Theoretical Justice

The tax should be collected on the basis of ability to pay through a progressive system of taxation. Thus, the
incidence or burden of taxation should fall more on those who could afford.
This is termed as the Ability-to-Pay Theory, those who have more should pay more and those have less should
pay less.
Fiscal Adequacy
Fiscal adequacy means that the tax system must be able to provide revenues in order to meet the legitimate
objects of the government. Stated otherwise, the taxes collected must be able to finance government
expenditures and their variations.
According to Dean Quibod, the sources of revenue should be sufficient to meet the varied levels of expenditure,
regardless of business condition and problems on economic adjustment.
Thus, the tax systems or the prevailing tax measures that the state have should be able to expand in response to
variations in public expenditures.
Thus, if the collection for revenue is 20%, the Congress should not increase the tax rates, the problems with
collection and the enforcement should not be resolved the enacting more taxes. The state should, through its
executive branch, be able to enforce and implement.
Administrative Feasibility
The tax measures should be easily implemented in order to assure the smooth flow into the treasury of the
fiscally adequate amounts.
“Feasible” means it is possible and doable. The tax system should be capable of being effectively administered
and enforced with the least inconvenience to the taxpayer.
This means that ta laws should be capable of convenient, just and effective administration. Each tax should be:
• Clear and plain to the taxpayer
• Capable of uniform enforcement
• Convenient as to time, place and manner of payment
• Not unduly burdensome upon or discouraging to business activity

CHAVEZ v. ONGPIN
GR 76778, June 06, 1990, En Banc
Facts: The petition seeks to declare unconstitutional EO 73 alleging that EO 73 accelerated the
applicable of the general revision of assessment mandating an increase in real property taxes by 100%
to 400% on improvements and 100% on land and the increase in value of property results to increase
of real property taxes resulting to a sheer oppression and that increase in the market values of real
properties was only due to inflation and economic rescission.
Chavez argues here the unreasonable increase in real property taxes brought by EO 73 amounts to a
confiscation of property repugnant to the constitutional guarantee of due process.
The intervenor Realty Owners Association of the Philippines, Inc. (ROAP) joins Chavez in his petition to
declare unconstitutional EO 73, but additionally alleges the following: that Presidential Decree No. 464 is
unconstitutional insofar as it imposes an additional one percent (1%) tax on all property owners to raise
funds for education, as real property tax is admittedly a local tax for local governments and does not
meet the requirements of due process.
Issue:
Should it be declared unconstitutional? – No.
Held: EO 73 merely directs that the real property values as determined by local assessors during the
latest general revision of assessment shall take effect on January 01, 1987. And this is a continuing
process mandated by law.
The Assessment for General Revision in 1984 was based on Section 21 of Presidential Decree No. 464.

Thus, the court agrees with the Office of the Solicitor General that the attack on Executive Order No. 73
has no legal basis as the general revision of assessments is a continuing process mandated by Section
21 of Presidential Decree No. 464.

Also the change of date of increase was justified in the Whereas Clause of EO 73 which
states:

WHEREAS, the collection of real property taxes based on the 1984 real property values was
deferred to take effect on January 1, 1988 instead of January 1, 1985, thus depriving the
local government units of an additional source of revenue;
WHEREAS, there is an urgent need for local governments to augment their financial
resources to meet the rising cost of rendering effective services to the people;
Court agrees with the observation of the Office of the Solicitor General that without EO 73, the basis for
collection of real property taxes win still be the 1978 revision of property values.  Certainly, to continue
collecting real property taxes based on valuations arrived at several years ago, in disregard of the
increases in the value of real properties that have occurred since then, is not in consonance with a
sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires
that sources of revenues must be adequate to meet government expenditures and their variations.
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.
Side Issue:
Intervention of ROAP is not proper to be resolved in the present petition. The issue here is limited to the
constitutionality of EO 73. Intervention is not an independent proceeding, but an ancillary and
supplemental one which, in the nature of things, unless otherwise provided for by legislation (or Rules
of Court), must be in subordination to the main proceeding, and it may be laid down as a general rule
that an intervention is limited to the field of litigation open to the original parties.

ROAP, who questioned PD 464, cannot assail it in his intervention since Chavez, original complainant,
did not objected PD 464.

G.R. No. 81311 June 30, 1988

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO
C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA, petitioners, vs. HON.
BIENVENIDO TAN, as Commissioner of Internal Revenue, respondent.
Facts: These four (4) petitions, which have been consolidated because of the similarity of the main
issues involved therein, seek to nullify Executive Order No. 273 (EO 273, for short), which amended
certain sections of the National Internal Revenue Code and adopted the value-added tax (VAT, for
short), for being unconstitutional in that its enactment is not allegedly within the powers of the
President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal
protection clauses and other provisions of the 1987 Constitution.
The Solicitor General prays for the dismissal of the petitions on the ground that the petitioners have
failed to show justification for the exercise of its judicial powers. According to the Solicitor General, only
the third requisite — that the constitutional question should be raised at the earliest opportunity — has
been complied with. He also questions the legal standing of the petitioners who, he contends, are
merely asking for an advisory opinion from the Court, there being no justiciable controversy for
resolution.
Issue: WON EO 273 is unconstitutional on the Ground that the President had no authority to issue EO
273 on 25 July 1987
Held: No. First, the Court held that the President had authority to issue EO 273 as it was provided in the
Provisional constitution that the President shall have legislative powers.

Second, petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an
arbitrary or despotic manner by reason of passion or personal hostility. It appears that a comprehensive
study of the VAT had been extensively discussed by this framers and other government agencies
involved in its implementation, even under the past administration.

Lastly, petitioners also failed to prove that EO 273 is oppressive, discriminatory, unjust and regressive,
in violation of the equal protection clause. Petitioners merely rely upon newspaper articles which are
actually hearsay and have evidentiary value. To justify the nullification of a law. there must be a clear
and unequivocal breach of the Constitution, not a doubtful and argumentative implication. As the Court
sees it, EO 273 satisfies all the requirements of a valid tax.

In any event, if petitioners seriously believe that the adoption and continued application of the VAT are
prejudicial to the general welfare or the interests of the majority of the people, they should seek
recourse and relief from the political branches of the government. The Court, following the time-
honored doctrine of separation of powers, cannot substitute its judgment for that of the President as to
the wisdom, justice and advisability of the adoption of the VAT. The Court can only look into and
determine whether or not EO 273 was enacted and made effective as law, in the manner required by,
and consistent with, the Constitution, and to make sure that it was not issued in grave abuse of
discretion amounting to lack or excess of jurisdiction; and, in this regard, the Court finds no reason to
impede its application or continued implementation.

RENATO V. DIAZ and AURORA MA. F. TIMBOL, Petitioners, -versus – THE SECRETARY OF
FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, Respondents. G.R. No. 193007,
EN BANC, July 19, 2011, ABAD, J. Administrative feasibility is one of the canons of a sound tax
system. It simply means that the tax system should be capable of being effectively administered and
enforced with the least inconvenience to the taxpayer. Non-observance of the canon, however, will not
render a tax imposition invalid "except to the extent that specific constitutional or statutory limitations
are impaired." Thus, even if the imposition of VAT on tollway operations may seem burdensome to
implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or the
Constitution. Here, it remains to be seen how the taxing authority will actually implement the VAT on
tollway operations. Any declaration by the Court that the manner of its implementation is illegal or
unconstitutional would be premature. Besides, any concern about how the VAT on tollway operations
will be enforced must first be addressed to the BIR on whom the task of implementing tax laws
primarily and exclusively rests. The Court cannot preempt the BIR’s discretion on the matter, absent
any clear violation of law or the Constitution.
FACTS: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol filed this petition for declaratory relief
assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal
Revenue (BIR) on the collections of tollway operators. However, the Court treated the case as one of
prohibition.

Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees
within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "user’s tax," not a
sale of services; that to impose VAT on toll fees would amount to a tax on public service; and that,
since VAT was never factored into the formula for computing toll fees, its imposition would violate the
non-impairment clause of the constitution.
On August 23, 2010 the Office of the Solicitor General filed the government’s comment. The
government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including
tollway operations, except where the law provides otherwise; that the Court should seek the meaning
and intent of the law from the words used in the statute; and that the imposition of VAT on tollway
operations has been the subject as early as 2003 of several BIR rulings and circulars.
Finally, the government contends that the non-inclusion of VAT in the parametric formula for computing
toll rates cannot exempt tollway operators from VAT. In any event, it cannot be claimed that the rights
of tollway operators to a reasonable rate of return will be impaired by the VAT since this is imposed on
top of the toll rate. Further, the imposition of VAT on toll fees would have very minimal effect on
motorists using the tollways.

ISSUE 1. Whether the government is unlawfully expanding VAT coverage by including tollway operators
and tollway operations in the terms "franchise grantees" and "sale of services" under Section 108 of the
Code. (NO)
2. Whether the imposition of VAT on tollway operators is not administratively feasible and
cannot be implemented. (NO)

RULING 1. Section 108 of the NIRC imposes VAT on "all kinds of services" rendered in the Philippines for
a fee, including those specified in the list. The enumeration of affected services is not exclusive. By
qualifying "services" with the words "all kinds," Congress has given the term "services" an all
encompassing meaning. The listing of specific services are intended to illustrate how pervasive and
broad is the VAT’s reach rather than establish concrete limits to its application. Thus, every activity that
can be imagined as a form of "service" rendered for a fee should be deemed included unless some
provision of law especially excludes it.
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter’s use of the
tollway facilities over which the operator enjoys private proprietary rights that its contract and the law
recognize. In this sense, the tollway operator is no different from the service providers under Section
108 who allow others to use their properties or facilities for a fee.
Tollway operators are franchise grantees and they do not belong to exceptions (the low-income radio
and/or television broadcasting companies with gross annual incomes of less than ₱10 million and gas
and water utilities) that Section 119 spares from the payment of VAT. The word "franchise" broadly
covers government grants of a special right to do an act or series of acts of public concern.
Tollway operators are, owing to the nature and object of their business, "franchise grantees." The
construction, operation, and maintenance of toll facilities on public improvements are activities of public
 consequence that necessarily require a special grant of authority from the state. Indeed, Congress
granted special franchise for the operation of tollways to the Philippine National
Construction Company, the former tollway concessionaire for the North and South Luzon Expressways.
Apart from Congress, tollway franchises may also be granted by the TRB, pursuant to the exercise of its
delegated powers under P.D. 1112. The franchise in this case is evidenced by a "Toll Operation
Certificate."

