Constitutional Limitations A. Due Process of Law Sec. 1, Art. III, 1987 Constitution

3.
Constitutional Limitations
a. Due process of law
Sec. 1, Art. III, 1987 Constitution
SECTION 1. No person shall be deprived of life, liberty, or property without due process of law,
nor shall any person be denied the equal protection of the laws.
Tan v. del Rosario, supra.
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and
liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not forefend
classification as long as: (1) the standards that are used therefore are substantial and not arbitrary,
(2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things
being equal, to both present and future conditions, and (4) the classification applies equally well
to all those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs.
PAGCOR, 197 SCRA 52).
What may instead be perceived to be apparent from the amendatory law is the legislative intent
to increasingly shift the income tax system towards the schedular approach 2 in the income
taxation of individual taxpayers and to maintain, by and large, the present global treatment 3 on
taxable corporations. We certainly do not view this classification to be arbitrary and
inappropriate.
Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process,
what he believes to be an imbalance between the tax liabilities of those covered by the
amendatory law and those who are not. With the legislature primarily lies the discretion to
determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place)
of taxation. This court cannot freely delve into those matters which, by constitutional fiat, rightly
rest on legislative judgment. Of course, where a tax measure becomes so unconscionable and
unjust as to amount to confiscation of property, courts will not hesitate to strike it down, for,
despite all its plenitude, the power to tax cannot override constitutional proscriptions. This stage,
however, has not been demonstrated to have been reached within any appreciable distance in this
controversy before us.
Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional
for being violative of due process must perforce fail. The due process clause may correctly be
invoked only when there is a clear contravention of inherent or constitutional limitations in the
exercise of the tax power. No such transgression is so evident to us.
No violation of due process as it taxes GPP separately like Corporation.
Sison v. Ancheta, supra.

No Violation of Due Process. According to the court, the power to tax, to borrow from Justice
Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of government." It is,
of course, to be admitted that for all its plenitude 'the power to tax is not unconfined. There are
restrictions and the Constitution sets forth such limits. If it adversely affects property rights, both
the due process and equal protection clauses may properly be invoked since 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.
The injury thus is centered on the question of whether the imposition of a higher tax rate on
taxable net income derived from business or profession than on compensation is constitutionally
infirm. In this case, the petitioner failed to show proof of such persuasive character that would
make it conclusive upon the court to declare the assailed provision to be arbitrary and
unconstitutional.
* Allege Substantive and Procedural Due Process.
b. Equal protection of the laws
SECTION 1. No person shall be deprived of life, liberty, or property without due process of law,
nor shall any person be denied the equal protection of the laws.
* Equal Protection of Laws requires that all persons of the same class should be treated in equal
manner.
Sison v. Ancheta, supra.
Petitioner likewise invoked the kindred concept of uniformity which requires that taxation shall
be uniform and equitable. However, rule of uniformity does not call for perfect uniformity or
perfect equality, because this is hardly attainable. Taxpayers may be classified into different
categories. It is enough that the classification must rest upon substantial distinctions that
make real differences.
Taxpayers who are recipients of compensation income are set apart as a class. As there is
practically no overhead expense, these taxpayers are e not entitled to make deductions for
income tax purposes because they are in the same situation more or less. On the other hand, in
the case of professionals in the practice of their calling and businessmen, there is no uniformity
in the costs or expenses necessary to produce their income.
Villegas v. Hiu Chiong Tsai Pao, 86 SCRA 270 (1978)
Nature of the case: Petition for review on certiorari on the decision of Judge Arca of CFI Manila
declaring Ordinance No 6537 null and void and issuing a writ of permanent injunction to enjoin
the implementation of the same ordinance.
Facts of the case:
The Municipal Board of Manila passed the controverted Ordinance No. 6537 on March 27, 1968.
Section 1 of said Ordinance No. 6537 prohibits aliens from being employed or to engage or
participate in any position or 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 of P50.00 except persons employed in the diplomatic or consular missions
of foreign countries, or in the technical assistance programs of both the Philippine Government
and any foreign government, and those working in their respective households, and members of
religious orders or congregations, sect or denomination, who are not paid monetarily or in kind.
On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed
a petition with the Court of First Instance of Manila, Branch I, denominated as Civil Case No.
72797, praying for the issuance of the writ of preliminary injunction and restraining order to stop
the enforcement of Ordinance No. 6537 as well as for a judgment declaring said Ordinance No.
6537 null and void. He contended that 1) as a revenue measure imposed on aliens employed in
the City of Manila, Ordinance No. 6537 is discriminatory and violative of the rule of the
uniformity in taxation; 2) As a police power measure, it makes no distinction between useful and
non-useful occupations, imposing a fixed P50.00 employment permit, which is out of proportion
to the cost of registration and that it fails to prescribe any standard to guide and/or limit the
action of the Mayor, thus, violating the fundamental principle on illegal delegation of legislative
powers; and 3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are
thus, deprived of their rights to life, liberty and property and therefore, violates the due process
and equal protection clauses of the Constitution.
Issue of the case: Whether the Ordinance is violative of the equal protection clause as guaranteed
in the constitution.
Held: the Ordinance is violative of the equal protection clause as guaranteed in the constitution.
The court held that the act is obviously one that partakes the nature of a revenue-exacting
measure. It also held that the P50.00 fee is unreasonable not only because it is excessive but
because it fails to consider valid substantial differences in situation among individual aliens who
are required to pay it. Although the equal protection clause of the Constitution does not forbid
classification, it is imperative that the classification should be based on real and substantial
differences having a reasonable relation to the subject of the particular legislation. The same
amount of P50.00 is being collected from every employed alien whether he is casual or
permanent, part time or full time or whether he is a lowly employee or a highly paid executive.
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.
The ordinance in question violates the due process of law and equal protection rule of the
Constitution.
Requiring a person before he can be employed to get a permit from the City Mayor of Manila
who may withhold or refuse it at will is tantamount to denying him the basic right of the people
in the Philippines to engage in a means of livelihood. While it is true that the Philippines as a
State is not obliged to admit aliens within its territory, once an alien is admitted, he cannot be
deprived of life without due process of law. This guarantee includes the means of livelihood. The
shelter of protection under the due process and equal protection clause is given to all persons,
both aliens and citizens.
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and
liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not forfend
classification as long as: (1) the standards that are used therefor are substantial and not arbitrary,
(2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things
being equal, to both present and future conditions, and (4) the classification applies equally well
to all those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs.
PAGCOR, 197 SCRA 52).
CIR v. CA & Alhambra Ind., 267 SCRA 557 (1997)
Nature of the case: This is a Petition for review on the decision of the Court of Appeals affirming
the decision of the Court of Tax Appeals ordering petitioner to refund the private respondent the
amount of Five Hundred Twenty Thousand Eight Hundred Thirty-Five Pesos and Twenty-Nine
Centavos (P 520,835.29) representing erroneously paid ad valorem tax for the period 2
November 1990 to 22 January 1991. In upholding the CTA decision, the CA explained further
that the retroactive application of BIR Ruling 017-91 cannot be allowed since private respondent
did not act in bad faith; private respondents computation under BIR Ruling 473-88 was not
shown to be motivated by ill will or dishonesty partaking the nature of fraud.
Facts of the case:
ALHAMBRA INDUSTRIES, INC., is a domestic corporation engaged in the manufacture and

sale of cigar and cigarette products. The taxpayer had previously paid Ad Valorem totaling 3.9M
computed based on BIR Ruling No. 473-88. However, a new ruling was issued BIR Ruling No.
017-91 which included back the VAT to the gross selling price in determining the tax base for
computing the ad valorem tax on cigarettes. As such, the private respondent was assessed
deficiency Ad Valorem Taxes totaling Four Hundred Eighty-Eight Thousand Three Hundred
Ninety-Six Pesos and Sixty-Two Centavos (P488,396.62), inclusive of increments, on the
removals of cigarette products from their place of production during the period 2 November
1990 to 22 January 1991.
In a letter dated 22 May 1991 received by petitioner on even date, private respondent thru
counsel filed a protest against the proposed assessment with a request that the same be
withdrawn and cancelled. On 31 May 1991 private respondent received petitioner's reply dated
27 May 1991 denying its protest and request for cancellation stating that the decision was final,
and at the same time requesting payment of the revised amount of Five Hundred Twenty
Thousand Eight Hundred Thirty-Five Pesos and Twenty-Nine Centavos (P 520,835.29), with
interest updated, within ten (10) days from receipt thereof.
On that day, the company requested for reconsideration. However, without waiting for a reply,
they raised the matter to the Court of Tax Appeals. Meanwhile, the assessment became final and
Alhambra paid the assessed tax on protest.
The Court of Tax Appeals then ruled in favor of the private respondent explaining that there
cannot be a retroactive application of BIR Ruling No. 017-91 which took effect February 11,
1991. CA affirmed.
Issue relevant to the topic: Whether the ruling be given retroactive effect and whether it is
violative of the equal protection clause.
Held: No, it should not be given retroactive effect. Yes, it is violative of the equal protection
clause.
The present dispute arose from the discrepancy in the taxable base on which the excise tax is to
apply on account of two incongruous BIR Rulings: (1) BIR Ruling 473-88 dated 4 October 1988
which excluded the VAT from the tax base in computing the fifteen percent (15%) excise tax due;
and, (2) BIR Ruling 017-91 dated 11 February 1991 which included back the VAT in computing
the tax base for purposes of the fifteen percent (15%) ad valorem tax.
However, well-entrenched is the rule that rulings and circulars, rules and regulations
promulgated by the Commissioner of Internal Revenue would have no retroactive application if
to so apply them would be prejudicial to the taxpayers.
The applicable law is Sec. 246 of the Tax Code which provides -
Sec. 246. Non-retroactivity of rulings.- Any revocation, modification, or reversal of any rules and
regulations promulgated in accordance with the preceding section or any of the rulings or
circulars promulgated by the Commissioner of Internal Revenue shall not be given retroactive
application if the revocation, modification, or reversal will be prejudicial to the taxpayers except
in the following cases: a) where the taxpayer deliberately misstates or omits material facts from
his return or in any document required of him by the Bureau of Internal Revenue; b) where the
facts subsequently gathered by the Bureau of Internal Revenue are materially different from the
facts on which the ruling is based; or c) where the taxpayer acted in bad faith.
Without doubt, private respondent would be prejudiced by the retroactive application of the
revocation as it would be assessed deficiency excise tax.
As to the violation of the equal protection clause: the court held that admittedly the government
is not estopped from collecting taxes legally due because of mistakes or errors of its agents. But
like other principles of law, this admits of exceptions in the interest of justice and fair play, as
where injustice will result to the taxpayer.
* When the law says gross it is without deduction. The refund is proper since there can be no
retroactive application of BIR Rulings especially when it is prejudicial to the Taxpayer. The tax
was assessed for the period period 2 November 1990 to 22 January 1991 but the new ruling was
promulgated 11 February 1991.
Tiu v. CA, 301 SCRA 278 (1999)
Nature:
This is a petition for review under Rule 45 of the Rules of Court, seeking the reversal of the
Court of Appeals Decision promulgated on August 29, 1996, and Resolution dated November
13, 1996, in CA-GR SP No. 37788. The challenged Decision upheld the constitutionality and
validity of Executive Order No. 97-A (EO 97-A), according to which the grant and enjoyment of
the tax and duty incentives authorized under Republic Act No. 7227 (RA 7227) were limited to
the business enterprises and residents within the fenced-in area of the Subic Special Economic
Zone (SSEZ).
The assailed Resolution denied the petitioners motion for reconsideration.
Facts:
On March 13, 1992, Congress, with the approval of the President, passed into law RA
7227 entitled An Act Accelerating the Conversion of Military Reservations Into
Other Productive Uses, Creating the Bases Conversion and Development Authority
for this Purpose, Providing Funds Therefor and for Other Purposes. Section 12
thereof created the Subic Special Economic Zone and granted thereto special
privileges, among which are tax and duty incentives.
On June 10, 1993, then President Fidel V. Ramos issued Executive Order No. 97 (EO
97), clarifying the application of the tax and duty incentives
Nine days after, on June 19, 1993, the President issued Executive Order No. 97-A
(EO 97-A), specifying the area within which the tax-and-duty-free privilege was
operative
On October 26, 1994, the petitioners challenged before this Court the constitutionality
of EO 97-A for allegedly being violative of their right to equal protection of the laws.
In a Resolution dated June 27, 1995, this Court referred the matter to the Court of
Appeals, pursuant to Revised Administrative Circular No. 1-95.
Incidentally, on February 1, 1995, Proclamation No. 532 was issued by President
Ramos. It delineated the exact metes and bounds of the Subic Special Economic and
Free Port Zone, pursuant to Section 12 of RA 7227.
Respondent Court held that there is no substantial difference between the provisions
of EO 97-A and Section 12 of RA 7227. In both, the Secured Area is precise and
well-defined as xxx the lands occupied by the Subic Naval Base and its contiguous
extensions as embraced, covered and defined by the 1947 Military Bases Agreement
between the Philippines and the United States of America, as amended, xxx. The
appellate court concluded that such being the case, petitioners could not claim that
EO 97-A is unconstitutional, while at the same time maintaining the validity of RA
7227. The court a quo also explained that the intention of Congress was to confine the
coverage of the SSEZ to the secured area and not to include the entire Olongapo
City and other areas mentioned in Section 12 of the law.
Issues:
Whether Executive Order No. 97-A violates the equal protection clause of the Constitution.
Specifically the issue is whether the provisions of Executive Order No. 97-A confining the
application of R.A. 7227 within the secured area and excluding the residents of the zone outside
of the secured area is discriminatory or not.
Ruling:
We rule in favor of the constitutionality and validity of the assailed EO. Said Order is
not violative of the equal protection clause; neither is it discriminatory. Rather, we
find real and substantive distinctions between the circumstances obtaining inside and
those outside the Subic Naval Base, thereby justifying a valid and reasonable
classification.
The fundamental right of equal protection of the laws is not absolute, but is subject to
reasonable classification. If the groupings are characterized by substantial
distinctions that make real differences, one class may be treated and regulated
differently from another. The classification must also be germane to the purpose of
the law and must apply to all those belonging to the same class.
We believe it was reasonable for the President to have delimited the application of
some incentives to the confines of the former Subic military base. It is this specific
area which the government intends to transform and develop from its status quo ante
as an abandoned naval facility into a self-sustaining industrial and commercial zone,
particularly for big foreign and local investors to use as operational bases for their
businesses and industries. Why the seeming bias for big investors? Undeniably, they
are the ones who can pour huge investments to spur economic growth in the country
and to generate employment opportunities for the Filipinos, the ultimate goals of the
government for such conversion. The classification is, therefore, germane to the
purposes of the law. And as the legal maxim goes, The intent of a statute is the law.
Certainly, there are substantial differences between the big investors who are being
lured to establish and operate their industries in the so-called secured area and the
present business operators outside the area. On the one hand, we are talking of
billion-peso investments and thousands of new jobs. On the other hand, definitely
none of such magnitude. In the first, the economic impact will be national; in the
second, only local. Even more important, at this time the business activities outside
the secured area are not likely to have any impact in achieving the purpose of the
law, which is to turn the former military base to productive use for the benefit of the
Philippine economy. There is, then, hardly any reasonable basis to extend to them the
benefits and incentives accorded in RA 7227. Additionally, as the Court of Appeals
pointed out, it will be easier to manage and monitor the activities within the secured
area, which is already fenced off, to prevent fraudulent importation of
merchandise or smuggling.
It is well-settled that the equal-protection guarantee does not require territorial

