Tax reviewer

General principles:
Definition of taxation.
taxation is the inherent power of the sovereign, exercised through the legislature, to impose burdens upon the subjects and
objects within its jurisdiction, for the purpose of raising revenues to carry out the legitimate objects of the government.
Taxes.
enforced proportional contributions from properties and persons levied by the state by virtue its sovereignty for the support of
the government and for public needs.
Basis of taxation.
- governmental necessity.
- the existence of the government depends upon its capacity to perform its two (2) basic functions:
. !o serve the people.
". !o protect the people.
Theory of taxation.
reciprocal duties of support and protection.
#) support on the part of the taxpayers.
2) protection and benefits on the part of the government.
Benefits received principle.
(cir vs. Algue).
$espite the natural reluctance to surrender part of ones hard earned income to the taxing authority, every person who is able
to must contribute his share in the running of the government.
!he government is expected to respond in the form of tangible or intangible benefits intended to improve the lives of the
people and enhanced their material and moral values.
%n return for his contribution, the taxpayer receives the general advantages and protection which the government affords the
taxpayer and his property. &ne is compensation or consideration for the other. 'rotection for support and support for
protection.
(owever, it does not mean that only those who are able to
pay taxes can enjoy the privileges and protection.
given to a citi)en by the government.
Lorenzo vs. Posadas.
the only benefit to which the taxpayer is entitled is that derived form the enjoyment of the privileges of living in an organi)ed
society established and safeguarded by the devotion of taxes to public purpose. !he government promises nothing to the
person taxed beyond what maybe anticipated from an administration of the laws for the general good.
taxes are essential to the existence of the government. !he
&bligation to pay taxes rests not upon the privileges enjoyed by or the protection afforded to the citi)en by the government,
but upon the necessity of money for the support of the state. *or this reason, no one is allowed to object to or resist payment
of taxes solely because no personal benefit to him can be pointed out as arising from the tax.
Essential elements of a tax.
#) %t is an enforced contribution.
2) %t is generally payable in money.
+) %t is proportionate in character.
,) %t is levied on persons, property, or the exercise of a right or privilege.
-) %t is levied by the state which has jurisdiction over the subject or object of taxation.
.) %t is levied by the law-ma/ing body of the state.
0) %t is levied for publics purpose or purposes.
Requisites of a valid tax. code: 1p, u, , a, n2.
#) %t should be for a public purpose.
2) !he rule of taxation should be uniform.
+) !hat either the person or property taxed be within the jurisdiction of the taxing authority.
,) !hat the assessment and collection be in consonance with the due process clause.
-) !he tax must not infringe on the inherent and constitutional limitations of the power of taxation.
taxes are the lifeblood of the government and should be collected without unnecessary hindrance. "ut their collection should not
be tainted with arbitrariness.
!ature of taxation.
#) %nherent in sovereignty.
2) 3egislative in character.
"cope of taxation.
#) 4omprehensive.
2) 5nlimited.
+) 'lenary.
,) 6upreme.
Tolentino vs. Sec. Of finance.
in the selection of the object or subject of taxation the courts have no power to in7uire into the wisdom, objectivity, motive,
expediency or necessity of such tax law. (women).
#urposes of taxation.
'rimary.
- !o raise revenue in order to support the government.
6econdary.
#) 5sed to reduce social ine7uality.
2) 5tili)ed to implement the police power of the state.
+) 5sed to protect our local industries against unfair competition.
,) 5tili)ed by the government to encourage the growth of local industries.
Pal vs. Edu.
it is possible for an exaction to be both a tax and a regulation. 3icense fees and charges, loo/ed to as a source of revenue as
well as a means regulation. !he fees may properly regarded as taxes even though they also serve as an instrument of
regulation. %f the purpose is primarily revenue, or if revenue is at least one of the real and substantial purposes, then the
exaction is properly called a tax.
Caltex vs. Cir.
taxation is no longer a measure merely to raise revenue to support the existence of the government. !axes may be levied with
a regulatory purpose to provide means for rehabilitation and stabili)ation of a threatened industry which is affected with
public interest as to be within the police power of the state.
$ife%lood doctrine.
taxes are the lifeblood of the nation.
without revenue raised from taxation, the government will not survive, resulting in detriment to society. 8ithout taxes, the
government would be paraly)ed for lac/ of motive power to activate and operate it. (cir vs. Algue).
taxes are the lifeblood of the government and there prompt and certain availability is an imperious need.
taxes are the lifeblood of the nation through which the agencies of the government continue to operate and with which the
state effects its functions for the benefit of its constituents.
Illustrations of the lifeblood theory.
#) 4ollection of the taxes may not be enjoined by injunction.
2) !axes could not be the subject of compensation or set off.
+) valid tax may result in destruction of the taxpayer9s property.
,) !axation is an unlimited and plenary power.
#ower to tax and power to destroy.
the power to tax includes the power to destroy if it is used as an implement of the police power (regulatory) of the state.
o!ever, it does not include the power to destroy if it is used solely for the purpose of raising revenue. (roxas vs. Cta).
:otes:
if the purpose of taxation is regulatory in character, taxation is used to implement the police power of the state.
if the power of taxation is used to destroy things, businesses, or enterprises and the purpose is to raise revenue, the court will
come in because there will be violation of the inherent and constitutional limitations and it will be declared invalid.
!ature of the taxin& power.
#) ttribute of sovereignty and emanates from necessity, relin7uishment of which is never presumed.
2) 3egislative in character, and.
+) 6ubject to inherent and constitutional limitations.
!ecessity theory.
existence of a government is a necessity and cannot continue without any means to pay for expenses.
Benefits ' protection theory.
reciprocal duties of protection and support between state and inhabitants. %nhabitants pay taxes and in return receive benefits
and protection from the state.
"cope of le&islative taxin& power.
#) !he persons, property and excises to be taxed, provided it is within its jurisdiction.
2) mount or rate of tax.
+) 'urposes for its levy, provided it be for a public purpose.
,) ;ind of tax to be collected.
-) pportionment of the tax.
.) 6itus of taxation.
0) <ethod of collection.
(spects of taxation.
#) 3evy or imposition.
=nactment of tax laws.
3egislative in character.
2) ssessment.
4ollection.
dministrative in character.
:otes:
it is inherent in the power to tax that the state is free to select the object of taxation.
the "o!er of the legislature to i#"ose tax includes the "o!er.
#) 8hat to tax.
2) 8hom to tax.
+) (ow much to tax.
$agatsing vs. %a#irez.
what cannot be delegated is the legislative enactment of a tax measure but as regards to the administrative implementation of
a tax law that can be delegated.
the collection may be entrusted to a private corporation.
the rule that the power of taxation cannot be delegated does not apply to the administrative implementation of a tax law.
there is no violation because what is delegated or entrusted is the collection and not the enactment of such laws.
the issuance of regulations or circulars by the bir or the secretary of finance should not go beyond the scope of the tax
measure.
Basic principles of a sound tax system.
#) !heoretical justice.
2) *iscal ade7uacy.
+) dministrative feasibility.
)iscal adequacy.
- >iolation ? valid.
sources of revenue should be sufficient to meet the demands of public expenditure.
revenues should be elastic or capable of expanding or contracting annually in response to variations in public expenditure.
elasticity may be obtained without creating annually any new taxes or any new tax machinery but merely by changes in the
rates applicable to existing taxes.
even if a tax law violates the principle of fiscal ade7uacy , in other words, the proceeds may not be sufficient to satisfy the
needs of the government, still the tax law is valid.
(dministrative feasi%ility.
- >iolation ? valid.
the tax law must be capable of effective or efficient enforcement.
tax laws should be capable of convenient, just and effective administration.
tax laws should close-up the loopholes for tax evasion and deter unscrupulous officials from committing fraud.
there is no law that re7uires compliance with this principle, so even if the tax law violates this principle@ such tax law is valid.
Theoretical ustice.
- >iolation ? invalid.
this principle mandates that taxes must be just, reasonable and fair.
!axation shall be uniform and e7uitable.
e7uitable taxation has been mandated by our constitution, as if taxes are unjust and unreasonable then they are not e7uitable,
thus invalid.
the tax burden should be in proportion to the taxpayers ability to pay (ability to "ay "rinci"le).
Distinctions:
Taxation vs. #olice power vs. Eminent domain.
#) As to "ur"ose:
Taxation ? for the support of the government.
E#inent do#ainA- for public use.
Police "o!er ? to promote general welfare, public health, public morals, and public safety.
&' As to co#"ensation(
Taxation ? protection and benefits received from the government.
E#inent do#ain ? just compensation, not to exceed the mar/et value declared by the owner or administrator or anyone
having legal interest in the property, or as determined by the assessor, whichever is lower.
Police "o!er ? the maintenance of a healthy economic standard of society.
)' As to "ersons affected(
Taxation and "olice "o!er ? operate upon a community or a class of individuals
E#inent do#ain ? operates on the individual property owner.
,) As to authority !hich exercises the "o!er:
Taxation and "olice "o!er ? exercised only by the government or its political subdivisions.
E#inent do#ain ? may be exercised by public services corporation or public utilities if granted by law.
-) As to a#ount of i#"osition:
Taxation ? generally no limit to the amount of tax that may be imposed.
Police "o!er ? limited to the cost of regulation.
E#inent do#ain ? there is no imposition@ rather, it is the owner of the property ta/en who is just paid compensation.
.) As to the relationshi" to the constitution:
Taxation and e#inent do#ain ? subject to certain constitutional limitations, including the prohibition against impairment of
the obligation of contracts.
Police "o!er * relatively free from constitutional limitations and superior to the non-impairment provisions thereof.
Tax distin&uished from license fee:
a) Pur"ose( tax imposed for revenue while license fee for regulation. !ax for general purposes while license fee for regulatory
purposes only.
b) $asis: tax imposed under power of taxation while license fee under police power.
c) A#ount: in taxation, no limit as to amount while license fee limited to cost of the license and expenses of police surveillance
and regulation.
d) Ti#e of "ay#ent( taxes normally paid after commencement of business while license fee before.
e) Effect of "ay#ent: failure to pay a tax does not ma/e the business illegal while failure to pay license fee ma/es business
illegal.
f) Surrender( taxes, being lifeblood of the state, cannot be surrendered except for lawful consideration while a license fee may
be surrendered with or without consideration.

I#"ortance of distinction bet!een taxes and license fees.
%t is necessary to determine whether a particular imposition is a tax or a license fee, because some limitations apply only to
one and not to the other.
furthermore, exemption from taxes does not include exemption from license fees.
Taxes distin&uished from other impositions:
#) Toll ? amount charged for the cost and maintenance of property used@
2) *ompromise penalty ? amount collected in lieu of criminal prosecution in cases of tax violations@
+) "pecial assessment ? levied only on land based wholly on the benefit accruing thereon as a result of improvements of public
wor/s underta/en by government within the vicinity@
,) $icense fee ? regulatory imposition in the exercise of the police power of the state@
-) +ar&in fee ? exaction designed to stabili)e the currency@
.) *ustom duties and fees ? duties charged upon commodities on their being imported into or exported from a country@
0) De%t ' a tax is not a debt but is an obligation imposed by law.
"pecial assessment v. Tax.
#. special assessment tax is an enforced proportional contribution from owners of lands especially benefited by public
improvements.