2. NO. Administrative feasibility is one of the canons of a sound tax system. It simply means that
the tax system should be capable of being effectively administered and enforced with the least
inconvenience to the taxpayer. Non-observance of the canon, however, will not render a tax imposition
invalid "except to the extent that specific constitutional or statutory limitations are impaired." Thus,
even if the imposition of VAT on tollway operations may seem burdensome to implement, it is not
necessarily invalid unless some aspect of it is shown to violate any law or the Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway
operations. Any declaration by the Court that the manner of its implementation is illegal or
unconstitutional would be premature. Although the transcript of the August 12, 2010 Senate hearing
provides some clue as to how the BIR intends to go about it,35 the facts pertaining to the matter are
not sufficiently established for the Court to pass judgment on. Besides, any concern about how the VAT
on tollway operations will be enforced must first be addressed to the BIR on whom the task of
implementing tax laws primarily and exclusively rests. The Court cannot preempt the BIR’s discretion on
the matter, absent any clear violation of law or the Constitution.
For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010 which directs
toll companies to record an accumulated input VAT of zero balance in their books as of August 16, 2010,
the date when the VAT imposition was supposed to take effect. The issuance allegedly violates Section
111(A) of the Code which grants first time VAT payers a transitional input VAT of 2% on beginning
inventory.
In this connection, the BIR explained that BIR RMC 63-2010 is actually the product of negotiations with
tollway operators who have been assessed VAT as early as 2005, but failed to charge VAT inclusive toll
fees which by now can no longer be collected. The tollway operators agreed to waive the 2% transitional
input VAT, in exchange for cancellation of their past due VAT liabilities. Notably, the right to claim the
2% transitional input VAT belongs to the tollway operators who have not questioned the circular’s
validity. They are thus the ones who have a right to challenge the circular in a direct and proper action
brought for the purpose.

Nature of Taxation

The nature of the State’s power to tax is two-fold. It is both an inherent and a legislative power.

1. Inherent attribute of sovereignty –

The power to tax is an attribute of sovereignty and is inherent in the State. It is a power emanating from
necessity because it imposes a necessary burden to preserve the State's sovereignty (Phil. Guaranty Co.
v. Commissioner, L-22074, April 30, 1965).

It is an essential and inherent attribute of sovereignty, belonging as a matter of right to every

independent government, without being expressly conferred by the people (Pepsi-Cola Bottling Company
of the Phil. v. Mun. of Tanauan, Leyte, 69 SCRA 460).

It does not need constitutional conferment. Constitutional provisions do not give rise to the power to tax
but merely impose limitations on what would otherwise be an invincible power (Churchill and Tait v.
Concepcion, 34 Phil. 969).

2. Legislative in character
It is inherently legislative in nature and character in that the power of taxation can only be exercised
through the enactment of law. It is legislative in nature since it involves the promulgation of laws. The
legislature determines the coverage, object, nature, extent and situs of the tax to be imposed. Such
power is exclusively vested in the legislature except where the Constitution provides otherwise (Art. VI,
Sec. 28[2], Art. X, Sec. 5, Constitution.
It is based on the principle that taxes are a grant of the people who are taxed, and the grant must be
made by the immediate representative of the people, and where the people have laid the power, there it
must remain and be exercised (CIR v. Fortune Tobacco Corporation, 559 SCRA 160, 2008).

3. Limitations on the Power of Taxation

1. Inherent Limitations: These are part and parcel of the power of taxation and originate from the very
nature of taxation.

2. Constitutional Limitations: These are the restrictions imposed by the constitution.

The foreign insurers' place of business should not be confused with their place of activity. Business
should not be continuity and progression of transactions while activity may consist of only a single
transaction. An activity may occur outside the place of business. 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 that created an income.
FACTS:
The Philippine Guaranty Co., Inc., entered into reinsurance contracts, on various dates, with foreign
insurance companies not doing business in the Philippines, thereby agreed to cede to the foreign
reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines, in
consideration for the assumption by the latter of liability on an equivalent portion of the risks insured.
Said reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in Manila and by the foreign
reinsurers outside the Philippines, except the contract with Swiss Reinsurance Company, which was
signed by both parties in Switzerland.
The reinsurance contracts made the commencement of the reinsurers' liability simultaneous with that of
Philippine Guaranty Co., Inc. under the original insurance. Philippine Guaranty Co., Inc. was required to
keep a register in Manila where the risks ceded to the foreign reinsurers where entered, and entry
therein was binding upon the reinsurers. A proportionate amount of taxes on insurance premiums not
recovered from the original assured were to be paid for by the foreign reinsurers. The foreign reinsurers
further agreed, in consideration for managing or administering their affairs in the Philippines, to
compensate the Philippine Guaranty Co., Inc., in an amount equal to 5% of the reinsurance premiums.
Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to the foreign
reinsurers premiums. Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross
income when it filed its income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay
tax on them. Consequently, per letter dated April 13, 1959, the Commissioner of Internal Revenue
assessed against Philippine Guaranty Co., Inc. withholding tax on the ceded reinsurance premiums.
Philippine Guaranty Co., Inc. protested the assessment on the ground that reinsurance premiums ceded
to foreign reinsurers not doing business in the Philippines are not subject to withholding tax. Its protest
was denied and it appealed to the Court of Tax Appeals.
The Court of Tax Appeals rendered judgment ordering petitioner Philippine Guaranty Co., Inc. to pay to
the CIR the withholding income taxes for the years 1953 and 1954, plus the statutory delinquency
penalties thereon.
Philippine Guaranty Co, Inc. has appealed, questioning the legality of the Commissioner of Internal
Revenue's assessment for withholding tax on the reinsurance premiums ceded in 1953 and 1954 to the
foreign reinsurers. Petitioner maintains that the reinsurance premiums in question did not constitute
income from sources within the Philippines because the foreign reinsurers did not engage in business in
the Philippines, nor did they have office here.
ISSUE:
Whether or not the reinsurance premiums in question constitute income from sources within the
Philippines? (YES)
RULING:
The reinsurance contracts show that the transactions or activities that constituted the undertaking to
reinsure Philippine Guaranty Co., Inc. against lose arising from the original insurances in the Philippines
was performed in the Philippines. Section 24 of the Tax Code subjects foreign corporations to tax on
their income from sources within the Philippines. The word "sources" has been interpreted as the
activity, property or service giving rise to the income. The reinsurance premiums were income created
from the undertaking of the foreign reinsurance companies to reinsure Philippine Guaranty Co., Inc.,
against liability for loss under original insurances. Such undertaking, as explained above, took place in
the Philippines. These insurance premiums, therefore, came from sources within the Philippines and,
hence, are subject to corporate income tax.
The foreign insurers' place of business should not be confused with their place of activity. Business
should not be continuity and progression of transactions while activity may consist of only a single
transaction. An activity may occur outside the place of business. 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 that created an income.
Petitioner further contends that the reinsurance premiums are not income from sources within the
Philippines because they are not specifically mentioned in Section 37 of the Tax Code. Section 37 is not
an all-inclusive enumeration, for it merely directs that the kinds of income mentioned therein should be
treated as income from sources within the Philippines but it does not require that other kinds of income
should not be considered likewise.
The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is
a necessary burden to preserve the State's sovereignty and a means to give the citizenry an
army to resist an aggression, a navy to defend its shores from invasion, a corps of civil
servants to serve, public improvement designed for the enjoyment of the citizenry and those
which come within the State's territory, and facilities and protection which a government is
supposed to provide. Considering that the reinsurance premiums in question were afforded
protection by the government and the recipient foreign reinsurer’s exercised rights and
privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share
the burden of maintaining the state.
In respect to the question of whether or not reinsurance premiums ceded to foreign reinsurers not doing
business in the Philippines are subject to withholding tax under Section 53 and 54 of the Tax Code,
suffice it to state that this question has already been answered in the affirmative in Alexander Howden
& Co., Ltd. vs. Collector of Internal Revenue, L-19393, April 14, 1965.
Finally, petitioner contends that the withholding tax should be computed from the amount actually
remitted to the foreign reinsurers instead of from the total amount ceded. And since it did not remit any
amount to its foreign insurers in 1953 and 1954, no withholding tax was due.
Section 54 of the Tax Code allows no deduction from the income therein enumerated in determining the
amount to be withheld. According, in computing the withholding tax due on the reinsurance premium in
question, no deduction shall be recognized.

Inherent Limitations of Taxation

Inherent Limitations
1. The tax imposed should be for a public purpose.
2. The power to tax is inherently legislative.
3. The power to tax is generally limited to the territorial jurisdiction of the taxing government.
4. Observance of international comity such that property of foreign sovereigns are not subject to
taxation.
5. The exemption of government entities is recognized

Public Purpose
Public Purpose is the Heart of Taxation
The power to tax exists for the general welfare, hence, implicit in its power is the limitations that it
should be used only for a public purpose. It would be robbery for the State to tax its citizen and use the
funds generated for a private purpose (Planters Products v. Fertiphil Corporation 548 SCRA 485
[2008]).
The Court of course grants that there is no hard-and-fast rule for determining what constitutes public
purpose.
It is an elastic concept that could be made to fit into modern standards. Public purpose, for instance, is
no longer restricted to traditional government functions like building roads and schoolhouses or
safeguarding public health and safety.
Public purpose" is not defined. It is an elastic concept that can be hammered to fit modern standards.
Jurisprudence states that "public purpose" should be given a broad interpretation. It does not only
pertain to those purposes which are traditionally viewed as essentially government functions, 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. (Planters Product V. Fertiphil Corp. 2008)

Inherently Legislative
Inherent Legislative Power to Tax
The legislature wields the power and discretion to determine
1. The nature or kind of tax
2. The object or purpose of the tax
3. The extent or rate of the tax
4. The coverage or subjects of the tax
5. The situs or the place of taxation

Note however, that the legislative power does not include the collection of tax as it is part of the
functions of the executive department.
The power of taxation, being an essential and inherent attribute of sovereignty, belongs as a matter of
right, to every independent government, and needs no express conferment by the people before it can
be exercised.

