Taxation I Midterm Reviewer under Atty.

Ibanez
Reference: Lim and Vitug, Acosta
CONCEPT, UNDERLYING BASIS AND PURPOSE
Concept:
Taxation is a mode by which governments make
exactions for revenue in order to support their
existence and carry out their legitimate purpose.
Taxation is the inherent power of the State to
demand enforced contributions upon its subjects
and objects within its territorial jurisdiction for
public purpose to support the govt.
Theory or Underlying Basis:
Governmental necessity, without it, govt can
neither exist or endure;
Taxes are the lifeblood of the govt and their
prompt and certain availability are an
imperious need. (CIR vs. Pineda, 21 scra
105)
Taxation is the indispensable and inevitable
price for civilized society (CIR vs. Algue, Inc.
L-28896)
Grant of protection and benefits by the
State to its citizens;
Without funds, the govt cannot continue to
pay its expenses, support itself and deliver
basic services to the people, because of this
it has a right to compel all its citizens,
residents and property within its limits to
contribute.
PURPOSE OF TAXATION
Revenues derived from taxes are intended to
finance the govt and its activities, and are
exempt from execution (Mun. of Makati vs.
CA 109 scra 206)
a) Primary- to raise or generate revenues and
to mobilize resources
b) Secondary or Regulatory
To regulate the conduct of business or
professions
To achieve economic and social
stability
To protect local industries
c) Compensatory
Reduces
inequalities
in
wealth
distribution
Key instrument of social control
Strengthens anemic enterprises
Provides incentives

Check inflation
a) Benefit-Received Theory- The govt and the
people have the reciprocal duties of support
and protection.
b) Lifeblood Doctrine- Taxes are the lifeblood
of the govt without which it can neither exist
nor endure.
Principles of a Sound Tax System
1. Fiscal adequacy- the proceeds of the tax
revenue should coincide and approximate
the needs of the govt expenditures.
2. Theoretical Justice- tax system be fair to the
average taxpayer and based on his ability to
pay.
3. Administrative Feasibility- tax system should
be capable of being properly and efficiently
administered by the govt with the least
inconvenience with the taxpayer.
Sec. 28, Art. VI, Philippine Constitution:
(1) The rule of taxation shall be uniform and
equitable. The Congress shall evolve a
progressive system of taxation.
(2) The Congress may, by law, authorize the
President to fix within the specified limits,
and subject to such limitations and
restrictions as it may impose, tariff rates,
import and export q quotas, tonnage and
wharfage dues, and other duties or imposts
within the framework of the national
development program of the govt.
(3) Charitable
institutions,
churches
and
parsonages or convents appurtenant thereto,
mosques, 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.
(4) No law granting any tax exemption shall be
passed without the concurrence of a majority
of all the Members of the Congress.
SCOPE AND LIMITATION OF TAXATION
Inherent Limitations
1. For public purpose
Support of the state
For recognized objects of the govt or
directly to promote welfare of the
community.
Pascual vs. Sec of Public Works SC held
that legislature is without the power to

2.

appropriate public revenues for anything

other than public purpose.
Lutz vs. Araneta- taxation may be used to
implement an object of police power, being a
legitimate aim of govt.
Gomez vs. Palomar- tax proceeds for the
support of public educational system
City of Baguio vs. Dela Rosa- tax proceeds
for granting assistance to the Boys and Girls
Scouts
Valentin tio vs. Videogram Regulatory BoardIt is beyon serious question that a tax does
not cease to be valid merely because it
regulates, discourages or deters activities
taxed. The power to impose taxes is one so
unlimited in force and so searching in extent,
that the courts scarcely venture to declare
that it is subject to any restrictions whatever,
except such as rest in the discretion of the
authority which exercises it.
Inherently legislative
Luzon Stevedoring vs. CTA- Along with
police power (for public good or welfare)
and eminent domain (for public use),
taxation (for revenue) is an inherent
power of the sovereignty.
NPC vs. Province of Albay- Legislative in
character and legislative in prerogative
Lozano vs. Energy Regulatory Board- the
court sanctioned an imposition by the
Board of an amount of petroleum
products to augment the Oil Price
Stabilization Fund under P.D. 1956 as not
being an act of taxation.
Petro vs. Pililla- The legislative taxing
power includes the authority:
To determine the nature (kind)
Object (purpose)
Extent (amount or rate)
Coverage (subjects and objects)
Situs (place) of tax imposition
Maceda vs. ERB- Justice Paras dissented
and considered it a tax imposition which
congress can validly impose
Victorias Milling vs. PPA- the court held
that imposition of 10% on earnings of
arrastre and stevedoring operators was
more of a contractual compensation for
the use of port facilities than a tax that
can thus be made by the ports authority.

