TAX Week1 Digests

7/28/2019 TAX Week1 Digests

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PHILEX MINING CORP v. COMMISSIONER OF INTERNAL REVENUE

(August 28, 1998)

DOCTRINE: A taxpayer cannot refuse to pay his taxes when they fall due simply because

he has a claim against the government or that the collection of the tax is contingent on

the result of the lawsuit it filed against the government.

NATURE: Petition for Review on Certiorari under Rule 45

PONENTE: Romero,J.

FACTS:1. August 5, 1992, BIR sent petitioner Phillex a letter asking it to settle its tax

liabilities for the 2nd, 3rd and 4th quarter of1991 and for the 1st and 2nd quarter

of 1992

2. August 20, 1992, Philex sent a letter protesting the demand for paymentalleging that it has pending claims for VAT input credit/refund for taxes it paid

(1989-1991) in the amount of PhP119.97 M plus interest. Therefore, these

claims for tax refund should be applied against the tax liabilities of Philex in

accordance with the ruling in Commissioner of Internal Revenue v. Itogon-Suyoc

Mines, Inc. BIR denied this position and answered that since the pending claims

have not yet been determined with certainty, there can be no legal

compensation.3. November 6, 1992 Philex Mining raised this issue in the Court of Tax Appeals, In

the course of the proceedings, the BIR issued a Tax Credit Certificate(amounting to 13 M) applied to the total tax liabilities of Philex (123 M) which

effectively lowered the latters tax obligation to PhP110 M.

4. Despite the reduction, CTA still ordered Philex to pay the remaining balance ofP110,677,688.52 plus interest:

a. For legal compensation to take place, both obligations mustbe liquidated and demandable, where the exact amount of the debt

has already been determined. In the instant case, the claims of the

Petitioner for VAT refund is still pending litigation, and still has to be

determined by this Court. A fortiori, the liquidated debt of the

Petitioner to the government cannot, therefore, be set-off against

the unliquidated claim which Petitioner conceived to exist in its favor.

b. taxes cannot be subject to set-off on compensation since claim fortaxes is not a debt or contract.

5. Philex appealed the case to the CA, but the appellate court affirmed the CTAsdecision.

6. However, a few days after the denial of its motion for reconsideration, Philexwas able to obtain its VAT input credit/refund not only for the taxable year

1989 to 1991 but also for 1992 and 1994.

7. In view of the grant of its VAT input credit/refund, Philex now contends thatthe same should, ipso jure, off-set its excise tax liabilities since both had already

become due and demandable, as well as fully liquidated hence, legal

compensation can properly take place.

ISSUE:

1. WON legal compensation can apply in the instant case. NOa. WON the imposition of surcharge and interest for the non-payment of

the excise taxes within the time prescribed was unjustified. NO

2. WON BIR violated Section 106(e)[30] of the NIRC which requires the refundof input taxes within 60 days when it took five years for the latter to grant

its tax claim for VAT input credit/refund. YES

HELD:

1.In many instances (Francia v. IAC; Caltex v. COA) prior to the instant case, the

Court has consistently pronounced that taxes cannot be subject to compensation

for the simple reason that the government and the taxpayer are not creditors

and debtors of each other.

There is a material distinction between a tax and debt. Debts are due to the

Government in its corporate capacity, while taxes are due to the Government in

its sovereign capacity. There is no cogent reason to deviate from the aforementioned

distinction.

Philexs reliance on our holding in Commissioner of Internal Revenue v. Itogon -

Suyoc Mines, Inc., wherein we ruled that a pending refund may be set off against an

existing tax liability even though the refund has not yet been approved by the

Commissioner, is no longer without any support in statutory law. It is important to

note that the premise of our ruling in the aforementioned case was anchored on

Section 51(d) of the National Revenue Code of 1939. However, when theNational Internal Revenue Code of 1977 was enacted, the same provision upon

which the Itogon-Suyoc pronouncement was based was omitted. Accordingly, thedoctrine enunciated in Itogon-Suyoc cannot be invoked by Philex.

a.Philex posits the theory that it had no obligation to pay the excise liabilities

within the prescribed period since, after all, it still has pending claims for VAT input

credit/refund with BIR. The court disagrees.

It must be noted that a distinguishing feature of a tax is that it is compulsory

rather than a matter of bargain. Hence, a tax does not depend upon the consent of the

taxpayer.

A taxpayer cannot refuse to pay his taxes when they fall due simply because

he has a claim against the government or that the collection of the tax is

contingent on the result of the lawsuit it filed against the government.Philex's theory can easily give rise to confusion and abuse, depriving the

government of authority over the manner by which taxpayers credit and offset their

tax liabilities.

The fact that Philex has pending claims for VAT input claim/refund with the

government is immaterial for the imposition of charges and penalties prescribed

under Section 248 and 249 of the Tax Code of 1977.

The payment of the surcharge is mandatory and the BIR is not vested with any

authority to waive the collection thereof. The same cannot be condoned for flimsy

reasons, such as the one supplied by Philex.

2.In the instant case, the VAT input taxes were paid between 1989 to 1991 but the

refund of these erroneously paid taxes was only granted in 1996. Obviously, had the

BIR been more diligent and judicious with their duty, it could have granted the refund

earlier. Simple justice requires the speedy refund of wrongly-held taxes


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Furthermore, the petition for certiorari and mandamus is not the proper

remedy for the petitioner. Appeal is the remedy.

Disposition: The petition is, therefore, dismissed, without costs.

Vote: Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and

Makalintal, JJ., concur. Bengzon, C.J., took no part.

Concurring/Dissenting Opinion: None.

-JP

PAL vs Edu, supra

Osmena vs Orbos, supra

Republic vs Bacolod-Murcia Milling, supra

TIO vs. VIDEOGRAM REGULATORY BOARD

June 18, 1987

DOCTRINE: A tax does not cease to be valid because it regulates, discourages, or even

definitely deters the activities taxed. Such levy is for a public purpose, which is

government regulation.

NATURE: Assailing the constitutionality of PD 1994PONENTE: Melencio-Herrera

FACTS:

PD 1994 amended the NIRC providing that there shall be an annual tax of 5pesos on each processed video-tape cassette, regardless of length, and a 30%

tax on the purchase price or rental rates.o The rationale behind the decree is (relevant ones)

1. Proliferation and unregulated circulation of videograms, causinga sharp decline in theatrical attendance (40%) and a drop in

sales;

2. Videogram establishments collectively earn 600 million pesosper annum, and such earnings have not been subjected to tax;

Several theater and movie companies intervened in the case;ISSUES: (3 other side issues on undue delegation of power, ex post facto laws, and use of

executive judgment; all of which decided in favor of the constitutionality of the bill)

1. Is the imposition of the 5 peso tax a rider to the bill itself? NO.2. Is the tax imposed harsh, confiscatory, oppressive, or in unlawful restraint of

trade? NO.

