Tax Digests
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Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan [G.R. No. 81311 June 30, 1988]
Facts: These four (4) petitions seek to nullify Executive Order No. 273 issued by the President of the Philippines, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax, for being unconstitutional in that its enactment is not allegedly within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution. The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller, with aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his purchase of goods and services, unless exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of goods or gross receipts realized from the sale of services. The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers, advance sales tax, and compensating tax on importations. The framers of EO 273 that it is principally aimed to rationalize the system of taxing goods and services; simplify tax administration; and make the tax system more equitable, to enable the country to attain economic recovery. The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As pointed out by the Solicitor General, the Philippine sales tax system, prior to the issuance of EO 273, was essentially a single stage value added tax system computed under the "cost subtraction method" or "cost deduction method" and was imposed only on original sale, barter or exchange of articles by manufacturers, producers, or importers. Subsequent sales of such articles were not subject to sales tax. However, with the issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second sale, which was reduced to 1.5% upon the issuance of PD 2006 on 31 December 1985, to take effect 1 January 1986. Reduced sales taxes were imposed not only on the second sale, but on every subsequent sale, as well. EO 273 merely increased the VAT on every sale to 10%, unless zero-rated or exempt. Issue: Whether or not EO 273 is unconstitutional Held: No. Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by this framers and other government agencies involved in its implementation, even under the past administration. As the Solicitor General correctly sated. "The signing of E.O. 273 was merely the last stage in the exercise of her legislative powers. The legislative process started long before the signing when the data were gathered, proposals were weighed and the final wordings of the measure were drafted, revised and finalized. Certainly, it cannot be said that the President made a jump, so to speak, on the Congress, two days before it convened." Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive. 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. A tax is considered uniform when it
operates with the same force and effect in every place where the subject may be found." 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. The Court likewise finds no merit in the contention of the petitioner Integrated Customs Brokers Association of the Philippines that EO 273, more particularly the new Sec. 103 (r) of the National Internal Revenue Code, unduly discriminates against customs brokers. At any rate, the distinction of the customs brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based upon material differences, in that the activities of customs brokers (like those of stock, real estate and immigration brokers) partake more of a business, rather than a profession and were thus subjected to the percentage tax under Sec. 174 of the National Internal Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT.
ARTURO M. TOLENTINO VS. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, 1994 Aug 25, G.R. No. 115455, 235 SCRA 630 FACTS: The valued-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code. The Chamber of Real Estate and Builders Association (CREBA) contends that the imposition of VAT on sales and leases by virtue of contracts entered into prior t o the effectivity of the law would violate the constitutional provision of “non impairment of contracts.” ISSUE: Whether R.A. No. 7716 is unconstitutional on ground that it violates the contract clause under Art. III, sec 10 of the Bill of Rights. RULING: No. The Supreme Court the contention of CREBA, that the imposition of the VAT on the sales and leases of real estate by virtue of contracts entered into prior to the effectivity of the law would violate the constitutional provision of nonimpairment of contracts, is only slightly less abstract but nonetheless hypothetical. 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 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 State's power of taxation save only where a tax exemption has been granted for a valid consideration. Such is not the case of PAL in G.R. No. 115852, and the Court does not understand it to make this claim. Rather, its position, as discussed above, is that the removal of its tax exemption cannot be made by a general, but only by a specific, law. Further, the Supreme Court held the validity of Republic Act No. 7716 in its formal and substantive aspects as this has been raised in the various cases before it. To sum up, the Court holds: (1) That the procedural requirements of the Constitution have been complied with by Congress in the enactment of the statute; (2) That judicial inquiry whether the formal requirements for the enactment of statutes - beyond those prescribed by the Constitution - have been observed is precluded by the principle of separation of powers; (3) That the law does not abridge freedom of speech, expression or the press, nor interfere with the free exercise of religion, nor deny to any of the parties the right to an education; and (4) That, in view of the absence of a factual foundation of record, claims that the law is regressive, oppressive and confiscatory and that it violates vested rights protected under the Contract Clause are prematurely raised and do not justify the grant of prospective relief by writ of prohibition. WHEREFORE, the petitions are DISMISSED.
