Chavez vs.

Ongpin

Facts: Section 21 of Presidential Decree 464 provides that every 5 years starting calendar year 1978, there shall be
a provincial or city general revision of real property assessments.
The general revision was completed in 1984.
On November 25, 1986, President Corazon Aquino issued EO 73 stating that beginning January 1, 1987, the 1984
assessments shall be the basis of real property taxes.
Francisco Chavez, a taxpayer and landowner, questioned the constitutionality of EO 74. He alleges that it will bring
unreasonable increase in real property taxes.
ISSUE: WoN EO 73 is unconstitutional.
HELD: NO. Without EO 73, the basis for collection of real property taxes will still be the 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 revenue must be
adequate to meet government expenditures and their variations. 

Renato Diaz vs. The Secretary of Finance

Facts: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for
declaratory relief1 assailing the validity of the impending imposition of value-added tax (VAT) by the
Bureau of Internal Revenue (BIR) on the collections of tollway operators.

Petitioners assert that the substantiation requirements for claiming input VAT make the VAT on
tollway operations impractical and incapable of implementation. They cite the fact that, in order to
claim input VAT, the name, address and tax identification number of the tollway user must be
indicated in the VAT receipt or invoice. The manner by which the BIR intends to implement the VAT
– by rounding off the toll rate and putting any excess collection in an escrow account – is also illegal,
while the alternative of giving "change" to thousands of motorists in order to meet the exact toll rate
would be a logistical nightmare. Thus, according to them, the VAT on tollway operations is not
administratively feasible.

ISSUE: WoN the imposition of VAT on tollway operators is not administratively feasible and cannot be
implemented.

HELD: Administrative feasibility is one of the canons of a sound tax system. It simply means that the
tax system should be capable of being effectively administered and enforced with the least
inconvenience to the taxpayer. Non-observance of the canon, however, will not render a tax
imposition invalid "except to the extent that specific constitutional or statutory limitations are
impaired."34 Thus, even if the imposition of VAT on tollway operations may seem burdensome to
implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or the
Constitution.

CIR vs. Fortune Tobacco

Facts: Prior to January 1, 1997, the excises taxes on cigarettes were in the form of ad valorem taxes,
pursuant to Section 142 of the 1977 National Internal Revenue Code (1977 Tax Code). Beginning January
1, 1997, RA 8240 took effect and a shift from ad valorem to specific taxes was made. A portion of Section
142(c) of the 1977 Tax Code, as amended by RA 8240, reads in part:

“The specific tax from any brand of cigarettes within the next three (3) years of effectivity of this Act
shall not be lower than the tax [which] is due from each brand on October 1, 1996.

xxx

The rates of specific tax on cigars and cigarettes under paragraphs (1), (2), (3) and (4) hereof, shall be
increased by twelve percent (12%) on January 1, 2000.”

To implement the 12% increase in specific taxes mandated under Section 145 of the 1997 Tax Code and
again pursuant to its rule-making powers, the CIR issued RR 17-99, which reads partly:

“Provided, however, that the new specific tax rate for any existing brand of cigars [and] cigarettes
packed by machine, distilled spirits, wines and fermented liquors shall not be lower than the excise tax
that is actually being paid prior to January 1, 2000.”

Pursuant to these laws, respondent Fortune Tobacco Corporation paid in advance excise taxes and filed
an administrative claim for tax refund with the CIR for erroneously and/or illegally collected taxes in the
amount of P491 million.

In its decision, the CTA First Division ruled in favor of Fortune Tobacco and granted its claim for refund.
The CTA First Divisions ruling was upheld on appeal by the CTA en banc. The CIR’s motion for
reconsideration of the CTA en banc’s decision was denied in a resolution.

Issue: Whether or not Section 1 of RR 17-99 is an unauthorized administrative legislation on the part of
the CIR.

Ruling: Yes. The proviso in Section 1 of RR 17-99 clearly went beyond the terms of the law it was
supposed to implement, and therefore entitles Fortune Tobacco to claim a refund of the overpaid excise
taxes collected pursuant to this provision.

The rule on uniformity of taxation is violated by the proviso in Section 1, RR 17-99. Uniformity in
taxation requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in
privileges and liabilities. Although the brands all belong to the same category, the proviso in Section 1,
RR 17-99 authorized the imposition of different (and grossly disproportionate) tax rates. It effectively
extended the qualification stated in the third paragraph of Section 145(c) of the 1997 Tax Code that was
supposed to apply only during the transition period. In the process, the CIR also perpetuated the
unequal tax treatment of similar goods that was supposed to be cured by the shift from ad valorem to
specific taxes.

CIR vs Algue
Facts: The record shows that on January 14, 1965, the private respondent, a domestic corporation
engaged in engineering, construction and other allied activities, received a letter from the petitioner
assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and
1959.  On January 18, 1965, Algue flied a letter of protest or request for reconsideration. On March
1

12, 1965, a warrant of distraint and levy was presented to the private respondent, through its
counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest. 

