Case Digest: Philippine Health Care Providers, Inc. v. CIR, 600 SCRA 413, G.R. No. 167330, September 18, 2009

Taxation | Basis of Taxation


Facts: 
  • Commissioner of Internal Revenue sent Philippine Health Care Providers, Inc. 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 in the total amount of ₱224,702,641.18.
  • The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax Code.
  • Petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments.
  • Petitioner claims that the assessed DST to date which amounts to ₱376 million is way beyond its net worth of ₱259 million.
Court of Tax Appeals (CTA): Cancelled the DST assessment, ruling PHCPI's agreements are not insurance contracts.

Court of Appeals (CA): Reversed the CTA decision, holding PHCPI's health care agreement was in the nature of a non-life insurance contract subject to DST.

Supreme Court (SC): Affirmed the CA’s decision, holding that petitioner’s health care agreement during the pertinent period was in the nature of non-life insurance which is a contract of indemnity.

Issue: Whether PHCPI's health care agreements with members constitute "other insurance policies" subject to DST under Section 185 of the 1997 National Internal Revenue Code (NIRC). NO

Held:

The Power To Tax Is Not The Power To Destroy

As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who is to pay it. So potent indeed is the power that it was once opined that "the power to tax involves the power to destroy."

Petitioner claims that the assessed DST to date which amounts to ₱376 million is way beyond its net worth of ₱259 million. Respondent never disputed these assertions. 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.  Petitioner, just like any concern organized for a lawful economic activity, has a right to maintain a legitimate business.

 As aptly held in Roxas, et al. v. CTA, et al.:

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

Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring losses because of 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. 


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