tax case digests (constitutional limitations)

7/27/2019 Tax Case Digests (Constitutional Limitations)

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vs. RAMIREZ1976

J.:

cts: Municipal Board of Manila enacted Ordinance No. 7522, "AN

RDINANCE REGULATING THE OPERATION OF PUBLIC MARKETS AND

RESCRIBING FEES FOR THE RENTALS OF STALLS AND PROVIDING

ENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES."

e petitioner City Mayor, Ramon D. Bagatsing, approved the

dinance.

espondent Federation of Manila Market Vendors, Inc. commenced a

vil Case before the CFI by respondent Judge, seeking the declaration

nullity of Ordinance No. 7522 for the reason that (a) the publication

quirement under the Revised Charter of the City of Manila has not

en complied with; (b) the Market Committee was not given any

rticipation in the enactment of the ordinance, as envisioned by

epublic Act 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt

actices Act has been violated; and (d) the ordinance would violate

esidential Decree No. 7 of September 30, 1972 prescribing the

llection of fees and charges on livestock and animal products.

ivate respondent also bewails that the market stall fees imposed in

e disputed ordinance are diverted to the exclusive private use of the

iatic Integrated Corporation since the collection of said fees had

en let by the City of Manila to the said corporation in aManagement and Operating Contract."

esolving the accompanying prayer for the issuance of a writ of

eliminary injunction, respondent Judge issued an order denying the

ea for failure of the respondent Federation of Manila Market

ndors, Inc. to exhaust the administrative remedies outlined in the

cal Tax Code.

ter due hearing on the merits, respondent Judge rendered another

cision, declaring the nullity of Ordinance No. 7522 of the City of

anila on the primary ground of non-compliance with the requirement

publication under the Revised City Charter.

etitioners moved for reconsideration of the adverse decision,ressing that (a) only a post-publication is required by the Local Tax

ode; and (b) private respondent failed to exhaust all administrative

medies before instituting an action in court.

espondent Judge denied the motion. Hence petitioners brought the

atter to the Supreme Court through the a petition for review on

rtiorari.

sue:

hat law shall govern the publication of a tax ordinance enacted by

e Municipal Board of Manila, the Revised City Charter (R.A. 409, as

mended), which requires publication of the ordinance before its

actment and after its approval, or the Local Tax Code (P.D. No. 231),hich only demands publication after approval.

eld:

ere is no question that the Revised Charter of the City of Manila is

special act since it relates only to the City of Manila, whereas the

cal Tax Code is a general law because it applies universally to all

cal governments. Blackstone defines general law as a universal rule

fecting the entire community and special law as one relating to

rticular persons or things of a class. And the rule commonly said is

at a prior special law is not ordinarily repealed by a subsequent

general law. The fact that one is special and the other general crea

a presumption that the special is to be considered as remaining

exception of the general, one as a general law of the land, the othe

the law of a particular case. However, the rule readily yields t

situation where the special statute refers to a subject in general, wh

the general statute treats in particular. The exactly is the circumsta

obtaining in the case at bar. Section 17 of the Revised Charter of

City of Manila speaks of "ordinance" in general, i.e., irrespective of

nature and scope thereof, whereas, Section 43 of the Local Tax C

relates to "ordinances levying or imposing taxes, fees or other charg

in particular. In regard, therefore, to ordinances in general, the Revi

Charter of the City of Manila is doubtless dominant, but, that domin

force loses its continuity when it approaches the realm of "ordinanlevying or imposing taxes, fees or other charges" in particular. Th

the Local Tax Code controls. Here, as always, a general provision m

give way to a particular provision. Special provision governs. Thi

especially true where the law containing the particular provision

enacted later than the one containing the general provision. The

Charter of Manila was promulgated on June 18, 1949 as against

Local Tax Code which was decreed on June 1, 1973. The law-mak

power cannot be said to have intended the establishment

conflicting and hostile systems upon the same subject, or to leav

force provisions of a prior law by which the new will of the legisla

power may be thwarted and overthrown. Such a result would ren

legislation a useless and Idle ceremony, and subject the law to

reproach of uncertainty and unintelligibility.

