CIR v. Solidbank, G.R. No. 148191, Nov.
25, 2003
2. Severance or realization; actual and constructive receipt; imputed income
DOCTRINE/PROVISION
Under The Tax Code, the earnings of banks from “passive” income are subject to a 20% final
withholding tax (20% FWT). This tax is withheld at source and is thus not actually and physically
received by the banks, because it is paid directly to the government by the entities from which the
banks derived the income. Apart from the 20% FWT, banks are also subject to a 5% gross receipts
tax (5% GRT) which is imposed by the Tax Code on their gross receipts, including the “passive”
income.
Since the 20% FWT is constructively received by the banks and forms part of their gross receipts
or earnings, it follows that it is subject to the 5% GRT. After all, the amount withheld is paid to the
government on their behalf, in satisfaction of their withholding taxes. That they do not actually
receive the amount does not alter the fact that it is remitted for their benefit in satisfaction of their
tax obligations.
Constructive Receipt: Even if the taxpayer does not physically receive the income, it is considered
constructively received if it benefits the taxpayer or is subject to their control.
FACTS
Solidbank Corporation, for the calendar year 1994, filed its Quarterly Percentage Tax Returns
showing gross receipts totaling P1,474,691,693.44, attributing to this amount gross receipts taxes
paid of P73,734,584.60. Included in the reported gross receipts was the amount of
P350,807,875.15, representing passive income1 already subjected to a 20% final withholding
tax (FWT).
On January 30, 1996, the Court of Tax Appeals (CTA) decided in favor of Asian Bank Corporation
in a similar case, ruling that the 20% FWT should not be included in the taxable gross receipts for
purposes of computing the gross receipts tax (GRT). Consequently, Solidbank, In June 1997, filed
a request for refund or issuance of a tax credit certificate amounting to P3,508,078.75 for what it
deemed overpaid GRT in 1995, computed as follows:
Gross Receipts Subjected to the Final Tax
Derived from Passive [Income] P350,807,875.15
multiply by final tax rate 20%
1
Passive income typically includes interest, dividends, royalties, and rental income. It is often subject
to a final withholding tax (FWT), meaning the tax is deducted at the source, and the recipient does not
need to report it again for regular income tax purposes.
20% Final Tax Withheld at P 70,161,575.03 (x 5%)
Source
multiply by 5% GRT rate 5%
overpaid (gross receipts taxx) P 3,508,078.75
Without awaiting the Commissioner of Internal Revenue’s (CIR) resolution, Solidbank filed a
petition on the same day for review with the CTA to toll the running of the two-year prescriptive
period to judicially claim for the refund of any overpaid internal review tax.
After trial on the merits, the CTA ordered the Commissioner to refund Solidbank the reduced
amount of P1,555,749.65 as overpaid GRT for the year 1995.
The CTA decision was affirmed by the Court of Appeals (CA), ruling that the 20% FWT on a bank’s
interest income did not form part of the taxable gross receipts in computing the 5% GRT,
because the FWT was not actually received by the bank but was directly remitted to the
government. The appellate court curtly said that while the Tax Code “does not specifically state
any exemption, the statute must receive a sensible construction such as will give effect to the
legislative intention, and so as to avoid an unjust or absurd conclusion.
Hence this appeal.
ISSUE/S
Whether or not the 20% FWT on a bank’s interest income forms part of the taxable gross
receipts in computing the 5% gross receipts tax.
RULING
The petitioner is meritorious. The Court agreed with the petitioner’s claims that although 20% FWT
on respondent’s interest income was not actually received by respondent because it was remitted
directly to the government, the fact that the amount redounded to the bank’s benefit makes it part
of the taxable gross receipts in computing the 5% GRT. Respondent, on the other hand, maintains
that the CA correctly ruled otherwise.
The FWT and the GRT: Two Different Taxes
The 5% GRT is imposed by Section 11912 of the Tax Code,13 which provides:
"SEC. 119. Tax on banks and non-bank financial intermediaries. - There shall be collected a tax on
gross receipts derived from sources within the Philippines by all banks and non-bank financial
intermediaries in accordance with the following schedule:
"(a) On interest, commissions and discounts from lending activities as well as income
from financial leasing, on the basis of remaining maturities of instruments from which
such receipts are derived.
Short-term maturity not in excess of two (2) years.............................................5% xxx
"(c) On royalties, rentals of property, real or personal, profits from exchange and all
other items treated as gross income under Section 2814 of this
Code.............................................................5%
Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru
pretermination, then the maturity period shall be reckoned to end as of the date of pretermination
for purposes of classifying the transaction as short, medium or long term and the correct rate of tax
shall be applied accordingly.
