Case Doctrines in Taxation Law Review

CASE DOCTRINES IN LABOR LAW REVIEW Prepared by: Glenn Rey Anino University of Cebu- College of Law Manila Memorial Park, Inc. vs. Secretary of the Department of Social Welfare and Development, 711 SCRA 302 , December 03, 2013 Constitutional Law; Courts; Judicial Review; Requisites of Judicial Review.—When the constitutionality of a law is put in issue, judicial review may be availed of only if the following requisites concur: “(1) the existence of an actual and appropriate case; (2) the existence of personal and substantial interest on the part of the party raising the [question of constitutionality]; (3) recourse to judicial review is made at the earliest opportunity; and (4) the [question of constitutionality] is the lis mota of the case.” Same; Same; Same; An actual case or controversy exists when there is “a conflict of legal rights” or “an assertion of opposite legal claims susceptible of judicial resolution.”—An actual case or controversy exists when there is “a conflict of legal rights” or “an assertion of opposite legal claims susceptible of judicial resolution.” The Petition must therefore show that “the governmental act being challenged has a direct adverse effect on the individual challenging it.” In this case, the tax deduction scheme challenged by petitioners has a direct adverse effect on them. Thus, it cannot be denied that there exists an actual case or controversy. Taxation; Tax Deductions; Police Power; Thus, even if the current law, through its tax deduction scheme (which abandoned the tax credit scheme under the previous law), does not provide for a peso for peso reimbursement of the 20% discount given by private establishments, no constitutional infirmity obtains because, being a valid exercise of police power, payment of just compensation is not warranted.—The present case, thus, affords an opportunity for us to clarify the above-quoted statements in Central Luzon Drug Corporation, 456 SCRA 414 (2005) and Carlos Superdrug Corporation, 526 SCRA 130 (2007). First, we note that the above-quoted disquisition on eminent domain in Central Luzon Drug Corporation is obiter dicta and, thus, not binding precedent. As stated earlier, in Central Luzon Drug Corporation, we ruled that the BIR acted ultra vires when it effectively treated the 20% discount as a tax deduction, under Sections 2.i and 4 of RR No. 2-94, despite the clear wording of the previous law that the same should be treated as a tax credit. We were, therefore, not confronted in that case with the issue as to whether the 20% discount is an exercise of police power or eminent domain. Second, although we adverted to Central Luzon Drug Corporation in our ruling in Carlos Superdrug Corporation, this referred only to preliminary matters. A fair reading of Carlos Superdrug Corporation would show that we categorically ruled therein that the 20% discount is a valid exercise of police power. Thus, even if the current law, through its tax deduction scheme (which abandoned the tax credit scheme under the previous law), does not provide for a peso for peso reimbursement of the 20% discount given by private establishments, no constitutional infirmity obtains because, being a valid exercise of police power, payment of just compensation is not warranted. We have carefully reviewed the basis of our ruling in Carlos Superdrug Corporation and we find no cogent reason to overturn, modify or abandon it. We also note that petitioners’ arguments are a mere reiteration of those raised and resolved in Carlos Superdrug Corporation. Thus, we sustain Carlos Superdrug Corporation. Police Power; Eminent Domain; “Police Power” and “Eminent Domain,” Distinguished.—Police power is the inherent power of the State to regulate or to restrain the use of liberty and property for public welfare. The only limitation is that the restriction imposed should be reasonable, not oppressive. In other words, to be a valid exercise of police power, it must have a lawful subject or objective and a

lawful method of accomplishing the goal. Under the police power of the State, “property rights of individuals may be subjected to restraints and burdens in order to fulfill the objectives of the government.” The State “may interfere with personal liberty, property, lawful businesses and occupations to promote the general welfare [as long as] the interference [is] reasonable and not arbitrary.” Eminent domain, on the other hand, is the inherent power of the State to take or appropriate private property for public use. The Constitution, however, requires that private property shall not be taken without due process of law and the payment of just compensation. Same; In the exercise of police power, a property right is impaired by regulation, or the use of property is merely prohibited, regulated or restricted to promote public welfare. In such cases, there is no compensable taking, hence, payment of just compensation is not required.—In the exercise of police power, a property right is impaired by regulation, or the use of property is merely prohibited, regulated or restricted to promote public welfare. In such cases, there is no compensable taking, hence, payment of just compensation is not required. Examples of these regulations are property condemned for being noxious or intended for noxious purposes (e.g., a building on the verge of collapse to be demolished for public safety, or obscene materials to be destroyed in the interest of public morals) as well as zoning ordinances prohibiting the use of property for purposes injurious to the health, morals or safety of the community (e.g., dividing a city’s territory into residential and industrial areas). It has, thus, been observed that, in the exercise of police power (as distinguished from eminent domain), although the regulation affects the right of ownership, none of the bundle of rights which constitute ownership is appropriated for use by or for the benefit of the public. Eminent Domain; In the exercise of the power of eminent domain, property interests are appropriated and applied to some public purpose which necessitates the payment of just compensation therefor.—In the exercise of the power of eminent domain, property interests are appropriated and applied to some public purpose which necessitates the payment of just compensation therefor. Normally, the title to and possession of the property are transferred to the expropriating authority. Examples include the acquisition of lands for the construction of public highways as well as agricultural lands acquired by the government under the agrarian reform law for redistribution to qualified farmer beneficiaries. However, it is a settled rule that the acquisition of title or total destruction of the property is not essential for “taking” under the power of eminent domain to be present. Examples of these include establishment of easements such as where the land owner is perpetually deprived of his proprietary rights because of the hazards posed by electric transmission lines constructed above his property or the compelled interconnection of the telephone system between the government and a private company. In these cases, although the private property owner is not divested of ownership or possession, payment of just compensation is warranted because of the burden placed on the property for the use or benefit of the public. Same; Police Power; It may not always be easy to determine whether a challenged governmental act is an exercise of police power or eminent domain.—It may not always be easy to determine whether a challenged governmental act is an exercise of police power or eminent domain. The very nature of police power as elastic and responsive to various social conditions as well as the evolving meaning and scope of public use and just compensation in eminent domain evinces that these are not static concepts. Because of the exigencies of rapidly changing times, Congress may be compelled to adopt or experiment with different measures to promote the general welfare which may not fall squarely within the traditionally recognized categories of police power and eminent domain. The judicious approach, therefore, is to look at the nature and effects of the challenged governmental act and decide, on the basis thereof, whether the act is the exercise of police power or eminent domain. Thus, we now look at the nature and effects of the 20% discount to determine if it constitutes an exercise of police power or

eminent domain. Senior Citizen Discount; The 20% discount is intended to improve the welfare of senior citizens who, at their age, are less likely to be gainfully employed, more prone to illnesses and other disabilities, and, thus, in need of subsidy in purchasing basic commodities.—The 20% discount is intended to improve the welfare of senior citizens who, at their age, are less likely to be gainfully employed, more prone to illnesses and other disabilities, and, thus, in need of subsidy in purchasing basic commodities. It may not be amiss to mention also that the discount serves to honor senior citizens who presumably spent the productive years of their lives on contributing to the development and progress of the nation. This distinct cultural Filipino practice of honoring the elderly is an integral part of this law. As to its nature and effects, the 20% discount is a regulation affecting the ability of private establishments to price their products and services relative to a special class of individuals, senior citizens, for which the Constitution affords preferential concern. In turn, this affects the amount of profits or income/gross sales that a private establishment can derive from senior citizens. In other words, the subject regulation affects the pricing, and, hence, the profitability of a private establishment. However, it does not purport to appropriate or burden specific properties, used in the operation or conduct of the business of private establishments, for the use or benefit of the public, or senior citizens for that matter, but merely regulates the pricing of goods and services relative to, and the amount of profits or income/gross sales that such private establishments may derive from, senior citizens. Statutes; Because all laws enjoy the presumption of constitutionality, courts will uphold a law’s validity if any set of facts may be conceived to sustain it.—Because all laws enjoy the presumption of constitutionality, courts will uphold a law’s validity if any set of facts may be conceived to sustain it. On its face, we find that there are at least two conceivable bases to sustain the subject regulation’s validity absent clear and convincing proof that it is unreasonable, oppressive or confiscatory. Congress may have legitimately concluded that business establishments have the capacity to absorb a decrease in profits or income/gross sales due to the 20% discount without substantially affecting the reasonable rate of return on their investments considering (1) not all customers of a business establishment are senior citizens and (2) the level of its profit margins on goods and services offered to the general public. Concurrently, Congress may have, likewise, legitimately concluded that the establishments, which will be required to extend the 20% discount, have the capacity to revise their pricing strategy so that whatever reduction in profits or income/gross sales that they may sustain because of sales to senior citizens, can be recouped through higher markups or from other products not subject of discounts. As a result, the discounts resulting from sales to senior citizens will not be confiscatory or unduly oppressive. Same; A court, in resolving cases before it, may look into the possible purposes or reasons that impelled the enactment of a particular statute or legal provision.—A court, in resolving cases before it, may look into the possible purposes or reasons that impelled the enactment of a particular statute or legal provision. However, statements made relative thereto are not always necessary in resolving the actual controversies presented before it. This was the case in Central Luzon Drug Corporation, 456 SCRA 414 (2005), resulting in that unfortunate statement that the tax credit “can be deemed” as just compensation. This, in turn, led to the erroneous conclusion, by deductive reasoning, that the 20% discount is an exercise of the power of eminent domain. The Dissent essentially adopts this theory and reasoning which, as will be shown below, is contrary to settled principles in police power and eminent domain analysis. Police Power; Indeed, there is a whole class of police power measures which justify the destruction of private property in order to preserve public health, morals, safety or welfare.—The Dissent discusses at

length the doctrine on “taking” in police power which occurs when private property is destroyed or placed outside the commerce of man. Indeed, there is a whole class of police power measures which justify the destruction of private property in order to preserve public health, morals, safety or welfare. As earlier mentioned, these would include a building on the verge of collapse or confiscated obscene materials as well as those mentioned by the Dissent with regard to property used in violating a criminal statute or one which constitutes a nuisance. In such cases, no compensation is required. However, it is equally true that there is another class of police power measures which do not involve the destruction of private property but merely regulate its use. The minimum wage law, zoning ordinances, price control laws, laws regulating the operation of motels and hotels, laws limiting the working hours to eight, and the like would fall under this category. The examples cited by the Dissent, likewise, fall under this category: Article 157 of the Labor Code, Sections 19 and 18 of the Social Security Law, and Section 7 of the Pag-IBIG Fund Law. These laws merely regulate or, to use the term of the Dissent, burden the conduct of the affairs of business establishments. In such cases, payment of just compensation is not required because they fall within the sphere of permissible police power measures. The senior citizen discount law falls under this latter category. Same; It is a basic postulate of our democratic system of government that the Constitution is a social contract whereby the people have surrendered their sovereign powers to the State for the common good.—That there may be a burden placed on business establishments or the consuming public as a result of the operation of the assailed law is not, by itself, a ground to declare it unconstitutional for this goes into the wisdom and expediency of the law. The cost of most, if not all, regulatory measures of the government on business establishments is ultimately passed on to the consumers but that, by itself, does not justify the wholesale nullification of these measures. It is a basic postulate of our democratic system of government that the Constitution is a social contract whereby the people have surrendered their sovereign powers to the State for the common good. All persons may be burdened by regulatory measures intended for the common good or to serve some important governmental interest, such as protecting or improving the welfare of a special class of people for which the Constitution affords preferential concern. Indubitably, the one assailing the law has the heavy burden of proving that the regulation is unreasonable, oppressive or confiscatory, or has gone “too far” as to amount to a “taking.” Yet, here, the Dissent would have this Court nullify the law without any proof of such nature. Same; Senior Citizen Discount; Prior to the sale of goods or services, a business establishment may be subject to State regulations, such as the 20% senior citizen discount, which may impact the level or amount of profits or income/gross sales that can be generated by such establishment.—Prior to the sale of goods or services, a business establishment may be subject to State regulations, such as the 20% senior citizen discount, which may impact the level or amount of profits or income/gross sales that can be generated by such establishment. For this reason, the validity of the discount is to be determined based on its overall effects on the operations of the business establishment. Eminent Domain; Taking; It should be noted though that potential profits or income/gross sales are relevant in police power and eminent domain analyses because they may, in appropriate cases, serve as an indicia when a regulation has gone “too far” as to amount to a “taking” under the power of eminent domain.—It should be noted though that potential profits or income/gross sales are relevant in police power and eminent domain analyses because they may, in appropriate cases, serve as an indicia when a regulation has gone “too far” as to amount to a “taking” under the power of eminent domain. When the deprivation or reduction of profits or income/gross sales is shown to be unreasonable, oppressive or confiscatory, then the challenged governmental regulation may be nullified for being a “taking” under the power of eminent domain. In such a case, it is not profits or income/gross sales which are actually taken and appropriated for public use. Rather, when the regulation causes an

establishment to incur losses in an unreasonable, oppressive or confiscatory manner, what is actually taken is capital and the right of the business establishment to a reasonable return on investment. If the business losses are not halted because of the continued operation of the regulation, this eventually leads to the destruction of the business and the total loss of the capital invested therein. But, again, petitioners in this case failed to prove that the subject regulation is unreasonable, oppressive or confiscatory. Police Power; Senior Citizen Discount; The State has, in the past, regulated prices and profits of business establishments. In other words, this type of regulatory measures is traditionally recognized as police power measures so that the senior citizen discount may be considered as a police power measure as well.—The State has, in the past, regulated prices and profits of business establishments. In other words, this type of regulatory measures is traditionally recognized as police power measures so that the senior citizen discount may be considered as a police power measure as well. What is more, the substantial distinctions between price and rate of return on investment control laws vis-à-vis the senior citizen discount law provide greater reason to uphold the validity of the senior citizen discount law. As previously discussed, the ability to adjust prices allows the establishment subject to the senior citizen discount to prevent or mitigate any reduction of profits or income/gross sales arising from the giving of the discount. In contrast, establishments subject to price and rate of return on investment control laws cannot adjust prices accordingly. Constitutional Law; There is nothing in the Constitution that prohibits Congress from regulating the profits or income/gross sales of industries and enterprises without franchises. On the contrary, the social justice provisions of the Constitution enjoin the State to regulate the “acquisition, ownership, use, and disposition” of property and its increments.—There is nothing in the Constitution that prohibits Congress from regulating the profits or income/gross sales of industries and enterprises without franchises. On the contrary, the social justice provisions of the Constitution enjoin the State to regulate the “acquisition, ownership, use, and disposition” of property and its increments. This may cover the regulation of profits or income/gross sales of all businesses, without qualification, to attain the objective of diffusing wealth in order to protect and enhance the right of all the people to human dignity. Thus, under the social justice policy of the Constitution, business establishments may be compelled to contribute to uplifting the plight of vulnerable or marginalized groups in our society provided that the regulation is not arbitrary, oppressive or confiscatory, or is not in breach of some specific constitutional limitation. Statutes; A law, which has been in operation for many years and promotes the welfare of a group accorded special concern by the Constitution, cannot and should not be summarily invalidated on a mere allegation that it reduces the profits or income/gross sales of business establishments.—We maintain that the correct rule in determining whether the subject regulatory measure has amounted to a “taking” under the power of eminent domain is the one laid down in Alalayan v. National Power Corporation, 24 SCRA 172 (1968), and followed in Carlos Superdrug Corporation, 526 SCRA 130 (2007), consistent with long standing principles in police power and eminent domain analysis. Thus, the deprivation or reduction of profits or income/gross sales must be clearly shown to be unreasonable, oppressive or confiscatory. Under the specific circumstances of this case, such determination can only be made upon the presentation of competent proof which petitioners failed to do. A law, which has been in operation for many years and promotes the welfare of a group accorded special concern by the Constitution, cannot and should not be summarily invalidated on a mere allegation that it reduces the profits or income/gross sales of business establishments.