Tolentino vs. Secretary of Finance G.R. No. 115455, August 25, 1994
Facts: The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. RA 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code. There are various suits challenging the constitutionality of RA 7716 on various grounds. One contention is that RA 7716 did not originate exclusively in the House of Representatives as required by Art. VI, Sec. 24 of the Constitution, because it is in fact the result of the consolidation of 2 distinct bills, H. No. 11197 and S. No. 1630. There is also a contention that S. No. 1630 did not pass 3 readings as required by the Constitution. Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the Constitution
Held: The argument that RA 7716 did not originate exclusively in theHouse of Representatives as required by Art. VI, Sec. 24 of the Constitution will not bear analysis. To begin with, it is not the law but the revenue bill which is required by the Constitution to originate exclusively in the House of Representatives. To insist that a revenue statute and not only the bill which initiated the legislative process culminating in the enactment of the law must substantially be the same as the House bill would be to deny the Senate’s power not only to concur with amendments but also to propose amendments. Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills authorizing an increase of the public debt, private bills and bills of local application must come from the House of Representatives on the theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to the local needs and problems. Nor does the Constitution prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the House, so long as action by the Senate as a body is withheld pending receipt of the House bill. The next argument of the petitioners was that S. No. 1630 did not pass 3 readings on separate days as required by the Constitution because the second and third readings were done on the same day. But this was because the President had certified S. No. 1630 as urgent. The presidential certification dispensed with the requirement not only of printing but also that of reading the bill on separate days. That upon the certification of a bill by the President the requirement of 3 readings on separate days and of printing and distribution can be dispensed with is supported by the weight of legislative practice.
Tolentino vs. Secretary of Finance, G.R. No. 115455235 SCRA 630 (1994)
FACTS RA 7716, otherwise known as the Expanded Value-Added Tax Law, is an act that seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code. There are various suits questioning and challenging the constitutionality of RA 7716 on various grounds. Tolentino contends that RA 7716 did not originate exclusively from the House of Representatives but is a mere consolidation of HB. No. 11197 and SB. No. 1630 and it did not pass three readings on separate days on the Senate thus violating Article VI, Sections 24 and 26(2) of the Constitution, respectively. Art. VI, 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. Art. VI, Section 26(2): No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been distributed to its Members three days before its passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the Journal. ISSUE Whether or not RA 7716 violated Art. VI, Section 24 and Art. VI, Section 26(2) of the Constitution. HELD No. The phrase “originate exclusively” refers to the revenue bill and not to the revenue law. It is sufficient that the House of Representatives initiated the passage of the bill which may undergo extensive changes in the Senate. SB. No. 1630, having been certified as urgent by the President need not meet the requirement not only of printing but also of reading the bill on separate days.
Sison v Ancheta G.R. No. L-59431. July 25, 1984
Facts: Petitioners challenged the constitutionality of Section 1 of Batas Pambansa Blg. 135. It amended Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross income. Petitioner as taxpayer alleged that "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers." He characterizes the above section as arbitrary amounting to class legislation, oppressive and capricious in character. For petitioner, therefore, there is a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation. The OSG prayed for dismissal of the petition due to lack of merit. Issue: Whether the imposition of a higher tax rate on taxable net income derived from business or profession than on compensation is constitutionally infirm. (WON there is a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation) Held: No. Petition dismissed Ratio: The need for more revenues is rationalized by the government's role to fill the gap not done by public enterprise in order to meet the needs of the times. It is better equipped to administer for the public welfare. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. The power to tax is an attribute of sovereignty and the strongest power of the government. There are restrictions, however, diversely affecting as it does property rights, both the due process andequal protection clauses may properly be invoked, as petitioner does, to invalidate in appropriate cases a revenue measure. If it were otherwise, taxation would be a destructive power. The petitioner failed to prove that the statute ran counter to the Constitution. He used arbitrariness as basis without a factual foundation. This is merely to adhere to the authoritative doctrine that where the due process and equal protection clauses are invoked, considering that they are not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear abuse of power.
It has also been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process grounds. For equal protection, the applicable standard to determine whether this was denied in the exercise of police power or eminent domain was the presence of the purpose of hostility or unreasonable discrimination. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under circumstances, which if not identical are analogous. If law be looks upon in terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on the rest. The equal protection clause is, of course, inspired by the noble concept of approximating the ideal of the laws's benefits being available to all and the affairs of men being governed by that serene and impartial uniformity, which is of the very essence of the idea of law. The equality at which the 'equal protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties, addressed to the attainment of specific ends by the use of specific remedies. The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same. Lutz v Araneta- it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation. Petitioner- kindred concept of uniformity- Court- Philippine Trust Company- The rule of uniformitydoes not call for perfect uniformity or perfect equality, because this is hardly attainable 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 There is quite a similarity then to the standard of equal protection for all that is required is that the tax "applies equally to all persons, firms and corporations placed in similar situation" There was a difference between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate. The discernible basis of classification is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. As there is practically no overhead expense, these taxpayers are not entitled to make deductions for income tax purposes because they are in the same situation more or less. Taxpayers who are recipients of compensation income are set apart as a class. 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. It would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income.
There was a lack of a factual foundation, the forcer of doctrines on due process and equal protection, and he reasonableness of the distinction between compensation and taxable net income of professionals and businessmen not being a dubious classification.