PASCUAL vs. SECRETARY OF PUBLIC WORKS, GR No. L-10405, December 29, 1960

"A law appropriating the public revenue is invalid if the public advantage or benefit, derived from such expenditure, is
merely incidental in the promotion of a particular enterprise."

FACTS: Governor Wenceslao Pascual of Rizal instituted this action for declaratory relief, with injunction, on the
ground that RA No. 920, which appropriates funds for public works particularly for the construction and improvement
of Pasig feeder road terminals where some of the feeder roads, however, as alleged and as contained in the tracings
attached to the petition, were nothing but projected and planned subdivision roads, not yet constructed within the
Antonio Subdivision, belonging to private respondent Zulueta, situated at Pasig, Rizal; and which projected feeder
roads do not connect any government property or any important premises to the main highway.

The respondents' contention is that there is public purpose because people living in the subdivision will directly be
benefited from the road and the government also gains from the donation supposed occupied by the streets, made by
its owners to the government.

ISSUE/S: 1. Whether or not incidental (because there were just projected and planned subdivisions not actual people
living in the area to benefit the expropriation) gains by the public be considered "public purpose" for the purpose of
justifying an expenditure of the government?
2. WON the appropriation is valid?

HELD: No.
It is a general rule that the legislature is without power to appropriate public revenue for anything but a public
purpose. It is the essential character of the direct object of the expenditure which must determine its validity as
justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the general advantage of
the community.
Incidental to the public or to the state, which results from the promotion of private interest and the prosperity of
private enterprises or business, does not justify their aid by the use public money.

The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to
promote the public interest, as opposed to the furtherance of the advantage of individuals, although each advantage
to individuals might incidentally serve the public.
Tests in Determining Public Purpose in taxation: (1) Duty Test - Whether the thing to be furthered by the
appropriation of public revenue is something which is the duty of the State as a government to provide. (2) Promotion
of General Welfare Test - Whether the proceeds of the tax will directly promote the welfare of the community in
equal measure. (3) Character of the Direct Object of the Expenditure - 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 enterprises or business, does not justify their aid with public money.

2. NO. The appropriation is void for being an appropriation for private purpose. The subsequent donation of the
property to the government to make the property public does not cure the constitutional defect. The fact that the law
was passed when the said property was still in private property cannot be ignored. “ In accordance with the rule that
the taxing power must be exercised for public purpose only, money raised by taxation can be expanded only for public
purpose and not for the disadvantage if private individuals.” In as much as the land on which the project feeder roads
were to be constructed belonged then to Zulueta, the result is that the appropriation sought a private purpose , and
hence was null and void.

Other issue:
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void; that the
alleged deed of donation of the feeder roads in question be "declared unconstitutional and, therefor, illegal"; that a
writ of injunction be issued enjoining the Secretary of Public Works and Communications, the Director of the Bureau
of Public Works and Highways and Jose C. Zulueta from ordering or allowing the continuance of the above-mentioned
feeder roads project, and from making and securing any new and further releases on the aforementioned item of
Republic Act No. 920, and the disbursing officers of the Department of Public Works and Highways from making any
further payments out of said funds provided for in Republic Act No. 920; and that pending final hearing on the merits,
a writ of preliminary injunction be issued enjoining the aforementioned parties respondent from making and securing
any new and further releases on the aforesaid item of Republic Act No. 920 and from making any further payments
out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and that
the petition did "not state a cause of action". In support to this motion, respondent Zulueta alleged that the Provincial
Fiscal of Rizal, not its provincial governor, should represent the Province of Rizal, pursuant to section 1683 of the
Revised Administrative Code; that said respondent is " not aware of any law which makes illegal the appropriation of
public funds for the improvements of . . . private property"; and that, the constitutional provision invoked by
petitioner is inapplicable to the donation in question, the same being a pure act of liberality, not a contract. The other
respondents, in turn, maintained that petitioner could not assail the appropriation in question because "there is no
actual bona fide case . . . in which the validity of Republic Act No. 920 is necessarily involved" and petitioner "has not
shown that he has a personal and substantial interest" in said Act "and that its enforcement has caused or will cause
him a direct injury."
WON Pascual has the legal standing?
YES. Since public interest is involved in this case, the Provincial Governor of Rizal and the provincial fiscal thereof who
represents him therein, "have the requisite personalities" to question the constitutionality of the disputed item of
Republic Act No. 920.

Blunt vs US 255 Fed 332 | July 24, 1918

A case was filed questioning the constitutionality of the Harrison Act insofar as it prohibits retail sales of
morphine by druggists to persons who have no physician’s prescription, who have no order form and
who cannot obtain an order form. Ruling: In case of a revenue law, it is beyond the province of the
courts to inquire into its wisdom, justice or efficiency. The motives which led to its enactment or its
incidental effect as a police measure. The provision of sec 2 of Harrison act that it shall be unlawful for
any person to obtain by means of the said order forms any aforesaid drugs for any purpose other than
the use, sale or distribution thereof by him in the conduct of a lawful business in said drugs or in the
legitimate practice of his profession is unconstitutional for not being within the taxing power of congress
which includes no right to make any specific use of a tax paid article unlawful.

G.R. No. L-77194 March 15, 1988

VIRGILIO GASTON, HORTENCIA STARKE, ROMEO GUANZON, OSCAR VILLANUEVA, JOSE
ABELLO, REMO RAMOS, CAROLINA LOPEZ, JESUS ISASI, MANUEL LACSON, JAVIER LACSON,
TITO TAGARAO, EDUARDO SUATENGCO, AUGUSTO LLAMAS, RODOLFO SIASON, PACIFICO
MAGHARI, JR., JOSE JAMANDRE, AURELIO GAMBOA, ET AL., petitioners,
vs.
REPUBLIC PLANTERS BANK, PHILIPPINE SUGAR COMMISSION, and SUGAR REGULATORY
ADMINISTRATION, respondents, ANGEL H. SEVERINO, JR., GLICERIO JAVELLANA, GLORIA P.
DE LA PAZ, JOEY P. DE LA PAZ, ET AL., and NATIONAL FEDERATION OF SUGARCANE
PLANTERS, intervenors.

To rule in petitioners' favor would contravene the general principle that revenues derived from taxes
cannot be used for purely private purposes or for the exclusive benefit of private persons. The
Stabilization Fund is to be utilized for the benefit of the entire sugar industry, "and all its components,
stabilization of the domestic market," including the foreign market the industry being of vital
importance to the country's economy and to national interest.

Facts:
Philippine Sugar Commission (PHILSUCOM, for short) was formerly the government office tasked with
the function of regulating and supervising the sugar industry until it was superseded by its co-
respondent Sugar Regulatory Administration (SRA, for brevity) under Executive Order No. 18 on May
28, 1986. Although said Executive Order abolished the PHILSUCOM, its existence as a juridical entity
was mandated to continue for three (3) more years "for the purpose of prosecuting and defending suits
by or against it and enables it to settle and close its affairs, to dispose of and convey its property and to
distribute its assets."
Respondent Republic Planters Bank (briefly, the Bank) is a commercial banking corporation.
Angel H. Severino, Jr., et al., who are sugarcane planters planting and milling their sugarcane in
different mill districts of Negros Occidental, were allowed to intervene by the Court, since they have
common cause with petitioners and respondents having interposed no objection to their intervention.
Subsequently, on January 14,1988, the National Federation of Sugar Planters (NFSP) also moved to
intervene, which the Court allowed on February 16,1988.
Petitioners and Intervenors have come to this Court praying for a Writ of mandamus commanding
respondents:
TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF REPUBLIC PLANTERS BANK BY THE
TRANSFER AND DISTRIBUTION OF THE SHARES OF STOCK IN THE SAID BANK; NOW HELD BY AND
STILL CARRIED IN THE NAME OF THE PHILIPPINE SUGAR COMMISSION, TO THE SUGAR PRODUCERS,
PLANTERS AND MILLERS, WHO ARE THE TRUE BENEFICIAL OWNERS OF THE 761,416 COMMON
SHARES VALUED AT P36,548.000.00, AND 53,005,045 PREFERRED SHARES (A, B & C) WITH A TOTAL
PAR VALUE OF P254,424,224.72, OR A TOTAL INVESTMENT OF P290,972,224.72, THE SAID
INVESTMENT HAVING BEEN FUNDED BY THE DEDUCTION OF Pl.00 PER PICUL FROM SUGAR PROCEEDS
OF THE SUGAR PRODUCERS COMMENCING THE YEAR 1978-79 UNTIL THE PRESENT AS STABILIZATION
FUND PURSUANT TO P.D. # 388.
Respondent Bank does not take issue with either petitioners or its correspondents as it has no beneficial
or equitable interest that may be affected by the ruling in this Petition, but welcomes the filing of the
Petition since it will settle finally the issue of legal ownership of the questioned shares of stock.
Respondents PHILSUCOM and SRA, for their part, squarely traverse the petition arguing that no trust
results from Section 7 of P.D. No. 388; that the stabilization fees collected are considered government
funds under the Government Auditing Code; that the transfer of shares of stock from PHILSUCOM to the
sugar producers would be irregular, if not illegal; and that this suit is barred by laches.