2. special assessment is levied only on land.
+. special assessment is not a personal liability of the person assessed@ it is limited to the land.
,. special assessment is based wholly on benefits, not necessity.
-. special assessment is exceptional both as to time and place@ a tax has general application.
%e"ublic v. $acolod+ ,- scra .)&.
special assessment is a levy on property which derives some special benefit from the improvement. %ts purpose is to
finance such improvement. %t is not a tax measure intended to raise revenues for the government. !he proceeds thereof may
be devoted to the specific purpose for which the assessment was authori)ed, thus accruing only to the owners thereof who,
after all, pay the assessment.
6ome rules:
n exemption from taxation does not include exemption from a special treatment.
!he power to tax carries with it a power to levy a special assessment.
Toll v. Tax.
#. Toll is a sum of money for the use of something. %t is the consideration which is paid for the use of a road, bridge, or the li/e,
of a public nature. Taxes+ on the other hand, are enforced proportional contributions from persons and property levied by the
state by virtue of its sovereignty for the support of the government and all public needs.
2. Toll is a demand of proprietorship@ tax is a demand of sovereignty.
+. Toll is paid for the used of another9s property@ tax is paid for the support of government.
,. !he amount paid as toll depends upon the cost of construction or maintenance of the public improvements used@ while there
is no limit on the amount collected as tax as long as it is not excessive, unreasonable, or confiscatory.
-. Toll may be imposed by the government or by private individuals or entities@ tax may be imposed only by the government.
Tax v. #enalty.
#. Penalty is any sanction imposed as a punishment for violation of law or for acts deemed injurious@ taxes are enforced
proportional contributions from persons and property levied by the state by virtue of its sovereignty for the support of
the government and all public needs.
2. Penalty is designed to regulate conduct@ taxes are generally intended to generate revenue.
+. Penalty may be imposed by the government or by private individuals or entities/ taxes only by the government.
,%li&ation to pay de%t v. ,%li&ation to pay tax.
#. debt is generally based on contract, express or implied, while a tax is based on laws.
2. debt is assignable, while a tax cannot generally be assigned.
+. debt may be paid in /ind, while a tax is generally paid in money.
,. debt may be the subject of set off or compensation, a tax cannot.
-. person cannot be imprisoned for non-payment of tax, except poll tax.
.. debt is governed by the ordinary periods of prescription, while a tax is governed by the special prescriptive periods
provided for in the nirc.
0. debt draws interest when it is so stipulated or where there is default, while a tax does not draw interest except only when
delin7uent.
Requisites of compensation.
#. !hat each one of the obligor be bound principally, and that he be at the same time a principal creditor of the other.
2. !hat both debts consist in a sum of money, or if the things due are consumable, they be of the same /ind and also of the
same 7uality if the latter has been stated.
+. !hat the two (2) debts be due.
,. !hat they be li7uidated and demandable.
-. !hat over neither of them there be any retention or controversy, commenced by third persons and communicated in due time
to the debtors.
Rules re: set off or compensation of de%ts.
General rule: a tax delin7uency cannot be extinguished by legal compensation. !his is so because the government and the
tax delin7uent are not mutually creditors and debtors. :either is a tax obligation an ordinary act. <oreover, the collection of
a tax cannot await the results of a lawsuit against the government. *inally, taxes are not in the nature of contracts but grow
out of the duty to, and are the positive acts of the government to the ma/ing and enforcing of which the personal consent of
the taxpayer is not re7uired. 0francia v. Iac+ ,.& scra -12 and re"ublic v. 3a#bulao lu#ber+ 2 scra .&&).

Exception : sc allowed set off in the case of do#ingo v. 4arlitos 56 scra 22)2 re: claim for payment of unpaid services of a
government employee vis-B-vis the estate taxes due from his estate. !he fact that the court having jurisdiction of the estate
had found that the claim of the estate against the government has been appropriated for the purpose by a corresponding law
shows that both the claim of the government for inheritance taxes and the claim of the intestate for services rendered have
already become overdue and demandable as well as fully li7uidated. 4ompensation therefore ta/es place by operation of law.
Philex mining corporation v. Commissioner, 294 scra 687 (1998).
philex mining corporation was to set off its claims for vat input credit or refund for the excise taxes due from it. !he supreme
court disallowed such set off or compensation.
"urvey of philippine taxes.
A. Internal revenue taxes i#"osed under the nirc.
#. %ncome tax.
2. !ransfer taxes.
a) =state tax.
b) $onor9s tax.
+. 'ercentage taxes.
a) >alue added tax.
b) &ther percentage taxes.
,. =xcise taxes.
-. $ocumentary stamp tax.
$. Local or #unici"al taxes.
C. Tariff and custo#s duties.
7. Taxes or tax incentives under s"ecial la!s.
*lassification of taxes.
As to sub8ect #atter or ob8ect.
#. 'ersonal, poll or capitation tax.
!ax of a fixed amount imposed on persons residing within a specified territory, whether citi)ens or not, without regard to their
property or the occupation or business in which they may be engaged, i.e. 4ommunity tax.
2. 'roperty tax.
!ax imposed on property, real or personal, in proportion to its value or in accordance with some other reasonable method of
apportionment.
+. =xcise tax.
charge impose upon the performance of an act, the enjoyment of privilege, or the engaging in an occupation.
As to "ur"ose .
-general or fiscal revenue tax is that imposed for the purpose of raising public funds for the service of the government.
-a special or regulatory tax is imposed primarily for the regulation of useful or non-useful occupation or enterprises and secondarily
only for the purpose of raising public funds.
As to !ho bears the burden.
#. $irect tax.
direct tax is demanded from the person who also shoulders the burden of the tax. %t is a tax which the taxpayer is directly or
primarily liable and which he or she cannot shift to another.
2. %ndirect tax.
n indirect tax is demanded from a person in the expectation and intention that he or she shall indemnify himself or herself at the
expense of another, falling finally upon the ultimate purchaser or consumer. tax which the taxpayer can shift to another.
As to the sco"e of the tax.
#. :ational tax.
a national tax is imposed by the national government.
2. 3ocal tax.
local tax is imposed by the municipal corporations or local government units (lgus).
As to the deter#ination of a#ount.
#. 6pecific tax.
specific tax is a tax of a fixed amount imposed by the head or number or by some other standard of weight or measurement. %t
re7uires no assessment other than the listing or classification of the objects to be taxed.
2. d valorem tax.
n ad valorem tax is a fixed proportion of the value of the property with respect to which the tax is assessed. %t re7uires the
intervention of assessors or appraisers to estimate the value of such property before due from each taxpayer can be determined.
As to graduation or rate.
#. 'roportional tax.
!ax based on a fixed percentage of the amount of the property receipts or other basis to be taxed. =xample: real estate tax.
2. 'rogressive or graduated tax.
!ax the rate of which increases as the tax base or brac/et increases.
$igressive tax rate: progressive rate stops at a certain point. 'rogression halts at a particular stage.
+. Cegressive tax.
!ax the rate of which decreases as the tax base or brac/et increases. !here is no such tax in the 'hilippines.
Tax systems.
*onstitutional mandate.
!he rule of taxation shall be uniform and e7uitable. !he congress shall evolve a progressive system of taxation. 1section &6
0,'+ article vi+ constitution2.
Cegressivity is not a negative standard for courts to enforce. 8hat congress is re7uired by the constitution to do is to 9evolve
a "rogressive syste# of taxation.: !his is a directive to congress, just li/e the directive to it to give priority of the enactment
of law for the enhancement of human dignity. !he provisions are put in the constitution as moral incentives to legislation, not
as judicially enforceable rights. 0tolentino v. Secretary of finance.).
Progressive system o taxation v. !egressive system o taxation.
"rogressive syste# of taxation means that tax laws shall place emphasis on direct taxes rather than on indirect taxes, with
ability to pay as the principal criterion.
regressive syste# of taxation exists when there are more indirect taxes imposed than direct taxes.
:o regressive taxes in the philippine jurisdiction.
*lassification of taxes:
#. Personal tax ? also /nown as capitali)ation or poll tax@
2. Pro"erty tax ? assessed on property of a certain class@
+. 7irect tax ? incidence and impact of taxation falls on one person and cannot be shifted to another@
,. Indirect tax ? incidence and liability for the tax falls on one person but the burden thereof can be passed on to another@
-. Excise tax ? imposed on the exercise of a privilege@
.. 4eneral taxes ? taxes levied for ordinary or general purpose of the government@
0. S"ecial tax * levied for a special purpose@
D. S"ecific taxes ? imposed on a specific sum by the head or number or by some standards of weight or measurement@
E. Ad valore# tax ? tax imposed upon the value of the article@
#F. Local taxes ? taxes levied by local government units pursuant to validly delegated power to tax@
##. Progressive taxes ? rate increases as the tax base increases@ and
#2. %egressive taxes ? rate increases as tax base decreases.
General rule:
- !axes are personal to the taxpayer. 4orporation9s tax delin7uency cannot be enforced on the stoc/holder or transfer taxes on
the estate be assessed on the heirs.
Exceptions.
#. 6toc/holders may be held liable for unpaid taxes of a dissolved corporation if the corporate assets have passed into their
hands@ and
2. (eirs may be held liable for the transfer taxes on the estate, if prior to the payment of the same, the properties of the
decedent have been distributed to the heirs.
$imitations on the power of taxation.
-nherent limitations.
#. %t must be imposed for a public purpose.
2. %f delegated either to the president or to a l.g.u., it should be validly delegated.
+. %t is limited to the territorial jurisdiction of the taxing authority.
,. Government entities are exempted.
-. %nternational comity is recogni)ed i.e. 'roperty of foreign sovereigns are not subject to tax.
*onstitutional limitations.
Indirect:
) due process clause.
") e7ual protection clause.
4) freedom of the press.
$) religious freedom.
=) non-impairment clause.
*) law-ma/ing process.
#. &ne-subject ? one-title rule.
2. + readings on + separate days rule except when there is a certificate of emergency.
+. $istribution of copies + days before the +
rd
reading.
G) presidential power to grant reprieves, commutations and pardons, and remit fines and forfeitures after conviction by final
judgment.
7irect(
) revenue bill must originate exclusively in h.r. but the senate may propose with amendments.
") non-imprisonment for non-payment of poll tax.
4) taxation shall be uniform and e7uitable.
$) congress shall evolve a progressive system of taxation.
=) tax exemption of charitable institutions, churches and personages or convents appurtenant thereto, mos7ues, non-profit cemeteries,
and all lands, buildings and improvements ade (actually, directly , exclusively) used for charitable, religious, and educational
purposes.
*) tax exemption of all revenues and assets used for educational purposes of:
#. :on-profit non-stoc/ educational institutions.
2. 'roprietary or cooperative educational institutions subject to limitations provided by law including@
a) restriction on dividends.
b) provisions for re-investments.
G) tax exemption of grants, endowments, donations or contributions ade for educational purposes, subject to conditions prescribed by
law.
() no tax exemption without the concurrence of a majority of all members of congress.
%) sc power to review judgments or orders of lower courts in all cases involving ? legality of any tax. %mpost or toll, legality of any
penalty imposed in relation thereto.
-nherent limitations.
:otes: pu%lic purpose:
4overn#ental "ur"ose.
