Taxation I: (General Principles)

TAXATION I
(GENERAL PRINCIPLES)
1
Income Taxation Remedies General Principles Transfer taxes
Real Property tax Tariff and customs Local government tax Others
2.00%
2.00%
3.00%
4.00%
4.00%
42.00%
16.00%
27.00%
8/11/17 Sample footer 2

Taxation is the act of levying the tax,
i.e., the process or means by which the
sovereign, through its law-making body,
raises income to defray the necessary
expenses of the government.
It is merely a way of apportioning the cost

of the government among those who in
some measures are privileged to enjoy its
benefits and, therefore, must bear its
burdens.
3
it is an inherent power of the sovereign
exercised through the legislature to
impose burdens upon subjects or objects
within its jurisdiction for the purpose of
raising revenues to carry out the
legitimate objects of the government.
- as a power, it refers to the inherent

power of the state to demand enforced
contributions for public purpose/s.
4
Nature of the States power to tax
INHERENT:
It is an attribute of sovereignty. Which
emanates from necessity upon which the
very existence of the government is
dependent. Without tax money, the
government would not be able to
undertake the purposes for which it was
organized thus, negating the need for its
existence.
Power to tax, does not require delegation
from the supreme law of the land.
Manifestations:
1. Imposition even in the absence of
constitutional grant empowering a
state to collect taxes.
2. States right to select objects and
subjects of taxation.
3. No injunction rule. As a general rule
courts should not issue injunctive writs
to enjoin collection of tax otherwise
this would restrict the amount of taxes
that may be collected to finance the
activities of the government.
LEGISLATIVE:
It is an exercise of the high prerogative of
sovereignty.
It involves the promulgation of rules.
Taxation is a set of rules,
-how much is the tax to be paid;
-who pays the tax
-to whom it should be paid
-when the tax should be paid
Manifestation:
Prohibition on improper delegation of the
legislative power to tax.
Extent of the legislative power to tax:
The power of taxation being legislative, all
its incidents are naturally within the control
of the legislature. Subject to constitutional
and inherent restrictions, the legislature
has discretion to determine the matters, to
wit:
1. The subject/object to be taxed;
2. The purpose or object of the tax so long
as it is a public purpose;
3. The amount or rate of the tax;
4. The manner, means and agencies of
collection of the tax.
Theory of Taxation
The theory of taxation is the lifeblood

doctrine.
Itupon the theory that the existence of

government is a necessity; that it cannot
continue without means to pay its
expenses; and that for these means, it
has a right to compel all its citizens and
property within its limits to contribute.
9
Life blood or necessity theory
The life blood theory constitutes the theory of taxation, which

provides that the existence of government is a necessity;
that government cannot continue without means to pay its
expenses; and that for these means it has a right to compel
its citizens and property within its limits to contribute.
In Commissioner v. Algue, the Supreme Court said that

taxes are the lifeblood of the government and should be
collected without unnecessary hindrance. They are what we
pay for a civilized society. Without taxes, the government
would be paralyzed for lack of motive power to activate and
operate it. 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
moral and material values.
10
Basis of the lifeblood theory of taxation
Acceptance that governmental existence is

a necessity.
a. Performance of governmental functions

redounds to the benefit of the populace in
general.
b. In view of the above, the government
could levy proportionate forced
contributions among the populace to
defray its expenditures.
11
- The theory behind the exercise of
the power to tax emanates from
necessity, without taxes,
government cannot fulfill its
mandate of promoting the general
welfare and well-being of the people.
(Commissioner of Internal Revenue v.
Bank of Philippine Islands, G.R. No. No.
134062, April 17, 2007; National Power
Corporation v. City of Cabanatuan, G.R. No.
149110, 9 April 2003, 401 SCRA 259, 269-270 )
12
Illustrations of lifeblood theory
1. Taxation is an unlimited and plenary power. (Tio vs.

Videogram Regulatory Board et al., 151 SCRA 213, FELS Energy, Inc. Vs.
The Province of Batangas, et al. G.R. No. 168557, February 6, 2007)
2. A valid tax may result in destruction of the taxpayers
property. ( CIR vs. Tokyo Shipping Co., Ltd. et al., 244 SCRA 33,
Pilipinas Shell Petroleum Corporation Corp. vs. CIR G.R. No. 172598,
December 21, 2007)
3. The presumption that tax laws are valid. (Coconut Oil
Refiners Association Inc., etc., et al., vs. Torres, etc., et al., G.R. No.
132527, July 29, 2005)
4. Right to collect taxes is imprescriptible (Kasamahan Realty
Development Corp. vs. CIR, CTA Case No. 6204, 16 February 2005)
5. Collection of taxes cannot be enjoined by injunction.
6.Taxes could not be the subject of compensation or set
off.
13
CJ Marshall said that, the power to
tax involves the power to destroy.
on the other hand, Justice Holmes
stated that the power to tax is not
the power to destroy while the court
sits.
Reconcile the statements.
14
Basis of Taxation
The basis of taxation is found in the

reciprocal duties of protection and support
between the State and its inhabitants. In
return for his contribution, the taxpayer
received benefits and protection from the
government. This is the so-called benefits
received principle.
Basis of taxation is also found on Jurisdiction

by the State over persons and property
within its territory.
15
Basis of taxation explains the
reason why a state may impose
taxes;
Theory of taxation explains why

there is a need to impose taxes.
16
Benefit-received principle
Thisprinciple serves as the basis of taxation and is

founded on the reciprocal duties of protection and support
between the State and its inhabitants. Also called
symbiotic relation between the State and its citizens.
In return for his contribution, the taxpayer receives the