3. Is there over-regulation of the video industry? NO.RATIO:

1. The provision on taxing the videograms is allied and germane to, and isreasonably necessary for the accomplishment of the general object of the

decree. As a tool for regulation, it is simply one of the regulatory and

control mechanisms scattered throughout the decree.

The title of the decree, which is the creation of the VideogramRegulatory Board, is comprehensive enough to include the purposes

expressed in its preamble and reasonable covers all its provisions.

2. A tax does not cease to be valid because it regulates, discourages, or evendefinitely deters the activities taxed. The power to impose tax is one so

unlimited in force.

The tax imposed by the decree is not only a regulatory measure, but alsoa revenue measure since videogram establishments are earning P600

million per annum not subject to tax. Such levy is for a public purpose, which is the regulation of the video

industry.

3. The videogram industry is a new one, and the need for its regulation wasapparent considering the unfair competition posed by rampant film piracy,

the erosion of the moral fiber of the public due to the availability of

pornographic and violent videos, and losses in government revenue due to

dropping theatrical attendance.

-Ice

Caltex vs COA, supra

ESSO STANDARD V CIR(July 7, 1989)

FACTS:

In CTA Case No 1251, ESSO claimed ordinary and necessary expenses in theamount of P340, 822 representing margin fees it paid to the Central Bank on

its profit remittances to its New York head office.

In CTA Case No 1558, CIR assessed ESSO a deficiency income tax for 1960.The deficiency arose from the disallowance of the margin fees of P1M paid byESSO to the Central Bank on its profit remittances to its New York head

office.

On May 1965, the CIR denied claims of ESSO for refund of the overpaymentof its 1959 and 1960 income taxes, insisting that the margin fees paid to the

Central Bank could not be considered taxes or allowed as deductiblebusiness expenses.

ESSO appealed to the CTA and sought refund of P102K for 1959, arguing thatthe margin fees were deductible from gross income either as tax or as an

ordinary and necessary business expense.

CTA denied ESSOs claim for P102k refund for 1959 and P434k refund for1960; but sustained its claim for P39k as excess interest.

ISSUES:

WON the RA 2009, An Act to Authorize the Central Bank of the Philippines toEstablish a Margin Over Banks' Selling Rates of Foreign Exchange, is a police

measure or a revenue measure.

WON the margin fees can be considered necessary and ordinary businessexpenses and therefore still deductible from the companys gross income.


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HELD:

RA 2009 is a police measure. No

RATIO:

In Caltex v Acting Commissioner of Customs the Court held that:A margin levy on foreign exchange is a form of exchange control or restrictiondesigned to discourage imports and encourage exports and ultimately, curtail

any excessive demand upon the international reserve in order to stabilize the

currency. A tax is levied to provide revenue for government operations. On the other

hand, margin fees are applied to strengthen our countrys international

reserves.

The margin fee imposed by the state was done in the exercise of its policepower and not the power of taxation.

InAtlas Consolidated v CIR the Court stated that statutory test of deductibility:o The expense must be ordinary and necessaryo The expense must be paid or incurred within the taxable yearo The expense must be paid or incurred in carrying on a trade or

business.

Not only must the taxpayer meet this test, he must also be able to substantially

prove by evidence or records the deductions claimed under the law, otherwise,

the same shall be disallowed. The CTA correctly ruled that:

Since the margin fees were incurred for the remittance of funds to ESSOs New

York HQ, (which is a separate income taxpayer from the branch in the PH) for

its disposal abroad, it can not be said therefore that the margin fees wereappropriate and helpful in the development of ESSOs businesses in the PH

exclusively. Neither was it incurred for purposes proper to the conduct of the

affairs of ESSOs PH branch exclusively or for the purpose of realizing a profit or

minimizing a loss in the PH branch exclusively.

ESSO has not shown that the remittance to the head office of part of its profitswas made in furtherance of its own trade or business. The petitioner merely

presumed that all corporate expenses are necessary and appropriate in the

absence of a showing that they are i llegal or ultra vires.

The taxpayer in every instance has the burden of justifying the allowance of anydeduction claimed." It is clear that ESSO, having assumed an expense properlyattributable to its head office, cannot now claim this as an ordinary andnecessary expense paid or incurred in carrying on its own trade or business.

-Ivan

Phil. Guaranty Co. Inc. v. Commissioner of Internal Revenue

(April 30, 1965)

Doctrine: The power to tax is an attribute of sovereignty. It is a power emanating from

necessity. It is a necessary burden to preserve the States sovereignty and a means to

give the citizenry an army to resist an aggression, a navy to defend its shores from

invasion, a corps of civil servants to serve, public improvements designed for the

enjoyment of the citizenry and those which come within the States territory, andfacilities and protection which a government is supposed to provide.

Nature: Appeal from a decision of the CTA

Ponente: Bengzon, J. P.,J.

Facts:

Phil. Guaranty Co. Inc. entered into reinsurance contracts on various dateswith foreign insurance companies not doing business in the Philippines

Said contracts were signed by Phil. Guaranty in Manila and by the foreignreinsurers outside the Philippines, except for one, which was signed by bothparties in Switzerland

o The contracts made the commencement of the reinsurers liabilitysimultaneous with that of Phil. Guaranty under the original

insurance

o Phil. Guaranty was required to keep a register in Manila where therisks ceded to the foreign reinsurers were entered, and entry

therein was binding upon the reinsurerso A proportionate amount of taxes on insurance premiums not

recovered from the original assured were to be paid for by the

foreign reinsurers

o 5% of the reinsurance premiums will be given to Phil. Guaranty ascompensation for managing the foreign reinsurers affairs in thePhilippines

o Conflicts are to be arbitrated in Manilao One contract stipulated that their contract shall be construed by the

laws of the Philippines

Phil. Guaranty ceded to the foreign insurers premiums in 1953 (P842,466.71) and 1954 (P721, 471.85), which it excluded from its gross income

when it filed its income tax returns for the 1953 and 1954. It also did not

withhold or pay tax on them

Thus, the CIR assessed against Phil. Guaranty withholding tax on the cededreinsurance premiums which amounted to P230, 673.00 for 1953 and P234,

364.00 for 1954

Phil. Guaranty protested the assessment on the ground that reinsurancepremiums ceded to foreign reinsurers are not subject to withholding tax

o Deniedo Phil. Guaranty appealed to CTA = denied, but reduced the amounts

Issue: W/N the CIRs assessment for withholding tax on the reinsurance premiums

ceded in 1953 and 1954 to the foreign insurers is legal

W/N the reinsurance premiums constitute income from within thePhilippines

Held: Yes.

Yes.


