TAXATION 1

National Power Corporation v. City of Cabanatuan, G.R. No. 149110, April 09,
2003

Petitioner NPC is a government-owned and controlled corporation.|||

It is tasked to undertake the "development of hydroelectric generations of power and

the production of electricity from nuclear, geothermal and other sources, as well as, the
transmission of electric power on a nationwide basis."|||

Pursuant to Section 37 of Ordinance No. 165-92, the respondent assessed the petitioner
a franchise tax amounting to P808,606.41, representing 75% of 1% of the latter's gross
receipts for the preceding year.|||

Petitioner NPC argument:

 It argued that the respondent has no authority to impose tax on government

entities. Petitioner also alleges that it is an instrumentality of the National
Government, and as such, may not be taxed by the respondent city government.
 Petitioner also contended that as a non-profit organization, it is exempted from
the payment of all forms of taxes, charges, duties or fees|||

Respondent Cabanatuan argument:

Alleged that petitioner's exemption from local taxes has been repealed by Section 193
of Rep. Act No. 7160, which reads as follows:
"Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code."

Trial Court Decision:

On January 25, 1996, the trial court issued an Order dismissing the case. It ruled that the
tax exemption privileges granted to petitioner subsist despite the passage of Rep.
Act No. 7160 for the following reasons:
(1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep.
Act No. 7160 which is a general law;
(2) Section 193 of Rep. Act No. 7160 is in the nature of an implied repeal
which is not favored; and
(3) local governments have no power to tax instrumentalities of the national
government.|||

CA Decision:
On appeal, the Court of Appeals reversed the trial court's Order on the ground that
Section 193, in relation to Sections 137 and 151 of the LGC, expressly withdrew the
exemptions granted to the petitioner.|||

ISSUES:

1. WON local government unit can impose taxes on GOCC and instrumentalities?
2. WON city government can impose franchise tax on GOCC and instrumentalities (despite
existence of exemption)?

3. WON tax exemptions under its charter subsist despite the passage of the LGC.|||

RULING:

1. YES

One of the most significant provisions of the LGC is the removal of the blanket exclusion
of instrumentalities and agencies of the national government from the coverage
of local taxation.
Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities, this rule now admits an
exception, i.e., when specific provisions of the LGC authorize the LGUs to impose
taxes, fees or charges on the aforementioned entities, viz:
"Section 133. Common Limitations on the Taxing Powers of the Local
Government Units. — Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
xxx xxx xxx
(o) Taxes, fees, or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units."

2. YES
Respondent city government has the authority to issue Ordinance No. 165-92 and
impose an annual tax on "businesses enjoying a franchise," pursuant to Section 151
in relation to Section 137 of the LGC, viz:
"Sec. 137. Franchise Tax. — Notwithstanding any exemption granted
by any law or other special law, the province may impose a tax on
businesses enjoying a franchise, at a rate not exceeding fifty percent
(50%) of one percent (1%) of the gross annual receipts for the preceding
calendar year based on the incoming receipt, or realized, within its
territorial jurisdiction.
Section 137 of the LGC clearly states that the LGUs can impose franchise
tax "notwithstanding any exemption granted by any law or other special law." |||

To stress, a franchise tax is imposed based not on the ownership but on the
exercise by the corporation of a privilege to do business.

To be sure, the ownership by the National Government of its entire capital stock
does not necessarily imply that petitioner is not engaged in business.

Section 2 of Pres. Decree No. 2029 classifies government-owned or controlled corporations

(GOCCs) into:
1. performing governmental functions and
2. those performing proprietary functions
Petitioner generates power and sells electricity in bulk. Certainly, these activities do
not partake of the sovereign functions of the government. They are purely private and
commercial undertakings, albeit imbued with public interest. The public interest involved
in its activities, however, does not distract from the true nature of the petitioner as a
commercial enterprise, in the same league with similar public utilities|||

The taxable entity is the corporation, which exercises the franchise, and not the
individual stockholders.|||

3. NO, no more exemptions

As a rule, tax exemptions are construed strongly against the claimant. Exemptions
must be shown to exist clearly and categorically, and supported by clear legal provisions. In
the case at bar, the petitioner's sole refuge is Section 13 of Rep. Act No. 6395 exempting
from, among others, "all income taxes, franchise taxes and realty taxes to be paid to the
National Government, its provinces, cities, municipalities and other government agencies and
instrumentalities." However, Section 193 of the LGC withdrew, subject to limited
exceptions, the sweeping tax privileges previously enjoyed by private and public
corporations.|||

Section 193 of the LGC is an express, albeit general, repeal of all statutes granting tax
exemptions from local taxes. It reads:
"Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code."

ANALYSIS:

Taxes are the lifeblood of the government, for without taxes, the government can neither
exist nor endure. The theory behind the exercise of the power to tax emanates from
necessity; without taxes, government cannot fulfill its mandate of promoting the general
welfare and well-being of the people.|||

Taxation assumes even greater significance with the ratification of the 1987 Constitution.
Thenceforth, the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other
charges pursuant to Article X, Section 5 of the 1987 Constitution, viz:
"Section 5. Each Local Government unit shall have the power to create
its own sources of revenue, to levy taxes, fees and charges subject to
such guidelines and limitations as the Congress may provide, consistent
with the basic policy of local autonomy. Such taxes, fees and charges shall
accrue exclusively to the Local Governments."

