PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC. vs.

MUNICIPALITY OF
TANAUAN, LEYTE

FACTS: Pepsi-Cola Bottling Company of the Philippines, Inc., filed a complaint with preliminary injunction
before the Court of First Instance of Leyte to declare Section 2 of R.A. No. 2264, (known as the Local
Autonomy Act) unconstitutional as an undue delegation of the taxing authority and declare null and void
Municipal Ordinance No. 23, which levies and collects from soft drinks producers and manufactures a tax of
1/16 of a centavo for every bottle of soft drinks corked, and Municipal Ordinance No. 27 which levies and
collects on soft drinks produced or manufactured within the territorial jurisdiction a tax of one centavo on each
gallon of volume capacity.

The trial court dismissed the complaint and upheld the constitutionality of Sec. 2 of R.A. No. 2264 and declared
Municipal Ordinances Nos. 27 valid and constitutional. Appealed to the Court of Appeals, the case was certified
to the Supreme Court as involving pure question of law.

The Supreme Court upheld the validity of the delegation to Municipal Corporation or authority to tax and
likewise the validity of Municipal Ordinance No. 27, which repealed Municipal Ordinance No. 23.

ISSUE: Whether there was undue delegation of the taxing authority.

HELD: NO. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of
right to every independent government, without being expressly conferred by the people. It is a power that is
purely legislative and which the central legislative body cannot delegate either to the executive or judicial
department of government without infringing upon the theory of separation of powers. The exception, however,
lies in the case of municipal corporations, to which, said theory does not apply. Legislative powers may be
delegated to local governments in respect of matters of local concern. By necessary implication, the legislative
power to create political corporations for purpose of local self-government carries with it the power to confer on
such local government agencies the power to tax.

The taxing authority conferred on local governments under Section 2, Republic Act No. 2264, is broad enough
as to extend to almost "everything, excepting those which are mentioned therein." As long as the tax levied
under the authority of a city or municipal ordinance is not within the exceptions and limitations in the law, the
same comes within the ambit of the general rule, pursuant to the rules of expresio unius est exclusio alterius,
and exceptio firmat regulum in casibus nonexcepti. Municipalities are empowered to impose not only municipal
license taxes upon persons engaged in any business or occupation but also to levy for public purposes, just and
uniform taxes.
 PEPSI-COLA BOTTLING CO. v. CITY OF BUTUAN

FACTS: The city of Butuan enacted Ordinance no. 110, which was subsequently amended by Ordinance No.
122. Ordinance no. 110 imposes tax upon any agent and/or consignee of any person, association, partnership,
company or corporation engaged in selling soft drinks or carbonated drinks.

Pepsi assails the constitutionality of Or. # 110 on the ground that Sec. 2 of RA 2264, upon the authority of
which it is delegated, is an unconstitutional delegation of legislative powers.

ISSUE: Whether or not there is a valid delegation of legislative powers.

RULING: Yes. The general principle against delegation of powers, in consequence of the theory of separation
of powers, is subject to one well-settled exception, namely, legislative powers may be delegated to local
governments - which said theory does not apply, in respect of matters of local concerns.
 HON. EXEC. SEC V. SOUTHWING HEAVY INDUSTRIES, ET AL., GR NO. 164171

FACTS: On Dec. 12, 2002 Pres. Gloria Macapagal Arroyo issued EO 156 providing for a comprehensive
industrial policy and direction for the motor vehicle development program and its implementing guidelines.
However, sometime in 2004, Southwing, United Auctioneers and Microvan, members of the Subic bay Freeport
enterprises and are engaged in the business of importing or exporting used motor vehicles, sought for the
declaration of unconstitutionality of Article 2 Section 3.1 of EO 156 which prohibits the importation into the
country, inclusive of the Subic Bay Freeport zone, of used motor vehicles subject to a few exceptions such as
those for personal use of returning residents and other special purpose vehicles (fire truck, ambulance etc.).
Southwing, United Auctioneers and Microvan contend that their business would be directly affected by the said
article.

ISSUE: WON the President had the authority to issue EO 156 which banned the importation of used motor
vehicles.

RULING: YES. The SC provided the 4 requisites to determine the validity of an administrative issuance such
as an executive order.

The requisites are as follows:

1. Its promulgation must be authorized by the legislature.
2. It must be promulgated in accordance with the prescribed procedures.
3. It must be promulgated within the scope of authority given by the legislature.
4. It must be reasonable.

The SC ruled that the 1st requisite was satisfied. The President had the authority to issue the EO because the
delegation of legislative power to the President is permitted under Sec. 28 par 2, Art. 6 of the constitution which
reads:

“The Congress may, by law, authorize the President to fix within specified limits and subject to such limitations
and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national development program of the government.”
MACEDA V MACARAIG GR NO 88291, MAY 31, 1991 

FACTS: Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the development of
hydraulic power and the production of power from other sources. RA 358 granted NAPOCOR tax and duty
exemption privileges. RA 6395 revised the charter of the NAPOCOR, tasking it to carry out the policy of the
national electrification and provided in detail NAPOCOR’s tax exceptions. PD 380 specified that NAPOCOR’s
exemption includes all taxes, etc. imposed “directly or indirectly.” PD 938 dated May 27, 1976 further amended
the aforesaid provision by integrating the tax exemption in general terms under one paragraph. 

ISSUE: Whether or not NPC has ceased to enjoy indirect tax and duty exemption with the enactment of PD 938
on May 27, 1976 which amended PD 380 issued on January 11, 1974 

RULING: No, it is still exempt. NAPOCOR is a non-profit public corporation created for the general good and
welfare, and wholly owned by the government of the Republic of the Philippines. From the very beginning of
the corporation’s existence, NAPOCOR enjoyed preferential tax treatment “to enable the corporation to pay the
indebtedness and obligation” and effective implementation of the policy enunciated in Section 1 of RA 6395. 

From the preamble of PD 938, it is evident that the provisions of PD 938 were not intended to be interpreted
liberally so as to enhance the tax exempt status of NAPOCOR. 

It is recognized that the rule on strict interpretation does not apply in the case of exemptions in favor of
government political subdivision or instrumentality. In the case of property owned by the state or a city or other
public corporations, the express exception should not be construed with the same degree of strictness that
applies to exemptions contrary to the policy of the state, since as to such property “exception is the rule and
taxation the exception.” 
 SISON VS ANCHETA 130 SCRA 654

FACTS: Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero M. Sison, as taxpayer, alleges
that "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising
from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual
taxpayers. He characterizes said provision as arbitrary amounting to class legislation, oppressive and capricious
in character. It therefore violates both the equal protection and due process clauses of the Constitution as well as
of the rule requiring uniformity in taxation.

ISSUE:  Whether or not the assailed provision violates the equal protection and due process clauses of the
Constitution while also violating the rule that taxes must be uniform and equitable.

HELD: The petition is without merit.

On due process - it is undoubted that it 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 from abuse of power. Petitioner alleges arbitrariness but his mere allegation does not suffice and there
must be a factual foundation of such unconsitutional taint.

On equal protection - it suffices that the laws operate equally and uniformly on all persons under similar
circumstances, both in the privileges conferred and the liabilities imposed.

On the matter that the rule of taxation shall be uniform and equitable - this requirement is met when the tax
operates with the same force and effect in every place where the subject may be found." Also, the rule of
uniformity does not call for perfect uniformity or perfect equality, because this is hardly unattainable." When
the problem of classification became of issue, the Court said: "Equality and uniformity in taxation means that
all taxable articles or kinds of property of the same class shall be taxed the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation..." As provided by this Court,
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."
 PHILIPPINE HEALTH CARE PROVIDER, INC. V. COMMISSIONER OF INTERNAL REVENUE,
G.R. 167330, 18 SEPTEMBER 2009

FACTS: The Commissioner of Internal Revenue sent petitioner a formal demand letter and the corresponding
assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the
taxable years 1996 and 1997. The assessment included the petitioner’s Value Added Tax (VAT) and
Documentary Stamp Taxes (DST) deficiencies.

Petitioner protested the assessment in a letter. As respondent did not act on the protest, petitioner filed a petition
for review in the Court of Tax Appeals (CTA) seeking the cancellation of the VAT and DST deficiency
assessments.

The CTA partially granted the petition by cancelling the DST deficiency assessment. Respondent appealed to
the Court of Appeals (CA) for the cancellation of the DST deficiency. The CA decided in favor of the
respondent.

The petitioner then appealed the case to the Supreme Court.

ISSUE: Whether or not the DST deficiency assessment is imposable in accordance with the principle that the
power to tax is not the power to destroy.

HELD: As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found only in the
responsibility of the legislature witch imposed the tax on the constituency who is to pay it.