general advantages and protection which the government
affords the taxpayer and his property. One is
compensation or consideration for the other; protection for
support and support for protection.
However, it does not mean that only those who are able to
and do pay taxes can enjoy the privileges and protection
given to a citizen by the government.
17
Infact, from the contribution received, the government renders
no special or commensurate benefit to any particular property or
person.
The only benefit to which the taxpayer is entitled is that derived

from the enjoyment of the privileges of living in an organized
society established and safeguarded by the devotion of taxes to
public purposes. (Gomez vs. Palomar, 25 SCRA 829, 29
October 1968) The government promises nothing to the
person taxed beyond what may be anticipated from an
administration of the laws for the general good.
Taxes are essential to the existence of the government. The

obligation to pay taxes rests not upon the privileges enjoyed by
or the protection afforded to the citizen by the government, but
upon the necessity of money for the support of the State. For
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. (Lorenzo v. Posadas, 64 Phil.
353)
18
Purposes of taxation
1. Primary purpose.
Revenue or fiscal taxes are imposed in order
to raise funds used to meet the legitimate
objectives of government. (CIR vs. Fortune Tobacco Corp.,
G.R. Nos. 167274-75, July 21, 2008)
2. Secondary purposes.
Sumptuary or regulatory purpose taxes are imposed
to promote the general welfare and to protect the
health, safety or morals of the inhabitants. It is in the
joint exercise of the power of taxation and police
power where regulatory taxes are collected. Taxation
may be made the implement of the states police
power. (Caltex Phils., Inc., vs COA, 208 SCRA 726, 8 May 1992, Osmena
vs. Orbos, 220 SCRA 703, Tio vs. VRB, 151 SCRA 208, Southern Cross
Cement Corporation vs. Cement Manufacturers Association of the Philippines,
et. Al., G.R. No. 158540, August 3, 2005)
19
Examples of taxes levied with a regulatory
purpose:
1. Motor vehicle registration fees are now

considered revenue or tax measures.
Consequently, entities enjoying tax exemptions
are also exempt from paying motor vehicle
registration fees (PAL vs. Edu, G.R. No. L-
41383, August 15, 1988)
2. The tax impost on videogram establishments is
not only regulatory but a revenue measure
because earnings of such establishments have
not been subject to tax depriving the
government of an additional source of income.
(Tio vs. VRB, 151 SCRA 208)
20
3. The Coconut Levy Funds under the Coconut
Investment Fund created under R.A. 6260; The
Coconut Consumers Stabilization Fund created
under P.D. 276, The Coconut Industry
Development Fund created under P.D. 582 and
the Coconut Industry Stabilization Fund created
under P.D. 1841, were all raised under the
States taxing and police powers. (Cocofed vs. PCGG,
178 SCRA 236, 252, Republic v. COCOFED, G.R. No. 147062-64,
December 14, 2001)
21
Compensatory purpose to implement social
justice provisions of the Constitution through the
progressive system of taxation, which would
result to equal distribution of wealth. (Southern
Cross Cement Corporation vs. Cement Manufacturers Association
of the Philippines, et. Al., G.R. No. 158540, August 3, 2005;
Batangas Power Corporation vs. Batangas City, et. Al., G.R. No.
152675)
To implement the power of eminent domain
(Commissioner of Internal Revenue vs. Central Luzon Drug
Corporation, G.R. No. 159647, April 16, 2005; M.E. Holding
Corporation vs. CA, et. Al., G.R. No. 160193, March 3, 2008)
22
Scope of Taxation:
Taxation is
Unlimited Far-reaching
Plenary Comprehensive
Supreme

Aspects of Taxation - Processes that are
included or embodied in the term taxation
1. Levying or imposition of the tax
which is a legislative act.
2. Collection of the tax levied which is

essentially administrative in character.
The first is taxation, strictly speaking,
while the second may be referred to as tax
administration. The two processes together
constitute the taxation system.
Three basic principles of a sound tax
system (Canons of Taxation)
1. Fiscal adequacy
- It means that the sources of revenue

should be sufficient to meet the demands of
public expenditures. [Chavez v. Ongpin, 06
June 1990, Abakada Guro Party List vs. Ermita, 01
September 2005]
2. Equality or theoretical justice

- It means that the tax burden should be
proportionate to the taxpayers ability to
pay. 8/11/17 Sample footer 25
This is the so-called ability to pay
principle.
- exemplified by the adoption of the
progressive tax system of taxation.
3. Administrative feasibility
- It means that tax laws should be
capable of convenient, just and effective
administration.

Limitations on the power to tax
- As a general rule, the power to tax is an

incident of sovereignty and is unlimited in its
range, acknowledging in its very nature no
limits, so that security against its abuse is to
be found only in the responsibility of the
legislature which imposes the tax on the
constituency who are to pay it.
Nevertheless, effective limitations thereon
may be imposed by the people through their
Constitutions (Mactan Cebu International Airport
Authority vs. Marcos, 11 September 1996)

Purpose for the limitations.
-serve as safeguards
-serve as standards
While the power does not emanate from a

grant, as the same is necessarily inherent
upon the existence of the state, exercise
of the power is subject to those limitations
inherent upon it and those expressly
provided for by the Constitution as
follows:

Inherent limitations -
These limitations are those limitations that

emanates from the very nature of the
power of taxation. They are very basic and
are built-in with the power. Some may be
similar to the constitutional limitation but
the constitutional limitation seems to be
supreme as they are the most specific,
thus, specifically intended to rule the
application or exercise of the power of
taxation.

