Taxation Law: Case Digest on General Principles

Taxation | Basis of Taxation

Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L-28896, February 17, 1988

• On January 14, 1965, a domestic corporation, Algue Inc,, received a letter assessing delinquency income taxes totaling P83,183.85 for the years 1958 and 1959.
• Algue claimed a deduction of ₱75,000 for "promotional fees" paid to individuals involved in creating a new corporation, Vegetable Oil Investment Corporation (VOIC), and its subsequent purchase of the properties of the Philippine Sugar Estate Development Company.
• The Collector of Internal Revenue disallowed the P75,000.00 deduction claimed by Algue.

Whether the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. NO

We find that the claimed deduction by the private respondent was permitted under the Internal Revenue Code and should therefore not have been disallowed by the petitioner.

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

The Philippine Guaranty Co., Inc. v. Commissioner of Internal Revenue, 13 SCRA 775, G.R. No. L-22074, April 30, 1965

• Philippine Guaranty Co., Inc. entered into reinsurance contracts with foreign insurance companies not doing business in the Philippines.
• The Commissioner of Internal Revenue assessed against Philippine Guaranty Co., Inc. withholding tax on the ceded reinsurance premiums for the years 1953 and 1954.

Whether reliance in good faith on the rulings of the Commissioner of Internal Revenue requiring no withholding of the tax due on the reinsurance premiums in question relieved it of the duty to pay the corresponding withholding tax thereon. NO

Petitioner would wish to stress that its reliance in good faith on the rulings of the Commissioner of Internal Revenue requiring no withholding of the tax due on the reinsurance premiums in question relieved it of the duty to pay the corresponding withholding tax thereon. This defense of petitioner may free if from the payment of surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not exculpate if from liability to pay such withholding tax. The Government is not estopped from collecting taxes by the mistakes or errors of its agents.

Commissioner of Internal Revenue v. Bank of the Philippine Islands, 521 SCRA 373, G.R. No. 134062, April 17, 2007

• The Commissioner of Internal Revenue (CIR) assessed Bank of the Philippine Islands (BPI)  deficiency percentage and documentary stamp taxes for the year 1986 in the total amount of ₱129,488,656.63.
• Initial notices (October 28, 1988) lacked details about the basis for the assessments.
• BPI contested the assessments, arguing the notices were invalid.
• On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating the basis of assessments and constituting the final decision.
• BPI filed a petition for review in the Court of Tax Appeals

Whether the BPI was liable for the said taxes. YES

We cannot absolve BPI of its liability under the subject tax assessments.

We realize that these assessments (which have been pending for almost 20 years) involve a considerable amount of money. Be that as it may, we cannot legally presume the existence of something which was never there. The state will be deprived of the taxes validly due it and the public will suffer if taxpayers will not be held liable for the proper taxes assessed against them.

Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.

Lorenzo v. Posadas, 64 Phil 353, G.R. No. L-43082, June 18, 1937 

• On October 4, 1932, Pablo Lorenzo, as trustee of Thomas Hanley's estate, filed an action against Juan Posadas, Jr., the Collector of Internal Revenue.
• During Lorenzo's tenure, the Collector of Internal Revenue assessed an inheritance tax of P2,052.74 on Hanley's estate, which Lorenzo paid under protest on September 15, 1932.
• Lorenzo sought a refund of P2,052.74, along with 6% interest from September 15, 1932.
• Posadas, Jr. countered with a claim for P1,191.27 interest on the tax, not included in the original assessment.

When does the inheritance tax accrue and when must it be satisfied? 

The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance, devise, or bequest." The tax therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by his death. 

It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death.

Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of the date. The tax should have been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924.

Republic v. Patanao, G.R. No. L-22356, July 21, 1967

• The Republic of the Philippines filed a complaint against Pedro B. Patanao, alleging that the defendant failed to file income taxes for the years 1951, 1953 and 1954 and additional residence taxes for 1951 and 1952.
• The CFI-Agusan ruled that the action was barred by prior judgment based on the defendant's acquittal in criminal cases related to non-filing of income tax returns and non-payment of income taxes.

