Tax Digests p.1-3

8/11/2019 Tax Digests p.1-3

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PAL vs.ROMEO F. EDU in his capacity as Land TransportationCommissioner, and UBALDO CARBONELL, in his capacity asNational Treasurer

The disputed registration fees were imposed by Commissioner Elevate

pursuant to Section 8, RA4136, the Land Transportation and Traffic

Code.

(PAL) is a corporation is engaged in the air transportation business

under a legislative franchise. Under its franchise, PAL is exempt from

the payment of taxes.

On the strength of an opinion of the Secretary of Justice PAL has, since

1956, not been paying motor vehicle registration fees.

1971, however, appellee Commissioner Elevate issued a regulation

requiring all tax exempt entities, among them PAL to pay motor

vehicle registration fees.

Despite PAL's protestations, appellee refused to register the

appellant's motor vehicles unless the amounts imposed were paid.

PAL thus paid, under protest, P19,529.75 as registration fees of its

motor vehicles.

After paying under protest, PAL wrote to Commissioner Edu

demanding a refund of the amounts paid, invoking Calalang v. Lorenzo

where it was held that motor vehicle registration fees are in reality

taxes from the payment of which PAL is exempt by virtue of its

legislative franchise.

Edu denied request for refund based on Republic v. Philippine Rabbit

Bus, that motor vehicle registration fees are regulatory and not

revenue measures and, therefore, do not come within the exemption

granted to PAL under its franchise.

PAL filed the complaint against LTC Commissioner Edu and National

Treasurer Carbonell

Respondents contend: Registration fees of motor vehicles are nottaxes, but regulatory fees imposed as an incident of the exercise of the

police power of the state. Yes, Act 4271 exempts PAL from the

payment of any tax except two per cent on its gross revenue or

earnings, but it does not exempt the plaintiff from paying regulatory

fees, such as motor vehicle registration fees.

TC: Ruled for LTC, PAL lost.

ISSUE: What is the nature of motor vehicle registration fees? Are theytaxes or regulatory fees? TAX!!

Motor vehicle registration fees were matters originally governed by

the Revised Motor Vehicle Law. Today, the matter is governed by Rep.

Act 4136 [1968]), the Land Transportation Code.

Section 73 of Commonwealth Act 123 states:

Section 73. Disposal of moneys collected.Twenty per centum of

the money collected under the provisions of this Act shall accrue

to the road and bridge funds of the different provinces and

chartered cities in proportion to the centum shall during the

next previous year and the remaining eighty per centum shall be

deposited in the Philippine Treasury to create a special fund for

the construction and maintenance of national and provincial

roads and bridges. as well as the streets and bridges in the

chartered cities to be alloted by the Secretary of Public Works

and Communications for projects recommended by the Director

of Public Works in the different provinces and chartered cities.

....

Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Mortgage. CollectedMonies collected under

the provisions of this Act shall be deposited in a special trust

account in the National Treasury to constitute the Highway Special

Fund, which shall be apportioned and expended in accordance with

the provisions of the" Philippine Highway Act of 1935. "Provided,

however, That the amount necessary to maintain and equip the

Land Transportation Commission but not to exceed twenty per

cent of the total collection during one year, shall be set aside for the

purpose. (As amended by RA 64-67, approved August 6, 1971).


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Thus, the legislative intent and purpose behind the law requiringowners of vehicles to pay for their registration is mainly to raisefunds for the construction and maintenance of highways and to amuch lesser degree, pay for the operating expenses of theadministering agency.

Fees may be properly regarded as taxes even though they also serve as

an instrument of regulation

If the purpose is primarily revenue, or if revenue is, at least, one of the

real and substantial purposes, then the exaction is properly called a tax.Such is the case of motor vehicle registration fees. Section 591-593Land Transportation codes shows that the legislators had in mind a

regulatory tax as the law refers to the imposition on the registration,

operation or ownership of a motor vehicle as a "tax or fee." Though

nowhere in Rep. Act 4136 does the law specifically state that the

imposition is a tax, Section 591593). speaks of "taxes." or fees ... for the

registration or operation or on the ownership of any motor vehicle, or

for the exercise of the profession of chauffeur ..." making the intent toimpose a tax more apparent. Thus, even Rep. Act 5448 cited by the

respondents, speak of an "additional" tax," where the law could havereferred to an original tax and not one in additionto the tax already

imposed on the registration, operation, or ownership of a motor vehicle

under Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136

were merely a regulatory fee, the imposition in Rep. Act 5448 need not

be an "additional" tax.

Vehicle registration fees were originally intended only for rigid purposes

in the exercise of the State's police powers. Over the years, however, as

vehicular traffic exploded in number and motor vehicles became

absolute necessities without which modem life as we know it would

stand still, Congress found the registration of vehicles a very convenient

way of raising much needed revenues. Without changing the earlier

deputy. of registration payments as "fees," their nature has become that

of "taxes."

Thus, may the respondent administrative agency be required to refund

the paid in 1971? NO.

NB.PAL's current franchise now however is clear and specific. PAL isnow exempt from the payment of any tax, fee, or other charge on the

registration and licensing of motor vehicles. Such payments are already

included in the basic tax or franchise tax provided in Subsections (a) and

(b) of Section 13, P.D. 1590, and may no longer be exacted.

DECISION: WHEREFORE, the petition is hereby partially GRANTED. Theprayed for refund of registration fees paid in 1971 is DENIED. (LTFRB) isenjoined from collecting any tax, fee, or other charge on the registration

and licensing of PALs motor vehicles from April 9, 1979 as provided inPresidential Decree No. 1590.


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PROGRESSIVE DEVT CORP vs.QUEZON CITY1989

City Council of QC adopted Ordinance No. 7997, Series of 1969, theMarket Code of Quezon City, Section 3 of which provided:

Sec. 3. Supervision Fee.- Privately owned and operated public

markets shall submit monthly to the Treasurer's Office, a certified

list of stallholders showing the amount of stall fees or rentals paiddaily by each stallholder, ... and shall pay 10% of the gross receipts

from stall rentalsto the City, ... , as supervision fee

The Market Code was thereafter amended by Ordinance No. 9236, Seriesof 1972, which reads:

SECTION 1. There is hereby imposed (5 %) tax on gross receipts on

rentals or lease of space in privately-owned public markets in

Quezon City. xxx xxx xxx

SECTION 3. For the effective implementation of this Ordinance,

owners of privately owned public markets shall submit ... a

monthly certified list of stallholders of lessees of space in their

markets xxx

In case of failure of the owners of the market spaces to pay the tax for

three consecutive months, the City shall revoke the permit of the

privately-owned market to operate.

Petitioner Progressive Devt Corp, owner and operator of a public market

known as the "Farmers Market & Shopping Center" filed a Petition forProhibition with Preliminary Injunction against respondent bec the

supervision fee or license tax imposed by the ordinances is in reality a

tax on income which QC may not impose, the same being expresslyprohibited by RA 2264

QC answered: it had authority to enact the ordinances, maintainingthat the tax on gross receipts imposed therein is not a tax on income.

SolGen added that the tax on gross receipts was not a tax on income but

one imposed for the enjoyment of the privilege to engage in a particular

trade or business which was within the power of QC to impose.

LC: dismissed the petition: the questioned imposition is not a tax onincome, but rather a privilege tax or license fee which local governments,

like QC, are empowered to impose and collect.

ISSUE: Whether the tax imposed on gross receipts of stall rentals isproperly characterized as partaking of the nature of an income tax or,

alternatively, of a license fee.

HELD: LICENSE FEE, in favor of QC!

Section 12, Article III RA 537, the Revised Charter of Quezon City,

authorizes the City Council:

(b) To provide for the levy and collection of taxes and other

city revenues and apply the same to the payment of city

expenses in accordance with appropriations.

(c) To tax, fix the license fee, and regulate the business ofthe

following:

...preparation and sale of meat, poultry, fish, game, butter, cheese,

lard vegetables, bread and other provisions.

