Taxation I Cases

Taxation vis--vis Tax

Paseo Realty and Development Corporation vs. CA (G.R. No.
119286)

Taxation is a destructive power which interferes with the personal and

property rights of the people and takes from them a portion of their
property for the support of the government. And since taxes are what we
pay for civilized society, or are the lifeblood of the nation, the law frowns
against exemptions from taxation and statutes granting tax exemptions
are thus construed strictissimi juris against the taxpayer and liberally in
favor of the taxing authority. A claim of refund or exemption from tax
payments must be clearly shown and be based on language in the law too
plain to be mistaken. Elsewise stated, taxation is the rule, exemption
therefrom is the exception.

Pelizloy Realty Corporation vs. Province of Benguet (G.R. No.

183137)

Petitioner Pelizloy Realty Corporation (Pelizloy) owns Palm Grove Resort,

which is designed for recreation and which has facilities like swimming
pools, a spa and function halls. It is located at Asin, Angalisan, Municipality
of Tuba, Province of Benguet.
On December 8, 2005, the Provincial Board of the Province of Benguet
approved Provincial Tax Ordinance No. 05-107, otherwise known as the
Benguet Revenue Code of 2005 (Tax Ordinance). Section 59, Article X of
the Tax Ordinance levied a ten percent (10%) amusement tax on gross
receipts from admissions to resorts, swimming pools, bath houses, hot
springs and tourist spots.
Pelizloy argued that Section 59, Article X of the Tax Ordinance imposed a
percentage tax in violation of the limitation on the taxing powers of local
government units (LGUs) under Section 133 (i) of the LGC.
The power to tax is an attribute of sovereignty,7 and as such, inheres in
the State. Such, however, is not true for provinces, cities, municipalities
and barangays as they are not the sovereign;8 rather, they are mere
territorial and political subdivisions of the Republic of the Philippines.
Per Section 5, Article X of the 1987 Constitution, the power to tax is no
longer vested exclusively on Congress; local legislative bodies are now
given direct authority to levy taxes, fees and other charges.12
Nevertheless, such authority is subject to such guidelines and limitations
as the Congress may provide.1
Section 133 provides for the common limitations on the taxing powers of
LGUs. Specifically, Section 133 (i) prohibits the levy by LGUs of percentage
or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided by the
LGC.

Applying the definition in CIR v. Citytrust and drawing from the treatment
of amusement taxes by the NIRC, amusement taxes are percentage taxes
as correctly argued by Pelizloy. However, provinces are not barred from
levying amusement taxes even if amusement taxes are a form of
percentage taxes. Section 133 (i) of the LGC prohibits the levy of
percentage taxes except as otherwise provided by the LGC.
"Amusement Places" include theaters, cinemas, concert halls, circuses and
other places of amusement where one seeks admission to entertain
oneself by seeing or viewing the show or performances.
Considering these, it is clear that resorts, swimming pools, bath houses,
hot springs and tourist spots cannot be considered venues primarily
where one seeks admission to entertain oneself by seeing or viewing the
show or performances. While it is true that they may be venues where
people are visually engaged, they are not primarily venues for their
proprietors or operators to actively display, stage or present shows and/or
performances.

Inherent prerogative of the sovereignty

Concurring and Dissenting Opinion of Justice Leonen in
Manila Memorial Park Inc., et al. vs. Secretary of DSWD and
DOF (G.R. No. 175356)

This case involves the constitutionality of Section 4 of Republic Act No. 7432
as amended vy Republic Act No. 9257 as well as the implementing rules and
regulations issued by respondents Department of Social Welfare and
Development and Department of Finance. The provisions allow the 20%
discount given by business establishments to senior citizens only as a tax
deduction from their gross income. The provisions amend an earlier law that
allows the senior citizen discount as a tax credit from their total tax liability.
1

The power to tax is "a principal attribute of sovereignty."

Such inherent power of the State anchors on its "social contract with its
citizens [which] obliges it to promote public interest and common good.

In fact, the State has the power "to make reasonable and natural
classifications for the purposes of taxation x x x [w]hether 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 States power is entitled to presumption of validity x x
x."