Tio vs. Videogram Regulatory Board, 151 SCRA 208 , June 18, 1987 Constitutional Law; Constitutional requirement that “every bill shall embrace only one subject which shall be expressed in the title thereof’ is sufficiently complied with if the title be comprehensive enough to include the general purpose it seeks to achieve and if all the parts of the statute are related and germane to the subject matter expressed in the title or as long as they are not inconsistent with or foreign to the general subject and title.—The Constitutional requirement that “every bill shall embrace only one subject which shall be expressed in the title thereof” is sufficiently complied with if the title be comprehensive enough to include the general purpose which a statute seeks to achieve. It is not necessary that the title express each and every end that the statute wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are germane to the subject matter expressed in the title, or as long as they are not inconsistent with or foreign to the general subject and title. An act having a single general subject, indicated in the title, may contain any number of provisions, no matter how diverse they may be, so long as they are not inconsistent with or foreign to the general subject, and may be considered in furtherance of such subject by providing for the method and means of carrying out the general object.” The rule also is that the constitutional requirement as to the title of a bill should not be so narrowly construed as to cripple or impede the power of legislation. It should be given a practical rather than technical construction. Same; Same; Section 10 PD 1987 otherwise known as Videogram Regulatory Board is not a Rider.— Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision of law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case may be, for every sale, lease or disposition of a videogram containing a reproduction of any motion picture or audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and the other fifty percent (50%) shall accrue to the municipality where the tax is collected; PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila Commission. x x x x” The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the general object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject and title. As a tool for regulation it is simply one of the regulatory and control mechanisms scattered throughout the DECREE. The express purpose of the DECREE to include taxation of the video industry in order to regulate and rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. Those preambles explain the motives of the lawmaker in presenting the measure. The title of the DECREE, which is the creation of the Videogram Regulatory Board, is comprehensive enough to include the purposes expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to express all those objectives in the title or that the latter be an index to the body of the DECREE, Same; Same; Same; Tax imposed under the Decree is not harsh; oppressive, confiscatory and in restraint of trade but regulatory and a revenue measure; The levy is for a public purpose.—Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the realization that earnings of videogram establishments of around P600 million per annum have not been subjected to tax, thereby depriving the

Government of an additional source of revenue. It is an end-user tax, imposed on retailers for every videogram they make available for public viewing, It is similar to the 30% amusement tax imposed or borne by the movie industry which the theater-owners pay to the government, but which is passed on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators. The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie industry, the tax remains a valid imposition. Same; Same; Same; Same; PD 1987 not an undue delegation of legislative power.—Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power. The grant in Section 11 of the DECREE of authority to the BOARD to “solicit the direct assistance of other agencies and Units of the government and deputize, for a fixed and limited period, the heads or personnel of such agencies and units to perform enforcement functions for the Board” is not a delegation of the power to legislate but merely a conferment of authority or discretion as to its execution, enforcement, and implementation. “The true distinction is between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and conferring authority or discretion as to its execution to be exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be made.” Besides, in the very language of the decree, the authority of the BOARD to solicit such assistance is for a “fixed and limited period” with the deputized agencies concerned being “subject to the direction and control of the BOARD.” That the grant of such authority might be the source of graft and corruption would not stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate remedy in law.

Lutz vs. Araneta, 98 Phil. 148 , December 22, 1955 CONSTITUTIONAL LAW; TAXATION; POWER OF STATE TO LEVY TAX IN AID AND SUPPORT OF SUGAR INDUSTRY.—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 discretion 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 arealike 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 (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80 L. Ed. 477; M’Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579). 2.ID. ; ID. ; ID.; ; POWER OF STATE TO SELECT SUBJECT OF TAXATION.—It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that “inequalities which result from a singling out of one particular class for taxation or exemption infringe 110 constitutional limitation (Carmichael vs. Southern Coal & Coke Co., 301 U.S. 495, 81 L. Ed. 1245, citing numerous authorities, at 1251).

Gomez vs. Palomar, 25 SCRA 827 , October 29, 1968

Declaratory relief; Remedy cannot be availed of if there has been breach of statute before filing of action.—The prime specification of an action for declaratory relief is that it must be brought "before breach or violation" of the statute has been committed. Rule 64, section 1 so provides. Section 6 of the same rule, which allows the court to treat an action for declaratory relief as an ordinary action, applies only if the breach or violation occurs after the filing' of the action but before the termination thereof. If there has been a breach of the statute before the filing of the action, the remedy of declaratory relief cannot be availed of, much less can the suit be converted into an ordinary action. Constitutional law; Statutory construction; Anti-TB Stamp Law; Not violative of equal protection clause of the Constitution.—It is claimed that Republic Act 1635, as amended, otherwise known as the Anti-TB Stamp Law, is violative of the equal protection clause of the Constitution because it constitutes mail users into a class f or the purpose of the tax while leaving untaxed the rest of the population and that even among postal patrons the statute discriminatorily grants exemptions. Held: It is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions. The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on administrative convenience. Tax exemptions have never been thought of as raising issues under the equal protection clause. Same; Same; Same; Passed for a public purpose.—The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit to which the taxpayer is constitutionally 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. Same; Same; Same; Imposition of flat rate does not violate rule of uniformity and equality of taxation. —The imposition of a flat rate rather than a graduated tax does not infringe the rule of uniformity and equality of taxation. A tax need not be measured by the weight of the mail or the extent of the service rendered. Considerations of administrative convenience and cost afford an adequate ground for classification. The same considerations may induce the legislature to impose a flat tax which in effect is a charge for the transaction, operating equally on all persons with the class regardless of the amount involved. Same; Same; Same; The issuance of administrative orders by the Postmaster General with the approval of the Secretary of Public Works and Communications to implement the Anti-TB Stamp Law does not amount to undue delegation of legislative power.—It is true that the law does not expressly authorize the collection of five centavos except through the sale of anti-TB stamps, but such authority may be implied in so far as it may be necessary to prevent a failure of the undertaking. The authority given to the Postmaster General to raise f unds through the mails must be liberally construed, consistent with the principle that where the end is required the appropriate means is given. Anti-TB Stamp Law; Money raised from the sales of the anti-TB stamps not for the benefit of the Philippine Tuberculosis Society.—The Society is not really the beneficiary but only the agency through which the State acts in carrying out what is essentially a public function. The money is treated as a special fund and as such need not be appropriated by law. Same; Five centavo charge levied by Republic Act 1635 an excise tax.—The f ive centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise tax, laid upon the exercise of a privilege, the privilege of using the mails.

Planters Products, Inc. vs. Fertiphil Corporation, 548 SCRA 485 , March 14, 2008 Judicial Review; Locus Standi; In private suits, locus standi requires a litigant to be a “real party in interest,” which is defined as “the party who stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of the suit”; In this jurisdiction, We have adopted the “direct injury test” to determine locus standi in public suits; The “direct injury test” in public suits is similar to the “real party in interest” rule for private suits under Section 2, Rule 3 of the 1997 Rules of Civil Procedure. Same; Same; The fact of payment by a seller of the levy imposed by Letter of Instruction (LOI) 1465 is sufficient injury—the harm occasioned on its business is sufficient injury for purposes of locus standi Same; Same; The doctrine of standing, being a mere procedural technicality, should be waived, if at all, to adequately thresh out an important constitutional issue.— Same; Jurisdictions; Regular courts have jurisdiction over cases involving the validity or constitutionality of a rule or regulation issued by administrative agencies. Same; Lis Mota; The constitutionality of Letter of Instruction (LOI) No. 1465 is also the very lis mota of the complaint for collection. Taxation; Police Power; Words and Phrases; Police power is the power of the State to enact legislation that may interfere with personal liberty or property in order to promote the general welfare, while the power of taxation is the power to levy taxes to be used for public purpose.—Police power and the power of taxation are inherent powers of the State. These powers are distinct and have different tests for validity. Police power is the power of the State to enact legislation that may interfere with personal liberty or property in order to promote the general welfare, while the power of taxation is the power to levy taxes to be used for public purpose. The main purpose of police power is the regulation of a behavior or conduct, while taxation is revenue generation. The “lawful subjects” and “lawful means” tests are used to determine the validity of a law enacted under the police power. The power of taxation, on the other hand, is circumscribed by inherent and constitutional limitations. We agree with the RTC that the imposition of the levy was an exercise by the State of its taxation power. While it is true that the power of taxation can be used as an implement of police power, the primary purpose of the levy is revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. Same; The power to tax exists for the general welfare, hence, implicit in its power is the limitation that it should be used only for a public purpose—it would be a robbery for the State to tax its citizens and use the funds generated for a private purpose.—An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public purpose. They cannot be used for purely private purposes or for the exclusive benefit of private persons. The reason for this is simple. The power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should be used only for a public purpose. It would be a robbery for the State to tax its citizens and use the funds generated for a private purpose. As an old United States case bluntly put it: “To lay with one hand, the power of the government on the property of the citizen, and with the other to bestow it upon favored individuals to aid private enterprises and build up private fortunes, is nonetheless a robbery because it is done under the forms of law and is called taxation.”

Same; Words and Phrases; Public purpose is the heart of a tax law; Public purpose is an elastic concept that can be hammered to fit modern standards—it does not only pertain to those purposes which are traditionally viewed as essentially government functions, such as building roads and delivery of basic services, but also includes those purposes designed to promote social justice; While the categories of what may constitute a public purpose are continually expanding in light of the expansion of government functions, the inherent requirement that taxes can only be exacted for a public purpose still stands.—The term “public purpose” is not defined. It is an elastic concept that can be hammered to fit modern standards. Jurisprudence states that “public purpose” should be given a broad interpretation. It does not only pertain to those purposes which are traditionally viewed as essentially government functions, such as building roads and delivery of basic services, but also includes those purposes designed to promote social justice. Thus, public money may now be used for the relocation of illegal settlers, low-cost housing and urban or agrarian reform. While the categories of what may constitute a public purpose are continually expanding in light of the expansion of government functions, the inherent requirement that taxes can only be exacted for a public purpose still stands. Public purpose is the heart of a tax law. When a tax law is only a mask to exact funds from the public when its true intent is to give undue benefit and advantage to a private enterprise, that law will not satisfy the requirement of “public purpose.” The purpose of a law is evident from its text or inferable from other secondary sources. Here, We agree with the RTC and that CA that the levy imposed under LOI No. 1465 was not for a public purpose. Same; It is utterly repulsive that a tax law would expressly name a private company as the ultimate beneficiary of the taxes to be levied from the public—it is a clear case of crony capitalism.—It is a basic rule of statutory construction that the text of a statute should be given a literal meaning. In this case, the text of the LOI is plain that the levy was imposed in order to raise capital for PPI. The framers of the LOI did not even hide the insidious purpose of the law. They were cavalier enough to name PPI as the ultimate beneficiary of the taxes levied under the LOI. We find it utterly repulsive that a tax law would expressly name a private company as the ultimate beneficiary of the taxes to be levied from the public. This is a clear case of crony capitalism. Police Power; Test for Valid Exercise; Letter of Instruction (LOI) No. 1695 is invalid because it did not promote public interest.—Even if We consider LOI No. 1695 enacted under the police power of the State, it would still be invalid for failing to comply with the test of “lawful subjects” and “lawful means.” Jurisprudence states the test as follows: (1) the interest of the public generally, as distinguished from those of particular class, requires its exercise; and (2) the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote public interest. The law was enacted to give undue advantage to a private corporation. Statutes; Operative Fact Doctrine; The general rule is that an unconstitutional law is void—it produces no rights, imposes no duties and affords no protection, it has no legal effect, and it is, in legal contemplation, inoperative as if it has not been passed.—The general rule is that an unconstitutional law is void. It produces no rights, imposes no duties and affords no protection. It has no legal effect. It is, in legal contemplation, inoperative as if it has not been passed. Being void, Fertiphil is not required to pay the levy. All levies paid should be refunded in accordance with the general civil code principle against unjust enrichment. The general rule is supported by Article 7 of the Civil Code, which provides: ART. 7. Laws are repealed only by subsequent ones, and their violation or non-observance shall not be excused by disuse or custom or practice to the contrary. When the courts declare a law to be inconsistent with the Constitution, the former shall be void and the latter shall govern.

Same; Same; Unjust Enrichment; The doctrine of operative fact, as an exception to the general rule, only applies as a matter of equity and fair play—there is nothing iniquitous in ordering the beneficiary of an unconstitutional law where it unduly benefited from it, otherwise it would be unjustly enriched at the expense of others.—The doctrine of operative fact, as an exception to the general rule, only applies as a matter of equity and fair play. It nullifies the effects of an unconstitutional law by recognizing that the existence of a statute prior to a determination of unconstitutionality is an operative fact and may have consequences which cannot always be ignored. The past cannot always be erased by a new judicial declaration. The doctrine is applicable when a declaration of unconstitutionality will impose an undue burden on those who have relied on the invalid law. Thus, it was applied to a criminal case when a declaration of unconstitutionality would put the accused in double jeopardy or would put in limbo the acts done by a municipality in reliance upon a law creating it. Here, We do not find anything iniquitous in ordering PPI to refund the amounts paid by Fertiphil under LOI No. 1465. It unduly benefited from the levy. It was proven during the trial that the levies paid were remitted and deposited to its bank account. Quite the reverse, it would be inequitable and unjust not to order a refund. To do so would unjustly enrich PPI at the expense of Fertiphil. Article 22 of the Civil Code explicitly provides that “every person who, through an act of performance by another comes into possession of something at the expense of the latter without just or legal ground shall return the same to him.” We cannot allow PPI to profit from an unconstitutional law. Justice and equity dictate that PPI must refund the amounts paid by Fertiphil.

Abakada Guro Party List vs. Ermita, 469 SCRA 14 , September 01, 2005 Taxation; Value-Added Tax (VAT); Words and Phrases; 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; 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.—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. Same; Same; Same; In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different mode—prior to 1978, the system was a single-stage tax computed under the “cost deduction method” and was payable only by the original sellers, then the single-stage system was subsequently modified, and a mixture of the “cost deduction method” and “tax credit method” was used to determine the value-added tax payable; Under the “tax credit method,” an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports.—In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different mode. Prior to 1978, the system was a single-stage tax computed under the “cost deduction method” and was payable only by the original sellers. The single-stage system was subsequently modified, and a mixture of the “cost deduction method” and “tax credit method” was used to determine the value-added tax payable. Under the “tax credit method,” an entity can credit against or

subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports. It was only in 1987, when President Corazon C. Aquino issued Ex-ecutive Order No. 273, that the VAT system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the “tax credit method.” E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law, R.A. No. 8241 or the Improved VAT Law, R.A. No. 8424 or the Tax Reform Act of 1997, and finally, the presently beleaguered R.A. No. 9337, also referred to by respondents as the VAT Reform Act. Congress; Bicameral Conference Committee; Legislative Rules; It should be borne in mind that the power of internal regulation and discipline are intrinsic in any legislative body, and pursuant to this inherent constitutional power to promulgate and implement its own rules of procedure, the respective rules of each house of Congress provided for the creation of a Bicameral Conference Committee.— Petitioners now beseech the Court to define the powers of the Bi-cameral Conference Committee. It should be borne in mind that the power of internal regulation and discipline are intrinsic in any legislative body for, as unerringly elucidated by Justice Story, “[i]f the power did not exist, it would be utterly impracticable to transact the business of the nation, either at all, or at least with decency, deliberation, and order.” Thus, Article VI, Section 16 (3) of the Constitution provides that “each House may determine the rules of its proceed-ings.” Pursuant to this inherent constitutional power to promulgate and implement its own rules of procedure, the respective rules of each house of Congress provided for the creation of a Bicameral Conference Committee. Same; Same; Same; Separation of Powers; Judicial Review; Congress is the best judge of how it should conduct its own business expeditiously and in the most orderly manner; If a change is desired in the practice [of the Bicameral Conference Committee] it must be sought in Congress since this question is not covered by any constitutional provision but is only an internal rule of each house; Even the expanded jurisdiction of the Supreme Court cannot apply to questions regarding only the internal operation of Congress, thus, the Court is wont to deny a review of the internal proceedings of a coequal branch of government.—Akin to the Fariñas case, the present petitions also raise an issue regarding the actions taken by the conference committee on matters regarding Congress’ compliance with its own internal rules. As stated earlier, one of the most basic and inherent power of the legislature is the power to formulate rules for its proceedings and the discipline of its members. Congress is the best judge of how it should conduct its own business expeditiously and in the most orderly manner. It is also the sole concern of Congress to instill discipline among the members of its conference committee if it believes that said members violated any of its rules of proceedings. Even the expanded jurisdiction of this Court cannot apply to questions regarding only the internal operation of Congress, thus, the Court is wont to deny a review of the internal proceedings of a co-equal branch of government. Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of Finance, the Court already made the pronouncement that “[i]f a change is desired in the practice [of the Bicameral Conference Committee] it must be sought in Congress since this question is not covered by any constitutional provision but is only an internal rule of each house.”To date, Congress has not seen it fit to make such changes adverted to by the Court. It seems, therefore, that Congress finds the practices of the bicameral conference committee to be very useful for purposes of prompt and efficient legislative action. Same; Same; Same; Words and Phrases; The term “settle” is synonymous to “reconcile” and “harmonize”; To reconcile or harmonize disagreeing provisions, the Bicameral Conference Committee may then (a) adopt the specific provisions of either the House bill or Senate bill, (b) decide that neither provisions in the House bill or the provisions in the Senate bill would be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing provisions.—Under the provisions of both the Rules of the House of Representatives and Senate Rules, the Bicameral