The scope of legislative authority conferred upon the QC Council in

respect of businesses like that of the petitioner, is comprehensive: the

grant of authority is not only" [to] regulate" and

"fix the license fee," but also " to tax"

Also, RA 2264, the Local Autonomy Act, provides that:

Any provision of law to the contrary notwithstanding, all chartered

cities, municipalities and municipal districts shall have authority to

impose municipal license taxes or fees upon persons engaged in any

occupation or business, or exercising privileges in chartered cities,

municipalities or municipal districts by requiring them to secure

licenses at rates fixed by the municipal board or city council of the

city, the municipal council of the municipality, or the municipal

district council of the municipal district; to collect fees and charges

for service rendered by the city, municipality or municipal district;to regulate and impose reasonable fees for services rendered in


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connection with any business, profession or occupation being

conducted within the city, municipality or municipal district and

otherwise to levy for public purposes just and uniform taxes

licenses or fees: ...

Thus, RA 2264 confers upon local governments broad taxing authority

extending to almost "everything, excepting those which are mentioned

therein," provided that the tax levied is "for public purposes, just anduniform," does not transgress any constitutional provision and is not

repugnant to a controlling statute.

Both the Local Autonomy Act and the Charter of QC clearly show that

respondent is authorized to fix the license fee collectible from and

regulate the business of petitioner as operator of a privatelyowned

public market.

Petitioner, insists: "supervision fee" collected from rentals, being a

return from capital invested in the construction of the Farmers Market,

practically operates as a tax on income, 1 of those expressly exceptedfrom respondent's taxing authority, and thus beyond the latter's

competence. Petitioner cites the same Section 2 of the Local Autonomy

Act :

... Provided, however, That no city,municipality or municipal

districtmay levy or impose any of the following: xxx xxx xxx

(g) Taxes on income of any kind whatsoever;

SC HELD:The term "tax" frequently applies to all kinds of exactions ofmonies which become public funds. It is often loosely used to include

levies for revenue as well as levies for regulatory purposes such that

license fees are frequently called taxes although license fee is a legal

concept distinguishable from tax: the former is imposed in the exercise

of police power primarily for purposes of regulation, while the latter is

imposed under the taxing power primarily for purposes of raising

revenues. Thus, if the generating of revenue is the primary purpose and

regulation is merely incidental, the imposition is a tax; but if regulation

is the primary purpose, the fact that incidentally revenue is also

obtained does not make the imposition a tax.

To be considered a license fee, the imposition questioned must relate to

an occupation or activity that so engages the public interest in health,

morals, safety and development as to require regulation for the

protection and promotion of such public interest; the imposition must

also bear a reasonable relation to the probable expenses of regulation,

taking into account not only the costs of direct regulation but also its

incidental consequences as well. Accordingly, a charge of a fixed sum

which bears no relation at all to the cost of inspection and regulation

may be held to be a tax rather than an exercise of the police power.

ITCAB, the "Farmers Market & Shopping Center" was built by virtue of

Resolution No. 7350.The same resolution imposed upon petitioner, as a

condition for continuous operation, the obligation to "abide by and

comply with the ordinances, rules and regulations prescribed for the

establishment, operation and maintenance of markets in Quezon City."

The "Farmers' Market and Shopping Center" being a public market in

the' sense of a market open to and inviting the patronage of the general

public, even though privately owned, petitioner's operation thereofrequired a license issued by the respondent City, the issuance of which,

applying the standards set forth above, was done principally in the

exercise of the respondent's police power. The operation of a privately

owned market is, as correctly noted by the Solicitor General, equivalent

to or quite the same as the operation of a government-owned market;

both are established for the rendition of service to the general public,

which warrants close supervision and control by the respondent City,

for the protection of the health of the public.

Thus, the (5%) tax imposed in Ordinance No. 9236 constitutes, not a tax

on income,not a cityincome tax but rather a license tax or fee for theregulationof the business in which the petitioner is engaged. While it istrue that the amount imposed by the questioned ordinances may be

considered in determining whether the exaction is really one for

revenue or prohibition, instead of one of regulation under the police

power, it nevertheless will be presumed to be reasonable. Local'

governments are allowed wide discretion in determining the rates of

imposable license fees even in cases of purely police power measures, in

the absence of proof as to particular municipal conditions and the nature

of the business being taxed as well as other detailed factors relevant to

the issue of arbitrariness or unreasonableness of the questioned rates.


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Petitioner has neither shown that the rate of the gross receipts tax is so

unreasonably large and excessive and so grossly disproportionate to the

costs of the regulatory service being performed by the respondent as to

compel the Court to characterize the imposition as a revenue measure

exclusively. The lower court correctly held that the gross receipts from

stall rentals have been used only as a basis for computing the fees or

taxes due respondent to cover the latter's administrative expenses. The

use of the gross amount of stall rentals as basis for determining the

collectible amount of license tax, does not by itself, upon the one hand,

convert or render the license tax into a prohibited city tax on income.

Upon the other hand, it has not been suggested that such basis has no

reasonable relationship to the probable costs of regulation and

supervision of the petitioner's kind of business. For, ordinarily, the

higher the amount of stall rentals, the higher the aggregate volume of

foodstuffs and related items sold in petitioner's privately owned market;

and the higher the volume of goods sold in such private market, the

greater the extent and frequency of inspection and supervision that may

be reasonably required in the interest of the buying public. Moreover,

what we started with should be recalled here: the authority conferredupon the respondent's City Council is notmerely "to regulate" but also

embraces the power "to tax" the petitioner's business.

Petitioner argues: respondent is without power to impose a grossreceipts tax for revenue purposes absent an express grant from the

national government. As a general rule, there must be a statutory grant

for a local government unit to impose lawfully a gross receipts tax, that

unit not having the inherent power of taxation. The rule, however, finds

no application in the instant case where what is involved is an exercise

of, principally, the regulatory power of the respondent City and where

that regulatory power is expressly accompanied by the taxing power.

Held:It is a license fee. A LICENSE FEE is imposed in the exercise of thepolice power primarily for purposes of regulation, while TAX is imposed

under the taxing power primarily for purposes of raising revenues.

If the generating of revenue is the primary purpose and regulation is

merely incidental, the imposition is a tax; but if regulation is the primary

purpose, the fact that incidentally, revenue is also obtained does not

make the imposition a tax.

To be considered a license fee, the imposition must relate to an

occupation or activity that so engages the public interest in health,

morals, safety, and development as to require regulation for the

protection and promotion of such public interest; the imposition must

also bear a reasonable relation to the probable expenses of regulation,

taking into account not only the costs of direct regulation but also its

incidental consequences.

In this case, the Farmers Market is a privately-owned marketestablished for the rendition of service to the general public. It warrants

close supervision and control by the City for the protection of the health

of the public by insuring the maintenance of sanitary conditions,

prevention of fraud upon the buying public, etc.

Since the purpose of the ordinance is primarily regulation and not

revenue generation, the tax is a license fee. The use of the gross amount

of stall rentals as basis for determining the collectible amountof license tax does not, by itself, convert the license tax into a prohibited

tax on income.

Such basis actually has a reasonable relationship to the probable costs of

regulation and supervision of Progressives kind of business, sinceordinarily, the higher the amount of rentals, the higher the volume of

items sold.

The higher the volume of goods sold, the greater the extent and

frequency of supervision and inspection may be required in the interest

of the buying public.


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OSMEA vs. ORBOS G.R. No. 99886March 31, 1993

FACTS

P.D. 1956 creating a Special Account in the General Fund, designated as

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

reimburse oil companies for cost increases in crude oil and importedpetroleum products resulting from exchange rate adjustments and from

increases in the world market prices of crude oil.

Subsequently, the OPSF was reclassified into a "trust liability account," in

virtue of E.O. 1024,7and ordered released from the National Treasury to

the Ministry of Energy. The same Executive Order also authorized the

investment of the fund in government securities, with the earnings from

such placements accruing to the fund.

President Corazon C. Aquino, amended P.D. 1956. She promulgated

Executive Order No. 137 on February 27, 1987, expanding the groundsfor reimbursement to oil companies for possible cost underrecovery

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

products, the amount of the underrecovery being left for determination

by the Ministry of Finance.

The petition further avers that the creation of the trust fund violates

29(3), Article VI of the Constitution. The petitioner argues that "the

monies collected pursuant to P.D. 1956, as amended, must be treated as

a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a

special tax is collected for a specific purpose, the revenue generated

therefrom shall 'be treated as a special fund' to be used only for thepurpose indicated, and not channelled to another government objective."10Petitioner further points out that since "a 'special fund' consists of

monies collected through the taxing power of a State, such amounts

belong to the State, although the use thereof is limited to the special

purpose/objective for which it was created."

