Definition and concept of Taxation

1. Power of TaxationRoxas v Court of Tax of Appeals 1968"The power of taxation is sometimes called also the power to destroy. Therefore, it should be exercised with caution to minimize injury to the proprietary rights of the taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kills the 'hen that lays the golden eggs.' And in order to maintain the general public's trust and confidence in the government, this power must be used justly and not treacherously." (Roxas v. Court of Tax Appeals, 23 SCRA276, App120, 1968; Philex Mining Corp. vs. Comm. of Internal Revenue, 97 SCAD 777,294 SCRA 687, Aug. 28, 1998.)SISON v ANCHETA 1984Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1) unduly discriminated against him by the imposition of higher rates upon his income as a professional, that it amounts to class legislation, and that it transgresses against the equal protection and due process clauses of the Constitution as well as the rule requiring uniformity in taxation.Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on uniformity in taxation.Held: There is a need for proof of such persuasive character as would lead to a conclusion that there was a violation of the due process and equal protection clauses. Absent such showing, the presumption of validity must prevail. 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. Where the differentitation conforms to the practical dictates of justice and equity, similar to the standards of equal protection, it is not discriminatory within the meaning of the clause and is therefore uniform. Taxpayers may be classified into different categories, such as recipients of compensation income as against professionals. Recipients of compensation income are not entitled to make deductions for income tax purposes as there is no practically no overhead expense, while professionals and businessmen have no uniform costs or expenses necessary to produce their income. There is ample

justification 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.PHCP v CIR 2008Facts:The petitioner, a prepaid health-care organization offering benefits to its members. The CIR found that the organization had a deficiency in the payment of the DST under Section 185 of the 1997 Tax Code which stipulated its implementation:“On all policies of insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation transacting the business of accident, fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance)”The CIR sent a demand for the payment of deficiency taxes, including surcharges and interest, for 1996-1997 in the total amount of P224,702,641.18.The petitioner protested to the CIR, but it didn’t act on the appeal. Hence, the company had to go to the CTA. The latter declared judgment against them and reduced the taxes. It ordered them to pay 22 million pesos for deficiency VAT for 1997 and 31 million deficiency VAT for 1996.CA denied the company’s appeal an d increased taxes to 55 and 68 million for 1996 to 1997.Issues: WON a health care agreement in the nature of an insurance contract and therefore subject to the documentary stamp tax (DST) imposed under Section 185 of Republic Act 8424 (Tax Code of 1997)Held: Yes. Petition dismissed.Ratio:The DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments.The DST is an excise upon the privilege, opportunity, or facility offered at exchanges for the transaction of the business. In particular, the DST under Section 185 of the 1997 Tax Code is imposed on the privilege of making or renewing any policy of insurance (except life, marine, inland and fire insurance), bond

or obligation in the nature of indemnity for loss, damage, or liability.Petitioner's health care agreement is primarily a contract of indemnity. And in the recent case of Blue Cross Healthcare, Inc. v. Olivares, this Court ruled that a health care agreement is in the nature of a non-life insurance policy.Its health care agreement is not a contract for the provision of medical services. Petitioner does not actually provide medical or hospital services but merely arranges for the sameIt is also incorrect to say that the health care agreement is not based on loss or damage because, under the said agreement, petitioner assumes the liability and indemnifies its member for hospital, medical and related expenses (such as professional fees of physicians). The term "loss or damage" is broad enough to cover the monetary expense or liability a member will incur in case of illness or injury.Philamcare Health Systems, Inc. v. CA.- The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity.Similarly, the insurable interest of every member of petitioner's health care program in obtaining the health care agreement is his own health. Under the agreement, petitioner is bound to indemnify any member who incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingency to the extent agreed upon under the contract.CREBA v ROMULO 2010FACTS:CREBA assails the imposition of the minimum corporate income tax (MCIT) as being violative of the due process clause as it levies income tax even if there is no realized gain. They also question the creditable withholding tax (CWT) on sales of real properties classified as ordinary assets stating that (1) they ignore the different treatment of ordinary assets and capital assets; (2) the use of gross selling price or fair market value as basis for the CWT and the collection of tax on a per transaction basis (and not on the net income at the end of the year) are inconsistent with the tax on ordinary real properties; (3) the government collects income tax even when the net income has not yet been determined; and (4) the CWT is being levied upon real estate enterprises but not on other