Conference Committee is mandated to settle the differences between the disagreeing provisions in the House bill and the Senate bill. The term “settle” is synonymous to “reconcile” and “harmonize.” To reconcile or harmonize disagreeing provisions, the Bicameral Conference Committee may then (a) adopt the specific provisions of either the House bill or Senate bill, (b) decide that neither provisions in the House bill or the provisions in the Senate bill would be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing provisions. Same; Same; Same; It is within the power of a conference committee to include in its report an entirely new provision that is not found either in the House bill or in the Senate bill—if the committee can propose an amendment consisting of one or two provisions, there is no reason why it cannot propose several provisions, collectively considered as an “amendment in the nature of a substitute,” so long as such amendment is germane to the subject of the bills before the committee.—All the changes or modifications made by the Bicameral Conference Committee were germane to subjects of the provisions referred to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion amounting to lack or excess of jurisdiction committed by the Bicameral Conference Committee. In the earlier cases of Philippine Judges Association vs. Prado and Tolentino vs. Secretary of Finance, the Court recognized the longstanding legislative practice of giving said conference committee ample latitude for compromising differences between the Senate and the House. Thus, in the Tolentino case, it was held that: . . . it is within the power of a conference committee to include in its report an entirely new provision that is not found either in the House bill or in the Senate bill. If the committee can propose an amendment consisting of one or two provisions, there is no reason why it cannot propose several provisions, collectively considered as an “amendment in the nature of a substitute,” so long as such amendment is germane to the subject of the bills before the committee. After all, its report was not final but needed the approval of both houses of Congress to become valid as an act of the legislative department. The charge that in this case the Conference Committee acted as a third legislative chamber is thus without any basis. Same; Same; Same; “No Amendment” Rule; The “no-amend-ment rule” refers only to the procedure to be followed by each house of Congress with regard to bills initiated in each of said respective houses, before said bill is transmitted to the other house for its concurrence or amendment—Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the introduction by the Bicameral Conference Committee of amendments and modifications to disagreeing provisions in bills that have been acted upon by both houses of Congress is prohibited.—The Court reiterates here that the “noamendment rule” refers only to the procedure to be followed by each house of Congress with regard to bills initiated in each of said respective houses, before said bill is transmitted to the other house for its concurrence or amendment. Verily, to construe said provision in a way as to proscribe any further changes to a bill after one house has voted on it would lead to absurdity as this would mean that the other house of Congress would be deprived of its constitutional power to amend or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the introduction by the Bicameral Conference Committee of amendments and modifications to disagreeing provisions in bills that have been acted upon by both houses of Congress is prohibited. Same; Origin of Bills; Revenue Bills; Since there is no question that the revenue bill originated in the House of Representatives, the Senate was acting within its constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, excise and franchise taxes—Article VI, Section 24 of the Constitution does not contain any prohibition or limitation on the extent of the amendments that may be introduced by the Senate to the House revenue bill.—In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the move for amending provisions of the NIRC dealing mainly with

the value-added tax. Upon transmittal of said House bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing amendments not only to NIRC provisions on the value-added tax but also amendments to NIRC provisions on other kinds of taxes. Is the introduction by the Senate of provisions not dealing directly with the value-added tax, which is the only kind of tax being amended in the House bills, still within the purview of the constitutional provision authorizing the Senate to propose or concur with amendments to a revenue bill that originated from the House? * * * Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, excise and franchise taxes. Verily, Article VI, Section 24 of the Constitution does not contain any prohibition or limitation on the extent of the amendments that may be introduced by the Senate to the House revenue bill. Same; Same; Same; The main purpose of the bills emanating from the House of Representatives is to bring in sizeable revenues for the government to supplement our country’s serious financial problems, and improve tax administration and control of the leakages in revenues from income taxes and valueadded taxes, and the Senate, approaching the measures from the point of national perspective, can introduce amendments within the purposes of those bills, like providing ways that would soften the impact of the VAT measure on the consumer.—The main purpose of the bills emanating from the House of Representatives is to bring in sizeable revenues for the government to supplement our country’s 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. Same; Same; Same; Germaneness Rule; The amendments made on provisions in the tax on income of corporations are germane to the purpose of the house bills which is to raise revenues for the government, and the sections referring to other percentage and excise taxes are germane to the reforms to the VAT system, as these sections would cushion the effects of VAT on consumers.—As the Court has said, the Senate can propose amendments and in fact, the amendments made on provisions in the tax on income of corporations are germane to the purpose of the house bills which is to raise revenues for the government. Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the reforms to the VAT system, as these sections would cushion the effects of VAT on consumers. Considering that certain goods and services which were subject to percentage tax and excise tax would no longer be VAT-exempt, the consumer would be burdened more as they would be paying the VAT in addition to these taxes. Thus, there is a need to amend these sections to soften the impact of VAT. Separation of Powers; Delegation of Powers; A logical corollary to the doctrine of separation of powers is the principle of non-delegation of powers, a doctrine based on the ethical principle that such as delegated power constitutes not only a right but a duty to be performed by the delegate through the instrumentality of his own judgment and not through the intervening mind of another.—The principle of separation of powers ordains that each of the three great branches of government has exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated sphere. A logical corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as expressed in the Latin maxim: potestas delegata non delegari potest which means “what has been delegated, cannot be delegated.” This doctrine is based on the ethical principle that such as delegated power constitutes not only a right but a duty to be performed by the delegate through the

instrumentality of his own judgment and not through the intervening mind of another. Same; Same; Exception to the Non-Delegation of Legislative Powers; Words and Phrases; The powers which Congress is prohibited from delegating are those which are strictly, or inherently and exclusively, legislative—appertaining exclusively to the legislative department; Purely legislative power has been described as the authority to make a complete law—complete as to the time when it shall take effect and as to whom it shall be applicable—and to determine the expediency of its enactment; It is the nature of the power, and not the liability of its use or the manner of its exercise, which determines the validity of its delegation.—With respect to the Legislature, Section 1 of Article VI of the Constitution provides that “the Legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of Representatives.” The powers which Congress is prohibited from delegating are those which are strictly, or inherently and exclusively, legislative. Purely legislative power, which can never be delegated, has been described as the authority to make a complete law—complete as to the time when it shall take effect and as to whom it shall be applicable—and to determine the expediency of its enactment. Thus, the rule is that in order that a court may be justified in holding a statute unconstitutional as a delegation of legislative power, it must appear that the power involved is purely legislative in nature—that is, one appertaining exclusively to the legislative department. It is the nature of the power, and not the liability of its use or the manner of its exercise, which determines the validity of its delegation. Nonetheless, the general rule barring delegation of legislative powers is subject to the following recognized limitations or exceptions: (1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution; (2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the Constitution; (3) Delegation to the people at large; (4) Delegation to local governments; and (5) Delegation to administrative bodies. Same; Same; Same; Tests of Valid Delegation; A delegation is valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or implemented by the delegate, and (b) fixes a standard—the limits of which are sufficiently determinate and determinable—to which the delegate must conform in the performance of his functions; A sufficient standard is one which defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency to apply it. —In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or implemented by the delegate; and (b) fixes a standard—the limits of which are sufficiently determinate and determinable—to which the delegate must conform in the performance of his functions. A sufficient standard is one which defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency to apply it. It indicates the circumstances under which the legislative command is to be effected. Both tests are intended to prevent a total transference of legislative authority to the delegate, who is not allowed to step into the shoes of the legislature and exercise a power essentially legislative. Same; Same; Taxation; While the power to tax cannot be delegated to executive agencies, details as to the enforcement and administration of an exercise of such power may be left to them, including the power to determine the existence of facts on which its operation depends, the rationale being that the preliminary ascertainment of facts as basis for the enactment of legislation is not of itself a legislative function but is simply ancillary to legislation; The Constitution as a continuously operative charter of government does not require that Congress find for itself every fact upon which it desires to base legislative action or that it make for itself detailed determinations which it has declared to be prerequisite to application of legislative policy to particular facts and circumstances impossible for Congress itself properly to investigate.—The legislature may delegate to execu-tive officers or bodies

the power to determine certain facts or conditions, or the happening of contingencies, on which the operation of a statute is, by its terms, made to depend, but the legislature must prescribe sufficient standards, policies or limitations on their authority. While the power to tax cannot be delegated to executive agencies, details as to the enforcement and administration of an exercise of such power may be left to them, including the power to determine the existence of facts on which its operation depends. The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of legislation is not of itself a legislative function, but is simply ancillary to legislation. Thus, the duty of correlating information and making recommendations is the kind of subsidiary activity which the legislature may perform through its members, or which it may delegate to others to perform. Intelligent legislation on the complicated problems of modern society is impossible in the absence of accurate information on the part of the legislators, and any reasonable method of securing such information is proper. The Constitution as a continuously operative charter of government does not require that Congress find for itself every fact upon which it desires to base legislative action or that it make for itself detailed determinations which it has declared to be prerequisite to application of legislative policy to particular facts and circumstances impossible for Congress itself properly to investigate. Same; Same; Same; Statutory Construction; The case before the Court is not a delegation of legislative power—it is simply a delegation of ascertainment of facts upon which enforcement and administration of the increase rate under the law is contingent; No discretion would be exercised by the President; The use of the word “shall” connotes a mandatory order.—The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of facts upon which enforcement and administration of the increase rate under the law is contingent. The legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the control of the executive. No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion. Where the law is clear and unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that the mandate is obeyed. Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the conditions specified by Congress. This is a duty which cannot be evaded by the President. Inasmuch as the law specifically uses the word shall, the exercise of discretion by the President does not come into play. It is a clear directive to impose the 12% VAT rate when the specified conditions are present. The time of taking into effect of the 12% VAT rate is based on the happening of a certain specified contingency, or upon the ascertainment of certain facts or conditions by a person or body other than the legislature itself. Same; Same; Presidency; Control Power; Doctrine of Qualified Political Agency; When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head of the Department of Finance he is the assistant and agent of the Chief Executive—as such, he occupies a political position and holds office in an advisory capacity, and, in the language of Thomas Jefferson, “should be of the President's bosom confidence” and, in the language of Attorney-General Cushing, is “subject to the direction of the President.”— When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head of the Department of Finance he is the assistant and agent of the Chief Executive. The multifarious executive and administrative functions of the Chief Executive are performed by and through the executive departments, and the acts of the secretaries of such departments, such as the Department of Finance, performed and promulgated in the regular course of business, are, unless disapproved or reprobated by the Chief Executive, presumptively the acts of the

Chief Executive. The Secretary of Finance, as such, occupies a political position and holds office in an advisory capacity, and, in the language of Thomas Jefferson, “should be of the President’s bosom confidence” and, in the language of Attorney-General Cushing, is “subject to the direction of the President.” Same; Same; Same; Same; Same; In the present case, in making his recommendation to the President on the existence of either of the two conditions, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate, and he is not subject to the power of control and direction of the President—he is acting as the agent of the legislative department, to determine and declare the event upon which its expressed will is to take effect, becoming the means or tool by which legislative policy is determined and implemented.—In the present case, in making his recommendation to the President on the existence of either of the two conditions, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. In such instance, he is not subject to the power of control and direction of the President. He is acting as the agent of the legislative department, to determine and declare the event upon which its expressed will is to take effect. The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented, considering that he possesses all the facilities to gather data and information and has a much broader perspective to properly evaluate them. His function is to gather and collate statistical data and other pertinent information and verify if any of the two conditions laid out by Congress is present. His personality in such instance is in reality but a projection of that of Congress. Thus, being the agent of Congress and not of the President, the President cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance and to substitute the judgment of the former for that of the latter. Same; Same; Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority—in our complex economy that is frequently the only way in which the legislative process can go forward.—Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely, whether by December 31, 2005, the value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or the national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 1/2%). If either of these two instances has occurred, the Secretary of Finance, by legislative mandate, must submit such information to the President. Then the 12% VAT rate must be imposed by the President effective January 1, 2006. There is no undue delegation of legislative power but only of the discretion as to the execution of a law. This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which the legislative process can go forward. Same; Same; Taxation; Value-Added Tax; The intent and will to increase the VAT rate to 12% came from Congress and the task of the President is to simply execute the legislative policy.—As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the legislative power to tax is contrary to the principle of republicanism, the same deserves scant consideration. Congress did not delegate the power to tax but the mere implementation of the law. The intent and will to increase the VAT rate to 12% came from Congress and the task of the President is to simply execute the legislative policy. That Congress chose to do so in such a manner is not within the province of the Court to inquire into, its task being to interpret the law.

Judicial Review; The Court does not rule on allegations which are manifestly conjectural, as these may not exist at all—the Court deals with facts, not fancies, on realities, not appearances.—The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or create the conditions to bring about either or both the conditions precedent does not deserve any merit as this argument is highly speculative. The Court does not rule on allegations which are manifestly conjectural, as these may not exist at all. The Court deals with facts, not fancies; on realities, not appearances. When the Court acts on appearances instead of realities, justice and law will be shortlived. Same; Separation of Powers; Statutory Construction; Rewriting the law is a forbidden ground that only Congress may tread upon.— Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set forth therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law are clear. It does not provide for a return to the 10% rate nor does it empower the President to so revert if, after the rate is increased to 12%, the VAT collection goes below the 2 4/5 of the GDP of the previous year or that the national government deficit as a percentage of GDP of the previous year does not exceed 1 1/2%. Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be introduced where none is provided for. Rewriting the law is a forbidden ground that only Congress may tread upon. Taxation; Value-Added Tax; Fiscal Adequacy; Words and Phrases; The principle of fiscal adequacy as a characteristic of a sound tax system, which was originally stated by Adam Smith in his Canons of Taxation, simply means that sources of revenues must be adequate to meet government expenditures and their variations.— That 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. Same; Same; Due Process; Equal Protection; 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 proof of such persuasive character as would lead to such a conclusion.—The doctrine is 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 proof of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. Same; Same; Words and Phrases; Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or paid by a VAT-registered person on the importation of goods or local purchase of good and services, including lease or use of property, in the course of trade or business, from a VAT-registered person, and Output Tax is the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to register under the law.—Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of input tax that may be credited against the output tax. It states, in part: “[P]rovided, that the input tax inclusive of the input VAT carried over from the previous quarter that may be credited in

every quarter shall not exceed seventy percent (70%) of the output VAT: …”” Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or paid by a VATregistered person on the importation of goods or local purchase of good and services, including lease or use of property, in the course of trade or business, from a VAT-registered person, and Output Tax is the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to register under the law. Same; Same; Due Process; Vested Rights; The input tax is not a property or a property right within the constitutional purview of the due process clause—a VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege; The right to credit input tax as against the output tax is clearly a privilege created by law, a privilege that also the law can remove or limit; The distinction between statutory privileges and vested rights must be borne in mind for persons have no vested rights in statutory privileges.—The input tax is not a property or a property right within the constitutional purview of the due process clause. A VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege. The distinction between statutory privileges and vested rights must be borne in mind for persons have no vested rights in statutory privileges. The state may change or take away rights, which were created by the law of the state, although it may not take away property, which was vested by virtue of such rights. Under the previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable from the taxes payable, although it becomes part of the cost, which is deductible from the gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was then that the crediting of the input tax paid on purchase or importation of goods and services by VAT-registered persons against the output tax was introduced. This was adopted by the Expanded VAT Law (R.A. No. 7716), and The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit input tax as against the output tax is clearly a privilege created by law, a privilege that also the law can remove, or in this case, limit. Same; Same; Congress admitted that the spread-out of the creditable input tax in this case amounts to a 4-year interest-free loan to the government; For whatever is the purpose of the 60-month amortization, this involves executive economic policy and legislative wisdom in which the Court cannot intervene.—It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case amounts to a 4-year interest-free loan to the government. In the same breath, Congress also justified its move by saying that the provision was designed to raise an annual revenue of 22.6 billion. The legislature also dispelled the fear that the provision will fend off foreign investments, saying that foreign investors have other tax incentives provided by law, and citing the case of China, where despite a 17.5% non-creditable VAT, foreign investments were not deterred. Again, for whatever is the purpose of the 60-month amortization, this involves executive economic policy and legislative wisdom in which the Court cannot intervene. Same; Same; With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable transactions, Section 114 (C) of the National Internal Revenue Code merely provides a method of collection, or as stated by respondents, a more simplified VAT withholding system —the government in this case is constituted as a withholding agent with respect to their payments for goods and services.—With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads: * * * Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified VAT withholding system. The government in this case is constituted as a withholding agent with respect to their payments for goods and services. Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld—3% on gross

payments for purchases of goods; 6% on gross payments for services supplied by contractors other than by public works contractors; 8.5% on gross payments for services supplied by public work contractors; or 10% on payment for the lease or use of properties or property rights to nonresident owners. Under the present Section 114(C), these different rates, except for the 10% on lease or property rights payment to nonresidents, were deleted, and a uniform rate of 5% is applied. Same; Same; Words and Phrases; In tax usage, “final,” as opposed to creditable, means full; As applied to value-added tax, taxable transactions with the government are subject to a 5% tax rate, which constitutes as full payment of the tax payable on the transaction.—The Court observes, however, that the law used the word final. In tax usage, final, as opposed to creditable, means full. Thus, it is provided in Section 114(C): “final value-added tax at the rate of five percent (5%).” In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the concept of final withholding tax on income was explained, to wit: SECTION 2.57. Withholding of Tax at Source. (A) Final Withholding Tax.—Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as full and final payment of the income tax due from the payee on the said income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of underwithholding, the deficiency tax shall be collected from the payor/withholding agent. . . . (B) Creditable Withholding Tax. —Under the creditable withholding tax system, taxes withheld on certain income payments are intended to equal or at least approximate the tax due of the payee on said income. . . . Taxes withheld on income payments covered by the expanded withholding tax (referred to in Sec. 2.57.2 of these regulations) and compensation income (referred to in Sec. 2.78 also of these regulations) are creditable in nature. As applied to value-added tax, this means that taxable transactions with the government are subject to a 5% rate, which constitutes as full payment of the tax payable on the transaction. This represents the net VAT payable of the seller. The other 5% effectively accounts for the standard input VAT (deemed input VAT), in lieu of the actual input VAT directly or attributable to the taxable transaction. Same; Same; It is clear that Congress intended to treat differently transactions with the government; Since it has not been shown that the class subject to the final 5% final withholding tax has been unreasonably narrowed, there is no reason to invalidate the provision.—The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat differently taxable transactions with the government. This is supported by the fact that under the old provision, the 5% tax withheld by the government remains creditable against the tax liability of the seller or contractor, to wit: SEC. 114. Return and Payment of Value-added Tax.—(C) Withholding of Creditable Value-added Tax.—The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by contractors on every sale or installment payment which shall be creditable against the value-added tax liability of the seller or contractor: Provided, however, That in the case of government public works contractors, the withholding rate shall be eight and onehalf percent (8.5%): Provided, further, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the payor or person in control of the payment shall be considered as the withholding agent. The valued-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the withholding was made. (Emphasis supplied) As amended, the use of the word final and the deletion of the word creditable exhibits Congress’s intention to treat transactions

