TAXATION LAW 1 – DIGEST And assuming this represents his war damage, it will not constitute as a loss

since there were no further payment made for 1951, the last installment was
1. Hilado v. CIR (GR No. L-9408) made in 1950.
October 31, 1956
And the amount cannot be considered as business asset, since its collection is
PETITIONER: EMILIO Y. HILADO not enforceable as a matter of right. There’s no law under which the petitioner
RESPONDENT: THE COLLECTOR OF INTERNAL REVENUE and THE could claim compensation for the destruction of his property during the battle. It
COURT OF TAX APPEALS is clear that the loss of the corresponding asset or property could only be
deducted in the year it was actually sustained by the Commission
DOCTRINE:
Although, it is true that it can be claimed as a deduction under the General
Circular no. V-123, it was later on found to be wrong and was revoked.
FACTS:
1. Petitioner filed his income tax return for 1951 with the treasurer of
On the contention that during the war there was no taxable year, is without
Bacolod City wherein he claimed the amount of P12,837.65 as a
merit. It is well known that our internal revenue laws are not political in nature
deductible item from his gross income pursuant to General Circular No.
and as such were continued in force during the period of enemy occupation and
V-123 issued by the Collector of Internal Revenue. an assessment
in effect were actually enforced by the occupation government.
notice demanding the payment of P9,419 was sent to petitioner.

2. the Secretary of Finance, through the Collector of Internal Revenue,
issued General Circular No. V-139 which not only revoked and
declared void his general Circular No. V-123 but laid down the rule
that losses of property which occurred during the period of World War
II are deductible in the year of actual loss or destruction of said
property. As a consequence, the amount of P12,837.65 was disallowed
as a deduction from the gross income of petitioner for 1951 and the
Collector of Internal Revenue demanded from him the payment of the
sum of P3,546 as deficiency income tax for said year.
1. It is based on the legal maxim that “A Law once established continues
until changed by some competent legislative power. It is not changed
merely by change of sovereignty.”, Although the law cannot be given
retroactive effect, it does not apply to the case since General Circular
No. V-123 is just an interpretation of Sec 338 of the NIRC. The
Secretary of Finance is given with authority to revoke a wrong
interpretation of the law.

ISSUE: W/N the petitioner is entitled for the deduction arising from the war
damage during WWII. - NO

RULING: The Petitioner is not entitled to the deduction and liable to pay the
deficiency income tax.

The petitioner’s contention that P12,837.65 represents a “business asset” within

the meaning of said Act which he is entitled to deduct as a loss in his return for
1951 is untenable.
 2. Chamber of Real Estate v. Romulo (GR No. 160756)
March 9, 2010
PETITIONER: CHAMBER OF REAL ESTATE AND BUILDERS’
ASSOCIATIONS, INC.,
RESPONDENT: THE HON. EXECUTIVE SECRETARY ALBERTO
ROMULO, THE HON. ACTING SECRETARY OF FINANCE JUANITA
D. AMATONG, and THE HON. COMMISSIONER OF INTERNAL
REVENUE GUILLERMO PARAYNO, JR
DOCTRINE:
Facts:
1. Chamber of Real Estate and BuildersÊ Associations, Inc. is questioning the
2 Taxation is an inherent attribute of sovereignty. It is a power that is
constitutionality of Section 27 (E) of Republic Act (RA) 8424 and the revenue
regulations (RRs) issued by the Bureau of Internal Revenue (BIR) to implement
said provision and those involving creditable withholding taxes.
Petitioner assails the validity of the imposition of minimum corporate income
tax (MCIT) on corporations and creditable withholding tax (CWT) on sales of
real properties classified as ordinary assets.
- MCIT violates due process clause because it levies income tax even if
there is no realized gain.
- CWT: first, they ignore the different treatment by RA 8424 of ordinary
assets and capital assets and second, respondent Secretary of Finance
has no authority to collect CWT, much less, to base the CWT on the
gross selling price or fair market value of the real properties classified
as ordinary assets.
Issue:
1. W/N MCIT is violative of due process hence unconstitutional. – NO
2. W/N CWT is in violation of equal protection clause. - NO
Ruling:
1. MCIT Is Not Violative of Due Process
Petitioner claims that the MCIT under Section 27(E) of RA 8424 is
unconstitutional because it is highly oppressive, arbitrary and
confiscatory which amounts to deprivation of property without due
process of law. 
Taxes are the lifeblood of the government. Without taxes, the
government can neither exist nor endure. 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 the
common good.
purely legislative. Essentially, this means that in the legislature
primarily lies the discretion to determine the nature (kind), object
(purpose), extent (rate), coverage (subjects) and situs (place) of
taxation. It has the authority to prescribe a certain tax at a specific rate
for a particular public purpose on persons or things within its
jurisdiction. In other words, the legislature wields the power to define
what tax shall be imposed, why it should be imposed, how much tax
shall be imposed, against whom (or what) it shall be imposed and
where it shall be imposed.
As a general rule, the power to tax is plenary and unlimited in its range,
acknowledging in its very nature no limits, so that the principal check
against its abuse is to be found only in the responsibility of the
legislature (which imposes the tax) to its constituency who are to pay
it. Nevertheless, it is circumscribed by constitutional limitations. At the
same time, like any other statute, tax legislation carries a presumption
of constitutionality.
For income to be taxable, the following requisites must exist:
 (1) there must be gain; taxes on each of their transactions with their tens or hundreds of
suppliers may result in an inefficient and unmanageable system of
(2) the gain must be realized or received and taxation and may well defeat the purpose of the withholding tax system.