uniformity of laws, As long as there are actual and material differences between
territories, there is no violation of the constitutional clause.
We believe that the classification set forth by the executive issuance does not apply
merely to existing conditions. As laid down in RA 7227, the objective is to establish
a self-sustaining, industrial, commercial, financial and investment center in the
area. There will, therefore, be a long-term difference between such investment center
and the areas outside it.
Lastly, the classification applies equally to all the resident individuals and businesses
within the secured area. The residents, being in like circumstances or contributing
directly to the achievement of the end purpose of the law, are not categorized further.
Instead, they are all similarly treated, both in privileges granted and in obligations
required.
c. Uniformity and equity in taxation
classification of taxpayers, subject or items to be taxed
Uniformity does not forfend classification as long as: (1) the standards that are used therefor are
substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose,
(3) the law applies, all things being equal, to both present and future conditions, and (4) the
classification applies equally well to all those belonging to the same class (Pepsi Cola vs. City of
Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 52).
Sec. 28 (1), Art. VI, 1987 Constitution
SECTION 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve
a progressive system of taxation.
Tolentino v. Sec. of Finance, supra., supra.
Equity and uniformity in taxation means that all the taxable articles or kinds of properties of the
same class be taxed at the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation. To satisfy this requirement, it is enough that the
statute or ordinance applies equally to all persons, firms, and corporations placed in a similar
situation.
Mla. Race Horse v. dela Fuente, 88 Phil 60 (1951)
Nature of the case: This is a petition for declaratory relief by the Manila Race Horses Trainers
Association, Inc. against the City Mayor of Manila assailing the validity of Ordinance No. 3065
for being unconstitutional.
Facts of the case:
This action was instituted for a declaratory relief by the Manila Race Horses Trainers
Association, Inc., a non-stock corporation duly organized and existing under and by virtue of the
laws of the Philippines, who allege that they are owners of boarding stables for race horses and
that their rights as such are affected by Ordinance No. 3065 of the City of Manila approved on
July 1, 1947.1 They made the Mayor of Manila defendant and prayed that said ordinance be
declared invalid as violative of the Philippine Constitution.
The case was submitted on the pleadings, and the decision was that the ordinance in question "is
constitutional and valid and has been enacted in accordance with the powers of the Municipal
Board granted by the Charter of the City of Manila."
Issue of the case: Whether the ordinance is uniform and equitable.
Held: Yes, the ordinance is uniform and equitable.
We do not share plaintiff's opinion, apropos the second proposition, that the ordinance in
question is discriminatory and savors of class legislation. In taxing only boarding stables for race
horses, we do not believe that the ordinance, makes arbitrary classification. In the case of Eastern
Theatrical Co. Inc., vs. Alfonso, 46 Off. Gaz. Supp. to No. 11, p. 303,* it was said there is
equality and uniformity in taxation if all articles or kinds of property of the same class are taxed
at the same rate. Thus, it was held in that case, that "the fact that some places of amusement are
not taxed while others, such as cinematographs, theaters, vaudeville companies, theatrical shows,
and boxing exhibitions and other kinds of amusements or places of amusement are taxed, is not
argument at all against the equality and uniformity of tax imposition." Applying this criterion to
the present case, there would be discrimination if some boarding stables of the same class used
for the same number of horses were not taxed or were made to pay less or more than others.
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.
Eastern Theatrical v. Alfonso, 83 Phil 852 (1949)
Nature of the case: this is a petition for review of the decision of the judge of court of first
instance of manila upholding the validity of Ordinance No. 2958 (An ordinance imposing a fee
on the price of every admission ticket sold by cinematographs, theaters vaudeville companies
theatrical shows and boxing exhibition and providing for other purposes) of the City of Manila
which was enacted by the municipal Board of said city on April 25 1946 approved by the Mayor
on April 27, 1946 and took effect on May 1, 1946.
Facts of the case:

Plaintiffs, operator of theaters in Manila And distributor of local or imported films allege that
they are interested in the provision of section 1,2 and 4 of said ordinance which they impugn as
null and void upon the following grounds: (a) For violation the Constitution more particular the
provision regarding the uniformity and equality of taxation and the equal protection of the laws;
(b) because the Municipal Board of Manila exceeded and over-stepped the power granted it the
Charter of the City of Manila; (c) because it contravenes violates and is inconsistent with,
existing national legislation more particularly revenue and tax laws and (d) because it is unfair,
unjust, arbitrary capricious unreasonable oppressive and is contrary to and violation our basic
and recognizes principles of taxation and licensing laws.
Defendants allege as affirmative defenses the following: (a) That the ordinance was passed by
the Municipal Board of Manila by virtue of its express legislative power to tax fix the license fee
and regulate the business of theaters, cinematographs and further to fix the location of and to tax,
fix the license fee for and regulate the business of theatrical performances public exhibition
circus and other performances and places of amusement; (b) that the graduated tax required by
said ordinance being applied to all cinematographs, theaters, vaudeville companies theatrical
show and boxing exhibitions similarly situated and as a class without distinction or exception the
same does not violate the prohibition against uniformity and equality of taxation; (c) that the
graduated tax on admission tickets to theaters and other places of amusement imposed by the
National Internal Revenue Code (Commonwealth Act No. 466) is collected by and for the
purposes of the National Government, whereas, Ordinance No.2958 imposes and requires the
collection of a similar tax by and for the purposes of the Government of the City of Manila, and
there is no case of double taxation, (d) that said ordinance having been enacted under the express
power of the Municipal Board to tax for revenue as distinguished from its power to license for
purely police purposes, the fact that the amount collected there under are higher than what are
needed for police regulation and supervision does not render said ordinance unfair unjust
capricious unreasonable and oppressive; (e) that consideration the nature of the business of the
plaintiffs and the enormous volume of business they handle the graduated tax fixed by the
ordinance is not unreasonable.
On September 5, 1946, Judge Emilio Pena of the court of first Instance of Manila rendered a
decision upholding the validity of Ordinance No. 2958, thus this instant appeal.
Issues:
Whether the lower court erred in holding that under section 2444 (m) of the Revised
administrative Code the Municipal Board of the City of Manila had the power to
enact Ordinance No. 2958
Whether the lower court erred in not holding that section 2444 (m) of the Revised
Administrative Code was repealed or the power therein contained was withdrawn by
the National Assembly by the enactment of Commonwealth Act No. 466 known as
the National Internal Revenue Code
Whether the trial court erred in not holding that Ordinance No. 2958 violated
the principle of equality and uniformity of taxation enjoined by the Constitution
Ruling: Ordinance held VALID and CONSTITUTIONAL.
The whole argument of plaintiffs hinges, therefore, on the assumption that the power
granted to the City of Manila by section 2444(m) of the Revised Administrative Code
is limited to the authority to impose a tax on business, with exclusion of the power to
impose a tax amusement; but, the assumption is based on an arbitrary labeling of the
kind of tax authorized by said section 2444(m). The distinction made by plaintiffs as
to the power to tax on business and the power to tax on amusement has no ground
under the provisions of section 2444(m) of the Revised Administrative Code. The tax
therein authorized cannot be defined as tax on business and cannot be restricted
within a smaller scope than what is authorized by the words used, to the extent of
excluding what plaintiffs describe as tax on amusement.
The very fact that section 2444 (m) of the Revised Administrative Code includes
theaters, cinematographs, public billiard tables, public pool tables, bowling alleys,
dance halls, public dancing halls, cabarets, circuses and other similar places, race
tracks, horse races, theatrical performances, public exhibition, circus and other
performances and places of amusements, will show conclusively that the power to tax
amusement is expressly included within the power granted by section 2444(m) of the
Revised Administrative Code.
We see absolutely no force in plaintiffs' contention. The conflict pointed out by them
is imaginary. Both provisions of law may stand together and be enforced at the same
time without any incompatibility among themselves
The argument has absolutely no merit. The fact that some places of amusement are
not taxed while others, such as cinematographs, theaters, vaudeville companies,
theatrical shows, and boxing exhibitions and other kinds of amusements or places of
amusement are taxed, is no argument at all against the equality and uniformity of the
tax imposition. Equality and uniformity in taxation means that all taxable articles
or kinds of property of the same class shall be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications for
purposes of taxation; and the appellants cannot point out what places of
amusement taxed by the ordinance do not constitute a class by themselves and
which can be confused with those not included in the ordinance.
Pepsi Cola v. City of Butuan, supra.
The Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of P0.10 per
case of 24 bottles of Pepsi-Cola is excessive, oppressive and confiscatory and is highly unjust
and discriminatory.
Even if the burden in question were regarded as a tax on the sale of said beverages, it would still
be invalid, as discriminatory, and hence, violative of the uniformity required by the Constitution
and the law, since only sales by "agents or consignees" of outside dealers would be subject to the
tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the
volume of their sales, and even if the same exceeded those made by said agents or consignees of
producers or merchants established outside the City of Butuan, would be exempt from the
disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does not
require identity or equality under all circumstances, or negate the authority to classify the objects
of taxation.
The classification made in the exercise of this authority, to be valid, must, however, be
reasonable and this requirement is not deemed satisfied unless: (1) it is based upon substantial
distinctions which make real differences; (2) these are germane to the purpose of the legislation
or ordinance; (3) the classification applies, not only to present conditions, but, also, to future
conditions substantially identical to those of the present; and (4) the classification applies equally
to all those who belong to the same class.
Shell v. Vano, Mun. Treas. of Cordova, Cebu, 94 Phil 389 (1954)
Nature of the case:

This is a petition for review on the decision of the lower court upholding the validity and
constitutionality of the ordinances being executed and implemented by the municipal council of
Cordova, Cebu.
Facts of the case:

The municipal council of Cordova, Cebu adopted Ordinance 10 (1946) imposing an annual tax
of P150 on occupation or the exercise of the privilege of installation manager; Ordinance 9
(1947) imposing an annual tax of P40 for local deposits in drums of combustible and
inflammable materials and an annual tax of P200 for tin can factories; and Ordinance 11 (1948)
imposing an annual tax of P150 on tin can factories having a maximum annual output capacity of
30,000 tin cans. Shell Co., a foreign corporation, filed suit for the refund of the taxes paid by it,
on the ground that the ordinances imposing such taxes are ultra vires. Shell Company assailed
the validity of the said ordinance on the ground that it violates the equal protection clause. It
appears that only Shell had, at that time, an installation manager. In short, there is only one
installation manager in Cordova, Cebu. So Shell felt like the tax ordinance was merely targeting
Shell. Shell now wants the Treasurer of Cordova, E.E. Vao to be enjoined from implementing
the law.
Issue: Whether the tax ordinance is not valid for being violative of the uniformity and equality
principle.
Held: the ordinance is VALID and not violative of the uniformity and equity principle.
The fact that there is no other person or company with a position for an installation manager does
not make the ordinance discriminatory. The law is and will be applicable to any person or firm
who exercises such calling or occupation named or designated as installation manager. In
short, the law is applicable to present and future conditions.
Note again the requisites for a valid classification (not mentioned in this particular case but
mentioned in other relevant cases):
1. must rest on substantial distinctions;
2. must be germane to the purposes of the law;
3. must not be limited to existing conditions only; and
4. must apply equally to all members of the same class.
City of Baguio v. de Leon, 25 SCRA 938 (1968)
Nature of the case: this is a petition for review on the decision of the lower court upholding 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.
Facts of the case:

The City of Baguio passed an ordinance imposing a license fee on any person, entity or
corporation doing business in the City. The ordinance sourced its authority from RA No. 329,
thereby amending the city charter empowering it to fix the license fee and regulate businesses,
trades and occupations as may be established or practiced in the City. De Leon was assessed for
P50 annual fee it being shown that he was engaged in property rental and deriving income
therefrom. The latter assailed the validity of the ordinance arguing that it is ultra vires for there is
no statutory authority which expressly grants the City of Baguio to levy such tax, and that there it
imposed double taxation, and violates the requirement of uniformity.
Issue: Whether there was violation on the rule of uniformity by the execution and
implementation of the Ordinance in question.
Held: NO. there was no violation on the rule of uniformity.
According to the challenged ordinance, a real estate dealer who leases property worth P50,000 or
above must pay an annual fee of P100. If the property is worth P10,000 but not over P50,000,
then he pays P50 and P24 if the value is less than P10,000. On its face, therefore, the above
ordinance cannot be assailed as violative of the constitutional requirement of uniformity. In
Philippine Trust Company v. Yatco, Justice Laurel, speaking for the Court, stated: "A tax is
considered uniform when it operates with the same force and effect in every place where the
subject may be found."
There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso. Thus: "Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation; ..." About two years later,
Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. De la Fuente
incorporated the above excerpt in his opinion and continued: "Taking everything into account,
the differentiation against which the plaintiffs complain conforms to the practical dictates of
justice and equity and is not discriminatory within the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another case decided two years later,
is that the statute or ordinance in question "applies equally to all persons, firms and corporations
placed in similar situation." This Court is on record as accepting the view in a leading American
case that "inequalities which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation."
Kapatiran v. Tan, supra.
The petitioners" assertions in this regard are not supported by facts and circumstances to warrant
their conclusions. They have failed to adequately show that the VAT is oppressive, discriminatory
or unjust. Petitioners merely rely upon newspaper articles which are actually hearsay and have
evidentiary value. To justify the nullification of a law. there must be a clear and unequivocal
breach of the Constitution, not a doubtful and argumentative implication.
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The court,
in City of Baguio vs. De Leon, 5 said:
In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, speaking for the Court,
stated: "A tax is considered uniform when it operates with the same force and effect in every
place where the subject may be found."
There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso (83 Phil. 852, 862). Thus: "Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at the same rate. The taxing power
has the authority to make reasonable and natural classifications for purposes of taxation; . . ."
About two years later, Justice Tuason, speaking for this Court in Manila Race Horses Trainers
Assn. v. de la Fuente (88 Phil. 60, 65) incorporated the above excerpt in his opinion and
continued; "Taking everything into account, the differentiation against which the plaintiffs
complain conforms to the practical dictates of justice and equity and is not discriminatory within
the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another case decided two years later,
(Uy Matias v. City of Cebu, 93 Phil. 300) is that the statute or ordinance in question "applies
equally to all persons, firms and corporations placed in similar situation." This Court is on record
as accepting the view in a leading American case (Carmichael v. Southern Coal and Coke Co.,
301 US 495) that "inequalities which result from a singling out of one particular class for
taxation or exemption infringe no constitutional limitation." (Lutz v. Araneta, 98 Phil. 148, 153).
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public,
which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by
persons engage in business with an aggregate gross annual sales exceeding P200,000.00. Small
corner sari-sari stores are consequently exempt from its application. Likewise exempt from the
tax are sales of farm and marine products, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public.
Villanueva v. City of Iloilo, supra.
This Court has already ruled that tenement houses constitute a distinct class of property. It has
likewise ruled that "taxes are uniform and equal when imposed upon all property of the same
class or character within the taxing authority."
The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay
the taxes imposed by the ordinance in question is no argument at all against uniformity and
equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact
that tenement taxes are not imposed in other cities, for the same rule does not require that taxes
for the same purpose should be imposed in different territorial subdivisions at the same time. So
long as the burden of the tax falls equally and impartially on all owners or operators of tenement
houses similarly classified or situated, equality and uniformity of taxation is accomplished.
Asso. of Customs Brokers v. Mun. Board, supra.
It is also our opinion that the ordinance infringes the rule of the uniformity of taxation ordained
by our Constitution. Note that the ordinance exacts the tax upon all motor vehicles operating
within the City of Manila. It does not distinguish between a motor vehicle for hire and one
which is purely for private use. Neither does it distinguish between a motor vehicle
registered in the City of Manila and one registered in another place but occasionally comes
to Manila and uses its streets and public highways. The distinction is important if we note that
the ordinance intends to burden with the tax only those registered in the City of Manila as may
be inferred from the word "operating" used therein. The word "operating" denotes a connotation
which is akin to a registration, for under the Motor Vehicle Law no motor vehicle can be
operated without previous payment of the registration fees. There is no pretense that the
ordinance equally applies to motor vehicles who come to Manila for a temporary stay or for short
errands, and it cannot be denied that they contribute in no small degree to the deterioration of the
streets and public highway. The fact that they are benefited by their use they should also be made
to share the corresponding burden. And yet such is not the case. This is an inequality which we
find in the ordinance, and which renders it offensive to the Constitution.
3. Prohibition against imprisonment for non-payment of poll tax

SECTION 20. No person shall be imprisoned for debt or non-payment of a poll tax.
community tax v. poll tax
Personal, Poll Or Capitation Tax- Tax of a fixed amount imposed on persons residing within a
specified territory, whether citizens or not, without regard to their property or the occupation or
business in which they may be engaged. e.g. Community tax.
Sec. 156-164, R. A. 7160
ARTICLE VI
Community Tax
Section 156. Community Tax. - Cities or municipalities may levy a community tax in accordance with
the provisions of this Article.
Section 157. Individuals Liable to Community Tax. - Every inhabitant of the Philippines eighteen (18)
years of age or over who has been regularly employed on a wage or salary basis for at least thirty
(30) consecutive working days during any calendar year, or who is engaged in business or
occupation, or who owns real property with an aggregate assessed value of One thousand pesos
(P1,000.00) or more, or who is required by law to file an income tax return shall pay an annual
additional tax of Five pesos (P5.00) and an annual additional tax of One peso (P1.00) for every One
thousand pesos (P1,000.00) of income regardless of whether from business, exercise of profession
or from property which in no case shall exceed Five thousand pesos (P5,000.00).
In the case of husband and wife, the additional tax herein imposed shall be based upon the total
property owned by them and the total gross receipts or earnings derived by them.
Section 158. Juridical Persons Liable to Community Tax. - Every corporation no matter how created
or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines
shall pay an annual community tax of Five hundred pesos (P500.00) and an annual additional tax,
which, in no case, shall exceed Ten thousand pesos (P10,000.00) in accordance with the following
schedule:
(1) For every Five thousand pesos (P5,000.00) worth of real property in the Philippines
owned by it during the preceding year based on the valuation used for the payment of real
property tax under existing laws, found in the assessment rolls of the city or municipality
where the real property is situated - Two pesos (P2.00); and
(2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it
from its business in the Philippines during the preceding year - Two pesos (P2.00).
The dividends received by a corporation from another corporation however shall, for the
purpose of the additional tax, be considered as part of the gross receipts or earnings of said
corporation.
Section 159. Exemptions. - The following are exempt from the community tax:
(1) Diplomatic and consular representatives; and
(2) Transient visitors when their stay in the Philippines does not exceed three (3) months.
Section 160. Place of Payment. - The community tax shall be paid in the place of residence of the
individual, or in the place where the principal office of the juridical entity is located.
Section 161. Time for Payment; Penalties for Delinquency. -
(a) The community tax shall accrue on the first (1st) day of January of each year which shall
be paid not later than the last day of February of each year. If a person reaches the age of
eighteen (18) years or otherwise loses the benefit of exemption on or before the last day of
June, he shall be liable for the community tax on the day he reaches such age or upon the
day the exemption ends. However, if a person reaches the age of eighteen (18) years or
loses the benefit of exemption on or before the last day of March, he shall have twenty (20)
days to pay the community tax without becoming delinquent.
Persons who come to reside in the Philippines or reach the age of eighteen (18) years on or
after the first (1st) day of July of any year, or who cease to belong to an exempt class or after
the same date, shall not be subject to the community tax for that year.
(b) Corporations established and organized on or before the last day of June shall be liable
for the community tax for that year. But corporations established and organized on or before
the last day of March shall have twenty (20) days within which to pay the community tax
without becoming delinquent. Corporations established and organized on or after the first
day of July shall not be subject to the community tax for that year.
If the tax is not paid within the time prescribed above, there shall be added to the unpaid amount an
interest of twenty-four percent (24%) per annum from the due date until it is paid.
The right to vote, the salary of government employees, contracts with the government, oath
of professionals.
Section 162. Community Tax Certificate. - A community tax certificate shall be issued to every
person or corporation upon payment of the community tax. A community tax certificate may also be
issued to any person or corporation not subject to the community tax upon payment of One peso
(P1.00).
Section 163. Presentation of Community Tax Certificate On Certain Occasions. -
(a) When an individual subject to the community tax acknowledges any document before a
notary public, takes the oath of office upon election or appointment to any position in the
government service; receives any license, certificate. or permit from any public authority;
pays any tax or free; receives any money from any public fund; transacts other official
business; or receives any salary or wage from any person or corporation with whom such
transaction is made or business done or from whom any salary or wage is received to
require such individual to exhibit the community tax certificate.
The presentation of community tax certificate shall not be required in connection with the
registration of a voter.
(b) When, through its authorized officers, any corporation subject to the community tax
receives any license, certificate, or permit from any public authority, pays any tax or fee,
receives money from public funds, or transacts other official business, it shall be the duty of
the public official with whom such transaction is made or business done, to require such
corporation to exhibit the community tax certificate.
(c) The community tax certificate required in the two preceding paragraphs shall be the one
issued for the current year, except for the period from January until the fifteenth (15th) of
April each year, in which case, the certificate issued for the preceding year shall suffice.
Section 164. Printing of Community Tax Certificates and Distribution of Proceeds. -
(a) The Bureau of Internal Revenue shall cause the printing of community tax certificates and
distribute the same to the cities and municipalities through the city and municipal treasurers
in accordance with prescribed regulations.
The proceeds of the tax shall accrue to the general funds of the cities, municipalities and
barangays except a portion thereof which shall accrue to the general fund of the national
government to cover the actual cost of printing and distribution of the forms and other related
expenses. The city or municipal treasurer concerned shall remit to the national treasurer the
said share of the national government in the proceeds of the tax within ten (10) days after
the end of each quarter.
(b) The city or municipal treasurer shall deputize the barangay treasurer to collect the
community tax in their respective jurisdictions: Provided, however, That said barangay
treasurer shall be bonded in accordance with existing laws.
(c) The proceeds of the community tax actually and directly collected by the city or municipal
treasurer shall accrue entirely to the general fund of the city or municipality concerned.
However, proceeds of the community tax collected through the barangay treasurers shall be
apportioned as follows:
(1) Fifty percent (50%) shall accrue to the general fund of the city or municipality
concerned; and
(2) Fifty percent (50%) shall accrue to the barangay where the tax is collected.
4. Prohibition against impairment of obligation of contracts
Sec. 10, Art. III
SECTION 10. No law impairing the obligation of contracts shall be passed.