It is maintained by private respondent that the subject ordinance is a "tax ordinance," because the imposition of rentals, permit fees, t

and other fees is not strictly a taxing power but a revenue-rais

function, so that the procedure for publication under the Local

Code finds no application. The pretense bears its own marks of fall

Precisely, the raising of revenues is the principal object of taxat

Under Section 5, Article XI of the New Constitution, "Each lo

government unit shall have the power to create its own sources

revenue and to levy taxes, subject to such provisions as may

provided by law." And one of those sources of revenue is what

Local Tax Code points to in particular: "Local governments may col

fees or rentals for the occupancy or use of public markets

premises * * *." 14 They can provide for and regulate market stanstalls and privileges, and, also, the sale, lease or occupancy ther

They can license, or permit the use of, lease, sell or otherwise disp

of stands, stalls or marketing privileges.

Private respondent bewails that the market stall fees imposed in

disputed ordinance are diverted to the exclusive private use of

Asiatic Integrated Corporation since the collection of said fees

been let by the City of Manila to the said corporation in

"Management and Operating Contract." The assumption is of cou

saddled on erroneous premise. The fees collected do not go direc

the private coffers of the corporation. Ordinance No. 7522 was

made for the corporation but for the purpose of raising revenues

the city. That is the object it serves. The entrusting of the collectio

the fees does not destroy the public purpose of the ordinance. So l

as the purpose is public, it does not matter whether the age

through which the money is dispensed is public or private. The righ

tax depends upon the ultimate use, purpose and object for which

fund is raised. It is not dependent on the nature or character of

person or corporation whose intermediate agency is to be used

applying it. The people may be taxed for a public purpose, althoug

be under the direction of an individual or private corporation.

ACCORDINGLY, the decision of the court below is hereby reversed

set aside. Ordinance No. 7522 is held validly enacted.

ABAKADA GURO v. EXECUTIVE SECRETARY G.R. No. 16805168207, 168461, 168463 and 168730,1 September 2005, En Banc (Austria-Martinez, J)


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e equal protection clause does not require the universal application

the laws on all persons or things without distinction. This might in

ct sometimes result in unequal protection. What the clause requires

equality among equals as determined according to a valid

assification. .. Taxes are the lifeblood of the government. It is just an

ema, a first-aid measure to resuscitate an economy in distress. The

ourt is neither blind nor is it turning a deaf ear on the plight of the

asses. But it does not have the panacea for the malady that the law

eks to remedy. The Court cannot strike down a law as

constitutional simply because of its yokes.

ounting budget deficit, revenue generation, inadequate fiscal

ocation for education, increased emoluments for health workers,d wider coverage for full value-added tax benefits ... these are the

asons why Republic Act No. 9337 (R.A. No. 9337) was enacted.

easons, the wisdom of which, the Court even with its extensive

nstitutional power of review, cannot probe. The petitioners in these

ses, however, question not only the wisdom of the law, but also

rceived constitutional infirmities in its passage.

A. No. 9337 is a consolidation of three legislative bills namely,

ouse Bill Nos. 3555 and 3705, and Senate Bill No. 1950. Because of

e conflicting provisions of the proposed bills the Senate agreed to

e request of the House of Representatives for a committee

nference. The Conference Committee on the Disagreeing Provisions

House Bill recommended the approval of its report, which the

enate and the House of the Representatives did.

n May 24, 2005, the President signed into law the consolidated

ouse and Senate versions as Republic Act 9337. Before the law wastake effect on July 1, 2005, the Court issued a temporary

straining order enjoining government from implementing the law in

sponse to a slew of petitions for certiorari and prohibition

estioning the constitutionality of the new law.

