TAXATION

MODULE 1 - Taxation

A. Definition

Taxation is an (1) enforced proportional contribution (2) imposed by the State

in its sovereign capacity (3) to support the government.

Taxation is a mode of raising revenue for public purposes

Taxes on the other hand are those "Enforced proportional contributions"

It is a pecuniary (consisting of money) burden so paying taxes using kind is

not allowed. Except for certificate of backpay.

B. Nature of Internal Revenue Law

Hilado vs CIR

Facts:

Hilado filed his income tax return for 1951 wherein he claimed that P12k was
deductible item from his gross income due to a circular. Hence P9k was
demanded from him. After a month, the Secretary of Finance issued another
circular revoking the previous circular allowing the deduction, by making the
lossed property during WW2 deductible to the year of ACTUAL LOSS. Hence
the 12k deductible item was not allowed for 1951. The CIR demanded from
Hilado 3k for the deficiency. Hilado challenged this and eventually the CTA
ruled in favor of the CIR.

Issues:

Whether or not the deduction was valid

Rulings:

The 12k was a loss due to the war which was approved by the Philippine War
Damage Commission but such amount was not paid. Hilado claims that this
was "business assets" which he was entitled to deduct.

The said amount represent 75% of his war damages which was not paid. The
last payment was on 1950, at best it would have been deductions on his
1950 gross income. Second, this could not be considered as a "business
asset" which can be deducted because it is not enforceable and is merely
from the generosity of the US because even before there was no law that
allowed such deductions it was only because of the US that allowed it but still
subject to their discretion which the non-payment of which cannot be a
source of right.

The unclaimed compensation are only deductible in the year the last
installments was received, but this circular is wrong and was revoked
because it would take years from a property owner to know about the status
of their claims and the owners should adopt the safest alternative which was
to consider such losses deductible during the year they were sustained.

Hilado contends that due to the occupation of Japan with the Philippines,
there was no taxable year in 1946 but 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.

That law once established continues until changed by some competent

legislative power. It is not changed by mere change of sovereignty.

The Secretary of Finance was within his powers to revoke or abrogate acts of
previous rulings and the Court could not look into the wisdom of such acts
because of the principle of separation of powers.

With regard to the contention that General Circular No. V-139 cannot be
given retroactive effect because that would affect and obliterate the vested
right acquired by petitioner under the previous circular, suffice it to say that
General Circular No. V-123, having been issued on a wrong construction of
the law, cannot give rise to a vested right that can be invoked by a taxpayer.
The reason is obvious: a vested right cannot spring from a wrong
interpretation. This is too clear to require elaboration.
C. Scope and Nature of Taxation

Inherent Attribute of Sovereignty

It is one of the inherent powers of the State along with expropriation and
police power. This power exist even without the Constitution. It is a matter of
a right for an independent government.

The Constitution merely limits the power to tax.

Its relinquishment is never presumed.

Without this power no State can survive.

Legislative in Character

Its free to select the object of taxation.

It is embedded with the Legislative.

Taxes are a grant of the people and the person who can collect such grant
are those representatives of the people.

Section 28 Article 6 Constitution

(1) The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.

Uniform - Consistent

Equitable - Fair and Just

(2) The Congress may, by law, authorize the President to fix within specified
limits, and subject to such limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national development program
of the Government.

Tariff Rates - imposed by the State for import and export

Import and export quotas - limits on the quantity of the goods to be imported
or exported out of the State

Tonnage Dues - fees based on the weight of a vessel

Whafage Dues- fees for the use of a wharf or pier

(3) Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly, and exclusively used for
religious, charitable, or educational purposes shall be exempt from taxation.

(4) No law granting any tax exemption shall be passed without the
concurrence of a majority of all the Members of the Congress.

The provision is not a grant of power but an enumeration of limits.

Sison vs Ancheta

FACTS:

BP 135 amends Section 21 of the NIRC 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.

Sison alleges that he would be discriminated against by the imposition of

higher rates of tax upon his income from the exercise of his profession and
upon his fixed income or salaried individual taxpayers. Ancheta and the BIR
argued that BP 135 is a valid exercise of the State's power to tax.

