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 discretion of the authority which exercises it; Uniformity in taxation means that all taxable
articles or kinds of property, of the same class, shall be taxed at the same rate.

FRANCIS A. CHURCHILL ET AL VS
VENANCIO CONCEPCION
GR NO. 11572, SEPTEMBER 22, 1916
TRENT, J.:

FACTS:

Francis A. Churchill and Stewart Tait, co-partners in Mercantile Advertising Agency, owned a
billboard containing an area of 52 square meters. Tax amounting to P104 was imposed upon the
said billboard pursuant to Section 100 of Act 2339 as amended by Act 2432 and Act 2445 which
imposed an annual tax of P2 per square meter upon electric signs, billboards, and spaces used for
posting or displaying temporary signs, and all signs displayed on premises not occupied by
buildings. They paid under protest and instituted the action to recover the amount on the ground
that the law constitutes deprivation of property without compensation or due process of law,
confiscatory and unjustly discriminatory, and lacks uniformity.

ISSUE:

Whether or not the in question constitutes deprivation of property without compensation or due
process of law, confiscatory and unjustly discriminatory, and lacks uniformity.

RULING:

No, the tax is valid. If it be conceded that the Legislature has the power to impose a tax upon
signs, signboards, and billboards, then "the judicial cannot prescribed to the legislative
department of the Government limitation upon the exercise of its acknowledge powers." (Veazie
Bank vs. Fenno, 8 Wall., 533, 548.) That the Philippine Legislature has the power to impose such
taxes, we think there can be no serious doubt, because "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 discretion of the authority which
exercises it.

Uniformity in taxation — says Black on Constitutional Law, page 292 — means that all taxable
articles or kinds of property, of the same class, shall be taxed at the same rate. Different articles
may be taxed at different amounts, provided the rate is uniform on the same class everywhere,
with all people, and at all times. A tax is uniform when it operates with the same force and effect
in every place where the subject of it is found. A tax is uniform, within the constitutional
requirement, when it operates with the same force and effect in every place where the subject of
it is found. "Uniformity," as applied to the constitutional provision that all taxes shall be uniform,
means that all property belonging to the same class shall be taxed alike.
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance.

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. 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.

COMMISSIONER OF INTERNAL REVENUE VS

ALGUE, INC., ET AL
G.R. No. L-28896 February 17, 1988
CRUZ, J.:

FACTS:

Algue, Inc. is a domestic corporation authorized by Philippine Sugar Estate Development

Company (PSEDC) to sell its land, factories and oil manufacturing process. Pursuant to such
authority, Alberto Guevara, Jr., et. al. worked for the formation of the Vegetable Oil Investment
Corporation, and thereafter purchased the PSEDC properties. For this sale, Algue received as
agent a commission of P126,000.00, and thereafter paid P75,000.00 promotional fees to Alberto
Guevara, Jr., et. al..

The CIR assessed a delinquency income tax resulting from the disallowance of P75,000.00 as a
deduction to the income tax. The petitioner claims that these payments are fictitious because
most of the payees are members of the same family in control of Algue. Algue filed a letter of
protest or request for reconsideration.

ISSUE:

Whether or not 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:

No, The Collector of Internal Revenue was incorrect in disallowing the P75,000.00. The amount
of P75,000.00 was 60% of the total commission, 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.

Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. 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. 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.
The power to tax is an attribute of sovereignty. It is a power emanating from necessity.

THE PHILIPPINE GUARANTY CO., INC. VS

THE COMMISSIONER OF INTERNAL REVENUE, ET AL
G.R. NO. L-22074 APRIL 30, 1965
BENGZON, J.P., J.:

FACTS:

The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance
contracts with foreign insurance and thereby agreed to cede to the foreign reinsurers a portion of
the premiums on insurance it has originally underwritten in the Philippines and which, in turn,
was given by the foreign reinsurers 5% of the reinsurance premiums in consideration for
managing or administering their affairs in the Philippines. Said premiums were excluded by
Philippine Guaranty Co., Inc. from its gross income when it filed its income tax returns and did
not withhold or pay tax on them.

The Commissioner of Internal Revenue assessed against Philippine Guaranty Co., Inc.
withholding tax on the ceded reinsurance premiums. Philippine Guaranty Co., Inc., protested the
assessment contending that the reinsurance premiums in question did not constitute income from
sources within the Philippines because the foreign reinsurers did not engage in business in the
Philippines, nor did they have office here.

ISSUE:

Whether or not the reinsurance premiums in question is subject to withholding tax.

RULING:

Yes it is subject to withholding Tax. Section 24 of the Tax Code subjects foreign corporations to
tax on their income from sources within the Philippines.

The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a

necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to
resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve,
public improvement designed for the enjoyment of the citizenry and those which come within the
State's territory, and facilities and protection which a government is supposed to provide.
Considering that the reinsurance premiums in question were afforded protection by the
government and the recipient foreign reinsurers exercised rights and privileges guaranteed by our
laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state.
Generally, laws cannot be applied retroactively. A statute should be considered as prospective in
its operation, unless the language of the statute clearly demands or expresses that it shall have
retroactive effect.

PABLO LORENZO vs.

JUAN POSADAS, JR.
G.R. No. L-43082 June 18, 1937
LAUREL, J.:

FACTS:

In 1922, Thomas Hanley died leaving a will and a considerable amount of real and personal
properties, which were pass to his nephew Matthew Hanley ten years after. Herein petitioner
Pablo Lorenzo, in his capacity as trustee of the estate, brought an action against respondent Juan
Posadas, Jr., Collector of Internal Revenue. Petitioner alleges that the respondent exceeded in its
tax collection, which, as assessed by the former, should only be in the amount of PhP1,434.24
instead of PhP2,052.74. Disregarding the allegation, respondent filed a motion in the CFI of
Zamboanga praying that the trustee be made to pay such tax. The motion was granted. Petitioner
paid the amount in protest, however notified the respondent that until a refund is prompted, suit
would be bought for its recovery. Posadas overruled Lorenzo’s protest and refused to refund the
said amount. Plaintiff went to court. The CFI dismissed Lorenzo’s complaint and Posadas’
counterclaim. Hence, the case at bar.

ISSUE:

Whether or not the provisions of Act No. 3606 (Tax Law) which is favorable to the taxpayer be
given retroactive effect?

RULING:

No. The respondent levied and assessed the inheritance tax collected from the petitioner under
the provisions of section 1544 of the Revised Administrative Code as amended by Act No. 3606.
However, the said law only enacted in 1930 – not the law in force when the testator died in 1922.
The law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which
took effect on 1922. Generally, laws cannot be applied retroactively. The Court states that it is a
well-settled principle that inheritance taxation is governed by the statue in force at the time of the
death of the decedent. Of course, a tax statute may be made retroactive in its operation. But
legislative intent that a tax statute should operate retroactively should be perfectly clear. The
Court also emphasized that “a statute should be considered as prospective in its operation, unless
the language of the statute clearly demands or expresses that it shall have retroactive effect…”
Act No. 3606 does not contain any provisions indicating a legislative intent to give it a
retroactive effect.
The legislature has the inherent power to select the subjects of taxation and to grant
exemptions.  This power has aptly been described as "of wide range and flexibility." Indeed, it is
said that in the field of taxation, more than in other areas, the legislature possesses the greatest
freedom in classification; Consideration of practical administrative convenience and cost in the
administration of tax laws afford adequate ground for imposing a tax on a well-recognized and
defined class.

