-
PRiMUS CUT AND PASTE:
The BAR STAR NOTES
in
TAXATI0N With selected Supreme Court decisions
up to May 10, 2009
VER: 09.05.12
by
ABELARDO T. DOMONDON
How to use the Notes: These Notes in the form of textual
materials and representative review questions were
specially prepared by Prof. Domondon for the exclusive
use of Bar Candidates who attended his 2009 lectures on
Taxation, and others he has personally authorized.
The purpose of these Notes is to test the candidates
ability to answer probable questions that may be asked in
the
September 33, 2009 Bar Examinations in Taxation. The last
version to be released is Ver. 09.08.17 which may
substantially alter the contents of this Ver. 09.05.12 Be
sure
to secure the last version to replace this version.
DO NOT MEMORIZE the suggested answers. Some of
the answers were purposely made to be lengthy in order to
serve as explanatory devices. This is so because you do not
have time anymore to refer back to your review materials.
The materials are arranged in accordance with the bar
examination coverage. The actual bar questions may not be
so arranged. Likewise, these Notes are only indicative of
the
areas from where Bar questions may be sourced. The
questions shown in these Notes may or may not be exactly
worded in the actual Bar questions.
The reader is advised to take note of the areas marked
with stars:
If pressed for time, the reader should read only the
items marked and . These areas represent 80% to
90% of the sources of questions that would probably be given
in the 2009 Bar exams. The reader should merely browse
the areas marked and the unmarked areas because they
represent only 10% to 20% of the areas from where questions
may probably be sourced this year.
WARNING:
These materials are copyrighted and/or based on the
writers books on Taxation and future revisions. It is
prohibited to reproduce any part of these Notes in any form
or any means, electronic or mechanical, including
photocopying without the written permission of the author.
These materials are authorized for the use only of Bar
reviewees the author has personally authorized. Unauthorized
users shall not be prosecuted but SHALL BE SUBJECT TO
THE LAW OF KARMA SUCH THAT THEY WILL NEVER
PASS THE BAR OR WOULD BE UNHAPPY IN LIFE for
stealing the intellectual property of the author.
Only copies with the signature of Prof. Domondon, or
his authorized representative and the corresponding number
on this page are considered authorized copies. Holders of
authorized copies are requested not to lend their copies for
reproduction through Xerox or otherwise.
GENERAL PRINCIPLES OF TAXATION
TAXATION, IN GENERAL
-
2
1. Why are tax laws construed strictly against the State and
liberally in favor of the State ? SUGGESTED ANSWER: In case of
doubt, tax laws must be construed strictly against the State and
liberally in favor of the taxpayer because taxes, as burdens which
must be endured by the taxpayer, should not be presumed to go
beyond what the law expressly and clearly declares. (Lincoln
Philippine Life Insurance Company, Inc., etc., v. Court of Appeals,
et al., 293 SCRA 92, 99)
2. Why are tax exemptions are strictly construed
against the taxpayer and liberally in favor of the State ?
SUGGESTED ANSWER: Taxes are necessary for the continued existence
of the State.
3. Strict interpretation of tax exemption laws. Taxes are what
civilized people pay for civilized society. They are the lifeblood
of the nation. Thus, statutes granting tax exemptions are construed
stricissimi juris against the taxpayer and liberally in favor of
the taxing authority. A claim of tax exemption must be clearly
shown and based on language in law too plain to be mistaken.
Otherwise stated, taxation is the rule, exemption is the exception.
(Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G. R.
No. 166408, October 6, 2008 citing Mactan Cebu International
Airport
Authority v. Marcos, G.R. No. 120082, September 11, 1996, 261
SCRA
667, 680) The burden of proof rests upon the party claiming the
exemption to prove that it is in fact covered by the exemption so
claimed. (Quezon City, supra citing Agpalo, R.E., Statutory
Construction, 2003 ed., p. 301)
4. Rationale for strict interpretation of tax
exemption laws. The basis for the rule on strict construction to
statutory provisions granting tax exemptions or deductions is to
minimize differential treatment and foster impartiality, fairness
and equality of treatment among taxpayers. (Quezon City, et al., v.
ABS-CBN Broadcasting Corporation, G. R. No. 166408, October 6,
2008) He who claims an exemption from his share of common burden
must justify his claim that the legislature intended to exempt him
by unmistakable terms. For exemptions from taxation are not favored
in law, nor are they presumed. They must be expressed in the
clearest and most unambiguous language and not left to mere
implications. It has been held that exemptions are never presumed
the burden is on the claimant to establish clearly his right to
exemption and cannot be made out of inference or implications but
must be laid beyond reasonable doubt. In other words, since
taxation is the rule and exemption the exception, the intention
to make an exemption ought to be expressed in clear and unambiguous
terms. (Quezon City, supra citing Agpalo, R.E., Statutory
Construction, 2003 ed., p. 302)
5. What is the effect of a BIR reversal of a previous
ruling interpreting a law as exempting a taxpayer ? SUGGESTED
ANSWER: A reversal of a BIR ruling favorable to a taxpayer would
not necessarily create a perpetual exemption in his favor, for
after all the government is never estopped from collecting taxes
because of mistakes or errors on the part of its agents. (Lincoln
Philippine Life Insurance Company, Inc., etc., v. Court of Appeals,
et al., 293 SCRA 92, 99)
6. Why is the right to collect taxes imprescriptible
? SUGGESTED ANSWER: a. As a general rule, revenue laws are not
intended to be liberally construed, and exemptions are not given
retroactive application, considering that taxes are the lifeblood
of the government and in Holmes memorable metaphor, the price we
pay for civilization, tax laws must be faithfully and strictly
implemented. (Commissioner of Internal Revenue v. Acosta, etc.,G.
R. No. 154068, August 3, 2007) However, statutes may provide for
prescriptive periods for the collection of particular kinds of
taxes. b. Tax laws, unlike remedial laws, are not to be applied
retroactively. Revenue laws are substantive laws and their
application must not be equated with remedial laws. (Acosta,
supra)
7. It is said that taxes are the lifeblood of the
government and any delay in its collection would impair
the rendition of government services. May the collection
of taxes be restrained by a court ? SUGGESTED ANSWER: As a
general rule, No court shall have the authority to grant an
injunction to restrain the collection of any national internal
revenue tax, fee or charge. (Sec. 218, NIRC) However, the Court of
Tax Appeals is empowered to enjoin the collection of taxes through
administrative remedies when collection could jeopardize the
interest of the government or taxpayer. (Sec. 11, Rep. Act No.
1125)
8. What are the grounds and procedure for
suspension of collection of taxes ?
-
3
SUGGESTED ANSWER: Where the collection of the amount of the
taxpayers liability, sought by means of a demand for payment, by
levy, distraint or sale of property of the taxpayer, or by whatever
means, as provided under existing laws, may jeopardize the interest
of the government or the taxpayer, an interested party may file a
motion for the suspension of the collection of the tax liability
(Sec. 1, Rule 10, RRCTA effective December 15, 2005) with the Court
of Tax Appeals. The motion for suspension of the collection of the
tax may be filed together with the petition for review or with the
answer, or in a separate motion filed by the interested party at
any stage of the proceedings. (Sec. 3, Rule 10, RRCTA effective
December 15, 2005)
9. Explain the sumptuary purpose of taxation. SUGGESTED ANSWER:
The sumptuary purpose of taxation is to promote the general welfare
and to protect the health, safety or morals of the inhabitants. It
is in the joint exercise of the power of taxation and police power
where regulatory taxes are collected. Taxation may be made the
implement of the states police power. The motivation behind many
taxation measures is the implementation of police power goals.
[Southern Cross Cement Corporation v. Cement Manufacturers
Association of the Philippines, et al., G. R. No. 158540, August 3,
2005 citing Lutz v. Araneta, 98 Phil. 148, 152 (1955); in turn
citing Great Atl. & Pac. Tea Co. v. Grosjean, 302 U.S. 412;
U.S. v. Biutler, 297 U.S. 1; McCulloch v. Maryland, 4 Wheaton 316]
The reader should note that the August 3, 2005 Southern Cross case
is the decision on the motion for reconsideration of the July 8,
2004 Southern Cross decision. The so-called sin taxes on alcohol
and tobacco manufacturers help dissuade the consumers from
excessive intake of these potentially harmful products. (Southern
Cross Cement Corporation v. Cement Manufacturers Association of the
Philippines, et al., G. R. No. 158540, August 3, 2005)
10. Explain the compensatory purpose of taxation. SUGGESTED
ANSWER: The compensatory purpose of taxation is to implement the
social justice provisions of the constitution through the
progressive system of taxation, which would result to equal
distribution of wealth, etc. Progressive income taxes alleviate the
margin between rich and poor. (Southern Cross Cement Corporation v.
Cement Manufacturers Association of the Philippines, et al., G. R.
