TAXATION CASE DIGESTS (1-10)

1) CIR vs. PINEDA GR No L-22734,September 15, 1957, 217 SCRA 105Facts:On May 23, 1945, Anastasio Pineda died, survived by his wife and 15 children, the eldest of whom is Atty. Manuel Pineda. Estate proceedings were had in the CFI of Manila resulting to the estate being divided among and awarded to the heirs. Manuels share amounted to about P 2,500.00.After the estate proceedings were closed, the Bureau of Internal Revenue (BIR) investigated the income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed. Thereupon, the representative of the CIR issued the following assessments:I. Deficiency Income Tax (1945, 1946, 1947) P 2,707.44II. Additional Residence Tax for 1945 P 14.50III. Real estate dealers tax for 4th qtr of 1946 and whole year 1947 P207.50The assessment was contested by Manuel Pineda. Thereafter, he appealed to the CTA alleging that he was appealing only that proportionate part or portion pertaining to him as one of the heirs. Subsequently, the CTA rendered judgment reversing the decision of the CIR on the ground of prescription of his right to assess and collect the aforementioned tax. On appeal to the SC, the SC affirmed the ruling of the CTA with respect to the assessment for the year 1947 (income tax) but held that for the years 1945 and 1946, the action for assessment and collection has not yet prescribed. Accordingly, the SC remanded the case to the CTA for further appropriate proceedings.The CTA rendered judgment holding Manuel Pineda liable for his share in the deficiency income tax for 1945 and 1946 and the real estate dealers tax all amounting to P760.28. The decision was then appealed by the CIR to the SC.Issue: WON Manuel Pineda can be held liable for the payment of all the taxes found by the CTA instead of only for his corresponding share in the sameHeld: YES. The government can require Manuel Pineda to pay the full amount of the taxes assessed. The reason is that the government has a lien on the P2, 500.00 received by him from the estate as his share in the inheritance, for unpaid income taxes for which said estate is liable, pursuant to Section 315 of the Tax Code.By virtue of such lien, the government has the right to subject the property in Pinedas possession (the money amounting to P2, 500.00) to satisfy the income tax assessment. After such payment, Manuel Pineda will have a right of contribution from his co-heirs.The government can collect the tax in question in two ways. First, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received. The second remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and property rights belonging to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is in the hands of the heir or transferee to the payment of the tax due, the estate. This second remedy is the option the government took in this case to collect the tax. The BIR should be given the necessary discretion to avail itself of the most expeditious way to collect the tax, because taxes are the lifeblood of the government and their prompt and certain availability is an imperious need.

2. Commissioner of Internal Revenue vs. Algue, Inc. and the Court of Tax AppealsG.R. No. L-28896, February 17, 1988, 158 SCRA 9By: Roman, single,living, Almalbis

Facts:

Algue, Inc., a domestic corporation engaged in engineering, construction and other allied activities, received a letter from petitioner that it has delinquency taxes for the years 1958 and 1959. Algue filed a letter of protest, through its counsel Atty. Guevara, Jr.. A warrant of distraint and levy was issued by CIR, however counsel refused to receive it on the ground of pending protest. The letter of protest being missing, BIR did not take any action on the protest, only then that counsel received the warrant. Petition for review of the decision of the Commissioner of Internal Revenue was brought to the Court of Tax Appeals and it ruled in favor of Algue. Thus, CIR brought the case to the SC.

Issue: WON the Collector of Internal Revenue correctly disallowed the P75, 000.00 deduction claimed by Algue as legitimate business expenses in its income tax returns.

Held: Petition is meritorious.