On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the
protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be
served.  Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the
5

Commissioner of Internal Revenue with the Court of Tax Appeals. 6

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because
it was not an ordinary reasonable or necessary business expense; that these payments are fictitious
because most of the payees are members of the same family in control of Algue. It is argued that no
indication was made as to how such payments were made, whether by check or in cash, and there
is not enough substantiation of such payments. In short, the petitioner suggests a tax dodge, an
attempt to evade a legitimate assessment by involving an imaginary deduction.

ISSUE: The main issue in this case is whether or not the Collector of Internal Revenue correctly
disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business
expenses in its income tax returns.

HELD: NO! While the doctrine of symbiotic relationship describes that Every person who is able to
must contribute his share in the running of the government. The government for its part, is expected
to respond in the form of tangible and intangible benefits intended to improve the lives of the people
and enhance their moral and material values. This symbiotic relationship is the rationale of taxation
and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat
of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.

CIR vs. BPI

Facts: In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR)
assessed respondent Bank of the Philippine Islands’ (BPI’s) 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, replied as follows:
 1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed,
why it is being assessed a deficiency. The very purpose of a deficiency assessment is to
inform taxpayer why he has incurred a deficiency so that he can make an intelligent decision
on whether to pay or to protest the assessment.

We therefore request that the examiner concerned be required to state, even in the briefest
form, why he believes the taxpayer has a deficiency documentary and percentage taxes, and
as to the percentage tax, it is important that the taxpayer be informed also as to what
particular percentage tax the assessment refers to.

On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that: although in all
respects, your letter failed to qualify as a protest under Revenue Regulations No. 12-85 and
therefore not deserving of any rejoinder by this office as no valid issue was raised against the validity
of our assessment… still we obliged to explain the basis of the assessments.

xxx xxx xxx

… this constitutes the final decision of this office on the matter. 8

On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIR’s May 8,
1991 letter.9 This was denied in a letter dated December 12, 1991, received by BPI on January 21,
1992.10

On February 18, 1992, BPI filed a petition for review in the CTA.11 In a decision dated November 16,
1995, the CTA dismissed the case for lack of jurisdiction since the subject assessments had become
final and unappealable. The CTA ruled that BPI failed to protest on time under Section 270 of the
National Internal Revenue Code (NIRC) of 1986 and Section 7 in relation to Section 11 of RA
1125.12 It denied reconsideration in a resolution dated May 27, 1996.

On appeal, the CA reversed the tax court’s decision and resolution and remanded the case to the
CTA14 for a decision on the merits.15 It ruled that the October 28, 1988 notices were not valid
assessments because they did not inform the taxpayer of the legal and factual bases therefor. It
declared that the proper assessments were those contained in the May 8, 1991 letter which provided
the reasons for the claimed deficiencies.

ISSUES: 1) whether or not the assessments issued to BPI for deficiency percentage and
documentary stamp taxes for 1986 had already become final and unappealable and

2) whether or not BPI was liable for the said taxes.

HELD: YES. Considering that the October 28, 1988 notices were valid assessments, BPI should
have protested the same within 30 days from receipt thereof. The December 10, 1988 reply it sent to
the CIR did not qualify as a protest since the letter itself stated that "[a]s soon as this is explained
and clarified in a proper letter of assessment, we shall inform you of the taxpayer’s decision on
whether to pay or protest the assessment."36 Hence, by its own declaration, BPI did not regard
this letter as a protest against the assessments. As a matter of fact, BPI never deemed this a protest
since it did not even consider the October 28, 1988 notices as valid or proper assessments.

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. Thus, the CTA
correctly dismissed BPI’s appeal for lack of jurisdiction. BPI was, from then on, barred from disputing
the correctness of the assessments or invoking any defense that would reopen the question of its
liability on the merits.

Either way (whether or not a protest was made), we cannot absolve BPI of its liability under the
subject tax assessments.

We realize that these assessments (which have been pending for almost 20 years) involve a
considerable amount of money. Be that as it may, we cannot legally presume the existence of
something which was never there. The state will be deprived of the taxes validly due it and the public
will suffer if taxpayers will not be held liable for the proper taxes assessed against them:

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.

Chamber of Real Estate vs Executive Secretary Romulo

Facts: Petitioner is an association of real estate developers and builders in the Philippines. Petitioner
assails the validity of the imposition of minimum corporate income tax (MCIT) on corporations and
creditable withholding tax (CWT) on sales of real properties classified as ordinary assets.

Petitioner asserts that the enumerated provisions of the subject revenue regulations violate the due
process clause because, like the MCIT, the government collects income tax even when the net
income has not yet been determined. They contravene the equal protection clause as well because
the CWT is being levied upon real estate enterprises but not on other business enterprises, more
particularly those in the manufacturing sector.

ISSUE: whether or not the imposition of the MCIT on domestic corporations is unconstitutional and

whether or not the imposition of CWT on income from sales of real properties classified as ordinary
assets under RRs 2-98, 6-2001 and 7-2003, is unconstitutional.

