I.

TAXATION
A. Definition
Taxation is the act of laying a tax, i.e., the process or means by which the sovereign, through its law-making body, raises income to defray the necessary
expenses of government. It is merely a way of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits and,
therefore, must bear its burdens.
As a power, taxation refers to the inherent power of the state to demand enforced contributions for public purpose.

a. PASEO REALTY & DEVELOPMENT CORPORATION v. COURT OF APPEALS, COURT OF TAX APPEALS & COMMISSIONER OF
INTERNAL REVENUE

FACTS:
Paseo Realty and Development Corporation is a corporation engaged in the lease of 2 parcels of land at Paseo de Roxas in Makati City. It filed its
Income Tax Return for the calendar year 1989 declaring a
o gross income of P1,855,000.00,
o deductions of P1,775,991.00,
o net income of P79,009.00,
o an income tax of P27,653.00,
o prior years excess credit of P146,026.00, and creditable taxes withheld in 1989 of P54,104.00 or a total tax credit of P200,130.00 and
o credit balance of P172,477.00.
Petitioner filed a claim for refund of excess creditable withholding and income taxes for the years 1989 and 1990 in the aggregate amount of P147,036.15.
o Alleging that prescriptive period for refunds for 1989 would expire on December 30, 1991 and that it was necessary to interrupt the prescriptive
period, petitioner filed with the respondent Court of Tax Appeals a petition for review praying for the refund of P54,104 representing creditable
taxes withheld from income payments
Respondent Commissioner filed an Answer and by way of special and/or affirmative defenses averring the following:
a) the petition states no cause of action for failure to allege the dates when the taxes sought to be refunded were paid;
b) petitioners claim for refund is still under investigation by respondent Commissioner;
c) the taxes claimed are deemed to have been paid and collected in accordance with law and existing pertinent rules and regulations;
d) petitioner failed to allege that it is entitled to the refund or deductions claimed;
e) petitioners contention that it has available tax credit for the current and prior year is gratuitous and does not ipso facto warrant the refund;
f) petitioner failed to show that it has complied with the provision of Section 230 in relation to Section 204 of the Tax Code.
After trial, the respondent Court rendered a decision ordering respondent Commissioner to refund in favor of petitioner the amount of P54,104,
representing excess creditable withholding taxes paid for January to July1989.
o Respondent Commissioner moved for reconsideration, alleging that the P54,104 to be refunded has already been included and is part of the
P172,477.00 which petitioner automatically applied as tax credit for the succeeding taxable year 1990.
21 October 1993, respondent Court reconsidered its decision and dismissed the petition for review, stating that it has overlooked the fact that petitioners
1989 Corporate Income Tax Return indicated the amount of P54,104 subject of petitioners claim for refund has already been included as part of
P172,477.00 which the petitioner automatically applied as tax credit for the succeeding taxable year 1990.
o Petitioner filed a Motion for Reconsideration which was denied by respondent Court.

Paseo filed a Petition for Review before the CA where, resolving the twin issues of
o whether petitioner is entitled to a refund of P54,104.00 representing creditable taxes withheld in 1989 and
o whether petitioner applied such creditable taxes withheld to its 1990 income tax liability,
The appellate court held that petitioner is not entitled to a refund because it had already elected to apply the total amount of P172,447.00, which includes
the P54,104 refund claimed, against its income tax liability for 1990
CA denied petitioners Motion for Reconsideration because the motion merely restated the grounds which have already been considered

Petitioner thus filed the Petition for Review arguing that the evidence presented before the lower courts conclusively shows
o that it did not apply the P54,104 to its 1990 income tax liability;
o that the Decision subject of the instant petition is inconsistent with a final decision of the 16th Division of the appellate court involving the same
parties and subject matter;
o and that the affirmation Decision would lead to absurd results in the manner of claiming refunds or in the application of prior years excess tax
credits.
The OSG filed a Comment asserting that claimed refund was, by petitioners election in its Corporate Annual Income Tax Return for 1989, be applied
against its tax liability for 1990.
o The OSG also contends that petitioners election to apply its overpaid income tax as tax credit against its liabilities for the succeeding taxable year is
mandatory and irrevocable.
Petitioner filed a Reply insisting that the issue in this case is not whether the P54,104 was included as tax credit to be applied against its 1990 income tax
liability but whether the same amount was actually applied as tax credit for 1990.
o Petitioner claims that there is no need to show that the amount had not been automatically applied against its 1990 income tax liability because the
appellate courts decision clearly held that petitioner charged its 1990 income tax liability against its tax credit for 1988 and not 1989.
o Petitioner also disputes the OSGs assertion that the taxpayers election as to the application of excess taxes is irrevocable averring that there is
nothing in the law that prohibits a taxpayer from changing its mind especially if subsequent events leave the latter no choice but to change its
election.

ISSUE:
Whether or not petitioner is entitled to a refund in the amount of 54,104.00
RULING:
NO. The Court denied the petition, holding that other than petitioners own bare allegations, it offers no proof to the effect that its creditable tax of
P172,477.00 was applied as claimed. Instead, it anchors its assertion of entitlement to refund on an alleged finding in C.A.-G.R. Sp. No. 32890 involving
the same parties to the effect that petitioner charged its 1990 income tax liability to its tax credit for 1988 and not its 1989 tax credit. Hence, its excess
creditable taxes withheld of P54,104 for 1989 was left untouched and may be refunded.
Note should be taken, that nowhere in the case did the Court of Appeals make a determination that petitioners tax liability for 1990 was applied against
its 1988 tax credit. The statement adverted to by petitioner was actually presented in the appellate courts decision as part of petitioners own narration of
facts.
The confusion as to petitioners entitlement to a refund could altogether have been avoided had it presented its tax return for 1990. Such return would
have shown whether petitioner actually applied its 1989 tax credit of P172,477.00, which includes the P54,104 creditable taxes withheld for 1989 subject
of the instant claim for refund, against its 1990 tax liability as it had elected in its 1989 return, or at least, whether petitioners tax credit of P172,477.00
was applied to its approved refunds as it claims.
The grant of a refund is founded on the assumption that the tax return is valid (i.e., that the facts stated therein are true and correct). Without the tax
return, it is error to grant a refund since it would be virtually impossible to determine whether the proper taxes have been assessed and paid.
Section 69, Chapter IX, Title II of the National Internal Revenue Code of the Philippines (NIRC) provides:
xxx In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final
adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year.
In this case, petitioners failure to present sufficient evidence to prove its claim for refund is fatal to its cause. After all, it is axiomatic that a claimant has
the burden of proof to establish the factual basis of his or her claim for tax credit or refund. Tax refunds, like tax exemptions, are construed strictly against
the taxpayer.

Taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property
for the support of the government. And since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against
exemptions from taxation and statutes granting tax exemptions are thusconstrued strictissimi juris against the taxpayer and liberally in favor of the taxing
authority. A claim of refund or exemption from tax payments must be clearly shown and be based on language in the law too plain to be mistaken.
Elsewise stated, taxation is the rule, exemption therefrom is the exception.
While a taxpayer is given the choice whether to claim for refund or have its excess taxes applied as tax credit for the succeeding taxable year, such
election is not final. Prior verification and approval by the Commissioner of Internal Revenue is required. The availment of the remedy of tax credit is not
absolute and mandatory. It does not confer an absolute right on the taxpayer to avail of the tax credit scheme if it so chooses. Neither does it impose a
duty on the part of the government to sit back and allow an important facet of tax collection to be at the sole control and discretion of the taxpayer.
B. Nature of Internal Revenue Law
a. Internal revenue laws are not political in nature. They are deemed to be the laws of the occupied territory and not of the occupying enemy. Thus, our tax laws
continued in force during the period of Japanese occupation, and were actually enforced by the occupation government. As a matter of fact, income tax returns
were filed during that period and the tax payments made are considered valid and legal. (Hilado v. CIR)

b. Tax laws are civil and not penal in nature although there are penalties provided for their violation. The purpose of tax laws in imposing penalties for
delinquencies is to compel the timely payment of taxes or to punish evasion or neglect of duty in respect thereof.

a. EMILIO Y. HILADO v. THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS

FACTS:
In 1952, petitioner filed his income tax return for 1951 with the treasurer of BacolodCity wherein he claimed, the amount of P12,837.65 as a
deductible item pursuant to General Circular No. V-123 issued by the CIR.
o On the basis of said return, an assessment notice demanding the payment of P9,419 was sent to petitioner, who paid the tax in monthly installments.
The Secretary of Finance, through the Collector of Internal Revenue, issued General Circular No. V-139 which not only revoked and declared void
his General Circular No. V- 123 but laid down the rule that losses of property which occurred during the period of World War II are deductible in the
year of actual loss or destruction of said property.
o As a consequence, the amount of P12,837.65 was disallowed as a deduction from the gross income of petitioner for 1951 and the Collector of
Internal Revenue demanded from him the payment of the sum of P3,546 as deficiency income tax for said year.
It appears that Petitioner claimed in his 1951 income tax return the deduction of the sum of P12,837.65 as a loss consisting in a portion of his war damage
claim which had been duly approved by the Philippine War Damage Commission under the Philippine Rehabilitation Act of 1946 but which was not
paid pursuant to a notice served upon him by said Commission that said part of his claim will not be paid until the United States Congress should make
further appropriation. He claims that said amount of P12,837.65 represents a business asset within the meaning of said Act which he is entitled to
deduct as a loss in his return for 1951.
When the petition for reconsideration filed by petitioner was denied, he filed a petition for review with the Court of Tax Appeals.
o In due time, the SC rendered decision affirming the assessment made by Respondent Collector of Internal Revenue. This is an appeal from said
decision.

ISSUE:
Whether or not the amount of P12,837.65 represents a business asset which entitles him to a deduction as a loss in his return

RULING:
NO. The Court affirmed the decision appealed from. To begin with, assuming that said amount represents a portion of the 75% of his war damage claim
which was not paid, the same would not be deductible as a loss in 1951 because, according to petitioner, the last installment he received from the War
Damage Commission, together with the notice that no further payment would be made on his claim, was in 1950.
In the circumstance, said amount would at most be a proper deduction from his 1950 gross income. Second, said amount cannot be considered as a
business asset which can be deducted as a loss in contemplation of law because its collection is not enforceable as a matter of right, but is dependent
merely upon the generosity and magnanimity of the U. S. government. This is in line with section 30 (d) of the National Internal Revenue Code which
prescribes that losses sustained are allowable as deduction only within the corresponding taxable year.
Petitioners contention that during the last war and as a consequence of enemy occupation in the Philippines there was no taxable year within the
meaning of our internal revenue laws because during that period they were unenforceable, is without merit. It is well known that our internal revenue
laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the
occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid
and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy.
With regard to the contention that General Circular No. V-139 cannot be given retroactive effect because that would affect and obliterate the vested right
acquired by Petitioner under the previous circular, suffice it to say that General Circular No. V-123, having been issued on a wrong construction of the
law, cannot give rise to a vested right that can be invoked by a taxpayer. The reason is obvious a vested right cannot spring from a wrong
interpretation.
C. Scope and Nature of Taxation
1. Scope
In its broadest and most general sense, taxation includes every imposition of charge or burden by the sovereign power upon persons, property, or property
rights for the use and support of the government and to enable it to discharge its appropriate functions

2. Nature
a) It is inherent in sovereignty. The power of taxation is inherent in sovereignty as an incident or attribute thereof, being essential to the existence of every
government. It exists apart from constitutions and without being expressly conferred by the people. (71 Am. Jur. 2d 397-398.) Hence, it can be exercised
by the government even if the Constitution is entirely silent on the subject.
a. Constitutional provisions relating to the power of taxation do not operate as grants of the power to the government. They merely constitute
limitations upon a power which would otherwise be practically without limit.
b. While the power to tax is not expressly provided for in our Constitution, its existence is recognized by the provisions relating to taxation.

b) It is legislative in character. The power to tax is peculiarly and exclusively legislative and cannot be exercised by the executive or judicial branch of the
government. Hence, only Congress, our national legislative body, can impose taxes. The levy of a tax, however, may also be made by a local legislative
body subject to such limitations as may be provided by law. The Constitution expressly grants the power to tax to local government units

c) It is subject to constitutional and inherent limitations. The power of taxation is subject to certain limitations. Most of these limitations are specifically
provided in the Constitution or implied therefrom, while the rest are inherent and they are those which spring from the nature of the taxing power itself
although they may or may not be provided in the Constitution.