Whether the action for the collection of deficiency income taxes and additional residence taxes is barred by prior judgment. NO

Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in business, and not because of any criminal act committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. 

Considering that the Government cannot seek satisfaction of the taxpayer's civil liability in a criminal proceeding under the tax law or, otherwise stated, since the said civil liability is not deemed included in the criminal action, acquittal of the taxpayer in the criminal proceeding does not necessarily entail exoneration from his liability to pay the taxes.

It is error to hold, as the lower court has held, that the judgment in the criminal cases Nos. 2089 and 2090 bars the action in the present case. The acquittal in the said criminal cases cannot operate to discharge defendant appellee from the duty of paying the taxes which the law requires to be paid, since that duty is imposed by statute prior to and independently of any attempts by the taxpayer to evade payment. Said obligation is not a consequence of the felonious acts charged in the criminal proceeding, nor is it a mere civil liability arising from crime that could be wiped out by the judicial declaration of non-existence of the criminal acts charged. 

Taxation | Aspects, Processes, Phases of Taxation

Lutz v. Araneta, 98 Phil. 148, G.R. No. L-7859, December 22, 1955

• Commonwealth Act No. 567 (Sugar Adjustment Act) was promulgated in 1940, due to the threat to industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffie Act, and the “eventual loss of its preferential position in the United States market.” 
• Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jaym Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under section 3 of the Commonwealth Act No. 567, for the crop years 1948–1949.

Whether the Commonwealth Act No. 567 is unconstitutional. NO

Held:

That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.." 

From the point of view we have taken it appears of no moment that the funds raised under the Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being protected. It may be that other industries are also in need of similar protection; that the legislature is not required by the Constitution to adhere to a policy of "all or none."  

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

• 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.

Issue: Whether PHCPI's health care agreement was a contract of insurance subject to DST. NO

Held:

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.

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. 

Sison v. Ancheta, et al., 130 SCRA 654, G.R. No. L-59431, July 25, 1984

• Antero M. Sison, Jr., a taxpayer, challenges Batas Pambansa Blg. 135, which imposes higher income tax rates on individuals deriving income from businesses or professions ("taxable net income") compared to those earning fixed income or salaries ("taxable compensation income").

Issue: Whether Batas Pambansa Blg. 135 is unconstitutional. NO

Held:

The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. To paraphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain availability is of the essence. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of of government." It is, of course, to be admitted that for all its plenitude the power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits. 

The Constitution as the fundamental law overrides any legislative or executive, act that runs counter to it. In any case therefore where it can be demonstrated that the challenged statutory provision — as petitioner here alleges — fails to abide by its command, then this Court must so declare and adjudge it null. 

Nothing can be clearer, therefore, than that the petition is without merit, considering the:

1. lack of factual foundation to show the arbitrary character of the assailed provision; 
2. the force of controlling doctrines on due process, equal protection, and uniformity in taxation and
3. the reasonableness of the distinction between compensation and taxable net income of professionals and businessman certainly not a suspect classification.

Taxation | Purposes of Taxation

CIR v. Central Luzon Drug Corporation, 456 SCRA 414, G.R. No. 159647, April 15, 2005

• In 1996, Central Luzon Drug Corporation, operated six drugstores under the name "Mercury Drug"
• In compliance with Republic Act No. 7432, respondent granted a 20% sales discount to qualified senior citizens on their medicine purchases totaling ₱904,769.00.
• Respondent filed its Annual Income Tax Return for 1996, declaring net losses.
• Respondent filed a claim for tax refund/credit for the amount granted as sales discount to senior citizens.

Whether respondent, despite incurring a net loss, may still claim the 20 percent sales discount as a tax credit. YES

Held:

Tax Credit Benefit Deemed Just Compensation

Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of eminent domain. Be it stressed that the privilege enjoyed by senior citizens does not come directly from the State, but rather from the private establishments concerned. Accordingly, the tax credit benefit granted to these establishments can be deemed as their just compensation for private property taken by the State for public use.

The concept of public use is no longer confined to the traditional notion of use by the public, but held synonymous with public interest, public benefit, public welfare, and public convenience. The permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private property for public use or benefit.

