other sources.

RA 358 (1949) granted NAPOCOR tax and duty exemption privileges. RA 6395 (1971)

revised the charter of the NAPOCOR, tasking it to carry out the policy of the national

electrification, and provided in detail NAPOCOR’s tax exceptions. PD 380 (1974)

specified that NAPOCOR’s exemption includes all taxes, etc. imposed ―directly or

indirectly.‖ PD 938 integrated the exemptions in favor of GOCCs including their

subsidiaries; however, empowering the President or the Minister of Finance, upon

recommendation of the Fiscal Incentives Review Board (FIRB) to restore, partially

or completely, the exemptions withdrawn or revised. The FIRB issued Resolution

10-85 (7 February 1985) restoring the duty and tax exemptions privileges of NAPOCOR

for period 11 June 1984- 30 June 1985. Resolution 1-86 (1January 1986) restored such

exemption indefinitely effective 1 July 1985. EO 93 (1987) again withdrew the

exemption. FIRB issued Resolution 17-87 (24 June 1987) restoring NAPOCOR’s

exemption, which was approved by the President on 5 October 1987.

Since 1976, oil firms never paid excise or specific and ad valorem taxes for

petroleum products sold and delivered to NAPOCOR. Oil companies started to pay

specific and ad valorem taxes on their sales of oil products to NAPOCOR only in 1984.

NAPOCOR claimed for a refund (P468.58 million). Only portion thereof,

corresponding to Caltex, was approved and released by way of a tax credit memo. The

claim for refund of taxes paid by PetroPhil, Shell and Caltex amounting to P410.58

million was denied. NAPOCOR moved for reconsideration, starting that all deliveries of

petroleum products to NAPOCOR are tax exempt, regardless of the period of delivery.

ISSUE: Whether or not NPC is exempted from paying indirect tax.

Ruling:

The NPC is exempted to pay indirect taxes. The court distinguish direct tax from

indirect tax.

a. Direct Tax — that where the person supposed to pay the tax really pays

it. WITHOUT transferring the burden to someone else.

b. Indirect Tax — that where the tax is imposed upon goods BEFORE reaching

the consumer who ultimately pays for it, not as a tax, but as a part

of the purchase price.


The main thrust of the petition is that under the latest amendment to the NPC

charter by Presidential Decree No. 938, the exemption of NPC from indirect taxation

was revoked and repealed. The exemption of NPC from payment of taxes under PD

938 was expressed in general term ―ALL FORMS OF TAXES‖ wherein there is a

deletion of the phrases "directly or indirectly" which is stated under Presidential Decree

No. 380 that is repealed and amended by PD 938.

The use of the phrase "all forms" of taxes demonstrate the intention of the law to

give NPC all the tax exemptions it has been enjoying before. The rationale for this

exemption is that being non-profit public corporation created for the general good and

welfare wholly owned by the government of the Republic of the Philippines the NPC

"shall devote all its returns from its capital investment as well as excess revenues from

its operation, for expansion to enable the Corporation to pay the indebtedness and

obligations amounting to P12 Billion in total domestic indebtedness, at any one time,

and U$4 Billion in total foreign loans at any one time, as of PD 938. The NPC must be

and has to be exempt from all forms of taxes if this goal is to be achieved.


14. COMMISSIONER OF INTERNAL REVENUE, vs. JOHN GOTAMCO & SONS, INC.

and THE COURT OF TAX APPEALS, G.R. No. L-31092 February 27, 1987

Facts:

The World Health Organization is an international organization which enjoys

privileges and immunities under the Host Agreement entered into between the

Philippines which provides that the Organization, its assets, income and other

properties shall be exempt from all direct and indirect taxes.

When the WHO decided to construct a building to house its own offices stationed

in Manila, it entered into a further agreement with the Government that the Organization

may import into the country materials and fixtures required for the construction free from

all duties and taxes and agrees not to utilize any portion of the international reserves of

the Government.

In inviting bids for the construction of the building, the WHO informed the bidders

that the building to be constructed belonged to an international organization with

diplomatic status and thus exempt from the payment of all fees, licenses, and taxes.

The construction contract was awarded to respondent John Gotamco & Sons, Inc. for

the stipulated price of P370,000.00, but when the building was completed the price

reached a total of P452,544.00.

Sometime in May 1958, the WHO received an opinion from the Commissioner of

the Bureau of Internal Revenue stating that as the 3% contractor's tax is an indirect tax

on the assets and income of the Organization and thus, are exempt from tax in

accordance with the Host Agreement. Subsequently, on June 3, 1958, the

Commissioner of Internal Revenue reversed his opinion and stated that as the 3%

contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily

due from the contractor, the same is not covered by the Host Agreement.

In January 17, 1961, the Commissioner of Internal Revenue sent a letter of

demand to Gotamco demanding payment of P 16,970.40, representing the 3%

contractor's tax plus surcharges on the gross receipts.

Respondent Gotamco appealed the Commissioner's decision to the Court of Tax

Appeals, which after trial rendered a decision, in favor of Gotamco.

Hence, this appeal.

Issue: Whether or not respondent John Gotamco & Sons, Inc. should pay the 3%

contractor's tax under Section 191 of the National Internal Revenue Code.


Ruling: Petitioner's position is that the contractor's tax is in the nature of an excise tax

which is a charge imposed upon the performance of an act, the enjoyment of a privilege

or the engaging in an occupation. It is a tax due primarily and directly on the contractor,

not on the owner of the building. Since this tax has no bearing upon the WHO, it cannot

be deemed an indirect taxation upon it.

15. Silkair (Singapore) Pte, Ltd. vs. Commissioner Of Internal Revenue, G.R. No.

173594, February 06, 2008

Facts:

Silkair (Singapore) Pte., Ltd., a Singaporean corporation engaged in international

air carriage, filed with the Bureau of Internal Revenue an application for the refund of

P4,567,450.79 excise taxes paid for jet fuel from Petron Corporation from January to

June 2000. It based its claim from Section 135 of the 1997 NIRC, and Article 4(2) of the

Air Transport Agreement between RP and Singapore. BIR has not acted upon said

application so Silkair filed a Petition for Review with the Court of Tax Appeals, Second

Division. BIR opposed said petition on the ground that the excise tax on petroleum,

being a direct liability of the manufacturer or producer, becomes part of the price when

added to the cost of said good sold to the buyer. CTA, Second Division, in its decision

on 27 May 2005, dismissed said petition on the ground that the latter is not the proper

claimant, and likewise denied Silkair’s subsequent Motion for Reconsideration therefor.

Subsequently, Silkair’s Petition for Review before CTA En Banc was dismissed for

being filed out of time. Associate Justice Castañeda, Jr. also stated in his Separate


Concurring Opinion that Silkair is not the proper party for the claim. Silkair filed another

Motion for Reconsideration which CTA En Banc denied. Hence, this Petition for Review.

Issue: Whether or not Silkair is the proper party to claim for the tax credit.

Ruling:

No, Silkair is not the proper claimant for the tax credit.

A. Petron Corporation is the proper claimant. SC held that the proper party to claim

refund of the tax credit ―is the statutory taxpayer, the person… who paid [said

tax imposed by law] even if he shifts the burden thereof to another.‖ Section 130

(A) (2) thus provides ―[u]nless otherwise specifically allowed, the return shall be

filed and the excise tax paid by the manufacturer or producer before removal of

domestic products from place of production.‖ Petron, not Silkair, is thus the one

entitled to claim refund based on Section 135 of the NIRC of 1997 and Article

4(2) of the Air Transport Agreement between RP and Singapore. The tax burden

passed by Petron to Silkair is no longer a tax but a part of the purchase price.

The best that Silkair may do, if allowed, is only to seek reimbursement of the tax

burden from Petron.

B. Exemption granted by law does not include indirect taxes. An indirect tax, i.e.,

excise tax on petroleum products, is that in which the incidence of taxation

(person statutorily liable to pay) falls on one person, and the impact of taxation

(burden of taxation) falls on another. SC ruled that ―[t]he exemption granted

under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the Air Transport

Agreement between RP and Singapore cannot, without a clear showing of

legislative intent, be construed as including indirect taxes.‖ SC further explained

that ―[s]tatutes granting tax exemptions must be construed in strictissimi juris

against the taxpayer and liberally in favor of the taxing authority, and if an

exemption is found to exist, it must not be enlarged by construction.‖

Silkair’s petition is DENIED.


16. Commissioner of Internal Revenue vs. Court Of Appeals, Atlas

Consolidated Mining and Development Corporation, and Court of Tax

Appeals

G.R. No. 104151, March 10, 1995

Facts: Atlas Conslidated Mining and Development Corporation (ACMDC) is a

domestic corporation which owns and operates a mining concession at Toledo City,

Cebu, the products of which are exported to Japan and other foreign countries. On April

9, 1980 and September 23, 1980, the Commissioner of Internal Revenue (CIR), caused

the service of an assessment notice and demand for payment of the amount of

P12,391,070.51 and P13,531,466.80 representing deficiency ad valorem percentage

and fixed taxes, including increments, with P5,000.00 compromise penalty for the

taxable year 1975 and 1976, respectively, against ACMDC.

ACMDC protested both assessments but the same were denied hence it filed two

separate petitions for review in the Court of Tax Appeals (CTA) which were eventually

consolidated.

CTA: Sustained the contention of ACMDC that in computing the ad valorem tax

on copper mineral, the refining and smelting charges should be deducted, in addition to

freight and insurance charges, from the London Metal Exchange (LME) price of

manufactured copper.

However, the CTA held ACMDC liable for the amount of P1,572,637.48,

exclusive of interest, consisting of 25% surcharge for late payment of the ad valorem tax

on Nov – Dec 1975 and taxable year 1976, and late filing of notice of removal of silver,

gold and pyrite extracted during certain periods, and for alleged deficiency

manufacturer's sales tax and contractor's tax.

Both parties elevated their respective contentions to the CA via petitions for

review. CIR questioned the judgment deleting the ad valorem tax on copper and silver,

while ACMDC assailed that part of the decision ordering it to pay P1,572,637.48

representing alleged deficiency assessment.

CA: Dismissed the petition of the CIR and affirmed the decision of the CTA in the

computation of ad valorem tax. It also reduced the liability of ACMDC by deleting the

25% surcharge on silver, gold, and pyrite extracted during the period November 1, 1974

to December 31, 1975.


Issues:

1. Whether or not refining and smelting charges should be deducted in computing

the ad valorem tax of ACMDC.

2. Whether or not ACMDC is liable for the 25% surcharge for alleged late filing of

notice of removal/late payment of the ad valorem tax on silver, gold and pyrite extracted

during the taxable year 1976.

3. Whether or not ACMDC is liable for manufacturer’s tax for selling grinding steel

balls.

4. Whether or not ACMDC is liable for contractor’s tax for leasing its plane, motor

boat, and dump truck.

Ruling:

1. Yes, the refining and smelting charges should be deducted in computing the ad

valorem tax of ACMDC.

Ad valorem tax(definition in Sec 243 of the NIRC) of 2% is to be computed on

the basis of the market value of the mineral in its condition at the time of such removal

and before it undergoes a chemical change through manufacturing process.It is a tax

not on the minerals, but being a severance tax, it is charge upon the privilege of

severing or extracting the mineral from the earth, the government's right to exact the

said impost springing from the Regalian theory of State ownership of its natural

resources.

A review of the records showed that it was the London Metal Exchange price on

wire bar (a finish product of copper, that had already undergone processing) that was

used as tax base by ACMDC for purposes of the 2% ad valorem tax on copper

concentrates since there was no available market price quotation in the commodity

exchange or markets of the world for copper concentrates nor was there any market

quotation locally obtainable.

Therefore, the imposable ad valorem tax should be based on the selling price of

the quarried raw minerals, which is its actual market value, and not on the price of the

manufactured product. If the market value chosen for the reckoning is the value of the

manufactured or finished product, as in the case at bar, then all expenses of processing

or manufacturing should be deducted in order to approximate as closely as is humanly

possible the actual market value of the raw mineral at the mine site.

2. Yes, ACMDC is liable for 25% surcharge for the alleged late filing of notice of

removal/late payment of the ad valorem tax on silver, gold and pyrite extracted during

the taxable year 1976.