Issues:

1.WON powers granted to the ERB under PD 1956 partake of the natureof the taxation power of the State No

2.WON there was undue delegation of legislative power No; thedelegation was valid.

RULING

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

minimizing the frequent price changes brought about by exchangerate adjustment and/or changes in world market prices of crude oil and

imported petroleum products." Under P.D. No. 1956, as amended by

Executive Order No. 137 dated 27 February 1987, this Trust Account

may be funded from any of the following sources:

a) Any increase in the tax collection from ad valorem tax or customs duty

imposed on petroleum products subject to tax under this Decree arising

from exchange rate adjustment, as may be determined by the Minister of

Finance in consultation with the Board of Energy;

b) Any increase in the tax collection as a result of the lifting of taxexemptions of government corporations, as may be determined by the

Minister of Finance in consultation with the Board of Energy;

c) Any additional amount to be imposed on petroleum products to

augment the resources of the Fund through an appropriate Order that

may be issued by the Board of Energy requiring payment of persons or

companies engaged in the business of importing, manufacturing and/or

marketing petroleum products;

d) Any resulting peso cost differentials in case the actual peso costs paid

by oil companies in the importation of crude oil and petroleum productsis less than the peso costs computed using the reference

foreign exchange rate as fixed by the Board of Energy.

Hence, while the funds collected may be referred to as taxes, they are

exacted in the exercise of the police power of the State. Moreover, that

the OPSF is a special fund is plain from the special treatment given it by

E.O. 137. It is segregated from the general fund; and while it is placed in

what the law refers to as a "trust liability account," the fund nonetheless

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

satisfied that these measures comply with the constitutional description

of a "special fund." Indeed, the practice is not without precedent.


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With regard to the alleged undue delegation of legislative power, the

Court finds that the provision conferring the authority upon the ERB to

impose additional amounts on petroleum products provides a sufficient

standard by which the authority must be exercised. In addition to the

general policy of the law to protect the local consumer by stabilizing and

subsidizing domestic pump rates, 8(c) of P.D. 1956 expressly

authorizes the ERB to impose additional amounts to augment the

resources of the Fund. What petitioner would wish is the fixing of some

definite, quantitative restriction, or "a specific limit on how much to tax."19The Court is cited to this requirement by the petitioner on the premise

that what is involved here is the power of taxation; but as already

discussed, this is not the case. What is here involved is not so much the

power of taxation as police power. Although the provision authorizing

the ERB to impose additional amounts could be construed to refer to the

power of taxation, it cannot be overlooked that the overriding

consideration is to enable the delegate to act with expediency in carrying

out the objectives of the law which are embraced by the police power of

the State.

For a valid delegation of power, it is essential that the law delegating the

power must be (1) complete in itself, that is it must set forth the policy to

be executed by the delegate and (2) it must fix a standard limits ofwhich are sufficiently determinate or determinable to which the

delegate must conform.

The standard, as the Court has already stated, may even be implied. In

that light, there can be no ground upon which to sustain the petition,

inasmuch as the challenged law sets forth a determinable standard

which guides the exercise of the power granted to the ERB. By the same

token, the proper exercise of the delegated power may be tested withease. It seems obvious that what the law intended was to permit the

additional imposts for as long as there exists a need to protect the

general public and the petroleum industry from the adverse

consequences of pump rate fluctuations. "Where the standards set up for

the guidance of an administrative officer and the action taken are in fact

recorded in the orders of such officer, so that Congress, the courts and

the public are assured that the orders in the judgment of such officer

conform to the legislative standard, there is no failure in the

performance of the legislative functions."


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COMPAIA GENERAL DE TABACOS DE FILIPINAS,vs.CITY OFMANILA,1907

Plaintiff sought to recover of the sum of P134,444.97, which it alleged

was illegally collected by the defendant from the plaintiff as taxes for the

years 1898, 1899, 1900, 1901, 1902, and 1903. Parties later entered

into a stipulation of facts (in Espanol)

ISSUE:Can the sum be recovered?

HELD: NO

- During the years 1898, 1899, 1900, 1901, 1902, and 1903 the

plaintiff paid to the Collector of Internal Revenue and various

provinces, in addition to the contribucion industrial, a contribucion

territorial and contribucion urbana.

- Plaintiff claims that it was only required, under the laws in force in

the Phils, to pay the industrial tax and this to be based upon the

dividends declared by said plaintiff in favor of its stockholders. This

contention of the plaintiff is based upon paragraph 4 of tarifa

primera of the Industrial Tax Regulations, dated June 19, 1890. This

regulation is as follows:

Banks and commercial corporations shall pay "5 per cent of the

profits or dividends which may be distributed to the

stockholders according to their respective balances."

- Thus, plaintiff argued that when banks and commercial associations

have paid an industrial tax of 5 per cent upon the dividendsdeclared, that they will thereby be relieved from the necessity of

paying a territorialand an urbanatax. Therefore, under this law the

plaintiff, being a commercial association, cannot be required to pay

more taxes in the form of territorialand urbanataxes after having

paid an industrial tax in accordance with the above provisions of

said Industrial Tax Regulations.

- The case, however, presents another difficulty. This action was

brought to recover an excess of taxes from the city of Manila. By the

agreed statement of facts whatever excess was paid, if any, was paid

to the Dept of Internal Revenue. It is not shown that the Dept of

Internal Revenue collected this money for the city of Manila; neither

do the stipulated facts show that the city of Manila received all the

money so paid. Upon the contrary, however, the stipulated facts in

various parts of the Philippine Islands.

- Note that during the colonial period fiscal system in the InsularGovernment was a highly centralized institution. There was oneGovernment Treasury.All taxes levied and assessed by the

Government were Insular Taxes and all taxes collected throughoutthe Philippine Archipelago were covered into the Insular Treasury.

When a tax levied by the general law was paid, it was paid oncefor all.The different governmental entities, such as provinces,etc., under the Spanish Government were not supported bytaxes collected by themselves, for themselves, but weresupported by appropriations out of the general fund socollected for the Central Government. This method of collectingtaxes was somewhat modified later.Section 1 (8) of Act No. 133,provided:

SEC. 18. In all provides organized under this act the urbana tax, theindustrial tax, the stamp tax, and the sum collected under the

regulations for the cutting of timber upon public lands, and all other

taxes known as inland-revenue taxes, shall cease to be levied and

collected as revenue for the Central Government of the Archipelago

from and after the 30th of June, 1901, and shall thereafter be

collected as provincial and municipal taxes by the provincial

treasurers. One-half of the taxes so collected shall be paid into the

treasuries of the respective municipalities in which they shall be

collected, etc.

- It is clear, then, that whatever taxes the plaintiff paid prior to the

30th day of June, 1901, to the Province of Manila, or the other

provinces of the Archipelago, were paid to the agent of the Central

Government and certainly the city of Manila should not be required

to refund said taxes, even granting that they were illegally collected.

- With reference to the taxes paid by the plaintiff subsequentto the

30th of June, 1901, in Manila and the various provinces, granting

that they were illegally collected, and granting that the city of Manila

collected a part of them (which is not shown in the stipulated facts),

certainly the city of Manila should not be called upon to refund more


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than it actually received. The stipulated facts do not show what part

of the taxes paid to the plaintiff was paid to the city of Manila and

what part to the various provinces. For this reason, granting that the

plaintiff has paid more taxes than it should be required to pay under

the law, we are unable to say from the record what portion of such

illegal collections, if any, was collected or received by the city of

Manila.

- In the last paragraph of the stipulated facts of the plaintiff admitsthat it paid "en concepto de contribucion industrial," corresponding to

the years 1901, 1902, and 1903, the sum of 88,698 pesos as taxes

imposed upon the dividends declared by the said plaintiff, in

accordance with paragraph 4 of tariff 1 of the Industrial Tax

Regulations. This is a part of the amount which the plaintiff attempts

to recover. It seems from the admission of the plaintiff in its

stipulated facts that this amount was collected in accordance with

the law of June 19, 1890. If that is so, certainly the plaintiff should

not be permitted to recover this particular amount.

- From the stipulated facts it appears that the plaintiff has been

required to pay taxes which it should not have been required to payin accordance with the provisions of the law of June 19, 1890. It does

not appear, however, to whom these illegal taxes have been paid. It

does not appear that all, or any part thereof, were paid to the city of

Manila.