1. Levy for public purpose. The revenues collected
from taxation should be devoted to a public purpose.
Principles to consider:
- utilized for the benefit of the community in general
-inequalities infringe no constitutional limitation
-individual taxpayer need not derive direct benefits
from the tax
-tax imposed not so much for revenue purposes
-not used for purely private purposes
-benefit derive by private individuals is merely
incidental
-determined at the time of enactment of tax law
-public use=public interest, public benefit, public
welfare (Republic v. COCOFED, G.R. No. 147062-64, December 14, 2001, 372 SCRA 462,
482-84; Republic vs. Cocofed, G.R. Nos. 177857-58, January 24, 2012)

Requisites for taxpayers, concerned citizens,
voters or legislators to have locus standi to
sue:
1. In general, it should involve constitutional

issues. (David, et. Al. v. Pres. Gloria Macapagal-
Arroyo, G.R. No. 171396, May 3, 2006)
2. For taxpayers, there must be a showing that:
tax money is being extracted and spent in

violation of specific constitutional protections
against abuses of legislative power.

Public money is being deflected to any improper
purpose (Pascual v. Sec. of Public Works 110 Phil.
33) or a claim of illegal disbursement of public funds
or that the tax measure is unconstitutional.
There is wastage of public funds through the
enforcement of an invalid or unconstitutional law
(Abaya v Ebdane, G.R. 167919, 2/14/07)
A taxpayers suit is properly brought only when there
is an exercise of the spending power or taxing power
of Congress. (AIWA v. Romulo, G.R. No. 157509,
1/18/05)
X x x but also that he has sustained or is in
immediate, or imminent danger of sustaining some
direct injury as a result of its enforcement and not
merely that he suffers thereby in some indefinite
way. (Soriano III vs. Lista, G.R. No. 153881, 24
March 2003)
3. For voters, there must be showing of
obvious interest in the validity of the
election law in question.
4. For concerned citizens, there must be
showing that the issues raised are of
transcendental importance which must
be settled early.
5. For legislators, there must be a claim
that the official action complained of
infringes upon their prerogatives as
legislators.

2. Non-delegation of legislative power to
tax. To delegate is to pass on or to entrust to
another a certain duty or obligation. Power to
tax is lodged with the legislative department.
Likewise, this is premised on the legal maxim
delegate potestas, non delegari potest
which means, what has been delegated
cannot be re-delegated so as not to hamper
the objective of the delegation.
(Abakada Guro Party List, et. Al. vs. Ermita, et. Al. G.R.
No. 168056, September 1, 2005)

Exceptions to the rule on non-delegation:
1. Delegation of tariff powers, Sec. 28 (2), Article VI of
the Constitution;
2. Delegation of emergency powers, Sec. 23 (2) of
Article VI of the Constitution;
3. Delegation to the President to enter into executive
agreements, and to ratify treaties which may contain
tax exemption provisions subject to the concurrence
by the Senate in the ratification made by the
President;
4. Delegation to the people at large;
5. Delegation to administrative bodies (subordinate
legislation)
Requirement:
- complete
- sufficiently determinate standards
Power of LGUs to levy taxes, fees and other charges
pursuant to Article X, section 5 of the 1987 Constitution
(Batangas Power Corporation vs. Batangas City, et. Al. G.R. No. 152675 and companion case
April 28, 2004 citing National Power Corporation vs. City of Cabanatuan, G.R. No. 149110,
April 9, 2003)
Exercised no longer merely by virtue of a valid delegation as

before, but pursuant to direct authority conferred by the
Constitution
However, the basic doctrine on local taxation remains essentially
the same, the power to tax is (still) primarily vested in the
Congress. Sec. 5 does not change the doctrine that LGUs do not
possess inherent powers of taxation.
Must be for public purpose, uniform, not confiscatory, within the
jurisdiction of the LGU
Legal effect: it reversed the principle that doubts are resolved
against LGUs. Hence, in interpreting statutory provisions on
municipal fiscal powers, doubts will be resolved in favor of
municipal corps.
(Quezon City, et. Al. vs. ABS-CBN Broadcasting Corp, G.R. No. 166408, Oct. 6, 2008 citing
City of Government of Quezon City, et. Al. vs. Bayan Telecommunications, Inc. G.R. No.
162015, march 6, 2006, 484 SCRA 169 in turn referring to Mactan Cebu International Airport
Authority vs. Marcos G.R. No. 120082, September 11, 1996, 261 SCRA
8/11/17 Sample667,
footer680) 36
3. Territorial jurisdiction relates to the area of
jurisdiction and responsibility of a particular state.
Independent states power of taxation is generally
confined only within its jurisdiction to give due
respect and as courtesy to other states. A state,
as a rule, can only impose and implement tax
laws and rules within its jurisdiction in accordance
with its wishes. Outside its jurisdiction, it is
without power to do so. But then, it can tax on
citizens or entities of other states doing a trade or
business.
- laws cease to operate beyond a countrys

jurisdictional limits

4. Exemption of government entities.
Government is the people, by (not BUY) the people,
for (not POOR) the people. Government exists for
the people and whatever amount it makes, came
from the people and such amount it use to finance
its various activities to address the general welfare
of its inhabitants. It is not constituted to engage in
any trade or business but to deliver basic services
and serve everyone within. Analytically, taxing the
government itself will not generate more revenue.
The money will only rotate and so no effect, at all,
would be made. Suffice it to say however, there
exist no express prohibition

5. International comity has something to do
with the friendly interaction and participation
of different states. This adheres to some
amount of submission and compliance of
certain international rules and covenants for
mutual benefits and enjoyment of the states
and its inhabitants. Bilateral agreements,
conventions and international treaties fall
under this category.
- Principle of Sovereign Equality Among States

- Rule of par in parem non habet imperium (An
equal has no power over an equal.)

