Tax 2 Prelims Reviewer

TAX 2 PRELIMS REVIEWER
2019 - 2020
JOSE RIZAL
UNIVERSITY
#GOALDIGGERS
History of Value Added Tax
Henry Cooper– Cooper Act aka Philippine Organic Act of 1902
Philippine Organic Act of 1902 – first of the 3 transient Acts that gave us our independence, the
most important there is Section 5.
Section 5. That no law shall be enacted in saidIslands which shall deprive any person of
life, liberty, or property without due process of law, or deny to any person therein the equal
protection of the laws.
That in all criminal prosecutions the accused shall enjoy the right to be heard by himself
and counsel, to demand the nature and cause of the accusation against him, to have a
speedy and public trial, to meet the witnesses face to face, and to have compulsory process
to compel the attendance of witnesses in his behalf.
That no person shall be held to answer for a criminal offence without due process of law;
and no person for the same offence shall be twice put in jeopardy of punishment, nor shall
be compelled in any criminal case to be a witness against himself.
That all persons shall before conviction be bailable by sufficient sureties, except for capital
offences.
That no law impairing the obligation of contracts shall be enacted.
That no person shall be imprisoned for debt.
That the privilege of the writ of habeas corpus shall not be suspended, unless when in
cases of rebellion, insurrection, or invasion the public safety may require it, in either of
which events the same may be suspended by the President, or by the Governor, with the
approval of the Philippine Commission, wherever during such period the necessity for such
suspension shall exist.
That no ex post facto law or bill of attainder shall be enacted.
That no law granting a title of nobility shall be enacted, and no person holding any office of
profit or trust in said Islands, shall without the consent of the Congress of the United
States, accept any present, emolument, office, or title of any kind whatever from any king,
queen, prince, or foreign State.
That excessive bail shall not be required, nor excessive fines imposed, nor cruel and
unusual punishment inflicted.
***USE AT YOUR OWN RISK JOSE RIZAL

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That the right to be secure against unreasonable searches and seizures shall not be
violated.
That neither slavery, nor involuntary servitude, except as a punishment for crime whereof
the party shall have been duly convicted, shall exist in saidIslands.
That no law shall be passed abridging the freedom of speech or of the press, or the right of
the people peaceably to assemble and petition the Government for redress of grievances.
That no law shall be made respecting an establishment of religion or prohibiting the free
exercise thereof, and that the free exercise and enjoyment of religious profession and
worship, without discrimination or preference, shall forever be allowed.
That no money shall be paid out of the Treasury except in pursuance of an appropriation
by law.
That the rule of taxation in saidIslandsshall be uniform.
That no private or local bill which may be enacted into law shall embrace more than one
subject, and that subject shall be expressed in the title of the bill.
That no warrant shall issue but upon probable cause, supported by oath or affirmation, and
particularly describing the place to be searched and the person or things to be seized.
That all money collected on any tax levied or assessed for a special purpose shall be
treated as a special fund in the Treasury and paid out for such purpose only.
Why is Section 5 of the Philippine Organic Act an important provision?
- It is an important provision because it provided the limitations to the state powers. At that
time, we are still under the American colony, and as an American Colony we are under the
jurisdiction of the US as a government. And the US government was able to weight some of
its power in favor of its citizens in Section 5, that became the Bill of Rights.
***For a student of Tax, section 5 is very important because you will learn there the first principle
of taxation, that is: THE RULE OF TAXATION SHALL BE UNIFORM.
The rule of taxation shall be UNIFORM

- That is the first declaration of the basic principle of uniformity of taxation.
Uniformity of Taxation-means that people of the same class must be tax alike.
- If you are in the same class, you must be treated alike and must be tax alike. That is in the
section 5 of the Philippine Organic Act of 1902.

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After the general election, they were able to do the nation assembly, that pave way to the
creation of the national assembly, but later on the national assembly changed to what we now
call the Philippine Legislature, particularly the house of representatives.
In 1916, US Senator Jones enacted the Philippine Autonomous Act of 1916 aka Jones Law
in the US pave way to the creation of the Philippine Legislature. This is the time when our very
own filipino citizens are elected in the Philippine legislature, so that they can enact laws that can
affect the Philippine island.
2nd basic principle of taxation –the power to tax is exercised by the legislature.
Why is this a very important part of our study?

- If wanted to be truly independent, then we must also accept the 2 nd principle, that we
cannot be truly independent if we do not have our very own Philippine legislature who can
enact laws, particularly tax laws.
Take note:we are not yet independent when we had the Philippine Autonomous Act. Also note,
that even prior to the creation of thePhilippine legislature, we were already following the
“Revenue Act” of US included what they then called the Sales Tax law. So that the one that
we follow, as far a taxation is concerned is the US Revenue Act.
The very first time, when the Philippine legislature was created in 1916, they were able to enact a
very important law, as far as taxation is concerned, that was the Income Tax Act of 1919.
Why is the Income Tax Act of 1919 very important?

- it is very important to us because it became the very first income tax law. This was not
enacted by the US legislature but by the Philippine legislature on March of 1919.
The Revenue Act is composed of different laws, it is a conglomeration of different laws from
income tax, war revenue tax, sales tax , etc.
What we only enacted in 1919 was not the entire Revenue Act, but only about income tax.
Therefore, as far as Sales tax is concerned we were still following the US Revenue Act.
Jones law promise that we will be independent, 2 US Senators: Senator Tydings and Senator
Mcduffie collaborated in order for us to have our very own independence and to create a
government that will be run by Filipinos, for Filipinos, of the Filipinos. And this is what we call now
the Commonwealth Government. It was made possible by an Act made by the 2 US Senators
which is known as Tydings-Mcduffie Act of 1934 in the Philippines it is know as the Philippine
Independence Act of 1934. This is the law that after 10 years, the Philippines will be
considered as a nation state which is breathing free from the control of the American government.