Issue/s:  (1) WON the stabilization fees collected from sugar planters and millers pursuant to Section 7
of P.D. No. 388 are funds in trust for them, or public funds; and (PUBLIC FUNDS)
(2) WON shares of stock in respondent Bank paid for with said stabilization fees belong to the
PHILSUCOM or to the different sugar planters and millers from whom the fees were collected or levied.
(PHILSUCOM)

Held:  The Court cannot see a clear way to upholding petitioners' position that the investment of the
proceeds from the stabilization fund in subscriptions to the capital stock of the Bank were being made
for and on their behalf. That could have been clarified by the Trust Agreement, dated May 28, 1986,
entered into between PHILSUCOM, as "Trustor" acting through Mr. Fred J. Elizalde as Officer-in-Charge,
and respondent RPB- Trust Department' as "Trustee," acknowledging that PHILSUCOM holds said shares
for and in behalf of the sugar producers," the latter "being the true and beneficial owners thereof." The
Agreement, however, did not get off the ground because it failed to receive the approval of the
PHILSUCOM Board of Commissioners as required in the Agreement itself.
The SRA, which succeeded PHILSUCOM, neither approved the Agreement because of the adverse
opinion of the SRA, Resident Auditor, dated June 25,1986, which was aimed by the Chairman of the
Commission on Audit, on January 26,1987.
On February 19, 1987, the SRA, resolved to revoke the Trust Agreement "in the light of the ruling of the
Commission on Audit that the aforementioned Agreement is of doubtful validity."
From the legal standpoint, we find basis for the opinion of the Commission on Audit reading:
That the government, PHILSUCOM or its successor-in-interest, Sugar Regulatory Administration, in
particular, owns and stocks. While it is true that the collected stabilization fees were set aside
by PHILSUCOM to pay its subscription to RPB, it did not collect said fees for the account of
the sugar producers. That stabilization fees are charges/levies on sugar produced and milled
which accrued to PHILSUCOM under PD 338, as amended. ...

The stabilization fees collected are in the nature of a tax, which is within the power of the
State to impose for the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They
constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a "Special Fund,"
a "Development and Stabilization Fund," almost Identical to the "Sugar Adjustment and
Stabilization Fund" created under Section 6 of Commonwealth Act 567. The tax collected is not
in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide means for the
stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State
(Lutz vs. Araneta, supra.).
The protection of a large industry constituting one of the great sources of the state's wealth and
therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is
affected to such an extent by public interests as to be within the police power of the sovereign.
(Johnson vs. State ex rel. Marey, 128 So. 857, cited in Lutz vs. Araneta, supra).
The stabilization fees in question are levied by the State upon sugar millers, planters and producers for
a special purpose — that of "financing the growth and development of the sugar industry and all its
components, stabilization of the domestic market including the foreign market the fact that the State
has taken possession of moneys pursuant to law is sufficient to constitute them state funds, even
though they are held for a special purpose (Lawrence vs. American Surety Co., 263 Mich 586, 249 ALR
535, cited in 42 Am. Jur. Sec. 2, p. 718). Having been levied for a special purpose, the revenues
collected are to be treated as a special fund, to be, in the language of the statute, "administered in
trust' for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance, if any, is
to be transferred to the general funds of the Government. That is the essence of the trust intended (See
1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution, Article VI, Sec.
23(l]). 2
The character of the Stabilization Fund as a special fund is emphasized by the fact that the
funds are deposited in the Philippine National Bank and not in the Philippine Treasury,
moneys from which may be paid out only in pursuance of an appropriation made by law
(1987) Constitution, Article VI, Sec. 29[1],1973 Constitution, Article VIII, Sec. 18[l]).

That the fees were collected from sugar producers, planters and millers, and that the funds
were channeled to the purchase of shares of stock in respondent Bank do not convert the
funds into a trust fired for their benefit nor make them the beneficial owners of the shares so
purchased. It is but rational that the fees be collected from them since it is also they who are
to be benefited from the expenditure of the funds derived from it. The investment in shares
of respondent Bank is not alien to the purpose intended because of the Bank's character as a
commodity bank for sugar conceived for the industry's growth and development.
Furthermore, of note is the fact that one-half, (1/2) or PO.50 per picul, of the amount levied
under P.D. No. 388 is to be utilized for the "payment of salaries and wages of personnel,
fringe benefits and allowances of officers and employees of PHILSUCOM" thereby
immediately negating the claim that the entire amount levied is in trust for sugar, producers,
planters and millers.

To rule in petitioners' favor would contravene the general principle that revenues derived
from taxes cannot be used for purely private purposes or for the exclusive benefit of private
persons. The Stabilization Fund is to be utilized for the benefit of the entire sugar industry,
"and all its components, stabilization of the domestic market," including the foreign market
the industry being of vital importance to the country's economy and to national interest.

Planters Product V. Fertiphil Corp. (2008) G.R. No. 166006 March 14, 2008
An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public
purpose. They cannot be used for purely private purposes or for the exclusive benefit of private
persons. The reason for this is simple. The power to tax exists for the general welfare; hence, implicit in
its power is the limitation that it should be used only for a public purpose. It would be a robbery for the
State to tax its citizens and use the funds generated for a private purpose. As an old United States case
bluntly put it: "To lay with one hand, the power of the government on the property of the citizen, and
with the other to bestow it upon favored individuals to aid private enterprises and build up private
fortunes, is nonetheless a robbery because it is done under the forms of law and is called taxation."
Taxes are exacted only for a public purpose. The ₱10 levy is unconstitutional because it was not for a
public purpose. The levy was imposed to give undue benefit to PPI.

Facts:
Petitioner PPI and private respondent Fertiphil are private corporations incorporated under Philippine
laws. They are both engaged in the importation and distribution of fertilizers, pesticides and agricultural
chemicals.
On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers, issued LOI No
1465 which provided, among others, for the imposition of a capital recovery component (CRC) onthe
domestic sale of all grades of fertilizers in the Philippines. The LOI provides:
3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula a
capital contribution component of not less than ₱10 per bag. This capital contribution shall be collected
until adequate capital is raised to make PPI viable. Such capital contribution shall be applied by FPA to
all domestic sales of fertilizers in the Philippines.
Pursuant to the LOI, Fertiphil paid ₱10 for every bag of fertilizer it sold in the domestic market to the
Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount collected to the Far East
Bank and Trust Company, the depositary bank of PPI. Fertiphil paid ₱6,689,144 to FPA from July 8,
1985 to January 24, 1986.
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the ₱10 levy. With the return
of democracy, Fertiphil demanded from PPI a refund of the amounts it paid under LOI No.
1465, but PPI refused to accede to the demand.
Fertiphil filed a complaint for collection and damages against FPA and PPI with the RTC in Makati. It
questioned the constitutionality of LOI No. 1465 for being unjust, unreasonable, oppressive, invalid and
an unlawful imposition that amounted to a denial of due process of law. Fertiphil alleged that the LOI
solely favored PPI, a privately owned corporation, which used the proceeds to maintain its monopoly of
the fertilizer industry.
In its Answer, FPA, through the Solicitor General, countered that the issuance of LOI No. 1465 was a
valid exercise of the police power of the State in ensuring the stability of the fertilizer industry in the
country. It also averred that Fertiphil did not sustain any damage from the LOI because the burden
imposed by the levy fell on the ultimate consumer, not the seller.
Issue: Was the CRC exacted for public purpose? – No.
The ₱10 levy under LOI No. 1465 is too excessive to serve a mere regulatory purpose. The levy, no
doubt, was a big burden on the seller or the ultimate consumer. It increased the price of a bag of
fertilizer by as much as five percent. A plain reading of the LOI also supports the conclusion that the
levy was for revenue generation. The LOI expressly provided that the levy was imposed "until adequate
capital is raised to make PPI viable."
Taxes are exacted only for a public purpose. The ₱10 levy is unconstitutional because it was
not for a public purpose. The levy was imposed to give undue benefit to PPI.

An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a
public purpose. They cannot be used for purely private purposes or for the exclusive benefit of private
persons. The reason for this is simple. The power to tax exists for the general welfare; hence, implicit in
its power is the limitation that it should be used only for a public purpose. It would be a robbery for the
State to tax its citizens and use the funds generated for a private purpose. As an old United States case
bluntly put it: "To lay with one hand, the power of the
government on the property of the citizen, and with the other to bestow it upon favored individuals to
aid private enterprises and build up private fortunes, is nonetheless a robbery because it is done under
the forms of law and is called taxation."

The term "public purpose" is not defined. It is an elastic concept that can be hammered to fit
modern standards. Jurisprudence states that "public purpose" should be given a broad
interpretation. It does not only pertain to those purposes which are traditionally viewed as
essentially government functions, 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.
While the categories of what may constitute a public purpose are continually expanding in light of the
expansion of government functions, the inherent requirement that taxes can only be exacted for a
public purpose still stands. Public purpose is the heart of a tax law. When a tax law is only a mask to
exact funds from the public when its true intent is to give undue benefit and advantage to a private
enterprise, that law will not satisfy the requirement of "public purpose."

The purpose of a law is evident from its text or inferable from other secondary sources. Here, We agree
with the RTC and that CA that the levy imposed under LOI No. 1465 was not for a public purpose.
First, the LOI expressly provided that the levy be imposed to benefit PPI, a private company. The
purpose is explicit from Clause 3 of the law.
Second, the LOI provides that the imposition of the ₱10 levy was conditional and dependent upon PPI
becoming financially "viable." This suggests that the levy was actually imposed to benefit PPI.
The LOI notably does not fix a maximum amount when PPI is deemed financially "viable." Worse, the
liability of Fertiphil and other domestic sellers of fertilizer to pay the levy is made indefinite.
They are required to continuously pay the levy until adequate capital is raised for PPI.
Third, the RTC and the CA held that the levies paid under the LOI were directly remitted and deposited
by FPA to Far East Bank and Trust Company, the depositary bank of PPI. This proves that
PPI benefited from the LOI. It is also proves that the main purpose of the law was to give undue benefit
and advantage to PPI.
Fourth, the levy was used to pay the corporate debts of PPI. A reading of the Letter of Understanding
dated May 18, 1985 signed by then Prime Minister Cesar Virata reveals that PPI was in deep financial
problem because of its huge corporate debts. There were pending petitions for rehabilitation against PPI
before the Securities and Exchange Commission. The government guaranteed payment of PPI’s debts to
its foreign creditors. To fund the payment, President Marcos issued LOI No. 1465.
All told, the RTC and the CA did not err in holding that the levy imposed under LOI No. 1465 was for a
public purpose. LOI No. 1465 failed to comply with the public purpose requirement for tax laws.
Inherently legislative
G.R. No. L-45685 November 16 1937 En Banc [Non Delegation of Legislative Powers]