Besides, the taxation power can also be used as an implement for the exercise of the power of eminent domain. Tax measures are but "enforced contributions exacted on pain of penal sanctions" and "clearly imposed for a public purpose." In recent years, the power to tax has indeed become a most effective tool to realize social justice, public welfare, and the equitable distribution of wealth.

Tio v. Videogram Regulatory Board, 151 SCRA 208, G.R. No. L-75697, June 18, 1987

• Valentine Tio, doing business under the name and style of OMI Enterprises, filed a petition assailing the constitutionality of Presidential Decree No. 1987 establishing the Videogram Regulatory Board (VRB) to regulate and supervise the videogram industry.
• The decree imposed a 30% tax on the sale, lease, or disposition of videograms.

Whether the tax imposed is unconstitutional. NO

The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. 

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes.

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation".  Taxation has been made the implement of the state's police power.

PAL v. Edu, G.R. No. L-41383, August 15, 1988

Facts: 

• Philippine Airlines, Inc. has a franchise exempting it from "all taxes of any kind" except a 2% gross revenue tax. Since 1956, PAL hasn't paid motor vehicle registration fees.
• In 1971, Land Transportation Commissioner Romeo F. Elevate issued a regulation, requiring tax-exempt entities like PAL to pay motor vehicle registration fees.
• PAL protested but was denied vehicle registration unless fees were paid.
• PAL paid P19,529.75 under protest as registration fees.
• PAL demanded a refund.

Whether motor vehicle registration fees are taxes or regulatory fees. 

Taxation may be made the implement of the state's police power.

If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees.

It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to the imposition on the registration, operation or ownership of a motor vehicle as a "tax or fee. Congress found the registration of vehicles a very convenient way of raising much needed revenues. Without changing the earlier deputy of registration payments as "fees," their nature has become that of "taxes."

In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional revenues. of government even if one fifth or less of the amount collected is set aside for the operating expenses of the agency administering the program.

Caltex Philippines, Inc. v. COA, 208 SCRA 726, G.R. No. 92585, May 8, 1992

• The Oil Price Stabilization Fund (OPSF) was created to reimburse oil companies for cost increases due to exchange rate adjustments and world market price increases.
• Caltex Philippines, Inc. (CPI). claimed reimbursements from the OPSF.
• The Commission on Audit (COA) directed Caltex to remit its collection to the OPSF.
• Pending such remittance, all of its claims for reimbursement from the OPSF shall be held in abeyance. 
• The grant total of its unremitted collections of the above tax is P1,287,668,820.
• COA prohibited Caltex from further offsetting remittances and reimbursements for the current and ensuing years. 

1. Whether the amounts due from Caltex to the OPSF may be offset against Caltex’s outstanding claims from said funds. NO
2. Whether the OPSF contributions are not for a public purpose because they go to a special fund of the government. NO

Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the state.  There can be no doubt that the oil industry is greatly imbued with public interest as it vitally affects the general welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the people and cause economic crisis of untold proportions. It would have a chain reaction in terms of, among others, demands for wage increases and upward spiralling of the cost of basic commodities. The stabilization then of oil prices is of prime concern which the state, via its police power, may properly address.

It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government.  Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. 

We may even further state that technically, in respect to the taxes for the OPSF, the oil companies merely act as agents for the Government in the latter's collection since the taxes are, in reality, passed unto the end-users –– the consuming public.

Manila Race Horse Trainers Association, Inc. v. De La Fuente, 88 Phil. 60, G.R. No. L-2947, January 11, 1951

• Manila Race Horses Trainers Association, Inc. filed for declaratory relief alleging that their rights as owners of boarding stables for race horses were affected by Ordinance No. 3065 of the City of Manila approved on July 1, 1947.
• SECTION 1. License. — No person shall own, keep, maintain, or conduct any boarding stable, or place where race horse are kept, fed, or boarded for others, for compensation or hire, and/or for race horse stable privately owned not for hire, without first having obtained a permit from the Mayor and license therefor from the City Treasurer
• They made the Mayor of Manila, Manuel de la Fuente, defendant and prayed that said ordinance be declared invalid as violative of the Philippine Constitution.