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The Commonwealth government was then presided by Manuel Luis Quezon.
First issue is operational expenses.
From 1919 to 1934 –
January 24, 1938 Manuel L. Quezon addressed the national assembly about the government’s 3
problems:
1. The Tax laws that was enacted from 1919 is no longer relevant and obsolete.
2. The tax burden is not duly distributed to the people base on their ability to pay. (Meaning
there was an uneven distribution of tax burden)
3. There was a very low tax collection.
Because of these, it gives as the 3rd principle of income tax, that is the life blood theory.
Taxes are the life blood of the government, without which the government can not exist nor
endure.
That is the reason why Quezon he assembled the national assembly to create a new law that will
address the 3 issues. And then on August of 1938, he called a special group from the executive
branch, legislative branch and private business interest to talk together, and this is what we now
called the tax commission, this is a special group who studied the tax structure of the
Philippines and at the end of the time given to them they should be able to propose action items
in order to address the 3 issues.
They were able to give a proposal report in year 1939.
The tax commission proposed 2 steps:
1. Revised the tax structures and the tax laws

2. Codification of tax laws, thus the National Internal Revenue Code of 1939
Between 1939 – 1977
Because we just copied the sales tax of US tax cascading was one of the problem the filipinos
encountered.
Tax Cascading -Sales tax was cascading, the tax that was in the sales price, the tax that was
factored in the sales price is also being tax. That is a tax on the tax.
- To increase collections at the expense of the final consumers.
This is favorable to the government to fund their operations.

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Solution on Tax Cascading:
It was solved by one German who is related to a technological communication family business, Dr.
Wilhelm Vaughn Siemens, it was already a concept in 1918, it was executed by a French by
Morris Laure in1958.
They remove the tax cascading by, removing the tax in the cost of the product,
The tax that will be imposed should not base on the entire selling price. It should only be to the
amount you added, which is the profit.
That amount that you put as an addition is what you called VAT (Value Added Tax), what you are
taxing is not the entire selling price, but the value that you added.
The Value Added Tax removed the Tax Cascading which was the problem in the Sales
Tax.
1919 -1977 going to 1978
President Marcos, raised the problem that the tax system is no longer relevant,
And it violates the 3 principles of a good tax system which are:
1. Fiscal Adequacy –the tax collection should be enough to defray the necessary expenses
of the government.
2. Administrative Feasibility – a good tax system must be administered efficiently.
3. Theoretical Justice - when you impose taxes it must be based on the ability of the tax
payers to pay.
In 1977, that was the problem, the government needed more money and there was so many laws
it was hard to administer ( Fiscal adequacy and administrative feasibility).
Marcos enactedPD1158 (National Internal Revenue Code of 1977), second codification, still
sales tax, consolidated all the separate laws to raise enough funds for the government.
On the Aquino regime, she created a revolutionary government, and did not follow the 1973
Constitution. Drafted her own Constitution, which we then called the Freedom Constitution of
1986. That became the precursor of the framework of 1987 Constitution.
On February 2, 1987 we made effective and ratified the 1987 Constitution.
EO 273which was enacted by President Aquinoin July 25, 1987.

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Why is July 25, 1987 a very important date?

- Enacted the now called the original VAT Law. We remove the sales tax structure because
the tax cascading will no longer happen if we follow the tax system.
Kapatiran Group ngManggagawasaPamahalaan filed a case against the administration

of President Aquino and particularly versus Tan (Please see digest)
-they are assailing the constitutionality of the EO 273, the group said that it was an encroachment
of the legislative power by the executive branch. It was oppressive and unjust that it violates the
rule that we’ve been believing since 1902, that the rule of taxation must be uniform, that taxation
must be equitable, the congress must evolve a progressive tax system.
Ruling:In the 1987 Constitution, it provides that the legislative power shall still be exercised by
the President until the Congress is convened. There was no assembly after the 1987 Constitution
was ratified, thus, the President can still enact laws. Therefore there is no encroachment of power
by the executive branch.
On the question that VAT is oppressive and unjust, VAT is actually the answer to the sins of the
Sales Tax System because it is tax cascading.
Thus, EO 273 is valid, legal and constitutional.
In 1994,President’s Ramos regime, he amended the EO 273 to expand the coverage of VAT, the
VAT is also known as the goods and service tax , and created RA 7716 (The expanded Value
Added Tax Law) aka eVAT Law.
It was during this time that a constitutional expert filed a case against the government.
Tolentinoet al vs. Secretary of Finance (see case digest)
He alleged that RA 7716 aka the eVAT law is unconstitutional for several reasons, In this case,
they did not assail any encroachment of legislative power, what they only assail is that the VAT is
oppressive, unjust, and regressive.
Ruling:
The petitioner claims that it is oppressive and unjust, it violates Article 6, Section 28(1) of the
Constitution:
(1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation.

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The SC ruled, if you buy the same good and same services, you will be treated similarly. The tax
that you will have will also be the same. Thus, it does not violate the rule of taxation in uniformity.
The petitioner also contends that eVAT violates the principle of progressivity of taxation, the VAT
law is regressive.
Progressive – as the amount increases, the tax rate also increases.

Regressive –the tax rate is fixed.
The constitution provides: The Congress shall evolve a progressive system of taxation.
The SC construe this as that it is not necessary to absolutely remove all the regressive taxes, but
just minimize is okay. Because the “evolve”in the provision means to allow the changes. Therefor
1 regressive tax to a million types of progressive tax is okay.
In 2005, from 10% to 12% VAT rate. They enacted RA 9337 aka reform VAT Law (RVAT
LAW)reduce the corporate VAT from 32% to 30% and increase VAT from 10% - 12%.
ABAKADA GURO vs Ermita (see digest)
No encroachment on the legislative power, what the congress gave to the President is not the law
making power, but the fact finding power. Thus, the RVAT Law is constitutional.
RA 10 963, Train Law, effective January 1, 2018.
Why do we need the VAT?

- To increment the sources of revenue for the government, in a perfect world we do not
need income tax, VAT is enough to defray the government expenses.
The Qualities of the VAT that we must remember:
1. That the VAT is actually Sales Tax.

2. The VAT is tax on consumption.
3. The VAT is a indirect tax because you can shift the tax burden from the manufacturer to
the consumer.
4. The VAT is regressive.
5. The VAT removes the Tax Cascading effect, which is the sin of the old tax system.
What is Tax Pyramiding?