ISSUES:

Whether or not the imposition of a higher tax rate on taxable net income
derived from business or profession than on compensation is constitutionally
infirm

RULINGS: PETITION BE DISMISSED

The field of state activity has assumed a much wider scope, there are areas
which used to be left to private individuals where the government only
enters optionally or when it was only equipped better than private
individuals. Now the government must undertake it to meet the increasing
social challenges of the times. Hence the need for more revenues. This
source has to be availed of to assure the performance of vital state functions.
It is the lifeblood of the government, their availabiliy is of the essence.

This power to tax is an attribute of sovereignty and inherent in every

government. The Constitution sets its limits or else it would be true that
taxes involves the power to destroy.

Sison alleges arbitrariness. This allegation must have a factual foundation.

But Sison had not made out a case. Absent any showing the presumption of
validity must prevail.

An example of an arbitrary taxing statute is when the taxes can be shown to

amount to the confiscation of property.

In order to show that taxing statute on the other hand are discriminatory is
when the taxation power is used with the purpose of hostility or at the very
least discrimination that finds no support in reason. Favoritism and undue
preference cannot be allowed. The equal protection allows a taxing statute to
apply uniformly. Although there are times where classification is allowed, this
can only be in rational classification. But still the government has the power
to select the subjects of taxation and that such singling out infringes no
constitutional limitation.

Sison also invokes the concept of uniformity. The rule of taxation shall be
uniform and equitable. This requirement happens when the tax operates with
the same force and effect in every place where the subject may be found. It
does not call for a perfect uniformity or equality. In this case there was a
uniformity since it had applied to all persons, firm and association equally
and similarly situated.
Apparently, 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. To repeat, it. is enough that the
classification must rest upon substantial distinctions that make real
differences. In the case of the gross income taxation embodied in Batas
Pambansa Blg. 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 e not entitled to make deductions for income tax
purposes because they are in the same situation more or less. On the other
hand, in the case of professionals in the practice of their calling and
businessmen, there is no uniformity in the costs or expenses necessary to
produce their income. 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.

CIR vs Pineda

FACTS:

Atanasio Pineda died survived by his wife Felicisima and the eldest Manuel
Pineda a lawyer. There was estate proceedings thereafter, wherein the widow
was the administratrix. The estate was divided among and awarded to the
heirs. His share was P2,500.

After the estate proceedings, the BIR investigated and found that for the
years 1945 to 1948 the income tax return was not filed. The CIR filed said
returns for the estate on the basis of the proceedings.
Pienda contested the assessment by the CIR. The case went to the CTA and
Pineda was only appealing that proportionate part pertaining to him as heir.
Then the CTA rendered judgement against the CIR.

The SC affirmed and argued that the right to assess and collect had
prescribed for 1947 but not for 1945 and 1946 since it had an assessment
made within five years. Hence the case was remanded to the CTA.

There was no additional evidence. Then the CTA rendered judgement holding
Pineda liable for payment. The CIR appealed aiming to held them liable for all
of the years. Pineda on the other hand argues that as an heir is only entitled
for the unpaid income tax only up to the extent of and in proporation to his
share.

RULINGS: We hold that Pineda is required to pay the full amount

Pineda is liable for the assessment as an heir and as a holder-transferee of

property in the estate. He is liable to his share and should not exceed. He is
liable for the tax up to the amount in his possession because the government
has a lien on the P2,500 by virtue of Section 315 that when a person liable to
pay income tax but neglects to pay the same after demand the amount shall
be a lien in favor of the government from the time of the assessment.

By virtue of such lien the Government has the right to subject the property to
satisfy the income tax assessment in the sum of P760. After payment the he
can adjust the proper share of each of the heir.

The government has two ways of collecting the tax in question. First is by
collecting from each one of them the amount of the tax proportionate to
their share. This is to receive payment and also to distribute the estate
lessened by taxes. The second is pursuant to a lien by using all the property
and rights of a taxpery for unpaid income tax, by setting up such taxxes for
the payment of the estate. The BIR should be given the most expeditious
way of collecting taxes because taxes are the lifeblood of the government
and their prompt and certain availablity is an imperious need.
Phil Guaranty vs CIR

FACTS:

Philippine Guaranty Co is a domestic insurance company it had reinsurance

contracts with foreign insurance companies not doing business in the
Philippines.

