Tax Finals 2015

A.
Nature and Limitations of the Power of Taxation

1. Nature of the power of taxation
a. Inherent in sovereignty
The power of taxation is an incident of sovereignty as it is inherent in the
State, belonging as a matter of right to every independent government. It
does not need of constitutional conferment. Constitutional provisions do not
give rise to the power to tax but merely impose limitations on what would
otherwise be an invincible power.
Roxas v CTA, 23 SCRA 276 (1968)

The SC however reminds us that although the power of taxation is
sometimes called the power to destroy, in order to maintain the general
public’s trust and confidence in the government, this power must be used
justly and not treacherously.
Tanada v Angara 272 SCRA 18 (1997)

Senate’s concurrence to GATT via a Senate Resolution No. 97 is a
legitimate exercise of its sovereign duty and power.
In the foregoing treaties, the Philippines has effectively agreed to limit the
exercise of its sovereign powers of taxation, eminent domain and police
power. The underlying consideration in this partial surrender of sovereignty
is the reciprocal commitment of the other contracting states in granting the
same privilege and immunities to the Philippines, its officials and its
citizens. The same reciprocity characterizes the Philippine commitments
under WTO-GATT.
b. Exclusively legislative in nature – only the legislature can impose taxes
although the power may be delegated
a. Extent of the legislative power to tax
Tan v Del Rosario, 237 SCRA 324 (1994)
On petitioner’s contention in GR 109446 that public respondents exceeded

their rule-making authority in applying SNITS to general professional
partnerships by promulgating sec 6 rev reg 2-93, the court held that said sec 6
did not alter but merely confirmed sec 23 of the tax code as amended by RA
7496 on the extent of deductions applicable to all individual income taxpayers
on their non-compensation income. There is no evident intention in the law,
either before or after the amendatory legislation to place on an unequal footing
or in significant variance the income tax treatment of professionals who
practice their respective professions individually and of those who do it
through a general professional partnership.
CIR v Santos, 277 SCRA 617 (1997)

It is within the power of the legislature whether to tax jewelry or not. With the
legislature primarily lies the discretion to determine the nature (kind), object
(purpose), extent (rate), coverage (subjects), and situs (place) of taxation.
Sison v Ancheta, 130 SCRA 654 (1984)
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness.

A mere allegation, as here, does not suffice. There must be a factual
foundation of such unconstitutional taint. Considering that petitioner here
would condemn such a provision as void on its face, he has not made out a
case. This is merely to adhere to the authoritative doctrine that where the due
process and equal protection clauses are invoked, considering that they are
not fixed rules but rather broad standards, there is a need for proof of such
persuasive character as would lead to such a conclusion.
Kapatiran v Tan, 163 SCRA 371 (1988)
It should be noted that under both the provisions of the Freedom Constitution
and the 1987 Constitution, the President is vested with legislative powers until
a legislature under a new constitution is convened. The 1st congress created
and elected under the 1987 constitution was convened on July 27, 1987,
hence the enactment of EO 273 (VAT Law) on July 25, 1987, 2 days before
the congress convened on July 27 was within the president’s constitutional
power and authority to legislate.
Reyes v Almanzor, 196 SCRA 322 (1991)
The taxing power has the authority to make a reasonable and natural
classification for purposes of taxation but the government’s act must not be
prompted by a spirit of hostility, 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.
b. Non-delegability of power to tax – the power of taxation, being purely

legislative, Congress cannot delegate such power. This limitation
arises from the doctrine of separation of powers among the three
branches of government.
Exceptions to the non-delegation rule
1. Delegation to the president

2. Delegation to local government units
3. Delegation to administrative agencies
Maceda v ERB 192 SCRA 363 (1990)
The Board Order authorizing the proceeds generated by the increase to be

deposited to the OPSF is not an act of taxation. It is authorized by PD No.
1956 as amended by EO No. 137
Maceda v Macaraig 197 SCRA 771 (1991)
Non delegation of legislative power, standard test implied under Section 3 of

EO 93.
The required standards need not be expressed. In Edu v Ericta and De la

Llana Alba, this court held: “The standard may be either express or implied. If
the former, the non-delegated objection is easily met. The standard though
does not have to be spelled out specifically. It could be implied from the policy
and purpose of the act considered as a whole.
Basco v PAGCOR, 197 SCRA 52 (1991)
Local governments have no power to tax instrumentalities of the National

Government. PAGCOR being an instrumentality of the government is
therefore exempt from local taxes.
Pepsi-Cola v City of Butuan 24 SCRA 789 (1968)
It has been held that the general principle against the delegation of legislative
powers as a consequence of the theory of separation of powers is subject to a
well-established exception, namely, that legislative powers may be delegated
to local governments. The theory of non-delegation of legislative power does
not apply in matters of local concern.
PAL v Edu 164 SCRA 320 (1988)
It is clear from the provisions of Section 73 of Commonwealth Act 123 and

Section 61 of the Land Transportation and Traffic Code that the legislative
intent and purpose behind the law requiring owners of vehicles to pay for their
registration is mainly to raise funds for the construction and maintenance of
highways and to a much lesser degree, pay for the operating expenses of the
administering agency.
There is a valid delegation to the LTO. Simply put, if the exaction under 4136
were merely a regulatory fee, the imposition in RA 5448 need not be an
“additional” tax.
c. Who may question the validity of a tax measure or expenditure of

taxes
(see one case, insert below)

Lozada v COMELEC, 120 SCRA 337 (1983)
SC reiterated that it is only when an act complained of, which may include a
legislative enactment of a statue, involves the illegal expenditure of public
money that the so-called taxpayer suit may be allowed.
The purpose to be accomplished by taxation need not be exclusively public.

Although private individuals are directly benefited the tax would still be valid
provide such benefit is only incidental
The test is not as to who receives the money, but the character of the purpose
for which ti is expended; not the immediate result of the expenditure, but the
ultimate results.
Gonzales v Marcos, 65 SCRA 624 (1975)
Chavez v PCGG, 299 SCRA 744 (1998)
Subject to inherent and constitutional limitations
2. Inherent Limitations
a. Purpose must be public in nature
This is one of the inherent limitations of the power to tax and is
synonymous to “governmental purpose.” A tax must always be imposed for
a public purpose, otherwise, it will be declared as invalid.
The term “public purpose” has not fixed connotation. The essential point is
that the purpose of the tax affects the inhabitants as a community and not
merely as inhabitants.
It has been said that the best test of rightful taxation is that the proceeds of
the tax must be used:
*for the support of the government; or
*some of the recognized objects of government; or
*to promote the welfare of the community
Pascual v. Sec of Public Works, 110 SCRA 331 (1960)

The appropriation of public money to construct a road on a private land is not
a public purpose.
Pascual vs. Secretary of Public Works, 110 SCRA 331 (1960)
Parties:
WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal,

petitioner-appellant,
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL.,
respondents-appellees.
Nature of the Case:
An appeal by petitioner Wenceslao Pascual, from a decision of the Court of First

Instance of Rizal, dismissing the above entitled case and dissolving the writ of
preliminary injunction therein issued, without costs.
Facts of the Case:
1. Petitioner was the governor of Rizal, filed a petition assailing the validity of R.A. 920
which contains an item providing for an appropriation of P85,000.00 for the
construction and repair of a feeder road in Pasig. The said law was passed in
Congress and approved by the President.
2. The property over which the feeder road will be constructed is however owned by
Sen. Zulueta. The property was to be donated to the local government, though the
donation was made a few months after the appropriation was included in RA 920. The
petition alleged that the said planned feeder road would relieve Zulueta the
responsibility of improving the road which is inside a private subdivision.
3. The lower court (RTC) ruled that the petitioner has standing to assail the validity of
RA 920, due to the public interest involved in the appropriation. However, he does not
have a standing with respect to the donation since he does not have an interest that
will be injured by said donation, hence it dismissed the petition.
Issue:
Whether or not the petitioner has the standing to file the petition
Held:
YES.
1. Petitioner has standing. He is not merely a taxpayer but the governor of the province
of Rizal which is considered one of the most populated biggest provinces during that
time, its taxpayers bear a substantial portion of the burden of taxation in the country.
Public funds can only be appropriated for a public purpose. The test of the
constitutionality of a statute requiring the use of public funds is whether it is used to
promote public interest. Moreover, the validity of a stature depends on the powers of
the Congress at the time of its passage or approval, not upon events occurring, or acts
performed subsequent thereto, unless it is an amendment of the organic law.
Ratio:
 Public funds may be used for public purposes only.
 No appropriation of state funds can be made for other than for a public purpose.
 At the instance of taxpayers, laws providing for the disbursement of public funds,
upon the theory that “Expenditure of public funds by an officer of the Sate for the
purpose of administering an unconstitutional act constitutes a misapplication of
such funds.”
 As taxpayers, should have sufficient interest in preventing the illegal expenditure
of moneys raised by taxation and may therefore uestion the constitutionality of
statutes requiring expenditure of public money.
Tio v Videogram Regulatory Board, 151 SCRA 208 (1987)
SC held that the tax imposed under the decree is not harsh, oppressive,
confiscatory and in restraint of trade but regulatory and a revenue measure.
The levy of 30% tax is for public purpose. It was imposed primarily to answer
the need for regulating the video industry. And while it was also an objective of
the decree to protect the movie industry, the tax remains a valid imposition.
Gaston v RPB, 158 SCRA 626 (1988)
The stabilization fees collected are in the nature of a tax, which is within the
power of the State to impose for the promotion of the sugar industry. The tax
collected is not in a pure exercise of the taxing power. It is levied with a
regulatory purpose, to provide means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power of the State.
Gaston vs. Republic Planter 158 SCRA 626
Nature of the Case:
Petitioners and Intervenors have come to this Court praying for a Writ of mandamus
commanding respondents:
TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF

REPUBLIC PLANTERS BANK BY THE TRANSFER AND DISTRIBUTION
OF THE SHARES OF STOCK IN THE SAID BANK.
Facts:
Petitioners are sugar producers and planters and millers filed a writ of MANDAMUS to
implement the privatization of Republic Planters Bank, and for the transfer of the
shares in the government bank to sugar producers and planters.(because they are
allegedly the true beneficial owners of the bank since they pay P1.00per picul of sugar
from the proceeds of sugar producers as STABILIZATION FEES).The shares are
currently held by Philsucom / Sugar Regulatory Admin. The Solgen countered that the
stabilization fees are considered government funds and that the transfer of shares to
from Philsucom to the sugar producers would be irregular.
Issues:
What is the nature of the P1.00 stabilization fees collected from sugar producers? Are
they funds held in trust for them, or are they public funds? Are the shares in the bank
(paid using these fees) owned by the government Philsucom or privately by the
different sugar planters from whom such fees were collected?
Ruling: The Writ of mandamus is denied and the Petition hereby dismissed.
PUBLIC FUNDS. While it is true that the collected fees were used to buy shares in
RPB, it did not collect said fees for the account of sugar producers. The stabilization
fees were charged on sugar produced and milled which ACCRUED TO PHILSUCOM,
under PD 338.The fees collected ARE IN THE NATURE OF A TAX., which is within the
power of the state to impose FOR THE PROMOTION OF THE SUGAR INDUSTRY.
They constitute sugar liens. The collections accrue to a SPECIAL FUNDS. It is levied
not purely for taxation, but for regulation, to provide means TO STABILIZE THE
SUGARINDUSTRY. The levy is primarily an exercise of police powers. The fact that
the State has taken money pursuant to law is sufficient to constitute them as STATE
FUNDS, even though held for a special purpose. Having been levied for a special
purpose, the revenues are treated as a special fund, administered in trust for the
purpose intended. Once the purpose has been fulfilled or abandoned, the balance will
be transferred to the general funds of the government.
It is a special fund since the funds are deposited in PNB, not in the National Treasury.
The sugar planters are NOT BENEFICIAL OWNERS. The money is collected from
them only because they it is also they who are to be benefited from the expenditure of
funds derived from it. The investing of the funds in RPB is not alien to the purpose
since the Bank is a commodity bank for sugar, conceived for the sugar
industry’ growth and development.
Ratio of the Case:

Revenues derived from taxes cannot be used purely for 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 domestic and foreign markets, since the sugar industry is of vital importance to the
country’s economy and national interest.
b. Prohibition against delegation of taxing power

Exceptions:
i. delegation to LGU’S – municipal corporations are mere creatures of
Congress which has the power to create and abolish municipal
corporations. Congress therefore has power of control over LGU’s. if
congress can grant to a municipal corporation the power to tax certain
matters, it can also provide for exemptions or even to take back the power.
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.
Book II RA 716- -- local taxation
Basco v PAGCOR 197SCRA 52 (1991)

The power of LGUs to impose taxes and fees is always subject to the
limitations which Congress may provide, the former having no inherent
power to tax.

The required “standard’ need not be expressed.
ii. delegation to the President

Congress may authorize, by law, the President to fix, within specified limits
and subject to such limitations and restrictions as it may impose:
1. Tariff rates;
2. Import and export quotas;
3. Tonnage and wharfage dues; and
4. Other duties or imposts within the national development program of the
government
This authorization is embodied in section 401 of the Tariff and Customs
Code which is also called the flexible tariff clause
Sec 28 (2) Art VI, 1987 Constitution
The Congress may, by law, authorize the President to fix within the 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 (or the flexible tariff clause)
In the interest of national economy, general welfare and/or national security,

the President, upon recommendation of the National Economic and
Development Authority, is empowered:
*to increase , reduce, or remove existing protective rates of import duty,

provided that the increase should not be higher than 100% ad valorem:
*to establish import quota or to ban imports of any commodity; and
*to impose additional duty on all imports not exceeding 10% ad valorem.
Garcia v Executive Secretary 211SCRA 219 (1992)
The power granted under this constitutional provision to authorize the

president to fix within specified limits and subject to such limitations and
restrictions as it may impose, tariff rates and other duties and imposts includes
tariff rates even for revenue purposes only. Custom duties which are
assessed at the prescribed tariff rates are very much like taxes which are
frequently imposed for both revenue-raising and regulatory purposes.
iii. delegation to administrative agencies
Certain aspects of the taxing process that are not really legislative in nature
are vested in administrative agencies. In these cases there really is no
delegation, to wit: (a) power to value property; (b) power to assess and
collect taxes; (c) power to perform details of computation, appraisement or
adjustment; among others.
Osmena v Orbos 220 SCRA 703 (1993)

For delegation to be constitutionally valid, the law must be complete in itself
and must set forth sufficient standards.

With the growing complexities of modern life and the many technical fields of
governmental functions, as in matters pertaining to tax exemptions, delegation
of legislative powers has become the rule and non-delegation the exception.
The legislature may not have the competence, let alone the interest and the
time, to provide direct and efficacious solutions to many problems attendant
upon present day undertakings. The legislature could not be expected to state
all the detailed situations wherein the tax exemption privilege would be
restored. The task may be assigned to an administrative body like the Fiscal
Incentives Review Board (FIRB)
Maceda v ERB, 192 SCRA 363 (1992)

The board of course is not prevented from conducting a hearing on the grant
of provisional authority – which is of course, the better procedure – however, it
can not be stigmatized later if it failed to conduct one.
c. Exemption of government entities, agencies and instrumentalities

Sec 27 (c) Government-owned or –controlled corporations, agencies or
instrumentalities. – The provisions of existing special or general laws to the
contrary notwithstanding, all corporations, agencies, or instrumentalities
owned or controlled by the Government, except the GSIS, the SSS, the
PHIC, the PCSO, and the PAGCOR, shall pay such rate of tax upon their
taxable income as are imposed by this Section upon corporations or
associations engaged in a similar business, industry or activity.
Mactan Cebu Airport v Marcos _______________________

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.
Maceda v Macaraig, 197 SCRA 771 (1991)

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
d. 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.
Tanada v Angara 272 SCRA 18 (1997)
By the doctrine of incorporation, the country is bound by generally accepted

principles of international law, which are considered to be automatically part of
our own laws. One of the oldest and most fundamental rules in international
law is pacta sunt servanda – international agreements must be performed in
good faith.
e. Limitation of territorial jurisdiction
Tax laws cannot operate beyond a state’s territorial limits.
Property outside one’s jurisdiction does not receive any protection from the
state.
CIR v British Overseas Airway Corp 149 SCRA 395 (1987)
In order that a foreign corporation may be regarded as doing business within a

State, there must be continuity of conduct and intention to engage in a
continuous business, such as the appointment of a local agent, and not one of
a ________ character.
Topic: limitation of territorial jurisdiction; territorial vs. personal jurisdiction
Ponente: Melencio-Herrera, J.
Parties: Commission on Internal Revenue (petitioner) and British Overseas
Airway (respondent)
Nature: review on certiorari on the joint decision of CTA which set aside petitioner’s
assessment of deficiency income taxes against respondent as well as its resolution
denying their motion for reconsideration.
Facts:
 That British Overseas Airways (BOAC) is a 100% British Government owned and
controlled corporation existing under the laws of the United Kingdom
 That it operates a transportation service and sells transportation tickets over the
routes of other airline members
 That it was not issued a Certificate of public convenience and necessity to
operate in the Philippines but however, was maintaining a general sales agent in
the Philippines originally known as Warner Barnes and Company
 That it was assessed by CIR an aggregate amount of P2,498,358.56 covering
the years 1953 to 1963.
 That upon protest of the respondent, it was issued another assessment of P858,
307.79
 That BOAC payed the amounts under protest and filed the succeeding actions
First Action/Initiatory Action
Filed by: BOAC, respondent
Kind of action: a claim for refund of the amount of P858,307.79
Court: CIR
Issue/s: -
Ruling: denied by the CIR
BOAC then filed for a request for reconsideration with the CIR but they again denied
this
Secondary Action: before the CIR denied their claim for refund
Filed by: BOAC
Kind of action: petition for review
Court: CTA
Issue/s: assailed the assessment and prayed for the refund of the paid amount under
protest
Ruling: CTA reversed the CIR; CTA ordered the petitioner to credit BOAC the sum of
P858, 307.79 and ordered the same to cancel the assessment.
Reasoning: the proceeds of sales of passage tickets by BOAC through its sales
agency, Qantas airways, during the period in question, do not constitute BOAC income
from Philippine sources since “no service of carriage of passengers or freight was
performed by BOAC within the Philippines” and therefore, said income is not subject to
income tax.
Tertiary action
Filed by: CIR
Kind of action: petition for review on certiorari
Court: Supreme Court
Issue/s: 1. Whether or not the revenue raised by BOAC from sales of air transportation
tickets in the Philippines, while having no landing rights here, constitute income of
BOAC from Philippine sources, and accordingly, taxable.
2. Whether or not, during the fiscal years in question, BOAC is a resident foreign
corporation doing business in the Philippines or has an office or place of business in
the Philippines
3. In the alternative that private respondent may not be considered a resident foreign
corporation but a non-resident foreign corporation, then it is liable to Philippine income
tax at the rate of 35% of its gross income received from all sources within the
Philippines
Ruling: the decision of CTA was set aside
Reasoning: 1. Yes, the revenue raised by BOAC although not having landing rights in
the Philippines constitute income from Philippines Sources
2. Yes, BOAC is a resident foreign corporation
3. No, it is not liable for 35% of its gross income because it is considered a resident
foreign corporation
Laws/Jurisprudence/Further court rulings
1. What may be considered income from Philippine sources?
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 Philippines
True, Section 37(a) of the Tax Code, which enumerates items of gross income from
sources within the Philippines, namely: (1) interest, (21) dividends, (3) service, (4)
rentals and royalties, (5) sale of real property, and (6) sale of personal property, does
not mention income from the sale of tickets for international transportation. However,
that does not render it less an income from sources within the Philippines. Section 37,
by its language, does not intend the enumeration to be exclusive. It merely directs that
the types of income listed therein be treated as income from sources within the
Philippines. A cursory reading of the section will show that it does not state that it is an
all inclusive
enumeration, and that no other kind of income may be so considered.
2. Is BOAC a resident foreign corporation doing business in the Philippines?
It is our considered opinion that BOAC is a resident foreign corporation. There is no

specific criterion as to what constitutes "doing" or "engaging in" or "transacting"
business. Each case must be judged in the light of its peculiar environmental
circumstances. The term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of acts or works or
the exercise of some of the functions normally incident to, and in progressive
prosecution of commercial gain or for the purpose and object of the business
organization. "In order that a foreign corporation may be regarded as doing business
within a State, there must be continuity of conduct and intention to establish a
continuous business, such as the appointment of a local agent, and not one of a
temporary character.
There should be no doubt then that BOAC was "engaged in" business in the
Philippines through a local agent during the period covered by the assessments.
3. It is a resident foreign corporation subject to tax upon its total net income received in
the preceding taxable year from all sources within the Philippines.
CIR v Japan Airlines 202 SCRA 450 (1991)
For the source of income to be considered coming from the Philippines, it is

sufficient that the income is derived from activities within this country
regardless of the absence of flight operations within Philippine territory.