Under Sec 245 of the NIRC, the payment of the ad valorem tax shall be made

upon removal of the mineral products from the mine site or if payment cannot be made,

by filing a bond in the form and amount to be approved by the Commissioner

conditioned upon the payment of the said tax.

Given the fact that ACMDC has the capability, as testified by its analyst, of determining

the estimated silver, gold, and pyrite content of an ore before it is actually processed for

separation, belie ACMDC’s contention that it should not be required to pay the 25%

surcharge because the correct quantity of gold and silver could be determined only after

the copper concentrates had gone through the process of smelting and refining in Japan

while the amount of pyrite cannot be determined until after the flotation process

separating the copper mineral from the waste material was finished.

3. No, ACMDC is not liable for manufacturer’s tax.

Under the tax code (Se 186), the 7% manufacturer's sales tax, which is an excise

tax, is imposed on the manufacturer for every original sale, barter, exchange and other

similar transaction intended to transfer ownership of articles. A "manufacturer" is

defined as including "every person who by physical or chemical process alters the

exterior texture or form or inner substance of any raw material or manufactured or

partially manufactured product in such manner as to prepare it for a special use or uses

to which it could not have been put in its original condition (…) to produce such finished

products for the purpose of their sale or distribution to others and not for his own use or

consumption.

It cannot be legally assertedthat ACMDC was engaged in the business of selling

grinding steel balls on the basis of the isolated transaction entered into by it in 1975.

There is no showing that said transaction was undertaken by ACMDC with a view of

gaining profit and with the intent of carrying on a business. On the contrary, what is

clear is that the sale was more of an accommodation to the other mining companies,

who were experiencing shortage in grinding steel balls, and that ACMDC was

subsequently replaced by other suppliers shortly thereafter.Well-settled is the rule that

anything done as a mere incident to, or as a necessary consequence of, the principal

business is not ordinarily taxed as an independent business in itself.

4. Yes, ACMDC is liable for contractor’s tax.

Contractor's tax, also an excise tax, is provided for under Section 191, paragraph

17 of which declares that lessors of personal property shall be subject to a contractor's

tax of 3% of the gross receipts.

ACMDC cannot validly claim that the leasing out of its personal properties was

merely incidental to its primary line of business and is a mere isolated transaction not


intended for profit. Its book of accounts showed series of transactions and that several

distinct payments were made for the use of its personal properties such as its plane,

motor boat and dump truck amounting to P630,171.56 for tax year 39 and

P2,450,218.62 for tax year 1976.

ACMDC’s claim that it did not gain profit from such lease is negated by the fact

that it was not able to show proof of irregularities in the assessment made by the BIR,

which are prima facie presumed correct and made in good faith and will not be

disturbed.


17. Villanueva vs. City Of Iloilo

(26 SCRA 578)

FACTS:

Relying on the passage of RA 2264 or the Local Autonomy Act, Iloilo enacted

Ordinance 11 Series of 1960, imposing a municipal license tax on tenement houses in

accordance with the schedule of payment provided by therein. Villanueva and the other

appellees are apartment owners from whom tshe city collected license taxes by virtue of

Ordinance 11. Appellees aver that the said ordinance is unconstitutional for RA 2264

does not empower cities to impose apartment taxes; that the same is oppressive and

unreasonable for it penalizes those who fail to pay the apartment taxes; that it

constitutes not only double taxation but treble taxation; and, that it violates uniformity of

taxation.

Issues:

1. Does the ordinance impose double taxation?

2. Is Iloilo city empowered by RA 2264 to impose tenement taxes?

RULING:

While it is true that appellees are taxable under the NIRC as real estate dealers,

and taxable under Ordinance 11, double taxation may not be invoked. This is because

the same tax may be imposed by the national government as well as by the local

government. The contention that appellees are doubly taxed because they are paying

real estate taxes and the tenement tax is also devoid of merit. A license tax may be

levied upon a business or occupation although the land or property used in connection

therewith is subject to property tax. In order to constitute double taxation, both taxes

must be the same kind or character. Real estate taxes and tenement taxes are not of

the same character.

RA 2264 confers local governments broad taxing powers. The imposition of the

tenement taxes does not fall within the exceptions mentioned by the same law. It is

argued however that the said taxes are real estate taxes and thus, the imposition of

more the 1 per centum real estate tax which is the limit provided by CA 158, makes the

said ordinance ultra vires. The court ruled that the tax in question is not a real estate

tax. It does not have the attributes of a real estate tax. By the title and the terms of the

ordinance, the tax is a municipal tax which means an imposition or exaction on the right

to use or dispose of property, to pursue a business, occupation or calling, or to exercise

a privilege. Tenement houses being offered for rent or lease constitute a distinct form of


business or calling and as such, the imposition of municipal tax finds support in Section

2 of RA 2264.


18. Allied Banking vs. the Quezon City Government,

G. R. NO. 154126, September 15, 2006

FACTS: On July 1, 1998, Allied Banking, as trustee for College Assurance Plan of

the Philippines, Inc., purchased from Liwanag C. Natividad et al. a 1,000 square meter

parcel of land located along Aurora Boulevard, Quezon City in the amount of

P38,000,000.00.

Prior to the sale, Natividad et al. had been paying the total amount

of P85,050.00 as annual real property tax based on the property’s fair market value

of P4,500,000.00 and assessed value of P1,800,000.00 under Tax Declaration No. D-

102-03778.

After its acquisition of the property, petitioner was, in accordance with Section 3

of the ordinance, required to payP102,600.00 as quarterly real estate tax

(or P410,400.00 annually) under Tax Declaration No. D-102-03780 which pegged the

market value of the property at P38,000,000.00 – the consideration appearing in the

Deed of Absolute Sale, and its assessed value atP15,200,000.00. Petitioner paid the

quarterly real estate tax for the property from the 1st quarter of 1999 up to the 3rd quarter

of 2000 which is paid under protest.

Petitioner filed a petition for prohibition and declaratory relief before the RTC of

Quezon City assailing the validity of Sec. 3 of the Quezon City Ordinance which states

that:

Sec. 3. xxx He shall apply the new assessment level of 15% for residential and 40%

for commercial and industrial classification, respectively as prescribed in Section 8 (a) of

the 1993 Quezon City Revenue Code to determine the assessed value of the land.

Provided; however, that parcels of land sold, ceded, transferred and conveyed for

remuneratory consideration after the effectivity of this revision shall be subject to

real estate tax based on the actual amount reflected in the deed of conveyance or

the current approved zonal valuation of the Bureau of Internal Revenue prevailing

at the time of sale, cession, transfer and conveyance, whichever is higher, as

evidenced by the certificate of payment of the capital gains tax issued therefor.

Petitioner contends that the proviso is contrary to the Local Government Code

and the Local Assessment Regulations No. 1-92. RTC later on dismissed the petition.

ISSUE: Whether or not section 3, Quezon City Ordinance No. 357, Series of 1995,

which was abrogated for being unconstitutional, can be the basis of collecting real

estate taxes prior to its repeal.


RULING:

No. The validity of the proviso fixing the appraised value of property at the stated

consideration at which the property was last sold is invalid as it adopts a method of

assessment or appraisal of real property contrary to the Local Government Code, its

Implementing Rules and Regulations and the Local Assessment Regulations No. 1-92

issued by the Department of Finance. Under these immediately stated authorities, real

properties shall be appraised at the current and fair market value prevailing in the

locality where the property is situated and classified for assessment purposes on the

basis of its actual use.

―Fair market value‖ is the price at which a property may be sold by a seller who is

not compelled to sell and bought by a buyer who is not compelled to buy, taking into

consideration all uses to which the property is adapted and might in reason be applied.

The criterion established by the statute contemplates a hypothetical sale. Hence, the

buyers need not be actual and existing purchasers.

(8) Tolentino vs. Secretary of Finance (235 SCRA 630, 249 SCRA 628)

As to Proportional or Flat Rate

Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also

violates Art. VI, §28(1) which provides that "The rule of taxation shall be uniform and

equitable. the Congress shall evolve a progressive system of taxation."

Equality and uniformity of taxation means that all taxable articles or kinds of property of

the same class be taxed at the same rate. The taxing power has the authority to make

reasonable and natural classifications for purposes of taxation. To satisfy this

requirement it is enough that the statute or ordinance applies equally to all persons,

forms and corporations placed in similar situation. (City of Baguio v. De Leon, supra;

Sison, Jr. v. Ancheta, supra)


19. Francisco I. Chavez vs. Jaime B. Ongpin and Fidelina Cruz,

G.R. No. 76778. June 6, 1990


FACTS:

Section 21 of Presidential Decree No. 464 provides that every five years starting

calendar year 1978, there shall be a provincial or city general revision of real property

assessments. The revised assessment shall be the basis for the computation of real

property taxes for the five succeeding years.

On the strength of the aforementioned law, the general revision of assessments

was completed in 1984. However, Executive Order No. 1019 was issued, which

deferred the collection of real property taxes based on the 1984 values to January 1,

1988 instead of January 1, 1985.

On November 25, 1986, President Corazon Aquino issued Executive order No.

73. It states that beginning January 1, 1987, the 1984 assessments shall be the basis

of the real property collection. Thus, it effectively repealed Executive Order No. 1019.

Francisco Chavez, a taxpayer and a land-owner, questioned the constitutionality

of Executive Order No. 73. He alleges that it will bring unreasonable increase in real

property taxes. In fact, according to him, the application of the assailed order will cause

an excessive increase in real property taxes by 100% to 400% on improvements and up

to 100% on land.

ISSUE: Whether or not Executive Order no. 73 imposes unreasonable increase in real

property taxes, thus, should be declared unconstitutional.

RULING:

The attack on Executive Order No. 73 has no legal basis as the general revision

of assessments is a continuing process mandated by Section 21 of Presidential Decree

No. 464. If at all, it is Presidential Decree No. 464 which should be challenged as

constitutionally infirm. However, Chavez failed to raise any objection against said

decree.

Without Executive Order No. 73, the basis for collection of real property taxes will

still be the 1978 revision of property values. Certainly, to continue collecting real

property taxes based on valuations arrived at several years ago, in disregard of

the increases in the value of real properties that have occurred since then, is not

in consonance with a sound tax system. Fiscal adequacy, which is one of the

characteristics of a sound tax system, requires that sources of revenues must be

adequate to meet government expenditures and their variations.


20. TAGANITO MINING CORPORATION vs. COMMISSIONER,

CTA Case No. 4702 April 28, 1995

Facts:

Taganito Mining Corporation (TMC) is a domestic corporation expressly granted

a permit by the government via an operating contract to explore, develop and utilize

mineral deposits found in a specified portion of a mineral reservation area located in

Surigao del Norte and owned by the government. In exchange, TMC is obliged to pay

royalty to the government over and above other taxes. During July to December 1989,

TMC removed, shipped and sold substantial quantities of Beneficiated Nickel Silicate

ore and Chromite ore and paid excise taxes in the amount of Php6,277,993.65 in

compliance with Sec.151(3) of the Tax Code.

The 5% excise tax was based on the amount and weight shown in the provisional

invoice issued by TMC. The metallic minerals are then shipped abroad to Japanese

buyers where the minerals were analyzed allegedly by independent surveyors upon

unloading at its port of destination. Analysis abroad would oftentimes reveal a different

value for the metallic minerals from that indicated in the temporary/provisional invoice

submitted by TMC. Variance is in the ―market values‖ in the provisional invoice and that

indicated in the final calculation sheet presented by the buyers. Variances occur in the

weight of the shipment or the price of the metallic minerals per kilogram and sometimes

in their metallic content resulting in discrepancies in the total selling price. It is always


the price indicated in the final invoice that is determinative of the amount that the buyers

will eventually pay TMC.

TMC contended that is entitled to a refund because the actual market value that

should be made the basis of the taxes is the amount specified in the independent

surveyor abroad.

Issues:

1. Whether or not TMC is entitled to refund.

2. Whether or not the actual market value that should be used should be the market

value after the assessment abroad was conducted.

RULING:

1. NO. Tax refund partake of the nature of an exemption, and as such, tax

exemption cannot be allowed unless granted in the most explicit and categorical

language. 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.

