Tax Digests MLQU Canero
Tax Digests MLQU Canero
Tax Digests MLQU Canero
by its duly licensed physicians, specialists and other professional technical staff
participating in the group practice health delivery system at a hospital or clinic
owned, operated or accredited by it.
January 27, 2000: Commissioner of Internal Revenue (CIR) sent petitioner a
formal demand letter and the corresponding assessment notices demanding the
payment of deficiency taxes, including surcharges and interest, for the taxable
years 1996 and 1997 in the total amount of P224,702,641.18.
ISSUE: W/N the Philippine Health Care Providers, Inc (HMO) was engaged in the
business of insurance during the pertinent taxable years
HELD: NO
HELD: NO. Taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance. Every person who is able to pay must contribute his
share in the running of the government. The Government, for his 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
is an arbitrary method of exaction by those in the seat of power.
Tax collection, however, should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. For all the awesome
power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate that the law has not been observed. Herein, the claimed deduction
(pursuant to Section 30 [a] [1] of the Tax Code and Section 70 [1] of Revenue
Regulation 2: as to compensation for personal services) had been legitimately
proven by Algue Inc. It has further proven that the payment of fees was reasonable
and necessary in light of the efforts exerted by the payees in inducing investors (in
VOICP) to involve themselves in an experimental enterprise or a business requiring
millions of pesos. The assessment was not reasonable.
Topic: Objectives of Taxation: Regulation
PHILIPPINE AIRLINES vs. EDU
G.R. No. L- 41383 August 15, 1988
FACTS: PAL is a corporation organized and existing under the laws of the Philippines
and engaged in the air transportation business under a legislative franchise, Act No.
42739, as amended by Republic Act Nos. 25) and 269.1 Under its franchise, PAL is
exempt from the payment of taxes. On the strength of an opinion of the Secretary of
Justice (Op. No. 307, series of 1956) PAL has, since 1956, not been paying motor
vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued
a regulation requiring all tax exempt entities, among them PAL to pay motor vehicle
registration fees.
Despite PAL's protestations, the appellee refused to register the appellant's
motor vehicles unless the amounts imposed under Republic Act 4136 were paid. The
appellant thus paid, under protest, the amount of P19, 529.75 as registration fees of
its motor vehicles.
PAL demanding a refund of the amounts paid, invoking the ruling in Calalang v.
Lorenzo (97 Phil. 212 [1951]) 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.
Appellee Edu denied the request for refund basing his action on the decision
in Republic v. Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to
the effect that motor vehicle registration fees are regulatory exceptional and not
revenue measures and, therefore, do not come within the exemption granted to PAL
under its franchise. Hence, PAL filed the complaint against Land Transportation
Commission after paying under protest.
ISSUE: Whether or not motor vehicle registration is considered tax?
HELD: Yes, motor vehicle registration fees are now considered revenue or tax
measures. This case reversed the doctrine in the Philippine Rabbit Bus Lines to the
effect that registration fees are regulatory exactions and not revenues. Revised
Motor Vehicle Law itself now regards those fees as taxes, for it provides that "no
other taxes or fees than those prescribed in this Act shall be imposed," thus
implying that the charges therein imposedthough called feesare of the category
of taxes. The provision is contained in section 70, of subsection (b), of the law, as
amended by section 17 of Republic Act 587, which reads:
Sec. 70(b) No other taxes or fees than those prescribed in this Act shall be imposed
for the registration or operation or on the ownership of any motor vehicle, or for the
exercise of the profession of chauffeur, by any municipal corporation, the provisions
of any city charter to the contrary notwithstanding: Provided, however, That any
provincial board, city or municipal council or board, or other competent authority
may exact and collect such reasonable and equitable toll fees for the use of such
bridges and ferries, within their respective jurisdiction, as may be authorized and
approved by the Secretary of Public Works and Communications, and also for the
use of such public roads, as may be authorized by the President of the Philippines
upon the recommendation of the Secretary of Public Works and Communications,
but in none of these cases, shall any toll fee." be charged or collected until and
unless the approved schedule of tolls shall have been posted levied, in a
conspicuous place at such toll station.
Fees may be properly regarded as taxes even though they also serve as an
instrument of regulation. It is possible for an exaction to be both tax and regulation.
License fees are charges looked to as a source of revenue as well as a means of
regulation (Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile
license fees. In such case, the fees may properly be 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. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on
Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta
98 Phil. 198.) These exactions are sometimes called regulatory taxes. (See Secs.
4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code of
1954, which classify taxes on tobacco and alcohol as regulatory taxes.) (Umali,
Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd Edition, 591593).
Indeed, taxation may be made the implement of the state's police power. If
the purpose is primarily revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly called a tax (Umali, Id.) Such is
the case of motor vehicle registration fees. The conclusions become inescapable in
view of Section 70(b) of Rep. Act 587 quoted in the Calalang case. The same
provision appears as Section 591-593) in the Land Transportation code. It is patent
there from 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 591-593) 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 to impose a tax more apparent. Thus,
even Rep. Act 5448 cited by the respondents, speak of an "additional" tax," where
the law could have referred to an original tax and not one in addition to the tax
already imposed on the registration, operation, or ownership of a motor vehicle
under Rep. Act 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.
Rep. Act 4136 also speaks of other "fees," such as the special permit fees for certain
types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec.
11). These are not to be understood as taxes because such fees are very minimal to
be revenue-raising. Thus, they are not mentioned by Sec. 591-593 of the Code as
taxes like the motor vehicle registration fee and chauffers' license fee. Such fees
are to go into the expenditures of the Land Transportation Commission.
It is quite apparent that vehicle registration fees were originally simple exceptional
intended only for rigidly 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. A registration payment as fees, their nature has become
that of "taxes."
In pursuant to the Land Transportation and Traffic Code, taxes can be
intended for additional revenues of government even if one fifth or less of the
amount collected is set aside for the operating expenses of the agency
administering the program.
Topic: Objectives of Taxation: Regulation
TIO vs. VIDEOGRAM REGULATORY BOARD
151 SCRA 208
FACTS: Petitioner, on his own behalf and purportedly on behalf of other videogram
operators adversely affected, assailed the constitutionality of Presidential Decree
No. 1987 entitled An Act Creating the Videogram Regulatory Board with broad
powers to regulate and supervise the videogram industry.
Petitioner questioned the constitutionality of the decree on the grounds that:
(a) Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to
the local government is a rider and the same is not germane to the subject matter
thereof; (b) the tax imposed is harsh, confiscatory, oppressive and/or in unlawful
restraint to trade in violation of the due process clause of the Constitution;(c) there
is undue delegation of power.
ISSUE: Whether or not the assailed Decree is unconstitutional?
HELD: NO. The power to impose taxes is one so unlimited in force and so searching
in extent, that the courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of the authority which
exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in
general, a sufficient security against erroneous and oppressive taxation.
On the other hand, the levy of the 30% tax is for public purpose. It was
imposed primarily to 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.
The public purpose of a tax may legally exist even if the motive which
impelled the legislature to impose the tax was to favor one industry over the other.
It is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that inequities which result from a singling
levy taxes to raise funds for their prosecution and attainment. Taxation may be
made the implement of the state's police power.
It is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that "inequalities which result from a
singling out of one particular class for taxation or exemption infringe no
constitutional limitation
Topic: Inherent Limitations: Public Purpose
PASCUAL vs. SECRETARY OF PUBLIC WORKS
110 SCRA 331
FACTS: Petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this
action for declaratory relief, with injunction, upon the ground that Republic Act No.
920, entitled "An Act Appropriating Funds for Public Works", approved on June 20,
1953, contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00 "for the
construction, reconstruction, repair, extension and improvement" of Pasig feeder
road terminals. The time of the passage and approval of said Act, the
aforementioned feeder roads were "nothing but projected and planned subdivision
roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . .
Pasig, Rizal", which projected feeder roads "do not connect any government
property or any important premises to the main highway"; that the aforementioned
Antonio Subdivision (as well as the lands on which said feeder roads were to be
construed) were private properties of respondent Jose C. Zulueta, who, at the time
of the passage and approval of said Act, was a member of the Senate of the
Philippines.
Respondent Zulueta, addressed a letter to the Municipal Council of Pasig,
Rizal, offering to donate said projected feeder roads to the municipality of Pasig,
Rizal; the offer was accepted by the council, subject to the condition "that the donor
would submit a plan of the said roads and agree to change the names of two of
them"; that no deed of donation in favor of the municipality of Pasig was, however,
executed.
ISSUE: Whether or not the contested item of Republic Act No. 920 be declared null
and void; and Whether or not the alleged deed of donation of the feeder roads in
question be "declared unconstitutional and, therefore, illegal?
HELD: It is a general rule that the legislature is without power to appropriate public
revenue for anything but a public purpose. It is the essential character of the direct
object of the expenditure which must determine its validity as justifying a tax, and
not the magnitude of the interest to be affected nor the degree to which the general
advantage of the community, and thus the public welfare, may be ultimately
benefited by their promotion. Incidental to the public or to the state, which results
from the promotion of private interest and the prosperity of private enterprises or
business, does not justify their aid by the use public money.
The rule is set forth in Corpus Juris Secundum in the following language: In
accordance with the rule that the taxing power must be exercised for public
purposes only, discussed supra sec. 14, money raised by taxation can be expended
only for public purposes and not for the advantage of private individuals. Generally,
under the express or implied provisions of the constitution, public funds may be
used only for public purpose. The right of the legislature to appropriate funds is
correlative with its right to tax, and, under constitutional provisions against taxation
except for public purposes and prohibiting the collection of a tax for one purpose
and the devotion thereof to another purpose, no appropriation of state funds can be
made for other than for a public purpose.
The test of the constitutionality of a statute requiring the use of public funds
is whether the statute is designed to promote the public interest, as opposed to the
furtherance of the advantage of individuals, although each advantage to individuals
might incidentally serve the public.
The validity of a statute depends upon the powers of Congress at the time of
its passage or approval, not upon events occurring, or acts performed, subsequently
thereto, unless the latter consists of an amendment of the organic law, removing,
with retrospective operation, the constitutional limitation infringed by said statute.
Referring to the P85,000.00 appropriation for the projected feeder roads in question,
the legality thereof depended upon whether said roads were public or private
property when the bill, which, latter on, became Republic Act 920, was passed by
Congress, or, when said bill was approved by the President and the disbursement of
said sum became effective, or on June 20, 1953 (see section 13 of said Act).
Inasmuch as the land on which the projected feeder roads were to be constructed
belonged then to respondent Zulueta, the result is that said appropriation sought a
private purpose, and hence, was null and void. The donation to the Government,
over five (5) months after the approval and effectivity of said Act, made, according
to the petition, for the purpose of giving a "semblance of legality", or legalizing, the
appropriation in question, did not cure its aforementioned basic defect.
Consequently, a judicial nullification of said donation need not precede the
declaration of unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is
subject to exceptions. For instance, the creditors of a party to an illegal contract
may, under the conditions set forth in Article 1177 of said Code, exercise the rights
and actions of the latter, except only those which are inherent in his person,
including therefore, his right to the annulment of said contract, even though such
creditors are not affected by the same, except indirectly, in the manner indicated in
said legal provision.
Again, it is well-stated that the validity of a statute may be contested only by
one who will sustain a direct injury in consequence of its enforcement. Yet, there are
many decisions nullifying, at the instance of taxpayers, laws providing for the
disbursement of public funds, upon the theory that "the expenditure of public funds
by an officer of the State for the purpose of administering an unconstitutional act
constitutes a misapplication of such funds," which may be enjoined at the request of
a taxpayer. Although there are some decisions to the contrary, the prevailing view
in the United States is stated in the American Jurisprudence as follows:
In the determination of the degree of interest essential to give the requisite
standing to attack the constitutionality of a statute, the general rule is that not only
persons individually affected, but also taxpayers, have sufficient interest in
preventing the illegal expenditure of moneys raised by taxation and may therefore
question the constitutionality of statutes requiring expenditure of public moneys.
Hence, it is our considered opinion that the circumstances surrounding this
case sufficiently justify petitioners action in contesting the appropriation and
donation in question; that this action should not have been dismissed by the lower
court; and that the writ of preliminary injunction should have been maintained.
Topic: Inherent Limitations: Public Purpose
centavos does not justify the great expense and inconvenience of collecting through
the regular means of collection. On the other hand, by placing the duty of collection
on postal authorities the tax was made almost self-enforcing, with as little cost and
as little inconvenience as possible.
The eradication of a dreaded disease is a public purpose, but if by public
purpose the petitioner means benefit to a taxpayer as a return for what he pays,
then it is sufficient answer to say that the only benefit to which the taxpayer is
constitutionally entitled is that derived from his enjoyment of the privileges of living
in an organized society, established and safeguarded by the devotion of taxes to
public purposes. Any other view would preclude the levying of taxes except as they
are used to compensate for the burden on those who pay them and would involve
the abandonment of the most fundamental principle of government that it exists
primarily to provide for the common good.
Nor is the rule of uniformity and equality of taxation infringed by the
imposition of a flat rate rather than a graduated tax. A tax need not be measured by
the weight of the mail or the extent of the service rendered. We have said that
considerations of administrative convenience and cost afford an adequate ground
for classification. The same considerations may induce the legislature to impose a
flat tax which in effect is a charge for the transaction, operating equally on all
persons within the class regardless of the amount involved.
