Taxation Law: Limitations on the Taxing Power

Taxation Law

Limitations on the Taxing Power

As the area which "used to be left to private enterprise and initiative and which the government was called upon to enter optionally, and only "because it was better equipped to administer for the public welfare than is any private individual or group of individuals", continue to lose their well-defined boundaries and to be absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the increasing social challenges of the times," there arises a need for more revenues in order to meet the needs of an ever-widening scope of state activity.
And with this pervasive power comes the realization that taxation may mean the ruin or the prosperity of a nation, if no limitation for its use is exercised. K
Thus, the power of taxation, for all its plenitude, is not without restrictions.
These limitations are classified as:

Inherent Limitations and
Constitutional Limitations

A. Inherent Limitations on the Power to Tax

These limitations proceed from the very nature of the taxing power itself.
These are: PITNV

public purpose
international comity
territoriality
non-delegation of the power to tax, and
the various tax exemptions granted government agencies or instrumentalities

1. Public Purpose

Taxes are exacted only for a public purpose.
An inherent limitation on the power of taxation is public purpose.
Taxes are exacted only for a public purpose.
They cannot be used for purely private purposes or for the exclusive benefit of private persons.

The reason for this is simple.
The power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should be used only for a public purpose.
It would be a robbery for the State to tax its citizens and use the funds generated for a private purpose.
As an old United States case bluntly put it "To lay with one hand, the power of the government on the property of the citizen, and with the other to bestow it upon favored individuals to aid private enterprises and build ·up private fortunes, is nonetheless a robbery — because it is done under the forms of law and is called taxation."

Planters Products, Inc. v. Fertiphil Corporation, 548 SCRA 485:

The term "public purpose" is not defined.
It is an elastic concept that can be hammered to fit modern standards.
Jurisprudence states that "public purpose" should be given a broad interpretation.
It does not only pertain to those purposes which are traditionally viewed as essentially government functions, such as building roads and delivery of basic services, but also includes those purposes designed to promote social justice.
Thus, public money may now be used for the relocation of illegal settlers, low-cost housing and urban or agrarian reform.

A revenue measure must stand the first requisite of a lawful taxation — that the purpose for which it is laid be a public purpose.

The legislature is bereft of power to appropriate revenues for anything other than a public purpose.
Where an assailed tax measure is not for a public purpose, such an act is tantamount to confiscation of property, though done in the guise of law, and the taxpayer may rightly invoke the law for his protection.
This appeal to the law for the protection of the individual's property would then place the issue within the ambit of the judiciary.

Justice Isagani Cruz defines "public purpose" as embracing not merely direct public benefit or advantage but also indirect public benefit.

Who may determine "public purpose"

This is a legislative prerogative.
The power to determine whether the purpose of taxation is public or private resides in Congress.

The independence of the Legislature is an axiom in government; to be independent, it must act on its own good time, on its own judgment, influenced by its own reason, restrained only as the people may have seen fit to restrain the grant of 1egislative power in making it.

However, this will not prevent the court from questioning the propriety of such a statute on the ground that the law enacted is not for a public purpose; but once it is settled that the law is for a public purpose, the court may no longer inquire into the wisdom, expediency or necessity of such tax measure.

Purpose when deemed "public"

It is the purpose which determines the public character of the tax law, not the number of persons benefited.

✅ purpose
❌ number of persons benefited.

As long as the ultimate result favors the welfare of the public in general, the appropriation of a public revenue is deemed done for a public purpose.

CIR v. Central Luzon Drug Corporation, 456 SCRA 414:

Upon this point, the 20% discount privilege (mandated by R.A. No. 7432, as amended by R.A. No. 9257) to which senior citizens are entitled is actually a benefit enjoyed by the general public to which these citizens belong.

The public purpose of a tax may legally exist even if it favors one over another.

Ferrer, Jr. v. Bautista, 760 SCRA 652:

For the purpose of undertaking a comprehensive and confirming urban development and housing program, the disparities between a real property owner and an informal settler as two distinct classes are too obvious and need not be discussed at length.
The differentiation conforms to the practical dictates of justice and equity and is not discriminatory within the meaning of the Constitution.
Notably, the public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one over another.
It is inherent in the power to tax to select the subjects of taxation.
Inequities which result from a singling out of one particular class f or taxation or exemption infringe no constitutional limitation.