Taxation; nature of taxes; purpose of taxation; collection of taxes should be made in accordance with law

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand; such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.The SC discussed the LIFEBLOOD Theory, the rationale for taxation, to wit: It is said that taxes are what we pay for civilization 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 to must contribute his share in the running of 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 moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.On the substantive main issue: Contrary to the allegations of the CIR, that the payments were fictitious and suggest a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction; that the claimed deduction of P75, 000 was properly disallowed because it was not an ordinary, reasonable or necessary business expense, the Court viewed it differently. Agreeing with Algue and the Court of Tax Appeals, it held that the said amount had been legitimately paid by Algue for actual services rendered, in the form of promotional fees.Nota Bene: Tax assessment by tax examiners are presumed correct and made in good faith. Taxpayer has the duty to prove otherwise.

3. THE YOUNG MEN'S CHRISTIAN ASSOCIATION OF MANILA vs. THE COLLECTOR OF INTERNAL REVENUEG.R. No. L-7988, January 19, 1916298, SCRA 83Facts:The city of Manila, contending that the property of Young Men's Christian Association (YMCA) is taxable, assessed it and levied a tax thereon. It was paid under protest and this action begun to recover it on the ground that the property was exempt from taxation under the charter of the city of Manila. The decision was for the city and the association appealed. Issue:Whether or not the building and grounds of the Young Men's Christian Association of Manila are subject to taxation (property tax), under section 48 of the charter of the city of ManilaHeld:Yes.YMCA as an educational department is not denied. It is undisputed that the aim of this department is to furnish, at much less than cost, instruction in subjects that will greatly increase the mental efficiency and wage-earning capacity of young men, prepare them in special lines of business and offer them special lines of study. It offers various courses to its students.YMCA is preeminently religious; and the fundamental basis and groundwork is the Christian religion. All of the officials of the association are devoted Christians, members of a church, and have dedicated their lives to the spread of the Christian principles and building of Christian character.The institution also has charitable features. It makes no profit on any of its activities. The professors and instructors in all departments serve without pay and freely give of their time and ability to further the purposes of the institution. The chief secretary and his assistant receive no salary from the institution. Whatever they are paid comes from the United States.The contention that the institution is run as a business in that it keeps a lodging and boarding house is without merit. It may be admitted that there are 64 persons occupying rooms in the main building as lodgers or roomers and that they take their meals at the restaurant below. But the purpose is not for profit but instead to keep the membership continually within the sphere of influence of the institution.The Young Men's Christian Association of Manila cannot be said to be an institution used exclusively for religious purposes, or an institution used exclusively for charitable purposes, or an institution devoted exclusively to educational purposes; but the Court believes that it is an institution used exclusively for all three purposes, and that, as such, it is entitled to be exempted from taxation.

*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*.*COMMISSIONER OFINTERNAL REVENUE vs CA, CTA, YMCAFacts:Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives.Private respondent earned, among others, an income from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and from parking fees collected from non-members. The commissioner of internal revenue (CIR) issued an assessment to private respondent, including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. Private respondent formally protested the assessment and, as a supplement to its basic protest.The CTA issued this ruling in favor of the YMCA. CA initially ruled in favor of CIR but affirmed CTAs decision on reconsideration.Issue:W/N YMCA is exempt from the payment of taxesHeld: No. Section 27 (now Section 26) of the NIRC states that:SEC. 27.Exemptions from tax on corporations. -- The following organizations shall not be taxed under this Title in respect to income received by them as such --(g) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;(h) Club organized and operated exclusively for pleasure, recreation, and other non-profitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member;Notwithstanding the provision in the preceding paragraphs, the income of whatever kind and character of the foregoing organization from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to the tax imposed under this Code. (as amended by Pres. Decree No. 1457)Respondent Court of Appeals committed reversible error when it allowed, on reconsideration, the tax exemption claimed by YMCA on income it derived from renting out its real property, on the solitary but unconvincing ground that the said income is not collected for profit but is merely incidental to its operation. The law does not make a distinction. The rental income is taxable regardless of whence such income is derived and how it used or disposed of.Private respondent submits that Article VI, Section 28 of par. 3 of the 1987 Constitution, exempts charitable institutions from the payment not only of property taxes but also of income tax from any source. However, what is exempted is not the institution itself; the exemption pertains only to property taxes.Thus, YMCA is exempt from the paymentof property tax, but not income tax on the rentals from its property. Private respondent also invokes Article XIV, Section 4, par. 3 of the Charter, claiming that the YMCA is a non-stock, non-profit educational institution whose revenues and assets are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its properties and income. However, the Court founds nothing in them that even hints that it is a school or an educational institutionPetition is GRANTED.

