1

Test Bank
Atty. Cabaneiro
Taxation

Legend:
Items in blue – Appeared in the Midterm exams
Items in black – Appeared in the quizzes

GENERAL PRINCIPLES
1. In the case of Tolentino vs. Secretary of Finance, it was argued in the taxpayer’s suit file by
Senator Tolentino that the E-VAT Law was regressive in nature since rich and poor alike pays the
same amount of tax. Hence, a person regardless of his financial capacity, buying a pair of shoes
from a department store is required to pay the same price for the shoes together with the 12%
EVAT. Was Senator Tolentino correct in his position? Discuss fully.

Yes, E-VAT is regressive in nature as opposed to being progressive. Taxation is progressive when
the rate goes up depending on the resources of the person affected. The Court yielded in the
aforementioned case that the VAT is an antithesis of progressive taxation. By its very nature, it is
regressive and, at the end of the day, it is really the lower income group or business with low-profit
margins that is always hardest hit. But the Court noted that the Constitution does not prohibit the
imposition of indirect taxes, like VAT. What it simply provides is that Congress shall “evolve a
progressive system of taxation.”
The principles of progressive taxation has no relation with the VAT System inasmuch as the VAT
paid by the consumer or business for every goods bought or services enjoyed is the same
regardless of income.
Finally, the SC admitted that “taxes are the lifeblood of the government…” The Court is neither
blind nor is it turning a deaf ear on the plight of the masses. But it does not have the panacea for
the malady that the law seeks to remedy. As in other cases, the Court cannot strike down a law
as unconstitutional simply because of its yokes.”
In closing, the SC held that the assailed provisions of RA No. 9337 involve legislative policy and
wisdom. And, so long as there is a public end for which RA No. 9337 was passed, the means
through which such end shall be accomplished is for the legislature (not the Court) to choose so
long as it is within constitutional bounds.

2. A law was passed mandating the collection of a tax from the inhabitants in order to generate
funds to give subsidy to the earthquake victims in Baguio. The law was questioned on the ground
that it violates the inherent limitation of public purpose. Is the law valid? Discuss fully.

The law should not be declared unconstitutional for violating the inherent limitation of public
purpose. The term “public purpose” has no fixed connotation. The essential point is that the
purpose of the tax affects the inhabitants as a community and not merely as inhabitants.
It has been said that the best test of rightful taxation is that the proceeds of the tax must be used.
a) for the support of the government; or b) some of the recognized objects of government;
or c) to promote the welfare of the community.
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Tests to determine Public purpose:

a) Duty Test – whether the thing to be furthered by the appropriation of public revenue is
something which is the duty of the State as a government to provide
b) Promotion of General Welfare Test- whether the proceeds of the tax will directly promote
the welfare of the community.

3. The Sangguniang Pangbayan of Balayan in Batangas passed an ordinance imposing a 3%

sales tax on all sales of bakeries operating within the town effective January 1, 2011 based on
gross sales, payable on or before the end of the year. Some bakery owners paid the 3% sales tax
in February, March and April 2011. However, other bakery owners decided to defer their payment
of the sales tax towards the end of the year. Subsequently, on May 1, 2011, the Sangguniang
passed an ordinance that effective June 1, 2011, bakery owners are already exempted from
paying the 3% sales tax. The bakery owners who paid the 3% sales tax ahead in February, March
and April 2011, requested for the refund of what they paid on the ground that the subsequent
ordinance violated the constitutional guarantee on uniformity in taxation. Decide the case.
The Constitution does not require absolute identity or equality under all circumstances.
The subsequent ordinance is not unconstitutional. Section 28 (c), Article VI of the Constitution
provides that “the rule of taxation shall be uniform and equitable.” The concept of uniformity in
taxation implies that all taxable articles or properties of the same class shall be taxed at the same
rate. It requires the uniform application and operation, without discrimination, of the tax in every
place where the subject of the tax is found. It does not, however, require absolute identity or
equality under all circumstances, but subject to reasonable classification. The challenged
ordinance was without reservation to its application in the town of Balayan, Batangas.

In the Case of City of Baguio vs. De Leon, a tax is considered to be uniform when it operates with
the same force and effect in every place where the subject may be found. The ordinance
uniformly applies to all bakery owners without distinction, qualification or condition. The said law
applies equally well to all persons owning a Bakery or those placed in a similar situation. Hence,
there is not infringement of the rule of uniformity of Taxation.

4. On January 1990, the Buckingham Subdivision sold houses and lots to various buyers on
installment basis. Under the Contract to Sell issued by the subdivision to its buyers, the selling price
will be payable through a monthly installment for the next 10 years up to January 2000. In 1996,
with the effectivity of the EVAT Law, installment payments due starting 1996 will now be subject to
EVAT. In the taxpayer’s suit filed by Senator Tolentino, it was argued that the EAT Law violated the
constitutional guarantee of non-impairment of contracts.‛ Was Senator Tolentino correct in his
position? Discuss fully. N o. Non-impairment of contract applies only where one party is the government and the
other, a private individual.
5. In the case of Tolentino vs. Secretary of Finance, the Chamber of Real Estate Brokers Association
of the Philippines (CREBA) contends that the imposition of the VAT on the sales and leases of real
estate by virtue of contracts entered into prior to the effectivity of the RA 7716 (E-VAT) would violate
the constitutional provision that ‚no law impairing the obligaitons and contracts shall be passed‛.
How did the Supreme Court resolve the issue? Explain fully.
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NO. The present case is akin to that of the issue in Tolentino vs. The Secretary of Justice (235 SCRA
630), where the court held that the contention of CREBA that the imposition of the VAT on the
sales and leases of real estate by virtue of contracts entered into prior to the effectivity of the law
would violate the constitutional provision of non-impairment of contracts is only slightly less
abstract but nonetheless hypothetical. It is enough to say that the parties to a contract cannot,
through the exercise of prophetic discernment, fetter the exercise of the taxing power of the State.
For not only are existing laws read into contracts in order to fix obligations as between parties, but
the reservation of essential attributes of sovereign power is also read into contracts as a basic
postulate of the legal order. The policy of protecting contracts against impairment presupposes
the maintenance of a government which retains adequate authority to secure the peace and
good order of society.

Such is not the case of PAL in G.R. No. 115852, and the Court does not understand it to make this
claim. Rather, its position, as discussed above, is that the removal of its tax exemption cannot be
made by a general, but only by a specific, law.

Further, the Supreme Court held the validity of Republic Act No. 7716 in its formal and substantive
aspects as this has been raised in the various cases before it. To sum up, the Court holds:

(1) That the procedural requirements of the Constitution have been complied with by Congress in
the enactment of the statute;
(2) That judicial inquiry whether the formal requirements for the enactment of statutes - beyond
those prescribed by the Constitution - have been observed is precluded by the principle of
separation of powers;
(3) That the law does not abridge freedom of speech, expression or the press, nor interfere with
the free exercise of religion, nor deny to any of the parties the right to an education; and

(4) That, in view of the absence of a factual foundation of record, claims that the law is regressive,
oppressive and confiscatory and that it violates vested rights protected under the Contract
Clause are prematurely raised and do not justify the grant of prospective relief by writ of
prohibition.

6. In the case of Tolentino vs. Secretary of Finance, the Philippine Press Institute Inc. (PPI)
contended that by withdrawing the exemption previously granted to print media transactions
involving printing, publication, importation or sale of newspapers, RA 7716 has singled out the
press for discriminatory treatment and that within the class of media the law discriminates against
print media by giving broadcast media favored treatment. Is the contention of PPI correct? Explain
fully. There is no vested right in a tax exemption. Being merely a statutory privilege, a tax exemption
may be modified or withdrawn at will by the granting authority.

No. As a general proposition, the press is not exempt from the taxing power of the State and that
what the constitutional guarantee of free press prohibits are laws which single out the press or
target a group belonging to the press for special treatment or which in any way discriminate
against the press on the basis of the content of the publication, and R.A. No. 7716 is none of these.
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Now it is contended by the PPI that by removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates against the press. At any rate, it is
averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is
unconstitutional."

With respect to the first contention, it would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime without offense to the Constitution. The
reason is simple: by granting exemptions, the State does not forever waive the exercise of its
sovereign prerogative. Indeed, in withdrawing the exemption, the law merely subjects the press
to the same tax burden to which other businesses have long ago been subject. It is thus different
from the tax involved in the cases invoked by the PPI. The license tax in Grosjean v. American Press
Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was found to be discriminatory because it was laid on the
gross advertising receipts only of newspapers whose weekly circulation was over 20,000, with the
result that the tax applied only to 13 out of 124 publishers in Louisiana. These large papers were
critical of Senator Huey Long who controlled the state legislature which enacted the license tax.
The censorial motivation for the law was thus evident.

7. Describe the power of taxation having in mind the broad spectrum of taxation. Are the
provisions in the 1987 Philippine Constitution relevant to taxation considered as basis for the grants
of the power to tax? Discuss fully.

Yes. The Power of taxation is supreme, plenary all-encompassing unlimited awesome pierces all
kinds of properties, rights and activities subject to no-injunction rule and it is the power to destroy.
It is legislative in character and unlimited in its range, acknowledging in its very nature no limit, so
that the principal check against abuse is to be found only in the responsibility of the legislature.

While the NIRC is the basic source of Philippine tax law, the 1987 Constitution also sets relevant
provisions on limitations on the exercise of the power to tax:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system
of taxation. (Article VI, Section 28, paragraph 1)
All money collected on any tax levied for a special purpose shall be treated as a special fund and
paid out for such purpose only. If the purpose for which a special fund was created has been
fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the
Government. (Article VI, Section 29, paragraph 3). The Congress may, by law, authorize the
President to fix within specified limits, and subject to such limitations and restriction as it may
impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the Government (Article
VI, Section 28, paragraph 2) The President shall have the power to veto any particular item or
items in an appropriation, revenue or tariff bill, but the veto shall not affect the item or items to
which he does not object. (Article VI, Section 27, second paragraph)

The Supreme Court shall have the power to review, revise, reverse, modify or affirm on appeal or
certiorari, as the law or the Rules of Court may provide, final judgments and orders of lower courts
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in x x x all cases involving the legality of any tax, impost, assessment, or toll or any penalty imposed
in relation thereto. (Article VIII, Section 5, paragraph)

Tax exemptions are limited to those granted by law. However, no law granting any tax exemption
shall be passed without the concurrence of a majority of all the members of the Congress. (Article
VI, Section 28, par. 4). The Constitution expressly grants tax exemption on certain
entities/institutions such as (1) charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, and nonprofit cemeteries and all lands, buildings and
improvements actually, directly and exclusively used for religious, charitable or educational
purposes (Article VI, Section 28, paragraph 3); (2) non-stock non-profit educational institutions
used actually, directly and exclusively for educational purposes. (Article XVI, Section 4(3))

8. Bank of the Philippine Islands (BPI) for being a banking institution pays the Gross Receipts Tax
(GRT), which is a form of Percentage Tax imposed under Title V of the Tax Code. BPI also pays
income tax on it income pursuant to Title II of the Tax Code. BPI claims that this is double taxation.
Decide.

There is no double taxation. The present case is akin to that of CIR vs BPI (GR No. 147375, June
26,2006) in relation to Commissioner of Internal Revenue v. Solidbank Corporation (G.R. No.
148191 November 25, 2003) where it held :

Double taxation means taxing the same property twice when it should be taxed only once; that
is, x x x taxing the same person twice by the same jurisdiction for the same thing. It is obnoxious
when the taxpayer is taxed twice, when it should be but once. Otherwise described as direct
duplicate taxation, the two taxes must be imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period;
and they must be of the same kind or character.

First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT
[Final Withholding Tax] is the passive income generated in the form of interest on deposits and
yield on deposit substitutes, while the subject matter of the GRT [Gross Receipts Tax] is the privilege
of engaging in the business of banking.

A tax based on receipts is a tax on business rather than on the property; hence, it is an excise
rather than a property tax. It is not an income tax, unlike the FWT. In fact, we have already held
that one can be taxed for engaging in business and further taxed differently for the income
derived therefrom. Akin to our ruling in Velilla v. Posadas, these two taxes are entirely distinct and
are assessed under different provisions.

Second, although both taxes are national in scope because they are imposed by the same taxing
authority the national government under the Tax Codeand operate within the same Philippine
jurisdiction for the same purpose of raising revenues, the taxing periods they affect are
different. The FWT is deducted and withheld as soon as the income is earned, and is paid after
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every calendar quarter in which it is earned. On the other hand, the GRT is neither deducted nor
withheld, but is paid only after every taxable quarter in which it is earned.

Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to
withholding, while the GRT is a percentage tax not subject to withholding.

In short, there is no double taxation, because there is no taxing twice, by the same taxing authority,
within the same jurisdiction, for the same purpose, in different taxing periods, some of the property
in the territory. Subjecting interest income to a 20% FWT and including it in the computation of the
5% GRT is clearly not double taxation

9. In 2011, Mrs. Brown gave her parents a Birthday gift of Ph200,000 and a donation of Ph100,000
to her parish church St. Jerome in Alabang. She also donated a parcel of land located at Taal,
Batangas for the construction of a building for the Batangas West High School Alumni Association,
a non-stock, non-profit organization. The western portion of the building shall be leased to a
bookstore to generate income for the association. Is the donation to St. Jerome parish church
subject to tax? Discuss fully.

SUGGESTED ANSWER:
No, the donation of P100,000 to St. Jerome Parish Church, even assuming that it is exclusively for
religious purposes, is not tax-exempt because the exemption granted under Article VI, Section
28(3) of the Constitution applies only to real estate taxes. (Lladoc v. Commissioner, 14 SCRA 292)
[Mamalateo, Reviewer on Taxation, 2014, p. 70-71]

10. Mr. Monmon Calimbahin, a business entrepreneur who for a long time now had been harboring
resentment against the government about the alleged illegal disbursement of government funds
in favor of some government people who are in power decided that effective the third quarter of
2013, he will stop paying taxes. He rationalized his decision by arguing that government funds
which are being sourced from tax collections must be utilized for legitimate public purposes and
not to enrich the pockets of powerful persons in the government. Mr. Calimbahin further argued
that as a business entrepreneur, the taxes which have been paying to the government since he
commenced business in year 2000 comes from his hard-earned money and therefore there is a
legal bases for his decision. As his legal counsel, what will you advise Mr. Calimbahin.
I will advise Mr. Calimbahin that paying taxes is a legal obligation
imposed by the government on individuals and businesses to fund public
SUGGESTED ANSWER: services, infrastructure, and various government functions. (LIFE
BLOOD DOCTRINE) Failure to pay taxes can lead to legal
I will advise Mr. Calimbahin to still pay his taxes. consequences, including fines and penalties. Instead, there are legal
avenues available to challenge government actions if they are believed
to be illegal or unconstitutional.
Under the Lifeblood Theory as a basis for taxation, the existence of government is a necessity; it
cannot exist nor endure without the means to pay its expenses; and for those means, the
government has the right to compel all its citizens and property within its limits to contribute in the
form of taxes. [Mamalateo, Reviewer on Taxation, 2014, p. 6]

Moreover, Mr. Calimbahin is not without recourse. If he believes that there is an illegal
disbursement of government funds, he may avail of a taxpayer’s suit. The Supreme Court held in
a case:
Taxes are what we pay for civilized society. Without taxes, the government would
be paralyzed for lack of the motive power to activate and operate it. Hence,
despite the natural reluctance to surrender part of one’s hard-earned income to
the taxing authorities, every person who is able must contribute his share in the 7
burden of running the government. The government for its part, is expected to
respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their material and moral values.”

