1 tax digests

7/31/2019 1 Tax Digests

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them PAL, to pay motor vehicle registration fees. PALthus paid under protest. PAL then wrote toCommissioner Edu requesting for a refund invokingthe ruling in Calalang v Lorenzo where it was heldthat motor vehicle registration fees are in reality taxesfrom the payment of which PAL is exempt by virtue ofits legislative franchise. Edu denied the request forrefund basing his action on the decision in Republic vPhilippine Rabbit to the effect that motor vehicleregistration fees are regulatory exactions and notrevenue measures and, therefore, do not come within

the exemption granted to PAL under its franchise.PAL filed a complaint against Edu and NationalTreasurer Carbonell with the CFI of Rizal.

TC - Ruled IFO Edu. Upheld Republic vPhilippine Rabbit

CA - Certified the case to the SC

ISSUE: WoN motor vehicle registration fees are taxes

HELD: YES. Motor vehicle registration fees havebecome a very convenient way of raising muchneeded revenues and have in recent years evolvedfrom mere regulatory fees to taxes. Motor vehicleregistration fees were matters originally governed bythe Revised Motor Vehicle Law. Today (at the time ofthe case), the matter is governed by RA 4136otherwise known as the Land Transportation Code.

The legislative intent and purpose behind the lawrequiring owners of vehicles to pay for theirregistration is mainly to raise funds for theconstruction and maintenance of highways and to amuch lesser degree, pay for the operating expensesof the administering agency. On the other hand, thePhilippine Rabbit case mentions a presumptionarising from the use of the term fees which appearsto have been favored by the legislature to distinguish

fees from other taxes.

It is quite apparent that vehicle registration fees wereoriginally simple exactions intended only forregulatory purposes in the exercise of the Statespolice powers. Over the years, however, as vehiculartraffic exploded in number and motor vehiclesbecame absolute necessities without which modernlife as we know it would stand still, Congress foundthe registration of vehicles a very convenient way ofraising much needed revenues. Without changing theearlier denomination of registration payments asfees, their nature has become that of taxes.CAVEAT: The claim for refund was still not grantedeven if the Court held that the motor vehicle

registration fees were in the nature of taxes. Section24 of RA 5431 dated 27 June 1968 repealed allearlier tax exemptions of corporate taxpayers found inlegislative franchises similar to that invoked by PAL inthis case.

3. PROGRESSIVE DEVELOPMENT V QCPonente: Feliciano, J.

DOCTRINE: License fee is a legal concepdistinguishable from tax: the former is imposed in theexercise of police power primarily for purposes oregulation, while the latter is imposed under the taxingpower primarily for purposes of raising revenues.

QUICK FACTS: Private owners and operators of publicmarkets were ordered to pay 5% tax on gross receiptson rentals or lease of space. Progressive Devt filed apetition for prohibition alleging that such supervision feeor license tax imposed is in reality a tax on income the

city cannot impose. CFI dismissed petition. SC affirmeddismissal.

FACTS:

The City Council of Quezon City adopted Ordinance7997 (1969) where privately owned and operated publicmarkets were ordered to pay 10% of the gross receiptsfrom stall rentals to the City, as supervision fee. Suchordinance was amended by Ordinance 9236 (1972)which imposed a 5% tax on gross receipts on rentals olease of space in privately-owned public markets inQuezon City. Progressive Development Corp., owneand operator of Farmers Market and Shopping Centerfiled a petition for prohibition against the city on theground that the supervision fee or license tax imposed isin reality a tax on income the city cannot impose.

TC - QC Council won; imposition is not atax on income, but rather a privilege tax or license feewhich local governments are empowered to impose andcollect.

ISSUE:WON the tax imposed is properly characterized aspartaking of the nature of an income tax

DECISION: No. SC Affirmed TC.

HELD: The 5% tax imposed in Ordinance 9236 doesnot constitute a tax on income, nor a city income tax(distinguished from the national income tax by the TaxCode) within the meaning of Section 2 (g) of the Loca

Autonomy Act, but rather a license tax or fee for theregulation of business in which the company isengaged.

Section 12, Article III of Republic Act No. 537, otherwiseknown as the Revised Charter of Quezon Cityauthorizes the City Council to provide for the levy andcollection of taxes and other city revenues and apply thesame to the payment of city expenses in accordancewith appropriations, and to tax, fix the license fee, andregulate the business of the following: preparation and

sale of meat, poultry, fish, etc. The scope of legislativeauthority conferred upon the Quezon City Council inrespect of businesses like that of the petitioner, iscomprehensive: the grant of authority is not only" [toregulate" and "fix the license fee," but also " to tax".

The term "tax" frequently applies to all kinds oexactions of monies which become public funds. It isoften loosely used to include levies for revenue as welas levies for regulatory purposes such that license fees

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are frequently called taxes although license fee is alegal concept distinguishable from tax: the former isimposed in the exercise of police power primarily forpurposes of regulation, while the latter is imposed underthe taxing power primarily for purposes of raisingrevenues.

To be considered a license fee, the imposition mustrelate to an occupation or activity that so engages thepublic interest in health, morals, safety and developmentas to require regulations for the protection and

promotion of such public interest; the imposition mustalso bear a reasonable relation to the probableexpenses of the regulation, taking into account not onlythe costs of direct regulation but also its incidentalconsequences as well. The gross receipts from stallrentals have been used only as a basis for computingthe fees or taxes due to the city to cover the lattersadministrative expenses. The use of the gross amountof stall rentals, as basis for the determination of thecollectible amount of license tax, does not by itselfconvert or render the license tax into a prohibited citytax on income. For ordinarily, the higher the amount ofstall rentals, the higher the aggregate volume offoodstuffs and related items sold in the privately ownedmarket; and the higher the volume of goods sold in suchmarket, the greater extent and frequency of inspectionand supervision that may be reasonably required in theinterest of the buying public.

4. COMPANIA GENERAL DE TABACOS V CITY OFMANILA

Ponente. Dizon, J.

NATURE:Appeal from the decision of the CFI of Manilaordering the City Treasurer of Manila to refund the sumof P15,280.00 to Compania General de Tabacos deFilipinas (Tabacalera).

QUICK FACTS: Tabacalera instituted an action for

refund claiming that it is only required to pay the licensefees but not the sales tax on its wholesale and retailliquor dealership.

FACTS:

Tabacalera is a duly licensed first class wholesale andretail liquor dealer. As such it paid the City the fixedlicense fees prescribed by Ordinance 3358 as well asthe municipal sales tax in accordance with Ordinances3634, 3301 and 3816 for the years 1954 to 1857.

After Tabacalera found that the City addressed a letterto Sycip, Gorres, Velayo & Co (SGV) expressing a viewthat liquor dealers paying the annual wholesale and

retail fixed tax (license fees) are not subject to thewholesale and retail dealers' taxes, Tabacalera stoppedincluding its sales of liquor it its quarterly declarationand demanded for a refund from the City. When the Citydenied the demand, it instituted an action for refundcontending that in connection with its liquor sales, itshould only pay the license fees prescribed byOrdinance No. 3358 but not the municipal sales taxes.Thus, for the years 1954 to 1957, it has an overpaymentof tax amounting to P15,280.

The City of Manila contends that the license feescollected was for the issuance of the permit grantingauthority to engage in the sale of alcoholic beveragewhich is different from the sales tax. Assuming thaTabacalera is not subject to payment of sales taxrefund is not proper for the following reasons:a. Voluntary payment without protestb. Even if payment was made by mistake, it arosefrom the plaintiff's neglect of duty;c. The said amount had been passed to the

consumers; andd. The said amount had been already expended bythe City for public improvements and essential servicesof the City government, the benefits of which areenjoyed, and being enjoyed by the Tabacalera.

CFI - IFO City of Manila.

ISSUE: WoN Tabacalera was subjected to doubletaxation from 1954-1957 and therefore entitled torefund? NO

RATIO: Generally speaking, the term tax applies to alkinds of exactions which become public funds including license fees. However, legally speakinglicense fee is a legal concept quite distinct from taxLicense fee is imposed in the exercise of police powefor purposes of regulation, while the tax is imposedunder the taxing power for the purpose of raisingrevenues.

HELD:What is collected under Ordinance No. 3358 is a licensefee for the privilege of engaging in the sale of liquor, acalling in which it is obvious not anyone oanybody may freely engage, considering that the sale oliquor indiscriminately may endanger public health andmorals.

What the three ordinances mentioned heretoforeimpose is a tax for revenue purposes based on thesales made of the same article or merchandise. It isalready settled in this connection that both a license feeand a tax may be imposed on the same business ooccupation, or for selling the same article, this not beingin violation of the rule against double taxation

DISPOSITION: Appealed decision is reversed.

3. Tax vs. Toll

Sec. 155 of LGC

SEC. 155. Toll Fees or Charges. - The

sanggunian concerned may prescribe theterms and conditions and fix the rates for theimposition of toll fees or charges for the useof any public road, pier or wharf, waterway,bridge, ferry or telecommunication systemfunded and constructed by the localgovernment unit concerned: Provided, Thatno such toll fees or charges shall becollected from officers and enlisted men ofthe Armed Forces of the Philippines and

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members of the Philippine National Police onmission, post office personnel deliveringmail, physically-handicapped, and disabledcitizens who are sixty-five (65) years orolder. When public safety and welfare sorequires, the sanggunian concerned maydiscontinue the collection of the tolls, andthereafter the said facility shall be free andopen for public use.