The agreement was that Phil Guaranty would cede to the foreign reinsurers a
porton of the premiums on insurance in the Philippines and Phil Guaranty
would also be liable on an equivalent portion of the risks.

The foreign reinsurers would pay the amount of taxes on insurance

premiums

The foreign reinsurers would administer their affairs

Conflicts would be arbitrated in Manila

The contract shall be construed by the laws of the Philippines

The premiums of 1953 and 1954 were excluded from Phil Guaranty's gross
income when it filed its income tax returns.

The CIR assessed Phil Guaranty on the reinsurance premiums on an amount

of P230k

Philippine Guaranty protested the assessment on the grounds that the

premiums were ceded to foreign companies not doing business in the
Philippines hence is not subject to witholding tax. The protest was denied
hence an appeal was filed with the CTA.

CTA rendered judgement in favor of CIR

RULINGS:

Phil Guaranty Co maintains that the premiums did not constitute income
from the Philippines because the foreign insurers was not in the Philippines.

The contracts shows that the activities that constituted the undertakings was
performed in the Philippines. Phil Guaranty had a register in Manila, the
entries in the register bound the foreign reinsurers. Taxes on premiums were
payable to the fireng reinsurers. The foreign reinsurers paid Phil Guaranty in
consideration for administration and management by Phil Guaranty of the
affairs in the Philippines. Disputes were settled in the Philippines. The
contracts were signed in the Philippines except for the Swiss company but
still the contract had the intention to follow Philippines law. There was a clear
intention of the parties to subject themselves to Philippine law.

Section 24 of the Tax Code subjects foreign corporations to tax on their

income from sources within the Philipines. Sources means is the activity or
undertaking. Clearly the undertaking of the foreign reinsurers took place in
the Philippines.

The place of business should not be confused with their place of activity. An
activity may happen outside the place of business. Section 24 does not
require the foreigners to engage in the Philippines. It is fine if they are doing
business activities in the Philipines. What is controlling is the activity not the
place of business.

Phil Guaranty contends that reinsurance premiums are not income from
sources in the Philippines because they were not mentioned in Section 37.
This provision however is not all-inclusive, it does not require that other kinds
of income should not be considered.

The power to tax is an attribute of sovereignty. It emanates from necessity.

This is a necessary burden to ensure safety and development for the
enjoyment of the citizenry. Since the reinsurance relies on the protection of
the State such reinsurance premiums should share the burden of preserving
the State.

CIR vs Algue

FACTS:

Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good, may be
achieved.

Algue was a domestic corporation engaged in engineering and consutrction

which had an assessment of P83k as deliquency income taxes for 1958 and
1959.

Algue filed a letter of protest. But a warrant of distraint and levy was
presented to Algue who did not believe it due to the ongoing protest. But the
BIR was not taking action on the protest and it was only after that Algue
accepted the warrant.

Algue filed a petition with the CTA.

ISSUE:

The main issue in this case is whether or not the Collector of Internal
Revenue correctly disallowed the P75,000.00 deduction claimed by private
respondent Algue as legitimate business expenses in its income tax returns.

RULINGS:

There was a problem with finding the protest of Algue hence the delay of the
appeal, but when it was found the period to file had resumed and it was filed
timely.

CIR claims that the P75,000 was disallowed because it was not a business
expense.

A new business was established the Vegetable Oil Investment Corporation

through the amount that was earned by joint efforts to buiy PSEDC since
Algue was appointed as its agent. It induced others to invest, through the
promotion of Algue, the corporation indeed purchased PSEDC. Algue received
a commission of which P75,000 were promotional fees.

Their respective shares were reported in their income tax returns.

Furthermore there was no dividends distributed.
CIR claims that these were merely fictious because the corporation belongs
to the family of Algue. CIR claims that these were tax dodge an attempt to
evade a legitimate assessment by involving an imaginary deduction.

Algue claims that these payments were not made in one lump sum but
periodically and in different amounts. This corporation was a family business
where strict business procedures were not applied. Nevertheless after the
books were closed each payee made an account of all that it had received for
a total of P75,000. This is reasonable taking into consideration the family
matters.