FACTS:
Mariano Cu Unjieng was convicted by the trial court in Manila. He filed for reconsideration and four
motions for new trial but all were denied. He then elevated to the Supreme Court and the Supreme
Court remanded the appeal to the lower court for a new trial.
While awaiting new trial, he appealed for probation alleging that the he is innocent of the crime he was
convicted of. The Judge of the Manila CFI directed the appeal to the Insular Probation Office. The IPO
denied the application. However, Judge Vera upon another request by petitioner allowed the petition to
be set for hearing.
The City Prosecutor countered alleging that Vera has no power to place Cu Unjieng under probation
because it is in violation of Sec. 11 Act No. 4221 which provides that the act of Legislature granting
provincial boards the power to provide a system of probation to convicted person. Nowhere in the law is
stated that the law is applicable to a city like Manila because it is only indicated therein that only
provinces are covered. And even if Manila is covered by the law it is unconstitutional because Sec 1 Art
3 of the Constitution provides equal protection of laws. The said law provides absolute discretion to
provincial boards and this also constitutes undue delegation of power. Further, the said probation law
may be an encroachment of the power of the executive to provide pardon because providing probation,
in effect, is granting freedom, as in pardon.
In their memorandums filed, counsel for the respondents maintain that Act No. 4221 is constitutional
because, contrary to the allegations of the petitioners, it does not constitute an undue delegation of
legislative power, does not infringe the equal protection clause of the Constitution, and does not
encroach upon the pardoning power of the Executive. In an additional memorandum filed on the same
date, counsel for the respondents reiterate the view that section 11 of Act No. 4221 is free from
constitutional objections and contend, in addition, that the private prosecution may not intervene in
probation proceedings, much less question the validity of Act No. 4221
ISSUE:
Whether or not there is undue delegation of powers.
RULING:
Yes. SC conclude that section 11 of Act No. 4221 constitutes an improper and unlawful delegation of
legislative authority to the provincial boards and is, for this reason, unconstitutional and void.
The challenged section of Act No. 4221 in section 11 which reads as follows: "This Act shall apply only
in those provinces in which the respective provincial boards have provided for the salary of a probation
officer at rates not lower than those now provided for provincial fiscals. Said probation officer shall be
appointed by the Secretary of Justice and shall be subject to the direction of the Probation Office."
The provincial boards of the various provinces are to determine for themselves, whether the Probation
Law shall apply to their provinces or not at all. The applicability and application of the Probation Act are
entirely placed in the hands of the provincial boards. If the provincial board does not wish to have the
Act applied in its province, all that it has to do is to decline to appropriate the needed amount for the
salary of a probation officer.

The clear policy of the law, as may be gleaned from a careful examination of the whole context, is to
make the application of the system dependent entirely upon the affirmative action of the different
provincial boards through appropriation of the salaries for probation officers at rates not lower than
those provided for provincial fiscals. Without such action on the part of the various boards, no probation
officers would be appointed by the Secretary of Justice to act in the provinces. The Philippines is divided
or subdivided into provinces and it needs no argument to show that if not one of the provinces — and
this is the actual situation now — appropriate the necessary fund for the salary of a probation officer,
probation under Act No. 4221 would be illusory. There can be no probation without a probation officer.
Neither can there be a probation officer without the probation system.

Some of the members of the Guild of Philippine Jewelers were given a Mission Order not to sell the
jewelries and other articles displayed in their respective establishments until it can be proven that the
necessary taxes thereon have been paid. In response, Private Respondent prayed that Regional Trial
Court declare Sections 126, 127(a) and (b) and 150(a) of the National Internal Revenue Code and Hdg.
No. 71.01, 71.02, 71.03, and 71.04, Chapter 71 of the Tariff and Customs Code of the Philippines
unconstitutional and void, and that the Commissioner of Internal Revenue and Customs be prevented or
enjoined from issuing mission orders and other orders of similar nature. It even submitted a position
paper purporting to be an exhaustive study of the tax rates on jewelry prevailing in other Asian
countries, in comparison to tax rates levied on the same in the Philippines.
Issue:
1. Can the Regional Trial Courts declare a law inoperative and without force and effect or otherwise
unconstitutional?
2. Is the tax imposed oppressive?

Held:
No. This is a matter on which the RTC is not competent to rule. As Cooley observed: “Debatable
questions are for the legislature to decide. The courts do not sit to resolve the merits of conflicting
issues.” In Angara vs. Electoral Commission, Justice Laurel made it clear that “the judiciary does not
pass upon questions of wisdom, justice or expediency of legislation.” And fittingly so, for in the exercise
of judicial power, we are allowed only “to settle actual controversies involving rights which are legally
demandable and enforceable,” and may not annul an act of the political departments simply because we
feel it is unwise or impractical. This is not to say that Regional Trial Courts have no power whatsoever to
declare a law unconstitutional. In J.M. Tuason and Co. v. Court of Appeals, we said that “[p]lainly the
Constitution contemplates that the inferior courts should have jurisdiction in cases involving
constitutionality of any treaty or law, for it speaks of appellate review of final judgments of inferior
courts in cases where such constitutionality happens to be in issue.”

This authority of lower courts to decide questions of constitutionality in the first instance was reaffirmed
in Ynot v. Intermediate Appellate Court. But this authority does not extend to deciding questions
which pertain to legislative policy.
The trial court is not the proper forum for the ventilation of the issues raised by the private
respondents. The arguments they presented focus on the wisdom of the provisions of law which they
seek to nullify. Regional Trial Courts can only look into the validity of a provision, that is ,
whether or not it has been passed according to the procedures laid down by law, and thus
cannot inquire as to the reasons for its existence.  Granting arguendothat the private respondents
may have provided convincing arguments why the jewelry industry in the Philippines should not be
taxed as it is, it is to the legislature that they must resort to for relief, since with the legislature
primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage
(subjects) and situs(place) of taxation. This Court cannot freely delve into those matters which, by
constitutional fiat, rightly rest on legislative judgment.

As succinctly put in Lim vs. Pacquing: “Where a controversy may be settled on a platform other than
one involving constitutional adjudication, the court should exercise becoming modesty and avoid the
constitutional question.” As judges, we can only interpret and apply the law and, despite our doubts
about its wisdom, cannot repeal or amend it.

2. NO. The respondents presented an exhaustive study on the tax rates on jewelry levied by different
Asian countries. This is meant to convince us that compared to other countries, the tax rates imposed
on said industry in the Philippines is oppressive and confiscatory. This Court, however, cannot
subscribe to the theory that the tax rates of other countries should be used as a yardstick in
determining what may be the proper subjects of taxation in our own country. It should be
pointed out that in imposing the aforementioned taxes and duties, the State, acting through
the legislative and executive branches, is exercising its sovereign prerogative. It is inherent
in the power to tax that the State be free to select the subjects of taxation, and it has been
repeatedly held that “inequalities which result from a singling out of one particular class for
taxation, or exemption, infringe no constitutional limitation.”

Exemption
Delegation to the LGU
Basis: Article X, Section 5: Each LGU shall have the power to create its own sources of revenues and to
levy taxes, fees and charges subject to such guidelines and limitations as Congress may provide
consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively
to the local governments.
[1] Merely Delegated Power
If there is no Constitution, there would be no LGU which are considered as municipal corporations. They
are corporations with special purpose and been given the power to tax by virtue of the Constitution.
[2] A Direct Grant
Once it is stated in the constitution, there is no need for an enabling law for such to happen.
Automatically, the LGU then has the power to tax because of the Constitutional provision. The Congress
may then set forth limits of the LGU’s power to tax and it is presents the LGC.
Constant Rule:
LGUs do not have the inherent power to tax.
Reconciliation:
It is a mere delegated power but nonetheless it is a direct grant by the Constitution for LGUs can tax
without having to wait for an executing law. The purpose of LGC was just to limit. But, the power of the
LGU to tax is limited and not plenary. Thus:
1. National Government – power to tax is plenary;
2. Local Government – power to tax is limited.
G.R. No. 91649             May 14, 1991
ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN AND LORENZO
SANCHEZ, petitioners,
vs.
PHILIPPINE AMUSEMENTS AND GAMING CORPORATION (PAGCOR), respond
THE POWER OF LOCAL GOVERNMENT TO "IMPOSE TAXES AND FEES" IS ALWAYS SUBJECT TO "LIMITATIONS" WHICH
CONGRESS MAY PROVIDE BY LAW. Since PD 1869 remains an "operative" law until "amended, repealed or revoked"
(Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the power of
local governments to impose taxes and fees. It cannot therefore be violative but rather is consistent with the principle
of local autonomy
The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D. 1067-A
dated January 1, 1977 and was granted a franchise under P.D. 1067-B also dated January 1, 1977 "to
establish, operate and maintain gambling casinos on land or water within the territorial jurisdiction of
the Philippines."
Petitioners filed an instant petition seeking to annul the Philippine Amusement and Gaming Corporation
(PAGCOR) Charter — PD 1869 (which exempts pagcor from payment of taxes), because it is allegedly
contrary to morals, public policy and order
However, the city of manila sought to impose taxes on PAGCOR.