BENJAMIN P. GOMEZ VS,

ENRICO PALOMAR, et al.
G.R. NO. L-23645 OCTOBER 29, 1968
CASTRO, J.:

FACTS:

Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. It did
not bear the special anti-TB stamp required by RA 1635. The A to help raise funds for the
Philippine Tuberculosis Society. It was returned to the petitioner. Petitioner brought suit in the
Court of First Instance of Pampanga, to test the constitutionality of the statute claiming that RA
1635 otherwise known as the Anti-TB Stamp Law violates the equal protection clause as well as
the rule of uniformity and equality of taxation, because it constitutes mail users into a class for
the purpose of the tax while leaving untaxed the rest of the population and that even among
postal patrons the statute discriminatorily grants exemptions.
Moreover, petitioner contends that the statutory classification of taxpayers has no relation to the
object sought by the Anti-TB law. The lower court declared the statute and the orders
unconstitutional; hence this appeal by the respondent postal authorities.

ISSUE:

Whether or not the legislative erred in implementing RA 1635, as alleged by the petitioner that it
violates the equal protection clause and the rule of uniformity and equality of taxation.

RULING:

No. The Supreme Court reiterated that the legislature has the inherent power to select the
subjects of taxation and to grant exemptions.  The reason for this is that traditionally,
classification has been a device for fitting tax programs to local needs and usages in order to
achieve an equitable distribution of the tax burden. The legislative classifications must be
reasonable is of course undenied in this case. The classification of mail users is not without any
reason. It is based on ability to pay, let alone the enjoyment of a privilege, and on administrative
convenience. The classification is likewise based on considerations of administrative
convenience. For it is now a settled principle of law that "consideration of practical
administrative convenience and cost in the administration of tax laws afford adequate ground for
imposing a tax on a well-recognized and defined class. Lastly, mail users were already a class by
themselves even before the enactment of the statue and all that the legislature did was merely to
select their class. Legislation is essentially empiric and Republic Act 1635, as amended, no more
than reflects a distinction that exists in fact. Moreover, granted the power to select the subject of
taxation, the State's power to grant exemption must likewise be conceded as a necessary
corollary. Tax exemptions are too common in the law; they have never been thought of as raising
issues under the equal protection clause.
The time limit for the government to collect the assessed tax is set at three years, to be reckoned
from the date when the CIR mails/releases/sends the assessment notice to the taxpayer. The
assessed tax must be collected by distraint or levy and/or court proceeding within the three-year
period. Inasmuch as the government's claim for deficiency DST is barred by prescription.

CHINA BANKING CORPORATION VS.

COMMISSIONER OF INTERNAL REVENUE
 G.R. NO. 172509 FEBRUARY 4, 2015
SERENO, CJ:

FACTS:

Petitioner China Banking Corporation was engaged in transactions involving sales of foreign
exchange or SWAP transactions to the Central Bank of the Philippines. In 1982 to 1986, CBC
did not file tax returns or pay tax on the SWAP transactions. In 1989, CBC received an
assessment from the BIR regarding liability for deficiency on Documentary Stamp Tax. In the
same year, through its vice-president, CBC sent a letter of protest to the BIR. More than 12 years
after the filing of the protest, the Commissioner of Internal Revenue (CIR) rendered a decision
reiterating the deficiency DST assessment and ordered the payment thereof plus increments
within 30 days from receipt of the decision. CBC filed a petition for review with the CTA, which
was dismissed. It subsequently filed a motion for reconsideration which was also denied. Hence,
this petition to the Supreme Court with Rule 45. CBC raised the defense of prescription and
contends that the government is barred from collecting taxes because attempt to collect the tax
was made way beyond the three-year prescriptive period. Within that time frame, however,
neither a warrant of distraint or levy was issued, nor a collection case filed in court.

ISSUE:

Whether or not the right of the CIR to collect the assessed documentary stamp tax from
petitioner CBC is barred by prescription.

RULING:

Yes. The Supreme Court granted the petition and denied the respondent’s claim for the
deficiency DST on the ground that the right of the CIR to collect the assessed DST is barred by
the statute of limitations. Prescription has set in. The applicable rule at that time was Section
319(c) of the National Internal Revenue Code of 1977, as amended, when it reiterated that  the
time limit for the government to collect the assessed tax is set at three years, to be reckoned from
the date when the BIR mails/releases/sends the assessment notice to the taxpayer. Further, it
states that the assessed tax must be collected by distraint or levy and/or court proceeding within
the three-year period. In the case at bar, the records do not show when the assessment notice was
mailed, released or sent to CBC. Also, the records of this case show that there was neither a
warrant of distraint or levy served on CBC's properties nor a collection case filed in court by the
BIR within the three-year period. The attempt of the BIR to collect the tax through its Answer
with a demand for CBC to pay the assessed DST in the CTA did not comply with Section 319(c)
of the 1977 Tax Code, as amended. The demand was made almost thirteen years from the date
from which the prescriptive period is to be reckoned. Thus, the attempt to collect the tax was
made way beyond the three-year prescriptive period.
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. However, such collection should be made in accordance with the law so that the real
purpose of taxations, which is the promotion of the common good, may be achieved.

JOSE B.L. REYES ET. AL. VS

PEDRO ALMANZOR ET. AL.
G.R. NOS. L-49839-46 APRIL 26, 1991
PARAS, J.:

FACTS:

Petitioners J.B.L. Reyes, et. al. are owners of parcels of land which are leased and entirely
occupied as dwelling sites by tenants. Said tenants were paying monthly rentals not exceeding
three hundred pesos (P300.00). RA 6359 was enacted prohibiting for one year an increase in
monthly rentals of dwelling units and said Act also disallowed ejectment of lessees upon the
expiration of the usual period of lease. Consequently, petitioners herein were precluded from
raising the rentals and from ejecting the tenants. Respondent City Assessor of Manila re-
classified and reassessed the value of the subject properties based on the schedule of market
values duly reviewed by the Secretary of Finance. The revision entailed an increase to the tax
rates and petitioners averred that the reassessments made were "excessive, unwarranted,
inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them
greatly exceeded the annual income derived from their properties. They argued that the income
approach should have been used in determining the land values instead of the comparable sales
approach which the City Assessor adopted.

ISSUE:

Whether or not the tax assessment approach used by the City Assessor reasonable?

RULING:

No. By no strength of the imagination can the market value of properties covered by P.D. No. 20
be equated with the market value of properties not so covered. The former has naturally a much
lesser market value in view of the rental restrictions. In the case at bar, not even the factors
determinant of the assessed value of subject properties under the "comparable sales approach"
were presented by the public respondents, namely: (1) that the sale must represent a bona
fide arm's length transaction between a willing seller and a willing buyer and (2) the property
must be comparable property. As a general rule, there were no takers so that there can be no
reasonable basis for the conclusion that these properties were comparable with other residential
properties not burdened by P.D. 20.

Taxes are lifeblood of government, however, such collection should be made in accordance with
the law and therefore necessary to reconcile conflicting interests of the authorities so that the real
purpose of taxation, promotion of the welfare of common good can be achieved. Consequently, it
stands to reason that petitioners who are burdened by the government by its Rental Freezing
Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be
penalized by the same government by the imposition of excessive taxes petitioners can ill afford
and eventually result in the forfeiture of their properties.
Power to tax is not power to destroy.