with the government differently. Since it has not been shown that the class subject to the 5% final withholding tax has been unreasonably narrowed, there is no reason to invalidate the provision. Petitioners, as petroleum dealers, are not the only ones subjected to the 5% final withholding tax. It applies to all those who deal with the government. Same; Same; Judicial Review; The Court will not engage in a legal joust where premises are what ifs, arguments, theoretical and facts, uncertain—any disquisition by the Court on this point will only be, as Shakespeare describes life in Macbeth, “full of sound and fury, signifying nothing”; It need not take an astute businessman to know that it is a matter of exception that a business will sell goods or services without profit or value-added.—Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to tax a profit or value-added even if there is no profit or value-added. Petitioners’ stance is purely hypothetical, argumentative, and again, one-sided. The Court will not engage in a legal joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any disquisition by the Court on this point will only be, as Shake-speare describes life in Macbeth, “full of sound and fury, signifying nothing.” What’s more, petitioners’ contention assumes the proposition that there is no profit or value-added. It need not take an astute businessman to know that it is a matter of exception that a business will sell goods or services without profit or value-added. It cannot be overstressed that a business is created precisely for profit. Same; Same; Equal Protection; The power of the State to make reasonable and natural classifications for the purposes of taxation has long been established.—The equal protection clause under the Constitution means that “no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like circumstances.” The power of the State to make reasonable and natural classifications for the purposes of taxation has long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation and collection, the State’s power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness, discrimination, or arbitrariness. Same; Same; Same; The equal protection clause does not require the universal application of the laws on all persons or things without distinction; While the implementation of the law may yield varying end results depending on one’s profit margin and value-added, the Court cannot go beyond what the legislature has laid down and interfere with the affairs of business.—Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input tax, or invests in capital equipment, or has several transactions with the government, is not based on real and substantial differences to meet a valid classification. The argument is pedantic, if not outright baseless. The law does not make any classification in the subject of taxation, the kind of property, the rates to be levied or the amounts to be raised, the methods of assessment, valuation and collection. Petitioners’ alleged distinctions are based on variables that bear different consequences. While the implementation of the law may yield varying end results depending on one’s profit margin and value-added, the Court cannot go beyond what the legislature has laid down and interfere with the affairs of business. The equal protection clause does not require the universal application of the laws on all persons or things without distinction. This might in fact sometimes result in unequal protection. What the clause requires is equality among equals as determined according to a valid classification. By classification is meant the grouping of persons or things similar to each other in certain particulars and different from all others in these same particulars.

Same; Same; Same; Uniformity of Taxation; The rule of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class.— Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same class everywhere with all people at all times. In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of services and use or lease of properties. These same sections also provide for a 0% rate on certain sales and transaction. Neither does the law make any distinction as to the type of industry or trade that will bear the 70% limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5% final withholding tax by the government. It must be stressed that the rule of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class. Same; Same; Equitable Taxation; R.A. No. 9337 is equitable.— R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts not exceeding P1,500,000.00. Also, basic marine and agricultural food products in their original state are still not subject to the tax, thus ensuring that prices at the grassroots level will remain accessible. As was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan: The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products, so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public. Same; Same; Progressive Taxation; Progressive taxation is built on the principle of the taxpayer’s ability to pay—taxation is progressive when its rate goes up depending on the resources of the person affected.—Petitioners contend that the limitation on the creditable input tax is anything but regressive. It is the smaller business with higher input tax-output tax ratio that will suffer the consequences. Progressive taxation is built on the principle of the taxpayer’s ability to pay. This principle was also lifted from Adam Smith’s Canons of Taxation, and it states: I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. Taxation is progressive when its rate goes up depending on the resources of the person affected. Same; Same; Same; 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.—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. Same; Same; Same; The Constitution does not really prohibit the imposition of indirect taxes, like the VAT.—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.” The Court stated in the Tolentino case, thus: The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall ‘evolve a progressive system of taxation.’ The constitutional provision has been interpreted to mean simply that ‘direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized.’ (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 [Second ed. 1977]) Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, §17 (1) of the 1973 Constitution from which the present Art. VI, §28 (1) was taken. Sales taxes are also regressive. Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, §4 amending §103 of the NIRC) Same; Same; Judicial Review; The Court cannot strike down a law as unconstitutional simply because of its yokes.—It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf ear on the plight of the masses. But it does not have the panacea for the malady that the law seeks to remedy. As in other cases, the Court cannot strike down a law as unconstitutional simply because of its yokes. Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the judiciary should stand ready to afford relief. There are undoubtedly many wrongs the judicature may not correct, for instance, those involving political questions. . . . Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for all political or social ills; We should not forget that the Constitution has judiciously allocated the powers of government to three distinct and separate compartments; and that judicial interpretation has tended to the preservation of the independence of the three, and a zealous regard of the prerogatives of each, knowing full well that one is not the guardian of the others and that, for official wrong-doing, each may be brought to account, either by impeachment, trial or by the ballot box.

Manila International Airport Authority vs. City of Pasay, 583 SCRA 234 , April 02, 2009 By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities like the MIAA. (Manila International Airport Authority vs. Court of Appeals, 495 SCRA 591 [2006]) The determinative test whether MIAA is exempt from local taxation is not whether MIAA is a juridical person, but whether it is a national government instrumentality under Section 133(o) of the Local Government Code. (I [Manila International Airport Authority vs. City of Pasay, 583 SCRA 234(2009)] Administrative Agencies; Manila International Airport Authority; Manila International Airport Authority (MIAA) is a government “instrumentality” that does not qualify as a “government-owned or controlled corporation.”—A close scrutiny of the definition of “government-owned or controlled corporation” in Section 2(13) will show that MIAA would not fall under such definition. MIAA is a government “instrumentality” that does not qualify as a “government-owned or controlled

corporation.” As explained in the 2006 MIAA case: “A government-owned or controlled corporation must be “organized as a stock or non-stock corporation.” MIAA is not organized as a stock or nonstock corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. x x x” Same; Same; Taxation; Tax Exemptions; Local Government Code; Manila International Airport Authority (MIAA) is not a government-owned or controlled corporation but a government instrumentality which is exempt from any kind of tax from the local governments.—MIAA is not a government-owned or controlled corporation but a government instrumentality which is exempt from any kind of tax from the local governments. Indeed, the exercise of the taxing power of local government units is subject to the limitations enumerated in Section 133 of the Local Government Code. Under Section 133(o) of the Local Government Code, local government units have no power to tax instrumentalities of the national government like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay properties. Same; Same; Same; Property; The airport lands and buildings of Manila International Airport Authority (MIAA) are properties of public dominion intended for public use; and as such are exempt from real property tax under Section 234(a) of the Local Government Code (LGC); Only those portions of the Ninoy Aquino International Airport (NAIA) Pasay properties which are leased to taxable persons like private parties are subject to real property tax by the City of Pasay.—The airport lands and buildings of MIAA are properties of public dominion intended for public use, and as such are exempt from real property tax under Section 234(a) of the Local Government Code. However, under the same provision, if MIAA leases its real property to a taxable person, the specific property leased becomes subject to real property tax. In this case, only those portions of the NAIA Pasay properties which are leased to taxable persons like private parties are subject to real property tax by the City of Pasay. [Manila International Airport Authority vs. City of Pasay, 583 SCRA 234(2009)]

Tolentino vs. Secretary of Finance, 249 SCRA 629 , October 30, 1995 Constitutional Law; Bill Drafting; All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills must “originate exclusively in the House of Representatives” but the Senate may propose or concur with amendments.—In sum, while Art. VI, §24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills must “originate exclusively in the House of Representatives,” it also adds, “but the Senate may propose or concur with amendments.” In the exercise of this power, the Senate may propose an entirely new bill as a substitute measure. As petitioner Tolentino states in a high school text, a committee to which a bill is referred may do any of the following: (1) to endorse the bill without changes; (2) to make changes in the bill omitting or adding sections or altering its language; (3) to make and endorse an entirely new bill as a substitute, in which case it will be known as a committee bill; or (4) to make no report at all. Same; Same; Presidential Certification; Art. VI, Sec. 26(2) qualifies the requirement that “printed copies of a bill in its final form must be distributed to the members three days before its passage” and that before a bill can become a law it must have three readings on separate days.—As to what Presidential certification can accomplish, we have already explained in the main decision that the phrase “except when the President certifies to the necessity of its immediate enactment, etc.” in Art. VI, §26(2) qualifies not only the requirement that “printed copies [of a bill] in its final form [must be]

distributed to the members three days before its passage” but also the requirement that before a bill can become a law it must have passed “three readings on separate days.” There is not only textual support for such construction but historical basis as well. Same; Same; Same; Exception in cases of Public Calamity and Emergency.—This provision of the 1973 document, with slight modification, was adopted in Art. VI §26(2) of the present Constitution, thus: (2) No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been distributed to its Members three days before its passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the Journal. Same; Same; Same; Same.—The exception is based on the prudential consideration that if in all cases three readings on separate days are required and a bill has to be printed in final form before it can be passed, the need for a law may be rendered academic by the occurrence of the very emergency or public calamity which it is meant to address. Same; Same; Same; Purpose of Three Readings on Separate Days.—The purpose for which three readings on separate days is required is said to be two-fold: (1) to inform the members of Congress of what they must vote on and (2) to give them notice that a measure is progressing through the enacting process, thus enabling them and others interested in the measure to prepare their positions with reference to it. (1 J.G. SUTHERLAND, STATUTES AND STATUTORY CONSTRUCTION §10.04, p. 282 (1972)). Same; Same; Same; Conference Committee; Conference committee has the power to insert new provisions as long as these are germane to the subject of the conference.—Nor is there any doubt about the power of a conference committee to insert new provisions as long as these are germane to the subject of the conference. As this Court held in Philippine Judges Association v. Prado, 227 SCRA 703 (1993), in an opinion written by then Justice Cruz, the jurisdiction of the conference committee is not limited to resolving differences between the Senate and the House. It may propose an entirely new provision. What is important is that its report is subsequently approved by the respective houses of Congress. This Court ruled that it would not entertain allegations that, because new provisions had been added by the conference committee, there was thereby a violation of the constitutional injunction that “upon the last reading of a bill, no amendment thereto shall be allowed.” Same; Same; It is the bill which becomes a law that is required to express in its title the subject of legislation.—PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific reference to P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional requirement, since it is already stated in the title that the law seeks to amend the pertinent provisions of the NIRC, among which is §103(q), in order to widen the base of the VAT. Actually, it is the bill which becomes a law that is required to express in its title the subject of legislation. The titles of H. No. 11197 and S. No. 1630 in fact specifically referred to §103 of the NIRC as among the provisions sought to be amended. We are satisfied that sufficient notice had been given of the pendency of these bills in Congress before they were enacted into what is now R.A. No. 7116. Same; Same; Taxation; The press is not exempt from the taxing power of the State.—VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the press is not exempt from the taxing power of the State and that what the constitutional guarantee of free press prohibits are

laws which single out the press or target a group belonging to the press for special treatment or which in any way discriminate against the press on the basis of the content of the publication, and RA. No. 7716 is none of these. Same; Same; Same; Exceptions; By granting exemptions, the State does not forever waive the exercise of its sovereign prerogative.—Now it is contended by the PPI that by removing the exemption of the press from the VAT while maintaining those granted to others, the law discriminates against the press. At any rate, it is averred, “even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional.” With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the law could take back the privilege anytime without offense to the Constitution. The reason is simple: by granting exemptions, the State does not forever waive the exercise of its sovereign prerogative. Same; Same; Same; Same; In withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago been subject.—Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago been subject. It is thus different from the tax involved in the cases invoked by the PPI. The license tax in Grosjean v. American Press Co.,297 U.S. 233, 80 L.Ed. 660 (1936) was found to be discriminatory because it was laid on the gross advertising receipts only of newspapers whose weekly circulation was over 20,000 with the result that the tax applied only to 13 out of 124 publishers in Louisiana. These large papers were critical of Senator Huey Long who controlled the state legislature which enacted the license tax. The censorial motivation for the law was thus evident. Same; Same; Same; Same; The VAT is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. —The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution. Same; Same; Same; “It is inherent in the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that ‘inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.’ ”—The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and services was already exempt under §103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a difference between the “homeless poor” and the “homeless less poor” in the example given by petitioner, because the second group or middle class can afford to rent houses in the meantime that they cannot yet buy their own homes. The two social classes are thus differently situated in life. “It is inherent in the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that ‘inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.’ ” (Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA. Same; Same; Same; Equality and uniformity of taxation means that all taxable articles or kinds of

property of the same class be taxed at the same rate.—Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all persons, forms and corporations placed in similar situation. (City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984)). Same; Same; Same; Congress shall “evolve a progressive system of taxation” has been interpreted to mean that “direct taxes are to be preferred and as much as possible indirect taxes should be minimized.”—The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall “evolve a progressive system of taxation.” The constitutional provision has been interpreted to mean simply that “direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized.” (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress is not to prescribe, but to revolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, §17(1) of the 1973 Constitution from which the present Art. VI, §28(1) was taken. Sales taxes are also regressive. Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers’ ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, §3, amending §102(b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, §4, amending §103 of the NIRC). Same; Same; Same; Charitable institutions, churches and parsonages by reason of Art. VI, §28 (3), and non-stock, non-profit educational institutions by reason of Art. XIV, §4(3) which under the Constitution are the only exempt from taxation.—Indeed, petitioner’s theory amounts to saying that under the Constitution cooperatives are exempt from taxation. Such theory is contrary to the Constitution under which only the following are exempt from taxation: charitable institutions, churches and parsonages, by reason of Art. VI, §28(3), and non-stock, non-profit educational institutions, by reason of Art. XIV, §4(3).

British American Tobacco vs. Camacho, 562 SCRA 511 , August 20, 2008 Taxation; Legislative Classification Freeze Scheme; The assailed feature of this law pertains to the mechanism where, after a brand is classified based on its current net retail price, the classification is frozen and only Congress can thereafter reclassify the same.—As can be seen, the law creates a fourtiered system which we may refer to as the low-priced, medium-priced, high-priced, and premiumpriced tax brackets. When a brand is introduced in the market, the current net retail price is determined through the aforequoted specified procedure. The current net retail price is then used to classify under which tax bracket the brand belongs in order to finally determine the corresponding excise tax rate on a per pack basis. The assailed feature of this law pertains to the mechanism where, after a brand is classified based on its current net retail price, the classification is frozen and only Congress can thereafter reclassify the same. From a practical point of view, Annex “D” is merely a by-product of the whole mechanism and philosophy of the assailed law. That is, the brands under Annex “D” were also classified based on their current net retail price, the only difference being that they were the first ones so classified since they were the only brands surveyed as of October 1, 1996, or prior to the effectivity of RA 8240 on January 1, 1997. Due to this legislative classification scheme, it is possible that over time the net retail price of a previously classified brand, whether it be a brand under Annex “D” or a

new brand classified after the effectivity of RA 8240 on January 1, 1997, would increase (due to inflation, increase of production costs, manufacturer’s decision to increase its prices, etc.) to a point that its net retail price pierces the tax bracket to which it was previously classified. Consequently, even if its present day net retail price would make it fall under a higher tax bracket, the previously classified brand would continue to be subject to the excise tax rate under the lower tax bracket by virtue of the legislative classification freeze. Same; Same; Equal Protection; Requisites; In our jurisdiction, the standard and analysis of equal protection challenges in the main have followed the “rational basis” test, coupled with a deferential attitude to legislative classifications and a reluctance to invalidate a law unless there is a showing of a clear and unequivocal breach of the Constitution; A legislative classification, to survive an equal protection challenge, must be shown to rationally further a legitimate state interest—the classifications must be reasonable and rest upon some ground of difference having a fair and substantial relation to the object of the legislation.—We have held that “in our jurisdiction, the standard and analysis of equal protection challenges in the main have followed the ‘rational basis’ test, coupled with a deferential attitude to legislative classifications and a reluctance to invalidate a law unless there is a showing of a clear and unequivocal breach of the Constitution.” Within the present context of tax legislation on sin products which neither contains a suspect classification nor impinges on a fundamental right, the rational-basis test thus finds application. Under this test, a legislative classification, to survive an equal protection challenge, must be shown to rationally further a legitimate state interest. The classifications must be reasonable and rest upon some ground of difference having a fair and substantial relation to the object of the legislation. Since every law has in its favor the presumption of constitutionality, the burden of proof is on the one attacking the constitutionality of the law to prove beyond reasonable doubt that the legislative classification is without rational basis. The presumption of constitutionality can be overcome only by the most explicit demonstration that a classification is a hostile and oppressive discrimination against particular persons and classes, and that there is no conceivable basis which might support it. A legislative classification that is reasonable does not offend the constitutional guaranty of the equal protection of the laws. The classification is considered valid and reasonable provided that: (1) it rests on substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things being equal, to both present and future conditions; and (4) it applies equally to all those belonging to the same class. Same; Same; Same; It is quite evident that the classification freeze provision could hardly be considered arbitrary, or motivated by a hostile or oppressive attitude to unduly favor older brands over newer brands; The classification freeze provision was in the main the result of Congress’s earnest efforts to improve the efficiency and effectivity of the tax administration over sin products while trying to balance the same with other state interests.—It is quite evident that the classification freeze provision could hardly be considered arbitrary, or motivated by a hostile or oppressive attitude to unduly favor older brands over newer brands. Congress was unequivocal in its unwillingness to delegate the power to periodically adjust the excise tax rate and tax brackets as well as to periodically resurvey and reclassify the cigarette brands based on the increase in the consumer price index to the DOF and the BIR. Congress doubted the constitutionality of such delegation of power, and likewise, considered the ethical implications thereof. Curiously, the classification freeze provision was put in place of the periodic adjustment and reclassification provision because of the belief that the latter would foster an anti-competitive atmosphere in the market. Yet, as it is, this same criticism is being foisted by petitioner upon the classification freeze provision. To our mind, the classification freeze provision was in the main the result of Congress’s earnest efforts to improve the efficiency and effectivity of the tax administration over sin products while trying to balance the same with other state interests. In particular, the questioned provision addressed Congress’s administrative concerns

