Download - Tax Midterms

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Taxation I Midterms reviewer Prof. C. C. Laforteza 1st Semester A.Y. 2011-2012

Janz Hanna Ria N. Serrano

Fundamentals of Taxation A. Meaning and Nature of Tax(es)

1. “Taxation” and “tax” defined Taxation is the act of laying a tax, I,.e, the process by which the sovereign, through its law-making body, raises income to defray the necessary expenses of government. It is merely a way of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits, and therefore, must bear its burden. || As a power, taxation refers to the inherent power of the state to demand enforced contributions for public purposes. Taxes are assessed for the purpose of generating revenue to be used for public needs || It is that we pay for civilization. They are the enforced proportional contributions from persons and property levied by the legislature by virtue of its sovereignty for the suppor of gov’t and for all public needs. CIR v. Algue. [promotional fees as deductions = allowed] Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. || It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.

2. Essential characteristics of taxes 1. It is a forced charge, imposition or contribution it is not contractual, but positive acts of government. 2. It is proportionate in character 3. It is assessed in accordance with some reasonable rule of apportionment conformably with the constitutional mandate for congress to

evolve a progressive tax system taxes must be based on taxpayer’s ability to pay. 4. It is a pecuniary burden payable in money. 5. It is imposed by the State on persons, property, or excises within it jurisdiction, in accordance with the principle of territoriality. 6. It is levied by the legislative body of the State 7. It is levied for a public purpose 8. It is personal to the taxpayer

3. Tax as distinguished from other forms of imposition a. Tax v. license and regulatory fee

Tax License fee Purpose Revenue Regulation Basis Power of taxation Police power Amount No limit Limited to the cost of the license and the expenses of police

surveillance and regulation Time of payment After start of business Before start of business Effect of non-payment Failure to pay taxes does NOT render

business illegal Makes the business illegal

Surrender Cannot be surrendered except for lawful consideration

May be with or without consideration

Osmeña v. Orbos. Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 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 review of the COA. The Court is satisfied that these measures comply with the constitutional description of a "special fund." Indeed, the practice is not without precedent. PAL v. Edu. [vehicle registration fees] It is quite apparent that vehicle registration fees were originally simple exceptional, intended only for rigidly purposes in the exercise of the State's police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absolute necessities without which modem life as we know it would stand still, Congress found the registration of vehicles a very convenient way of raising much needed revenues. Without changing the earlier deputy of registration payments as "fees," their nature has become that of "taxes." In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional revenues. Progressive Development Corp. v. QC. [supervision fee for market stall owners] The term "tax" frequently applies to all kinds of exactions of monies which become public funds. It is often loosely used to include levies for revenue as well as levies for regulatory purposes such that license fees are frequently called taxes although license fee is a legal concept distinguishable from tax: the former is imposed in the exercise of police power primarily for purposes of regulation, while the latter is imposed under the taxing power primarily for purposes of raising revenues. Thus, if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax. || To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well. When an activity, occupation or profession is of such a character that inspection or supervision by public officials is reasonably necessary for the safeguarding and furtherance of public health, morals and safety, or the general welfare, the legislature may provide that such inspection or supervision or other form of regulation shall be carried out at the expense of the persons engaged in such occupation or performing such activity, and that no one shall engage in the occupation or carry out the activity until a fee or charge sufficient to cover the cost of the inspection or supervision has been paid. Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather than an exercise of the police power. Cia. General de Tabacos de Filipinas v. City of Manila. [license fees for liquor dealers] Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage in the business of selling liquor or alcoholic beverages, having been enacted by the Municipal Board of Manila pursuant to its charter power to fix license fees on, and regulate, the sale of intoxicating liquors, whether imported or locally manufactured. (Section 18 [p], Republic Act 409, as amended). The license fees imposed by it are essentially for purposes of regulation, and are justified, considering that the sale of intoxicating liquor is, potentially at least, harmful to public health and morals, and must be subject to supervision or regulation by the state and by cities and municipalities authorized to act in the premises.

b. Tax v. special assessment Tax Special assessment Definition Enforced proportional contributions from

persons and property Enforced proportional contribution from owners of land especially or peculiarly benefited by public improvements

Basis Necessity Benefits Subject Levied on persons, property, acts Only on land Scope General application Exceptional both as to the time and place

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Person liable Personal liability of TP Not a personal liability of the person assessed; his liability is limited only to the land involved

Sec. 240, LGC. Special Levy by Local Government Units. - A province, city or municipality may impose a special levy on the lands comprised within its territorial jurisdiction specially benefited by public works projects or improvements funded by the local government unit concerned: Provided, however, That the special levy shall not exceed sixty percent (60%) of the actual cost of such projects and improvements, including the costs of acquiring land and such other real property in connection therewith: Provided, further, That the special levy shall not apply to lands exempt from basic real property tax and the remainder of the land portions of which have been donated to the local government unit concerned for the construction of such projects or improvements. Republic v. Bacolod-Murcia. [petitioners: purchase of the Insular Sugar Refinery with money from the Philsugin Fund; fund is for our benefit] The appellants' refusal to continue paying the assessment under Republic Act 632 may not rightly be equated with a taxpayer's refusal to pay his ordinary taxes precisely because there is a substantial distinction between a "special assessment" and an ordinary tax. The purpose of the former is to finance the improvement of particular properties, with the benefits of the improvement accruing or inuring to the owners thereof who, after all, pay the assessment. The purpose of an ordinary tax, on the other hand, is to provide the Government with revenues needed for the financing of state affairs. Thus, while the refusal of a citizen to pay his ordinary taxes may not indeed be sanctioned because it would impair government functions, the same would not hold true in the case of a refusal to comply with a special assessment.

c. Tax v. Toll Tax Toll Definition Enforced proportional contributions from

persons and property A sum of money for the use of something, a consideration which is paid for the use of a property

Basis Sovereignty Proprietorship Amount No limit Depends upon the cost of construction or

maintenance of the public improvement used Authority Imposed only be government May be imposed by government or private

entities Sec. 155, LGC. Toll Fees or Charges. - The sanggunian concerned may prescribe the terms and conditions and fix the rates for the imposition of toll fees or charges for the use of any public road, pier or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned: Provided, That no such toll fees or charges shall be collected from officers and enlisted men of the Armed Forces of the Philippines and members of the Philippine National Police on mission, post office personnel delivering mail, physically-handicapped, and disabled citizens who are sixty-five (65) years or older. When public safety and welfare so requires, the sanggunian concerned may discontinue the collection of the tolls, and thereafter the said facility shall be free and open for public use.

d. Tax v. Tariff and Customs Duties Garcia v. Exec. Sec. [The President issued an EO which imposed, across the board, including crude oil and other oil products, additional duty ad valorem.] Customs duties which are assessed at the prescribed tariff rates are very much like taxes which are frequently imposed for both revenue-raising and for regulatory purposes. Thus it has been held that “customs duties” is the “name given to taxes on importation and the exportation of commodities, the tariff or tax assessed upon merchandise imported from, or exported to, a foreign county.” The levying of customs duties on imported goods may have in some measure the effect of protecting local industries actually exist and are producing comparable food. Simultaneously, however, the very same customs duties inevitably have the effect of producing governmental revenues. Customs duties like internal revenue taxes are rarely, if ever, designed to achieve one policy objective only. Most commonly, customs duties, which constitutes taxes in the sense of exactions the proceeds of which become public funds – have either or both the generation of revenue and the regulation of economic social activity as their moving purposes and frequently, it is very difficult to say which, in a particular instance, is the dominant objective. In the instant case, since the Philippines in fact produces 10-15% of the crude oil consumed here, the imposition of increased tariff rates and a special duty on imported crude oil and imported oil products may be seen to have some “protective” impact upon indigenous oil production. For the effective price of imported crude oil and oil products are increased. At the same time, it cannot be gainsaid that substantial revenues for the government are raised by the imposition of such tariff rates or special duty.

e. Obligation to pay Tax v. Obligation to Pay Debt Tax Debt Basis Law Contract or judgment Effect of non-payment Imprisonment No imprisonment for failure to pay a debt Mode of payment Generally, money Money, property, services Assignability Not assignable Assignable Interest Does not draw interest unless delinquent Draws interest if stipulated or delayed Authority Imposed by public authority Can be imposed by private individuals Prescription Governed by NIRC Governed by CC Taxes cannot be the subject to legal compensation or set-off for the simple reason that the government and the taxpayers are not

mutually creditors and debtors of each other Obligations in the nature of debts are due to the government in its corporate capacity, while taxes are due to the government in its

sovereign capacity CC, 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if

the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the

debtor. Caltex v. COA [COA disallowed reimbursements of OPSF to Caltex; oil companies were allowed to offset the amounts due to the Oil Price Stabilization Fund against their outstanding claims from the said Fund for the calendar years 1987 and 1988]. It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. || We may even further state that technically, in respect to the taxes for the OPSF, the oil companies merely act as agents for the Government in the latter’s collection since the taxes are, in reality, passed unto the end-users –– the consuming public. In that capacity, the petitioner, as one of such companies, has the primary obligation to account for and remit the taxes collected to the administrator of the OPSF. This duty stems from the fiduciary relationship between the two; petitioner certainly cannot be considered merely as a debtor. In respect, therefore, to its collection for the OPSF vis-a-vis its claims for reimbursement, no compensation is likewise legally feasible. Firstly, the Government and the petitioner cannot be said to be mutually debtors and creditors of each other. Secondly, there is no proof that petitioner’s claim is already due and liquidated. || That compensation had been the practice in the past can set no valid precedent. Such a practice has no legal basis. Lastly, R.A. No. 6952 does not authorize oil companies to offset their claims against their OPSF contributions. Instead, it prohibits the government from paying any amount from the Petroleum Price Standby Fund to oil companies

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which have outstanding obligations with the government, without said obligation being offset first subject to the rules on compensation in the Civil Code. Francia v. IAC. [Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the government owed him P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of October 15, 1977.] There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279. This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. Republic v. Mambulao Lumber. [whether the sum of P9,127.50 paid by defendant-appellant company to plaintiff-appellee as reforestation charges from 1947 to 1956 may be set off or applied to the payment of the sum of P4,802.37 as forest charges due and owing from appellant to appellee] A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. ... (80 C.J.S., 7374). “The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is not required. Philex Mining v. CIR. [Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities] In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. We find no cogent reason to deviate from the aforementioned distinction. || To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted. It must be noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. 25 Hence, a tax does not depend upon the consent of the taxpayer. 26 If any taxpayer can defer the payment of taxes by raising the defense that it still has a pending claim for refund or credit, this would adversely affect the government revenue system. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the tax is contingent on the result of the lawsuit it filed against the government. 27 Moreover, Philex’s theory that would automatically apply its VAT input credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the government of authority over the manner by which taxpayers credit and offset their tax liabilities Domingo v. Garlitos. Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the estate had found that the claim of the estate against the Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount.

B. Purposes/Objectives of Taxation 1. Revenue-raising

To raise revene to promote the general welfare and protection of its citizens PAL v. Edu, supra. Osmeña v. Orbos, supra.

2. Non-revenue/special or regulatory Taxation is no longer envisioned as merely a measure to reaise revenue; taxes may be levied with a regulatory purpose to provide means

for the rehabilitation and stabilization of a threatened industry affected with public interest. Taxation may also be used as an implement of police power to promote the general welfare of the people. Reduction of social inequality Encourage economic growth by granting incentives and exemptions Protectionism Republic v. Bacolod-Murcia, supra. Tio v. VRB. [constitutionality of VRB] The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the general object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject and title. As a tool for regulation it is simply one of the regulatory and control mechanisms scattered throughout the DECREE. The express purpose of the DECREE to include taxation of the video industry in order to regulate and rationalize the heretofore uncontrolled distribution of videograms is evident || The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the realization that earnings of videogram establishments of around P600 million per annum have not been subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user tax, imposed on retailers for every videogram they make available for public viewing. It is similar to the 30% amusement tax imposed or borne by the movie industry which the theater-owners pay to the government, but which is passed on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators. || The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie industry, the tax remains a valid imposition. || The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one industry over another. It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that “inequities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation”. Taxation has been made the implement of the state’s police power. Caltex v. Acting Comm. Of Customs. A margin levy on foreign exchange is a form of exchange control or restriction designed to discourage imports and encourage exports, and ultimately, ‘curtail any excessive demand upon the international reserve’ in order to stabilize the currency. Originally adopted to cope with balance of payment pressures, exchange restrictions have come to serve various purposes, such as limiting non-essential imports, protecting domestic industry and when combined with the use of multiple currency rates providing a source of revenue to the government, and are in many developing countries regarded as a more or less inevitable concomitant of their economic development programs. The different measures of exchange control or restriction cover different phases of foreign exchange transactions, i.e., in quantitative restriction, the control is on the amount of foreign exchange allowable. In the case of the margin levy, the immediate impact is on the rate of foreign exchange; in fact, its main function is to control the exchange rate without changing the par value of the peso as fixed in the Bretton Woods Agreement Act. For a member nation is not supposed to alter its exchange rate (at par value) to correct a merely temporary disequilibrium in its balance of payments. By its nature, the margin levy is part of the rate of exchange as fixed by the government. Esso Standard v. CIR. A margin fee is not a tax but an exaction designed to curb the excessive demands upon our international reserve.

C. Theory and Basis of Taxation 1. Necessity Theory / Lifeblood theory

The existence of government is a necessity; it cannot exist or endure without the means to pay its expenses; and for those means, the government has the right to compel all its citizens and property within its limits to contribute in the form of taxes.

“taxes are the lifeblood od government” without taxation, government can neither exist nor endure. Taxation is indispensable and inevitable for a civilized society; without taxes, government would be paralyzed.

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Phil. Guaranty Co. v. CIR. The requirement in Section 200 that the withholding agent should first withhold the tax before addressing a query to the Commissioner of Internal Revenue is not without meaning for it is in keeping with the general operation of our tax laws: payment precedes defense. Prior to the creation of the Court of Tax Appeals, the remedy of a taxpayer was to pay an internal revenue tax first and file a claim for refund later. This remedy has not been abrogated for the law creating the Court of Tax Appeals merely gives to the taxpayer an additional remedy. With respect to customs duties the consignee or importer concerned is required to pay them under protest, before he is allowed to question the legality of the imposition. Likewise, validity of a realty tax cannot be assailed until after the taxpayer has paid the tax under protest. The legislature, in adopting such measures in our tax laws, only wanted to be assured that taxes are paid and collected without delay. For taxes are the lifeblood of government. Also, such measures tend to prevent collusion between the taxpayer and the tax collector. By questioning a tax’s legality without first paying it, a taxpayer, in collusion with Bureau of Internal Revenue officials, can unduly delay, if not totally evade, the payment of such tax. CIR v. Algue. Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. Marcos II v. CA. [settlement of Marcos’ estate; Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the late President Marcos effected by the BIR are null and void for disregarding the established procedure for the enforcement of taxes due upon the estate of the deceased] It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the collection of taxes, is of paramount importance for the sustenance of government. Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved NPC v. City of Cabanatuan. [petitioner submits that the charter of the NPC, being a valid exercise of police power, should prevail over the LGC. It alleges that the power of the local government to impose franchise tax is subordinate to petitioner’s exemption from taxation; “police power being the most pervasive, the least limitable and most demanding of all powers, including the power of taxation] Taxes are the lifeblood of the government,30 for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people. || In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives. Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges pursuant to Article X, section 5 of the 1987 Constitution, This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance.

2. Benefits-Received Theory Taxes are what we pay for a civilized society. Without taxes, the government would be parlayzed for lack of the motive power to activate and

operate it. Hence, despite the natural reluctance to surrender part of their hard-earned income to the government, every person who is able must contribute his share in the running of the government. The government, for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation.

Gomez v. Palomar. To begin with, it is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions.4 This power has aptly been described as “of wide range and flexibility.”5 Indeed, it is said that in the field of taxation, more than in other areas, the legislature possesses the greatest freedom in classification.6 The reason for this is that traditionally, classification has been a device for fitting tax programs to local needs and usages in order to achieve an equitable distribution of the tax burden. That legislative classifications must be reasonable is of course undenied. But what the petitioner asserts is that statutory classification of mail users must bear some reasonable relationship to the end sought to be attained, and that absent such relationship the selection of mail users is constitutionally impermissible. || The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society, established and safeguarded by the devotion of taxes to public purposes. Any other view would preclude the levying of taxes except as they are used to compensate for the burden on those who pay them and would involve the abandonment of the most fundamental principle of government — that it exists primarily to provide for the common good. Lorenzo v. Posadas. The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of the Administrative Code, imposes the tax upon “every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance,devise, or bequest.” The tax therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death. Acording to article 657 of the Civil Code, “the rights to the succession of a person are transmitted from the moment of his death.” “In other words”, said Arellano, C. J., “. . . the heirs succeed immediately to all of the property of the deceased ancestor.