Case remanded to the lower court for a new trial, in order that the

plaintiff may have an opportunity to show what part, if any, of such

illegal taxes were actually collected and received by the city of Manila.


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Republic v. Bacolod-Murcia Milling Co., Inc., et al. (1966)

Parties: Bacolod-Murcia Milling Co., Inc., Ma-ao Sugar Central Co., Inc.,

Talisay-Silay Milling Co., petitioners, vThe Republic of the Philippines,respondent

Summary:

The three sugar centrals are sister companies under single

ownership and management.

They were required to pay 10 centavos per picul (around 5-6

kilos) of sugar collected for 5 crop years under Sec. 15 of RA 632.

The sugar tax was levied to create Philsugin (Philippine Sugar

Institute), to conduct research and development for sugar and

sugar by-products.

Philsugin acquired the Insular Sugar Refinery and lost a lot of

money

Appellants stopped paying the levy because they said that the

purchase was unauthorized by RA 632. They had unpaid

balances

The Court of First Instance said that they had to pay the balance,and the Supreme Court affirmed its decision

Definitions:

Special assessments: a levy on property where the propertyagainst which it is levied derives special benefits from how the

money was used (in normal people speak: whatever this tax is

spent on will benefit those who paid the tax)

RA 632: Philippine Sugar Institute charter; where Philsugin is asemi-public corporation meant to advance the Philippine sugar

industry (research, marketing, etc.) o Section 15 of RA 632: toraise funds for Philsugin, annual sugar production will be levied

10c per picul of sugar collected for 5 crop years, (c.y. 1951-52 to

1956). The amount will be borne by sugar centrals and sugar

cane planters

Facts:

CFI case:o Appellants and another sugar central, Central Azucarera

del Danao, had unpaid balance:

Bacolod-Murcia: P216,070.50

Ma-ao: P235,800.20

Talisay-Silay: P208,193.74

Danao: P48,059.77

o 3 Sept 1951: Philsugin acquired the Insular Sugar

Refinery through the sugar tax imposed by RA632

o 1954-57: Philsugin lots a LOT of money, and at that time,70% of Philsugins time and effort had gone into the

operation of Insular Sugar Refinery

o Appellants contend that the purchase of the Insular Sugar

Refinery, using money from the Philsugin fun, was not

authorized by RA632 and refused to contribute to it

10c/picul is a special assessment, not a tax, and

property owners who pay the assessment donthave to be forced to pay if the proceeds have

been misapplied to their prejudiceo Lower courts Decision: Apellants are liable for special

assessments and have to pay the balance

Appellants are liable under RA632

Section 3 authorizes Philsugin to buy things for sugar and its by-products, including sugar refineries

Decision to purchase was made the board of

directors, and the appellants were duly

represented by the Philippine Sugar Association,

of which the appellants are members

All of Philsugins transactions pass through theGeneral Auditor, the Office of the President, and

other pertinent authorities and safeguards in

order to ensure that purchases (including that of

the refinery) had been legal and proper

Appellants refusal to pay is like a taxpayerrefusing to pay taxes; its dangerous to allow their

motion because they were essentially taking thelaw into their own hands


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In the PRESENT, the appellants say that:

o Under Section 3 of RA632, Philsugin had no authority to

acquire the refinery. Philsugin is empowered to purchase

a central experiment station or at most a sugarcentral, not a sugar refinery.

Cited Collector v Ledesma: definition; sugar

central=sugar mill that manufacture sugar for anumber of plantations

o Refusal to pay an assessment is different from refusal topay a tax, since a tax is different from an assessment

o The imposition of a special assessment on property

owners who wont benefit from it is a denial of dueprocess

Issue:Did the CFI make the right call in ruling that the defendants areliable for the special assessments under RA 632?

Ruling: Supreme Court finds for the appellee; CFI decision is AFFIRMED,

with costs

Cited Lutz v Araneta: Section 6 of CA 567 (sugar adjustmentact) levies a tax to accrue to the Sugar Adjustment andStabilization Fund o SC said that the assailed tax was leviedto help rehabilitate and stabilize the threatened sugarindustry (history lesson: before, the Philippines was a sugarcartel with the US as its top customer, but the Act thatenabled it to supply the US with sugar was expiring)

o The sugar industry was a leading exporter andemployer and a prime source of foreign exchangeand state wealth such that its welfare redounds togeneral welfare

o The assailed act is therefore an exercise of POLICEPOWER because of its importance to general welfare

Like in the Lutz v Araneta case, Section 5 of RA632 is anexercise of police power

Under Section 2 of RA632, Philsugin is authorized to do research

for the sugar industry in all its phases, which justifies itsacquisition of the Insular Sugar Refinery

The experience is technically NOT a loss to the industry: through

Philsuginspurchase, there is now a better appreciation for the

management problems faced by sugar centrals


12/37


13/37

CALTEX V. COA (non-revenue purpose; public purpose)FACTS:The Oil Price Stabilization Fund (OPSF) was created under Sec. 8, PD

1956, as amended by EO 137 for the purpose of minimizing frequent

price changes brought about by exchange rate adjustments. It will be

used to reimburse the oil companies for cost increase and possible cost

underrecovery incurred due to reduction of domestic prices.

In 1989, COA sent a letter to Caltex, directing it to remit its collection to

the Oil Price Stabilization Fund (OPSF), excluding that unremitted for

1986 and 188 of the additional tax on petroleum products authorized

under Section 8 of PD 1956; and that pending such remittance, all its

claims for reimbursement from the OPSF shall be held in abeyance.

Caltex requested COA for an early release of its reimbursement

certificates which the latter denied.

On 31 May 1989, Caltex submitted a proposal to COA for the payment

and the recovery of claims. COA approved the proposal but prohibitedCaltex from further offsetting remittances and reimbursements for the

current and ensuing years. Caltex moved for reconsideration.

Petitioners Contention:Department of Finance issued Circular No. 4-88 allowing

reimbursement. Denial of claim for reimbursement would be

inequitable. NCC (compensation)and Sec. 21, Book V, Title I-B of the

Revised Administrative Code (Retention of Money for Satisfaction of

Indebtedness to Government) allows offsetting.

Amounts due do not arise as a result of taxation since PD 1956 did notcreate a source of taxation, it instead established a special fund. This lack

of public purpose behind OPSF exactions distinguishes it from tax.

Respondents Contention:

Based on Francia v. IAC, theres no offsetting of taxes against the claimsthat a taxpayer may have against the government, as taxes do not arise

from contracts or depend upon the will of the taxpayer, but are imposed

by law.

ISSUE: Whether the amounts due from Caltex to the OPSF may be offsetagainst Caltex outstanding claims from said funds.

HELD: NO.Taxation is no longer envisioned as a measure merely to raise revenue

to support the existence of government; taxes may be levied with aregulatory purpose to provide means for the rehabilitation andstabilization of a threatened industry which is affected with publicinterest as to be within the police power of the state. PD 1956, asamended by EO 137, explicitly provides that the source of OPSF is

taxation. A taxpayer may not offset taxes due from the claims that he

may have against the government. Taxes cannot be the subject of

compensation because the government and taxpayer are not mutually

creditors and debtors of each other and a claim for taxes is not such a

debt, demand, contract or judgment as is allowed to be set-off.


14/37


15/37

NPC v. City of Cabanatuan (necessity theory)

FACTS: NAPOCOR sells electric power to the resident

Cabanatuan City, posting a gross income of P107,814,187.96 in

1992. City of Cabanatuan assessed the petitioner a franchise tax

amounting to P808,606.41, representing 75% of 1% of the

formers gross receipts for the preceding year. NPC refused to pay the tax assessment, which argued that the

respondent has no authority to impose tax on government

entities. Petitioner also contend that as a nonprofit organization,

it is exempted from the payment of all forms of taxes, charges,

duties or fees.

The respondent filed a collection suit in the RTC of Cabanatuan

City, demanding that petitioner pay. Respondent alleged that

petitioners exemption from local taxes has been repealed by Sec.193 of RA 7160 (Local Government Code).

The trial court issued an order dismissing the case. On appeal,

the Court of Appeals reversed the decision of the RTC and

ordered the petitioner to pay the city government the tax

assessment.

ISSUE: WON NPC is exempted from franchise tax by the localgovernment?