However, petitioner claims that the assessed DST to date amounting to ₱376 million is way beyond its net
worth of ₱259 million. Given the realities on the ground, imposing the DST on petitioner would be highly
oppressive. It is not the purpose of the government to throttle private business. On the contrary, the government
ought to encourage private enterprise.

The power of taxation is sometimes called the power to destroy. Therefore it should be exercised with caution
to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally, and uniformly,
otherwise the tax collector kills the hen that lays the golden egg.

Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring losses
because a tax imposition may be an acceptable consequence but killing the business of an entity is another
matter and should not be allowed. It is counter-productive and ultimately subversive of the nation’s thrust
towards a better economy which will ultimately benefit the majority of our people.
 GOMEZ V. PALOMAR 25 SCRA 827

Topic: Inherent Limitation that the levy must be for public purpose

FACTS: RA 1635 was passed ordering the adding of 5 centavos for a semi-postal stamp for the benefit of the
Philippine Tuberculosis Society for the letters that will be sent from August 19 to September 30 of every year.
The passing of 4 Administrative Orders for its implementation and exemptions followed. On September 15,
1963, Gomez mailed a letter in Pampanga to Agustin Aquino in Manila but without the Anti-TB stamp, hence it
was returned to Gomez. Gomez then filed a case for declaratory relief to test the constitutionality of RA 1635
and the 4 Administrative Orders. One of Gomez' contention is that the levy was not for public purpose since it is
solely for the benefit of the Philippine Tuberculosis Society and not the general public.

ISSUE: W/N the Anti-TB stamp tax was levied for public purpose.

RULING: YES. The Supreme Court ruled that the imposition of the Anti-TB stamp tax is levied for public
purpose despite the fact that it was solely for the benefit of the Philippine Tuberculosis Society since the
eradication of a dreaded disease is actually for public purpose. The reduction of Tuberculosis in the country
would not only benefit those who are suffering from the said disease but also the general public though it may
not be felt by those individuals who are not patients of this contagious disease or not members of the Philippine
Tuberculosis Society.
 SANIDAD VS.COMELEC 733 SCRA 333

FACTS: Petitioner challenges the constitutional premise of Presidential Decree Nos. 991, 1031, and 1033. The
breadth of P.D. No. 991 carries all appropriation of Five Million Pesos, P.D. No. 1031 appropriates the sum of
Eight Million Pesos. All for the conduct the Referendum-Plebiscite.

Petitioners contend that under the 1935 and 1973 Constitutions there is no grant to the incumbent President to
exercise the constituent power to propose amendments to the new Constitution. As a consequence, the
Referendum-Plebiscite on October 16 has no constitutional or legal basis.
The Solicitor General principally maintains that petitioners have no standing to sue.

ISSUE: is the contention of the Sol Gen tenable?

RULING: The SC rule that the petitioners possess locus standi to challenge the constitutional premise of
Presidential Decree Nos. 991, 1031, and 1033. It is now an ancient rule that the valid source of a stature
Presidential Decrees are of such nature-may be contested by one who will sustain a direct injuries as a result of
its enforcement.

At the instance of taxpayers, laws providing for the disbursement of public funds may be enjoined, upon the
theory that the expenditure of public funds by an officer of the State for the purpose of executing an
unconstitutional act constitutes a misapplication of such funds.
 VIVENCIO JUMAMIL v. JOSE CAFÉ et al. (G.R. 144570) 

FACTS: Some stalls of the public market of Panabo, Davao del Norte were destroyed in a fire. Mayor Café
entered into contracts with individuals willing to deposit Php 40,000.00 each to aid in the construction of new
market stalls. Some of these individuals have been friends and relatives of the Mayor and members of the
Sangguniang Bayan of Panabo. Later, the Sangguniang Bayan of Panabo issued Municipal Resolutions No. 7
and 49, and Appropriation Ordinances 111 and 10; which appropriated a total amount of Php 2.2 million for the
construction project of the stalls. After the completion of the project, the stalls were leased through a public
raffle limited to the individuals that Mayor Café contracted with.

Citing his capacity as a taxpayer, Jumamil filed a petition for declaratory relief against the public respondents,
questioning the constitutionality of the ordinances. The RTC and CA declared Jumamil to lack legal standing
because he was not a party to the contract entered into by the Mayor and the individuals and thus have
dismissed the petition.

ISSUE: WON one who has filed a taxpayer’s suit but who is not a party of the subject contract lacks legal
standing to question the constitutionality of tax laws

HELD: No. The petitioner filed the suit citing his capacity as a taxpayer and not in his personal capacity.
Therefore, he does not need to be a party to the subject contract in order to question the constitutionality of tax
laws. However, although he has cited his capacity as a taxpayer, in order for the Court to rule on the issue of
constitutionality, he still needs to specifically prove substantial interest in preventing the illegal expenditure of
money collected by taxation. Having failed to have submitted such proof, the petitioner has no legal standing in
the case.

Although the petitioner has no legal standing, the Court may rule on the issue of constitutionality in matters of
transcendal or of paramount importance to the public. The Court has considered the question of the
constitutionality of tax laws to be of paramount importance to the public allowing such waiver of procedural
rules by using the following determinants:
1) The character of the assets or funds involved;
2) The presence of a clear case of disregard of a constitutional or statutory prohibition by the public
respondent agency or instrumentality of the government; and
3) The lack of any other party with a more direct and specific interest in raising the questions being
raised.
 LIGHT RAIL TRANSIT AUTHORITY VS CENTRAL BOARD OF ASSESSMENT APPEALS
342 SCRA 692 [GR NO. 127316 OCTOBER 12, 2000]

FACTS: The LRTA is a government-owned and controlled corporation created and organized under EO 603,
dated July 12, 1980 primarily responsible for the construction, operation, maintenance and/or lease of light rail
transit system in the Philippines, giving due regard to the reasonable requirements of the public transportation
of the country.

LRTA acquired real properties, constructed structional improvements, such as buildings, carriage ways,
passenger terminal stations and installed various kinds of machinery and equipment and facilities for the
purpose of its operations. LRTA commenced its operations in 1984, in the same year, respondent-appellee city
of assessor of manila assessed the real properties of petitioner consisting of lands, buildings, carriage ways and
passenger terminal stations machinery and equipment which he considered real property under the real property
tax code, to commence with the year 1985. That petitioner paid its real property taxes on all its real property
holdings, except the carriage ways and passenger terminal stations including the land where it constructed on
the ground that the same are not real properties under the real property tax code, and if the same are real
property, these are for public use/purpose, therefore exempt from realty taxation which claim was denied by the
respondent-appellee city assessor of Manila.

ISSUE: Whether or not petitioner’s carriageways and passenger terminal stations are subject to real property
tax.

HELD: Yes. Under real property tax code real property is classified for assessment purpose on the basis of
actual use, which is defined as “the purpose for which the property is principally or predominantly utilized by
the person in possession of the property.”

Though the creation of the LRTA was impelled by public service - to provide mass transportation to alleviate
the traffic and transportation situation in Metro Manila – its operation undeniably partakes ordinary business.
Petitioner is clothed with corporate status and corporate powers in the furtherance of its proprietary objectives.
Indeed, it operates much like any private corporation engaged in the mass transportation industry. Given that it
is engaged in a service-oriented commercial endeavor, its carriageways and terminal stations are patrimonial
property subject to tax, notwithstanding its claim of being a government-owned or controlled corporation.

Unlike public roads which are open for use by everyone, the LRT is accessible only to those who pay the
required fare. It is thus apparent that the petitioner does not exist solely for public service, and that the LRT
carriageways and terminal stations are not exclusively for public use. Although petitioner is a public utility, it is
nonetheless profit-earning. It actually uses those carriageways and terminal stations in its public utility business
and earns money therefrom.

Taxation is the rule and exemption is the exception. Any claim for tax exemption is strictly construed against
the claimant. LRTA has not shown its eligibility for exemption; hence, it is subject to the tax.
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA) VS MARCOS AND CITY
OF CEBU

FACTS: Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic
Act No. 6958, mandated to principally undertake the economical, efficient and effective control, management
and supervision of the Mactan International Airport,Lahug Airport and such other Airports as may be
established in the Province of Cebu. Since the time of its creation, petitioner MCIAA enjoyed the privilege of
exemption from payment of realty taxes in accordance with Section 14 of its Charter.

