PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs.

MUNICIPALITY OF
TANAUAN
GR No. L-31156, February 27, 1976

FACTS:

Plaintiff-appellant Pepsi-Cola commenced a complaint with preliminary injunction to

declare Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos.
23 and 27 denominated as "municipal production tax" of the Municipality of Tanauan, Leyte,
null and void. Ordinance 23 levies and collects from soft drinks producers and manufacturers a
tax of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked, and Ordinance 27
levies and collects on soft drinks produced or manufactured within the territorial jurisdiction of
this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity. Aside from the undue delegation of authority, appellant contends that it allows
double taxation, and that the subject ordinances are void for they impose percentage or specific
tax.

ISSUE:

Whether or not the contentions of the appellant tenable.

RULINGS:

No. On the issue of undue delegation of taxing power, it is settled that the power of
taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to
every independent government, without being expressly conferred by the people.  It is a power
that is purely legislative and which the central legislative body cannot delegate either to the
executive or judicial department of the government without infringing upon the theory of
separation of powers. The exception, however, lies in the case of municipal corporations, to
which, said theory does not apply. Legislative powers may be delegated to local governments in
respect of matters of local concern. By necessary implication, the legislative power to create
political corporations for purposes of local self-government carries with it the power to confer on
such local governmental agencies the power to tax.
  
Also, there is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the delegating
authority specifies the limitations and enumerates the taxes over which local taxation may not be
exercised. The reason is that the State has exclusively reserved the same for its own prerogative.
Moreover, double taxation, in general, is not forbidden by our fundamental law, so that double
taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same
governmental entity or by the same jurisdiction for the same purpose, but not in a case where one
tax is imposed by the State and the other by the city or municipality.

On the last issue raised, the ordinances do not partake of the nature of a percentage tax on
sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or
not) and not on the sales. The volume capacity of the taxpayer's production of soft drinks is
considered solely for purposes of determining the tax rate on the products, but there is not set
ratio between the volume of sales and the amount of the tax.

LUTZ v. ARANETA
G.R No. L-7856. December 22, 1955

FACTS:

Appelant in this case Walter Lutz in his capacity as the Judicial Administrator of the
intestate of the deceased Antonio Jayme Ledesma, seeks to recover from the Collector of the
Internal Revenue the total sum of fourteen thousand six hundred sixty six and forty cents (P 14,
666.40) paid by the estate as taxes, under section 3 of Commonwealth Act No. 567, also known
as the Sugar Adjustment Act, for the crop years 1948-1949 and 1949-1950. Commonwealth Act.
567 Section 2 provides for an increase of the existing tax on the manufacture of sugar on a
graduated basis, on each picul of sugar manufacturer; while section 3 levies on the owners or
persons in control of the land devoted tot he cultivation of sugarcane and ceded to others for
consideration, on lease or otherwise - "a tax equivalent to the difference between the money
value of the rental or consideration collected and the amount representing 12 per centum of the
assessed value of such land. It was alleged that such tax is unconstitutional and void, being
levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not
a public purpose for which a tax may be constitutionally levied. The action was dismissed by the
CFI thus the plaintiff appealed directly to the Supreme Court.

ISSUE:

Whether or not the tax imposition in the Commonwealth Act No. 567 are
unconstitutional.

RULING:

Yes, the Supreme Court held that the fact that sugar production is one of the greatest
industry of our nation, sugar occupying a leading position among its export products; that it gives
employment to thousands of laborers in the fields and factories; that it is a great source of the
state's wealth, is one of the important source of foreign exchange needed by our government and
is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion,
protection and advancement, therefore redounds greatly to the general welfare. Hence it was
competent for the legislature to find that the general welfare demanded that the sugar industry be
stabilized in turn; and in the wide field of its police power, the law-making body could provide
that the distribution of benefits therefrom be readjusted among its components to enable it to
resist the added strain of the increase in taxes that it had to sustain.

The subject tax is levied with a regulatory purpose, to provide means for the
rehabilitation and stabilization of the threatened sugar industry. In other words, the act is
primarily a valid exercise of police power.
Commissioner of Internal Revenue vs. Central Luzon Drug Corporation
G.R. No. 159647. April 15, 2005

FACTS:

Respondents operated six drugstores under the business name Mercury Drug. From
January to December 1996 respondent granted 20% sales discount to qualified senior citizens on
their purchases of medicines pursuant to RA 7432 for a total of ₱ 904,769.

On April 15, 1997, respondent filed its annual Income Tax Return for taxable year 1996
declaring therein net losses. On Jan. 16, 1998 respondent filed with petitioner a claim for tax
refund/credit of ₱ 904,769.00 allegedly arising from the 20% sales discount. Unable to obtain
affirmative response from petitioner, respondent elevated its claim to the Court of Tax Appeals.
The court dismissed the same but upon reconsideration, the latter reversed its earlier ruling and
ordered petitioner to issue a Tax Credit Certificate in favor of respondent citing CA GR SP No.
60057 (May 31, 2001, Central Luzon Drug Corp. vs. CIR) citing that Sec. 229 of RA 7432 deals
exclusively with illegally collected or erroneously paid taxes but that there are other situations
which may warrant a tax credit/refund.

CA affirmed Court of Tax Appeal's decision reasoning that RA 7432 required neither a
tax liability nor a payment of taxes by private establishments prior to the availment of a tax
credit. Moreover, such credit is not tantamount to an unintended benefit from the law, but rather
a just compensation for the taking of private property for public use.

Issue:

Whether or not respondent, despite incurring a net loss, may still claim the 20% sales
discount as a tax credit.

Ruling:

Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining
a 20% discount on their purchase of medicine from any private establishment in the country. The
latter may then claim the cost of the discount as a tax credit. Such credit can be claimed even if
the establishment operates at a loss.

