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A.A. General PrinciplesGeneral Principles
CONCEPT, NATURE AND CHARACTERISTICS OF TAXATION AND TAXES CONCEPT, NATURE AND CHARACTERISTICS OF TAXATION AND TAXES CIR v. Cebu
CIR v. Cebu Portland Cement Co.Portland Cement Co.
The Court of Tax Appeals ordered the Commission of Internal Revenue (CIR) to refund toThe Court of Tax Appeals ordered the Commission of Internal Revenue (CIR) to refund to
Cebu Portland Cement Co. about P350k+, w/c represented overpayments of ad valorem Cebu Portland Cement Co. about P350k+, w/c represented overpayments of ad valorem taxes on cement produced and sold by it.
taxes on cement produced and sold by it.
CIR opposed the ruling, claiming that it had a right CIR opposed the ruling, claiming that it had a right to apply the overpayment to another taxto apply the overpayment to another tax
liability of Cebu Portland – sales tax on a manufactured product (the cement). CIR said that liability of Cebu Portland – sales tax on a manufactured product (the cement). CIR said that cement is a manufactured and NOT a mineral product and therefore NOT exempt from cement is a manufactured and NOT a mineral product and therefore NOT exempt from sales taxes. (mineral = exempt; manufactured = not exempt)
sales taxes. (mineral = exempt; manufactured = not exempt)
On the other hand, Cebu PortlanOn the other hand, Cebu Portland said that it is exempt from sales tax d said that it is exempt from sales tax under the Tax Codeunder the Tax Code
because cement is a mineral product and NOT
because cement is a mineral product and NOT a manufactured product.a manufactured product.
Court of Tax Appeals held that the alleged sales tax liability of Cebu Portland was still beingCourt of Tax Appeals held that the alleged sales tax liability of Cebu Portland was still being
questioned and therefore could not be set-off
questioned and therefore could not be set-off against the refund.against the refund.
A petition for review wa A petition for review was filed by CIR.s filed by CIR.
I: W/n CIR must refund the overpayment of the ad valorem taxI: W/n CIR must refund the overpayment of the ad valorem tax
R: NO. CIR has the right to apply the ovR: NO. CIR has the right to apply the ov erpayment to Cebu Portland’s sales tax deficiency.erpayment to Cebu Portland’s sales tax deficiency.
The sales tax was properly imposed upon the company for the reason that cement hasThe sales tax was properly imposed upon the company for the reason that cement has
always been considered a manufactured product and NOT a mineral product. (CIR v always been considered a manufactured product and NOT a mineral product. (CIR v Republic Cement)
Republic Cement) o
o Cement was never considered a mineral product w/in the meaning of the TaxCement was never considered a mineral product w/in the meaning of the Tax Code, despite it being composed of 80% mineral, because cement is
Code, despite it being composed of 80% mineral, because cement is a PRODUCTa PRODUCT of the manufacturing process.
of the manufacturing process. o
o Reliance cannot be made on Cebu Portland v CIR saying that cement = mineralReliance cannot be made on Cebu Portland v CIR saying that cement = mineral because this case has been overruled.
because this case has been overruled.
The argument that the assessment cannot as yet be enforced because it is still beingThe argument that the assessment cannot as yet be enforced because it is still being
contested loses sight of the urgency of the need to collect taxes as “the lifeblood of the contested loses sight of the urgency of the need to collect taxes as “the lifeblood of the government.”
government.”
If the payment of taxes could be postponed by simply questioning their validity, theIf the payment of taxes could be postponed by simply questioning their validity, the
government would be paralyzed. government would be paralyzed.
Thus,Thus, the Tax Codethe Tax Code provides that no court shall have authority to grant anprovides that no court shall have authority to grant an
injunction or restrain the collection of taxes,
injunction or restrain the collection of taxes, exceptexcept when in the opinion of the Courtwhen in the opinion of the Court of Tax Appeals, the collection by the BIR or the Bureau of Customs may
of Tax Appeals, the collection by the BIR or the Bureau of Customs may jeopardize the jeopardize the interest of the Government and/or the taxpayer
interest of the Government and/or the taxpayer .. o
o In such a case, the Court, at any stage of the proceeding may suspend theIn such a case, the Court, at any stage of the proceeding may suspend the collection and require the taxpayer to either:
collection and require the taxpayer to either: 1.
1. deposit the amount claimed ORdeposit the amountclaimed OR 2.
2. file a surety bond for not more than double the amount with thefile a surety bondfor not more than double the amount with the Court.
Court.
The exception does not apply in this case. In fact, there is all the more reason to enforceThe exception does not apply in this case. In fact, there is all the more reason to enforce
the rule given that even after crediting of the refund against the tax
the rule given that even after crediting of the refund against the tax deficiency, a balance ofdeficiency, a balance of more than P4 million was still due from the company.
more than P4 million was still due from the company.
To require the Commissioner to actually refund to the company the amount of the judgmentTo require the Commissioner to actually refund to the company the amount of the judgment
debt, which he will later have the right to distrain for payment of its sales tax liability is an debt, which he will later have the right to distrain for payment of its sales tax liability is an idle ritual.
idle ritual. CLASSIFICATI
CLASSIFICATIONS AND ONS AND DISTINCTIONSDISTINCTIONS Esso Standard Eastern Inc. v. CIR Esso Standard Eastern Inc. v. CIR
ESSO deducted from its gross income for 1959, as part of its ordinary and necessaryESSO deducted from its gross income for 1959, as part of its ordinary and necessary
business expenses, the amount it had spent for drilling and exploration of its business expenses, the amount it had spent for drilling and exploration of its petroleum concessions.
petroleum concessions.
The Commissioner on Internal Revenue (CIR) disallowed the claim on the ground thatThe Commissioner on Internal Revenue (CIR) disallowed the claim on the ground that
the expenses should be capitalized and might be written off as a
the expenses should be capitalized and might be written off as a loss only when a loss only when a “dry“dry hole” should result.
hole” should result.
Hence, ESSO filed an amended return where it asked for the refund of P323,270 byHence, ESSO filed an amended return where it asked for the refund of P323,270 by
reason of its abandonment, as dry holes, of several of its oil wells. It also claimed as reason of its abandonment, as dry holes, of several of its oil wells. It also claimed as ordinary and necessary expenses in the
ordinary and necessary expenses in the same return amount representing margin feessame return amount representing margin fees it had paid to the Central Bank on its profit remittances to
it had paid to the Central Bank on its profit remittances to its New York Office.its New York Office.