Delegatory Power of Taxation

a) Legislative body of the govt
b) To local government units

c) President
LGU and President exercises power of
delegation- a delegated power cannot be
further delegated (DELEGATA POTESTAS NON
POTEST DELEGARI)
3. Subject to international comity or treaty
A state must recognize the generally
accepted principles of sovereign
among
states and of their freedom from suit without
their consent, that limit the authority of a
govt to effectively impose taxes on a
sovereign state and its instrumentalities, as
well as on its property held, and activities
undertaken, in that capacity. Even where one
enters the territory of another, there is an
implied understanding that the former does
not thereby submit itself to the authority and
jurisdiction of the latter.
Pepsi-Cola vs. Municipality of Tanauan- SC
has adopted the position that a violation
thereof would contravene the general clause
on due process, and any tax thereby levied
shall amount to the taking of property
without due process of law may not be
passed over under the guise of the taxing
powers, except when the taking of the
property is in the lawful exercise of the
taxing power, as when the tax is
1. For public purpose
2. Observance of uniformity rule
3. Person or property taxed is within
the jurisdiction of the taxing
authority
4. Assessment and collection of
certain kinds of taxes, notice and
opportunity for hearing is provided
4. Exaction is payable in money
5. Territorial
May be exercised only within the territorial
jurisdiction of the taxing authority.
Wells Fargo Bank vs. Union Trust; Meralco vs.
Yatco - In the selection of appropriate
criteria, the taxing authority is given wide
latitude; among the circumstances often
considered are the nature of the tax, the
extent of benefit that may be derived by the
tax payer and equity principles.
CIR vs. Marubeni- petitioner CIR cannot
collect because the contractors tax cannot
be imposed on the offshore portion of the
contract where the materials and equipment
were all manufactured or done in Japan for
lack of taxing power.

In fixing the tax situs:

Poll taxes- tax situs is the residence of the
taxpayer
Property taxes- where the property is
situated
Excise taxes- where privilege is exercised,
where taxpayer is a national of, where he
had his residence
Not absolute because its exercise is subject
to constitutional limitations and inherent
restrictions;
CONSTITUTIONAL LIMITATIONS
1. Observance of due process of law
Instances of violation of due process:
Tax being imposed amounts to
confiscation;
Tax law is in violation of requisite
public purpose;
Subject or object is outside the
territorial jurisdiction of the taxing
authority;
Taxpayer is not given an opportunity
to be heard;
Tax law is applied retroactively;
2. Equal protection of law- all persons subject
to legislation shall be treated alike;
3. Uniformity- all taxable articles of the same
class shall be taxed at the same rate;
Juan Luna Subdivision vs. Sarmiento- the
term uniformity requires that all subjects or
objects of taxation, similarly situated, are to
be treated alike or put on equal footing both
in privileges and liabilities.
City of Baguio vs. de Leon- equality and
uniformity in taxation means that all taxable
articles or kinds of property of the same
class shall be taxed at the same rate. A tax is
considered uniform when it operates with the
same force and effect in every place where
the subject may be found.
CIR vs. Lingayen Gulf Electric- When tax laws
applies equally well to all persons, firms, and
corporations placed in similar situation, there
is no infringement of the rule of equality.
Inequality which results in singling out one
particular class for taxation or exemption
infringes no constitutional limitation.
Pepsi Cola vs. City of Butuan- Classification is
permitted:
1. Standards used are not arbitrary
but reasonable and substantial;
2. Classification
is
germane
to
achieve the purpose of legislation;

4.
5.