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From the foregoing, it is discernible that the approval of the court, sitting in probate, or

as a settlement tribunal over the deceased is not a mandatory requirement in the

collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in

proceeding with the levying and sale of the properties allegedly owned by the late

President, on the ground that it was required to seek first the probate court's

sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that

implies the necessity of the probate or estate settlement court's approval of the state's

claim for estate taxes, before the same can be enforced and collected.

On the contrary, under Section 87 of the NIRC, it is the probate or settlement court whichis bidden not to authorize the executor or judicial administrator of the decedent's estate

to deliver any distributive share to any party interested in the estate, unless it is shown a

Certification by the Commissioner of Internal Revenue that the estate taxes have been

paid. This provision disproves the petitioner's contention that it is the probate court

which approves the assessment and collection of the estate tax.

XXX

NATURE: Petition for Review on Certiorari

PONENTE: Torres Jr.,J.

FACTS:

More than seven years since the demise of the late Ferdinand E. Marcos, the former

President of the Republic of the Philippines, the matter of the settlement of his estate,

and its dues to the government in estate taxes, are still unresolved, the latter issue being

now before this Court for resolution. Specifically, petitioner Ferdinand R. Marcos II, the

eldest son of the decedent, questions the actuations of the respondent Commissioner of

Internal Revenue in assessing, and collecting through the summary remedy of Levy on

Real Properties, estate and income tax delinquencies upon the estate and properties of

his father, despite the pendency of the proceedings on probate of the will of the late

president, which is docketed as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig,

Branch 156.

XXX

"On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii,

USA.

On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and

examinations of the tax liabilities and obligations of the late president, as well as that of

his family, associates and "cronies". Said audit team concluded its investigation with a

Memorandum dated July 26, 1991. The investigation disclosed that the Marcoses failed

to file a written notice of the death of the decedent, an estate tax returns [sic], as well as

several income tax returns covering the years 1982 to 1986, -all in violation of the

National Internal Revenue Code (NIRC).

Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the

Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized

under Sections 253 and 254 in relation to Section 252- a & b) of the National Internal

Revenue Code (NIRC).

The Commissioner of Internal Revenue thereby caused the preparation and filing of

the Estate Tax Return for the estate of the late president, the Income Tax Returns of

the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of

petitioner Ferdinand 'Bongbong' Marcos II for the years 1982 to 1985.

On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment no.

FAC-2-89-91-002464 (against the estate of the late president Ferdinand Marcos in the

amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment no. FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91-002451

(against the Spouses Ferdinand and Imelda Marcos in the amounts of P149,551.70 and

P184,009,737.40 representing deficiency income tax for the years 1985 and 1986); (3)

Deficiency income tax assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463

(against petitioner Ferdinand 'Bongbong' Marcos II in the amounts of P258.70 pesos;

P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing his deficiency

income taxes for the years 1982 to 1985).

The Commissioner of Internal Revenue avers that copies of the deficiency estate and

income tax assessments were all personally and constructively served on August 26,

1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr.Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M. (Annexes 'D'

and 'E' of the Petition). Likewise, copies of the deficiency tax assessments issued

against petitioner Ferdinand 'Bongbong' Marcos II were also personally and

constructively served upon him (through his caretaker) on September 12, 1991, at his

last known address at Don Mariano Marcos St. corner P. Guevarra St., San Juan, M.M.

(Annexes 'J' and 'J-1' of the Petition). Thereafter, Formal Assessment notices were

served on October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office, House of

Representatives, Batasan Pambansa, Quezon City. Moreover, a notice to Taxpayer

inviting Mrs. Marcos (or her duly authorized representative or counsel), to a

conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel - but to

no avail.

The deficiency tax assessments were not protested administratively, by Mrs. Marcos

and the other heirs of the late president, within 30 days from service of saidassessments.

On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on

real property against certain parcels of land owned by the Marcoses - to satisfy the

alleged estate tax and deficiency income taxes of Spouses Marcos.

On May 20, 1993, four more Notices of Levy on real property were issued for the

purpose of satisfying the deficiency income taxes.

On May 26, 1993, additional four (4) notices of Levy on real property were again

issued. The foregoing tax remedies were resorted to pursuant to Sections 205 and

213 of the National Internal Revenue Code (NIRC).

In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of

herein petitioner) calling the attention of the BIR and requesting that they be duly

notified of any action taken by the BIR affecting the interest of their client Ferdinand'Bongbong Marcos II, as well as the interest of the late president - copies of the


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aforesaid notices were served on April 7, 1993 and on June 10, 1993, upon Mrs. Imelda

Marcos, the petitioner, and their counsel of record, 'De Borja, Medialdea, Ata, Bello,

Guevarra and Serapio Law Office'.

Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City

Hall of Tacloban City. The public auction for the sale of the eleven (11) parcels of land

took place on July 5, 1993. There being no bidder, the lots were declared forfeited in

favor of the government.

On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition for

certiorari and prohibition under Rule 65 of the Rules of Court, with prayer for temporaryrestraining order and/or writ of preliminary injunction."

ISSUE: (a) Is it correct for the Bureau of Internal Revenue to collect by the summary

remedy of levying upon, and sale of real properties of the decedent, estate tax

deficiencies, without the cognition and authority of the court sitting in probate over the

supposed will of the deceased.

HELD: (a) YES, these taxes are exempted from the statute of non claims.

REASONING:A.

In the Philippine experience, the enforcement and collection of estate tax, is executive in

character, as the legislature has seen it fit to ascribe this task to the Bureau of Internal

Revenue. Section 3 of the National Internal Revenue Code attests to this:

"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of

Internal Revenue shall comprehend the assessment and collection of all national internal

revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and

fines connected therewith, including the execution of judgments in all cases decided in its

favor by the Court of Tax Appeals and the ordinary courts. Said Bureau shall also give

effect to and administer the supervisory and police power conferred to it by this Code or

other laws."

Thus, it was in Vera vs. Fernandez that the court recognized the liberal treatment ofclaims for taxes charged against the estate of the decedent. Such taxes, we said, were

exempted from the application of the statute of non-claims, and this is justified by the

necessity of government funding, immortalized in the maxim that taxes are the lifeblood

of the government. Vectigalia nervisunt rei publicae - taxes are the sinews of the state.

"Taxes assessed against the estate of a deceased person, after administration is opened,

need not be submitted to the committee on claims in the ordinary course of

administration. In the exercise of its control over the administrator, the court may direct

the payment of such taxes upon motion showing that the taxes have been assessed

against the estate."

Such liberal treatment of internal revenue taxes in the probate proceedings extends so

far, even to allowing the enforcement of tax obligations against the heirs of the decedent,

even after distribution of the estate's properties.