I: W/n the margin fees are taxes OR I: W/n the margin fees are taxes OR necessary expenses which are deductible from itsnecessary expenses which are deductible from its
gross income gross income
R: No, they are neither R: No, they are neither taxes nor necessary expenses.taxes nor necessary expenses.
1) Margin fees are NOT taxes because they are NOT imposed as a1) Margin fees are NOT taxes because they are NOT imposed as a revenue measurerevenue measure
but as a
but as a policepolice measure whose proceeds are appliedmeasure whose proceeds are applied to strengthen the country’sto strengthen the country’s international reserves. Thus, the fee was imposed by the State in the exercise of its international reserves. Thus, the fee was imposed by the State in the exercise of its POLICE POWER and NOT taxation power.
POLICE POWER and NOT taxation power.
2) Neither are they necessary and ordinary business expenses.2) Neither are they necessary and ordinary business expenses.
An An expense expense is is considered considered NECESSARY NECESSARY where where the the expenditure expenditure is is helpful helpful in in thethe
development of the taxpayer’s business. development of the taxpayer’s business.
It is ORDINARY when it connotes a payment which is normal in relation to theIt is ORDINARY when it connotes a payment which is normal in relation to the
business of the taxpayer and the surrounding circumstances. The expenditure being business of the taxpayer and the surrounding circumstances. The expenditure being ordinary and necessary is determined based on its nature – the extent and ordinary and necessary is determined based on its nature – the extent and permanency of the work accomplished by the
permanency of the work accomplished by the expenditure.expenditure.
In this case, ESSO was unable to show that the remittance to the head office of partIn this case, ESSO was unable to show that the remittance to the head office of part
of its profits was made in furtherance of its own trade or business. of its profits was made in furtherance of its own trade or business.
It merely presumed that all corporate expenses are necessary and appropriate in theIt merely presumed that all corporate expenses are necessary and appropriate in the
absence of a showing that they are illegal or
absence of a showing that they are illegal or ultra vires; which is erroneous. Claims forultra vires; which is erroneous. Claims for deductions are a matter of legislative grace and do not turn on mere equitable deductions are a matter of legislative grace and do not turn on mere equitable considerations.
considerations. PAL v. Edu
PAL v. Edu
Under a legislative franchise, Philippine Airlines is exempt from Under a legislative franchise, Philippine Airlines is exempt from all taxes except for theall taxes except for the
payment of 2% of its gross revenue to the National Government. payment of 2% of its gross revenue to the National Government.
On the strength of an opinion of the Secretary of Justice, PAL was determined not toOn the strength of an opinion of the Secretary of Justice, PAL was determined not to
have been paying motor vehicle registration fees since have been paying motor vehicle registration fees since 1956.1956.
Eventually, the Land Transportation Commissioner required all tax exempt entities,Eventually, the Land Transportation Commissioner required all tax exempt entities,
including PAL, to pay motor
including PAL, to pay motor vehicle registration fees.vehicle registration fees.
PAL protested.PAL protested.
I: W/n PAL is exempt from the payment of motor I: W/n PAL is exempt from the payment of motor vehicle registration feesvehicle registration fees
R: YES, PAL is exempt.R: YES, PAL is exempt.
The motor vehicle registration fee is a tax, to which PAL is The motor vehicle registration fee is a tax, to which PAL is exempt.exempt.
Taxes are for revenue, while fees are exactions for purposes of regulation andTaxes are for revenue, while fees are exactions for purposes of regulation and
inspection. Thus, fees are limited in amount to what is necessary to cover the cost of inspection. Thus, fees are limited in amount to what is necessary to cover the cost of the services rendered in that connection.
the services rendered in that connection.
It is the OBJECT of the charge, and NOT the name, that determines whether a chargeIt is the OBJECT of the charge, and NOT the name, that determines whether a charge
is a tax or a fee. is a tax or a fee.
In this case, the money collected under the Motor Vehicle Law is not intended for theIn this case, the money collected under the Motor Vehicle Law is not intended for the
expenditures of the Motor Vehicle Office but for the construction and maintenance of expenditures of the Motor Vehicle Office but for the construction and maintenance of public roads, streets and
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Thus, since the said fees are collected NOT for the regulating motor vehicles on publicThus, since the said fees are collected NOT for the regulating motor vehicles on public
highways but for providing REVENUE for the gov in
highways but for providing REVENUE for the gov in order to construct public highways, theyorder to construct public highways, they are TAXES, not merely fees.
are TAXES, not merely fees.
PAL is exempt from paying such fees, except for the period between 27 June 1968 to 9 AprilPAL is exempt from paying such fees, except for the period between 27 June 1968 to 9 April
1979, where its tax exeption in
1979, where its tax exeption in the franchise was repealed.the franchise was repealed. Osmeña v. Orbos
Osmeña v. Orbos
Pres. Marcos issued PD 1956 creating the Oil Price Stabilization Fund (OPSF), which wasPres. Marcos issued PD 1956 creating the Oil Price Stabilization Fund (OPSF), which was
designed to reimburse oil companies for cost increases in crude oil and imported petroleum designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from:
products resulting from: o
o exchange rate adjustments ANDexchange rate adjustments AND o
o increases in the world market prices of increases in the world market prices of crude oilcrude oil
A A portion portion of of the the OPSF OPSF was was taken taken from from collections collections of of ad ad valorem valorem taxes taxes levied levied on on oiloil
companies. companies.
Subsequently, by virtue of an EO, tSubsequently, by virtue of an EO, t he OPSF was reclassified into a trust he OPSF was reclassified into a trust liability account andliability account and
ordered released from the NATIONAL TREASURY to the MINISTRY of Energy. Said EO also ordered released from the NATIONAL TREASURY to the MINISTRY of Energy. Said EO also authorized the investment of the fund in government securities, with the earnings accruing authorized the investment of the fund in government securities, with the earnings accruing to the fund.
to the fund.
Aquino then Aquino then amended PD amended PD 1956 by 1956 by promulgating EO promulgating EO 137, 137, w/c w/c expanded the expanded the grounds grounds forfor
reimbursement to oil companies for possible COST UNDERRECOVERY inccured resulting reimbursement to oil companies for possible COST UNDERRECOVERY inccured resulting from the reduction of domestic prices on petroleum products. The said cost underrecovery from the reduction of domestic prices on petroleum products. The said cost underrecovery was left to the determination of the Ministry of Finance.
was left to the determination of the Ministry of Finance.
Osmena then questioned the creation of the trust fund, saying that it violates theOsmena then questioned the creation of the trust fund, saying that it violates the
Constitution. Constitution.