The promotional fees were not suspicously excessive because the

commission was P125,000, after the fees, Algue still had P50,000 a profit.
The amount of P75,000 was 60% of the total commission. This was
reasonable considering that it was Algue who did everything.

All ordinary and necessary expenses on any trade or business are deductible.
Another additional are compensation for personal services as long as it has
passed the test of deducitiblity which is whether they are reasonable and are
in fact for services.

The proof lies to the taxpayer and the SC held that the burden has been met.
It has been proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payess.

It is said that taxes are what we pay for civilization society. Witout taxes the
government is paralyzed. Even though there is reluctance to surrendered the
hard-earned income to the authorities, every person who is able to must
contribute his share. The government on the other hand must respond with
benefits to its people. This is a symbiotic relationship.

Even if there is a need to tax, there must still be reason and in accordance
with the procedure. If it is not then the taxpayer has a right to complain.
D. Theory and Basis of Taxation

Life Blood Theory

Taxes are the lifeblood of the state without taxes the government will not
operate

Taxes are the lifeblood of the government and their prompt and certain
availability is an imperious need.

Must be made without hindrance

Necessity Theory

The goverment cannot continue to operate without taxes to pay for expenses

It is a necessary burden to preserve the State's sovereignty and a means to

give the citizenry an army to resist aggression

Benefits-Protection/Reciprocity Theory

We pay for a civilized society, we pay and the government protects.

Doctrine of Symbiotic Relationship

Both the taxpayer and the State has reciprocal obligations with one another.

CIR vs Algue

Lorenzo vs Posadas

FACTS:

Thomas Haney died in Zamboanga leaving a will and real and personal
properties.

The will provides that most of his properties would be left to his nephew
Matthew Hanley.

The Court appointed a trustee and on March 8, 1924 Moore took his office
and gave bond on March 10, 1924. Moore resigned and Lorenzo was replaced

CIR assessed the estate that has an amount of P2052. But Lorenzo paid
under protest in order to refund said amount but the CIR did not agree.
Hence a suit was filed.
ISSUES AND RULINGS:

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

Inheritance tax is imposed upon every transmission by virtue of inheritance

mortis causa that is made effective by his death. It is the tax imposed to the
right to succeed. Article 657 of the CC provides that the right to the
succession are transmitted from the moment of his death. The heirs succeed
immediately to all of the property. The property belongs to the heir
immediately.

Lorenzo argues that Article 657 only applies to forced heirs. But the language
of the law is broad and makes no distinction. It does not speak of forced heirs
and does not even use the word "heir". The rights of succession is deemed to
be automatically given to the heirs whatever the time may be when there is
actual transmission of inheritance takes place. There is a difference when the
heirs legally succeed to the inheritance from the time when the heir actually
receive such inheritance.

Thomas Hanley died on May 27, 1922, but it does not follow that the
obligation to pay arises from that date. Such obligation should have been
paid on March 10, 1924 before the delivery of the properties to Moore. Moore
is considered as a fideicommissary or cestui que trust and such delivery
would amount to a delivery to the heirs.

Should the inheritance tax be computed on the basis of the value of the
estate at the time of the testator's death, or on its value ten years later

Lorenzo contends that the value of the inheritance tax should be based on
the value of the real property on 1932 or 10 years after the death of the
testator.

Death is the reckoning point hence the value should be measured from the
value of the estate as it stood from the decedents death regardless of any
contingency value. Subsequent appreciation or depreciation is immaterial.
Postponements of the actual possession or enjoyment of the estate is
immaterial.

In determining the net value of the estate subject to tax, is it proper to

deduct the compensation due to trustees?

Some items are allowed by law to be deducted from the net value of the
estate which is the basis for the inheritance tax. Lorenzo argues that the
compensation and fee of the trustees should also be deducted arguing that
they are considered as judicial expenses of the testamentary proceedings.