PHILIPPINE HEALTH CARE PROVIDERS, INC. VS

COMMISSIONER OF INTERNAL REVENUE
G.R. No. 167330 SEPTEMBER 18, 2009
J. CORONA:

FACTS:

Petitioner is a domestic corporation whose primary purpose is "to establish, maintain, conduct
and operate a prepaid group practice health care delivery system or a health maintenance
organization to take care of the sick and disabled persons enrolled in the health care plan and to
provide for the administrative, legal, and financial responsibilities of the organization."
Individuals enrolled in its health care programs pay an annual membership fee and are entitled to
various preventive, diagnostic and curative medical services provided by its duly licensed
physicians, specialists and other professional technical staff participating in the group practice
health delivery system at a hospital or clinic owned, operated or accredited by it.

On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a
formal demand letter and the corresponding assessment notices demanding the payment of
deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the
total amount of ₱224,702,641.18. The deficiency [documentary stamp tax (DST)] assessment
was imposed on petitioner’s health care agreement with the members of its health care program
pursuant to Section 185 of the 1997 Tax Code. Petitioner protested the assessment in a letter
dated February 23, 2000. As respondent did not act on the protest, petitioner filed a petition for
review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and
DST assessments.

ISSUE:

Whether or not petitioner is liable for the payment of documentary stamp tax on Health Care
Agreement of HMOS in accordance with Section 185 of NIRC

RULING:

No. Health care agreements are not subject to DST. From the language of Section 185, it is
evident that two requisites must concur before the DST can apply, namely: (1) the document
must be a policy of insurance or an obligation in the nature of indemnity and (2) the maker
should be transacting the business of accident, fidelity, employer’s liability, plate, glass, steam
boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine,
inland, and fire insurance).

In Blue Cross and Philamcare, the Court pronounced that a health care agreement is in the nature
of non-life insurance, which is primarily a contract of indemnity. However, those cases did not
involve the interpretation of a tax provision. Instead, they dealt with the liability of a health
service provider to a member under the terms of their health care agreement. Such contracts, as
contracts of adhesion, are liberally interpreted in favor of the member and strictly against the
HMO. For this reason, we reconsider our ruling that Blue Cross and Philamcare are applicable
here.
TAXATION: The most effective means to raise revenues; LGU's Power of Taxation, exception to
non-delegation of taxing power; tax exemptions, construed strongly against the claimant.

NATIONAL POWER CORPORATION VS

CITY OF CABANATUAN
G.R. No. 149110 APRIL 9, 2003
J. PUNO:

FACTS:

Petitioner, NAPOCOR, a government-owned and controlled corporation created under

Commonwealth Act No. 120, as amended, selling electric power to the residents of Cabanatuan
City, was assessed by the City of Cabanatuan for franchise tax pursuant to Sec. 37 of Ordinance
No. 165-92. Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government, refused to pay the tax assessment on the grounds that the City of Cabanatuan has
no authority to impose tax on government entities and also that it is exempted as a non-profit
organization. For its part, the city government alleged that NAPOCOR’s exemption from local
taxes has been repealed by Sec. 193 of RA 7160.

ISSUE/S:

1.) Whether or not NAPOCOR is excluded from the coverage of the franchise tax simply
because its stocks are wholly owned by the National Government and its charter
characterized is as a ‘non-profit organization’.
2.) Whether or not NAPOCOR’s exemption from all forms of taxes repealed by the provisions
of the Local Government Code (LGC)

RULING:

1.) No. To stress, a franchise tax is imposed based not on the ownership but on the exercise by
the corporation of a privilege to do business. The taxable entity is the corporation which
exercises the franchise, and not the individual stockholders. 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. To be sure, the ownership by the National Government of its entire capital
stock does not necessarily imply that petitioner is not engaged in business.

2.) YES. 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 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. The legislative purpose to withdraw tax
privileges enjoyed under existing laws or charter is clearly manifested by the language used
on Sec. 137 and 193 categorically withdrawing such exemption subject only to the
exceptions enumerated, since it would be tedious and impractical to attempt to enumerate all
the existing statutes providing for special tax exemptions or privileges, the LGC provided for
an express, albeit general, withdrawal of such exemptions or privileges. No more
unequivocal language could have been used.
Taxes are the lifeblood of the nation; due process of law under the Constitution does not require
judicial proceedings in tax cases; interpretation placed upon a statute by the executive officers
are not conclusive and will be ignored if judicially found to be erroneous; state cannot be put in
estoppel by the mistakes or errors of its officials or agents; a claim for refund is in the nature of
a claim for exemption and should be construed in strictissimi juris against the taxpayer.

PHILIPPINE BANK OF COMMUNICATIONS VS

COMMISSIONER OF INTERNAL REVENUE, ET AL
G.R. No. 112024 JANUARY 28, 1999
J. QUISUMBING:

FACTS:

PB Com filed its quarterly income tax returns for the first and second quarters of 1985, reported
profits, and paid the total income tax of P 5,016,954.00. On August 7, 1987, petitioner requested
the Commissioner of Internal Revenue, among others, for a tax credit of P 5,016,954.00
representing the overpayment of taxes in the first and second quarters of 1985. On May 20, 1993,
the CTA rendered a decision which denied the request of petitioner for a tax refund or credit in
the sum amount of P5,299,749.95, on the ground that it was filed beyond the two-year
reglementary period provided for by law.

ISSUE:

Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the
ground of prescription

RULING:

The relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-
year prescriptive period set by law. When the ruling, circular, or rules and regulations was
nullified by a court (and not by the CIR), then the non-retroactivity rule does not apply. Basic is
the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds
for the State to finance the needs of the citizenry and to advance the common weal. Due process
of law under the Constitution does not require judicial proceedings in tax cases. This must
necessarily be so because it is upon taxation that the government chiefly relies to obtain the
means to carry on its operations and it is of utmost importance that the modes adopted to enforce
the collection of taxes levied should be summary and interfered with as little as possible. It bears
repeating that Revenue memorandum-circulars are considered administrative rulings (in the
sense of more specific and less general interpretations of tax laws) which are issued from time to
time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation
placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great
respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if
judicially found to be erroneous. Thus, courts will not countenance administrative issuances that
override, instead of remaining consistent and in harmony with the law they seek to apply and
implement. Further, fundamental is the rule that the State cannot be put in estoppel by the
mistakes or errors of its officials or agents. It must be noted that, as repeatedly held by this
Court, a claim for refund is in the nature of a claim for exemption and should be construed
in strictissimi juris  against the taxpayer.

Tax assessments by tax examiners are presumed correct and made in good faith; taxes are the
lifeblood of the government; the theory behind the exercise of the power to tax emanates from
necessity.

COMMISSIONER OF INTERNAL REVENUE VS BANK OF THE PHILIPPINE

ISLANDS
G.R. No. 134062 APRIL 17, 2007
J. CORONA:
FACTS:

In two notices dated October 28, 1988, CIR assessed BPI deficiency percentage and
documentary stamp taxes for the year 1986 in the total amount of ₱129,488,656.63.
In a letter dated December 10, 1988, BPI, through counsel, asks for an explanation and
clarification with regards to the assessed deficiency in the taxes in a proper letter of assessment.
On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that the letter filed
by the respondent failed to qualify as a protest under Rev Reg No. 12-85 and therefore barred
from questioning the validity of the assessment. On February 18, 1992, BPI filed a petition for
review in the CTA which was dismissed for lack of jurisdiction since the subject assessments
had become final and unappealable. The CTA ruled that BPI failed to protest on time under Sec
270 of the NIRC of 1986 and Sec 7 in relation to Sec 11 of RA 1125. On appeal, the CA ruled
that notices were not valid assessments because they did not inform the taxpayer of the legal and
factual bases. It declared that the proper assessments were those contained in the May 8, 1991
letter which provided the reasons for the claimed deficiencies. Thus, it held that BPI filed the
petition for review in the CTA on time.