3. Classification applies to both

present and future conditions,
other circumstances being equal;
4. If classification applies equally to
all those belonging to the same
class.
Eastern Theatrical Co. vs. Alfonso- SC held to
be absolutely without merit the contention
that an ordinance which impose taxes on
some places of amusement such as
cinematographs,
theaters,
vauderville
companies,
theatrical
shows,
boxing
exhibitions and other kinds of amusements
or places of amusements, but not on many
more kinds of amusements like race
tracks, cockpits, carabets, concert halls,
circuses, and other places of amusements is
against the equality and uniformity of the tax
imposition.
Basco vs. PAGCOR- Equality and uniformity in
taxation means that all taxable articles or
kinds of property of the same class shall be
taxed at the same rate.
Assoc. of Customs Brokers vs. Municipality of
Manila- There is no pretense that the
ordinance equally applies to motor vehicles
which come to Manila for a temporary stay
or for short errands, and it cannot be denied
that they contribute in no small degree to
the deterioration of the streets and public
highways. The fact that they are benefited
by their use corresponding burden. And yet
such is not the case. This is an inequality
which we find in the ordinance, and which
renders it offensive to the constitution.
Shell Co. vs. Vano- But the fact that only one
person is affected by a tax law or ordinance,
which is otherwise of general application,
does not render the law or ordinance invalid
as being discriminatory.
Philtrust vs. Yatco- where the differentiation
complained of conforms to the practical
dictates of justice and equity, it is not
discriminatory within the meaning of this
clause and is therefore uniform. There is
quite a similarity then to the standard of
equal protection for all that is required is that
the tax applies equally to all persons, firms,
and corporations placed in similar situation.
Progressive scheme of taxation- based on
the ability-to-pay principle
Non-imprisonment for non-payment of poll
taxes

6. Non-impairment of the obligation and

contract rule
7. Free-worship clause
8. Religious entities selling or distributing
religious literature is subject to VATregistration fee imposed on Non-VAT
enterprises
9. Exemption of religious, charitable or
educational entities, non-profit cemeteries,
churches and mosque from property taxes
10.Exemption from taxes and revenues and
assets on non-profit, non-stock educational
institutions including grants, endowments,
donations or contributions for educational
purposes.
Art XIV, Sec 4 (3)- All revenues and assets of
non-stock, non-profit educational institutions
used actually, directly, and exclusively for
educational purposes shall be exempt from
taxes and duties. Upon dissolution or
cessation of the corporate existence of such
institutions, their assets shall be disposed of
in the manner provided by law.
Proprietary educational institutions including
those cooperatively-owned, may likewise be
entitled to such exemptions subject to the
limitations provided by law including
restrictions on dividends and provisions for
reinvestment.
Secretary of Justice Opinion No. 130- The
exemption does not cover revenues derived
from, or assets used in, unrelated activities
or enterprise. Similar tax exemption benefits
may be extended to proprietary educational
institutions by law subject to such limitations
as it may provide.
11.Non-appropriation of public funds or property
for the benefit of any church, sect or system
of religion, etc.
Art VI, Sec 28 (3)- Charitable institutions,
churches,
parsonages
or
convents
appurtenant thereto, mosques and 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.
Hodges vs. Municipal Board of Iloilo- The tax
exemption covers property taxes only;
accordingly, a conveyance of such exempt
property can be subject to transfer taxes.
Apostolic Prefect vs. City Treasurer of BaguioSpecial levies or assessments, not being
taxes, are not covered by the exemption. The

LGC, however, extends the exemption to

special assessments.
Herrera vs. Q.C. Board of Assessment
Appeals- The term exclusively means
primarily, not solely. Thus, the admission of
pay patients does not detract from the
charitable character of a hospital, if all its
funds are devoted exclusively to the
maintenance of the institution as a public
charity.
Praire Du Chian Sanitarium vs. City of Praire
Du Chian- where rendering charity is its
primary object, and the funds derived from
payments made by patients able to pay are
devoted to the benevolent purposes of the
institution, the mere fact that a profit has
been made will not deprive the hospital of its
benevolent character.
Abra Valley College vs. Aquino- In exempting
from the real property tax a portion of the
school building which was being used for the
residence of the school director and his
family but subjecting to the tax another
portion thereof which was being leased to a
marketing firm for commercial purposes. The
1987 Constitution additionally requires that
the property actually and directly used
for religious, educational or charitable
purposes.
Roman Catholic Church vs. Hastings- The
issue of title or ownership is not relevant;
accordingly, a piece of real property that is
leased for a consideration by a religious
entity, which is then used by the latter
actually, directly, and exclusively for
religious, educational or charitable purposes
would be exempt from property taxes.
12.No money shall be paid out of the Treasury
except in pursuance of an appropriate made
by law.
13.Concurrence of a majority of ALL members of
the Congress for the passage of a law
granting tax exemption
Art VI, Sec 28 (4)- No law granting any tax
exemption shall be passed without the
concurrence of a majority of all the members
of the Congress.
Art VI, Sec 29 (3)- All money collected on any
tax levied for a special purpose shall be
treated as a special fund and paid out for
such purpose only. If 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 govt