Ponente: Paras, J.
Parties: Commission on Internal Revenue (petitioner) and Japan Airlines(JAL)
(respondent)
Nature: Petition for review which seeking the reversal of the decision of the Court of
Tax Appeals which set aside petitioner’s assessment of deficiency income tax inclusive
of interest and surcharge as well as compromise penalty
Facts:
 That Japan Airlines is a foreign corporation engaged in the business of

international air carriage.
 That from 1959 to 1963, JAL had not been granted a certificate of public
convenience and necessity to operate
 However, since mid-July 1957, JAL had maintained and office at the Filipinas
Hotel, Roxas Boulevard, Manila
 That there was no selling of tickets in this office but was maintained merely for
the promotion of the company’s public relations and to hand out brochures,
literature and other information playing up to the attractions of Japan as a tourist
spot and the services enjoyed in JAL planes
 That on July 17, 1957, JAL constituted PAL as its general sales agent in the
Philippines
 That PAL sold for and in behalf of JAL, plane tickets and reservations for cargo
spaces which were used by passengers or customers on the facilities of JAL
 That on June 2, 1972, JAL received deficiency income tax assessment notices
and a demand letter from CIR for a total amount of P2,099,687.52 inclusive of
50% surcharge and interest for the years 1959 through 1963
 That JAL protested the said assessment through the following actions
Filed by: JAL
Kind of action: request for cancellation of assessments
Court: CIR
Issue/s: that as a non-resident foreign corporation, it was taxable only on income from
Philippines sources and that they had no income in the years covered by the
assessments
Ruling: denied by the CIR
JAL elevated the case to CTA
Secondary Action: before the CIR denied their claim for refund
Filed by: JAL
Kind of action: appeal
Court: CTA
Issue/s: same issues with the ones raised to the CIR
Ruling: CTA reversed CIR’s decision and denied the CIR’s motion for reconsideration
Tertiary action
Filed by: CIR
Kind of action: petition for review CTA’s decision
Court: Supreme Court
Issue/s: 1. Whether or not proceeds from sales of JAL sold in the Philippines are
taxable as income from sources within the Philippines
2. Whether or not Japan Airlines is a foreign corporation engaged in trade or business

in the Philippines
Ruling: petition was granted; CTA’s decision was set aside; JAL was ordered to pay
the assessments
Reasoning:
1. Yes, the proceeds of JAL are considered income from sources within the Philippines
2. Yes, JAL is a resident foreign corporation under Sec. 84 (g) of the National Internal
Revenue Code of 1939. The definition of “resident foreign corporation” is provided in
sec.20 of the 1977 tax code (refer below)
Laws/Jurisprudence/Further court rulings
2. What may be considered income from Philippine sources?
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 Philippines
(Sec. 29,(3) of the Tax Code)
True, Section 37(a) of the Tax Code, which enumerates items of gross income from
sources within the Philippines, namely: (1) interest, (21) dividends, (3) service, (4)
rentals and royalties, (5) sale of real property, and (6) sale of personal property, does
not mention income from the sale of tickets for international transportation. However,
that does not render it less an income from sources within the Philippines. Section 37,
by its language, does not intend the enumeration to be exclusive. It merely directs that
the types of income listed therein be treated as income from sources within the
Philippines. A cursory reading of the section will show that it does not state that it is an
all inclusive
enumeration, and that no other kind of income may be so considered.
3. Is JAL a resident foreign corporation doing business in the Philippines?
Under Section 20 of the 1977 Tax Code:

"(h) the term `resident foreign corporation' applies to a foreign corporation engaged in
trade or
business within the Philippines or having an office or place of business therein.
"(i) the term `non-resident foreign corporation' applies to a foreign corporation not
engaged in trade
or business within the Philippines and not having any office or place of business
therein. There is no specific criterion as to what constitutes `doing' or `engaging in' or
`transacting' business. Each case must be judged in the light of its peculiar
environmental circumstances. The term implies continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of acts or works or
the exercise of some of the functions normally incident to, and in progressive
prosecution of commercial gain or for the purpose and object of the business
organization.
In order that a foreign corporation may be regarded as doing business within a State,
there must be continuity of conduct and intention to establish a continuous business,
such as the appointment of a local agent, and not one of a temporary character (Pacific
Micronesian Line, Inc. vs. Del Rosario and Peligon, 96 Phil. 23, 30, citing Thompson
on Corporations, Vol. 8, 3rd ed., pp. 844-847 and Fisher's Philippine Law of Stock
Corporation, p. 415).
Air Canada v CIR Case no. 6572, December 22, 2004
CTA En Banc
Ponente: Palaca-Enriques, J.
Parties: Air Canada (petitioner) and CIR (respondent)
Nature: Petition for review filed by Air Canada which seeks the reversal of the decision
of the CTA first division in denying the motion for reconsideration and declaring Air
Canada as a resident foreign corporation and denying petitioner’s claim for refund of
erroneously paid income
Facts:
 Petitioner, Air Canada, a foreign corporation organized and existing under the
laws of Canada, was granted an authority to operate as an off-line carrier by the
Civil Aeronautics Board (CAB) subject to certain conditions, on April 24,
2000, with said authority to expire on April 24, 2005
 On July 1, 1999, petitioner and Aerotel Ltd., Corporation (hereafter "Aerotel"),
entered into a Passenger general Sales Agency Agreement, whereby Aerotel
Ltd., Corporation was appointed as petitioner's Passenger General Sales Agent
for the territory defined in the said Agreement
 Petitioner filed and paid its quarterly and annual income tax returns
 On November 28, 2002, petitioner filed its administrative claim for refund with the
Bureau of Internal revenue in the total amount of FIVE MILLION ONE HUNDRED
EIGHTY FIVE THOUSAND SIX HUNDRED SEVENTY SIX PESOS AND 77/100
(P5,185,676.77)

Filed by: Air Canada, petitioner
Kind of action: a claim for refund of the amount of P5,185,676.77
Court: BIR
Issue/s: - erroneous payment of income taxes
Ruling: no response from the BIR
With no response received from the Bureau of Internal Revenue and before it could be
barred by prescription, petitioner deemed it proper to elevate its claim to the CTA
through a Petition for Review
Secondary Action:
Filed by: Air Canada
Court: CTA (first division)

-CTA (first division) rendered a decision in favour of respondent (CIR). Petitioner filed a
motion for reconsideration but was denied by CTA (first division) thus, the subsequent
action to CTA En Banc
Issue/s: -
Ruling: The petition has no merit
Reasoning:
Tertiary action
Filed by: Air Canada (petitioner)
Court: CTA En Banc
Issue/s: 1. that the Honourable court erred in holding the petitioner as a resident
foreign corporation subject to 32% income tax under Sec 28 (A)(1) of the 1997 Tax
Code
2. That the honourable court erred in finding that a petitioner maintained a permanent
establishment in the Philippines pursuant to Article V of the RP-Canada Tax treaty by
the appointment of a local general sales agent in the Philippines
3. that the honourable court erred in denying the refund of erroneously paid income tax
Ruling: The petition has no merit
Reasoning: 1. Verily, petitioner is a resident foreign corporation under Section 22 of the

NIRC of 1997, which states:
SEC. 22. Definitions. - When used in this Title:
(H) the term 'resident foreign corporation' applies to a foreign corporation engaged in
trade or business within the
Philippines. (I) the term 'non resident foreign corporation' applies to a foreign
corporation not engaged in trade or business within the Philippines." There are no
specific criteria as to what constitutes "doing" or "engaging in" or transacting" business.
Each case must be judged in the light of the prevailing environmental circumstances.
In order that a foreign corporation may be regarded as doing business within a state,
there must be continuity of conduct and intention to establish a continuous business,
such as the appointment of a local agent, and not one of a temporary character
(Commissioner of Internal Revenue vs. British Overseas Airways Corporation, supra)
Petitioner, during the periods claimed, constituted and maintained Aerotel as its
General Sales Agent in the Philippines, under a Passenger General Sales Agency
Agreement. The General Sales Agent was engaged, among others, in selling and
issuing petitioner's air passenger services, as well as, filing of all necessary tax returns
and paying the tax thereon in its behalf. These activities were in exercise of the
functions which are normally incident to, and are in progressive pursuit of, the purpose
and object of its organization as an international air carrier. There is no doubt that
petitioner was "engaged in" business in the Philippines during the period covered by
the claim. Accordingly, it is a resident foreign corporation subject to tax upon its total
net income received in the preceding taxable year from all sources within the
Philippines (Section 28 (A)(l) of the NIRC of 1997, as amended).
2. The RP-Canada Tax Treaty expressly provides that:
Article VII
Business Profits
1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on or has carried on
business as aforesaid, the profits of the enterprise may be taxed in the other State but
only so much of them as are attributable to:
a. That permanent establishment;
b. Sales of goods or merchandise of the same or
similar activities of the same or similar kind as those
affected, through that permanent establishment.
Artivle V titled Permanent Establishment, letter (i) states premises used as a sales
outlet
3. WHEREFORE, premises considered, the instant petition is hereby DENIED DUE

COURSE, and accordingly, DISMISSED for lack of merit.
No refund of income tax.
Iloilo Bottlers v City of Iloilo 164 SCRA 607 (1988)
For tax purposes, a manufacturer does not necessarily become engage in the
separate business of selling simply because it sells the products at
manufactures. Iloilo city tax ordinance no. 5 series of 1960 which is an excise
tax imposes a municipal license tax on distributors of soft drinks. Since the
corporation was engaged in the separate business of selling or distributing
sofdrinks, it is liable under the tax ordinance and also it is within the situs
because its business activity extends to Iloilo city even if they transferred their
plant to Pavia from Iloilo.
ILOILO BOTTLERS INC., PLAINTIFF-APPELLEE

V.
CITY OF ILOILO, DEFENDANT-APPELLANT
PONENTE:
Cortes, J.
NATURE OF THE CASE:

This is an appeal by the City of Iloilo seeking the reversal of the decision of the Court
of First Instance (RTC) of Iloilo which rendered decision in favor of plaintiff-appellee
declaring it not liable under city ordinance no. 5.
FACTS:
1. That plaintiff is engaged in the business of bottling soft-drinks under the trade
name of Pepsi Cola And 7-up and selling the same to its customers, with a
bottling plant situated at Barrio Ungca Municipality of Pavia, Iloilo, Philippines
and which is outside the jurisdiction of defendant;
2. That defendant enacted an ordinance on January 11, 1960 known as Ordinance
No. 5, Series of 1960 which ordinance was successively amended by Ordinance
No. 28, Series of 1960; Ordinance No. 15, Series of 1964; and Ordinance No. 45,
Series of 1964; which provides as follows:
Section l. — Any person, firm or corporation engaged in the distribution,
manufacture or bottling of coca-cola, pepsi cola, tru-orange, seven-up and other
soft drinks within the jurisdiction of the City of Iloilo, shall pay a municipal license
tax of ten (P0.10) centavos for every case of twenty-four bottles; PROVIDED,
HOWEVER, that softdrinks sold to the public at not more than five (P0.05)
centavos per bottle shall pay a tax of one and one half (P0.015) (centavos) per
case of twenty four bottles.
Section 1-A—For purposes of this Ordinance, all deliveries and/or dispatches
emanating or made at the plant and all goods or stocks taken out of the plant for
distribution, sale or exchange irrespective of where it would take place shall be
covered by the operation of this Ordinance.
The tax ordinance imposes a tax on persons, firms, and corporations engaged in
the business of:
a) distribution of soft-drinks
b) manufacture of soft-drinks, and
c) bottling of softdrinks within the territorial jurisdiction of the City of Iloilo.
3. That prior to September, 1966, Santiago Syjuco Inc., owned and operated a
bottling plant at Muelle Loney Street, Iloilo City, which was doing business under
the name of Seven-up Bottling Company of the Philippines and bottled the soft-
drinks Pepsi-Cola and 7-up; however sometime on September 14,1966, Santiago
Syjuco, Inc., informed all its employees that it was closing its Iloilo Plant due to
financial losses and in fact closed the same and later sold the plant to the plaintiff
Iloilo Bottlers, Inc.
4. That thereafter, plaintiff operated the said plant by bottling the soft drinks Pepsi-
Cola and 7-up; however, sometime in July 1968, plaintiff closed said bottling
plant at Muelle Loney, Iloilo City, and transferred its bottling operations to its new
plant in Barrio Ungca, Municipality of Pavia, Province of Iloilo, and which is
outside the jurisdiction of the City of Iloilo;
5. That from the time of the enactment of the ordinance, the Seven Up Bottling
Company of the Philippines under Santiago Syjuco Inc., had been religiously
paying the defendant City of Iloilo the above- mentioned municipal license tax
due therefrom for bottler because its bottling plant was then still situated at
Muelle Loney St., Iloilo City; but the plaintiff stopped paying the municipal license
tax after October 21, 1968 when it transferred its plant to Barrio Ungca
Municipality of Pavia, Iloilo which is outside the jurisdiction of the City of Iloilo;
6. The defendant demanded from the plaintiff the payment of the municipal license
tax under the above-mentioned ordinance
7. That plaintiff explained in a letter to the defendant that it could not anymore be
liable to pay the municipal license fee because its bottling plant was not anymore
inside the City of Iloilo, and that moreover, since it itself sold its own products to
its customers directly, it could not be considered as a distributor. As a result of
the said letter of the plaintiff, the defendant did not anymore press the plaintiff to
pay the said municipal license tax;
8. That sometime on January 25, 1972, the defendant demanded from the plaintiff
compliance with the said ordinance for 1972 in view of the fact that it was
engaged in distribution of the soft-drinks in the City of Iloilo, and it further
demanded from the plaintiff payment of back taxes from the time it transferred its
bottling plant to the Municipality of Pavia, Iloilo;
9. Due to insistence of the defendant, the plaintiff paid on April 20, 1972, the first
quarter payment of the municipal license tax in the sum of P3,329.20, under
protest, and thereafter has been paying defendant every quarter under protest;
10. That on June l5, 1972,the defendant informed the plaintiff that it must pay
all the taxes due otherwise it shall be constrained to cancel the operation of the
business of the plaintiff, and because of this threat, and so as not to occasion
disruption of its business operation, the plaintiff under protest agreed to the
payment of the back taxes, on staggered basis, which was acceded to by the
defendant;
11. That the plaintiff does not maintain any store or commercial establishment
in the City of Iloilo from which it distributes its products, but by means of a fleet of
delivery trucks, plaintiff distributes its products from its bottling plant at Barrio
Ungca Municipality of Pavia, Iloilo, directly to its customers in the different towns
of the Province of Iloilo as well as the City of Iloilo;
12. On the basis of the above stipulations, the court a quo rendered on January
26, 1973 a decision in favor of Iloilo Bottlers, Inc. declaring the Corporation not
liable under the ordinance.
13. The City of Iloilo appealed to the Court of Appeals which certified the case
to the Supreme Court.
ISSUE:
Whether the Iloilo Bottlers Inc. is liable under Iloilo City Tax Ordinance no. 5 which
imposes a municipal license tax on distributors of soft – drinks. YES (SEE DECISION).
CONTENTION OF ILOILO BOTTLERS INC.:
First, it contends that since it is not engaged in the independent business of

distributing soft-drinks, but that its activity of selling is merely an incident to, or is a
necessary consequence of its main or principal business of bottling, then it is NOT
liable under the city tax ordinance. Second, it claims that only manufacturers or
bottlers having their plants inside the territorial jurisdiction of the city are covered by the
ordinance.
RULING:
1. The second ground is manifestly devoid of merit. It is clear from the ordinance
that three types of activities are covered: (1) distribution, (2) manufacture and (3)
bottling of soft-drinks. A person engaged in any or all of these activities is subject
to the tax.
2. The first ground, however, merits serious consideration.
3. This Court has always recognized that the right to manufacture implies the right
to sell/distribute the manufactured products. Hence, for tax purposes, a
manufacturer does not necessarily become engaged in the separate business of
selling simply because it sells the products it manufactures. In certain cases,
however, a manufacturer may also be considered as engaged in the separate
business of selling its products.
4. To determine whether an entity engaged in the principal business of
manufacturing, is likewise engaged in the separate business of selling, its
marketing system or sales operations must be looked into.
5. Under the first system, the manufacturer enters into sales transactions and
invoices the sales at its main office where purchase orders are received and
approved before delivery orders are sent to the company's warehouses, where in
turn actual deliveries are made. No warehouse sales are made; nor are separate
stores maintained where products may be sold independently from the main
office. The warehouses only serve as storage sites and delivery points of the
products earlier sold at the main office. Under the second system, sales
transactions are entered into and perfected at stores or warehouses maintained
by the company. Anyone who desires to purchase the product may go to the
store or warehouse and there purchase the merchandise. The stores and
warehouses serve as selling centers.
6. Entities operating under the first system are NOT considered engaged in the
separate business of selling or dealing in their products, independent of their
manufacturing business. Entities operating under the second system are
considered engaged in the separate business of selling.
7. In the case at bar, the company distributed its soft-drinks by means of a fleet of
delivery trucks which went directly to customers in the different places in lloilo
province. Sales transactions with customers were entered into and sales were
perfected and consummated by route salesmen. Truck sales were made
independently of transactions in the main office. The delivery trucks were not
used solely for the purpose of delivering soft-drinks previously sold at Pavia.
They served as selling units. They were what were called, until recently, "rolling
stores". The delivery trucks were therefore much the same as the stores and
warehouses under the second marketing system. Iloilo Bottlers, Inc. thus falls
under the second category above. That is, the corporation was engaged in the
separate business of selling or distributing soft-drinks, independently of its
business of bottling them.
8. The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the
privilege of distributing, manufacturing or bottling soft-drinks. 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.
Specifically, the situs of the act of distributing, bottling or manufacturing soft-
drinks must be within city limits, before an entity engaged in any of the activities
may be taxed in Iloilo City.
DECISION:
As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City. Thus, We have
no option but to declare the company liable under the tax ordinance.
With the foregoing discussion, it becomes unnecessary to discuss the other issues
raised by the parties.
WHEREFORE, the appealed decision is hereby REVERSED. The complaint in Civil

Case No. 9046 is ordered DISMISSED. No Costs.
SO ORDERED.
3. Constitutional Limitations
Due Process of Law
Equal Protection of the Laws
Rule of Uniformity and Equity in Taxation
Prohibition against imprisonment for non-payment of poll tax

Prohibition against impairment of obligations of contracts
Prohibition against appropriation of proceeds
Prohibition against taxation of religious, charitable and educational entities
Prohibition against taxation of non-stock, non-profit educational institutions
Others Grant of tax exemption
Veto of appropriation, revenue or tariff bills
Non-impairment of the jurisdiction of the Supreme Court
Revenue bills shall orginate from the House of Representative
Infringement of Press Freedom
Grant of Franchise
a. Due process of law
 There must be a valid law

 Tax measure should not be unconscionable and unjust as to amount to
confiscation of property
 Tax statute must not be arbitrary as to find no support in the Constitution
When does the power of taxation impinge the due process clause?
The due process clause may be invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution, as where it can be shown to amount to a
confiscation of property, [Reyes v. Almanzor, 196 SCRA 322].
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 equal protection of the laws.
REQUIREMENTS OF DUE PROCESS IN TAXATION
1) Tax must be for a Public purpose
2) Imposed within the Territorial jurisdiction
3) No arbitrariness or oppression in
A) assessment, and
B) collection
DUE PROCESS IN TAXATION DOES NOT REQUIRE
1) Determination through judicial inquiry of