Sec. 11, Art. XII, 1987 Constitution
SECTION 11. No franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of whose
capital is owned by such citizens, nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. Neither shall any such franchise or
right be granted except under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation or association must be
citizens of the Philippines.
Tolentino v. Sec. of Finance, (1994) supra.
CREBA said additional amount of VAT 10% was not anticipated and not included in the contract.
The buyers, according to them should not be charged of the additional VAT. The eVAT Law did
not exempt VAT on the real estate transactions. "Authorities from numerous sources are cited by
the plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an
old one, interferes with a contract or impairs its obligation, within the meaning of the
Constitution. Even though such taxation may affect particular contracts, as it may increase the
debt of one person and lessen the security of another, or may impose additional burdens upon
one class and release the burdens of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation of any existing contract in its true
legal sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574
(1919)). Indeed not only existing laws but also "the reservation of the essential attributes of
sovereignty, is . . . read into contracts as a postulate of the legal order." (Philippine-American
Life Ins. Co. v. Auditor General, 22 SCRA 135, 147 (1968)) Contracts must be understood as
having been made in reference to the possible exercise of the rightful authority of the government
and no obligation of contract can extend to the defeat of that authority. (Norman v. Baltimore
and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of
agricultural products, food items, petroleum, and medical and veterinary services, it grants no
exemption on the sale of real property which is equally essential. The sale of real property for
socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise
be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential
goods and services was already exempt under 103, pars. (b) (d) (1) of the NIRC before the
enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted
exemption to these transactions, while subjecting those of petitioner to the payment of the VAT.
Moreover, there is a difference between the "homeless poor" and the "homeless less poor" in the
example given by petitioner, because the second group or middle class can afford to rent houses
in the meantime that they cannot yet buy their own homes. The two social classes are thus
differently situated in life. "It is inherent in the power to tax that the 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.'" (Lutz
v. Araneta, 98 Phil. 148, 153 (1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968);
Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng mga Naglilingkod sa Pamahalaan
ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
5. Prohibition against infringement of religious freedom

SECTION 5. No law shall be made respecting an establishment of religion, or prohibiting the
free exercise thereof. The free exercise and enjoyment of religious profession and worship,
without discrimination or preference, shall forever be allowed. No religious test shall be required
for the exercise of civil or political rights.
Am. Bible Society v. City of Manila, 101 Phil 386 (1957)
Nature of the case: This is a petition for review on the decision of the lower court upholding the
validity of Ordinance Nos. 3000 and 2529 as amended.
Facts of the case:

Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly
registered and doing business in the Philippines through its Philippine agency established in
Manila in November, 1898, with its principal office at 636 Isaac Peral in said City. The defendant
appellee is a municipal corporation with powers that are to be exercised in conformity with the
provisions of Republic Act No. 409, known as the Revised Charter of the City of Manila.
In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles
and/or gospel portions thereof (except during the Japanese occupation) throughout the
Philippines and translating the same into several Philippine dialects. On May 29 1953, the acting
City Treasurer of the City of Manila informed plaintiff that it was conducting the business of
general merchandise since November, 1945, without providing itself with the necessary Mayor's
permit and municipal license, in violation of Ordinance No. 3000, as amended, and Ordinances
Nos. 2529, 3028 and 3364, and required plaintiff to secure, within three days, the corresponding
permit and license fees, together with compromise covering the period from the 4th quarter of
1945 to the 2nd quarter of 1953, in the total sum of P5,821.45 (Annex A).
Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff deposit
and pay under protest the sum of P5,891.45, if suit was to be taken in court regarding the same
(Annex B). To avoid the closing of its business as well as further fines and penalties in the
premises on October 24, 1953, plaintiff paid to the defendant under protest the said permit and
license fees in the aforementioned amount, giving at the same time notice to the City Treasurer
that suit would be taken in court to question the legality of the ordinances under which, the said
fees were being collected (Annex C), which was done on the same date by filing the complaint
that gave rise to this action.
The lower court held the validity of the ordinance. Aggrieved, the case was elevated to the CA
which the CA then certified to the Supreme Court holding that the case involves pure questions
of law.
Issues: Whether the provisions of said ordinances are applicable or not to the case at bar.
Held: The provisions of Ordinance Nos. 2529 and 3000 are valid and constitutional but they
cannot be applied in the case at bar.
It may be true that in the case at bar the price asked for the bibles and other religious pamphlets
was in some instances a little bit higher than the actual cost of the same but this cannot mean that
appellant was engaged in the business or occupation of selling said "merchandise" for profit. For
this reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended,
cannot be applied to appellant, for in doing so it would impair its free exercise and enjoyment of
its religious profession and worship as well as its rights of dissemination of religious beliefs.
With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's
permit before any person can engage in any of the businesses, trades or occupations enumerated
therein, We do not find that it imposes any charge upon the enjoyment of a right granted by the
Constitution, nor tax the exercise of religious practices. In the case of Coleman vs. City of
Griffin, 189 S.E. 427, this point was elucidated as follows:
An ordinance by the City of Griffin, declaring that the practice of distributing either by hand or
otherwise, circulars, handbooks, advertising, or literature of any kind, whether said articles are
being delivered free, or whether same are being sold within the city limits of the City of Griffin,
without first obtaining written permission from the city manager of the City of Griffin, shall be
deemed a nuisance and punishable as an offense against the City of Griffin, does not deprive
defendant of his constitutional right of the free exercise and enjoyment of religious profession
and worship, even though it prohibits him from introducing and carrying out a scheme or
purpose which he sees fit to claim as a part of his religious system.
It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if
applied to plaintiff Society. But as Ordinance No. 2529 of the City of Manila, as amended, is not
applicable to plaintiff-appellant and defendant-appellee is powerless to license or tax the
business of plaintiff Society involved herein for, as stated before, it would impair plaintiff's right
to the free exercise and enjoyment of its religious profession and worship, as well as its rights of
dissemination of religious beliefs, We find that Ordinance No. 3000, as amended is also
inapplicable to said business, trade or occupation of the plaintiff.
* the ordinance is UNCONSTITUTIONAL because it infringed the right to the free exercise and
enjoyment of its religious profession and worship, as well as its right of dissemination of
religious belief.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for
regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the
exercise of its right. Hence, although its application to others, such those selling goods, is valid,
its application to the press or to religious groups, such as the Jehovah's Witnesses, in connection
with the latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme
Court put it, "it is one thing to impose a tax on income or property of a preacher. It is quite
another thing to exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil.
386 (1957) which invalidated a city ordinance requiring a business license fee on those engaged
in the sale of general merchandise. It was held that the tax could not be imposed on the sale of
bibles by the American Bible Society without restraining the free exercise of its right to
propagate. The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of
a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of
goods or properties or the sale or exchange of services and the lease of properties purely for
revenue purposes. To subject the press to its payment is not to burden the exercise of its right any
more than to make the press pay income tax or subject it to general regulation is not to violate its
freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds
derived from the sales are used to subsidize the cost of printing copies which are given free to
those who cannot afford to pay so that to tax the sales would be to increase the price, while
reducing the volume of sale. Granting that to be the case, the resulting burden on the exercise
of religious freedom is so incidental as to make it difficult to differentiate it from any other
economic imposition that might make the right to disseminate religious doctrines costly.
Otherwise, to follow the petitioner's argument, to increase the tax on the sale of vestments would
be to lay an impermissible burden on the right of the preacher to make a sermon.
* The imposition of VAT on sales of bibles is constitutional firstly because it is not imposed on
the privilege to propagate and disseminate the bible. It is a tax on its sales. Furthermore, it is also
constitutional and not an infringement of religious freedom because according to the Supreme
Court, the subsequent implication or burden is so incidental as to make it difficult to differentiate
it from any other economic imposition.
* Will the free Bible Gideon if taxed donors tax infringe in the right to religious freedom.
6. Prohibition against appropriation of proceeds of taxation
Sec. 29, Art. VI, 1987 Constitution

SECTION 29. (1) No money shall be paid out of the Treasury except in pursuance of an
appropriation made by law.
(2) No public money or property shall be appropriated, applied, paid, or employed, directly or
indirectly, for the use, benefit, or support of any sect, church, denomination, sectarian institution,
or system of religion, or of any priest, preacher, minister, or other religious teacher, or dignitary
as such, except when such priest, preacher, minister, or dignitary is assigned to the armed forces,
or to any penal institution, or government orphanage or leprosarium.
(3) All money collected on any tax levied for a special purpose shall be treated as a special
fund and paid out for such purpose only. If the purpose for which a special fund was created
has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of
the Government.
Use of tax levied for a special purpose

Osmena v. Orbos, supra.
The stabilization fees in question are levied by the State upon sugar millers, planters and
producers for a special purpose that of "financing the growth and development of the sugar
industry and all its components, stabilization of the domestic market including the foreign
market." The fact that the State has taken possession of moneys pursuant to law is sufficient to
constitute them state funds, even though they are held for a special purpose (Lawrence v.
American Surety Co. 263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having
been levied for a special purpose, the revenues collected are to be treated as a special fund,
to be, in the language of the statute, "administered in trust" for the purpose intended. Once
the purpose has been fulfilled or abandoned, the balance if any, is to be transferred to the general
funds of the Government. That is the essence of the trust intended (SEE 1987 Constitution,
Article VI, Sec. 29(3), lifted from the 1935 Constitution, Article VI, Sec. 23(1). 17
The character of the Stabilization Fund as a special kind of fund is emphasized by the fact that
the funds are deposited in the Philippine National Bank and not in the Philippine Treasury,
moneys from which may be paid out only in pursuance of an appropriation made by law (1987)
Constitution, Article VI, Sec. 29 (3), lifted from the 1935 Constitution, Article VI, Sec. 23(1).
(Emphasis supplied).
7. Prohibition against taxation of religious, charitable and educational entities

SECTION 28. (1) The rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation.
(2) 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.
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto,

mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually,
directly, and exclusively used for religious, charitable, or educational purposes shall
be exempt from taxation. (Properties of religious, charitable, educational entities)
(4) No law granting any tax exemption shall be passed without the concurrence of a
majority of all the Members of the Congress.
Abra Valley College v. Aquino, 162 SCRA 106 (1988)
Nature of the case: This is a petition for review on certiorari of the decision of the defunct Court
of First Instance of Abra, Branch I, dated June 14, 1974 dismissing the complaint filed by Abra
Valley College for the reason that they accordingly are not exempt from payment of real property
taxes and therefore, the subsequent seizure and sale of the schools property were declared valid.
Facts of the case:

Petitioner, an educational corporation and institution of higher learning duly incorporated with
the Securities and Exchange Commission in 1948, filed a complaint to annul and declare void the
Notice of Seizure and the Notice of Sale of its lot and building located at Bangued, Abra, for
non-payment of real estate taxes and penalties amounting to P5,140.31. Said Notice of Seizure
by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for
the satisfaction of the said taxes thereon.
The parties entered into a stipulation of facts adopted and embodied by the trial court in its
questioned decision. Aside from the Stipulation of Facts, the trial court among others, found the
following: (a) that the school is recognized by the government and is offering Primary, High
School and College Courses, and has a school population of more than one thousand students all
in all; (b) that it is located right in the heart of the town of Bangued, a few meters from the plaza
and about 120 meters from the Court of First Instance building; (c) that the elementary pupils are
housed in a two-storey building across the street; (d) that the high school and college students are
housed in the main building; (e) that the Director with his family is in the second floor of the
main building; and (f) that the annual gross income of the school reaches more than one hundred
thousand pesos.
The trial court ruled for the government, holding that the second floor of the building is being
used by the director for residential purposes and that the ground floor used and rented by
Northern Marketing Corporation, a commercial establishment, and thus the property is not being
used exclusively for educational purposes. Instead of perfecting an appeal, petitioner availed of
the instant petition for review on certiorari with prayer for preliminary injunction before the
Supreme Court, by filing said petition on 17 August 1974.
Issue: Whether Abra Valley College is exempt from the payment of the questioned real estate
taxes.
Held: Abra Valley College is not totally exempt from paying real estate taxes.
It was found by the Court that the issue raised for the first time on appeal cannot be considered
as an activity solely or exclusively used for educational purposes neither it is incidental to its
main objective.
It must be stressed however, that while this Court allows a more liberal and non-restrictive
interpretation of the phrase "exclusively used for educational purposes" as provided for in Article
VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always
been made that exemption extends to facilities which are incidental to and reasonably necessary
for the accomplishment of the main purposes. Otherwise stated, the use of the school building or
lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while
the use of the second floor of the main building in the case at bar for residential purposes of the
Director and his family, may find justification under the concept of incidental use, which is
complimentary to the main or primary purposeeducational, the lease of the first floor thereof
to the Northern Marketing Corporation cannot by any stretch of the imagination be considered
incidental to the purpose of education.
Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school
building as well as the lot where it is built, should be taxed, not because the second floor of the
same is being used by the Director and his family for residential purposes, but because the first
floor thereof is being used for commercial purposes. However, since only a portion is used for
purposes of commerce, it is only fair that half of the assessed tax be returned to the school
involved.
* exclusive means incidental. The use of the second floor is incidental to the educational activity.
The test is not on ownership but on actual use.
2. Prohibition against taxation of non-stock, non-profit educational institutions
Sec. 4 (3, 4), Art. XIV, 1987 Constitution

