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5. proportionate in character;
What is taxation?
1. Levied by the state which has jurisdiction over the person or
Taxation is the process or means by which the sovereign, through its law- property
making body, raises income to defray the necessary expenses of
government. Jurisdiction over the object to be taxed is necessary in order that the tax
can be enforced. The taxing power of a state stops at the state boundary
It is a way of apportioning the cost of government among those who in lines. It cannot reach over into another jurisdiction to seize upon persons
some measure are privileged to enjoy its benefits and, therefore, must or property for purposes of taxation.
bear its burdens.
2. An enforced contribution
As a power, taxation refers to the inherent power of the state to demand
enforced contributions for public purpose or purposes. A tax is not a voluntary payment or donation, and its imposition is not
dependent upon the will or assent of the person taxed. The principle of
What is the purpose of taxation? representation is satisfied so long as the taxpayers are adequately
represented in the legislative body which votes the tax.
The primary purpose of taxation on the part of government is to provide
funds or property with which to promote the general welfare and 3. Levied by the law-making body
protection of its citizens. In its broadest and most general sense, taxation
includes every imposition of charge or burden by the sovereign power The power to tax is a legislative power, which under the Constitution, only
upon persons, property, or property rights for the use and support of the Congress can exercise through the enactment of tax statutes.
government and to enable it to discharge its appropriate functions. Accordingly, the obligation of a tax is a statutory liability.
What are taxes? In addition, the power to tax is also granted by the Constitution to local
governments, subject to guidelines and limitations provided by law.
Taxes are the enforced proportional contributions from persons and
property levied by the law-making body of the state by virtue of its 4. Generally payable in money
sovereignty for the support of the government and all public needs.
Unless qualified by law, the term tax is understood to be a pecuniary
burden, which should be discharged alone in the form of legal tender.
What are the essential characteristics of tax?
5. Proportionate in character
A tax is: (JEL-MP3)
A tax is laid by some rule of apportionment according to which persons
1. levied by the state which has jurisdiction over the person or share the public burden. It is ordinarily based on ability to pay.
property;
6. Levied on persons or property
2. an enforced contribution;
A tax may also be imposed on acts, transactions, rights, or privileges. In
3. levied by the law-making body of the state; each case, however, it is only a person who pays the tax. The property is
resorted to for the purpose of ascertaining the amount to be paid and of
4. generally payable in money;
7. Levied for public purpose The power of taxation is an incident or attribute of sovereignty, being
essential to the existence of every government. It can be exercised by the
A tax constitutes a charge or burden imposed to provide income for public government even without an express grant by the people through the
purposes – the support of the government, the administration of the law, Constitution. An express grant by the Constitution merely limits the
or the payment of public expenses. Revenues derived from taxes cannot power.
be used for purely private purposes or for the exclusive benefit of private
persons. 2. Legislative in character
2. Taxes on imports may be increased to protect local industries 1. CIR v. Cebu Portland Cement Co.
against foreign competition or decreased to encourage foreign
trade. The CTA ordered CIR to refund to CEPOC overpayments made by the latter
of ad valorem taxes on cement sold by it.
3. Taxes on imported goods may also be used as a bargaining tool
by a country by setting tariff rates first at a relatively high level The CIR opposed the ruling, claiming that it had a right to apply the
before trade negotiations are entered into with another country to overpayment to another tax liability of CEPOC – sales tax on a
enhance its bargaining power. manufactured product (the cement).
4. Taxes may be increased in periods of prosperity to curb spending CEPOC opposed the CIR, claiming that the overpayment must be refunded
power and halt inflation or lowered in periods of slump to expand pending the determination of whether the assessed sales tax was proper.
business and ward off depression. CEPOC claims that the cement cannot be considered a manufactured
product and is instead a mineral product exempt from sales tax.
5. Taxes may be levied to reduce inequalities in wealth and incomes
(ex: estate, donor’s and income taxes). ISSUE: Whether the CIR must refund the overpayment of the ad valorem
tax.
6. Taxes may be levied to promote science and invention or to
finance educational activities or to improve the efficiency of local HELD: No, the CIR has the right to apply the overpayment to CEPOC’s
police forces in the maintenance of peace and order through grant sales tax deficiency.
or subsidy.
It is well settled that cement is a manufactured product. There was some
7. Taxation may be made as an implement of the police power to confusion because in a previous case, it was said that cement was subject
promote the general welfare. to sales tax prior to the effectivity of RA 1299, which introduced the
definitions of “mineral” and “manufactured.” However, the decision cannot
As long as a tax is for a public purpose, its validity is not affected by be taken to have meant that cement was no longer a manufactured
collateral purpose or motives of the legislature, or by the fact that it has a product because such determination was not at issue.
regulatory effect, or it discourages or even deters the activities taxed. The
principle applies even though the revenue obtained from the tax appears The assessment of sales tax is enforceable despite its being contested
very negligible or the revenue purpose is only secondary. because of the urgency to collect the taxes as the lifeblood of the
government. If the payment of taxes could be postponed by questioning
What are the basic principles of a sound tax system? their validity, the government would be paralyzed. The Tax Code
provides that no court shall have authority to grant an injunction
or restrain the collection of taxes, except when in the opinion of the
1. Fiscal adequacy – Sources of revenue should be sufficient to
CTA, the collection by the BIR or the Bureau of Customs may jeopardize
meet the demands of public expenditure. It also means that the
the interest of the Government and/or the taxpayer. In such a case,
revenues should be capable of expanding or contracting annually
the Court, at any stage of the proceeding may suspend the collection and
in response to variations in public expenditures.
require the taxpayer to either deposit the amount claimed or to file a
surety bond for not more than double the amount with the Court. The
2. Equality or theoretical justice – The tax burden should be in exception does not apply in this case.
proportion to the taxpayer’s ability to pay. This is the so-called
ability-to-pay principle. Taxation should be uniform as well as
equitable.
