TAXATION I of organic or statute law and should not be
permitted to stand on vague implications.
NATURE AND CHARACTERISTICS OF
TAXATION
CIR vs. DASH ENG’G PHILS
712 SCRA 347
Taxes are the lifeblood of the
government, and consequently, tax laws
must be faithfully and strictly implemented
as they are not intended to be liberally
construed.
PILMICO-MAURI FOODS vs. CIR
802 SCRA 618
Revenue laws are not intended to be
liberally construed. Taxes are the lifeblood
of the government and the price we pay for
civilization; hence, laws relative thereto
must be faithfully and strictly implemented.
DAVAO GULF LUMBER vs. CIR
293 SCRA 76
Because taxes are the lifeblood of the
government, statutes that allow exemptions
are construed strictly against the grantee
and liberally in favour of the government.
Otherwise stated, any exemption from the
payment of a tax must be clearly stated in
the language of the law; it cannot be implied
therefrom.
ATLAS CONSOLIDATED MINING vs.
CIR, 524 SCRA 73
Tax refunds are in the nature of tax
exemptions. It is regarded as in derogation
of the sovereign authority, and should be
construed in strictissimi juris against the
person or entity claiming the exemption.
The taxpayer who claims for exemption
must justify his claim by the clearest grant
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ATTY. DANTE A. MARANAN
MARCOS vs. COURT OF APPEALS
273 SCRA 47
The enforcement of tax laws and
collection of taxes is of paramount
importance for the sustenance of the
government. Taxes are the lifeblood of the
government and should be collected without
unnecessary hindrance. However, such
collection should be made in accordance
with law as any arbitrariness will negate the
very reason for government itself. It is
therefore necessary to reconcile the
apparently conflicting interest of the
authorities and the taxpayers so that the real
purpose of taxation, which is the promotion
of the common good, may be achieved.
REYES vs. ALMANZOR
196 SCRA 322
While the State has the power to
make a reasonable classification for taxation
purposes, it must not be promoted by a
spirit of hostility, or at the very least
discrimination that has no reasonable basis.
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.
Consequently, it stands to reason
that petitioners who are burdened by the
government by its Rental Freezing Laws
(then R.A. No. 6359 and P.D. 20) under the
principle of social justice should not now be
penalized by the same government by the
imposition of excessive taxes petitioners can
ill afford and eventually result in the
forfeiture of their properties.
LIMITATIONS OF THE POWER TO TAX
TIO vs. VIDEOGRAM REGULATORY
BOARD, 151 SCRA 213
"The public purpose of a tax may
legally exist even if the motive which
impelled the legislature to impose the tax
was to favor one industry over another.
"It is inherent in the power to tax that a
state be free to select the subjects of
taxation, and it has been repeatedly held
that ‘inequities which result from a singling
out of one particular class for taxation or
exemption infringe no constitutional
limitation. "Taxation has been made the
implement of the state's police power.
PASCUAL vs. SECRETARY OF
PUBLIC WORKS, 110 PHIL 331
It is a general rule that the
legislature is without power to appropriate
public revenue for anything but a public
purpose. * * * It is the essential character of
the direct object of the expenditure which
must determine its validity as justifying a
tax, and not the magnitude of the interests
to be affected nor the degree to which the
general advantage of the community, and
thus the public welfare, may be ultimately
benefited by their promotion. Incidental
advantage to the public or to the state,
which results from the promotion of private
interests and the prosperity of private
enterprises or business, does not justify
their aid by the use of public money."
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ATTY. DANTE A. MARANAN
FERRER vs. CITY MAYOR BAUTISTA
G.R. NO. 210551, JUNE 30, 2015
The public purpose of a tax may
legally exist even if the motive which
impelled the legislature to impose the tax
was to favor one over another.—For the
purpose of undertaking a comprehensive
and continuing urban development and
housing program, the disparities between a
real property owner and an informal settler
as two distinct classes are too obvious and
need not be discussed at length. The
differentiation conforms to the practical
dictates of justice and equity and is not
discriminatory within the meaning of the
Constitution.
Notably, the public purpose of a tax
may legally exist even if the motive which
impelled the legislature to impose the tax
was to favor one over another. It is inherent
in the power to tax that a State is free to
select the subjects of taxation. Inequities
which result from a singling out of one
particular class for taxation or exemption
infringe no constitutional limitation.
MANILA RACE HORSE TRAINERS
ASSOCIATION vs. DELA FUENTE
88 PHIL 60
From the viewpoint of economics
and public policy the taxing of boarding
stables for race horses to the exclusion of
boarding stables for horses dedicated to
other purposes is not indefensible. The
owners of boarding stables for race horses
and, for that matter, the race horse owners
themselves, who in the scheme of shifting
may carry the taxation burden, are a class by
themselves and appropriately taxed where
owners of other kinds of horses are taxed
less or not at all, considering that equity in
taxation is generally conceived in terms of
ability to pay in relation to the benefits
received by the tax-payer and by the public
from the business or property taxed.
Race horses are devoted to gambling
if legalized, their owners derive fat income
and the public hardly any profit from horse
racing, and this business demands relatively
heavy police supervision. Taking everything
into account, the differentiation against
which the plaintiffs complain conform to the
practical dictates of justice and equity and is
not discriminatory within the meaning of
the Constitution.
CITY OF BAGUIO vs. DE LEON
25 SCRA 938
Rule on equality and uniformity in
taxation.—Equality and uniformity in
taxation means that all taxable articles or
kind or property of the same class shall be
taxed at the same rate. A tax is considered
uniform when it operates with the same
force and effect in every place where the
subject may be found. Where the statute or
ordinance in question applies equally to all
persons, firms and corporations placed in
similar situation there is no infringement of
the rule on equality. Inequalities which
result from a singling out of one particular
class for taxation or exemption infringe no
constitutional limitation.
ORMOC SUGAR vs.
TREASURER OF ORMOC
22 SCRA 63
Equal protection clause applies only
to persons or things identically situated and
does not bar a reasonable classification of
the subject of legislation, and a classification
is reasonable where:
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1. It is based on substantial
distinctions which make real
differences;
2. It is germane to the purpose of
the law;
3. The classification applies not
only to present conditions but
also to future conditions which
are substantially identical to
those of the present;
4. The classification applies only to
those who belong to the same
class.
A perusal of the requisites show that
the questioned ordinance does not meet
them, the taxing ordinance should not be
singular and exclusive as to exclude any
subsequently established sugar central, of
the same class as the plaintiff, for the
coverage of the tax.
VILLEGAS vs. HIU CHIONG TSAI, 86
SCRA 270
The ordinance 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.
 ASSOCIATION OF CUSTOMS
BROKERS vs. CITY OF MANILA,
93 PHIL 107
FACTS:
Petitioners challenge the validity of
an ordinance which confers upon the
municipal board the power "to tax motor
and other vehicles operating within the City
of Manila on the ground that: (1) while it
levies a so-called property tax it is in reality
a license tax which is beyond the power of
the Municipal Board of the City of Manila ;
(2) said ordinance offends against the rule
of uniformity of taxation ; and (3) it
constitutes double taxation.
ISSUE:
Whether the municipal ordinance
violates the rule on uniformity of taxation.
