I.

General Principles

1) Definition: The inherent power by which the state, through its law-making body, raises revenue in order
to defray the necessary expenses of the government.
2) nature of taxation
a) primary purpose: generate funds for the state to finance the needs of the citizenry and to advance
the common weal (Napocor v. Province of Albay, 1990)
b) taxation is both an inherent power and a legislative power. The power of taxation is an essential and
inherent attribute of sovereignty, belonging as a matter of right to every independent government
without being expressly granted by the people (Pepsi v, Municipality of Tanauan, 1976)
i) theory: power of taxation is considered a principal attribute of sovereignty - the exercise of
taxing power derives its source from the very existence of the state whose social contract with
its citizens obliges it to promote public interest and common good. the theory behind the
exercise of the power to tax emanates from necessity; without taxes, the government cannot
fulfill its mandate of promoting the general welfare and well-being of the people (CIR v. BPI)
c) In the legislature primarily lies the discretion to determine tha nature (kind), object (purpose), extent
(rate), coverate (subject) and situs (place) of taxation. It has the authority to prescribe certain tax at
a specific rate for a particular public purpose on persons or things within its jurisdiction. (CREBA .
Exec. Sec., 2010)
i) "power of taxation is purely legislative"
d) Inherent power = no need for Constitutional grant to exercise the power to tax
3) sources of tax law
a) Constitution
b) statutes or laws
c) PDs
d) revenue regulations
e) administrative rulings and opinions
f) judicial decisions
g) provincial, city, municipal and barangay ordinances
h) treaties or international agreements
4) characteristics of taxation
a) Supreme
i) basis: lifeblood theory
b) Plenary
i) can cover anything
c) Unlimited
i) if exercised properly, is virtually unlimited
d) Comprehensive
5) power of taxation compared with other powers
a) police power - power to maintain orderliness
b) power of eminent domain - power to take private property for public use, upon payment of just
compensation
6) purpose of taxation
a) revenue-raising
b) non-revenue/special or regulatory
c) It is possible to impose a tax based on the exercise of police power. Taxation may be used as a
means of achieving a police power objective of the state. ie. imposition of a regulatory tax where the
primary objective is to regulate a particular activity, and the tax aspect is but a mere incident of the
primary purpose.
 i) "power to tax involes the power to destroy" - if it is used validly as an implement of the police
power in discouraging and in effect, ultimately prohibiting certain things or enterprises inimical
to the public welfare.
d) the power of taxation may also be used as an implement of achieving an objective of the power of
eminent domain. Just compensation that the law grants to establishments granting senior citizens
discount is the tax credit granted to such taxpayers. (CIR v. Central Luzon Drug Corp., 2005)
7) principles of sound tax system
a) fiscal adequacy - enough revenue to defray expences
b) administrative feasibility - just , effective and convenient administration
i) no-observance of the canon will not render a tax imposition invalid except to the extent that
specific constitutional or statutory limitations are impaired. (Diaz v. Sec. of Finance, 2011)
ii) essntials of the principle:
(1) each tax should be clear and plain to the taxpayers
(2) capable of enforcement by an adequate and well-trained staff of officials
(3) convenient as to time and manner of payment
(4) not duly burdensome upon or discouraging to business activity
c) theoretical justice - tax imposed must be proportionate to taxpayer's ability to pay.
i) principle of equitability
d) Note: If Congress does not follow the sound tax system, it will not result to the nullity of the law.
They are mere principles to which the courts have no jurisdiction.
8) theory and basis of taxation
a) lifeblood theory - upon taxation depends the Governement's ability to serve the people for whose
benefit taxes are collected. To safeguard such interest, neglect or omission of governmental officials
entrusted with the collection of taxes should not be allowed to bring harm or detriment to the
people, in the same manner as private persons may be made to suffer individually on account of his
own negligence, the presumption being that they take good care of their personal affair. This should
not be true to government officials with respect to matters not of their own personal concern. (Atlas
Consolidated v. CIR)
i) note: basis for State's exemption from the operation of the principle of estoppel.
ii) taxes are the lifeblood of the nation through which the government agencies continue to
operate and with which the state effects its functions for the welfare of its constitutents. (CIR v.