SUES:

ROCEDURAL ISSUE

hether R.A. No. 9337 violates the following provisions of the

onstitution: a. Article VI, Section 24, and b. Article VI, Section

6(2)

UBSTANTIVE ISSUES 1. Whether Sections 4, 5 and 6 of R.A. No.

337, amending Sections 106, 107 and 108 of the NIRC, violate the

lowing provisions of the Constitution:

Article VI, Section 28(1), and b. Article VI, Section 28(2)

Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2)

d 110(B) of the NIRC; and Section 12 of R.A. No. 9337, amendingection 114(C) of the NIRC, violate Article VI, Section 28(1), and Article

Section 1 of the Constitution:

ECENT JURISPRUDENCE POLITICAL LAW

ELD:

etitions DISMISSED.

ere being no constitutional impediment to the full enforcement and

plementation of R.A. No. 9337, the temporary restraining order

sued by the Court on July 1, 2005 is LIFTED upon finality of herein

cision.

ocedural Issues

R.A. No. 9337 Does Not Violate Article VI, Section 24 of the

onstitution on Exclusive Origination of Revenue Bills

the present cases, petitioners admit that it was indeed House Bill

os. 3555 and 3705 that initiated the move for amending provisions

the NIRC dealing mainly with the value- added tax. Upon transmittalsaid House bills to the Senate, the Senate came out with Senate Bill

o. 1950 proposing amendments not only to NIRC provisions on the

lue-added tax but also amendments to NIRC provisions on other

nds of taxes. Is the introduction by the Senate of provisions not

aling directly with the value- added tax, which is the only kind of tax

ing amended in the House bills, still within the purview of the

nstitutional provision authorizing the Senate to propose or concur

th amendments to a revenue bill that originated from the House?

nce there is no question that the revenue bill exclusively originated

the House of Representatives, the Senate was

acting within its constitutional power to introduce

mendments to the House bill when it included provisions in Senate

Bill No. 1950 amending corporate income taxes, percentage, excise

and franchise taxes. Verily, Article VI, Section 24 of the Constitution

does not contain any prohibition or limitation on the extent of the

amendments that may be introduced by the Senate to the House

revenue bill.

Notably therefore, the main purpose of the bills emanating from the

House of Representatives is to bring in sizeable revenues for the

government to supplement our countrys serious financial problems

and improve tax administration and control of the leakages in

revenues from income taxes and value-added taxes. As these house

bills were transmitted to the Senate, the latter, approaching the

measures from the point of national perspective, can introduce

amendments within the purposes of those bills.The Senate can propose amendments and in fact, the amendments

made on provisions in the tax on income of corporations are germa

to the purpose of the house bills which is to raise revenues for the

government. The sections introduced by the Senate are germane to

the subject matter and purposes of the house bills, which is to

supplement our countrys fiscal deficit, among others. Thus, the

Senate acted within its power to propose those amendments.

B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of th

Constitution on the No-Amendment Rule

The no-amendment rule refers only to the procedure to be followe

by each house of Congress with regard to bills initiated in each of sa

respective houses, before said bill is

RECENT JURISPRUDENCE POLITICAL LAW

transmitted to the other house for its concurrence or amendment.

Verily, to construe said provision in a way as to proscribe any furthechanges to a bill after one house has voted on it would lead to

absurdity as this would mean that the other house of Congress wou

be deprived of its constitutional power to amend or introduce chang

to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be

taken to mean that the introduction by the Bicameral Conference

Committee of amendments and modifications to disagreeing

provisions in bills that have been acted upon by both houses of

Congress is prohibited.

Petitioners allege that the Bicameral Conference Committee exceed

its authority by: (1) Inserting the stand-by authority in favor of the

President in Sections 4, 5, and 6 of R.A. No. 9337; (2) Deleting enti

the no pass-on provisions found in both the House and Senate bills;

(3) Inserting the provision imposing a 70% limit on the amount of in

tax to be credited against the output tax; and (4) Including the

amendments introduced only by Senate Bill No. 1950 regarding othkinds of taxes in addition to the value-added tax.