"Claims for taxes, whether assessed before or after the death of the deceased, can be

collected from the heirs even after the distribution of the properties of the

decedent. They are exempted from the application of the statute of non-claims. The

heirs shall be liable therefor, in proportion to their share in the inheritance."

"Thus, the Government has two ways of collecting the taxes in question. One, by going

after all the heirs and collecting from each one of them the amount of the tax

proportionate to the inheritance received. Another remedy, pursuant to the lien

created by Section 315 of the Tax Code upon all property and rights to property

belong to the taxpayer for unpaid income tax, is by subjecting said property of the

estate which is in the hands of an heir or transferee to the payment of the tax due theestate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15,

1967.)

From the foregoing, it is discernible that the approval of the court, sitting in probate,

or as a settlement tribunal over the deceased is not a mandatory requirement in the

collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in

proceeding with the levying and sale of the properties allegedly owned by the late

President, on the ground that it was required to seek first the probate court's

sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that

implies the necessity of the probate or estate settlement court's approval of the state's

claim for estate taxes, before the same can be enforced and collected.

XXX

DISPOSITIVE: IN VIEW WHEREOF, the Court RESOLVED to DENY the present

petition. The Decision of the Court of Appeals dated November 29, 1994 is hereby

AFFIRMED in all respects.

OTHER NOTES:

1. Assuming tax assessment is correct; collection may have been wrong:

Petitioner submits, however, that "while the assessment of taxes may have been

validly undertaken by the Government, collection thereof may have been done in

violation of the law. Thus, the manner and method in which the latter is enforced maybe questioned separately, and irrespective of the finality of the former, because the

Government does not have the unbridled discretion to enforce collection without

regard to the clear provision of law."

Petitioner specifically points out that applying Memorandum Circular No. 38-68,

implementing Sections 318 and 324 of the old tax code (Republic Act 5203), the BIR's

Notices of Levy on the Marcos properties, were issued beyond the allowed period, and

are therefore null and void.

XXX

We hold otherwise. The Notices of Levy upon real property were issued within the

prescriptive period and in accordance with the provisions of the present Tax

Code. The deficiency tax assessment, having already become final, executory, and

demandable, the same can now be collected through the summary remedy of distraintor levy pursuant to Section 205 of the NIRC.


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Court of Appeals: Reversed as the LGC expressly withdrew the exemptionsgranted to petitioner; order petitioner to pay

ISSUES/HELD: WON petitioner is liable to pay an annual franchise tax? Yes.

1. WON the LGC authorizes respondent city government to impose thefranchise tax in question? Yes.

2. WON petitioner is covered by the franchise tax in question? Yes.3. WON petitioner is excluded because its stocks are owned by the

national govt and is a non-profit org? No

4. WON petitioners tax exemptions under its charter subsist despitepassage of the LGC? NoRATIO/RULING:

1. Taxes are the lifeblood of the government, for without taxes the government can

neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing

power derives its source from the very existence of the state whose social contract with

its citizens obliges it to promote public interest and common good. The theory behind

the exercise of the power to tax emanates from necessity, without taxes, government

cannot fulfill its mandate of promoting the general welfare and well-being of the people.

In recent years, the increasing social challenges of the times expanded the scope of state

activity, and taxation has become a tool to realize social justice and the equitable

distribution of wealth, economic progress and the protection of local industries as well

as public welfare and similar objectives. Taxation assumes even greater significance with

the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer

vested exclusively on Congress; local legislative bodies are now given direct authority to

levy taxes, fees and other charges pursuant to Article X, section 5 of the 1987

Constitution, viz:

"Section 5.- Each Local Government unit shall have the power to create its own

sources of revenue, 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."

This paradigm shift results from the realization that genuine development can be

achieved only by strengthening local autonomy and promoting decentralization of

governance. For a long time, the country's highly centralized government structure has

bred a culture of dependence among local government leaders upon the national

leadership. To shatter this culture of dependence, section 3 of Article X of the 1987

Constitution mandates Congress to enact a local government code that will, consistent

with the basic policy of local autonomy, set the guidelines and limitations to this grant of

taxing powers.

Prior to the enactment of the LGC, various measures were enacted to promote local

autonomy. Despite these initiatives, LGUs still faced same problems (a) inadequate tax

base, (b) lack of fiscal control over external sources of income, (c) limited authority to

prioritize and approve development projects, (d) heavy dependence on external sources

of income, and (e) limited supervisory control over personnel of national line agencies.

Considered as the most revolutionary piece of legislation on local autonomy, the LGCeffectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs

to include taxes which were prohibited by previous laws (taxes on forest products,

forest concessionaires, mineral products, mining operations). It does not prescribe

graduated fixed rates but merely specifies the minimum and maximum tax rates and

leaves the determination of the actual rates to the respective sanggunian.

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

exclusion of instrumentalities and agencies of the national government from the

coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees

or charges of any kind on the National Government, its agencies and instrumentalities,

this rule now admits an exception, i.e., when specific provisions of the LGC authorizethe LGUs to impose taxes, fees or charges on the aforementioned entities.

The doctrine in Basco vs. PAGCOR relied upon by the petitioner no longer applies. It

was decided prior to the effectivity of the LGC, when no law empowering the local

government units to tax instrumentalities of the National Government was in effect.

However, as this Court ruled in the case ofMactan Cebu International Airport Authority

(MCIAA) vs. Marcos, nothing prevents Congress from decreeing that even

instrumentalities or agencies of the government performing governmental functions

may be subject to tax. In enacting the LGC, Congress exercised its prerogative to tax

instrumentalities and agencies of government as it sees fit.

In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes

the respondent city government to impose on the petitioner the franchise tax in

question.

2. Petitioner is covered by the franchise tax in question since it is a tax on the privilege

of transacting business in the state (a secondary or special franchise). It is not levied

on the corporation for simply existing as a corporation, upon its property or income

(as opposed to a general or primary franchise).

Petitioner has a secondary franchise for under its charter, it has the monopoly in

transmission of electricity. It is also exercising rights or privileges under this franchise

within the territory of respondent.

3. A franchise tax is imposed based not on the ownership but on the exercise by the

corporation of a privilege to do business. The taxable entity is the corp, not theindividual stockholders. By virtue of its charter, petitioner was created as a separate

and distinct entity from the national govt.

Ownership by the national govt of its capital stock does not imply that petitioner is not

engaged in business. GOCCs are classified as those performing governmental functions

(administration of govt; absolute obligations) and proprietary functions (for general

interest of society; optional). Petitioner generates power and sells electricity in bulk,

which are purely private and commercial undertakings albeit imbued with public

interest. Thus, pet is performing proprietary functions.

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

must be shown to exist clearly and categorically, and supported by clear legal

provisions. In the case at bar, the petitioner's sole refuge is section 13 of Rep. Act No.

