1

[G.R. No. L-28896. February 17, 1988.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ALGUE, INC., and THE
COURT OF TAX APPEALS, respondents.

Procedure

 Private respondent Algue received a letter from the CIR assessing it in the total amount
of P83,183.85 as delinquency income taxes for the years 1958 and 1959. (January 14,
1965)
 Algue filed a letter of protest or request for reconsideration, which letter was stamp-
received on the same day in the office of the petitioner CIR. (January 18, 1965)
 A warrant of distraint and levy was presented to the Algue, through its counsel, Atty.
Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest
(March 12, 1965)
o A search of the protest in the dockets of the case proved fruitless. Atty. Guevara
produced his file copy and gave a photostat to BIR agent Ramon Reyes, who
deferred service of the warrant.
 Atty. Guevara was finally 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 (April 7, 1965)
 Algue filed a petition for review of the decision of the Commissioner of Internal Revenue
with the Court of Tax Appeal (Sixteen days later, on April 23, 1965)
 Court of Tax Appeals correctly noted, the protest filed by private respondent Algue was
not pro forma and was based on strong legal considerations.
 CIR appealed to the SC

Parties & Position

 CIR - contends that the claimed deduction of P75,000.00 was properly disallowed
because it was not an ordinary, reasonable or necessary business expense.
 Algue - domestic corporation engaged in engineering, construction and other allied
activities, claimed a deduction of Php 75000 which was paid for actual services
 Court of Tax Appeals agreeing with Algue - held that the said amount had been
legitimately paid by the private respondent for actual services rendered. The payment was
in the form of promotional fees. These were collected by the payees for their 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.
 CIR laims that these payments are fictitious because most of the payees are members of
the same family in control of Algue. It is argued that no indication was made as to how
such payments were made, whether by check or in cash, and there is not enough
 2

substantiation of such payments. In short, the petitioner suggests a tax dodge, an attempt
to evade a legitimate assessment by involving an imaginary deduction.

Issues-Facts

 Whether the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by private respondent Algue as legitimate business expenses in its income tax
returns. – NO
o the amount was earned through the joint efforts of the persons among whom it was
distributed. It has been established that the Philippine Sugar Estate Development
Company had earlier appointed Algue as its agent, authorizing it to sell its land,
factories and oil manufacturing process. Pursuant to such authority, Alberto
Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith O'Farell, and Pablo Sanchez
worked for the formation of the Vegetable Oil Investment Corporation, inducing
other persons to invest in it. Ultimately, after its incorporation largely through the
promotion of the said persons, this new corporation purchased the PSEDC
properties.
o For this sale, Algue received as agent a commission of P125,000.00, and it was
from this commission that the P75,000.00 promotional fees were paid to the
aforenamed individuals.
o 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.
o The Court of Tax Appeals also found, after examining the evidence, that no
distribution of dividends was involved.
 Whether or not the appeal of the private respondent from the decision of the Collector of
Internal Revenue was made on time and in accordance with law. YES
o The period started running again only on April 7, 1965, when the private
respondent was definitely informed of the implied rejection of the said protest and
the warrant was finally served on it. Hence, when the appeal was filed on April 23,
1965, only 20 days of the reglementary period had been consumed

Doctrine/ Ruling

 The SC held that the claimed deduction by the private respondent was permitted under
the Internal Revenue Code and should therefore not have been disallowed by the
petitioner.
 The amount of the promotional fees was not excessive. The amount of P75,000.00 was
60% of the total 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.
 3

