Tax 1 Tabulated Digests
Tax 1 Tabulated Digests
DEFINITION OF TAXATION to the same class. Since the 20% discount applies to all senior citizens and WON the imposition of amusement taxes on admission fees to resorts, swimming
persons with disability equally, and the tax deduction scheme applies to all pools, bath houses, hot springs, and tourist spots is valid for being "amusement
Southern Luzon Drug Corp. vs DSWD et al establishments granting the discounts, there is no issue on the uniformity of the places" under the Local Government Code? NO
R.A. No. 7432 tax measure. The power to tax "is an attribute of sovereignty," and as such, inheres in the
o grants 20% discount on the purchase of medicines to a senior citizen, who State. Such, however, is not true for provinces, cities, municipalities and
must be at least 60 years old and has an annual income of not more than Likewise, the tax deduction is not confiscatory or arbitrary. While the barangays as they are not the sovereign; rather, they are mere “territorial and
P60,000.00 establishments cannot recover the full cost of the granted discount, they are still political subdivisions of the Republic of the Philippines.” It is settled that a
o To recoup the amount given as discount, covered establishments can claim an not at a full loss as they may claim the cost as a tax deduction from their gross municipal corporation unlike a sovereign state is clothed with no inherent power
equal amount as tax credit which can be applied against the income tax due income, and they are free to adjust prices and costs of their products. of taxation. The power of a province to tax is limited to the extent that such
from them. power is delegated to it either by the Constitution or by statute. And the power
Paseo Realty and Development Corp vs CA when granted is to be construed in strictissimi juris. Any doubt or ambiguity
R.A. No. 9257 On April 16, 1990, petitioner filed its ITR for the calendar year 1989 declaring arising out of the term used in granting that power must be resolved against the
o retained the 20% discount on the purchase of medicines but removed the a gross income of P1,855,000.00, deductions of P1,775,991.00, net income of municipality.
annual income ceiling thereby qualifying all senior citizens to the privileges P79,009.00, an income tax due thereon in the amount of P27,653.00, prior year’s
under the law excess credit of P146,026.00, and creditable taxes withheld in 1989 of Pursuant to Section 5, Article X of the 1987 Constitution, the power to tax is no
o modified the tax treatment of the discount granted to senior citizens, from tax P54,104.00 or a total tax credit of P200,130.00 and credit balance of longer vested exclusively on Congress; local legislative bodies are now given
credit to tax deduction from gross income, computed based on the net cost of P172,477.00. On November 14, 1991, petitioner filed with respondent a claim direct authority to levy taxes, fees and other charges. Nevertheless, such
goods sold or services rendered. for ―the refund of excess creditable withholding and income taxes for the years authority is “subject to such guidelines and limitations as the Congress may
o Some drug store owners and corporations claimed that such change affected 1989 and 1990 in the aggregate amount of P147,036.15. On December 27, 1991 provide.”
the profitability of their business. Thus, Carlos Superdrug and other alleging that the prescriptive period for refunds for 1989 would expire on
corporation and proprietors operating drugstores in the Philippines, filed a December 30, 1991 and that it was necessary to interrupt the prescriptive period, Section 133 (i) of the LGC prohibits the levy of percentage taxes “except as
Petition for Prohibition with Prayer for Temporary Restraining Order (TRO) petitioner filed with the respondent Court of Tax Appeals a petition for review otherwise provided” by the LGC. Section 140 of the LGC provides, “The
and/or Preliminary Injunction. However, the Court upheld the praying for the refund of “P54,104.00 representing creditable taxes withheld province may levy an amusement tax to be collected from the proprietors,
constitutionality of the assailed provision, holding that the same is a legitimate from income payments of petitioner for the calendar year ending December 31, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia,
exercise of police power. 1989.” and other places of amusement …” Since resorts, swimming pools, bath houses,
WON the petitioner can claim the refund of its creditable taxes withheld in 1989 hot springs, and tourist spots (subject matter of the case) are not among those
RA No. 9442, amending the “Magna Carta for Disabled Persons” as the same had been allegedly applied against its 1990 tax due. NO places expressly mentioned, then we determine whether they belong to “other
o Included the grant of 20% discount on the purchase of medicines, similar to The grant of a refund is founded on the assumption that the tax return is valid, places of amusement.” As defined by the Code, “Amusement Places” include
that of the senior citizens’ to PWDs. i.e., that the facts stated therein are true and correct. Without the tax return, it is theaters, cinemas, concert halls, circuses and other places of amusement where
error to grant a refund since it would be virtually impossible to determine one seeks admission to entertain oneself by seeing or viewing the show or
WON treating the 20% discount as tax deduction rather than tax credit a valid whether the proper taxes have been assessed and paid. It is axiomatic that a performances. Considering these, it is clear that resorts, swimming pools, bath
exercise of the power of taxation? YES claimant has the burden of proof to establish the factual basis of his or her claim houses, hot springs and tourist spots cannot be considered venues primarily
The power of taxation is an inherent and indispensable power of the State. As for tax credit or refund. Tax refunds, like tax exemptions, are construed strictly “where one seeks admission to entertain oneself by seeing or viewing the show
taxes are the “lifeblood of the government”, the power of the legislature is against the taxpayer. or performances.”
unlimited and plenary. The legislature is given a wide range of discretion in
determining what to tax, the purpose of the tax, how much the tax will be, who Taxation is a destructive power which interferes with the personal and property Hence, they cannot be considered as among the ‘other places of amusement’
will be taxed, and where the tax will be imposed. The State’s power to tax is rights of the people and takes from them a portion of their property for the contemplated by Section 140 of the LGC and which may properly be subject to
limited by the Constitution. Taxes must be uniform and equitable, and must not support of the government. And since taxes are what we pay for civilized amusement taxes.