Cases of "Public Purpose"

Public Improvement
Unemployment relief
Buildings and roads/Infrastructure
Local police forces (subsidies) under Republic Act No. 6141
Industries classified as indispensable under Presidential Decree No. 1987
Construction of home sites
Promotion of science and invention
Upliftment of the underprivileged
Rehabilitation of the sugar industry
Pensions to deserving retirees
Oil industry's protection
Socialized housing
Educational subsidy

Cases:

Benjamin Gomez v. Enrico Palomar ⭐

Petitioner questions the constitutionality of R.A. 1635 mandating the bearing of Anti-TB stamps on envelopes, as well as its implementing administrative orders, contending that it is not for a public purpose.
Held: RA. 1635 is valid.

The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society, established and safeguarded by the devotion of taxes to public purposes.
The money raised from the sale of the Anti-TB stamps is spent for the benefit of the Philippine Tuberculosis Society, a private organization, without appropriation by law.
But as the Solicitor General points out, the society is not really the beneficiary but only the agency through which the State acts in carrying out what is essentially a public function. The money is treated as a special fund and as such need not be appropriated by law.

Walter Lutz v. Antonio Araneta ⭐

Plaintiff Lutz assailed the constitutionality of Sections 2 and 3, C.A. No. 567 which provided for an increase of the existing tax on the manufacture of sugar, alleging such tax as unconstitutional and void for not being levied for a public purpose but for the aid and support of the sugar industry exclusively.
HELD:

The protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed fully play, subject only to the test of reasonableness; and it is not contended that the means provided in section 6 of C.A. No. 567 bear no relation to the objective pursued or are oppressive in character.
If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power.

Valentin Tio v. Videogram Regulatory Board

The Supreme Court held the levy of 30% tax under P.D. 1987 as for a public purpose, and therefore a valid imposition.
The law, according to the Court, was imposed primarily for answering 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.
Hence, while the direct beneficiaries of the said decree is the movie industry, the citizens are held to be its indirect beneficiaries.

City of Baguio v. Fortunato de Leon

Defendant-appellant De Leon, a real estate dealer, assailed the validity of an ordinance of the City of Baguio imposing a license fee on any person, firm, entity, or corporation doing business in the City of Baguio.
HELD:

Republic Act No. 329 was enacted amending Section 2553 of the Revised Administrative Code, empowering the City Council not only to impose a license fee but also to levy a tax for purposes of revenue.
Thus, the City Council of Baguio now has the power to tax, to license, and to regulate all businesses, trades, and occupations therein.
The ordinance under consideration, therefore, cannot be considered ultra vires.

Hon. Bagatsing v. Hon Ramirez

The delegation of the collection of market stall fees to a private corporation does not affect the public purpose of the imposition.
HELD:

The tax ordinance is valid.
The fees collected do not go direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the corporation but for the purpose of raising revenues for the city. That is the object it serves.
The entrusting of the collection of the fees does not destroy the public purpose of the ordinance. So long as the purpose is public, it does not matter whether the agency through which the money is dispensed is public or private.
The right to tax depends upon the ultimate use, purpose and object for which the fund is raised. It is not dependent on the nature or character of the person or corporation whose intermediate agency is to be used in applying it.
The people may be taxed for a public purpose, although it be under the direction of an individual or private corporation.

Albon v. Fernando ⭐
Pascual v. Secretary of Public Works ⭐

The petitioner challenges the law appropriating a certain amount for the construction of a feeder road on a land owned by a private individual.
HELD:

The law to is an invalid imposition since it results in the promotion of a private enterprise, it benefits the property of a particular individual.
The provision that the land shall thereafter be donated to the government does not cure this defect.
The rule is that, if the public advantage or benefit is merely incidental in the promotion of a particular enterprise, such defect shall render the law invalid.
On the other hand, if what is incidental is the promotion of a private enterprise, the tax law shall be deemed for a public purpose.

See Duty Test and General Welfare Test.

2. International Comity

Basis of this Rule

The principle of international comity requires that the same property should not be taxed by two jurisdictions at the same time
Under Section 2, Article II of our Constitution, the Philippines "adopts the generally accepted principles of international law as part of the law of the land, and adheres to the policy of peace, equality, justice, freedom, cooperation, and amity with all nations."
One principle of international law which has attained wide recognition is the principle of Sovereign Equality Among States.

According to this principle, "states are juridically equal, enjoy the same rights, and have equal capacity in their exercise. The rights of each one do not depend upon the power which it possesses to assure its exercise, but upon the simple fact of its existence as a person under international law."

