｡ ˚୨ TAXATION POWER ୧˚｡ ⋆ to the

ROXAS V. CTA

Tax as the po er the destroy

DOCTRINE:

The power of taxation is sometimes called also

the power to destroy. It should, therefore, be
exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be
exercised fairly, equally, and uniformly, lest the
tax collector kill the "hen that lays the golden
egg."

FACTS:

The Petitioners received as inheritance from their

grandparents, who were Spanish subjects, 19,000
hectares of agricultural land in Nasugbu,
Batangas, a residential house in Manila, and
shares of stocks. To manage the above-
mentioned properties, the children, namely
Antonio Roxas, Eduardo Roxas, and Jose
Roxas, formed a partnership called Roxas y
Compañia.

The tenants who had been tilling the lands in

Nasugbu expressed their desire to purchase from
Roxas y Cia. the parcels they actually
occupied. For its part, the Government, with the
constitutional mandate to acquire big landed
estates and apportion them among landless
tenants-farmers, persuaded the Roxas brothers to
part with their landholdings. Roxas brothers
agreed to sell 13,500 hectares to the Government
for distribution to actual occupants for a price of
P2,079,048.47 plus P300,000 for survey and
subdivision expenses.

However, the Government did not have funds

to cover the purchase price, and so a special
arrangement was made for the Rehabilitation
Finance Corporation to advance to Roxas y Cia.
the amount of P1.5M as a loan. Collateral for
such loan was the lands proposed to be sold
farmers. Under the arrangement, Roxas y Cia.
allowed the farmers to buy the lands for the
same price but by installment and contracted
with the Rehabilitation Finance Corporation to
pay its loan from the proceeds of the yearly
amortizations paid by the farmers.

Roxas y Cia. derived from said installment

payments a net gain of P42,480.83 and
P29,500.71. Fifty percent of said net gain was
reported for income tax purposes as gain on
the sale of capital assets held for more than one
year pursuant to Section 34 of the Tax Code.

As to the residential house, after Antonio and

Eduardo got married, they resided elsewhere,
leaving only Jose in the old house. In fairness
to his brothers, Jose paid Roxas y Cia. rentals
for the house in the sum of P8,000 per year.

The CIR demanded from Roxas y Cia. the

payment of real estate dealer’s tax, based on
the fact that Roxas y Cia. received house
rentals from Jose Roxas in the amount of
P8,000 per year. Section 194 of the Tax Code
states that an owner of real estate who derives
a yearly rental income of P3,000.00 or more is
considered a real estate dealer and is liable to
pay the corresponding fixed tax.

The CIR also assessed them a deficiency in

income taxes from the unreported 50% of the
net profits for 1953 and 1955 derived from the
sale of the Nasugbu farm lands to the tenants,
as well as the disallowance of deductions from
gross income of various business expenses
and contributions claimed by Roxas y Cia. and
the Roxas brothers.

Since Roxas y Cia. subdivided its Nasugbu

farm lands and sold them to the farmers on
installment, the Commissioner considered the
partnership as engaged in the business of real
estate, hence, 100% of the profits derived
therefrom was taxed. The brothers protested,
but their appeal was denied, prompting them
to file an appeal with the CTA.

