NATURE AND SCOPE OF THE POWER OF TAXATION for the Port of Manila, after being informed of the seizure
er being informed of the seizure of the
NATURE OF THE POWER OF TAXATION
1. Legislative- this power can only be exercised by the law
makingbody (Congress) not the executive or the judicial branch
of thegovernment, except when delegated by the national
legislative bodyto a local legislative body or to the executive
branch, subject tolimitations as may be provided by law;2.
2. Inherent in sovereignty- the power exists as an incident or
attributeof sovereignty, as it is essential to the existence of every
government.The power can therefore be exercised even without
the constitutionor any law expressly conferring such power.
Scope of the Power of Taxation
It is comprehensive, unlimited, supreme and plenary, but subject
toconstitutional and inherent limitations.Limitations on The Power
of TaxationThe power of taxation, is however, subject to constitutional
and inherentlimitations.
CONSTITUTIONAL LIMITATIONS
1. DUE PROCESS OF LAW
• There must be a valid law.
• Tax measure should not be unconscionable and unjust as to
amount to confiscation of property.
• Tax stature must be arbitrary as to find no support in the
Constitution.
Sec. 1 Article III – No person shall be deprived of life, liberty, or
property without due process of law, nor shall any person be denied
the equal protection of the laws.
2. EQUAL PROTECTION OF THE LAWS
- Right to be treated under like circumstance.
• All persons subject to legislations shall be treated alike under
similar circumstances and conditions both in the privileges
conferred and liabilities imposed.
• The doctrine does not require that persons or properties
different in fact be treated in law as though they were the
same. What it prohibits is “Class Legislation” which
discriminates against some and favors others.
• As long as there are rational or reasonable grounds for so
doing. Congress may group persons or property to be taxed
and it is sufficient if all members of the same class are
subject to the same rate and the tax is administered
impartially upon them.
PURPOSE:
Commissioner vs. Makasiar, 177 SCRA 27 (1989) G.R. No.
79307, August 29, 1989
FACTS:
On 7 December 1978, the then Court of First Instance of Manila issued
Search and Seizure Warrants against Howard J. Sosis,, et al.,” for
violation of Republic Act No. 3720 and violation of Article 188 of the
Revised Penal Code (captioned as “Substituting and altering
trademarks, tradenames, or service marks”), respectively, and ordering
the seizure of Materials and Documents. On 8 December 1978, the
Bureau of Customs, et al., seized and confiscated the following articles,
found in the premises of the Hercules Bottling Co., Inc. at Isla de
Provisor, Paco, Manila. On 2 January 1979, the Collector of Customs
subject goods and upon verification that the same were imported
contrary to law, issued a warrant of seizure and detention, ordered the
immediate seizure and turnover of the seized items to its Auction and
Cargo Disposal Division at the Port of Manila. The private respondent
objected to the continuation by the Collector of Customs of the seizure
proceedings claiming, among others, that these proceedings would
hamper or even jeopardize the preliminary investigation being
conducted by the fiscal which was ignored by the Collector of Customs.
In order to stop and enjoin the Hearing Officer of the Bureau of
Customs from taking further action in the seizure, private respondent
filed a petition for prohibition with preliminary injunction and/or
temporary restraining order. Respondent judge issued a temporary
restraining order on 29 September 1982. Subsequently, a writ for
preliminary injunction was issued as well. Petitioner seeks the reversal
of respondent judge’s decision in regards to the excess of his
jurisdiction in the disputed Warrant of Seizure and Detention dated
January 2, 1979, in Seizure of the Bureau of Customs which the
petitioner is ordered to REFRAIN and DESIST from conducting any
proceedings for the seizure and forfeiture of the articles in question
until after the Respondent Court having taken cognizance and legal
custody and has rendered its final judgment in the criminal cases.
ISSUE:
Whether respondent judge may enjoin the Collector of Customs from
continuing with its seizure and forfeiture proceedings over goods
seized?
RULING:
No, the respondent-judge has failed to adhere to the prevailing rule
which denies him jurisdiction to enjoin the Bureau of Customs from
taking further action in the seizure and forfeiture proceedings over the
subject goods. The Collector of Customs sitting in seizure and
forfeiture proceedings has exclusive jurisdiction to hear and determine
all questions touching on the seizure and forfeiture of dutiable goods.
The regional trial courts are precluded from assuming cognizance over
such matters even through petitions of certiorari, prohibition or
mandamus. Even if it be assumed that a taint of irregularity may be
imputed to the exercise by the Collector of Customs of his jurisdiction
to institute seizure and forfeiture proceedings over the subject goods
because he had accepted custody of the same under conditions, it
would not mean that respondent judge was correspondingly vested
with the jurisdiction to interfere with such proceedings. It bears
repeating that law and settled jurisprudence clearly deprive the
regional trial courts of jurisdiction to enjoin the Collector of Customs
from exercising his exclusive authority to order seizure and forfeiture
proceedings over imported goods.