D. Aspects of Taxation 1. Levy/Imposition by the Legislative Body

The power to levy is vested with Congress Levy refers to the enactment of a law by Congress, imposing a tax

2. Collection/Administration/Ways/Methods of collection Assessment and collection – the act of administration and implementation of the tax law by the executive department through the

administrative agencies Payment – this is the act of compliance by the taxpayer, including such options, schemes or remedies as may be legally available to him - “pay as you earn”/”pay as you go” withholding system - “pay as you are assessed” - “pay as you file”

E. Nature and Scope of and Limitations on the Power of Taxation 1. Power to tax as differentiated from the powers of eminent domain and police power

Taxation Eminent Domain Police Power Authority who exercises power May be exercised ONLY by

government or its political subdivisions

May be exercised by government or its political subdivisions; May be Granted public service companies or public utilities

May be exercised ONLY by government or its political subdivisions

Purpose The property is taken for the support of the government

The property is “taken” for public use; must be justly compensated

The use of property is “regulated” for the purpose of the general welfare; not compensable

Persons affected Operates upon a: Community Class of individuals

Operates on an individual as the owner of a particular property

Operates upon a: Community Class of individuals

Effect The money contributed becomes part of public funds

There is transfer of right to property

No transfer of title At most, there is restraint on

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injurious use of property Benefits received It is assumed that the individual

receives the equivalent of the tax in the form of protect and benefits received from government

the individual receives the market value of the property taken from him

The person affected receives indirect benefits as may arise from the maintenance of a healthy economic standard of society

Amount of imposition Generally, no limit No amount imposed but owner paid the market value of property taken

Amount imposed should BOT be more than sufficient to cover the cost of the license and necessary expenses

Relationship to constitution Subject to inherent constitutional limits Including the prohibition against imparment of obligation of contracts

Inferior to impairment prohibition Government cannot expropriate private property

Relatively free from consti limits Superior to non-impairment clause

The distinction lies in the PURPOSE >>> if the generation of revenue is the primary purpose and regulation is merely incidental, it’s a TAX 2. Essential characteristics of taxation

a. Inherent in sovereignty The power of taxation is inherent in the State, being an attribute of sovereignty. As an incident of sovereignty, the power to tax has been

described as unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it.

Being an inherent power, the legislature can enact laws to raise revenues even without the grant of said power in the Constitution. it must be noted that Constitutional provisions relating to power do not operate as grants of power to the government, but instead merely constitutes as limitations upon a power which would otherwise be practically without limit.

Roxas v. CTA. [kind Roxas brothers] It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only in consonance with, but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the landless. It was the bounden duty of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and prices. However, the Government could not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way and sold lands directly to the farmers in the same way and under the same terms as would have been the case had the Government done it itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's gratitude. || The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg". And, in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously. It does not conform with Our sense of justice in the instant case for the Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call.

b. Exclusively legislative in nature The power of taxation is essentially a legislative function. The power to tax includes the authority to: (1) determine the nature, object,

extent, coverage, apportionment, situs, and method of collection; (2) grant tax exemptions or condonations and (3) specify or provide for the administrative as well as judicial remedies that either the government or the taxpayers may avail themselves in the propoer implementation of the tax measure (Petron v. Pililia)

c. Subject to inherent and constitutional limitations The power to tax is said to be the strongest of all the powers of the government. It is unlimited, plenary, comprehensive and supreme, in

the absence of constitutional restrictions, the principal check on its abuse resting in the responsibility of Congress. But, the power of taxation is subject to constitutional and inherent limitations

3. Inherent limitations a. Purpose must be public in nature

Public purpose = governmental purpose It means a purpose affectibe the inhabitants of the state or taxing district as a community and not merely as individuals Pascual v. Sec. of Public Works. [streets owned by Sen. Zulueta] It is a general rule that the legislature is without power to appropriate public revenue for anything but a public purpose. . . . It is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the general advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion. Incidental to the public or to the state, which results from the promotion of private interest and the prosperity of private enterprises or business, does not justify their aid by the use public money. Caltex v. CIR, supra. Gaston v. Republic Planter’s. [petitioners contending the sugar fund = implied trust for them] That the fees were collected from sugar producers, planters and millers, and that the funds were channeled to the purchase of shares of stock in respondent Bank do not convert the funds into a trust fired for their benefit nor make them the beneficial owners of the shares so purchased. It is but rational that the fees be collected from them since it is also they who are to be benefited from the expenditure of the funds derived from it. The investment in shares of respondent Bank is not alien to the purpose intended because of the Bank's character as a commodity bank for sugar conceived for the industry's growth and development. Furthermore, of note is the fact that one-half, (1/2) or PO.50 per picul, of the amount levied under P.D. No. 388 is to be utilized for the "payment of salaries and wages of personnel, fringe benefits and allowances of officers and employees of PHILSUCOM" thereby immediately negating the claim that the entire amount levied is in trust for sugar, producers, planters and millers. || To rule in petitioners' favor would contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit of the entire sugar industry, "and all its components, stabilization of the domestic market," including the foreign market the industry being of vital importance to the country's economy and to national interest. PPI v. Fertiphil. It is apparent that the imposition of P10 per fertilizer bag sold in the country by LOI 1465 is purportedly in the exercise of the power of taxation. It is a settled principle that the power of taxation by the state is plenary. Comprehensive and supreme, the principal check upon its abuse resting in the responsibility of the members of the legislature to their constituents. However, there are two kinds of limitations on the power of taxation: the inherent limitations and the constitutional limitations. || One of the inherent limitations is that a tax may be levied only for public purposes: The power to tax can be resorted to only for a constitutionally valid public purpose. By the same token, taxes may not be levied for purely private purposes, for building up of private fortunes, or for the redress of private wrongs. They cannot be levied for the improvement of private property, or for the benefit, and promotion of private enterprises, except where the aid is incident to the public benefit. It is well-settled principle of constitutional law that no general tax can be levied except for the purpose of raising money which is to be expended for public use. Funds cannot be exacted under the guise of taxation to promote a purpose that is not of public interest. Without such limitation, the power to tax could be exercised or employed as an authority to destroy the economy of the people. A tax, however, is not held void on the ground of want of public interest unless the want of such interest is clear. || To be sure, ensuring the continued supply and distribution of fertilizer in the country is an undertaking imbued with public interest. However, the method by which LOI 1465 sought to achieve this is by no means a measure that will promote the public welfare. The government’s commitment to support the successful rehabilitation and continued viability of PPI, a private corporation, is an unmistakable attempt to mask the subject statute’s impartiality. There is no way to treat the self-interest of a favored entity, like PPI, as identical with the general interest of the country’s farmers or even the Filipino people in general. Well to stress, substantive due process exacts fairness and equal protection disallows distinction where none is needed. When a statute’s public purpose is spoiled by private interest, the use of police power becomes a travesty which must be

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struck down for being an arbitrary exercise of government power. To rule in favor of appellant would contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private individuals.

b. Prohibition against delegation of taxing power The power to tax is purely legislative, and which the central legislative body cannot delegate either to the executive or judicial

department of government without infringing upon the theory of separation of powers Delegation is however allowed as follows:

o To local gov’t in respect of matters of local concern to be exercised by the local legislative bodies thereof o When allowed by the constitution thus, congress, may by law authorize President to fix within specified limits, and subject

to such limitations and restrictions, as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national dev’t program of the government

o When the delegation relates merely to administrative implementation that may call for some degree of discretionary powers under a set of sufficient standards expressed by law or implied from the policy and purpose of the act

i. Extent of the legislative power to tax The power of taxation being legislative, all its incidents are naturally within the control of the legislature

o Subjects or objects to be taxed o Purpose (object) so long as it is a public purpose o Amount or rate of tax o Manner, means, and agencies of collection of tax Tan v. del Rosario. [constitutionality of Republic Act No. 7496, also commonly known as the Simplified Net Income Taxation Scheme ("SNIT")] We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act No. 7496 as an entirely independent, not merely as an amendatory, piece of legislation. The view can easily become myopic, however, when the law is understood, as it should be, as only forming part of, and subject to, the whole income tax concept and precepts long obtaining under the National Internal Revenue Code. To elaborate a little, the phrase "income taxpayers" is an all embracing term used in the Tax Code, and it practically covers all persons who derive taxable income. The law, in levying the tax, adopts the most comprehensive tax situs of nationality and residence of the taxpayer (that renders citizens, regardless of residence, and resident aliens subject to income tax liability on their income from all sources) and of the generally accepted and internationally recognized income taxable base (that can subject non-resident aliens and foreign corporations to income tax on their income from Philippine sources). In the process, the Code classifies taxpayers into four main groups, namely: (1) Individuals, (2) Corporations, (3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as to corpus and as to income). Sison v. Ancheta. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and initiative and which the government was called upon to enter optionally, and only 'because it was better equipped to administer for the public welfare than is any private individual or group of individuals,' continue to lose their well-defined boundaries and to be absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the increasing social challenges of the times." Hence the need for more revenues. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain availability is of the essence. || The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of government." It is, of course, to be admitted that for all its plenitude 'the power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits. Adversely affecting as it does properly rights, both the due process and equal protection clauses may properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. Kapatiran v. Tan. The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the framers of said Constitution had intended to terminate the exercise of legislative powers by the President at the beginning of the term of office of the members of Congress, they should have so stated (but did not) in clear and unequivocal terms. The Court has not power to re-write the Constitution and give it a meaning different from that intended. || Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by this framers and other government agencies involved in its implementation, even under the past administration. As the Solicitor General correctly sated. "The signing of E.O. 273 was merely the last stage in the exercise of her legislative powers. The legislative process started long before the signing when the data were gathered, proposals were weighed and the final wordings of the measure were drafted, revised and finalized. Certainly, it cannot be said that the President made a jump, so to speak, on the Congress, two days before it convened."

ii. Exceptions from the prohibition (a) Delegation to local governments

Sec. 5. Art. X, 1987 Constitution. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. LGC Book II. LOCAL TAXATION AND FISCAL MATTERS

SEC. 128. Scope.- The provisions herein shall govern the exercise by provinces, cities, municipalities, and barangays of their taxing and other revenue-raising powers. SEC. 129. Power to Create Sources of Revenue. - Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, andcharges shall accrue exclusively to the local government units. SEC. 130. Fundamental Principles. - The following fundamental principles shall govern the exercise of the taxing and other revenue-raising powers of local government units:

(a) Taxation shall be uniform in each local government unit; (b) Taxes, fees, charges and other impositions shall:

(1) be equitable and based as far as practicable on the taxpayer's ability to pay; (2) be levied and collected only for public purposes; (3) not be unjust, excessive, oppressive, or confiscatory; (4) not be contrary to law, public policy, national economic policy, or in restraint of trade;

(c) The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person; (d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be subject to

disposition by, the local government unit levying the tax, fee, charge or other imposition unless otherwise specifically provided herein; and,

(e) Each local government unit shall, as far as practicable, evolve a progressive system of taxation. SEC. 132. Local Taxing Authority. - The power to impose a tax, fee, or charge or to generate revenue under this Code shall be exercised by the sanggunian of the local government unit concerned through an appropriate ordinance. SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: (a) Income tax, except when levied on banks and other financial institutions; (b) Documentary stamp tax; (c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided herein; (d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of customs fees,

charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned;

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(e) Taxes, fees and charges and other impositions upon goods carried into or out of, or passing through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such goods or merchandise;

(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen; (g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6)

and four (4) years, respectively from the date of registration; (h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges

on petroleum products; (i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except

as otherwise provided herein; (j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or

freight by hire and common carriers by air, land or water, except as provided in this Code; (k) Taxes on premiums paid by way of reinsurance or retrocession; (l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for

the driving thereof, except tricycles; (m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided herein; (n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A.

No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperatives Code of the Philippines" respectively; and

(o) Taxes, fees or charges of any kind on the National Government , its agencies and instrumentalities, and local government units.

Basco v. Pagcor. (a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it". Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax" (Bernas, the Revised [1973] Philippine Constitution, Vol. 1, 1983 ed. p. 445). || (b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations are mere creatures of Congress" which has the power to "create and abolish municipal corporations" due to its "general legislative powers". Congress, therefore, has the power of control over Local governments And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power.

(b) Delegation to the president Sec. 28(2), Art. VI, 1987 Constitution. The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government. Sec. 401, Tariff and Customs Code. Sec. 401. Flexible Clause. — a. The President, upon investigation by the Commission and recommendation of the National Economic Council, is hereby

empowered to reduce by not more than fifty per cent or to increase by not more than five times the rates of import duty expressly fixed by statute (including any necessary change in classification) when in his judgment such modification in the rates of import duty is necessary in the interest of national economy, general welfare and/or national defense.

b. Before any recommendation is submitted to the President by the Council pursuant to the provisions of this section, the Commission shall conduct an investigation in the course of which it shall hold public hearings wherein interested parties shall be afforded reasonable opportunity to be present, to produce evidence and to be heard. The Commission may also request the views and recommendations of any government office, agency or instrumentality, and such office, agency or instrumentality shall cooperate fully with the Commission.

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

d. The power of the President to increase or decrease rates of import duty within the limits fixed in subsection "a" shall include the authority to modify the form of duty. In modifying the form of duty the corresponding ad valorem or specific equivalents of the duty with respect to imports from the principal concerning foreign country for the most recent representation period shall be used as basis.

e. The Commissioner of Customs shall regularly furnish to the Commission a copy each of all customs import entries containing every pertinent information appearing in the collectors' liquidated duplicates, including the consular invoice and/or the commercial invoice. The Commission or its duly authorized agents shall have access to and the right to copy all the customs import entries and other documents appended thereto as finally in the General Auditing Office.

f. The Commission is authorized to adopt such reasonable procedure, rules and regulations as it may deem necessary to carry out the provisions of this section.

g. Any order issued by the President pursuant to the provisions of this section shall take effect thirty days after its issuance. h. The provisions of this section shall not apply to any article the importation of which into the Philippines is or may be

governed by Section 402 of this Code. i. The authority herein granted to the President shall be exercised only when Congress is not in session. Garcia v. Exec. Sec, supra. Abakada v. Ermita. The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the Senate is retained until such time that certain conditions arise when the 12% VAT wanted by the House shall be imposed, appears to be a compromise to try to bridge the difference in the rate of VAT proposed by the two houses of Congress. Nevertheless, such compromise is still totally within the subject of what rate of VAT should be imposed on taxpayers. || Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely, whether by December 31, 2005, the value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (24/5%) or the national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1%). If either of these two instances has occurred, the Secretary of Finance, by legislative mandate, must submit such information to the President. Then the 12% VAT rate must be imposed by the President effective January 1, 2006. There is no undue delegation of legislative power but only of the discretion as to the execution of a law. This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which the legislative process can go forward.

Feliciano, Deconstruction of Constitutional Limitations and the Tariff Regime of the Philippines: The Strange Persistence of a Martial Law Syndrome

(c) Delegation to administrative agencies Maceda v. Macaraig, 1991. NPC is a non-profit public corporation created for the general good and welfare, and wholly owned by the government. It is recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of government political subdivision or instrumentality. In the case of property owned by the state or a city or other public corporations, the express exception should not be construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property “exception is the rule and taxation is the exception.” Maceda v. Macaraig, 1993. MR to 1991 Maceda v. ERB. ERB has authority to grant the provisional increase given the nature and duties of the agency. It has been shown that there was a rise in crude oil importation cost and that the government has decided to discontinue subsidizing oil

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prices in view of inflationary pressures. There is also the apparent inadequacy of the proposed increase in the government appropriation for the OPSF and the sharp drop in the value of the peso in relation to the US dollar. Hence, the board is left with no other recourse but to grant applicant oil companies further relief by increasing the prices of petroleum products sold by them. Osmeña v. Orbos. For a valid delegation of power, it is essential that the law delegating the power must be: (1) complete in itself, that is it must set forth the policy to be executed by the delegate; and (2) it must fix a standard the limits of which are sufficiently determinate or determinable to which the delegate must conform. ERB has authority accdng to Sec. 8(c) of PD 1956. CIR v. CA. Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for the effective implementation of the provisions of the National Internal Revenue Code. Let it be made clear that such authority of the Commissioner is not here doubted. Like any other government agency, however, the CIR may not disregard legal requirements or applicable principles in the exercise of its quasi-legislative powers. || It should be understandable that when an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. When, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law.

c. Exemption of government entities, agencies, and instrumentality Reason: to levy a tax ipon public property would render necessary new taxes on other public property for the payment of the tax so laid

and thus, the government would be taxing itself to raise money to pay over to itself. This immunity also rests upon fundamental principles of government, being necessary in order that gov’t functions shall not be unduly

impeded Unless otherwise provided, the exemption applies only to government entities through which the government immediately and directly

exercises its sovereign powers GOCCs if performing proprietary (not governmental) functions, generally subjected to tax in the absence of tax exemption in its

charter Sec. 24(c), NIRC. Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. - The provisions of Section 39(B) notwithstanding, a final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange.