A tax credit generally refers to an amount that is “subtracted directly from one’s total tax
liability.” It is an “allowance against the tax itself” or “a deduction from what is owed” by a
taxpayer to the government.
A tax credit should be understood in relation to other tax concepts. One of these is tax deduction
– which is subtraction “from income for tax purposes,” or an amount that is “allowed by law to
reduce income prior to the application of the tax rate to compute the amount of tax which is
due.” In other words, whereas a tax credit reduces the tax due, tax deduction reduces the income
subject to tax in order to arrive at the taxable income.
 A tax credit is used to reduce directly the tax that is due, there ought to be a tax liability
before the tax credit can be applied.  Without that liability, any tax credit application will be
useless.  There will be no reason for deducting the latter when there is, to begin with, no existing
obligation to the government.  However, as will be presented shortly, the existence of a tax credit
or its grant by law is not the same as the availment or use of such credit.  While the grant is
mandatory, the availment or use is not. If a net loss is reported by, and no other taxes are
currently due from, a business establishment, there will obviously be no tax liability against
which any tax credit can be applied.  For the establishment to choose the immediate availment of
a tax credit will be premature and impracticable.

CARLOS SUPERDRUG ET. AL V. DSWD                      

G.R. No. 166494. June 29, 2007

FACTS:

Petitioners are domestic corporations and proprietors operating drugstores in the

Philippines.

Public respondents, on the other hand, include the DSWD, DOH, DOF, DOJ, and the
DILG, specifically tasked to monitor the drugstores’ compliance with the law; promulgate the
implementing rules and regulations for the effective implementation of the law; and prosecute
and revoke the licenses of erring drugstore establishments.

President Gloria Macapagal-Arroyo signed into law R.A. No. 9257 otherwise known as
the “Expanded Senior Citizens Act of 2003.”

Sec. 4(a) of the Act states that The senior citizens shall be entitled to the following: (a) the grant
of twenty percent (20%) discount from all establishments relative to the utilization of services in
hotels and similar lodging establishments, restaurants and recreation centers, and purchase of
medicines in all establishments for the exclusive use or enjoyment of senior citizens, including
funeral and burial services for the death of senior citizens;

Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes

deprivation   of private property. Compelling drugstore owners and establishments to grant the
discount will result in a loss of profit and capital because according to them drugstores impose a
mark-up of only 5% to 10% on branded medicines, and the law failed to provide a scheme
whereby drugstores will be justly compensated for the discount.

ISSUE:

Whether or not RA 9257 is constitutional.

RULING:

Yes, it is constitutional. The law is a legitimate exercise of police power which, similar to
the power of eminent domain, has general welfare for its object. Police power is not capable of
an exact definition, but has been purposely veiled in general terms to underscore its
comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible
response to conditions and circumstances, thus assuring the greatest benefits. Accordingly, it has
been described as the most essential, insistent and the least limitable of powers, extending as it
does to all the great public needs. It is [t]he power vested in the legislature by the constitution to
make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and
ordinances, either with penalties or without, not repugnant to the constitution, as they shall judge
to be for the good and welfare of the commonwealth, and of the subjects of the same.

For this reason, when the conditions so demand as determined by the legislature, property
rights must bow to the primacy of police power because property rights, though sheltered by due
process, must yield to general welfare.

Police power as an attribute to promote the common good would be diluted considerably
if on the mere plea of petitioners that they will suffer loss of earnings and capital, the questioned
provision is invalidated. Moreover, in the absence of evidence demonstrating the alleged
confiscatory effect of the provision in question, there is no basis for its nullification in view of
the presumption of validity which every law has in its favor.

Given these, it is incorrect for petitioners to insist that the grant of the senior citizen
discount is unduly oppressive to their business, because petitioners have not taken time to
calculate correctly and come up with a financial report, so that they have not been able to show
properly whether or not the tax deduction scheme really works greatly to their disadvantage.

In treating the discount as a tax deduction, petitioners insist that they will incur losses.
However,petitioner’s computation is clearly flawed.

For purposes of reimbursement, the law states that the cost of the discount shall be
deducted from gross income, the amount of income derived from all sources before deducting
allowable expenses, which will result in net income. Here, petitioners tried to show a loss on a
per transaction basis, which should not be the case. An income statement, showing an accounting
of petitioners sales, expenses, and net profit (or loss) for a given period could have accurately
reflected the effect of the discount on their income. Absent any financial statement, petitioners
cannot substantiate their claim that they will be operating at a loss should they give the discount.
In addition, the computation was erroneously based on the assumption that their customers
consisted wholly of senior citizens. Lastly, the 32% tax rate is to be imposed on income, not on
the amount of the discount.
MANILA MEMORIAL PARK, INC v. SECRETARY OF DSWD
G.R. No. 175356. December 3, 2013

FACTS: 

RA 7432 was passed into law (amended by RA 9257), granting senior citizens 20%
discount on certain establishments.

To implement the tax provisions of RA 9257, the Secretary of Finance and the DSWD
issued its own Rules and Regulations.

Petitioners are not questioning the 20% discount granted to senior citizens but are only
assailing the constitutionality of the tax deduction scheme prescribed under RA 9257 and the
implementing rules and regulations issued by the DSWD and the DOF.

Petitioners posit that the tax deduction scheme contravenes Article III, Section 9 of the
Constitution, which provides that: "private property shall not be taken for public use without just
compensation."

Respondents maintain that the tax deduction scheme is a legitimate exercise of the State’s
police power.

ISSUE: 

Whether the legally mandated 20% senior citizen discount is an exercise of police power
or eminent domain.

RULING: 

The 20% senior citizen discount is an exercise of police power.

It may not always be easy to determine whether a challenged governmental act is an

exercise of police power or eminent domain. The judicious approach, therefore, is to look at the
nature and effects of the challenged governmental act and decide on the basis thereof.

The 20% discount is intended to improve the welfare of senior citizens who, at their age,
are less likely to be gainfully employed, more prone to illnesses and other disabilities, and, thus,
in need of subsidy in purchasing basic commodities. It serves to honor senior citizens who
presumably spent their lives on contributing to the development and progress of the nation.