ISSUE:

Whether or not the assessments issued to BPI for deficiency percentage and documentary stamp
taxes for 1986 had already become final and unappealable and that BPI was liable for the said
taxes

RULING:

The inevitable conclusion is that BPI’s failure to protest the assessments within the 30-day
period provided in the former Section 270 meant that they became final and unappealable. The
Court recognizes that the CTA, which by the very nature of its function is dedicated exclusively
to the consideration of tax problems, has necessarily developed an expertise on the subject, and
its conclusions will not be overturned unless there has been an abuse or improvident exercise of
authority. Such findings can only be disturbed on appeal if they are not supported by substantial
evidence or there is a showing of gross error or abuse on the part of the CTA. Tax assessments
by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to
prove otherwise. In the absence of proof of any irregularities in the performance of duties, an
assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior
officers will not be disturbed. All presumptions are in favor of the correctness of tax
assessments. 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.

Taxation may be made the implement of the state's police power; it is inherent in the power to
tax that a state be free to select the subjects of taxation.

WALTER LUTZ VS J. ANTONIO ARANETA

G.R. No. L-7859 December 22, 1955
J. REYES J.B.L.:

FACTS:

Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by
the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950;
alleging that such tax is unconstitutional and void, being levied for the aid and support of the
sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax
may be constitutionally levied. The action having been dismissed by the Court of First Instance,
the plaintiffs appealed the case directly to this Court (Judiciary Act, section 17).

ISSUE:

Whether or not the taxes imposed by Commonwealth Act No. 567 were unconstitutional and
void, being levied for the aid and support of the sugar industry exclusively

RULING:

No, the taxes imposed by said act were constitutional and valid.

The protection of a large industry constituting one of the great sources of the state's wealth and
therefore directly or indirectly affecting the welfare of so great a portion of the population of the
State is affected to such an extent by public interests as to be within the police power of the
sovereign. It follows that the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here, the legislative discretion must
be allowed fully play, subject only to the test of reasonableness. If objective 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 the implement of the state's police
power.

At any rate, 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 inequalities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional limitation.
The levy is primarily in the exercise of the police power of the State. While the funds collected
may be referred to as taxes, they are exacted in the exercise of the police power of the State.

JOHN H. OSMEÑA VS OSCAR ORBOS ET AL

G.R. No. 99886 MARCH 31, 1993
C.J. NARVASA:

FACTS:

October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in
the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was
designed to reimburse oil companies for cost increases in crude oil and imported petroleum
products resulting from exchange rate adjustments and from increases in the world market prices
of crude oil. Subsequently, the OPSF was reclassified into a "trust liability account". President
Corazon C. Aquino promulgated E.O. 137 expanding the grounds for reimbursement to oil
companies for possible cost under recovery incurred as a result of the reduction of domestic
prices of petroleum products.

The petitioner argues inter alia that the monies collected pursuant to P.D. 1956, as amended,
must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a
special tax is collected for a specific purpose, the revenue generated therefrom shall 'be treated as
a special fund' to be used only for the purpose indicated, and not channelled to another
government objective." Petitioner further points out that since "a 'special fund' consists of monies
collected through the taxing power of a State, such amounts belong to the State, although the use
thereof is limited to the special purpose/objective for which it was created."

ISSUE:

Whether or not the funds collected under PD 1956 is an exercise of the power of taxation

RULING:

The levy is primarily in the exercise of the police power of the State. While the funds collected
may be referred to as taxes, they are exacted in the exercise of the police power of the State.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific
limit on how much to tax." The Court is cited to this requirement by the petitioner on the premise
that what is involved here is the power of taxation; but as already discussed, this is not the case.
What is here involved is not so much the power of taxation as police power. Although the
provision authorizing the ERB to impose additional amounts could be construed to refer to the
power of taxation, it cannot be overlooked that the overriding consideration is to enable the
delegate to act with expediency in carrying out the objectives of the law which are embraced by
the police power of the State.

It would seem that from the above-quoted ruling, the petition for prohibition should fail.

It is the inherent power to tax that the 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.

VALENTIN TIO VS VIDEOGRAM REGULATORY BOARD, ET AL

G.R. No. L-75697 JUNE 18, 1987
J. MELENCIO-HERRERA:

FACTS:
This petition was filed by petitioner on his own behalf and purportedly on behalf of other
videogram operators affected. It assails the constitutionality of Presidential Decree No. 1987
entitled “An Act Creating the Videogram Regulatory Board” with broader powers to regulate
and supervise the videogram industry. In the said Act, it imposes a tax of 30% in gross receipts
payable to the local government. The petitioner stated that that the tax is harsh and unlawful
restraint of trade violation of due process clause of the Constitution.

ISSUE:

Whether or not the 30% tax is unlawful

RULING:

No. The levy of the 30% tax is for public purpose. It was imposed primarily to answer the need
for regulating the video industry, particularly the rampant film piracy and the flagrant violation
of property rights and the proliferation of pornographic video tapes. It is also an objective of the
decree to protect the movie industry. It is the inherent power to tax that the 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.
The power to tax is the most potent instrument to raise the needed revenues to finance and
support the 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.

FELS ENERGY INC VS THE PROVINCE OF BATANGAS

GR No. 168557 February 16, 2007
CALLEJO, SR., J.:

FACTS:

On January 18, 1993, National Power Corporation entered into a lease contract with Polar
Energy Incorporation over a 3x30 MW diesel engine power barges moored at Balayan Bay,
Batangas. The contract, denominated as energy conversion agreement for five years. The
petitioner received an assessment of real property taxes on the power barges from the provincial
assessor of Batangas. The assessed tax due was P. 54, 184.40. NPC sought reconsideration of the
provincial assessor’s decision to assess real property on the power barges. Petitioner contends
that the power barges are not subject to real estate tax.

ISSUE:

Whether power barges are personal properties and therefore not subject to real property tax?

HELD:

Article 415 of the new civil code states “docks and structures which though floating are intended
by their nature and object to remain at a fixed place on river, lake or coast are considered
immovable property. Power barges are categorized as immovable property by destination, being
in the nature of machinery intended by the owner for an industry which may be carried on a
building or on a piece of land and which tend directly to meet the needs of said industry or work.

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception. The law does not look with favor on tax exemptions and the entity that would seek to
be thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted. Thus, applying the rule of strict construction of laws granting tax exemptions,
and the rule that doubts should be resolved in favor of provincial corporations, we hold that
FELS is considered a taxable entity.

The power to tax is the most potent instrument to raise the needed revenues to finance and
support the 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.
A claim for refund is in the nature of a claim for exemption and should be construed in
strictissimi juris against taxpayer; 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.

COMMISSIONER OF INTERNAL REVENUE VS TOKYO SHIPPING CO. LTD.,

REPRESENTED BY SORIAMONT STEAMSHIP AGENCIES INC., AND COURT OF
TAX APPEALS, RESPONDENTS. LTD.
GR NO L-68252, MAY 26,1995
J. PUNO:

FACTS:

Private respondent is a foreign corporation represented in the Philippines by Soriamont

Steamship Agencies, Incorporated. It owns and operates tramper vessel M/V Gardenia. In
December 1980, NASUTRA chartered M/V Gardenia to load 16,500 metric tons of raw sugar in
the Philippines. On December 23, 1980, Mr. Edilberto Lising, the operations supervisor of
Soriamont Agency, paid the required income and common carrier's taxes in the respective sums
of P59,523.75 and P47,619.00, or a total of P107,142.75. Claiming the prepayment of income
and common carrier's taxes as erroneous since no receipt was realized from the charter
agreement, private respondent Tokyo Shipping filed a claim for tax credit or refund from the BIR
amounting to P107,142.75. BIR failed to act promptly on the claim and thus it was elevated to
the Court of Tax Appeals which decided in favor of the refund. Hence, this petition for review on
certiorari.

