Taxation Cases (Digested)

TAXATION HAS THE POWER TO BUILD AND DESTROY system of net income taxation as regards professional and
business income.
Argabioso
The power to tax moreover, to borrow from Justice
SISON V ANCHETA G.R. NO. L-59431. JULY 25, 1984. Malcolm, "is an attribute of sovereignty. It is the strongest
of all the powers of government." 13 It is, of course, to be
Facts:
admitted that for all its plenitude 'the power to tax is not
Petitioners challenged the constitutionality of Section 1 of unconfined. There are restrictions. The Constitution sets
Batas Pambansa Blg. 135. It amended Section 21 of the forth such limits . Adversely affecting as it does properly
National Internal Revenue Code of 1977, which provides rights, both the due process and equal protection clauses
for rates of tax on citizens or residents on (a) taxable inay properly be invoked, all petitioner does, to invalidate
compensation income, (b) taxable net income, (c) in appropriate cases a revenue measure. if it were
royalties, prizes, and other winnings, (d) interest otherwise, there would -be truth to the 1803 dictum of
from bank deposits and yield or any other monetary Chief Justice Marshall that "THE POWER TO TAX
benefit from deposit substitutes and from trust fund and INVOLVES THE POWER TO DESTROY." 14 In a
similar arrangements, (e) dividends and share of separate opinion in Graves v. New York, 15 Justice
individual partner in the net profits of taxable Frankfurter, after referring to it as an 1, unfortunate
partnership, (f) adjusted gross income. remark characterized it as "a flourish of rhetoric
[attributable to] the intellectual fashion of the times
Petitioner as taxpayer alleged that "he would be unduly following] a free use of absolutes." 16 This is merely to
discriminated against by the imposition of higher rates of emphasize that it is riot and there cannot be such a
tax upon his income arising from the exercise of his constitutional mandate. Justice Frankfurter could
profession vis-a-vis those which are imposed upon fixed rightfully conclude: "The web of unreality spun from
income or salaried individual taxpayers." He characterizes Marshall's famous dictum was brushed away by one
the above section as arbitrary amounting to class stroke of Mr. Justice Holmess pen: 'The power to tax is
legislation, oppressive and capricious in character. not the power to destroy while this Court sits."
For petitioner, therefore, there is a transgression of both TAXATION GEN. PRINCIPLES - HMO IS NOT DOING
the equal protection and due process clauses of the INSURANCE BUSINESS
Constitution as well as of the rule requiring uniformity in
taxation. Belmonte
The OSG prayed for dismissal of the petition due to lack PHILIPPINE HEALTH CARE PROVIDERS v. CIR
of merit.
Facts:
Issue:
Petitioner essentially argues that its health care
Whether BP 135 violates the due process and equal agreement is not a contract of insurance but a contract
protection clauses, and the rule on uniformity in taxation. for the provision on a prepaid basis of medical services,
including medical check-up, that are not based on loss or
Held: damage. Petitioner also insists that it is not engaged... in
There is a need for proof of such persuasive character as the insurance business. It is a health maintenance
would lead to a conclusion that there was a violation of organization regulated by the Department of Health, not
the due process and equal protection clauses. Absent an insurance company under the jurisdiction of the
such showing, the presumption of validity must prevail. Insurance Commission. For these reasons, petitioner
Equality and uniformity in taxation means that all taxable asserts that the health care agreement is not subject to
articles or kinds of property of the same class shall be DST.
taxed at the same rate. The taxing power has the authority Issue:
to make reasonable and natural classifications for
purposes of taxation. Is a health care agreement in the nature of an insurance
contract and therefore subject to the documentary stamp
Where the differentitation conforms to the practical tax (DST) imposed under Section 185 of Republic Act
dictates of justice and equity, similar to the standards of 8424 (Tax Code of 1997)?
equal protection, it is not discriminatory within the
meaning of the clause and is therefore uniform. Taxpayers Ruling:
may be classified into different categories, such as
recipients of compensation income as against NO. Petitioner is not contemplated to be included in “or
professionals. Recipients of compensation income are not other branch insurance” covered by Section 185 of NIRC
entitled to make deductions for income tax purposes as because it is a Health Maintenance Organization and not
there is no practically no overhead expense, while an insurance company.
professionals and businessmen have no uniform costs or
The DST is levied on the exercise by persons of certain
expenses necessaryh to produce their income. There is
privileges conferred by law for the creation, revision, or
ample justification to adopt the gross system of income
termination of specific legal relationships through the
taxation to compensation income, while continuing the
execution of specific instruments. The DST under Section
1|First Batch :: Tax-1 Digests
185 of the 1997 Tax Code is imposed on the privilege of The claimed deduction by the private respondent was
making or renewing any policy of insurance (except life, permitted under the Internal Revenue Code and should
marine,... inland and fire insurance), bond or obligation therefore not have been disallowed by the petitioner.
in the nature of indemnity for loss, damage, or liability.
Petitioner's health care agreement is primarily a contract

of indemnity. Furthermore, The burden is on the taxpayer to prove the
validity of the claimed deduction. Here, the onus has been
Also, the DST assessment of the petitioner for the years discharged satisfactorily. Here, the onus has been
1996 and 1997 became moot and academic since it discharged satisfactorily. The promotional fees were
availed tax amnesty under RA 9480 on December 10, necessary and reasonable in the light of the efforts exerted
2007. Thus, petitioner is entitled to immunity from by the payees in the inducement of investors to venture
payment of taxes for taxable year 2003 and prior years. in an experimental enterprise. Thus, the payees should be
sufficiently recompensed.
IMPORTANCE OF THE LIFE BLOOD DOCTRINE

LIFEBLOOD DOCTRINE - GOCC IS TAXABLE
Bustinera
Commissioner of Internal Revenue vs Algue Inc., and

Court of Tax Appeals Cabubungan
GR No. L-28896 February 17, NATIONAL POWER CORPORATION, petitioner,

1988 vs.
CITY OF CABANATUAN, respondent.
Facts:
G.R. No. 149110 April 9, 2003
The Philippine Sugar Estate Development Company had
earlier appointed Algue Inc., as its agent, authorizing it to PUNO, J.:
sell its land, factories and oil manufacturing process.As
such,the corporation worked for the formation of the FACTS:
Vegetable Oil Investment Corporation, until they were
Petitioner is a government-owned and controlled
able to purchased the PSEDC properties. For this sale,
corporation created under Commonwealth Act No. 120, as
Algue Inc., received as agent a commission of P126,
amended. For many years now, petitioner sells electric
000.00, and it was from this commission that the P75,
power to the residents of Cabanatuan City, posting a
000.00 promotional fees were paid to Alberto Guevara,
gross income of P107,814,187.96 in 1992. Pursuant to
Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell,
section 37 of Ordinance No. 165-92, the respondent
and Pablo Sanchez.
assessed the petitioner a franchise tax amounting to
Commissioner of Internal Revenue contends that the P808,606.41, representing 75% of 1% of the latter’s gross
claimed deduction is not allowed because it was not an receipts for the preceding year. Petitioner refused to pay
ordinary reasonable or necessary business expense. The the tax assessment arguing that the respondent has no
Court of Tax Appeals had seen it differently. Agreeing with authority to impose tax on government entities. Petitioner
Algue Inc., it held that the said amount had been also contended that as a non-profit organization, it is
legitimately paid by the private respondent for actual exempted from the payment of all forms of taxes, charges,
services rendered. The payment was in the form of duties or fees in accordance with sec. 13 of Rep. Act No.
promotional fees. 6395, as amended.
Issue:
Whether or not the Collector of Internal Revenue correctly The respondent filed a collection suit in the RTC,
disallowed the P75, 000.00 deduction claimed by private demanding that petitioner pay the assessed tax due, plus
respondent Algue Inc., as legitimate business expenses in surcharge. Respondent alleged that petitioner’s
its income tax returns. exemption from local taxes has been repealed by section
193 of the LGC, which reads as follows:
Ruling:
No, The Supreme Court agrees with the respondent court

that the amount of the promotional fees was not “Sec. 193. Withdrawal of Tax Exemption
excessive. The P75,000.00 was 60% of the total Privileges.- Unless otherwise provided in this Code, tax
commission. This was a reasonable proportion, exemptions or incentives granted to, or presently enjoyed
considering that it was the payees who did practically by all persons, whether natural or juridical, including
everything, from the formation of the Vegetable Oil government owned or controlled corporations, except
Investment Corporation to the actual purchase by it of the local water districts, cooperatives duly registered under
Sugar Estate properties. R.A. No. 6938, non-stock and non-profit hospitals and

educational institutions, are hereby withdrawn upon the by the corporation of a privilege to do business. The
effectivity of this Code.” 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
The trial court issued an Order dismissing the case. It
and be sued under its own name, and can exercise all the
ruled that the tax exemption privileges granted to
powers of a corporation under the Corporation Code.
petitioner subsist despite the passage of Rep. Act No.
7160. On appeal, the Court of Appeals reversed the trial
court's Order on the ground that section 193, in relation Doubtless, the power to tax is the most effective
to sections 137 and 151 of the LGC, expressly withdrew instrument to raise needed revenues to finance and
the exemptions granted to the petitioner. support myriad activities of the local government units for
the delivery of basic services essential to the promotion of
the general welfare and the enhancement of peace,
ISSUE: progress, and prosperity of the people. As this Court
observed in the Mactan case, "the original reasons for the
Whether or not NPC is liable to pay an annual franchise withdrawal of tax exemption privileges granted to
tax to the City government. government-owned or controlled corporations and all
other units of government were that such privilege
HELD:
resulted in serious tax base erosion and distortions in the
YES. Taxes are the lifeblood of the government, tax treatment of similarly situated enterprises." With the
for without taxes, the government can neither exist nor added burden of devolution, it is even more imperative for
endure. A principal attribute of sovereignty, the exercise government entities to share in the requirements of
of taxing power derives its source from the very existence development, fiscal or otherwise, by paying taxes or other
of the state whose social contract with its citizens obliges charges due from them.
it to promote public interest and common good. The
theory behind the exercise of the power to tax emanates OBJECTIVES OF TAXATION - includes regulation
from necessity; without taxes, government cannot fulfill Camposano
its mandate of promoting the general welfare and well-
being of the people. Philippine Airlines Inc. vs Edu and Carbonnel
One of the most significant provisions of the LGC is the G.R. No. L- 41383
removal of the blanket exclusion of instrumentalities and
agencies of the national government from the coverage of August 15, 1988
local taxation. Although as a general rule, LGUs cannot
Facts:
impose taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, this rule The petitioner is a corporation engaged in the air
now admits an exception, i.e., when specific provisions of transportation business. Under the legislative franchise
the LGC authorize the LGUs to impose taxes, fees or granted to it, PAL is exempted from the payment of taxes.
charges on the aforementioned entities.
In 1971, Commissioner Edu issued a regulation requiring
all tax exempt entities including the petitioner to pay for
As commonly used, a franchise tax is "a tax on the motor vehicle registration fees. The petitioner paid under
privilege of transacting business in the state and protest the amount of P19, 529.75. However, after paying
exercising corporate franchises granted by the state." It is under protest, the petitioner demanded a refund invoking
not levied on the corporation simply for existing as a the ruling in Calalang vs Lorenzo where it was held that
corporation, upon its property or its income, but on its motor vehicle registration fees are in reality taxes from the
exercise of the rights or privileges granted to it by the payment of which the petitioner is exempt by virtue of its
government. Hence, a corporation need not pay franchise legislative franchise.
tax from the time it ceased to do business and exercise its
franchise. It is within this context that the phrase "tax on However, the defendant Commissioner denied the request
businesses enjoying a franchise" in section 137 of the LGC for refund basing his action on the decision in Republic
should be interpreted and understood. Verily, to vs Philippine Rabbit Bus Lines Inc. where it was held that
determine whether the petitioner is covered by the motor vehicle registration fees are regulatory exactions
franchise tax in question, the following requisites should which does not exempt the petitioner under its franchise.
concur: (1) that petitioner has a "franchise" in the sense
Petitioner filed a complaint against the defendant with the
of a secondary or special franchise; and (2) that it is
CFI of Rizal. However, the trial court dismissed the
exercising its rights or privileges under this franchise
complaint.
within the territory of the respondent city government.
Issue: Whether or not motor vehicle registration fees are
considered as taxes.
NPC fulfills both requisites. To stress, a franchise tax is
imposed based not on the ownership but on the exercise