The CTA sustained the assessment, and the

brothers appealed to the Supreme Court.
ISSUES:  Since these expenses did not meet the
criteria, they are not deductible.
(1) Is the gain derived from the sale of the
Nasugbu farm lands an ordinary gain, hence Contributions:
100% taxable?
 Contributions to the Christmas funds of the
NO. Pasay City Police, Pasay City Firemen, and
Baguio City Police were not deductible, as
The taxable portion is only 50%. Roxas y Cia. they were spent as Christmas gifts to the
cannot be considered a real estate dealer for families of members rather than for public
the sale in question. Hence, pursuant to Section purposes.
34 of the Tax Code, the lands sold to the  Only contributions to the Manila Police
farmers are capital assets, and the gain derived Trust Fund were allowed since the fund
from the sale thereof is a capital gain, taxable belonged to the Manila Police and was used
only to the extent of 50%. for public functions.
 Contributions to the Philippine Herald’s fund
The CIR erred when it considered Roxas y Cia. a for Manila’s neediest families were disallowed,
real estate dealer merely because it engaged in as the Philippine Herald was not a corporation
the business of selling real estate. The sale of the or association under Section 30(h) of the
Nasugbu farm lands to the very farmers who tilled Tax Code.
them for generations was in response to the  The contribution to Our Lady of Fatima
Government's request and aligned with its policy Chapel at FEU was disallowed because
to allocate lands to the landless. The FEU, as a university giving dividends to
Government, lacking funds, persuaded Roxas y stockholders, did not qualify as a religious
Cia. to sell the lands directly to the farmers under organization under the Tax Code.
the same terms as the Government would have
done itself.
(3) Is Roxas y Cia. liable for the payment of
The power of taxation, sometimes called the the fixed tax on real estate dealers?
power to destroy, should be exercised with
caution to minimize injury to the proprietary YES.
rights of a taxpayer. It must be exercised fairly,
equally, and uniformly to maintain the public's Roxas y Cia. cannot question the imposition of
trust and confidence in the Government. the real estate dealer's fixed tax because it
earned a rental income of P8,000 per year in
1952. Section 194 of the Tax Code does not
make any distinction as to who pays the rental.
(2) Are the deductions for business expenses The law states:
and contributions deductible?
"Real estate dealer" includes any person engaged
NO. in the business of buying, selling, exchanging,
leasing, or renting property on his own account as
Representation Expenses: principal and holding himself out as a full or
part- time dealer in real estate or as an owner
 Roxas y Cia. claimed deductions for tickets to
of rental property or properties rented or offered
a banquet honoring Sergio Osmeña and
to rent for an aggregate amount of three
San Miguel beer given as gifts.
thousand pesos or more a year.”
 Representation expenses are only deductible
if they are reasonable, ordinary, necessary,
and incurred in connection with business
under Section 30(a) of the Tax Code. RULING:
The decision appealed from is modified.
 Roxas y Cia. is ordered to pay P150.00 as DCCCO protested the assessments but later
real estate dealer's fixed tax for 1952. informed the BIR Regional Director that it would
 Antonio Roxas, Eduardo Roxas, and Jose only pay the deficiency withholding taxes
Roxas are ordered to pay their respective corresponding to the honorarium, security and
deficiency income tax for the year 1955: janitorial services, and legal and professional fees
o Antonio Roxas – P109.00 for 1999 and 2000, excluding penalties and
o Eduardo Roxas – P91.00 interest.
o Jose Roxas – P49.00
 Petitioner availed of the Voluntary
Assessment and Abatement Program
(VAAP) under Revenue Regulations No.
17-2002, paying the withholding taxes
DUMAGUETE CREDIT COOPERATIVE VS. CIR due.
 Despite this, the BIR issued Letters of
Taxation as inherent po er vs. Demand and Assessment Notices,
Exemption ordering DCCCO to pay the deficiency
withholding taxes on interest from
savings and time deposits of its
DOCTRINE members, plus penalties.

The power of taxation, while indispensable, is not DCCCO protested, but the CIR failed to act
absolute and may be subordinated to the within the 180-day period, prompting DCCCO to
demands of social justice. Cooperatives and their file a Petition for Review before the Court of
members deserve preferential tax treatment Tax Appeals (CTA).
pursuant to RA 6938, as amended by RA 9520.
 The CTA First Division ruled against
While taxes are the lifeblood of the DCCCO.
government, the State's power to tax must yield  The CTA En Banc affirmed the ruling,
to social justice and economic development, prompting DCCCO to appeal to the
particularly in fostering cooperatives. Supreme Court.