A) property subject to tax
B) amount of tax to be imposed
2) Notice of hearing as to:
A) amount of the tax
B) manner of apportionment
Tan v. del Rosario, supra.
The due process clause may correctly be invoked only when there is a clear
contravention of inherent or constitutional limitations in the exercise of tax power.
Sison v. Ancheta, supra.
It is undoubted that the due process clause may be invoked where a taxing
statute is so arbitrary that it finds no support in the Constitution. An obvious
example is where it can be shown to amount to the confiscation of property. That
would be a clear abuse of power. It then becomes the duty of this Court that
such an arbitrary act amounted to the exercise of an authority not conferred.
That property calls for the application of the Holmes dictum “The power to tax is
not the power to destroy while this Court sits.
It has been held that where the assailed tax measure is beyond the
jurisdiction of the state, or is not for a public purpose, or in case a retroactive
statute is so harsh an unreasonable , it is subject to attack on due process grounds.
b. Equal protection of the laws
No person shall be deprived of life, liberty, or property without due process of law, nor
shall any person be denied equal protection of the laws. Sec. 1, Art. III, 1987
Constitution
Sison v. Ancheta, supra.
The taxing power has the authority to make reasonable and natural classification
for purposes of taxation, but the government’s act must not be prompted by 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 privileges conferred and liabilities imposed, [Sison v.
Ancheta, 130 SCRA 654].
Villegas vs, Hiu Chiong Tsai Pao HoGR L-29646, 10 November 1978
Facts: The Municipal Board of Manila enacted Ordinance 6537 requiring aliens
(except those employed in the diplomatic and consular missions of foreign countries, in
technical assistance programs of the government and another country, and members
of religious orders or congregations) to procure the requisite mayor’s permit so as to be
employed or engage in trade in the City of Manila. The permit fee is P50, and the
penalty for the violation of the ordinance is 3 to 6 months imprisonment or a fine of
P100 to P200, or both.
Issue: Whether the ordinance imposes a regulatory fee or a tax.
Held: The ordinance’s purpose is clearly to raise money under the guise of regulation
by exacting P50 from aliens who have been cleared for employment. The amount is
unreasonable and excessive because it fails to consider difference in situation among
aliens required to pay it, i.e. being casual, permanent, part-time, rank and-file or
executive.
[ The Ordinance was declared invalid as it is arbitrary, oppressive and unreasonable,

being applied only to aliens who are thus deprived of their rights to life, liberty and
property and therefore violates the due process and equal protection clauses of the
Constitution. Further, the ordinance does not lay down any criterion or standard to
guide the Mayor in the exercise of his discretion, thus conferring upon the mayor
arbitrary and unrestricted powers. ]
Nature:
This is a petition for certiorari to review tile decision dated September 17, 1968 of
respondent Judge Francisco Arca of the Court of First Instance of Manila, Branch I, in
Civil Case No. 72797, the dispositive portion of winch reads.
Wherefore, judgment is hereby rendered in favor of the petitioner and

against the respondents, declaring Ordinance No. 6 37 of the City of Manila
null and void. The preliminary injunction is made permanent. No
pronouncement as to cost.
SO ORDERED.
Manila, Philippines, September 17, 1968.
Facts:
 The controverted Ordinance No. 6537 entitled “AN ORDINANCE MAKING IT
UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE PHILIPPINES TO BE
EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO BE ENGAGED IN ANY
KIND OF TRADE, BUSINESS OR OCCUPATION WITHIN THE CITY OF
MANILA WITHOUT FIRST SECURING AN EMPLOYMENT PERMIT FROM THE
MAYOR OF MANILA; AND FOR OTHER PURPOSES” was passed by the
Municipal Board of Manila on February 22, 1968 and signed by the herein
petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968.
 Section 1 of said Ordinance No. 6537 prohibits aliens from being employed or to
engage or participate in any position or occupation or business enumerated
therein, whether permanent, temporary or casual, without first securing an
employment permit from the Mayor of Manila and paying the permit fee of P50.00
except persons employed in the diplomatic or consular missions of foreign
countries, or in the technical assistance programs of both the Philippine
Government and any foreign government, and those working in their respective
households, and members of religious orders or congregations, sect or
denomination, who are not paid monetarily or in kind.
 On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed
in Manila, filed a petition with the Court of First Instance of Manila, Branch I,
denominated as Civil Case No. 72797, praying for the issuance of the writ of
preliminary injunction and restraining order to stop the enforcement of Ordinance
No. 6537 as well as for a judgment declaring said Ordinance No. 6537 null and
void on the following grounds:
1) As a revenue measure imposed on aliens employed in the City of

Manila, Ordinance No. 6537 is discriminatory and violative of the rule of the
uniformity in taxation;
2) As a police power measure, it makes no distinction between useful and

non-useful occupations, imposing a fixed P50.00 employment permit, which
is out of proportion to the cost of registration and that it fails to prescribe
any standard to guide and/or limit the action of the Mayor, thus, violating
the fundamental principle on illegal delegation of legislative powers:
3) It is arbitrary, oppressive and unreasonable, being applied only to aliens

who are thus, deprived of their rights to life, liberty and property and
therefore, violates the due process and equal protection clauses of the
Constitution.
 On May 24, 1968, respondent Judge issued the writ of preliminary injunction and
on September 17, 1968 rendered judgment declaring Ordinance No. 6537 null
and void and making permanent the writ of preliminary injunction.
Issues:
I
THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT
ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED
THE CARDINAL RULE OF UNIFORMITY OF TAXATION.
II
RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT

ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED
THE PRINCIPLE AGAINST UNDUE DESIGNATION OF LEGISLATIVE
POWER.
III
RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND

PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537
VIOLATED THE DUE PROCESS AND EQUAL PROTECTION CLAUSES
OF THE CONSTITUTION.
Ruling:
I. The contention that Ordinance No. 6537 is not a purely tax or revenue
measure because its principal purpose is regulatory in nature has no merit.
While it is true that the first part which requires that the alien shall secure an
employment permit from the Mayor involves the exercise of discretion and
judgment and is therefore regulatory in character, the second part which
requires the payment of P50.00 as employee's fee is not regulatory but a
revenue measure. There is no logic or justification in exacting P50.00 from
aliens who have been cleared for employment. It is obvious that the purpose
of the ordinance is to raise money under the guise of regulation.
The P50.00 fee is unreasonable not only because it is excessive but because
it fails to consider valid substantial differences in situation among individual
aliens who are required to pay it. Although the equal protection clause of the
Constitution does not forbid classification, it is imperative that the classification
should be based on real and substantial differences having a reasonable
relation to the subject of the particular legislation. The same amount of P50.00
is being collected from every employed alien whether he is casual or
permanent, part time or full time or whether he is a lowly employee or a highly
paid executive
II. 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.
III. Requiring a person before he can be employed to get a permit from the City
Mayor of Manila who may withhold or refuse it at will is tantamount to denying
him the basic right of the people in the Philippines to engage in a means of
livelihood. While it is true that the Philippines as a State is not obliged to admit
aliens within its territory, once an alien is admitted, he cannot be deprived of
life without due process of law. This guarantee includes the means of
livelihood. The shelter of protection under the due process and equal
protection clause is given to all persons, both aliens and citizens.
The 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 of property, courts will not
hesitate to strike it down, for, despite all its plenitude, the power to tax cannot override
constitutional proscriptions.
The legislative intent to increasingly shift the income tax system towards the
schedular approach in the income taxation of individual taxpayers and to maintain, by
and large, the present global treatment on taxable corporations, we certainly do not
view this classification to be arbitrary and inappropriate.
CIR v. CA & Alhambra Ind., 267 SCRA 557 (1997)
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS,

COURT OF APPEALS and ALHAMBRA INDUSTRIES, INC., respondents.
Nature:
This is a Petition against the decision of the Court of Appeals upholding, in turn, the
decision of Court of tax Appeals ordering petitioner to refund to private respondent
the amount of Five Hundred Twenty Thousand Eight Hundred Thirty-Five Pesos
and Twenty-Nine Centavos (P 520,835.29) representing erroneously paid ad
valorem tax for the period 2 November 1990 to 22 January 1991.
Facts:
 ALHAMBRA INDUSTRIES, INC., is a domestic corporation engaged in the

manufacture and sale of cigar and cigarette products.
 On 7 May 1991 private respondent received a letter dated 26 April 1991 from
the Commissioner of Internal Revenue assessing it deficiency Ad Valorem Tax
(AVT) in the total amount of Four Hundred Eighty-Eight Thousand Three
Hundred Ninety-Six Pesos and Sixty-Two Centavos (P 488,396.62), inclusive of
increments, on the removals of cigarette products from their place of
production during the period 2 November 1990 to 22 January 1991.
 In a letter dated 22 May 1991, private respondent thru counsel filed a protest
against the proposed assessment with a request that the
same be withdrawn and cancelled.
 On 31 May 1991 private respondent received petitioner's reply dated 27 May
1991 denying its protest and request for cancellation stating that the decision
was final, and at the same time requesting payment of the revised amount of
Five Hundred Twenty Thousand Eight Hundred Thirty-Five Pesos and Twenty-
Nine Centavos (P 520,835.29), with interest updated, within ten (10) days from
receipt thereof.
 In a letter dated 10 June 1991 which petitioner received on the same day,
private respondent requested for the reconsideration of petitioner's denial of its
protest.
 Without waiting for petitioner's reply to its request for reconsideration, private
respondent filed on 19 June 1991 a petition for review with the Court of Tax
Appeals.
 On 25 June 1991 private respondent received from petitioner a letter dated 21

June 1991 denying its request for reconsideration declaring again that its
decision was final.
 On 8 July 1991 private respondent paid under protest the disputed ad valorem
tax in the sum of P 520,835.29.
 In its Decision of 1 December 1993 the Court of Tax Appeals ordered petitioner
to refund to private respondent the amount of Five Hundred Twenty Thousand
Eight Hundred Thirty-Five Pesos and Twenty-
Nine Centavos (P 520,835.29) representing erroneously paid ad valorem tax
for the period 2 November 1990 to 22 January 1991.
The rationale was that subject deficiency excise tax assessment resulted from
private respondent’s use of the computation mandated by BIR Ruling 473-88
dated 4 October 1988 as basis for computing the fifteen percent (15%) ad
valorem tax due on its removals of cigarettes from 2 November 1990 to 22
January 1991; allowing the exclusion of the value-added tax (VAT) in the
determination of the gross selling price for purposes of computing the ad valorem
tax of its cigar and cigarette products based on Sec. 127 of the Tax Code as
amended by E.O. 273. On 11 February 1991, petitioner issued BIR Ruling 017-
91 revoking BIR Ruling 473-88 for being violative of Sec. 142 of the Tax
Code. It included back the VAT to the gross selling price in determining the tax
base for computing the ad valorem tax on cigarettes.
 On appeal, the Court of Appeals affirmed the Court of Tax Appeals holding that
the retroactive application of BIR Ruling 017-91 cannot be allowed since private
respondent did not act in bad faith; private respondent’s computation under BIR
Ruling 473-88 was not shown to be motivated by ill will or dishonesty partaking
the nature of fraud.
Issues:
Whether COA erred
(1) in failing to consider that private respondent’s reliance on BIR Ruling 473-88 being
contrary to Sec. 142 of the Tax Code does not confer vested rights to private
respondent in the computation of its ad valorem tax;
(2) in failing to consider that good faith and prejudice to the taxpayer in cases of
reliance on a void BIR Ruling is immaterial and irrelevant and does not place the
government in estoppel in collecting taxes legally due;
(3) in holding that private respondent acted in good faith in applying BIR Ruling 473-88;
and,
(4) in failing to consider that the assessment of petitioner is presumed to be regular

and the claim for tax refund must be strictly construed against private respondent for
being in derogation of sovereign authority.
Ruling:
 We cannot sustain petitioner. The deficiency tax assessment issued by

petitioner against private respondent is without legal basis because of the
prohibition against the retroactive application of the revocation of BIR rulings in
the absence of bad faith on the part of private respondent.
 The question as to the correct computation of the excise tax on cigarettes in the
case at bar has been sufficiently addressed by BIR Ruling 017-91 dated 11
February 1991 which revoked BIR Ruling 473-88 dated 4 October 1988, stating
to the effect that Section 142 must perforce prevail over Section 127 (b) which is
a general provision of law insofar as the imposition of the ad valorem tax on cigar
and cigarettes is concerned.
Private respondent did not question the correctness of the above BIR ruling. In
fact, upon knowledge of the effectivity of BIR Ruling No. 017-91, private
respondent immediately implemented the method of computation mandated
therein by restoring the VAT in computing the tax base for purposes of the 15%
ad valorem tax.
However, well-entrenched is the rule that rulings and circulars, rules and
regulations promulgated by the Commissioner of Internal Revenue would have
no retroactive application if to so apply them would be prejudicial to the
taxpayers.
The applicable law is Sec. 246 of the Tax Code which provides -
Sec. 246. Non-retroactivity of rulings.- Any revocation, modification, or reversal of

any rules and regulations promulgated in accordance with the preceding
section or any of the rulings or circulars promulgated by the Commissioner of
Internal Revenue 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 in 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.
Without doubt, private respondent would be prejudiced by the retroactive

application of the revocation as it would be assessed deficiency excise tax.
 What is left to be resolved is petitioner’s claim that private respondent falls under
the third exception in Sec. 246, i.e., that the taxpayer has acted in bad faith.
Bad faith imports a dishonest purpose or some moral obliquity and conscious
doing of wrong. It partakes of the nature of fraud; a breach of a known duty
through some motive of interest or ill will. We find no convincing evidence that
private respondent’s implementation of the computation mandated by BIR Ruling
473-88 was ill-motivated or attended with a dishonest purpose. To the contrary,
as a sign of good faith, private respondent immediately reverted to the
computation mandated by BIR Ruling 017-91 upon knowledge of its issuance on
11 February 1991.
As regards petitioner's argument that private respondent should have made

consultations with it before private respondent used the computation mandated
by BIR Ruling 473-88, suffice it to state that the aforesaid BIR Ruling was clear
and categorical thus leaving no room for interpretation. The failure of private
respondent to consult petitioner does not imply bad faith on the part of the
former.
 Admittedly the government is not estopped from collecting taxes legally due
because of mistakes or errors of its agents. But like other principles of law, this
admits of exceptions in the interest of justice and fair play, as where injustice will
result to the taxpayer. (relate to constitutional provision)
Tiu v. CA, 301 SCRA 278 (1999)
The Constitutional right to equal protection of the law is not violated by an

executive order, issued pursuant to law, granting tax and duty incentives only to
businesses within the “secured area” of the Subic Special Economic Zone and denying
them to those who live within the Zone but outside such “fenced in” territory. The
Constitution does not require absolute equality among residents. It is enough that all
persons under like circumstances or conditions are given the same privileges and
required to follow the same obligations. In short, a classification based on valid and
reasonable standards does not violate the equal protection clause.
We find real and substantial distinctions between the circumstances obtaining

inside and those outside the Subic Naval Base, thereby justifying a valid and
reasonable classification.
TIU vs. COURT OF APPEALS
Nature:
This is a petition for review under Rule 45 of the Rules of Court, seeking the
reversal of the Court of Appeals’ Decision promulgated on August 29, 1996, and
Resolution dated November 13, 1996, in CA-GR SP No. 37788. The challenged
Decision upheld the constitutionality and validity of Executive Order No. 97-A (EO 97-
A), according to which the grant and enjoyment of the tax and duty incentives
authorized under Republic Act No. 7227 (RA 7227) were limited to the business
enterprises and residents within the fenced-in area of the Subic Special Economic
Zone (SSEZ).
The assailed Resolution denied the petitioners’ motion for reconsideration.
Facts:
 On March 13, 1992, Congress, with the approval of the President, passed into
law RA 7227 entitled “An Act Accelerating the Conversion of Military
Reservations Into Other Productive Uses, Creating the Bases Conversion and
Development Authority for this Purpose, Providing Funds Therefor and for Other
Purposes.” Section 12 thereof created the Subic Special Economic Zone and
granted thereto special privileges, among which are tax and duty incentives.
 On June 10, 1993, then President Fidel V. Ramos issued Executive Order No. 97
(EO 97), clarifying the application of the tax and duty incentives
 Nine days after, on June 19, 1993, the President issued Executive Order No. 97-
A (EO 97-A), specifying the area within which the tax-and-duty-free privilege was
operative
 On October 26, 1994, the petitioners challenged before this Court the
constitutionality of EO 97-A for allegedly being violative of their right to equal
protection of the laws.
 In a Resolution dated June 27, 1995, this Court referred the matter to the Court
of Appeals, pursuant to Revised Administrative Circular No. 1-95.
 Incidentally, on February 1, 1995, Proclamation No. 532 was issued by President
Ramos. It delineated the exact metes and bounds of the Subic Special
Economic and Free Port Zone, pursuant to Section 12 of RA 7227.
 Respondent Court held that “there is no substantial difference between the
provisions of EO 97-A and Section 12 of RA 7227. In both, the ‘Secured Area’ is
precise and well-defined as ‘xxx the lands occupied by the Subic Naval Base
and its contiguous extensions as embraced, covered and defined by the 1947
Military Bases Agreement between the Philippines and the United States of
America, as amended, xxx.’” The appellate court concluded that such being the
case, petitioners could not claim that EO 97-A is unconstitutional, while at the
same time maintaining the validity of RA 7227. The court a quo also explained
that the intention of Congress was to confine the coverage of the SSEZ to the
“secured area” and not to include the “entire Olongapo City and other areas
mentioned in Section 12 of the law.”
Issues:
“Whether or not Executive Order No. 97-A violates the equal protection clause of the
Constitution. Specifically the issue is whether the provisions of Executive Order No.
97-A confining the application of R.A. 7227 within the secured area and excluding the
residents of the zone outside of the secured area is discriminatory or not.”
Ruling:
 We rule in favor of the constitutionality and validity of the assailed EO. Said
Order is not violative of the equal protection clause; neither is it
discriminatory. Rather, we find real and substantive distinctions between the
circumstances obtaining inside and those outside the Subic Naval Base, thereby
justifying a valid and reasonable classification.
 The fundamental right of equal protection of the laws is not absolute, but is
subject to reasonable classification. If the groupings are characterized by
substantial distinctions that make real differences, one class may be treated and
regulated differently from another. The classification must also be germane to the
purpose of the law and must apply to all those belonging to the same class.
 We believe it was reasonable for the President to have delimited the application
of some incentives to the confines of the former Subic military base. It is this
specific area which the government intends to transform and develop from
its status quo ante as an abandoned naval facility into a self-sustaining industrial
and commercial zone, particularly for big foreign and local investors to use as
operational bases for their businesses and industries. Why the seeming bias for
big investors? Undeniably, they are the ones who can pour huge investments to
spur economic growth in the country and to generate employment opportunities
for the Filipinos, the ultimate goals of the government for such conversion. The
classification is, therefore, germane to the purposes of the law. And as the legal
maxim goes, “The intent of a statute is the law.”
 Certainly, there are substantial differences between the big investors who are
being lured to establish and operate their industries in the so-called “secured
area” and the present business operators outside the area. On the one hand, we
are talking of billion-peso investments and thousands of new jobs. On the other
hand, definitely none of such magnitude. In the first, the economic impact will be
national; in the second, only local. Even more important, at this time the
business activities outside the “secured area” are not likely to have any impact in
achieving the purpose of the law, which is to turn the former military base
to productive use for the benefit of the Philippine economy. There is, then, hardly
any reasonable basis to extend to them the benefits and incentives accorded in
RA 7227. Additionally, as the Court of Appeals pointed out, it will be easier to
manage and monitor the activities within the “secured area,” which is already
fenced off, to prevent “fraudulent importation of merchandise” or smuggling.
 It is well-settled that the equal-protection guarantee does not require territorial
uniformity of laws, As long as there are actual and material differences between
territories, there is no violation of the constitutional clause.
 We believe that the classification set forth by the executive issuance does not
apply merely to existing conditions. As laid down in RA 7227, the objective is to
establish a “self-sustaining, industrial, commercial, financial and investment
center” in the area. There will, therefore, be a long-term difference between such
investment center and the areas outside it.
 Lastly, the classification applies equally to all the resident individuals and
businesses within the “secured area.” The residents, being in like circumstances
or contributing directly to the achievement of the end purpose of the law, are not
categorized further. Instead, they are all similarly treated, both in privileges
granted and in obligations required.
c. Uniformity and equity in taxation
Sec. 28 c, Art. VI of the Constitution provides that “the rule of taxation shall be uniform
and equitable”.
Uniformity in Taxation
The concept of uniformity in taxation implies that all taxable articles or properties of the
same class shall be taxed at the same rate. It requires the uniform application and
operation, without discrimination, of the tax in every place where the subject of the tax
is found. It does not, however, require absolute identity or equality under all
circumstances, but subject to reasonable classification.
Equity in Taxation
The concept of equity in taxation requires that the apportionment of the tax burden be,
more or less, just in the light of the taxpayer’s ability to shoulder the tax burden and, if
warranted, on the basis of the benefits received from the government. Its cornerstone
is the taxpayer’s ability to pay.
Classification of taxpayers, subject or items to be taxed
REQUISITES OF A VALID CLASSIFICATION (S A G E )
1. It must be based on substantial distinction.

