taxreviewcases
G.R. No. L-23645 October 29, 1968
BENJAMIN P. GOMEZ, petitioner-appellee,
vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R.
VALENCIA, in his capacity as Secretary of Public Works and Communications, and
DOMINGO GOPEZ, in his capacity as Acting Postmaster of San Fernando,
Pampanga, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Frine C. Zaballero
and Solicitor Dominador L. Quiroz for respondents-appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635, 1 as amended by Republic
Act 2631,2 which provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order
for the period from August nineteen to September thirty every year the printing and issue of
semi-postal stamps of different denominations with face value showing the regular postage
charge plus the additional amount of five centavos for the said purpose, and during the said
period, no mail matter shall be accepted in the mails unless it bears such semi-postal
stamps: Provided, That no such additional charge of five centavos shall be imposed on
newspapers. The additional proceeds realized from the sale of the semi-postal stamps shall
constitute a special fund and be deposited with the National Treasury to be expended by the
Philippine Tuberculosis Society in carrying out its noble work to prevent and eradicate
tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4)
administrative orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958),
and 10 (July 15, 1960). All these administrative orders were issued with the approval of the
respondent Secretary of Public Works and Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the period from August 19 to
September 30, 1957, for lack of time. However, two denominations of such stamps, one at "5
+ 5" centavos and another at "10 + 5" centavos, will soon be released for use by the public on
their mails to be posted during the same period starting with the year 1958.
xxx xxx xxx
During the period from August 19 to September 30 each year starting in 1958, no mail matter
of whatever class, and whether domestic or foreign, posted at any Philippine Post Office and
addressed for delivery in this country or abroad, shall be accepted for mailing unless it bears
at least one such semi-postal stamp showing the additional value of five centavos intended
for the Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail permits or impressions
of postage meters, each piece of such mail shall bear at least one such semi-postal stamp if
posted during the period above stated starting with the year 1958, in addition to being
charged the usual postage prescribed by existing regulations. In the case of business reply
envelopes and cards mailed during said period, such stamp should be collected from the
addressees at the time of delivery. Mails entitled to franking privilege like those from the
Page 1 of 34
office of the President, members of Congress, and other offices to which such privilege has
been granted, shall each also bear one such semi-postal stamp if posted during the said
period.
Mails posted during the said period starting in 1958, which are found in street or post-office
mail boxes without the required semi-postal stamp, shall be returned to the sender, if known,
with a notation calling for the affixing of such stamp. If the sender is unknown, the mail matter
shall be treated as nonmailable and forwarded to the Dead Letter Office for proper
disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
In the case of the following categories of mail matter and mails entitled to franking privilege
which are not exempted from the payment of the five centavos intended for the Philippine
Tuberculosis Society, such extra charge may be collected in cash, for which official receipt
(General Form No. 13, A) shall be issued, instead of affixing the semi-postal stamp in the
manner hereinafter indicated:
1. Second-class mail. Aside from the postage at the second-class rate, the extra charge of
five centavos for the Philippine Tuberculosis Society shall be collected on each separately-
addressed piece of second-class mail matter, and the total sum thus collected shall be
entered in the same official receipt to be issued for the postage at the second-class rate. In
making such entry, the total number of pieces of second-class mail posted shall be stated,
thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The extra charge shall be entered
separate from the postage in both of the official receipt and the Record of Collections.
2. First-class and third-class mail permits. Mails to be posted without postage affixed
under permits issued by this Bureau shall each be charged the usual postage, in addition to
the five-centavo extra charge intended for said society. The total extra charge thus received
shall be entered in the same official receipt to be issued for the postage collected, as in
subparagraph 1.
3. Metered mail. For each piece of mail matter impressed by postage meter under metered
mail permit issued by this Bureau, the extra charge of five centavos for said society shall be
collected in cash and an official receipt issued for the total sum thus received, in the manner
indicated in subparagraph 1.
4. Business reply cards and envelopes. Upon delivery of business reply cards and
envelopes to holders of business reply permits, the five-centavo charge intended for said
society shall be collected in cash on each reply card or envelope delivered, in addition to the
required postage which may also be paid in cash. An official receipt shall be issued for the
total postage and total extra charge received, in the manner shown in subparagraph 1.
5. Mails entitled to franking privilege. Government agencies, officials, and other persons
entitled to the franking privilege under existing laws may pay in cash such extra charge
intended for said society, instead of affixing the semi-postal stamps to their mails, provided
that such mails are presented at the post-office window, where the five-centavo extra charge
for said society shall be collected on each piece of such mail matter. In such case, an official
receipt shall be issued for the total sum thus collected, in the manner stated in subparagraph
1.
taxreviewcases
Mail under permits, metered mails and franked mails not presented at the post-office window
shall be affixed with the necessary semi-postal stamps. If found in mail boxes without such
stamps, they shall be treated in the same way as herein provided for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies
and Instrumentalities Performing Governmental Functions." Adm. Order 10, amending Adm.
Order 3, as amended, exempts "copies of periodical publications received for mailing under
any class of mail matter, including newspapers and magazines admitted as second-class
mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the
post office in San Fernando, Pampanga. Because this letter, addressed to a certain Agustin
Aquino of 1014 Dagohoy Street, Singalong, Manila did not bear the special anti-TB stamp
required by the statute, it was returned to the petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court of
First Instance of Pampanga, to test the constitutionality of the statute, as well as the
implementing administrative orders issued, contending that it violates the equal protection
clause of the Constitution as well as the rule of uniformity and equality of taxation. The lower
court declared the statute and the orders unconstitutional; hence this appeal by the
respondent postal authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the respondents' contention
that declaratory relief is unavailing because this suit was filed after the petitioner had
committed a breach of the statute. While conceding that the mailing by the petitioner of a
letter without the additional anti-TB stamp was a violation of Republic Act 1635, as amended,
the trial court nevertheless refused to dismiss the action on the ground that under section 6 of
Rule 64 of the Rules of Court, "If before the final termination of the case a breach or violation
of ... a statute ... should take place, the action may thereupon be converted into an ordinary
action."
The prime specification of an action for declaratory relief is that it must be brought "before
breach or violation" of the statute has been committed. Rule 64, section 1 so provides.
Section 6 of the same rule, which allows the court to treat an action for declaratory relief as
an ordinary action, applies only if the breach or violation occurs after the filing of the action
but before the termination thereof.3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before the
firing of this action, then indeed the remedy of declaratory relief cannot be availed of, much
less can the suit be converted into an ordinary action.
Nor is there merit in the petitioner's argument that the mailing of the letter in question did not
constitute a breach of the statute because the statute appears to be addressed only to postal
authorities. The statute, it is true, in terms provides that "no mail matter shall be accepted in
the mails unless it bears such semi-postal stamps." It does not follow, however, that only
postal authorities can be guilty of violating it by accepting mails without the payment of the
anti-TB stamp. It is obvious that they can be guilty of violating the statute only if there are
people who use the mails without paying for the additional anti-TB stamp. Just as in bribery
the mere offer constitutes a breach of the law, so in the matter of the anti-TB stamp the mere
Page 2 of 34
attempt to use the mails without the stamp constitutes a violation of the statute. It is not
required that the mail be accepted by postal authorities. That requirement is relevant only for
the purpose of fixing the liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this
suit was filed not only with respect to the letter which he mailed on September 15, 1963, but
also with regard to any other mail that he might send in the future. Thus, in his complaint, the
petitioner prayed that due course be given to "other mails without the semi-postal stamps
which he may deliver for mailing ... if any, during the period covered by Republic Act 1635, as
amended, as well as other mails hereafter to be sent by or to other mailers which bear the
required postage, without collection of additional charge of five centavos prescribed by the
same Republic Act." As one whose mail was returned, the petitioner is certainly interested in
a ruling on the validity of the statute requiring the use of additional stamps.
II.
We now consider the constitutional objections raised against the statute and the
implementing orders.
1. It is said that the statute is violative of the equal protection clause of the Constitution. More
specifically the claim is made that it constitutes mail users into a class for the purpose of the
tax while leaving untaxed the rest of the population and that even among postal patrons the
statute discriminatorily grants exemption to newspapers while Administrative Order 9 of the
respondent Postmaster General grants a similar exemption to offices performing
governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an
excise tax, laid upon the exercise of a privilege, namely, the privilege of using the mails. As
such the objections levelled against it must be viewed in the light of applicable principles of
taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects of
taxation and to grant exemptions.4 This power has aptly been described as "of wide range
and flexibility."5 Indeed, it is said that in the field of taxation, more than in other areas, the
legislature possesses the greatest freedom in classification. 6 The reason for this is that
traditionally, classification has been a device for fitting tax programs to local needs and
usages in order to achieve an equitable distribution of the tax burden. 7
That legislative classifications must be reasonable is of course undenied. But what the
petitioner asserts is that statutory classification of mail users must bear some reasonable
relationship to the end sought to be attained, and that absent such relationship the selection
of mail users is constitutionally impermissible. This is altogether a different proposition. As
explained in Commonwealth v. Life Assurance Co.:8
While the principle that there must be a reasonable relationship between classification made
by the legislation and its purpose is undoubtedly true in some contexts, it has no application
to a measure whose sole purpose is to raise revenue ... So long as the classification imposed
is based upon some standard capable of reasonable comprehension, be that standard based
upon ability to produce revenue or some other legitimate distinction, equal protection of the
law has been afforded. See Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79
S. Ct. at 441; Brown Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S. Ct.
578, 580 (1910).
taxreviewcases
We are not wont to invalidate legislation on equal protection grounds except by the clearest
demonstration that it sanctions invidious discrimination, which is all that the Constitution
forbids. The remedy for unwise legislation must be sought in the legislature. Now, the
classification of mail users is not without any reason. It is based on ability to pay, let alone the
enjoyment of a privilege, and on administrative convinience. In the allocation of the tax
burden, Congress must have concluded that the contribution to the anti-TB fund can be
assured by those whose who can afford the use of the mails.
The classification is likewise based on considerations of administrative convenience. For it is
now a settled principle of law that "consideration of practical administrative convenience and
cost in the administration of tax laws afford adequate ground for imposing a tax on a well
recognized and defined class."9 In the case of the anti-TB stamps, undoubtedly, the single
most important and influential consideration that led the legislature to select mail users as
subjects of the tax is the relative ease and convenienceof collecting the tax through the post
offices. The small amount of five centavos does not justify the great expense and
inconvenience of collecting through the regular means of collection. On the other hand, by
placing the duty of collection on postal authorities the tax was made almost self-enforcing,
with as little cost and as little inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail users into a class.
Mail users were already a class by themselves even before the enactment of the statue and
all that the legislature did was merely to select their class. Legislation is essentially empiric
and Republic Act 1635, as amended, no more than reflects a distinction that exists in fact. As
Mr. Justice Frankfurter said, "to recognize differences that exist in fact is living law; to
disregard [them] and concentrate on some abstract identities is lifeless logic."10
Granted the power to select the subject of taxation, the State's power to grant exemption
must likewise be conceded as a necessary corollary. Tax exemptions are too common in the
law; they have never been thought of as raising issues under the equal protection clause.
It is thus erroneous for the trial court to hold that because certain mail users are exempted
from the levy the law and administrative officials have sanctioned an invidious discrimination
offensive to the Constitution. The application of the lower courts theory would require all mail
users to be taxed, a conclusion that is hardly tenable in the light of differences in status of
mail users. The Constitution does not require this kind of equality.
As the United States Supreme Court has said, the legislature may withhold the burden of the
tax in order to foster what it conceives to be a beneficent enterprise. 11 This is the case of
newspapers which, under the amendment introduced by Republic Act 2631, are exempt from
the payment of the additional stamp.
As for the Government and its instrumentalities, their exemption rests on the State's
sovereign immunity from taxation. The State cannot be taxed without its consent and such
consent, being in derogation of its sovereignty, is to be strictly construed. 12 Administrative
Order 9 of the respondent Postmaster General, which lists the various offices and
instrumentalities of the Government exempt from the payment of the anti-TB stamp, is but a
restatement of this well-known principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis to the
exclusion of other diseases which, it is said, are equally a menace to public health. But it is
never a requirement of equal protection that all evils of the same genus be eradicated or
none at all.13 As this Court has had occasion to say, "if the law presumably hits the evil where
Page 3 of 34
it is most felt, it is not to be overthrown because there are other instances to which it might
have been applied."14
2. The petitioner further argues that the tax in question is invalid, first, because it is not levied
for a public purpose as no special benefits accrue to mail users as taxpayers, and second,
because it violates the rule of uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by public purpose the
petitioner means benefit to a taxpayer as a return for what he pays, then it is sufficient
answer to say that the only benefit to which the taxpayer is constitutionally entitled is that
derived from his enjoyment of the privileges of living in an organized society, established and
safeguarded by the devotion of taxes to public purposes. Any other view would preclude the
levying of taxes except as they are used to compensate for the burden on those who pay
them and would involve the abandonment of the most fundamental principle of government
that it exists primarily to provide for the common good.15
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate
rather than a graduated tax. A tax need not be measured by the weight of the mail or the
extent of the service rendered. We have said that considerations of administrative
convenience and cost afford an adequate ground for classification. The same considerations
may induce the legislature to impose a flat tax which in effect is a charge for the transaction,
operating equally on all persons within the class regardless of the amount involved.16 As Mr.
Justice Holmes said in sustaining the validity of a stamp act which imposed a flat rate of two
cents on every $100 face value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The
inequality of the tax, so far as actual values are concerned, is manifest. But, here again
equality in this sense has to yield to practical considerations and usage. There must be a
fixed and indisputable mode of ascertaining a stamp tax. In another sense, moreover, there is
equality. When the taxes on two sales are equal, the same number of shares is sold in each
case; that is to say, the same privilege is used to the same extent. Valuation is not the only
thing to be considered. As was pointed out by the court of appeals, the familiar stamp tax of 2
cents on checks, irrespective of income or earning capacity, and many others, illustrate the
necessity and practice of sometimes substituting count for weight ... 17
According to the trial court, the money raised from the sales of the anti-TB stamps is spent for
the benefit of the Philippine Tuberculosis Society, a private organization, without
appropriation by law. But as the Solicitor General points out, the Society is not really the
beneficiary but only the agency through which the State acts in carrying out what is
essentially a public function. The money is treated as a special fund and as such need not be
appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the
respondents had to issue administrative orders far beyond their powers. Indeed, this is one of
the grounds on which the lower court invalidated Republic Act 1631, as amended, namely,
that it constitutes an undue delegation of legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for
certain classes of mail matters (such as mail permits, metered mails, business reply cards,
etc.), the five-centavo charge may be paid in cash instead of the purchase of the anti-TB
stamp. It further states that mails deposited during the period August 19 to September 30 of
taxreviewcases
each year in mail boxes without the stamp should be returned to the sender, if known,
otherwise they should be treated as nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except
through the sale of anti-TB stamps, but such authority may be implied in so far as it may be
necessary to prevent a failure of the undertaking. The authority given to the Postmaster
General to raise funds through the mails must be liberally construed, consistent with the
principle that where the end is required the appropriate means are given.19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the
additional charge but also that of the regular postage. In the case of business reply cards, for
instance, it is obvious that to require mailers to affix the anti-TB stamp on their cards would
be to make them pay much more because the cards likewise bear the amount of the regular
postage.
It is likewise true that the statute does not provide for the disposition of mails which do not
bear the anti-TB stamp, but a declaration therein that "no mail matter shall be accepted in the
mails unless it bears such semi-postal stamp" is a declaration that such mail matter is
nonmailable within the meaning of section 1952 of the Administrative Code. Administrative
Order 7 of the Postmaster General is but a restatement of the law for the guidance of postal
officials and employees. As for Administrative Order 9, we have already said that in listing the
offices and entities of the Government exempt from the payment of the stamp, the
respondent Postmaster General merely observed an established principle, namely, that the
Government is exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without
pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles and Capistrano,
JJ., concur.
Zaldivar, J., is on leave.
Separate Opinions
FERNANDO, J., concurring:
I join fully the rest of my colleagues in the decision upholding Republic Act No. 1635 as
amended by Republic Act No. 2631 and the majority opinion expounded with Justice Castro's
usual vigor and lucidity subject to one qualification. With all due recognition of its inherently
persuasive character, it would seem to me that the same result could be achieved if reliance
be had on police power rather than the attribute of taxation, as the constitutional basis for the
challenged legislation.
1. For me, the state in question is an exercise of the regulatory power connected with the
performance of the public service. I refer of course to the government postal function, one of
respectable and ancient lineage. The United States Constitution of 1787 vests in the federal
government acting through Congress the power to establish post offices. 1 The first act
providing for the organization of government departments in the Philippines, approved Sept.
6, 1901, provided for the Bureau of Post Offices in the Department of Commerce and
Page 4 of 34
Police.2 Its creation is thus a manifestation of one of the many services in which the
government may engage for public convenience and public interest. Such being the case, it
seems that any legislation that in effect would require increase cost of postage is well within
the discretionary authority of the government.
It may not be acting in a proprietary capacity but in fixing the fees that it collects for the use of
the mails, the broad discretion that it enjoys is undeniable. In that sense, the principle
announced in Esteban v. Cabanatuan City,3 in an opinion by our Chief Justice, while not
precisely controlling furnishes for me more than ample support for the validity of the
challenged legislation. Thus: "Certain exactions, imposable under an authority other than
police power, are not subject, however, to qualification as to the amount chargeable, unless
the Constitution or the pertinent laws provide otherwise. For instance, the rates of taxes,
whether national or municipal, need not be reasonable, in the absence of such constitutional
or statutory limitation. Similarly, when a municipal corporation fixes the fees for the use of its
properties, such as public markets, it does not wield the police power, or even the power of
taxation. Neither does it assert governmental authority. It exercises merely a proprietary
function. And, like any private owner, it is in the absence of the aforementioned limitation,
which does not exist in the Charter of Cabanatuan City (Republic Act No. 526) free to
charge such sums as it may deem best, regardless of the reasonableness of the amount
fixed, for the prospective lessees are free to enter into the corresponding contract of lease, if
they are agreeable to the terms thereof or, otherwise, not enter into such contract."
2. It would appear likewise that an expression of one's personal view both as to
the attitude and awareness that must be displayed by inferior tribunals when the "delicate and
awesome" power of passing on the validity of a statute would not be inappropriate. "The
Constitution is the supreme law, and statutes are written and enforced in submission to its
commands."4 It is likewise common place in constitutional law that a party adversely affected
could, again to quote from Cardozo, "invoke, when constitutional immunities are threatened,
the judgment of the courts."5
Since the power of judicial review flows logically from the judicial function of ascertaining the
facts and applying the law and since obviously the Constitution is the highest law before
which statutes must bend, then inferior tribunals can, in the discharge of their judicial
functions, nullify legislative acts. As a matter of fact, in clear cases, such is not only their
power but their duty. In the language of the present Chief Justice: "In fact, whenever the
conflicting claims of the parties to a litigation cannot properly be settled without inquiring into
the validity of an act of Congress or of either House thereof, the courts have, not only
jurisdiction to pass upon said issue but, also, the duty to do so, which cannot be
evaded without violating the fundamental law and paving the way to its eventual
destruction."6
Nonetheless, the admonition of Cooley, specially addressed to inferior tribunals, must ever be
kept in mind. Thus: "It must be evident to any one that the power to declare a legislative
enactment void is one which the judge, conscious of the fallibility of the human judgment, will
shrink from exercising in any case where he can conscientiously and with due regard to duty
and official oath decline the responsibility."7
There must be a caveat however to the above Cooley pronouncement. Such should not be
the case, to paraphrase Freund, when the challenged legislation imperils freedom of the mind
and of the person, for given such an undesirable situation, "it is freedom that commands a
taxreviewcases
momentum of respect." Here then, fidelity to the great ideal of liberty enshrined in the Rosenthal,16 admitted that within certain limits, there being a need for coping with the more
Constitution may require the judiciary to take an uncompromising and militant stand. As intricate problems of society, the principle of "subordinate legislation" has been accepted, not
phrased by us in a recent decision, "if the liberty involved were freedom of the mind or the only in the United States and England, but in practically all modern governments. This view
person, the standard of its validity of governmental acts is much more rigorous and was reiterated by him in a 1940 decision, Pangasinan Transportation Co., Inc. v. Public
exacting."8 Service Commission.17 Thus: "Accordingly, with the growing complexity of modern life, the
So much for the appropriate judicial attitude. Now on the question of awareness of the multiplication of the subjects of governmental regulation, and the increased difficulty of
controlling constitutional doctrines. administering the laws, there is a constantly growing tendency toward the delegation of
greater powers by the legislature, and toward the approval of the practice by the courts."
There is nothing I can add to the enlightening discussion of the equal protection aspect as
found in the majority opinion. It may not be amiss to recall to mind, however, the language of In the light of the above views of eminent jurists, authoritative in character, of both the equal
Justice Laurel in the leading case of People v. Vera,9 to the effect that the basic individual protection clause and the non-delegation principle, it is apparent how far the lower court
right of equal protection "is a restraint on all the three grand departments of our government departed from the path of constitutional orthodoxy in nullifying Republic Act No. 1635 as
and on the subordinate instrumentalities and subdivisions thereof, and on many constitutional amended. Fortunately, the matter has been set right with the reversal of its decision, the
powers, like the police power, taxation and eminent domain."10 Nonetheless, no jurist was opinion of the Court, manifesting its fealty to constitutional law precepts, which have been
more careful in avoiding the dire consequences to what the legislative body might have reiterated time and time again and for the soundest of reasons.
deemed necessary to promote the ends of public welfare if the equal protection guaranty
were made to constitute an insurmountable obstacle.
A similar sense of realism was invariably displayed by Justice Frankfurter, as is quite evident
from the various citations from his pen found in the majority opinion. For him, it would be a
misreading of the equal protection clause to ignore actual conditions and settled practices.
Not for him the at times academic and sterile approach to constitutional problems of this sort.
Thus: "It would be a narrow conception of jurisprudence to confine the notion of 'laws' to what
is found written on the statute books, and to disregard the gloss which life has written upon it.
Settled state practice cannot supplant constitutional guaranties, but it can establish what is
state law. The Equal Protection Clause did not write an empty formalism into the Constitution.
Deeply embedded traditional ways of carrying out state policy, such as those of which
petitioner complains, are often tougher and truer law than the dead words of the written
text."11 This too, from the same distinguished jurist: "The Constitution does not require things
which are different in fact or opinion to be treated in law as though they were the same." 12
Now, as to non-delegation. It is to be admitted that the problem of non-delegation of
legislative power at times occasions difficulties. Its strict view has been announced by Justice
Laurel in the aforecited case of People v. Vera in this language. Thus: "In testing whether a
statute constitutes an undue delegation of legislative power or not, it is usual to inquire
whether the statute was complete in all its terms and provisions when it left the hands of the
legislature so that nothing was left to the judgment of any other appointee or delegate of the
legislature. .... In United States v. Ang Tang Ho ..., this court adhered to the foregoing rule; it
held an act of the legislature void in so far as it undertook to authorize the Governor-General,
in his discretion, to issue a proclamation fixing the price of rice and to make the sale of it in
violation of the proclamation a crime."13
Only recently, the present Chief Justice reaffirmed the above view in Pelaez v. Auditor
General,14 specially where the delegation deals not with an administrative function but one
essentially and eminently legislative in character. What could properly be stigmatized though
to quote Justice Cardozo, is delegation of authority that is "unconfined and vagrant, one not
canalized within banks which keep it from overflowing."15
This is not the situation as it presents itself to us. What was delegated was power not
legislative in character. Justice Laurel himself, in a later case, People v.