be confiscatory or arbitrary. It must be “exercised reasonably and in accordance society, or are the lifeblood of the nation, the law frowns against exemptions
with the prescribed procedure.” from taxation and statutes granting tax exemptions are thus construed NATURE OF POWER OF TAXATION
strictissimi juris against the taxpayer and liberally in favor of the taxing
The determination that the cost of the 20% discount will be recovered as a tax authority. A claim of refund or exemption from tax payments must be clearly Concurring and Dissenting Opinion of Justice Leonen in Manila Memorial
deduction instead of a tax credit is within the legislative’s power to tax. It is a shown and be based on language in the law too plain to be mistaken. Elsewise Park, Inc. et al vs Sec of DSWD and DOF
determination of the method of collection of taxes. The legislative has the power stated, taxation is the rule, exemption therefrom is the exception. As a general rule, the power to tax is plenary and unlimited in its range,
to determine if particular costs should be treated as deductions or if it entitles acknowledging in its very nature no limits, so that the principal check against its
taxpayers to credits. In this case, the Congress deemed the tax deduction as the abuse is to be found only in the responsibility of the legislature (which imposes
Pelizloy Realty Corp vs Province of Benguet
better option. There is no showing that this option is violative of any of the the tax) to its constituency who are to pay it. Nevertheless, it is circumscribed
Pelizloy owns Palm Grove Resort, which is designed for recreation and which
constitutional limitations on the power to tax. by constitutional limitations.
has facilities like swimming pools, a spa and function halls. The Prov. Board of
The Tax Deduction Scheme is uniform and equitable. Uniformity of taxation
the Prov. of Benguet approved the Benguet Revenue Code of 2005 ("Tax
means that all subjects of taxation similarly situated are to be treated alike both THEORIES OF TAXATION
Ordinance"), which levies a 10% amusement tax on gross receipts from
in privileges and liabilities. The taxes are uniform if: (1) the standards used are
admissions to "resorts, swimming pools, bath houses, hot springs and tourist
substantial and not arbitrary, (2) the categorization is germane to the purpose of CIR vs Metro Star Suprema Inc
spots." Pelizloy then argued that such imposition of 10% amusement tax is an
the law, (3) the law applies, all things being equal, to both present and future
ultra vires act on the part of the Province of Benguet.
conditions, and (4) the classification applies equally well to all those belonging
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Metro Star Superama was audited for taxable year 1999 and received a right to complain and the courts will then come to his succor. For all the void. Ordinance 23 levies and collects from soft drinks producers and
Preliminary 15-day Letter on November 15, 2001. On April 11, 2002, it received awesome power of the tax collector, he may still be stopped in his tracks if the manufacturers a tax of 1/16 of a centavo for every bottle of soft drink corked,
a Formal Letter of Demand dated April 3, 2002. MSS argued that it did not taxpayer can demonstrate that the law has not been observed. and Ordinance 27 levies and collects on soft drinks produced or manufactured
receive a Pre-Assessment Notice. within the territorial jurisdiction of this municipality a tax of P0.01 on each
Was the Petitioner accorded the required due process? No PURPOSE AND OBJECTIVE OF TAXATION gallon of volume capacity. Aside from the undue delegation of authority,
Since the Petitioner denied receipt of the Pre-Assessment Notice, the burden of appellant contends that it allows double taxation, and that the subject ordinances
proving the same shifts to the BIR. To raise the presumption of receipt, it must McCulloch vs Maryland are void for they impose percentage or specific tax.
be shown that (a) the letter was properly addressed with postage prepaid and (b) The power of taxation involves the power to destroy. (Marshall Dictum) WON there was undue delegation? NONE
that it was mailed. If receipt is denied, the BIR must then show actual receipt It is settled that the power of taxation is an essential and inherent attribute of
through presentation of the registry receipt or, if the same cannot be located, at Panhandle Oil C. vs Mississippi sovereignty, belonging as a matter of right to every independent government,
least a certification from the Bureau of Posts. The power of taxation does not involve the power to destroy as long as this (SC) without being expressly conferred by the people. It is a power that is purely
Court sits. (Holmes Dictum) legislative. The exception, however, lies in the case of municipal corporations,
It is an elementary rule enshrined in the 1987 Constitution that no person shall to which, said theory does not apply. Legislative powers may be delegated to
be deprived of property without due process of law. In balancing the scales Reyes vs Almanzor et al local governments in respect of matters of local concern. By necessary
between the power of the State to tax and its inherent right to prosecute implication, the legislative power to create political corporations for purposes of
Petitioners are owners of parcels of land leased to tenants. RA 6359 was enacted
perceived transgressors of the law on one side, and the constitutional rights of a prohibiting for 1 year an increase in monthly rentals of dwelling units and said local self-government carries with it the power to confer on such local
citizen to due process of law and the equal protection of the laws on the other, governmental agencies the power to tax.
Act also disallowed ejectment of lessees upon the expiration of the usual period
the scales must tilt in favor of the individual, for a citizen’s right is amply
of lease. City Assessor of Manila assessed the value of petitioner’s property
protected by the Bill of Rights under the Constitution. Thus, while taxes are the Under the New Constitution, local governments are granted the autonomous
based on the schedule of market values duly reviewed by the Secretary of
lifeblood of the government, the power to tax has its limits, in spite of all its authority to create their own sources of revenue and to levy taxes. Section 5,
Finance. The revision entailed an increase to the tax rates and petitioners averred
plenitude. Article XI provides: "Each local government unit shall have the power to create
that the reassessment imposed upon them greatly exceeded the annual income
its sources of revenue and to levy taxes, subject to such limitations as may be
derived from their properties.
CIR vs Algue provided by law." Withal, it cannot be said that Section 2 of Republic Act No.
