Summary [TAXATION LAW | ATTY.
LLAMADO] 1
11
CASE TITLE: Phil. Guaranty Co., Inc, vs. Commissioner of Int. Rev.
G.R. No: L-22074. April 30, 1965.
Ponente: Bengzon, J.P.,J.
TOPIC:
II. Theory and Basis of Taxation
B. Necessity Theory
DOCTRINE:
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.
Reinsurance premiums on local risks ceded by domestic insurers to foreign
reinsurers not doing business in the Philippines are subject to withholding
tax.
Where the reinsurance contracts show that the activities that constituted the
undertaking to reinsure a domestic insurer against losses arising from the
original insurances in the Philippines were performed in the Philippines, the
reinsurance premiums are considered as coming from sources within the
Philippines and are subject to Philippine Income Tax.
FACTS:
 The Philippine Guaranty Co., Inc. is a domestic insurance company. It
entered into reinsurance contracts with foreign insurance companies not
doing business in the Philippines. Phil. Guaranty 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.
 In 1953 and 1954, Phil Guaranty ceded the following premiums to foreign
reinsurers: P842,466.71 and 721,471.85.
 These amounts weren’t included by Phil.Guaranty in its gross income when
it filed its income tax. However, the Commissioner of Internal Revenue still
assessed against Philippine Guaranty withholding tax (P230,673.00 and
P234,364.00) on the ceded reinsurance premiums.
 Philippine Guaranty protested on the ground that reinsurance premiums
ceded to foreign reinsurers not doing business in the Philippines are not
subject to withholding tax; but it was denied.
 Upon appeal to the Court of Tax Appeals, Phil. Guaranty was still asked to
pay taxes amounting to P375,345.00 as withholding income taxes for the
years 1953 and 1954, plus the statutory delinquency penalties.
ISSUE/S:
WON insurance companies required to withhold tax on reinsurance premiums ceded
to foreign insurance companies.
HELD:
1. Yes. The Supreme Court held that the transactions or activities that
constituted the undertaking to reinsure Philippine Guaranty Co., Inc. against
loses arising from the original insurances in the Philippines were performed
in the Philippines.
Furthermore, 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
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.. 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.
The power to tax is an attribute of sovereignty. It is a power emanating
from necessity. Considering that the reinsurance premiums in question were
afforded protection by the government and the recipient foreign reinsurers
(GO3) 2017 – 2018 . JANNSEN P. BUEMIO
exercised rights and privileges guaranteed by our laws, such reinsurance
premiums and reinsurers should share the burden of maintaining the state.

Phil. Guaranty’s reliance in good faith on the rulings of the Commissioner of

Internal Revenue requiring no withholding of the tax due on the reinsurance
premiums in question may free if from the payment of surcharges or
penalties imposed for failure to pay the corresponding withholding tax, but it
certainly would not exculpate if from liability to pay such withholding tax. The
Government is not estopped from collecting taxes by the mistakes or
errors of its agents.

CTA decision AFFIRMED.


12
CASE TITLE: Marcos II vs. Court of Appeals
G.R. No: 120880. June 5, 1997.
Ponente: Torres, Jr., J
TOPIC:
II. Theory and Basis of Taxation
B. Necessity Theory
DOCTRINE:
It has been repeatedly observed, and not without merit, that the enforcement
of tax laws and the collection of taxes, is of paramount importance for the
sustenance of government. Taxes are the lifeblood of the government and
should be collected without unnecessary hindrance. However, such
collection should be made in accordance with law as any arbitrariness will
negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the
taxpayers so that the real purpose of taxation, which is the promotion of the
common good, may be achieved.
Concededly, the authority of the Regional Trial Court, sitting, albeit with
limited jurisdiction, as a probate court over estate of deceased individual, is
not a trifling thing. The court’s jurisdiction, once invoked, and made
effective, cannot be treated with indifference nor should it be ignored with
impunity by the very parties invoking its authority. In testament to this, it has
been held that it is within the jurisdiction of the probate court to approve the
sale of properties of a deceased person by his prospective heirs before final
adjudication; to determine who are the heirs of the decedent; the recognition
of a natural child; the status of a woman claiming to be the legal wife of the
decedent; the legality of disinheritance of an heir by the testator; and to pass
upon the validity of a waiver of hereditary rights.
FACTS 1:
The CIR is being questioned by petitioner for assessing and collecting through the
summary remedy of levy on real property, estate and income tax delinquencies upon
the estate and properties of the late Ferdinand Marcos despite the pendency of the
proceedings on the probate of the will of the late president.  The approval of the court, sitting in probate, or as a settlement tribunal over the
Summary [TAXATION LAW | ATTY. LLAMADO] 3
ISSUE/S:
WON summary tax remedies are affected by the probate proceedings.
HELD:
No. From the foregoing, it is discernible that the approval of the court, sitting in
probate or as a settlement tribunal over the deceased is not a mandatory requirement
in the collection of estate taxes. It cannot therefore be argued that the tax bureau
erred in proceeding with the levying sale of the properties on the ground that it was
required to seek court approval. 
FACTS 2:
Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals to
grant CIR's petition to levy the properties of the late Pres. Marcos to cover the
payment of his tax delinquencies during the period of his exile in the US. The Marcos
family was assessed by the BIR after it failed to file estate tax returns. However, the
assessment were not protested administratively by Mrs. Marcos and the heirs of the
late president so that they became final and unappealable after the period for filing of
opposition has prescribed. Marcos contends that the properties could not be levied to
cover the tax dues because they are still pending probate with the court, and
settlement of tax deficiencies could not be had, unless there is an order by the
probate court or until the probate proceedings are terminated. 
Petitioner also pointed out that applying Memorandum Circular No. 38-68, the BIR's
Notices of Levy on the Marcos properties were issued beyond the allowed period,
and are therefore null and void. 
ISSUE/S:
WON the contentions of Bongbong Marcos are correct.
HELD:
No. The deficiency income tax assessments and estate tax assessment are already
final and unappealable -and-the subsequent levy of real properties is a tax remedy
resorted to by the government, sanctioned by Section 213 and 218 of the National
Internal Revenue Code. This summary tax remedy is distinct and separate from the
other tax remedies (such as Judicial Civil actions and Criminal actions), and is not
affected or precluded by the pendency of any other tax remedies instituted by the
government. 
deceased's estate is not a mandatory requirement in the collection of estate taxes.
(GO3) 2017 – 2018 . JANNSEN P. BUEMIO
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court
which is bidden not to authorize the executor or judicial administrator of the
decedent's estate to deliver any distributive share to any party interested in the
estate, unless it is shown a Certification by the Commissioner of Internal Revenue
that the estate taxes have been paid. This provision disproves the petitioner's
contention that it is the probate court which approves the assessment and collection
of the estate tax. 

On the issue of prescription, the omission to file an estate tax return, and the
subsequent failure to contest or appeal the assessment made by the BIR is fatal to
the petitioner's cause, as under Sec.223 of the NIRC, in case of failure to file a return,
the tax may be assessed at anytime within 10 years after the omission, and any tax
so assessed may be collected by levy upon real property within 3 years (now 5 years)
following the assessment of the tax. Since the estate tax assessment had become
final and unappealable by the petitioner's default as regards protesting the validity of
the said assessment, there is no reason why the BIR cannot continue with the
collection of the said tax. 