CTA)
b) necessity theory - Power to tax is an attribute of sovereignty emanating from necessity. (Phil.
Guaranty Co. v. CIR, 1965).
c) benefits-protection theory (symbiotic theory) - taxes are paid in exchange of benefits and protection
that the citizens get from the government. (CIR v. Algue, 1988)
i) taxes are hat we pay for civilized society. Without taxes, the government would be paralyzed for
lack of the motive power to activate and operate it. Hence, every person who is able must
contribute his share in the burden of running the government. The government, for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their material and moral values.
d) jurisdiction over subject and objects
9) Doctrines in taxation
a) prospectivity of tax laws
i) general rule: tax laws, administrative issuances are prospective in application
ii) except: NIRC 246
(1) TP deliberately misstates or omits material facts from his return or any document required
of him by the BIR.
(2) Where the facts subsequently gathered by the BIR are materially different from the facts on
which the ruling is based.
 (3) where the TP acted in bad faith.
iii) ie. Old CIR made ruling in 1994 that tax law is not applicable to X corporation + New CIR made
ruling in 2000 saying that X corporation is covered = tax liability is only from 2000 onwards.
(1) note: in this example, Old CIR's interpretation is in confirmity with the law
iv) ie. Law provides for 2 year prescriptive period for tax refund. Old CIR made RMC saying that 2
year prescriptive period for tax refund is not applicable, and instead applied NCC's 6 year
prescriptive period + New CIR refused the tax refund and declared that the 2 year prescriptive
period is applicable = 2 years prescriptive period is correct.
v) note: Old CIR's RMC is not in conformity with the law.
vi) Void administrative circular produces no effect and the Government cannot be bound by
mistakes made by its agents. (Doctrine of non-estoppel)
b) imprescriptibility
i) collection of taxes does not prescribe.
(1) except: law provides
(2) basis: life-blood theory
ii) note: IAET does not prescribe, because there is no reckoning period
c) double taxation
i) strict sense
(1) taxing the same property twice when it should be taxed only once. Taxing the same person
twice by the same jurisdiction for the same thing (CIR v. Bank of Commerce)
(2) taxing thesame thing or activity twice during the same tax period (Villanueva v. City of Iloilo)
(3) when a person is a resident of a contracting state and derives income from, or owns capital
in, the other contracting state, and both states impose tax on the income or capital.
ii) broad sense
iii)
iv) constitutionality of double taxation
(1) Not expressly forbidden by the Consitution, but the Court has recognized it as obnoxious,
where the taxpayer is taxed twice for the benefit of the same governmental entity or by the
same jurisdiction for the same purpose. (Abakada Guro Party List v. Ermita)
(2) Direct duplicate taxation (violation of due process):
(a) same subject matter
(b) same purpose
(c) same taxing authority
(d) within the same taxing jurisdiction
(e) for the same taxing periods
(f) of the same kind or character
(g) note: even if different rates
(3) case: ordinance imposing business tax on manufactuers pursuant to LGC + taxes on business
that are subject to excise tax, VAT or percentage tax under NIRC. Held: direct duplicate
taxation. Ordinance invalid. (Coca-Cola Bottlers v. City of Manila)
v) modes of eliminating double taxation
(1) tax treaties to eliminate international juridical double taxation
vi) international juridical double taxation - the imposition of comparable taxes in 2/more states on
the same taxpayer in respect of the same subject matter and for identical periods.
d) escape from taxation
i) shifting of tax burden
(1) fundamental priciple of taxation: taxes are personal in nature. Shifting of tax burden does
not contravene such principle. In indirect taxation, the person upon whom the tax is
imposed is the statutory taxpayer (one liable to pay the tax to the government). While the
economic burden of the tax may be shifted to another person, this does not change the
 requirement of law that the statutory tax payer should be responsible for the payment of
the tax to the government.
