G.R. No. 59431. July 25, 1984
ANTERO M. SISON, JR., PETITIONER, VS. RUBEN B. ANCHETA, ACTING COMMISSIONER, BUREAU OF INTERNAL REVENUE; ROMULO VILLA, DEPUTY COMMISSIONER, BUREAU OF INTERNAL REVENUE; TOMAS TO…
FERNANDO, C.J.:
on the validity of Section 1 of Batas Pambansa Blg. 135 depends upon a
showing of its constitutional infirmity. The assailed provision
further amends Section 21 of the National Internal Revenue Code of 1977,
which provides for rates of tax on citizens or residents on (a)
taxable compensation income, (b) taxable net income, (c) royalties,
prizes, and other winnings, (d) interest from bank deposits and yield or
any other monetary benefit from deposit substitutes and from trust fund
and similar arrangements, (e) dividends and share of individual partner
in the net profits of taxable partnership, (f) adjusted gross income.[2] Petitioner[3]
as taxpayer alleges that by virtue thereof, “he would be unduly
discriminated against by the imposition of higher rates of tax upon his
income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers.”[4] He characterizes the above section as arbitrary amounting to class legislation, oppressive and capricious in character.[5] For petitioner, therefore, there is a transgression of both the equal protection and due process clauses[6] of the Constitution as well as of the rule requiring uniformity in taxation.[7]
The Court, in a resolution of January 26, 1982, required respondents to
file an answer within 10 days from notice. Such an answer, after two
extensions were granted the Office of the Solicitor General, was filed
on May 28, 1982.[8] The facts
as alleged were admitted but not the allegations which to their mind
are “mere arguments, opinions or conclusions on the part of the
petitioner, the truth [for them] being those stated [in their] Special
and Affirmative Defenses.”[9]
The answer then affirmed: “Batas Pambansa Blg. 135 is a valid exercise
of the State’s power to tax. The authorities and cases cited, while
correctly quoted or paraphrased, do not support petitioner’s stand.”[10] The prayer is for the dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a
much wider scope. The reason was so clearly set forth by retired Chief
Justice Makalintal thus: “The areas which used to be left to private
enterprise and initiative and which the government was called upon to
enter optionally, and only ‘because it was better equipped to administer
for the public welfare than is any private individual or group of
individuals,’ continue to lose their well-defined boundaries and to be
absorbed within activities that the government must undertake in its
sovereign capacity if it is to meet the increasing social challenges of
the times.”[11] Hence the
need for more revenues. The power to tax, an inherent prerogative, has
to be availed of to assure the performance of vital state functions. It
is the source of the bulk of public funds. To paraphrase a recent
decision, taxes being the lifeblood of the government, their prompt and
certain availability is of the essence.[12]2. The power to tax moreover, to borrow from Justice Malcolm, “is
an attribute of sovereignty. It is the strongest of all the powers of
government.”[13] It is, of
course, to be admitted that for all its plenitude, the power to tax is
not unconfined. There are restrictions. The Constitution sets forth
such limits. Adversely affecting as it does property rights, both the
due process and equal protection clauses may properly be invoked, as
petitioner does, to invalidate in appropriate cases a revenue measure.
If it were otherwise, there would be truth to the 1803 dictum of Chief
Justice Marshall that “the power to tax involves the power to destroy.”[14] In a separate opinion in Graves v. New York,[15]
Justice Frankfurter, after referring to it as an “unfortunate remark,”
characterized it as “a flourish of rhetoric [attributable to] the
intellectual fashion of the times [allowing] a free use of absolutes.”[16]
This is merely to emphasize that it is not and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully conclude:
“The web of unreality spun from Marshall’s famous dictum was brushed
away by one stroke of Mr. Justice Holmes’s pen: ‘The power to tax is
not the power to destroy while this Court sits.’ “[17] So it is in the Philippines.3. This Court then is left with no choice. The Constitution as the
fundamental law overrides any legislative or executive act that runs
counter to it. In any case therefore where it can be demonstrated that
the challenged statutory provision – as petitioner here alleges – fails
to abide by its command, then this Court must so declare and adjudge it
null. The inquiry thus is centered on the question of whether the
imposition of a higher tax rate on taxable net income derived from
business or profession than on compensation is constitutionally infirm.4. The difficulty confronting petitioner is thus apparent. He
alleges arbitrariness. A mere allegation, as here, does not suffice.