Not over P100,000…………………………….. 5% On any amount in excess of P100,000………… 10%

EO 93. WITHDRAWING ALL TAX AND DUTY INCENTIVES, SUBJECT TO CERTAIN EXCEPTIONS, EXPANDING THE POWERS OF THE FISCAL INCENTIVES REVIEW BOARD AND FOR OTHER PURPOSES PD 1931. DIRECTING THE RATIONALIZATION OF DUTY AND TAX EXEMPTION PRIVILEGES GRANTED TO GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS AND ALL OTHER UNITS OF GOVERNMENT Mactan Cebu Int’l Airport Authority v. Marcos. [petitioner asserts that although it is a government-owned or controlled corporation it is mandated to perform functions in the same category as an instrumentality of Government. An instrumentality of Government is one created to perform governmental functions primarily to promote certain aspects of the economic life of the people. Considering its task "not merely to efficiently operate and manage the Mactan-Cebu International Airport, but more importantly, to carry out the Government policies of promoting and developing the Central Visayas and Mindanao regions as centers of international trade and tourism, and accelerating the development of the means of transportation and communication in the country," and that it is an attached agency of the Department of Transportation and Communication (DOTC), 8 the petitioner "may stand in [sic] the same footing as an agency or instrumentality of the national government." Hence, its tax exemption privilege under Section 14 of its Charter "cannot be considered withdrawn with the passage of the Local Government Code of 1991 (hereinafter LGC) because Section 133 thereof specifically states that the taxing powers of local government units shall not extend to the levy of taxes of fees or charges of any kind on the national government its agencies and instrumentalities.] Thus, reading together Section 133, 232 and 234 of the LGC, we conclude that as a general rule, as laid down in Section 133 the taxing powers of local government units cannot extend to the levy of inter alia, "taxes, fees, and charges of any kind of the National Government, its agencies and instrumentalties, and local government units"; however, pursuant to Section 232, provinces, cities, municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, "real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial used thereof has been granted, for consideration or otherwise, to a taxable person", as provided in item (a) of the first paragraph of Section 234. || As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, except those granted to local water districts, cooperatives duly registered under R.A. No. 6938, non stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC. The latter proviso could refer to Section 234, which enumerates the properties exempt from real property tax. But the last paragraph of Section 234 further qualifies the retention of the exemption in so far as the real property taxes are concerned by limiting the retention only to those enumerated there-in; all others not included in the enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as the real property is owned by the Republic of the Philippines, or any of its political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property has been granted to taxable person for consideration or otherwise. MIAA v. CA. Section 243(a) of the Local Government Code (LGC) exempts from real estate tax any real property owned by the Republic of the Philippines. This exemption should be read in relation with Sec. 133(o) of the LGC, which provides that the exercise of the taxing powers of local governments shall not extend to the levy of taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. This rule applies with greater force when local governments seek to tax national government instrumentalities. Moreover, a tax exemption is construed liberally in favor of national government instrumentalities. When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Also, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of the National Government machinery. || MIAA is not organized as a stock or non-stock corporation. It is not a stock corporation because it has no capital stock divided into shares. It has capital but it is not divided into shares of stock. It has no stockholders or voting shares. MIAA is also not a non-stock corporation because it has no members. Even assuming that the Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Being a public utility, MIAA is not organized for any of the purposes provided for under the Corporation Code for which a non-stock corporation may be organized. Also, it is mandated by its charter to remit 20% of its annual gross operating income to the National Treasury. Non-stock corporations cannot distribute any part of their income to their members. MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Also, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of the National Government machinery. Being a government instrumentality, MIAA falls under Sec. 133(o) of the LGC. As such, it is not a taxable person. PFDA v. CA. Thus, for an entity to be considered as a GOCC, it must either be organized as a stock or non-stock corporation. Two requisites must concur before one may be classified as a stock corporation, namely: (1) that it has capital stock divided into shares, and (2) that it is authorized to distribute dividends and allotments of surplus and profits to its stockholders. If only one requisite is present, it cannot be properly classified as a stock corporation. As for non-stock corporations, they must have members and must not distribute any part of their

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income to said members. On the basis of the parameters set in the MIAA case, the Authority should be classified as an instrumentality of the national government. As such, it is generally exempt from payment of real property tax, except those portions which have been leased to private entities. || Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority has a capital stock but it is not divided into shares of stocks.12 Also, it has no stockholders or voting shares. Hence, it is not a stock corporation. Neither it is a non-stock corporation because it has no members. || The Authority is actually a national government instrumentality which is defined as an agency of the national government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Thus, the Authority which is tasked with the special public function to carry out the government’s policy "to promote the development of the country’s fishing industry and improve the efficiency in handling, preserving, marketing, and distribution of fish and other aquatic products," exercises the governmental powers of eminent domain,14 and the power to levy fees and charges.15 At the same time, the Authority exercises "the general corporate powers conferred by laws upon private and government-owned or controlled corporations." The MIAA case held17 that unlike GOCCs, instrumentalities of the national government, like MIAA, are exempt from local taxes pursuant to Section 133(o) of the Local Government Code. This exemption, however, admits of an exception with respect to real property taxes. Applying Section 234(a) of the Local Government Code, the Court ruled that when an instrumentality of the national government grants to a taxable person the beneficial use of a real property owned by the Republic, said instrumentality becomes liable to pay real property tax. Thus, while MIAA was held to be an instrumentality of the national government which is generally exempt from local taxes, it was at the same time declared liable to pay real property taxes on the airport lands and buildings which it leased to private persons. It was held that the real property tax assessments and notices of delinquencies issued by the City of Pasay to MIAA are void except those pertaining to portions of the airport which are leased to private parties. GSIS v. City Treasurer of Manila. [Full tax exemption granted through PD 1146 RA 7160 lifted GSIS tax exemption Full tax exemption reenacted through RA 8291] GSIS exempt = instrumentality ::: First, while created under CA 186 as a non-stock corporation, a status that has remained unchanged even when it operated under PD 1146 and RA 8291, GSIS is not, in the context of the aforequoted Sec. 193 of the LGC, a GOCC following the teaching of Manila International Airport Authority, for, like MIAA, GSIS’ capital is not divided into unit shares. Also, GSIS has no members to speak of. And by members, the reference is to those who, under Sec. 87 of the Corporation Code, make up the non-stock corporation, and not to the compulsory members of the system who are government employees. Its management is entrusted to a Board of Trustees whose members are appointed by the President. Second, the subject properties under GSIS’s name are likewise owned by the Republic. The GSIS is but a mere trustee of the subject properties which have either been ceded to it by the Government or acquired for the enhancement of the system. This particular property arrangement is clearly shown by the fact that the disposal or conveyance of said subject properties are either done by or through the authority of the President of the Philippines. Third, GSIS manages the funds for the life insurance, retirement, survivorship, and disability benefits of all government employees and their beneficiaries. This undertaking, to be sure, constitutes an essential and vital function which the government, through one of its agencies or instrumentalities, ought to perform if social security services to civil service employees are to be delivered with reasonable dispatch. It is no wonder, therefore, that the Republic guarantees the fulfillment of the obligations of the GSIS to its members (government employees and their beneficiaries) when and as they become due. This guarantee was first formalized under Sec. 24 of CA 186, then Sec. 8 of PD 1146, and finally in Sec. 8 of RA 8291. PFDA v. CBAA. The exercise of the taxing power of local government units is subject to the limitations enumerated in Section 133 of the Local Government Code. Under Section 133(o)10 of the Local Government Code, local government units have no power to tax instrumentalities of the national government like the PFDA. Thus, PFDA is not liable to pay real property tax assessed by the Office of the City Treasurer of Lucena City on the Lucena Fishing Port Complex, except those portions which are leased to private persons or entities. Besides, the Lucena Fishing Port Complex is a property of public dominion intended for public use, and is therefore exempt from real property tax under Section 234(a) of the Local Government Code. Properties of public dominion are owned by the State or the Republic of the Philippines.

d. Limitation of international comity Sec. 2, Art II, 1987 Constitution. The Philippines renounces war as an instrument of national policy, adopts the generally accepted principles of international law as part of the law of the land and adheres to the policy of peace, equality, justice, freedom, cooperation, and amity with all nations. Sec. 159, LGC. Exemptions. - The following are exempt from the community tax: (1) Diplomatic and consular representatives; and (2) Transient visitors when their stay in the Philippines does not exceed three (3) months.

Tañada v. Angara. [WTO; petitioners contend that WTO infringes on Congress’ taxation power when WTO fix tariff rates] All government authority is inherently limited by the fact that it is a member of a family of nations. Authority is limited by the principles of international law and treaty stipulations. CIR v. Mitsubishi Corp. It is worth mentioning in this connection, that this Court in rendering this decision does not give a license to the Philippine Government to violate its international commitments. We are not unmindful of the dire consequences of any judicial indiscretion which would adversely affect this country's standing in our international relations. On the contrary, by this decision, the Court aptly provides an ample remedy to respondent to enforce its contract as envisioned under the subject Exchange of Notes. Impeccably, the Philippine Government does not renege from its international commitment. This could be gleaned from the provisions of RMC No. 42-99.

e. Limitation of territorial jurisdiction/personal jurisdiction A state may not tax property lying outside its borders or lay an excise ipon the exercise or enjoyment of a righ or privilege derived from

the laws of another state CIR v. BOAC. The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The site of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government. || A transportation ticket is not a mere piece of paper. When issued by a common carrier, it constitutes the contract between the ticket-holder and the carrier. It gives rise to the obligation of the purchaser of the ticket to pay the fare and the corresponding obligation of the carrier to transport the passenger upon the terms and conditions set forth thereon. The ordinary ticket issued to members of the traveling public in general embraces within its terms all the elements to constitute it a valid contract, binding upon the parties entering into the relationship. Iloilo Bottlers v. City of Iloilo. The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the privilege of distributing, manufacturing or bottling softdrinks. Being an excise tax, it can be levied by the taxing authority only when the acts, privileges or businesses are done or performed within the jurisdiction of said authority [Commissioner of Internal Revenue v. British Overseas Airways Corp. and Court of Appeals, G.R. Nos. 65773-74, April 30, 1987, 149 SCRA 395, 410.] Specifically, the situs of the act of distributing, bottling or manufacturing softdrinks must be within city limits, before an entity engaged in any of the activities may be taxed in Iloilo City. Hopewell v. CIR. The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the excise, nor upon the physical location of the property and in connection with the act or occupation taxed, but depends upon the place in which the act is performed or occupation engaged in. || Thus, the gauge for taxability . . . does not depend on the location of the office, but attaches upon the place where the respective . . . transaction(s) is perfected and consummated. BPI v. CIR. The tax imposition here is upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, and hence is in the nature of an excise tax. || The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the excise, nor upon the physical location of the property and in connection with the act or occupation taxed, but depends upon the place in which the act is performed or occupation engaged in. In this case, the act of BPI

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instructing the correspondent bank to transfer the funds to the Federal Reserve Bank was performed in the Philippines. Therefore, the excise tax may be levied by the Philippine government. Section 195 (now Section 182) of the NIRC would be rendered invalid if the fact that the payment was made outside of the country can be used as a basis for nonpayment of the tax. Smith v. CIR. The term "in lieu of paying taxes" as used in the law does not constitute an absolute exemption from taxation. While spared from national and local taxes, businesses and enterprises within the SSEZ are subjected to the said tax base on gross income. No matter what legal jargon is used, the said taxes are in fact taxes imposed on businesses or enterprises operating within the SSEZ. Thus, it is incorrect to say that SSEZ is actually a tax-free territory. Individual aliens employed within the Subic Special Economic Zone (SSEZ) are not exempt from the awesome power of Philippine taxation especially so that they sourced out their earnings from within the Philippines. The secured area of SSEZ, which is virtually delineated in metes and bounds by Proclamation No. 532, issued by the then President Fidel Ramos on February 1, 1995, is in reality part of the territorial jurisdiction of the Philippines. To buttress the point that SSEZ is indeed within the Philippine jurisdiction, Section 12 (h) of RA 7227, actually placed the fenced-off area of SSEZ under the responsibility of the Philippine National Government. || Such being the case, all subjects over which the Philippines can exercise dominion are necessarily objects of taxation. As such, all subjects of taxation within its jurisdiction are required to pay tax in exchange of the protection that the state gives. Thus, the SSEZ, being within the territorial boundaries of the Philippines, the aliens residing therein, who enjoy the benefits and protection from the said state are not exempt from contributing their share in the running of the government. They have the bounden duty to surrender part of their hard-earned income to the taxing authorities. CIR v. Baier-Nickel. Pursuant to the foregoing provisions of the NIRC, non-resident aliens, whether or not engaged in trade or business, are subject to Philippine income taxation on their income received from all sources within the Philippines. Thus, the keyword in determining the taxability of non-resident aliens is the income’s “source.” In construing the meaning of “source” in Section 25 of the NIRC, resort must be had on the origin of the provision. The Supreme Court has said, in a definition much quoted but often debated, that income may be derived from three possible sources only: (1) capital and/or (2) labor; and/or (3) the sale of capital assets. While the three elements of this attempt at definition need not be accepted as all-inclusive, they serve as useful guides in any inquiry into whether a particular item is from “sources within the United States” and suggest an investigation into the nature and location of the activities or property which produce the income. || If the income is from labor the place where the labor is done should be decisive; if it is done in this country, the income should be from “sources within the United States.” If the income is from capital, the place where the capital is employed should be decisive; if it is employed in this country, the income should be from “sources within the United States.” If the income is from the sale of capital assets, the place where the sale is made should be likewise decisive. || The important factor therefore which determines the source of income of personal services is not the residence of the payor, or the place where the contract for service is entered into, or the place of payment, but the place where the services were actually rendered.

4. Constitutional Limitations a. Due process of law

Sec. 1, Art. III, 1987 Constitution. No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws Tan v. del Rosario, supra. [SNIT] Sison v. Ancheta, supra. [income tax] Carlos Superdrug v. DSWD. [Senior Citizen’s Act tax credit to tax deduction] For this reason, when the conditions so demand as determined by the legislature, property rights must bow to the primacy of police power because property rights, though sheltered by due process, must yield to general welfare. || Police power as an attribute to promote the common good would be diluted considerably if on the mere plea of petitioners that they will suffer loss of earnings and capital, the questioned provision is invalidated. Moreover, in the absence of evidence demonstrating the alleged confiscatory effect of the provision in question, there is no basis for its nullification in view of the presumption of validity which every law has in its favor. Given these, it is incorrect for petitioners to insist that the grant of the senior citizen discount is unduly oppressive to their business, because petitioners have not taken time to calculate correctly and come up with a financial report, so that they have not been able to show properly whether or not the tax deduction scheme really works greatly to their disadvantage.

b. Equal protection of the laws Requisites: (1) rest on substantial distinctions; (2) be germane to the purposes of the law; (3) not be limited to existing conditions only;

and (4) apply equally to all members of the same class. Sec. 1, Art. III, 1987 Constitution. No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws Sison v. Ancheta. . The applicable standard to avoid the charge that there is a denial of this constitutional mandate whether the assailed act is in the exercise of the lice power or the power of eminent domain is to demonstrated that the governmental act assailed, far from being inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under circumtances which if not Identical are analogous. If law be looked upon in terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on the rest." 20 That same formulation applies as well to taxation measures. The equal protection clause is, of course, inspired by the noble concept of approximating the Ideal of the laws benefits being available to all and the affairs of men being governed by that serene and impartial uniformity, which is of the very essence of the Idea of law. || "at any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" Villegas v. Hiu Chiong. Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion. It has been held that where an ordinance of a municipality fails to state any policy or to set up any standard to guide or limit the mayor's action, expresses no purpose to be attained by requiring a permit, enumerates no conditions for its grant or refusal, and entirely lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power to grant or deny the issuance of building permits, such ordinance is invalid, being an undefined and unlimited delegation of power to allow or prevent an activity per se lawful. Tan v. del Rosario, supra. PHILRECA v. Sec. The equal protection clause under the Constitution means that “no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like circumstances.” Thus, the guaranty of the equal protection of the laws is not violated by a law based on reasonable classification. Classification, to be reasonable, must (1) rest on substantial distinctions; (2) be germane to the purposes of the law; (3) not be limited to existing conditions only; and (4) apply equally to all members of the same class. || We hold that there is reasonable classification under the Local Government Code to justify the different tax treatment between electric cooperatives covered by P.D. No. 269, as amended, and electric cooperatives under R.A. No. 6938. First, substantial distinctions exist between cooperatives under P.D. No. 269, as amended, and cooperatives under R.A. No. 6938. These distinctions are manifest in at least two material respects which go into the nature of cooperatives envisioned by R.A. No. 6938 and which characteristics are not present in the type of cooperative associations created under P.D. No. 269, as amended. [capital contribution by members; extent of government control]. Second, the classification of tax-exempt entities in the Local Government Code is germane to the purpose of the law. The Constitutional mandate that every local government unit shall enjoy local autonomy, does not mean that the exercise of power by local governments is beyond regulation by Congress. Thus, while each government unit is granted the power to create its own sources of revenue, Congress, in light of its broad power to tax, has the discretion to determine the extent of the taxing powers of local government units consistent with the policy of local autonomy. Finally, Sections 193 and 234 of the Local Government Code permit reasonable classification as these exemptions are not limited to existing conditions and apply equally to all members of the same class. Exemptions from local taxation, including real property tax, are granted to all cooperatives covered by R.A. No. 6938 and such exemptions exist for as long as the Local Government Code and the provisions therein on local taxation remain good law.