2. As to who bears the burden: b. Municipal or Local – Tax imposed by municipal corporations or
local government units.
a. Direct – Demanded from the person who also shoulders the
burden of the tax; the taxpayer is directly or primarily liable, and 6. As to graduation or rate
he cannot shift the burden to another. (Ex: Corporate and
individual income taxes, community tax, estate tax, donor’s tax) a. Proportional – Tax based on a fixed percentage of the amount of
the property, receipts, or other basis to be taxed (Ex: real estate
b. Indirect – Demanded from one person in the expectation and taxes, VAT, other %age taxes)
intention that he shall indemnify himself at the expense of
another, falling finally upon the ultimate purchaser of consumer; b. Progressive or graduated – The rate increases as the tax base or
tax imposed upon goods before they reach the consumer who bracket increases (Ex: income tax, estate tax, donor’s tax)
ultimately pays for it not as tax but as part of the purchase price.
The one who bears the burden of the tax is other than the one on c. Regressive – The rate decreases as the tax base or bracket
whom it is imposed. (Ex: business taxes, VAT, customs duties) increases. There’s no such thing here.
3. As to determination of amount:
What is the difference between a regressive tax and a
a. Specific – Tax of a fixed amount imposed by the head or number, regressive system of taxation?
or by some standard of weight or measurement; requires no
assessment or valuation other than a listing or classification of the A regressive tax is tax, the rate of which decreases as the tax base
objects to be taxed. (Ex: taxes on distilled spirits, wines, liquors increases.
and cigarettes)
On the other hand, a regressive system of taxation exists when there are
b. Ad valorem – Tax of a fixed proportion of the value of the more indirect taxes imposed than direct taxes.
property with respect to which the tax is assessed; it requires the
intervention of assessors or appraisers to estimate the value of Distinguish between a tax and a toll.
such property before the amount due from each taxpayer can be
determined. The phrase ad valorem literally means “according to Toll has been defined as a sum of money for the use of something,
value.” (Ex: real estate tax, excise taxes on automobiles, non- generally applied to the consideration which is paid for the use of a road,
essential goods, such as jewelry and perfume, customs duties) bridge of the like, of a public nature.
Special assessment is an enforced proportional contribution from the 1. Some limitations apply to one and not to the other, for the reason
owners of lands especially or peculiarly benefited by public that exemption from taxes may not include exemption from
improvements. license fees.
Under the Local Government Code, a province, city, or municipality, or the 2. The power to regulate as an exercise of police power does not
National Government, may impose a special levy on lands especially include the power to impose fees for revenue purposes. The
benefited by public works or improvements financed by it. amount of tax bears no relation at all to the probable cost of
regulating the activity, occupation, or property being taxed.
TAX SPECIAL ASSESSMENT
Levied on persons, property, Levied only on land 3. An exaction may be considered BOTH a tax and a license fee. Ex:
privileges, acts, etc. car registration fees may be regarded as taxes while they also
Personal liability Not a personal liability of the person serve as an instrument of regulation. If the purpose is primarily
assessed; his liability is limited only revenue, or if it is at least one of the real and substantial
to the land involved purposes, then the exaction is a tax.
Based on necessity and benefits Based wholly on benefits
Has general application Exceptional both as to the time and 4. But a tax may have only a regulatory purpose. The general rule,
place however, is that the imposition is a tax if its primary purpose is to
generate revenue, and regulation is merely incidental. If
A charge imposed only on property-owners benefited is a special regulation is the primary purpose, the fact that incidentally
assessment rather than a tax, even if the statute calls it a tax. The rule is revenue is also obtained does not make the imposition a tax.
that an exemption from taxation does not include exemption from special
assessment. But the power to tax carries with it the power to levy a Distinguish between tax and a debt.
special assessment.
TAX DEBT
Distinguish between a tax and a license.
A tax however, like a debt, is a liability or obligation. The Association of Customs Brokers contends that the ordinance is null
and void because it actually imposes a license tax in the guise of a
Tax distinguished from other terms: property tax.
2. Revenue – Funds or income derived by the government, whether First, it imposes a license tax, which the municipal corporation may not
from tax or from whatever source or manner. Revenue refers to impose (though it is made to appear as a property tax).
the amount collected, while tax refers to the amount imposed.
As a rule, an ad valorem tax is a property tax. However, if the tax is
3. Internal Revenue – Taxes imposed by the legislature other than really imposed upon the performance of an act, enjoyment of a privilege,
duties on imports and exports. or the engaging in an occupation, it will be considered an excise, even if its
amount is determined in proportion to the value of the property used in
4. Customs duties – Taxes imposed on goods exported from or connection with the occupation, privilege, or act which is taxed.
imported into a country.
In this case, the tax is fixed ad valorem. BUT, the purpose is to raise
5. Tariff – May be used in any of the following senses: funds for the repair, maintenance, and improvement of the streets and
bridges in the city. Thus, it is actually a license fee, although under the
a. A book of rates containing the names of merchandise with cloak of an ad valorem tax to circumvent the prohibition imposed by the
the corresponding duties to be paid for the same; Motor Vehicles Law. The reason for the prohibition is that under the Motor
b. Duties payable on goods imported or exported; or Vehicles Law, municipal corporations already get proceeds for the purpose
c. The system or principle of imposing duties on the importation of repairing and maintaining their streets and bridges. The prohibition
or exportation of goods. aims at preventing a duplication in the imposition of fees for the same
purpose.