It should be borne in mind that the power of internal regulation and

discipline are intrinsic in any legislative body. Thus, Article VI, Sectio

16 (3) of the Constitution provides that each House may determine

the rules of its proceedings. Pursuant to this inherent constitutiona

power to promulgate and implement its own rules of procedure, the

respective rules of each house, the Rule XIV, sec 88 & 889 of the

House of the Representatives and Rule XII sec 35 of the Rules of th

Senate, provided for the creation of a Bicameral Conference

Committee.

The creation of such conference committee was apparently in

response to a problem, not addressed by any constitutional provisio

where the two houses of Congress find themselves in disagreement

over changes or amendments introduced by the other house in a

legislative bill. In the present petitions, the issue is not whetherprovisions of the rules of both houses creating the bicameral

conference committee are unconstitutional, but whether the bicame

conference committee has strictly complied with the rules of both

houses, thereby remaining within the jurisdiction conferred upon it

Congress.

In the case of Farias vs. The Executive Secretary, the Court En Ban

unanimously reiterated and emphasized its adherence to the enro

bill doctrine, thus, declining therein petitioners plea for the Court t

go behind the enrolled copy of the bill. Akin to the Farias case, the

present petitions also raise an issue regarding the actions taken by

conference committee on matters regarding Congress compliance

with its own internal rules. One of the most basic and inherent powe


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the legislature is the power to formulate rules for its proceedings

d the discipline of its members. Congress is the best judge of how it

ould conduct its own business expeditiously and in the most orderly

anner. It is also the sole concern of Congress to instill discipline

mong the members of its conference committee if it believes that

id members violated any of its rules of proceedings. Even the

panded jurisdiction of this Court cannot apply to questions regarding

ly the internal operation of Congress, thus, the Court is wont to deny

review of the internal proceedings of a co-equal branch of

vernment.

oreover, in the case of Tolentino vs. Secretary of Finance, the Court

ready made the pronouncement that if a change is desired in the

actice of the Bicameral Conference Committee it must be sought inongress since this question is not covered by any constitutional

ovision but is only an internal rule of each house. To date, Congress

s not seen it fit to make such changes adverted to by the Court. It

ems, therefore, that Congress finds the


actices of the bicameral conference committee to be very useful for

rposes of prompt and efficient legislative action.

the present case, the changes introduced by the Bicameral

onference Committee on disagreeing provisions were meant only to

concile and harmonize the disagreeing provisions for it did not inject

y idea or intent that is wholly foreign to the subject embraced by the

ginal provisions. The so-called stand-by authority in favor of the

esident, whereby the rate of 10% VAT wanted by the Senate is

tained until such time that certain conditions arise when the 12%

AT wanted by the House shall be imposed, appears to be ampromise to try to bridge the difference in the rate of VAT proposed

the two houses of Congress. Nevertheless, such compromise is still

tally within the subject of what rate of VAT should be imposed on

xpayers.

e no pass-on provision was deleted altogether. The reason for

leting the no pass-on provision was just to keep the VAT law or the

AT bill simple and that no sector should be a beneficiary of legislative

ace, neither should any sector be discriminated on.

th regard to the amount of input tax to be credited against output

x, the Bicameral Conference Committee came to a compromise on

e percentage rate of the limitation or cap on such input tax credit,

t again, the change introduced by the Bicameral Conference

ommittee was totally within the intent of both houses to put a cap on

put tax that may be credited against the output tax.

to the amendments to NIRC provisions on taxes other than thelue-added tax proposed in Senate Bill No. 1950, since said

ovisions were among those referred to it, the conference committee

d to act on the same and it basically adopted the version of the

enate. Thus, all the changes or modifications made by the Bicameral

onferenceCommittee were germane to subjects of the provisions

ferred to it for reconciliation. Such being the case, the Court does

t see any grave abuse of discretion amounting to lack or excess of

risdiction committed by the Bicameral Conference Committee.