In CIR vs. Algue: Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. On the other hand, such collection
should be made in accordance with law as any arbitrariness will negate the
very reason for government itself. It is therefore necessary to reconcile the
apparently conflicting interests of the authorities and the taxpayers so that
the real purpose of taxation, which is the promotion of the common good,
may be achieved. x x x x It is said that taxes are what we pay for civilized

society. Without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it. Hence, despite the natural reluctance
to surrender part of one's hard-earned income to the taxing authorities, every
person who is able to must contribute his share in the running of the
government. The government, for its part, is expected to respond in the form
of tangible and intangible benefits intended to improve the lives of the people
and enhance their moral and material values. This symbiotic relationship is
the rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power.

The Constitution provides for limitations on the power of taxation. First, "[t]he
rule of taxation shall be uniform and equitable." This requirement for
uniformity and equality means that "all taxable articles or kinds of property of
the same class [shall] be taxed at the same rate." The tax deduction scheme
for the 20% discount applies equally and uniformly to all the private
establishments covered by the law. Thus, it complies with this limitation.
Second, taxes must neither be confiscatory nor arbitrary as to amount to a
"[deprivation] of property without due process of law.
36

37

In the present case, there is no showing that the tax deduction scheme is
confiscatory. The portion of the 20% discount petitioners are made to bear
under the tax deduction scheme will not result in a complete loss of business
for private establishments. As illustrated earlier, these establishments are free
to adjust factors as prices and costs to recoup the 20% discount given to
senior citizens. Neither is the scheme arbitrary. Rules and Regulations have
been issued by agencies as respondent Department of Finance to serve as
guidelines for the implementation of the 20% discount and its tax deduction
scheme. In fact, this Court has consistently upheld the doctrine that "taxing
power may be used as an implement of police power" in order to promote
the general welfare of the people.
42

Lifeblood Theory
CIR vs. Metro Star Superama Inc. (G.R. No. 185371)

Metro Star Superama Inc. is a domestic corporation duly organized and

existing by virtue of the laws of the Republic of the Philippines.
Upon a post audit review, the CIR held and ascertained that there was
deficiency value-added and withholding taxes due from petitioner in the
amount of P292,874.16.
Denying that it received a Preliminary Assessment Notice (PAN) and claiming
that it was not accorded due process, Metro Star filed a petition for
review[4] with the CTA. The CTA-Second Division opined that [w]hile there [is] a
disputable presumption that a mailed letter [is] deemed received by the
addressee in the ordinary course of mail, a direct denial of the receipt of mail
shifts the burden upon the party favored by the presumption to prove that the
mailed letter was indeed received by the addressee. [5] It also found that there
was no clear showing that Metro Star actually received the alleged PAN,
dated January 16, 2002. It, accordingly, ruled that the Formal Letter of
Demand dated April 3, 2002, as well as the Warrant of Distraint and/or Levy
dated May 12, 2003 were void, as Metro Star was denied due process.
The Court agrees with the CTA that the CIR failed to discharge its duty and
present any evidence to show that Metro Star indeed received the PAN

dated January 16, 2002. It could have simply presented the registry receipt or
the certification from the postmaster that it mailed the PAN, but failed. Neither
did it offer any explanation on why it failed to comply with the requirement of
service of the PAN. It merely accepted the letter of Metro Stars chairman
dated April 29, 2002, that stated that he had received the FAN dated April 3,
2002, but not the PAN; that he was willing to pay the tax as computed by the
CIR; and that he just wanted to clarify some matters with the hope of
lessening its tax liability.
Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must
first be informed that he is liable for deficiency taxes through the sending of a
PAN. He must be informed of the facts and the law upon which the
assessment is made. The law imposes a substantive, not merely a formal,
requirement.
It is an elementary rule enshrined in the 1987 Constitution that no person
shall be deprived of property without due process of law. [19] In balancing the
scales between the power of the State to tax and its inherent right to
prosecute perceived transgressors of the law on one side, and the
constitutional rights of a citizen to due process of law and the equal protection
of the laws on the other, the scales must tilt in favor of the individual, for a
citizens right is amply protected by the Bill of Rights under the
Constitution. Thus, while taxes are the lifeblood of the government,
the power to tax has its limits, in spite of all its plenitude.