ISSUE:

Whether or not Tokyo Shipping is entitled to a refund or tax credit for the prepayment of taxes.

RULING:

Yes. There is no dispute about the applicable law. It is Section 24 (b)(2) of the National Internal
Revenue Code, pursuant to this provision, a resident foreign corporation engaged in the transport
of cargo is liable for taxes depending on the amount of income it derives from sources within the
Philippines. Thus, before such a tax liability can be enforced the taxpayer must be shown to have
earned income sourced from the Philippines. We agree with petitioner that a claim for refund is
in the nature of a claim for exemption8 and should be construed in strictissimi juris against the
taxpayer. Likewise, there can be no disagreement with petitioner’s stance that private respondent
has the burden of proof to establish the factual basis of its claim for tax refund.

“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.’ And, in order to maintain the general public’s trust and confidence in the Government this
power must be used justly and not treacherously.”
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.

PILIPINAS SHELL PETROLEUM CORPORATION V. COMMISSIONER OF

INTERNAL REVENUE G.R. NO. 172598; DECEMBER 21, 2007
J. VELASCO, JR.

FACTS:

Pilipinas Shell Petroleum Corporation (PSPC) is the Philippine subsidiary of the international
petroleum giant Shell, and is engaged in the importation, refining and sale of petroleum products
in the country. In 1988, Bureau of Internal Revenue (BIR) sent a collection letter to PSPC for
alleged deficiency excise tax liabilities of P1,705,028,008.06 for the taxable years 1992 and 1994
to 1997, inclusive of delinquency surcharges and interest.  As basis for the collection letter, the
BIR alleged that PSPC is not a qualified transferee of the TCCs it acquired from other BOI-
registered companies.  These alleged excise tax deficiencies covered by the collection letter were
already paid by PSPC with TCCs acquired through, and issued and duly authorized by the
Center, and duly covered by Tax Debit Memoranda (TDM) of both the Center and BIR, with the
latter also issuing the corresponding Accept Payment for Excise Taxes (APETs). PSPC protested
the collection letter, but it was denied.  Because of respondent inaction on a motion for
reconsideration PSPC filed a petition for review before the CTA. In 1999, the CTA ruled that the
use by PSPC of the TCCs was legal and valid. On November 22, 1999, PSPC received a second
assessment letter from respondent for excise tax deficiencies, surcharges, and interest based on
the first batch of cancelled TCCs and TDM covering PSPC’s use of the TCCs. PSPC protested
the assessment letter, but the protest was denied by the BIR. Respondent appealed the above
decision through a petition for review before the CTA En Banc. The CTA En Banc ruled in favor
of respondent.

ISSUE:

Whether or not PSPC is liable to pay the alleged excise tax deficiencies arising from the
cancellation of the TDM issued against its TCCs which were used to pay some of its excise tax
liabilities.

RULING:

No. A TCC is an undertaking by the government through the BIR or DOF, acknowledging that a
taxpayer is entitled to a certain amount of tax credit from either an overpayment of income taxes,
a direct benefit granted by law or other sources and instances granted by law such as on specific
unused input taxes and excise taxes on certain goods. As such, tax credit is transferable in
accordance with pertinent laws, rules, and regulations. Therefore, the TCCs are immediately
valid and effective after their issuance.

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." And, in the order to maintain the general public’s trust and confidence in the Government
this power must be used justly and not treacherously.

A taxpayer may not offset taxes due from the claims that he may have against the government;
Taxes may be levied with a regulatory purpose to provide means for the rehabilitation and
stabilization of a threatened industry which is affected with public interest as to be within the
police power of the State.

CALTEX PHILIPPINES, INC., V THE HONORABLE COMMISSION ON AUDIT,

HONORABLE COMMISSIONER BARTOLOME C. FERNANDEZ AND HONORABLE
COMMISSIONER ALBERTO P. CRUZ
 GR NO. 92585, MAY 8, 1992.
J. DAVIDE, JR:

FACTS:

In 1989, Commission on Audit (COA) sent a letter to Caltex, directing it to remit its collection to
the Oil Price Stabilization Fund (OPSF), excluding that unremitted for the years 1986 and 1988,
of the additional tax on petroleum products authorized under the PD 1956. Pending such
remittance, all of its claims for reimbursement from the OPSF shall be held in abeyance. The
grant total of its unremitted collections of the above tax is P1,287,668,820.

Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved
the proposal but prohibited Caltex from further offsetting remittances and reimbursements for the
current and ensuing years. Caltex moved for reconsideration but was denied. Hence, the present
petition.

ISSUE:

Whether the amounts due from Caltex to the OPSF may be offsetted against Caltex’s outstanding
claims from said funds.

RULING:

No. Taxation is no longer envisioned as a measure merely to raise revenue to support the
existence of government. Taxes may be levied with a regulatory purpose to provide means for
the rehabilitation and stabilization of a threatened industry which is affected with public interest
as to be within the police power of the State.
PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A
taxpayer may not offset taxes due from the claims he may have against the government. Taxes
cannot be subject of compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.

It is settled that a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of compensation because the government and taxpayer
are not mutually creditors and debtors of each other and a claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off.
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.

BATANGAS POWER CORPORATION vs BATANGAS CITY AND NATIONAL

POWER CORPORATION
GR No. 152675, APRIL 28, 2004
PUNO, J:

FACTS:

In the BOT Agreement between Enron and National Power Corporation, it provided that NPC
shall be responsible for the payment of all taxes that may be imposed on the power station,
except income taxes and permit fees. Enron then assigned its obligation under the BOT
Agreement to petitioner Batangas Power Corporation (BPC).

BPC registered itself with the Board of Investments (BOI) as a pioneer enterprise in September
1992. BOI issued a certificate of registration to BPC as a pioneer enterprise entitled to a tax
holiday for a period of 6 years.
In 1998, Batangas City’s legal officer, sent a letter to BPC demanding payment of business taxes
and penalties, commencing from 1994 but refused to pay citing its tax exempt status. The city
treasurer modified the city’s tax claims and demanded payment of business taxes from BPC only
for the year 1998-1999. BPC still refused to pay the tax, insisting that its 6 year tax holiday
commenced from date of its commercial operation in July 1993 and not from the date of its BOI
registration in September 1992. BPC asserted that the city should collect the tax from the NPC as
the latter assumed the responsibility for its payment under the BOT Agreement.

ISSUES:

Whether or not BPC’s 6 year tax holiday commenced on the date of its BOI registration or on the
date of its actual commercial operation
Whether or not NPC’s tax exemption privileges under its Charter were withdrawn by Section
193 of the Local Government Code (LGC)

RULING

1. Supreme Court disagrees with the BPC’s and NPC’s contention that BPC’s 6 year tax
holiday should commence on the date of its actual commercial operations. Reliance of BPC on
the provision of Executive Order No. 226, specifically Section 1, Article 39, Title III, is clearly
misplaced as the six-year tax holiday provided therein which commences from the date of
commercial operation refers to income taxes imposed by the national government on BOI-
registered pioneer firms.