No. 158540, August 3, 2005)
11. What are the distinctions between a tax and a
license fee ? SUGGESTED ANSWER: The following are the
distinctions between a tax and a license fee: a. PURPOSE: A tax is
imposed for revenue purposes WHILE a license fee is imposed for
regulatory purposes. (Unless it is a joint exercise of both the
police power and the power of taxation) b. BASIS: A tax is imposed
under the power of taxation WHILE a license fee is imposed under
police power. c. AMOUNT: There is no limit as to the amount of a
tax WHILE the amount of license fee that could be collected is
limited to the cost of the license and the expenses of police
surveillance and regulation. d. TIME OF PAYMENT: Taxes are normally
paid after the start of a business WHILE a license fee before the
commencement of business. e. EFFECT OF NON-PAYMENT: Failure to pay
a tax does not make the business illegal WHILE failure to pay a
license fee makes the business illegal. f. SURRENDER: Taxes being
the lifeblood of the state, cannot be surrendered except for lawful
consideration WHILE a license fee may be surrendered with or
without consideration.
12. Distinguish taxation from police power. SUGGESTED ANSSWER:
Taxation is distinguishable from police power as to the means
employed to implement these public goals. Those doctrines that are
unique to taxation arose from peculiar considerations such as those
especially punitive effects (Southern Cross Cement Corporation v.
Cement Manufacturers Association of the Philippines, et al., G. R.
No. 158540, August 3, 2005 citing U. S. Chief Marshall who once
said, the power to tax involves the power to destroy, McCulloch v.
Maryland, 4 Wheaton 316, cited in Sison v. Ancheta, G. R. No. L
59431, July 25, 130 SCRA 654) and the belief that taxes are
lifeblood of the state. (Southern Cross Cement Corporation v.
Cement Manufacturers Association of the Philippines, et al., G. R.
No. 158540, August 3, 2005 citing [T]axes being the lifeblood of
the government, their prompt and certain availability is of the
essence. Sison v. Ancheta, id., citing Vera v. Fernandez, G. R. No.
L-31364, March 30, 1979, 89 SCRA 199]
-
4
These considerations necessitated the evolution of taxation as a
distinct legal concept from police power. (Southern Cross Cement
Corporation, supra) If the question asks for an enumeration of the
distinctions between the power of taxation and police power, the
candidate should reformulate no. 17 above.
13. What is the purpose of the Sugar
Adjustment Act ? SUGGESTED ANSWER: The Sugar Adjustment Act
which increased existing taxes on sugar was enacted to stabilize
the sugar industry to prepare it for the loss of its quota in the
U.S. market was levied for a regulatory purpose to protect and
promote the sugar industry which is also for a public purpose.
(Lutz v. Araneta, 98 Phil. 148) The Philsugin fund, an imposition
on sugar, to raise funds to conduct research for the improvement of
the sugar industry, is for the purpose of stabilizing the sugar
industry which one of the pillars of the Philippine economy which
affects the welfare of the State. The levy is not so much an
exercise of the power of taxation, nor the imposition of a special
levy, but the exercise of police power which is for the general
welfare of the entire country, therefore for a public purpose.
(Republic v. Bacolod-Murcia Co., et al., G.R. No. L-19824, July 9,
1966)
14. Section 40 (g) of the Public Service Act
authorizes the collection of x x x fees as reimbursement
of its expenses in the authorization, supervision and/or
regulation of the public services: x x x g) For each permit,
authorizing the increase in equipment, the installation of
new units or authorizing the increase of capacity, or the
extension of means or general extensions in the services,
twenty centavos for each one hundred pesos or fraction
of the additional capital necessary to carry out the
permit. (paraphrasing supplied)
Is the imposition a tax measure ? Explain. SUGGESTED ANSWER: No.
It is not a tax measure but a simple regulatory provision for the
collection of fees imposed pursuant to the exercise of the States
police power. A tax is imposed under the taxing power of government
principally for the purpose of raising revenues. The law in
question, however, merely authorizes and requires the collection of
fees for the reimbursement
of the Commissions expenses in the authorization, supervision
and/or regulation of public services. (Republic, etc., v.
International Communications Corporation (ICC), G. R. No. 141667,
July 17, 2006)
15. How may the power of taxation also be used to
implement power of eminent domain ? SUGGESTED ANSWER: Tax
measures are but enforced contributions exacted on pain of penal
sanctions and clearly imposed for public purpose. In most recent
years, the power to tax has indeed become a most effective tool to
realize social justice, public welfare, and the equitable
distribution of wealth. (Commissioner of Internal Revenue v.
Central Luzon Drug Corporation, G.R. No. 159647, April 16, 2005)
Establishments granting the 20% senior citizens discount may claim
the discounts granted to senior citizens as tax deduction based on
the net cost of the goods sold or services rendered: Provided, That
the cost of the discount shall be allowed as deduction from gross
income for the same taxable year that the discount is granted.
Provided, further, That the total amount of the claimed tax
deduction net of value added tax if applicable, shall be included
in their gross sales receipts for tax purposes and shall be subject
to proper documentation and to the provisions of the National
Internal Revenue Code, as amended. [M.E. Holding Corporation v.
Court of Appeals, et al., G.R. No. 160193, March 3, 2008 citing
Expanded Senior Citizens Act of 2003, Sec. 4 (a)]
16. What is purpose for the limitations on the
power of taxation ? SUGGESTED ANSWER: The inherent and
constitutional limitations to the power of taxation are safeguards
which would prevent abuse in the exercise of this otherwise
unlimited and plenary power. The limitations also serve as a
standard to measure the validity of a tax law or the act of a
taxing authority. A violation of the limitations serves to
invalidate a tax law or act in the exercise of the power to tax.
INHERENT LIMITATIONS
1. What are the inherent limitations on the power of taxation ?
SUGGESTED ANSWER: The inherent limitations are
-
5
a. Public purpose. The revenues collected from taxation should
be devoted to a public purpose. b. No improper delegation of
legislative authority to tax. Only the legislature can exercise the
power of taxes unless the same is delegated to some other
governmental body by the constitution or through a law which does
not violate any provision of the constitution. c. Territoriality.
The taxing power should be exercised only within territorial
boundaries of the taxing authority. d. Recognition of government
exemptions; and e. Observance of the principle of comity. Comity is
the respect accorded by nations to each other because they are
equals. On the other hand taxation is an act of sovereign. Thus,
the power should be imposed upon equals out of respect. Some
authorities include no double taxation.
2. When are taxes considered as being for a
public purpose ? SUGGESTED ANSWER: The tax revenues are for a
public purpose if utilized for the benefit of the community in
general. An alternative meaning is that tax proceeds should be
utilized only to attain the objectives of government.
Public use is no longer confined to the traditional notion of
use by the public but held synonymous with public interest, public
benefit, public welfare, and public convenience. (Commissioner of
Internal Revenue v. Central Luzon Drug Corporation, G.R. No.
159647, April 16, 2005)
3. Define a taxpayers suit. SUGGESTED ANSWER: Taxpayers suit is
a case where the act complained of directly involves the illegal
disbursement of public funds derived from taxation. (Justice Melo,
dissenting in Kilosbayan, Inc. v. Guingona, Jr., 232 SCRA 110)
4. What is locus standi ? SUGGESTED ANSWER: Locus standi is a
right of
appearance in a court of justice on a given question. (Abaya v.
Ebdane, G. R. No. 167919, February 14, 2007)
It is a partys personal and substantial interest in the case,
such that the party has sustained or will sustain (Ibid.)direct
injury as a result of the government act being challenged. It calls
for more than just a generalized grievance.
A party need not be a party to the contract to challenge its
validity. (Ibid.)
5. What is meant by the term material interest ? SUGGESTED
ANSWER: The term interest means a material interest, an interest in
issue affected by the decree, as distinguished from mere interest
in the question involved, or a mere incidental interest. (Abaya v.
Ebdane, G. R. No. 167919, February 14, 2007)
6. What is the rationale for locus standi ? SUGGESTED ANSWER:
The rationale for requiring a party
who challenges the constitutionality of a statute to allege such
a personal stake in the outcome of the controversy is to ensure
that a concrete adverseness which sharpens the presentation of
issues upon which the court so largely depends for illumination of
different constitutional questions. (Abaya v. Ebdane, G. R. No.
167919, February 14, 2007)
7. When may locus standi be brushed aside ? SUGGESTED ANSWER: In
cases of paramount importance
where serious constitutional questions are involved, the
standing requirements may be relaxed and a suit may be allowed to
prosper even where there is no direct injury to the party claiming
the right of judicial review. [Coconut Oil Refiners Association,
Inc., etc., et al., vs. Torres, etc., et al., G. R. No. 132527,
July 29, 2005 citing Bayan (Bagong Alyansang Makabayan) v. Zamora,
G. R. No. 138570, October 10, 2000, 342 SCRA 449, in turn citing
Kilosbayan, Inc. v. Guingona, Jr., G. R. No. 113375, May 5, 1994,
232 SCRA 110]
8. What are the requirements that must be met before taxpayers,
concerned citizens and
legislators may be accorded standing to sue ? SUGGESTED ANSWER:
a. The case should involve constitutional issues; b. For taxpayers,
there must be a claim of illegal disbursement of public funds or
that the tax measure is unconstitutional. c. For voters, there must
be a showing of obvious interest in the validity of the election
law in question. d. For concerned citizens, there must be a showing
that the issues raised are of transcendental importance which must
be settled early. e. For legislators, there must be a claim that
the official action complained of infringes upon their prerogatives
as legislators.