In turn, the subject regulation affects the pricing, and, hence, the profitability of a private
establishment.

The subject regulation may be said to be similar to, but with substantial distinctions from,
price control or rate of return on investment control laws which are traditionally regarded as
police power measures.
 The subject regulation differs there from in that (1) the discount does not prevent the
establishments from adjusting the level of prices of their goods and services, and (2) the discount
does not apply to all customers of a given establishment but only to the class of senior citizens.
Nonetheless, to the degree material to the resolution of this case, the 20% discount may be
properly viewed as belonging to the category of price regulatory measures which affect the
profitability of establishments subjected thereto. On its face, therefore, the subject regulation is a
police power measure.

Philippine Bank of Communications vs. Commissioner of Internal Revenue

G.R. No. 112024. January 28, 1999

FACTS:

Philippine Bank of Communications (PBCom), settled its total income tax returns for the
first and second quarters of 1985 by applying its tax credit memos. However, it incurred losses
so it declared no tax payable for the year when it filed its year-end Annual Income Tax Returns.
Nevertheless in 1985 and 1986, PBCom earned rental income from leased properties in which
the lessees withheld and remitted to the BIR withholding creditable taxes
On August 7, 1987, petitioner requested the CIR for a tax credit for the overpayment of taxes in
the first and second quarters of 1985. Thereafter, on July 25, 1988, petitioner filed a claim for
refund of creditable taxes withheld by their lessees from property rentals in 1985 and 1986.
Pending the investigation, petitioner filed a petition for review with the CTA which denied the
claims of the petitioner for tax refund and tax credits for 1985 for filing beyond the two-year
reglementary period. CTA also denied the claim for refund for 1986 on the speculation that
petitioner had automatically credited against its tax payment in the succeeding year. CA affirmed
CTA’s decision. Hence, this petition for review.

Petitioner argues that its claims for refund and tax credits are not yet barred by
prescription relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on
April 1, 1985. The circular states that overpaid income taxes are not covered by the two-year
prescriptive period under the tax Code and that taxpayers may claim refund or tax credits for the
excess quarterly income tax with the BIR within ten (10) years under Article 1144 of the Civil
Code.

ISSUES:

1. Whether or not the prescription for the claim of tax refund or tax credit is covered by Revenue
Memorandum Circular No. 7-85 and not by the two-year prescriptive period under the tax Code.
2. Whether or not CA erred in affirming CTA’s decision denying its claim for refund of tax
overpaid in 1986, based on mere speculation, without proof, that PBCom availed of the
automatic tax credit in 1987.

RULING:
1. It is the Tax Code which provides for the prescription for claims for refund or tax credit. RMC
7-85 changed the prescriptive period of two years to ten years on claims of excess quarterly
income tax payments. This circular is inconsistent with the provision of Sec 230, NIRC of 1977.
The BIR, in issuing said circular did not simply interpret the law; rather it legislated guidelines
contrary to the statute passed by Congress. Rules and regulations issued by the administrative
officials to implement a law cannot go beyond the terms and provisions of the latter. Since RMC
7-85 issued by the BIR is an administrative interpretation which is contrary to the provision of
the statte, it cannot be given weight and the State cannot be put in estoppel by the mistakes or
errors of its officials or agents.

2. Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any excess of the
total quarterly payments over the actual income tax computed in the adjustment or final
corporate income tax return, shall either(a) be refunded to the corporation, or (b) may be credited
against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable
year.
The corporation must signify in its annual corporate adjustment return (by marking the option
box provided in the BIR form) its intention, whether to request for a refund or claim for an
automatic tax credit for the succeeding taxable year. To ease the administration of tax collection,
these remedies are in the alternative, and the choice of one precludes the other.
The CTA examined the adjusted final corporate annual income tax return for taxable year 1986
and found out that petitioner opted to apply for automatic tax credit. This was the basis used
together with the fact that the 1987 annual corporate tax return was not offered by the petitioner
as evidence by the CTA in concluding that petitioner had indeed availed of and applied the
automatic tax credit to the succeeding year, hence it can no longer ask for refund, as the two
remedies of refund and tax credit are alternative.

Valera vs. Office of the Ombudsman

G.R. No. 167278. February 27, 2008

FACTS:

Atty. Gil Valera was appointed by President Gloria Macapagal Arroyo as Deputy
Commissioner of Customs in charge of the Revenue Collection Monitoring Group on July 13,
2001. He filed in the RTC of Manila, a preliminary attachment for the collection on unpaid
duties and taxes against Steel Asia Manufacturing Corporation (SAMC). Petitioner and SAMC
entered into a compromise agreement wherein the latter offered to pay on a staggered basis
through thirty (30) monthly equal installments the P37, 195, 859.00 duties and taxes sought to be
collected in the civil case.

On August 20, 2003, the Director of the Criminal Investigation and Detention Group of
the Philippine National Police, Eduardo Matillano, filed a letter-complaint against petitioner with
the Ombudsman disclosing that he committed an administrative offense of Grave Misconduct for
entering into a compromise agreement with SAMC without authority from the Bureau of
Customs and approval from the President. He also directly and indirectly had financial or
pecuniary interest in the Cactus Cargoes Systems, Inc. (CCSI) which assisted the employment of
his brother-in-law with the said entity. Investigation also showed that he traveled to Hongkong
with his family without proper authority from the office of the President.

ISSUE:

Whether or not Atty. Valera have committed grave misconduct.

RULING:

Yes. Atty. Valera was found guilty of committing grave misconduct for entering into a
compromise agreement with SAMC without proper authority from Bureau of Customes and
approval coming from the President. There has been a conflict of interest as well on the
employment of his brother-in-law in CCSI and such travelling to abroad without the necessary
documents in accordance with the guidelines to travel abroad for private purposed of public
officials.