Individual equities or inequalities, however, are not considered in the exercise of the power; and therefore, the mere fact that taxation is unjust or
oppressive with respect to a particular taxpayer does not itself render a tax law invalid, where no constitutional provision has been violated.

a. Sec. 28, Art VI, 1987 Constitution

1. The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
2. The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates,
import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the
Government.
3. Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation.
4. No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress.

b. ANTERO M. SISON, JR. v. RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy Commissioner;
TOMAS TOLEDO Deputy Commissioner; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on Audit,
and CESAR E. A. VIRATA, Minister of Finance

FACTS:
Petitioner assails the constitutionality/validity of Section I of BP. 135 which further amends Section 21 of the National Internal Revenue Code of 1977,
which provides for rates of tax on citizens or residents on
a) taxable compensation income,
b) taxable net income,
c) royalties, prizes, and other winnings,
d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements,
e) dividends and share of individual partner in the net profits of taxable partnership,
f) adjusted gross income.
Petitioner as taxpayer alleges that, he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the
exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers.
o He characterizes the above section as arbitrary amounting to class legislation, oppressive and capricious in character.
o For petitioner, therefore, there is a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule
requiring uniformity in taxation.

ISSUE:
Whether or not said provision of law is constitutional/valid

RULING:
YES. The Court dismissed the petition. It is manifest that the field of state activity has assumed a much wider scope. The reason was so clearly set forth
by retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and initiative and which the government was called upon to
enter optionally, and only because it was better equipped to administer for the public welfare than is any private individual or group of individuals,
continue to lose their well-defined boundaries and to be absorbed within activities that the government must undertake in its sovereign capacity if it is to
meet the increasing social challenges of the times."
Hence the need for more revenues. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is
the source of the bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain availability is
of the essence.
The injury thus is centered on the question of whether the imposition of a higher tax rate on taxable net income derived from business or profession than
on compensation is constitutionally infirm.
 The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, does not suffice. There must be a factual foundation of
such unconstitutional taint. Considering that petitioner here would condemn such a provision as void, he has not made out a case. This is merely to adhere
to the authoritative doctrine that where the due process and equal protection clauses are invoked, considering that they are not fixed rules but rather broad
standards, there is a need for such a persuasive character of scrutiny as would lead to such a conclusion of unconstitutionality. Absent such a showing, the
presumption of validity must prevail.
It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious
example is where it can be shown to amount to the confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Court
to say that such an arbitrary act amounted to the exercise of an authority not conferred. It has also been held that where the assailed tax measure is beyond
the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due
process grounds.
Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution, the rule of taxation shall be uniform and equitable. This
requirement is met when the tax operates with the same force and effect in every place where the subject may be found. He likewise added that the rule of
uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable. The Supreme Court held that equality and uniformity
in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation.

c. COMMISSIONER OF INTERNAL REVENUE v. MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA

FACTS:
May 23, 1945Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate
proceedings were had in the Court of First Instance of Manila wherein the surviving widow was appointed administratrix.
June 8, 1948, the estate was divided among and awarded to the heirs and the proceedings terminated.
o Manuel B. Pineda's share amounted to about P2,500.00.
After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income tax liability of the estate for the years 1945, 1946,
1947 and 1948 and it found that the corresponding income tax returns were not filed.
o Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate on the basis of information and data obtained
from the aforesaid estate proceedings and issued an assessment.
After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the Commissioner on the ground that his right to assess
and collect the tax has prescribed.
The Commissioner appealed and this Court affirmed the findings of the Tax Court in respect to the assessment for income tax for the year 1947 but
held that the right to assess and collect the taxes for 1945 and 1946 has not prescribed.
o For 1945 and 1946 the returns were filed on August 24, 1953; assessments for both years were made within five years therefrom or on October 19,
1953; and the action to collect the tax was filed within five years from the latter date, on August 7, 1957.
o For taxable year 1947, however, the return was filed on March 1, 1948; the assessment was made on October 19, 1953, more than five years from
the date the return was filed; hence, the right to assess income tax for 1947 had prescribed.
The SC remanded the case to the CTA for further appropriate proceedings where the parties submitted the case for decision without additional evidence
holding Manuel B. Pineda liable for the payment corresponding to his share.
Petitioner appealed to the SC and has proposed to hold Manuel B. Pineda liable for the payment of all the taxes found by the CTA to be due from the
estate in the total amount of P760.28, instead of only for the amount of taxes corresponding to his share in the estate.
Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid income tax due the estate only up to the extent of and in
proportion to any share he received.

ISSUE:
Whether or not Government can require Manuel B. Pineda to pay the full amount of the taxes assessed.

RULING:
YES. The Court ruled in favor of petitioner Commissioner. Respondent Pineda is liable for the assessment as an heir and as a holder-transferee of
property belonging to the estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate to the share he received from the
inheritance. His liability, however, cannot exceed the amount of his share.
As a holder of property belonging to the estate, Pineda is liable up to the amount of the property in his possession. The reason is that the Government has
a lien on the P2,500 received by him from the estate as his share in the inheritance, for unpaid income taxes for which said estate is liable, pursuant to the
last paragraph of Section 315: xxx If any person, corporation, partnership, joint-account (cuenta en participacion), association, or insurance company
liable to pay the income tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the Government of the Philippines
from the time when the assessment was made by the Commissioner of Internal Revenue until paid with interest, penalties, and costs that may accrue in
addition thereto upon all property and rights to property belonging to the taxpayer xxx . . .
By virtue of such lien, the Government has the right to subject the property in Pineda's possession to satisfy the income tax assessment in the sum of
P760.28. After such payment, Pineda will have a right of contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the
distributable estate. The Bureau of Internal Revenue should be given the necessary discretion to avail itself of the most expeditious way to collect the
tax because taxes are the lifeblood of government and their prompt and certain availability is an imperious need. And ultimately, the suit seeks to achieve
only one objective: payment of the tax.
d. THE PHILIPPINE GUARANTY CO., INC. v. THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS

FACTS:
Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts, on various dates, with foreign insurance companies
not doing business in the Philippines.
o Petitioner thereby agreed to cede to the foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines, in
consideration for the assumption by the latter of liability on an equivalent portion of the risks insured.
o Said reinsurance contracts were signed by Phil Guaranty in Manila and by the foreign reinsurers outside the Philippines, except the contract with
Swiss Reinsurance Company, which was signed by both parties in Switzerland.
The reinsurance contracts made the commencement of the reinsurers' liability simultaneous with that of Phil Guaranty Co under the original insurance.
o Petitioner was required to keep a register in Manila where the risks ceded to the foreign reinsurers were entered, and entry therein was binding upon
the reinsurers.
o A proportionate amount of taxes on insurance premiums not recovered from the original assured were to be paid for by the foreign reinsurers.
o The foreign reinsurers further agreed, in consideration for managing or administering their affairs in the Philippines, to compensate Phil Guaranty
in an amount equal to 5% of the reinsurance premiums. Conflicts and/or differences between the parties under the reinsurance contracts were to be
arbitrated in Manila.
o Petitioner and Swiss Reinsurance Company stipulated that their contract shall be construed by the laws of the Philippines.
Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to the foreign reinsurers premiums of 842,466.71 and 721,471.85,
for the years 1953 and 54, respectively.
Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it filed its income tax returns for 1953 and 1954.
Furthermore, it did not withhold or pay tax on them.
Consequently, the Commissioner of Internal Revenue assessed against Phil Guaranty withholding tax on the ceded reinsurance premiums. Petitioner
company protested the assessment on the ground that reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are not
subject to withholding tax. Its protest was denied and it appealed to the Court of Tax Appeals where it rendered judgment in favor of the CIR.
Phil Guaranty has appealed, questioning the legality of the CIRs assessment for withholding tax on the reinsurance premiums ceded in 1953 and 1954
to the foreign reinsurers.
Petitioner maintains that the reinsurance premiums in question did not constitute income from sources within the Philippines because the foreign
reinsurers did not engage in business in the Philippines, nor did they have office here.

ISSUE:
Whether or not petitioner company is liable for withholding taxes on the reinsurance premiums ceded to the foreign corps

RULING:
YES. The Court ordered Phil Gua to pay the taxes due, holding that Sec. 24 of the Tax Code subjects foreign corporations to tax on their income from
sources within the Philippines. The word "sources" has been interpreted as the activity, property or service giving rise to the income. The reinsurance
premiums were income created from the undertaking of the foreign reinsurance companies to reinsure PH Guaranty against liability for loss under
original insurances. Such undertaking, took place in the Philippines. These insurance premiums, therefore, came from sources within the Philippines and,
hence, are subject to corporate income tax.
In addition, the reinsurance contracts show that the transactions or activities that constituted the undertaking to reinsure petitioner company against losses
arising from the original insurances in the Philippines were performed in the Philippines. The liability of the foreign reinsurers commenced
simultaneously with the liability of PH Gua under the original insurances. PH Gua kept in Manila a register of the risks ceded to the foreign reinsurers.
Entries made in such register bound the foreign reinsurers, localizing in the Philippines the actual cession of the risks and premiums and assumption of the
reinsurance undertaking by the foreign reinsurers.
Taxes on premiums imposed by Section 259 of the Tax Code for the privilege of doing insurance business in the Philippines were payable by the foreign
reinsurers when the same were not recoverable from the original assured. The foreign reinsurers paid Philippine Guaranty Co., Inc. an amount
equivalent to 5% of the ceded premiums, in consideration for administration and management by the latter of the affairs of the former in the Philippines
in regard to their reinsurance activities here. Disputes and differences between the parties were subject to arbitration in the City of Manila. All the
reinsurance contracts, except that with Swiss Reinsurance Company, were signed by Philippine Guaranty Co., Inc. in the Philippines and later signed
by the foreign reinsurers abroad. Although the contract between Philippine Guaranty Co., Inc. and Swiss Reinsurance Company was signed by both
parties in Switzerland, the same specifically provided that its provision shall be construed according to the laws of the Philippines, thereby manifesting a
clear intention of the parties to subject themselves to Philippine law.
Petitioner further contends that the reinsurance premiums are not income from sources within the Philippines because they are not specifically mentioned
in Section 37 of the Tax Code. Section 37 is not an all-inclusive enumeration, for it merely directs that the kinds of income mentioned therein should be
treated as income from sources within the Philippines but it does not require that other kinds of income should not be considered likewise.
 CASE DOCTRINE:
In respect to the question of whether or not reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are subject to
withholding tax under Section53 and 54 of the Tax Code, suffice it to state that this question has already been answered in the affirmative in Alexander
Howden & Co., Ltd. vs. Collector of Internal Revenue.
Finally, petitioner contends that the withholding tax should be computed from the amount actually remitted to the foreign reinsurers instead of from the
total amount ceded. And since it did not remit any amount to its foreign insurers in 1953 and 1954, no withholding tax was due.

The foreign insurers' place of business should not be confused with their place of activity. Business should not be continuity and progression of
transactions while activity may consist of only a single transaction. An activity may occur outside the place of business. Section 24 of the Tax Code does
not require a foreign corporation to engage in business in the Philippines in subjecting its income to tax. It suffices that the activity creating the income is
performed or done in the Philippines. What is controlling, therefore, is not the place of business but the place of activity that created an income.
The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and
a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public
improvement designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which a
government is supposed to provide.

e. COLLECTOR OF INTERNAL REVENUE v.J.C. YUSECO and The COURT OF TAX APPEALS,

FACTS:
CIR seeks a review under section 18, of RA 1125, and prays for the setting aside of the CTA judgment, which declared the warrant of distraint and levy
issued against J.C. Yuseco to effect collection of income tax for the year 1945&1946 allegedly due Yuseco as null and void and had no legal force and
effect.
JC Yuseco did not file his income tax returns for the years 1945&1946. Upon knowledge of revenue examiners, they made income tax returns for Yuseco
and upon which, CIR assessed and demanded from Yuseco the sums P134.14 and P7563.28 representing alleged income taxes and corresponding
surcharges for 1945&1946
Yuseco then requested for a reinvestigation of the case and asked for an opportunity to present his side of the matter. However, CIR denied.
Yuseco again requested for a reinvestigation of the case, but nothing was done for almost 3 years
Jan 1953, CIR then issued a warrant of distraint and levy upon Yusecos properties, which was not executed.
July 1953, CIR Issued a revised assessment notice which reduced the original assessment for the 1946 income tax.
Aug 1953,Yuseco, in a letter, acknowledged receipt of the modified assessment and requested that he be informed of such action
Sept 1953, CIR demanded from Yuseco the payment of said modfied sum for 1946 plus penalties incident to delinquency and for the 1945 income tax
assessment. Thereafter, CIR did not take any further action to effect collection of the assessment
Jan 1955, CIR again issued a warrant of distraint and levy on properties of Yuseco to effect collection
Dec 1955, while the distraint is still enforced, Yuseco filed a petition for prohibition befpre the Court of Tax Appeals.
CIR assails the jurisdiction of CTA to take cognizance of Yusecos petition that seeks to enjoin CIR from collecting, averring that Yuseco cannot bring
before CTA an independent special civil action for prohibition without taking to said Court of Appeals from the decision or ruling of the CIR in cases
provided for in Sections 7 and 11 of RA 1125