This principle, in turn, finds its roots in the rule of par in parem non habet imperium, (equals shall have no sovereignty over each other) where even the strongest state cannot assume jurisdiction over another state, no matter how weak, or question the validity of its acts in so far as they are made to take effect within its own territory.

All states, including the smallest and least influential, are also entitled to their dignity and the protection of their honor and reputation
Illustration:

If a tax law is passed imposing taxes on the income of foreign ambassadors or imposing real property tax upon foreign embassies, this is not a valid law because the imposition is in violation of the universal principles of international law.
Under international laws, foreign embassies are considered extensions of the territoriality of the foreign states; to impose taxes upon them would be tantamount to an exercise of jurisdiction over these foreign states.

CIR v. Mitsubishi Metal Corp ⭐

3. Territoriality

Since laws cease to operate beyond a country's jurisdictional limits, the taxing power of a country is likewise limited to person and property within and subject to its jurisdiction.
This same rule applies to the taxing power of a territory.

Rules Observed in Fixing Tax Situs

What is situs of taxation? Place of Taxation.

Poll/Capitation/Community Tax

Poll or capitation, or community taxes are based upon the residence of the taxpayer, regardless of the source of income or location of the property of the taxpayer.

Property Tax

Real Property, where taxable

Real estate is subject to taxation in the state or country where it is located, regardless of whether the owner is a resident or a non resident.
What if outside ph but ph citizen?

Personal property, where taxable

On the other hand, the situs of personal property, wherever it was actually kept or located, was held to be at the domicile of its owner, following the age-old doctrine of mobilia sequuntur personam (movable things follow the person).

Domicile

The domicile of a person is the place which constitutes the principal seat of his residence, his business, his pursuits, his connections, his attachments and his political relations.
It embraces the fact of residence at a place with the intent to regard it and make it a home and live there for an indefinite time.
To establish a domicile, the act and the intent must concur.

There must be the fact of living in a place with the intent to make it one's home.

Mobilia Sequuntur Personam

Movables follow the person.
Although a mere fiction of law, without any constitutional foundation, it is nevertheless applied when convenient, provided it is:

not inconsistent with express provisions of the law, or
when its application would result in injustice, or
unless such property has acquired an actual situs elsewhere.

To acquire a situs in a state other than the domicile of the owner, tangible property must have a definite location there, accompanied by some degree of permanency; mere temporary or transient presence in the state is not sufficient.

Thus, in cases of shares of stock, its situs for the purposes of taxation is the state in which they are permanently kept regardless of the domicile of the owner or the state in which the corporation was organized.
Wells Fargo Bank v. Collector 73 Phil 325 ⭐

The shares of stock left by a non-resident alien decedent in an anonymous partnership in the Philippines are subject to Philippine inheritance tax notwithstanding the mobilia rule. According to the Court, the mobilia rule should yield to reason. The shares of stock are also taxable in the situs of their actual location, i.e., the Philippines.

Section 104, Republic Act No. 8424 enumerates certain properties which have acquired actual situs in the Philippines, viz.: FDFFP

franchise exercised in the Philippines;
shares of stock, obligations, bonds issued by domestic corporations organized and constituted in accordance with Philippine laws;
shares, obligations, bonds issued by a foreign corporation where 85% of its business is located in the Philippines.

It is subject to donor's tax and estate tax;

Shares, obligations, bonds issued by foreign corporations which has acquired business situs, when such have been used in the furtherance of the business of the foreign corporation;
Shares/rights in a partnership business or industry established in the Philippines.

These properties are considered as situated, thus taxed, in the Philippines; the residence of their owners is immaterial.
Thus:

General Rule: Irrespective of the owner, donor's tax or estate tax can be imposed upon these properties.
Except: Where the foreign country grants exemption or does not impose taxes on intangible properties of Filipino citizens.

Illustration:

As a general rule, donation of shares of stocks made by a foreign corporation are not subject to tax.
However, if the transaction falls under paragraph c or d (see enumeration), the donation shall be subject to tax.
The income of intangible properties like royalties and dividends are subject to taxes.

CIR v. Marbine Gr 137377 1218201

Excise Tax

Excise taxes are taxes imposed on the exercise of a right or privilege.