%ule(
Hthe legislature is without the power to appropriate revenues for anything but for public purposes.I
%ule(
Hpublic money can only be spent for a public purpose.I
#u%lic purpose ? a purpose affecting the inhabitants of the state or taxing district as a community and not merely as individuals.
public purpose includes not only direct benefits or advantage, it also includes indirect benefits or advantage.
Tio vs. ;ideogra#.
it is not the immediate result but the ultimate result that determines, whether the purpose is public or not.
it is not the number of persons benefited but it is the character of the purpose that determines the public character of such tax
law.
what is not allowed is that if it has no lin/ to public welfare.
public purpose is determined by the use to which the tax money is devoted.
if it benefits the community in general then it is for a public purpose no matter who collects it.
Test.
#. %f the public advantage or benefit is merely incidental in the promotion of a particular enterprise, that will render the law
invalid.
2. %f what is incidental is the promotion of a private enterprise, the tax law is still for a public purpose(valid).
a tax levied for a private, not public purpose constitutes ta/ing of property without due process of law as it is beyond the
powers of the government to impose it.
although private individuals are directly benefited, the tax would still be valid, provided such benefit is only incidental.
if what is incidental is the promotion of a private enterprise, as long as there is a lin/ to the public welfare, the purpose is still
public.
the test is not as to who receives the money, but the character of the purpose for which it is expended.
not the immediate result of the expenditure, but rather the ultimate.
the test that #ust be a""lied in deter#ining !hether the "ur"ose is "ublic or "rivate.
#) !he character of the direct object.
2) !he ultimate result not the immediate result.
+) !he general welfare for public good.
Test of ri&htful taxation.
- 'roceeds of a tax must be used.
#) *or the support of the government.
2) *or any of the recogni)ed objects of the government.
+) !o promote the welfare of the community.
$e&islative prero&ative.
Rule: it is congress which has the power to determine whether the purpose is public or private.
you can always 7uestion the validity of such tax measure on the ground that it is not for a public purpose before the courts.
"ut once it is settled that it is for a public purpose, you can no longer in7uire on such tax measure.
Taxpayers suit.
- case where the act complained of directly involves the illegal disbursement of public funds derived from taxation.
courts discretion to allow.
taxpayers have sufficient interest of preventing the illegal expenditures of money raised by taxation (not donations and
contributions).
a taxpayer is not relieved from the obligation of paying a tax because of his belief that it is being misappropriated by certain
officials.
a taxpayer has no legal standing to 7uestion executive acts that do not involve the use of public funds. (gonzales vs. 3arcos'.
Lozada vs. Co#elec.
it is only when an act complained of which may include a legislative enactment of a statute, involves the illegal expenditure
of public money that the so-called taxpayers suit may be allowed.
Caltex vs. Coa.
taxpayers may be levied with a regulatory purpose to provide means for the rehabilitation and stabili)ation of a threatened
industry which is affected with the public interest as to be within the police power of the state.
a law imposing burdens may be both a tax measure and an exercise of the police power in which case the license fee may
exceed the necessary expenses of police surveillance and regulation.
Requisites for a taxpayers petition.
#) !hat money is being extracted and spent in violation of specific constitutional protections against abuses of legislative
power.
2) !hat public money is being deflected to any improper purpose.
+) !hat the petitioner see/s to restrain respondents from wasting public funds through the enforcement of an invalid or
unconstitutional law.
<ilos bayan vs. 4uingona.
the supreme court has discretion whether or not to entertain taxpayers suit and could brush aside lac/ of locus standi.
*oncepts relative to pu%lic purpose.
#) %ne7ualities resulting from the singling out of one particular class for taxation or exemption infringe no constitutional
limitation.
%t is inherent in the power to tax that the legislature is free to select the subject of taxation.
2) n individual taxpayer need not derive direct benefits from the tax.
!he paramount consideration is the welfare of the greater portion of the population.
+) 'ublic purpose is continually expanding. reas formerly left to private initiative now loose their boundaries and may be
underta/en by the government, if it is to meet the increasing social challenges of the times.
,) 'ublic purpose is determined at the time of enactment of the tax law and not at the time of implementation.
:otes: international comity.
- "ased on tradition, practice or custom.
Doctrine of incorporation.
the "hili""ines ado"ts the generally acce"ted "rinci"les of international la! as "art of the la! of the land.
if a tax law violates certain principles of international law, then it is not only invalid but also unconstitutional.
Grounds for tax exemption of forei&n &overnment property.
#) 6overeign e7uality of states.
2) 5sage among states.
+) %mmunity from suit of a state.
:otes: non.dele&ation of the power to tax.
General rule:
- !he power of taxation is peculiarly and exclusively legislative, therefore, it may not be delegated.
Exceptions:
#) $elegation to the president.
2) $elegation to local government units.
+) $elegation to administrative units.
#owers which cannot %e dele&ated.
#) $etermination of the subjects to be taxed.
2) 'urpose of the tax.
+) mount or rate of the tax.
,) <anner, means and agencies of collection.
-) 'rescription of the necessary rules with respect thereto.
Dele&ation to the president.
congress may authori)e, by law, the president to fix, within specified limits and subject to such limitations and restrictions as
it may impose.
#) !ariff rates.
2) %mport and export 7uotas.
+) !onnage and wharfage dues.
,) &ther duties and import within the national development program of the government.
there must be a law authori)ing the president to fix tariff rates.
the delegation of power must impose limitations and restrictions and specify the minimum as well as the maximum tariff
rates.
)lexi%le tariff clause (sec. ,F# tcc).
- %n the interest of national economy, general welfare and or national security, the president upon the recommendation of the
national economic and development authority is empowered:
#) !o increase, reduce or remove existing protective rates of import duty, "rovided that the increase should not be higher than
#FFJ ad valorem.
2) !o establish import 7uota or to ban imports of any commodity.
+) !o impose additional duty on all imports not exceeding #FJ ad valorem.
Dele&ation to local &overnment units.
each local government unit has the power to create its own revenue and to levy taxes, fees and charges subject to such
guidelines and limitations as the congress may provide.(art x sec 1).
local government units have no power to further delegate said constitutional grant to raise revenue, because what is
delegated is not the enactment or the imposition of a tax, it is the administrative implementation.
$asco vs. Pagcor.
the power of local government units to impose taxes and fees is always subject to the limitations which congress may
provide, the former having no inherent power to tax.
municipal corporations are mere creatures of congress which has the power to create and abolish municipal corporations.
4ongress therefore has the power to control over local government units. %f congress can grant to a municipal corporation the
power to tax certain matters, it can also provide for exemptions or even ta/e bac/ the power.
Dele&ation to administrative a&encies.
for the delegation to be constitutionally valid, the law must be complete in itself and must set forth sufficient standards.
certain aspects of the taxing process that are not really legislative in nature are vested in administrative agencies. %n these
cases, there really is no delegation, to wit:
) 'ower to value property.
") 'ower to assess and collect taxes.
4) 'ower to perform details of computation, appraisement or adjustments.
:otes: exemption of &overnment a&encies.
#) gencies performing governmental functions.
tax exe#"t.
2) gencies performing proprietary functions.
sub8ect to tax.
the exemption applies only to governmental entities through which the government immediately and directly exercises its
sovereign powers.
=dc vs. Cebu city.
tax exemption of property owned by the republic of the philippines refers to the property owned by the government and its
agencies which do not have separate and distinct personality.
those with original charters (incorporated agencies).
those created by s"ecial charter (incorporated agencies) are not covered by the exe#"tion.
Government entities exempt from incomin& tax.
#) G6%6
2) 666
+) '(%4
,) '46&
-) 'agcor
%eason for exe#"tions.
#) Government will be taxing itself to raise money for itself.
2) %mmunity is necessary in order that governmental functions will not be impeded.
:otes: territorial urisdiction.
Rules:
tax laws cannot operate beyond a state9s territorial limits.
the government cannot tax a particular object of taxation which is not within its territorial jurisdiction.
property outside ones jurisdiction does not receive any protection of the state.
if a law is passed by congress, congress must always see to it that the object or subject of taxation is within the territorial
jurisdiction of the taxing authority.
"itus of taxation.
'lace of taxation.
Rule:
- !he state where the subject to be taxed has a situs may rightfully levy and collect the tax.
in determining the situs of taxation, you have to consider the nature of the taxes.
Exa#"le(
#) 'oll tax, capitation tax, community tax.
residence of the taxpayer.
2) Ceal property tax or property tax.
location of the property.
!e can only i#"ose "ro"erty tax on the "ro"erties of a "erson !hose residence is in the "hili""ines.
Exceptions to the territoriality rule.
A' >here the tax la!s o"erate outside territorial 8urisdiction.
#) taxation of resident citi)ens on their incomes derived from abroad.
$' >here tax la!s do not o"erate !ithin the territorial 8urisdiction of the state.
#) 8hen exempted by treaty obligations.
2) 8hen exempted by international comity.
"itus of tax on real property.
? lex rei situs or where the property is located.
Ceason:
!he place where the real property is located gives protection to the real property, hence the property or its owner
should support the government of that place.
"itus of property tax on personal property.
- #obilia se@untur "ersona#.
movables follow the owner.
movables follow the domicile of the owner.
Rules:
,' Tangible "ersonal "ro"erty.
- where located, usually the owners domicile.
&' Intangiblle "ersonal "ro"erty.
G. C. ? domicile of the owner.
=xception: the situs location not domicile.
where the intangible personal property has ac7uired a business situs in another jurisdiction.
the principle of 9#obilia se@untur "ersona#I is only for purposes of convenience. %t must yield to the actual situs of such
property.
"ersonal intangible "ro"erties !hich ac@uires business situs here in the Phili""ines.
#) franchise which is exercised within the 'hilippines.
2) shares, obligations, bonds issued by a domestic corporation.
+) shares, obligations, bonds issued by a foreign corporation, D-J of its business is conducted in the 'hilippines.
,) shares, obligations, bonds issued by a foreign corporation which shares of stoc/ or bonds ac7uire situs here.
-) rights, interest in a partnership, business or industry established in the 'hilippines.
these intangible properties ac7uire business situs here in the philippines, you cannot apply the principle of H#obilia se@untur
"ersona#I because the properties have ac7uired situs here.
"itus of income tax.
A' 7o#icillary theory.
- the location where the income earner resides in the situs of taxation.
$' =ationality theory.
- the country where the income earner is a citi)en is the situs of taxation.
C' Source rule.
- the country which is the source of the income or where the activity that produced the income too/ place is the situs of
taxation.
"itus of sale of personal property.
the place where the sale is consummated and perfected.
"itus of tax on interest income.
the residence of the borrower who pays the interest irrespective of the place where the obligation was contracted.
Cir vs. $oac.
revenue derived by an of-line international carrier without any flight from the philippines, from tic/et sales through its local
agent are subject to tax on gross philippine billings.
"itus of excise tax.
where the transaction performed.
o"e!ell vs. Co#. Of custo#s.
the power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the
domicile of the person subject to the exercise, nor upon the physical location of the property or in connection with the act or
occupation taxed, but depends upon the place on which the act is performed or occupation engaged in.
!hus, the gauge of taxability does not depend on the location of the office, but attaches upon the place where the respective
transaction is perfected and consummated.
*onstitutional limitations.
-. Due process.
due process mandates that no "erson shall be de"rived of life+ liberty+ or "ro"erty !ithout due "rocess of la!.