ISSUE:
Whether or not CTA has jurisdiction over the petition of Yuseco

HELD:
No. Nowhere does the law expressly vest in the Court of Tax Appeals original jurisdiction to issue writs of prohibition and injunction independently of,
and apart from, an appealed case.
The writ of prohibition or injunction that it may issue under the provisions of section 11, Republic Act No. 1125, to suspend the collection of taxes, is
merely ancillary to and in furtherance of its appellate jurisdiction in the cases mentioned in section 7 of the Act. The power to issue the writ exists only in
cases appealed to it.
Congressman Castaeda, one of the proponents of the bill, in his opening remarks sponsoring its enactment into law, said that "House Bill No. 175 has for
its purpose the creation of a regular court of tax appeals." Answering a question from Congressman Alonzo whether the Court of Tax Appeals would have
only appellate jurisdiction and no concurrent or original jurisdiction, the proponent said that "It has exclusive jurisdiction with reference to matters or
cases arising from the Internal Revenue Code, the Customs Law and the Assessment Law." Dwelling further on the subject, the two members of the
House of Representatives
These statements made during the proceedings indicate that the intention of Congress was to vest the Court of Tax Appeals with jurisdiction to issue
writs of prohibition and injunction only in aid of its appellate jurisdiction in cases appealed to it and not to clothe it with original jurisdiction to issue
them. Such intent is reflected on the second paragraph of section 11, Republic Act No. 1125 quoted above.Taxes being the chief source of revenue for
the Government to keep it running must be paid immediately and without delay. A taxpayer who feels aggrieved by the decision or ruling handed down
by a revenue officer and appeals from his decision or ruling to the Court of Tax Appeals must pay the tax assessed, except that, if in the opinion of the
Court the collection would jeopardize the interest of the Government and/or the taxpayer, it could suspend the collection and require the taxpayer either to
deposit the amount claimed or to file a surety bond for not more than double the amount of the tax assessed.
f. COMMISSIONER OF INTERNAL REVENUE, v. ALGUE, INC., and THE COURT OF TAX APPEALS,

FACTS:
January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction and other allied activities, received a letter from
the petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959
January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp received on the same day in the office of the
petitioner.
March 12, 1965, a warrant of distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to
receive it on the ground of the pending protest.
April 7, 1965,Atty. Guevara was finally informed that the BIR was not taking any action on the protest and it was only then that he accepted the warrant
of distraint and levy earlier sought to be served.
April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary
business expense.
CTA held that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was 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.
The said court found, the amount was earned through the joint efforts of the persons among whom it was distributed It has been established that the
Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing
process.
The formation of the Vegetable Oil Investment Corporation was the made. Thereafter, this new corporation purchased the PSEDC properties. For this
sale, Algue received as agent a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to the
aforenamed individuals.
The petitioner claims that these payments are fictitious because most of the payees are members of the same family in control of Algue.
CIR suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction.

ISSUES:
1. Whether or not the appeal of the private respondent from the decision of the Collector of Internal Revenue was made on time and in accordance with
law.
2. Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate
business expenses in its income tax returns

HELD:
1. Yes.
According to Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the decision or ruling challenged. It is true that as a rule
the warrant of distraint and levy is "proof of the finality of the assessment"and renders hopeless a request for reconsideration," being "tantamount to
an outright denial thereof and makes the said request deemed rejected."
However, the proven fact is that, four days after the private respondent received the petitioner's notice of assessment, it filed its letter of protest. This
was apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the
intervening period, the warrant was premature and could therefore not be served.

2. No.
We agree with the respondent court that the amount of the promotional fees was not excessive. The total commission paid by the Philippine Sugar
Estate Development Co. to the private respondent was P125,000.00. 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. This finding of the respondent court is in accord with the following provision of the TaxCode:
SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions
(a) Expenses:
(1) In general.--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; ...
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred in carrying on any trade or business
may be included a reasonable allowance for salaries or other compensation for personal services actually rendered. The test of deductibility in the
case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and deductibility in the case of
compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and its practical application may be
further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible. (a) An ostensible salary paid by a
corporation may be a distribution of a dividend on stock. This is likely to occur in the case of a corporation having few stockholders, Practically all of
whom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for similar services, and the excessive payment correspond or
bear a close relationship to the stockholdings of the officers of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the stock. . . .
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its controlling stockholders.
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed deduction. In the present case,
however, we find that the onus has been discharged satisfactorily. The private respondent 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. This was no mean feat and should be, as it was, sufficiently recompensed.
It is said that taxes are what we pay for civilization 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. This symbiotic relationship is the rationale of taxation
and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably
and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For
all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been
observed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the respondent court in accordance with
Rep. Act No. 1125. And we also find that the claimed deduction by the private respondent was permitted under the Internal Revenue Code and should
therefore not have been disallowed by the petitioner.

g. MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, v.HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the
Regional Trial Court, Branch 20, Cebu City, THE CITY OF CEBU, represented by its Mayor HON. TOMAS R. OSMEA, and EUSTAQUIO B.
CESA,

FACTS :
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958, mandated to "principally
undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and
the Lahug Airport in Cebu City, . . . and such other Airports as may be established in the Province of Cebu . . . (Sec. 3, RA 6958).
MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter.
Sec. 14. Tax Exemptions. The authority shall be exempt from realty taxes imposed by the National Government or any of its political subdivisions,
agencies and instrumentalities . . .
October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of the City of Cebu, demanded payment for realty taxes
on several parcels of land belonging to the petitioner.
Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the aforecited Section 14 of RA 6958 which exempt it
from payment of realty taxes. 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 which puts limitations on the taxing powers of local government units:
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 barangay shall not extend to the levy of the following:
a) . . .o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. (Emphasis
supplied)
Respondent 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 Sections193 and 234 of the Local Governmental Code that took effect on January 1, 1992:
Sec. 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives
duly registered under RA No. 6938, non-stock, and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code. (Emphasis supplied)
As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the latter was compelled to pay its tax account "under
protest" and thereafter filed a Petition for Declaratory Relief with the Regional Trial Court of Cebu
MCIAA basically contended that the taxing powers of local government units do not extend to the levy of taxes or fees of any kind on
an instrumentalityof the national government and insisted that while it is indeed a government-owned corporation, it nonetheless stands on the same
footing as an agency or instrumentality of the national government by the very nature of its powers and functions.
Respondent City, however, asserted that MCIAA is not an instrumentality of the government but merely a government-owned corporation performing
proprietary functions As such, all exemptions previously granted to it were deemed withdrawn by operation of law, as provided under Sections 193 and
234 of the Local Government Code when it took effect on January 1, 1992
The trial court, in dismissing the petition, ruled that that petitioner in this case has to pay the assessed realty tax of its properties effective after January 1,
1992 until the present. RA 7160 expressly provides that "All general and special laws, acts, city charters, decress [sic], executive orders, proclamations
and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly." ([f], Section 534, RA 7160).With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption provided for in RA
6958 creating petitioner had been expressly repealed by the provisions of the New Local Government Code of 1991.

ISSUES:
1. Whether or not the petitioner is vested with government powers and functions which place it in the same category as an instrumentality or agency of the
government
2. Whether or not the petitioner is liable to pay real property taxes to the city of cebu

HELD:
1. Yes. An instrumentality of Government is one created to perform governmental functions primarily to promote certain aspects of the economic life of the
people. Considering its task "not merely to efficiently operate and manage the Mactan-Cebu International Airport, but more importantly, to carry out
the Government policies of promoting and developing the Central Visayas and Mindanao regions as centers of international trade and tourism, and
accelerating the development of the means of transportation and communication in the country," and that it is an attached agency of the Department of
Transportation and Communication (DOTC), the petitioner "may stand in [sic] the same footing as an agency or instrumentality of the national
 government." Hence, its tax exemption privilege under Section 14 of its Charter "cannot be considered withdrawn with the passage of the Local
Government Code of 1991 (hereinafter LGC) because Section 133 thereof specifically states that the taxing powers of local government units shall not
extend to the levy of taxes of fees or charges of any kind on the national government its agencies and instrumentalities."

2. As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that
security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it.
Nevertheless, effective limitations thereon may be imposed by the people through their Constitutions.Our Constitution, for instance, provides that the
rule of taxation shall be uniform and equitable and Congress shall evolve a progressive system of taxation. So potent indeed is the power that it was
once opined that "the power to tax involves the power to destroy." Verily, taxation is a destructive power which interferes with the personal and property
for the support of the government. Accordingly, tax statutes must be construed strictly against the government and liberally in favor of the taxpayer. But
since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting
tax exemptions are thus construed strictissimi juris against the taxpayers and liberally in favor of the taxing authority.A claim of exemption from tax
payment must be clearly shown and based on language in the law too taxation is the rule, exemption therefrom is the exception plain to be mistaken. Else
wisestated,. However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not apply because the
practical effect of the exemption is merely to reduce the amount of money that has to be handled by the government in the course of its operations.

The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local legislative bodies, no longer merely by
virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution. Under the latter, the exercise
of the power may be subject to such guidelines and limitations as the Congress may provide which, however, must be consistent with the basic policy of
local autonomy.

There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of realty taxes imposed by the National
Government or any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the
exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is where the exemption was
granted to private parties based on material consideration of a mutual nature, which then becomes contractual and is thus covered by the non-impairment
clause of the Constitution.

The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the exercise by local government units of their power to tax, the scope
thereof or its limitations, and the exemption from taxation.

The petitioner cannot claim that it was never a "taxable person" under its Charter. It was only exempted from the payment of real property 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.

Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the forgoing disquisitions, it had already
become even if it be conceded to be an "agency" or "instrumentality" of the Government, a taxable person for such purpose in view of the withdrawal in
the last paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner.

h. ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S. ALBANO, v. THE
HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE CESAR
PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR.,

FACTS:
May 27, 2005, before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition.
o They question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National
Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of
goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties.
o These questioned provisions contain a uniform provisoauthorizing the President, upon recommendation of the Secretary of Finance, to raise the
VAT rate to 12%, effective January 1, 2006 after any of the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax
to twelve percent (12%), after any of the following conditions has been satisfied:
i. Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent
(2 4/5%); or
ii. National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive authority to fix the rate of taxes under Article
VI, Section 28(2) of the 1987 Philippine Constitution.

G.R. No. 168207

June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the constitutionality of Sections 4, 5 and 6 of R.A.
No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%, on the ground that it amounts to an undue
delegation of legislative power, petitioners also contend that the increase in the VAT rate to 12% contingent on any of the two conditions being satisfied
violates the due process clause embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and additional tax burden on the people
 G.R. No. 168461
Petitioners argument is premised on the constitutional right of non-deprivation of life, liberty or property without due process of law under Article III,
Section 1 of the Constitution.
o According to petitioners, the contested sections impose limitations on the amount of input tax that may be claimed.
o Petitioners also argue that the input tax partakes the nature of a property that may not be confiscated, appropriated, or limited without due process of
law.
o Petitioners further contend that like any other property or property right, the input tax credit may be transferred or disposed of, and that by limiting
the same, the government gets to tax a profit or value-added even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the law under Article III,Section 1 of the
Constitution, as the limitation on the creditable input tax if:
1. the entity has a high ratio of input tax; or
2. invests in capital equipment; or
3. has several transactions with the government, is not based on real and substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section 28(1) of the Constitution, and that it is the
smaller businesses with higher input tax to output tax ratio that will suffer the consequences thereof for it wipes out whatever meager margins the
petitioners make.

G.R. No. 168730

July 20, 2005, Governor Enrique T. Garcia filed a petition for certiorari and prohibition, alleging unconstitutionality of the law on the ground that the
limitation on the creditable input tax in effect allows VAT-registered establishments to retain a portion of the taxes they collect, thus violating the
principle that tax collection and revenue should be solely allocated for public purposes and expenditures.
Petitioner Garcia further claims that allowing these establishments to pass on the tax to the consumers is inequitable, in violation of Article VI, Section
28(1) of the Constitution.
Respondents also refute petitioners argument that the increase to 12%, as well as the 70% limitation on the creditable input tax, the 60-month amortization
on the purchase or importation of capital goods exceeding P1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary,
oppressive, and confiscatory, and that it violates the constitutional principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the governments fiscal reform agenda. A reform in the value-added system of taxation
is the core revenue measure that will tilt the balance towards a sustainable macroeconomic environment necessary for economic growth.

ISSUE:
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C)
of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1

HELD:
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax (VAT), as the confusion and inevitably, litigation,
breeds from a fallacious notion of its nature.

The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or properties and services. Being an indirect tax
on expenditure, the seller of goods or services may pass on the amount of tax paid to the buyer, with the seller acting merely as a tax collector. The burden
of VAT is intended to fall on the immediate buyers and ultimately, the end-consumers.

In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in, without transferring the burden to
someone else. Examples are individual and corporate income taxes, transfer taxes, and residence taxes.

the first condition amounts to an incentive to the President to increase the VAT collection does not render it unconstitutional so long as there is a public
purpose for which the law was passed, which in this case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise in revenue.

The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam Smith in his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings
into the public treasury of the state.