Topic: Inherent Limitations: Inherently Legislative
PEPSI-COLA vs. MUNICIPALITY OF TANAUAN
G.R No. L-31156 February 27, 1976
FACTS: Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a
complaint for the court to declare Section 2 of Republic Act No. 2264 otherwise
known as the Local Autonomy Act, unconstitutional as an undue delegation of
taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of
the municipality of Tanauan, Leyte, null and void.
The parties entered into a Stipulation of Facts, the material portions of which
state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject
matter and the production tax rates imposed therein are practically the same, and
second, that the acting Municipal Treasurer of Tanauan, Leyte, as per his letter
addressed to the Manager of the Pepsi-Cola Bottling Plant in said municipality,
sought to enforce compliance by the latter of the provisions of said Ordinance No.
27, series of 1962. Municipal Ordinance No. 23, of Tanauan, Leyte, levies and
collects "from soft drinks producers and manufacturers, a tax of one-sixteenth
(1/16) of a centavo for every bottle of soft drink corked." For the purpose of
computing the taxes due, the person, firm, company or corporation producing soft
drinks shall submit to the Municipal Treasurer a monthly report, of the total number
of bottles produced and corked during the month. The tax imposed in both
Ordinances Nos. 23 and 27 is denominated as "municipal production tax.
ISSUE: Whether or not the Municipal Ordinances are valid?
HELD: The plenary nature of the taxing power thus delegated, contrary to plaintiffappellant's pretense, would not suffice to invalidate the said law as confiscatory and
oppressive. In delegating the authority, the State is not limited to the exact
measure of that which is exercised by itself. When it is said that the taxing power
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may be delegated to municipalities and the like, it is meant that there may be
delegated such measure of power to impose and collect taxes as the legislature
may deem expedient. Thus, municipalities may be permitted to tax subjects which
for reasons of public policy the State has not deemed wise to tax for more general
purposes.
Due process is usually violated where the tax imposed is for a private as
distinguished from a public purpose; a tax is imposed on property outside the State,
i.e., extraterritorial taxation; and arbitrary or oppressive methods are used in
assessing and collecting taxes. But, a tax does not violate the due process clause,
as applied to a particular taxpayer, although the purpose of the tax will result in an
injury rather than a benefit to such taxpayer. Due process does not require that the
property subject to the tax or the amount of tax to be raised should be determined
by judicial inquiry, and a notice and hearing as to the amount of the tax and the
manner in which it shall be apportioned are generally not necessary to due process
of law.
Topic: Inherent Limitations: Coverage, Object, Nature, Extent, Situs
PEPSI-COLA vs. CITY OF BUTUAN
G.R No. L-22814 August 28, 1968
FACTS: Pepsis warehouse in the City of Butuan serves as a storage for its products
the "Pepsi-Cola" soft drinks for sale to customers in the City of Butuan and all the
municipalities in the Province of Agusan. These "Pepsi-Cola Cola" soft drinks are
bottled in Cebu City and shipped to the Butuan City warehouse of plaintiff for
distribution and sale in the City of Butuan and all municipalities of Agusan. .
On August 16, 1960, the City of Butuan enacted Ordinance No. 110 which
was subsequently amended by Ordinance No. 122. That Ordinance No. 110 as
amended, imposes a tax on any person, association, etc., of P0.10 per case of 24
bottles of Pepsi-Cola and the plaintiff paid under protest the amount of P4,926.63
from August 16 to December 31, 1960 and the amount of P9,250.40 from January 1
to July 30, 1961.
The plaintiff then filed the foregoing complaint for the recovery of the total
amount of P14,177.03 paid under protest and those that if may later on pay until
the termination of this case on the ground that Ordinance No. 110 as amended of
the City of Butuan is illegal, that the tax imposed is excessive and that it is
unconstitutional.
ISSUE: Whether or not Ordinance No. 122 is unconstitutional?
HELD: It is true that the uniformity essential to the valid exercise of the power of
taxation does not require identity or equality under all circumstances, or negate the
authority to classify the objects of taxation. The classification made in the exercise
of this authority, to be valid, must, however, be reasonable and this requirement is
not deemed satisfied unless: (1) it is based upon substantial distinctions which
make real differences; (2) these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to present conditions, but, also, to
future conditions substantially identical to those of the present; and (4) the
classification applies equally all those who belong to the same class.
These conditions are not fully met by the ordinance in question. Indeed, if its
purpose was merely to levy a burden upon the sale of soft drinks or carbonated
11
beverages, there is no reason why sales thereof by sealers other than agents or
consignees of producers or merchants established outside the City of Butuan should
be exempt from the tax.
Topic: Tax Exemption of the Government
LIGHT RAIL TRANSIT AUTHORITY vs. CENTRAL BOARD OF ASSESSMENT
GR NO. 127316 October 12, 2000
FACTS: The LRTA is a government-owned and controlled corporation created and
organized under Executive Order No. 603, dated July 12, 1980 primarily responsible
for the construction, operation, maintenance and/or lease of light rail transit system
in the Philippines, giving due regard to the reasonable requirements of the public
transportation of the country'. By reason of Executive Order 603, LRTA acquired real
properties constructed structural improvements, such as buildings, carriageways,
passenger terminal stations, and installed various kinds of machinery and
equipment and facilities for the purpose of its operations;
For an effective maintenance, operation and management, it entered into a
Contract of Management with the Meralco Transit Organization in which the latter
undertook to manage, operate and maintain the Light Rail Transit System owned by
the LRTA subject to the specific stipulations contained in said agreement, including
payments of a management fee and real property taxes.That it commenced its
operations in 1984, and that sometime that year, Respondent-Appellee City
Assessor of Manila assessed the real properties of petitioner, consisting of lands,
buildings, carriageways and passenger terminal stations, machinery and equipment
which he considered real property under the Real Property Tax Code, to commence
with the year 1985;That petitioner paid its real property taxes on all its real property
holdings, except the carriageways and passenger terminal stations including the
land where it is constructed on the ground that the same are not real properties
under the Real Property Tax Code, and if the same are real property, these are for
public use/purpose, therefore, exempt from realty taxation, which claim was denied
by the Respondent-Appellee City Assessor of Manila; and Petitioner, aggrieved by
the action of the Respondent-Appellee City Assessor, filed an appeal with the Local
Board of Assessment Appeals of Manila. Appellee, herein, after due hearing, in its
resolution dated June 26, 1992, denied petitioner's appeal, and declared that
carriageways and passenger terminal stations are improvements, therefore, are real
property under the Code, and not exempt from the payment of real property tax.
ISSUE: Whether or not petitioner is exempt from payment of real property taxes?
HELD: In any event, there is another legal justification for upholding the assailed CA
Decision. Under the Real Property Tax Code, real property "owned by the Republic of
the Philippines or any of its political subdivisions and any government-owned or
controlled corporation so exempt by its charter, provided, however, that this
exemption shall not apply to real property of the abovenamed entities the beneficial
use of which has been granted, for consideration or otherwise, to a taxable person."
Executive Order No. 603, the charter of petitioner, does not provide for any
real estate tax exemption in its favor. Its exemption is limited to direct and indirect
taxes, duties or fees in connection with the importation of equipment not locally
available, as the following provision shows:
"ARTICLE 4
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13
reconsideration having been denied by the trial court in its 4 May 1995 order, the
petitioner filed the instant petition.
ISSUE: Whether the MCIAA is exempted from realty taxes?
HELD: Tax statutes are construed strictly against the government and liberally in
favor of the taxpayer. But since taxes are paid for civilized society, or are the
lifeblood of the nation, the law frowns against exemptions from taxation and
statutes granting tax exemptions are thus construed strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. A claim of exemption from tax
payments must be clearly shown and based on language in the law too plain to be
mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the
exception. However, if the grantee of the exemption is a political subdivision or
instrumentality, the rigid rule of construction does not apply because the practical
effect of the exemption is merely to reduce the amount of money that has to be
handled by the government in the course of its operations. Further, since taxation is
the rule and exemption therefrom the exception, the exemption may be withdrawn
at the pleasure of the taxing authority. The only exception to this rule is where the
exemption was granted to private parties based on material consideration of a
mutual nature, which then becomes contractual and is thus covered by the nonimpairment clause of the Constitution.
MCIAA is a taxable person under its Charter (RA 6958), and was only
exempted from the payment of real property taxes. The grant of the privilege only
in respect of this tax is conclusive proof of the legislative intent to make it a taxable
person subject to all taxes, except real property tax. Since Republic Act 7160 or the
Local Government Code expressly provides that All general and special laws, acts,
city charters, decrees, executive orders, proclamations and administrative
regulations, or part of parts thereof which are inconsistent with any of the provisions
of this Code are hereby repealed or modified accordingly. With that repealing
clause in the LGC, the tax exemption provided for in RA 6958 had been expressly
repealed by the provisions of the LGC. Therefore, MCIAA has to pay the assessed
realty tax of its properties effective after January 1, 1992 until the present.
Topic: Tax Exemption of the Government
MANILA INTERNATIONAL AIRPORT AUTHORIT vs. CITY OF PARAAQUE
G.R. No. 155650 July 20, 2006
FACTS: Petitioner Manila International Airport Authority operates the Ninoy Aquino
International Airport Complex in Paraaque City under Executive Order No. 903,
issued on 21 July 1983 by then President Ferdinand E. Marcos. As operator of the
international airport, MIAA administers the land, improvements and equipment
within the NAIA Complex, including the runways and buildings.
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC)
issued Opinion No. 061. The OGCC opined that the Local Government Code of 1991
withdrew the exemption from real estate tax granted to MIAA under Section 21 of
the MIAA Charter.
On 17 July 2001, the City of Paraaque, through its City Treasurer, issued
notices of levy and warrants of levy on the Airport Lands and Buildings threatened
to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the
real estate tax delinquency.
14
On 1 October 2001, MIAA filed with the Court of Appeals an original petition
for prohibition and also points out that Section 21 of the MIAA Charter specifically
exempts MIAA from the payment of real estate tax. MIAA insists that it is also
exempt from real estate tax under Section 234 of the Local Government Code
because the Airport Lands and Buildings are owned by the Republic. To justify the
exemption, MIAA invokes the principle that the government cannot tax itself. MIAA
points out that the reason for tax exemption of public property is that its taxation
would not inure to any public advantage, since in such a case the tax debtor is also
the tax creditor.
ISSUE: Whether the Airport Lands and Buildings of MIAA are exempt from real
estate tax under existing laws?
HELD: MIAA's Airport Lands and Buildings are exempt from real estate tax imposed
by local governments.
First, MIAA is not a government-owned or controlled corporation but an
instrumentality of the National Government and thus exempt from local taxation.
Second, the real properties of MIAA are owned by the Republic of the Philippines
and thus exempt from real estate tax.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not
qualify as a government-owned or controlled corporation. MIAA is a government
instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only
difference is that MIAA is vested with corporate powers.
Another rule is that a tax exemption is strictly construed against the taxpayer
claiming the exemption. However, when Congress grants an exemption to a national
government instrumentality from local taxation, such exemption is construed
liberally in favor of the national government instrumentality.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for sound
and compelling policy considerations. There must be express language in the law
empowering local governments to tax national government instrumentalities. Any
doubt whether such power exists is resolved against local governments.
The Airport Lands and Buildings are devoted to public use because they are
used by the public for international and domestic travel and transportation. The fact
that the MIAA collects terminal fees and other charges from the public does not
remove the character of the Airport Lands and Buildings as properties for public use.
The operation by the government of a tollway does not change the character of the
road as one for public use. Someone must pay for the maintenance of the road,
either the public indirectly through the taxes they pay the government, or only
those among the public who actually use the road through the toll fees they pay
upon using the road. The tollway system is even a more efficient and equitable
manner of taxing the public for the maintenance of public roads.
Topic: Tax Exemption of the Government
MIAA VS. CITY OF PASAY
April 02, 2009 G.R. No. 163072
FACTS: Petitioner Manila International Airport Authority (MIAA) operates and
administers the Ninoy Aquino International Airport (NAIA) Complex under Executive
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Order No. 903 (EO 903),3otherwise known as the Revised Charter of the Manila
International Airport Authority, issued by then President Ferdinand E. Marcos. The
NAIA Complex is located along the border between Pasay City and Paraaque City.
MIAA received Final Notices of Real Property Tax Delinquency from the City of Pasay
for the taxable years 1992 to 2001. The Court of Appeals upheld the power of the
City of Pasay to impose and collect realty taxes on the NAIA Pasay properties. MIAA
filed a motion for reconsideration, which the Court of Appeals denied.
ISSUE: The issue raised in this petition is whether the NAIA Pasay properties of
MIAA are exempt from real property tax.
HELD: The Supreme Court held that the Airport Lands and Buildings of MIAA are
properties devoted to public use and thus are properties of public
dominion. Properties of public dominion are owned by the State or the
Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for public use, and are intended
for some public service or for the development of the national wealth.