13
CASE TITLE: National Power Corporation vs. City of Cabanatuan
G.R. No: 149110. April 9, 2003
Ponente: Puno, J.
TOPIC:
II. Theory and Basis of Taxation
B. Necessity Theory
DOCTRINE:
Taxes are the lifeblood of the government, for without taxes, the government
can neither exist nor endure. A principal attribute of sovereignty, the
exercise of taxing power derives its source from the very existence of the
state whose social contract with its citizens obliges it to promote public
interest and common good. The theory behind the exercise of the power to
tax emanates from necessity; without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being of the people.
FACTS:
Petitioner is a government-owned and controlled corporation created
under Commonwealth Act No. 120, as amended.
For many years now, petitioner sells electric power to the residents of
Cabanatuan City, posting a gross income of P107,814,187.96 in 1992.7
Pursuant to section 37 of Ordinance No. 165-92,8 the respondent
assessed the petitioner a franchise tax amounting to P808,606.41,
representing 75% of 1% of the latter’s gross receipts for the preceding
year.
Petitioner refused to pay the tax assessment arguing that the respondent
has no authority to impose tax on government entities. Petitioner also
contended that as a non-profit organization, it is exempted from the
payment of all forms of taxes, charges, duties or fees in accordance with
sec. 13 of Rep. Act No. 6395, as amended.
The respondent filed a collection suit in the RTC, demanding that
petitioner pay the assessed tax due, plus surcharge. Respondent alleged
Summary [TAXATION LAW | ATTY. LLAMADO] 5
that petitioner’s exemption from local taxes has been repealed by section
193 of the LGC, which reads as follows:
“Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless
otherwise provided in this Code, tax exemptions or incentives granted to,
or presently enjoyed by all persons, whether natural or juridical, including
government owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.”
RTC upheld NPC’s tax exemption. On appeal the CA reversed the trial
court’s Order on the ground that section 193, in relation to sections 137
and 151 of the LGC, expressly withdrew the exemptions granted to the
petitioner.
ISSUE/S:
WON the respondent city government has the authority to issue
Ordinance No. 165-92 and impose an annual tax on “businesses enjoying
a franchise.
HELD:
YES. Taxes are the lifeblood of the government, for without taxes, the
government can neither exist nor endure. A principal attribute of
sovereignty, the exercise of taxing power derives its source from the very
existence of the state whose social contract with its citizens obliges it to
promote public interest and common good. The theory behind the
exercise of the power to tax emanates from necessity;32 without taxes,
government cannot fulfill its mandate of promoting the general welfare
and well-being of the people.
Section 137 of the LGC clearly states that the LGUs can impose
franchise tax “notwithstanding any exemption granted by any law or other
special law.” This particular provision of the LGC does not admit any
exception. In City Government of San Pablo, Laguna v.
Reyes,74 MERALCO’s exemption from the payment of franchise taxes
was brought as an issue before this Court. The same issue was involved
(GO3) 2017 – 2018 . JANNSEN P. BUEMIO
in the subsequent case of Manila Electric Company v. Province of would be not only tedious and impractical to attempt to enumerate all the
Laguna.75 Ruling in favor of the local government in both instances, we existing statutes providing for special tax exemptions or privileges, the
ruled that the franchise tax in question is imposable despite any LGC provided for an express, albeit general, withdrawal of such
exemption enjoyed by MERALCO under special laws, viz: exemptions or privileges. No more unequivocal language could have
been used.”76 (emphases supplied)
“It is our view that petitioners correctly rely on provisions of Sections 137
and 193 of the LGC to support their position that MERALCO’s tax
exemption has been withdrawn. The explicit language of section 137
Doubtless, the power to tax is the most effective instrument to raise
which authorizes the province to impose franchise tax ‘notwithstanding
needed revenues to finance and support myriad activities of the local
any exemption granted by any law or other special law’ is all-
government units for the delivery of basic services essential to the
encompassing and clear. The franchise tax is imposable despite any
promotion of the general welfare and the enhancement of peace,
exemption enjoyed under special laws.
progress, and prosperity of the people. As this Court observed in the
Mactan case, “the original reasons for the withdrawal of tax exemption
Section 193 buttresses the withdrawal of extant tax exemption
privileges granted to government-owned or controlled corporations and
privileges. By stating that unless otherwise provided in this Code, tax
all other units of government were that such privilege resulted in serious
exemptions or incentives granted to or presently enjoyed by all persons,
tax base erosion and distortions in the tax treatment of similarly situated
whether natural or juridical, including government-owned or controlled
enterprises.” With the added burden of devolution, it is even more
corporations except
imperative for government entities to share in the requirements of
development, fiscal or otherwise, by paying taxes or other charges due
(1) local water districts,
from them.
(2) cooperatives duly registered under R.A. 6938,
(3) non-stock and non-profit hospitals and educational institutions,

are withdrawn upon the effectivity of this code, the obvious import is to
limit the exemptions to the three enumerated entities. It is a basic precept
of statutory construction that the express mention of one person, thing,
act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius.

In the absence of any provision of the Code to the contrary, and we find
no other provision in point, any existing tax exemption or incentive
enjoyed by MERALCO under existing law was clearly intended to be
withdrawn.

Reading together sections 137 and 193 of the LGC, we conclude that
under the LGC the local government unit may now impose a local tax at
a rate not exceeding 50% of 1% of the gross annual receipts for the
preceding calendar based on the incoming receipts realized within its
territorial jurisdiction. The legislative purpose to withdraw tax privileges
enjoyed under existing law or charter is clearly manifested by the
language used on (sic) Sections 137 and 193 categorically withdrawing
such exemption subject only to the exceptions enumerated. Since it