"Nothing in this Code shall preclude the Commissioner from imposing the same tax herein
provided on persons performing similar banking activities."
The 5% GRT15 is not subject to withholding. The banks and non-bank financial intermediaries
liable therefor shall, under file quarterly returns on the amount of gross receipts and pay the taxes
due thereon within twenty (20) days after the end of each taxable quarter.
The 20% FWT on the other hand, is a tax on passive income, deducted and withheld at source
by the payor-corporation and/or person as withholding agent pursuant to Section 50, and paid in
the same manner and subject to the same conditions as provided for in Section 51.21
A perusal of these provisions clearly shows that two types of taxes are involved in the present
controversy: (1) the GRT, which is a percentage tax; and (2) the FWT, which is an income tax. As
a bank, petitioner is covered by both taxes.
A percentage tax (business tax imposed directly on the seller or service provider) is a
national tax measured by a certain percentage of the gross selling price or gross value in
money of goods sold, bartered or imported; or of the gross receipts or earnings derived by
any person engaged in the sale of services. It is not subject to withholding2.
An income tax, (tax earned by individuals or businesses) on the other hand, is a national
tax imposed on the net or the gross income realized in a taxable year. It is subject to
2
Percentage tax is not subject to withholding because it is a business tax imposed directly on the seller or
service provider, rather than on income payments made to another party.
withholding3.
In a withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed; the
payor (withholding agent), a separate entity, acts as no more than an agent of the government for
the collection of the tax in order to ensure its payment. Obviously, this amount that is used to settle
the tax liability is deemed sourced from the proceeds constitutive of the tax base. These proceeds
are either actual or constructive. Both parties herein agree that there is no actual receipt by the
bank of the amount withheld. What needs to be determined is if there is constructive receipt
thereof. Since the payee -- not the payor -- is the real taxpayer, the rule on constructive receipt
can be easily rationalized, if not made clearly manifest.4
Constructive Receipt vs Actual Receipt
Applying Section 7 of Revenue Regulations (RR) No. 17-84, petitioner contends that there is
constructive receipt of the interest on deposits and yield on deposit substitutes. Respondent,
however, claims that even if there is, it is Section 4(e) of RR 12-8028 that nevertheless governs
the situation.
Section 7 of RR 17-84 states: SEC. 7. Nature and Treatment of Interest on Deposits and Yield on
Deposit Substitutes. -
(a) The interest earned on Philippine Currency bank deposits and yield from deposit substitutes
subjected to the withholding taxes in accordance with these regulations need not be
included in the gross income in computing the depositor's/investor's income tax liability in
accordance with the provision of Section 29(b), [29 (c)30 and (d) of the National Internal
Revenue Code, as amended.
(b) Only interest paid or accrued on bank deposits, or yield from deposit substitutes
declared for purposes of imposing the withholding taxes in accordance with these
regulations shall be allowed as interest expense deductible for purposes of computing
taxable net income of the payor.
(c) If the recipient of the above-mentioned items of income are financial institutions, the same
shall be included as part of the tax base upon which the gross receipts tax is
imposed.'"
Section 4(e) of RR 12-80, on the other hand, states that the tax rates to be imposed on the gross
3
4
Payee – The taxpayer, or the person/entity on whom the tax is imposed. This is the recipient of the
income or payment, which is subject to withholding tax.
Payor – The withholding agent, or the entity responsible for deducting and remitting the tax to the
government on behalf of the payee. The payor is not the taxpayer but merely acts as an agent of the
government to ensure tax collection.
receipts of banks, non-bank financial intermediaries, financing companies, and other non-bank
financial intermediaries not performing quasi-banking activities shall be based on all items of
income actually received. This provision reads:
"SEC. 4. ... ... x
"(e) Gross receipts tax on banks, non-bank financial intermediaries, financing companies, and
other non-bank financial intermediaries not performing quasi- banking activities. - The rates of tax
to be imposed on the gross receipts of such financial institutions shall be based on all items of
income actually received. Mere accrual shall not be considered, but once payment is received on
such accrual or in cases of prepayment, then the amount actually received shall be included in the
tax base of such financial institutions, as provided hereunder x x x."