The term "ports x x x constructed by the State" includes airports and seaports. The
Airport Lands and Buildings of MIAA are intended for public use, and at the very
least intended for public service. Whether intended for public use or public service,
the Airport Lands and Buildings are properties of public dominion. As properties of
public dominion, the Airport Lands and Buildings are owned by the Republic and
thus exempt from real estate tax under Section 234(a) of the Local Government
Code.
Topic: Constitutional Limitations: Due Process Clause
CREBA vs. THE SECRETARY OF AGRARIAN REFORM
G.R. No. 183409 June 18, 2010
FACTS: The Secretary of Agrarian Reform issued "Omnibus Rules and Procedures
Governing Conversion of Agricultural Lands to Non-Agricultural Uses," which
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 agricultural lands and
agricultural lands reclassified by Local Government Units (LGUs) into nonagricultural uses after 15 June 1988. Subsequently, on 30 March 1999, the Secretary
of Agrarian Reform issued DAR AO No. 01-99, entitled "Revised Rules and
Regulations on the Conversion of Agricultural Lands to Non-agricultural Uses,"
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amending and updating the previous rules on land use conversion. Its coverage
includes the following agricultural lands, to wit: (1) those to be converted to
residential, commercial, industrial, institutional and other non-agricultural purposes;
(2) those to be devoted to another type of agricultural activity such as livestock,
poultry, and fishpond the effect of which is to exempt the land from the
Comprehensive Agrarian Reform Program (CARP) coverage; (3) those to be
converted to non-agricultural use other than that previously authorized; and (4)
those reclassified to residential, commercial, industrial, or other non-agricultural
uses on or after the effectivity of Republic Act No. 6657 on 15 June 1988 pursuant to
Section 20 of Republic Act No. 7160 and other pertinent laws and regulations, and
are to be converted to such uses.
To address the unabated conversion of prime agricultural lands for real estate
development, the Secretary of Agrarian Reform further issued Memorandum No. 88
on 15 April 2008, which temporarily suspended the processing and approval of all
land use conversion applications. By reason thereof, petitioner claims that there is
an actual slow down of housing projects, which, in turn, aggravated the housing
shortage, unemployment and illegal squatting problems to the substantial prejudice
not only of the petitioner and its members but more so of the whole nation.
ISSUES:
WON [DAR AO NO. 01-02, AS AMENDED] violates the Due Process and Equal
Protection clauses, and WON Memorandum NO. 88 is a valid exercise of Police
Power.
HELD: The petition was dismissed. The authority of the Secretary of Agrarian
Reform to include "lands not reclassified as residential, commercial, industrial or
other non-agricultural uses before 15 June 1988" in the definition of agricultural
lands finds basis in jurisprudence. In Ros v. Department of Agrarian Reform, this
Court has enunciated that after the passage of Republic Act No. 6657, agricultural
lands, though reclassified, have to go through the process of conversion, jurisdiction
over which is vested in the DAR. However, agricultural lands, which are already
reclassified before the effectivity of Republic Act No. 6657 which is 15 June 1988,
are exempted from conversion.It bears stressing that the said date of effectivity of
Republic Act No. 6657 served as the cut-off period for automatic reclassifications or
rezoning of agricultural lands that no longer require any DAR conversion clearance
or authority. It necessarily follows that any reclassification made thereafter can be
the subject of DARs conversion authority. Having recognized the DARs conversion
authority over lands reclassified after 15 June 1988, it can no longer be argued that
the Secretary of Agrarian Reform was wrongfully given the authority and power to
include "lands not reclassified as residential, commercial, industrial or other nonagricultural uses before 15 June 1988" in the definition of agricultural lands. Such
inclusion does not unduly expand or enlarge the definition of agricultural lands;
instead, it made clear what are the lands that can be the subject of DARs
conversion authority, thus, serving the very purpose of the land use conversion
provisions of Republic Act No. 6657.It is clear from the aforesaid distinction between
reclassification and conversion that agricultural lands though reclassified to
residential, commercial, industrial or other non-agricultural uses must still undergo
the process of conversion before they can be used for the purpose to which they are
intended.
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19
20
FACTS: A task force was created on June 1, 1993 to investigate tax liabilities of
manufacturers engaged in tax evasion schemes. On July 1, 1993, the CIR issued
Rev. Memo Circ. No. 37-93 which reclassified certain cigarette brands manufactured
by private respondent Fortune Tobacco Corp. (Fortune) as foreign brands subject to
a higher tax rate. On August 3, 1993, Fortune questioned the validity of said
reclassification as being violative of the right to due process and equal protection of
laws. The CTA, on September 8, 1993 resolved that said reclassification was of
doubtful legality and enjoined its enforcement.
In the meantime, on August 3, 1993, Fortune was assessed deficiency
income, ad valorem and VAT for 1992 with payment due within 30 days from
receipt. On September 12, 1993, private respondent moved for reconsideration of
said assessment. Meanwhile on September 7, 1993, the Commissioner filed a
complaint with the DOJ against private respondent Fortune, its corporate officers
and 9 other corporations and their respective corporate officers for alleged
fraudulent tax evasion for non-payment of the correct income, ad valorem and VAT
for 1992. The complaint was referred to the DOJ Task Force on revenue cases which
found sufficient basis to further investigate the charges against Fortune.
A subpoena was issued on September 8, 1993 directing private respondent
to submit their counter-affidavits. But it filed a verified motion to dismiss or
alternatively, a motion to suspend but was denied and thus treated as their counteraffidavit. All motions filed thereafter were denied.
On January 4, 1994, private respondents filed a petition for certiorari and
prohibition with prayer for preliminary injunction praying the CIRs complaint and
prosecutors orders be dismissed/set aside or alternatively, that the preliminary
investigation be suspended pending determination by CIR of Fortunes motion for
reconsideration/reinvestigation of the August 13, 1993 assessment of taxes due.
The trial court granted the petition for a writ of preliminary injunction to
enjoin the preliminary investigation on the complaint for tax evasion pending before
the DOJ, ruling that the tax liability of private respondents first be settled before any
complaint for fraudulent tax evasion can be initiated.
ISSUE: Whether or not the basis of private respondents tax liability should first be
settled before any complaint for fraudulent tax evasion can be initiated?
HELD: Fraud cannot be presumed. If there was fraud on willful attempt to evade
payment of ad valorem taxes by private respondent through the manipulation of the
registered wholesale price of the cigarettes, it must have been with the connivance
of cooperation of certain BIR officials and employees who supervised and monitored
Fortunes production activities to see to it that the correct taxes were paid. But
there is no allegation, much less evidence, of BIR personnels malfeasance at the
very least, there is the presumption that BIR personnel performed their duties in the
regular course in ensuring that the correct taxes were paid by Fortune.
Before the tax liabilities of Fortune are finally determined, it cannot be
correctly asserted that private respondents have willfully attempted to evade or
defeat any tax under Secs. 254 and 256, 1997 NIRC. The fact that a tax is due must
first be proved.
Topic: Constitutional Limitations: Due Process Clause
COMMISSIONER OF INTERNAL REVENUE vs. M. J. LHUILLIER PAWNSHOP,
INC.
21
22
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Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC). The law intends
to encourage BIR and BOC officials and employees to exceed their revenue targets
by providing a system of rewards and sanctions through the creation of a Rewards
and Incentives Fund (Fund) and a Revenue Performance Evaluation Board (Board). It
covers all officials and employees of the BIR and the BOC with at least six months
of service, regardless of employment status
Petitioners, invoking their right as taxpayers filed this petition challenging the
constitutionality of RA 9335, a tax reform legislation. They contend that, by
establishing a system of rewards and incentives, the law "transform[s] the officials
and employees of the BIR and the BOC into mercenaries and bounty hunters" as
they will do their best only in consideration of such rewards. Petitioners also assail
the creation of a congressional oversight committee on the ground that it violates
the doctrine of separation of powers, for it permits legislative participation in the
implementation and enforcement of the law.
ISSUE: WON the joint congressional committee is valid and constitutional
HELD: YES. R.A. No. 9335 is constitutional, except for Section 12 of the law which
creates a Joint Congressional Oversight Committee to review the laws IRR.
That RA No. 9335 will turn BIR and BOC employees and officials into bounty
hunters and mercenaries is purely speculative as the law establishes safeguards by
imposing liabilities on officers and employees who are guilty of negligence, abuses,
malfeasance, etc. Neither is the equal protection clause violated since the law
recognizes a valid classification as only the BIR and BOC have the common distinct
primary function of revenue generation. There are sufficient policy and standards to
guide the President in fixing revenue targets as the revenue targets are based on
the original estimated revenue collection expected of the BIR and the BOC.
However, the creation of a Joint Congressional Oversight Committee for the purpose
of reviewing the IRR formulated by agencies of the executive branch (DOF, DBM,
NEDA, etc.) is unconstitutional since it violates the doctrine of separation of powers
since Congress arrogated judicial power upon itself.
As for The questions of Equal Protection, the Equality guaranteed under the equal
protection clause is equality under the same conditions and among persons
similarly situated; it is equality among equals, not similarity of treatment of persons
who are classified based on substantial differences in relation to the object to be
accomplished.19When things or persons are different in fact or circumstance, they
may be treated in law differently
The equal protection clause recognizes a valid classification, that is, a classification
that has a reasonable foundation or rational basis and not arbitrary. 22 With respect
to RA 9335, its expressed public policy is the optimization of the revenue-generation
capability and collection of the BIR and the BOC. 23 Since the subject of the law is the
revenue- generation capability and collection of the BIR and the BOC, the incentives
and/or sanctions provided in the law should logically pertain to the said agencies.
Moreover, the law concerns only the BIR and the BOC because they have the
common distinct primary function of generating revenues for the national
government through the collection of taxes, customs duties, fees and charges.
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Both the BIR and the BOC are bureaus under the DOF. They principally perform the
special function of being the instrumentalities through which the State exercises
one of its great inherent functions taxation. Indubitably, such substantial
distinction is germane and intimately related to the purpose of the law. Hence, the
classification and treatment accorded to the BIR and the BOC under RA 9335 fully
satisfy the demands of equal protection.
Topic: Constitutional Limitations: Equal Protection Clause
ASSOCIATION OF CUSTOMS BROKERS, INC. vs. THE MUNICIPAL BOARD
93 PHIL 107
FACTS: The disputed ordinance was passed by the Municipal Board of the City of
Manila under the authority conferred by section 18 (p) of Republic Act No. 409. Said
section confers upon the municipal board the power "to tax motor and other
vehicles operating within the City of Manila the provisions of any existing law to the
contrary notwithstanding." It is contended that this power is broad enough to confer
upon the City of Manila the power to enact an ordinance imposing a property tax on
motor vehicles operating within the city limits. The Association of Customs Brokers,
Inc., which is composed of all brokers and public service operators of motor vehicles
in the City of Manila, and G. Manlapit, Inc., a member of said association, also a
public service operator of trucks in said City, challenge the validity of ordinance on
the ground that (1) while it levies a so-called property tax it is in reality a license tax
which is beyond the power of the Municipal Board of the City of Manila; (2) said
ordinance offends against the rule of uniformity of taxation; and (3) it constitutes
double taxation. The respondents, represented by the city fiscal, contend on their
part that the challenged ordinance imposes a property tax which is within the power
of the City of Manila to impose under its Revised Charter [Section 18 (p) of Republic
Act No. 409], and that the tax in question does not violate the rule of uniformity of
taxation, nor does it constitute double taxation.
ISSUE: Whether or not the ordinance violates the rule on uniformity?
HELD: While as a rule an ad valorem tax is a property tax, and this rule is
supported by some authorities, the rule should not be taken in its absolute sense if
the nature and purpose of the tax as gathered from the context show that it is in
effect an excise or a license tax. Thus, it has been held that "If a tax is in its nature
an excise, it does not become a property tax because it is proportioned in amount
to the value of the property used in connection with the occupation, privilege or act
which is taxed. Every excise necessarily must finally fall upon and be paid by
property and so may be indirectly a tax upon property; but if it is really imposed
upon the performance of an act, enjoyment of a privilege, or the engaging in an
occupation, it will be considered an excise." It has also been held that "The
character of a tax as a property tax or a license or occupation tax must be
determined by its incidents, and from the natural and legal effect of the language
employed in the act or ordinance, and not by the name by which it is described, or
by the mode adopted in fixing its amount. If it is clearly a property tax, it will be so
regarded, even though nominally and in form it is a license or occupation tax; and,
on the other hand, if the tax is levied upon persons on account of their business, it
will be construed as a license or occupation tax, even though it is graduated
according to the property used in such business, or on the gross receipts of the
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business." The ordinance in question falls under the foregoing rules. While it refers
to property tax and it is fixed ad valorem yet we cannot reject the idea that it is
merely levied on motor vehicles operating within the City of Manila with the main
purpose of raising funds to be expended exclusively for the repair, maintenance and
improvement of the streets and bridges in said city. This is precisely what the Motor
VehicleLaw intends to prevent, for the reason that, under said Act, municipal
corporations already participate in the distribution of the proceeds that are raised
for the same purpose of repairing, maintaining and improving bridges and public
highways. This prohibition is intended to prevent duplication in the imposition of
fees for the same purpose. It is for this reason that we believe that the ordinance in
question merely imposes a license fee although under the cloak of an ad valorem
tax to circumvent the prohibition above adverted to.