14
CASE TITLE: CIR vs ALGUE, INC., and THE COURT OF TAX APPEALS
G.R. No: L-28896 February 17, 1988
Ponente: Cruz, J.
TOPIC:
II. Theory and Basis of Taxation
C. Benefits-Protection Theory (Symbiotic Relationship)
DOCTRINE:
FACTS:
 Algue Inc. is a domestic corp engaged in engineering, construction and other
allied activities
 On Jan. 14, 1965, the corp received a letter from the CIR regarding its
delinquency income taxes from 1958-1959, amtg to P83,183.85
 A letter of protest or reconsideration was filed by Algue Inc on Jan 18
  On March 12, a warrant of distraint and levy was presented to Algue Inc. thru
its counsel, Atty. Guevara, who refused to receive it on the ground of the
pending protest
  Sincethe protest was not found on the records, a file copy from the corp was
produced and given to BIR Agent Reyes, who deferred service of the warrant
 On April 7, Atty. Guevara was informed that the BIR was not taking any action
on the protest and it was only then that he accepted the warrant of distraint
and levy earlier sought to be served
 On April 23, Algue filed a petition for review of the decision of the CIR with
the Court of Tax Appeals
  CIR contentions:
- the claimed deduction of P75,000.00 was properly disallowed because it was
not an ordinary reasonable or necessary business expense     arrangement was understandable in view of the close relationship among the
-payments are fictitious because most of the payees are members of the same
family in control of Algue and that there is not enough substantiation of such
payments
 CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered
in the form of promotional fees. These were collected by the Payees for their
Summary [TAXATION LAW | ATTY. LLAMADO] 7
work in the creation of the Vegetable Oil Investment Corporation of the
Philippines and its subsequent purchase of the properties of the Philippine
Sugar Estate Development Company.
ISSUE/S:
WON the Collector of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by Algue as legitimate business expenses in its income tax
returns
HELD:
 Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance, made in accordance with law. 
 1125: the appeal may be made within thirty days after receipt of the decision
or ruling challenged
 During the intervening period, the warrant was premature and could therefore
not be served.
 Originally, CIR claimed that the 75K promotional fees to be personal holding
company income, but later on conformed to the decision of CTA
 There is no dispute that the payees duly reported their respective shares of the
fees in their income tax returns and paid the corresponding taxes thereon. CTA
also found, after examining the evidence, that no distribution of dividends was
involved
 CIR suggests a tax dodge, an attempt to evade a legitimate assessment by
involving an imaginary deduction
 Algue Inc. was a family corporation where strict business procedures were not
applied and immediate issuance of receipts was not required. at the end of the
year, when the books were to be closed, each payee made an accounting of all
of the fees received by him or her, to make up the total of P75,000.00. This
persons in the family corporation
 The amount of the promotional fees was not excessive. The total commission
paid by the Philippine Sugar Estate Development Co. to Algue Inc. was P125K.
After deducting the said fees, Algue still had a balance of P50,000.00 as clear
profit from the transaction. The amount of P75,000.00 was 60% of the total
(GO3) 2017 – 2018 . JANNSEN P. BUEMIO
 commission. This was a reasonable proportion, considering that it was the
payees who did practically everything, from the formation of the Vegetable Oil
Investment Corporation to the actual purchase by it of the Sugar Estate
properties.

 Sec. 30 of the Tax Code: allowed deductions in the net income – Expenses
- All the ordinary and necessary expenses paid or incurred during the taxable
year in carrying on any trade or business, including a reasonable allowance for
salaries or other compensation for personal services actually rendered xxx

  the burden is on the taxpayer to prove the validity of the claimed deduction

 In this case, Algue Inc. has proved that the payment of the fees was necessary
and reasonable in the light of the efforts exerted by the payees in inducing
investors and prominent businessmen to venture in an experimental enterprise
and involve themselves in a new business requiring millions of pesos.

 Taxes are what we pay for civilization society. Without taxes, the government
would be paralyzed for lack of the motive power to activate and operate it.
Hence, despite the natural reluctance to surrender part of one's hard earned
income to the taxing authorities, every person who is able to must contribute
his share in the running of the government. The government for its part, is
expected to respond in the form of tangible and intangible benefits intended
to improve the lives of the people and enhance their moral and material values

 Taxation must be exercised reasonably and in accordance with the prescribed

procedure. If it is not, then the taxpayer has a right to complain and the courts
will then come to his succor

Algue Inc.’s appeal from the decision of the CIR was filed on time with the CTA in
accordance with Rep. Act No. 1125. And we also find that the claimed deduction by
Algue Inc. was permitted under the Internal Revenue Code and should therefore not
have been disallowed by the CIR
 Summary [TAXATION LAW | ATTY. LLAMADO] 9

16 No, the appropriation is void for being an appropriation for a private

CASE TITLE: Pascual vs The Secretary of Public Works and
Communications, et. al
G.R. No: L-10405. December 29, 1960
Ponente: Concepcion, J.
TOPIC:
V. Scope and Limitation of Taxation
A. Inherent Limitations
1. Public Purpose
DOCTRINE:
"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 1:
In 1953, Republic Act No. 920 was passed. This law appropriated
P85,000.00 “for the construction, reconstruction, repair, extension and
improvement Pasig feeder road terminals”. Wenceslao Pascual, then
governor of Rizal, assailed the validity of the law. He claimed that the
appropriation was actually going to be used for private use for the
terminals sought to be improved were part of the Antonio Subdivision.
The said Subdivision is owned by Senator Jose Zulueta who was a
member of the same Senate that passed and approved the same RA.
Pascual claimed that Zulueta misrepresented in Congress the fact that he
owns those terminals and that his property would be unlawfully enriched
at the expense of the taxpayers if the said RA would be upheld. Pascual
then  prayed that the Secretary of Public Works and Communications be
restrained from releasing funds for such purpose. Zulueta, on the other
hand, perhaps as an afterthought, donated the said property to the City of
Pasig.
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 a private property
cannot be ignored. “In accordance with the rule that the taxing power
must be exercised for public purposes only, money raised by taxation can
be expanded only for public purposes and not for the advantage of private
individuals.”  Inasmuch as the land on which the projected feeder roads
were to be constructed belonged then to Zulueta, the result is that said
appropriation sought a private purpose, and, hence, was null and void.
FACTS 2:
Governor Wenceslao Pascual of Rizal instituted this action for declaratory relief,
with injunction, upon the ground that RA No. 920, which apropriates funds for
public works particularly for the construction and improvement of Pasig feeder
road terminals. 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 benefitted from the
construction of the roads, and the government also gains from the donation of the
land supposed to be occupied by the streets, made by its owner to the
government.
ISSUE/S:
WON the incidental gains by the public be considered "public purpose" for the
purpose of justifying an expenditure of the government.

ISSUE/S: HELD:
WON the appropriation is valid. 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
HELD: tax, and not the magnitude of the interest to be affected nor the degree to which
(GO3) 2017 – 2018 . JANNSEN P. BUEMIO
the general advantage of the community, and thus the public welfare, may be
ultimately benefited by their promotion. 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.