Is the approach on tax assessment used by the City Assessor reasonable? NO
The BIR assessed Algue a total amount of delinquency taxes of Php 83,183.85 2264 emanated from beyond the sphere of the legislative power to enact and vest
The taxing power is an attribute of sovereignty. However, the power to tax is
for the years 1958 and 1959. It contends that the company's claimed deduction in local governments the power of local taxation.
not unconfined as there are restrictions. The due process and equal protection
of Php 75,000 in the form of promotional fees is disallowed because it was not clauses of the Constitution limit this power. If it were otherwise, there would
ordinary reasonable or necessary business expenses. be truth to the Marshall’s Dictum that “the power to tax involves the power to Tio vs Videogram Regulatory Board
WON the BIR correctly disallowed the deduction? NO destroy.” The web or unreality spun from Marshall's famous dictum was brushed PD No. 1987 was enacted which gave broad powers to the VRB to regulate and
The burden is on the taxpayer to prove the validity of the claimed deduction. away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not supervise the videogram industry. The said law sought to minimize the
The promotional fees were necessary and reasonable in the light of the efforts the power to destroy while this Court sits.” So it is in the Philippines. economic effects of piracy. There was a need to regulate the sale of videograms
exerted by the payees in the inducement of investors to venture in an as it has adverse effects to the movie industry. The proliferation of videograms
experimental enterprise. Thus, the payees should be sufficiently recompensed. The laws should operate equally and uniformly on all persons under similar has significantly lessened the revenue being acquired from the movie industry,
circumstances or that all persons must be treated in the same manner, the and that such loss may be recovered if videograms are to be taxed. Section 10
Taxes are the lifeblood of the government and so should be collected without conditions not being different both in the privileges conferred and the liabilities of the PD imposes a 30% tax on the gross receipts payable to the LGUs.
unnecessary hindrance. On the other hand, such collection should be made in imposed. In this case, the market value of properties covered by P.D. No. 20 WON the imposition of tax is valid? YES
accordance with law as any arbitrariness will negate the very reason for cannot be equated with the market value of properties not covered. The former A tax does not cease to be valid merely because it regulates, discourages, or even
government itself. It is therefore necessary to reconcile the apparently has naturally a much lesser market value in view of the rental restrictions. It is definitely deters the activities taxed. The power to impose taxes is one so
conflicting interests of the authorities and the taxpayers so that the real purpose therefore necessary to reconcile the apparently conflicting interests of the unlimited in force and so searching in extent, that the courts scarcely venture to
of taxation, which is the promotion of the common good, may be achieved. authorities and the taxpayers so that the real purpose of taxation, which is the declare that it is subject to any restrictions whatever, except such as rest in the
promotion of the common good, may be achieved. Consequently, it stands to discretion of the authority which exercises it.
It is said that taxes are what we pay for civilized society. Without taxes, the reason that petitioners who are burdened by the government by its Rental
government would be paralyzed for the lack of the motive power to activate and Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social The tax imposed in this case is not only a regulatory but also a revenue measure
operate it. Hence, despite the natural reluctance to surrender part of one’s hard- justice should not now be penalized by the same government by the imposition prompted by the realization that earnings of videogram establishments of around
earned income to taxing authorities, every person who is able to must contribute of excessive taxes petitioners can ill afford and eventually result in the forfeiture P600 million per annum have not been subjected to tax, thereby depriving the
his share in the running of the government. The government for its part is of their properties. Government of an additional source of revenue. It is an end-user tax, imposed
expected to respond in the form of tangible and intangible benefits intended to on retailers for every videogram they make available for public viewing.
improve the lives of the people and enhance their moral and material values. SCOPE OF TAXATION
This symbiotic relationship is the rationale of taxation and should dispel the It is a tax that is imposed uniformly on all videogram operators. The levy of the
erroneous notion that it is an arbitrary method of exaction by those in the seat of Pepsi Cola Bottling Philippines Company vs Municipality of Tanauan et al 30% tax is for a public purpose. It was imposed primarily to answer the need for
power. Pepsi-Cola commenced a complaint with preliminary injunction to declare regulating the video industry, particularly because of the rampant film piracy,
the flagrant violation of intellectual property rights, and the proliferation of
Section 2 of Local Autonomy Act, unconstitutional as an undue delegation of
But even as we concede the inevitability and indispensability of taxation, it is a taxing authority as well as to declare Ordinances Nos. 23 and 27 denominated pornographic video tapes. And while it was also an objective of the decree to
requirement in all democratic regimes that it be exercised reasonably and in protect the movie industry, the tax remains a valid imposition. The public
as "municipal production tax" of the Municipality of Tanauan, Leyte, null and
accordance with the prescribed procedure. If it is not, then the taxpayer has a purpose of a tax may legally exist even if the motive which impelled the
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legislature to impose the tax was to favor one industry over another. It is inherent taxable year 1995, pursuant to Revenue Regulations No. 2-94 implementing the may claim the discount as a tax deduction. Petitioner contends that there is an
in the power to tax that a state be free to select the subjects of taxation, and it Senior Citizens Act, which states that the discount given to senior citizens shall invalid exercise of eminent domain since there is no just compensation of the
has been repeatedly held that "inequities which result from a singling out of one be deducted by the establishment from its gross sales for value-added tax and discount, it not being a peso-to-peso deduction.
particular class for taxation or exemption infringe no constitutional limitation". other percentage tax purposes. For the said taxable period, Central Luzon Drug WON this is a valid exercise of police power rather than eminent domain so as
Taxation has been made the implement of the state's police power. reported a net loss of P20,963.00 in its corporate income tax return, thus, it did to dispense the requirement of just compensation? YES
not pay income tax for 1995. The law is a legitimate exercise of police power which, similar to the power of
TAXATION DISTINGUISHED FROM POLICE POWER AND EMINENT eminent domain, has general welfare for its object. Police power is not capable
DOMAIN Subsequently, Central Luzon Drug filed a claim for refund in the amount of of an exact definition, but it has been described as the most essential, insistent
P150,193.00, claiming that according to Sec. 4(a) of the Senior Citizens Act, the and the least limitable of powers, extending as it does to all the great public
Planters Products Inc vs Fertiphil Corp amount of P219,778.00 should be applied as a tax credit. The CIR argued that needs. It is the power vested in the legislature by the constitution to make,
PPI and Fertiphil are private corporations incorporated under Philippine laws, the law does not state that a refund can be claimed by the establishment ordain, and establish all manner of wholesome and reasonable laws, statutes,
both engaged in the importation and distribution of fertilizers, pesticides and concerned as an alternative to the tax credit. and ordinances, either with penalties or without, not repugnant to the
agricultural chemicals. Marcos issued LOI 1465, imposing a capital recovery WON the law is in the exercise of power of eminent domain rather than taxation? constitution, as they shall judge to be for the good and welfare of the
component of Php10.00 per bag of fertilizer. The levy was to continue until YES commonwealth, and of the subjects of the same.