• • This This is is because because the the money money collected collected pursuant pursuant to to PD PD 1956 1956 is is a a special special fund, fund, andand
under the Constitution, if a special tax is collected for a specific purpose, the revenue under the Constitution, if a special tax is collected for a specific purpose, the revenue generated from it shall be treated as a SPECIAL FUND to be used only for the indicated generated from it shall be treated as a SPECIAL FUND to be used only for the indicated purpose. It must not be channeled to another government objective.
purpose. It must not be channeled to another government objective.
I: W/n the creation of the trust fund is vI: W/n the creation of the trust fund is v iolative of the Constitutioniolative of the Constitution
R: NO, creation of the trust fund was valid.R: NO, creation of the trust fund was valid.
In order for the funds to fall under the prohibition, it must be shown that they wereIn order for the funds to fall under the prohibition, it must be shown that they were
collected as TAXES – as a form of revenue collected as TAXES – as a form of revenue
While the funds collected may be referred to as taxes, they are exacted in the exercise ofWhile the funds collected may be referred to as taxes, they are exacted in the exercise of
the POLICE POWER of the State . the POLICE POWER of the State .
The main objective was NOT revenue but to stabilize the price of oil and petroleum.The main objective was NOT revenue but to stabilize the price of oil and petroleum.
The OPSF is actually a SPECIAL FUND, as seen from the special treatment given to it by EOThe OPSF is actually a SPECIAL FUND, as seen from the special treatment given to it by EO
137. It is segregated from the general fund; and while it is placed in what the law refers to 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA.
review of the COA.
These measures thus comply with the constitutional description of a "special fund."These measures thus comply with the constitutional description of a "special fund."
What is here involved is not so much the power of taxation as police power.What is here involved is not so much the power of taxation as police power.
For a valid delegation of power, it is essential that For a valid delegation of power, it is essential that the law delegating the power must be:the law delegating the power must be:
o
o 1) complete in itself -- must set forth the policy to be executed by the delegate1) complete in itself -- must set forth the policy to be executed by the delegate o
o 2) it 2) it must fimust fi x x a standard a standard — — limits limits of whichare of whichare sufficiently sufficiently determinate determinate oror determinab
determinable — to le — to which the delegate must conform.which the delegate must conform.
Such was fulfilled in this case.Such was fulfilled in this case.
Commissione
Commissioner on Internal Revenue v r on Internal Revenue v PLDTPLDT
PDLT paid the BIR about P164k+ for equipment and spare parts it imported for itsPDLT paid the BIR about P164k+ for equipment and spare parts it imported for its
business. The amount included compensating, advance sales and other internal business. The amount included compensating, advance sales and other internal revenue taxes. PLDT also paid VAT.
revenue taxes. PLDT also paid VAT.
As a As a franchise holder, PLDT franchise holder, PLDT was entitled was entitled to a to a tax exemption tax exemption privilege under RA7082privilege under RA7082
(grant of franchise), which provided that the grantee should pay a franchise tax (grant of franchise), which provided that the grantee should pay a franchise tax equivalent to 3% of all gross
equivalent to 3% of all gross receipts, and that the said percentage shall be ireceipts, and that the said percentage shall be i n LIEU ofn LIEU of all taxes on the franchise/ its earnings.
all taxes on the franchise/ its earnings.
PLDT wrote to the BIR requesting confirmation of its exemption privilege, and BIRPLDT wrote to the BIR requesting confirmation of its exemption privilege, and BIR
confirmed this, saying that PLDT was liable for the 3% franchise tax and exempt from confirmed this, saying that PLDT was liable for the 3% franchise tax and exempt from VAT on its importation of equipment.
VAT on its importation of equipment.
PLDT filed a claim for tax refund of the VAT, compensating taxes, advance sales taxesPLDT filed a claim for tax refund of the VAT, compensating taxes, advance sales taxes
and other taxes it had
and other taxes it had been paying erroneously from October, 1992- December, 1994.been paying erroneously from October, 1992- December, 1994.
CTA granted the petition (although ruling that a portion from Oct-Dec16, 1992 hadCTA granted the petition (although ruling that a portion from Oct-Dec16, 1992 had
already prescribed and was beyond the 2-yr period allowed by law for refunds), already prescribed and was beyond the 2-yr period allowed by law for refunds), ordering CIR to REFUND or to ISSUE in favor of petitioner a Tax Credit Certificate in ordering CIR to REFUND or to ISSUE in favor of petitioner a Tax Credit Certificate in the reduced amount of about P223k+ representing erroneously paid VAT and other the reduced amount of about P223k+ representing erroneously paid VAT and other taxes (compensating, advance sales, importation) from 1992 to
taxes (compensating, advance sales, importation) from 1992 to 1994.1994.
Judge Saga dissented, saying who clarified that the “in lieu of” provision of Sec12Judge Saga dissented, saying who clarified that the “in lieu of” provision of Sec12
refers only to DIRECT taxes and not to indirect taxes such as VAT, compensating tax, refers only to DIRECT taxes and not to indirect taxes such as VAT, compensating tax, and advance sales tax.
and advance sales tax.
BIR moved for reconsideration and the same BIR moved for reconsideration and the same was denied. CA also was denied. CA also dismissed its appeal.dismissed its appeal.
I: W/n PLDT is exempt from payment of VAT other taxes by virtue of the provision inI: W/n PLDT is exempt from payment of VAT other taxes by virtue of the provision in
its franchise that the 3% franchise tax on its gross receipts shall be in lieu of all taxes its franchise that the 3% franchise tax on its gross receipts shall be in lieu of all taxes on its franchise / earnings
on its franchise / earnings
R: NO, PLDT is not exempt from VAT and R: NO, PLDT is not exempt from VAT and other taxesother taxes
Court has always ruled that TAXATION is the RULE, and exemption is the exception.Court has always ruled that TAXATION is the RULE, and exemption is the exception.
Thus, statutes granting tax exemptions must be construed strictly against the Thus, statutes granting tax exemptions must be construed strictly against the taxpayertaxpayer and liberally in favor of the taxing authority.
and liberally in favor of the taxing authority.
The burden of justfying exemption is imposed on the one who claims a refund.The burden of justfying exemption is imposed on the one who claims a refund.
The clause “in lieu of all taxes” in Sec 12 of RA 7082 is immediately followed by theThe clause “in lieu of all taxes” in Sec 12 of RA 7082 is immediately followed by the
limiting or qualifying clau
limiting or qualifying clause “on this franchise or earnings thereof”, suggesting se “on this franchise or earnings thereof”, suggesting thatthat the exemption is limited to taxes imposed DIRECTLY on PLDT since taxes
the exemption is limited to taxes imposed DIRECTLY on PLDT since taxes pertainingpertaining to PLDT’s franchise or earnings are its
to PLDT’s franchise or earnings are its direct liability.direct liability.