Income Tax
Donor's Tax
Estate Tax
Value Added Tax

Income Tax (Sec. 23, R.A. No. 8424)

Criteria: PNR

A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines;
A nonresident citizen is taxable only on income derived from sources within the Philippines;
An individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income derived from sources within the Philippines: Provided, That a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an overseas contract worker;
An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines;
A domestic corporation is taxable on all income derived from sources within and without the Philippines; and
A foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable only on income derived from sources within the Philippines.

Place — applied to

Non-resident alien
Non-resident foreign corporations
Non-resident citizen⭐

taxed upon sources of income derived from within the Philippines.

Nationality — applied to

Resident citizen ⭐
Domestic corporation

taxed upon sources of income derived from within and without the Philippines.

Residence — applied to

Resident alien ⭐
Resident Foreign Corporation

taxed upon income derived from sources within the Philippines.

CIR v. Boac

The source of an income is the property, activity or service that produced the income. 8 For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines.

Donor's Tax (Sec. 98, 104, R.A. No. 8424)

Criteria: PNR

(A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the property by gift, a tax, computed as provided in Section 99.
(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible.
For purposes of this Title, the terms ‘gross estate’ and ‘gifts’ include real and personal property, whether tangible or intangible, or mixed, wherever situated: Provided, however, That where the decedent or donor was a nonresident alien at the time of his death or donation, as the case may be, his real and personal property so transferred but which are situated outside the Philippines shall not be included as part of his ‘gross estate’ or ‘gross gift’: Provided, further, That franchise which must be exercised in the Philippines; shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws; shares, obligations or bonds by any foreign corporation eighty-five percent (85%) of the business of which is located in the Philippines; shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines; shares or rights in any partnership, business or industry established in the Philippines, shall be considered as situated in the Philippines: Provided, still further, that no tax shall be collected under this Title in respect of intangible personal property: (a) if the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or (b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country.

Place — applied to

Non-resident alien

taxed based upon properties situated within the Philippines.

Nationality — applied to

Resident and non-resident citizen

taxed based upon properties wherever situated.

Residence — applied to

Resident alien

taxed based upon properties wherever situated.

Estate Tax (Sec. 85, 104, R.A. No. 8424)

Criteria: PNR
Place — applied to

Non-resident alien

taxed on properties situated within the Philippines.

Nationality — applied to

Resident and non-resident citizen

taxed upon their properties wherever situated.

Residence — applied to

Resident alien

taxed imposed upon properties wherever situated.

Value Added Tax (Sec. 105, R.A. No. 8424)

A value-added tax (VAT) is a consumption tax that is levied on a product repeatedly at every point of sale at which value has been added.
Its tax situs is the place where the transaction is made.
If the transaction is made (perfected and consummated) outside of the Philippines, we can no longer tax such a transaction.

Atlas Consolidated Mining and Development Corporation v. CIR

According to the Destination Principle, goods and services are taxed only in the country where these are consumed.
In connection with the said principle, the Cross Border Doctrine mandates that no VAT shall be imposed to form part of the cost of the goods destined for consumption outside the territorial border of the taxing authority.

Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT, while those destined for use or consumption within the Philippines shall be imposed with 10% VAT (Now 12%).
Export processing zones are to be managed as a separate customs territory from the rest of the Philippines and, thus, for tax purposes, are effectively considered as foreign territory.
For this reason, sales by persons from the Philippine customs territory to those inside the export processing zones are already taxed as exports.

4. Non-delegation of the Power to Tax

General Rule: The power to tax is exclusively vested in the legislative body.
Exceptions:

Article VIII, Section 28(2) of the Constitution
Article X, Section 5 of the Constitution

Article VIII, Section 28(2) of the Constitution

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.

TITO
tariff rates
import and export quotas
tonnage and wharfage dues and
other duties or imposts

Upon this point, in the interest of the general welfare and national security, the President, upon recommendation of the National Economic and Development Authority (NEDA):

increase, reduce or remove existing protective tariff rates of import duty, but in no case shall be higher than one hundred percent (100%) ad valorem;
establish import quota or ban importation of any commodity as may be necessary; and
impose additional duty on all imports not exceeding ten percent (10%) ad valorem, whenever necessary.

This is known as the Flexible Power Clause enshrined in Section 1608 of Republic Act No. 10863 otherwise known as the Customs Modernization and Tariff Act (CMTA).