It is hornbook principle that a taxpayer is allowed to sue where there is a claim that public funds
are illegally disbursed, or that public money is being deflected to any improper purpose, or that
there is wastage of public funds through the enforcement of an invalid or unconstitutional law. A
person suing as a taxpayer, however, must show that the act complained of directly involves the
illegal disbursement of public funds derived from taxation. In other words, for a taxpayer’s suit to
prosper, two requisites must be met namely, (1) public funds derived from taxation are disbursed
by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is
committed; and (2) the petitioner is directly affected by the alleged act. (Land Bank of the
Philippines v. Cacayuran, G.R. No. 191667, April 17, 2013.)

11. A law was passed mandating the collection of taxes from the inhabitants for the purposes of
raising funds to defray to construction of public school buildings. Mr. Tonette Guerra refused to pay
the tax on the ground that all his children are studying in private schools. Is the argument of Mr.
Guerra tenable? Why? Explain fully your answer.

Mr. Guerra’s argument is untenable. Power of taxation is so unlimited and plenary power, it is
OWWWWWESOMEEE..

This doctrine is enunciated in CIR v. Algue, Inc. [158 SCRA 9], which states that “Taxes are what we
pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive
power to activate and operate it. Hence, despite the natural reluctance to surrender part of one’s
hard-earned income to the taxing authorities, every person who is able must contribute his share
in the burden of running the government. The government for its part, is expected to respond in
the form of tangible and intangible benefits intended to improve the lives of the people and
enhance their material and moral values.”
On the under hand, The lifeblood theory constitutes the theory of taxation, which provides that
the existence of government is a necessity; that government cannot continue without means to
pay its expenses; and that for these means it has a right to compel its citizens and property within
its limits to contribute. Without revenue raised from taxation, the government will not survive,
resulting in detriment to society. Without taxes, the government would be paralyzed for lack of
motive power to activate and operate it. (CIR vs. ALGUE). Taxes are the lifeblood of the
government and there prompt and certain availability is an imperious need. (CIR vs Goodrich
International Rubber Co.)

12. Batangas Electric Co. (BATELEC) was given a franchise by the government to provide electricity
to various towns and barangays in Batangas. Under the franchise, BATELEC will only pay a 2%
franchise tax from January 1, 2000 to December 31,
2005. On May 2003, a law was passed requiring all franchise holders to pay income tax. BATELEC
contended that it is not liable to pay income tax because that will constitute a violation of the non-
impairment clause under the Consitution. Is BATELEC correct? Explain fully your answer. Case
Reference (Republic of the Philippines vs. Caguioa GR No. 168584 October 15, 2007 Ponente:
Carpio Morales)

No, BATELEC is incorrect. There is no vested right in a tax exemption. Being merely a statutory privilege,
a tax exemption may be modified or withdrawn at will by the granting authority.
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If the basis of the tax exemption is a franchise granted by Congress and under the franchise or the
tax exemption is given to a particular holder or person, it can be unilaterally revoked by the
government (Congress). The non-impairment clause applies only to contracts and not to a
franchise.
Franchise is a privilege given to a private person to engage in an activity that affects the public,
whether it is electrification, water system, telecommunication or water utilities. Franchise is a
unilateral grant at the pleasure of the granting power. The non-impairment clause applies to
taxation but not to police power and eminent domain. Furthermore, it applies only where one
party is the government and the other, a private individual. As a rule, the obligation to pay tax is
based on law. But when, for instance, a taxpayer enters into a compromise with the BIR, the
obligation of the taxpayer becomes one based on contract

Other RULES:
1. If the exemption was granted for valuable consideration and it is granted on the basis of a
contract.
cannot be revoked
2. If the exemption is granted by virtue of a contract, wherein the government enters into a
contract with a private corporation
cannot be revoked unilaterally by the government

13. A law was passed imposing taxes upon the video industry considering the unfair competition
posed by rampant film piracy and the losses in government revenues due to the drop in theatrical
attendance in the municipality where the industry is doing business. Mr. Lim questioned the
constitutionality of the law on account of violation of the equality clause under the Constitution. Is
the objection valid? Explain.

SUGGESTED ANSWER:
The objection is not valid. The Supreme Court held in Tio v. Videogram Regulatory Board, G.R. No.
L-75697, June 18, 1987: Being a relatively new industry, the need for [the video industry’s] regulation
was apparent. While the underlying objective of the DECREE is to protect the moribund movie
industry, there is no question that public welfare is at bottom of its enactment, considering "the
unfair competition posed by rampant film piracy; the erosion of the moral fiber of the viewing
public brought about by the availability of unclassified and unreviewed video tapes containing
pornographic films and films with brutally violent sequences; and losses in government revenues
due to the drop in theatrical attendance, not to mention the fact that the activities of video
establishments are virtually untaxed since mere payment of Mayor's permit and municipal license
fees are required to engage in business."

14. A tax law was passed imposing taxes on the income of foreign ambassadors and imposing
real property tax upon the properties of foreign embassies. Is the tax law valid? Explain.

15. In view of the unfavorable balance of payment condition and the increasing budget deficit,
the President of the Philippines, upon recommendation of the National Economic Development
Authority (NEDA), issues during a recess of Congress, an Executive Order imposing an additional
duty on all imports at the rate of 10% ad valorem. The Executive Order also provides that the same
 9

shall take effect immediately. Carlito Viniegra, an importer, questions the legality of the EO on the
grounds that only Congress has the authority to fix the rates of import taxes and, in any event, such
an EO can take effect only thirty days
after promulgation and the President has no authority to shorten said period. Are the objections of
Viniegra tenable? Explain.

SUGGESTED ANSWER 1: Yes, Viniergra's contention is tenable.

No, the objections are not tenable as the Executive Order cannot take effect immediately. Being
an external law and having the effect of law, the Executive Order cannot become effective
without publication, a requirement of due process. (Tañada v. Tuvera, 136 SCRA 27; E.O. 202)
[Mamalateo, Reviewer on Taxation, 2014, p. 36]

SUGGESTED ANSWER 2:
No. Under the Flexible Tariff Clause, any order issued by the President pursuant to the provision
shall take effect thirty (30) days after promulgation, except in the imposition or additional duty not
exceeding ten (10) percent ad valorem which shall take effect at the discretion of the President.
[Section 1680 (d), CMTA]
https://www.coursehero.com/file/p6iuhjb/FLEXIBLE-TARIFF-CLAUSE-1991-2001-Q-What-do-you-
understand-by-the-term-flexible/

16. In the desire of the government to protect the environment from pollution and constant
flooding which is caused mainly by plastic bags which blocks the drainage system in the country,
Congress is contemplating to pass a law requiring the payment of a twenty centavo ‘plastic bag
tax’ for every plastic bag being used by department stores, supermarkets, drug stores and other
convenience stores using plastic bag for the commodities being purchased by customers. Is the
proposed law valid? Yes, the proposed law is valid. It is settled that the power of taxation can be
made to implement the state’s police power for the purpose of regulation or
control, such as in this case where the protection of the environment from
SUGGESTED ANSWER: pollution and flooding is the primary purpose for imposing the ‘plastic bag tax”.
[Not sure sa sagot; indinaan sa Requisites of a Valid Tax]

The law is valid as it does not contravene the requisites of a valid tax which are:

1. That either of the person or property to be taxed be within the jurisdiction of the taxing authority;
2. That the assessment and collection of certain kinds of taxes guarantee against injustice to
individuals, especially by providing notice and opportunity for hearing;
3. That it should be for a public purpose;
4. The rule of taxation shall be uniform; and
5. The tax must not impinge on the inherent and constitutional limitations on the power of taxation.
[2017, Memory Aid]

17. A member of Congress acting on information from unimpeachable sources that religious
institutions and churches has so much income emanating from religious activities and other
sources proposed to impose taxes on said income and also to collect realty taxes on their real
properties. The proposal is intended to raise more revenues for the government which is in dire
need of revenues to address the fiscal adequacy needs of the country. It was also argued that
 10

these religious institutions have the financial capacity to pay and requiring them to share in the
burdens of the government conforms with the theoretical justice rule which is one of the basic
principles of a sound tax system. As a counsel working in the office of this member of Congress,
you are required to reinforce the position espoused by your boss. How will you handle this
assignment? Explain.

SUGGESTED ANSWER:
Article VI, Section 28(3) of the 1987 Constitution provides that “charitable institutions, churches
and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation.” This exemption applied only to property
taxes. What is exempted is not the institution itself but the lands, buildings and improvements
actually, directly and exclusively used for religious, charitable, and educational purposes.
[Mamalateo, Reviewer on Taxation, 2014, p. 69]

It may be argued, therefore, that the income emanating from religious activities and other sources
may be taxed. I'd explain how imposing taxes on religious institutions aligns with the theoretical justice rule,
which requires individuals and organizations to contribute based on their financial capacity for
the equitable distribution of the tax burden.

18. The Philippines is the second biggest exporter of sugar in the world market until an epidemic
hit the sugar industry. The Sugar Stabilization Act (SSA) provided for an increase of the existing tax
on the manufacture of sugar to generate funds to support the sugar planters. Mr. Pete Villanueva
assailed the constitutionality of the SSA alleging such tax as unconstitutional and void for not being
levied for a public purpose but for the aid and support of the sugar industry exclusively. Is the
contention of Villanueva correct? Explain fully.

SUGGESTED ANSWER:
No, the contention is not correct.

The Supreme Court held in Lutz v. Araneta, G.R. No. L-7859, December 22, 1955: As the protection
and promotion of the sugar industry is a matter of public concern the Legislature may determine
within reasonable bounds what is necessary for its protection and expedient for its promotion.
Here, the legislative must be allowed full play, subject only to the test of reasonableness; and it is
not contended that the means provided in section 6 of Commonwealth Act No. 567 bear no
relation to the objective pursued or are oppressive in character. If objective an methods are alike
constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their
prosecution and attainment. Taxation may be made the implement. Taxation may be made the
implement of the state's police power.

From the point of view we have taken it appears of no moment that the funds raised under the
Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry,
since it is that very enterprise that is being protected. It may be that other industries are also in
need of similar protection; but the legislature is not required by the Constitution to adhere to a
policy of "all or none."
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19. Mr. Richard Magat questioned the constitutionality of RA 1635 mandating the affixture of Anti-
TB stamps on all envelopes for mailing with the Bureau of Post, as well as its implementing
administrative orders, contending that it is not for a public purpose. Is RA 1635 valid? Explain fully.
YES RA 1635 IS VALID.

Gomez vs Palomar case Issue : It is claimed that R.A. 1635, otherwise known as theAnti-TBStamp
Law, is violative of the equalpro-tection clause of the Constitution because 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 discrirninatorily grants exemptions.
HELD: It is settled that the legislature has the inherent power to select the subject of taxation and
to grant exemptions. The classification of mail users is based on the ability to pay, the enjoyment
of a privilege and on administrative convenience. Tax exemptions have never been thought of
as raising issues under the equal protection clause. Moreover, the imposition of a flat rate rather
than a graduated tax does not infringe the rule of uniformity and equality of taxation. A tax need
not be measured by the weight of the mail or the extent of the service rendered. 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.
Requisites of equal protection:
1)The classification rests on substantial distinctions; (2) It is germane to the

purposes of the law; (3) It is not limited to existing conditions only; and (4) It applies equally to all
members of the same class 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.

20. May the power of taxation be used as an implement of the power of eminent domain? In the
case of Lutz vs. Araneta, the Supreme Court ruled that the power of taxation may be used to
implement the police power of the State. Do we have a jurisprudence supporting the rule that the
power of taxation can be used as an implement of the power of eminent domain? Reasons.

(Kindly refer to our Poli rev finals digest)

CIR v. Central Luzon Drug Corp., G.R. No. 159647, April 15, 2005

EMINENT DOMAIN: The concept of public use is no longer confined to the traditional notion of use
by the public, but held synonymous with public interest, public benefit, public welfare, and public
convenience. The discount privilege to which our senior citizens are entitled is actually a benefit
enjoyed by the general public to which these citizens belong. The discounts given would have
entered the coffers and formed part of the gross sales of the private establishments concerned,
were it not for RA 7432. The permanent reduction in their total revenues is a forced subsidy
corresponding to the taking of private property for public use or benefit.

As a result of the 20 percent discount imposed by RA 7432, respondent becomes entitled to a just
compensation. This term refers not only to the issuance of a tax credit certificate indicating the
correct amount of the discounts given, but also to the promptness in its release. Equivalent to the
 12

payment of property taken by the State, such issuance -- when not done within a reasonable time
from the grant of the discounts -- cannot be considered as just compensation.

… Besides, the taxation power can also be used as an implement for the exercise of the power of
eminent domain. Tax measures are but “enforced contributions exacted on pain of penal
sanctions” and “clearly imposed for a public purpose.” In recent years, the power to tax has
indeed become a most effective tool to realize social justice, public welfare, and the equitable
distribution of wealth.

21. A petition for declaratory relief was filed by the Roman Catholic Bishop of Capiz in the RTC of
Roxas City in order that the properties therein which all belonged to the Catholic Church of Capiz
could be declared as tax-exempt. If you were the judge that would render the court’s decision in
the above-mentioned case, what particular requirement in Sec. 28(3), Article VI of the Constitution
should you take into consideration in seeing to it that an actual hearing thereon is necessary
before you could validly declare that said property is tax-exempt? Explain your answer.

Actual Direct and Exclusive Use (Organizational test)

Section 28(3) of Article VI : Charitable institutions, churches and parsonages or convents

appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements,
actually, directly, and exclusively used for religious, charitable, or educational purposes shall be
exempt from taxation. This grants religious and charitable institutions exemption from real property
tax on all lands, buildings, and improvements, actually, directly, and exclusively used for religious,
charitable, or educational purposes. Conversely, real properties of religious and charitable
institutions not actually, directly, and exclusively used for religious, charitable, or educational
purposes shall be subject to the real property tax (Systems Plus Computer College vs. Caloocan
City, GR 146382, Aug. 7, 2003).

