Commissioner of Internal Revenue vs. Algue Inc.

Commented [AG1]: Taxes are the lifeblood of the

government. Without taxes, the government can neither
GR No. L-28896 | Feb. 17, 1988 exist nor endure. Hence the collection of taxes is an
imperious need and must be free of imperious delay.

Taxes are what subjects pay for a civilized society.

Facts:

· Algue Inc. is a domestic corp engaged in engineering, construction and other allied activities

· On Jan. 14, 1965, the corp received a letter from the CIR regarding its delinquency income taxes
from 1958-1959, amtg to P83,183.85

· A letter of protest or reconsideration was filed by Algue Inc on Jan 18

· On March 12, a warrant of distraint and levy was presented to Algue Inc. thru its counsel, Atty.
Guevara, who refused to receive it on the ground of the pending protest

· Since the protest was not found on the records, a file copy from the corp was produced and given
to BIR Agent Reyes, who deferred service of the warrant

· On April 7, Atty. Guevara was informed that the BIR was not taking any action on the protest and it
was only then that he accepted the warrant of distraint and levy earlier sought to be served

· On April 23, Algue filed a petition for review of the decision of the CIR with the Court of Tax
Appeals

· CIR contentions:

- the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary
reasonable or necessary business expense

- payments are fictitious because most of the payees are members of the same family in control of
Algue and that there is not enough substantiation of such payments

· CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form of
promotional fees. These were collected by the Payees for their work in the creation of the Vegetable Oil
Investment Corporation of the Philippines and its subsequent purchase of the properties of the
Philippine Sugar Estate Development Company.

Issue: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by
Algue as legitimate business expenses in its income tax returns

Ruling:

· Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance, made in accordance with law.
· RA 1125: the appeal may be made within thirty days after receipt of the decision or ruling
challenged

· During the intervening period, the warrant was premature and could therefore not be served.

· Originally, CIR claimed that the 75K promotional fees to be personal holding company income, but
later on conformed to the decision of CTA

· There is no dispute that the payees duly reported their respective shares of the fees in their
income tax returns and paid the corresponding taxes thereon. CTA also found, after examining the
evidence, that no distribution of dividends was involved

· CIR suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary
deduction

· Algue Inc. was a family corporation where strict business procedures were not applied and
immediate issuance of receipts was not required. at the end of the year, when the books were to be
closed, each payee made an accounting of all of the fees received by him or her, to make up the total of
P75,000.00. This arrangement was understandable in view of the close relationship among the persons
in the family corporation

· The amount of the promotional fees was not excessive. The total commission paid by the
Philippine Sugar Estate Development Co. to Algue Inc. was P125K. After deducting the said fees, Algue
still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60%
of the total commission. This was a reasonable proportion, considering that it was the payees who did
practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual
purchase by it of the Sugar Estate properties.

· Sec. 30 of the Tax Code: allowed deductions in the net income – Expenses - All the ordinary and
necessary expenses paid or incurred during the taxable year in carrying on any trade or business,
including a reasonable allowance for salaries or other compensation for personal services actually
rendered xxx

· the burden is on the taxpayer to prove the validity of the claimed deduction

· In this case, Algue Inc. has proved that the payment of the fees was necessary and reasonable in
the light of the efforts exerted by the payees in inducing investors and prominent businessmen to
venture in an experimental enterprise and involve themselves in a new business requiring millions of
pesos.

· Taxes are what we pay for civilized society. Without taxes, the government would be paralyzed
for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to
surrender part of one's hard earned income to the taxing authorities, every person who is able to must
contribute his share in the running of the government. The government for its part, is expected to
respond in the form of tangible and intangible benefits intended to improve the lives of the people and
enhance their moral and material values

· Taxation must be exercised reasonably and in accordance with the prescribed procedure. If it is
not, then the taxpayer has a right to complain and the courts will then come to his succor
Algue Inc.’s appeal from the decision of the CIR was filed on time with the CTA in accordance with Rep.
Act No. 1125. And we also find that the claimed deduction by Algue Inc. was permitted under the
Internal Revenue Code and should therefore not have been disallowed by the CIR
Mactan Cebu International Airport Authority v. Marcos 261 SCRA 667 (1996) Commented [AG2]: Statutes granting tax exemptions
shall be strictly construed against the taxpayer and liberally
Oct construed in favor of the taxing authority.

23

Facts:

Petitioner Mactan Cebu International Airport Authority was created by virtue of R.A. 6958, mandated to
principally undertake the economical, efficient, and effective control, management, and supervision of
the Mactan International Airport and Lahug Airport, and such other airports as may be established in
Cebu.

Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of
realty taxes in accordance with Section 14 of its charter. However, on October 11, 1994, Mr. Eustaquio
B. Cesa, Officer in Charge, Office of the Treasurer of the City of Cebu, demanded payment from realty
taxes in the total amount of P2229078.79. Petitioner objected to such demand for payment as baseless
and unjustified claiming in its favor the afore cited Section 14 of R.A. 6958. It was also asserted that it is
an instrumentality of the government performing governmental functions, citing Section 133 of the
Local Government Code of 1991.

Section 133. Common limitations on the Taxing Powers of Local Government Units.

The exercise of the taxing powers of the provinces, cities, barangays, municipalities shall not extend to
the levi of the following:

xxx Taxes, fees or charges of any kind in the National Government, its agencies and instrumentalities,
and LGU’s. xxx

Respondent City refused to cancel and set aside petitioner’s realty tax account, insisting that the MCIAA
is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of
Sections 193 and 234 of Labor Code that took effect on January 1, 1992.

Issue:

Whether or not the petitioner is a “taxable person”

Rulings:
Taxation is the rule and exemption is the exception. MCIAA’s exemption from payment of taxes is
withdrawn by virtue of Sections 193 and 234 of Labor Code. Statutes granting tax exemptions shall be
strictly construed against the taxpayer and liberally construed in favor of the taxing authority.

The petitioner cannot claim that it was never a “taxable person” under its Charter. It was only exempted
from the payment of realty taxes. The grant of the privilege only in respect of this tax is conclusive proof
of the legislative intent to make it a taxable person subject to all taxes, except real property tax.
Tax Case Digest: Planters Product V. Fertiphil Corp. (2008) Commented [AG3]: The primary purpose of taxation is to
generate revenue to be used for public purpose. The main
purpose of police power is the regulation of a behavior or
conduct.
Planters Product v. Fertiphil Corp.

G.R. No. 166006 March 14, 2008

REYES, R.T., J.

Lessons Applicable: Bet. private and public suit, easier to file public suit, Apply real party in interest test
for private suit and direct injury test for public suit, Validity test varies depending on which inherent
power

Laws Applicable:

FACTS:

President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which provided,
among others, for the imposition of a capital recovery component (CRC) on the domestic sale of all
grades of fertilizers which resulted in having Fertiphil paying P 10/bag sold to the Fertilizer and Perticide
Authority (FPA).

FPA remits its collection to Far East Bank and Trust Company who applies to the payment of corporate
debts of Planters Products Inc. (PPI)

After the Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. Upon return of
democracy, Fertiphil demanded a refund but PPI refused. Fertiphil filed a complaint for collection and
damages against FPA and PPI with the RTC on the ground that LOI No. 1465 is unjust, unreaonable
oppressive, invalid and unlawful resulting to denial of due process of law.

FPA answered that it is a valid exercise of the police power of the state in ensuring the stability of the
fertilizing industry in the country and that Fertiphil did NOT sustain damages since the burden imposed
fell on the ultimate consumers.

RTC and CA favored Fertiphil holding that it is an exercise of the power of taxation ad is as such because
it is NOT for public purpose as PPI is a private corporation.

ISSUE:

1. W/N Fertiphil has locus standi

2. W/N LOI No. 1465 is an invalid exercise of the power of taxation rather the police power

Held:
1. Yes. In private suits, locus standi requires a litigant to be a "real party in interest" or party who stands
to be benefited or injured by the judgment in the suit. In public suits, there is the right of the ordinary
citizen to petition the courts to be freed from unlawful government intrusion and illegal official action
subject to the direct injury test or where there must be personal and substantial interest in the case
such that he has sustained or will sustain direct injury as a result. Being a mere procedural technicality,
it has also been held that locus standi may be waived in the public interest such as cases of
transcendental importance or with far-reaching implications whether private or public suit, Fertiphil has
locus standi.