Pe"si cola vs. 3un. Of tanauan.
- requirements of due process in taxation.
#) tax must be for a public purpose.
2) imposed within the territorial jurisdiction.
+) no arbitrariness or oppression in.
a) assessment, and.
b) collection.
Due process in taxation does not require.
,' 7eter#ination through 8udicial in@uiry of/
) 'roperty subject to tax.
") mount of tax to be imposed.
&' =otice of hearing as to(
) mount of the tax.
") <anner of apportionment.
Requisites of due process of law.
#) !here must be a valid law.
2) !ax measure should not be unconscionable and unjust as to amount to confiscation of property.
+) !ax statute must not be arbitrary as to find no support in the constitution.
"hen is #eprivation o lie, li$erty or property #one in accor#ance "ith #%e process o la"K
#) %f done under authority of a law that is valid or of the constitution itself.
2) fter compliance with fair and reasonable methods of procedure prescribed by law.
if properties are taxed on the basis of an invalid law, such deprivation is a violation of due process.
%e#edy ? as/ for refund.
to justify the nullification of a tax law, there must be a clear and une7uivocal breach of the constitution.
there must be proof of arbitrariness.
-nstances when the tax law may%e declared as unconstitutional. /c, o, n, u0.
#) %f it amounts to confiscation of "ro"erty without due process.
2) %f the subject of taxation is outside of the 8urisdiction of the taxing state.
+) !he law maybe declared as unconstitutional if it is imposed not for a "ublic "ur"ose.
,) %f a tax law which is applied retroactively, imposes un8ust and o""ressive taxes.
> a tax law which denies a taxpayer a fair opportunity to assert his substantial rights before a competent tribunal is invalid.
> a tax"ayer #ust not be de"rived of his "ro"erty for non?"ay#ent of taxes !ithout.
#) :otice of liability.
2) 6ale of property at public auction.
> the validity of statute maybe contested only by one who will sustain a direct injury in conse7uence of its enforcement.
> a violation of the inherent limitations on taxation would contravene the constitutional injunctions against deprivation of
property without due process of law.
> there must be proof of arbitrariness, otherwise apply the presumption of constitutionality.
> due process re7uires hearing before adoption of legislative rules by administrative bodies of interpretative rulings. (#isa#is
vs. 7fa).
> compliance with strict procedural re7uirements must be followed effectively to avoid a collision course between the states
power to tax and the individual recogni)ed rights. (cir vs. Algue'.
> the due process clause may correctly be invo/ed only when there is a clear contravention of inherent or constitutional
limitations in the exercise of tax power. (tan vs. 7el rosario'.
> substatntive due "rocess re7uires that a tax statute must be within the constitutional authority of congress to pass and that it
be reasonable, fair and just.
> "rocedural due "rocess re7uires notice and hearing or at least an opportunity to be heard.
%i. Equal protection clause.
all "ersons+ all "ro"erties+ all businesses should be taxed at the sa#e rate.
prohibits class legislation.
prohibits undue discrimination.
Equality in taxation 1uniformity2.
e@uality in taxation re@uires that all sub8ects or ob8ects of taxation si#ilarly situated should be treated aliAe or "ut on e@ual
footing both on the "rivilege conferred and liabilities i#"osed.
all taxable articles of the same class shall be taxed at the same rate.
the doctrine does not re7uire that persons or properties different in fact be treated in law as though there were the same.
8hat it prohibits is class legislation which discriminates against some and favors others.
as long as there are rational or reasonable grounds for doing so, congress may group persons or properties to be taxed and it
is sufficient if all members of the same class are subject to the same rate and the tax is administered impartially upon them.
Requisites of a valid classification 1s a & e 2.
#) it must be based on substantial distinction.
2) it must a""ly not only to the "resent condition, but also to future conditions.
+) it must be ger#ane to the "ur"ose of the la!.
,) it must a""ly e@ually to all members of the same class.
"u%stantial distinction.
it must be real, material and not superficial distinction.
what is not allowed is ine7uality resulting from singling out of a particular class which violates the re7uisites of a valid
classification.
there maybe ine7uality but as long as it does not violate the re7uisites of a valid classification that such mere ine7uality is
not enough to justify the nullification of a tax law or tax ordinance.
taxation is e7uitable when its burden falls on those better able to pay.
although the e7ual protection clause does not forbid classification, it is imperative that the substantial differences having a
reasonable relation to the subject of the particular legislation.
taxes are uniform and e7ual when imposed upon all property of the same class or character within the taxing authority.
tax exemptions are not violative of the e7ual protection clause, as long as there is valid classification.
Tiu vs. Ca.
!he constitutional right to e7ual protection of the law is not violated by an executive order, issued pursuant to law, granting
tax and duty incentives only to business within the Hsecured areaI of the subic special economic )oneI and denying them to those
who live within the )one but outside such Hfenced inI territory. !he constitution does not re7uire the absolute e7uality among
residents. %t is enough that all persons under li/e circumstances or conditions are given the same privileges and re7uired to follow
the same obligations. %n short, a classification based on valid and reasonable standards does not violate the e7ual protection
clause.
8e find real and substantial distinctions between the circumstances obtaining inside and those outside the subic naval base,
thereby justifying a valid and reasonable classification.
Two ways equal protection clause can %e violated.
#' !hen classification is #ade !here there should be none.
- 8hen the classification does not rest upon substantial distinctions that ma/e for real difference.
2) !hen no classification is #ade !here a classification is called for.
- 8hen substantial distinctions exist but no corresponding classification is made on the basis thereof.
Or#oc sugar central vs. Cir.
if the ordinance is intended to supply to a specific taxpayer and to no one else regardless of whether or not other entities
belonging to the same class are established in the future, it is a violation of the e7ual protection clause, but if it is intended to
apply also to similar establishments which maybe established in the future, then the tax ordinance is valid even if in the
meantime, it applies to only one entity or taxpayer for the simple reason that there is so far only one member of the class
subject of the tax measure.
3niformity in taxation.
the concept of uniformity in taxation implies that all taxable articles or properties of the same class shall be taxed at the same
rate.
%t re7uires the uniform application and operation, without discrimination, of the tax in every place where the subject of the
tax is found. %t does not, however, re7uire absolute identity or e7uality under all circumstances, but subject to reasonable
classification.
Equity in taxation.
the concept of e7uity in taxation re7uires that the apportionment of the tax burden be more or less, just in the light of the
taxpayer9s ability to shoulder to tax burden and if warranted, on the basis of the benefits received from the government. %ts
cornerstone is the taxpayers ability to pay.
*riteria of equal protection.
#) !hen the la!s o"erate unifor#ly.
a) on all persons.
b) under similar circumstances.
2) all "ersons are treated in the sa#e #anner.
a) the conditions not being different.
b) both in privileges conferred and liabilities imposed.
c) favoritism and preference not allowed.
%eyes vs. Al#azor.
taxation is e7uitable when its burden falls on those better able to pay.
<a"atiran vs. Tan.
it is inherent in the power to tax that the state be free to select the subjects of taxation and it has been repeatedly held that
ine7ualities which result from a singling out of one particular class of taxation or exemption infringe no constitutional
limitation.
-ii. )reedom of the press.
the press is not exempt from taxation.
the sale of maga)ines or newspapers, maybe the subject of taxation.
what is not allowed is to impose tax on the exercise of an activity which has a connection with freedom of the press. (license
fee).
if we impose tax on persons before they can deliver or broadcast a particular news or information, that is the one which cannot be
taxed.
Tolentino vs. Sec. Of finance.
what is prohibited by the constitutional guarantee of free press are laws which single out the press or target a group
belonging to the press for special treatment or which in any way discriminates against the press on the basis of the content of
the publication.
-v. )reedom of reli&ion.
it is the activity which cannot be taxed.
activities which have connection with the exercise of religion.
A#erican bible society vs. 3anila.
the payment of license fees for the distribution and sale of bibles suppresses the constitutional right of free exercise of
religion.
Bi##y s!aggart vs. $oard of e@ualization.
the free exercise of religion clause does not prohibit imposing a generally applicable sales and use tax on the sale of religious
materials by a religious organi)ation.
the sale of religious articles can be the subject of the vat.
!hat cannot be taxed is the exercise of religious !orshi" or activity.
the income of the priest derived from the exercise of religious activity can be taxed.
4. !on.impairment clause.
the parties to the contract cannot exercise the power of taxation.
they cannot agree or stipulate that this particular transaction may be exempt from tax- not allowed. (except if government).
O"osa vs. Cactoran.
police power prevails over the non-impairment clause.
La insular vs. 3anchuca.
a lawful tax on a new subject or an increased tax on an old one, does not interfere with a contract or impairs its obligation.
the constit%tional g%arantee o the non&impairment cla%se can only invo'e# in the grant o tax exemption.
Rules:
#) if the exemption was granted for valuable consideration and it is granted on the basis of a contract.
cannot be revo/ed.
2) if the exemption is granted by virtue of a contract, wherein the government enters into a contract with a private corporation.
cannot be revo/ed unilaterally by the government.
+) if the basis of the tax exemption is a franchise granted by congress and under the franchise or the tax exemption is given to a
particular holder or person.
can be unilaterally revo/ed by the government (congress).
the non-impairment clause applies only to contracts and not to a franchise.
the non-impairment clause applies to taxation but not to police power and eminent domain. *urthermore, it applies only
where one party is the government and the other, a private individual.
as a rule, the obligation to pay tax is based on law. "ut when, for instance, a taxpayer enters into a compromise with the bir,
the obligation of the taxpayer becomes one based on contract.
Province of #isa#is vs. Cagayan electric.
franchises with magic words, Hshall be in lieu of all taxes: descriptive of the payment of a franchise tax on their gross
earnings are exempt from:
#) ll taxes.
2) !he franchise tax under the nirc.
+) !he franchise tax under the local tax code.
Buarez vs. Ca.
as long as the contract affects the public welfare one way or another so as to re7uire the interference of the state, then must
the police power be asserted and prevail over the impairment clause.
Rules on tax amnesty.
tax amnesty, li/e tax exemption, is never favored nor presumed in law and if granted by statute must be construed strictly
against the taxpayer, who must show compliance with the law.
the government is not estopped from 7uestioning the tax liability even if amnesty tax payments were already received.
%eason( erroneous application and enforcement of the law by public officers do not bloc/ subse7uent correct application of
the statute. !he government is never estopped by mista/es or errors by its agents.
P" vs. CastaDeda.
defense of tax amnesty, li/e amnesty, is a personal defense.
%eason: it relates to the circumstances of a particular accused and not the character of the acts charged in the information.
%e"ublic vs. Iac.
in case of doubt, tax amnesty is to be strictly construed against the government.
%eason: taxes are not construed, for taxes being burdens are not to be presumed beyond what the tax amnesty expressly and
clearly declares.
4i. $aw ma5in& process.
2 one su%ect ' one title rule.
every bill passed by the congress shall embrace only one subject which shall be expressed in the title thereof (sec. &. 0,' art ii).
") three readin& rule.
no bill passed by either house shall become a law unless it has passed three readings on separate days and printed copies thereof in its
final form have been distributed to its members three days before its passage, except when the president certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. (sec. &. 0&' art ii).