Whether Ordinance No. 3065 of the City of Manila, which imposes a license fee on boarding stables for race horses, in question is unconstitutional. NO

From the viewpoint of economics and public policy the taxing of boarding stables for race horses to the exclusion of boarding stables for horses dedicated to other purposes is not indefensible. The owners of boarding stables for race horses and, for that matter, the race horse owners themselves, who in the scheme of shifting may carry the taxation burden, are a class by themselves and appropriately taxed where owners of other kinds of horses are taxed less or not at all, considering that equity in taxation is generally conceived in terms of ability to pay in relation to the benefits received by the taxpayer and by the public from the business or property taxed. Race horses are devoted to gambling if legalized, their owners derive fat income and the public hardly any profit from horse racing, and this business demands relatively heavy police supervision. Taking everything into account, the differentiation against which the plaintiffs complain conforms to the practical dictates of justice and equity and is not discrimatory within the meaning of the Constitution.

CIR v. Seagate Technology (Philippines), G.R. No. 153866, February 11, 2005

• Seagate Technology is registered with the Philippine Export Zone Authority (PEZA) under Presidential Decree No. 66, as amended, to engage in the manufacture of recording components primarily used in computers for export. 
• Also a VAT-registered entity, it filed VAT returns for the period 1 April 1998 to 30 June 1999. 
• On 4 October 1999, it filed an administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 representing the value of the taxes of the capital goods and services it had purchased. 

Whether  respondent is entitled to the refund or issuance of Tax Credit Certificate in the amount of P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the period April 1, 1998 to June 30, 1999. YES

Respondent, a VAT-registered enterprise, has complied with all requisites for claiming a tax refund of or credit for the input VAT it paid on capital goods it purchased. Thus, the Court of Tax Appeals and the Court of Appeals did not err in ruling that it is entitled to such refund or credit.

Special laws expressly grant preferential tax treatment to business establishments registered and operating within an ecozone, which by law is considered as a separate customs territory. As such, respondent is exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto. It has opted for the income tax holiday regime, instead of the 5 percent preferential tax regime. 

As a matter of law and procedure, its registration status entitling it to such tax holiday can no longer be questioned. Its sales transactions intended for export may not be exempt, but like its purchase transactions, they are zero-rated.

No prior application for the effective zero rating of its transactions is necessary. Being VAT-registered and having satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input VAT paid on capital goods purchased, respondent is entitled to such VAT refund or credit.

Taxation | Principles of a Sound Tax System

Chavez v. Ongpin, G.R. No. 76778, June 6, 1990

• Francisco I. Chavez, a taxpayer and an owner of three parcels of land, filed a petition alleging that Executive Order No. 73 accelerated the application of the general revision of assessments to January 1, 1987 thereby mandating an excessive increase in real property taxes by 100% to 400% on improvements, and up to 100% on land.
• Chavez argues further that the unreasonable increase in real property taxes brought about by Executive Order No. 73 amounts to a confiscation of property repugnant to the constitutional guarantee of due process, invoking the cases of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No. L-24693, July 31, 1967, 20 SCRA 849) and Sison v. Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130 SCRA 654).

Whether Executive Order No. 73 is unconstitutional. NO

The due process requirement applies to the "power to tax." Executive Order No. 73 does not impose new taxes nor increase taxes.

 Without Executive Order No. 73, the basis for collection of real property taxes win still be the 1978 revision of property values. Certainly, to continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations.

Diaz v. Secretary of Finance, 654 SCRA 96, G.R. No. 193007, July 19, 2011

Facts: 

• Renato V. Diaz and Aurora Ma. F. Timbol filed a petition assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators.
• Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "user’s tax," not a sale of services; that to impose VAT on toll fees would amount to a tax on public service; and that, since VAT was never factored into the formula for computing toll fees, its imposition would violate the non-impairment clause of the constitution.

1. Whether toll fees collected by tollway operators be subjected to value-added tax. YES
2. Whether VAT on tollway operations is not administratively feasible. NO

Fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership.

VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a "user’s tax." VAT is assessed against the tollway operator’s gross receipts and not necessarily on the toll fees. 

Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system should be capable of being effectively administered and enforced with the least inconvenience to the taxpayer. Non-observance of the canon, however, will not render a tax imposition invalid "except to the extent that specific constitutional or statutory limitations are impaired." Thus, even if the imposition of VAT on tollway operations may seem burdensome to implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or the Constitution.

Taxation | Taxation Distinguished from Other Inherent Powers and Impositions

Velasco v. Villegas, 120 SCRA 568, G.R. No. L-24153, February 14, 1983

• City of Manila Ordinance No. 4964 prohibits any operator of any barber shop to conduct the business of massaging customers or other persons in any adjacent room or rooms of said barber shop, or in any room or rooms within the same building where the barber shop is located as long as the operator of the barber shop and the room where massaging is conducted is the same person.
• The lower court dismissed a suit for declaratory relief challenging the constitutionality of Ordinance No. 4964 as it amounts to a deprivation of property of petitioners-appellants of their means of livelihood without due process of law.

Whether Ordinance No. 4964 is unconstitutional as it amounts to a deprivation of property of petitioners-appellants of their means of livelihood without due process of law. NO

As pointed out in the brief of respondents-appellees, it is a police power measure.

This Court has been most liberal in sustaining ordinances based on the general welfare clause. 

As far back as U.S. v. Salaveria, 4 a 1918 decision, this Court through Justice Malcolm made clear the significance and scope of such a clause, which "delegates in statutory form the police power to a municipality. 

As above stated, this clause has been given wide application by municipal authorities and has in its relation to the particular circumstances of the case been liberally construed by the courts. Such, it is well to really is the progressive view of Philippine jurisprudence. As it was then, so it has continued to be. There is no showing, therefore, of the unconstitutionality of such ordinance.

Betoy v. National Power Corporation, G.R. Nos. 156556-57, October 4, 2011

• Electric Power Industry Reform Act of 2001 (EPIRA) was enacted by Congress with the goal of restructuring the electric power industry and privatization of the assets of the National Power Corporation (NPC).
• EPIRA established a new National Power Board of Directors (NPB).
• The NPB passed a resolution stating that all NPC personnel would be legally terminated and entitled to separation benefits.
• Petitioner Enrique U. Betoy together with thousands of his co-employees from the NPC were terminated.

Whether Section 34 of RA 9136 (EPIRA) is unconstitutional for being exorbitant display of State Power and was not premised on the welfare of the FILIPINO PEOPLE or principle of salus populi est suprema lex. NO

Held:

In Gerochi, this Court ruled that the Universal Charge is not a tax but an exaction in the exercise of the State's police power. The Universal Charge is imposed to ensure the viability of the country's electric power industry.

Petitioner argues that the imposition of a universal charge to address the stranded debts and contract made by the government through the NCC-IPP contracts or Power Utility-IPP contracts or simply the bilateral agreements or contracts is an added burden to the electricity-consuming public on their monthly power bills. It would mean that the electricity-consuming public will suffer in carrying this burden for the errors committed by those in power who runs the affairs of the State. This is an exorbitant display of State Power at the expense of its people. 

It is basic that the determination of whether or not a tax is excessive oppressive or confiscatory is an issue which essentially involves a question of fact and, thus, this Court is precluded from reviewing the same.

Victorias Milling Co., Inc. v. Mun. of Victorias, Negros Occidental, 25 SCRA 192, G.R. No. L-21183, September 27, 1968 

• Ordinance No. 1, series of 1956, of the Municipality of Victorias, Negros Occidental amended two previous ordinances regarding license taxes on operators of sugar centrals and sugar refineries, increasing rates and expanding the range of output capacity.
• It was enacted pursuant to the taxing power granted by Commonwealth Act 472.
• Plaintiff Victorias Milling Co., Inc. filed a suit arguing that the ordinance exceeded amounts fixed in Provincial Circular 12-A, was discriminatory, constituted double taxation, and the national government preempted taxation in this field.

Whether Ordinance No. 1, series of 1956, of the Municipality of Victorias, Negros Occidental is valid. YES

The ordinance is for raising money. To say otherwise is to misread the purpose of the ordinance.

