Antero Sison, Jr. vs Acting BIR Commissioner Ruben Ancheta et al

GR No. L-59431 – 130 SCRA 654 – Political Law – Constitutional Law – Equal Protection – Uniformity of Taxation

Sison assails the validity of Batas Pambansa Blg. 135 which further amended Section 21 of the National Internal Revenue Code of 1977. The law provides that there’d be a higher tax impost against income derived from professional income as opposed to regular income earners. Sison, as a professional businessman, and as taxpayer alleges that by virtue thereof, “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. 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.

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

HELD: No. The SC ruled against Sison. 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. Taxes, being the lifeblood of the government, their prompt and certain availability is of the essence. According to the Constitution: “The rule of taxation shall be uniform and equitable.” However, 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. Where “the differentiation”” complained of “conforms to the practical dictates of justice and equity” it “is not discriminatory within the meaning of this clause and is therefore uniform.” 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.

What misled Sison is his failure to take into consideration the distinction 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. Taxpayers may be classified into different categories. In the case of the gross income taxation embodied in BP 135, 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. Taxpayers who are recipients of compensation income are set apart as a class. 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. 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 is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income.

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