2. As a seller, it bore the ultimate burden of paying the levy which made its products more expensive
and harm its business. It is also of paramount public importance since it involves the constitutionality of
a tax law and use of taxes for public purpose.

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

In this case, it is for purpose of revenue. But it is a robbery for the State to tax the citizen and use the
funds generation for a private purpose. Public purpose does NOT only pertain to those purpose which
are traditionally viewed as essentially governmental function such as building roads and delivery of
basic services, but also includes those purposes designed to promote social justice. Thus, public money
may now be used for the relocation of illegal settlers, low-cost housing and urban or agrarian reform.
Maceda v Macaraig Commented [AG4]: NPC is a non-profit public
corporation created for the general good and welfare of the
Facts: people.
From the changes made in the NPC charter, the intention to
The petition seeks to nullify certain decisions, orders, ruling, and resolutions of the respondents strengthen its preferential tax treatment is obvious.
(Macaraig et. al) for exempting the National Power Corporation (NPC) from indirect tax and duties.
Commonwealth Act 120 created NPC as a public corporation. RA 6395 revised the charter of NPC and
provided in detail the exemption of NPC from all taxes, duties and other charges by the government.
There were many resolutions and decisions that followed after RA 6395 which talked about the
exemption and non-exemption from taxes of NPC.

Issue:

Whether or not NPC is really exempt from indirect taxes

Held:

Yes. NPC is a non-profit public corporation created for the general good and welfare of the people.
From the very beginning of its corporate existence, NPC enjoyed preferential tax treatment to enable it
to pay its debts and obligations. From the changes made in the NPC charter, the intention to
strengthen its preferential tax treatment is obvious. The tax exemption is intended not only to insure
that the NPC shall continue to generate electricity for the country but more importantly, to assure
cheaper rates to be paid by consumers.

------------------

Some Notes on Direct and Indirect Taxes:

Direct Taxes – those which a taxpayer is directly liable on the transaction or business it engages in.
Examples are: custom duties, ad valorem taxes paid by oil companies for importation of crude oil

Indirect Taxes – paid by persons who can shift the burden upon someone else.

Examples are: ad valorem taxes that oil companies pay to BIR upon removal of petroleum products from
its refinery can be shifted to its buyer, like the NPC

Dissenting Opinion of Justice Sarmiento: The fact that NPC has been tasked with the enormous
undertaking to improve the quality of life, is no reason, to include indirect taxes, within the coverage of
its preferential tax treatment. The deletion of “indirect taxes” as stated in one of the assailed orders (PD
938), is significant, because if said law truly intends to exempt NPC from indirect taxes, it would have
said so specifically.
PILILIA VS PETRON (198 SCRA 82) Commented [AG5]: Delegation of taxation to local
governments is ordained by the Constitution
Philippine Petroleum Corporation vs Municipality of Pililla Rizal

198 SCRA 82 [GR No. 90776 June 3, 1991]

Facts: Philippine Petroleum Corporation is a business enterprise engaged in the manufacture of

lubricated oil base stocks which is a petroleum product, with its refinery plant situated at Malaya, Pilillia
Rizal, conducting its business activities within the territorial jurisdiction of municipality of Pilillia, Rizal
and is in continuous operation up to the present. PPC owns and maintains an oil refinery including 49
storage tanks for its petroleum products in Malaya, Pililla, Rizal. Under section 142 of NIRC of 1939,
manufactured oils and other fuels are subject to specific tax. Respondent municipality of Pilillia, Rizal
through municipal council resolution no. 25-s-1974 enacted municipal tax ordinance no. 1-s-1974
otherwise known as “The Pililla Tax Code Of 1974” on June 14, 1974 which took effect on July 1, 1974.
Sections 9 and 10 of the said ordinance imposed a tax on business, except for those which fixed taxes
are provided in the local tax code on manufacturers, importers, or producers of any article of commerce
of whatever kind or nature, including brewers, distiller, rectifiers, repackers and compounders of liquors
distilled spirits and/or wines in accordance with the schedule found in the local tax code, as well as
mayor’s permit sanitary inspection fee and storage permit fee for flammable, combustible or explosive
substances, while section 139 of the disputed ordinance imposed surcharges and interests on unpaid
taxes, fees or charges. Enforcing the provisions of the above mentioned ordinance, the respondent filed
a complaint on April 4, 1986 docketed as civil case no. 057-T against PPC for the collection of the
business tax from 1979 to 1986; storage permit fees from 1975 to 1986; mayor’s permit fee and sanitary
permit inspection fees from 1975 to 1984. PPC, however, have already paid the last named fees starting
1985.

Issue: Whether or not the Municipality may validly impose taxes on petitioner’s business.

Held: No. While section 2 of PD 436 prohibits the imposition of local taxes on petroleum products, said
decree did not amend sections 19 and 19 (a) of PD 231 as amended by PD 426, wherein the municipality
is granted the right to levy taxes on business of manufacturers, importers, producers of any article of
commerce of whatever kind or nature. A tax on business is distinct from a tax on the article itself. Thus,
if the imposition of tax on business of manufacturers, etc. in petroleum products contravenes a declared
national policy, it should have been expressly stated in PD No. 436.

The exercise by local governments of the power to tax is ordained by the present constitution. To
allow the continuous effectivity of the prohibition set forth in PC no. 26-73 would be tantamount to
restricting their power to tax by mere administrative issuances. Under section 5, article X of the 1987
constitution, only guidelines and limitations that may be established by congress can define and limit
such power of local governments.
The storage permit fee being imposed by Pilillia’s tax ordinance is a fee for the installation and keeping
in storage of any flammable, combustible or explosive substances. In as much as said storage makes use
of tanks owned not by the Municipality of Pilillia but by petitioner PPC, same is obviously not a charge
for any service rendered by the municipality as what is envisioned in section 37 of the same code.
Pepsi Cola Bottling Company vs Municipality of Tanauan Commented [AG6]: Double taxation is not prohibited in
the Philippines. There is no double taxation where one
entity is the State and the other the city or municipality.

Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September 1962, the
Municipality approved Ordinance No. 23 which levies and collects “from soft drinks producers and
manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked.”

In December 1962, the Municipality also approved Ordinance No. 27 which levies and collects “on soft
drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of one
centavo P0.01) on each gallon of volume capacity.”

Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute double taxation in two
instances: a) double taxation because Ordinance No. 27 covers the same subject matter and impose
practically the same tax rate as with Ordinance No. 23, b) double taxation because the two ordinances
impose percentage or specific taxes.

Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for the delegation of
taxing powers to local government units; that allowing local governments to tax companies like Pepsi
Cola is confiscatory and oppressive.

The Municipality assailed the arguments presented by Pepsi Cola. It argued, among others, that only
Ordinance No. 27 is being enforced and that the latter law is an amendment of Ordinance No. 23, hence
there is no double taxation.

ISSUE: Whether or not there is undue delegation of taxing powers. Whether or not there is double
taxation.

HELD: No. There is no undue delegation. The Constitution even allows such delegation. Legislative
powers may be delegated to local governments in respect of matters of local concern. By necessary
implication, the legislative power to create political corporations for purposes of local self-
government carries with it the power to confer on such local governmental agencies the power to tax.
Under the New Constitution, local governments are granted the autonomous authority to create their
own sources of revenue and to levy taxes. Section 5, Article XI provides: “Each local government unit
shall have the power to create its sources of revenue and to levy taxes, subject to such limitations as
may be provided by law.” Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated
from beyond the sphere of the legislative power to enact and vest in local governments the power of
local taxation.
There is no double taxation. The argument of the Municipality is well taken. Further, Pepsi Cola’s
assertion that the delegation of taxing power in itself constitutes double taxation cannot be merited. It
must be observed that the delegating authority specifies the limitations and enumerates the taxes over
which local taxation may not be exercised. The reason is that the State has exclusively reserved the
same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law unlike in other jurisdictions. Double taxation becomes obnoxious only where the
taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for
the same purpose, but not in a case where one tax is imposed by the State and the other by the city or
municipality.
FELS ENERGY, INC. V THE PROVINCE OF BATANGAS and THE OFFICE OF THE PROVINCIAL ASSESSOR OF
BATANGAS Commented [AG7]: Floating power barges are
immovable property by destination. They are machinery
G.R. No. 168557 February 16, 2007 that tends to directly meet the needs of a certain industry.