enterprises, more particularly those in the manufacturing sector.ISSUE:Are the impositions of the MCIT on domestic corporations and CWT on income from sales of real properties classified as ordinary assets unconstitutional?HELD:NO. MCIT does not tax capital but only taxes income as shown by the fact that the MCIT is arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from gross sales. Besides, there are sufficient safeguards that exist for the MCIT: (1) it is only imposed on the 4th year of operations; (2) the law allows the carry forward of any excess MCIT paid over the normal income tax; and (3) the Secretary of Finance can suspend the imposition of MCIT in justifiable instances.The regulations on CWT did not shift the tax base of a real estate business’ income tax from net income to GSP or FMV of the property sold since the taxes withheld are in the nature of advance tax payments and they are thus just installments on the annual tax which may be due at the end of the taxable year. As such the tax base for the sale of real property classified as ordinary assets remains to be the net taxable income and the use of the GSP or FMV is because these are the only factors reasonably known to the buyer in connection with the performance of the duties as a withholding agent.Neither is there violation of equal protection even if the CWT is levied only on the real industry as the real estate industry is, by itself, a class on its own and can be validly treated different from other businesses.

2. Power of Taxation compared to other powersPOLICE POWER

Serafica v Treasurer of Ormoc GR No L-24813, April 28, 1969 FACTS:Serafica seeks to nullify Ordinance 13 imposing a tax on every 1,000 board feet of lumber. He contends that the charter of Ormoc authorizes it to regulate and not tax. He alleges that the tax on the lumber constitutes double taxation. ISSUE:Is the city authorized to tax?

RULING:Yes. Under the Local Autonomy Act, the power is broad and sufficiently plenary to cover everything, except those mentioned. Regulation and taxation are two different things, the first being an exercise of police power and the latter is not. Double taxation is not prohibited in the Philippines.POWER OF EMINENT DOMAINLutz v AranetaGR No L-7859 December 22, 1955 FACTS:Walter Lutz, as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, sought to recover the sum of P14,666.40 paid by the estate as taxes from the Commissioner under Section e of Commonwealth Act 567 or the Sugar Adjustment Act, alleging that such tax is unconstitutional as it levied for the aid and support of the sugar industry exclusively, which is in his opinion not a public purpose. ISSUE:Is the tax valid? HELD:Yes. The tax is levied with a regulatory purpose, i.e. to provide means for the rehabilitation and stabilization of the threatened sugar industry. The act is primarily an exercise of police power and is not a pure exercise of taxing power. As sugar production is one of the great industries of the Philippines and its promotion, protection and advancement redounds greatly to the general welfare, the legislature found that the general welfare demanded that the industry should be stabilized, and provided that the distribution of benefits had to sustain. Further, it cannot be said that the devotion of tax money to experimental stations to seek increase of efficiency in sugar production, utilization of by-products, etc., as well as to the improvement of living and working conditions in sugar mills and plantations without any part of such money being channeled directly to private persons, constitute expenditure of tax money for private purposes. Hence, the tax is valid.