(2) ways of shifting the tax burden
(a) forward shift: seller passes the burden to the consumer
(b) backward shift: when seller passes the burden to its supplier
(3) taxes that can be shifted
(4) meaning of impact and incidence of taxation
ii) tax avoidance
(1) legal means used by TP to reduce taxes (Benny v. CIR)
(2) A taxpayer has the legal right to decrease the amount of what otherwise would be his taes
or altogether avoid them by means which the law permits. A man may perform an act that
he honestly believes to be sufficient to exempt him from taxes. He does not incur fraud
thereby even if the act is thereafter found to be insufficient. (Court Holding Co. v. CIR)
(3) ie. Corporation engaged in lease of real properties, bought a property worth P1M and sold
the same for P201M.
(a) no CPG (not capital asset)
(b) no VAT (not importation, sale, barter, lease in ordinary course of business)
(c) income tax of 30% imposed
(d) To avoid 30% tax, why not sell the corporation instead? 5% first 100k + 10% in excess.
iii) tax evasion
(1) illegal means
(2) fraud through the use of pretenses and forbidden devices to lessen or defeat taxes
(3) mere underdeclaration is not tantamount to tax evasion. There must be willful intent to
evade taxes.
(4) intention to minimize taxes, when used in the context of fraud, must be proven by clear and
convincing evidence amounting to more than mere preponderance. (Yutivo Sons Hardware
v. CTA)
(5) 3 factors: (CIR v. Estate of Toda, 2004)
(a) the end to be acheived (payment of less than that known by TP to be legally due, or
non-payment)
(b) accompanying state of mind which is described as being evil, in bad faith, willful, or
deliverate and not accidental
(c) a course of action or failure of action which is unlawful
(6) prior assessment not necessary before a TP may be charged with tax evasion. A criminal
complaint is instituted not to demand payment, but to penalize the taxpayer for violation of
the Tax Code. (Ungab v. Cusi)
e) exemption from tax
i) meaning of exemption from taxation
ii) nature of tax exemption
iii) kinds of tax exemption
(1) express
(2) implied
(3) contractual
iv) rationale/grounds for exemption
v) revocation of tax exemption
f) compensation and set-off
i) Principle: taxes should not be the subject of set-off.
ii) Taxpayer who has pending claims for VAT input credit or refund cannot set-off said claims
against his other tax liabilities. Set-off is liable only if both obligations are liquidated and
demandable. Liquidated debts are those were the exact amounts have already been determined.
 claim of taxpayer for tax refund is still pending and the amount is still to be determined. (Philex
Mining v. CIR, 1998)
iii) It is only when the tax assessment and the claim of the taxpayer for refund had been fully
adjudged thereby resulting to both as due, demandable and fully liquidated that set-off or
compensation may be allowed. (Domingo v. Garlitos)
iv) NIRC 76: Allows a corporate taxpayer to credit it excessive quarterly income tax payments
against the income tax liabilities of the corporation for the succeeding quarters of the next
taxable years. (Note: this rule is not in violation of the principle that taxes should not be subject
of set-off)
(1) basis: NIRC76: refund/tax credit of over-payment arising out of excessive payment of
quarterly taxes.
g) compromise
h) tax amnesty
i) defintion
ii) distinguished from tax exemption
i) construction and interpretation of tax laws
i) general rule: ambiguities in tax laws are to be resolved against the government. Tax laws are
considered as burdens, and these burdens are never presumed.
ii) exception
(1) Taxation is the rule and exemption is the exception.
j) tax exemption and excluion
i) general rule: strictly construed against the tax payer and liberally in favor of the taxing authority
(1) it is the taxpayer's duty to justify the exemption by words too plain to be mistaken and too
categorical to be misinterpreted (RCPI v. Provincial Assessor of South Cotabato)
(2) basis: to minimize differential treatment and foster impartiality, fairness and equality of
treatment among taxpayers (QC v. ABS-CBN)
ii) exception: (rule on strictissimi juris construction of tax exemptions does not apply)
(1) when the statute granting the exemption expressly provides for a liberal interpretation
(2) when the exempting law refers to special taxes relating to special cases and affecting special
classes of persons
(3) when the exemption is in favor of traditional exemptees such as religious and charitable
organizations
(4) when the exemption is granted in favor of the government, its political subdivisions or
instrumentalities
(5) when the exemption refers to public properties owned by the State or its political
subdivisions
(6) when the taxpayer falls within the purview of the exemption by clear legislative intent
iii) what if the tax law and the exemption to tax are both ambiguous?