NATIONAL POWER CORPORATION vs. CITY OF CABANATUAN

G.R. No. 149110. April 9, 2003

FACTS:

Petitioner is a government-owned and controlled corporation created under

Commonwealth Act No. 120, as amended. For many years now, petitioner sells electric power to
the residents of Cabanatuan City, posting a gross income of P107,814,187.96 in 1992.7 Pursuant
to section 37 of Ordinance No. 165-92,8 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 refused to pay the tax assessment arguing that the respondent has no authority
to impose tax on government entities. Petitioner also contended that as a non-profit organization,
it is exempted from the payment of all forms of taxes, charges, duties or fees in accordance with
sec. 13 of Rep. Act No. 6395, as amended.
The respondent filed a collection suit in the RTC, demanding that petitioner pay the
assessed tax due, plus surcharge. Respondent alleged that petitioner’s exemption from local taxes
has been repealed by section 193 of the LGC, 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.”
RTC upheld NPC’s tax exemption. On appeal the CA 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.
ISSUE:

Whether or not the respondent city government has the authority to issue Ordinance No.
165-92 and impose an annual tax on “businesses enjoying a franchise.

RULING:

Yes. Taxes are the lifeblood of the government, for without taxes, the government can
neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing power
derives its source from the very existence of the state whose social contract with its citizens
obliges it to promote public interest and common good. The theory behind the exercise of the
power to tax emanates from necessity;32 without taxes, government cannot fulfill its mandate of
promoting the general welfare and well-being of the people.

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.” This particular provision of the LGC
does not admit any exception. In City Government of San Pablo, Laguna v.
Reyes,74 MERALCO’s exemption from the payment of franchise taxes was brought as an issue
before this Court. The same issue was involved in the subsequent case of Manila Electric
Company v. Province of Laguna.75 Ruling in favor of the local government in both instances, we
ruled that the franchise tax in question is imposable despite any exemption enjoyed by
MERALCO under special laws, viz:
“It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to
support their position that MERALCO’s tax exemption has been withdrawn. The explicit
language of section 137 which authorizes the province to impose franchise tax ‘notwithstanding
any exemption granted by any law or other special law’ is all-encompassing and clear. The
franchise tax is imposable despite any exemption enjoyed under special laws.

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that 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 (1) local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-stock
and non-profit hospitals and educational institutions, are withdrawn upon the effectivity of this
code, the obvious import is to limit the exemptions to the three enumerated entities. It is a basic
precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius. In the absence of any provision of the Code to the contrary, and we find no other
provision in point, any existing tax exemption or incentive enjoyed by MERALCO under
existing law was clearly intended to be withdrawn.

Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local
government unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross
annual receipts for the preceding calendar based on the incoming receipts realized within its
territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoyed under existing
law or charter is clearly manifested by the language used on (sic) Sections 137 and 193
categorically withdrawing such exemption subject only to the exceptions enumerated. Since it
would be not only tedious and impractical to attempt to enumerate all the existing statutes
providing for special tax exemptions or privileges, the LGC provided for an express, albeit
general, withdrawal of such exemptions or privileges. No more unequivocal language could
have been used.”76 (emphases supplied)

Doubtless, the power to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of the local government units for the delivery of basic
services essential to the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. As this Court observed in the Mactan case, “the original
reasons for the withdrawal of tax exemption privileges granted to government-owned or
controlled corporations and all other units of government were that such privilege resulted in
serious tax base erosion and distortions in the tax treatment of similarly situated enterprises.”
With the added burden of devolution, it is even more imperative for government entities to share
in the requirements of development, fiscal or otherwise, by paying taxes or other charges due
from them.

Commissioner of Internal Revenue vs Algue Inc., and Court of Tax Appeals

GR No. L-28896. February 17, 1988

FACTS:

The Philippine Sugar Estate Development Company had earlier appointed Algue Inc., as
its agent, authorizing it to sell its land, factories and oil manufacturing process.As such,the
corporation worked for the formation of the Vegetable Oil Investment Corporation, until they
were able to purchased the PSEDC properties. For this sale, Algue Inc., received as agent a
commission of P126, 000.00, and it was from this commission that the P75, 000.00 promotional
fees were paid to Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and
Pablo Sanchez.

Commissioner of Internal Revenue contends that the claimed deduction is not allowed
because it was not an ordinary reasonable or necessary business expense. The Court of Tax
Appeals had seen it differently. Agreeing with Algue Inc., it held that the said amount had been
legitimately paid by the private respondent for actual services rendered. The payment was in the
form of promotional fees.

Issue:

Whether or not the Collector of Internal Revenue correctly disallowed the P75, 000.00
deduction claimed by private respondent Algue Inc., as legitimate business expenses in its
income tax returns.

Ruling:

No, The Supreme Court agrees with the respondent court that the amount of the
promotional fees was not excessive. The P75,000.00 was 60% of the total commission. This was
a reasonable proportion, considering that it was the payees who did practically everything, from
the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the
Sugar Estate properties. 

The claimed deduction by the private respondent was permitted under the Internal
Revenue Code and should therefore not have been disallowed by the petitioner.

SOUTHERN CROSS CEMENT CORPORATION vs. CEMENT MANUFACTURERS

ASSOCIATION OF THE PHILIPPINES
G.R. No. 158540. August 3, 2005

FACTS:

Republic Act No. 8800, the Safeguard Measures Act (SMA), which was one of the laws
enacted by Congress soon after the Philippines ratified the General Agreement on Tariff and
Trade (GATT) and the World Trade Organization (WTO) Agreement. The SMA provides the
structure and mechanics for the imposition of emergency measures, including tariffs, to protect
domestic industries and producers from increased imports which inflict or could inflict serious
injury on them.

Petitioner Southern Cross Cement Corporation (Southern Cross) is a domestic

corporation engaged in the business of cement manufacturing, production, importation and
exportation. Its principal stockholders are Taiheiyo Cement Corporation and Tokuyama
Corporation, purportedly the largest cement manufacturers in Japan.