Respondent argues that the above-quoted provision is plain and clear: since there is no actual
receipt, the FWT is not to be included in the tax base for computing the GRT. There is supposedly
no pecuniary benefit or advantage accruing to the bank from the FWT, because the income is
subjected to a tax burden immediately upon receipt through the withholding process. Moreover,
the earlier RR 12-80 covered matters not falling under the later RR 17-84.31
We are not persuaded.
By analogy, we apply to the receipt of income the rules on actual and constructive possession
provided in Articles 531 and 532 of our Civil Code.
Under Article 531: "Possession is acquired by the material occupation of a thing or the exercise of a right, or
by the fact that it is subject to the action of our will, or by the proper acts and legal formalities established for
acquiring such right."
Article 532 states: "Possession may be acquired by the same person who is to enjoy it, by his legal
representative, by his agent, or by any person without any power whatever; but in the last case, the
possession shall not be considered as acquired until the person in whose name the act of possession was
executed has ratified the same, without prejudice to the juridical consequences of negotiorum gestio in a
proper case."
The last means of acquiring possession under Article 531 refers to juridical acts -- the acquisition
of possession by sufficient title - to which the law gives the force of acts of possession.
Respondent argues that only items of income actually received should be included in its gross
receipts. It claims that since the amount had already been withheld at source, it did not have actual
receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of
possession is through the proper acts and legal formalities established therefor. The withholding
process is one such act. There may not be actual receipt of the income withheld; however, as
provided for in Article 532, possession by any person without any power whatsoever shall be
considered as acquired when ratified by the person in whose name the act of possession is
executed.
In our withholding tax system, possession is acquired by the payor as the withholding agent of the
government, because the taxpayer ratifies the very act of possession for the government. There is
thus constructive receipt. The processes of bookkeeping and accounting for interest on deposits
and yield on deposit substitutes that are subjected to FWT are indeed -- for legal purposes --
tantamount to delivery, receipt or remittance. Besides, respondent itself admits that its income is
subjected to a tax burden immediately upon "receipt," although it claims that it derives no
pecuniary benefit or advantage through the withholding process. There being constructive receipt
of such income -- part of which is withheld -- RR 17-84 applies, and that income is included as part
of the tax base upon which the GRT is imposed.
RR 12-80 Superseded by RR 17-84
We now come to the effect of the revenue regulations on interest income constructively received.
In general, rules and regulations issued by administrative or executive officers pursuant to the
procedure or authority conferred by law upon the administrative agency have the force and effect,
or partake of the nature, of a statute. The reason is that statutes express the policies, purposes,
objectives, remedies and sanctions intended by the legislature in general terms. The details and
manner of carrying them out are oftentimes left to the administrative agency entrusted with their
enforcement.
In the present case, it is the finance secretary who promulgates the revenue regulations, upon
recommendation of the BIR commissioner. These regulations are the consequences of a
delegated power to issue legal provisions that have the effect of law.
A revenue regulation is binding on the courts as long as the procedure fixed for its promulgation is
followed. Even if the courts may not be in agreement with its stated policy or innate wisdom, it is
nonetheless valid, provided that its scope is within the statutory authority or standard granted by
the legislature. Specifically, the regulation must (1) be germane to the object and purpose of the
law;39 (2) not contradict, but conform to, the standards the law prescribes;40 and (3) be issued for
the sole purpose of carrying into effect the general provisions of our tax laws. 1
In the present case, there is no question about the regularity in the performance of official duty.
What needs to be determined is whether RR 12-80 has been repealed by RR 17-84.
A repeal may be express or implied. It is express when there is a declaration in a regulation --
usually in its repealing clause -- that another regulation, identified by its number or title, is
repealed. All others are implied repeals.42 An example of the latter is a general provision that
predicates the intended repeal on a substantial conflict between the existing and the prior
regulations.43
As stated in Section 11 of RR 17-84, all regulations, rules, orders or portions thereof that are
inconsistent with the provisions of the said RR are thereby repealed. This declaration proceeds on
the premise that RR 17-84 clearly reveals such an intention on the part of the Department of
Finance. Otherwise, later RRs are to be construed as a continuation of, and not a substitute for,
earlier RRs; and will continue to speak, so far as the subject matter is the same, from the time of
the first promulgation.
There are two well-settled categories of implied repeals:
(1) in case the provisions are in irreconcilable conflict, the later regulation, to the extent of the
conflict, constitutes an implied repeal of an earlier one; and
(2) if the later regulation covers the whole subject of an earlier one and is clearly intended as a
substitute, it will similarly operate as a repeal of the earlier one.45 There is no implied repeal of an
earlier RR by the mere fact that its subject matter is related to a later RR, which may simply be a
accumulation or continuation of the earlier one.
