Week 2

F. CLASSIFICATION OF TAXES

A) DIRECT TAXES

G.R. No. 140230, December 15, 2005

COMMISSIONER OF INTERNAL REVENUE
versus
PHILIPPINE LONG DISTANCE COMPANY

Facts: PLDT is a grantee of a franchise under Republic Act (R.A.)

No. 7082 to install, operate and maintain a telecommunications
system throughout the Philippines. For equipment, machineries and
spare parts it imported for its business on different dates from
October 1, 1992 to May 31, 1994, PLDT paid the BIR the amount of
P164,510,953.00, broken down as follows: (a) compensating tax of
P126,713,037.00;(b) advance sales tax of P12,460,219.00 and
(c) other internal revenue taxes of P25,337,697.00. For similar
importations made between March 1994 to May 31, 1994, PLDT
paid P116,041,333.00 value-added tax (VAT).

On March 15, 1994, PLDT addressed a letter to the BIR

seeking a confirmatory ruling on its tax exemption privilege under
Section 12 of R.A. 7082. Sec. 12. xxx and the said percentage
shall be in lieu of all taxes on this franchise or earnings
thereof: xxx
Then the BIR issued Ruling No. UN-140-94 PLDT shall be subject
only to the following taxes, to wit: xxx The 3% franchise tax on
gross receipts which shall be in lieu of all taxes on its franchise or
earnings thereof. xxx The “in lieu of all taxes” provision under
Section 12 of RA 7082 clearly exempts PLDT from all taxes including
the 10%
value-added tax (VAT) prescribed by Section 101 (a) of the same
Code on its importations of equipment, machineries and spare parts
necessary in the conduct of its business covered by the franchise,
except the aforementioned enumerated taxes for which PLDT is
expressly made liable. Thus PLDT filed on December 2, 1994 a claim
for tax credit/refund of the VAT, compensating taxes, advance sales
taxes and other taxes it had been paying “in connection with its
importation of various equipment, machineries and spare parts
needed for its operations”. With its claim not having been acted
upon by the BIR, and obviously to forestall the running of the
prescriptive period therefor, PLDT filed with the CTA a petition for
review. CTA rendered a decision in favor of PLDT. BIR moved for
a reconsideration but to no avail. Hence this petition.
Issue: Whether or not PLDT, given the tax component of its
franchise, is exempt from paying VAT, compensating taxes, advance
sales taxes and internal revenue taxes on its importations.

Held: the petition is partially GRANTED. the Court takes particular

stock, as the CTA earlier did, of PLDT’s allegation that the Bureau of
Customs assessed the company for advance sales tax and
compensating tax for importations entered between October 1,
1992 and May 31, 1994 when the value-added tax system already
replaced, if not totally eliminated, advance sales and compensating
taxes. It stands to reason then, as urged by PLDT, that
compensating tax and advance sales tax were no longer collectible
internal revenue taxes under the NILRC when the Bureau of
Customs made the assessments in question and collected the
corresponding tax. Stated a bit differently, PLDT was no longer
under legal obligation to pay compensating tax and advance sales
tax on its importation from 1992 to 1994.

the fact that a portion of the claim was barred by prescription,

the CTA had determined that PLDT is entitled to a total refundable
amount of ₱94,673,422.00 (₱87,257,031.00 of compensating tax +
₱7,416,391.00 = ₱94,673,422.00). Accordingly, it behooves the BIR
to grant a refund of the advance sales tax and compensating tax in
the total amount of ₱94,673,422.00, subject to the condition that
PLDT present proof of payment of the corresponding VAT on said
transactions.
==========================================

INDIRECT TAXES

ASIA INTERNATIONAL AUCTIONEERS, INC., Petitioner,

-versus - COMMISSIONER OF
INTERNAL REVENUE, Respondent.
G.R. No. 179115, SECOND DIVISION, September 26, 2012,
PERLAS-BERNABE, J.

To distinguish, in indirect taxes, the incidence of taxation falls on

one person but the burden thereof can be shifted or passed on to
another person, such as when the tax is imposed upon goods
before
reaching the consumer who ultimately pays for it. On the other
hand, in case of withholding taxes, the incidence and burden of
taxation fall on the same entity, the statutory taxpayer. The burden
of taxation is not shifted to the withholding agent who merely
collects, by withholding the tax due from income payments to
entities arising from certain transactions and remits the same to the
government.
Due to this difference, the deficiency VAT and excise tax cannot be
“deemed” as withholding taxes merely because they constitute
indirect taxes.

FACTS:

Petitioner is a duly organized corporation operating within the

Subic Special Economic Zone (“SSEZ”). It is engaged in the
importation of used motor vehicles and heavy equipment which it
sells to the public through auction. BIR assessed it with deficiency
VAT and excise taxes. However, during the pendency of the instant
case, petitioner availed of the amnesty program under Republic Act
No. 9480.
AIA received a formal letter of Demand from CIR containing
an assessment for deficiency value added tax and excise tax with
penalties and interest for auction sales conducted on February 5-8,
2004.
AIA claimed that it filed a protest letter which CIR failed to
act, hence, the CIR filed a Motion to Dismiss on the ground of lack
of jurisdiction citing the alleged failure of AIA to timely file its
protest which thereby rendered the assessment final and executory.
The BIR argues that petitioner is disqualified under Section
8(a) of RA9480 from availing itself of the Tax Amnesty Program
because it is “deemed” a withholding agent for the deficiency taxes.
The BIR likewise argues that petitioner, as an accredited
investor/taxpayer situated at the SSEZ, should have availed of the
tax amnesty granted under RA 9399 and not under RA 9480.

