Case Summary (G.R. No. 109289)
Key Dates
– RA 7496 enacted in 1992
– RR No. 2-93 issued shortly thereafter
– Supreme Court decision rendered October 3, 1994
Applicable Law
– 1987 Philippine Constitution (single-subject rule, uniformity and equity in taxation, due process and equal protection)
– National Internal Revenue Code, as amended by RA 7496 (amending Sections 21(f) and 29)
– Revenue Regulations No. 2-93, Section 6
Petitions and Issues Presented
In G.R. No. 109289, petitioners asserted that RA 7496 violates:
• Article VI, Section 26(1) (single-subject requirement);
• Article VI, Section 28(1) (uniform and equitable taxation with progressive system);
• Article III, Section 1 (due process and equal protection).
In G.R. No. 109446, petitioners maintained that Section 6 of RR 2-93 exceeds the respondents’ rule-making authority by subjecting partners in GPPs to SNIT.
Adequacy of the Legislative Title and Net-Income Character
The Court held that the full title of RA 7496 reflects a single, clearly expressed subject and adequately notifies legislators and the public. Although deductions were limited compared to the pre-amendment Code, the SNIT remains a net-income tax: significant deductions (direct costs or a 40% flat allowance) continue to ensure that taxpayers are taxed on net, not gross, receipts.
Classification, Uniformity and Due Process
The distinction between individuals taxed under SNIT and corporations or ordinary partnerships under the global system does not violate uniformity or equal protection. Classifications are permissible if based on substantial, germane standards applied equally to all similarly situated taxpayers and consistent over time. The legislature’s choice of a schedular approach for individual professionals and self-employed persons falls within its broad discretion; no confiscatory or arbitrary tax measure was shown that would offend due process.
Application to General Professional Partnerships
Under Section 23 of the Tax Code (unamended by RA 7496), a GPP is a flow
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Parties and Procedural History
- Two special civil actions for prohibition were consolidated:
• G.R. No. 109289 (Rufino R. Tan v. Del Rosario & Ong)
• G.R. No. 109446 (Carag, Caballes, Jamora & Somera Law Offices v. Del Rosario & Ong) - Petitioners challenged:
• The constitutionality of Republic Act No. 7496 (Simplified Net Income Taxation Scheme or “SNIT”) amending Sections 21 and 29 of the National Internal Revenue Code (G.R. No. 109289)
• The validity of Section 6, Revenue Regulations No. 2-93, implementing SNIT (G.R. No. 109446) - Solicitor General supported respondents’ positions; both petitions were given due course, with memoranda filed
Facts
- Republic Act No. 7496 created a simplified net‐income tax for self-employed individuals and professionals
- Amended Section 21(f) provides graduated tax rates on “taxable net income” with specified brackets and rates (3% to 30%)
- Amended Section 29 limits deductions for SNIT taxpayers to direct costs or a flat 40% of gross receipts where costs are hard to determine
- Revenue Regulations No. 2-93, Section 6, extended SNIT to partners in General Professional Partnerships (GPPs), disallowing certain partner‐incurred expenses unless reimbursed by the partnership
Issues Presented
- G.R. No. 109289:
• Whether RA 7496 violates Article VI, Section 26(1) (single‐subject and title requirement)
• Whether RA 7496 breaches Article VI, Section 28(1) (uniform and equitable taxation)
• Whether RA 7496 infringes due process and equal protection under Article III, Section 1 - G.R. No. 109446:
• Whether Revenue Regulations No. 2-93, Section 6, exceeds rule-making authority by applying SNIT to GPP partners
Applicable Law
- 1987 Constitution:
• Art. V