SISON v ANCHETA Facts: Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero M. Sison, as taxpayer, alleges that "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. He characterizes said provision as arbitrary amounting to class legislation, oppressive and capricious in character. It therefore violates both the equal protection and due process clauses of the Constitution as well asof the rule requiring uniformity in taxation. Issue: Whether or not the assailed provision violates the equal protection and due process clauses of the Constitution while also violating the rule that taxes must be uniform and equitable. Held: The petition is without merit. On due process - it is undoubted that it may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property from abuse of power. Petitioner alleges arbitrariness but his mere allegation does not suffice and there must be a factual foundation of such unconsitutional taint. On equal protection - it suffices that the laws operate equally and uniformly on all persons under similar circumstances, both in the privileges conferred and the liabilities imposed. On the matter that the rule of taxation shall be uniform and equitable - this requirement is met when the tax operates with the same force and effect in every place where the subject may be found." Also, :the rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly unattainable." When the problem of classification became of issue, the Court said: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation..." As provided by this Court, where "the differentation" complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is therefore uniform."
SISON v ANCHETA “Equal Protection”
Sison assails the validity of BP 135 w/c further amended Sec 21 of the National Internal Revenue Code of 1977. The law provides that there’d be a higher tax impost against income derived from professional income as opposed to regular income earners. Sison, as a professional businessman, and as taxpayer alleges that by virtue thereof, “he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers.” He characterizes the above section as arbitrary amounting to class legislation, oppressive and capricious in character. There is a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation. ISSUE: Whether the imposition of a higher tax rate on taxable net income derived from business or profession than on compensation is constitutionally infirm. HELD: The SC ruled against Sison. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. Taxes, being the lifeblood of the government, their prompt and certain availability is of the essence. According to the Constitution: “The rule of taxation shall be uniform and equitable.” However, the rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable. 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. Where “the differentiation” complained of “conforms to the practical dictates of justice and equity” it “is not discriminatory within the meaning of this clause and is therefore uniform.” There is quite a similarity then to the standard of equal protection for all that is required is that the tax “applies equally to all persons, firms and corporations placed in similar situation.
What misled Sison is his failure to take into consideration the distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate. Taxpayers may be classified into different categories. In the case of the gross income taxation embodied in BP 135, the discernible basis of classification is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead expense, these taxpayers are 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. It would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. There is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income.
SISON v ANCHETA
Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1) unduly discriminated against him by the imposition of higher rates upon his income as a professional, that it amounts to class legislation, and that it transgresses against the equal protection and due process clauses of the Constitution as well as the rule requiring uniformity in taxation. Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on uniformity in taxation. Held: There is a need for proof of such persuasive character as would lead to a conclusion that there was a violation of the due process and equal protection clauses. Absent such showing, the presumption of validity must prevail. 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. Where the differentiation conforms to the practical dictates of justice and equity, similar to the standards of equal protection, it is not discriminatory within the meaning of the clause and is therefore uniform. Taxpayers may be classified into different categories, such as recipients of compensation income as against professionals. Recipients of compensation income are not entitled to make deductions for income tax purposes as there is no practically no overhead expense, while professionals and businessmen have no uniform costs or expenses necessary to produce their income. There is ample justification to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income.
ANTERO M. SISON, JR., PETITIONER, VS. RUBEN B. ANCHETA;
FACTS: Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero M. Sison, as taxpayer, alleges that, "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers." He characterizes the above section as arbitrary amounting to class legislation, oppressive and capricious in character.For petitioner, therefore, there is a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation. ISSUE: Whether or not Section 1 of BP Blg 135 violates the due process and equal protection clauses of the Constitution, while also violating the rule that taxes must be uniform and equitable RULING: 1. No. Assuming that said amount represents a portion of the 75% of his war damage claim which was not paid, the same would not be deductible as a loss in 1951 because, according to petitioner, the last installment he received from the War Damage Commission, together with the notice that no further payment would be made on his claim, was in 1950. In the circumstance, said amount would at most be a proper deduction from his 1950 gross income. In the second place, said amount cannot be considered as a "business asset" which can be deducted as a loss in contemplation of law because its collection is not enforceable as a matter of right, but is dependent merely upon the generosity and magnanimity of the U. S. government. As of the end of 1945, there was absolutely no law under which petitioner could claim compensation for the destruction of his properties during the battle for the liberation of the Philippines. And under the Philippine Rehabilitation Act of 1946, the payments of claims by the War Damage Commission merely depended upon its discretion to be exercised in the manner it may see lit, but the non-payment of which cannot give rise to any enforceable right.
2. Yes. It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax
returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy.
Reyes vs. Almanzor
FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied as dwelling units by tenants who were paying monthly rentals of not exceeding P300. Sometimes in 1971 the Rental Freezing Law was passed prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units where rentals do not exceed three hundred pesos (P300.00), so that the Reyeses were precluded from raising the rents and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the subject properties based on the schedule of market values, which entailed an increase in the corresponding tax rates prompting petitioners to file a Memorandum of Disagreement averring that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual income derived from their properties. They argued that the income approach should have been used in determining the land values instead of the comparable sales approach which the City Assessor adopted.
