Sison Jr. vs.

Ancheta has the authority to make reasonable and natural classifications for purposes
of taxation.As clarified by Justice Tuason, where "the differentiation"
FACTS: complained of "conforms to the practical dictates of justice and equity" it "is
not discriminatory within the meaning of this clause and is therefore uniform.
Antero M. Sison Jr challenged the constitutionality of Section 1 of Batas
Pambansa Blg. 135. The said provision amended Section 21 of the National
Taxpayers may be classified into different categories. To repeat, it. is enough
Internal Revenue Code of 1977, which provides for rates of tax on citizens or
that the classification must rest upon substantial distinctions that make real
residents on (a) taxable compensation income, (b) taxable net income, (c)
differences. In the case of the gross income taxation embodied in Batas
royalties, prizes, and other winnings, (d) interest from bank deposits and
Pambansa Blg. 135, the, discernible basis of classification is the susceptibility
yield or any other monetary benefit from deposit substitutes and from trust
of the income to the application of generalized rules removing all deductible
fund and similar arrangements, (e) dividends and share of individual partner
items for all taxpayers within the class and fixing a set of reduced tax rates
in the net profits of taxable partnership, (f) adjusted gross income.
to be applied to all of them. Taxpayers who are recipients of compensation
income are set apart as a class. As there is practically no overhead expense,
Sison as taxpayer alleged that "he would be unduly discriminated against by
these taxpayers are e not entitled to make deductions for income tax
the imposition of higher rates of tax upon his income arising from the
purposes because they are in the same situation more or less. On the other
exercise of his profession vis-a-vis those which are imposed upon fixed
hand, in the case of professionals in the practice of their calling and
income or salaried individual taxpayers." He characterizes the above section
businessmen, there is no uniformity in the costs or expenses necessary to
as arbitrary amounting to class legislation, oppressive and capricious in
produce their income. It would not be just then to disregard the disparities
character.
by giving all of them zero deduction and indiscriminately impose on all alike
the same tax rates on the basis of gross income. There is ample justification
Therefore, there is a transgression of both the equal protection and due
then for the Batasang Pambansa to adopt the gross system of income
process clauses of the Constitution as well as of the rule requiring uniformity
taxation to compensation income, while continuing the system of net income
in taxation.
taxation as regards professional and business income.
ISSUE:

Whether or not the imposition of a higher tax rate on taxable net income
derived from business or profession than on compensation is constitutionally
infirm

RULING:

No.  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 or its face, he has not made out a
case. This is merely to adhere to the authoritative doctrine that were 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 of such
persuasive character as would lead to such a conclusion. Absent such a
showing, the presumption of validity must prevail. 

Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power
Commissioner of Internal Revenue vs. Central Luzon Drug Corporation
FACTS:
-CentralLuzon Drug Corporation (CLDC) is a domestic corporation engaged in the
retailing of medicines and other pharmaceutical products. In 1996 it operated six (6)
drugstores under the business name and style “Mercury Drug.”
-From January to December 1996 respondent granted 20% sales discount to qualified
senior citizens on their purchases of medicines pursuant to RA 7432.
-For said period CLDC granted a total of ₱ 904,769 to qualified senior citizens. On
April 15, 1997, CLDC filed its annual Income Tax and Return for taxable year 1996
declaring therein net losses.
On January 16, 1998 CLDC filed with the Commissioner of Internal Revenue a claim
for tax
refund/credit of ₱ 904,769.00 allegedly arising from the 20% sales discount.
-Unable to obtain affirmative response, CLDC elevated its claim to the Court of Tax
Appeals via Petition for Review.
-The CTA dismissed the petition but on Motion for Reconsideration, it reversed its
earlier ruling and ordered the commissioner to issue a Tax Credit Certificate in favor
of CLDC.
-It was based on the May 31, 2001 decision on Central Luzon Drug Corp. vs. CIR
which ruled that Sec. 229 of RA 7432 deals exclusively with illegally collected or
erroneously paid taxes but that there are other situations which may warrant a tax
credit/refund.
-The CA affirmed the decision of CTA reasoning that RA 7432 required neither a tax
liability nor a payment of taxes by private establishments prior to the availment of a
tax credit. Moreover, such credit is not tantamount to an unintended benefit from the
law, but rather a just compensation for the taking of private property for public use.
ISSUE:
Whether or not Central Luzon Drug Corporation, despite incurring a net loss, may still
claim the 20 percent sales discount as a tax credit.
Ruling:
Yes. It is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of
obtaining a 20% discount on their purchase of medicine from any private
establishment in the country. The latter may then claim the cost of the discount as a
tax credit. Such credit can be claimed even if the establishment operates at a loss.
Although the term is not specifically defined in our Tax Code,tax credit generally
refers to an amount that is subtracted directly from ones total tax liability. It is an
allowance against the tax itself or a deduction from what is owed by a taxpayer to
the government. Examples of tax credits are withheld taxes, payments of estimated
tax, and investment tax credits.
Tax credit should be understood in relation to other tax concepts. One of these is tax
deduction -- defined as a subtraction from income for tax purposes, or an amount
that is allowed by law to reduce income prior to the application of the tax rate to
compute the amount of tax which is due. An example of a tax deduction is any of the
allowable deductions enumerated in Section 34 of the Tax Code.
A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the
tax due, including -- whenever applicable -- the income tax that is determined after
applying the corresponding tax rates to taxable income. A tax deduction, on the
other, reduces the income that is subject to tax in order to arrive at taxable income.
To think of the former as the latter is to avoid, if not entirely confuse, the issue. A tax
credit is used only after the tax has been computed; a tax deduction, before.
Since a tax credit is used to reduce directly the tax that is due, there ought to be a
tax liability before the tax credit can be applied. Without that liability, any tax credit
application will be useless. There will be no reason for deducting the latter when
there is, to begin with, no existing obligation to the government. However, as will be
presented shortly, the existence of a tax credit or its grant by law is not the same as
the availment or use of such credit. While the grant is mandatory, the availment or
use is not.
If a net loss is reported by, and no other taxes are currently due from, a business
establishment, there will obviously be no tax liability against which any tax credit can
be applied. For the establishment to choose the immediate availment of a tax credit
will be premature and impracticable. Nevertheless, the irrefutable fact remains that,
under RA 7432, Congress has granted without conditions a tax credit benefit to all
covered establishments.
While a tax liability is essential to the availment or use of any tax credit, prior tax
payments are not. On the contrary, for the existence or grant solely of such credit,
neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact
replete with provisions granting or allowing tax credits, even though no taxes have
been previously paid. RA 7432 specifically allows private establishments to claim as
tax credit the amount of discounts they grant. In turn, the Implementing Rules and
Regulations, issued pursuant thereto, provide the procedures for its availment. To
deny such credit, despite the plain mandate of the law and the regulations carrying
out that mandate, is indefensible.
 MELECIO DOMINGO vs. HON. LORENZO GARLITOS and procedure is not to allow the sheriff, in case of a court judgment,
SIMEONA K. PRICE, as Administratrix of the Intestate Estate to seize the properties but to ask the court for an order to require
of Walter Scott Price the administrator to pay the amount due from the estate and
G.R. No. L-18994 required to be paid.
June 29, 1963.
3. Yes. The Court found the estate’s claim against the Government
was recognized and has been appropriated as to RA 2700. Both
FACTS the claim of the Government for inheritance taxes and the claim of
The Court ordered for the payment of the estate, inheritance taxes, the intestate for services rendered have already become overdue
charges and penalties, amounting to P40,058.55 as decided in the and demandable as well as fully liquidated. Here, compensation
special proceedings "In the matter of the Intestate Estate of the Late takes place by operation of law, in accordance with the provisions
Walter Scott Price.” To enforce these claims against the estate, the of Articles 1279 and 1290 of the Civil Code, and both debts are
fiscal presented a petition for the execution of the judgment but it extinguished to the concurrent amount.
was denied by the court. Court said that the execution is not
justifiable because the Government is indebted to the estate
amounting to P262,200. This was due to a note by then Pres. Carlos
P. Garcia to Director Zoilo Castrillo (Bureau of Lands) directing the
latter to pay to Mrs. Simeona Price P262,200.00 for payment to the
Leyte Cadastral Survey, Inc. according to RA 2700. The Court ordered
that the payment of the claim of the Collector of Internal Revenue be
deferred until the Government has fully paid its accounts to the
administratrix.

ISSUE
1. Whether or not the government execute its claim against
the estate.
2. Whether or not a tax and a debt may be compensated.

RULING
1. No. The ordinary procedure by which to settle claims of
indebtedness against the estate of a de823ceased person, as an
inheritance tax, is for the claimant to present a claim before the
probate court so that said court may order the administrator to
pay the amount thereof. In testate or intestate proceedings to
settle the estate of a deceased person, the properties belonging to
the estate are under the jurisdiction of the court and such.
jurisdiction continues until said properties have been distributed
among the heirs entitled thereto. During the pendency of the
proceedings all the estate is in custodia legis and the proper
Bagatsing vs. Ramirez Bagatsing, Gargantiel, and the Municipal Board of Manila stressed
that only a post-publication is required by the Local Tax Code.
Facts:

On June 12, 1974, the Municipal Board of Manila enacted Ordinance

No. 7522, “AN ORDINANCE REGULATING THE OPERATION OF PUBLIC Issue:
MARKETS AND PRESCRIBING FEES FOR THE RENTALS OF STALLS AND
Whether it is the Revised Charter of the City of Manila or the Local
PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR OTHER
Tax Code that should govern the publication of the tax ordinance?
PURPOSES.”

On February 17, 1975, respondent Federation of Manila Market

Vendors, Inc. commenced a Civil Case before the Court of First Ruling:
Instance of Manila, seeking the declaration of nullity of Ordinance No.
7522 for the reason that the publication requirement under the Local Tax Code.
Revised Charter of the City of Manila has not been complied with.