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c. Uniformity and equity in taxation Uniformity “all taxable articles or properties of the same class shall be taxed at the same rate The rule requires the uniform application and operation, without discrimination, of the tax in every place where the subject of it is found Uniformity implies equality in burden, not equality in amount or equality in its strict and literal meaning Equity uniformity in taxation is effect through apportionment among taxpayers which under the Constitution must be equitable. Sec. 28(1), Art. VI, 1987 Constitution. The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. i. Adoption of a progressive system of taxation

Tolentino v. Sec. The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress 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." (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, §17(1) of the 1973 Constitution from which the present Art. VI, §28(1) was taken. Sales taxes are also regressive.|| Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, §4, amending §103 of the NIRC).

ii. Valid classification of taxpayer/subject or items to be taxed Pepsi v. Butuan. It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or equality under all circumstances, or negate the authority to classify the objects of taxation.5 The classification made in the exercise of this authority, to be valid, must, however, be reasonable6 and this requirement is not deemed satisfied unless: (1) it is based upon substantial distinctions which make real differences; (2) these are germane to the purpose of the legislation or ordinance; (3) the classification applies, not only to present conditions, but, also, to future conditions substantially identical to those of the present; and (4) the classification applies equally all those who belong to the same class. || These conditions are not fully met by the ordinance in question.8 Indeed, if its purpose were merely to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by sealers other than agents or consignees of producers or merchants established outside the City of Butuan should be exempt from the tax. Manila Race Horse Trainors v. dela Fuente. From the context of Ordinance No. 3065, the intent to tax or license stables and not horses is clearly manifest. The tax is assessed not on the owners of the horses but on the owners of the stables, as counsel admit in their brief, although there is nothing, of course, to stop stable owners from shifting the tax to the horse owners in the form of increased rents or fees, which is generally the case. || From the viewpoint of economics and public policy the taxing of boarding stables for race horses to the exclusion of boarding stables for horses dedicated to other purposes is not indefensible. The owners of boarding stables for race horses and, for that matter, the race horse owners themselves, who in the scheme of shifting may carry the taxation burden, are a class by themselves and appropriately taxed where owners of other kinds of horses are taxed less or not at all, considering that equity in taxation is generally conceived in terms of ability to pay in relation to the benefits received by the taxpayer and by the public from the business or property taxed. Race horses are devoted to gambling if legalized, their owners derive fat income and the public hardly any profit from horse racing, and this business demands relatively heavy police supervision. Taking everything into account, the differentiation against which the plaintiffs complain conforms to the practical dictates of justice and equity and is not discriminatory within the meaning of the Constitution. Eastern Theatrical v. Alfonso. To support this contention, appellants point out to the fact that the ordinance in question does not tax "many more kinds of amusements" than those therein specified, such as "race tracks, cockpits, cabarets, concert halls, circuses, and other places of amusement." the argument has absolutely no merit. The fact that some places of amusement are not taxed while others, such as cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of amusement are taxed, is no argument at all against the equality and uniformity of the tax imposition. Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation; and the appellants cannot point out what places of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with those not included in the ordinance. Shell v. Mun. Treas. Of Cordova. The contention that the ordinance is discriminatory and hostile because there is no other person in the locality who exercises such "designation" or occupation is also without merit, because the fact that there is no other person in the locality who exercises such a "designation" or calling does not make the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling or occupation named or designated as "installation manager."

d. Prohibition against imprisonment for non-payment of poll tax Sec. 20 Art. III, 1987 Constitution. No person shall be imprisoned for debt or non-payment of a poll tax. Community tax v. Poll tax. Sec. 156, LGC. Community Tax. - Cities or municipalities may levy a community tax in accordance with the provisions of this Article. Sec. 157, LGC. Individuals Liable to Community Tax. - Every inhabitant of the Philippines eighteen (18) years of age or over who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days during any calendar year, or who is engaged in business or occupation, or who owns real property with an aggregate assessed value of One thousand pesos (P=1,000.00) or more, or who is required by law to file an income tax return shall pay an annual community tax of Five pesos (P=5.00) and an annual additional tax of One peso (P=1.00) for every One thousand pesos (P=1,000.00) of income regardless of whether from business, exercise of profession or from property which in no case shall exceed Five thousand pesos (P=5,000.00). In the case of husband and wife, the additional tax herein imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them. Sec. 158, LGC. Juridical Persons Liable to Community Tax. - Every corporation no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual community tax of Five hundred pesos (P=500.00) and an annual additional tax, which, in no case, shall exceed Ten thousand pesos (P=10,000.00) in accordance with the following schedule: (1) For every Five thousand pesos (P=5,000.00) worth of real property in the Philippines owned by it during the preceding year based on the

valuation used for the payment of the real property tax under existing laws, found in the assessment rolls of the city or municipality where the real property is situated - Two pesos (P=2.00); and

(2) For every Five thousand pesos (P=5,000.00) of gross receipts or earnings derived by it from its business in the Philippines during the preceding year - Two pesos (P=2.00). The dividends received by a corporation from another corporation however shall, for the purpose of the additional tax, be considered as part of the gross receipts or earnings of said corporation.

Sec. 159, LGC, supra. Sec. 160, LGC. Place of Payment. - The community tax shall be paid in the place of residence of the individual, or in the place where the principal office of the juridical entity is located. Sec. 161, LGC. Time for Payment; Penalties for Delinquency. - (a) The community tax shall accrue on the first (1st) day of January of each year which shall be paid not later than the last day of February of each year. If a person reaches the age of eighteen (18) years or otherwise loses the benefit of exemption on or before the last day of June, he shall be liable for the community tax on the day he reaches such age or upon the day the exemption ends. However, if a person reaches the age of eighteen (18) years or loses the benefit of exemption on or before the last day of March, he shall have twenty (20) days to pay the community tax without becoming delinquent. Persons who come to reside in the Philippines or reach the age of eighteen (18) years on or after the first (1st) day of July of any year, or who cease to belong to an exempt class on or after the same date, shall not be subject to the community tax for that year.

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(b) Corporations established and organized on or before the last day of June shall be liable for the community tax for that year. But corporations established and organized on or before the last day of March shall have twenty (20) days within which to pay the community tax without becoming delinquent. Corporations established and organized on or after the first day of July shall not be subject to the community tax for that year. If the tax is not paid within the time prescribed above, there shall be added to the unpaid amount an interest of twenty-four percent (24%) per annum from the due date until it is paid. Sec. 162, LGC. Community Tax Certificate. - A community tax certificate shall be issued to every person or corporation upon payment of the community tax. A community tax certificate may also be issued to any person or corporation not subject to the community tax upon payment of One peso (P=1.00). Sec. 163, LGC. Presentation of Community Tax Certificate On Certain Occasions. - (a) When an individual subject to the community tax acknowledges any document before a notary public, takes the oath of office upon election or appointment to any position in the government service; receives any license, certificate, or permit from any public authority; pays any tax or fee; receives any money from any public fund; transacts other official business; or receives any salary or wage from any person or corporation, it shall be the duty of any person, officer, or corporation with whom such transaction is made or business done or from whom any salary or wage is received to require such individual to exhibit the community tax certificate. The presentation of community tax certificate shall not be required in connection with the registration of a voter. (b) When, through its authorized officers, any corporation subject to the community tax receives any license, certificate, or permit from any public authority, pays any tax or fee, receives money from public funds, or transacts other official business, it shall be the duty of the public official with whom such transaction is made or business done, to require such corporation to exhibit the community tax certificate. (c) The community tax certificate required in the two preceding paragraphs shall be the one issued for the current year, except for the period from January until the fifteenth (15th) of April each year, in which case, the certificate issued for the preceding year shall suffice. Sec. 164, LGC. Printing of Community Tax Certificates and Distribution of Proceeds. - (a) The Bureau of Internal Revenue shall cause the printing of community tax certificates and distribute the same to the cities and municipalities through the city and municipal treasurers in accordance with prescribed regulations. The proceeds of the tax shall accrue to the general funds of the cities, municipalities and barangays except a portion thereof which shall accrue to the general fund of the national government to cover the actual cost of printing and distribution of the forms and other related expenses. The city or municipal treasurer concerned shall remit to the national treasurer the said share of the national government in the proceeds of the tax within ten (10) days after the end of each quarter. (b) The city or municipal treasurer shall deputize the barangay treasurer to collect the community tax in their respective jurisdictions: Provided, however, That said barangay treasurer shall be bonded in accordance with existing laws. (c) The proceeds of the community tax actually and directly collected by the city or municipal treasurer shall accrue entirely to the general fund of the city or municipality concerned. However, proceeds of the community tax collected through the barangay treasurers shall be apportioned as follows:

(1) Fifty percent (50%) shall accrue to the general fund of the city or municipality concerned; and (2) Fifty percent (50%) shall accrue to the barangay where the tax is collected.

e. Prohibition against impairment of obligation of contracts A contract is impaired when its terms or conditions are changed by law or by a party without the consent of the other, thereby weaking

the position or rights of the latter Sec. 10, Art. III, 1987 Constitution. No law impairing the obligation of contracts shall be passed. Sec. 11, Art. XII, 1987 Constitution. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. Casanovas v. Hord. It seems very clear to us that this deed constituted a contract between the Spanish Government and the plaintiff, the obligation of which contract was impaired by the enactment of section 134 of the Internal Revenue Law above cited, thereby infringing the provisions above quoted from section 5 of the act of Congress of July 1, 1902. || But in the case at bar, there is found not only the provisions for the payment of certain taxes annually, but there is also found the provision contained in article 81, above quoted, which expressly declares that no other taxes shall be imposed upon these mines. || Our conclusion is that the concessions granted by the Government of Spain to the plaintiff, constitute contracts between the parties; that section 134 of the Internal Revenue Law impairs the obligation of these contracts, and is therefore void as to them. Tolentino v. Sec. [It is claimed that the application of the tax to existing contracts of the sale of real property by installment or on deferred payment basis would result in substantial increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it is pointed out, is something that the buyer did not anticipate at the time he entered into the contract.] The short answer to this is the one given by this Court in an early case: "Authorities from numerous sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of the Constitution. Even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the possible exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that authority. PAGCOR v. BIR. While the Court has, not too infrequently, 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 in nature. Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts. These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit 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.

f. Prohibition against infringement of religious freedom Sec. 5, Art. III, 1987 Constitution. No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof. The free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religious test shall be required for the exercise of civil or political rights. American Bible Society v. Manila. The constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. Any restraints of such right can only be justified like other restraints of freedom of expression on the grounds that there is a clear and present danger of any substantive evil which the State has the right to prevent". Tolentino v. Sec. Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from the sales are used to subsidize the cost of printing copies which are given free to those who cannot afford to pay so that to tax the sales would be to increase the price, while reducing the volume of sale. Granting that to be the case, the resulting burden on the exercise of religious freedom is so

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incidental as to make it difficult to differentiate it from any other economic imposition that might make the right to disseminate religious doctrines costly. Otherwise, to follow the petitioner's argument, to increase the tax on the sale of vestments would be to lay an impermissible burden on the right of the preacher to make a sermon.

g. Prohibition re: appropriation of proceeds of taxation The use of tax levied for a special purpose

Sec. 29, Art. VI, 1987 Constitution. (1) No money shall be paid out of the Treasury except in pursuance of an appropriation made by law. (2) No public money or property shall be appropriated, applied, paid, or employed, directly or indirectly, for the use, benefit, or support of any sect, church, denomination, sectarian institution, or system of religion, or of any priest, preacher, minister, other religious teacher, or dignitary as such, except when such priest, preacher, minister, or dignitary is assigned to the armed forces, or to any penal institution, or government orphanage or leprosarium. (3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the Government. Osmeña v. Orbos, supra. Gaston v. Republic Planters, supra.

h. Prohibition against taxation of religious, charitable entities and educational entities Sec. 28(3) Art. VI, 1987 Constitution. Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. Abra Valley College v. Aquino. The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. || It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purpose—educational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education. Lung Center v. QC. As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution. || In this case, the petitioner adduced substantial evidence that it spent its income, including the subsidies from the government for 1991 and 1992 for its patients and for the operation of the hospital. It even incurred a net loss in 1991 and 1992 from its operations. || Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes. || The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken.

i. Prohibition against taxation of non-stock, non-profit institution Sec 4(3), Art. XIV, 1987 Constitution. Sec. 4(4) Art. XIV, 1987 Constitution. Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax. Sec. 28(3), Art. VI, 1987 Constitution. Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. Sec. 24(b), NIRC. (1) An income tax is hereby imposed: (b) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within the Philippines by an individual citizen of the Philippines who is residing outside of the Philippines including overseas contract workers referred to in Subsection(C) of Section 23 hereof; Sec. 27(B), NIRC. Proprietary Educational Institutions and Hospitals. - Proprietary educational institutions and hospitals which are nonprofit shall pay a tax of ten percent (10%) on their taxable income except those covered by Subsection (D) hereof: Provided, that if the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived by such educational institutions or hospitals from all sources, the tax prescribed in Subsection (A) hereof shall be imposed on the entire taxable income. For purposes of this Subsection, the term 'unrelated trade, business or other activity' means any trade, business or other activity, the conduct of which is not substantially related to the exercise or performance by such educational institution or hospital of its primary purpose or function. A 'Proprietary educational institution' is any private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education, Culture and Sports (DECS), or the Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance with existing laws and regulations. Sec. 30(H), NIRC. Exemptions from Tax on Corporations. - The following organizations shall not be taxed under this Title in respect to income received by them as such: (H) A nonstock and nonprofit educational institution CIR v. CA. In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its real property, 20 the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction. || Is the YMCA an educational institution within the purview of Article XIV, Section 4, par. 3 of the Constitution? We rule that it is not. The term "educational institution" or "institution of learning" has acquired a well-known technical meaning, of which the members of the Constitutional Commission are deemed cognizant. 38 Under the Education Act of 1982, such term refers to schools. 39 The school system is synonymous with formal education, 40 which "refers to the hierarchically structured and chronologically graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through the grades or move to the higher levels." 41 The Court has examined the "Amended Articles of Incorporation" and "By-Laws"

43 of the YMCA, but found nothing in them that even hints that it is a school or an educational institution. j. Others

i. Grant of tax exemption Sec. 28(4), Art VI. , 1987 Constitution. No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress.

ii. Veto of appropriation, revenue, tariff bills by the president Gonzales v. Macaraig. The veto power of the President is expressed in Article VI, Section 27 of the 1987 Constitution. Paragraph (1) refers to the general veto power of the President and if exercised would result in the veto of the entire bill, as a general rule. Paragraph (2) is what is referred to as the item-veto power or the line-veto power. It allows the exercise of the veto over a particular item or items in an appropriation, revenue, or tariff bill. As specified, the President may not veto less than all of an item of an Appropriations Bill. In other words, the power given the executive to disapprove any item or items in an Appropriations Bill does not grant the authority to veto a part of an item and to approve the remaining portion of the same item. Notwithstanding the elimination in Article VI, Section 27 (2) of the 1987 Constitution of any reference to the veto of a provision, the extent of the President's veto power as previously defined by the 1935 Constitution has not changed. This is

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because the eliminated proviso merely pronounces the basic principle that a distinct and severable part of a bill may be the subject of a separate veto. The restrictive interpretation urged by Gonzales et al. that the President may not veto a provision without vetoing the entire bill not only disregards the basic principle that a distinct and severable part of a bill may be the subject of a separate veto but also overlooks the Constitutional mandate that any provision in the general appropriations bill shall relate specifically to some particular appropriation therein and that any such provision shall be limited in its operation to the appropriation to which it relates. In other words, in the true sense of the term, a provision in an Appropriations Bill is limited in its operation to some particular appropriation to which it relates, and does not relate to the entire bill. The President promptly vetoed Section 55 (FY '89) and Section 16 (FY '90) because they nullify the authority of the Chief Executive and heads of different branches of government to augment any item in the General Appropriations Law for their respective offices from savings in other items of their respective appropriations, as guaranteed by Article VI, Section 25 (5) of the Constitution. Noteworthy is the fact that the power to augment from savings lies dormant until authorized by law. When Sections 55 (FY '89) and 16 (FY '90) prohibit the restoration or increase by augmentation of appropriations disapproved or reduced by Congress, they impair the constitutional and statutory authority of the President and other key officials to augment any item or any appropriation from savings in the interest of expediency and efficiency. The exercise of such authority in respect of disapproved or reduced items by no means vests in the Executive the power to rewrite the entire budget, the leeway granted being delimited to transfers within the department or branch concerned, the sourcing to come only from savings. More importantly, for such a special power as that of augmentation from savings, the same is merely incorporated in the General Appropriations Bill. An Appropriations Bill is "one the primary and specific aim of which is to make appropriation of money from the public treasury" (Bengzon v. Secretary of Justice, 292 U.S., 410, 57 S.Ct. 252). It is a legislative authorization of receipts and expenditures. The power of augmentation from savings, on the other hand, can by no means be considered a specific appropriation of money. It is a non-appropriation item inserted in an appropriation measure.

iii. Non-impairment of the jurisdiction of the Supreme Court Sec. 2, Art. VIII, , 1987 Constitution. The Congress shall have the power to define, prescribe, and apportion the jurisdiction of the various courts but may not deprive the Supreme Court of its jurisdiction over cases enumerated in Section 5 hereof.