It simply means that sources of revenues must be adequate to meet government expenditures and their variations.
The main purpose of the bills emanating from the House of Representatives is to bring in sizeable revenues for the government to supplement our
countrys serious financial problems, and improve tax administration and control of the leakages in revenues from income taxes and value-added taxes. As
these house bills were transmitted to the Senate, the latter, approaching the measures from the point of national perspective, can introduce amendments
within the purposes of those bills. It can provide for ways that would soften the impact of the VAT measure on the consumer, i.e., by distributing the
burden across all sectors instead of putting it entirely on the shoulders of the consumers.
Taxation is progressive when its rate goes up depending on the resources of the person affected.

The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive taxation has no relation with the VAT
system inasmuch as the VAT paid by the consumer or business for every goods bought or services enjoyed is the same regardless of income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the income earned by a person or profit margin
marked by a business, such that the higher the income or profit margin, the smaller the portion of the income or profit that is eaten by VAT. A converso,
the lower the income or profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really the lower income group or businesses
with low-profit margins that is always hardest hit.

Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply provides is that Congress shall
"evolve a progressive system of taxation."

It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid measure to resuscitate an economy in distress.
The Court is neither blind nor is it turning a deaf ear on the plight of the masses. But it does not have the panacea for the malady that the law seeks to
remedy. As in other cases, the Court cannot strike down a law as unconstitutional simply because of its yokes.
D. Underlying Theory and Basis; Necessity Theory; Benefits-Received Principle
1. The power of taxation proceeds upon the theory that the existence of government is a necessity; that it cannot continue without means to pay its expenses; and
that for these means it has a right to compel all its citizens and property within its limits to contribute. (71 Am. Jur, 2d 346.)
As said in a case:
The power to tax is an attribute of sovereignty x x x emanating from necessity. It is a necessary burden to preserve the States sovereignty and a means to
give the citizenry an army to resist aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements designed for
the enjoyment of the citizenry and those which come within the States territory, and facilities and protection which a government is supposed to provide.
(Phil. Guaranty Co., Inc. v. CIR, 13 SCRA 775)
2. The basis of taxation is found in the reciprocal duties of protection and support between the state and its inhabitants. In return for his contribution, the taxpayer
receives the general advantages and protection which the government affords the taxpayer and his property. This is the so-called benefits-received principle.
One is compensation or consideration for the other: protection for support and support for protection.

The foregoing statements, however, must be qualified.

(a) It does not mean that only those who are able to and do pay taxes enjoy the privileges and protection given to a citizen by the government. Both are
enjoyed as well as by those who do not, because they are not able to pay taxes. (71 Am. Jur. 2d 346-347.) The reason is that protection in the enjoyment of his
rights is a duty owed by the State to every citizen.

(b) From the contribution received, the government renders no special or commensurate benefit to any particular property or person. A tax is a compulsory
payment to the government in return for which the payer gets no definite, specific commodity or service. It is not imposed on the basis of a special or peculiar
benefit accruing to each citizen in proportion to the tax paid.

(c) The only benefit to which the taxpayer is entitled is that derived from his enjoyment of the privileges of living in an organized society established and
safeguarded by the devotion of taxes to public purposes. The government promises nothing to the person taxed beyond that may be anticipated from an
administration of the laws for the general good.

A person, therefore, cannot object to or resist the payment of taxes solely because no personal benefit to him can be pointed out as arising from the tax or he
is benefited less than others who pay the same or smaller amount of tax. What matters in taxation is that the tax imposition is for a public purpose.

b. CIR v. Algue

c. NATIONAL POWER CORPORATION, vs.CITY OF CABANATUAN,

FACTS:
Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as amended.For many years now, petitioner
sells electric power to the residents of Cabanatuan City, posting a gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No.
165-92, the respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the latters gross receipts for the
preceding year.
Petitioner refused to pay the tax assessment arguing that the respondent has no authority to impose tax on government entities.
o Petitioner also contended that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or fees in
accordance with sec. 13 of Rep. Act No. 6395, as amended.
The respondent filed a collection suit in the RTC, demanding that petitioner pay the assessed tax due, plus surcharge. Respondent alleged that petitioners
exemption from local taxes has been repealed by section 193 of the LGC, which reads as follows:
Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government owned or controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code.
RTC upheld NPCs tax exemption.
On appeal the CA reversed the trial courts Order on the ground that section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew the
exemptions granted to the petitioner.

ISSUE:
W/N the respondent city government has the authority to issue Ordinance No. 165-92 and impose an annual tax on businesses enjoying a franchise

HELD:
YES. Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A principal attribute of
sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to
promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity; without taxes,
government cannot fulfill its mandate of promoting the general welfare and well-being of the people.
Section 137 of the LGC clearly states that the LGUs can impose franchise tax notwithstanding any exemption granted by any law or other special law.
This particular provision of the LGC does not admit any exception.
In City Government of San Pablo, Laguna v. Reyes,MERALCOs exemption from the payment of franchise taxes was brought as an issue before this
Court. The same issue was involved in the subsequent case of Manila Electric Company v. Province of Laguna. Ruling in favor of the local government
in both instances, we ruled that the franchise tax in question is imposable despite any exemption enjoyed by MERALCO under special laws, viz:
It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support their position that MERALCOs tax
exemption has been withdrawn. The explicit language of section 137 which authorizes the province to impose franchise tax notwithstanding any
 exemption granted by any law or other special law is all-encompassing and clear. The franchise tax is imposable despite any exemption enjoyed under
special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise provided in this Code, tax exemptions or
incentives granted to or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations except (1)
local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn
upon the effectivity of this code, the obvious import is to limit the exemptions to the three enumerated entities. It is a basic precept of statutory
construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est
exclusio alterius. In the absence of any provision of the Code to the contrary, and we find no other provision in point, any existing tax exemption or
incentive enjoyed by MERALCO under existing law was clearly intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local government unit may now impose a local tax at a rate not
exceeding 50% of 1% of the gross annual receipts for the preceding calendar based on the incoming receipts realized within its territorial jurisdiction. The
legislative purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the language used on (sic) Sections137 and
193 categorically withdrawing such exemption subject only to the exceptions enumerated.
Since it would be not only tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the
LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have been used
Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of the local government
units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the
people. As this Court observed in the Mactan case, the original reasons for the withdrawal of tax exemption privileges granted to government-owned or
controlled corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment
of similarly situated enterprises. With the added burden of devolution, it is even more imperative for government entities to share in the requirements of
development, fiscal or otherwise, by paying taxes or other charges due from them.

d. .PABLO LORENZO vs. JUAN POSADAS, JR.

G.R. No. 43082. June 18, 1937

FACTS:
May 27, 1922, Thomas Hanley died in Zamboanga, leaving a will and considerable amount of real and personal properties.
June 14, 1922, proceedings for the probate of his will and the settlement and distribution of his estate were begun in the Court of First Instance of
Zamboanga.
The CFI considered it proper to appoint a trustee to administer the real properties which were to pass to Matthew Hanley 10 years after the testator's
death.
March 8, 1924, P. J. M. Moore, one of the two executors named in the will, was appointed trustee.
March 10, 1924, Moore took his oath of office and gave bond. He acted as trustee until February 29, 1932, when he resigned and Pablo Lorenzo was
appointed in his stead.
The Collector of Internal Revenue, alleging that the estate left by the deceased consisted of realty valued at P27,920 and personality valued at P1,465,
and allowing a deduction of P480.81, assessed against the estate an inheritance tax in the amount of P1,434.24 which, together with the penalties for
delinquency in payment consisting of a 1% monthly interest from July 1, 193,1 and a surcharge of 25% on the tax, amounted to P2,052.74.
March 15, 1932, the defendant filed a motion in the testamentary proceedings pending before the CFI praying that the trustee, be ordered to pay the said
sum. The motion was granted.
September 15, 1932, the plaintiff paid this amount under protest, notifying the defendant that unless the amount was promptly refunded, suit would be
brought for its recovery. The defendant refused to refund the said amount. His administrative remedies exhausted, plaintiff went to court.
October 4, 1932, Pablo Lorenzo, brought this action in the CFI against the defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for
the refund of the amount of P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for the collection of interest thereon at the
rate of 6% per annum.
The defendant set up a counterclaim for P1,191.27 alleged to be interest due on the tax in question and which was not included in the original assessment.
The Court of First Instance of Zamboanga dismissed both the plaintiff's complaint and the defendant's counterclaim, both parties appealed to this court.

ISSUES and HELD:

1. When does the inheritance tax accrue and when must it be satisfied?
From the fact, however, that Thomas Hanley died on May 27, 1922, it did not follow that the obligation to pay the tax arose as of that date. The
time for the payment of inheritance tax is clearly fixed by section 1544 of the Revised Administrative code as amended by Act No. 3031, in relation
to section 1543 of the same code.
SEC. 1543. Exemption of certain acquisitions and transmission. The following shall not be taxed:
a. The merger of the usufruct in the owner of the naked title.
b. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees.
c. The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor.
In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater than that paid by the first, the former must pay the
difference.

SEC. 1544. When tax to be paid. The Tax fixed in this article shall be paid:
a. In the second and third cases of the next preceding section, before entrance into possession of the property.
b. In other cases, within the 6 months subsequent to the death of the predecessor; but if judicial testamentary or intestate proceedings shall be
instituted prior to the expiration of said period, the payment shall be made by the executor or administrator before delivering to each
beneficiary his share.
 If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per centum per annum shall be added as part of the
tax; and to the tax and interest due and unpaid within 10 days after the date of notice and demand thereof by the Collector, there shall be further
added a surcharge of 25%.
A certified copy of all letters testamentary or of administration shall be furnished the Collector of Internal Revenue by the Clerk of Court
within 30 days after their issuance.
The instant case does not fall under subsection (a), but under subsection (b), of section 1544 above-quoted, as there is here no fiduciary heir, first
heir, legatee or donee. Under that subsection, the tax should have been paid before the delivery of the properties in question to P. J. M. Moore as
trustee on March 10, 1924.
The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of the Administrative Code, imposes
the tax upon "every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance, devise, or
bequest." The tax therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by his death.

2. Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator's death, or on its value ten years later?
The plaintiff contends that the estate of Thomas Hanley, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the
expiration of 10 years from the death of the testator and, that the inheritance tax should be based on the value of the estate in 1932, or 10 years after
the testator's death.
If death is the generating source from which the power of the state to impose inheritance taxes takes its being and if, upon the death of the decedent,
succession takes place and the right of the state to tax vests instantly, the tax should be measured by the value of the estate as it stood at the time of
the decedent's death, regardless of any subsequent contingency affecting value of any subsequent increase or decrease in value.

3. In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to trustees?
The plaintiff contends that the compensation and fees of the trustees, which aggregate P1,187.28, should also be deducted under section 1539 of the
Revised Administrative Code:
In order to determine the net sum which must bear the tax, when an inheritance is concerned, there shall be deducted, in case of a resident, . . .
the judicial expenses of the testamentary or intestate proceedings,
A trustee, no doubt, is entitled to receive a fair compensation for his services. But from this it does not follow that the compensation due him may
lawfully be deducted in arriving at the net value of the estate subject to tax.
There is no statute in the Philippines which requires trustees commission to be deducted in determining the net value of the estate subject to
inheritance tax.
Furthermore, though a testamentary trust has been created, it does not appear that the testator intended that the duties of his executors and trustees
should be separated.

4. What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the taxpayer be given retroactive effect?
It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent.
The taxpayer cannot foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax statute may be made
retroactive in its operation. Liability for taxes under retroactive legislation has been "one of the incidents of social life."
In the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect

E. Purpose of Taxation
a. General/Fiscal/Revenue
To provide funds or property with which the state promotes the general welfare and protection of its citizens (51 Am. Jur. 71-73)

1. CIR v. Algue

2. PHILIPPINE AIRLINES, INC v. ROMEO F. EDU and UBALDO CARBONELL

G.R. No. L-41383. August 15, 1988

FACTS:
The Philippine Airlines (PAL) is a corporation organized and existed under the laws of the Philippines and engaged in the air transportation
business under a legislative franchise, Act 4271, as amended by RA 2360 and 2667. Under its franchise, PAL is exempt from the payment of taxes.
PAL has, since 1956, not been paying motor vehicle registration fees.
1971, Commissioner Romeo F. Edu, issued a regulation requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees,
pursuant to Sec 8, RA 4136, otherwise known as the Land Transportation and Traffic Code.
Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the amounts imposed under RA 4136 were paid.
The appellant thus paid, under protest, the amount of P19,529.75 as registration fees of its motor vehicles.
May 19, 1971,PAL through counsel, wrote a letter to Commissioner Edu demanding a refund, invoking the ruling in Calalang v. Lorenzo where it
was held that motor vehicle registration fees are in reality taxes of which PAL is exempt by virtue of its legislative franchise.
Edu denied the request basing his action on Republic v. Philippine Rabbit Bus Lines, Inc., to the effect that motor vehicle registration fees are
regulatory exactions and not revenue measures and, therefore, do not come within the exemption granted to PAL under its franchise.
Hence, PAL filed the complaint against Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell with the
Court of First Instance of Rizal, Branch 18.
Romeo F. Edu, in his capacity as LTC Commissioner, and Ubaldo Carbonell, in his capacity as National Treasurer, filed a motion to dismiss
alleging that the complaint states no cause of action. They contended that while Act 4271 exempts PAL from the payment of any tax except two per
cent on its gross revenue or earnings, it does not exempt the plaintiff from paying regulatory fees, such as motor vehicle registration fees
April 24, 1973, the trial court rendered a decision dismissing the PALs complaint.
 From this judgment, PAL appealed to the Court of Appeals which certified the case to us.