To achieve this goal, Section 3 of Article X of the 1987 Constitution mandates Congress
to enact a local government code that will,consistent with the basic policy of local
autonomy, set the guidelines and limitations to this grant of taxing powers, viz:
In its general signification, a franchise is a privilege conferred by government authority,
which does not belong to citizens of the country generally as a matter of common
right.

In its specific sense, a franchise may refer to a

1. general or primary franchise, or
2. a special or secondary franchise.

The former relates to the right to exist as a corporation, by virtue of duly approved
articles of incorporation, or a charter pursuant to a special law creating the corporation. The
right under a primary or general franchise is vested in the individuals who compose the
corporation and not in the corporation itself.
On the other hand, the latter refers to the right or privileges conferred upon an existing
corporation such as the right to use the streets of a municipality to lay pipes of
tracks, erect poles or string wires. The rights under a secondary or special franchise are
vested in the corporation and may ordinarily be conveyed or mortgaged under a general
power granted to a corporation to dispose of its property, except such special or secondary
franchises as are charged with a public use.|||

Governmental functions are those pertaining to the administration of government, and as

such, are treated as absolute obligation on the part of the state to perform while proprietary
functions are those that are undertaken only by way of advancing the general interest of
society, and are merely optional on the government.|||

As commonly used, a franchise tax is "a tax on the privilege of transacting business in
the state and exercising corporate franchises granted by the state." It is not levied
on the corporation simply for existing as a corporation, upon its property or its income, but
on its exercise of the rights or privileges granted to it by the government. |||

Verily, to determine whether the petitioner is covered by the franchise tax in

question, the following requisites should concur:
(1) that petitioner has a "franchise" in the sense of a secondary or special franchise;
and
(2) that it is exercising its rights or privileges under this franchise within the territory of
the respondent city government.|||

WENCESLAO PASCUAL vs. THE SECRETARY OF PUBLIC WORKS AND

COMMUNICATIONS, G.R. No. L-10405, December 29, 1960

Case:
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal,
instituted this action for declaratory relief, with injunction upon the ground
that Republic Act No. 920, entitled “An Act Appropriating Funds for Public Works",
approved on June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of
P85,000.00, "for the construction, reconstruction, repair, extension and
improvement" of "Pasig feeder road terminals” |

At the time of the passage and approval of said Act, the aforementioned feeder roads
were "nothing but projected and planned subdivision roads, not yet constructed, . . . within
the Antonio Subdivision . . . situated at . . . Pasig, Rizal"|||which projected feeder roads
"do not connect any government property or any important premises to the main
highway";|||

Antonio Subdivision (as well as the lands on which said feeder roads were to be
constructed) were owned private respondent Jose C. Zulueta, who, at the time of the
passage and approval of said Act, was a member of the Senate of the Philippines;

Relevant Facts:
On May 29, 1953, respondent Zulueta, addressed a letter to the Municipal Council of Pasig,
Rizal, offering to donate said projected feeder roads to the municipality of Pasig, Rizal;

On June 13, 1953, the offer was accepted by the council, subject to the condition
"that the donor would submit a plan of the said roads and agree to change the names of two
of them"; that no deed of donation in favor of the municipality of Pasig was,
however, executed;

Petitioner Wenceslao Pascual argument:

 The projected feeder roads in question were private property at the time of
the passage and approval of Republic Act No. 920 thus it was "illegal and, therefore,
void ab initio";|||

 for the construction of the projected feeder roads in question with public funds would
greatly enhance or increase the value of the aforementioned subdivision of
respondent Zulueta,

Respondent Zulueta argument:

"not aware of any law which makes illegal the appropriation of public funds for the
improvement of . . . private proper";|||

Lower Court Decision:

the lower court rendered the aforementioned decision, dated October 29, 1953 that "the
legislature is without power to appropriate public revenues for anything but a public
purpose", that the construction and improvement of the feeder roads in question, if
such roads were private property, would not be a public purpose;|||
|||
ISSUE:

WON Republic Act 920 is valid when it appropriated public funds for construction of feeder
road on a private land?

RULING:

Not valid

Inasmuch as the land on which the projected feeder roads were to be constructed belonged
then to respondent Zulueta, the result is that said appropriation sought a private
purpose, and, hence, was null and void.|||

Referring to the P85,000.00 appropriation for the projected feeder roads in question, the
legality thereof depended upon whether said roads were public or private
property when the bill, which, later on, became Republic Act No. 920.

The donation to the Government, over five (5) months after the approval and
effectivity of said Act did not cure its basic defect.

ANALYSIS/PRINCIPLES APPLIED:
 As regards the legal feasibility of appropriating public funds for a private purpose
the principle according to Ruling Case Law, is this:
"It is a general rule that the legislature is without power to
appropriate public revenue for anything but a public purpose. . .
. xxx. Incidental advantage to the public or to the state, which results
from the promotion of private interests and the prosperity of private
enterprises or business, does not justify their aid by the use of public
money."

The rule is set forth in Corpus Juris Secundum in the following language:
"In accordance with the rule that the taxing power must be exercised
for public purposes only, discussed supra sec. 14, money raised by
taxation can be expanded only for public purposes and not for the
advantage of private individuals.

BAGATSING vs. RAMIREZ, 74 SCRA 306 G.R. No. L-41631, December 17, 1976

On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN
ORDINANCE REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES
FOR THE RENTALS OF STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND
FOR OTHER PURPOSES."

The petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on June 15,
1974.|||

On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. seeks the
declaration of nullity of Ordinance No. 7522 for the reason that:
(a) the publication requirement under the Revised Charter of the City of Manila has not
been complied with;
(b) the Market Committee was not given any participation in the enactment of the
ordinance, as envisioned by Republic Act 6039;
(c) Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated; and
(d) the ordinance would violate Presidential Decree No. 7 of September 30, 1972 prescribing
the collection of fees and charges on livestock and animal products. |
Lower Court Decision:
Its decision on August 29, 1975, declaring the nullity of Ordinance No. 7522 of the City
of Manila on the primary ground of non-compliance with the requirement of
publication under the Revised City Charter. Respondent Judge ruled:
"There is, therefore, no question that the ordinance in question was not
published at all in two daily newspapers of general circulation in
the City of Manila before its enactment. Xxx”

Petitioners Ramon Bagatsing argument:

(a) only a post-publication is required by the Local Tax Code; and
(b) private respondent failed to exhaust all administrative remedies before instituting an
action in court.||

Apparent conflict between the Revised Charter of the City of Manila and the Local Tax Code
on the manner of publishing a tax ordinance enacted by the Municipal Board of Manila.
For, while Section 17 of the Revised Charter provides:
 "Each proposed ordinance shall be published in two daily
newspapers of general circulation in the city, and shall not be
discussed or enacted by the Board until after the third day following such
publication. . . . Each approved ordinance . . . shall be published in two
daily newspapers of general circulation in the city, within ten days after its
approval; and shall take effect and be in force on and after the twentieth
day following its publication, if no date is fixed in the ordinance."
Section 43 of the Local Tax Code directs: Cdpr
"Within ten days after their approval, certified true copies of all
provincial, city, municipal and barrio ordinances levying or
imposing taxes, fees or other charges shall be published for three
consecutive days in a newspaper or publication widely circulated within the
jurisdiction of the local government, xxx

For short,
the Revised Charter of the City of Manila requires
 publication before the enactment of the ordinance and
 after the approval thereof in two daily newspapers of general circulation in the city,
the Local Tax Code only prescribes for publication
 only after the approval of "ordinances levying or imposing taxes, fees or other
charges" either in a newspaper or publication widely circulated within the jurisdiction
of the local government |||

Respondent FEDERATION OF MANILA MARKET VENDORS, INC.||| further

argument:

 It is maintained by private respondent that the subject ordinance is not a "tax

ordinance," because the imposition of rentals, permit fees, tolls and other fees is
not strictly a taxing power but a revenue-raising function, so that the
procedure for publication under the Local Tax Code finds no application.|||

 Disputed ordinance are diverted to the exclusive private use of the Asiatic
Integrated Corporation since the collection of said fees had been let by the
City of Manila to the said corporation in a "Management and Operating
Contract."|||

ISSUES:

1. what law shall govern the publication of a tax ordinance enacted by the Municipal
Board of Manila -- the Revised City Charter (R.A. 409, as amended), which requires
publication of the ordinance before its enactment and after its approval, or the Local
Tax Code (P.D. No. 231), which only demands publication after approval? cd|||

2. WON exhaustion of administrative remedies|||is necessary

3. WON the subject ordinance is a tax ordinance?

4. WON private corporation can collect the taxes in behalf of the City of Manila?

5. WON the participation of the Market committee necessary?

RULINGS:

1. Local Tax Code

Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" in
general, i.e., irrespective of the nature and scope thereof,

whereas, Section 43 of the Local Tax Code relates to "ordinances levying or imposing
taxes, fees or other charges" in particular.|||

The Revised Charter of the City prescribes a rule for the publication of "ordinance" in general,
while the Local Tax Code establishes a rule for the publication of "ordinance levying
or imposing taxes fees or other charges in particular. Li

In regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is
doubtless dominant, but, that dominant force loses its continuity when it approaches the
realm of "ordinances levying or imposing taxes, fees or other charges" in
particular.

2. Not necessary; Pure question of law

Section 47 of the Local Tax Code provides that any question or issue raised against the
legality of any tax ordinance, or portion thereof, shall be referred for opinion to the
city fiscal in the case of tax ordinance of a city. The opinion of the city fiscal is appealable
to the Secretary of Justice, whose decision shall be final and executory unless contested
before a competent court within thirty (30) days.

But, the petition below plainly shows that the controversy between the parties is
deeply rooted in a pure question of law.|||

3. Yes, Tax ordinance

Precisely, the raising of revenues is the principal object of taxation. Under Section 5,
Article XI of the New Constitution, "Each local government unit shall have the power to
create its own sources of revenue and to levy taxes, subject to such provisions as may
be provided by law." 13 And one of those sources of revenue is what the Local Tax Code
points to in particular: "Local governments may collect fees or rentals for the
occupancy or use of public markets and premises . . ." They can provide for and
regulate market stands, stalls and privileges, and, also, the sale, lease or occupancy thereof.
They can license, or permit the use of, lease, sell or otherwise dispose of stands, stalls or
marketing privileges.

4. Yes, private corporation can

The fees collected do not go direct to the private coffers of the corporation.
Ordinance No. 7522 was not made for the corporation but for the purpose of raising revenues
for the city. That is the object it serves. The entrusting of the collection of the fees
does not destroy the public purpose of the ordinance.