Thus, indirect taxes, not being taxes on PLDT’s franchise or earnings, are OUTSIDEThus, indirect taxes, not being taxes on PLDT’s franchise or earnings, are OUTSIDE
the purview of the “in lieu” provision. the purview of the “in lieu” provision.
The 10% VAT on importation of goods partakes of an excise tax lThe 10% VAT on importation of goods partakes of an excise tax l evied on the privilegeevied on the privilege
of importing articles. It is NOT a tax on the franchise of a business enterprise, but is of importing articles. It is NOT a tax on the franchise of a business enterprise, but is imposed on all taxpayers who import goods whether or not the goods will eventually imposed on all taxpayers who import goods whether or not the goods will eventually be sold, bartered, exchanged or utilized for personal consumption.
be sold, bartered, exchanged or utilized for personal consumption.
The VAT on importation replaces the advance sales tax payable by regular importersThe VAT on importation replaces the advance sales tax payable by regular importers
who import articles for sale or as raw materials in the manufacture of finished articles who import articles for sale or as raw materials in the manufacture of finished articles for sale.
for sale.
Direct taxes - impositions for which a taxpayer is directly liable on the transaction orDirect taxes - impositions for which a taxpayer is directly liable on the transaction or
business he is engaged in business he is engaged in
Indirect taxes - those where the liability for the Indirect taxes - those where the liability for the payment of the tax falls opayment of the tax falls o n one personn one person
but the burden can be shifted or passed on to
but the burden can be shifted or passed on to another person, such as when the tax isanother person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it imposed upon goods before reaching the consumer who ultimately pays for it
o
o In this case, advance sales tax has the attributes of an indirect tax becauseIn this case, advance sales tax has the attributes of an indirect tax because the tax-paying importer of goods for sale or of raw materials to be the tax-paying importer of goods for sale or of raw materials to be processed into merchandise can shift the tax / lay the “economic burden of processed into merchandise can shift the tax / lay the “economic burden of
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the tax” on the purchaser, by subsequently adding the tax to the selling price of the imported article or finished product
o Compensating tax also partakes of the nature of an excise tax payable by all persons who import articles, whether in the course of business or not. (Purpose: to place, for tax purposes, persons purchasing from merchants in the Philippines on a more or less equal basis with those who buy directly from foreign countries) Planters Products Inc v Fertiphil
Marcos issued LOI 1465, imposing a capital recovery component of Php10.00 per bag of
fertilizer. The levy was to continue until adequate capital was raised to make PPI financially viable
Fertiphil remitted to the Fertilizer and Pesticide Authority (FPA), which then remitted said
amount to Far East Bank and Trust Company, the depository bank of PPI. P6k+ was remitted from 1985 to 1986.
After EDSA, Fertiphil demanded from PPI a refund of the amount it remitted; PPI refused. Fertiphil filed a complaint for collection and damages, questioning the constitutionality of
LOI 1465.
They claimed it was unjust, unreasonable, oppressive, invalid and an unlawful imposition
that amounted to a denial of due process
FPA on the other hand said that the issuance of LOI 1465 was a valid exercise of police
power of the state in insuring the fertilizer industry, and that Fertiphil did not sustain any damage because the burden imposed by the levy fell on the ultimate consumer, not the seller
I: 1. W/m the issuance of LOI 1465 was an exercise of the police power of the state - NO 2. W/n the levy was for a public purpose - NO
R:
1. The imposition of the levy was a exercise of the taxation power of the state.
While it is true that the power to tax can be used as an implement of police power, the
primary purpose of the levy was revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax.
In this case, the imposition of Php10 per bag is too excessive to serve a mere regulatory
purpose.
Even if it was an exercise of the police power of the state, the LOI would still be invalid as it
did not comply with the test of “lawful subjects” and “lawful means” -- specifically, that the interest of the public, generally, requires its exercise, and that the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals.
2. LOI 1465 is not for a public purpose.
The purpose for the issuance of LOI 1465 was to support a private company:
o First, it is expressly provided that the levy be imposed to benefit a private company – PPI.
o Second, the levy was conditional and dependent on PPI becoming financially viable.
o Third, the levies were directly remitted and deposited in FEBTC, the bank of PPI, which used said remittances to pay of PPI’s debts.
LIMITATIONS ON THE POWER OF TAXATION SSS v City of Bacolod
The SSS had an office building in Bacolod City. It failed to pay realty taxes for three
consecutive years. The City levied upon the property and forfeited it in its favor.
SSS protested the forfeiture on the ground that the SSS, being a government owned
and controlled corporation, is exempt from payment of real estate taxes.
The CFI ruled that SSS is NOT covered by the exemption, saying that the exemption
only applies to properties owned by government agencies and instrumentalities performing governmental/ sovereign functions.
It excluded from the coverage of the exemption those performing proprietary
functions, such as the SSS. It relied on the case of NACOCO v. Bacani in which the Court held that government agencies performing proprietary functions are NOT exempt from paying legal fees.
I: W/n a GOCC performingproprietary functions like the SSS, is exempt from paying
realty taxes.
R: Yes. The SSS is exempt from paying realty taxes.
The Charter of the City of Bacolod provides that lands and buildings owned by the
government are exempt from realty taxes.
The application of the NACOCO v. Bacani case is incorrect, since that case was
referring to legal fees and NOT to realty taxes.
For purposes of exemptions in the payment of realty taxes, the distinction between
government agencies performing constituent and ministrant function is not important.
What is decisive is merely that the properties possessed by the SSS are in fact owned
by the government of the Philippines. As such, they are exempt from realty taxes.
To make such a distinction would have the effect of taking money from one pocket
and putting it in another pocket. It would not serve the main purpose of taxation and would even tend to defeat it, because of the paperwork, time, and expenses that it would entail.
When public property is involved, exemption is the rule and taxation, the
exception
Tiu v. CA: Equal Protection of the Laws
Congress passed RA 7227 which created the Subic Special Economic Zone, granting
tax and duty incentives (tax and duty-free importations of raw materials, capital and equipment) to businesses and residents within th e area encompassed by the zone.
The law provides that no local and national taxes shall be imposed within the zone. In
lieu of taxes, 3% of the gross income of enterprises operating within the zone shall be remitted to the National Government, 1% to the local government units, and 1% to a development fund to be utilized for the development of municipalities outside Olangapo and Subic.