4. Tax vs. Special Assessment

Sec. 240 of LGC

SEC. 240. Special Levy by LocalGovernment Units. - A province, city ormunicipality may impose a special levy onthe lands comprised within its territorial

jurisdiction specially benefited by publicworks projects or improvements funded bythe local government unit concerned:Provided, however, That the special levyshall not exceed sixty percent (60%) of theactual cost of such projects andimprovements, including the costs ofacquiring land and such other real propertyin connection therewith: Provided, further,That the special levy shall not apply to landsexempt from basic real property tax and theremainder of the land portions of which havebeen donated to the local government unitconcerned for the construction of suchprojects or improvements.

Case:

5. REPUBLIC V BACOLOD MURCIAPonente: Regala, J.

DOCTRINE: The levy (for the Philsugin Fund) is not so

much an exercise of the power of taxation, nor theimposition of a special assessment, but, the exercise ofthe police power for the general welfare of the entirecountry. It is, therefore, an exercise of a sovereignpower which no private citizen may lawfully resist.(Kindly read sugar companies contentions as thesediscuss special assessment vis--vis ordinary tax. SCdid not mention these in its ratio)

QUICK FACTS: Three sugar companies refused tocontribute or pay their levies to the Philippine SugarInstitute (Philsugin) because they contended that thePurchase of the Insular Sugar Refinery is not authorizedby the Charter of Philsugin, and is inimical to theirinterests. Philsugin incurred tremendous losses in its

disastrous operation of the refinery, hence, the sugarcompanies argue that they should not only be releasedfrom the obligation but be refunded of all that they mayhave previously paid.

FACTS:

RA 632 created the Philippine Sugar Institute, a semi-public corporation, for the purpose of conductingresearch to advance the countrys sugar industry. To

carry out the objectives of RA 632 and raise thenecessary funds, the charter authorized the levy of 10cents per picul of sugar to be collected for a period of 5years (1951-1952) and shall be borne by the sugar caneplanters and sugar centrals. The proceeds of this levywould go to a special fund to be used exclusively byPhilsugin.

Philsugin purchased the Insular Sugar Refinery in 1951using the money from the Philsugin Fund. However, theproceeds of the Fund was also used or applied to

absorb the tremendous losses incurred by Philsugin inits disastrous operation of the refinery. For this, thesugar companies refused to continue with theicontributions to the said Fund and left an unpaidbalance of P216,070.50 for Bacolod-Murcia Milling Co.P235,800.20 for Ma-ao Sugar Central Co., P208,193.74for Talisay-Silay Milling Co., and P48,059.77 for Centra

Azucarera del Danao.

Sugar Companies Contention: The "10 centavos pepicul of sugar" authorized to be collected under Sec. 15of Republic 632 is a special assessment. As such, theproceeds thereof may be devoted only to the specificpurpose for which the assessment was authorized, aspecial assessment being a levy upon propertypredicated on the doctrine that the property againswhich it is levied derives some special benefit from theimprovement. It is not a tax measure intended to raiserevenues for the Government. Consequently, once ihas been determined that no benefit accrues or inuresto the property owners paying the assessment, or thathe proceeds from the said assessment are beingmisapplied to the prejudice of those against whom it hasbeen levied, then the authority to insist on the paymenof the said assessment ceases.

TC - Sugar companies are liable fospecial assessments under RA 632. It would bedangerous to sanction the unilateral refusal of the

appellants herein to continue with their contribution tothe Fund for that conduct is no different "from the caseof an ordinary taxpayer who refuses to pay his taxes onthe ground that the money is being misappropriated byGovernment officials." This is taking the law into theiown hands. (The TC cited four reasons but this is theonly one related to tax)

*Sugar Companies contention on TC ruling: Theirefusal to continue paying the assessment under RA632 may not rightly be equated with a taxpayer's refusato pay his ordinary taxes precisely because there is asubstantial distinction between a "special assessmentand an ordinary tax. The purpose of the former is tofinance the improvement of particular properties, with

the benefits of the improvement accruing or inuring tothe owners thereof who, after all, pay the assessmentThe purpose of an ordinary tax, on the other hand, is toprovide the Government with revenues needed for thefinancing of state affairs. Thus, while the refusal of acitizen to pay his ordinary taxes may not indeed besanctioned because it would impair governmenfunctions, the same would not hold true in the case of arefusal to comply with a special assessment.

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ISSUE: WON the levy was a special assessment or atax measure.

DECISION: Neither. Affirmed TC.

HELD: The levy for the Philsugin Fund is not so muchan exercise of the power of taxation, nor the impositionof a special assessment, but, the exercise of the policepower for the general welfare of the entire country. It is,therefore, an exercise of a sovereign power which noprivate citizen may lawfully resist.

In the case of Lutz v Araneta, the Court held that sincesugar production is one of the leading industries of ournation, Its promotion, protection and advancement,therefore redounds greatly to the general welfare.Hence, it was competent for the Legislature to find thatthe general welfare demanded that the sugar industryshould be stabilized in turn; and in the wide field of itspolice power, the law-making body could provide thatthe distribution of benefits therefrom be readjustedamong its components, to enable it to resist the addedstrain of the increase in taxes that it had to sustain.

In the case of Johnson v State ex rel., if objective andmethods are alike constitutionally valid, there is noreason why the state may not levy taxes to raise fundsfor their (the protection and promotion of the sugarindustry) prosecution and attainment. Taxation may bemade the implement of the state's police power.

5. Tax vs. Ordinary debt

Cases:

6. PHILEX MINING CORPORATION V CIRPonente: Romero, J.

DOCTRINE: Taxes cannot be subject to compensationfor the simple reason that the government and the

taxpayer are not creditors and debtors of each other.Debts are due to the government in its corporatecapacity, while taxes are due to the government in itssovereign capacity.

FACTS:

BIR sent a letter to Philex asking it to settle its taxliabilities for 2nd-4th quarter of 1991 and 1st-2nd quarterof 1992 (total: Php123M+). Philex protested the demandfor payment stating that it has pending claims for VATinput credit/refund for the taxes it paid for the years1989-1991 (total: Php119M+). Therefore, Philex argues,these claims for tax credit/refund should be appliedagainst the tax liabilities, citing the ruling in CIR v.

Itogon-Suyoc Mines, Inc. (1969).

BIR replied, saying that no legal compensation can takeplace since these pending claims have not yet beenestablished or determined with certainty.

CTA - Ordered Philex to pay the taxliabilities of Php110M+ (a tax credit certificateamounting to Php13M was issued while the case waspending in CTA), saying that for legal compensation to

take place, both obligations must be liquidated anddemandable In the instance case, the claimsfoVAT refund is still pending litigationthe liquidated debof the Petitioner to the government cannot, therefore, beset off against the unliquidated claim which Petitioneconceived to exist in its favor.

CA - affirmed. MR denied.

A few days after the denial of its MR, Philex obtained itsVAT input credit/refund. Philex now contends that the

same should, ipso jure, off-set its excise tax liabilitiessince both had already become due and demandableas well as fully liquidated.

ISSUE: W/N tax credit/refund may be set-off against taxliabilities of a taxpayer

HELD: NO. Taxes cannot be subject to set-off ocompensation.

1)The government and the taxpayer are not creditorsand debtors of each other. Debts are due to thegovernment in its corporate capacity, while taxes aredue to the government in its sovereign capacity. A claimfor taxes is not such a debt, demand, contract o

judgment as is allowed to be set-off.

2)Doctrine of CIR v. Itogon-Suyoc Mines, Inc. (1969) isnow abandoned. The premise of the case was anchoredon Section 51(d) of the National Revenue Code of 1939However when the National Internal Revenue Code o1977 was enacted, the same provision was omitted

Accordingly, the doctrine cannot be invoked by Philex.

3)Taxes are the lifeblood of the government and soshould be collected without unnecessary hindranceEvidently, to countenance Philexs whimsical reasonwould render ineffective our tax collection system.

4)Tax is compulsory rather than a matter of bargain. Atax does not depend upon the consent of the taxpayerA taxpayer cannot refuse to pay his taxes when they faldue simply because he has a claim against thegovernment or that the collection of the tax is contingenon the result of the lawsuit it filed against thegovernment.

MINOR ISSUE: W/N BIR violated Section 106 (e) of theNIRC, which requires the refund of input taxes within 60days

HELD: YES. It took the BIR 5 years to grant its taxclaim. Simple justice requires the speedy refund owrongly-held taxes. However, the State is not bound by

the neglect of its agents and officers. While the Courunderstands Philexs predicament, the same is not avalid reason for the non-payment of its tax liabilities.