 This finding of the respondent court is in accord with the following provision of the Tax
Code: Sec 30 thereof provides for deductions from gross income which include “In
general. — 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; . . ." and Revenue
Regulations No. 2, Section 70 (1) which provides for "SEC. 70. Compensation for
personal services. — Among the ordinary and necessary expenses paid or incurred in
carrying on any trade or business may be included a reasonable allowance for salaries
or other compensation for personal services actually rendered. The test of deductibility
in the case of compensation payments is whether they are reasonable and are, in fact,
payments purely for service.
 It is worth noting at this point that most of the payees were not in the regular employ of
Algue nor were they its controlling stockholders.
 The Solicitor General is correct when he says that the burden is on the taxpayer to
prove the validity of the claimed deduction. In the present case, however, we find that
the onus has been discharged satisfactorily. The private respondent 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. This was no mean feat and should be, as it was, sufficiently
recompensed.
 It is said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and operate it.
Hence, despite the natural reluctance to surrender part of one's hard-earned income
to the taxing authorities, every person who is able to must contribute his share in the
running of the government. The government for its part, is expected to respond in
the form of tangible and intangible benefits intended to improve the lives of the
people and enhance their moral and material values. This symbiotic relationship is
the rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power.
 But even as we concede the inevitability and indispensability of taxation, it is a
requirement in all democratic regimes that it 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. For all the awesome power of the tax collector, he
may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the
law has not been observed.
 We hold that the appeal of the private respondent from the decision of the petitioner was
filed on time with the respondent court in accordance with Rep. Act No. 1125.
 ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in
toto, without costs.
4
 5

[G.R. No. 215950. June 20, 2016.]

TRIDHARMA MARKETING CORPORATION, petitioner, vs. COURT OF TAX

APPEALS, SECOND DIVISION, AND THE COMMISSIONER OF INTERNAL
REVENUE, respondents.

 TRIDHARMA MARKETING CORPORATION received a Preliminary Assessment

Notice (PAN) from the Bureau of Internal Revenue (BIR) assessing it with various
deficiency taxes — income tax (IT), value-added tax (VAT), withholding tax on
compensation (WTC), expanded withholding tax (EWT) and documentary stamp tax
(DST) — totalling P4,640,394,039.97, inclusive of surcharge and interest. (August 16,
2013)

 The petitioner replied to the PAN through its letter dated August 30, 2013.

 BIR sent a Formal Letter of Demand assessing it with deficiency taxes for the taxable
year ending December 31, 2010 amounting to P4,697,696,275.25, inclusive of surcharge
and interest. On September 23, 2013,

 Tridharma filed a protest against the formal letter of demand.

 Respondent Commissioner of Internal Revenue (CIR) required the petitioner to submit

additional documents in support of its protest which the petitioner complied with

 Petitioner received a Final Decision on Disputed Assessment worth P4,473,228,667.87

(February 28, 2014)

 The petitioner filed with the CIR a protest through a Request for Reconsideration. It was
denied.

o Prior to the CIR's decision, the petitioner paid the assessments corresponding to the
WTC, DST and EWT deficiency assessments, inclusive of interest, amounting to
P5,836,786.10. It likewise reiterated its offer to compromise the alleged deficiency
assessments on IT and VAT.

 Petitioner appealed to the CTA thru Petition for Review with Motion to Suspend
Collection of Tax and raffled to the CTA Second Division. (June 13, 2014)

 CTA granted Motion but ordered petitioner to deposit with this Court an acceptable
surety bond equivalent to 150% of the assessment or in the amount P6,701,087,822.64
within 15 days from notice hereof and to submit different certificates
 6

 Tridharma filed its Motion for Partial Reconsideration praying, among others, for the
reduction of the bond to an amount it could obtain.

 CTA in Division issued its second assailed resolution reducing the amount of the
petitioner's surety bond to P4,467,391,881.76, which was the equivalent of the BIR's
deficiency assessment for IT and VAT. (December 22, 2014)

 Tridharma commenced this special civil action for certiorari alleging that CTA SECOND
DIVISION COMMITTED GRAVE ABUSE OF DISCRETION IN REFUSING TO
CONSIDER, AND IN COMPLETELY IGNORING, THE PATENT ILLEGALITY OF
THE ASSESSMENT

 SC issued a temporary restraining order enjoining the implementation of July 8, 2014 and
December 22, 2014 resolutions of the CTA in Division, and the collection of the
deficiency assessments. (February 9, 2015)

Parties/ Position

 Tridharma Marketing Corporation – filed a protest against the Assessment it received for
being more than 5 times its networth.