CIR vs Algue Inc GR No L-28896
FACTS:
The Philippine Sugar Estate Development Company had earlier
appointed Algue Inc., as its agent, authorizing it to sell its land,
factories and oil manufacturing process.As such,the corporation
worked for the formation of the Vegetable Oil Investment Corporation,
until they were able to purchased the PSEDC properties. For this sale,
Algue Inc., received as agent a commission of P126, 000.00, and it
was from this commission that the P75, 000.00 promotional fees were
paid to Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith,
O'Farell, and Pablo Sanchez.
Commissioner of Internal Revenue contends that the claimed
deduction is not allowed because it was not an ordinary reasonable or
necessary business expense. The Court of Tax Appeals had seen it
differently. Agreeing with Algue Inc., it held that the said amount had
been legitimately paid by the private respondent for actual services
rendered. The payment was in the form of promotional fees.
ISSUE:
Whether or not the Collector of Internal Revenue correctly disallowed
the P75, 000.00 deduction claimed by private respondent Algue Inc.,
as legitimate business expenses in its income tax returns.
RULING:
No, The Supreme Court agrees with the respondent court that the
amount of the promotional fees was not excessive. The P75,000.00
was 60% of the total commission. This was a reasonable proportion,
considering that it was the payees who did practically everything, from
the formation of the Vegetable Oil Investment Corporation to the
actual purchase by it of the Sugar Estate properties.
The claimed deduction by the private respondent was permitted under
the Internal Revenue Code and should therefore not have been
disallowed by the petitioner.
WHO EXERCISES THE POWER?
The 1987 Philippine Constitution sets limitations on the exercise of the
power to tax.
The rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation. (Article VI, Section 28,
paragraph 1)
All money collected on any tax levied for a special purpose shall be
treated as a special fund and paid out for such purpose only. If the
purpose for which a special fund was created has been fulfilled or
abandoned, the balance, if any, shall be transferred to the general
funds of the Government. (Article VI, Section 29, paragraph 3)
The Congress may, by law, authorize the President to fix within
specified limits, and subject to such limitations and restriction as it may
impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of the national
development program of the Government (Article VI, Section 28,
paragraph 2) The President shall have the power to veto any particular
item or items in an appropriation, revenue or tariff bill, but the veto
shall not affect the item or items to which he does not object. (Article
VI, Section 27, second paragraph)
The Supreme Court shall have the power to review, revise, reverse,
modify or affirm on appeal or certiorari, as the law or the Rules of
Court may provide, final judgments and orders of lower courts in x x x
all cases involving the legality of any tax, impost, assessment, or toll or
any penalty imposed in relation thereto. (Article VIII, Section 5,
paragraph)
ARTICLE VI
SECTION 28. (3) Charitable institutions, churches and parsonages or
convents appurtenant thereto, mosques, non-profit cemeteries, and all
lands, buildings, and improvements, actually, directly, and exclusively
used for religious, charitable, or educational purposes shall be exempt
from taxation.
ARTICLE XIV
SECTION 4. (3) All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of such institutions,
their assets shall be disposed of in the manner provided by law.
Proprietary educational institutions, including those cooperatively
owned, may likewise be entitled to such exemptions, subject to the
limitations provided by law, including restrictions on dividends and
provisions for reinvestment.
ARTICLE X
SECTION 5. Each local government unit shall have the power to create
its own sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the local governments.
TAX EXEMPTIONS
Abra Valley College Vs Aquino (G.R. No. L-39086)
FACTS:
Petitioner, an educational corporation and institution of higher learning
duly incorporated with the Securities and Exchange Commission in
1948, filed a complaint to annul and declare void the “Notice of
Seizure’ and the “Notice of Sale” of its lot and building located at
Bangued, Abra, for non-payment of real estate taxes and penalties
amounting to P5,140.31. Said “Notice of Seizure” by respondents
Municipal Treasurer and Provincial Treasurer, defendants below, was
issued for the satisfaction of the said taxes thereon.
The parties entered into a stipulation of facts adopted and embodied
by the trial court in its questioned decision. The trial court ruled for the
government, holding that the second floor of the building is being used
by the director for residential purposes and that the ground floor used
and rented by Northern Marketing Corporation, a commercial
establishment, and thus the property is not being used exclusively for
educational purposes. Instead of perfecting an appeal, petitioner
availed of the instant petition for review on certiorari with prayer for
preliminary injunction before the Supreme Court, by filing said petition
on 17 August 1974.