bstantial Issues

A. Uniformity and Equitability of Taxation

ticle VI, Section 28(1) of the Constitution reads: The rule of taxation

all be uniform and equitable. The Congress shall evolve a

ogressive system of taxation.

niformity in taxation means that all taxable articles or kinds of

operty of the same class shall be taxed at the same rate. Differentticles may be taxed at different amounts provided that the rate is

iform on the same class everywhere with all people at all times. The

x law is uniform as it provides a standard rate of 0% or 10% (or 12%)

all goods and services.

must be stressed that the rule of uniform taxation does not deprive

ongress of the power to classify subjects of taxation, and only

mands uniformity within the particular class. R.A. No. 9337 is also

uitable. The law is equipped with a threshold margin. The VAT rate of

% or 10% (or 12%) does not apply to sales of goods or services with

oss annual sales or receipts not exceeding P1, 500, 000.00. Also,

sic marine and agricultural food products in their


original state are still not subject to tax, thus ensuring the prices at

grassroots level remain accessible.

Lastly, petitioners contend that the limitation on the creditable inpu

tax is anything but regressive. It is the smaller business with

higher input tax-output tax ratio that will suffer the consequences.

Progressive taxation is built on the principle of the taxpayers ability

pay. Taxation is progressive when its rate goes up depending on the

resources of the person affected.

The VAT is an antithesis of progressive taxation. By its very nature, i

regressive. The principle of progressive taxation has no relation with

the VAT system inasmuch as the VAT paid by the consumer or

business for every goods bought or services enjoyed is the same

regardless of income. In other words, the VAT paid eats the sameportion of an income, whether big or small.

Nevertheless, the Constitution does not really prohibit the impositio

of indirect taxes, like the VAT. What it simply provides is that Congre

shall "evolve a progressive system of taxation." The constitutional

provision has been interpreted to mean simply that direct taxes are

. to be preferred [and] as much as possible, indirect taxes should be

minimized. Indeed, the mandate to Congress is not to prescribe, bu

to evolve, a progressive tax system.

I. B. No Undue Delegation of Legislative Power

The principle of separation of powers ordains that each of the three

great branches of government has exclusive cognizance of and is

supreme in matters falling within its own constitutionally allocated

sphere. A logical corollary to the doctrine of separation of powers is

principle of non-delegation of powers, potestas delegata non delega

potest.In the present case, the challenged section of R.A. No. 9337 is the

common proviso in Sections 4, 5 and 6 which reads as follows: Tha

the President, upon the recommendation of the Secretary of Financ

shall, effective January 1, 2006, 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 Domestic

Product (GDP) of the previous year exceeds two and four-fifth perce

(2 4/5%); or (ii) National government deficit as a percentage of GDP

the previous year exceeds one and one-half percent (1 12%).

The case before the Court is not a delegation of legislative power. It

simply a delegation of ascertainment of facts upon which enforcem

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. Itleaves the entire operation or non-operation of the 12% rate upon

factual matters outside of the control of the executive.

No discretion would be exercised by the President. Highlighting the

absence of discretion is the fact that the word shall is used in the

common proviso. The use of the word shall connote a mandatory

order. Its use in a statute denotes an imperative obligation and is

inconsistent with the idea of discretion. Where the law is clear and

unambiguous, it must be taken to mean exactly what it says, and

courts have no choice but to see to it that the mandate is obeyed.

RECENT JURISPRUDENCE POLITICAL LAW

Thus, it is the ministerial duty of the President to immediately impos

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

Congress. This is a duty, which cannot be evaded by the President.

Inasmuch as the law specifically uses the word shall, the exercise of

discretion by the President does not come into play. It is a cleardirective to impose the 12% VAT rate when the specified conditions

are present. The time of taking into effect of the 12% VAT rate is ba

on the happening of a certain specified contingency, or upon the

ascertainment of certain facts or conditions by a person or body oth

than the legislature itself.