On October 11, 1994, however, Mr.Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of the City of
Cebu, demanded payment for realty taxes on several parcels of land belonging to the petitioner. Petitioner
objected to such demand for payment as baseless and unjustified, claiming in its favor the aforecited Section 14
of RA 6958 which exempt it from payment of realty taxes. It was also asserted that it is an instrumentality of the
government performing governmental functions, citing section 133 of the Local Government Code of 1991
which puts limitations on the taxing powers of local government units. Respondent City refused to cancel and
set aside petitioner's realty tax account, insisting that the MCIAA is a government-controlled corporation whose
tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the Local Governmental
Code. As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the latter
was compelled to pay its tax account "under protest" and thereafter filed a Petition for Declaratory Relief with
the Regional Trial Court of Cebu. Trial court dismissed the petition. Motion for reconsideration having been
denied by the trial court, the petitioner filed the instant petition.

ISSUE: Whether Mactan Cebu International Airport Authority (MCIAA) is exempted from payment of real
property tax

HELD: No. Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
exemptions from real property taxes granted to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-
owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its charter,
R.A. No. 6958, has been withdrawn.

It may also be relevant to recall that the original reasons for the withdrawal of tax exemption privileges granted
to government-owned and controlled corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, and
there was a need for this entities to share in the requirements of the development, fiscal or otherwise, by paying
the taxes and other charges due from them.

Nevertheless, since taxation is the rule and exemption therefrom is the exception, the exemption may thus be
withdrawn at the pleasure of the taxing authority. Besides, nothing can prevent Congress from decreeing that
even instrumentalities or agencies of the government performing governmental functions may be subject to tax.
Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom.
MANILA INTERNATIONAL AIRPORT AUTHORITY V. CITY OF PASAY G.R. NO. 163072 APRIL
2, 2009

FACTS: Manila International Airport Authority (MIAA) operates and administers the Ninoy Aquino
International Airport (NAIA) Complex under EO 903 or the Revised Charter of the Manila International Airport
Authority. The NAIA Complex is located along the border between Pasay City and Parañaque City. On August
28, 2001, MIAA received Final Notices of Real Property Tax Delinquency from the City of Pasay for the
taxable years 1992 to 2001 amounting to P1,016,213,836.33. The City of Pasay, through its City Treasurer,
issued notices of levy and warrants of levy for the NAIA Pasay properties. Thereafter, the City Mayor of Pasay
threatened to sell at public auction the NAIA Pasay properties if the delinquent real property taxes remain
unpaid. On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition and injunction
with prayer for preliminary injunction or temporary restraining order to enjoin the City of Pasay from imposing
real property taxes on, levying against, and auctioning for public sale the NAIA Pasay properties. The Court of
Appeals dismissed the petition and upheld the power of the City of Pasay to impose and collect realty taxes on
the NAIA Pasay properties. According to the Court of Appeals, Sections 193 and 234 of the Local Government
Code withdrew the exemption from payment of real property taxes granted to natural or juridical persons,
including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under Republic Act No. 6938, non-stock and non-profit hospitals and educational institutions. Since
MIAA is a government-owned corporation, its tax exemption under Section 21 of EO 903 has been withdrawn
upon the effectivity of the Local Government Code. MIAA filed a motion for reconsideration which was
denied.

ISSUE: Whether the NAIA Pasay properties of MIAA are exempt from real property tax.

RULING: Yes. The NAIA Pasay properties of MIAA are exempt from real property tax.

MIAA is not a government-owned or controlled corporation because it is not organized as a stock or non-stock
corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no
stockholders or voting shares. MIAA is also not a non-stock corporation because it has no members. Section 88
of the Corporation Code provides that non-stock corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes.
Rather, MIAA is a government instrumentality vested with corporate powers and performing essential public
services. As a government instrumentality, MIAA is not subject to any kind of tax by local governments under
Section 133(o) of the Local Government Code.

The Airport Lands and Buildings of MIAA are properties devoted to public use and are properties of public
dominion. Properties of public dominion are owned by the State or the Republic.Under Art. 420 of the Civil
Code, the term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether
intended for public use or public service, the Airport Lands and Buildings are properties of public dominion. As
properties of public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt
from real estate tax under Section 234(a) of the Local Government Code.
 CITY OF BAGUIO V. DE LEON 25 SCRA 938

FACTS: An ordinance was declared in the city of Baguio imposing license fee on any person, firm, entity or
corporation doing business in the city, supplied by RA329 which amended the City Charter of Baguio,
empowering it to fix the license fee and to regulate businesses, trades and corporations as may be established or
practiced in the city.

It was further declared that the said amendment added to Baguio’s power to license, the power to tax and the
power to regulate.

As an exercise of such powers, Baguio City held De Leon, a real estate dealer, liable under the ordinance for he
was engaged in rental of his property and deriving income therefrom. Now, De Leon assails the constitutionality
of the ordinance contending that it is ultra vires and in violation of the principle of uniformity and of his
constitutional right, contending further that the implementation of the ordinance would result to double taxation,
thus, depriving him of his properties without due process of law.

ISSUE: Whether or not the ordinance imposing license fee is in violation of due process.

HELD: The Lower Court up to the Supreme Court ruled in the negative stating that RA 329 was enacted to
empower the city council not only to impose license fee but also to levy a tax for the purpose of revenue, thus,
the ordinance cannot be held ultra vires for there is more than an ample statutory authority for its enactment.

And an argument against double taxation may not be invoked if one tax is imposed by the state and the other is
imposed by the city for the congress has already expressed its intention and the statute must be sustained even if
it results to double taxation, therefore, no constitutional rights are violated.
COMMISSIONER OF CUSTOMS V. HYPERMIX FEEDS CORPORATION

FACTS: The Commissioner of Customs issued CMO 27-2003, which for tariff purposes classified wheat
according to the ff:
1. Importer or consignee;
2. Country of origin; and
3. Port of discharge

The regulation provided an exclusive list of corporations, ports of discharge, commodity descriptions and
countries of origin. Depending on these factors, wheat would be classified either as food grade or feed
grade. The corresponding tariff for food grade wheat was three percent while for feed grade wheat was seven
percent.

The respondent, HypermixFeeds Corp was a regular importer of wheat and has made shipments of wheat from
China to Subic. It was not included in the enumeration of flour millers classified as food grade wheat importers.
Since it was not included in such list, Hypermix Feeds alleged that the CMO summarily adjuged it to be a feed
grade supplier subjecting it to 7% tariff when in fact what it imported was food grade wheat. It filed a petition
for declaratory alleging among others that this regulation violated the equal protection clause of the Constitution
because it treated non- flour millers and flour millers differently for no reason at all.

ISSUE: WON CMO 27-2003 violated the equal protection clause of the Constitution.

HELD: CMO is unconstitutional because it violates the equal protection clause.

The equal protection clause means that no person or class of persons shall be deprived of the same protection of
laws enjoyed by other persons or other clauses in the same place in like circumstances. It is not violated if there
is a reasonable classification.

For a classification to be reasonable, it must be shown that:

1. It rests on substantial distinctions;
2. It is germane to the purpose of the law;
3. It is not limited to existing conditions only; and
4. It applies equally to all members of the same class.

CMO 27-2003 does not meet these requirements. The Court does not see how the quality of wheat is affected by
who imports it, where it is discharged, or which country it came from. Even if other millers excluded from
CMO 27-2003 have imported food grade wheat, the product would still be declared as feed grade wheat, a
classification subjecting them to 7% tariff. On the other hand, even if the importers listed under CMO 27-2003
have imported feed grade wheat, they would only be made to pay 3% tariff, thus depriving the state of the taxes
due. The regulation, therefore, does not become disadvantageous to respondent only, but even to the state.
 ABAKADA GURO PARTYLIST VS. HON. CESAR PURISIMA

FACTS: This petition for prohibition seeks to prevent respondents from implementing and enforcing Republic
Act (RA) 9335 (Attrition Act of 2005).

RA 9335 was enacted to optimize the revenue-generation capability and collection of the Bureau of Internal
Revenue (BIR) and the Bureau of Customs (BOC). The law intends to encourage BIR and BOC officials and
employees to exceed their revenue targets by providing a system of rewards and sanctions through the creation
of a Rewards and Incentives Fund (Fund) and a Revenue Performance Evaluation Board (Board). It covers all
officials and employees of the BIR and the BOC with at least six months of service, regardless of employment
status.

The Fund is sourced from the collection of the BIR and the BOC in excess of their revenue targets for the year.
The DOF, DBM, NEDA, BIR, BOC and the Civil Service Commission (CSC) were tasked to promulgate and
issue the implementing rules and regulations of RA 9335.

Petitioners, invoking their right as taxpayers filed this petition challenging the constitutionality of RA 9335, a
tax reform legislation. Petitioners contend that limiting the scope of the system of rewards and incentives only
to officials and employees of the BIR and the BOC violates the constitutional guarantee of equal protection.
They also claim that there is no valid basis for classification or distinction as to why such a system should not
apply to officials and employees of all other government agencies.

