GR 109446: CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, ET AL. v. DEL ROSARIO, ONG October 3, 1994 | Vitug, J. | Essential Characteristics of Taxes & Administrative Issuances Digester: Tan, Raya Grace SUMMARY: Petitioners, as taxpayers, filed special civil actions for prohibition challenging the constitutionality of RA 7946 (SNIT), and the validity of Sec 6, Revenue Regulations No. 2-93. The Court held that: (1) RA 7946 is constitutional. It retained the net income taxation scheme and did not violate the one subject, one bill clause. Uniformity of taxation allows for classification such as individuals and corporations. There is no violation of the due process clause. (2) The revenue regulation did not alter the existing rule as to the extent of allowable deductions applicable to all individual income taxpayers. DOCTRINE: With the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. Administrative issuances cannot alter law. (Walang sinabi about admin issuances) FACTS: In GR 109289, Rufino Tan argues that the enactment of RA 7946 (Simplified Net Income Taxation Scheme or SNIT), amending certain provisions of the NIRC, violates the ff. Constitutional provisions: (1) Art VI, Sec 26(1) one subject, one bill because it adopted a gross income taxation scheme; (2) Art VI, Sec 28(1) the rule of taxation shall be uniform and equitable because it attempts to tax single proprietorships and professionals differently from corporations and partnerships; and (3) Art III, Sec 1 due process and equal protection clauses. In GR 109446, petitioners question the validity of Sec 6, Revenue Regulations No. 2-93 which makes SNIT applicable to partners in general professional partnerships, as it creates a distinction between a person who practices his profession individually and one who does it through partnership with others. Noting that based on the deliberations in Congress, This bill is not applicable to business corporations or to
partnerships; it is only with respect to individuals and
professionals. RULING: Petitions DISMISSED. WoN RA 7496 is unconstitutional NO, it is constitutional. The net income taxation scheme was retained.1 The allowance for deductible items may have significantly been reduced by the questioned law in comparison with that which has prevailed prior to the amendment; BUT limiting allowable deductions from gross income is neither discordant with, nor opposed to, the net income tax concept. Also, the objectives of Art VI, Sec 26(1)2 have been sufficiently met. Uniformity of taxation, like the concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities. Uniformity does not forfend classification. The legislative intent to increasingly shift the income tax system towards the schedular approach in the income taxation of individual taxpayers and to maintain the present treatment on global corporations is valid. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional limitations in the exercise of the tax power. With the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. This court cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative judgment. Of course, where a tax measure becomes so unconscionable and unjust as to amount to confiscation
1 Sec 21. Tax on citizens or residents. xxx (f) Simplified Net
Income Tax for the SelfEmployed and/or Professionals Engaged in the Practice of Profession. A tax is hereby imposed upon the taxable net income as determined in Section 27 received during each taxable year from all sources xxxSec 29. Deductions from gross income. xxx That in computing taxable income subject to tax under Section 21 (f) in the case of individuals engaged in business or practice of profession, only the following direct costs shall be allowed as deductions xxx
2 I.e. to prevent log-rolling legislation, to avoid surprises or fraud
upon the legislation, and to fairly apprise the people
of property, courts will not hesitate to strike it down, for,
despite all its plenitude, the power to tax cannot override constitutional proscriptions. WoN public respondents exceeded their authority in promulgating Sec 6, Revenue Regulations No. 2-93, to carry out RA 7496 NO. There is no distinction in income tax liability between a person who practices his profession individually and one who does it through partnership with others. A general professional partnership, unlike an ordinary business partnership (which is treated as a corporation for income tax
purposes and so subject to the corporate income tax), is not
itself an income taxpayer. The income tax is imposed not on the professional partnership, which is tax exempt, but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits. SNIT is not intended or envisioned to cover corporations and partnerships which are independently subject to the payment of income tax. Sec 6 of Revenue Regulation No. 293 did not alter, but merely confirmed, the above standing rule as now so modified by RA 7496 on basically the extent of allowable deductions applicable to all individual income taxpayers on their noncompensation income.
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