regarding delegating too much authority to the DOF and BIR as this will open the tax system to potential areas for abuse and corruption. Congress may have reasonably conceived that a tax system which would give the least amount of discretion to the tax implementers would address the problems of tax avoidance and tax evasion. Same; Same; Same; Administrative concerns may provide a legitimate, rational basis for legislative classification.—Congress sought to, among others, simplify the whole tax system for sin products to remove these potential areas of abuse and corruption from both the side of the taxpayer and the government. Without doubt, the classification freeze provision was an integral part of this overall plan. This is in line with one of the avowed objectives of the assailed law “to simplify the tax administration and compliance with the tax laws that are about to unfold in order to minimize losses arising from inefficiencies and tax avoidance scheme, if not outright tax evasion.” RA 9334 did not alter this classification freeze provision of RA 8240. On the contrary, Congress affirmed this freezing mechanism by clarifying the wording of the law. We can thus reasonably conclude, as the deliberations on RA 9334 readily show, that the administrative concerns in tax administration, which moved Congress to enact the classification freeze provision in RA 8240, were merely continued by RA 9334. Indeed, administrative concerns may provide a legitimate, rational basis for legislative classification. In the case at bar, these administrative concerns in the measurement and collection of excise taxes on sin products are readily apparent as afore-discussed. Same; Same; Same; The legislative deliberations also show that the classification freeze provision was intended to generate buoyant and stable revenues for government; Since the classification freeze provision addressed Congress’s administrative concerns in the simplification of tax administration of sin products, elimination of potential areas for abuse and corruption in tax collection, buoyant and stable revenue generation, and ease of projection of revenues, there can be no denial of the equal protection of the laws as the rational-basis test is amply satisfied.—Aside from the major concern regarding the elimination of potential areas for abuse and corruption from the tax administration of sin products, the legislative deliberations also show that the classification freeze provision was intended to generate buoyant and stable revenues for government. With the frozen tax classifications, the revenue inflow would remain stable and the government would be able to predict with a greater degree of certainty the amount of taxes that a cigarette manufacturer would pay given the trend in its sales volume over time. The reason for this is that the previously classified cigarette brands would be prevented from moving either upward or downward their tax brackets despite the changes in their net retail prices in the future and, as a result, the amount of taxes due from them would remain predictable. The classification freeze provision would, thus, aid in the revenue planning of the government. All in all, the classification freeze provision addressed Congress’s administrative concerns in the simplification of tax administration of sin products, elimination of potential areas for abuse and corruption in tax collection, buoyant and stable revenue generation, and ease of projection of revenues. Consequently, there can be no denial of the equal protection of the laws since the rational-basis test is amply satisfied. Same; Same; Same; Due Process; Verily, where there is a claim of breach of the due process and equal protection clauses, considering that they are not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion—absent such a showing, the presumption of validity must prevail.—Petitioner did not, however, clearly demonstrate the exact extent of such impact. It has not been shown that the net retail prices of other older brands previously classified under this classification system have already pierced their tax brackets, and, if so, how this has affected the overall competition in the market. Further, it does not necessarily follow that newer brands cannot compete against older brands because price is not the only factor in the market as there

are other factors like consumer preference, brand loyalty, etc. In other words, even if the newer brands are priced higher due to the differential tax treatment, it does not mean that they cannot compete in the market especially since cigarettes contain addictive ingredients so that a consumer may be willing to pay a higher price for a particular brand solely due to its unique formulation. It may also be noted that in 2003, the BIR surveyed 29 new brands that were introduced in the market after the effectivity of RA 8240 on January 1, 1997, thus negating the sweeping generalization of petitioner that the classification freeze provision has become an insurmountable barrier to the entry of new brands. Verily, where there is a claim of breach of the due process and equal protection clauses, considering that they are not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. Same; Same; Same; For as long as the legislative classification is rationally related to furthering some legitimate state interest, the rational-basis test is satisfied and the constitutional challenge is perfunctorily defeated.—Whether Congress acted improvidently in derogating, to a limited extent, the state’s interest in promoting fair competition among the players in the industry, while pursuing other state interests regarding the simplification of tax administration of sin products, elimination of potential areas for abuse and corruption in tax collection, buoyant and stable revenue generation, and ease of projection of revenues through the classification freeze provision, and whether the questioned provision is the best means to achieve these state interests, necessarily go into the wisdom of the assailed law which we cannot inquire into, much less overrule. The classification freeze provision has not been shown to be precipitated by a veiled attempt, or hostile attitude on the part of Congress to unduly favor older brands over newer brands. On the contrary, we must reasonably assume, owing to the respect due a co-equal branch of government and as revealed by the Congressional deliberations, that the enactment of the questioned provision was impelled by an earnest desire to improve the efficiency and effectivity of the tax administration of sin products. For as long as the legislative classification is rationally related to furthering some legitimate state interest, as here, the rational-basis test is satisfied and the constitutional challenge is perfunctorily defeated. Same; Separation of Powers; The Court does not sit in judgment as a supra-legislature to decide, after a law is passed by Congress, which state interest is superior over another, or which method is better suited to achieve one, some or all of the state’s interests, or what these interests should be in the first place—the judiciary does not settle policy issues.—We do not sit in judgment as a supra-legislature to decide, after a law is passed by Congress, which state interest is superior over another, or which method is better suited to achieve one, some or all of the state’s interests, or what these interests should be in the first place. This policy-determining power, by constitutional fiat, belongs to Congress as it is its function to determine and balance these interests or choose which ones to pursue. Time and again we have ruled that the judiciary does not settle policy issues. The Court can only declare what the law is and not what the law should be. Under our system of government, policy issues are within the domain of the political branches of government and of the people themselves as the repository of all state power. Thus, the legislative classification under the classification freeze provision, after having been shown to be rationally related to achieve certain legitimate state interests and done in good faith, must, perforce, end our inquiry. Same; Same; Certainly, the Court cannot declare a statute unconstitutional merely because it can be improved or that it does not tend to achieve all of its stated objectives.—The finding that the assailed law seems to derogate, to a limited extent, one of its avowed objectives (i.e. promoting fair competition among the players in the industry) would suggest that, by Congress’s own standards, the current excise tax system on sin products is imperfect. But, certainly, we cannot declare a statute unconstitutional merely because it can be improved or that it does not tend to achieve all of its stated objectives. This is

especially true for tax legislation which simultaneously addresses and impacts multiple state interests. Absent a clear showing of breach of constitutional limitations, Congress, owing to its vast experience and expertise in the field of taxation, must be given sufficient leeway to formulate and experiment with different tax systems to address the complex issues and problems related to tax administration. Whatever imperfections that may occur, the same should be addressed to the democratic process to refine and evolve a taxation system which ideally will achieve most, if not all, of the state’s objectives. Same; Administrative Law; Unless expressly granted to the Bureau of Internal Revenue (BIR), the power to reclassify cigarette brands remains a prerogative of the legislature which cannot be usurped by the former.—It is clear that the afore-quoted portions of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, and Revenue Memorandum Order No. 6-2003 unjustifiably emasculate the operation of Section 145 of the NIRC because they authorize the Commissioner of Internal Revenue to update the tax classification of new brands every two years or earlier subject only to its issuance of the appropriate Revenue Regulations, when nowhere in Section 145 is such authority granted to the Bureau. Unless expressly granted to the BIR, the power to reclassify cigarette brands remains a prerogative of the legislature which cannot be usurped by the former. Same; Legislative Classification Freeze Scheme; Equal Protection; The classification freeze provision uniformly applies to all newly introduced brands in the market, whether imported or locally manufactured. It does not purport to single out imported cigarettes in order to unduly favor locally produced ones.—The classification freeze provision uniformly applies to all newly introduced brands in the market, whether imported or locally manufactured. It does not purport to single out imported cigarettes in order to unduly favor locally produced ones. Further, petitioner’s evidence was anchored on the alleged unequal tax treatment between old and new brands which involves a different frame of reference vis-à-vis local and imported products. Petitioner has, therefore, failed to clearly prove its case, both factually and legally, within the parameters of the GATT. Public International Law; Treaties; The General Agreement on Tariffs and Trade (GATT), a treaty duly ratified by the Philippine Senate and under Article VII, Section 21 of the Constitution, merely acquired the status of a statute; In case of irreconcilable conflict between statutes, RA 8240, as amended by RA 9334, would prevail over the General Agreement on Tariffs and Trade (GATT) either as a later enactment by Congress or as a special law dealing with the taxation of sin products.—Even assuming arguendo that petitioner was able to prove that the classification freeze provision violates the GATT, the outcome would still be the same. The GATT is a treaty duly ratified by the Philippine Senate and under Article VII, Section 21 of the Constitution, it merely acquired the status of a statute. Applying the basic principles of statutory construction in case of irreconcilable conflict between statutes, RA 8240, as amended by RA 9334, would prevail over the GATT either as a later enactment by Congress or as a special law dealing with the taxation of sin products.

Sison, Jr. vs. Ancheta, 130 SCRA 654 , July 25, 1984 Taxation; Constitutional Law; The Constitution sets forth the restrictions to the power to tax.—The power to tax moreover, to borrow from Justice Malcolm, “is an attribute of sovereignty. It is the strongest of all the powers of government.” It is, of course, to be admitted that for all its plenitude, the power to tax is not

unconfined. There are restrictions. The Constitution sets forth such limits. Adversely affecting as it does property rights, both the due process and equal protection clauses may properly be invoked, as petitioner does, to invalidate in appropriate cases a revenue measure. If it were otherwise, there would be truth to the 1803 dictum of Chief Justice Marshall that “the power to tax involves the power to destroy.” In a separate opinion in Graves v. New York, Justice Frankfurter, after referring to it as an “unfortunate remark,” characterized it as “a flourish of rhetoric [attributable to] the intellectual fashion of the times [allowing] a free use of absolutes.” This is merely to emphasize that it is not and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude: “The web of unreality spun from Marshall’s famous dictum was brushed away by one stroke of Mr. Justice Holmes’s pen: ‘The power to tax is not the power to destroy while this Court sits.’ ” So it is in the Philippines. Same; Same; A bare allegation that Batas 135, which sets different income tax schedules for fixed income earners and business or professional income earners, is arbitrary does not suffice to invalidate said tax statute.—The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here, does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would condemn such a provision as void on its face, 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 proof of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. Same; Same; Due process clause may be invoked where a tax statute is so arbitrary as to find no support in Constitution.—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. That properly calls for the application of the Holmes dictum. 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. Same; Same; The State is free to select the subjects of taxation and inequalities consequent to its exercise infringe no constitutional limitation.—The equal protection clause is, of course, inspired by the noble concept of approximating the ideal of the laws’s benefits being available to all and the affairs of men being governed by that serene and impartial uniformity, which is of the very essence of the idea of law. There is, however, wisdom, as well as realism, in these words of Justice Frankfurter: “The equality at which the ‘equal protection’ clause aims is not a disembodied equality. The Fourteenth Amendment enjoins ‘the equal protection of the laws,’ and laws are not abstract propositions. They do not relate to abstract

units A, B and C, but are expressions of policy arising out of specific difficulties, addressed to the attainment of specific ends by the use of specific remedies. The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same.” Hence the constant reiteration of the view that classification if rational in character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta, this Court, through Justice J.B.L. Reyes, went so far as to hold “at any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that ‘inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.’ ” Same; Same; Uniformity in taxation quite similar to the standard of equal protection.—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 according to Justice Laurel in Philippine Trust Company v. Yatco, decided in 1940, when the tax “operates with the same force and effect in every place where the subject may be found.” He likewise added: “The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable.” The problem of classification did not present itself in that case. It did not arise until nine years later, when the Supreme Court held: “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, * * *. As clarified by Justice Tuason, where “the differentiation” complained of “conforms to the practical dictates of justice and equity” it “is not discriminatory within the meaning of this clause and is therefore uniform.” There is quite a similarity then to the standard of equal protection for all that is required is that the tax “applies equally to all persons, firms and corporations placed in similar situation.” Same; Same; Taxpayers may be classified into different categories where it rests on real differences.—Apparently, what misled petitioner is his failure to take into consideration the distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate. Taxpayers may be classified into different categories. To repeat, it is enough that the classification must rest upon substantial distinctions that make real differences. In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the discernible basis of classification is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead expense, these taxpayers are not entitled to make deductions for income tax purposes because they are in the same situation more or less. On the other hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all

alike the same tax rates on the basis of gross income. There is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income.

Lung Center of the Philippines vs. Quezon City, 433 SCRA 119 , June 29, 2004 Taxation; Lung Center of the Philippines; Charitable Institutions; Test of Charitable Character; Words and Phrases; To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purpose, its constitution and bylaws, the methods of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties; In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the influence of education or religion, by assisting them to establish themselves in life or otherwise lessening the burden of government. The test whether an enterprise is charitable or not is whether it exists to carry out a purpose recognized in law as charitable or whether it is maintained for gain, profit, or private advantage.—On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973 and 1987 Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties. In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the influence of education or religion, by assisting them to establish themselves in life or otherwise lessening the burden of government. It may be applied to almost anything that tend to promote the well-doing and well-being of social man. It embraces the improvement and promotion of the happiness of man. The word “charitable” is not restricted to relief of the poor or sick. The test of a charity and a charitable organization are in law the same. The test whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage. Same; Same; Same; The Lung Center of the Philippines was organized for the welfare and benefit of the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in the Philippines; Any person, the rich as well as the poor, may fall sick or be injured or wounded and become a subject of charity.—Under P.D. No. 1823, the petitioner is a non-profit and non-stock

corporation which, subject to the provisions of the decree, is to be administered by the Office of the President of the Philippines with the Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare and benefit of the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in the Philippines. The raison d’etre for the creation of the petitioner is stated in the decree, viz: x x x Hence, the medical services of the petitioner are to be rendered to the public in general in any and all walks of life including those who are poor and the needy without discrimination. After all, any person, the rich as well as the poor, may fall sick or be injured or wounded and become a subject of charity. Same; Same; Same; As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve, and no money inures to the private benefit of the persons managing or operating the institution.—As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution. In Congregational Sunday School, etc. v. Board of Review, the State Supreme Court of Illinois held, thus: … [A]n institution does not lose its charitable character, and consequent exemption from taxation, by reason of the fact that those recipients of its benefits who are able to pay are required to do so, where no profit is made by the institution and the amounts so received are applied in furthering its charitable purposes, and those benefits are refused to none on account of inability to pay therefor. The fundamental ground upon which all exemptions in favor of charitable institutions are based is the benefit conferred upon the public by them, and a consequent relief, to some extent, of the burden upon the state to care for and advance the interests of its citizens. Same; Same; Same; The Lung Center of the Philippines does not lose its character as a charitable institution simply because the gift or donation is in the form of subsidies granted by the government.—Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its character as a charitable institution simply because the gift or donation is in the form of subsidies granted by the government. As held by the State Supreme Court of Utah in Yorgason v. County Board of Equalization of Salt Lake County: Second, the … government subsidy payments are provided to the project. Thus, those payments are like a gift or donation of any other kind except they come from the government. In both Intermountain Health Care and the present case, the crux is the presence or absence of material reciprocity. It is entirely irrelevant to this analysis that the government, rather than a private benefactor, chose to make up the deficit resulting from the exchange between St. Mark’s Tower and the tenants by making a contribution to the landlord, just as it would have been irrelevant in

