Sison v Ancheta G.R. No. L-59431. July 25, 1984.

C. J. Fernando

Declaratory Relief

Facts:

Petitioners challenged the constitutionality of Section 1 of Batas Pambansa Blg. 135. It amended

Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross income.

Petitioner as taxpayer alleged that "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers." He characterizes the above section as arbitrary amounting to class legislation, oppressive and capricious in character.

For petitioner, therefore, there is a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation.

The OSG prayed for dismissal of the petition due to lack of merit.

Issue: Whether the imposition of a higher tax rate on taxable net income derived from business or profession than on compensation is constitutionally infirm.

(WON there is a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation)

Held: No. Petition dismissed

Ratio:

 The need for more revenues is rationalized by the government's role to fill the gap not done by public enterprise in order to meet the needs of the times. It is better equipped to administer for the public welfare.

The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds.

The power to tax is an attribute of sovereignty and the strongest power of the government. There are restrictions, however, diversely affecting as it does property rights, both the due process and equal protection clauses may properly be invoked, as petitioner does, to invalidate in appropriate cases a revenue measure. If it were otherwise, taxation would be a destructive power.

The petitioner failed to prove that the statute ran counter to the Constitution. He used arbitrariness as basis without a factual foundation. This is merely to adhere to the authoritative doctrine that where the due process and equal protection clauses are invoked, considering that they are not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion.

It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear abuse of power.

 It has also been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process grounds.

For equal protection, the applicable standard to determine whether this was denied in the exercise of police power or eminent domain was the presence of the purpose of hostility or unreasonable discrimination.

It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under circumstances, which if not identical are analogous. If law be looks upon in terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on the rest.

The equal protection clause is, of course, inspired by the noble concept of approximating the ideal of the laws's benefits being available to all and the affairs of men being governed by that serene and impartial uniformity, which is of the very essence of the idea of law.

The equality at which the 'equal protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties, addressed to the attainment of specific ends by the use of specific remedies. The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same.

Lutz v Araneta- it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.

Petitioner- kindred concept of uniformity- Court- Philippine Trust Company- The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable

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

There is quite a similarity then to the standard of equal protection for all that is required is that the tax "applies equally to all persons, firms and corporations placed in similar situation"

There was a difference between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate.

The discernible basis of classification is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. As there is practically no overhead expense, these taxpayers are not entitled to make deductions for income tax purposes because they are in the same situation more or less.

Taxpayers who are recipients of compensation income are set apart as a class.

On the other hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income.

There was a lack of a factual foundation, the forcer of doctrines on due process and equal protection, and he reasonableness of the distinction between compensation and taxable net income of professionals and businessmen not being a dubious classification.