RULING:
Yes, the said ordinance infringes also
the rule of uniformity of taxation ordained
by our Constitution. It exacts the tax upon
all motor vehicles operating within the City
of Manila. It does not distinguish between a
motor vehicle for hire and one which is
purely for private use. Neither does it
distinguish between a motor vehicle
registered in the City of Manila and one
registered in another place but occasionally
comes to Manila and uses its streets and
public highways. There is no pretense that
the ordinance equally applies to motor
vehicles which come to Manila for a
temporary stay or for short errands, and it
cannot be denied that they contribute in no
small degree to the deterioration of the
streets and public highways. As they are
benefited by their use they should also be
made to share the corresponding burden.
This is an inequality which is found in the
ordinance in question and which renders it
offensive to the Constitution.
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ATTY. DANTE A. MARANAN
GOMEZ vs. PALOMAR
FACTS:
Benjamin Gomez questioned the
constitutionality of Republic Act 1635,
charging additional five centavos to the
regular postage charge for the issuance of
semi-postal stamps. The additional
proceeds realized from the sale of the semi-
postal stamps shall constitute a
special fund to be expended by the
Philippine Tuberculosis Society in carrying
out its noble work to prevent and eradicate
tuberculosis.
He alleged that the law and the
following administrative orders issued
violates the equal protection clause of
the Constitution as well as the rule of
uniformity and equality of taxation.
ISSUE:
Whether the R.A. 1635 is
unconstitutional.
RULING:
No, the legislature has the inherent
power to select the subjects of taxation and
to grant exemptions.
This power has aptly been described
as “of wide range and flexibility.” Indeed, it
is said that in the field of taxation, more
than in other areas, the legislature possesses
the greatest freedom in classification.
In this case of the anti-TB stamps,
undoubtedly, the single most important and
influential consideration that led the
legislature to select mail users as subjects of
the tax is the relative ease and convenience
of collecting tax through the post offices.
The small amount of five centavos does not
justify the great expense and inconvenience
of collecting through the regular means of
collection.
LUTZ vs. ARANETA
98 PHIL 148
FACTS:
Walter Lutz, as Judicial
Administrator of the Intestate Estate of
Antonio Jayme Ledesma, sought to recover
the sum of P14,666.40 paid by the estate as
taxes from the Commissioner under Section
e of Commonwealth Act 567 or the Sugar
Adjustment Act, alleging that such tax is
unconstitutional as it levied for the aid and
support of the sugar industry exclusively,
which is in his opinion not a public purpose.
ISSUE:
Whether the tax is valid.
RULING:
Yes, it is inherent in the power to tax
that a state be free to select the subjects of
taxation, and it has been repeatedly held
that “inequalities which result from a
singling out of one particular class for
taxation or exemption infringe 110
constitutional limitation.
As the protection and promotion of
the sugar industry is a matter of public
concern, the Legislature may determine
within reasonable bounds what is necessary
for its protection and expedient for its
promotion.
Here, the legislative discretion must
be allowed full play, subject only to the test
of reasonableness; and it is not contended
that the means provided in section 6 of
Commonwealth Act No. 567 bear no relation
to the objective pursued or are oppressive in
character. If objective and methods arealike
constitutionally valid, no reason is seen why
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the state may not levy taxes to raise funds
for their prosecution and attainment.
Taxation may be made the implement of the
state’s police power.
PEPSI COLA vs.
MUNICIPALITY OF TANAUAN, 69
SCRA 480
FACTS:
Peps-Cola challenges the power of
taxation delegated to municipalities under
the Local Autonomy Act.
ISSUE:
Whether the power of taxation
granted to municipalities under the Local
Autonomy Act is constitutional.
RULING:
Yes, The power of taxation x x x may
be delegated to local governments in respect
of matters of local concern. This is
sanctioned by immoral practice.
By necessary implication, the
legislative power to create political
corporations for purposes of local self-
government carries with it the power to
confer on such local governmental agencies
the power to tax. x x x The plenary nature of
the taxing power thus delegated, contrary to
plaintiff-appellant’s pretense, would not
suffice to invalidate the said law as
confiscatory and oppressive.
In delegating the authority, the State
is not limited to the exact meassure of that
which is exercised by itself. When it is said
that the taxing power may be delegated to
municipalities and the like, it is meant taxes
there may be delegated such measure of
power to impose and collect taxes as the
legislature may deem expedient. Thus,
municipalities may be permitted to tax
subjects which for reasons of public policy
the State has not deemed wise to tax for
more general purposes.
PEPSI COLA vs. CITY OF BUTUAN
FACTS:
Pepsi Cola Bottling Company
assailed the Municipal Ordinance enacted
by the City of Butuan. Under said ordinance,
it imposes a tax on any person, association,
etc. of P0.10 per case of 24 bottles of soft
drinks or carbonated drinks.
Plaintiff maintains that the disputed
ordinance is null and void because: (1) it
partakes of the nature of an import tax; (2)
it amounts to double taxation; (3) it is
excessive, oppressive and confiscatory; (4) it
is highly unjust and discriminatory; and (5)
section 2 of Republic Act No. 2264, upon
the authority of which it was enacted, is an
unconstitutional delegation of legislative
powers.
ISSUE:
Whether Section 2 of RA 2264 is a
valid delegation of legislative powers.
RULING:
Yes, the power of taxation x x x may
be delegated to local governments in respect
of matters of local concern.
This is sanctioned by immoral
practice. By necessary implication, the
legislative power to create political
corporations for purposes of local self-
government carries with it the power to
confer on such local governmental agencies
the power to tax. x x x
The plenary nature of the taxing
power thus delegated, contrary to plaintiff-
Page 6 of 23
TAXATION I – JMC LAW
ATTY. DANTE A. MARANAN
appellant’s pretense, would not suffice to
invalidate the said law as confiscatory and
oppressive. In delegating the authority, the
State is not limited to the exact meassure of
that which is exercised by itself. When it is
said that the taxing power may be delegated
to municipalities and the like, it is meant
taxes there may be delegated such measure
of power to impose and collect taxes as the
legislature may deem expedient.
Thus, municipalities may be
permitted to tax subjects which for reasons
of public policy the State has not deemed
wise to tax for more general purposes.
ABAKADA PARTYLIST vs. ERMITA
469 SCRA 1
FACTS:
ABAKADA GURO Party List, et al.,
filed a petition for prohibition o questioning
the constitutionality of Sections 4, 5 and 6 of
R.A. No. 9337, amending Sections 106, 107
and 108, respectively, of the National
Internal Revenue Code (NIRC).
Section 4 imposes a 10% VAT on
sale of goods and properties;
Section 5 imposes a 10% VAT on
importation of goods; and
Section 6 imposes a 10% VAT on
sale of services and use or lease of
properties;
These provisions contain a provision
which authorizing the President, upon
recommendation of the Secretary of
Finance, to raise the VAT rate to 12%,
effective January 1, 2006, after specified
conditions have been satisfied.
ISSUES:
 1. Whether or not there is a violation of
Article VI, Section 24 of the
Constitution.
2. Whether or not there is undue
delegation of legislative power in
violation of Article VI Sec 28(2) of
the Constitution.
3. Whether or not there is a violation of
the due process and equal protection
of the Constitution.
RULING:
1. The revenue bill exclusively
originated in the House of
Representatives, the Senate was
acting within its constitutional
power to introduce amendments to
the House bill when it included
provisions in Senate Bill No. 1950
amending corporate income taxes,
percentage, and excise and franchise
taxes.