ISSUE:
What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?

HELD:
Section 73. Disposal of moneys collected.
20% of the money collected under the provisions of this Act shall accrue to the road and bridge funds of the different provinces and chartered
cities in proportion to the cedula sales during the next previous year and the remaining eighty per centum shall be deposited in the Philippine
Treasury to create a special fund for the construction and maintenance of national and provincial roads and bridges, as well as the streets and
bridges in the chartered cities to be allotted by the Secretary of Public Works and Communications for projects recommended by the Director of
Public Works in the different provinces and chartered cities . . ."
It is clear from the provisions of Sec 73 of Act 123 and Sec 61 of the Land Transportation and Traffic Code that the legislative intent and
purpose behind the law requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of
highways and to a much lesser degree, pay for the operating expenses of the administering agency.
On the other hand, the Philippine Rabbit case mentions a presumption arising from the use of the term "fees" which appears to have been favored
by the legislature to distinguish fees from other taxes such as those mentioned in Sec 13 of Act 4136 referring to taxes other than those imposed on
the registration, operation or ownership of a motor vehicle.
Fees may be properly regarded as taxes even though they also serve as an instrument of regulation.
Taxation may be made the implement of the state's police power. If the purpose is primarily revenue, or if revenue is, at least, one of the
real and substantial purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees. The same provision
appears as Sec 59(b) in the Land Transportation Code. It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to
the imposition on the registration, operation or ownership of a motor vehicle as a "tax or fee."
Though nowhere in RA 4136 does the law specifically state that the imposition is a tax, Sec 59(b) speaks of "taxes or fees . . . for the registration or
operation or on the ownership of any motor vehicle, or for the exercise of the profession of chauffeur . . ." making the intent to impose a tax more
apparent. Thus, even RA 5448 cited by the respondents, speak of an "additional tax," where the law could have referred to an original tax and not
one in addition to the tax already imposed on the registration, operation, or ownership of a motor vehicle under RA 4136.
Simply put, if the exaction under RA 4136 were merely a regulatory fee, the imposition in RA 5448 need not be an "additional" tax. RA 4136 also
speaks of other "fees" such as the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec.
11). These are not to be understood as taxes because such fees are very minimal to be revenue-raising.
Thus, they are not mentioned by Sec. 59(b) of the Code as taxes like the motor vehicle registration fee and chauffeurs' license fee. Such fees are to
go into the expenditures of the Land Transportation Commission as provided for in the last proviso of Sec. 61
In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to the Land Transportation and Traffic Code are
actually taxes intended for additional revenues of government even if one fifth or less of the amount collected is set aside for the operating expenses
of the agency administering the program.

NOTE: Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed because the tax exemption in the franchise
of PAL was repealed during the period.

3. ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE (D)
G.R. No. 115455. August 25, 1994

FACTS:
The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is
equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from
the sale or exchange of services.
RA 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue
Code.

ISSUES and HELD:

I. PROCEDURAL ISSUE
Does RA 7716 violate Art. VI, 24 of the Constitution when, although HB 11197 had originated in the House of Representatives, it was not
passed by the Senate but was simply consolidated with the Senate version SB1630 in the Conference Committee?
o To begin with, it is not the law but the revenue bill which is required by the Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this, because a bill originating in the House may undergo such extensive changes in the Senate
that the result may be a rewriting of the whole. At this point, what is important to note is that, as a result of the Senate action, a distinct bill
may be produced. To insist that a revenue statute and not only the bill which initiated the legislative process culminating in the enactment
of the law must substantially be the same as the House bill would be to deny the Senate's power not only to "concur with amendments" but
also to " propose amendments." It would be to violate the coequality of legislative power of the two houses of Congress and in fact make the
House superior to the Senate.
o Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff, or tax bills, bills authorizing an increase of the public
debt, private bills and bills of local application must come from the House of Representatives on the theory that, elected as they are from the
districts, the members of the House can be expected to be more sensitive to the local needs and problems.
 II. SUBSTANTIVE ISSUE
The Philippine Press Institute question the law insofar as it has withdrawn the exemption previously granted to the press under 103 (f) of the
NIRC.
o We are unable to find a differential treatment of the press by the law, much less any censorial motivation for its enactment. If the press is now
required to pay a value-added tax on its transactions, it is not because it is being singled out, much less targeted, for special treatment but only
because of the removal of the exemption previously granted to it by law. The withdrawal of exemption is all that is involved in these cases.
Other transactions previously granted exemption, have been delisted as part of the scheme to expand the base and the scope of the VAT
system. The law would perhaps be open to the charge of discriminatory treatment if the only privilege withdrawn had been that granted to the
press. But that is not the case
o In the cases at bar, the statute applies to a wide range of goods and services. The argument that, by imposing the VAT only on print media
whose gross sales exceeds P480,000 but not more than P750,000, that the law discriminates is without merit since it has not been shown that as
a result the class subject to tax has been unreasonably narrowed. The fact is that this limitation does not apply to the press alone but to all sales.
Nor is impermissible motive shown by the fact that print media and broadcast media are treated differently. The press is taxed on its
transactions involving printing and publication, which are different from the transactions of broadcast media. There is thus a reasonable basis
for the classification

Whether or not the law also violates the rule that taxation must be progressive and that it denies petitioners' right to due process and the equal
protection of the laws
o Just as vigorously as it is asserted that the law is regressive, the opposite claim is pressed by respondents that in fact it distributes the tax
burden to as many goods and services as possible particularly to those which are within the reach of higher-income groups, even as the law
exempts basic goods and services. It is thus equitable. The goods and properties subject to the VAT are those used or consumed by higher-
income groups. These include real properties held primarily for sale to customers or held for lease in the ordinary course of business, the right
or privilege to use industrial, commercial or scientific equipment, hotels, restaurants and similar places, tourist buses, and the like. On the other
hand, small business establishments, with annual gross sales of less than P500,000, are exempted. This, according to respondents, removes
from the coverage of the law some 30,000
o Indeed, regressivity is not a negative standard for courts to enforce. What Congress is required by the Constitution to do is to "evolve a
progressive system of taxation." This is a directive to Congress, just like the directive to it to give priority to the enactment of laws for the
enhancement of human dignity and the reduction of social, economic and political inequalities (Art. XIII, 1), or for the promotion of the
right to "quality education" (Art. XIV, 1). These provisions are put in the Constitution as moral incentives to legislation, not as judicially
enforceable rights

b. Non-Revenue/Special/Regulatory

1. JOHN H. OSMEA, v. OSCAR ORBOS

G.R. No. 99886. March 31, 1993

FACTS:
October 10, 1984President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General Fund, designated as the Oil Price
Stabilization Fund (OPSF).
o The OPSF was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange
rate adjustments and from increases in the world market prices of crude oil.
o Subsequently the OPSF was reclassified into a "trust liability account," in virtue of E.O 1024, and ordered released from the National
Treasury to the Ministry of Energy. The same Executive Order also authorized the investment of the fund in government securities, with the
earnings from such placements accruing to the fund.
February 27, 1987President Corazon C. Aquino amended P.D. 1956. She promulgated EO 137 expanding the grounds for reimbursement to oil
companies for possible cost under recovery incurred as a result of the reduction of domestic prices of petroleum products the amount of the under
recovery being left for determination by the Ministry of Finance.
Petitioner alleges that the status of the OPSF as of March 31 1991 showed a "Terminal Fund Balance deficit" of some P12.877 billion; that to abate
the worsening deficit, "the Energy Regulatory Board issued an Order on December 10, 1990, approving the increase in pump prices of petroleum
products," and at the rate of recoupment the OPSF deficit should have been fully covered in a span of six (6) months, but this notwithstanding, the
respondents are poised to accept process and pay claims not authorized under P.D 1956."
Petitioner further avers that the creation of the trust fund violates 29(3), Article VI of the Constitution, reading as follows:
"(3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purposes only. If the
purpose for which a special fund was created has been ful3lled or abandoned, the balance, if any, shall be transferred to the general funds of the
Government."
Petitioner also contends that the "delegation of legislative authority" to the ERB violates 28 (2) ArticleVI of the Constitution and inasmuch as
the delegation relates to the exercise of the power of taxation, "the limits, limitations and restrictions must be quantitative, that is, the law must not
only specify how to tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how much to tax
Petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies collected, which form part of the OPSF should be
maintained in a special account of the general fund for the reason that the Constitution so provides, and because they are, supposedly, taxes levied
for a special purpose. He assumes that the Fund is formed from a tax undoubtedly because a portion thereof is taken from collections of ad valorem
taxes and the increases thereon.

ISSUE:
The invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy created pursuant to 8, paragraph 1, of P.D. No.
1956, as amended, said creation of a trust fund being contrary to Section 29 (3) Article VI of the Constitution;
 HELD:
To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its holding in Valmonte v. Energy Regulatory
Board, et al
The OPSF was established precisely to protect local consumers from the adverse consequences that such frequent oil price adjustments may have
upon the economy. Thus, the OPSF serves as a pocket, as it were, into which a portion of the purchase price of oil and petroleum products paid
by consumers as well as some tax revenues are inputted and from which amounts are drawn from time to time to reimburse oil companies, when
appropriate situations arise, for increases in, as well as under recovery of, costs of crude importation. The OPSF is thus a buffer mechanism
through which the domestic consumer prices of oil and petroleum products are stabilized, instead of fluctuating every so often, and oil companies
are allowed to recover those portions of their costs which they would not otherwise recover given the level of domestic prices existing at any
given time. To the extent that some tax revenues are also put into it, the OPSF is in effect a device through which the domestic prices of
petroleum products are subsidized in part. It appears to the Court that the establishment and maintenance of the OPSF is well within that
pervasive and non-waivable power and responsibility of the government to secure, the physical and economic survival and well-being of the
community, that comprehensive sovereign authority we designate as the police power of the State
Hence, 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 is 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." Indeed, the practice is not without precedent.
The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2 of 8 of P.D. 1956,for the reason that they were
not incurred as a result of the reduction of domestic prices of petroleum products.
Under the same provision, however, the payment of inventory losses is upheld as valid, being clearly a result of domestic price reduction, when oil
companies incur a cost underrecovery for yet unsold stocks of oil in inventory acquired at a higher price

2. CALTEX PHILIPPINES, INC v. COMMISSION ON AUDIT

G.R. No. 92585. May 8, 1992

FACTS:
2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), directing the latter to remit to the OPSF its collection, of the additional
tax on petroleum products authorized under the aforesaid Section 8 of P.D. No. 1956 which, amounted to P335,037,649.00 and informing it that,
pending such remittance, all of its claims for reimbursement from the OPSF shall be held in abeyance.
9 March 1989, the COA sent another letter to petitioner informing it that partial verification with the OEA showed that the grand total of its
unremitted collections of the above tax is P1,287,668,820.00 directing it to remit the same, with interest and surcharges thereon, within sixty (60)
days from receipt of the letter; advising it that the COA will hold in abeyance the audit of all its claims for reimbursement from the OPSF; and
directing it to desist from further offsetting the taxes collected against outstanding claims in 1989 and subsequent period.
3 May 1989, petitioner requested the COA for an early release of its reimbursement certificates from the OPSF covering claims with the Office of
Energy Affairs since June 1987 up to March 1989, invoking in support thereof COA Circular No. 89-299 on the lifting of pre-audit of government
transactions of national government agencies and government-owned or controlled corporations.
8 May 1989, the COA denied petitioner's request for the early release of the reimbursement certificates from the OPSF and repeated its earlier
directive to petitioner to forward payment of the latter's unremitted collections to the OPSF to facilitate COA's audit action on the reimbursement
claims.
31 May 1989, petitioner submitted to the COA a proposal for the payment of the collections and the recovery of claims, since the outright payment
of the sum of P1.287 billion to the OEA as a prerequisite for the processing of said claims against the OPSF will cause a very serious impairment
of its cash position.
7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921 accepting the above-stated proposal but prohibiting
petitioner from further offsetting remittances and reimbursements for the current and ensuing years
8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the decision
6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for Reconsideration
16 February 1990, the COA, with Chairman Domingo taking no part and with Commissioner Fernandez dissenting in part, handed down
Decision No. 1171 affirming the disallowance for recovery of financing charges, inventory losses, and sales to MARCOPPER and ATLAS, while
allowing the recovery of product sales or those arising from export sales.
28 March 1990 , unsatisfied with the decision, petitioner filed the present petition