o TRIDHARMA MARKETING CORPORATION received a Preliminary

Assessment Notice (PAN) from the Bureau of Internal Revenue (BIR) assessing it
with various deficiency taxes — income tax (IT), value-added tax (VAT),
withholding tax on compensation (WTC), expanded withholding tax (EWT) and
documentary stamp tax (DST) — totalling P4,640,394,039.97, inclusive of
surcharge and interest. (August 16, 2013)

o A substantial portion of the deficiency income tax and VAT arose from the
complete disallowance by the BIR of the petitioner's purchases from Etheria
Trading in 2010 amounting to P4,942,937,053.82.

o It Commisioner of Internal Revenue – rendered final decision on the assessment

o The petitioner submits that the patent illegality of the assessment was sufficient
ground to dispense with the bond requirement because the CIR was essentially
taxing its sales revenues without allowing the deduction of the cost of goods sold
by virtue of the CIR refusing to consider evidence showing that it had really
incurred costs.

 Court of Tax Appeals – granted Tridhama’s Motion to Suspend Collection of Tax

because making it pay the assessed amount would jeopardize the normal business
operations of petitioner thereby causing irreparable injury to its ability to continue.
 7

However, CTA required it to post a bond amounting P6,701,087,822.64 then later to the
original assessment

 Tridharma – filed a petition for certiorari before the SC claimin that CTA second division
committed grave abuse of discretion for the illegality of assessment.

Issue/ Facts

 Did the CTA in Division commit grave abuse of discretion in requiring the petitioner to
file a surety bond despite the supposedly patent illegality of the assessment that was
beyond the petitioner's net worth but equivalent to the deficiency assessment for IT and
VAT? YES

 Under Section 11 of Republic Act No. 1125 (R.A. No. 1125), the CTA may order the
suspension of the collection of taxes provided that the taxpayer either: (1) deposits the
amount claimed; or (2) files a surety bond for not more than double the amount.

 As shown in its audited financial statements for the year ending December 31, 2013, its
net worth only amounted to P916,768,767.00, making the amount of P4,467,391,881.76
fixed for the bond nearly five times greater than such net worth.

 The surety bond amounting to P4,467,391,881.76 imposed by the CTA was within the
parameters delineated in Section 11 of R.A. 1125, as amended.

 The Court holds, however, that the CTA in Division gravely abused its discretion under
Section 11 because it fixed the amount of the bond at nearly five times the net worth of
the petitioner without conducting a preliminary hearing to ascertain whether there were
grounds to suspend the collection of the deficiency assessment on the ground that such
collection would jeopardize the interests of the taxpayer.

 Although the amount of P4,467,391,881.76 was itself the amount of the assessment, it
behoved the CTA in Division to consider other factors recognized by the law itself
towards suspending the collection of the assessment, like whether or not the
assessment would jeopardize the interest of the taxpayer, or whether the means
adopted by the CIR in determining the liability of the taxpayer was legal and valid.

 Amount would practically deny to the petitioner the meaningful opportunity to contest
the validity of the assessments, and would likely even impoverish it as to force it out of
business.

Doctrine/ Ruling

 the power to tax is not the power to destroy.

 8

 In Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, the

Court has stressed that:

o As a general rule, the power to tax is an incident of sovereignty and is

unlimited in its range, acknowledging in its very nature no limits, so that
security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who is to pay it. So
potent indeed is the power that it was once opined that the power to tax involves
the power to destroy.

 In Roxas et al vs CTA et al, it was held that the power of taxation is sometimes called
also the power to destroy. Therefore it should be exercised with caution to minimize
injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally
and uniformly, lest the tax collector "kill the hen that lays the golden egg."

 Legitimate enterprises enjoy the constitutional protection not to be taxed out of

existence. Incurring losses because of a tax imposition may be an acceptable
consequence but killing the business of an entity is another matter and should not be
allowed. It is counter-productive and ultimately subversive of the nation's thrust towards
a better economy which will ultimately benefit the majority of our people.

 Moreover, Section 11 of R.A. 1125, as amended, indicates that the requirement of the
bond as a condition precedent to suspension of the collection applies only in cases where
the processes by which the collection sought to be made by means thereof are carried out
in consonance with the law, not when the processes are in plain violation of the law that
they have to be suspended for jeopardizing the interests of the taxpayer.