2. There is no undue delegation of
legislative power but only of the
discretion as to the execution of a
law. This is constitutionally
permissible. Congress does not
abdicate its functions or unduly
delegate power when it describes
what job must be done, who must do
it, and what is the scope of his
authority; in our complex economy
that is frequently the only way in
which the legislative process can go
forward. In this case, it is not a
delegation of legislative power but a
delegation of ascertainment of facts
upon which enforcement and
administration of the increased rate
under the law is contingent.
3. The power of the State to make
reasonable and natural
classifications for the purposes of
taxation has long been established.
Whether it relates to the subject of
taxation, the kind of property, the
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TAXATION I – JMC LAW
ATTY. DANTE A. MARANAN
rates to be levied, or the amounts to
be raised, the methods of
assessment, valuation and collection,
the State’s power is entitled to
presumption of validity. As a rule,
the judiciary will not interfere with
such power absent a clear showing of
unreasonableness, discrimination, or
arbitrariness.
COMMISSIONER OF CUSTOMS vs.
HYPERMIX FEEDS CORP.
Going now to the content of CMO
27-3003, we likewise hold that it is
unconstitutional for being violative of the
equal protection clause of the Constitution.
The equal protection clause means that no
person or class of persons shall be deprived
of the same protection of laws enjoyed by
other persons or other classes in the same
place in like circumstances. Thus, the
guarantee of the equal protection of laws is
not violated if there is a reasonable
classification. For a classification to be
reasonable, it must be shown that (1) it rests
on substantial distinctions; (2) it is germane
to the purpose of the law; (3) it is not
limited to existing conditions only; and (4)
it applies equally to all members of the same
class.
LA INSULAR vs. MACHUCA
39 PHIL 567
In the case at bar the Government of
the Philippine Islands was in no sense a
party to the contract of July 15, 1913,
between the plaintiff and the defendants;
and it is readily seen that when the
Legislature of these Islands increased the
internal revenue tax upon cigarettes, this
was an act done by a stranger to the
contract, and not by any person in privity
therewith. The consequence is that, properly
speaking, the legislative fiat, placing the
burden of the tax on the purchaser, did not
in any wise affect the obligation of the
contract as between the parties. It was
merely an external factor which,
supervening upon the situation created by
the contract , made it impossible for the
purchaser to realize the benefit which would
have accrued to him if the seller had been
required to pay the tax. Nearly all changes in
taxation affect existing contracts in some
way or other, but this does not necessarily
change such contracts in a legal sense.
It is evident that if the imposition of
the increased tax on cigarettes in the case
before us could not have had the effect, in
the absence of any action by Congress, of
impairing the contract in the constitutional
sense, it must also follow that the contract
was not changed in the sense necessary to
release the surety. Upon this point we quote,
as pertinent, the following language used by
the Supreme Court of the United States:
Authorities from numerous sources
are cited by the plaintiffs, but none of them
show that a lawful tax on a new subject, or
an increased tax on an old one, interferes
with a contract or impairs its obligation,
within the meaning of the Constitution,
even though such taxation may affect
particular contracts, as it may increase the
debt of one person and lessen the security of
another, or may impose additional burdens
upon one class and release the burdens of
another, still the tax must be paid unless
prohibited by the Constitutional, nor can it
be said that it impairs the obligation of any
existing contract in its true legal sense.
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ATTY. DANTE A. MARANAN
CAGAYAN ELECTRIC POWER vs.
COMMISSIONER ON INTERNAL
REVENUE , 138 SCRA 629
FACTS:
Cagayan Electric Power & Light Inc.
is a holder of a legislative franchise,
Republic Act. No. 3247, which exempts
them from payment of 3% tax on its gross
earnings from the sale of electric current.
On June 27, 1968, Republic Act No. 5431
amended section 24 of the Tax Code. Thus,
franchise companies were subjected to
income tax in addition to franchise tax.
However, in petitioner's case, its
franchise was amended by Republic Act No.
6020, effective August 4, 1969, by
authorizing the petitioner to furnish
electricity to the municipalities of
Villanueva and Jasaan, Misamis Oriental in
addition to Cagayan de Oro City and the
municipalities of Tagoloan and Opol,
reenacted the tax exemption in its original
charter.
By reason of the amendment to Section 24
of the Tax Code, the Commissioner of
Internal Revenue required the petitioner to
pay deficiency of taxes for 1968 and 1969.
ISSUE:
Whether the petitioner is liable for
tax.
RULING:
Yes, where income tax exemption of
a fran-chiseholder was withdrawn by the
legislature in January, 1968 but was
restored in August, 1969, the
franchiseholder is liable for income tax from
January, 1968 to August, 1969.
The Tax Court acted correctly in
holding that the exemption was restored by
the subsequent enactment on August 4,
1969 of Republic Act No. 6020 which
reenacted the said tax exemption. Hence,
the petitioner is liable only for the income
tax for the period from January 1 to August
3, 1969 when its tax exemption was
modified by Republic Act No. 5431.
PEOPLE vs LINSANGAN
62 Phil 646
FACTS:
Appellant Linsangan was prosecuted
for nonpayment of the cedula or poll tax and
was sentenced to suffer imprisonment for
five days. He appealled and alleged the
Revised Administrative Code to be
unconstitutional and void.
This case was tried and decided in
the court below before the Constitution of
the Philippines took effect. But while this
appeal was pending, the said Constitution
became effective, and section 1, clause 12, of
Article III thereof provides that "no person
shall be imprisoned for debt or nonpayment
of a poll tax."
ISSUE:
Whether the judgment of conviction
can stand after the effectivity of the new
constitution.
RULING:
No, to require demonstration that
section 2718 of the Revised Administrative
Code is inconsistent with section 1, clause
12, of Article III of the Constitution, in that,
while the former authorizes imprisonment
for nonpayment of the poll or cedula tax, the
latter forbids it. It follows that upon the
inauguration of the Government of the
Commonwealth, said section 2718 of the
Revised Administrative Code became
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TAXATION I – JMC LAW
ATTY. DANTE A. MARANAN
inoperative, and no judgment of conviction
can be based thereon.
It results that the judgment appealed
from must be reversed, and the case
dismissed.
AMERICAN BIBLE SOCIETY vs. CITY
OF MANILA, 101 PHIL 386
The constitutional guaranty of the
free exercise and enjoyment of religious
profession and worship carries with it the
right to disseminate religious information.
Any restraint of such right can only be
justified like other restraints of freedom of
expression on the grounds that there is a
clear and present danger of any substantive
evil which the State has the right to
prevent".
The Supreme Court held that it could
not be said that petitioners were engaged in
commercial rather than a religious venture.
Their activities could not be described as
embraced in the occupation of selling books
and pamphlets.
The provisions of City of Manila
Ordinance No. 2529, as amended, cannot be
applied to appellant, for in doing so it would
impair its free exercise and enjoyment of its
religious profession and worship as well as
its rights of dissemination of religious
beliefs.
LLADOC vs. COMMISSIONER
OF INTERNAL REENUE
14 PHIL 292
FACTS:
Sometime in 1957, the M.B. Estate,
Inc., donated P10,000 cash to Rev. Fr.
Crispin Ruiz, then parish priest of Victorias,
Negros Occidental, for the construction of a
new Catholic Church in the locality. A year
after, the donor, M.B. Estate filed the donor
gift’s tax return.