7. CALTEX V COA

II. THEORY AND BASIS OF TAXATION

A. Lifeblood Theory

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B. Necessity Theory

Cases:

8. FERDINAND MARCOS II V CAPonente: Torres, J.

DOCTRINE: Enforcement of tax laws and thecollection of taxes, is of paramount importance forthe sustenance of government. Taxes are the

lifeblood of the government and should becollected without unnecessary hindrance.However, such collection should be made inaccordance with law as any arbitrariness willnegate the very reason for government itself. It istherefore necessary to reconcile the apparentlyconflicting interests of the authorities and thetaxpayers so that the real purpose of taxation,which is the promotion of the common good, maybe achieved

QUICK FACTS: Marcos II questions theCommission of Internal Revenue in assessing,and collecting through the summary remedy ofLevy on Real Properties, estate and income taxdelinquencies upon the estate and properties offormer Pres. Marcos

FACTS:

The Special Tax Audit Team found that after thedeath of Pres. Marcos, the Marcoses failed to filea written notice of the death of the decedent, anestate tax returns [sic], as well as several incometax returns covering the years 1982 to 1986 all inviolation of NIRC.

CIR then caused the prep and filing of the EstateTax Return for the estate of the late president, the

ITR of Sps and ITR of Marcos II. BIR issueddeficiency income tax assessments which werenot protested administratively by Mrs Marcos andheirs.

Marcos II filed a petition for certiorari andprohibition under R65 w/ TRO. Arguments:1. Sale of properties of Marcos is null and void fordisregarding the established procedure forenforcement of taxes dues upon the estate of adeceased2. Probate court is not precluded from denying arequest by the gov for immediate payment of taxesand should order the payment only w/n the periodfixed by probate court.

BIR: states authority to collect taxes is paramount.The pendency of probate does not preclude theassessment and collection through summaryremedies.

ISSUE: WON proper avenues of assessment andcollection were taken by BIR. YES

RATIO: Enforcement of tax laws and the collectionof taxes, is of paramount importance for thesustenance of government. Taxes are the lifebloodof the government and should be collected withoutunnecessary hindrance. However, such collectionshould be made in accordance with law as anyarbitrariness will negate the very reason forgovernment itself. It is therefore necessary toreconcile the apparently conflicting interests of theauthorities and the taxpayers so that the realpurpose of taxation, which is the promotion of the

common good, may be achievedThe enforcement and collection of estate tax, isexecutive in character, as the legislature has seenit fit to ascribe this task to the Bureau of InternalRevenue

LIBERAL treatment of internal revenue taxes.Vectigalia nervi sunt rei publicae taxes are thesinews of the state.

Taxes assessed against the estate of a deceasedperson, after administration is opened, need notbe submitted to the committee on claims in theordinary course of administration. In the exerciseof its control over the administrator, the court maydirect the payment of such taxes upon motionshowing that the taxes have been assessedagainst the estate

Government has two ways of collecting the taxesin question. One, by going after all the heirs andcollecting from each one of them the amount ofthe tax proportionate to the inheritance received.

Another remedy, pursuant to the lien created bySection 315 of the Tax Code upon all property andrights to property belong to the taxpayer for unpaidincome tax, is by subjecting said property of theestate which is in the hands of an heir or

transferee to the payment of the tax due the estate

The approval of the court, sitting in probate, or asa settlement tribunal over the deceased is not amandatory requirement in the collection

Under Section 87 of the NIRC, it is the probate orsettlement court which is bidden not to authorizethe executor or judicial administrator of thedecedent's estate to deliver any distributive shareto any party interested in the estate, unless it isshown a Certification by the Commissioner ofInternal Revenue that the estate taxes have beenpaid.

DISPOSITION: Petition of Marcos is denied.

Other points:The omission to file an estate tax return, and thesubsequent failure to contest or appeal theassessment made by the BIR is fatal to thepetit ioner's cause, Since the estate taxassessment had become final and unappealableby the petitioner's default as regards protesting thevalidity of the said assessment, there is now no

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reason why the BIR cannot continue with thecollection of the said tax.

The mere fact that the decedent has pendingcases involving ill-gotten wealth does not affectthe enforcement of tax assessments over theproperties indubitably included in his estate

It is not the Department of Justice which is thegovernment agency tasked to determine theamount of taxes due upon the subject estate, but

the Bureau of Internal Revenue, 16 whosedeterminations and assessments are presumedcorrect and made in good faith. The taxpayer hasthe duty of proving otherwise. In the absence ofproof of any irregularities in the performance ofofficial duties, an assessment will not be disturbed.

9. NPC V CABANATUANFACTS:

Petitioner NPC sells electric power to the residents ofCabanatuan City. It posted a gross income of P107.8M in1992. Pursuant to Sec 37 of Ordinance No. 165-92, theCity of Cabanatuan assessed NPC a franchise tax of 75%of 1% of its gross receipts for the preceding year. NPC,whose capital stock was subscribed and paid wholly bythe Philippine Government, refused to pay the taxassessment. It argued that the City had no authority toimpose tax on government entities. Moreover, as a non-profit organization, NPC is exempted from the payment ofall forms of taxes, charges, duties or fees. City ofCabanatuan filed a collection suit in the RTC ofCabanatuan City alleging that NPCs exemption from localtaxes has been repealed by Section 193 of RA 71601.

TC - Dismissed the case

CA - Reversed

ISSUE: WoN the City of Cabanatuan has authority to taxNPC (a GOCC and also a non-profit entity)

HELD: YES. The power to tax is no longer vestedexclusively on Congress; local legislative bodies are nowgiven direct authority to levy taxes, fees and othercharges. Taxes are the lifeblood of the government, forwithout taxes, the government can neither exist norendure. In recent years, the increasing social challengesof the times expanded the scope of state activity, andtaxation has become a tool to realize social justice and theequitable distribution of wealth, economic progress andthe protection of local industries as well as public welfareand similar objectives. Taxation assumes even greatersignificance with the ratification of the 1987 Constitution.

Thenceforth, the power to tax is no longer vested1 Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptionson incentives granted to, or presently enjoyed by allpersons, whether natural or juridical, includinggovernment owned or controlled corporations, exceptlocal water districts, cooperatives duly registeredunder RA 6938, non-stock and non-profit hospitals andeducational institutions, are hereby withdrawn uponthe effectivity of this Code.

exclusively on Congress; local legislative bodies are nowgiven direct authority to levy taxes, fees and othecharges. This paradigm shift results from the realizationthat genuine development can be achieved only bystrengthening local autonomy and promotingdecentralization of governance.

One of the most significant provisions of the LocaGovernment Code is the removal of the blanket exclusionof instrumentalities and agencies of the nationagovernment from the coverage of local taxation. Although

as a general rule, LGUs cannot impose taxes, fees ocharges of any kind on the National Government, itsagencies and instrumentalities, this rule now admits anexception, i.e., when specific provisions of the LGCauthorize the LGUs to impose taxes, fees or charges onthe aforementioned entities.

The doctrine in Basco v PAGCOR relied upon by NPC tosupport its claim no longer applies. To emphasize, theBasco case was decided prior to the effectivity of the LGCwhen no law empowering the LGUs to taxinstrumentalities of the National Government was in effect

As the SC ruled in the case of Mactan Cebu InternationaAirport v Marcos, nothing prevents Congress formdecreeing that even instrumentalities or agencies of thegovernment performing governmental functions may besubject to tax. In enacting the LGC, Congress exercise itsprerogative to tax instrumentalities and agencies ogovernment as it sees fit.

In section 131(m) of the LGC, Congress unmistakablydefined a franchise in the sense of a secondary or speciafranchise2. As commonly used, a franchise tax is a tax onthe privilege of transacting business in the state andexercising corporate franchises granted by the state. It isnot levied on the corporation simply for existing as acorporation, upon its property or its income, but on itsexercise of the rights or privileges granted to it bygovernment.

2 In its general signification, a franchise is a privilegeconferred by government authority, which does notbelong to citizens of the country generally as a matterof common right. In its specific sense, a franchise mayrefer to a general or primary franchise, or to a speciaor secondary franchise. The former relates to the rightto exist as a corporation, or a charter pursuant to aspecial law creating the corporation. The right under aprimary or general franchise is vested in the individualswho compose the corporation and not in the

corporation itself. On the other hand, the latter refersto the right or privileges conferred upon an existingcorporation such as the right to use the streets of amunicipality to lay pipes of tracks, erect poles or stringwires. The rights under a secondary or speciafranchise are vested in the corporation and mayordinarily be conveyed or mortgaged under a generapower granted to a corporation to dispose of itsproperty, except such special or secondary franchisesas are charged with public use.

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Verily, to determine whether NPC is covered by thefranchise tax in question, the following requisites shouldconcur:

that petitioner has a franchise in the senseof a secondary or special franchise; and

that it is exercising its rights or privilegesunder this franchise within the territory of therespondent city government.

Petitioner fulfills both requisites:

CA 120, as amended by RA 7395,constitutes NPCs primary and secondaryfranchises; and

NPC is operating within Cabanatuan Citysterritorial jurisdiction.

On the issue of ownership by the government:

A franchise tax is imposed based not on theownership but on the exercise by the corporationof a privilege to do business. The taxable entityis the corporation which exercises the franchise,and not the individual stockholders.