The respondents countered that the law validly classifies the BIR and the BOC because the functions they
perform are distinct from those of the other government agencies and instrumentalities.

ISSUE: Whether R.A. 9335 violates the constitutional provision on equal protection.
Whether there is a valid classification.

HELD: Equality guaranteed under the equal protection clause is equality under the same conditions and among
persons similarly situated; it is equality among equals, not similarity of treatment of persons who are classified
based on substantial differences in relation to the object to be accomplished.
“All that is required of a valid classification is that it be reasonable, which means that the
classification should be based on substantial distinctions which make for real differences, that it
must be germane to the purpose of the law; that it must not be limited to existing conditions only;
and that it must apply equally to each member of the class. This Court has held that the standard
is satisfied if the classification or distinction is based on a reasonable foundation or rational basis
and is not palpably arbitrary.”

The equal protection clause recognizes a valid classification, that is, a classification that has a reasonable
foundation or rational basis and not arbitrary. With respect to RA 9335, its expressed public policy is the
optimization of the revenue-generation capability and collection of the BIR and the BOC. Since the subject of
the law is the revenue- generation capability and collection of the BIR and the BOC, the incentives and/or
sanctions provided in the law should logically pertain to the said agencies. Moreover, the law concerns only the
BIR and the BOC because they have the common distinct primary function of generating revenues for the
national government through the collection of taxes, customs duties, fees and charges.

Hence, the classification and treatment accorded to the BIR and the BOC under RA 9335 fully satisfy the
demands of equal protection.
 PUNSALAN VS MUNICIPAL BOARD F MANILA ET AL 95 SCRA 46

FACTS: The ordinance in question, which was approved by the municipal board of the City of Manila on July
25, 1950, imposes a municipal occupation tax on persons exercising various professions in the city and
penalizes non-payment of the tax "by a fine of not more than two hundred pesos or by imprisonment of not
more than six months, or by both such fine and imprisonment in the discretion of the court."

Having already paid their occupation tax under section 201 of the National Internal Revenue Code, plaintiffs,
upon being required to pay the additional tax prescribed in the ordinance, paid the same under protest and then
brought the present suit for the purpose already stated. The lower court upheld the validity of the provision of
law authorizing the enactment of the ordinance but declared the ordinance itself illegal and void on the ground
that the penalty there in provided for non-payment of the tax was not legally authorized. From this decision both
parties appealed to this Court, and the only question they have presented for our determination is whether this
ruling is correct or not, for though the decision is silent on the refund of taxes paid plaintiffs make no
assignment of error on this point.

To begin with defendants' appeal, we find that the lower court was in error in saying that the imposition of the
penalty provided for in the ordinance was without the authority of law.

RULING: Plaintiffs make a distinction that is not found in the ordinance. The ordinance imposes the tax upon
every person "exercising" or "pursuing" — in the City of Manila naturally — any one of the occupations
named, but does not say that such person must have his office in Manila. What constitutes exercise or pursuit of
a profession in the city is a matter of judicial determination.

The argument against double taxation may not be invoked where one tax is imposed by the state and the other is
imposed by the city.

In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance No. 3398 of
the City of Manila illegal and void and affirmed in so far as it holds the validity of the provision of the Manila
charter authorizing it.
 TOLENTINO vs. THE SECRETARY OF FINANCE

FACTS: Herein various petitioners seek to declare RA 7166 as unconstitutional as it seeks to widen the tax
base of the existing VAT system and enhance its administration by amending the National Internal Revenue
Code. The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on
the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of
goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services.

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

With respect to the first contention, it is claimed that the application of the tax to existing contracts of the sale of
real property by installment or on deferred payment basis would result in substantial increases in the monthly
amortizations to be paid because of the 10% VAT. The additional amount, it is pointed out, is something that
the buyer did not anticipate at the time he entered into the contract.

It is next pointed out that while Section 4 of R.A. No. 7716 exempts such transactions as the sale of agricultural
products, food items, petroleum, and medical and veterinary services, it grants no exemption on the sale of real
property which is equally essential. The sale of real property for socialized and low-cost housing is exempted
from the tax, but CREBA claims that real estate transactions of "the less poor," i.e., the middle class, who are
equally homeless, should likewise be exempted.

Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, Section 28(1)
which provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation."

ISSUE: Whether or not RA 7166 violates the principle of progressive system of taxation.

HELD: No, there is no justification for passing upon the claims that the law also violates the rule that taxation
must be progressive and that it denies petitioners' right to due process and that equal protection of the laws. The
reason for this different treatment has been cogently stated by an eminent authority on constitutional law thus:
"When freedom of the mind is imperiled by law, it is freedom that commands a momentum of respect; when
property is imperiled it is the lawmakers' judgment that commands respect. This dual standard may not
precisely reverse the presumption of constitutionality in civil liberties cases, but obviously it does set up a
hierarchy of values within the due process clause."

Petitioners contend that as a result of the uniform 10% VAT, the tax on consumption goods of those who are in
the higher-income bracket, which before were taxed at a rate higher than 10%, has been reduced, while basic
commodities, which before were taxed at rates ranging from 3% to 5%, are now taxed at a higher rate.

Just as vigorously as it is asserted that the law is regressive, the opposite claim is pressed by respondents that in
fact it distributes the tax burden to as many goods and services as possible particularly to those which are within
the reach of higher-income groups, even as the law exempts basic goods and services. It is thus equitable. The
goods and properties subject to the VAT are those used or consumed by higher-income groups. These include
real properties held primarily for sale to customers or held for lease in the ordinary course of business, the right
or privilege to use industrial, commercial or scientific equipment, hotels, restaurants and similar places, tourist
buses, and the like. On the other hand, small business establishments, with annual gross sales of less than
P500,000, are exempted. This, according to respondents, removes from the coverage of the law some 30,000
business establishments. On the other hand, an occasional paper of the Center for Research and Communication
cities a NEDA study that the VAT has minimal impact on inflation and income distribution and that while
additional expenditure for the lowest income class is only P301 or 1.49% a year, that for a family earning
P500,000 a year or more is P8,340 or 2.2%.

Lacking empirical data on which to base any conclusion regarding these arguments, any discussion whether the
VAT is regressive in the sense that it will hit the "poor" and middle-income group in society harder than it will
the "rich," is largely an academic exercise. On the other hand, the CUP's contention that Congress' withdrawal
of exemption of producers cooperatives, marketing cooperatives, and service cooperatives, while maintaining
that granted to electric cooperatives, not only goes against the constitutional policy to promote cooperatives as
instruments of social justice (Art. XII, § 15) but also denies such cooperatives the equal protection of the law is
actually a policy argument. The legislature is not required to adhere to a policy of "all or none" in choosing the
subject of taxation. 44

Nor is the contention of the Chamber of Real Estate and Builders Association (CREBA), petitioner in G.R.
115754, that the VAT will reduce the mark up of its members by as much as 85% to 90% any more concrete. It
is a mere allegation. On the other hand, the claim of the Philippine Press Institute, petitioner in G.R. No.
115544, that the VAT will drive some of its members out of circulation because their profits from
advertisements will not be enough to pay for their tax liability, while purporting to be based on the financial
statements of the newspapers in question, still falls short of the establishment of facts by evidence so necessary
for adjudicating the question whether the tax is oppressive and confiscatory.

Indeed, regressivity is not a negative standard for courts to enforce. What Congress is required by the
Constitution to do is to "evolve a progressive system of taxation." This is a directive to Congress, just like the
directive to it to give priority to the enactment of laws for the enhancement of human dignity and the reduction
of social, economic and political inequalities (Art. XIII, § 1), or for the promotion of the right to "quality
education" (Art. XIV, § 1). These provisions are put in the Constitution as moral incentives to legislation, not as
judicially enforceable rights.

-0-

B. Claims of Regressivity, Denial of Due Process, Equal Protection, and Impairment of Contracts

There is basis for passing upon claims that on its face the statute violates the guarantees of freedom of speech,
press and religion. The possible "chilling effect" which it may have on the essential freedom of the mind and
conscience and the need to assure that the channels of communication are open and operating importunately
demand the exercise of this Court's power of review.

There is, however, no justification for passing upon the claims that the law also violates the rule that taxation
must be progressive and that it denies petitioners' right to due process and that equal protection of the laws. The
reason for this different treatment has been cogently stated by an eminent authority on constitutional law thus:
"[W]hen freedom of the mind is imperiled by law, it is freedom that commands a momentum of respect; when
property is imperiled it is the lawmakers' judgment that commands respect. This dual standard may not
precisely reverse the presumption of constitutionality in civil liberties cases, but obviously it does set up a
hierarchy of values within the due process clause." 