2. NO. Use market value right after removal from the bed or mines. Sec. 151(3)

of the Tax Code1: on all metallic minerals, a tax of five percent (5%) based on the

actual market value of the gross output thereof at the time of removal, in the case of

those locally extracted or produced: or the value used by the Bureau of Customs in

determining tariff and customs duties, net of excise tax and value-added tax, in case of

importation. The law refers to the actual market value of the minerals at the time these

minerals were moved away from the position it occupied, i.e. Philippine valuation and

analysis because it is in this country where these minerals were extracted, removed and

eventually shipped abroad. To reckon the actual market value at the time of removal is

also consistent with the essence of an excise tax. It is a charge upon the privilege of

severing or extracting minerals from the earth, and is due and payable upon removal of

the mineral products from its bed or mines (Republic Cement vs. Comm, 23 SCRA

967).

21. ROXAS vs. CTA, GR L –25043, April 26, 1968


Facts:

Antonio, Eduardo and Jose Roxas, brothers and at the same time partners of the

Roxas y Compania, inherited from their grandparents several properties which included

farmlands with a total area of 19,000 hectares (Nasugbu Farmlands). The tenants

therein expressed their desire to purchase from the brothers the parcels which they

actually occupied so the government, pursuant to the constitutional mandate to acquire

big landed estate and apportion them among landless tenants, persuaded the brothers

sell the same. Roxas y Cia. then agreed to sell 13, 500 hectares of the lands but the

government, however, did not have enough funds, so the former allowed the farmers to

buy the lands for the same price but by installment. Subsequently, the CIR demanded

from the brothers the payment of deficiency income taxes resulting from the sale of the

farmlands and considered the partnership as engaged in the business of real estate,

hence, 100% of the profits derived therefrom was taxed. The brothers protested the

assessment but the same was denied. On appeal, the Court of Tax Appeals sustained

the assessment. Hence, this appeal.

Issue: Is Roxas y Cia. liable for the payment of deficiency income for the sale of the

farmlands?

Ruling:

No. Although they (farmers/ vendees) paid for their respective holdings in

installment for a period of 10 years, it would nevertheless not make the vendor Roxas y

Cia. a real estate dealer during the 10-year amortization period. It should be borne in

mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for

generations was not only in consonance with, but more in obedience to the request and

pursuant to the policy of our Government to allocate lands to the landless. However, the

Government could not comply with its duty for lack of funds so Roxas y Cia. shouldered

the Government's burden, went out of its way and sold lands directly to the farmers in

the same way and under the same terms as would have been the case had the

Government done it itself. For this magnanimous act, the municipal council of Nasugbu

passed a resolution expressing the people's gratitude.

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". And, in order to maintain the general public's trust and

confidence in the Government this power must be used justly and not treacherously. It

does not conform with Our sense of justice in the instant case for the Government to


persuade the taxpayer to lend it a helping hand and later on to penalize him for duly

answering the urgent call.

In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in

question. Hence, pursuant toSection 34 of the Tax Code the lands sold to the farmers

are capital assets, and the gain derived from thesale thereof is capital gain, taxable only

to the extent of 50%.

22. Tanada vs. Angara, G.R. No. 118295, May 2, 1997

Facts: On April 15, 1994 Rizalino Navarro, the Secretary of Department of Trade

and Industry representing the Government of the Republic of the Philippines, signed the

Final Act Embodying the results of the Uruguay Round of Multilateral Negotiations. By

signing the Final Act he bound the Philippines to submit to its respective competent

authorities the WTO (World Trade Organization) Agreements to seek approval.

On December 14, 1994, the Phillipine Senate adopted Resolution No. 97 to ratify

the WTO agreement.

This is a petition seeking to nullify the ratification of the World Trade Organization

(WTO) Agreement.

The WTO opens access to foreign markets, especially its major trading partners,

through the reduction of tariffs on its exports, particularly agricultural and industrial

products. Thus, provides new opportunities for the service sector cost and uncertainty

associated with exporting and more investment in the country. These are the predicted

benefits as reflected in the agreement and as viewed by the signatory Senators, a ―free

market‖ espoused by WTO.

Petitioners question the concurrence of the respondents acting in their capacities

as Senators by signing the said agreement andthe constitutionality of the WTO

agreement as it derogates from the power to tax, which is lodged in the Congress and


violates Sec 19, Article II, providing for the development of a self reliant and

independent national economy, and Sections 10 and 12, Article XII, providing for the

―Filipino first‖ policy.

Issues: Whether or not the provisions of the WTO agreement and its three annexes

contravene sec. 19, article II, and secs. 10 and 12, article XII, of the Philippine

Constitution.

Ruling:

By its very title, Article II of the Constitution is a ―declaration of principles and

state policies.‖ These principles in Article II are not intended to be self-executing

principles ready for enforcement through the courts. They are used by the judiciary as

aids or as guides in the exercise of its power of judicial review, and by the legislature in

its enactment of laws. As held in the leading case of Kilosbayan, Incorporated vs.

Morato, the principles and state policies enumerated in Article II and some sections of

Article XII are not ―self-executing provisions, the disregard of which can give rise to a

cause of action in the courts. They do not embody judicially enforceable constitutional

rights but guidelines for legislation.‖

23. LAND TRANSPORTATION OFFICE [LTO], et al. vs. CITY OF BUTUAN,

represented in this case by Democrito D. Plaza II, City Mayor.


G.R. No. 131512, January 20, 2000

FACTS:

Respondent City of Butuan asserts that one of the salient provisions introduced by the

Local Government Code is in the area of local taxation which allows LGUs to collect

registration fees or charges along with, in its view, the corresponding issuance of all

kinds of licenses or permits for the driving of tricycles.

Sec. 129. Power to Create Sources or Revenue. — Each local government unit

shall exercise its power to create its own sources of revenue and to levy taxes,

fees, and charges subject to the provisions herein, consistent with the basic

policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively

to the local government units.

Sec. 133. Common Limitations on the Taxing Powers of Local Government Units.

— Unless otherwise provided herein, the exercise of the taxing powers of

provinces, cities, municipalities, and barangays shall not extend to the levy of the

following:

x x x x x x x x x

(l) Taxes, fees or charges for the registration of motor vehicles and for the

issuance of all kinds of licenses or permits for the driving thereof, except

tricycles.

The City of Butuan asserts that Sec. 129 and Sec.133 of the Local Government Code is their

basis for said ordinance and that, said provisions authorize LGUs to collect registration

fees or charges along with, in its view, the corresponding issuance of all kinds of

licenses or permits for the driving of tricycles.LTO explains that one of the functions of

the National Government, that , indeed has been transferred to LGUs is the franchising

authority over tricycles-for-hire of the LTFRB but NOT the authority of the LTO to

register all motor vehicles and to issue to qualified persons of licenses to drive such

vehicles. The RTC of Butuan decreed an issuance of a PERMANENT WRIT OF

INJUCTION against TO prohibiting and enjoining LTO, as well as its employees and

other persons acting in its behalf, from (a) registering tricycles and (b) issuing licenses

to tricycle drivers. The CA sustained the RTC’s decision. The adverse rulings of both

Courts prompted the LTO to file an instant petition for review on certiorari to annul and

set aside the earlier Court decisions.

ISSUE:

WON under the present set up, the power of the Land Registration Office ("LTO") to

register, tricycles in particular, as well as to issue licenses for the driving thereof, has

likewise devolved to local government units.


RULING: No.

The reliance made by respondents on the broad taxing power of local government units,

specifically under Section 133 of the Local Government Code, is tangential. Police

power and taxation, along with eminent domain, are inherent powers of sovereignty

which the State might share with local government units by delegation given under a

constitutional or a statutory fiat. All these inherent powers are for a public purpose and

legislative in nature but the similarities just about end there. The basic aim of police

power is public good and welfare. Taxation, in its case, focuses on the power of

government to raise revenue in order to support its existence and carry out its legitimate

objectives. Although correlative to each other in many respects, the grant of one does

not necessarily carry with it the grant of the other. The two powers are, by tradition and

jurisprudence, separate and distinct powers, varying in their respective concepts,

character, scopes and limitations. To construe the tax provisions of Section 133(1)

indistinctively would result in the repeal to that extent of LTO's regulatory power which

evidently has not been intended.

24. RUFINO R. TAN vs. RAMON R. DEL ROSARIO, JR., as SECRETARY OF

FINANCE & JOSE U. ONG, as COMMISSIONER OF INTERNAL REVENUE,

G.R. No. 109289, October 3, 1994

FACTS:

These two consolidated special civil actions for prohibition challenge, in G.R. No.

109289, the constitutionality of Republic Act No. 7496, also commonly known as the

Simplified Net Income Taxationn Scheme (―SNIT‖), amending certain provisions of the

National Internal Revenue Regulations No. 293, promulgated by public respondents

pursuant to said law.

Petitioner intimates that Republic Act No. 7496 desecrates the constitutional

requirement that taxation ―shall be uniform and equitable‖ in that the law would now

attempt to tax single proprietorships and professionals differently from the manner it

imposes the tax on corporations and partnerships. Petitioners claim to be taxpayers

adversely affected by the continued implementation of the amendatory legislation.

ISSUE:

Does Republic Act No. 7496 violate the Constitution for imposing taxes that are not

uniform and equitable?

RULING:


The Petition is dismissed. 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 (Juan Luna Subdivision vs.

Sarmiento, 91 Phil. 371). Uniformity does not forfend 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 (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco

vs. PAGCOR, 197 SCRA 771).

What may instead be perceived to be 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. We certainly do not view this

classification to be arbitrary and inappropriate.

Having arrived at this conclusion, the plea of petitioner to have the law declared

unconstitutional for being violative of due process must perforce fail. 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.

25. CIR vs. Santos, 277 SCRA 617 (1997)

Facts:


Guild of Phil. Jewellers questions the constitutionality of certain provisions of the

NIRC and Tariff and Customs Code of the Philippines. It is their contention that present

Tariff and tax structure increases manufacturing costs and render local jewelry

manufacturers uncompetitive against other countries., in support of their position, they

submitted what they purported to be an exhaustive study of the tax rates on jewelry

prevailing in other Asian countries, in comparison to tax rates levied in the country.

Judge Santos of RTC Pasig, ruled that the laws in question are confiscatory and

oppressive and declared them INOPERATIVE and WITHOUR FORCE AND EFFECT

insofar as petitioners are concerned.

Petitioner CIR assailed decision rendered by respondent judge contending that

the latter has no authority to pass judgment upon the taxation policy of the government.

Petitioners also impugn the decision by asserting that there was no showing that the tax

laws on jewelry are confiscatory.

ISSUE: Whether or not the Regional Trial Court has authority to pass judgment upon

taxation policy of the government.

RULING:

The policy of the courts is to avoid ruling on constitutional questions and to

presume that the acts of the political departments are valid in the absence of a clear

and unmistakable showing to the contrary.

This is not to say that RTC has no power whatsoever to declare a law

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

to legislative policy.

RTC have the power to declare the law unconstitutional but this authority does

not extend to deciding questions which pertain to legislative policy. RTC can only look

into the validity of a provision, that is whether or not it has been passed according to the

provisions laid down by law, and thus cannot inquire as to the reasons for its existence.

RULING ON THE EXTENT OF LEGISLATIVE POWER TO TAX

SC held that it is within the power f the legislature whether to tax jewelry or not.

With the legislature primarily lies the discretion to determine the nature (kind), object

(purpose), extent (rate), coverage (subject) and situs (place) of taxation.


26. Maceda vs. ERB, 192 SCRA 365 and 199 SCRA 454

Facts: On 10 September 1990, Caltex (Philippines), Inc., Pilipinas Shell

Petroleum Corporation, and Petron Corporation proferred separate applications with

the Energy Regulatory Board for permission to increase the wholesale posted prices of

petroleum products, and meanwhile, for provisional authority to increase temporarily

such wholesale posted prices pending further proceedings. On September 21, 1990, the

Energy Regulatory Board, in a joint (on three applications) order granted provisional

relief and authorizes said applicants a weighted average provisional increase of ONE

PESO AND FORTY-TWO CENTAVOS (P1.42) per liter in the wholesale posted prices

of their various petroleum products, refined and/or marketed by them locally. The

petitioners, Senator Ernesto Maceda and Atty. Oliver Lozano submits that the same

was issued without proper notice and hearing in violation of Section 3, paragraph (e), of

Executive Order No. 172, and has been issued with grave abuse of discretion,

tantamount to lack of jurisdiction, and correctible by certiorari. Hence, this petition

praying for injunctive relief, to stop the Energy Regulatory Board from implementing its

order, dated September 21, 1990, mandating a provisional increase in the prices of

petroleum and petroleum products.