Held: Yes. If the primary purpose or one of the real and for the exercise by the President; that the Decree is an ex-
substantial purposes is revenue, then the exaction is post facto law; and that there is over regulation of the
properly called a tax. Such is the case of motor vehicle video industry as if it were a nuisance, which it is not.
registration fees.
ISSUE:
Motor vehicle registration fees exacted pursuant to the
Land Transportation and Traffic Code are actually taxes 1. WON the decree was a valid exercise of taxing
intended for additional revenues of government even if one power by the state.
fifth or less of the amount collected is set aside for the 2. WON the decree was constitutional.
operating expenses of the agency administering the
program. RULING:
First Issue:
OBJECTIVES OF TAXATION – Includes regulation Yes. The Constitutional requirement that "every bill shall
embrace only one subject which shall be expressed in the
Castelltort title thereof" is sufficiently complied with if the title be
comprehensive enough to include the general purpose
G.R. No. L-75697
which a statute seeks to achieve. It is not necessary that
VALENTIN TIO doing business under the name and the title express each and every end that the statute
style of OMI ENTERPRISES, petitioner, vs. wishes to accomplish. The requirement is satisfied if all
VIDEOGRAM REGULATORY BOARD, MINISTER OF the parts of the statute are related, and are germane to
FINANCE, METRO MANILA COMMISSION, CITY the subject matter expressed in the title, or as long as they
MAYOR and CITY TREASURER OF MANILA, are not inconsistent with or foreign to the general subject
respondents. and title.
FATCS: The tax provision is not inconsistent with, nor foreign to

that general subject and title. As a tool for regulation 6 it
A petition was filed assailing the constitutionality of PD is simply one of the regulatory and control mechanisms
No. 1987 entitled "An Act Creating the Videogram scattered throughout the DECREE. The express purpose
Regulatory Board" with broad powers to regulate and of the DECREE to include taxation of the video industry
supervise the videogram industry. This decree led to the in order to regulate and rationalize the heretofore
amendment of NIRC providing: uncontrolled distribution of videograms is evident from
Preambles 2 and 5, supra. Those preambles explain the
SEC. 134. Video Tapes. — There shall be collected on each
motives of the lawmaker in presenting the measure. The
processed video-tape cassette, ready for playback,
title of the DECREE, which is the creation of the
regardless of length, an annual tax of five pesos; Provided,
Videogram Regulatory Board, is comprehensive enough to
That locally manufactured or imported blank video tapes
include the purposes expressed in its Preamble and
shall be subject to sales tax.
reasonably covers all its provisions. It is unnecessary to
On October 23, 1986, the Greater Manila Theaters express all those objectives in the title or that the latter be
Association, Integrated Movie Producers, Importers and an index to the body of the DECREE.
Distributors Association of the Philippines, and Philippine
Second Issue:
Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted Yes. The title of the decree, which calls for the creation of
by the Court to intervene, upon the allegations that the VRB is comprehensive enough to include the purposes
intervention was necessary for the complete protection of expressed in its Preamble and reasonably covered in all
their rights and that their "survival and very existence is its provisions. It is unnecessary to express all those
threatened by the unregulated proliferation of film objectives in the title or that the latter be an index to the
piracy." body of the decree.
The rationale behind the enactment of the aforesaid The express purpose of PD 1987 to include taxation of the
Decree may be summarized in its eighth whereas clause video industry in order to regulate and rationalize the
stating that grave emergencies corroding the moral values heretofore uncontrolled distribution of videos is evident
of the people and betraying the national economic from Preambles 2 and 5. Those preambles explain the
recovery program necessitate the adoption of bold motives of the lawmaker in presenting the measure.
measures with dispatch.
Conclusions:
The petitioner contended that Section 10 thereof, which
imposes a tax of 30% on the gross receipts payable to the The levy of the 30% tax is for a public purpose. It was
local government is a RIDER and the same is not germane imposed primarily to answer the need for regulating the
to the subject matter thereof; that the tax imposed is video industry, particularly because of the rampant film
harsh, confiscatory, oppressive and/or in unlawful piracy, the flagrant violation of intellectual property
restraint of trade in violation of the due process clause of rights, and the proliferation of pornographic video tapes.
the Constitution; that There is no factual nor legal basis And while it was also an objective of the DECREE to
protect the movie industry, the tax remains a valid rate to compute the amount of tax which is due”. A tax
imposition. deduction takes place before the tax is computed.
The public purpose of a tax may legally exist even if the As culled from the facts, CLDC filed its Annual
motive which impelled the legislature to impose the tax Income tax Return for taxable year 1996 in 1997 and only
was to favor one industry over another. later on that it availed itself of the tax credit. Verily, its
availment of the tax credit is not premature.
ALLOWABLE DEDECTIONS – TAX DEDUCTION VS. TAX
CREDIT INHERENT LIMITATIONS – PUBLIC PURPOSE
Claro Clasara
Commissioner of Internal Revenue, Petitioner, v. G.R. No. L-7859 December 22, 1955
Central Luzon Drug Corporation, Respondent, G.R.
No. 159647 April 15, 2005. WALTER LUTZ, as Judicial Administrator of the
Intestate Estate of the deceased Antonio Jayme
FACTS. Ledesma,plaintiff-appellant,
vs. J. ANTONIO ARANETA, as the Collector of Internal
The Central Luzon Drug Corporation (CLDC) is a Revenue, defendant-appellee.
domestic corporation primarily engaged in retailing of
medicines and other pharmaceutical products. In 1997, Facts: Commonwealth Act No. 567, otherwise known
CLDC filed its Annual Income Tax Return for taxable year as the Sugar Adjustment Act. Promulgated in 1940, the
1996 declaring therein that it incurred net losses from its law in question opens (section 1) with a declaration of
operations. emergency, due to the threat to our industry by the
imminent imposition of export taxes upon sugar as
In 1998, CLDC filed with the Commissioner of provided in the Tydings-McDuffe Act, and the "eventual
Internal Revenue a tax refund in the amount of loss of its preferential position in the United States
₱904,769.00 allegedly arising from the 20% sales market"; wherefore, the national policy was expressed "to
discount it granted to qualified senior citizens in obtain a readjustment of the benefits derived from the
compliance with R.A.7432. Unable to obtain affirmative sugar industry by the component elements thereof" and
response, CLDC elevated its claim to the Court of Tax "to stabilize the sugar industry so as to prepare it for the
Appeals via a Petition for Review. eventuality of the loss of its preferential position in the
United States market and the imposition of the export
At first CTA dismissed the petition ruling that a
taxes."
tax credit is improper. However upon MR of CLDC, the
CTA reversed this previous ruling and declared that Plaintiff, Walter Lutz, in his capacity as Judicial
pursuant to Sec.229 of RA 7342, a tax credit is due to Administrator of the Intestate Estate of Antonio Jayme
CLDC. This decision by CTA was mainly based on the case Ledesma, seeks to recover from the Collector of Internal
of Central Luzon Drug Corporation vs. Commissioner of Revenue the sum of P14,666.40 paid by the estate as
Internal Revenue CA G.R. SP No. 60057 wherein it was taxes, under section 3 of the Act, for the crop years 1948-
ruled that a tax credit is proper for taxes erroneously paid 1949 and 1949-1950; alleging that such tax is
or illegally collected. unconstitutional and void, being levied for the aid and
support of the sugar industry exclusively, which in
The Court of Appeals affirmed the decision of CTA
plaintiff's opinion is not a public purpose for which a tax
hence the present recourse by Petitioner CIR.
may be constitutioally levied. The action having been
ISSUE. dismissed by the Court of First Instance, the
plaintifs appealed the case directly to the Supreme Court.
Can CLDC, despite incurring a net loss, may still
claim the 20 percent sales discount as a tax credit? Issue: WoN the CA No. 567 is Unconstitutional
RULING. Held: No, it is not.
Yes. The basic defect in the plaintiff's position is his

assumption that the tax provided for in Commonwealth
Section 229 of RA 7342 entitles private Act No. 567 is a pure exercise of the taxing power.
establishment a tax credit to claim the cost of the discount Analysis of the Act, and particularly of section 6 will show
they granted to senior citizens for their purchases of that the tax is levied with a regulatory purpose, to provide
medicines. The tax credit therefore is not for erroneously means for the rehabilitation and stabilization of the
paid or illegally collected taxes. threatened sugar industry. In other words, the act is
primarily an exercise of the police power.
Meanwhile, a tax credit should be differentiated
from tax deduction. For a tax credit to operate, a tax sugar production is one of the great industries of our
liability on the part of the taxpayer should be first nation, sugar occupying a leading position among its
established. Tax credit is subtracted directly from one’s export products; that it gives employment to thousands of
total tax liability. A tax deduction is a mechanism "allowed laborers in fields and factories; that it is a great source of
by law to reduce income prior to the application of the tax the state's wealth, is one of the important sources of
foreign exchange needed by our government, and is thus INHERENT LIMITATIONS – LEGISLATIVE IN NATURE
pivotal in the plans of a regime committed to a policy of
currency stability. Its promotion, protection and Dalafu
advancement, therefore redounds greatly to the general
Pepsi-Cola Bottling Co. v. City of Butuan
welfare. Hence it was competent for the legislature to find
that the general welfare demanded that the sugar G.R. No. L-22814, August 28, 1968
industry should be stabilized in turn; and in the wide field
of its police power, the lawmaking body could provide that FACTS:
the distribution of benefits therefrom be readjusted
Pepsi-Cola Bottling Co. of the Philippines (Pepsi-
among its components to enable it to resist the added
Cola) has a storage facility in the City of Butuan for its
strain of the increase in taxes that it had to sustain.
soft drinks manufactured in Cebu. Products from this
INHERENT LIMITATIONS – PUBLIC PURPOSE facility are sold to consumers in the said city. The City of
Butuan (Butuan) enacted Ordinance No. 110, which
Concepcion imposed a tax on dealers engaged in selling soft drinks or
carbonated drinks. Ordinance No. 110 was later amended
GOMEZ v. PALOMAR by Ordinance No. 122. Consequently, the tax was now
GR No. L-23645, October 29, 1968 imposed on any agent and/or consignee of any person,
25 SCRA 827 association, partnership, company, or corporation
engaged in selling x x x soft drinks or carbonated drinks.
FACTS:
According to the Court, this obviously pertains to a
Petitioner Benjamin Gomez mailed a letter at the situation wherein an outside dealer taps a local agent
post office in San Fernando, Pampanga. It did not bear and/or consignee to sell his products in said agent’s
the special anti-TB stamp required by the RA 1635. It was and/or consignee’s locality. Since Pepsi-Cola has a
returned to the petitioner. Petitioner now assails the storage facility in the city receiving soft drinks from Cebu,
constitutionality of the statute claiming that RA 1635 and since said facility sells the same carbonated
otherwise known as the Anti-TB Stamp law is violative of beverages to the people of the city, it was assessed the tax
the equal protection clause because it constitutes mail imposed by Ordinance 110, as amended by Ordinance
users into a class for the purpose of the tax while leaving 122 (Ordinance 110, as amended). Pepsi-Cola paid under
untaxed the rest of the population and that even among protest. Pepsi-Cola brought the matter of recovering the
postal patrons the statute discriminatorily grants amounts paid before the lower court. It dismissed the
exemptions. The law in question requires an additional 5 complaint, hence this appeal.
centavo stamp for every mail being posted, and no mail
ISSUE:
shall be delivered unless bearing the said stamp.
Whether or not the tax imposed by Ordinance 110, as
amended, violates the uniformity requirement.
ISSUE: HELD:
Whether or not the Anti-TB Stamp Law is YES, Ordinance 110, as amended, unfairly singles out
unconstitutional, for being allegedly violative of the equal agents and/or consignees of outside dealers.
protection clause
The Constitution (what is being referred to here is the
1935 Constitution) provides: “The rule of taxation shall be
uniform and equitable. Even, however, if the burden in
HELD: question were regarded as a tax on the sale of said
beverages, it would still be invalid, as discriminatory, and
No. It is settled that the legislature has the inherent
hence, violative of the uniformity required by the
power to select the subjects of taxation and to grant
Constitution and the law therefor, since only sales by
exemptions. This power has aptly been described as "of
"agents or consignees" of outside dealers would be subject
wide range and flexibility." Indeed, it is said that in the
to the tax. Sales by local dealers, not acting for or on
field of taxation, more than in other areas, the legislature behalf of other merchants, regardless of the volume of
possesses the greatest freedom in classification. The their sales, and even if the same exceeded those made by
reason for this is that traditionally, classification has been said agents or consignees of producers or merchants
a device for fitting tax programs to local needs and usages established outside the City of Butuan, would be exempt
in order to achieve an equitable distribution of the tax from the disputed tax.
burden. The classification of mail users is based on the
For classification to be valid, the following must concur:
ability to pay, the enjoyment of a privilege and on
(1) it is based upon substantial distinctions; (2) these are
administrative convenience. Tax exemptions have never
germane to the purpose of the legislation or ordinance; (3)
been thought of as raising revenues under the equal
the classification applies to present conditions and future
protection clause.
ones substantially identical to those of the present; and
(4) the classification applies equally to those belonging to
the same class. The ordinance exempts local dealers not
acting for or in behalf of outside merchants from paying No. Though the creation of the LRTA was impelled by
the tax it imposes. It only applies to local dealers acting public service—to provide mass transportation to alleviate
for or in behalf of outside merchants. Butuan did not offer the traffic and transportation, situation in Metro Manila—
any explanation as to why a distinction between the two its operation undeniably partakes of ordinary business.
was made. If the purpose of the tax measure was merely Petitioner is clothed with corporate status and corporate
to create a new revenue source by levying tax upon the powers in the furtherance of its proprietary objectives.
sale of soft drinks, there is no reason for favoring one over Indeed, it operates much like any private corporation
the other. engaged in the mass transport industry. Given that it is
engaged in a service-oriented commercial endeavor, its
WHEREFORE, the decision appealed from is hereby carriageways and terminal stations are patrimonial
reversed, and another one shall be entered annulling property subject to tax, notwithstanding its claim of being
Ordinance No. 110, as amended by Ordinance No. 122. a government-owned or controlled corporation.
TAX EXEMPTION OF THE GOVERNMENT Unlike public roads which are open for use by everyone,
the LRT is accessible only to those who pay the required
Del Rosario
fare. It is thus apparent that petitioner does not exist
G.R. No. 127316. October 12, 2000. solely for public service, and that the LRT carriageways
and terminal stations are not exclusively for public use.
LIGHT RAIL TRANSIT AUTHORITY, petitioner, vs. Although petitioner is a public utility, it is nonetheless
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD profit-earning. It actually uses those carriageways and
OF ASSESSMENT APPEALS OF MANILA and the CITY terminal stations in its public utility business and earns
ASSESSOR OF MANILA, respondents. money therefrom.
FACTS: Taxation is the rule and exemption is the exception. Any

