Uniformity of Taxation
1. Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan
163 SCRA 371
Facts
Petitioners seek to nullify Executive Order No. 273 (EO 273) issued by the President and
took effect on 1 January 1988. Said EO amended certain sections of the NIRC and adopted the
value-added tax (VAT). Among others, it was contended that EO 273 is violative of the provisions
of Article VI, Section 28(1) of the 1987 Constitution, which states that “the rule of taxation shall be
uniform and equitable. The Congress shall evolve a progressive system of taxation.”
Issue
Is EO 273 unconstitutional?
Ruling
No. EO 273 satisfies all the requirements of a valid tax. It is uniform.
In Philippine Trust Company v. Yatco (69 Phil. 420), it was said that "A tax is considered
uniform when it operates with the same force and effect in every place where the subject may be
found."
"Equality and uniformity in taxation means that all taxable articles or kinds of property of
the same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation.” (Eastern Theatrical Co. v. Alfonso
(83 Phil. 852, 862)x
"Taking everything into account, the differentiation against which the plaintiffs complain
conforms to the practical dictates of justice and equity and is not discriminatory within the meaning
of the Constitution." (Manila Race Horses Trainers Assn. v. De La Fuente, 88 Phil. 60, 65)
To satisfy this requirement then, all that is needed, (Uy Matias v. City of Cebu, 93 Phil.
300) is that the statute or ordinance in question "applies equally to all persons, firms and
corporations placed in similar situation."
This Court is on record as accepting the view in a leading American case (Carmichael v.
Southern Coal and Coke Co., 301 US 495) that "inequalities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional limitation.
NON-IMPAIRMENT CLAUSE
2. Casanovas v. Hord
8 Phil. 125
Facts
In 1987, the Spanish Government, in accordance with the provisions of the royal decree
of 14 May 1867, granted plaintiff certain mines in the province of Ambos Camarines, of which
mines the latter is now the owner, and that these were perfected mining concessions.
Defendant collector of internal revenue imposed upon these properties a tax (P9,600.00)
provided under Section 134 of Act No. 1189 or the Internal Revenue Act, which plaintiff paid
under protest.
It is claimed by the plaintiff that it is void because it comes within the provision of
section 5 of the act of Congress of July 1, 1902, which provides "that no law impairing the
obligation of contracts shall be enacted."
Issue
Is Section 134 of Act 1189 valid?
Ruling
No. The fact that this concession was made by the Government of Spain, and not by the
Government of the US, is not important. Our conclusion is that the concessions granted by the
Government of Spain to the plaintiff, constitute contracts between the parties; that section 134 of
the Internal Revenue Law impairs the obligation of these contracts, and is therefore void as to them.
Tolentino v. Secretary of Finance
235 SCRA 630
Facts
Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and
enhance its administration by amending the NIRC.
(3) Therewith, petitioner Chamber of Real Estate and Builders Associations, Inc. (CREBA) asserts
that the act impairs the obligations of contracts, that the application of the tax to existing contracts
of the sale of real property by installment or on deferred payment basis would result in substantial
increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount,
it is pointed out, is something that the buyer did not anticipate at the time he entered into the
contract.
(6) Some of the petitioners (Tolentino, Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and
Chamber of Real Estate and Builders Association (CREBA)) claims that R.A. No. 7716 did not
"originate exclusively" in the House of Representatives as required by Art. VI, §24 of the
Constitution. Although they admit that H. No. 11197 was filed in the House of Representatives
where it passed three readings and that afterward it was sent to the Senate where after first reading
it was referred to the Senate Ways and Means Committee, they complain that the Senate did not
pass it on second and third readings. Instead what the Senate did was to pass its own version (S.
No. 1630) which it approved on May 24, 1994. Petitioner Tolentino adds that what the Senate
committee should have done was to amend H. No. 11197 by striking out the text of the bill and
substituting it with the text of S. No. 1630. That way, it is said, "the bill remains a House bill and
the Senate version just becomes the text (only the text) of the House bill."
(7) PPI and PBS claim violation of their rights under Section 4 and 5 of the Bill of Rights as a
result of the enactment of the VAT Law.