Constitutional Limitations are those
provided for in the constitution or implied
from its provisions.
1. General/ Indirect Constitutional

Limitations
2. Specific/Direct Constitutional
Limitations

GENERAL/INDIRECT:
1. Due Process
Should not be harsh, oppressive or
confiscatory.
By authority of a valid law.
Must be for public purpose.
Imposed within territorial jurisdiction.
No arbitrariness in assessment and
collection.
Right to notice and hearing.

2. Equal Protection
All persons subject to legislation shall be treated

alike under like circumstances and conditions,
both in the privileges conferred in liabilities
imposed. Persons and properties to be taxed
shall be group, and all the same class shall be
subject to the same rate and the tax shall be
administered impartially upon them. (Santos v. People,
G.R. No. 173176, 8/26/08)
It does not demand absolute equality.

(Tiu, et. Al. v. CA, G.R. No. 127410, 1/20/99)

Requisites for valid classification (it must
be reasonable, based on reasonable
foundation/rational basis and is not palpably
arbitrary ):
1. Based on substantial distinctions which

makes for real differences;
2. Germane to the purpose of the law
3. Not limited to existing conditions only;
4. Apply equally to each member of the class;
(ABAKADA Guro Party List v. Purisima, G.R. No. 166715, 8/14/08)

Tests to determine validity of
classification:
1. Traditional (or rational basis) test
- must prove that the classification is invidous ,wholly arbitrary or
capricious, otherwise the classification is presumed to be valid.
2. Strict scrutiny (or compelling interest)

test.
- government regulation that intentionally discriminates against a
suspect class is subject to strict scrutiny and considered to violate the
equal protection clause unless found necessary to promote a compelling
state interest.
3. Intermediate level of scrutiny (or quasi-

suspect class) test
- intentional discriminations against members of a quasi-suspect class
violate equal protection clause unless they are substantially related to
important government objectives. 8/11/17 Sample footer 44
Double Taxation the Constitution
does not prohibit double taxation.
In its general sense, it means taxing
the same subject matter or object twice
during the same taxing period. It does not
violate the Constitution. This is referred to
as indirect duplicate taxation.
Double taxation in its narrow sense

violates the equal protection clause of the
Constitution, hence unconstitutional. This
is referred to as direct duplicate taxation.
Elements of direct duplicate taxation:
a. Taxing the
1. same object or property twice,
2. by the same taxing authority,
3. for the same taxing purpose,
4. within the same tax period.
b. Taxing all the objects or property for
the first time without taxing all of them
for the second time.
(CIR vs. Solidbank Corp., G.R. No. 148191, 25 November 2003 and CIR vs.
Bank of Commerce, G.R. No. 149636, 8 June 2005.)

Methods of reducing rigors of double
taxation:
1. Tax treaties
2. Tax credits
3. Tax deductions
4. Provide for exemption
(CIR vs. S.C. Johnson and Son, Inc., et.al., G.R. No. 127105, 25 June 1999.)

3. Prohibition against infringement of
religious freedom Sec 5, Art III, it has
been said that the constitutional guarantee
of the free exercise and enjoyment of
religious profession and worship, which
carries the right to disseminate religious
belief and information, is violated by the
imposition of a license fee on the
distribution and sale of bibles and other
religious literatures not for profit by a non-
stock, non-profit religious corporation.
American Bible Society v. City of Manila, 101 Phil. 386 (1957)

4. Freedom of Press/expression -
a tax that operates as a prior restraint is

invalid.
5. No taking of private property

without just compensation
6. Presidential power to grant

reprieves, commutations and pardons
and remittal of fines and forfeiture
after conviction by final judgment
7. Non-impairment clause-
IF a tax exemption granted by law and of the

nature of a contract between the taxpayer and
the government is revoked by a later taxing
law, the said law shall not be valid, because it
will impair the obligation of contract.
(Manila Electric Co., vs. Province of Laguna, G.R. No. 131359, 5 May 1999, City
Government of San Pablo Laguna vs. Reyes, G.R. No. 127708, 25 March 1999,
NPC vs. City of Cabanatuan-2003, and PLDT vs. City of Davao, G.R. No. 143867,
22 August 2001.)
8. Law-making process

SPECIFIC/DIRECT:
1. Non-imprisonment for non-payment

of poll tax [Section 10, Article III,
Constitution]-
A person cannot be imprisoned for non-

payment of community tax, but may be
imprisoned for other violations of the
community tax law, such as falsification of
the community tax certificate, or for
failure to pay other taxes.
2. Taxation shall be uniform and equitable
[Section 28 (c), Article VI]
3. Congress shall evolve a progressive system

of taxation [ Sec. 28(1), Art. VI]
Tolentino v. Secretary of Finance: Regressivity is

not a negative standard for courts to enforce. What
Congress is required by the Constitution to do is to
evolve a progressive system of taxation. This is a
directive to Congress, just like the directive to it to
give priority to the enactment of laws for the
enhancement of human dignity. The provisions are
put in the Constitution as moral incentives to
legislation, not as judicially enforceable rights.
A progressive system 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.
A regressive system of taxation exists when there are
more indirect taxes imposed than direct taxes.
Tax the rate of which decreases as the tax base or bracket
increases. There are no regressive taxes in the Philippine
jurisdiction.
Regressive tax rates should be differentiated from a
regressive system of taxation which exists when there are
more indirect taxes imposed than direct taxes.
4. All appropriation, revenue, and tariff bills shall

originate exclusively in the House of
Representatives, but the Senate may propose and
concur with amendments [Section 24, Article VI,
Constitution]
5. The President shall have the power to veto any
particular item/s in appropriation, revenue, or
tariff bill, but the veto shall not affect the item/s
to which he does not object [Section 27 (2) Article
VI, Constitution]
6. Delegated power of the President to impose tariff

rates, import and export quotas, tonnage and
wharfage dues
7. Tax exemption of charitable institutions,