A trustee no doubt is entitled to fair compensation. But there is no law that

requires the commissions to be deducted. The compensation of a trustee,
earned, not in the administration of the estate, but in the management
thereof for the benefit of the legatees or devises, does not come properly
within the class or reason for exempting administration expenses. No sound
reason is given to support the contention that such expenses should be
taken into consideration in fixing the value of the estate for the purpose of
this tax.

What law governs the case at bar? Should the provisions of Act No. 3606
favorable to the tax-payer be given retroactive effect?

The law at the time was section 1544 above-mentioned, as amended by Act
No. 3031, which took effect on March 9, 1922. It is well-settled that
inheritance taxation is governed by the statute in force at the time of the
death of the decedent. Of course, a tax statute may be made retroactive in
its operation. But the intent must be perfectly clear.

Has there been deliquency in the payment of the inheritance tax? If so,
should the additional interest claimed by the defendant in his appeal be paid
by the estate?

The CIR argues that delivery to the trustee Moore, was delivery cestui que
trust. This contention is well taken. While the will does not mention of any
"trust" there is still the intent to create one. No particular words are needed
to create a trust. In order to create one, there must be (1) sufficient words to
raise a trust, (2) definite subject and (3) a certain or ascertain object. In this
case there was enough intent to create one.

Moore became the trustee on March 10, 1924. On that date trust estate
vested in him. The mere fact that the estate was in trust does not remove or
exempt it from the operation of inheritance tax. The tax should have been
paid before March 10, 1924 since the delivery of the estate to the trustee is
delivery to the cestui que trust. When Moore took possession of the estate
the estate belongs to the cestui que trust. There was no benefit for Moore
but it was for the benefit of the heir.

If the tax was postponed or delayed due the trust created. The testator can
provide much like in this case for a period of time until delivery. The
collection of tax would then be left to the will of a private individual and the
government losses one of its essential powers. For this reason, no one is
allowed to object to or resist the payment of taxes solely because no
personal benefit to him can be pointed out.

It results that the estate which plaintiff represents has been delinquent in the
payment of inheritance tax and, therefore, liable for the payment of interest
and surcharge provided by law in such cases. The delinquency in payment
occurred on March 10, 1924, the date when Moore became trustee. The
interest due should be computed from that date and it is error on the part of
the defendant to compute it one month later.

The date fixed for the payment of the tax and interest was November 30,
1931. November 30 being an official holiday, the tenth day fell on December
1, 1931. As the tax and interest due were not paid on that date, the estate
became liable for the payment of the surcharge.

COMPUTATION

Real Properties = P27,920

Personal Properties = P1,465

Total = P29,385

Deducted Amount = P480.81

Total = P28,904.19

Primary Tax:

Rate of one per centum upon the first ten thousand pesos and two per
centum upon the amount by which the share exceed thirty thousand pesos,
plus an additional two hundred per centum

P28,904.19 x 2% = P378.08

P1,000 x 1% = P100

478.08 x 200% = P956.16

P478.08 + P956.16 = P1,434.24

Delinquency Tax

P1,434.24 x 12% per annum from March 10, 1924 to Sept 15, 1932 a period
of 8 years, 6 months and 5 days.

Additional P724.88 from the tax and interest surcharge of 25%.

Another P10 for added sum by the CIR.

TOTAL = P3,634.43

E. Purposes of Taxation (Page 22, Dimaampao)

1. General/Fiscal/Revenue

The primary purpose is to raise revenue. The tax is for the support of the
government.
CIR vs Algue

PAL vs Edu

FACTS:

Under the Franchise of PAL they are exempted from the payment of taxes.

Since 1956 PAL has not paid for the motor vehicle registration fees.

Commissioner of LTC issued a regulation requiring PAL to pay motor vehicle

registration fees.

PAL paid under protest because the Commissioner refuse to register PAL

PAL argued that motor vehicle registration are in reality taxes from which
they are exempted by virtue of their legislative franchise.

The LTC Commissioner argues that there is no cause of action because motor
vehicle registration fees are not taxes, they are imposed as an incident to
the power of the state. While they are exempted to pay taxes it could not be
exempted from paying fees

RTC Dismissed PALs complaint while the CA certified it to the SC.