Where a part of an earlier regulation embracing the same subject as a later one may not be
enforced without nullifying the pertinent provision of the latter, the earlier regulation is deemed
impliedly amended or modified to the extent of the repugnancy. The unaffected provisions or
portions of the earlier regulation remain in force, while its omitted portions are deemed repealed.48
An exception therein that is amended by its subsequent elimination shall now cease to be so and
instead be included within the scope of the general rule.
Section 4(e) of the earlier RR 12-80 provides that only items of income actually received shall be
included in the tax base for computing the GRT, but Section 7(c) of the later RR 17-84 makes no
such distinction and provides that all interests earned shall be included. The exception having
been eliminated, the clear intent is that the later RR 17-84 includes the exception within the scope
of the general rule.
Repeals by implication are not favored and will not be indulged, unless it is manifest that the
administrative agency intended them. As a regulation is presumed to have been made with
deliberation and full knowledge of all existing rules on the subject, it may reasonably be concluded
that its promulgation was not intended to interfere with or abrogate any earlier rule relating to the
same subject, unless it is either repugnant to or fully inclusive of the subject matter of an earlier
one, or unless the reason for the earlier one is "beyond peradventure removed."50 Every effort
must be exerted to make all regulations stand -- and a later rule will not operate as a repeal of an
earlier one, if by any reasonable construction, the two can be reconciled. 51
RR 12-80 imposes the GRT only on all items of income actually received, as opposed to their
mere accrual, while RR 17-84 includes all interest income in computing the GRT. RR 12-80 is
superseded by the later rule, because Section 4(e) thereof is not restated in RR 17-84. Clearly
therefore, as petitioner correctly states, this particular provision was impliedly repealed when the
later regulations took effect.52
Reconciling the Two Regulations
Granting that the two regulations can be reconciled, respondent's reliance on Section 4(e) of RR
12-80 is misplaced and deceptive. The "accrual" referred to therein should not be equated with the
determination of the amount to be used as tax base in computing the GRT. Such accrual merely
refers to an accounting method that recognizes income as earned although not received, and
expenses as incurred although not yet paid.
Accrual should not be confused with the concept of constructive possession or receipt as earlier
discussed. Petitioner correctly points out that income that is merely accrued -- earned, but not
yet received -- does not form part of the taxable gross receipts; income that has been received,
albeit constructively, does.
The word "actually," used confusingly in Section 4(e), will be clearer if removed entirely. Besides, if
actually is that important, accrual should have been eliminated for being a mere surplusage. The
inclusion of accrual stresses the fact that Section 4(e) does not distinguish between actual and
constructive receipt. It merely focuses on the method of accounting known as the accrual
system.
Under this system, income is accrued or earned in the year in which the taxpayer's right thereto
becomes fixed and definite, even though it may not be actually received until a later year; while a
deduction for a liability is to be accrued or incurred and taken when the liability becomes fixed and
certain, even though it may not be actually paid until later.
Under any system of accounting, no duty or liability to pay an income tax upon a transaction arises
until the taxable year in which the event constituting the condition precedent occurs. The liability to
pay a tax may thus arise at a certain time and the tax paid within another given time.56
In reconciling these two regulations, the earlier one includes in the tax base for GRT all income,
whether actually or constructively received, while the later one includes specifically interest
income. In computing the income tax liability, the only exception cited in the later regulations is the
exclusion from gross income of interest income, which is already subjected to withholding. This
exception, however, refers to a different tax altogether. To extend mischievously such exception
to the GRT will certainly lead to results not contemplated by the legislators and the administrative
body promulgating the regulations.
Manila Jockey Club
Inapplicable
In Commissioner of Internal Revenue v. Manila Jockey Club,57 we held that the term "gross
receipts" shall not include money which, although delivered, has been especially earmarked by law
or regulation for some person other than the taxpayer.
To begin, we have to nuance the definition of gross receipts to determine what it is exactly. In this
regard, we note that US cases have persuasive effect in our jurisdiction, because Philippine
income tax law is patterned after its US counterpart.
"`Gross receipts' with respect to any period means the sum of: (a) The total amount received or
accrued during such period from the sale, exchange, or other disposition of x x x other property of
a kind which would properly be included in the inventory of the taxpayer if on hand at the close of
the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary
course of its trade or business, and (b) The gross income, attributable to a trade or business,
regularly carried on by the taxpayer, received or accrued during such period x x x."61
"x x x [B]y gross earnings from operations x x x was intended all operations ... including incidental,
subordinate, and subsidiary operations, as well as principal operations."