adequate capital was raised to make PPI financially viable. Fertiphil remitted to The privilege enjoyed by senior citizens does not come directly from the State,
the Fertilizer and Pesticide Authority (FPA), which was then remitted the but rather from the private establishments concerned. Accordingly, the tax credit For this reason, when the conditions so demand as determined by the legislature,
depository bank of PPI. Fertiphil paid P6,689,144 to FPA from 1985 to 1986. benefit granted to these establishments can be deemed as their just compensation property rights must bow to the primacy of police power because property rights,
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the for private property taken by the State for public use. The concept of public use though sheltered by due process, must yield to general welfare. The Court is not
P10 levy. Fertiphil demanded from PPI a refund of the amount it remitted, is no longer confined to the traditional notion of use by the public, but held oblivious of the retail side of the pharmaceutical industry and the competitive
however PPI refused. Fertiphil filed a complaint for collection and damages, synonymous with public interest, public benefit, public welfare, and public pricing component of the business. While the Constitution protects property
questioning the constitutionality of LOI 1465, claiming that it was unjust, convenience. The discount privilege to which our senior citizens are entitled is rights, petitioners must accept the realities of business and the State, in the
unreasonable, oppressive, invalid and an unlawful imposition that amounted to actually a benefit enjoyed by the general public to which these citizens belong. exercise of police power, can intervene in the operations of a business which
a denial of due process. The discounts given would have entered the coffers and formed part of the gross may result in an impairment of property rights in the process.
WON LOI No. 1465 is an invalid exercise of the power of taxation rather the sales of the private establishments concerned, were it not for RA 7432. The
police power? YES permanent reduction in their total revenues is a forced subsidy corresponding to Manila Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc vs Sec of
Police power and the power of taxation are inherent powers of the state but the taking of private property for public use or benefit. DSWD
distinct and have different tests for validity. Police power is the power of the On April 23, 1992, RA 7432 was passed into law, granting senior citizens
state to enact the legislation that may interfere with personal liberty on property As a result of the 20% discount imposed by RA 7432, respondent becomes numerous privileges. Petitioners emphasize that they are not questioning the
in order to promote general welfare. While, the power of taxation is the power entitled to a just compensation. This term refers not only to the issuance of a tax 20% discount granted to senior citizens but are only assailing the
to levy taxes as to be used for public purpose. The main purpose of police power credit certificate indicating the correct amount of the discounts given, but also constitutionality of the tax deduction scheme prescribed under RA 9257 and the
is the regulation of a behavior or conduct, while taxation is revenue generation. to the promptness in its release. Equivalent to the payment of property taken by IRR issued by the DSWD and the DOF. Petitioners posit that the tax deduction
The lawful subjects and lawful means tests are used to determine the validity of the State, such issuance -- when not done within a reasonable time from the grant scheme contravenes Article III, Section 9 of the Constitution, which provides
a law enacted under the police power. The power of taxation, on the other hand, of the discounts -- cannot be considered as just compensation. In effect, that: "private property shall not be taken for public use without just
is circumscribed by inherent and constitutional limitations. respondent is made to suffer the consequences of being immediately deprived compensation." In support of their position, petitioners cite Central Luzon Drug
of its revenues while awaiting actual receipt, through the certificate, of the Corporation, where it was ruled that the 20% discount privilege constitutes
In this case, the primary purpose of the levy is revenue generation. If the purpose equivalent amount it needs to cope with the reduction in its revenues. taking of private property for public use which requires the payment of just
is primarily revenue, or if revenue is, at least, one of the real and substantial compensation, and Carlos Superdrug Corporation v. Department of Social
purposes, then the exaction is properly called a tax. However, taxes are exacted Besides, the taxation power can also be used as an implement for the exercise of Welfare and Development, where it was acknowledged that the tax deduction
only for a public purpose. The P10 levy is unconstitutional because it was not the power of eminent domain. Tax measures are but "enforced contributions scheme does not meet the definition of just compensation. They assert that
for a public purpose since it was imposed to give undue benefit to PPI. It is a exacted on pain of penal sanctions" and "clearly imposed for a public purpose." "although both police power and the power of eminent domain have the general
robbery for the State to tax the citizen and use the funds generation for a private welfare for their object, there are still traditional distinctions between the two"
purpose. Justice and equity dictate that PPI must refund the amounts paid by Carlos Superdrug Corp vs. DSWD and that "eminent domain cannot be made less supreme than police power."
Fertiphil. Note: In this case, Senior Citizen’s Act was already enacted. Respondents maintain that the tax deduction scheme is a legitimate exercise of
the State’s police power.
CIR vs Central Luzon Corp Petitioners are domestic corporations and proprietors operating drugstores in the Exercise of police power or eminent domain? POLICE POWER
Note: In this case, the Senior Citizens Act was not yet expanded and it provided Philippines. Petitioners assail the constitutionality of the Expanded Senior In the exercise of police power (as distinguished from eminent domain),
that the discount can still be claimed as tax credit. Citizens Act of 2003. The law grants a 20% discount to senior citizens for although the regulation affects the right of ownership, none of the bundle of
medical and dental services, and diagnostic and laboratory fees; admission fees rights which constitute ownership is appropriated for use by or for the benefit of
Central Luzon Drug Corporation is a retailer of medicines and other charged by theaters, concert halls, circuses, carnivals, and other similar places the public. On the other hand, in the exercise of the power of eminent domain,
pharmaceutical products. For the period January 1995 to December 1995, of culture, leisure and amusement; fares for domestic land, air and sea travel; property interests are appropriated and applied to some public purpose which
pursuant to the mandate of Section 4(a) of the Senior Citizens Act, it granted a utilization of services in hotels and similar lodging establishments, restaurants necessitates the payment of just compensation therefor. Normally, the title to
20% discount on the sale of medicines to qualified senior citizens amounting to and recreation centers; and purchases of medicines for the exclusive use or and possession of the property are transferred to the expropriating authority.