The Commissioner of Internal
Revenue issued an assessment for donee’s
gift tax against the Catholic Parish of
Victorias amounting to P1,370 including
surcharges, interests of 1% monthly from
May 15, 1958 to June 15, 1960.
In the petition for review Rev. Fr.
Casimiro Lladoc asserted that the
assessment of the gift tax against the Roman
Catholic Church would not be valid for such
would be a clear violation of the provisions
of the Constitution.
ISSUE:
Whether or not the petitioner should
be held liable for the assessed donee’s gift
tax on the P10,000 donated for the
construction of the Victoria’s Parish Church.
RULING:
Yes, Section 22(3), Art. VI of the
Constitution of the Philippines, exempts
from taxation cemeteries, churches and
parsonages or convents, appurtenant
thereto, and all lands, buildings, and
improvements used exclusively for religious
purposes.
The exemption is only from the
payment of taxes assessed on such
properties enumerated, as property taxes, as
contra-distinguished from excise taxes. In
the present case, what the Collector assessed
was a donee's gift tax; the assessment was
not on the properties themselves. It did not
rest upon general ownership; it was an
excise upon the use made of the properties,
upon the exercise of the privilege of
receiving the properties.
Page 10 of 23
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ATTY. DANTE A. MARANAN
Manifestly, gift tax is not within the
exempting provisions of the section just
mentioned. A gift tax is not a property tax,
but an excise tax imposed on the transfer of
property by way of gift inter vivos, the
imposition of which on property used
exclusively for religious purposes, do not
constitute an impairment of the
Constitution. As well observed by the
learned respondent Court, the phrase
"exempt from taxation," as employed in the
Constitution (supra) should not be
interpreted to mean exemption from all
kinds of taxes. And there being no clear,
positive or express grant of such privilege by
law, in favor of the petitioner, the exemption
herein must be denied.
HERRERA vs. QC BOARD OF
ASSESSMENT APPEALS
3 SCRA 186
FACTS:
Petitioners and owners of St.
Catherine Hospital sent a letter to the
Quezon City Assessor requesting exemption
from payment of real estate tax on the lot,
building and other improvements
comprising the hospital stating that the
same was established for charitable and
humanitarian purposes and not for
commercial gain. The exemption was
granted effective the years 1953-1955.
Thereafter, the Quezon City Assessor
notified the petitioners that the aforesaid
properties were reclassified from exempt to
taxable.
It was ascertained that the hospital
has 32 beds, 20 for charity-patients, and 12
for pay-patients. The income realized from
pay-patients is spent for the improvement of
the charity wards. Furthermore, petitioners
operate within the premises of the hospital
the St. Catherine School of Midwifery, with
200 students enrolled.
ISSUE:
Whether the lot, building, and other
improvements occupied by the St. Catherine
Hospital are exempt from real property tax
and whether the said properties are used
exclusively or charitable or educational
purposes.
RULING:
YES, the admission of pay-patients
does not detract from the charitable
character of a hospital, if all its funds are
devoted exclusively to the maintenance of
the institution.
In other words, where rendering
charity is its primary object, and the funds
derived from payments made by patients
able to pay are devoted to the benevolent
purposes of the institution, the mere fact
that a profit has been made will not deprive
the hospital of its benevolent character.
Moreover, the exemption in favour
of property used exclusively for charitable or
educational purposes is “not limited to
property actually indispensable” therefor
but extends to facilities which are
“incidental to and reasonably necessary for”
the accomplishment of said purposes, such
as, in the case of hospitals, "a school for
training nurses, a nurses' home, property
use to provide housing facilities for interns,
resident doctors, superintendents, and other
members of the hospital staff, and
recreational facilities for student nurses,
interns and residents"
Within the purview of the
Constitutional exemption from taxation, St.
Catherine’s Hospital is, therefore, a
charitable institution, and the fact that it
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admits pay-patients does not bar it from
claiming that it is devoted exclusively to
benevolent purposes.
ABRA COLLEGE vs. AQUINO
162 SCRA 126
While this Court allows a more
liberal and non-restrictive interpretation of
the phrase “exclusively used for educational
purposes” as provided for in Article VI,
Section 22, paragraph 3 of the 1935
Philippine Constitution, reasonable
emphasis has always been made that
exemption extends to facilities which are
incidental to and reasonably necessary for
the accomplishment of the main purposes.
Otherwise stated, the use of the school
building or lot for commercial purposes is
neither contemplated by law, nor by
jurisprudence. Thus, while the use of the
second floor of the main building in the case
at bar for residential purposes of the
Director and his family, may find
justification under the concept of incidental
use, which is complimentary to the main or
primary pur-pose—educational, the lease of
the first floor thereof to the Northern
Marketing Corporation cannot by any
stretch of the imagination be considered
incidental to the purposes of education.
COMMISSIONER OF INTERNAL
REVENUE vs. DE LA SALLE
UNIVERSITY
808 SCRA 156
When a non-stock, nonprofit
educational institution proves that it uses its
revenues actually, directly, and exclusively
for educational purposes, it shall be
exempted from income tax, value-added tax
(VAT), and local business tax. On the other
hand, when it also shows that it uses its
assets in the form of real property for
educational purposes, it shall be exempted
from real property tax.—Thus, when a non-
stock, nonprofit educational institution
proves that it uses its revenues actually,
directly, and exclusively for educational
purposes, it shall be exempted from income
tax, VAT, and LBT. On the other hand, when
it also shows that it uses its assets in the
form of real property for educational
purposes, it shall be exempted from RPT.
Income and revenues of non-stock,
nonprofit educational institution not used
actually, directly and exclusively for
educational purposes are not exempt from
duties and taxes.—Parenthetically, income
and revenues of non-stock, nonprofit
educational institution not used actually,
directly and exclusively for educational
purposes are not exempt from duties and
taxes. To avail of the exemption, the
taxpayer must factually prove that it used
actually, directly and exclusively for
educational purposes the revenues or
income sought to be exempted.
While a non-stock, nonprofit
educational institution is classified as a tax-
exempt entity under Section 30
(Exemptions from Tax on Corporations) of
the National Internal Revenue Code (NIRC),
a proprietary educational institution is
covered by Section 27 (Rates of Income Tax
on Domestic Corporations).—While a non-
stock, nonprofit educational institution is
classified as a tax-exempt entity under
Section 30 (Exemptions from Tax on
Corporations) of the Tax Code, a proprietary
educational institution is covered by Section
27 (Rates of Income Tax on Domestic
Corporations).
A proprietary educational institution
is entitled only to the reduced rate of ten
percent (10%) corporate income tax. The
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reduced rate is applicable only if: (1) the
proprietary educational institution is
nonprofit and (2) its gross income from
unrelated trade, business or activity does
not exceed fifty percent (50%) of its total
gross income.—By the Tax Code’s clear
terms, a proprietary educational institution
is entitled only to the reduced rate of 10%
corporate income tax. The reduced rate is
applicable only if: (1) the proprietary
educational institution is nonprofit and (2)
its gross income from unrelated trade,
business or activity does not exceed 50% of
its total gross income.
COMMISSIONER OF
INTERNAL REVENUE vs. ST. LUKE’S
MEDICAL CENTER
The Supreme Court holds that
Section 27(B) of the National Internal
Revenue Code (NIRC) does not remove the
income tax exemption of proprietary non-
profit hospitals under Section 30(E) and
(G).―The Court partly grants the petition of
the BIR but on a different ground. We hold
that Section 27(B) of the NIRC does not
remove the income tax exemption of
proprietary non-profit hospitals under
Section 30(E) and (G). Section 27(B) on one
hand, and Section 30(E) and (G) on the
other hand, can be construed together
without the removal of such tax exemption.