6395 exempting from, among others, "all income taxes, franchise taxes and realtytaxes to be paid to the National Government, its provinces, cities, municipalities and


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other government agencies and instrumentalities." However, section 193 of the LGC

withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed

by private and public corporations. Contrary to the contention of petitioner, section 193

of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions

from local taxes. It reads:

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided

in this Code, tax exemptions or incentives granted to, or presently enjoyed by

all persons, whether natural or juridical, including government-owned or

controlled corporations, except local water districts, cooperatives duly

registered under R.A. No. 6938, non-stock and non-profit hospitals andeducational institutions, are hereby withdrawn upon the effectivity of this

Code." (emphases supplied)

It is a basic precept of statutory construction that the express mention of one person,

thing, act, or consequence excludes all others as expressed in the familiar

maxim expressio unius est exclusio alterius. Not being a local water district, a cooperative

registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational

institution, petitioner clearly does not belong to the exception. It is therefore incumbent

upon the petitioner to point to some provisions of the LGC that expressly grant it

exemption from local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly states that the

LGUs can impose franchise tax "notwithstanding any exemption granted by any law or

other special law." This particular provision of the LGC does not admit any exception.

DISPOSITION: Petition is denied. Decision of CA is affirmed.

VOTE: Panganiban, Sandoval-Gutierrez, Corona, Carpio-Morales, concur.

-Steph

GOMEZ v. PALOMAR

(October 29, 1968)

DOCTRINE: 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.

PONENTE: Castro,J.

FACTS:

RA 1635,as amended by RA 2631, provides that the Director of Posts shall order forthe period from August nineteen to September thirty every year the printing and

issue of semi-postal stamps of different denominations with face value showing the

regular postage charge plus the additional amount of five centavos for the said

purpose, and during the said period, no mail matter shall be accepted in the mails

unless it bears such semi-postal stamps: Provided, That no such additional charge of

five centavos shall be imposed on newspapers.

The additional proceeds realized from the sale of the semi-postal stamps wouldconstitute a special fund and be deposited with the National Treasury to be

expended by the Philippine Tuberculosis Society in carrying out its noble work to

prevent and eradicate tuberculosis.

The respondent Postmaster General, in implementation of the law, thereafterissued four administrative orders numbered 3, 7 9, and 10 which further

specified the mail categories to which the statue will apply.

In September 1963, Gomez mailed a letter at the post office in Pampanga. Becausethis letter did not bear the special anti-TB stamp required by the statute, it was

returned to him.

Because of this incident, Gomez brought suit for declaratory relief in the CFIPampanga, to test the constitutionality of the statute, as well as the implementingadministrative orders issued, contending that it violates the equal protection

clause of the Constitution as well as the rule of uniformity and equality of

taxation.

The lower court declared the statute and the orders unconstitutional.ISSUE/HELD:

WON RA 1635, as amended, and the AOs are constitutional YES

RATIO/RULING:

It is settled that the legislature has the inherent power to select the subjects of

taxation and to grant exemptions. This power has aptly been described as "of widerange and flexibility. Indeed, it is said that in the field of taxation, more than in other

areas, the legislature possesses the greatest freedom in classification. The reason forthis is that traditionally, classification has been a device for fitting tax programs to

local needs and usages in order to achieve an equitable distribution of the tax burden.

We are not wont to invalidate legislation on equal protection grounds except by the

clearest demonstration that it sanctions invidious discrimination, which is all that the

Constitution forbids. The remedy for unwise legislation must be sought in the

legislature. Now, the classification of mail users is not without any reason. It is based

on ability to pay, let alone the enjoyment of a privilege, and on administrative

convenience. In the allocation of the tax burden, Congress must have concluded that

the contribution to the anti-TB fund can be assured by those whose who can afford the

use of the mails.

The classification is based on considerations of administrative convenience. For it is

now a settled principle of law that consideration of practical administrativeconvenience and cost in the administration of tax laws afford adequate ground for

imposing a tax on a well recognized and defined class. In the case of the anti-TB

stamps, undoubtedly, the single most important and influential consideration that led

the legislature to select mail users as subjects of the tax is the relative ease and

convenience of collecting the tax through the post offices. The small amount of five

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 isthat derived from his enjoyment of the privileges of living in an organized society,


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i. The instant case falls under subsection (b) as there is hereno fiduciary heirs, first heirs, legatee or donee. Under the

subsection, the tax should have been paid before the delivery

of the properties in question to P. J. M. Moore as trustee on

March 10, 1924.

2. Should the inheritance tax be computed on the basis of the value of the estate atthe time of the testator's death, or on its value ten years later?

a. Plaintiff contends that the estate of Thomas Hanley, in so far as thereal properties are concerned, did not and could not legally pass to the

instituted heir, Matthew Hanley, until after the expiration of ten yearsfrom the death of the testator on May 27, 1922 and, that the

inheritance tax should be based on the value of the estate in 1932, or

ten years after the testator's death.

b. If death is the generating source from which the power of the estate toimpose inheritance taxes takes its being and if, upon the death of the

decedent, succession takes place and the right of the estate to tax

vests instantly, the tax should be measured by the value of the estate

as it stood at the time of the decedent's death, regardless of any

subsequent contingency value of any subsequent increase or decrease

in value.

c. We hold that a transmission by inheritance is taxable at the time ofthe predecessor's death, notwithstanding the postponement of the

actual possession or enjoyment of the estate by the beneficiary, and

the tax measured by the value of the property transmitted at that time

regardless of its appreciation or depreciation.

3. In determining the net value of the estate subject to tax, is it proper to deductthe compensation due to trustees?

(a) In the second and third cases of the next preceding section, before entrance into

possession of the property.

(b) In other cases, within the six months subsequent to the death of the predecessor;but if judicial testamentary or intestate proceedings shall be instituted prior to theexpiration of said period, the payment shall be made by the executor or

administrator before delivering to each beneficiary his share.

If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per

centum per annum shall be added as part of the tax; and to the tax and interest due and unpaidwithin ten days after the date of notice and demand thereof by the collector, there shall be

further added a surcharge of twenty-five per centum.

A certified of all letters testamentary or of admisitration shall be furnished the Collector of

Internal Revenue by the Clerk of Court within thirty days after their issuance.

2 SEC. 1543.Exemption of certain acquisitions and transmissions.The following shall not be taxed:(a) The merger of the usufruct in the owner of the naked title.(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or

legatee to the trustees.

(c) The transmission from the first heir, legatee, or donee in favor of anotherbeneficiary, in accordance with the desire of the predecessor.

In the last two cases, if the scale of taxation appropriate to the new benefic iary is greater thanthat paid by the first, the former must pay the difference.

a. There is no statute in the Philippines which requires trustees'commissions to be deducted in determining the inheritance tax.