P219,778.00. It then deducted the same amount from its gross income for the enjoyment of senior citizens. As a form of reimbursement, the law provides that
business establishments extending the twenty percent discount to senior citizens
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In this case, the 20% discount is intended to improve the welfare of senior The appropriation of amount for the construction on a land owned by private Code were amended. The particular amendment that is at issue in this case is the
citizens who, at their age, are less likely to be gainfully employed, more prone individual is invalid imposition since it results in the promotion of private exclusion of PAGCOR from the enumeration of GOCCs that are exempt from
to illnesses and other disabilities, and, thus, in need of subsidy in purchasing enterprise. It benefits the property of a particular individual. The provision that payment of corporate income tax. Petitioner further contends that such
basic commodities. It may not be amiss to mention also that the discount serves the land thereafter be donated to the government does not cure this defect. The amendment is null and void ab initio for violating the non- impairment clause of
to honor senior citizens who presumably spent the productive years of their lives rule is that if the public advantage or benefit is merely incidental in the the Constitution.
on contributing to the development and progress of the nation. As to its nature promotion of a particular enterprise, such defect shall render the law invalid. On WON PAGCOR is still exempt from corporate income tax and VAT with the
and effects, the 20% discount is a regulation affecting the ability of private the other hand, if what is incidental is the promotion of a private enterprise, the enactment of RA No. 9337? YES
establishments to price their products and services relative to a special class of tax law shall be deemed ―for public purpose. It is the essential character of the As regards franchises, Section 11, Article XII of the Constitution provides that
individuals, senior citizens, for which the Constitution affords preferential direct object of the expenditure which must determine its validity as justifying a no franchise or right shall be granted except under the condition that it shall be
concern. tax. Incidental to the public or to the state, which results from the promotion of subject to amendment, alteration, or repeal by the Congress when the common
private interest and the prosperity of private enterprises or business, does not good so requires. Hence, PAGCOR's franchise is subject to amendment,
In turn, this affects the amount of profits or income/gross sales that a private justify their aid by the use public money. alteration or repeal by Congress such as the amendment at issue in this case. The
establishment can derive from senior citizens. In other words, the subject amendment which withdraws the exemption of PAGCOR from corporate
regulation affects the pricing, and, hence, the profitability of a private Lutz vs Araneta, et al income tax, which may affect any benefits to PAGCOR's transactions with
establishment. However, it does not purport to appropriate or burden specific The Sugar Adjustment Act was passed which provided, among others, for an private parties, is not violative of the non-impairment clause of the Constitution.
properties, used in the operation or conduct of the business of private increase of the existing tax on the manufacture of sugar and levy on owners or The non-impairment clause is limited in application to laws that derogate from
establishments, for the use or benefit of the public, or senior citizens for that persons in control of lands devoted to the cultivation of sugar cane and ceded to prior acts or contracts by enlarging, abridging or in any manner changing the
matter, but merely regulates the pricing of goods and services relative to, and others for a consideration on lease or otherwise. All collections made shall intention of the parties.
the amount of profits or income/gross sales that such private establishments may accrue to a special fund name “Sugar Adjustment and Stabilization Fund.” This
derive from, senior citizens. whole law was enacted with a declaration of emergency due to the imminent CIR vs PAGCOR
imposition of export taxes upon sugar as provided under the Tydings-Mcduffie
The 20% discount may be properly viewed as belonging to the category of price Act. Lutz, the judicial administrator of the estate of one Antonio Ledesma, which
regulatory measures which affect the profitability of establishments subjected was taxed by the Commissioner on Internal Revenue, questioned the
thereto. On its face, therefore, the subject regulation is a police power measure. constitutionality of said act contending that it is for the aid and support of the CIR vs St. Luke’s Medical Center
sugar industry exclusively, which is not for a public purpose.
We find that there are at least two conceivable bases to sustain the subject WON the tax imposed is constitutional? YES
regulation’s validity absent clear and convincing proof that it is unreasonable, Analysis of the Act will show that the tax is levied with a regulatory purpose –
oppressive or confiscatory. Congress may have legitimately concluded that to provide means for the rehabilitation and stabilization of the threatened sugar
business establishments have the capacity to absorb a decrease in profits or Abra Valley College Inc vs Aquino
industry. In other words, the act is primarily an exercise of the police power. Abra Valley, an educational corporation and institution of higher learning duly
income/gross sales due to the 20% discount without substantially affecting the Since sugar production is a great source of the state's wealth, its promotion,
reasonable rate of return on their investments considering (1) not all customers incorporated with the SEC was assessed with payment of real estate tax for their
protection and advancement, redounds greatly to the general welfare. The school’s lot and building. It failed to pay, so a notice of seizure of the property
of a business establishment are senior citizens and (2) the level of its profit protection and promotion of the sugar industry is a matter of public concern.
margins on goods and services offered to the general public. was made. The school is offering primary, high school, college courses and has
Here, the legislative discretion must be allowed fully, subject only to the test of a population of more than 1000 students. The elementary students are housed in
reasonableness. If objective and methods are constitutionally valid, no reason is a two-storey building across the street, while the highschool and college students
Concurrently, Congress may have, likewise, legitimately concluded that the seen why the state may not levy taxes to raise funds for their prosecution and
establishments, which will be required to extend the 20% discount, have the are housed in the main building. The director with his family is in the second
attainment. Taxation may be made the implement of the state's police power. It floor of the main building. Also, the ground floor of the college building is used
capacity to revise their pricing strategy so that whatever reduction in profits or appears rational that the tax be obtained precisely from those who are to be
income/gross sales that they may sustain because of sales to senior citizens, can and rented by a commercial establishment, the Northern Marketing Corporation.
benefited from the expenditure of the funds derived from it. At any rate, it is Abra Valley’s contention is that the primary use of the lot and building for
be recouped through higher mark-ups or from other products not subject of inherent in the power to tax that a state be free to select the subjects of taxation,
discounts. As a result, the discounts resulting from sales to senior citizens will educational purposes and not the incidental use thereof determines exemption
and it has been repeatedly held that “inequalities which result from a singling from property taxes under Sec22, Art 6 1935Consitution. Thus, the assessment
not be confiscatory or unduly oppressive. out of one particular class for taxation, or exemption infringe no constitutional of tax for the real property tax by respond is without basis.
limitation.” The proper interpretation of the phrase ―used exclusively for educational
LIMITATIONS OF THE POWER OF TAXATION
purposes.