- When you tax an amount and that amount has a tax on it, this is the same concept as tax
cascading effect.

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- Answered by People vs Sandiganbayan (see digest), which is directly related to RVAT Law,
tax pyramiding has no basis in the constitution and the law, the SC already said this as
early as 1920’s, this cannot be done.
VAT LAW DISCUSSION
SECTION 105 – pertains to the persons liable to VAT;

SEC 106 – Output tax on Sale of Goods or properties;
SEC 107 – Output tax on importation of goods;
SEC 108 – Output tax on Sale of Services;
SEC 109 – defer for the mean because this refer to VAT exempt transactions;
SEC 110 – Input Taxes;
SEC 111 – Presumptive input taxes
SEC 112 – Tax refunds and Tax credits;
SEC 113 – 115 – Compliance requirements.
SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters,
exchanges, leases goods or properties, renders services, and any person who imports goods shall
be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to
existing contracts of sale or lease of goods, properties or services at the time of the effectivity of
Republic Act No. 7716.
The phrase "in the course of trade or business" means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a non-stock, nonprofit private
organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered
in the Philippines by nonresident foreign persons shall be considered as being rendered in the
course of trade or business.
SECTION 105 – Pertains to the persons liable to VAT. This provision is important because this
already sets WHO are liable to VAT.
 Those who are engaged in selling, barter, exchanges, lease or use of properties, OR those
who render services in the ordinary course of business are liable to VAT. Also, those
who are importing goods are also liable to VAT. Subject to those output taxes referred to in
SEC 106 – 108.
o *Remember VAT is a Sales Tax. EO 273, enacted by Pres Aquino, effects the VAT law.

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 The seller, the barterer, the exchanger, the lessor, the service providers as well as the
importer of goods are all liable to VAT. In short, almost everything is subject to VAT.
 Now, what are those which are NOT subject to VAT? SECTION 109.
 As you all know, this is very basic in statutory construction, that if we talk about tax
statutes, in cases of doubt, always resolve it in favor of taxation and against the tax
exemption. So, if you do not see that a particular transaction is indicated in SECTION 109,
then subject it to VAT. If it falls squarely under SECTION 109, then that will be exempted.
However, the exemption under the said provision is not an exclusive list, there are other
laws that are always giving exemption. Example: the PEZA Law, exempts the Economic
Zone Registered Enterprises.
 “In case of DOUBT, TAX it.” Always resolve in favor of taxation.
 “in the course of trade or business” it means that there should be business. Like
selling, bartering, exchanging, leasing and rendering of services. All of these should be
made in the course trade or business, the business should be made with REGULARITY.
 Regularity – it happens on a regular basis. It should not be a one-time transaction, if so,
that is not in the ordinary course of trade and business. So, the keyword here is “in the
course of trade or business” for thing to be subjected to tax.
 Should the importation be in the ordinary course of business?
o SECTION 105 must be divided in to two parts –
 Those which are in the course of trade or business – here, it is required that
there is selling, bartering, exchanges, leases goods and properties, rendering
services that is in the ordinary course of trade and business.
 Importation – here, it is NOT REQUIRED to be in the ordinary course of
business to be VATable, whether it be for personal or business use. It is
VATable if there is importation. Hence, the defense of “not in the course of
trade or business” cannot be used in cases of importation of goods.
 “renders service” – this includes professional services.
 What is a SALE? Article 1458 NCC; by the contract of sale one of the contracting parties
obligates himself to transfer the ownership and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its equivalent.
o Dacion in payment – Special mode of payment. Governed by the Law on Sales. Not
exempted under SECTION 109. Hence, subject to VAT.
o Under the NIRC, Dacion in payment is a “Deemed Sale” (SECTION 106 (B))
 Generally, it is the seller who is liable primarily for VAT. Exception: the buyer is primarily
liable in cases of an importer or importation of goods. Why? Principle of territoriality is
applied.
o “primarily” – because the buyer may be liable to VAT secondary or thirdly.
Remember that VAT is an indirect tax and the amount of tax may be shifted or
passed on to the buyer. So even if the tax burden is originally with the seller, the
latter may transfer it to the buyer. However, the good thing about this is you are not
taxed on the whole price but only on the value added.
o CASE: People v. Sandiganbayan (2005)

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SEC. 106. Value-Added Tax on Sale of Goods or Properties. -

SECTION 106 – pertains to Sale of Goods or Properties. Selling, bartering, exchanging of goods
or properties in the trade or business.
 Two types of Sale –
o Actual Sale – there is actual exchange of determinate thing for a consideration. This
is subject to VAT.
o Deemed Sale – it’s not an actual sale, but the Law considers it as a Sale for the
purpose of subjecting it to VAT.
 Example: consignment (nagpatinda ka lang ng products mo) when the
products are still consigned within 60 days or after, it is deemed sold by Law.
Therefore, there is tax.
 Another example: you want to cease the operations of your business, but you
still have inventories in your warehouse. That is deemed sale.
(B) Transactions Deemed Sale. - The following transactions shall be

deemed sale:
(1) Transfer, use or consumption not in the course of business of goods or
properties originally intended for sale or for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-
registered persons;or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (60) days
following the date such goods were consigned; and
(4) Retirement from or cessation of business, with respect to inventories of
taxable goods existing as of such retirement or cessation.
SEC. 107. Value-Added Tax on Importation of Goods. –
SECTION 107 – only goods are imported not services. Whether for personal or business use,
whether or notin the course of trade or business, this is still subject to VAT.
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. –
SECTION 108 – pertains to the Sale of Services. Includes leasing.
 General Rule: if you render services, those services are subject to VAT. This
includes leasing of condominiums, properties, etc.