ISSUE:

Whether or not petitioner is entitled to the tax amnesty program.

HELD:

A tax amnesty is a general pardon or the intentional

overlooking by the State of its authority to impose penalties on
persons otherwise guilty of violating a tax law. It partakes of an
absolute waiver by the government of its right to collect what is due
it and to give tax evaders who wish to relent a chance to start with
a clean slate. A tax amnesty, much like a tax exemption, is never
favored or presumed in law. The grant of a tax amnesty, similar to
a tax exemption, must be construed strictly against the taxpayer
and liberally in favor of the taxing authority.
 The Tax Amnesty Program under RA 9480 may be availed of
by any person except those who are disqualified under Section 8
thereof, to wit:
Section 8. Exceptions. — The tax amnesty provided in Section 5
hereof shall not extend to the following persons or cases existing as
of the effectivity of this Act:

(a) Withholding agents with respect to their withholding tax

liabilities;

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

VAT and Excise Taxes are not withholding taxes. The

CIR did not assess AIA as a withholding agent that failed to withhold
or remit the deficiency VAT and excise tax to the BIR under relevant
provisions of the Tax Code. Hence, the argument that AIA is
"deemed" a withholding agent for these deficiency taxes is
fallacious.

Indirect taxes, like VAT and excise tax, are different from
withholding taxes. To distinguish, in indirect taxes, the incidence of
taxation falls on one person but the burden thereof can be shifted
or passed on to another person, such as when the tax is imposed
upon goods before reaching the consumer who ultimately pays for
it. On the other hand, in case of withholding taxes, the incidence
and burden of taxation fall on the same entity, the statutory
taxpayer. The burden of taxation is not shifted to the withholding
agent who merely collects, by withholding, the tax due from income
payments to entities arising from certain transactions and remits
the same to the government. Due to this difference, the deficiency
VAT and excise tax cannot be "deemed" as withholding taxes
merely because they constitute indirect taxes. Moreover, records
support the conclusion that AIA
was assessed not as a withholding agent but, as the one directly
liable for the said deficiency taxes.

VALENTIN TIO doing business under the name and style of OMI
ENTERPRISES v. VIDEOGRAM REGULATORY BOARD, MINISTER OF
FINANCE, METRO MANILA COMMISSION,
CITY MAYOR and CITY TREASURER OF MANILA
G.R. No. L-75697, EN BANC, June 18, 1987, MELENCIO-HERRERA,
J.

NOTE :Petitioner also submits that the thirty percent (30%) tax
imposed is harsh and oppressive, confiscatory, and in restraint of
trade. However, it is beyond serious question that a tax does not
cease to be valid merely because it regulates, discourages, or even
definitely deters the activities taxed. The power to impose taxes is
one so unlimited in force and so searching in extent, that the courts
scarcely venture to declare that it is subject to any restrictions
whatever, except such as rest in the discretionof the authority
which exercises it. In imposing a tax, the legislature acts upon its
constituents. This is, in general, a sufficient security against
erroneous and oppressive taxation.

It is inherent in the power to tax that a state be free to select the

subjects of taxation, and it has been
repeatedly held that "inequities which result from a singling out of
one particular class for taxation or exemption infringe no
constitutional limitation’."Taxation has been made the implement of
the state’s police power.

FACTS:

This petition was filed on September 1, 1986 by petitioner on

his own behalf and purportedly on behalf of other videogram
operators adversely affected. It assails the constitutionality of
Presidential Decree No. 1987 entitled "An Act Creating the
Videogram Regulatory Board" with broad powers to regulate and
supervise the videogram industry.

The petitioner alleges that the said act is unconstitutional

since Section 10 thereof, which imposes a tax of 30% on the gross
receipts payable to the local government is a RIDER and the same
is not
germane to the subject matter thereof and that the tax imposed is
harsh, confiscatory, oppressive and/or in unlawful restraint of trade
in violation of the due process clause of the Constitution.

Issue:  Whether or not Presidential Decree No. 1987 is

unconstitutional?

Decision: Presidential Decree No. 1987 is not unconstitutional.

Tax does not cease to be valid merely because it regulates,

discourages, or even definitely deters the activities taxed. The
power to impose taxes is a sovereign right and it is inherent
in the power to tax that a state be free to select the subjects
of taxation. The tax imposed by the decree is not only a regulatory
but also a revenue measure. The public purpose of a tax may
legally exist even if the motive which impelled the legislature to
impose the tax was to favor one industry over another. Decree of
authority to the Board is not a delegation of the power to legislate
but merely a conferment of authority or discretion as to its
execution, enforcement, and implementation. Only congressional
power or competence, not the wisdom of the action taken, may be
the basis for declaring a statute invalid.