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taxreviewcases
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO
VILLA, Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy
Commissioner, Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget,
FRANCISCO TANTUICO, Chairman, Commissioner on Audit, and CESAR E. A. VIRATA,
Minister of Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition
proceeding 1 on the validity of Section I of Batas Pambansa Blg. 135 depends upon a
showing of its constitutional infirmity. The assailed provision further amends Section 21 of the
National Internal Revenue Code of 1977, which provides for rates of tax on citizens or
residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes,
and other winnings, (d) interest from bank deposits and yield or any other monetary benefit
from deposit substitutes and from trust fund and similar arrangements, (e) dividends and
share of individual partner in the net profits of taxable partnership, (f) adjusted gross
income. 2 Petitioner 3as taxpayer alleges that by virtue thereof, "he would be unduly
discriminated against by the imposition of higher rates of tax upon his income arising from the
exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried
individual taxpayers. 4 He characterizes the above sction as arbitrary amounting to class
legislation, oppressive and capricious in character 5 For petitioner, therefore, there is a
transgression of both the equal protection and due process clauses 6 of the Constitution as
well as of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an answer within
10 days from notice. Such an answer, after two extensions were granted the Office of the
Solicitor General, was filed on May 28, 1982. 8 The facts as alleged were admitted but not the
allegations which to their mind are "mere arguments, opinions or conclusions on the part of
the petitioner, the truth [for them] being those stated [in their] Special and Affirmative
Defenses." 9 The answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the
State's power to tax. The authorities and cases cited while correctly quoted or paraghraph do
not support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of
merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason
was so clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be
left to private enterprise and initiative and which the government was called upon to enter
optionally, and only 'because it was better equipped to administer for the public welfare than
is any private individual or group of individuals,' continue to lose their well-defined boundaries
and to be absorbed within activities that the government must undertake in its sovereign
capacity if it is to meet the increasing social challenges of the times." 11 Hence the need for
Page 6 of 34
more revenues. The power to tax, an inherent prerogative, has to be availed of to assure the
performance of vital state functions. It is the source of the bulk of public funds. To praphrase
a recent decision, taxes being the lifeblood of the government, their prompt and certain
availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty.
It is the strongest of all the powers of of government." 13 It is, of course, to be admitted that
for all its plenitude 'the power to tax is not unconfined. There are restrictions. The Constitution
sets forth such limits . Adversely affecting as it does properly rights, both the due process and
equal protection clauses inay properly be invoked, all petitioner does, to invalidate in
appropriate cases a revenue measure. if it were otherwise, there would -be truth to the 1803
dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." 14 In a
separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1,
unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the intellectual
fashion of the times following] a free use of absolutes." 16 This is merely to emphasize that it
is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully
conclude: "The web of unreality spun from Marshall's famous dictum was brushed away by
one stroke of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy while
this Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides
any legislative or executive, act that runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision as petitioner here alleges fails to
abide by its command, then this Court must so declare and adjudge it null. The injury thus is
centered on the question of whether the imposition of a higher tax rate on taxable net income
derived from business or profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere
allegation, as here. does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a provision as
void or its face, he has not made out a case. This is merely to adhere to the authoritative
doctrine that were the due process and equal protection clauses are invoked, considering
that they arc not fixed rules but rather broad standards, there is a need for of such persuasive
character as would lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so
arbitrary that it finds no support in the Constitution. An obvious example is where it can be
shown to amount to the confiscation of property. That would be a clear abuse of power. It
then becomes the duty of this Court to say that such an arbitrary act amounted to the
exercise of an authority not conferred. That properly calls for the application of the Holmes
dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction
of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial
of this constitutional mandate whether the assailed act is in the exercise of the lice power or
the power of eminent domain is to demonstrated that the governmental act assailed, far from
being inspired by the attainment of the common weal was prompted by the spirit of hostility,
or at the very least, discrimination that finds no support in reason. It suffices then that the
taxreviewcases
laws operate equally and uniformly on all persons under similar circumstances or that all a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of
persons must be treated in the same manner, the conditions not being different, both in the compensation income are set apart as a class. As there is practically no overhead expense,
privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be these taxpayers are e not entitled to make deductions for income tax purposes because they
allowed. For the principle is that equal protection and security shall be given to every person are in the same situation more or less. On the other hand, in the case of professionals in the
under circumtances which if not Identical are analogous. If law be looked upon in terms of practice of their calling and businessmen, there is no uniformity in the costs or expenses
burden or charges, those that fall within a class should be treated in the same fashion, necessary to produce their income. It would not be just then to disregard the disparities by
whatever restrictions cast on some in the group equally binding on the rest." 20 That same giving all of them zero deduction and indiscriminately impose on all alike the same tax rates
formulation applies as well to taxation measures. The equal protection clause is, of course, on the basis of gross income. There is ample justification then for the Batasang Pambansa to
inspired by the noble concept of approximating the Ideal of the laws benefits being available adopt the gross system of income taxation to compensation income, while continuing the
to all and the affairs of men being governed by that serene and impartial uniformity, which is system of net income taxation as regards professional and business income.
of the very essence of the Idea of law. There is, however, wisdom, as well as realism in these 9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1)
words of Justice Frankfurter: "The equality at which the 'equal protection' clause aims is not a lack of factual foundation to show the arbitrary character of the assailed provision; 31 (2) the
disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' force of controlling doctrines on due process, equal protection, and uniformity in taxation and
and laws are not abstract propositions. They do not relate to abstract units A, B and C, but (3) the reasonableness of the distinction between compensation and taxable net income of
are expressions of policy arising out of specific difficulties, address to the attainment of professionals and businessman certainly not a suspect classification,
specific ends by the use of specific remedies. The Constitution does not require things which
WHEREFORE, the petition is dismissed. Costs against petitioner.
are different in fact or opinion to be treated in law as though they were the same." 21 Hence
the constant reiteration of the view that classification if rational in character is allowable. As a
matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L.
Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a state be free
to select the subjects of taxation, and it has been repeatedly held that 'inequalities which
result from a singling out of one particular class for taxation, or exemption infringe no
constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution:
"The rule of taxation shag be uniform and equitable." 24 This requirement is met according to
Justice Laurel in Philippine Trust Company v. Yatco, 25 decided in 1940, when the tax
"operates with the same force and effect in every place where the subject may be found.
" 26 He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect
equality, because this is hardly attainable." 27 The problem of classification did not present
itself in that case. It did not arise until nine years later, when the Supreme Court held:
"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, ... . 28 As clarified by Justice
Tuason, where "the differentiation" complained of "conforms to the practical dictates of justice
and equity" it "is not discriminatory within the meaning of this clause and is therefore
uniform." 29 There is quite a similarity then to the standard of equal protection for all that is
required is that the tax "applies equally to all persons, firms and corporations placed in similar
situation." 30
8. Further on this point. Apparently, what misled petitioner is his failure to take into
consideration the distinction between a tax rate and a tax base. There is no legal objection to
a broader tax base or taxable income by eliminating all deductible items and at the same time
reducing the applicable tax rate. Taxpayers may be classified into different categories. To
repeat, it. is enough that the classification must rest upon substantial distinctions that make
real differences. In the case of the gross income taxation embodied in Batas Pambansa Blg.
135, the, discernible basis of classification is the susceptibility of the income to the application
of generalized rules removing all deductible items for all taxpayers within the class and fixing