There must be a factual foundation of such unconstitutional taint.
Considering that petitioner here would condemn such a provision as void
on its face, he has not made out a case. This is merely to adhere to
the authoritative doctrine that where the due process and equal
protection clauses are invoked, considering that they are not fixed
rules but rather broad standards, there is a need for proof of such
persuasive character as would lead to such a conclusion. Absent such a
showing, the presumption of validity must prevail.[18]5. It is undoubted that the due process clause may be invoked where
a taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to amount to
the confiscation of property. That would be a clear abuse of power. It
then becomes the duty of this Court to say that such an arbitrary act
amounted to the exercise of an authority not conferred. That properly
calls for the application of the Holmes dictum. It has also been held
that where the assailed tax measure is beyond the jurisdiction of the
state, or is not for a public purpose, or, in case of a retroactive
statute is so harsh and unreasonable, it is subject to attack on due
process grounds.[19]6. Now for equal protection. The applicable standard to avoid
the charge that there is a denial of this constitutional mandate whether
the assailed act is in the exercise of the police power or the power of
eminent domain is to demonstrate “that the governmental act assailed,
far from being inspired by the attainment of the common weal was
prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices then that
the laws operate equally and uniformly on all persons under similar
circumstances or that all persons must be treated in the same manner,
the conditions not being different, both in the privileges conferred and
the liabilities-imposed. Favoritism and undue preference cannot be
allowed. For the principle is that equal protection and security shall
be given to every person under circumstances, which if not identical are
analogous. If law be looked upon in terms of burden or charges, those
that fall within a class should be treated in the same fashion, whatever
restrictions cast on some in the group equally binding on the rest.”[20]
That same formulation applies as well to taxation measures. The equal
protection clause is of course, inspired by the noble concept of
approximating the ideal of the laws’s benefits being available to all
and the affairs of men being governed by that serene and impartial
uniformity, which is of the very essence of the idea of law. There is,
however, wisdom, as well as realism, in these words of Justice
Frank-further: “The equality at which the ‘equal protection’ clause the
former deals with an eminent domain proceeding and the latter with a
suit contesting the validity of a police power measure aims is not a
disembodied equality. The Fourteenth Amendment enjoins ‘the equal
protection of the laws,’ and laws are not abstract propositions. They
do not relate to abstract units A, B and C, but are expressions of
policy arising out of specific difficulties, addressed to the attainment
of specific ends by the use of specific remedies. The Constitution
does not require things which are different in fact or opinion to be
treated in law as though they were the same.”[21]
Hence the constant reiteration of the view that classification if
rational in character is allowable. As a matter of fact, in a leading
case of Lutz v. Araneta,[22]
this Court, through Justice J.B.L. Reyes, went so far as to hold “at any
rate, it is inherent in the power to tax that a state be free to select
the subjects of taxation, and it has been repeatedly held that
‘inequalities which result from a singling out of one particular class
for taxation, or exemption infringe no constitutional limitation.'”[23]7. Petitioner likewise invoked the kindred concept of uniformity.
According to the Constitution: “The rule of taxation shall be uniform
and equitable.”[24] This requirement is met according to Justice Laurel in Philippine Trust Company v. Yatco,[25] decided in 1940, when the tax “operates with the same force and effect in every place where the subject may be found.”[26]
He likewise added: “The rule of uniformity does not call for perfect
uniformity or perfect equality, because this is hardly attainable.”[27]
The problem of classification did not present itself in that case. It
did not arise until nine years later, when the Supreme Court held:
“Equality and uniformity in taxation means that all taxable articles or
kinds of property of the same class shall be taxed at the same rate.