Private respondent Philippine Cement Manufacturers Corporation, (Philcemcor) is an

association of domestic cement manufacturers. It has eighteen (18) members, per Record. While
Philcemcor heralds itself to be an association of domestic cement manufacturers, it appears that
considerable equity holdings, if not controlling interests in at least twelve (12) of its member-
corporations, were acquired by the three largest cement manufacturers in the world, namely
Financiere Lafarge S.A. of France, Cemex S.A. de C.V. of Mexico, and Holcim Ltd. of
Switzerland (formerly Holderbank Financiere Glaris, Ltd., then Holderfin B.V.).

The DTIs disagreement with the conclusions of the Tariff Commission, but at the same
time, ultimately denying Philcemcors application for safeguard measures on the ground that the
he was bound to do so in light of the Tariff Commissions negative findings.

Philcemcor challenged this Decision of the DTI Secretary by filing with the Court of
Appeals a Petition for Certiorari, Prohibition and Mandamus seeking to set aside the DTI
Decision, as well as the Tariff Commissions Report. The Court of Appeals Twelfth Division, in a
Decision penned by Court of Appeals Associate Justice Elvi John Asuncion, partially granted
Philcemcors petition.

On 23 June 2003, Southern Cross filed the present petition, arguing that the Court of
Appeals has no jurisdiction over Philcemcors petition, as the proper remedy is a petition for
review with the CTA conformably with the SMA, and; that the factual findings of the Tariff
Commission on the existence or non-existence of conditions warranting the imposition of general
safeguard measures are binding upon the DTI Secretary.
Despite the fact that the Court of Appeals Decision had not yet become final, its binding
force was cited by the DTI Secretary when he issued a new Decision on 25 June 2003, wherein
he ruled that that in light of the appellate courts Decision, there was no longer any legal
impediment to his deciding Philcemcors application for definitive safeguard measures.

The Court of Appeals had held that based on the foregoing premises, petitioner’s prayer
to set aside the findings of the Tariff Commission in its assailed Report dated March 13, 2002 is
DENIED. On the other hand, the assailed April 5, 2002 Decision of the Secretary of the
Department of Trade and Industry is hereby SET ASIDE. Consequently, the case is
REMANDED to the public respondent Secretary of Department of Trade and Industry for a final
decision in accordance with RA 8800 and its Implementing Rules and Regulations. Hence, the
appeal.

ISSUE:

Whether or not the decision of DTI Secretary, to impose safeguard measures is valid.

RULING:

No, it is invalid. Due to the nature of this case, the Court found that the DTI should
follow the regulations prescribed by SMA. The Court held that he assailed Decision of the Court
of Appeals is DECLARED NULL AND VOID and SET ASIDE. The Decision of the DTI
Secretary dated 25 June 2003 is also DECLARED NULL AND VOID and SET ASIDE. No
Costs.

Yet on 25 June 2003, the DTI Secretary issued a new Decision, ruling this time that that
in light of the appellate courts Decision there was no longer any legal impediment to his deciding
Philcemcors application for definitive safeguard measures. He made a determination that,
contrary to the findings of the Tariff Commission, the local cement industry had suffered serious
injury as a result of the import surges. Accordingly, he imposed a definitive safeguard measure
on the importation of gray Portland cement, in the form of a definitive safeguard duty in the
amount of P20.60/40 kg. bag for three years on imported gray Portland Cement.

Manila Electric Company v. Province of Laguna

G.R. No. 131359. May 5, 1999

FACTS:

MERALCO was granted a franchise by several municipal councils and the National
Electrification Administration to operate an electric light and power service in the Laguna. Upon
enactment of Local Government Code, the provincial government issued ordinance imposing
franchise tax. MERALCO paid under protest and later claims for refund because of the duplicity
with Section 1 of P.D. No. 551. This was denied by the governor (Joey Lina) relying on a more
recent law (LGC). MERALCO filed with the RTC a complaint for refund, but was dismissed.
Hence, this petition.

ISSUE:
 
Whether or not the imposition of franchise tax under the provincial ordinance is violative
of the non-impairment clause of the Constitution and of P.D. 551.

RULING:

No. There is no violation of the non-impairment clause for the same must yield to the
inherent power of the state (taxation). The provincial ordinance is valid and constitutional.

The Local Government Code of 1991 has incorporated and adopted, by and large, the
provisions of the now repealed Local Tax Code. The 1991 Code explicitly authorizes provincial
governments, notwithstanding “any exemption granted by any law or other special law, . . . (to)
impose a tax on businesses enjoying a franchise.” A franchise partakes the nature of a grant
which is beyond the purview of the non-impairment clause of the Constitution.   Article XII,
Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973
Constitutions, is explicit that no franchise for the operation of a public utility shall be granted
except under the condition that such privilege shall be subject to amendment, alteration or repeal
by Congress as and when the common good so requires.

CIR v Tokyo Shipping Co. LTD

GR.No.L-68252. May 26, 1995

FACTS:

Tokyo Shipping filed a claim for refund from the BIR for erroneous prepayment of
income and common carrier’s taxes amounting to P107,142.75 since no receipt was realized
from its charter agreement. BIR failed to act promptly on the claim and thus it was elevated to
the Court of Tax Appeals which decided in favor of the refund. Hence, this petition for review on
certiorari.

ISSUE:

Whether Tokyo Shipping is entitled to a refund or tax credit for the prepayment of taxes

RULING:

Yes. The power of taxation is sometimes called also the power to destroy. Therefore, it
should 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”. Fair deal is expected by taxpayers from the BIR and the duty demands that BIR
should refund without unreasonable delay the erroneous collection. 

Roxas v CTA
GR No L-25043, April 26, 1968

FACTS:

Antonio, Eduardo and Jose Roxas, brothers and at the same time partners of the Roxas y
Compania, inherited from their grandparents several properties which included farmlands. The
tenants expressed their desire to purchase the farmland. The tenants, however, did not have
enough funds, so the Roxases agreed to a purchase by installment. Subsequently, the CIR
demanded from the brothers the payment of deficiency income taxes resulting from the sale,
100% of the profits derived therefrom was taxed. The brothers protested the assessment but the
same was denied. On appeal, the Court of Tax Appeals sustained the assessment. Hence, this
petition.