2. Germane/relevant to the purpose of the law/ordinance.
3. Applies not only to the present condition, but also to future substantially identical
conditions.
4. Equally applicable to all members of the same class.
Tolentino v. Sec. of Finance, supra., supra.
The constitution does not really prohibit the imposition of indirect taxes
which like VAT are regressive. What is simply provides is that the congress shall
evolve a progressive system of taxation. Indeed, the mandate of congress is not
to prescribe, but to evolve a progressive tax system. Otherwise, sales taxes,
which perhaps are the oldest form indirect tax would have been prohibited.
Mla. Race Horse v. dela Fuente, 88 Phil 60 (1951)
Ordinance No. 3065-tax on license stables, license fees for boarding stable
for race horses. Tax assessed on the owners of the boarding stables for race
horses is valid because there is equity and no arbitrary classification even no
such tax imposed on boarding stables for other types of horses.
The owners of the stables are class by themselves, and are appropriately
taxed when other kinds are taxed less or not at all, considering that equity in
taxation is generally conceived in terms of liability In relation to the benefits
received by the tax payer. Race horses as devoted to gambling, their owners
derive fat income, and such demands heavy burden of resource from the
government such as police supervision. Hence, taking into everything into
account, the differentiation against which the plaintiffs complain conform to the
practical dictates of justice and equity, and is not discriminatory within the
meaning of the constitution.
Not valid or discriminatory when other boarding stables for race horses
with the same number of horses were made to pay less or not at all.
Eastern Theatrical v. Alfonso, 83 Phil 852 (1949)
An ordinance which imposes a fee on the price of every admission ticket

sold by the cinema, theaters, and boxing exhibitions is valid because same
class, same rate.
Equality and uniformity in taxation means that all taxable articles or kinds
or 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 appellant can’t 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.
Pepsi Cola v. City of Butuan, supra.
Valid classification of taxes are not full met by the city ordinance which
imposes a tax upon the sale of merchandise payable only by agent/consignee of
any outside dealer of such merchandise while the sales of the local dealers
regardless of the amount would be exempt.
Shell v. Vano, Mun. Treas. of Cordova, Cebu, 94 Phil 389 (1954)
A municipal ordinance imposing an occupation tax on the profession or

occupation of “ installation manager” is valid even there is only one person with
such occupation in the municipality. A person can’t challenge the validity of an
ordinance as being discriminatory since he is only one adversely effected
because all other installation managers who may come within the jurisdiction of
the municipality would be subject to tax under the ordinance.
What the ordinance tax is the occupation itself regardless who or how
many exercise it. It will be applicable to any person/firm who may come to
exercise such calling.
City of Baguio v. de Leon, 25 SCRA 938 (1968)
Equality and uniformity of taxation, means that, all taxable articles or kinds
of property of the same class be taxed at the same rate. The taxing power has
the authority to make reasonable and natural classification for purposes of
taxation. To satisfy this requirement, it is enough that the statute applies equally
to all persons, forms and corporations placed in similar situation.
Kapatiran v. Tan, supra.
VAT law does not discriminate unduly against custom brokers who are
subject to said tax.
Villanueva v. City of Iloilo, supra.
An ordinance exacting tax on apartment owners/operators are violative of

rule of uniformity of taxation because (a) R.A. 2264 does not empower cities to
impose apartment taxes, (b) it is oppressive and unreasonable for it penalizes
owners of tenement houses who fail to the pay tax, (c) it constitutes not only
double taxation, but treble at that, and (d) that it violates the rule of uniformity of
taxation.
Asso. of Customs Brokers v. Mun. Board, supra.
An ordinance which imposes tax upon owners of vehicles operating inside

Manila is an infringement of rule of uniformity of taxation as ordained by the
constitution because it does not distinguish the vehicle for hire or for private
use, neither does it distinguish vehicle registered in the City of Manila or
outside.
The owners of vehicles residing outside Manila who also use the streets are
not made to share the corresponding burden. In this case, those owners of the
vehicles which use the streets of Manila, regardless whether they are citizen or
not fall within the same class.
5. Prohibition against imprisonment for non-payment of poll tax
No person shall be imposed for debt or non-payment of poll tax. [Sec. 20, Art. III,
Constitution]
 The non-imprisonment rule applies to non-payment of poll tax which is

punishable only by a surcharge, but not to other violations like falsification of
community tax certificate and non-payment of other taxes.
Poll tax
 Poll tax is a tax of fixed amount imposed on residents within a specific territory
regardless of citizenship, business or profession. e.g. community tax
community tax v. poll tax
Sec. 156-164, R. A. 7160
156. Community Tax-Cities or Municipalities may levy a community tax in

accordance with the provisions of this article.
157. Individual Liable to Community Tax-Every inhabitants of the Philippines 18

yrs or over that has been regularly employed on a wage or salary base for at
least 30 days....
158. Juridical Persons Liable to CT- Every Corp no matter how created or
organize, domestic or foreign, engaged in or doing business in the Phils.
159. Exemptions-1.Diplomatic and consular representatives, 2.Transient visitors

staying not more than 3 months
6. Prohibition against impairment of obligation of contracts

“No law impairing the obligation of contracts shall be passed.”
The obligation of a contract is impaired when its terms or conditions are changed by
law or by party without the consent of the other, thereby weakening the position or
rights of the latter.
An example of impairment by law is when a later taxing statute revokes a tax

exemption based on a contract. But this only applies when the tax exemption has been
granted for a valid consideration.
A later statute may revoke exemption from taxation provided for in a franchise because
the Constitution provides that a franchise is subject to amendment, alteration or repeal.
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. of Finance, (1994) supra.
CREBA contends Imposition of the VAT on the sales and leases of real estate by
virtue of contracts entered into prior to the effectivity of the law. However, the Non-
impairment of Contract Clause has never been thought as limitation on the exercise of
the State’s power of taxation save only where a tax exemption has been granted for a
valid consideration.
Oposa Vs. Factoran
Police power prevails over the non-impairment clause

La Insular Vs. Manchuca
A lawful tax on a new subject or an increased tax on an old one, does not interfere
with a contract or impairs its obligation.
 The non-impairment clause applies only to contracts and not to a franchise.

 The non-impairment clause applies to taxation but not to police power and
eminent domain. Furthermore, it applies only where one party is the government
and the other, a private individual.
As a rule, the obligation to pay tax is based on law. But when, for instance, a taxpayer
enters into a compromise with the BIR, the obligation of the taxpayer becomes one
based on contract
The rule does not apply to public utility franchises. According to Sec 11, Art XI of the
constitution, no public utility franchise or right shall be granted except under the
condition that it shall be granted that it is subject to amendment, alteration or repeal by
the Congress when the common good so requires.
Congress could impair the company’s legislative franchise by making it liable for
income tax. The Constitution provides that a franchise is subject to amendment,
alteration or repeal by the Congress when the public interest so requires.
When can a grant of tax-incentive be taken away by the government without

violating the rule on non-impairment of contracts?
It depends on whether the grant is unilaterally or bilaterally given by the

government. If unilaterally given, there is no impairment. It constitutes a mere
revocation of a grant of privilege. If bilaterally given, there is impairment (Art. III, Sec.
10, Constitution). Exception: In case of grant of franchise to public utilities when
common good so requires (Art. XII, Sec. 11, Constitution)
7. Prohibition against infringement of religious freedom

No law shall be made respecting an establishment of religion, or prohibiting the free
exercises 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.”
Am. Bible Society v. City of Manila, 101 Phil 386 (1957)
The payment of license fees for the distribution and sale of bibles by a non-stock,
non-profit, missionary organization at minimal profit suppresses the constitutional right
of free exercise of religion which is guaranteed by the Constitution.
But a tax on the sale of religious materials is not unconstitutional because it is

imposed after the activity (sale) taxed is done.
The power to impose a license tax on the exercise of these freedoms is indeed
as potent as the power of censorship which this Court has repeatedly struck down
A tax on the income of one who engages in religious activities is different from a tax
on property used or employed in connection with those activities.
8. Prohibition against appropriation of proceeds of taxation

No money shall be paid out of the Treasury except in pursuance of an appropriation
made by law.
-taxes can only be levied for public purpose
Sec. 29, (2) Art. VI, 1987 Constitution
“No public money or property shall be appropriated, applied, paid, or employed

directly or indirectly, for the use, benefit, or support of any church, denomination,
sectarian institution or system of religion, or of any priest, preacher, minister or 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.”
(Sec. 29 (3) ART VI) Use of tax levied for a special purpose
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.
-Separation of the Church and State
* If a President of the Philippines spent a special fund for a general purpose, he

can be charged with culpable violation of the Constitution.
Osmena v. Orbos, supra.
OPSF as a special fund may be placed in a special trust.
9. Prohibition against taxation of religious, charitable 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.”
 This is an exemption from real property tax only.

 Public Cemeteries are exempt from the payment of taxes.
The term exclusively used for religious purposes does not necessarily mean
total or absolute use for religious, charitable and educational purposes. Even is
the property is incidentally used for said purposes, the tax exemption will apply.
Abra Valley College v. Aquino, 162 SCRA 106 (1988)
The exemption in favor of property used exclusively for charitable or educational

purpose is not limited to property actually indispensable therefore, but extends to
facilities which are incidental to and reasonably necessary for the accomplishment of
said purpose.
Province of Abra v. Hernando 107 SCRA 104
To be exempt from realty taxation, there must be proof of actual, direct and
exclusive use of lands, buildings and improvements for religious or charitable
purposes.
Lung Center of the Philippines v. Quezon City G.R. 144104, June 29, 2004
Petitioner failed to discharge its burden to prove that the entirety of its real property
is actually, directly, and exclusively used for charitable purposes. Thus the court ruled
that portions of the land leased to private interties as well as those parts of the hospital
leased to private individuals are not exempt from taxes.
To determine whether an enterprise is a charitable institution/entity or not, the

elements which should be considered include the statute creating the enterprise, its
corporate purposes, its constitution and by-laws, the methods of administration, the
nature of the actual work performed, the character of the services rendered, the
indefiniteness of the beneficiaries, and the use and occupation of the properties. 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. (Lung Center of the Philippines v. QC, GR
144104, 29 June 2004)
10. Prohibition against taxation of non-stock, non-profit educational

institutions
Sec. 4 (3, 4), 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.”
Requisites For Exemption:
1) It must be a private educational institution
2) It must be non-stock and non-profit
3) It’s assets (property) and revenues (income) must be used actually, directly and
exclusively for educational purposes
RULES:
1) If the first requisite is absent (meaning, it’s a government educational institution), it is

nonetheless exempt from income tax
2) If the second requirement is absent (meaning, it is stock and profit) as long as the
third requirement is present, it is nonetheless exempt from real estate tax
3) If the third requirement is absent, as long as it is non-stock and non-profit, it is
nonetheless exempt from income tax
4) If the third requirement is absent, but it is private and non-profit, it is subject to

income tax, but at the preferential rate of ten percent (10%)
 > Under the present tax code, for a private educational institution to be exempt
from the payment of income tax, all it has to be is non-stock and non-profit.
However, a governmental educational institution is exempt from income tax
without any condition
EXEMPTION DOES NOT EXTEND TO:
1) Income derived by these educational institutions from their property, real or

personal, and
2) From activities conducted by them for profit regardless of the disposition made on
such income
Sec. 28 (3), Art. VI, Constitution

shall be exempt from taxation.” (Property Tax Exemption)
Sec. 27 (B) NIRC
(B) 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. 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;
 Note however the last paragraph of Sec. 30, which states: “Notwithstanding the
provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations form any of their property, real or
personal, or from any of their activities conducted for profit, regardless of the
disposition made of such income, shall be subject to tax imposed under this
Code.”
Department of Finance Order 145-85
Non-stock, non-profit educational institutions are exempt from taxes on all their
revenues and assets used actually, directly and exclusively for educational purposes.
However, they shall be subject to internal revenue tax on income from trade,
business or other activity, the conduct of which is not related to the exercise or
performance by such educational institutions of its educational purposes or functions.
Interest income shall be exempt only when used directly and exclusively for
educational purposes. To substantiate this claim, the institution must submit annual
information return and duly audited financial statement. A certification of actual
utilization and the Board resolution or the proposed project to be funded out of the
money deposited in banks shall also be submitted.
Department of Finance Order 137-87
An educational institution means a non-stock, non-profit corporation or association

duly registered under Philippine law, and operated exclusively for educational
purposes, maintained and administered by a private individual or group offering formal
education, and with an issued permit to operate by the DECS.
Revenues derived from and assets used in the operation of cafeteria/canteens,

dormitories, and bookstores are exempt from taxation provided they are owned and
operated by the educational institution as ancillary activities and the same are located
within the school premises.
CIR v. CA, CTA and YMCA, 298 SCRA 83 (1998)
In this case, the SC held that the income derived by YMCA from leasing out a
portion of its premises to small shop owners, like restaurants and canteen operators,
and from parking fees collected from non-members are taxable income
CIR v. CA, CTA and Ateneo, 271 SCRA 605 (1997)
Petitioner asserted that Ateneo de Manila University in conducting researches

and studies of social organizations and cultural values thru one of its unit, the
Institute for Philippines Culture thus subject to 3% independent contractors tax
under Sec. 205 of NIRC to wit:
Sec. 25: Contractors, proprietors or operators of dockyards and others—A

contractor’s tax of 3% of the gross receipts is hereby imposed on the following.
(16) Business agents and other independent contractors, except persons,

associations and corporations under contract for embroidery and apparel for
export, as well as their agents and contractors, and except gross receipts of or
from a pioneer industry registered with the Board of Investments under
provision of R.A. 5168
According to the CIR the contractor the term independent contractor is not
specifically defined so as to de limit its scope, so much that any person who
renders physical and mental service for a fee, is now indubitably considered as
an independent contractor liable to 3% contractor’s tax. According to petitioner,
Ateneo has the burden of proof to show its exemption from the coverage of the
law.
The court held that Ateneo is mandated by law to undertake research

activities to maintain its university status. In fact, the researches carried out by
IPC is not on business or profit but on social sciences studies of Philippine
Society. Since the university can only finance limited number of IPC research
projects, private respondents occasionally accept sponsorships from
international organizations, private foundations and governmental agencies.
These sponsorships are subject to the terms and conditions set by Ateneo such
as no proprietary or commercial purpose research is done, topic confined to
university academic agenda, and the absolute right to publish and ownership of
the results conducted by IPC.
ARTICLE XIV AND ARTICLE VI COMPARED
Art. XIV, Sec. 4 (3) Art. VI Sec. 28(3)
Grantee Non-stock, non-profit, Religious, educational,

educational institution charitable, institutions
Taxes Covered Income tax
Custom Duties Property Tax
Property Tax
OTHER TAXES
TAX Exempted Institution Bases
Donor’s Tax Non-stock, non-profit All grants,

educational Institution endowments,
donations,
contributions used,
actually, exclusively,
for educational
purposes shall be
exempt from tax. Art.
XIV, Sec. 4 (4)
Only transfers to social

welfare, cultural and
Estate Tax Sec. 87 R.A. 8424
charitable institution
are exempt from estate
tax.
11. Others
i. Grant of tax exemption (more on this under D4)
“No law granting any tax exemption shall be passed without the concurrence of a
majority of all the Members of the Congress.”
RULES ON VOTE REQUIREMENT
1) Law granting any tax exemption = (absolute majority)
2) Law withdrawing any tax exemption= (Relative majority)
* Tax exemption, amnesties, refunds are considered in the nature of tax exemptions.
* A law granting such needs approval of the absolute majority of the Congress
Chavez v. PCGG, supra.
PCGG a body created by the executive department cannot enter into

agreement with the Marcos to exempt the properties of the latter considered as
ill-gotten wealth because it is only congress can do such.
Under Item No. 2 of the General Agreement, the PCGG commits to exempt from
all forms of taxes the properties to be retained by the Marcos heirs. This is a clear
violation of the Constitution. The power to tax and to grant tax exemptions is vested in
the Congress and, to a certain extent, in the local legislative bodies.[58] Section 28 (4),
Article VI of the Constitution, specifically provides: “No law granting any tax exemption
shall be passed without the concurrence of a majority of all the Members of the
Congress.” The PCGG has absolutely no power to grant tax exemptions, even under
the cover of its authority to compromise ill-gotten wealth cases.
Even granting that Congress enacts a law exempting the Marcoses from
paying taxes on their properties, such law will definitely not pass the test of the
equal protection clause under the Bill of Rights. Any special grant of tax
exemption in favor only of the Marcos heirs will constitute class legislation. It
will also violate the constitutional rule that “taxation shall be uniform and
equitable.”[59]
Neither can the stipulation be construed to fall within the power of the
commissioner of internal revenue to compromise taxes. Such authority may be
exercised only when:
(1) there is reasonable doubt as to the validity of the claim against the
taxpayer, and
(2) the taxpayer’s financial position demonstrates a clear inability to

pay.[60]
Definitely, neither requisite is present in the case of the Marcoses, because

under the Agreement they are effectively conceding the validity of the claims against
their properties, part of which they will be allowed to retain. Nor can the PCGG grant
of tax exemption fall within the power of the commissioner to abate or cancel a
tax liability. This power can be exercised only when
(1) the tax appears to be unjustly or excessively assessed, or
(2) the administration and collection costs involved do not justify the
collection of the tax due.[61]
In this instance, the cancellation of tax liability is done even before the
determination of the amount due. In any event, criminal violations of the Tax Code, for
which legal actions have been filed in court or in which fraud is involved, cannot be
compromised.[62]
ii. Veto of appropriation, revenue or tariff bills
The President shall have the power to veto any particular item or items in an
appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to
which he does not object, [Sec. 27(2), Art. VI, Constitution].
Gonzales v. Macaraig, 191 SCRA 452 (1990)
An item in a bill refers to particulars, details, the distinct and severable parts of a
bill. In budgetary legislation, an item is an invalid sum of money dedicated to a stated
purpose.
Gonzales v. Macaraig, Jr. 1990

GR 87636 -EN BANC
NATURE OF THE CASE:

This is a case filed by petitioner as members and ex-officio members of the Committee on Finance of the Senate and as
"substantial taxpayers whose vital interests may be affected by this case."
This constitutional controversy between the legislative and executive departments of government stemmed from
Senate Resolution No. 381, adopted on 2 February 1989,
"Authorizing and Directing the Committee on Finance to Bring in the Name of the Senate of the Philippines the
Proper Suit with the Supreme Court of the Philippines contesting the Constitutionality of the Veto by the
President of Special and General Provisions, particularly Section 55, of the General Appropriation Bill of 1989
(H.B. No. 19186) and For Other Purposes."
Respondents are members of the Cabinet tasked with the

implementation of the General Appropriations Act of 1989 and
1990, some of them incumbents, while others have already been
replaced, and include the National Treasurer and the Commission
on Audit Chairman, all of whom are being sued in their official
capacities.cha
Facts:
 December 16, 1988 Congress passed House Bill No. 19186 (GAB of Fiscal
Year 1989) which eliminated or decreased certain items included in the
proposed budget submitted by the president
 December 29, 1988  President signed bill into law (RA 6688) but vetoed
7 special provisions and Sec 55, a general provision.
 February 2, 1989 Senate passed Res. No. 381  Senate as an institution
decided to contest the constitutionality of the veto of the president of SEC
55 only.
 April 11, 1989 this petition was filed
 January 19, 1990 filed motion for leave to file and to admit supplemental
petition  same issues but included SEC 16 of House Bill 26934 (Gab for
FY 1990 or RA 6831)
 SEC. 55 disallows the president and heads of several department to
augment any item in the GAB thereby violation CONSTI ART VI SEC 25 (5)
(page 459)
 SEC 16 of the GAB of 1990 provides for the same and the reason for veto
remains the same with the additional legal basis of violation of PD 1177
SEC 44 and 45 as amended by RA 6670 that authorizes the president and
the heads of depts. To use saving to augment any item of appropriations in
the exec branch of government (page 460)
ISSUE:
 Whether or not the veto by the President of SEC 55 of GAB for FY 1989
and SEC 16 of GAB for FY 1990 is unconstitutional.
HELD:
 The veto is CONSTITUTIONAL. Although the petitioners contend that the
veto exceeded the mandate of the line-veto power of the president because
SEC 55 and SEC 16 are provisions the court held that inappropriate
provisions can be treated as items (Henry v. Edwards) and therefore
can be vetoed validly by the president. Furthermore inappropriate
provisions must be struck down because they contravene the constitution
because it limits the power of the executive to augment appropriations (ART
VI SEC 25 PAR 5.)
 The ‘provisions’ are inappropriate because
o They do not relate to particular or distinctive appropriations
o Disapproved or reduces items are nowhere to be found on the face of the
bill
o It is more of an expression of policy than an appropriation
 Court also said that to make the GAB veto-proof would be logrolling on
the part of the legislative  the subject matter of the provisions should be
dealt with in separate and complete legislation but because they are aware
that it would be NOT passed in that manner they attempt hide it in the GAB
 If the legislature really believes that the exercise of veto is really invalid
then congress SHOULD resort to their constitutionally vested power to
override the veto. (ART VI SEC 21 PAR 1)
DECISION: Veto UPHELD. Petition DISMISSED.
iii. Non-impairment of the jurisdiction of the Supreme Court
Sec. 5 (2b), Art. VIII, 1987 Constitution
“The Supreme Court shall have the power to review, revise, reverse, modify or affirm
on appeal or certiorari, all cases involving the legality of any tax imposed, assessment,
or toll, or any penalty imposed in relation thereto.”
Congress cannot take away from the Supreme Court the power given to it by the
Constitution as the final arbiter of the tax cases.
The decisions of BIR are appealable to CTA. Court of Tax Appeals may be appealed to
the Court of Appeals. Decision rendered by the CA may be elevated to the Supreme
Court.
CIR v. Santos, 277 SCRA 617 (1997)
Lower Courts (CFI) has the authority to decides questions of

constitutionality of a law does not extend on deciding questions which pertains
to legislative policy.
The petitioners now assail the decision rendered by the public respondent,
contending that the latter has no authority to pass judgment upon the taxation policy of
the government. In addition, the petitioners impugn the decision in question by
asserting that there was no showing that the tax laws on jewelry are confiscatory and
desctructive of private respondent’s proprietary rights.
We rule in favor of the petitioners.
It is interesting to note that public respondent, in the dispositive portion of his

decision, perhaps keeping in mind his limitations under the law as a trial judge, did not
go so far as to declare the laws in question to be unconstitutional. However, therein he
declared the laws to be inoperative and without force and effect insofar as the private
respondents are concerned. But, respondent judge, in the body of his decision,
unequivocally but wrongly declared the said provisions of law to be violative of Section
1, Article III of the Constitution.
There is no doubt in the Court’s mind, despite protestations to the contrary, that
respondent judge encroached upon matters properly falling within the province of
legislative functions. In citing as basis for his decision unproven comparative data
pertaining to differences between tax rates of various Asian countries, and concluding
that the jewelry industry in the Philippines suffers as a result, the respondent judge
took it upon himself to supplant legislative policy regarding jewelry taxation. In
advocating the abolition of local tax and duty on jewelry simply because other countries
have adopted such policies, the respondent judge overlooked the fact that such
matters are not for him to decide. There are reasons why jewelry, a non-essential
item, is taxed as it is in this country, and these reasons, deliberate upon by our
legislature, are beyond the reach of judicial questioning. As held in Macasiano vs.
National Housing Authority:[15]
“The policy of our courts is to avoid ruling on constitutional questions and to

presume that the acts of the political departments are valid in the absence of a clear
and unmistakable showing to the contrary. To doubt is to sustain, this presumption is
based on the doctrine of separation of powers which enjoins upon each department a
becoming respect for the acts of the other departments. The theory is that as the joint
act of Congress and the President of the Philippines, a law has been carefully studied
and determined to be in accordance with the fundamental law before it was finally
enacted.”
What we see here is a debate on the WISDOM of the laws in question. This is a
matter on which the RTC is not competent to rule.[16] As Cooley observed: “Debatable
questions are for the legislature to decide. The courts do not sit to resolve the merits
of conflicting issues”.[17] In Angara vs. Electoral Commission,[18] Justice Laurel made
it clear that “the judiciary does not pass upon question of wisdom, justice or
expediency of legislation.” And fittingly so, for in the exercise of judicial power, we are
allowed only “to settle actual controversies involving rights which are legally
demandable and enfoceable”, and may not annul an act of the political departments
simply because we feel it is unwise or impractical.[19] This is not to say that Regional
Trial Courts have no power whatsoever to declare a law unconstitutional. In J. M.
Tuason and Co. v. Court of Appeals[20] we said that “[p]lainly the Constitution
contemplates that the inferior courts should have jurisdiction in cases involving
constitutionality of any treaty or law, for it speaks of appellate review of final judgments
of inferior courts in cases where such constitutionality happens to be in issue.” this
authority of lower courts to decide questions of constitutionality in the first instance was
reaffirmed in Ynos v. Intermediate Court of Appeals.[21] But this authority does not
extend to deciding questions which pertain to legislative policy.
The trial court is not the proper forum for the ventilation of the issues raised by
the private respondents. The arguments they presented focus on the wisdom of the
provisions of law which they seek to nullify. Regional Trial Courts can only look into
the validity of a provision, that is, whether or not it has been passed according to the
procedures laid down by law, and thus cannot inquire as to the reasons for its
existence.
San Miguel Corp. v. Avelino, 89 SCRA 69 (1979)
CFI judge has the authority to pass upon the validity of a city tax ordinance
even after its validity ahd been contested before the Secretary of Justice who
rendered a decision thereon. The decision of Sec. Justice that the ordinance in
questions I of “doubtful validity” is not a declaration that it is unlawful.
SAN MIGUEL CORPORATION vs. HON. CELSO AVELINO, Presiding Judge of CFI Cebu and the City of Mandaue (Fernando, 1979)
Nature of the case:
Facts of the case:

City of Cebu, in accordance with Presidential Decree No. 231, enacted in 1973, to take effect on January 1, 1974 the Mandaue City
Tax Code. City Treasurer, on April 1, 1974, demanded from SMC payment of the made specific tax on the total volume of beer it
produced in the City of Mandaue. SMC on April 8, 1974, contested the correction of said specific tax "on the ground that Section
12(e) (7) in relation to Section 12(e) (1) and (2), Mandaue City Ordinance No. 97, is illegal and void because it imposed a specific tax
beyond its territorial jurisdiction.” In an opinion the City Fiscal upheld its validity which was reversed by the Secretary of Justice,
saying the ordinance was of “doubtful validity.” City of Cebu then filed a suit for collection where it squarely put in issue the validity
of such ordinance.
San Miguel Corporation filed a motion to dismiss claiming that the Ordinance No. 97, Section 12 should be nullified and that the
filing of the suit is not the “appeal” contemplated in the Presidential Decree.
CFI: motion to dismiss denied. SMC went to SC praying for writs of certiorari and prohibition.
SMC: A suit for collection is not the appeal provided for in the last sentence of Section 47: "The decision of the Secretary of Justice
shall be final and executory unless, within thirty days upon receipt thereof, the aggrieved party contests the same in a court of
competent jurisdiction."
City: A suit for collection cannot be viewed other than as an appeal. The City did definitely contest the correctness of the decision of
the Secretary of Justice in a court of competent jurisdiction. Such an action is in accordance with the traditional and appropriate
procedure to test the legality of a statute, decree, or ordinance.
Issue Can City’s act of filing suit after the Secretary of Justice’s opinion was rendered be considered "an appeal" under the
Presidential Decree? Yes, action by City valid. The writs prayed for, certiorari and prohibition, cannot issue.
1. The validity of a statute, an executive order or ordinance is a matter for the judiciary to decide and 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. It is undoubted that under the Constitution, even the legislative body cannot deprive this Court of its
appellate jurisdiction over all cases coming from inferior courts where the constitutionality or validity of an ordinance or the
legality of any tax, impost, assessment, or toll is in question. 1 Since it is likewise expressly provided in Section 43 of the
Judiciary Act that the original jurisdiction over all civil actions involving the legality of any tax, impost or assessment
appertains to the Court of First Instance, it takes a certain degree of ingenuity to allege that the lower court was bereft of such
authority. Both under the Constitution and the Judiciary Act, respondent Judge is vested with jurisdiction to make a declaration
regarding an ordinance’s validity. It would be therefore premature for the corrective power of this Tribunal to be interposed, just
because he did not grant the motion to dismiss on the allegation that there was lack of jurisdiction. Authorities support the municipal
power to impose specific taxes on beverages manufactured within its territorial boundaries, City of Bacolod v. Gruet and City of Naga
v. Court of Appeals. In the first case cited, the entity involved is SMC itself.
2. To construe Section 47 the way SMC does would be to raise a serious constitutional question. It would in effect bar what
otherwise would be a proper case cognizable by a court precisely in the exercise of the conceded power of judicial review just
because the procedure contended for which is that of an "appeal" under the circumstances a term vague and ambiguous, was
not followed. It would run counter to the well-settled doctrine that between two possible modes of constructions, the one which would
not be in conflict with what is ordained by the Constitution is to be preferred. Every intendment of the law should lean towards its
validity, not its invalidity.
3. Secretary of justice’s declaration that the ordinance in question was "of doubtful validity” is far from a categorical declaration of its
being repugnant to the Constitution or its being ultra vires. Presumption of validity continues misgivings as to the likelihood of an
alleged infringement of any binding norm do not suffice.
4. This decision however does not extend to any de determination as to the validity, or lack of it, of the assailed ordinance. To do so
would be, at the very least, premature. That is a function for the lower court to perform.
Petition dismissed. Case remanded for further proceedings.
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.”
 It is not the revenue law but the revenue bill which is required by the constitution
to originate exclusively in the House of Representative.
Tolentino v. Sec. of Finance, supra., supra.
The Constitution simply requires that there must be that initiative coming from the
House of Representatives relative to appropriation, revenue and tariff bills on the
theory that, elected as they were from the districts, the members of the House can be
expected to be more sensitive to the local needs and problems.
1
3 According to Article X, Section 5, par. (2) of the Constitution: "The Supreme Court shall have the following powers: ... (2) Review and revise, reverse,
modify, or affirm on appeal or certiorari, as the law or the Rules of the Court may provide, final judgments and decrees in inferior courts in — (a) all
cases in which the constitutionality or validity of any treaty, executive agreement, law, ordinance, or executive order or regulation is in question, (b) All
cases involving the legality of any tax, impost assessment, or toll, or any penalty imposed in relation thereto." Under the 1935 Constitution, the
equivalent provision is found in Article VIII, Section, Section 2, par. (1) and (2).
It is not the law, but the revenue bill, which is required by the Constitution to
originate exclusively in the HR, because a bill originating in the House may undergo
such extensive change in the Senate that result may be rewriting of the whole, and a
distinct bill may be produced. (amendment by substitution)
The Constitution does not also prohibit the filing in the Senate of a substitute bill
in anticipation of its receipt of the bill from the House, as long as action by the Senate
is withheld until receipt of said bill
v. Infringement of press freedom
“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.”
The VAT is, however, different. It is not a license tax. It is not a tax on the
exercise of a privilege, much less a constitutional right. It is imposed on the sale,
barter, lease or exchange of goods or properties or the sale or exchange of services
and the lease of properties purely for revenue purposes. To subject the press to its
payment is not to burden the exercise of its right any more than to make the press pay
income tax or subject it to general regulation is not to violate its freedom under the
Constitution. (Philippine Press Institute v. de Ocampo GR 115931, 30 October 1995)
Claims of press freedom and religious liberty. 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.
It is contended by the PPI that by removing the exemption of the press from the VAT
while maintaining those granted to others, the law discriminates against the press. At any rate, it
is averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is
unconstitutional."
With respect to the first contention, it would suffice to say that since the law granted the
press a privilege, the law could take back the privilege anytime without offense to the
Constitution. The reason is simple: by granting exemptions, the State does not forever waive the
exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax
burden to which other businesses have long ago been subject. It is thus different from the tax
involved in the cases invoked by the PPI.
vi. Grant of Franchise
Tax exemptions included in the grant of a franchise may be revoked by another

law as it is specifically provided in the Constitution that the grant of any franchise is
always subject to amendment, alteration, or repeal by the Congress when the common
good so requires.
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.
Congress may withdraw tax exemption granted to any corporations or

GOCC’s such as PAL. The law could take back the privilege anytime without
offense to the constitution. By granting exemptions, the State does not forever
waive the exercise of its sovereign prerogative.
The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716
violates Art. VI, §26 (1) of the Constitution which provides that "Every bill passed by
Congress shall embrace only one subject which shall be expressed in the title thereof."
PAL contends that the amendment of its franchise by the withdrawal of its exemption
from the VAT is not expressed in the title of the law.
Pursuant to §13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross
revenue "in lieu of all other taxes, duties, royalties, registration, license and other fees
and charges of any kind, nature, or description, imposed, levied, established, assessed
or collected by any municipal, city, provincial or national authority or government
agency, now or in the future."
PAL was exempted from the payment of the VAT along with other entities by
§103 of the National Internal Revenue Code. R.A. No. 7716 seeks to withdraw certain
exemptions, including that granted to PAL, by amending §103.
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.
C. Situs of Taxation and Double Taxation
The power to tax is limited only to persons, property or businesses within the
jurisdiction or territory of the taxing power.
EXCEPT:
A) Where the tax laws operate outside territorial jurisdiction

1) TAXATION of resident citizens on their incomes derived from abroad
B) Where tax laws do not operate within the territorial jurisdiction of the State
1) When exempted by treaty obligations
2) When exempted by international comity
1. Meaning of situs
Situs- place where a thing is considered for taxation. It is necessary for the
exercise of dominion/authority of a state over a subject matter.
 The determination of the situs of taxation depends on various factors including

the:
1. Nature of the tax;
2. Subject matter thereof (e.g. persons, property, act or or activity);
3. Possible protection and benefit that may accrue both to the government
and the taxpayer;
4. Residence or citizenship of the taxpayer; and
5. Source of income.
2. Situs of subjects of taxation

KIND OF TAX SITUS
Personal or Community Tax Residence or domicile of the taxpayer
Real Property Tax Location of the property
Personal Property Tax TANGIBLE: where it is physically located or

permanently kept (Lex Rei Sitae)
INTANGIBLE: Subject to Sec 104 of the

NIRC * and the principle of Mobilia
Sequuntur Personam **
Business Tax Place of Business
Excise or Privilege Tax Where the act is performed or where

occupation is pursued
Sales Tax Where the sale is consummated
Income Tax Consider: (1) citizenship, (2) residence,
(3) source of income (Sec 42, 23, NIRC of

1997)
Transfer Tax Residence or citizenship of the taxpayer
or location of the property
Donor’s Tax Location of the property
and the citizenship of the donor (Sec 98,

NIRC 1997)
Estate Tax Location and citizenship of the

decedent.(Sec 85, NIRC)
Franchise Tax state which granted the franchise
*Lex Rei Situs -where the property is located
* Mobilia Sequuntur Personam – “movables follow the person”. According to this

maxim, the situs of personal property is the domicile of the owner. This is a merely a
fiction of law intended for convenience and not to be controlling where justice does not
demand it.
** the following intangible properties are considered as properties with a situs in the
Philippines:
a. Franchise which must be exercised in the Philippines
b. Shares, obligations or bonds issued by any corporation or sociedad anonima

organized or constituted in the Philippines in accordance with its laws.
c. Shares, obligations or bonds issued by any foreign corporation 85% of business

which is located in the Philippines
d. Shares, obligations, or bonds issued by any foreign corporation if such shares,
obligations or bonds have acquired a business situs in the Philippines; and
e. Shares or rights in any partnership business or industry established in the

Philippines.
Sec. 42, 104
Sec. 104, NIRC- No tax shall be collected for intangible personal property if the
decedent at time of his death was citizen and resident of a foreign country.
CIR v. British Overseas Airway Corp., supra.
Revenue derived by an of-line international carrier without any flight from the
Philippines, from ticket sales through its local agent are subject to tax on gross
Philippine billings
Under the law, a corporation organized, authorized, or existing under the laws of any
foreign country, except a foreign fife insurance company, engaged in trade or business within
the Philippines, shall be taxable upon the total net income received in the preceding taxable year
from all sources within the Philippines.
The source of an income is the property, activity or service that produced the income. 8
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.
CIR v. Japan Airlines, supra.
JAL made PAL its sales ticket agent in the Philippines. For the source of
income to be considered coming from the Philippines, it is sufficient that the
income is derived from the activities within this country regardless of the
absence of flight operations within Philippine territory.
Wells Fargo Bank v. Collector, 70 Phil 325 (1940)
The shares of stock are subject to Philippine inheritance tax considering that the
decedent was domiciled in California
WELLS FARGO BANK V COLLECTOR 70 PHL SCRA 325 (1940)
Nature of the Case:

An appeal from a declaratory judgment rendered by the Court of First Instance of Manila. The Court of First Instance of
Manila rendered judgment, holding that the transmission by will of the said 35,000 shares of stock is subject to
Philippine inheritance tax.
Facts of the Case:
Birdie Lillian Eye, wife of Clyde Milton Eye, died on September 16, 1932, at Los Angeles, California, the place of her
alleged last residence and domicile. Among the properties she left her one-half conjugal share in 70,000 shares of stock
in the Benguet Consolidated Mining Company, an anonymous partnership (sociedad anonima), organized and existing
under the laws of the Philippines, with is principal office in the City of Manila.
She left a will which was duly admitted to probate in California where her estate was administered and settled.
Petitioner-appellant, Wells Fargo Bank & Union Trust Company, was duly appointed trustee of the created by the said
will. The Federal and State of California's inheritance taxes due on said shares have been duly paid. Respondent
Collector of Internal Revenue sought to subject anew the aforesaid shares of stock to the Philippine inheritance tax, to
which petitioner-appellant objected.
Issue of the Case:
Ruling of the Case:
In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein.
And besides, the certificates of stock have remained in this country up to the time when the deceased died in California,
and they were in possession of one Syrena McKee, secretary of the Benguet Consolidated Mining Company, to whom
they have been delivered and indorsed in blank. This indorsement gave Syrena McKee the right to vote the certificates
at the general meetings of the stockholders, to collect dividends, and dispose of the shares in the manner she may deem
fit, without prejudice to her liability to the owner for violation of instructions. For all practical purposes, then, Syrena
McKee had the legal title to the certificates of stock held in trust for the true owner thereof. In other words, 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.
Doctrine laid down:
In cases where the owner of intangibles confines his activity to the place of his domicile it has been found convenient to
substitute a rule for a reason by saying that his intangibles are taxed at their situs and not elsewhere, or perhaps less
artificially, by invoking the maxim mobilia sequuntur personam. Which means only that it is the identify owner at his
domicile which gives jurisdiction to tax. But when the taxpayer extends his activities with respect to his intangibles, so as
to avail himself of the protection and benefit of the laws of another state, in such a way as to bring his person or
properly within the reach of the tax gatherer there, the reason for a single place of taxation no longer obtains, and the
rule even workable substitute for the reasons may exist in any particular case to support the constitutional power of
each state concerned to tax. Whether we regard the right of a state to tax as founded on power over the object taxed.
Through dominion over tangibles or over persons whose relationships are source of intangibles rights, or on the benefit
and protection conferred by the taxing sovereignty, or both, it is undeniable that the state of domicile is not deprived,
by the taxpayer's activities elsewhere, of its constitutional jurisdiction to tax, and consequently that there are many
circumstances in which more than one state may have jurisdiction to impose a tax and measure it by some or all of the
taxpayer's intangibles. Shares or corporate stock be taxed at the domicile of the shareholder and also at that of the
corporation which the taxing state has created and controls; and income may be taxed both by the state where it is
earned and by the state of the recipient's domicile. Protection, benefit, and power over the subject matter are not
confined to either state.