Petitioners claim that P.D. 1869 constitutes a waiver of the right of the City of Manila to
impose taxes and legal fees; that the exemption clause in P.D. 1869 is in violation of the
principle of local autonomy.
Section 13 par. (2) of P.D. 1869 exempts PAGCOR, as the franchise holder from paying any "tax of any
kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether
National or Local."
(2) Income and other taxes. — a) Franchise Holder: No tax of any kind or form, income or otherwise as
well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and
collected under this franchise from the Corporation; nor shall any form or tax or charge attach in any
way to the earnings of the Corporation, except a franchise tax of five (5%) percent of the gross
revenues or earnings derived by the Corporation from its operations under this franchise. Such tax shall
be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes,
levies, fees or assessments of any kind, nature or description, levied, established or collected by any
municipal, provincial or national government authority (Section 13 [2]).
Issue:
1. Does the local Government of Manila have the power to impose taxes on PAGCOR? NO
2. Is PD 1869 a violation of the local autonomy clause in the constitution? NO
Ruling: A. No, The City government of Manila has no power to impose taxes on PAGCOR.
1. The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. Thus,
"the Charter or statute must plainly show an intent to confer that power or the municipality cannot
assume it" (Medina v. City of Baguio, 12 SCRA 62). Its "power to tax" therefore must always yield to a
legislative act which is superior having been passed upon by the state itself which has the "inherent
power to tax" 2. The Charter of the City of Manila is subject to control by Congress. It should be
stressed that "municipal corporations are mere creatures of Congress" which has the power to "create
and abolish municipal corporations" due to its "general legislative powers" Congress, therefore, has the
power of control over Local governments). And if Congress can grant the City of Manila the power to tax
certain matters, it can also provide for exemptions or even take back the power.
3. The City of Manila's power to impose license fees on gambling, has long been revoked. As early as
1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses or
permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government
4. Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a
government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks
are owned by the National Government.
B. Petitioners also argue that the Local Autonomy Clause of the Constitution will be violated by P.D.
1869. This is a pointless argument. Article X of the 1987 Constitution (on Local Autonomy) provides:
Sec. 5. Each local government unit shall have the power to create its own source of revenue and to levy
taxes, fees, and other charges subject to such guidelines and limitation as the congress may provide,
consistent with the basic policy on local autonomy. Such taxes, fees and charges shall accrue
exclusively to the local government. (emphasis supplied) THE POWER OF LOCAL GOVERNMENT TO
"IMPOSE TAXES AND FEES" IS ALWAYS SUBJECT TO "LIMITATIONS" WHICH CONGRESS MAY PROVIDE
BY LAW. Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art.
XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the power
of local governments to impose taxes and fees. It cannot therefore be violative but rather is consistent
with the principle of local autonomy. Besides, the principle of local autonomy under the 1987
Constitution simply means "decentralization." As to what state powers should be "decentralized" and
what may be delegated to local government units remains a matter of policy, which concerns wisdom. It
is therefore a political question. (Citizens Alliance for Consumer Protection v. Energy Regulatory Board,
162 SCRA 539). What is settled is that the matter of regulating, taxing or otherwise dealing with
gambling is a State concern and hence, it is the sle prerogative of the State to retain it or delegate it to
local governments

THE CITY GOVERNMENT OF QUEZON CITY, AND THE CITY TREASURER OF QUEZON CITY, DR.
VICTOR B. ENRIGA, Petitioners, vs. BAYAN TELECOMMUNICATIONS, INC., Respondent.
G.R. No. 162015, SECOND DIVISION, March 6, 2006, GARCIA,J.
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local
legislative bodies, no longer merely be virtue of a valid delegation as before, but pursuant to direct authority conferred
by Section 5, Article X of the Constitution. Under the latter, the exercise of the power may be subject to such guidelines
and limitations as the Congress may provide which, however, must be consistent with the basic policy of local
autonomy.
Clearly then, while a new slant on the subject of local taxation now prevails in the sense that the
former doctrine of local government units’ delegated power to tax had been effectively modified with
Article X, Section 5 of the 1987 Constitution now in place, the basic doctrine on local taxation remains essentially the
same. For as the Court stressed in Mactan, "the power to tax is [still] primarily vested in the Congress."
There can really be no dispute that the power of the Quezon City Government to tax is limited by
Section 232 of the LGC which expressly provides that "a province or city or municipality within the
Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and
other improvement not hereinafter specifically exempted." Under this law, the
Legislature highlighted its power to thereafter exempt certain realties from the taxing power of local government
units. An interpretation denying Congress such power to exempt would reduce the phrase "not hereinafter specifically
exempted" as a pure jargon, without meaning whatsoever.
Needless to state, such absurd situation is unacceptable

FACTS:
Respondent Bayan Telecommunications, Inc. (Bayantel) is a legislative franchise holder under Republic Act
(Rep. Act) No. 3259 to establish and operate radio stations for domestic telecommunications, radiophone,
broadcasting and telecasting. Of relevance to this controversy is the tax provision of Rep. Act No. 3259,
embodied in Section 14 thereof, which reads:
SECTION 14. (a) The grantee shall be liable to pay the same taxes on its real estate, buildings and personal
property, exclusive of the franchise, as other persons or corporations are now or hereafter may be required by
law to pay. (b) The grantee shall further pay to the Treasurer of the Philippines each year, within ten days after
the audit and approval of the accounts as prescribed in this Act, one and one-half per centum of all gross receipts
from the business transacted under this franchise by the said grantee (Emphasis supplied).
However, with the LGC’s taking effect on January 1, 1992, Bayantel’s "exemption" from real estate
taxes for properties of whatever kind located within the Metro Manila area was, by force of Section
234 of the Code, supra, expressly withdrawn.
Conformably with the City’s Revenue Code, new tax declarations for Bayantel’s real properties in Quezon City
were issued by the City Assessor and were received by Bayantel.

But, not long thereafter, however, or on July 20, 1992,

Congress passed Rep. Act No. 7633 amending Bayantel’s original franchise. Worthy of note is that
Section 11 of Rep. Act No. 7633 is a virtual reenacment of the tax provision, i.e., Section 14, supra, of
Bayantel’s original franchise under Rep. Act No. 3259.

On account thereof, the Quezon City Treasurer sent out notices of delinquency for the total amount of  P43,
878,208.18, followed by the issuance of several warrants of levy against Bayantel’s properties preparatory to
their sale at a public auction set on July 30, 2002.

Issue: Whether or not Bayantel’s real properties in Quezon City are, under its franchise, exempt from real
property tax. (YES)

Held: The Court has taken stock of the fact that by virtue of Section 5, Article X of the 1987
Constitution, local governments are empowered to levy taxes. And pursuant to this constitutional
empowerment, juxtaposed with Section 2329 of the LGC, the Quezon City government enacted in 1993
its local Revenue Code, imposing real property tax on all real properties found within its territorial
jurisdiction. And as earlier stated, the City’s Revenue Code, just like the LGC, expressly withdrew, under
Section 230 thereof, supra, all tax exemption privileges in general.

This thus raises the question of whether or not the City’s Revenue Code pursuant to which the city
treasurer of Quezon City levied real property taxes against Bayantel’s real properties located within the
City effectively withdrew the tax exemption enjoyed by Bayantel under its franchise, as amended.

Bayantel answers the poser in the negative arguing that once again it is only "liable to pay the same
taxes, as any other persons or corporations on all its real or personal properties, exclusive of its
franchise."

Bayantel’s posture is well-taken. While the system of local government taxation has changed
with the onset of the 1987 Constitution, the power of local government units to tax is still
limited. As we explained in Mactan Cebu International Airport Authority:10

The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely be virtue of a valid delegation as
before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution.
Under the latter, the exercise of the power may be subject to such guidelines and limitations
as the Congress may provide which, however, must be consistent with the basic policy of
local autonomy. (at p. 680; Emphasis supplied.)

Clearly then, while a new slant on the subject of local taxation now prevails in the sense that the former
doctrine of local government units’ delegated power to tax had been effectively modified with Article X,
Section 5 of the 1987 Constitution now in place, .the basic doctrine on local taxation remains essentially
the same. For as the Court stressed in Mactan, "the power to tax is [still] primarily vested in the
Congress."

This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J., himself a Commissioner of the
1986 Constitutional Commission which crafted the 1987 Constitution, thus:

What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5 does not
change the doctrine that municipal corporations do not possess inherent powers of taxation. What it
does is to confer municipal corporations a general power to levy taxes and otherwise create sources of
revenue. They no longer have to wait for a statutory grant of these powers. The power of the legislative
authority relative to the fiscal powers of local governments has been reduced to the authority to impose
limitations on municipal powers. Moreover, these limitations must be "consistent with the basic policy of
local autonomy." The important legal effect of Section 5 is thus to reverse the principle that doubts are
resolved against municipal corporations. Henceforth, in interpreting statutory provisions on municipal
fiscal powers, doubts will be resolved in favor of municipal corporations. It is understood, however, that
taxes imposed by local government must be for a public purpose, uniform within a locality, must not be
confiscatory, and must be within the jurisdiction of the local unit to pass.11 (Emphasis supplied).

In net effect, the controversy presently before the Court involves, at bottom, a clash between the
inherent taxing power of the legislature, which necessarily includes the power to exempt, and the local
government’s delegated power to tax under the aegis of the 1987 Constitution.

Now to go back to the Quezon City Revenue Code which imposed real estate taxes on all real properties
within the city’s territory and removed exemptions theretofore "previously granted to, or presently
enjoyed by all persons, whether natural or juridical ….,"12 there can really be no dispute that the power
of the Quezon City Government to tax is limited by Section 232 of the LGC which expressly provides
that "a province or city or municipality within the Metropolitan Manila Area may levy an annual ad
valorem tax on real property such as land, building, machinery, and other improvement not hereinafter
specifically exempted." Under this law, the Legislature highlighted its power to thereafter exempt
certain realties from the taxing power of local government units. An interpretation denying Congress
such power to exempt would reduce the phrase "not hereinafter specifically exempted" as a pure
jargon, without meaning whatsoever. Needless to state, such absurd situation is unacceptable.

For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of Davao,13 this Court
has upheld the power of Congress to grant exemptions over the power of local government units to
impose taxes. There, the Court wrote:

Indeed, the grant of taxing powers to local government units under the Constitution and the LGC does
not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared
national policy. The legal effect of the constitutional grant to local governments simply means that in
interpreting statutory provisions on municipal taxing powers, doubts must be resolved in favor of
municipal corporations. (Emphasis supplied.)

As we see it, then, the issue in this case no longer dwells on whether Congress has the power to exempt
Bayantel’s properties from realty taxes by its enactment of Rep. Act No. 7633 which amended
Bayantel’s original franchise. The more decisive question turns on whether Congress actually did exempt
Bayantel’s properties at all by virtue of Section 11 of Rep. Act No. 7633.