HELD: NO. Taxes are the lifeblood of the government, for without taxes,

the government can neither exist nor endure.A principalattribute of sovereignty, the exercise of taxing power derives its

source from the very existence of the state whose social contract

with its citizens obliges it to promote public interest and

common good. The theory behind the exercise of the powerto tax emanates from necessity;without taxes, governmentcannot fulfill its mandate of promoting the general welfare and

well-being of the people. In recent years, the increasing social challenges of the times

expanded the scope of state activity, and taxation has become a

tool to realize social justice and the equitable distribution of

wealth, economic progress and the protection of local industriesas well as public welfare and similar objectives.33Taxation

assumes even greater significance with the ratification of the

1987 Constitution. Thenceforth, the power to tax is no longervested exclusively on Congress; local legislative bodies arenow given direct authority to levy taxes, fees and othercharges pursuant to Article X, section 5 of the 1987Constitution.

The local government code removed the blanket exclusion of

instrumentalities and agencies of the National Government from

the coverage of local taxation.

A franchise tax is imposed based not on the ownership but on the

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

taxable entity is the corporation which exercises the franchise,

and not the individual stockholders. By virtue of its charter,

petitioner was created as a separate and distinct entity from the

National Government. It can sue and be sued under its own

name, and can exercise all the powers of a corporation under the

Corporation Code. The ownership by the National Government of

its entire capital stock does not necessarily imply that petitioner

is not engaged in business.

One of the most significant provisions of the LGC is the removal of the

blanket exclusion of instrumentalities and agencies of the national

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

rule, LGUs cannot impose taxes, fees or charges of any kind on the

National Government, its agencies and instrumentalities, this rule now

admits an exception, i.e., when specific provisions of the LGC authorize

the LGUs to impose taxes, fees or charges on the aforementioned

entities.

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

transacting business in the state and exercising corporate franchises

granted by the state." It is not levied on the corporation simply for

existing as a corporation, upon its property or its income, but on its

exercise of the rights or privileges granted to it by the government.

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

to do business and exercise its franchise. It is within this context that the

phrase "tax on businesses enjoying a franchise" in section 137 of the LGC

should be interpreted and understood. Verily, to determine whether the

petitioner is covered by the franchise tax in question, the following

requisites should concur: (1) that petitioner has a "franchise" in the


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sense of a secondary or special franchise; and (2) that it is exercising its

rights or privileges under this franchise within the territory of the

respondent city government.

NPC fulfills both requisites. To stress, a franchise tax is imposed based

not on the ownership but on the exercise by the corporation of a

privilege to do business. The taxable entity is the corporation which

exercises the franchise, and not the individual stockholders. By virtue of

its charter, petitioner was created as a separate and distinct entity from

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

and can exercise all the powers of a corporation under the Corporation

Code.

We also do not find merit in the petitioner's contention that its tax

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

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

Exemptions must be shown to exist clearly and categorically, and

supported by clear legal provisions. In the case at bar, the petitioner'ssole refuge is section 13 of Rep. Act No. 6395 exempting from, among

others, "all income taxes, franchise taxes and realty taxes to be paid to

the National Government, its provinces, cities, municipalities and other

government agencies and instrumentalities."

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

through ordinances duly approved, to grant tax exemptions, initiatives

or reliefs.77 But in enacting section 37 of Ordinance No. 165-92 which

imposes an annual franchise tax "notwithstanding any exemption

granted by law or other special law," the respondent city government

clearly did not intend to exempt the petitioner from the coveragethereof.

Doubtless, the power to tax is the most effective instrument to raise

needed revenues to finance and 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,

progress, and prosperity of the people. As this Court observed in the

Mactan case, "the original reasons for the withdrawal of tax exemption

privileges granted to government-owned or controlled corporations and

all other units of government were that such privilege resulted in

serious tax base erosion and distortions in the tax treatment of similarly

situated enterprises." With the added burden of devolution, it is even

more imperative for government entities to share in the requirements of

development, fiscal or otherwise, by paying taxes or other charges due

from them.


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COMMISSIONER OF INTERNAL REVENUEvs.ALGUE, INC., and CTA(1988)

FACTS:Collector of Internal Revenue disallowed the P75K deduction claimed by

private respondent Algue as legitimate business expenses in its income

tax returns. CTA agreed with Algue, allowing the deduction of P75K as

legit business expenses. Collector of IR appealed CTAs decision.

Commissioner argues: deduction was not allowed bec it was not an

ordinary reasonable or necessary business expense.

CTA & Algue: the said amount had been legitimately paid by the Algue

for actual services rendered. The payment was in the form of

promotional fees. These were collected by the Payees for their work inthe creation of the Vegetable Oil Investment Corporation of the Phils

(VOICP) and its subsequent purchase of the properties of the Philippine

Sugar Estate Devt Company (PSEDC).

ISSUE: Is the tax deduction proper? YES! HELD: In favor of CTA & Algue!

The amount was earned through the joint efforts of the persons among

whom it was distributed. It has been established that the PSEDC had

earlier appointed Algue as its agent, authorizing it to sell its land,

factories and oil manufacturing process. Pursuant to such authority, 5

others worked for the formation of the VOICP, inducing other persons to

invest in it. Ultimately, after its incorporation largely through the

promotion of said 5persons, this new corporation purchased the PSEDC

properties.For this sale, Algue received as agent a commission of P126k,

and it was from this commission that the P75k promotional fees werepaid to the 5persons.

There is no dispute that the payees duly reported their respective shares

of the fees in their ITRs and paid the corresponding taxes thereon. CTA

also found that no distribution of dividends was involved.18

Commissioner accuses Algue of tax dodging(attempt to evade a

legitimate assessment by involving an imaginary deduction). He claimed

that these payments are fictitious bec most of the payees are members

of the same family in control of Algue. In fact, no indication was made as

to how such payments were made, whether by check or in cash, and

there is not enough substantiation of such payments.

However, these suspicions were adequately met by Algue Inc when its

President, Guevara, and the accountant, de Jesus, testified that the

payments were not made in 1 lump sum but periodically and in different

amounts as each payee's need arose. It should be remembered that

Algue Inc was a family corporation where strict business procedures

were not applied and immediate issuance of receipts was not required.

Even so, at the end of the year, when the books were to be closed, each

payee made an accounting of all of the fees received by him or her, to

make up the total of P75,000.00. Admittedly, everything seemed to be

informal. This arrangement was understandable, however, in view of the

close relationship among the persons in the family corporation.

The CTA was correct that the amount of the promotional fees was notexcessive.The total commission paid by the PSEDC. to Algue Inc wasP125K. After deducting the said fees, Algue still had a balance of P50K as

clear profit from the transaction. The amount of P75K was 60% of thetotal commission. This was a reasonable proportion, considering that it

was the payees who did practically everything, from the formation of the

VOICP to the actual purchase by it of the PSEDC properties. This finding

of the respondent court is in accord with Sec 30 of the Tax Code:

SEC. 30. Deductions from gross income.--In computing net income

there shall be allowed as deductions

(a) Expenses: (1) In general.--All the ordinary and necessary

expenses paid or incurred during the taxable year in carrying on any

trade or business, including a reasonable allowance for salaries or

other compensation for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1):

SEC. 70. Compensation for personal services.--Among the ordinary

and necessary expenses paid or incurred in carrying on any trade or

business may be included a reasonable allowance for salaries orother compensation for personal services actually rendered.The test of deductibility in the case of compensation payments is

whether they are reasonable and are, in fact, payments purely


18/37

for service.This test and deductibility in the case of compensationpayments is whether they are reasonable and are, in fact, payments

purely for service. This test and its practical application may be

further stated and illustrated as follows: Any amount paid in theform of compensation, but not in fact as the purchase price ofservices, is not deductible. (a) An ostensible salary paid by acorporation may be a distribution of a dividend on stock. This islikely to occur in the case of a corporation having fewstockholders, practically all of whom draw salaries. If in such acase the salaries are in excess of those ordinarily paid forsimilar services, and the excessive payment correspond or beara close relationship to the stockholdings of the officers ofemployees, it would seem likely that the salaries are not paidwholly for services rendered, but the excessive payments are adistribution of earnings upon the stock. . . .

It is worth noting at this point that most of the payees were not in the

regular employ of Algue nor were they its controlling stockholders. 23

SolGens correct that the burden is on the taxpayer to prove thevalidity of the claimed deduction. In the present case, however, wefind that the onus has been discharged satisfactorily. The private

respondent has proved that the payment of the fees was necessary and

reasonable in the light of the efforts exerted by the payees in inducing

investors and prominent businessmen to venture in an experimental

enterprise and involve themselves in a new business requiring millions

of pesos. This was no mean feat and should be, as it was, sufficiently

recompensed.