Page 7 of 34
taxreviewcases
G.R. No. L-1104 May 31, 1949
EASTERN THEATRICAL CO., INC., ET AL., plaintiffs-appellants,
vs.
VICTOR, ALFONSO as City Treasurer of Manila, THE MUNICIPAL BOARD OF THE CITY
OF MANILA, and JUAN NOLASCO, as Mayor of the City of Manila, defendants-appellees.
Francisco Zulueta and Poblador Jr. for appellants.
City Fiscal Jose P. Bengzon and Assistant City Fiscal Julio Villamor for appellees.
Assistant Solicitor General Carmelino G. Alvendia, Solicitor Guillermo E.Torres and Manuel
D. Baldeo as amicus curiae.
PERFECTO, J.:
Twelve corporation engaged in motion picture business have initiated these proceeding
through a complaint dated May 5, 1946, to impugn the validity of Ordinance No. 2958 of the
City of Manila which was enacted by the municipalBoard of said city on April 25 1946
approved by the Mayor on April 27, 1946 and took effect on May 1, 1946 said ordinance
reading as follows:
AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY ADMISSION TICKET
SOLD BY CINEMATOGRAPHS, THEATERS VAUDEVILLE COMPANIES THEATRICAL
SHOWS AND BOXING EXHIBITION AND PROVIDING FOR OTHER PURPOSES.
SEC. 1. In addition to the fees paid by cinematographers, theaters, vaudeville companies,
theatrical shows and boxing exhibitions, as provided for in sections 633 and 778 of Ordinance
No. 1600, known as the Revised Ordinance of the City of Manila, as amended, there shall be
collected from the place of amusement which are specifically mentioned above the following
fees on the price of every admission ticket sold by such enterprises:
a. For every ticket sold the price of which is from P0.25 to P0.05
P0.99
b. For every ticket sold the price of which is from P1 to 0.10
P1.99
c. For every ticket sold the price of which is from P2 to 0.15
P2.99
d. for every ticket sold the price of which is from P3 to 0.20
P4.99
e. or every ticket sold the price of which is from P5 to P5.99 0.25
f. For every ticket sold the price of which is from P0 to 0.35
P14.99
g. For ticket sold thee price of which is from P15 or more 0.50
SEC. 2 It shall be the duty of every proprietor lessee, promoter, or operatorof such
cinematographs, theater, vaudeville companies, theatrical show and boxing exhibition to
provide himself with tickets which shall be serially numbered, indication therein the name of
amusement place and the fee charge for admission. Before such ticket are sold he same
shall be presented to the office of the city Treasurer for registration. Tickets once issued and
Page 8 of 34
presented at the gate of entrance shall be cut by the gatekeeper into halves, the first half to
be returned to the customer and the other half to be retained by the gate keeper.
It shall also be the duty of said proprietor lessee promoter or operator to deliver to the Office
of the City Treasurer the fees corresponding to the number of ticket old by him within two
days after the performances or exhibition has taken place.
SEC. 3. The fees herein prescribed shall not be paid where the admission fees or charge are
collection for and in behalf of any charitable education or religion institution or association.
All place of amusement which are operate by U.S. Army and Navy with fund belonging to the
U.S. Government are hereby exempted from fees herein imposed.
SEC. 4. Any person violation any of the provision of this ordinance shall upon conviction
thereof be punished by a fine of not more than P200 or by imprisonment for not more than six
months or by both such fine and imprisonment in the discretion of the court. If the violation is
committed by the club firm or corporation the manager the managing director or person
charged with the management of the business of such club firm or corporation shall be
criminally responsible therefor.
SEC. 5. This Ordinance shall take effect on the May 1, 1946.
Plaintiffs, operator of theaters in Manila And distributor of local or imported films allege that
they are interested in the provision of section 1,2 and 4 of said ordinance which they impugn
as null and void upon the following grounds: (a) For violation the Constitution more particular
the provision regarding the uniformity and equality of taxation and thee equal protection of the
laws; (b) because the Municipal Board of Manila exceeded and over-stepped the power
granted it the Charter of the City of Manila; (c) because it contravenes violates and is
inconsistent with, existing nationallegislation more particularly revenue and tax laws and (d)
because it is unfair, unjust, arbitrary capricious unreasonable oppressive and is contrary to
and violation our basic and recognizes principles of taxation and licensing laws.
Defendants allege as affirmative defenses the following: (a) That the ordinance was passed
by the Municipal Board of Manila by virtue of its express legislative power to tax fix the
license fee and regulate the business of theaters, cinematographs and further to fix the
location of and to tax, fix the license fee for and regulate the business of theatrical
performances public exhibition circus and other performances and places of amusement; (b)
that the graduated tax required by said ordinance being applied to all cinematographs,
theaters, vaudeville companies theatricalshow and boxing exhibitions similarly situated and
as a class without distinction or exception the same does not violate the prohibition against
uniformity and equality of taxation; (c) that the graduated tax onadmission tickets to theaters
and other places of amusement imposed by the National Internal Revenue Code
(Commonwealth Act No. 466) is collected by and for the purposes of the National
Government, whereas, Ordinance No.2958 imposes and requires the collection of a similar
tax by and for the purposes of the Government of the City of Manila, and there is no case of
double taxation, (d) that said ordinance having been enacted under the express power of the
Municipal Board to tax for revenue as distinguishedfrom its power to license for purely police
purposes, the fact that the amount collected thereunder are higher than what are needed for
police regulation and supervision does not render said ordinance unfair unjust capricious
unreasonable and oppressive; (e) that consideration the nature of the business of the
plaintiffs and the enormous volume of business they handle the graduated tax fixed by the
ordinance is not unreasonable.
taxreviewcases
Defendants allege also that since May 1, 1946, when the ordinance in question took effect SEC. 260. Amusement taxes. There shall be collected from the proprietor, lessee, or
plaintiffs have been charging the theater-going public increased prices for admission to the operation of theater cinematographs, concert halls, circuses, boxing exhibition and other
cinematographs owned and operated to the graduated tax imposed by said ordinance and as places of amusement the following taxes:
a result while refusing to pay said tax but at the same time collecting an amount equal to said (a) When the amount paid for admission exceeds twenty-nine centavos, two centavos on
tax plaintiffs have taken undue advantage of said ordinance to realized more profits. each admission;
On September 5, 1946, Judge Emilio Pena of the court of first Instance of Manila rendered a (b) When the amount paid for admission exceeds twenty-nine but does not exceed thirty-nine
decision upholding the validity of Ordinance No. 2958. centavos, three centavos on each admission;
Plaintiffs appellants assign in the their brief three errors committed by the trial court. We will (c) When the amount paid for admission exceeds thirty-nine centavos but does not exceed
consider them separately. forty-nine centavos four centavos on each admission.
Appellants contend that the lower court erred in holding that under section 2444 (m) of the (d) When the amount paid for admission exceeds forty-nine centavos but does not exceed
Revised administrative Code the Municipal Board of the City ofManila had the power to enact fifty-nine centavos five admission.
Ordinance No. 2958.
(e) When the amount paid for admission exceeds fifty-nine centavos but does not exceed
Section 2444 (m) of the Revised Administrative code reads as follows: sixty-nine centavos six centavos on each admission.
To tax fix the license fee and regulate the business of hotels restaurants refreshment places, (f) When the amount paid for admission exceeds sixty-nine centavos but does not exceed
cafes, lodging houses, boarding houses livery garages warehouses, pawnshops theaters, seventy nine centavos seven centavos on each admission.
cinematographs; and further to fix the location of and to tax fix the license fee for and regulate
(g) When the amount paid for admission exceeds seventy nine centavos but does not exceed
the businessof lively stables, the license fee for and regulate the business of livery stable,
eighty-nine centavos eight centavos on each admission;
boarding stables, embalmers, public billiard table public pool tables, bowling alleys, dance
halls, public dancing halls, cabarets, circusand other similar parades, public vehicles, race (h) When the amount paid for admission exceeds eighty-nine centavos but does not exceed
tracks, horse races,Junk dealers, theatrical performances, public exhibitions, circus andother ninty-nine centavos, nine centavos on each admission;
performances and places of amusements, match factories, blacksmith shops, foundries, (i) When the amount paid for admission exceeds ninety-nine centavos, ten centavos on each
steam boilers, lumber yards, shipyards, thestorage and sale of gunpowder, tar, pitch, resin, admission.
coal, oil, gasoline,benzene, turpentine, 'hemp, cotton, nitroglycerin, petroleum or any Ofthe In the case of theaters or cinematographs, the taxes herein prescribed shall first be decuted
products thereof and of all other highly combustible or explosivematerials and other and withheld by the proprietros, lessees, or operators of such theaters or cinematogrphs and
establishment likely to endanger the public safety or give rise to conflagration or explosion paid to the Collector of Internal Revenue before the gross receipts are divided between the
and subject to the provision of ordinance issue by the (Philippines Health Service) Bureau of proprietros, lessees, or operators of the theaters of cinematographs and the distributors of
Health in accordance with law tanneries, renders tallow chandlers bone factories and soap the cinematographic films.
factories.
In the case of cockpits, race tracks, and cabarets, there shall be collected from the proprietor,
Appellants line of argument runs as follows: lessee, or operator a tax equivalent to ten per centum of the gross receipts, irrespective of
By virtue of the specific power granted in the above quoted provision of the Revised whether or not any amount is charged or paid for admission: Provided, however, That in the
Administration Code Ordinance No. 2958 was enacted. case of race tracks, this tax is in addition to the privilege tax prescribed in seciton 193. for the
On August 7, 1940 the National Assembly enacted Commonwealth Act No. 466, known as purpose of the amusement tax, the term "gross receipts" embraces all the receipts of the
the National Internal Revenue Code section 18, 260 and 261 of which read as follows: proprietor, lessee, or operator of the amusement place, excluding the receipts derived by him
from the sale of liquors, beverages, or other articles subject to specific tax, or from any
SEC. 18. Sources of revenue. The following taxes fees and charges are deemed to be
business subject to tax under this Code. (This section was amended by section 8, Republic
national internal revenue taxes:
Act No. 39, effective October 1, 1946. We are quoting the original provision to show the
(a) Income tax; status of the law when the Ordinance was passed.)
(b) Estate inheritance and gift taxes;
SEC. 261. Exemption. The tax herein imposed shall not be paid where the admission fee
(c) Specific taxes on certain articles;
or charges are collected by or for and in behalf of any religious, charitable, scientific, or
(d) Privilege taxes on business or occupation;
educational institution or association, and where no part of the net proceeds of such
(e) Documentary stamp taxes;
admission fees or charges inures to the benefit of any private stockholder or individual.
(f) Mining taxes;
(g) Miscellaneous taxes fees and charges, namely, taxes on banks and insurance companies Ordinance No. 2958 does not specify the kind of the tax sought to be imposed but the seven
franchise taxes on amusements charges on forest product fees for sealing weights and schedules and other details of said ordinance are, in every respect, identical with the
measures firearms license fees radio registration fees and water rentals. amusement tax provided by section 260 of Commonwealth Act No. 466.

Page 9 of 34
taxreviewcases
But, plaintiffs argue, that section 2444(m) of the Revised Administrative Code confers upon argument at all against the equality and uniformity of the tax imposition. Equality and
the City of Manila the power to impose a tax on business but not on amusement and, uniformity of the tax imposition. Equality and uniformity in taxation means that all taxable
consequently, Ordinance No. 2958 was enacted beyond the charter powers of the City of articles or kinds of property of the same class shall be taxed at the same rate. The taxing
Manila. power has the authority to make reasonable and natural classifications for purposes of
The whole argument of plaintiffs hinges, therefore, on the assumption that the power granted taxation; and the appellants cannot point out what places of amusement taxed by the
to the City of Manila by section 2444(m) of the Revised Administrative Code is limited to the ordinance do not constitute a class by themselves and which can be confused with those not
authority to impose a tax on business, with exclusion of the power to impose a tax included in the ordinance.
amusement; but, the assumption is based on an arbitrary labeling of the kind of tax The judgment of the trial court is affirmed with costs against appellants.
authorized by said section 2444(m). The distinction made by plaintiffs as to the power to tax
on business and the power to tax on amusement has no ground under the provisions of
section 2444(m) of the Revised Administrative Code. The tax therein authorized cannot be
defined as tax on business and cannot be restricted within a smaller scope than what is
authorized by the words used, to the extent of excluding what plaintiffs describe as tax on
amusement.
The very fact that section 2444 (m) of the Revised Administrative Code includes theaters,
cinematographs, public billiard tables, public pool tables, bowling alleys, dance halls, public
dancing halls, cabarets, circuses and other similar places, race tracks, horse races, theatrical
performances, public exhibition, circus and other performances and places of amusements,
will show conclusively that the power to tax amusement is expressly included within the
power granted by section 2444(m) of the Revised Administrative Code.
Plaintiffs-appellants contend that the lower court erred in not holding that section 2444 (m) of
the Revised Administrative Code was repealed or the power therein contained was withdrawn
by the National Assembly by the enactment of Commonwealth Act No. 466 known as the
National Internal Revenue Code.
In support of this contention, plaintiffs aver that the Charter of the City of Manila, containing
section 2444(m) of the Revised Administrative Code, was enacted on December 8, 1929. On
April 25, 1940, the National Assembly enacted Commonwealth Act No. 466, including
provisions on amusement tax, covering the whole field on taxation and provided for more
than what the ordinance in question has provided. As a result, there are two taxing powers
seeking to occupy exactly the same field of legislation, and so the apparent conflict must be
resolved with the conclusion that, with the enactment of Commonwealth Act No. 466, as later
amended by Republic Act No. 39, section 2444(m) of the Revised Administrative Code has
been impliedly repealed and the power therein delegated to the City of Manila withdrawn.
We see absolutely no force in plaintiffs' contention. The conflict pointed out by them is
imaginary. Both provisions of law may stand together and be enforced at the same time
without any incompatibility among themselves.
Finally, plaintiffs contend that the trial court erred in not holding that Ordinance No. 2958
violated the principle of equality and uniformity of taxation enjoined by the Constitution (sec.
22, sub-sec. 1, Art. VI, Constitution of the philippines).
To support this contenttion, appellantts point out to the fact that the ordinance in question
does not tax "many more kinds of amusements" than those therein specified, such as "race
tracks, cockpits, cabarets, concert halls, circuses, and other places of amusement." the
argument has absolutely no merit. The fact that some places of amusement are not taxed
while others, such as cinematographs, theaters, vaudeville companies, theatrical shows, and
boxing exhibitions and other kinds of amusements or places of amusement are taxed, is no