Pres. Ramos later issued an EO specifying a “secured area” area within the zone in
which the privileges were operative.
o EO97
tax and duty-free importations will only apply to raw materials, capital goods and equipment brought in by business enterprises into the SSEZ.
Except for import tax and duties, all business are required to pay the specified taxes in Section 12(c) o f RA7227.
o EO97-A the tax incentives are only applicable to business enterprises and individuals residing within the secured area.
Petitioners outside the “secured area” challenged the constitutionality of this EO for
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They assert that the SSEZ encompasses (1) the City of Olongapo, (2) the Municipality ofSubic in Zambales, and (3) the area formerly occupied by the Subic Naval Base. However, EO 97-A, according to them, narrowed down the area within which the special privileges granted to the entire zone would apply to the present “fenced-in former Subic Naval Base” only. It has hereby excluded the residents of the first two components of the zone from enjoying the benefits granted by the law.
I: W/N the EO confining the application of the privileges under RA 7227 within the secured
area and excluding the residents of the zone outside the secured area violates the equal protection clause. NO.
R: There are real and substantive distinctions between the circumstances obtaining inside
and outside the Subic Naval base, thereby justifying avalid and reasonable classification.
For a valid classification, the following requisites must be present:
1. it must rest on substantial differences; 2. must be germane to the purpose of the law; 3. must not be limited to existing conditions only; a nd 4. must apply equally to all members of the same class.
In this case, the purpose of the law is to accelerate the conversion of military reservations
into productive areas (economic or industrial areas) . Thus, the lands covered under the Military Bases Agreement are its object.
To achieve purpose, Congress deemed it necessary to extend economic incentives to attract
and encourage investors. It was thus reasonable for the President to have delimited the application of some incentives to the confines of the former Subic military base, since it is this specific area which the government intends to transform and develop into a self-sustaining industrial and economic zone, particularly for the use of big foreign and local investors to use as operational bases for their businesses and industries. These big investors possess the capital necessary to spur economic growth and generate employment opportunities.
There are substantial differences between the big investors who are being lured to establish
and operate their industries in the so-called “secured area” and the present business operators outside the area.
Big investors lured into secured areas Present biz operators outside the are -billion-peso investments & thousand of new
jobs
-national economic impact
--no such magnitude -only local economic impact
-biz activities outside secured areas are not likely to have any impact in achieving purpose of law which is to turn former military base to productive use for the benefit of the Phil economy
There is, then, hardly any reasonable basis to extend to them the benefits and incentives
accorded in RA 7227
John Hay Peoples Alternative Coalition v. Lim
RA No. 7227 created the Bases Conversion and Development Authority (BCDA), which also
created the Subic Special Economic Zone (Subic SEZ). Aside from granting incentives to Subic SEZ, RA 7227 also granted the President is an express authority to create other SEZs in the areas covered respectively by the Clark military reservation, the Wallace Air Station in San Fernando, La Union, and Camp John Hay through executive proclamations.
BCDA entered into a MOA and Escrow Agreement with TUNTEX and ASIAWORLD,
private corporations under the laws of the British Virgin Islands, preparatory to the formation of a joint venture for the development of Poro Point La Union and Camp John Hay as premier tourist destinations and recreation centers.
BCDA, TUNTEX and ASIAWORLD executed a JVA to put up the Baguio International
Development and Management Corporation which would lease areas within Camp John Hay and Poro Point for the attainment of the tourist and recreation spots in La Union and Camp John Hay.
President Ramos issued Proclamation No. 420 which established a SEZ on a portion of
Camp John Hay. 2nd sentence of Section 3 of said Proclamation provided for national
and local tax exemption within and graned other economic incentives to the John Hay Special Economic Zone.
“Section 3: Investment Climate in John Hay Special Economic Zone.- Pursuant to
Section 5(m) and Section 15 of RA No. 7227, the John Hay Poro Point Development Corporation shall implement all necessary policies, rules, and regulations governing the zone, including investment incentives, in consultation with pertinent government departments. Among others, the zone shall have all the applicable incentives of the Special Economic Zone under Section 12 of Republic Act No. 7227 and those applicable incentives granted in the Export Processing Zones, the Omnibus Investment Code of 1987, the Foreign Investment Act of 1991, and new investment laws that may hereinafter be enacted.”
Petitioners filed this case to enjoin the respondents from implementing Proc. 420. is
unconstitutional on grounds of:
o For being illegal and invalid in so far as it grants tax exemptions thus amounting to unconstitutional exercise of by the President of power granted only to legislature
o Limits powers and interferes with the autonomy of the city o Violates rule that all taxes should be uniform and equitable
I: W/N Proclamation No. 420 is constitutional by providing for national and local tax
exemption within and granting other economic incentives to the John Hay Special Economic Zone. NO, 2nd sentence, Section 3 of said proclamation is unconstitutional. W/N Proclamation No. 420 is constitutional for limiting or interfering with the local autonomy of Baguio City. YES
R: The 2nd Sentence of SECTION 3 of Proclamation No. 420 is hereby
declared NULL and VOID and is accordingly declared of no legal force and effect. Public respondents are hereby enjoined from implementing the aforesaid void provision. Proclamation No. 420, without the invalidated portion, remains valid and effective.
Under Section 12 of RA No. 7227 it is clear that ONLY THE SUBIC SEZ which
was granted by Congress with tax exemption, investment incentives and the like. THERE IS NO EXPRESS EXTENSION OF THE SAID PROVISION IN PRESIDENTIAL PROCLAMATION No. 420. (Section 12 kept mentioning Subic Special Economic Zone, specifically…) Also found in the deliberations of the Senate, a confirmation of the exclusivity of the tax and investment privileges to Subic SEZ. “Senator Angara: The Gentleman is absolutely correct. Mr. President. SO WE MUST CONFINE THESE POLICIES ONLY TO SUBIC.”
It is the legislature, unless limited by a provision of the state constitution that has full
power to exempt any person, corporation or class of property from taxation, its power to exempt being as broad as its power to tax. Other than the Congress, the
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Constitution may itself provide for specific tax exemptions, or local governments may pass ordinances on exemption only from local taxes. The challenged grant of tax exemption must have concurrence of a majority of all members of Congress. In same vein, the other kinds of privileges extended to the John Hay SEZ are by tradition and usage for Congress to legislate upon.
Tax exemption cannot be implied as it must be categorically and un mistakably expressed –
if it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and incentives given to Subic SEZ, it would have so expressly provided in RA 7227.