(3) the gain must not be excluded by law or treaty from taxation.

Certainly, an income tax is arbitrary and confiscatory if it taxes capital because

capital is not income. In other words, it is income, not capital, which is subject
to income tax. However, the MCIT is not a tax on capital.

The MCIT is imposed on gross income which is arrived at by deducting the

capital spent by a corporation in the sale of its goods, i.e., the cost of goods and
other direct expenses from gross sales. Clearly, the capital is not being taxed.

In sum, petitioner failed to support, by any factual or legal basis, its allegation
that the MCIT is arbitrary and confiscatory.

2. No Violation of Equal Protection

All persons belonging to the same class shall be taxed alike. It follows
that the guaranty of the equal protection of the laws is not violated by
legislation based on a reasonable classification. Classification, to be
valid, must (1) rest on substantial distinctions; (2) be germane to the
purpose of the law; (3) not be limited to existing conditions only and
(4) apply equally to all members of the same class.

The taxing power has the authority to make reasonable classifications

for purposes of taxation. Inequalities which result from a singling out of
one particular class for taxation, or exemption, infringe no
constitutional limitation.The real estate industry is, by itself, a class and
can be validly treated differently from other business enterprises.

The income from the sale of a real property is bigger and its frequency
of transaction limited, making it less cumbersome for the parties to
comply with the withholding tax scheme.