Issue: Whether or not the Order of the Energy Regulatory Board mandating a

provisional increase on petroleum products was issued in violation of principle of non-

delegation of taxation power.


RULING:

The Board Order authorizing the proceeds generated by the increase to be

deposited to the OPSF is not an act of taxation. It is authorized by Presidential Decree

No. 1956, as amended by Executive Order No. 137, as follows:

SECTION 8. There is hereby created a Trust Account in the books of accounts of the

Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the

purpose of minimizing frequent price changes brought about by exchange rate

adjustments and/or changes in world market prices of crude oil and imported petroleum

products. xxx

Evidently, authorities have been unable to collect enough taxes necessary to

replenish the OPSF as provided by Presidential Decree No. 1956, and hence, there was

no available alternative but to hike existing prices.

The OPSF, as the Court held in the aforecited CACP cases, must not be

understood to be a funding designed to guarantee oil firms' profits although as a

subsidy, or a trust account, the Court has no doubt that oil firms make money from it. As

we held there, however, the OPSF was established precisely to protect the consuming

public from the erratic movement of oil prices and to preclude oil companies from taking

advantage of fluctuations occurring every so often. As a buffer mechanism, it stabilizes

domestic prices by bringing about a uniform rate rather than leaving pricing to the

caprices of the market.

In all likelihood, therefore, an oil hike would have probably been imminent, with or

without trouble in the Gulf, although trouble would have probably aggravated it.: nad

(13) Maceda vs. Macaraig, G.R. No. 88291 May 31, 1991


As to the the principle of non-delegation of taxation power:

E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative

power to the FIRB and as above discussed, the tax exemption privilege that was

restored to NPC by FIRB Resolution No. 17-87 of June 1987 includes exemption from

indirect taxes and duties on petroleum products used in its operation which was issued

pursuant thereto, as it was duly approved by the President as required by said

executive order through the respondent Executive Secretary.

Moreover, under Section 3, Article XVIII of the Transitory Provisions of the 1987

Constitution, it is provided that:

All existing laws, decrees, executive orders, proclamation, letters of

instructions, and other executive issuances not inconsistent with this

constitution shall remain operative until amended, repealed or revoked.


27. Basco vs. PAGCOR, G.R. No. 91649, May 14, 1991

Facts:

On July 11, 1983, PAGCOR was created under P.D. 1869 to enable the

Government to regulate and centralize all games of chance authorized by existing

franchise or permitted by law. P.D. 1869 contained a provision (Section 13 par. (2))

which exempts PAGCOR, from paying any "tax of any kind or form, income or

otherwise, as well as fees, charges or levies of whatever nature, whether National or

Local." Basco et al. seeks to annul said law alleging that: It constitutes a waiver of a

right prejudicial to a third person with a right recognized by law since it waived the

Manila City government's right to impose taxes and license fees, which is recognized by

law; and that the law has intruded into the local government's right to impose local taxes

and license fees which is in contravention of the constitutionally enshrined principle of

local autonomy.

ISSUES: Whether or not P.D. 1869 constitutes a waiver of the right of the City of Manila

to impose taxes and license fees; Whether or not P.D. 1869 is in

contravention with the Constitution’s principle of local autonomy.

RULING:

P.D. 1869 is constitutional. The contention of the petitioners is without merit for

the following reasons:


P.D. 1869 was enacted pursuant to the policy of the government to "regulate and

centralize thru an appropriate institution all games of chance authorized by existing

franchise or permitted by law" (1st whereas clause, PD 1869). As was subsequently

proved, regulating and centralizing gambling operations in one corporate entity — the

PAGCOR, was beneficial not just to the Government but to society in general. It is a

reliable source of much needed revenue for the cash strapped Government. It provided

funds for social impact projects and subjected gambling to "close scrutiny, regulation,

supervision and control of the Government" (4th Whereas Clause, PD 1869). With the

creation of PAGCOR and the direct intervention of the Government, the evil practices

and corruptions that go with gambling will be minimized if not totally eradicated. Public

welfare, then, lies at the bottom of the enactment of PD 1896.

28. LOZADA vs. COMMISSIONER, 120 SCRA 337


Facts: Petitioner Lozada claims that he is a taxpayer and a bonafide elector of

Cebu City and a transient voter of Quezon City, Metro Manila, who desires to run for the

position in the Batasan Pambansa; while petitioner Romeo B. Igot alleges that, as a

taxpayer, he has standing to petition by mandamus the calling of a special election as

mandated by the 1973 Constitution. As reason for their petition, petitioners allege that

they are "... deeply concerned about their duties as citizens and desirous to uphold the

constitutional mandate and rule of law ...; that they have filed the instant petition on their

own and in behalf of all other Filipinos since the subject matters are of profound and

general interest. "

The respondent COMELEC, represented by counsel, opposes the petition

alleging, substantially, that 1) petitioners lack standing to file the instant petition for they

are not the proper parties to institute the action; 2) this Court has no jurisdiction to

entertain this petition; and 3) Section 5(2), Article VIII of the 1973 Constitution does not

apply to the Interim Batasan Pambansa.

Issue: Whether or not petitioners lack standing to file the instant petition for they

are not the proper parties to institute the action.

RULING:

As taxpayers, petitioners may not file the instant petition, for nowhere therein is it

alleged that tax money is being illegally spent. The act complained of is the inaction of

the COMELEC to call a special election, as is allegedly its ministerial duty under the

constitutional provision above cited, and therefore, involves no expenditure of public

funds. It is only when an act complained of, which may include a legislative enactment

or statute, involves the illegal expenditure of public money that the so-called taxpayer

suit may be allowed. What the case at bar seeks is one that entails expenditure of

public funds which may be illegal because it would be spent for a purpose that of calling

a special election which, as will be shown, has no authority either in the Constitution or

a statute.

As voters, neither have petitioners the requisite interest or personality to qualify

them to maintain and prosecute the present petition. The unchallenged rule is that the

person who impugns the validity of a statute must have a personal and substantial

interest in the case such that he has sustained, or will sustain, direct injury as a result of

its enforcement. In the case before Us, the alleged inaction of the COMELEC to call a

special election to fill-up the existing vacancies in the Batasan Pambansa, standing

alone, would adversely affect only the generalized interest of all citizens. Petitioners'

standing to sue may not be predicated upon an interest of the kind alleged here, which


is held in common by all members of the public because of the necessarily abstract

nature of the injury supposedly shared by all citizens. Concrete injury, whether actual or

threatened, is that indispensable element of a dispute which serves in part to cast it in a

form traditionally capable of judicial resolution. When the asserted harm is a

"generalized grievance" shared in substantially equal measure by all or a large class of

citizens, that harm alone normally does not warrant exercise of jurisdiction. As adverted

to earlier, petitioners have not demonstrated any permissible personal stake, for

petitioner Lozada’s interest as an alleged candidate and as a voter are not sufficient to

confer standing. Petitioner Lozada does not only fail to inform the Court of the region he

wants to be a candidate but makes indiscriminate demand that special election be

called throughout the country.

(13) Maceda vs. Macaraig, G.R. No. 88291 May 31, 1991

As to the issue on the institution of a ―Taxpayer’s Suit‖

In resolving the third issue, in the petition it is alleged that petitioner is "instituting

this suit in his capacity as a taxpayer and a duly-elected Senator of the Philippines."

Public respondent argues that petitioner must show he has sustained direct injury as a

result of the action and that it is not sufficient for him to have a mere general interest

common to all members of the public.

The Court however agrees with the petitioner that as a taxpayer he may file the

instant petition following the ruling in Lozada when it involves illegal expenditure of

public money. The petition questions the legality of the tax refund to NPC by way of tax

credit certificates and the use of said assigned tax credits by respondent oil companies

to pay for their tax and duty liabilities to the BIR and Bureau of Customs.

Assuming petitioner has the personality to file the petition, public respondents

also allege that the proper remedy for petitioner is an appeal to the Court of Tax

Appeals under Section 7 of R.A. No. 125 instead of this petition. However Section 11 of

said law provides—

Sec. 11. Who may appeal; effect of appeal—Any person, association or corporation

adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the

Collector of Customs (Commissioner of Customs) or any provincial or City Board of


Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days

after receipt of such decision or ruling.

From the foregoing, it is only the taxpayer adversely affected by a decision or

ruling of the Commissioner of Internal Revenue, the Commissioner of Customs or any

provincial or city Board of Assessment Appeal who may appeal to the Court of Tax

Appeals. Petitioner does not fall under this category.

29. CHAVEZ vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG),

G. R. No. 130716, May 19, 1999


Facts:

Movants Ma. Imelda Marcos-Manotoc, Ferdinand R. Marcos II and Irene Marcos-

Araneta allege that they are parties and signatories to the General and Supplemental

Agreements dated December 28, 1993, which this Court, in its Decision promulgated on

December 9, 1998, declared "NULL AND VOID for being contrary to law and the

Constitution." As such, they claim to "have a legal interest in the matter in litigation, or in

the success of either of the parties or an interest against both as to warrant their

intervention." They add that their exclusion from the instant case resulted in a denial of

their constitutional rights to due process and to equal protection of the laws. They also

raise the "principle of hierarchical administration of justice" to impugn the Court's

cognizance of petitioner's direct action before it.

Issue: Whether or not Movants Ma. Imelda Marcos-Manotoc, Ferdinand R. Marcos II

and Irene Marcos-Araneta have a legal interest in the matter in litigation.

RULING:

The assailed Decision has become final and executory; the original parties have

not filed any motion for reconsideration, and the period for doing so has long lapsed.

Indeed, the movants are now legally barred from seeking leave to participate in this

proceeding.

Movants claim that their exclusion from the proceeding regarding the

Agreements to which they were parties and signatories was a denial of "their property

right to contract without due process of law."

We rule that the movants are merely incidental, not indispensable, parties to the

instant case. Being contractors to the General and Supplemental Agreements involving

their supposed properties, they claim that their interests are affected by the petition.

However, as exhaustively discussed in the assailed Decision, the Agreements

undeniably contain terms an condition that are clearly contrary to the Constitution and

the laws and are not subject to compromise. Such terms and conditions cannot be

granted by the PCGG to anyone, not just to movants. Being so, no argument of the

contractors will make such illegal and unconstitutional stipulations pass the test of

validity. The void agreement will not be rendered operative by the parties' alleges

performance (partial or full) of their respective prestations. A contract that violates the

Constitution and the law is null and void abintio and vests no rights and creates no

obligations. It produces no legal effect at all.In legal terms, the movants have really no


interest to protect or right to assert in this proceeding. Contrary to their allegations, no

infraction upon their rights has been committed.

The original petition of Francisco I. Chavez sought to enforce a constitutional

right against the Presidential Commission on Good Government (PCGG) and to

determine whether the latter has been acting within the bounds of its authority. In the

process of adjudication, there is no need to call on each and every party whom said

agency has contracted with.

30. Gonzales vs. Narvasa, G.R. NO. 140835, August 14, 2000

Facts: On November 26, 1998, by virtue of Executive Order (EO) No. 43,

President Joseph Estrada created the Philippine Commission on Constitutional Reform

(PCCR), in order to study and recommend proposed amendments and/or revisions to

the 1987 Constitution, and the manner of implementing the same. Under Section 7 of

EO 43, the amount of P3,000,000 is appropriated for its operational expenses to be

sourced from the funds of the Office of the President. Petitioner Ramon A. Gonzales, in

his capacity as a taxpayer and a citizen, assailed the constitutionality of the creation of

PCCR and of the positions of presidential consultants, advisers and assistants.