BCDA, under R.A 7227, is expressly entrusted with broad rights of ownership and
administration over Camp John Hay, as the governing agency of the John Hay SEZ. COCONUT OIL REFINERS ASSOCIATION INC. V. BCDA
RA 7227 was enacted providing for the sound and balanced conversion of the Clark and
Subic military reservations and their extensions into alternative productive uses in the form of special economic zones.
President Ramos issued EO 80 which declared that Clark (CSEZ) shall have all the applicable
incentives granted to the Subic Special Economic and Free Port Zone (SSEZ) under RA 7227.
Petitioners claim that the said E.O as well as RA 7227 are replete with constitutional
infirmities and must be declared invalid and void.
Petitioner assail:
o EO 80 and BCDA Board Resolution: allowing the tax and duty-free sale at retail of consumer goods imported via clark for consumption outside CSEZ.
o EO 97, EO 97-A: granting $100 monthly and $200 yearly tax-free shopping privileges to SSEZ residents living outside secured area of SSEZ and to Filipinos aged 15 and over residing outside SSEZ
Petitioners argue that the Executive Department, by allowing thru questioned issuances the
setting up of tax and duty free shops and the removal of consumer ggoods and items from the zones without payment of correspondning duties and taxes arbitrarily provided additional exemptions to the limitations imposed by RA 7227.
I: (other issues: equal protection clause, preferential use of Filipino labor, prohibition
against unfair competition)
W/N assailed issuances amounts to violation of the rule on separation of powers being executive legislation.
R:
Petitioners claim that the wording of RA 7227 clearly limits the grant of tax incentives to the
importation of raw materials and capital equipment only, hence they claim that assailed issuances constitute executive legislation for invalidly granting tax incentives in importation of consumer goods. The court however said that to limit the tax-free importation privilege of enterprises to those located inside the special zone only to raw materials clearly runs counter to the intention of the legislature to create a free port where “free flow of goods or capital within, into and out of the zones” is insured.
The records of the Senate containing the discussion of the concept of SEZ in Sec 12a RA
7227 show the legislative intent that consumer goods entering the SSEZ which satisfy the needs of the zone and are consumed there are not subject to duties and taxes in accordance with Philippine laws. According to Senator Guingona: The SEZ could embrace the needs of tourism, servicing, financing and o ther investment aspects.
However with regard to the executive order issued by President Ramos concerning Clark as
being a SEZ (and thus enjoy tax exemptions and incentives) the court declared that such was an invalid exercise of executive legislation. As was decided in the case of Camp John
Jay, wherein the court held that John Hay was not granted any tax exemption as it was not anywhere stated in the law. As in this case, RA 7227 expressly provides for the grant of incentives to the SSEZ it fails to make any similar grant however to the other economic zones including Clark. Tax and duty free incentives being in t he nature of tax exemptions the basis thereof should be categorically and unmistakably expressed from the language of the statute.
ABAKADA v Ermita
R.A. 9337 / the EVAT Law was enacted in May 2005. This law:
1) authorized the President, upon recommendation of the Secretary of Finance, to
raise the VAT rate to 12% effective January 1, 2006 , if two conditions are satisfied:
o VAT collection as a percentage of GDP of the previous year exceeds 2 4 /5 %
o National government deficit as a percentage of GDP of the previous year exceeds 1 ½%
o maintaining the rate of 10% until the conditions above took place
It also inserted a provision imposing a 70% limit on the amount of input tax to be
credited against the output tax.
Petitions were thus filed assailing the constitutionality of the law:
o ABAKADA argued that Congress abandoned its exclusive authority to fix taxes by giving the President the authority upon the Finance Sec’s recommendation to raise VAT to 12%
o Sen. Pimentel and Rep. Escudero argued that the law was an undue delegation of legislative powers and a violation of due process
o Pilipinas Shell dealers argued that the VAT reform was arbitrary, oppressive and confiscatory.
On the other hand, respondents countered that the law was complete, that it left no
discretion to the President, and that it merely charged the President with carrying out the rate increase once any of the 2 conditions arise.
I: W/n RA 9337 is constitutional R: YES, it is valid and constitutional.
1)Law was NOT an undue delegation of legislative power
Congress didn’t delegate the power to tax but the mere implementation of the law –
the ascertainment of facts contingent on conditions already provided.
In this case, the legislature made the operation of the 12% rate contingent upon 2
specified conditions. Thus, no discretion would be exercised by the President, and he would only exercise the ministerial duty of imposing the 12% rate.
Moreover, the President can’t alter or modify / nullify / set aside the findings of fact of
the Secretary of Finance, who will ascertain the said conditions because the SoF will not act as alter ego of President but AGENT of the legislative department.
2)The 12% increase does NOT impose an unfair and unnecessary additional
tax burden.
Because of the country’s gloomy states of economic affairs, it is necessary to raise
revenue to meet government expenditures.
3)The 70% limitation on input tax does NOT v iolate due process and EPC Input tax is NOT a property right but a STATUTORY privilege, w/c may be regulated.
Besides, the unutilized input tax may be credited in the subsequent periods or even refunded, so it is NOT completely lost.
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Neither does it violate EPC w/ regard to the 5% creditable withholding tax imposed onpayments made by the government for TAXABLE TRANSACTIONS. This is because it is applied equally to members of the same class. Taxable transactions with the government are subject to a uniform 5% rate, in contrast to its different rates prior to amendment. It is clear that Congress intended to treat differently taxable transactions with the government.
4)The law is consistent w/ Uniformity and Equitability of Taxation
Uniformity of taxation means that all taxable articles/property of the SAME CLASS be taxed
at the SAME RATE.
In this case, the tax law isuniform as it provides for a standard rate of 10% / 12% on all
goods and services. It does NOT even make any distinction as to the type of industry / trade that will bear the 70% limitation on the creditable input tax, 5year amortization of input tax paid on purchase of capital goods or the 5% final withholding tax by the government.
The law is also equitable because it is equipped with a threshold margin—the 10/12%
VATE rate will not apply to the sale of goods w/ gross annual sales at P1.5 or below. Small corner sari-sari stores are consequently exempt from its application.
5) Even if VAT is regressive, it is still constitutional.
The constitution does NOT prohibit the imposition of indirect taxes / a regressive system of
taxation. It simply provides that Congress shall EVOLVE a progressive system of taxation, meaning direct taxes must be preferred to indirect taxes.
In the case of the VAT, the law minimizes the regressive effects of this imposition by
providing for zero rating of certain transactions. Sison v. Ancheta
BP 135 amended Section 21 of the N ational Internal Revenue Code.
The amendment provided a different schedule of tax rates for compensation income and
net income.