ISSUE:

Whether or not Roxas liable?

RULING:

No. It should be borne in mind that the sale of the farmlands to the very farmers who
tilled them for generations was not only in consonance with, but more in obedience to the request
and pursuant to the policy of our Government to allocate lands to the landless.

In order to maintain the general public’s trust and confidence in the Government this
power must be used justly and not treacherously. It does not conform with the sense of justice for
the Government to persuade the taxpayer to lend it a helping hand and later on penalize him for
duly answering the urgent call.

In fine, Roxas cannot be considered a real estate dealer and is not liable for 100% of the
sale. Pursuant to Section 34 of the Tax Code, the lands sold to the farmers are capital assets and
the gain derived from the sale thereof is capital gain, taxable only to the extent of 50%. 

Mactan Cebu International Airport Authority v Marcos GR No 120082, September 11,

1996

FACTS:

Petitioner was created by virtue of RA 6958. Section 1 thereof states that the authority
shall be exempt from realty taxes imposed by the National Government or any of its political
subdivisions, agencies and instrumentalities. However, the Treasurer of Cebu City demanded
payment for realty taxes from petitioner. Petitioner filed a declaratory relief before the Regional
Trial Court. The trial court dismissed the petitioner ruling that the Local Government Code
withdrew the tax exemption granted to Government owned and controlled corporation.

ISSUE:

Whether the city of Cebu has the power to impose taxes on petitioner.

RULING:

Yes. Taxation is the rule and exemption is the exception, the exemption may thus be
withdrawn at the pleasure of the taxing authority. As to tax exemptions or incentives granted to
or presently enjoyed by natural or juridical persons, including government- owned and controlled
corporations, section 193 of the LGC prescribes the general rule, viz, they are withdrawn upon
the effectivity of the LGC, except those granted to local water districts, cooperatives, duly
registered under RA 6938, non-stock and nonprofit hospitals and educational institutions and
unless otherwise provided in the LGC. 

PILILIA VS PETRON
198 SCRA 82

FACTS:

Philippine Petroleum Corporation is a business enterprise engaged in the manufacture of

lubricated oil base stocks which is a petroleum product, with its refinery plant situated at Malaya,
Pilillia Rizal, conducting its business activities within the territorial jurisdiction of municipality
of Pilillia, Rizal and is in continuous operation up to the present. PPC owns and maintains an oil
refinery including 49 storage tanks for its petroleum products in Malaya, Pililla, Rizal. Under
section 142 of NIRC of 1939, manufactured oils and other fuels are subject to specific tax.
Respondent municipality of Pilillia, Rizal through municipal council resolution no. 25-s-1974
enacted municipal tax  ordinance no. 1-s-1974 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 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, distiller, 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, while section 139 of the disputed ordinance imposed surcharges and
interests on unpaid taxes, fees or charges. Enforcing the provisions of the above mentioned
ordinance, the respondent filed a complaint on April 4, 1986 docketed as civil case no. 057-T
against PPC for the collection of the business tax from 1979 to 1986; storage permit fees from
1975 to 1986; mayor’s permit fee and sanitary permit inspection fees from 1975 to 1984. PPC,
however, have already paid the last named fees starting 1985.
ISSUE: 

Whether or not the Municipality may validly impose taxes on petitioner’s business.

RULING:

 No. While section 2 of PD 436 prohibits the imposition of local taxes on petroleum
products, said decree did not amend sections 19 and 19 (a) of PD 231 as amended by PD 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 PD No. 436.

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
would be tantamount to restricting their power to tax by mere administrative issuances. Under
section 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.

The storage permit fee being imposed by Pilillia’s tax ordinance is a fee for the
installation and keeping in storage of any flammable, combustible or explosive substances. In as
much as said storage makes use of tanks owned not by the Municipality of Pilillia 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.

Creba vs. Romulo

G.R.No.160756. March 9, 2010

FACTS:

Petitioner is an association of real estate developers and builders in the Philippines.It

impleaded former Executive Secretary Alberto Romulo, then acting Secretary of Finance Juanita
D. Amatong and then Commissioner of Internal Revenue Guillermo Parayno, Jr. as respondents.

Petitioner assails the validity of the imposition of minimum corporate income tax (MCIT)
on corporations and creditable withholding tax (CWT) on sales of real properties classified as
ordinary assets.

Section 27(E) of RA 8424 provides for MCIT on domestic corporations and is

implemented by RR 9-98.Petitioner argues that the MCIT violates the due process clause
because it levies income tax even if there is no realized gain.
 Petitioner also seeks to nullify Sections 2.57.2(J) (as amended by RR 6-2001) and 2.58.2
of RR 2-98, and Section 4(a)(ii) and (c)(ii) of RR 7-2003, all of which prescribe the rules and
procedures for the collection of CWT on the sale of real properties categorized as ordinary
assets.Petitioner contends that these revenue regulations are contrary to law for two reasons:
first, they ignore the different treatment by RA 8424 of ordinary assets and capital assets and
second, respondent Secretary of Finance has no authority to collect CWT, much less, to base the
CWT on the gross selling price or fair market value of the real properties classified as ordinary
assets.

Petitioner also asserts that the enumerated provisions of the subject revenue regulations violate
the due process clause because, like the MCIT, the government collects income tax even when
the net income has not yet been determined. They contravene the equal protection clause as well
because the CWT is being levied upon real estate enterprises but not on other business
enterprises, more particularly those in the manufacturing sector.

ISSUES:

Whether or not the imposition of the MCIT on domestic corporations is unconstitutional.

RULING:

The petition is dismissed.

Petitioner claims that the MCIT under Section 27(E) of RA 8424 is unconstitutional because it is
highly oppressive, arbitrary and confiscatory which amounts to deprivation of property without
due process of law.It explains that gross income as defined under said provision only considers
the cost of goods sold and other direct expenses; other major expenditures, such as
administrative and interest expenses which are equally necessary to produce gross income, were
not taken into account.[31]Thus, pegging the tax base of the MCIT to a corporations gross
income is tantamount to a confiscation of capital because gross income, unlike net income, is not
realized gain. The Court disagress.