Indeed, the absence of threat of immediate harm makes the need for judicial intervention less evident and
underscores the essential nature of petitioners' attack on the law on the grounds of regressivity, denial of due
process and equal protection and impairment of contracts as a mere academic discussion of the merits of the
law. For the fact is that there have even been no notices of assessments issued to petitioners and no
determinations at the administrative levels of their claims so as to illuminate the actual operation of the law and
enable us to reach sound judgment regarding so fundamental questions as those raised in these suits.
Thus, the broad argument against the VAT is that it is regressive and that it violates the requirement that "The
rule of taxation shall be uniform and equitable [and] Congress shall evolve a progressive system of
taxation." 42Petitioners in G.R. No. 115781 quote from a paper, entitled "VAT Policy Issues: Structure,
Regressivity, Inflation and Exports" by Alan A. Tait of the International Monetary Fund, that "VAT payment by
low-income households will be a higher proportion of their incomes (and expenditures) than payments by
higher-income households. That is, the VAT will be regressive." Petitioners contend that as a result of the
uniform 10% VAT, the tax on consumption goods of those who are in the higher-income bracket, which before
were taxed at a rate higher than 10%, has been reduced, while basic commodities, which before were taxed at
rates ranging from 3% to 5%, are now taxed at a higher rate.

Just as vigorously as it is asserted that the law is regressive, the opposite claim is pressed by respondents that in
fact it distributes the tax burden to as many goods and services as possible particularly to those which are within
the reach of higher-income groups, even as the law exempts basic goods and services. It is thus equitable. The
goods and properties subject to the VAT are those used or consumed by higher-income groups. These include
real properties held primarily for sale to customers or held for lease in the ordinary course of business, the right
or privilege to use industrial, commercial or scientific equipment, hotels, restaurants and similar places, tourist
buses, and the like. On the other hand, small business establishments, with annual gross sales of less than
P500,000, are exempted. This, according to respondents, removes from the coverage of the law some 30,000
business establishments. On the other hand, an occasional paper  of the Center for Research and
Communication cities a NEDA study that the VAT has minimal impact on inflation and income distribution and
that while additional expenditure for the lowest income class is only P301 or 1.49% a year, that for a family
earning P500,000 a year or more is P8,340 or 2.2%.

Lacking empirical data on which to base any conclusion regarding these arguments, any discussion whether the
VAT is regressive in the sense that it will hit the "poor" and middle-income group in society harder than it will
the "rich," as the Cooperative Union of the Philippines (CUP) claims in G.R. No. 115873, is largely an
academic exercise. On the other hand, the CUP's contention that Congress' withdrawal of exemption of
producers cooperatives, marketing cooperatives, and service cooperatives, while maintaining that granted to
electric cooperatives, not only goes against the constitutional policy to promote cooperatives as instruments of
social justice (Art. XII, § 15) but also denies such cooperatives the equal protection of the law is actually a
policy argument. The legislature is not required to adhere to a policy of "all or none" in choosing the subject of
taxation.
Nor is the contention of the Chamber of Real Estate and Builders Association (CREBA), petitioner in G.R.
115754, that the VAT will reduce the mark up of its members by as much as 85% to 90% any more concrete. It
is a mere allegation. On the other hand, the claim of the Philippine Press Institute, petitioner in G.R. No.
115544, that the VAT will drive some of its members out of circulation because their profits from
advertisements will not be enough to pay for their tax liability, while purporting to be based on the financial
statements of the newspapers in question, still falls short of the establishment of facts by evidence so necessary
for adjudicating the question whether the tax is oppressive and confiscatory.

Indeed, regressivity is not a negative standard for courts to enforce. What Congress is required by the
Constitution to do is to "evolve a progressive system of taxation." This is a directive to Congress, just like the
directive to it to give priority to the enactment of laws for the enhancement of human dignity and the reduction
of social, economic and political inequalities (Art. XIII, § 1), or for the promotion of the right to "quality
education" (Art. XIV, § 1). These provisions are put in the Constitution as moral incentives to legislation, not as
judicially enforceable rights.
At all events, our 1988 decision in Kapatiran should have laid to rest the questions now raised against the VAT.
There similar arguments made against the original VAT Law (Executive Order No. 273) were held to be
hypothetical, with no more basis than newspaper articles which this Court found to be "hearsay and [without]
evidentiary value." As Republic Act No. 7716 merely expands the base of the VAT system and its coverage as
provided in the original VAT Law, further debate on the desirability and wisdom of the law should have shifted
to Congress.
Only slightly less abstract but nonetheless hypothetical is the contention of CREBA that the imposition of the
VAT on the sales and leases of real estate by virtue of contracts entered into prior to the effectivity of the law
would violate the constitutional provision that "No law impairing the obligation of contracts shall be passed." It
is enough to say that the parties to a contract cannot, through the exercise of prophetic discernment, fetter the
exercise of the taxing power of the State. For not only are existing laws read into contracts in order to fix
obligations as between parties, but the reservation of essential attributes of sovereign power is also read into
contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment
presupposes the maintenance of a government which retains adequate authority to secure the peace and good
order of society. 

In truth, the Contract Clause has never been thought as a limitation on the exercise of the State's power of
taxation save only where a tax exemption has been granted for a valid consideration. Such is not the case of
PAL in G.R. No. 115852, and we do not understand it to make this claim. Rather, its position, as discussed
above, is that the removal of its tax exemption cannot be made by a general, but only by a specific, law.

The substantive issues raised in some of the cases are presented in abstract, hypothetical form because of the
lack of a concrete record. We accept that this Court does not only adjudicate private cases; that public actions
by "non-Hohfeldian" 48 or ideological plaintiffs are now cognizable provided they meet the standing
requirement of the Constitution; that under Art. VIII, § 1, ¶ 2 the Court has a "special function" of vindicating
constitutional rights. Nonetheless the feeling cannot be escaped that we do not have before us in these cases a
fully developed factual record that alone can impart to our adjudication the impact of actuality 49 to insure that
decision-making is informed and well grounded. Needless to say, we do not have power to render advisory
opinions or even jurisdiction over petitions for declaratory judgment. In effect we are being asked to do what
the Conference Committee is precisely accused of having done in these cases — to sit as a third legislative
chamber to review legislation.

We are told, however, that the power of judicial review is not so much power as it is duty imposed on this Court
by the Constitution and that we would be remiss in the performance of that duty if we decline to look behind the
barriers set by the principle of separation of powers. Art. VIII, § 1, ¶ 2 is cited in support of this view:
Judicial power includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine whether or not there has
been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government.

To view the judicial power of review as a duty is nothing new. Chief Justice Marshall said so in 1803, to justify
the assertion of this power in Marbury v. Madison:
It is emphatically the province and duty of the judicial department to say what the law is. Those
who apply the rule to particular cases must of necessity expound and interpret that rule. If two
laws conflict with each other, the courts must decide on the operation of each. 50

Justice Laurel echoed this justification in 1936 in Angara v. Electoral Commission:

And when the judiciary mediates to allocate constitutional boundaries, it does not assert any
superiority over the other departments; it does not in reality nullify or invalidate an act of the
legislature, but only asserts the solemn and sacred obligation assigned to it by the Constitution to
determine conflicting claims of authority under the Constitution and to establish for the parties in
an actual controversy the rights which that instrument secures and guarantees to them. 51

This conception of the judicial power has been affirmed in several cases 52 of this Court following Angara.
It does not add anything, therefore, to invoke this "duty" to justify this Court's intervention in what is essentially
a case that at best is not ripe for adjudication. That duty must still be performed in the context of a concrete case
or controversy, as Art. VIII, § 5(2) clearly defines our jurisdiction in terms of "cases," and nothing but "cases."
That the other departments of the government may have committed a grave abuse of discretion is not an
independent ground for exercising our power. Disregard of the essential limits imposed by the case and
controversy requirement can in the long run only result in undermining our authority as a court of law. For, as
judges, what we are called upon to render is judgment according to law, not according to what may appear to be
the opinion of the day.
_______________________________
In the preceeding pages we have endeavored to discuss, within limits, the validity of Republic Act No. 7716 in
its formal and substantive aspects as this has been raised in the various cases before us. To sum up, we hold:
(1) That the procedural requirements of the Constitution have been complied with by Congress in the enactment
of the statute;
(2) That judicial inquiry whether the formal requirements for the enactment of statutes — beyond those
prescribed by the Constitution — have been observed is precluded by the principle of separation of powers;
(3) That the law does not abridge freedom of speech, expression or the press, nor interfere with the free exercise
of religion, nor deny to any of the parties the right to an education; and
(4) That, in view of the absence of a factual foundation of record, claims that the law is regressive, oppressive
and confiscatory and that it violates vested rights protected under the Contract Clause are prematurely raised
and do not justify the grant of prospective relief by writ of prohibition.
WHEREFORE, the petitions in these cases are DISMISSED.
Bidin, Quiason, and Kapunan, JJ., concur.
 BRITISH AMERICAN TOBACCO vs JOSE ISIDRO N. CAMACHO

FACTS: This case is a motion for reconsideration for an earlier case the Supreme Court (SC) has decided on
August 20, 2008.The SC, in the previous case, pronounced the constitutionality ofSection 145 of the National
Internal Revenue Code (NIRC) as amended by RA 9334, which became effective on January 1, 1997.