Used for religious, charitable, or educational purposes (Operational test) - regular activities of the
corporation be exclusively devoted to accomplishment for its purpose, otherwise, it should be
considered as " activities conducted for profit" and thus, taxable.

No part of income inure to the benefit of any person - On the other hand, Section 30 of the Tax
Code states that non-stock corporations or associations organized and operated exclusively for
religious or charitable purposes shall be exempted from income tax provided that no part of its
net income or asset shall belong to or inure to the benefit of any member, organizer, officer, or
any person.

TAX REMEDIES
1. Mr. Christian Manuel, a businessman was the recipient of a final assessment from the BIR for
deficiency income tax for taxable year 2012. In view of his failure to pay the deficiency assessment
and his failure to file a protest against said assessment, he was declared delinquent and his case
was endorsed to the Delinquent Accounts Department of the BIR. Despite repeated demands from
said department for Mr. Manuel to pay said
 13

deficiency tax, the latter failed to pay the same forcing the BIR to issue a Warrant of Garnishment
against his deposit account with BPI Family Savings Bank. Then the BIR Sheriff served the warrant
to the Manager of BPI, Mr. Amoranto, the latter refused to honor the warrant on the ground that it
will violate RA 1405 otherwise known as the Secrecy of Bank Deposit. Was Mr. Amoranto correct
in his decision? Explain fully.
NO. Jurisprudence provides that garnishment is not in violation of the Bank secrecy Law as it does
not inquire or divulge into the amount of the deposit but merely states that the deposit is to answer
an existing obligation by virtue of a court order. The prohibition against examination of or inquiry
into a bank deposit under Republic Act 1405 does not preclude its being garnished to insure
satisfaction of a judgment. In the present case, there was no inquiry as to how much the actual
deposits are, the only inquiry that the court had was whether or not there are deposits of Mr manuel
in BPI family savings bank.

The Philippines has a strict deposit secrecy law in Republic Act No. 1405 and it allows only four (4)
exceptions to confidentiality, namely: (1) upon written permission of the depositor; (2) in cases of
impeachment; (3) upon order of the court in cases of bribery or dereliction of duty; and (4) where
the deposit is the subject matter of litigation.
Case Reference: The Supreme Court also held that the disclosure of deposits to satisfy the writ of
garnishment issued by the court is not a violation of deposit secrecy since the disclosure is purely
incidental to the execution process (China Banking Corp. vs. Ortega, 49 SCRA 355); and that on
grounds of equity, the deposit of a foreign transient can be proceeded against to prevent an
injustice to an aggrieved citizen (Salvacion vs. Central Bank, 278 SCRA 27). Also on grounds of
equity, the Supreme Court allowed the owner of funds unlawfully taken to inquire on the deposit
of said funds (China Banking Corp. vs. Court of Appeals, 511 SCRA 110).

2. Mr. Maning San Pedro, a BIR examiner requested the Commissioner of Internal Revenue for
authority to inquire into the bank deposits of Alben Versoza, a taxpayer whom he suspects that he
did not declare the correct gross income in this 2011 income tax return. He justified his request to
the Commissioner for such authority in order that he can initiate the net worth method of
investigation to establish the suspected fraudulent act of the taxpayer. May the Commissioner of
Internal Revenue give such authority to Mr. San Pedro? Explain fully your answer.

No. Such inquiry would be a violation of the Bank Secrecy Law. While it is true that commissioner
has the power to inquire into bank deposits, it may validly do so under following circumstances. In
the case at bar, it does not fall under said circumstances as there is merely a suspicion that Alben
Versoza did not declare the correct gross income in his 2011 income tax return

Inquire into bank deposit accounts

● Commissioner may inquire into the bank deposits of:
1. a decedent to determine his gross estate; and
2. any taxpayer who has filed an application for compromise of his tax liability by reason of
financial incapacity to pay his tax liability. (There is really no conflict with RA 1405 or the Law on
Secrecy of Bank Deposit Act in case of compromises due to the financial inability to pay of the
taxpayer since an application for compromise shall not be considered unless and until the
taxpayer waives in writing his privilege under RA 1405. Such waiver constitutes the authority of the
Commissioner to inquire into the bank deposits of the taxpayer.)
 14

3. Mr. Bernardino Morales who was the recipient of various notices from the BIR for the
examination of his 2008 income tax return opted to ignore said notices prompting the BIR to rule
that the tax assessment had become final and unappealable. Subsequently, the BIR filed a civil
action against Morales to collect the deficiency tax due. After many years, a decision was
promulgated by the court ordering Morales to pay the tax due

together with the incremental penalties and surcharges. The judgment became final and
executory, but various attempts of the BIR to collect the tax liability yielded negative results.
Bothered by his conscience, Morales invokes the power of the Commissioner to compromise the
case under Section 204 of the Tax Code for which he offered a compromise settlement of 50% of
the court’s award stating to the Commissioner that it is only the amount the he could really afford.
May the Commissioner accept the offer? Is there something illegal or unethical if the same is
accepted? Explain your answer.

In the case at bar, while it is true that Commissioner may compromise tax liability, such cannot be
when the case is already FINAL AND EXECUTORY. Notwithstanding the fact that Morales falls under
one of the grounds where compromise may be had, and that the 50% compromise is above the
minimum limitation (10%), said compromise cannot be valid. Since the case is already F&E, by
virtue of such final judgment, the Government had already acquired a vested right.

The commissioner may only accept compromise under the following grounds:
1. A reasonable doubt as to the validity of the claim against the taxpayer exists; or
2. The financial position of the taxpayer demonstrates a clear inability to pay the
assessed tax
Limitations on compromise
● In case of large taxpayers or excise taxpayers - not less than 50%
● For cases of financial incapacity, a minimum compromise rate equivalent to 10% of the
basic assessed tax; and
● For other cases, a minimum compromise rate equivalent to 40% of the basic assessed tax
● Where the basic tax exceeds one million pesos (P1,000,000) or where the settlement
offered is less than the prescribed minimum rates, the compromise shall be subject to the
approval of the Evaluation Board which shall be composed of the Commissioner and the
four Deputy Commissioners.

Cases that may be compromised

1. Delinquent accounts
2. Cases under administrative protest
3. Cases disputed before the courts
4. Cases for collection already filed in courts
5. Criminal violations except those already filed, and those involving fraud.

Cases that cannot be compromised

1. Withholding tax cases
2. Criminal tax fraud cases
3. Criminal cases already filed in court
 15

4. Delinquent accounts with duly approved schedule of installment payments

5. Cases where reduction of payments had already been granted.
6. cases already decided and are final and executory <-- NOTA BENA

4. On April 15, 2006, Soyo Co., a Philippine Corporation filed its 2005 Income Tax Return declaring
a net loss. On November 10, 2006, Soyo Co. amended its 2005 Income Tax Return declaring more
losses. A tax examination was conducted by the BIR during which examination, the BIR disallowed
a big bulk of Soyo Co.’s deductions placing Soyo Co. in a positive tax position, i.e., Soyo has
income instead of loss. As a consequence, on August 5, 2009, the BIR issued a deficiency income
tax assessment against Soyo Co. Soyo Co. protested the assessment on the ground that
assessment had already prescribed. Decide the case.

ANSWER: The Assessment has NOT YET PRESCRIBED. The 3 years prescriptive period shall be
counted from November 10, 2006, the date of the substantial amendment.

The following shall govern in case there is an amendment of the return: (CIR vs Phoenix assurance,
1965)
1. If the amendment is substantial, the counting of the prescriptive period shall be reckoned
on the date the substantial amendment was made. (such as the present case)
2. If the amendment was superficial, the counting of the prescriptive period is still the original
period. (e.g. If the return is sufficiently complete to enable the CIR to intelligently determine the
proper amount of tax to be assessed)

Pampahaba ng sagot(reason for this rule) – To prevent taxpayers from evading the payment of
taxes by simply reporting in their original return heavy losses and amending the same more years
later when the CIR has lost his authority to assess the property tax thereunder. The NIRC supports
the life blood theory and not to enchance tax avoidance to the prejudice of the State.

5. Explain the requirements under the Tax Code before a claim for tax refund or tax credit for
erroneously paid taxes will be allowed by the Commissioner of Internal Revenue. Can a
withholding agent have the right to file a tax refund application? Explain fully.
ANSWER:
1.) There must be a legal GROUND or basis for the tax refund or credit. (sec. 229)
2.) There must be a written CLAIM for refund or credit filed by the taxpayer to the CIR.
3.) The claim must be a CATEGORICAL DEMAND for reimbursement.
4.) It must be within 2 YEARS from the date of the payment of the tax or penalty.
5.) Prior payment must be PROVEN. There must be actual collection and receipt by the
government of the tax sought to be recovered.

A withholding agent has a legal right to file a claim for refund because:
a.) He is considered a “taxpayer” as he is personally liable for the withholding tax as well as for
deficiency assessments, surcharge, and penalties.
b.) As an agent of the taxpayer, his authority to file the necessary income tax return and to remit
the tax withheld to the government impliedly includes the authority to file a claim for refund and
to bring an action for recovery of such claim.
 16

6. In Basilan, Mindanao, businessmen are being required by the Abu-Sayaff-MILF Omnibus Tax
Code (AMOTC) to pay a business tax in an amount graduated on the basis of the amount of gross
income during the preceding year. This tax is in addition to the local taxes due under the Local
Government Code and the national internal revenue taxes under the Tax Reform Code of
1997.

Dr. Carlos Pacheco, a dermatologist, paid the amount of Ph125,000 for taxable year 2009
representing business taxes due under the AMOTC. After paying the said tax, Dr. Pacheco
discovered that he needed to pay only Ph75,000 or an overpayment of Ph50,000. He discovered
this only on July 25, 2013. There is nothing in the AMOTC which provides for the period within which
to file a claim for refund for erroneously paid taxes.

a.) Is Dr. Pacheco still entitled to claim the tax refund and if ever within what period should the
claim be filed?
A: No, Dr. Pacheco is not entitled to claim the tax refund. The requirement of a legal ground is
absent since the subject tax paid was not one levied by the Government or those with statutory
authority. Also, Dr. Pacheco would fail in proving that there was a prior payment of tax actually
received by the government of the tax sought to be recovered.

b.) You were hired by Dr. Pacheco to represent him in the filing of his claim for which you were
promised a success fee of 5% in case of a favorable action on the refund claim. As counsel, how
will you handle the case? Explain.
A: Since the administrative remedies under the tax code will not be available, I will proceed with
judicial remedies which is to file an action for the recovery of sum of money on the ground that
there was a void contract by virtue of the object being contrary to law, public order, and public
policy. There would be no problem as to the issue of prescription for the reason that void contracts
are imprescriptible.

7. Mr. Ernesto Ocampo, a businessman from Binan, Laguna, is one of the large taxpayers in the
province of Laguna. The Secretary of Finance in taxable year 2003 issued a Revenue Regulation
which provided that taxpayers who will pay a tax for taxable 2003 which is 25% more than the tax
paid in taxable year 2002 will be entitled to a ‘last priority in investigation’. A congressman from
Batangas questioned the Revenue Regulation on the ground that giving such privilege to a
taxpayer is tantamount to a grant of a tax amnesty for which only Congress has the power to do
so.

a.) What do you think is in the mind of the Batangas congressman for espousing said position?
A: He must be espousing the limitations of the exceptions in the concept of Non-delegation of
taxing power which is “that the delegated levy power, except when the delegation is by an
express provision of the Constitution itself, should only be in favor of the local legislative body of
the local or municipal government concerned.” However, this is may be misplaced because an
exception to the principle of non-delegation of taxing powers is the power of subordinate
legislation which is satisfied by passing the completeness test and sufficient standard test.
 17

b.) If you were the Secretary of Finance, how will you defend your position? Explain.
A: Under Sec. 244 and 245 of the NIRC, the SOF may promulgate, upon recommendation of the
CIR, all needful rules and regulations for the effective enforcement of the NIRC. These regulations
are the consequence of a DELEGATED POWER to issue legal provisions that have the effect of law.
(CIR vs Solidbank). Among those specific provisions to be contained in the rules and regulations
as provided in Sec. 245 is xxx “The manner by which returns and payment of Large Taxpayers may
be filed and paid” xxx

8. Mr. Danny Uy is a businessman who is in the ordinary course of business engaged in the selling
and trading of a certain kind of agricultural product. After reviewing the pertinent provisions of the
VAT Regulation (Revenue Regulation 7-95), he is in a dilemma on whether he needs to registers as
a VAT taxpayer or Non-VAT Taxpayer. Being a VAT taxpayer entails compliance with the strict
regulations under Revenue Regulations 7-95 and any violation is subject to onerous sanctions. Mr.
Uy sought your assistance as a legal counsel and after your evaluation of the pertinent laws and
regulation, you are not also very sure as to the status of Mr. Uy on whether he should be registered
for VAT or not? You consulted a former classmate of yours from San Beda who is now an associate
counsel at ACCRA law office and he gave the opinion that Mr. Uy should be registered as VAT
taxpayer. At this juncture, how will you go about handling the query of Mr. Uy bearing in mind that
you are his counsel to protect his interest and immunize him from BIR sanctions in the future?
Explain full your answer.

A: As his counsel, I will request for a ruling of first impressions from the BiR or for the issuance of a
Revenue Memorandum Rulings(RMR) for the interpretation of the provisions of RR 7-95 as applied
to a specific set of facts. The reason for my action is to set in the Doctrine of Operative Fact, which
is to give the effect of non-retroactivity of rulings as will be prejudicial to taxpayers.

Under the doctrine of operative fact, taxpayers may rely upon a rule or ruling issued by the CIR
from the time the rule or ruling is issued up to its reversal by the CIR or by the Court. Any revocations,
modifications, or reversal of any of the rules and regulations issued by the CiR shall not be given
retroactive application. Hence, even if my client be subsequently declared to be VATable and
must be registered as such, he will not face any sanctions which RR 7-95 impose.