churches, parsonages, or convents appurtenant
thereto, mosques and non-profit cemeteries and
all lands, building and improvements actually,
directly and exclusively used for charitable,
religious and educational purposes [Section 28 (3) ,
Article VI, Constitution]
8. No tax exemption without the concurrence of
majority vote of all members of Congress
[Section 28 (4), Article VI, Constitution]
9. No use of public money or property for

religious purposes except if priest is assigned
to the armed forces, penal institutions,
government orphanage or leprosarium [Section
29, Article VI, Constitution]
10. The Supreme Courts power to review

judgments or orders of lower courts in all cases
involving the legality of any tax, impose,
assessment or toll or the legality of any penalty
imposed in relation to the above [Section 5 (2)
(b), Article VIII, Constitution]
11. Authority of local government units to
create their own sources of revenue, to levy
taxes, fees and other charges subject to
guidelines and limitations imposed by
Congress consistent with the basic policy of
local autonomy
12. Automatic release of local governments

just share in national taxes
13. Tax exemption of all revenues and assets

of non-stock, non-profit educational
institutions used actually, directly, and
exclusively for educational purposes [Section
4, Article XIV, Constitution]
14. Tax exemption of all revenues and
assets of proprietary or cooperative
educational institutions subject to
limitations provided by law including
restrictions on dividends and provisions
of reinvestment of profits [Section 4 (3),
Article XIV, Constitution]
15. Tax exemption of grants,

endowments, donations or contributions
used actually, directly, and exclusively
for educational purposes subject to
conditions prescribed by law.
DISTINCTIONS:
TAXATION vs. POLICE POWER vs. EMINENT

DOMAIN
1) As to purpose:
Taxation for the support of the government
Eminent Domain- for public use
Police Power to promote general welfare,

public health, public morals, and public safety.

2) As to persons affected:
Taxation and Police Power operate upon a community

or a class of individuals
Eminent Domain operates on the individual property

owner.
3) As to authority which exercises the power:
Taxation and Police Power Exercised only by the

government or its political subdivisions.
Eminent Domain may be exercised by public services

corporation or public utilities if granted by law.

4) As to amount of imposition:
Taxation Generally no limit to the

amount of tax that may be imposed.
Police Power Limited to the cost of

regulation
Eminent Domain There is no imposition;

rather, it is the owner of the property
taken who is just paid compensation.

Concept and Nature of Taxes
Tax is defined as the lifeblood of the

government.
It is defined as an enforced proportional
contribution levied by the law making
body of the state to raise revenue to
support the indispensable and all the
necessary expenses of the government.
The agency authorized to administer taxes
the Bureau of Internal Revenue (BIR).
8/11/17 61
Taxes are the lifeblood of the government
and their prompt and certain availability
are an imperious need (Commissioner vs.
Pineda 21 SCRA 105). A government
cannot continue to exist and operate
without financial means. This inherent
power gives the government the right to
tax citizens and properties within its
jurisdiction.
8/11/17 62
Essential elements/Characteristics of
tax -
Enforced as it involves the mandate of the

law so that its imposition is mandatory to
those covered by it. Unreasonable
deviation from the mandate is subject to
penalties imposable to an organized society
which gives due respect to each and every
humanly right. This implies that the
sanction, nevertheless, undergoes a due
process.

Proportional as theoretically, tax is
proportioned upon a taxpayers ability to
pay. This goes to show that the cost of
the entire governance in the state is being
apportioned among the inhabitants
through a certain rule of apportionment
being put into play.
Generally payable in money
Levied on persons, property or
exercise of a right or privilege
Levied by the state having
jurisdiction
Levied by the legislature
Raise revenue goes with the very heart of
taxation, to earn income for the government.
Secondary however to this primary purpose,
tax is being seconded to serve some other
concerns for the majority.
Support the expenses of the government is
related to public purpose of the imposition of
taxation. While the government is empowered
to collect from among its inhabitants by the
power of taxation, proceeds are bound to serve
the public needs and expenditure only.
Paid at regular periods/intervals

Requisites of a valid tax:
1. It should be within the jurisdiction of the

taxing authority.
2. Assessment and collection of certain
kinds should be for public purpose.
3. Rule of taxation should be uniform.
4. it must not impinge on the inherent and
Constitutional limitations on the power of
taxation.

Classification of Taxes:
A. As to subject matter of object
1) personal, poll, capitation tax

(a) fixed amount
(b) individuals residing within
specified territory
(c) without regard to their property,
occupation or business
Ex. Community Tax (Cedula)

2) property tax
(a) imposed on property, real or personal
(b) in proportion to its value or other
reasonable method of apportionment
Ex. Real estate tax
3) excise, privilege tax -

(a) imposed upon performance of an act, the
enjoyment of a privilege or the engaging in
an occupation, profession or business
Ex. Income tax, VAT, estate tax, donors
tax

B. As to who bears the burden
1) Direct - the tax is imposed on the person who also

bears the burden thereof (CIR vs. PLDT Co., G.R. No. 140230,
December 15, 2005, Abakada Guro Party List vs. Ermita, et al., G.R. No. 168056,
September 1, 2005)
Ex. Income tax, community tax, estate tax
2) Indirect - imposed on the taxpayer who shifts the

burden of the tax to another. (CIR vs. American Express
International, Inc. (Philippine Branch), G.R. No. 152609, June 29, 2005, CIR vs.
Acesite Hotel Corp, G.R. No. 147295, February 16, 2007, Silkair PTE, Ltd., vs.
CIR, G.R. No. 173594, February 6, 2008, Phil. Acetylene vs. CIR, G.R. No. L-
19707, August 17, 1967, )
Ex. VAT, specific tax, percentage tax, customs duties