Phil. Budges assoc. ;s. Prado.
a presidential certification dispenses with the re7uirement not only of printing but also that of reading the bill on separate
days.
it is within the power of a bicameral conference committee to include in its report an entirely new provision that is not found
either in the house bill or senate bill, so long as such amendment is germane to the subject of the bills before the committee.
fter all its report was not final but needed the approval of both houses of congress to become valid as an act of the
legislative department.
*2 Enrolled %ill doctrine.
G.r. ' an enrolled copy of a bill is conclusive not only of its provisions but also of its due enactment.
Exception: in astorga vs. ;illegas, the supreme court Hwent behindI the enrolled bill and consulted the journal to determine
whether certain provisions of a state had been approved by the senate president9s admission of a mista/e and withdrawal of his
signature.
4ii. #ardonin& power of the president.
the president has the power to grant reprieves, commutations and pardons and remit fines and forfeitures after conviction by final
judgment. (sec. ,E+ art vii).
!ature of tax amnesty.
? a general pardon or intentional overloo/ing by the state of its authority to impose penalties on persons otherwise guilty of
evasion or violation of a revenue or tax law.
- bsolute forgiveness or waiver to collect.
4iii. !o imprisonment for non.payment of poll tax.
- :o person shall be imprisoned for debt or non-payment of poll tax (sec. &F art iii).
the non-imprisonment rule applies to non-payment of poll tax which is punishable only by a surcharge, but not to other
violations li/e falsification of community tax certificate or non-payment of other taxes.
#oll tax ? tax of fixed amount imposed upon residents within a specific territory regardless of citi)enship, business or profession.
- 4ommunity tax.
-x. Taxation shall %e uniform and equita%le.
- !he rule of taxation shall be uniform and e7uitable. !he congress shall evolve a progressive system of taxation. 0sec. &6 0,'
art vi'.
3niformity.
- <eans that all taxable articles /inds of property of the same class shall be taxed at the same rate.
a tax is uniform when it operates with the same force and effect in every place where the subject of it is found.
Equita%ility.
taxation is said to be e7uitable when its burden falls on those better able to pay.
6. *on&ress shall evolve a pro&ressive system of taxation.
#ro&ressivity.
taxation is progressive when its rate goes up depending on the sources of the person affected.
"ystems of taxation.
#' "ro"ortional taxation.
- 8here the tax increases or decreases in relation to the tax brac/et.
2) "rogressive or graduated syste#.
- 8here the tax increases as the income of the taxpayer goes higher.
+' regressive syste#.
- 8here the tax decreases as the income of the taxpayer increases.
Progressivity is not re"ugnant to unifor#ity and e@uality.
) uniformity does not re7uire the things which are not different be treated in the same manner.
") differentiation, which is not arbitrary and conforms to the dictates of justice and e7uity is allowed. 'rogressivity is one way of
classification.
4) the state has the inherent right to select subjects of taxation.
Tolentino vs. Sec. Of finance.
ra 00#. (evat), does not violate the constitutional mandate that congress shall Hevolve a progressive system of taxationI.
the constitution does not really prohibit the imposition of indirect taxes, which li/e the vat, are regressive. !he constitutional
provision means simply that indirect taxes shall be minimi)ed.
the mandate to congress is not to prescribe, but to evolve, a progressive system of taxation.
resort to indirect taxes should be minimi)ed but not to be avoided entirely because it is difficult, if not impossible to avoid
them by imposing such taxes according to the taxpayers ability to pay.
6i. ,ri&in of revenue, tariff or tax %ills.
all appropriation, revenue or tariff bills, bills authori)ing increase of the public debt, bills of local application, and private
bills shall originate exclusively in the house of representatives, but the senate may propose or concur with amendments. ( section &2+
article vi'.
Rule:
- %t is not the revenue statute but the revenue bill which is re7uired by the constitution to originate exclusively in the house of
representatives.
%eason:
- !o insist that a revenue statute and not only the bill which initiated the legislative process culminating in the enactment of the
law must substantially be the same as the house bill would be to deny the senate9s power not only to Hconcur with
amendmentsI but also to Hpropose amendments.I %t would be to violate the co-e7uality of legislative power of the two houses
of congress and in fact ma/e the house superior to the senate. (tolentino vs. Sec. Of finance'.
the constitution simply re7uires that there must be that initiative coming from the house of representatives relative to
appropriation, revenue and tariff bills.
the constitution does not also prohibit the filing in the senate of a substitute bill in anticipation of its receipt of the bill from
the house, as long as action by the senate is withheld until receipt of said bill (tolentino vs. Sec. Of finance).
6ii. #residential veto.
Hthe president shall have the power to veto any particular item or items in an appropriation, revenue or tariff bill, but the veto
shall not affect the item or items to which he does not objectI 0sec. &- 0&'+ art vi).
6iii. Tariff power of the president.
Hthe congress may, by law, authori)ing the president to fix within specific limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export 7uotas, tonnage and wharfage dues, the other duties or imports
within the framewor/ of the national development program of the governmentI (sec. &6 0&'+ art vi).
Requisites:
#) there must be a law passed by congress authori)ing the president to impose tariff rates and other fees.
2) under the law, there must be limitations and restrictions on the exercise of such power.
+) the taxes that may be imposed by the president are limited to:
) !ariff rates.
") %mport and export 7uotas.
4) !onnage and wharfage dues.
$) &ther duties (customs duties).
,) !he imposition of these tariff and duties must be within the framewor/ of the national development program of the
government.
congress Hmay not passI a law authori)ing the president to impose income tax, donors tax, and other taxes which are not in
the nature of customs duties.
the constitution allows only the imposition by the president of these custom duties.
6iv. Tax exemption of real property.
Hcharitable institutions, churches and personages or convents appurtenant thereto, morgues, non-profit cemeteries and all
lands, buildings and improvements, actually directly and exclusively used for religious, charitable, or educational purposes
shall be exempt from taxation.I (sec. &6 0)' art vi).
(pplication:
the exemption only covers property taxes and not other taxes.
Test of exemption:
it is the use of the property and not ownership of the property.
abra valley college vs. A@uino 0,.& scra ,F.'.
the exemption does not only extend to indispensable facilities but also covers incidental facilities which are reasonably
necessary to the accomplishment of said purpose.
a property leased by the owner to another who uses it exclusively for religious purposes is exempt from property tax, but the
owner is subject to income tax or rents received.
real property purchased by any religious sect to be used exclusively for religious purposes are subject to the tax on the
transfer of ownership or of title to real property (also if donated- donor9s tax).
property held for future use is not tax exempt.
6v. $aw &rantin& tax exemptions.
H no law granting any tax exemptions shall be passed without the concurrence of a majority of all members of the congressI
(sec. &6 02' art vi'.
Rules on vote requirement.
#) law granting any tax exemption.
absolute majority.
2) law withdrawing any tax exemption.
relative majority.
tax exemption, amnesties, refunds are considered in the nature of tax exemptions.
a law granting such needs approval of the absolute majority of the congress.
6vi. !o use of pu%lic money or property for pu%lic purposes.
H no public money or property shall be appropriated, applied, paid, or employed, directly or indirectly, for the use, benefit, or
support of any sect, church, denomination, sectarian, institution or system of religion, or of any priest, preacher, minister or
other religious teacher or dignitary as such, except when such priest, preacher, minister or dignitary is assigned to the armed
forces, or to any penal institution, or government orphanage or leprosarium as suchI (sec. &E 0&' art vi'.
public property may be leased to a religious group provided that the lease will be totally under the same conditions as that to
private persons (amount of rent).
congress is without power to appropriate funds for a private purpose.
6vii. Tax levied for special purposes.
H all money collected or any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. %f the
purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general
funds of the government.I (sec. &E 0)' art vi).
if a president of the philippines spent a special fund for a general purpose, he can be charged with culpable violation of the
constitution.
6viii. "upreme court7s power of review.
Hthe supreme court shall have the power to review, revise, reverse, modify or affirm on appeal or certiorari, all cases involving the
legality of any tax imposed, assessment, or toll, or any penalty imposed in relation thereto.I (sec. 1 0&b' art viii'.
congress cannot ta/e away from the supreme court the power given to it by the constitution as the final arbiter of the tax
cases.
6ix. Dele&ated authority to local &overnment units.
H each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to
such guidelines and limitations as the congress may provide, consistent with the basic policy of local autonomy. 6uch taxes, fees,
charges shall have exclusivity to the local government.I 0sec. 1+ art x'.
$imitations on power to tax 1l.&.u.2.
#) it is subject to such guidelines and limitations provided by congress.
2) it must be consistent with the basic policy of local autonomy.
+) such taxes, fees, and charges shall accrue exclusively to the local government.
Rules: national &ov7t vs. $&u.
-mposition of taxes.
#) the national government may impose local taxes on articles or subjects which are within the territorial jurisdiction of the local
government unit.
2) the local government unit cannot impose tax on the national government.
you can only tax those articles, which are within your jurisdiction.
Sec. .+ art x.
H local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to
them.I
6x. Tax exemptions of educational institutions.
H all revenues and assets of non-stoc/, non-profit educational institutions used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties.I 0sec. 2 0)' art xiv'.
Requisites for exemption:
#) it must be a private educational institution.
2) it must be non-stoc/ and non-profit.
+) it9s assets (property) and revenues (income) must be used actually, directly and exclusively for educational purposes.
Rules:
#) if the first re7uisite is absent (meaning, it9s a government educational institution), it is nonetheless exempt from income tax.
2) if the second re7uirement is absent (meaning, it is stoc/ and profit) as long as the third re7uirement is present, it is nonetheless
exempt from real estate tax.
+) if the third re7uirement is absent, as long as it is non-stoc/ and non-profit, it is nonetheless exempt from income tax.
,) if the third re7uirement is absent, but it is private and non-profit, it is subject to income tax, but at the preferential rate of ten
percent (#FJ).
under the present tax code, for a private educational institution to be exempt from the payment of income tax, all it has to be
is non-stoc/ and non-profit. (owever, a governmental educational institution is exempt from income tax without any
condition.
Exemption does not extend to:
#) income derived by these educational institutions from their property, real or personal, and
2) from activities conducted by them for profit regardless of the disposition made on such income.
3anila "olo club vs. Cta.
proceeds of the sale of real property by the roman catholic church is exempt from income tax because the transaction was an
isolated one.
St. Paul hos"ital of iloilo vs. Cir.
income derived from the hospital pharmacy, dormitory and canteen was exempt from income tax because the operation of
those entities was merely incidental to the primary purpose of the exempt corporation.
"here the e#%cational instit%tion is private an# non&proit ($%t a stoc' corporation) it is s%$(ect to income tax $%t at the
preerential rate o ten percent (1)*).
Requisites for application of 89: preferential rate.
#) it is private@
2) it has permit to operate from the decs, or ched or tesda@
+) it is non-profit@
,) its gross income from unrelated trade or business must not exceed fifty percent (-FJ) of its total gross income from all sources.
89: preferential tax rate does not apply to the followin&:
#) passive incomes derived by the educational institution (subject to final income tax) and@
2) where the educational institution is engaged in unrelated trade, business or other activity, and the gross income from such unrelated
trade, business or other activities exceeds fifty percent (-FJ) of the total gross income derived by the school from all sources.
where a donation is made in favor of an educational institution pursuant to sports competition and tournaments, the donor is
exempt from the payment of donor9s tax.