The effect of the introduction of
Section 27(B) is to subject the taxable
income of two specific institutions, namely,
proprietary non-profit educational
institutions and proprietary non-profit
hospitals, among the institutions covered by
Section 30, to the 10% preferential rate
under Section 27(B) instead of the ordinary
30% corporate rate under the last paragraph
of Section 30 in relation to Section 27(A)(1).

POWER OF TAXATION AS
DISTINGUISHED FROM POLICE
POWER AND EMINENT DOMAIN
GEROCHI vs. DEPARTMENT OF
ENERGY, 527 SCRA 696
FACTS:
Petitioners Romeo P. Gerochi,
Katulong ng Bayan, and Environmentalist
Consumers Network, Inc. sought to declare
Section 34 of Republic Act 9136 otherwise
known as the Electric Power Industry
Reform Act (EPIRA) as unconstitutional, for
being an undue delegation of the power of
taxation. Section 34 provides for the
imposition of a “Universal Charge” to all
electricity end users, which would serve as
payment for government debts, missionary
electrification, equalization of taxes and
royalties applied to renewable energy and
imported energy, environmental charge and
for a charge to account for all forms of cross
subsidies for a period not exceeding three
years. Petitioners contend that the Universal
Charge has the characteristics of a tax and is
collected to fund the operations of the NPC.
Respondents Department of Energy
(DOE), ERC, and NPC, through the Office of
the Solicitor General (OSG), share the same
view that the Universal Charge is not a tax
because it is levied for a specific regulatory
purpose, which is to ensure the viability of
the country's electric power industry, and is,
therefore, an exaction in the exercise of the
State's police power.
ISSUE:
Whether or not, the Universal
Charge imposed under Sec. 34 of the EPIRA
is a tax.
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RULING:
No, the power to tax is an incident of
sovereignty and is 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 that is to pay it. It is based on
the principle that taxes are the lifeblood of
the government, and their prompt and
certain availability is an imperious need.
Thus, the theory behind the exercise of the
power to tax emanates from necessity;
without taxes, government cannot fulfill its
mandate of promoting the general welfare
and well-being of the people.
On the other hand, police power is
the power of the state to promote public
welfare by restraining and regulating the
use of liberty and property. It is the most
pervasive, the least limitable, and the most
demanding of the three fundamental powers
of the State. The justification is found in the
Latin maxims salus populi est suprema lex
(the welfare of the people is the supreme
law) and sic utere tuo ut alienum non laedas
(so use your property as not to injure the
property of others). As an inherent attribute
of sovereignty which virtually extends to all
public needs, police power grants a wide
panoply of instruments through which the
State, as parens patriae, gives effect to a host
of its regulatory powers. We have held that
the power to "regulate" means the power to
protect, foster, promote, preserve, and
control, with due regard for the interests,
first and foremost, of the public, then of the
utility and of its patrons.
The conservative and pivotal
distinction between these two powers rests
in the purpose for which the charge is made.
If generation of revenue is the primary
purpose and regulation is merely incidental,
the imposition is a tax; but if regulation is
the primary purpose, the fact that revenue is
incidentally raised does not make the
imposition a tax.
In exacting the assailed Universal
Charge through Sec. 34 of the EPIRA, the
State's police power, particularly its
regulatory dimension, is invoked. Such can
be deduced from Sec. 34 which enumerates
the purposes for which the Universal Charge
is imposed and which can be amply
discerned as regulatory in character. From
the aforementioned purposes, it can be
gleaned that the assailed Universal Charge
is not a tax, but an exaction in the exercise
of the State's police power. Public welfare is
surely promoted.
PLANTERS PRODUCTS vs.
FERTIPHIL
548 SCRA 485
Even if We consider LOI No. 1695
enacted under the police power of the State,
it would still be invalid for failing to comply
with the test of “lawful subjects” and “lawful
means.” Jurisprudence states the test as
follows: (1) the interest of the public
generally, as distinguished from those of
particular class, requires its exercise; and
(2) the means employed are reasonably
necessary for the accomplishment of the
purpose and not unduly oppressive upon
individuals.
For the same reasons as discussed,
LOI No. 1695 is invalid because it did not
promote public interest. The law was
enacted to give undue advantage to a private
corporation.Police power and the power of
taxation are inherent powers of the state but
distinct and have different tests for validity.
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Police power is the power of the state
to enact the legislation that may interfere
with personal liberty on property in order to
promote general welfare. While, the power
of taxation is the power to levy taxes as to be
used for public purpose.
The main purpose of police power is
the regulation of a behavior or conduct,
while taxation is revenue generation. The
lawful subjects and lawful means tests are
used to determine the validity of a law
enacted under the police power. The power
of taxation, on the other hand, is
circumscribed by inherent and
constitutional limitations.
In this case, it is for purpose of
revenue. But it is a robbery for the State to
tax the citizen and use the funds generation
for a private purpose. Public purpose does
NOT only pertain to those purpose which
are traditionally viewed as essentially
governmental function such as building
roads and delivery of basic services, but also
includes those purposes designed to
promote social justice. Thus, public money
may now be used for the relocation of illegal
settlers, low-cost housing and urban or
agrarian reform.
CHEVRON PHILS vs. BCDA
630 SCRA 519
In distinguishing tax and regulation
as a form of police power, the determining
factor is the purpose of the implemented
measure. If the purpose is primarily to raise
revenue, then it will be deemed a tax even
though the measure results in some form of
regulation. On the other hand, if the
purpose is primarily to regulate, then it is
deemed a regulation and an exercise of the
police power of the state, even though
incidentally, revenue is generated.

In this case, SC held that the subject
royalty fee was imposed for regulatory
purposes and not for generation of income
or profits. The Policy Guidelines was issued
to ensure the safety, security, and good
condition of the petroleum fuel industry
within the CSEZ. The questioned royalty
fees form part of the regulatory framework
to ensure “free flow or movement” of
petroleum fuel to and from the CSEZ. The
fact that respondents have the exclusive
right to distribute and market petroleum
products within CSEZ pursuant to its JVA
with SBMA and CSBTI does not diminish
the regulatory purpose of the royalty fee for
fuel products supplied by petitioner to its
client at the CSEZ.
However, it was erroneous for
petitioner to argue that such exclusive right
of respondent CDC to market and distribute
fuel inside CSEZ is the sole basis of the
royalty fees imposed under the Policy
Guidelines. Being the administrator of
CSEZ, the responsibility of ensuring the
safe, efficient and orderly distribution of
fuel products within the Zone falls on CDC.
Addressing specific concerns demanded by
the nature of goods or products involved is
encompassed in the range of services which
respondent CDC is expected to provide
under Sec. 2 of E.O. No. 80, in pursuance of
its general power of supervision and control
over the movement of all supplies and
equipment into the CSEZ.
Respondents submit that the
increased administrative costs were
triggered by security risks that have recently
emerged, such as terrorist strikes. The need
for regulation is more evident in the light of
9/11 tragedy considering that what is being
moved from one location to another are
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highly combustible fuel products that could
cause loss of lives and damage to properties.