ISSUES:

Whether or not motor vehicle registration fees are taxes or fees

RULINGS:

The legislative intent and purpose of the law is to be used as a way to raise
funds for the construction and maintenance of highways and to a much
lesser degree pay for the operating expenses of the administering agency.

Fees may be properly regarded as taxes even though they also serve as an
instrument of regulation If the purpose is primarily revenue, or if revenue is,
at least, one of the real and substantial purposes, then the exaction is
properly called a tax (Umali, Id.) Such is the case of motor vehicle
registration fees.
It is apparent that the Land Transportation Code intended to have a
regulatory tax. Laws before speaks of "Additional Taxes". Simply put, if the
exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in
Rep. Act 5448 need not be an "additional" tax.

Although some fees are not taxes such as the special permit and fees for
change of registration because they are only minimal in revenue raising.

It is quite apparent that vehicle registration fees were originally simple

exceptional. intended only for rigidly purposes in the exercise of the State's
police powers. Over the years, however, as vehicular traffic exploded in
number and motor vehicles became absolute necessities without which
modem life as we know it would stand still, Congress found the registration
of vehicles a very convenient way of raising much needed revenues. Without
changing the earlier deputy. of registration payments as "fees," their nature
has become that of "taxes."

Can PAL refund the amount?

NO. The claim for refund is for the year 1971 and during 1968 the tax
exemptions were repealed. However during 1979 PAL was given an amended
franchise which totally exempted PAL from paying any taxes or fees. Any
registration fees collected on 1968 to 1979 are validly paid but since there
was no indication or proof of what years to be collected only 1971, the
payment falls validly on the days without exemption.

Tolentino vs Secretary of Finance

FACTS:

These are motions seeking reconsideration of our decision dismissing the

petitions filed in these cases for the declaration of unconstitutionality of R.A.
No. 7716, otherwise known as the Expanded Value-Added Tax Law. The
motions, of which there are 10 in all, have been filed by the several
petitioners in these cases, with the exception of the Philippine Educational
Publishers Association, Inc. and the Association of Philippine Booksellers,
petitioners in G.R. No. 115931.
ISSUES AND RULINGS:

I. Power of the Senate to propose amendments to revenue bills.

Petitioners claims that RA 7716 did not originate exclusively in the HR as

required by Art 6 Sec 24 of the Constitution. Although H11197 originated
from the HR where it was passed three readings and then sent to the Senate
and only finished one reading and thereafter Senate passed its own version.
They added that what the Senate committee should have done was to
amend H11197 by striking out the text of the bill and substituting it with the
text of S 1639. Hence they argued that the bill remains to be a House Bill
and the Senate Version becomes the text.

The contention has no merit.

This is not only the time that this happened. During the 18th Congress and
19th Congress which were a result of consolidated bills and the Senate
passed their own version of the bills.

Thus, the enactment of S. No. 1630 is not the only instance in which the
Senate, in the exercise of its power to propose amendments to bills required
to originate in the House, passed its own version of a House revenue
measure.

On the other hand, amendment by substitution concerns a mere matter of

form. What substantial difference it would make if, as the Senate actually did
in this case, a separate bill like S. No. 1630 is instead enacted as a substitute
measure, "taking into Consideration . . . H.B. 11197."

The addition of the word "exclusively" on the Constitution petitioners argues

that it main intention was to restrict the Senate's power to propose
amendments to revenue bills. And that it dropped the word "as in any other
bills" to show that these bills were not to be like other bills.
This limitation was only because of the attempt of the National assembly to
limit the power of the Senate.

The senate has the power to prpose or concur with amendments. Hence it
may propose an entirely new bill as a substitute measure. What petitioners
are insisting are mere technicalities.

II. S. No. 1630 a mere amendment of H. No. 11197.

S 1630 was merely an amendment of H 11197 it is not two half-baked bills. S

1630 is clearly an amendment of H11197. The difference are clearly intended
to be amendments to the house bill. Without H 11197, S 1630 could not have
been passed. Because of such amendment it was not required to be passed
on second and third readings. It is enough that after the first reading it was
referred to the Senate Committee. This has legislative precedent on RA 1405.