3. Theories and Bases of TaxationLIFE BLOOD THEORY

CIR v Algue

GR No. L-28896, February 17, 1988FACTS:The BIR assessed Algue a total amount of delinquency taxes of Php 83,183.85 for the years 1958 and 1959. It contends that the company's claimed deduction of Php 75,000 in the form of promotional fees is disallowed because it was not ordinary reasonable or necessary business expenses. Algue filed a protest.BIR did not take any action. So, Algue filed a petition for review with the Court of Tax Appeals which rule in favor of Algue. Thus, the current petition.ISSUE:Whether the BIR correctly disallowed the deductionRULING:No.The burden is on the taxpayer to prove the validity of the claimed deduction. Here, the onus has been discharged satisfactorily. Here, the onus has been discharged satisfactorily. The promotional fees were necessary and reasonable in the light of the efforts exerted by the payees in the inducement of investors to venture in an experimental enterprise. Thus, the payees should be sufficiently recompensed.COMMISSIONER OF INTERNAL REVENUE VS. FILINVEST DEVELOPMENT CORPORATION- Theoretical InterestFilinvest Development Corporation extended advances in favor of its affiliates and supported the same with instructional letters and cash and journal vouchers. The BIR assessed Filinvest for deficiency income tax by imputing an “arm’s length” interest rate on its advances to affiliates. Filinvest disputed this by saying that the CIR lacks the authority to impute theoretical interest and that the rule is that interests cannot be demanded in the absence of a stipulation to the effect.ISSUE:Can the CIR impute theoretical interest on the advances made by Filinvest to its affiliates?HELD:NO. Despite the seemingly broad power of the CIR to distribute, apportion and allocate gross income under (now) Section 50 of the Tax Code, the same does not include the power to impute theoretical interests even with regard to

controlled taxpayers’ transactions. This is true even if the CIR is able to prove that interest expense (on its own loans) was in fact claimed by the lending entity. The term in the definition of gross income that even those income “from whatever source derived” is covered still requires that there must be actual or at least probable receipt or realization of the item of gross income sought to be apportioned, distributed, or allocated. Finally, the rule under the Civil Code that “no interest shall be due unless expressly stipulated in writing” was also applied in this case.The Court also ruled that the instructional letters, cash and journal vouchers qualify as loan agreements that are subject to DST.

BENEFITS PROTECTION THEORY (SYMBIOTIC RELATIONSHIP)CIR v AlgueLorenzo v Posadas (Tax)FACTS:Lorenzo, in his capacity as trustee of the estate of Thomas Hanley, brought an action against the Collector of Internal Revenue Posadas for the refund of P2,052.74 inheritance taxes. The properties under the will were to pass to Matthew Hanley after 10 years.ISSUES:1. When does the inheritance tax accrue and when must it be satisfied?2. Should the inheritance tax be computed on the basis of the value at the time of the testator's death or on its value ten years later?3. In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to trustees?4. What law governs the case?5. Has there been delinquency in the payment of the inheritance tax?RULING:1. Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of that date. But it must be paid before the delivery of the properties in question to PJM Moore as trustee on March 10, 1924.2. It should be computed at the time of the decedent's death, regardless of any subsequent contingency value of any

increase or decrease and notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary and the tax measured by the value of the property transmitted at that time regardless of its appreciation or depreciation.3. No. The compensation of a trustee, earned not in the administration of the estate, but in the management thereof for the benefit of the legatees or devises, does not come properly within the class or reason for exempting administration expenses.4. Act 3031 and not Act 3606 applies. Even if Act 3606 is more favorable to the taxpayer, revenue laws, generally, which impose taxes collected by means ordinarily resorted to for the collection of taxes are not classes as penal laws.5. Yes. That taxes must be collected promptly is a policy deeply entrenched in our tax system. Thus, no court is allowed to grant injunction to restrain the collection of any internal revenue tax. The mere fact that the estate of the deceased was placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the payment of the inheritance taxNPC v. City of CabanatuanG.R. No. 149110, April 9, 2003TAXATION: The most effective means to raise revenues; LGU's Power of Taxation, exception to Non-delegation of taxing power; Tax Exemptions, construed strongly against the claimantFacts:NPC, a GOCC, created under CA 120 as amended, selling electric power, was assessed by the City of Cabanatuan for franchise tax pursuant to sec. 37 of Ordinance No. 165-92. NPC refused to pay the tax assessment on the grounds that the City of Cabanatuan has no authority to impose tax on government entities and also that it is exempted as a non-profit organization. For its part, the City government alleged that NPC’s exemption from local taxes has been repealed by sec. 193 of RA 7160.ISSUES:(1) Is the NAPOCOR excluded from the coverage of the franchise tax simply because its stocks are wholly owned by the National Government and its charter characterized is as a ‘non-profit organization’?