MMDA vs. GARIN
R.A. No. 7924 does not grant the
MMDA with police power, let alone
legislative power, and that all its functions
are administrative in nature.
Police power is lodged primarily in
the National Legislature and cannot be
exercised by any group or body of
individuals not possessing legislative power
through the National Legislature may
delegate it to the President and
administrative boards as well as the
lawmaking bodies of municipal corporations
or local government units. Police power, as
an inherent attribute of sovereignty, is the
power vested by the Constitution in the
legislature to make, ordain, and establish all
manner of wholesome and reasonable laws,
statues, and ordinances either with
penalties or without, not repugnant to the
Constitution, as they shall judge to be for
the good and welfare of the commonwealth,
and for the subjects of the same.
Clearly, the MMDA is not a political
unit of government. The power delegated to
the MMDA is that given to the Metro Manila
Council to promulgate administrative rules
and regulations in the implementation of
the MMDA's functions. There is no grant of
authority to enact ordinances and
regulations for the general welfare of the
inhabitants of the metropolis.
DRUGSTORE ASSOCIATION OF THE
PHILIPPINES vs. NATINAL COUNCIL
OF DISABILITY AFFAIRS
803 SCRA 25
The law is a legitimate exercise of
police power which, similar to the power of
eminent domain, has general welfare for its
object. Police power is not capable of an
exact definition, but has been purposely
veiled in general terms to underscore its
comprehensiveness to meet all exigencies
and provide enough room for an efficient
and flexible response to conditions and
circumstances, thus assuring the greatest
benefits.
Accordingly, it has been described as
the most essential, insistent and the least
limitable of powers, extending as it does to
all the great public needs. It is [t]he power
vested in the legislature by the constitution
to make, ordain, and establish all manner of
wholesome and reasonable laws, statutes,
and ordinances, either with penalties or
without, not repugnant to the constitution,
as they shall judge to be for the good and
welfare of the commonwealth, and of the
subjects of the same.27chanrobleslaw
For this reason, when the conditions
so demand as determined by the legislature,
property rights must bow to the primacy of
police power because property rights,
though sheltered by due process, must yield
to general welfare.
Police power as an attribute to
promote the common good would be diluted
considerably if on the mere plea of
petitioners that they will suffer loss of
earnings and capital, the questioned
provision is invalidated. Moreover, in the
absence of evidence demonstrating the
alleged confiscatory effect of the provision
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in question, there is no basis for its
nullification in view of the presumption of
validity which every law has in its favor.
Police power is the power of the state
to promote public welfare by restraining and
regulating the use of liberty and property.
On the other hand, the power of eminent
domain is the inherent right of the state
(and of those entities to which the power
has been lawfully delegated) to condemn
private property to public use upon payment
of just compensation. In the exercise of
police power, property rights of private
individuals are subjected to restraints and
burdens in order to secure the general
comfort, health, and prosperity of the state.
A legislative act based on the police power
requires the concurrence of a lawful subject
and a lawful method.
In more familiar words, (a) the
interests of the public generally, as
distinguished from those of a particular
class, should justify the interference of the
state; and (b) the means employed are
reasonably necessary for the
accomplishment of the purpose and not
unduly oppressive upon individuals.
R.A. No. 7277 was enacted primarily
to provide full support to the improvement
of the total well-being of PWDs and their
integration into the mainstream of society.
The priority given to PWDs finds its basis in
the Constitution.
CARLOS SUPERDRUG s. DSWD 526
SCRA 130
R.A. No. 9257 is a legitimate exercise
of police power which, similar to the power
of eminent domain, has general welfare for
its object; When the conditions so demand
as determined by the legislature, property
rights must bow to the primacy of police
power because property rights, though
sheltered by due process, must yield to
general welfare.
Police power as an attribute to
promote the common good would be diluted
considerably if on the mere plea of property
owners that they will suffer loss of earnings
and capital, a questioned provision is
invalidated.—The law is a legitimate
exercise of police power which, similar to
the power of eminent domain, has general
welfare for its object.
Police power is not capable of an
exact definition, but has been purposely
veiled in general terms to underscore its
comprehensiveness to meet all exigencies
and provide enough room for an efficient
and flexible response to conditions and
circumstances, thus assuring the greatest
benefits. Accordingly, it has been described
as “the most essential, insistent and the
least limitable of powers, extending as it
does to all the great public needs.” It is
“[t]he power vested in the legislature by the
constitution to make, ordain, and establish
all manner of wholesome and reasonable
laws, statutes, and ordinances, either with
penalties or without, not repugnant to the
constitution, as they shall judge to be for the
good and welfare of the commonwealth, and
of the subjects of the same.”
For this reason, when the conditions
so demand as determined by the legislature,
property rights must bow to the primacy of
police power because property rights,
though sheltered by due process, must yield
to general welfare. Police power as an
attribute to promote the common good
would be diluted considerably if on the mere
plea of petitioners that they will suffer loss
of earnings and capital, the questioned
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provision is invalidated. Moreover, in the
absence of evidence demonstrating the
alleged confiscatory effect of the provision
in question, there is no basis for its
nullification in view of the presumption of
validity which every law has in its favor.
BASIS OF TAXATION
COMMISSIONER OF INTERNAL
REVENUE vs. ALGUE
158 SCRA 9
It is said that taxes are what we pay
for civilized society. Without taxes, the
government would be paralyzed for lack of
the motive power to activate and operate it.
Hence, despite the natural reluctance to
surrender part of one's hard-earned income
to the taxing authorities, every person who
is able to must contribute his share in the
running of the government. The
government, for its part, is expected to
respond in the form of tangible and
intangible benefits intended to improve the
lives of the people and enhance their moral
and material values, This symbiotic
relationship is the rationale of taxation and
should dispel the erroneous notion that it is
an arbitrary method of exaction by those in
the seat of power.
ANGELES CITY vs. ANGELES
ELECTRIC CORP. 622 SCRA 43
A principle deeply embedded in our
jurisprudence is that taxes being the
lifeblood of the government should be
collected promptly, without unnecessary
hindrance or delay. In line with this
principle, the National Internal Revenue
Code of 1997 (NIRC) expressly provides that
no court shall have the authority to grant an
injunction to restrain the collection of any
national internal revenue tax, fee or charge
imposed by the code. An exception to this
rule obtains only when in the opinion of the
Court of Tax Appeals (CTA) the collection
thereof may jeopardize the interest of the
government and/or the taxpayer.
The situation, however, is different
in the case of the collection of local taxes as
there is no express provision in the LGC
prohibiting courts from issuing an
injunction to restrain local governments
from collecting taxes. Thus, in the case of
Valley Trading Co., Inc. v. Court of First
Instance of Isabela, we ruled that: Unlike
the National Internal Revenue Code, the
Local Tax Code does not contain any specific
provision prohibiting courts from enjoining
the collection of local taxes. Such statutory
lapse or intent, however it may be viewed,
may have allowed preliminary injunction
where local taxes are involved but cannot
negate the procedural rules and
requirements under Rule 58.
GEROCHI vs. DEPARTMENT OF
ENERGY
The power to tax is an incident of
sovereignty and is 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 that is to pay it. It is based on
the principle that taxes are the lifeblood of
the government, and their prompt and
certain availability is an imperious need.