III. The President's certification.

Petitioner contend that because the President certified both to S1630 and
H11197 to the need for the immediate enactment. The certification had to be
made of the version of the same revenue bill which at the moment was being
considered. Otherwise, to follow petitioners' theory, it would be necessary for
the President to certify as many bills as are presented in a house of Congress
even though the bills are merely versions of the bill he has already certified.

The exception of the immediate enactment is because of the prudential

consideration of being printed out in final form and readings on three
separate days, in which case the occurence of emergency is allowed for
expediency.

At any rate, we are satisfied that S. No. 1630 received thorough

consideration in the Senate where it was discussed for six days.

IV. Power of Conference Committee.

Petitioners contend that the Conference Committee met for two days in
executive session with only the conferees present hence had violated the
right of disclosure and the people's right to know.

But petitioner failed to see that this is customary to hold such session where
only he conferees are present. Unlike the American counterpart, the
Philippine Congress has not adopted the open hearings for conference
committees.

Above all, the public's right to know was fully served because the Conference
Committee in this case submitted a report showing the changes made on the
differing versions of the House and the Senate.

The members of both houses could thus ascertain what changes had been
made in the original bills without the need of a statement detailing the
changes.

There any doubt about the power of a conference committee to insert new
provisions as long as these are germane to the subject of the conference.

V. The titles of S. No. 1630 and H. No. 11197.

Petitioner maintains that a law must only embrace one subject which shall be
expressed on the title. PAL argues that by the withdrawal of its exemption
from VAT is not expressed in the title.

PAL pays a franchise tax of 2% on its gross revenue "in lieu of all other taxes,
duties, royalties, registration, license and other fees and charges of any kind,
nature, or description, imposed, levied, established, assessed or collected by
any municipal, city, provincial or national authority or government agency,
now or in the future.". PAL was exempted from the payment of the VAT along
with other entities
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted
to PAL.

Congress on RA 7716 clearly expresses its intention to amend the provisions

of the NIRC. It is unnecessary to reflect the removal of PALs tax exemption in
the title because the title already show what the law seeks to do.

VI. Claims of press freedom and religious liberty.

VII. Alleged violations of the due process, equal protection and contract
clauses and the rule on taxation.

VIII. Alleged violation of policy towards cooperatives.

2. Non-Revenue/Special or Regulatory

Another purpose are:

(1) Reduction of Social Inequality

(2) Encourage the Growth of Local Industries

(3) Protect Local Industries

(4) Implement Police Power (Regulatory Measures)

Osmena vs Orbos

FACTS:

The petitioner seeks corrective remedies against the creation of a trust

account in the Ministry of Energy, the alleged unconstitutional delegation of
power to the Energy Regulatory Board (ERB), and the illegal reimbursements
to oil companies.

The petitioner argues that the creation of the trust account violates Article
VI, Section 29(3) of the Philippine Constitution, which states that money
collected on any tax levied for a special purpose shall be treated as a special
fund and paid out for such purposes only.
The petitioner contends that the monies collected for the Oil Price
Stabilization Fund (OPSF), which is part of the trust account, should be
maintained in a special account of the general fund.

The petitioner also argues that the delegation of legislative authority to the
ERB violates Article VI, Section 28(2) of the Constitution, which states that
the Congress may authorize the President to fix tariff rates, import and
export quotas, and other duties or imposts within the framework of the
national development program.

The petitioner claims that the delegation must have quantitative limits on
how much to tax.

RULINGS:

Hence, it seems clear that while the funds collected may be referred to as
taxes, they are exacted in the exercise of the police power of the State.
Moreover, that the OPSF is a special fund is plain from the special treatment
given it by E.O. 137. It is segregated from the general fund; and while it is
placed in what the law refers to as a "trust liability account," the fund
nonetheless remains subject to the scrutiny and review of the COA. The
Court is satisfied that these measures comply with the constitutional
description of a "special fund." Indeed, the practice is not without precedent.

With regard to the alleged undue delegation of legislative power, the Court
finds that the provision conferring the authority upon the ERB to impose
additional amounts on petroleum products provides a sufficient standard by
which the authority must be exercised.

What petitioner would wish is the fixing of some definite or limit. But as what
alreay been discussed the case is not one of taxation but police power.