CASES
Second, the ordinance infringes the rule of uniformity of taxation. This is
because it exacts the tax upon all motor vehicles operating within the City
4. Association of Customs Brokers Inc. v. Municipal Board
of Manila, without distinguishing between those for hire and for private
use, as well as between those registered in Manila and those registered
The Municipal Board of Manila passed an ordinance levying a property tax
outside but which occasionally come to Manila. The ordinance imposes the
on all motor vehicles operating within the City of Manila. The ordinance
tax only on those vehicles registered in Manila, even if those vehicles
provided that the rate of the tax would be 1% ad valorem per annum. The
which are registered outside the city but which use its streets also
proceeds of the tax shall accrue to the Streets and Bridges Funds of the
contribute equally to the deterioration of the roads and bridges.
The Central Bank charged margin fees on Esso’s remittances to its head In this case, the Farmers’ Market is a privately-owned market established
office. Esso claimed that the fees it paid were deductible dint its payment for the rendition of service to the general public. It warrants close
of income tax either as tax or as necessary business expense. supervision and control by the City for the protection of the health of the
public by insuring the maintenance of sanitary and hygienic conditions,
HELD: The margin fees were NOT deductible. prevention of fraud upon the buying public, etc.
As taxes? Margin fees are NOT taxes because they are not imposed as a Since the purpose of the ordinance is primarily regulation and not revenue
revenue measure. The fee is a police measure whose proceeds are applied generation, the tax is a license fee. The use of the gross amount of stall
to strengthen the country’s international reserves. rentals as basis for determining the collectible amount of license tax does
not, by itself, convert or render the license tax into a prohibited tax on
As a necessary business expense? MF are not necessary expenses – they income. Such basis actually has a reasonable relationship to the probable
are expenses incurred not in the business but in the disposal of the profits. costs of regulation and supervision of Progressive’s kind of business, since
Tax exemptions are a matter of legislative grace and the one claiming ordinarily, the higher the amount of rentals, the higher the volume of
them has the burden of justifying the exemption. items sold; and the higher the volume of goods sold, the greater the
extent and frequency of supervision and inspection may be required in the
6. Progressive Development Corp. v. QC interest of the buying public.
The City Council of QC passed an ordinance known as the Market Code of 7. PAL v. Edu
QC, which imposed a 5% supervision fee on gross receipts on rentals or
lease of privately-owned market spaces in QC. In case of failure of the Under its franchise, PAL is exempt from all taxes except for the payment
owners of the market spaces to pay the tax for three consecutive months, of 2% of its gross revenue to the National Government.
the City shall revoke the permit of the privately-owned market to operate.
PAL has not been previously paying for registration of its motor vehicles
Progressive Development Corp, owner and operator of Farmer’s Market, until Land Transportation Commissioner Edu issued a regulation requiring
filed a petition for prohibition against QC on the ground that the tax all tax exempt entities to pay registration fees.
imposed by the Market Code was in reality a tax on income, which the
municipal corporation was prohibited by law to impose. PAL paid the fees under protest and now demands a refund.
ISSUE: Whether the supervision fee is an income tax or a license fee. ISSUE: Whether the registration fee is a regulatory exaction OR a tax
from which PAL is exempt.
HELD:
HELD: The registration fee is a tax – PAL is exempt.
It is a license fee.
The purpose of the law in requiring payment of registration fees is mainly
A license fee is imposed in the exercise of the police power primarily for to raise funds for the construction and maintenance of highways and to a
purposes of regulation, while a tax is imposed under the taxing power much lesser degree, pay for the operating expenses of the administering
primarily for purposes of raising revenues. If the generating of revenue is agency.
the primary purpose and regulation is merely incidental, the imposition is a
tax; but if regulation is the primary purpose, the fact that incidentally, If the purpose of an exaction is revenue or if revenue is, at least, one of
revenue is also obtained does not make the imposition a tax. the real and substantial purposes, then the exaction is properly called a
tax.
To be considered a license fee, the imposition must relate to an occupation
or activity that so engages the public interest in health, morals, safety, However, the fees collected from 1968 to 1979 should not be refunded
and development as to require regulation for the protection and promotion because PAL’s franchise was repealed during that period.
of such public interest; the imposition must also bear a reasonable relation
Hiu Chiong filed an action to restrain the enforcement of the ordinance and What is collected for license to sell is a license fee and what is collected on
to have it declared null and void for being discriminatory and violative of the sale is a sales tax. It is settled that both a license fee and a tax may
the rule on uniformity in taxation. be imposed on the same business, or for selling the same article, this not
being a violation of the rule against double taxation.
The Mayor argues that the ordinance cannot be declared null and void on
the ground that it violates the rule on uniformity of taxation because this Taxes are different from license fees. The former are for raising revenues
rule applies only to purely tax or revenue measures and not to regulatory while the latter are imposed in the exercise of police power for purposes of
measures, such as the ordinance. regulation.