The Revised Charter of the City of Manila requires

The fact that one is special and the other general creates a
publication before the enactment of the ordinance and after
presumption that the special is to be considered as remaining an
the approval thereof in two daily newspapers of general
exception to the general, one as a general law of the land, the other
circulation in the city, while the Local Tax Code only prescribes
as the law of a particular case. However, the rule readily yields to a
for publication after the approval of “ordinances levying or
situation where the special statute refers to a subject in general,
imposing taxes, fees or other charges” either in a newspaper
which the general statute treats in particular. That exactly is the
or publication widely circulated within the jurisdiction of the
circumstance obtaining in the case at bar. Section 17 of the Revised
local government or by posting the ordinance in the local
Charter of the City of Manila speaks of “ordinance” in general, i.e.,
legislative hall or premises and in two other conspicuous
irrespective of the nature and scope thereof, whereas, Section 43 of
places within the territorial jurisdiction of the local
the Local Tax Code relates to “ordinances levying or imposing taxes,
government.
fees or other charges” in particular. In regard, therefore, to ordinances
After due hearing on the merits, the Judge declared the nullity in general, the Revised Charter of the City of Manila is doubtless
of Ordinance No. 7522 of the City of Manila on the primary ground dominant, but, that dominant force loses its continuity when it
of noncompliance with the requirement of publication under the approaches the realm of “ordinances levying or imposing taxes, fees or
Revised City Charter. It was ruled that the ordinance in question was other charges” in particular. There, the Local Tax Code controls.
not published at all in two daily newspapers of general Here as always, a general provision must give way to a particular
circulation in the City of Manila before its enactment. Neither provision. Special provision governs. This is especially true where the
was it published in the same manner after approval, although law containing the particular provision was enacted later than the one
it was posted in the legislative hall and in all city public containing the general provision.
markets and city public libraries. There being no compliance with
the mandatory requirement of publication before and after approval, the
ordinance in question is invalid and, therefore, null and void.”

Abakada Guro Party List vs. Ermita
Facts:
R.A. No. 9337 is a consolidation of three legislative bills namely,
House Bill Nos. 3555 and 3705, and Senate Bill No. 1950. As
mandated by the rules of both houses of Congress, the Bicameral
Conference Committee acted on the disagreeing provisions of both
the House and Senate bills.
Petitioners ABAKADA Guro Partylist et.al. question 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):
1. Section 4 imposes a 10% VAT on sale of goods and properties,
2. Section 5 imposes a 10% VAT on importation of goods, and
3. Section 6 imposes a 10% VAT on sale of services and use or lease of
properties.
These questioned provisions contain a uniform proviso (which is the
so called stand-by authority of the President) authorizing the
President, upon recommendation of the Secretary of
Finance, to raise the VAT rate to 12%, effective January 1,
2006 after any of the following conditions are satisfied:
(i) Valueadded tax collection as a percentage of
Gross Domestic Product (GDP) of the previous year
exceeds two and fourfifth percent (2 4/5%); or
(ii) National government deficit as a percentage of
GDP of the previous year exceeds one and onehalf
percent (1 1/2%).
4. Section 8, amending Section 110 (A)(2) of the NIRC, requiring
that the input tax on depreciable goods shall be amortized over a 60-
month period, if the acquisition, excluding the VAT components,
exceeds One Million Pesos (P1, 000,000.00);
5. Section 8, amending Section 110 (B) of the NIRC, imposing a
70% limit on the amount of input tax to be credited against the
output tax; and
6. Section 12, amending Section 114 (c) of the NIRC, authorizing
the Government or any of its political subdivisions, instrumentalities
or agencies, including GOCCs, to deduct a 5% final withholding tax
on gross payments of goods and services, which are subject to 10%
VAT under Sections 106 (sale of goods and properties) and 108 (sale
of services and use or lease of properties) of the NIRC.
The OSG, in behalf of respondents, commented that R.A. No. 9337 enjoys
the presumption of constitutionality. Respondents argue that:
1. The procedural issues raised by petitioners, i.e., legality of
the bicameral proceedings, exclusive origination of revenue
measures and the power of the Senate concomitant thereto,
have already been settled in the case of Tolentino vs. Sec. of
Finance.
2. The issue of undue delegation of legislative power to the
President, respondents contend that the law is complete and
leaves no discretion to the President but to increase the rate
to 12% once any of the two conditions provided therein
arise.
3. R.A. No. 9337 is the anchor of the government’s fiscal
reform agenda that will tilt the balance towards a
sustainable macroeconomic environment necessary for
economic growth.
Issues: Whether or not R.A. 9337 is unconstitutional?
Ruling: No. R.A. 9337 is not unconstitutional.
The VAT is a tax on spending or consumption. It is levied on the sale, barter,
exchange or lease of goods or properties and services. Being an indirect tax
on expenditure, the seller of goods or services may pass on the amount of
tax paid to the buyer; In contrast, a direct tax is a tax for which a taxpayer is
directly liable on the transaction or business it engages in, without
transferring the burden to someone else.
While the power to tax cannot be delegated to executive agencies, details as
to the enforcement and administration of an exercise of such power may be
left to them, including the power to determine the existence of facts on
which its operation depends, the rationale being that the preliminary
ascertainment of facts as basis for the enactment of legislation is not of itself
a legislative function but is simply ancillary to legislation; The Constitution as
a continuously operative charter of government does not require that
Congress find for itself every fact upon which it desires to base legislative
action or that it make for itself detailed determinations which it has declared
to be prerequisite to application of legislative policy to particular facts and
circumstances impossible for Congress itself properly to investigate.