(2) Is the NAPOCOR’s exemption from all forms of taxes repealed by the provisions of the Local Government Code (LGC)?HELD:(1) NO. To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue and be sued under its own name, and can exercise all the powers of a corporation under the Corporation Code.To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner is no engage din business.(2) YES. One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the National Government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e. when specific provisions of the LGC authorize the LGUs to impose taxes, fees, or charges on the aforementioned entities. The legislative purpose to withdraw tax privileges enjoyed under existing laws or charter is clearly manifested by the language used on Sec. 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have been used.

NECESSITY THEORY

JURISDICTION OVER SUBJECTS AND OBJECTSOTHER CASESCIR v PinedaGR No L-22734, September 15, 1967 FACTS:

BIR investigated the income tax liability of Anastacio Pineda’s estate for the years 1945, 1946, 1947, and 1948 and it found that the corresponding income tax return were not filed. This resulted to a P760.28 deficiency income tax for 1945 and 1946 and real estate dealer’s fixed tax for the 4th quarter of 1946 and for the whole year 1947. Manuel Pineda, eldest son of Anastacio, received the assessment. He contested the same alleging that only a proportionate part should be his liability. CTA ruled that Pineda is liable only for taxes corresponding to his share in the estate. Hence, the present petition. ISSUE:Whether the Government can require Manuel Pineda to pay the full amount of the tax assessed RULING:Yes. As a holder of property belonging to the estate, Pineda is liable for the tax up to the amount of the property in his possession. The BIR is given the discretion to avail of the most expeditious way to collect the tax. This is, of course, without prejudice to Pineda’s right of contribution for his co-heirs. Put simply, the Supreme Court held that the rule on solidarity applies to taxes because it is not an ordinary contract. Two persons liable for payment of estate tax: Executor or administrator; Heirs up to the extent of their inheritance.CIR V FILINVEST

B. NATURE OF TAXATIONATTRIBUTE OF SOVEREIGNTYPepsi-Cola Bottling Company of the Phils, Inc v Tanauan GR No. L-31156, February 27, 1976 FACTS:Pepsi Cola Bottling Company commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for the court to declare Section 2 of RA 2264 (Local Autonomy Act) unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos 23 and 27 of municipality of Tanauan, Leyte. Municipal Ordinance No. 23 (9/25/1962) levies and collects from softdrinks producers and manufacturers a tax of 1/16 of a centavo for every bottle of softdrink corked. Municipal ordinance no. 27 (10/28/1962) levies and collects on softdrinks produced or manufactured within the territorial jurisdiction of this municipality a tax of 1

centavo on each gallon of volume capacity. The taxes imposed are denominated as “municipal production tax”. CFI-Leyte dismissed the complaint. Hence, this petition. ISSUES: Is Section 2 of RA 2264 an undue delegation of power, confiscatory and oppressive? Do ordinances nos. 23 and 27 constitute double taxation and impose percentage or specific taxes? Are ordinance nos. 23 and 27 unjust and unfair? RULING: No. Under the New Constitution, local governments are granted the autonomous authority to create their own sources of revenue and to levy taxes. Section 5, Article XI provides: “Each local government unit shall have the power to create its sources of revenue and to levy taxes, subject to such limitations as may be provided by law.” Thus, legislative powers may be delegated to local governments in respect of matters of local concern. No. The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior ordinance no. 23 and operates as a repeal of the latter, even without words to that effect. The tax is not a percentage tax as the volume capacity of the taxpayer’s production of softdrinks is considered solely for purposes of determining the tax rate on the products but there is no set ratio between volume of sales and amount of the tax. Nor can the tax levied be treated as a specific tax. Softdrink is not one of those specified articles. No. Municipal corporations are allowed much discretion in determining the rates of imposable taxes. This is in line with the constitutional policy of according the widest possible autonomy to local governments in matters of local taxation, an aspect that is given expression in the Local Tax Code.