No law shall be passed reorganizing the Judiciary when it undermines the security of tenure of its Members. Sec. 5(2[b]), Art. VIII, 1987 Constitution. The Supreme Court shall have the following powers: (2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of Court may provide, final judgments and orders of lower courts in: (b) All cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto. SMC v. Avelino. Tersely and bluntly put, petitioner would deny the jurisdiction of respondent Judge to pass upon the validity of a challenged ordinance in an appropriate action. To say the least, there is unorthodoxy in such an approach What immediately calls attention is its novelty. It is opposed to and is not in conformity with the accepted juridical norm that the validity of a statute, an executive order or ordinance is a matter for the judiciary to decide and that whenever in the disposition of a pending case such a question becomes unavoidable, then it is not only the power but the duty of the Court to resolve such a question. In the pending suit by respondent City, sought to be dismissed by petitioner corporation, it specifically prayed "that Ordinance No. 97, Series of 1973, of the herein plaintiff is valid, legal, and enforceable in accordance with law; ... 11 Since both under the Constitution and the Judiciary Act, respondent Judge is vested with jurisdiction to make such a declaration, it would be, at the very least, premature for the corrective power of this Tribunal to be interposed , just because he did not, "at [that] stage of the proceedings," grant -the motion to dismiss on the allegation that there was lack of jurisdiction.

iv. Revenue bills shall originate from the House of Representatives Sec. 24, Art VI, 1987 Constitution. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills, shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. Tolentino v. Sec. In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere amendments of the corresponding provisions of H. No. 11197. The very tabular comparison of the provisions of H. No. 11197 and S. No. 1630 attached as Supplement A to the basic petition of petitioner Tolentino, while showing differences between the two bills, at the same time indicates that the provisions of the Senate bill were precisely intended to be amendments to the House bill. || Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a mere amendment of the House bill, H. No. 11197 in its original form did not have to pass the Senate on second and three readings. It was enough that after it was passed on first reading it was referred to the Senate Committee on Ways and Means. Neither was it required that S. No. 1630 be passed by the House of Representatives before the two bills could be referred to the Conference Committee.

v. Infringement of press freedom Sec. 4, Art. III, 1987 Constitution. No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the people peaceably to assemble and petition the government for redress of grievances. Tolentino v. Sec. We have held that, as a general proposition, the press is not exempt from the taxing power of the State and that what the constitutional guarantee of free press prohibits are laws which single out the press or target a group belonging to the press for special treatment or which in any way discriminate against the press on the basis of the content of the publication, and R.A. No. 7716 is none of these.

vi. Grant of Franchise Sec. 11, Art. XII, 1987 Constitution. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. Tolentino v. Sec. PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific reference to P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional requirement, since it is already stated in the title that the law seeks to amend the pertinent provisions of the NIRC, among which is §103(q), in order to widen the base of the VAT. Actually, it is the bill which becomes a law that is required to express in its title the subject of legislation. The titles of H. No. 11197 and S. No. 1630 in fact specifically referred to §103 of the NIRC as among the provisions sought to be amended. We are satisfied that sufficient notice had been given of the pendency of these bills in Congress before they were enacted into what is now R.A. No. 7716.

5. Who may question the validity of a tax measure of expenditure of taxes – taxpayer’s suit Lozada v. COMELEC. [national assembly vacant seats] As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money is being illegally spent. The act complained of is the inaction of the COMELEC to call a special election, as is allegedly its ministerial duty under the constitutional provision above cited, and therefore, involves no expenditure of public funds. It is only when an act complained of, which may include a legislative enactment or statute, involves the illegal expenditure of public money that the so-called taxpayer suit may be allowed. Maceda v. Macaraig, supra. Gonzales v. Marcos. [CCP Funds] No standing The funds administered by the Center as coming from donations and contributions, with not a single centavo raised by taxation, and the absence of any pecuniary or monetary interest of petitioner that could in any wise be prejudiced distinct from those of the general public.

F. Tax Systems 1. Classification

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Sec. 28(1), Art. VI, 1987 Constitution. The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. Progressive system v. progressive rate of tax. System = where there are more direct taxes than indirect Rate = tax on a fixed percentage of the amount of property Tolentino v. Sec, supra.

2. Basic Principles of a Sound Tax System Fiscal adequacy – the sources of revenue should be sufficient to meet the demands of public expenditure Equality or theoretical justice – tax burden should be distributed in proportion to the taxpayer’s ability to pay Administrative feasibility – tax laws should be capable of convenient, just and effective administration or enforcement at a reasonable cost Chavez v. Ongpin. [new real property tax bases] We agree with the observation of the Office of the Solicitor General that without Executive Order No. 73, the basis for collection of real property taxes win still be the 1978 revision of property values. Certainly, to continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations.

G. Classification of Taxes 1. As to scope of the tax: National/Local Taxes

National – imposed by the national government NIRC taxes, customs duties Municipal/local Real estate tax, professional tax. Benguet Corp. v. CBAA. Realty taxes are national taxes collected by local government units – It is thus clear from the foregoing that it is the national gov’t, expressing itself through the legislative branch, that levies the RPT. Consequently, when local governments are required to fix the rates, they are merely constituted agents of the national gov’t in the enforcement of the RPT Code. The delegation of taxing power is not even involved here because the national gov’t has already imposed realty tax in Sec. 38, leaving only the enforcement to be done by local gov’t.

2. As to who shoulders the burden of the tax: Direct/Indirect Taxes Direct tax which is demanded from the person who also shoulders the burden of the taxl or tax for which the taxpayer is directly or

primarily liable or which he cannot shift to another; eg income tax, estate tax, community tax Indirect tax which is demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another,

falling finally upon the ultimate purchaser or consumer, or tax imposed upon goods before the reach the consumer who ultimately pays for it not as tax but as part of the purchase price; eg VAT, customs duties

Sec. 1, RA 7716. Section 99 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows: "Sec. 99. Persons Liable. — Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be liable to the value-added tax (VAT) imposed in Sections 100 to 102 of this Code. "The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rules likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of this Act. "The phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or an economic activity, including transactions incident thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. "The rules of regularity, to the contrary, notwithstanding, services as defined in this Code rendered in the Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or business." Tolentino v. Sec, supra. Phil. Acetylene v. CIR. [It is contended that the immunity thus given to the NPC would be impaired by the imposition of a tax on sales made to it because while the tax is paid by the manufacturer or producer, the tax is ultimately shifted by the latter to the former. The petitioner invokes in support of its position a 1954 opinion of the Secretary of Justice which ruled that the NPC is exempt from the payment of all taxes "whether direct or indirect.] "The phrase 'passed the tax on' is inaccurate, as obviously the tax is laid and remains on the manufacturer and on him alone. The purchaser does not really pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is all. . . . The price is the sum total paid for the goods. The amount added because of the tax is paid to get the goods and for nothing else. Therefore it is part of the price . . .". || It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to the purchaser. The method of listing the price and the tax separately and defining taxable gross receipts as the amount received less the amount of the tax added, merely avoids payment by the seller of a tax on the amount of the tax. The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is all and the amount added because of the tax is paid to get the goods and for nothing else. Maceda v. Macaraig, 1993. CIR v. Gotamco. [WHO; 3% contractor’s tax] In context, direct taxes are those that are demanded from the very person who, it is intended or desired, should pay them; while indirect taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else. (Pollock vs. Farmers, L & T Co., 1957 US 429, 15 S. Ct. 673, 39 Law. Ed. 759.) The contractor's tax is of course payable by the contractor but in the last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO. In the last analysis it is the WHO that will pay the tax indirectly through the contractor and it certainly cannot be said that 'this tax has no bearing upon the World Health Organization. || The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes which, although not imposed upon or paid by the Organization directly, form part of the price paid or to be paid by it. CIR v. PLDT. In context, direct taxes are those that are exacted from the very person who, it is intended or desired, should pay them; they are impositions for which a taxpayer is directly liable on the transaction or business he is engaged in. On the other hand, indirect taxes are those that are demanded, in the first instance, from, or are paid by, one person in the expectation and intention that he can shift the burden to someone else. Stated elsewise, indirect taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the price of goods sold or services rendered. || To put the situation in graphic terms, by tacking the VAT due to the selling price, the seller remains the person primarily and legally liable for the payment of the tax. What is shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of the tax. Stated differently, a seller who is directly and legally liable for payment of an indirect tax, such as the VAT on goods or services, is not necessarily the person who ultimately bears the burden of the same tax. It is the final purchaser or end-user of such goods or services who, although not directly and legally liable for the payment thereof, ultimately bears the burden of the tax. Exxonmobil v. CIR. The excise tax, when passed on to the purchaser, becomes part of the purchase price. == Excise taxes are imposed under Title VI of the NIRC. They apply to specific goods manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition, and to those that are imported.71 In effect, these taxes are imposed when two conditions concur: first, that the articles subject to tax belong to any of the categories of goods enumerated in Title VI of the NIRC; and second, that said articles are for domestic sale or consumption, excluding those that are actually exported|| BUT, As petitioner is not the statutory taxpayer, it is not entitled to claim a refund of excise taxes paid.

3. As to the object or subject matter of tax: Property/Personal/Poll or Capitation/Excise Person, poll or capitation tax of a fixed amount imposed on persons residing within a specified territory, whether citizens or not, without

regard to their property or the occupation or business in which they may be engaged; e.g. COMMUNITY TAX Property taxed imposed on property, in proportion either to its value, or in accordance with other reasonable methods of apportionment;

e.g. REAL ESTATE TAX Excise charge imposed upon the performance of an act, the enjoyment of a privilege or the engaging in an occupation, profession or

business; e.g. INCOME TAX, VAT, ESTATE TAX, DONOR’S TAX

http://www.lawphil.net/judjuris/juri2011/jan2011/gr_180909_2011.html#fnt71

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Villanueva v. City of Iloilo. [tenement houses] It is within neither the letter nor the spirit of the ordinance that an additional real estate tax is being imposed, otherwise the subject-matter would have been not merely tenement houses. On the contrary, it is plain from the context of the ordinance that the intention is to impose a license tax on the operation of tenement houses, which is a form of business or calling. The ordinance, in both its title and body, particularly sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which, by itself, means an "imposition or exaction on the right to use or dispose of property, to pursue a business, occupation, or calling, or to exercise a privilege." CIR v. CA. The ad valorem tax is to be computed on the basis of the market value of the mineral in its condition at the time of such removal and before it undergoes a chemical change through mfg process, as distinguished from a purely physical process which does not necessarily involve the change or transformation of the raw material into a composite distinct product. || A manufacturer, in order to be subjected to the necessity of paying the percentage tax imposed by Sec. 186 of the Tax Code, must be engaged in the sale, barter, or exchange of “personal property.” A person can hardly be considered as occupied or employed in the sale, barter or exchange when he has made one purchase and sale only. || considering that there was a series of transactions involved, plus the fact that there was an apparent protracted intention to profit from such activities, it can be safely concluded that ADMDC was habitually engaged in the leasing out of its plane, motor and dump truck, and is perforce subject to the contractor’s tax. Association of Customs Brokers v. Mun. Board. While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities, the rule should not be taken in its absolute sense if the nature and purpose of the tax as gathered from the context show that it is in effect an excise or a license tax. Thus, it has been held that "If a tax is in its nature an excise, it does not become a property tax because it is proportioned in amount to the value of the property used in connection with the occupation, privilege or act which is taxed. Every excise necessarily must finally fall upon and be paid by property and so may be indirectly a tax upon property; but if it is really imposed upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, it will be considered an excise." || It is also our opinion that the ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila and one registered in another place but occasionally comes to Manila and uses its streets and public highways. The distinction is important if we note that the ordinance intends to burden with the tax only those registered in the City of Manila as may be inferred from the word "operating" used therein. The word "operating" denotes a connotation which is akin to a registration, for under the Motor Vehicle Law no motor vehicle can be operated without previous payment of the registration fees. There is no pretense that the ordinance equally applies to motor vehicles who come to Manila for a temporary stay or for short errands, and it cannot be denied that they contribute in no small degree to the deterioration of the streets and public highway. The fact that they are benefited by their use they should also be made to share the corresponding burden. And yet such is not the case. This is an inequality which we find in the ordinance, and which renders it offensive to the Constitution.

4. As to the manner of computing the tax a. Ad Valorem – tax of a fixed proportion of the value of the property with respect to which the tax is assessed; requires the intervention of

assessors to estimate the value of property before the amount due from each taxpayer can be determined b. Specific

We Wa Yu v. Lipa. “A tax which imposes ‘a specific sum by the head or number, or some standard of weight or measurement, and which requires no assessment beyond a listing and classification of the objects to be taxed”, is a specific tax (61 C.J., 74). It is the sense that the tax on manufactured oils and other fuels is imposed by the National Internal Revenue Code (section 142, Commonwealth Act No. 466, as amended by section 11, Republic Act No. 56). The tax is considered a specific tax if the amount is imposed per liter of volume capacity.” It is therefore plain that the enactment of the ordinances in question is ultra vires.

5. As to graduation or rate a. Proportional tax based on a fixed percentage of the amount of the property, receipts, or other basis to be taxed. The rate of tax remains

constant for all levels of the tax base or any given income level Ex. Real Estate Tax Sec. 233, LGC. Rates of Levy. - A province or city or a municipality within the Metropolitan Manila Area shall fix a uniform rate of basic real property tax applicable to their respective localities as follows: (a) In the case of a province, at the rate not exceeding one percent (1%) of the assessed value of real property; and (b) In the case of a city or a municipality within the Metropolitan Manila Area, at the rate not exceeding two percent (2%) of the assessed value of real property.

b. Progressive taxes which increase as the tax base or bracket increase Example: Sec. 21(a), NIRC. Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines. Meaning of “digressive tax rate”. Tolentino v. Sec, supra. ABAKADA v. Ermita, supra. Chavez v. Ongpin, supra.

c. Regressive H. Some Fundamental Doctrines in Taxation

1. Situs of taxation a. Meaning of situs of taxation – “place of taxation”

Basic rule: the state where the subject to be taxed has a situs b. Situs of subjects of taxation

Persons – poll tax may be levied upon persons who are inhabitants/residents of the state, whether citizen or not Real property – real estate is subject to taxation in the state in which it is located LEX REI SITAE (subject to the law of the country

where it is situated) Tangible personal property – modern rule: taxable in the state where it has actual situs – where it is physically lovated, although the

owner resides in another jurisdiction Intangible personal property – credits, bank deposits, PNs, mortgage loans - the situs for purposes of taxation is at the domicile of the

owner MOBILIA SEQUUNTUR PERSONAM – the situs of personal property is the domicile of the owner Income where the income is derived CIR v. BOAC, supra. Wells Fargo v. CIR. Originally, the settled law in the United States is that intangibles have only one situs for the purpose of inheritance tax, and that such situs is in the domicile of the decedent at the time of his death. But this rule has, of late, been relaxed. The maxim mobilia sequuntur personam, upon which the rule rests, has been described as a mere "fiction of law having its origin in consideration of general convenience and public policy, and cannot be applied to limit or control the right of the state to tax property within its jurisdiction" (State Board of Assessors vs. Comptoir National D'Escompte, 191 U. S., 388, 403, 404), and must "yield to established fact of legal ownership, actual presence and control elsewhere, and cannot be applied if to do so result in inescapable and patent injustice." (Safe Deposit & Trust Co. vs. Virginia, 280 U. S., 83, 91-92) There is thus a marked shift from artificial postulates of law, formulated for reasons of convenience, to the actualities of each case.An examination of the adjudged cases will disclose that the relaxation of the original rule rests on either of two fundamental considerations: (1) upon the recognition of the inherent power of each government to tax persons, properties and rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the principle that as o intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships which may be entered into with respect thereto. || In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. || The owner residing in California has extended here her activities with respect to her intangibles so as to avail herself of the protection and benefit of the Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be upheld. Tan v. del Rosario, supra. Sec. 42, NIRC. Income from Sources Within the Philippines.-

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(A) Gross Income From Sources Within the Philippines. - The following items of gross income shall be treated as gross income from sources within the Philippines:

(1) Interests. - Interests derived from sources within the Philippines, and interests on bonds, notes or other interest-bearing obligation of residents, corporate or otherwise; (2) Dividends. - The amount received as dividends:

(a) from a domestic corporation; and (b) from a foreign corporation, unless less than fifty percent (50%) of the gross income of such foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends or for such part of such period as the corporation has been in existence) was derived from sources within the Philippines as determined under the provisions of this Section; but only in an amount which bears the same ration to such dividends as the gross income of the corporation for such period derived from sources within the Philippines bears to its gross income from all sources.

(3) Services. - Compensation for labor or personal services performed in the Philippines; (4) Rentals and royalties. - Rentals and royalties from property located in the Philippines or from any interest in such property, including rentals or royalties for –

(a) The use of or the right or privilege to use in the Philippines any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right; (b) The use of, or the right to use in the Philippines any industrial, commercial or scientific equipment; (c) The supply of scientific, technical, industrial or commercial knowledge or information; (d) The supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the application or enjoyment of, any such property or right as is mentioned in paragraph (a), any such equipment as is mentioned in paragraph (b) or any such knowledge or information as is mentioned in paragraph (c); (e) The supply of services by a nonresident person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person; (f) Technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme; and (g) The use of or the right to use:

(i) Motion picture films; (ii) Films or video tapes for use in connection with television; and (iii) Tapes for use in connection with radio broadcasting.

(5) Sale of Real Property. - gains, profits and income from the sale of real property located in the Philippines; and (6) Sale of Personal Property. - gains; profits and income from the sale of personal property, as determined in Subsection (E) of this Section.