Page 10 of 34
taxreviewcases
G.R. No. L-2947 January 11, 1951
MANILA RACE HORSE TRAINERS ASSOCIATION, INC., and JUAN T.
SORDAN, plaintiffs-appellants,
vs.
MANUEL DE LA FUENTE, defendant-appellee.
Soriano, Garde and Cervania for appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Arsenio Naawa for appellee.
TUASON, J.:
This action was instituted for a declaratory relief by the Manila Race Horses Trainers
Association, Inc., a non-stock corporation duly organized and existing under and by virtue of
the laws of the Philippines, who allege that they are owners of boarding stables for race
horses and that their rights as such are affected by Ordinance No. 3065 of the City of Manila
approved on July 1, 1947.1 They made the Mayor of Manila defendant and prayed that said
ordinance be declared invalid as violative of the Philippine Constitution.
The case was submitted on the pleadings, and the decision was that the ordinance in
question "is constitutional and valid and has been enacted in accordance with the powers of
the Municipal Board granted by the Charter of the City of Manila."
On appeal, the plaintiffs as appellants make three assignments of error, the first two of which
are discussed jointly in their brief under two separate topics.
First, it is maintained that the ordinance under consideration is a tax on race horses as
distinct from boarding stables. It is argued that by section 2 the basis of the license fees "is
the number of race horses kept or maintained in the boarding stables to be paid by the
maintainers at the rate of P10.00 a year for each race horse;" that "the fee is increased
correspondingly P10 for each additional race horse maintained or fed in the stable;" and that
"by the same token, an empty stable for race horse pays no license fee at all."
The spirit, rather than the letter, of an ordinance determines the construction thereof, and the
court looks less to its words and more to the context, subject matter, consequence and effect.
Accordingly, what is within the spirit is within the ordinance although it is not within the letter
thereof, while that which is in the letter, although not within the spirit, is not within the
ordinance. (62 C. J. S., 845.) From the context of Ordinance No. 3065, the intent to tax or
license stables and not horses is clearly manifest. The tax is assessed not on the owners of
the horses but on the owners of the stables, as counsel admit in their brief, although there is
nothing, of course, to stop stable owners from shifting the tax to the horse owners in the form
of increased rents or fees, which is generally the case.
It is also plain from the text of the whole ordinance that the number of horses is used in the
assessment purely as a method of fixing an equitable and practical distribution of the burden
imposed by the measure. Far from being obnoxious, the method is fair and just. It is but fair
and just that for a boarding stable where only one horse is maintained proportionately less
amount should be exacted than for a stable where more horses are kept and from which
greater income is derived.
We do not share plaintiff's opinion, apropos the second proposition, that the ordinance in
question is discriminatory and savors of class legislation. In taxing only boarding stables for
race horses, we do not believe that the ordinance, makes arbitrary classification. In the case
of Eastern Theatrical Co. Inc., vs. Alfonso, 46 Off. Gaz. Supp. to No. 11, p. 303,* it was said
Page 11 of 34
there is equality and uniformity in taxation if all articles or kinds of property of the same class
are taxed at the same rate. Thus, it was held in that case, that "the fact that some places of
amusement are not taxed while others, such as cinematographs, theaters, vaudeville
companies, theatrical shows, and boxing exhibitions and other kinds of amusements or
places of amusement are taxed, is not argument at all against the equality and uniformity of
tax imposition." Applying this criterion to the present case, there would be discrimination if
some boarding stables of the same class used for the same number of horses were not taxed
or were made to pay less or more than others.
From the viewpoint of economics and public policy the taxing of boarding stables for race
horses to the exclusion of boarding stables for horses dedicated to other purposes is not
indefensible. The owners of boarding stables for race horses and, for that matter, the race
horse owners themselves, who in the scheme of shifting may carry the taxation burden, are a
class by themselves and appropriately taxed where owners of other kinds of horses are taxed
less or not at all, considering that equity in taxation is generally conceived in terms of ability
to pay in relation to the benefits received by the taxpayer and by the public from the business
or property taxed. Race horses are devoted to gambling if legalized, their owners derive fat
income and the public hardly any profit from horse racing, and this business demands
relatively heavy police supervision. Taking everything into account, the differentiation against
which the plaintiffs complain conforms to the practical dictates of justice and equity and is not
discrimatory within the meaning of the Constitution.
One ground of attack in the court below on the constitutionality of the ordinance variance
between the title and the subject matter apparently has been abandoned. In its place a
new question is brought up on the appeal in the third and last assignment of error. It is now
contended, for the first time, that "the Municipal Board of Manila (is) without power to enact
ordinance taxing private stables for race horses," and that the lower court erred in not so
declaring. This assignment of error has reference to Class B or the second sub-paragraph of
section 1 of the ordinance.
Not having been raised in the pleading, this question was properly ignored, not to say that
even it had been raised it would not have been available as basis for a declaration of nullity of
the ordinance. The clause of the ordinance taxing or licensing boarding stables for race
horses does not prejudice the plaintiffs in any material way, and it is well settled that a person
who is not adversely affected by a licensing ordinance may not attack its validity. Stated
differently, he may not complain that a licensing ordinance is invalid as against a class other
than that to which he belongs. (62 C. J. S.830, 831.) By analogy, where a municipal
ordinance is valid in some of its parts and invalid as to others and the valid parts are
separable from the invalid ones in which latter case the valid provisions stand as operative
the plaintiff may contest the validity of the provisions that injure his interest but not those
that do not.
We are of the opinion that the trial court committed no error and the judgment is affirmed with
costs against the plaintiff-appellants.
Moran, C.J., Paras, Feria, Pablo, Bengzon, Padilla, Montemayor, Reyes, Jugo and Bautista
Angelo, JJ., concur.
taxreviewcases
G.R. No. L-4817 May 26, 1954
SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,
vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants.
Calanog and Alafriz for plaintiffs-appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendants-
appellants.
REYES, J.:
This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical
practitioner, a public accountant, a dental surgeon and a pharmacist, purportedly "in their own
behalf and in behalf of other professionals practising in the City of Manila who may desire to
join it." Object of the suit is the annulment of Ordinance No. 3398 of the City of Manila
together with the provision of the Manila charter authorizing it and the refund of taxes
collected under the ordinance but paid under protest.
The ordinance in question, which was approved by the municipal board of the City of Manila
on July 25, 1950, imposes a municipal occupation tax on persons exercising various
professions in the city and penalizes non-payment of the tax "by a fine of not more than two
hundred pesos or by imprisonment of not more than six months, or by both such fine and
imprisonment in the discretion of the court." Among the professions taxed were those to
which plaintiffs belong. The ordinance was enacted pursuant to paragraph (1) of section 18 of
the Revised Charter of the City of Manila (as amended by Republic Act No. 409), which
empowers the Municipal Board of said city to impose a municipal occupation tax, not to
exceed P50 per annum, on persons engaged in the various professions above referred to.
Having already paid their occupation tax under section 201 of the National Internal Revenue
Code, plaintiffs, upon being required to pay the additional tax prescribed in the ordinance,
paid the same under protest and then brought the present suit for the purpose already stated.
The lower court upheld the validity of the provision of law authorizing the enactment of the
ordinance but declared the ordinance itself illegal and void on the ground that the penalty
there in provided for non-payment of the tax was not legally authorized. From this decision
both parties appealed to this Court, and the only question they have presented for our
determination is whether this ruling is correct or not, for though the decision is silent on the
refund of taxes paid plaintiffs make no assignment of error on this point.
To begin with defendants' appeal, we find that the lower court was in error in saying that the
imposition of the penalty provided for in the ordinance was without the authority of law. The
last paragraph (kk) of the very section that authorizes the enactment of this tax ordinance
(section 18 of the Manila Charter) in express terms also empowers the Municipal Board "to fix
penalties for the violation of ordinances which shall not exceed to(sic) two hundred pesos fine
or six months" imprisonment, or both such fine and imprisonment, for a single
offense." Hence, the pronouncement below that the ordinance in question is illegal and void
because it imposes a penalty not authorized by law is clearly without basis.
As to plaintiffs' appeal, the contention in substance is that this ordinance and the law
authorizing it constitute class legislation, are unjust and oppressive, and authorize what
amounts to double taxation.
Page 12 of 34
In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that
the professions to which they respectively belong have been singled out for the imposition of
this municipal occupation tax; and in any event, the Legislature may, in its discretion, select
what occupations shall be taxed, and in the exercise of that discretion it may tax all, or it may
select for taxation certain classes and leave the others untaxed. (Cooley on Taxation, Vol. 4,
4th ed., pp. 3393-3395.) Plaintiffs' complaint is that while the law has authorized the City of
Manila to impose the said tax, it has withheld that authority from other chartered cities, not to
mention municipalities. We do not think it is for the courts to judge what particular cities or
municipalities should be empowered to impose occupation taxes in addition to those imposed
by the National Government. That matter is peculiarly within the domain of the political
departments and the courts would do well not to encroach upon it. Moreover, as the seat of
the National Government and with a population and volume of trade many times that of any
other Philippine city or municipality, Manila, no doubt, offers a more lucrative field for the
practice of the professions, so that it is but fair that the professionals in Manila be made to
pay a higher occupation tax than their brethren in the provinces.
Plaintiffs brand the ordinance unjust and oppressive because they say that it creates
discrimination within a class in that while professionals with offices in Manila have to pay the
tax, outsiders who have no offices in the city but practice their profession therein are not
subject to the tax. Plaintiffs make a distinction that is not found in the ordinance. The
ordinance imposes the tax upon every person "exercising" or "pursuing" in the City of
Manila naturally any one of the occupations named, but does not say that such person
must have his office in Manila. What constitutes exercise or pursuit of a profession in the city
is a matter of judicial determination. The argument against double taxation may not be
invoked where one tax is imposed by the state and the other is imposed by the city (1 Cooley
on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing inherently
obnoxious in the requirement that license fees or taxes be exacted with respect to the same
occupation, calling or activity by both the state and the political subdivisions thereof. (51 Am.
Jur., 341.)
In view of the foregoing, the judgment appealed from is reversed in so far as it declares
Ordinance No. 3398 of the City of Manila illegal and void and affirmed in so far as it holds the
validity of the provision of the Manila charter authorizing it. With costs against plaintiffs-
appellants.
Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ.,
concur.
taxreviewcases
G.R. No. L-24756 October 31, 1968
CITY OF BAGUIO, plaintiff-appellee,
vs.
FORTUNATO DE LEON, defendant-appellant.
The City Attorney for plaintiff-appellee.
Fortunato de Leon for and in his own behalf as defendant-appellant.
FERNANDO, J.:
In this appeal, a lower court decision upholding the validity of an ordinance 1 of the City of
Baguio imposing a license fee on any person, firm, entity or corporation doing business in the
City of Baguio is assailed by defendant-appellant Fortunato de Leon. He was held liable as a
real estate dealer with a property therein worth more than P10,000, but not in excess of
P50,000, and therefore obligated to pay under such ordinance the P50 annual fee. That is the
principal question. In addition, there has been a firm and unyielding insistence by defendant-
appellant of the lack of jurisdiction of the City Court of Baguio, where the suit originated, a
complaint having been filed against him by the City Attorney of Baguio for his failure to pay
the amount of P300 as license fee covering the period from the first quarter of 1958 to the
fourth quarter of 1962, allegedly, inspite of repeated demands. Nor was defendant-appellant
agreeable to such a suit being instituted by the City Treasurer without the consent of the
Mayor, which for him was indispensable. The lower court was of a different mind.
In its decision of December 19, 1964, it declared the above ordinance as amended, valid and
subsisting, and held defendant-appellant liable for the fees therein prescribed as a real estate
dealer. Hence, this appeal. Assume the validity of such ordinance, and there would be no
question about the liability of defendant-appellant for the above license fee, it being shown in
the partial stipulation of facts, that he was "engaged in the rental of his property in Baguio"
deriving income therefrom during the period covered by the first quarter of 1958 to the fourth
quarter of 1962.
The source of authority for the challenged ordinance is supplied by Republic Act No. 329,
amending the city charter of Baguio2 empowering it to fix the license fee and regulate
"businesses, trades and occupations as may be established or practiced in the City."
Unless it can be shown then that such a grant of authority is not broad enough to justify the
enactment of the ordinance now assailed, the decision appealed from must be affirmed. The
task confronting defendant-appellant, therefore, was far from easy. Why he failed is
understandable, considering that even a cursory reading of the above amendment readily
discloses that the enactment of the ordinance in question finds support in the power thus
conferred.
Nor is the question raised by him as to the validity thereof novel in character. In Medina v.
City of Baguio,3 the effect of the amendatory section insofar as it would expand the previous
Page 13 of 34
power vested by the city charter was clarified in these terms: "Appellants apparently have in
mind section 2553, paragraph (c) of the Revised Administrative Code, which empowers the
City of Baguio merely to impose a license fee for the purpose of rating the business that may
be established in the city. The power as thus conferred is indeed limited, as it does not
include the power to levy a tax. But on July 15, 1948, Republic Act No. 329 was enacted
amending the charter of said city and adding to its power to license the power to tax and to
regulate. And it is precisely having in view this amendment that Ordinance No. 99 was
approved in order to increase the revenues of the city. In our opinion, the amendment above
adverted to empowers the city council not only to impose a license fee but also to levy a tax
for purposes of revenue, more so when in amending section 2553 (b), the phrase 'as
provided by law' has been removed by section 2 of Republic Act No. 329. The city council of
Baguio, therefore, has now the power to tax, to license and to regulate provided that the
subjects affected be one of those included in the charter. In this sense, the ordinance under
consideration cannot be considered ultra vires whether its purpose be to levy a tax or impose
a license fee. The terminology used is of no consequence."
It would be an undue and unwarranted emasculation of the above power thus granted if
defendant-appellant were to be sustained in his contention that no such statutory authority for
the enactment of the challenged ordinance could be discerned from the language used in the
amendatory act. That is about all that needs to be said in upholding the lower court,
considering that the City of Baguio was not devoid of authority in enacting this particular
ordinance. As mentioned at the outset, however, defendant-appellant likewise alleged
procedural missteps and asserted that the challenged ordinance suffered from certain
constitutional infirmities. To such points raised by him, we shall now turn.
1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of
Baguio in the suit for the collection of the real estate dealer's fee from him in the amount of
P300. He contended before the lower court, and it is his contention now, that while the
amount of P300 sought was within the jurisdiction of the City Court of Baguio where this
action originated, since the principal issue was the legality and constitutionality of the
challenged ordinance, it is not such City Court but the Court of First Instance that has original
jurisdiction.
There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only
recently, on September 7, 1968 to be exact, we rejected a contention similar in character
in Nemenzo v. Sabillano.4 The plaintiff in that case filed a claim for the payment of his salary
before the Justice of the Peace Court of Pagadian, Zamboanga del Sur. The question of
jurisdiction was raised; the defendant Mayor asserted that what was in issue was the
enforcement of the decision of the Commission of Civil Service; the Justice of the Peace
Court was thus without jurisdiction to try the case. The above plea was curtly dismissed by
Us, as what was involved was "an ordinary money claim" and therefore "within the original
jurisdiction of the Justice of the Peace Court where it was filed, considering the amount
involved." Such is likewise the situation here.
Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a defendant this
license fee corresponding to the years 1951 and 1952 was filed with the Municipal Court of
taxreviewcases
Manila, in view of the amount involved. The thought that the municipal court lacked
jurisdiction apparently was not even in the minds of the parties and did not receive any
consideration by this Court.
Evidently, the fear is entertained by defendant-appellant that whenever a constitutional
question is raised, it is the Court of First Instance that should have original jurisdiction on the
matter. It does not admit of doubt, however, that what confers jurisdiction is the amount set
forth in the complaint. Here, the sum sought to be recovered was clearly within the jurisdiction
of the City Court of Baguio.
Nor could it be plausibly maintained that the validity of such ordinance being open to question
as a defense against its enforcement from one adversely affected, the matter should be
elevated to the Court of First Instance. For the City Court could rely on the presumption of the
validity of such ordinance,6 and the mere fact, however, that in the answer to such a
complaint a constitutional question was raised did not suffice to oust the City Court of its
jurisdiction. The suit remains one for collection, the lack of validity being only a defense to
such an attempt at recovery. Since the City Court is possessed of judicial power and it is
likewise axiomatic that the judicial power embraces the ascertainment of facts and the
application of the law, the Constitution as the highest law superseding any statute or
ordinance in conflict therewith, it cannot be said that a City Court is bereft of competence to
proceed on the matter. In the exercise of such delicate power, however, the admonition of
Cooley on inferior tribunals is well worth remembering. Thus: "It must be evident to any one
that the power to declare a legislative enactment void is one which the judge, conscious of
the fallibility of the human judgment, will shrink from exercising in any case where he can
conscientiously and with due regard to duty and official oath decline the
responsibility."7 While it remains undoubted that such a power to pass on the validity of an
ordinance alleged to infringe certain constitutional rights of a litigant exists, still it should be
exercised with due care and circumspection, considering not only the presumption of validity
but also the relatively modest rank of a city court in the judicial hierarchy.
2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than
ample statutory authority for the enactment thereof. Nonetheless, its validity on constitutional
grounds is challenged because of the allegation that it imposed double taxation, which is
repugnant to the due process clause, and that it violated the requirement of uniformity. We do
not view the matter thus.
As to why double taxation is not violative of due process, Justice Holmes made clear in this
language: "The objection to the taxation as double may be laid down on one side. ... The 14th
Amendment [the due process clause] no more forbids double taxation than it does doubling
the amount of a tax, short of confiscation or proceedings unconstitutional on other
grounds."8With that decision rendered at a time when American sovereignty in the Philippines
was recognized, it possesses more than just a persuasive effect. To some, it delivered
the coup de grace to the bogey of double taxation as a constitutional bar to the exercise of
the taxing power. It would seem though that in the United States, as with us, its ghost as
noted by an eminent critic, still stalks the juridical state. In a 1947 decision, however, 9 we
quoted with approval this excerpt from a leading American decision: 10 "Where, as here,
Page 14 of 34
Congress has clearly expressed its intention, the statute must be sustained even though
double taxation results."
At any rate, it has been expressly affirmed by us that such an "argument against double
taxation may not be invoked where one tax is imposed by the state and the other is imposed
by the city ..., it being widely recognized that there is nothing inherently obnoxious in the
requirement that license fees or taxes be exacted with respect to the same occupation,
calling or activity by both the state and the political subdivisions thereof."11
The above would clearly indicate how lacking in merit is this argument based on double
taxation.
Now, as to the claim that there was a violation of the rule of uniformity established by the
constitution. According to the challenged ordinance, a real estate dealer who leases property
worth P50,000 or above must pay an annual fee of P100. If the property is worth P10,000 but
not over P50,000, then he pays P50 and P24 if the value is less than P10,000. On its face,
therefore, the above ordinance cannot be assailed as violative of the constitutional
requirement of uniformity. In Philippine Trust Company v. Yatco,12 Justice Laurel, speaking
for the Court, stated: "A tax is considered uniform when it operates with the same force and
effect in every place where the subject may be found."
There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso.13 Thus: "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; ..." About
two years later, Justice Tuason, speaking for this Court in Manila Race Horses Trainers
Assn. v. De la Fuente14 incorporated the above excerpt in his opinion and continued: "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."
To satisfy this requirement then, all that is needed as held in another case decided two years
later, 15 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 case16 that "inequalities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional limitation."17
It is thus apparent from the above that in much the same way that the plea of double taxation
is unavailing, the allegation that there was a violation of the principle of uniformity is
inherently lacking in persuasiveness. There is no need to pass upon the other allegations to
assail the validity of the above ordinance, it being maintained that the license fees therein
imposed "is excessive, unreasonable and oppressive" and that there is a failure to observe
the mandate of equal protection. A reading of the ordinance will readily disclose their inherent
lack of plausibility.
taxreviewcases
3. That would dispose of all the errors assigned, except the last two, which would predicate a
grievance on the complaint having been started by the City Treasurer rather than the City
Mayor of Baguio. These alleged errors, as was the case with the others assigned, lack merit.

In much the same way that an act of a department head of the national government,
performed within the limits of his authority, is presumptively the act of the President unless
reprobated or disapproved,18 similarly the act of the City Treasurer, whose position is roughly
analogous, may be assumed to carry the seal of approval of the City Mayor unless
repudiated or set aside. This should be the case considering that such city official is called
upon to see to it that revenues due the City are collected. When administrative steps are
futile and unavailing, given the stubbornness and obduracy of a taxpayer, convinced in good
faith that no tax was due, judicial remedy may be resorted to by him. It would be a reflection
on the state of the law if such fidelity to duty would be met by condemnation rather than
commendation.

So, much for the analytical approach. The conclusion thus reached has a reinforcement that
comes to it from the functional and pragmatic test. If a city treasurer has to await the nod from
the city mayor before a municipal ordinance is enforced, then opportunity exists for favoritism
and undue discrimination to come into play. Whatever valid reason may exist as to why one
taxpayer is to be accorded a treatment denied another, the suspicion is unavoidable that
such a manifestation of official favor could have been induced by unnamed but not unknown
consideration. It would not be going too far to assert that even defendant-appellant would find
no satisfaction in such a sad state of affairs. The more desirable legal doctrine therefore, on
the assumption that a choice exists, is one that would do away with such temptation on the
part of both taxpayer and public official alike.

WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs
against defendant-appellant.

Concepcion, CJ., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and
Capistrano, JJ., concur.
Zaldivar, J., is on leave.