For a valid delegation of power, it is essential that the law delegating the
power must be (1) complete in itself, that is it must set forth the policy to be
executed by the delegate and (2) it must fix a standard — limits of which

are sufficiently determinate or determinable — to which the delegate must

conform.
There exists a need to protect the general public and the petroleum industry
from the adverse consequences of pump rate fluctuations.

This Court thus finds no serious impediment to sustaining the validity of the
legislation; the express purpose for which the imposts are permitted and the
general objectives and purposes of the fund are readily discernible, and they
constitute a sufficient standard upon which the delegation of power may be
justified.

Caltex vs Commission on Audit

FACTS:

The Oil Price Stabilization Fund (OPSF) was created under Sec. 8, PD 1956, as
amended by EO 137 for the purpose ofminimizing frequent price changes
brought about by exchange rate adjustments. It will be used to reimburse the
oil companies for cost increase and possible cost under recovery incurred
due to reduction of domestic prices.

COA sent a letter to Caltex directing the latter to remit to the OPSF its
collection. Caltex requested COA for an early release of its reimbursement
certificates which the latter denied.

COA disallowed recover of financing charges, inventory losses and sales to

marcopper and atlas but allowed the recovery ofproduct sale or those arising
from export sales.

Petitioner’s Contention:

Department of Finance issued Circular No. 4-88 allowing reimbursement.

Denial of claim for reimbursement would be inequitable. NCC (compensation)
and Sec. 21, Book V, Title I-B of the Revised Administrative Code (Retention
ofMoney for Satisfaction of Indebtedness to Government) allows offsetting.
Amounts due do not arise as a result of taxation since PD 1956 did not create
a source of taxation, it instead established a special fund. This lack of public
purpose behind OPSF exactions distinguishes it from tax.

Respondent’s Contention:

Based on Francia v. IAC, there’s no offsetting of taxes against the the claims
that a taxpayer may have against the government, as taxes do not arise
from contracts or depend upon the will of the taxpayer, but are imposed by
law.

RULINGS:

We find no merit in petitioner's contention that the OPSF contributions are

not for a public purpose because they go to a special fund of the
government. Taxation is no longer envisioned as a measure merely to raise
revenue to support the existence of the government; taxes may be levied
with a regulatory purpose to provide means for the rehabilitation and
stabilization of a threatened industry which is affected with public interest as
to be within the police power of the state.

Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the
source of OPSF is taxation. No amount of semantical juggleries could dim this
fact.

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

We may even further state that technically, in respect to the taxes for the
OPSF, the oil companies merely act as agents for the Government in the
latter's collection since the taxes are, in reality, passed unto the end-users ––
the consuming public. In that capacity, the petitioner, as one of such
companies, has the primary obligation to account for and remit the taxes
collected to the administrator of the OPSF. This duty stems from the fiduciary
relationship between the two; petitioner certainly cannot be considered
merely as a debtor. In respect, therefore, to its collection for the OPSF vis-a-
vis its claims for reimbursement, no compensation is likewise legally feasible.
Firstly, the Government and the petitioner cannot be said to be mutually
debtors and creditors of each other. Secondly, there is no proof that
petitioner's claim is already due and liquidated.

That compensation had been the practice in the past can set no valid
precedent. Such a practice has no legal basis. Lastly, R.A. No. 6952 does not
authorize oil companies to offset their claims against their OPSF
contributions. Instead, it prohibits the government from paying any amount
from the Petroleum Price Standby Fund to oil companies which have
outstanding obligations with the government, without said obligation being
offset first subject to the rules on compensation in the Civil Code.

F. Characteristics of a Sound Tax System

Fiscal Adequacy

It must be adequate to meet government expenditure

Administrative Feasibility

It must be effectively enforced with the least burden on the taxpayer

If the taxpayer was burdened it may not invalidate the tax unless there is
some Constitutional ground

Theoretical Justice

It must be fair and based on the ability to pay

Taxation is said to be equitable when its burden falls on those better able to
pay; taxation is progressive when its rate goes up depending on the
resources of the person affected.

If a tax law is in violation of this policy it would be unconstitutional in

violation of Article 6 Section 28 (1) of the Constitution