(1) first determine if TP is covered (strict construction against the government). If covered, then
TP to prove exeption (Strict construction against TP). (CIR v. Ateneo)
k) tax rules and regulations
i) general rule only
l) penal provisions of tax laws
m) non-retroactive application to tax payers
10) Taxpayer's suit v. citizen's suit (David v. Macapagal-Arroyo)
a) taxpayer's suit - plaintiff is affected by the expenditure of public funds
b) citizen's suit - plaintiff is but the mere instrument of the public concern
11) Scope and limitation of taxation
a) scope of taxation:
 i) the power of taxation is the most absolute of all powers of the goverment (Sison v., Ancheta). It
has the broadest scope of all the powers of government because in the absence of limitations, it
is considered as unlimited, plenry, comprehensive and supreme.
ii) however, the power of taxation should be exercised with caution to minimize injury to the
proprietary rights of the taxpayer. it must be exercised fairly, equally and uniformly. (Roxas v.
CTA)
b) inherent limitations (inferred from the very nature of taxation)
i) public purpose
(1) "public purpose" does not only pertain to those purposes which are traditionally viewed as
essentially government functions, such as building roads and delivery of basic services, but
also includes those purposes designed to promote social justice. (Planters Products v.
Fertiphil, 2008)
(2) If the purpose of the tax law is to raise revenue in favor of a private corporation, then it
violates the requirement that taxation should be exercised only for a public purpose. (PPI v.
Fertiphil Corp., 2008)
(3) test: at time tax law takes effect
(4) appropriation for construction of roads on lands belonging to a private person is not valid,
and donation to the government of the said land on subsequent date after the approval and
effectivity of the act for the purpose of giving a semblance of legality to the appropriation
does not cure the basic defect.
(5) By the mere fact that the direct benefit to some private individuals, does not necessarily
means that such law was enacted for private purpose. (ie. indirect benefit to the nation)
(6) Number of benefactors does not determine the purpose, so long as the law benefits the
whole nation/ public, directly or indirectly. (Public purpose = money spent for public
purpose)
ii) inherently legislative
(1) Origin of revenue appropriations bill must originate from HoR, but Senate may revise,
introduce new version, amend, adopt the same.
(2) Discrepancy/conflict of versions = Bicameral committee, then submit decision/version to
both houses for final approval
(3) What if with conflict, can Bi-cameral committee change areas with no conflict? Yes. It is
within the power of the Bicameral committee to introduce final changes. If both Houses
later adopt, then it is deemed accepted.
(4) It is only the legislature, unless limited by a provision of the Constitution, that has full power
to exempt any person or corporation or class of property from taxation, its power to exempt
being as broad as its power to tax. A mere Presidential Proclamation could not be a valid
basis for a claim of tax exemption. (John Hay Peoples v. Lim, 2003)
(5) Tax exemption cannot be implied as it must be categorically and unmistakably expressed.
(supra)
(6) Note: President can determine/introduce facts that would lead to the change of the tax rate
imposed by Congress, but the President cannot determine tax rate.
(a) ie. Congress cannot enact law imposing 12% to 15% rate, to which the President decides
at which fixed rate to impose.
(7) general rule - non-delegability of taxation
(8) exceptions:
(a) delegation to local governments
(i) not inherent
(ii) not just delegated, but directly vested and delegated by the Constitution
(iii) Congress may provide guidelines and limitations
(iv) LGU's power to tax = legislative in nature. (Local legislations)
 (b) delegation to the President
(i) tariff rates and import duties
(ii) purpose: immediate need for protection of local products
(c) delegation to administrative agencies
(i) purely administrative functions may be delegated.
(ii) ie. how to administer taxes.
(iii) local cheif executives (ie. Mayors) do not have the power to tax.
(9) note: without authorization/ allowed by the Constitution = cannot delegate.