ISSUE:
Whether or not the lot and building are used exclusively for
educational purposes.
HELD:
Section 22, paragraph 3, Article VI, of the then 1935 Philippine
Constitution, expressly grants exemption from realty taxes for
cemeteries, churches and parsonages or convents appurtenant
thereto, and all lands, buildings, and improvements used exclusively
for religious, charitable or educational purposes.ﾝ Reasonable
emphasis has always been made that the exemption extends to
facilities which are incidental to and reasonably necessary for the
accomplishment of the main purposes. The use of the school building
or lot for commercial purposes is neither contemplated by law, nor by
jurisprudence. In the case at bar, the lease of the first floor of the
building to the Northern Marketing Corporation cannot by any stretch
of the imagination be considered incidental to the purpose of
education. The test of exemption from taxation is the use of the
property for purposes mentioned in the Constitution.
The decision of the CFI Abra (Branch I) is affirmed subject to the
modification that half of the assessed tax be returned to the petitioner.
The modification is derived from the fact that the ground floor is being
used for commercial purposes (leased) and the second floor being
used as incidental to education (residence of the director).
Province of Abra vs Hernando
GR 49336 31 August 1981
FACTS:
The provincial assessor made a tax assessment on the properties of
the Roman Catholic Bishop of Bangued. The bishop claims tax
exemption from real estate tax, through an action for declaratory
relief. A summary judgment was made granting the exemption without
hearing the side of the Province of Abra.
ISSUE:
Whether the properties of the Bishop of Bangued are tax-exempt.
HELD:
The 1935 and the 1973 Constitutions differ in language as to the
exemption of religious property from taxes as tehy should not only be
“exclusively” but also “actually” and “directly” used for religious
purposes. Herein, the judge accepted at its face the allegation of the
Bishop instead of demonstrating that there is compliance with the
constitutional provision that allows an exemption. There was an
allegation of lack of jurisdiction and of lack of cause of action, which
should have compelled the judge to accord a hearing to the province
rather than deciding the case immediately in favor of the Bishop.
Exemption from taxation is not favored and is never presumed, so that
if granted, it must be strictly construed against the taxpayer. There
must be proof of the actual and direct use of the lands, buildings, and
improvements for religious (or charitable) purposes to be exempted
from taxation.
The case was remanded to the lower court for a trial on merits.
BISHOP OF NUEVA SEGOVIA vs. PROVINCIAL BOARD
OF ILOCOS
G.R. No. L-27588
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 lostused 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 oldcemetery with its two walls still standing, and a
portion where formerly stood a
tower.The provincial board assessed land tax on lots comprising the no
rth and south side,which the church paid under protest. It filed suit
to recover the amount.
ISSUE:
Whether or not the lots are covered by the Church’s tax exemption.
HELD:
The exemption in favor of the convent in the payment of land tax
refers to the homeof the priest who presides over the church and who
has to take care of himself in order todischarge his duties. The
exemption includes not only the land actually occupied by
theChurch 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 thenecessity of the priest, comes
under the exemption. Further, land used as a lodging houseby the
people who participate in religious festivities, which constitutes an
incidental use inreligious functions, likewise comes within the
exemption. It cannot be taxed according toits former use, i.e. a
cemetery.
LLADOC VS. COMMISSIONER OF INTERNAL REVENUE
14 SCRA 292; NO.L-19201; 16 JUN 1965
Facts:
Sometime in 1957, M.B. Estate Inc., of Bacolod City, donated
10,000.00 pesos in cash to Fr. Crispin Ruiz, the parish priest of
Victorias, Negros Occidental, and predecessor of Fr. Lladoc, for the
construction of a new Catholic church in the locality. The donated
amount was spent for such purpose.
On March 3, 1958, the donor M.B. Estate filed the donor's gift tax
return. Under date of April 29, 1960. Commissioner of Internal
Revenue issued an assessment for the donee's gift tax against the
Catholic Parish of Victorias of which petitioner was the parish priest.
Issue:
Whether or not the imposition of gift tax despite the fact the Fr. Lladoc
was not the Parish priest at the time of donation, Catholic Parish priest
of Victorias did not have juridical personality as the constitutional
exemption for religious purpose is valid.
Held:
Yes, imposition of the gift tax was valid, under Section 22(3) Article VI
of the Constitution contemplates exemption only from payment of
taxes assessed on such properties as Property taxes contra
distinguished from Excise taxes The imposition of the gift tax on the
property used for religious purpose is not a violation of the
Constitution. A gift tax is not a property by way of gift inter vivos.