HELD: No. Taxes are the lifeblood of the government. Without taxes, the government can neither
exist nor endure. The exercise of taxing power derives its source from the very existence of the
State whose social contract with its citizens obliges it to promote public interest and the common
good.33

Taxation is an inherent attribute of sovereignty.34 It is a power that is purely legislative.35 Essentially,

this means that in the legislature primarily lies the discretion to determine the nature (kind), object
(purpose), extent (rate), coverage (subjects) and situs (place) of taxation. 36 It has the authority to
prescribe a certain tax at a specific rate for a particular public purpose on persons or things within its
jurisdiction. In other words, the legislature wields the power to define what tax shall be imposed, why
it should be imposed, how much tax shall be imposed, against whom (or what) it shall be imposed
and where it shall be imposed.
As a general rule, the power to tax is plenary and unlimited in its range, acknowledging in its very
nature no limits, so that the principal check against its abuse is to be found only in the responsibility
of the legislature (which imposes the tax) to its constituency who are to pay it. 37 Nevertheless, it is
circumscribed by constitutional limitations. At the same time, like any other statute, tax legislation
carries a presumption of constitutionality.

The equal protection clause under the Constitution means that "no person or class of persons shall
be deprived of the same protection of laws which is enjoyed by other persons or other classes in the
same place and in like circumstances."85 Stated differently, all persons belonging to the same class
shall be taxed alike. It follows that the guaranty of the equal protection of the laws is not violated by
legislation based on a reasonable classification. Classification, to be valid, must (1) rest on
substantial distinctions; (2) be germane to the purpose of the law; (3) not be limited to existing
conditions only and (4) apply equally to all members of the same class.86

The taxing power has the authority to make reasonable classifications for purposes of
taxation.87 Inequalities which result from a singling out of one particular class for taxation, or
exemption, infringe no constitutional limitation. 88 The real estate industry is, by itself, a class and can
be validly treated differently from other business enterprises.

Planters vs Fertiphil

FACTS: Petitioner PPI and private respondent Fertiphil are private corporations
incorporated under Philippine laws.  They are both engaged in the importation and
distribution of fertilizers, pesticides and agricultural chemicals.

On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers,
issued LOI No. 1465 which provided, among others, for the imposition of a capital
recovery component (CRC) on the domestic sale of all grades of fertilizers in the
Philippines.  The LOI provides:

The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing
formula a capital contribution component of not less than P10 per bag.  This capital
contribution shall be collected until adequate capital is raised to make PPI viable.  Such
capital contribution shall be applied by FPA to all domestic sales of fertilizers in the
Philippines.

Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic
market to the Fertilizer and Pesticide Authority (FPA).  FPA then remitted the amount
collected to the Far East Bank and Trust Company, the depositary bank of PPI.
Fertiphil paid P6,689,144 to FPA from July 8, 1985 to January 24, 1986.

After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy.
With the return of democracy, Fertiphil demanded from PPI a refund of the amounts it
paid under LOI No. 1465, but PPI refused to accede to the demand.

Unreasonable, oppressive, invalid and an unlawful imposition that amounted to a denial

of due process of law. Fertiphil alleged that the LOI solely favored PPI, a privately
owned corporation, which used the proceeds to maintain its monopoly of the fertilizer
industry.

In its Answer, FPA, through the Solicitor General, countered that the issuance of LOI
No. 1465 was a valid exercise of the police power of the State in ensuring the stability of
the fertilizer industry in the country.  It also averred that Fertiphil did not sustain any
damage from the LOI because the burden imposed by the levy fell on the ultimate
consumer, not the seller.

ISSUE: LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF

ASSURING THE FERTILIZER SUPPLY AND DISTRIBUTION IN THE COUNTRY,
AND FOR BENEFITING A FOUNDATION CREATED BY LAW TO HOLD IN TRUST
FOR MILLIONS OF FARMERS THEIR STOCK OWNERSHIP IN PPI CONSTITUTES
A VALID LEGISLATION PURSUANT TO THE EXERCISE OF TAXATION AND
POLICE POWER FOR PUBLIC PURPOSES.

  The levy was imposed to pay the corporate debt of PPI. Fertiphil also argues that,
even if the LOI is enacted under the police power, it is still unconstitutional because it
did not promote the general welfare of the people or public interest.

Police power and the power of taxation are inherent powers of the State.  These powers
are distinct and have different tests for validity.  Police power is the power of the State
to enact legislation that may interfere with personal liberty or property in order to
promote the general welfare, while the power of taxation is the power to levy taxes to be
used for public purpose.  The main purpose of police power is the regulation of a
behavior or conduct, while taxation is revenue generation.  The “lawful subjects” and
“lawful means” tests are used to determine the validity of a law enacted under the police
power.  The power of taxation, on the other hand, is circumscribed by inherent and
constitutional limitations.

While it is true that the power of taxation can be used as an implement of police power,
the primary purpose of the levy is revenue generation.  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.