-
6
(David, et al., v. President Gloria Macapagal-Arroyo, etc., et
al., G. R. No. 171396, May 3, 2006)
9. What are the requisites for challenging
constitutionality of law including a tax law ? SUGGESTED ANSWER:
The party bringing suit must show not only that the law or act is
invalid, but also that he has sustained or is in immediate, or
imminent danger of sustaining some direct injury as a result of its
enforcement and not merely that he suffers thereby in some
indefinite way. (Soriano III v. Lista, et al., G. R. No. 153881,
March 24, 2003)
10. Locus standi being merely a matter of
procedure, have been waived in certain instances where a
party who is not personally injured may be allowed to
bring suit. Give some examples. SUGGESTED ANSWER: The following
are examples of instances where suits have been brought by parties
who have not have been personally injured by the operation of a law
or any other government act but by concerned citizens, taxpayers or
voters who actually sue in the public interest: a. Taxpayers suits
to question contracts entered into by the national government or
government-owned or controlled corporations allegedly in
contravention of the law.
b. A taxpayer is allowed to sue where there is a claim that
public funds are illegally disbursed, or that public money is being
deflected to any improper purpose, or that there is a wastage of
public funds through the enforcement of an invalid or
unconstitutional law. (Abaya v. Ebdane, G. R. No. 167919, February
14, 2007)
11. The petitioners impugn the validity of the
establishment of tax and duty-free shops within the Subic
Special Economic Zone (SSEZ) and the removal of
consumer goods and items from the zones without
payment of corresponding duties and taxes for the reason
that this constitute executive legislation in violation of
the
rule on separation of powers, that only raw material,
capital and equipment should be allowed the privilege.
Rule on the objections and reason out your answer
briefly.
SUGGESTED ANSWER: The objections should not be given credence.
It is legal to setup duly authorized duty-free shops in the SSEZ to
sell tax and duty-free consumer items in the Secured Area. This is
in line with the policy enunciated in the law that the Subic
Special Economic Zone shall be developed into a self-sustaining,
industrial, commercial, financial and investment center to generate
employment opportunities in and around the zone and to attract and
promote productive foreign investments.
While it is true that Section 12 (b) of Rep. Act No. 7227
mentions only raw materials, capital and equipment, this does not
necessarily mean that the tax and duty free buying privilege is
limited to these types of articles to the exclusion of consumer
goods. It must be remembered that in construing statutes, the
proper course is to start out and follow the true intent of the
Legislature and to adopt that sense which harmonizes best with the
context and promotes to the fullest manner the policy and objects
of the Legislature. The concept of inclusio unius est exclusio
alterius does not find application because the phrase tax and
duty-free importations of raw materials, capital and equipment was
merely cited as an example of incentives that the SSEZ is
authorized to grant, in line with its being a free port zone. Thus,
the legislative intent is that consumer goods entering the SSEZ
which satisfy the needs of the zone and are consumed there are not
subject to duties and taxes in accordance with Philippine law.
(Coconut Oil Refiners Association, Inc., etc., et al., v. Torres,
etc., et al., G. R. No. 132527, July 29, 2005)
` Would your answer be the same if a Presidential
Proclamation allowed for the limited withdrawal from the
Clark Special Economic Zone or the John Hay Economic
Zone of consumer goods tax and duty-free ? SUGGESTED ANSWER: The
answer would not be the
same. This time the Presidential Proclamation would be invalid
as the statutory tax exempt privilege was granted only to the Subic
Special Economic Zone and not to John Hay or Clark. This is so
because the Constitution mandates that no law granting tax
exemption shall be passed without the concurrence of a majority of
all the members of Congress. (Coconut Oil Refiners Association,
Inc., etc., et al., v. Torres, etc., et al., G. R. No. 132527, July
29, 2005 citing John Hay Peoples Alternative Coalition, et al., v.
Lim, etc., et al., G.R. No. 119775, October 24, 2003, 414 SCRA 356)
Furthermore, the law is very clear that the exportation or removal
of goods from the territory of the Subic Special Economic
-
7
Zone to other parts of the Philippine territory shall be subject
to customs duties and taxes under the Customs and Tariff Code and
other relevant tax laws of the Philippines. (Ibid.)
11-A. Nature of actual case or controversy. An actual case or
controversy involves a conflict of legal rights, an assertion of
opposite legal claims susceptible of judicial adjudication.
(ABAKADA Guro Party List, etc., v. Purisima, etc., et al., G. R.
No. 166715, August 14, 2008 citing Cruz, Isagani, PHILIPPINE
CONSTITUTIONAL LAW, 1995 edition, p. 23)
11-B. Criteria of being ripe for judicial determination. A
closely related requirement is ripeness, that is, the question must
be ripe for adjudication. And a constitutional question is ripe for
adjudication when the governmental act being challenged has a
direct adverse effect on the individual challenging it. (ABAKADA
Guro Party List, etc., v. Purisima, etc., et al., G. R. No. 166715,
August 14, 2008 citing Bernas, Joaquin, THE 1987 CONSTITUTION OF
THE REPUBLIC OF THE PHILIPPINES: A COMMENTARY, 1996 edition,
pp.
848-849) Thus, to be ripe for judicial adjudication, the
petitioner must show a personal stake in the outcome of the case or
an injury to himself that can be redressed by a favorable decision
of the Court. [ABAKADA Guro Party List, etc., supra, v. Purisima,
etc., citing Cruz v.
Secretary of Environment and Natural Resources, 400 Phil. 904
(2000), Vitug, J., separate opinion]
11-C. Personal injury must be shown for judicial
controversy to be ripe for judicial determination. In this case,
aside from the general claim that the dispute has ripened into a
judicial controversy by the mere enactment of the law even without
any further overt act. (ABAKADA Guro Party List, etc., v. Purisima,
etc., et al., G. R. No. 166715, August 14, 2008 citing La
Bugal-
BLaan Tribal Association, Inc. v. Ramos, G.R. No. 127882, 01
December 2004, 445 SCRA 1)
Thus, where petitioners fail either to assert any specific and
concrete legal claim or to demonstrate any direct adverse effect of
the law on them or are unable to show a personal stake in the
outcome of this case or an injury to themselves their petition is
procedurally infirm. (ABAKADA Guro Party List, etc., supra)
11-D. Constitutionality of law is exception to the
doctrine of ripe for judicial determination. This
notwithstanding, public interest requires the resolution of the
constitutional issues raised by petitioners. The grave nature of
their
allegations tends to cast a cloud on the presumption of
constitutionality in favor of the law. And where an action of the
legislative branch is alleged to have infringed the Constitution,
it becomes not only the right but in fact the duty of the judiciary
to settle the dispute. [ABAKADA Guro Party List, etc., v. Purisima,
etc., et al., G. R. No. 166715, August 14, 2008 citing Taada v.
Angara, 338 Phil. 546 (1997)]
12. The VAT law provides that, the President,
upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-
added tax to twelve percent (12%) after any of the
following conditions have been satisfied. (i) value-added
tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%) or (ii) national government deficit as a
percentage of GDP of the previous year exceeds one and
one-half percent (1 %).
Was there an invalid delegation of legislative power
? SUGGESTED ANSWER: No. There is no undue delegation of
legislative power but only of the discretion as to the execution of
the law. This is constitutionally permissible. Congress does not
abdicate its functions or unduly delegate power when it describes
what job must be done, who must do it, and what is the scope of his
authority. In the above case the Secretary of Finance becomes
merely the agent of the legislative department, to determine and
declare the even upon which its expressed will takes place. The
President cannot set aside the findings of the Secretary of
Finance, who is not under the conditions acting as the execute
alter ego or subordinate. . [Abakada Guro Party List (etc.) v.
Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and
companion cases citing various cases]] 13. The power to tax should
be exercised only within
the territorial boundaries of the taxing authority. In theory,
it is only within a states territorial boundaries that a state
could give protection, hence it is only within that territory that
it could demand support in the form of taxes. 14. Situs of taxation
is the place or the authority that
has the power to collect taxes. It is premised upon the
symbiotic relation between the taxpayer and the State.
-
8
15. The place that gives protection is the place that has
the right to demand that it be supported in the form of taxes
so
it could continually give protection. 16. The situs of real
property taxes is the place where
the property is located because it is that place that gives
protection. The applicable concept is lex situs or lex rei
sitae.
17. The situs of taxation of tangible personal property
is the place where the owner is located because it is that place
that gives protection to the owner which protection extends to the
tangible personal property. The applicable concept is mobilia
sequuntur personam. 18. Intangible personal property may have
obtained a
business situs in a particular place even if located elsewhere.
Thus, the dividends earned from domestic corporations are
considered as income from within, irrespective where the shares of
stock of such domestic corporation is located. 19. The situs of
income taxation is determined by the
nationality, residence of the taxpayer and source of income.
Please refer to general principles of income taxation under income
taxation. 20. The situs of excise taxes is the place where the
privilege is exercised because it is that place that gives
protection.
21. The situs of transfer taxes, such as estate and
donors taxes, is determined by the nationality and residence
of
the taxpayer and the place where the property is located. Please
refer to estate and donors taxes.
22. Juliane a non-resident alien appointed as
a commission agent by a domestic corporation with a
sales commission of 10% all sales actually concluded and
collected through her efforts. The local company withheld
the amount of P107,000 from her sales commission and
remitted the same to the BIR.