Article X, Section 5 of the Constitution

Each local government unit shall have the power to create its own sources of revenue, fees, charges, subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy.

revenue
fees
charges

Such taxes, fees and other charges shall accrue exclusively to the local government. (See Sec. 133, R.A. No. 7160)

Abakada Guro Party List v. Ermita:

The Supreme Court sustained the constitutionality of Republic Act No. 9337 authorizing the President to increase the VAT rate from 10% to 12% effective January 1, 2006 upon recommendation of the Secretary of Finance on the existence of either of the two conditions.
It ruled that the law leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the control of the executive. No discretion would be exercised by the President highlighting the absence of discretion is the fact that the word shall is used in the common proviso.
The use of the word shall connote a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion. x x x
In making his recommendation to the President on the existence of either of the two conditions, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. In such instance, he is not subject to the power of control and direction of the President. He is acting as the agent of the legislative department, to determine and declare the event upon which its expressed will is to take effect.
The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented, considering that he possesses all the facilities to gather data and information and has a much broader perspective to properly evaluate them.

Administrative agencies power to tax? Assessment and collection only.

Cases:

Napocor v. Albay 186 SCRA 198

Board of Assessment Appeals of Laguna v. CTA

In the absence of constitutional provision, the power to tax may be delegated to local government units in accordance with the well-settled doctrine that the power to create local government units by implication confers upon it the power to tax.
So even if no constitutional provision exists, local government units still possess the power to tax.

Pepsi-Cola Bottling Co. of the Phils. v. City of Butuan ⭐

Petitioners assail the constitutionality of Municipal Ordinance No. 110, as amended by Mun. Ord. No. 122, on the ground that Sec. 2 of RA 2264, upon the authority of which it is delegated, is an unconstitutional delegation of legislative powers.
Held:

The general principle against delegation of legislative powers, in consequence of the theory of separation of powers is subject to one well-established exception, namely: legislative powers may be delegated to local governments.

Pepsi-Cola Bottling Co. of the Phils. v. City of Tanauan⭐

Pepsi-Cola challenges the power of taxation delegated to municipalities under the Local Autonomy Act.
Held:

The power of taxation granted to municipalities under the Local Autonomy Act is constitutional. 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 power of the 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. (Pepsi-Cola Bottling Co. of the Phils., Inc. v. City of Butuan, 24 SCRA 793)
This is sanctioned by immemorial practice. By necessary implication, the legislative power to create political corporations for purposes of self-government carries with it the power to confer on such local government agencies the power to tax.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not suffice to invalidate the said law as confiscatory and oppressive.
In delegating the authority, the State is not limited to the exact measure of that which is exercised by itself. When it is said that the taxing power may be delegated to municipalities and the like, it is meant that there may be delegated such measure of power to impose and collect taxes as the legislature may deem expedient.
Thus, municipalities may be permitted to tax subjects which for reasons of public policy the State has not deemed wise to tax for more general purposes.

John Osmeña v. Oscar Orbos

The Supreme Court finds that the provision conferring the authority upon the ERB to impose additional amounts on petroleum products provides a sufficient standard by which the authority must be exercised.
For a valid delegation of power, it is essential that the law delegating the power must be:

complete in itself, that is, it must set forth the policy to be executed by the delegate, and
it must fix a standard — limits of which are sufficiently determinate or determinable — to which the delegate must conform.

Edu v. Ericta:

To avoid the taint of unlawful delegation there must be a standard, which implies at the very least that the legislature itself determines matters of principle and lays down fundamental policy.
Otherwise, the charge of complete abdication may be hard to repel. A standard, thus:

defines legislative policy
marks its limits
maps out its boundaries and
specifies the public agency to apply it.

It indicates the circumstances under which the legislative command is to be effected.

It is the criterion by which the legislative purpose may be carried out.
Thereafter, the executive or administrative office designated may in pursuance of the above guidelines promulgate supplemental rules and regulations. T

The standard may either be express or implied.

Express Standard:

The non-delegation objection is easily met.

Implied Standard:

The standard though does not have to be spelled out specifically.
It could be implied from the policy and purpose of the act considered as a whole.

Where the standards set up for the guidance of an administrative officer and the action taken are in fact recorded in the orders of such officer, so that Congress, the courts and the public are assured that the orders in the judgment of such officer conform to the legislative standard, there is no failure in the performance of the legislative functions.

