DIAZ - v - SEC OF FINANCE
Facts:
Note: I made this case digest when I was still a law student. The ones posted on my blog were not due for submission as part of any academic requirement. I want to remind you that there is no substitute to reading the full text of the case! Use at your own risk.
1.
Petitioners
Diaz and Timbol filed this petition for declaratory relief assailing the
validity of the impending imposition of VAT by the BIR on the collections of
tollway operators.
2.
Petitioners
hold the view that Congress did not, when it enacted the NIRC, intend to
include toll fees within the meaning of sale of services that are subject to
VAT.
3.
On
August 2010 the Court issued TRO enjoining the implementation of the VAT. The
Court required the government, represented by respondents Purisima, Secretary
of the DOF, and Henares, CIR, to comment on the petition
4.
The
OSG filed the governments comment: NIRC imposes VAT on all kinds of services of
franchise grantees, including tollway operations, except where the law provides
otherwise.
Issues:
1.
WON the government is unlawfully expanding VAT coverage by including tollway
operators and tollway operations
2. WON the imposition of VAT on tollway
operators amounts to a tax on tax and not a tax on services; is not
administratively feasible and cannot be implemented.
Held:
1.
The
relevant law in this case is Section 108[1] of the NIRC, as amended.
VAT is levied, assessed, and collected on the gross receipts derived from the
sale or exchange of services as well as from the use or lease of properties.
-
The
law imposes VAT on all kinds of services rendered in the Philippines for a fee.
By qualifying services with the words all kinds, Congress has given the term
services an all-encompassing meaning.
-
The
listing of specific services are intended to illustrate how pervasive and broad
is the VATs reach rather than establish concrete limits to its application.
Thus, every activity that can be imagined as a form of service rendered for a
fee should be deemed included unless some provision of law especially excludes
it.
-
P.D.
1112 (Toll Operation Decree): tollway operators construct, maintain, and
operate expressways (tollways), at the operators expense. Thus the operators
are allowed to collect government-approved fees from motorists using the
tollways until such operators could fully recover their expenses and earn
reasonable returns from their investments.
-
Not
only do tollway operators come under the broad term all kinds of services, they
also come under the specific class described in Section 108 as all other
franchise grantees who are subject to VAT. The word franchise broadly covers
government grants of a special right to do an act or series of acts of public
concern.
-
Tollway
operators are not among the franchise grantees subject to franchise tax under section
119. Neither are their services among the VAT-exempt transactions under Section
109 of the Code.
2.
Fees
paid by the public to tollway operators for use of the tollways, are not taxes
in any sense.
Tax
|
Toll
Fees
|
imposed under the taxing power of
the government principally for the purpose of raising revenues to fund public
expenditures
|
collected by private tollway
operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as to assure
them a reasonable margin of income
|
- VAT on tollway operations cannot be
deemed a tax on tax due to
the nature of VAT as an indirect tax à The seller who is liable for the
VAT may shift or pass on the amount of VAT it paid on goods, properties or
services to the buyer. In such a case, what is transferred is not the sellers
liability but merely the burden of the VAT. Once shifted, the VAT ceases to be
a tax and simply becomes part of the cost that the buyer must pay in order to
purchase the good, property or service.
-
Administrative
feasibility is one of the canons of a sound tax system. It simply means that
the tax system should be capable of being effectively administered and enforced
with the least inconvenience to the taxpayer. Non-observance of the canon,
however, will not render a tax imposition invalid except to the extent that
specific constitutional or statutory limitations are impaired. Even if the
imposition of VAT on tollway operations may seem burdensome to implement, it is
not necessarily invalid unless some aspect of it is shown to violate any law or
the Constitution.
-
Any
declaration by the Court that the manner of its implementation is illegal or
unconstitutional would be premature. Any concern about how the VAT on tollway
operations will be enforced must first be addressed to the BIR on whom the task
of implementing tax laws primarily and exclusively rests. The Court cannot
preempt the BIRs discretion on the matter, absent any clear violation of law or
the Constitution.
[1]
The phrase sale or exchange
of services means the performance of all kinds of services in the Philippines
for others for a fee, remuneration or consideration, including those performed
or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property, whether
personal or real; warehousing services; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or
repacking goods for others; proprietors, operators or keepers of hotels,
motels, resthouses, pension houses, inns, resorts; proprietors or operators of
restaurants, refreshment parlors, cafes and other eating places, including
clubs and caterers; dealers in securities; lending investors; transportation
contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic common carriers by land
relative to their transport of goods or cargoes; common carriers by air and sea
relative to their transport of passengers, goods or cargoes from one place in
the Philippines to another place in the Philippines; sales of electricity by
generation companies, transmission, and distribution companies; services of franchise grantees of electric
utilities, telephone and telegraph, radio and television broadcasting and all
other franchise grantees except those under Section 119 of this Code and non-life insurance companies
(except their crop insurances), including surety, fidelity, indemnity and
bonding companies; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental
faculties.