It is also our opinion that the ordinance infringes the rule of uniformity of
taxation ordained by our Constitution. Note that the ordinance exacts the tax upon
all motor vehicles operating within the City of Manila. It does not distinguish
between a motor vehicle for hire and one which is purely for private use. Neither
does it distinguish between a motor vehicle registered in the City of Manila and one
registered in another place but occasionally comes to Manila and uses its streets
and public highways. The distinction is important if we note that the ordinance
intends to burden with the tax only those registered in the City of Manila as may be
inferred from the word "operating" used therein. The word "operating" denotes a
connotation which is akin 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 Manila for a temporary stay or for short errands, and it cannot be denied that
they contribute in no small degree to the deterioration of the streets and public
highways. The fact that they are benefited by their use they should also be made to
share the corresponding burden. And yet such is not the case. This is an inequality
which we find in the ordinance, and which renders it offensive to the Constitution.
Topic: Constitutional Limitations: Equal Protection Clause
SHELL vs. VAO
G.R. No. L-6093 February 24, 1954
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27
28
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set up, it cannot be subject to the tax because the ordinance expressly points only
to Ormoc Sugar Company as the entity to be levied upon.
Interest on refund not due as collection was not arbitrary; Ordinance
constitutional until declared otherwise Ormoc Sugar Company, however, is not
entitled to interest on the refund because the taxes were not arbitrarily collected
(Collector of Internal Revenue v. Binalbagan). At the time of collection, the
ordinance provided a sufficient basis to preclude arbitrariness, the same being then
presumed constitutional until declared otherwise.
Topic: Constitutional Limitations: Equal Protection Clause
PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC., vs.
SECRETARY OF DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT
GR. No. 143076 June 10, 2003
FACTS: On May 23, 2003, a class suit was filed by petitioners in their own behalf
and in behalf of other electric cooperatives organized and existing under PD 269
which are members of petitioner Philippine Rural Electric Cooperatives Association,
Inc. The other petitioners, electric cooperatives of Agusandel Norte, Iloilo 1, and
Isabela 1 are non-stock, non-profit electric cooperatives organized and existing
under PD 269, as amended, and registered with the National Electrification
Administration.
Under Sec. 39 of PD 269 electric cooperatives shall be exempt from the
payment of all National Government, local government, and municipal taxes and
fee, including franchise, fling recordation, license or permit fees or taxes and any
fees, charges, or costs involved in any court or administrative proceedings in which
it may be party. From 1971to 1978, in order to finance the electrification projects
envisioned by PD 269, as amended, the Philippine Government, acting through the
National Economic council and the NEA, entered into six loan agreements with the
government of the United States of America, through the United States Agency for
International Development with electric cooperatives as beneficiaries. The loan
agreements contain similarly worded provisions on the tax application of the loan
and any property or commodity acquired through the proceeds of the loan.
Petitioners allege that with the passage of the Local Government Code their
tax exemptions have been validly withdrawn. Particularly, petitioners assail the
validity of Sec. 193 and 234 of the said code. Sec. 193 provides for the withdrawal
of tax exemption privileges granted to all persons, whether natural or juridical,
except cooperatives duly registered under RA 6938, while Sec. 234 exempts the
same cooperatives from payment of real property tax.
ISSUE: Does the Local Government Code violate the equal protection clause since
the provisions unduly discriminate against petitioners who are duly registered
cooperatives under PD 269, as amended, and no under RA 6938 or the Cooperatives
Code of the Philippines?
HELD: No. The guaranty of the equal protection clause is not violated by a law
based on a reasonable classification. Classification, to be reasonable must (a) rest
on substantial classifications; (b) germane to the purpose of the law; (c) not limited
to the existing conditions only; and (d) apply equally to all members of the same
class. We hold that there is reasonable classification under the Local Government
31
Code to justify the different tax treatment between electric cooperatives covered by
PD 269 and electric cooperatives under RA 6938.
First, substantial distinctions exist between cooperatives under PD 269 and
those under RA 6938. In the former, the government is the one that funds those socalled electric cooperatives, while in the latter, the members make equitable
contribution as source of funds.
Second, the classification of tax-exempt entities in the Local Government
Code is germane to the purpose of the law. The Constitutional mandate that every
local government unit shall enjoy local autonomy, does not mean that the exercise
of the power by the local governments is beyond the regulation of Congress. Sec.
193 of the LGC is indicative of the legislative intent to vet broad taxing powers upon
the local government units and to limit exemptions from local taxation to entities
specifically provided therein. Finally, Sec. 193 and 234 of the LGC permit reasonable
classification as these exemptions are not limited to existing conditions and apply
equally to all members of the same class.
It is ingrained in jurisprudence that the constitutional prohibition on the
impairment of the obligations of contracts does not prohibit every change in
existing laws. To fall within the prohibition, the change must not only impair the
obligation of the existing contract, but the impairment must be substantial.
Moreover, to constitute impairment, the law must affect a change in the rights of
the parties with reference to each other and not with respect to non-parties.
The quoted provision under the loan agreement does not purport to grant any
tax exemption in favor of any party to the contract, including the beneficiaries
thereof. The provisions simply shift the tax burden, if any, on the transactions under
the loan agreements to the borrower and/or beneficiary of the loan. Thus, the
withdrawal by the Local Government Code under Sec. 193 and 234 of the tax
exemptions previously enjoyed by petitioners does not impair the obligation of the
borrower, the lender or the beneficiary under the loan agreements as, in fact, no tax
exemption is granted therein.
Topic: Constitutional Limitations: Equal Protection Clause
JUDY ANN SANTOS vs. PEOPLE PF THE PHILIPPINES
G.R. 173176 August 26, 2008
FACTS: On 19 May 2005, then Bureau of Internal Revenue Commissioner Guillermo
L. Parayno, Jr. wrote to the Department of Justice Secretary Raul M. Gonzales a
letter regarding the possible filing of criminal charges against petitioner. Allegedly
petitioner, in her Annual Income Tax Return for taxable year 2002 filed with the BIR,
declared an income of P8,033,332.70 derived from her talent fees solely from ABSCBN. Initial documents gathered from the BIR offices and those given by petitioner's
accountant and third parties, however, confirmed that petitioner received in 2002
income in the amount of at least P14,796,234.70, not only from ABS-CBN, but also
from other sources, such as movies and product endorsements. The estimated tax
liability arising from petitioner's under declaration amounted to P1,718,925.52,
including incremental penalties; the non-declaration by petitioner of an amount
equivalent to at least 84.18% of the income declared in her return was considered a
substantial under declaration of income, which constituted prima facie evidence of
false or fraudulent return under Section 248(B) of the NIRC, as amended.
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with legal interest thereon, and the costs, plaintiff further praying for such other
relief and remedy as the court may deem just equitable.
Defendant answered the complaint, maintaining in turn that said ordinances
were enacted by the Municipal Board of the City of Manila by virtue of the power
granted to it by section 2444, subsection (m-2) of the Revised Administrative Code,
superseded on June 18, 1949, by section 18, subsection (1) of Republic Act No. 409,
known as the Revised Charter of the City of Manila.
ISSUE: Whether or not the ordinances were unconstitutional and provide for
religious censorship and restrain the free exercise and enjoyment of its religious
profession?
HELD:
Section 1, subsection (7) of Article III of the Constitution of the Republic
of the Philippines, provides that: No law shall be made respecting an establishment
of religion, or prohibiting the free exercise thereof, and the free exercise and
enjoyment of religious profession and worship, without discrimination or preference,
shall forever be allowed. No religion test shall be required for the exercise of civil or
political rights.
Article III, section 1, clause (7) of the Constitution of the
Philippinesaforequoted, guarantees the freedom of religious profession and worship.
"Religion has been spoken of as a profession of faith to an active power that binds
and elevates man to its Creator".It has reference to one's views of his relations to
His Creator and to the obligations they impose of reverence to His being and
character, and obedience to His Will. The constitutional guaranty of the free
exercise and enjoyment of religious profession and worship carries with it the right
to disseminate religious information. Any restraints of such right can only be
justified like other restraints of freedom of expression on the grounds that there is a
clear and present danger of any substantive evil which the State has the right to
prevent". In the case at bar the license fee herein involved is imposed upon
appellant for its distribution and sale of bibles and other religious literature.
It may be true that in the case at bar the price asked for the bibles and other
religious pamphlets was in some instances a little bit higher than the actual cost of
the same but this cannot mean that appellant was engaged in the business or
occupation of selling said "merchandise" for profit. For this reason, we believe that
the provisions of City of Manila Ordinance No. 2529, as amended, cannot be applied
to appellant, for in doing so it would impair its free exercise and enjoyment of its
religious profession and worship as well as its rights of dissemination of religious
beliefs.
With respect to Ordinance No. 3000, as amended, which requires the Mayor's permit
before any person can engage in any of the businesses, trades or occupations
enumerated therein, we do not find that it imposes any charge upon the enjoyment
of a right granted by the Constitution, nor tax the exercise of religious practices.
It seems clear, therefore, that Ordinance No. 3000(mayors permit) cannot be
considered unconstitutional, even if applied to plaintiff Society. But as Ordinance No.
2529( license fee) of the City of Manila, as amended, is not applicable to plaintiffappellant and defendant-appellee is powerless to license or tax the business of
plaintiff Society involved herein for, as stated before, it would impair plaintiff's right
to the free exercise and enjoyment of its religious profession and worship, as well as
its rights of dissemination of religious beliefs, We find that Ordinance No. 3000, as
amended is also inapplicable to said business, trade or occupation of the plaintiff.
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owner. The said mines were granted by virtue of the royal decree of the 14 th of May,
1967 which provided among others, that the grantee shall pay annually a fixed tax
of 40 escudos and a further tax of 3% on the gross earnings. Furthermore, the
decree also provided that no other taxes than those mentioned shall be imposed
upon mining and metallurgical industries.
However, the defendant Collector of Internal Revenue, considered the
questioned mining concessions to fall within the provisions of Sec. 134 of the
Internal Revenue Act which imposes on all valid perfected mining concessions
granted prior to April 11, 1899, an annual tax of P100 and an ad valorem tax equal
to 3% of the actual market value of the gross output.
The defendant accordingly imposed upon these properties the tax mentioned
and thereafter the plaintiff paid under protest. The plaintiff brought this action
against the defendant to recover the sum paid under protest. Judgment was
rendered in favor of the defendant and from that judgment plaintiff appealed.
ISSUE: Whether or not Sec. 134 of the Internal Revenue Act is valid.
HELD: No. This is because it is violative of the provision of Sec. 5 of the Act of
Congress of July 1, 1902, which provides that no law impairing the obligation of
contracts shall be enacted. It seems that the Deed covering this particular mining
concessions constituted a contract between the Spanish government and the
Plaintiff, the obligation of which was impaired by the enactment of Sec. 134 of the
Internal Revenue Act, thereby infringing the provisions of said Act of Congress.
Therefore, the said provision of law is void.
Topic: Non-impairment Clause
CAGAYAN ELECTRIC POWER & LIGHT CO., INC. vs
COMMISSIONER OF INTERNAL REVENUE
G.R. No. L-60126 September 25, 1985
FACTS: The petitioner is the holder of a legislative franchise, Republic Act No. 3247,
under which its payment of 3% tax on its gross earnings from the sale of electric
current is "in lieu of all taxes and assessments of whatever authority upon
privileges, earnings, income, franchise, and poles, wires, transformers, and
insulators of the grantee, from which taxes and assessments the grantee is hereby
expressly exempted"
On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code
by making liable for income tax all corporate taxpayers not specifically exempt
under paragraph (c) (1) of said section and section 27 of the Tax Code
notwithstanding the "provisions of existing special or general laws to the contrary".
Thus, franchise companies were subjected to income tax in addition to franchise
tax.
However, in petitioner's case, its franchise was amended by Republic Act No.
6020, effective August 4, 1969, by authorizing the petitioner to furnish electricity to
the municipalities of Villanueva and Jasaan, Misamis Oriental in addition to Cagayan
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de Oro City and the municipalities of Tagoloan and Opol. The amendment reenacted
the tax exemption in its original charter or neutralized the modification made by
Republic Act No. 5431 more than a year before. By reason of the amendment to
section 24 of the Tax Code, the Commissioner of Internal Revenue in a demand
letter dated February 15, 1973 required the petitioner to pay deficiency income
taxes for 1968-to 1971. The petitioner contested the assessments. The
Commissioner cancelled the assessments for 1970 and 1971 but insisted on those
for 1968 and 1969.
ISSUE: Whether or not the imposing of the franchise tax is valid?
HELD: We hold that Congress could impair petitioner's legislative franchise by
making it liable for income tax from which heretofore it was exempted by virtue of
the exemption provided for in section 3 of its franchise. The Constitution provides
that a franchise is subject to amendment, alteration or repeal by the Congress when
the public interest so requires.
Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is
subject to the provisions of the Constitution and to the terms and conditions
established in Act No. 3636 whose section 12 provides that the franchise is subject
to amendment, alteration or repeal by Congress.
Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting
to income tax all corporate taxpayers not expressly exempted therein and in section
27 of the Code, had the effect of withdrawing petitioner's exemption from income
tax.