Cir vs. Ca 0&E6 scra 6)).
income derived by ymca from leasing out a portion of its premises to small shop owners, li/e restaurant and canteen
operators, and from par/ing fees collected from non-members are taxable income.
Lmca is not an educational institution.
6xi. Tax exemption of donations for educational purposes.
Hsubject to conditions prescribed by law, all grants endowments, donations, or contributions used actually, directly and
exclusively for educational purposes shall be exempt from tax.I 0sec. 2 02' art xiv).
6xii. !o expost facto law prohi%ition in taxation.
Cernandez vs. Cernandez.
the prohibition against Hex post facto lawsI applies only to criminal laws and not to those that concern civil matters.
&ur tax laws are civil in nature.
the collection of interest on taxes is not penal in nature and the ex post facto law prohibition does not apply to it.
Dou%le taxation.
taxing same property twice when it should be taxed but once. !axing the same person twice by the same jurisdiction over the
same thing.
lso /nown as duplicate taxation.
Pe"si cola vs. City of butuan.
there is no constitutional prohibition against double taxation in the philippines. %t is something not favored but is permissible,
provided that the other constitutional re7uirements is not thereby violated.
;inds of dou%le taxation.
#) direct dou%le taxation.
- $ouble taxation in the objectionable or prohibited sense.
- 6ame property is taxed twice.
Requisites:
) the same property is taxed twice when it should only be taxed once@
") both taxes are imposed on the same property or subject matter for the same purpose@
4) imposed by the same taxing authority@
$) within the same jurisdiction@
=) during the same period@ and
*) covering the same /ind or character of tax.
22 indirect dou%le taxation.
- :ot legally objectionable.
- %f taxes are not of the same /ind, or the imposition are imposed for different taxing authority and this may involve the same
subject matter.
Exa#"les(
) the taxpayers warehousing business although carried on in relation to the operation of its sugar central is a distinct and separate
taxable business.
") a license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to
property tax.
4) both a license fee and a tax may be imposed on the same business or occupation for selling the same article and this is not in
violation of the rules against double taxation.
$) when every bottle or container of intoxicating beverages is subject to local tax and at the same time the business of selling such
product is also subject to li7uors license.
=) a tax imposed on both on the occupation of fishing and of the fishpond itself.
*) a local ordinance imposes a tax on the storage of copra where it appears that the finished products manufactured out of the copra
are subject to vat.
+eans employed to avoid dou%le taxation.
#) tax deductions.
2) tax credits.
+) provide for exemption.
,) enter into treatise with other states.
-) allowance on the principle of reciprocity.
Tax credit.
- n amount allowed as a deduction of the philippine income tax on account of income taxes paid or incurred to foreign
countries. %t is given to a taxpayer in order to provide a relief from too onerous a burden of taxation in case where the same
income is subject to a foreign income tax and the philippine income tax.
>ho can clai# tax credit.
#) citi)ens of the 'hilippines.
2) domestic corporations.
City of baguio vs. 7e leon.
the argument against double taxation may not be invo/ed where one tax is imposed by the state and the other imposed by the
city, it being widely recogni)ed that there is nothing inherently obnoxious in the re7uirement that license fees or taxes be
exacted with respect to the same occupation, calling or activity by both the state and a political subdivision thereof. nd
where the statute or ordinance in 7uestion applies e7ually to all persons, firms and corporations placed in a similar situation,
there is no infringement of the rule on e7uality.
;illanueva vs. City of Iloilo.
an ordinance imposing a municipal tax on tenement houses was challenged because the owners already pay real estate taxes
and also income taxes under the nirc. !he supreme court held that there was no double taxation. !he same tax may be
imposed by the national government as well as the local government. !here is nothing inherently obnoxious in the exaction
of license fees or taxes with respect to the same occupation, calling or activity by both the state and a political subdivision
thereof. *urther, a license tax may be levied upon a business or occupation although the land used in connection therewith is
subject to property tax.
Doctrines on dou%le taxation.
#) direct double taxation (ddt) is not allowed because it amounts to confiscation of property without due process of law.
2) you can 7uestion the validity of double taxation if there is a violation of the e7ual protection clause or e7uality or uniformity of
taxation.
+) all doubts as to whether double taxation has been imposed should be resolved in favor of the taxpayer.
Escape from taxation.
Basic forms of escape from taxation.
#) shifting.
2) capitali)ation.
+) transformation.
,) avoidance.
-) exemption.
.) evasion.
-. "hiftin&.
- 6hifting is the transfer of the burden of a tax by the original payer or the one on whom the tax was assessed or imposed to
someone else.
- 'rocess by which such tax burden is transferred from statutory taxpayer to another without violating the law.
it should be borne in mind that what is transferred is not the payment of the tax, but the burden of the tax.
only indirect taxes may be shifted@ direct taxes cannot be shifted.
<ays of shiftin& the tax %urden.
#) for!ard shifting.
- 8hen the burden of the tax is transferred from a factor of production through the factors of distribution until it finally settles
on the ultimate purchaser or consumer.
=xample:
- <anufacturer or producer may shift tax assessed to wholesaler, who in turn shifts it to the retailer, who also shifts it to the
final purchaser or consumer.
2' bacA!ard shifting.
- 8hen the burden of the tax is transferred from the consumer or purchaser through the factors of distribution to the factors of
production.
=xample:
- 4onsumer or purchaser may shift tax imposed on him to retailer by purchasing only after the price is reduced, and from the
latter to the wholesaler, or finally to the manufacturer or producer.
)' On!ard shifting.
- 8hen the tax is shifted two or more times either forward or bac/ward.
=xample:
- !hus, a transfer from the seller to the purchaser involves one shift@ from the producer to the wholesaler, then to retailer, we
have two shifts@ and if the tax is transferred again to the purchaser by the retailer, we have three shifts in all.
-mpact and incidence of taxation.
I#"act of taxation is the point on which a tax is originally imposed. %n so far as the law is concerned, the taxpayer is the
person who must pay the tax to the government. (e is also termed as the statutory taxpayer-the one on whom the tax is
formally assessed. (e is the subject of the tax.
Incidence of taxation is that point on which the tax burden finally rests or settle down. %t ta/es place when shifting has been
effected from the statutory taxpayer to another.
"tatutory taxpayer.
!he statutory taxpayer is the person re7uired by law to pay the tax or the one on whom the tax is formally assessed. %n short,
he or she is the subject of the tax.
%n direct taxes, the statutory taxpayer is the one who shoulders the burden of the tax while in indirect taxes, the statutory
taxpayer is the one who pay the tax to the government but the burden can be passed to another person or entity.
Relationship %etween impact, shiftin&, and incidence of a tax.
!he i#"act is the initial phenomenon, the shifting is the intermediate process, and the incidence is the result. !hus, the impact
in a sales tax (i.e. >at) is on the seller (manufacturer) who shifts the burden to the customer who finally bears the incidence
of the tax.
I#"act is the imposition of the tax@ shifting is the transfer of the tax@ while incidence is the setting or coming to rest of the
tax.
-i. *apitali=ation.
- Ceduction is the price of the taxed object e7ual to the capitali)ed value of future taxes on the property sold.
this is a special form of bac/ward shifting, where the burden of future taxes which the buyer may have to pay is shifted bac/
to the seller in the form of reduction in the selling price.
-ii. Transformation.
- !he manufacturer in an effort to avoid losing his customers, maintains the same selling price and margin of profit, not by
shifting the tax burden to his customers, but by improving his method of production and cutting down or other production
cost, thereby transforming the tax into or earn through the medium of production.
-v. Tax avoidance.
- also /nown as 9tax #ini#ization:.
- :ot punished by law.
- !ax avoidance is the exploitation of the taxpayer of legally permissible alternative tax rates or methods of assessing taxable
property or income in order to avoid or reduce tax liability.
7el"hers traders cor" vs. Iac 0,1- scra )2E'.
the supreme court upheld the estate planning scheme resorted to by the pacheco family in converting their property to shares
of stoc/ in a corporation which they themselves owned and controlled. "y virtue of the deed of exchange, the pacheco co-
owners saved on inheritance taxes. !he supreme court said the records do not point anything wrong and objectionable about
this estate planning scheme resorted to. !he legal right of the taxpayer to decrease the amount of what otherwise could be his
taxes or altogether avoid them by means which the law permits cannot be doubted.
Exa#"le(
*ollowing the Hholding "eriod ruleI in capital gains transaction, by postponing the sale of the capital asset until after twelve
months from date of ac7uisition you can reduce the tax on the capital gains by -FJ.
4. Tax exemption.
Tax exemption.
%t is the grant of immunity to particular persons or corporations or to persons or corporations of a particular class from a tax
which persons and corporations generally within the same state or taxing district are obliged to pay. %t is an immunity or
privilege@ it is freedom from a financial charge or burden to which others are subjected.
=xemption is allowed only if there is a clear provision there for.
%t is not necessarily discriminatory as long as there is a reasonable foundation or rational basis.
=xemptions are not presumed, but when public property is involved, exemption is the rule and taxation is the exemption.
Rationale for &rantin& tax exemptions.
%ts avowed purpose is some public benefit or interests which the lawma/ing body considers sufficient to offset the monetary
loss entailed in the grant of the exemption.
!he theory behind the grant of tax exemptions is that such act will benefit the body of the people. %t is not based on the idea
of lessening the burden of the individual owners of property.
Grounds for &rantin& tax exemptions.
#) may be based on contract. %n such a case, the public, which is represented by the government is supposed to receive a full
e7uivalent therefor, i.e. 4harter of a corporation.
2) may be based on some ground of public policy, i.e., to encourage new industries or to foster charitable institutions. (ere, the
government need not receive any consideration in return for the tax exemption.
+) may be based on grounds of reciprocity or to lessen the rigors of international double or multiple taxation.
!ote: e7uity is not a ground for tax exemption. =xemption is allowed only if there is a clear provision therefor.
!ature of tax exemption.
#) it is a mere personal privilege of the grantee.
2) it is generally revocable by the government unless the exemption is founded on a contract which is contract which is protected from
impairment.
+) it implies a waiver on the part of the government of its right to collect what otherwise would be due to it, and so is prejudicial
thereto.
,) it is not necessarily discriminatory so long as the exemption has a reasonable foundation or rational basis.
-) it is not transferable except if the law expressly provides so.
;inds of tax exemption accordin& to manner of creation.
#) ex"ress or affir#ative exe#"tion.
when certain persons, property or transactions are, by express provision, exempted from all certain taxes, either entirely or in
part.
2) i#"lied exe#"tion or exe#"tion by o#ission.
when a tax is levied on certain classes of persons, properties, or transactions without mentioning the other classes.
Every tax statute #aAes exe#"tions because of o#issions.
!o tax exemption %y implication.
%t must be expressed in clear and unmista/able language.
Caltex vs. Coa.
in claiming tax exemption, the burden of proof lies upon the claimant .
%t cannot be created by mere implication.
%t cannot be presumed that you are entitled to tax exemption.
Lou must prove it.
Rule:
- !axation is the rule and exemption is the exception.
Property tax + government property.
properties owned by the government whether in their proprietary or governmental capacity are exempt from real estate tax.
Test:
- o!nershi".
once established that it belongs to the government, the nature of the use of the property whether proprietary or sovereign
becomes immaterial.
exemption of public property from taxation does not extend to improvements therein made by occupants or claimants at their
own expense.