On the other hand, each manufacturing enterprise may have tens of

thousands of transactions with several thousand customers every month
involving both minimal and substantial amounts. To require the
customers of manufacturing enterprises, at present, to withhold the
 3. Sison, Jr. vs. Ancheta
No. L-59431. July 25, 1984
PETITIONER: ANTERO M. SISON, JR
RESPONDENT: RUBEN B. ANCHETA, Acting Commissioner, Bureau of
Internal Revenue; ROMULO VILLA, Deputy Commissioner, Bureau of
Internal Revenue; TOMAS TOLEDO, Deputy Commissioner, Bureau of
Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO
TANTUICO, Chairman, Commissioner on Audit, and CESAR E. A.
VIRATA, Minister of Finance
DOCTRINE:
FACTS:
1. Petitioner as taxpayer alleges that by virtue thereof “he would be
unduly discriminated against by the imposition of higher rates of tax
upon his income arising from the exercise of his profession vis-a-vis
those which are imposed upon fixed income or salaried individual
taxpayers.”
2. He characterizes the above section as arbitrary amounting to class
legislation, oppressive and capricious in character.
Issue: Whether the imposition of a higher tax rate on taxable net income
derived from business or profession than on compensation is
constitutionally infirm. - YES
Ruling:
According to the lower court, “Batas Pambansa Big. 135 is a valid exercise of
the State’s power to tax. The government must undertake in its sovereign
capacity if it is to meet the increasing social challenges of the times.” Hence the
need for more revenues. The power to tax, an inherent prerogative, has to be
availed of to assure the performance of vital state functions. It is the source of
the bulk of public funds. To paraphrase a recent decision, taxes being the
lifeblood of the government, their prompt and certain availability is of the
essence.
The power to tax moreover is an attribute of sovereignty. It is the strongest of all
the powers of government. The Constitution sets forth such limits.
Adversely affecting as it does property rights, both the due process and equal
protection clauses may properly be invoked, as petitioner does, to invalidate in
appropriate cases a revenue measure.
The power to tax involves the power to destroy.
“Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has
the authority to make reasonable and natural classifications for purposes of
taxation
Apparently, what misled petitioner is his failure to take into consideration the
distinction between a tax rate and a tax base. There is no legal objection to a
broader tax base or taxable income by eliminating all deductible items and at the
same time reducing the applicable tax rate.
Taxpayers who are recipients of compensation income are set apart as a class.
As there is practically no overhead expense, these taxpayers are not entitled to
make deductions for income tax purposes because they are in the same situation
more or less. On the other hand, in the case of professionals in the practice of
their calling and businessmen, there is no uniformity in the costs or expenses
necessary to produce their income. It would not be just then to disregard the
disparities by giving all of them zero deduction and indiscriminately impose on
all alike the same tax rates on the basis of gross income.
Therefore, than that the petition is without merit, considering the
(1) lack of factual foundation to show the arbitrary character of the
assailed provision;
(2) the force of controlling doctrines on due process, equal protection, and
uniformity in taxation and
(3) the reasonableness of the distinction between compensation and taxable
net income of professionals and businessmen certainly not a suspect
classification.
4. SARASOLA v. TRINIDAD (Ito lang nahanap ko)
Facts: Gregorio Sarasola filed a complaint for injunction to restrain Wenceslao
Trinidad, the Collector of Internal Revenue from the alleged illegal collection of
taxes. CIR interposed a demurrer to the complaint stating that under Section
1578 of the Administrative Code, injunction is not available to restrain
collection of tax. CIR also alleged the complaint did not entitle the plaintiff to
the relief demanded as under Section 1579, it disallows interest on the internal
revenue taxes in the sum alleged to have been illegally collected. The judge of
CFI Manila sustained the demurrer, basing his decision from the case of
Churchill v Rafferty. Sarsola argued that the provisions under Sec 1578-1579
are unconstitutional.
Issue: Whether an interest can be imposed against the State in cases of recovery
of taxes illegally collected.
Ruling: YES. It is well settled both on principle and authority that interest is not
to be awarded against a sovereign government unless its consent has been
manifested by an Act of its Legislature or by a lawful contract of its executive
officers. If there be doubt upon the subject, that doubt must be resolved in favor
of the State. The state never pays interest unless she expressly engages to do so.
Our own statute not only does not authorize interest but negatives the payment
of interest. The law is valid, or that Sarasola has not proven such a case of
irreparable injury as would warrant the issuance of the extraordinary writ of
execution.
5. CIR vs. Algue Inc.
Commissioner of Internal Revenue vs. Algue Inc.
GR No. L-28896 | Feb. 17, 1988
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
· Since the 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
- 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 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: W/N the Collector of Internal Revenue correctly disallowed the
P75,000.00 deduction claimed by Algue as legitimate business expenses in its
income tax returns
Ruling:
· Taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance, made in accordance with law.
· RA 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
arrangement was understandable in view of the close relationship among the
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 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.
6. ABAKADA GURO PARTY LIST VS EXECUTIVE SECRETARY
G.R. No. 168056 September 1, 2005
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.
Issues:
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.

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.
Whether or not there was a violation of the due process and equal protection
under Article III Sec. 1 of the Constitution.
Discussions:
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 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.
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.
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.”
Rulings:
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.
There is no undue delegation of legislative power but only of the discretion as to
the execution of a law. This is constitutionally permissible. Congress does not
abdicate its functions or unduly delegate power when it describes what job must
be done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go
forward.
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.
[REFERENCE CASE]
ABAKADA Guro Party List vs. Ermita
G.R. No. 168056 September 1, 2005
FACTS:
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et
al., filed a petition for prohibition on May 27, 2005 questioning the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections
106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC).
Section 4 imposes a 10% VAT on sale of goods and properties, Section 5
imposes a 10% VAT on importation of goods, and Section 6 imposes a 10%
VAT on sale of services and use or lease of properties. These questioned
provisions contain a uniformp ro v is o authorizing the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate to 12%,
effective January 1, 2006, after specified conditions have been satisfied.
Petitioners argue that the law is unconstitutional.
ISSUES:
1. Whether or not there is a violation of Article VI, Section 24 of the
Constitution.