So long as the purpose is public, it does not matter whether the agency through which
the money is dispensed is public or private. The right to tax depends upon the ultimate
use, purpose and object for which the fund is raised. It is not dependent on the nature
or character of the person or corporation whose intermediate agency is to be used in
applying it. The people may be taxed for a public purpose, although it be under the direction
of an individual or private corporation.|||

5. Not necessarily

At most, the Market Committee may serve as a legislative aide of the Municipal
Board in the enactment of city ordinances affecting the city markets or, in plain words, in the
gathering of the necessary data, studies and the collection of consensus for the proposal of
ordinances regarding city markets. Much less could it be said that Republic Act 6039 intended
to delegate to the Market Committee the adoption of regulatory measures for the operation
and administration of the city markets. Potestas delegata non delegare potest.

CONSTITUTIONAL LIMITATIONS

Tolentino v. Secretary of Finance, 235 SCRA 260, G.R. No. 115455, August 25,
1994

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 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.

The title of Republic Act No. 7716 is:

AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM,
WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND
REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES.

The Philippine Press Institute (PPI), petitioner is a nonprofit organization of newspaper

publishers established for the improvement of journalism in the Philippines.

Another petitioner, the Philippine Bible Society (PBS), is a nonprofit organization engaged
in the printing and distribution of bibles and other religious articles.

Both petitioners claim violations of their rights under §4 and 5 of the Bill of Rights as a result
of the enactment of the VAT Law.|||

§ 103 of the NIRC contains a list of transactions exempted from VAT. Among the
transactions previously granted exemption were:
(f) Printing, publication, importation or sale of books and any newspaper,
magazine, review, or bulletin which appears at regular intervals with fixed
prices for subscription and sale and which is devoted principally to the
publication of advertisements.

Republic Act No. 7716 amended § 103 by deleting par. (f) with the result that print
media became subject to the VAT with respect to all aspects of their operations.
Later, Secretary of Finance issued Revenue Regulations No. 11-94, dated June 27, 1994,
exempting the "circulation income of print media pursuant to § 4 Article III of the
1987 Philippine Constitution guaranteeing against abridgment of freedom of the press,
among others." The exemption of "circulation income" has left income from advertisements
still subject to the VAT.|||

Petitioner PPI argument:

 it contends is that by withdrawing the exemption previously granted to print media

transactions involving printing, publication, importation or sale of
newspapers, Republic Act No. 7716 has singled out the press for
discriminatory treatment and that within the class of mass media the law
discriminates against print media by giving broadcast media favored
treatment.|||

 Although the exemption was subsequently restored by administrative regulation with

respect to the circulation income of newspapers, the PPI presses its claim because of
the possibility that the exemption may still be removed by mere revocation
of the regulation of the Secretary of Finance.|||

ISSUE:

1. WON RA 7716 is discriminatory when the withdrawal of exemption was only on print
media, not including the broadcast media?

2. WON there is violation of press freedom?

3. In the case of PBS, WON it violated freedom of thought and of conscience when RA
7716 removes of the exemption of printing, publication or importation of books and
religious articles, as well as their printing and publication

RULING:

1. Not discriminatory

We are unable to find a differential treatment of the press by the law, much less any
censorial motivation for its enactment. If the press is now required to pay a value-added tax
on its transactions, it is not because it is being singled out, much less targeted, for
special treatment but only because of the removal of the exemption previously
granted to it by law. The withdrawal of exemption is all that is involved in these cases.
Other transactions, likewise previously granted exemption, have been delisted as part of the
scheme to expand the base and the scope of the VAT system. The law would perhaps be
open to the charge of discriminatory treatment if the only privilege withdrawn had been that
granted to the press. But that is not the case. |||

Unless justified, the differential treatment of the press creates risks of suppression of
expression. In contrast, in the cases at bar, the statute applies to a wide range of
goods and services. The argument that, by imposing the VAT only on print media whose
gross sales exceeds P480,000 but not more than P750,000, the law discriminates is without
merit since it has not been shown that as a result the class subject to tax has been
unreasonably narrowed. The fact is that this limitation does not apply to the press alone
but to all sales. Nor is impermissible motive shown by the fact that print media and
broadcast media are treated differently. The press is taxed on its transactions involving
printing and publication, which are different from the transactions of broadcast media.
There is thus a reasonable basis for the classification.||

2. No violation
Even on the assumption that no exemption has effectively been granted to print media
transactions, we find no violation of press freedom in these cases.
To be sure, we are not dealing here with a statute that on its face operates in the
area of press freedom. The PPI's claim is simply that, as applied to newspapers, the
law abridges press freedom. Even with due recognition of its high estate and its importance
in a democratic society, however, the press is not immune from general regulation by
the State. It has been held:

The publisher of a newspaper has no immunity from the

application of general laws. He has no special privilege to invade the
rights and liberties of others. He must answer for libel. He may be
punished for contempt of court. Like others, he must pay equitable and
nondiscriminatory taxes on his business.
Pr3.
3. Not violated

For as the U.S. Supreme Court unanimously held in Jimmy Swaggart Ministries v. Board of
Equalization, the Free Exercise of Religion Clause does not prohibit imposing a
generally applicable sales and use tax on the sale of religious material by a religious
organization.|||

The fee in § 107, although a fixed amount (P1,000), is not imposed for the exercise of a
privilege but only for the purpose of defraying part of the cost of registration. The
registration requirement is a central feature of the VAT system. xxx The registration fee is
thus a mere administrative fee, one not imposed on the exercise of a privilege, much less a
constitutional right. |||

PRINCIPLES/CASES CITED:

In Grosjean v. American Press Co., the law imposed a license tax equivalent to 2% of
the gross receipts derived from advertisements only on newspapers which had a circulation
of more than 20,000 copies per week. Because the tax was not based on the volume of
advertisement alone but was measured by the extent of its circulation as well, the law
applied only to the thirteen large newspapers in Louisiana, leaving untaxed four
papers with circulation of only slightly less than 20,000 copies a week and 120
weekly newspapers which were in serious competition with the thirteen newspapers in
question. xxx. As the U.S. Supreme Court noted, the tax was "a deliberate and
calculated device in the guise of a tax to limit the circulation of information to
which the public is entitled in virtue of the constitutional guaranties." The case is a
classic illustration of the warning that the power to tax is the power to destroy.|||

Minneapolis Star v. Minnesota Commissioner of Revenue, 460 U.S. 575, 75 L. Ed. 2d 295
(1983). The Minnesota Star Tribune was exempted from both taxes from 1967 to 1971. In
1971, however, the state legislature amended the tax scheme by imposing the "use
tax" on the cost of paper and ink used for publication. xxx. In addition, the U.S.
Supreme Court found the law to be discriminatory because the legislature, by again
amending the law so as to exempt the first $100,000 of paper and ink used, further
narrowed the coverage of the tax so that "only a handful of publishers pay any tax at all and
even fewer pay any significant amount of tax." The discriminatory purpose was thus very
clear.||

In Arkansas Writers' Project, Inc. v. Ragland, it was held that a law which taxed general
interest magazines but not newspapers and religious, professional, trade and
sports journals was discriminatory because while the tax did not single out the press as
a whole, it targeted a small group within the press.
(repeated above)These cases come down to this: Unless justified, the differential
treatment of the press creates risks of suppression of expression. In contrast, in the cases at
bar, the statute applies to a wide range of goods and services. The argument that, by
imposing the VAT only on print media whose gross sales exceeds P480,000 but not more
than P750,000, the law discriminates is without merit since it has not been shown that as
a result the class subject to tax has been unreasonably narrowed. The fact is that
this limitation does not apply to the press alone but to all sales. Nor is impermissible motive
shown by the fact that print media and broadcast media are treated differently. The press is
taxed on its transactions involving printing and publication, which are different from
the transactions of broadcast media. There is thus a reasonable basis for the
classification.||

The license tax in the Grosjean case was declared invalid because it was "one single in
kind, with a long history of hostile misuse against the freedom of the press." On
the other hand, Minneapolis Star acknowledged that "The First Amendment does not
prohibit all regulation of the press [and that] the States and the Federal Government can
subject newspapers to generally applicable economic regulations without creating
constitutional problems."|||

Abra Valley College vs Aquino, 162 SCRA 106. G.R. No. L-39086. June 15, 1988.

Abra Valley College an educational corporation and institution of higher learning filed a
complaint to annul and declare void the "Notice of Seizure" and the "Notice of Sale"
of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and
penalties amounting to P5,140.31.

That the defendant Gaspar V. Bosque, as Municipal Treasurer of Bangued, Abra

caused to be served upon the Abra Valley Junior College, Inc. a Notice of Seizure on the
property of said school for the satisfaction of real property taxes.

Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that
the school is recognized by the government and is offering Primary, High School and College
Courses, and has a school population of more than one thousand students all in all;
(b) that it is located right in the heart of the town of Bangued, a few meters from the plaza
and about 120 meters from the Court of First Instance building;
(c) that the elementary pupils are housed in a two-storey building across the street; (d) that
the high school and college students are housed in the main building;
(e) that the Director with his family is in the second floor of the main building; and
(f) that the annual gross income of the school reaches more than one hundred thousand
pesos.

Petitioner Abra averred:

Petitioner contends that the primary use of the lot and building for educational purposes,
and not the incidental use thereof.

Respondent averred:
The school is also used as the permanent residence of the President and Director
thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and grandchildren; and
for commercial purposes because the ground floor of the college building is being
used and rented by a commercial establishment, the Northern Marketing Corporation

Trial Court Decision:

Favored respondent because of the use of the second floor by the Director of
petitioner school for residential purposes. He thus ruled for the government and
rendered the assailed decision.
Issue: whether or not the lot and building in question are used exclusively for educational
purposes and be taxed wholly?

Ruling: Not used exclusively yet taxed only portion not used for educational
purposes

Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school
building as well as the lot where it is built, should be taxed, not because the second floor of
the same is being used by the Director and his family for residential purposes, but because
the first floor thereof is being used for commercial purposes. However, since only a
portion is used for purposes of commerce, it is only fair that half of the assessed tax be
returned to the school involved.

Otherwise stated, the use of the school building or lot for commercial purposes is neither
contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the
main building in the case at bar for residential purposes of the Director and his family,
may find justification under the concept of incidental use, which is complimentary to the main
or primary purpose — educational, the lease of the first floor thereof to the Northern
Marketing Corporation cannot by any stretch of the imagination be considered
incidental to the purpose of education.

Analysis:

The phrase "exclusively used for educational purposes" was further clarified by this
Court in the cases of Herrera vs. Quezon City Board of Assessment Appeals, 3 SCRA 186
[1961] and Commissioner of Internal Revenue vs. Bishop of the Missionary District, 14 SCRA
991 [1965], thus —

"Moreover, the exemption in favor of property used exclusively for

charitable or educational purposes is 'not limited to property actually
indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but
extends to facilities which are incidental to and reasonably necessary
for the accomplishment of said purposes, such as in the case of hospitals,
'a school for training nurses, a nurses' home, property used to provide
housing facilities for interns, resident doctors, superintendents, and other
members of the hospital staff, and recreational facilities for student nurses,
interns, and residents' (84 CJS 6621), such as 'athletic fields' including 'a
farm used for the inmates of the institution.'" (Cooley on Taxation, Vol. 2,
p. 1430).