The intent and will to increase the VAT rate to 12% came from Congress and
the task of the President is to simply execute the legislative policy.

The rule of uniform taxation does not deprive Congress of the power to
classify subjects of taxation, and only demands uniformity within the
particular class. R.A. No. 9337 is also equitable. The law is equipped with a
threshold margin.

Progressive taxation is built on the principle of the taxpayer’s ability to pay—

taxation is progressive when its rate goes up depending on the resources of
the person affected. The VAT is an antithesis of progressive taxation—by its
very nature, it is regressive; The principle of progressive taxation has no
relation with the VAT system inasmuch as the VAT paid by the consumer or
business for every goods bought or services enjoyed is the same regardless
of income.

The Constitution does not really prohibit the imposition of indirect taxes, like
the VAT. What it simply provides is that Congress shall “evolve a progressive
system of taxation.” Indeed, the mandate to Congress is not to prescribe,
but to evolve, a progressive tax system. Otherwise, sales taxes, which
perhaps are the oldest form of indirect taxes, would have been prohibited
with the proclamation of Art. VIII, §17 (1) of the 1973 Constitution from
which the present Art. VI, §28 (1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely
because it is difficult, if not impossible, to avoid them by imposing such taxes
according to the taxpayers' ability to pay. In the case of the VAT, the law
minimizes the regressive effects of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716, §3, amending §102 (b) of the
NIRC), while granting exemptions to other transactions. (R.A. No. 7716, §4
amending §103 of the NIRC).
 Regulations No. 6-78 has elaborated that the phrase “doing business in
the Philippines” includes “regular sale of tickets in the Philippines by off-
AIR CANADA vs. COMMISSIONER OF INTERNAL REVENUE
line international airlines, either by themselves or through their
G.R. No. 169507 | January 11, 2016
agents.” On the other hand, income from sale of tickets in the Philippines is
FACTS: considered Philippine sourced.

Air Canada is a foreign corporation organized and existing under the laws of
Canada. Air Canada was granted an authority to operate as an off-line carrier The test of taxability is the “source” and the source of an income is the
by the Civil Aeronautics Board (CAB) on April 24, 2000, with said authority to activity which produced the income. The sale of tickets in the Philippines is
expire on April 24, 2005. On July 1, 1999, Air Canada and Aerotel Ltd., the activity that produces the income. By appointment of a GSA whose
Corporation entered into a Passenger General Sales Agency (GSA) premises are used as outlet for selling tickets, the off-line carrier may be
Agreement for operation the Philippines. On November 28, 2002, Air deemed to have a permanent establishment in the Philippines,
Canada filed its administrative claim for refund with the Bureau of Internal hence taxable on Philippine sourced income.
Revenue (BIR) in the total amount of Php 5,185,676.77. Air Canada contends
that it erroneously paid income taxes from the Q3 2000 up to the Q2 2002.
With no response received from the BIR, Air Canada elevated its claim to the
CTA on November 29, 2002. Air Canada contends that revenue derived by it
from its sales of tickets in the Philippines on its off-line flights through its
local General Sales Agent cannot be subject to income tax because the
same is not sourced within the Philippines.

ISSUES:

1. Whether or not the revenue derived by an international air carrier,

such as Air Canada, from sales of tickets in the Philippines for air
transportation, while having no landing rights in the country,
constitutes income of said international air carrier from Philippine
source, and accordingly, taxable under Sec. 24(b)(2) of the National
Revenue Code.

RULING:

Yes, such revenue constitutes taxable income. Although Air Canada is not
liable to pay the tax as an international air carrier (2.5% on gross Phil.
Billings), it is still liable to pay income tax as a resident foreign
corporation. An off-line international carrier with a General Sales Agent
(GSA) in the Philippines may be considered a resident foreign corporation
taxable at 32% on taxable income derived from Philippine sources. Revenue

PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR)
vs. THE BUREAU OF INTERNAL REVENUE (BIR)
G.R. No. 215427 | December 10, 2014
FACTS:
On April 17, 2006, petitioner PAGCOR sought to declare Section 1 of RA
9337 null and void, insofar as it amends Section 27(c) of RA 8424,
otherwise known as the NIRC by excluding petitioner from the
enumeration of government-owned or controlled corporations (GOCCs)
exempted from liability for corporate income tax.
The SC partly granted the petition insofar as it held that the BIR
Revenue Regulation No. 16-2005 which subjects PAGCOR to 10% VAT is
null and void for being contrary to the NIRC. It also held that Section
1 of RA 9337 is valid and constitutional.
BIR issued RMC No. 33-2013 on April 17, 2013 pursuant to the decision
which clarifies the “Income Tax and Franchise Tax Due from PAGCOR, its
Contractees and Licensees.” It now subjects the income from
PAGCOR’s operations and licensing of gambling casinos, gaming
clubs and other similar recreation or amusement places, gaming
pools, and other related operations, to corporate income tax under
the NIRC.
PAGCOR filed a Motion for Clarification in the case entitled PAGCOR vs
The Bureau of Internal Revenue, et al., which was promulgated on
March 15, 2011 which also prays for the issuance of a TRO and/or writ
of Preliminary Injunction against BIR in the implementation of BIR
Revenue Memorandum Circular No. 33-2013 dated April 17, 2013.
PAGCOR alleges that said RMC is an erroneous interpretation and
application of the aforesaid decision.
ISSUES:
1. Whether or not PAGCOR’s gaming income is subject to both 5%
franchise tax and income tax?
2. Whether or not PAGCOR’s income from operation of related
services is subject to both income tax and 5% franchise tax.
RULING:
1. Gaming Income: Franchise Tax – YES; Income Tax - NO
Under PD 1869, as amended, petitioner is subject to income tax only
with respect to its operations of related services. The income tax
exemption ordained under Section 27(c) of RA 8424 pertains only to
petitioner’s income from operation of related services. Such income tax
exemption could not have been applicable to petitioner’s income from
gaming operations as it is already exempt therefrom under PD 1869.
There was no need for Congress to grant tax exemption to petitioner with
respect to its income from gaming operating as the same is already
exempted from all taxes of any kind or form, income or otherwise,
whether national or local, under its Charter, save only for the five percent
(5%) franchise tax.
2. Income from Operation of related services: Income tax - YES
; Franchise tax - NO
Petitioner’s Charter is not deemed repealed or amended by RA 9337;
petitioner’s income derived from gaming operation is subject only to
the five percent (5%) franchise tax, in accordance with PD 1869, as
amended. With respect to petitioner’s income from operation of other related
services, the same is subject to income tax only. The five percent (5%)
franchise tax finds no application with respect to petitioner’s income from
other related services, in view of the express provision of Section 14(5) of PD
1869, as amended.
Thus, it would be the height of injustice to impose franchise tax upon
petitioner for its income from other related services without basis therefor.
SC granted the petition and ordered the respondent to cease and desist the
implementation of RMC No. 33-2013 insofar as it imposes corporate income
tax on petitioner’s income derived from its gaming operations; and franchise
tax on petitioner’s income from other related services.
 least, one of the real and substantial purposes, then the exaction is properly
called a tax. An inherent limitation on the power of tacation is public
purpose, taxes are exacted only for a public purpose.LOI No. 1465 was
not for a public purpose as it was imposed to benefit PPI, a private
Planters Products Inc vs Fertiphil Corp corporation. The framers of the LOI named PPI as the ultimate beneficiary of
G.R. No. 166006 | March 14, 2008
the taxes levied under the LOI. Taxes cannot be used for purely private
purposes or for the exclusive benefit of private persons. The power to tax
FACTS:
exists for the general welfare: hence, implicit in its power is the limitation
that is should be used only for public purpose.
Petitioner PPI and respondent Fertiphil are private corporations incorporated
under Philippine laws, both engaged in the importation and distribution of
fertilizers, pesticides and agricultural chemicals. The then President Marcos
issued Letter of Instruction (LOI) 1465, imposing a capital recovery
component of Php10.00 per bag of fertilizer. The levy was to continue until
adequate capital was raised to make PPI financially viable. Fertiphil
remitted to the Fertilizer and Pesticide Authority (FPA), which was
then remitted the depository bank of PPI. Fertiphil paid P6,689,144 to
FPA from 1985 to 1986.

After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the
P10 levy. Fertiphil demanded from PPI a refund of the amount it remitted,
however PPI refused. Fertiphil filed a complaint for collection and damages,
questioning the constitutionality of LOI 1465, claiming that it was unjust,
unreasonable, oppressive, invalid and an unlawful imposition that
amounted to a denial of due process. PPI argues that Fertiphil has no
locus standi to question the constitutionality of LOI No. 1465 because it does
not have a "personal and substantial interest in the case or will sustain direct
injury as a result of its enforcement." It asserts that Fertiphil did not suffer
any damage from the imposition because "incidence of the levy fell on the
ultimate consumer or the farmers themselves, not on the seller fertilizer
company.

ISSUE: Whether or not the levy made in accordance with LOI No. 1465 is
valid.