ISSUE: Whether the ordinance is valid. 10. American Mail Lines v. City of Basilan
In this case, the fees were based on the tonnage of the vessels. This basis 12. Republic v. Bacolod-Murcia Milling Co.
of fixing the fees has no reasonable relation to the cost of issuing permits
and the cost of inspection or surveillance. Moreover, the fee imposed on The Philippine Sugar Institute (Philsugin), a semi-public corporation, was
foreign vessels – ½ centavo per ton for the first 24 hours, and which shall created for the purpose of conducting research in and advancing the sugar
not exceed P75 per day – exceeded even the harbor fee imposed by the industry in the country. To carry out these objectives, the charter of
National Government, which was only P50. These circumstances point to Philsugin authorized the levy of ten centavos per picul of sugar for five
the conclusion that the fees were intended for revenue purposes. years to be collected from sugar cane planters in the country. The
proceeds of this levy would go to a special fund to be used exclusively by
11. Osmena v. Orbos Philsugin.
Pres. Marcos issued PD 1956 creating the Oil Price Stabilization Fund Philsugin then purchased the Insular Sugar Refinery using money from this
(OPSF), which was designed to reimburse oil companies for cost increases special fund. Several years later, Insular Sugar Refinery had accumulated
in crude oil and imported petroleum products resulting from exchange rate tremendous losses. Three sugar centrals refused to continue paying their
adjustments and from increases in the world market prices of crude oil. A contributions to the fund on the ground that the purchase of the Insular
portion of the OPSF was taken from collections of ad valorem taxes levied Sugar Refinery by Philsugin was not authorized by its charter and that the
on oil companies. continued operation of the refinery was inimical to their interests. They
contended that their obligation to pay their contributions subsisted only to
Subsequently, the OPSF was reclassified into a trust liability account and the limit and extent that they were benefited by the contributions, since
ordered released from the National Treasury to the Ministry of Energy. the levy was merely a special assessment and not a tax.
The EO authorized the investment of the fund in government securities,
with the earnings accruing to the fund. ISSUE: Whether the levy is a special assessment or a revenue measure.
Petitioner alleges that the creation of the trust fund violates the HELD:
Constitution since the money collected pursuant to PD 1956 is a special
fund, and under the Constitution, if a special tax is collected for a specific It is neither. The levy for the Philsugin Fund is not so much an exercise of
purpose, the revenue generated therefrom shall be treated as a special the power of taxation nor the imposition of a special assessment, but the
fund to be used only for the purpose indicated, and not channeled to exercise of the police power for the general welfare of the entire country.
another government objective. It is therefore an exercise of a sovereign power, which no private citizen
may lawfully resist.
ISSUE:
The decision cited the case of Lutz v. Araneta in which the Court held that
Whether the creation of the trust fund is violative of the Constitution. since sugar production is one of the leading industries of our nation, its
promotion, protection, and advancement redound greatly to the general
HELD: No. The creation of the trust fund was valid. welfare. Hence, the Legislature found it in the interest of the general
welfare to stabilize the sugar industry with the help of the power of
In order for the funds to fall under the prohibition, it must be shown that taxation.
they were collected as taxes – as a form of revenue. In this case, while
Limitations on the power of taxation are either: 1. The taking of life, liberty or property must have been done under
the authority of a valid law or of the Constitution (substantive due
1. Constitutional limitations – those found in the Constitution or process); and
implied from its provisions; or 2. After compliance with fair and reasonable methods of procedure
prescribed by law (procedural due process).
2. Inherent limitations – those which restrict the power although
not embodied in the Constitution. Applied to taxation:
a. due process of law 3. A taxpayer may not be deprived of his property for non-payment
b. equal protection of the laws of taxes without giving notice to him as required by law of his tax
c. non-impairment of the obligation of contracts liability as well as of the sale at public auction of the property to
d. exemption of religious, charitable, and educational entities, satisfy his taxes. Failure to notify will amount to a denial of due
non-profit cemeteries, and churches from property taxation process.
e. no imprisonment for non-payment of a poll tax
4. A tax law which denies a taxpayer a fair opportunity to assert his
f. power of the President to veto any particular item or items in
substantial rights before a competent tribunal is invalid as
a revenue or tariff bill;
violative of due process. Procedural due process requires an
g. exemption of non-stock, non-profit educational institutions opportunity to be heard before judgment is rendered.
from taxation;
h. non-impairment of the jurisdiction of the Supreme Court in
Equal Protection of the Laws
tax cases
i. concurrence by a majority of all the members of Congress
for the passage of a law granting tax exemption Equal protection of the laws means that all persons similarly situated shall
be treated alike both as to privileges conferred and liabilities imposed.
j. no appropriation for religious purposes
k. non-infringement of religious freedom Where the statute or ordinance in question applies alike to all persons,
l. equity and uniformity of taxation firms, or corporations placed in similar situation, or differently to persons,
firms, or corporations belonging to different classes provided all those
2. Inherent limitations belonging to one class are treated alike, there is no infringement of the
(JENI P) constitutional guarantee.
A progressive system of taxation is one whose emphasis is on direct Prohibition against appropriation for religious
rather than indirect taxation, with ability to pay as the principal criterion. purposes
Prohibition against imprisonment for non-payment of This is because taxes con only be levied for a public purposes. The
poll tax exception is when the priest, etc is employed in the armed forces, any
penal institution, or government orphanage or leprosarium, they may
receive their corresponding compensations for services rendered without
The Constitution provides that no person shall be imprisoned for debt or
violating the constitutional prohibition.
non-payment of a poll tax.
The only penalty for delinquency in the payment of poll tax or community Prohibition against taxation of religious, charitable,
tax is the payment of interest at 24% per annum. But a person may be and educational entities
imprisoned for violation of the community tax law other than for non-
payment of the tax (ex: falsification of the community tax certificate) and The exemption covers only property and not other taxes. The test of the
for non-payment of other taxes if so expressly provided by the pertinent exemption is the use of the property and not the ownership. To be tax-
law. exempt, the property must be actually, directly, and exclusively used for
the purposes mentioned. It also extends to facilities incidental to or
Prohibition against impairment of obligation of reasonably necessary for the accomplishment of said purposes.
contracts
Prohibition against taxation of non-stock, non-profit
educational institutions
Petitioner alleges that the creation of the trust fund violates the Pepsi filed an action to declare the Local Autonomy Act and the two
Constitution since the money collected pursuant to PD 1956 is a special ordinances void. The Local Autonomy Act (RA 2264) grants municipalities
fund, and under the Constitution, if a special tax is collected for a specific the authority to impose municipal taxes or fees upon persons engaged in
purpose, the revenue generated therefrom shall be treated as a special any occupation or business within their jurisdictions, provided that they
fund to be used only for the purpose indicated, and not channeled to were not allowed to impose percentage tax on sales and on items already
another government objective. subject to specific tax under the National Internal Revenue Code. Pepsi
claims that RA 2264 is an undue delegation of power.