9. Pursuant to the Tax Code and implementing rules and regulations, the Commissioner of Internal
Revenue is clothed with the power to evaluate facts of tax cases and to issue assessment demands
against a taxpayer for deficiency taxes.

a. If an RTC Judge, on motion of an informer, renders a decision ordering the Commissioner to

assess and to collect from the taxpayer certain deficiency taxes when, in fact, the BIR has already
ascertained that no deficiency taxes are due from the taxpayer. What proper course of action
would you advise your informer-client to undertake?

b. Do you think an action for mandamus with the RTC can prosper to compel the Commissioner
to issue a deficiency assessment?

c. Which court acts on: disputed assessment; tax collection cases filed by the BIR?
 18

ANSWERS:
a.) I will make a valid protest to the FLD/FAN and if denied, Appeal to the CTA (Division). Such
court can take cognizance of decisions in cases involving disputed assessments. There is a
disputed assessment when there is a valid protest to the FLD/FAN, otherwise there would be
violation on the rule of exhaustive remedies.

b.) Mandamus is not proper to compel the commissioner to issue a deficiency assessment
because it is essential that the petitioner must first have a clear legal right to the thing demanded
and that must be the imperative duty of the respondent to perform the act required. Such facts
does not exist in the relation between the informer and the CiR.

c.) It is the CTA Division which has exclusive original jurisdiction over Tax Collection cases involving
final and executory assessments for taxes, fees, charges, and penalties where the principal
amount of taxes and fees, exclusive of charges and penalties, claimed is 1 million or more.

It is also the CTA Division which acts, in the exercise of its exclusive appellate jurisdiction, on
decisions of or inaction by the CiR where the NIRC provides for a specific period of action such as
in cases involving DISPUTED ASSESSMENTS, refunds of internal revenue taxes, and other matters
arising under the NIRC or other laws administered by the BiR.

10. Briefly discuss the procedural steps in the collection of taxes through distraint and levy. When
does forfeiture of the delinquent taxpayer’s property under auction come in? When does forfeiture
of the aforesaid property become absolute? Discuss.

Distraint is the seizure by the government of personal property, tangible or intangible, to enforce
the payment of taxes, to be followed by its public sale, if the taxes are not voluntarily paid.

Levy refers to the seizure of real properties and interest in or rights to such properties for the
satisfaction of taxes due from the delinquent taxpayer.

Procedure for Actual Distraint

1. Commencement of distraint proceedings;
2. Service of warrant of distraint;
3. Report on distraint;
4. Notice of sale of distrained properties; and
5. Sale at public auction.

Procedure for Levy

1. Issuance of Warrant of Levy
2. Service of the Warrant of Levy
3. Advertisement of the Sale
4. Public Sale of Property under Levy
5. Redemption of Property Sold
6. Forfeiture to the Government
7. Resale of Real Estate Taken for Taxes
 19

8. Further Distraint and Levy

There is no right of redemption in distraint.

Final Deed of Sale shall be given to the purchaser only after the failure of the taxpayer to redeem
the property within one year from the date of the sale.

11. Is payment under protest necessary?

Only for a protest concerning real property tax.
Under NIRC and LGC, payment under protest is not required.

12. Effect of payment under protest.

Payment under protest is a requisite to file a protest in RPT. The taxpayer should first pay the tax
and cause the annotation on the tax receipts the words “paid under protest.”

Effect if the protest is decided in favor of the taxpayer: The amount or portion of the tax protested
shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability.

13. A question related to taxation law was referred to the Department of Justice (DOJ) for legal
opinion. The DOJ after a thorough research and meticulous evaluation of the taxpayer’s query
came out with a formal legal opinion. What is the probative effect of the DOJ’s opinion as far as
the BIR is concerned? Explain fully your answer.

It has no probative value. The power to interpret tax laws is under the exclusive and original
jurisdiction of the Commissioner.

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to
interpret the provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or other
laws or portions thereof administered by the Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.

14. Pursuant to Section 205 of the Tax Code, a car was seized by the BIR at public auction.
Assuming during the public auction sale, no persons bid for the property. Who would buy the
seized property? If during the purchases, there was a residue after applying to the tax
delinquency, is the taxpayer entitled to the same? Explain fully your answer.

SEC. 215. Forfeiture to Government for Want of Bidder. - In case there is no bidder for real property
exposed for sale as herein above provided or if the highest bid is for an amount insufficient to pay
the taxes, penalties and costs, the Internal Revenue Officer conducting the sale shall declare the
property forfeited to the Government in satisfaction of the claim in question and within two (2)
days thereafter, shall make a return of his proceedings and the forfeiture which shall be spread
upon the records of his office. It shall be the duty of the Register of Deeds concerned, upon
registration with his office of any such declaration of forfeiture, to transfer the title of the property
 20

forfeited to the Government without the necessity of an order from a competent court.cralaw

Within one (1) year from the date of such forfeiture, the taxpayer, or any one for him may redeem
said property by paying to the Commissioner or the latter's Revenue Collection Officer the full
amount of the taxes and penalties, together with interest thereon and the costs of sale, but if the
property be not thus redeemed, the forfeiture shall become absolute.

SEC. 209. Sale of Property Distrained and Disposition of Proceeds. Any residue over and above
what is required to pay the entire claim, including expenses, shall be returned to the owner of the
property sold. The expenses chargeable upon each seizure and sale shall embrace only the
actual expenses of seizure and preservation of the property pending; the sale, and no charge
shall be imposed for the services of the local internal revenue officer or his deputy.

15. Pelaez has a tax deficiency liability to the BIR in the amount of P500,000. The properties of
Pelaez were subjected to distraint and levy. The real and personal property seized were sold at
public auction. The proceeds of the auction amounted to P400,000. After the sale, the BIR issued a
Certificate of Sale to Pelaez where it states that the proceeds of the sale sufficiently cover the tax
liability. After 2 years, Pelaez acquired personal property worth P200,000. Can this be seized to
satisfy the remaining deficiency of P100,000? Explain fully your answer.

YES. SEC. 217. Further Distraint or Levy. - The remedy by distraint of personal property and levy on
realty may be repeated if necessary until the full amount due, including all expenses, is collected.

16. Parañaque assessed Manila International Airport Authority (MIAA) deficiency real estate taxes,
asserting that the Local Government Code withdrew the exemption previously granted to MIAA
under its Charter. It issued final notices and warrants of levy on MIAA. MIAA protested, averring
exemption, arguing that though its Charter placed the properties in MIAA’s possession, the real
owner is the Republic of the Philippines, since such properties are devoted for public use. As such,
they are exempt from taxes. When Parañaque posted notices of auction and caused publication
of the same, MIAA filed for a TRO but it was dismissed by the Court of Appeals. The case was then
taken up to the Supreme Court. How did the Supreme Court decide the case citing the majority
opinion and the dissenting opinion, if any?

Answer: In the case of MIAA v. CA, City of Parañaque, et al., (G.R. No. 155650), the Court ruled
that MIAAs Airport Lands and Buildings are exempt from real estate tax imposed by local
governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the

National Government and thus exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

A government-owned or controlled corporation must be organized as a stock or non-stock

corporation. MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
 21

corporation because it has no capital stock divided into shares. MIAA has no stockholders or
voting shares. MIAA is also not a non-stock corporation because it has no members.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-
owned or controlled corporation.

MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is
that MIAA is vested with corporate powers.

2. Airport Lands and Buildings of MIAA are Owned by the Republic

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by
the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public
for international and domestic travel and transportation. The fact that the MIAA collects terminal
fees and other charges from the public does not remove the character of the Airport Lands and
Buildings as properties for public use.

Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of
public dominion. As properties of public dominion, the Airport Lands and Buildings are outside the
commerce of man.

The Court has also ruled that property of public dominion, being outside the commerce of man,
cannot be the subject of an auction sale.

Properties of public dominion, being for public use, are not subject to levy, encumbrance or
disposition through public or private sale. Any encumbrance, levy on execution or auction sale of
any property of public dominion is void for being contrary to public policy. Essential public services
will stop if properties of public dominion are subject to encumbrances, foreclosures and auction
sale.

Before MIAA can encumber the Airport Lands and Buildings, the President must first withdraw from
public use the Airport Lands and Buildings.

MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48,
Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real
properties owned by the Republic.

Transfer to MIAA was Meant to Implement a Reorganization

 22

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings
from the Bureau of Air Transportation of the Department of Transportation and Communications.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic
receiving cash, promissory notes or even stock since MIAA is not a stock corporation.

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was
not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose
was merely to reorganize a division in the Bureau of Air Transportation into a separate and
autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings.
MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAAs assets
adverse to the Republic.

Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any [r]eal property
owned by the Republic of the Philippines.

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
local governments from imposing [t]axes, fees or charges of any kind on the National
Government, its agencies and instrumentalities x x x. The real properties owned by the Republic
are titled either in the name of the Republic itself or in the name of agencies or instrumentalities
of the National Government. The Administrative Code allows real property owned by the Republic
to be titled in the name of agencies or instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of
the national government. This happens when title of the real property is transferred to an agency
or instrumentality even as the Republic remains the owner of the real property. Such arrangement
does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code
states that real property owned by the Republic loses its tax exemption only if the beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person. MIAA, as a
government instrumentality, is not a taxable person under Section 133(o) of the Local Government
Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the
Airport Lands and Buildings, such fact does not make these real properties subject to real estate
tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not
exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases
to private corporations is subject to real estate tax. In such a case, MIAA has granted the
beneficial use of such land area for a consideration to a taxable person and therefore such land
area is subject to real estate tax.

3. Refutation of Arguments of Minority

 23

The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the
Local Government Code of 1991 withdrew the tax exemption of all persons, whether natural or
juridical upon the effectivity of the Code.

The argument of the minority is fatally flawed. Section 193 of the Local Government Code
expressly withdrew the tax exemption of all juridical persons [u]nless otherwise provided in this
Code. Now, Section 133(o) of the Local Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing any kind of tax on national government
instrumentalities.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which
governs the legal relation and status of government units, agencies and offices within the entire
government machinery, MIAA is a government instrumentality and not a government-owned or
controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a
government instrumentality is not a taxable person because it is not subject to [t]axes, fees or
charges of any kind by local governments. The only exception is when MIAA leases its real property
to a taxable person as provided in Section 234(a) of the Local Government Code, in which case
the specific real property leased becomes subject to real estate tax. Thus, only portions of the
Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate
tax by the City of Paranaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to
public use, are properties of public dominion and thus owned by the State or the Republic of the
Philippines. Article 420 specifically mentions ports x x x constructed by the State, which includes
public airports and seaports, as properties of public dominion and owned by the Republic. As
properties of public dominion owned by the Republic, there is no doubt whatsoever that the
Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the
Local Government Code. This Court has also repeatedly ruled that properties of public dominion
are not subject to execution or foreclosure sale.

17. Six informations were filed with the Regional Trial Court of Davao City against Michael Chanco
for violation of the National Internal Revenue Code. Chanco filed a Motion to quash on the ground
that the trial court has no jurisdiction to take cognizance of the cases in view of his pending protest
against the assessment made by the BIR Examiner. Is Chanco’s argument tenable?
Explain fully.

Answer: Assessment is not necessary before filing a criminal action and criminal action may be
filed during the pendency of an administrative protest in the BIR. It is not a requirement for the
filing thereof that there be a precise computation and assessment of the tax since what is involved
in the criminal action is not the collection of tax but a criminal prosecution for the violaton of the
NIRC, provided, however, that there is prima facie showing of a willfiul attempt to evade taxes or
failure to file the required return. (Memory Aid)
 24

18. On July 18, 2002, the BIR issued to Susan Henares a deficiency income tax assessment covering
the fiscal year 1997-1998. Henares not having contested the assessment, the BIR on January 11,
2005, served warrants of distraint and levy to collect the tax deficiency. However, it did not
proceed to dispose of the attached properties. More than three years later, or on November 3,
2008, Henares wrote the BIR requesting a reconsideration of her tax deficiency assessment. The
BIR in a letter dated August 11, 2010, denied the request. On January 1,
2013, it filed a case with the RTC to collect the tax deficiency. The complaint was dismissed on the
ground of prescription. Decide and explain your reasons.

Answer: The RTC was correct in dismissing the complaint. The timely service of a warrant of distraint
or levy suspends the running of the period to collect the tax deficiency in the sense that the
disposition of the attached properties might well take time to accomplish, extending even after
the lapse of the statutory period for collection. In those cases, the BIR did not file any collection
case but merely relied on the summary remedy of distraint and levy to collect the tax deficiency.

In the case of Republic v. Salud V. Hizon (G.R. No. 130430, December 13, 1999.) the Court held:

“Second. With regard to the issue that the case filed by petitioner for the collection of respondents
tax deficiency is barred by prescription, 223(c) of the NIRC provides:

Any internal revenue tax which has been assessed within the period of limitation above-prescribed
may be collected by distraint or levy or by a proceeding in court within three years following the
assessment of the tax.

The running of the three-year prescriptive period is suspended-

for the period during which the Commissioner is prohibited from making the assessment or
beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the
taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer
cannot be located in the address given by him in the return filed upon which the tax is being
assessed or collected; provided, that, if the taxpayer informs the Commissioner of any change in
address, the running of the statute of limitations will not be suspended; when the warrant of
distraint or levy is duly served upon the taxpayer, his authorized representative or a member of his
household with sufficient discretion, and no property could be located; and when the taxpayer is
out of the Philippines.

Petitioner argues that, in accordance with this provision, respondents request for reinvestigation
of her tax deficiency assessment on November 3, 1992 effectively suspended the running of the
period of prescription such that the government could still file a case for tax collection.

The contention has no merit. Sec. 229[10] of the Code mandates that a request for reconsideration
must be made within 30 days from the taxpayers receipt of the tax deficiency assessment,
otherwise the assessment becomes final, unappealable and, therefore, demandable. The notice
of assessment for respondents tax deficiency was issued by petitioner on July 18, 1986. On the
other hand, respondent made her request for reconsideration thereof only on November 3, 1992,
without stating when she received the notice of tax assessment. She explained that she was
 25

constrained to ask for a reconsideration in order to avoid the harassment of BIR collectors. In all
likelihood, she must have been referring to the distraint and levy of her properties by petitioners
agents which took place on January 12, 1989. Even assuming that she first learned of the
deficiency assessment on this date, her request for reconsideration was nonetheless filed late since
she made it more than 30 days thereafter. Hence, her request for reconsideration did not suspend
the running of the prescriptive period provided under 223(c). Although the Commissioner acted
on her request by eventually denying it on August 11, 1994, this is of no moment and does not
detract from the fact that the assessment had long become demandable.

Nonetheless, it is contended that the running of the prescriptive period under 223(c) was
suspended when the BIR timely served the warrants of distraint and levy on respondent on January
12, 1989. Petitioner cites for this purpose our ruling in Advertising Associates Inc. v. Court of Appeals.
Because of the suspension, it is argued that the BIR could still avail of the other remedy under
223(c) of filing a case in court for collection of the tax deficiency, as the BIR in fact did on January
1, 1997.

Petitioners reliance on the Courts ruling in Advertising Associates Inc. v. Court of Appeals is
misplaced. What the Court stated in that case and, indeed, in the earlier case of Palanca v.
Commissioner of Internal Revenue, is that the timely service of a warrant of distraint or levy
suspends the running of the period to collect the tax deficiency in the sense that the disposition
of the attached properties might well take time to accomplish, extending even after the lapse of
the statutory period for collection. In those cases, the BIR did not file any collection case but merely
relied on the summary remedy of distraint and levy to collect the tax deficiency. The importance
of this fact was not lost on the Court. Thus, in Advertising Associates, it was held: It should be noted
that the Commissioner did not institute any judicial proceeding to collect the tax. He relied on the
warrants of distraint and levy to interrupt the running of the statute of limitations.