4) THE PHILIPPINE GUARANTY CO., INC. vs THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX APPEALSG.R. No. L-22074, April 30, 1965,13 SCRA 775Facts:The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts with foreign insurance companies not doing business in the Philippines, thereby ceding to the foreign reinsurers a portion of the premiums on insurances it has originally underwritten in the Philippines. Philippine Guaranty Co., Inc. ceded to the foreign reinsurers the premiums for 1953 and 1954. Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it filed its income tax returns for 1953 and 1951. Furthermore, it did not withhold or pay tax on them. Consequently, the Commissioner of Internal Revenue assessed Philippine Guaranty Co., Inc. against withholding tax on the ceded reinsurance premiums. Philippine Guaranty Co., Inc. protested the assessment on the ground that the premiums are not subject to tax for the premiums did not constitute income from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines, and CIR's previous rulings did not require insurance companies to withhold income tax due from foreign companies.Issue: WON insurance companies required to withhold tax on reinsurance premiums ceded to foreign insurance companiesHeld:Yes. The reinsurance contracts however show that the transactions or activities that constituted the undertaking to reinsure Philippine Guaranty Co., Inc. against losses arising from the original insurances in the Philippines were performed in the Philippines. The reinsurance premiums were income created from the undertaking of the foreign reinsurance companies to reinsure Philippine Guaranty Co., Inc. against liability for loss under original insurances. Such undertaking, as explained above, took place in the Philippines. These insurance premiums therefore came from sources within the Philippines and, hence, are subject to corporate income tax.

The power to lax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which a government is supposed to provide. Considering that the reinsurance premiums in question were afforded protection by the government and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state.

5. McCulloch vs Maryland U.S 4 Wheat, 316Facts: Maryland (P) enacted a statute imposing a tax on all banks operating in Maryland not chartered by the state. The statute provided that all such banks were prohibited from issuing bank notes except upon stamped paper issued by the state. The statute set forth the fees to be paid for the paper and established penalties for violations. The Second Bank of the United States was established pursuant to an 1816 act of Congress. McCulloch (D), the cashier of the Baltimore branch of the Bank of the United States, issued bank notes without complying with the Maryland law. Maryland sued McCulloch for failing to pay the taxes due under the Maryland statute and McCulloch contested the constitutionality of that act. The state court found for Maryland and McCulloch appealed. Issues : (1) Does Congress have the power under the Constitution to incorporate a bank, even though that power is not specifically enumerated within the Constitution? (2) Does the State of Maryland have the power to tax an institution created by Congress pursuant to its powers under the Constitution? Holding and Rule (Marshall):(1) Yes. Congress has power under the Constitution to incorporate a bank pursuant to the Necessary and Proper clause (Article I, section 8). (2) No. The State of Maryland does not have the power to tax an institution created by Congress pursuant to its powers under the Constitution. The Government of the Union, though limited in its powers, is supreme within its sphere of action, and its laws, when made in pursuance of the Constitution, form the supreme law of the land. There is nothing in the Constitution which excludes incidental or implied powers. If the end be legitimate, and within the scope of the Constitution, all the means which are appropriate and plainly adapted to that end, and which are not prohibited, may be employed to carry it into effect pursuant to the Necessary and Proper clause. The power of establishing a corporation is not a distinct sovereign power or end of Government, but only the means of carrying into effect other powers which are sovereign. It may be exercised whenever it becomes an appropriate means of exercising any of the powers granted to the federal government under the U.S. Constitution. If a certain means to carry into effect of any of the powers expressly given by the Constitution to the Government of the Union be an appropriate measure, not prohibited by the Constitution, the degree of its necessity is a question of legislative discretion, not of judicial cognizance. The Bank of the United States has a right to establish its branches within any state. The States have no power, by taxation or otherwise, to impede or in any manner control any of the constitutional means employed by the U.S. government to execute its powers under the Constitution. This principle does not extend to property taxes on the property of the Bank of the United States, nor to taxes on the proprietary interest which the citizens of that State may hold in this institution, in common with other property of the same description throughout the State.

6. KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS vs TANG.R. No. L-81311, June 30, 1988,163 SCRA 371Facts:These four (4) petitions seek to nullifyExecutive OrderNo. 273 issued bythe Presidentof the Philippines, and which amended certain sections of the NationalInternal RevenueCode and adopted the value-added tax, for being unconstitutional in that its enactment is not allegedly within the powers ofthe President; that the VAT is oppressive, discriminatory, regressive, and violates the due process andequal protectionclauses and other provisions of the1987 Constitution.

The VAT is a tax levied on a wide range ofgoods and services. It is a tax on the value, added by every seller, with aggregate gross annual salesof articles and/or services, exceeding P200,00.00, to his purchase ofgoods and services, unless exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of goods or gross receipts realized fromthe saleof services.

The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers, advance sales tax, and compensating tax on importations. The framers of EO 273 that it is principally aimed to rationalize the system of taxinggoods and services; simplify tax administration; and make the tax system more equitable, to enable the country to attain economic recovery.

The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As pointed out by theSolicitor General, the Philippine sales tax system, prior to the issuance of EO 273, was essentially asinglestage value added tax system computed under the "cost subtraction method" or "cost deduction method" and was imposed only on original sale, barter or exchange of articles by manufacturers, producers, or importers. Subsequent sales of such articles were not subject to sales tax. However, with the issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second sale, which was reduced to 1.5% upon the issuance of PD 2006 on 31 December 1985, to take effect 1 January 1986. Reduced sales taxes were imposed not only on the second sale, but on every subsequent sale, as well. EO 273 merely increased the VAT on every sale to 10%, unless zero-rated or exempt.Issue: WON EO 273 is unconstitutional

Held:No. Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by these framers and other government agencies involved in its implementation, even under the past administration. As theSolicitor General correctly stated: "The signing of E.O. 273 was merely the last stage in the exercise of her legislative powers. The legislative process started long before the signing when the data were gathered, proposals were weighed and the final wordings of the measure were drafted, revised and finalized. Certainly, it cannot be said thatthe Presidentmade a jump, so to speak, on the Congress, two days before it convened."

Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive.

The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their conclusions. They have failed to adequately show that the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To justify the nullification of a law, there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication.

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found." The sales tax adopted in EO 273 is applied similarly on all goods and servicessold to the public, which are not exempt, at the constant rate of 0% or 10%.

The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in business with an aggregate grossannual salesexceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public.

The Court likewise finds no merit in the contention of the petitioner Integrated Customs Brokers Association of the Philippines that EO 273, more particularly the new Sec. 103 (r) of the NationalInternal RevenueCode, unduly discriminates against customs brokers.

At any rate, the distinction of the customs brokers from the other professionals who are subject to occupation tax under the LocalTax Codeis based upon material differences, in that the activities of customs brokers (like those of stock, real estate and immigration brokers) partake more of a business, rather than a profession and were thus subjected to the percentage tax under Sec. 174 of the NationalInternal RevenueCode prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT.