ISSUES and HELD:

1. Whether or not the Constitution gives the COA discretionary power to disapprove irregular or unnecessary government expenditures.
Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides
The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and
receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and on a post-
audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous
state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental
entities receiving subsidy or equity, directly or indirectly, from or through the government, which are required by law or the granting
institution to submit to such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is
inadequate, the Commission
The present powers, as provided, consistent with the declared independence of the Commission, are broader and more extensive than that
conferred by the 1973 Constitution.
 Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a more active role and invested it with broader and more
extensive powers, they did not intend merely to make the COA a toothless tiger, but rather envisioned a dynamic, effective, efficient and
independent watchdog of the Government

2. Whether or not the amounts due to the OPSF from petitioner may be offset against petitioner's outstanding claims from said fund
Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may be levied
with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public
interest as to be within the police power of the state. There can be no doubt that the oil industry is greatly imbued with public interest as it
vitally affects the general welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the people and cause economic
crisis of untold proportions. It would have a chain reaction in terms of, among others, demands for wage increases and upward spiralling of the
cost of basic commodities. The stabilization then of oil prices is one of prime concern which the state, via its police power, may properly address.
It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government.
Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a
claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.
We may even further state that technically, in respect to the taxes for the OPSF, the oil companies merely act as agents for the Government in the
latter's collection since the taxes are, in reality, passed unto the end-users the consuming public. In that capacity, the petitioner, as one of such
companies, has the primary obligation to account for and remit the taxes collected to the administrator of the OPSF. This duty stems from the
fiduciary relationship between the two; petitioner certainly cannot be considered merely as a debtor

F. Principle of a Sound Tax System

1. Fiscal adequacy. It means that the sources of revenue, that is, receipts therefrom, taken as a whole, should be sufficient to meet the demands of public
expenditure. It means also that the revenues should be elastic or capable of expanding or contracting annually in response to variation of public expenditures.
2. Equality or theoretical justice. It means that the tax burden should be in proportion to the taxpayers ability to pay. This is the so-called ability-to-pay
principle. It also connotes that the contribution of each person towards the expense of the government should be so apportioned such that he would feel
neither more nor less inconvenience from his share of the payment than every other person experiences from his.
3. Administrative feasibility It means that tax laws should be capable of convenient, just and effective administration.

a. CHAVEZ V. ONGPIN
G.R. No. 76778. June 6, 1990

FACTS:
Francisco I. Chavez, a taxpayer and an owner of three parcels of land, seeks to declare unconstitutional Executive Order No. 73 which provides for the
collection of real property taxes based on the 1984 real property values, as provided for under section 21 of the real property tax code.
He alleges the following:
o that Executive Order No. 73 accelerated the application of the general revision of assessments to January 1, 1987 thereby mandating an
excessive increase in real property taxes by 100% to 400% on improvements, and up to 100% on land;
o that any increase in the value of real property brought about by the revision of real property values and assessments would necessarily lead to a
proportionate increase in real property taxes;
o that sheer oppression is the result of increasing real property taxes at a period of time when harsh economic conditions prevail; and
o that the increase in the market values of real property as reflected in the schedule of values was brought about only by inflation and economic
recession.
The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national association of owners-lessors, joins Chavez in his
petition to declare unconstitutional Executive Order No. 73.
The Office of the Solicitor General argues against the petition.

ISSUE:
Whether or not E.O. 73 is unconstitutional?

HELD:
NO. The attack on Executive Order No. 73 has no legal basis as the general revision of assessments is a continuing process mandated by Section 21 of
Presidential Decree No. 464. The SC agrees with the observation of the Office of the Solicitor General that without Executive Order No. 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 revenues must be adequate
to meet government expenditures and their variations.

b. DIAZ V. SECRETARY OF FINANCE

G.R. No. 193007. July 19, 2011

FACTS:
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol filed a petition for declaratory relief assailing the validity of the impending imposition of value-
added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators.
They allege that the BIR attempted during the administration of President Gloria Macapagal-Arroyo to impose VAT on toll fees. The imposition was
deferred, but upon the assumption of President Benigno C. Aquino III to office, the BIR revived the idea and would impose the challenged tax on toll
fees beginning August 16, 2010 unless judicially enjoined.
 o They hold the view the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of "sale of services"
that are subject to VAT; that a toll fee is a "user's tax," not a sale of services; that to impose VAT on toll fees would amount to a tax on public
service; and that, since VAT was never factored into the formula for computing toll fees, its imposition would violate the non-impairment clause
of the constitution.
The government then filed its answer, averring that:
o the NIRCimposes VAT on all kinds of services of franchise grantees, including tollway operations, except where the law provides otherwise;
o that the Court should seek themeaning and intent of the law from the words used in the statute; and
o that the imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and circulars.
The government also contends that the non-inclusion of VAT in the parametric formula for computing toll rates cannot exempt tollway operators from
VAT. In any event, it cannot be claimed that the rights of tollway operators to a reasonable rate of return will be impaired by the VAT since this is
imposed on top of the toll rate. Further, the imposition of VAT on toll fees would have very minimal effect on motorists using the tollways.

ISSUE(S):
Whether or not the government is unlawfully expanding VAT coverage by including tollway operators and tollway operations in the terms "franchise
grantees" and "sale of services" under Section 108 of the Code;
Whether or not the imposition of VAT on tollway operators
a) amounts to a tax on tax and not a tax on services;
b) will impair the tollway operators' right to a reasonable return of investment under their TOAs; and
c) is not administratively feasible and cannot be implemented.

HELD:
(1 ) NO. The relevant law in this case is Section 108 of the NIRC, as amended. VAT is levied, assessed, and collected, according to Section 108, on the
gross receipts derived from the sale or exchange of services as well as from the use or lease of properties. The law imposes VAT on "all kinds of services"
rendered in the Philippines for a fee, including those specified in the list. The enumeration of affected services is not exclusive. By qualifying "services" with
the words "all kinds," Congress has given the term "services" an all-encompassing meaning.
Presidential Decree (P.D.) 1112 or the Toll Operation Decree establishes the legal basis for the services that tollway operators render. Essentially, tollway
operators construct, maintain, and operate expressways, also called tollways, at the operators' expense.
In consideration for constructing tollways at their expense, the operators are allowed to collect government-approved fees from motorists using the tollways
until such operators could fully recover their expenses and earn reasonable returns from their investments. When a tollway operator takes a toll fee from a
motorist, the fee is in effect for the latter's use of the tollway facilities over which the operator enjoys private proprietary rights that its contract and the law
recognize. In this sense, the tollway operator is no different from the service providers under Section 108 who allow others to use their properties or
facilities for a fee.
It does not help petitioners' cause that Section 108 subjects to VAT "all kinds of services" rendered for a fee "regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties." This means that "services" to be subject to VAT need not fall under the traditional
concept of services, the personal or professional kinds that require the use of human knowledge and skills. And not only do tollway operators come under the
broad term "all kinds of services," they also come under the specific class described in Section 108 as "all other franchise grantees" who are subject to VAT,
"except those under Section 119 of this Code." Tollway operators are franchise grantees and they do not belong to exceptions (the low-income radio and/or
television broadcasting companies with gross annual incomes of less than P10 million and gas and water utilities) that Section 119 spares from the payment
of VAT. The word "franchise" broadly covers government grants of a special right to do an act or series of acts of public concern.

(2) Petitioners argue that a toll fee is a "user's tax" and to impose VAT on toll fees is tantamount to taxing a tax. Actually, petitioners base this argument on
the case of Manila International Airport Authority (MIAA) v. Court of Appeals. Petitioners assume that what the Court said in MIAA v. CA, equating terminal
fees to a "user's tax" must also pertain to tollway fees. But the discussion in the MIAA case on toll roads and toll fees was made, not to establish a rule that
tollway fees are user's tax, but to make the point that airport lands and buildings are properties of public dominion and that the collection of terminal fees for
their use does not make them private properties. Tollway fees are not taxes. Indeed, they are not assessed and collected by the BIR and do not go to the
general coffers of the government.
What the government seeks to tax here are fees collected from tollways that are constructed, maintained, and operated by private tollway operators at their
own expense under the build, operate, and transfer scheme that the government has adopted for expressways. Except for a fraction given to the government,
the toll fees essentially end up as earnings of the tollway operators.
In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A tax is imposed under the taxing power of the
government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private tollway
operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a
reasonable margin of income.
Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that can be properly treated as a tax. Taxes may be
imposed only by the government under its sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an
attribute of ownership.
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. In indirect taxation, a distinction is
made between the liability for the tax and burden of the tax. The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods,
properties or services to the buyer. In such a case, what is transferred is not the seller's liability but merely the burden of the VAT.
Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. Under Section 105 of the Code, VAT is
imposed on any person who, in the course of trade or business, sells or renders services for a fee. In other words, the seller of services, who in this case is the
tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll fees. For this reason, VAT on
tollway operations cannot be a tax on tax even if toll fees were deemed as a "user's tax." VAT is assessed against the tollway operator's gross receipts and
not necessarily on the toll fees.
Although the tollway operator may shift the VAT burden to the tollway user, it will not make the latter directly liable for the VAT. The shifted VAT burden
simply becomes part of the toll fees that one has to pay in order to use the tollways.

(3) Finally, petitioners assert that the substantiation requirements for claiming input VAT make the VAT on tollway operations impractical and incapable of
implementation. They cite the fact that, in order to claim input VAT, the name, address and tax identification number of the tollway user must be indicated in
the VAT receipt or invoice.
 The manner by which the BIR intends to implement the VAT by rounding off the toll rate and putting any excess collection in an escrow account is
also illegal, while the alternative of giving "change" to thousands of motorists in order to meet the exact toll rate would be a logistical nightmare. Thus,
according to them, the VAT on tollway operations is not administratively feasible. Administrative feasibility is one of the canons of a sound tax system.
It simply means that the tax system should be capable of being effectively administered and enforced with the least inconvenience to the taxpayer.
Non-observance of the canon, however, will not render a tax imposition invalid "except to the extent that specific constitutional or statutory limitations are
impaired." Thus, even if the imposition of VAT on tollway operations may seem burdensome to implement, it is not necessarily invalid unless some aspect
of it is shown to violate any law or the Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway operations. Any declaration by the Court that the manner of
its implementation is illegal or unconstitutional would be premature.
Although the transcript of the August 12, 2010 Senate hearing provides some clue as to how the BIR intends to go about it, the facts pertaining to the matter
are not sufficiently established for the Court to pass judgment on. Besides, any concern about how the VAT on tollway operations will be enforced must first
be addressed to the BIR on whom the task of implementing tax laws primarily and exclusively rests.
The Court cannot preempt the BIR's discretion on the matter, absent any clear violation of law or the Constitution.
G. Comparison with Police Power and Eminent Domain
1. Similarities
a. They all rest upon necessity because there can be no effective government without them
b. They all underlie and exist independently of the Constitution although the conditions for their exercise may be prescribed by the Constitution and by
law
c. They are ways by which the state interferes with private rights and property;
d. They are legislative in nature and character, although the actual exercise of the powers is given to the executive authorities, national or local; and
e. They all presuppose an equivalent compensation received, directly or indirectly, by the persons affected by the exercise of these powers by the
government.