2. Supreme Court finds no merit in NPC’s contention. In NPC v City of Cabanatuan, the court
stressed that Section 193 of the LGC, an express and general repeal of all statutes granting
exemptions from local taxes, withdrew the sweeping tax privileges previously enjoyed by the
NPC under its Charter. The Supreme Court explained 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.
The Congress may, by law, authorize the President to fix within specified limits, and subject to
such limitations and restrictions as it may impose, tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or imposts within the framework of the national
development program of the Government. This delegation of the taxation power by the
legislative to the executive is authorized by the Constitution itself.  At the same time, the
Constitution also grants the delegating authority (Congress) the right to impose restrictions and
limitations on the taxation power delegated to the President.

SOUTHERN CROSS CEMENT CORPORATION vs CEMENT MANUFACTURERS

ASSOCIATION OF THE PHILIPPINES ET AL
GR No. 158540, AUGUST 3, 2005
TINGA, J:
FACTS:

Philippine Cement Manufacturers Corporation (Philcemcor) filed with the (DTI) seeking the
imposition of safeguard measures on grey Portland cement, in accordance with RA 8800,
Safeguard Measures Act. The application was referred to the Tariff Commission for formal
investigation in order to determine whether or not to impose a definitive safeguard. The Tariff
Commission in its report recommended that no definitive safeguard measure be imposed. The
Secretary of Justice opined that the DTI could not impose a definitive safeguard measure under
the SMA. The CA, while it refused to annul the findings of the Tariff Commission, it also held
that the DTI Secretary was not bound by the factual findings of the Tariff Commission since
such findings are merely recommendatory and they fall within the ambit of the Secretary’s
discretionary review. It determined that the legislative intent is to grant the DTI Secretary the
power to make a final decision on the Tariff Commission’s recommendation.

ISSUE:

Whether the factual determination made by the Tariff Commission under the SMA is binding on
the DTI Secretary.

RULING:

Section 5 of SMA plainly evinces legislative intent to restrict the DTI Secretary's power to
impose a general safeguard measure by preconditioning such imposition on a positive
determination by the Tariff Commission. Such legislative intent should be given full force and
effect, as the executive power to impose definitive safeguard measures is but a delegated power
the power of taxation, by nature and by command of the fundamental law, being a preserve of
the legislature. Section 28(2), Article VI of the 1987 Constitution confirms the delegation of
legislative power, yet ensures that the prerogative of Congress to impose limitations and
restrictions on the executive exercise of this power: The Congress may, by law, authorize the
President to fix within specified limits, and subject to such limitations and restrictions as it may
impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the Government. This
delegation of the taxation power by the legislative to the executive is authorized by the
Constitution itself. At the same time, the Constitution also grants the delegating authority
(Congress) the right to impose restrictions and limitations on the taxation power delegated to the
President.The restrictions and limitations imposed by Congress take on the mantle of a
constitutional command, which the executive branch is obliged to observe.

Taxation power can also be used as an implement for the exercise of the power of eminent
domain

COMMISSIONER OF INTERNAL REVENUE VS

CENTRAL LUZON DRUG CORPORATION
GR No. 159647, APRIL 15, 2005
PANGANIBAN, J:
FACTS:

Central Luzon Drug Corporation granted 20% sales discount to qualified senior citizens on their
purchases of medicine pursuant to RA 7432, from January to December 1996, amounting to P
904,769.

Respondent filed its Annual Income Tax Return for taxable year 1996 declaring that it incurred
net losses from its operations. Respondent filed with the CIR a claim for tax refund/credit in the
amount of P 904,769. Unable to obtain affirmative response from petitioner, respondent elevated
its claims to the Court of Tax Appeals via Petition for Review. The Tax Court dismissed the
petition in its decision which held that if no tax has been paid to the government, erroneously or
illegally, or if no amount is due and collectible from the tax payer, tax refund or tax credit is
unavailing. It also held that before recovery is allowed, it must first establish that there was
actual collection and receipt by the government of the tax sought to be recovered. Respondent
lodged a Motion for Reconsideration, which was granted by the CTA and ordered the petitioner
to issue a Tax Credit Certificate in favour of the respondent.

ISSUE:

Whether or not respondent, despite incurring net loss, may still claim the 20% sales discount as
tax credit.

RULING:

YES. As a result of the 20 percent discount imposed by RA 7432, respondent becomes entitled to
a just compensation. This term refers not only to the issuance of a tax credit certificate indicating
the correct amount of the discounts given, but also to the promptness in its release. Equivalent to
the payment of property taken by the State, such issuance -- when not done within a reasonable
time from the grant of the discounts -- cannot be considered as just compensation. In effect,
respondent is made to suffer the consequences of being immediately deprived of its revenues
while awaiting actual receipt, through the certificate, of the equivalent amount it needs to cope
with the reduction in its revenues.79

Besides, the taxation power can also be used as an implement for the exercise of the power of
eminent domain. Tax measures are but "enforced contributions exacted on pain of penal
sanctions"81 and "clearly imposed for a public purpose."82 In recent years, the power to tax has
indeed become a most effective tool to realize social justice, public welfare, and the equitable
distribution of wealth.
It is the legislature, unless limited by a provision of a state constitution that has full power to
exempt any person or corporation or class of property from taxation, its power to exempt being
as broad as its power to tax. Other than Congress, the Constitution may itself provide for
specific tax exemptions, or local governments may pass ordinances on exemption only from local
taxes.

COCONUT OIL REFINERS ASSOCIATION, INC., ET. AL. VS.

HON. RUBEN TORRES, AS EXECUTIVE SECRETARY, ET. AL.
G.R. NO. 132527, JULY 29, 2005
Azcuna, J.

FACTS:

On March 13, 1992, RA No. 7227 was enacted, providing for, among other things, the sound
and balanced conversion of the Clark and Subic military reservations and their extensions into
alternative productive uses in the form of special economic zones in order to promote the
economic and social development of Central. Among the salient provisions are as follows:
“SECTION 12. x x x The Subic Special Economic Zone shall be operated and managed as a
separate customs territory ensuring free flow or movement of goods and capital within, into
and exported out of the Subic Special Economic Zone, as well as provide incentives such as
tax and duty-free importations of raw materials, capital and equipment. However, exportation
or removal of goods from the territory of the Subic Special Economic Zone to the other parts
of the Philippine territory shall be subject to customs duties and taxes under the Customs and
Tariff Code and other relevant tax laws of the Philippines; x x x” Petitioners contend the
validity of the tax exemption provided for in the law.

ISSUE:

WON RA 7227 expressly provides in its provisions tax exemption.

HELD:

It is the legislature, unless limited by a provision of a state constitution, that has full
power to exempt any person or corporation or class of property from taxation, its power to
exempt being as broad as its power to tax. Other than Congress, the Constitution may itself
provide for specific tax exemptions, or local governments may pass ordinances on exemption
only from local taxes.
In the present case, while Section 12 of Republic Act No. 7227 expressly provides for the
grant of incentives to the SSEZ, it fails to make any similar grant in favor of other economic
zones, including the CSEZ. Tax and duty-free incentives being in the nature of tax
exemptions, the basis thereof should be categorically and unmistakably expressed from the
language of the statute. Consequently, in the absence of any express grant of tax and duty-free
privileges to the CSEZ in Republic Act No. 7227, there would be no legal basis to uphold the
questioned portions of two issuances: Section 5 of Executive Order No. 80 and Section 4 of
BCDA Board Resolution No. 93-05-034, which both pertain to the CSEZ.
If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax; Taxation may be made the implement of the
state's police power

PHILIPPINE AIRLINES, INC. VS

ROMEO F. EDU
G.R. NO. L- 41383 , AUGUST 15, 1988
J. GUTIERREZ JR:

FACTS:

The Philippine Airlines (PAL) is a corporation engaged in the air transportation business under a
legislative franchise, Act No. 42739. Under its franchise, PAL is exempt from the payment of
taxes. Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate
(Elevate) issued a regulation pursuant to Section 8, Republic Act 4136, requiring all tax exempt
entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the amounts
imposed under Republic Act 4136 were paid. PAL thus paid, under protest, registration fees of
its motor vehicles. After paying under protest, PAL through counsel, wrote a letter to Land
Transportation Commissioner Romeo Edu (Edu) demanding a refund of the amounts paid. Edu
denied the request for refund. Hence, PAL filed a complaint against Edu and National Treasurer
Ubaldo Carbonell (Carbonell). The trial court dismissed PAL's complaint. PAL appealed to the
Court of Appeals which in turn certified the case to the Supreme Court.