PAGCOR vs BIR While this Court allows a more liberal and non-restrictive interpretation of the
Pascual vs Secretary of Public Works et al PAGCOR was created pursuant to PD No. 1067-A. Simultaneous to its creation,
A law was enacted in 1953 containing a provision for the construction, phrase "exclusively used for educational purposes" as provided for in Article VI,
P.D. No. 1067-B was issued exempting PAGCOR from the payment of any type Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable
reconstruction, repair, extension and improvement of Pasig feeder road of tax, except a franchise tax of 5% of the gross revenue. Thereafter, P.D. No.
terminals within Antonio Subdivision owned by Senator Zulueta. Zulueta emphasis has always been made that exemption extends to facilities which are
1399 was issued expanding the scope of PAGCOR's exemption – only refers to incidental to and reasonably necessary for the accomplishment of the main
donated said parcels of land to the Government 5 months after the enactment of income from unrelated because why will it ask for exemption when it already is.
the law, on the condition that if the Government violates such condition, the purposes. Otherwise stated, the use of the school building or lot for commercial
PAGCOR’s tax exemption was removed through P.D. No. 1931, but it was later purposes is neither contemplated by law, nor by jurisprudence. Thus, while the
lands would revert to Zulueta. The provincial governor of Rizal, Wenceslao restored by LOI No. 1430. NIRC of 1997 then took effect. It provides that
Pascual, questioned the validity of the donation and the Constitutionality of the use of the second floor of the main building in the case at bar for residential
GOCCs shall pay corporate income tax, except petitioner PAGCOR, GSIS, SSS, purposes of the Director and his family, may find justification under the concept
particular provision, it being an appropriation not for a public purpose. PHIC and PCSO. With the enactment of RA No. 9337, certain sections of the
Is the appropriation valid? NO of incidental use, which is complimentary to the main or primary purpose—
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educational, the lease of the first floor thereof to the Northern Marketing Respondent contended that CHHMAC building is actually, directly, and
Corporation cannot by any stretch of the imagination be considered incidental exclusively part of CHH and should have a special assessment level of 10%. It Chamber of Real Estate and Builders’ Associations’ Inc vs Romulo et al
to the purpose of education. The school building as well as the lot where it is argued that the CHHMAC, though not actually indispensable, is nonetheless CHAMBER assails the validity of the imposition of MCIT on corporations on
built, should be taxed, not because the second floor of the same is being used by incidental and reasonably necessary to CHH‘s operations. the ground that it violates the due process clause because it levies income tax
the Director and his family for residential purposes, but because the first floor WON the new building is liable to pay the 35% assessment level? NO even if there is no realized gain. It also questioned the constitutionality of the
thereof is being used for commercial purposes. However, since only a portion is The new building is an integral part of the hospital and should not be assessed imposition of creditable withholding tax (CWT) on sales of real properties
used for purposes of commerce, it is only fair that half of the assessed tax be as commercial. Being a tertiary hospital, it is mandated to fully departmentalized classified as ordinary assets as it is in violation of the due process clause because
returned to the school involved. and be equipped with the service capabilities needed to support certified medical the government collects income tax even when the net income has not yet been
specialist and other licensed physicians. The fact that they are holding office in determined, and gain is never assured by mere receipt of the selling price. It also
American Bible Society vs City of Manila a separate building does not take away the essence and nature of their services argued that such imposition is violative of the equal protection clause because
American Bible Society is a foreign, non-stock, non-profit, religious, missionary vis-a-vis the overall operation of the hospital and to its patients. Under the Local the CWT is being charged upon real estate enterprises, but not on other business
corporation duly registered and doing business in the Philippines through its Government Code, Sec. 26: All lands, buildings and other improvements enterprises, more particularly, those in the manufacturing sector, which do
Philippine agency established in Manila in November, 1898. It has been thereon actually, directly and exclusively used for hospitals, cultural or scientific business similar to that of a real estate enterprise.
distributing and selling bibles and/or gospel portions throughout the Philippines purposes and those owned and used by local water districts… shall be classified Are the impositions of MCIT and CWT constitutional? YES
and translating the same into several Philippine dialects. City Treasurer of as special. Due process clause may properly be invoked to invalidate, in appropriate cases,
Manila informed American Bible Society that it was violating several a revenue measure when it amounts to a confiscation of property. An income tax
Ordinances for operating without the necessary permit and license, thereby Respondent’s charge of rentals for the offices and clinics its accredited is arbitrary and confiscatory if it taxes capital. MCIT is not a tax on capital. It is
requiring the corporation to secure the permit and license fees. To avoid closing physicians occupy cannot be equated to a commercial venture, which is mainly imposed on gross income which is arrived at by deducting the capital spent by a
of its business, American Bible Society paid the City of Manila its permit and for profit. First, CHHMAC is only for its consultants or accredited doctors and corporation in the sale of its goods from gross sales. Clearly, the capital is not
license fees under protest, contending that the ordinance restrains the free medical specialists. Second, the charging of rentals is a practical necessity: (1) being taxed. A revenue measure will not be held unconstitutional on the mere
exercise and enjoyment of the religious profession and worship of appellant. to recoup the investment cost of the building, (2) to cover the rentals for the lot allegation of arbitrariness by the taxpayer. There must be a factual foundation to
WON the said ordinances are constitutional and valid? NO CHHMAC is built on, and (3) to maintain the CHHMAC building and its such an unconstitutional taint. However, in this case, CHAMBER failed to
The Constitution, provides that no law shall be made respecting an establishment facilities. Third, as correctly pointed out by respondent, it pays the proper taxes support, by any factual or legal basis, its allegation that the MCIT is arbitrary
of religion, or prohibiting the free exercise thereof. The free exercise and for its rental income. And, fourth, if there is indeed any net income from the and confiscatory. It does not cite any actual, specific and concrete negative
enjoyment of religious profession and worship, without discrimination or lease income of CHHMAC, such does not inure to any private or individual experiences of its members nor does it present empirical data to show that the
preference, shall forever be allowed. No religion test shall be required for the person as it will be used for respondent’s other charitable projects. implementation of the MCIT resulted in the confiscation of their property.