All subjects of taxation similarly situated are to be treated alike both in
privileges confirmed and liabilities imposed.
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).
3. Multiplicity of Situs, Collector v. de Lara, 102 Phil 813 (1958)
CIR v. De Lara, 102 Phil 813
The Supreme Court did not subject to estate and inheritance taxes the shares of
stock issued by Philippine corporations which were left by a non-resident alien after his
death. Considering that he is a resident of a foreign country, his estate is entitled to
exemption from inheritance tax on the intangible personal property found in the
Philippines. This exemption is granted to non-residents to reduce the burdens of
multiple taxation, which otherwise would subject a decedent’s intangible personal
property to the inheritance tax both in his place of residence and domicile and the
place where those are found.
This is, therefore, an exception to the decision of the Supreme Court in Wells
Fargo v. CIR. This has since been incorporated in Sec. 104 of the NIRC.
CIR V DE LARA 102 PHIL 813 (1958)
Nature of the Case:
This is an appeal from the decision of the CTA ordering herein respondent to pay the amount of P2,047.22 representing
estate taxes due, together with the interests and other increments. In case of failure to pay the amount of P2,047.22
within thirty (30) days from the time this decision has become final, the 5 per cent surcharge and the corresponding
interest due thereon shall be paid as a part of the tax.
Facts of the Case:

Hugo H. Miller is an American citizen. In or about the year 1922, Miller lived at the Manila Hotel. His wife
remained at their home in Ben-Lomond, Santa Cruz, California, but she used to come to the Philippines for brief visits
with Miller, staying three or four months. Miller also used to visit his wife in California. He never lived in any residential
house in the Philippines. After the death of his wife in 1931, he transferred from the Manila Hotel to the Army and Navy
Club, where he was staying at the outbreak of the Pacific War. On January 17, 1941, Miller executed his last will and
testament in Santa Cruz, California, in which he declared that he was "of Santa Cruz, California". At the time of his death
he owned several properties including Shares of stock in Philippine Corporations.
Testate proceedings were instituted before the Court of California in Santa Cruz County, in the course of which
Miller's will of January 17, 1941 was admitted to probate. On July 29, 1949, the Bank of America, National Trust and
Savings Association of San Francisco California, co-executor named in Miller's will, filed an estate and inheritance tax
return with the Collector, covering only the shares of stock issued by Philippines corporations, reporting a liability of
P269.43 for taxes and P230.27 for inheritance taxes. After due investigation, the Collector assessed estate and
inheritance taxes, which was received by the said executor on April 3, 1950. The estate of Miller protested the
assessment of the liability for estate and inheritance taxes.
The Collector maintains that under the tax laws, residence and domicile have different meanings; that tax laws
on estate and inheritance taxes only mention resident and non-resident, and no reference whatsoever is made to
domicile except in Section 93 (d) of the Tax Code; that Miller during his long stay in the Philippines had required a
"residence" in this country, and was a resident thereof at the time of his death, and consequently, his intangible
personal properties situated here as well as in the United States were subject to said taxes.
Issue of the Case:
Ruling of the Case:
We agree with the Court of Tax Appeals that at the time that The National Internal Revenue Code was
promulgated in 1939, the prevailing construction given by the courts to the "residence" was synonymous with domicile
and that the two were used intercnangeably.
In the United States, for estate tax purposes, a resident is considered one who at the time of his death had his
domicile in the United States, and in American jurisprudence, for purposes of estate and taxation, "residence" is
interpreted as synonymous with domicile, and that—
The incidence of estate and succession has historically been determined by domicile and situs and not by the
fact of actual residence.
We also agree with the Court of Tax Appeals that at the time of his death, Miller had his residence or domicile in
Santa Cruz, California. During his country, Miller never acquired a house for residential purposes for he stayed at the
Manila Hotel and later on at the Army and Navy Club. Except this wife never stayed in the Philippines. The bulk of his
savings and properties were in the United States.
The Ancilliary Administrator for purposes of exemption invokes the proviso in Section 122 of the Tax Code,
which provides as follows:
. . ."And Provided, however, That no tax shall be collected under this Title in respect of intangible personal
property (a) if the decedent at the time of his death was a resident of a foreign country which at the time of his
death did not impose a transfer tax or death tax of any character in respect of intangible personal property of
citizens of the Philippines not residing in that country, or (b) if the laws of the foreign country of which the
decedent was resident at the tune of his death allow a similar exemption from transfer taxes or death taxes of
every character in respect of intangible personal property owned by citizen, of the Philippine not residing in that
foreign country.
Considering the State of California as a foreign country in relation to section 122 of Our Tax Code we beleive and hold, as
did the Tax Court, that the Ancilliary Administrator is entitled to exemption from the tax on the intangible personal
property found in the Philippines. Incidentally, this exemption granted to non-residents under the provision of Section
122 of our Tax Code, was to reduce the burden of multiple taxation, which otherwise would subject a decedent's
intangible personal property to the inheritance tax, both in his place of residence and domicile and the place where
those properties are found.
The appealed decision of the Court of Tax Appeals is hereby affirmed.
Multiplicity of suits
Multiplicity of situs, or the taxation of the same income or intangible subjects in several
taxing jurisdictions, arises from various factors:
1. The variance in the concept of domicile for tax purposes;

2. Multiple distinct relationships that may arise with respect to intangible
personal property; or
3. The use to which the property may have been devoted all of which may
receive the protection of the laws of jurisdictions other than the domicile of
the owner thereto.
The remedy to avoid or reduce the consequent burden in case of multiplicity of situs is
either to:
1. Provide exemptions or allowance of deduction or tax credit for foreign

taxes; or
2. Enter into tax treaties with other States.
4. Double Taxation
Meaning:
CIR v SC Johnson and Son, Inc., 309 SCRA 87 (1999)
International juridical double taxation, is defined as the imposition of comparable taxes

in two or more states on the same taxpayer in respect of the same subject matter and
for identical periods.
Double taxation usually takes place when a person is resident of a contracting state
and derives income from, or owns capital in, the other contracting state and both states
impose tax on that income or capital.
Definition: Taxing the same person, property, business, object twice when it should
only be taxed once.
Is Double Taxation Prohibited In The Phils?
 No, there is no Constitutional prohibition against double taxation. It is not

favored but permissible. (Pepsi Cola Bottling Co. v. City of Butuan, GR L-
22814, 28 August 1968)
 Double taxation becomes obnoxious only when the taxpayer is taxed twice for
the benefit of the same government entity. (Commissioner vs. Lednicky (GR L-
18169, L-18286, L-21434; 31 July 1964)
1. Kinds of Double Taxation
a. Direct Double or Duplicate Taxation – this is objectionable or prohibited
because this constitutes a violation of substantive due process.
ELEMENTS: (Villanueva v. City of Iloilo, supra)
 Taxing twice
 By the same taxing authority
 Within the same jurisdiction or taxing district
 For the same purpose
 In the same taxing period
 The same subject or object
 Of the same kind or character of tax.
Villanueva v City of Iloilo
The contention that the plaintiffs-appellees are doubly taxed because they are
paying the real estate taxes and the tenement tax imposed by the ordinance in
question, is also devoid of merit. It is a well-settled rule that a license tax may be levied
upon a business or occupation although the land or property used in connection
therewith is subject to property tax. The State may collect an ad valorem tax on
property used in a calling, and at the same time impose a license tax on that calling,
the imposition of the latter kind of tax being in no sensea double tax.
In order to constitute double taxation in the objectionable or prohibited sense the

same property must be taxed twice when it should be taxed but once; both taxes must
be imposed on the same property or subject-matter, for the same purpose, by the
same State, Government, or taxing authority, within the same jurisdiction or taxing
district, during the same taxing period, and they must be the same kind or character of
tax."23 It has been shown that a real estate tax and the tenement tax imposed by the
ordinance, although imposed by the same taxing authority, are not of the same kind or
character.
At all events, there is no constitutional prohibition against double taxation in the

Philippines.24 It is something not favored, but is permissible, provided some other
constitutional requirement is not thereby violated, such as the requirement that taxes
must be uniform."
b. Indirect Duplicate Taxation – not legally objectionable. The absence of one or

more of the above-mentioned elements makes the double taxation indirect.
EXAMPLES:
A) The taxpayers warehousing business although carried on in relation to the

operation of its sugar central is a distinct and separate taxable business.
B) A license tax may be levied upon a business or occupation although the land or
property used in connection therewith is subject to property tax.
C) Both a license fee and a tax may be imposed on the same business or
occupation for selling the same article and this is not in violation of the rules
against double taxation.
D) When every bottle or container of intoxicating beverages is subject to local tax
and at the same time the business of selling such product is also subject to
liquors license.
E) A tax imposed on both on the occupation of fishing and of the fishpond itself
c. Domestic – this arises when the taxes are imposed by the local or national
government (within the same state)
d. International – refers to the imposition of comparable taxes in two or more
states on the same taxpayer in respect of of the same subject matter for identical
periods
a. Meaning
In its strict sense, referred to as direct duplicate taxation, double taxation means:
1. Taxing twice;
2. by the same taxing authority;
3. within the same jurisdiction or taxing district;
4. for the same purpose;
5. in the same year or taxing period;
6. same property in the territory.
CIR v. S.C. Johnson and Son, Inc., 309 SCRA 87 (1999)
Double Taxation—takes place when a person is resident of a contracting

state and derives income from, or owns capital in the other contracting state and
both states impose tax on that income or capital.
b. Double taxation in its broad sense
In its broad sense, referred to as indirect double taxation, double taxation is taxation
other than direct duplicate taxation. It extends to all cases in which there is a burden of
two or more impositions.
Villanueva v. City of Iloilo, supra.
An ordinance imposing a municipal tax on tenement houses was challenged

because the owners already pay real estate taxes and also income taxes under the
NIRC. The Supreme Court held that there was no double taxation , so long as it does
not violates any other constitutional provision. The same tax may be imposed by the
National Government as well as the local government. There is nothing inherently
obnoxious in the exaction of license fees or taxes with respect to the same occupation,
calling or activity by both the state and a political subdivision thereof. Further, a license
tax may be levied upon a business or occupation although the land used in connection
therewith is subject to property tax.
b. Constitutionality of double taxation
City of Baguio v. de Leon, supra.
The argument against double taxation may not be invoked where one tax is
imposed by the state and the other 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 a
political subdivision thereof. And where the statute or ordinance in question applies
equally to all persons, firms and corporations placed in a similar situation, there is no
infringement of the rule on equality.
Pepsi Cola Bottling v. City of Butuan, supra.
An ordinance imposing sales tax on agents/consignee selling merchandise

from outside dealers does not amount to double taxation. Double taxation, in
general, is not forbidden by our fundamental law. However, the ordinance is
arbitrary to other member of the same taxable class hence the law violates the
rule of uniformity in taxation. There is no constitutional prohibition against double
taxation in the Philippines. It is something not favored but is permissible, provided that
the other constitutional requirements is not thereby violated
Sanchez v. Collector, 97 Phil 687 (1955)
A license tax may be levied upon a business or occupation although the

land or property used therein is subject to property tax. The state may collect an
ad volarem tax on property used in a calling, and at the same time impose a
license tax on the pursuit of that calling, the imposition of the later kind of tax
that being no sense as double tax.
City of Mla. v. Interisland Gas Service, 99 Phil 847 (1956)
The fees paid by the defendant under a city ordinance was a license fee, in
the exercise of police power and not under its inherent power of taxation, and
double taxation is not prohibited in our constitution.
Cpa. General de Tabacos v. City of Mla., supra.

Both license fee and a tax may be imposed on the same business or
occupation, or for selling the same article, this is not being a violation of the rule
against double taxation.
Doctrines On Double Taxation
1) Direct Double Taxation (DDT) is not allowed because it amounts to confiscation of

property without due process of law
2) You can question the validity of double taxation if there is a violation of the Equal
protection clause or Equality or Uniformity of Taxation
3) All doubts as to whether double taxation has been imposed should be resolved in
favor of the taxpayer
D. Means of Avoiding and Minimizing the Burden of Taxation
1. Shifting of tax burden
SHIFTING
 Shifting is the transfer of the burden of a tax by the original payer or the one on
whom the tax was assessed or imposed to someone else.
 Process by which such tax burden is transferred from statutory taxpayer to
another without violating the law.
a. Ways of shifting the tax burden
1) FORWARD SHIFTING
- When the burden of the tax is transferred from a factor of production through the
factors of distribution until it finally settles on the ultimate purchaser or consumer.
Example:
- Manufacturer or producer may shift tax assessed to wholesaler, who in turn shifts
it to the retailer, who also shifts it to the final purchaser or consumer
-
2) BACKWARD SHIFTING
- When the burden of the tax is transferred from the consumer or purchaser
through the factors of distribution to the factors of production.
Example:
- Consumer or purchaser may shift tax imposed on him to retailer by purchasing

only after the price is reduced, and from the latter to the wholesaler, or finally to
the manufacturer or producer.
3)ONWARD SHIFTING
- When the tax is shifted two or more times either forward or backward
Example:
- Thus, a transfer from the seller to the purchaser involves one shift; from the
producer to the wholesaler, then to retailer, we have two shifts; and if the tax is
transferred again to the purchaser by the retailer, we have three shifts in all.
b. Taxes that can be shifted
Sec. 105-VAT
Only indirect taxes may be shifted: VAT, professional tax, amusement tax, customs
duties
c. Meaning of impact and incidence of taxation
Impact of taxation is the point on which a tax is originally imposed. In so far as the law
is concerned, the taxpayer is the person who must pay the tax to the government. He
is also termed as the statutory taxpayer-the one on whom the tax is formally assessed.
He is the subject of the tax.
Incidence of taxation is that point on which the tax burden finally rests or settle down. It
takes place when shifting has been effected from the statutory taxpayer to another.
Relationship between impact, shifting, and incidence of a tax

 The impact is the initial phenomenon, the shifting is the intermediate process,
and the incidence is the result. Thus, the impact in a sales tax (i.e. VAT) is on the
seller (manufacturer) who shifts the burden to the customer who finally bears the
incidence of the tax.
 Impact is the imposition of the tax; shifting is the transfer of the tax; while
incidence is the setting or coming to rest of the tax.
2. Tax evasion
 It is also known as “tax dodging”

 It is punishable by law.
 Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or
lessen the payment of tax.
Elements of tax evasion

 Tax evasion connotes the integration of three factors:
1. The end to be achieved. Example: the payment of less than that known
by the taxpayer to be legally due, or in paying no tax when such is due.
2. An accompanying state of mind described as being “evil, in bad faith,
willful, or deliberate and not accidental.”
3. A course of action (or failure of action) which is unlawful.
INDICIA of FRAUD IN TAX EVASION
o Failure to declare for taxation purposes true and actual income derived from
business for two (2) consecutive years; or
o Substantial under-declaration of income tax returns of the taxpayer for four (4)
consecutive years coupled with unintentional overstatement of deductions
EVIDENCE TO PROVE TAX EVASION
 Since fraud is a state of mind, it need not be proved by direct evidence but may
be proved from the circumstances of the case.
Republic v. Gonzales, 13 SCRA 633 (1965)
The Supreme Court affirmed the assessment of a deficiency tax against Gonzales,
a private concessionaire engaged in the manufacture of furniture inside the Clark Air
Base, for under-declaration of his income. SC held that the failure of the taxpayer to
declare for taxation purposes his true and actual income derived from his business for
two consecutive years is an indication of his fraudulent intent to cheat the government
of taxes due to it.
Sec. 254-Attempt to Evade or Defeat Tax-Any person willfully attempts in any

manner to evade or defeat any tax imposed under this code of the payment
thereon shall, in addition to other penalties provided by law, upon conviction
thereof, be punished by a fine of not less then Php 30,000.00 but not more than
Php 100,000.00 and suffer imprisonment of not less than 2 years but not more
than 4 years. Provided, that the conviction or acquittal obtained under this
Section shall not be a bar to the filing of a civil suit for the collection of taxes.
3. Tax avoidance
Tax avoidance is the exploitation by the taxpayer of legally permissible

alternative tax rates or methods of assessing taxable property or income in order to
avoid or reduce tax liability. It is politely called, “tax minimization” and is not punishable
by law
Ways of avoiding tax (minimizing or escaping tax)

1. Shifting
2. Capitalization
3. Evasion
4. Exemption
5. Transformation
6. Avoidance
Note: With the exception of evasion, all are legal means of avoiding taxes.
What is TRANSFORMATION?
The manufacturer in an effort to avoid losing his customers, maintains the same
selling price and margin of profit, not by shifting the tax burden to his customers, but by
improving his method of production and cutting down or other production cost, thereby
transforming the tax into or earn through the medium of production.
Delpher Traders Corp. v. IAC, 157 SCRA 349 (1988)
The Supreme Court upheld the estate planning scheme resorted to by the
Pacheco family in converting their property to shares of stock in a corporation which
they themselves owned and controlled. By virtue of the deed of exchange, the
Pacheco co-owners saved on inheritance taxes. The Supreme Court said the records
do not point to anything wrong and objectionable about this estate planning scheme
resorted to. The legal right of the 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 v. CTA, 1 SCRA 160 (1961)
The intention to minimize taxes, when used in the context of fraud, must be
proven by clear and convincing evidence amounting to more than mere
preponderance. Mere understatement of tax in itself does not prove fraud.
4. Exemption from taxation
a. meaning of exemption from taxation
It is 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 or taxing district are obliged to pay. It is an immunity or privilege;
it is freedom from a financial charge or burden to which others are subjected.
1. Principle Governing Exemptions
 In the construction of tax statutes, exemptions are not favored and are construed
strictissimi juris against the taxpayer.
 One who claims exemption should prove by convincing proof that he is
exempted.
 Taxation is the rule and exemption is the exemption
 Exemption is not presumed
 Constitutional grants of tax exemption are self executing
 Tax exemption are personal and cannot be delegated.
 Exemption generally covers direct tax, unless otherwise provided.
 Exemption is allowed only if there is a clear provision there for.
 It is not necessarily discriminatory as long as there is a reasonable foundation or
rational basis.
 Exemptions are not presumed, but when public property is involved, exemption is
the rule and taxation is the exemption.
Greenfield v. Meer, 77 Phil 394 (1946)
PLDT v. City of Davao, 363 SCRA 522 (2001)
with the passing of LGC which grant taxing power to the Local
Government, all exemptions granted to all persons, whether natural or juridical,
including those which in the future might be granted, are withdrawn unless the
law granting the exemption expressly states that the exemption also applies to
local taxes.
PLDT v. City of Davao, G.R. 143867, March 25, 2003
Legal effect of the constitutional grant to local governments simply means

that in interpreting statutory provisions on municipal taxing powers, doubts
must be resolved in favor of municipal corporations.
i. compared with tax remission, condonation
There is a tax condonation or remission when the State desists or refrains from
exacting, inflicting or enforcing something as well as to reduce what has already been
taken. The condonation of a tax liability is equivalent to and is in the nature of a tax
exemption. Thus, it should be sustained only when expressed in the law.
Tax exemption, on the other hand, is the grant of immunity to particular persons or
corporations of a particular class from a tax of which persons and corporations
generally within the same state or taxing district are obliged to pay. Tax exemptions
are not favored and are construed strictissimi juris against the taxpayer.
Juan Luna Subd. V. M. Sarmiento, 91 Phil 371 (1952)
The word “remit” means to desist or refrain from exacting, inflicting or enforcing
something as well as to restore what has already been taken. The remission of taxes
due and payable to the exclusion of taxes already collected does not constitute unfair
discrimination. Such a 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.
Surigao Corp. Min. v. Collector, 9 SCRA 728 (1963)
The condonation of a tax liability is equivalent to and is in the nature of a tax

exemption. Thus, it should be sustained only when expressly provided in the law.
 Condonation of taxes which are unpaid does not extend to refund of paid taxes.
 For refund of taxes, in the suit for recovery of the payment of taxes as having
been illegally collected, the burden is upon the taxpayer to establish the facts
which show the illegality of the tax or that the determination thereof is erroneous.
ii. tax amnesty
tax amnesty
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 to collect what otherwise would be due it and, in this sense, prejudicial
thereto. It is granted particularly to tax evaders who wish to relent and are willing to
reform, thus giving them a chance to do so and thereby become a part of the new
society with a clean slate.
Note:
 Like tax exemption, tax amnesty is never favored nor presumed in law, and the
terms of the tax amnesty shall be strictly construed against the tax payer and
liberally in favor of the government.
 Unlike tax exemption, tax amnesty has limited applicability as to cover a
particular taxing period or transaction only.
Commissioner v. CA and ROH Auto, 240 SCRA 368 (1995)
People v. Castaneda, 165 SCRA 327 (1988)
To be entitled to the extinction of liability under PD370, the claimant must

have (1) voluntarily disclosed his previously untaxed income or wealth and paid
the required 15% tax on such previously untaxed income or wealth. In this case,
claimant is not entitled since the disclosure or previously untaxed income was
not voluntarily but was a result of tax cases already pending.
Pascual v. CIR, 166 SCRA 560 (1988)
2 isolated transactions is not a case of partnership, hence petitioners are

not liable for corporate income tax. As they have availed of the benefits of tax
amnesty as individual taxpayers in these transactions, they are relieved of any
further tax liability arising therefrom.
Republic v. IAC, 196 SCRA 335 (1991)
Tax amnesty payments bar an action for recovery of deficiency income

taxes under PD’s 23, 213, and 370. Even the deficiency tax assessment against
the spouses were correct, since the latter have already paid almost the
equivalent amount to the Government by way of amnesty taxes under P.D. 213,
and were granted not merely an exemption, but an amnesty, for their past tax
failings, the Government is stopped from collecting the difference between the
deficiency tax assessment and the amount already paid by them as amnesty tax.
CIR v. Marubeni Corp., 372 SCRA 576 (2001)
He who claims exception (or an amnesty) from the common burden must
justify his claim by the clearest grant of organic or state law. It cannot be allowed
to exist upon a vague implication. If a doubt arises as to the intent of the
legislature, that doubt must be resolved in favor of the state.
In this case, amnesty (EO 41) is given except (sec 4, b) those with income
tax cases already filed in court as of the effectivity thereof which is on August
22, 1986. Since the case against the corporation was filed on Sept. 26, 1986, it is
not disqualified to avail the amnesty for income tax under EO 41.
iii. VAT zero-rating, Sec. 106 (A) (2)
R.A. 7716 (An act restructuring the value added tax (vat) system, widening its tax
based and enhancing its administration and for these purposes amending and
repealing the relevant provisions of the national internal revenue code, as amended,
and for other purposes.)
"(b) transactions subject to zero-rate. — The following services performed in the