ISSUE:

Whether or not motor vehicle registration fees are considered as taxes

RULING:

Yes. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration
fees. The motor vehicle registration fees are actually taxes intended for additional revenues of
the government even if one fifth or less of the amount collected is set aside for the operating
expenses of the agency administering the program. Indeed, taxation may be made the implement
of the state's police power.
The utilization and proper management of the coconut levy funds, raised as they were by the
State's police and taxing powers, are certainly the concern of the Government. It cannot be
denied that it was the welfare of the entire nation that provided the prime moving factor for the
imposition of the levy. Coconut Levy funds are public funds raised by the State’s police and
taxing powers.

PHILIPPINE COCONUT PRODUCERS FEDERATION, INC., (COCOFED) VS.

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG)
G.R. NO. 75713, OCTOBER 2, 1989
J. NARVASA:

FACTS:

Philippine Coconut Producers Federation, Inc (COCOFED), is a private national association of

coconut producers which by legal mandate receives allocations from the coconut levy funds to
finance its operating expenses and projects, the Coconut Investment Fund (CIF); the Coconut
Investment Company (CIC), the first government corporation created to administer the coconut
levy funds, and individual petitioners Maria Clara Lobregat and some 37 other persons, all
claiming to be either coconut farmers, coconut workers or stockholders of the sequestered
companies, bringing suit for themselves and in representation of "the more than one million
coconut farmers who are similarly situated" upon a claim of private interest in the sequestered
assets and properties.

On March 19, 1986, the PCGG sequestered CIIF companies. The PCGG claims that the funds
collected from the coconut levy are public funds which no amount of pronouncements to the
contrary-by decree or any other presidential issuance can convert into private money.

ISSUE:

Whether or not the coconut levy funds can be converted into private funds?

HELD:

No. the laws operating or purporting to convert the coconut levy funds into private funds, are a
transgression of the basic limitations for the licit exercise of the state's taxing and police powers,
and that certain provisions of said laws are merely clever stratagems to keep away government
audit in order to facilitate misappropriation of the funds in question.

The utilization and proper management of the coconut levy funds, raised as they were by the
State's police and taxing powers, are certainly the concern of the Government. It cannot be
denied that it was the welfare of the entire nation that provided the prime moving factor for the
imposition of the levy. It cannot be denied that the coconut industry is one of the major industries
supporting the national economy. It is, therefore, the State's concern to make it a strong and
secure source not only of the livelihood of a significant segment of the population but also of
export earnings the sustained growth of which is one of the imperatives of economic stability.
The coconut levy funds are clearly affected with public interest.
Taxation is done not merely to raise revenues to support the government, but also to provide
means for the rehabilitation and the stabilization of a threatened industry, which is so affected
with public interest as to be within the police power of the State.

REPUBLIC OF THE PHILIPPINES REPRESENTED BY PCGG VS COCOFED, et al.

EDUARDO M. COJUANGCO, JR
G.R. Nos. 147062-64, DECEMBER 14, 2001
J. PANGANIBAN:

FACTS:

Pursuant to the Executive Orders issued by the President Aquino "the PCGG issued and
implemented numerous sequestrations, freeze orders and provisional takeovers of allegedly ill-
gotten companies, assets, and properties, real or personal. Among the properties sequestered by
the Commission were shares of stock in the United Coconut Planters Bank (UCPB) Register in
the names of the alleged "one million coconut farmers," the so-called Coconut Industry
Investment Fund companies (CIIF companies) and Private Respondent Eduardo Cojuangco Jr.
Thereafter, on July 31, 1987, PCGG instituted an action for reconveyance, reversion, accounting,
restitution and damages in the Sandiganbayan. On November 25, 1990 upon motion of private
respondent COCOFED the Sandiganbayan, lifted the sequestration order made by PCGG the
UCPB shares on the ground that the COCOFED and the CIIF companies were not impleaded as
parties-defendants in the actions filed on July 31, 1987. On Jan. 21, 1995, the Court rendered its
final decision nullifying and setting aside the Resolution of the Sandiganbayan which lifted the
sequestration of the subject UCPB Shares.

ISSUE:

Are the Coconut Levy Funds raised through the State's police and taxing powers?

RULING:

Indeed, coconut levy funds partake of the nature of taxes which, in general, are enforced
proportional contributions from persons and properties, exacted by the State by virtue of its
sovereignty for the support of government and for all public needs. Tax has three elements,
namely: a) it is an enforced proportional contribution from persons and properties; b) it is
imposed by the State by virtue of its sovereignty; and c) it is levied for the support of the
government. The coconut levy funds fall squarely into these elements for the following reasons:
First, they were generated by virtue of statutory enactments imposed on the coconut farmers
requiring the payment of prescribed amounts. Second, the coconut levies were imposed pursuant
to the laws enacted by the proper legislative authorities of the State. And third, they were clearly
imposed for a public purpose. There is absolutely no question that they were collected to advance
the government’s avowed policy of protecting the coconut industry. As held in Caltex
Philippines v. COA 57 and Osmeña v. Orbos, even if the money is allocated for a special
purpose and raised by special means, it is still public in character.
The source of an income is the property, activity or service that produced the income. For the
source of income to be considered as coming from the Philippines, it is sufficient that the income
is derived from activity within the Philippines.

COMMISSIONER OF INTERNAL REVENUE VS JAPAN AIR LINES, INC. AND THE

COURT OF TAX APPEAL
G.R. No. 60714 MARCH 6, 1991
J. PARAS:

The source of an income is the property, activity or service that produced the income. For the
source of income to be considered as coming from the Philippines, it is sufficient that the income
is derived from activity within the Philippines.

FACTS:

Japan Air Lines, Inc. (JAL) is a foreign corporation engaged in the business of international air
carriage. JAL had maintained an office in Manila and said office did not sell tickets but merely
for promotion of the company’s public relations and other information pertaining the attractions
of japan as tourist spots and services enjoyed in JAL airplanes. On July 17, 1957, JAL
constituted the Philippine Air Lines (PAL) as its ticket agent in the Philippines. PAL therefore
sold tickets and reservations for cargo spaces for and in behalf of JAL. On June 2, 1972, JAL
received deficiency income tax assessment notices and a demand letter from Commissioner of
the Internal Revenue (CIR) for years 1959 through 1963. On June 19, 1972, JAL protested said
assessments alleging that as a non-resident foreign corporation, it was taxable only on income
from Philippines from Philippines sources as determined under Section 37 of the Tax Code and
that it was not liable for deficiency income tax liabilities assessed. The Commissioner resolved
otherwise and in a letter-decision dated December 21, 1972, denied JAL's request for
cancellation of the assessment.