17
CASE TITLE: Planters Products, Inc. vs Fertiphil Corporation
G.R. No: 166006.  March 14, 2008
Ponente: Reyes, R.T., J.
TOPIC:
V. Scope and Limitation of Taxation
A. Inherent Limitations
1. Public Purpose
DOCTRINE:
FACTS:
 President Ferdinand Marcos, exercising his legislative powers,
issued LOI No. 1465 which provided, among others, for the imposition of
a capital recovery component (CRC) on the domestic sale of all grades
of fertilizers which resulted in having Fertiphil paying P 10/bag sold to the
Fertilizer and Perticide Authority (FPA).
 FPA remits its collection to Far East Bank and Trust Company who
applies to the payment of corporate debts of Planters Products Inc. (PPI)
 After the Edsa Revolution, FPA voluntarily stopped the imposition of
the P10 levy.  Upon return of democracy, Fertiphil demanded a refund
but PPI refused.  Fertiphil filed a complaint for collection and damages
against FPA and PPI with the RTC on the ground that LOI No. 1465 is
unjust, unreaonable oppressive, invalid and unlawful resulting to denial
of due process of law.  
 FPA answered that it is a valid exercise of the police power of the
state in ensuring the stability of the fertilizing industry in the country and
that Fertiphil did NOT sustain damages since the burden imposed fell on
the ultimate consumers.
 RTC and CA favored Fertiphil holding that it is an exercise of the
power of taxation ad is as such because it  is NOT for public purpose as
PPI is a private corporation.
ISSUE/S:
1. W/N Fertiphil has locus standi
2. W/N LOI No. 1465 is an invalid exercise of the power of taxation rather the
police power
Summary [TAXATION LAW | ATTY. LLAMADO] 11
HELD:
1. Yes.  In private suits, locus standi requires a litigant to be a "real party in
interest" or party who stands to be benefited or injured by the judgment in the
suit.  In public suits, there is the right of the ordinary citizen to petition the
courts to be freed from unlawful government intrusion and illegal official
action subject to the  direct injury test or where there must be personal and
substantial interest in the case such that he has sustained or will sustain
direct injury as a result.  Being a mere procedural technicality, it has also
been held that locus standi may be waived in the public interest such as
cases of transcendental importance or with far-reaching implications whether 
private or public suit, Fertiphil has locus standi.
2. As a seller, it bore the ultimate burden of paying the levy which made its
products more expensive and harm its business.  It is also of paramount
public importance since it involves the constitutionality of a tax law and use of
taxes for public purpose.
3. Yes. Police power and the power of taxation are inherent powers of the
state but distinct and have different tests for validity.  Police power is the
power of the state to enact the legislation that may interfere with personal
liberty on property in order to promote general welfare.  While, the power of
taxation is the power to levy taxes as to be used for public purpose.  The
main purpose of police power is the regulation of a behavior or conduct, while
taxation is revenue generation. The lawful subjects and lawful means tests
are used to determine the validity of a law enacted under the police power. 
The power of taxation, on the other hand, is circumscribed by inherent and
constitutional limitations.
In this case, it is for purpose of revenue.  But it is a robbery for the State to
tax the citizen and use the funds generation for a private purpose.  Public
purpose does NOT only pertain to those purpose which are traditionally
viewed as essentially governmental function such as  building roads and
delivery of basic services, but also includes those purposes designed to
promote social justice. Thus, public money may now be used for the
relocation of illegal settlers, low-cost housing and urban or agrarian reform.
(GO3) 2017 – 2018 . JANNSEN P. BUEMIO
18
CASE TITLE: Tio vs Videogram Regulatory Board
G.R. No: G.R. No. L-75697. June 18, 1987
Ponente: Melencio-Herrera, J.
TOPIC:
V. Scope and Limitation of Taxation
A. Inherent Limitations
2. Inherently Legislative
General Rule: Power to tax may not be delegated.
DOCTRINE:
FACTS:
The case is a petition filed by petitioner on behalf of videogram operators adversely
affected by Presidential Decree No. 1987, “An Act Creating the Videogram
Regulatory Board" with broad powers to regulate and supervise the videogram
industry.
A month after the promulgation of the said Presidential Decree, the amended the
National Internal Revenue Code provided that:
"SEC. 134. Video Tapes. — There shall be collected on each processed video-tape
cassette, ready for playback, regardless of length, an annual tax of five pesos;
Provided, That locally manufactured or imported blank video tapes shall be subject
to sales tax."
"Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding
any provision of law to the contrary, the province shall collect a tax of thirty percent
(30%) of the purchase price or rental rate, as the case may be, for every sale, lease or
disposition of a videogram containing a reproduction of any motion picture or
audiovisual program.”
“Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province,
and the other fifty percent (50%) shall accrue to the municipality where the tax is
collected; PROVIDED, That in Metropolitan Manila, the tax shall be shared equally
by the City/Municipality and the Metropolitan Manila Commission.”
The rationale behind the tax provision is to curb the proliferation and unregulated
circulation of videograms including, among others, videotapes, discs, cassettes or
any technical improvement or variation thereof, have greatly prejudiced the
operations of movie houses and theaters. Such unregulated circulation have caused a
sharp decline in theatrical attendance by at least forty percent (40%) and a
tremendous drop in the collection of sales, contractor's specific, amusement and
other taxes, thereby resulting in substantial losses estimated at P450 Million annually
in government revenues.
Videogram(s) establishments collectively earn around P600 Million per annum from
rentals, sales and disposition of videograms, and these earnings have not been
subjected to tax, thereby depriving the Government of approximately P180 Million
in taxes each year.
The unregulated activities of videogram establishments have also affected the
viability of the movie industry.
ISSUE/S:
(1) Whether or not tax imposed by the DECREE is a valid exercise of police power.  
(2) Whether or nor the DECREE is constitutional.
HELD:
Taxation has been made the implement of the state's police power. The levy of the
30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the
flagrant violation of intellectual property rights, and the proliferation of pornographic
video tapes. And while it was also an objective of the DECREE to protect the movie
industry, the tax remains a valid imposition.
We find no clear violation of the Constitution which would justify us in pronouncing
Presidential Decree No. 1987 as unconstitutional and void. While the underlying
objective of the DECREE is to protect the moribund movie industry, there is no
question that public welfare is at bottom of its enactment, considering "the unfair
competition posed by rampant film piracy; the erosion of the moral fiber of the
viewing public brought about by the availability of unclassified and unreviewed
video tapes containing pornographic films and films with brutally violent sequences;
and losses in government revenues due to the drop in theatrical attendance, not to
mention the fact that the activities of video establishments are virtually untaxed since
mere payment of Mayor's permit and municipal license fees are required to engage in
business." 
WHEREFORE, the instant Petition is hereby dismissed. No costs.
 Summary [TAXATION LAW | ATTY. LLAMADO] 13

19 unconstitutional. But this authority does not extend to deciding

CASE TITLE: Commissioner vs Santos questions which pertain to legislative policy.
G.R. No: G.R. No. 119252. August 18, 1997 RTC have the power to declare the law unconstitutional but this
Ponente: HERMOSISIMA, JR., J. authority does not extend to deciding questions which pertain to
legislative policy. RTC can only look into the validity of a provision,
TOPIC: that is whether or not it has been passed according to the provisions
V. Scope and Limitation of Taxation laid down by law, and thus cannot inquire as to the reasons for its
A. Inherent Limitations existence.
2. Inherently Legislative
General Rule: Power to tax may not be delegated.
II. YES.The respondents presented an exhaustive study on the tax rates
DOCTRINE: on jewelry levied by different Asian countries. This is meant to
convince us that compared to other countries; the tax rates imposed
FACTS: on said industry in the Philippines is oppressive and confiscatory. This
Guild of Phil. Jewelers, Inc. questions the constitutionality of certain provisions of Court, however, cannot subscribe to the theory that the tax rates of
the NIRC and Tariff and Customs Code of the Philippines. It is their contention that other countries should be used as a yardstick in determining what may
the present Tariff and tax structure increases manufacturing costs and render local be the proper subjects of taxation in our own country. It should be
jewelry manufacturers uncompetitive against other countries, in support of their pointed out that in imposing the aforementioned taxes and duties, the
position, they submitted what they purported to be an exhaustive study of the tax State, acting through the legislative and executive branches, is
rates on jewelry prevailing in other Asian countries, in comparison to tax rates exercising its sovereign prerogative. It is inherent in the power to tax
levied in the country. that the State be free to select the subjects of taxation, and it has
been repeatedly held that "inequalities which result from a singling
Judge Santos of RTC Pasig, ruled that the laws in question are confiscatory and out or one particular class for taxation, or exemption, infringe no
oppressive and declared them INOPERATIVE and WITHOUT FORCE AND EFFECT constitutional limitation." 25
insofar as petitioners are concerned.