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SEC. 109. Exempt Transactions. – I will defer this for a while
SEC. 110. Tax Credits. –
SECTION 110 – Input tax
 Illustration –
o You sold a thing for 200 pesos, the VAT is (200 * .12 = 24) 24 pesos, this
is the output tax.
o Therefore, the output tax will only exist if there is a Sale.
o Now, the thing sold for 200 pesos was previously bought for 100 pesos.
The seller transferred the tax to you. You paid a total of 112 pesos (100
*.12 = 12) the 12 pesos is the input tax.
o There is an input tax if there is a purchase or expense. There is an output
tax if there is a Sale.
o VAT payable – deduct the input VAT from the output VAT. You do not pay
the whole 24 pesos. You only pay 12 pesos to the government.
o Is there a case where the output tax is bigger than the input tax? When
there is a LOSS.
 Gusto nanatini-retire
itongnegosyonatinkasomeronpatayongimbentaryo. Edi mag garage
sale tayo, sahalipna 100 natinibenta, 50 pesos nalang.
 So meronkang excess input tax, what do you do? Apply SECTION
112. Either tax credit or tax refund.
SEC. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose

sales are zero-rated or effectively zero-rated may, within two (2) years after the close
of the taxable quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been
applied against output tax: Provided, however, That in the case of zero-rated sales
under Section 106(A)(2)(a)(1), (2) and (b) and Section 108 (B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had been duly accounted for
in accordance with the rules and regulations of the BangkoSentral ng Pilipinas (BSP):
Provided, further, That where the taxpayer is engaged in zero-rated or effectively
zero-rated sale and also in taxable or exempt sale of goods of properties or services,
and the amount of creditable input tax due or paid cannot be directly and entirely
attributed to any one of the transactions, it shall be allocated proportionately on the
basis of the volume of sales. Provided, finally, That for a person making sales that are

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zero-rated under Section 108(B) (6), the input taxes shall be allocated ratably
between his zero-rated and non-zero-rated sales.
 You can only get a tax refund if the transaction is “Zero-Rated Transaction”
 What is the effect? Applying the first illustration above –
o We bought the thing for 100 pesos, VAT is 12 pesos. If we sold this to a VAT
exempted person. You can’t charge 12% neither can transfer the Tax to that person.
However, you can still sell the thing for 200 pesos, but the tax rate that you will use
is 0%.
o Since this is a zero-rated transaction, you can avail of the Tax refund.
o The transaction is the zero-rated, not the VAT registered person.
o QUESTION: is zero-rated the same with exempted? No. if you are VAT exempt, you
are a non-VAT registered, ibigsabihinnasa percentage tax ka mag ka-qualify
(SECTION 116).
Types of transactions - VAT SUBJECT TRANSACCTION AT 12%, VAT SUBJECT

TRANSACTION AT 0%, VAT EXEMPT TRANSACTIONS.
Types of Rates – 12% and 0%
 Export Sale –
(a) Export Sales. - The term "export sales" means:
(1) The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the goods so exported and paid
for in acceptable foreign currency or its equivalent in goods or services, and
accounted for in accordance with the rules and regulations of the BangkoSentral ng
Pilipinas (BSP);
(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery
to a resident local export-oriented enterprise to be used in manufacturing,
processing, packing or repacking in the Philippines of the said buyer's goods and
paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the BangkoSentral ng Pilipinas (BSP);
(3) Sale of raw materials or packaging materials to export-oriented enterprise whose
export sales exceed seventy percent (70%) of total annual production;
(4) Sale of gold to the BangkoSentral ng Pilipinas (BSP); and
(5) Those considered export sales under Executive Order NO. 226, otherwise known
as the "Omnibus Investment Code of 1987", and other special laws; and
(6) The sale of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations. [46]
(b) Foreign Currency Denominated Sale. - The phrase "foreign currency denominated
sale" means sale to a nonresident of goods, except those mentioned in Sections 149 and
150, assembled or manufactured in the Philippines for delivery to a resident in the

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Philippines, paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the BangkoSentral ng Pilipinas (BSP).
(c) Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to zero
rate.
 Zero-rated transaction on the sale of goods – example: export sale. government gave
exporters an incentive, since kumikita ka ng foreign currency at nag bebenefit ang Pilipinas,
hindi ka mag VAT exempt, zero-rated ka. Beneficial to sayokasi zero ang output mo,
posibleng may input ka, baka ma tax refund or tax credit ka pa. kapag VAT exempt ka kasi,
walakang refund. (Read SECTION 112 (a))
 If the export sale is made by a VAT registered person, it is zero-rated (SECTION 106). But
if it is done by a non-VAT registered person, it is VAT exempt transaction (SECTION 109
(O))
 SECTION 112
o Zero-rated – automatically zero rated. Even without BIR ruling.
o Effectively Zero-Rated – file for a zero-rating certification ruling with BIR.
 What if it is effectively zero-rated, pero di ka na approve or di ka nag file? It will be
downgraded to VAT exempt.
WHO ARE THE VAT EXEMPT ORGANIZATIONS?
 PEZA
 EPZA
 IRRI
 WHO
 SBMA
So pag nag benta ka sakanila, zero-rated ang transaction moperokailanganmomunapumunta ng

BIR para mag pa zero-rated.

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KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC.,

HERMINIGILDO DUMALAO, GERONIMO QUADRA, AND MARIO VILLANUEVA VS. HON.
BIENVENIDO TAN (CIR)
GR NO. 81311 ; JUNE 30, 1988
JUSTICE PADILLA
FACTS: The VAT is a tax levied on a wide range of goods and services. It is a tax on the value,
added by every seller, with aggregate gross annual sales of articles and/or services, exceeding
P200,00.00, to his purchase of goods and services, unless exempt. VAT is computed at the rate of
0% or 10% of the gross selling price of goods or gross receipts realized from the sale of services.
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and
producers, advance sales tax, and compensating tax on importations. The framers of EO 273 that
it is principally aimed to rationalize the system of taxing goods and services; simplify tax
administration; and make the tax system more equitable, to enable the country to attain economic
recovery.
The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was
issued. As pointed out by the Solicitor General, the Philippine sales tax system, prior to the
issuance of EO 273, was essentially a single stage value added tax system computed under the
"cost subtraction method" or "cost deduction method" and was imposed only on original sale,
barter or exchange of articles by manufacturers, producers, or importers. Subsequent sales of
such articles were not subject to sales tax. However, with the issuance of PD 1991 on 31 October
1985, a 3% tax was imposed on a second sale, which was reduced to 1.5% upon the issuance of
PD 2006 on 31 December 1985, to take effect 1 January 1986. Reduced sales taxes were imposed
not only on the second sale, but on every subsequent sale, as well. EO 273 merely increased the
VAT on every sale to 10%, unless zero-rated or exempt.
Petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in violation of
the provisions of Art. VI, sec. 28(1) of the 1987 Constitution, which states:
Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.
ISSUE: IS EXECUTIVE ORDER NO. 273, WHICH AMENDED CERTAIN SECTIONS OF

NIRC AND ADOPTED VAT, UNCONSTITUTIONAL?
RULING: NO. EO 273 SATISFIES ALL THE REQUIREMENTS OF A VALID TAX. IT IS

UNIFORM.