C. As to determination of amount
1) Specific - tax imposed and based on a physical

unit of measurement, as by head, number, weight,
length or volume
Ex. Tax on distilled spirits, fermented liquors,
cigars
2) Ad Valorem - tax of a fixed proportion of the

value of property with respect to which the
tax is assessed; requires intervention of assessor.
Ex. Real estate tax, excise tax on cars,
nonessential
goods

D. As to purpose
1) General, fiscal or revenue - imposed for the

general purpose of supporting the government
Ex. Income tax, percentage tax
2) Special or regulatory - imposed for a

special purpose, to achieve some social or
economic objectives
Ex. Protective tariffs or customs duties on
imported goods intended to protect local
industries

E. As to authority imposing the tax
1) National - imposed by the national

government
Ex. National internal revenue taxes,
custom duties
2) Municipal or local - imposed by the

municipal corporations or local
governments
Ex. Real estate tax, occupation tax

F. As to graduation of rate (Three systems of
taxation)
1) Proportional - based on a fixed percentage of the

amount of the property, income or other basis to be
taxed
Ex. Real estate tax, VAT, percentage tax
2) Progressive or graduated - tax rate increases as

the tax base or bracket increases
Ex. Income tax, estate tax, donors tax
3) Regressive - tax rate decreases as the tax base

increases

TAX DISTINGUISHED FROM LICENSE FEE:
a) PURPOSE: Tax imposed for revenue WHILE

license fee for regulation. Tax for general
purposes WHILE license fee for regulatory
purposes only.
b) BASIS: Tax imposed under power of taxation

WHILE license fee under police power.
c) AMOUNT: In taxation, no limit as to amount

WHILE license fee limited to cost of the license
and expenses of police surveillance and
regulation.
d) TIME OF PAYMENT: Taxes normally paid
after commencement of business WHILE
license fee before.
e) EFFECT OF PAYMENT: Failure to pay a tax

does not make the business illegal WHILE
failure to pay license fee makes 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.

TAXES DISTINGUISHED FROM OTHER IMPOSITIONS:
Special assessment v. tax
1. A special assessment tax is an enforced proportional

contribution from owners of lands especially benefited by public
improvements
2. A special assessment is levied only on land.
3. A special assessment is not a personal liability of the person

assessed; it is limited to the land.
4. A special assessment is based wholly on benefits, not necessity.
5. A special assessment is exceptional both as to time and place; a

tax has general application.

Toll v. tax
1. Toll is a sum of money for the use of something. It is

the consideration which is paid for the use of a road,
bridge, or the like, 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.
3. Toll is paid for the used of anothers property; tax is

paid for the support of government.

4. The 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.
5. Toll may be imposed by the government

or by private individuals or entities; tax
may be imposed only by the government.

Tax v. penalty
1. 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.
3. Penalty may be imposed by the government or by

private individuals or entities; taxes only by the
government.

Obligation to pay debt v. obligation to pay tax
1. A debt is generally based on contract, express or

implied, while a tax is based on laws.
2. A debt is assignable, while a tax cannot

generally be assigned.
3. A debt may be paid in kind, while a tax is

generally paid in money.
4. A debt may be the subject of set off or

compensation, a tax cannot.

5. A person cannot be imprisoned for non-
payment of tax, except poll tax.
6. A debt is governed by the ordinary periods

of prescription, while a tax is governed by the
special prescriptive periods provided for in the
NIRC.
7. A debt draws interest when it is so stipulated

or where there is default, while a tax does not
draw interest except only when delinquent.

Tax Exemptions and Tax Amnesty
Tax Exemption is a grant of immunity

expressed, implied, to a particular
person/s, corporations of a particular
class, from a tax upon property or an
excise tax which persons or corporations
generally within the same taxing districts
are obliged to pay.

The power to tax includes the power to
exempt which is essentially a legislative
prerogative. (Philippine Petroleum Corp. vs. Mun. of Pililia, Rizal,
198 SCRA 82)
Exemptions from taxation are looked upon
with disfavor and one who claims exemption
from tax must be able to justify his claim by
clearest grant of organic or statute law. (Western
Minolco Corp. vs. Internal Revenue, et al., 124 SCRA 121,131)
No tax exemption by implication.
The intention to exempt must be expressed in
clear and unmistakable language or must
appear by necessary implication from the
terms used.
Constitutional restriction on tax
exemptions:
No law granting any tax exemption shall

be passed without the concurrence of a
majority of all the members of Congress.
(No. 4, Sec. 28, Article VI, 1987 Consitution) (John Hay Peoples
Alternative Coalition, et al., vs. Lim, et al., G.R. No. 119775, October
24, 2003, Coconut Oil Refiners Association, Inc., at al., vs. Torres, et
al., G.R. No. 132527, Juiy 29, 2005)

Kinds of tax exemptions:
As to clarity
1. express; and
2. implied.
As to extent
1. total; and
2. partial.
As to intent
1. intentional; and
2. accidental or by omission.
As to source
1. Constitutional;
2. Statutory;
3. Treaty;
4. Contractual; and by
5. Licensing ordinance

Revocation of tax exemptions
- tax exemption is an act of liberality

which could be taken back by the
Government.
- Since taxation is the rule and
exemption thereform the exception,
the exemption may thus be
withdrawn at the pleasure of the
taxing authority. (Mactan Cebu International Airport
Authority vs. Marcos, et al., 261 SCRA 667)