ISSUE: Is the approach on tax assessment used by the City Assessor reasonable?
HELD: No. The taxing power has the authority to make a reasonable and natural classification for purposes of taxation but the government's act must not be prompted by a spirit of hostility, or at the very least discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different both in the privileges conferred and the liabilities imposed. Consequently, it stands to reason that petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be penalized by the same government by the imposition of excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties.
REYES VS. ALMANZOR GR 43839-46 April 26, 1991 196 SCRA 322:
FACTS: Petitioners (J.B.L. Reyes and Edmundo Reyes) are owners of parcels of land leased to tenants. RA 6359 was enacted prohibiting for one year an increase in monthly rentals of dwelling units and said Act also disallowed ejectment of lessees upon the expiration of the usual period of lease. City assessor of Manila (one of the respondents) assessed the value of petitioner’s property based on the schedule of market values duly reviewed by the Secretary of Finance. The revision entailed an increase to the tax rates and petitioners averred that the reassessment imposed upon them greatly exceeded the annual income derived from their properties. ISSUE: Whether or not income approach is the method to be used in the tax assessment and not the comparable sales approach. RULING: Petition Granted. B y n o s t r e t c h o f t h e i m a g i n a t i o n c a n t h e m a r k e t v a l u e o f p r o p e r t i e s c o v e r e d b y P D 2 0 b e equated with the market value of properties not so covered. In the case at bar, not even factors determinant of the assessed value of subject properties under the comparable sales approach were presented by respondent namely: 1.That the sale must represent a bona fide arm’s length transaction between a willing seller and a willing buyer 2.The property must be comparable property. As a general rule, there were no takers so that there can be no reasonable basis f or theconclusion that these properties are comparable. Taxes are lifeblood of government, however, such collection should be made in accordance with the law and therefore necessary to reconcile conflicting interests of the authorities so that the real purpose of taxation, promotion of the welfare of common good can be achieved.
CIR vs. Fortune Tobacco Corporation, [G.R. Nos. 167274-75, July 21, 2008]
Facts: Respondent FTC is a domestic corporation that manufactures cigarettes packed by machine under several brands. Prior to January 1, 1997, Section 142 of the 1977 Tax Code subjected said cigarette brands to ad valorem tax. Annex D of R.A. No. 4280 prescribed the cigarette brands’ tax classification rates based on their net retai l price. On January 1, 1997, R.A. No. 8240 took effect. Sec. 145 thereof now subjects the cigarette brands to specific tax and also provides that: (1) the excise tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each brand on October 1, 1996; (2) the rates of excise tax on cigarettes enumerated therein shall be increased by 12% on January 1, 2000; and (3) the classification of each brand of cigarettes based on its average retail price as of October 1, 1996, as set forth in Annex D shall remain in force until revised by Congress. The Secretary of Finance issued RR No. 17-99 to implement the provision for the 12% excise tax increase. RR No. 17-99 added the qualification that “the new specific tax rate xxx shall not be lower than the excise tax that is actually being paid prior to January 1, 2000.” In effect, it provided that the 12% tax increase must be based on the excise tax actually being paid prior to January 1, 2000 and not on their actual net retail price. FTC filed 2 separate claims for refund or tax credit of its purportedly overpaid excise taxes for the month of January 2000 and for the period January 1-December 31, 2002. It assailed the validity of RR No. 17-99 in that it enlarges Section 145 by providing the aforesaid qualification. In this petition, petitioner CIR alleges that the literal interpretation given by the CTA and the CA of Section 145 would lead to a lower tax imposable on 1 January 2000 than that imposable during the transition period, which is contrary to the legislative intent to raise revenue. Issue: Should the 12% tax increase be based on the net retail price of the cigarettes in the market as outlined in Section 145 of the 1997 Tax Code? Held: YES. Section 145 is clear and unequivocal. It states that during the transition period, i.e., within the next 3 years from the effectivity of the 1997 Tax Code, the excise tax from any brand of cigarettes shall not be lower than the tax due from each brand on 1 October 1996. This qualification, however, is conspicuously absent as regards the 12% increase which is to be applied on cigars and cigarettes packed by machine, among others, effective on 1 January 2000. Clearly, Section 145 mandates a new rate of excise tax for cigarettes packed by machine due to the 12% increase effective on 1 January 2000 without regard to whether the revenue collection starting from this period may turn out to be lower than that collected prior to this date. The qualification added by RR No. 17-99 imposes a tax which is the higher amount between the ad valorem tax being paid at the end of the 3-year transition period and the specific tax under Section 145, as increased by 12% —a situation not supported by the plain wording of Section 145 of the 1997 Tax Code. Administrative issuances must not override, supplant or modify the law, but must remain consistent with the law they intend to carry out. Revenue generation is not the sole purpose of the passage of the 1997 Tax Code. The shift from the ad valorem system to the specific tax system in the Code is likewise meant to promote fair competition among the players in the industries concerned and to ensure an equitable distribution of the tax burden.