2. Whether or not there is undue delegation of legislative power in violation of
Article VI Sec 28(2) of the Constitution.
3. Whether or not there is a violation of the due process and equal protection
under Article III Sec. 1 of the Constitution.
RULING:
1. Since there is no question that the revenue bill exclusively originated in the
House of Representatives, the Senate was acting within its constitutional power
to introduce amendments to the House bill when it included provisions in Senate
Bill No. 1950 amending corporate income taxes, percentage, and excise and
franchise taxes.
2. There is no undue delegation of legislative power but only of the discretion as
to the execution of a law. This is constitutionally permissible. Congress does not
abdicate its functions or unduly delegate power when it describes what job must
be done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go
forward.
3. The power of the State to make reasonable and natural classifications for the
purposes of taxation has long been established. Whether it relates to the subject
of taxation, the kind of property, the 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.
7. DIAZ AND TIMBOL v. SECRETARY OF FINANCE AND THE
COMMISSIONER OF INTERNAL REVENUE
G.R. No. 193007. July 19, 2011
PETITIONERS: RENATO V. DIAZ and AURORA MA. F. TIMBOL
RESPONDENTS: THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE
FACTS:
• Petitioners filed this petition for declaratory relief assailing the validity
of the impending imposition of value-added tax (VAT) by the Bureau of Internal
Revenue (BIR) on the collections of tollway operators.
• Petitioners hold the view that Congress did not, when it enacted the
NIRC, intend to include toll fees within the meaning of "sale of services" that
are subject to VAT; that a toll fee is a "user’s tax," not a sale of services; that to
impose VAT on toll fees would amount to a tax on public service; and that,
since VAT was never factored into the formula for computing toll fees, its
imposition would violate the non-impairment clause of the constitution.
• The government, represented by the respondents, avers that the NIRC
imposes VAT on all kinds of services of franchise grantees, including tollway
operations, except where the law provides otherwise;
• The government also argues that petitioners have no right to invoke the
non-impairment of contracts clause since they clearly have no personal interest
in existing toll operating agreements (TOAs) between the government and
tollway operators.
ISSUES:
1. Whether or not the government is unlawfully expanding VAT coverage
by including tollway operators and tollway operations in the terms "franchise
grantees" and "sale of services" under Section 108 of the Code; and
2. Whether or not the imposition of VAT on tollway operators a) amounts
to a tax on tax and not a tax on services; b) is not administratively feasible and
cannot be implemented.
HELD:
1. NO.
It is plain from the law (Section 108 of the NIRC) imposes VAT on "all kinds of
services" rendered in the Philippines for a fee, including those specified in the
list. The enumeration of affected services is not exclusive. By qualifying
"services" with the words "all kinds," Congress has given the term "services" an
all-encompassing meaning. Thus, every activity that can be imagined as a form
of "service" rendered for a fee should be deemed included unless some provision
of law especially excludes it.
P.D. 1112 or the Toll Operation Decree establishes the legal basis for the
services that tollway operators render. Essentially, tollway operators construct,
maintain, and operate expressways, also called tollways, at the operators’
expense. In consideration for constructing tollways at their expense, the
operators are allowed to collect government-approved fees from motorists using
the tollways until such operators could fully recover their expenses and earn
reasonable returns from their investments.
Tollway operators are, owing to the nature and object of their business,
"franchise grantees." The construction, operation, and maintenance of toll
facilities on public improvements are activities of public consequence that
necessarily require a special grant of authority from the state. The term
"franchise" has been broadly construed as referring, not only to authorizations
that Congress directly issues in the form of a special law, but also to those
granted by administrative agencies to which the power to grant franchises has
been delegated by Congress.
2. NO.
Tollway fees are not taxes. They are not assessed and collected by the BIR and
do not go to the general coffers of the government. What the government seeks
to tax here are fees collected from tollways that are constructed, maintained, and
operated by private tollway operators at their own expense under the build,
operate, and transfer scheme that the government has adopted for expressways.
In sum, fees paid by the public to tollway operators for use of the tollways, are
not taxes in any sense. A tax is imposed under the taxing power of the
government principally for the purpose of raising revenues to fund public
expenditures. Toll fees, on the other hand, are collected by private tollway
operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as to assure
them a reasonable margin of income. Although toll fees are charged for the use
of public facilities, therefore, they are not government exactions that can be
properly treated as a tax. Taxes may be imposed only by the government under
its sovereign authority, toll fees may be demanded by either the government or
private individuals or entities, as an attribute of ownership.
VAT on tollway operations cannot be deemed a tax on tax due to the nature of
VAT as an indirect tax. In indirect taxation, a distinction is made between the
liability for the tax and burden of the tax. The seller who is liable for the VAT