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A tax is considered uniform when it operates with the same force and effect in every place
where the subject may be found.
There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications for purposes of taxation;
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the
public, which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by
persons engage in business with an aggregate gross annual sales exceeding P200,000.00. Small
corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax
are sales of farm and marine products, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public.

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PEOPLE OF THE PHILIPPINES VS. SANDIGANBAYAN AND BIENVENIDO TAN
GR NO. 152532; AUGUST 16, 2005
JUSTICE PANGANIBAN
FACTS: Respondent Commissioner Bienvenido Tan allegedly approved the recommendation

concurring to the offer made by San Miguel Corporation, amounting to P10,000,000.00, in
compromise settlement in lieu of a P342,616,217.88 deficiency taxes broken down as follows:
*Specific Tax – P33,817,613.21
*Ad Valerom Tax – P308, 798, 604.67
Sandiganbayan finds the compromise agreement to have been entered into illegally, and resulted
in undue injury to the government.
In a Motion for Reconsideration, respondent Tan was acquitted for the alleged violation of Section
3(e) of RA 3019 or the Anti-Graft and Corruption Practices Act.
ISSUES:
1. WON THE ACT OF RESPONDENT IN ACCEPTING SMC’S OFFER OF COMPROMISE

FOR ITS TAX LIABILITY, DISREGARDED SECTIONS 124 AND 228 OF THE NIRC;
2. WON THE ACT OF APPROVING SMC’S APPLICATION OF THE EXCESS AD
VALOREM TAXES TO SPECIFIC TAX DEFICIENCY TAXES VALID;
RULING:
1. NO. In computing its ad valorem tax liabilities for the taxable period involved in the
present case, SMC deducted from its brewer’s gross selling price the specific tax, price
differential, and ad valorem tax. The BIR allowed the deduction of the specific tax, but not
the deduction of the price differential and ad valorem tax, thus increasing the tax base and
consequently the ad valorem tax liabilities of SMC for the said period.
Prior to and during the taxable period involved in the present case, several changes
were made in the NIRC of 1977, particularly its provisions pertaining to fermented liquor.
We must therefore trace the NIRC’s pertinent history to be able to rule properly on the
validity of SMC’s deduction of both the price differential and the ad valorem tax from the
brewer’s gross selling price.

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Section 147(A) of the NIRC, as amended by PD 1959 in 1984, provides for the
collection of a specific tax on each liter of the volume capacity of fermented liquor. In
addition to the provision on the specific tax, the first paragraph of its Section 147(B)
provides for the levying, assessment and collection of an ad valorem tax. The latter tax is
equivalent to a certain percentage of the brewer’s gross selling price, net of the specific
tax, of the product to be removed from the brewery or other place of manufacture. The ad
valorem tax shall be paid by the brewer at the same time as the specific tax.
Added in 1984 were provisions of Section 186-A governing the determination of the
gross selling price of cigarettes, as well as the administrative requirements and penalties
imposable. Such provisions shall apply to the determination of the gross selling price of
fermented liquor. Basically, this means that the amount of tax due on the fermented liquor
shall be determined by the price at which it is sold either wholesale in the factory of SMC or
directly to the public through its sales agents. If the fermented liquor is sold or allowed to
be sold wholesale by SMC in another establishment which it owns, the wholesale price in
that establishment shall determine the tax applicable to the fermented liquor sold there.
When the price is less than the cost of manufacture plus all expenses incurred, until the
fermented liquor is finally sold by SMC, such cost plus expenses shall be the basis for
determining the amount of tax to be collected.
In 1986, PD 1994 amended the NIRC of 1977 by renumbering, among others, Section
147 as Section 124. In the new Section 124, the provisions on the specific and ad valorem
taxes imposed on fermented liquors remained substantially the same, except for the tax
rates.
On July 1, 1986, Section 4 of EO 22 amended said Section 124 by essentially providing

that an ad valorem tax equivalent to a certain percentage of the brewer’s wholesale selling
price -- this time excluding the ad valorem tax -- shall be levied, assessed and collected on
fermented liquors. It was only in 1988 that EO 273 renumbered Section 124 as Section
140, and thereby amended it further to exclude also from such wholesale price the value-
added tax already imposed at the time upon the same articles.
Price Differential Deduction
Section 110 of the NIRC of 1977, as amended in 1986 by PD 1994, explicitly provides that the
excise taxes on domestic products shall be paid by the manufacturer or producer before the
removal of those products from the place of production. "It does not matter to what use the
article[s] subject to tax is put"; the excise taxes are still due, even though the articles are removed
merely for storage in some other place and are not actually sold or consumed. The intent of the
law is reiterated in several implementing regulations. This means, therefore, that the price that
should be used as the tax base for computing the ad valorem tax on fermented liquor is the price
at the brewery. After all, excise taxes are taxes on property, not on the sale of the property.
Verily, the price differential cannot be ascertained at the time the fermented liquor is removed
from the brewery, because such ascertainment will involve amounts that cannot be determined
with certainty in advance, and that vary from one commercial outlet to another. The price
differential, according to SMC, represents the cost of discounts, promotions, rebates, and
transportation. To require the inclusion of the price differential in, not its deduction from, the tax
base for purposes of computing the ad valorem tax would certainly lead to the impossible