Facts: These four (4) petitions seek to nullify Executive Order No. 273 issued by the President of the Philippines, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax, for being unconstitutional in that its enactment is not allegedly within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution. The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller, with aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his purchase of goods and services, unless exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of goods or gross receipts realized from the sale of services. The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers, advance sales tax, and compensating tax on importations. The framers of EO 273 that it is principally aimed to rationalize the system of taxing goods and services; simplify tax administration; and make the tax system more equitable, to enable the country to attain economic recovery. The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As pointed out by the Solicitor General, the Philippine sales tax system, prior to the issuance of EO 273, was essentially a single stage value added tax system computed under the "cost subtraction method" or "cost deduction method" and was imposed only on original sale, barter or exchange of articles by manufacturers, producers, or importers. Subsequent sales of such articles were not subject to sales tax. However, with the issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second sale, which was reduced to 1.5% upon the issuance of PD 2006 on 31 December 1985, to take effect 1 January 1986. Reduced sales taxes were imposed not only on the second sale, but on every subsequent sale, as well. EO 273 merely increased the VAT on every sale to 10%, unless zero-rated or exempt. Issue: Whether or not EO 273 is unconstitutional Held: No. Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by this framers and other government agencies involved in its implementation, even under the past administration. As the Solicitor General correctly sated. "The signing of E.O. 273 was merely the last stage in the exercise of her legislative powers. The legislative process started long before the signing when the data were gathered, proposals were weighed and the final wordings of the measure were drafted, revised and finalized. Certainly, it cannot be said that the President made a jump, so to speak, on the Congress, two days before it convened." Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive. 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. A tax is considered uniform when it
operates with the same force and effect in every place where the subject may be found." 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. The Court likewise finds no merit in the contention of the petitioner Integrated Customs Brokers Association of the Philippines that EO 273, more particularly the new Sec. 103 (r) of the National Internal Revenue Code, unduly discriminates against customs brokers. At any rate, the distinction of the customs brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based upon material differences, in that the activities of customs brokers (like those of stock, real estate and immigration brokers) partake more of a business, rather than a profession and were thus subjected to the percentage tax under Sec. 174 of the National Internal Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT.
ARTURO M. TOLENTINO VS. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, 1994 Aug 25, G.R. No. 115455, 235 SCRA 630 FACTS: The valued-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code. The Chamber of Real Estate and Builders Association (CREBA) contends that the imposition of VAT on sales and leases by virtue of contracts entered into prior t o the effectivity of the law would violate the constitutional provision of “non impairment of contracts.” ISSUE: Whether R.A. No. 7716 is unconstitutional on ground that it violates the contract clause under Art. III, sec 10 of the Bill of Rights. RULING: No. The Supreme Court the contention of CREBA, that the imposition of the VAT on the sales and leases of real estate by virtue of contracts entered into prior to the effectivity of the law would violate the constitutional provision of nonimpairment of contracts, is only slightly less abstract but nonetheless hypothetical. 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 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 State's power of taxation save only where a tax exemption has been granted for a valid consideration. Such is not the case of PAL in G.R. No. 115852, and the Court does not understand it to make this claim. Rather, its position, as discussed above, is that the removal of its tax exemption cannot be made by a general, but only by a specific, law. Further, the Supreme Court held the validity of Republic Act No. 7716 in its formal and substantive aspects as this has been raised in the various cases before it. To sum up, the Court holds: (1) That the procedural requirements of the Constitution have been complied with by Congress in the enactment of the statute; (2) That judicial inquiry whether the formal requirements for the enactment of statutes - beyond those prescribed by the Constitution - have been observed is precluded by the principle of separation of powers; (3) That the law does not abridge freedom of speech, expression or the press, nor interfere with the free exercise of religion, nor deny to any of the parties the right to an education; and (4) That, in view of the absence of a factual foundation of record, claims that the law is regressive, oppressive and confiscatory and that it violates vested rights protected under the Contract Clause are prematurely raised and do not justify the grant of prospective relief by writ of prohibition. WHEREFORE, the petitions are DISMISSED.