exercise of civil or political rights. Such provision is a constitutional guaranty
of the free exercise and enjoyment of religious profession and worship, which CIR vs De La Salle University The equal protection clause under the Constitution means that “no person or
carries with it the right to disseminate religious information. It may be true that class of persons shall be deprived of the same protection of laws which is
in the case at bar, the price asked for the bibles and other religious pamphlets The requisites for availing the tax exemption under Article XIV, Section 4 (3) enjoyed by other persons or other classes in the same place and in like
was in some instances a little bit higher than the actual cost of the same but this are: (1) the taxpayer falls under the classification non-stock, non-profit circumstances.” The taxing power has the authority to make reasonable
cannot mean that appellant was engaged in the business or occupation of selling educational institution; and (2) the income it seeks to be exempted from taxation classifications for purposes of taxation. Inequalities which result from a singling
said “merchandise” for profit. The imposition of tax would impair its free is used actually, directly and exclusively for educational purposes. out of one particular class for taxation, or exemption, infringe no constitutional
exercise and enjoyment of its religious profession and worship as well as its limitation. The real estate industry is, by itself, a class and can be validly treated
rights of dissemination of religious beliefs. It seems clear, therefore, that The tax-exemption constitutionally-granted to non-stock, nonprofit educational differently from other business enterprises.
Ordinance cannot be considered unconstitutional, however inapplicable to said institutions, is not subject to limitations imposed by law. The tax exemption
business, trade or occupation of the plaintiff. granted by the Constitution to non-stock, non-profit educational institutions is People vs Cayat
conditioned only on the actual, direct and exclusive use of their assets, revenues Cayat was a native of Baguio, Benguet, Mountain Province. Act No. 1639
City Assessor of Cebu City vs Association of Benevola de Cebu Inc and income for educational purposes. Unlike Article VI, Section 28 (3) of the declares that it is unlawful for any native of the Philippine islands who is a
(NOTE: This case is decided based on 1987 Constitution) Constitution (pertaining to charitable institutions, churches, parsonages or member of a non-Christian Tribe to have in his possession, drink any beer, wine
convents, mosques, and non-profit cemeteries), which exempts from tax only or intoxicating liquors of any kind, other than the so-called native wines and
Respondent Association of Benevola de Cebu, Inc. is a non-stock, non-profit the assets, i.e., "all lands, buildings, and improvements, actually, directly, and liquors which the members of the tribes have been accustomed. Cayat
organization and is the owner of Chong Hua Hospital (CHH) in Cebu City. In exclusively used for religious, charitable, or educational purposes...," Article challenged the constitutionality of the Act. One of the grounds was that the said
the late 1990‘s, respondent constructed the CHH Medical Arts Center XIV, Section 4 (3) categorically states that "all revenues and assets... used act is discriminatory and denies the equal protection laws.
(CHHMAC). Petitioner City Assessor of Cebu City assessed the CHHMAC actually, directly, and exclusively for educational purposes shall be exempt from WON the said Act is violative of the equal protection clause of the constitution.?
building as commercial at the assessment level of 35% for commercial taxes and duties." NO
buildings, and not at the 10% special assessment currently imposed for CHH Requirements for valid classification: (FC si SG/Feeling Close si Security
and its other separate buildings. He further ascertained that it is not a part of the Further, a plain reading of the Constitution would show that Article XIV, Guard)
CHH building but a separate building which is actually used as commercial Section 4 (3) does not require that the revenues and income must have also been 1) There must be a substantial distinction that make a real difference
clinic/room spaces for renting out to physicians and, thus, classified as sourced from educational activities or activities related to the purposes of an 2) It must be germane or relevant to the purpose of the law
commercial. educational institution. The phrase all revenues is unqualified by any reference 3) It must apply not only to the present but also to future situation
to the source of revenues. Thus, so long as the revenues and income are used 4) the distinction must apply to persons belonging to the same class
actually, directly and exclusively for educational purposes, then said revenues
and income shall be exempt from taxes and duties.
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SY 2017-2018 INCOME TAXATION DIGEST
The classification rests on real and substantial, not merely imaginary or WON the provisions of EO No. 97-A, confining the application of R.A. 7227 Former PGMA certified the passage of the Senate Bill 2293 as urgent through a
whimsical, distinctions. It is based upon the degree of civilization and culture. within the secured area and excluding the residents of the zone outside of the letter addressed to then Senate President Villar. On 17 June 2008, R.A. 9504,
“The term ‘non-Christian tribes’ refers, not to religious belief, but, in a way, to secured area is discriminatory? NO amending some provisions in the NIRC, was approved and signed into law. It
the geographical area, and, more directly, to natives of the Philippine Islands of It is well-settled that the equal-protection guarantee does not require territorial took effect on July 6, 2008. The following are the salient features of the new
a low grade of civilization, usually living in tribal relationship apart from settled uniformity of laws. As long as there are actual and material differences between law: It increased the basic personal exemption and additional. It also raised the
communities.” This distinction is unquestionably reasonable, for the Act was territories, there is no violation of the constitutional clause. OSD for individual taxpayers from 10% of gross income to 40% of the gross
intended to meet the peculiar conditions existing in the non-Christian tribes. receipts or gross sales. It introduced the OSD to corporate taxpayers at no more
That it is germane to the purposes of law cannot be doubted. It is designed to Certainly, there are substantial differences between the big investors who are than 40% of their gross income. It granted MWEs exemption from payment of
insure peace and order among the non-Christian tribes since past experiences being lured to establish and operate their industries in the so-called “secured income tax on their minimum wage, holiday pay, overtime pay, night shift
show that free use of highlight intoxicating liquors by them had resulted in area” and the present business operators outside the area. On the one hand, we differential pay and hazard pay.
lawlessness and crimes. The law is not limited in its application to conditions are talking of billion-peso investments and thousands of new jobs. On the other
existing at the time of its enactment. It is intended to apply for all times as long hand, definitely none of such magnitude. In the first, the economic impact will The BIR issued RR 10-2008, implementing the provisions of this law. One of
as those conditions exist. Legislature understood that the civilization of a people be national; in the second, only local. Even more important, at this time the its salient features is the prorated application of the personal and additional
is a slow process and that hand in hand with it must go measures of protection business activities outside the “secured area” are not likely to have any impact exemptions for taxable year 2008 to begin only effective 6 July 2008. Petitioners
and security. Finally, that the Act applies equally to all members of the class. in achieving the purpose of the law, which is to turn the former military base to assailed this for being contrary to the policy of “full taxable year treatment” as
productive use for the benefit of the Philippine economy. There is, then, hardly regards the application of tax exemption laws.