(B) Taxable Income From Sources Within the Philippines. – (1) General Rule. - From the items of gross income specified in Subsection (A) of this Section, there shall be deducted the expenses, losses and other deductions properly allocated thereto and a ratable part of expenses, interests, losses and other deductions effectively connected with the business or trade conducted exclusively within the Philippines which cannot definitely be allocated to some items or class of gross income: Provided, That such items of deductions shall be allowed only if fully substantiated by all the information necessary for its calculation. The remainder, if any, shall be treated in full as taxable income from sources within the Philippines. (2) Exception. - No deductions for interest paid or incurred abroad shall be allowed from the item of gross income specified in subsection (A) unless indebtedness was actually incurred to provide funds for use in connection with the conduct or operation of trade or business in the Philippines.

(C) Gross Income From Sources Without the Philippines. - The following items of gross income shall be treated as income from sources without the Philippines:

(1) Interests other than those derived from sources within the Philippines as provided in paragraph (1) of Subsection (A) of this Section;

(2) Dividends other than those derived from sources within the Philippines as provided in paragraph (2) of Subsection (A) of this Section;

(3) Compensation for labor or personal services performed without the Philippines; (4) Rentals or royalties from property located without the Philippines or from any interest in such property including rentals or

royalties for the use of or for the privilege of using without the Philippines, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises and other like properties; and

(5) Gains, profits and income from the sale of real property located without the Philippines.

(D) Taxable Income From Sources Without the Philippines. - From the items of gross income specified in Subsection (C) of this Section there shall be deducted the expenses, losses, and other deductions properly apportioned or allocated thereto and a ratable part of any expense, loss or other deduction which cannot definitely be allocated to some items or classes of gross income. The remainder, if any, shall be treated in full as taxable income from sources without the Philippines. (E) Income From Sources Partly Within and Partly Without the Philippines.- Items of gross income, expenses, losses and deductions, other than those specified in Subsections (A) and (C) of this Section, shall be allocated or apportioned to sources within or without the Philippines, under the rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner. Where items of gross income are separately allocated to sources within the Philippines, there shall be deducted (for the purpose of computing the taxable income therefrom) the expenses, losses and other deductions properly apportioned or allocated thereto and a ratable part of other expenses, losses or other deductions which cannot definitely be allocated to some items or classes of gross income. The remainder, if any, shall be included in full as taxable income from sources within the Philippines. In the case of gross income derived from sources partly within and partly without the Philippines, the taxable income may first be computed by deducting the expenses, losses or other deductions apportioned or allocated thereto and a ratable part of any expense, loss or other deduction which cannot definitely be allocated to some items or classes of gross income; and the portion of such taxable income attributable to sources within the Philippines may be determined by processes or formulas of general apportionment prescribed by the Secretary of Finance. Gains, profits and income from the sale of personal property produced (in whole or in part) by the taxpayer within and sold without the Philippines, or produced (in whole or in part) by the taxpayer without and sold within the Philippines, shall be treated as derived partly from sources within and partly from sources without the Philippines.

Gains, profits and income derived from the purchase of personal property within and its sale without the Philippines, or from the purchase of personal property without and its sale within the Philippines shall be treated as derived entirely form sources within the country in which sold: Provided, however, That gain from the sale of shares of stock in a domestic corporation shall be treated as derived entirely form sources within the Philippines regardless of where the said shares are sold. The transfer by a nonresident alien or a foreign corporation to anyone of any share of stock issued by a domestic corporation shall not be effected or made in its book unless: (1) the transferor has filed with the Commissioner a bond conditioned upon the future payment by him of any income tax that may be due on the gains derived from such transfer, or (2) the Commissioner has certified that the taxes, if any, imposed in this Title and due on the gain realized from such sale or transfer have been paid. It shall be the duty of the transferor and the corporation the shares of which are sold or transferred, to advise the transferee of this requirement. (F) Definitions. - As used in this Section the words 'sale' or 'sold' include 'exchange' or 'exchanged'; and the word 'produced' includes 'created', 'fabricated,' 'manufactured', 'extracted,' 'processed', 'cured' or 'aged.'

c. Multiplicity of situs The same income/intangible may be subject to taxation in several taxing jurisdictions Remedy: grant exemptions, enter into treaties

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CIR v. de Lara. From the foregoing, it is clear that as a non-resident of the Philippines, the only properties of his estate subject to estate and inheritance taxes are those shares of stock issued by Philippines corporations, valued at P51,906.45. It is true, as stated by the Tax Court, that while it may be the general rule that personal property, like shares of stock in the Philippines, is taxable at the domicile of the owner (Miller) under the doctrine of mobilia secuuntur persona, nevertheless, when he during his life time,. . . extended his activities with respect to his intangibles, so as to avail himself of the protection and benefits of the laws of the Philippines, in such a way as to bring his person or property within the reach of the Philippines, the reason for a single place of taxation no longer obtains- protection, benefit, and power over the subject matter are no longer confined to California, but also to the Philippines CIR v. Baier-Nickel, supra.

2. Double taxation a. Meaning of double taxation in the strict sense/in the broad sense

Strict sense: (a) Taxing twice (b) By the same taxing authority (c) Within the same jurisdiction/taxing district (d) For the same purpose (e) In the same taxing period (f) Some of the property in the territory

Broad sense – examples: o A tax upon corporation for its property and upon its shareholders for their shares o An excise tax upon certain use of property and a property tax upon the same property o A tax upon the same property imposed by 2 different states

b. Instances of double taxation in its broad sense Villanueva v. City of Iloilo, supra. CIR v. Solidbank. Under the Tax Code, the earnings of banks from “passive” income are subject to a twenty percent final withholding tax (20% FWT). This tax is withheld at source and is thus not actually and physically received by the banks, because it is paid directly to the government by the entities from which the banks derived the income. Apart from the 20% FWT, banks are also subject to a five percent gross receipts tax (5% GRT) which is imposed by the Tax Code on their gross receipts, including the “passive” income. || Since the 20% FWT is constructively received by the banks and forms part of their gross receipts or earnings, it follows that it is subject to the 5% GRT. After all, the amount withheld is paid to the government on their behalf, in satisfaction of their withholding taxes. That they do not actually receive the amount does not alter the fact that it is remitted for their benefit in satisfaction of their tax obligations. || Stated otherwise, the fact is that if there were no withholding tax system in place in this country, this 20 percent portion of the “passive” income of banks would actually be paid to the banks and then remitted by them to the government in payment of their income tax. The institution of the withholding tax system does not alter the fact that the 20 percent portion of their “passive” income constitutes part of their actual earnings, except that it is paid directly to the government on their behalf in satisfaction of the 20 percent final income tax due on their “passive” incomes. || NO DOUBLE TAXATION:

First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT is the passive income generated in the form of interest on deposits and yield on deposit substitutes, while the subject matter of the GRT is the privilege of engaging in the business of banking. Second, although both taxes are national in scope because they are imposed by the same taxing authority -- the national government under the Tax Code -- and operate within the same Philippine jurisdiction for the same purpose of raising revenues, the taxing periods they affect are different. The FWT is deducted and withheld as soon as the income is earned, and is paid after every calendar quarter in which it is earned. On the other hand, the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in which it is earned. Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to withholding, while the GRT is a percentage tax not subject to withholding

CIR v. Citytrust. The above cases are unanimous in defining “gross receipts” as “the entire receipts without any deduction.” First, Section 4(e) merely recognizes that income may be taxable either at the time of its actual receipt or its accrual, depending on the accounting method of the taxpayer. It does not really exclude accrued interest income from the taxable gross receipts but merely postpones its inclusion until actual payment of the interest to the lending bank. Thus, while it is true that Section 4(e) states that “the rates of taxes to be imposed on the gross receipts of such financial institutions shall be based on all items of income actually received,” it goes on to distinguish actual receipt from accrual, i.e., that “mere accrual shall not be considered, but once payment is received in such accrual or in case of prepayment, then the amount actually received shall be included in the tax base of such financial institutions.” And second, Revenue Regulations No. 12-80, issued on November 7, 1980, had been superseded by Revenue Regulations No. 17-84 issued on October 12, 1984. Section 4(e) of Revenue Regulations No. 12-80 provides that only items of income actually received shall be included in the tax base for computing the GRT. On the other hand, Section 7(c) of Revenue Regulations No. 17-84 includes all interest income in computing the GRT

|| Double taxation means taxing for the same tax period the same thing or activity twice, when it should be taxed but once, for the same purpose and with the same kind of character of tax.1[26] This is not the situation in the case at bar. The GRT is a percentage tax under Title V of the Tax Code ([Section 121], Other Percentage Taxes), while the FWT is an income tax under Title II of the Code (Tax on Income). The two concepts are different from each other. In Solidbank Corporation this Court defined that a percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services. It is not subject to withholding. An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable year. It is subject to withholding. Thus, there can be no double taxation here as the Tax Code imposes two different kinds of taxes.

c. Constitutionality of double taxation GR: consti does not prohibit double taxation, hence, it may not be invoked as a defense against the validity of a tax law City of Baguio v. de Leon. As to why double taxation is not violative of due process, Justice Holmes made clear in this language: "The objection to the taxation as double may be laid down on one side. ... The 14th Amendment [the due process clause] no more forbids double taxation than it does doubling the amount of a tax, short of confiscation or proceedings unconstitutional on other grounds." || At any rate, it has been expressly affirmed by us that such an "argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city ..., it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof." Pepsi v. Butuan, supra. CIR v. Manila Jockey Club. The 5% does not belong to the club. It is merely held in trust for distribution as prizes to the owners of winning horses. It is destined for no other object than the payment of prizes and the club cannot otherwise appropriate this portion without incurring liability to the owners of winning horses. It cannot be considered as an item of expense because the sum used for the payment of prizes is not taken from the funds of the club but from a certain portion of the total bets especially earmarked for that purpose

3. Escape from taxation a. Shifting of tax burden

Shifting is the transfer of the burden of a tax by the original payer or the one on whom tax was assessed or imposed to another or someone else

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i. Ways of shifting the tax burden ii. Taxes that can be shifted

Sec. 105, NIRC. Persons Liable. - Any person who, in the course of trade or business, sells barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716.

The phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity.

The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines by nonresident foreign persons shall be considered as being course of trade or business.

iii. Meaning of impact and incidence of taxation Relations among impact, shifting, and incidence of a tax Impact that point on which a tax is originally imposed Incidence – that point on which the tac burden finally rests or settles down.

IMPACT SHIFTING INCIDENCE b. Tax evasion – the use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of tax

Elements of tax evasion (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; and (3) a course of action or failure of action which is unlawful. Republic v. Gonzales. None of the above-quoted covenants shields a concessionaire, like the appellant, from the payment of the income tax. For one thing, even the exemption in favor of members of the United States Armed Forces and nationals of the United States does not include income derived from Philippine sources. || The appellant cannot seek refuge in the use of "excise" or "other taxes or imposts" in paragraph 1 of Article XVIII of the Military Bases Agreement, because, as already stated, said terms are employed with specific application to the right to establish agencies and concessions within the bases and to the merchandise or services sold or dispensed by such agencies or concessions || As rightly argued by the Solicitor General's office, since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case. The failure of the appellant to declare for taxation purposes his true and actual income derived from his furniture business at the Clark Field Air Base for two consecutive years is an indication of his fraudulent intent to cheat the Government of its due taxes. CIR v. Estate of Toda. Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. || Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; and (3) a course of action or failure of action which is unlawful.

c. Tax avoidance – the use by taxpayer of legally permissible alternative tax rates or methods of assessing tacable property or income, in order to avoid or reduce tax liability Delpher Trades v. IAC. In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes. || The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted." Yutivo Sons v. CTA. It must be remembered that the fraud which respondent Collector imputed to Yutivo must be related to its filing of sales tax returns of less taxes than were legally due. The allegation of fraud, however, cannot be sustained without the showing that Yutivo, in filing said returns, did so fully knowing that the taxes called for therein called for therein were less than what were legally due. || Here, although the automatic increase in the amount of life insurance coverage was to take effect later on, the date of its effectivity, as well as the amount of the increase, was already definite at the time of the issuance of the policy. Thus, the amount insured by the policy at the time of its issuance necessarily included the additional sum covered by the automatic increase clause because it was already determinable at the time the transaction was entered into and formed part of the policy. CIR v. Lincoln. Finally, it should be emphasized that while tax avoidance schemes and arrangements are not prohibited,10 tax laws cannot be circumvented in order to evade the payment of just taxes. In the case at bar, to claim that the increase in the amount insured (by virtue of the automatic increase clause incorporated into the policy at the time of issuance) should not be included in the computation of the documentary stamp taxes due on the policy would be a clear evasion of the law requiring that the tax be computed on the basis of the amount insured by the policy.

d. Exemption from taxation i. Meaning of exemption from taxation

The grant of immunity to particular persons or corporations or to persons or corporations of a particular class from a tax which persons and corporations generally within the same state are obliged to pay

Greenfield v. Meer. Personal and additional exemptions claimed by appellant should be credited against or deducted from the net income. “Exception is an immunity or privilege; it is freedom from a charge or burden to which others are subjected.” CIR v. Magsaysay Lines. Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to the taxpayer’s role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its subsequent incarnations,19 the tax is levied only on the sale, barter or exchange of goods or services by persons who engage in such activities, in the course of trade or business. These transactions outside the course of trade or business may invariably contribute to the production chain, but they do so only as a matter of accident or incident. As the sales of goods or services do not occur within the course of trade or business, the providers of such goods or services would hardly, if at all, have the opportunity to appropriately credit any VAT liability as against their own accumulated VAT collections since the accumulation of output VAT arises in the first place only through the ordinary course of trade or business.

ii. Compared with/differentiated from other terms (a) Tax remission/tax condonation

Juan Luna Subd. v. Sarmiento. There is no ambiguity in the language of the law. It says "taxes and penalties due and payable," the literal meaning of which taxes owned or owing. (See Webster's New International Dictionary) Note that the provision speaks of penalties, and note that penalties accrue only when taxes are not paid on time. The word "remit" underlined by the appellant does not help its theory, for to remit to desist or refrain from exacting, inflicting, or enforcing something as well as to restore what has already been taken. (Webster's New International Dictionary.) || The remission of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination. Each set of taxes is a class by itself, and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike. They are not.


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Surigao Consolidated v. CIR. Petitioner argues that since the law condones the taxes due from taxpayers who failed to pay their taxes, it would be unfair to deny this benefit to those taxpayers who had been prompt in paying theirs. The argument merits careful consideration. At first it would seem to be sound and logical. But the aforequoted section clearly refers to the condonation of unpaid taxes only. The condonation of a tax liability is equivalent and is in the nature of a tax exemption. Being so, it should be sustained only when expressed in explicit terms, and it cannot be extended beyond the plain meaning of those terms. It is the universal rule that he who claims an exemption from his share of the common burden of taxation must justify his claim by showing that the Legislature intended to exempt him by words too plain to be mistaken.

(b) Tax amnesty RA 9399. AN ACT DECLARING A ONE-TIME AMNESTY ON CERTAIN TAX AND DUTY LIABILITIES, INCLUSIVE OF FEES, FINES, PENALTIES, INTEREST AND OTHER ADDITIONS THERETO, INCURRED BY CERTAIN BUSINESS ENTERPRISES OPERATING WITHIN THE SPECIAL ECONOMIC ZONES AND FREEPORTS CREATED UNDER PROCLAMATION NO. 163, SERIES OF 1993; PROCLAMATION NO. 216, SERIES OF 1993; PROCLAMATION NO. 120, SERIES OF 1994; AND PROCLAMATION NO, 984, SERIES OF 1997, PURSUANT TO SECTION 15 OF REPUBLIC ACT NO. 7227, AS AMENDED, AND FOR OTHER PURPOSES RA 9480. AN ACT ENHANCING REVENUE ADMINISTRATION AND COLLECTION BY GRANTING AN AMNESTY ON ALL UNPAID INTERNAL REVENUE TAXES IMPOSED BY THE NATIONAL GOVERNMENT FOR TAXABLE YEAR 2005 AND PRIOR YEARS CIR v. CTA. By its very nature, a tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it, and in this sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance to do so and thereby become a part of the new society with a clean slate. To follow [the restrictive application of Revenue Memorandum Order No. 4-87 pressed by petitioner Commissioner would be to work against the raison d'etre of E.O. 41, as amended, i.e., to raise government revenues by encouraging taxpayers to declare their untaxed income and pay the tax due thereon. Republic v. IAC. Even assuming that the deficiency tax assessment of P17,117.08 against the Pastor spouses were correct, since the latter have already paid almost the equivalent amount to the Government by way of amnesty taxes under P.D. No. 213, and were granted not merely an exemption, but an amnesty, for their past tax failings, the Government is estopped from collecting the difference between the deficiency tax assessment and the amount already paid by them as amnesty tax. People v Castañeda. Thus, entitlement to benefits of P.D. No. 370 would have the effect of condoning or extinguishing the liabilities consequent upon possession of false and counterfeit internal revenue labels; the manufacture of alcoholic products subject to specific tax without having paid the annual privilege tax therefor, and the possession, custody and control of locally manufactured articles subject to specific tax on which the taxes had not been paid in accordance with law, in other words, the criminal liabilities sought to be imposed upon the accused respondents by the several informations quoted above. || It should be underscored, secondly, that to be entitled to the extinction of liability provided by P.D. No. 370, the claimant must have voluntarily disclosed his previously untaxed income or wealth and paid the required fifteen percent (15%) tax on such previously untaxed income or wealth imposed by P.D. No.370. 6 Where the disclosure of such previously untaxed income or wealth was not voluntary but rather the accompaniment or result of tax cases or tax assessments already pending as of 31 December 1973, the claimant is not entitled to the benefits of P.D. No. 370. Section 1 (a) (4) of P.D. No. 370, expressly excluded from the coverage of P.D. No. 370: "tax cases which are the subject of a valid information under R.A. No. 2338 as of December 31, 1973." 7 In the instant case, the violations of the National Internal Revenue Code with which the respondent accused were charged, had already been discovered by the BIR when P.D. No. 370 took effect on 9 January 1974, by reason of the sworn information or affidavit-complaints filed by informers with the BIR under Republic Act No. 2338 prior to 31 December 1973 Pascual v. CIR. The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. There must be a clear intent to form a partnership, the existence of a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the whole property. ||In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes. || And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is no such existing unregistered partnership with a distinct personality nor with assets that can be held liable for said deficiency corporate income tax, then petitioners can be held individually liable as partners for this unpaid obligation of the partnership p. However, as petitioners have availed of the benefits of tax amnesty as individual taxpayers in these transactions, they are thereby relieved of any further tax liability arising therefrom. CIR v. Marubeni. There are 3 types of taxes involved herein – income tax, branch profit remittance tax and contractor’s tax. The CIR contends that Marubeni cannot avail of the amnesty granted because it falls on the exceptions in Sec. 4(b) of EO 41 which states that those with income tax cases already filed in court as of the effectivity of the law cannot avail. As for the IT and DBPRT assessment, Marubeni properly availed of the amnesty because the case was not yet already filed in court when the law took effect. However, as for the contractor’s tax, since it’s a business tax, its amnesty program only became effective when EO 41 was amended by EO64 (amendatory acts operate prospectively) BUT, A contractor’s tax is a tax imposed upon the privilege of engaging in business. Being an excise tax, it can be levied by the taxing authority only when the acts, privileges, or business are done or performed within the jurisdiction of said authority. It cannot be imposed on an occupation or privilege outside the taxing district.