may shift or pass on the amount of VAT it paid on goods, properties or services
to the buyer. In such a case, what is transferred is not the seller’s liability but
merely the burden of the VAT.
Thus, the seller remains directly and legally liable for payment of the VAT, but
the buyer bears its burden since the amount of VAT paid by the former is added
to the selling price.
Consequently, VAT on tollway operations is not really a tax on the tollway user,
but on the tollway operator. Under Section 105 of the Code, VAT is imposed on
any person who, in the course of trade or business, sells or renders services for a
fee. In other words, the seller of services, who in this case is the tollway
operator, is the person liable for VAT. The latter merely shifts the burden of
VAT to the tollway user as part of the toll fees.
Administrative feasibility is one of the canons of a sound tax system. It simply
means that the tax system should be capable of being effectively administered
and enforced with the least inconvenience to the taxpayer. Non-observance of
the canon, however, will not render a tax imposition invalid "except to the extent
that specific constitutional or statutory limitations are impaired." Thus, even if
the imposition of VAT on tollway operations may seem burdensome to
implement, it is not necessarily invalid unless some aspect of it is shown to
violate any law or the Constitution.
8. GEROCHI vs DEPARTMENT OF ENERGY
527 SCRA 696
Non-Delegation of Legislative Power
FACTS: Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and
Environmentalist Consumers Network, Inc. come before this Court in this
original action praying that Section 34 of Republic Act 9136, otherwise known
as the “Electric Power Industry Reform Act of 2001”, imposing the Universal
Charge, and Rule 18 of the Rules and Regulations which seeks to implement the
said imposition, be declared unconstitutional.
SECTION 34. Universal Charge. — Within one (1) year from the effectivity of
this Act, a universal charge to be determined, fixed and approved by the ERC,
shall be imposed on all electricity end-users for the following purposes:
(a) Payment for the stranded debts in excess of the amount assumed by the
National Government and stranded contract costs of NPC and as well as
qualified stranded contract costs of distribution utilities resulting from the
restructuring of the industry;
(b) Missionary electrification;[6]
(c) The equalization of the taxes and royalties applied to indigenous or
renewable sources of energy vis-à-vis imported energy fuels;
(d) An environmental charge equivalent to one-fourth of one centavo per
kilowatt-hour (P0.0025/kWh), which shall accrue to an environmental fund to be
used solely for watershed rehabilitation and management. Said fund shall be
managed by NPC under existing arrangements; and
(e) A charge to account for all forms of cross-subsidies for a period not
exceeding three (3) years
The universal charge shall be a non-bypassable charge which shall be passed on
and collected from all end-users on a monthly basis by the distribution utilities.
Collections by the distribution utilities and the TRANSCO in any given month
shall be remitted to the PSALM Corp. on or before the fifteenth (15th) of the
succeeding month, net of any amount due to the distribution utility. Any end-
user or self-generating entity not connected to a distribution utility shall remit its
corresponding universal charge directly to the TRANSCO. The PSALM Corp.,
as administrator of the fund, shall create a Special Trust Fund which shall be
disbursed only for the purposes specified herein in an open and transparent
manner. All amount collected for the universal charge shall be distributed to the
respective beneficiaries within a reasonable period to be provided by the ERC.
Petitioners submit that the assailed provision of law and its IRR which sought to
implement the same are unconstitutional on the ground that the universal charge
provided for under Sec. 34 of the EPIRA and sought to be implemented under
Sec. 2, Rule 18 of the IRR of the said law is a tax which is to be collected from
all electric end-users and self-generating entities. The power to tax is strictly a
legislative function and as such, the delegation of said power to any executive or
administrative agency like the ERC is unconstitutional, giving the same
unlimited authority. The assailed provision clearly provides that the Universal
Charge is to be determined, fixed and approved by the ERC, hence leaving to
the latter complete discretionary legislative authority.
ISSUE: Whether or not there is undue delegation of legislative power to tax on
the part of the ERC
RULING: No. If generation of revenue is the primary purpose and regulation is
merely incidental, the imposition is a tax; but if regulation is the primary
purpose, the fact that revenue is incidentally raised does not make the imposition
a tax. In exacting the assailed Universal Charge through Sec. 34 of the EPIRA,
the State's police power, particularly its regulatory dimension, is invoked. Such
can be deduced from Sec. 34 which enumerates the purposes for which the
Universal Charge is imposed and which can be amply discerned as regulatory in
character. From the Declaration pf Policy of EPIRA (Section 2), it can be
gleaned that the assailed Universal Charge is not a tax, but an exaction in the
exercise of the State's police power. Public welfare is surely promoted.
Moreover, it is a well-established doctrine that the taxing power may be used as
an implement of police power.
The principle of separation of powers ordains that each of the three branches of
government has exclusive cognizance of and is supreme in matters falling within
its own constitutionally allocated sphere. A logical corollary to the doctrine of
separation of powers is the principle of non-delegation of powers, as expressed
in the Latin maxim potestas delegata non delegari potest (what has been