They are subject to real property tax.

FACTS

Two consolidated cases were filed by FELS Energy, Inc. (FELS) and National Power Corporation (NPC),
respectively.

NPC entered into a lease contract with Polar Energy, Inc. over diesel engine power barges moored at
Batangas. The contract, denominated as an Energy Conversion Agreement, was for a period of five years
wherein, NPC shall be responsible for the payment of:

(a) all taxes, import duties, fees, charges and other levies imposed by the National Government

(b) all real estate taxes and assessments, rates and other charges in respect of the Power Barges

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. Thereafter, FELS
received an assessment of real property taxes on the power barges. The assessed tax, which likewise
covered those due for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter to NPC,
reminding it of its obligation under the Agreement to pay all real estate taxes. It then gave NPC the full
power and authority to represent it in any conference regarding the real property assessment of the
Provincial Assessor.

NPC sought reconsideration of the Provincial Assessor’s decision to assess real property taxes on the
power barges. However, the motion was denied. The Local Board of Assessment Appeals (LBAA) ruled
that the power plant facilities, while they may be classified as movable or personal property, are
nevertheless considered real property for taxation purposes because they are installed at a specific
location with a character of permanency.

FELS appealed the LBAA’s ruling to the Central Board of Assessment Appeals (CBAA). The CBAA rendered
a Decision finding the power barges exempt from real property tax.

It was later reversed by the cbaa upon reconsideration and affirmed by the CA

ISSUE
Whether power barges, which are floating and movable, are personal properties and therefore, not
subject to real property tax.

RULING

No. Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though floating,
are intended by their nature and object to remain at a fixed place on a river, lake, or coast" are
considered immovable property. Thus, power barges are categorized as immovable property by
destination, being in the nature of machinery and other implements intended by the owner for an
industry or work which may be carried on in a building or on a piece of land and which tend directly to
meet the needs of said industry or work.

The findings of the LBAA and CBAA that the owner of the taxable properties is petitioner FELS is the
entity being taxed by the local government. As stipulated under the Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures, fittings,
machinery and equipment on the Site used in connection with the Power Barges which have been
supplied by it at its own cost. POLAR shall operate, manage and maintain the Power Barges for the
purpose of converting Fuel of NAPOCOR into electricity.

It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its
exemption in Section 234 (c) of R.A. No. 7160,

…the law states that the machinery must be actually, directly and exclusively used by the government
owned or controlled corporation;

The agreement POLAR undertakes that until the end of the Lease Period, it will operate the Power
Barges to convert such Fuel into electricity. Therefore, FELS shall be liable for the realty taxes and not
the NPC who is not actually, directly and exclusively using the same. It is a basic rule that obligations
arising from a contract have the force of law between the parties
PETRON CORPORATION v. MAYOR TOBIAS M. TIANGCO and Commented [AG8]: Section 133(h) (LGC): the prohibition
on taxes with respect to petroleum products extends not
MUNICIPAL TREASURER MANUEL T. ENRIQUEZ of the only to excise taxes but on all “taxes, fees and charges.”

MUNIPALITY OF NAVOTAS, METRO MANILA Petroleum products are exempt from business tax.

G.R. 158881, 16 April 2006, Second Division, (Tinga, J.)

While local government units are authorized to burden all such other class of goods with “taxes, fees
and charges,” excepting excise taxes, a specific prohibition is imposed barring the levying of any other
type of taxes with respect to petroleum products.

In accordance to the New Navotas Revenue Code or Ordinance 92-03, petitioner Petron Corporation
was assessed a total tax of P6,259,087.62. Petron filed a letter protest arguing that it is exempt from
paying local business taxes as provided by Article 232 (h) of the Implementing Rules of the Local
Government Code.

The letter-protest was denied. A Complaint for Cancellation of Assessment was filed before the Regional
Trial Court (RTC) of Malabon. The RTC dismissed the Complaint and required Petron to pay the assessed
tax. A Motion for Reconsideration was filed but it was later denied by the court. Hence, the filing of this
petition.

ISSUE:

Whether or not a local government unit is empowered under the Local Government Code (LGC) to
impose business taxes on persons or entities engaged in the sale of petroleum

HELD:

Petition GRANTED.

Section 133(h) of the LGC reads as follows:

Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and Barangays
shall not extend to the levy of the following:
xxx

(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and
taxes, fees or charges on petroleum products;

Evidently, Section 133 prescribes the limitations on the capacity of local government units to exercise
their taxing powers otherwise granted to them under the LGC. Apparently, paragraph (h) of the Section
mentions two kinds of taxes which cannot be imposed by local government units, namely: “excise taxes
on articles enumerated under the National Internal Revenue Code [(NIRC)], as amended;” and “taxes,
fees or charges on petroleum products.”

The power of a municipality to impose business taxes is provided for in Section 143 of the LGC. Under
the provision, a municipality is authorized to impose business taxes on a whole host of business
activities. Suffice it to say, unless there is another provision of law which states otherwise, Section 143,
broad in scope as it is, would undoubtedly cover the business of selling diesel fuels, or any other
petroleum product for that matter.

Section 133(h) provides two kinds of taxes which cannot be imposed by local government units: “excise
taxes on articles enumerated” under the NIRC, as amended; and “taxes, fees or charges on petroleum
products.” There is no doubt that among the excise taxes on articles enumerated under the NIRC are
those levied on petroleum products, per Section 148 of the NIRC.

The power of a municipality to impose business taxes derives from Section 143 of the Code that
specifically enumerates several types of business on which it may impose taxes, including
manufacturers, wholesalers, distributors, dealers of any article of commerce of whatever nature; those
engaged in the export or commerce of essential commodities; retailers; contractors and other
independent contractors; banks and financial institutions; and peddlers engaged in the sale of any
merchandise or article of commerce. This obviously broad power is further supplemented by paragraph
(h) of Section 143 which authorizes the sanggunian to impose taxes on any other businesses not
otherwise specified under Section 143 which the sanggunian concerned may deem proper to tax.

This ability of local government units to impose business or other local taxes is ultimately rooted in the
1987 Constitution. Section 5, Article X assures that “[e]ach local government unit shall have the power
to create its own sources of revenues and to levy taxes, fees and charges,” though the power is “subject
to such guidelines and limitations as the Congress may provide.” There is no doubt that following the
1987 Constitution and the Code, the fiscal autonomy of local government units has received greater
affirmation than ever. Previous decisions that have been skeptical of the viability, if not the wisdom of
reposing fiscal autonomy to local government units have fallen by the wayside.

Section 5(a) of the Code states that “[a]ny provision on a power of a local government unit shall be
liberally interpreted in its favor, and in case of doubt, any question thereon shall be resolved in favor
of devolution of powers and of the lower local government unit.” But somewhat conversely, Section
5(b) then proceeds to assert that “[i]n case of doubt, any tax ordinance or revenue measure shall be
construed strictly against the local government unit enacting it, and liberally in favor of the taxpayer.”
And this latter qualification has to be respected as a constitutionally authorized limitation which
Congress has seen fit to provide. Evidently, local fiscal autonomy should not necessarily translate into
abject deference to the power of local government units to impose taxes.

Section 133(h) states that local government units “shall not extend to the levy of xxx taxes, fees or
charges on petroleum products.” Respondents assert that the phrase “taxes, fees or charges on
petroleum products” pertains to the imposition of direct or excise taxes on petroleum products, and not
business taxes. If the phrase actually pertains to excise taxes, then it would be an exercise in utter
redundancy, since the preceding phrase already prohibits the imposition of excise taxes on articles
already subject to such taxes under the NIRC, such as petroleum products. There would be no sense
on the part of the legislature to twice emphasize in the same sentence that excise taxes on petroleum
products are beyond the pale of local government taxation.