Thus, the theory behind the exercise
of the power to tax emanates from necessity;
without taxes, government cannot fulfill its
mandate of promoting the general welfare
and well-being of the people. On the other
hand, police power is the power of the state
to promote public welfare by restraining and
regulating the use of liberty and property. It
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is the most pervasive, the least limitable,
and the most demanding of the three
fundamental powers of the State. The
justification is found in the Latin maxims
salus populi est suprema lex (the welfare of
the people is the supreme law) and sic utere
tuo ut alienum non laedas (so use your
property as not to injure the property of
others).
As an inherent attribute of
sovereignty which virtually extends to all
public needs, police power grants a wide
panoply of instruments through which the
State, as parens patriae, gives effect to a host
of its regulatory powers. We have held that
the power to “regulate” means the power to
protect, foster, promote, preserve, and
control, with due regard for the interests,
first and foremost, of the public, then of the
utility and of its patrons.
PRINCIPLES OF SOUND TAX
SYSTEM
FISCAL ADEQUACY
CHAVEZ vs. ONGPIN
186 SCRA 331
Fiscal adequacy requires that
sources of revenues must be adequate to
meet government expenditures and their
variations.—We agree with the observation
of the Office of the Solicitor General that
without Executive Order No. 73, the basis
for collection of real property taxes will still
be the 1978 revision of property values.
Certainly, to continue collecting real
property taxes based on valuations arrived
at several years ago, in disregard of the
increases in the value of real properties that
have occurred since then, is not in
consonance with a sound tax system. Fiscal
adequacy, which is one of the characteristics
of a sound tax system, requires that sources
of revenues must be adequate to meet
government expenditures and their
variations.
ADMINISTRATIVE FEASIBILITY
KAPATIRAN NG MGA
NAGLILINGKOD SA PAMAHALAAN
vs. TAN, 163 SCRA 371
The VAT is a tax levied on a wide
range of goods and services. It is a tax on the
valuey added by every seller, with aggregate
gross annual sales of articles and/or
services, exceeding P200,000.00, to his
purchase ofgoods and services, unless
exempt. VAT is computed at the rate of 0%
or 10% of the gross selling price of goods or
gross receipts realized from the sale of
services.
The VAT is said to have eliminated
privilege taxes, multiple rated sales tax on
manufacturers and producers, advance sales
tax, and compensating tax on importations.
The framers of EO 273 claim that it is
principally aimed to rationalize the system
of taxing goods and services; simplify tax
administration; and make the tax system
more equitable, to enable the country to
attain economic recovery.
TAX AS DISTINGUISHED FROM
LICENSE FEES
FERRER vs. CITY MAYOR BAUTISTA
760 SCRA 652
Necessarily, LGUs are statutorily
sanctioned to impose and collect such
reasonable fees and charges for services
rendered. “Charges” refer to pecuniary
liability, as rents or fees against persons or
property, while “Fee” means a charge fixed
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by law or ordinance for the regulation or
inspection of a business or activity. The fee
imposed for garbage collections under
Ordinance No. SP-2235 is a charge fixed for
the regulation of an activity.
Certainly, as opposed to petitioner’s
opinion, the garbage fee is not a tax. In
Smart Communications, Inc. v. Municipality
of Malvar, Batangas, 716 SCRA 677 (2014),
the Court had the occasion to distinguish
these two concepts: In Progressive
Development Corporation v. Quezon City,
the Court declared that “if the generating of
revenue is the primary purpose and
regulation is merely incidental, the
imposition is a tax; but if regulation is the
primary purpose, the fact that incidentally
revenue is also obtained does not make the
imposition a tax.”
The designation given by the
municipal authorities does not decide
whether the imposition is properly a license
tax or a license fee. The determining factors
are the purpose and effect of the imposition
as may be apparent from the provisions of
the ordinance. Thus, “[w]hen no police
inspection, supervision, or regulation is
provided, nor any standard set for the
applicant to establish, or that he agrees to
attain or maintain, but any and all persons
engaged in the business designated, without
qualification or hindrance, may come, and a
license on payment of the stipulated sum
will issue, to do business, subject to no
prescribed rule of conduct and under no
guardian eye, but according to the
unrestrained judgment or fancy of the
applicant and licensee, the presumption is
strong that the power of taxation, and not
the police power, is being exercised.”
 VICTORIAS MILLING CO. vs.
MUNICIPALITY OFF VICTORIAS
25 scra 192
Concept of municipal license tax;
Designation given does not decide whether
the imposition is a license tax or a license
fee; Determining factors.—The use of the
term "municipal license tax" does not
necessarily connote the idea that the tax is
imposed as a revenue measure in the guise
of a license tax.
For really, this runs counter to the
declared purpose to make money. Besides,
the term "license tax" has not acquired a
fixed meaning. It is often "used
indiscriminately to designate impositions
exacted for the exercise of various
privileges.
In many instances, it refers to
"revenue-raising exactions on privileges or
activities". On the other hand, license fees
are commonly called taxes. But legally
speaking, the latter are "'for the purpose of
raising revenues", in contrast to the f ormer
which are imposed "in the exercise of the
police power for purposes of regulation".
CITY OF ILOILO vs. VILLANUEVA
105 PHIL 337
If the fee is designed to raise
substantially more than the cost of the
regulation to which. it purports to be an
incident, its purpose is to raise revenue. If it
is a fee attached to a particular provision for
regulation, and appears to be imposed to
cover the cost of that regulation, and does
substantially only that, then it is merely for
the cost-paying part of a regulatory
measure.
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WHEN CONSIDERED AS REGULATORY
MEASURES.—A license fee, in order to be
considered merely as a regulatory measure,
must be only of a sufficient amount to
include the expenses of issuing the license
and the cost of the necessary inspection or
police surveillance, taking into account not
only the expense of direct regulation but
also incidental consequences.
PROGRESSIVE DEVELOPMENT
CORPORATION vs. QUEZON CITY
172 SCRA 629
The imposition is a tax, if its primary
purpose is to generate revenue, and
regulation is merely incidental; but if
regulation is the primary purpose, the fact
that incidentally revenue is also obtained
does not make the imposition a tax.—–The
term “tax” frequently applies to all kinds of
exactions of monies which become public
funds. It is often loosely used to include
levies for revenue as well as levies for
regulatory purposes such that license fees
are frequently called taxes although license
fee is a legal concept distinguishable from
tax: the former is imposed in the exercise of
police power primarily for purposes of
regulation, while the latter is imposed under
the taxing power primarily for purposes of
raising revenues. Thus, if the generating of
revenue is the primary purpose and
regulation is merely incidental, the
imposition is a tax; but if regulation is the
primary purpose the fact that incidentally
revenue is also obtained does not make the
imposition a tax.
A charge of a fixed sum which bears no
relation at all to the cost of inspection and
regulation may be considered a tax.—–To
be considered a license fee, the imposition
questioned must relate to an occupation or
activity that so engages the public interest in
health, morals, safety and development as to
require regulation for the protection and
promotion of such public interest; the
imposition must also bear a reasonable
relation to the probable expenses of
regulation, taking into account not only the
cost of direct regulation but also its
incidental consequences as well. When an
activity, occupation or profession is of such
a character that inspection or supervision by
public officials is reasonably necessary for
the safeguarding and furtherance of public
health, morals and safety, or the general
welfare, the legislature may provide that
such inspection or supervision or other form
of regulation shall be carried out at the
expense of the persons engaged in such
occupation or performing such activity, and
that no one shall engage in the occupation
or carry out the activity until a fee or charge
sufficient to cover the cost of the inspection
or supervision has been paid. Accordingly, a
charge of a fixed sum which bears no
relation at all to the cost of inspection and
regulation may be held to be a tax rather
than an exercise of the police power.