She filed a claim for refund alleging that her sales
commission is not taxable because the same was a
compensation for her services rendered in Germany and
therefore considered as income from sources outside the
Philippines.
Is her contention correct ? SUGGESTED ANSWER: Yes. The important
factor which determines the source of income of personal services
is not the residence of the payor, or the place where the contract
for service is entered into, or the place of payment, but the place
where the services were actually performed. Since the activity of
securing the sales were in Germany, then the income did not
originate from sources from within the Philippines. (Commissioner
of Internal Revenue v. Baier-Nickel, G. R. No. 153793, August 29,
2006) NOTE AND COMMENTS: In the above case, the Supreme Court
reiterated the rule that source of income relates to the property,
activity or service that produced the income. With respect to
rendition of labor or personal service, it is the place where the
labor or service was performed that determines the source of the
income. The above Baier-Nickel case discussed the import of the
landmark cases (Howden and BOAC) involving sources of income for
tax purposes both of which may be dangerous for Bar purposes:
23. A domestic insurance company decided to
reinsure with a foreign reinsurer the risks it has
undertaken with its local clients. The foreign reinsurer
does not have an office, neither does it do business in the
Philippines. Are the reinsurance premiums subject to
Philippine income taxation ? SUGGESTED ANSWER: Yes because the
undertaking of the foreign insurance company to indemnify the local
insurance company is the activity that produced the income. The
reinsurance premiums remitted to the foreign reinsurer had for
their source the undertaking to indemnify the local insurer against
liability. Said undertaking is the activity that produced there
insurance premiums, and the same took place in the Philippines. The
reinsured, the liabilities insured and the risk originally
undertaken by the local insurance company, upon which the
reinsurance premiums and indemnity were based, were all situated in
the Philippines. (Alexander Howden & Co., Ltd. v. Collector
of
-
9
Internal Revenue, 121 Phil. 579; 13 SCRA 601 (1965) cited in
Baier-Nickel)
24. BOAC, a foreign airline company which
does not maintain any flight to and from the Philippines
sold air tickets in the Philippines, through a general sales
agent, relating to the carriage of passengers and cargo
between two points, both outside the Philippines.
Is BOAC subject to income taxes on the sale of the
tickets ? SUGGESTED ANSWER: Yes. The source of income which is
taxable is that activity which produced the income. The sale of
tickets in the Philippines is the activity that determines whether
such income is taxable in the Philippines. The tickets exchanged
hands here and payments for fares were also made here in Philippine
currency. The situs of the source of payments is the Philippines.
the flow of wealth proceeded from and occurred, within the
Philippine territory, enjoying the protection accorded by the
Philippine Government. In consideration of such protection, the
flow of wealth should share the burden of supporting the
government. (Commissioner of Internal Revenue v. British Overseas
Airways Corporation (BOAC), 149 SCRA 395 cited in Bauer-Nickel)
NOTES AND COMMENTS: The concept of imposition of the gross
Philippine billings that taxes only flights that originate from the
Philippines apply only to resident foreign corporations doing
business in the Philippines [Sec. 28 (A) (3) (a), NIRC of 1997] AND
NOT TO incomes of non-resident foreign corporations that are taxed
on the gross income. [Sec. 28 (B) (1)]
25. No improper delegation of legislative authority
to tax. The power to tax is inherent in the State, such power
being inherently legislative, based on the principle that taxes are
a grant of the people who are taxed, and the grant must be made by
the immediate representatives of the people; and where the people
have laid the power, there it must remain and be exercised.
(Commissioner of Internal Revenue v. Fortune Tobacco Corporation,
G. R. Nos. 167274-75, July 21, 2008 citing COOLEY TAXATION, 3
rd Ed., p. 43
cited in DIMAAMPAO, TAX PRINCIPLE AND REMEDIES, p. 13)
26. Instances where the national revenue officers
had ventured in the area of unauthorized administrative
legislation.
a. By adding the qualification that the tax due after the 12%
increase becomes effective shall not be lower than the tax actually
paid prior to 1 January 2000, Revenue Regulation No. 17-99
effectively imposes a tax which is the higher amount between the ad
valorem tax being paid at the end of the three (3)-year transition
period and the specific tax under paragraph C, sub-paragraph
(1)-(4), as increased by 12%a situation not supported by the plain
wording of Section 145 of the Tax Code. (Commissioner of Internal
Revenue v. Fortune Tobacco Corporation, G. R. Nos. 167274-75, July
21, 2008)
b. Respondent was not informed in writing of the law and the
facts on which the assessment of estate taxes was made pursuant to
Section 228 of the 1997 Tax Code, as amended by Republic Act (R.A.)
No. 8424. She was merely notified of the findings by the
Commissioner, who had simply relied upon the old provisions of the
law and Revenue Regulation No. 12-85 which was based on the old
provision of the law. The Court held that in case of discrepancy
between the law as amended and the implementing regulation based on
the old law, the former necessarily prevails. The law must still be
followed, even though the existing tax regulation at that time
provided for a different procedure. (Ibid., Commissioner of
Internal Revenue v. Reyes, G.R. No. 159694, 27 January 2006, 480
SCRA
382 in turn citing Philippine Petroleum Corp. v. Municipality of
Pililla, Rizal,
198 SCRA 82, 88, 3 June 1991, likewise citing Shell Philippines,
Inc. v.
Central Bank of the Philippines, 162 SCRA 628, 634, 27 June
1988)
c. The tax authorities gave the term tax credit in Sections 2(i)
and 4 of Revenue Regulation 2-94 a meaning utterly disparate from
what R.A. No. 7432 provides. Their interpretation muddled up the
intent of Congress to grant a mere discount privilege and not a
sales discount. The Court, striking down the revenue regulation,
held that an administrative agency issuing regulations may not
enlarge, alter or restrict the provisions of the law it
administers, and it cannot engraft additional requirements not
contemplated by the legislature. (Ibid., Commissioner of Internal
Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, 15
April 2005, 456 SCRA 414) d. Commissioner Jose Ong issued Revenue
Memorandum Order (RMO) No. 15-91, as well as the clarificatory
Revenue Memorandum Circular (RMC) 43-91, imposing a 5% lending
investors tax under the 1977 Tax Code, as amended by Executive
Order (E.O.) No. 273, on pawnshops. The Commissioner anchored the
imposition on the definition of lending investors provided in the
1977 Tax Code which, according to him, was broad enough to include
pawnshop operators. However, the Court noted that pawnshops and
lending investors were subjected to different tax
-
10
treatments under the Tax Code prior to its amendment by the
executive order; that Congress never intended to treat pawnshops in
the same way as lending investors; and that the particularly
involved section of the Tax Code explicitly subjected lending
investors and dealers in securities only to percentage tax. And so
the Court affirmed the invalidity of the challenged circulars,
stressing that administrative issuances must not override, supplant
or modify the law, but must remain consistent with the law they
intend to carry out. (Ibid., citing Commissioner of Internal
Revenue v. Michel J. Lhuillier Pawnshop, Inc., 453 Phil. 1043
(2003), at 1052 in turn citing Commissioner
of Internal Revenue v. Court of Appeals, G.R. No. 108358, 20
January
1995, 240 SCRA 368, 372; Romulo, Mabanta, Buenaventura, Sayoc
& De
los Angeles v. Home Development Mutual Fund, G.R. No. 131082, 19
June 2000; 333 SCRA 777, 786)
e. The then acting Commissioner issued RMC 7-85, changing the
prescriptive period of two years to ten years for claims of excess
quarterly income tax payments, thereby creating a clear
inconsistency with the provision of Section 230 of the 1977 Tax
Code. The Court nullified the circular, ruling that the BIR did not
simply interpret the law; rather it legislated guidelines contrary
to the statute passed by Congress. [Ibid., Philippine Bank of
Communications v. Commissioner of Internal Revenue, 361 Phil. 916
(1999)]
f. The Supreme Court ruled as invalid RMO 4-87 which had
construed the amnesty coverage under E.O. No. 41 (1986) to include
only assessments issued by the BIR after the promulgation of the
executive order on 22 August 1986 and not assessments made to that
date. The Supreme Court resolved in the negative. [Ibid.,
Commissioner of Internal Revenue v. CA, et al., 310 Phil. 392
(1995)]
27. The rule-making power must be confined to details for
regulating the mode or proceedings in order to carry into
effect the law as it has been enacted. a. It cannot be extended
to amend or expand the statutory requirements or to embrace matters
not covered by the statute. [Commissioner of Internal Revenue v.
Fortune Tobacco Corporation, G. R.
Nos. 167274-75, July 21, 2008 citing Landbank of the Philippines
v. Court
of Appeals, 327 Phil. 1047, 1052 (1996)] An administrative
agency issuing regulations may not enlarge, alter or restrict the
provisions of the law it administers, and it cannot engraft
additional requirements not contemplated by the legislature.
(Ibid., Commissioner of Internal Revenue v. Central Luzon Drug
Corporation, G.R. No. 159647, 15 April 2005, 456 SCRA 414) The
plain meaning rule or verba legis in statutory construction should
be applied such that where the words of a
statute are clear, plain and free from ambiguity, it must be
given its literal meaning and applied without attempted
interpretation. (Ibid.) b. Administrative regulations must always
be in harmony with the provisions of the law because any resulting
discrepancy between the two will always be resolved in favor of the
basic law. [Commissioner of Internal Revenue v. Fortune Tobacco
Corporation, G. R.