The Court concedes that a tax on a business is distinct from a tax on the article itself, or for that matter,
that a business tax is distinct from an excise tax. However, such distinction is immaterial insofar as the
latter part of Section 133(h) is concerned, for the phrase “taxes, fees or charges on petroleum
products” does not qualify the kind of taxes, fees or charges that could withstand the absolute
prohibition imposed by the provision. It would have been a different matter had Congress, in crafting
Section 133(h), barred “excise taxes” or “direct taxes,” or any category of taxes only, for then it would
be understood that only such specified taxes on petroleum products could not be imposed under the
prohibition. The absence of such a qualification leads to the conclusion that all sorts of taxes on
petroleum products, including business taxes, are prohibited by Section 133(h). Where the law does not
distinguish, we should not distinguish.

The language of Section 133(h) makes plain that the prohibition with respect to petroleum products
extends not only to excise taxes thereon, but all “taxes, fees and charges.” The earlier reference in
paragraph (h) to excise taxes comprehends a wider range of subjects of taxation: all articles already
covered by excise taxation under the NIRC, such as alcohol products, tobacco products, mineral
products, automobiles, and such non-essential goods as jewelry, goods made of precious metals,
perfumes, and yachts and other vessels intended for pleasure or sports. In contrast, the later reference
to “taxes, fees and charges” pertains only to one class of articles of the many subjects of excise taxes,
specifically, “petroleum products”. While local government units are authorized to burden all such other
class of goods with “taxes, fees and charges,” excepting excise taxes, a specific prohibition is imposed
barring the levying of any other type of taxes with respect to petroleum products.
City Government of Quezon City v. Bayan Telecommunications, Inc. [G.R. No.162015. March 6, 2006] Commented [AG9]: The grant of taxing powers to LGUs
under the Constitution and the LGC does not affect the
power of Congress to grant exemptions to certain persons,
pursuant to a declared national policy.
23
The subsequent amendment of RA 7633 makes clear the
NOV legislature’s intent to exempt Bayantel’s properties that are
used in the pursuit of its franchise from being taxed. Thus,
FACTS despite the delegated authority of Local Governments to
levy taxes, the Local Government cannot levy taxes from
Bayantel.

Respondent Bayan Telecommunications, Inc. (Bayantel) is a legislative franchise holder under Republic
Act (R.A.) No. 3259 (1961) to establish and operate radio stations for domestic telecommunications,
radiophone, broadcasting and telecasting. Section 14 (a) of R.A. No. 3259 states: “The grantee shall be
liable to pay the same taxes on its real estate, buildings and personal property, exclusive of the
franchise, xxx”. In 1992, R.A. No. 7160, otherwise known as the “Local Government Code of 1991” (LGC)
took effect. Section 232 of the Code grants local government units within the Metro Manila Area the
power to levy tax on real properties. Barely few months after the LGC took effect, Congress enacted R.A.
No. 7633, amending Bayantel’s original franchise. The Section 11 of the amendatory contained the
following tax provision: “The grantee, its successors or assigns shall be liable to pay the same taxes on
their real estate, buildings and personal property, exclusive of this franchise, xxx“. In 1993, the
government of Quezon City enacted an ordinance otherwise known as the Quezon City Revenue Code
withdrawing tax exemption privileges.

ISSUE

Whether or not Bayantel’s real properties in Quezon City are exempt from real property taxes under its
franchise.

RULING

YES. A clash between the inherent taxing power of the legislature, which necessarily includes the power
to exempt, and the local government’s delegated power to tax under the aegis of the 1987 Constitution
must be ruled in favor of the former. The grant of taxing powers to LGUs under the Constitution and
the LGC does not affect the power of Congress to grant exemptions to certain persons, pursuant to a
declared national policy. The legal effect of the constitutional grant to local governments simply means
that in interpreting statutory provisions on municipal taxing powers, doubts must be resolved in favor of
municipal corporations.
The legislative intent expressed in the phrase “exclusive of this franchise” cannot be construed other
than distinguishing between two (2) sets of properties, be they real or personal, owned by the
franchisee, namely, (a) those actually, directly and exclusively used in its radio or telecommunications
business, and (b) those properties which are not so used. It is worthy to note that the properties subject
of the present controversy are only those which are admittedly falling under the first category.

Since R. A. No. 7633 was enacted subsequent to the LGC, perfectly aware that the LGC has already
withdrawn Bayantel’s former exemption from realty taxes, the Congress using, Section 11 thereof with
exactly the same defining phrase “exclusive of this franchise” is the basis for Bayantel’s exemption from
realty taxes prior to the LGC. In plain language, the Court views this subsequent piece of legislation as
an express and real intention on the part of Congress to once again remove from the LGC’s delegated
taxing power, all of the franchisee’s (Bayantel’s) properties that are actually, directly and exclusively
used in the pursuit of its franchise.
PAL v Edu (1988) Commented [AG10]: Tax are for revenue, whereas fees
are exactions for purposes of regulation and inspection. It is
the object of the charge, and not the name, that determines
whether a charge is a tax or a fee.

Motor vehicle registration fees, which are used to raise

Philippine Airlines v Edu revenue to enable the government to construct and
maintain public highways, are considered taxes and not
GR No L-41383, August 15, 1988 merely fees.

FACTS:

PAL is engaged in the air transportation business under a legislative franchise (Act 4271), wherein it is
exempt from the payment of taxes. On the strength of an opinion of the Secretary of Justice, PAL was
determined to have not been paying motor vehicle registration fees since 1956. The Land
Transportation Commissioner required all tax-exempt entities, including PAL, to pay motor vehicle
registration fees. PAL protested. The trial court dismissed PAL’s complaint. Hence, this petition.

ISSUE:

Are motor vehicle registration fees taxes or regulatory taxes?

RULING:

They are taxes. Tax are for revenue, whereas fees are exactions for purposes of regulation and
inspection, and are for that reason limited in amount to what is necessary to cover the cost of the
services rendered in that connection.

It is the object of the charge, and not the name, that determines whether a charge is a tax or a fee.
The money collected under the Motor Vehicle Law is not intended for the expenditures of the Motor
Vehicle Law is not intended for the expenditures of the Motor Vehicles Office but accrues to the funds
for the construction and maintenance of public roads, streets and bridges.

As the fees are not collected for regulatory purposes as an incident to the enforcement of regulations
governing the operation of motor vehicles on public highways, but to provide revenue with which the
Government is to construct and maintain public highways for everyone’s use, they are veritable taxes,
not merely fees.

PAL is, thus, exempt from paying such fees, except for the period between June 27, 1968 to April 9,
1979, where its tax exception in the franchise was repealed.
Caltex Philippines, Inc. v COA (1992) Commented [AG11]: A taxpayer cannot offset taxes due
from the claims he has against the government. Taxes
cannot be subject of compensation because the
government and taxpayer are not mutually creditors and
debtors. A claim for taxes is not a debt, demand, contract or
judgment that can be set-off.
Caltex Philippines, Inc. v Commission on Audit GR No. 92585, May 8, 1992

FACTS:

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

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

ISSUE:

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

RULING:

No. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of
government. Taxes may be levied with a regulatory purpose to provide means for the rehabilitation and
stabilization of a threatened industry which is affected with public interest as to be within the police
power of the State.

PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A taxpayer may
not offset taxes due from the claims he may have against the government. Taxes cannot be subject of
compensation because the government and taxpayer are not mutually creditors and debtors of each
other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-
off.

Hence, COA decision is affirmed except that Caltex’s claim for reimbursement of underrecovery arising
from sales to the National Power Corporation is allowed.
Osmeña vs. Orbos

OSMEÑA vs. ORBOS

220 SCRA 703

GR No. 99886, March 31, 1993

" To avoid the taint of unlawful delegation of the power to tax, there must be a standard which implies
that the legislature determines matter of principle and lays down fundamental policy."

FACTS: Senator John Osmeña assails the constitutionality of paragraph 1c of PD 1956, as amended by EO
137, empowering the Energy Regulatory Board (ERB) to approve the increase of fuel prices or impose
additional amounts on petroleum products which proceeds shall accrue to the Oil Price Stabilization
Fund (OPSF) established for the reimbursement to ailing oil companies in the event of sudden price
increases. The petitioner avers that the collection on oil products establishments is an undue and invalid
delegation of legislative power to tax. Further, the petitioner points out that since a 'special fund'
consists of monies collected through the taxing power of a State, such amounts belong to the State,
although the use thereof is limited to the special purpose/objective for which it was created. It thus
appears that the challenge posed by the petitioner is premised primarily on the view that the powers
granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation power of the
State.