Mayor Antonio J. Villegas v. Hiu Chong Tsai Pao Ho and Judge Arca

Respondent Hiu Chiong Tsai Pao Ho challenged the validity of Ordinance No. 6537 passed by the Municipal Board of Manila.
The said ordinance prohibited aliens from being employed or to engage or participate in any position, occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an employment permit from the Mayor of Manila and paying the permit fee. Respondent judge declared the ordinance null and void.
HELD:

Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide the mayor in the exercise of the power which has been granted to him in the ordinance.
Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion.
It has been held that where an ordinance of a municipality fails to state any policy or to set up any standard to guide or limit the mayor's action, expresses no purpose to be attained by requiring a permit, enumerates no conditions for its grant or refusal, and entirely lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power to grant or deny the issuance of building permits, such ordinance is invalid, being an undefined and unlimited delegation of power to allow or prevent an activity per se lawful.

Benjamin Gomez v. Enrico Palomar

Petitioner's letter was returned because it did not bear the special Anti-TB stamp required by R.A. 1635 as implemented by several administrative order.
Petitioner questions the unconstitutionality of the statute as well as the implementing administrative order issued.
Held:

The administrative orders are not undue delegation of legislative powers.
Although the law does not expressly authorize the collection of five centavos except through the sale of Anti-TB stamps, such authority may be implied in so far as may be necessary to prevent a failure of the undertaking.
The authority given to the Postmaster General to raise funds through the mails must be liberally construed, consistent with the principle that where the end is required the appropriate means is given.

Hon. Ramon Bagatsin v. Hon Pedro Ramirez

Nor does the delegation of the collection of market stall fees to a private corporation affect the public purpose of the imposition.
The entrusting of the collection of the fees does not destroy the public purpose of the ordinance.
So long as the purpose is public, it does not matter whether the agency through which the money is dispensed is public or private.
The right to tax depends upon the ultimate use, purpose and object for which the fund is raised.
It is not dependent on the nature or character of the person or corporation whose intermediate agency is to b e used in applying it.
The people may be taxed for a public purpose, although it be under the direction of an individual or private corporation.

5. Exemption from Taxation of Government Agencies and Instrumentalities

Board of Assessment Appeals of Laguna v. CTA:

Properties of the national government well as those of the local government units are not subject to tax, otherwise it will result in the absurd situation of the government "taking money from the one pocket and putting it in another."

May the Government Tax Itself?

The Constitution is silent on whether Congress is prohibited from taxing the properties of the agencies of the government.
However, Chief Justice Hilario G. Davide, Jr. has stated that "nothing can prevent Congress f rom decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax."

Agencies Performing Government Functions and Proprietary Functions Distinguished

A distinction has been made between agencies performing governmental functions and those performing proprietary functions.

As a rule, agencies performing governmental functions are tax-exempt unless expressly taxed.
On the other hand, agencies performing proprietary functions are subject to tax unless expressly exempted.

Government-owned and -controlled corporations perform proprietary functions; hence, they are subject to taxation.

However, certain corporations have been granted exemption under Section 27(c) of Republic Act o. 8424 as amended by Republic Act No. 11534 which took effect on 11 April 202l, to wit:

Government Service Insurance System
Social Security System
Philippine Health Insurance Corporation
Local Water Districts
Home Development Mutual Fund

Instrumentality of the National Government Is Exempt from Local Taxation

Manila International Airport Authority v. Court Of Appeals 495 SCRA 591:

The Supreme Court held that the real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax.
A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:

the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: x x x

Taxes, fees or charges of any kind on the National Government its agencies and instrumentalities and local government units.

Philippine Fisheries Development Authority v. The Municipality of Navotas 534 SCRA 490:

The Supreme Court ruled that PFDA, being an instrumentality of the national government, is exempt from real property tax but the exemption does not extend to the portions of the Navotas Fishing Port Complex (NFPC) that were leased to taxable or private persons and entities for their beneficial use.

The Pasay Properties of MIAA Are Exempt from Real Property Tax

Manila International Airport Authority v. City of Pasay, Sangguniang Panglungsod ng Pasay, et al., 583 SCRA 234:
The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the Administrative Code of 1987 uses the phrase ''includes x x x government-owned or controlled corporations" which means that a government "instrumentality" may or may not be a "government-owned or -controlled corporation." Obviously, the the government ''instrumentality'' is broader than the term "government-owned or controlled corporation." Section 2(10) provides:

SEC. 2. General Terms Defined. - xxx

(10) Instrumentality refers to any agency of the national Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled corporations.