7. CHAVEZ vs ONGPIN

G.R. No. 76778, June 6, 1990, 186 SCRA 33Facts: Section 21 of Presidential Decree No. 464 provides that every five years starting calendar year 1978, there shall be a provincial or city general revision of real property assessments. The revised assessment shall be the basis for the computation of real property taxes for the five succeeding years. On the strength of the aforementioned law, the general revision of assessments was completed in 1984. However, Executive Order No. 1019 was issued, which deferred the collection of real property taxes based on the 1984 values to January 1, 1988 instead of January 1, 1985.On November 25, 1986, President Corazon Aquino issued Executive order No.73. It states that beginning January 1, 1987, the 1984 assessments shall be the basis of the real property collection. Thus, it effectively repealed Executive Order No. 1019.Francisco Chavez, a taxpayer and a land-owner, questioned the constitutionality of Executive Order No. 73. He alleges that it will bring unreasonable increase in real property taxes. In fact, according to him, the application of the assailed order will cause an excessive increase in real property taxes by 100% to 400% on improvements and up to 100% on land.Issue:Whether or not Executive Order no. 73 imposes unreasonable increase in real property taxes, thus, should be declared unconstitutional. Held:The attack on Executive Order No. 73 has no legal basis as the general revision of assessments is a continuing process mandated by Section 21 of Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which should be challenged as constitutionally infirm. However, Chavez failed to raise any objection against said decree. Without Executive Order No. 73, the basis for collection of real property taxes will still be the 1978 revision of property values. Certainly, to continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations.

8) REPUBLIC OF THE PHILIPPINES vs MAMBULAO LUMBER COMPANY G.R. No. L-17725, February 28, 1962, 4 SCRA 622Facts:Mambulao Lumber Co. has an aggregate forest charges liability of PhP 4, 802.37 in favor of the Republic of the Philippines . It appears, however, that from 1947 to 1956, said company paid the Republic the amount of PhP 9,127.00 as reforestation charges in pursuance of Section 1 of RA 155 which provides that there shall be collected in addition to the regular forest, the amount of Php.50 on each cubic meter of timber cut from any public forest for commercial purposes. The amount collected shall be expanded for reforestation and afforestation.

It is the contention of the Company that since the Republic has not made use of the reforestation charges collected from it for reforesting the denuded area of the land covered by its license, the Republic should refund the said amount or if it cannot be refunded, at least, it should be compensated with what Mambulao Lumber Comapany has owed the Republic of the Philippines for Reforestation charges.

The CFI of Manila ordered the Company to pay the sum of PhP 4,802.37 with 6% interest. Hence, this appeal.

Issue:Whether or not the sum of PhP9,127.50 paid by the Company to the Republic as reforestation charges may be set off or applied to the payment of the PhP4,802.37 as forest charges due and owing from the company to the Republic.

Ruling:NO. Internal revenue taxes such as forest charges cannot be subject of set off or compensation. It is because taxes are not in the nature of contracts between the parties but grow out of duty to, and are positive acts of the government to the making and enforcing of which the personal consent of individual taxpayer is not required. The amount paid by a licensee as reforestation charges is in the nature of a tax which form part of the Reforestation fund, payable by him irrespective of whether the area covered by the license is reforested or not. Moreover, the company and the government are not mutually creditors and debtors of each other, hence, the law on compensation is inapplicable.

9. PHILEX MINING CORP. v. CIRG.R. No. 125704, August 28, 1998, 294 SCRA 687Facts:On August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities from the 2nd quarter of 1991 to the 2nd quarter of 1992 in the total amount ofP123,821,982.52 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. Philex refused to pay alleging that it has pending claims from 1989 to 1991 for VAT input credit/refund forthe taxes it paid for the years 1989 to1991 in the amountof P119, 977, 037.02 plus interest. Therefore, these claims for tax credit/refund should be applied against or used to offset the tax liabilities.The BIR denied the offsetting of Philexs claim since said claims are still unliquidated and since its amount is undetermined, it cannot be subject to legal compensation. Philex raised the issue in the Court of Tax appeals but was denied for the same reason that for legalcompensation to takeplace, both obligations must be liquidated anddemandable. "Liquidated" debts are those where the exact amount has already been determined. The claims of Philex forVAT refund are still pending litigation and still have to be determined.Issue:WON compensation or offsetting can be appliedHeld: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence.

Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted. Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. xxx There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.Petition is DISMISSED.

10) ABAKADA GURO PARTY LIST vs ERMITA G.R. No. 168056, September 1, 2005, 469 SCRA 1Facts:On May 24, 2005, the President signed into law Republic Act 9337 or the VAT Reform Act.Before the lawtook effect on July 1, 2005, the Court issued a TRO enjoining government from implementing the law in response to a slew of petitions for certiorari and prohibition questioning the constitutionality of the new law.The challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6: That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to 12%, after any of the following conditionshave been satisfied:(i) Value-added tax collection as apercentageof Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%);or (ii) (ii) National government deficit as apercentageof GDP of the previous year exceeds one and one-half percent (1%)Petitioners allege that the grant of stand-by authority to the President to increase the VAT rate is an abdication by Congress of its exclusive power to tax because such delegation is notcovered bySection 28 (2), Article VI Constitution. They argue that VAT is a tax levied on the sale or exchange of goods and services which cant be included within the purview of tariffs under theexemptiondelegation since this refers to customs duties, tolls or tribute payable upon merchandiseto the government and usually imposed on imported/exported goods. They also said that the President has powers to cause, influence or create theconditionsprovided by law to bring about theconditionsprecedent. Moreover, they allege that no guiding standards are made by law as to how the Secretary of Finance will make the recommendation.Issue:WON the RA 9337's stand-by authority to the Executive to increase the VAT rate, especially on account of the recommendatory power granted to the Secretary of Finance, constitutes undue delegation of legislative powerHeld:No. The powers which Congress is prohibited from delegating are those which are strictly, or inherently and exclusively, legislative. Purely legislative power which can never be delegated is the authority to make a complete law- complete as to the time when it shall take effect and as to whom it shall be applicable, and to determine the expediency of its enactment. It is the nature of the power and not the liability of its use or the manner of its exercise which determines the validity of its delegation.The EXCEPTIONS are:(a) delegation of tariff powers to President under Constitution(b) delegation of emergency powers to President under Constitution(c) delegation to the people at large(d) delegation to local governments(e) delegation to administrative bodiesFor the delegation to be valid, it must be complete and it must fix a standard. A sufficient standard is one which defines legislative policy, marks its limits, maps out its boundaries and specifies the public agencyto applyit.In this case, it is not a delegation of legislative power BUT a delegation of ascertainment of facts upon which enforcement and administration of the increased rate under the law is contingent. The legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the control of the executive. No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the word SHALL is used in the common proviso. The use of the word SHALL connotes a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion.Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of theconditionsspecified by Congress. This is a duty, which cannot be evaded by the President. It is a clear directive to impose the 12% VAT rate when the specified conditionsare present.Congress just granted the Secretary of Finance the authority to ascertain the existence of a fact--- whether by December 31, 2005, the VAT collection as apercentageof GDP of the previous year exceeds 2 4/5 % or the national government deficit as apercentage of GDP of the previous year exceeds one and 1%. If either of these two instances has occurred, the Secretary of Finance, by legislative mandate, must submit such information to the President.In making his recommendation to the President on the existence of either of the twoconditions, the Secretary of Finance is not acting as thealter egoof the President or even her subordinate. He is acting as the agent of the legislative department, to determine and declare the event upon which its expressed will is to take effect. The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented, considering that he possesses all the facilities to gather data and information and has a much broader perspective to properly evaluate them. His function is to gather and collate statistical data and other pertinent information and verify if any of the twoconditionslaid out by Congress is present.Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which the legislativeprocesscan go forward.There is no undue delegation of legislative power but only of the discretion as to the execution of a law. This is constitutionally permissible. Congress did not delegate the power to tax but the mere implementation of the law.