claim for tax exemption is strictly construed against the
The LRTA, a government-owned and controlled claimant. LRTA has not shown its eligibility for exemption;
corporation, acquired real properties constructed hence, it is subject to the tax.
structural improvements, such as buildings,
carriageways, passenger terminal stations for the purpose TAX EXEMPTION OF THE GOVERNMENT – MCIAA IS
of its operations. It also entered into a Contract of LIABLE FOR RPT
Management with the Meralco Transit Organization
(METRO) in which it undertook to maintain the Light Rail Hipolito
Transit System owned by the LRTA subject to the specific
stipulations contained in said agreement, including MACTAN CEBU INTERNATIONAL AIRPORT
payments of a management fee and real property taxes. AUTHORITY V. FERDINAND J. MARCOS, G.R NO.
120082 1996-09-11
Respondent-Appellee City Assessor of Manila assessed
FACTS:
the real properties of petitioner, which he considered real
property under the Real Property Tax Code. Petitioner Mactan Cebu International Airport Authority (MCIAA) was
paid its real property taxes on all its real property created by virtue of Republic Act 6958, mandated to
holdings, except the carriageways and passenger terminal principally undertake the economical, efficient, and
stations including the land where it is constructed on the effective control, management, and supervision of the
ground that the same are not real properties under the Mactan International Airport and Lahug Airport, and
Real Property Tax Code, and if the same are real property, such other airports as may be established in Cebu. Since
these are for public use/purpose, therefore, exempt from the time of its creation, MCIAA enjoyed the privilege of
realty taxation, which claim was denied by the exemption from payment of realty taxes in accordance
Respondent-Appellee City Assessor of Manila. with Section 14 of its Charter. However, on October 11,
1994, Mr. Eustaquio B. Cesa, Officer in Charge, Office of
Petitioner, aggrieved by the action of the Respondent-
the Treasurer of the City of Cebu, demanded payment
Appellee City Assessor, filed an appeal with the Local
from realty taxes in the total amount of P2229078.79.
Board of Assessment Appeals of Manila. Appellee, herein,
Petitioner objected to such demand for payment as
denied petitioner’s appeal, and declared that carriageways
baseless and unjustified claiming in its favor the afore
and passenger terminal stations are improvements,
cited Section 14 of R.A. 6958. It was also asserted that it
therefore, are real property under the Code, and not
exempt from the payment of real property tax. is an instrumentality of the government performing
governmental functions, citing Section 133 of the Local
The CA affirmed the above resolution. Hence, this Government Code of 1991, which puts limitations on the
petition. taxing powers of local government units.
ISSUE:
Whether or not LRTA, a government-owned and controlled Section 133. Common limitations on the Taxing Powers of
corporation, is exempted from paying tax. Local Government Units.
RULING:

The exercise of the taxing powers of the provinces, cities, MCIAA is a “taxable person” under its Charter (RA 6958),
barangays, municipalities shall not extend to the levi of and was only exempted from the payment of real property
the following: taxes. The grant of the privilege only in respect of this tax
is conclusive proof of the legislative intent to make it a
taxable person subject to all taxes, except real property
tax.
xxx Taxes, fees or charges of any kind in the National
Government, its agencies and instrumentalities, and Since Republic Act 7160 or the Local Government Code
LGU’s. xxx (LGC) expressly provides that “All general and special
laws, acts, city charters, decrees [sic], executive orders,
The Respondent City refused to cancel and set aside
proclamations and administrative regulations, or part of
petitioner’s realty tax account, insisting that the MCIAA is
parts thereof which are inconsistent with any of the
a government controlled corporation whose tax exemption
provisions of this Code are hereby repealed or modified
privilege has been withdrawn by virtue of Sections 193
accordingly.”
and 234 of the Local Government Code (LGC), and not an
instrumentality of the government but merely a With that repealing clause in the LGC, the tax exemption
government owned corporation performing proprietary provided for in RA 6958 had been expressly repealed by
functions. MCIAA paid its tax account “under protest” the provisions of the LGC. Therefore, MCIAA has to pay
when City is about to issue a warrant of levy against the the assessed realty tax of its properties effective after
MCIAA’s properties. January 1, 1992 until the present.
MCIAA filed a Petition of Declaratory Relief with the RTC
MIAA IS NOT A GOCC, HENCE, EXEMPT FROM
contending that the taxing power of local government
TAXATION INCLUDING PAYMENT OF RPT
units do not extend to the levy of taxes or fees on an
instrumentality of the national government. It contends Igpuara
that by the nature of its powers and functions, it has the
footing of an agency or instrumentality of the national MANILA INTERNATIONAL AIRPORT
government; which claim the City rejects. The trial court AUTHORITY, petitioner,
dismissed the petition, citing that close reading of the LGC vs.
provides the express cancellation and withdrawal of tax COURT OF APPEALS, CITY OF PARAÑAQUE, CITY
exemptions of Government Owned and Controlled MAYOR OF PARAÑAQUE, SANGGUNIANG
Corporations. PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF
PARAÑAQUE, and CITY TREASURER OF
ISSUE: Whether the MCIAA is exempted from realty taxes. PARAÑAQUE, respondents
RULING: G.R. No. 155650 July 20, 2006
Tax statutes are construed strictly against the FACTS: Petitioner Manila International Airport Authority
government and liberally in favor of the taxpayer. But (MIAA) operates the Ninoy Aquino International Airport
since taxes are paid for civilized society, or are the (NAIA) Complex in Parañaque City under Executive Order
lifeblood of the nation, the law frowns against exemptions No. 903, otherwise known as the Revised Charter of the
from taxation and statutes granting tax exemptions are Manila International Airport Authority ("MIAA Charter").
thus construed strictissimi juris against the taxpayer and
liberally in favor of the taxing authority. On 21 March 1997, the Office of the Government
Corporate Counsel (OGCC) issued Opinion No. 061. The
A claim of exemption from tax payments must be clearly OGCC opined that the Local Government Code of 1991
shown and based on language in the law too plain to be withdrew the exemption from real estate tax granted to
mistaken. Taxation is the rule, exemption therefrom is the MIAA under Section 21 of the MIAA Charter. Thus, MIAA
exception. However, if the grantee of the exemption is a negotiated with respondent City of Parañaque to pay the
political subdivision or instrumentality, the rigid rule of real estate tax imposed by the City.
construction does not apply because the practical effect
of the exemption is merely to reduce the amount of money MIAA paid some of the taxes due but not all. On 17 July
that has to be handled by the government in the course of 2001, the City of Parañaque, through its City Treasurer,
its operations. issued notices of levy and warrants of levy on the Airport
Lands and Buildings and further threatened to sell at
Further, since taxation is the rule and exemption public auction.
therefrom the exception, the exemption may be withdrawn
at the pleasure of the taxing authority. The only exception On 29 March 2005, the Court heard the parties in oral
to this rule is where the exemption was granted to private arguments. MIAA admits that the MIAA Charter has
parties based on material consideration of a mutual placed the title to the Airport Lands and Buildings in the
nature, which then becomes contractual and is thus name of MIAA. However, MIAA points out that it cannot
covered by the non-impairment clause of the claim ownership over these properties since the real
Constitution. owner of the Airport Lands and Buildings is the Republic
of the Philippines. Since the Airport Lands and Buildings
are devoted to public use and public service, the

ownership of these properties remains with the State, By express mandate of the Local Government Code, local
thus inalienable and are not subject to real estate tax by governments cannot impose any kind of tax on national
local governments. government instrumentalities like the MIAA. Local
governments are devoid of power to tax the national
Issue: Whether or not the Airport Lands and Buildings government, its agencies and instrumentalities. The
of MIAA are exempt from real estate tax under existing taxing powers of local governments do not extend to the
laws. national government, its agencies and instrumentalities.
Ruling: We rule that MIAA's Airport Lands and Buildings To summarize, MIAA is a government instrumentality
are exempt from real estate tax imposed by local vested with corporate powers and performing essential
governments. public services pursuant to Section 2(10) of the
Introductory Provisions of the Administrative Code. As a
A government instrumentality like MIAA falls under
government instrumentality, MIAA is not subject to any
Section 133(o) of the Local Government Code, which
states: kind of tax by local governments under Section 133(o) of
the Local Government Code. The exception to the
SEC. 133. Common Limitations on the Taxing Powers of exemption in Section 234(a) does not apply to MIAA
Local Government Units. – Unless otherwise provided because MIAA is not a taxable entity under the Local
herein, the exercise of the taxing powers of provinces, Government Code.
cities, municipalities, and barangays shall not extend to
Finally, the Airport Lands and Buildings of MIAA are
the levy of the following:
properties devoted to public use and thus are properties
xxx of public dominion. Properties of public dominion are
owned by the State or the Republic and exempted from
(o) Taxes, fees or charges of any kind on the National real estate tax.
Government, its agencies and instrumentalities xxx
WHEREFORE, we GRANT the petition. We SET
This section recognizes the basic principle that local ASIDE the assailed Resolutions of the Court of Appeals of
governments cannot tax the national government, which 5 October 2001 and 27 September 2002 in CA-G.R. SP
historically merely delegated to local governments the No. 66878. We DECLARE the Airport Lands and
power to tax. The only exception is when the legislature Buildings of the Manila International Airport
clearly intended to tax government instrumentalities for the Authority EXEMPT from the real estate tax imposed by
delivery of essential public services for sound and the City of Parañaque.
compelling policy considerations.
INHERENT LIMITATIONS – DUE PROCESS CLAUSE
The Airport Lands and Buildings of MIAA are property
of public dominion and therefore owned by the State or the Jaranilla
Republic of the Philippines. The Civil Code provides:
CREBA vs. Secretary of Agrarian Reform
ARTICLE 420. The following things are property of public
dominion: G.R. No. 183409 (June 18, 2010)
(1) Those intended for public use, such as roads, canals, 621 SCRA 295
rivers, torrents, ports and bridges constructed by the
Perez, J.
State xxx
The term "ports" includes seaports and airports. The MIAA