Page 15 of 34
taxreviewcases
G.R. No. L-3538 May 28, 1952
JUAN LUNA SUBDIVISION, INC., plaintiff-appellee,
vs.
M. SARMIENTO, ET AL., defendants-appellants.
Gibbs, Gibbs, Chuidian and Quasha for appellee.
City Fiscal Eugenio Angeles and Assistant Fiscal Cornelio S. Ruperto for appellant.
La O and Feria for defendant Philippine Trust Co.
TUASON, J.:
This is an appeal by the City Treasure of the City of Manila from the following judgment
handed down in the above-entitled cause:
POR TODAS CONSIDERACIONES, el Jugado dicta sentencia ordenado: que el demandado
Tesorero de la Ciudad de Manila pague a la demandante la cantidad de P2,210.52 sin
intereses; que la demandada Philippine Trust Companypague a la demandante la suma de
P105 sin intereses.
The Philippine Trust Company did not appeal.
The facts of the case, in so far as they are not in controversy, are these: The plaintiff was a
corporation duly organized and existing under the laws of the Philippines with principal office
in Manila. On December 29, 1941 it issued to the City Treasurer of Manila, and the City
Treasurer accepted checks No. 628334 for P2,210.52 drawn upon the Philippine Trust
Company with which it had a credit balance of P4,940.17 on its account. This check was to
be applied to plaintiff's land tax for the second semester of 1941 the exact amount of which
was yet undetermine and so it was entered in the ledger, Exhibit "F", as deposit by the
taxpayer. On February 20, 1942, presumably after the exact amount had been verified, which
was P341.60, the balance of P1,868.92, covered by voucher No. 1487 of the City Treasure's
office, was noted in the ledger as a credit to the Juan Luna Subdivision, Inc.
Further than this, the records of the City Treasurer's office do not show what was done with
the check. But the books of the Philippine Trust Company do reveal that it was deposited with
the Philippine National Bank, the City Treasurer's sole depository, on December 29, 1941,
and that it was presented by that Bank to the Philippine Trust Company on May 1, 1944 and
was cashed by the drawee. Manuel F. Garcia, Assistant Treasurer of the Philippine Trust
Company, testified that soon after his bank was authorized in March, 1942, to reopen for
business (it had been closed by order of the Japanese military authorities,) it received from
the Philippine National Bank a bundle of checks, including appellees check No. 628334,
drawn upon the Philippine Trust Company before the Japanese occupation and held in
abeyance by the Philippine National Bank pending resumption of operation by the Philippine
Trust Company; that these checks, including the appellee's check, were accepted and the
Page 16 of 34
amounts thereof debited against the respective drawer's accounts; that with respect to check
No. 628334, the operation was effected on May 1, 1944.
The City refused after liberation to refund the plaintiff's deposit or apply it to such future taxes
as might be found due, while the Philippine Trust Company was unwilling to reverse its debit
entry against the Juan Luna Subdivision, Inc. It was upon this predicament that the Juan
Luna Subdivision, Inc. brought this suit against the City Treasurer and the Philippine Trust
Company as defendants in the alternative. The purpose of the action is determine which of
the two defendants is liable for plaintiff's check. There is a separate cause of action which
concerns the plaintiff and the City Treasurer alone.
On the main cause of action the burden of the City Treasurer's defense is that his office was
not benefited why the check. He denies that the said check was cashed "or rather there was
no proof that it was." It is pointed out that Mr. Gibbs, testifying in open court, admitted that he
had never received nor could he have received the cancelled checks;" that "the courts finding
that sum P2,210.52 was in fact and in truth added to the actual cash of the Treasurer of the
City of Manila is based on conjectures and surprises without any support of pertinent and
competent proof;" that "special ledger sheet of the City Treasurer . . . simply showed that
some accounting transaction in the book value was done or accomplished but these
accounting processes did not show that actual payment had been made (by the Philippine
National Bank) to the City Treasurer, and that the City Treasurer had in effect received said
amount represented by said checks;" that "the burden of proving that the check in question
was in fact paid rest on the defendant Philippine Trust Company." It is further argued that
"there is a lot of difference between the book value and the cash value of this check," that the
acceptance by the City Treasurer and the issuance of the Official Receipt No. 755402 on
December 29, 1941 in favor of Juan Luna Subdivision, Inc. did not simultaneously and
automatically place in the hands of the City Treasurer the cash value represented by the said
checks in the amount of P2,210.52".
That the plaintiff's check was deposited by the City Treasurer with the Philippine National
Bank, and the latter was paid the cash equivalent thereof by the Philippine Trust Company,
admits of no doubt. The entries in the books of the latter bank are not in the least impugned.
Whether the City Treasurer was paid that amount by the Philippine National Bank or given
credit for it, the City Treasurer would neither admit nor deny. He said:
A. Not that I am not willing (to admit); I am willing, but I am not the right party to admit that the
check was actually collected by the City of Manila from the Philippine Trust Company, The
Philippine Trust Company never submitted any financial statement. To my knowledge, the
City Treasurer of Manila has never been informed by the Philippine Trust Company or by the
Philippine National Bank, which is the depository of the City of Manila, that same check was
collected by the City Manila from the Philippine National Bank; by that I am not trying to say
that the check was not actually collected by the City.
xxx xxx xxx
taxreviewcases
Q. This particular check in question pertains to the revenue account of the City of Manila, is
that right?
A. Yes, sir.
Q. Ordinarily it would be deposited with the Philippine National Bank, is that right?
A. That is right.
Q. And the Philippine National Bank has not rendered you any account of its collections?
A. I would not say that; they probably gave us statement, but as we have lost our records
pertaining to the occupation and the pre-war years, I could not make a categorial statement.
From the fact that the Philippine National Bank was open throughout the Japanese
occupation and the other facts heretofore admitted or not denied, it is to be presumed that the
Philippine National Bank credited the City Treasurer with the amount of the check in question,
and that the City Treasurer, taking ordinary care of his concerns, withdrew that amount. This
is in accordance with the presumption that things happened according to the ordinary course
of business and habits. The burden is on the City Treasurer, not on the plaintiff, to rebut
these presumptions.
But the point is not material at all as far as the plaintiff is concerned. What became of the
check or where the money went is a matter between the City Treasurer and the Philippine
National Bank. The drawer of the check had funds on deposit to meet it; the City Treasurer
accepted it and deposited it with the Philippine National Bank, and the Philippine National
Bank, collected the equivalent amount from the drawee Bank. In the light of these
circumstances, the City Treasurer became the Philippine National Bank's creditor and the
Juan Luna Subdivision, Inc. was released from liability on its checks. If the City Treasurer did
not collect his credit from the Philippine National Bank or otherwise make use of it, he alone
was to blame and should suffer the consequences of his neglect. That the City Treasurer
held the check merely in trust for plaintiff does not alter the situation as far as his branch of
the case goes.
The amount to be refunded to the plaintiff is the subject of another disagreement between the
Juan Luna Subdivision, Inc. and the City Treasurer. This is the ground of other cause of
action heretofore referred to.
The plaintiff claims the whole amount of the check contending that taxes for the last semester
of 1941 have been remitted by Commonwealth Act No. 703.
Section 1 of this Act, which was approved on November 1, 1945, provides:
Page 17 of 34
All land taxes and penalties due and payable for the years nineteen hundred and forty-two
nineteen hundred and forty-three nineteen hundred and forty-four and fifty per cent of the tax
due for nineteen hundred and forty-five, are hereby remitted. The land taxes and penalties
due and payable for the second semester of the year nineteen hundred and forty-one shall
also be remitted the if the remaining fifty per cent corresponding to the year nineteen hundred
and forty-five shall been paid on or before December thirty-first, nineteen hundred and forty-
five.
Does this provision cover taxes paid before its enactment as the plaintiff maintains and the
court below held, or does it refer, as the City Treasurer believes, only to taxes which were still
unpaid?
There is no ambiguity in the language of the law. It says "taxes and penalties due and
payable," the literal meaning of which taxes owned or owing. (See Webster's New
International Dictionary) Note that the provision speaks of penalties, and note that penalties
accrue only when taxes are not paid on time. The word "remit" underlined by the appellant
does not help its theory, for to remit to desist or refrain from exacting, inflicting, or enforcing
something as well as to restore what has already been taken. (Webster's New International
Dictionary.)
We do not see that literal interpretation of Commonwealth Act No. 703 runs counter and does
violence to its spirit and intention , nor do we think that such interpretation would be
"constitutionally bad" in that "it would unduly discriminate against taxpayers who had paid in
favor of delinquent taxpayers."
The remission of taxes due and payable to the exclusion of taxes already collected does not
constitute unfair discrimination. Each set of taxes is a class by itself, and the law would be
open to attack as class legislation only if all taxpayers belonging to one class were not
treated alike. They are not.
As to the justice of the measure, the confinement of the condonation to deliquent taxes was
not without good reason. The property owners who had paid their taxes before liberation and
those who had not were not on the same footing on the need of material relief. It is true that
the ravages and devastations wrought by was operations had rendered the bulk of the people
destitute or impoverished and that it was this situation which prompted the passage of
Commonwealth Act No. 703. But it is also true that the taxpayers who had been in arrears in
their obligation would have to satisfy their liability with genuine currency, while the taxes paid
during the occupation had been satisfied in Japanese military notes, many of them at a time
when those notes were well-nigh worthless. To refund those taxes with the restored currency,
even if the Government could afford to do so, would be unduly to enrich many of the payers
at a greater expense to the people at large. What is more, the process of refunding would
entail a tremendous amount of work and difficulties, what with the destruction of tax records
and the great number of claimants who would take advantage of such grace.
taxreviewcases
It is said that the plaintiff's check was in the nature of deposit, held trust by the City Treasurer,
and that for this reason, plaintiff's taxes are to be regarded as still due and payable. This
argument is well taken but only to the extent of P1,868.92. The amount of P341.60 as early
as February 20, 1942, had been applied to the second half of plaintiff's 1941 tax and become
part of the general funds of the city treasury. From that date that tax was legally and actually
paid and settled.

The appealed judgment should, therefore, be modified so that the defendant City Treasurer
shall refund to the plaintiff the sum of P1,868.92 instead P2,210.52, without costs. It is so
ordered.

Paras, C.J., Feria, Pablo, Bengzon, Montemayor, Bautista Angelo and Labrador, JJ., concur.

Page 18 of 34
taxreviewcases
G.R. No. 108524 November 10, 1994
MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC., petitioner,
vs.
DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE (BIR), AND REVENUE DISTRICT OFFICER, BIR MISAMIS
ORIENTAL, respondents.
Damasing Law Office for petitioner.
MENDOZA, J.:
This is a petition for prohibition and injunction seeking to nullify Revenue Memorandum
Circular No. 47-91 and enjoin the collection by respondent revenue officials of the Value
Added Tax (VAT) on the sale of copra by members of petitioner organization. 1
Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation
whose members, individually or collectively, are engaged in the buying and selling of copra in
Misamis Oriental. The petitioner alleges that prior to the issuance of Revenue Memorandum
Circular 47-91 on June 11, 1991, which implemented VAT Ruling 190-90, copra was
classified as agricultural food product under $ 103(b) of the National Internal Revenue Code
and, therefore, exempt from VAT at all stages of production or distribution.
Respondents represent departments of the executive branch of government charged with the
generation of funds and the assessment, levy and collection of taxes and other imposts.
The pertinent provision of the NIRC states:
Sec. 103. Exempt Transactions. The following shall be exempt from the value-added tax:
(a) Sale of nonfood agricultural, marine and forest products in their original state by the
primary producer or the owner of the land where the same are produced;
(b) Sale or importation in their original state of agricultural and marine food products,
livestock and poultry of a kind generally used as, or yielding or producing foods for human
consumption, and breeding stock and genetic material therefor;
Under 103(a), as above quoted, the sale of agricultural non-food products in their original
state is exempt from VAT only if the sale is made by the primary producer or owner of the
land from which the same are produced. The sale made by any other person or entity, like a
trader or dealer, is not exempt from the tax. On the other hand, under 103(b) the sale of
Page 19 of 34
agricultural food products in their original state is exempt from VAT at all stages of production
or distribution regardless of who the seller is.
The question is whether copra is an agricultural food or non-food product for purposes of this
provision of the NIRC. On June 11, 1991, respondent Commissioner of Internal Revenue
issued the circular in question, classifying copra as an agricultural non-food product and
declaring it "exempt from VAT only if the sale is made by the primary producer pursuant to
Section 103(a) of the Tax Code, as amended." 2
The reclassification had the effect of denying to the petitioner the exemption it previously
enjoyed when copra was classified as an agricultural food product under 103(b) of the
NIRC. Petitioner challenges RMC No. 47-91 on various grounds, which will be presently
discussed although not in the order raised in the petition for prohibition.
First. Petitioner contends that the Bureau of Food and Drug of the Department of Health and
not the BIR is the competent government agency to determine the proper classification of
food products. Petitioner cites the opinion of Dr. Quintin Kintanar of the Bureau of Food and
Drug to the effect that copra should be considered "food" because it is produced from
coconut which is food and 80% of coconut products are edible.
On the other hand, the respondents argue that the opinion of the BIR, as the government
agency charged with the implementation and interpretation of the tax laws, is entitled to great
respect.
We agree with respondents. In interpreting 103(a) and (b) of the NIRC, the Commissioner of
Internal Revenue gave it a strict construction consistent with the rule that tax exemptions
must be strictly construed against the taxpayer and liberally in favor of the state. Indeed, even
Dr. Kintanar said that his classification of copra as food was based on "the broader definition
of food which includes agricultural commodities and other components used in the
manufacture/processing of food." The full text of his letter reads:
10 April 1991
Mr. VICTOR A. DEOFERIO, JR.
Chairman VAT Review Committee
Bureau of Internal Revenue
Diliman, Quezon City
Dear Mr. Deoferio:
This is to clarify a previous communication made by this Office about copra in a letter dated
05 December 1990 stating that copra is not classified as food. The statement was made in
the context of BFAD's regulatory responsibilities which focus mainly on foods that are
processed and packaged, and thereby copra is not covered.
taxreviewcases
However, in the broader definition of food which include agricultural commodities and other
components used in the manufacture/ processing of food, it is our opinion that copra should
be classified as an agricultural food product since copra is produced from coconut meat
which is food and based on available information, more than 80% of products derived from
copra are edible products.
Very truly yours,
QUINTIN L. KINTANAR, M.D., Ph.D.
Director
Assistant Secretary of Health for Standards and Regulations
Moreover, as the government agency charged with the enforcement of the law, the opinion of
the Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong,
is entitled to great weight. Indeed, the ruling was made by the Commissioner of Internal
Revenue in the exercise of his power under 245 of the NIRC to "make rulings or opinions in
connection with the implementation of the provisions of internal revenue laws, including
rulings on the classification of articles for sales tax and similar purposes."
Second. Petitioner complains that it was denied due process because it was not heard before
the ruling was made. There is a distinction in administrative law between legislative rules and
interpretative rules. 3 There would be force in petitioner's argument if the circular in question
were in the nature of a legislative rule. But it is not. It is a mere interpretative rule.
The reason for this distinction is that a legislative rule is in the nature of subordinate
legislation, designed to implement a primary legislation by providing the details thereof. In the
same way that laws must have the benefit of public hearing, it is generally required that
before a legislative rule is adopted there must be hearing. In this connection, the
Administrative Code of 1987 provides:
Public Participation. If not otherwise required by law, an agency shall, as far as
practicable, publish or circulate notices of proposed rules and afford interested parties the
opportunity to submit their views prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall
have been published in a newspaper of general circulation at least two (2) weeks before the
first hearing thereon.
4
(3) In case of opposition, the rules on contested cases shall be observed.
In addition such rule must be published. 5 On the other hand, interpretative rules are designed
to provide guidelines to the law which the administrative agency is in charge of enforcing.
Page 20 of 34
Accordingly, in considering a legislative rule a court is free to make three inquiries: (i) whether
the rule is within the delegated authority of the administrative agency; (ii) whether it is
reasonable; and (iii) whether it was issued pursuant to proper procedure. But the court is not
free to substitute its judgment as to the desirability or wisdom of the rule for the legislative
body, by its delegation of administrative judgment, has committed those questions to
administrative judgments and not to judicial judgments. In the case of an interpretative rule,
the inquiry is not into the validity but into the correctness or propriety of the rule. As a matter
of power a court, when confronted with an interpretative rule, is free to (i) give the force of law
to the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give some
intermediate degree of authoritative weight to the interpretative rule. 6
In the case at bar, we find no reason for holding that respondent Commissioner erred in not
considering copra as an "agricultural food product" within the meaning of 103(b) of the
NIRC. As the Solicitor General contends, "copra per se is not food, that is, it is not intended
for human consumption. Simply stated, nobody eats copra for food." That previous
Commissioners considered it so, is not reason for holding that the present interpretation is
wrong. The Commissioner of Internal Revenue is not bound by the ruling of his
predecessors. 7 To the contrary, the overruling of decisions is inherent in the interpretation of
laws.
Third. Petitioner likewise claims that RMC No. 47-91 is discriminatory and violative of the
equal protection clause of the Constitution because while coconut farmers and copra
producers are exempt, traders and dealers are not, although both sell copra in its original
state. Petitioners add that oil millers do not enjoy tax credit out of the VAT payment of traders
and dealers.
The argument has no merit. There is a material or substantial difference between coconut
farmers and copra producers, on the one hand, and copra traders and dealers, on the other.
The former produce and sell copra, the latter merely sell copra. The Constitution does not
forbid the differential treatment of persons so long as there is a reasonable basis for
classifying them differently. 8
It is not true that oil millers are exempt from VAT. Pursuant to 102 of the NIRC, they are
subject to 10% VAT on the sale of services. Under 104 of the Tax Code, they are allowed
to credit the input tax on the sale of copra by traders and dealers, but there is no tax credit if
the sale is made directly by the copra producer as the sale is VAT exempt. In the same
manner, copra traders and dealers are allowed to credit the input tax on the sale of copra by
other traders and dealers, but there is no tax credit if the sale is made by the producer.
Fourth. It is finally argued that RMC No. 47-91 is counterproductive because traders and
dealers would be forced to buy copra from coconut farmers who are exempt from the VAT
and that to the extent that prices are reduced the government would lose revenues as the
10% tax base is correspondingly diminished.
taxreviewcases
This is not so. The sale of agricultural non-food products is exempt from VAT only when
made by the primary producer or owner of the land from which the same is produced, but in
the case of agricultural food products their sale in their original state is exempt at all stages of
production or distribution. At any rate, the argument that the classification of copra as
agricultural non-food product is counterproductive is a question of wisdom or policy which
should be addressed to respondent officials and to Congress.