4. What law governs the case at bar? Should the provisions of Act No. 3606favorable to the tax-payer be given retroactive effect?

a. The defendant levied and assessed the inheritance tax due from theestate of Thomas Hanley under the provisions of section 1544 of

the Revised Administrative Code, as amended by section 3 of Act

No. 3606. But Act No. 3606 went into effect on January 1, 1930. It,

therefore, was not the law in force when the testator died on May

27, 1922. The law at the time was section 1544 above-mentioned,as amended by Act No. 3031, which took effect on March 9, 1922.

b. It is well-settled that inheritance taxation is governed by the statutein force at the time of the death of the decedent.

c. The defendant Collector of Internal Revenue maintains, however,that certain provisions of Act No. 3606 are more favorable to the

taxpayer than those of Act No. 3031, that said provisions are penal3

in nature and, therefore, should operate retroactively in conformity

with the provisions of article 22 of the Revised Penal Code.

d. Revenue laws, generally, which impose taxes collected by themeans ordinarily resorted to for the collection of taxes are not

classed as penal laws, although there are authorities to thecontrary. Article 22 of the Revised Penal Code is not applicable to

the case at bar, and in the absence of clear legislative intent, we

cannot give Act No. 3606 a retroactive effect.

5. Has there been deliquency in the payment of the inheritance tax?a. Defendant contends that delivery to the trustee was delivery to

the cestui que trust, the beneficiery in this case, within the meaning

of the first paragraph of subsection (b) of section 1544 of the

Revised Administrative Code. This contention is well taken and is

sustained.

b. P. J. M. Moore became trustee on March 10, 1924. On that date trustestate vested in him. The mere fact that the estate of the deceased

was placed in trust did not remove it from the operation of our

inheritance tax laws or exempt it from the payment of the

inheritance tax. The corresponding inheritance tax should havebeen paid on or before March 10, 1924, to escape the penalties of

the laws.c. This is so for the reason already stated that the delivery of the

estate to the trustee was in esse delivery of the same estate to

the cestui que trust, the beneficiary in this case. A trustee is but an

instrument or agent for thecestui que trust. When Moore accepted

the trust and took possesson of the trust estate he thereby admitted

that the estate belonged not to him but to his cestui que trust. He

did not acquire any beneficial interest in the estate. He took such

legal estate only as the proper execution of the trust required and,

3A statute is penal when it imposes punishment for an offense committed against the state which, under

the Constitution, the Executive has the power to pardon. In common use, however, this sense has been

enlarged to include within the term "penal statutes" all status which command or prohibit certain acts, and

establish penalties for their violation, and even those which, without expressly prohibiting certain acts,impose a penalty upon their commission.


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his estate ceased upon the fulfillment of the testator's wishes. The

estate then vested absolutely in the beneficiary.

d. Were we to hold that the payment of the tax could be postponed ordelayed by the creation of a trust of the type at hand, the result would

be plainly disastrous. Testators may provide, as Thomas Hanley has

provided, that their estates be not delivered to their beneficiaries until

after the lapse of a certain period of time. The collection of the tax

would then be left to the will of a private individual. The obligation

to pay taxes rests not upon the privileges enjoyed by, or the

protection afforded to, a citizen by the government but upon thenecessity of money for the support of the state. For this reason,

no one is allowed to object to or resist the payment of taxes

solely because no personal benefit to him can be pointed out.

e. That taxes must be collected promptly is a policy deeply intrenched inour tax system. Thus, no court is allowed to grant injunction to

restrain the collection of any internal revenue. In the case of Lim Co

Chui vs. Posadas, this court held that "the fact that on account of riots

directed against the Chinese on October 18, 19, and 20, 1924, they

were prevented from praying their internal revenue taxes on time and

by mutual agreement closed their homes and stores and remained

therein, does not authorize the Collector of Internal Revenue toextend the time prescribed for the payment of the taxes or to accept

them without the additional penalty of twenty five per cent."

f. ". . . It is of the utmost importance," said the Supreme Court of theUnited States, ". . . that the modes adopted to enforce the taxes levied

should be interfered with as little as possible. Any delay in the

proceedings of the officers, upon whom the duty is developed of

collecting the taxes, may derange the operations of government, and

thereby, cause serious detriment to the public."

g. It results that the estate which plaintiff represents has beendelinquent in the payment of inheritance tax and, therefore, liable for

the payment of interest and surcharge provided by law in such cases.

DISPOSITIVE: The judgment of the lower court affirmed with modification.

-Zoilo

ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective

behalf and as judicial co-guardians of JOSE ROXAS, petitioners,

vs.

COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE,

respondents.

Leido, Andrada, Perez and Associates for petitioners.

Office of the Solicitor General for respondents.

BENGZON, J.P., J.:

FACTS: Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their

grandchildren by hereditary succession the ff:

(1) 19K ha. of gricultural lands, situated in Nasugbu, Batangas

(2) A residential house and lot at Malate, Manila; and

(3) Shares of stocks in different corporations.

To manage the above-mentioned properties, the children, Antonio Roxas, Eduardo

Roxas and Jose Roxas, formed a partnership called Roxas y Compania.

AGRICULTURAL LANDS

After WWII, the tenants expressed their desire to purchase from Roxas y Cia. The

Government persuaded the Roxas brothers to part with their landholdings. The Roxas

brothers agreed to sell 13,500 hectares to the Government for distribution to actual

occupants for a price of P2,079,048.47 plus P300,000.00 for survey and subdivision

expenses.

Government did not have funds to cover the purchase price, and so a special

arrangement was made for the Rehabilitation Finance Corporation to advance to

Roxas y Cia. the amount of P1.5M as loan. Collateral for such loan were the lands

proposed to be sold to the farmers. Under the arrangement, Roxas y Cia. allowed thefarmers to buy the lands for the same price but by installment, and contracted with

the Rehabilitation Finance Corporation to pay its loan from the proceeds of the yearly

amortizations paid by the farmers.

In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of

P42,480.83 and P29,500.71. Fifty percent of said net gain was reported for income tax

purposes as gain on the sale of capital asset held for more than one year pursuant to

Section 34 of the Tax Code.

RESIDENTIAL HOUSE

During their bachelor days the Roxas brothers lived in the residential house at Wright

St., Malate, Manila, which they inherited from their grandparents. After Antonio and

Eduardo got married, they resided somewhere else leaving only Jose in the old house.In Jose paid to Roxas y Cia. rentals for the house in the sum of P8,000.00 a year.

ASSESSMENTS

Commissioner of Internal Revenue demanded from Roxas y Cia the payment of real

estate dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise penalty

for late payment, and P150.00 tax for dealers of securities for 1952 plus P10.00

compromise penalty for late payment.