Petitioner asked the court to enjoin the PCCR and the presidential consultants, advisers

and assistants from acting as such. Petitioner also sought to enjoin the Commission on

Audit (COA) from passing in audit expenditures for the PCCR and the presidential

consultants, advisers and assistants. Petitioner anchored his petition on two grounds:(1)

he contended that PCCR is a public office which only the legislature can create by way

of law;and (2) he asserted that by creating the PCCR, the President is intervening in a

process from which he is totally excluded by the Constitution, which is the amendment

of the fundamental charter.

Issue: Whether petitioner has a legal standing to question the constitutionality of EO 43

in his capacity as a citizen and as a taxpayer.


Ruling:

NO.The Court ruled that petitioner failed to establish his locus standiso as to

enable him to seek judicial redress as a citizen and as a taxpayer.

A citizen acquires standing only if he can establish that he has suffered some

actual or threatened injury as a result of the allegedly illegal conduct of the government.

The injury must be fairly traceable to the challenged action and is likely to be redressed

by a favorable action. In the case at bar, petitioner has not shown that he has sustained

or is in danger of sustaining any personal injury attributable to the creation of the PCCR.

Petitioner has sustained no direct, or even indirect, injury. Only Congress, not petitioner,

can claim any injury in this case since, since according to the latter, the President has

encroached upon the legislative power to create a public office and to propose

amendments to the Charter by forming the PCCR.

A taxpayer is deemed to have standing to raise a constitutional issue when it is shown

that public funds have been disbursed in alleged contravention of the law or the

Constitution. A taxpayer’s action is properly brought only when there is an exercise by

Congress of its taxing or spending power. In the instant case, it is apparent that there is

no exercise by Congress of its taxing or spending power. The appropriation of

P3,000.000 for the PCCR were authorized by the President, not by Congress. In fact,

there was no appropriation at all because in its strict sense, appropriation has been

defined as nothing more than the legislative authorization prescribed by the Constitution

that money may be paid out of the Treasury, while appropriation made by law refers to

the act of the legislature setting apart or assigning to a particular use a certain sum to

be used in the payment of debts or dues from the State to its creditors.The funds used

for the PCCR were taken from funds intended for the Office of the President, in the

exercise of the Chief Executive’s power to transfer funds pursuant to Section 25 (5) of

Article VI of the Constitution. While the court retains the power to decide whether or not

it will allow a taxpayer’s suit, petitioner failed to show that he is a real party in interest –

that he stands to be benefited or injured by the judgment or that he is entitled to the

avails of the suit.

31. BAYAN vs. Executive Secretary, G.R. No. 138570, October 10, 2000


Facts: After much negotiation with the respective representatives of both the Philippines

and the United States of America (US) that started on July 18, 1997, then President

Fidel V. Ramos approved said agreement, which was respectively signed by

Department of Foreign Affairs (DFA) Secretary Domingo Siazon and US Ambassador

Thomas Hubbard on February 10, 1998.

On October 5, 1998, then President Joseph E. Estrada, through respondent

Secretary of Foreign Affairs, ratified the VFA.

The VFA, for which Senate concurrence was sought and received on May 27,

1999. On June 1, 1999, the VFA officially entered into force after an Exchange of Notes

between respondent Secretary Siazon and US Ambassador Hubbard.

The VFA’s Articles’ constitutionality were challenged on several grounds.

Regarding duties, taxes and other similar charges, the following Article provides:

―Article VII

Importation and Exportation

―1. United States Government equipment, materials, supplies, and other

property imported into or acquired in the Philippines by or on behalf of the

United States armed forces in connection with activities to which this

agreement applies, shall be free of all Philippine duties, taxes and other

similar charges. xxx

―2. Reasonable quantities of personal baggage, personal effects, and other

property for the personal use of United States personnel may be imported

into and used in the Philippines free of all duties, taxes and other similar

charges during the period of their temporary stay in the Philippines. xxx

Issue:

Do the petitioners have legal tanding as concerned citizens, taxpayers or

legislators to question the constitutionality of the VFA?

Ruling:

No.

A party bringing a suit challenging the constitutionality of a law, act, or statute

must show ―not only that the law is invalid, but also that he has sustained or in is in

immediate, or imminent danger of sustaining some direct injury as a result of its

enforcement, and not merely that he suffers thereby in some indefinite way.‖ He must

show that he has been, or is about to be, denied some right or privilege to which he is

lawfully entitled, or that he is about to be subjected to some burdens or penalties by

reason of the statute complained of.


Petitioners failed to show, to the satisfaction of this Court, that they have

sustained, or are in danger of sustaining any direct injury as a result of the enforcement

of the VFA. As taxpayers, petitioners have not established that the VFA involves the

exercise by Congress of its taxing or spending powers. A taxpayer’s suit refers to a

case where the act complained of directly involves the illegal disbursement of public

funds derived from taxation.

Clearly, inasmuch as no public funds raised by taxation are involved in this case,

and in the absence of any allegation by petitioners that public funds are being misspent

or illegally expended, petitioners, as taxpayers, have no legal standing to assail the

legality of the VFA.

Similarly, the petitioner-legislators (Tanada, Arroyo, etc.) do not possess the

requisite locus standi to sue. In the absence of a clear showing of any direct injury to

their person or to the institution to which they belong, they cannot sue. The Integrated

Bar of the Philippines (IBP) is also stripped of standing in these cases. The IBP lacks

the legal capacity to bring this suit in the absence of a board resolution from its Board of

Governors authorizing its National President to commence the present action.

Consolidated petitions for certiorari and injunction were dismissed.

32. Del Mar vs. PAGCOR, G.R. No. 138298 June 19, 2001

Facts:

These two consolidated petitions concern the issue of whether the franchise

granted to the Philippine Amusement and Gaming Corporation (PAGCOR) includes the

right to manage and operate jai-alai. The Philippine Amusement and Gaming

Corporation is a government-owned and controlled corporation organized and existing

under Presidential Decree No. 1869 which was enacted on July 11, 1983. Pursuant to

Sections 1 and 10 of P.D. No. 1869, respondent PAGCOR requested for legal advice

from the Secretary of Justice as to whether or not it is authorized by its Charter to

operate and manage jai-alai frontons in the country. In its Opinion No. 67, Series of

1996 dated July 15, 1996, the Secretary of Justice opined that ―the authority of

PAGCOR to operate and maintain games of chance or gambling extends to jai-alai

which is a form of sport or game played for bets and that the Charter of PAGCOR

amounts to a legislative franchise for the purpose.‖

Petitioners Raoul B. del Mar, Federico S. Sandoval II, Michael T. Defensor, and

intervenor Juan Miguel Zubiri, are suing as taxpayers and in their capacity as

members of the House of Representatives representing the First District of Cebu

City, the Lone Congressional District of Malabon-Navotas, the Third Congressional

District of Quezon City, and the Third Congressional District of Bukidnon, respectively.


Issue: Whether or not there is a valid taxpayer’s suit.

RULING:

The Supreme Court held that as members of the House of Representatives,

petitioners have legal standing to file the petitions at bar. In the instant cases,

petitioners complain that the operation of jai-alai constitutes an infringement by

PAGCOR of the legislature’s exclusive power to grant franchise. To the extent the

powers of Congress are impaired, so is the power of each member thereof, since his

office confers a right to participate in the exercise of the powers of that institution, so

petitioners contend. The contention commands our concurrence for it is now settled

that a member of the House of Representatives has standing to maintain inviolate the

prerogatives, powers and privileges vested by the Constitution in his office. As

presciently stressed in the case of Kilosbayan, Inc., viz:

―We find the instant petition to be of transcendental importance to the public. The

issues it raised are of paramount public interest and of a category even higher than

those involved in many of the aforecited cases. The ramifications of such issues

immeasurably affect the social, economic, and moral well-being of the people even in

the remotest barangays of the country and the counter-productive and retrogressive

effects of the envisioned on-line lottery system are as staggering as the billions in pesos

it is expected to raise. The legal standing then of the petitioners deserves recognition x

x x.‖

39. Joel G. Miranda vs. Antonio C. Carreon et al., G.R. No. 143540. April 11, 2003

Facts:


In the early part of 1988, Vice Mayor Amelita Navarro, while serving as Acting

Mayor of the City of Santiago because of the suspension of Mayor Jose Miranda,

appointed the above-named respondents to various positions in the city

government. Their appointments were with permanent status and based on the

evaluation made by the City Personnel Selection and Promotion Board (PSPB) created

pursuant to Republic Act No. 7160. The Civil Service Commission (CSC) approved the

appointments.

When Mayor Jose Miranda reassumed his post on March 5, 1998 after his

suspension, he considered the composition of the PSPB irregular since the majority

party, to which he belongs, was not properly represented. He then formed a three-man

special performance audit team composed of Roberto C. Bayaua, Antonio AL. Martinez

and Antonio L. Santos, to conduct a personnel evaluation audit of those who were

previously screened by the PSPB and those on probation. After conducting the

evaluation, the audit team submitted to him a report dated June 8, 1998 stating that the

respondents were found ―wanting in (their) performance.‖

On June 10, 1998, or three months after Mayor Miranda reassumed his post, he

issued an order terminating respondents’ services effective June 15, 1998 because they

―performed poorly‖ during the probationary period.

Respondents appealed to the CSC. On October 19, 1998, the CSC issued

Resolution No. 982717 reversing the order of Mayor Miranda. Meanwhile, the

COMELEC disqualified Mayor Jose Miranda as a mayoralty candidate in the 1998 May

elections. His son Joel G. Miranda, herein petitioner, substituted for him and was

proclaimed Mayor of Santiago City. He then filed a motion for reconsideration of the

CSC Resolution No. 982717 (in favor of respondents) but it was denied in the CSC

Resolution No. 990557 dated March 3, 1999.

Petitioner contends that as a taxpayer, he has a legal interest in the case at bar,

hence, can lawfully file this petition.

Issue: Whether or not the petitioner has legal standing to maintain the instant case.

Ruling:

The Supreme Court held that petitioner, not being a real party in interest, has no

legal personality to file this petition. Besides, his motion for reconsideration was validly

withdrawn by the incumbent Mayor. Even assuming he is a real party in interest, we see

no reason to disturb the findings of both the CSC and the Court of Appeals. The

reinstatement of respondents who, unfortunately, were victims of political bickerings, is

in order.


(11) Caltex vs. Commission on Audit, G.R. No. 92585, May 8, 1992

As to Inherent Limitations: Purpose must be public in nature

We find no merit in petitioner's contention that the OPSF contributions are not for

a public purpose because they go to a special fund of the government. Taxation is no

longer envisioned as a measure merely to raise revenue to support the existence

of the government; taxes may be levied with a regulatory purpose to provide

means for the rehabilitation and stabilization of a threatened industry which is

affected with public interest as to be within the police power of the state. There

can be no doubt that the oil industry is greatly imbued with public interest as it vitally

affects the general welfare. Any unregulated increase in oil prices could hurt the lives of

a majority of the people and cause economic crisis of untold proportions. It would have

a chain reaction in terms of, among others, demands for wage increases and upward

spiralling of the cost of basic commodities. The stabilization then of oil prices is of prime

concern which the state, via its police power, may properly address.

Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the

source of OPSF is taxation. No amount of semantical juggleries could dim this fact.


34. Pascual vs. Secretary of Public Works, 110 Phil 331


Facts: A law was enacted in 1953 containing a provision for the

construction,reconstruction, repair, extension and improvement of Pasig feeder road

terminalswithin Antonio Subdivision owned by Senator Jose C. Zulueta. Zulueta

―donated‖ saidparcels of land to the Government 5 months after the enactment of the

law, on thecondition that if the Government violates such condition the lands would

revert toZulueta. The provincial governor of Rizal, Wenceslao Pascual, questioned the

validity of the donation and the Constitutionality of the particular provision, it being

anappropriation not for a public purpose.

Issue: Is the appropriation valid?

RULING:

No. The appropriation of amount for the construction on a land owned byprivate

individual is invalid imposition since it results in the promotion of privateenterprise, it

benefits the property of a particular individual. The provision that theland thereafter be

donated to the government does not cure this defect. The rule isthat if the public

advantage or benefit is merely incidental in the promotion of aparticular enterprise, such

defect shall render the law invalid. On the other hand, if what is incidental is the

promotion of a private enterprise, the tax law shall bedeemed ―for public purpose‖.