 However, the Court is not in the position to rule on the correctness of the deficiency
assessment, which is a matter still pending in the CTA.

o Conformably with the pronouncement in Pacquiao v. Court of Tax Appeals, First

Division, and the Commissioner of Internal Revenue, a ruling that has precedential
value herein, the Court deems it best to remand the matter involving the
petitioner's plea against the correctness of the deficiency assessment to the
CTA for the conduct of a preliminary hearing in order to determine whether
the required surety bond should be dispensed with or reduced. The remand of
the case to the CTA on this question is, therefore, more sensible and proper.
Astated earlier, there is no evidentiary basis. All the arguments are mere
allegations from both sides.

o In the conduct of its preliminary hearing, the CTA must balance the scale
between the inherent power of the State to tax and its right to prosecute
perceived transgressors of the law, on one side; and the constitutional rights of
 9

petitioners to due process of law and the equal protection of the laws, on the
other. In case of doubt, the tax court must remember that as in all tax cases,
such scale should favor the taxpayer, for a citizen's right to due process and
equal protection of the law is amply protected by the Bill of Rights under the
Constitution.

 Consequently, to prevent undue and irreparable damage to the normal business operations
of the petitioner, the remand to the CTA of the questions involving the suspension of
collection and the correct amount of the bond is the proper course of action.

 WHEREFORE, the Court GRANTS the petition for certiorari; ANNULS and SETS
ASIDE the resolutions issued on July 8, 2014 and December 22, 2014 in CTA Case No.
8833 requiring the petitioner to post a surety bond of P4,467,391,881.76 as a condition to
restrain the collection of the defciency taxes assessed against it; PERMANENTLY
ENJOINS the enforcement of the resolutions issued on July 8, 2014 and December 22,
2014 in CTA Case No. 8833; and REQUIRES the Court of Tax Appeals, Second
Division, to forthwith conduct a preliminary hearing in CTA Case No. 8833 to determine
and rule on whether the bond required under Section 11 of Republic Act No. 1125 may
be dispensed with or reduced to restrain the collection of the deficiency taxes assessed
against the petitioner.
 10

[G.R. No. 149110. April 9, 2003.]

NATIONAL POWER CORPORATION, petitioner, vs. CITY OF CABANATUAN,

respondent.

Procedure

 City of Cabanatuan - assessed the petitioner a franchise tax amounting to P808,606.41

 NAPOCOR refused

 City of Cabanatuan filed a collection suit in the Regional Trial Court of Cabanatuan City,
demanding that petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of
the amount of tax, and 2% monthly interest

o RTC dismissed the case. It ruled that the tax exemption privileges granted to
petitioner subsist despite the passage of Rep. Act No. 7160 for the following
reasons: (1) Rep. Act No. 6395 is a particular law and it may not be repealed by
Rep. Act No. 7160 which is a general law; (2) Section 193 of Rep. Act No. 7160 is
in the nature of an implied repeal which is not favored; and (3) local governments
have no power to tax instrumentalities of the national government.

 On appeal, the Court of Appeals reversed the trial court's Order

o on the ground that Section 193, in relation to Sections 137 and 151 of the LGC,
expressly withdrew the exemptions granted to the petitioner. It ordered the
petitioner to pay the respondent city government the following: (a) the sum of
P808,606.41 representing the franchise tax due based on gross receipts for the year
1992, (b) the tax due every year thereafter based in the gross receipts earned by
NPC, (c) in all cases, to pay a surcharge of 25% of the tax due and unpaid, and (d)
the sum of P10,000.00 as litigation expense.