RULING:

LOI No. 1465 is unconstitutional. The imposition of the levy was an exercise
by the State of its taxation power. The primary purpose of the levy is
revenue generation. If the purpose is primarily revenue, or revenue is, at

American Bible Society vs. City of Manila
GR No. L-9637
April 30, 1957
Felix, J.:
Facts:
American Bible Society is a foreign, non-stock, non-profit, religious,
missionary corporation duly registered and doing business in the Philippines
through its Philippine agency established in Manila in November, 1898
City of Manila is a municipal corporation with powers that are to be exercised
in conformity with the provisions of Republic Act No. 409, known as the
Revised Charter of the City of Manila
American Bible Society has been distributing and selling bibles and/or gospel
portions throughout the Philippines and translating the same into several
Philippine dialect
City Treasurer of Manila informed American Bible Society that it was violating
several Ordinances for operating without the necessary permit and license,
thereby requiring the corporation to secure the permit and license fees
covering the period from 4Q 1945-2Q 1953
To avoid closing of its business, American Bible Society paid the City of
Manila its permit and license fees under protest
American Bible filed a complaint, questioning the constitutionality and legality
of the Ordinances 2529 and 3000, and prayed for a refund of the payment
made to the City of Manila.
They contended that they had been in the Philippines since 1899 and were
not required to pay any license fee or sales tax and it never made any profit
from the sale of its bibles.
City of Manila prayed that the complaint be dismissed, reiterating the
constitutionality of the Ordinances in question.
Trial Court dismissed the complaint.
American Bible Society appealed to the Court of Appeals.
Issue: Whether or not American Bible Society is liable to pay sales tax for
the distribution and sale of bibles
Ruling: NO.
Under Sec. 1 of Ordinance 3000, one of the ordinance in question,
person or entity engaged in any of the business, trades or occupation
enumerated under Sec. 3 must obtain a Mayor’s permit and license from the
City Treasurer. American Bible Society’s business is not among those
enumerated.
As held in Murdock vs. Pennsylvania, The power to impose a license
tax on the exercise of these freedoms provided for in the Bill of Rights, is
indeed as potent as the power of censorship which this Court has repeatedly
struck down. It is not a nominal fee imposed as a regulatory measure to
defray the expenses of policing the activities in question. It is in no way
apportioned. It is flat license tax levied and collected as a condition to the
pursuit of activities whose enjoyment is guaranteed by the constitutional
liberties of press and religion and inevitably tends to suppress their exercise.
That is almost uniformly recognized as the inherent vice and evil of this flat
license tax.
Further, the case also mentioned that the power to tax the exercise
of a privilege is the power to control or suppress its enjoyment. Those who
can tax the exercise of this religious practice can make its exercise so costly
as to deprive it of the resources necessary for its maintenance. Those who
can tax the privilege of engaging in this form of missionary evangelism can
close all its doors to all those who do not have a full purse
Under Sec. 27(e) of Commonwealth Act No. 466 or the National
Internal Revenue Code, Corporations or associations organized and operated
exclusively for religious, charitable, . . . or educational purposes, . . .:
Provided, however, That the income of whatever kind and character from
any of its properties, real or personal, or from any activity conducted for
profit, regardless of the disposition made of such income, shall be liable to
the tax imposed under this Code shall not be taxed
The price asked for the bibles and other religious pamphlets was in some
instances a little bit higher than the actual cost of the same but this cannot mean that
American Bible Society was engaged in the business or occupation of selling said
"merchandise" for profit
Therefore, the Ordinance cannot be applied for in doing so it would impair
American Bible Society’s free exercise and enjoyment of its religious profession and
worship as well as its rights of dissemination of religious beliefs.
Wherefore, and on the strength of the foregoing considerations, We hereby reverse
the decision appealed from, sentencing defendant return to plaintiff the sum of
P5,891.45 unduly collected from it
CITY COUNCIL OF CEBU vs. CUIZON
No. L-28972, October 31, 1972
FACTS:
1. Mayor of Cebu City Carlos J. Cuizon entered into a contract with Tropical
Commercial Company, Inc., (Tropical) for the purchase of road equipments for
$520,912.00 on a cash basis or $685,767.30 on a deferred payment basis).
2. PNB issued letters of credit in favour of the Tropical.
3. The herein plaintiff-appellants, by themselves and representing the City Council
of Cebu filed a case against the defendant-appellees alleging that the contract
entered into were:
A. entered into without the necessary authority and approval of the city
council;
B. the the city treasurer had not certified to the city mayor as required by
section 607 of the Revised Administrative Code;
4. In the defense of Jesus Zabate, he affirmed the nullity ab initio of the contract
for the same reasons given by the plaintiffs. And that, the assignment by way of
guaranty by the city mayor of P3-million of the city's time deposit with the
defendant bank was null and void and done without his consent nor knowledge
as the official responsible for said fund.
5. In the Motion to Dismiss of PNB and in the affirmative defense Tropical, they
alleged that herein plaintiff-appellants lacks legal capacity to bring the suit and
that they have failed to state the cause of action against them.
6. The lower court dismissed the complaint on the ground of that the plaintiffs lack
legal capacity to sue.
ISSUE:
Whether or not the lower court erred in ruling that plaintiffs have njo legal capacity to
file the suit.
RULING:
YES.
Contracts; Suit to annul contract filed on behalf of city; Inapplicability of Article 1397
of the Civil Code.— The suit is clearly not one brought by the plaintiffs in their
personal capacity for the annulment of a particular contract entered into
between two other contracting parties, in which situation article 1397 of the
Civil Code may rightfully be invoked to question their legal capacity or interest to file
the action, since they are not in such case in anyway obliged thereby principally or
subsidiarily.
Same; Personal suit differentiated from representative suit. —The lower
court's fundamental error was in treating plaintiff s' complaint as a personal suit on
their own behalf and applying the test in such cases that plaintiffs should show
personal interest as parties who would be benefited or injured by the judgment
sought. Plaintiffs' suit is patently not a personal suit. Plaintiffs clearly and by the
express terms of their complaint filed the suit as a representative suit on behalf and
for the benefit of the city of Cebu.
Parties; Real party in interest; Sufficiency of parties' interest as taxpayers to file suit.
—Plaintiffs' right and legal interest as taxpayers to file the suit and seek
judicial assistance to prevent what they believe to be an attempt to
unlawfully disburse public funds of the city and to contest the expenditure
of public funds under contracts and commitments with defendants bank
and Tropical which they assert to have been entered into by the mayor
without legal authority and against the express prohibition of law have
long received the Court's sanction and recognition
.
Same; Same; Sufficiency of parties' interest as city councilors to file suit. —Plaintiffs'
right and legal interest as city councilors to file the suit below and to prevent what
they believe to be unlawful disbursements of city funds by virtue of the questioned
contracts and commitments entered into by the defendant city mayor
notwithstanding the city council's revocation of his authority with due notice thereof
to defendant bank must likewise be recognized.
Same; Same; Narrow construction of city charter empowering city mayor "to cause to
be instituted judicial proceedings to recover properties and funds of the city wherever
found and cause to be defended all suits against the city;" Effect of. —To adhere to
the lower court's narrow and unrealistic interpretation would mean that no action
against a city mayor's actuations and contract in the name and on behalf of the city
could ever be questioned in court and subjected to judicial action for a declaration of
nullity and invalidity, since no city mayor would file such an action on behalf of the
city to question, much less nullify, contracts executed by him on behalf of the city
and which he naturally believes to be valid and within his authority.
why 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
(Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S.
vs. Butler, 297 U.S. 1, 80 L. Ed. 477; M’Culloch vs. Maryland, 4 Wheat. 316,
4 L. Ed. 579).