Moreover, if, as petitioner in effect says, the prescriptive period was suspended twice, i.e., when
the warrants of distraint and levy were served on respondent on January 12, 1989 and then when
respondent made her request for reinvestigation of the tax deficiency assessment on November
3, 1992, the three-year prescriptive period must have commenced running again sometime after
the service of the warrants of distraint and levy. Petitioner, however, does not state when or why
this took place and, indeed, there appears to be no reason for such. It is noteworthy that petitioner
raised this point before the lower court apparently as an alternative theory, which, however, is
untenable.

19. Macheco Corporation (MC), a domestic corporation filed an administrative protest against a
decision of the CIR holding it liable to pay the sum of PhP10 million as deficiency income tax
inclusive of incremental penalties for taxable year 2010. During the pendency of MC’s protest, the
BIR issued a warrant of distraint and levy for the collection of the disputed tax liability. Instead of
appealing to the CTA, MC submitted a motion for reconsideration. Sidestepping the motion,
however, the BIR commenced a civil action for collection in the RTC. Within 30 days after receipt
of summons, the taxpayer appealed to the CTA. If you were the Solicitor General, will you consider
it advisable to raise the defense of prescription in your answer to the Petition for Review? Reasons.

Answer: No, it is not advisable to raise the defense of prescription.

 26

In the case of Commissioner of Internal Revenue v. Union Shipping Corporation and the Court of
Tax Appeals (G.R. No. L-66160, May 21, 1990):

“Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his
final action on the disputed assessment, legally the period to appeal has not commenced to run.
Thus, it was only when private respondent received the summons on the civil suit for collection of
deficiency income on December 28, 1978 that the period to appeal commenced to run.

The request for reinvestigation and reconsideration was in effect considered denied by petitioner
when the latter filed a civil suit for collection of deficiency income. So. that on January 10, 1979
when private respondent filed the appeal with the Court of Tax Appeals, it consumed a total of
only thirteen (13) days well within the thirty day period to appeal pursuant to Section 11 of R.A.
1125.”

In short, there is an indirect denial of protest in this case. However, when there is a subsequent civil
action for collection instituted after the service of the warrant, it is the civil action and not the
service of warrant that is considered as a denial of the protest.

20. Explain fully the procedural steps that an aggrieved taxpayer should take in order to protect
his rights against a BIR assessment for deficiency internal revenue taxes. Explain.

Answer:

I. Protesting the Assessment

After the Final Letter of Demand (FLD)/Final Assessment Notice (FAN) was made, the
taxpayer may question the validity of the imposition of the deficiency taxes as shown in the notice
of assessment within thirty (30) days from receipt thereof.

Forms of Protest:

1. Request for Reconsideration – a plea for a reevaluation of an assessment on the basis of

existing records without need of an additional evidence which may involve a question of fact or
law or both; and

2. Request for Reinvestigation – a plea for the re-evaluation on the basis of the newly-
discovered or additional evidence that a taxpayer intends to present in the reinvestigation which
may also involve a question of law or fact or both

II. Submission of documents after protest

Within sixty (60) days from date of filing of request for reinvestigation only, the taxpayer shall submit
all relevant supporting documents. This does not apply to request for reconsideration.

III. Administrative Action/Inaction on the Disputed Assessment

 27

Disputed Assessment – happens when a valid protest against FLD/FAN was submitted.

After the taxpayer submitted a protest and the relevant supporting documents, as the case may
be, the CIR or his duly-authorized representative may exercise the following:

1. Direct grant or denial of protest – renders a decision through Final Decision on Disputed
Assessment (FDDA) granting or denying the protest within the prescribed period to act upon the
protest

2. Indirect denial of protest – denies the protest in another way without rendering a decision
through FDDA within the prescribed period act upon the protest; or

3. Inaction – not act upon the protest within the prescribed period.

Period to Act Upon the Protest or Administrative Appeal:

1. By CIR – in case of protest, within 180 days from filing of protest; in case of administrative
appeal, within 180 days from filing of the administrative appeal.

Administrative Appeal – request for reconsideration filed with the CIR to elevate the denial of
protest made by his duly authorized representative.

2. By Duly Authorized Representative

a. Request for reinvestigation – within 180 days from submission of relevant documents

b. Request for reconsideration – within 180 days from filing of protest.

Failure to act upon the protest or administrative appeal within the 180-day period constitutes
inaction. However, the CIR or his duly-authorized representative may render a decision at a later
period, subject to the Statute of Limitations on collection.

IV. Remedies of the Taxpayer in case of Denial of Protest or Administrative Appeal or in case
of Inaction

Direct Denial of Protest through FDDA

1. FDDA by CIR

a. File an MR with the CIR

b. Appeal to the CTA within 30 days from receipt of FDDA.

But the MR of the decision with the CIR will not toll the thirty-day period to appeal to the CTA.

2. FDDA by Duly Authorized Representative

 28

a. File administrative appeal to the CIR within 30 days from receipt of the FDDA through
request for reconsideration

b. Appeal to the CTA within 30 days from receipt of FDDA

Effect of Filing the Administrative Appeal:

The administrative appeal filed with the CIR will toll the 30-day period to appeal to the CTA and
the denial of the administrative appeal or the inaction of the CIR thereon is the one appealable
to the CTA.

Effect of Failure to File the Administrative Appeal or Appeal to the CTA within the 30-day Period:
The assessment shall become final executory and demandable.

Direct Denial of Administrative Appeal Through FDDA

1. File an MR of the administrative appeal with the CR; or

2. Appeal to the CTA within 30 days from receipt of the decision.

Remedies Available for Indirect Forms of Denial of Protest or Administrative Appeal (without FDDA)

The remedies available to the taxpayer in case of direct denial of protest or administrative appeal
by the CIR or his duly-authorized representative through FDDA are applicable to indirect forms of
denial.

Inaction by CIR or Duly Authorized representative

1. Inaction by the CIR

a. Appeal to the CTA within 30 days from expiration of the 180-day period; or

b. Await the final decision of the CIR on the disputed assessment, and then appeal such final
decision to the CTA within 30 days after the receipt of a copy of such decision.

2. Inaction by Duly Authorized Representative

a. Appeal to the CTA within 30 days after the expiration of the 180-day period counted from
date of filing of the protest in case of a request for reconsideration or from the date of submission
by taxpayer of the required documents within 60 days from filing of protest in case of a request
for reinvestigation; or

b. Await the final decision of the duly authorized representative on the disputed assessment.

The options are mutually exclusive and resort to one bars the application of the other.
 29

If the taxpayer opted to await the final decision of the CIR or his duly authorized representative,
he may later use the remedies available to him in contesting said decision.

JUDICIAL REMEDIES

A. Judicial Appeal

1. Appeal to the CTA Division – appeal the administrative action/inaction of the CIR or his
duly authorized representative on the disputed assessment within 30 days

2. Appeal to the CTA En Banc – the party adversely affected by the CTA Division’s decision
may file one MR/MNT within 15 days from receipt of the decision with the CTA Division. If the MR is
denied, file a petition for review with the CTA en banc.

3. Appeal to the Supreme Court – within 15 days from receipt of the decision of the CTA en
banc.

B. By way of Special Civil Action – petition for certiorari, prohibition, and mandamus to the
SC in cases of GADALEJ.

C. Action to Contest Forfeiture of Chattel, at any time before the sale or destruction of the
property, bring an action against the person seizing the property or having possession thereof, to
recover the same, and upon giving proper bond, enjoin the sale; or after the sale and within 6
months, an action to recover net proceeds may be realized at the sale.

D. Action for Damages against a revenue officer by reason of any act done in the
performance of official duty.

E. Injunction – to be issued by the CTA if collection may jeopardize the interest of the
government and/or the taxpayer, subject to certain conditions,

21. May the CIR compromise the payment of withholding tax (tax deducted and withheld at
source) where the financial position of the taxpayer demonstrates a clear inability to pay the
assessed tax? Reasons.

Answer: No. A compromise, in case of tax assessment, is a contract between the government and
the taxpayer to settle the latter’s liability. The grounds for a compromise are: when there exists
reasonable doubt as to the validity of claim against a taxpayer; and when the financial position
of the taxpayer demonstrates a clear inability to pay the assessed tax. According, however, to
R.R. 30-2002, Sec. 2, Withholding tax cases are not subject to compromise, unless the applicant
taxpayer invokes provisions of law that cast doubt on the taxpayer’ obligation to withhold.

22. An information was filed in court for willful non-payment of income tax the assessment of which
has become final. The accused, through counsel, presented a motion that he be
 30

allowed to compromise his tax liability subject of the information. The prosecutor indicated his
conformity to the motion. May the compromise be allowed? Reasons.

The compromise will not be allowed since the information was already filed in court. Although the
National Internal Revenue Code provides that all criminal violations may be compromised, it is
subject to exceptions such as those already filed court or those involving fraud.

23. The City of Manila assessed real property owners in the City on the basis of the Comparable
Sales Approach‛ method in the appraisal of real properties for taxation purposes. This is predicated
upon the prices paid in actual market transactions. The real property owners in the City
contended, however, that the ‚Income Approach‛ method would have been a more realistic
method since under the method proposed by the City of Manila, the assessment for real property
tax will be more than the income derived from the real property subject of the real property
assessment. If you were the judge, how will you rule the case taking into consideration the
limitations on the power of taxation. Reasons.
As a Judge, I will rule that the assessment on the basis of Comparable Sales Approach is invalid
because it mandates an exclusive rule in determining the fair market value but more so because
it departs from the established procedures stated under the regulations and unduly interferes with
the duties statutorily placed upon the local assessor by completely dispensing with his analysis and
discretion which the Code and the regulation required to be exercised.

Local Assessment Regulations No. 1-82 suggests three approaches in estimating the FMV, namely:
(1) the sales analysis or market data approach; (2) the income capitalization approach; and (3)
the replacement or reproduction cost approach. Given these different approaches to guide the
assessor, it can readily be seen that the Code did not intend to have a rigid rule for the valuation
of property, which is affected by a multitude of circumstances which no rule could foresee or
provide for. Thus, what a thing has cost is no singular and infallible criterion of its market value
(Allied Banking Corporation v. Quezon City Government).

Note: Under the sales analysis approach, the price paid in actual market transactions is
considered by taking into account valid sales data accumulated from among the various sources
stated in Sections 202, 203, 208, 209, 210, 211 and 213 of the Code.

In the income capitalization approach, the value of an income-producing property is no more

than the return derived from it. An analysis of the income produced is necessary in order to
estimate the sum which might be invested in the purchase of the property.

The reproduction cost approach, on the other hand, is a factual approach used exclusively in
appraising man-made improvements such as buildings and other structures, based on such data
as materials and labor costs to reproduce a new replica of the improvement.

The assessor uses any or all of these approaches in analyzing the data gathered to arrive at the
estimated fair market value to be included in the ordinance containing the schedule of fair market
values.
 31

24. What happens when the taxpayer filed a wrong return? Is the BIR justified in applying the 10-
year prescriptive period for cases where no return is filed by the taxpayer, assuming that the
information embodied in the wrong return could enable the BIR to assess the tax that could have
been ascertained had the taxpayer filed a correct return? Reasons.
A wrong return or false return which implies a deviation from the truth or fact whether intentional
or not warrants the 10-year prescriptive period to be counted from the discovery of falsity.

Yes. The BIR is justified in applying the 10-year prescriptive period for cases where no return is filed
by the taxpayer since it is considered as an omission committed by the latter. The National Internal
Revenue Code provides that in the case of a false or fraudulent return with intent to evade tax or
of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of
such tax may be filed without assessment, at any time within ten (10) years after the discovery of
the falsity, fraud or omission. In the case at hand, the taxpayer failed to file a tax return; hence,
the ten-year prescriptive period applies from discovery of omission.

25. May the issue which has not been raised in the administrative protest in the BIR be raised for
the first time on appeal? Discuss fully citing the relevant jurisprudence related thereto.
New issues cannot be raised for the first time on appeal. Basic considerations of due process impel
this rule. As held in CIR v. Wander PHL, to allow a litigant to assume a different posture when he
comes before the court and challenge the position he had accepted at the administrative level,
would be to sanction a procedure whereby the Court—which is supposed to review administrative
determinations—would not review, but determine and decide for the first time, a question not
raised at the administrative forum. Thus, it is well settled that under the same underlying principle
of prior exhaustion of administrative remedies, on the judicial level, issues not raised in the lower
court cannot be raised for the first time on appeal.

26. Mr. Manny Manpac was assessed for deficiency excise taxes for which he filed an
administrative protest with the BIR. May the government during the pendency of that protest file a
criminal action against the taxpayer for filing a false and fraudulent return? Explain your answer.
Yes. What is involved here is not the collection of taxes but a criminal prosecution for violations of
the National Internal Revenue Code which is within the cognizance of regional trial courts. While
there can be no civil action to enforce collection before the assessment procedures provided in
the Code have been followed, there is no requirement for the precise computation and
assessment of the tax before there can be a criminal prosecution under the Code.It has been
ruled that a petition for reconsideration of an assessment may affect the suspension of the
prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action
for violation of law (Ungab v. Cusi).

Note: An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt
to defeat and evade the income tax. A crime is complete when the violator has knowingly and
willfuly filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the
crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate
return, and the government's failure to discover the error and promptly to assess has no
connections with the commission of the crime.

LOCAL TAXATION
 32

1. The City of Manila enacted Ordinance No. 55-66 which imposes a municipal occupation tax
on persons practicing various professions in the city. Among those subjected to the occupation
tax were lawyers. Atty. Mariano Batas, who has a law office in Manila, pays the ordinance-
imposed occupation tax under protest. He goes to court to assail the validity of the ordinance for
being discriminatory. Decide with reasons.

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.

2. The Sangguniang Bayan of the Municipality of Sampaloc,

---

3. Quezon, passed an ordinance imposing a storage fee of ten centavos (PO. 10) for every 100
kilos of copra deposited in any bodega within the Municipality’s jurisdiction. The Metropolitan
Manufacturing Corporation (MMC), with principal office in Makati, is engaged in the manufacture
of soap, edible oil, margarine, and other coconut oil based products. It has a warehouse in
Sampaloc, Quezon, used as storage space for the copra purchased in Sampaloc and nearby
towns before the same is shipped to Makati. MMC goes to court to challenge the validity of the
ordinance, demanding the refund of the storage fees it paid under protest. Fee? Regulatory
collection, not revenue-generating? Police power?