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situation of computing for such tax, because the price differential itself cannot be determined
unless the fermented liquor is actually sold.
Hence, no ad valorem tax can ever be paid before the removal of the fermented liquor from the
place of production. This outcome cannot be countenanced, for it would be contrary to what the
law mandates -- payment before removal. It follows that the tax base to be used should be net of
the price differential. In other words, the gross selling price should be that which is charged at the
brewery prior to the removal of the fermented liquor.
Ad Valorem Tax Deduction
The taxable period covered in this case is January 1, 1985 to March 31, 1986. Prior to the
amendment of the NIRC of 1977 by EO 22 on July 1, 1986, the ad valorem tax was not excluded
from the brewer’s wholesale price. Does this mean that such tax cannot be deducted? The answer
is no.
A tax should not be imposed upon another tax. This is tax pyramiding, which has no basis either
in fact or in law.
Private respondent has shown by mathematical analysis that the inclusion of the ad valorem tax in
the tax base would only yield a circuitous manner of computation that will never end in just
one ad valorem tax figure properly chargeable against a taxpayer. Quoted verbatim, his
presentation is as follows:
"If [SMC] wants to make ₱42.7269 on a case of beer and because of price differential and specific
taxes has to fix a price of ₱51.2722 ex brewery, what would the ad valorem tax be?
"The prosecution’s method is to charge the 20% ad valorem on the selling price ex brewery of
P51.2722 and to tack that on the SMC price as follows:
‘₱51.2722 - price ex brewery
x .20
₱10.2544 - ad valorem tax
and 42.7269 - SMC price
₱52.9813 - this should be the new selling price ex
brewery but SMC only charged ₱51.2722’
"Following the prosecution’s theory, since there is a new selling price ex brewery, i.e., ₱52.9813,
the ad valorem tax should be adjusted to the new selling price or tax base or 20% of ₱52.9813,
resulting in:
‘₱42.7269 - SMC price
10.5962 - new ad valorem tax P53.3231
₱53.3231 - another new selling price ex brewery’

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"Then following the prosecution’s theory, the 20% ad valorem tax is again charged on the new
selling price ex brewery.
‘20% of ₱53.3231 the new tax base or
₱10.6646 - the new ad valorem tax
Resulting in ₱42.7269 - SMC price
10.6646 - new ad valorem tax
₱53.3915 - new selling price ex warehouse
"Therefore, the ad valorem tax is not ₱10.2544 or ₱10.5962 but ₱10.6646 ad infinitum.
"The obvious untenability of the above situation is a clear enough argument to prove that ad
valorem tax should be excluded from the tax base.
"The correct method is that used by the BIR and that is:
‘₱51.2722 - original price to public
[1.20]
= ₱42.726[8] - SMC warehouse price.’"
Expectedly, though, petitioner is unable to negate the mathematics proffered by private

respondent.
Equally important, tax pyramiding has since 1922 been rejected by this Court, the legislature,
and our tax authorities. The intent behind the law is clearly to obviate a tax imposed upon another
tax. Ratio legis est anima legis. The reason for the law is its spirit.
On the issue of compromise, the court considered the matter as an abatement or cancellation
rather than Compromise. Abatement is the “dimunition or decrease in the amount of tax
imposed”, it refers to the act of eliminating or nullifying; lessening or modigfying.
The BIR may therefore abate or cancel the whole or any unpaid portion of a tax liability,
inclusive of increments, if its assessment is excessive or erroneous; 55 or if the administration costs
involved do not justify the collection of the amount due.56 No mutual concessions need be made,
because an excessive or erroneous tax is not compromised; it is abated or canceled. Only correct
taxes should be paid.
2. YES. Ad Valorem and Specific Taxes are both Excise taxes on alcohol products.
The payment by installment of a portion of the total specific tax deficiency of SMC, in
addition to the application of its excess and unused ad valorem tax deposits to the
remaining portion, fully covered the total net specific tax shortfall. BIR committed an
oversight in failing to credit the amount of deposits to the specific tax deficiency, as well as
an error in crediting the same amount to a subsequent ad valorem tax liability. A confusion
was thus created when it issued a later assessment for the same specific tax deficiency,

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this time inclusive of increments.Proper was the BIR officials’ abatement or cancellation of
the specific taxes of SMC, after the amount of its ad valorem tax deposits had already been
credited to it.
To state that the balances of accounts pertaining to different tax deposits could only
be applied to cover certain tax liabilities upon the approval of a request for tax credit is to
validate the proposition that the acceptance of payment by installment of a portion of
the specific tax deficiency was indeed tantamount to the approval of the request. No law or
regulation prevented such approval.

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ARTURO TOLENTINO, ET. AL, VS. SECRETARY OF FINANCE AND THE COMMISSIONER
OF INTERNAL REVENUE
GR NO. 115455; OCTOBER 30, 1995
JUSTICE MENDOZA
FACTS: These are motions seeking reconsideration of our decision dismissing the petitions filed in
these cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the
Expanded Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the
several petitioners in these cases, with the exception of the Philippine Educational Publishers
Association, Inc. and the Association of Philippine Booksellers, petitioners in G.R. No. 115931.
ISSUES: WON RA 7716, EXPANDED VALUE ADDED TAX LAW, IS CONSTITUTIONAL;
2. WON RA 7716 VIOLATES PRESS FREEDOM AND RELIGIOUS LIBERTY;
3. WON RA 7716 VIOLATES DUE PROCESS, EQUAL PROTECTION AND CONTRACT

CLAUSES AND THE RULE ON TAXATION;
RULING: YES. RA 7716 IS CONSTITUTIONAL. Although the enacted bill, which strike
out the original bill from HOR, was not the same bill filed in the House of
Representatives, the bill remains a House bill and the Senate version just becomes the
text of the House bill.
Petitioners contention, that the bill should originate with the HOR, is without
merit. Revenue bills are required to originate exclusively in the House of Representatives, the
Senate cannot enact revenue measures of its own without such bills. After a revenue bill is passed
and sent over to it by the House, however, the Senate certainly can pass its own version on the
same subject matter. This follows from the coequality of the two chambers of Congress.
In sum, while Art. VI, §24 provides that all appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application, and private bills must "originate
exclusively in the House of Representatives," it also adds, "but the Senate may propose or concur
with amendments." In the exercise of this power, the Senate may propose an entirely new bill as
a substitute measure.
The law suffers from none of the infirmities attributed to it by petitioners and that its
enactment by the other branches of the government does not constitute a grave abuse of
discretion. Any question as to its necessity, desirability or expediency must be addressed to
Congress as the body which is electorally responsible, remembering that, as Justice Holmes has
said, "legislators are the ultimate guardians of the liberties and welfare of the people in quite as
great a degree as are the courts." It is not right, as petitioner in G.R. No. 115543 does in arguing