Petitioner CIR assailed decision rendered by respondent judge contending that the
latter has no authority to pass judgment upon the taxation policy of the
Government. Petitioners also impugn the decision by asserting that there was no
showing that the tax laws on jewelry are confiscatory.

ISSUE/S:
I. Whether RTC has authority to pass judgment upon taxation policy of
the government.

II. WON the state has the power to select the subjects of taxation.

HELD:
I. The policy of the court is to avoid ruling on constitutional questions
and to presume that the acts of the political departments are valid in
the absence of a clear and unmistakable showing to the contrary.
This is not to say that RTC has no power whatsoever to declare a law
(GO3) 2017 – 2018 . JANNSEN P. BUEMIO
20
CASE TITLE: Kapatiran vs Tan
G.R. No: G.R. No. 81311 June 30, 1988
Ponente: Padilla, J.
TOPIC:
V. Scope and Limitation of Taxation
A. Inherent Limitations
2. Inherently Legislative
General Rule: Power to tax may not be delegated.
DOCTRINE:
FACTS 1:
EO 372 was issued by the President of the Philippines which amended the Revenue
Code, adopting the value-added tax (VAT) effective January 1, 1988. Four petitions
assailed the validity of the VAT Law from being beyond the President to enact; for being
oppressive, discriminatory, regressive and violative of the due process and equal
protection clauses, among others, of the Constitution. The Integrated Customs Brokers
Association particularly contend that it unduly discriminate against customs brokers
(Section 103r) as the amended provision of the Tax Code provides that “service
performed in the exercise of profession or calling (except custom brokers) subject to
occupational tax under the Local Tax Code and professional services performed by
registered general professional partnerships are exempt from VAT.  the past administration.
ISSUE/S:
Whether the E-VAT law is void for being discriminatory against customs brokers  discriminatory, unjust and regressive, in violation of the equal protection
HELD:
No. The phrase “except custom brokers” is not meant to discriminate against custom
brokers but to avert a potential conflict between Sections 102 and 103 of the Tax Code,
as amended. The distinction of the customs brokers from the other professionals who are
subject to occupation tax under the Local Tax Code is based on material differences, in
that the activities of customs partake more of a business, rather than a profession and
were thus subjected to the percentage tax under Section 174 of the Tax Code prior to its
amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the
VAT. If the Association did not protest the classification of customs brokers then, there is
no reason why it should protest now.  the time-honored doctrine of separation of powers, cannot substitute its
FACTS 2:
The four consolidated cases questions the validity of the VAT (Executive
Order 273) 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. 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/S:
Whether VAT is unconstitutional.
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
 
Lastly, petitioners also failed to prove that EO 273 is oppressive,
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
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
 Summary [TAXATION LAW | ATTY. LLAMADO] 15

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.

(GO3) 2017 – 2018 . JANNSEN P. BUEMIO

21
CASE TITLE: LTO vs City of Butuan
G.R. No: G.R. No. 131512. January 20, 2000
Ponente: Vitug, J.
TOPIC:
V. Scope and Limitation of Taxation
A. Inherent Limitations
2. Inherently Legislative
Exceptions from prohibition against delegation of power to tax
a) Delegation to Local Governments
DOCTRINE:
Power of LGU
FACTS:
Relying on the  fiscal autonomy granted to LGU's by the Constittuion and the
provisons of the Local Government Code, the Sangguniang Panglunsod of the
City of Butuan enacted an ordinance "Regulating the Operation of Tricycles-for-
Hire, providing mechanism for the issuance of Franchise, Registration and
Permit, and Imposing Penalties for Violations thereof and for other Purposes." 
The ordinance provided for, among other things, the payment of franchise fees
for the grant of the franchise of tricycles-for-hire, fees for the registration of the
vehicle, and fees for the issuance of a permit for the driving thereof. 
    Petitioner LTO explains that one of the functions of the national government
that, indeed, has been transferred to local government units is the franchising
authority over tricycles-for-hire of the Land Transportation Franchising and
Regulatory Board ("LTFRB") but not, it asseverates, the authority of LTO to
register all motor vehicles and to issue to qualified persons of licenses to drive
such vehicles.
    The RTC and CA ruled that the power to give registration and license for
driving tricycles has been devolved to LGU's.
ISSUE/S:
Whether or not, the registration of tricycles was given to LGU's, hence the
ordinance is a valid exercise of police power.
HELD:
No, based on the-"Guidelines to Implement the Devolution  of LTFRBs
Franchising Authority over Tricycles-For-Hire to Local Government units
pursuant to the Local Government Code"-  the newly delegated powers to LGU's
pertain to the franchising and regulatory powers exercised by the LTFRB and not
to the functions of the LTO relative to the registration of motor vehicles and
issuance of licenses for the driving thereof. Corollarily, the exercised of a police
power must be through a valid delegation. In this case the police power of
registering tricycles was not delegated to the LGU’s, but remained in the LTO.
    Clearly unaffected by the Local Government Code are the powers of LTO
under R.A. No.4136 requiring the registration of all kinds of motor vehicles
"used or operated on or upon any public highway" in the country. 
    The Commissioner of Land Transportation and his deputies are empowered at
anytime to examine and inspect such motor vehicles to determine whether said
vehicles are registered, or are unsightly, unsafe, improperly marked or equipped,
or otherwise unfit to be operated on because of possible excessive damage to
highways, bridges and other infrastructures. The LTO is additionally charged
with being the central repository and custodian of all records of all motor
vehicles.  
    Adds the Court, the reliance made by respondents on the broad taxing power
of local government units, specifically under Section 133 of the Local
Government Code, is tangential. 
    Police power and taxation, along with eminent domain, are inherent powers of
sovereignty which the State might share with local government units by
delegation given under a constitutional or a statutory fiat. All these inherent
powers are for a public purpose and legislative in nature but the similarities just
about end there. The basic aim of police power is public good and welfare.
Taxation, in its case, focuses on the power of government to raise revenue in
order to support its existence and carry out its legitimate objectives. Although
correlative to each other in many respects, the grant of one does not necessarily
carry with it the grant of the other. The two powers are, by tradition and
jurisprudence, separate and distinct powers, varying in their respective concepts,
character, scopes and limitations. 
    To construe the tax provisions of Section 133 (1) of the LGC indistinctively
would result in the repeal to that extent of LTO's regulatory power which
evidently has not been intended. If it were otherwise, the law could have just said
so in Section 447 and 458 of Book III of the Local Government Code in the
same manner that the specific devolution of LTFRB's power on franchising of
tricycles has been provided. Repeal by implication is not favored. 
 Summary [TAXATION LAW | ATTY. LLAMADO] 17

    The power over tricycles granted under Section 458(a)(3)(VI) of the Local
Government Code to LGUs is the power to regulate their operation and to grant
franchises for the operation thereof. The exclusionary clause contained in the tax
provisions of Section 133 (1) of the Local Government Code must not be held to
have had the effect of withdrawing the express power of LTO to cause the
registration of all motor vehicles and the issuance of licenses for the driving
thereof. These functions of the LTO are essentially regulatory in nature,
exercised pursuant to the police power of the State, whose basic objectives are to
achieve road safety by insuring the road worthiness of these motor vehicles and
the competence of drivers prescribed by R. A. 4136. Not insignificant is the rule
that a statute must not be construed in isolation but must be taken in harmony
with the extant body of laws.