Intermountain Health Care if the patients’ income supplements had come from private individuals rather than the government. Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the government rather than private charitable contributions does not dictate the denial of a charitable exemption if the facts otherwise support such an exemption, as they do here. Same; Same; Same; Those portions of Lung Center’s real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes.—Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes. Same; Same; Same; Statutory Construction; Taxation is the rule and exemption is the exception—the effect of an exemption is equivalent to an appropriation.—The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. As held in Salvation Army v. Hoehn: An intention on the part of the legislature to grant an exemption from the taxing power of the state will never be implied from language which will admit of any other reasonable construction. Such an intention must be expressed in clear and unmistakable terms, or must appear by necessary implication from the language used, for it is a well settled principle that, when a special privilege or exemption is claimed under a statute, charter or act of incorporation, it is to be construed strictly against the property owner and in favor of the public. This principle applies with peculiar force to a claim of exemption from taxation . … Same; Same; Same; Same; It is plain as day that under P.D. 1823, the Lung Center of the Philippines does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon.—It is plain as day that under the decree (P.D. 1823), the petitioner does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon. If the intentions were otherwise, the same should have been among the enumeration of tax exempt privileges under Section 2: It is a settled rule of statutory construction that the express mention of one person, thing, or consequence implies the exclusion of all others. The rule is expressed in the familiar maxim, expressio unius est exclusio alterius. The rule of expressio unius est exclusio alterius is formulated in a number of ways. One variation of the rule is the principle that what is expressed puts an end to that which is implied. Expressium facit cessare tacitum. Thus, where a statute, by its terms, is expressly limited to certain matters, it may not, by interpretation or construction, be extended to other matters. ... The rule of expressio unius est exclusio alterius and its variations are canons of restrictive interpretation. They are based on the rules

of logic and the natural workings of the human mind. They are predicated upon one’s own voluntary act and not upon that of others. They proceed from the premise that the legislature would not have made specified enumeration in a statute had the intention been not to restrict its meaning and confine its terms to those expressly mentioned. Same; Same; Same; Same; The exemption must not be so enlarged by construction.—The exemption must not be so enlarged by construction since the reasonable presumption is that the State has granted in express terms all it intended to grant at all, and that unless the privilege is limited to the very terms of the statute the favor would be intended beyond what was meant. Same; Same; Same; Same; The tax exemption under Section 28 (3), Article VI of the 1987 Constitution covers property taxes only.—Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus: (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. The tax exemption under this constitutional provision covers property taxes only. As Chief Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: “. . . what is exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes.” Same; Same; Same; Same; Under the 1973 and the present Constitutions, for “lands, buildings, and improvements” of the charitable institution to be considered exempt, the same should not only be “exclusively” used for charitable purposes—it is required that such property be used “actually” and “directly” for such purposes.—We note that under the 1935 Constitution, “. . . all lands, buildings, and improvements used ‘exclusively’ for . . . charitable . . . purposes shall be exempt from taxation.” However, under the 1973 and the present Constitutions, for “lands, buildings, and improvements” of the charitable institution to be considered exempt, the same should not only be “exclusively” used for charitable purposes; it is required that such property be used “actually” and “directly” for such purposes. In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our ruling in Herrera v. Quezon City Board of Assessment Appeals which was promulgated on September 30, 1961 before the 1973 and 1987 Constitutions took effect. Same; Same; Same; Same; Words and Phrases; If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation—the words “dominant use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence to the Constitutions and the law.—Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable

purposes. “Exclusive” is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and “exclusively” is defined, “in a manner to exclude; as enjoying a privilege exclusively.” If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. The words “dominant use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence to the Constitutions and the law. Solely is synonymous with exclusively. What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes. Same; Same; Same; Portions of the land leased to private entities as well as those parts of Lung Center leased to private individuals are not exempt from taxes but portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes. —We hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.

Commissioner of Internal Revenue vs. Court of Appeals, 298 SCRA 83 , October 14, 1998 Taxation; Court of Tax Appeals; Factual findings of the CTA, when supported by substantial evidence, will not be disturbed on appeal unless it is shown that the court committed gross error in the appreciation of facts.—Indeed, it is a basic rule in taxation that the factual findings of the CTA, when supported by substantial evidence, will not be disturbed on appeal unless it is shown that the said court committed gross error in the appreciation of facts. In the present case, this Court finds that the February 16, 1994 Decision of the CA did not deviate from this rule. The latter merely applied the law to the facts as found by the CTA and ruled on the issue raised by the CIR: “Whether or not the collection or earnings of rental income from the lease of certain premises and income earned from parking fees shall fall under the last paragraph of Section 27 of the National Internal Revenue Code of 1977, as amended.” Same; Same; Distinction between a question of law and a question of fact.—The distinction between a question of law and a question of fact is clear-cut. It has been held that “[t]here is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or falsehood of alleged facts.”

Same; Tax Exemptions; Court has always applied the doctrine of strict interpretation in construing tax exemptions.—Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict interpretation in construing tax exemptions. Furthermore, a claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based. Thus, the claimed exemption “must expressly be granted in a statute stated in a language too clear to be mistaken.” Same; Same; The exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC; Court is dutybound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction.—In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its real property, the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction. Same; Same; Private respondent is exempt from the payment of property tax, but not income tax on the rentals from its property.—Private respondent also invokes Article XIV, Section 4, par. 3 of the Charter, claiming that the YMCA “is a nonstock, non-profit educational institution whose revenues and assets are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its properties and income.” We reiterate that private respondent is exempt from the payment of property tax, but not income tax on the rentals from its property. The bare allegation alone that it is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax. Same; Constitutional Law; YMCA is not a school or an educational institution.—The term “educational institution” or “institution of learning” has acquired a wellknown technical meaning, of which the members of the Constitutional Commission are deemed cognizant. Under the Education Act of 1982, such term refers to schools. The school system is synonymous with formal education, which “refers to the hierarchically structured and chronologically graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through the grades or move to the higher levels.” The Court has examined the “Amended Articles of Incorporation” and “By-Laws” of the YMCA, but found nothing in them that even hints that it is a school or an educational institution.

Commissioner of Internal Revenue vs. S.C. Johnson and Son, Inc., 309 SCRA 87 , June 25, 1999

Taxation; Tax Treaties; Double Taxation; International Law; A cursory reading of the various tax treaties will show that there is no similarity in the provisions on relief from or avoidance of double taxation as this is a matter of negotiation between the contracting parties.—The above construction is based principally on syntax or sentence structure but fails to take into account the purpose animating the treaty provisions in point. To begin with, we are not aware of any law or rule pertinent to the payment of royalties, and none has been brought to our attention, which provides for the payment of royalties under dissimilar circumstances. The tax rates on royalties and the circumstances of payment thereof are the same for all the recipients of such royalties and there is no disparity based on nationality in the circumstances of such payment. On the other hand, a cursory reading of the various tax treaties will show that there is no similarity in the provisions on relief from or avoidance of double taxation as this is a matter of negotiation between the contracting parties. As will be shown later, this dissimilarity is true particularly in the treaties between the Philippines and the United States and between the Philippines and West Germany. Same; Same; Same; Same; Words and Phrases; International juridical double taxation is defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods; The apparent rationale for doing away with double taxation is to encourage the free flow of goods and services and the movement of capital, technology and persons between countries, conditions deemed vital in creating robust and dynamic economies.—The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines has entered into for the avoidance of double taxation. The purpose of these international agreements is to reconcile the national fiscal legislations of the contracting parties in order to help the taxpayer avoid simultaneous taxation in two different jurisdictions. More precisely, the tax conventions are drafted with a view towards the elimination of international juridical double taxation, which is defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. The apparent rationale for doing away with double taxation is to encourage the free flow of goods and services and the movement of capital, technology and persons between countries, conditions deemed vital in creating robust and dynamic economies. Foreign investments will only thrive in a fairly predictable and reasonable international investment climate and the protection against double taxation is crucial in creating such a climate. Same; Same; Same; Same; Same; Methods resorted to in eliminating double taxation; Exemption and Credit Methods, Explained.—Double taxation usually takes place when a person is resident of a contracting state and derives income from, or owns capital in, the other contracting state and both states impose tax on that income or capital. In order to eliminate double taxation, a tax treaty resorts to several methods. First, it sets out the respective rights to tax of the state of source or situs and of the state of residence with regard to certain classes of income or capital. In some cases, an exclusive right to tax is conferred on one of the contracting states; however, for other items of income or capital, both states are given the right to tax, although the amount of tax that may be imposed by the

state of source is limited. The second method for the elimination of double taxation applies whenever the state of source is given a full or limited right to tax together with the state of residence. In this case, the treaties make it incumbent upon the state of residence to allow relief in order to avoid double taxation. There are two methods of relief—the exemption method and the credit method. In the exemption method, the income or capital which is taxable in the state of source or situs is exempted in the state of residence, although in some instances it may be taken into account in determining the rate of tax applicable to the taxpayer’s remaining income or capital. On the other hand, in the credit method, although the income or capital which is taxed in the state of source is still taxable in the state of residence, the tax paid in the former is credited against the tax levied in the latter. The basic difference between the two methods is that in the exemption method, the focus is on the income or capital itself, whereas the credit method focuses upon the tax. Same; Same; Same; Same; In negotiating tax treaties, the underlying rationale for reducing the tax rate is that the Philippines will give up a part of the tax in the expectation that the tax given up for this particular investment is not taxed by the other country.—In negotiating tax treaties, the underlying rationale for reducing the tax rate is that the Philippines will give up a part of the tax in the expectation that the tax given up for this particular investment is not taxed by the other country. Thus the petitioner correctly opined that the phrase “royalties paid under similar circumstances” in the most favored nation clause of the US-RP Tax Treaty necessarily contemplated “circumstances that are tax related.” Same; Same; Same; Same; Most Favored Nation Clause; The concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty could not apply to taxes imposed upon royalties in the RP-US Tax Treaty since the two taxes imposed under the two tax treaties are not paid under similar circumstances, they are not containing similar provisions on tax crediting.—Given the purpose underlying tax treaties and the rationale for the most favored nation clause, the concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty should apply only if the taxes imposed upon royalties in the RP-US Tax Treaty and in the RPGermany Tax Treaty are paid under similar circumstances. This would mean that private respondent must prove that the RP-US Tax Treaty grants similar tax reliefs to residents of the United States in respect of the taxes imposable upon royalties earned from sources within the Philippines as those allowed to their German counterparts under the RP-Germany Tax Treaty. The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting. Article 24 of the RP-Germany Tax Treaty, supra, expressly allows crediting against German income and corporation tax of 20% of the gross amount of royalties paid under the law of the Philippines. On the other hand, Article 23 of the RP-US Tax Treaty, which is the counterpart provision with respect to relief for double taxation, does not provide for similar crediting of 20% of the gross amount of royalties paid. Same; Same; Same; Same; Same; Statutory Construction; Laws are not just mere compositions, but have ends to be achieved and that the general purpose is a more important aid to the meaning of a law than any rule which grammar may lay

down; A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.—The reason for construing the phrase “paid under similar circumstances” as used in Article 13 (2) (b) (iii) of the RP-US Tax Treaty as referring to taxes is anchored upon a logical reading of the text in the light of the fundamental purpose of such treaty which is to grant an incentive to the foreign investor by lowering the tax and at the same time crediting against the domestic tax abroad a figure higher than what was collected in the Philippines. In one case, the Supreme Court pointed out that laws are not just mere compositions, but have ends to be achieved and that the general purpose is a more important aid to the meaning of a law than any rule which grammar may lay down. It is the duty of the courts to look to the object to be accomplished, the evils to be remedied, or the purpose to be subserved, and should give the law a reasonable or liberal construction which will best effectuate its purpose. The Vienna Convention on the Law of Treaties states that a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. Same; Same; Same; Same; Same; The purpose of a most favored nation clause is to grant to the contracting party treatment not less favorable than that which has been or may be granted to the “most favored” among other countries.—The purpose of a most favored nation clause is to grant to the contracting party treatment not less favorable than that which has been or may be granted to the “most favored” among other countries. The most favored nation clause is intended to establish the principle of equality of international treatment by providing that the citizens or subjects of the contracting nations may enjoy the privileges accorded by either party to those of the most favored nation. The essence of the principle is to allow the taxpayer in one state to avail of more liberal provisions granted in another tax treaty to which the country of residence of such taxpayer is also a party provided that the subject matter of taxation, in this case royalty income, is the same as that in the tax treaty under which the taxpayer is liable. Both Article 13 of the RP-US Tax Treaty and Article 12 (2) (b) of the RP-West Germany Tax Treaty, above-quoted, speaks of tax on royalties for the use of trademark, patent, and technology. The entitlement of the 10% rate by U.S. firms despite the absence of a matching credit (20% for royalties) would derogate from the design behind the most favored nation clause to grant equality of international treatment since the tax burden laid upon the income of the investor is not the same in the two countries. The similarity in the circumstances of payment of taxes is a condition for the enjoyment of most favored nation treatment precisely to underscore the need for equality of treatment. Same; Tax Refunds; Statutory Construction; Tax refunds are in the nature of tax exemptions, and as such they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption.—It bears stress that tax refunds are in the nature of tax exemptions. As such they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the

exemption. The burden of proof is upon him who claims the exemption in his favor and he must be able to justify his claim by the clearest grant of organic or statute law. Private respondent is claiming for a refund of the alleged overpayment of tax on royalties; however, there is nothing on record to support a claim that the tax on royalties under the RP-US Tax Treaty is paid under similar circumstances as the tax on royalties under the RP-West Germany Tax Treaty.

Duetsche Bank AG Manila Branch vs. Commissioner of Internal Revenue, 704 SCRA 216 , August 28, 2013 Taxation; National Internal Revenue Code; Foreign Corporations; Under Section 28(A)(5) of the National Internal Revenue Code (NIRC), any profit remitted to its head office shall be subject to a tax of 15% based on the total profits applied for or earmarked for remittance without any deduction of the tax component.―Under Section 28(A)(5) of the NIRC, any profit remitted to its head office shall be subject to a tax of 15% based on the total profits applied for or earmarked for remittance without any deduction of the tax component. However, petitioner invokes paragraph 6, Article 10 of the RP-Germany Tax Treaty, which provides that where a resident of the Federal Republic of Germany has a branch in the Republic of the Philippines, this branch may be subjected to the branch profits remittance tax withheld at source in accordance with Philippine law but shall not exceed 10% of the gross amount of the profits remitted by that branch to the head office. International Law; Treaties; Pacta Sunt Servanda; The time-honored international principle of pacta sunt servanda demands the performance in good faith of treaty obligations on the part of the states that enter into the agreement.―Our Constitution provides for adherence to the general principles of international law as part of the law of the land. The time-honored international principle of pacta sunt servanda demands the performance in good faith of treaty obligations on the part of the states that enter into the agreement. Every treaty in force is binding upon the parties, and obligations under the treaty must be performed by them in good faith. More importantly, treaties have the force and effect of law in this jurisdiction. Same; Same; Taxation; Tax treaties are entered into to minimize, if not eliminate the harshness of international juridical double taxation, which is why they are also known as double tax treaty or double tax agreements.―Tax treaties are entered into “to reconcile the national fiscal legislations of the contracting parties and, in turn, help the taxpayer avoid simultaneous taxations in two different jurisdictions.” CIR v. S.C. Johnson and Son, Inc., 309 SCRA 37 (1999), further clarifies that “tax conventions are drafted with a view towards the elimination of international juridical double taxation, which is defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. The apparent rationale for doing away with double taxation is to encourage the free flow of goods and services and the movement of capital, technology and persons between countries, conditions

deemed vital in creating robust and dynamic economies. Foreign investments will only thrive in a fairly predictable and reasonable international investment climate and the protection against double taxation is crucial in creating such a climate.” Simply put, tax treaties are entered into to minimize, if not eliminate the harshness of international juridical double taxation, which is why they are also known as double tax treaty or double tax agreements. Same; Same; Same; A state that has contracted valid international obligations is bound to make in its legislations those modifications that may be necessary to ensure the fulfillment of the obligations undertaken.―“A state that has contracted valid international obligations is bound to make in its legislations those modifications that may be necessary to ensure the fulfillment of the obligations undertaken.” Thus, laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled thereto. The BIR must not impose additional requirements that would negate the availment of the reliefs provided for under international agreements. More so, when the RP-Germany Tax Treaty does not provide for any pre-requisite for the availment of the benefits under said agreement. Same; Same; Same; Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it would constitute a violation of the duty required by good faith in complying with a tax treaty.―Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it would constitute a violation of the duty required by good faith in complying with a tax treaty. The denial of the availment of tax relief for the failure of a taxpayer to apply within the prescribed period under the administrative issuance would impair the value of the tax treaty. At most, the application for a tax treaty relief from the BIR should merely operate to confirm the entitlement of the taxpayer to the relief. Same; Tax Refunds; National Internal Revenue Code; Section 229 of the National Internal Revenue Code (NIRC) provides the taxpayer a remedy for tax recovery when there has been an erroneous payment of tax.―Section 229 of the NIRC provides the taxpayer a remedy for tax recovery when there has been an erroneous payment of tax. The outright denial of petitioner’s claim for a refund, on the sole ground of failure to apply for a tax treaty relief prior to the payment of the BPRT, would defeat the purpose of Section 229.