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that we should enforce the public accountability of legislators, that those who took part in passing
the law in question by voting for it in Congress should later thrust to the courts the burden of
reviewing measures in the flush of enactment. This Court does not sit as a third branch of the
legislature, much less exercise a veto power over legislation.
2. NO. The press is not exempt from the taxing power of the State and that what the
constitutional guarantee of free press prohibits are laws which single out the press or target a
group belonging to the press for special treatment or which in any way discriminate against
the press on the basis of the content of the publication, and R.A. No. 7716 is none of these.
In asserting that the press and religion was discriminated because of the non-
discriminatory taxation on the constitutionally guaranteed freedom is unconstitutional, thus the
removal of exemption to press and religious sects are unconstitutional. The VAT is, however,
different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties
or the sale or exchange of services and the lease of properties purely for revenue purposes. To
subject the press to its payment is not to burden the exercise of its right any more than to
make the press pay income tax or subject it to general regulation is not to violate its freedom
under the Constitution.
3. NO. Petitioners were claiming that the application of the tax to existing contracts of the sale
of real property by instalment or on deferred payment basis would result in substantial increases
in the monthly amortizations to be paid because of the 10% VAT. The Court, however, ruled that
authorities from numerous sources are cited by the plaintiffs, but none of them show that a lawful
tax on a new subject, or an increased tax on an old one, interferes with a contract or impairs its
obligation, within the meaning of the Constitution. Even though such taxation may affect
particular contracts, as it may increase the debt of one person and lessen the security of another,
or may impose additional burdens upon one class and release the burdens of another, still the tax
must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation
of any existing contract in its true legal sense.
On the issue of violation as to the uniformity and equitability of taxation, The

court ruled equality and uniformity of taxation means that all taxable articles or kinds of property
of the same class be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is
enough that the statute or ordinance applies equally to all persons, forms and corporations placed
in similar situation.
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative
Union of the Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law
contravenes the mandate of Congress to provide for a progressive system of taxation because the
law imposes a flat rate of 10% and thus places the tax burden on all taxpayers without regard to
their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the
VAT, are regressive. What it simply provides is that Congress shall " evolve a progressive system of

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taxation." The constitutional provision has been interpreted to mean simply that "direct taxes are .
. . to be preferred [and] as much as possible, indirect taxes should be minimized.
Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax
system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have
been prohibited with the proclamation of Art. VIII, §17(1) of the 1973 Constitution from which the
present Art. VI, §28(1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult,

if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay.
In the case of the VAT, the law minimizes the regressive effects of this imposition by providing
for zero rating of certain transactions, while granting exemptions to other transactions.

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ABAKADA GURO PARTYLIST VS. HON. EXECUTIVE SECRETARY EDUARDO ERMITA
GR NO. 168056; SEPTEMBER 5, 2005
JUSTICE AUSTRIA-MATINEZ
FACTS: The petitioners in these cases, however, question not only the wisdom of the law, but
also perceived constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments
notwithstanding, petitioners failed to justify their call for the invalidity of the law.
ABAKADA GURO questions the constitutionality of Sections 4, 5 and 6 of RA 337, amending

Sections 106, 107 and 108, of NIRC. Section 4 imposes a 10% VAT on sale of goods and
properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10%
VAT on sale of services and use or lease of properties. These questioned provisions contain a
uniform proviso authorizing the President, upon recommendation of the Secretary of Finance, to
raise the VAT rate to 12%, effective January 1, 2006, after any of the following conditions have
been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 ½%).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its
exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine
Constitution.
ISSUES: WON RA 9337 IS UNCONSTITUTIONAL; AND WON THE GIVING OF POWER TO

THE PRESIDENT, STAND-BY AUTHORITY TO RAISE THE VAT FROM 10% TO 12%
WHEN CERTAIN CONDITION IS MET, CONSTITUTES UNDUE DELEGATION OF THE
DELEGATION OF THE LEGISLATIVE POWER TO TAX;
WON RA 9337 IS UNIFORM AND EQUITABLE;
RULING: NO.
In every case of permissible delegation, there must be a showing that the delegation itself
is valid. It is valid only if the law (a) is complete in itself, setting forth therein the policy to be

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executed, carried out, or implemented by the delegate; and (b) fixes a standard — the limits of
which are sufficiently determinate and determinable — to which the delegate must conform in the
performance of his functions. A sufficient standard is one which defines legislative policy, marks its
limits, maps out its boundaries and specifies the public agency to apply it. It indicates the
circumstances under which the legislative command is to be effected. Both tests are intended to
prevent a total transference of legislative authority to the delegate, who is not allowed to step into
the shoes of the legislature and exercise a power essentially legislative.
The principle which permits the legislature to provide that the administrative agent may
determine when the circumstances are such as require the application of a law is defended upon
the ground that at the time this authority is granted, the rule of public policy, which is the essence
of the legislative act, is determined by the legislature. In other words, the legislature, as it is its
duty to do, determines that, under given circumstances, certain executive or administrative action
is to be taken, and that, under other circumstances, different or no action at all is to be taken.
What is thus left to the administrative official is not the legislative determination of what public
policy demands, but simply the ascertainment of what the facts of the case require to be done
according to the terms of the law by which he is governed. The efficiency of an Act as a
declaration of legislative will must, of course, come from Congress, but the ascertainment of the
contingency upon which the Act shall take effect may be left to such agencies as it may designate.
The legislature, then, may provide that a law shall take effect upon the happening of future
specified contingencies leaving to some other person or body the power to determine when the
specified contingency has arisen.
The rationale for this is that the preliminary ascertainment of facts as basis for the
enactment of legislation is not of itself a legislative function, but is simply ancillary to legislation.
Thus, the duty of correlating information and making recommendations is the kind of subsidiary
activity which the legislature may perform through its members, or which it may delegate to
others to perform. Intelligent legislation on the complicated problems of modern society is
impossible in the absence of accurate information on the part of the legislators, and any
reasonable method of securing such information is proper. The Constitution as a continuously
operative charter of government does not require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed
determinations which it has declared to be prerequisite to application of legislative policy to
particular facts and circumstances impossible for Congress itself properly to investigate.
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4,
5 and 6 which reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall, effective January
1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or