We should not hang so heavy a meaning on the use of the term "municipal license tax". This does not necessarily connote the idea that the tax is imposed — as the lower court would want it — to mean a revenue measure in the guise of a license tax. For really, this runs counter to the declared purpose to make money.

Besides, the term "license tax" has not acquired a fixed meaning. It is often "used indiscriminately to designate impositions exacted for the exercise of various privileges."  It does not refer solely to a license for regulation. In many instances, it refers to "revenue-raising exactions on privileges or activities." On the other hand, license fees are commonly called taxes. But, legally speaking, the latter are "for the purpose of raising revenues," in contrast to the former which are imposed "in the exercise of police power for purposes of regulation."         

We accordingly say that the designation given by the municipal authorities does not decide whether the imposition is properly a license tax or a license fee. The determining factors are the purpose and effect of the imposition as may be apparent from the provisions of the ordinance. 

We, accordingly, rule that Ordinance No. 1, series of 1956, of the Municipality of Victorias, was promulgated not in the exercise of the municipality's regulatory power but as a revenue measure — a tax on occupation or business. 

Progressive Development v. Quezon City, G.R. No. L-36081, April 24, 1989

• Quezon City enacted Ordinance No. 7997 imposing a supervision fee of 10% of gross receipts from stall rentals in privately-owned public markets.
• Ordinance No. 9236 amended this, imposing a 5% tax on gross receipts from stall rentals in privately-owned public markets.
• Progressive Development Corporation, operator of the Farmers Market & Shopping Center, filed a Petition for Prohibition against this tax on the ground that the supervision fee or license tax imposed by the above-mentioned ordinances is in reality a tax on income which respondent may not impose, the same being expressly prohibited by Republic Act No. 2264, as amended.

Whether the tax imposed by respondent on gross receipts of stall rentals is properly characterized as partaking of the nature of a license fee. YES

The term "tax" frequently applies to all kinds of exactions of monies which become public funds. It is often loosely used to include levies for revenue as well as levies for regulatory purposes such that license fees are frequently called taxes although license fee is a legal concept distinguishable from tax: the former is imposed in the exercise of police power primarily for purposes of regulation, while the latter is imposed under the taxing power primarily for purposes of raising revenues. Thus, if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax.  

To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well.  When an activity, occupation or profession is of such a character that inspection or supervision by public officials is reasonably necessary for the safeguarding and furtherance of public health, morals and safety, or the general welfare, the legislature may provide that such inspection or supervision or other form of regulation shall be carried out at the expense of the persons engaged in such occupation or performing such activity, and that no one shall engage in the occupation or carry out the activity until a fee or charge sufficient to cover the cost of the inspection or supervision has been paid. Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather than an exercise of the police power.  

We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236 constitutes, not a tax on income, not a city income tax (as distinguished from the national income tax imposed by the National Internal Revenue Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of the business in which the petitioner is engaged.

Planters Products, Inc. v. Fertiphil Corporation, G.R. No. 166006, March 14, 2008

• Planters Products, Inc. and private respondent Fertiphil Corporation are both engaged in the importation and distribution of fertilizers, pesticides and agricultural chemicals.
• President Ferdinand Marcos issued LOI No. 1465 on June 3, 1985, imposing a capital recovery component (CRC) on domestic fertilizer sales to support PPI's viability.
• Pursuant to the LOI, Fertiphil paid ₱10 per bag of fertilizer sold domestically to Fertilizer Pesticide Authorit (FPA), totaling ₱6,689,144 from July 1985 to January 1986.
• After the 1986 Edsa Revolution, FPA stopped the levy imposition voluntarily.
• Fertiphil demanded a refund from PPI, which refused.
• FPA argued that LOI No. 1465 was a valid exercise of state police power to stabilize the fertilizer industry, and the burden fell on consumers, not sellers.

Whether the issuance of LOI No. 1465 was unconstitutional. YES

The ₱10 levy under LOI No. 1465 is an exercise of the power of taxation.