(c) Zero-rating (VAT) Sec. 106, NIRC. Value-Added Tax on Sale of Goods or Properties. – (A) Rate and Base of Tax. - There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.

(1) The term 'goods' or 'properties' shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include:

(a) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business; (b) The right or the privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill,

trademark, trade brand or other like property or right; (c) The right or the privilege to use in the Philippines of any industrial, commercial or scientific equipment; (d) The right or the privilege to use motion picture films, tapes and discs; and (e) Radio, television, satellite transmission and cable television time.

The term 'gross selling price' means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the value-added tax. The excise tax, if any, on such goods or properties shall form part of the gross selling price. (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:

(a) Export Sales. - The term 'export sales' means: (1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping

arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said

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buyer's goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

(3) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production;

(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and (5) Those considered export sales under Executive Order NO. 226, otherwise known as the Omnibus Investment

Code of 1987, and other special laws. (b) Foreign Currency Denominated Sale. - The phrase 'foreign currency denominated sale' means sale to a nonresident of goods, except those mentioned in Sections 149 and 150, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). (c) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate.

(B) Transactions Deemed Sale. - The following transactions shall be deemed sale: (1) Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business; (2) Distribution or transfer to:

(a) Shareholders or investors as share in the profits of the VAT-registered persons; or (b) Creditors in payment of debt;

(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned; and (4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation.

(C) Changes in or Cessation of Status of a VAT-registered Person. - The tax imposed in Subsection (A) of this Section shall also apply to goods disposed of or existing as of a certain date if under circumstances to be prescribed in rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner, the status of a person as a VAT-registered person changes or is terminated. (D) Determination of the Tax. –

(1) The tax shall be computed by multiplying the total amount indicated in the invoice by one-eleventh (1/11). (2) Sales Returns, Allowances and Sales Discounts. - The value of goods or properties sold and subsequently returned or for

which allowances were granted by a VAT-registered person may be deducted from the gross sales or receipts for the quarter in which a refund is made or a credit memorandum or refund is issued. Sales discount granted and indicated in the invoice at the time of sale and the grant of which does not depend upon the happening of a future event may be excluded from the gross sales within the same quarter it was given.

Authority of the Commissioner to Determine the Appropriate Tax Base. - The Commissioner shall, by rules and regulations prescribed by the Secretary of Finance, determine the appropriate tax base in cases where a transaction is deemed a sale, barter or exchange of goods or properties under Subsection (B) hereof, or where the gross selling price is unreasonably lower than the actual market value.

(d) Exclusion/deduction iii. Kinds of tax exemption

Atlas Fertilizer v. CIR. [partial exemption to total exemption] We feel that AFC need not adduce further evidence to show that it is entitled to exemption. It is to be observed that there is no dispute that AFC is engaged in the manufacturing capture of fertilizer, as the very name of AFC suggests the nature of its business. It is also pertinent to state that when R. A. 3050 took effect, AFC was already enjoying partial exemption under R.A. 901 as a new and necessary industry engaged in the manufacture of fertilizer. Furthermore, when the Secretary of Finance, on February 19, 1962, approved AFC's application for tax exemption under R. A. 3050, We believe that he already considered that the importations were needed by AFC for the manufacture of fertilizer. This may be inferred from the fact that before the Secretary of Finance approves an application, he requires applicants to submit an application which "shall be in the form prescribed by the Secretary of Finance and contain detailed and complete information caged for in such form. It shall contain a complete of raw materials, supplies, con- re/containers, and fuel needed and for the exclusive use in the manufacture of fertilizer. UST v. CIR. Mere reference to a tax credit without express grant is not an admission that a refund is due. || Doctrine of equitable recoupment; requisites: (1) identity of cross-claiming parties; (2) germaneness of the cross claims to the same subject matter. The tax case refer to recoupment as an equitable doctrine, founded upon the injustice of permitting recovery by one party with respect to a transaction in connection with which the opposite party has just cross demands. CIR v. Phil. Ace Lines. There is no constitutional injunction against granting tax exemptions to particular persons. In fact, it is not unusual to grant legislative franchises to specific individuals or entities, conferring tax exemptions thereto. What the fundamental law forbids is the denial of equal protection such as through unreasonable discrimination or classification. || Furthermore, Section 14 of the Law on Reparations, as amended, exempts from the compensating tax, not particular persons but persons belonging to a particular class. Indeed, appellants do not assail the Constitutionality of said section 14, insofar as it grants exemptions to end-users who, after the approval of Republic Act No. 3079, on June 17, 1961, purchased reparations goods procured by the Commission. From the view point of Constitutional Law, especially the equal protection clause, there is no difference between the grant of exemption to said end-users, and the extension of the grant to those whose contracts of purchase and sale were made before said date, under Republic Act No. 1789. Caltex v. COA, supra.

iv. Nature of the power to grant tax exemption Basco v. Pagcor, supra. Maceda v. Macaraig, supra.

v. Rationale/grounds for tax exemption Some public benefit or interest, which the law-makign body considers sufficient to offset the monetary loss entailed in the grant of

the exemption Tolentino v. Sec, supra. Maceda v. Macaraig, supra. Davao Light v. Commissioner of Customs. In operating and maintaining a power plant, power stations and transmission lines in Davao City, as duly authorized in its charter, the NPC cannot be considered as posing competition to petitioner's business. In fact, there is evidence on record that the NPC does not sell electric lower directly to the general public; instead, it did sell lower to petitioner for resale to the latter's customers. In other words, the NPC is even the source of petitioner's merchandise; it is aiding petitioner in its business operations, not competing with it. || Section 1 of Republic Act 358, approved on 4 June 1949, amended Section 2 (k) of Commonwealth Act 120, which authorized the NPC to "contract indebtedness and issue bonds subject to the approval of the President of the Philippines, upon recommendation of the Secretary of Finance" in an amount not to exceed one hundred seventy million five hundred pesos. Then in its Section 2, the same law provided: To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its provinces, cities, and municipalities." Tan Kim Kee v. CTA. If, as contended by the petitioner, there was no intention to limit the exemption of agricultural products, then it may well be wondered why the Legislature found it necessary to change at all the terms of the exemption; and even further, it may be asked why, barely a year later, it was found proper to restore (by R.A. No. 1856) the primitive terms of the exemption of agricultural products "whether in their original form or not". It is not to be presumed that the Legislature, in making such changes, was indulging in mere semantic exercise. There must have been some purpose in making them, and the rational explantion is that the coverage of the exemption was being broadened by R.A. No. 1612, as expressly stated in the original House Bill No. 5819 that later became said Act; and

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that the policy change was later found inadvisable, so that the statute was reworded by R.A. 1856 to corresponded to the original terminology so as to restore the original exemption || The legislative intent to increase revenue by widening the coverage of taxable subjects is evident under Republic Act 1612, and by it the exempt agricultural products were only those that remain in their original form, and have not undergone the process of manufacture. NPC v. Presiding Judge. It is contrary to the clear intent of the law to withdraw from all units of government, including government-owned or controlled corporations their exemptions from all kinds of taxes. Had it been otherwise, then the law would have said so. Not having distinguished as to the kinds of tax exemptions withdrawn, the plain meaning is that all tax exemptions are covered. There the law does not distinguish, neither must we. || The proceeds of the real property tax are divided among the province, city or municipality where the property subject to the tax is situated and shall be applied by the respective local government unit for its own use and benefit. Even the barrio where the property is situated shares in the real property tax collections. Davao Gulf v. CIR. A tax cannot be imposed unless it is supported by the clear and express language of a statute; 19 on the other hand, once the tax is unquestionably imposed, "[a] claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken." 20 Since the partial refund authorized under Section 5, RA 1435, is in the nature of a tax exemption, 21 it must be construed strictissimi Juris against the grantee. Hence, petitioner's claim of refund on the basis of the specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to be mistaken. || We have carefully scrutinized RA 1435 and the subsequent pertinent statutes and found no expression of a legislative will authorizing a refund based on the higher rates claimed by petitioner. The mere fact that the privilege of refund was included in Section 5, and not in Section 1, is insufficient to support petitioner's claim. When the law itself does not explicitly provide that a refund under RA 1435 may be based on higher rates which were nonexistent at the time of its enactment, this Coure cannot presume otherwise. A legislative lacuna cannot be filled by judicial fiat.

vi. Nature of tax exemption Phil. Acetylene v. CIR, supra. Wonder Mech. V. CTA. From the above-quoted provisions of the law, it is clear that an industry to be entitled to tax exemption must be "new and necessary" and that the tax exemption was granted to new and necessary industries as an incentive to greater and adequate production of products made scarce by the second world war which wrought havoc on our national economy, a production "sufficient to meet local demand or consumption"; that will contribute "to the attainment of a stable and balanced national economy"; an industry that "will make its products available to the general public in quantities and at prices which will justify its operation." || Viewed in the light of the foregoing reasons for the State grant of tax exemption, We are firmly convinced that petitioner was granted tax exemption in the manufacture and sale "of machines for making cigarette paper, pails, lead washers, nails, rivets, candies, etc.", as explicitly stated in the Certificate of Exemption (Annex A of the petition in G.R. No. L-22805), but certainly not for the manufacture and sale of the articles produced by those machines. PLDT v. Davao. R.A. No. 7925 is thus a legislative enactment designed to set the national policy on telecommunications and provide the structures to implement it to keep up with the technological advances in the industry and the needs of the public. The thrust of the law is to promote gradually the deregulation of the entry, pricing, and operations of all public telecommunications entities and thus promote a level playing field in the telecommunications industry. There is nothing in the language of §23 nor in the proceedings of both the House of Representatives and the Senate in enacting R.A. No. 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by the LGC. CIR v. PAL. In allowing respondent to carry over its net loss for five consecutive years following the year said loss was incurred, Presidential Decree No. 1590 takes into account the possibility that respondent shall be in a net loss position for six years straight, during which it shall have zero basic corporate income tax liability. The Court also notes that net loss carry-over may only be used in the computation of basic corporate income tax. Hence, if respondent is required to pay a franchise tax every time it has zero basic corporate income tax liability due to net loss, then it shall never have the opportunity to avail itself of the benefit of net loss carry-over.

vii. Laws granting tax exemption/tax incentives (a) Constitution

Art. 28(3), Art. VI,. 1987 Constitution. Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. Sec. 4(3), Art. XIV, 1987 Constitution. All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law.

Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions, subject to the limitations provided by law, including restrictions on dividends and provisions for reinvestment. Sec. 4(4), Art. XIV, 1987 Constitution. Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax.

(b) NIRC (c) Special Laws (d) Treaty/International Agreement

I. Philippine Tax Laws and Regulations 1. Nature of Tax Laws

Hilado v. CIR. Petitioner’s contention that during the last war and as a consequence of enemy occupation in the Philippines “there was no taxable year” within the meaning of our internal revenue laws because during that period they were unenforceable, is without merit. It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy. || “Furthermore, it is a legal maxim, that excepting that of a political nature, ‘Law once established continues until changed by some competent legislative power. It is not changed merely by change of sovereignty.” Republic v. vda. de Fernandez. It has also been held that in order to declare a tax as transgressing the constitutional limitation, it must be so harsh and oppressive in its retroactive application (Idem.). But we hold that far from being unjust or harsh and oppressive our war profits tax is both wise and just.

2. Sources of Tax Laws a. Constitution b. NIRC c. Tariff and Customs Code d. LGC Book II (RA 7160) e. Local tax ordinance/city or municipal tax codes f. Tax treaties/Internation agreements g. Special laws h. Decisions of the SC/CTA i. Revenue rules and regulations/administrative rulings and opinions

Sec. 245, NIRC. Specific Provisions to be Contained in Rules and Regulations. - The rules and regulations of the Bureau of Internal Revenue shall, among other things, contain provisions specifying, prescribing or defining: (a) The time and manner in which Revenue Regional Director shall canvass their respective Revenue Regions for the purpose of discovering

persons and property liable to national internal revenue taxes, and the manner in which their lists and records of taxable persons and taxable objects shall be made and kept;

(b) The forms of labels, brands or marks to be required on goods subject to an excise tax, and the manner in which the labelling, branding or marking shall be effected;

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(c) The conditions under which and the manner in which goods intended for export, which if not exported would be subject to an excise tax, shall be labelled, branded or marked;

(d) The conditions to be observed by revenue officers respecting the institutions and conduct of legal actions and proceedings; (e) The conditions under which goods intended for storage in bonded warehouses shall be conveyed thither, their manner of storage and the

method of keeping the entries and records in connection therewith, also the books to be kept by Revenue Inspectors and the reports to be made by them in connection with their supervision of such houses;

(f) The conditions under which denatured alcohol may be removed and dealt in, the character and quantity of the denaturing material to be used, the manner in which the process of denaturing shall be effected, so as to render the alcohol suitably denatured and unfit for oral intake, the bonds to be given, the books and records to be kept, the entries to be made therein, the reports to be made to the Commissioner, and the signs to be displayed in the business ort by the person for whom such denaturing is done or by whom, such alcohol is dealt in;

(g) The manner in which revenue shall be collected and paid, the instrument, document or object to which revenue stamps shall be affixed, the mode of cancellation of the same, the manner in which the proper books, records, invoices and other papers shall be kept and entries therein made by the person subject to the tax, as well as the manner in which licenses and stamps shall be gathered up and returned after serving their purposes;

(h) The conditions to be observed by revenue officers respecting the enforcement of Title III imposing a tax on estate of a decedent, and other transfers mortis causa, as well as on gifts and such other rules and regulations which the Commissioner may consider suitable for the enforcement of the said Title III;

(i) The manner in which tax returns, information and reports shall be prepared and reported and the tax collected and paid, as well as the conditions under which evidence of payment shall be furnished the taxpayer, and the preparation and publication of tax statistics;

(j) The manner in which internal revenue taxes, such as income tax, including withholding tax, estate and donor's taxes, value-added tax, other percentage taxes, excise taxes and documentary stamp taxes shall be paid through the collection officers of the Bureau of Internal Revenue or through duly authorized agent banks which are hereby deputized to receive payments of such taxes and the returns, papers and statements that may be filed by the taxpayers in connection with the payment of the tax: Provided, however, That notwithstanding the other provisions of this Code prescribing the place of filing of returns and payment of taxes, the Commissioner may, by rules and regulations, require that the tax returns, papers and statements that may be filed by the taxpayers in connection with the payment of the tax. Provided, however, That notwithstanding the other provisions of this Code prescribing the place of filing of returns and payment of taxes, the Commissioner may, by rules and regulations require that the tax returns, papers and statements and taxes of large taxpayers be filed and paid, respectively, through collection officers or through duly authorized agent banks: Provided, further, That the Commissioner can exercise this power within six (6) years from the approval of Republic Act No. 7646 or the completion of its comprehensive computerization program, whichever comes earlier: Provided, finally, That separate venues for the Luzon, Visayas and Mindanao areas may be designated for the filing of tax returns and payment of taxes by said large taxpayers. For the purpose of this Section, 'large taxpayer' means a taxpayer who satisfies any of the following criteria;

(1) Value-Added Tax (VAT) - Business establishment with VAT paid or payable of at least One hundred thousand pesos (P100,000) for any quarter of the preceding taxable year;

(2) Excise tax - Business establishment with excise tax paid or payable of at least One million pesos (P1,000,000) for the preceding taxable year;

(3) Corporate Income Tax - Business establishment with annual income tax paid or payable of at least One million pesos (P1,000,000) for the preceding taxable year; and

(4) Withholding tax - Business establishment with withholding tax payment or remittance of at least One million pesos (P1,000,000) for the preceding taxable year.