The storage fee imposed under the question Ordinance is actually a municipal license tax or fee
on persons, firms and corporations, like plaintiff, exercising the privilege of storing copra in a
bodega within the Municipality's territorial jurisdiction.

Not only is the imposition of the storage fee authorized by the general grant of authority under
section 1 of CA No. 472. Neither is the storage fee in question prohibited nor beyond the power of
the municipal councils and municipal district councils to impose, as listed in section 3 of said CA
No. 472.

Moreover, the business of buying and selling and storing copra is property the subject of regulation
 33

within the police power granted to municipalities under section 2238 of the Revised Administrative
Code or the "general welfare clause".

For it has been held that a warehouse used for keeping or storing copra is an establishment likely
to endanger the public safety or likely to give rise to conflagration because the oil content of the
copra when ignited is difficult to put under control by water and the use of chemicals is necessary
to put out the fire.

Municipal corporations are allowed wide discretion in determining the rates of imposable license
fees even in cases of purely police power measures. In the absence of proof as to municipal
conditions and the nature of the business being taxed as well as other factors relevant to the issue
of arbitrariness or unreasonableness of the questioned rates, Courts will go slow in writing off an
Ordinance. In the case at bar, appellant has not sufficiently shown that the rate imposed by the
questioned Ordinance is oppressive, excessive and prohibitive.

4. The Local Government Code took effect on January 1, 1992. PLDT’s legislative franchise was
granted sometime before 1992. Its franchise provides that PLDT will only pay 3% franchise tax in
lieu of all taxes. The legislative franchises of Smart and Globe Telecoms were granted in 1998. Their
legislative franchises state that they will pay only 5% franchise tax in lieu of all taxes. The Province
of Zamboanga del Norte passed an ordinance in 1997 that imposes a local franchise tax on all
telecommunication companies operating within the province. The tax is 50% of 1% of the gross
annual receipts of the preceding calendar year based on the incoming receipts, or receipts
realized, within its territorial jurisdiction.

Is the ordinance valid? Are PLDT, Smart and Globe liable to pay franchise taxes? Reason briefly.

YES.

SMART COMMUNICATIONS, INC. v. THE CITY OF DAVAO

The uncertainty in the in lieu of all taxes clause in R.A. No. 7294 on whether Smart is exempted from
both local and national franchise tax must be construed strictly against Smart which claims the
exemption.Tax exemptions are never presumed and are strictly construed against the taxpayer
and liberally in favor of the taxing authority. They can only be given force when the grant is clear
and categorical. The surrender of the power to tax, when claimed, must be clearly shown by a
language that will admit of no reasonable construction consistent with the reservation of the
power. If the intention of the legislature is open to doubt, then the intention of the legislature must
be resolved in favor of the State.

In this case, the doubt must be resolved in favor of the City of Davao. The in lieu of all taxes clause
applies only to national internal revenue taxes and not to local taxes.

5. Mayor Raul Bendana of the Muncipality of Lemery decides to hire a private firm (which has a
computer) to take care of the imposition and collection of all fees, licenses and taxes imposed by
the municipality. The Mayor believes that in this manner the tax collection will be fair and efficient
because the private firm will be paid a percentage of the taxes it collects. May the Mayor legally
enter into such an arrangement?
 34

General rule: No. Fundamental principle of local taxation : The collection of local taxes, fees,
charges, and other impositions shall, in no case, be let to any person.

BAGATSING vs. RAMIREZ

74 SCRA 306
GR No. L-41631, December 17, 1976
"The entrusting of the tax collection (caveat: “collection only not imposition”, as opposed to the
question) to private entities does not destroy the public purpose of a tax ordinance."

FACTS: Aside from the issue on publication, private respondent bewails that the market stall fees
imposed in the disputed City Ordinance No. 7522, which regulates public markets and prescribes
fees for rentals of stalls, are diverted to the exclusive private use of the Asiatic Integrated
Corporation since the collection of said fees had been let by the City of Manila to the said
corporation in a "Management and Operating Contract."

ISSUE: Does the delegation of the collection of taxes to a private entity invalidates a tax ordinance
and defeats its public purpose?

HELD: No. The assumption is of course saddled on erroneous premise. The fees collected do not
go direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the
corporation but for the purpose of raising revenues for the city. That is the object it serves. The
entrusting of the collection of the fees does not destroy the public purpose of the ordinance. So
long as the purpose is public, it does not matter whether the agency through which the money is
dispensed is public or private. The right to tax depends upon the ultimate use, purpose and object
for which the fund is raised. It is not dependent on the nature or character of the person or
corporation whose intermediate agency is to be used in applying it. The people may be taxed for
a public purpose, although it be under the direction of an individual or private corporation.

From juicy notes: Asiatic v. Alikpala – The mere collection of market stall fees may be let to a
private entity, the same not being taxes. This is a doubtful decision since Sec. 130 of the LGC covers
not only the collection of taxes but likewise all other impositions under the LGC.

6. An ordinance was passed by the Municipality of Malvar in Batangas imposing a tax on the
boarding stables of race horses only without including the stables for other kind of horses. Is the
ordinance valid? Explain.

YES the ordinance is valid, there was no violation of equal protection clause. In addition, it is in the
exercise of police power in the form of regulation.

Requisites of equal protection:

1)The classification rests on substantial distinctions; (2) It is germane to the

purposes of the law; (3) It is not limited to existing conditions only; and (4) It applies equally to all
members of the same class
 35

7. The Manila Race Horces Trainers Association Inc., a non-stock corporation maintaining
boarding stables for horses, challenges the validity of Ordinance No. 3065 of the City of Manila.
Plaintiff maintains that the ordinance under consideration is a tax on race horses as distinct from
boarding stables for horses dedicated to other purposes. Is the ordinance valid? Explain fully.

6&7 Answer: Manila Race Horse Trainers Assoc & Juan Sordan vs Manuel Dela Fuente January 11,
1951 Amparo

ISSUES/HELD: 1. Is the tax discriminatory? NO 2.Is it a tax on race horses or stables? Tax on STABLES.
(to be precise, on owners of stables)

RATIO:
Issue no. 1) Petitioners: Ordinance is discriminatory and amounts to class legislation (because in
effect, stable owners for horses that are NOT used for racing will be taxed less or not all)
SC: NO. There is equality and uniformity in taxation when: all articles or kinds of property of the
same class are taxed at the same rate. 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.
o Owners of boarding stables + owners of race horses are a CLASS BY THEMSELVES
o Equity in taxation is conceived in terms of ABILITY TO PAY in relation to BENEFITS RECEIVED by
the taxpayer & the public from the business taxed.
o Race horses are devoted to GAMBLING if legalized, and their owners derive fat incomes. But
the public hardly profits from race horsing. This business also demands heavy police supervision.
o Taking all into account, the differentiation against which MRHTA complains of actually
conforms to justice and equity.

Issue no. 2) Petitioners: Ordinance is a tax on race horses distinct from boarding stables.
SC: No. It’s a tax assessed on owners of stables.
Spirit of the ordinance determines construction, thus court looks at the context, subject matter
consequence and effect. Thus, from the context of the ordinance, the intent to tax or license
STABLES and NOT HORSES is clearly manifest. The tax assessed is not on the owners of the horses
but on the owners of the stables. (Of course, there’s also nothing stopping stable owners from
shifting the tax to the horse owners in the form of increased rents or fees, which is generally the
case) The number of horses used in the assessment is purely a method of fixing an equitable &
practical distribution of the burden imposed by the measure. This method is FAIR AND JUST.
Because it’s fair that for a stable where only one horse is maintained, less amount should be taken
than for a stable with many horses.

8. What taxes may be levied by the province under the LGC of 1991?

Scope of taxing power of provinces

1. Tax on the transfer of real property ownership – ½ or 1% within 60 days
2. Tax on the business of printing and publication
3. Franchise tax
 36

○ A local franchise tax may only be imposed on companies with legislative franchises
that do not have the “ In lieu of all taxes” proviso.
4. Tax on sand, gravel and other quarry resources
5. Professional tax – P300
● Professional exclusively employed in the government shall be exempt from the payment
of tax.
1. Amusement tax – 30% of gross receipts
2. Annual fixed tax per delivery truck or van of manufacturers or producers and wholesalers
of, or dealers in certain products. [Section 134-141, Local Government Code]

9. Can a province or city impose a franchise tax on business enjoying a franchise within its
territorial jurisdiction notwithstanding the said businesses are liable for VAT? Explain.

A: Yes, Franchise tax and VAT may be imposed without resulting to double taxation.

Franchise Tax Value Added Tax

A percentage tax imposed only on FRANCHISE A percentage tax imposed on ANY PERSON,
HOLDERS whether or not franchise grantee, who in the
course of trade or business
barter,lease,exchange,sell(BLES) goods and
properties or render services

A tax on the PRIVILEGE of transacting business Limited only to the VALUED ADDED to the
goods or properties

DIRECT LIABILITY of the franchise grantee An INDIRECT TAX that can be passed on to
buyer

10. What is the Doctrine of Pre-emption under the Local Government Code? (Victoria Milling)

A: Where the National Government elects to tax a particular area, it IMPLIEDLY WITHOLDS from
the local government the delegated power to tax the same field. This doctrine principally rest on
the intention of the congress.
DOES NOT APPLY WHEN: 1.) Congress EXPRESSLY ALLOWS; 2.) The activity is being sought to be
taxed by 2 LGUs and not by the national government

11. The City of Manila passed a new Revenue Code. Vicky, a taxpayer questioned the legality of
the ordinance on the ground of non- compliance with the procedural requirements provided by
law. The Secretary of Justice ruled against the validity of the ordinance for non-compliance. On
appeal, the RTC ruled that the appellate power of the Secretary to rule on the validity of tax
ordinances is unconstitutional because it grants the Secretary the power to control local
government units, in violation of the constitutional policy of local autonomy and the specific
provision that the President shall exercise only the power of supervision over local government
units.
 37

a. What are the procedural requirements provided by law for the adoption of the ordinance?
-Filing of proposal
-Publication/posting(w/in 10 days, 3 consecutive days, posted in 2 conspicuous place)
-Notification(to interested person, specifying the date and venue of hearing)
-Mandatory Public Hearing

b. Is the appellate power of the Secretary unconstitutional?

A: No, any questions on LEGALITY and VALIDITY of a tax ordinance implemented by the LGU should
be appealed to the secretary of justice. It does not violate the local autonomy of the LGU since it
DOES NOT replace the ordinance with his own version, nor can he declare it as unjust, excessive,
oppressive, or confiscatory.

12. Megshine Marble Co., a domestic corporation engaged in the business of manufacturing
marble tiles, maintains its principal office at Quezon City while its factory and warehouse are
located in Nueva Ecija. All sales are conducted and recorded in Quezon City. In 2007, Megshine
Marble Co. made a total sales of Ph300,000. For purposes of paying its local business tax as a
manufacturer, you were asked as counsel in which place or places should it file its return and how
much must be declared? Explain your answer.

A: Sec. 150 of the LGC. Where there is no branch, sales office, or warehouse BUT there is a factory,
project office, or plantation in pursuit of business, it shall be allocated as follows:
-30% if all sales are taxable by the city/ municipality where principal office is located.
-70% of all sales recored in the principal office -> Taxable where the factory, project office, or
plantation is located (to be divided further to 60%-factory, 40%-plantation)
Thus, in this case 70% of the sales of 300k is equal to P210k, should be paid to Nueva Ecija where
warehouse/factory is. While 30% of the sales which is 90k should be paid to Q.C where the principal
office is.

13. Three years ago, a diversion road was constructed by the government to cut travel time to the
northern provinces in Luzon by the construction of the Subic-Clark-Tarlac Expressway (SCTEX). The
diversion road passed through various agricultural lands along the route and this improvement
increased the market value of the parcels of land in various area in Pampanga and Tarlac. While
before the lands were solely agricultural in nature, now some of these lands became commercial.
A vice mayor of one of the towns where the SCTEX passed consulted you on what kind of tax can
his town collect with the introduction of said improvement. What will be your advice to the vice
mayor? Discuss your reasons to support your advice.

The vice mayor can collect special assessments (or special levy) because these are imposable
on lands specially benefited by public works, projects or improvements funded by the local
government unit (Memaid, p. 264).

14. After a public hearing, the Sangguniang Pangbayan of Teresa, Rizal, enacted an ordinance
imposing a tax of P0.10 per liter of soft drinks manufactured and sold within the municipality. Is the
ordinance valid? Why?
 38

JESUS C. ESTANISLAO, in his capacity as the Secretary of Finance, petitioner,

vs.
HONORABLE AMADO COSTALES, as Presiding Judge of the Regional Trial Court, Branch 14, at
Zamboanga City, and CITY OF ZAMBOANGA, represented by the Honorable City Mayor,
respondents.
G.R. No. 96516 May 8, 1991
GANCAYCO, J.

Ordinance No. 44 of the respondent Zamboanga City imposes P0.01 per liter of softdrinks
produced, manufactured, and/or bottled within the territorial jurisdiction of the City of
Zamboanga. No doubt this Ordinance is ultra vires as it is not within the authority of the City to
impose said tax. The authority of the City is limited to the imposition of a percentage tax on the
gross sales or receipts of said product which, being non-essential, shall be at the rate of not
exceeding 2% of the gross sales or receipts of the softdrinks for the preceding calendar year. The
tax being imposed under said Ordinance is based on the output or production and not on the
gross sales or receipts as authorized under the Local Tax Code.

15. What are the fundamental principles of Local Taxation? (PIE-CUP-UP)

1. Levied and collected for Public purposes;
2. Revenues collected under the LGC shall Inure solely to the benefit of, and subject to
disposition by the LGU levying the tax or other imposition;
3. Shall be Equitable;
4. Shall not be Contrary to law, public policy, national economic policy, or in restraint of
trade;
5. Shall be Uniform in each local LGU;
6. Collection of local taxes and other impositions shall not be let to any Private person;
7. Shall not be Unjust, excessive, oppressive, or confiscatory; and
8. Each LGU shall, as far as practicable, evolve a Progressive system of taxation.

16. Discuss the residual power of local government under the Local Government Code.

LGUs can impose those taxes, fees, and charges beside those specifically enumerated by the
LGC under its residual taxing power. Included also are those not specifically taxed under the rule
on preemption (LGU,186).