Police power and the power of taxation are inherent powers of the State. These powers are distinct and have different tests for validity. Police power is the power of the State to enact legislation that may interfere with personal liberty or property in order to promote the general welfare, while the power of taxation is the power to levy taxes to be used for public purpose. The main purpose of police power is the regulation of a behavior or conduct, while taxation is revenue generation. The "lawful subjects" and "lawful means" tests are used to determine the validity of a law enacted under the police power. The power of taxation, on the other hand, is circumscribed by inherent and constitutional limitations.

We agree with the RTC that the imposition of the levy was an exercise by the State of its taxation power. While it is true that the power of taxation can be used as an implement of police power,  the primary purpose of the levy is revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. 

Taxes are exacted only for a public purpose. The ₱10 levy is unconstitutional because it was not for a public purpose. The levy was imposed to give undue benefit to PPI. When a tax law is only a mask to exact funds from the public when its true intent is to give undue benefit and advantage to a private enterprise, that law will not satisfy the requirement of "public purpose."

Republic v. Ericta, 172 SCRA 623, G.R. No. L-35238, April 21, 1989 

• The Philippine Government issued "back pay certificates" after the Pacific War, pursuant to Republic Act No. 304 and Republic Act No. 800, recognizing the right of individuals employed in the civil service and government-owned corporations, as well as those who served in resistance governments during the war, to receive unpaid salaries and wages.
• Sampaguita Pictures, Inc. incurred tax obligations amounting to P10,268.41 to the Philippine government for percentage, withholding, and amusement taxes.
• In 1961, Sampaguita tendered 16 back pay negotiable certificates of indebtedness, amounting to P16,763.60 in satisfaction of its tax obligations.
• The Bureau of Internal Revenue (BIR) deemed the acceptance of these certificates as payment for taxes invalid, because actually said certificates were not acceptable as payments of internal revenue taxes, requesting cash payment instead.

Whether Sampaguita's tender of back pay certificates constituted payment for tax obligations, and whether the Republic's obligation to redeem the certificates had already expired. NO

The Trial Court ruled that the taxes sought to be collected by the Republic from Sampaguita were still unpaid, its tender of the certificates of indebtedness in question not constituting payment; hence, it ought properly to be sentenced to pay the taxes. It also ruled that even assuming the contrary, legal compensation as a mode of extinguishing an obligation to pay taxes was nonetheless unavailing against the government

Sampaguita was entitled to a judgment against the Republic for the payment of the face value of the certificates, the same having already been presented and surrendered within the said period of ten years (on June 9, 1961) to the Treasurer of the Philippines (thru the Municipal Treasurer of Bocaue, Bulacan ). There can be no question that after the lapse of ten (10) years from the declared date of redeemability, payment of the indebtedness was already exigible The Trial Court was saying in effect that while judgment should be rendered in favor of the Republic against Sampaguita for unpaid taxes in the amount of P10,268.41, judgment ought at the same time to issue for Sampaguita commanding payment to it by the Republic of the same sum, representing the face value of the certificates of indebtedness assigned to it and for recovery of which it had specifically prayed in its counterclaim.

It would be absurd and unfair to sanction the theory subsumed in the Republic's petition that its obligation was not demandable within ten years because of inexactitude yet became time-barred upon the lapse of that self-same period.

CIR v. ESSO Standard Eastern, Inc., 172 SCRA 364, G.R. Nos. L-28502-03, April 18, 1989

• In 1959, ESSO Standard Eastern, Inc. overpaid its income tax by P221,033.00 and was granted a tax credit for this amount by the Commissioner on August 5, 1964.
• However, Esso's payment of its income tax for 1960 was short by P367,994.00, as determined by the Commissioner.
• The Commissioner demanded payment of the deficiency tax along with interest for the period from April 18, 1961, to April 18, 1964.
• Esso paid under protest, including the interest as calculated by the Commissioner, but contested the interest amount, arguing that it should only be charged interest on the difference between the deficiency tax and its earlier overpayment.
• The Internal Revenue Commissioner denied the claim for refund. 
• The Court of Tax Appeals ordered a refund of P39,787.94 to Esso as overpaid interest.