When one speaks of the Secretary of Finance as the alter ego of the

President, it simply means that as head of the Department of Finan

he is the assistant and agent of the Chief Executive. In the present

case, the Secretary of Finance, in making his recommendation to th

President on the existence of either of the two conditions, the

Secretary of Finance is not acting as the alter ego of the President o

even her subordinate. In such instance, he is not subject to the pow


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control and direction of the President. He is acting as the agent of

e legislative department, to determine and declare the event upon

hich its expressed will is to take effect. The Secretary of Finance

comes the means or tool by which legislative policy is determined

d implemented, considering that he possesses all the facilities to

ther data and information and has a much broader perspective to

operly evaluate them. His function is to gather and collate statistical

ta and other pertinent information and verify if any of the two

nditions laid out by Congress is present. His personality in such

stance is in reality but a projection of that of Congress. Thus, being

e agent of Congress and not of the President, the President cannot

ter or modify or nullify, or set aside the findings of the Secretary of

nance and to substitute the judgment of the former for that of thetter.

ongress simply granted the Secretary of Finance the authority to

certain the existence of a fact, namely, whether by December 31,

005, the value-added tax collection as a percentage of Gross

omestic Product (GDP) of the previous year exceeds two and four-

th percent (24/5%) or the national government deficit as a

rcentage of GDP of the previous year exceeds one and one-half

rcent (112%). If either of these two instances has occurred, the

ecretary of Finance, by legislative mandate, must submit such

formation to the President. Then the 12% VAT rate must be imposed

the President effective January 1, 2006. There is no undue

legation of legislative power but only of the discretion as to the

ecution of a law. This is constitutionally permissible. Congress does

t abdicate its functions or unduly delegate power when it describes

hat job must be done, who must do it, and what is the scope of histhority; in our complex economy that is frequently the only way in

hich the legislative process can go forward.

A. Due Process and Equal Protection Clauses

e doctrine is that where the due process and equal protection

auses are invoked, considering that they are not fixed rules but

ther broad standards, there is a need for proof of such persuasive

aracter as would lead to such a conclusion. Absent such a showing,

e presumption of validity must prevail.

ection 8 of R.A. No. 9337, amending Section 110(B) of the NIRC

poses a limitation on the amount of input tax that may be credited

ainst the output tax. It states, in part: [P]rovided, that the input tax

clusive of the input VAT carried over from the previous quarter that

ay be credited in every quarter shall not exceed seventy percent

0%) of the output VAT: ...

ECENT JURISPRUDENCE POLITICAL LAWput Tax is defined under Section 110(A) of the NIRC, as amended, as

e value-added tax due from or paid by a VAT-registered person on

e importation of goods or local purchase of good and services,

cluding lease or use of property, in the course of trade or business,

om a VAT-registered person, and Output Tax is the value-added tax

e on the sale or lease of taxable goods or properties or services by

y person registered or required to register under the law.

etitioners claim that the contested sections impose limitations on the

mount of input tax that may be claimed. In effect, a portion of the

put tax that has already been paid cannot now be credited against

e output tax. This argument is not absolute. It assumes that the

put tax exceeds 70% of the output tax, and therefore, the input tax in

cess of 70% remains uncredited. However, to the extent that the

put tax is less than 70% of the output tax, then 100% of such input

x is still creditable.e non-application of the unutilized input tax in a given quarter is not

infinitum, as petitioners exaggeratedly contend. Their analysis of

e effect of the 70 per cent limitation is incomplete and one-sided. It

ds at the net effect that there will be unapplied/unutilized inputs

AT for a given quarter. It does not proceed further to the fact

at such unapplied/unutilized input tax may be credited in the

bsequent periods as allowed by the carry-over provision of Section

10(B) or that it may later on be refunded through a tax credit

rtificate under Section 112(B).

erefore, petitioners argument must be rejected. The equal

otection clause under the Constitution means that no person or

ass of persons shall be deprived of the same protection of laws

which is enjoyed by other persons or other classes in the same plac

and in like circumstances.