Requisites for Imposition of Fee or Tax Not Specifically Enumerated under the LGC (Residual Taxing
Power)
1. It is not against any of the fundamental principles of local taxation;
2. It is not one of the prohibited impositions under the common limitations on the taxing
power of LGUs;
3. It is not one of the taxes, fees, charges denied to the LGUs by the LGC;
4. The taxes shall not be unjust, excessive, oppressive, confiscatory and contrary to the
declared national policy; and
5. That the ordinance levying such taxes, fees or charges shall not be enacted without any
prior public hearing conducted for the purpose.
 39

17. The province of Batangas passed an ordinance imposing an amusement tax of 30% on the
gross receipts from admission earned by proprietors, lessees and operators of amusement places
within its boundaries. On the other hand, the municipality of Sta. Teresita within the said province
likewise passed an ordinance similar to that imposed by the province. Edilberto Mirano is a
proprietor of a movie house and he objected to these impositions contending that the same are
oppressive, unfair and unjust. How is the instant problem addressed by the Local Government
Code? Explain briefly.

The Municipality of Sta. Teresita can not imposed amusement tax on the gross receipts from
admission as such tax was already imposed by the Province of Batangas.
Section 142 of the Local Government Code provides that as except as otherwise provided in this
Code, municipalities may levy taxes, fees, and charges not otherwise levied by provinces. In the
case at hand, the Province of Batangas already passed an ordinance imposing amusement tax
of 30% on gross receipts within its boundaries; therefore, municipality of Sta. Teresita can no longer
passed an ordinance similar to that imposed by the province since it will be in contravention of
the Local Government Code.
In effect, the ordinance passed by the municipality of Sta. Teresita is void.
Note: Section 140 of the LGC provides The province may levy an amusement tax to be collected
from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing
stadia, and other places of amusement at a rate of not more than thirty percent (30%) of the gross
receipts from admission fees.

18. The municipality of Tuy passed an ordinance imposing a tax of Two Pesos (2.00) per pack of
cigarettes produced in the locality. Is the ordinance valid? Explain briefly.

The ordinance is not valid since imposing a tax of Two Pesos per pack of cigarettes is considered
as excise tax on article enumerated under the National Internal Revenue Code which is among
the common limitations on local taxing powers. Excise Tax is a tax on the production, sale or
consumption of a commodity in a country. Therefore, LGUs are authorized to burden all such other
class of goods with “taxes, fees, and charges,” excepting excise tax.

19. An ordinance was passed by the Sangguniang Panglungsod of Batangas City prohibiting aliens
from being employed or to engage or participate in any position, occupation or business
enumerated therein, whether permanent, temporary or casual, without first securing an
employment permit from the City Mayor’s Office and paying the permit fee. Antonio Chua
challenged the validity of said ordinance. Is Antonio Chua correct? Explain fully.

The contention of Antonio Chua is correct since it violates the due process of law and equal
protection rule of the Constitution. The act of securing 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; however, the part
which requires the payment of permit is not regulatory but a revenue measure. There is no logic
or justification in exacting permit fee 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.
 40

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 to grant or deny the issuance of
permits, such ordinance is invalid, being an undefined and unlimited delegation of power to allow
or prevent an activity per se lawful (Villegas v. Ho).

20. The Sangguniang Panglungsod of Tagaytay City passed an ordinance imposing a road-user’s
tax‛ on motor and other vehicles registered and operating within the City of Tagaytay. The
Association of Real Estate Brokers of Tagaytay assailed the validity of the ordinance. Is the
Association’s position correct? Explain fully.

The Association’s position is incorrect. Local government units, through their Sanggunian, may
prescribe the terms and conditions for the imposition of toll fees or charges for the use of any
public road, pier or wharf funded and constructed by them. A tax imposed on vehicles using roads
is thus valid.

In the instant case, the benefits from the use of the municipal roads was not unjustly derived by
petitioner. Those benefits resulted from the infrastructure that the municipality was mandated by
law to provide. There is no unjust enrichment where the one receiving the benefit has a legal right
or entitlement thereto, or when there is no causal relation between ones enrichment and the
others impoverishment (Palma Development v. Malangas).

21. Twelve corporations, engaged in the motion picture business, contest the validity of Ordinance
No. 2958 of the City of Manila which reads as follows: An ordinance imposing a fee on the price
of every admission ticket sold by Cinematographers, etc. Appellants 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.
Is the argument of the Appellants valid? Explain fully.

Ejusdem generis.

The determination of whether amusement taxes may be levied on admissions to resorts, swimming
pools, bath houses, hot springs, and tourist spots hinges on whether the phrase 'other places of
amusement' encompasses resorts, swimming pools, bath houses, hot springs, and tourist spots.

Under Section 31, the term “Amusement Places” include theaters, cinemas, concert halls, circuses
and other places of amusement where one seeks admission to entertain oneself by seeing or
viewing the show or performances [Underscoring supplied].

Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and tourist spots
cannot be considered venues primarily "where one seeks admission to entertain oneself by seeing
or viewing the show or performances". While it is true that they may be venues where people are
visually engaged, they are not primarily venues for their proprietors or operators to actively display,
stage or present shows and/or performances.
 41

Thus, resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the same
category or class as theaters, cinemas, concert halls, circuses, and boxing stadia. It follows that
they cannot be considered as among the 'other places of amusement' contemplated by Section
140 of the LGC and which may properly be subject to amusement taxes.

REAL PROPERTY TAXATION

REAL PROPERTY TAX

1. Under the Real Property Taxation Law, only real property should be subjected to Real property
tax. “Real Property” has not been succinctly defined by the real property tax code. Explain fully
the criteria to determine what real property means for realty tax purposes given the traditional
view that real property only refers to immovable property.

Real property tax is imposed upon the owners of the real property making the owner under
obligation to pay the same based on actual use. If the real property is owned by an exempt
entity, then, the person actually using the real property shall be the one subject to real property
tax based on the actual use.

Real property tax in the Philippines is not imposed on the literal meaning of real properties (e.g.
land and building) alone because it extends to machineries and improvements.

Real property tax on machinery embraces machines, equipment, mechanical contrivances,

instruments, appliances or apparatus which may or may not be attached, permanently or
temporarily, to the real property. The term “machineries” is provided under Section 3 which covers
the physical facilities for production, the installations and appurtenant service facilities, those
which are mobile, self-powered or self-propelled, and those not permanently attached to the real
property which are actually, directly, and exclusively used to meet the needs of the particular
industry, business or activity and which by their very nature and purpose are designed for, or
necessary to its manufacturing, mining, logging, commercial, industrial or agricultural purposes.

On the other hand, real property tax on improvement in the Philippines is imposed upon a valuable
addition made to a property for amelioration in its condition, amounting to more than a mere
repair or replacement of parts involving capital expenditures and labor, which is intended to
enhance its value, beauty or utility or to adapt it for new or further purposes.

2. In case of real property declared for the first time, how is the liability for back taxes computed?

Real property declared for the first time shall be assessed for taxes for the period during which it
would have been liable but in no case for more than ten (10) years prior to the date of initial
assessment.

Taxes shall be computed on the basis of the applicable schedule of values in force during the
corresponding period.
 42

If such taxes are paid on or before the end of the quarter following the date the notice of
assessment was received by the owner or his representative, no interest for delinquency shall be
imposed thereon; otherwise, such taxes shall be subject to an interest at the rate of two percent
(2%) per month or a fraction thereof from the date of the receipt of the assessment until such taxes
are fully paid. (Sec. 222, LGC)

3. Define the following terms

(a) Idle Land Tax

Section 236. Additional Ad Valorem Tax on Idle Lands. - A province or city, or a municipality within
the Metropolitan Manila Area, may levy an annual tax on idle lands at the rate not exceeding five
percent (5%) of the assessed value of the property which shall be in addition to the basic real
property tax.

[Additional info on Idle Lands]

Section 237. Idle Lands, Coverage. - For purposes of real property taxation, idle lands shall include
the following:

(a) Agricultural lands, more than one (1) hectare in area, suitable for cultivation, dairying, inland
fishery, and other agricultural uses, one-half (1/2) of which remain uncultivated or unimproved by
the owner of the property or person having legal interest therein. Agricultural lands planted to
permanent or perennial crops with at least fifty (50) trees to a hectare shall not be considered idle
lands. Lands actually used for grazing purposes shall likewise not be considered idle lands.

(b) Lands, other than agricultural, located in a city or municipality, more than one thousand (1,000)
square meters in area one-half (1/2) of which remain unutilized or unimproved by the owner of
the property or person having legal interest therein.

Section 238. Idle Lands Exempt from Tax. - A province or city or a municipality within the
Metropolitan Manila Area may exempt idle lands from the additional levy by reason of force
majeure, civil disturbance, natural calamity or any cause or circumstance which physically or
legally prevents the owner of the property or person having legal interest therein from improving,
utilizing or cultivating the same.

(b) Assessment Level

The percentage applied to the fair market value of the real property to determine the taxable
value (assessed value) of the property [LGC, Section 199(g)]

Assessment levels shall be fixed by ordinance of the appropriate Sanggunian [LGC, Section 218]

(c) Manifest

(d) Automatic Review in Customs Proceedings

Taxes being the lifeblood of the Government, Section 12, which the Commissioner of Customs in
his Customs Memorandum Order No. 20-87, enjoined all collectors to follow strictly, is intended to
 43

protect the interest of the Government in the collection of taxes and customs duties in those
seizure and protest cases which, without the automatic review provided therein, neither the
Commissioner of Customs nor the Secretary of Finance would probably ever know about. Without
the automatic review by the Commissioner of Customs and the Secretary of Finance, a collector
in any of our country's far-flung ports, would have absolute and unbridled discretion to determine
whether goods seized by him are locally produced, hence, not dutiable, or of foreign origin, and
therefore subject to payment of customs duties and taxes. His decision, unless appealed by the
aggrieved party (the owner of the goods), would become final with no one the wiser except
himself and the owner of the goods. The owner of the goods cannot be expected to appeal the
collector's decision when it is favorable to him. A decision that is favorable to the taxpayer would
correspondingly be unfavorable to the Government, but who will appeal the collector's decision
in that case? Certainly not the collectors.
(Yaokasin v. Commissioner of Customs, G.R. No. 84111, December 22, 1989)

(e) Improvement
A valuable addition made to a property or an amelioration in its condition, amounting to more
than a mere repair or replacement of parts involving capital expenditures and labor, which is
intended to enhance its value, beauty or utility or to adapt it for new or further purposes. [LGC,
Section 199(m)]

4. W/N underground tanks are considered real property? YES

G.R. No. L-50466 May 31, 1982 CALTEX (PHILIPPINES) INC. vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF PASAY

Facts: Caltex loaned machines and equipment to gas station operators under a lease agreement,
which stipulated that upon demand, the operators shall return to Caltex the machines and
equipment. The lessor of the land does not become the owner of the machines and equipment.
Caltex retains their ownership.
The City Assessor characterized the said machines and equipment as taxable realty. However,
the City Board of Tax Appeals ruled that they are personalty. The Assessor appealed to the Central
Board of Assessment Appeals.
The Board held that the said machines are real property within the meaning of Sec. 3(k) & (m) and
38 of the Real Property Tax Code, PD 464, and that the Civil Code definitions of real and personal
property in Articles 415 and 416 are not applicable in this case.

Issue: Whether or not the said machines and equipment are real property subject to realty tax?

Held: The said machines and equipment are considered real property.
Section 2 of the Assessment Law provides that the realty tax is due "on real property, including
land, buildings, machinery, and other improvements" not specifically exempted in Sec. 3 thereof.

This provision is reproduced with some modification in the Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax.— There shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad valorem tax on real property, such as land,
 44

buildings, machinery and other improvements affixed or attached to real property not hereinafter
specifically exempted.

The Code contains the following definitions in its Sec. 3:

k) Improvements — is a valuable addition made to property or an amelioration in its condition,
amounting to more than mere repairs or replacement of waste, costing labor or capital and
intended to enhance its value, beauty or utility or to adapt it for new or further purposes.
m) Machinery — shall embrace machines, mechanical contrivances, instruments, appliances and
apparatus attached to the real estate. It includes the physical facilities available for production,
as well as the installations and appurtenant service facilities, together with all other equipment
designed for or essential to its manufacturing, industrial or agricultural purposes (See sec. 3[f],
Assessment Law).

The machines and equipment are necessary to the operation of the gas station, for without them
the gas station would be useless, and which have been attached or affixed permanently to the
gas station site or embedded therein, are taxable improvements and machinery within the
meaning of the Assessment Law and the Real Property Tax Code. Therefore, the machines and
equipment are real property subject to realty tax.

5. Remedies of landowner whose valuation was questioned by assessor.

A: Any owner or person having legal interest in the property who is not satisfied with the action of
the assessor in the assessment of his property may, within sixty (60) days from the date of receipt
of the written notice of assessment, appeal to the Board of Assessment Appeals by filing a petition
under oath.

Sec. 252 of the LGC requires that the taxpayer first pays the tax by “payment under protest”. This
is because appeal on assessments of real property does not suspend the collection of the realty
taxes without prejudice on subsequent adjustment on the final outcome of the appeal.

If the assessment of the assessor iis found illegal or erroneous, the taxpayer may then file a written
claim for refund or credit to taxes.

6. Under the Real Property Tax Code, what is the effect of the payment under protest?

Payment under protest is a requisite to file a protest. The taxpayer should first pay the tax and
cause the annotation on the tax receipts the words “paid under protest.”

Effect if the protest is decided in favor of the taxpayer: The amount or portion of the tax protested
shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability.

7. What are the fundamental principles of Real Property Taxation? PAUCE

1. The appraisal, assessment, levy, and collection of real real property tax shall not be let to
any Private person;
2. Real property shall be classified for assessment purposes on the basis of its Actual use;
3. Real property shall be assessed on the basis of Uniform classification within each local
government unit;
 45

4. Real property shall be appraised at its Current and fair market value; and
5. The appraisal and assessment of real property shall be Equitable.

8. Discuss the remedies of a landowner whose valuation of properties submitted to the assessor is
questioned by the latter.