Secondary Purpose of Taxation: non-revenue raising;

Regulation
Holmes dictum (McCulloch vs. Maryland)
Marshall Dictum (Panhandle Oil vs. Mississippi)
Reyes vs. Almanzor (G.R. Nos. L-49839-46)

Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of
land situated in Tondo and Sta. Cruz Districts, City of Manila, which are leased
and entirely occupied as dwelling sites by tenants. Said tenants were paying
monthly rentals not exceeding three hundred pesos (P300.00) in July, 1971.
On July 14, 1971, the National Legislature enacted Republic Act No. 6359
prohibiting for one year from its effectivity, an increase in monthly rentals of
dwelling units or of lands on which another's dwelling is located, where such
rentals do not exceed three hundred pesos (P300.00) a month but allowing an
increase in rent by not more than 10% thereafter.
The said Act also suspended paragraph (1) of Article 1673 of the Civil Code for
two years from its effectivity thereby disallowing the ejectment of lessees
upon the expiration of the usual legal period of lease. On October 12, 1972,
Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the
prohibition to increase monthly rentals below P300.00 and by indefinitely
suspending the aforementioned provision of the Civil Code, excepting leases
with a definite period.
Consequently, the Reyeses, petitioners herein, were precluded from raising
the rentals and from ejecting the tenants.
he revision, as expected, entailed an increase in the corresponding tax rates
prompting petitioners to file a Memorandum of Disagreement with the Board

of Tax Assessment Appeals. They averred that the reassessments made were
"excessive, unwarranted, inequitable, confiscatory and unconstitutional"
considering that the taxes imposed upon them greatly exceeded the annual
income derived from their properties. They argued that the income approach
should have been used in determining the land values instead of the
comparable sales approach which the City Assessor adopted
Petitioners maintain that the "Income Approach" method would have been
more realistic for in disregarding the effect of the restrictions imposed by P.D.
20 on the market value of the properties affected, respondent Assessor of the
City of Manila unlawfully and unjustifiably set increased new assessed values
at levels so high and successive that the resulting annual real estate taxes
would admittedly exceed the sum total of the yearly rentals paid or payable
by the dweller tenants under P.D. 20.

Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of
taxation must not only be uniform, but must also be equitable and
progressive.

Uniformity has been defined as that principle by which all taxable articles or
kinds of property of the same class shall be taxed at the same rate (Churchill
v. Concepcion, 34 Phil. 969 [1916]).

Notably in the 1935 Constitution, there was no mention of the equitable or

progressive aspects of taxation required in the 1973 Charter (Fernando "The
Constitution of the Philippines", p. 221, Second Edition). Thus, the need to
examine closely and determine the specific mandate of the Constitution.

Taxation is said to be equitable when its burden falls on those better able to
pay. Taxation is progressive when its rate goes up depending on the resources
of the person affected (Ibid.).

The power to tax "is an attribute of sovereignty". In fact, it is the strongest of

all the powers of government. But for all its plenitude the power to tax is not
unconfined as there are restrictions. Adversely effecting as it does property
rights, both the due process and equal protection clauses of the Constitution
may properly be invoked to invalidate in appropriate cases a revenue
measure. If it were otherwise, there would be truth to the 1903 dictum of
Chief Justice Marshall that "the power to tax involves the power to destroy."
The web or unreality spun from Marshall's famous dictum was brushed away
by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not the
power to destroy while this Court sits. So it is in the Philippines "

In the same vein, 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
confiscation of property. That would be a clear abuse of power (Sison v.
Ancheta, supra).

The taxing power has the authority to make a reasonable and natural
classification for purposes of taxation but the government's act must not be
prompted by a spirit of hostility, or at the very least discrimination that finds
no support in reason. It suffices then that the laws operate equally and

uniformly on all persons under similar circumstances or that all persons must
be treated in the same manner, the conditions not being different both in the
privileges conferred and the liabilities imposed (Ibid., p. 662).

Scope of Taxation
Pepsi Cola Bottling Philippines Co. vs. Municipality of
Tanauan (G.R. No. L-31156)

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of

the Philippines, Inc., commenced a complaint with preliminary injunction
before the Court of First Instance of Leyte for that court to declare Section 2 of
Republic Act No. 2264. 1 otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as well as to
declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of
Tanauan, Leyte, null and void.

Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on

September 25, 1962, levies and collects "from soft drinks producers and
manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of
soft drink corked." 2 For the purpose of computing the taxes due, the person,
firm, company or corporation producing soft drinks shall submit to the
Municipal Treasurer a monthly report, of the total number of bottles produced
and corked during the month. 3

On the other hand, Municipal Ordinance No. 27, which was approved on
October 28, 1962, levies and collects "on soft drinks produced or
manufactured within the territorial jurisdiction of this municipality a tax of
ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity." 4 For the purpose of computing the taxes due, the person, fun
company, partnership, corporation or plant producing soft drinks shall submit
to the Municipal Treasurer a monthly report of the total number of gallons
produced or manufactured during the month.