The power of the State to make reasonable and natural classificatio

for the purposes of taxation has long been established. Whether it

relates to the subject of taxation, the kind of property, the rates to b

levied, or the amounts to be raised, the methods of assessment,

valuation and collection, the States power is entitled to presumptio

of validity. As a rule, the judiciary will not interfere with such power

absent a clear showing of unreasonableness, discrimination, or

arbitrariness.

The equal protection clause does not require the universal applicati

of the laws on all persons or things without distinction. This might in

fact sometimes result in unequal protection. What the clause requiris equality among equals as determined according to a valid

classification. By classification is meant the grouping of persons or

things similar to each other in certain particulars and different from

others in these same particulars.

It has been said that taxes are the lifeblood of the government. In th

case, it is just an enema, a first-aid measure to resuscitate an

economy in distress. The Court is neither blind nor is it turning a dea

ear on the plight of the masses. But it does not have the panacea fo

the malady that the law seeks to remedy. As in other cases, the Cou

cannot strike down a law as unconstitutional simply because of its

yokes.

Eastern Theatr ical Co. vs. Alfonso GR L-1104, 31 May1944 Second Div is ion, Perfecto (J ) : 5 concurFacts: The municipal board of Manila enacted Ordinance 2958 (serof 1946) imposing a fee on the price of every admission ticket sold

cinematograph theaters, vaudeville companies, theatrical shows an

boxing exhibitions, in addition to fees imposed under Sections 633

and 778 of Ordinance 1600. Eastern Theatrical Co., among others,

question the validity of ordinance, on the ground that it is

unconstitutional for being contrary to the provisions on uniformity a

equality of taxation and the equal protection of the laws inasmuch a

the ordinance does not tax other kinds of amusement, such as race

tracks, cockpits, cabarets, concert halls, circuses, and other places

amusement.

Issue: Whether the ordinance violates the rule on uniformity and

equality of taxation.

Held: Equality and uniformity in taxation means that all taxable artic

or kinds of property of the same class shall be taxed at the same ra

The taxing power has the authority to make reasonable and naturalclassifications for purposes of taxation; and the theater companies

cannot point out what places of amusement taxed by the ordinance

not constitute a class by themselves and which can be confused wit

those not included in the ordinance. The fact that somew places of

amusement are not taxed while others, like the ones herein, are tax

is no argument at all against the equality and uniformity of the tax

imposition.

Brit ish American Tobacco v CamachoR.A. 8240 was passed recodifying the NIRC where Sec 142 was

renumbered Sec 145.

British American Tobacco assailed the validity of Sec. 145 of the NI

(amended by RA 8240), arguing that the said provisions are violativ

of the equal protection and uniformity clause of the Constitution.Section 145 provides for a four-tier tax rate based on net retail pric

per pack of cigarettes: (1) low-priced, (2) medium-priced, (3) high-

priced, and (4) premium-priced.

Section 145 further provides that NEW BRANDS (registered after

January 1, 1997) of cigarettes shall be taxed at their current retail

price. If the current net retail price has not been established, the

suggested net retail price shall be used to determine the specific ta

classification.

On the other hand, old or existing brands (registered before January

1997) shall be taxed at their net retail price as of October 1, 1996.

Net retail price = price @ which cigarettes are sold on retail in 20

supermarkets in MM


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ggested net retail price = net retail price @ which brands of

garettes are intended by the manufacturer to be sold

implement RA 8240, BIR issued a Revenue Regulation (RR No. 1-

7) classifying existing brands of cigarettes as those existing or active

d) brands prior to January 1, 1997, while new brands of cigarettes

e those registered after January 1, 1997. Another Revenue

egulation was issued amending the first (RR No. 9-2003) by providing

R with the power to periodically review every two years / earlier the

rrent net retail price of new brands to ESTABLISH / UPDATE their tax

assification.