He also alleges that there was undue delegation of legislative taxing power
to the ERB in the provision conferring authority upon the ERB to impose ISSUES:
additional amounts on petroleum products.
1. Whether RA 2264 constitutes an undue delegation of power.
He also alleges that the ERB was processing unauthorized claims for
reimbursements under PD 1956, since none of these claims (inventory 2. Whether MOs 23 and 27 are valid.
losses, financing charges, sale of fuel oil to NAPOCOR) was incurred as a
result of the reduction of domestic prices of petroleum products. HELD:
Whether there was an undue delegation of power in favor of the ERB. This is not to say though that the constitutional injunction against
deprivation of property without due process of law may be passed over
HELD: under the guise of the taxing power, except when the taking of property is
in the lawful exercise of the taxing power, as when:
1. The creation of the trust fund was valid. While the funds collected may
be referred to as taxes, they are exacted in the exercise of the police (1) the tax is for a public purpose;
power of the State. The OPSF is a special fund. It is segregated from the (2) the rule on uniformity of taxation is observed;
general fund; and while it is placed in what the law refers to as a “trust (3) either the person or property taxed is within the jurisdiction of the
liability account,” the fund nonetheless remain subject to the scrutiny government levying the tax; and
and review of the COA. These measures comply with the constitutional (4) in the assessment and collection of certain kinds of taxes, notice
description of a “special fund.” and opportunity for hearing are provided.
2. There was no undue delegation of power because the law provides a The delegation of the taxing power to the municipal corporation cannot be
sufficient standard by which the authority must be exercised. The assailed either on the ground of double taxation. Double taxation is
standard is the general policy of the law to protect the consumer by prohibited only when the taxpayer is taxed twice for the same benefit by
stabilizing and subsidizing petroleum prices. the same entity for the same purpose, not where one tax is imposed by
the State and the other by a municipality.
17. Pepsi-Cola Bottling Company v. Municipality of Tanauan:
Delegation to Municipal Corporations 2. The MOs are valid.
Municipal Ordinance No. 23 of Tanauan, Leyte imposes on soft drink MO No. 27 is not a tax on sales but on the produce, since it is based on
producers and manufacturers a tax of 1/16 of a centavo for every bottle of volume capacity. Neither is it a specific tax because soft drinks do not fall
soft drink corked. within the enumeration of items subject to specific tax. The rate of the tax
is also reasonable and cannot be said to be unfair or oppressive.
ISSUE: Whether a government-owned or controlled corporation, ISSUE: Whether Sea-Land falls within the coverage of the tax exemption.
performing proprietary functions like the SSS, is exempt from paying
realty taxes. HELD:
The application of the NACOCO v. Bacani case is incorrect, since that case Thereafter, Mitsubishi applied for a loan with Eximbank of Japan so that it
was referring to legal fees and not to realty taxes. For purposes of could comply with its obligations under the contract. Mitsubishi also
exemptions in the payment of realty taxes, the distinction between applied for a loan with a consortium of Japanese banks. The total amount
government agencies performing constituent and ministrant of both loans was $20M.
function is not important. What is decisive is merely that the properties
possessed by the SSS are in fact owned by the government of the Atlas made interest payments in favor of Mitsubishi totaling P13M. The
Philippines. As such, they are exempt from realty taxes. corresponding 15% tax on the interest in the amount of P1.9M was
withheld and remitted to the Government. Subsequently, Mitsubishi and
To make such a distinction would have the effect of taking money from Atlas filed a claim for tax credit, requesting that the P1.9M be applied
one pocket and putting it in another pocket. It would not serve the main against their existing tax liabilities on the ground that the interest earned
purpose of taxation and would even tend to defeat it, because of the by Mitsubishi on the loan was exempt from tax.
paperwork, time, and expenses that it would entail.
ISSUE: Whether the interest is tax-exempt.
When public property is involved, exemption is the rule and
taxation, the exception. HELD:
19. Sea-Land Services Inc. v. CA: International Comity No, the interest is not exempt from tax.
The Thirty-First Infantry Post Exchange was an agency under the control of 22. CIR v. Marubeni: Territorial Jurisdiction
the US Army, operating in the Philippines. The Exchange bought goods,
such as soap and toiletries, and resold them to officers, soldiers, and Marubeni was a Japanese corporation engaged in the import and export,
civilian employees of the US Army and their families. The proceeds trading, and construction business. It completed two contracts in 1984,
derived from the sales were then used for the betterment of the condition the income from which it did not declare. One of the contracts was with
of the personnel of the Army. the National Development Company (NDC) in connection with the
construction of a wharf in Leyte. The other contract was with the
In the course of its business, the Exchange purchased goods from Philippine Phosphate Fertilizer Corp (Philfos) for the construction of an
merchants in the Philippines. The Collector of Internal Revenue collected ammonia storage complex in Leyte.
from these merchants taxes at the rate of 1.5% of the gross value sold by
them to the Exchange. The projects were completed on a “turnkey” basis (a job in which the
contractor agrees to complete the work of building and installation to the
The Exchange filed an action for prohibition against the CIR for him to point of readiness or occupancy; in other words, the products are brought
desist from collecting the taxes from the merchants. The Exchange claims to the client complete and ready for use). The two contracts were divided
that the taxes imposed on the merchants were driving up the prices of into two parts – the offshore portion and the onshore portion. All
goods sold to it by the merchants. The Exchange claims that the materials and equipment in the contract under the offshore portion were
merchants should be exempt from taxes since the revenue law provides manufactured and completed in Japan. After manufacture, these were
that no specific tax shall be collected on any goods sold and delivered transported to Leyte and installed to the pier with the use of bolts.
directly to the US Army of Navy for their actual use or issue. Marubeni claims that the income derived from the offshore portion should
be exempt from tax since it was derived outside of the Philippine
ISSUE: Whether the merchants selling goods to the Exchange are exempt jurisdiction.
from sales tax.