Nos. 167274-75, July 21, 2008 citing Landbank of the Philippines
v. Court
of Appeals, 327 Phil. 1047, 1052 (1996)]
CONSTITUTIONAL LIMITATIONS 1. What are the constitutional
limitations on the power
of taxation ? SUGGESTED ANSWER: The general or indirect
constitutional limitations as well as the specific or direct
constitutional limitations.
2. What are the general or indirect
constitutional limitations on the power of taxation ? SUGGESTED
ANSWER: The general or indirect constitutional limitations are the
following: a. Due process clause; b. Equal protection clause; c.
Freedom of the press; d. Religious freedom; e. No taking of private
property without just compensation; f. Non-impairment clause; g.
Law-making process: 1) Bill should embrace only one subject
expressed in the title thereof; 2) Three (3) readings on three
separate days; 3) Printed copies in final form distributed three
(3) days before passage. h. Presidential power to grant reprieves,
commutations and pardons and remittal of fines and forfeiture after
conviction by final judgment.
3. What are the specific or direct
constitutional limitation ? SUGGESTED ANSWER: a. No imprisonment
for non-payment of a poll tax; b. Taxation shall be uniform and
equitable; c. Congress shall evolve a progressive system of
taxation;
-
11
d. All appropriation, revenue or tariff bills shall originate
exclusively in the House of Representatives, but the Senate may
propose and concur with amendments; e. 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; f. Delegated power of the
President to impose tariff rates, import and export quotas, tonnage
and wharfage dues: 1) Delegation by Congress 2) through a law 3)
subject to Congressional limits and restrictions 4) within the
framework of national development program. g. Tax exemption of
charitable institutions, churches, parsonages and convents
appurtenant thereto, mosques, and all lands, buildings and
improvements of all kinds actually, directly and exclusively used
for religious, charitable or educational purposes; h. No tax
exemption without the concurrence of majority vote of all members
of Congress; i. No use of public money or property for religious
purposes except if priest is assigned to the armed forces, penal
institutions, government orphanage or leprosarium; j. Money
collected on tax levied for a special purpose to be used only for
such purpose, balance if any, to general funds; k. The Supreme
Court's power to review judgments or orders of lower courts in all
cases involving the legality of any tax, impose, assessment or toll
or the legality of any penalty imposed in relation to the above; l.
Authority of local government units to create their own sources of
revenue, to levy taxes, fees and other charges subject to
guidelines and limitations imposed by Congress consistent with the
basic policy of local autonomy; m. Automatic release of local
government's just share in national taxes; n. Tax exemption of all
revenues and assets of non-stock, non-profit educational
institutions used actually, directly and exclusively for
educational purposes; o. Tax exemption of all revenues and assets
of proprietary or cooperative educational institutions subject to
limitations provided by law including restrictions on dividends and
provisions for reinvestment of profits; p. Tax exemption of grants,
endowments, donations or contributions used actually, directly and
exclusively for educational purposes subject to conditions
prescribed by law.
3-A. No denial of due process when the respondent
is given the opportunity to file affidavits and other
pleadings during the preliminary investigation. A respondent
cannot claim denial of due process when she was given the
opportunity to file her affidavits and other pleadings and submit
evidence before the DOJ during the preliminary investigation of her
case and before the Information was filed against her. Due process
is merely an opportunity to be heard. In addition, preliminary
investigation conducted by the DOJ is merely inquisitorial. It is
not a trial of the case on the merits. Its sole purpose is to
determine whether a crime has been committed and whether the
respondent therein is probably guilty of the crime. It is not the
occasion for the full and exhaustive display of the parties
evidence. Hence, if the investigating prosecutor is already
satisfied that he can reasonably determine the existence of
probable cause based on the parties evidence thus presented, he may
terminate the proceedings and resolve the case. (Santos v. People,
et al, G. R. No. 173176, August 26, 2008 citing De Ocampo v.
Secretary of Justice, G.R. No. G.R. No. 147932, 25 January 2006,
480 SCRA 71, 81-82)
4. Equal protection of the law clause 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. (Tiu, et al.,
v. Court of Appeals, et al., G.R. No. 127410, January 20, 1999)
4-A. The equal protection of the laws clause of the
Constitution allows classification. Classification in law, as in
the other departments of knowledge or practice, is the grouping of
things in speculation or practice because they agree with one
another in certain particulars. A law is not invalid because of
simple inequality. The very idea of classification is that of
inequality, so that it goes without saying that the mere fact of
inequality in no manner determines the matter of constitutionality.
All that is required of a valid classification is that it be
reasonable, which means that the classification should be based on
substantial distinctions which make for real differences, that it
must be germane to the purpose of the law; that it must not be
limited to existing conditions only; and that it must apply equally
to each member of the class. This Court has held that the standard
is satisfied if the classification or distinction is based on a
reasonable
-
12
foundation or rational basis and is not palpably arbitrary.
[ABAKADA Guro Party List, etc., v. Purisima, etc., et al., G. R.
No. 166715, August 14, 2008]
4-B. State has discretion to make the classification. In the
exercise of its power to make classifications for the purpose of
enacting laws over matters within its jurisdiction, the state is
recognized as enjoying a wide range of discretion. It is not
necessary that the classification be based on scientific or marked
differences of things or in their relation. Neither is it necessary
that the classification be made with mathematical nicety. Hence,
legislative classification may in many cases properly rest on
narrow distinctions, for the equal protection guaranty does not
preclude the legislature from recognizing degrees of evil or harm,
and legislation is addressed to evils as they may appear. [ABAKADA
Guro Party List, etc., v. Purisima, etc., et al., G. R. No. 166715,
August 14, 2008]
4-C. Equal protection does not demand absolute
equality. The equal protection clause exists to prevent undue
favor or privilege. It is intended to eliminate discrimination and
oppression based on inequality. Recognizing the existence of real
differences among men, the equal protection clause does not demand
absolute equality. It merely requires that all persons shall be
treated alike, under like circumstances and conditions, both as to
the privileges conferred and liabilities enforced. (Santos v.
People, et al, G. R. No. 173176, August 26, 2008 citing Himagan v.
People, G.R. No. 113811, 7 October 1994, 237 SCRA 538, 551.
It is imperative to duly establish that the one invoking equal
protection and the person to which she is being compared were
indeed similarly situated, i.e., that they committed identical acts
for which they were charged with the violation of the same
provisions of the NIRC; and that they presented similar arguments
and evidence in their defense - yet, they were treated differently.
(Santos, supra)
5. What are the requisites for the validity of
a classification ? SUGGESTED ANSWER: Classification, to be
valid, must (a) rest on substantial distinctions, (b) be germane to
the purpose of the law, (c) not be limited to existing conditions
only, and (d) apply equally to all members of the same class. (Tiu,
et al., v. Court of Appeals, et al., G.R. No. 127410, January 20,
1999)
6. The law grant of tax and duty-free status under Rep. Act No.
7227, to retailers inside the SSEZ
without granting the same to those outside the SSEZ. Is
there a violation of the equal protection clause ? SUGGESTED
ANSWER: There is no violation of equal protection because there
exists a valid classification as shown below: a. Significant
distinctions exist between the two groups. Those outside of the
SSEZ maintain their business within Philippine customs territory
while those within the SSEZ operate within the so-called separate
customs territory. To grant the same privileges would clearly
defeat the statues intent to carve a territory out of the military
reservations in Subic Bay where free flow of goods and capital is
maintained. b. The classification is germane to the purpose of Rep.
Act No. 7227. As held in Tiu, the real concern of the law is to
convert the lands formerly occupied by the US military bases into
economic or industrial areas. In furtherance of such objective,
Congress deemed it necessary to extend economic incentives, in
terms of a complete package of tax incentives and other benefits,
to the establishments within the zone to attract and encourage
foreign and local investors. c. The classification is not limited
to the existing conditions when the law was promulgated but to
future conditions as well, inasmuch as the law envisioned the
former military reservation to ultimately develop into a
self-sustaining investment center. d. The classification applies
equally to all retailers found within the secured area. As ruled in
Tiu, the individuals and businesses within the secured area, being
in like circumstances or contributing directly to the achievement
of the end purposes of the law, are not categorized further. They
are all similarly treated, both in privileges granted and in
obligations required. (Coconut Oil Refiners Association, Inc.,
etc., et al., v. Torres, etc., et al., G. R. No. 132527, July 29,
2005 citing Tiu, et al., v. Court of Appeals, et al., G.R. No.
127410, January 20, 1999, 301 SCRA 278)
7. Is the statutory grant of tax and duty-free importation into
the Subic Special Economic Zone
violative the preferential use concept of the Constitution
? SUGGESTED ANSWER: No. The mere fact that the law
authorizes the importation and trade of foreign goods does not
suffice to declare it unconstitutional on this ground.