Admittedly, Rep. Act No. 7633 was enacted subsequent to the LGC. Perfectly aware that the LGC has
already withdrawn Bayantel’s former exemption from realty taxes, Congress opted to pass Rep. Act No.
7633 using, under Section 11 thereof, exactly the same defining phrase "exclusive of this franchise"
which was the basis for Bayantel’s exemption from realty taxes prior to the LGC. In plain language,
Section 11 of Rep. Act No. 7633 states that "the grantee, its successors or assigns shall be liable to pay
the same taxes on their real estate, buildings and personal property, exclusive of this franchise, as
other persons or corporations are now or hereafter may be required by law to pay." The Court views
this subsequent piece of legislation as an express and real intention on the part of Congress to once
again remove from the LGC’s delegated taxing power, all of the franchisee’s (Bayantel’s) properties that
are actually, directly and exclusively used in the pursuit of its franchise.

b. Delegation to the President

Basis: Article VI, Section 28 (2): The Congress may, by law, authorize the President to fix within
specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of
the national development program of the Government.
Delegated and Not Inherent
This is merely delegated (by law), and President does not have inherent power to tax. Power to tax is
inherently legislative in nature while the President is executive.
Scope
1. Tariff rates;
2. Import and Export Quotas
3. Tonnage and Wharfage Dues; and
4. Other duties or imposts within the framework of the national dev’t program of the governments.
Sec. 1608.  Flexible Clause
Flexible Clause. – (a) In the interest of general welfare and national security, and subject to the
limitations prescribed under this Act, the President, upon the recommendation of the NEDA, is hereby
empowered to:

(1) Increase, reduce, or remove existing rates of import duty including any necessary change in
classification. The existing rates may be increased or decreased to any level, in one or several stages,
but in no case shall the increased rate of import duty be higher than a maximum of one hundred
percent (100%) ad valorem;

(2) Establish import quotas or ban imports of any commodity, as may be necessary; and

(3) Impose an additional duty on all imports not exceeding ten percent (10%) ad valorem whenever
necessary: Provided, That upon periodic investigations by the Commission and recommendation of the
NEDA, the President may cause a gradual reduction of rates of import duty granted in Section 1611 of
this Act, including those subsequently granted pursuant to this section.

(b) Before any recommendation is submitted to the President by the NEDA pursuant to the provisions of
this section, except in the imposition of an additional duty not exceeding ten percent (10%) ad valorem,
the Commission shall conduct an investigation and shall hold public hearings wherein interested parties
shall be afforded reasonable opportunity to be present, to produce evidence and to be heard. The
Commission shall also hear the views and recommendations of any government office, agency, or
instrumentality. The Commission shall submit its findings and recommendations to the NEDA within
thirty (30) days after the termination of the public hearings.

(c) The power of the President to increase or decrease rates of import duty within the limits fixed in
subsection (a) hereof shall include the authority to modify the form of duty. In modifying the form of
duty, the corresponding ad valorem or specific equivalents of the duty with respect to imports from the
principal competing foreign country for the most recent representative period shall be used as basis.
(d) Any order issued by the President pursuant to the provisions of this section shall take effect thirty
(30) days after promulgation, except in the imposition of additional duty not exceeding ten percent
(10%) ad valorem which shall take effect at the discretion of the President.
(e) The power delegated to the President as provided for in this section shall be exercised only when
Congress is not in session.
(f) The power herein delegated may be withdrawn or terminated by Congress through a joint resolution.

The NEDA shall promulgate rules and regulations necessary to carry out the provisions of this section.

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.
The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of facts
upon which enforcement and administration of the increase rate under the law is contingent. The legislature has made
the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves the
entire operation or non-operation of the
12% rate upon factual matters outside of the control of the executive.

Facts: Petitioners assail sections 4 to 6 of Republic Act No. 9337 as violative of the principle of non-
delegation of legislative power. These sections authorize the President, upon recommendation of
the Secretary of Finance, to raise the value-added tax (VAT) rate to 12% effective January 1, 2006,
upon satisfaction of the following conditions: viz:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 ½%).
On the other hand, respondents contend that there is no undue delegation of legislative power since 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.

Issue: Whether sections 4 to 6 of Republic Act No. 9337 are unconstitutional for being violative of the principle
of non-delegation of legislative power. (NO)

Held: The case before the Court is not a delegation of legislative power. It is simply a delegation of
ascertainment of facts upon which enforcement and administration of the increase rate under the law is
contingent. The legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a
specified fact or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters
outside of the control of the executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the
word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a
statute denotes an imperative obligation and is inconsistent with the idea of discretion. Where the law is clear
and unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that
the mandate is obeyed.
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of
the conditions specified by Congress. This is a duty which cannot be evaded by the President. Inasmuch as the
law specifically uses the word shall, the exercise of discretion by the
President does not come into play. It is a clear directive to impose the 12% VAT rate when the specified
conditions are present. The time of taking into effect of the 12% VAT rate is based on the happening of a certain
specified contingency, or upon the ascertainment of certain facts or conditions by a person or body other than
the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law effectively
nullified the President’s power of control over the Secretary of Finance by mandating the fixing of the tax rate by
the President upon the recommendation of the Secretary of Finance.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head of the
Department of Finance he is the assistant and agent of the Chief Executive. The multifarious executive and
administrative functions of the Chief Executive are performed by and through the executive departments, and
the acts of the secretaries of such departments, such as the Department of Finance, performed and promulgated
in the regular course of business, are, unless disapproved or reprobated by the Chief Executive, presumptively
the acts of the Chief Executive.
The Secretary of Finance, as such, occupies a political position and holds office in an advisory capacity, and, in
the language of Thomas Jefferson, "should be of the President's bosom confidence" and, in the language of
Attorney-General Cushing, is "subject to the direction of the President."
In the present case, in making his recommendation to the President on the existence of either of the two
conditions, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. In
such instance, he is not subject to the power of control and direction of the President. He is acting as the agent of
the legislative department, to determine and declare the event upon which its expressed will is to take effect.
The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented,
considering that he possesses all the facilities to gather data and information and has a much broader
perspective to properly evaluate them. His function is to gather and collate statistical data and other pertinent
information and verify if any of the two conditions laid out by Congress is present. His personality in such
instance is in reality but a projection of that of Congress. Thus, being the agent of Congress and not of the
President, the President cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance
and to substitute the judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely,
whether by December 31, 2005, the value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (24/5%) or the national
government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1½%). If
either of these two instances has occurred, the Secretary of Finance, by legislative mandate, must submit such
information to the President. Then the 12% VAT rate must be imposed by the President effective January 1,
2006. There is no undue delegation of legislative power but only of the discretion as to the execution of a law.
This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when it
describes what job must be done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go forward.
Tests for Valid Delegation

In ABAKADA v. Ermita

1. Completeness Test. - is complete in itself, setting forth therein the policy to be executed, carried out, or
implemented by the delegate; and

2. Sufficient Standards Test. – it fixes a standard — the limits of which are sufficiently determinate and
determinable — to which the delegate must conform in the performance of his functions.

A sufficient standard is one which defines legislative policy, marks its limits, maps out its boundaries and
specifies the public agency to apply it. It indicates the circumstances under which the legislative command
is to be effected. Both tests are intended to prevent a total transference of legislative authority to the
delegate, who is not allowed to step into the shoes of the legislature and exercise a power essentially
legislative.

c. DELEGATION TO THE ADMINISTRATIVE AGENCIES

This is also known as subordinate legislation.
In delegation to administrative bodies, the rules and regulations must conform to the law. It can neither
expand nor constrict what is written in the red letter of the law. In case of conflict between the law and
the revenue regulation, the law prevails.
Jurisdiction
Jurisdiction in taxation usually refers to territory.
1. Territoriality
“Taxation is jurisdictional in nature” This means the power of taxation operates only within the
territorial limits of the taxing authority.
GR: Once object or subject of taxation is outside PH, it is no longer subject to PH Taxation.
XPN: If there is a privity of relationship between the taxing authority and the tax subject or object.
Privity of Relationship
There is such privity (so as to be covered by tax jurisdiction) if the taxing authority can afford protection
to the tax subject or object.
Three Factors to Determine if
Government Can Afford Protection
1. Citizenship of the tax subject or object
2. Residence or location of the tax subject or object; and
3. Source of the tax subject or object
2. Situs of Taxation
It means the place of taxation. The situs of taxation are the general rules that states or taxing
authorities follow when it comes to taxation schemes and most of them, if not all, are applicable to the
Philippine taxation setting.
The situs of taxation is the place or authority that has the right to impose and collect taxes. It has bee
said that tax laws basically operate only within the territory of tax authority. This is so because it is only
within the boundaries of the tax authority where it could provide protection to the taxpayer.
Determination of Situs of Taxation
In general, the situs of taxation is determine by the place that gives protection which has the right to
levy and collect taxes. Specifically the determinants are the following:
[1] The benefits-protection theory or symbiotic relationship. The reciprocal relation of
protection and support between the taxpayer and the state. The state gives protection and in
order to continue giving protection, it must be supported in the form of taxes.
[2] The jurisdiction-state or political unit that gives protection has the right to demand
support.
Technically, tax laws are jurisdictional or operate only within the territorial jurisdiction of a state
because that is where it could give protection. This is subject to the concept of mobilia sequntur
personam.
Factors to Determine Whether Tax Subject/Object
Is Subject to Philippine Taxation
1. Kind of tax being imposed or levied;
2. Place where the thing or property is located;
3. Residence of the person being taxed;
4. Citizenship of the person being taxed; and
5. Place where the excise or privilege or business or occupation is being performed (place of exercise)
There is no need for all factors to go together. It is enough that one or some factors exist in order that
the tax subject or object may be covered by Philippine Taxation.

CIR v. BRITISH OVERSEAS AIRWAYS CORP.