(10) Congress cannot make revenue regions and entity which is the sole power to levy local
taxes. It would violate the Constitutional guarantee to the LGUs.
iii) territorial
(1) situs of taxation
(a) meaning: does not mean physicl territory, as long as there exist a nexus or relationship:
(i) place where the right is exercised
(ii) citizenship
(iii) residence
1. ie. poll tax = residence, not citizenship
(b) Test: can the State punish non-payment of taxes
(c) Philippine government cannot require tax withholding on the interest income earned by
a resident citizen from a bank deposit abroad. If it were to be allowed, it would in effect
require that the foreign bank be constituted as the withholding agent of the Philippine
government. It would violate the territoriality principle because a foreign taxpayer
which is outside the territorial jurisdiction of the country would then be subjected to
Philippine tax laws.
(d) note: terrritoriality principle is the reason why items sourced without the Philippines
cannot be subjected to Philippine withholding tax.
(e) @rights = citizenship, residence, place of exercise
(i) Fil + res = all
(ii) Fil + NR = within
(iii) Alien + Res = within
(f) situs of income tax
(i) from sources within the Philippines
(ii) from sources without the Philippines
1. The Philippine government may tax the income of a non-resident citizen from
without the Philippines. (Note: not presently exercised because non-resident
citizens are taxed only for income sourced from within the Philippines)
(iii) income partly within and partly without the Philippines
(g) situs of property taxes
(i) taxes on real property - where real property is located
(ii) taxes on personal property
(h) situs of excise tax
(i) estate tax
(ii) donors tax
(i) situs of business tax
(i) sale of real property
(ii) sale of personal property
(iii) VAT
iv) international comity
(1) Philippine government cannot require tax withholding on the salaries of Filipino employees
working in the American Embassy in the Philippines; because if it were to be allowed, it in
 effect would require that the American government be constituted as the withholding agent
of the Philippine government insofar as the taxes on the salaries of the Filipino employees
are concerned.
v) exemption of government entities, agencies, and instrumentalities
(1) To tax the Government, there must be a specific provision of law taxing the same.
(2) If the Government is exercising proprietary function = not exempted.
(3) Note: no prohibition of taxing the government entities
(a) ie. importing of goods = Government not exempted
(b) but in case of doubt, Government is exempted
(c) unlike normal taxpayer = presume liable
(4) GOCC does not enjoy automatic exemption from taxation. case: airport authority + GOCC =
not tax exempt (Mactan Cebu Airport Authority v. City of Cebu)
(5) Government instrumentality exercising regulatory function is exempt from taxes. case:
airport authority + instrumentality of the government = exempt from taxes. (Manila
International Airport Authority v. City of Paranaque, 2006)
(6) exemption from taxation does not extend to improvements on the public land. Warehouse
constructed on the reserved land by NDC should be assessed real estate tax as such
improvement does not appear to belong to the public. (NDC v. Cebu)
c) Constitutional limitations
i) provisions directly affecting taxation
(1) prohibition against imprisinment for non-payment of poll tax
(2) uniformity and equality of taxation
(3) grant by Congress of authority to the president to impose tariff rates
(4) prohibition against taxation of religious, charitable entities, and educational entities
(a) coverage: property (not insitution). The use determines w/n it is tax exempt or not
(b) note: refers only to real property taxes on properties that are actually, directly and
exclusively used for religious, charitable or educational purposes.
(c) Exclusively = possessed and enjoyed to the exclusion of others. If property is not
exclusively used for the exempted purposes, then it is subject to taxes.
(d) Illustrations:
(e) ABC leased his property to Church, who built a church thereon. Property = exempt from
taxes
(f) Roman Catholic Church ownes properties, which it leased to ABC. Church liable for
property taxes.