    LGUs indubitably now have the power to regulate the operation of tricycles-
for-hire and to grant franchises for the operation thereof, and not to issue
registration. 

    Ergo, the ordinance being repugnant to a statute is void and ultra vires.  

(GO3) 2017 – 2018 . JANNSEN P. BUEMIO

22
CASE TITLE: Basco vs PAGCOR
G.R. No: G.R. No. 91649. May 14, 1991
Ponente: Paras, J.
TOPIC:
V. Scope and Limitation of Taxation
A. Inherent Limitations
2. Inherently Legislative
Exceptions from prohibition against delegation of power to tax
a) Delegation to Local Governments
DOCTRINE:
Inherent powers of the state: Police power
FACTS:
This is a petition to annul the PAGCOR charter (PD 1869) because it is contrary to
morals, public policy and order, and because it
1) waived the Manila City government's right to impose taxes and license fees
2) and consequently contravenes the constitutionally enshrined principle of local
autonomy
3) legalizes gambling together with prostitution, drug trafficking and other vices
4) violates the trend away from monopolistic economy
- the "gambling objective" and therefore is contrary to Sections
11, 12 and 13 of Article II, Sec. 1 of Article VIII and Section 3 (2) of Article XIV, of
the present Constitution (p. 3, Second Amended Petition; p. 21, Rollo).
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."
- a potential source of revenue to fund infrastructure and socio-economic projects
- PAGCOR is given territorial jurisdiction all over the Philippines. Under its
Charter's repealing clause, all laws, decrees, executive orders, rules and regulations,
inconsistent therewith, are accordingly repealed, amended or modified.
- third largest source of government revenue
- sponsored socio-cultural and charitable projects
- in 3 1/2 years has remitted a total of P6.2 Billion
- As of December 31, 1989, PAGCOR was employing 4,494 employees in 9 casinos,
directly supporting the livelihood of 4,494 families.
ISSUE/S:
Locus standi - whether petitioners, as taxpayers and practicing lawyers can question
and seek the annulment of PD 1869
Whether PD 1869 is constitutional
HELD:
PD 1869
Sec. 1. Declaration of Policy. — It is hereby declared to be the policy of the State to
centralize and integrate all games of chance not heretofore authorized by existing
franchises or permitted by law in order to attain the following objectives:
(a) To centralize and integrate the right and authority to operate and conduct games
of chance into one corporate entity to be controlled, administered and supervised by
the Government.
(b) To establish and operate clubs and casinos, for amusement and recreation,
including sports gaming pools, (basketball, football, lotteries, etc.) and such other
forms of amusement and recreation including games of chance, which may be
allowed by law within the territorial jurisdiction of the Philippines and which will:
(1) generate sources of additional revenue to fund infrastructure and socio-civic
projects, such as flood control programs, beautification, sewerage and sewage
projects, Tulungan ng Bayan Centers, Nutritional Programs, Population Control and
such other essential public services; (2) create recreation and integrated facilities
which will expand and improve the country's existing tourist attractions; and (3)
minimize, if not totally eradicate, all the evils, malpractices and corruptions that are
normally prevalent on the conduct and operation of gambling clubs and casinos
without direct government involvement.
A statute is presumed to be valid. Every presumption must be indulged in favor of its
constitutionality.
one who attacks a statute alleging unconstitutionality must prove its invalidity
beyond a reasonable doubt; that a law may work hardship does not render it
unconstitutional; that if any reasonable basis may be conceived which supports the
statute, it will be upheld and the challenger must negate all possible basis; that the
courts are not concerned with the wisdom, justice, policy or expediency of a statute
and that a liberal interpretation of the constitution in favor of the constitutionality of
legislation should be adopted.
Application
 Locus standi - ordinary citizens and taxpayers were allowed to question
the constitutionality; "the transcendental importance to the public of
these cases demands that they be settled promptly and definitely,
brushing aside, if we must technicalities of procedure."
 Summary
 Gambling in all its forms, unless allowed by law, is generally prohibited.
But the prohibition of gambling does not mean that the Government
cannot regulate it in the exercise of its police power.
 Police power: "state authority to enact legislation that may interfere
with personal liberty or property in order to promote the general
welfare."
 an imposition or restraint upon liberty or property
 in order to foster the common good
o it is not a specific Constitutional grant -- it is a fundamental
attribute of government - along with taxing power and eminent
domain
o the "law of overwhelming necessity.
o the most essential, insistent, and illimitable of powers." (Smith
Bell & Co. v. National, 40 Phil. 136) It is a dynamic force that
enables the state to meet the agencies of the winds of change.
 Reason behind pd 1869
o regulates and centralizes gambling operations in one corporate
entity -- beneficial not just to the Government but to society in
general
o source of income for social impact projects and subjected
gambling to "close scrutiny, regulation, supervision and control
of the Government
o the evil practices and corruptions that go with gambling will be
minimized if not totally eradicated. Public welfare, then, lies at
the bottom of the enactment of PD 1896.
 It does not violate taxation power
o The City of Manila, being a mere Municipal corporation has no
inherent right to impose taxes. 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"
o 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"
o The City of Manila's power to impose or collect license fees on
gambling, has been revoked since 1975, vested solely on the
national government
o Local governments have no power to tax instrumentalities of
the national government -- it is a GOCC with an original charter
[TAXATION LAW | ATTY. LLAMADO] 19
o PAGCOR has a dual role, to operate and to regulate gambling
casinos. The latter role is governmental, which places it in the
category of an agency or instrumentality of the Government.
Being an instrumentality of the Government, PAGCOR should
be and actually is exempt from local taxes
 Does not contravene concept of local autonomy
o Based on Article 10 of the Constitution: 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 …
o The power of local government to "impose taxes and fees" is
always subject to "limitations" which Congress may provide by
law.
o The power of local government to "impose taxes and fees" is
always subject to "limitations" which Congress may provide by
law. It does not make local governments sovereign within the
state.
o As to what state powers should be "decentralized" and what
may be delegated to local government is a matter of policy - a
political question
 On legalizing gambling
o As gambling is usually an offense against the State, legislative
grant or express charter power is generally necessary to
empower the local corporation to deal with the subject
 On violating the equal protection clause for legalizing gambling
o The petitioners' posture ignores the well-accepted meaning of
the clause "equal protection of the laws."
o The clause does not preclude classification of individuals who
may be accorded different treatment under the law as long as
the classification is not unreasonable or arbitrary
o A law does not have to operate in equal force on all persons or
things
o The "equal protection clause" does not prohibit the Legislature
from establishing classes of individuals or objects upon which
different rules shall operate
o The petition did not clearly explain how the statute violates
equal protection
o The mere fact that some gambling activities like cockfighting
(P.D 449) horse racing (R.A. 306 as amended by RA 983),
sweepstakes, lotteries and races (RA 1169 as amended by B.P.
42) are legalized under certain conditions, while others are
(GO3) 2017 – 2018 . JANNSEN P. BUEMIO
 prohibited, does not render the applicable laws, P.D. 1869 for
one, unconstitutional.
 On fostering monopolistic economies
o this is not a ground for this Court to nullify P.D. 1869. If,
indeed, PD 1869 runs counter to the government's policies
then it is for the Executive Department to recommend to
Congress its repeal or amendment.
o The Court can only declare what the law is and not what the
law should be
o Sec. 19. The State shall regulate or prohibit monopolies when
public interest so requires. No combinations in restraint of
trade or unfair competition shall be allowed. (Art. XII, National
Economy and Patrimony) - monopolies not necessarily
prohibited by the Constitution - matter of policy and legislation
 On violating violates Sections 11 (Personality Dignity) 12 (Family) and
13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article XIII
and Section 2 (Educational Values) of Article XIV of the 1987
Constitution
o These are merely statements of principles and, policies. As
such, they are basically not self-executing, meaning a law
should be passed by Congress to clearly define and effectuate
such principles.
o Every law has in its favor the presumption of constitutionality
o for PD 1869 to be nullified, it must be shown that there is a
clear and unequivocal breach of the Constitution,