LEGISLATIVE IN CHARACTER AND GENERALLY NOT DELEGATEDPhil Petroleum Corporation vs. Mun of Pililia, RizalGR 90776 June 3, 1991 / 198 SCRA 82Facts:Petitioner, Philippine Petroleum Corporation (PPC) owns and maintains an oil refinery conducting business within the

municipality of Pililia, Rizal. P.D. 231 or the local tax code of 1973 provide for the Municipality of impose taxes on business any article of commerce. Thereafter, Provincial Circular 26-73 was issued directing all provincial, City and municipal treasurers to refrain from collecting any local imposed in petroleum products. In 1974, P.D. 426 amended certain provisions of P.D. 231. The municipality of Pililia, through Municipal Tax ordinance 1, S-1974, imposed tax on business. In the RTC, respondent received a favorable decision, directing herein petitioner to pay the tax and fees impose unto it. Petitioner contended that Provincial Arcular 26-73 suspended the effectively of local tax ordinances of the local tax code.ISSUE:Whether or not Provincial Circular No. 26-73 supersedes the provisions of P.D. 231 as amended by P.D. 426?RULING:The court ruled in the negative, stating that “in case of discrepancy between the basic law and on implementing rule or regulation, the former prevails.” P.D. 426, amending the local tax code repealed P.C. No. 26-73 and 26-A73 where section 19 of which stated “the municipality may impose taxes on business… manufacturers importers or producers of any article of commerce of whatever kind or nature…”Thus, the order of the lower court was affirmed by SC with certain modification. In the case at bar, the provisions of the local tax code of 1974 supersedes P.C. 26-73, likewise upholding the constitutional right granted to local autonomy to imposed taxes.

C. PURPOSE OF TAXATIONCaltex Philippines, Inc. v Commission on Audit GR No. 92585, May 8, 1992 FACTS:In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price Stabilization Fund (OPSF), excluding that unremitted for the years 1986 and 1988, of the additional tax on petroleum products authorized under the PD 1956. Pending such remittance, all of its claims for reimbursement from the OPSF shall be held in abeyance. The grant total of its unremitted collections of the above tax is P1,287,668,820. Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved the proposal but prohibited

Caltex from further offsetting remittances and reimbursements for the current and ensuing years. Caltex moved for reconsideration but was denied. Hence, the present petition. ISSUE:Whether the amounts due from Caltex to the OPSF may be offsetted against Caltex’s outstanding claims from said funds RULING:No. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of government. Taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the State. PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A taxpayer may not offset taxes due from the claims he may have against the government. Taxes cannot be subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand,, contract or judgment as is allowed to be set-off. Hence, COA decision is affirmed except that Caltex’s claim for reimbursement of underrecovery arising from sales to the National Power Corporation is allowed.Tio v VideogramFacts:1. Petitioner on his own behalf and purportedly on behalf of other videogram operators adversely affected assailed the constitutionality of PD 1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram industry. The Decree promulgated on October 5, 1985, took effect on April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette.2. PD 1994 issued a month thereafter reinforced PD 1987 and in effect amended the National Internal Revenue Code (NIRC). Petitioner contended among others that the tax provision of the decree is a rider. ISSUE: Whether or not the PD 1987 is unconstitutional due to the tax provision includedRULING: PD 1987 is constitutional.1. The title of the decree, which calls for the creation of the VRB is comprehensive enough to include the purposes