(g) portions of land occupied by the hospital and portions of the hospital used for its
patiens, whether paying or non-paying, are exempt from real property taxes. Charitable
institution does not lose its character as such and its exemption from taxes simply
because it derives income from paying patients, whether out-patient, or confined in the
hospital, or receives subsidies from the government, so long as the money received is
devoted or used altogether to the charitable object which it is intended to achieve; and
no money inures to the private benefit of the persons managing or operating the
institution. (Lung Center of the Phil. v. QC, 2004)
(h) Hospital organized for charity patients, but 40% of its beds are allotted for paying
patients. Revenues generated from the paying patients are being used to improve the
facilities of the hospital. Held: Exempt from real property tax; but subject to 10% income
tax (subject to predominance test)
(i) predominance test: income from its primary function is greater than its income from
unrelated trade, business or activity. (CIR v. St. Luke's, 2012)
(j) "test of charity" as a basis of grant of tax exemption: charity is a gift to an indefinite
number of persons which lessens the burden of the government. Charitable institutions
 provide for free goods and services to the public which would otherwise fall on the
shoulders of the government. Government forgoes taxes which should have been spent
to address public needs, because certain entities already assume a part of the burden.
Loss of taxes by the government is compensated by its relief from doing public works
which would have been funded by appropriations from the Treasury. (supra)
(k) case: hospital with P1.7B revenues from paying clients, spent P1.3B as expenses +
P218M for charity. Held: Services to paying patients are activities conducted for profit.
Income tax of 10% arising from its activities conducted for profit should be imposed.
(CIR v. St. Lukes)
(5) prohibition against taxation of non-stock, non-profit institutions
(a) Coverage: Revenues and Assets; and duties
(b) condition: ADE
(c) ie. Engineering school imported machineries used for training = exempted from taxes
and duties.
(d) Note: Regulatory fees are not covered by the exception.
(e) ie. Building permit fees = must still pay
(f) All revenues (even interest from money market placements) and assets of non-stock,
non-profit educational institution which are actually, directly and exclusively used for
educational purposes are exempt from taxation.
(g) note: non-stock and non-profit: no part of its profit should be distributed.
(h) "Educational institution" = one which provides heirartical level of training/ under
supervision of CHED.
(i) proprietary schools and educational institutions = Congress may determine.
(j) Predominance test:
(k) if school and allied activities predominates non-school related & other income =
preferrential tax treatment (10%)
(l) otherwise = same tax treatment as normal businesses (30% corporate tax)
(m) ie. School owns and operates canteen which earns profits used ADE for school related
expenses = not taxable.
(n) @ leased + lease payment used ADE for school taxes = not taxable
(o) Donation is exempt from taxation if actually, directly and exclusively used for
educational purposes, provided that not more than 30% of the donation is used by the
donee for administration purposes; and that donee, being a non-stock, non-profid
educational institution, is a qualified entity to receive an exempt donation subject to
the conditions prescribed by law.
(p) note: donations made to proprietary institutions = taxable
(q) note: there is no Constitutional freedom from taxation with regard religious institutions.
(r) but: NIRC 30E provides for such exemption
(s) ie. Church owns a mall, which earns income that the Church uses to finance its religious
activity.
(i) real property: Church not taxed, mall is taxed
(ii) Income tax: Church is taxed (30E), but Income of church from related undertaking =
exempt from income tax
(6) majority vote of Congress for grant of tax exemption
(a) note: passing of law for tax exemption: majority of ALL Congress (Senate & HoR)
(b) revocation of tax exemption: majority of quorum only
(7) prohibition on use of tax levied for special purpose
(8) president's veto power on appropriation, revenue, tariff bills
(9) non-impairment of jurisdiction of the Supreme Court
(10) Grant of power to the local government units to create its own sources of revenue
 (11) Flexible tariff clause
(12) exemption from real property taxes
(13) no appropriation or use of public money for religious purposes
ii) provisions indirectly affecting taxation
(1) due process
(a) Procedural DP: Rule: No law = no tax
(b) Substantive DP: tax cannot be arbitrary, whimsical and confiscatory (Sison v. Ancheta)
(c) When an administrative rule is merely interpretative in nature, its applicability needs
nothing further than its bare issuance, for it gives no real consequence more than what
the law itself has already prescribed. But when the administrative rule goes beyond
mere providing for means that can facilitate or render least cumbersome the
implementation of the law but substantially increases the burden of those governed, it
behooves the agency to accord at least to those directly affected a chance to be heard,
and thereafter to be duly informed, before the new issuance is given the force and
effect of law.