The term "government-owned or controlled corporation" has a separate definition under Section 2(13) of the Introductory Provisions of the Administrative Code of 1987:

SEC. 2. General Terms Defined. - xxx

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of tock corporations, to the extent of at least fifty-one (51) percent of its capital stock: Provided, That government-owned or controlled corporations may further be categorized by the Department of Budget, the Civil Service Commission and the Commission on Audit for the purpose of the exercise and discharge of their respective powers, function and responsibilities with respect to such corporations.

The fact that two terms have separate definitions mean that while "instrumentality" may include a government "government -owned or -controlled corporation," there may be a government "instrumentality" that will not qualify as "government -owned or -controlled corporation."

A close scrutiny of the definition of "government -owned or -controlled corporation" in Section 2(13) Will show that MIAA would not fall under such definition.
MIAA is a government "instrumentality" that does not qualify as a "government-owned or controlled corporation."

Philippine Reclamation Authority Is Exempt from Real Property Tax

Republic v. City of Paranaque, 677 SCRA 246:
The Philippine Reclamation Authority (PRA) is not a GOCC either under Section 2(13) of the Introductory Provisions of the Administrative Code or under Section 16, Article XII of the 1987 Constitution.

The facts, the evidence on record and jurisprudence on the issue support the position that PRA was not organized either as a stock or non-stock corporation.
Neither was it created by Congress to operate commercially and compete in the private market Instead, PRA is a government instrumentality vested with corporate powers and performing an essential public service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code.
Being an incorporated government instrumentality, it is exempt from payment of real property tax.

It is clear from Section 234 that real property owned by the Republic of the Philippines is exempt from real property tax unless the beneficial use thereof has been granted to a taxable person.

In this case, there is no proof that PRA granted the beneficial use of the subject reclaimed lands to a taxable entity.
There is no showing on record either that PRA leased the subject reclaimed properties to a private taxable entity.
This exemption should be read in relation to Section 133(o) of the same Code, which prohibits local governments from imposing "[t]axes, fees or charge and instrumentalities x x x."

The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be exempt from real estate tax.

Mactan Cebu International Airport Authority (MCIAA) Is Exempt from Real Estate Tax

Mactan-Cebu International Airport Authority [MCIAA] v. City of Lapu Lapu, 757 SCRA 323:
In the 2006 MIAA case, the Supreme Court held that MIAA' s airport lands and buildings are exempt from real estate imposed by local governments; that it is not a GOCC but an instrumentality of the national government, with to real properties being owned by the Republic of the Philippines, and these are exempt from real estate tax.
Along the same vein, the Mactan Cebu International Airport Authority (MCIAA) is considered an instrumentality of the national government.
Ergo, MCIAA is exempt from real estate tax.

Philippine Economic Zone Authority (PEZA) Cannot Be Taxed by Local Government

City of Lapu-Lapu v. Philippine Economic Zone Authority 742 SCRA 524:
Units PEZA is an instrumentality of the national government.
It is not integrated within the department framework but is an agency attached to the Department of Trade and Industry.
It administers its own funds and operates autonomously with the PEZA Board as an instrumentality of the national government.
PEZA is vested with special functions or jurisdiction by law. Being an instrumentality of the national government, the PEZA cannot be taxed by local government units.

Doctrine of Supremacy of National Government over Local Government

Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on other part of the States to touch, in that way (taxation) at least, the instrumentalities of the United Sates and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them.
Otherwise, mere creatures of the State can defeat Nation policies [through] examination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation."
The power to tax which was called by Justice Marshall as the "power to destroy" cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it.

Cases:

Standard Oil Company v. Juan Posadas:

The Standard Oil Company of New York old and delivered in the Philippines fuel oil and asphalt, to the Quartermaster Dept. of the US Army, for the use of the said Army.
The CIR of the Philippine government imposed taxes of about 1 1/2% of the value of the merchandise.
At the same time, the Standard Oil Company delivered fuel oil in the Philippines for the use of the US Navy, which was likewise taxed by the CIR.
The Standard Oil Company paid the taxes assessed under protest and sued to recover the corresponding refunds.
Held:

The assessment and collection by the Philippine Government of the tax on sales of merchandise made in the Philippines to the United States Army and the United States Navy is illegal. Sales made in the Philippines to the United States Army and the United States Navy are made to instrumentalities of the United States Government, and, therefore, are not subject to tax by the Philippine Government.