Airport Lands and Buildings constitute a "port" Facts:
constructed by the State and these “ports” are properties
of public dominion and thus owned by the State or the Petitioner Chamber of Real Estate and Builders
Republic of the Philippines. Associations, Inc. (CREBA), a private non-stock, non-
profit corporation duly organized and existing under the
Real Property Owned by the Republic is Not Taxable laws of the Republic of the Philippines, is the umbrella
organization of some 3,500 private corporations,
Section 234(a) of the Local Government Code exempts
partnerships, single proprietorships and individuals
from real estate tax any "[r]eal property owned by the
directly or indirectly involved in land and housing
Republic of the Philippines." Section 234(a) provides:
development, building and infrastructure construction,
SEC. 234. Exemptions from Real Property Tax. — The materials production and supply, and services in the
following are exempted from payment of the real property various related fields of engineering, architecture,
tax: community planning and development financing.
(a) Real property owned by the Republic of the The Secretary of Agrarian Reform issued, on 29
Philippines or any of its political subdivisions October 1997, DAR AO No. 07-97,3 entitled “Omnibus
except when the beneficial use thereof has Rules and Procedures Governing Conversion of
been granted, for consideration or otherwise, Agricultural Lands to Non-Agricultural Uses,” which
to a taxable person xxx consolidated all existing implementing guidelines related

to land use conversion. The aforesaid rules embraced all
private agricultural lands regardless of tenurial
arrangement and commodity produced, and all untitled Ruling:
agricultural lands and agricultural lands reclassified by
DAR AO No. 01-02, as amended, violate the due
Local Government Units (LGUs) into non-agricultural
process clause, as well as the equal protection clause of
uses after 15 June 1988.
the Constitution. In providing administrative and criminal
Secretary of Agrarian Reform issued DAR AO No. 01-99,4 penalties in the said administrative order, the Secretary
entitled “Revised Rules and Regulations on the of Agrarian Reform simply implements the provisions of
Conversion of Agricultural Lands to Non-agricultural Sections 73 and 74 of Republic Act No. 6657.
Uses,” amending and updating the previous rules on land
Contrary to petitioner’s assertions, the administrative and
use conversion. Its coverage includes the following
criminal penalties provided for under DAR AO No. 01-02,
agricultural lands, to wit: (1) those to be converted to
as amended, are imposed upon the illegal or premature
residential, commercial, industrial, institutional and
conversion of lands within DAR’s jurisdiction, i.e., “lands
other non-agricultural purposes; (2) those to be devoted
not reclassified as residential, commercial, industrial or
to another type of agricultural activity such as livestock, for other non-agricultural uses before 15 June 1998.”
poultry, and fishpond—the effect of which is to exempt the
land from the Comprehensive Agrarian Reform Program The petitioner’s argument that DAR Memorandum No. 88
(CARP) coverage; (3) those to be converted to non- is unconstitutional, as it suspends the land use
agricultural use other than that previously authorized; conversion without any basis, stands on hollow ground.
and (4) those reclassified to residential, commercial,
industrial, or other non-agricultural uses on or after the It bears emphasis that said Memorandum No. 88 was
effectivity of Republic Act No. 66575 on 15 June 1988 issued upon the instruction of the President in order to
pursuant to Section 206 of Republic Act No. 71607 and address the unabated conversion of prime agricultural
other pertinent laws and regulations, and are to be lands for real estate development because of the
converted to such uses. worsening rice shortage in the country at that time. Such
measure was made in order to ensure that there are
The Secretary of Agrarian Reform issued another enough agricultural lands in which rice cultivation and
Administrative Order, i.e., DAR AO No. 01-02, entitled production may be carried into. The issuance of said
“2002 Comprehensive Rules on Land Use Conversion,” Memorandum No. 88 was made pursuant to the general
which further amended DAR AO No. 07-97 and DAR AO welfare of the public, thus, it cannot be argued that it was
No. 01-99, and repealed all issuances inconsistent made without any basis.
therewith. The aforesaid DAR AO No. 01-02 covers all
applications for conversion from agricultural to non-
agricultural uses or to another agricultural use.
CONSTITUTIONAL LIMIATIONS – DUE PROCESS
Thereafter, the Secretary of Agrarian Reform amended CLAUSE
certain provisions of DAR AO No. 01-02 by formulating
DAR AO No. 05-07, particularly addressing land Leonor
conversion in time of exigencies and calamities. COCA COLA VS CA
To address the unabated conversion of prime agricultural FACTS:
lands for real estate development, the Secretary of
Agrarian Reform further issued Memorandum No. 88 on Respondent paid the local business tax only as a
15 April 2008, which temporarily suspended the manufacturers as it was expressly exempted from the
processing and approval of all land use conversion business tax under a different section and which applied
applications. to businesses subject to excise, VAT or percentage tax
under the Tax Code. The City of Manila subsequently
By reason thereof, petitioner claims that there is an actual amended the ordinance by deleting the provision
slow down of housing projects, which, in turn, aggravated exempting businesses under the latter section if they have
the housing shortage, unemployment and illegal already paid taxes under a different section in the
squatting problems to the substantial prejudice not only ordinance. This amending ordinance was later declared
of the petitioner and its members but more so of the whole by the Supreme Court null and void. Respondent then
nation. filed a protest on the ground of double taxation. RTC
Hence, this petition. decided in favor of Respondent and the decision was
received by Petitioner on April 20, 2007. On May 4, 2007,
Petitioner filed with the CTA a Motion for Extension of
Time to File Petition for Review asking for a 15-day
Issue: extension or until May 20, 2007 within which to file its
Petition. A second Motion for Extension was filed on May
Whether or not due process and equal protection
18, 2007, this time asking for a 10-day extension to file
clauses of the constitution was violated by the Secretary
the Petition. Petitioner finally filed the Petition on May 30,
of Agrarian reform.
2007 even if the CTA had earlier issued a resolution
dismissing the case for failure to timely file the Petition.
10 | F i r s t Batch :: Tax-1 Digests
ISSUES: The respondent Judge Arca rendered judgment declaring
Ordinance No. 6537 null and void.
Does the enforcement of the latter section of the tax
ordinance constitute double taxation? ISSUE:
HELD: Whether or not Ordinance No. 6537 is a valid exercise of

the power of taxation.
YES. There is indeed double taxation if respondent is
subjected to the taxes under both Sections 14 and 21 of Ruling:
the tax ordinance since these are being imposed: (1) on
the same subject matter — the privilege of doing business No, the Supreme Court ruled that while it is true that the
in the City of Manila; (2) for the same purpose — to make first part which requires that the alien shall secure an
persons conducting business within the City of Manila employment permit from the Mayor involves the exercise
contribute to city revenues; (3) by the same taxing of discretion and judgment in the processing and approval
authority — petitioner City of Manila; (4) within the same or disapproval of applications for employment permits
taxing jurisdiction — within the territorial jurisdiction of and therefore is regulatory in character the second part
the City of Manila; (5) for the same taxing periods — per which requires the payment of P50.00 as employee's fee
calendar year; and (6) of the same kind or character — a is not regulatory but a revenue measure.
local business tax imposed on gross sales or receipts of
The amount was unreasonable and excessive because it
the business.
fails to consider difference in situation among aliens
required to pay it, whether he is casual or permanent, part
CONSTITUTIONAL LIMITATIONS – DUE PROCESS
time or full time or whether he is a lowly employee or a
CLAUSE
highly paid executive.
Lopez
The Court further ruled that requiring a person before he
G.R. No. L-29646 November 10, 1978 can be employed to get a permit from the City Mayor of
Manila who may withhold or refuse it at will is tantamount
VILLEGAS, vs. HIU CHIONG TSAI PAO HO to denying him the basic right of the people in the
Philippines to engage in a means of livelihood. While it is
FERNANDEZ, J.:
true that the Philippines as a State is not obliged to admit
FACTS: aliens within its territory, once an alien is admitted, he
cannot be deprived of life without due process of law.
Hiu Chiong Tsai Pao filed a petition with the Court of First
Instance of Manila, Branch I, praying for the issuance of CONSTITUTIONAL LIMITATIONS – DUE PROCESS
the writ of preliminary injunction and restraining order to CLAUSE
stop the enforcement of Ordinance No. 6537 as well as for
Magbual
a judgment declaring said Ordinance No. 6537 null and
void. CITY OF BAGUIO v. FORTUNATO DE LEON
Hiu Chiong Tsai Pao Ho alleged that Ordinance No. 6537 G.R. NO. L-24756 OCTOBER 31,1968
was discriminatory and violative of the rule of the
uniformity in taxation, being a revenue measure imposed FACTS:
on aliens employed in the City of Manila. He also
contended that it was arbitrary, oppressive and City of Baguio passed an ordinance imposing a license fee
unreasonable, being applied only to aliens who are thus, on any person, firm, entity or corporation doing business
deprived of their rights to life, liberty and property and in the City of Baguio. The said ordinance was supplied by
therefore, violates the due process and equal protection R.A No. 329, amending the Baguio City Charter
clauses of the Constitution. empowering it to fix the license fee and regulate
“businesses, trades, and occupations as may be
Section 1 of said Ordinance No. 6537 prohibited aliens eatablished or practiced in the City.”
from being employed or to engage or participate in any
position or occupation or business enumerated therein, Private defendant Fortunato de Leon, was held liable as a
whether permanent, temporary or casual, without first real estate dealer with a property therein worth more than
securing an employment permit from the Mayor of Manila P10,000 but not more than P50,000 and obligated to pay
and paying the permit fee of P50.00 with the exception of under such ordinance the P50 annual fee. He failed to pay
persons employed in the diplomatic or consular missions the amount of P300 as license fee from the 1st quarter of
of foreign countries, or in the technical assistance 1958 up to 4th quarter of 1962, inspite of repeated
programs of both the Philippine Government and any demands.
foreign government, and those working in their respective
However, the defendant contended that the validity of the
households, and members of religious orders or
said ordinance is that it is ultra vires ultra vires for there
congregations, sect or denomination, who are not paid
is no statury authority which expressly grants the City of
monetarily or in kind.
Baguio to levy such tax, and that there it imposed double
taxation, and violates the requirement of uniformity.