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(ii) National government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 ½%).
The case before the Court is not a delegation of legislative power. It is simply a delegation
of ascertainment of facts upon which enforcement and administration of the increase rate under
the law is contingent. The legislature has made the operation of the 12% rate effective January 1,
2006, contingent upon a specified fact or condition. It leaves the entire operation or non-
operation of the 12% rate upon factual matters outside of the control of the executive.
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon
the existence of any of the conditions specified by Congress. This is a duty which cannot be
evaded by the President. Inasmuch as the law specifically uses the word shall, the exercise of
discretion by the President does not come into play. It is a clear directive to impose the 12% VAT
rate when the specified conditions are present. The time of taking into effect of the 12% VAT rate
is based on the happening of a certain specified contingency, or upon the ascertainment of certain
facts or conditions by a person or body other than the legislature itself.
Congress simply granted the Secretary of Finance the authority to ascertain the existence
of a fact, namely, whether by December 31, 2005, the value-added tax collection as a percentage
of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%)
or the national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1½%). If either of these two instances has occurred, the Secretary of Finance,
by legislative mandate, must submit such information to the President. Then the 12% VAT rate
must be imposed by the President effective January 1, 2006. There is no undue delegation of
legislative power but only of the discretion as to the execution of a law. This is
constitutionally permissible. Congress does not abdicate its functions or unduly delegate
power when it describes what job must be done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently the only way in which the legislative process
can go forward.
ON THE ISSUE OF UNIFORMITY AND EQUITABILITY;
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%)
on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and
108, respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and
properties, importation of goods, and sale of services and use or lease of properties. These same
sections also provide for a 0% rate on certain sales and transaction.
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate
of 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales or
receipts not exceeding ₱1,500,000.00. Also, basic marine and agricultural food products in their
original state are still not subject to the tax, thus ensuring that prices at the grassroots level will
remain accessible.
CONCLUSION

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It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a
first-aid measure to resuscitate an economy in distress. The Court is neither blind nor is it turning
a deaf ear on the plight of the masses. But it does not have the panacea for the malady that the
law seeks to remedy. As in other cases, the Court cannot strike down a law as unconstitutional
simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the
judiciary should stand ready to afford relief. There are undoubtedly many wrongs the judicature
may not correct, for instance, those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies
for all political or social ills; We should not forget that the Constitution has judiciously allocated
the powers of government to three distinct and separate compartments; and that judicial
interpretation has tended to the preservation of the independence of the three, and a zealous
regard of the prerogatives of each, knowing full well that one is not the guardian of the others
and that, for official wrong-doing, each may be brought to account, either by impeachment, trial
or by the ballot box.
The words of the Court in Vera vs. Avelino holds true then, as it still holds true now. All things
considered, there is no raison d'être for the unconstitutionality of R.A. No. 9337.

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TAX 2 PRELIMS REVIEWER

Henry Cooper– Cooper Act aka Philippine Organic Act of 1902

That no law impairing the obligation of contracts shall be enacted.

That no person shall be imprisoned for debt.

That no ex post facto law or bill of attainder shall be enacted.

***USE AT YOUR OWN RISK JOSE RIZAL

That the rule of taxation in saidIslandsshall be uniform.

Why is Section 5 of the Philippine Organic Act an important provision?

The rule of taxation shall be UNIFORM

***USE AT YOUR OWN RISK JOSE RIZAL

Why is this a very important part of our study?

Why is the Income Tax Act of 1919 very important?

***USE AT YOUR OWN RISK JOSE RIZAL

First issue is operational expenses.

From 1919 to 1934 –

They were able to give a proposal report in year 1939.

The tax commission proposed 2 steps:

1. Revised the tax structures and the tax laws

Between 1939 – 1977

- To increase collections at the expense of the final consumers.

This is favorable to the government to fund their operations.

***USE AT YOUR OWN RISK JOSE RIZAL

Solution on Tax Cascading:

1919 -1977 going to 1978

On February 2, 1987 we made effective and ratified the 1987 Constitution.

EO 273which was enacted by President Aquinoin July 25, 1987.

***USE AT YOUR OWN RISK JOSE RIZAL

Why is July 25, 1987 a very important date?

Kapatiran Group ngManggagawasaPamahalaan filed a case against the administration

Thus, EO 273 is valid, legal and constitutional.

Tolentinoet al vs. Secretary of Finance (see case digest)

***USE AT YOUR OWN RISK JOSE RIZAL

Progressive – as the amount increases, the tax rate also increases.

ABAKADA GURO vs Ermita (see digest)

RA 10 963, Train Law, effective January 1, 2018.

Why do we need the VAT?

The Qualities of the VAT that we must remember:

1. That the VAT is actually Sales Tax.

What is Tax Pyramiding?

***USE AT YOUR OWN RISK JOSE RIZAL

VAT LAW DISCUSSION

SECTION 105 – pertains to the persons liable to VAT;

***USE AT YOUR OWN RISK JOSE RIZAL

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SEC. 106. Value-Added Tax on Sale of Goods or Properties. -

(B) Transactions Deemed Sale. - The following transactions shall be

SEC. 107. Value-Added Tax on Importation of Goods. –

SECTION 108 – pertains to the Sale of Services. Includes leasing.

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SEC. 109. Exempt Transactions. – I will defer this for a while

SEC. 110. Tax Credits. –

SECTION 110 – Input tax

SEC. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose

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Types of transactions - VAT SUBJECT TRANSACCTION AT 12%, VAT SUBJECT

Types of Rates – 12% and 0%

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WHO ARE THE VAT EXEMPT ORGANIZATIONS?

So pag nag benta ka sakanila, zero-rated ang transaction moperokailanganmomunapumunta ng

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KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC.,