 Gaston vs. Republic Planters Bank- The Court

ruled that the stabilization fees collected
by the State for the promotion of sugar
industry were in the nature of taxes and no
implied trust was created for the benefit of
sugar producers. Thus, the revenues derived
therefrom are to be treated as a special fund
to be administered for the purpose intended.
No part thereof may be used for the
exclusive benefit of any private person or
entity but for the benefit of the entire sugar
industry. Once the purpose is achieved, the
balance, if any remaining, is to be
transferred to the general funds of the govt.
14.Non-diversification of tax collections
15.Non-delegation of the power of taxation
Exceptions:
a) Power to tax delegated to the President
under flexibility clause and Tariff and
Customs Code
b) Delegated to the LGU under LGC
c) Matters involving expedient and effective
administration and implementations of
assessments and collection of taxes on
certain aspects of taxing process that are
not legislative in character
16.President shall have the power to veto any
particular item in an appropriation, revenue
or tariff, but veto shall not affect the items to
which no objection has been made. Art 6,
Sec 27 (2)
17.Non-impairment of the jurisdiction of the SC
to review tax cases
Art VII, Sec 5 (2)b- The Supreme Court
shall have the power to review, revise,
reverse, modify or affirm on appeal or
certiorari, as the law of the Rules of Court
may provide, final judgments and orders
of lower courts in all cases involving the
legality of any tax, impost, assessment,
or toll or any penalty imposed in relation
thereto.
18.Appropriations, revenue or tariff bills shall
originate exclusively in the House of
Representatives but the Senate may propose
or concur with amendments
Art. VI, Sec 28 (2)- The Congress may, by
law, authorize the President to fix within
specified limits, and subject to such
limitations and restrictions as it may impose,
tariff rates, import and export quotas,
tonnage and wharfage dues, and other
duties or imposts within the framework of
the national devt program of the govt.

19.Each LGU shall exercise the power to create

its own sources of revenue and shall have a
just share in the national taxes.
Art X, Sec 5- Each local govt unit shall have
the power to create its own resources 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. Such
taxes, fees and charges shall accrue
exclusively to the local governments.
Art X, Sec 6- Local government units shall
have a just share, as determined by law, in
the
national
taxes
which
shall
be
automatically released to them.
Provisions Indirectly Affecting Taxation
1. Police Power and Eminent Domain

Purpose

Taxatio
n
Levied
for
the
purpose
of raising
revenue;

Amount
of
Exaction

There is
no limit;

Benefit

No
special
or direct
benefit is
received;

Nonimpairm
ent
of
contracts
Transfer
of
property

The nonimpairm
ent rule
subsists;
Transfer
paid
becomes

Police
Power
Exercised
to
promote
public
welfare
through
regulatio
ns;
Limited to
cover the
cost
of
regulatio
n,
issuance
of
the
license or
surveillan
ce;
No direct
benefits
are
received;
damnum
absque
injuria
Contracts
may
be
impaired;

Eminent
Domain
Taking
of
private
property for
public use;

No
transfer
but only

Property is
taken
by
the
govt

No
exaction;
compensati
on is paid
by
the
govt;

Direct
benefit
results
in
the form of
just
compensati
on;
Contracts
may
be
impaired;

rights

part
of
the
public
fund;

Scope

Affects
all
persons,
property
and
excises;

restraint
on
the
exercise
of
property
rights
exist;
Affects all
persons,
property,
privileges
,
and
even
rights;

for
public
use
upon
payment of
just
compensati
on;
Necessity
of
the
public
for
private
property;

Similarities of three inherent powers of the govt

1. Sovereignty, resting upon necessity;
2. Inherent powers of the State;
3. Legislative in nature;
4. State interferes with private rights;
5. Exist independently of the Constitution;
6. Presupposes an equivalent compensation;
7. Public purpose;
8. Exercise of LGU may be limited by Natl
legislation;
Garces vs. Estenzo- church-state separation;
American Bible Society vs. City of ManilaThe constitutional guaranty of the free
exercise
and
enjoyment
of
religious
profession and worship carries with it the
right to disseminate religious information.
Any restraint of such right can only be
justified, like other restraint of such right can
only be justified, like other restraints of
freedom or expression, on the ground that
there is a clear and present danger of any
substantive evil which the State has the right
to prevent.
Grosjean vs. American Press Co.- It is one
thing to impose a tax on the income or
property of a preacher. It is quite another
thing to exact a tax from him for the
privilege of delivering a sermon.
Mandatory Character of Constitutional Provisions
When are provisions of revenue laws mandatory
and directory?
a) Mandatory- If they are intended for the
security of the citizens or to ensure equality
in taxation as to the nature and amount of
each persons tax. Acts done in violation of
such mandatory provisions are invalid.