The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation, * * *.[28]
As clarified by Justice Tuason, where ” the differentiation” complained
of “conforms to the practical dictates of justice and equity” it “is
not discriminatory within the meaning of this clause and is therefore
uniform.”[29] There is quite a
similarity then to the standard of equal protection for all that is
required is that the tax “applies equally to all persons, firms and
corporations placed in similar situation.”[30]8. Further on this point. Apparently, what misled petitioner is
his failure to take into consideration the distinction between a tax
rate and a tax base. There is no legal objection to a broader tax base
or taxable income by eliminating all deductible items and at the same
time reducing the applicable tax rate. Taxpayers may be classified into
different categories. To repeat, it is enough that the classification
must rest upon substantial distinctions that make real differences. In
the case of the gross income taxation embodied in Batas Pambansa Blg.
135, the discernible basis of classification is the susceptibility of
the income to the application of generalized rules removing all
deductible items for all taxpayers within the class and fixing a set of
reduced tax rates to be applied to all of them. Taxpayers who are
recipients of compensation income are set apart as a class. As there is
practically no overhead expense, these taxpayers are not entitled to
make deductions for income tax, purposes because they are in the same
situation more or less. On the other hand, in the case of professionals
in the practice of their calling and businessmen, there is no
uniformity in the costs or expenses necessary to produce their income.
It would not be just then to disregard the disparities by giving all of
them zero deduction and indiscriminately impose on all alike the same
tax rates on the basis of gross income. There is ample justification
then for the Batasang Pambansa to adopt the gross system of income
taxation to compensation income, while continuing the system of net
income taxation as regards professional and business income.9. Nothing can be clearer, therefore, than that the petition is
without merit, considering the (1) lack of factual foundation to show
the arbitrary character of the assailed provision;[31]
(2) the force of controlling doctrines on due process, equal
protection, and uniformity in taxation and (3) the reasonableness of the
distinction between compensation and taxable net income of
professionals and businessmen — certainly not a suspect classification.
WHEREFORE, the petition is dismissed. Costs against petitioner.
Makasiar, Concepcion, Jr., Guerrero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De La Fuente, and Cuevas, JJ., concur.
Teehankee and Aquino, JJ., in the result.
Abad Santos, J., see notation.
Plana, J., no part.
ABAD SANTOS, J.:
This is a frivolous suit. While the tax rates for compensation income are lower than those for net income such circumstance does not necessarily result in lower tax payments
for those receiving compensation income. In fact, the reverse will most
likely be the case; those who file returns on the basis of net income
will pay less taxes because they can claim all sorts of deductions
justified of not. I vote for dismissal.
[1] Petitioner must have realized that a suit for declaratory relief must be filed with the Regional Trial Courts.
[2] Batas Pambansa Blg. 135, Section 21 (1981).
[3] The respondents are Ruben
B. Ancheta, Acting Commissioner, Bureau of Internal Revenue; Romulo
Villa, Deputy Commissioner, Bureau of Internal Revenue; Tomas Toledo,
Deputy Commissioner, Bureau of Internal Revenue; Manuel Alba, Minister
of Budget; Francisco Tantuico, Chairman, Commissioner on Audit; and
Cesar E. A. Virata, Minister of Finance.
[4] Petition, Parties, par.
1. The challenge is thus aimed at paragraphs (a) and (b) of Section 1
further Amending Section 21 of the National Internal Revenue Code of
1977. Par. (a) reads: “(a) On taxable compensation income. — A
tax is hereby imposed upon the taxable compensation income as
determined in Section 28 (a) received during each taxable year from all
sources by every individual, whether a citizen of the Philippines,
determined in accordance with the following schedule:
| Not over P 2,500 | 0% |
| Over P 2, 500 but not over P 5, 000 | 1% |
| Over P 5, 000 but not over 10,000 | P 25 + 3% of excess over P 5,000 |
| Over P 10, 000 but not over P 20, 000 | P 175 + 7% of excess over P 10,000 |
| Over P 20, 000 but not over P 40, 000 | P 875 + 11% of excess over P 20,000 |
| Over P 40, 000 but not over P 60, 000 | P 3,075 + 15% of excess over P 40,000 |
| Over P 60, 000 but not over P 100, 000 | P 6075 + 19% of excess over P 60,000 |
| Over P 100, 000 but not over P 250, 000 | P 13675 + 24% of excess over P 100,000 |
| Over P 250, 000 but not over P 500, 000 | P 49675 + 29% of excess over P 250,000 |
| Over P 500, 000 | P 122,175 + 35% of excess over P 500,000 |
Par. (b) reads: “(b) On taxable net income. — A tax is
hereby imposed upon the taxable net income as determined in Section
29(a) received during each taxable year from all sources by every
individual, whether a citizen of the Philippines, or an alien residing
in the Philippines determined in accordance with the following schedule:
| Not over P 10,000 | 5% |
| Over P 10,000 but not over P 30,000 | P 500 + 15% of excess over P 10,000 |
| Over P 30,000 but not over P 150,000 | P 3,500 + 30% of excess over P 30,000 |
| Over P 150,000 but not over P 500,000 | P 39,500 + 45% of excess over P 150,000 |
| Over P 500,000 | P 197,000 + 60% of excess over P 500,000 |
[5] Ibid, Statement, par. 4.