On why the Supreme Court did not consider the evidence(commercial lease)
presented?

It will be noted however that the aforementioned lease appears to have been raised
for the first time in this Court. That the matter was not taken up in the trial court is really
apparent in the decision of respondent Judge.

Indeed it is axiomatic that facts not raised in the lower court cannot be taken up
for the first time on appeal. Nonetheless, as an exception to the rule, this Court has held
that although a factual issue is not squarely raised below, still in the interest of
substantial justice, this Court is not prevented from considering a pivotal factual matter.
"The Supreme Court is clothed with ample authority to review palpable errors not
assigned as such if it finds that their consideration is necessary in arriving at a
just decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]).
6. Exemption from taxation

e. Revocation of Tax Exemption

Manila Electric Co. v. Vera, G.R. No. L-29987, L-23847, October 22, 1975

MERALCO is the holder of a franchise to construct, maintain, and operate an electric light,
heat, and power system in the City of Manila and its suburbs.|||

In 1962, MERALCO imported and received from abroad on various dates copper wires,
transformers, and insulators for use in the operation of its business on which, the
Collector of Customs levied and collected a compensating tax amounting to a total of
P62,335.00. A claim for refund of said amount was presented by MERALCO|||

On November 28, 1968 the Court of Tax Appeals denied MERALCO's claim.||

Again in 1963, MERALCO imported certain quantities of copper wires, transformers and
insulators also to be used in its business and again a compensating tax on said
purchases was collected. Its claim for refund of the amount having been denied by the
Commissioner of Internal Revenue.

Petitioner Manila Electric Co. argument:

The provision in their franchise in plain and unambiguous terms makes two
references to the exemption of the articles in question from all taxes except the franchise tax.
Thus, after prescribing in the opening sentence that "the grantee shall be liable to pay the
said taxes upon its real estate, buildings, plant ( not including poles, wires, transformers and
insulators), machinery and personal property as other persons are or may be hereinafter
required by law to pay," par. 9, specifically provides that the percentage tax payable by
petitioner as fixed therein "shall be in lieu of all taxes and assessments of
whatsoever nature, and by whatsoever authority upon the privileges, earnings,
income, franchise, and poles, wires, transformers and insulators of the
grantee from which taxes and assessments thegrantee is hereby expressly
exempted."|||

Paragraph 9 of its franchise which We quote from its brief:

"PARAGRAPH 9. The grantee shall be liable to pay the same taxes upon its
real estate, buildings, plant (not including poles, wires, transformers,
and insulators), machinery, and personal property as other persons are
or may be hereafter required by law to pay. In consideration of Part Two of
the franchise herein granted, to wit, the right to build and maintain in the
City of Manila xxx a five per centum of the gross earnings received
from its business under this franchise xxx, and shall be in lieu of all
taxes and assessments of whatsoever nature, and by whatsoever
authority upon the privileges, earnings, income, franchise, and poles,
wires, transformers, and insulators of the grantee, from which taxes and
assessments the grantee is hereby expressly exempted."

Respondent Commissioner of Internal Revenue argument:

Found in Section 190 of the National Internal Revenue Code (Commonwealth Act No. 466, as
amended) the pertinent provision of which read at the time as follows:
"Sec. 190. Compensating Tax. — All persons residing or doing business in
the Philippines, who purchase or receive from without the
 Philippines any commodities, goods, wares, or merchandise,
excepting those subject to specific taxes under Title IV of this Code,
shall pay on the total value thereof at the time they are received by such
persons, including freight, postage, insurance, commission and all similar
charges, a compensating tax equivalent to the percentage taxes
imposed under this Title xxx
Court of Tax Appeals Decision:||De

The court further stated that MERALCO's claim for exemption from the payment of
the compensating tax is not clear or expressed, contrary to the cardinal rule in taxation
that "exemptions from taxation are highly disfavored in law, and he who claims exemption
must be able to justify his claim by the clearest grant of organic or statute law." ||

ISSUE:

Is Manila Electric Company (MERALCO for short) exempt from payment of a compensating
tax on poles, wires, transformers, and insulators imported by it for use in the operation of its
electric light, heat, and power system?|

RULING: NO, not exempted

What the provision exempts petitioner from, is the payment of property tax on its
poles, wires, transformers, and insulators; it does not exempt it from payment of taxes like
the one in question which, by mere necessity or consequence alone, fall upon property.
These are direct taxes imposed upon the thing or property itself.

The compensating tax being imposed upon petitioner herein, MERALCO, is an

impost on its use of imported articles and is not in the nature of a direct tax on the
articles themselves, the latter tax falling within the exemption.|||

If it had been the legislative intent to exempt from paying a tax on the use of imported
equipments, the legislative body could have easily done so by expanding the provision
of paragraph 9 and adding to the exemption such words as "compensating tax" or
"purchases from abroad for use in its business," and the like.

What MERALCO really wants Us to do, but which We cannot under the principles enumerated
earlier, is to infer and imply that there is such an exemption from the provision of the
franchise.