 NAPOCOR filed a Motion for Reconsideration on the Court of Appeal's Decision. (April
4, 2001)

 This was denied by the appellate court

 NAPOCOR went to SC for a petition for review

o the court of appeals gravely erred in holding that NPC, a public non-profit
corporation, is liable to pay a franchise tax as it failed to consider that section 137
 11

of the local government code in relation to section 131 applies only to private
persons or corporations enjoying a franchise.

o the court of appeals gravely erred in holding that npc's exemption from all forms of
taxes has been repealed by the provision of the local government code as the
enactment of a later legislation, which is a general law, cannot be construed to
have repealed a special law.

o the court of appeals gravely erred in not considering that an exercise of police
power through tax exemption should prevail over the local government code."

Parties

 Petitioner NAPOCOR is a government-owned and controlled corporation created under

Commonwealth Act No. 120, as amended. It is tasked to undertake the "development of
hydroelectric generations of power and the production of electricity from nuclear,
geothermal and other sources, as well as, the transmission of electric power on a
nationwide basis." 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.

 City of Cabanatuan - 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 pursuant to
Section 37 of Ordinance No. 165-92

 NAPOCOR - whose capital stock was subscribed and paid wholly by the Philippine
Government, refused to pay the tax assessment.

o It argued that the respondent has no authority to impose tax on government

entities.

o 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

 Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes,
Duties, Fees, Imposts and Other Charges by Government and Governmental
Instrumentalities. — The Corporation shall be non-profit and shall devote all
its return from its capital investment, as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay its indebtedness

 City of Cabanatuan alleged that petitioner's exemption from local taxes has been repealed
by Section 193 of Rep. Act No. 7160
 12

o "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."

 NAPOCOR - It contends that Sections 137 and 151 of the LGC in relation to Section
131, limit the taxing power of the respondent city government to private entities that are
engaged in trade or occupation for profit. when the LGC uses the term "franchise,"
petitioner submits that it should refer specifically to franchises granted to private natural
persons and to private corporations. Ergo, its charter should not be considered a
"franchise" for the purpose of imposing the franchise tax in question.

o petitioner argues that the accumulation of profit is merely incidental to its

operation; all these profits are required by law to be channeled for expansion and
improvement of its facilities and services. Petitioner also alleges that it is an
instrumentality of the National Government, and as such, may not be taxed by the
respondent city government. It cites the doctrine in Basco vs. Philippine
Amusement and Gaming Corporation where this Court held that local governments
have no power to tax instrumentalities of the National Government which
emanates from the 'supremacy' of the National Government over local
governments.

o Petitioner contends that Section 193 of Rep. Act No. 7160, withdrawing the tax
privileges of government-owned or controlled corporations, is in the nature of an
implied repeal. A special law, its charter cannot be amended or modified impliedly
by the local government code which is a general law. Consequently, petitioner
claims that its exemption from all taxes, fees or charges under its charter subsists
despite the passage of the LGC

o Finally, petitioner submits that the charter of the NPC, being a valid exercise of
police power, should prevail over the LGC. It alleges that the power of the local
government to impose franchise tax is subordinate to petitioner's exemption from
taxation; "police power being the most pervasive, the least limitable and most
demanding of all powers, including the power of taxation."

Issues

 Whether NAPOCOR is exempt from the payment of franchise tax charged by the City of
Cabanatuan. No

Ruling
 13

 The SC denied NAPOCOR’s petition. The ruling in BASCO vs PAGCOR does not stand.

o With the 1987 Consti, the power to tax is no longer vested exclusively on
Congress; local legislative bodies are now given direct authority to levy taxes, fees
and other charges pursuant to Article X, Section 5 of the 1987 Constitution, viz:

"Section 5. Each Local Government unit shall have the power to create its
own sources of revenue, to levy taxes, fees and charges subject to such
guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes, fees and charges shall accrue
exclusively to the Local Governments."

 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.

 This paradigm shift results from the realization that genuine development can be
achieved only by strengthening local autonomy and promoting decentralization of
governance.

 The only way to shatter this culture of dependence is to give the LGUs a wider role in the
delivery of basic services, and confer them sufficient powers to generate their own
sources for the purpose.