-
13
While the Constitution does not encourage the unlimited entry of
foreign goods, services and investments into the country, it does
not prohibit them either. In fact, it allows an exchange on the
basis of equality and reciprocity, frowning only in foreign
competition that is unfair. (Coconut Oil Refiners Association,
Inc., etc., et al., v. Torres, etc., et al., G. R. No. 132527, July
29, 2005 citing Tanada v. Angara, G. R. No. 118295, May 2, 1997,
272 SCRA 18) 8. Equality and uniformity of taxation may mean
the
same as equal protection. In such a case, the terms would mean
that all subjects and objects of taxation which are similarly
situated shall be subject to the same burdens and granted the same
privileges without any discrimination whatsoever. 9. Uniformity may
have a restrictive meaning different
from equality and equal protection. It would mean then that the
same rate shall be imposed for the same subjects and objects within
the territorial boundaries of a taxing authority. 10. 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 of taxation, or exemption, infringe no
constitutional limitation." (Commissioner of Internal Revenue, et
al., v. Santos, et al., 277 SCRA 617)
10-A. The law providing financial rewards to tax
collectors is constitutional. Public service is its own reward.
Nevertheless, public officers may by law be rewarded for exemplary
and exceptional performance. A system of incentives for exceeding
the set expectations of a public office is not anathema to the
concept of public accountability. In fact, it recognizes and
reinforces dedication to duty, industry, efficiency and loyalty to
public service of deserving government personnel. The U.S. Supreme
Court validated a law which awards to officers of the customs as
well as other parties an amount not exceeding one-half of the net
proceeds of forfeitures in violation of the laws against smuggling.
[ABAKADA Guro Party List, etc., v. Purisima, etc., et al., G. R.
No. 166715, August 14, 2008 citing United
States v. Matthews, 173 U.S. 381 (1899)]
The offer of a portion of such penalties to the collectors is to
stimulate and reward their zeal and industry in detecting
fraudulent attempts to evade payment of duties and taxes. [ABAKADA
Guro
Party List, etc., supra citing Dorsheimer v. United States, 74
U.S. 166 (1868)]
In the same vein, employees of the BIR and the BOC may by law be
entitled to a reward when, as a consequence of their zeal in the
enforcement of tax and customs laws, they exceed their revenue
targets. Public service is its own reward. Nevertheless, public
officers may by law be rewarded for exemplary and exceptional
performance. A system of incentives for exceeding the set
expectations of a public office is not anathema to the concept of
public accountability. In fact, it recognizes and reinforces
dedication to duty, industry, efficiency and loyalty to public
service of deserving government personnel. (ABAKADA Guro Party
List, etc., supra)
10-B. Rewards law establishes safeguards to ensure
that the reward system will not create bounty hunters. The
Attrition Act of 2005 RA 9335 establishes safeguards to ensure that
the reward will not be claimed if it will be either the fruit of
bounty hunting or mercenary activity or the product of the
irregular performance of official duties. One of these
precautionary measures is embodied in Section 8 of the law: SEC. 8.
Liability of Officials, Examiners and Employees of the BIR and the
BOC. The officials, examiners, and employees of the [BIR] and the
[BOC] who violate this Act or who are guilty of negligence, abuses
or acts of malfeasance or misfeasance or fail to exercise
extraordinary diligence in the performance of their duties shall be
held liable for any loss or injury suffered by any business
establishment or taxpayer as a result of such violation,
negligence, abuse, malfeasance, misfeasance or failure to exercise
extraordinary diligence. (ABAKADA Guro Party List, etc., v.
Purisima, etc., et al., G. R. No. 166715, August 14, 2008)
10-C. The rewards law to tax collectors does not
violate equal protection. Equality guaranteed under the equal
protection clause is equality under the same conditions and among
persons similarly situated; it is equality among equals, not
similarity of treatment of persons who are classified based on
substantial differences in relation to the object to be
accomplished. When things or persons are different in fact or
circumstance, they may be treated in law differently. The guaranty
of equal protection of the laws is not a guaranty of equality in
the application of the laws upon all citizens of the [S]tate. It is
not, therefore, a requirement, in order to avoid the constitutional
prohibition against inequality, that every man, woman
-
14
and child should be affected alike by a statute. Equality of
operation of statutes does not mean indiscriminate operation on
persons merely as such, but on persons according to the
circumstances surrounding them. It guarantees equality, not
identity of rights. The Constitution does not require that things
which are different in fact be treated in law as though they were
the same. The equal protection clause does not forbid
discrimination as to things that are different. It does not
prohibit legislation which is limited either in the object to which
it is directed or by the territory within which it is to operate.
[ABAKADA Guro Party List, etc., v. Purisima, etc., et al., G. R.
No. 166715, August 14, 2008]
The equal protection clause recognizes a valid classification,
that is, a classification that has a reasonable foundation or
rational basis and not arbitrary.
1[22] With respect to RA 9335, its expressed
public policy is the optimization of the revenue-generation
capability and collection of the BIR and the BOC. Since the subject
of the law is the revenue- generation capability and collection of
the BIR and the BOC, the incentives and/or sanctions provided in
the law should logically pertain to the said agencies. Moreover,
the law concerns only the BIR and the BOC because they have the
common distinct primary function of generating revenues for the
national government through the collection of taxes, customs
duties, fees and charges. Both the BIR and the BOC are bureaus
under the DOF. They principally perform the special function of
being the instrumentalities through which the State exercises one
of its great inherent functions taxation. Indubitably, such
substantial distinction is germane and intimately related to the
purpose of the law. Hence, the classification and treatment
accorded to the BIR and the BOC under RA 9335 fully satisfy the
demands of equal protection. [ABAKADA Guro Party List, etc.
supra)]
10-D. The prosecution of one guilty person while
others equally guilty are not prosecuted, however, is not,
by itself, a denial of the equal protection of the laws. Where
the official action purports to be in conformity to the statutory
classification, an erroneous or mistaken performance of the
statutory duty, although a violation of the statute, is not without
more a denial of the equal protection of the laws. The unlawful
administration by officers of a statute fair on its face, resulting
in its unequal application to those who are entitled to be treated
alike, is not a denial of equal protection unless there is shown to
be present in it an element of intentional or purposeful
discrimination. This may
appear on the face of the action taken with respect to a
particular class or person, or it may only be shown by extrinsic
evidence showing a discriminatory design over another not to be
inferred from the action itself. But a discriminatory purpose is
not presumed, there must be a showing of clear and intentional
discrimination. [Santos v. People, et al, G. R. No. 173176, August
26, 2008 citing People v. Dela Piedra, 403 Phil. 31, 54-56
(2001)]
10-E. There is no denial of equal protection where
the prosecution exercises its discretion in determining
probable cause. The discretion of who to prosecute depends on
the prosecutions sound assessment whether the evidence before it
can justify a reasonable belief that a person has committed an
offense. The presumption is that the prosecuting officers regularly
performed their duties, and this presumption can be overcome only
by proof to the contrary, not by mere speculation. There must be
evidence to overcome this presumption. The mere allegation a
Cebuana, was charged with the commission of a crime, while a
Zamboanguea, was not, is insufficient to support a conclusion that
the prosecution officers acted in denial of the equal protection of
the laws. (Santos v. People, et al, G. R. No. 173176, August 26,
2008)
10-F. Equal protection should not be used to protect
commission of crime. While all persons accused of crime are to
be treated on a basis of equality before the law, it does not
follow that they are to be protected in the commission of crime. It
would be unconscionable, for instance, to excuse a defendant guilty
of murder because others have murdered with impunity. The remedy
for unequal enforcement of the law in such instances does not lie
in the exoneration of the guilty at the expense of society x x x.
Protection of the law will be extended to all persons equally in
the pursuit of their lawful occupations, but no person has the
right to demand protection of the law in the commission of a crime.
Likewise, [i]f the failure of prosecutors to enforce the criminal
laws as to some persons should be converted into a defense for
others charged with crime, the result would be that the trial of
the district attorney for nonfeasance would become an issue in the
trial of many persons charged with heinous crimes and the
enforcement of law would suffer a complete breakdown. (Santos v.
People, et al, G. R. No. 173176, August 26, 2008)
11. A fixed annual license fee on those engaged in the
business of general enterprise was also imposed on the sale
of
-
15
bibles by a religious sect. Is this valid or violative of
the
constitutionally guaranteed freedom of religion ? SUGGESTED
ANSWER: It is not valid because it violates the constitutionally
guaranteed freedom of religion. As a license fee is fixed in amount
and unrelated to the receipts of the taxpayer, such a license fee,
when applied to a religious sect is actually imposed as a condition
for the free exercise of religion. A license fee restrains in
advance those constitutional liberties of press and religion and
inevitably tends to suppress their exercise. 12. A lawful tax on a
new subject, or an increased tax
on an old one, does not interfere 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 obligations of
any existing contract in its true and legal sense. (Tolentino v.
Secretary of Finance, et al., and companion cases, 235 SCRA 630)
13. Under the now prevailing Constitution, where there is
neither a grant nor prohibition by statute, the taxing power
of
local governments must be deemed to exist although Congress
may provide statutory limitations and guidelines in order to
safeguard the viability and self-sufficiency of local government
units by directly granting them general and broad tax powers. (City
Government of San Pablo, Laguna, et al., v. Reyes, et al., G.R. No.