35. Valentin Tio vs. Videogram Regulatory Board, G.R. No. L-75697 June 18, 1987

Facts: Presidential Decree No. 1987 entitled ―An Act Creating the Videogram

Regulatory Board‖ with broad powers to regulate and supervise the videogram industry,

took effect on April 10, 1986. This petition was filed on September 1, 1986 by Valentin

Tio on his own behalf and of other videogram operators assailing the constitutionality of

PD 1987. On October 23, 1986, Greater Manila Theaters Association, Integrated Movie

Producers, Importers and Distributors Association and Philippine Motion Pictures

Producers Association were permitted to intervene in the case, over petitioner’s

opposition, upon the allegations that intervention was necessary for the complete

protection of their rights and that their ―survival and very existence is threatened by the

unregulated proliferation of film piracy.‖ This decree was also reinforced by PD 1994

which amended the National Internal Revenue Code. The amendment provides that

―there shall be collected on each processed video-tape cassette, ready for playback,

regardless of length, an annual tax of five pesos provided that locally manufactured or

imported blank video tapes shall be subject to sales tax.‖ PD 1987 also imposed a 30%

tax on the gross receipts payable to the local government. The petitioners also

contended that the 30% tax imposed is harsh, oppressive and confiscatory.

Issues: Whether or not PD 1987 is unconstitutional. Whether or not the levy of the

30% tax is for a public purpose. Whether or not the 30% tax imposed is harsh,

oppressive and confiscatory.

Ruling:

The Supreme Court found no clear violation of the Constitution which would justify

pronouncing PD 1987 as unconstitutional. The petitioners failed to overcome the


presumption of validity which attaches to a challenged statute. The levy of the 30% tax

is for a public purpose. It was imposed primarily to answer the need for regulating the

video industry because of the rampant film piracy, the flagrant violation of intellectual

property rights and the proliferation of pornographic video tapes. While the direct

beneficiaries of PD 1987 is the movie industry, the citizens are held to be its indirect

beneficiaries. The tax imposed is not only regulatory but also a revenue measure

prompted by the realizations that earnings of videogram establishments of around P600

million annually have not been taxed, depriving the government of an additional source

of revenue.

On the issue that the 30% tax imposed is harsh, oppressive and confiscatory, it is

beyond question that a tax does not cease to be valid merely because it regulates or

even definitely deters the activities taxed. The power to impose taxes is so unlimited in

force and so searching in extent, that the courts scarcely venture to declare that it is

subject to any restrictions whatever, except such as rest in the discretion of the authority

which exercises it. In imposing a tax, the legislature acts upon its constituents. This is,

in general, a sufficient security against erroneous and oppressive taxation.

36. Gaston vs. Republic Planter, 158 SCRA 626

Facts: Petitioners are sugar producers and planters and millers filed a

MANDAMUS to implement the privatization of Republic Planters Bank, and for the

transfer of the shares in the government bank to sugar producers and planters.

(because they are allegedly the true beneficial owners of the bank since they pay P1.00

per picul of sugar from the proceeds of sugar producers as STABILIZATION FEES).

The shares are currently held by Philsucom / Sugar Regulatory Admin.


The Solgen countered that the stabilization fees are considered government

funds and that the transfer of shares to from Philsucom to the sugar producers would be

irregular.

Issues: What is the nature of the P1.00 stabilization fees collected from sugar

producers? Are they funds held in trust for them, or are they public funds? Are the

shares in the bank (paid using these fees) owned by the government Philsucom or

privately by the different sugar planters from whom such fees were collected?

RULING: PUBLIC FUNDS. While it is true that the collected fees were used

to buy shares in RPB, it did not collect said fees for the account of sugar producers. The

stabilization fees were charged on sugar produced and milled which ACCRUED TO

PHILSUCOM, under PD 338.

The fees collected ARE IN THE NATURE OF A TAX., which is within the power

of the state to impose FOR THE PROMOTION OF THE SUGAR INDUSTRY. They

constitute sugar liens. The collections accrue to a SPECIAL FUNDS. It is levied not

purely for taxation, but for regulation, to provide means TO STABILIZE THE SUGAR

INDUSTRY. The levy is primarily an exercise of police powers.

The fact that the State has taken money pursuant to law is sufficient to constitute

them as STATE FUNDS, even though held for a special purpose. Having been levied

for a special purpose, the revenues are treated as a special fund, administered in trust

for the purpose intended. Once the purpose has been fulfilled or abandoned, the

balance will be transferred to the general funds of gov’t.

It is a special fund since the funds are deposited in PNB, not in the National

Treasury. The sugar planters are NOT BENEFICIAL OWNERS. The money is collected

from them only because they it is also they who are to be benefited from the

expenditure of funds derived from it. The investing of the funds in RPB is not alien to the

purpose since the Bank is a commodity bank for sugar, conceived for the sugar

industry’ growth and development.

Revenues derived from taxes cannot be used purely for private purposes or for

the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the

benefit of the ENTIRE SUGAR INDUSTRY, and all its components, stabilization of

domestic and foreign markets, since the sugar industry is of vital importance to the

country’s economy and national interest.


(9) Cocofed vs. Republic, GR Nos. 177857-58, January 24, 2012

Purpose must be Public in Nature

Taxes are imposed only for a public purpose. The Fund in particular was created

for the protection of the entire coconut industry, and more importantly for the consuming

public. It was created not especially for the coconut farmers but for the entire coconut

industry, albeit the improvement of the industry would doubtless redound to the benefit

of the farmers.

Thus, the SC cannot allow the conversion of special funds into a private fund for

the benefit of private individuals. Under Art. VI, Section 29 (3), ―All money collected on

any tax levied for a special purpose shall be treated as a special fund and paid out for

such purpose only. If the purpose for which a special fund was created has been

fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of

the Government.‖

The SC ruled that the fact that the coconut levy funds were collected from the

persons or entities in the coconut industry, among others, does not and cannot entitle

them to be beneficial owners of the subject funds – or more bluntly, owners thereof in

their private capacity. Said private individuals i.e. the farmers cannot own the UCPB

shares of stocks so purchased using the said special funds of the Government.


(27) Basco vs. PAGCOR, G.R. No. 91649, May 14, 1991

As to Delegation to Local Governments

a) The City of Manila, being a mere Municipal corporation has no inherent right to

impose taxes, thus it cannot assume it". Its "power to tax" therefore must always yield to

a legislative act which is superior having been passed upon by the state itself which has

the "inherent power to tax".

b) The Charter of the City of Manila is subject to control by Congress. If Congress can

grant the City of Manila the power to tax certain matters, it can also provide for

exemptions or even take back the power.


c) The City of Manila's power to impose license fees on gambling, has long been

revoked by P.D. No. 771 and was vested exclusively on the National Government.

d) Local governments have no power to tax instrumentalities of the National

Government. Otherwise, its operation might be burdened, impeded or subjected to

control by a mere Local government. PAGCOR is a government owned or controlled

corporation with an original charter, PD 1869. It also exercises regulatory powers since

it regulates gambling casinos, thus it performs governmental functions and places it in

the category of an agency or instrumentality of the Government.

e) The Constitution (Art. X Sec. 5) provides that local governments shall have the power

to impose taxes and fees but this is subject to guidelines and limitations as the

Congress may provide.


37. LAND TRANSPORTATION OFFICE [LTO] vs. CITY OF BUTUAN, represented in

this case by Democrito D. Plaza II,City Mayor, G.R. No. 131512, January 20, 2000.

Facts: Respondent City of Butuan asserts that one of the salient provisions

introduced by the Local Government Code is in the area of local taxation which allows

LGUs to collect registration fees or charges along with, in its view, the corresponding

issuance of all kinds of licenses or permits for the driving of tricycles.

Sec. 129. Power to Create Sources or Revenue. — Each local government unit

shall exercise its power to create its own sources of revenue and to levy taxes,

fees, and charges subject to the provisions herein, consistent with the basic

policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively

to the local government units.

Sec. 133. Common Limitations on the Taxing Powers of Local Government Units.

— Unless otherwise provided herein, the exercise of the taxing powers of

provinces, cities, municipalities, and barangays shall not extend to the levy of the

following:

x x x x x x x x x

(l) Taxes, fees or charges for the registration of motor vehicles and for the

issuance of all kinds of licenses or permits for the driving thereof, except

tricycles.

The City of Butuan asserts that Sec. 129 and Sec.133 of the Local Government Code is their

basis for said ordinance and that, said provisions authorize LGUs to collect registration

fees or charges along with, in its view, the corresponding issuance of all kinds of

licenses or permits for the driving of tricycles.LTO explains that one of the functions of

the National Government, that , indeed has been transferred to LGUs is the franchising

authority over tricycles-for-hire of the LTFRB but NOT the authority of the LTO to

register all motor vehicles and to issue to qualified persons of licenses to drive such

vehicles. The RTC of Butuan decreed an issuance of a PERMANENT WRIT OF

INJUCTION against TO prohibiting and enjoining LTO, as well as its employees and

other persons acting in its behalf, from (a) registering tricycles and (b) issuing licenses

to tricycle drivers. The CA sustained the RTC’s decision. The adverse rulings of both


Courts prompted the LTO to file an instant petition for review on certiorari to annul and

set aside the earlier Court decisions.

Issue:

WON under the present set up, the power of the Land Registration Office ("LTO") to

register, tricycles in particular, as well as to issue licenses for the driving thereof, has

likewise devolved to local government units.

Ruling:

The power over tricycles granted under Section 458(8)(3)(VI) of the Local

Government Code to LGUs is the power to regulate their operation and to grant

franchises for the operation thereof. The exclusionary clause contained in the tax

provisions of Section 133(1) of the Local Government Code must not be held to have

had the effect of withdrawing the express power of LTO to cause the registration of all

motor vehicles and the issuance of licenses for the driving thereof.

Said powers (to register and issue licenses) remain under LTO’s exclusive

jurisdiction. The registration and licensing functions are vested in the LTO (pursuant to

Art. 3 Sec.4 (d) [1], 10 of RA 4136-Land Transportation and Traffic Code) while

franchising and regulatory responsibilities are vested in the LTFRB (Land

Transportation Franchising and Regulatory Board; pursuant to EO # 202). Under the

Local Government Code(specifically Sec. 458 (8)(3)(VI)), the Local Government Units now

have the power to REGULATE (to fix, establish or control, to adjust by rule, method or

establish mode to direct by rule or restriction; or to subject to governing principles or

laws) the operation of tricycles for hire and grant franchises thereof but they are

still subject to the guidelines prescribed by the DOTC (Department of Transportation

and Communications; under Article 458(a) [3-VI] of the RA 7160).

38. Congressman Enrique T. Garcia (Second District of Bataan) vs. the Executive

Secretary, the Commissioner Of Customs, the National Economic and Deve-

lopment Authority, the Tariff Commission, the Secretary Of Finance, and the

Energy Regulatory Board, G.R. No. 101273, 211 SCRA 219, July 03, 1992.

Facts: On 27 November 1990, Pres. Corazon Aquino issued Executive Order No.

438 which imposed an additional duty of 5% ad valorem to imported goods brought in

the Philippines. It was imposed across the board on all imported articles, including

crude oil and other oil products imported into the Philippines. On January 3, 1991, it was

again increased to 9% ad valorem by virtue of Executive Order No. 443.


On 24 July 1991, the Department of Finance requested the Tariff Commission to

initiate the process required by the Tariff and Customs Code for the imposition of a

specific levy on crude oil and other petroleum products, as mandated by Section 104 of

the Tariff and Customs Code. Following such request, the Tariff Commission conducted

a public hearing as required by Se. 404 of the aforesaid code.

On August 15, 1991, again the President issued Executive Order No. 475 was

issued by reducing the rate of additional duty on all imported articles from 9% to 5% ad

valorem, except for crude oil and other oil products which continued to be subject to the

additional duty of 9% ad valorem.

On August 16, 1991, upon completion of the public hearings conducted by the

Tariff Commissions, it submitted a report to the President. Acting on such report, the

President issued Executive Order No. 478 which levied a special duty of P0.95 per liter

or P151.05 per barrel of imported crude oil and P1.00 per liter of imported oil products.

This special duty was in addition to the 9% ad valorem duties.