(d) case: law provides for 5% tax on gross receipts of lending investors. RMO applied the
provision to pawnshops without notice, hearing and publication. Held: RMO =
amendatory provisions applicable to pawnshops. CIR did not simply interpret the law,
considering that pawnshops were not specifically included in the basic provisions of the
law; hence notice, hearing and publication is required. (CIR v. Lhuiller Pawnshop, 2003)
(e) income tax is arbitrary and confiscatory if it taxes capital because capital is not income.
(f) taxing gross receipts, earnings or income of particular corporations is constitutional,
unless it interferes with the interstate commerce or violates the requirement as to
uniformity of taxation.
(g) MCIT is not a tax on capital. MCIT is imposed on gross income which is averred at by
deducting the capital spent by a corporation in the sale of its goods. There is no legal
objection to a broader tax base or taxable income by eliminating all deductible items
and at the same time reducing the applicable tax rate (CREBA v. Exec. Sec., 2010)
(h) 60% tax based on net income is not confiscatory (note: net income)
(i) @violation of due process clause, taxpayer may seek Court's power to nullify the law.
(2) equal protection
(a) equal protection clause means that no person or class of persons shall be deprived of
the same protection of laws enjoyed by other persons or other classes in the same place
in like circumstances.
(b) general rule: law cannot make classification
(c) unless: reasonable and natural classification for purposes of taxation. It suffices that the
laws operate equally and uniformly on all persons under similar circumstances or that all
persons must be treated in the same manner, the conditions not being different both in
the privileges conferred and the liabilities imposed (Sison v. Ancheta)
(d) valid classifications
(i) based on substantial differences
(ii) differences must be germane to the purpose of the law
(iii) must apply not only to present but also to future conditions
(iv) must apply equally to those who are similarly situated
(e) Commissioner of Customs issued CMO which provides for that tariff purposes, wheat
was classified according to: Importer/consignee, country of origin, and port of
discharge. Depending on these factors, wheat would be classified either as food grade
(3% tariff) or feed grade (7% tariff). Held: invalid classification. No connection between
the purpose of the law which is to determine the quality of wheat, with the standards
used (factors) (Commissioner of Customs v. Hypermix Feeds Corp., 2012)
 (f) note:
(i) "All ___ = subject to tax", even if only 1 company engages in such industry = valid
(ii) "(Specific company/ies) are subject to tax" = violative."
(3) religious freedom
(a) free exercise clause
(b) American Bible Society has been distributing and selling bibles in the Philippines at
prices a bit higher than their cost. City of Manila asked them to pay for sales tax. Held:
the selling of bibles at prices a bit higher than their cost does not mean that ABS was
engaged in the business or occupation of selling merchandise for profit. Ordinance
cannot be applied because it would impair the free exercise and enjoyment of ABS'
religious profession and worship as well as its rights of dissemination of religious beliefs.
(ABS v. City of Manila)
(c) non-establishment clause - no appropriation of public funds to promote a particular
religion
(d) exemption from taxation of properties actually, directly and exclusively used for
religious purposes
(4) non-impairment of obligations of contracts
(a) General rule: Tax exemptions are merely privilege granted.
(b) ie. law provides "all who invest in ___ industry + invest 10B will get 10 years tax holiday"
= tax exemption can be revoked at any time.
(c) franchises = privilege
(d) Exceptions: Government acting in its private capacity = contractual in nature, hence
exemption cannot be revoked at any time.
(e) ie. Bonds issued by the government to borrow money from the public = contractual in
nature.
(f) Contractual tax exemptions, in the real sense of the term and where the non-
impairment clause of the Constitution can rightly be invoked, are those agreed to by the
taxing authority in contracts, such as those contained in government bonds or
debentures, lawfully entered into by them under enabling laws in which the
government, acting in its private capacity, sheds to cloak of authority and waives its
governmental immunity. Tax exemptions of this kind may not be revoked without
impairing the obligations of contracts.