To be sure, the ownership by NationalGovernment of its entire capital stock does notnecessarily imply that NPC is not engaged in

business. NPC was created to undertake thedevelopment of hydroelectric generation of powerand the production of electricity from nuclear,geothermal and other sources, as well as thetransmission of electric power on a nationwidebasis. Pursuant to this mandate, petitionergenerates power and sells electricity in bulk.Certainly, these activities do not partake of thesovereign functions of the government. They arepurely private and commercial undertakings,albeit imbued with public interest.

On the issue of whether NPCs tax exemptions underits charter subsist despite the passage of the LGC:

As a rule, tax exemptions are construedstrongly against the claimant. Exemptions mustbe shown to exist clearly and categorically, andsupported by clear legal provisions. In the caseat bar, NPCs sole refuge is Sec 13 of RA 6395exempting from, among other, all income taxes,franchise taxes and realty taxes to be paid to theNational Government, its provinces, cities,municipalities and other government agenciesand instrumentalities. However, sec 193 of theLGC withdrew, subject to limited exceptions, thesweeping tax privileges previously enjoyed byprivate and public corporations. Contrary to thecontention of NPC, section 193 of the LGC is anexpress, albeit general, repeal of all statutesgranting tax exemptions from local taxes.

It is worth mentioning that section 193 of the LGCempowers the LGUs through ordinances dulyapproved, to grant tax exemptions, initiatives orreliefs. But in enacting section 37 of Ordinance165-92 which imposes an annual franchise taxnotwithstanding any exemption granted by law

C. Benefits-Protection Theory (SymbioticRelationship)

Case:

10. COMMISSIONER V ALGUEPonente: Cruz, J.

DOCTRINE: Every person who is able to pay muscontribute his share in the running of the government. Thegovernment for its part is expected to respond in the formof tangible and intangible benefits intended to improve thelives of the people and enhance their moral and materia

values. This symbiotic relationship is the rationale otaxation and should dispel the erroneous notion that is anarbitrary method of exaction by those in the seat of power.

QUICK FACTS: Algue was assessed by the CIR fodelinquency income taxes. In response, Algue alleged thathe P75,000.00 deduction being disallowed by the CIRwas received from PSEDC as part of the commission paidby becoming the latters agent, and was eventually paid tothe organizers of the VOICP. CTA sided with Algueclaiming that it was a legitimate business expense. SCaffirmed CTA.

FACTS:

The Philippine Sugar Estate Development Company(PSEDC) appointed Algue Inc., a domestic corporationengaged in engineering, construction and other alliedactivities, as its agent. Algue received a commission oP125,000.00 and it was from this commission that it paidorganizers of Vegetable Oil Investment Corporation of thePhilippines (VOICP) P75,000.00 in proportional fees. In1965, Algue received a letter from the Commissioner ofInternal Revenue (CIR) assessing it in the total amount oP83,183.85 as delinquency income taxes for the years1958 and 1959. He filed a letter of protest oreconsideration.

Petitioners Contention: The claimed deduction o

P75,000.00 was properly disallowed because it was not anordinary reasonable or necessary business expense. Thepayments are fictitious because most of the payees aremembers of the same family in control of Algue. In shortthe petitioner suggests a tax dodge, an attempt to evade alegitimate assessment by involving an imaginarydeduction.

Respondents Contention: The P75,000.00 is a legitimatebusiness expense in its income tax returns as it had beenlegitimately paid by the Algue for actual services renderedThe payment was in the form of promotional fees. Thesewere collected by the Payees for their work in the creationof the VOICP and its subsequent purchase of theproperties of the PSEDC.

CTA - Algue won. The P75K is alegitimate business expense.

MAIN ISSUE: WON the CIR correctly disallowed theP75,000 deductionDECISION: No. SC Affirmed CTA.

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HELD: Taxes are the lifeblood of the government andshould be collected without unnecessary hindrance. Everyperson who is able to pay must contribute his share in therunning of the government. The government for its part isexpected to respond in the form of tangible and intangiblebenefits intended to improve the lives of the people andenhance their moral and material values. This symbioticrelationship is the rationale of taxation and should dispelthe erroneous notion that is an arbitrary method ofexaction by those in the seat of power. On the other hand,such collection should be made in accordance with law as

any arbitrariness will negate the very reason forgovernment itself.

The petitioner had originally claimed the promotional feesto be personal holding company income but laterconformed to the decision of the respondent courtrejecting this assertion. There is no dispute that thepayees duly reported their respective shares of the fees intheir income tax returns and paid the corresponding taxesthereon. The Court of Tax Appeals also found, afterexamining the evidence, that no distribution of dividendswas involved. The suspicions on fictitious payments wereadequately met by Algue when its President andaccountant testified that the payments were not made inone lump sum but periodically and in different amounts aseach payee's need arose. It should be remembered thatthis was a family corporation where strict businessprocedures were not applied and immediate issuance ofreceipts was not required. Even so, at the end of the year,when the books were to be closed, each payee made anaccounting of all of the fees received by him or her, tomake up the total of P75,000.00. Admittedly, everythingseemed to be informal. This arrangement wasunderstandable, however, in view of the close relationshipamong the persons in the family corporation.

The amount of the promotional fees was also notexcessive. The amount of P75,000.00 was 60% of thetotal commission. This was a reasonable proportion,

considering that it was the payees who did practicallyeverything, from the formation of the VOIC to the actualpurchase by it of the Sugar Estate properties. This is inaccord with Sec. 30 of the Tax Code, and RevenueRegulations No. 2, Section 70 (1). It is worth noting at thispoint that most of the payees were not in the regularemploy of Algue nor were they its controlling stockholders.

SUB-ISSUE (Procedural): WON the appeal by Algue wasmade on time

HELD: Yes. According to Rep. Act No. 1125, the appealmay be made within thirty days after receipt of thedecision or ruling challenged. It is true that as a rule thewarrant of distraint and levy is "proof of the finality of the

assessment" and renders hopeless a request forreconsideration," being "tantamount to an outright denialthereof and makes the said request deemed rejected." Butthere is a special circumstance in the case at bar thatprevents application of this accepted doctrine.

The proven fact is that four days after the privaterespondent received the petitioner's notice of assessment,it filed its letter of protest. This was apparently not takeninto account before the warrant of distraint and levy was

issued; indeed, such protest could not be located in theoffice of the petitioner. It was only after Atty. Guevara gavethe BIR a copy of the protest that it was, if at allconsidered by the tax authorities. During the interveningperiod, the warrant was premature and could therefore nobe served. As the Court of Tax Appeals correctly noted,"the protest filed by private respondent was not pro formaand was based on strong legal considerations.

D. Jurisdiction over Subject and Objects

III. PURPOSES/OBJECTIVES OF TAXATION

A. Revenue-raising

B. Non-revenue/special or regulatory

Case:

CALTEX V COMMISSION ON AUDIT, Ibid.

IV. GENERAL PRINCIPLES OF A SOUND TAX SYSTEM(Vitug, pp. 2-3)

A. Fiscal adequacy

B. Theoretical justice

C. Administrative feasibility

V. SCOPE AND LIMITATIONS OF TAXATION (Vitug, pp. 324)

A. Inherent Limitations

1. Public Purpose

Cases:

11. PASCUAL V SEC. PUBLIC WORKSPonente: Concepcion, J.

NATURE: Appeal from the decision of the CFI oRizal

QUICK FACTS: Pascual assails the validity of anitem of RA 920 which appropriates P85,000 for theconstruction, reconstruction, repair, extension andimprovement" of Pasig feeder road terminals whichare allegedly projected subdivision roads that are parof the private property of Senator Zulueta.

FACTS:

On May 1953, Zulueta, then a Senator, addressed aletter to the Municipal Council of Pasig, Rizal, offeringto donate the contested projected feeder roads to themunicipality of Pasig, Rizal which the councaccepted subject to the condition "that the donowould submit a plan of the said roads and agree tochange the names of two of them."

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On June 1953, RA 920, An Act Appropriating Fundsfor Public Works, was approved which includes thedisputed item of P85,000 for the construction for theconstruction, reconstruction, repair, extension andimprovement" of Pasig feeder road terminals (Gen.Roxas Gen. Araneta Gen. Lucban Gen.Capinpin Gen. Segundo Gen. Delgado Gen.Malvar Gen. Lim). On Dec. 1953, Zulueta executeda deed of donation on 4 parcels of land constitutingsaid projected feeder roads ifo the government on thecondition that it would only be used for street

purposes otherwise, it would revert to Zulueta.

On August 31, 1954, Wenceslao Pascual, asProvincial Governor of Rizal, instituted an action fordeclaratory relief, with injunction alleging that as theprojected feeder roads in question were privateproperty at the time of the passage and approval ofRA 920, the appropriation of P85k made for theconstruction, reconstruction, repair, extension andimprovement of said projected feeder roads wasillegal. Also, the donation made by Zulueta violatedthe provision of our fundamental law prohibitingmembers of Congress from being directly or indirectlyfinancially interested in any contract with theGovernment as the public works would greatlyenhance or increase the value of the aforementionedsubdivision of respondent Zulueta, aside fromrelieving him from the burden of constructing hissubdivision streets or roads at his own expense

Zulueta moved to dismiss the petition on the groundthat Pascual has no legal capacity to sue and that heis not aware of any law which makes illegal theappropriation of public funds for the improvement ofwhat we, in the meantime, may assume as privateproperty. Furthermore, according to him, a lawpassed by Congress and approved by the Presidentcan never be illegal because Congress is the sourceof all laws.