(3) All revenues and assets of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes shall be exempt from taxes and duties. Upon
the dissolution or cessation of the corporate existence of such institutions, their assets shall be
disposed of in the manner provided by law.
Proprietary educational institutions, including those cooperatively owned, may likewise be

entitled to such exemptions, subject to the limitations provided by law, including restrictions on
dividends and provisions for reinvestment.
(4) Subject to conditions prescribed by law, all grants, endowments, donations, or contributions
used actually, directly, and exclusively for educational purposes shall be exempt from tax.
Sec. 28 (3), Art. VI, Constitution
(3) Charitable institutions, churches and personages or convents appurtenant thereto, mosques,
non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and
exclusively used for religious, charitable, or educational purposes shall be exempt from taxation.
Sec. 27 (B) and 30 (H)

Section 27(B) Proprietary Educational Institutions and Hospitals. - Proprietary educational
institutions and hospitals which are nonprofit shall pay a tax of ten percent (10%) on their
taxable income except those covered by Subsection (D) hereof: Provided, that if the gross
income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total
gross income derived by such educational institutions or hospitals from all sources, the tax
prescribed in Subsection (A) hereof shall be imposed on the entire taxable income. For purposes
of this Subsection, the term 'unrelated trade, business or other activity' means any trade, business
or other activity, the conduct of which is not substantially related to the exercise or performance
by such educational institution or hospital of its primary purpose or function. A "Proprietary
educational institution" is any private school maintained and administered by private individuals
or groups with an issued permit to operate from the Department of Education, Culture and Sports
(DECS), or the Commission on Higher Education (CHED), or the Technical Education and Skills
Development Authority (TESDA), as the case may be, in accordance with existing laws and
regulations.
Section 30(H) A non-stock and nonprofit educational institution;
DOF Order No. 137-87

For the effective implementation of the provisions of the New Constitution, to wit: "Section 4(3),
Article XIV All revenues and assets of non-stock, nonprofit educational institution used
actually, directly and exclusively for educational purposes, shall be exempt from taxes and duties
x x x"
This set of guidelines shall govern the availment of exemption from the payment of internal
revenue taxes and customs duties provided for under the National Internal Revenue Code, and
the Tariff and Customs Code, both as amended.
COVERAGE OF EXEMPTION UNDER SECTION 4(3), ARTICLE XIV Of THE NEW

CONSTITUTION
The exemption herein contemplated refers to internal revenue taxes and customs duties, in
appropriate cases, imposed by the national government on all revenues and assets of non-stock,
nonprofit educational institutions used actually, directly and exclusively for educational
purposes.
2.1. Non-stock, non-profit educational institutions are exempt from tax on all revenues derived in
pursuance of its purpose as an educational institution and used actually, directly, and exclusively
for educational purposes. They shall, however, be subject to internal revenue taxes on income
from trade, business or other activity the conduct of which is not related to the exercise of
performance by such educational institution of its educational purpose or function.
2.2. Revenues derived from and assets used in the operations of cafeterias/canteens, dormitories,
bookstores are exempt from taxation provided they are owned and operated by the educational
institution as ancillary activities and the same are located within the school premises.
2.3. Revenues derived from and assets used in the operations of hospitals are exempt from
taxation provided they are owned and operated by the educational institution as an indispensable
requirement in the aperation and maintenance of its medical school/ college/institute.
AVAILMENT OF DUTY AND TAX-FREE ENTRY OF IMPORTED ARTCLES. -
In order to avail of the duty and tax-free entry of imported articles under Section 4(3), Article
XIV of the New Constitution, the following guidelines are hereby prescribed in addition to the
usual import requirements:
6.1. The importer shall, prior to the importation, apply with the Department of Education,
Culture and Sports for duty and tax exemption executed under oath by a duly authorized
representative of the institution and supported by the following documents:
6.1.1. A copy of the Charter or other evidence of the character of the institution for which the
articles are imported and the original of any order given by the institution to an importing
agent/dealer for such articles, if imported by the latter;
6.1.2. An affidavit executed by the importer stating, among others, that the imported articles are
to be used actually, directly and exclusively for educational purposes, and that the same will be
installed/used in its buildings/premises located at used actually, directly and exclusively for
educational purposes.
6.1.3. Should the importation be made through a dealer or indentor, an affidavit of both the
dealer or indentor and the ultimate consignee whose identity is indicated in the shipping
documents. Such affidavit shall state the party who placed the order, the number of items and
their respective values and such other matters as are related to the transaction.
6.2. The Department of Education, Culture and Sports shall verify and certify that the
educational institution is non-stock and non-profit and that the imported articles are to be used
actually, directly and exclusively for educational purposes and shall indorse the application for
duty and tax exemption to the Department of Finance with appropriate recommendation.
6.3. The Department of Finance, based on the recommendation of the Department of Education,
Culture and Sports, may allow the tax and/or duty-free entry of articles referred to under Section
4(3), Article XIV of the New Constitution upon compliance with the requirements herein
indicated;
6.4. This does not, however, preclude the Department of Finance from requiring the submission
of additional documents/undertakings should the need arise;
6.5. Articles entered tax and/or duty-free by educational institutions may not be sold, transferred
or otherwise disposed of in any manner whatsoever to any person without the prior approval of
the Department of Finance. Any transferee of said article shall be deemed the importer thereof,
and the same shall be assessed at its entered value without depreciation.
DOF Order No. 149-95
Section 2 (2.1) of Department Order No. 137-87 as amended by Department Order No. 92-88 Is
hereby amended to read as follows:
"2.1 NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS ARE EXEMPT FROM

TAXES ON ALL THEIR REVENUES AND ASSETS USED ACTUALLY, DIRECTLY, AND
EXCLUSIVELY FOR EDUCATIONAL PURPOSES.
They shall, however, he subject to internal revenue taxes on income from trade, business or other
activity the conduct of which is not related to the exercise or performance by such educational
institution of its educational purpose or function."
"2.1.1. To ensure that the exempt interest income from Philippine currency deposits and yield
from deposit substitute instruments are used actually, directly, and exclusively for educational
purposes, the said educational institutions shall, on annual basis submit to the Revenue District
Officer, together with the annual information return and duly audited financial statement, the
following:
a) Certification from their depositary banks as to the amount of interest income earned from
passive investments not subject to the 20% final withholding tax imposed by Section 24(e) of the
Tax Code, as amended;
b) Certification of actual utilization of the said income; and
c) Board Resolution by the school administration on proposed projects. (i.e. construction and/or
improvement of school buildings and facilities; acquisition of equipments, books and the like) to
be funded out of money deposited in banks or placed in money markets.
The RDO shall conduct an audit of the annual information return filed to determine compliance
with the conditions set forth in the Certificate of exemption and the tax liabilities, if any.
CIR v. CA, CTA and YMCA, 298 SCRA 83 (1998)
Nature of the case: This is the main question raised before us in this petition for review on
certiorari challenging two Resolutions issued by the Court of Appeals [1] on September 28, 1995
[2] and February 29, 1996 [3] in CA-GR SP No. 32007. Both Resolutions affirmed the Decision
of the Court of Tax Appeals (CTA) allowing the YMCA to claim tax exemption on the latters
income from the lease of its real property.
Facts of the case:
Young Mens Christian Association of the Philippines, Inc. is a non-stock, non-profit institution
which conducts various programs and activities that are beneficial to the public, especially the
young people, pursuant to its religious, educational and charitable objectives.
In 1980, the private respondent earned, among others an income from the leasing out of a portion
of its premises to small shop owners, like restaurants and canteen operators and parking fees
collected from non-members.
CIR issued an assessment to private respondent for deficiency income tax, deficiency expanded
withholding taxes on rentals and professional fees and deficiency withholding tax on wages .
Private respondent protested the assessment. CIR denied the claims of YMCA considering that it
was no engaged in the business of operating or contracting parking lot as it is only for members
with stickers. The rentals and parking fees were only enough to cover the costs of operation and
maintenance.
CIR elevated the case to the CA who decided in favor of CIR, reversing the CTA decision.
YMCA asked for reconsideration, which CA granted. CTA decision now affirmed.
CIR then filed motion for reconsideration which was denied by CA.
Issue: Whether the tax exemption claimed by the YMCA on rentals and parking fees are valid.
Held: No, the YMCA is not exempt from paying income tax on its rentals and parking fees.
The exemption claimed by YMCA is expressly disallowed by the very wording of the last
paragraph of the then section 27 of the NIRC which mandates that the income of exempt
organizations (such as the YMCA) from any of their properties, real or personal, be subject to the
tax imposed by the same Code. The last paragraph of said section unequivocally subjects to tax
the rent income of the YMCA from its real property. Thus the Court is duty-bound to abide
strictly by its literal meaning and to refrain from resorting to any convoluted attempt at
construction.
The CA committed reversible error when it allowed on reconsideration, the tax exemption
claimed by YMCA on income it derived from renting out its real property, on the solitary but
unconvincing ground that the said income is not collected for profit byt is merely incidental to its
operation. The law does not make a distinction. The rental income is taxable regardless of
whence such income is derived and how it is used or disposed of. Where the law does not
distinguish, neither should we.
On YMCAs argument that the constitution gives tax exemption on charitable institutions, the
Court is not persuaded. Justice Hilario Davide, Jr., stressed during the Concom debates that
what is exempted is not the institution itself; those exempted from real estate taxes are lands,
buildings and improvements actually, directly and exclusively used for religious charitable or
education purposes. Father Joaquin Bernas adhered to the same view (in short, only property
taxes).
YMCA is only exempt from payment of property tax, but not income tax on the rentals
from its property. Laws allowing tax exemptions are construed strictissimi juris as taxes
are the lifeblood of the government.
ADDITIONAL: For YMCA to be granted the exemption it claims, it must prove with substantial
evidence that 1) it falls under the classification non-stock, non-profit educational institution; and
2) the income it seeks to be exempted from taxation is used actually, directly and exclusively for
educational purposes. Such was not proven by the YMCA.
Sec. 27 of the NIRC (NOW SEC. 26) provides:
Exemptions from tax on corporations- the following organizations shall not be taxed under this
title in respect to income received by them as such-
(g) Civic league organization not organized for profit but operated exclusively for the promotion
of social welfare
(h) club organized and operated exclusively for pleasure, recreation, and other non-profittable
purposes, no part of the net income of which inures to the benefit of any private stockholder or
member
xxx
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organization from any of their properties, real or personal, or from any
of their activities conducted for profit, regardless of the disposition made of such income, shall
be subject to the tax imposed under this code.
The CA decision is reversed.
CIR v. CA, CTA and Ateneo, 271 SCRA 605 (1997)
Nature of the Case:

This is a petition for review of a decision of the Court of Appeals, that private respondent
is not liable for 3% contractors tax.
Ratio of the Case:

To impose the 3% Contractors tax on Ateneo Institute of the Philippine Culture, it should
be sufficiently proven that it is indeed selling its services for a fee in pursuit of an independent
business. Private respondent is not a contractor selling its services for a fee but an academic
institution conducting researches to its commitment to education and public service. Tax
exemption are to be strictly construed against the taxpayer.
Facts:
Ateneo de Manila University is a non-stock, non-profit educational institution with
auxiliary units and branches all over the Philippines. One such auxiliary unit is the Institute of
Philippine Culture (IPC) which has no legal personality separate and distinct from that of private
respondent. The IPC is engaged in social science studies of Philippine society and culture.
Occasionally, it accepts sponsorship for its research activities from international organizations,
private foundations and government agencies.
July 8, 1983 Ateneo received from CIR a demand letter dated June 3, 1983 ,assessing the
sum of P174,043.97 for alleged deficiency contractors tax, and an assessment dated June
27,1983 the sum P1,141,837 for alleged deficiency income tax, both for the fiscal year ended
March 31, 1978. Denying said liabilities, private respondent sent petitioner a letter-protest and
subsequently file with the latter memorandum contesting the validity of assessment.
March 17, 1988, CIR rendered decision cancelling the assessment for deficiency income
tax but increasing the contractors tax due to P193,475.55. Pending petition for review of the
said decision, on August 3, 1988 petitioner issued final decision of reducing the contractors tax
to P46,516.41 exclusive of surcharge and interest.
July 12, 1993, the Court of Tax Appeals rendered decision , setting aside the respondents
decision and cancelling the contractors tax.
The Court of Appeals disagreed with the CIR and affirmed the assailed decision of the
Court of Tax Appeals.
Issue:
Whether or not the private respondent through it auxiliary unit Institute of Philippine
Culture performing the work of independent contractor subject to 3% contractors tax.
Contention of CIR- Petitioner:
Petitioner contends that private respondent is an independent contractor within the purview of
Section 205 of the Tax Code. As defined by the Code, independent contractor encompasses all
kinds of services rendered for a fee and that the only exceptions are the ff:
a. Persons, associations, corporations under contract for embroidery and apparel for
exports and gross receipts of or from pioneer industry registered with the Board of
Investment under R.A.5186
b. Individuals occupation tax under Section 12 of the Local Tax Code
c. Regional or area headquarters established in the Philippines by multinational
corporation, including their alien executives and which headquarters do not earn or
derive income from the Philippines and which act as supervisory, communication and
coordinating centers for their affiliates, subsidiaries or branches in the Asia Pacific
Region (Sec. 205 of the Tax Code)
It further contends that the tax is due on its activity of conducting researches for a fee. The tax
is due on the gross receipts made in favor of IPC pursuant to the contracts the latter entered to
conduct researches for the benefit primarily of its clients. The tax is imposed on the exercise of a
taxable activity. The sale of services of private respondent is made under a contract and the
various contracts entered into between private respondents and its clients are almost of the same
terms, showing among others, the compensation and terms of payment.
Contention of Court of Tax Appeals- Respondent:

The CIR erred in applying the principles of tax exemption without first applying the well-settled
doctrine of strict interpretation in the imposition of taxes. It is obviously both illogical and
impractical to determine who are exempted without first determining who are covered by the
provision. In answering the question who is subject to tax statutes, it is basic that in case of
doubt, it should be construed most strongly against the government and in favor of the subjects
citizens because burdens are not to be imposed nor presumed to be imposed beyond what statutes
expressly and clearly import.
To fall under its coverage, Sec. 205 of the National Internal Revenue Code requires that the
independent contractor be engaged in the business of selling services. Hence, to impose the 3%
contractors tax on Ateneos Institute of Philippine Culture, it should be sufficiently proven that
the private respondent is indeed selling its services for a fee in pursuit of an independent
business.
Ruling:
The petition is unmeritorious.
The records do not show that Ateneos IPC in fact contracted to sell its research services
for a fee. None of the foregoing evidence even comes close to purport to be contracts between
private respondents and third parties. The Court of Tax Appeals accurately and correctly
declared that the funds received by the private respondent are technically not a fee. They may
however fall as gifts or donations which are tax exempt as shown by its compliance with the
requirement of Section 123 of the NIRC providing for exemption of such gifts to an education
institution. The IPC has been operating at a loss for the past 30 years, it loudly bespeaks of the
fact that education and not profit is the motive for undertaking the research projects.
Decision:
Wherefore, premises considered, the petition denied and the assailed decision of the
Court of Appeals is hereby affirmed in full.
Lung Center vs QC
It does not change the ruling of the SC in Abra College. It is in fact consistent since for
charitable, religious and educational institutions, the commercial use of their properties should
subject them to the taxes they were supposedly exempt. Please be reminded that properties must
be exclusively, actually and directly used in accordance with their main purpose.
8. Others
i. Grant of tax exemption (more on this under D4)

No law granting any tax exemption shall be passed without the concurrence of a majority of all
the Members of the Congress.
Chavez v. PCGG, supra.
The power to tax and to grant tax exemptions is vested in the Congress and, to a certain extent, in
the local legislative bodies. Section 28 (4), Article VI of the Constitution, specifically provides:
No law granting any tax exemption shall be passed without the concurrence of a majority of all
the Members of the Congress. The PCGG has absolutely no power to grant tax exemptions,
even under the cover of its authority to compromise ill-gotten wealth cases.
Coconut oil refiners v. Torres GR 132527 July 29, 2005
ii. Veto of appropriation, revenue or tariff bills

The President shall have the power to veto any particular item or items in an appropriation,
revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object.
The president may only ITEM-Veto, only the amounts may be replaced.
Gonzales v. Macaraig, 191 SCRA 452 (1990)
NATURE: Petition for Prohibition/ Mandamus with a prayer for the issuance of a Writ of
Preliminary Injunction and Restraining Order, assailing mainly the constitutionality or legality of
the Presidential veto of Section 55, and seeking to enjoin respondents from implementing Rep.
Act No. 6688
FACTS:
On 16 December 1988, Congress passed House Bill No. 19186, or the General Appropriations
Bill for the Fiscal Year 1989. As passed, it eliminated or decreased certain items included in the
proposed budget submitted by the President. On 29 December 1988, the President signed the Bill
into law, and declared the same to have become Rep. Act No. 6688. In the process, seven (7)
Special Provisions and Section 55, a "General Provision," were vetoed. On 2 February 1989, the
Senate, in the same Resolution No. 381, expressed its opinion that the veto of the President was
unconstitutional and, therefore, void and without any force and effect; hence, the aforesaid
Section 55 remains.
Sec. 55 of Appropriations Act of 1989 reads:

SEC. 55. Prohibition Against the Restoration or Increase of Recommended Appropriations
Disapproved and/or Reduced by Congress: No item of appropriation recommended by the
President in the Budget submitted to Congress pursuant to Article VII, Section 22 of the
Constitution which has been disapproved or reduced in this Act shall be restored or increased by
the use of appropriations authorized for other purposes by augmentation. An item of
appropriation for any purpose recommended by the President in the Budget shall be deemed to
have been disapproved by Congress if no corresponding appropriation for the specific purpose is
provided in this Act.
The President vetoed this provision because it would allegedly violate Section 25 (5) of Article
VI of the Constitution and nullify not only the constitutional and statutory authority of the
President, but also that of the President of the Senate, the Speaker of the House of
Representatives, the Chief Justice of the Supreme Court, and Heads of Constitutional
Commissions, to augment any item in the general appropriations law for their respective offices
from savings in other items of their respective appropriations.
A similar provision also appeared in the Appropriations Act of 1990 Sec. 16.
ISSUES:
1. Whether the President has the power to veto the provisions of an Appropriations Bill
2. Whether conditions imposed Sec. 55 (1989) and Sec. 16 (1990) are inappropriate
3. Whether the Presidents veto was valid
RULING:
1. Yes, the President has the power to veto the provisions of an Appropriations Bill. Sec. 27
Art. VI of the 1987 Constitution reads:
(1) Every bill passed by the Congress shall, before it becomes a law, be presented to the
President. If he approves the same, he shall sign it; otherwise, he shall veto it and return the same
with his objections to the House where it originated, which shall enter the objections at large in
its Journal and proceed to reconsider it. If, after such reconsideration, two-thirds of all the
Members of such House shall agree to pass the bill, it shall be sent, together with the objections,
to the other House by which it shall likewise be reconsidered, and if approved by two-thirds of
all the Members of that House, it shall become a law. In all such cases, the votes of each House
shall be determined by yeas or nays, and the names of the Members voting for or against shall be
entered in its Journal. The President shall communicate his veto of any bill to the House where it
originated within thirty days after the date of receipt thereof; otherwise, it shall become a law as
if he had signed it.
(2) The President shall have the power to veto any particular item or items in an
appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to which
he does not object.
Paragraph (1) refers to the general veto power of the President and if exercised would result in
the veto of the entire bill, as a general rule. Paragraph (2) is what is referred to as the item-veto
power or the line-veto power. It allows the exercise of the veto over a particular item or items in
an appropriation, revenue, or tariff bill. As specified, the President may not veto less than all of
an item of an Appropriations Bill. In other words, the power given the executive to disapprove
any item or items in an Appropriations Bill does not grant the authority to veto a part of an item
and to approve the remaining portion of the same item.
The court disagreed with the petitioners contention that Sec. 55 and Sec. 16 are provisions and
not items, therefore, outside the scope of the item-veto power of the President. The terms item
and provision in budgetary legislation and practice are concededly different. An item in a bill
refers to the particulars, the details, the distinct and severable parts of the bill. It is the courts
considered opinion that, notwithstanding the elimination in Article VI, Section 27 (2) of the 1987
Constitution of any reference to the veto of a provision, the extent of the Presidents veto power
as previously defined by the 1935 Constitution has not changed. This is because the eliminated
proviso merely pronounces the basic principle that a distinct and severable part of a bill may be
the subject of a separate veto. The restrictive interpretation urged by petitioners that the President
may not veto a provision without vetoing the entire bill not only disregards the basic principle
that a distinct and severable part of a bill may be the subject of a separate veto but also overlooks
the Constitutional mandate that any provision in the general appropriations bill shall relate
specifically to some particular appropriation therein and that any such provision shall be limited
in its operation to the appropriation to which it relates (1987 Constitution, Article VI, Section 25
[2]). In other words, in the true sense of the term, a provision in an Appropriations Bill is limited
in its operation to some particular appropriation to which it relates, and does not relate to the
entire bill.
2. Yes, the provisions in Sec. 55 (1989) and Sec. 16 (1990) are inappropriate because they
are not provisions in the budgetary sense of the term. Article VI, Section 25 (2) of the 1987
Constitution provides:
No provision or enactment shall be embraced in the general appropriations bill unless it relates
specifically to some particular appropriation therein. Any such provision or enactment shall be
limited in its operation to the appropriation to which it relates.
Explicit is the requirement that a provision in the Appropriations Bill should relate specifically to
some" particular appropriation" therein. The challenged "provisions" fall short of this
requirement. Firstly, the vetoed "provisions" do not relate to any particular or distinctive
appropriation. They apply generally to all items disapproved or reduced by Congress in the
Appropriations Bill. Secondly, the disapproved or reduced items are nowhere to be found on the
face of the Bill. To discover them, resort will have to be made to the original recommendations
made by the President and to the source indicated by petitioners themselves, i.e., the "Legislative
Budget Research and Monitoring Office". Thirdly, the vetoed Sections are more of an expression
of Congressional policy in respect of augmentation from savings rather than a budgetary
appropriation. Consequently, Section 55 (FY 89) and Section 16 (FY 90) although labelled as
"provisions," are actually inappropriate provisions that should be treated as items for the purpose
of the Presidents veto power.
3. Yes, the Presidents veto was valid because nullify the authority of the Chief Executive
and heads of different branches of government to augment any item in the General
Appropriations Law for their respective offices from savings in other items of their respective
appropriations, as guaranteed by Article VI, Section 25 (5) of the Constitution:
Sec. 25. (5) No law shall be passed authorizing any transfer of appropriations; however, the
President, the President of the Senate, the Speaker of the House of Representatives, the Chief
Justice of the Supreme Court, and the heads of Constitutional Commissions may, by law, be
authorized to augment any item in the general appropriations law for their respective offices
from savings in other items of their respective appropriations
The court upheld the validity of the power of augmentation from savings by citing the case of
Demetria v. Alba which afforded the heads of the different branches of the government and those
of the constitutional commissions considerable flexibility in the use of public funds and
resources, the constitution allowed the enactment of a law authorizing the transfer of funds for
the purpose of augmenting an item from savings in another item in the appropriation of the
government branch or constitutional body concerned. The leeway granted was thus limited. The
purpose and conditions for which funds may be transferred were specified, i.e., transfer may be
allowed for the purpose of augmenting an item and such transfer may be made only if there are
savings from another item in the appropriation of the government branch or constitutional body.
iii. Non-impairment of the jurisdiction of the Supreme Court

Sec. 2, 5 (b), Art. VIII, 1987 Constitution
Section 2. The Congress shall have the power to define, prescribe, and apportion the jurisdiction
of the various courts but may not deprive the Supreme Court of its jurisdiction over cases
enumerated in Section 5 hereof.
No law shall be passed reorganizing the Judiciary when it undermines the security of tenure of its
Members.
Section 5. The Supreme Court shall have the following powers:

(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of
Court may provide, final judgments and orders of lower courts in:
(b) All cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed
in relation thereto.
CIR v. Santos, 277 SCRA 617 (1997)
NATURE: Petition for declaratory relief filed by the CIR and COC seeking the reversal of the
decision of the RTC-Pasig City which declared Section 104 of the Tariff and the Custom Code of
the Philippines, Hdg, 71.01, 71.02, 71.03, and 71.04, Chapter 71 as amended by Executive Order
No. 470, imposing three to ten (3% to 10%) percent tariff and customs duty on natural and
cultured pearls and precious or semi-precious stones, and Section 150 par. (a)the National
Internal Revenue Code of 1977, as amended, renumbered and rearranged by Executive Order
273, imposing twenty (20%) percent excise tax on jewelry, pearls and other precious stones, as
INOPERATIVE and WITHOUT FORCE and EFFECT insofar as petitioners are concerned
FACTS:
Private respondent Guild of Philippine Jewelers, Inc., is an association of Filipino jewelers
engaged in the manufacture of jewelers (sic) and allied undertakings. Among its members are
Hans Brumann, Inc., Miladay Jewels Inc., Mercelles, Inc., Solid Gold International Traders inc.,
Diagem Trading Corporation, and Private respondent Jewelry by Marco & Co., Inc. Private
respondent Antonio M. Marco is the President of the Guild.
On Aug 5, 1988, BIR issued a Mission order to BIR officers to conduct surveillance, monitoring,
and inventory of all imported articles of Hans Brumann, Inc., and place the same under
preventive embargo. Subsequently, BIR officers proceeded to the establishment of Hans
Brumann Inc. and made and inventory of articles displayed in the cabinets with the assistance of
an employee. The BIR officers requested the establishment not to sell the articles until it can be
proven that the necessary taxes thereon have been paid and Mr. Hans Brumann agreed and never
filed a protest with BIR.
On Oct. 17, 1988, BIR sent Letter of Authority to Hans Brumann Inc. to prepare and make
available the documents requested, but the latter did not comply. Similar LAs were issued to
Miladay Jewels, Inc., Mercelles, Inc., Solid Gold International Traders, Inc., (Exhibit E, G and
N) and Diagem Trading Corporation. In the case of Miladay Jewels, Inc. and Mercelles, Inc.,
there is no account of what actually transpired in the implementation of the Letters of Authority.
In the case of Solid Gold International Traders Corporation and Diagem Traders Corp., the BIR
officers made an inventory of the articles in the establishment.
On November 29, 1988, private respondents Antonio M. Marco and Jewelry By Marco & Co.,
Inc. filed with the RTC a petition for declaratory relief against petitioners praying that Sections
126, 127(a) and (b) and 150 (a) of the National Internal Revenue Code and Hdg. No 71.01,
71.02, 71.03 and 71.04, Chapter 71 of the Tariff and Customs Code of the Philippines be
declared unconstitutional and void, and that the Commissioner of Internal Revenue and Customs
be prevented or enjoined from issuing mission orders and other orders of similar nature. RTC,
granted petition of private respondent. Hence, this petition.
Laws in question:
Section 150 (a) of Executive Order No. 273 reads:
SEC. 150. Non-essential goods. There shall be levied, assessed and collected a tax equivalent to
20% based on the wholesale price or the value of importation used by the Bureau of Customs in
determining tariff and customs duties; net of the excise tax and value-added tax, of the following
goods:
(a) All goods commonly or commercially known as jewelry, whether real or imitation, pearls,
precious and semi-precious stones and imitations thereof; goods made of, or ornamented,
mounted and fitted with, precious metals or imitations thereof or ivory (not including surgical
and dental instruments, silver-plated wares, frames or mountings for spectacles or eyeglasses,
and dental gold or gold alloys and other precious metals used in filling, mounting or fitting of the
teeth); opera glasses and lorgnettes. The term precious metals shall include platinum, gold, silver,
and other metals of similar or greater value. The term imitation thereof shall include platings and
alloys of such metals.
Section 150 (a) of Executive Order No. 273, which took effect on January 1, 1988, amended the
then Section 163 (a) of the Tax Code of 1986 which provided that:
SEC. 163. Percentage tax on sales of non-essential articles. There shall be levied, assessed and
collected, once only on every original sale, barter, exchange or similar transaction for nominal or
valuable consideration intended to transfer ownership of, or title to, the article herein below
enumerated a tax equivalent to 50% of the gross value in money of the articles so sold, bartered.
Exchanged or transferred, such tax to be paid by the manufacturer or producer:
(a) All articles commonly or commercially known as jewelry, whether real or imitation, pearls,
precious and semi-precious stones, and imitations thereof, articles made of, or ornamented,
mounted or fitted with, precious metals or imitations thereof or ivory (not including surgical and
dental instruments, silver-plated wares, frames or mounting for spectacles or eyeglasses, and
dental gold or gold alloys and other precious metal used in filling, mounting or fitting of the
teeth); opera glasses, and lorgnettes. The term precious metals shall include platinum, gold,
silver, and other metals of similar or greater value. The term imitations thereof shall include
platings and alloys of such metals;
Section 163(a) of the 1986 Tax Code was formerly Section 194(a) of the 1977 Tax Code and
Section 184(a) of the Tax code, as amended by Presidential Decree No. 69, which took effect on
January 1, 1974.
It will be noted that, while under the present law, jewelry is subject to a 20% excise tax in
addition to a 10% value-added tax under the old law, it was subjected to 50% percentage tax. It
was even subjected to a 70% percentage tax under then Section 184(a) of the Tax Code, as
amended by P.D. 69.
Section 104, Hdg, Nos. 17.01, 17.02, 17.03 and 17.04, Chapter 71 of the Tariff and Customs
Code, as amended by Executive Order No. 470, dated July 20, 1991, imposes import duty on
natural or cultured pearls and precious or semi-precious stones at the rate of 3% to 10% to be
applied in stages from 1991 to 1994 and 30% in 1995.
Prior to the issuance of E.O. 470, the rate of import duty in 1988 was 10% to 50% when the
petition was filed in the court a quo.
ISSUE:
Whether RTC has jurisdiction over the subject matter
RULING:
No, RTC has no jurisdiction over the subject matter. The court found that there is no doubt in the
Courts mind, despite protestations to the contrary, that respondent judge encroached upon
matters properly falling within the province of legislative functions. In citing as basis for his
decision unproven comparative data pertaining to differences between tax rates of various Asian
countries, and concluding that the jewelry industry in the Philippines suffers as a result, the
respondent judge took it upon himself to supplant legislative policy regarding jewelry taxation.
In advocating the abolition of local tax and duty on jewelry simply because other countries have
adopted such policies, the respondent judge overlooked the fact that such matters are not for him
to decide. There are reasons why jewelry, a non-essential item, is taxed as it is in this country,
and these reasons, deliberate upon by our legislature, are beyond the reach of judicial
questioning.
San Miguel Corp. v. Avelino, 89 SCRA 69 (1979)
NATURE: Petition for certiorari and prohibition on the decision of the CFI Cebu which denied
the motion to dismiss filed by the petitioner to CFI Cebu
FACTS:
Respondent City, in accordance with Presidential Decree No. 231, enacted in 1973, to take effect
on January 1, 1974, the challenged ordinance, otherwise known as the Mandaue City Tax Code.
The City Treasurer, on April 1, 1974, demanded from petitioner payment of the made specific tax
on the total volume of beer it produced in the City of Mandaue. Petitioner, on April 8, 1974,
contested the correction of said specific tax "on the ground that Section 12(e) (7) in relation to
Section 12(e) (1) and (2), Mandaue City Ordinance No. 97, is illegal and void because it imposed
a specific tax beyond its territorial jurisdiction." The matter was then referred by respondent City
to its City Fiscal pursuant to such Presidential Decree. Its validity was sustained. Then came the
appeal to the Secretary of Justice, with the then Acting Secretary of Justice Macaraig, as noted,
rendering the opinion that it is "of doubtful validity." A suit for collection was thereafter filed by
the City where it squarely put in issue the validity of such ordinance, thus contesting the opinion
of the Acting Secretary of Justice. City of Mandaue filed a case with the CFI-Cebu for the
collection of the tax imposed by the ordinance at the same time questioning the correctness of the
decision of the Secretary of Justice. Petitioner SMC filed a motion to dismiss on the ground of
lack of jurisdiction on the part of the RTC. RTC denied the motion finding no justifiable reason
in dismissing the Complaint at this stage of the proceedings. Hence, this petition for certiorari
and prohibition.
ISSUE:
Whether CFI has jurisdiction to decide on the validity of the ordinance
RULING:
Yes, the court relied on the authoritative principle that the question of validity is for the judiciary
to decide. As far back as the leading case of Marbury v. Madison, where the American Supreme
Court enunciated the principle of judicial review, Chief Justice Marshall stressed: "It is
emphatically the province and duty of the judicial department to say what the law is." Tersely
and bluntly put, petitioner would deny the jurisdiction of respondent Judge to pass upon the
validity of a challenged ordinance in an appropriate action. To say the least, there is unorthodoxy
in such an approach. What immediately calls attention is its novelty. It is opposed to and is not in
conformity with the accepted juridical norm that the validity of a statute, an executive order or
ordinance is a matter for the judiciary to decide and that whenever in the disposition of a pending
case such a question becomes unavoidable, then it is not only the power but the duty of the Court
to resolve such a question.
The SC did not rule on the validity because doing so would be premature. The SC remanded the
case to the lower court.
Requisites of Judicial Review

1. There must be an actual case or controversy
2. The petitioner must have legal standing
3. The question of constitutionality must be raised at the earliest possible time
4. The constitutionality must be the very lis mota of the case.
iv. Revenue bills shall originate from the House of Representatives

Sec. 24, Art. VI, 1987 Constitution
Section 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt,
bills of local application, and private bills, shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.
Tolentino v. Sec. of Finance, supra., supra.
The history of this [constitutional] provision does not support this contention. The supposed
indicia of constitutional intent are nothing but the relics of an unsuccessful attempt to limit the
power of the Senate. It will be recalled that the 1935 Constitution originally provided for a
unicameral National Assembly. When it was decided in 1939 to change to a bicameral
legislature, it became necessary to provide for the procedure for lawmaking by the Senate and
the House of Representatives. The work of proposing amendments to the Constitution was done
by the National Assembly, acting as a constituent assembly, some of whose members, jealous of
preserving the Assembly's lawmaking powers, sought to curtail the powers of the proposed
Senate. Accordingly they proposed the following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local application, and private
bills shall originate exclusively in the Assembly, but the Senate may propose or concur with
amendments. In case of disapproval by the Senate of any such bills, the Assembly may repass the
same by a two-thirds vote of all its members, and thereupon, the bill so repassed shall be deemed
enacted and may be submitted to the President for corresponding action. In the event that the
Senate should fail to finally act on any such bills, the Assembly may, after thirty days from the
opening of the next regular session of the same legislative term, reapprove the same with a vote
of two-thirds of all the members of the Assembly. And upon such reapproval, the bill shall be
deemed enacted and may be submitted to the President for corresponding action.
The power of the Senate to propose or concur with amendments is apparently without restriction.
It would seem that by virtue of this power, the Senate can practically re-write a bill required to
come from the House and leave only a trace of the original bill. For example, a general revenue
bill passed by the lower house of the United States Congress contained provisions for the
imposition of an inheritance tax . This was changed by the Senate into a corporation tax. The
amending authority of the Senate was declared by the United States Supreme Court to be
sufficiently broad to enable it to make the alteration.
In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills must "originate exclusively
in the House of Representatives," it also adds, "but the Senate may propose or concur with
amendments." In the exercise of this power, the Senate may propose an entirely new bill as a
substitute measure. As petitioner Tolentino states in a high school text, a committee to which a
bill is referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes in the bill omitting or
adding sections or altering its language; (3) to make and endorse an entirely new bill as a
substitute, in which case it will be known as a committee bill; or (4) to make no report at
all.
v. Infringement of press freedom

Section 4. No law shall be passed abridging the freedom of speech, of expression, or of the press,
or the right of the people peaceably to assemble and petition the government for redress of
grievances.
We have held that, as a general proposition, the press is not exempt from the taxing power of the
State and that what the constitutional guarantee of free press prohibits are laws which single out
the press or target a group belonging to the press for special treatment or which in any way
discriminate against the press on the basis of the content of the publication, and R.A. No. 7716 is
none of these.
Now it is contended by the PPI that by removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates against the press. At any rate, it is
averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is
unconstitutional."
With respect to the first contention, it would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime without offense to the Constitution. The
reason is simple: by granting exemptions, the State does not forever waive the exercise of its
sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden
to which other businesses have long ago been subject. It is thus different from the tax involved in
the cases invoked by the PPI.
The PPI asserts that it does not really matter that the law does not discriminate against the press
because "even nondiscriminatory taxation on constitutionally guaranteed freedom is
unconstitutional." PPI cites in support of this assertion the following statement in Murdock v.
Pennsylvania. The Court was speaking in that case of a license tax, which, unlike an ordinary
tax, is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior
restraint on the exercise of its right. Hence, although its application to others, such those selling
goods, is valid, its application to the press or to religious groups, such as the Jehovah's
Witnesses, in connection with the latter's sale of religious books and pamphlets, is
unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or
property of a preacher. It is quite another thing to exact a tax on him for delivering a sermon."
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege,
much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of properties purely for revenue
purposes. To subject the press to its payment is not to burden the exercise of its right any more
than to make the press pay income tax or subject it to general regulation is not to violate its
freedom under the Constitution.
vi. Grant of Franchise

Sec. 11, Art. XII, 1987 Constitution
Section 11. No franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least sixty per centum of whose
capital is owned by such citizens; nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. Neither shall any such franchise or
right be granted except under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation or association must be
citizens of the Philippines.