Philippines by VAT-registered persons shall be subject to 0%:
"(1) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, where the services are
paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP).
"(2) Services other than those mentioned in the preceding sub-paragraph, the
consideration for which is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
"(3) Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the
supply of such services to zero rate.
"(4) Services rendered to vessels engaged exclusively in international shipping; and
"(5) Services performed by subcontractors and/or contractors in processing,

converting, or manufacturing goods for an enterprise whose export sales exceed
seventy percent (70%) of total annual production.
Sec. 106 (A)(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 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.
iv. exclusions, deductions, Sec. 32 (B), 34
EXCLUSION
 Exclusion refers to income received or earned but is not taxable as income
because it is exempted by law or by treaty. Such tax-free income is not to be
included in the income tax return unless information regarding it is specifically
called for.
NIRC Sec. 32 (B) Exclusions from Gross Income. - The following items shall not be
included in gross income and shall be exempt from taxation under this title:
1. Proceeds from life insurance

2. Amount received by insured as return of premium
3. Gifts, bequests and devises
4. Compensation for injuries or sickness
5. Income exempt under treaty
6. Retirement benefits, pensions, gratuities, etc.
7. Income derived by foreign government
8. Income derived by the Philippine Government or its political subdivisions
9. Prizes and awards made primarily in recognition of religious, charitable, scientific,
educational, artistic, literary or civic achievement.
10. Prizes and awards in sports competitions sanctioned by the national sports
associations
11. 13th month pay and other benefits not exceeding P30,000.00. Applies both
to public and private employees.
12. GSIS, SSS, Medicare and other contributions
13. Gains from the sale of bonds, debentures or other certificate of
indebtedness. 5 eyars or more. If maturity is less than 5 years, it is taxable.
14. Gains from redemption of shares in mutual fund. It must be emanate from
the mutual fund.
DEDUCTIONS FROM GROSS INCOME

 Deductions are items or amounts which the law allows to be deducted under
certain conditions from gross income in order to arrive at taxable income.
NIRC SEC. 34. Deductions from Gross Income. - Except for taxpayers earning
compensation income arising from personal services rendered under an employer-
employee relationship where no deductions shall be allowed under this Section other
than under subsection (M) hereof, in computing taxable income subject to income tax
under Sections 24 (A); 25 (A); 26; 27 (A), (B) and (C); and 28 (A) (1), there shall be
allowed the following deductions from gross income;
1. Expenses
2. Interest
3. Taxes
4. Losses
5. Bad debts
6. Depreciation
7. Depletion of oil and gas wells and mines
8. Charitable and other contributions
9. Research and development
10. Pension trusts
11. Premium payments on health and/or hospitalization insurance of an
individual taxpayer
Deduction v. exemption
Deduction is an amount allowed by law to be subtracted from gross income to
arrive at taxable income. Exemption from taxation is the grant of immunity to particular
persons or corporations or to persons or corporations of a particular class from a tax
which others generally within the same taxing district are obliged to pay.
Deduction v. exclusion
Deduction is an amount allowed by law to be subtracted from gross income to
arrive at taxable income. Exclusion refers to income received or earned but is not
taxable as income because exempted by law or by treaty. Such tax-free income is not
to be included in the income tax return unless information regarding it is specifically
called for. [Section 61, Revenue Regulation 2]
Basic principles governing deductions

1. The taxpayer seeking a deduction must point to some specific provisions of the
statute authorizing the deduction; and
2. He must be able to prove that he is entitled to the deduction authorized or
allowed.
Kinds of deductions
1. Itemized deduction which is available to individual and corporate taxpayers
2. Optional standard deduction which is available to individual taxpayers only,
except a non-resident alien.
3. Special deductions which is available, in addition to the itemized deductions, to
certain corporations, i.e. insurance companies and propriety educational
corporations.
Time within which to claim deduction

1. As a rule, if a taxpayer does not, within a year, deduct certain of his expenses,
losses, interests, taxes, or other charges, he cannot deduct them from the
income of the next or any succeeding year.
2. If he keeps his books on the cash receipts basis, the expenses are deductible in
the year they are paid.
3. If on the actual basis, then in the year they are incurred, whether paid or not.
Who may not avail of deductions form gross income?
1. Citizens and resident aliens whose income is purely compensation income.
* They are allowed personal and additional exemptions and deduction for
premium payments on
health and hospitalization insurance.
2. Non-resident aliens not engaged in trade or business in the Philippines

3. Non-resident foreign corporations.
Some rules on deduction

 Itemized deduction may apply to corporate tax payer as well as individual
taxpayer.
 A corporation may avail only of the deduction from (1) to (10): premium
payments on health and/or hospitalization insurance is deductible only by an
individual taxpayer.
 A corporation may avail only of the itemized deductions: an individual, except a
non-resident alien, may elect the itemized deductions or the optional standard
deduction.
 Thus, the optional standard deduction is not available to corporations.
 An individual earning purely compensation income is not allowed itemized
deductions, except premium payments on health and/or hospitalization
insurance. In addition, he is also granted personal and additional exemptions.
 An individual, who earns income other than purely compensation income, is
allowed personal additional exemptions in addition to the itemized deductions or
the optional standard deductions.
Two kinds of deduction available to individuals, except a non-resident alien

1. Itemized deduction
2. Optional standard deduction
Note: Optional standard deduction is not available to corporations.
b. Kinds of tax exemption
Express or implied, total or partial
Kinds of Tax Exemption According to Manner of Creation
1) Express or affirmative exemption
When certain persons, property or transactions are, by express provision,

exempted from all certain taxes, either entirely or in part.
2) Implied exemption or exemption by omission

When a tax is levied on certain classes of persons, properties, or transactions
without mentioning the other classes.
3) Contractual
Agreed to by the taxing authority in contracts lawfully entered into them under
enabling laws. (i.e.: treaty, licensing ordinance)
Kinds of Tax Exemption According to Scope or Extent
1) TOTAL—when certain persons, property or transactions are exempted, expressly or

impliedly from all taxes.
2) PARTIAL—when certain persons, property or transactions are exempted, expressly

or impliedly from certain taxes, either entirely or in part.
Exemption from direct tax, from indirect tax
A law granting exemption from direct tax does not exempt the subject form indirect tax.
Does the provision in a statute granting exemption from all taxes include indirect
taxes?
 No. As a general rule, indirect taxes are not included in the grant of such
exemption unless it is expressly stated.
Atlas Fertilizer v. Commissioner, 100 SCRA 556( 1980)
While the burden of proof is on the claimant to establish his right of

exemption, there may be situations when he need not to adduce further evidence
to show that he is entitled to exemption.
Commissioner v. Phil. Ace Line, 25 SCRA 912 (1968)
Every tax exemption implies a waiver of the right to collect what otherwise
would be due to the government. The Constitution does not bar tax exemption.
Purpose of tax exemption is some public benefit or interest, which the
lawmaking body considers sufficient to offset the monetary loss entailed in the
grant of the exemption.
Com. v. RTN Mining, 202 SCRA 137 (1991); 207 SCRA 549 (1992)
When obvious inconsistency between an earlier law and latter law granting
an exemption, the court is compelled to abide by the maxim that all doubts
granting exemption must be resolved in favor of the taxing authority. Tax
exemptions must be strictly construed and can only be given force when the
grant is clear and categorical.
Caltex v. COA, supra.
 In claiming tax exemption, the burden of proof lies upon the claimant
 It cannot be created by mere implication
 It cannot be presumed that you are entitled to tax exemption
 You must prove it
c. Nature of the power to grant tax exemption
1. National government
The power to grant tax exemptions is an attribute of sovereignty for the
power to prescribe who or what persons or property shall be taxed implies the
power to prescribe who or what persons or property shall be taxed implies the
power to prescribe who or what persons or property shall not be taxed.
2. Local governments
Municipal corporations are clothed with no inherent power to tax or to grant
tax exemptions. But the moment the power to impose a particular tax is granted,
they also have the power to grant exemptions therefrom unless forbidden by some
provision of the Constitution or the law.
The legislature may delegate its power to grant tax exemptions to the same
extent that it may exercise the power to exempt.
Basco v. PAGCOR [196 SCRA 52] –
The power to tax of municipal corporations must always yield to a legislative act
of Congress which is superior, having been passed by the State itself. Municipal
corporations are mere creatures of Congress which has the power to create and
abolish municipal corporations due to its general legislative powers. If Congress can
grant the power to tax, it can also provide for exemptions or even take back the
power.
Maceda v. Macaraig, (1993) supra.
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 the
exception.”
d. Rationale for tax exemption
Rationale for granting tax exemptions
 Its avowed purpose is some public benefit or interest which the lawmaking body
considers sufficient to offset the monetary loss entailed in the grant of the
exemption.
 The theory behind the grant of tax exemptions is that such act will benefit the
body of the people. It is not based on the idea of lessening the burden of the
individual owners of property.
Davao Light v. Com., 22 SCRA 122 (1972)
Facts: Davao Light is a grantee of a legislative franchise to install, operate and

maintain an electric light, heat
and power plant in the city of Davao, for 50 years. On two occasions, it imported
electrical supplies, materials
and equipment for installation in its power plant. The importations arrived in the
port of Cebu City, where the
Collector imposed custom duties and taxes amounting to P9,928. Davao Light
paid under protest, claiming it
is similarly tax-exempted as the National Power Corporation, which is allegedly

posing as competition to
Davao Light in its business.
Issue: Whether Davao Light is similarly tax-exempt as Napocor.
Held: Davao Light’s purpose in securing a franchise to establish and operate an

electric plant and power
stations was to engage in a business or profit-making venture, while Napocor

was specifically created to
undertake the development of hydraulic power nationwide and the production of

power from other sources,
for use of the government and the general public. In isolated sale of electric
power to one government-owned
plant (National Development Co., in Davao) would not be enough to classify the
Napocor as a “competing”
concern to Davao Light’s enterprise. Napocor’s tax exemption (RA 358) was
granted in order to facilitate the
liquidation by said corporation of its liabilities, and the consequential release by

the government itself from its
obligation in the transactions entered into by the President on behalf of Napocor.

Davao Light is not entitled
to the same exemption privileges enjoyed by another operator without an

express provision of the law to that
effect. Exemption from taxation is never presumed. For tax exemption to be

recognized, the grant must be
clear and express. It cannot be made to rest on vague implications.
Tan Kim Kee v. CTA, 7 SCRA 670 (1963)
NPC v. RTC Presiding Judge, Cagayan de Oro, 190 SCRA 477 (1990)
When conflict between general and special law arises, the special law prevails.
When the law does not distinguished as to the kinds of tax exemptions withdrawn, the
plain meaning is that all tax exemptions are covered.
Chavez v. PCGG [GR No. 130716, Dec. 6, 1998]
In a compromise agreement between the Philippine Government, represented by

the PCGG, and the Marcos heirs, the PCGG granted tax exemptions to the assets
which will be apportioned to the Marcos heirs. The Supreme Court ruled that the
PCGG has absolutely no power to grant tax exemptions, even under the cover of its
authority to compromise ill gotten wealth cases. The grant of tax exemptions is the
exclusive prerogative of Congress.
In fact, the Supreme Court even stated that Congress itself cannot grant tax
exemptions in the case at bar because it will violate the equal protection clause of the
Constitution.
Davao Gulf v. CIR, 293 SCRA 76 (1998)
A tax cannot be imposed unless it is supported by the clear and express

language of a statute; 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.” Since the partial refund authorized under Sec. 5,
RA 1435, is in the nature of a tax exemption, it must be construed strictissimi juris
against the grantee. Hence, petitioner’s claim for refund based on specific taxes it
actually paid must expressly be granted in a statute stated in a language too clear to
be mistaken.
Tolentino v. Sec. of Finance,(1995) supra.
By granting exemptions, the State does not forever waive the exercise of
its sovereign prerogative.
e. Nature of tax exemption
1) It is a mere personal privilege of the grantee.

2) It is generally revocable by the government unless the exemption is founded on a
contract which is contract which is protected from impairment.
3) It implies a waiver on the part of the government of its right to collect what otherwise
would be due to it, and so is prejudicial thereto.
4) It is not necessarily discriminatory so long as the exemption has a reasonable

foundation or rational basis.
5) It is not transferable except if the law expressly provides so.
PLDT v. City of Davao, (2001) supra.
Applying the rule of strict construction to statutory provisions granting tax

exemptions or deductions would minimize differential treatment and foster
fairness and equality of treatment among taxpayers.
Phil. Acetylene v. Commissioner, supra.

In the construction of tax statutes, exemptions are not favored and are
construed stictissimi juris.
Wonder Mech v. CTA, 64 SCRA 555 (1975)
A tax exemption in the manufacture and sale of machines for making

cigarettes paper does not include the manufacture and sale of the products
produced by these machines of the manufacture and sale of other types of
machines for cigarettes production.
Atlas Fertilizer v. Com., supra.
The Secretary of Finance was convinced that the equipment imported were
not only needed for exclusive use in the manufacture of fertilizer but the same
were actually used therefore thus approving the application for exemption
without adducing evidence that he is entitled for exemption.
f. Laws granting tax exemption, incentives
i. Constitution
Sec. 28 (3), Art. VI and Sec. 4 (3, 4), Art. XIV, 1987 Constitution
Sec. 28 (3), Art. VI, Constitution .” (Property Tax Exemption).

shall be exempt from taxation
Sec. 4 (3, 4), Art. XIV, 1987 Constitution (Income tax, Property Tax, and Donor’s
Tax exemption)
“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.” Sec.4, (3)
“Subject to the conditions prescribed by law, all grants, endowments,
donations or contributions used actually, directly, and exclusively for
educational purposes shall be exempt from tax. Sec. 4, (4)
Abra Valley v. Aquino, supra.
The test of exemption from taxation is the use of the property for the
purpose mentioned in the Constitution. The term “exclusively uses” does not
necessarily means total or absolute use for religious, charitable, educational
purposes. Even if the property is incidentally and necessarily used for the
accomplishment of the said purposes, tax exemption will apply.
Lung Center of the Philippines v Quezon City, G.R. 144104, 433, June 29, 2004
SCRA 119
When the property is used for one or more commercial purposes, it is

subject to taxation. Portions of the land leased to the private entities as well as
those parts of the hospital leased to private individuals are not exempt from
taxes.
ii. tax statutes
Sec. 30, 32 (B), 106, 199 Exemption Granted by NIRC (R.A. 7716)
SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall
not be taxed under this Title in respect to income received by them as such:
(A) Labor, agricultural or horticultural organization not organized principally for profit;
(B) Mutual savings bank not having a capital stock represented by shares, and
cooperative bank without capital stock organized and operated for mutual purposes
and without profit;
(C) A beneficiary society, order or association, operating for the exclusive benefit of the
members such as a fraternal organization operating under the lodge system, or mutual
aid association or a nonstock corporation organized by employees providing for the
payment of life, sickness, accident, or other benefits exclusively to the members of
such society, order, or association, or nonstock corporation or their dependents;
(D) Cemetery company owned and operated exclusively for the benefit of its members;
(E) Nonstock corporation or association organized and operated exclusively for

religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of
veterans, no part of its net income or asset shall belong to or inures to the benefit of
any member, organizer, officer or any specific person;
(F) Business league chamber of commerce, or board of trade, not organized for profit
and no part of the net income of which inures to the benefit of any private stock-holder,
or individual;
(G) Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;
(H) A nonstock and nonprofit educational institution;
(I) Government educational institution;
(J) Farmers' or other mutual typhoon or fire insurance company, mutual ditch or
irrigation company, mutual or cooperative telephone company, or like organization of a
purely local character, the income of which consists solely of assessments, dues, and
fees collected from members for the sole purpose of meeting its expenses; and
(K) Farmers', fruit growers', or like association organized and operated as a sales
agent for the purpose of marketing the products of its members and turning back to
them the proceeds of sales, less the necessary selling expenses on the basis of the
quantity of produce finished by them;
Notwithstanding the provisions in the preceding paragraphs, the income of whatever

kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of the disposition
made of such income, shall be subject to tax imposed under this Code.
NIRC Sec. 32 (B) Exclusions from Gross Income. - The following items shall not be
included in gross income and shall be exempt from taxation under this title:
1. Proceeds from life insurance

2. Amount received by insured as return of premium
3. Gifts, bequests and devises
4. Compensation for injuries or sickness
5. Income exempt under treaty
6. Retirement benefits, pensions, gratuities, etc.
7. Income derived by foreign government
8. Income derived by the Philippine Government or its political subdivisions
9. Prizes and awards made primarily in recognition of religious, charitable, scientific,
educational, artistic, literary or civic achievement.
10. Prizes and awards in sports competitions sanctioned by the national sports
associations
11. 13th month pay and other benefits not exceeding P30,000.00. Applies both
to public and private employees.
12. GSIS, SSS, Medicare and other contributions
13. Gains from the sale of bonds, debentures or other certificate of
indebtedness. 5 eyars or more. If maturity is less than 5 years, it is taxable.
14. Gains from redemption of shares in mutual fund. It must be emanate from
the mutual fund
Sec. 106 (A)(2) The following sales by VAT-registered persons shall be subject to
zero percent (0%) rate:
(a) Export Sales. - The term "export sales" means:
(b) Foreign Currency Denominated Sale. -
(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.
NIRC SEC. 199. Documents and Papers Not Subject to Stamp Tax
(a) Policies of insurance or annuities made or granted by a fraternal or beneficiary

society, order, association or cooperative company, operated on the lodge system or
local cooperation plan and organized and conducted solely by the members thereof for
the exclusive benefit of each member and not for profit.
(b) Certificates of oaths administered to any government official in his official capacity
or of acknowledgment by any government official in the performance of his official
duties, written appearance in any court by any government official, in his official
capacity; certificates of the administration of oaths to any person as to the authenticity
of any paper required to be filed in court by any person or party thereto, whether the
proceedings be civil or criminal; papers and documents filed in courts by or for the
national, provincial, city or municipal governments; affidavits of poor persons for the
purpose of proving poverty; statements and other compulsory information required of
persons or corporations by the rules and regulations of the national, provincial, city or
municipal governments exclusively for statistical purposes and which are wholly for the
use of the bureau or office in which they are filed, and not at the instance or for the use
or benefit of the person filing them; certified copies and other certificates placed upon
documents, instruments and papers for the national, provincial, city, or municipal
governments, made at the instance and for the sole use of some other branch of the
national, provincial, city or municipal governments; and certificates of the assessed
value of lands, not exceeding Two hundred pesos (P200) in value assessed, furnished
by the provincial, city or municipal Treasurer to applicants for registration of title to
land.
Sec. 159 and 234, R. A. 7160(Exemption Granted by the Local Taxing Authority)
Sec. 159, R.A. 7160. Community Tax Exemptions