The assessment for real estate dealer's tax was based on the fact that Roxas y Cia.

received house rentals from Jose Roxas in the amount of P8,000.00. Pursuant to Sec.

194 of the Tax Code, an owner of a real estate who derives a yearly rental income

therefrom in the amount of P3,000.00 or more is considered a real estate dealer and is

liable to pay the corresponding fixed tax.

In the same assessment, the Commissioner assessed deficiency income taxes againstthe Roxas Brothers


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forth such limits. Adversely affecting as it does properly rights, both the due

process and equal protection clauses may properly be invoked, all petitioner

does, to invalidate in appropriate cases a revenue measure. if it were otherwise,

there would -be truth to the 1803 dictum of Chief Justice Marshall that "the

power to tax involves the power to destroy." Justice Frankfurter could rightfully

conclude: "The web of unreality spun from Marshall's famous dictum was

brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax is

not the power to destroy while this Court sits." So it is in the Philippines.

- The Constitution as the fundamental law overrides any legislative or executive,act that runs counter to it. The injury is centered on the question of whether

the imposition of a higher tax rate on taxable net income derived from

business or profession than on compensation is constitutionally infirm.

- On arbitrariness. A mere allegation, as here, does not suffice. There mustbe a factual foundation of such unconstitutional taint. Considering that

petitioner here would condemn such a provision as void or its face, he has

not made out a case. There is a need for of such persuasive character as would

lead to such a conclusion. Absent such a showing, the presumption of validity

must prevail.

- It is undoubted that the due process clause may be invoked where a taxingstatute is so arbitrary, an example is where it can be shown to amount to the

confiscation of property. It has also been held that where the assailed taxmeasure is beyond the jurisdiction of the state, or is not for a public purpose,

or, in case of a retroactive statute is so harsh and unreasonable, it is subject to

attack on due process grounds.- On equal protection: The applicable standard to avoid the charge that

there is a denial of this constitutional mandate whether the assailed act is

in the exercise of the lice power or the power of eminent domain is to

demonstrated that the governmental act assailed, far from being inspired

by the attainment of the common weal was prompted by the spirit of

hostility, or at the very least, discrimination that finds no support in

reason. In a leading case of Lutz V. Araneta, this Court, through Justice J.B.L.

Reyes, went so far as to hold "at any rate, 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 constitutionallimitation.'"

- On the concept of uniformity. According to the Constitution: "The rule oftaxation shag be uniform and equitable." This requirement is met according to

Justice Laurel in Philippine Trust Company v. Yatco, decided in 1940, when the

tax "operates with the same force and effect in every place where the subject

may be found. "He likewise added: "The rule of uniformity does not call for

perfect uniformity or perfect equality, because this is hardly attainable."

Nine years later, when the Supreme Court held: "Equality and uniformity in

taxation means that all taxable articles or kinds of property of the same

class shall be taxed at the same rate. The taxing power has the authority

to make reasonable and natural classifications for purposes of taxation, ...

. As clarified by Justice Tuason, where "the differentiation" complained of

"conforms to the practical dictates of justice and equity" it "is not

discriminatory within the meaning of this clause and is therefore

uniform." There is quite a similarity then to the standard of equal protection

for all that is required is that the tax "applies equally to all persons, firms and

corporations placed in similar situation."

- (Technical part so I di ko masyado inexcise. Baka magtanong si Maameh.) Apparently, what misled petitioner is his failure to take into

consideration the distinction between a tax rate and a tax base. There is

no legal objection to a broader tax base or taxable income by

eliminating all deductible items and at the same time reducing the

applicable tax rate. Taxpayers may be classified into different

categories. To repeat, it. is enough that the classification must rest upon

substantial distinctions that make real differences. In the case of the gross

income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis

of classification is the susceptibility of the income to the application of

generalized rules removing all deductible items for all taxpayers within the

class and fixing a set of reduced tax rates to be applied to all of them.

Taxpayers who are recipients of compensation income are set apart as a

class. On the other hand, in the case of professionals in the practice of their

calling and businessmen, there is no uniformity in the costs or expenses

necessary to produce their income. It would not be just then to disregard the

disparities by giving all of them zero deduction and indiscriminately impose

on all alike the same tax rates on the basis of gross income. There is ample

justification then for the Batasang Pambansa to adopt the gross systemof income taxation to compensation income, while continuing the

system of net income taxation as regards professional and business

income

Disposition: WHEREFORE, the petition is dismissed. Costs against petitioner.

Vote: Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez,

Jr., De la Fuente and Cuevas, JJ., concur. Teehankee, J., concurs in the result. Plana, J., took

no part.

Concurring/Dissenting Opinion:

AQUINO,J., concurring:

I concur in the result. The petitioner has no cause of action for prohibition.

ABAD SANTOS,J., dissenting:This is a frivolous suit. While the tax rates for compensation income are lower than

those for net income such circumtance does not necessarily result in lower taxpayments for these receiving compensation income. In fact, the reverse will most likely

be the case; those who file returns on the basis of net income will pay less taxes

because they claim all sort of deduction justified or not I vote for dismissal.

-JP

BASCO V. PAGCOR

(14 May 1991)

DOCTRINE: The City of Manila, being a mere Municipal corporation has no inherent

right to impose taxes.Thus, "the Charter or statute must plainly show an intent to confer

that power or the municipality cannot assume it". Its "power to tax" therefore must

always yield to a legislative act which is superior having been passed upon by the state

itself which has the "inherent power to tax."(Citations omitted)


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NATURE: Petition seeking to annul the Philippine Amusement and Gaming Corporation

(PAGCOR) Charter

PONENTE: Paras,J.

FACTS:

PAGCOR was originally created by virtue of PD 1067-A in January 1977 andgranted a franchise to establish, operate and maintain gambling casinos on

land or water within the territorial jurisdiction of the Philippines."

The Charter was amended as PD 1869 dated July 11, 1983 to enable theGovernment to regulate and centralize all games of chance authorized by

existing franchise or permitted by law

Petitioners come to the Court questioning the validity of the PAGCOR charteranchoring their petition on the following points:

o It waives the City of Manilas power to impose taxes and license feeso Such restriction is contrary to the principles of local autonomyo It violates the equal protection clause by legalizing PAGCOR-

conducted gambling but not other forms

o It violates the trend away from monopolistic and crony economy

ISSUES:

1. W/N Petitioners have standing to question the legality of the Charter?2. W/N the Charter is void for being unconstitutional?

HELD/RATIO/RULING:

1. YES Considering however the importance to the public of the case at bar, and in

keeping with the Court's duty, under the 1987 Constitution, to determine whether

or not the other branches of government have kept themselves within the limits of

the Constitution and the laws and that they have not abused the discretion given

to them, the Court has brushed aside technicalities of procedure and has takencognizance of this petition.