RA 9334 caused the classification of cigarettes into two. Those that have been introduced before January 1,
1997 are considered old brands. Some of these old brands are the respondents in intervention in this case whose
taxes are based on their 1996 net retail price. The cigarettes introduced on or after January 1, 1997 are
considered new brands whose taxes are based on their current net retail prices. Because of this, the petitioner,
whose brand was only introduced in 2001, pays a higher percentage of tax as compared to the old brands.

The law also provided a classification legislative freeze on brands of cigarettes introduced between January 2,
1997 to December 31, 2003, such that said cigarettes shall remain in the classification under which the BIR has
determined them to belong as of December 31, 2003, until revised by Congress.

CONTENTION: The petitioner argues that the classification freeze provision violates the uniformity of
taxation clauses because old brands are taxed based on their 1996 net retail prices while new brands are taxed
based on their present day net retail prices. It asserts that the assailed provisions accord a special or privileged
status to old brands while at the same time discriminate against other brands.

The petitioner argues that the classification freeze provision is a form of regressive and inequitable tax system.
It claims that people in equal positions should be treated alike. The use of different tax bases for old brands and
new brands is discriminatory, and thus, iniquitous. Petitioner further posits that the classification freeze
provision is regressive in character. It asserts that the harmonization of revenue flow projections and ease of tax
administration cannot override this constitutional command.

ISSUES:
1. Whether there is a violation of the uniformity of taxation clauses.
2. Whether RA 9334 is inequitable in character.
3. Whether RA 9334 is regressive in character.

RULING:
1. No. There is no violation of the uniformity of taxation clause.
Tax is uniform when it operates with the same force and effect in every place where the subject of it is found.
The uniformity rule does not prohibit classification for purposes of taxation. As ruled in Tan v. Del Rosario, Jr.:
[9]

Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects
of taxation, similarly situated, are to be treated alike both in privileges and liabilities. Uniformity does not
forfend classification as long as:

(1) the standards that are used therefor are substantial and not arbitrary,
(2) the categorization is germane to achieve the legislative purpose,
(3) the law applies, all things being equal, to both present and future conditions, and
(4) The classification applies equally well to all those belonging to the same class.

2. No, the law is not inequitable in character.

The alleged claim of inequitable taxation is a mere reformulation of the uniformity challenge. Since the four-
fold test is satisfied, the repackaged argument has no merit.

3.Yes, it is regressive.
It may be conceded that the assailed law imposes an excise tax on cigarettes which is a form of indirect tax, and
thus, regressive in character. While there was an attempt to make the imposition of the excise tax more
equitable by creating a four-tiered taxation system where higher priced cigarettes are taxed at a higher rate, still,
every consumer, whether rich or poor, of a cigarette brand within a specific tax bracket pays the same tax rate.
To this extent, the tax does not take into account the persons ability to pay. Nevertheless, this does not mean
that the assailed law may be declared unconstitutional for being regressive in character because the Constitution
does not prohibit the imposition of indirect taxes but merely provides that Congress shall evolve a progressive
system of taxation.

Regressivity is not a negative standard for courts to enforce. What Congress is required by the Constitution to
do is to "evolve a progressive system of taxation." This is a directive to Congress, just like the directive to it to
give priority to the enactment of laws for the enhancement of human dignity . . . These provisions are put in the
Constitution as moral incentives to legislation, not as judicially enforceable rights.
 RCPI VS PROVINCIAL ASSESSOR OF SOUTH COTABATO, ET AL.

FACTS: R.A. No. 2036 of 1957, as amended by R.A. No. 4054, granted RCPI a 50-year franchise. Thus, Sec.
14 of the amended law, in gist, provides that “the grantee shall pay the same taxes as may be required by law.
Said tax shall be in lieu of any and all taxes of any kind, nature or description levied, established or collected by
any authority whatsoever, municipal, provincial or national, from which taxes the grantee is hereby expressly
exempted.” 

On 10 June 1985, the municipal treasurer of Tupi, South Cotabato assessed RCPI real property taxes from 1981
to 1985. The municipal treasurer demanded that RCPI pay P166,810 as real property tax on its radio station
building in Barangay Kablon, as well as on its machinery shed, radio relay station tower and its accessories, and
generating sets based on the tax declarations. 

RCPI protested the assessment before the Local Board of Assessment Appeals (LBAA') and claimed that all its
assessed properties are personal properties and thus exempt from the real property tax. It also pointed out that
its franchise exempts RCPI from 'paying any and all taxes of any kind, nature or description in exchange for its
payment of tax equal to one and one-half per cent on all gross receipts from the business conducted under its
franchise. It further claimed that any deviation from its franchise would violate the non-impairment of contract
clause of the Constitution. The Provincial Assessor of South Cotabato opposed RCPI's claims on all points. 

The Local Board of Assessment Appeals ruled that appellant is ordered to pay the real property taxes, inclusive
of all penalties, surcharges and interest accruing as of the date of actual payment, on the properties covered; in
which the Central Board of Assessment Appeals affirmed. 

The Appellate Court ruled that decision of the Central Board of Assessment Appeals is hereby MODIFIED.
Petitioner is declared exempt from paying the real property taxes assessed upon its machinery and radio
equipment mounted as accessories to its relay tower. The decision assessing taxes upon petitioner's radio station
building, machinery shed, and relay station tower is, however, affirmed. 

ISSUE: Whether the appellate court erred when it excluded RCPI's tower, relay station building, and machinery
shed from tax exemption.

RULING: As found by the appellate court, RCPIs radio relay station tower, radio station building, and
machinery shed are real properties and are thus subject to the real property tax. Section 14 of RA 2036, as
amended by RA 4054, states that [i]n consideration of the franchise and rights hereby granted and any provision
of law to the contrary notwithstanding, the grantee shall pay the same taxes as are now or may hereafter be
required by law from other individuals, co-partnerships, private, public or quasi-public associations,
corporations or joint stock companies, on real estate, buildings and other personal property x xx. The clear
language of Section 14 states that RCPI shall pay the real estate tax.

The “in lieu of all taxes clause” in Section 14 of RA 2036, as amended by RA 4054, cannot exempt RCPI from
the real estate tax because the same Section 14 expressly states that RCPI shall pay the same taxes x xx on real
estate, buildings x xx. The “in lieu of all taxes clause” in the third sentence of Section 14 cannot negate the first
sentence of the same Section 14, which imposes the real estate tax on RCPI. The Court must give effect to both
provisions of the same Section 14. This means that the real estate tax is an exception to the in lieu of all taxes
clause.

The existing legislative policy is clearly against the revival of the in lieu of all taxes clause in franchises of
telecommunications companies. After the VAT on telecommunications companies took effect on January 1,
1996, Congress never again included the in lieu of all taxes clause in any telecommunications franchise it
subsequently approved. Also, from September 2000 to July 2001, all the fourteen telecommunications
franchises approved by Congress uniformly and expressly state that the franchisee shall be subject to all taxes
under the National Internal Revenue Code, except the specific tax.
SMART COMMUNICATIONS, INC. V CITY OF DAVAO

FACTS: Smart filed a special civil action for declaratory relief under Rule 63 of the Rules of Court, for the
ascertainment of its rights and obligations under the Tax Code of the City of Davao, particularly Section 1,
Article 10 thereof, the pertinent portion of which reads:
 
Notwithstanding any exemption granted by any law or other special law, there is hereby imposed
a tax on businesses enjoying a franchise, at a rate of seventy-five percent (75%) of one percent
(1%) of the gross annual receipts for the preceding calendar year based on the income or receipts
realized within the territorial jurisdiction of Davao City.
  
Smart contends that its telecenter in Davao City is exempt from payment of franchise tax to the City, on the
following grounds:
a) the issuance of its franchise under Republic Act (R.A.) No. 7294 subsequent to R.A. No. 7160
shows the clear legislative intent to exempt it from the provisions of R.A. 7160;
b) Section 137 of R.A. No. 7160 can only apply to exemptions already existing at the time of its
affectivity and not to future exemptions;
c) the power of the City of Davao to impose a franchise tax is subject to statutory limitations such
as the in lieu of all taxes clause found in Section 9 of R.A. No. 7294; and
d) the imposition of franchise tax by the City of Davao would amount to a violation of the
constitutional provision against impairment of contracts.
 