2. Distinction
a. As to authority which exercises the power
i. Taxation and police power may be exercised only by the government or its political subdivisions; and
ii. The exercise of the power of eminent domain may be granted to public service companies or public utilities.
b. As to purpose:
i. In taxation, the property (generally in the form of money) is taken for the support of the government;
ii. In eminent domain, the property is taken for public use or benefit; hence, it must be compensated; and
iii. In police power, the use of property is regulated for the purpose of promoting the general welfare; hence, it is not compensable.
c. As to persons affected
i. Taxation and (usually) police power operate upon a community or a class of entities or individuals; and
ii. Eminent domain operates on an entity or individual as the owner of a particular property.
d. As to effect:
i. In taxation, the money contributed in the concept of taxes becomes part of the public funds;
ii. In eminent domain, there is a transfer of the right to property whether it be of ownership or a lesser right (e.g., possession); and
iii. In police power, there is not transfer of title; at most there is restraint on the injurious use of property.
e. As to the benefits received
i. In taxation, it is assumed that the person affected receives the equivalent of the tax in the form of protection and benefits he (it) receives from the
government as such
ii. In eminent domain, the person affected receives the market value of the property taken from him (it); and
iii. In police power the person affected receives no direct and immediate benefit but only such as may arise from the maintenance of a healthy
economicnstandard of society and is often referred to as damnum absque injuria, i.e., damage without injury.
f. As to amount of imposition
i. In taxation, there is generally no limit on the amount of tax that may be imposed;
ii. In eminent domain, there is no amount imposed but rather the owner is paid the market value of the property taken; and
iii. In police power the amount imposed should not be more than sufficient to cover the cost of the license and the necessary expenses of police
surveillance and inspection, examination, or regulation as nearly as the same can be estimated.
g. As to relationship to the Constitution
i. The taxing power is subject to certain constitutional limitations including the prohibition against the impairment of the obligations of contracts
ii. Eminent domain is also inferior to the impairment prohibition so that the government cannot expropriate property which under a contract it
had previously bound itself to purchase from the other contracting party; and
iii. Police power is relatively free from constitutional limitations and is superior to the impairment provisions. In appropriate cases, the
constitutional injunction against impairment of the obligation of contracts cannot be invoked as against the right of the state to exercise its
police power.

a. ROXAS V. COURT OF TAX APPEALS

G.R. No. L-25043. April 26, 1968

FACTS:
Don Pedro Roxas and Doa Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary succession the following properties:
o (1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of Nasugbu, Batangas province;
o (2) A residential house and lot located at Wright St., Malate, Manila; and
o (3) Shares of stocks in different corporations. To manage the above-mentioned properties, said children namely, Antonio Roxas, Eduardo Roxas
and Jose Roxas, formed a partnership called Roxas y Compaia.
(With respect to the Agricultural Lands) At the conclusion of the Second World War, the tenants who have all been tilling the lands in Nasugbu desired
to purchase Roxas y Cia, the parcels which they occupied.
The government persuaded the Roxases to part with their belongings pursuant to its constitutional mandate to acquire big landed estates and apportion
them among landless tenants-farmers.
The Roxas brothers agreed to sell 13,500 hectares to the Government for distribution to actual occupants for a price of P2, 079,048.47 plus P300,000.00
for survey and subdivision expenses.
It turned out however that the Government did not have funds to cover the purchase price, and so a special arrangement was made for the Rehabilitation
Finance Corporation to advance to Roxas y Cia the amount of P1, 500,000.00 as loan.
o Under the arrangement, the farmers were to buy the lands by installment with the Rehabilitation Finance Corporation to pay its loan from the
proceeds of the yearly amortizations paid by the farmers.
o In 1953 and 1955 Roxas y Cia derived from said installment payments a net gain of P42, 480.83 and P29, 500.71. Fifty percent of said net gain
was reported for income tax purposes as gain on the sale of capital asset held for more than one year pursuant to Section 34 of the Tax Code.
 (With respect to the Residential House). During their bachelor days the Roxas brothers lived in the residential house at Wright St., Malate, Manila, which
they inherited from their grandparents.
After the two others got married, Jose was left in the house and he paid rentals for the house in the sum of P8,000.00 a year.

On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the payment of real estate dealer's tax for 1952 in the amount of
P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax for dealers of securities for 1952 plus P910.00 compromise penalty for late
payment.
The assessment for real estate dealer's tax was based on the fact that Roxas y Cia received house rentals from Jose Roxas in the amount of P8,000.00.
Pursuant to Sec. 194 of the Tax Code, an owner of a real estate who derives a yearly rental income therefrom in the amount of P3,000.00 or more is
considered a real estate dealer and is liable to pay the corresponding fixed tax.
The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of securities against Roxas y Cia., on the fact that said
partnership made profits from the purchase and sale of securities. In the same assessment, the Commissioner assessed deficiency income taxes against the
Roxas brothers for the years 1953 and 1955.
o The deficiency income taxes resulted from the inclusion as income of Roxas y Cia of the unreported 50% of the net profits for 1953 and 1955
derived from the sale of the Nasugbu farm lands to the tenants, and the disallowance of deductions from gross income of various business
expenses and contributions claimed by Roxas y Cia and the Roxas brothers.
o For the reason that Roxas y Cia subdivided its Nasugbu farm lands and sold them to the farmers on installment, the Commissioner considered the
partnership as engaged.
The Roxas brothers protested the assessment but as said protest was denied, they instituted an appeal in the Court of Tax Appeals on January 9, 1961.
The Tax Court heard the appeal and rendered judgment on July 31, 1965 sustaining the assessment except the demand for the payment of the fixed tax on
dealer of securities and the disallowance of the deductions for contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa.

ISSUE:
Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers?

HELD:
NO. The Commissioner of Internal Revenue contends that Roxas y Cia could be considered a real estate dealer because it engaged in the business of
selling real estate. The business activity alluded to was the act of subdividing the Nasugbu farm lands and selling them to the farmers-occupants on
installment.
The proposition of the Commissioner of Internal Revenue cannot be favorably accepted by the SC in this isolated transaction with its peculiar
circumstances in spite of the fact that there were hundreds of vendees. Although they paid for their respective holdings in installment for a period of ten
years, it would nevertheless not make the vendor Roxas y Cia a real estate dealer during the ten-year amortization period.
It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only in consonance with,
but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the landless. It was the bounden duty of the
Government to pay the agreed compensation after it had persuaded Roxas y Cia to sell its haciendas, and to subsequently subdivide them among the
farmers at very reasonable terms and prices.
However, the Government could not comply with its duty for lack of funds. Obligingly, Roxas y Cia shouldered the Government's burden, went out of its
way and sold the lands directly to the farmers in the same way and under the same terms as would have been the case had the Government done it itself.
For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's gratitude.
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg". And, in
order to maintain the general public's trust and confidence in the Government, this power must be used justly and not treacherously. It does not conform
with the SCs sense of justice in the instant case for the Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for
duly answering the urgent call.
In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the
farmers are capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the extent of 50%.

b. TAADA v. ANGARA
G.R. No. 118295. May 2, 1997

FACTS:
On April 15, 1994, Respondent Rizalino Navarro, then Secretary of the Department of Trade and Industry (Secretary Navarro, for brevity), representing
the Government of the Republic of the Philippines, signed in Marrakesh, Morocco, the Final Act Embodying the Results of the Uruguay Round of
Multilateral Negotiations (Final Act, for brevity).
On August 12, 1994, the members of the Philippine Senate received a letter dated August 11, 1994 from the President of the Philippines, stating among
others that "the Uruguay Round Final Act is hereby submitted to the Senate for its concurrence pursuant to Section 21, Article VII of the Constitution."
On December 14, 1994, the Philippine Senate adopted Resolution No. 97 which "Resolved, as it is hereby resolved, that the Senate concur, as it hereby
concurs, in the ratification by the President of the Philippines of the Agreement Establishing the World Trade Organization."
On December 29, 1994, the present petition was filed assailing the WTO Agreement for violating the mandate of the 1987 Constitution to "develop a
self-reliant and independent national economy effectively controlled by Filipinos . . . (to) give preference to qualified Filipinos (and to) promote the
preferential use of Filipino labor, domestic materials and locally produced goods, arguing mainly (1) that the WTO requires the Philippines "to place
nationals and products of member-countries on the same footing as Filipinos and local products" and (2) that the WTO "intrudes, limits and/or impairs"
the constitutional powers of both Congress and the Supreme Court.
 ISSUE(S):
Whether the provisions of the Agreement Establishing the World Trade Organization contravene the provisions of Sec. 19, Article II, and Secs. 10 and
12, Article XII, all of the 1987 Philippine Constitution.
Whether provisions of the Agreement Establishing the World Trade Organization unduly limit, restrict and impair Philippine sovereignty specifically
the legislative power which, under Sec. 2, Article VI, 1987 Philippine Constitution is vested in the Congress of the Philippines

HELD:
a. NO. It is petitioners' position that the "national treatment" and "parity provisions" of the WTO Agreement "place nationals and products of member
countries on the same footing as Filipinos and local products," in contravention of the "Filipino First" policy of the Constitution. They allegedly render
meaningless the phrase "effectively controlled by Filipinos." The constitutional conflict becomes more manifest when viewed in the context of the clear
duty imposed on the Philippines as a WTO member to ensure the conformity of its laws, regulations and administrative procedures with its obligations as
provided in the annexed agreements. Petitioners further argue that these provisions contravene constitutional limitations on the role exports play in
national development and negate the preferential treatment accorded to Filipino labor, domestic materials and locally produced goods.

While the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and enterprises, at the same time, it recognizes the need for
business exchange with the rest of the world on the bases of equality and reciprocity and limits protection of Filipino enterprises only against foreign
competition and trade practices that are unfair. In other words, the Constitution did not intend to pursue an isolationist policy. It did not shut out foreign
investments, goods and services in the development of the Philippine economy. While the Constitution does not encourage the unlimited entry of foreign
goods, services and investments into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity,
frowning only on foreign competition that is unfair. The WTO reliance on "most favored nation," "national treatment," and "trade without
discrimination" cannot be struck down as unconstitutional as in fact they are rules of equality and reciprocity that apply to all WTO members. Aside from
envisioning a trade policy based on "equality and reciprocity," the fundamental law encourages industries that are "competitive in both domestic and
foreign markets," thereby demonstrating a clear policy against a sheltered domestic trade environment, but one in favor of the gradual development of
robust industries that can compete with the best in the foreign markets. Indeed, Filipino managers and Filipino enterprises have shown capability and
tenacity to compete internationally

b. The WTO Agreement provides that "(e)ach Member shall ensure the conformity of its laws, regulations and administrative procedures with its
obligations as provided in the annexed Agreements." Petitioners maintain that this undertaking "unduly limits, restricts and impairs Philippine
sovereignty, specifically the legislative power which under Sec. 2, Article VI of the 1987 Philippine Constitution is vested in the Congress of the
Philippines. It is an assault on the sovereign powers of the Philippines because this means that Congress could not pass legislation that will be good for
our national interest and general welfare if such legislation will not conform with the WTO Agreement, which not only relates to the trade in goods . . .
but also to the flow of investments and money . . . as well as to a whole slew of agreements on socio-cultural matters . . ." More specifically, petitioners
claim that said WTO proviso derogates from the power to tax, which is lodged in the Congress. And while the Constitution allows Congress to authorize
the President to fix tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts, such authority is subject to "specified
limits and . . . such limitations and restrictions" as Congress may provide, as in fact it did under Sec.401 of the Tariff and Customs Code.

While sovereignty has traditionally been deemed absolute and all-encompassing on the domestic level, it is however subject to restrictions and limitations
voluntarily agreed to by the Philippines, expressly or impliedly, as a member of the family of nations. By the doctrine of incorporation, the country is
bound by generally accepted principles of international law, which are considered to be automatically part of our own laws. One of the oldest and most
fundamental rules in international law is pacta sunt servanda international agreements must be performed in good faith.

By their inherent nature, treaties really limit or restrict the absoluteness of sovereignty. By their voluntary act, nations may surrender some aspects of their
state power in exchange for greater benefits granted by or derived from a convention or pact. Thus, when the Philippines joined the United Nations as
one of its 51 charter members, it consented to restrict its sovereign rights under the "concept of sovereignty as auto limitation." Apart from the UN
Treaty, the Philippines has entered into many other international pacts both bilateral and multilateral that involve limitations on Philippine
sovereignty. In several treaties, the Philippines has effectively agreed to limit the exercise of its sovereign powers of taxation, eminent domain and
police power. The underlying consideration in this partial surrender of sovereignty is the reciprocal commitment of the other contracting states in granting
the same privilege and immunities to the Philippines, its officials and its citizens. The same reciprocity characterizes the Philippine commitments under
WTO-GATT.

c. LAND TRANSPORTATION OFFICE V. CITY OF BUTUAN

G.R. No. 131512. January 20, 2000.

FACTS:
Respondent City of Butuan asserts that one of the salient provisions introduced by the Local Government Code is in the area of local taxation which
allows LGUs to collect registration fees or charges along with, in its view, the corresponding issuance of all kinds of licenses or permits for the driving of
tricycles.
Relying on Section 129 and Section 133 of the Local Government Code, the Sangguniang Panlungsod ("SP") of Butuan, on 16 August 1992, passed
SP Ordinance No. 916-92 entitled "An Ordinance Regulating the Operation of Tricycles-for-Hire, providing mechanism for the issuance of Franchise,
Registration and Permit, and Imposing Penalties for Violations thereof and for other Purposes." The ordinance provided for, among other things, the
payment of franchise fees for the grant of the franchise of tricycles-for-hire, fees for the registration of the vehicle, and fees for the issuance of a permit
for the driving thereof.
Petitioner LTO explains that one of the functions of the national government that, indeed, has been transferred to local government units is the
franchising authority over tricycles for- hire of the Land Transportation Franchising and Regulatory Board ("LTFRB") but not, it asseverates, the
authority of LTO to register all motor vehicles and to issue to qualified persons of licenses to drive such vehicles.
 The Regional Trial Court (Branch 2) of Butuan City held that the authority to register tricycles, the grant of the corresponding franchise, the issuance
of tricycle drivers' license, and the collection of fees therefor had all been vested in the Local Government Units ("LGUs"). Accordingly, it decreed the
issuance of a permanent writ of injunction against LTO, prohibiting and enjoining LTO, as well as its employees and other persons acting in its behalf,
from (a) registering tricycles and (b) issuing licenses to drivers of tricycles.
The Court of Appeals, on appeal to it, sustained the trial court.
The adverse rulings of both the court a quo and the appellate court prompted the LTO to file the instant petition for review on certiorari to annul and set
aside the decision, dated 17 November 1997, of the Court of Appeals affirming the permanent injunctive writ order of the Regional Trial Court (Branch
2) of Butuan City.