At the outset it should be noted that the franchise granted by the Municipal Board of the City
of Manila to Mr. Charles M. Swift and later assumed and taken over by petitioner is
a municipal franchise and not a legislative franchise. This Court is not aware
whether or not the tax exemption provisions contained in Par. 9, Part Two of Act
No. 484 of the Philippine Commission of 1902 was incorporated in the municipal
franchise granted to Mr. Charles M. Swift by the Municipal Board of the City of Manila and
later assumed and taken over by petitioner because no admissible copy of Ordinance No. 44
of the said Board was ever presented in evidence by the herein petitioner.|||

ANALYSIS/PRINCIPLES APPLIED:

A compensating tax is not a property tax but is an excise tax. Generally stated, an
excise tax is one that is imposed on the performance of an act, the engaging in an
occupation, or the enjoyment of a privilege. A tax levied upon property because of its
ownership is a direct tax, whereas one levied upon property because of its use is an
excise duty. Thus, where a tax which is not on the property as such, is upon certain kinds
of property, having reference to their origin and their intended use, that is an excise
tax. |||

This Court stated in unequivocal terms that "it is not the act of importation that is taxed
under section 190, but the use of imported goods not subjected to a sales tax "
because "the compensating tax was expressly designed as a substitute to make up or
compensate for the revenue lost to the government through the avoidance of sales taxes by
means of direct purchases abroad ."|||

Every excise necessarily must finally fall upon and be paid by property, and so may
be indirectly a tax upon property; but if it is really imposed upon the performance of an
act, the enjoyment of a privilege, or the engaging in a occupation, it will be
considered an excise." |||

In Panay Electric Co. and Borja, supra, for MERALCO is similarly situated.||| This Court
rejected the exemption sought by Panay Electric and held that the cited provision in its
franchise exempts from taxation those rights and privileges which are not enjoyed by the
public in general but only by the grantee of a franchise, but do not include the common right
or privilege of every citizen to make purchases anywhere;|||

In Borja, petitioner Consuelo P. Borja, a grantee of a legislative franchise, also claimed to be

free from paying the compensating tax imposed on the materials and equipment such as
wires, insulators, transformers, conductors, etc. imported from Japan,||| The Court applying
the ruling in Panay Electric denied the exemption. |||

From the ambit of the Panay Electric and Borja ruling, here may be differences in the
phraseology used, but the intent to exempt the grantee from the payment only
of property tax on its poles, wires, transformers, and insulators is evidently common to the
three; withal, in all the franchises in question there is no specific mention of exemption
of the grantee from the payment of compensating tax.|||

In Connecticut Light & Power Co., et al. vs. Walsh, 1948, which involved the construction of a
statute imposing a sales and use tax, and which inter alia held:
"The broad statement that the tax upon the gross earnings of telephone
companies shall be 'in lieu of all other taxation' upon them is not
necessarily to be given a literal meaning. 'In construing the act it is
our duty to seek the real intent of the legislature, even though by so doing
we may limit the literal meaning of the broad language used.'. It is not
reasonable to assume that the General Assembly intended by the
provisions we have quoted that the tax on gross earnings should
take the place of taxes of a kind not then anywhere imposed and
entirely outside its knowledge.
Philippine Petroleum Corp. v. Municipality of Pililla, Rizal, G.R. No. 90776, June 03,
1991

Petitioner, Philippine Petroleum Corporation (PPC for short) is a business enterprise engaged
in the manufacture of lubricated oil basestock which is a petroleum product, with its
refinery plant situated at Malaya, Pililla, Rizal. PPC owns and maintains an oil refinery
including forty-nine storage tanks for its petroleum products in Malaya, Pililla, Rizal.

On June 28, 1973, Presidential Decree No. 231, otherwise known as the Local Tax Code
was issued by former President Ferdinand E. Marcos.
Sections 19 and 19 (a) thereof, provide among others, that the municipality
may impose taxes on business, except on those for which fixed taxes are provided on
manufacturers, importers or producers of any article of commerce of whatever kind or
nature, including brewers, distillers, rectifiers, repackers, and compounders of liquors,
distilled spirits and/or wines in accordance with the schedule listed therein.|||

The Secretary of Finance issued Provincial Circular No. 26-73 dated December 27, 1973,
directed to all provincial, city and municipal treasurers to refrain from collecting any local
tax imposed in old or new tax ordinances in the business of manufacturing, wholesaling,
retailing, or dealing in petroleum products subject to the specific tax under the National
Internal Revenue Code.|||

Likewise, Provincial Circular No. 26 A-73 dated January 9, 1973 was issued by the
Secretary of Finance instructing all City Treasurers to refrain from collecting any local tax
imposed in tax ordinances enacted before or after the effectivity of the Local Tax Code on
July 1, 1973, on the businesses of manufacturing, wholesaling, retailing, or dealing in,
petroleum products subject to the specific tax under the National Internal Revenue Code |||

Respondent Municipality of Pililla, Rizal, enacted Municipal Tax Ordinance No. 1, otherwise
known as "The Pililla Tax Code of 1974" on June 14, 1974, which took effect on July 1,
1974.
Sections 9 and 10 of the said ordinance imposed a tax on business, except for
those for which fixed taxes are provided in the Local Tax Code on manufacturers, importers,
or producers of any article of commerce of whatever kind or nature, including brewers,
distillers, rectifiers, repackers, and compounders of liquors, distilled spirits and/or wines in
accordance with the schedule found in the Local Tax Code, as well as mayor's permit,
sanitary inspection fee and storage permit fee for flammable, combustible or
explosive substances xxx