ISSUE: Whether the income of Marubeni is taxable even if it claims that it
HELD: was earned outside of the Philippines.
HELD: 2. The Philippine Bible Society claims that the imposition of VAT on the
sales of its bibles constitutes an infringement of its religious
The judgment is not valid. freedom because the tax increases the price of the bibles, while
reducing the volume of sale. It also claims exemption from the
In order to exempt religious institutions from the payment of real estate registration fee of P1000.
taxes, the property must be used exclusively, actually, and directly
for religious purposes. To be exempted from realty tax, there must be HELD: The resulting burden on the exercise of religious freedom is
proof of actual and direct use of the property for religious or charitable so incidental as to make it difficult to differentiate it from any other
purposes. economic imposition that might make the right to disseminate
religious doctrines costly. Otherwise, to follow petitioner’s
In this case, the right of the Province of Abra to procedural due process argument, to increase the tax on the sale of vestments would be to
was violated by the summary judgment granting the exemption. Instead lay an impermissible burden on the right of the preacher to make a
of accepting the bare allegation of the bishop that the property was being sermon. The registration fee is really just to pay for the expenses
used exclusively, directly, and actually for public purposes, the judge of registration and enforcement of the provisions of the law. Even
should have first required proof of these allegations. if PBS is excused from paying taxes on those bibles that it
distributes for free, it still has to pay the registration fee since it
26. Tolentino v. Sec. of Finance: Religious freedom, Equal also engages in the sale of bibles.
Protection, Non-Impairment of Contracts
3. CREBA claims that the law impairs the obligations of contracts
Several parties filed complaints in the Supreme Court questioning the because the application of the tax to existing contracts of the sale
legality of the Expanded VAT (EVAT) Law: of real property by installment would result in substantial increases
in monthly amortizations, which the buyer did not anticipate at the
1. The Philippine Press Institute contends that by removing the time he entered into the contract. It also claims that the law
exemption of the press from the VAT while maintaining those violates equal protection since the law exempts low-cost housing
granted to others, the EVAT Law discriminates against the press. It from VAT but not middle-class housing. It also claims that VAT,
also contends that it is unconstitutional to tax a constitutionally being an indirect, regressive tax, violates the constitutional
guaranteed freedom (freedom of the press). mandate to provide a progressive system of taxation.
HELD: Since the law granted the press a privilege, the law could HELD: A tax on a new subject or an increased tax on an old one
take back the privilege anytime without offense to the Constitution. does not interfere with a contract or impair its obligation. The
By granting exemptions, the State does not forever waive the essential attributes of sovereignty, such as the power to tax, are
exercise of its sovereign prerogative. In withdrawing the read into contracts. The obligation of contracts cannot defeat the
exemption, the law merely subjects the press to the same tax rightful authority of the government to tax by virtue of its
burden to which other businesses have already been subject. The sovereignty.
case of Grosjean v. American Press Co. cited by the PPI is different
because in that case, the tax was found to be discriminatory As to the violation of equal protection, the Court held that there
because it was imposed only on newspapers whose weekly was a substantial distinction between the homeless poor and the
Initially, the CIR classified the brands as foreign brands since they were In this case, other cigarettes bearing foreign brands were not included
listed in the World Tobacco Directory as belonging to foreign companies. within the scope of the circular. According to Commissioner Chato, the
However, Fortune Tobacco changed the names as follows: “Hope” to “Hope reason for leaving out the other brands was because there was not enough
Luxury” and “More” to “Premium More,” thereby removing them from the time to include them. The SC ruled that the circular was hastily
foreign brand category. A certification was presented to show that promulgated, in violation of the rule on uniformity of taxation.
30. Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas v. Petitioner challenges the validity of the amendment on the ground that he
Tan: Uniformity and Equitability, Equal Protection would be unduly discriminated against by the imposition of higher rates of
tax upon his income arising from the exercise of his profession as
President Aquino issued EO 273, adopting the value-added tax (VAT). compared to those which are imposed upon fixed income or salaried
individual taxpayers. He claims that it amounts to class legislation, in
Petiitoners contend that EO 273 is unconstitutional on the grounds that the violation of both the equal protection and due process clauses and the rule
president had no authority to issue it; that it is oppressive, discriminatory, on uniformity in taxation.
unjust, and regressive.
ISSUE: Whether the provision violates the rule on uniformity on taxation.
ISSUE: Whether the EO 273, adopting VAT, is valid.
HELD:
HELD:
No. The rule of uniformity does not call for perfect uniformity or perfect
The EO is valid. equality. It merely means that all taxable articles of kinds of property of
the same class shall be taxed at the same rate. The taxing power has the
The President had the authority to issue EOs under both the Provisional authority to make reasonable and natural classifications for purposes of
and 1987 Constitutions until a legislature was convened. In this case, the taxation.