City of Manila vs. Coca-Cola Bottlers Philippines, Inc., 595 SCRA 299 , August 04, 2009 Same; Double Taxation; Words and Phrases; Double taxation means taxing the same property twice when it should be taxed only once, that is, “taxing the same person twice by the same jurisdiction for the same thing”; Otherwise described as “direct duplicate taxation,” the two taxes must be imposed on the same subject

matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period, and the taxes must be of the same kind or character.—Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to their own detriment. Said exempting proviso was precisely included in said section so as to avoid double taxation. Double taxation means taxing the same property twice when it should be taxed only once; that is, “taxing the same person twice by the same jurisdiction for the same thing.” It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as “direct duplicate taxation,” the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character. Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter—the privilege of doing business in the City of Manila; (2) for the same purpose—to make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority—petitioner City of Manila; (4) within the same taxing jurisdiction —within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods—per calendar year; and (6) of the same kind or character—a local business tax imposed on gross sales or receipts of the business. Same; Same; Municipal Corporations; Local Government Units; It is apparent from a perusal of Section 143 of the Local Government Code—the very source of the power of municipalities and cities to impose a local business tax—that when a municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the Local Government Code (LGC), said municipality or city may no longer subject the same manufacturers, etc. to a business tax under Section 143(h) of the same Code.—The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of the power of municipalities and cities to impose a local business tax, and to which any local business tax imposed by petitioner City of Manila must conform. It is apparent from a perusal thereof that when a municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC, said municipality or city may no longer subject the same manufacturers, etc. to a business tax under Section 143(h) of the same Code. Section 143(h) may be imposed only on businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and that are “not otherwise specified in preceding paragraphs.” In the same way, businesses such as respondent’s, already subject to a local business tax under Section 14 of Tax Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can no longer be made liable for local business tax under Section 21 of the same Tax Ordinance [which is based on Section 143(h) of the LGC].

Commissioner of Internal Revenue vs. Estate of Benigno P. Toda, Jr., 438 SCRA 290 , September 14, 2004 Taxation; Tax Avoidance Distinguished from Tax Evasion.— Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. Same; Same; Factors to Determine Tax Evasion.—Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being “evil,” in “bad faith,” “willfull,” or “deliberate and not accidental”; and (3) a course of action or failure of action which is unlawful. Taxation; Tax Avoidance Distinguished from Tax Evasion.— Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. Same; Same; Factors to Determine Tax Evasion.—Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being “evil,” in “bad faith,” “willfull,” or “deliberate and not accidental”; and (3) a course of action or failure of action which is unlawful. [Commissioner of Internal Revenue vs. Estate of Benigno P. Toda, Jr., 438 SCRA 290(2004)]

Francia vs. Intermediate Appellate Court, 162 SCRA 753 , June 28, 1988 Taxation; Obligations; Requisites of Legal Compensation under Arts. 1278 and 1279 of Civil Code; Case at bar.—Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the government owed him P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of October 15, 1977. There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to wit: “(1) that each one of the obligors be bound principally and that he

be at the same time a principal creditor of the other; xxx xxx xxx “(3) that the two debts be due. xxx xxx xxx. Taxation; Same; Internal Revenue Taxes can not be subject of setoff or compensation.—This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not be the subject of set-off or compensation. We stated that: “A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. x x x (80 C.J.S., 73-74). ‘The general rule based on grounds of public policy is wellsettled that no set-off is admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayer is not required. x x x’ ” Same; Same; Same; Auction Sale; Purchaser has the burden of proof to show that all prescribed requisites for tax sale were complied with.—We agree with the petitioner’s claim that Ho Fernandez, the purchaser at the auction sale, has the burden of proof to show that there was compliance with all the prescribed requisites for a tax sale. The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that: xxx xxx xxx “x x x [D]ue process of law to be followed in tax proceedings must be established by proof and the general rule is that the purchaser of a tax title is bound to take upon himself the burden of showing the regularity of all proceedings leading up to the sale.” (Italics supplied). There is no presumption of the regularity of any administrative action which results in depriving a taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437; Denoga v. Insular Government, 19 Phil. 261). This is actually an exception to the rule that administrative proceedings are presumed to be regular. But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been complied with, the petitioner can not, however, deny that he did receive the notice for the auction sale. The records sustain the lower court’s finding that: “[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly notified of the auction sale. Surprisingly, however, he admitted in his testimony that he received the letter dated November 21, 1977 (Exhibit “I”) as shown by his signature (Exhibit “I-A”) thereof. He claimed further that he was not present on December 5, 1977 the date of the auction sale because he went to Iligan City. As long as there was substantial

compliance with the requirements of the notice, the validity of the auction sale can not be assailed. x x x.” Same; Same; Same; Same; General Rule that gross inadequacy of price is not material.—Petitioner’s third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that “alleged gross inadequacy of price is not material when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption.” In Velasquez v. Coronel, (5 SCRA 985), this Court held: “x x x [R]espondent treasurer now claims that the prices for which the lands were sold are unconscionable considering the wide divergence between their assessed values and the amounts for which they had been actually sold. However, while in ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one’s conscience as to justify the courts to interfere, such does not follow when the law gives to the owner the right to redeem, as when a sale is made at public auction, upon the theory that the lesser the price the easier it is for the owner to effect the redemption. And so it was aptly said: ‘When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale.” [Francia vs. Intermediate Appellate Court, 162 SCRA 753(1988)]

Domingo vs. Garlitos, 8 SCRA 443 , June 29, 1963 Taxation; Inheritance tax; Procedure in enforcement against estate of deceased person; Claim must be filed before probate court.—The ordinary procedure by which to settle claims or indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court sa that said court may order the administrator to pay the amount hereof (Aldamiz vs. Judge of the Court of First Instance of Mindoro, L-2360, Dec. 29, 1949). Same; Same; Same; Same; Legal basis.—The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court and such jurisdiction continues until said properties havebeen distributed among the heirs entitled thereto. During the pendency of the proceedings all the estate is in custodia Iegis and the proper procedure is not to allow the sheriff. in case of a court judgment, to seize the properties but to ask the court for an order to require the administrator to pay the amount due from the estate and required to be paid.

Same; Same; Compensation between taxes and claims of intestate recognized and appropriated for by law.—The fact that the court having jurisdiction of the estate had found that the claim of the estate against the Government has been appropriated for the purpose by a corresponding law (Rep. Act No. 2700) shows that both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount. [Domingo vs. Garlitos, 8 SCRA 443(1963)]

Diaz vs. Secretary of Finance, 654 SCRA 96 , July 19, 2011 Taxation; Value Added Tax (VAT); Tollways; Declaratory Relief; Prohibition; A petition for declaratory relief may be treated as one for prohibition if the case has far-reaching implications and raises questions that need to be resolved for the public good; A petition for prohibition is a proper remedy to prohibit or nullify acts of executive officials that amount to usurpation of legislative authority.—On August 24, 2010 the Court issued a resolution, treating the petition as one for prohibition rather than one for declaratory relief, the characterization that petitioners Diaz and Timbol gave their action. The government has sought reconsideration of the Court’s resolution, however, arguing that petitioners’ allegations clearly made out a case for declaratory relief, an action over which the Court has no original jurisdiction. The government adds, moreover, that the petition does not meet the requirements of Rule 65 for actions for prohibition since the BIR did not exercise judicial, quasi-judicial, or ministerial functions when it sought to impose VAT on toll fees. Besides, petitioners Diaz and Timbol has a plain, speedy, and adequate remedy in the ordinary course of law against the BIR action in the form of an appeal to the Secretary of Finance. But there are precedents for treating a petition for declaratory relief as one for prohibition if the case has far-reaching implications and raises questions that need to be resolved for the public good. The Court has also held that a petition for prohibition is a proper remedy to prohibit or nullify acts of executive officials that amount to usurpation of legislative authority. Same; Same; Same; Pleadings, Practice and Procedure; The imposition of value added tax (VAT) on toll fees has far-reaching implications; The Supreme Court has ample power to waive technical requirements when the legal questions to be resolved are of great importance to the public.—The imposition of VAT on toll fees has far-reaching implications. Its imposition would impact, not only on the more than half a million motorists who use the tollways everyday, but more so on the government’s effort to raise revenue for funding various projects and for reducing budgetary deficits. To dismiss the petition and resolve the issues later, after the challenged VAT has been imposed, could cause more mischief both to the taxpaying public and the government. A belated declaration of nullity of the BIR action would make any attempt to refund to the motorists what they paid an administrative nightmare with no solution. Consequently, it is not only the right,

but the duty of the Court to take cognizance of and resolve the issues that the petition raises. Although the petition does not strictly comply with the requirements of Rule 65, the Court has ample power to waive such technical requirements when the legal questions to be resolved are of great importance to the public. The same may be said of the requirement of locus standi which is a mere procedural requisite. Same; Same; Same; Words and Phrases; The law imposes value added tax (VAT) on “all kinds of services” rendered in the Philippines for a fee, including those specified in the list—every activity that can be imagined as a form of “service” rendered for a fee should be deemed included unless some provision of law especially excludes it.—It is plain from the above that 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. The listing of specific services are intended to illustrate how pervasive and broad is the VAT’s reach rather than establish concrete limits to its application. Thus, every activity that can be imagined as a form of “service” rendered for a fee should be deemed included unless some provision of law especially excludes it. Same; Same; Same; 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.—Now, do tollway operators render services for a fee? 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. Tollways serve as alternatives to regular public highways that meander through populated areas and branch out to local roads. Traffic in the regular public highways is for this reason slow-moving. 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 following service providers under Section 108 who allow others to use their properties or facilities for a fee: 1. Lessors of property, whether personal or real; 2. Warehousing service operators; 3. Lessors or distributors of cinematographic films; 4. Proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; 5. Lending investors (for use of money); Transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; and 7. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines.

Same; Same; Same; Franchises; Words and Phrases; Tollway operators are franchise grantees and they do not belong to exceptions that Section 119 spares from the payment of value added tax (VAT); The word “franchise” broadly covers government grants of a special right to do an act or series of acts of public concern.—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. Same; Same; Same; Same; Nothing in Section 108 of the National Internal Revenue Code indicates that the “franchise grantees” it speaks of are those who hold legislative franchises; The term “franchise” has been broadly construed as referring, not only to authorizations that Congress directly issues in the form of a special law, but also to those granted by administrative agencies to which the power to grant franchises has been delegated by Congress.—Petitioners of course contend that tollway operators cannot be considered “franchise grantees” under Section 108 since they do not hold legislative franchises. But nothing in Section 108 indicates that the “franchise grantees” it speaks of are those who hold legislative franchises. Petitioners give no reason, and the Court cannot surmise any, for making a distinction between franchises granted by Congress and franchises granted by some other government agency. The latter, properly constituted, may grant franchises. Indeed, franchises conferred or granted by local authorities, as agents of the state, constitute as much a legislative franchise as though the grant had been made by Congress itself. The term “franchise” has been broadly construed as referring, not only to authorizations that Congress directly issues in the form of a special law, but also to those granted by administrative agencies to which the power to grant franchises has been delegated by Congress. Same; Same; Same; Statutory Construction; Statements made by individual members of Congress in the consideration of a bill do not necessarily reflect the sense of that body and are, consequently, not controlling in the interpretation of law—the congressional will is ultimately determined by the language of the law that the lawmakers voted on.—Nor can petitioners cite as binding on the Court statements made by certain lawmakers in the course of congressional deliberations of the would-be law. As the Court said in South African Airways v. Commissioner of Internal Revenue, 612 SCRA 665 (2010), “statements made by individual members of Congress in the consideration of a bill do not necessarily reflect the sense of that body and are, consequently, not controlling in the interpretation of law.” The congressional will is ultimately determined by the language of the law that the lawmakers voted on. Consequently, the meaning and intention of the law must first be sought “in the words of the statute itself, read and considered in their natural, ordinary, commonly accepted and most obvious

significations, according to good and approved usage and without resorting to forced or subtle construction.” Same; Same; Same; Tollway fees are not taxes.—As can be seen, 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. It would of course be another matter if Congress enacts a law imposing a user’s tax, collectible from motorists, for the construction and maintenance of certain roadways. The tax in such a case goes directly to the government for the replenishment of resources it spends for the roadways. This is not the case here. 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. Same; Same; Same; A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures while toll fees 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.—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. Same; Same; Same; Value added tax (VAT) on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax; Once shifted, the value added tax (VAT) ceases to be a tax and simply becomes part of the cost that the buyer must pay in order to purchase the good, property or service.— 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 selle’s liability but merely the burden of the VAT. Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its burden since the amount of

VAT paid by the former is added to the selling price. Once shifted, the VAT ceases to be a tax and simply becomes part of the cost that the buyer must pay in order to purchase the good, property or service. 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. Same; Same; Same; Parties; Non-Impairment Clause; A person who will neither be prejudiced by nor be affected by the alleged diminution in return of investments that may result from the value added tax (VAT) imposition has no personality to invoke the non-impairment of contract clause on behalf of private investors in the tollway projects.—Petitioner Timbol has no personality to invoke the nonimpairment of contract clause on behalf of private investors in the tollway projects. She will neither be prejudiced by nor be affected by the alleged diminution in return of investments that may result from the VAT imposition. She has no interest at all in the profits to be earned under the TOAs. The interest in and right to recover investments solely belongs to the private tollway investors. Same; Same; Same; The Court cannot rule on matters that are manifestly conjectural, and neither can it prohibit the State from exercising its sovereign taxing power based on uncertain, prophetic grounds.—Besides, her allegation that the private investors’ rate of recovery will be adversely affected by imposing VAT on tollway operations is purely speculative. Equally presumptuous is her assertion that a stipulation in the TOAs known as the Material Adverse Grantor Action will be activated if VAT is thus imposed. The Court cannot rule on matters that are manifestly conjectural. Neither can it prohibit the State from exercising its sovereign taxing power based on uncertain, prophetic grounds. Same; Same; Same; Administrative feasibility, one of the canons of a sound tax system, simply means that the tax system should be capable of being effectively administered and enforced with the least inconvenience to the taxpayer; Even if the imposition of value added tax (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.—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. [Diaz vs. Secretary of Finance, 654 SCRA 96(2011)]

Abaya vs. Ebdane, Jr., 515 SCRA 720 , February 14, 2007 Same; Same; Same; Same; Same; Taxpayer’s Suits; Locus standi is merely a matter of procedure and it has been recognized that in some cases, suits are not brought by parties who have been personally injured by the operation of a law or any other government act—the Supreme Court has invariably adopted a liberal stance on locus standi; The prevailing doctrine in taxpayer’s suits is to allow taxpayers to question contracts entered into by the national government or government-owned or controlled corporations allegedly in contravention of law.— Locus standi, however, is merely a matter of procedure and it has been recognized that in some cases, suits are not brought by parties who have been personally injured by the operation of a law or any other government act but by concerned citizens, taxpayers or voters who actually sue in the public interest. Consequently, the Court, in a catena of cases, has invariably adopted a liberal stance on locus standi, including those cases involving taxpayers. The prevailing doctrine in taxpayer’s suits is to allow taxpayers to question contracts entered into by the national government or government-owned or controlled corporations allegedly in contravention of law. A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that public money is being deflected to any improper purpose, or that there is a wastage of public funds through the enforcement of an invalid or unconstitutional law. Significantly, a taxpayer need not be a party to the contract to challenge its validity.