It provided that:
o The tax base for those earning compensation income at fixed rates would be GROSS INCOME,
o The tax base for the income of businesses and professionals would be NET INCOME
Sison, as taxpayer, challenged the validity of the amendment on the ground that he would
be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession as compared to those which are imposed upon fixed income or salaried individual taxpayers.
He claims that it amounts to class legislation, in violation of EPC, due process and the rule
on uniformity in taxation.
I: W/n it is violative of EPC, dp and the rule on uniformity in taxation R: NO!
1) Due process clause may only be invoked where a taxing statute is so arbitrary that it
finds no support in the Constitution. (ie. When it amounts to confiscation of property / not used for a public purpose)
2) As for EPC, t he Constitution does not require things which are different be treated the
same. It is inherent in the power to tax that a state be free to select the subjects of taxation and 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.
*Thus, there was no violation of due process or EPC. 3) There was also no violation of unifor mity.
Uniformity does NOT call for perfect equality. It merely means that all taxable articles
/ property of the same class shall be taxed at the same rate.
The taxing power has the authority to make reasonable and natural classifications for
purposes of taxation.
In this case, there is a discernible basis of classification, which is the
SUSCEPTIBILITY of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of th em .
Taxpayers who are recipients of compensation income are set apart as a class. As
there is practically no overhead expense, these taxpayers are not entitled to make deductions for income tax purposes because they are in the same situation more or less.
On the other hand, in the case of professionals in the practice of their calling and
businessmen, there is no uniformity in the costs or expenses necessary to produce their income.
It would not be just to disregard the disparities by giving all of them zero deduction
and indiscriminately impose on all alike the same tax rates on the basis of gross income.
There is ample justification for the law to adopt gross system of income taxation to
compensation income, while continuing the system of net income taxation as regards the professional and business income.
British American Tobacco v Camacho
R.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 NIRC (amended by
RA 8240), arguing that the said provisions are violative of the equal protection and uniformity clause of the Constitution.
Section 145 provides for a four-tier tax rate based on net retail price 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 tax classification.
On the other hand, old or existing brands (registered before January 1, 1997) shall be
taxed at their net retail price as of October 1, 1996.
o Net retail price = price @ which cigarettes are sold on retail in 20 supermarkets in MM
o Suggested net retail price = net retail price @ which brands of cigarettes are intended by the manufacturer to be sold
To implement RA 8240, BIR issued a Revenue Regulation (RR No. 1-97) classifying
existing brands of cigarettes as those existing or active (old) brands prior to January 1, 1997, while new brands of cigarettes are those registered after January 1, 1997. Another Revenue Regulation was issued amending the first (RR No. 9-2003) by
providing BIR with the power to periodically review every two years / earlier the current net retail price of new brands to ESTABLISH / UPDATE their tax classification.
In June 2001, British American Tobacco introduced the Lucky Strike Filter, Lucky Strike
Lights and Lucky Strike Menthol Lights. Lucky Strike was taxed based on its suggested gross retail price from the time of its introduction in the market in 2001 until the BIR market survey in 2003. The brands were sold at P22.54, P22.61 and P21.23 so the
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applicable tax rate is P13.44 per pack. BAT now argues that the "classification freeze provision" violates the equal protection and uniformity of taxation clauses because the Lucky Strike brands are taxed based on their 1996 net retail prices while new brands are taxed based on their present day net retail prices. Thus, Lucky Strike suffers from higher taxes while its competitors pay a lower amount.
BAT further argued that the tobacco excise law w as discriminatory because under it, brands
that entered the market after 1996 were imposed taxes based on their current retail prices while older brands paid taxes based on their 1996 retail prices. Meanwhile, Philip Morris, Fortune Tobacco, Mighty Corp. and JT International (respodnents-in-intervention) claim that no inequality exists between cigarettes and that nullification of said annex would bring about tremendous loss.
I: 1. W/n Sec. 145 of the NIRC violates EPC and uniformity of taxation clauses
W/N the Revenue Regulations are invalid in so far as they empower BIR to reclassify and
update the classification of new brands every two years or earlier
R: Sec 145 NIRC is constitutional but the RRs are invalid for gratning the BIR the power to
reclassify and update the classification.
1) NIRC is constitutional
The classification freeze provision does not violate the equal protection and uniformity of
taxation. It meets the standards for valid classification: rests on a substantial distinction, is germane to the purpose of the law, applies to present and future conditions and applies equally to all those belonging to the same class.
(NOTE: The second condition, however, was not fully satisfied as it failed to promote fair
competition among the players in the industry. However, this does not make the assailed law unconstitutional)
The classification freeze provision was done in good faith and is germane to the purpose of
the law. It was i nserted for reasons of practicality and expediency.
Since a new brand was not yet in existence at the time of the passage of RA 8240, then
Congress needed a uniform mechanism to fix the tax bracket of a new brand. The current net retail price, similar to what was used to classify the brands as of October 1, 1996, was thus the logical and practical choice.
With the amendments introduced by RA 9334, the freezing of the tax classifications now
expressly applies not just to old brands (cigarettes which are taxed on the basis of average net retail price as of October 1, 1996) but to newer brands introduced after the effectivity of RA 8240 on January 1, 1997 and any new brand that will be i ntroduced in the future.
Thus, the classification freeze provision could hardly be considered biased towared older
brands over newer brands.
Congress was even willing to delegate the power to periodically adjust the excise tax rate
and tax brackets as well as to periodically resurvey and reclassify the cigarette brands based on the increase in the consumer price index to the DOF and the BIR.
Thus, the provision was the result of Congress’s earnest efforts to improve the efficiency
and effectivity of the tax administration over sin products while trying to balance the same with other State interests.
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 requirement because the assailed law applies to ALL CIGARETTE BRANDS n the Philippines.
On Inequitablity and Regressivity: BAT claims that the use 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 not mean that the law may be declared unconstitutional because the Constitution 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 authorize the BIR to update the
tax classification of new brands every 2 years or 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 to allow their brands to be classified as a lower tax bracket.
ABAKADA v Purisima
RA 9335 (Attrition Act of 2005) was enacted to optimize the revenue-generation capability and collection of the BIR and BOC by providing a system of rewards and sanctions. This is done through the creation of a Rewards and Incentives Fund (Fund) and a Revenue Performance Evaluation Board (Board).
It covers all officials and employees of the BIR and the BOC with at least six months of service, regardless of employment status.
The Fund is sourced from the collection of the BIR and the BOC in excess of their revenue targets for the year. Any incentive or reward is taken from the fund and allocated to the BIR and the BOC in proportion to their cont ributions.