 Gambling is generally immoral, and this is precisely so when the

gambling resorted to is excessive. This excessiveness necessarily
depends not only on the financial resources of the gambler and his
family but also on his mental, social, and spiritual outlook on life.
However, the mere fact that some persons may have lost their material
fortunes, mental control, physical health, or even their lives does not
necessarily mean that the same are directly attributable to gambling.
Gambling may have been the antecedent, but certainly not necessarily the
cause.

Conclusion
Yes, petitioners have legal standing based on transcendental importance.
Yes, PD 1869 is Constitutional for lack of unequivocal grounds to declare otherwise.
 Summary [TAXATION LAW | ATTY. LLAMADO] 21

24
CASE TITLE: Garcia vs Executive Secretary
G.R. No: 101273 July 3, 1992
Ponente: Feliciano, J.

TOPIC:
V. Scope and Limitation of Taxation
A. Inherent Limitations
2. Inherently Legislative
Exceptions from prohibition against delegation of power to tax
b) Delegation to the President

DOCTRINE:

FACTS:
Executive Order no 475 imposed an additional duty of 9% on crude oil and
oil products while Executive Order 478 imposed a special duty on crude oil
and oil products. Petitioners claimed that both EOs are unconstitutional
because all revenue measures must originate from the House of
Representatives and the Tariff and Customs Code authorized the president to
increase the tariff duties only to protect local industries but not to raise
additional revenue for the government.

ISSUE/S:
Whether or not the tariff rates imposed are valid

HELD:
Petition dismissed for lack of merit. The assailed Executive Orders are valid.
Congress may by law authorize the president to fit tariff rates and other
duties within specified limits. The issuance of these EOs authorized by
Sections 104 and 401 of the Tariff and Customs Code. There is nothing in the
law that suggests that the authority may only be exercised to protect local
industries. Custom duties may be designated to achieve more than one policy
objective the protection of local industries and to raise revenue for the
government.

(GO3) 2017 – 2018 . JANNSEN P. BUEMIO

25
CASE TITLE: ABAKADA vs Ermita
G.R. No: 168056. September 1, 2005
Ponente: Austria-Martinez, J.
TOPIC:
V. Scope and Limitation of Taxation
A. Inherent Limitations
2. Inherently Legislative
Exceptions from prohibition against delegation of power to tax
b) Delegation to the President
DOCTRINE:
FACTS:
Petitioners ABAKADA GURO Party List challenged the constitutionality of
R.A. No. 9337 particularly Sections 4, 5 and 6, amending Sections 106,
107 and 108, respectively, of the National Internal Revenue Code (NIRC).
These questioned provisions contain a uniform proviso authorizing the
President, upon recommendation of the Secretary of Finance, to raise the
VAT rate to 12%, effective January 1, 2006, after any of the following
conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax
to twelve percent (12%), after any of the following conditions has been
satisfied:
(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%).
Petitioners argue that the law is unconstitutional, as it constitutes
abandonment by Congress of its exclusive authority to fix the rate of
taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution.
They further argue that VAT is a tax levied on the sale or exchange of
goods and services and cannot be included within the purview of tariffs
under the exemption delegation since this refers to customs duties, tolls
or tribute payable upon merchandise to the government and usually
imposed on imported/exported goods. They also said that the President
has powers to cause, influence or create the conditions provided by law
to bring about the conditions precedent. Moreover, they allege that no
guiding standards are made by law as to how the Secretary of Finance
will make the recommendation. They claim, nonetheless, that any
recommendation of the Secretary of Finance can easily be brushed aside
by the President since the former is a mere alter ego of the latter, such
that, ultimately, it is the President who decides whether to impose the
increased tax rate or not.
ISSUE/S:
1. Whether or not R.A. No. 9337 has violated the provisions in
Article VI, Section 24, and Article VI, Section 26 (2) of the
Constitution.
2. Whether or not there was an undue delegation of legislative
power in violation of Article VI Sec 28 Par 1 and 2 of the Constitution.
3. Whether or not there was a violation of the due process and equal
protection under Article III Sec. 1 of the Constitution.
HELD:
1. Basing from the ruling of Tolentino case, it is not the law, but the
revenue bill which is required by the Constitution to “originate
exclusively” in the House of Representatives, but Senate has the
power not only to propose amendments, but also to propose its own
version even with respect to bills which are required by the
Constitution to originate in the House. the Constitution simply means
is that the initiative for filing revenue, tariff or tax bills, bills
authorizing an increase of the public debt, private bills and bills of
local application must come from the House of Representatives on
 Summary [TAXATION LAW | ATTY. LLAMADO] 23

the theory that, elected as they are from the districts, the members of
the House can be expected to be more sensitive to the local needs
and problems. On the other hand, the senators, who are elected at
large, are expected to approach the same problems from the national
perspective. Both views are thereby made to bear on the enactment
of such laws.
2. In testing whether a statute constitutes an undue delegation of
legislative power or not, it is usual to inquire whether the statute was
complete in all its terms and provisions when it left the hands of the
legislature so that nothing was left to the judgment of any other
appointee or delegate of the legislature.
3. The equal protection clause under the Constitution means that “no
person or class of persons shall be deprived of the same protection of
laws which is enjoyed by other persons or other classes in the same
place and in like circumstances.” 
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.
3. Supreme Court held no decision on this matter. The power of the
State to make reasonable and natural classifications for the purposes
of taxation has long been established. Whether it relates to the
subject of taxation, the kind of property, the rates to be levied, or the
amounts to be raised, the methods of assessment, valuation and
collection, the State’s power is entitled to presumption of validity. As
a rule, the judiciary will not interfere with such power absent a clear
showing of unreasonableness, discrimination, or arbitrariness.