delegated cannot be delegated). This is based on the ethical principle that such
delegated power constitutes not only a right but a duty to be performed by the
delegate through the instrumentality of his own judgment and not through the
intervening mind of another.
In the face of the increasing complexity of modern life, delegation of legislative
power to various specialized administrative agencies is allowed as an exception
to this principle. Given the volume and variety of interactions in today's society,
it is doubtful if the legislature can promulgate laws that will deal adequately
with and respond promptly to the minutiae of everyday life. Hence, the need to
delegate to administrative bodies - the principal agencies tasked to execute laws
in their specialized fields - the authority to promulgate rules and regulations to
implement a given statute and effectuate its policies. All that is required for the
valid exercise of this power of subordinate legislation is that the regulation be
germane to the objects and purposes of the law and that the regulation be not in
contradiction to, but in conformity with, the standards prescribed by the law.
These requirements are denominated as the completeness test and the sufficient
standard test.
Under the first test, the law must be complete in all its terms and conditions
when it leaves the legislature such that when it reaches the delegate, the only
thing he will have to do is to enforce it. The second test mandates adequate
guidelines or limitations in the law to determine the boundaries of the delegate's
authority and prevent the delegation from running riot.
The Court finds that the EPIRA, read and appreciated in its entirety, in relation
to Sec. 34 thereof, is complete in all its essential terms and conditions, and that it
contains sufficient standards.
Although Sec. 34 of the EPIRA merely provides that “within one (1) year from
the effectivity thereof, a Universal Charge to be determined, fixed and approved
by the ERC, shall be imposed on all electricity end-users,” and therefore, does
not state the specific amount to be paid as Universal Charge, the amount
nevertheless is made certain by the legislative parameters provided in the law
itself. Thus, the law is complete and passes the first test for valid delegation of
legislative power.
RATIO: Doctrine of non-delegation not absolute: Requisites for Delegation. -
The requisites for such delegation are: (a) the completeness of the statute
making the delegation; and (b) the presence of sufficient standard.
9. Matalin Coconut Inc. v. Municipal Council of Malabang
August 13, 1986
Yap, J.
Rañeses, Roberto Miguel O.
SUMMARY: The Municipal Council of Malabang enacted an ordinance
imposing a “police inspection fee” of P.30 per sack of cassava starch or flour.
The said ordinance was challenged by Matalin Coconut, on account of its being
ultra vires and its being unreasonable, oppressive, and confiscatory. While the
SC did not agree with the TC’s finding that it is a percentage tax that is beyond
the scope of the power granted to the Municipal Council’s to levy under the
Local Autonomy Act, it agreed with the TC’s finding that the tax imposed was
unjust, unreasonable, excessive, and confiscatory.
DOCTRINE: (Implied) The power to regulate as an exercise of police power
does not include the power to impose fees for revenue purposes.
FACTS: The Municipal Council of Malabang, on the basis of the Local
Autonomy Act, imposed an ordinance making it unlawful for any person,
company or group of persons "to ship out of the Municipality of Malabang,
cassava starch or flour without paying to the Municipal Treasurer or his
authorized representatives the corresponding fee fixed by (the) ordinance." It
imposed a "police inspection fee" of P.30 per sack of cassava starch or flour,
which shall be paid by the shipper before the same is transported or shipped
outside the municipality.
The ordinance was challenged by Matalin Coconut, alleging that not was it ultra
vires, being violative of the Local Autonomy Act, but also because of its being
unreasonable, oppressive and confiscatory. Matalin prayed for the ordinance to
be declared null and void ab initio, and that the Council be ordered to refund the
amounts paid by Matalin, as well as for a preliminary injunction. The trial court
denied the application for preliminary injunction.
Purakan Plantation, on account of the supposed adverse effects the ordinance
had on their business, was allowed to intervene in the action.
The court a quo, after trial, declared the ordinance null and void, and ordered the
Municipal Treasurer to make the refunds, as well as to enjoin and prohibit the
Council, its agents and its deputies from collecting taxes on the products
belonging to intervenor Purakan. The TC subsequently issued a writ of
preliminary mandatory injunction, requiring the Municipal Treasurer to deposit
with the PNB whatever amounts the petitioner had already paid or shall pay
pursuant to the ordinance in question up to and until final termination of the
case. Upon motion for reconsideration, the writ was modified, to require the
deposit only of amounts paid from the effectivity of the writ up to and until the
final termination of the suit.
The Municipal Council appealed to the SC. Matalin’s motion to dismiss was
denied, as well as the Council’s motion to dissolve the writ.
the scope of the municipality’s authority to levy under the Local Autonomy Act.
It was not a percentage tax for it was a fixed tax.
However, the tax can be stricken down on the basis of its being unjust and
unreasonable. The reasons given for the imposition of such a fee could not be
given credence for (a) the police was not competent enough to determine
whether the starch or flour was fit for human consumption and (b) that Matalin
has never requested for police protection as it has never been molested by
undesirable elements.