;inds of tax exemptions accordin& to scope or extent.
#) total.
- 8hen certain persons, property or transactions are exempted, expressly or impliedly from all taxes.
2) partial.
- 8hen certain persons, property or transactions are exempted, expressly or impliedly from certain taxes, either entirely or in
part.
+) there can be no simultaneous exemptions under two laws, when one grants partial exemption while other grants total exemption.
7oes "rovision in a statute granting exe#"tion fro# 9all taxes: include indirect taxesG
:o. s a general rule, indirect taxes are not included in the grant of such exemption unless it is expressly stated.
!ature of power to &rant tax exemption.
#' national govern#ent.
the power to grant tax exemptions is an attribute of sovereignty for the power to prescribe who or what persons or property shall not
be taxed.
it is inherent in the exercise of the power to tax that the sovereign state be free to select the subjects of taxation and to grant
exemptions therefrom.
unless restricted by the constitution, the legislative power to exempt is as broad as its power to tax.
2) local govern#ents .
municipal corporations are clothed with no inherent power to tax or grant tax exemptions. "ut the moment the power to impose a
particular tax is granted, they also have the power to grant exemption therefrom unless forbidden by some provision of the constitution
or the law the legislature may delegate its power to grant tax exemptions to the same extent that it may exercise the power to exempt.
basco vs. Pagcor 0,E. scra 1&'( the power to tax municipal corporations must always yield to a legislative act which is superior,
having been passed by the state itself. <unicipal corporations are mere creatures of congress which has the power to create and
abolish municipal corporations due to its general legislative powers. %f congress can grant the power to tax, it can also provide for
exemptions or even ta/e bac/ the power.
Chavez v. Pcgg+ g.r. no. ,)F-,.+ FE dece#ber ,EE6.
%n a compromise agreement between the philippine government, represented by the pcgg, and the marcos heirs, the pcgg
granted tax exemptions to the assets which will be apportioned to the marcos heirs. !he supreme court ruled that the pcgg has
absolutely no power to grant tax exemptions, even under the cover of its authority to compromise ill gotten wealth cases. !he
grant of tax exemptions is the exclusive prerogative of the congress.
%n fact, the supreme court even stated that congress itself cannot grant tax exemptions in the case at bar because it will violate
the e7ual protection clause of the constitution.
-nterpretation of the laws &rantin& tax exemptions .
General rule.
%n the construction of tax statutes, exemptions are not favored and are construed strictissi#i 8uris against the taxpayer. !he
fundamental theory is that all taxable property should bear its share in the cost and expense of the government.
Taxation is the rule and exe#"tion is the exe#"tion.
(e who claims exemption must be able to justify his claim or right thereto by a grant express in terms 9too "lain to be #istaAen
and too categorical to be #isinter"reted.: %f not expressly mentioned in the law, it must be at least within its purview by clear
legislative intent.
Exceptions.
#) when the law itself expressly provides for a liberal construction thereof.
2) in cases of exemptions granted to religious, charitable and educational institutions or to the government or its agencies or to public
property because the general rule is that they are exempt from tax.
Strict inter"retation does not a""ly to the govern#ent and its agencies.
'etitioner cannot invo/e the rule on stritissimi juris with respect to the interpretation of statutes granting tax exemptions to
the npc. !he rule on strict interpretation does not apply in the case of exemptions in favor of a political subdivision or
instrumentality of the government. 5#aceda v. 3acaraigH.
7avao gulf v. Co##issioner+ &E) scra -. 0,EE6'.
tax cannot be imposed unless it is supported by the clear and express language of a statute@ on the other hand, once the tax
is un7uestionably imposed, Ha claim of exemption from tax payers must be clearly shown and based on language in the law
too plain to be mista/en.I 6ince the partial refund authori)ed under section -, ra #,+-, is in the nature of a tax exemption, it
must be construed strictissi#i 8uris against the grantee. (ence, petitioner9s claim of refund on the basis of the specific taxes it
actually paid must expressly be granted in a statute stated in a language too clear to be mista/en.
exe#"tion of the buyer does not extend to the seller.
=xemption of the principal does not extend to the accessory.
Surigao vs. Collector of custo#s.
tax refunds+ condonations and a#nesties, they being in the nature of tax exemptions must be strictly construed against the
taxpayer and liberally in favor of the government.
Tax remission or tax condonation.
!he word 9re#it: means to desist or refrain from exacting, inflicting or enforcing something as well as to restore what has
already been ta/en. !he remission of taxes due and payable to the exclusion of taxes already collected does not constitute
unfair discrimination. 6uch a set of taxes is a class by itself and the law would be open to attac/ as class legislation only if all
taxpayers belonging to one class were not treated ali/e. 18uan luna subd. ;. Sar#iento+ E# phil +0F2.
!he condition of a tax liability is e7uivalent to and is in the nature of a tax exemption. !hus, it should be sustained only when
expressly provided in the law. 1surigao consolidated #ining v. Co##issioner of internal revenue+ E scra -&62.
Tax amnesty.
!ax amnesty, being a general pardon or intentional overloo/ing by the state of its authority to impose penalties on persons
otherwise guilty of evasion or violation of a revenue to collect what otherwise would be due it and, in this sense, prejudicial
thereto. %t is granted particularly to tax evaders who wish to relent and are willing to reform, thus giving them a chance to do
so and thereby become a part of the new society with a clean slate. 1re"ublic v. Inter#ediate a""ellate court, #E. scra ++-2.
3i/e tax exemption, tax amnesty is never favored nor presumed in law. %t is granted by statute. !he terms of the amnesty
must also be construed against the taxpayer and liberally in favor of the government.
Tax amnesty v. Tax condonation v. Tax exemption.
tax amnesty, being a general pardon or intentional overloo/ing by the statute of its authority to impose penalties on persons
otherwise guilty of evasion or violation of a revenue or tax law, parta/es of an absolute forgiveness or waiver by the
government of its right to collect what otherwise would be due it and, in this sense, prejudicial thereto, particularly to tax
evaders who wish to relent and are willing to reform are given a chance to do so and therefore become a part of the society
with a clean slate.
3i/e a tax exemption, a tax amnesty is never favored nor presumed in law, and is granted by statute. !he terms of the
amnesty must be strictly construed against the taxpayer and literally in favor of the government. 5nli/e a tax exemption,
however, a tax amnesty has limited applicability as to cover a particular taxing period or transaction only.
!here is a tax condonation or remission when the state desists or refrains from exacting, inflicting or enforcing something as
well as to reduce what has already been ta/en. !he condonation of a tax liability is e7uivalent to and is in the nature of a tax
exemption. !hus, it should be sustained only when expressed in the law.
!ax exemption, on the other hand, is the grant of immunity to particular persons or corporations of a particular class from a
tax of which persons and corporations generally within the same state or taxing district are obliged to pay. !ax exemptions
are not favored and are construed strictissi#i 8uris against the taxpayer.
Cir vs. %io tuba.
law granting partial refund parta/es the nature of a tax exemption and therefore must be strictly construed against the
taxpayer.
Cir vs. Tour s"ecialist.
gross receipts subject to tax under the tax code do not include monies or receipts entrusted to the taxpayer which do not
belong to it and does not redound to the taxpayers benefit, and it is not necessary that there must be a law or regulation which
would exempt such monies and receipts within the meaning of gross receipts.
*onstitutional restriction:
Hno law granting any tax exemption shall be passed without the concurrence of a majority of all members of congress.I 0sec. &6 02'
art vi'.
Prov. Of nueva eci8a vs. I#"erial #ining.
basis or test for real property taxation is use and not ownership. !hus, it does not matter who the owner of the property is
even if it is not tax exempt entity, as long as it is being used for religious, charitable or educational purposes, then it is tax
exempt.
conversely, even if the property taxation is owned by the government if the beneficial use has been granted, for consideration
or otherwise, to a taxable person, then the property is subject to tax.
4i. Tax evasion.
- %t is also /nown as 9tax dodgingI.
- %t is punishable by law.
- !ax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of tax.
Iutivo vs. Cta.
tax evasion is a term that connotes fraud through the use of pretenses or forbidden devices to lessen or defeat taxes.
Elements of tax evasion.
- !ax evasion connotes the integration of three (+) factors:
#) the end to be achieved, i.e. 'ayment of less than that /nown by the taxpayer to be legally due, or paying no tax when it is shown
that tax is due.
2) an accompanying state of mind which is described as being HevilI, Hin bad faithI, HwillfulI, or HdeliberateI and not HaccidentalI.
+) a course of action (or failure of action) which is unlawful.
-ndicia of fraud in tax evasion.
#) failure to declare for taxation purposes true and actual income derived from business for two (2) consecutive years@ or
2) substantial underdeclaration of income tax returns of the taxpayer for four (,) consecutive years coupled with unintentional
overstatement of deductions.
Evidence to prove tax evasion.
since fraud is a state of mind, it need not be proved by direct evidence but may be proved from the circumstances of the case.
%e"ublic vs. 4onzales 0,) scra .)6'.
failure of the taxpayer to declare for taxation purposes his true and actual income derived from his business for two (2)
consecutive years is an indication of his fraudulent intent to cheat the government of its due taxes.
Tax enforcement and administration.
"ources of tax laws:
#) statutes.
2) presidential decrees.
+) executive orders.
,) constitution.
-) court decisions.
.) tax code.
0) revenue regulations.
D) administrative issuances.
E) "%C rulings.
#F) local tax ordinances.
##) tax treaties and conventions with foreign countries.
#rospectivity of tax laws (application).
General rule:
- !ax laws should be applied prospectively.
Exception:
- %t may be applied retroactively when the law expressly provides for such retroactive application.
Exception to the exception:
- %t may not be given retroactive application even if the tax law expressly so provides if it imposes unjust and oppressive taxes.
-mprescripti%ility of taxes.
General rule:
- !axes are imprescriptible.
Exception:
- !hey are prescriptible if the tax laws provide for statute of limitations.
#rescriptive periods:
#) prescriptive periods for the assessment and collection of taxes.
#F years if return is tainted with falsity or fraud.
+ years if there is no fraud.
2) tariff and customs code.
- after the expiration of # year from the payment of final duties.
you should impose those custom duties that are supposed to be imposed on the imported articles within the # year period, except if it
is in the nature of partial li7uidation, if there is fraud or protest.
+) local government code.
- prescriptive periods for local taxes and real property tax.
- years.
#F years if fraud has been employed.
-nterpretation and application of tax laws.
!ature of internal revenue laws.
#) internal revenue laws are not political in nature.
2) tax laws are civil and not penal in nature.
!ot political in nature.
%nternal revenue laws are not political in nature. !hey are deemed to be laws of the occupied territory and not of the occupying enemy.
!hus, our tax laws continued in force during the japanese occupation. ilado v. Collector+ ,FF "hil. &66'( it is well /nown that our
internal revenue laws are not political in nature and, as such, continued in force during the period of enemy occupation and in effect
were actually enforced by the occupation government. %ncome tax returns that were filed during that period and income tax payments
made were considered valid and legal. 6uch tax laws are deemed to be the laws of the occupied territory and not of the occupying
enemy.
*ivil not penal in nature.
!ax laws are civil and not penal in nature, although there are penalties provided for their violation.