127708, March 25, 1999)
13-A. Franchise tax is a direct tax. The franchise tax
is a percentage tax imposed only on franchise holders. It is
imposed under Section 119 of the Tax Code and is a direct
liability of the franchise grantee. (Quezon City, et al., v.
ABS-
CBN Broadcasting Corporation, G. R. No. 166408, October 6,
2008. The author opines that since practically all
franchises
granted to telecommunications companies are similarly
worded that the above doctrine finds application to the
others.)
14. The Local Government Code explicitly authorizes
provinces and cities, notwithstanding any exemption granted
by any law or other special law to impose a tax on
businesses
enjoying a franchise. Indicative of the legislative intent to
carry out the constitutional mandate of vesting broad tax powers to
local government units, the Local Government Code has withdrawn tax
exemptions or incentives theretofore enjoyed by certain entities.
(City Government of San Pablo, Laguna, et al., v. Reyes, et al.,
G.R. No. 127708, March 25, 1999)
15. Philippine Long Distance Telephone Company, Inc., v. City of
Davao, et al., etc., G. R. No. 143867, August 22, 2001, upheld the
authority of the City of Davao, a local government unit, to impose
and collect a local franchise tax because the Local Government has
withdrawn all tax exemptions previously enjoyed by all persons and
authorized local government units to impose a tax on business
enjoying a franchise tax notwithstanding the grant of tax exemption
to them.
16. Explain the concept of the paradigm shift in local
government taxation. SUGGESTED ANSWER: Paradigm shift from
exclusive Congressional power to direct grant of taxing power to
local legislative bodies. The power to tax is no longer vested
exclusively on Congress; local legislative bodies are now given
direct authority to levy taxes, fees and other charges pursuant to
Article X, section 5 of the 1987 Constitution. (Batangas Power
Corporation v. Batangas City, et al. G. R. No. 152675, and
companion case, April 28, 2004 citing National Power Corporation v.
City of Cabanatuan, G. R. No. 149110, April 9, 2003) 17. The
fundamental law did not intend the direct grant
to local government units to be absolute and unconditional, the
constitutional objective obviously is to ensure that, while local
government units are being strengthened and made more autonomous,
the legislature must still see to it that: a. the taxpayer will not
be over-burdened or saddled with multiple and unreasonable
impositions; b. each local government unit will have its fair share
of available resources; c. the resources of the national government
will be unduly disturbed; and d. local taxation will be fair,
uniform and just. (Manila Electric Company v. Province of Laguna,
et al., G.R. No. 131359, May 5, 1999)
-
16
17-A. Taxing power of the local government is
limited. The taxing power of local governments is limited in the
sense that Congress can enact legislation granting tax exemptions.
While the system of local government taxation has changed with the
onset of the 1987 Constitution, the power of local government units
to tax is still limited. While the power to tax by local
governments may be exercised by local legislative bodies, no longer
merely be virtue of a valid delegation as before, but pursuant to
direct authority conferred by Section 5, Article X of the
Constitution, the basic doctrine on local taxation remains
essentially the same, the power to tax is [still] primarily vested
in the Congress. (Quezon City, et al., v. ABS-CBN Broadcasting
Corporation, G. R. No. 166408, October 6, 2008 citing City
Government of Quezon City, et al. v. Bayan Telecommunications,
Inc.,
G.R. No. 162015, March 6, 2006, 484 SCRA 169 in turn referring
to Mactan
Cebu International Airport Authority, v. Marcos, G.R. No.
120082,
September 11, 1996, 261 SCRA 667, 680)
17-B. Further amplification by Bernas of the local
governments power to tax. What is the effect of Section 5 on the
fiscal position of municipal corporations? Section 5 does not
change the doctrine that municipal corporations do not possess
inherent powers of taxation. What it does is to confer municipal
corporations a general power to levy taxes and otherwise create
sources of revenue. They no longer have to wait for a statutory
grant of these powers. The power of the legislative authority
relative to the fiscal powers of local governments has been reduced
to the authority to impose limitations on municipal powers.
Moreover, these limitations must be consistent with the basic
policy of local autonomy. The important legal effect of Section 5
is thus to reverse the principle that doubts are resolved against
municipal corporations. Henceforth, in interpreting statutory
provisions on municipal fiscal powers, doubts will be resolved in
favor of municipal corporations. It is understood, however, that
taxes imposed by local government must be for a public purpose,
uniform within a locality, must not be confiscatory, and must be
within the jurisdiction of the local unit to pass. (Quezon City, et
al., v. ABS-CBN Broadcasting Corporation, G. R. No. 166408, October
6, 2008 citing City Government of
Quezon City, et al. v. Bayan Telecommunications, Inc., G.R. No.
162015, March 6, 2006, 484 SCRA 169)
17-C. Reconciliation of the local governments
authority to tax and the Congressional general taxing
power. Congress has the inherent power to tax, which includes
the
power to grant tax exemptions. On the other hand, the power of
local governments, such as provinces and cities for example Quezon
City, to tax is prescribed by Section 151 in relation to Section
137 of the LGC which expressly provides that notwithstanding any
exemption granted by any law or other special law, the City or a
province may impose a franchise tax. It must be noted that Section
137 of the LGC does not prohibit grant of future exemptions.
The Supreme Court in a series of cases has sustained the power
of Congress to grant tax exemptions over and above the power of the
local governments delegated power to tax. (Quezon City, et al., v.
ABS-CBN Broadcasting Corporation, G. R. No. 166408,
October 6, 2008 citing City Government of Quezon City, et al. v.
Bayan
Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484
SCRA 16)
Indeed, the grant of taxing powers to local government units
under the Constitution and the LGC does not affect the power of
Congress to grant exemptions to certain persons, pursuant to a
declared national policy. The legal effect of the constitutional
grant to local governments simply means that in interpreting
statutory provisions on municipal taxing powers, doubts must be
resolved in favor of municipal corporations. [Ibid., referring to
Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of
Davao] 18. The withdrawal of a tax exemption should not be
construed as prohibiting future grants of exemption from all
taxes. Indeed, the grant of taxing powers to local government
units under the Local Government Code does not affect the power of
Congress to grant exemptions to certain persons, pursuant to a
declared national policy. The legal effect of the constitutional
grant to local governments simply means that in interpreting
statutory provisions on municipal taxing powers, doubts must be
resolved in favor of municipal corporations. (Philippine Long
Distance Telephone Company, Inc., v. City of Davao, et al., etc.,
G. R. No. 143867, August 22, 2001)
18-A. Tax exemptions in franchises are always
subject to withdrawal. Moreover, Smarts franchise was granted
with the express condition that it is subject to amendment,
alteration, or repeal. (1987 CONSTITUTION, Art. XII, Sec. 11) It is
enough to say that the parties to a contract cannot, through the
exercise of prophetic discernment, fetter the exercise of the
taxing power of the State. For not only are existing laws read into
contracts in order to fix obligations as between parties, but the
reservation of essential attributes of sovereign power is also read
into contracts as a basic postulate of the legal order. The policy
of protecting contracts against impairment presupposes the
-
17
maintenance of a government which retains adequate authority to
secure the peace and good order of society. In truth, the Contract
Clause has never been thought as a limitation on the exercise of
the States power of taxation save only where a tax exemption has
been granted for a valid consideration. Smart Communications, Inc.
v. The City of Davao, etc., et al., G. R. No. 155491, September 16,
2008 citing Tolentino v. Secretary of Finance, G. R. No. 115455,
August 25, 1994, 235 SCRA 630, 685. The author opines that since
practically all franchises granted to telecommunications companies
are similarly worded that the above doctrine finds application to
the others) 19. When Congress approved a provision that, Any
advantage, favor, privilege, exemption, or immunity granted under
existing franchises, or may hereafter be granted, shall ipso facto
become part of previously granted telecommunications franchises and
shall be accorded immediately and unconditionally to the grantees
of such franchises: Provided, however, That the foregoing shall
neither apply to nor affect provisions of telecommunications
franchises concerning territory covered by the franchise, the life
span of the franchise, or the type of service authorized by the
franchise. (Underscoring supplied) there was no intention for
it
to operate as a blanket tax exemption to all
telecommunications entities. Applying the rule of strict
construction of laws granting tax exemptions and the rule that
doubts should be resolved in favor of municipal corporations in
interpreting statutory provisions on municipal taxation, it was
held that said provisions cannot be considered as extending its
application to franchises such as that of PLDT. (Philippine Long
Distance Telephone Company, Inc., v. City of Davao, et al., etc.,
G. R. No. 143867, August 22, 2001)
19-A. In lieu of all taxes in the franchise of ABS-CBN
does not exempt it from local franchise taxes. The in lieu of
all taxes provision in the franchise of ABS-CBN does not expressly
provide what kind of taxes ABS-CBN is exempted from. It is not
clear whether the exemption would include both local, whether
municipal, city or provincial, and national tax. Whether the in
lieu of all taxes provision would include exemption from local tax
is not unequivocal. The right to exemption from local franchise tax
must be clearly established and cannot be made out of inference or
implications but must be laid beyond reasonable doubt. Verily, the
uncertainty in the in lieu of all taxes provision should be
construed
against ABS-CBN. ABS-CBN has the burden to prove that it is in
fact covered by the exemption so claimed but has failed to do so.
(Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G. R.