Rulings:

1. R.A. No. 9337 has not violated the provisions. The revenue bill
exclusively originated in the House of Representatives, the Senate
was acting within its constitutional power to introduce amendments
to the House bill when it included provisions in Senate Bill No. 1950
amending corporate income taxes, percentage, excise and franchise
taxes. Verily, Article VI, Section 24 of the Constitution does not
contain any prohibition or limitation on the extent of the amendments
that may be introduced by the Senate to the House revenue bill.
2. There is no undue delegation of legislative power but only of the
discretion as to the execution of a law. This is constitutionally
permissible. Congress does not abdicate its functions or unduly
(GO3) 2017 – 2018 . JANNSEN P. BUEMIO
26
CASE TITLE: Maceda vs Macaraig
G.R. No: 88291 June 8, 1993
Ponente: Nocon, J.
TOPIC:
V. Scope and Limitation of Taxation
A. Inherent Limitations
2. Inherently Legislative
Exceptions from prohibition against delegation of power to tax
b) Delegation to the President
DOCTRINE:
FACTS:
This case is regarding a matter of indirect tax exemption of the private
respondent National Power Corporation (NPC) which is brought to the
Supreme Court (SC) a second time by petitioner Senator Ernesto
Maceda.
On November 3, 1936, Commonweath Act No. 120 (An Act Creating
The “National Power Corporation,” And Prescribing Its Powers And
Activities, Appropriating The Necessary Funds Therefor, And
Reserving The Unappropriated Public Waters For Its Use) was enacted
creating the NPC, which is a public corporation, mainly to develop
hydraulic power and the production of power from other sources in the
Philippines (Com. Act No. 120, secs 1 & 2(g)).
The main source of funds for the NPC was the flotation of bonds in the
capital markets and such bonds were exempt from payment of all taxes
in order for the corporation to facilitate payment of its indebtedness.
On September 10, 1971, Republic Act No. 6395 (An Act Revising The
Charter Of The National Power Corporation) was enacted, which
tasked NPC to carry out the policy of national electrification, and
provided for the details of NPC’s tax exemption.
On January 22, 1974, Presidential Decree No. 380 was issued and
specified that NPC’s tax exemption includes all taxes imposed
“directly and indirectly” on all petroleum products used by NPC in its
operation.
On May 27, 1976, Presidential Decree 938 amended R.A 6395 which
integrated the tax exemption privilege of NPC in general terms –
“Section 10 … To enable the Corporation to pay its indebtedness and
obligations and in furtherance and effective implementation of the
policy enunciated in Section One of this Act, the Corporation,
including its subsidiaries, is hereby declared exempt from the payment
of all forms of taxes, duties, fees, imposts as well as costs and service
fees including filing fees, appeal bonds, supersedeas bonds, in any
court or administrative proceedings.”
After a series of withdrawal and restoration of NPC’s tax exemption,
the Fiscal Incentives Review Board, possessing the power restore tax
exemptions, issued Resolution 10-85 (February 7, 1985) restoring
NPC’s exemption from June 11, 1984 to June 30, 1985.
Since 1976, oil firms never paid excise or specific and ad valorem
taxes for petroleum products sold and delivered to NPC. Such taxes
were paid on their sales of oil products to NPC only in 1984. NPC
claimed for a refund of P468.58 Million (1984-1986), and only a
portion was approved and released by Caltex. The claim for the refund
of taxes paid by PetroPhil, Shell and Caltex was denied. NPC moved
for reconsideration, stating that all the deliveries of petroleum products
to NPC are tax exempt.
Petitioner contends that Presidential Decree No. 938 (1976) repealed
the indirect tax exemption of NPC as Sec 10 thereof does not expressly
include “indirect taxes”.
ISSUE/S:
Whether the National Power Corporation still possessed indirect tax
exemption after the repeal made in PD 938
 Summary [TAXATION LAW | ATTY. LLAMADO] 25

HELD:
Yes, NPC still possess the exemption to indirect taxes.

NPC laws show that it has been the lawmaker’s intention that the NPC
was to be completely tax exempt from all forms of taxes – direct and
indirect.

One common theme in all these laws is that the NPC must be able to
pay its indebtedness which, as of P.D. No. 938, was P12 Billion in
total domestic indebtedness, at any one time, and U$4 Billion in total
foreign loans at any one time. The NPC must be and has to be exempt
from all forms of taxes if this goal is to be achieved. In addition to this,
the then President Marcos mandated that 200 Million pesos be
appropriated annually to NPC, such amount should be taken from the
general fund of the government. It does not stand to reason that the
then President would order 200 million pesos to be taken partially or
totally from the tax money to be used to pay the government
subscription in the NPC on one hand and order NPC to pay its indirect
tax.

Furthermore, section 10 of PD 938 was intended to be in its general

form, President Marcos must have considered all the NPC statutes
from C.A 120 up to its latest amendments, PD 380, PD 395 and PD
758 and came up with a very simple Section 13, RA 6395, as amended
by PD 938. When construing a series of statutes, they shall be taken
and construed together, as in statutes in pari materia. And in addition,
repeal by implication is not favoured unless it is manifest that the
legislature so intended.

(GO3) 2017 – 2018 . JANNSEN P. BUEMIO

28 ISSUE/S:
CASE TITLE: Commissioner vs CA Whether the RMC was valid.
G.R. No: 119761 August 29, 1996
Ponente: Vitug, J.
HELD:
TOPIC:
NO. The RMC was made to place the three brands as locally made cigarettes
V. Scope and Limitation of Taxation
bearing foreign brands and to thereby have them covered by RA 7654.
A. Inherent Limitations
Specifically, the new law would have its amendatory provisions applied to
2. Inherently Legislative
locally manufactured cigarettes which at the time of its effectivity were not
Exceptions from prohibition against delegation of power to tax
so classified as bearing foreign brands. Prior to the issuance of the RMC, the
b) Delegation to the President
brands were subjected to 45% ad valorem tax. In so doing, the BIR not
simply interpreted the law but it legislated under its quasi-legislative
DOCTRINE:
authority. The due observance of the requirements of notice, of hearing, and
of publication should not have been then ignored.
FACTS:
Fortune Tobacco Corporation is engaged in the manufacture of different
The Court is convinced that the hastily promulgated RMC 37-93 has fallen
brands of cigarettes.
short of a valid and effective administrative issuance.
On various dates, the Philippine Patent Office issued to the corporation
separate certificates of trademark registration over "Champion," "Hope," and
"More" cigarettes. 

The CIR initially classified 'Champion,' 'Hope,' and 'More' as foreign brands
since they were listed in the World Tobacco Directory as belonging to
foreign companies. However, Fortune changed the names of 'Hope' to Hope
Luxury' and 'More' to 'Premium More,' thereby removing the said brands
from the foreign brand category. Fortune also submitted proof the BIR that
'Champion' was an original register and therefore a local brand. Ad Valorem
taxes were imposed on these brands. 

RA 7654 was passed in it was provided that 55% ad valorem tax will be
imposed on local brands carrying a foreign name. Two days before the
effectivity of RA 7654, the BIR issued Revenue Memorandum Circular No.
37-93,  in which Fortune was to be imposed 55% ad valorem tax on the three
brands classifying them as local brands carrying a foreign name.

Fortune filed a petition with the CTA which was granted finding the RMC as
defective. The CIR filed a motion for reconsideration with the CTA which
was denied, then to the CA, an appeal, which was also denied.