WHEREFORE, the petition is DISMISSED.

SO ORDERED.

Narvasa, C.J., Regalado and Puno, JJ., concur.

Page 21 of 34
taxreviewcases
G.R. No. 127410 January 20, 1999
CONRADO L. TIU, JUAN T. MONTELIBANO JR. and ISAGANI M. JUNGCO, petitioners,
vs.
COURT OF APPEALS, HON. TEOFISTO T. GUINGONA JR., BASES CONVERSION AND
DEVELOPMENT AUTHORITY, SUBIC BAY METROPOLITAN AUTHORITY, BUREAU OF
INTERNAL REVENUE, CITY TREASURER OF OLONGAPO and MUNICIPAL
TREASURER OF SUBIC, ZAMBALES, respondents.
PANGANIBAN, J.:
The constituttional rights to equal protection of the law is not violated by an executive order,
issued pursuant to law, granting tax and duty incentives only to the bussiness and residents
within the "secured area" of the Subic Special Econimic Zone and denying them to those who
live within the Zone but outside such "fenced-in" territory. The Constitution does not require
absolute equality among residents. It is enough that all persons under like circumstances or
conditions are given the same privileges and required to follow the same obligations. In short,
a classification based on valid and reasonable standards does not violate the equal
protection clause.
The Case
Before us is a petition for review under Rule 45 of the Rules of Court, seeking the reversal of
the Court of Appeals' Decision 1 promulgated on August 29, 1996, and Resolution 2 dated
November 13, 1996, in CA-GR SP No. 37788. 3 The challenged Decision upheld the
constitutionality and validity of Executive Order No. 97-A (EO 97-A), according to which the
grant and enjoyment of the tax and duty incentives authorized under Republic Act No. 7227
(RA 7227) were limited to the business enterprises and residents within the fenced-in area of
the Subic Special Economic Zone (SSEZ).
The assailed Resolution denied the petitioners' motion for reconsideration.
On March 13, 1992, Congress, with the approval of the President, passed into law RA 7227
entitled "An Act Accelerating the Conversion of Military Reservations Into Other Productive
Uses, Creating the Bases Conversion and Development Authority for this Purpose, Providing
Funds Therefor and for Other Purposes." Section 12 thereof created the Subic Special
Economic Zone and granted there to special privileges, as follows:
Sec. 12. Subic Special Economic Zone. Subject to the concurrence by resolution of
the sangguniang panlungsod of the City of Olongapo and the sangguniang bayan of the
Municipalities of Subic, Morong and Hermosa, there is hereby created a Special Economic
Page 22 of 34
and Free-port Zone consisting of the City of Olongapo and the Municipality of Subic, Province
of Zambales, the lands occupied by the Subic Naval Base and its contiguous extensions as
embraced, covered, and defined by the 1947 Military Bases Agreement between the
Philippines and the United States of America as amended, and within the territorial
jurisdiction of the Municipalities of Morong and Hermosa, Province of Bataan, hereinafter
referred to as the Subic Special Economic Zone whose metes and bounds shall be
delineated in a proclamation to be issued by the President of the Philippines. Within thirty
(30) days after the approval of this Act, each local government unit shall submit its resolution
of concurrence to join the Subic Special Economic Zone to the Office of the President.
Thereafter, the President of the Philippines shall issue a proclamation defining the metes and
bounds of the zone as provided herein.
The abovementioned zone shall be subject to the following policies:
(a) Within the framework and subject to the mandate and limitations of the Constitution and
the pertinent provisions of the Local Government Code, the Subic Special Economic Zone
shall be developed into a self-sustaining, industrial, commercial, financial and investment
center to generate employment opportunities in and around the zone and to attract and
promote productive foreign investments;
(b) The Subic Special Economic Zone shall be operated and managed as a separate
customs territory ensuring free flow or movement of goods and capital within, into and
exported out of the Subic Special Economic Zone, as well as provide incentives such as tax
and duty-free importations of raw materials, capital and equipment. However, exportation or
removal of goods from the territory of the Subic Special Economic Zone to the other parts of
the Philippine territory shall be subject to customs duties and taxes under the Customs and
Tariff Code and other relevant tax laws of the Philippines;
(c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no
taxes, local and national, shall be imposed within the Subic Special Economic Zone. In lieu of
paying taxes, three percent (3%) of the gross income earned by all businesses and
enterprises within the Subic Special Economic Zone shall be remitted to the National
Government, one percent (1%) each to the local government units affected by the declaration
of the zone in proportion to their population area, and other factors. In addition, there is
hereby established a development fund of one percent (1%) of the gross income earned by
all businesses and enterprises within the Subic Special Economic Zone to be utilized for the
development of municipalities outside the City of Olongapo and the Municipality of Subic, and
other municipalities contiguous to the base areas.
In case of conflict between national and local laws with respect to tax exemption privileges in
the Subic Special Economic Zone, the same shall be resolved in favor of the latter;
(d) No exchange control policy shall be applied and free markets for foreign exchange, gold,
securities and future shall be allowed and maintained in the Subic Special Economic Zone;
taxreviewcases
(e) The Central Bank, through the Monetary Board, shall supervise and regulate the
operations of banks and other financial institutions within the Subic Special Economic Zone;
(f) Banking and finance shall be liberalized with the establishment of foreign currency
depository units of local commercial banks and offshore banking units of foreign banks with
minimum Central Bank regulation;
(g) Any investor within the Subic Special Economic Zone whose continuing investment shall
not be less than two hundred fifty thousand dollars ($250,000), his/her spouse and
dependent children under twenty-one (21) years of age, shall be granted permanent resident
status within the Subic Special Economic Zone. They shall have the freedom of ingress and
egress to and from the Subic Special Economic Zone without any need of special
authorization form the Bureau of Immigration and Deportation. The Subic Bay Metropolitan
Authority referred to in Section 13 of this Act may also issue working visas renewable every
two (2) years to foreign executives and other aliens possessing highly technical skills which
no Filipino within the Subic Special Economic Zone possesses, as certified by the
Department of Labor and Employment. The names of aliens granted permanent residence
status and working visas by the Subic Bay Metropolitan Authority shall be reported to the
Bureau of Immigration and Deportation within thirty (30) days after issuance thereof;
(h) The defense of the zone and the security of its perimeters shall be the responsibility of the
National Government in coordination with the Subic Bay Metropolitan Authority. The Subic
Bay Metropolitan Authority shall provide and establish its own security and fire-fighting forces;
and
(i) Except as herein provided, the local government units comprising the Subic Special
Economic Zone shall retain their basic autonomy and identity. The cities shall be governed by
their respective charters and the municipalities shall operate and function in accordance with
Republic Act No. 7160, otherwise known as the Local Government Code of 1991.
On June 10, 1993, then President Fidel V. Ramos issued Executive Order No. 97 (EO 97),
clarifying the application of the tax and duty incentives thus:
Sec. 1. On Import Taxes and Duties. Tax and duty-free importations shall apply only to
raw materials, capital goods and equipment brought in by business enterprises into the
SSEZ. Except for these items, importations of other goods into the SSEZ, whether by
business enterprises or resident individuals, are subject to taxes and duties under relevant
Philippine laws.
The exportation or removal of tax and duty-free goods from the territory of the SSEZ to other
parts of the Philippine territory shall be subject to duties and taxes under relevant Philippine
laws.
Page 23 of 34
Sec. 2. On All Other Taxes. In lieu of all local and national taxes (except import taxes and
duties), all business enterprises in the SSEZ shall be required to pay the tax specified in
Section 12(c) of R.A. No. 7227.
Nine days after, on June 19, 1993, the President issued Executive Order No. 97-A (EO 97-A),
specifying the area within which the tax-and-duty-free privilege was operative, viz.:
Sec. 1.1. The Secured Area consisting of the presently fenced-in former Subic Naval Base
shall be the only completely tax and duty-free area in the SSEFPZ [Subic Special Economic
and Free Port Zone]. Business enterprises and individuals (Filipinos and foreigners) residing
within the Secured Area are free to import raw materials, capital goods, equipment, and
consumer items tax and duty-free. Consumption items, however, must be consumed within
the Secured Area. Removal of raw materials, capital goods, equipment and consumer items
out of the Secured Area for sale to non-SSEFPZ registered enterprises shall be subject to the
usual taxes and duties, except as may be provided herein.
On October 26, 1994, the petitioners challenged before this Court the constitutionality of EO
97-A for allegedly being violative of their right to equal protection of the laws. In a Resolution
dated June 27, 1995, this Court referred the matter to the Court of Appeals, pursuant to
Revised Administrative Circular No. 1-95.
Incidentally, on February 1, 1995, Proclamation No. 532 was issued by President Ramos. It
delineated the exact metes and bounds of the Subic Special Economic and Free Port Zone,
pursuant to Section 12 of RA 7227.
Ruling of the Court of Appeals
Respondent Court held that "there is no substantial difference between the provisions of EO
97-A and Section 12 of RA 7227. In both, the 'Secured Area' is precise and well-defined as '. .
. the lands occupied by the Subic Naval Base and its contiguous extensions as embraced,
covered and defined by the 1947 Military Bases Agreement between the Philippines and the
United States of America, as amended . . .'" The appellate court concluded that such being
the case, petitioners could not claim that EO 97-A is unconstitutional, while at the same time
maintaining the validity of RA 7227.
The court a quo also explained that the intention of Congress was to confine the coverage of
the SSEZ to the "secured area" and not to include the "entire Olongapo City and other areas
mentioned in Section 12 of the law." It relied on the following deliberarions in the Senate:
Senator Paterno. Thank you, Mr. President. My first question is the extent of the economic
zone. Since this will be a free port, in effect, I believe that it is important to delineate or make
sure that the delineation will be quite precise[. M]y question is: Is it the intention that the
entire of Olongapo City, the Municipality of Subic and the Municipality of Dinalupihan will be
covered by the special economic zone or only portions thereof?
taxreviewcases
Senator Shahani. Only portions, Mr. President. In other words, where the actual operations of
the free port will take place.
Senator Paterno. I see. So, we should say, "COVERING THE DESIGNATED PORTIONS OR
CERTAIN PORTIONS OF OLONGAPO CITY, SUBIC AND DINALUPIHAN" to make it clear
that it is not supposed to cover the entire area of all of these territories.
Senator Shahani. So, the Gentleman is proposing that the words "CERTAIN AREAS". . .
The President. The Chair would want to invite the attention of the Sponsor and Senator
Paterno to letter "C," which says: "THE PRESIDENT OF THE PHILIPPINES IS HEREBY
AUTHORIZED TO PROCLAIM, DELINEATE AND SPECIFY THE METES AND BOUNDS OF
OTHER SPECIAL ECONOMIC ZONES WHICH MAY BE CREATED IN THE CLARK
MILITARY RESERVATIONS AND ITS EXTENSIONS."
Probably, this provision can be expanded since, apparently, the intention is that what is
referred to in Olongapo as Metro Olongapo is not by itself ipso jure already a special
economic zone.
Senator Paterno. That is correct.
The President. Someone, some authority must declare which portions of the same shall be
the economic zone. Is it the intention of the author that it is the President of the Philippines
who will make such delineation?
Senator Shahani. Yes Mr. President.
The Court of Appeals further justified the limited application of the tax incentives as being
within the prerogative of the legislature, pursuant to its "avowed purpose [of serving] some
public benefit or interest." It ruled that "EO 97-A merely implements the legislative purpose of
[RA 7227]."
Disagreeing, petitioners now seek before us a review of the aforecited Court of Appeals
Decision and Resolution.
The Issue
Petitioners submit the following issue for the resolution of the Court:
[W]hether or not Executive Order No. 97-A violates the equal protection clause of the
Constitution. Specifically the issue is whether the provisions of Executive Order No. 97-A
confining the application of R.A. 7227 within the secured area and excluding the residents of
the zone outside of the secured area is discriminatory or not. 4
Page 24 of 34
The Court's Ruling
The petition 5 is bereft of merit.
Main Issue:
The Constitionality of EO 37-A
Citing Section 12 of RA 7227, petitioners contend that the SSEZ encompasses (1) the City of
Olongapo, (2) the Municipality of Subic in Zambales, and (3) the area formerly occupied by
the Subic Naval Base. However, EO 97-A, according to them, narrowed down the area within
which the special privileges granted to the entire zone would apply to the present "fenced-in
former Subic Naval Base" only. It has thereby excluded the residents of the first two
components of the zone from enjoying the benefits granted by the law. It has effectively
discriminated against them without reasonable or valid standards, in contravention of the
equal protection guarantee.
On the other hand, the solicitor general defends, on behalf of respondents, the validity of EO
97-A, arguing that Section 12 of RA 7227 clearly vests in the President the authority to
delineate the metes and bounds of the SSEZ. He adds that the issuance fully complies with
the requiretnents of a valid classification.
We rule in favor of the constitutionality and validity of the assailed EO. Said Order is not
violative of the equal protection clause; neither is it discriminatory. Rather, than we find real
and substantive distinctions between the circumstances obtain;ng inside and those outside
the Subic Naval Base, thereby justifying a valid and reasonable classification.
The fundamental right of equal protection of the laws is not absolute, but is subject to
reasonable classification. If the groupings are characterized by substantial distinctions that
make real differences, one class may be treated and regulated differently from another. 6 The
classification must also be germane to the purpose of the law and must apply to all those
belonging to the same class. Explaining the nature of the equal protection guarantee, the
Court in Ichong v. Hernandez 8 said:
The equal protection of the law clause is against undue favor and individual or class privilege,
as well as hostile discrimination or the oppression of inequality. It is not intended to prohibit
legislation which is limited either [by] the object to which it is directed or by [the] territory
within which it is to operate. It does not demand absolute equality among residents; it merely
requires that all persons shall be treated alike, under like circumstances and conditions both
as to privileges conferred and liabilities enforced. The equal protection clause is not infringed
by legislation which applies only to those persons falling within a specified class, if it applies
alike to all persons within such class, and reasonable. grounds exist for making a distinction
between those who fall within such class and those who do not.
taxreviewcases
Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the
purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all
members of the same class. 9
We first determine the purpose of the law. From the very title itself, it is clear that RA 7227
aims primarily to accelerate the conversion of military reservations into productive uses.
Obviously, the "lands covered under the 1947 Military Bases Agreement" are its object. Thus,
the law avows this policy:
Sec. 2. Declaration of Policies. It is hereby declared the policy of the Government to
accelerate the sound and balanced conversion into alternative productive uses of the Clark
and Subic military reservations and their extensions (John Hay Station, Wallace Air Station,
O'Donnell Transmitter Station, San Miguel Naval Communications Station and Capas Relay
Station), to raise funds by the sale of portions of Metro Manila military camps, and to apply
said funds as provided herein for the development and conversion to productive civilian use
of the lands covered under the 1947 Military Bases Agreement between the Philippines and
the United States of America, as amended.
To undertake the above objectives, the same law created the Bases Conversion and
Development Authority, some of whose relevant defined purposes are:
(b) To adopt, prepare and implement a comprehensive and detailed development plan
embodying a list of projects including but not limited to those provided in the Legislative-
Executive Bases Council (LEBC) framework plan for the sound and balanced conversion of
the Clark and Subic military reservations and their extensions consistent with ecological and
environmental standards, into other productive uses to promote the economic and social
development of Central Luzon in particular and the country in general;
(c). To encourage the active participation of the private sector in transforming the Clark and
Subic military reservations and their extensions into other productive uses;
Further, in creating the SSEZ, the law declared it a policy to develop the zone into a "self-
sustaining, industrial, commercial, financial and investment center." 10
From the above provisions of the law, it can easily be deduced that the real concern of RA
7227 is to convert the lands formerly occupied by the US military bases into economic or
industrial areas. In furtherance of such objective, Congress deemed it necessary to extend
economic incentives to attract and encourage investors, both local and foreign. Among such
enticements are: 11 (1) a separate customs territory within the zone, (2) tax-and-duty-free
importation's, (3) restructured income tax rates on business enterprises within the zone, (4)
no foreign exchange control, (5) liberalized regulations on banking and finance, and (6) the
grant of resident status to certain investors and of working visas to certain foreign executives
and workers .
Page 25 of 34
We believe it was reasonable for the President to have delimited the application of some
incentives to the confines of the former Subic military base. It is this specific area which the
government intends to transform and develop from its status quo ante as an abandoned
naval facility into a self-sustaining industrial and commercial zone, particularly for big foreign
and local investors to use as operational bases for their businesses and industries. Why the
seeming bias for the big investors? Undeniably, they are the ones who can pour huge
investments to spur economic growth in the country and to generate employment
opportunities for the Filipinos, the ultimate goals of the government for such conversion. The
classification is, therefore, germane to the purposes of the law. And as the legal maxim goes,
"The intent of a statute is the law." 12
Certainly, there are substantial differences between the big investors who are being lured to
establish and operate their industries in the so-called "secured area" and the present
business operators outside the area. On the one hand, we are talking of billion-peso
investments and thousands of new, jobs. On the other hand, definitely none of such
magnitude. In the first, the economic impact will be national; in the second, only local. Even
more important, at this time the business activities outside the "secured area" are not likely to
have any impact in achieving the purpose of the law, which is to turn the former military base
to productive use for the benefit of the Philippine economy. There is, then, hardly any
reasonable basis to extend to them the benefits and incentives accorded in RA 7227.
Additionally, as the Court of Appeals pointed out, it will be easier to manage and monitor the
activities within the "secured area," which is already fenced off, to prevent "fraudulent
importation of merchandise" or smuggling.
It is well-settled that the equal-protection guarantee does not require territorial uniformity of
laws. 13 As long as there are actual and material differences between territories, there is no
violation of the constitutional clause. And of course, anyone, including the petitioners,
possessing the requisite investment capital can always avail of the same benefits by
channeling his or her resources or business operations into the fenced-off free port zone.
We believe that the classification set forth by the executive issuance does not apply merely to
existing conditions. As laid down in RA 7227, the objective is to establish a "self-sustaining,
industrial, commercial, financial and investment center" in the area. There will, therefore, be a
long-term difference between such investment center and the areas outside it.
Lastly, the classification applies equally to all the resident individuals and businesses within
the "secured area." The residents, being in like circumstances or contributing directly to the
achievement of the end purpose of the law, are not categorized further. Instead, they are all
similarly treated, both in privileges granted and in obligations required.
All told, the Court holds that no undue favor or privilege was extended. The classification
occasioned by EO 97-A was not unreasonable, capricious or unfounded. To repeat, it was
based, rather, on fair and substantive considerations that were germane to the legislative
purpose.WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision and
Resolution are hereby AFFIRMED. Costs against petitioners.1wphi1.nt
taxreviewcases
G.R. No. L-23794 February 17, 1968
ORMOC SUGAR COMPANY, INC., plaintiff-appellant,
vs.
THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF ORMOC CITY, HON.
ESTEBAN C. CONEJOS as Mayor of Ormoc City and ORMOC CITY, defendants-
appellees.
Ponce Enrile, Siguion Reyna, Montecillo & Belo and Teehankee, Carreon & Taada for
plaintiff-appellant.
Ramon O. de Veyra for defendants-appellees.
BENGZON, J.P., J.:
On January 29, 1964, the Municipal Board of Ormoc City passed 1 Ordinance No. 4,
Series of 1964, imposing "on any and all productions of centrifugal sugar milled at the Ormoc
Sugar Company, Inc., in Ormoc City a municipal tax equivalent to one per centum (1%) per
export sale to the United States of America and other foreign countries." 2
Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. on
March 20, 1964 for P7,087.50 and on April 20, 1964 for P5,000, or a total of P12,087.50.
On June 1, 1964, Ormoc Sugar Company, Inc. filed before the Court of First Instance
of Leyte, with service of a copy upon the Solicitor General, a complaint 3 against the City of
Ormoc as well as its Treasurer, Municipal Board and Mayor, alleging that the afore-stated
ordinance is unconstitutional for being violative of the equal protection clause (Sec. 1[1], Art.
III, Constitution) and the rule of uniformity of taxation (Sec. 22[1]), Art. VI, Constitution), aside
from being an export tax forbidden under Section 2287 of the Revised Administrative Code. It
further alleged that the tax is neither a production nor a license tax which Ormoc City under
Section 15-kk of its charter and under Section 2 of Republic Act 2264, otherwise known as
the Local Autonomy Act, is authorized to impose; and that the tax amounts to a customs duty,
fee or charge in violation of paragraph 1 of Section 2 of Republic Act 2264 because the tax is
on both the sale and export of sugar.
Answering, the defendants asserted that the tax ordinance was within defendant city's
power to enact under the Local Autonomy Act and that the same did not violate the afore-
cited constitutional limitations. After pre-trial and submission of the case on memoranda, the
Court of First Instance, on August 6, 1964, rendered a decision that upheld the
constitutionality of the ordinance and declared the taxing power of defendant chartered city
broadened by the Local Autonomy Act to include all other forms of taxes, licenses or fees not
excluded in its charter.
Appeal therefrom was directly taken to Us by plaintiff Ormoc Sugar Company, Inc.
Appellant alleges the same statutory and constitutional violations in the aforesaid taxing
ordinance mentioned earlier.
Page 26 of 34
Section 1 of the ordinance states: "There shall be paid to the City Treasurer on any and
all productions of centrifugal sugar milled at the Ormoc Sugar Company, Incorporated, in
Ormoc City, a municipal tax equivalent to one per centum (1%) per export sale to the United
States of America and other foreign countries." Though referred to as a tax on the export of
centrifugal sugar produced at Ormoc Sugar Company, Inc. For production of sugar alone is
not taxable; the only time the tax applies is when the sugar produced is exported.
Appellant questions the authority of the defendant Municipal Board to levy such an
export tax, in view of Section 2287 of the Revised Administrative Code which denies from
municipal councils the power to impose an export tax. Section 2287 in part states: "It shall not
be in the power of the municipal council to impose a tax in any form whatever, upon goods
and merchandise carried into the municipality, or out of the same, and any attempt to impose
an import or export tax upon such goods in the guise of an unreasonable charge for wharfage
use of bridges or otherwise, shall be void."
Subsequently, however, Section 2 of Republic Act 2264 effective June 19, 1959, gave
chartered cities, municipalities and municipal districts authority to levy for public purposes just
and uniform taxes, licenses or fees. Anent the inconsistency between Section 2287 of the
Revised Administrative Code and Section 2 of Republic Act 2264, this Court, in Nin Bay
Mining Co. v. Municipality of Roxas 4 held the former to have been repealed by the latter. And
expressing Our awareness of the transcendental effects that municipal export or import taxes
or licenses will have on the national economy, due to Section 2 of Republic Act 2264, We
stated that there was no other alternative until Congress acts to provide remedial measures
to forestall any unfavorable results.
The point remains to be determined, however, whether constitutional limits on the
power of taxation, specifically the equal protection clause and rule of uniformity of taxation,
were infringed.
The Constitution in the bill of rights provides: ". . . nor shall any person be denied the
equal protection of the laws." (Sec. 1 [1], Art. III) In Felwa vs. Salas, 5 We ruled that the equal
protection clause applies only to persons or things identically situated and does not bar a
reasonable classification of the subject of legislation, and a classification is reasonable where
(1) it is based on substantial distinctions which make real differences; (2) these are germane
to the purpose of the law; (3) the classification applies not only to present conditions but also
to future conditions which are substantially identical to those of the present; (4) the
classification applies only to those who belong to the same class.
A perusal of the requisites instantly shows that the questioned ordinance does not
meet them, for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar
Company, Inc. and none other. At the time of the taxing ordinance's enactment, Ormoc Sugar
Company, Inc., it is true, was the only sugar central in the city of Ormoc. Still, the
classification, to be reasonable, should be in terms applicable to future conditions as well.
The taxing ordinance should not be singular and exclusive as to exclude any subsequently
established sugar central, of the same class as plaintiff, for the coverage of the tax. As it is
taxreviewcases
now, even if later a similar company is set up, it cannot be subject to the tax because the
ordinance expressly points only to Ormoc City Sugar Company, Inc. as the entity to be levied
upon.
Appellant, however, is not entitled to interest; on the refund because the taxes were not
arbitrarily collected (Collector of Internal Revenue v. Binalbagan). 6 At the time of collection,
the ordinance provided a sufficient basis to preclude arbitrariness, the same being then
presumed constitutional until declared otherwise.
WHEREFORE, the decision appealed from is hereby reversed, the challenged
ordinance is declared unconstitutional and the defendants-appellees are hereby ordered to
refund the P12,087.50 plaintiff-appellant paid under protest. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and
Fernando, JJ.,
G.R. No. L-4376 May 22, 1953
ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., petitioners-
appellants,
vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE
CITY MAYOR, all of the City of Manila, respondents-appellees.
Teotimo A. Roja for appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serrano for appellees.
BAUTISTA ANGELO, J.:
This is a petition for declaratory relief to test the validity of Ordinance No. 3379 passed by the
Municipal Board of the City of Manila on March 24, 1950.
The Association of Customs Brokers, Inc., which is composed of all brokers and public
service operators of motor vehicles in the City of Manila, and G. Manlapit, Inc., a member of
said association, also a public service operator of the trucks in said City, challenge the
validity of said ordinance on the ground that (1) while it levies a so-called property tax it is in
reality a license tax which is beyond the power of the Municipal Board of the City of Manila;
(2) said ordinance offends against the rule of uniformity of taxation; and (3) it constitutes
double taxation.
The respondents, represented by the city fiscal, contend on their part that the challenged
ordinance imposes a property tax which is within the power of the City of Manila to impose
under its Revised Charter [Section 18 (p) of Republic Act No. 409], and that the tax in
Page 27 of 34
question does not violate the rule of uniformity of taxation, nor does it constitute double
taxation.
The issues having been joined, the Court of First Instance of Manila sustained the validity of
the ordinance and dismissed the petition. Hence this appeal.
The disputed ordinance was passed by the Municipal Board of the City of Manila under the
authority conferred by section 18 (p) of Republic Act No. 409. Said section confers upon the
municipal board the power "to tax motor and other vehicles operating within the City of Manila
the provisions of any existing law to the contrary notwithstanding." It is contended that this
power is broad enough to confer upon the City of Manila the power to enact an ordinance
imposing the property tax on motor vehicles operating within the city limits.
In the deciding the issue before us it is necessary to bear in mind the pertinent provisions of
the Motor Vehicles Law, as amended, (Act No. 3992) which has a bearing on the power of
the municipal corporation to impose tax on motor vehicles operating in any highway in the
Philippines. The pertinent provisions are contained in section 70 (b) which provide in part:
No further fees than those fixed in this Act shall be exacted or demanded by any public
highway, bridge or ferry, or for the exercise of the profession of chauffeur, or for the operation
of any motor vehicle by the owner thereof: Provided, however, That nothing in this Act shall
be construed to exempt any motor vehicle from the payment of any lawful and equitable
insular, local or municipal property tax imposed thereupon. . . .
Note that under the above section no fees may be exacted or demanded for the operation of
any motor vehicle other than those therein provided, the only exception being that which
refers to the property tax which may be imposed by a municipal corporation. This provision is
all-inclusive in that sense that it applies to all motor vehicles. In this sense, this provision
should be construed as limiting the broad grant of power conferred upon the City of Manila by
its Charter to impose taxes. When section 18 of said Charter provides that the City of Manila
can impose a tax on motor vehicles operating within its limit, it can only refers to property tax
as a different interpretation would make it repugnant to the Motor Vehicle Law.
Coming now to the ordinance in question, we find that its title refers to it as "An Ordinance
Levying a Property Tax on All Motor Vehicles Operating Within the City of Manila", and that in
its section 1 it provides that the tax should be 1 per cent ad valorem per annum. It also
provides that the proceeds of the tax "shall accrue to the Streets and Bridges Funds of the
City and shall be expended exclusively for the repair, maintenance and improvement of its
streets and bridges." Considering the wording used in the ordinance in the light in the
purpose for which the tax is created, can we consider the tax thus imposed as property tax,
as claimed by respondents?
While as a rule an ad valorem tax is a property tax, and this rule is supported by some
authorities, the rule should not be taken in its absolute sense if the nature and purpose of the
tax as gathered from the context show that it is in effect an excise or a license tax. Thus, it
taxreviewcases
has been held that "If a tax is in its nature an excise, it does not become a property tax Wherefore, reversing the decision appealed from, we hereby declare the ordinance null and
because it is proportioned in amount to the value of the property used in connection with the void.
occupation, privilege or act which is taxed. 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 Paras, C.J., Bengzon and Tuason, JJ., concur.
upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, it Montemayor, Reyes, Jugo and Labrador, JJ., concur in the result.
will be considered an excise." (26 R. C. L., 35-36.) It has also been held that