 To achieve this goal, Section 3 of Article X of the 1987 Constitution mandates Congress
to enact a local government code that will, consistent with the basic policy of local
autonomy, set the guidelines and limitations to this grant of taxing powers

 Considered as the most revolutionary piece of legislation on local autonomy, the LGC
effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of
LGUs to include taxes which were prohibited by previous laws such as the imposition of
taxes on forest products, forest concessionaires, mineral products, mining operations, and
the like. The LGC likewise provides enough flexibility to impose tax rates in accordance
with their needs and capabilities. It does not prescribe graduated fixed rates but merely
specifies the minimum and maximum tax rates and leaves the determination of the actual
rates to the respective sanggunian.

 One of the most significant provisions of the LGC is the removal of the blanket exclusion
of instrumentalities and agencies of the national government from the coverage of local
 14

taxation. Although as a general rule, LGUs cannot impose taxes, fees or charges of
any kind on the National Government, its agencies and instrumentalities, this rule
now admits an exception, i.e., when specific provisions of the LGC authorize the
LGUs to impose taxes, fees or charges on the aforementioned entities, viz:

"Section 133. Common Limitations on the Taxing Powers of the Local

Government Units. — Unless otherwise provided herein, the exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:

xxx xxx xxx

(o) Taxes, fees, or charges of any kind on the National Government, its agencies
and instrumentalities, and local government units." (emphasis supplied)

 However, as this Court ruled in the case of Mactan Cebu International Airport Authority
(MCIAA) vs. Marcos, nothing prevents Congress from decreeing that even
instrumentalities or agencies of the government performing governmental functions may
be subject to tax. 46 In enacting the LGC, Congress exercised its prerogative to tax
instrumentalities and agencies of government as it sees fit. Thus, after reviewing the
specific provisions of the LGC, this Court held that MCIAA, although an instrumentality
of the national government, was subject to real property tax, viz:

 "Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a
general rule, as laid down in Section 133, the taxing power of local governments cannot
extend to the levy of inter alia, 'taxes, fees and charges of any kind on the national
government, its agencies and instrumentalities, and local government units'; however,
pursuant to Section 232, provinces, cities and municipalities in the Metropolitan Manila
Area may impose the real property tax except on, inter alia, 'real property owned by the
Republic of the Philippines or any of its political subdivisions except when the beneficial
use thereof has been granted for consideration or otherwise, to a taxable person as
provided in the item (a) of the first paragraph of Section 12.'"

 In the case at bar, Section 151 in relation to Section 137 of the LGC clearly
authorizes the respondent city government to impose on the petitioner the franchise
tax in question.

 Verily, to determine whether the petitioner is covered by the franchise tax in question, the
following requisites should concur: (1) that petitioner has a "franchise" in the sense of a
secondary or special franchise; and (2) that it is exercising its rights or privileges under
this franchise within the territory of the respondent city government. Petitioner fulfills
both.
 15

 Petitioner, however, insists that it is excluded from the coverage of the franchise tax
simply because its stocks are wholly owned by the National Government, and its charter
characterized it as a "non-profit" organization. These contentions must necessarily fail.
By virtue of its charter, petitioner was created as a separate and distinct entity from the
National Government. It can sue and be sued under its own name, and can exercise all the
powers of a corporation under the Corporation Code.

 Petitioner was created to "undertake the development of hydroelectric generation of

power and the production of electricity from nuclear, geothermal and other sources, as
well as the transmission of electric power on a nationwide basis." Pursuant to this
mandate, petitioner generates power and sells electricity in bulk. Certainly, these
activities do not partake of the sovereign functions of the government.

 As a rule, tax exemptions are construed strongly against the claimant. Exemptions
must be shown to exist clearly and categorically, and supported by clear legal provisions.
In the case at bar, the petitioner's sole refuge is Section 13 of Rep. Act No. 6395

 Doubtless, the power to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of the local government units for the delivery of
basic services essential to the promotion of the general welfare and the enhancement of
peace, progress, and prosperity of the people. As this Court observed in the Mactan case,
"the original reasons for the withdrawal of tax exemption privileges granted to
government-owned or controlled corporations and all other units of government were that
such privilege resulted in serious tax base erosion and distortions in the tax treatment of
similarly situated enterprises." With the added burden of devolution, it is even more
imperative for government entities to share in the requirements of development, fiscal or
otherwise, by paying taxes or other charges due from them.

 IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and
Resolution of the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively,
are hereby AFFIRMED.
 16

[G.R. No. 199669. April 25, 2017.]

SOUTHERN LUZON DRUG CORPORATION, petitioner, vs. THE DEPARTMENT OF

SOCIAL WELFARE AND DEVELOPMENT, THE NATIONAL COUNCIL FOR THE
WELFARE OF DISABLED PERSONS, THE DEPARTMENT OF FINANCE, and THE
BUREAU OF INTERNAL REVENUE, respondents.

Procedure:

 Southern Luzon Drug Corporation filed a petition for prohibition against the Department
of Social Welfare and Development , the National Council for the Welfare of Disabled
Persons (now National Council on Disability Affairs or NCDA), the Department of
Finance and the Bureau of Internal Revenue (collectively, the respondents), which
sought to prohibit the implementation of Section 4(a) of Republic Act (R.A.) No. 9257,
otherwise known as the "Expanded Senior Citizens Act of 2003" and Section 32 of R.A.
No. 9442, which amends the "Magna Carta for Disabled Persons," particularly the
granting of 20% discount on the purchase of medicines by senior citizens and persons
with disability (PWD), respectively, and treating them as tax deduction.
 Still, respondents issued IRRs
 On February 26, 2008, the petitioner filed a Petition for Prohibition with Application for
TRO and/or Writ of Preliminary Injunction with the CA, seeking to declare as
unconstitutional (a) Section 4 (a) of R.A. No. 9257, and (b) Section 32 of R.A. No. 9442
and Section 5.1 of its IRR, insofar as these provisions only allow tax deduction on the
gross income based on the net cost of goods sold or services rendered as compensation to
private establishments for the 20% discount that they are required to grant to senior
citizens and PWDs. Further, the petitioner prayed that the respondents be permanently
enjoined from implementing the assailed provisions.
o On June 17, 2011, the CA dismissed the petition, reiterating the ruling of the Court
in Carlos Superdrug 10 particularly that Section 4 (a) of R.A. No. 9257 was a valid
exercise of police power. Moreover, the CA held that considering that the same
question had been raised by parties similarly situated and was resolved in Carlos
Superdrug, the rule of stare decisis stood as a hindrance to any further attempt to
relitigate the same issue.

 The petitioner filed its Motion for Reconsideration of the Decision dated June 17, 2011 of
the CA, but the same was denied in a Resolution dated November 25, 2011.

 Petitioner filed a Petition for Review on Certiorari assailing the Decision of the Court of
Appeals

Parties:
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 The petitioner is a domestic corporation engaged in the business of drugstore operation in

the Philippines

o Contends that the imposition of 20% discount for Seniors and PWDs constitutes
taking without just compensation. That they incurred losses for the tax deductions
imposed as burden to them

 Respondents are government agencies, office and bureau tasked to monitor compliance
with R.A. Nos. 9257 and 9442, promulgate implementing rules and regulations for their
effective implementation, as well as prosecute and revoke licenses of erring
establishments.

Issue:

 Whether or not the Section 4(a) of R.A. No. 9257 and Section 32 of R.A. No.9442 are
constitutional and valid exercise of eminent domain?

Ruling/ Doctrine:
 The Supreme Court held that the power of taxation in this case is a valid exercise of the
police power for the purpose of promoting the general welfare of the senior citizens and
pwds.

o On April 23, 1992, R.A. No. 7432, entitled "An Act to Maximize the Contribution
of Senior Citizens to Nation-Building, Grant Benefits and Special Privileges and
for Other Purposes," was enacted. Under the said law, a senior citizen, who must
be at least 60 years old and has an annual income of not more than P60,000.00,
may avail of the privileges provided in Section 4 thereof, one of which is 20%
discount on the purchase of medicines; Provided, That private establishments may
claim the cost as tax credit

o On February 26, 2004, then President Gloria Macapagal-Arroyo signed R.A. No.
9257, amending some provisions of R.A. No. 7432. The new law retained the 20%
discount on the purchase of medicines but removed the annual income ceiling
thereby qualifying all senior citizens to the privileges under the law. Further, R.A.
No. 9257 modified the tax treatment of the discount granted to senior citizens,
from tax credit to tax deduction from gross income, computed based on the net cost
of goods sold or services rendered.