In June 2001, British American Tobacco introduced the Lucky

rike Filter, Lucky Strike Lights and Lucky Strike Menthol Lights. Lucky

rike was taxed based on its suggested gross retail price from theme of its introduction in the market in 2001 until the BIR market

rvey in 2003. The brands were sold at P22.54, P22.61 and P21.23

the applicable tax rate is P13.44 per pack. BAT now argues that the

assification freeze provision" violates the equal protection and

iformity of taxation clauses because the Lucky Strike brands are

xed based on their 1996 net retail prices while new brands are taxed

sed on their present day net retail prices. Thus, Lucky Strike suffers

om higher taxes while its competitors pay a lower amount.

BAT further argued that the tobacco excise law was

scriminatory because under it, brands that entered the market after

996 were imposed taxes based on their current retail prices while

der brands paid taxes based on their 1996 retail prices. Meanwhile,

ilip Morris, Fortune Tobacco, Mighty Corp. and JT International

espondents-in-intervention) claim that no inequality exists between

garettes and that nullification of said annex would bring aboutemendous loss.

I: 1. W/n Sec. 145 of the NIRC violates EPC and uniformity of

xation clauses W/N the Revenue Regulations are invalid in so

r as they empower BIR to reclassify and update the classification of

w brands every two years or earlier

Sec 145 NIRC is constitutional but the RRs are invalid for granting

e BIR the power to reclassify and update the classification.

NIRC is constitutional The classification freeze provision does not

olate the equal protection and uniformity of taxation. It meets the

andards for valid classification: rests on a substantial distinction, is

rmane to the purpose of the law, applies to present and future

nditions and applies equally to all those belonging to the same

ass.

(NOTE: The second condition, however, was not fully satisfied

it failed to promote fair competition among the players in thedustry. However, this does not make the assailed law

constitutional)

The classification freeze provision was done in good faith and

germane to the purpose of the law. It was inserted for reasons of

acticality and expediency.

Since a new brand was not yet in existence at the time of the

ssage of RA 8240, then Congress needed a uniform mechanism to

the tax bracket of a new brand. The current net retail price, similar

what was used to classify the brands as of October 1, 1996, was

us the logical and practical choice.

With the amendments introduced by RA 9334, the freezing of

e tax classifications now expressly applies not just to old brands

garettes which are taxed on the basis of average net retail price as

October 1, 1996) but to newer brands introduced after the

fectivity of RA 8240 on January 1, 1997 and any new brand that will introduced in the future.

Thus, the classification freeze provision could hardly be

nsidered biased toward older brands over newer brands.

Congress was even willing to delegate the power to periodically

just the excise tax rate and tax brackets as well as to periodically

survey and reclassify the cigarette brands based on the increase in

e consumer price index to the DOF and the BIR.

Thus, the provision was the result of Congresss earnest efforts

improve the efficiency and effectivity of the tax administration over

n products while trying to balance the same with other State

terests.On Uniformity: Uniformity of taxation requires that all

subjects or objects of taxation, similarly situated, are to be treated

alike both in privileges and liabilities. In the instant case, there is no

question that the CFP meets the geographical uniformity requireme

because the assailed law applies to ALL CIGARETTE BRANDS n the

Philippines.

On Inequitabl ity and Regressiv ity: BAT claims that theuse of different tax bases for old brands as against new brands is

discriminatory / inequitable, and that the CFP is regressive in

character. This cannot be sustained because the CFP meets the

requirements of the EPC.

On regressivity -- the excise tax imposed on cigarettes is an

indirect tax, and thus, regressive in character. HOWEVER, this does

mean that the law may be declared unconstitutional because theConstitution does not prohibit the imposition of indirect taxes but

merely provides that Congress shall EVOLVE progressive system of

taxation.

2) The BIR RR is invalid because the NIRC does NOT authori

the BIR to update the tax classification of new brands every 2 years

earlier.

The power to reclassify cigarette brands remains in Congress.

Allowing the periodic reclassification of brands might tempt

cigarette manufacturers to

manipulate their brands' price levels or bribe the tax implementers t

allow their brands to be classified as a lower tax bracket.

tax case digests (constitutional limitations)

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