Whether Esso should be charged interest on the full deficiency tax amount. NO

The fact is that, as respondent Court of Tax Appeals has stressed, as early as July 15, 1960, the Government already had in its hands the sum of P221,033.00 representing excess payment. Having been paid and received by mistake, as petitioner Commissioner subsequently acknowledged, that sum unquestionably belonged to ESSO, and the Government had the obligation to return it to ESSO That acknowledgment of the erroneous payment came some four (4) years afterwards in nowise negates or detracts from its actuality. The obligation to return money mistakenly paid arises from the moment that payment is made, and not from the time that the payee admits the obligation to reimburse. The obligation of the payee to reimburse an amount paid to him results from the mistake, not from the payee's confession of the mistake or recognition of the obligation to reimburse. In other words, since the amount of P221,033.00 belonging to ESSO was already in the hands of the Government as of July, 1960, although the latter had no right whatever to the amount and indeed was bound to return it to ESSO, it was neither legally nor logically possible for ESSO thereafter to be considered a debtor of the Government in that amount of P221,033.00; and whatever other obligation ESSO might subsequently incur in favor of the Government would have to be reduced by that sum, in respect of which no interest could be charged. 

Francia v. Intermediate Appellate Court, et al., 162 SCRA 753, G.R. No. L 67649, June 28, 1988

Facts: 

• Engracio Francia owns a residential lot with an area of about 328 square meter and with a two-story house in Pasay City.
• On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for P4,116.00.
• Francia failed to pay real estate taxes from 1963 to 1977, resulting in a tax delinquency of P2,400.00.
• On December 5, 1977, the property was sold at public auction to satisfy the tax delinquency, with Ho Fernandez as the highest bidder.
• Francia, who was in Iligan City at the time, did not attend the auction.
• Francia filed a complaint to annul the auction sale.

Whether Francia's tax delinquency of P2,400.00 has been extinguished by legal compensation. NO

We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.

A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. ... (80 C.J.S., 7374). "The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is not required. ..."

Domingo v. Garlitos, 8 SCRA 443, G.R. No. L-18994, June 29, 1963

• The Court of First Instance of Leyte ordered the payment of estate and inheritance taxes by the estate of Walter Scott Price, which was declared final and executory by the Supreme Court.
• The fiscal petitioned for execution of the judgment, but it was denied by CFI-Leyte, citing that the execution is not justifiable as the Government is indebted to the estate under administration in the amount of P262,200.
• CFI-Leyte ordered the deduction of the inheritance taxes from the amount due to the administratrix of the estate and deferred payment of the Collector of Internal Revenue's claim until the Government paid its accounts to the administratrix.

Whether the execution of the claim of the Government against the estate is proper. NO

A ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the estate had found that the claim of the estate against the Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount, thus:

ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguished both debts to the concurrent amount, eventhough the creditors and debtors are not aware of the compensation.

It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price. 

Philex Mining Corporation v. CIR, 294 SCRA 687, G.R. No. 125704, August 28, 1998

• The Bureau of Internal Revenue (BIR) demanded Philex Mining Corp. payment of tax liabilities totaling P123,821,982.52 for various quarters in 1991 and 1992.
• Philex protested, citing pending claims for VAT input credit/refund amounting to P119,977,037.02 plus interest, which it sought to offset against its tax liabilities.
• The BIR rejected Philex's position, stating that no legal compensation could take place until the pending claims were established.
• Philex later obtained its VAT input credit/refund for various years, arguing that it should offset its excise tax liabilities since both were due, demandable, and fully liquidated.

Whether Philex may off-set its excise tax liabilities since both had already become "due and demandable, as well as fully liquidated." NO

We have already made the pronouncement that taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other.  There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. We find no cogent reason to deviate from the aforementioned distinction.

To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted. It must be noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of bargain.  Hence, a tax does not depend upon the consent of the taxpayer.  If any taxpayer can defer the payment of taxes by raising the defense that it still has a pending claim for refund or credit, this would adversely affect the government revenue system. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the tax is contingent on the result of the lawsuit it filed against the government.  Moreover, Philex's theory that would automatically apply its VAT input credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the government of authority over the manner by which taxpayers credit and offset their tax liabilities.

In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it could have granted the refund earlier.