Tolentino v. Sec. of Finance, supra
PAL contends that the amendment of its franchise by the withdrawal of its exemption from the
VAT is not expressed in the title of the law.
PAL was originally exempted from payment of VAT by Sec. 103 NIRC. R.A. No. 7716 seeks to
withdraw certain exemptions, including that granted to PAL.
PAL asserts that the amendment of its franchise must be reflected in the title of the law by
specific reference to P.D. No. 1590. It is unnecessary to do this in order to comply with the
constitutional requirement, since it is already stated in the title that the law seeks to amend the
pertinent provisions of the NIRC, among which is 103(q), in order to widen the base of the
VAT. Actually, it is the bill which becomes a law that is required to express in its title the subject
of legislation. The titles of H. No. 11197 and S. No. 1630 in fact specifically referred to 103 of
the NIRC as among the provisions sought to be amended. We are satisfied that sufficient notice
had been given of the pendency of these bills in Congress before they were enacted into what is
now R.A. No. 7716.
C. Situs of Taxation and Double Taxation
1. Meaning of situs
SEC. 42. Income from Sources Within the Philippines. -
(A)Gross Income from Sources Within the Philippines. - The following items of gross income
shall be treated as gross income from sources within the Philippines:
(1) Interests. - Interests derived from sources within the Philippines, and interests on bonds,
notes or other interest-bearing obligation of residents, corporate or otherwise;
(2) Dividends. - The amount received as dividends:
(a) From a domestic corporation; and
(b) From a foreign corporation, unless less than fifty percent (50%) of the gross income of such
foreign corporation for the three-year period ending with the close of its taxable year preceding
the declaration of such dividends or for such part of such period as the corporation has been in
existence) was derived from sources within the Philippines as determined under the provisions of
this Section; but only in an amount which bears the same ratio to such dividends as the gross
income of the corporation for such period derived from sources within the Philippines bears to its
gross income from all sources;
(3) Services.- Compensation for labor or personal services performed in the Philippines;
(4) Rentals and Royalties. - Rentals and royalties from property located in the Philippines or
from any interest in such property, including rentals or royalties for -
(a) The use of or the right or privilege to use in the Philippines any copyright, patent, design or
model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or
right;
(b) The use of, or the right to use in the Philippines any industrial, commercial or scientific
equipment;
(c) The supply of scientific, technical, industrial or commercial knowledge or information;
(d) The supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of
enabling the application or enjoyment of, any such property or right as is mentioned in paragraph
(a), any such equipment as is mentioned in paragraph (b) or any such knowledge or information
as is mentioned in paragraph (c);
(e) The supply of services by a nonresident person or his employee in connection with the use of
property or rights belonging to, or the installation or operation of any brand, machinery or other
apparatus purchased from such nonresident person;
(f) Technical advice, assistance or services rendered in connection with technical management or
administration of any scientific, industrial or commercial undertaking, venture, project or
scheme; and
(g) The use of or the right to use:

(i) Motion picture films;
(ii) Films or video tapes for use in connection with television; and
(iii) Tapes for use in connection with radio broadcasting.
(5) Sale of Real Property. -Gains, profits and income from the sale of real property located in the
Philippines; and
(6) Sale of Personal Property. - Gains; profits and income from the sale of personal property, as
determined in Subsection (E) of this Section.
(B) Taxable Income From Sources Within the Philippines. -
(1) General Rule. - From the items of gross income specified in Subsection (A) of this Section,
there shall be deducted the expenses, losses and other deductions properly allocated thereto and a
ratable part of expenses, interests, losses and other deductions effectively connected with the
business or trade conducted exclusively within the Philippines which cannot definitely be
allocated to some items or class of gross income: Provided, That such items of deductions shall
be allowed only if fully substantiated by all the information necessary for its calculation. The
remainder, if any, shall be treated in full as taxable income from sources within the Philippines.
(2) Exception. - No deductions for interest paid or incurred abroad shall be allowed from the
item of gross income specified in subsection (A) unless indebtedness was actually incurred to
provide funds for use in connection with the conduct or operation of trade or business in the
Philippines.
(C) Gross Income From Sources Without the Philippines. - The following items of gross income
shall be treated as income from sources without the Philippines:
(1) Interests other than those derived from sources within the Philippines as provided in
paragraph (1) of Subsection (A) of this Section;
(2) Dividends other than those derived from sources within the Philippines as provided in
paragraph (2) of Subsection (A) of this Section;
(3) Compensation for labor or personal services performed without the Philippines;
(4) Rentals or royalties from property located without the Philippines or from any interest in such
property including rentals or royalties for the use of or for the privilege of using without the
Philippines, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade
brands, franchises and other like properties; and
(5) Gains, profits and income from the sale of real property located without the Philippines.
(D) Taxable Income From Sources Without the Philippines. - From the items of gross income
specified in Subsection (C) of this Section, there shall be deducted the expenses, losses, and
other deductions properly apportioned or allocated thereto and a ratable part of any expense, loss
or other deduction which cannot definitely be allocated to some items or classes of gross income.
The remainder, if any, shall be treated in full as taxable income from sources without the
Philippines.
(E) Income From Sources Partly Within and Partly Without the Philippines.- Items of gross
income, expenses, losses and deductions, other than those specified in Subsections (A) and (C)
of this Section, shall be allocated or apportioned to sources within or without the Philippines,
under the rules and regulations prescribed by the Secretary of Finance, upon recommendation of
the Commissioner. Where items of gross income are separately allocated to sources within the
Philippines, there shall be deducted (for the purpose of computing the taxable income therefrom)
the expenses, losses and other deductions properly apportioned or allocated thereto and a ratable
part of other expenses, losses or other deductions which cannot definitely be allocated to some
items or classes of gross income. The remainder, if any, shall be included in full as taxable
income from sources within the Philippines. In the case of gross income derived from sources
partly within and partly without the Philippines, the taxable income may first be computed by
deducting the expenses, losses or other deductions apportioned or allocated thereto and a ratable
part of any expense, loss or other deduction which cannot definitely be allocated to some items
or classes of gross income; and the portion of such taxable income attributable to sources within
the Philippines may be determined by processes or formulas of general apportionment prescribed
by the Secretary of Finance. Gains, profits and income from the sale of personal property
produced (in whole or in part) by the taxpayer within and sold without the Philippines, or
produced (in whole or in part) by the taxpayer without and sold within the Philippines, shall be
treated as derived partly from sources within and partly from sources without the Philippines.
Gains, profits and income derived from the purchase of personal property within and its sale
without the Philippines, or from the purchase of personal property without and its sale within the
Philippines shall be treated as derived entirely form sources within the country in which sold:
Provided, however, That gain from the sale of shares of stock in a domestic corporation shall be
treated as derived entirely form sources within the Philippines regardless of where the said shares
are sold. The transfer by a nonresident alien or a foreign corporation to anyone of any share of
stock issued by a domestic corporation shall not be effected or made in its book unless: (1) the
transferor has filed with the Commissioner a bond conditioned upon the future payment by him
of any income tax that may be due on the gains derived from such transfer, or (2) the
Commissioner has certified that the taxes, if any, imposed in this Title and due on the gain
realized from such sale or transfer have been paid. It shall be the duty of the transferor and the
corporation the shares of which are sold or transferred, to advise the transferee of this
requirement.
(F) Definitions. - As used in this Section the words 'sale' or 'sold' include 'exchange' or
'exchanged'; and the word 'produced' includes 'created', 'fabricated', 'manufactured', 'extracted',
'processed', 'cured' or 'aged'.
SEC. 104. Definitions. - 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.
The term 'deficiency' means:
(a) the amount by which tax imposed by this Chapter exceeds the amount shown as the tax by the
donor upon his return; but the amount so shown on the return shall first be increased by the
amount previously assessed (or Collected without assessment) as a deficiency, and decreased by
the amounts previously abated, refunded or otherwise repaid in respect of such tax, or
(b) if no amount is shown as the tax by the donor, then the amount by which the tax exceeds the
amounts previously assessed, (or collected without assessment) as a deficiency, but such amounts
previously assessed, or collected without assessment, shall first be decreased by the amount
previously abated, refunded or otherwise repaid in respect of such tax.
2. Situs of subjects of taxation
Sec. 42, 104
CIR v. British Overseas Airway Corp., supra.

CIR v. Japan Airlines, supra.
Wells Fargo Bank v. Collector, 70 Phil 325 (1940)
3. Multiplicity of Situs, Collector v. de Lara, 102 Phil 813 (1958)
4. Double Taxation
a. Meaning
CIR v. S.C. Johnson and Son, Inc., 309 SCRA 87 (1999)
b. Double taxation in its broad sense

Villanueva v. City of Iloilo, supra.
b. Constitutionality of double taxation

City of Baguio v. de Leon, supra.
Pepsi Cola Bottling v. City of Butuan, supra.
Sanchez v. Collector, 97 Phil 687 (1955)
City of Mla. v. Interisland Gas Service, 99 Phil 847 (1956)
Cpa. General de Tabacos v. City of Mla., supra.

Constitutional Limitations A. Due Process of Law Sec. 1, Art. III, 1987 Constitution

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Constitutional Limitations A. Due Process of Law Sec. 1, Art. III, 1987 Constitution

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3.

a. Due process of law

Sec. 1, Art. III, 1987 Constitution

Tan v. del Rosario, supra.

No violation of due process as it taxes GPP separately like Corporation.

Sison v. Ancheta, supra.

* Allege Substantive and Procedural Due Process.

b. Equal protection of the laws

Sec. 1, Art. III, 1987 Constitution

Sison v. Ancheta, supra.

Villegas v. Hiu Chiong Tsai Pao, 86 SCRA 270 (1978)

Tan v. del Rosario, supra.

CIR v. CA & Alhambra Ind., 267 SCRA 557 (1997)

Facts of the case:

ALHAMBRA INDUSTRIES, INC., is a domestic corporation engaged in the manufacture and

Tiu v. CA, 301 SCRA 278 (1999)

It is well-settled that the equal-protection guarantee does not require territorial

c. Uniformity and equity in taxation

classification of taxpayers, subject or items to be taxed

Sec. 28 (1), Art. VI, 1987 Constitution

Tolentino v. Sec. of Finance, supra., supra.

Facts of the case:

Issue of the case: Whether the ordinance is uniform and equitable.

Held: Yes, the ordinance is uniform and equitable.

Eastern Theatrical v. Alfonso, 83 Phil 852 (1949)

Facts of the case:

Ruling: Ordinance held VALID and CONSTITUTIONAL.

Pepsi Cola v. City of Butuan, supra.

Shell v. Vano, Mun. Treas. of Cordova, Cebu, 94 Phil 389 (1954)

Nature of the case:

Facts of the case:

City of Baguio v. de Leon, 25 SCRA 938 (1968)

Facts of the case:

Held: NO. there was no violation on the rule of uniformity.

Kapatiran v. Tan, supra.

Villanueva v. City of Iloilo, supra.

Asso. of Customs Brokers v. Mun. Board, supra.

3. Prohibition against imprisonment for non-payment of poll tax

Sec. 20, Art. III, 1987 Constitution

community tax v. poll tax

Sec. 156-164, R. A. 7160

(1) Diplomatic and consular representatives; and

Section 161. Time for Payment; Penalties for Delinquency. -

Section 163. Presentation of Community Tax Certificate On Certain Occasions. -

Section 164. Printing of Community Tax Certificates and Distribution of Proceeds. -

4. Prohibition against impairment of obligation of contracts

Sec. 10, Art. III

SECTION 10. No law impairing the obligation of contracts shall be passed.

Tolentino v. Sec. of Finance, (1994) supra.

5. Prohibition against infringement of religious freedom

Sec. 5, Art. III, 1987 Constitution

Am. Bible Society v. City of Manila, 101 Phil 386 (1957)

Facts of the case:

6. Prohibition against appropriation of proceeds of taxation

Sec. 29, Art. VI, 1987 Constitution

Use of tax levied for a special purpose

7. Prohibition against taxation of religious, charitable and educational entities

Sec. 28 (3), Art. VI, 1987 Constitution

(3) Charitable institutions, churches and parsonages or convents appurtenant thereto,

Abra Valley College v. Aquino, 162 SCRA 106 (1988)

Facts of the case:

2. Prohibition against taxation of non-stock, non-profit educational institutions