Taxes are the lifeblood of the government.Without taxes, the government can neither
exist nor endure. The exercise of taxing power derives its source from the very existence of the
State whose social contract with its citizens obliges it to promote public interest and the common
good.

Taxation is an inherent attribute of sovereignty.It is a power that is purely

legislative.Essentially, this means that in the legislature primarily lies the discretion to determine
the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of
taxation.It has the authority to prescribe a certain tax at a specific rate for a particular public
purpose on persons or things within its jurisdiction.In other words, the legislature wields the
power to define what tax shall be imposed, why it should be imposed, how much tax shall be
imposed, against whom (or what) it shall be imposed and where it shall be imposed.
 As a general rule, the power to tax is plenary and unlimited in its range, acknowledging
in its very nature no limits, so that the principal check against its abuse is to be found only in the
responsibility of the legislature (which imposes the tax) to its constituency who are to pay
it.Nevertheless, it is circumscribed by constitutional limitations.At the same time, like any other
statute, tax legislation carries a presumption of constitutionality.

The MCIT is imposed on gross income which is arrived at by deducting the capital spent
by a corporation in the sale of its goods,i.e., the cost of goodsand other direct expenses from
gross sales.Clearly, the capital is not being taxed.
Furthermore, the MCIT is not an additional tax imposition. It is imposedin lieuofthe
normal net income tax, and only if the normal income tax is suspiciously low.The MCIT merely
approximates the amount of net income tax due from a corporation, pegging the rate at a very
much reduced 2% and uses as the base the corporations gross income.

The Secretary of Finance is granted, under Section 244 of RA 8424, the authority to
promulgate the necessary rules and regulations for the effective enforcement of the provisions of
the law.Such authority is subject to the limitation that the rules and regulations must not
override, but must remain consistent and in harmony with, the law they seek to apply and
implement. It is well-settled that an administrative agency cannot amend an act of Congress.

It has been recognized that the method of withholding tax at source is a procedure of
collecting income tax which is sanctioned by our tax laws.The withholding tax system was
devised for three primary reasons: first, to provide the taxpayer a convenient manner to meet his
probable income tax liability; second, to ensure the collection of income tax which can otherwise
be lost or substantially reduced through failure to file the corresponding returns and third, to
improve the governments cash flow.This results in administrative savings, prompt and efficient
collection of taxes, prevention of delinquencies and reduction of governmental effort to collect
taxes through more complicated means and remedies.

Respondent Secretary has the authority to require the withholding of a tax on items of
income payable to any person, national or juridical, residing in the Philippines.Such authority is
derived from Section 57(B) of RA 8424.

People vs. Sandiganbayan

467 SCRA 137. August 16, 2005

FACTS:

Pursuant to Letter of Authority No. ATD-035-STO dated January 2, 1986 and

Memorandum of Authority dated March 3, 1986, an investigation was conducted by [Bureau of
Internal Revenue (BIR)] examiners on the ad valorem and specific tax liabilities of [San Miguel
Corp. (SMC)] covering the period from January 1, 1985 to March 31, 1986. The result of the
investigation showed that [SMC] has a deficiency on specific and ad valorem taxes totaling
₱342,616,217.88.
 On the basis of these findings, the BIR sent a letter dated July 13, 1987 to SMC
demanding the payment of its deficiency tax in the amount of ₱342,616,217.88. Apparently, the
letter was received by the SMC, as it protested the assessment in its letter dated August 10, 1987
with the information: 1) that the alleged specific tax deficiency was already paid when the BIR
approved SMC’s request that its excess ad valorem payments be applied to its specific tax
balance; 2) that the computation of the ad valorem tax deficiency was erroneous since the BIR
examiners disallowed the deduction of the price differential (cost of freight from brewery to
warehouse) and ad valorem tax.

The protest was denied by the BIR thru a letter dated October [8], 1987 signed by
accused Commissioner Bienvenido Tan, Jr., but the original assessment of ₱342,616,217.88 was
reduced to ₱302,[0]51,048.93 due to the crediting of the taxpayer’s excess ad valorem tax
deposit of ₱21,805,409.10 with a reiteration of the payment of the x x x assessed specific and ad
valorem tax as reduced.

On October 27, 1987, herein accused referred the matter to Jaime M. Maza, Assistant
BIR Commissioner, Legal Service Division and thereafter different BIR officials also reviewed
the case of SMC and rendered varying legal opinions on the issue x x x

"On the part of Alicia P. Clemeno, Chief, Legislative Ruling and Research Division, she
recommended the reduction of SMC’s tax liability, first to ₱21,856,985.29, and later to
₱22,000,000.00. Balbino E. Gatdula, Jr., Assistant Revenue Service Chief, Legal Service,
supported the demand for ad valorem tax deficiency from SMC. In a letter dated August 31,
1988, SMC, thru a certain Avendano offered the amount of ₱10,000,000.00 for the settlement of
the assessment. This was concurred in by Juanito Urbi, Chief, Prosecutor Division, BIR in a
Memorandum dated December 20, 1988. Jaime Maza, Assistant Commissioner, Legal Service,
BIR, also gave his concurrence to the recommendation that the offer of SMC for ₱10,000,000.00
in compromise settlement be accepted. The recommendation was approved by accused
Bienvenido Tan; and accordingly, in a letter dated December 20, 1988, SMC was informed that
its offer to compromise was accepted.

Former BIR Commissioner Bienvenido A. Tan Jr. was charged with "having willfully,
unlawfully and criminally cause[d] undue injury to the government by effecting a compromise of
the tax liabilities" of SMC amounting to ₱302,051,048.93 for only ₱10,000,000, a "compromise
[that] is grossly disadvantageous to the government.