ISSUE: Are the contentions of the defendant-appellant classification of locally manufactured cigarettes bearing
tenable? foreign brands and to thereby have them covered by RA
7654. Specifically, the new law would have its amendatory
HELD: provisions applied to locally manufactured cigarettes
which at the time of its effectivity were not so classified as
NO. The Court ruled that, first, R.A No. 329 was enacted
bearing foreign brands. Prior to the issuance of the
amending Section 2553 of the Revised Administrative
questioned circular, “Hope Luxury,” “Premium More,” and
Code empowering the City Council not only to impose a
“Champion” cigarettes were in the category of locally
license fee but to levy a tax for purposes of revenue, thus
manufactured cigarettes not bearing foreign brand
the ordinance cannot be considered ultra vires for there
subject to 45% ad valorem tax. Hence, without RMC 37–
is more than ample statury authority for the enactment
thereof. 93, the enactment of RA 7654, would have had no new
tax rate consequence on private respondent’s products.
Second, an argument against double taxation may not be
invoked where one tax is imposed by the state and the
other is imposed by the city, so that where, as here,
Congress has clearly expressed its intention, the statute
CLAUSE
must be sustained even though double taxation results.
Mallari
Lastly, violation of uniformity is out of place it being
widely recognized that there is nothing inherently COMMISSIONER OF INTERNAL REVENUE v. MICHEL
obnoxious in the requirement that license fees or taxes be J. LHUILLIER PAWNSHOP, INC.
exacted with respect to the same occupation, calling or
activity by both the state and the political subdivisions July 15, 2003
thereof.
Davide, Jr., C.J.
CLAUSE
FACTS:
Maghuyop
 On March 11, 1991, CIR Jose Ong issued
CIR vs CA and Fortune Tobacco Corporation
Revenue Memorandum Order (RMO) 15-91 which
G.R. No. 119761, August 29, 1996 imposed a 5% lending investors tax on
pawnshops. It ratiocinated that pawnshop
VITUG, J. businesses are akin to lending investors, and
shall be subject to 5% lending investors tax based
FACTS: on their gross income under Sec. 116 of the Tax
Fortune Tobacco manufactures cigarette brands Code, as amended. The RMO was clarified by
“Champion,” “Hope,” and “More”. Such brands were Revenue Memorandum Circular (RMC) 43-91.
classified as locally manufactured cigarettes not bearing  Pursuant to these issuances, the BIR issued an
foreign brand. Later on, RA 7654 was enacted imposing
Assessment Notice against Lhuillier demanding a
55% tax on currently classified locally manufactured
deficiency percentage tax of P 3,360,335.11 for
cigarettes; and 45% on other locally manufactured 1994.
cigarettes. BIR then issued RMC 37-93 classifying HOPE,'
‘MORE' and ‘CHAMPION' as locally manufactured  BIR issued a warrant of distraint or levy against
cigarettes bearing foreign brands, and imposing 55% ad Lhuillier’s property for the enforcement and
valorem tax thereon. Fortune Tobacco requested for a payment of the assessed percentage tax.
review, reconsideration and recall of RMC 37–93 but was
denied. CTA, on the other hand, upheld the position of  Lhuillier filed an administrative protest with the
Fortune Tobacco, and held defective, invalid and Office of the Revenue Regional Director,
unenforceable RMC 37-93 since when R.A. No. 7654 took contending that pawnshops are different from
effect, the brands in question were not currently classified lending investors, and that it shall not be subject
and taxed at 55% and were therefore, still classified as to the 5% percentage tax.
other locally manufactured cigarettes taxed at 45% or
o The protest being unacted upon, Lhuillier
20%, as the case may be. The CIR forthwith filed a petition
for review with the Court of Appeals. elevated the matter to the CIR, then o the
Court of Tax Appeals.
ISSUE:
o The CIR filed a Motion to Dismiss the
WON RM 37-93 is valid petition on the ground that it did not
state a cause of action.
RULING:
o Lhuillier moved for the issuance of a WPI
NO. RMC 37–93 has been made in order to place “Hope to enjoin BIR from enforcing the warrant
Luxury,” “Premium More” and “Champion” within the of distraint and levy.
 The CTA denied the CIR’s motion to dismiss and  Congress never intended pawnshops to be treated
granted Lhuillier’s motion. It rendered a decision in the same way as lending investors.
declaring the RMO and the RMC null and void.
o SC. 116 of the NIRC of 1977, as amended
o CIR appealed to the CA; CA affirmed the by EO 273, subjects to percentage tax
CTA decision. dealers in securities and lending
investors only. There is no mention of
 CIR now invokes Sec. 116 of the Tax Code, which pawnshops. Under the maxim expressio
imposed a 5% percentage tax on lending unius est exclusio alterius, the mention
investors, and argues that such is broad enough of one thing implies the exclusion of
to include pawnshop operators. They contend another thing not mentioned. Thus, if a
that the issuances are mere rules and regulations statute enumerates the things upon
implementing such provision. which it is to operate, everything else
must necessarily and by implication be
o SEC. 116. Percentage tax on dealers in
excluded from its operation and effect.
securities; lending investors. - Dealers in
securities and lending investors shall pay  Adding to the invalidity of the issuances is the
a tax equivalent to six (6) per centum of absence of publication. While the rule-making
their gross income. Lending investors authority of the CIR is not doubted, like any other
shall pay a tax equivalent to five (5%) government agency, the CIR may not disregard
percent of their gross income. legal requirements or applicable principles in the
exercise of quasi-legislative powers.
ISSUE: Whether or not pawnshops may be considered as CONSTITUTIONAL LIMITATIONS – EQUAL

lending investors for the purpose of imposing the 5% PROTECTION CLAUSE
percentage taxes.
Martinez
ABAKADA GURO PARTY LIST VS EXECUTIVE

HELD: NO. SECRETARY
 Under Section 157(u) of the NIRC of 1986, as G.R. No. 168056 September 1, 2005
amended, the term lending investor includes all ABAKADA GURO PARTY LIST (Formerly AASJAS)
persons who make a practice of lending money for OFFICERS SAMSON S. ALCANTARA and ED VINCENT S.
themselves or others at interest. A pawnshop, on ALBANO, Petitioners,
the other hand, is defined under Section 3 of P.D. vs.
No. 114 as a person or entity engaged in the THE HONORABLE EXECUTIVE SECRETARY EDUARDO
business of lending money on personal property ERMITA; HONORABLE SECRETARY OF THE
delivered as security for loans and shall be DEPARTMENT OF FINANCE CESAR PURISIMA; and
synonymous, and may be used interchangeably, HONORABLE COMMISSIONER OF INTERNAL REVENUE
with pawnbroker or pawn brokerage. GUILLERMO PARAYNO, JR., Respondent.
 While it is true that pawnshops are engaged in
the business of lending money, they are not
considered lending investors for the purpose Facts:
of imposing the 5% percentage taxes.
Petitioners ABAKADA GURO Party List challenged the
 Under the NIRC of 1977, before it was amended constitutionality of R.A. No. 9337 particularly Sections 4,
by EO 273, and in Sec. 161 of the NIRC of 1986, 5 and 6, amending Sections 106, 107 and 108,
pawnshops and lending investors were subjected respectively, of the National Internal Revenue Code
to different tax treatments. (NIRC). These questioned provisions contain a
uniform proviso authorizing the President, upon
o (dd) Lending investors recommendation of the Secretary of Finance, to raise the
VAT rate to 12%, effective January 1, 2006, after any of
1. In chartered cities and first class municipalities, one
the following conditions have been satisfied, to wit:
thousand pesos;
. . . That the President, upon the recommendation of the
2. In second and third class municipalities, five hundred
Secretary of Finance, shall, effective January 1, 2006,
pesos;
raise the rate of value-added tax to twelve percent (12%),
3. In ourth and fifth class municipalities and municipal after any of the following conditions has been satisfied:
districts, two hundred fifty pesos: Provided, That lending
(i) Value-added tax collection as a percentage of Gross
investors who do business as such in more than one
Domestic Product (GDP) of the previous year exceeds two
province shall pay a tax of one thousand pesos.
and four-fifth percent (2 4/5%); or
o (ff) Pawnshops, one thousand pesos
(ii) National government deficit as a percentage of GDP of 2. In testing whether a statute constitutes an undue
the previous year exceeds one and one-half percent (1 delegation of legislative power or not, it is usual
½%). to inquire whether the statute was complete in all
its terms and provisions when it left the hands of
Petitioners argue that the law is unconstitutional, as it the legislature so that nothing was left to the
constitutes abandonment by Congress of its exclusive judgment of any other appointee or delegate of the
authority to fix the rate of taxes under Article VI, Section legislature.
28(2) of the 1987 Philippine Constitution. They further
argue that VAT is a tax levied on the sale or exchange of 3. The equal protection clause under the
goods and services and cannot be included within the Constitution means that “no person or class of
purview of tariffs under the exemption delegation since persons shall be deprived of the same protection
this refers to customs duties, tolls or tribute payable upon of laws which is enjoyed by other persons or other
merchandise to the government and usually imposed on classes in the same place and in like
imported/exported goods. They also said that the circumstances.”
President has powers to cause, influence or create the
conditions provided by law to bring about the conditions Rulings:
precedent. Moreover, they allege that no guiding
1. R.A. No. 9337 has not violated the provisions. The
standards are made by law as to how the Secretary of
revenue bill exclusively originated in the House of
Finance will make the recommendation. They claim,
Representatives, the Senate was acting within its
nonetheless, that any recommendation of the Secretary of
constitutional power to introduce amendments to
Finance can easily be brushed aside by the President
the House bill when it included provisions in
since the former is a mere alter ego of the latter, such that,
Senate Bill No. 1950 amending corporate income
ultimately, it is the President who decides whether to
taxes, percentage, excise and franchise taxes.
impose the increased tax rate or not.
Verily, Article VI, Section 24 of the Constitution
does not contain any prohibition or limitation on
the extent of the amendments that may be
Issues: introduced by the Senate to the House revenue
bill.
1. Whether or not R.A. No. 9337 has violated the
provisions in Article VI, Section 24, and Article VI, 2. There is no undue delegation of legislative power
Section 26 (2) of the Constitution. but only of the discretion as to the execution of a
law. This is constitutionally permissible.
2. Whether or not there was an undue delegation of Congress does not abdicate its functions or
legislative power in violation of Article VI Sec 28 unduly delegate power when it describes what job
Par 1 and 2 of the Constitution. must be done, who must do it, and what is the
scope of his authority; in our complex economy
3. Whether or not there was a violation of the due
that is frequently the only way in which the
process and equal protection under Article III Sec.
legislative process can go forward.
1 of the Constitution.
3. Supreme Court held no decision on this matter.
Discussions:
The power of the State to make reasonable and
1. Basing from the ruling of Tolentino case, it is not natural classifications for the purposes of
the law, but the revenue bill which is required by taxation has long been established. Whether it
the Constitution to “originate exclusively” in the relates to the subject of taxation, the kind of
House of Representatives, but Senate has the property, the rates to be levied, or the amounts to
power not only to propose amendments, but also be raised, the methods of assessment, valuation
to propose its own version even with respect to and collection, the State’s power is entitled to
bills which are required by the Constitution to presumption of validity. As a rule, the judiciary
originate in the House. the Constitution simply will not interfere with such power absent a clear
means is that the initiative for filing revenue, showing of unreasonableness, discrimination, or
tariff or tax bills, bills authorizing an increase of arbitrariness.
the public debt, private bills and bills of local
application must come from the House of CONSTITUTIONAL LIMITATIONS – EQUAL
Representatives on the theory that, elected as PROTECTION CLAUSE
they are from the districts, the members of the
Matildo
House can be expected to be more sensitive to the
local needs and problems. On the other hand, the G.R. No. L-4376 May 22, 1953
senators, who are elected at large, are expected to
approach the same problems from the national ASSOCIATION OF CUSTOMS BROKERS, INC. and G.
perspective. Both views are thereby made to bear MANLAPIT, INC., petitioners-appellants,
on the enactment of such laws.
vs.