o On May 28, 2004, the DSWD issued the Implementing Rules and Regulations
(IRR) of R.A. No. 9257. Article 8 of Rule VI of the said IRR provides: Artrticle 8.
Tax Deduction of Establishments. — The establishment may claim the discounts
granted under Rule V, Section 4 — Discounts for Establishments; Section 9,
Medical and Dental Services in Private Facilities and Sections 10 and 11 — Air,
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Sea and Land Transportation as tax deduction based on the net cost of the goods
sold or services rendered. Provided, That the cost of the discount shall be allowed
as deduction from gross income for the same taxable year that the discount is
granted

o The change in the tax treatment of the discount given to senior citizens did not sit
well with some drug store owners and corporations, claiming it affected the
profitability of their business.

There is no question that the grant of mandatory discount is germane to the purpose of R.A.
Nos. 9257 and 9442, that is, to adopt an integrated and comprehensive approach to health
development and make essential goods and other social services available to all the people at
affordable cost, with special priority given to the elderlies and the disabled, among others. The
privileges granted by the laws ease their concerns and allow them to live more comfortably.
The subject laws also address a continuing concern of the government for the welfare of the
senior citizens and PWDs. It is not some random predicament but an actual, continuing and
pressing concern that requires preferential attention. Also, the laws apply to all senior citizens
and PWDs, respectively, without further distinction or reservation. Without a doubt, all the
elements for a valid classification were met.

Q1. THE VALUATION USED:

The Court also entertains no doubt on the legality of the method taken by the legislature to
implement the declared policies of the subject laws, that is, to impose discounts on the medical
services and purchases of senior citizens and PWDs and to treat the said discounts as tax
deduction rather than tax credit. The measure is fair and reasonable and no credible proof was
presented to prove the claim that it was confiscatory. To be considered confiscatory, there
must be taking of property without just compensation.

There are two different types of taking that can be identified. A "possessory" taking occurs
when the government confiscates or physically occupies property. A "regulatory" taking occurs
when the government's regulation leaves no reasonable economically viable use of the property.

Q2. WHEN AND HOW JUST COMPENSATION WAS COMPUTED:

It is in the exercise of its police power that the Congress enacted R.A. Nos. 9257 and 9442, the
laws mandating a 20% discount on purchases of medicines made by senior citizens and PWDs.
It is also in further exercise of this power that the legislature opted that the said discount be
claimed as tax deduction, rather than tax credit, by covered establishments.

One of the salient amendments in the law is the insertion of Chapter 8 in Title 2 thereof, which
enumerates the other privileges and incentives of PWDs, including the grant of 20% discount
on the purchase of medicines. Similar to R.A. No. 9257, covered establishments shall claim the
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discounts given to PWDs as tax deductions from the gross income, based on the net cost of
goods sold or services rendered.

The establishments may claim the discounts granted in subsections (a), (b), (c), (e), (t) and
(g) as tax deductions based on the net cost of the goods sold or services
rendered: Provided, however, That the cost of the discount shall be allowed as deduction
from gross income for the same taxable year that the discount is granted: Provided,
further, That the total amount of the claimed tax deduction net of value-added tax if
applicable, shall be included in their gross sales receipts for tax purposes and shall be
subject to proper documentation and to the provisions of the National Internal Revenue
Code (NIRC), as amended.

It bears emphasizing that the law does not place a cap on the amount of mark up that
covered establishments may impose on their items. This rests on the discretion of the
establishment which, of course, is expected to put in the price of the overhead costs,
expectation of profits and other considerations into the selling price of an item.

Q3. WHICH POSITION WAS UPHELD BY THE COURT:

In view of the foregoing disquisition, Section 4(a) of Republic Act No. 9257 and Section 32 of
Republic Act No. 9442 are hereby declared CONSTITUTIONAL.