CFI - IFO Zulueta MTD Granted. Thelegality of the donation made by Zulueta ifo andaccepted by the Government may not be contestedby Pascual because his "interest are not directlyaffected" and that, accordingly, the appropriation inquestion "should be upheld."

ISSUE: WoN appropriation of public funds is limitedfor public purpose making the disputed item of RA920 illegal? YES

RATIO: Public funds may be used only for publicpurpose. The right of the legislature to appropriatefunds is correlative with its right to tax, and, under

constitutional provisions against taxation except forpublic purposes and prohibiting the collection of a taxfor one purpose and the devotion thereof to anotherpurpose, no appropriation of state funds can be madefor other than for a public purpose.

The test of the constitutionality of a statute requiringthe use of public funds is whether the statute isdesigned to promote the public interest, as opposedto the furtherance of the advantage of individuals,

although each advantage to individuals mighincidentally serve the public.

HELD: The validity of a statute depends upon thepowers of Congress at the time of its passage oapproval, not upon events occurring, or actsperformed, subsequently thereto, unless the latteconsists of an amendment of the organic lawremoving, with retrospective operation, theconstitutional limitation infringed by said statuteInasmuch as the land on which the projected feeder

roads were to be constructed belonged then torespondent Zulueta, the result is that saidappropriation sought a private purpose, and hencewas null and void.

DISPOSITION: Appealed decision is reversed.

12.PLANTERS PRODUCTS, INC. V FERTIPHIL CORPPonente: Reyes, J.

DOCTRINE: An inherent limitation on the power otaxation is public purpose. Taxes are exacted only foa public purpose. They cannot be used for purelyprivate purposes or for the exclusive benefit of privatepersons. The power to tax exists for the generawelfare; hence, implicit in its power is the limitationthat it should be used only for a public purpose.

QUICK FACTS: As mandated under LOI 1465Fertiphil remitted the P10 per bag of fertilizer sold, tothe Fertilizer and Pesticide Authority (FPA), whichthen ), which then remitted said amount to Far EasBank and Trust Company, the depository bank oPlanters Products Inc. After EDSA, Fertiphdemanded refund from PPI but the latter refused.

FACTS:

Marcos issued LOI 1465, which provides that a capita

contribution of not less than Php10.00 per bag shouldbe included in the pricing of fertilizer. The levy was tocontinue until adequate capital was raised to makePlanters Products Inc (PPI), a private corporationfinancially viable. Fertiphil remitted the P10 per bag ofertilizer sold, to the Fertilizer and Pesticide Authority(FPA), which then remitted said amount to Far EastBank and Trust Company, the depository bank of PPIFertiphil paid P6,689,144 to FPA from July 8, 1985 toJanuary 24, 198.

After EDSA, FPA voluntarily stopped the imposition othe P10 levy. Fertiphil demanded from PPI a refund othe amount it remitted but PPI refused. Fertiphil filed acomplaint for collection and damages against FPA

and PPI.

Fertiphils Contention: It questioned theconstitutionality of LOI 1465 and claimed it wasunjust, unreasonable, oppressive, invalid and anunlawful imposition that amounted to a denial of dueprocess. Fertiphil alleged that the LOI solely favoredPPI, a privately owned corporation, which used theproceeds to maintain its monopoly of the fertilizeindustry.

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interpretation. It does not only pertain to thosepurposes which are traditionally viewed as essentiallygovernment functions, such as building roads anddelivery of basic services, but also includes thosepurposes designed to promote social justice.

13. TIO V VIDEOGRAM REGULATORY BOARDPonente: Melencio-Herrera, J.

DOCTRINE: The public purpose of a tax may legallyexist even if the motive which impelled the legislature

to impose the tax was to favor one industry overanother.

FACTS:

PD 1987, entitled An Act Creating the VideogramRegulatory Board was enacted with broad powers toregulate and supervise the videogram industry. Therationale of the law is written in the Preambleclauses3. A month after, PD 1994 amended the NIRC,

31. WHEREAS, the proliferation and unregulated

circulation of videograms including, among others,videotapes, discs, cassettes or any technical

improvement or variation thereof, have greatlyprejudiced the operations of moviehouses andtheaters, and have caused a sharp decline in theatricalattendance by at least forty percent (40%) and atremendous drop in the collection of sales, contractor'sspecific, amusement and other taxes, thereby resultingin substantial losses estimated at P450 Million annuallyin government revenues;2. WHEREAS, videogram(s) establishments collectivelyearn around P600 Million per annum from rentals, salesand disposition of videograms, and such earnings havenot been subjected to tax, thereby depriving theGovernment of approximately P180 Million in taxeseach year;3. WHEREAS, the unregulated activities of videogram

establishments have also affected the viability of themovie industry, particularly the more than 1,200 moviehouses and theaters throughout the country, andoccasioned industry-wide displacement andunemployment due to the shutdown of numerousmoviehouses and theaters;4. "WHEREAS, in order to ensure national economicrecovery, it is imperative for the Government to createan environment conducive to growth and developmentof all business industries, including the movie industrywhich has an accumulated investment of about P3Billion;5. WHEREAS, proper taxation of the activities ofvideogram establishments will not only alleviate the

dire financial condition of the movie industry uponwhich more than 75,000 families and 500,000 workersdepend for their livelihood, but also provide anadditional source of revenue for the Government, andat the same time rationalize the heretoforeuncontrolled distribution of videograms;6. WHEREAS, the rampant and unregulated showing ofobscene videogram features constitutes a clear andpresent danger to the moral and spiritual well-being ofthe youth, and impairs the mandate of the Constitutionfor the State to support the rearing of the youth for

providing an annual tax of Php5.00 on eachprocessed video-tape cassette, provided that locallymanufactured or imported blank video tapes shall besubject to sales tax4. Petitioners assail theconstitutionality of the decree on the ff: grounds(stated as issues in this digest):

MAIN ISSUE (related to the topic): W/N the taximposed is harsh, confiscatory, oppressive and/or inunlawful restraint of trade in violation of the dueprocess clause of the Constitution

HELD: NO.

1) The levy of the 30% tax is for a public purpose. It wasimposed primarily to answer the need for regulatingthe video industry, particularly because of therampant film piracy, the flagrant violation ointellectual property rights, and the proliferation opornographic video tapes. And while it was also anobjective of the Decree to protect the movie industrythe tax remains a valid imposition.

2) A tax does not cease to be valid merely because iregulates, discourages, or even definitely deters theactivities taxed. The power to impose taxes is one sounlimited in force and so searching in extent, that thecourts scarcely venture to declare that it is subject toany restrictions whatever, except such as rest in thediscretion of the authority which exercises it.

3) Tax imposed is not only a regulatory but also arevenue measure. It is an end-user tax imposed onretailers for every videogram they make available fopublic viewing.

OTHER ISSUES:

1) W/N imposition of a 30% tax on the gross receiptspayable to local government is a rider and the same isnot germane to the subject matter of the decree

(Section 105)

civic efficiency and the development of moracharacter and promote their physical, intellectual, andsocial well-being;7. WHEREAS, civic-minded citizens and groups havecalled for remedial measures to curb these blatanmalpractices which have flaunted our censorship andcopyright laws;8. WHEREAS, in the face of these grave emergenciescorroding the moral values of the people and betrayingthe national economic recovery program, boldemergency measures must be adopted withdispatch; ... (Numbering of paragraphs supplied).4

SEC. 134. Video Tapes. There shall be collected oneach processed video-tape cassette, ready fo

playback, regardless of length, an annual tax of five

pesos; Provided, That locally manufactured or imported

blank video tapes shall be subject to sales tax.5 Section 10. Tax on Sale, Lease or Disposition oVideograms. Notwithstanding any provision of law tothe contrary, the province shall collect a tax of thirtypercent (30%) of the purchase price or rental rate, asthe case may be, for every sale, lease or disposition of

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Held: NO. Provision is allied and germane to, and isreasonably necessary for the accomplishment of, thegeneral object of the decree, which is the regulation ofthe video industry through the VRB as expressed inthe title. not inconsistent with the title and generalsubject

2) W/N there is factual or legal basis for the exercise bythe President of the vast powers conferred upon himby Amendment no. 6Held: Reserved resolution because still pending

resolution in other cases

3) W/N there is undue delegation of power and authority(Sec 116)Held: NO. Not a delegation of the power to legislatebut merely a conferment of authority or discretion asto its execution, enforcement, and implementation.

4) W/N the decree is an ex-post facto7 law (Sec. 158)Held: NO. There is a rational connection between thefact proved, which is non-registration, and the ultimatefact presumed which is violation of the decree,besides the fact that the prima facie presumption ofthe violation of the decree attaches only after the 45

day period counted from its effectivity and is,therefore, neither restrospective in character.