ISSUE: Is there an undue delegation of the legislative power of taxation?

HELD: None. It seems clear that while the funds collected may be referred to as taxes, they are exacted
in the exercise of the police power of the State. Moreover, that the OPSF as a special fund is plain from
the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed
in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the
scrutiny and review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a "special fund." With regard to the alleged undue delegation of
legislative power, the Court finds that the provision conferring the authority upon the ERB to impose
additional amounts on petroleum products provides a sufficient standard by which the authority must
be exercised. In addition to the general policy of the law to protect the local consumer by stabilizing and
subsidizing domestic pump rates, P.D. 1956 expressly authorizes the ERB to impose additional amounts
to augment the resources of the Fund.
ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST CONSUMERS NETWORK,
INC. (ECN),

Petitioners

vs.DEPARTMENT OF ENERGY (DOE), ENERGY REGULATORY COMMISSION (ERC),NATIONAL POWER Commented [AG12]: If generation of revenue is the
CORPORATION (NPC), POWER SECTOR ASSETS ANDLIABILITIES MANAGEMENT GROUP (PSALM Corp.), primary purpose and regulation is merely incidental, the
imposition is a tax.
STRATEGIC POWER UTILITIES GROUP (SPUG), and PANAY ELECTRIC COMPANY INC. (PECO),
If regulation is the primary purpose and revenue is merely
Respondents incidental, such imposition is not a tax. In this case, the
taxing power is used as an implement of police power.
G.R. No. 159796, July 17, 2007

Facts:

RA 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA), whichsought to
impose a universal charge on all end-users of electricity for the purpose of funding NAPOCOR’s projects,
was enacted and took effect in 2001.Petitioners contest the constitutionality of the EPIRA, stating that
the imposition of the universalcharge on all end-users is oppressive and confiscatory and amounts to
taxation withoutrepresentation for not giving the consumers a chance to be heard and be represented.

Issue:

W/N the universal charge is a tax

Ruling:

NO. The assailed universal charge is not a tax, but an exaction in the exercise of the State’s police
power. That public welfare is promoted may be gleaned from Sec. 2 of the EPIRA, which enumerates
the policies of the State regarding electrification. Moreover, the Special Trust Fund feature of the
universal charge reasonably serves and assures the attainment and perpetuity of the purposes for which
the universal charge is imposed (e. g. to ensure the viability of the country’s electric power industry),
further boosting the position that the same is an exaction primarily in pursuit of the State’s police
objectives. If generation of revenue is the primary purpose and regulation is merely incidental, the
imposition is a tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised
does not make the imposition a tax. The taxing power may be used as an implement of police power.
The theory behind the exercise of the power to tax emanates from necessity; without taxes,
government cannot fulfill its mandate of promoting the general welfare and well-being of the people.
Tax Case Digest: Commissioner of Internal Revenue vs Central Luzon Drug Corporation GR No 159647 Commented [AG13]: There must be a tax liability before
a tax credit can be applied. Tax credit can be applied even if
Commissioner of Internal Revenue vs. Central Luzon Drug Corporation a
business operates at a loss.
G.R. No. 159647 April 15, 2005
If a a business establishment reports net loss and no other
taxes are currently due, there is no tax liability which any
tax credit can be applied.
Facts:

Respondents operated six drugstores under the business name Mercury Drug. From January to
December 1996 respondent granted 20% sales discount to qualified senior citizens on their purchases of
medicines pursuant to RA 7432 for a total of ₱ 904,769.

On April 15, 1997, respondent filed its annual Income Tax Return for taxable year 1996 declaring therein
net losses. On Jan. 16, 1998 respondent filed with petitioner a claim for tax refund/credit of ₱
904,769.00 allegedly arising from the 20% sales discount. Unable to obtain affirmative response from
petitioner, respondent elevated its claim to the Court of Tax Appeals. The court dismissed the same but
upon reconsideration, the latter reversed its earlier ruling and ordered petitioner to issue a Tax Credit
Certificate in favor of respondent citing CA GR SP No. 60057 (May 31, 2001, Central Luzon Drug Corp. vs.
CIR) citing that Sec. 229 of RA 7432 deals exclusively with illegally collected or erroneously paid taxes
but that there are other situations which may warrant a tax credit/refund.

CA affirmed Court of Tax Appeal's decision reasoning that RA 7432 required neither a tax liability nor a
payment of taxes by private establishments prior to the availment of a tax credit. Moreover, such credit
is not tantamount to an unintended benefit from the law, but rather a just compensation for the taking
of private property for public use.

Issue:

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

Ruling:

Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining a 20% discount
on their purchase of medicine from any private establishment in the country. The latter may then claim
the cost of the discount as a tax credit. Such credit can be claimed even if the establishment operates at
a loss.
A tax credit generally refers to an amount that is “subtracted directly from one’s total tax liability.” It
is an “allowance against the tax itself” or “a deduction from what is owed” by a taxpayer to the
government.

A tax credit should be understood in relation to other tax concepts. One of these is tax deduction –
which is subtraction “from income for tax purposes,” or an amount that is “allowed by law to reduce
income prior to the application of the tax rate to compute the amount of tax which is due.” In other
words, whereas a tax credit reduces the tax due, tax deduction reduces the income subject to tax in
order to arrive at the taxable income.

A tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax
credit can be applied. Without that liability, any tax credit application will be useless. There will be no
reason for deducting the latter when there is, to begin with, no existing obligation to the government.
However, as will be presented shortly, the existence of a tax credit or its grant by law is not the same as
the availment or use of such credit. While the grant is mandatory, the availment or use is not. If a net
loss is reported by, and no other taxes are currently due from, a business establishment, there will
obviously be no tax liability against which any tax credit can be applied. For the establishment to
choose the immediate availment of a tax credit will be premature and impracticable.
Chavez v Ongpin (1990) Commented [AG14]: Fiscal adequacy, which is one of the
characteristics of a sound tax system, requires that sources
of revenue must be adequate to meet government
expenditures and their variations.

Chavez v Ongpin

GR No 76778, June 6, 1990

FACTS:

Section 21 of Presidential Decree 464 provides that every 5 years starting calendar year 1978, there shall
be a provincial or city general revision of real property assessments. The general revision was completed
in 1984.

On November 25, 1986, President Corazon Aquino issued EO 73 stating that beginning January 1, 1987,
the 1984 assessments shall be the basis of real property taxes. Francisco Chavez, a taxpayer and
landowner, questioned the constitutionality of EO 74. He alleges that it will bring unreasonable increase
in real property taxes.

ISSUE:

Is EO 73 constitutional?

RULING:

Yes. Without EO 73, the basis for collection of real property taxes will still be the 1978 revision of
property values. Certainly, to continue collecting real property taxes based on valuations arrived at
several years ago, in disregard of the increases in the value of real properties that have occurred since
then is not in consonance with a sound tax system.

Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of
revenue must be adequate to meet government expenditures and their variations.
Arturo Tolentino vs Secretary of Finance Commented [AG15]: Theoretical Justice: equality and
uniformity of taxation means that all taxable articles or
FACTS: kinds of property of the same class be taxed at the same
rate.
The present case involves motions seeking reconsideration of the Court’s decision dismissing the
petitions for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded It is enough that the statute or ordinance applies equally to
all persons, forms and corporations placed in a similar
Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several situation.
petitioners.

The Philippine Press Institute, Inc. (PPI) contends that by removing the exemption of the press from the
VAT while maintaining those granted to others, the law discriminates against the press. At any rate, it is
averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional”,
citing in support the case of Murdock v. Pennsylvania.

Chamber of Real Estate and Builders Associations, Invc., (CREBA), on the other hand, asserts that R.A.
No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt
without reasonable basis and (3) violates the rule that taxes should be uniform and equitable and that
Congress shall "evolve a progressive system of taxation”.

Further, the Cooperative Union of the Philippines (CUP), argues that legislature was to adopt a definite
policy of granting tax exemption to cooperatives that the present Constitution embodies provisions on
cooperatives. To subject cooperatives to the VAT would therefore be to infringe a constitutional policy.