On April 13, 1974, P.D 436 was promulgated increasing the specific tax on lubricating
oils, gasoline, bunker fuel oil, diesel fuel oil and other similar petroleum products levied under
Sections 142, 144 and 145 of the National Internal Revenue Code, as amended, and
granting provinces, cities and municipalities certain shares in the specific tax on
such products in lieu of local taxes imposed on petroleum products.|||

On June 3, 1977, P.D. 1158 otherwise known as the National Internal Revenue Code of
1977 was enacted, Section 153 of which specifically imposes specific tax on refined and
manufactured mineral oils and motor fuels.|||

The respondent filed a complaint against PPC for:

 the collection of the business tax from 1979 to 1986;
 storage permit fees from 1975 to 1986;
 mayor's permit and sanitary inspection fees from 1975 to 1984

ISSUE:
whether or not petitioner PPC whose oil products are subject to specific tax under the NIRC,
is still liable to pay:
(a) tax on business and
(b) storage fees, considering Provincial Circular No. 6-77; and
(c) mayor's permit and sanitary inspection fee unto the respondent Municipality of Pililla,
Rizal, based on Municipal Ordinance No. 1

Petitioner PPC argument:

 Provincial Circular No. 26-73 declared as contrary to national economic policy the
imposition of local taxes on the manufacture of petroleum products as they are
already subject to specific tax under the National Internal Revenue Code;
 both Provincial Circulars (PC) 26-73 and 26 A-73 are still effective, hence,
unless and until revoked, any effort on the part of the respondent to collect the
 suspended tax on business from the petitioner would be illegal and unauthorized; PC
No. 26-73 and PC No. 26 A-73 suspended the effectivity of local tax
ordinances imposing a tax on business under Section 19 (a) of the Local Tax
Code (P.D. No. 231).

RULING:

On Business Tax:

Yes, liable but only 1976 onwards due to prescription.

Since the Local Tax Code does not provide the prescriptive period for collection of local
taxes, Article 1143 of the Civil Code applies. Said law provides that an action upon an
obligation created by law prescribes within ten (10) years from the time the right of
action accrues. The Municipality of Pililla can therefore enforce the collection of the tax on
business of petitioner PPC due from 1976 to 1986, and NOT the tax that had
accrued prior to 1976.|

While Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum products,
said decree did not amend Sections 19 and 19 (a) of P.D. 231 as amended by P.D. 426,
wherein the municipality is granted the right to levy taxes on business of
manufacturers, importers, producers of any article of commerce of whatever kind or
nature. A tax on business is distinct from a tax on the article itself. Thus, if the imposition of
tax on business of manufacturers, etc. in petroleum products contravenes a declared national
policy, it should have been expressly stated in P.D. No. 436. |||

P.D. No. 426 amending the Local Tax Code is deemed to have repealed Provincial
Circular Nos. 26-73 and 26 A-73 issued by the Secretary of Finance when Sections 19
and 19 (a), were carried over into P.D. No. 426 and no exemptions were given to
manufacturers, wholesalers, retailers, or dealers in petroleum products.
As aptly held by the court a quo:
"Necessarily, there could not be any other logical conclusion than that the
framers of P.D. No. 426 really and actually intended to terminate
the effectivity and/or enforceability of Provincial Circulars Nos.
26-73 and 26 A-73 inasmuch as clearly these circulars are in
contravention with Sec. 19 (a) of P.D. 426 — the amendatory law to P.D.
No. 231. That intention to terminate is very apparent and in fact it is
expressed in clear and unequivocal terms in the effectivity and repealing
clause of P.D. 426 .
||
On Storage Fees:

Not liable to pay

For the storage tanks are owned by PPC and not by the municipality, and therefore
cannot be a charge for service by the municipality.|||

The storage permit fee being imposed by Pililla's tax ordinance is a fee for the installation and
keeping in storage of any flammable, combustible or explosive substances. Inasmuch as said
storage makes use of tanks owned not by the municipality of Pililla, but by petitioner PPC,
same is obviously not a charge for any service rendered by the municipality as what is
envisioned in Section 37 of the same Code.|||

On Mayor’s Permit and Sanitary Inspection Fees:This is the topic on Revocation of Tax
Exemption
Yes, liable to pay

As to the authority of the mayor to waive payment of the mayor's permit and sanitary
inspection fees, the trial court did not err in holding that "since the power to tax includes
the power to exempt thereof which is essentially a legislative prerogative, it
follows that a municipal mayor who is an executive officer may not unilaterally
withdraw such an expression of a policy thru the enactment of a tax." The waiver
partakes of the nature of an exemption. It is an ancient rule that exemptions from taxation
are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority. Tax exemptions are looked upon with disfavor. Thus, in the absence of a clear and
express exemption from the payment of said fees, the waiver cannot be recognized. As
already stated, it is the law-making body, and not an executive like the mayor, who
can make an exemption. Under Section 36 of the Code, a permit fee like the mayor's
permit, shall be required before any individual or juridical entity shall engage in any business
or occupation under the provisions of the Code. |||

ANALYSIS/PRINCIPLES APPLIED:

The exercise by local governments of the power to tax is ordained by the present
Constitution.
To allow the continuous effectivity of the prohibition set forth in PC No. 26-73 (1) would be
tantamount to restricting their power to tax by mere administrative issuances. UnderSection
5, Article X of the 1987 Constitution, only guidelines and limitations that may be
established by Congress can define and limit such power of local governments.
Thus:
"Each local government unit shall have the power to create its
own sources of revenues and to levy taxes, fees, and charges subject to
such guidelines and limitations as the Congress may provide, consistent
with the basic policy of local autonomy