The Tax Court acted correctly in holding that the exemption was restored by
the subsequent enactment on August 4, 1969 of Republic Act No. 6020 which
reenacted the said tax exemption. Hence, the petitioner is liable only for the income
tax for the period from January 1 to August 3, 1969 when its tax exemption was
modified by Republic Act No. 5431.
It is relevant to note that franchise companies, like the Philippine Long
Distance Telephone Company, have been paying income tax in addition to the
franchise tax.
However, it cannot be denied that the said 1969 assessment appears to be
highly controversial. The Commissioner at the outset was not certain as to
petitioner's income tax liability. It had reason not to pay income tax because of the
tax exemption in its franchise.
For this reason, it should be liable only for tax proper and should not be held
liable for the surcharge and interest.
Topic: Constitutional Limitations: Non-impairment Clause
MERALCO vs PROVINCE OF LAGUNA
G.R. No. 131359 May 5, 1999
FACTS: On various dates certain Municipalities of the Province of Laguna issued
resolutions granting franchise in favor of petitioner MERALCO for the supply of
electric light heat and power within their concerned areas. National Electrification
Administration on January light and power service in the Municipality of Calamba
Laguna.
Pursuant to the Provisions of the LGC of 1991 the respondent province
enacted Laguna Provincial Ordinance no. 01-92 effective January 1 1993, proving:
38
sec. 2.09 Franchise Tax- there is hereby imposed a tax on businesses enjoying a
franchise, at a rate of 50% of 1% of the gross annual receipts which shall include
both cash sales and sales on account realized during the preceding calendar year
within this province including the territorial limits on any city located in the
province.
On the basis of this ordinance respondent provincial Treasurer sent a demand
letter to MERALCO for its corresponding tax payment.
Under protest MERALCO paid the tax in the amount of 19 Million Pesos.
A claim for refund was thereafter sent by Meralco to Provincial Treasurer of
Laguna claiming that the franchise tax that it has paid and continued to pay to the
National Government pursuant to PD 551 already included franchise tax imposed by
the Provincial Tax Ordinance. MERALCO contended that the imposition of a franchise
tax under Sec 2.09 of LPO 01-92 contravened the provisions of section 1 of PD 551.
ISSUE: Whether the imposition of a franchise tax under sec 2.09 of LPO 01-92 is
violative of the non-impairment clause of the Constitution and sec 1 of PD 551?
HELD: Under the now prevailing Constitution, where there is neither a grant nor a
prohibition by statute, the tax power must be deemed to exist although Congress
may provide statutory limitations and guidelines. The basic rationale for the current
rule is to safeguard the viability and self-sufficiency of local government units by
directly granting them general and broad tax powers. Nevertheless, the
fundamental law did not intend the delegation to be absolute and unconditional; the
constitutional objective obviously is to ensure that, while the local government units
are being strengthened and made more autonomous,the legislature must still see to
it that (a) the taxpayer will not be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local government unit will have its fair share of
available resources; (c) the resources of the national government will not be unduly
disturbed; and (d) local taxation will be fair, uniform, and just.
While the Court has, not too infrequently, referred to tax exemptions
contained in special franchises as being in the nature of contracts and a part of the
inducement for carrying on the franchise, these exemptions, nevertheless, are far
from being strictly contractual in nature. Contractual tax exemptions, in the real
sense of the term and where the non-impairment clause of the Constitution can
rightly be invoked, are those agreed to by the taxing authority in contracts, such as
those contained in government bonds or debentures, lawfully entered into by them
under enabling laws in which the government, acting in its private capacity, sheds
its cloak of authority and waives its governmental immunity. Truly, tax exemptions
of this kind may not be revoked without impairing the obligations of contracts.
These contractual tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the nature of a grant
which is beyond the purview of the non-impairment clause of the Constitution.
Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions
in the 1935 and the 1973 Constitutions, is explicit that no franchise for the
operation of a public utility shall be granted except under the condition that such
privilege shall be subject to amendment, alteration or repeal by Congress as and
when the common good so requires.
Topic: Constitutional Limitations: Non-impairment Clause
RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. vs.
PROVINCIAL ASSESOR OF SOUTH COTABATO
39
40
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taxes, Congress opted to pass Rep. Act No. 7633 using, under Section 11 thereof,
exactly the same defining phrase "exclusive of this franchise" which was the basis
for Bayantels exemption from realty taxes prior to the LGC. In plain language,
Section 11 of Rep. Act No. 7633 states that "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 franchise, as other persons or corporations are now or
hereafter may be required by law to pay." The Court views this subsequent piece of
legislation as an express and real intention on the part of Congress to once again
remove from the LGCs delegated taxing power, all of the franchisees (Bayantels)
properties that are actually, directly and exclusively used in the pursuit of its
franchise.
Topic: Constitutional Limitations: Non-impairment Clause
SMART COMMUNICATIONS, INC., vs. THE CITY OF DAVAO, represented
herein by its Mayor HON. RODRIGO R. DUTERTE, and the SANGGUNIANG
PANLUNGSOD OF DAVAO CITY.
[G.R. No. 155491. September 16, 2008.]
FACTS: Smart filed a special civil action for declaratory relief 3 under Rule 63 of the
Rules of Court, for the ascertainment of its rights and obligations under the Tax
Code of the City of Davao. Smart contends that its telecenter in Davao City is
exempt from payment of franchise tax to the City, on the following grounds: (a) the
issuance of its franchise under Republic Act (R.A.) No. 7294 subsequent to R.A. No.
7160 shows the clear legislative intent to exempt it from the provisions of R.A.
7160; (b) Section 137 of R.A. No. 7160 can only apply to exemptions already
existing at the time of its effectivity and not to future exemptions; (c) the power of
the City of Davao to impose a franchise tax is subject to statutory limitations such
as the "in lieu of all taxes" clause found in Section 9 of R.A. No. 7294; and (d) the
imposition of franchise tax by the City of Davao would amount to a violation of the
constitutional provision against impairment of contracts. RTC denied the petition.
ISSUE: WON Smart is exempt from franchise and local taxes.
HELD: No. We pay heed that R.A. No. 7294 is not definite in granting exemption to
Smart from local taxation. Section 9 of R.A. No. 7294 imposes on Smart a franchise
tax equivalent to three percent (3%) of all gross receipts of the business transacted
under the franchise and the said percentage shall be in lieu of all taxes on the
franchise or earnings thereof. R.A. No 7294 does not expressly provide what kind of
taxes Smart is exempted from. It is not clear whether the "in lieu of all taxes"
provision in the franchise of Smart would include exemption from local or national
taxation. What is clear is that Smart shall pay franchise tax equivalent to three
percent (3%) of all gross receipts of the business transacted under its franchise. But
whether the franchise tax exemption would include exemption from exactions by
both the local and the national government is not unequivocal In this case, the
doubt must be resolved in favor of the City of Davao. The "in lieu of all taxes" clause
applies only to national internal revenue taxes and not to local taxes.
Another argument of Smart is that the imposition of the local franchise tax by
the City of Davao would violate the constitutional prohibition against impairment of
contracts. The franchise, according to petitioner, is in the nature of a contract
between the government and Smart.
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The right to exemption from local franchise tax must be clearly established
and cannot be made out of inference or implications but must be laid beyond
reasonable doubt. Verily, the uncertainty in the "in lieu of all taxes" provision should
be construed against ABS-CBN. ABS-CBN has the burden to prove that it is in fact
covered by the exemption so claimed. ABS-CBN miserably failed in this regard.
The franchise failed to specify the taxing authority from whose jurisdiction
the taxing power is withheld, whether municipal, provincial, or national. In fine,
since ABS-CBN failed to justify its claim for exemption from local franchise tax, by a
grant expressed in terms "too plain to be mistaken" its claim for exemption for local
franchise tax must fail.
Also, the "in lieu of all taxes" clause in the franchise of ABS-CBN has
become functus officio with the abolition of the franchise tax on
broadcasting companies with yearly gross receipts exceeding Ten Million
Pesos.
On January 1, 1998, R.A. No. 8424 was passed confirming the 10%
VAT liability of radio and/or television companies with yearly gross receipts
exceeding P10,000,000.00. R.A. No. 9337 was subsequently enacted and
became effective on July 1, 2005. The said law further amended the NIRC by
increasing the rate of VAT to 12%.
In consonance with the above survey of pertinent laws on the matter,
ABS-CBN is subject to the payment of VAT. It does not have the option to
choose between the payment of franchise tax or VAT since it is a
broadcasting company with yearly gross receipts exceeding Ten Million
Pesos (P10,000,000.00).
VAT is a percentage tax imposed on any person whether or not a
franchise grantee, who in the course of trade or business, sells, barters,
exchanges, leases, goods or properties, renders services. It is also levied on
every importation of goods whether or not in the course of trade or
business. The tax base of the VAT is limited only to the value added to such
goods, properties, or services by the seller, transferor or lessor. Further, the
VAT is an indirect tax and can be passed on to the buyer.
The franchise tax, on the other hand, is a percentage tax imposed
only on franchise holders. It is imposed under Section 119 of the Tax Code
and is a direct liability of the franchise grantee.
The clause "in lieu of all taxes" does not pertain to VAT or any other
tax. It cannot apply when what is paid is a tax other than a franchise tax.
Since the franchise tax on the broadcasting companies with yearly gross
receipts exceeding ten million pesos has been abolished, the "in lieu of all
taxes" clause has now become functus officio, rendered inoperative.
In sum, ABS-CBN's claims for exemption must fail on twin grounds.
First, the "in lieu of all taxes" clause in its franchise failed to specify the
taxes the company is sought to be exempted from. Neither did it
particularize the jurisdiction from which the taxing power is withheld.
Second, the clause has become functus officio because as the law now
stands, ABS-CBN is no longer subject to a franchise tax. It is now liable for
VAT.
Topic: Constitutional Limitations: Tax Exemption of traditional Exemptees
REV. FR. CASIMIRO LLADOC vs. COMMISSIONER OF INTERNAL
G.R. No. L-19201 June 16, 1965
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45
46
Appeals, which, affirmed the decision of the City Assessor. A motion for
reconsideration thereof was denied. From this decision, the petitioners instituted the
instant appeal.
The building involved in this case is principally used as a hospital. From the
evidence presented by petitioners, it is made to appear that there are two kinds of
charity patients (a) those who come for consultation only ("out-charity patients");
and (b) those who remain in the hospital for treatment ("lying-in-patients").
Petitioners also operate within the premises of the hospital the "St. Catherine's
School of Midwifery" which was granted government recognition by the Secretary of
Education. The students practice in the St. Catherine's Hospital, as well as in the St.
Mary's Hospital, which is also owned by the petitioners. A separate set of
accounting books is maintained by the school for midwifery distinct from that kept
by the hospital. However, the petitioners have refused to submit a separate
statement of accounts of the school.
ISSUE: Whether or not the said properties are used exclusively for charitable or
educational purposes which are exempt from real property tax
HELD: Yes. The Court of Tax Appeals decided the issue in the negative, upon the
ground that the St. Catherine's Hospital has a pay ward for ... pay-patients, who are
charged for the use of the private rooms, operating room, laboratory room, delivery
room, etc., like other hospitals operated for profit and that petitioners and their
family occupy a portion of the building for their residence.
It should be noted, however, that, according to the very statement of facts
made in the decision appealed from, of the thirty-two (32) beds in the hospital,
twenty (20) are for charity-patients; that the income realized from pay-patients is
spent for improvement of the charity wards; and that petitioners, Dr. Ester
Ochangco Herrera, as directress of said hospital, does not receive any salary,
although its resident physician gets a monthly salary of P170.00. It is well settled, in
this connection, that the admission of pay-patients does not detract from the
charitable character of a hospital, if all its funds are devoted exclusively to the
maintenance of the institution as a public charity. In other words, where rendering
charity is its primary object, and the funds derived from payments made by patients
able to pay are devoted to the benevolent purposes of the institution, the mere fact
that a profit has been made will not deprive the hospital of its benevolent character.
Moreover, the exemption in favor of property used exclusively for charitable
or educational purposes is not limited to property actually indispensable therefor
but extends to facilities which are incidental to and reasonably necessary for the
accomplishment of said purposes, such as, in the case of hospitals, a school for
training nurses, a nurses' home, property use to provide housing facilities for
interns, resident doctors, superintendents, and other members of the hospital staff,
and recreational facilities for student nurses, interns and residents.
Within the purview of the Constitutional exemption from taxation, the St.
Catherine's Hospital is, therefore, a charitable institution, and the fact that it admits
pay-patients does not bar it from claiming that it is devoted exclusively to
benevolent purposes, it being admitted that the income derived from pay-patients is
devoted to the improvement of the charity wards, which represent almost two-thirds
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(2/3) of the bed capacity of the hospital, aside from "out-charity patients" who come
only for consultation.
Topic: Constitutional Limitations: Tax Exemption of traditional Exemptees
Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte
GR 27588, 31 December 1927
FACTS: The Roman Catholic Apostolic Church is the owner of a parcel of land in San
Nicolas, Ilocos Norte. On the south side is a part of the Church yard, the convent
and an adjacent lost used for a vegetable garden in which there is a stable and a
well for the use of the convent. In the center is the remainder of the churchyard and
the Church. On the north side is an old cemetery with its two walls still standing,
and a portion where formerly stood a tower. The provincial board assessed land tax
on lots comprising the north and south side, which the church paid under protest.