EO was enacted 2 days before Congress convened. Therefore, the EO was
still within the President’s power to issue. In this case, there is a discernible basis of classification, which is the
susceptibility of the income to the application of generalized rules
The Municipal Board of Manila passed an ordinance prohibiting an alien ISSUE: Whether the ordinance violates the rule on equality and uniformity
from being employed or engaging in any position or occupation or business in taxation.
enumerated therein, whether permanent, temporary, or casual, without
first securing an employment permit from the Mayor and paying the P50 HELD: No. This argument is without merit. The rule on equality and
permit fee. uniformity does not require that taxes for the same purpose should be
imposed in different territorial subdivisions at the same time. So long as
Hiu Chiong filed an action to restrain the enforcement of the ordinance and the burden of the tax falls equally and impartially on all owners or
to have it declared null and void for being discriminatory and violative of operators of tenement houses similarly classified or situated, equality and
the rule on uniformity in taxation. uniformity of taxation is accomplished.
The Mayor argues that the ordinance cannot be declared null and void on 34. Pepsi-Cola Bottling Co. of the Phil. v. City of Butuan: Uniformity
the ground that it violates the rule on uniformity of taxation because this
rule applies only to purely tax or revenue measures and not to regulatory The City of Butuan enacted an ordinance imposing on any agent and/or
measures, such as the ordinance. consignee of any entity engaged in selling soft drinks a tax of 10 cents per
case of 24 bottles. The tax shall be based on any record showing the
ISSUE: Whether the ordinance is valid. number of cases received within the month.
HELD: Pepsi filed an action to nullify the ordinance on the ground that it partakes
of the nature of an import tax and is highly unjust and discriminatory.
The ordinance is null and void.
ISSUE: Whether the ordinance is valid.
The first part of the ordinance requiring an alien to secure an employment
permit is regulatory in character because it involves the exercise of HELD: The ordinance is null and void.
discretion on the part of the Mayor in approving or disapproving the
applications. However, the second part which requires the payment of P50 The tax is levied only on those persons who are agents or consignees of
as employee’s fee is not regulatory but a revenue measure. There is no another dealer, who must be one engaged in business outside the city. A
logic or justification in exacting P50 from aliens who have been cleared for seller without an agent engaged within the city would not be subject to the
employment. The obvious purpose of the ordinance is to raise money tax. Moreover, the tax shall be based on the number of bottles received,
under the guise of regulation. not sold, by the taxpayer. These circumstances show that the ordinance is
limited in application to those soft drinks brought into the City from
36. Lutz v. Araneta: Uniformity ISSUE: Whether the law violates the rule of uniformity in taxation.
For facts, supra, case #14. HELD: No. The exemption of an instrumentality of the Federal
Government (NCBNY) does not deprive the Commonwealth of the
HELD: It is inherent in the power to tax that a state be free to select the Philippines of the power to tax the competitors of NCBNY. And the lack of
subjects of taxation. Inequalities which result from a singling out of one uniformity in the result furnishes no ground for complaint.
particular class for taxation or exemption infringe no constitutional
limitation. A tax is considered uniform when it operates with the same force and
effect in every place where the subject may be found. The questioned
37. Association of Customs Brokers v. Municipal Board: Uniformity statute applies uniformly to all banks in the Philippines without distinction
and discrimination. If the NCBNY is exempted from its operation because
supra, case #4. it is a federal instrumentality subject only to the authority of Congress,
that alone could not have the effect of rendering it violative of the rule of
40. Churchill v. Concepcion: Uniformity Contractual tax exemptions should not be confused with tax exemptions
granted under franchises. Contractual tax exemptions are those contained
A law was passed imposing an annual tax of P2 per square meter upon in government bonds or debentures, lawfully entered into by them under
electric signs, billboards, and spaces used for posting or displaying enabling laws in which the government, acting in its private capacity,
temporary signs and all signs displayed on premises not occupied by sheds its cloak of authority and waives its governmental immunity. Tax
buildings. Petitioners were owners of a billboard constructed on private exemptions of this kind may not be revoked without impairing the
property in Manila. They were taxed P104. They paid under protest. obligations of contracts. On the other hand, a franchise partakes of the
Subsequently, they assailed the validity of the tax for lack of uniformity nature of a grant which is always subject to amendment, alteration, or
because it was not graded according to value and was classified arbitrarily repeal by Congress when the common good so requires.
without reasonable ground.
42. Province of Misamis Oriental v. Cagayan Electric Power and
ISSUE: Whether the law violates the rule on uniformity. Light Company
HELD: No. Uniformity in taxation means that all taxable articles or kinds CEPALCO was granted a franchise to operate an electric, light, heat, and
of property of the same class shall be taxed at the same rate. A tax is power system in Cagayan de Oro. The franchise imposed a 3% franchise
uniforms when it operates with the same force and effect in every place tax which shall be in lieu of all taxes and assessments of whatever
where the subject is found. Uniformity does not signify an intrinsic, but authority upon the privileges, earnings, income, etc, from which CEPALCO
simply a geographical uniformity. In this case, the P2/sq. meter tax is was expressly exempted. Subsequently the Local Tax Code was
imposed on every electric sign or billboard wherever found in the promulgated allowing provinces to impose a tax of ½ of 1% on businesses
Philippines. The rule of uniformity does not require taxes to be graded enjoying franchises. Pursuant to this, the Province of Misamis Oriental
according to the value of the subject upon which they are imposed, enacted an ordinance levying the ½ of 1% tax on the gross annual
especially those levied as privilege or occupation taxes. receipts of CEPALCO realized within the province of Misamis Oriental.