Taxes are what we pay for civilization society. Without taxes, thegovernment would be paralyzed for lack of the motive power to activate

and operate it. Hence, despite the natural reluctance to surrender part of

one's hard earned income to the taxing authorities, every person who is

able to must contribute his share in the running of the government. The

government for its part, is expected to respond in the form of tangible

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

enhance their moral and material values. This symbiotic relationship is

the rationale of taxation and should dispel the erroneous notion that it is

an arbitrary method of exaction by those in the seat of power.

But even as the inevitability and indispensability of taxation is conceded,

it is a requirement in all democratic regimes that it be exercised

reasonably and in accordance with the prescribed procedure. If it is not,

then the taxpayer has a right to complain and the courts will then come

to his succor. For all the awesome power of the tax collector, he may still

be stopped in his tracks if the taxpayer can demonstrate, as it has here,

that the law has not been observed.


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PASCUAL V. SEC. OF PUBLIC WORKS(inherent limitation: public purpose)

FACTS:RA 920 (Act appropriating funds for public works) was enacted in 1953

containing an item (Section 1 c[a]) for the construction, reconstruction,

repair, extension and improvement of Pasig feeder road terminals (the

projected and planned subdivision roads, which were not yet

constructed, within Antonio Subdivision owned by Senator Jose C.Zulueta). Zulueta donated said parcels of land to the Government 5months after the enactment of RA 920, on the condition that if the

Government violates such condition the lands would revert to Zulueta.

The provincial governor of Rizal, Wenceslao Pascual, questioned the

validity of the donation and the Constitutionality of the item in RA 920,

it being not for a public purpose.

ISSUE:

Whether the item in the appropriation is valid.

HELD: NO.The right of the legislature to appropriate funds is correlative with its

right to tax, under constitutional provisions against taxation, except for

public purposes and prohibiting the collection of a tax for one purpose

and the devotion thereof to another purpose, no appropriation of statefunds can be made for other than a public purpose.

The validity of a statute depends upon the powers of Congress at the

time of its passage or approval, not upon events occupying, or acts

performed, subsequently thereto, unless the latter consist of an

amendment of the organic law, removing, with retrospective operation,

the constitutional limitation infringed by said statute. Herein, inasmuchas the land on which the projected feeder roads were to be constructed

belonged to Senator Zulueta at the time RA 920 was passed by

Congress, or approved by the President, and the disbursement of said

sum became effective on 20 June 1953 pursuant to Section 13 of the

Act, the result is that the appropriating sough a private purposeand hence, null and void.


20/37

PLANTERS. V. FERTIPHIL CORP (public purpose)Facts: Marcos issued LOI 1465, imposing a capital recovery component

of Php10.00 per bag of fertilizer o Levy to continue until

adequate capital is raised to make PPI financially viable

Fertiphil remitted to the Fertilizer and Pesticide Authority (FPA),

which then remitted said amount to Far East Bank and Trust

Company, the depository bank of PPIo Php6,689,144 was remitted from 1985 to 1986

After EDSA, Fertiphil demanded from PPI a refund of the amount

it remitted; PPI refused

Fertiphil filed a complaint for collection and damages o

Questioned constitutionality of LOI 1465

Claimed it was unjust, unreasonable, oppressive,

invalid and an unlawful imposition that amounted

to a denial of due process

FPA:

o Issuance of LOI 1465 was a valid exercise of police powerof the state in insuring the fertilizer industry

o Fertiphil did not sustain any damage because the burden

imposed by the levy fell on the ultimate consumer, not

the seller

Issues:1. WON the issuance of LOI 1465 was an exercise of the police

power of the state

2. WON the levy was for a public purpose

Ratio:1. The imposition of the levy was an exercise of the taxation power

of the state. Both the power of taxation and police power are

inherent powers of the state. But each one is distinct from the

other police power is for the regulation of a behaviour or

conduct, while taxation is for revenue generation.

While it is true that the power to tax can be used as an implement

of police power, the primary purpose of the levy was revenue

generation. If the purpose is primarily revenue, or if revenue is,

at least, one of the real and substantial purposes, then the

exaction is properly called a tax

In the present case, the imposition of Php10 per bag is too

excessive to serve a mere regulatory purpose.

Even if it was an exercise of the police power of the state, the LOI

would still be invalid as it did not comply with the test of lawfulsubjects and lawful means. Specifically, that the interest of thepublic, generally, requires its exercise, and that the means

employed are reasonably necessary for the accomplishment ofthe purpose and not unduly oppressive upon individuals.

2. An inherent limitation on the power of taxation is public purpose.

Taxes are exacted for a purely public purpose, and thus cannot be

used for purely private purposes or for the exclusive benefit of

private persons.

LOI 1465 is not for a public purpose. First, it is expressly provided

that the levy be imposed to benefit a private company PPI. Second,the levy was conditional and dependent on PPI becoming financially

viable. Third, the levies were directly remitted and deposited in

FEBTC, the bank of PPI, which used said remittances to pay of PPIsdebts. All of these show that the purpose for the issuance of LOI

1465 was to support a private company which clearly did not

comply with the public purpose requirement for the imposition of

taxes.


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TIO VS. VIDEOGRAM REGULATORY BOARD [151 SCRA 208; G.R. No.L-75697; 18 Jun 1987]Friday, January 30, 2009 Posted by Coffeeholic Writes

Labels:Case Digests,Political Law

Facts:The case is a petition filed by petitioner on behalf of videogramoperators adversely affected by Presidential Decree No. 1987, An Act

Creating the Videogram Regulatory Board" with broad powers to

regulate and supervise the videogram industry.

A month after the promulgation of the said Presidential Decree, the

amended the National Internal Revenue Code provided that:

"SEC. 134. Video Tapes. There shall be collected on each

processedvideo-tape cassette, ready for playback, regardless of length,

anannual tax of five pesos; Provided, That locally manufactured or

imported blank video tapes shall be subject to sales tax."

"Section 10. Tax on Sale, Lease or Disposition of Videograms.

Notwithstanding any provision of law to the contrary, the province

shall collect a tax of thirty percent (30%) of the purchase price or rental

rate, as the case may be, for every sale, lease or disposition of a

videogram containing a reproduction of any motion picture or

audiovisual program.

Fifty percent (50%) of the proceeds of the taxcollected shall accrue to

the province, and the other fifty percent (50%) shall accrue to the

municipality where the tax is collected; PROVIDED, That in Metropolitan

Manila, the tax shall be shared equally by the City/Municipality and theMetropolitan Manila Commission.

The rationale behind the tax provision is to curb the proliferation and

unregulated circulation of videograms including, among others,

videotapes, discs, cassettes or any technical improvement or variation

thereof, have greatly prejudiced the operations of movie houses and

theaters. Such unregulated circulation have caused a sharp decline in

theatrical attendance by at least forty percent (40%) and a tremendous

drop in the collection of sales, contractor's specific, amusement and

other taxes, thereby resulting in substantial losses estimated at P450

Million annually in government revenues.

Videogram(s) establishments collectively earn around P600 Million per

annum from rentals, sales and disposition of videograms, and these

earnings have not been subjected to tax, thereby depriving the

Government of approximately P180 Million in taxes each year.

The unregulated activities of videogram establishments have also

affected the viability of the movie industry.

Issues:(1) Whether or not tax imposed by the DECREE is a valid exercise of

police power. Yes

(2) Whether or not the DECREE is constitutional. Yes

(3) Whether or not Section 10 of P.D. No. 1987, which imposes a tax of

thirty percent (30%) on the gross receipts payable to the local

government is a rider and the same is not germane to the subject thereof

Held:Taxation has been made the implement of the state's police power.

The levy of the 30% tax is for a public purpose. It was imposed primarilyto answer the need for regulating the video industry, particularly

because of the rampant film piracy, the flagrant violation of intellectual

property rights, and the proliferation of pornographic video tapes. And

while it was also an objective of the DECREE to protect the movie

industry, the tax remains a valid imposition.

We find no clear violation of the Constitution which would justify us in

pronouncing Presidential Decree No. 1987 as unconstitutional and void.