Because of these foregoing circumstances, Congressman Garcia alleged the

illegality and unconstitutionality of Executive Order Nos. 475 and 478. He contended

that it runs counter the provision of Sec. 24, Art. VI of the Constitution. He averred that

since the Constitution vests the authority to enact revenue bills in Congress, the

President may not assume such power by issuing executive orders which are in the

nature of revenue-generating measures.

He even argued that Executive Orders No. 475 and 478 contravene Section 401

of the Tariff and Customs Code, which Section authorizes the President, according to

petitioner, to increase, reduce or remove tariff duties or to impose additional duties only

when necessary to protect local industries or products but not for the purpose of raising

additional revenue for the government.

Hence, this petition.

Issue: Whether or not the President is vested with delegated taxing power thus,

authorized her to issue executive orders imposing tariff rates.

Ruling: YES.

Section 28(2) of Article VI of the Constitution provides as follows:

―(2) The Congress may, by law, authorize the President to fix within specified

limits, and subject to such limitations and restrictions as it may impose, tariff rates,

import and export quotas, tonnage and wharfage dues, and other duties or imposts

within the framework of the national development program of the Government."


There is thus explicit constitutional permission to Congress to authorize the

President "subject to such limitations and restrictions as Congress may impose" to fix

"within specific limits" "tariff rates x x x and other duties or imposts x x x."

The relevant congressional statute is the Tariff and Customs Code of the

Philippines, and Sections 104 and 401, the pertinent provisions thereof. Section 401

however pertains to Flexible Clause which holds that the President has the power to

adjust tariff rates for purposes of protecting our local industries.

Therefore, Executive Order Nos. 475 and 478 are valid and constitutional by

virtue of the delegated taxing power granted to President Corazon Aquino.

10. John Osmena vs. Oscar Orbos, 220 SCRA 703

G.R. No: 99886, March 31, 1993

Exception to the Principle of Non-delegation of the Power to Tax

The Court finds that the provision conferring the authority upon the ERB to

impose additional amounts on the Petroleum products provides a sufficient standard by

which the authority must be exercised. In addition to the general policy of the law to

protect the local consumer by stabilizing and subsidizing domestic pump rates, P.D.

1956 expressly authorizes the ERB to impose additional amounts to augment the

resources of the Fund.

Although the provision authorizing the ERB to impose additional amounts could

be construed to refer to the power of taxation, it cannot be overlooked that the

overriding consideration is to enable the delegate to act with expediency in carrying out

the objectives of the law which are embraced by the police power of the State. For a

valid delegation of power, it is essential that the law delegating the power must be (1)

complete in itself, that is it must set forth the policy to be executed by the delegate and

(2) it must fix a standard — limits of which are sufficiently determinate or determinable

— to which the delegate must conform. It seems obvious that what the law intended

was to permit the additional imposts for as long as there exists a need to protect the

general public and the petroleum industry from the adverse consequences of pump rate

fluctuations. "Where the standards set up for the guidance of an administrative officer

and the action taken are in fact recorded in the orders of such officer, so that Congress,

the courts and the public are assured that the orders in the judgment of such officer

conform to the legislative standard, there is no failure in the performance of the

legislative functions."


39. Commissioner vs. CA, G.R. No 119761, August 29, 1996

Facts: RA 7654 was enacted by Congress on June 10, 1993 and took effect

July 3, 1993. It amended partly Sec. 142 (c) of the NIRC.

Fortune Tobacco manufactured the following cigaretter brands: Hope, More and

Champion. Prior to RA 7654, these 3 brands were considered local brands subjected to


an ad valorem tax of 20 to 45%. Applying the amendment, the 3 brands should fall

under Sec 142 (c) (2) NIRC and shall be taxed from 20 to 45%.

However, on July 1, 1993, petitioner Commissioner of Internal Revenue issued

Revenue Memorandum Circular37-93 which reclassified the 3 brands as locally

manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax. The

reclassification was before RA 7654 took effect.

In effect, the memo circular subjected the 3 brands to the provisions of Sec

142 (c) (1) NIRC imposing upon these brands a rate of 55% instead of just 20 to

45% under Sec 142 (c) (2) NIRC.

Issue: Whether or not Revenue Memorandum Circular 37-93 was valid and

enforceable.

Ruling:

No, there was lack of notice and hearing violated due process required for

promulgated rules. Moreover, it infringed on uniformity of taxation / equal

protection since other local cigarettes bearing foreign brands had not been

included within the scope of the memo circular.

Contrary to petitioner’s contention, the memo was not a mere interpretative rule

but a legislative rule in the nature of subordinate legislation, designed to implement a

primary legislation by providing the details thereof. Promulgated legislative rules must

be published.

On the other hand, interpretative rules only provide guidelines to the law which

the administrative agency is in charge of enforcing.

BIR, in reclassifying the 3 brands and raising their applicable tax rate, did not

simply interpret RA 7654 but legislated under its quasi-legislative authority.


(13) Ernesto M. Maceda, vs. Hon. Catalino Macaraig, Jr.,

G.R. No. 88291 May 31, 1991

As to the Exemption of Government Entities

The NPC is exempted to pay indirect taxes. T

The main thrust of the petition is that under the latest amendment to the NPC

charter by Presidential Decree No. 938, the exemption of NPC from indirect taxation

was revoked and repealed. The exemption of NPC from payment of taxes under PD

938 was expressed in general term ―ALL FORMS OF TAXES‖ wherein there is a

deletion of the phrases "directly or indirectly" which is stated under Presidential Decree

No. 380 that is repealed and amended by PD 938.

The use of the phrase "all forms" of taxes demonstrate the intention of the law to

give NPC all the tax exemptions it has been enjoying before. The rationale for this

exemption is that being non-profit public corporation created for the general good and

welfare wholly owned by the government of the Republic of the Philippines the NPC

"shall devote all its returns from its capital investment as well as excess revenues from

its operation, for expansion to enable the Corporation to pay the indebtedness and

obligations amounting to P12 Billion in total domestic indebtedness, at any one time,

and U$4 Billion in total foreign loans at any one time, as of PD 938. The NPC must be

and has to be exempt from all forms of taxes if this goal is to be achieved.

It is clear from the foregoing that the lawmaker did not intend that the said

provisions of P.D. No. 938 shall be construed strictly against NPC and that the provision

of P.D. No. 938 its purpose is to maintain the tax exemption of NPC from all forms of

taxes including indirect taxes as provided for under R.A. No. 6895 and P.D. No. 380 if it


is to attain its goals. On the contrary, the law mandates that it should be interpreted

liberally so as to enhance the tax exempt status of NPC. A chronological review of the

NPC laws will show that it has been the lawmaker's intention that the NPC was to be

completely tax exempt from all forms of taxes — direct and indirect.

Therefore, that NPC had been granted tax exemption privileges for both direct

and indirect taxes under P.D. No. 938.

Mactan Cebu International Airport Authority vs. Marcos

G.R. No. 120082, September 11, 1996

Facts: Petitioner was created by virtue of RA6958, mandated to "principally

undertake the economical, efficient and effective control, management and supervision

of the Mactan International Airport in the Province of Cebu and the Lahug Airport in


Cebu City. Under Section 1: The authority shall be exempt from realty taxes imposed by

the National Government or any of its political subdivisions, agencies and

instrumentalities.

However, the Officer of the Treasurer of Cebu City demanded payment for realty

taxes on parcels of land belonging to petitioner. Petitioner objected invoking its tax

exemption. It also asserted that it is an instrumentality of the government performing

governmental functions, citing section 133 of the Local Government Code which puts

limitations on the taxing powers of LGUs. The city refused insisting that petitioner is a

Government Owned and Controlled Corporation performing proprietary functions whose

tax exemption was withdrawn by Sections 193 and 234 of the Local Government Code.

Petitioner filed a declaratory relief before the Regional Trial Court. The trial court

dismissed the petitioner ruling that the Local Government Code withdrew the tax

exemption granted the Government Owned and Controlled Corporations.

Issue: WON the City of Cebu has the power to impose taxes on petitioner.

RULING: Yes.

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. 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

taxpayers and liberally in favor of the taxing authority. A claim of exemption from tax

payment must be clearly shown and based on language in the law too plain to be

mistaken.

There can be no question that under Section 14 RA 6958 the petitioner is exempt

from the payment of realty taxes imposed by the National Government or any of its

political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is

the rule and exemption is the exception, the exemption may thus be withdrawn at the

pleasure of the taxing authority.

The Local Government Code, enacted pursuant to Section 3, Article X of the

constitution provides for the exercise by Local Government Units of their power to tax,

the scope thereof or its limitations, and the exemption from taxation. Section 133 of the

Local Government Code prescribes the common limitations on the taxing powers of

Local Government Units.

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 R.A. No. 6938, non stock and non-profit hospitals and educational institutions,

and unless otherwise provided in the LGC. The latter proviso could refer to Section 234,

which enumerates the properties exempt from real property tax. But the last paragraph

of Section 234 further qualifies the retention of the exemption in so far as the real

property taxes are concerned by limiting the retention only to those enumerated there-

in; all others not included in the enumeration lost the privilege upon the effectivity of the

LGC.

22. Tanada vs. Angara, G.R. No. 118295, May 2, 1997

As to International Comity

While sovereignty has traditionally been deemed absolute and all-encompassing

on the domestic level, it is however subject to restrictions and limitations voluntarily

agreed to by the Philippines, expressly or impliedly, as a member of the family of

nations. Unquestionably, the Constitution did not envision a hermit-type isolation of the

country from the rest of the world. In its Declaration of Principles and State Policies, the

Constitution ―adopts the generally accepted principles of international law as part of the

law of the land, and adheres to the policy of peace, equality, justice, freedom,

cooperation and amity, with all nations." By the doctrine of incorporation, the country is

bound by generally accepted principles of international law, which are considered to be

automatically part of our own laws. One of the oldest and most fundamental rules in

international law is pactasuntservanda -- international agreements must be performed in

good faith. ―A treaty engagement is not a mere moral obligation but creates a legally

binding obligation on the parties x xx. A state which has contracted valid international

obligations is bound to make in its legislations such modifications as may be necessary

to ensure the fulfillment of the obligations undertaken.‖

By their inherent nature, treaties really limit or restrict the absoluteness of

sovereignty. By their voluntary act, nations may surrender some aspects of their state

power in exchange for greater benefits granted by or derived from a convention or

pact. After all, states, like individuals, live with coequals, and in pursuit of mutually

covenanted objectives and benefits, they also commonly agree to limit the exercise of

their otherwise absolute rights. Thus, treaties have been used to record agreements

between States concerning such widely diverse matters as, for example, the lease of


naval bases, the sale or cession of territory, the termination of war, the regulation of

conduct of hostilities, the formation of alliances, the regulation of commercial relations,

the settling of claims, the laying down of rules governing conduct in peace and the

establishment of international organizations. The sovereignty of a state therefore cannot

in fact and in reality be considered absolute. Certain restrictions enter into the picture:

(1) limitations imposed by the very nature of membership in the family of nations and (2)

limitations imposed by treaty stipulations.

A portion of sovereignty may be waived without violating the Constitution, based

on the rationale that the Philippines ―adopts the generally accepted principles of

international law as part of the law of the land and adheres to the policy of peace,

equality, justice, freedom, cooperation, and amity with all nations.

41. MITSUBISHI CORPORATION — MANILA BRANCH vs. COMMISSIONER OF

INTERNAL REVENUE, [C.T.A. CASE NO. 6139. December 17, 2003.]

Facts: Petitioner is the Philippine Branch of Mitsubishi Corporation, a corporation

duly organized and existing under the laws of Japan.

Through an Exchange of Notes between the Government of Japan and the

Government of the Philippines, it was agreed that a loan amounting to Forty Billion Four


Hundred Million Japanese Yen (Y40,400,000,000) will be extended to the Republic of

the Philippines by the then Overseas Economic Cooperation Fund.

The Government of the Republic of the Philippines, will, itself or through its

instrumentalities, assume all fiscal levies or taxes imposed in the Republic of the

Philippines on Japanese firms and nationals operating as suppliers, contractors or

consultants on and /or in connection with any income that may accrue from the supply

of products of Japan and services of Japanese nationals to be provided under the Loan.