ISSUE:

Whether or not, based on the aforementioned grounds of the petitioners, the Expanded Value-Added
Tax Law should be declared unconstitutional.

RULING:

No. With respect to the first contention, it would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime without offense to the Constitution. The
reason is simple: by granting exemptions, the State does not forever waive the exercise of its
sovereign prerogative. Indeed, in withdrawing the exemption, the law merely subjects the press to
the same tax burden to which other businesses have long ago been subject. The PPI asserts that it does
not really matter that the law does not discriminate against the press because "even nondiscriminatory
taxation on constitutionally guaranteed freedom is unconstitutional." The Court was speaking in that
case (Murdock v. Pennsylvania) of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its
imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right.
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.

Anent the first contention of CREBA, it has been held in an early case that 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. It is next pointed out that while Section 4 of R.A. No. 7716
exempts such transactions as the sale of agricultural products, food items, petroleum, and medical and
veterinary services, it grants no exemption on the sale of real property which is equally essential. The
sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and
services was already exempt under Section 103, pars. (b) (d) (1) of the NIRC before the enactment of
R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these
transactions, while subjecting those of petitioner to the payment of the VAT. Finally, it is contended that
R.A. No. 7716 also violates Art. VI, Section 28(1) which provides that "The rule of taxation shall be
uniform and equitable. The Congress shall evolve a progressive system of taxation”. Nevertheless,
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.
Furthermore, 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
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." The mandate to Congress is
not to prescribe, but to evolve, a progressive tax system.

As regards the contention of CUP, it is worth noting that its theory amounts to saying that under the
Constitution cooperatives are exempt from taxation. Such theory is contrary to the Constitution under
which only the following are exempt from taxation: charitable institutions, churches and parsonages, by
reason of Art. VI, §28 (3), and non-stock, non-profit educational institutions by reason of Art. XIV, §4 (3).

With all the foregoing ratiocinations, it is clear that the subject law bears no constitutional infirmities
and is thus upheld.to propose or concur with amendments to the version originated in the HoR. What
the Constitution simply means, according to the 9 justices, is that the initiative must come from the HoR.
Note also that there were several instances before where Senate passed its own version rather than
having the HoR version as far as revenue and other such bills are concerned. This practice of
amendment by substitution has always been accepted. The proposition of Tolentino concerns a mere
matter of form. There is no showing that it would make a significant difference if Senate were to adopt
his over what has been done.
Borja v Gella (1963)

Borja v Gella

GR No L-18330, July 31, 1963

FACTS:

Jose de Borja has been delinquent in the payment of his real estate taxes since 1958 and has offered to
pay them with two negotiable certificates of indebtedness to which he is only an assignee. These were
rejected by the City treasurers of both Manila and Pasay cities on the ground of their limited
negotiability. Borja brought the question to the Treasurer of the Philippines who opined that the
negotiable certificates cannot be accepted as payment of real estate taxes inasmuch as the law provides
for their acceptance from their backpay holder only or the original applicant himself, but not his
assignee. Lower court ruled in favor of Borja.

ISSUES:

1. Whether Borja may apply to the payment of his real estate taxes the certificates of indebtedness he
holds; while, respondents have the correlative legal duty to accept the certificates in payment of the
taxes

2. Whether compensation can take place between Borja’s real estate tax liability and the credit
represented by the certificate of indebtedness

RULING:

1. No, the respondents are not duty bound to accept the negotiable certificates of indebtedness for the
simple reason that they were not obligations subsisting at the approval of RA 304 which took effect on
June 18, 1948. Under RA 304, payment through a certificate of indebtedness may be allowed if the tax
is owed by the applicant himself. Furthermore, the right to use the backpay certificate in settlement of
taxes is given only to the applicant himself. Futhermore, the right to use the backpay certificate in
settlement of taxes is given only to the applicant and not to any holder of any negotiable certificate to
whom the law only gives the right to have it discounted by a Filipino citizen or corporation under
certain limitations. Borja is not himself the applicant of the certificate in question, he is merely as
assignee thereof.
2. No, the debtor insofar as the certificates of indebtedness are concerned is the Republic of the
Philippines, whereas the real estate taxes owed by Borja are due to the City of Manila and Pasay City,
each one of which having a distinct and separate personality from our Republic. This is contrary to
Article 1279 (1) of the Civil Code which states that “each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the other”
Vera v Fernandez (1979) Commented [AG16]: Taxes are not barred by Section 5,
Rule 86 of the Rules of Court.

Said law does not mention claims for monetary obligation

created by law, such as taxes. Taxes are of different
character from the claims enumerated: “all claims for
Vera v Fernandez money against the decedent arising from contract.”

GR No L-31364, March 30, 1979 Taxes do not fall under the purview of money, or any of
those mentioned in said law.

The mention of one thing implies the exclusion of another

FACTS: thing not mentioned.

The motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June 3,
1969 for the collection of the indebtedness to the government of the late Luis D. Tongoy for deficiency
income taxes in the total sum of P3,254.80. The administrator opposed the motion solely on the ground
that the claim was barred under Section 5, Rule 86 of the Rules of Court. Jose Fernandez dismissed the
motion for allowance of claim filed by the Regional director of the BIR, being the judge of the Court of
First Instance.

ISSUE:

Whether the statute of non-claims Section 5, Rule 86 of the Rule of Court bars claim of the government
for unpaid taxes, still within the period of limitation prescribed in Section 331 and 332 of the National
Internal Revenue Code

RULING:

No. Section 5, Rule 86 of the Rules of Curt makes no mention of claims for monetary obligation of the
decedent created by law, such as taxes which is entirely of different character from the claims
enumerated, such as “all claims for money against the decedent arising from contract, express or
implied, whether the same be due, or contingent, all claim for funeral expenses and expenses for the
last sickness of the decedent and judgment for money against the decedent.” Under the familiar rule of
statutory construction, the mention of one thing implies the exclusion of another thing not
mentioned.
Republic v Patanao (1967) Commented [AG17]: Civil liability to pay taxes arises
from the fact that one engages himself in business, not
because of a criminal act one committed.

The acquittal of a person in a criminal case cannot operate

to discharge said person from the duty of paying taxes the
Republic of the Philippines v Patanao GR No L-22356, July 21, 1967 law requires, since that duty is imposed by statute.

FACTS:

Defendant was the holder of an ordinary timber license with concession at Esperanza, Agusan. The
defendant failed to file income tax returns for 1953 and 1954 and although he filed income tax returns
for 1951, 1952, and 1955, the same were false and fraudulent because he did not report substantial
income earned by him from his business. He was acquitted by the lower court. But, the Deputy
Commissioner of Internal Revenue contends that the assessment for the payment of the taxes in
question has become final because it was not appealed.

ISSUE:

Whether the action is barred by prior judgment, defendant having been acquitted

RULING:

No. Under the Penal Code the civil liability is incurred by reason of the offender’s criminal act. The
situation under the income tax law is the exact opposite. Civil liability to pay taxes arises from the fact
that one has engaged himself in business and not because of any criminal act committed by him. The
acquittal in the said criminal case cannot operate to discharge defendant from the duty of paying the
taxes which the law requires to be paid, since that duty is imposed by statute prior to and
independently of any attempts by the taxpayer to evade payment.
TAN TIONG BIO VS CIR Commented [AG18]: While the government cannot
collect taxes from a defunct corporation, it can collect tax
Effect of dissolution upon taxes due from a corporation: "that the hands of the government cannot, of from persons who, due to transactions with the
course, collect taxes from a defunct corporation, it loses thereby none of its rights to assess taxes corporation, hold property against which tax can be
enforced.
which had been due from the corporation, and to collect them from persons, who by reason of
transactions with the corporation, hold property against which the tax can be enforced and that the If the government can levy taxes from the estate of a
legal death of the corporation no more prevents such action than would the physical death of an deceased individual, the legal death of a corporation does
not prevent the same from levying taxes from persons who
individual prevent the government from assessing taxes against him and collecting them from his
holds property which said corporation had formerly
administrator, who holds the property which the decedent had formerly possessed" possessed.
Republic v Mambulao Lumber Company (1962) Commented [AG19]: Taxes are not in the nature of
contracts between the parties but grow out of a duty to,
and are positive acts of the government, to the making and
enforcing of which, the personal consent of the individual
taxpayers is not required.