While the underlying objective of the DECREE is to protect the moribund

movie industry, there is no question that public welfare is at bottom of

its enactment, considering "the unfair competition posed by rampantfilm piracy; the erosion of the moral fiber of the viewing public brought

about by the availability of unclassified and unreviewed video tapes

containing pornographic films and films with brutally violent sequences;

and losses in government revenues due to the drop in theatrical

attendance, not to mention the fact that the activities of

video establishments are virtually untaxed since mere payment of

Mayor's permit and municipal license fees are required to engage in

business."

Tios contention that the tax provision of the Decree is a rider is bereftand devoid of merit because the title of the Decree, which is the creation
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22/37

of the Videogram Regulatory Board (VRB) aimed at regulating and

controlling the video industry, is comprehensive enough to include the

purposes expressed in its Preamble and reasonably covers all its

provisions. Moreover, it is unnecessary to express all those objectives in

the title or that the latter be an index to the body of the decree.


23/37

CIR VS SANTOS(inherently legislative)

FACTS:

Guild of Phil Jewellers questions the constitutionality of certain

provisions of the National Internal Revenue Code and Tariff and

Customs Code of the Philippines1. It is their contention that present tariff

and tax structure increases manufacturing costs and render local

jewellery manufacturers uncompetitive against other countries. Insupport of their position, they submitted what they purported to be an

exhaustive study of the tax rates on jewellery prevailing in other Asian

Countries, in comparison to tax rates levied in the country.

Judge Santos of RTC Pasig, public respondent herein, ruled that the laws

in question are confiscatory and oppressive and declared them

INOPERATIVE and WITHOUT FORCE and EFFECT insofar as petitioners

are concerned. It stated:

The Court finds that indeed government taxation policy treats jewellery

as non-essential luxury item and therefore, taxed heavily. Aside from the

ten (10%) percent value added tax (VAT), local jewellery manufacturers

contend with the (manufacturing) excise tax of twenty (20%) percent

(to be applied in stages) customs duties on imported raw materials, the

highest in the Asia-Pacific region. In contrast, imported gemstones and

other precious metals are duty free in Hongkong, Thailand, Malaysia and

Singapore.

Petitioner CIR assailed decision rendered by pub resp contending that

the latter has no authority to pass judgment upon the taxation policy of

the government. Petitioners also impugn the decision by asserting that

there was no showing that the tax laws on jewellery are confiscatory.

Issue: WON RTC has authority to pass judgment upon taxationpolicy of government

Ratio/Held: NO. The case at bar involves a debate on the WISDOM ofthe laws in question. This is a matter on which the RTC is not competent

to rule. In Angara vs. Electoral Commission, Justice Laurel made it clear

that "the judiciary does not pass upon questions of wisdom, justice or

expediency of legislation." In the exercise of judicial power, the court is

allowed only "to settle actual controversies involving rights which are

legally demandable and enforceable", and may not annul an act of the

political departments simply because they feel it is unwise or

impractical.

The policy of the courts is to avoid ruling on constitutional questions and

to presume that the acts of the political departments are valid in the

absence of a clear and unmistakable showing to the contrary.

This is not to say that RTC have no power whatsoever to declare a law

unconstitutional. But this authority does not extend to deciding

questions which pertain to legislative policy.

RTC have the power to declare the law unconstitutional but this

authority does not extend to deciding questions which pertain to

legislative POLICY. RTC can only look into the validity of a provision, that

is, whether or not it has been passed according to the procedures laid

down by law, and thus cannot inquire as to the reasons for its existence.

1

It will be noted that, while under the present law (sec 150), jewellery is

subject to a 20% excise tax in addition to a 10% value-added tax under

the old law, it was subjected to 50% percentage tax. It was even

subjected to a 70% percentage tax under then Section 184(a) of the Tax

Code, as amended by P.D. 69. Section 104, Hdg. Nos. 17.01, 17.02, 17.03

and 17.04, Chapter 71 of the Tariff and Customs Code, as amended by

Executive Order No. 470, dated July 20, 1991, imposes import duty on

natural or cultured pearls and precious or semiprecious stones at the

rate of 3% to 10% to be applied in stages from 1991 to 1994 and 30% in

1995.

Prior to the issuance of E.O. 470, the rate of import duty in 1988 was

10% to % when the petition was filed in the court a quo.


24/37

Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs.Tan [G.R. No. 81311 June 30, 1988]

Facts: These four (4) petitions seek to nullify Executive Order No. 273issued by the President of the Philippines, and which amended certain

sections of the National Internal Revenue Code and adopted the value-

added tax, for being unconstitutional in that its enactment is not

allegedly within the powers of the President; that the VAT is oppressive,

discriminatory, regressive, and violates the due process and equalprotection clauses and other provisions of the 1987 Constitution.

The VAT is a tax levied on a wide range of goods and services. It is a tax

on the value, added by every seller, with aggregate gross annual sales of

articles and/or services, exceeding P200,00.00, to his purchase of goods

and services, unless exempt. VAT is computed at the rate of 0% or 10%

of the gross selling price of goods or gross receipts realized from the sale

of services.

The VAT is said to have eliminated privilege taxes, multiple rated sales

tax on manufacturers and producers, advance sales tax,

andcompensating tax on importations. The framers of EO 273 that it is

principally aimed to rationalize the system of taxing goods and services;

simplify tax administration; and make the tax system more equitable, to

enable the country to attain economic recovery.

The VAT is not entirely new. It was already in force, in a modified form,

before EO 273 was issued. As pointed out by the Solicitor General, the

Philippine sales tax system, prior to the issuance of EO 273, was

essentially a single stage value added tax system computed under the

"cost subtraction method" or "cost deduction method" and was imposedonly on original sale, barter or exchange of articles by manufacturers,

producers, or importers. Subsequent sales of such articles were not

subject to sales tax. However, with the issuance of PD 1991 on 31

October 1985, a 3% tax was imposed on a second sale, which was

reduced to 1.5% upon the issuance of PD 2006 on 31 December 1985, to

take effect 1 January 1986. Reduced sales taxes were imposed not only

on the second sale, but on every subsequent sale, as well. EO 273 merely

increased the VAT on every sale to 10%, unless zero-rated or exempt.

Issue: Whether or not EO 273 is unconstitutional

Held: No. Petitioners have failed to show that EO 273 was issuedcapriciously and whimsically or in an arbitrary or despotic manner by

reason of passion or personal hostility. It appears that a comprehensive

study of the VAT had been extensively discussed by this framers and

other government agencies involved in its implementation, even under

the past administration. As the Solicitor General correctly sated. "The

signing of E.O. 273 was merely the last stage in the exercise of her

legislative powers. The legislative process started long before the

signing when the data were gathered, proposals were weighed and thefinal wordings of the measure were drafted, revised and finalized.

Certainly, it cannot be said that the President made a jump, so to speak,

on the Congress, two days before it convened."

Next, the petitioners claim that EO 273 is oppressive, discriminatory,

unjust and regressive.

The petitioners" assertions in this regard are not supported by facts and

circumstances to warrant their conclusions. They have failed to

adequately show that the VAT is oppressive, discriminatory or unjust.

Petitioners merely rely upon newspaper articles which are actually

hearsay and have evidentiary value. To justify the nullification of a law,

there must be a clear and unequivocal breach of the Constitution, not a

doubtful and argumentative implication.

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It

is uniform. A tax is considered uniform when it operates with the same

force and effect in every place where the subject may be found." The

sales tax adopted in EO 273 is applied similarly on all goods and services

sold to the public, which are not exempt, at the constant rate of 0% or

10%.

The disputed sales tax is also equitable. It is imposed only on sales of

goods or services by persons engage in business with an aggregate gross

annual sales exceeding P200,000.00. Small corner sari-sari stores are

consequently exempt from its application. Likewise exempt from the tax

are sales of farm and marine products, spared as they are from the

incidence of the VAT, are expected to be relatively lower and within the

reach of the general public.

The Court likewise finds no merit in the contention of the petitioner

Integrated Customs Brokers Association of the Philippines that EO 273,


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more particularly the new Sec. 103 (r) of the National Internal Revenue

Code, unduly discriminates against customs brokers.

At any rate, the distinction of the customs brokers from the other

professionals who are subject to occupation tax under the Local Tax

Code is based upon material differences, in that the activities of customs

brokers (like those of stock, real estate and immigration brokers)

partake more of a business, rather than a profession and were thus

subjected to the percentage tax under Sec. 174 of the National InternalRevenue Code prior to its amendment by EO 273. EO 273 abolished the

percentage tax and replaced it with the VAT.