ISSUES:

Whether or not the proceeds from sales of JAL tickets sold in the Philippines by PAL Taxable as
income from sources within the Philippines

RULING:

Yes. In the case of Commissioner of Internal Revenue vs. British Overseas Airways Corporation,
it was held that the source of an income is the property, activity or service that produced the
income. For the source of income to be considered as coming from the Philippines, it is sufficient
it is derived from activity within the Philippines. In BOAC's case, the sale of tickets in the
Philippines is the activity that produces the income. The situs of the source of payments is the
Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory,
enjoying the protection accorded by the Philippine government. In consideration of such
protection, the flow of wealth should share the burden of supporting the government. There
being no dispute that JAL constituted PAL as local agent to sell its airline tickets, there can be no
conclusion other than that JAL is a resident foreign corporation, doing business in the
Philippines. Indeed, the sale of tickets is the very lifeblood of the airline business, the generation
of sales being the paramount objective (Commissioner of Internal Revenue vs. British Overseas
Airways Corporation, supra)
A taxpayer may not offset taxes due from the claims that he may have against the government.
Taxes cannot be the subject of compensation because the government and taxpayer are not
mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off.

28. SOUTH AFRICAN AIRWAYS VS COMMISSIONER OF INTERNAL REVENUE

G.R. NO. 180356 DATE: FEBRUARY 16, 2010
VELASCO, JR., J:

FACTS:
Petitioner is a foreign corporation established under the laws of the Republic of South Africa
whose principal office is located at Johannesburg International Airport. In the Philippines, it is an
internal air carrier having no landing rights in the country. It is not registered with the SEC as a
corporation, branch office, or partnership and is not licensed to do business in the Philippines.
Petitioner has a general sales agent in the Philippines, Aerotel Ltd.Corporation which sells
passage documents for compensation or commission for petitioner’s off-line flights for the
carriage of passengers and cargo between ports or points outside the territorial jurisdiction of the
Philippines. In 2000, petitioner paid about P1.7M in taxes as 2.5% of its Gross Philippine
Billings (GPB) but filed for a tax refund in 2003 with the BIR claiming that it was erroneously
paid. In 2006, CTA (1st Division) denied the petition on the ground that it is a resident foreign
corporation (RFC) engaged in trade or business in the Philippines and although it was not liable
for the 2.5% tax on GPB, it was liable to pay 32% income tax. On this ground, the CTA denied
the petitioner’s claim for refund. Petitioner avers that a deficiency tax assessment does not, in
any way, disqualify a taxpayer from claiming a tax refund since a refund claim can proceed
independently of a tax assessment and that the assessment cannot be offset by its claim for
refund.

ISSUE:
Whether or not taxes can be subjected to set-off or compensation?

RULING:
No. Precisely, petitioner questions the offsetting of its payment of the tax under Sec. 28(A)(3)(a)
with their liability under Sec. 28(A)(1), considering that there has not yet been any assessment of
their obligation under the latter provision. Petitioner argues that such offsetting is in the nature of
legal compensation, which cannot be applied under the circumstances present in this case.

The court ruled that petitioner’s argument is correct that the offsetting of its tax refund with its
alleged tax deficiency is unavailing under Art. 1279 of the Civil Code. In the case of in Francia
v. Intermediate Appellate Court, the court has consistently ruled that there can be no off-setting
of taxes against the claims that the taxpayer may have against the government. A person cannot
refuse to pay a tax on the ground that the government owes him an amount equal to or greater
than the tax being collected. The collection of a tax cannot await the results of a lawsuit against
the government. This ruling has also been reiterated in the case of Caltex Philippines, Inc. v.
Commission on Audit: . . . a taxpayer may not offset taxes due from the claims that he may have
against the government. Taxes cannot be the subject of compensation because the government
and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not
such a debt, demand, contract or judgment as is allowed to be set-off.
To continue collecting real property taxes based on valuations arrived at several years ago, in
disregard of the increases in the value of real properties that have occurred since then, is not in
consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a
sound tax system, requires that sources of revenues must be adequate to meet government
expenditures and their variations.

FRANCISCO I. CHAVEZ VS JAIME B. ONGPIN AND FIDELINA CRUZ

G.R. NO. 76778 JUNE 6, 1990
J. MEDIALDEA:

FACTS:

The petitioner, Chavez, is a taxpayer and an owner of three parcels of land. He alleges the
following: (1) that EO 73, an act providing for the collection of real property taxes based on the
1984 real property values, as provided for under Sec 21 of the Real Property Tax Code (PD 464),
as amended, accelerated the application of the general revision of assessments thereby mandating
an excessive increase in real property taxes; (2) that sheer oppression is the result of increasing
real property taxes at a period of time when harsh economic conditions prevail; and (3) that the
increase in the market values of real property as reflected in the schedule of values was brought
about only by inflation and economic recession.

Sec 21 of the PD No. 464 provides that every five years starting CY 1978, there shall be a
provincial or city revision of real property assessments. The revised assessment shall be the basis
for the computation of real property tax (RPT) for the 5 succeeding years. On the strength of the
aforementioned law, the general revision of assessments was completed in 1984. However EO
No. 1019 was issued, which deferred the collection of RPT based on the 1984 values to January
1, 1988 instead of January 1, 1985. On November 25, 1986, President Aquino issued EO73. It
states that beginning January 1, 1987, the 1984 assessments shall be the basis of the real property
collection. Thus it effectively repealed EO No. 1019.

ISSUE:

Whether or not the implementation of EO No. 73 will result to an unreasonable increase in RPT.

RULING:

No. The Court ruled that EO 73 does not impose tax nor does it increase taxes. However, the
government recognized the financial burden to the taxpayers that will result from an increase in
RPT. Hence, EO 1019 was issued which defers the implementation of the increase in RPT
resulting from the revised Real Property assessments. The Court agrees with the observation of
the Solicitor General that without EO No. 73 as a basis for collection of RPT will still be based
on 1978 revision of property values. Certainly, to continue collecting real property taxes based
on valuations arrived at several years ago, in disregard of the increases in the value of real
properties that have occurred since then, is not in consonance with a sound tax system. Fiscal
adequacy, which is one of the characteristics of a sound tax system, requires that sources of
revenues must be adequate to meet government expenditures and their variations.
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.

29. RENATO V. DIAZ AND AURORA MA. F. TIMBOL VS THE SECRETARY OF

FINANCE AND THE COMMISSIONER OF INTERNAL REVENUE
G.R. NO. 193007 DATE: July 19, 2011
ABAD, J:

FACTS:
Petitioners filed a petition for declaratory relief assailing the validity of the impending
imposition of VAT by the BIR on the collections of tollway operators. Court treated the case as
one of prohibition. Petitioners hold the view that Congress did not, when it enacted the NIRC,
intend to include toll fees within the meaning of "sale of services" that are subject to VAT; that a
toll fee is a "user's tax," not a sale of services; that to impose VAT on toll fees would amount to a
tax on public service; and that, since VAT was never factored into the formula for computing toll
fees, its imposition would violate the non-impairment clause of the constitution. The government
avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including
tollway operations; that the Court should seek the meaning and intent of the law from the words
used in the statute; and that the imposition of VAT on tollway operations has been the subject as
early as 2003 of several BIR rulings and circulars.

ISSUE:
Whether or not the imposition of VAT on tollway operators amounts to a tax on tax and not a tax
on services

RULING:
No. 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. Except for a
fraction given to the government, the toll fees essentially end up as earnings of the tollway
operators. 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.

Parenthetically, 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.