ISSUE:
Whether the power of the Land Registration Office (LTO) to register, tricycles in particular, as well as to issue licenses for the driving thereof, has
devolved to local government units under the provisions of the Local Government Code.

HELD:
NO. The Department of Transportation and Communications ("DOTC"), through the LTO and the LTFRB, has since been tasked with implementing
laws pertaining to land transportation.
o The LTO is a line agency under the DOTC whose powers and functions, pursuant to Article III, Section 4 (d) (1), 10 of R.A. No. 4136,
otherwise known as Land Transportation and Traffic Code, as amended, deal primarily with the registration of all motor vehicles and the
licensing of drivers thereof.
o The LTFRB, upon the other hand, is the governing body tasked by E.O. No. 202, dated 19 June 1987, to regulate the operation of public utility or
"for hire" vehicles and to grant franchises or certificates of public convenience ("CPC"). Finely put, registration and licensing functions are
vested in the LTO while franchising and regulatory responsibilities had been vested in the LTFRB.
Under the Local Government Code, certain functions of the DOTC were transferred to the LGUs.
LGUs indubitably now have the power to regulate the operation of tricycles-for-hire and to grant franchises for the operation thereof. It may not be amiss
to state, nevertheless, that under Article 458 (a) [3-VI] of the Local Government Code, the power of LGUs to regulate the operation of tricycles and to
grant franchises for the operation thereof is still subject to the guidelines prescribed by the DOTC. Such as can be gleaned from the explicit language of
the statute, as well as the corresponding guidelines issued by DOTC, the newly delegated powers pertain to the franchising and regulatory powers
theretofore exercised by the LTFRB and not to the functions of the LTO relative to the registration of motor vehicles and issuance of licenses for the
driving thereof.
Police power and taxation, along with eminent domain, are inherent powers of sovereignty which the State might share with local government
units by delegation given under a constitutional or a statutory fiat. All these inherent powers are for a public purpose and legislative in nature
but the similarities just about end there. The basic aim of police power is public good and welfare. Taxation, in its case, focuses on the power of
government to raise revenue in order to support its existence and carry out its legitimate objectives. Although correlative to each other in many respects,
the grant of one does not necessarily carry with it the grant of the other.
The two powers are, by tradition and jurisprudence, separate and distinct powers, varying in their respective concepts, character, scopes and limitations.
To construe the tax provisions of Section 133(1) indistinctively would result in the repeal to that extent of LTO's regulatory power which evidently has
not been intended. If it were otherwise, the law could have just said so in Section 447 and 458 of Book III of the Local Government Code in the same
manner that the specific devolution of LTFRB's power on franchising of tricycles has been provided. Repeal by implication is not favored.
The power over tricycles granted under Section 458(a)(3)(VI) of the Local Government Code to LGUs is the power to regulate their operation and to
grant franchises for the operation thereof. The exclusionary clause contained in the tax provisions of Section 133(1) of the Local Government Code must
not be held to have had the effect of withdrawing the express power of LTO to cause the registration of all motor vehicles and the issuance of licenses for
the driving thereof. These functions of the LTO are essentially regulatory in nature, exercised pursuant to the police power of the State, whose basic
objectives are to achieve road safety by insuring the road worthiness of these motor vehicles and the competence of drivers prescribed by R. A. 4136. Not
insignificant is the rule that a statute must not be construed in isolation but must be taken in harmony with the extant body of laws.

d. PHILIPPINE MATCH CO., LTD., v. THE CITY OF CEBU and JESUS E. ZABATE
G.R. No. L-30745 January 18, 1978

FACTS:
Ordinance No. 279 of Cebu City is "an ordinance imposing a quarterly tax on gross sales or receipts of merchants, dealers, importers and
manufacturers of any commodity doing business" in Cebu City. It imposes a sales tax of one percent (1%) on the gross sales, receipts or value of
commodities sold, bartered, exchanged or manufactured in the city in excess of P2,000 a quarter. Section 9 of the ordinance provides that, for purposes of
the tax, "all deliveries of goods or commodities stored in the City of Cebu, or if not stored are sold" in that city, "shall be considered as sales" in the city
and shall be taxable.
Under the tax ordinance sales of matches consummated outside of the city are taxable as long as the matches sold are taken from the company's stock
stored in Cebu City. The Philippine Match Co., Ltd., whose principal office is in Manila, is engaged in the manufacture of matches. It ships cases or
cartons of matches from Manila to its branch office in Cebu City for storage, sale and distribution within the territories and districts under its Cebu
branch or the whole Visayas-Mindanao region
The company does not question the tax on the matches sold and delivered within the city of Cebu. It assails the legality of the tax which the city treasurer
collected on out-of- town deliveries of matches, to wit
o Sales of matches booked and paid for in Cebu City but shipped directly to customers outside of the city
o Transfers of matches to newsmen assigned to different agencies outside of the city and
o shipments of matches to provincial customers pursuant to salesmen's instructions
The company sought the refund of the sales tax paid for out-of-town deliveries of matches. The city treasurer denied the request. His stand is that under
section 9 of the ordinance all out-of-town deliveries of latches stored in the city are subject to the sales tax imposed by the ordinance. The company filed
the complaint herein, praying that the ordinance be declared void.
 The trial court sustained the tax imposed on the first transaction, and invalidated the tax in the other two. It characterized the tax on the other two
transactions as a "storage tax", not a sales tax, since the sales were consummated outside of the city, and hence, beyond the city's taxing power. The city
did not appeal from the decision. But the appellant appealed from that portion of the decision sustaining the tax on sales of matches to customers outside
of the city, which sales were settled and paid for in Cebu City and also from the dismissal of its claim for damages against the city treasurer

ISSUE:
Whether the City of Cebu can tax sales of matches, which were perfected and paid for in Cebu City, but the matches were delivered to customers
outside of the City.

HELD:
YES. Supreme Court held that the municipal board of Cebu City is empowered "to provide for the levy and collection of taxes for general and special
purposes in accordance with law. The prohibition against the imposition of percentage taxes refers to municipalities and municipal districts but not to
chartered cities. The fact that the matches were delivered to customers outside of the city did not place the sales beyond the city's taxing power.
The sales formed part of the merchandising business being carried on by the appellant in the city. As the city treasurer acted within the scope of his
authority and in consonance with his bona fide interpretation of the tax ordinance, though not sustained completely by the court, his action did not render
him liable for damages

e. MATALIN COCONUT CO., INC v. THE MUNICIPAL COUNCIL OF MALABANG, LANAO DEL SUR, AMIR M. BALINDONG and HADJI
PANGILAMUN MANALOCON, MUNICIPAL MAYOR and MUNICIPAL TREASURER OF MALABANG, LANAO DEL SUR
G.R. No. L-28138 August 13, 1986

FACTS:
Municipal Council of Malabang, Lanao del Sur, invoking the authority of Section 2 of Republic Act No. 2264, otherwise known as the Local
Autonomy Act, enacted Municipal Ordinance No. 45-46, entitled "AN ORDINANCE IMPOSING A POLICE INSPECTION FEE OF P.30 PER SACK
OF CASSAVA STARCH PRODUCED AND SHIPPED OUT OF THE MUNICIPALITY OF MALABANG AND IMPOSING PENALTIES FOR
VIOLATIONS THEREOF." The ordinance made it unlawful for any person, company or group of persons "to ship out of the Municipality of Malabang,
cassava starch or flour without paying the corresponding fee fixed by (the) ordinance."
The validity of the ordinance was challenged by petitioner, Matalin Coconut, Inc. filed against the Municipal Council, the Municipal Mayor and the
Municipal Treasurer of Malabang, Lanao del Sur. Alleging among others that the ordinance is not only ultra vires, being violative of Republic Act No.
2264, but also unreasonable, oppressive and confiscatory, the petitioner prayed that the ordinance be declared null and void ab initio, and that the
respondent Municipal Treasurer be ordered to refund the amounts paid by petitioner under the ordinance. The petitioner also prayed that during the
pendency of the action, a preliminary injunction be issued enjoining the respondents from enforcing the ordinance. The respondents-appellants contend
that the municipality has the power and authority to approve the ordinance in question pursuant to Section 2 of the Local Autonomy Act (Republic Act
No. 2264).

ISSUES and HELD:

Whether or not Ordinance No. 45-66 enacted by respondent Municipal Council of Malabang, Lanao del Sur, is valid.
o The Supreme Court found the ordinance in question to be invalid.
o The court held that the inspection fee of P0.30 per bag, imposed by the ordinance in question to be excessive and confiscatory. It has been shown
by the petitioner, Matalin Coconut Company, Inc., that it is merely realizing a marginal average profit of P0.40, per bag, of cassava flour starch
shipped out from the Municipality of Malabang because the average production is P15.60 per bag, including transportation costs, while the
prevailing market price is P16.00 per bag. The further imposition, therefore, of the tax of P0.30 per bag, by the ordinance in question would force
the petitioner to close or stop its cassava flour starch milling business considering that it is maintaining a big labor force in its operation, including a
force of security guards to guard its properties.
o The ordinance, therefore, has an adverse effect on the economic growth of the Municipality of Malabang, in particular, and of the nation, in general,
and is contrary to the economic policy of the government

Whether the municipality has the power and authority to approve the ordinance in question pursuant to Section 2 of the Local Autonomy Act (Republic
Act No. 2264)
o The amount collected under the ordinance in question partakes of the nature of a tax, although denominated as "police inspection fee" since its
undeniable purpose is to raise revenue.
o Under Section of the Local Autonomy, municipalities and municipal districts are prohibited from imposing "any percentage tax on sales or other
taxes in any form based thereon." The tax imposed under the ordinance in question is not a percentage tax on sales or any other form of tax based on
sales. It is a fixed tax of P.30 per bag of cassava starch or flour "shipped out" of the municipality

f. WALTER LUTZ v. J. ANTONIO ARANETA

G.R. No. L-7859. 98 PHIL 148-154. December 22, 1955

FACTS:
Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act was promulgated in 1940.
o In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar, on a graduated basis, on each picul
of sugar manufactures;
o while section 3 levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on
lease or otherwise.
 Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the Collector of
Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950;
o alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion
is not a public purpose for which a tax may be constitutionally levied

ISSUE:
Whether or not the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act is valid

HELD:
YES. The Supreme Court ruled that the tax provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power.
Analysis of the Act, and particularly of section 6, will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation
and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power. As the protection and
promotion of the sugar industry is a matter of public concern the Legislature may determine within reasonable bounds what is necessary for its protection
and expedient for its promotion.
Here, the legislative must be allowed full play, subject only to the test of reasonableness; and it is not contended that the means provided in section 6 of
Commonwealth Act No. 567 bear no relation to the objective pursued or are oppressive in character.
If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and
attainment. Taxation may be made the implement of the state's police power.

g. NATIONAL TELECOMMUNICATIONS COMMISSION v HONORABLE COURT OF APPEALS and PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY
G.R. No. 127937. July 28, 1999

FACTS:
Sometime in 1988, the National Telecommunications Commission (NTC) served on the Philippine Long Distance Telephone Company (PLDT)
assessment notices and demands for payment, among others, the amount of P7,495,161.00 as supervision and regulation fee under Section 40(e) of the
Public Service Act for 1988, computed at P0.50 per P100 PLDT outstanding capital stock as of December 31, 1987 which consisted of Serial Preferred
Stock and Common Stock.
The PLDT protested on the said assessment by claiming that the assessment under Section 40(e) should only have been on the basis of the par values of
its outstanding capital stock. However, the NTC denied the said protest.
On appeal, the Court of Appeals ruled that the computation for the annual supervision and regulation fees under Section 40 (e) of the Public Service
Act, as amended, should be fifty centavos for each one hundred pesos or fraction thereof of the par value of the capital stock subscribed and paid
excluding stock dividends, premiums or capital in excess of par. Not contented with the said decision, the NTC filed this petition

ISSUE:
Whether or not Petitioner has authority to compel private respondent's payment of the assessed fees under Section 40 (f) for the increase of its authorized
capital stock.

HELD:
YES, the Supreme Court held that it is the legislature itself is who imposed such fee and not the NTC.
Congress has the power to exercise the State inherent powers of Police Power, Eminent Domain and Taxation, the distinction between police
power and the power to tax, which could be significant if the exercising authority were mere political subdivisions (since delegation by it to such
political subdivisions of one power does not necessarily include the other), would not be of any moment when, as in the case under consideration,
Congress itself exercises the power. All that is to be done would be to apply and enforce the law when sufficiently definitive and not constitutional
infirm