!he purpose of tax laws in imposing penalties for delin7uencies is to compel the timely payment of taxes or to punish evasion or
neglect of duty in respect thereof.
%e"ublic v. Oasan+ EE "hil E)2( the war profits tax is not subject to the prohibition on ex "ost facto laws as the latter applies only to
criminal or penal matters. !ax laws are civil in nature.
*onstruction of tax laws.
#' rule !hen legislative intent is clear.
tax statutes are to receive a reasonable construction with a view to carrying out their purpose and intent.
they should not be construed as to permit the taxpayer easily to evade the payment of taxes.
2' rule !hen there is doubt.
no person or property is subject to taxation unless within the terms or plain import of a taxing statute. %n every case of doubt,
tax statutes are construed strictly against the government and liberally in favor of the taxpayer.
taxes, being burdens, are not to be presumed beyond what the statute expressly and clearly declares.
+' "rovisions granting tax exe#"tions.
such provisions are construed strictly against the taxpayer claiming tax exemption.
(pplication of tax laws.
General rule : tax laws are prospective in operation because the nature and amount to the tax could not be foreseen and
understood by the taxpayer at the time the transactions which the law see/s to tax was completed.
Exception : while it is not favored, a statute may nevertheless operate retroactively provided it is expressly declared or is
clearly the legislative intent. "ut a tax law should not be given retroactive application when it would be harsh and oppressive.
Directory and mandatory provisions of tax laws.
directory "rovisions are those designed merely for the information or direction of office or to secure methodical and
systematic modes of proceedings.
3andatory "rovisions are those intended for the security of the citi)ens or which are designed to ensure e7uality of taxation
or certainty as to the nature and amount of each person9s tax.
!he omission to follow mandatory provisions renders invalid the act or proceeding to which it relates while the omission to
follow directory provisions does not involve such conse7uence. 1roxas v. %afferty+ )- "hil E16H.
Requisites of tax re&ulations.
#. Ceasonable.
2. 8ithin the authority conferred.
+. :ot contrary to law.
,. <ust be published.
Exceptions to non.retroactivity of rulin&s.
Cevocation, modification of revenue of any rules and regulations promulgated by the sec. &f finance or cir shall not have
retroactive effect if it will be prejudicial to the taxpayer, except:
#. 8here the taxpayer deliberately misstates or omits material facts from his return or in any document re7uired of him by the
"%C.
2. 8here the facts subse7uently gathered by the bir are materially different from the facts on which the ruling is based.
+. 8here the taxpayer acted in bad faith.
(&encies involved in tax administration.
#. "ir.
2. "ureau of customs.
+. 'rovincial, city, and municipal assessors and treasurers.
#owers and duties of the %ir.
#. ssessment and collection of all national internal revenue taxes, fees and charges.
2. Give effect to and administer the supervisory and police power conferred to it by the tax code or other laws.
+. =nforcement of all forfeitures, penalties and fines in connection therewith.
,. =xecution of judgments in all cases decided in its favor by the court of tax appeals and the ordinary courts.
*lassiffication of assessments.
#. Self?assess#ent ? one in which the tax is assessed by the taxpayer himself.
2. Illegal and void assess#ent ? one wherein the tax assessor has no power to act at all.
+. 7eficiency assess#ent ? one made by the tax assessor himself whereby the correct amount of the tax is determined by the
examination or investigation is conducted. !he liability is determined and is thereafter assessed for the following reasons:
a. !he amount ascertained exceeds that which is shown as the tax by the taxpayer in his return.
b. :o amount of tax is shown in the return.
c. !he taxpayer did not file any return at all.
,. Erroneous assess#ent ? one wherein the assessor has the power to assess but errs in the exercise of the power.
#rinciples &overnin& tax assessments.
#. ssessments are prima facie presumed correct and made in good faith.
2. ssessment should be based on actual facts.
+. ssessment is discretionary on the part of the commissioner to assess taxes may be delegated.
,. ssessments must be directed to the right party.
+eans employed in the assessment of taxes.
#. =xamination of tax returns.
2. 5se of the best evidence obtainable.
+. %nventory ta/ing, surveillance and use of presumptive gross sales and receipts.
,. !ermination of taxable period.
-. 'rescription of real property values.
.. =xamination of ban/ deposits to determine the correct amount of the gross estate.
0. ccreditation and registration of tax agents.
D. 'rescription of additional procedural or documentary re7uirements.
General rule:
%ncome tax returns are confidential.
Exceptions:
#. 8hen the inspection of the return is authori)ed upon written order of the president of the 'hilippines.
2. 8hen inspection is authori)ed under finance regulations no. ++ of the secretary of finance.
+. 8hen the production of the tax return is material evidence in a criminal case wherein the government is interested in the
result.
,. 8hen the production or inspection thereof is authori)ed by the taxpayer himself.
*ases when commissioner may assess taxes on the %asis of the %est evidence o%taina%le:
#. %n case a person fails to file a return or other document at the time prescribed by law.
2. (e willfully or otherwise files a false or fraudulent return or other document.
Grounds for termination of taxa%le period:
#. !he taxpayer is retiring from business subject to tax.
2. (e intends to leave the philippines or remove his property therefrom.
+. (e hides or conceals his property.
,. (e performs any act tending to obstruct the proceedings for the collection of the tax for the past or current 7uarter or year or
renders the same totally or partly ineffective unless such proceedings are began immediately.
-nstances when the commissioner may inquire into %an5 deposits:
#. *or the purpose of determining the gross estate of a decedent.
2. 8here a taxpayer offers to compromise his tax liability on the ground of financial inability. in which case he must submit a
waiver.
-nspection and examination of %oo5s and records shall %e made once in a taxa%le year.
Except:
#. %n cases of fraud, irregularity, or mista/es.
2. 8hen taxpayer re7uests a reinvestigation.
+. !o verify compliance with withholding tax laws and regulations.
,. !o verify capital gains tax liabilities.
-. 5pon order of the commissioner.
>?: surchar&e on the amount of the tax due is imposed in the followin& cases:
#. *ailure to file any return re7uired under the provisions of the tax code or regulations on the date prescribed.
2. *iling a return with an internal revenue officer other than those with whom the return is re7uired to be filed.
+. *ailure to pay the tax within the time prescribed for its payment.
,. *ailure to pay the full amount of tax shown on any return re7uired to be filed under the provisions of the tax code or
regulations or the full amount of tax due for which no return is re7uired to be filed, on or before the date prescribed for its
payment.
Revenue rules and re&ulations and administrative rulin&s and opinions.
,%thority to prom%lgate r%les an# reg%lations an# r%lings an# opinions.
!he secretary of finance, upon recommendation of the commissioner of internal revenue, shall promulgate needful rules and
regulations for the effective enforcement of the provisions of the nirc.
!his is without the prejudice to the power of the commissioner of internal revenue to ma/e rulings or opinions in connection
with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales
tax and similar purposes.
P%rpose o r%les an# reg%lations.
#. !o properly enforce and execute the laws.
2. !o clarify and explain the law.
+. !o carry into effect the law9s general provisions by providing details of administration and procedure.
!e-%isites or vali#ity o r%les an# reg%lations.
#. !hey must not be contrary to law and the constitution.
2. !hey must be published in the official ga)ette or a newspaper of general circulation.
Co##issioner v. Court of a""eals+ &2F scra ).6.
!he authority of the minister of finance, in conjunction with the commissioner of internal revenue, to promulgate rules and
regulations for the effective enforcement of internal revenue rules cannot be converted. :either can it be disputed that such
rules and regulations, as well as administrative opinions and rulings, ordinarily should deserve weight and respect by the
courts. <uch more fundamental than either of the above, however, is that all issuances must not override, but must remain
consistent with, the law they see/ to apply and implement. dministrative rules and regulations are intended to carry out,
neither to supplant nor to modify, the law.
La suerte v. Court of tax a""leals+ ,)2 scra &E.
8hen an administrative agency renders an opinion by means of a circular or memorandum, it merely interprets existing law
and no publication is therefore necessary for its validity. 4onstruction by an executive branch of the government of a
particular law, although not binding upon courts, must be given weight as the construction came from the branch of the
government which is called upon to implement the law.
.ectivity o reven%e r%les an# reg%lations.
Cevenue memorandum circular 2F-D. was issued to govern the drafting, issuance and implementation of revenue tax
issuances including:
#. Cevenue regulations@
2. Cevenue and memorandum orders@ and
+. Cevenue memorandum circulars and revenue memorandum orders.
=xcept when the law otherwise expressly provides, the aforesaid revenue tax issuances shall not begin to be operative until
after due notice thereof may be fairly assumed.
$ue notice of said issuances may be fairly presumed only after the following procedures have been ta/en:
#. 4opies of tax issuance have been sent through registered mail to the following business and professional organi)ations:
a. 'hilippine institute of certified public accountants@
b. %ntegrated bar of the philippines@
c. 'hilippine chamber of commerce and industry@
d. merican chamber of commerce@
e. *ederation of filipino-chinese chamber of commerce@ and
f. Mapanese chamber of commerce and industry in the philippines.
2. !he bureau of internal revenue shall issue a press release covering the highlights and features of the new tax issuance in any
newspaper of general circulation.
+. =ffectivity date for enforcement of the new issuance shall ta/e place thirty (+F) days from the date the issuance has been sent
to the above-enumerated organi)ations.
/ir r%lings.
dministrative rulings, /nown as bir rulings, are the less general interpretation of tax laws being issued from time to time by
the commissioner of internal revenue. !hey are usually rendered on re7uest of taxpayers to clarify certain provisions of a tax
law. !hese rulings may be revo/ed by the secretary of finance if the latter finds them not in accordance with the law.
!he commissioner may revo/e, repeal or abrogate the acts or previous rulings of his predecessors in office because the
construction of the statute by those administering it is not binding on their successors if, thereafter, such successors are
satisfied that a different construction of the law should be given.
Culings in the forms of opinion are also given by the secretary of justice who is the chief legal officer of the government.
Effectivity and validity of a tax ordinance.
Tuazon v. Court of tax a""leals+ &,& scra -)E.
%f the resolution is to be considered as a tax ordinance, it must be shown to have been enacted in accordance with the
re7uirements of the local government code. !hese would include the holding of a public hearing on the measure and its
subse7uent approval by the secretary of finance, in addition to the usual re7uisites for publication of ordinances in general.
Basic powers of the %ir commissioner.
. code: /e r a p0.
#. =nforcement of forfeitures, fines, and penalties imposed in relation thereto, including the enforcement execution of judgment
rendered by the cta or sc in favor of the bir.
2. Cecommend needful rules and regulations to the secretary of finance for the effective implementation of the provisions of the nirc
and special laws.
+. ssessment and collection of internal revenue taxes, fees and other taxes.
,. 'olice power, to administer or to give effect to the police power conferred upon it by law.
*orrolary powers of the %ir commissioner.
*ode: /s i e o t a a t 0.
#. 6ummon persons on certain cases pending investigation.
2. %n7uire into ban/ deposits.
- except: secrecy of ban/ deposits law.
only to determine the gross estate of decedent not to determine the income.
+. =xamine boo/s of the accounts of the taxpayer and other documents.
,. &btain information.
-. !a/e testimony of persons.
.. dminister oaths.
0. rrest persons who have violated the provisions of the tax code.
should have warrant of arrest.
D. !a/e inventory.