Tax Amnesty is a general pardon or the
intentional overlooking by the State of its
authority to impose penalties on persons
otherwise guilty of violation of a tax law. - It
partakes of an absolute waiver by the
government of its right to collect what is due
it.
- A tax amnesty, much like a tax exemption, is
never favored nor presumed in law.
- The grant of a tax amnesty, similar to a tax
exemption, must be construed strictly against
the taxpayer and liberally in favor of the taxing
authority. (Philippine Banking Corp. vs CIR, G.R. No. 170574,
January 30, 2009)
Tax Amnesty Tax Exemption
- An immunity from - An immunity from
all criminal, civil, and civil liability only.
administrative
liabilities arising from
non-payment of
taxes. (Pp. vs. Castaneda, G.R.
No. L-46881, September 15, 1988)
- Applies only to past - Prospective

tax periods (retroactive application
application)

Interpretation of tax laws
Sources of tax law:
1. The Constitution
2. Existing Tax Laws of the Philippines
a. National Tax Laws (NIRC and Tariffs
and Customs Code)
b. Local Tax Laws (provisions of the LGC
on local ordinances imposing taxes.)
c. Miscellaneous Tax Laws

Nature of Tax Laws
1. Not political in character.

2. Civil in nature, not subject to ex
post facto law prohibition.
3. Not penal in character.
4. Not retroactive in its application.
Tax avoidance is the tax saving

device within the means sanctioned
by law.
Tax evasion a scheme used outside
of those lawful means and when
availed of, it usually subjects the
taxpayer to further or additional civil
or criminal liabilities. (CIR vs. The Estate of
Benigno P. Toda Jr., G.R. No. 147188, September 14, 2004)
Construction of tax laws
- no statutory construction needed if

law is clear. (Commissioner of Customs vs. Manila Electric
Company, 77 SCRA 469, Commissioner of Customs vs. Philippine
Phosphate Fertilizer Corp., G.R. No. 144440, Septermber 1, 2004 )

Generally, tax laws liberally interpreted in
favor of the taxpayer and strictly against the
government. (CIR vs. The Philippine American Accident Insurance Co.
Inc., et al., G.R. No. 141658, March 18, 2005, CIR vs. Acosta, etc., G.R. No.
154068, August 3, 2007, CIR vs. Fortune Tobacco Corp., G.R. Nos. 167274-75,
July 21, 2008)
In case of doubt, tax laws must be construed

strictly against the State and liberally in favor
of the taxpayer because taxes, as burdens
which must be endured by the taxpayer,
should not be presumed to go beyond what
the law expressly and clearly declares.
(Lincoln Philippine Life Insurance Company, Inc.,
etc., v. Court of Appeals, et al., 293 SCRA 92, 99)
Statutes granting tax exemptions are
construed strictissimi juris against the
taxpayer and liberally in favor of the
taxing authority. A claim of tax exemption
must be clearly shown and based on
language in law too plain to be mistaken.
Otherwise stated, taxation is the rule,
exemption is the exception. (Quezon City et al. vs.
ABS-CBN Broadcasting Corp G.R. No. 166408, October 6, 2008, Sea-Land
Service, Inc. vs. CA, G.R. No. 122605, April 30, 2001)
Taxes are necessary for the continued

existence of the State.
The burden of proof rests upon the party
claiming the exemption to prove that it is in
fact covered by the exemption so claimed.
(Quezon City, supra citing Agpalo, R.E., Statutory
Construction, 2003 ed., p. 301)
The basis for the rule on strict construction to

statutory provisions granting tax exemptions
or deductions is to minimize differential
treatment and foster impartiality, fairness
and equality of treatment among taxpayers.
(Quezon City, et al., v. ABS-CBN Broadcasting Corporation,
G. R. No. 166408, October 6, 2008)

NATIONAL INTERNAL REVENUE CODE
A. Organization and Function of the Bureau of Internal

Revenue (BIR)
1. Powers and Duties of the BIR
a. Assessment and Collection of National Internal

Revenue taxes, fees and charges;
b. Enforcement of all forfeitures, fines and penalties
connected therewith;
c. Execution of all judgments decided in BIRs favor
by CTA and ordinary courts;
d. Give effect to and administer the supervisory and
police powers conferred to it by the NIRC. (Sec.2)
2. Officials of the BIR
1 chief Commissioner of Internal
Revenue (CIR)
4 assistant chiefs Deputy Commissioners
(Sec. 3)
(Operations, Legal Enforcement, Information
Systems, Resource Management)
3. Powers of the Commissioner

a. Power to interpret tax law and decide
tax cases (Sec.4)

Kinds of rule-making power:
1. Rule-making by reason of particular delegation

of authority (subordinate legislation)
2. Rule-making by the construction and
interpretation of a statute being administered
(interpretative legislation)
3. Determination of facts under a delegated
power as to which a statute shall go into effect
(contingent legislation)
(CIR vs. CA, CTA, Fortune Tobacco Corp. 29

August 1996)

As part of the executive department, the
Bureau of Internal Revenue (BIR) is vested
with powers to collect and assess taxes. To
some extent, it also exercises quasi-judicial
and quasi-legislative functions. BIR has the
rule-making power to aid in the
implementation of tax laws. In exercising
theses functions, the Commissioner
recommends the promulgation of Revenue
Regulation (RRs) and issues tax rulings and
other revenue issuances such as RMCs,
RMOs, RAMOs, and RMRs, among other
things.
Revenue Regulation (RR) are issued by the Secretary of Finance,
upon the recommendation of the Commissioner. They prescribe or
define rules and regulations for the effective enforcement of the
provisions of the Tax Code and related statutes.
Revenue Memorandum Circulars (RMC) contain pertinent and
applicable portions, as well as amplification of laws, rule,
regulations and precedent s issued by the BIR and other
agencies/offices.
Revenue Memorandum Order (RMO) provide directives or
instructions, prescribe guidelines and outline processes, operations
activities, workflows, methods and procedures necessary in the
implementation of stated policies, objectives, plans, and programs
of the BIR in all areas of operations, except audit.
Revenue Memorandum Rulings (RMR) are rulings, opinions, and
interpretations of the Commissioner with respect to the provisions
of the Tax Code and other tax laws, as applied to a specific set of
facts, with or without established precedents, and which the
Commissioner may issue from time to time to inform taxpayers of
the tax consequences on specific situations.