THE MUNICIPALITY BOARD, THE CITY TREASURER, The Municipal Council of Cordova, Cebu adopted
THE CITY ASSESSOR and THE CITY MAYOR, all of the Ordinance 10 which imposes an annual tax onoccupation
City of Manila, respondents-appellees. or the exercise of the privilege of installation manager and
Ordinance 11 imposing an annualtax on tin can factories
FACTS: having a maximum output capacity of 30,000 tin
cans. Shell, a foreign
The Municipal Board of Manila enact an ordinance which
according to them is based on the authority conferred by corporation, disputed the ordinances and contended that:
Section 18 (p) of Republic Act No. 409 – to tax motor and first, “installation manager” is a designation
other vehicles operating within the City of Manila.
Nonetheless, the Motor Vehicle Law which has a bearing made by the
on the power granted to the municipal corporation to
impose tax provided some limitations that it should only company and such designation cannot be deemed to be a
be limited to the exaction of property taxes. “calling” as defined in Sec 178 of
The Ordinance title refers to it as “An Ordin NIRC and that the installation manager employed by Shell
is a salaried employee which may not be taxed by the
ance Levying a Property Tax on All Motor Vehicles municipal council under the provisions of NIRC;
Operating within the City of Manila”, however, the second, the ordinance is discriminatory and hostile
character of the tax must be determined by its incidents, because there is no other person in the locality who
and if it is levied upon persons on account of their exercises such designation or calling; and third, the
business, it will be construed as a license or occupation imposition of tax on tin can factories having a 30,000
tax. Also, the ordinance exacts the tax upon all motor maximum output capacity is unlawful because it is a
vehicles operating within the City of Manila. It does not percentage tax and falls under the exceptions provided in
distinguish between a motor vehicle for hire and one the Tax Code
which is purely for private us
Issue:
ISSUE: Whether or not the Ordinance offends against the
rule of uniformity of taxation. WON an installation manager, although a salaried
employee, is liable for occupation tax
HELD:
Ruling:Yes. Even if the installation manager is a salaried
Yes. The ordinance infringes the rule of the uniformity of employee of the corporation, still it is an occupation.
taxation ordained by our Constitution. The distinction is Further, one occupation or line of business does not
important if we note that the ordinance intends to burden become exempt by being conducted with some other
with the tax only those registered in the City of Manila as occupation or business for which such tax has been
may be inferred from the word "operating" used therein. paid. The occupation tax must be paid by each individual
The word "operating" denotes a connotation which is akin engaged in a calling subject to it
to a registration, for under the Motor Vehicle Law no
motor vehicle can be operated without previous payment
of the registration fees. There is no pretense that the
ordinance equally applies to motor vehicles who come to
CLAUSE
Manila for a temporary stay or for short errands, and it
cannot be denied that they contribute in no small degree Ombajin
to the deterioration of the streets and public highway. The
fact that they are benefited by their use they should also KAPATIRAN NG MGA NAGLILINGKOD SA
be made to share the corresponding burden. And yet such PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C.
is not the case. This is an inequality which we find in the DUMLAO, GERONIMO Q. QUADRA, and MARIO C.
ordinance, and which renders it offensive to the VILLANUEVA v. HON. BIENVENIDO TAN G.R. No.
Constitution. 81311. June 30, 1988
CONSTITUTIONAL LIMITATIONS – EQUAL FACTS:

PROTECTION CLAUSE
The four consolidated cases questions the validity of the
Montalbo VAT (Executive Order 273) for being unconstitutional in
that its enactment is not allegedly within the powers of
G.R. No. L-6093 February 24, 1954 the President; that the VAT is oppressive, discriminatory,
regressive, and violates the due process and equal
THE SHELL CO. OF P.I., LTD., plaintiff-appellant,
protection clauses and other provisions of the 1987
vs. Constitution.
E. E. VAÑO, as Municipal Treasurer of the
Municipality of Cordova, Province of Cebu, defendant- The Solicitor General prays for the dismissal of the
appellee. petitions on the ground that the petitioners have failed to
show justification for the exercise of its judicial powers.
Facts:
He also questions the legal standing of the petitioners
who, he contends, are merely asking for an advisory
opinion from the Court, there being no justiciable Petitioners claim to be taxpayers adversely affected by the
controversy for resolution. continued implementation of the amendatory legislation
and it is asserted that the enactment of Republic Act
ISSUE: Whether VAT is unconstitutional. No. 7496 violates some provisions of the Constitution.
RULING: CONTENTION
No. First, the Court held that the President had authority Petitioner contends that the title of House Bill No. 34314,
to issue EO 273 as it was provided in the Provisional progenitor of Republic Act No. 7496, is a misnomer or, at
constitution that the President shall have legislative least, deficient for being merely entitled, "Simplified Net
powers. Income Taxation Scheme for the Self-Employed
Second, petitioners have failed to show that EO 273 was and Professionals Engaged in the Practice of their
issued capriciously and whimsically or in an arbitrary or Profession" (Petition in G.R. No. 109289).
despotic manner by reason of passion or personal
hostility. It appears that a comprehensive study of the ISSUE
VAT had been extensively discussed by this framers and
other government agencies involved in its Whether or not, the law was unconstitutional for
implementation, even under the past administration. violating due process.
HELD
Lastly, petitioners also failed to prove that EO 273 is
oppressive, discriminatory, unjust and regressive, in The court ruled in negative stating that there is a violation
violation of the equal protection clause. Petitioners merely of due process only when there is the inherent or
rely upon newspaper articles which are actually hearsay constitutional limitations in the exercise of the power to
and have evidentiary value. To justify the nullification of tax is transgressed. Petitioner intimates that Republic Act
a law. there must be a clear and unequivocal breach of No. 7496 desecrates the constitutional requirement that
the Constitution, not a doubtful and argumentative taxation "shall be uniform and equitable" in that the law
implication. As the Court sees it, EO 273 satisfies all the would now attempt to tax single proprietorships and
requirements of a valid tax. professionals differently from the manner it imposes the
tax on corporations and partnerships. The contention
In any event, if petitioners seriously believe that the clearly forgets, however, that such a system of income
adoption and continued application of the VAT are taxation has long been the prevailing rule even prior to
prejudicial to the general welfare or the interests of the Republic Act No. 7496.
majority of the people, they should seek recourse and
relief from the political branches of the government. The Uniformity of taxation, like the kindred concept of equal
Court, following the time-honored doctrine of separation protection, merely requires that all subjects or objects of
of powers, cannot substitute its judgment for that of the taxation, similarly situated, are to be treated alike both in
President as to the wisdom, justice and advisability of the privileges and liabilities (Juan Luna Subdivision vs.
adoption of the VAT. The Court can only look into and Sarmiento, 91 Phil. 371). Uniformity does not forfend
determine whether or not EO 273 was enacted and made classification as long as: (1) the standards that are used
effective as law, in the manner required by, and consistent therefor are substantial and not arbitrary, (2) the
with, the Constitution, and to make sure that it was not categorization is germane to achieve the legislative
issued in grave abuse of discretion amounting to lack or purpose, (3) the law applies, all things being equal, to both
excess of jurisdiction; and, in this regard, the Court finds present and future conditions, and (4) the classification
no reason to impede its application or continued applies equally well to all those belonging to the same
implementation. class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs.
PAGCOR, 197 SCRA 52).
CLAUSE What may instead be perceived to be apparent from the
amendatory law is the legislative intent to increasingly
Panes shift the income tax system towards the schedular
approach in the income taxation of individual taxpayers
TAN VS DEL ROSARIO and to maintain, by and large, the present global
treatment on taxable corporations. We certainly do not
237 SCRA 324
view this classification to be arbitrary and inappropriate.
FACTS
There is no evident intention of the law, either before or
The facts of the case states that, two consolidated special after the amendatory legislation, to place in an unequal
civil actions for prohibition challenge, in G.R. No. 109289, footing or in significant variance the income tax treatment
the constitutionality of Republic Act No. 7496, also of professionals who practice their respective professions
commonly known as the Simplified Net Income Taxation individually and of those who do it through a general
Scheme ("SNIT"), amending certain provisions of the professional partnership.
National Internal Revenue Code and, in G.R. No. 109446,
WHEREFORE, the petitions are DISMISSED. No special
the validity of Section 6, Revenue Regulations No. 2-93,
pronouncement on costs.
promulgated by public respondents pursuant to said law.
CONSTITUTIONAL LIMITATIONS – EQUAL shall be permanently exempt from paying income
PROTECTION CLAUSE taxes, and (2) for a period ending on December 31 of the
thirtieth full calendar year after the date of a cooperative's
Parba organization or conversion hereunder, or until it shall
become completely free of indebtedness incurred by
Ormoc Sugar vs Treasurer of Ormoc City (1968)
borrowing, whichever event first occurs, shall be exempt
Facts: from the payment (a) of all National Government, local
government and municipal taxes and fees, including
In 1964, the Municipal Board of Ormoc City passed franchise, filing, recordation, license or permit fees or
Ordinance 4, imposing on any and all productions of taxes and any fees, charges, or costs involved in any
CENTRIFUGA SUGAR MILLED AT THE ORMOC SUGAR court or administrative proceeding in which it may be
CO. INC. IN ormoc City a municipal tax equivalent to 1% a party, and (b) of all duties or imposts on foreign
per export sale to the United States and other foreign goods acquired for its operations…
countries. The company paid the said tax under protest.
It subsequently filed a case seeking to invalidate the With the passage of the Local Government Code, however,
ordinance for being unconstitutional. they allege that their tax exemptions have been invalidly
withdrawn. In particular, petitioners assail Sections 193
Issue: Whether the ordinance violates the equal and 234 of the Local Government Code on the ground that
protection clause. the said provisions discriminate against them, in violation
of the equal protection clause. Further, they submit that
Held:
the said provisions are unconstitutional because they
The Ordinance taxes only CENTRIFUGAL SUGAR impair the obligation of contracts between the Philippine
produced and exported by the Ormoc Sugar Co. Inc. and Government and the United States Government.
none other. At the time of the taxing ordinance’s enacted,
First they allege that said provisions unduly discriminate
the company was the only sugar central in Ormoc City.
against petitioners who are duly registered cooperatives.
The classification, to be reasonable, should be in terms
They stress that cooperatives registered under R.A. No.
applicable to future conditions as well. The taxing
6938 are singled out for tax exemption privileges under
ordinance should not be singular and exclusive as to
the Local Government Code. They maintain that electric
exclude any subsequently established sugar central, of
cooperatives registered with the NEA under P.D. No. 269,
the same class as the present company, from the coverage
as amended, and electric cooperatives registered with the
of the tax. As it is now, even if later a similar company is
Cooperative Development Authority (CDA) under R.A. No.
set up, it cannot be subject to the tax because the
6938 are similarly situated . Thus, petitioners contend
ordinance expressly points only to the company as the
that to grant tax exemptions from local government taxes
entity to be levied upon.
to only registered cooperatives under R.A. No. 6938 is a
CONSTITUTIONAL LIMITATIONS – EQUAL violation of the equal protection clause.
PROTECTION CLAUSE Second, petitioners contend that the withdrawal by the
Reales Local Government Code of the tax exemptions of
cooperatives under P.D. No. 269, as amended, is an
PHILIPPINE RURAL ELECTRIC COOPERATIVES impairment of the tax exemptions provided under the loan
ASSOCIATION, VS. THE SECRETARY, DEPARTMENT agreements. Petitioners argue that as beneficiaries of the
OF INTERIOR AND LOCAL GOVERNMENT loan proceeds, pursuant to the above provision, "all the
assets of petitioners, such as lands, buildings,
Facts: distribution lines acquired through the proceeds of the
Loan Agreements ... are tax exempt.
On May 23, 2000, a class suit was filed by petitioners in
their own behalf and in behalf of other electric
cooperatives organized and existing under P.D. No. 269
who are members of petitioner Philippine Rural Electric ISSUE:
Cooperatives Association, Inc. (PHILRECA).
WON certain sections of the Local Government Code
Section 39 of P.D. No. 269 provides for the following tax violated the constitutional rights of the petitioners.
incentives to electric cooperatives:
HELD:
SECTION 39. Assistance to Cooperatives; Exemption
from Taxes, Imposts, Duties, Fees; Assistance from the There is No Violation of the Equal Protection Clause
National Power Corporation. Pursuant to the national The equal protection clause under the Constitution
policy declared in Section 2, the Congress hereby finds means that "no person or class of persons shall be
and declares that the following assistance to cooperative deprived of the same protection of laws which is enjoyed
is necessary and appropriate: by other persons or other classes in the same place and
in like circumstances." Thus, the guaranty of the equal
(a) Provided that it operates in conformity with the protection of the laws is not violated by a law based on
purposes and provisions of this Decree, cooperatives (1) reasonable classification.