"When we speak of the `gross earnings' of a person or corporation, we mean the entire earnings or
receipts of such person or corporation from the business or operations to which we refer."
From these cases, "gross receipts" refer to the total, as opposed to the net, income. These are
therefore the total receipts before any deduction for the expenses of management. Webster's New
International Dictionary, in fact, defines gross as "whole or entire."
Statutes taxing the gross "receipts," "earnings," or "income" of particular corporations are found in
many jurisdictions. Tax thereon is generally held to be within the power of a state to impose; or
constitutional, unless it interferes with interstate commerce or violates the requirement as to
uniformity of taxation.
Moreover, we have emphasized that the BIR has consistently ruled that "gross receipts" does not
admit of any deduction.70 Following the principle of legislative approval by reenactment,71] this
interpretation has been adopted by the legislature throughout the various reenactments of then
Section 119 of the Tax Code.72
Given that a tax is imposed upon total receipts and not upon net earnings, shall the income
withheld be included in the tax base upon which such tax is imposed? In other words, shall
interest income constructively received still be included in the tax base for computing the
GRT?
We rule in the affirmative.
Manila Jockey Club does not apply to this case. Earmarking is not the same as withholding.
Amounts earmarked do not form part of gross receipts, because, although delivered or received,
these are by law or regulation reserved for some person other than the taxpayer. On the contrary,
amounts withheld form part of gross receipts, because these are in constructive possession and
not subject to any reservation, the withholding agent being merely a conduit in the collection
process.
The Manila Jockey Club had to deliver to the Board on Races, horse owners and jockeys amounts
that never became the property of the race track. Unlike these amounts, the interest income that
had been withheld for the government became property of the financial institutions upon
constructive possession thereof. Possession was indeed acquired, since it was ratified by the
financial institutions in whose name the act of possession had been executed. The money indeed
belonged to the taxpayers; merely holding it in trust was not enough.
The government subsequently becomes the owner of the money when the financial institutions pay
the FWT to extinguish their obligation to the government. As this Court has held before, this is the
consideration for the transfer of ownership of the FWT from these institutions to the government. It
is ownership that determines whether interest income forms part of taxable gross receipts. 7
Being originally owned by these financial institutions as part of their interest income, the FWT
should form part of their taxable gross receipts.
Besides, these amounts withheld are in payment of an income tax liability, which is different from a
percentage tax liability. Commissioner of Internal Revenue v. Tours Specialists, Inc. aptly held
thus:
"x x x [G]ross receipts subject to tax under the Tax Code do not include monies or receipts
entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer's
benefit; and it is not necessary that there must be a law or regulation which would exempt such
monies and receipts within the meaning of gross receipts under the Tax Code."
In the construction and interpretation of tax statutes and of statutes in general, the primary
consideration is to ascertain and give effect to the intention of the legislature. [80 We ought to
impute to the lawmaking body the intent to obey the constitutional mandate, as long as its
enactments fairly admit of such construction.81 In fact, "x x x no tax can be levied without express
authority of law, but the statutes are to receive a reasonable construction with a view to carrying
out their purpose and intent."82]
Looking again into Sections 24(e)(1) and 119 of the Tax Code, we find that the first imposes an
income tax; the second, a percentage tax. The legislature clearly intended two different taxes. The
FWT is a tax on passive income, while the GRT is on business.83 The withholding of one is not
equivalent to the payment of the other.
Non-Exemption of FWT from GRT: Neither Unjust nor Absurd
Taxing the people and their property is essential to the very existence of government. Certainly,
one of the highest attributes of sovereignty is the power of taxation, which may legitimately be
exercised on the objects to which it is applicable to the utmost extent as the government may
choose. Being an incident of sovereignty, such power is coextensive with that to which it is an
incident. The interest on deposits and yield on deposit substitutes of financial institutions, on the
one hand, and their business as such, on the other, are the two objects over which the State has
chosen to extend its sovereign power. Those not so chosen are, upon the soundest principles,
exempt from taxation.