5) W/N there is over-regulation of the video industry as ifit were a nuisance

a videogram containing a reproduction of any motionpicture or audiovisual program. Fifty percent (50%) ofthe proceeds of the tax collected shall accrue to theprovince, and the other fifty percent (50%) shall acrrueto the municipality where the tax is collected;PROVIDED, That in Metropolitan Manila, the tax shallbe shared equally by the City/Municipality and theMetropolitan Manila Commission.6

"solicit the direct assistance of other agencies andunits of the government and deputize, for a fixed andlimited period, the heads or personnel of such agenciesand units to perform enforcement functions for theBoard"7 An ex post facto law is, among other categories, onewhich "alters the legal rules of evidence, andauthorizes conviction upon less or different testimonythan the law required at the time of the commission ofthe offense."8 All videogram establishments in the Philippines are

hereby given a period of forty-five (45) days after theeffectivity of this Decree within which to register withand secure a permit from the BOARD to engage in the

videogram business and to register with the BOARD alltheir inventories of videograms, including videotapes,discs, cassettes or other technical improvements orvariations thereof, before they could be sold, leased, orotherwise disposed of. Thereafter any videogram foundin the possession of any person engaged in thevideogram business without the required proof ofregistration by the BOARD, shall be prima facieevidence of violation of the Decree, whether thepossession of such videogram be for private showingand/or public exhibition.

Held: NO. Being a relatively new industry, the needfor regulation was apparent. The question onecessity, wisdom, and expediency of the decree isprimarily and exclusively a matter of legislativeconcern.

DECISION: Petition dismissed. Constitutionality oPD1987 upheld.

2. Inherently Legislative

General Rule: Power to tax may not be delegated.

Cases:

14. COMMISSIONER V SANTOS AND GUILD OF PHILJEWELERS, INC.

Ponente: Hermosisima, Jr., J.

FACTS:

Private respondent Guild of the Philippines JewelersInc. is an association of Filipino jewelers engaged inthe manufacture of jewelry and allied undertakingsViray, Regional Director of BIR issued RegionaMission Order No. 109-88 to BIR officers to conducsurveillance, monitoring, and inventory of all importedarticles of Hans Brumann, Inc (member of the Guildand place them under preventive embargo. TheMission Order was served and the inventory wasdone. Letter of Authority No. 0020596 was issued byDeputy Commissioner to examine the books oaccounts and other accounting records of HansBrumann but the latter failed to produce thedocuments required by the BIR. Similar LOA wereissued to examine the books of the other members othe Guild.Petition for declaratory relief with writ opreliminary injunction and/or TRO was filed by Marco(Pres. of Guild) and Jewelry by Marco & Co., Inc. later amended to include the Guild as petitioner

Prayed that Sec. 126, 127(a) and (b) and 150(a) othe NIRC and Hdg. No. 71.01-71.04, Chapter 71Tariff and Customs Code of the Philippines bedeclared unconstitutional and void. Presentedexhaustive study on the tax rates on jewelry prevailingin other countries Philippines cant compete with theother countries.

RTC - questioned provisions declaredINOPERATIVE and WITHOUT FORCE and EFFECTinsofar as petitioners are concerned

Sec. 150: 20% excise tax on jewelry, pearlsand other precious stones

Sec. 104, Tariff Code: 3-10% tariff andcustoms duty on natural and cultured pearls and

precious or semi-precious stonesRTC has jurisdiction and there exists

justiciable controversyLaws in question are confiscatory and

oppressive

Petitioners appeal: RTC had no authority to passupon the taxation policy of the government

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No showing that the tax laws on jewelry areconfiscatory and destructive of private respondentsproprietary rights

ISSUE: WON RTC JUDGE COMMITTED GRAVEABUSE OF DISCRETION IN DECLARING THEPROVISIONS UNCONSTITUTIONAL

DECISION: YES. GRAVE ABUSE

HELD: PETITION GRANTED. RTC DECISIONREVERSED AND SET ASIDENote: dispositive portion of the RTC decisions saysinoperative and without force and effect insofar asthe private respondents are concerned while thebody of the decision unequivocally but wronglydeclared that the laws were violative of Art. III, Sec. 1of the Constitution

TC judge Santos encroached upon mattersproperly falling within the province of legislativefunctions

Judge took it upon himself to supplantlegislative policy regarding jewelry taxation

In advocating the abolition of local tax andduty on jewelry simply because other countries haveadopted such policies, he overlooked the fact thatsuch matters are not for him to decide

Wisdom of the law is not a justiciablequestion

TC is not the proper forum for the ventilationof the issues raised should be with the legislature

Legislature primarily has the discretion todetermine the nature (kind), object (purpose), extent(rate), coverage (subjects) and situs (place) oftaxation

Judges can only interpret and apply the lawand, despite doubts about its wisdom, cannot repealor amend it

Tax rates of other countries should not beused as a yardstick in determining what may be the

proper subjects of taxation in our own countrySovereign prerogative inherent in thepower to tax that the State be free to select thesubjects of taxation

15. KAPATIRAN V TANPonente: Padilla, J.

DOCTRINE: This is a peculiar case since thecontested EO was issued before Congress wasconvened under the 1987 Constitution and hence, thePresident still has the authority to exercise legislativepowers.

QUICK FACTS: Petitioners challenge theconstitutionality of EO 237 issued by the President onthe ground that the latter has no authority to do soand amend the NIRC.

FACTS:

Petitioners seek to nullify EO 273 issued by thePresident on 25 July 1987, to take effect on 1 January

1988, and which amended certain sections of theNational Internal Revenue Code and adopted thevalue-added tax (VAT), for being unconstitutional inthat its enactment is not allegedly within the powers othe President.

Petitioners Contention: EO 273 is unconstitutional onthe Ground that the President had no authority toissue EO.

Respondents Contention: Petitioners merely asking

for an advisory opinion from the Court, there being nojusticiable controversy for resolution.

ISSUE: WoN the President had the authority to issuethe EO amending the NIRC and adopting the VAT.

DECISION: Yes.

HELD: It should be recalled that under ProclamationNo. 3, which decreed a Provisional Constitution, solelegislative authority was vested upon the President

Art. II, sec. 1 of the Provisional Constitution states:

Sec. 1. Until a legislature is elected andconvened under a new Constitution, thePresident shall continue to exercise legislativepowers.

On 15 October 1986, the Constitutional Commissionof 1986 adopted a new Constitution for the Republicof the Philippines, which was ratified in a plebisciteconducted on 2 February 1987. Article XVIII, sec. 6 osaid Constitution, hereafter referred to as the 1987Constitution, provides:

Sec. 6. The incumbent President shall continueto exercise legislative powers until the firsCongress is convened.

It should be noted that, under both the Provisionaand the 1987 Constitutions, the President is vestedwith legislative powers until a legislature under a newConstitution is convened (not day of oathtaking/assumed office). The first Congress, createdand elected under the 1987 Constitution, wasconvened on 27 July 1987. Hence, the enactment ofEO 273 on 25 July 1987, two (2) days beforeCongress convened on 27 July 1987, was within thePresident's constitutional power and authority tolegislate.

Exceptions from prohibition against delegation of poweto tax:

a) Delegation to Local Governments

Sec. 5, Art. X, Philippine Constitution

Section 5. Each local government unit shall havethe power to create its own sources of revenuesand to levy taxes, fees and charges subject tosuch guidelines and limitations as the Congressmay provide, consistent with the basic policy o

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local autonomy. Such taxes, fees, and chargesshall accrue exclusively to the local governments.

Local Government Code (RA 7160), Book ii

Cases:

16. LTO V CITY OF BUTUANPonente: Vitug, J.

DOCTRINE: Police power and taxation areinherent powers of sovereignty which the Statemight share with LGUs by delegation given undera constitutional or statutory fiat. But theregistration of motor vehicles, TFH in particular,and the issuance of licenses to the driversthereof is NOT a power delegated to LGUs undertheir broad taxing power.

QUICK FACTS: Butuan City passed anordinance which covers both the issuance offranchise and the issuance of registration andpermit (driver's license) for tryk-for-hire (TFH).LTO questioned said ordinance saying that it isits function to issue registration and permit, apower that has not been delegated to LGUs likeButuan City.

FACTS:

The Sangguniang Panglungsod of Butuan Citypassed an ordinance entitled "An OrdinanceRegulating the Operations of Tricycles-for-Hire,providing mechanism for the issuance ofFranchise, Registration and permit, and ImposingPenalties for Violations thereof and for otherpurposes". The ordinance provided, amongothers, the payment of franchise fees for thegrant of the franchise of TFH, fees for theregistration, of the vehicle, and fees for the

issuance of a permit for the driving thereof. LTOargued that, indeed, the local government hasthe franchising authority over TFH but localgovernment does not have, but it is the LTO whohas the authority to register all motor vehicle andto issue to qualified persons licenses to drivesuch vehicles. Butuan City argued that the matteris included in their broad taxing powers as anLGU. The TC ruled in favor of Butuan City; theCA sustained the TC.