No. 166408, October 6, 2008. This is practically the same holding
in an earlier case involving another telecommunications company.
Smart Communications, Inc. v. The City of Davao, etc., et al., G.
R. No. 155491, September 16, 2008. The author opines that since
practically all franchises granted to telecommunications companies
are similarly worded that the above doctrine finds application to
the others.)
19-B. In lieu of all taxes refers to national internal
revenue taxes and not to local taxes. The in lieu of all taxes
clause applies only to national internal revenue taxes and not to
local taxes. As appropriately pointed out in the separate opinion
of Justice Antonio T. Carpio in a similar case involving a demand
for exemption from local franchise taxes: [T]he "in lieu of all
taxes" clause in Smart's franchise refers only to taxes, other than
income tax, imposed under the National Internal Revenue Code. The
"in lieu of all taxes" clause does not apply to local taxes. The
proviso in the first paragraph of Section 9 of Smart's franchise
states that the grantee shall "continue to be liable for income
taxes payable under Title II of the National Internal Revenue
Code." Also, the second paragraph of Section 9 speaks of tax
returns filed and taxes paid to the "Commissioner of Internal
Revenue or his duly authorized representative in accordance with
the National Internal Revenue Code." Moreover, the same paragraph
declares that the tax returns "shall be subject to audit by the
Bureau of Internal Revenue." Nothing is mentioned in Section 9
about local taxes. The clear intent is for the "in lieu of all
taxes" clause to apply only to taxes under the National Internal
Revenue Code and not to local taxes. Even with respect to national
internal revenue taxes, the "in lieu of all taxes" clause does not
apply to income tax. If Congress intended the "in lieu of all
taxes" clause in Smart's franchise to also apply to local taxes,
Congress would have expressly mentioned the exemption from
municipal and provincial taxes. Congress could have used the
language in Section 9(b) of Clavecilla's old franchise, as follows:
x x x in lieu of any and all taxes of any kind, nature or
description levied, established or collected by any authority
whatsoever, municipal, provincial or national, from which the
grantee is hereby expressly exempted, x x x. (Emphasis supplied).
However, Congress did not expressly exempt Smart from local taxes.
Congress used the "in lieu of all taxes" clause only in reference
to national internal revenue taxes. The only interpretation,
-
18
under the rule on strict construction of tax exemptions, is that
the "in lieu of all taxes" clause in Smart's franchise refers only
to national and not to local taxes. [Smart Communications, Inc. v.
The City of Davao, etc., et al., G. R. No. 155491, September 16,
2008 citing Philippine
Long Distance Telephone Company, Inc. v. City of Davao, 447
Phil. 571, 594 (2003)]
19-C. The in lieu of all taxes clause in the franchise
of ABS-CBN has become functus officio with the abolition
of the franchise tax on broadcasting companies with
yearly gross receipts exceeding Ten Million Pesos. The clause in
lieu of all taxes does not pertain to VAT or any other tax. It
cannot apply when what is paid is a tax other than a franchise tax.
Since the franchise tax on the broadcasting companies with yearly
gross receipts exceeding ten million pesos has been abolished, the
in lieu of all taxes clause has now become functus officio,
rendered inoperative. (Quezon City, et al., v. ABS-CBN Broadcasting
Corporation, G. R. No. 166408, October 6, 2008. This is practically
the same holding in an earlier case involving another
telecommunications company. Smart Communications, Inc. v. The City
of Davao, etc., et al., G. R. No. 155491, September 16, 2008. The
author opines that since practically all franchises granted to
telecommunications companies are similarly worded that the above
doctrine finds application to the others.)
19-D. Historical background on why ABS-CBN is
subject to VAT and not to the franchise tax. At the time of the
enactment of its franchise on May 3, 1995, ABS-CBN was subject to
3% franchise tax under Section 117(b) of the 1977 National Internal
Revenue Code (NIRC), as amended. On January 1, 1996, R.A. No. 7716,
otherwise known as the Expanded Value Added Tax Law, took effect
and subjected to VAT those services rendered by radio and/or
broadcasting stations. Notably, under the same law, telephone
and/or telegraph systems, broadcasting stations and other franchise
grantees were omitted from the list of entities subject to
franchise tax. The impression was that these entities were subject
to 10% VAT but not to franchise tax. Subsequently, R.A. No. 8241
took effect on January 1, 1997 containing more amendments to the
NIRC. Radio and/or television companies whose annual gross receipts
do not exceed P10,000,000.00 were granted the option to choose
between paying 3% national franchise tax or 10% VAT On the other
hand, radio and/or television companies with yearly gross receipts
exceeding P10,000,000.00 were subject to 10% VAT, pursuant to
Section 102 of the NIRC.
On January 1, 1998, R.A. No. 8424 was passed confirming the 10%
VAT liability of radio and/or television companies with yearly
gross receipts exceeding P10,000,000.00. R.A. No. 9337 was
subsequently enacted and became effective on July 1, 2005. The said
law further amended the NIRC by increasing the rate of VAT to 12%.
The effectivity of the imposition of the 12% VAT was later moved
from January 1, 2006 to February 1, 2006. In consonance with the
above survey of pertinent laws on the matter, ABS-CBN is subject to
the payment of VAT. It does not have the option to choose between
the payment of franchise tax or VAT since it is a broadcasting
company with yearly gross receipts exceeding Ten Million Pesos
(P10,000,000.00). (Quezon City, et al., v. ABS-CBN Broadcasting
Corporation, G. R. No. 166408, October 6, 2008. The author opines
that since practically all franchises granted to telecommunications
companies are similarly worded that the above doctrine finds
application to the others.)
20. Double taxation in its generic sense, this means
taxing the same subject or object twice during the same
taxable period. In its particular sense, it may mean direct
duplicate taxation,
which is prohibited under the constitution because it violates
the concept of equal protection, uniformity and equitableness of
taxation. Indirect duplicate taxation is not anathematized by the
above constitutional limitations.
21. What are the elements of direct duplicate taxation ?
SUGGESTED ANSWER: a. Same 1) Subject or object is taxed twice 2) by
the same taxing authority 3) for the same taxing purpose 4) during
the same taxable period
b. Taxing all of the subjects or objects for the first time
without taxing all of them for the second time.
If any of the elements are absent then there is indirect
duplicate taxation which is not prohibited by the constitution.
NOTES AND COMMENTS: a. Presence of the 2
nd element violates the equal
protection clause. If only the 1st element is present, taxing
the
same subject or object twice, by the same taxing authority,
etc., there is no violation of the equal protection clause because
all subjects and objects that are similarly situated are subject to
the
-
19
same burdens and granted the same privileges without any
discrimination whatsoever, The presence of the 2
nd element, taxing all of the subjects and
objects for the first time, without taxing all for the second
time, results to discrimination among subjects and objects that are
similarly situated, hence violative of the equal protection clause.
22. Double taxation a valid defense against the legality of
a tax measure if the double taxation is direct duplicate
taxation, because it would violate the equal protection clause of
the constitution. 23. When an item of income is taxed in the
Philippines
and the same income is taxed in another country, this would
be
known as international juridical double taxation which is the
imposition of comparable taxes in two or more states on the same
taxpayer in respect of the same subject matter and for identical
grounds. (Commissioner of Internal Revenue v. S.C. Johnson and Son,
Inc., et al., G.R. No. 127105, June 25, 1999)
24. What are the methods for avoiding double taxation (indirect
duplicate taxation) ? SUGGESTED ANSWER: The following are the
methods of avoiding double taxation: a. Tax treaties which exempts
foreign nationals from local taxation and local nationals from
foreign taxation under the principle of reciprocity. b. Tax credits
where foreign taxes are allowed as deductions from local taxes that
are due to be paid. c. Allowing foreign taxes as a deduction from
gross income. 25. Tax credit generally refers to an amount that is
subtracted directly from ones total tax liability, an allowance
against the tax itself, or a deduction from what is owned. A tax
credit reduces the tax due, including whenever applicable the
income tax that is determined after applying the corresponding tax
rates to taxable income. (Commissioner of Internal Revenue v.
Central Luzon Drug Corporation, G. R. No. 159647, April 15, 2005)
26. A tax deduction is defined as a subtraction fro income for tax
purposes, or an amount that is allowed by law to reduce
income prior to the application of the tax rate to compute the
amount of tax which is due. A tax deduction reduces the income that
is subject to tax in order to arrive at taxable income.
(Commissioner of Internal Revenue v. Central Luzon Drug
Corporation, G. R. No. 159647, April 15, 2005)
27. The petitioners allege that the R-VAT law is constitutional
because the Bicameral Conference
Committed has exceeded its authority in including
provisions which were never included in the versions of
both the House and Senate such as inserting the stand-by
authority to the President to increase the VAT from 10% to
12%; deleting entirely the no pass-on provisions found in
both the House and Senate Bills; inserting the provision
imposing a 70% limit on the amount of input tax to be
credited against the output tax; and including the
amendments introduced only by Senate Bill No. 1950
regarding other kinds of taxes in addition to the value-
added tax. Thus, there was a violation of the
constitutional mandate that revenue bills shall originate
exclusively from the House of Representatives.
Are the contentions of such weight as to constitute
grave abuse of discretion which may invalidate the law ?
Explai