Republic v Mambulao Lumber Company, et al GR No L-17725, February 28, 1962 The Republic of the Philippines and the Mambulao Lumber
Company are not creditors and debtors of each other,
because compensation refers to mutual debts.

FACTS: Thus, generally, taxes cannot be offset by a debt the

government owes to a person or entity.
Mambulao Lumber Company paid the Government a total of P 9,127.50 as reforestation charges for the
years 1947 to 1956. It is the company’s contention that said sum of 9,127.50, not having been used in
the reforestation of the area covered by its license, the same is refundable to it or may be applied in
compensation of P 4,802.37 due from it as forest charges.

Court of First Instance of Manila ordered the company to pay the government the sum of P 4,802.37
with 6% interest thereon from date of the filing of the complaint until fully paid, plus costs. Thus, the
present appeal.

ISSUE: Whether the set-off or compensation is proper

RULING:

No. There is nothing in the law which requires that the amount collected as reforestation charges should
be used exclusively for the reforestation of the area covered by the license of a licensee or
concessionaire, and that if not so used, the same shall be refunded to him.

The conclusion seems to be that the amount paid by a licensee as reforestation charges is in the nature
of a tax which forms part of the Forestation Fund, payable by him irrespective of whether the area
covered by his license is reforested or not.

Said fund, as the law expressly provides, shall be expended in carrying out the purposes provided for
thereunder, namely, the reforestation or afforestation, among others, of denuded areas needing
reforestation or afforestation.

The weight of authority is to the effect that internal revenue taxes, such as the forest charges in
question is not subject to set-off or compensation. Taxes are not in the nature of contracts between
the parties but grow out of a duty to, and are positive acts of the government, to the making and
enforcing of which, the personal consent of the individual taxpayers is not required.

With respect to the forest charges which the company has paid to the government, they are in the
coffers of the government as tax collected, and the government does not owe anything. It is crystal clear
that the Republic of the Philippines and the Mambulao Lumber Company are not creditors and
debtors of each other, because compensation refers to mutual debts.
Terminal Facilities TEFASCO/ Vs. PPA

GRN 135826 February 27, 2002

De Leon, Jr. &:

Facts:

Tefasco proposed to construct as specialized terminal complex with part facilities and a provision for
sport services in Davao City. On May 7, 1976, PPA accepted the projects TOCs and was authorized to
start work. Tefasco contracted dollar lessons concern from private commercial institution abroad to
construct its specialized facilities and long after the ground breaking, PPA passed a resolution which
imposed a construction; PPA issued another permit the provision of which states that 10% of arrastre
and stevedoring gross income and 100% wharf age and berthing charges be given as government share
it had paid and for damage as a result of alleged illegal exaction from its clients of 100% berthing and
wharf age fees. RTC ruled for Tefasco.

Issue:

Whether or not the collection of 100% wharf age fees and berthing charge are valid.

Ruling:

The authorization for a Tefasco to construct a port was truly a binding construct between the parties. It
was a 2-way advantage for both parties which were the consideration for the contract. The right-
privilege dechotomy came to an end when courts realized that individuals should not be subjected to
the unfettered whims of government officials to withhold privileges previously given them.

In as much as the part is privately owned and maintained, we rule that applicable rate for imported or
exported articles loaded or unloaded thereat is not more than 100% but only 50%.

As regards berthing charges, the Court’s opinion is that only vessels berthing at the national ports arte
liable for berthing fees. The Berthing fees imposed upon vessels berthing are national ports are applied
by the national government for the maintenance ports. The national ports does not maintain municipal
ports which are solely maintain by private entities or municipalities. Thus, PPA erred in collecting
berthing fees.
Cuunjieng v Patstone (1922) Commented [AG20]: The construction of buildings is a
useful enterprise and the amount of the license fee should
therefore be limited to the cost of licensing, regulating, and
surveillance. As it does not appear such cost would
Cuunjieng v Patstone materially increase through the construction of the arcade,
the excess fee is clearly imposed for the purpose of
GR No. L-16254, February 21, 1922 revenue.

FACTS:

Cuunjieng desired to erect a warehouse in Azcarraga street but was denied a building permit until he
shall have made provision for the construction of an arcade over the sidewalk in front of the building
and until he shall have further complied with Section 1 of Ordinance 301 of the City of Manila, i.e.
payment of 1⁄2 of the assessed value of the city land. Cuunjieng filed a petition for a writ of mandamus
to compel the city engineer to issue the permit.

ISSUE:

Whether under the charter, the City of Manila may, under the guise of a license fee and as a
prerequisite for the issuance of a building permit, exact the payment of 1⁄2 of the assessed value of the
portion of the sidewalk covered by the arcade

RULING:

No. The allowable amount of license fee or tax depends so much on the special circumstance of each
particular case.

Adjudications, however, appear to recognize 3 classes of licenses:

(1) licenses for regulation of useful occupations or enterprises;

(2) licenses for the regulation of non-useful occupations or enterprises;

(3) licenses for revenue only.

This should be taken into consideration in determining the reasonableness of the license fee. Herein,
imposing a fee equal to 1⁄2 of the assessed value of the portion of the sidewalk covered by the arcade,
the municipal board exceeded its powers. The construction of buildings is a useful enterprise and the
amount of the license fee should therefore be limited to the cost of licensing, regulating, and
surveillance. As it does not appear such cost would materially increase through the construction of
the arcade, the excess fee is clearly imposed for the purpose of revenue. There is nothing in the
charter of the city indicating legislative intent to confer to the municipal board to impose a license tax
for revenue on the construction of buildings.

Thus, the license fee prescribed is illegal.

Apostolic Prefect of Mt. Province vs Treasurer of Baguio Commented [AG21]: Assessment - local imposition on
property for the payment of the cost of public
In 1937, an ordinance (Ordinance No. 137: Special Assessment List, City of Baguio) was passed in the City improvements in its immediate vicinity and levied with
of Baguio. The said ordinance sought to assess properties of property owners within the defined city reference to special benefits to the property assessed.
limits. The Apostolic Prefect of Mt. Province (APMP), on the other hand, is a religious corporation duly The differences between a special assessment and a tax are:
established under Philippine laws. Pursuant to the ordinance, it paid a total amount of P1,019.37 in (1) a special assessment can be levied only on land;
protest. APMP later averred that it should be exempt from the said special contribution since as a (2) a special assessment cannot (at least in most states) be
made a personal liability of the person assessed;
religious institution, it has a constitutionally guaranteed right not to be taxed including its properties.
(3) a special assessment is based wholly on benefits; and
(4) a special assessment is exceptional both as to time and
locality.
ISSUE: Whether or not APMP is exempt from taxes. As this case illustrates, entities mentioned in Section 28(3)
of the Constitution are not exempt from assessments.

HELD: No. In the first place, the ordinance was in the nature of an assessment and not a taxation.

The test of exemption from taxation is the use of the property for purposes mentioned in the
Constitution. Based on Justice Cooley’s words:

While the word ‘tax’ in its broad meaning, includes both general taxes and special assessments, and in a
general sense a tax is an assessment, and an assessment is a tax, yet there is a recognized distinction
between them in that assessment is confined to local impositions upon property for the payment of
the cost of public improvements in its immediate vicinity and levied with reference to special benefits
to the property assessed. The differences between a special assessment and a tax are that (1) a special
assessment can be levied only on land; (2) a special assessment cannot (at least in most states) be
made a personal liability of the person assessed; (3) a special assessment is based wholly on benefits;
and (4) a special assessment is exceptional both as to time and locality. The imposition of a charge on
all property, real and personal, in a prescribed area, is a tax and not an assessment, although the
purpose is to make a local improvement on a street or highway. A charge imposed only on property
owners benefited is a special assessment rather than a tax notwithstanding the statute calls it a tax.