The transcendental importance to the public of these cas es demands that they besettled promptly and definitely, brushing aside, if we must technicalities of

procedure."

2. NO

Gambling in all its forms, unless allowed by law, is generally prohibited. Butthe prohibition of gambling does not mean that the Government cannot

regulate it in the exercise of its police power.

The aim of the Charter is to regulate and centralize thru an appropriateinstitution all games of chance authorized by existing franchise or permitted by

law" (1st whereas clause, PD 1869). As was subsequently proved, regulating

and centralizing gambling operations in one corporate entity the PAGCOR,

was beneficial not just to the Government but to society in general. It is a

reliable source of much needed revenue for the cash strapped Government

Further, the Charter does not deprive the City of Manila its right to imposetaxes and fees for the following reasons:

o Thee City of Manila, being a mere Municipal corporation has noinherent right to impose taxes. Thus, "the Charter or statute must

plainly show an intent to confer that power or the municipality

cannot assume it". Its "power to tax" therefore must always yield

to a legislative act which is superior having been passed upon by

the state itself which has the "inherent power to tax"

o The Charter of the City of Manila is subject to control by Congress.It should be stressed that "municipal corporations are mere

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

abolish municipal corporations" due to its "general legislative

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

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

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

even take back the power.

o The City of Manila's power to impose license fees on gambling,has long been revoked. As early as 1975, the power of localgovernments to regulate gambling thru the grant of "franchise,

licenses or permits" was withdrawn by P.D. No. 771 and was vested

exclusively on the National Government

o Local governments have no power to tax instrumentalities ofthe National Government. PAGCOR is a government owned or

controlled corporation with an original charter, PD 1869. All of its

shares of stocks are owned by the National Government

o Further, PAGCOR has a dual role, to operate and to regulategambling casinos. The latter role is governmental, which places

it in the category of an agency or instrumentality of theGovernment. Being an instrumentality of the Government,

PAGCOR should be and actually is exempt from local taxes.

Otherwise, its operation might be burdened, impeded or subjected

to control by a mere Local government.o This doctrine emanates from the supremacy of the National over

the local government. Otherwise, mere creatures of the State can

defeat National policies thru extermination of what local

authorities may perceive to be undesirable activities or enterprise

using the power to tax as "a tool for regulation"

Further, the Charter is not repugnant to local autonomy for the Constitutionitself provides that the power of an LGU to create its own sources of wealth is

subject to such guidelines as Congress may provide


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Finally, it does not violate the equal protection clause. The clause does notpreclude a classification. Such classification is allowed so long as it is

reasonable and not arbitrary

Finally, the Constitution does not prohibit monopolies per se. It only enjoinstheir limitation or prohibition should public interest so require.

DISPOSITION: Petition DISMISSED.

VOTE: Fernan, C.J., Gutierrez, Jr. Cruz, Feliciano, Gancayco, Bidin, Sarmiento, Grino-Aquino, Medialdea, Regalado, Davide,JJ., concur

-Raffy

Kapatiran vs Tan

(Di naisama sa digest assignments. Di ko na-double check, sorry!)

ABAKADA GURO PARTY LIST vs. ERMITA

September 1, 2005

DOCTRINE: The power to ascertain facts is such a power which may be delegated. It

is the ministerial duty of the President to immediately impose the 12% rate upon the

existence of any of the conditions specified by Congress.

NATURE: assailing the wisdom and constitutionality of Republic Act No. 9337

PONENTE: Austria-Martinez

FACTS:

The Philippines was about to have a severe financial crisis and one of the waysthat the government thought of to solve this is to amend the tax system of the

RP, in order for the government to prevent further economic damage. With this,

the legislature enacted RA No. 9337 which amended sections of the National

Internal Revenue Code of 1997.

The Congress passed HB Nos. 3555 and 3705, while the Senate, taking intoconsideration the said HBs, passed SB No. 1950. All these undergone 3 readings

each, and were then discussed in the BCC. The BCC Report was then approvedby both houses, and the enrolled copy of the consolidated House and Senate

version was transmitted to the President who signed it into law as RA 9337.

PRELUDE/TAX STUFF MAAM MIGHT WANT

The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or

lease of goods or properties and services. Being an indirect tax on expenditure, the seller

of goods or services may pass on the amount of tax paid to the buyer, with the seller

acting merely as a tax collector. The burden of VAT is intended to fall on the immediate

buyers and ultimately, the end-consumers.

In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction

or business it engages in, without transferring the burden to someone else.

Prior to 1978, the system was a single-stage tax computed under the "cost deduction

method" and was payable only by the original sellers. It was only in 1987, when

President Corazon C. Aquino issued Executive Order No. 273, that the VAT system was

rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the "tax

credit method."

ISSUES/RATIO: (Procedural ones not discussed)

1. Was there undue delegation of legislative power to the President? NO. Petitioners contend in common that Sections 4, 5 and 6 of R.A. No. 9337,

amending Sections 106, 107 and 108, respectively, of the NIRC giving the

President the stand-by authorityto raise the VAT rate from 10% to 12% when a

certain condition is met, constitutes undue delegation of the legislative power to

tax.

This gives the President, upon the recommendation of the Secretary ofFinance, shall, power to raise the rate of value-added tax to twelve percent

(12%), after any of the following conditions has been satisfied.

(i) value-added tax collection as a percentage of Gross DomesticProduct (GDP) of the previous year exceeds two and four-fifth

percent (2 4/5%) or

(ii) national government deficit as a percentage of GDP of theprevious year exceeds one and one-half percent (1 %)

In every case of permissible delegation, there must be a showing that thedelegation itself is valid. It is valid only if the law (a) is complete in itself, setting

forth therein the policy to be executed, carried out, or implemented by thedelegate; and (b) fixes a standard the limits of which are sufficiently

determinate and determinable to which the delegate must conform in the

performance of his functions.

While the power to tax cannot be delegated to executive agencies, details asto the enforcement and administration of an exercise of such power may be

left to them, including the power to determine the existence of facts on which

its operation depends.

The case before the Court is not a delegation of legislative power. It issimply a delegation of ascertainment of facts upon which enforcement

and administration of the increase rate under the law is contingent. The

legislature has made the operation of the 12% rate effective January 1, 2006,

contingent upon a specified fact or condition. It leaves the entire operation or

non-operation of the 12% rate upon factual matters outside of the control of

the executive.o It is the ministerial duty of the Presidentto immediately impose

the 12% rate upon the existence of any of the conditions specified

by Congress. This is a duty which cannot be evaded by thePresident.

o Highlighting the absence of discretion is the fact that the word shallis used in the common proviso. The use of the word shall

connotes a mandatory order. Its use in a statute denotes an

imperative obligation and is inconsistent with the idea of


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TAX Week1 Digests