The classification of tax-exempt entities in the Local Philippine law and any tax imposed shall be paid by
Government Code is germane to the purpose of the law. the borrower with funds other than the loan
The Constitutional mandate that every local government proceeds and (2) with respect to payments made to any
unit shall enjoy local autonomy, does not mean that the contractor, its personnel or any property or commodity
exercise of power by local governments is beyond transaction entered into pursuant to the loan agreement
regulation by Congress. Thus, while each government and with the use of the proceeds thereof, taxes payable
unit is granted the power to create its own sources of under the said transactions shall be paid by the
revenue, Congress, in light of its broad power to tax, has borrower and/or beneficiary with the use of funds
the discretion to determine the extent of the taxing other than the loan proceeds.
powers of local government units consistent with the
policy of local autonomy. The quoted provision does not purport to grant any tax
exemption in favor of any party to the contract, including
In Mactan Cebu International Airport Authority v. the beneficiaries thereof. The provisions simply shift
Marcos, this Court held that the limited and restrictive the tax burden, if any, on the transactions under the
nature of the tax exemption privileges under the Local loan agreements to the borrower and/or beneficiary of
Government Code is consistent with the State policy to the loan. Thus, the withdrawal by the Local Government
ensure autonomy of local governments and the objective Code under Sections 193 and 234 of the tax exemptions
of the Local Government Code to grant genuine and previously enjoyed by petitioners does not impair the
meaningful autonomy to enable local government units to obligation of the borrower, the lender or the beneficiary
attain their fullest development as self-reliant under the loan agreements as in fact, no tax exemption
communities and make them effective partners in the is granted therein.
attainment of national goals. The obvious intention of the
law is to broaden the tax base of local government units
to assure them of substantial sources of revenue.
There is No Violation of the Non-Impairment Clause

CONSTITUTIONAL LIMITATIONS – EQUAL
It is ingrained in jurisprudence that the constitutional PROTECTION CLAUSE
prohibition on the impairment of the obligation of
Realizan
contracts does not prohibit every change in existing
laws. To fall within the prohibition, the change must not Santos v People
only impair the obligation of the existing contract, but the
impairment must be substantial. Facts:
Moreover, to constitute impairment, the law must affect a On April 15, 2003, Santos was charged of violating
change in the rights of the parties with reference to each Section 248 (B) of the NIRC or substantial
other and not with respect to non-parties. underdeclaration of income. After an exchange of
pleadings Prosecution through Tore villas issued a
A plain reading of the provision shows that it does not resolution finding probable cause and recommended the
grant any tax exemption in favor of the borrower or the filing of criminal complaint.
beneficiary either on the proceeds of the loan itself or the
properties acquired through the said loan. It simply states On January 20, 2006, Santos filed a motion to quash but
that the loan proceeds and the principal and interest of was denied by the CTA First Division. A motion for
the loan, upon repayment by the borrower, shall reconsideration was then filed but was denied. Santos
be without deduction of any tax or fee that may be then filed a motion for extension of time to file a petition
payable under Philippine law as such tax or fee will be for review at the CTA en Banc. The CTA en Banc stated
absorbed by the borrower with funds other than the that a resolution denying a motion to quash is not a
loan p proper subject of an appeal.
roceeds. Further, the provision states that with respect Issue:

to any payment made by the borrower to (1) any
contractor or any personnel of such contractor or any WON a resolution of a CTA Division denying a motion to
property transaction and (2) any commodity transaction quash is a proper subject of an appeal to the CTA en Banc.
using the proceeds of the loan, the tax to be paid, if any, Ruling:
on such transactions shall be absorbed by the
borrower and/or beneficiary through funds other than No. The CTA merely adopts the procedure for petitions for
the loan proceeds. review and appeals long established and practiced in
other Philippine courts.
Beyond doubt, the import of the tax provision in the loan
agreements cited by petitioners is twofold: (1) the General rule: The denial of a motion to quash is an
borrower is entitled to receive from and is obliged to pay interlocutory order which is not the... proper subject of an
the lender the principal amount of the loan and the appeal or a petition for certiorari.
interest thereon in full, without any deduction of the
According to Section 1, Rule 41 of the Revised Rules of
tax component thereof imposed under applicable
Court, governing appeals from the Regional Trial Courts
(RTCs) to the Court of Appeals, an appeal may be taken Predicated on Section 1, subsection (7) of Article III of the
only from a judgment or final order that completely Constitution of the Republic of the Philippines, plaintiff-
disposes of the case or of a matter therein when declared appellant contends that Ordinances Nos. 2529 and 3000,
by the Rules to be appealable. Said provision, thus, as respectively amended, are unconstitutional and illegal
explicitly states that no appeal may be taken from an in so far as its society is concerned, because they provide
interlocutory order. for religious censorship and restrain the free exercise and
enjoyment of its religious profession, to wit: the
In other words, after a final order or judgment, the court distribution and sale of bibles and other religious
should have nothing more to do in respect of the relative literature to the people of the Philippines.
rights of the parties to the case. Conversely, an order that
does not finally dispose of the case and does not end the ISSUE:
Court's task of adjudicating the parties' contentions in
determining their rights and liabilities as regards each W/N the ordinances of CIty of Manila, Nos. 3000 and
other, but obviously indicates that other things remain to 2592 as amended are constitutional and valid
be done by the Court, is interlocutory.
CONSTITUTIONAL LIMITATIONS – FREEDOM OF HELD:

RELIGION (FREE EXERCISE CLAUSE)
YES. The Ordinance No. 3000 is constitutional, valid and
Reyes of general application and not particularly directed
against institutions like the plaintiff, and it does not
G.R. No. L-9637 April 30, 1957
contain any provisions whatever prescribing religious
AMERICAN BIBLE SOCIETY, plaintiff-appellant, censorship nor restraining the free exercise and
enjoyment of any religious profession. The Court also held
vs. that with respect to Ordinance No. 3000, as amended,
which requires the obtention the Mayor's permit before
CITY OF MANILA, defendant-appellee.
any person can engage in any of the businesses, trades or
FACTS: occupations enumerated therein, We do not find that it
imposes any charge upon the enjoyment of a right granted
Plaintiff-appellant is a foreign, non-stock, non-profit, by the Constitution, nor tax the exercise of religious
religious, missionary corporation duly registered and practices.
doing business in the Philippines through its Philippine
agency established in Manila. The defendant appellee is a
municipal corporation.
Ordinance No. 2529, as amended by Ordinances Nos.
2779, 2821 and 3028 is also constitutional but is
inapplicable.
Plaintiff's Philippine agency has been distributing and
selling bibles and/or gospel portions thereof (except It may be true that in the case at bar the price asked for
during the Japanese occupation) throughout the the bibles and other religious pamphlets was in some
Philippines and translating the same into several instances a little bit higher than the actual cost of the
Philippine dialects. Later on, the acting City Treasurer of same but this cannot mean that appellant was engaged in
the City of Manila informed plaintiff that it was the business or occupation of selling said "merchandise"
conducting the business of general merchandise without for profit. For this reason We believe that the provisions
providing itself with the necessary Mayor's permit and of City of Manila Ordinance No. 2529, as amended, cannot
municipal license, in violation of Ordinance No. 3000 and be applied to appellant, for in doing so it would impair its
required plaintiff to secure the corresponding permit fee, free exercise and enjoyment of its religious profession and
and license fee based on gross sales and receipts,, worship as well as its rights of dissemination of religious
together with compromise. beliefs.
Plaintiff protested but to avoid the closing of its business The power to impose a license tax on the exercise of these
as well as the fines and penalties, plaintiff paid the license freedom is indeed as potent as the power of censorship
and permit fees while informing the defendant that a suit which this Court has repeatedly struck down.
would be taken in court. Plaintiff filed a complaint praying
that said Ordinance No. 3000 and No. 2592 as amended
be declared illegal and unconstitutional.
Plaintiff avers that they do not make profit in selling the CONSTITUTIONAL LIMITATIONS – FREEDOM OF
from the sales of its bibles but the defendant retorts RELIGION
differently.
Sales
The Court dismissed the case for lack of merit.
Tolentino v. Secretary of Finance
Plaintiff elevated the case to CA.

Arturo Tolentino v. Secretary of Finance and or exchange of goods or properties or the sale or exchange
Commissioner of Internal Revenue of services and the lease of properties purely for revenue
G.R. No. 115455; October 30, 1995 purposes. To subject the press to its payment is not to
Mendoza, J.: burden the exercise of its right any more than to make the
press pay income tax or subject it to general regulation is
FACTS: not to violate its freedom under the Constitution.
The present case involves motions seeking Anent the first contention of CREBA, it has been held in
reconsideration of the Court’s decision dismissing the an early case that even though such taxation may affect
petitions for the declaration of unconstitutionality of R.A. particular contracts, as it may increase the debt of one
No. 7716, otherwise known as the Expanded Value-Added person and lessen the security of another, or may impose
Tax Law. The motions, of which there are 10 in all, have additional burdens upon one class and release the
been filed by the several petitioners. burdens of another, still the tax must be paid unless
prohibited by the Constitution, nor can it be said that it
The Philippine Press Institute, Inc. (PPI) contends that by
impairs the obligation of any existing contract in its true
removing the exemption of the press from the VAT while
legal sense. It is next pointed out that while Section 4 of
maintaining those granted to others, the law
R.A. No. 7716 exempts such transactions as the sale of
discriminates against the press. At any rate, it is averred,
agricultural products, food items, petroleum, and medical
“even nondiscriminatory taxation of constitutionally
and veterinary services, it grants no exemption on the sale
guaranteed freedom is unconstitutional”, citing in
of real property which is equally essential. The sale of food
support of the case of Murdock v. Pennsylvania.
items, petroleum, medical and veterinary services, etc.,
which are essential goods and services was already
Chamber of Real Estate and Builders Associations, Invc.,
exempt under Section 103, pars. (b) (d) (1) of the NIRC
(CREBA), on the other hand, asserts that R.A. No. 7716
before the enactment of R.A. No. 7716. Petitioner is in
(1) impairs the obligations of contracts, (2) classifies
error in claiming that R.A. No. 7716 granted exemption to
transactions as covered or exempt without reasonable
these transactions while subjecting those of petitioner to
basis and (3) violates the rule that taxes should be
the payment of the VAT. Finally, it is contended that R.A.
uniform and equitable and that Congress shall “evolve a
No. 7716 also violates Art. VI, Section 28(1) which
progressive system of taxation”.
provides that “The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system
Further, the Cooperative Union of the Philippines (CUP),
of taxation”. Nevertheless, equality and uniformity of
argues that legislature was to adopt a definite policy of
taxation mean that all taxable articles or kinds of property
granting tax exemption to cooperatives that the present
of the same class be taxed at the same rate. The taxing
Constitution embodies provisions on cooperatives. To
power has the authority to make reasonable and natural
subject cooperatives to the VAT would, therefore, be to
infringe a constitutional policy. classifications for purposes of taxation. To satisfy this
requirement it is enough that the statute or ordinance
ISSUE: applies equally to all persons, firms, and corporations
placed in similar situation. Furthermore, the Constitution
Whether or not, based on the aforementioned grounds of does not really prohibit the imposition of indirect taxes
the petitioners, the Expanded Value-Added Tax Law which, like the VAT, are regressive. What it simply
should be declared unconstitutional (violation of religious provides is that Congress shall “evolve a progressive
and press freedom) system of taxation.” The constitutional provision has been
interpreted to mean simply that “direct taxes are . . . to be
RULING:
preferred [and] as much as possible, indirect taxes should
No. With respect to the first contention, it would suffice to be minimized.” The mandate to Congress is not to
say that since the law granted the press a privilege, the prescribe, but to evolve, a progressive tax system.
law could take back the privilege anytime without offense
to the Constitution. The reason is simple: by granting
exemptions, the State does not forever waive the exercise As regards the contention of CUP, it is worth noting that
of its sovereign prerogative. Indeed, in withdrawing the its theory amounts to saying that under the Constitution
exemption, the law merely subjects the press to the same cooperatives are exempt from taxation. Such theory is
tax burden to which other businesses have long ago been contrary to the Constitution under which only the
subject. The PPI asserts that it does not really matter that following are exempt from taxation: charitable
the law does not discriminate against the press because institutions, churches, and parsonages, by reason of Art.
“even nondiscriminatory taxation on constitutionally VI, §28 (3), and non-stock, non-profit educational
guaranteed freedom is unconstitutional.” The Court was institutions by reason of Art. XIV, §4 (3).
speaking in that case (Murdock v. Pennsylvania) of a With all the foregoing ratiocinations, it is clear that the
license tax, which, unlike an ordinary tax, is mainly for subject law bears no constitutional infirmities and is thus
regulation. Its imposition on the press is unconstitutional upheld.
because it lays a prior restraint on the exercise of its right.
The VAT is, however, different. It is not a license tax. It is
not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease
NO OFFSETTING OF TAX LIABILITY/ TAX REFUND THE CITY OF ILOILO, Mr. ROMEO V. MANIKAN, in his
capacity as the Treasurer of Iloilo City, petitioner,
Tobias
vs.
PHILEX MINING CORP. v. CIR
GR No. 125704, August 28, 1998 SMART COMMUNICATIONS, INC. (SMART),
294 SCRA 687 respondent.
BRION, J.:
FACTS. – Petitioner Philex Mining Corp. assails FACTS:

the decision of the Court of Appeals affirming the Court of
Tax Appeals decision ordering it to pay the amount of The facts of the case are not in dispute. SMART
P110.7 M as excise tax liability for the period from the 2nd received a letter of assessment from petitioner requiring it
quarter of 1991 to the 2nd quarter of 1992 plus 20% to pay deficiency local franchise and business taxes (in
annual interest from 1994 until fully paid pursuant to the amount of P764,545.29, plus interests and
Sections 248 and 249 of the Tax Code of 1977. Philex surcharges) which it incurred for the years 1997 to 2001.
protested the demand for payment of the tax liabilities SMART protested the assessment in a letter to the City
stating that it has pending claims for VAT input Treasurer. It claimed exemption from payment of local
credit/refund for the taxes it paid for the years 1989 to franchise and business taxes based on Section 9 of its
1991 in the amount of P120 M plus interest. Therefore legislative franchise under Republic Act (R.A.) No. 7294
these claims for tax credit/refund should be applied (SMARTs franchise). Under SMARTs franchise, it was
against the tax liabilities. required to pay a franchise tax equivalent to 3% of all
gross receipts, which amount shall be in lieu of all taxes.
ISSUE. – Can there be an off-setting between the SMART contends that the in lieu of all taxes clause covers
tax liabilities vis-a-vis claims of tax refund of the local franchise and business taxes.
petitioner?
SMART similarly invoked R.A. No. 7925 or the
HELD. – No. Philex's claim is an outright Public Telecommunications Policy Act (Public Telecoms
disregard of the basic principle in tax law that taxes are Act) whose Section 23 declares that any existing privilege,
the lifeblood of the government and so should be collected incentive, advantage, or exemption granted under existing
without unnecessary hindrance. Evidently, to franchises shall ipso facto become part of previously
countenance Philex's whimsical reason would render granted-telecommunications franchise. SMART contends
ineffective our tax collection system. Too simplistic, it that by virtue of Section 23, tax exemptions granted by
finds no support in law or in jurisprudence. the legislature to other holders of telecommunications
franchise may be extended to and availed of by SMART.
Taxes cannot be subject to compensation for the
simple reason that the government and the taxpayer are Petitioner denied SMART’s protest. SMART
not creditors and debtors of each other. There is a objected to the petitioner’s denial of its protest by
material distinction between a tax and debt. Debts are instituting a case against petitioner before the RTC of
due to the Government in its corporate capacity, while Iloilo City. The trial court ruled in favour of SMART, and
taxes are due to the Government in its sovereign capacity. from this judgment petitioner files this petition for review
on certiorari.
There can be no off-setting of taxes against the
claims that the taxpayer may have against the ISSUE:
government. A person cannot refuse to pay a tax on the
ground that the government owes him an amount equal WoN SMART is indeed exempt from the payment
to or greater than the tax being collected. The collection of of local franchise and business taxes.
a tax cannot await the results of a lawsuit against the RULING:
government.
NO. In one case, the SC has ruled that a tax
It must be noted that a distinguishing feature of
exemption cannot arise from vague inference. Tax
a tax is that it is compulsory rather than a matter of
exemptions must be clear and unequivocal. A taxpayer
bargain. Hence, a tax does not depend upon the consent
claiming a tax exemption must point to a specific
of the taxpayer. provision of law conferring on the taxpayer, in clear and
plain terms, exemption from a common burden. Any
doubt whether a tax exemption exists is resolved against
the taxpayer.
CLAIM FOR EXEMPTION UNDER SECTION 9 OF

CONSTITUTIONAL LIMITATIONS – TAX EXEMPTIONS SMART’S FRANCHISE
Tejido Section 9 of SMARTs franchise states, in part:
G.R. No. 167260 February 27, 2009 Section 9. Tax provisions. The grantee, its successors or
assigns shall be liable to pay the same taxes on their real
estate buildings and personal property, exclusive of' this stated in clear and unequivocal language too plain to be
franchise, as other persons or corporations which are now beyond doubt or mistake.
or hereafter may be required by law to pay. In addition
thereto, the grantee, its successors or assigns shall pay a The decision of the RTC is reversed.
franchise tax equivalent to three percent (3%) of all gross
CONSTITUTIONAL LIMITATIONS – TAX EXEMPTIONS
receipts of the business transacted under this franchise
by the grantee, its successors or assigns and the said Acosta
percentage shall be in lieu of all taxes on this franchise or
earnings thereof: DIGITAL TELECOMMUNICATIONS, INC. vs. CITY
GOVERNMENT OF BATANGAS- Real Property Tax
The in lieu of all taxes clause basically exempts
SMART from paying all other kinds of taxes for as long as FACTS:
it pays the 3% franchise tax; it is the franchise tax that
shall be in lieu of all taxes, and not any other form of tax. Petitioner was granted a 25-year franchise to install
Franchise taxes on telecommunications companies, telecommunications systems under a law which states
however, have been abolished by R.A. No. 7716 or the that “The grantee shall be liable to pay the same taxes on
Expanded Value-Added Tax Law (E-VAT Law), which was its real estate, buildings, and personal property exclusive
enacted by Congress on January 1, 1996. To replace the of this franchise. As they were not being issued a Mayor’s
franchise tax, the E-VAT Law imposed a 10% value-added permit, Petitioner paid the Real Property Tax under
tax on telecommunications companies under Section 108 protest arguing that the phrase “exclusive of this
of the National Internal Revenue Code. The in lieu of all franchise” means that only the real properties not used in
taxes clause in the legislative franchise of SMART has furtherance of its franchise are subject to Real Property
thus become functus officio, made inoperative for lack of Tax while those real properties which are used in its
a franchise tax. telecommunications business are exempt from Real
Property Tax.
SMART’s claim for exemption from local business
and franchise taxes based on Section 9 of its franchise is ISSUE:
therefore unfounded. Are Petitioner’s real properties used in its
CLAIM FOR EXEMPTION UNDER THE PUBLIC telecommunications business exempt from Real Property
TELECOMS ACT Tax?
Section 23 of the Public Telecommunications Act HELD:

provides, in part: NO. Petitioner’s real properties, whether or not used in its
Section 23. Equality of Treatment in the telecommunications business, are subject to Real
Telecommunications Industry. Any advantage, favor, Property Tax. The phrase “exclusive of this franchise”
privilege, exemption, or immunity granted under existing qualifies the term “personal property.” This means that
franchises, or may hereafter be granted, shall ipso facto Petitioner’s legislative franchise, which is an intangible
become part of previously granted telecommunications personal property, shall not be subject to taxes. This is to
franchise and shall be accorded immediately and put franchise grantees in parity with non-franchisees as
unconditionally to the grantees of such franchises: the latter obviously do not have franchises which may
potentially be subject to realty tax. There is nothing in the
Whether Section 23 of the cited law extends tax first sentence of Section 5 which expressly or even
exemptions granted by Congress to new franchise holders impliedly exempts Petitioner from Real Property Tax.
to existing ones has been answered in the negative in the Petitioner’s reliance on the BLGF’s opinion stating that
case of PLDT v. City of Davao. The term exemption in real properties owned by telecommunications companies
Section 23 of the Public Telecoms Act does not mean tax are exempt from Real Property Tax is without basis as the
exemption; rather, it refers to exemption from certain BLGF has no authority to rule on claims for exemption
regulatory or reporting requirements imposed by from Real Property Tax.
government agencies such as the National
Telecommunications Commission. The thrust of the
Public Telecoms Act is to promote the gradual
deregulation of entry, pricing, and operations of all public
telecommunications entities, and thus to level the playing
field in the telecommunications industry. The language of
Section 23 and the proceedings of both Houses of
Congress are bereft of anything that would signify the
grant of tax exemptions to all telecommunications
entities. Intent to grant tax exemption cannot therefore be
discerned from the law; the term exemption is too general
to include tax exemption and runs counter to the
requirement that the grant of tax exemption should be


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TAXATION HAS THE POWER TO BUILD AND DESTROY system of net income taxation as regards professional and

Petitioner's health care agreement is primarily a contract

IMPORTANCE OF THE LIFE BLOOD DOCTRINE

Commissioner of Internal Revenue vs Algue Inc., and

GR No. L-28896 February 17, NATIONAL POWER CORPORATION, petitioner,

No, The Supreme Court agrees with the respondent court

2|First Batch :: Tax-1 Digests

3|First Batch :: Tax-1 Digests

FATCS: The tax provision is not inconsistent with, nor foreign to

RULING. Held: No, it is not.

Yes. The basic defect in the plaintiff's position is his

FACTS: Taxation is the rule and exemption is the exception. Any

7|First Batch :: Tax-1 Digests

RULING: G.R. No. 155650 July 20, 2006

8|First Batch :: Tax-1 Digests

The term "ports" includes seaports and airports. The MIAA

9|First Batch :: Tax-1 Digests

HELD: Whether or not Ordinance No. 6537 is a valid exercise of

11 | F i r s t Batch :: Tax-1 Digests

ISSUE: Whether or not pawnshops may be considered as CONSTITUTIONAL LIMITATIONS – EQUAL

ABAKADA GURO PARTY LIST VS EXECUTIVE

14 | F i r s t Batch :: Tax-1 Digests

CONSTITUTIONAL LIMITATIONS – EQUAL FACTS:

17 | F i r s t Batch :: Tax-1 Digests

There is No Violation of the Non-Impairment Clause

roceeds. Further, the provision states that with respect Issue:

CONSTITUTIONAL LIMITATIONS – FREEDOM OF HELD:

19 | F i r s t Batch :: Tax-1 Digests

FACTS. – Petitioner Philex Mining Corp. assails FACTS:

CLAIM FOR EXEMPTION UNDER SECTION 9 OF

Section 23 of the Public Telecommunications Act HELD:

22 | F i r s t Batch :: Tax-1 Digests

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