WALTER LUTZ vs. J. ANTONIO ARANETA POWER OF STATE TO SELECT SUBJECT OF TAXATION.—It is inherent in the
No. L-7859, December 22, 1995 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
FACTS: one particular class for taxation or exemption infringe 110 constitutional
limitation (Carmichael vs. Southern Coal & Coke Co., 301 U.S. 495, 81 L. Ed.
1. The sugar industry situation during 1940 was in an imminent threat of
1245, citing numerous authorities, at 1251).
loss and needed to be stabilized by imposition of emergency measures.
7. Walter Lutz, in his capacity as judicial administrator of the intestate
estate of Antionio Ledesma, sought to recover from the CIR the sum of
P14,666.40 paid by the estate as taxes during 1948-1949 and 1949-
1950, under section 3 of the CA 567 or the Sugar Adjustment Act.
8. Lutz alleged that the tax is unconstitutional because it provided for an
increase of the existing tax on the manufacture of sugar.
9. That such increase is not being levied for a public purpose but solely and
exclusively for the aid and support of the sugar industry.
10. The lower court dismissed the case.

ISSUE:
Whether or not CA 567 is constitutional, despite its being allegedly violative
of the equal protection clause, the purpose of which is not for the
benefit of the general public but for the rehabilitation only of the
sugar industry.

RULING:
Yes, CA 567 is constitutional.

CONSTITUTIONAL LAW; TAXATION; POWER OF STATE TO LEVY TAX IN AID

AND SUPPORT OF SUGAR INDUSTRY.—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