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LTO VS CITY OF BUTUAN (Delegation to Loc Gov)

Facts:Respondent City of Butuan asserts that the pertinent provisions ofthe Local Government Code allows LGUs to collect registration fees or

charges along with the corresponding issuance of all kinds of licenses or

permits for the driving oftricycles.

Sec. 129. Power to Create Sources or Revenue.

Each local government unit shall exercise its power to create its ownsources of revenue and to levy taxes, fees, and charges subject to the

provisions herein, consistent with the basic policy of local autonomy.

Such taxes, fees, and charges shall accrue exclusively to the local

government units.

Sec. 133. Common Limitations on the Taxing Powers of LocalGovernment Units. Unless otherwise provided herein, theexercise of the taxing powers of provinces, cities, municipalities,and barangays shall not extend to the levy of the following:(l) Taxes, fees or charges for the registration of motor vehicles andfor the issuance of all kinds of licenses or permits for the drivingthereof, except tricycles.

In accordance therewith, the City passed an ordinance which provided

for the payment of franchise fees for the grant of the franchise of

tricycles-for-hire, fees for the registration of the vehicle, and fees for the

issuance of a permit for the driving thereof.

Petitioner LTO, on the other hand, explains that one of the functions of

the national government that has been transferred to LGUs is the

franchising authority over tricycles for-hire of the LTFRB, BUT NOT, theauthority of LTO to register all motor vehicles and to issue to qualified

persons of licenses to drive such vehicles.

ISSUE:WON under the present set up, the power of the LTO toregister, tricycles in particular, as well as to issue licenses for thedriving thereof, has likewise devolved to local government units.

Held/Ratio: NO. Although police power and taxation are correlative toeach other, that does not mean that the grant of one necessarily carry

with it the grant of the other. The two powers are, by tradition and

jurisprudence, separate and distinct powers, varying in their respective

concepts, character, scopes and limitations. To construe the tax

provisions of Section 133(1) indistinctively would result in the repeal to

that extent of LTO's regulatory power which evidently has not been

intended. If it were otherwise, the law could have just said so in Section

447 and 458 of Book III of the Local Government Code in the same

manner that the specific devolution of LTFRB's power on franchising of

tricycles has been provided. Repeal by implication is not favored. The

power over tricycles granted under Section 458(8)(3)(VI)2of the Local

Government Code to LGUs is the power to regulate their operation andto grant franchises for the operation thereof. The exclusionary clause

contained in the tax provisions of Section 133(1) of the Local

Government Code must not be held to have had the effect of

withdrawing the express power of LTO to cause the registration of all

motor vehicles and the issuance of licenses for the driving thereof. These

functions of the LTO are essentially regulatory in nature, exercised

pursuant to the police power of the State, whose basic objectives are to

achieve road safety by insuring the road worthiness of these motor

vehicles and the competence of drivers prescribed by law.

(Decentralization of registration system will result into higher incidence

of theft and fake licenses.)

2Under the Local Government Code, certain functions of the DOTC were

transferred to the LGUs, thusly:

Sec. 458. Powers, Duties, Functions and Compensation. (3) Subject to the provisions of Book II of this Code, enact ordinances

granting franchises and authorizing the issuance of permits or licenses,

upon such conditions and for such purposes intended to promote the

general welfare of the inhabitants of the city and pursuant to this

legislative authority shall: (VI) Subject to the guidelines prescribed bythe Department of Transportation and Communications, regulate the

operation of tricycles and grant franchises for the operation thereof

within the territorial jurisdiction of the city.


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BASCO VS PAGCOR (1991)(Delegation to Loc Gov)

Facts:Petitioners filed the instant petition seeking to annul PAGCORCharter (PD 1869) because it is allegedly contrary to morals, public

policy and order, and because

a. It constitutes a waiver of a right prejudicial to a third person

with a right recognized by law. It waived the Manila City

government's right to impose taxes and license fees, which is

recognized by law;b. For the same reason stated in the immediately preceding

paragraph, the law has intruded into the local government's right to

impose local taxes and license fees. This, in contravention of the

constitutionally enshrined principle of local autonomy;

c. It violates the equal protection clause of the constitution in that

it legalizes PAGCOR conducted gambling, while most other formsof gambling are outlawed, together with prostitution, drug

trafficking and other vices;

d. It violates the avowed trend of the Cory government away from

monopolistic and crony economy, and toward free enterprise and

privatization.

ISSUE (relevant to tax): WON the Charter has intruded into thelocal governments right to impose taxes and license fees

Held/Ratio: NO

Petitioners contend that the exemption clause in P.D. 1869 is violative of

the principle of local autonomy. They must be referring to Section 13

par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder

from paying any "tax of any kind or form, income or otherwise, as well asfees, charges or levies of whatever nature, whether National or

Local."

Their contention is without merit for the following reasons:

(a) The City of Manila, being a mere Municipal corporation

has no inherent right to impose taxes. Thus, "the Charter or

statute must plainly show an intent to confer that power or the

municipality cannot assume it. Its "power to tax" therefore mustalways yield to a legislative act which is superior having been

passed upon by the state itself which has the "inherent power to

tax"

(b) The Charter of the City of Manila is subject to control by

Congress. It should be stressed that "municipal corporations are

mere creatures of Congress" which has the power to "create and

abolish municipal corporations" due to its "general legislative

powers." Congress, therefore, has the power of control over Local

governments. And if Congress can grant the City of Manila the

power to tax certain matters, it can also provide for exemptions

or even take back the power.

(c) The City of Manila's power to impose license fees ongambling, has long been revoked. As early as 1975, the power of

local governments to regulate gambling thru the grant of

"franchise, licenses or permits" was withdrawn by P.D. No. 771

and was vested exclusively on the National Government.

Therefore, only the National Government has the power to issue

"licenses or permits" for the operation of gambling. Necessarily,

the power to demand or collect license fees which is a

consequence of the issuance of "licenses or permits" is no longer

vested in the City of Manila.

(d) SUPREMACY of NATIONAL GOVT. Local governments

have no power to tax instrumentalities of the National

Government. PAGCOR is a government owned or controlled

corporation with an original charter, PD 1869.

All of its shares of stocks are owned by the National Government.

PAGCOR has a dual role, to operate and to regulate gambling casinos.

The latter role is governmental, which places it in the category of an

agency or instrumentality of the Government. Being an instrumentality

of the Government, PAGCOR should be and actually is exempt from local

taxes. Otherwise, its operation might be burdened, impeded or subjectedto control by a mere Local government.

(e) Petitioners also argue that the Local Autonomy Clause of

the Constitution will be violated by P.D. 1869. This is a pointless

argument. Article X of the 1987 Constitution (on Local

Autonomy) provides:

Sec. 5. Each local government unit shall have the power to create its own

source of revenue and to levy taxes, fees, and other charges subject to

such guidelines and limitation as the congress may provide, consistent

with the basic policy on local autonomy. Such taxes, fees and charges

shall accrue exclusively to the local government.


28/37

The power of local government to "impose taxes and fees" is always

subject to "limitations" which Congress may provide by law. Since PD

1869 remains an "operative" law until "amended, repealed or revoked"

(Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as

an exception to the exercise of the power of local governments to impose

taxes and fees. It cannot therefore be violative but rather is consistent

with the principle of local autonomy.


29/37

GARCIA VS. EXECUTIVE SECRETARY 211 SCRA 219 July 3, 1992Feliciano, J.:

FACTS:The President issued an EO which imposed, across the board, including

crude oil and other oil products, additional duty ad valorem.

The Tariff Commission held public hearingson said EO and submitted a r

eport to the President for consideration and appropriateaction. ThePresident, on the other hand issued an EO which levied a special duty of

P0.95per liter of imported crude oil and P1.00 per liter of imported oil

products.

ISSUE:Whether or not the President may issue an EO which is tantamount to

enacting a bill in the nature of revenue-generating measures.

RULING:The Court said that although the enactment of appropriation, revenue a

nd tariff billsis within the province of the Legislative, it does not follow

that EO in question, assuming they may be characterized as revenue

measure are prohibited to the President, that they must be enacted

instead by Congress. Section 28 of Article VI of the 1

Documents

Tax Digests p.1-3