Tolentino vs. Secretary of Finance G.R. No. 115455, August 25, 1994
Facts: The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. RA 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code. There are various suits challenging the constitutionality of RA 7716 on various grounds. One contention is that RA 7716 did not originate exclusively in the House of Representatives as required by Art. VI, Sec. 24 of the Constitution, because it is in fact the result of the consolidation of 2 distinct bills, H. No. 11197 and S. No. 1630. There is also a contention that S. No. 1630 did not pass 3 readings as required by the Constitution. Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the Constitution
Held: The argument that RA 7716 did not originate exclusively in theHouse of Representatives as required by Art. VI, Sec. 24 of the Constitution will not bear analysis. To begin with, it is not the law but the revenue bill which is required by the Constitution to originate exclusively in the House of Representatives. To insist that a revenue statute and not only the bill which initiated the legislative process culminating in the enactment of the law must substantially be the same as the House bill would be to deny the Senate’s power not only to concur with amendments but also to propose amendments. Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills authorizing an increase of the public debt, private bills and bills of local application must come from the House of Representatives on the theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to the local needs and problems. Nor does the Constitution prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the House, so long as action by the Senate as a body is withheld pending receipt of the House bill. The next argument of the petitioners was that S. No. 1630 did not pass 3 readings on separate days as required by the Constitution because the second and third readings were done on the same day. But this was because the President had certified S. No. 1630 as urgent. The presidential certification dispensed with the requirement not only of printing but also that of reading the bill on separate days. That upon the certification of a bill by the President the requirement of 3 readings on separate days and of printing and distribution can be dispensed with is supported by the weight of legislative practice.
Tolentino vs. Secretary of Finance, G.R. No. 115455235 SCRA 630 (1994)
FACTS RA 7716, otherwise known as the Expanded Value-Added Tax Law, is an act that seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code. There are various suits questioning and challenging the constitutionality of RA 7716 on various grounds. Tolentino contends that RA 7716 did not originate exclusively from the House of Representatives but is a mere consolidation of HB. No. 11197 and SB. No. 1630 and it did not pass three readings on separate days on the Senate thus violating Article VI, Sections 24 and 26(2) of the Constitution, respectively. Art. VI, 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. Art. VI, Section 26(2): No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been distributed to its Members three days before its passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the Journal. ISSUE Whether or not RA 7716 violated Art. VI, Section 24 and Art. VI, Section 26(2) of the Constitution. HELD No. The phrase “originate exclusively” refers to the revenue bill and not to the revenue law. It is sufficient that the House of Representatives initiated the passage of the bill which may undergo extensive changes in the Senate. SB. No. 1630, having been certified as urgent by the President need not meet the requirement not only of printing but also of reading the bill on separate days.
Sison v Ancheta G.R. No. L-59431. July 25, 1984
Facts: Petitioners challenged the constitutionality of Section 1 of Batas Pambansa Blg. 135. It amended Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross income. Petitioner as taxpayer alleged that "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers." He characterizes the above section as arbitrary amounting to class legislation, oppressive and capricious in character. For petitioner, therefore, there is a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation. The OSG prayed for dismissal of the petition due to lack of merit. Issue: Whether the imposition of a higher tax rate on taxable net income derived from business or profession than on compensation is constitutionally infirm. (WON there is a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation) Held: No. Petition dismissed Ratio: The need for more revenues is rationalized by the government's role to fill the gap not done by public enterprise in order to meet the needs of the times. It is better equipped to administer for the public welfare. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. The power to tax is an attribute of sovereignty and the strongest power of the government. There are restrictions, however, diversely affecting as it does property rights, both the due process andequal protection clauses may properly be invoked, as petitioner does, to invalidate in appropriate cases a revenue measure. If it were otherwise, taxation would be a destructive power. The petitioner failed to prove that the statute ran counter to the Constitution. He used arbitrariness as basis without a factual foundation. This is merely to adhere to the authoritative doctrine that where the due process and equal protection clauses are invoked, considering that they are not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear abuse of power.
It has also been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process grounds. For equal protection, the applicable standard to determine whether this was denied in the exercise of police power or eminent domain was the presence of the purpose of hostility or unreasonable discrimination. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under circumstances, which if not identical are analogous. If law be looks upon in terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on the rest. The equal protection clause is, of course, inspired by the noble concept of approximating the ideal of the laws's benefits being available to all and the affairs of men being governed by that serene and impartial uniformity, which is of the very essence of the idea of law. The equality at which the 'equal protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties, addressed to the attainment of specific ends by the use of specific remedies. The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same. Lutz v Araneta- it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation. Petitioner- kindred concept of uniformity- Court- Philippine Trust Company- The rule of uniformitydoes not call for perfect uniformity or perfect equality, because this is hardly attainable 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 There is quite a similarity then to the standard of equal protection for all that is required is that the tax "applies equally to all persons, firms and corporations placed in similar situation" There was a difference between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate. The discernible basis of classification is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. As there is practically no overhead expense, these taxpayers are not entitled to make deductions for income tax purposes because they are in the same situation more or less. Taxpayers who are recipients of compensation income are set apart as a class. 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. It would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income.
There was a lack of a factual foundation, the forcer of doctrines on due process and equal protection, and he reasonableness of the distinction between compensation and taxable net income of professionals and businessmen not being a dubious classification.