ISSUE
FACTS
Whether DCCCO is liable to pay deficiency
Petitioner DCCCO is a credit cooperative duly withholding taxes on interest from savings and
registered with and regulated by the Cooperative time deposits of its members for the taxable years
Development Authority (CDA). 1999 and 2000, as well as delinquency interest
of 20% per annum.
 In 2001, the Bureau of Internal Revenue (BIR)
issued Letters of Authority, authorizing an
examination of DCCCO’s books for all internal
revenue taxes for the taxable years 1999 and RULING
2000.
 In 2002, petitioner received Pre-Assessment The petition has merit.
Notices for deficiency withholding taxes
covering payments for: DCCCO is not liable to pay the assessed
o Honorarium of the Board of Directors deficiency withholding taxes on interest from
o Security and janitorial services savings and time deposits of its members, as
o Legal and professional fees well as the delinquency interest of 20% per
o Interest on savings and time annum.
deposits of its members
1. Preferential Tax Treatment of Cooperatives
 a. Under RA 6938, as amended by RA
9520, the State fosters the growth of
cooperatives by extending all forms
of assistance, including preferential LUNG CENTER OF THE PHIL. V. QUEZON CITY, ET
tax treatment. AL.,
b. Articles 61 and 62 of RA 6938 grant Construction of Tax La s and
tax exemptions to cooperatives and Exemptions
extend such benefits to their members.
c. Article 61 of RA 9520 clarifies that
transactions of members with their
cooperatives are not subject to taxes Doctrines:
and fees.
2. Legislative Intent & Constitutional Protection  A charitable institution does not lose its tax-
a. The BIR Ruling No. 551-88 (reiterated exempt status just because it derives
in BIR Ruling DA-591-2006) states income from paying patients or government
that cooperatives are not required to subsidies, as long as its funds are used
withhold taxes on interest from entirely for its charitable purpose and do not
members' savings and time deposits. benefit private individuals.
b. Section 24(B)(1) of the NIRC imposes
a 20% final tax on interest from  Tax exemptions must be clearly and strictly
currency bank deposits, deposit interpreted against the taxpayer and in favor
substitutes, and similar of the taxing authority.
arrangements.
c. Members’ deposits with cooperatives  Real property tax exemptions apply only if the
are neither currency bank deposits nor property is actually, directly, and exclusively
deposit substitutes, thus Section used for religious, charitable, or educational
24(B)(1) does not apply. purposes.
3. Social Justice Considerations
a. The Constitution (Art. XII, Sec. 15)
considers cooperatives as instruments FACTS:
of social justice and economic
Lung Center of the Philippines is a non-stock and
development.
non-profit entity established on January 16, 1981,
b. The State must promote economic
by virtue of Presidential Decree No. 1823. It is the
opportunities based on self-reliance
registered owner of a parcel of land located in
(Art. XIII, Sec. 2).
Quezon City.
c. Tax exemptions should be liberally
construed in favor of cooperatives and Erected in the middle of the aforesaid lot is a
their members. hospital known as the Lung Center of the
Philippines. A big space on the ground floor is
being leased to private parties for canteen and
DISPOSITION
small store spaces and to medical or
professional practitioners who use the same as
The Supreme Court reversed and set aside the
their private clinics for their patients, whom they
CTA rulings.
charge for their professional services. Almost
 The deficiency withholding taxes on interest one-half of the entire area on the left side of the
from savings and time deposits of members building along Quezon Avenue is vacant and
for 1999 and 2000 are CANCELLED. idle, while a big portion on the right side, at the
 The 20% delinquency interest per annum is corner of Quezon Avenue and Elliptical Road,
also CANCELLED. is being leased for commercial purposes to a
private enterprise known as the Elliptical Orchids
and Garden Center.
The petitioner accepts both paying and non- HELD:
paying patients. It also renders medical services
to out- patients, both paying and non-paying. YES, the petitioner is a charitable institution.
Aside from its income from paying patients, the
petitioner receives annual subsidies from the To determine whether an enterprise is a
government. charitable institution, the following elements
should be considered:
On June 7, 1993, both the land and the
hospital building of the petitioner were  The statute creating the enterprise
assessed for real property taxes.  Its corporate purposes
 Its constitution and by-laws
The petitioner filed a Claim for Exemption from  The methods of administration
real property taxes with the City Assessor,  The nature of the actual work performed
asserting that it is a charitable institution. The  The character of the services rendered
request was denied, prompting the petitioner to  The indefiniteness of the beneficiaries
file a petition before the Local Board of  The use and occupation of the properties
Assessment Appeals of Quezon City (QC-LBAA)
to reverse the City Assessor’s resolution. Under P.D. No. 1823, the petitioner is a non-profit
and non-stock corporation organized for the
welfare and benefit of the Filipino people,
primarily to combat the high incidence of lung
Lower Court Ruling: and pulmonary diseases in the Philippines.