The plenary nature of the taxing power thus delegated, contrary to plaintiffappellant's pretense, would not suffice to invalidate the said law as
confiscatory and oppressive. In delegating the authority, the State is not
limited 6 the exact measure of that which is exercised by itself. When it is said
that the taxing power may be delegated to municipalities and the like, it is
meant that there may be delegated such measure of power to impose and
collect taxes as the legislature may deem expedient. Thus, municipalities may
be permitted to tax subjects which for reasons of public policy the State has
not deemed wise to tax for more general purposes. 10 This is not to say though
that the constitutional injunction against deprivation of property without due
process of law may be passed over under the guise of the taxing power,
except when the taking of the property is in the lawful exercise of the taxing
power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of
taxation is observed; (3) either the person or property taxed is within the
jurisdiction of the government levying the tax; and (4) in the assessment and
collection of certain kinds of taxes notice and opportunity for hearing are
provided.

There is no validity to the assertion that the delegated authority can be

declared unconstitutional on the theory of double taxation. It must be
observed that the delegating authority specifies the limitations and
enumerates the taxes over which local taxation may not be exercised. 13 The
reason is that the State has exclusively reserved the same for its own
prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the injunction
against double taxation found in the Constitution of the United States and
some states of the Union. 14 Double taxation becomes obnoxious only where
the taxpayer is taxed twice for the benefit of the same governmental
entity 15 or by the same jurisdiction for the same purpose, 16 but not in a case
where one tax is imposed by the State and the other by the city or
municipality.
The difference between the two ordinances clearly lies in the tax rate of the
soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every
bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon
(128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal
Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended
as a plain substitute for the prior Ordinance No. 23, and operates as a repeal
of the latter, even without words to that effect.
The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity on all softdrinks, produced or manufactured, or an equivalent of 1-
centavos per case, 23 cannot be considered unjust and unfair. 24 an increase
in the tax alone would not support the claim that the tax is oppressive, unjust
and confiscatory. Municipal corporations are allowed much discretion in
determining the reates of imposable taxes. 25 This is in line with the
constutional policy of according the widest possible autonomy to local
governments in matters of local taxation, an aspect that is given expression in
the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so
excessive as to be prohibitive, courts will go slow in writing off an ordinance
as unreasonable. 27 Reluctance should not deter compliance with an
ordinance such as Ordinance No. 27 if the purpose of the law to further
strengthen local autonomy were to be realized.

Tio vs. Videogram Regulatory Board (G.R. No. 75697)

This petition was filed on September 1, 1986 by petitioner on his own behalf
and purportedly on behalf of other videogram operators adversely affected. It
assails the constitutionality of Presidential Decree No. 1987 entitled "An Act
Creating the Videogram Regulatory Board" with broad powers to regulate and
supervise the videogram industry (hereinafter briefly referred to as the
BOARD)

On November 5, 1985, a month after the promulgation of the

abovementioned decree, Presidential Decree No. 1994 amended the National
Internal Revenue Code providing, inter alia:
o

SEC. 134. Video Tapes. There shall be collected on each processed

video-tape cassette, ready for playback, regardless of length, an
annual tax of five pesos; Provided, That locally manufactured or
imported blank video tapes shall be subject to sales tax.

On October 23, 1986, the Greater Manila Theaters Association, Integrated

Movie Producers, Importers and Distributors Association of the Philippines,
and Philippine Motion Pictures Producers Association, hereinafter collectively
referred to as the Intervenors, were permitted by the Court to intervene in the
case, over petitioner's opposition, upon the allegations that intervention was
necessary for the complete protection of their rights and that their "survival
and very existence is threatened by the unregulated proliferation of film
piracy."
Tested by the foregoing criteria, petitioner's contention that the tax provision
of the DECREE is a rider is without merit. That section reads, inter alia:
o 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 acrrue 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.
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 6 it is simply one of the
regulatory and control mechanisms scattered throughout the DECREE.

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. 8 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. 9 In imposing a tax, the legislature acts upon its constituents. This
is, in general, a sufficient security against erroneous and oppressive
taxation. 10

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.