Commissioner of Internal Revenue has
exclusive and original jurisdiction over
implementation and interpretation of the
Tax Code of 1997 and other tax laws.
However, the Secretary of Finance has the
power to affirm, revise, modify or set
aside rulings and issuances of the Bureau
of Internal Revenue (BIR) concerning such
implementation and application of the
provisions of the Tax Code of 1997 and
other tax laws.

Rulings of the BIR:
1. Rulings with established precedents - These

refer to mere reiteration of previous rulings,
opinions and interpretations of the
Commissioner, as delegated to duly
authorized internal revenue officers (i.e.,
Deputy Commissioner, Legal and Inspection
Group; Assistant Commissioner, Legal
Service; Regional Directors) that are issued
in response to a specific request for ruling
filed by a taxpayer with the Bureau of
Internal Revenue.

2. Rulings of First Impression - These refer
to the rulings, opinions and
interpretations of the Commissioner of
Internal Revenue with respect to the
provisions of the Tax Code and other tax
laws without established precedent, and
which are issued in response to a specific
request for ruling filed by a taxpayer
with the Bureau of Internal Revenue.
Provided, however, that the term shall
include reversal, modification or
revocation of any existing ruling.

Rulings of the BIR:
1. Rulings with established precedents

- CIR issues
- valid unless revoked by the Secretary of Finance
2. Rulings of First Impression
- promulgated by the Secretary of Finance
- CIR only recommends
- not valid unless approved by the Secretary of Finance
General Rule:
Revenue rulings and regulations have no retroactive affect if
prejudicial to taxpayer.
Except:
-deliberate misstatement/omission by taxpayer
- facts gathered are materially different
- taxpayer acted in bad faith
(Sec. 246, NIRC as amended)

The exercise of such power under Section 4 of the
Tax Code of 1997, however, does not cover disputed
assessments, refunds of internal revenue taxes, fees
or other charges, and penalties imposed in relation
thereto, or other matters arising under the Tax Code
or other laws or portions thereof administered by the
BIR. In these instances, the Court of Tax Appeals has
the exclusive appellate jurisdiction.
Neither shall the power be exercised to apply to

rulings that are deemed void ab initio because they
contradict duly issued Revenue Regulations, Revenue
memorandum Orders, Revenue Memorandum
Rulings, and Revenue Memorandum Circulars.

b. Power to obtain information,
summon, examine and take testimony of
persons (Sec. 5)
General Rule: BIR adheres to the
Bank Secrecy Law
Exceptions: BIR is allowed to inquire into
the bank deposits of
i. a decedent to determine his gross
estate;
ii. a taxpayer who has filed an
application to compromise payment of tax
liability by reason of financial incapacity
c. Power to make assessments,
prescribe additional requirements for tax
administration and enforcement (Sec. 6)
d. Authority to delegate power

Read RDAO No. 3-2009 (15 May 2009)
e. Assignment of internal revenue

officers (Sec. 16 and 17)

Question: Is the CIR liable for damages
with respect to a ruling issued without
notice, which had adverse effects against
the taxpayer?
Case: Vinzons-Chato vs. Fortune Tobacco

Corp., G.R. No. 141309, 19 June 2007
and 23 December 2008

PHILIPPINE TAXES:
A. Internal Revenue taxes imposed under the NIRC.

1. Income tax
2. Transfer taxes
a) Estate tax
b) Donors tax
3. Percentage taxes
a) Value Added Tax
b) Other Percentage Taxes
4. Excise taxes
5. Documentary stamp tax
B. Local/ Municipal Taxes
C. Tariff and Customs Duties
D. Taxes / Tax Incentives under special laws

Taxation I: (General Principles)

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Taxation I: (General Principles)

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TAXATION I

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It is merely a way of apportioning the cost

- as a power, it refers to the inherent

The theory of taxation is the lifeblood

Itupon the theory that the existence of

The life blood theory constitutes the theory of taxation, which

In Commissioner v. Algue, the Supreme Court said that

Acceptance that governmental existence is

a. Performance of governmental functions

1. Taxation is an unlimited and plenary power. (Tio vs.

Reconcile the statements.

The basis of taxation is found in the

Basis of taxation is also found on Jurisdiction

Theory of taxation explains why

Thisprinciple serves as the basis of taxation and is

In return for his contribution, the taxpayer receives the

The only benefit to which the taxpayer is entitled is that derived

Taxes are essential to the existence of the government. The

1. Motor vehicle registration fees are now

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2. Collection of the tax levied which is

- It means that the sources of revenue

2. Equality or theoretical justice

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- As a general rule, the power to tax is an

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While the power does not emanate from a

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These limitations are those limitations that

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1. In general, it should involve constitutional

tax money is being extracted and spent in

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Exercised no longer merely by virtue of a valid delegation as

- laws cease to operate beyond a countrys

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- Principle of Sovereign Equality Among States

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1. General/ Indirect Constitutional

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All persons subject to legislation shall be treated

It does not demand absolute equality.

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1. Based on substantial distinctions which

(ABAKADA Guro Party List v. Purisima, G.R. No. 166715, 8/14/08)

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2. Strict scrutiny (or compelling interest)

3. Intermediate level of scrutiny (or quasi-

Double taxation in its narrow sense

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a tax that operates as a prior restraint is

5. No taking of private property

6. Presidential power to grant

IF a tax exemption granted by law and of the

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