Gonzales vs. Marcos, 65 SCRA 624 , July 31, 1975 Constitutional law; Action; Taxpayer has no legal standing to question executive acts that do not involve the use of public funds.—It may not be amiss though to consider briefly both the procedural and substantive grounds that led to the lower court’s order of dismissal. It was therein pointed out as “one more valid reason” why such an outcome was unavoidable that “the funds administered by the President of the Philippines came from donations [and] contributions [not] by taxation.” Accordingly, there was that absence of the “requisite pecuniary or monetary interest.” The stand of the lower court finds support in judicial precedents. This is not to retreat from the liberal approach followed in Pascual vs. Secretary of Public Works, foreshadowed by People v. Vera, where the doctrine of standing was first fully ‘discussed. It is only to make clear that petitioner, judged

by orthodox legal learning, has not satisfied the elemental requisite for a taxpayer’s suit. Same; Executive Department; The President had the power under the former Constitution, to administer a trust created by an agreement with a foreign country.—Justice Malcolm in Government of the Philippine Islands vs. Springer took pains to emphasize: “Just as surely as the duty of caring for governmental property is neither judicial nor legislative in character is it as surely executive.” It would be an unduly narrow or restrictive view of such a principle if the public funds that accrued by way of donation from the United States and financial contributions for the Cultural Center project could not be legally considered as “governmental property.” They may be acquired under the concept of dominium, the state as a persona in law not being deprived of such an attribute, thereafter to be administered by virtue of its prerogative of imperium. What is a more appropriate agency for assuring that they be not wasted or frittered away than the Executive, the department precisely entrusted with management functions? It would thus appear that for the President to refrain from taking positive steps and await the action of the then Congress could be tantamount to dereliction of duty. Same; Same; Legislative Department; Creation of rules governing the administration of a trust may be concurrently exercised by the President and Congress.—While to the Presidency under the 1935 Constitution was entrusted the responsibility for administering public property, the then Congress could provide guidelines for such a task. Relevant in this connection is the excerpt from an opinion of Justice Jackson in Youngstown Sheet & Tube Co. vs. Sawyer: “When the President acts in absence of either a congressional grant or denial of authority, he can only rely upon his own independent powers, but there is a zone of twilight in which he and Congress may have concurrent authority, or in which its distribution is uncertain. Therefore, congressional inertia, indifference or quiescence may sometimes, at least as a practical matter, enable, if not invite, measures on independent presidential responsibility. In this area, any actual test of power is likely to depend on the imperatives of events and contemporary imponderables rather than on abstract theories of law.” To vary the phraseology, to recall Thomas Reed Powell, if Congress would continue to keep its peace notwithstanding the action taken by the executive department, it may be considered as silently vocal. In plainer language, it could be an instance of silence meaning consent. Action; Moot and academic; Action disputing the creation of the Cultural Center of the Philippines rendered moot and academic by the passage of Presidential Decree No. 15.—The futility of this appeal by certiorari becomes even more apparent with the issuance of Presidential Decree No. 15 on October 5, 1972. As contended by the Solicitor General, the matter, as of that date, became moot and academic. Executive Order No. 30 was thus superseded. The institution known as the Cultural Center is other than that assailed in this suit. In that sense a coup de grace was administered to this proceeding. The labored attempt of petitioner could thus be set at rest. This particular litigation is at an end. There is, too,

relevance in the observation that the aforesaid decree is part of the law of the land. So the Constitution provides. Constitutional law; Arts and letters; Creation of Cultural Center of the Philippines promotes constitutional policy encouraging arts and letters.—It only remains to be added that respondents as trustees lived up fully to the weighty responsibility entrusted to them. The task imposed on them was performed with competence, fidelity, and dedication. That was to be expected. It is not surprising then that the Cultural Center became a reality, the massive and imposing structure constructed at a shorter period and at a lower cost than at first thought possible. What is of even greater significance, with a portion thereof being accessible at modest admission prices, musical and artistic performances of all kinds are within reach of the lower-income groups. Only thus may meaning be imparted to the Constitutional provision that arts and letters shall be under State patronage. Vinzona-Chato vs. Fortune Tobacco Corporation, 575 SCRA 23 , December 23, 2008 Administrative Law; Public Officers; Damages; The general rule is that a public officer is not liable for damages which a person may suffer arising from the just performance of his official duties and within the scope of his assigned tasks; However, a public officer is by law not immune from damages in his/her personal capacity for acts done in bad faith which being outside the scope of his authority, are no longer protected by the mantle of immunity for official actions.— The general rule is that a public officer is not liable for damages which a person may suffer arising from the just performance of his official duties and within the scope of his assigned tasks. An officer who acts within his authority to administer the affairs of the office which he/she heads is not liable for damages that may have been caused to another, as it would virtually be a charge against the Republic, which is not amenable to judgment for monetary claims without its consent. However, a public officer is by law not immune from damages in his/her personal capacity for acts done in bad faith which, being outside the scope of his authority, are no longer protected by the mantle of immunity for official actions. Same; Same; Same; A public officer who directly or indirectly violates the constitutional rights of another, may be validly sued for damages under Article 32 of the Civil Code even if his acts were not so tainted with malice or bad faith; Instances Where a Public Officer May Be Validly Sued in His/Her Private Capacity for Acts Done in the Course of the Performance of the Functions of the Office.—In addition, the Court held in Cojuangco, Jr. v. Court of Appeals, 309 SCRA 602 (1999), that a public officer who directly or indirectly violates the constitutional rights of another, may be validly sued for damages under Article 32 of the Civil Code even if his acts were not so tainted with malice or bad faith. Thus, the rule in this jurisdiction is that a public officer may be validly sued in his/her private capacity for acts done in the course of the performance of the functions of the office, where said public officer: (1)

acted with malice, bad faith, or negligence; or (2) where the public officer violated a constitutional right of the plaintiff. Same; Same; Statutory Construction; Special law must prevail over a general law.—A general statute is one which embraces a class of subjects or places and does not omit any subject or place naturally belonging to such class. A special statute, as the term is generally understood, is one which relates to particular persons or things of a class or to a particular portion or section of the state only. A general law and a special law on the same subject are statutes inpari materia and should, accordingly, be read together and harmonized, if possible, with a view to giving effect to both. The rule is that where there are two acts, one of which is special and particular and the other general which, if standing alone, would include the same matter and thus conflict with the special act, the special law must prevail since it evinces the legislative intent more clearly than that of a general statute and must not be taken as intended to affect the more particular and specific provisions of the earlier act, unless it is absolutely necessary so to construe it in order to give its words any meaning at all. Same; Same; Sections 38 and 39, Book I of the Administrative Code, laid down the rule on the civil liability of superior and subordinate public officers for acts done in the performance of their duties; while said provisions deal in particular with the liability of government officials, the subject thereof is general, i.e., “acts” done in the performance of official duties, without specifying the action or omission that may give rise to a civil suit against the official concerned.— On the other hand, Sections 38 and 39, Book I of the Administrative Code, laid down the rule on the civil liability of superior and subordinate public officers for acts done in the performance of their duties. For both superior and subordinate public officers, the presence of bad faith, malice, and negligence are vital elements that will make them liable for damages. Note that while said provisions deal in particular with the liability of government officials, the subject thereof is general, i.e.,“acts” done in the performance of official duties, without specifying the action or omission that may give rise to a civil suit against the official concerned. Same; Same; Article 32 is the special provision that deals specifically with violation of constitutional rights by public officers.— Contrarily, Article 32 of the Civil Code specifies in clear and unequivocal terms a particular specie of an “act” that may give rise to an action for damages against a public officer, and that is, a tort for impairment of rights and liberties. Indeed, Article 32 is the special provision that deals specifically with violation of constitutional rights by public officers. All other actionable acts of public officers are governed by Sections 38 and 39 of the Administrative Code. While the Civil Code, specifically, the Chapter on Human Relations is a general law, Article 32 of the same Chapter is a special and specific provision that holds a public officer liable for and allows redress from a particular class of wrongful acts that may be committed by public officers. Compared thus with Section 38 of the Administrative Code, which broadly deals with civil liability arising from errors in the performance of duties, Article 32 of the Civil Code is the specific provision which must be applied in the instant case precisely filed to seek damages for violation of constitutional rights.

Remedial Law; Cause of Action; Considering that bad faith and malice are not necessary in an action based on Article 32 of the Civil Code, the failure to specifically allege the same will not amount to failure to state a cause of action.— The complaint in the instant case was brought under Article 32 of the Civil Code. Considering that bad faith and malice are not necessary in an action based on Article 32 of the Civil Code, the failure to specifically allege the same will not amount to failure to state a cause of action. The courts below therefore correctly denied the motion to dismiss on the ground of failure to state a cause of action, since it is enough that the complaint avers a violation of a constitutional right of the plaintiff.

INCOME TAXATION CASES Commission of Internal Revenue vs. Javier, Jr., 199 SCRA 824 , July 31, 1991 Taxation; Court persuaded that there is no fraud in the filing of the return and agrees fully with the Court of Tax Appeals’ interpretation of Javier’s notation on his income tax return filed on March 15, 1978.—We are persuaded considerably by the private respondent’s contention that there is no fraud in the filing of the return and agree fully with the Court of Tax Appeals’ interpretation of Javier’s notation on his income tax return filed on March 15, 1978 thus: “Taxpayer was the recipient of some money from abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation;” that it was an “error or mistake of fact or law” not constituting fraud, that such notation was practically an invitation for investigation and that Javier had literally “laid his cards on the table.” Same; Same; Fraud in relation to the filing of income tax return discussed in Aznar vs. Court of Appeals.—In Aznar v. Court of Appeals, fraud in relation to the filing of income tax return, was discussed in this manner: xxx The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if both petitioner and respondent Commissioner of Internal Revenue

committed mistakes in making entries in the returns and in the assessment, respectively, under the inventory method of determining tax liability, it would be unfair to treat the mistakes of the petitioner as tainted with fraud and those of the respondent as made in good faith. Same; Same; Same; Courts never sustain findings of fraud upon circumstances which create only suspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion.—Fraud is never imputed and the courts never sustain find ings of fraud upon circumstances which, at most, create only suspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion. Same; Same; Same; Same; There was no actual and intentional fraud through willful and deliberate misleading of the Bureau of Internal Revenue, case at bar; Error or mistake of law is not fraud.—In the case at bar, there was no actual and intentional fraud through willful and deliberate misleading of the government agency concerned, the Bureau of Internal Revenue, headed by the herein petitioner. The government was not induced to give up some legal right and place itself at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities because Javier did not conceal anything. Error or mistake of law is not fraud. The petitioner’s zealousness to collect taxes from the unearned windfall to Javier is highly commendable. Unfortunately, the imposition of the fraud penalty in this case is not justified by the extant facts.

Obillos, Jr. vs. Commissioner of Internal Revenue, 139 SCRA 436 , October 29, 1985 Taxation; The dictum that the power to tax involves the power to destroy should be obviated.—To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation and confirm the dictum that the power to tax involves the power to destroy. That eventuality should be obviated. Same; Partnership; Co-ownership; Where the father sold his rights over two parcels of land to his four children so they can build their residence, but the latter after one (1) year sold them and paid the capital gains, they should not be treated to have formed an unregistered partnership and taxed corporate income tax on the sale and dividend income tax on their shares of the profit's from the sale.—Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the coownership. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be terminated sooner or later.

Same; Same; Same; Mere sharing of gross income from an isolated transaction does not establish a partnership.—Article 1769(3) of' the Civil Code provides that ''the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a j oint or common right or interest in any property from which the returns are derived". There must be an unmistakable intention to form a partnership or joint venture.

Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc., 682 SCRA 66 , September 26, 2012 Taxation; Tax Exemptions; The Supreme Court holds that Section 27(B) of the National Internal Revenue Code (NIRC) does not remove the income tax exemption of proprietary non-profit hospitals under Section 30(E) and (G).―The Court partly grants the petition of the BIR but on a different ground. We hold that Section 27(B) of the NIRC does not remove the income tax exemption of proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B) on one hand, and Section 30(E) and (G) on the other hand, can be construed together without the removal of such tax exemption. The effect of the introduction of Section 27(B) is to subject the taxable income of two specific institutions, namely, proprietary non-profit educational institutions and proprietary non-profit hospitals, among the institutions covered by Section 30, to the 10% preferential rate under Section 27(B) instead of the ordinary 30% corporate rate under the last paragraph of Section 30 in relation to Section 27(A)(1). Same; Preferential Tax Rate; Section 27(B) of the National Internal Revenue Code (NIRC) imposes a 10% preferential tax rate on the income of (1) proprietary nonprofit educational institutions and (2) proprietary non-profit hospitals.―Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary non-profit educational institutions and (2) proprietary non-profit hospitals. The only qualifications for hospitals are that they must be proprietary and non-profit. “Proprietary” means private, following the definition of a “proprietary educational institution” as “any private school maintained and administered by private individuals or groups” with a government permit. “Nonprofit” means no net income or asset accrues to or benefits any member or specific person, with all the net income or asset devoted to the institution’s purposes and all its activities conducted not for profit. Same; “Non-profit” does not necessarily mean “charitable.”―“Non-profit” does not necessarily mean “charitable.” In Collector of Internal Revenue v. Club Filipino Inc. de Cebu, 5 SCRA 321 (1962), this Court considered as non-profit a sports club organized for recreation and entertainment of its stockholders and members. The club was primarily funded by membership fees and dues. If it had profits, they were used for overhead expenses and improving its golf course. The club was non-profit because of its purpose and there was no evidence that it was engaged in a profit-making enterprise.

Same; Tax Exemptions; Charity is essentially a gift to an indefinite number of persons which lessens the burden of government. In other words, charitable institutions provide for free goods and services to the public which would otherwise fall on the shoulders of government; The government forgoes taxes which should have been spent to address public needs, because certain private entities already assume a part of the burden.―To be a charitable institution, however, an organization must meet the substantive test of charity in Lung Center of the Philippines vs. Quezon City, 433 SCRA 119 (2004). The issue in Lung Center concerns exemption from real property tax and not income tax. However, it provides for the test of charity in our jurisdiction. Charity is essentially a gift to an indefinite number of persons which lessens the burden of government. In other words, charitable institutions provide for free goods and services to the public which would otherwise fall on the shoulders of government. Thus, as a matter of efficiency, the government forgoes taxes which should have been spent to address public needs, because certain private entities already assume a part of the burden. This is the rationale for the tax exemption of charitable institutions. The loss of taxes by the government is compensated by its relief from doing public works which would have been funded by appropriations from the Treasury. Same; Same; Charitable institutions are not ipso facto entitled to a tax exemption. The requirements for a tax exemption are specified by the law granting it.―Charitable institutions, however, are not ipso facto entitled to a tax exemption. The requirements for a tax exemption are specified by the law granting it. The power of Congress to tax implies the power to exempt from tax. Congress can create tax exemptions, subject to the constitutional provision that “[n]o law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of Congress.” The requirements for a tax exemption are strictly construed against the taxpayer because an exemption restricts the collection of taxes necessary for the existence of the government. Same; Same; Income Taxation; Real Estate Taxes; For real property taxes, the incidental generation of income is permissible because the test of exemption is the use of the property; The effect of failing to meet the use requirement is simply to remove from the tax exemption that portion of the property not devoted to charity.―For real property taxes, the incidental generation of income is permissible because the test of exemption is the use of the property. The Constitution provides that “[c]haritable institutions, churches and personages 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.” The test of exemption is not strictly a requirement on the intrinsic nature or character of the institution. The test requires that the institution use the property in a certain way, i.e. for a charitable purpose. Thus, the Court held that the Lung Center of the Philippines did not lose its charitable character when it used a portion of its lot for commercial purposes. The effect of failing to meet the use requirement is simply to remove from the tax exemption that portion of the property not devoted to charity.

Same; Same; The Constitution exempts charitable institutions only from real property taxes. In the National Internal Revenue Code (NIRC), Congress decided to extend the exemption to income taxes.―The Constitution exempts charitable institutions only from real property taxes. In the NIRC, Congress decided to extend the exemption to income taxes. However, the way Congress crafted Section 30(E) of the NIRC is materially different from Section 28(3), Article VI of the Constitution. Section 30(E) of the NIRC defines the corporation or association that is exempt from income tax. On the other hand, Section 28(3), Article VI of the Constitution does not define a charitable institution, but requires that the institution “actually, directly and exclusively” use the property for a charitable purpose. Same; Same; Real Estate Taxes; Income Taxation; To be exempt from real property taxes, Section 28(3), Article VI of the Constitution requires that a charitable institution use the property “actually, directly and exclusively” for charitable purposes. To be exempt from income taxes, Section 30(E) of the National Internal Revenue Code (NIRC) requires that a charitable institution must be “organized and operated exclusively” for charitable purposes. Likewise, to be exempt from income taxes, Section 30(G) of the National Internal Revenue Code (NIRC) requires that the institution be “operated exclusively” for social welfare.―There is no dispute that St. Luke’s is organized as a non-stock and nonprofit charitable institution. However, this does not automatically exempt St. Luke’s from paying taxes. This only refers to the organization of St. Luke’s. Even if St. Luke’s meets the test of charity, a charitable institution is not ipso facto tax exempt. To be exempt from real property taxes, Section 28(3), Article VI of the Constitution requires that a charitable institution use the property “actually, directly and exclusively” for charitable purposes. To be exempt from income taxes, Section 30(E) of the NIRC requires that a charitable institution must be “organized and operated exclusively” for charitable purposes. Likewise, to be exempt from income taxes, Section 30(G) of the NIRC requires that the institution be “operated exclusively” for social welfare. Same; Same; Even if the charitable institution must be “organized and operated exclusively” for charitable purposes, it is nevertheless allowed to engage in “activities conducted for profit” without losing its tax exempt status for its not-forprofit activities.―Even if the charitable institution must be “organized and operated exclusively” for charitable purposes, it is nevertheless allowed to engage in “activities conducted for profit” without losing its tax exempt status for its notfor-profit activities. The only consequence is that the “income of whatever kind and character” of a charitable institution “from any of its activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax.” Prior to the introduction of Section 27(B), the tax rate on such income from forprofit activities was the ordinary corporate rate under Section 27(A). With the introduction of Section 27(B), the tax rate is now 10%. Same; Income Taxation; Preferential Tax Rate; The Supreme Court finds that St. Luke’s is a corporation that is not “operated exclusively” for charitable or social welfare purposes insofar as its revenues from paying patients are concerned; Such income from for-profit activities, under the last paragraph of Section 30, is

merely subject to income tax, previously at the ordinary corporate rate but now at the preferential 10% rate pursuant to Section 27(B).―The Court finds that St. Luke’s is a corporation that is not “operated exclusively” for charitable or social welfare purposes insofar as its revenues from paying patients are concerned. This ruling is based not only on a strict interpretation of a provision granting tax exemption, but also on the clear and plain text of Section 30(E) and (G). Section 30(E) and (G) of the NIRC requires that an institution be “operated exclusively” for charitable or social welfare purposes to be completely exempt from income tax. An institution under Section 30(E) or (G) does not lose its tax exemption if it earns income from its for-profit activities. Such income from for-profit activities, under the last paragraph of Section 30, is merely subject to income tax, previously at the ordinary corporate rate but now at the preferential 10% rate pursuant to Section 27(B). Same; Tax Exemptions; A tax exemption is effectively a social subsidy granted by the State because an exempt institution is spared from sharing in the expenses of government and yet benefits from them.―A tax exemption is effectively a social subsidy granted by the State because an exempt institution is spared from sharing in the expenses of government and yet benefits from them. Tax exemptions for charitable institutions should therefore be limited to institutions beneficial to the public and those which improve social welfare. A profit-making entity should not be allowed to exploit this subsidy to the detriment of the government and other taxpayers.