The head of the Diocese and not the parish priest is the real party in
interest in the imposition of the donee's tax on the property donated to
the church for religious purpose
American Bible Society vs City of Manila
GR 9637 30 April 1957
Facts:
American Bible Society is a foreign, non-stock, non-profit, religious,
missionary corporation duly registered and doing business in the
Philippines. In the course of its ministry, plaintiff’s Philippine agency
has been distributing and selling bibles and/or gospel portions thereof.
The acting City Treasurer of the City of Manila informed plaintiff that it
was conducting the business of general merchandise without providing
itself with the necessary Mayor’s permit and municipal license, in
violation of Ordinance No. 3000 (permit) and Ordinances Nos. 2529
(payment of fees) and required plaintiff to secure the corresponding
permit and license fees.
Issue:
Whether or not the selling of bible by the Society should be taxed?
Decision:
Decision reversed. Ordinance 2529 restrains the free exercise and
enjoyment of religious profession and worship. 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.
Ordinance 3000 – 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.
YMCA vs CIR 33 Phil 217
Facts:
YMCA is a non-stock, non-profit institution which conducts various
programs and activities that are beneficial for the public, especially the
young people pursuant to its religious, educational and charitable
objectives. YMCA earned an income from leasing a portion of its
premises to small shop owners and from parking fees collected from
non-members, upon w/c CIR assessed taxes. YMCA protested the
assessment and got denied. This led to filing for petition for review
with Court of Tax Appeals. CTA decided in favour of YMCA citing that
the income from the lease and fees are reasonably incidental to and
reasonably necessary for the accomplishment of the objectives of
YMCA. The earnings from these for the use of recreational facilities
constitute the bulk of its income w/c is used to support its many
activities to attain its objectives. CIR elevated the case to CA w/c
reversed CTA decision.
Issue: Whether or not income of YMCA from lease and fee are
exempt from tax?
Decision:
The income is not exempt from tax. Under NIRC, the income received
by civic league or clubs not organized for profit are exempt from tax in
respect to income received by them. The exemption does not apply to
income derived from any of their properties or any activities conducted
for profit regardless of the disposition made of such income. Because
taxes are the lifeblood of the nation, stict interpretation in construing
tax exemptions should be applied. Exemption “must be granted in a
statute stated in a language too clear to be mistaken.”
DOUBLE TAXATION
Punsalan vs Municipal Board of Manila
GR 4817 26 May 1954
Facts:
Municipal Board of Manila enacted Ordinance No. 3398 imposing
municipal occupation tax on persons exercising various professions in
the city and penalizing non-payment of the same. Punsalan, et al paid
the same under protest and filed suit with the court. Petitioners
contend that the ordinance is unjust and oppressive and amounts to
double taxation. The lower court upheld the validity of the provision of
law authorizing the enactment of the ordinance but declared the
ordinance itself illegal and void on the ground that the penalty there in
provided for non-payment of the tax was not legally authorized. Both
parties appealed the court’s decision.
Issue: Whether or not Ordinance No 3398 constitute double taxation?
Decision:
Decision reversed. The Legislature may select what occupations shall
be taxed, and in the exercise of that discretion it may tax all, or it may
select for taxation certain classes and leave the others untaxed. Manila
offers a more lucrative field for the practice of the professions, so that
it is but fair that the professionals in Manila be made to pay a higher
occupation tax than their brethren in the provinces. The ordinance
imposes the tax upon every person “exercising” or “pursuing” – in the
City of Manila naturally – any one of the occupations named, but does
not say that such person must have his office in Manila. The argument
against double taxation may not be invoked where one tax is imposed
by the state and the other is imposed by the city
LICENSE FEES
Physical Therapy Organization vs Municpal Board
GR 10448 30 August 1957
Facts:
Municipal Board of Manila enacted Ordinance 3659 regulating the
operations of massage clinics in Manila penalizing and enforcing permit
fee for its operation. Petitioner appealed for the dismissal of the
ordinance. They contend that City of Manila is without authority to
regulate the operation of massagists and the operation of massage
clinics and that the fee is unreasonable and unconscionable. Trial court
dismissed the petition.
Issue: Whether or not license fee enforced by the Municipal Board is
valid?
Decision:
Decision affirmed. The end sought to be attained in the Ordinance is to
prevent the commission of immorality and the practice of prostitution
in an establishment masquerading as a massage clinic where the
operators thereof offer to massage or manipulate superficial parts of
the bodies of customers for hygienic and aesthetic purposes. The
permit fee is made payable by the operator of a massage clinic who
may not be a massagist himself. Compared to permit fees required in
other operations, P100.00 may appear to be too large and rather
unreasonable. Manila Municipal Board considered the practice of
hygienic and aesthetic massage not as a useful and beneficial
occupation which will promote and is conducive to public morals, and
consequently, imposed the said permit fee for its regulation.