On June 21, 1991, the National Power Corporation (hereinafter, "NPC") and

Mitsubishi Corporation, petitioner's head office in Japan, entered into a contract for the

engineering, supply, construction, installation, testing and commissioning of one (1) x

300 MW Batangas Coal-Fired Thermal Power Project II at Calaca, Batangas.

The Calaca II Project was completed by the petitioner on December 2, 1995 but

was only accepted by NPC on January 31, 1998.

On July 15, 1998, petitioner filed its Income Tax Return for the fiscal year ended

March 31, 1998 with the Bureau of Internal In the return, petitioner (being the Manila

Branch of Mitsubishi Corporation) reported an income tax due of P90,481,711.00.

On September 7, 1998, the respondent issued Bureau of Internal Revenue

Ruling No. DA-407-98 (Exhibit K) where it held that "Mitsubishi has no liability for

income tax and other taxes and fiscal levies since the said taxes were assumed by the

Philippine Government."

On June 30, 2000, petitioner filed an administrative claim for refund and/or tax

credit with respondent in the amount of P52,612,812.00, representing its erroneously

paid income taxes in the amount of P44,288,712 and erroneously paid branch profit

remittance tax in the amount of P8,324,100.00 corresponding to the OECF-funded

portion of its Calaca II Project.

On July 13, 2000, petitioner, in order to suspend the running of the two-year

period within which to file a judicial claim for refund, filed the instant petition for review

pursuant to Section 229 of the Tax Code.

ISSUE: Whether or not Mitsubishi is entitled to tax refunds.

Ruling:

YES.

There was an erroneous payment of the subject taxes by petitioner for the

reason that said taxes are to be assumed by the Government of the Philippines through

its executing agency, the NPC.

As defined in Black's Law Dictionary, 6th Edition, the word "assume" means "to

take on, become bound, or put oneself in place of another as to an obligation or


liability". As can be gleaned from the definition, the Government of the Philippines,

through NPC, binds itself to shoulder the tax obligations and liabilities of petitioner.

Therefore, the income tax and BPRT payments made by petitioner to respondent

when such payments should have been made by the NPC, undoubtedly, put petitioner's

case in the operation of Section 229 of the Tax Code as one involving erroneous

payment.

A careful reading of the provisions of the Exchange of Notes will show that it is

the intention of the two governments not to use the proceeds of the loan in the payment

of all fiscal levies or taxes imposed by the Philippines. In view thereof, we believe that to

deny petitioner's claim for refund would violate the covenant that the funded amount

should not be subject to any taxes.

42. Iloilo Bottlers, Inc. vs. City Of Iloilo, GR No. L-52019, 19 August 1988

Facts: Iloilo Bottlers, Inc. (IBI), engaged in selling Pepsi-Cola and 7-up softdrinks,

has its bottling plant in Pavia, Iloilo since July 1968, but is selling softdrinks in Iloilo City.

On 11 January 1960, City of Iloilo enacted Ordinance No. 5 series of 1960, as

amended. Said ordinance imposes a P0.10 municipal tax for every case of 24 bottles

(P0.015 for every case of 24 bottles if price is not more than P0.05) on persons, firms or

corporations engaged in the distribution, manufacture, and bottling of softdrinks within

the city’s jurisdiction. As to distributors, they are taxed regardless of where their plant

may be situated. From January 1972, IBI has been paying said tax under protest. Iloilo

City later assessed and demanded IBI to pay back taxes, which IBI also paid under

protest.

On 12 July 1972, it filed before CFI of Iloilo a suit to recover payments amounting

to P3,329.20. CFI favored IBI, ruling that it is not liable under said tax ordinance and

directing City of Iloilo to pay P3,329.20 and the amounts paid subsequently after the

filing of the complaint. Upon appeal, CA certified the case to the Supreme Court.

Issue: Whether Iloilo Bottlers, Inc. is liable under Iloilo City’s tax ordinance that

imposes a municipal license tax on distributors of softdrinks.

RULING:

YES, Iloilo Bottlers, Inc. is liable to pay said municipal tax.

IBI is engaged in selling separate from its principal business of manufacturing. To

hold IBI liable to pay municipal tax, SC endeavored to prove that it is engaged in selling

separate from its principal business of manufacturing so as to fall under the category


―distributors‖ in the provision of the tax ordinance. SC found that ―[in] the case at bar,

the company distributed its softdrinks by means of a fleet of delivery trucks which went

directly to customers in the different places in lloilo province. Sales transactions with

customers were entered into and sales were perfected and consummated by route

salesmen. Truck sales were made independently of transactions in the main office.‖

IBI’s sales are within the jurisdiction of Iloilo City and are thus taxable. SC held

that ―the tax imposed under Ordinance No. 5 is an excise tax.., [that imposed] on the

privilege of distributing, manufacturing or bottling softdrinks. Being [such], it can be

levied by the taxing authority only when the acts, privileges or businesses are done or

performed within the jurisdiction of said authority…. Specifically, the situs of the act of

distributing, bottling or manufacturing softdrinks must be within city limits, before an

entity engaged in any of the activities may be taxed in Iloilo City.‖ As IBI indeed made

sales in Iloilo City as explained above, SC declared it liable to pay municipal tax under

the tax ordinance.

Commissioner of Internal Revenue vs. British Overseas Airways Corporation And

Court Of Tax Appeals, 149 SCRA 395

Facts: British Overseas Airways Corp (BOAC) is a 100% British Government-

owned corporation engaged in international airline business and is a member of the

Interline Air Transport Association, and thus, it operates air transportation services and

sells transportation tickets over the routes of the other airline members.


From 1959 to 1972, BOAC had no landing rights for traffic purposes in the

Philippines and thus, did not carry passengers and/or cargo to or from the Philippines

but maintained a general sales agent in the Philippines - Warner Barnes & Co. Ltd. and

later, Qantas Airways - which was responsible for selling BOAC tickets covering

passengers and cargoes. The Commissioner of Internal Revenue assessed deficiency

income taxes against BOAC.

Issue: Whether the revenue derived by BOAC from ticket sales in the Philippines,

constitute income of BOAC from Philippine sources, and accordingly taxable.

RULING:

The source of an income is the property, activity, or service that produced the

income. For the source of income to be considered as coming from the Philippines, it is

sufficient that the income is derived from activity within the Philippines. Herein, the sale

of tickets in the Philippines is the activity that produced the income. the tickets

exchanged hands here and payment for fares were also made here in the Philippine

currency.

The situs of the source of payments is the Philippines. The flow of wealth

proceeded from, and occurred within Philippine territory, enjoying the protection

accorded by the Philippine government. In consideration of such protection, the flow of

wealth should share the burden of supporting the government. PD 68, in relation to PD

1355, ensures that international airlines are taxed on their income from Philippine

sources. The 2 1/2% tax on gross billings is an income tax. If it had been intended as an

excise tax or percentage tax, it would have been placed under Title V of the Tax Code

covering taxes on business.


44. Hopewell Power Corp vs. Commissioner of Internal Revenue, CTA Case No.

5310, November 18, 1998

Facts:

Petitioner sought for tax credit/refund of input value-added tax (VAT) paid on

capital goods. Hopewell Power Corp. Is a domestic corporation engaged in the business

of power generation and sale. The basis for asking for such refund is Sec 106 (b) of the

Tax Code as amended by RA 7716. (petitioner actually relied on Sec 106 (c) of the

1994 Tax Code which was the law governing at that time; same content anyway). Sec

106 (c) of the 1994 Tax Code requires that an applicant for refund prove that a. It is a

VAT registered person b. Input taxes claimed was paid on capital goods c. Input taxes

have not been applied against output tax liability d. Administrative claim was seasonably

filed (2 yr prescriptive period) .Of its 6 claims, 4 had prescribed and 2 had been filed

seasonably. Court was also convinced that requisites (a) and (c) had been met.

Issue: Whether or not there should be a refund or whether or not the input taxes

claimed was paid on capital goods.

RULING:

Yes, the expenditures were properly considered as capital goods. The

amount was recomputed and reduced though.

Capital goods refer to goods with estimated useful life greater than 1 year and

which are treated as depreciable assets under Sec 29(f), used directly or indirectly in

the production and sale of taxable goods or services.


Statutorily, capital expenditures are specified as amounts paid out for a new

building or for permanent improvements or betterments made to increase the value of

any property or amounts expended in restoring property.

Hopewell spent for engineering and structural services for purposes of

constructing power plant facilities needed in the production of electricity which is it’s a

chief product. Such expenses are necessary and as such, should form part of the cost

of the power plant facilities.

45. Donald L. Smith, petitioner vs. Commissioner of Internal Revenue

C.T.A Case no. 6268 September 12, 2002.

Facts:

This petition for review involves a claim for refund in the amount of One Million

Five Hundred Thirty Three Thousand Six Hundred and Sixty pesos & 70/100


(1533,660.70) allegedly representing the income tax erroneously paid by herein

petitioner for taxable year 1998.

Petitioner is a citizen of the United States and is employed as Controller of

Coastal Subic Bay Terminal, Inc. , a business entity located within the Subic Special

Economic Zone as created by Republic Act 7227. On April 15, 1999, petitioner filed his

annual income tax return and paid P1,533,660.70 in compensation income taxes for the

income he derived from his employment. Claiming that the payment of income tax on

his compensation was erroneous, petitioner filed a written claim for refund with the BIR

on April 5, 2001. Petitioner alleged that he is covered by Ra 7227 or otherwise known

as the Bases Conversion and Development Act of 1992, thus he is tax exempt. As

there was no immediate action and the two year prescriptive period was about to lapse,

petitioner elevated his case to the CTA by way of petition for review on April 6, 2001.

Issues:

(1) Whether or not Section 12 (c) of Republic Act No. 7227 applies to petitioner.

(2) Whether or not aliens working within the Subic Special Economic Zone are within

Philippine jurisdiction to be subjected from income taxes on income earned from such

employment;

RULING:

(1) No. RA 7227 applies only to business establishments within the Subic

Special Economic Zone. It only operates on the said group.

Petitioner relying upon RA 7227 otherwise known as the Bases Conversion ad

Development Act of 1992 which states that: Sec. 12.Subic Special Economic Zones. –

xxx xxx xxx (c) The Provision of existing laws, rules and regulations to the contrary

notwithstanding, no taxes, local and national, shall be imposed within the Subic Special

Economic Zone shall be remitted to the National Government, one percent (1%) each

to the local government units affected by the declaration of the zone in proportion to

their population area, and other factors. In addition, there is hereby established a

development fund of one percent (1%) of the gross income earned by all businesses

and enterprises within the Subic Special Economic Zone to be utilized for the

development of municipalities outside the City of Olongapo and the Municipality of

Subic, and other municipalities contiguous to the base areas. In case of conflict

between national and local laws with respect to tax exemption privileges in the Subic

Special Economic Zone, the same shall be resolved in favor of the latter.

(2) Individual aliens employed within the Subic Special Economic Zone (SSEZ)

are not exempt from the awesome power of Philippine taxation especially so that they

sourced out their earnings from within the Philippines. The secured area of SSEZ,

which is virtually delineated in metes and bounds by Proclamation No. 532, issued by

the then President Fidel Ramos on February 1, 1995, is in reality part of the territorial


jurisdiction of the Philippines. To buttress the point that SSEZ is indeed within the

Philippine jurisdiction, Section 12 (h) of RA 7227, actually placed the fenced-off area of

SSEZ under the responsibility of the Philippine National Government, thus, "The

defense of the zone and the security of its perimeters shall be the responsibility of the

National Government in coordination with the Subic Bay Metropolitan Authority. The

Subic Bay Metropolitan Authority shall provide and establish its own internal security

and fire-fighting forces."Such being the case, all subjects over which the Philippines

can exercise dominion are necessarily objects of taxation. As such, all subjects of

taxation within its jurisdiction are required to pay tax in exchange of the protection that

the state gives. Thus, the SSEZ, being within the territorial boundaries of the

Philippines, the aliens residing therein, who enjoy the benefits and protection from the

said state are not exempt from contributing their share in the running of the

government. They have the bounden duty to surrender part of their hard-earned

income to the taxing authorities.

taxation digests

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