CEPALCO refused to pay the additional tax, claiming the exemption
41. Meralco v. Province of Laguna: Delegation to LGUs, Impairment granted to it under its franchise.
clause
ISSUE: Whether CEPALCO is exempt from paying the provincial franchise
Pursuant to the Local Government Code of 1991, the province of Laguna tax.
enacted an ordinance imposing on businesses enjoying a franchise a
franchise tax of 50% of 1% of gross annual receipts. Meralco protested HELD: Yes. The franchise of CEPALCO expressly exempts it from payment
payment on the ground that the franchise tax that it was paying to the of all taxes of whatever authority, except the 3% tax on its earning. The
National Government already included the franchise tax imposed by the franchise granting the exemption is a special law applicable only to
province. CEPALCO, while the Local Tax Code is a general tax law. The presumption
is that special statutes are exceptions to the general law because they
ISSUE: Whether the province of Laguna had the power to levy the pertain to a special charter granted to meet a particular set of conditions
franchise tax. and circumstances. The franchise tax imposed under the local tax
ordinance pursuant to the Local Tax Code shall be imposed on businesses
HELD: Yes. holding a franchise, but not from those whose franchises contain the “in-
lieu-of-all-taxes” proviso.
Local governments do not have the inherent power to tax except to the
extent that such power might be delegated to them. Under the 43. CEPALCO v. CIR
Constitution, there has been a general delegation of that power in favor of
LGUs. Under the now prevailing Constitution, where there is neither a CEPALCO was the holder of a legislative franchise under which the 3%
grant nor a prohibition by statute, the tax power must be deemed to exist franchise tax on its gross earning was “in lieu of all taxes and assessments
although Congress may provide statutory limitations and guidelines. The of whatever authority upon privileges, earnings, income, etc.” from which
basic rationale for the current rule is to safeguard the viability and self- the CEPALCO was expressly exempted.
ISSUE: Whether CEPALCO enjoyed a tax exemption during the period of ISSUE: Whether there was a violation of the impairment clause.
June 1968 to August 1969.
HELD: Yes. Therefore, the provision is void. There was a contract
HELD: No. Congress could impair CEPALCO’s legislative franchise by between the Spanish Government and the plaintiff, the obligation of which
making it liable for income tax from which it was originally exempted. The contract was impaired by the Internal Revenue Law.
constitution provides that a franchise is subject to amendment, alteration,
or repeal by Congress when the public interest so requires. The law A State may by contract based on consideration exempt the property of an
passed in June 1968 had the effect of withdrawing CEPALCO’s exemption individual or corporation from taxation either for a specified period or
from income tax, while the exemption was restored by the subsequent permanently. And it is equally well settled that the exemption is presumed
amendment of CEPALCO’s franchise. Hence, CEPALCO is liable for tax for to be on sufficient consideration, and binds the State if the charter
the period in which there was no exemption. containing it is accepted. Such contract can be enforced against the State
at the instance of the corporation.
44. Lealda Electric Co. v. CIR [The important distinction in this case is that there was consideration
between both parties for entering into the contract. From the provisions
In 1915, Julian Anson was granted a franchise to operate an electric light of the deed, it was not a unilateral grant of a privilege by the Spanish
and power plant in Legaspi and Daraga Albay. The franchise was Government. Cassanovas undertook to perform some things with respect
transferred to several parties until it was finally sold to Lealda Electric Co. to the mining claim in consideration of the privilege. Hence, there was a
Anson and his successors-in-interest regularly paid the 2% franchise tax binding contract with reciprocal obligations, which the State cannot
imposed on all franchises. In 1946, the NIRC was amended, increasing abrogate].
the franchise tax to 5%. Lealda paid at first, but later filed a petition for
refund contending that under its charter, it was liable to pay only 2% 46. American Bible Society v. City of Manila: Free exercise of
franchise tax. It argues that the franchise was a private contract between Religion
its predecessor-in-interest on one hand and the Government, on the other,
and as such, cannot be amended by the Tax Code. The American Bible Society was a missionary society engaged in the
distribution and sale of bibles in the Philippines. The City Treasurer of
ISSUE: Whether Lealda should pay 5% franchise tax. Manila informed the Society that it was conducting the business of general
merchandising without a Mayor’s permit and municipal license, in violation
HELD: Yes. The franchise of Lealda contains an express provision to the of Ordinances 3000 and 2529. The Society paid the fees in protest,
effect that the same may be altered or repealed by Congress. claiming that it never received any profit from the sale of the materials. It
then filed a complaint to declare the municipal ordinances in question
Differentiate this from the two other previous cases: In the CEPALCO unconstitutional for violating the non-establishment and free exercise
cases, the franchises were deemed exempt because the contained the clause of the Constitution.
phrase “in lieu of all taxes of any kind levied now or in the future…” There
was an express exemption in these cases. Lealda’s franchise does not ISSUE: Whether the Society is required to pay the fees under the two
contain the same exemption. ordinances.
In this case, the act of selling bibles is purely religious and does not fall
under the provisions of the city ordinances. Even if the price asked for the
bibles and other religious pamphlets was sometimes a little bit higher than
their actual cost, it cannot mean that the Society was engaged in the
business or occupation of selling merchandise for profit. For this reason,
Ordinance 2529, which imposes a license tax on the exercise of the right
to sell religious materials, cannot be applied to the Society, 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.
On the other hand, Ordinance 3000, which does not impose any charge
upon the enjoyment of a right granted by the Constitution nor tax the
exercise of religious practices, cannot be considered unconstitutional even
if applied to the Society. However, since Ordinance 2529 is not applicable
to the Society, the City of Manila is powerless to license or tax the
business of the Society. Hence, Ordinance 3000 is also inapplicable to the
business of the Society.
The premises of Abra Valley College were being used for the educational
purposes of the college (as classrooms of its high school and college
students). In addition, its second floor was the permanent residence of
the President and Director of the College and his family. The ground floor
was being rented to a commercial establishment, the Northern Marketing
Corporation.