***

9. What is a special levy under the Real Property Tax Code?

SHORT ANSWER (specific kind of special levy only):

“3. Special Assessments (or Special Levy) - on land specially benefited by public works, projects
or improvements funded by the local government unit shall not exceed sixty percent (60%) of the
actual cost of such projects and improvements, including the cost of acquiring land and such
other real property in connection therewith;”

LONG/COMPREHENSIVE ANSWER:

Special Levies
In addition to the basic real property tax, special levies may be imposed by the same LGU on real
property.
a. Special Education Fund (SEF) - One percent (1%) of assessed value additional real estate
tax to finance the SEF (LGC, Sec. 235)
i. Art. 272 of the LGC provides that:
1. The proceeds of additional one percent (1%) RPT accruing to the SEF shal
be automatically released to the local school boards;
2. In case of provinces, the proceeds of SEF shall be divided equally between
the provincial and municipal school boards; and
3. Said proceeds shall be allocated as determined and approved by the
local school board concerned only for the following purposes :
a. Operation and maintenance of public schools;
b. Construction and repair of school buildings, facilities and
equipment;
c. Educational research;
d. Purchase of books and periodicals; and
e. Sports development.
b. Additional Ad Valorem on Idle Lands - not exceeding five percent (5%) of the assessd value
of the property (LGC, Sec. 236);
i. Lands Considered Idle: (LGC, Sec. 237)
1. Agricultural lands more than one (1) hectare in area if more than one-half
(½) of which remain uncultivated or unimproved by the owner of the
property or person having legal interest therein.
2. Non-Agricultural Lands more than one thousand (1,000) sq. m. in area if
more than one-half (½) of which remain unutilized or unimproved by the
owner of the property or person having legal interest therein.
 46

3. Residential lots in subdivision, duly approved by proper authorities

regardless of area. If ownership is transferred, the individual owner shall be
liable for the tax. On the other hand, if ownership of individual lots is not
transferred, the subdivision owner or operator shall be liable.
ii. Not Considered as Idle Lands:
1. Agricultural lands planted to permanent or perennial crops with at least fifty
(50) trees to a hectare; and
2. Lands actually used for grazing purposes.
iii. LGU may Exempt Idle Lands from Additional Levy by Reason of:
1. Force majeure;
2. Civil disturbance;
3. Natural calamity;
4. Any cause which physically or legally prevents the owner of the property or
person having legal interest therein from improving, utilizing or cultivating
the same (LGC, Sec. 238)
iv. Reason for Imposing Ad Valorem Taxes on Idle Lands: To penalize property owners
who do not use their property productively, and to encourage utilization of land
resources in order to contribute to national development
c. Special Assessments (or Special Levy) - on lands specially benefited by public works,
projects or improvements funded by the local government unit shall not exceed sixty
percent (60%) of the actual cost of such projects and improvements, including the cost of
acquiring land and such other real property in connection therewith;
i. Exception: Does not apply to:
1. Lands exempt from basic real property tax
2. Remainder of the land portions donated to the local government unit
concerned for the construction of said projects (LGC, Sec. 240)
ii. Note: Municipalities outside Metro Manila (not only inside) may impose special
assessments.
d. Imposed by other laws
i. Special Housing Tax (R.A. 7279 (Urban Development and Housing Act of 1992)) -
LGUs are authorized to impose and additional one-half percent (0.5%) of the
assessed value of all lands in urban areas in excess of P50,000, except those lands
which are exempted from the coverage of R.A. 7279)

10. The local city assessor of Iligan City subjected to real property tax the following items of a
gasoline station that leased a parcel of land wherein the station is maintained: underground tanks,
elevated tanks, water tanks, gasoline pumps, computing pumps, water pumps, car washer, car
and truck hoists, air compressor and air articles. Are the above items subject to real property tax?
Explain briefly.

Yes. The said equipment and machinery, as appurtenances to the gas station building or
shed owned by the gasoline station (as to which it is subject to realty tax) and which fixtures are
necessary to the operation of the gas station, for without them the gas station would be useless,
and which have been attached or affixed permanently to the gas station site or embedded
therein, are taxable improvements and machinery. This is an interpretation of paragraph 5 of
article 415 of the Civil Code regarding machinery that becomes real property by destination.
 47

Improvements on land are commonly taxed as realty even though for some purposes they
might be considered personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to
see things classed as real property for purposes of taxation which on general principle might be
considered personal property" (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633). (Refer
to Caltex v. CBAA, G.R. G.R. No. L-50466 May 31, 1982 ).

OTHER TOPICS

1. Explain the meaning of the ‚Doctrine of Primary Jurisdiction‛

under the Tariff and Customs Code.

The Doctrine of primary jurisdiction provides that the Bureau of Customs acquired exclusive
jurisdiction over imported goods for the purpose of the enforcement of the Customs laws from the
moment the goods are actually in its possession or control even if no warrant of seizure or
detention had previously been issued by the collector of the Customs. Primary jurisdiction is vested
in seizures and forfeiture proceedings in the collector and the Commissioner or the Customs to the
exclusion of the regular courts. (Commissioner of Customs vs. Navarro, L-33146, May 31, 1977)

Rationale of the doctrine: It is anchored on the policy of placing no necessary hindrance on the
Government’s drive not only to prevent smuggling and other frauds upon Customs but also to
render effective the collection of import and export duties duet to the State.

2. Suppose Arturo dies, leaving 3 heirs and Arturo had 3 apartments. Arturo dies. Each of his heirs
inherited at least one of the apartments. Is the estate tax payable by the heirs? Explain.

Each of the heirs is liable to pay the proportionate estate tax of 6% of the net estate under the
New Train Law corresponding to the value of the apartment transferred to them by way of
inheritance. The estate tax return shall be filed by the executor or administrator, or any of the legal
heirs, in cases of transfers subject to estate tax, or where though exempt from estate tax, the gross
value of the estate exceeds Two Hundred Thousand Pesos (PhP200,000.00) (now amended by
TRAIN LAW) or regardless of the gross value of the estate, where the said estate consists of
registered or registrable property such as real property, motor vehicle, shares of stock or other
similar property for which a clearance from the BIR within 1 year from decedent’s death

3. Is it accurate to say that only assets owned by the decedent at the time of his death would
form part of the gross estate and that assets of interest of third parties would not form part of the
gross estate? Explain.

No because all properties and interests in properties of the decedent at the time of his death shall
be included in his gross estate.

4. For purposes of estate tax, what is the meaning of revocable transfer? Explain.
 48

Revocable transfer is a transfer that can be altered or revoked by the decedent while he is alive
such as revocable personal management trust.

Alternative Answer:
Revocable transfers cover transfers by trust or otherwise, where the enjoyment thereof was the
subject at the date of his death to any change through the exercise of a power by the decedent
alone or by the decedent in conjunction with any other person to alter, amend, revoke, or
terminate, or where any such power is relinquished in contemplation of the decedent’s death.

5. Are insurance proceeds part of the gross estate? Explain.

SUGGESTED ANSWER:
It depends. The proceeds from a life insurance policy is included as part of the gross estate of the
designation of the beneficiary is revocable or irrespective of the nature of the designation, if the
designated beneficiary is either the estate of the deceased, his executor or administrator. If the
designated beneficiary is other than the estate, executor or administrator and the designation is
irrevocable, the proceeds shall not form part of his gross estate.
[Answer based on Section 85(e), NIRC and Mamalateo, Reviewer on Taxation, 2014, p. 360]

6. Aristorsa owned a property worth P10million. Subsequently, he transferred the property to

Balutsi. Aristorsa died the next day. After 3 months, Balutsi sold the property for P50million. What
would be the value included in the gross estate for estate tax purposes? Explain.

SUGGESTED ANSWER:
The value that would included in the gross estate for estate tax purposes is P10 Million. Under
Section 85 of the NIRC, “the value of the gross estate of the decedent shall be determined by
including the value at the time of his death of all property, real or personal, tangible or intangible,
wherever situated.”

[Not sure kung gustong palabasin ni Sir yung “in contemplation of death” under Section 85(B). If
ever…]
However, if Aristorsa transferred the property in contemplation of death, the value that would be
included in the gross estate for estate tax purposes is P50 Million.

The words “in contemplation of death” mean that it is the thought of death, as a controlling
motive, which induces the disposition of the property for the purpose of avoiding the Tax.
[Mamalateo, Reviewer on Taxation, 2014, p. 362]

Circumstances taken into account include:

1. Age and state of health of the decedent at the time of gift, especially where he was aware of
a serious illness;
2. Length of time between the gift and the date of death. A short interval suggests the conclusion
that the thought of death was in the decedent’s mind, and a long interval suggests the opposite;
3. Concurrent making of a will or making a will within a short time after the transfer.
[Mamalateo, Reviewer on Taxation, 2014, p. 363]
 49

7. During Amistoso’s funeral, Balongkita, his relative, paid all the funeral expenses out of his own
pocket. Are these expenses deductible from the gross estate for estate tax purposes?

NIRC: Yes.
SEC. 86. Computation of Net Estate. - For the purpose of the tax imposed in this Chapter, the value
of the net estate shall be determined:
(A) Deductions Allowed to the Estate of Citizen or a Resident. - In the case of a citizen or resident
of the Philippines, by deducting from the value of the gross estate -
(1) Expenses, Losses, Indebtedness, and taxes. - Such amounts:
(a) For actual funeral expenses or in an amount equal to five percent (5%) of the gross estate,
whichever is lower, but in no case to exceed Two hundred thousand pesos (P200,000);

Funeral Expenses: Include interment and/or cremation fees, mourning apparel of the surviving
spouse and unmarried minor children, expenses for the deceased's wake including food and
drinks, publication charges for death notices, telecommunication expenses incurred in informing
relatives of the deceased, cost of burial lot, monument or mausoleum but not their upkeep and
other expenses incurred for the performance of the rites and ceremonies incident to the
interment.

Train law: No longer. It is already included in the Standard deduction (equivalent to P5M) which
includes Medical, Funeral, And Judicial expenses.

8. For the purpose of the donor’s tax, who is a stranger?

NIRC: Donor's tax computation would depend on whether the donor and the donee are relatives
or strangers. Relatives of the donor refers to a brother or sister - by whole or half blood, spouse,
ancestor, lineal descendant, or relative by consanguinity in the collateral line within the fourth civil
degree of relationship. Donations to relatives are taxed at 2%-15%, each and every donation
aggregated, and allowed deductions for dowry, dimunutiosn and encumbrances to a certain
extent. Donations of the donor to the relatives of not exceeding 100,000 within the calendar year
are not taxable.
Strangers are those individuals not enumerated under relatives. Donations of corporations and
other juridical entities are donations to strangers. Donor's ax in the Philippines for donations to
stranger is at 30% of the gross amount of taxable donation and the tax is paid every after donation
without need of aggregation as compared to donations to relatives.
Train law: For donor's tax purposes, it does not distinguish whether a relative or a stranger, both
being taxed at the rate of 6% of the total net gifts.

9. Xavier would give his Batangas land as a gift to Yamy provided that Yamy would give his
Bataan land to Xavier as a gift? Is there a taxable gift? Explain.
 50

Answer: There is none, the requisite of Donative Intent(intention to donate) is lacking since the
transfer is conditioned upon the exchange of another land by the apparent donee. What governs
here is the rules on exchange of property because it covers exchange of property classified as
Real property held as a capital asset. The tax treatment on any net capital gains brought by the
exchange will be included in the gross income subject to the regular income tax rates.

10. How do you value gift for donor’s tax purposes if it is a personal
property? What about a real property? Explain.

ANSWER: Valuation of Gifts

1.) Real property- It shall be valued at the FMV of the property at the time of the gift. However,
the appraised FMV of the property shall be whichever is higher between the FMV as determined
by the commissioner or the FMV as shown in the schedule of values fixed by the Provincial and
City Assessors (NIRC, Sec. 102, 88(B)
2.) All other property - it shall be valued at the FMV of the property at the time of the gift. (NIRC,
Sec. 102)

11. Explain the meaning of Vanishing Deduction.

Vanishing deduction or deduction of property previously taxed, is a deduction allowed on the

property left behind by the decedent which he had acquired previously by inheritance or
donation.

Previously, a transfer tax had already been imposed on the property; estate tax if the property
was acquired by inheritance, or donor’s tax if the property was acquired by donation. Now that
the recipient of the inheritance or donation has died, the same property will again be subjected
to a transfer tax- the estate tax. To minimize the effects of a double tax on the same property
within a short period of time (not exceeding 5 years)(the law allows a deduction to be claimed
on the said property.

12. Discuss the application of warrantless search under the Tariff & Customs Code.

Doctrine of Hot Pursuit in Customs Administration

The Bureau shall pursue imported goods subject to seizure during its transport by land, water, and
air and shall exercise jurisdiction as may be necessary for the effective enforcement of CMTA
(Memaid, p. 309).

[Wala ako mahanap, ito na closest sa Memaid]

RA No. 10863

SECTION 219. Authority to Enter Properties.— Any person exercising police authority may, at any
time, enter, pass through, and search any land, enclosure, warehouse, store, building or structure
not principally used as a dwelling house.
 51

When a security personnel or any other employee lives in the warehouse, store, or any building,
structure or enclosure that is used for storage of goods, it shall not be considered as a dwelling
house for purposes of this Act.
SECTION 220. Authority to Search Dwelling House.— A dwelling house may be entered and
searched only upon warrant issued by a Judge of a competent court, the sworn application
thereon showing probable cause and particularly describing the place to be searched and the
goods to be seized.

13. The imported automobile of Mr. Willie Revillame III was taken by customs agents. Before any
seizure proceedings could be initiated, a court sheriff went to the customs house to serve a writ of
attachment issued by the Regional Trial Court of Muntinlupa City. May the automobile be the
subject of the writ of attachment? Explain.

Answer: No. The Bureau of Customs acquires exclusive jurisdiction over imported goods for the
purposes of enforcement of the customs laws, from the moment the goods are actually in its
possession or control, even if no warrant of seizure or detention had previously been connection
with seizure and forfeiture proceedings.

The Collector of Customs when sitting in forfeiture proceedings constitute a tribunal upon which
the law expressly confers jurisdiction to hear and determine all questions touching forfeiture and
further disposition of the subject mater of such proceeding.

RTCs are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture
proceedings conducted by the BOC and to enjoin or otherwise interfere with these proceedings.
RTCs are precluded from assuming cognizance over such matters even through petitions for
certiorari, prohibition, or mandamus.

14. Various imported articles for gambling were given tax exemption and released from Customs
custody on the strength of Zaccheus’s misrepresentation that he was connected with PAGCOR.
Relying on a tip, the Collector Customs was able to seize the articles and ordered their forfeiture.
The importer raised the defense that the forfeiture proceedings had already been barred by the
one-year prescriptive period under the Tariff & Customs Code. Is the one-year prescriptive period
applicable in the case at bar? Explain briefly.

Answer: No, the Court has ruled in the case of Commissioner of Customs v. Court of Tax Appeals
and Philippine Casino Operators Corporation (G.R. No. 132929, March 27, 2000):

“Prescinding from what has been said, we hold that the forfeiture of the illegally released
equipment was proper under 2530, pars. (f) and (l), sub-paragraphs 3, 4 and 5 of the Tariff and
Customs Code, as amended. Contrary to private respondent's contention, the forfeiture
proceedings were not barred by prescription as the one year prescriptive period under Sec. 1603
of the Tariff and Customs Code, as amended, applies only in the absence of fraud. In this case,
PCOC's importations were released by the Bureau of Customs free of tax by virtue of indorsements
issued by the Ministry (now Department) of Finance. These, in turn, were issued on certain
misrepresentations of Constancio Francisco, an interlocking officer of PCOC and PIRC, to the
effect that the importations were exempt from taxes and duties.”