The Local Board of Assessment Appeals of A charitable institution does not lose its character
Quezon City (QC-LBAA) rendered judgment or tax exemption simply because it derives
dismissing the petition and holding the income from paying patients or receives
petitioner liable for real property taxes. government subsidies, as long as the money is
used for the charitable purposes for which it
The Central Board of Assessment Appeals of was established and does not inure to the
Quezon City (CBAA) affirmed the QC-LBAA’s private benefit of those managing or operating
decision, ruling that the petitioner was not a it.
charitable institution and that its real properties
were not actually, directly, and exclusively used
for charitable purposes; hence, it was not
entitled to real property tax exemption under the NO, the entire real properties of the petitioner are
Constitution and the law. not exempt from real property taxes.

The Court of Appeals also affirmed the CBAA's Even though the petitioner is a charitable
ruling. institution, only the portions of its property
actually, directly, and exclusively used for
charitable purposes are exempt from real
property taxes.
ISSUE:
The settled rule is that laws granting tax
1. Whether the petitioner is a charitable exemptions are construed strictly against the
institution within the context of Presidential taxpayer and liberally in favor of taxation.
Decree No. 1823 and the 1987 Constitution.
Section 2 of P.D. No. 1823 provides that the Lung
2. Whether the entire real properties of the Center shall be exempt from income and gift
petitioner are exempt from real property taxes. taxes and from taxes, charges, and fees related
to equipment purchases. However, it does not
mention real property tax exemptions.
Under Section 28(3), Article VI of the 1987 al., filed a Petition for Certiorari and
Constitution, real property tax exemption Prohibition under Rule 65, alleging that:
applies only if the property is actually, directly,
and exclusively used for religious, charitable, or
educational purposes.

 "Exclusively" means the property must be

wholly used for the exempted purpose. If a
property is used for both charitable and
commercial purposes, it is subject to
taxation.
 The dominant use or principal use standard
cannot replace the requirement of
"exclusive use."

While portions of the hospital are used for

medical treatment, some areas are leased to
private individuals for clinics, a canteen, and a
private business (Elliptical Orchids and Garden
Center). These portions are subject to real
property taxes.

ACT VS. DUTERTE,

Lifeblood Doctrine

DOCTRINE

The Lifeblood Doctrine is a fundamental

principle in taxation, recognizing that taxation is
essential for the existence and operation of the
government. It is based on the idea that without
revenues generated from taxes, the
government would be unable to fund essential
services, carry out its functions, and fulfill its
obligations to the public.

FACTS:

The case involves a constitutional challenge

to Republic Act (RA) No. 10963, also known as
the Tax Reform for Acceleration and
Inclusion (TRAIN) Act. The law, which
amended the National Internal Revenue Code of
1997, was part of the Duterte administration’s
Comprehensive Tax Reform Program to
fund the government's Build, Build, Build
infrastructure initiative.

Petitioners, including ACT Teachers Party-

List Representatives Antonio Tinio, et
1. The TRAIN Act was passed without the b. Whether the excise taxes imposed by the
necessary quorum during the ratification of TRAIN Act were constitutional, particularly in
the Bicameral Conference Committee relation to
(BCC) Report in the House of
Representatives.
2. The excise taxes on fuel, coal, and other
goods were regressive, confiscatory, and
unconstitutional, violating the principle of a
progressive tax system enshrined in the
1987 Constitution.
3. The passage of the law was “railroaded,”
and President Duterte’s signing of the law
constituted grave abuse of discretion.

The Office of the Solicitor General

(OSG)
defended the law, arguing that:

1. The TRAIN Act was validly enacted in

accordance with the Constitution and
legislative rules.
2. The excise taxes were imposed for
legitimate revenue, regulatory, and policy
purposes, in line with the lifeblood doctrine
of taxation.
3. Petitioners failed to present an actual case
or controversy warranting judicial review.