GR 65773-74, 233 Phil. 406, April 30, 1987
Termed as the “BOAC Doctrine”
Facts: BOAC is 100% British Government owned corporation under UK Laws engaged in international
airline business. It operates air transport service and sell tickets over the routes of the other airline
members.
During the periods covered by the disputed assessments, it is admitted that BOAC had no landing rights
for traffic purposes in the Philippines, and was not granted a Certificate of public convenience and
necessity to operate in the Philippines by the Civil Aeronautics Board (CAB), except for a nine-month
period, partly in 1961 and partly in 1962, when it was granted a temporary landing permit by the CAB.
Although it maintained a general sales agent in the Philippines, Warner Barnes and later Qantas Airways
responsible for selling BOAC tickets covering passengers and cargoes.
CIR assessed BOAC for deficiency income taxes which it paid under protest (1959-1967). In 1970,
BOAC claimed for a refund which was denied by CIR.
In second case, CIR 1971, assessed deficiency income taxes, interests ad penalty of 1968-1969 to
1970-1971. CIR still denied the request for refund for the first case and re-issued the second case
deficiency.
Thus, the two cases joined, BOAC seeks to be absolved of the liability for deficiency income tax for 1969
to 1971.
CTA reversed CIR and held that proceeds from the sales of BOAC passage tickets by the sales agents do
not constitute income from PH since no service of carriage of passengers or freight was performed by
BOAC in PH.
Issue: Is the income of BOAC taxable? – Yes.
(1) BOAC is a resident foreign corporation engaged in business in the PH. – It is clear that
during the periods covered by the assessments, it maintained a general sales agent engaged in selling
and issuing tickets among others, those activities were in exercise of the functions which are normally
incident to, and are in progressive pursuit of, the purpose and object of its organization as an
international air carrier.
In fact, the regular sale of tickets, its main activity, is the very lifeblood of the airline business, the
generation of sales being the paramount objective.
There should be no doubt then that BOAC was "engaged in" business in the Philippines through a
local agent during the period covered by the assessments.
Accordingly, it is a resident foreign corporation subject to tax upon its total net income received in the
preceding taxable year from all sources within the Philippines.
(2) BOAC’s “source” of income is in PH. - The source of an income is the property, activity or
service that produced the income. For the source of income to be considered as coming from the
Philippines, it is sufficient that the income is derived from activity within the Philippines.
In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income. The tickets
exchanged hands here and payments for fares were also made here in Philippine currency.
The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and
occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. In
consideration of such protection, the flow of wealth should share the burden of supporting the
government.
The absence of flight operations to and from the Philippines is not determinative of the source of income
or the situs of income taxation.
Admittedly, BOAC was an off-line international airline at the time pertinent to this case. The test of
taxability is the "source", and the source of an income is that activity which produced the income.
Unquestionably, the passage documentations in these cases were sold in the Philippines and the
revenue therefrom was derived from a business activity regularly pursued within the Philippines.
And even if the BOAC tickets sold covered the "transport of passengers and cargo to and from foreign
cities", it cannot alter the fact that income from the sale of tickets was derived from the Philippines. The
word "source" conveys one essential idea, that of origin, and the origin of the income herein is the
Philippines.
Thus CTA decision set aside and BOAC ordered to pay the deficiency income tax.

ILOILO BOTTLERS, INC v. CITY OF ILOILO

GR 52019, 247 Phil. 575, August 19, 1988
Facts: Petitioner filed a complaint seeking to recover P3.3K that constituted payments of municipal
license taxes under City of Iloilo Tax Ordinance No. 5 which it paid under protest.
Petitioner engaged in the business of bottling soft-drinks and selling the same to its customers, with a
bottling plant in the Municipality of Pavia outside jurisdiction of respondent. It was stated that it once
operated in Iloilo City (which it paid taxes when it was there) but it transferred later in 1968 to Pavia.
In 1969, the City demanded from the petitioner the payment of municipal license tax. Petitioner argued
that its bottling plant is outside Iloilo City and that it sells its own product to customers directly and
cannot be considered as a distributor.
It was shown that Iloilo bottlers does not maintain any store in Iloilo City but by means of fleet of
delivery trucks from its plant in Pavia and directly to its customers in the Province of Iloilo, as well as
Iloilo City.
CFI ruled in favor of petitioner declaring it not liable under the tax ordinance ordering the City to pay it
the amount.
Arguments:
[1] It contends that since it is not engaged in the independent business of distributing softdrinks, but
that its activity of selling is merely an incident to, or is a necessary consequence of its main or principal
business of bottling, then it is NOT liable under the city tax ordinance.
[2] It claims that only manufacturers or bottlers having their plants inside the territorial jurisdiction of
the city are covered by the ordinance.
Issue: Whether Iloilo Bottlers which had its bottling plant in Pavia, Iloilo, but which sold softdrinks in
Iloilo City is liable under Iloilo City Tax Ordinance No. 5 which imposes municipal license tax on
distributors of softdrinks.
Held: Yes it had an independent selling or distributing business.
(1) Tax Ordinance Coverage. – The ordinance imposes tax on persons, firms and corporation
engaged in [1] distribution; [2] manufacture; and [3] bottling of softdrinks within the territory of City
of Iloilo. Thus the second argument lacks merit.
(2) Iloilo Bottlers falls under the Second Category and thus it was engaged in the separate
business of selling or distributing drinks independently from bottling them.
The right to manufacture implies the right to sell/distribute the manufactured products. Hence, for tax
purposes, a manufacturer does not necessarily become engaged in the separate business of selling
simply because it sells the products it manufactures. In certain cases, however, a manufacturer may
also be considered as engaged in the separate business of selling its products. To determine whether an
entity engaged in the principal business of manufacturing, is likewise engaged in the separate business
of selling, its marketing system or sales operations must be looked into.
Two Marketing Systems
[1] Manufacturer enters into sales transactions and invoices the sales at its main office where purchase
orders are received and approved before delivery orders are sent to the company's warehouses, where
in turn actual deliveries made. No warehouse sales are made nor are separate stores maintained where
products may be sold independently from the main office. The warehouses only serve as storage sites
and delivery points of the products earlier sold at the main office.
[2] Sales transactions are entered into and perfected at stores or warehouses maintained by the
company. Anyone who desires to purchase the product may go to the store or warehouse and there
purchase the merchandise. The stores and warehouses serve as selling centers.
Entities operating under the first system are NOT considered engaged in the separate business of selling
or dealing in their products, independent of their manufacturing business. Entities operating under the
second system are considered engaged in the separate business of selling.
In the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which
went directly to customers in the different places in Iloilo province. Sales transactions with customers
were entered into and sales were perfected and consummated by route salesmen. Truck sales
were made independently of transactions in the main office. The delivery trucks were not used
solely for the purpose of delivering softdrinks previously sold at Pavia.
They served as selling units. They were what were called, until recently, "rolling stores". The
delivery trucks were therefore much the same as the stores and warehouses under the second
marketing system. Iloilo Bottlers, Inc. thus falls under the second category above. That is, the
corporation was engaged in the separate business of selling or distributing softdrinks, independently of
its business of bottling them.
(3) Situs of Excise Tax. - The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the
privilege of distributing, manufacturing or bottling softdrinks. Being an excise tax, it can be levied by
the taxing authority only when the acts, privileges or businesses are done or performed within the
jurisdiction of said authority Specifically, the situs of the act of distributing, bottling or manufacturing
softdrinks must be within city limits, before an entity engaged in any of the activities may be taxed in
Iloilo City.
As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City. Thus, We have no option but to
declare the company liable under the tax ordinance.

CIR v. JULIANE BAIER-NICKEL

GR 153793, 531 Phil. 480, August 29, 2006
Facts: Juliane Baier-Nickel who is a non-resident German citizen, is the President of JUBANITEX a
domestic corporation engaged in textile products. Baier-Nickel was appointed as commission agent
and will receive 10% sales commission on all sales concluded and collected through her efforts.
In 1995, Baier-Nickel received P1.7M as commission from which JUBANITEX withheld corresponding
10% withholding tax of P170K and remitted it to BIR.
In 1998, Baier-Nickel filed a claim to refund the amount of P170K alleged to have been mistakenly
withheld and remitted to BIR and contended that her commission income is not taxable in the
Philippines because the same was a compensation for her services rendered in Germany and therefore
considered as income from sources outside the Philippines.
She then went to CTA via PFR contending that BIR did not take action on her claim for refund. CTA
denied her claim and held that the commissions were actually her remuneration in the performance of
her duties as president and not as sales agent thus the income is taxable in PH because JUBANITEX is
a domestic corporation.
CA reversed CTA holding that the commissions received were as sales agent and since the source of
income means that activity or service that produce such, it is not taxable for the marketing activities
was performed in Germany.
Issue: Whether Baier-Nickel’s sales commission income is taxable in the Philippines.
Held: Yes, she failed to discharge burden of proof.
(1) Non-resident alien’s personal services, where taxable. – Pursuant to Sec. 25 of the NIRC,
non-resident aliens, whether or not engaged in trade or business, are subject to Philippine income
taxation on their income received from all sources within the Philippines.
Thus, the keyword in determining the taxability of non-resident aliens is the income's "source." In
construing the meaning of "source" in Section 25 of the NIRC, resort must be had on the origin of the
provision.
The important factor therefore which determines the source of income of personal services is not the
residence of the payor, or the place where the contract for service is entered into, or the place of
payment, but the place where the services were actually rendered.
The Court reiterates the rule that "source of income" relates to the property, activity or service that
produced the income. With respect to rendition of labor or personal service, as in the instant case, it is
the place where the labor or service was performed that determines the source of the income. There is
therefore no merit in petitioner's interpretation which equates source of income in labor or personal
service with the residence of the payor or the place of payment of the income.
(2) Not capacity, but sufficiency of evidence to prove services were performed in Germany. -
The decisive factual consideration here is not the capacity in which respondent received the income, but
the sufficiency of evidence to prove that the services she rendered were performed in Germany.
Rule of Construction:
tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the
taxpayer. To those therefore, who claim a refund rest the burden of proving that the transaction
subjected to tax is actually exempt from taxation.
What she presented as evidence to prove activities abroad were copies of documents she allegedly
faxed to JUBANITEX and bearing instructions as to the fabrics to be used and samples of sale order
which do not show that she was in Germany when she sent such instructions/orders.
As to whether these instructions/orders gave rise to consummated sales and whether these sales were
truly concluded in Germany, respondent presented no such evidence. Neither did she establish
reasonable connection between the orders/instructions faxed nor the reported monthly sales purported
to have transpired in Germany.
In sum, we find that the faxed documents presented by respondent did not constitute substantial
evidence, or that relevant evidence that a reasonable mind might accept as adequate to support the
conclusion, that it was in Germany where she performed the income producing service which gave rise
to the reported monthly sales in the months of March and May to September of 1995. She thus failed
to discharge the burden of proving that her income was from sources outside the Philippines and
exempt from the application of our income tax law. Hence, the claim for tax refund should be
denied.