ISSUE: WON registration of motor vehicles, TFHin particular, and the issuance of licenses to thedrivers thereof is a power delegated to LGUs

HELD: NO. Under several laws, the newlydelegated powers pertain to the franchising andregulatory powers theretofore exercised by theLTFRB and not to the functions of the LTOrelative to the registration of motor vehicles andissuance of licenses for the driving thereof.

DOTC has the authority to implement lawspertaining to land transportation. LTO, as a lineagency of DOTC, has the power to deal with the

registration of all motor vehicles and the licensingof drivers thereof. LTFRB, also as a line agencyof DOTC, has the power to regulate the operationof PUVs and to grant franchises or CPCsHowever, the Local Government Code hastransferred some of the powers of DOTC toLGUs such as now the power to regulate theoperation of TFH and to grant franchises for theoperation thereof; but such is still subject to theguidelines prescribed by DOTC.

Police power and taxation are inherent powers osovereignty which the State might share withLGUs by delegation given under a constitutionaor statutory fiat. Police power aims for publicgood and welfare while taxation focuses on thepower to raise revenue in order to support thegovernment's existence and carry out itslegitimate purpose. They are two separate anddistinct powers. The tax provisions in the LGC(Sec. 133) did not intend to repeal the LTO'sregulatory power. The powers of the LTO areregulatory in nature, exercised pursuant to policepower, not taxation.

17. BASCO V PAGCORPonente: Paras, J.

DOCTRINE: Congress has the power of controover Local governments and if Congress cangrant the City of Manila the power to tax certainmatters, it can also provide for exemptions oeven take back the power (although in this casethe Court made it clear that Manila was nogranted the power to tax).

QUICK FACTS: Petitioners seeks to annuPAGCOR Charter saying that provisionexempting PAGCOR from paying tax impairs thecitys right to impose taxes as recognized by law.

FACTS:Petitioners seek to annul the Philippine

Amusement and Gaming Corporation (PAGCORCharter PD 1869, relying on supposedunconstitutionality of Section 13 par. (2) of P.D1869 which exempts PAGCOR, as the franchiseholder from paying any "tax of any kind or formincome or otherwise, as well as fees, charges olevies of whatever nature, whether National oLocal."

Petitioners Contention: PD 1869 is allegedlycontrary to morals, public policy and order, andbecause it constitutes a waiver of a righ

prejudicial to a third person with a righrecognized by law. It waived the Manila Citygovernment's right to impose taxes and licensefees, which is recognized by law. Moreover, theycontend that the law has intruded into the locagovernment's right to impose local taxes andlicense fees, which is in contravention of theconstitutionally enshrined principle of locaautonomy.

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ISSUE: WON the City of Manila has the power toimpose tax.

DECISION: No, since no provision in Charter.

HELD: (a) The City of Manila, being a mereMunicipal corporation has no inherent right toimpose taxes. Thus, the Charter or statute mustplainly show an intent to confer that power or themunicipality cannot assume it. Its power to taxtherefore must always yield to a legislative act

which is superior having been passed upon bythe state itself which has the inherent power totax.

(b) The Charter of the City of Manila is subject tocontrol by Congress. It should be stressed thatmunicipal corporations are mere creatures ofCongress which has the power to create andabolish municipal corporations due to its generallegislative powers. Congress, therefore, has thepower of control over Local governments. And ifCongress can grant the City of Manila the powerto tax certain matters, it can also provide forexemptions or even take back the power.

(c) The City of Manila's power to impose licensefees on gambling, has long been revoked.

(d) Local governments have no power to taxinstrumentalities of the National Government.PAGCOR is a government owned or controlledcorporation with an original charter, PD 1869. Allof its shares of stocks are owned by the NationalGovernment. In addition to its corporate powers(Sec. 3, Title II, PD 1869) it also exercisesregulatory powers.

PAGCOR has a dual role, to operate and toregulate gambling casinos. The latter role is

governmental, which places it in the category ofan agency or instrumentality of the Government.Being an instrumentality of the Government,PAGCOR should be and actually is exempt fromlocal taxes. Otherwise, its operation might beburdened, impeded or subjected to control by amere Local government.

b) Delegation to the President

Sec. 28 (2), Art. VI, Constitution

Sec. 28 (2). The Congress may, by law, authorizethe President to fix within specified limits, andsubject to such limitations and restrictions as it

may impose, tariff rates, import and exportquotas, tonnage and wharfage dues, and otherduties or imposts within the framework of thenat ional development program of theGovernment.

Sec. 401, Tariff and Customs Code

Sec. 401. Flexible Clause. a. The President,upon investigation by the Commission and

recommendation of the National EconomicCouncil, is hereby empowered to reduce by nomore than fifty per cent or to increase by nomore than five times the rates of import dutyexpressly fixed by statute (including anynecessary change in classification) when in his

judgment such modification in the rates of imporduty is necessary in the interest of nationaeconomy, general welfare and/or nationadefense. chan robles virtual law library.

b. Before any recommendation is submitted tothe President by the Council pursuant to theprovisions of this section, the Commission shalconduct an investigation in the course of which ishall hold public hearings wherein interestedparties shall be afforded reasonable opportunityto be present, to produce evidence and to beheard. The Commission may also request theviews and recommendations of any governmenoffice, agency or instrumentality, and such officeagency or instrumentality shall cooperate fullywith the Commission.

c. The President shall have no authority totransfer articles from the duty-free list to thedutiable list nor from the dutiable list to the duty-free list of the tariff.

d. The power of the President to increase odecrease rates of import duty within the limitsfixed in subsection "a" shall include the authorityto modify the form of duty. In modifying the formof duty the corresponding ad valorem or specificequivalents of the duty with respect to importsfrom the principal concerning foreign country fothe most recent representation period shall beused as basis.

e. The Commissioner of Customs shall regularly

furnish to the Commission a copy each of alcustoms import entries containing every pertineninformation appearing in the collectors' liquidatedduplicates, including the consular invoice and/othe commercial invoice. The Commission or itsduly authorized agents shall have access to andthe right to copy all the customs import entriesand other documents appended thereto as finallyin the General Auditing Office.

f. The Commission is authorized to adopt suchreasonable procedure, rules and regulations as imay deem necessary to carry out the provisionsof this section.

g. Any order issued by the President pursuant tothe provisions of this section shall take effecthirty days after its issuance.

h. The provisions of this section shall not apply toany article the importation of which into thePhilippines is or may be governed by Section 402of this Code.

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i. The authority herein granted to the Presidentshall be exercised only when Congress is not insession.

Cases:

18. GARCIA V EXECUTIVE SECRETARYPonente: Feliciano, J.

DOCTRINE: The enactment of appropriation,revenue, and tariff bills is within the province of

the Legislative. Art. VI, Sec. 28(2) of theConstitution permits Congress to authorize thePresident subject to such limitations andrestrictions as Congress may impose to fix withinspecific limits tariff rates and other duties andimposts.

QUICK FACTS: President Aquino imposedadditional ad valorem to all imported goods thenreduced it except with imported crude and otheroil products. In addition, the President levied aspecial duty on imported crude and other oilproducts. Rep. Garcia argued that the EOs areunconstitutional and illegal.

FACTS:

President Aquino promulgated, among others,three (3) Executive Orders:1) 438 imposing an additional 5% ad valorem toall imported articles, which was increased furtherto 9%2) 475 reducing the 9% ad valorem to 5%EXCEPT in cases of crude and other oil products3) 478 levying IN ADDITION to the 9% advalorem special duties of P0.95 and P1.00 perliter of imported crude and other oil products

Rep. Garcia questioned the validity of EOs 475

and 478 on two (2) grounds:1) unconstitutional, the Constitution vested theauthority to enact revenue bills to Congresswhich, according to him, the President may notassume (Art. VI, Sec. 24)2) illegal, 475 and 478 contravened the Tariff andCustoms Code (Sec. 401) which, according tohim, does not allow the President to increase orimpose tariff and additional duties for the purposeof raising additional revenue but only to protectlocal industries and products

ISSUE: WON 475 and 478 are unconstitutionaland illegal

HELD: NO.1) The enactment of appropriation, revenue, andtariff bills is within the province of the Legislative.It does not mean however that 475 and 478, asrevenue measures, are prohibited to thePresident and should be enacted instead byCongress. Art. VI, Sec. 28(2) of the Constitutionpermits Congress to authorize the Presidentsubject to such limitations and restrictions asCongress may impose to fix within specific limits

tariff rates and other duties and imposts. Therelevant statute is the Tariff and Customs Codeitself (Secs. 104 and 401).

2) The Tariff and Customs Code (Secs. 104 and401) does not provide for such a sharp andabsolute limitation of authority. The words"protective" and "protection" in Secs. 104 and401 are not enough to support the very broadand encompassing limitation such as the oneRep. Garcia insists. Protection of local industries

is NOT the only permissible objective that can besecured by the delegated authority to thePresident. Sec. 401 established generastandards with which the exercise of the authoritydelegated to the President must be consistentthat authority must be exercised in the interest onational economy, general welfare, and/onational security.

NOTE: The Bureau of Customs, whichadministers the Tariff and Customs Code, is oneof the two principal generators of governmentarevenue aside from the BIR. Customs duties(taxes on importation) are very much like taxesthat are frequently imposed for both revenueraising and for regulatory purposes.