Board of Assessment Appeals, Province of Laguna v. CTA & NAWASA

The question involved in this case is whether the water pipes, reservoir, intake and buildings used by in the operation of its waterworks system in the province of Laguna, are subject to real estate tax.

SEC. 3. Property exempt from tax. — The exemptions shall be as follows:

(a) Property owned by . . . the Republic of the Philippines, any province, city, municipality or municipal district.

It is submitted that the law — Sec. 3 of Republic Act No. 470 — makes no distinction between property held in a sovereign, governmental or political capacity and those possessed in a private, proprietary or patrimonial character. And where the law does not distinguish neither may we.
Moreover, taxes are financial burdens imposed for the purpose of raising revenues with which to defray the cost of the operation of the Government, and a tax on property of the Government, whether national or local, would merely have the effect of taking money from one pocket to put it in another pocket. Hence, it would not serve, in the final analysis, the main purpose of taxation.

National Development Company v. Cebu City and Augusto Pacis

Is a public land reserved by the President for warehousing purposes in favor of a government -owned or -controlled corporation, as well as the warehouse subsequently erected thereon, exempt from real property tax?
RE: The land

The Supreme Court answered in the affirmative.
The Republic, like any individual, may form a corporation with personality and existence distinct from its own.

The separate personality allows a government-owned and -controlled corporation t o hold and possess properties in its own name and thus permit greater independence and flexibility in its operations.
It may, therefore, be stated that tax exemption of "property owned by the Republic of the Philippines" refers to properties owned by the Government and by its agencies which do not have separate and distinct personalities (unincorporated entities).

In this case, what appears to have been ceded to NDC was merely the administration of the property while the government retains ownership of what has been declared for warehousing purposes.

The land remains "absolute property of the government. The government does not part with its title by reserving them (lands), but simply gives notice to all the world t h at it desires them for a certain purpose."
As its title with the Republic, the reserved land is clearly covered by tax exemption.

RE: The warehouse

As regards the warehouse constructed on a public reservation, a different rule should apply because "(t)he exemption of public property from taxation does not extend to improvements on the public land made by preemptioners, homesteaders and other claimants, or occupants, at their own expense, and these are taxable by the State x x x."
Consequently, the warehouse constructed on the reserved land by NDC should properly be assess ed real estate tax as such improvement does not appear to belong to the public.

ESSO Standard Eastern, Inc. v. Acting Commissioner of Customs

Petitioner is engaged in the industry of processing gasoline, and manufacturing lubricating . oil, grease and tin containers.

Petitioner owns gasoline stat ions with pumps, which are leased to and operated by gasoline dealers. It sells gasoline to these dealers.
The pump parts imported by petitioner in 1956 were intended, installed and actually used by gasoline dealers in pumping gasoline from underground tanks into customers' motor vehicles.
Thee pump parts, in other words, are used in the sale at retail of gasoline not by petitioner but by lessees of gasoline stations.

In this factual environment, it is quite evident that the pump part are not used in petitioner's industry of processing gasoline, or manufacturing lubricating oil, grease and tin container , hence taxable.

Since the law (R.A. 1394) state that, to be tax exempt, equipment and spare part should be for the use of industries," the coverage herein should not be enlarged to include equipment and spare parts for use in dispensing gasoline at retail.
In comparable factual backdrop, this Court has held that tax exemption in connection with the manufacture of asbestos roof does not extend to the installation thereof.

Exemption from taxation is not favored and exemptions in tax statutes are never presumed.

Exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.
Where the State has granted in express terms certain exemptions, those are the exemptions to b e considered, and no more.

Mia v paranque

B. Constitutional Limitations on the Power to Tax

The Constitution provides for certain restrictions on the power of taxation, among them:

due process of law;
equal protection of laws;
uniformity;
progressive system of taxation;
non-impairment of contracts;
non-imprisonment for non-payment of poll tax;
appropriation, revenue and tariff bills must originate exclusively in the House of Representatives;
presidential veto;
residential power to fix tariff rates;
freedom of the press;
freedom of religion;
exemption from property tax of properties of religious, educational, charitable institutions;
tax exemptions granted to non-stock, non-profit educational institutions;
no public money or property used for a particular sect, priest, religious minister, etc.;
grant of tax exemptions;
grant of power of taxation to local government units;
money collected for a special purpose shall be considered a special fund;
exclusive appellate jurisdiction of the Supreme Court over judgments of lower courts involving the legality of taxes, imports, assessment, fees, penalty.

1. Due Process of Law

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