Petitioners including ABAKADA, invoking their right as taxpayers, challenged the constitutionality of RA 9335:
They claimed that limiting the scope of the system of rewards and incentives only to officials and employees of the BIR and the BOC violates the constitutional guarantee of equal protection . There is no reason why such system should NOT apply to OTHER officials and employees of all other government agencies.
They assert that the law unduly delegates the power to fix revenue targets to the President as it lacks a sufficient standard on that matt er. I: 1) W/n limiting the scope of the system of rewards and incentives only to
officials and employees of the BIR and the BOC violates the constitutional guarantee of equal protection
2)Whether or not the law unduly delegates the power to fix revenue targets to the President.
R: NO, it does not violate EPC and does NOT unduly delegate power to the President 1) The equal protection clause recognizes a valid and reasonable classification.
RA 9335 has an expressed public policy, w/c is the optimization of the revenue-generation capability and collection of the BIR and the BOC.
Since the subject of the law is the revenue- generation capability and collection of the BIR and the BOC, the incentives and/or sanctions provided in the law should logically pertain to the said agencies.
Since the BIR and BOC perform the special function of taxation, such substantial distinction is germane and intimately related to the purpose of the law. Hence, the classification and treatment accorded to the BIR and the BOC under RA 9335 fully satisfy the demands of equal protection.
2. Two tests determine the validity of delegation of legislative power: 1) the completeness test
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A law is complete when it sets forth therein the policy to be executed and is sufficient when it provides adequate guidelines or limitations of the delegate’s authority
RA 9335 adequately states the policy and standards to guide the President in fixing revenue targets and the implementing agencies in carrying out t he provisions of the law.
Revenue targets are based on the original estimated revenue collection expected respectively of the BIR and the BOC for a given fiscal year as approved by the Development Budget and Coordinating Committee (DBCC) and submitted by the President to Congress. Thus, the determination of revenue targets does not rest solely on the President as it also undergoes the scrutiny of the D evelopment Board
Also, Section 7 specifies the limits of the Bo ard’s authority and i dentifies the conditions under which officials and employees whose revenue collection falls short of the target by at least 7.5% may be removed from the service.
Meralco v. Province of Laguna: Delegation to LGUs, Impairment Clause
Meralco was granted by several municipalities of the Province of Laguna a franchise to
operate.
RA 7160 or the Local Gov Code of 1991 was then issued w/c allowed local government units
to create their own sources of revenue and to levy taxes, fees and charges consistent w/ the basic policy of autonomy.
Purusant to this, the province of Laguna enacted an ordinance imposing on businesses
enjoying a franchise a franchise tax of 50% of 1% of gross annual receipts.
Meralco paid under protest and sent a formal claim for refund to the Provincial Treasurer
claiming that the franchise tax it had paid to the National Government (pursuant to P.D. 551) already included the franchise tax imposed by the Provincial Tax Ordinance.
Meralco also contended that Laguna’s imposition of franchise tax contravened the provisions
of P.D. 551 Section 1 which provided that the franchise tax payable by all grantees of electric franchises shall be 2% of their gross receipts received from the sale of electric current and from transactions incident to the generation, distribution and sale of electric current
I: W/n the province of Laguna had the power to levy the franchise tax R: Yes.
Under the present Constitution, where there is neither a grant nor a prohibition by statute,
the tax power must be deemed to e xist although Congress may provide statutory limitations and guidelines.
The reason for this is to safeguard the viability and self-sufficiency of local government units
by directly granting them general and broad tax powers.
The LGC of 1991 explicitly authorizes provincial governments, notwithstanding any
exemption granted by law, to impose a tax on businesses enjoying a franchise.
While the Court has referred to tax exemptions contained in special franchises as being in
the nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are far from being STRICTLY CONTRACTUAL.
However, contractual tax exemptions should not be confused w/ tax exemptions under
franchises.
Contractual tax exemptions are those agreed to by the taxing authority in contracts, such as
those contained in government bonds, where the government acts in its private capacity and waives its governmental immunity. Tax exemptions of this kind may NOT be revoked without impairing the obligations of contracts.
On the other hand, a franchise partakes the nature of a grant which is beyond the purview
of the non-impairment clause of the Constitution.
Art 12 of the Consti provides that no franchise for the operation of a public utility shall
be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires.
Cassanovas v. Hord: Impairment Clause
In 1897, the Spanish Gov granted Cassanovas certain mines in Ambos Camarines. The Internal Revenue Act imposes on all mining concessions granted prior to 1899 a
property tax of P100 + an ad valorem tax of 3% of the actual market value of the output of the mines.
The CIR thus considered Cassanovas to fall under such.
Cassanovas assailed the validity of this provision on the ground that it impairs the
obligations of contracts. Under the decree of the Spanish Government, the mining claim was subject only to P20 property tax + ad valorem tax of 3%. The decree provided that no other taxes except those mentioned shall be imposed upon mining industries.
I: W/n there was a violation of the impairment clause R: Yes. Therefore, the provision is void.
1) There was a contract between the Spanish Government and Cassanovas, the
obligation of which contract was impaired by the Internal Revenue Law.
A State may by contract based on consideration exempt the property of an individual
or corporation from taxation either for a specified period or permanently.
And it is equally well settled that the exemption is presumed to be on sufficient
consideration, and binds the State if the charter containing it is accepted. Such contract can be enforced against the State at the instance of the corporation.
2) Also, the provision conflicts with Section 60 of the Act of Congress of 1 July 1902,
which indicate that concessions can be cancelled only by reason of ILLEGALITY in the procedure by which they were obtained, or for FAILURE to comply with the conditions prescribed. The grounds were not shown or claimed in the case.
The important distinction in this case is that there was consideration between both
parties for entering into the contract. From the provisions of the deed, it was not a unilateral grant of a privilege by the Spanish Government.
Cassanovas undertook to perform some things with respect to the mining claim in
consideration of the privilege. Hence, there was a binding contract with reciprocal obligations, which the State cannot abrogate.
CIR v CA and YMCA
YMCA is a non-stock, non-profit institution, which conducts various programs and
activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives.
In 1980, YMCA, among others, an amount of income (about P700k+) from leasing out
a portion of its premises to sm all shop owners, like restaurants and canteen operators, and from parking fees collected from non-members.
The CIR thus issued an assessment to YMCA totaling about P415k+ including
surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages.
YMCA protested the assessment and filed a letter. In reply, the CIR denied the claims
of YMCA.
YMCA thus filed a petition to the CTA to take out the taxes and CTA ruled in favor of