ISSUES: Furthermore, the tax is excessive and confiscatory. Matalin only realizes a
1. WON the TC erred in adjudicating the money claim of the petitioner in marginal profit of P0.40 per bag. The imposition of a P.30 tax would, therefore,
an action for declaratory relief force the petitioner to close or stop its cassava flour starch milling business.
2. WON the TC erred in declaring the ordinance in question null and void
DISPOSITIVE: WHEREFORE, petition is dismissed. The decision of the court
RULING: a quo is hereby affirmed. No costs.
1. No, the TC may adjudicate the money claims of Matalin in an action
for declaratory relief.
2. No, the tax imposed by the ordinance was indeed null and void.

RATIO:
1. Sec. 6 of Rule 64 of the RoC says that an action for declaratory relief
may be converted into an ordinary action and the parties are allowed to file such
pleadings as may be necessary or proper if, before the termination of the case, “a
breach or violation of an… ordinance, should take place.” While no breach
occurred, as the petitioner decided to pay “under protest,” such payment did not
affect the case. The action for declaratory relief was still proper because the
applicability of the ordinance to future transactions still remained to be resolved.

2. Since the enactment of the Local Autonomy Act, a liberal rule has been
followed by this Court in construing municipal ordinances enacted pursuant to
the taxing power granted under Section 2 of said law. The SC has construed the
grant of power to tax under the mentioned provision as sufficiently plenary to
cover "everything, excepting those which are mentioned" therein, subject only to
the limitation that the tax so levied is for public purposes, just and uniform.