[6] Article IV, Section 1 of
the’ Constitution reads: “No person shall be deprived of life, liberty
or property without due process of law, nor shall any person be denied
the equal protection of the laws.”
[7] Article VII, Section 7,
par. (1) of the Constitution reads: “The rule of taxation shall be
uniform and equitable. The Batasang Pambansa shall evolve a progressive
system of taxation.”
[8] It was filed by Solicitor
General Estelito P. Mendoza. He was assisted by Assistant Solicitor
General Eduardo D. Montenegro and Solicitor Erlinda B. Masakayan.
[9] Answer, pars. 1-6.
[10] Ibid, par. 6.
[11] Agricultural Credit and
Cooperative Financing Administration v. Confederation of Unions in
Government Corporation and Offices, L-21484, November 29, 1969, 30 SCRA
649, 662.
[12] Cf. Vera v. Fernandez, L-31364, March 30, 1979, 89 SCRA 199, per Castro, J.
[13] Sarasola v. Trinidad, 40 Phil. 252, 262 (1919).
[14] McCulloch v. Maryland, 4 Wheaton 316.
[15] 306 US 466 (1938).
[16] Ibid, 489.
[17] ibid, 490.
[18] Cf. Ermita-Malate Hotel
and Motel Operators Association v. Hon. City Mayor, 127 Phil. 306, 315
(1967); U.S. v. Salaveria, 39 Phil. 102, 111 (1918) and Eboña v. Daet,
85 Phil. 369 (1950). Likewise raferred to is O’Gorman and Young v.
Hartford Fire Insurance Co., 282 US 251, 328 (1931).
[19] Cf. Manila Gas Co. v.
Collector of Internal Revenue, 62 Phil. 895 (1936); Wells Fargo Bank and
Union Trust Co. v. Collector, 70 Phil. 325 (1940); Republic v. Oasan
Vda. de Fernandez, 99 Phil. 934 (1956).
[20] The excerpt is from the
opinion in J.M. Tuason and Co. v. The Land Tenure Administration,
L-21064, February 18, 1970, 31 SCRA 413, 435 and reiterated in Bautista
v. Juinio, G.R. No. 50908, January 31, 1984, 127 SCRA 329, 339.The
former deals with an eminent domain proceeding and the latter with a
suit contesting the validity of a police power measure.
[21] Tigner v. Texas, 310 US 141, 147 (1940).
[22] 98 Phil. 148 (1955).
[23] Ibid, 153.
[24] Article VIII, Section 17, par. 1, first sentence of the Constitution.
[25] 69 Phil. 420 (1940).
[26] Ibid, 426.
[27] Ibid, 424.
[28] Eastern Theatrical Co. v. Alfonso, 83 Phil. 852, 862 (1949).
[29] Manila Race Horse Trainers Asso. v. De la Fuente, 88 Phil. 60, 65 (1951).
[30] Uy Matias v. City of Cebu, 93 Phil. 300 (1953).
[31] While petitioner cited
figures to sustain his assertion, public respondents refuted with other
figures that argue against his submission. One reason for requiring
declaratory relief proceedings to start in regional trial courts is
precisely to enable petitioner to prove his allegation, absent an
admission in the answer.