Ormoc Sugar Company vs Conejos et al any reasonable basis to extend to them the benefits and incentives accorded in
In 1964, Ormoc City passed an ordinance, imposing on any and all productions RA 7227. WON the increased personal and additional exemptions provided by R.A. 9504
of centrifugal sugar milled at the Ormoc Sugar Company Incorporated a should be applied to the entire taxable year 2008 or prorated, considering that
municipal tax of 1% per export sale to USA and other foreign countries. Ormoc SITUS OF TAXATION R.A. 9504 took effect only on 6 July 2008? YES
Sugar paid the tax in protest averring that the same is violative to equal The policy of full taxable year treatment is established, not by the amendments
protection as it singled out Ormoc Sugar as being liable for such tax impost for Air Canada vs CIR introduced by R.A. 9504, but by the provisions of the 1997 Tax Code, which
no other sugar mill is found in the city. § Air Canada is a foreign corporation organized and existing under the laws of adopted the policy from as early as 1969. The law itself provided that the new
WON the constitutional limits on the power of taxation, specifically the EPC and Canada. It was granted an authority to operate as an off-line carrier by the Civil set of personal and additional exemptions would be immediately available upon
uniformity of taxation, were infringed? YES Aeronautics Board (CAB) subject to certain conditions, on April 24, 2000, its effectivity. While R.A. 7167 had not yet become effective during calendar
(Give the requisites for valid classification [FC si SG]) with said authority to expire on April 24, 2005. year 1991, the Court found that it was a piece of social legislation that was in
§ July 1, 1999 - Air Canada and Aerotel Ltd., Corporation entered into a part intended to alleviate the economic plight of the lower-income taxpayers.
A perusal of the requisites instantly shows that the questioned ordinance does Passenger General Sales Agency (GSA) Agreement for operation the For that purpose, the new law provided for adjustments “to the poverty threshold
not meet them, for it taxes only centrifugal sugar produced and exported by the Philippines. level” prevailing at the time of the enactment of the law. R.A. 9504 was a piece
Ormoc Sugar Company, Inc. and none other. At the time of the taxing § November 28, 2002 – Air Canada filed its administrative claim for refund with of social legislation clearly intended to afford immediate tax relief to individual
ordinance’s enactment, Ormoc Sugar Company, Inc. was the only sugar central the BIR in the total amount of Php 5,185,676.77, contending that it taxpayers, particularly low-income compensation earners. Indeed, if R.A. 9504
in the city of Ormoc. Still, the classification, to be reasonable, should be in terms erroneously paid income taxes from the Q3 2000 up to the Q2 2002. was to take effect beginning taxable year 2009 or half of the year 2008 only,
applicable to future conditions as well. The taxing ordinance should not be § November 29, 2002 – Air Canada elevated its claim to the CTA then the intent of Congress to address the increase in the cost of living in 2008
singular and exclusive as to exclude any subsequently established sugar central, § Air Canada’s Argument: The revenue derived by it from its sales of tickets in would have been negated.
of the same class as plaintiff, for the coverage of the tax. As it is now, even if the Philippines on its off-line flights through its local General Sales Agent
later a similar company is set up, it cannot be subject to the tax because the cannot be subject to income tax because the same is not sourced within the The NIRC is clear on these matters. The taxable income of an individual
ordinance expressly points only to Ormoc City Sugar Company, Inc. as the Philippines. taxpayer shall be computed on the basis of the calendar year. The taxpayer is
entity to be levied upon. WON the revenue derived by an international air carrier from sales of tickets in required to fi1e an income tax return on the 15th of April of each year covering
the Philippines for air transportation, while having no landing rights in the income of the preceding taxable year. The tax due thereon shall be paid at the
Tiu vs CA country, constitutes income of said international air carrier from Philippine time the return is filed. In the present case, the increased exemptions were
Congress, with the approval of the President, passed into law RA 7227. Section source, and accordingly, taxable under Sec. 24(b)(2) of the National Revenue already available much earlier than the required time of filing of the return on
12 thereof created the Subic Special Economic Zone and granted there to special Code? YES 15 April 2009. R.A. 9504 came into law on 6 July 2008, more than nine months
privileges. President Ramos issued EO No. 97-A, specifying the area within A foreign airline company selling tickets in the Philippines through their local before the deadline for the filing of the income tax return for taxable year 2008.
which the tax-and-duty-free privilege was operative. Petitioners challenged the agents shall be considered as resident foreign corporation engaged in trade or Hence, individual taxpayers were entitled to claim the increased amounts for the
its constitutionality for allegedly being violative of their right to equal protection business in the country. The absence of flight operations within the Philippine entire year 2008. This was true despite the fact that incomes were already earned
of the laws. This was due to the limitation of tax incentives to Subic and not to territory cannot alter the fact that the income received was derived from or received prior to the law's effectivity on 6 July 2008.
the entire area of Olongapo. Respondent Court held that “there is no substantial activities within the Philippines. The test of taxability is the source, and the
difference between the provisions of EO 97-A and Section 12 of RA 7227. In source is that activity which produced the income. This case involves social legislation intended to cure a social evil. R.A. 9504
both, the ‘Secured Area’ is precise and well-defined as ‘. . . the lands occupied was geared towards addressing the impact of the global increase in the price of
by the Subic Naval Base and its contiguous extensions as embraced, covered INCOME TAXATION – GENERAL OVERVIEW goods. It was also clear that the intent of the legislature was to hasten the
and defined by the 1947 Military Bases Agreement between the Philippines and enactment of the law to make its beneficial relief immediately available.
the United States of America, as amended . . .” Soriano vs Secretary of Finance
Madrigal vs Rafferty