19. ABAKADA V ERMITA(Disclaimer: This digest only focuses on the issueconcerning delegation; concurring and dissentingopinions of other Justices are excluded)Ponente: Austria-Martinez

DOCTRINE: In order that a court may be justified inholding a statute unconstitutional as a delegation olegislative power, it must appear that the poweinvolved is purely legislative in nature that is, oneappertaining exclusively to the legislative departmentIt is the nature of the power, and not the liability of its

use or the manner of its exercise, which determinesthe validity of its delegation. The distinction isbetween the delegation of power to make the lawwhich necessarily involves a discretion as to what ishall be, and conferring an authority or discretion asto its execution, to be exercised under and inpursuance of the law.

The power to ascertain facts is such a power whichmay be delegated. There is nothing essentiallylegislative in ascertaining the existence of facts oconditions as the basis of the taking into effect of alaw. That is a mental process common to all branchesof the government.

FACTS:

Nature: Petition for Certiorari filed by the ABAKADAGURO Party-List, Sen. Aquilino Pimentel Jr.

Association of Pilipinas Shell Dealers Inc., membersof the HoR headed by Cong. Chiz Escudero, andBataan Gov. Enrique Garcia questioning theconstitutionality of R.A. No. 9337 an act whichamended certain sections of the National InternaRevenue Code (NIRC).

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(Particular to the question of undue delegation oflegislative power) Petitioners ABAKADA GURO,Pimentel, and Escudero et al, all contend thatSections 4, 5, and 6 of R.A. No. 9337, amendingSections 106, 107, and 108, respectively, of the NIRCgiving the President the stand-by authority to raisethe VAT rate from 10% to 12% when a certaincondition is met, constitutes undue delegation of thelegislative power to tax.

The assailed provisions read as follows:

SEC. 4. Sec. 106 of the same Code, as amended, ishereby further amended to read as follows:SEC. 106. Value-Added Tax on Sale of Goods orProperties. (A) Rate and Base of Tax. There shall be levied,assessed and collected on every sale, barter orexchange of goods or properties, a value-added taxequivalent to ten percent (10%) of the gross sellingprice or gross value in money of the goods orproperties sold, bartered or exchanged, such tax to bepaid by the seller or transferor: provided, that thePresident, upon the recommendation of the Secretaryof Finance, shall, effective January 1, 2006, raise therate of value-added tax to twelve percent (12%), afterany of the following conditions has been satisfied.

(i) value-added tax collection as a percentage ofGDP of the previous year exceeds two and four-fifth percent (2 4/5%) or(ii) national government deficit as a percentage ofGDP of the previous year exceeds one and one-half percent (1 %).

SEC. 5. Section 107 of the same Code, as amended,is hereby further amended to read as follows:SEC. 107. Value-Added Tax on Importation of Goods.

(A) In General. There shall be levied, assessed andcollected on every importation of goods a value-

added tax equivalent to ten percent (10%) based onthe total value used by the Bureau of Customs indetermining tariff and customs duties, plus customsduties, excise taxes, if any, and other charges, suchtax to be paid by the importer prior to the release ofsuch goods from customs custody: provided, thatwhere the customs duties are determined on thebasis of the quantity or volume of the goods, thevalue-added tax shall be based on the landed costplus excise taxes, if any: provided, further, that thePresident, upon the recommendation of the Secretaryof Finance, shall, effective January 1, 2006, raise therate of value-added tax to twelve percent (12%) afterany of the following conditions has been satisfied:

(i) value-added tax collection as a percentage of

GDP of the previous year exceeds two and four-fifth percent (2 4/5%) or(ii) national government deficit as a percentage ofGDP of the previous year exceeds one and one-half percent (1 %).

SEC. 6. Section 108 of the same Code, as amended,is hereby further amended to read as follows:SEC. 108. Value-added Tax on Sale of Services andUse or Lease of Properties

(A) Rate and Base of Tax. There shall be leviedassessed and collected, a value-added tax equivalento ten percent (10%) of gross receipts derived fromthe sale or exchange of services: provided, that thePresident, upon the recommendation of the Secretaryof Finance, shall, effective January 1, 2006, raise therate of value-added tax to twelve percent (12%), afteany of the following conditions has been satisfied:

(i) value-added tax collection as a percentage oGDP of the previous year exceeds two and fourfifth percent (2 4/5%) or

(ii) national government deficit as a percentage oGDP of the previous year exceeds one and one-half percent (1 %).

Petitioners allege that the grant of the stand-byauthority to the President to increase the VAT rate isa virtual abdication by Congress of its exclusivepower to tax because such delegation is not within thepurview of Section 28 (2), Article VI of theConstitution, which provides:

The Congress may, by law, authorize the Presidentto fix within specified limits, and may impose, tarifrates, import and export quotas, tonnage andwharfage dues, and other duties or imposts within theframework of the national development program othe government.

ABAKADA GURO contends that the law effectivelynullified the Presidents power of control, whichincludes the authority to set aside and nullify the actsof her subordinates like the Secretary of Finance, bymandating the fixing of the tax rate by the Presidenupon the recommendation of the Secretary oFinance.

Pimentel on the other hand avers that the Presidenhas ample powers to cause, influence or create theconditions provided by the law to bring about either o

both the conditions precedent. Escudero et al find iabsurd that the imposition of the 12% rate would besubject to the whim of the Secretary of Finance, anunelected bureaucrat, contrary to the principle of notaxation without representation. They submit that theSecretary of Finance is not mandated to give afavorable recommendation and he may not even givehis recommendation.

ISSUE: WoN Sections 4, 5, and 6 of R.A. No. 9337amending Sections 106, 107, and 108, respectivelyof the NIRC giving the President the stand-byauthority to raise the VAT rate from 10% to 12%when a certain condition is met, constitutes unduedelegation of the legislative power to tax (and as such

is therefore unconstitutional).

DECISION: No, the delegation is valid (theconstitutionality of the law was upheld).

HELD: The rule is that in order that a court may be

justified in holding a statute unconstitutional as adelegation of legislative power, it must appear that thepower involved is purely legislative in nature that is

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one appertaining exclusively to the legislativedepartment. It is the nature of the power, and not theliability of its use or the manner of its exercise, whichdetermines the validity of its delegation. In every case of permissible delegation,there must be a showing that the delegation itself isvalid. It is valid only if the law (a) is complete in itself,setting forth therein the policy to be executed, carriedout, or implemented by the delegate; and (b) fixes astandard the limits of which are sufficientlydeterminate and determinable to which the

delegate must conform in the performance of hisfunctions. A sufficient standard is one which defineslegislative policy, marks its limits, maps out itsboundaries and specifies the public agency to apply it.It indicates the circumstances under which thelegislative command is to be effected. Both tests areintended to prevent a total transference of legislativeauthority to the delegate, who is not allowed to stepinto the shoes of the legislature and exercise a poweressentially legislative. The power to ascertain facts is such a powerwhich may be delegated. There is nothing essentiallylegislative in ascertaining the existence of facts orconditions as the basis of the taking into effect of alaw. That is a mental process common to all branchesof the government. What is thus left to theadministrative official is not the legislativedetermination of what public policy demands, butsimply the ascertainment of what the facts of the caserequire to be done according to the terms of the lawby which he is governed. The efficiency of an Act as adeclaration of legislative will must, of course, comefrom Congress, but the ascertainment of thecontingency upon which the Act shall take effect maybe left to such agencies as it may designate. While the power to tax cannot be delegatedto executive agencies, details as to the enforcementand administration of an exercise of such power maybe left to them, including the power to determine the

existence of facts on which its operation depends. It issimply a delegation of ascertainment of facts uponwhich enforcement and administration of the increaserate under the law is contingent. The legislature hasmade the operation of the 12% rate effective January1, 2006, contingent upon a specified fact or condition.It leaves the entire operation or non-operation of the12% rate upon factual matters outside of the controlof the executive. Highlighting the absence of discretion is thefact that the word shall is used in the commonproviso. The use of the word shall connotes amandatory order. Its use in a statute denotes animperative obligation and is inconsistent with the ideaof discretion. Inasmuch as the law specifically uses

the word shall, the exercise of discretion by thePresident does not come into play. It is a cleardirective to impose the 12% VAT rate when thespecified conditions are present. In the cases mentioned in Sections 4 to 6 of R.A. No. 9337, the Secretary of Finance is not actingas the alter ego of the President or even hersubordinate. He is acting as the agent of thelegislative department, to determine and declare theevent upon which its expressed will is to take effect.

The Secretary of Finance becomes the means or tooby which legislative policy is determined andimplemented, considering that he possesses all thefacilities to gather data and information and has amuch broader perspective to properly evaluate themHis function is to gather and collate statistical dataand other pertinent information and verify if any of thetwo conditions laid out by Congress is present. Hispersonality in such instance is in reality but aprojection of that of Congress. Thus, being the agenof Congress and not of the President, the Presiden

cannot alter or modify or nullify, or set aside thefindings of the Secretary of Finance and to substitutethe judgment of the former for that of the latter.

c) Delegation to Administrative Agenc

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