While courts will not enlarge by construction the government's power of taxation,88 neither will
they place upon tax laws so loose a construction as to permit evasions, merely on the basis of
fanciful and insubstantial distinctions.89 When the legislature imposes a tax on income and
another on business, the imposition must be respected. The Tax Code should be so construed, if
need be, as to avoid empty declarations or possibilities of crafty tax evasion schemes. We have
consistently ruled thus:
"x x x [I]t is upon taxation that the government chiefly relies to obtain the means to carry on its
operations, and it is of the utmost importance that the modes adopted to enforce the collection of
the taxes levied should be summary and interfered with as little as possible. x x x."90
"Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the
taxes, may derange the operations of government, and thereby cause serious detriment to the
public."91
"No government could exist if all litigants were permitted to delay the collection of its taxes."
A taxing act will be construed, and the intent and meaning of the legislature ascertained, from its
language. Its clarity and implied intent must exist to uphold the taxes as against a taxpayer in
whose favor doubts will be resolved.94 No such doubts exist with respect to the Tax Code,
because the income and percentage taxes we have cited earlier have been imposed in clear and
express language for that purpose.95
This Court has steadfastly adhered to the doctrine that its first and fundamental duty is the
application of the law according to its express terms -- construction and interpretation being called
for only when such literal application is impossible or inadequate without them.96 In Quijano v.
Development Bank of the Philippines,97] we stressed as follows:
"No process of interpretation or construction need be resorted to where a provision of law
peremptorily calls for application." 98
A literal application of any part of a statute is to be rejected if it will operate unjustly, lead to absurd
results, or contradict the evident meaning of the statute taken as a whole. [99 Unlike the CA, we
find that the literal application of the aforesaid sections of the Tax Code and its implementing
regulations does not operate unjustly or contradict the evident meaning of the statute taken as a
whole. Neither does it lead to absurd results. Indeed, our courts are not to give words meanings
that would lead to absurd or unreasonable consequences. 100 We have repeatedly held thus:
"x x x [S]tatutes should receive a sensible construction, such as will give effect to the legislative
intention and so as to avoid an unjust or an absurd conclusion."101
"While it is true that the contemporaneous construction placed upon a statute by executive officers
whose duty is to enforce it should be given great weight by the courts, still if such construction is
so erroneous, x x x the same must be declared as null and void."102
It does not even matter that the CTA, like in China Banking Corporation,103 relied erroneously on
Manila Jockey Club. Under our tax system, the CTA acts as a highly specialized body specifically
created for the purpose of reviewing tax cases. Because of its recognized expertise, its findings of
fact will ordinarily not be reviewed, absent any showing of gross error or abuse on its part.105
Such findings are binding on the Court and, absent strong reasons for us to delve into facts, only
questions of law are open for determination.106
Respondent claims that it is entitled to a refund on the basis of excess GRT payments. We
disagree.
Tax refunds are in the nature of tax exemptions. Such exemptions are strictly construed against
the taxpayer, being highly disfavored108 and almost said "to be odious to the law." Hence, those
who claim to be exempt from the payment of a particular tax must do so under clear and
unmistakable terms found in the statute. They must be able to point to some positive provision, not
merely a vague implication, of the law creating that right.
The right of taxation will not be surrendered, except in words too plain to be mistaken. The reason
is that the State cannot strip itself of this highest attribute of sovereignty -- its most essential power
of taxation -- by vague or ambiguous language. Since tax refunds are in the nature of tax
exemptions, these are deemed to be "in derogation of sovereign authority and to be construed
strictissimi juris against the person or entity claiming the exemption."
No less than our 1987 Constitution provides for the mechanism for granting tax exemptions. They
certainly cannot be granted by implication or mere administrative regulation. Thus, when an
exemption is claimed, it must indubitably be shown to exist, for every presumption is against it,
[113] and a well-founded doubt is fatal to the claim. In the instant case, respondent has not been
able to satisfactorily show that its FWT on interest income is exempt from the GRT. Like China
Banking Corporation, its argument creates a tax exemption where none exists.No exemptions are
normally allowed when a GRT is imposed. It is precisely designed to maintain simplicity in the tax
collection effort of the government and to assure its steady source of revenue even during an
economic slump.
No Double Taxation
We have repeatedly said that the two taxes, subject of this litigation, are different from each
other. The basis of their imposition may be the same, but their natures are different, thus
leading us to a final point. Is there double taxation?
The Court finds none.
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 is the passive income generated in the form of interest on deposits and yield on deposit
substitutes, while the subject matter of the GRT 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.123 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 Code -- and 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 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.
DISPOSITIVE
WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the Court of
Appeals are hereby REVERSED and SET ASIDE. No costs.