SISON v ANCHETA Facts: Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero M. Sison, as taxpayer, alleges that "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. He characterizes said provision as arbitrary amounting to class legislation, oppressive and capricious in character. It therefore violates both the equal protection and due process clauses of the Constitution as well asof the rule requiring uniformity in taxation. Issue: Whether or not the assailed provision violates the equal protection and due process clauses of the Constitution while also violating the rule that taxes must be uniform and equitable. Held: The petition is without merit. On due process - it is undoubted that it may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property from abuse of power. Petitioner alleges arbitrariness but his mere allegation does not suffice and there must be a factual foundation of such unconsitutional taint. On equal protection - it suffices that the laws operate equally and uniformly on all persons under similar circumstances, both in the privileges conferred and the liabilities imposed. On the matter that the rule of taxation shall be uniform and equitable - this requirement is met when the tax operates with the same force and effect in every place where the subject may be found." Also, :the rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly unattainable." When the problem of classification became of issue, the Court said: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation..." As provided by this Court, where "the differentation" complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is therefore uniform."
SISON v ANCHETA “Equal Protection”
Sison assails the validity of BP 135 w/c further amended Sec 21 of the National Internal Revenue Code of 1977. The law provides that there’d be a higher tax impost against income derived from professional income as opposed to regular income earners. Sison, as a professional businessman, and as taxpayer alleges that by virtue thereof, “he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers.” He characterizes the above section as arbitrary amounting to class legislation, oppressive and capricious in character. There is a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation. ISSUE: Whether the imposition of a higher tax rate on taxable net income derived from business or profession than on compensation is constitutionally infirm. HELD: The SC ruled against Sison. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. Taxes, being the lifeblood of the government, their prompt and certain availability is of the essence. According to the Constitution: “The rule of taxation shall be uniform and equitable.” However, the rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable. 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. Where “the differentiation” complained of “conforms to the practical dictates of justice and equity” it “is not discriminatory within the meaning of this clause and is therefore uniform.” There is quite a similarity then to the standard of equal protection for all that is required is that the tax “applies equally to all persons, firms and corporations placed in similar situation.
What misled Sison is his failure to take into consideration the distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate. Taxpayers may be classified into different categories. In the case of the gross income taxation embodied in BP 135, the discernible basis of classification is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead expense, these taxpayers are 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. It would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. There is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income.
SISON v ANCHETA
Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1) unduly discriminated against him by the imposition of higher rates upon his income as a professional, that it amounts to class legislation, and that it transgresses against the equal protection and due process clauses of the Constitution as well as the rule requiring uniformity in taxation. Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on uniformity in taxation. Held: There is a need for proof of such persuasive character as would lead to a conclusion that there was a violation of the due process and equal protection clauses. Absent such showing, the presumption of validity must prevail. 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. Where the differentiation conforms to the practical dictates of justice and equity, similar to the standards of equal protection, it is not discriminatory within the meaning of the clause and is therefore uniform. Taxpayers may be classified into different categories, such as recipients of compensation income as against professionals. Recipients of compensation income are not entitled to make deductions for income tax purposes as there is no practically no overhead expense, while professionals and businessmen have no uniform costs or expenses necessary to produce their income. There is ample justification to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income.
ANTERO M. SISON, JR., PETITIONER, VS. RUBEN B. ANCHETA;
FACTS: Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero M. Sison, as taxpayer, alleges that, "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers." He characterizes the above section as arbitrary amounting to class legislation, oppressive and capricious in character.For petitioner, therefore, there is a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation. ISSUE: Whether or not Section 1 of BP Blg 135 violates the due process and equal protection clauses of the Constitution, while also violating the rule that taxes must be uniform and equitable RULING: 1. No. Assuming that said amount represents a portion of the 75% of his war damage claim which was not paid, the same would not be deductible as a loss in 1951 because, according to petitioner, the last installment he received from the War Damage Commission, together with the notice that no further payment would be made on his claim, was in 1950. In the circumstance, said amount would at most be a proper deduction from his 1950 gross income. In the second place, said amount cannot be considered as a "business asset" which can be deducted as a loss in contemplation of law because its collection is not enforceable as a matter of right, but is dependent merely upon the generosity and magnanimity of the U. S. government. As of the end of 1945, there was absolutely no law under which petitioner could claim compensation for the destruction of his properties during the battle for the liberation of the Philippines. And under the Philippine Rehabilitation Act of 1946, the payments of claims by the War Damage Commission merely depended upon its discretion to be exercised in the manner it may see lit, but the non-payment of which cannot give rise to any enforceable right.
2. Yes. It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax
returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy.
Reyes vs. Almanzor
FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied as dwelling units by tenants who were paying monthly rentals of not exceeding P300. Sometimes in 1971 the Rental Freezing Law was passed prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units where rentals do not exceed three hundred pesos (P300.00), so that the Reyeses were precluded from raising the rents and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the subject properties based on the schedule of market values, which entailed an increase in the corresponding tax rates prompting petitioners to file a Memorandum of Disagreement averring that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual income derived from their properties. They argued that the income approach should have been used in determining the land values instead of the comparable sales approach which the City Assessor adopted.
ISSUE: Is the approach on tax assessment used by the City Assessor reasonable?