expressed in its Preamble and reasonably covered in all its provisions. It is unnecessary to express all those objectives in the title or that the latter be an index to the body of the decree.2. The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of the general object of the decree, which is the regulation of the video industry through the VRB as expressed in its title. The tax provision is not inconsistent with nor foreign to the general subject and title. As a tool for regulation it is simply one of the regulatory and control mechanisms scattered throughout the decree.3. The express purpose of PD 1987 to include taxation of the video industry in order to regulate and rationalize the heretofore uncontrolled distribution of videos is evident from Preambles 2 and 5. Those preambles explain the motives of the lawmaker in presenting the measure.Philippine Airlines v EduGR No L-41383, August 15, 1988 FACTS:PAL is engaged in the air transportation business under a legislative franchise (Act 4271), wherein it is exempt from the payment of taxes. On the strength of an opinion of the Secretary of Justice, PAL was determined to have not been paying motor vehicle registration fees since 1956. The Land Transportation Commissioner required all tax-exempt entities, including PAL, to pay motor vehicle registration fees. PAL protested. The trial court dismissed PAL’s complaint. Hence, this petition. ISSUE:Are motor vehicle registration fees taxes or regulatory taxes? RULING:They are taxes. Tax are for revenue, whereas fees are exactions for purposes of regulation and inspection, and are for that reason limited in amount to what is necessary to cover the cost of the services rendered in that connection. It is the object of the charge, and not the name, that determines whether a charge is a tax or a fee. The money collected under the Motor Vehicle Law is not intended for the expenditures of the Motor Vehicle Law is not intended for the expenditures of the Motor Vehicles Office but accrues to the

funds for the construction and maintenance of public roads, streets and bridges. As the fees are not collected for regulatory purposes as an incident to the enforcement of regulations governing the operation of motor vehicles on public highways, but to provide revenue with which the Government is to construct and maintain public highways for everyone’s use, they are veritable taxes, not merely fees. PAL is, thus, exempt from paying such fees, except for the period between June 27, 1968 to April 9, 1979, where its tax exception in the franchise was repealed.LUTZ v ARANETAGaston vs. Republic Planters BankFacts: Petitioners are sugar producers and planters and millers filed a MANDAMUS to implement the privatization of Republic Planters Bank, and for the transfer of the shares in the government bank to sugar producers and planters. (because they are allegedly the true beneficial owners of the bank since they pay P1.00 per picul of sugar from the proceeds of sugar producers as STABILIZATION FEES) The shares are currently held by Philsucom / Sugar Regulatory Admin. The Solgen countered that the stabilization fees are considered government funds and that the transfer of shares to from Philsucom to the sugar producers would be irregular. Issue: What is the nature of the P1.00 stabilization fees collected from sugar producers? Are they funds held in trust for them, or are they public funds? Are the shares in the bank (paid using these fees) owned by the government Philsucom or privately by the different sugar planters from whom such fees were collected? Held: PUBLIC FUNDS. While it is true that the collected fees were used to buy shares in RPB, it did not collect said fees for the account of sugar producers. The stabilization fees were charged on sugar produced and milled which ACCRUED TO PHILSUCOM, under PD 338. The fees collected ARE IN THE NATURE OF A TAX., which is within the power of the state to impose FOR THE PROMOTION OF THE SUGAR INDUSTRY. They constitute sugar liens. The collections accrue to a SPECIAL FUNDS. It is levied not purely for taxation, but for regulation, to provide means TO STABILIZE

THE SUGAR INDUSTRY. The levy is primarily an exercise of police powers. The fact that the State has taken money pursuant to law is sufficient to constitute them as STATE FUNDS, even though held for a special purpose. Having been levied for a special purpose, the revenues are treated as a special fund, administered in trust for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance will be transferred to the general funds of gov’t. It is a special fund since the funds are deposited in PNB, not in the National Treasury. The sugar planters are NOT BENEFICIAL OWNERS. The money is collected from them only because they it is also they who are to be benefited from the expenditure of funds derived from it. The investing of the funds in RPB is not alien to the purpose since the Bank is a commodity bank for sugar, conceived for the sugar industry’ growth and development. Revenues derived from taxes cannot be used purely for private purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit of the ENTIRE SUGAR INDUSTRY, and all its components, stabilization of domestic and foreign markets, since the sugar industry is of vital importance to the country’s economy and national interest.