The plaintiff filed this action for the recovery of the sum paid by to the defendants
by way of land tax, alleging that the collection of this tax is illegal.
The lower court absolved the defendants from the complaint in regard to the
lot adjoining convent and declared that the tax collected on the lot, which formerly
was the cemetery and on the portion where the lower stood, was illegal. Both
parties appealed from this judgment.
ISSUE: Whether or not the subject lots are exempted from taxation.
HELD: Yes. The exemption in favor of the convent in the payment of land tax refers
to the home of the priest who presides over the church and who has to take care of
himself in order to discharge his duties. The exemption includes not only the land
actually occupied by the Church but also the adjacent ground destined to the
ordinary incidental uses of man. A vegetable garden, thus, which belongs to a
convent, where its use is limited to the necessity of the priest, comes under the
exemption. Further, land used as a lodging house by the people who participate in
religious festivities, which constitutes an incidental use in religious functions,
likewise comes within the exemption. It cannot be taxed according to its former use,
i.e. a cemetery. The judgment appealed from is reversed in all it parts and it is held
that both lots are exempt from land tax and the defendants are ordered to refund to
plaintiff whatever was paid as such tax, without any special pronouncement as to
costs.
Topic: Constitutional Limitations: Tax Exemption of traditional Exemptees
LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY
G.R. No. 144104 June 29, 2004
FACTS: The petitioner, a non-stock and non-profit entity is the registered owner of a
parcel of land where erected in the middle of the aforesaid lot is a hospital known as
the Lung Center of the Philippines. A big space at the ground floor is being leased to
private parties, for canteen and small store spaces, and to medical or professional
practitioners who use the same as their private clinics for their patients whom they
charge for their professional services. Almost one-half of the entire area on the left
side of the building along Quezon Avenue is vacant and idle, while a big portion on
the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased
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for commercial purposes to a private enterprise known as the Elliptical Orchids and
Garden Center.
On June 7, 1993, both the land and the hospital building of the petitioner
were assessed for real property taxes in the amount of P4, 554,860 by the City
Assessor of Quezon City but the former filed a Claim for Exemption from real
property taxes with the City Assessor, predicated on its claim that it is a charitable
institution.
ISSUE: Whether or not the petitioners real properties are exempted from realty tax
exemptions.
HELD: Even if the petitioner is a charitable institution, those portions of its real
property that are leased to private entities are not exempt from real property taxes
as these are not actually, directly and exclusively used for charitable purposes.
What is meant by actual, direct and exclusive use of the property for charitable
purposes is the direct and immediate and actual application of the property itself to
the purposes for which the charitable institution is organized.
Hence, a claim for exemption from tax payments must be clearly shown and
based on language in the law too plain to be mistaken. Under Section 2 of
Presidential Decree No. 1823, the petitioner does not enjoy any property tax
exemption privileges for its real properties as well as the building constructed
thereon. If the intentions were otherwise, the same should have been among the
enumeration of tax exempt privileges under Section 2. Accordingly, the portions
occupied by the hospital used for its patients are exempt from real property taxes
while those leased to private entities are not exempt from such taxes.
Topic: Constitutional Limitations: Tax Exemption of Non-stock non-profit
Educational Institutions
Commissioner of Internal Revenue v. Court of Appeals and YMCA
G.R.No.L-124043 October 14, 1998
FACTS: Private Respondent YMCA is a non-stock, non-profit institution, which
conducts various programs and activities that are beneficial to the public, especially
the young people, pursuant to its religious, educational and charitable objectives. In
1980, private respondent earned, among others, an income of P676, 829.80 from
leasing out a portion of its premises to small shop owners, like restaurants and
canteen operators, and P44,259.00 from parking fees collected from non-members.
On July 2, 1984, the Commissioner of Internal Revenue (CIR) issued an assessment
to private respondent, in the total amount of P415,615.01 including surcharge and
interest, for deficiency income tax, deficiency expanded withholding taxes on
rentals and professional fees and deficiency withholding tax on wages. Private
respondent formally protested the assessment and, as a supplement to its basic
protest, filed a letter dated October 8, 1985. In reply, the CIR denied the claims of
YMCA. Contesting the denial of its protest, the YMCA filed a petition for review at
the Court of Tax Appeals on March 14, 1989. In due course, the CTA issued this
ruling in favor of the YMCA.
ISSUE: Whether or not the YMCA is exempted from rental income derived from the
lease of its properties
49
HELD: NO. Petitioner argues that while the income received by the organizations
enumerated in Section 27 (now Section 26) of the NIRC is, as a rule, exempted from
the payment of tax "in respect to income received by them as such," the exemption
does not apply to income derived "xxx from any of their properties, real or personal,
or from any of their activities conducted for profit, regardless of the disposition
made of such income xxx".
The Court agrees with the commissioner. In the instant case, the exemption
claimed by the YMCA is expressly disallowed by the very wording of the last
paragraph of then Section 27 of the NIRC which mandates that the income of
exempt organizations (such as the YMCA) from any of their properties, real or
personal, be subject to the tax imposed by the same Code.
Topic: Constitutional Limitations: Origin of Revenue, Appropriation and
Tarriff Bills
ABAKADA Guro Party List vs. Ermita
G.R. No. 168056 September 1, 2005
FACTS: Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et
al., filed a petition for prohibition on May 27, 2005 questioning the constitutionality
of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a
10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a 10% VAT on sale of services and use
or lease of properties. These questioned provisions contain a uniform proviso
authorizing the President, upon recommendation of the Secretary of Finance, to
raise the VAT rate to 12%, effective January 1, 2006, after specified conditions have
been satisfied. Petitioners argue that the law is unconstitutional.
ISSUES: Whether or not there is a violation of Article VI, Section 24 of the
Constitution.
Whether or not there is undue delegation of legislative power in violation of Article
VI Sec 28(2) of the Constitution.
HELD:
1. Since there is no question that the revenue bill exclusively originated in the
House of Representatives, the Senate was acting within its constitutional power to
introduce amendments to the House bill when it included provisions in Senate Bill
No. 1950 amending corporate income taxes, percentage, and excise and franchise
taxes.
2. There is no undue delegation of legislative power but only of the discretion
as to the execution of a law. This is constitutionally permissible. Congress does not
abdicate its functions or unduly delegate power when it describes what job must be
done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go
forward.
3. The power of the State to make reasonable and natural classifications for
the purposes of taxation has long been established. Whether it relates to the
subject of taxation, the kind of property, the rates to be levied, or the amounts to be
raised, the methods of assessment, valuation and collection, the States power is
50
entitled to presumption of validity. As a rule, the judiciary will not interfere with such
power absent a clear showing of unreasonableness, discrimination, or arbitrariness.
Topic: Forms of Escape from Taxation
REPUBLIC OF THE PHILIPPINES vs. HEIRS OF CESAR JALANDONI, ET AL.
G.R. No. L-18384 September 20, 1965
FACTS: Isabel Ledesma died intestate leaving real properties situated in the
provinces of Negros Occidental and Rizal and in the cities of Manila and Baguio, and
personal properties consisting of shares of stock in various domestic corporations.
She left as heirs her husband Bernardino and three children, namely, Cesar, Angeles
and Delfin.
Cesar, one of the heirs, filed an estate and inheritance tax return and this
return also shows that no testamentary or intestate proceedings were instituted.
On the basis of this return the Bureau of Internal Revenue made an assessment as
estate and inheritance taxes, respectively, stating therein that the assessment was
"to be considered partial pending investigation of the return." These sums were paid
by Cesar. After a preliminary investigation was made of the properties reported in
the abovementioned return, a second assessment was made by the Bureau of
Internal Revenue as deficiency estate and inheritance taxes, respectively, for which
reason a demand was made on Bernardino stating therein that the same was still
"to be considered partial pending further investigation of the return," which
amounts were paid by Bernardino. The third assessment was made against the
estate wherein the heirs were required to pay the amounts of P29,995.30 and
P49,842.05 as deficiency estate and inheritance taxes, respectively, including
accrued interests, with the warning that failure on their part to pay the same would
subject them to the payment of surcharge, interest, and penalty for late payment of
the tax.
ISSUE: Whether or not the heirs of the deceased have committed any act indicative
of an intention to evade the payment of the inheritance or estate taxes due the
government
HELD: Record shows that the three lots alleged to have been excluded in the return
were already declared in the earlier return submitted by Bernardino Jalandoni as
part of his property and his wife for purposes of income tax, there is reason to
believe that their omission from the return submitted by Cesar Jalandoni was merely
due to an honest mistake or inadvertence as properly explained by appellants. We
can hardly dispute this conclusion as it would be stretching too much the
imagination if we would find that, because of such inadvertence, which appears to
be inconsequential, the heirs of the deceased deliberately omitted from the return
the three lots with the only purpose of defrauding the government after declaring
therein as asset of the estate property worth P1,324,555.80.
The same thing may be said with regard to the alleged undervaluation of
certain sugar and rice lands reported by Cesar Jalandoni for the same can at most
be considered as the result of an honest difference of opinion and not necessarily an
intention to commit fraud.
Finally, SC finds it unreasonable to impute with regard to the appraisal made
by appellants of the shares of stock of the deceased simply because Cesar Jalandoni
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placed in his return an aggregate market value instead of mentioning the book
value declared by said corporations in the returns filed by them with the Bureau of
Internal Revenue. The fact that the value given in the returns did not tally with the
book value appearing in the corporate books is not in itself indicative of fraud
especially when it is taken into consideration the circumstance that said book value
only became known several months after the death of the deceased. Moreover, it is
a known fact that stock securities frequently fluctuate in value and a mere
difference of opinion in relation thereto cannot serve as proper basis for assessing
an intention to defraud the government.
Having reached the conclusion that the heirs of the deceased have not
committed any act indicative of an intention to evade the payment of the
inheritance or estate taxes due the government, as evidenced by their willingness
in the past to pay all the taxes properly assessed against them, it is evident that the
instant claim of appellee has already prescribed under Section 331 of the National
Internal Revenue Code. And with this conclusion, a discussion of the other errors
assigned by appellants would seem to be unnecessary.
Topic: Forms of Escape from Taxation
YUTIVO SONS HARDWARE COMPANY vs. COURT OF TAX APPEALS
G.R. No. L-13203 January 28, 1961
FACTS: Petitioner was engaged, prior to the last world war, in the importation and
sale of hardware supplies and equipment. After the liberation, it resumed its
business and bought a number of cars and trucks from General Motors Overseas, an
American corporation licensed to do business in the Philippines. As importer, GM
paid sales tax prescribed by sections 184, 185 and 186 of the Tax Code on the basis
of its selling price to Yutivo. Said tax being collected only once on original sales,
Yutivo paid no further sales tax on its sales to the public.
On June 13, 1946, the Southern Motors, Inc. (SM) was organized to engage in
the business of selling cars, trucks and spare parts. Its original authorized capital
stock was P1,000,000 divided into 10,000 shares with a par value of P100 each.
After the incorporation of SM and until the withdrawal of GM from the Philippines in
the middle of 1947, the cars and tracks purchased by Yutivo from GM were sold by
Yutivo to SM which, in turn, sold them to the public in the Visayas and Mindanao.
When General Motors Overseas Corporation (GM) decided to withdraw from
the Philippines in the middle of 1947, the U.S. manufacturer of GM cars and trucks
appointed Yutivo as importer for the Visayas and Mindanao, and Yutivo continued its
previous arrangement of selling exclusively to Southern Motors, Inc. (SM). In the
same way that GM used to pay sales taxes based on its sales to Yutivo, the latter, as
importer, paid sales tax prescribed on the basis of its selling price to SM, and since
such sales tax, as already stated, is collected only once on original sales, SM paid no
sales tax on its sales to the public.
The Collector of Internal Revenue made an assessment upon Yutivo and
demanded from the latter P1,804,769.85 as deficiency sales tax plus surcharge. The
assessment was disputed by the petitioner.
ISSUES:
1. Whether or not fraud is present.
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ISSUE: Whether the basis of the computation of the deficiency sales tax should be
the sale of the blocks to the public and not to Norton.
HELD: If the income of Norton should be considered separate from the income of
Jackbilt, then each would declare such earning separately for income tax purposes
and thus pay lesser income tax. The combined taxable Norton-Jackbilt income
would subject Norton to a higher tax. Based upon the 1954-1955 income tax return
of Norton and Jackbilt , and assuming that both of them are operating on the same
fiscal basis and their returns are accurate, we would have the following result:
Jackbilt declared a taxable net income of P161,202.31 in which the income tax due
was computed at P37,137.00; whereas Norton declared as taxable, a net income of
P120,101.59, on which the income tax due was computed at P25,628.00. The total
of these liabilities is P50,764.84. On the other hand, if the net taxable earnings of
both corporations are combined, during the same taxable year, the tax due on their
total which is P281,303.90 would be P70,764.00. So that, even on the question of
income tax alone, it would be to the advantages of Norton that the corporations
should be regarded as separate entities.