In the case at bar, the Prefect cannot claim exemption because the assessment is not taxation per se but
rather a system for the benefits of the inhabitants of the city
ESSO V. CIR- Tests of Deductability Commented [AG22]: For an item to be deductible as a
business expense, the expense must be:
FACTS: 1. Ordinary and necessary;
2. Paid or incurred within the taxable year
3. Paid or incurred in carrying on a trade or business
4. Must be proven substantially by evidence or records
ESSO deducted from its gross income for 1959, as part of its ordinary and necessary business expenses,
the amount it had spent for drilling and exploration of its petroleum concessions. The Commissioner Necessary Expense - expenditure is appropriate and helpful
in the development of the taxpayer’s business.
disallowed the claim on the ground that the expenses should be capitalized and might be written off as a
loss only when a “dry hole” should result. Hence, ESSO filed an amended return where it asked for the Ordinary Expense - payment which is normal in relation to
refund of P323,270 by reason of its abandonment, as dry holes, of several of its oil wells. It also claimed the business of the taxpayer and the surrounding
circumstances.
as ordinary and necessary expenses in the same return amount representing margin fees it had paid to
the Central Bank on its profit remittances to its New York Office.

ISSUE: Whether the margin fees may be considered ordinary and necessary expenses when paid.

HELD:

For an item to be deductible as a business expense, the expense must be ordinary and necessary; it
must be paid or incurred within the taxable year; and it must be paid or incurred in carrying on a trade
or business. In addition, the taxpayer must substantially prove by evidence or records the deductions
claimed under law, otherwise, the same will be disallowed. There has been no attempt to define
“ordinary and necessary” with precision. However, as guiding principle in the proper adjudication of
conflicting claims, an expenses is considered necessary where the expenditure is appropriate and
helpful in the development of the taxpayer’s business. It is ordinary when it connotes a payment
which is normal in relation to the business of the taxpayer and the surrounding circumstances.
Assuming that the expenditure is ordinary and necessary in the operation of the taxpayer’s business; the
expenditure, to be an allowable deduction as a business expense, must be determined from the nature
of the expenditure itself, and on the extent and permanency of the work accomplished by the
expenditure. Herein, ESSO has not shown that the remittance to the head office of part of its profits was
made in furtherance of its own trade or business. The petitioner merely presumed that all corporate
expenses are necessary and appropriate in the absence of a showing that they are illegal or ultra vires;
which is erroneous. Claims for deductions are a matter of legislative grace and do not turn on mere
equitable considerations.
SILKAIR (SINGAPORE) PTE, LTD. v. COMMISSIONER OF INTERNAL REVENUE. G.R. No. 173594. February Commented [AG23]: The proper party to question, or
6, 2008 seek a refund of, an indirect tax is the statutory taxpayer

FACTS:

Petitioner is a corporation organized under the laws of Singapore which has a Philippine representative
office, is an online international air carrier.

Silkair filed with the Bureau of Internal Revenue (BIR) for the refund of excise taxes for their purchase of
jet fuel.

The CIR, in their reply, said that petitioner failed to prove that the sale of the fuel was directly made
from a domestic oil company to them. The excise tax on petroleum products is the direct liability of the
manufacturer/producer, and when added to the cost of the goods sold to the buyer, it is no longer a tax
but part of the price which the buyer has to pay to obtain the article.

The CTA denying Silkair’s petition stated that as the excise tax was imposed manufacturer of petroleum
products, any claim for refund should be filed by the latter; and where the burden of tax is shifted to the
purchaser, the amount passed on to it is no longer a tax but becomes an added cost of the goods
purchased.

ISSUE: Whether Silkair PTE. Ltd. can claim for tax credit.

RULING:

No. The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the
person on whom the tax is imposed by law and who paid the same even if he shifts the burden
thereof to another. Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to
claim a refund based on Section 135 of the NIRC of 1997.

Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to
Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.
ABAKADA Guro Party List vs. Ermita Commented [AG24]: For delegation to be valid, it must
be complete and it must fix a standard.
G.R. No. 168056 September 1, 2005
Sufficient standard
1. Defines legislative policy
2. Marks its limits
For the delegation to be valid, it must be complete and it must fix a standard. A sufficient standard is 3. Maps out its boundaries
one which defines legislative policy, marks its limits, maps out its boundaries and specifies the public 4. Specifies the public agency to apply it

agency to apply it.

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

COMMISSIONER OF INTERNAL REVENUE

versus

PHILIPPINE LONG DISTANCE COMPANY Commented [AG25]: Statutes granting tax exemptions
must be construed in strictissimi juris against the taxpayer
and liberally in favor of the taxing authority.

Facts: PLDT is a grantee of a franchise under Republic Act (R.A.) No. 7082 to install, operate and
maintain a telecommunications system throughout the Philippines. For equipment, machineries and
spare parts it imported for its business on different dates from October 1, 1992 to May 31, 1994, PLDT
paid the BIR the amount of P164,510,953.00, broken down as follows: (a) compensating tax of
P126,713,037.00; advance sales tax of P12,460,219.00 and other internal revenue taxes of
P25,337,697.00. For similar importations made between March 1994 to May 31, 1994, PLDT paid
P116,041,333.00 value-added tax (VAT).
On March 15, 1994, PLDT addressed a letter to the BIR seeking a confirmatory ruling on its tax
exemption privilege under Section 12 of R.A. 7082. Sec. 12. xxx and the said percentage shall be in lieu
of all taxes on this franchise or earnings thereof: xxx
The person claiming a refund or exemption from tax
payments has the burden of proving the exemption in
words too plain to be mistaken and too categorical to be
misinterpreted.
PLDT is not exempt from VAT.
As may be noted, the clause “in lieu of all taxes” in Section
12 of RA 7082 is immediately followed by the qualifying
clause “on this franchise or earnings thereof”, suggesting
that the exemption is limited to taxes imposed directly on
PLDT since taxes pertaining to PLDT’s franchise or earnings
are its direct liability. Indirect taxes, not being taxes on
PLDT’s franchise or earnings, are outside the purview of the
“in lieu” provision.

Then the BIR issued Ruling No. UN-140-94 PLDT shall be subject only to the following taxes, to wit: xxx
The 3% franchise tax on gross receipts which shall be in lieu of all taxes on its franchise or earnings
thereof. xxx The “in lieu of all taxes” provision under Section 12 of RA 7082 clearly exempts PLDT from
all taxes including the 10% value-added tax (VAT) prescribed by Section 101 (a) of the same Code on its
importations of equipment, machineries and spare parts necessary in the conduct of its business
covered by the franchise, except the aforementioned enumerated taxes for which PLDT is expressly
made liable.

Thus PLDT filed on December 2, 1994 a claim for tax credit/refund of the VAT, compensating taxes,
advance sales taxes and other taxes it had been paying “in connection with its importation of various
equipment, machineries and spare parts needed for its operations”. With its claim not having been
acted upon by the BIR, and obviously to forestall the running of the prescriptive period therefor, PLDT
filed with the CTA a petition for review. CTA rendered a decision in favor of PLDT. BIR moved for a
reconsideration but to no avail. Hence this petition.

Issue: Whether or not PLDT, given the tax component of its franchise, is exempt from paying VAT,
compensating taxes, advance sales taxes and internal revenue taxes on its importations.
Held: Time and again, the Court has stated that taxation is the rule, exemption is the exception.
Accordingly, statutes granting tax exemptions must be construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. To him, therefore, who claims a refund or
exemption from tax payments rests the burden of justifying the exemption by words too plain to be
mistaken and too categorical to be misinterpreted.

As may be noted, the clause “in lieu of all taxes” in Section 12 of RA 7082 is immediately followed by the
limiting or qualifying clause “on this franchise or earnings thereof”, suggesting that the exemption is
limited to taxes imposed directly on PLDT since taxes pertaining to PLDT’s franchise or earnings are its
direct liability. Accordingly, indirect taxes, not being taxes on PLDT’s franchise or earnings, are outside
the purview of the “in lieu” provision.

If we were to adhere to the appellate court’s interpretation of the law that the “in lieu of all taxes”
clause encompasses the totality of all taxes collectible under the Revenue Code, then, the immediately
following limiting clause “on this franchise and its earnings” would be nothing more than a pure jargon
bereft of effect and meaning whatsoever. Needless to stress, this kind of interpretation cannot be
accorded a governing sway following the familiar legal maxim redendo singula singulis meaning, take the
words distributively and apply the reference. Under this principle, each word or phrase must be given its
proper connection in order to give it proper force and effect, rendering none of them useless or
superfluous.