ISSUES:

Procedural Issues:

a. Whether the petition for certiorari was the

proper remedy to challenge the TRAIN Act.

b. Whether the petition violated the hierarchy

of courts doctrine.

c. Whether there was an actual case or

controversy ripe for judicial review.

d. Whether the issue involved a political

question
beyond the Court’s jurisdiction.

e. Whether Congress was an indispensable

party that should have been impleaded.

Substantive Issues:

a. Whether the TRAIN Act was validly

passed, specifically regarding the alleged
lack of quorum during the ratification of the
BCC Report.
 the lifeblood doctrine and the constitutional 1. The law was validly enacted with the
requirement for a progressive tax system. required quorum.
2. The excise taxes were constitutional and
RULING: aligned with the lifeblood doctrine.
3. The TRAIN Act did not violate the principle
Procedural Issues:
of progressive taxation, as it included
compensatory mechanisms to protect the
1. The Court held that a petition for certiorari
economically disadvantaged.
was a proper remedy since the petitioners
alleged grave abuse of discretion in the
passage of the TRAIN Act.
2. Direct resort to the Supreme Court was
ABAKADA V. EXECUTIVE SECRETARY
justified due to the transcendental importance
of the case. Non- Delegation of the Po er to Tax
3. The Court found an actual case or
controversy because the petitioners
Facts:
challenged an enacted law that directly
affected public interests.
Petitioners ABAKADA GURO Party List
4. The issues presented were justiciable and did
challenged the constitutionality of R.A. No. 9337,
not involve a purely political question.
particularly Sections 4, 5, and 6, which amended
5. Congress was deemed properly
Sections 106, 107, and 108 of the National
represented through its respective heads,
Internal Revenue Code (NIRC). These provisions
and the doctrine of presidential immunity did
contain a uniform proviso authorizing the
not apply since the petition did not seek to
President, upon recommendation of the
hold President Duterte personally liable.
Secretary of Finance, to raise the VAT rate to
Substantive Issues: 12%, effective January 1, 2006, after any of the
following conditions have been satisfied:
6. The Supreme Court ruled that the TRAIN
Act was validly enacted, relying on the 1. Value-added tax collection as a
presumption of regularity in legislative percentage of Gross Domestic Product
proceedings and the official House Journal, (GDP) of the previous year exceeds two
which recorded the presence of a quorum. and four-fifth percent (2 4/5%).
7. The Court upheld the constitutionality of the 2. National government deficit as a
excise taxes, holding that they were percentage of GDP of the previous year
imposed in accordance with the lifeblood exceeds one and one-half percent (1 ½
doctrine— which recognizes that taxation is %).
essential for government operations and
Petitioners argued that the law is unconstitutional
public welfare.
because it constitutes an abandonment by
8. The Court found that the TRAIN Act did not
Congress of its exclusive authority to fix the
violate the constitutional mandate for a
rate of taxes under Article VI, Section 28(2) of
progressive tax system, as it contained
the 1987 Philippine Constitution.
mitigating provisions, such as tax
exemptions for low-income earners and They further contended that VAT is a tax levied
social welfare measures to offset the impact on the sale or exchange of goods and services
of excise taxes. and cannot be included within the purview of
tariffs under the exemption delegation, as tariffs
HELD:
refer to customs duties, tolls, or tribute
payable upon merchandise to the government,
The Supreme Court dismissed the petitions and
usually imposed on imported/exported goods.
upheld the constitutionality of the TRAIN Act,
affirming that:
Additionally, petitioners argued that the President also
has powers to cause, influence, or create
the conditions provided by law to bring
about the conditions precedent. They alleged
that no guiding standards were provided for how
the Secretary of Finance would make the
recommendation. Moreover, they claimed that
any recommendation made could be easily
disregarded by the President, as the Secretary is
merely an alter ego of the President. Ultimately,
it would be the President who decides whether
to impose the increased tax rate or not.

Issues:

1. Whether or not R.A. No. 9337 violated the

provisions in Article VI, Section 24 and Article
VI, Section 26(2) of the Constitution.
2. Whether or not there was an undue
delegation of legislative power in violation of
Article VI, Section 28, Paragraphs 1 and 2
of the Constitution.
3. Whether or not there was a violation of due
process and equal protection under Article III,
Section 1 of the Constitution.

