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012., 028, 058. Sison v. Ancheta

Antero M. Sison, Jr., v Ruben Ancheta, Acting Commissioner of the BIR,

July 25, 1984

Fernando, C. J.

Recit-Ready Version:

Sison challenged the constitutionality of a new Tax Law that imposed a lower rate on net income than gross

income, depending on employment.

The SC upheld the law, saying that while the power to tax is subject to the due process and equal protection

clauses of the Consti, Sison failed to show how the law violated them. It also explained that uniformity in

taxation merely means that all taxable articles of the same kind shall be subject to the same tax rates, so long

as such classifications are reasonable.

Facts:

The constitutionality of Sec. I of BP 135 was challenged in this suit for declaratory relief or prohibition. That

provision amends Sec. 21 of the NIRC of 1977, which provides for rates of tax on

Taxable compensation income Taxable net income Royalties, prizes and other winnings Interest from bank deposits Dividends and shares in partnerships Adjusted gross income

Antero Sison, as a taxpayer, alleges that by virtue of that provision he would be unduly discriminated against

because he, as a professional, is imposed a higher income tax than those who earn fixed income or salaries.

Thus, Sison claims, there is a violation of the due process and equal protection clauses, as well as the rule

requiring uniformity in taxation.

In response, the OSG claimed that BP 135 is a valid exercise of the States power to tax.

Issue:

WON BP 135 is constitutional. (Yes)

Ratio:

The field of state activity has assumed a much wider scope, because the areas which used to be left to private

enterprise and initiative continue to lose their well-defined boundaries and to be absorbed within activities

that the government must undertake if it is to meet the increasing social challenges of the times, hence the

need for more revenues.

**************On the power to tax and the power to destroy************

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The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state

functions. It is the bulk of public funds. Taxes being the lifeblood of the government, their prompt and

certain ability is of the essence.

According to Justice Malcolm, the power to tax is an attribute of sovereignty. It is the strongest of all the

powers of government. However, it is not unconfined, as there are restrictions in the Consittution, specifically

the due process and equal protection clauses. If it were otherwise, then the power of tax would involve the

power to destroy, as stated by Justice Frankfurter. But not according to Justice Holmes, and not in this

country. Thus, the power to tax is not the power to destroy.

***************************88*************************

The Constitution overrides any legislative or executive act that runs counter to it. Here, the act complained of

is the imposition of a higher tax rate on the taxable net income derived from the practice of a profession

compared to that imposed on income derived from compensation.

Sison alleges arbitrariness, but an allegation would not suffice. There must be a factual foundation of such

unconstitutionality. Sison has not done so. Where the due process and equal protection clauses have beeninvoked, there is a need for proof of such a persuasive power as would lead to such a conclusion. Absent

such a showing, the presumption of validity prevails.

***********on Limitations to the power of taxation***********

As to due process, it may be invoked when the taxing statute is so arbitrary that it finds no support in the

Constitution, as when it can be shown to amount to the confiscation of property. It may also be invoked

when the tax measure is beyond the jurisdiction of the state, or not for a public purpose, or, in case of a

retroactive statute, is so harsh and unreasonable that it is subject to attack on due process grounds.

As to equal protection, the applicable standard to taxation power is the same as that for police or eminent

domain powernamely that 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 privileges

conferred and liabilities imposed. However, it must be remembered that the equality is not a disembodied

equality. It is an expression of policy arising out of specific difficulties, addressed to the attainment of specific

ends by the use of specific remedies. Hence, classification if rational in character is alloweable.

Specifically applying this principle to taxation, JBL Reyes once said, 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 of exemption do not infringe the constitution.

**********As to uniformity of taxation*************

This argument is based on the Consitutional provision that the rule of taxation shall be uniform and

equitable. According to Justice Laurel in Philippine Trust v. Yatco, this requirement is met when the tax

operates with the same force and effect in every place where the subject may be found. It does not call for

perfect uniformity or perfect equality, because this is hardly attainable.

In another case, the SC pronounced that equality and uniformity of taxation meansthat all taxable articles or

kinds of property of the same class shall be taxed at the same rate. The taxing power has authority to make

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reasonable and natural classifications for the purposes of taxation. Where the differentiation complained of

conforms to the practical dictates of justice and equity, it is not discriminatory and therefore uniform. All that

the principle requires is that the tax apply equally to all persons, firms, and corporations placed in a similar

situation.

*************************8**********

Further, Sison failed to distinguish 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 tax rate.

Taxpayers may be classified into different categories. Once more, it is enough that the classification rest upon

substantial distinctions.

Here, the discernable basis of classification is the susceptibility of the income to the application of generalized

rules removing all deductible items for all tax payers within a class and fixing a set of reduced rates to be

applied to them.

Taxpayers recipients of compensation are validly set apart as a class because they have virtually no overhead

expenses, and so are not entitled to make deductions for income tax purposes because they are in the samesituation, more or less.

On the other hand, for professionals and businessmen, there is no uniformity in the costs or expenses

necessary to produce their income. It would be unjust to disregard the disparities by giving them all zero

deductions and impose the same tax rate on the basis of gross income. There is thus ample justification for

BP135.

Petition Dismissed

Annoying Concurring Opinion, Aquino, J.

I concur in the result. The petitioner has no cause of action for prohibition.

Annoying Dissenting Opinion that doesnt dissent, Abad Santos, J.

This is a frivolous suit. While the tax rates for compensation income are lower than those for net income, this

does not necessarily mean lower tax payments for those receiving compensation income. In fact, the reverse

will happen.

Gabe.