ISSUE: W/n SMART is liable for franchise tax

RULING: YES, SMART is liable.

Section 137, in relation to Section 151 of the Local Government Code (RA 7160) allows local governments to
impose franchise taxes, while Section 193 thereof withdrew all tax exemption privileges granted to franchises
prior to its issuance, except local water districts, cooperatives duly registered under RA No. 6938, non-stock
and non-profit hospitals and educational institutions.

Since Smart’s franchise (RA 7294) was granted two months AFTER the issuance of the Local Government
Code, its tax exemption privileges are NOT deemed withdrawn by the Local Government Code.

However, the phrase “in lieu of all taxes” in RA 7294 must be construed in the context of the whole Act
granting the franchise to Smart. Tax statutes, and exemptions granted therein, are construed strictly against the
taxpayer and liberally in favor of the Government.

In this case, the 3% tax on all gross receipts “in lieu of all taxes” provision in RA 7294 was NOT clear whether
it applies to both national and local taxes.

Thus, this provision must be construed strictly against Smart which claims the exemption. Smart has the burden
of proving that, aside from the imposed 3% franchise tax, Congress intended it to be exempt from all kinds of
franchise taxes - whether local or national. However, Smart failed in this regard.

There was also no violation of the non-impairment clause of the Constitution. In fact, aside from the ambiguous
“in lieu of all taxes” phrase in the franchise, it also has an express condition that it is subject to amendment,
alteration, or repeal.
 AMERICAN BIBLE SOCIETY vs CITY OF MANILA

FACTS: On May 29 1953, the acting City Treasurer of the City of Manila informed plaintiff that it was
conducting the business of general merchandise without providing itself with the necessary Mayor's permit and
municipal license, in violation of Ordinance No. 3000, and Ordinances Nos. 2529 and required plaintiff to
secure, within three days, the corresponding permit and license fees, together with compromise covering the
period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the total sum of P5,821.45

ABS protested, but CTM demanded. To avoid closing of its business and further fines, ABS paid the said
amounts.

ABS filed a complaint praying that Ord. 3000 and Ord. 2359 be declared illegal and unconstitutional under Art.
III, Sec. 5.

When the case was set for hearing, ABS tried to establish that it never made any profit from the sale of its bible.
CTM retorts to the admission of a witness that the price for the bibles and other religious pamphlets were a little
bit higher than the usual price, which clearly shows that ABS contention is untentable.

Petition was dismissed. ABS appealed to the CA.

ISSUES:
1. WON Ord. 3000 and 2359 are constitutional and valid.
2. Whether the provisions are applicable or not to be the case at bar.

RULING: It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was
in some instances a little bit higher than the actual cost of the same but this cannot mean that appellant was
engaged in the business or occupation of selling said "merchandise" for profit. For this reason We believe that
the provisions of City of Manila Ordinance No. 2529, cannot be applied to appellant, for in doing so it would
impair its free exercise and enjoyment of its religious profession and worship as well as its rights of
dissemination of religious beliefs.

With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's permit before any
person can engage in any of the businesses, trades or occupations enumerated therein, We do not find that it
imposes any charge upon the enjoyment of a right granted by the Constitution, nor tax the exercise of religious
practices.

It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if applied to
plaintiff Society. But as Ordinance No. 2529 of the City of Manila, as amended, is not applicable to plaintiff-
appellant and defendant-appellee is powerless to license or tax the business of plaintiff Society involved herein
for, as stated before, it would impair plaintiff's right to the free exercise and enjoyment of its religious
profession and worship, as well as its rights of dissemination of religious beliefs, We find that Ordinance No.
3000, as amended is also inapplicable to said business, trade or occupation of the plaintiff.
 TOLENTINO vs. THE SECRETARY OF FINANCE

FACTS: The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as
on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of
goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services.
Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its administration
by amending the National Internal Revenue Code.

Philippine Bible Society (PBS), is a non-profit organization engaged in the printing and distribution of bibles
and other religious articles. Both petitioners claim violations of their rights under § § 4 and 5 of the Bill of
Rights as a result of the enactment of the VAT Law.

ISSUE: Whether or not vat law violates the constitutional provision on religious freedom

RULING: The fee although fixed amount (P1, 000), is not imposed for the exercise of a privilege but only for
the purpose of defraying part of the cost of registration. The registration requirement is a central feature of the
VAT system. It is designed to provide a record of tax credits because any person who is subject to the payment
of the VAT pays an input tax, even as he collects an output tax on sales made or services rendered. The
registration fee is thus a mere administrative fee, one not imposed on the exercise of a privilege, much less a
constitutional right.

For the foregoing reasons, we find the attack on Republic Act No. 7716 on the ground that it offends the free
speech, press and freedom of religion guarantees of the Constitution to be without merit. For the same reasons,
we find the claim of the Philippine Educational Publishers Association (PEPA) in G.R. No. 115931 that the
increase in the price of books and other educational materials as a result of the VAT would violate the
constitutional mandate to the government to give priority to education, science and technology (Art. II, § 17) to
be untenable.
 CIR VS CA & YOUNG MEN’S CHRISTIAN ASS’N OF THE PHILS

FACTS: YMCA is a non-stock, non-profit institution, which conducts various programs & activities that are
beneficial to the public, especially the young people.

YMCA earned an income from leasing out a portion of its premises to small shop owners, and from parking
fees collected from non-members.

The CIR issued an assessment to YMCA including surcharge & interest for deficiency income tax, deficiency
expanded withholding taxes on rentals & professional fees & deficiency withholding tax on wages.

YMCA filed a petition for review at the CTA who decided the case in favor of YMCA.

CTA said that the income derived from the lease & parking fees are reasonably incidental to & necessary for the
accomplishment of the objectives of YMCA.

CIR elevated the case to the CA who affirmed the decision of the CTA, hence this petition.

ISSUE: Whether YMCA, the respondent, is exempt from payment of income tax derived from rentals of real
property.

RULING: The relevant provision of the NIRC applicable to this case is Section 27 which provides that:
The following organizations shall not be taxed in respect to income received by them as such:

g) Civic league or organization not organized for profit but operated exclusively for the promotion of social
welfare;

h) Club organized and operated exclusively for pleasure, recreation, and other non-profitable purposes, no part
of the net income of which inures to the benefit of any private stockholder or member;

But the last paragraph says that:

Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the
foregoing organizations from any of their properties, real or personal, or from any of their activities conducted
for profit, regardless of the disposition made of such income, shall be subject to the tax.

The claimed exemption must expressly be granted in a statute stated in a language too clear to be mistaken.

The exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of the
NIRC which mandates that the income of exempt organizations from any of their properties, real or personal, be
subject to the tax.

The rental income is taxable regardless of where such income is derived, & how it is used or disposed of.

YMCA also invoked Section 28, Article VI of the Constitution which exempts charitable institutions from the
payment not only of property taxes but also of income tax from any source.

The Supreme Court said that 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.
The exemption created by said provision pertained only to property taxes, and indeed YMCA is exempted from
paying property taxes but not of income tax.

Finally, for YMCA to be granted the exemption it claims, it must prove with substantial evidence that
1. It falls under the classification non-stock, non-profit educational institution; and
2. the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational
purposes.
 LUNG CENTER OF THE PHILIPPINES VS. QUEZON CITY

FACTS: Lung Center of the Philippines (LCP) is a non-stock and non-profit corporation established by PD
1823. The LCP building is erected on its own lot located in Quezon City. A big space at the ground floor is
being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners
who use the same as their private clinics for their patients whom they charge for their professional services.
Almost one-half of the entire area on the left side of the building is vacant and idle, while a big portion on the
right side is being leased for commercial purposes to a private enterprise Elliptical Orchids and Garden Center.

LCP accepts paying and non-paying patients. It also renders medical services to out-patients, both paying and
non-paying. Aside from its income from paying patients, the petitioner receives annual subsidies from the
government.

On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes
by the City Assessor of Quezon City. Subsequently, LCP filed before the City Assessor a petition for tax
exemption predicated on its claim that it is a charitable institution, however, the petition was denied. LCP
elevated it to the Local Board of Assessment Appeals of Quezon City (QC-LBAA) alleging that the property is
exempt from real property taxes under the constitution. It averred that a minimum of 60% of its hospital beds
are exclusively used for charity patients and that the major thrust of its hospital operation is to serve charity
patients. The petitioner contends that it is a charitable institution and, as such, is exempt from real property
taxes. The QC-LBAA dismissed the petition.