HELD: No. The taxing power has the authority to make a reasonable and natural classification for purposes of taxation but the government's act must not be prompted by a spirit of hostility, or at the very least discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different both in the privileges conferred and the liabilities imposed. Consequently, it stands to reason that petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be penalized by the same government by the imposition of excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties.
REYES VS. ALMANZOR GR 43839-46 April 26, 1991 196 SCRA 322:
FACTS: Petitioners (J.B.L. Reyes and Edmundo Reyes) are owners of parcels of land leased to tenants. RA 6359 was enacted prohibiting for one year an increase in monthly rentals of dwelling units and said Act also disallowed ejectment of lessees upon the expiration of the usual period of lease. City assessor of Manila (one of the respondents) assessed the value of petitioner’s property based on the schedule of market values duly reviewed by the Secretary of Finance. The revision entailed an increase to the tax rates and petitioners averred that the reassessment imposed upon them greatly exceeded the annual income derived from their properties. ISSUE: Whether or not income approach is the method to be used in the tax assessment and not the comparable sales approach. RULING: Petition Granted. B y n o s t r e t c h o f t h e i m a g i n a t i o n c a n t h e m a r k e t v a l u e o f p r o p e r t i e s c o v e r e d b y P D 2 0 b e equated with the market value of properties not so covered. In the case at bar, not even factors determinant of the assessed value of subject properties under the comparable sales approach were presented by respondent namely: 1.That the sale must represent a bona fide arm’s length transaction between a willing seller and a willing buyer 2.The property must be comparable property. As a general rule, there were no takers so that there can be no reasonable basis f or theconclusion that these properties are comparable. Taxes are lifeblood of government, however, such collection should be made in accordance with the law and therefore necessary to reconcile conflicting interests of the authorities so that the real purpose of taxation, promotion of the welfare of common good can be achieved.
CIR vs. Fortune Tobacco Corporation, [G.R. Nos. 167274-75, July 21, 2008]
Facts: Respondent FTC is a domestic corporation that manufactures cigarettes packed by machine under several brands. Prior to January 1, 1997, Section 142 of the 1977 Tax Code subjected said cigarette brands to ad valorem tax. Annex D of R.A. No. 4280 prescribed the cigarette brands’ tax classification rates based on their net retai l price. On January 1, 1997, R.A. No. 8240 took effect. Sec. 145 thereof now subjects the cigarette brands to specific tax and also provides that: (1) the excise tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each brand on October 1, 1996; (2) the rates of excise tax on cigarettes enumerated therein shall be increased by 12% on January 1, 2000; and (3) the classification of each brand of cigarettes based on its average retail price as of October 1, 1996, as set forth in Annex D shall remain in force until revised by Congress. The Secretary of Finance issued RR No. 17-99 to implement the provision for the 12% excise tax increase. RR No. 17-99 added the qualification that “the new specific tax rate xxx shall not be lower than the excise tax that is actually being paid prior to January 1, 2000.” In effect, it provided that the 12% tax increase must be based on the excise tax actually being paid prior to January 1, 2000 and not on their actual net retail price. FTC filed 2 separate claims for refund or tax credit of its purportedly overpaid excise taxes for the month of January 2000 and for the period January 1-December 31, 2002. It assailed the validity of RR No. 17-99 in that it enlarges Section 145 by providing the aforesaid qualification. In this petition, petitioner CIR alleges that the literal interpretation given by the CTA and the CA of Section 145 would lead to a lower tax imposable on 1 January 2000 than that imposable during the transition period, which is contrary to the legislative intent to raise revenue. Issue: Should the 12% tax increase be based on the net retail price of the cigarettes in the market as outlined in Section 145 of the 1997 Tax Code? Held: YES. Section 145 is clear and unequivocal. It states that during the transition period, i.e., within the next 3 years from the effectivity of the 1997 Tax Code, the excise tax from any brand of cigarettes shall not be lower than the tax due from each brand on 1 October 1996. This qualification, however, is conspicuously absent as regards the 12% increase which is to be applied on cigars and cigarettes packed by machine, among others, effective on 1 January 2000. Clearly, Section 145 mandates a new rate of excise tax for cigarettes packed by machine due to the 12% increase effective on 1 January 2000 without regard to whether the revenue collection starting from this period may turn out to be lower than that collected prior to this date. The qualification added by RR No. 17-99 imposes a tax which is the higher amount between the ad valorem tax being paid at the end of the 3-year transition period and the specific tax under Section 145, as increased by 12% —a situation not supported by the plain wording of Section 145 of the 1997 Tax Code. Administrative issuances must not override, supplant or modify the law, but must remain consistent with the law they intend to carry out. Revenue generation is not the sole purpose of the passage of the 1997 Tax Code. The shift from the ad valorem system to the specific tax system in the Code is likewise meant to promote fair competition among the players in the industries concerned and to ensure an equitable distribution of the tax burden.