Topic: Forms of Escape from Taxation
54
PHILIPPINE ACETYLENE CO., INC. vs. CIR and COURT OF TAX APPEALS
G.R. No. L-19707August 17, 1967
FACTS: The petitioner is a corporation engaged in the manufacture and sale of
oxygen and acetylene gases. It made various sales of its products to the National
Power Corporation and to the Voice of America an agency of the United States
Government. The sales to the NPC amounted to P145, 866.70, while those to the
VOA amounted to P1,683, on account of which the respondent Commission of
Internal Revenue assessed against, and demanded from, the petitioner the payment
of P12,910.60 as deficiency sales tax and surcharge, pursuant to the Sec.186 of the
National Internal Revenue Code.
The petitioner denied liability for the payment of the tax on the ground that
both the NPC and the VOA are exempt from taxation.
ISSUE: Whether or not petitioner is exempt from paying tax on sales it made to the:
1) NPC
2) VOA
HELD:
1) NO. SC holds that the tax imposed by section 186 of the National Internal
Revenue Code is a tax on the manufacturer or producer and not a tax on
the purchaser except probably in a very remote and inconsequential
sense. Accordingly its levy on the sales made to tax-exempt entities like
the NPC is permissible.
2) NO. Only sales made "for exclusive use in the construction, maintenance,
operation or defense of the bases," in a word, only sales to the
quartermaster, are exempt under Article V from taxation. Sales of goods
to any other party even if it be an agency of the United States, such as the
VOA, or even to the quartermaster but for a different purpose, are not free
from the payment of the tax.
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ISSUE: Whether the company can recover the sales tax paid.
HELD: No. The sales tax is by law imposed directly, not on the thing sold, but on
the act (sale) of the manufacturer, producer, or importer, who is exclusively made
liable for its timely payment. Where the tax money paid by the company came from
is really no concern of the Government, but solely a matter between the company
and its customers. Once recovered, the company must hold the refunded taxes in
trust for the individual purchasers who advanced payment thereof, and whose
names must appear in company records. Herein, the company sales between 24
August 1956 (approval of RA 1612) to 22 June 1957 (when RA 1856 restored the
exemption of agricultural products whether in their original form or not) were
properly taxed. Such amount corresponding to the period is not recoverable.
Topic: Forms of Escape from Taxation
COMMISSIONER OF INTERNAL REVENUE vs. JOHN GOTAMCO & SONS,
INC. and THE COURT OF TAX APPEALS
G.R. No. No. L-31092 February 27, 1987
FACTS: The World Health Organization (WHO for short) is an international
organization which has a regional office in Manila. An agreement was entered into
between the Republic of the Philippines and the said Organization on July 22, 1951.
Section 11 of that Agreement provides, inter alia, that "the Organization, its assets,
income and other properties shall be: (a) exempt from all direct and indirect taxes.
The WHO decided to construct a building to house its own offices, as well as the
other United Nations offices stationed in Manila. A bidding was held for the building
construction. The WHO informed the bidders that the building to be constructed
belonged to an international organization exempted from the payment of all fees,
licenses, and taxes, and that therefore their bids "must take this into account and
should not include items for such taxes, licenses and other payments to
Government agencies." Thereafter, the construction contract was awarded to John
Gotamco& Sons, Inc. (Gotamco for short). Subsequently, the Commissioner of
Internal Revenue sent a letter of demand to Gotamco demanding payment of for the
3% contractor's tax plus surcharges on the gross receipts it received from the WHO
in the construction of the latter's building. WHO. The WHO issued a certification that
the bid of John Gotamco&Sons, should be exempted from any taxes in connection
with the construction of the World Health Organization office building because such
can be considered as an indirect tax to WHO. However, The Commissioner of
Internal Revenue contends that the 3% contractor's tax is not a direct nor an
indirect tax on the WHO, but a tax that is primarily due from the contractor, and
thus not covered by the tax exemption agreement.
ISSUE: Whether or not the said 3% contractors tax imposed upon petitioner is
covered by the direct and indirect tax exemption granted to WHO by the
government.
HELD: Yes. The 3% contractors tax imposed upon petitioner is covered by the
direct and indirect tax exemption granted to WHO. Hence, petitioner cannot be
held liable for such contractors tax. The Supreme Court explained that direct taxes
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are those that are demanded from the very person who, it is intended or desired,
should pay them; while indirect taxes are those that are demanded in the first
instance from one person in the expectation and intention that he can shift the
burden to someone else. While it is true that the contractor's tax is payable by the
contractor, However in the last analysis it is the owner of the building that shoulders
the burden of the tax because the same is shifted by the contractor to the owner as
a matter of self-preservation. Thus, it is an indirect tax against the WHO because,
although it is payable by the petitioner, the latter can shift its burden on the WHO. It
is the WHO that will pay the tax indirectly through the contractor and it certainly
cannot be said that 'this tax has no bearing upon the World Health Organization.
Accordingly, finding no reversible error committed by the respondent Court of Tax
Appeals, the Supreme Court affirmed the appealed decision.
Topic: Forms of Escape from Taxation
MACEDA vs. MACARAIG, JR., et al.
G.R. No. No. 88291 May 31, 1991 and G.R. No. No. 88291 June 8, 1993
FACTS: Commonwealth Act No. 120 created the NPC as a public corporation to
undertake the development of hydraulic power and the production of power from
other sources. Several laws were enacted granting NPC tax and duty exemption
privileges such as taxes, duties, fees, imposts, charges and restrictions of the
Republic of the Philippines, its provinces, cities and municipalities "directly or
indirectly," on all petroleum products used by NPC in its operation. However P.D. No.
1931 withdrew all tax exemption privileges granted in favour of government-owned
or controlled corporations including their subsidiaries but empowered the President
and/or the then Minister of Finance, upon recommendation of the FIRB to restore,
partially or totally, the exemption withdrawn. BIR ruled that the exemption privilege
enjoyed by NPC under said section covers only taxes for which it is directly liable
and not on taxes which are only shifted to it.
In 1986, BIR Commissioner Tan, Jr. states that all deliveries of petroleum
products to NPC are tax exempt, regardless of the period of delivery. Thereafter, the
FIRB issued several Resolutions in different occasions restoring the tax and duty
exemption privileges of NPC indefinite period due to the restoration of the tax
exemption privileges of NPC, NPC applied with the BIR for a "refund of Specific Taxes
paid on petroleum products. On August 6, 1987, the Secretary of Justice, Opinion
opined that "the power conferred upon Fiscal Incentives Review Board constitute
undue delegation of legislative power and, therefore, unconstitutional. However,
respondents Finance Secretary and the Executive Secretary declared that "NPC
under the provisions of its Revised Charter retains its exemption from duties and
taxes imposed on the petroleum products purchased locally and used for the
generation of electricity. Thereafter investigations were made for the refund of the
tax payments of the NPC which includes Millions of pesos Tax refund. Petitioner, as
member of the Philippine Senate introduced as Resolution Directing the Senate Blue
Ribbon Committee, In Aid of Legislation, to conduct a Formal and Extensive Inquiry
into the Reported Massive Tax Manipulations and Evasions by Oil Companies,
particularly Caltex (Phils.) Inc., Pilipinas Shell and Petrophil, Which Were Made
Possible By Their Availing of the Non Existing Exemption of National Power
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Corporation (NPC) from Indirect Taxes, Resulting Recently in Their Obtaining A Tax
Refund Totalling P1.55 Billion From the Department of Finance.
ISSUE: Whether or not respondent NPC is legally entitled to the questioned tax and
duty
refunds.
HELD: Yes. In G.R. No. No. 88291 the Supreme Court ruled in favour of exempting
NPC to the said taxes. Also in G.R. No. No. 88291 the Supreme Court ruled in favour
of respondents. NPC under the provisions of its Revised Charter retains its
exemption from duties and taxes imposed on the petroleum products purchased
locally and used for the generation of electricity. Presidential Decree No. 938
amended the tax exemption of NPC by simplifying the same law in general terms. It
succinctly exempts NPC from "all forms of taxes, duties, fees, imposts, as well as
costs and service fees including filing fees, appeal bonds, supersedeas bonds, in
any court or administrative proceedings." the NPC electric power rates did not carry
the taxes and duties paid on the fuel oil it used. The point is that while these levies
were in fact paid to the government, no part thereof was recovered from the sale of
electricity produced. As a consequence, as of our most recent information, some
P1.55 B in claims represents amounts for which the oil suppliers and NPC are "outof-pocket. There would have to be specific order to the Bureaus concerned for the
resumption of the processing of these claims.
Topic: Forms of Escape from Taxation
COMMISSIONER OF INTERNAL REVENUE vs. PLDT
G.R. No. 140230December 15, 2005
FACTS: PLDT is a grantee of a franchise under Republic Act (R.A.) No. 7082 to
install, operate and maintain a telecommunications system throughout the
Philippines. For equipment, machineries and spare parts it imported for its
business on different dates from October 1, 1992 to May 31, 1994, PLDT paid the
BIR the amount of P 164,510,953.00, broken down as follows:
(a) compensating tax of P126,713,037.00; advance sales tax of P12,460,219.00 and
other internal revenue taxes of P25,337,697.00. For similar importations made
between March 1994 to May 31, 1994, PLDT paid P 116,041,333.00 value-added tax
(VAT).
PLDT filed on December 2, 1994 a claim for tax credit/refund of the VAT,
compensating taxes, advance sales taxes and other taxes it had been paying in
connection with its importation of various equipment, machineries and spare parts
needed for its operations. With its claim not having been acted upon by the BIR,
PLDT filed with the CTA a petition for review therein seeking a refund of, or the
issuance of a tax credit certificate in, the amount of P280,552,286.00, representing
compensating taxes, advance sales taxes, VAT and other internal revenue taxes
alleged to have been erroneously paid on its importations from October 1992 to
May 1994.
The CTA granted the PLDTs petition. The CA dismissed the BIRs petition,
thereby effectively affirming the CTAs judgment.
ISSUE: Whether or not respondent is exempt from the payment of VAT,
compensating taxes, advance sales taxes and other BIR taxes on its importations by
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virtue of the provision in its franchise that the 3% franchise tax on its gross receipts
shall be in lieu of all taxes on its franchise or earnings thereof.
HELD: No. There can be no serious argument that PLDT, vis--vis its payment of
internal revenue taxes on its importations in question, is effectively claiming
exemption from taxes not falling under the category of direct taxes. The claim
covers VAT, advance sales tax and compensating tax. It bears to stress that the
liability for the payment of the indirect taxes lies only with the seller of the goods or
services, not in the buyer thereof. Thus, one cannot invoke ones exemption
privilege to avoid the passing on or the shifting of the VAT to him by the
manufacturers/suppliers of the goods he purchased. Hence, it is important to
determine if the tax exemption granted to a taxpayer specifically includes the
indirect tax which is shifted to him as part of the purchase price, otherwise it is
presumed that the tax exemption embraces only those taxes for which the buyer is
directly liable.
As may be noted, the clause in lieu of all taxes in Section 12 of RA 7082 is
immediately followed by the limiting or qualifying clause on this franchise or
earnings thereof, suggesting that the exemption is limited to taxes imposed
directly on PLDT since taxes pertaining to PLDTs franchise or earnings are its direct
liability. Accordingly, indirect taxes, not being taxes on PLDTs franchise or earnings,
are outside the purview of the in lieu provision.
All told, the Court fails to see how Section 12 of RA 7082 operates as granting
PLDT blanket exemption from payment of indirect taxes, which, in the ultimate
analysis, are not taxes on its franchise or earnings. PLDT has not shown its
eligibility for the desired exemption.
Topic: Forms of Escape from Taxation
SILKAIR (SINGAPORE) PTE, LTD. vs. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 173594 February 6, 2008
FACTS: Petitioner, Silkair (Singapore) Pte. Ltd. (Silkair), a corporation organized
under the laws of Singapore which has a Philippine representative office, is an
online international air carrier operating the Singapore-Cebu-Davao-Singapore,
Singapore-Davao-Cebu-Singapore, and Singapore-Cebu-Singapore routes. On
December 19, 2001, Silkair filed with the Bureau of Internal Revenue (BIR) a written
application for the refund of P4,567,450.79 excise taxes it claimed to have paid on
its purchases of jet fuel from Petron Corporation from January to June 2000.
As the BIR had not yet acted on the application as of December 26, 2001,
Silkair filed a Petition for Review before the CTA. By Decision of May 27, 2005, the
CTA denied Silkairs petition on the ground that as the excise tax was imposed on
Petron Corporation as the manufacturer of petroleum products, any claim for refund
should be filed by the latter; and where the burden of tax is shifted to the
purchaser, the amount passed on to it is no longer a tax but becomes an added cost
of the goods purchased.
ISSUE: Whether or not petitioner is the proper party to claim for refund or tax credit
59
HELD: No. The proper party to question, or seek a refund of, an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and who paid the
same even if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC
provides that "[u]nless otherwise specifically allowed, the return shall be filed and
the excise tax paid by the manufacturer or producer before removal of domestic
products from place of production." Thus, Petron Corporation, not Silkair, is the
statutory taxpayer which is entitled to claim a refund based on Section 135 of the
NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and
Singapore.