ANGELES UNIVERSITY
FOUNDATION vs. CITY OF ANGELES
675 SCRA 359
That a building permit fee is a
regulatory imposition is highlighted by the
fact that in processing an application for a
building permit, the Building Official shall
see to it that the applicant satisfies and
conforms with approved standard
requirements on zoning and land use, lines
and grades, structural design, sanitary and
sewerage, environmental health, electrical
and mechanical safety as well as with other
rules and regulations implementing the
National Building Code. Thus, ancillary
permits such as electrical permit, sanitary
permit and zoning clearance must also be
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secured and the corresponding fees paid
before a building permit may be issued. And
as can be gleaned from the implementing
rules and regulations of the National
Building Code, clearances from various
government authorities exercising and
enforcing regulatory functions affecting
buildings/structures, like local government
units, may be further required before a
building permit may be issued.
A charge of a fixed sum which bears
no relation at all to the cost of inspection
and regulation may be held to be a tax
rather than an exercise of the police power.
In this case, the Secretary of Public Works
and Highways who is mandated to prescribe
and fix the amount of fees and other charges
that the Building Official shall collect in
connection with the performance of
regulatory functions, has promulgated and
issued the Implementing Rules and
Regulations which provide for the bases of
assessment of such fees, as follows: 1.
Character of occupancy or use of building 2.
Cost of construction “ 10,000/sq.m
(A,B,C,D,E,G,H,I), 8,000 (F), 6,000 (J) 3.
Floor area 4. Height.
SPECIAL ASSESSMENT
APOSTOLIC PREFECT vs.
TREASURER OF BAGUIO
71 PHIL 547
"While the word 'tax' in its broad
meaning, includes both general taxes and
special assessments, and in a general sense
a tax is an assessment, and an assessment is
a tax, yet there is a recognized distinction
between them in that assessment is
confined to local impositions upon property
for the payment of the cost of public
improvements in its immediate vicinity and
levied with reference to special benefits to
the property assessed. The differences
between a special assessment and a tax are
that (1) a special assessment can be levied
only on land; (2) a special assessment
cannot (at least in most states) be made a
personal liability of the person assessed; (3)
a special assessment is based wholly on
benefits; and (4) a special assessment is
exceptional both, as to time and locality.
The imposition of a charge on all property,
real and personal, in a prescribed area, is a
tax and not an assessment, although the
purpose is to make a local improvement on
a street or highway. A charge imposed only
on property owners benefited is a special
assessment rather than a tax
notwithstanding the statute calls it a tax."
TOLL
DIAZ vs. SECRETARY OF FINANCE
654 SCRA 96
In sum, fees paid by the public to
tollway operators for use of the tollways, are
not taxes in any sense.
A tax is imposed under the taxing
power of the government principally for the
purpose of raising revenues to fund public
expenditures. Toll fees, on the other hand,
are collected by private tollway operators as
reimbursement for the costs and expenses
incurred in the construction, maintenance
and operation of the tollways, as well as to
assure them a reasonable margin of income.
Although toll fees are charged for the use of
public facilities, therefore, they are not
government exactions that can be properly
treated as a tax. Taxes may be imposed only
by the government under its sovereign
authority, toll fees may be demanded by
either the government or private individuals
or entities, as an attribute of ownership.
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PENALTY
REPUBLIC vs. PATANAO
20 SCRA 712
Under the Penal Code the civil
liability is incurred by reason of the
offender's criminal act. The criminal liability
gives birth to the civil obligation such that,
generally, if one is not criminally liable
under the Penal Code, he cannot become
civilly liable thereunder, The situation under
the income tax law is the exact opposite.
Civil liability to pay taxes arises from fact,
for instance, that one has engaged himself in
business, and not because of any criminal
act committed by him. The criminal liability
arises upon failure of the debtor to satisfy
his civil obligation. The incongruity of the
factual premises and foundation principles
of the two cases is one of the reasons for not
imposing civil indemnity on the criminal
infractor of the income tax law. Another
reason of course, is found in the fact that,
while Section 73 of the National Internal
Revenue Code has provided for the
imposition of the penalty of imprisonment
or fine, or both, for refusal or neglect to pay
income tax or to make a return thereof, it
does not provide the collection of said tax in
criminal proceedings.
DEBT
COMMISSIONER OF INTERNAL
REVENUE vs. PALANCA
18 SCRA 496
In our jurisdiction, the rule is settled
that although taxes already due have not,
strictly speaking, the same concept as debts,
they are, however obligations that may be
considered as such.
 FRANCIA vs. INTERMEDIATE
APPELLATE COURT
162 SCRA 753
Francia contends that his tax
delinquency of P2,400.00 has been
extinguished by legal compensation. He
claims that the government owed him
P4,116.00 when a portion of his land was
expropriated on October 15, 1977. Hence,
his tax obligation had been set-off by
operation of law as of October 15, 1977.
There is no legal basis for the contention. By
legal compensation, obligations of persons,
who in their own right are reciprocally
debtors and creditors of each other, are
extinguished (Art. 1278, Civil Code). The
circumstances of the case do not satisfy the
requirements provided by Article 1279, to
wit: “(1) that each one of the obligors be
bound principally and that he be at the same
time a principal creditor of the other; xxx
xxx xxx “(3) that the two debts be due. xxx
xxx xxx.
This principal contention of the
petitioner has no merit. We have
consistently ruled that there can be no off-
setting of taxes against the claims that the
taxpayer may have against the government.
A person cannot refuse to pay a tax
on the ground that the government owes
him an amount equal to or greater than the
tax being collected. The collection of a tax
cannot await the results of a lawsuit against
the government. In the case of Republic v.
Mambulao Lumber Co. (4 SCRA 622), this
Court ruled that Internal Revenue Taxes can
not be the subject of set-off or
compensation.
We stated that: “A claim for taxes is
not such a debt, demand, contract or
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judgment as is allowed to be set-off under
the statutes of set-off, which are construed
uniformly, in the light of public policy, to
exclude the remedy in an action or any
indebtedness of the state or municipality to
one who is liable to the state or municipality
for taxes. Neither are they a proper subject
of recoupment since they do not arise out of
the contract or transaction sued on. x x x
(80 C.J.S., 73-74).
‘The general rule based on grounds
of public policy is well-settled that no set-off
is admissible against demands for taxes
levied for general or local governmental
purposes. The reason on which the general
rule is based, is that taxes are not in the
nature of contracts between the party and
party but grow out of duty to, and are the
positive acts of the government to the
making and enforcing of which, the personal
consent of individual taxpayer is not
required.
DOMINGO vs. GARLITOS
8 SCRA 443
Compensation between taxes and claims of
intestate recognized and appropriated for
by law.—The fact that the court having
jurisdiction of the estate had found that the
claim of the estate against the Government
has been appropriated for the purpose by a
corresponding law (Rep. Act No. 2700)
shows that both the claim of the
Government for inheritance taxes and the
claim of the intestate for services rendered
have already become overdue and
demandable as well as fully liquidated.
Compensation, therefore, takes place by
operation of law, in accordance with the
provisions of Articles 1279 and 1290 of the
Civil Code, and both debts are extinguished
to the concurrent amount.