(g) Note: do not confusewith tax exemptions granted under franchises. Franchise partakes
the nature of a grant which is beyond the purview of the non-impairment clause of the
constitution. Franchise for the operation of a public utility shall be granted except under
the condition that such privilege shall be subject to amendment, alteration or repeal by
Congress as and when the common good so requires. (MERALCO v. Province of Laguna,
1999)
(h) legislative franchise granted to Smart contained the "in lieu of all taxes" provision,
provided it shall pay 3% franchise tax to the national government = can still be held
liable to pay local taxes. Absent the express provision on such exemption under the
franchise, ambiguity with regard tax exemptions are resolved against grant of
exemption. Contract Clause has never been thought as al imitation on the exercise of
the State's power of taxation save only where a tax exemption has been granted for a
valid consideration. (Smart v. City of Davao, 2008)
12) stages of taxation
a) levy
i) to impose taxes
ii) legislative in nature
iii) See Principles of sound tax system.
 iv) Note: if tax is levied for a definite purpose = money collected cannot be used for some other
purpose.
v) But: will go to the general funds of the Government if: Purpose had already been
achieved/abandoned
vi) If no definite purpose = go to general funds
b) assessment and collection
i) administrative
ii) Delegated to the BIR
c) payment
d) refund
13) definition, nature, and characteristics of taxes
14) requisites of a valid tax
15) tax as distinguished from other forms of exactions
a) tariff
b) toll
i) based on proprietorship/ ownership
ii) may be demanded by the government or by private individual.
iii) collected by private tollway operators as reimbursement for the costs and expenses incurred in
the construction, maintenance and operation of the tollways, and to ensure them a reasonable
margin of income.
iv) although toll fees are charged for the use of public facilities, they are not government exactions.
c) license fee
i) source: police power (vs. taxation)
ii) purpose: to regulate (vs. to raise revenue)
iii) amount should only be limited to the amount of regulation (vs. generall not limited)
iv) coverage: imposed on the right to exercise a privilege (vs. exercise of privilege, to persons and
property)
v) effect of failure to pay: makes the business/act illegal (vs. not necessarily make it illegal)
d) special assessment
i) imposed on land
ii) imposed only once
iii) based on benefit
e) debt
i) source: contractual
ii) non-imprisonment
iii) maner of extinguishment
16) kinds of taxes
a) as to object
i) personal, capitation, or poll tax
(1) imposed per head
(2) tax of a fixed amount imposed on persons residing within a specified territory, whether
citizens or not, without regard to their property/occupation/ business in which they may be
engaged.
ii) property tax
(1) imposed on ownership, possession, control of property
(2) imposed on properties, real or personal, in proportion to its value in accordance with some
other reasonable method of apportionment
iii) privilege tax
(1) (excise tax) imposed on privileges allowed by law/ performance of an act/ occupation (ie.
donation)
 (2) 2 kinds of excise: privilege and business (to allow certain goods/products)
b) as to burden or incidence
i) direct - imposed on person, tax cannot transfer the burden of payment of tax
ii) indirect - levied upon transactions/activities before the articles subject matter reach the
consumers to whom the burden of the tax may ultimately be charged or shifted.
c) as to tax rates
i) specific
(1) imposed on the basis of measurement of unit
(2) no valuation
(3) ie. per kilo, per ounce
ii) ad valorem
(1) based on value taxed
(2) requires the intervention of assessors/ appraisers to estimate the value of such property
before the amount due from each taxpayer can be determined
iii) mixed
d) as to purposes
i) general or fiscal
(1) solely for raising revenue
ii) special, regulatory or sumptuary
(1) also for the purpose of regulating
e) as to scope or authority to impose
i) national - internal revenue taxes
(1) imposed by national government
ii) local - real property tax, municipal tax
(1) imposed by local government
f) as to graduation
i) progressive - as tax base increases, tax rate proportionally increases
(1) note:Constitution provision on imposition of progressive system of taxation is merely
directive, not a judicially enforceable right.
ii) regressive - as tax base increases, tax rate decreases
iii) digressive - progressive rate stops at a certain point/ progression halts at a particular stage
iv) proportionate - whether tax base increases or decreases, tax rate remains constant