Even if Petron Corporation passed on to Silkair the burden of the tax, the
additional amount billed to Silkair for jet fuel is not a tax but part of the price which
Silkair had to pay as a purchaser.
The exemption granted under Section 135 (b) of the NIRC of 1997 and Article
4(2) of the Air Transport Agreement between RP and Singapore cannot, without a
clear showing of legislative intent, be construed as including indirect taxes. Statutes
granting tax exemptions must be construed in strictissimi juris against the taxpayer
and liberally in favor of the taxing authority, and if an exemption is found to exist, it
must not be enlarged by construction.
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HELD: No. While it is true that the petitioner should not have been liable for the
VAT inadvertently passed on to it by its supplier since such is a zero-rated sale on
the part of the supplier, the petitioner is not the proper party to claim such VAT
refund. Since the transaction is deemed a zero-rated sale, petitioners supplier may
claim an Input VAT credit with no corresponding Output VAT liability. Congruently, no
Output VAT may be passed on to the petitioner.
It may not be amiss to re-emphasize that the petitioner is registered as a
NON-VAT taxpayer and thus, is exempt from VAT. As an exempt VAT taxpayer, it is
not allowed any tax credit on VAT (input tax) previously paid. In fine, even if
assuming that exemption from the burden of VAT on petitioners purchases did
exist, petitioner is still not entitled to any tax credit or refund on the input tax
previously paid as petitioner is an exempt VAT taxpayer. Rather, it is the petitioners
suppliers who are the proper parties to claim the tax credit and accordingly refund
the petitioner of the VAT erroneously passed on to the latter.
Topic: Forms of Escape from Taxation
COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY
(PHILIPPINES)
G.R. No. 153866. February 11, 2005
FACTS: Respondent is registered with the Philippine Export Zone Authority (PEZA)
and has been issued PEZA Certificate No. 97-044 pursuant to Presidential Decree
No. 66, as amended, to engage in the manufacture of recording components
primarily used in computers for export. Such registration was made on 6 June 1997.
It is also a VAT-registered entity and VAT returns for the period 1 April 1998 to 30
June 1999 have been filed. An administrative claim for refund of VAT input taxes in
the amount of P28,369,226.38 with supporting documents was filed on 4 October
1999. No final action has been received by respondent from petitioner on its claim
for VAT refund.
The Court of Tax Appeals rendered a decision granting the claim for refund.
The CA affirmed the Decision of the CTA granting the claim for refund or issuance of
a tax credit certificate (TCC) in favor of respondent in the reduced amount of
P12,122,922.66. This sum represented the unutilized but substantiated input VAT
paid on capital goods purchased for the period covering April 1, 1998 to June 30,
1999.
ISSUE: Whether or not respondent is entitled to the refund or issuance of Tax Credit
Certificate in the amount of P12,122,922.66 representing alleged unutilized input
VAT paid on capital goods purchased for the period April 1, 1998 to June 30, 1999.
HELD: Yes. No doubt, as a PEZA-registered enterprise within a special economic
zone, respondent is entitled to the fiscal incentives and benefits provided for in
either PD 66 or EO 226. It shall, moreover, enjoy all privileges, benefits, advantages
or exemptions under both Republic Act Nos. (RA) 7227 and 7844.
From the above-cited laws, it is immediately clear that petitioner enjoys
preferential tax treatment. It is not subject to internal revenue laws and regulations
and is even entitled to tax credits. The VAT on capital goods is an internal revenue
tax from which petitioner as an entity is exempt. Although the transactions
involving such tax are not exempt, petitioner as a VAT-registered person, however,
is entitled to their credits.
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to be paid especially that the transfer from him to RMI would then subject the
income to only 5% individual capital gains tax, and not the 35% corporate income
tax. Altonagas sole purpose of acquiring and transferring title of the subject
properties on the same day was to create a tax shelter. Altonaga never controlled
the property and did not enjoy the normal benefits and burdens of ownership. The
sale to him was merely a tax ploy, a sham, and without business purpose and
economic substance. Doubtless, the execution of the two sales was calculated to
mislead the BIR with the end in view of reducing the consequent income tax liability.
CIC is therefore liable to pay a 35% corporate tax for its taxable net income in
1989. The 5% individual capital gains tax provided for in Section 34 (h) of the NIRC
of 198635 (now 6% under Section 24 (D) (1) of the Tax Reform Act of 1997) is
inapplicable. Hence, the assessment for the deficiency income tax issued by the BIR
must be upheld.
Topic: Forms of Escape from Taxation
JOHN HAY vs. LIM
G.R. No. 119775. October 24, 2003
FACTS: RA No. 7227 created the Bases Conversion and Development Authority
(BCDA), which also created the Subic Special Economic Zone (Subic SEZ). Aside
from granting incentives to Subic SEZ, RA 7227 also granted the President an
express authority to create other SEZs in the areas covered respectively by the
Clark military reservation, the Wallace Air Station in San Fernando, La Union, and
Camp John Hay through executive proclamations.
The Bases Conversion and Development Authority (BCDA) entered into a MOA
and Escrow Agreement with TUNTEX and ASIAWORLD, private corporations under
the laws of the British Virgin Islands, preparatory to the formation of a joint venture
for the development of Poro Point La Union and Camp John Hay as premier tourist
destinations and recreation centers.
BCDA, TUNTEX and ASIAWORLD executed a Joint Venture Agreement to put
up the Baguio International Development and Management Corporation which
would lease areas within Camp John Hay and Poro Point for the attainment of the
tourist and recreation spots in La Union and Camp John Hay.
President Ramos issued Proclamation No. 420 which established a SEZ on a
portion of Camp John Hay. 2nd sentence of Section 3 of said Proclamation provided
for national and local tax exemption within and graned other economic incentives to
the John Hay Special Economic Zone.
Section 3: Investment Climate in John Hay Special Economic Zone.Pursuant to Section 5(m) and Section 15 of RA No. 7227, the John Hay Poro Point
Development Corporation shall implement all necessary policies, rules, and
regulations governing the zone, including investment incentives, in consultation
with pertinent government departments. Among others, the zone shall have all the
applicable incentives of the Special Economic Zone under Section 12 of Republic Act
No. 7227 and those applicable incentives granted in the Export Processing Zones,
the Omnibus Investment Code of 1987, the Foreign Investment Act of 1991, and
new investment laws that may hereinafter be enacted.
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Petitioners filed this case to enjoin the respondents from implementing Proc.
420. Claiming it is unconstitutional on grounds of:
o For being illegal and invalid in so far as it grants tax exemptions thus
amounting to unconstitutional exercise of by the President of power granted only to
legislature
o Limits powers and interferes with the autonomy of the city
o Violates rule that all taxes should be uniform and equitable
ISSUE: WON the grant by Proclamation No. 420 of tax exemption and other
privileges to the John Hay SEZ is void for being violative of the Constitution.
HELD: Yes. The 2nd Sentence of SECTION 3 of Proclamation No. 420 is hereby
declared NULL and VOID and is accordingly declared of no legal force and effect.
Proclamation No. 420, WITHOUT THE INVALIDATED PORTION, REMAINS VALID and
effective.
Public respondents are hereby enjoined from implementing the aforesaid
void provision. Proclamation No. 420, without the invalidated portion, remains valid
and effective.
Under Section 12 of RA No. 7227 it is clear that ONLY THE SUBIC SEZ which
was granted by Congress with tax exemption, investment incentives and the like.
THERE IS NO EXPRESS EXTENSION OF THE SAID PROVISION IN PRESIDENTIAL
PROCLAMATION No. 420. (Section 12 kept mentioning Subic Special Economic Zone,
specifically) Also found in the deliberations of the Senate, a confirmation of the
exclusivity of the tax and investment privileges to Subic SEZ.
Senator Angara: The Gentleman is absolutely correct. Mr. President. SO WE
MUST CONFINE THESE POLICIES ONLY TO SUBIC.
It is the legislature, unless limited by a provision of the state constitution
that has full power to exempt any person, corporation or class of property from
taxation, its power to exempt being as broad as its power to tax. Other than the
Congress, the Constitution may itself provide for specific tax exemptions, or local
governments may pass ordinances on exemption only from local taxes. The
challenged grant of tax exemption must have concurrence of a majority of all
members of Congress. In same vein, the other kinds of privileges extended to the
John Hay SEZ are by tradition and usage for Congress to legislate upon.
Tax exemption cannot be implied as it must be categorically and un
mistakably expressed if it were the intent of the legislature to grant to the John
Hay SEZ the same tax exemption and incentives given to Subic SEZ, it would have
so expressly provided in RA 7227.
With respect to the final issue raised by petitioners -- that Proclamation No.
420 is unconstitutional for being in derogation of Baguio City's local autonomy,
Petitioners' arguments are bereft of merit. BCDA, under R.A 7227, is expressly
entrusted with broad rights of ownership and administration over Camp John Hay,
as the governing agency of the John Hay SEZ and virtually has control over it,
subject to certain limitations provided for by law. By designating BCDA as the
governing agency of the John Hay SEZ, the law merely emphasizes or reiterates the
statutory role or functions it has been granted.
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to anyone or was ever engaged in a business apart from and independently of the
academic purposes of the university.
Moreover, the Court of Tax Appeals accurately and correctly declared that the
funds received by the Ateneo de Manila University are technically not a fee. They
may however fall as gifts or donations which are tax-exempt" as shown by private
respondent's compliance with the requirement of Section 123 of the National
Internal Revenue Code providing for the exemption of such gifts to an educational
institution.
Topic: Retroactivity of Tax Laws
CIR vs ROSEMARIE ACOSTA
G.R. No. 154068 August 3, 2007
FACTS: Respondent is an employee of Intel Manufacturing Phils., Inc. (Intel). For the
period January 1, 1996 to December 31, 1996, respondent was assigned in a foreign
country. During that period, Intel withheld the taxes due on respondents
compensation income and remitted to the Bureau of Internal Revenue (BIR) the
amount ofP308,084.56.
On March 21, 1997, respondent and her husband filed with the BIR their Joint
Individual Income Tax Return for the year 1996. Later, on June 17, 1997,
respondent, through her representative, filed an amended return and a NonResident Citizen Income Tax Return, and paid the BIR P17,693.37 plus interests in
the amount ofP14,455.76. On October 8, 1997, she filed another amended return
indicating an overpayment of P358,274.63.
Claiming that the income taxes withheld and paid by Intel and respondent resulted
in an overpayment of P340,918.92, respondent filed on April 15, 1999 a petition for
review docketed as C.T.A. Case No. 5828 with the Court of Tax Appeals (CTA). The
Commissioner of Internal Revenue (CIR) moved to dismiss the petition for failure of
respondent to file the mandatory written claim for refund before the CIR.
The CTA dismissed respondents petition. For one, the CTA ruled that
respondent failed to file a written claim for refund with the CIR, a condition
precedent to the filing of a petition for review before the CTA.Second, the CTA noted
that respondents omission, inadvertently or otherwise, to allege in her petition the
date of filing the final adjustment return, deprived the court of its jurisdiction over
the subject matter of the case.
Upon review, the Court of Appeals reversed the CTA and directed the latter to
resolve respondents petition for review. Applying Section 204(c) of the 1997
National Internal Revenue Code (NIRC), the Court of Appeals ruled that respondents
filing of an amended return indicating an overpayment was sufficient compliance
with the requirement of a written claim for refund.
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HELD: No. Petitioner argues that the 1997 NIRC cannot be applied retroactively as
the instant case involved refund of taxes withheld on a 1996 income. Respondent,
however, points out that when the petition was filed with the CTA on April 15, 1999,
the 1997 NIRC was already in effect, hence, Section 204(c) should apply, despite the
fact that the refund being sought pertains to a 1996 income tax. Note that the issue
on the retroactivity of Section 204(c) of the 1997 NIRC arose because the last
paragraph of Section 204(c) was not found in Section 230 of the old Code. After a
thorough consideration of this matter, we find that we cannot give retroactive
application to Section 204(c) above cited. We have to stress that tax laws are
prospective in operation, unless the language of the statute clearly provides
otherwise.
Moreover, it should be emphasized that a party seeking an administrative remedy
must not merely initiate the prescribed administrative procedure to obtain relief, but
also pursue it to its appropriate conclusion before seeking judicial intervention in
order to give the administrative agency an opportunity to decide the matter itself
correctly and prevent unnecessary and premature resort to court action.This the
respondent did not follow through. Additionally, it could not escape notice that at
the time respondent filed her amended return, the 1997 NIRC was not yet in effect.
Hence, respondent had no reason at that time to think that the filing of an amended
return would constitute the written claim for refund required by applicable law.
Furthermore, as the CTA stressed, even the date of filing of the Final
Adjustment Return was omitted, inadvertently or otherwise, by respondent in her
petition for review. This omission was fatal to respondents claim, for it deprived the
CTA of its jurisdiction over the subject matter of the case.
Finally, we cannot agree with the Court of Appeals finding that the nature of
the instant case calls for the application of remedial laws. Revenue statutes are
substantive laws and in no sense must their application be equated with that of
remedial laws. As well said in a prior case, revenue laws are not intended to be
liberally construed.Considering that taxes are the lifeblood of the government and in
Holmess memorable metaphor, the price we pay for civilization, tax laws must be
faithfully and strictly implemented.
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