Ruling:

1. R.A. No. 9337 did not violate the

Constitution.

The revenue bill exclusively originated in the

House of Representatives.

The Senate was acting within its constitutional

power to introduce amendments to the House
bill when it included provisions in Senate Bill No.
1950 amending corporate income taxes,
percentage, and excise and franchise taxes.

Article VI, Section 24 of the Constitution does not

limit the extent of amendments that may be
introduced by the Senate to a revenue bill.

In Tolentino v. Secretary of Finance, the Supreme

Court ruled that it is the revenue bill—not the final
law—that must originate exclusively in the House
of Representatives. However, the Senate has the
power not only to propose amendments but
to propose its own version, even for bills
required to originate from the House.

2. There was no undue delegation of

legislative power.

The Supreme Court ruled that the law did not

delegate the power to tax, but only the
discretion regarding its execution. This is
constitutionally permissible.

Congress does not abdicate its functions

when it describes what must be done, who must
do it, and what the scope of authority is.

In determining whether a statute constitutes

undue delegation, the test is whether the
statute was complete in all its terms and
provisions when it left the legislature. In this
case, the law was complete, and the
President was merely tasked with executing
its provisions based on economic conditions.

3. The Court did not rule on the due process

and equal protection claims.

The power of the State to make reasonable

classifications for taxation purposes is well
established.

Whether related to the subject of taxation, the

tax rates, methods of collection, or the amounts
to be raised, the State's power to classify for
taxation is presumed valid.

The judiciary will not interfere with the taxing

power unless there is a clear showing that the
law is unreasonable, discriminatory, or
arbitrary.

The equal protection clause means that no

person or class of persons shall be deprived of
the same protection of laws enjoyed by others
in similar circumstances.

CIR V. PETRON CORPORATION

Estoppel v Taxation

DOCTRINE:
 Issues:

1. Whether the post-audit report has the effect of

Facts:
a suspensive condition that determines the
validity of the TCCs.
For the taxable years 1995 to 1998, Petron
Corporation paid its tax liabilities using Tax Credit
2. Whether the doctrine of non-applicability of
Certificates (TCCs) it received from various Board
estoppel to the government applies in this
of Investments (BOI)-registered companies as
case.
consideration for the delivery of petroleum
products. Ruling: No.

Petron’s acceptance and use of the TCCs were  TCCs are valid and effective from the time
continuously approved by the Department of of issuance and are not subject to post-audit
Finance (DOF) and the Bureau of Internal as a suspensive condition for their validity.
Revenue (BIR) Collection Program Division,  Petron had the right to rely on the validity and
which issued Tax Debit Memos (TDMs) after effectivity of the TCCs assigned to it.
Petron surrendered the TCCs.  The DOF's post-audit findings should not
determine the validity of the TCCs in
However, in a post-audit conducted by the DOF, it
settling Petron’s excise tax liabilities.
was discovered that:
Exception: A transferee may be held liable if it
 The TCCs were fraudulently obtained by
is proven to have participated in or had
the original transferors.
knowledge of the fraud.
 The TCCs were fraudulently transferred to
Petron.  In this case, Petron did not procure or
issue the TCCs, as stipulated in the
As a result, the DOF canceled both the TCCs and
facts.
the TDMs issued to Petron.
 Therefore, Petron was an innocent
Subsequently, the CIR issued an assessment transferee for value, and the exception
against Petron for deficiency excise taxes does not apply.
covering 1995 to 1998, including surcharges and
interest. The CIR argued that: Ruling: No.

