Free exercise of religion = basis of tax exemption

No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof. The free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religious test shall be required for the exercise of civil or political rights. (Section 5 of Article III of the 1987 Constitution) The second sentence is called the "free exercise clause" or "religious free exercise."

The free exercise clause is the basis of tax exemptions. The imposition of license fees on the distribution and sale of bibles and other religious literature by a non-stock, non-profit missionary organization not for purposes of profit amounts to a condition or permit for (a prior restraint on) the exercise of their right, thus violating the constitutional guarantee of the free exercise and enjoyment of religious profession and worship which carries with it the right to disseminate religious beliefs and information. (G.R. No. L-9637)

It is actually in the nature of a condition or permit for the exercise of the right. This is different from a tax in the income of one who engages in religious activities or a tax on property used or employed in connection with those activities. It is one thing to impose a tax on the income or property of a preacher. It is quite another thing to exact a tax for the privilege of delivering a sermon. (American Bible Society v. City of Manila)

The Constitution, however, does not prohibit imposing a generally applicable tax on the sale of religious materials by a religious organization. (G.R. No. 115455) In Arkansas Writers' Project, Inc. v. Ragland, it was held that a law which taxed general interest magazines but not newspapers and religious, professional, trade and sports journals was discriminatory because while the tax did not single out the press as a whole, it targeted a small group within the press. What is more, by differentiating on the basis of contents (i.e., between general interest and special interests such as religion or sports) the law became "entirely incompatible with the First Amendment's guarantee of freedom of the press." (481 U.S. 221, 95 L.Ed.2d 209, 1987)

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