While the SC agrees with the finding of the TC that the ordinance in question
partakes of the nature of a tax for its purpose was to raise revenue, it does not
agree with the TC’s finding that it is a percentage tax on sales which is beyond
10. LUTZ VS. ARANETA [98 Phil 148; G.R. No. L-7859; 22 Dec 1955]
Facts: Walter Lutz, as the Judicial Administrator of the Intestate Estate of
Antonio Jayme Ledesma, seeks to recover from J. Antonio Araneta, the
Collector of Internal Revenue, the sum of money paid by the estate as taxes,
pursuant to the Sugar Adjustment Act. Under Section 3 of said Act, taxes are
levied on the owners or persons in control of the lands devoted to the cultivation
of sugar cane. Furthermore, Section 6 states all the collections made under said
Act shall be for aid and support of the sugar industry exclusively. Lutz contends
that such purpose is not a matter of public concern hence making the tax levied
for that cause unconstitutional and void. The Court of First Instance dismissed
his petition, thus this appeal before the Supreme Court.
Issue: Whether or Not the tax levied under the Sugar Adjustment Act
( Commonwealth Act 567) is unconstitutional.
Held: The tax levied under the Sugar Adjustment Act is constitutional. The tax
under said Act is levied with a regulatory purpose, to provide means for the
rehabilitation and stabilization of the threatened sugar industry. Since sugar
production is one of the great industries of our nation, its promotion, protection,
and advancement, therefore redounds greatly to the general welfare. Hence, said
objectives of the Act is a public concern and is therefore constitutional. It
follows that the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. If objectives and
methods are alike constitutionally valid, no reason is seen why the state may not
levy taxes to raise funds for their prosecution and attainment. Taxation may be
made with the implement of the state’s police power. In addition, it is only
rational that the taxes be obtained from those that will directly benefit from it.
Therefore, the tax levied under the Sugar Adjustment Act is held to be
constitutional.
The subject tax is levied with a regulatory purpose, to provide means for the
rehabilitation and stabilization of the threatened sugar industry. In other words,
the act is primarily a valid exercise of police power.
10. NTC v. CA , 311 SCRA 508 (199)
FACTS: NTC served on the PLDT the following assessment notices and
demands for payment:
1. The amount of P7,495,161.00 as supervision and regulation fee under sec.
40(e) of the Public Service Act (PSA) of 1988, computed at P0.50 per P100.00
of the PLDT’s outstanding capital stock as at Dec. 31, 1987 which then
consisted of Serial Preferred Stock amounting to P1,277,934,390.00 and
Common Stock of P221,097,785.00 or a total of P1,499,032,175.00
2. The amount of P9,000,000.00 as permit fee under Sec. 40(f) of the PSA for
the approval of the PLDT increase of its authorized capital stock from P2.7B to
P4.5B; and
3. The amounts of P12,261,600.00 and P33,472,030.00 as permit fees under sec.
40(g) of the PSA in connection with the Commissions decisions, approving the
PLDT equity participation in the Fiber Optic Interpacific Cable systems and X-5
Service Improvement and Expansion Program.
PLDT challenged the aforesaid assessments that these were being made to
1. Raise revenues and not as mere reimbursements
2. The assessments should only have been on the basis of the par values PLDT’s
outstanding capital stock and
3. NTC has no authority to compel PLDT of the assessed fees under Sec. 40(f)
for the increase since NTC did not render any supervisory or regulatory activity
and incurred no expenses in relation thereto. NTC denied the protest of PLDT
for lack of merit, MR denied. PLDT appealed with the CA, CA modified the
NTC decision changing the basis of the computation of supervision and
regulation fees under sec. 40(f) of the PSA.
ISSUE: WHETHER THE COURT OF APPEALS ERRED IN HOLDING
THAT THE COMPUTATION OF SUPERVISION AND REGULATION FEES
UNDER SECTION 40 (F) OF THE PUBLIC SERVICE ACT SHOULD BE
BASED ON THE PAR VALUE OF THE SUBSCRIBED CAPITAL STOCK.
RULING: The law in point is clear and categorical. The basis for computation of
the fee to be charged by NTC on PLDT is the capital stock subscribed or paid
and not the property and equipment.
It bears stressing that it is not the NTC that imposed such a fee. It is the
legislature itself. Since Congress has the power to exercise the State inherent
powers of Police Power, Eminent Domain and Taxation, the distinction between
police power and the power to tax, which could be significant if the exercising
authority were mere political subdivisions, would not be of any moment when,
as in the case under consideration, Congress itself exercises the power. All that
is to be done would be to apply and enforce the law when sufficiently definitive
and not constitutional infirm.