The character of the tax as a property tax or a license or occupation tax must be determined
by its incidents, and from the natural and legal effect of the language employed in the act or
ordinance, and not by the name by which it is described, or by the mode adopted in fixing its
amount. If it is clearly a property tax, it will be so regarded, even though nominally and in form
it is a license or occupation tax; and, on the other hand, if the tax is levied upon persons on
account of their business, it will be construed as a license or occupation tax, even though it is
graduated according to the property used in such business, or on the gross receipts of the
business. (37 C.J., 172)

The ordinance in question falls under the foregoing rules. While it refers to property tax and it
is fixed ad valorem yet we cannot reject the idea that it is merely levied on motor vehicles
operating within the City of Manila with the main purpose of raising funds to be expended
exclusively for the repair, maintenance and improvement of the streets and bridges in said
city. This is precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent, for the
reason that, under said Act, municipal corporation already participate in the distribution of the
proceeds that are raised for the same purpose of repairing, maintaining and improving
bridges and public highway (section 73 of the Motor Vehicle Law). This prohibition is intended
to prevent duplication in the imposition of fees for the same purpose. It is for this reason that
we believe that the ordinance in question merely imposes a license fee although under the
cloak of an ad valorem tax to circumvent the prohibition above adverted to.

It is also our opinion that the ordinance infringes the rule of the uniformity of taxation ordained
by our Constitution. Note that the ordinance exacts the tax upon all motor vehicles operating
within the City of Manila. It does not distinguish between a motor vehicle for hire and one
which is purely for private use. Neither does it distinguish between a motor vehicle registered
in the City of Manila and one registered in another place but occasionally comes to Manila
and uses its streets and public highways. The distinction is important if we note that the
ordinance intends to burden with the tax only those registered in the City of Manila as may be
inferred from the word "operating" used therein. The word "operating" denotes a connotation
which is akin to a registration, for under the Motor Vehicle Law no motor vehicle can be
operated without previous payment of the registration fees. There is no pretense that the
ordinance equally applies to motor vehicles who come to Manila for a temporary stay or for
short errands, and it cannot be denied that they contribute in no small degree to the
deterioration of the streets and public highway. The fact that they are benefited by their use
they should also be made to share the corresponding burden. And yet such is not the case.
This is an inequality which we find in the ordinance, and which renders it offensive to the
Constitution.