 Since the TCCs were canceled, it was as if

 As a general rule, estoppel does not apply
Petron never paid its taxes.
to the government, especially in matters of
 Petron had the intent to evade taxes,
taxation, since taxes are the lifeblood of the
making its tax returns fraudulent.
nation.
However, in the stipulation of facts, it was  However, an exception exists when
judicially admitted that: applying the rule would cause injustice
against an innocent party.
 Petron never participated in the  Petron was not proven to have participated
procurement or issuance of the TCCs to its in or had knowledge of the fraudulent
transferors. TCCs.
 The CTA En Banc held that Petron was an  The CIR even stipulated that Petron was an
innocent purchaser in good faith and for innocent purchaser for value.
value.  Therefore, Petron was protected from the
adverse findings of the DOF.
FERRER V. BAUTISTA
Local Tax Ordinance vs. Statutes
 Quezon City enacted Ordinance No. SP-2095, S-
2011, imposing a Socialized Housing Tax (SHT)
DOCTRINE: of 0.5% on the assessed value of land
exceeding
1. Presumption of Validity and Test of Validity ₱100,000, with proceeds allocated to socialized
of Laws housing programs. A tax credit was available
a. Ordinances are presumed valid, but but only to the original property owner,
courts may review their excluding subsequent buyers or heirs.
reasonableness.
b. Courts will only invalidate an Petitioner argues that the SHT is a penalty on
ordinance if it is prohibitive, arbitrary, property owners for the government's failure to
oppressive, or confiscatory. address informal settlers, constitutes class
c. Validity is tested through formal legislation, and compels property owners to
(proper enactment and within LGU finance housing without constitutional basis.
powers) and substantive
(constitutional compliance, fairness, Respondents defend the ordinance as a valid
exercise of police power, aligned with social
and consistency with laws)
justice principles under the 1987 Constitution
requirements.
and
2. Police Power
R.A. No. 7279 (UDHA). They argue that it applies
a. Police power allows the government to
equally to property owners and is neither
enact laws for public welfare, even if
oppressive nor confiscatory.
it affects private property rights.
b. Taxation may be used as a means to Quezon City later enacted Ordinance No. SP-
enforce police power.
2235, S-2013, imposing garbage fees on
3. Equal Protection
residential properties to fund waste collection.
a. All persons similarly situated must
Petitioner claims it is discriminatory, as it
be treated equally under the law. excludes commercial establishments that
b. Laws can classify groups differently if
generate more waste, and constitutes double
real and substantial distinctions taxation, given existing property and business
justify it.
taxes.
4. Reasonable Classification
a. A classification is valid if: Respondents counter that the garbage fee is a
i. It is based on substantial regulatory charge, not a tax, and that its rates
distinctions. are minimal compared to government waste
ii. It aligns with the law’s collection expenses. They argue that both
purpose.
ordinances enjoy a presumption of
iii. It applies beyond existing
constitutionality, and the burden of proving their
conditions.
invalidity lies with the petitioner.
iv. It treats all members of a
class equally.
5. Double Taxation
a. Occurs when the same property or ISSUES:
subject is taxed twice by the same
authority, for the same purpose, 1. Whether or not Ordinance No. SP-2095, S-
within the same period, and under the 2011 (Socialized Housing Tax) is valid.
same kind of tax. 2. Whether or not Ordinance No. SP-2235, S-
2013 (Garbage Fee) is valid.

FACTS: RULING:

1. SP-2095, S-2011 (Socialized Housing Tax)

is valid.
The SHT is within the taxing power of Quezon principle of non-taxation of government
City. The tax is levied for a regulatory purpose, entities.
primarily in the exercise of police power for the  The classification of an entity as a
general welfare of the city. The revenues government instrumentality is based on its
generated accrue to socialized housing functions and operational autonomy, not
programs, benefiting both informal settlers and merely its corporate structure.
property owners by enhancing property values
and promoting an orderly community.  The requirement for "payment under protest"
is not absolute and does not apply when the
The SHT does not violate the equal protection
authority to impose taxes is being challenged.
clause. Real property owners and informal
settlers are not similarly situated, and the
classification under the ordinance conforms to
justice and equity. FACTS:

The SHT is not confiscatory or oppressive. The The National Food Authority (NFA), represented
tax rate imposed is lower than what is by its legal affairs department, filed a petition
authorized under the UDHA. The ordinance against the City Government of Tagum, its City
only covers properties assessed at more than Assessor, and City Treasurer, contesting the
₱100,000.00, and it provides for a tax credit collection of real property taxes amounting to
starting in the sixth year. PHP 2,643,816.53. The NFA argued that it was
exempt from such taxes as it is a government
2. SP-2235, S-2013 (Garbage Fee) is invalid. instrumentality, relying on previous legal opinions
from the Office of the Government Corporate
The garbage fee does not violate the rule on Counsel (OGCC) and the Supreme Court ruling in
double taxation. The fee is a regulatory charge Manila International Airport Authority (MIAA) v.
rather than a tax. Court of Appeals.
However, SP-2235 violates the rule on equality.
The NFA's history dates back to the
The classification scheme for garbage fees is
establishment of the National Rice and Corn
arbitrary and unjust, imposing higher rates on
Corporation (NARIC) in 1936, which evolved
certain residents without a substantial
through various reorganizations and was
distinction. The City Council failed to consider
ultimately transformed into the NFA in 1981. The
more equitable criteria, such as household size,
NFA's primary mandate is to ensure food
waste production, and capacity to pay.
security and stabilize the prices of rice and corn
Consequently, Ordinance No. SP-2235 is in the Philippines. It operates as a government
unconstitutional due to its discriminatory corporation, funded entirely by the national
classification. government, and is tasked with maintaining a
buffer stock of rice sourced from local farmers.

In 1991, the Local Government Code (LGC)

NFA VS. CITY GOVERNMENT OF TAGUM was enacted, which included provisions that
withdrew certain tax exemptions previously
Tax against Government enjoyed by government-owned or controlled
corporations (GOCCs). The City Government of
Tagum, asserting its right to impose real property
taxes on the NFA, issued notices of delinquency
DOCTRINE:
for unpaid taxes on several properties owned by
the NFA.
 Local governments cannot impose taxes on
the national government or its The NFA filed a Petition for Prohibition in the
instrumentalities, as this would violate the
Regional Trial Court of Tagum City, which was
dismissed for lack of merit. The trial court ruled  The City Government cited the Bureau of
that the NFA was a taxable entity based on its Local Government and Finance (BLGF) ruling,
classification as a GOCC. The NFA subsequently which classified the NFA as a GOCC,
appealed to the Court of Tax Appeals (CTA), asserting its right to impose taxes.
which upheld the trial court's decision, leading to
further appeals to the Court of Tax Appeals En
Banc. HELD:

The Supreme Court ruled in favor of the NFA,

reversing the decisions of the lower courts. The
ISSUES: Court emphasized the principle that local
governments cannot tax the national
1. Does the Regional Trial Court for Tagum
government or its instrumentalities, as this
City have jurisdiction over the Petition for
would effectively transfer public funds from one
Prohibition initiated by the NFA?
government entity to another without a
2. Is "payment under protest" in Section 252 of
compelling policy justification.
the Local Government Code an absolute
requirement for assailing real property taxes? The Court clarified that the NFA is indeed a
3. Is the NFA a government instrumentality? government instrumentality, performing
4. Is the NFA exempt from payment of real essential public services related to food security
property taxes? and price stabilization. It noted that the NFA's
corporate status does not negate its character
as a government entity, and its properties are
ARGUMENTS:
intended for public use, thus exempt from real
NFA's Arguments: property taxes.

 The NFA contended that it is a government The Court also ruled that the requirement for
instrumentality and thus exempt from real "payment under protest" does not apply when the
property taxes under Section 133(o) of the taxpayer is contesting the authority of the local
Local Government Code, which prohibits local government to impose taxes in the first place. The
governments from taxing the national Court reiterated that the taxing power of local
government and its instrumentalities. governments is subject to limitations, particularly
 It argued that it does not operate as a GOCC when it comes to taxing national government
since it does not have shareholders, does not properties.
declare dividends, and is primarily funded by
the national government for public service.
 The NFA relied on the OGCC opinions and
the precedent set by the MIAA case, asserting
that its properties are owned by the Republic
of the Philippines and should not be subject
to local taxation.

City Government of Tagum's Arguments:

 The City Government maintained that the

NFA is a GOCC and thus subject to real
property taxes as per the Local Government
Code.
 It argued that the NFA competes in the market
and engages in economic activities, which
qualifies it for taxation.