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG
PILIPINAS vs. TAN
No. L 81311 June 30, 1988
PADILLA, J.:
FACTS:
Corazon C. Aquino the President of the Philippines issued EO 273 on July 25,
1987 to take effect on January 1, 1988 amending certain sections of the
NIRC and adopted the value added tax (VAT). Petitioners seek that such be
declared unconstitutional for its enactment was allegedly not within the
powers of the president, that VAT is oppresive, discriminatory, and violates
due process and equal protection clause.
Petitioners also claim that EO 273 is oppresive, discriminatory, unjust,
regressive. Most of the petitioners claim that the legislation if such would
lead to skyrocketing prices of commodities and services as well as mass
actions and that it violated the uniformity rule in taxation.
ISSUE: Whether or not EO 273 violated the uniformity rule in taxation
HELD: No. In the Case of Baguio City vs. De Leon it was stated that “ a tax is
considered uniform when it opperates with the same force and effect in
every place where the subject maybe found. Equality and uniformity in
taxation means that all taxable articles or kinds of property of the same class
shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation. In the case at
bar, the 10% of gross receipts derived by any person is effected to all the
subjects with the same force and in every place.
EO 273 is also equitable. It is imposed on the sales of goods or services by
persons engaged in business with an aggragate gross annual sales exeeding
Php 200,000.00. Small sari sari stores are exempt from its application.
PHILIPPINE GUARANTY CO, INC. vs. COMMISSIONER OF INTERNAL
REVENUE
L 22074 April 30, 1965
FACTS:
Philippine Guaranty Co. Inc entered into reinsurance contracts with foreign
insurance companies. It agreed to cede portion of the premmiums it has
originally underwritten in the Philippines in consideration that such foreign
companies in exchange that such companies would assume the insurance
liabilities of PG Co. Said companies assured to pay PG Co. 5% of their
reinsurance premiums as compensation for managing their affairs in the
Philippines . In the year 1953 and 1954 the reinsurrance contracts ceded to
the foreign companies amounted to 842,466.71 Php and 721,471.85 Php
respectively.
Such were excluded by PG Co. from its gross income when it filed income tax
return in 1953 and 1954. The Commisioner of the Internal Revenue assessed
the withholding tax of the ceded reinsurrance and demanded that PG Co.
pay such withholding tax and surcharge.
PG Co. during protest, claimed that the foreign companies to whon the
reinsurrance contracts were cededare nkt subject to withholding tax. Upon
appeal judgment favored the Commissioner’s stance.
ISSUE:
Whether of not reinsurrance premiums ceded to foreign companies are
subject to with holding tax
HELD:
Yes. Reinsurrance premiums on local risks ceded by domestic
insurers to foregin reinsurers not doing business in the Philippines are
subject to with holding tax. Section 24 of the TAX code does not require a
foreign corporation to engage in business in the Philippines in subjecting its
income to tax. It suffices that the activity creating the income is performed
or done in the Philippines. What is controlling therefore is not the place of
business but the place of activity hence such reinsurance premiums ceded to
foreign compannies are subject to tax.
Victorias Milling Co., Inc. v. Municipality of Victorias, Negros
Occidental
No. L-21183. September 27, 1968.
SANCHEZ, J.
Facts:
The Municipal Council of Victorias, Negros Occidental passed Ordinance No. 1 (1956)
which amends Ordinance No. 25 (1953) imposing license taxes on sugar centrals and
Ordinance No. 18 (1947) imposing license taxes on sugar refineries. Ordinance No. 1
(1956) provides for the increase of the rates of license taxes for sugar centrals and
the rates of license taxes as well as the range of graduated schedule of annual output
capacity for sugar refineries. Victorias Milling Co., Inc. as the sole operator of sugar
central and refineries in the municipality questions the validity of the ordinance for
being discriminatory and that it constitutes double taxation.
Issues: a. WON Ordinance No. 1 (1956) is discriminatory.
b. WON double taxation exists.
Ruling:
a. No. Ordinance No. 1 (1956) is not discriminatory. The ordinance does not
single out Victorias Milling Co., Inc. as the only object of the ordinance. Said
ordinance is made to apply to any sugar central or refinery which may
happen to operate in the municipality. So it is, that the fact that Victorias
Milling Co., Inc.is actually the sole operator of a sugar central and a sugar
refinery does not make the ordinance discriminatory. The ordinance was
promulgated not in the exercise of the municipality’s regulatory power but as
revenue measure- tax on occupation or business. The authority to impose
such tax is backed by the express grant of power in Section 1 of
Commonwealth Act No. 472.
b. No. Double taxation has been otherwise described as “direct duplicate
taxation”. For double taxation to exist, the same property must be taxed
twice, when it should be taxed but once. There is no double taxation in
herein case. First, the two taxes cover two different objects. Section 1 of the
ordinance taxes a person operating sugar centrals or engaged in the
manufacture of centrifugal sugar. While under Section 2, those taxed are the
operators of sugar refinery mills. Second, the disputed taxes are imposed on
occupation or business. Both taxes are not on sugar. The amount thereof
depends on the annual output capacity of the mills concerned, regardless of
the actual sugar milled.
Ormoc Sugar Co., Inc. v. Treasurer of Ormoc City
No. L-23794. February 17, 1968
BENGZON, J. P., J.
Facts:
Ordinance No. 4 (1964) was passed by the Municipal Board of Ormoc City
which provides for the imposition of taxes in all exported centrifugal sugar of
Ormoc Sugar Company, Inc. The petitioner questions the constitutionality of
the ordinance for being violative of the equal protection clause.
Issue: WON Ordinance No. 4 (1964) is unconstitutional.
Ruling: Yes. The 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 a) it is based on
substantial distinctions which make real differences; b) these are germane to
the purpose of the law; c) the classification applies not only to present
conditions but also to future conditions which are substantially identical to
those of the present; d) the classification applies only to those who belong to
the same class.
The aforementioned requisites were not met by the ordinance for it
taxes only centrifugal sugar produced and exported by the Ormoc Sugar
Company, Inc. and none other. At the time of the taxing ordinance’s
enactment, the Ormoc Sugar Company, Inc., it is true, was the only sugar
central in the city of Ormoc. Still the classification, to reasonable, should be
in terms applicable to future conditions as well. 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.
As it is now, even if later a similar company is set up, it cannot be subject to
the tax because the ordinance expressly points only to Ormoc City Sugar
Company, Inc. as the entity to be levied upon.