PPI aver that the law withdrawn the exemption previously granted to it by NIRC; that
although it was restored by admin regulation with respect to circulation income of newspapers, it
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can possibly be later removed by mere revocation of the regulation of the Sec. of Finance. On the
other hand, PBS questions the power of the Sec. of Finance to grant tax exemption.
Issue
(3) Is RA 7716 violative of the non-impairment clause?
(6) Does RA 7716 exclusively originate in the House of Representatives?
(7) Are the contentions of petitioners correct?
Ruling
(3) No. Even though such taxation may affect particular contracts, as it may increase the
debt of one person and lessen the security of another, or may impose additional burdens upon one
class and release the burdens of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal
sense. Indeed not only are existing laws read into contracts in order to fix obligations as between
parties, but also "the reservation of the essential attributes of sovereignty is also read into contracts
as a postulate of the legal order." Contracts must be understood as having been made in reference to
the possible exercise of the rightful authority of the government and no obligation of contract can
extend to the defeat of that authority.
(6) Yes. While Art. VI, §24 provides that all appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application, and private bills must "originate
exclusively in the House of Representatives," it also adds, "but the Senate may propose or concur
with amendments." In the exercise of this power, the Senate may propose an entirely new bill as a
substitute measure.
To except from this procedure the amendment of bills which are required to originate in
the House by prescribing that the number of the House bill and its other parts up to the enacting
clause must be preserved although the text of the Senate amendment may be incorporated in place
of the original body of the bill is to insist on a mere technicality. At any rate there is no rule
prescribing this form. S. No. 1630, as a substitute measure, is therefore as much an amendment of
H. No. 11197 as any which the Senate could have made.
(7)
4. Cagayan Electric Power & Light Co., Inc. v. CIR
138 SCRA 629
Facts
Petitioner is a holder of legislative franchise and by RA 3247 pays 3% tax on its gross
earnings which in lieu of all taxes and assessments. On June 27, 1968, RA 5431 was enacted
amending Section 24 and 27 of the Tax Code as “liable for income tax those not specifically
exempt” and “notwithstanding the provisions of existing special or general laws to the contrary,”
respectively. Effective August 4, 1969, petitioners franchise was amended by RA 6020 and
reenacted its tax exemption in its original charter.
By reason of RA 5431, petitioner was assessed of deficiency income tax for 1968 to 1971
but later was reduced for the period Jan 1 to Aug. 3, 1969, which petitioner appealed contending
that it is an error to hold his franchise a contract which can be impaired by an implied repeal.
Issue
Can the franchise of petitioner be impaired?
Ruling
Yes. Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is subject
to the provisions of the Constitution and to the terms and conditions established in Act No. 3636
whose section 12 provides that the franchise is subject to amendment, alteration or repeal by
Congress.
The non-impairment clause does not apply to public utility franchises. Article XII, Sec.
11 of the 1987 Constitution mandates that no public utility franchise or right shall be granted
“except under the condition that it shall be subject to amendment, alteration or repeal by the
Congress when the common good so requires.”
5. Phil. Power and Development Co. v. CIR
CTA Case No. 1152 Oct. 31, 1965
Facts
Petitioner is engaged in the business of supplying electric light, heat and power pursuant
to municipal franchises granted under Act No. 667. Prior to herein period covered (Oct. 1, 1955 to
June 30, 1960) by the alleged deficiency, petitioner has been paying franchise tax based on Section
259 of the Tax Code which is 5%. But through a letter from respondent dated June 15, 1955 and
July 13, 1955, petitioner pays based on Resolution No. 81 which is only 2%. Further, said
resolution provided that the franchise shall be subject to amendment, alteration or repeal by the
Congress. Now, this appeal for holding petitioner liable for deficiency franchise tax and tax
erroneously credited.
Issue
Is petitioner liable based on the 2% franchise tax?
Ruling
No. Nowhere in the franchises of petitioner can be found a provision to the effect that the
franchise tax prescribed therein "shall be in lieu of all other taxes.” Inasmuch as said franchises do
not preclude the imposition of a higher franchise tax, petitioner-grantee is subject to the 5%
franchise tax provided in Section 259 of the Tax Code, as amended, and not to the lower rate of
franchise tax prescribed in the franchises in question. More so, because each franchise was granted
with the express "understanding and upon the condition that it shall be subject to amendment,
alteration or repeal by the Congress.
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