The Sandiganbayan acquitted herein private respondent ruling among others that: 1) the
abatement of SMC’s ad valorem taxes is proper. The tax base for computing them should not
include the ad valorem tax itself and the price differential. Reliance upon Executive Order (EO)
No. 273 is not misplaced, because that law simply affirms general principles of taxation as well
as BIR’s longstanding practice and policy not to impose a tax on a tax. Moreover, nothing
precludes private respondent from applying EO 273 on an assessment made prior to its
effectivity, because that law was merely intended to formalize such long-standing practice and
policy; and 2) after inquiring into the discretionary prerogative of private respondent to
compromise, the SB found no reason to conclude that he had acted contrary to law or been
impelled by any motive other than honest good faith. The compromise he had entered into
regarding SMC’s tax did not result in any injury to the government. No genuine compromise is
impeccable, since the parties to it must perforce give up something in exchange for something
else. No basis existed to hold him liable for violation of Section 3(e) of RA 3019.

ISSUE:

Whether or not the respondent court acted with grave abuse of discretion amounting to
lack or excess of jurisdiction when, in upholding private respondent’s act in accepting SMC’s
offer of compromise of ₱10,000,000.00 for its tax liability of ₱302,051,048.93, it disregarded
Sections 124 and 228 of the NIRC.

RULING:

The SB did not gravely abuse its discretion when it upheld private respondent’s
acceptance of SMC’s compromise offer of ₱10 million.

In computing its ad valorem tax liabilities for the taxable period involved in the present
case, SMC deducted from its brewer’s gross selling price the specific tax, price differential, and
ad valorem tax. The BIR allowed the deduction of the specific tax, but not the deduction of the
price differential and ad valorem tax, thus increasing the tax base and consequently the ad
valorem tax liabilities of SMC for the said period.

The taxable period covered in this case is January 1, 1985 to March 31, 1986. Prior to the
amendment of the NIRC of 1977 by EO 22 on July 1, 1986, the ad valorem tax was not excluded
from the brewer’s wholesale price. Does this mean that such tax cannot be deducted? The answer
is no.

A tax should not be imposed upon another tax. This is tax pyramiding, which has no basis
either in fact or in law.

Private respondent has shown by mathematical analysis that the inclusion of the ad
valorem tax in the tax base would only yield a circuitous manner of computation that will never
end in just one ad valorem tax figure properly chargeable against a taxpayer.

Equally important, tax pyramiding has since 1922 been rejected by this Court, the
legislature, and our tax authorities. The intent behind the law is clearly to obviate a tax imposed
upon another tax. Ratio legis est anima legis. The reason for the law is its spirit.

For instance, Regulations No. 27, promulgated March 1, 1923, already excludes the
specific tax on cigars and cigarettes from the tax base upon which such tax is computed. This is
reiterated in the more recent amendments to our tax law, among which are EOs 22 and 273,and
their implementing rules. In fact, Commissioner of Internal Revenue v. American Rubber Co.
held that a taxpayer cannot be "compelled to pay a x x x tax on the tax itself."
 Having shown the appropriateness of deducting the ad valorem tax from the tax base
upon which it is computed, private respondent has shown prudence in exercising his power under
Section 204(2) of the NIRC of 1977 to abate an unjust, excessively assessed, and unreasonable
tax; and to accept the offer of ₱10 million,if only to avoid protracted and costly litigation.

Tio vs. Videogram Regulatory Board

G.R. No. 75697. June 18, 1987

FACTS:
The case is a petition filed by petitioner on behalf of videogram operators adversely
affected by Presidential Decree No. 1987, “An Act Creating the Videogram Regulatory Board"
with broad powers to regulate and supervise the videogram industry.

A month after the promulgation of the said Presidential Decree, the amended the National
Internal Revenue Code provided that:

"SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette,
ready for playback, regardless of length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to sales tax."

"Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding

any provision of law to the contrary, the province shall collect a tax of thirty percent (30%) of
the purchase price or rental rate, as the case may be, for every sale, lease or disposition of a
videogram containing a reproduction of any motion picture or audiovisual program.”

“Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and the
other fifty percent (50%) shall accrue to the municipality where the tax is collected;
PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the
City/Municipality and the Metropolitan Manila Commission.”

The rationale behind the tax provision is to curb the proliferation and unregulated
circulation of videograms including, among others, videotapes, discs, cassettes or any technical
improvement or variation thereof, have greatly prejudiced the operations of movie houses and
theaters. Such unregulated circulation have caused a sharp decline in theatrical attendance by at
least forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific,
amusement and other taxes, thereby resulting in substantial losses estimated at P450
Million annually in government revenues.

Videogram(s) establishments collectively earn around P600 Million per annum from
rentals, sales and disposition of videograms, and these earnings have not been subjected to tax,
thereby depriving the Government of approximately P180 Million in taxes each year.

The unregulated activities of videogram establishments have also affected the viability of the
movie industry.

ISSUE:

Whether or not tax imposed by the DECREE is a valid exercise of police power.

RULING:

Taxation has been made the implement of the state's police power. The levy of the 30%
tax is for a public purpose. It was imposed primarily to answer the need for regulating the video
industry, particularly because of the rampant film piracy, the flagrant violation of intellectual
property rights, and the proliferation of pornographic video tapes. And while it was also an
objective of the DECREE to protect the movie industry, the tax remains a valid imposition.

We find no clear violation of the Constitution which would justify us in pronouncing

Presidential Decree No. 1987 as unconstitutional and void. While the underlying objective of the
DECREE is to protect the moribund movie industry, there is no question that public welfare is at
bottom of its enactment, considering "the unfair competition posed by rampant film piracy; the
erosion of the moral fiber of the viewing public brought about by the availability of unclassified
and unreviewed video tapes containing pornographic films and films with brutally violent
sequences; and losses in government revenues due to the drop in theatrical attendance, not to
mention the fact that the activities of video establishments are virtually untaxed since mere
payment of Mayor's permit and municipal license fees are required to engage in business."

WHEREFORE, the instant Petition is hereby dismissed. No costs.