The QC-LBAA’s decision was, likewise, affirmed on appeal by the Central Board of Assessment Appeals of
Quezon City (CBAA) which ruled that the petitioner was not a charitable institution and that its real properties
were not actually, directly and exclusively used for charitable purposes; hence, it was not entitled to real
property tax exemption under the constitution and the law. The petitioner sought relief from the Court of
Appeals, which rendered judgment affirming the decision of the CBAA. Hence, the petition.

ISSUES:
1. Whether or not LCP is a charitable institution.
2. Is LCP exempted from real property taxes?

RULING:
1. Yes. It is a charitable institution within the context of the 1973 and 1987 Constitutions. Under P.D.
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. 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.

2. No. LCP failed to prove that the entirety of its real property is actually, directly and exclusively used
for charitable purposes. While portions of the hospital are used for the treatment of patients and the
dispensation of medical services to them, whether paying or non-paying, other portions thereof are
being leased to private individuals for their clinics and a canteen. Further, a portion of the land is being
leased to a private individual for her business enterprise under the business name Elliptical Orchids and
Garden Center. Indeed, the petitioners evidence shows that it collected P1, 136,483.45 as rentals in
1991 and P1, 679,999.28 for 1992 from the said lessees.
Those exempted from real estate taxes are lands, buildings and improvements actually, directly and
exclusively used for religious, charitable or educational purposes. It covers property taxes only. 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. 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. 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.

Accordingly, the court ruled 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. ST LUKE'S MEDICAL CENTER

FACTS: St. Luke’s Medical Center, Inc. (St. Luke’s) is a hospital organized as a non-stock and non-profit
corporation. St. Luke’s accepts both paying and non-paying patients. The BIR assessed St. Luke’s deficiency
taxes for 1998 comprised of deficiency income tax, value-added tax, and withholding tax. The BIR claimed that
St. Luke’s should be liable for income tax at a preferential rate of 10% as provided for by Section 27(B).
Further, the BIR claimed that St. Luke’s was actually operating for profit in 1998 because only 13% of its
revenues came from charitable purposes. Moreover, the hospital’s board of trustees, officers and employees
directly benefit from its profits and assets.

On the other hand, St. Luke’s maintained that it is a non-stock and non-profit institution for charitable and
social welfare purposes exempt from income tax under Section 30(E) and (G) of the NIRC. It argued that the
making of profit per se does not destroy its income tax exemption.

ISSUE: The sole issue is whether St. Luke’s is liable for deficiency income tax in 1998 under Section 27(B) of
the NIRC, which imposes a preferential tax rate of 10^ on the income of proprietary non-profit hospitals.

RULING: 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.

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. “Non-profit” 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.

“Non-profit” does not necessarily mean “charitable.” In Collector of Internal Revenue v. Club Filipino Inc. de
Cebu, 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.

The sports club in Club Filipino Inc. de Cebu may be non-profit, but it was not charitable. The Court defined
“charity” in Lung Center of the Philippines v. Quezon City 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 [by] otherwise
lessening the burden of government.” However, despite its being a tax exempt institution, any income such
institution earns from activities conducted for profit is taxable, as expressly provided in the last paragraph of
Sec. 30.

To be a charitable institution, however, an organization must meet the substantive test of charity in Lung
Center. 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.
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.

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.

However, the last paragraph of Section 30 of the NIRC qualifies the words “organized and operated
exclusively” by providing that:

Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the
foregoing organizations from any of their properties, real or personal, or from any of their activities conducted
for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code.

In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution conducts “any”
activity for profit, such activity is not tax exempt even as its not-for-profit activities remain tax exempt.

Thus, 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-for-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 for-profit activities was the ordinary corporate rate under Section 27(A). With the introduction of Section
27(B), the tax rate is now 10%.

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).

St. Luke’s fails to meet the requirements under Section 30(E) and (G) of the NIRC to be completely tax exempt
from all its income. However, it remains a proprietary non-profit hospital under Section 27(B) of the NIRC as
long as it does not distribute any of its profits to its members and such profits are reinvested pursuant to its
corporate purposes. St. Luke’s, as a proprietary non-profit hospital, is entitled to the preferential tax rate of 10%
on its net income from its for-profit activities.
St. Luke’s is therefore liable for deficiency income tax in 1998 under Section 27(B) of the NIRC. However, St.
Luke’s has good reasons to rely on the letter dated 6 June 1990 by the BIR, which opined that St. Luke’s is “a
corporation for purely charitable and social welfare purposes” and thus exempt from income tax.

In Michael J. Lhuillier, Inc. v. Commissioner of Internal Revenue, the Court said that “good faith and honest
belief that one is not subject to tax on the basis of previous interpretation of government agencies tasked to
implement the tax law, are sufficient justification to delete the imposition of surcharges and interest.”

WHEREFORE, St. Luke’s Medical Center, Inc. is ORDERED TO PAY the deficiency income tax in 1998
based on the 10% preferential income tax rate under Section 27(8) of the National Internal Revenue Code.
However, it is not liable for surcharges and interest on such deficiency income tax under Sections 248
and 249 of the National Internal Revenue Code. All other parts of the Decision and Resolution of the
Court of Tax Appeals are AFFIRMED.
 JOHN HAY PEOPLES ALTERNATIVE COALITION vs. LIM

FACTS: On March 13, 1992, Republic Act 7227, otherwise known as Bases Conversion and Development
Authority (BCDA) was enacted. The law converted military bases into alternative use and it also created Subic
Special Economic Land Zone (Subic SEZ) which was granted incentives ranging from tax and duty-free
importations, exemption of business therein from local and national taxes, to other hallmarks of a liberalized
financial and business climate. The law also expressly gave authority to the President to create through
executive proclamation, subject to the concurrence of the local government units directly affected, other SEZs
in the areas covered.

In response to actions of BCDA, Baguio City passed several resolutions;

o On September 23, 1993- Sangguniang Panglungsod of Baguio asked BCDA to exclude all the
barangays partly or totally located within the Camp John Hay from the reach or coverage any
plan or program for its development.
o On January 19, 1994- the Sanggunian sought from BCDA an abdication, waiver or quitclaim of
its ownership over the home lots being occupied by residents of the 9 barangays surrounding the
military reservation.
o On February 21, 1994- the Sanggunian adopted and submitted to BCDA a 15-point concept for
the development of John Hay which affords protection to the environment, making of a family-
oriented type of tourist destination, priority in employment opportunities for Baguio residents,
exclusion of the said 9 barangays, and liability for local taxes of business to be established in the
Camp.

BCDA agreed to some but rejected other proposals.

On July 5, 1994, former president Ramos issued Presidential Proclamation No. 420. In Section 3 of the said
proclamation, it provides that “the zone shall have all the applicable incentives of the SEZ under Section 12, RA
7227 and these applicable incentives granted the Export Processing Zones, the Omnibus Investment Code of
1987, the Foreign Investment Act of 1991, and new investment laws that may hereinafter be enacted.

ISSUE: Whether or not Section 3 (par.2) of Proclamation No. 420 is unconstitutional

HELD: The second paragraph of Section 3 of Proclamation No. 420 is unconstitutional. It is clear that under
Section 12 of R.A. No. 7227 it is only the Subic SEZ which was granted by Congress with tax exemption,
investment incentives and the like. There is no express extension of the aforesaid benefits to other SEZs still to
be created at the time via presidential proclamation.

The deliberations of the Senate confirm the exclusivity to Subic SEZ of the tax and investment privileges
accorded it under the law, as the following exchanges between our lawmakers show during the second reading
of the precursor bill of R.A. No. 7227 with respect to the investment policies that would govern Subic SEZ
which are now embodied in the aforesaid Section 12 thereof.

More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the legislature,
unless limited by a provision of the state constitution that has full power to exempt any person or corporation or
class of property from taxation, its power to exempt being as broad as its power to tax. Other than Congress, the
Constitution may itself provide for specific tax exemptions, or local governments may pass ordinances on
exemption only from local taxes.

The challenged grant of tax exemption would circumvent the Constitutions imposition that a law granting any
tax exemption must have the concurrence of a majority of all the members of Congress. In the same vein, the
other kinds of privileges extended to the John Hay SEZ are by tradition and usage for Congress to legislate
upon.
Contrary to public respondent’s suggestions, the claimed statutory exemption of the John Hay SEZ from
taxation should be manifest and unmistakable from the language of the law on which it is based; it must be
expressly granted in a statute stated in a language too clear to be mistaken. Tax exemption cannot be implied as
it must be categorically and unmistakably expressed.

If it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and incentives given
to the Subic SEZ, it would have so expressly provided in the R.A. No. 7227.