SEC. 159. 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
Real Property Tax Exemption R.A. 7160 (Local Government Code)
Section 234. Exemption From Real Property Tax
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted for
consideration or otherwise to a taxable person.
(b) Charitable institutions, churches, parsonages, or convents appurtenant thereto,
mosques, non-profit or religious cemeteries, and all lands, buildings, and
improvements actually, directly and exclusively used for religious, charitable, or
educational purposes.
(c) All machineries and equipment that are actually, directly and exclusively use by
local water utilities and
government-owned or controlled corporations engaged in supply and distribution
of water and/or generation and transmission of electric power.
(d) All real property owned by duly registered cooperatives as provided for under
Republic Act No. 6938.
(e) Machinery and equipment used for pollution control and environmental
protection.
Sec. 105, Tariff and Customs Code (TCC)
iii. special laws
R. A. 7549- An act exempting all prizes and awards gained from local and international
sports tournaments and competitions from the payment of income and other forms of
taxes and for other purposes
SECTION 1. All prizes and awards granted to athletes in local and international
sports tournaments and competitions held in the Philippines or abroad and sanctioned
by their respective national sports associations shall be exempt from income tax:
provided, that such prizes and awards given to said athletes shall be deductible in full
from the gross income of the donor: provided, further, that the donors of said prizes
and awards shall be exempt from the payment of donor's tax.
The benefits herein provided shall cover the XVIth Southeast Asian Games (SEA
Games) held in Manila from November 25 to December 5, 1991.
Com. v. Phil Ace Line, supra.
Goods obtained by the respondent shall be subject to compensating tax since sec. 14
of R.A. 1789 exempts only custom duties, consular fees and the special import tax.
R.A. 1789- An act prescribing the national policy in the procurement and utilization of
reparations and development loans from japan, creating a reparations commission to
implement the policy, providing funds therefor, and for other purposes.
Section 14. Exemption from Tax. All reparations goods obtained by the government
shall be exempt from the payment of all duties, fees and taxes. Reparations goods
obtained by private parties shall be exempt only from the payment of customs duties,
consular fees and the special import tax.
iv. treaties
Tax treaty
 A tax treaty is one of the sources of our law on taxation. The Philippine
government usually enters into tax treaties in order to avoid or minimize the
effects of double taxation. A treaty has the force and effect of law.
RP-US Tax Treaty
RP-Germany Tax Treaty
Com. v. S. C. Johnson, supra.
Respondent was subjected to 25% withholding tax on royalty payments which he

contested claiming that it is entitled to “The Most Favored Nation” Tax Rate of
10% on royalties as provided in the RP-US Tax treaty in relation to the RP-West
Germany Tax Treaty.
According to petitioner, the taxes upon royalties under the RP-US Tax Treaty are not
paid under circumstances similar to those in the RP-West Germany Tax Treaty since
there is no provision for a 20 percent matching credit in the former convention and
private respondent cannot invoke the concessional tax rate on the strength of the most
favored nation clause in the RP-US Tax Treaty. Petitioner's position is explained thus:
Under the foregoing provision of the RP-West Germany Tax Treaty, the Philippine tax
paid on income from sources within the Philippines is allowed as a credit against
German income and corporation tax on the same income. In the case of royalties for
which the tax is reduced to 10 or 15 percent according to paragraph 2 of Article 12 of
the RP-West Germany Tax Treaty, the credit shall be 20% of the gross amount of such
royalty. To illustrate, the royalty income of a German resident from sources within the
Philippines arising from the use of, or the right to use, any patent, trade mark, design
or model, plan, secret formula or process, is taxed at 10% of the gross amount of said
royalty under certain conditions. The rate of 10% is imposed if credit against the
German income and corporation tax on said royalty is allowed in favor of the German
resident. That means the rate of 10% is granted to the German taxpayer if he is
similarly granted a credit against the income and corporation tax of West Germany.
The clear intent of the "matching credit" is to soften the impact of double taxation by
different jurisdictions.
The RP-US Tax Treaty contains no similar "matching credit" as that provided under the
RP-West Germany Tax Treaty. Hence, the tax on royalties under the RP-US Tax
Treaty is not paid under similar circumstances as those obtaining in the RP-West
Germany Tax Treaty. Therefore, the "most favored nation" clause in the RP-West
Germany Tax Treaty cannot be availed of in interpreting the provisions of the RP-US
Tax Treaty.5
Reagan v. CIR, 30 SCRA 968 (1969)
Com. v. PJ Kiener, 65 SCRA 142 (1975)
g. Construction of statutes granting tax exemption
1) Rule when legislative intent is clear
Tax statutes are to receive a reasonable construction with a view to carrying out
their purpose and intent. They should not be construed as to permit the taxpayer easily
to evade the payment of taxes.
2) Rule when there is doubt
No person or property is subject to taxation unless within the terms or plain

import of a taxing statute. In every case of doubt, tax statutes are construed strictly
against the government and liberally in favor of the taxpayer. Taxes, being burdens,
are not to be presumed beyond what the statute expressly and clearly declares.
3) Provisions granting tax exemptions
Such provisions are construed strictly against the taxpayer claiming tax
exemption
i. general rule
 In the construction of tax statutes, exemptions are not favored and are construed
strictissimi juris against the taxpayer. The fundamental theory is that all taxable
property should bear its share in the cost and expense of the government.
 Taxation is the rule and exemption.
 He who claims exemption must be able to justify his claim or right thereto by a
grant express in terms “too plain to be mistaken and too categorical to be
misinterpreted.” If not expressly mentioned in the law, it must be at least within its
purview by clear legislative intent.
PLDT v. City of Davao, (2001) supra.
Com. v. CA and YMCA, 298 SCRA 83 (1998)
Income derived from rentals of its real property leased out as restaurant
and canteen are subject to income tax. It is only exempt from property tax.
Misamis Oriental Assoc. v. DOF, 238 SCRA 63 (1994)
A law which gives exemption to coconut farmers and copra producers are
not applicable to coconut traders and copra traders. Sec. 103 of NIRC exempts
from VAT the sale of agricultural products in their original state if the ssale is
made by their primary producer.
Com. of Customs v. Phil Acetylene Company, 39 SCRA 70 (1971)
Mla. Electric Co. v. Vera (Tabios), 67 SCRA 352 (1975)

Where a company is to pay for the property tax on its plant but not
including poles, wires, transformers and insulators forming part of the plant or
installations, the exemptions does not included compensating tax for the
imports of poles, wires, transformers and insulators which is an excise or
privilege tax.
Benguet Corp. v. CBAA, supra.
Davao Gulf v. CIR, supra.
ii. exceptions
1. When the law itself expressly provides for a liberal construction thereof.
2. In cases of exemptions granted to religious, charitable and educational
institutions or to the government or its agencies or to public property because the
general rule is that they are exempted from tax.
Maceda v. Macaraig, supra., supra.
Petitioner cannot invoke the rule of strictissimi juris with respect to the
interpretation of statutes granting tax exemptions to the NPC. The rule on strict
interpretation does not apply in the case of exemptions in favor of a political
subdivision or instrumentality of the government.
grant to government and other entities
Strict interpretation does not apply to the government and its agencies. The rule
here is exemption and the exemption is taxation.
E. Sources, Application, Interpretation and Administration of Tax Laws
1. Sources of tax laws
The Constitution,
NIRC
TCC
LGC
tax ordinance/local tax codes, Tuzon v. CA, 212 SCRA 739 (1992)
treaties, Tanada v. Angara, supra.
special laws,
SC/CTA/CA decisions
revenue rules and regulations
rulings and opinions
tax ordinance/local tax codes, Tuzon v. CA, 212 SCRA 739 (1992)
If the resolution is to be considered as a tax ordinance, it must be shown to have been

enacted in accordance with the requirements of the Local Government Code. These
would include the holding of a public hearing on the measure and its subsequent
approval by the Secretary of Finance, in addition to the usual requisites for publication
of ordinances in general.
revenue rules and regulations
The Secretary of Finance, upon recommendation of the Commissioner of Internal

Revenue, shall promulgate needful rules and regulations for the effective enforcement
of the provisions of the NIRC.
rulings and opinions
This is without prejudice to the power of the Commissioner of Internal Revenue to

make rulings or opinions in connection with the implementation of the provisions of the
Internal Revenue laws, including rulings on the classification of articles for sales tax
and similar purposes.
Rulings in the form of opinions are also given by the Secretary of Justice who is the
Chief Legal Officer of the Government.
Treaties
International Agreements must be performed in good faith. “A treaty

engagement is not a mere moral obligation but creates a legally binding
obligation on the parties”. (Doctrine of Pacta sunt servanda)
a. validity of revenue rules and regulations

Requisites for validity of rules and regulations
1. They must not be contrary to law and the Constitution.

2. They must be published in the Official Gazette or a newspaper of general
circulation.
RMO 1-99
Com. v. CA, supra.
Umali v. Estanislao, 209 SCRA 446 (1992)
La Suerte v. Court of Tax Appleals, 134 SCRA 29 (1985)
When an administrative agency renders an opinion by means of a circular or

memorandum, it merely interprets existing law and no publication is therefore
necessary for its validity. Construction by an executive branch of the government of a
particular law, although not binding upon courts, must be given weight as the
construction came from the branch of the government which is called upon to
implement the law.
Com. v. CA, 261 SCRA 236 (1996)
The authority of the Minister of Finance, in conjunction with the Commissioner of

Internal Revenue, to promulgate rules and regulations for the effective enforcement of
internal revenue rules cannot be converted. Neither can it be disputed that such rules
and regulations, as well as administrative opinions and rulings, ordinarily should
deserve weight and respect by the courts. Much more fundamental than either of the
above, however, is that all issuances must not override, but must remain consistent
with, the law they seek to apply and implement. Administrative rules and regulations
are intended to carry out, neither to supplant nor to modify, the law.
b. effectivity of revenue rules and regulations

RMC 20-86
Revenue Memorandum Circular 20-86 was issued to govern the drafting, issuance and
implementation of revenue tax issuances including:
1. Revenue Regulations;
2. Revenue and Memorandum Orders; and
3. Revenue Memorandum Circulars and Revenue Memorandum Orders.
 Except when the law otherwise expressly provides, the aforesaid revenue tax
issuances shall not begin to be operative until after due notice thereof may be
fairly assumed.
 Due notice of said issuances may be fairly presumed only after the following
procedures have been taken:
1. Copies of tax issuance have been sent through registered mail to the following
business and professional organizations:
a. Philippine Institute of Certified Public Accountants;;
b. Integrated Bar of the Philippines;
c. Philippine Chamber of Commerce and Industry;
d. American Chamber of Commerce;
e. Federation of Filipino-Chinese Chamber of Commerce; and
f. Japanese Chamber of Commerce and Industry in the Philippines.
*however, other persons or entities may request a copy of the said issuances.
2. The Bureau of Internal Revenue shall issue a press release covering the
highlights and features of the new tax issuance in any newspaper of general
circulation.
3. Effectivity date for enforcement of the new issuance shall take place thirty (30)
days from the date the issuance has been sent to the above-enumerated
organizations.
c. nature of rulings, effects of a void ruling
 Administrative rulings, known as BIR rulings, are the less general interpretation
of tax laws being issued from time to time by the Commissioner of Internal
Revenue. They are usually rendered on request of taxpayers to clarify certain
provisions of a tax law. These rulings may be revoked by the Secretary of
Finance if the latter finds them not in accordance with the law.
 The Commissioner may revoke, repeal or abrogate the acts or previous rulings of
his predecessors in office because the construction of the statute by those
administering it is not binding on their successors if, thereafter, such successors
are satisfied that a different construction of the law should be given.
 Rulings in the forms of opinion are also given by the Secretary of Justice who is
the chief legal officer of the Government.
Sec. 4, 244-246, NIRC
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax
Cases. - The power to interpret the provisions of this Code and other tax laws shall be
under the exclusive and original jurisdiction of the Commissioner, subject to review by
the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under this
Code or other laws or portions thereof administered by the Bureau of Internal Revenue
is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the
Court of Tax Appeals.
SEC. 244. Authority of Secretary of Finance to Promulgate Rules and

Regulations. - The Secretary of Finance, upon recommendation of the Commissioner,
shall promulgate all needful rules and regulations for the effective enforcement of the
provisions of this Code.
SEC. 245. 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;
(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 or 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. 246. 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.
Sec. 511 and 519, TCC
CIR v. CA, 267 SCRA 557 (1997)
Misamis Oriental v. DOF, supra.
2. Interpretation of Tax Laws

a. nature of internal revenue laws
Nature of Internal revenue laws
1) Internal revenue laws are not political in nature.
2) Tax laws are civil and not penal in nature.
Civil not penal in nature
Tax laws are civil and not penal in nature, although there are penalties provided for
their violation.
The purpose of tax laws in imposing penalties for delinquencies is to compel the timely
payment of taxes or to punish evasion or neglect of duty in respect thereof.
Not political in nature
Internal revenue laws are not political in nature. They are deemed to be laws of the
occupied territory and not of the occupying enemy.
Thus, our tax laws continued in force during the Japanese occupation
Hilado v. Collector, 100 Phil 288 (1956)
It is well known that our internal revenue laws are not political in nature and, as
such, continued in force during the period of enemy occupation and in effect were
actually enforced by the occupation government. Income tax returns that were filed
during that period and income tax payments made were considered valid and legal.
Such tax laws are deemed to be the laws of the occupied territory and not of the
occupying enemy.
Republic v. Oasan, 99 Phil 934 (1956)
The war profits tax is not subject to the prohibition on ex post facto laws as the
latter applies only to criminal or penal matters. Tax laws are civil in nature.
Misamis Oriental v. DOF, supra
b. construction of tax laws
i. rule when legislative intent is clear

Rule when legislative intent is clear
Tax statutes are to receive a reasonable construction with a view to carrying out
their purpose and intent. They should not be construed as to permit the taxpayer easily
to evade the payment of taxes.
Umali v. Estanislao, supra.
Lorenzo v. Posadas, supra.
ii. rule when there is doubt
Rule when there is doubt
No person or property is subject to taxation unless within the terms or plain

import of a taxing statute. In every case of doubt, tax statutes are construed strictly
against the government and liberally in favor of the taxpayer. Taxes, being burdens,
are not to be presumed beyond what the statute expressly and clearly declares.
Collector v. La Tondena, 5 SCRA 665 (1962)
iii. rule when language is plain
When the language of the law is plain, the word should be given its ordinary
meaning
The rule of strict construction as against the government is not applicable

where the language of the tax statue is plain and there is no doubt as to the
legislative intent. In such case, the words employees are to be given their
ordinary meaning.
c. application of tax laws, revenue regulations, rulings and the effects of

repeal
i. application of tax laws
Application of tax laws

General rule: Tax laws are prospective in operation because the nature and amount to
the tax could not be foreseen and understood by the taxpayer at the time the
transactions which the law seeks to tax was completed
Exception: While it is not favored, a statute may nevertheless operate retroactively

provided it is expressly declared or is clearly the legislative intent. But a tax law should
not be given retroactive application when it would be harsh and oppressive.
Art. 2, NCC
Umali v. Estanislao, supra.
Hijo Plantation v. CB, 164 SCRA 192 (1988)
CIR v. Filipinas Cia de Seguros, 107 Phil 1055 (1960)
Cebu Portland v. Collector, 25 SCRA 789 (1968)
Comm. v. RTN Mining, supra.
ii. application of revenue regulations, rulings
Revocation, modification of revenue of any rules and regulations promulgated by

the Sec. of Finance or CIR shall not have retroactive effect if it will be prejudicial to the
taxpayer, except:
1. where the taxpayer deliberately misstates or omits material facts from his return
or in any document required of him by the BIR
2. where the facts subsequently gathered by the BIR are materially different from
the facts on which the ruling is based
3. where the taxpayer acted in bad faith
Sec. 246
Comm. v. CA, supra.
Comm. v. Mega General, 166 SCRA 166 (1988)
ABS-CBN v. CTA, 108 SCRA 142 (1981)
Comm. v. Telefunken, 249 SCRA 401 (1995)
d. mandatory and directory provisions

 Directory provisions are those designed merely for the information or direction
of office or to secure methodical and systematic modes of proceedings.
 Mandatory provisions are those intended for the security of the citizens or
which are designed to ensure equality of taxation or certainty as to the nature
and amount of each person’s tax.
Roxas v. Rafferty, supra.
The omission to follow mandatory provisions renders invalid the act or

proceeding to which it relates while the omission to follow directory provisions does not
involve such consequence.
Aragon v. George, 85 Phil 246 (1949)
Tiongco v. PVB, 212 SCRA 176 (1992)
Pecson v. CA, 222 SCRA 580 (1993)
3. Enforcement, Administration of Tax Laws
AGENCIES INVOLVED IN TAX ADMINISTRATION
1. BIR
2. Bureau of Customs
3. Provincial, city, and municipal assessors and treasurers
POWERS AND DUTIES OF THE BIR
1. Assessment and collection of all national internal revenue taxes, fees and charges
2. Give effect to and administer the supervisory and police power conferred to it by the
Tax Code or other laws
3. Enforcement of all forfeitures, penalties and fines in connection therewith
4. Execution of judgments in all cases decided in its favor by the Court of TaxAppeals
and the ordinary courts

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A.

Nature and Limitations of the Power of Taxation

Roxas v CTA, 23 SCRA 276 (1968)

Tanada v Angara 272 SCRA 18 (1997)

Tan v Del Rosario, 237 SCRA 324 (1994)

On petitioner’s contention in GR 109446 that public respondents exceeded

CIR v Santos, 277 SCRA 617 (1997)

Sison v Ancheta, 130 SCRA 654 (1984)

The difficulty confronting petitioner is thus apparent. He alleges arbitrariness.

Kapatiran v Tan, 163 SCRA 371 (1988)

Reyes v Almanzor, 196 SCRA 322 (1991)

b. Non-delegability of power to tax – the power of taxation, being purely

Exceptions to the non-delegation rule

1. Delegation to the president

Maceda v ERB 192 SCRA 363 (1990)

The Board Order authorizing the proceeds generated by the increase to be

Non delegation of legislative power, standard test implied under Section 3 of

The required standards need not be expressed. In Edu v Ericta and De la

Basco v PAGCOR, 197 SCRA 52 (1991)

Local governments have no power to tax instrumentalities of the National

Pepsi-Cola v City of Butuan 24 SCRA 789 (1968)

PAL v Edu 164 SCRA 320 (1988)

It is clear from the provisions of Section 73 of Commonwealth Act 123 and

c. Who may question the validity of a tax measure or expenditure of

(see one case, insert below)

Maceda v Macaraig 197 SCRA 771 (1991)

The purpose to be accomplished by taxation need not be exclusively public.

Gonzales v Marcos, 65 SCRA 624 (1975)

Chavez v PCGG, 299 SCRA 744 (1998)

Subject to inherent and constitutional limitations

Pascual v. Sec of Public Works, 110 SCRA 331 (1960)

Pascual vs. Secretary of Public Works, 110 SCRA 331 (1960)

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal,

Nature of the Case:

An appeal by petitioner Wenceslao Pascual, from a decision of the Court of First

Facts of the Case:

Tio v Videogram Regulatory Board, 151 SCRA 208 (1987)

Gaston v RPB, 158 SCRA 626 (1988)

Gaston vs. Republic Planter 158 SCRA 626

Nature of the Case:

TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF

Ratio of the Case:

b. Prohibition against delegation of taxing power

Sec 5 Art X, 1987 Constitution

Basco v PAGCOR 197SCRA 52 (1991)

Maceda v Macaraig 197 SCRA 771 (1991)

ii. delegation to the President

Sec 28 (2) Art VI, 1987 Constitution

In the interest of national economy, general welfare and/or national security,

*to increase , reduce, or remove existing protective rates of import duty,

*to establish import quota or to ban imports of any commodity; and

Garcia v Executive Secretary 211SCRA 219 (1992)

The power granted under this constitutional provision to authorize the

Osmena v Orbos 220 SCRA 703 (1993)

Maceda v Macaraig 197 SCRA 771 (1991)

Maceda v ERB, 192 SCRA 363 (1992)

c. Exemption of government entities, agencies and instrumentalities

Mactan Cebu Airport v Marcos _______________________

Maceda v Macaraig, 197 SCRA 771 (1991)

Sec 2 Art II, 1987 Constitution

The Philippines renounces war as an instrument of national policy, adopts the

Tanada v Angara 272 SCRA 18 (1997)

By the doctrine of incorporation, the country is bound by generally accepted