Provided, however, That the Secretary of Finance, upon recommendation of the Commissioner, may modify or add to the above criteria for determining a large taxpayer after considering such factors as inflation, volume of business, wage and employment levels, and similar economic factors.

The penalties prescribed under Section 248 of this Code shall be imposed on any violation of the rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner, prescribing the place of filing of returns and payments of taxes by large taxpayers.

Sec. 511, Tariff and Customs Code. Rules and Regulations of the Commission. — The Commission shall adopt and promulgate such rules and regulations as may be necessary to carry out the provisions of this Code. Sec. 519, Tariff and Customs Code. Misamis Oriental Assoc v. DOF. [copra, food/non-food] Moreover, as the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight. Indeed, the ruling was made by the Commissioner of Internal Revenue in the exercise of his power under § 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes." (i) Validity of revenue rules and regulations

Tan v. del Rosario, supra. CIR v. CA, supra. Phil. Petroleuim v. Pililia. [municipal ordinance re: effectivity of tax on oil] Well-settled is the rule that administrative regulations must be in harmony with the provisions of the law. In case of discrepancy between the basic law and an implementing rule or regulation, the former prevails. || The exercise by local governments of the power to tax is ordained by the present Constitution. To allow the continuous effectivity of the prohibition set forth in PC No. 26-73 (1) would be tantamount to restricting their power to tax by mere administrative issuances. Under Section 5, Article X of the 1987 Constitution, only guidelines and limitations that may be established by Congress can define and limit such power of local governments Umali v. Estanisalo. [adjustment of personal exemptions] The tax exemptions referred to in the law should be effective already with respect to the income earned for the year 1991. After all, even if We say that the law became effective only in 1992, still this can refer only to the income obtained in 1991 since after all, what should be filed in 1992 is the income tax return of the income earned in 1991. La Suerte v. CTA. [leaf tobacco] As herein earlier mentioned, the word "leaf", although used to modify the term "tobacco" only in the Explanatory Note to then House Bill No. 735 was omitted when the Bill was signed into law (RA 31). However, when General Circular No. V-27 dated October 29, 1946 was issued by then Collector of Internal Revenue Bibiano L. Meer to implement the provisions of Sections 6, 7 and 14 of Act 2613 (Tobacco Inspection Law), the word "leaf" was erroneously included therein, causing damage to the financial stability of the Government as the inspection fees due on cigars and cigarettes for domestic sale and imported leaf and partially manufactured tobacco for factory use were not collected for more than twenty (20) years. Such error was only discovered when an Assistant Chief of the Tobacco Inspection Service of the BIR appeared in a public hearing of the Joint Legislative-Executive Tax Commission. || Thus, the assailed Revenue Memorandum Circular was issued to rectify the error in General Circular No. V-27 and to interpret the phrase "tobacco for domestic sale or factory use" with the view of arresting huge losses of tobacco inspection fees which were not collected and imposed since the said Circular (No. V-27) took effect. Furthermore, the questioned Revenue Memorandum Circular was also issued to apprise those concerned of the construction and interpretation which should be accorded to Act No. 2613, as amended, and which respondent is duty bound to enforce. It is an opinion on how the law should be construed and there was no attempt whatsoever to enlarge or restrict the meaning of the law. || When an administrative agency renders an opinion by means of a circular or Memorandum, it merely interprets a pre-existing law, and no publication is necessary for its validity. 4 Construction by an executive branch of government of a particular law although not binding upon courts must be given weight as the construction come from the branch of the government called upon to implement the law.

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CIR v. Seagate. The BIR regulations additionally requiring an approved prior application for effective zero-rating cannot prevail over the clear VAT nature of Seagate’s transactions. The scope of such regulations is not “within the statutory authority granted by the legislature.” || Other than the general registration of a taxpayer, the VAT status of which is aptly determined, no provision under our VAT law requires an additional application to be made for such taxpayer’s transaction to be considered effectively zero-rated. Ann effectively zero-rated transaction does not and cannot become exempt simply because an application therefore was not made or if made, was denied. To allow the additional requirement is to gif unfettered discretion to those officials or agents who without fluid consideration, are bent on denying a valid application.

(ii) BIR rulings 3. Interpretation/Construction of Tax Laws

Hilado v. CIR, supra. a. Rule when legislative intent is clear

Umali v. Estanislao, supra. Lorenzo v. Posadas, supra. CIR v. Solidbank. A taxing act will be construed, and the intent and meaning of the legislature ascertained, from its language. Its clarity and implied intent must exist to uphold the taxes against taxpayers in whose favor doubts will be resolved. No such doubt exist with respect to the tax code, because the income and percentage taxes have been imposed in clear and express language for that purpose.

b. Rule when there is doubt CIR v. La Tondeña. In every case of doubt, tax statutes are construed most strongly against the government and in favor of the citizens, because burdens are not to be imposed beyond what the statutes expressly and clearly import

c. Provisions/laws granting tax exemptions (i) General rule

CIR v. CA, supra. Misamis Or. v. DOF, supra. Phil. Acetylene v. CIR, supra. MERALCO v. Vera. One who claims to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer, they being highly disfavored and may almost be said "to be odious to the law." He who claims an exemption must be able to print to some positive provision of law creating the right; it cannot be allowed to exist upon a mere vague implication or inference. 3 The right of taxation will not beheld to have been surrendered unless the intention to surrender is manifested by words too plain to be mistaken (Ohio Life Insurance & Trust Co. vs. Debolt, 60 Howard, 416), for the state cannot strip itself of the most essential power of taxation by doubtful words; it cannot, by ambiguous language, be deprived of this highest attribute of sovereignty (Erie Railway Co. vs. Commonwealth of Pennsylvania, 21 Wallace 492, 499). So, when exemption is claimed, it must be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim Benguet Corp v. CBAA, supra. CORA v. Torres. On the issue of executive legislation, petitioners contend that the wording of RA No. 7227 clearly limits the grant of tax incentives to the importation of raw materials, capital and equipment only. Hence, they claim that the assailed issuances constitute executive legislation for invalidly granting tax incentives in the importation of consumer goods such as those being sold in the duty-free shops, in violation of the letter and intent of RA No. 7227. The Court held that Section 12 of RA No. 7227 clearly does not restrict the duty-free importation only to 'raw materials, capital and equipment. To limit the tax-free importation privilege of enterprises located inside the special economic zone only to raw materials, capital and equipment clearly runs counter to the intention of the Legislature to create a free port where the 'free flow of goods or capital within, into, and out of the zones' is insured. The phrase 'tax and duty-free importations of raw materials, capital and equipment was merely cited as an example of incentives that may be given to entities operating within the zone. Moreover, the records of the Senate containing the discussion of the concept of 'special economic zone in Section 12 (a) of Republic Act No. 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. However, the second sentences of paragraphs 1.2 and 1.3 of EO No. 97-A, allowing tax and duty-free removal of goods to certain individuals, even in a limited amount, from the Secured Area of the SSEZ, are null and void for being contrary to Section 12 of RA No. 7227. Said Section clearly provides that exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines. || On the other hand, insofar as the CSEZ is concerned, the case for an invalid exercise of executive legislation is tenable. While Section 12 of RA No. 7227 expressly provides for the grant of incentives to the SSEZ, it fails to make any similar grant in favor of other economic zones, including the CSEZ. Tax and duty-free incentives being in the nature of tax exemptions, the basis thereof should be categorically and unmistakably expressed from the language of the statute. Consequently, in the absence of any express grant of tax and duty-free privileges to the CSEZ in RA No. 7227, there would be no legal basis to uphold the questioned portions of two issuances: Section 5 of Executive Order No. 80 and Section 4 of BCDA Board Resolution No. 93-05-034, which both pertain to the CSEZ.

(ii) Exceptions Maceda v. Macaraig, supra.

4. Application of Tax Laws/Revenue Regulations and Rulings a. General

CC, 2. Laws shall take effect after fifteen days following the completion of their publication in the Official Gazette, unless it is otherwise provided. This Code shall take effect one year after such publication. Umali v. Estanislao, supra. Lorenzo v. Posadas, supr. Hijo Plantation v. Central Bank. In the very nature of things, in many cases it becomes impracticable for the legislative department of the Government to provide general regulations for the various and varying details for the management of a particular department of the Government. It therefore becomes convenient for the legislative department of the government, by law, in a most general way, to provide for the conduct, control, and management of the work of the particular department of the government; to authorize certain persons, in charge of the management and control of such department. || Such regulations have uniformly been held to have the force of law, whenever they are found to be in consonance and in harmony with the general purposes and objects of the law. Such regulations once established and found to be in conformity with the general purposes of the law, are just as binding upon all the parties, as if the regulation had been written in the original law itself. Upon the other hand, should the regulation conflict with the law, the validity of the regulation cannot be sustained. CIR v. Fil. Cia. De Seguros. As a rule, laws have no retroactive effect, unless the contrary is provided. Otherwise stated, a state shou!d be consider as prospective in its operation whether it enacts, amen or repeals a tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive effect. The rule applies with greater force to the case bar, considering that Republic Act No. 1612, which imposes the new and higher rates of real estate dealer's annual fixed tax, expressly provides in Section 21 thereof the said Act "shall take effect upon its approval" on August 24, 1956. Cebu Portland v. CIR. Indeed, like other statutes, tax laws operate prospectively, whether they enact, amend or repeal, unless, as aforesaid, the purpose of the Legislature to give retrospective effect is expressly declared or may clearly be implied from the language used.10 It thus results that before the enactment of the amendment to section 246 of the Tax Code, when cement was not yet placed under the category of either "minerals" or "mineral products" it was not exempt from the percentage tax imposed by section 186 of said Code, and was, therefore, taxable as a manufactured product CIR v. Rio Tuba. The rationale for the Court's decision denying the private respondent's twin claims for refund was that the specific taxes on these manufactured oils paid by the mining and lumber companies no longer accrued to the Highway Special Fund. But given the added circumstance that the Highway Special Fund which was financed by these specific taxes still continued up to 1985, it will be highly inequitable for the private respondent if we were to rule that no refund of specific taxes paid up to 1985 which actually accrued to the Highway Special

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Fund (not the General Fund) may be given. The private respondent still did not directly benefit from the projects supported by the Highway Special Fund.

b. Application of revenue rules and regulations/rulings Revenue Memo Circ. 20-86. Sec. 246, NIRC. Non- Retroactivity of Rulings. - Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases: (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of

Internal Revenue; (b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is

based; or (c) Where the taxpayer acted in bad faith. Tuzon v. CA. Public hearing, approval by Sec. of Finance and publication necessary for the validity of tax ordinance. CIR v. Mega Gen. the letter of Commissioner Plana dated January 11, 1978 did not in any way revoke his ruling dated January 28,1977 which ruling applied the specific tax to wax (without distinction). The reason he removed in 1978 private respondent's liability for the specific tax was NOT because he wanted to revoke, expressly or implicitly, his ruling of January 28, 1977 but because the P321,436.79 tax referred to importation BEFORE January 28, 1977 and hence still covered by the ruling of Commissioner Vera, Mega’s request for refund of the amount of P321,436.79 was granted in CIR’s letter dated January 11, 1978 because the importation of private respondent was made on April 18,1975 wherein petitioner made clear that all importation of crude paraffin wax only after the ruling of January 28, 1977, is subject to specific tax The importation which gave rise to the assessment in the amount of P275,652.00 subject of this case, was made on June 27, 1977 and August 17, 1977 and that the petitioner's ruling of January 28,1977 was not revoked or overruled by his letter of January 11, 1978 granting respondent corporation's request for refund of the amount of P321,436.79. ABS-CBN v. CTA. Rulings or circulars promulgated by the CIR have no retroactive application where to so apply them would be prejudicial to taxpayers. The retroactive application of Memorandum Circular No. 4-71 prejudices ABSCBN since: a) it was issued only in 1971, or 3 years after 1968, the last year that petitioner had withheld taxes under General Circular No. V-334. b) the assessment and demand on petitioner to pay deficiency withholding income tax was also made three years after 1968 for a period of time commencing in 1965. c) ABS-CBN was no longer in a position to withhold taxes due from foreign corporations because it had already remitted all film rentals and no longer had any control over them when the new Circular was issued. And in so far as the enumerated exceptions (to nonretroactivity) are concerned, ABS-CBN does not fall under any of them. CIR v. CA, supra. [fortune tobacco] CIR v. Telefunken. 1974 ruling has not been abrogated with the passage of the 1977 Tax Code, Section 205(16) which expressly mentions only pioneer enterprises registered with the Board of Investments under RA 5186 as exempt from the contractor's tax (though with no reference being made regarding pioneer enterprises registered under RA 6135). Lastly, under Sec. 246 of the National Internal Revenue Code, rulings of the BIR may not be given retroactive effect, if the same is prejudicial to the taxpayer. CIR v. Benguet Corp. At the time when the subject transactions were consummated, the prevailing BIR regulations relied upon by Benguet ordained that gold sales to the Central Bank were zero-rated. Benguet should not be faulted for relying on the BIRs interpretation of the said laws and regulations. || The adverse effect is that Benguet Corp became the unexpected and unwilling debtor to the BIR of the amount equivalent to the total VAT cost of its product, a liability it previously could have recovered from the BIR in a zero-rated scenario or at least passed on to the Central Bank had it known it would have been taxed at a 10% rate. Thus, it is clear that Benguet suffered economic prejudice when its consummated sales of gold to the Central Bank were taken out of the zero-rated category. The change in the VAT rating of Benguet’s transactions with the Central Bank resulted in the twin loss of its exemption from payment of output VAT and its opportunity to recover input VAT, and at the same time subjected it to the 10% VAT sans the option to pass on this cost to the Central Bank, with the total prejudice in money terms being equivalent to the 10% VAT levied on its sales of gold to the Central Bank. CIR v. Lhuillier. RMO No. 15-91 and RMC No. 43-91 were issued in accordance with the power of the CIR to make rulings and opinions in connection with the implementation of internal revenue laws, which was bestowed by then Section 245 of the NIRC of 1977, as amended by E.O. No. 273.6 Such power of the CIR cannot be controverted. However, the CIR cannot, in the exercise of such power, issue administrative rulings or circulars not consistent with the law sought to be applied. Indeed, administrative issuances must not override, supplant or modify the law, but must remain consistent with the law they intend to carry out. Only Congress can repeal or amend the law

c. Effectivity and validity of tax ordinances Hagonoy Market Vendors v. Mun. of Hagonoy. The aforecited law requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within thirty (30) days from effectivity of the ordinance and even during its pendency, the effectivity of the assailed ordinance shall not be suspended. In the case at bar, Municipal Ordinance No. 28 took effect in October 1996. Petitioner filed its appeal only in December 1997, more than a year after the effectivity of the ordinance in 1996. Clearly, the Secretary of Justice correctly dismissed it for being time-barred. At this point, it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent courts is not a “mere technicality” that can be easily brushed aside. The periods stated in Section 187 of the Local Government Code are mandatory. || Ordinance No. 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals. Being its lifeblood, collection of revenues by the government is of paramount importance. The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived from its revenues and collections. Thus, it is essential that the validity of revenue measures is not left uncertain for a considerable length of time.i[11] Hence, the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances. Jardine Davies v. Aliposa. Clearly, the law requires that the dissatisfied taxpayer who questions the validity or legality of a tax ordinance must file his appeal to the Secretary of Justice, within 30 days from effectivity thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for an aggrieved party to go to court. But if the Secretary does not act thereon, after the lapse of 60 days, a party could already proceed to seek relief in court. These three separate periods are clearly given for compliance as a prerequisite before seeking redress in a competent court. Such statutory periods are set to prevent delays as well as enhance the orderly and speedy discharge of judicial functions. For this reason the courts construe these provisions of statutes as mandatory. || A municipal tax ordinance empowers a local government unit to impose taxes. The power to tax is the most effective instrument to raise needed revenues to finance and support the myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and enhancement of peace, progress, and prosperity of the people. Consequently, any delay in implementing tax measures would be to the detriment of the public. It is for this reason that protests over tax ordinances are required to be done within certain time frames. In the instant case, it is our view that the failure of petitioners to appeal to the Secretary of Justice within 30 days as required by Sec. 187 of R.A. 7160 is fatal to their cause

5. Mandatory and Directory Provisions of Tax Laws Roxas v. Rafferty. [Roxas tries to invalidate a tax assessment made on his building prior to the completion of the improvements subject of the tax] It is a general rule that those provisions of a statute relating to the assessment of taxes, which are intended for the security of the citizen, or to insure the equality of taxation, or certainty as to the nature and amount of each person’s tax, are mandatory; but those designed merely for the information or direction of officers or to secure methodical and systematic modes of proceedings are merely directory. Aragon v. Jorge. dates of public auction postponed without notice hence sale on public auction is void. The requirement of notice is an essential and indispensable requirement of the law, and the non-fulfillment of which vitiates and nullifies the sale. Pecson v. CA. Pecson owner of a lot which was sold at a public auction. Notices of the auction were sent to the wrong address, which Pecson himself gave to authorities

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