Page 28 of 34
taxreviewcases
G.R. No. L-29646 November 10, 1978 Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or
participate in any position or occupation or business enumerated therein, whether permanent,
MAYOR ANTONIO J. VILLEGAS, petitioner, temporary or casual, without first securing an employment permit from the Mayor of Manila
vs. and paying the permit fee of P50.00 except persons employed in the diplomatic or consular
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents. missions of foreign countries, or in the technical assistance programs of both the Philippine
Government and any foreign government, and those working in their respective households,
Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for petitioner. and members of religious orders or congregations, sect or denomination, who are not paid
monetarily or in kind.
Sotero H. Laurel for respondents.
Violations of this ordinance is punishable by an imprisonment of not less than three (3)
months to six (6) months or fine of not less than P100.00 but not more than P200.00 or both
such fine and imprisonment, upon conviction. 5

FERNANDEZ, J.:
This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent
Judge Francisco Arca of the Court of First Instance of Manila, Branch I, in Civil Case No.
72797, the dispositive portion of winch reads.
On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila,
filed a petition with the Court of First Instance of Manila, Branch I, denominated as Civil Case
No. 72797, praying for the issuance of the writ of preliminary injunction and restraining order
to stop the enforcement of Ordinance No. 6537 as well as for a judgment declaring said
Ordinance No. 6537 null and void. 6

Wherefore, judgment is hereby rendered in favor of the petitioner and against the
respondents, declaring Ordinance No. 6 37 of the City of Manila null and void. The
preliminary injunction is made permanent. No pronouncement as to cost.
SO ORDERED.
In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the
ordinance declared null and void:
1) As a revenue measure imposed on aliens employed in the City of Manila, Ordinance No.
6537 is discriminatory and violative of the rule of the uniformity in taxation;

Manila, Philippines, September 17, 1968.
(SGD.) FRANCISCO ARCA
Judge 1
The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on
February 22, 1968 and signed by the herein petitioner Mayor Antonio J. Villegas of Manila on
March 27, 1968. 2
City Ordinance No. 6537 is entitled:
AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE
PHILIPPINES TO BE EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO BE
ENGAGED IN ANY KIND OF TRADE, BUSINESS OR OCCUPATION WITHIN THE CITY OF
MANILA WITHOUT FIRST SECURING AN EMPLOYMENT PERMIT FROM THE MAYOR
OF MANILA; AND FOR OTHER PURPOSES. 3
2) As a police power measure, it makes no distinction between useful and non-useful
occupations, imposing a fixed P50.00 employment permit, which is out of proportion to the
cost of registration and that it fails to prescribe any standard to guide and/or limit the action of
the Mayor, thus, violating the fundamental principle on illegal delegation of legislative powers:
3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus,
deprived of their rights to life, liberty and property and therefore, violates the due process and
equal protection clauses of the Constitution. 7
On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on
September 17, 1968 rendered judgment declaring Ordinance No. 6537 null and void and
making permanent the writ of preliminary injunction. 8
Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed
the present petition on March 27, 1969. Petitioner assigned the following as errors allegedly
committed by respondent Judge in the latter's decision of September 17,1968: 9
I

Page 29 of 34
taxreviewcases
THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN
RULING THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE OF
UNIFORMITY OF TAXATION.
II
RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR OF LAW
IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE AGAINST UNDUE
DESIGNATION OF LEGISLATIVE POWER.
III
RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT ERROR OF
LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE DUE PROCESS AND
EQUAL PROTECTION CLAUSES OF THE CONSTITUTION.
Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void
on the ground that it violated the rule on uniformity of taxation because the rule on uniformity
of taxation applies only to purely tax or revenue measures and that Ordinance No. 6537 is
not a tax or revenue measure but is an exercise of the police power of the state, it being
principally a regulatory measure in nature.
The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its
principal purpose is regulatory in nature has no merit. While it is true that the first part which
requires that the alien shall secure an employment permit from the Mayor involves the
exercise of discretion and judgment in the processing and approval or disapproval of
applications for employment permits and therefore is regulatory in character the second part
which requires the payment of P50.00 as employee's fee is not regulatory but a revenue
measure. There is no logic or justification in exacting P50.00 from aliens who have been
cleared for employment. It is obvious that the purpose of the ordinance is to raise money
under the guise of regulation.
The P50.00 fee is unreasonable not only because it is excessive but because it fails to
consider valid substantial differences in situation among individual aliens who are required to
pay it. Although the equal protection clause of the Constitution does not forbid classification, it
is imperative that the classification should be based on real and substantial differences
having a reasonable relation to the subject of the particular legislation. The same amount of
P50.00 is being collected from every employed alien whether he is casual or permanent, part
time or full time or whether he is a lowly employee or a highly paid executive
to grant or deny the issuance of building permits, such ordinance is invalid, being an
undefined and unlimited delegation of power to allow or prevent an activity per se lawful. 10
In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a
government agency power to determine the allocation of wheat flour among importers, the
Supreme Court ruled against the interpretation of uncontrolled power as it vested in the
administrative officer an arbitrary discretion to be exercised without a policy, rule, or standard
from which it can be measured or controlled.
It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse
permits of all classes conferred upon the Mayor of Manila by the Revised Charter of Manila is
not uncontrolled discretion but legal discretion to be exercised within the limits of the law.
Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion
to guide the mayor in the exercise of the power which has been granted to him by the
ordinance.
The ordinance in question violates the due process of law and equal protection rule of the
Constitution.
Requiring a person before he can be employed to get a permit from the City Mayor of Manila
who may withhold or refuse it at will is tantamount to denying him the basic right of the people
in the Philippines to engage in a means of livelihood. While it is true that the Philippines as a
State is not obliged to admit aliens within its territory, once an alien is admitted, he cannot be
deprived of life without due process of law. This guarantee includes the means of livelihood.
The shelter of protection under the due process and equal protection clause is given to all
persons, both aliens and citizens. 13
The trial court did not commit the errors assigned.
WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to
costs.
SO ORDERED.

Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the
exercise of his discretion. It has been held that where an ordinance of a municipality fails to
state any policy or to set up any standard to guide or limit the mayor's action, expresses no
purpose to be attained by requiring a permit, enumerates no conditions for its grant or refusal,
and entirely lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power

Page 30 of 34
taxreviewcases
G.R. No. 81311 June 30, 1988 PADILLA, J.:

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., These four (4) petitions, which have been consolidated because of the similarity of the main
HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C. issues involved therein, seek to nullify Executive Order No. 273 (EO 273, for short), issued by
VILLANUEVA, petitioners, the President of the Philippines on 25 July 1987, to take effect on 1 January 1988, and which
vs. amended certain sections of the National Internal Revenue Code and adopted the value-
HON. BIENVENIDO TAN, as Commissioner of Internal Revenue, respondent. added tax (VAT, for short), for being unconstitutional in that its enactment is not alledgedly
within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and
G.R. No. 81820 June 30, 1988 violates the due process and equal protection clauses and other provisions of the 1987
Constitution.
KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated labor
federations and alliances, petitioners, The Solicitor General prays for the dismissal of the petitions on the ground that the petitioners
vs. have failed to show justification for the exercise of its judicial powers, viz. (1) the existence of
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE COMMISSIONER OF an appropriate case; (2) an interest, personal and substantial, of the party raising the
INTERNAL REVENUE, and SECRETARY OF BUDGET, respondents. constitutional questions; (3) the constitutional question should be raised at the earliest
opportunity; and (4) the question of constitutionality is directly and necessarily involved in a
G.R. No. 81921 June 30, 1988 justiciable controversy and its resolution is essential to the protection of the rights of the
parties. According to the Solicitor General, only the third requisite that the constitutional
question should be raised at the earliest opportunity has been complied with. He also
INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE PHILIPPINES and JESUS questions the legal standing of the petitioners who, he contends, are merely asking for an
B. BANAL, petitioners, advisory opinion from the Court, there being no justiciable controversy for resolution.
vs.
The HON. COMMISSIONER, BUREAU OF INTERNAL REVENUE, respondent.
Objections to taxpayers' suit for lack of sufficient personality standing, or interest are,
however, in the main procedural matters. Considering the importance to the public of the
G.R. No. 82152 June 30, 1988 cases at bar, and in keeping with the Court's duty, under the 1987 Constitution, to determine
wether or not the other branches of government have kept themselves within the limits of the
RICARDO C. VALMONTE, petitioner, Constitution and the laws and that they have not abused the discretion given to them, the
vs. Court has brushed aside technicalities of procedure and has taken cognizance of these
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, COMMISSIONER OF petitions.
INTERNAL REVENUE and SECRETARY OF BUDGET, respondent.
But, before resolving the issues raised, a brief look into the tax law in question is in order.
Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311.
The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added
Jaime C. Opinion for individual petitioners in G.R. No. 81311. by every seller, with aggregate gross annual sales of articles and/or services, exceeding
P200,00.00, to his purchase of goods and services, unless exempt. VAT is computed at the
Banzuela, Flores, Miralles, Raeses, Sy, Taquio and Associates for petitioners in G.R. No rate of 0% or 10% of the gross selling price of goods or gross receipts realized from the sale
81820. of services.

Union of Lawyers and Advocates for Peoples Right collaborating counsel for petitioners in
G.R. No 81820.
Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921.
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers
and producers, advance sales tax, and compensating tax on importations. The framers of EO
273 that it is principally aimed to rationalize the system of taxing goods and services; simplify
tax administration; and make the tax system more equitable, to enable the country to attain
economic recovery.

Page 31 of 34
taxreviewcases
The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was
issued. As pointed out by the Solicitor General, the Philippine sales tax system, prior to the
issuance of EO 273, was essentially a single stage value added tax system computed under
the "cost subtraction method" or "cost deduction method" and was imposed only on original
sale, barter or exchange of articles by manufacturers, producers, or importers. Subsequent
sales of such articles were not subject to sales tax. However, with the issuance of PD 1991
on 31 October 1985, a 3% tax was imposed on a second sale, which was reduced to 1.5%
upon the issuance of PD 2006 on 31 December 1985, to take effect 1 January 1986.
Reduced sales taxes were imposed not only on the second sale, but on every subsequent
sale, as well. EO 273 merely increased the VAT on every sale to 10%, unless zero-rated or
exempt.
Petitioners first contend that EO 273 is unconstitutional on the Ground that the President had
no authority to issue EO 273 on 25 July 1987.
The contention is without merit.
It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution,
sole legislative authority was vested upon the President. Art. II, sec. 1 of the Provisional
Constitution states:
Sec. 1. Until a legislature is elected and convened under a new Constitution, the President
shall continue to exercise legislative powers.
On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for
the Republic of the Philippines which was ratified in a plebiscite conducted on 2 February
1987. Article XVIII, sec. 6 of said Constitution, hereafter referred to as the 1987 Constitution,
provides:
Sec. 6. The incumbent President shall continue to exercise legislative powers until the first
Congress is convened.
It should be noted that, under both the Provisional and the 1987 Constitutions, the President
is vested with legislative powers until a legislature under a new Constitution is convened. The
first Congress, created and elected under the 1987 Constitution, was convened on 27 July
1987. Hence, the enactment of EO 273 on 25 July 1987, two (2) days before Congress
convened on 27 July 1987, was within the President's constitutional power and authority to
legislate.
Petitioner Valmonte claims, additionally, that Congress was really convened on 30 June 1987
(not 27 July 1987). He contends that the word "convene" is synonymous with "the date when
the elected members of Congress assumed office."
The contention is without merit. The word "convene" which has been interpreted to mean "to
call together, cause to assemble, or convoke," 1 is clearly different from assumption of office
Page 32 of 34
by the individual members of Congress or their taking the oath of office. As an example, we
call to mind the interim National Assembly created under the 1973 Constitution, which had
not been "convened" but some members of the body, more particularly the delegates to the
1971 Constitutional Convention who had opted to serve therein by voting affirmatively for the
approval of said Constitution, had taken their oath of office.
To uphold the submission of petitioner Valmonte would stretch the definition of the word
"convene" a bit too far. It would also defeat the purpose of the framers of the 1987
Constitutional and render meaningless some other provisions of said Constitution. For
example, the provisions of Art. VI, sec. 15, requiring Congress to convene once every year
on the fourth Monday of July for its regular session would be a contrariety, since Congress
would already be deemed to be in session after the individual members have taken their oath
of office. A portion of the provisions of Art. VII, sec. 10, requiring Congress to convene for the
purpose of enacting a law calling for a special election to elect a President and Vice-
President in case a vacancy occurs in said offices, would also be a surplusage. The portion
of Art. VII, sec. 11, third paragraph, requiring Congress to convene, if not in session, to
decide a conflict between the President and the Cabinet as to whether or not the President
and the Cabinet as to whether or not the President can re-assume the powers and duties of
his office, would also be redundant. The same is true with the portion of Art. VII, sec. 18,
which requires Congress to convene within twenty-four (24) hours following the declaration of
martial law or the suspension of the privilage of the writ of habeas corpus.
The 1987 Constitution mentions a specific date when the President loses her power to
legislate. If the framers of said Constitution had intended to terminate the exercise of
legislative powers by the President at the beginning of the term of office of the members of
Congress, they should have so stated (but did not) in clear and unequivocal terms. The Court
has not power to re-write the Constitution and give it a meaning different from that intended.
The Court also finds no merit in the petitioners' claim that EO 273 was issued by the
President in grave abuse of discretion amounting to lack or excess of jurisdiction. "Grave
abuse of discretion" has been defined, as follows:
Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction (Abad Santos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in
other words, where the power is exercised in an arbitrary or despotic manner by reason of
passion or personal hostility, and it must be so patent and gross as to amount to an evasion
of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in
contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz. 62). 2
Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an
arbitrary or despotic manner by reason of passion or personal hostility. It appears that a
comprehensive study of the VAT had been extensively discussed by this framers and other
government agencies involved in its implementation, even under the past administration. As
the Solicitor General correctly sated. "The signing of E.O. 273 was merely the last stage in
the exercise of her legislative powers. The legislative process started long before the signing
taxreviewcases
when the data were gathered, proposals were weighed and the final wordings of the measure
were drafted, revised and finalized. Certainly, it cannot be said that the President made a
jump, so to speak, on the Congress, two days before it convened." 3
Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in
violation of the provisions of Art. VI, sec. 28(1) of the 1987 Constitution, which states:
Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
The petitioners" assertions in this regard are not supported by facts and circumstances to
warrant their conclusions. They have failed to adequately show that the VAT is oppressive,
discriminatory or unjust. Petitioners merely rely upon newspaper articles which are actually
hearsay and have evidentiary value. To justify the nullification of a law. there must be a clear
and unequivocal breach of the Constitution, not a doubtful and argumentative implication. 4
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The
court, in City of Baguio vs. De Leon, 5 said:
... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, speaking for the Court,
stated: "A tax is considered uniform when it operates with the same force and effect in every
place where the subject may be found."
There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso (83 Phil. 852, 862). Thus: "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; . . ." About two years later, Justice Tuason, speaking for this Court in Manila Race
Horses Trainers Assn. v. de la Fuente (88 Phil. 60, 65) incorporated the above excerpt in his
opinion and continued; "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."
To satisfy this requirement then, all that is needed as held in another case decided two years
later, (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." (Lutz v. Araneta, 98 Phil.
148, 153).
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the
public, which are not exempt, at the constant rate of 0% or 10%.
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The disputed sales tax is also equitable. It is imposed only on sales of goods or services by
persons engage in business with an aggregate gross annual sales exceeding P200,000.00.
Small corner sari-sari stores are consequently exempt from its application. Likewise exempt
from the tax are sales of farm and marine products, spared as they are from the incidence of
the VAT, are expected to be relatively lower and within the reach of the general public. 6
The Court likewise finds no merit in the contention of the petitioner Integrated Customs
Brokers Association of the Philippines that EO 273, more particularly the new Sec. 103 (r) of
the National Internal Revenue Code, unduly discriminates against customs brokers. The
contested provision states:
Sec. 103. Exempt transactions. The following shall be exempt from the value-added tax:
xxx xxx xxx
(r) Service performed in the exercise of profession or calling (except customs brokers)
subject to the occupation tax under the Local Tax Code, and professional services performed
by registered general professional partnerships;
The phrase "except customs brokers" is not meant to discriminate against customs brokers. It
was inserted in Sec. 103(r) to complement the provisions of Sec. 102 of the Code, which
makes the services of customs brokers subject to the payment of the VAT and to distinguish
customs brokers from other professionals who are subject to the payment of an occupation
tax under the Local Tax Code. Pertinent provisions of Sec. 102 read:
Sec. 102. Value-added tax on sale of services. There shall be levied, assessed and
collected, a value-added tax equivalent to 10% percent of gross receipts derived by any
person engaged in the sale of services. The phrase sale of services" means the performance
of all kinds of services for others for a fee, remuneration or consideration, including those
performed or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of personal property; lessors or
distributors of cinematographic films; persons engaged in milling, processing, manufacturing
or repacking goods for others; and similar services regardless of whether or not the
performance thereof call for the exercise or use of the physical or mental faculties: ...
With the insertion of the clarificatory phrase "except customs brokers" in Sec. 103(r), a
potential conflict between the two sections, (Secs. 102 and 103), insofar as customs brokers
are concerned, is averted.
At any rate, the distinction of the customs brokers from the other professionals who are
subject to occupation tax under the Local Tax Code is based upon material differences, in
that the activities of customs brokers (like those of stock, real estate and immigration brokers)
partake more of a business, rather than a profession and were thus subjected to the
percentage tax under Sec. 174 of the National Internal Revenue Code prior to its amendment
by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the
taxreviewcases
petitioner Association did not protest the classification of customs brokers then, the Court
sees no reason why it should protest now.

The Court takes note that EO 273 has been in effect for more than five (5) months now, so
that the fears expressed by the petitioners that the adoption of the VAT will trigger
skyrocketing of prices of basic commodities and services, as well as mass actions and
demonstrations against the VAT should by now be evident. The fact that nothing of the sort
has happened shows that the fears and apprehensions of the petitioners appear to be more
imagined than real. It would seem that the VAT is not as bad as we are made to believe.

In any event, if petitioners seriously believe that the adoption and continued application of the
VAT are prejudicial to the general welfare or the interests of the majority of the people, they
should seek recourse and relief from the political branches of the government. The Court,
following the time-honored doctrine of separation of powers, cannot substitute its judgment
for that of the President as to the wisdom, justice and advisability of the adoption of the VAT.
The Court can only look into and determine whether or not EO 273 was enacted and made
effective as law, in the manner required by, and consistent with, the Constitution, and to
make sure that it was not issued in grave abuse of discretion amounting to lack or excess of
jurisdiction; and, in this regard, the Court finds no reason to impede its application or
continued implementation.

WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs.

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