b) Directory- If they are designed merely for the

information and direction of the tax officers
or to secure dispatch or methodical and
systematic modes of proceedings. Noncompliance with directory laws does not
render ineffective acts performed by tax
officials concerned.
Marcelino vs. Cruz- the established rule is
that constitutional provisions are to be
considered as mandatory unless by express
provision or by necessary implication, a
different intention is manifest. A directory
provision is merely intended for expediency
or convenience such that to have it enforced
may cause harm than by disregarding it.
ASPECTS OF TAXATION (phases, processes,
stages or steps)
1. Levy- which is the act of imposition by the
legislature such as by its enactment of the
law. Understood to include not only the
mandate on when and how the tax is
imposed, but also, whenever it may be
appropriate the grant of tax exemptions, tax
amnesties, or tax condonations.
CIR vs. Botelbo Shipping- Tax exemptions,
like tax impositions, are themselves subject
to due observance of the limitations of
taxation.
2. Assessment
and
Collectionact
of
administration and implementation of the
tax
law
by
executive
through
its
administrative agencies.
Assessment means notice and demand for
payment of tax liability, should not be
confused with assessment relative to real
property taxation, which refers to the listing
and valuation of taxable real property.
3. Payment- act of compliance by the taxpayer,
including such options, schemes or remedies
as may be legally open or available to him.
CLASSIFICATION OF TAXES
a) As to purpose
1. Fiscal (general or revenue)- they are
levied without a specific or predetermined purpose
2. Regulatory (special or sumptuary)- those
intended to achieve some social or
economic goals.
Calalang vs. Lorenzo- An imposition may
partake the nature of both a revenue
measure and a regulatory fee. In such a

case, the real intent and the primary and

substantial purpose of the law must be
inquired into from which it may be held to be
one of the other depending on the statutes
predominant objective.
PAL vs. Edu- The Court held that since the
fees imposed are mainly used for revenue
and only a fifth thereof is retained by the LTO
for regulation, the same should be
considered as taxes rather than license fees.
Villegas vs. Hsiu- Only the portion of a permit
fee in excess of the cost of regulation was
held to be a tax.
Esso Standard Eastern vs. CIR- A margin levy
on foreign exchange was held to be police
power measure to strengthen the countrys
international reserve rather than tax.
Lozano vs. Energy Regulatory Board- An
amount imposed by the Energy Regulatory
Board on petroleum products to augment the
resources of the Price Stabilization Fund
under P.D. 1956 was not considered, with
Justice Paras dissenting, as an act of
taxation.
b) As to subject matter
1) Personal (poll or capitation)- does not consider
the amount of property, occupation or business
of the taxpayer.
2) Property tax- taxes assessed on things or
property of a certain class.
3) Excise (privilege) tax- taxes on privilege,
occupation or business not falling within the
classification of poll or property taxes. Ex.
Internal revenue taxes, customs duties
c) As to incidence (Who pays the burden of
taxation?)
1. Direct tax- imposed on the person obliged
to pay the same and this burden cannot
be shifted or passed on to another.
Example: income tax
2. Indirect tax- Payment is demanded from a
person who is allowed to transfer the
burden of taxation to another. Example:
VAT
Maceda vs. Macaraig- A direct tax for which a
taxpayer is directly liable on the transaction
or business it engages it.
d) As to amount (Excise Tax)
1. Specific tax- fixed amount based on
volume, weights, or quantity of good as
measured by tools, instruments or
standards. Requires no assessment.
Tan vs. Mun. of Pagbilao- Taxes imposed per
head, unit or number, or by weight or

volume beyond a listing require no

assessment
beyond
a
listing
and
classification of the subjects or articles to be
taxed.
2. Ad Valorem Tax- Imposition is based on
the value of the property subject to tax.
Assessment is necessary.
e) As to rate
1. Proportion or flat rate- unitary of single
rate.
Ex. 12% VAT
2. Progressive or graduated tax- As tax base
grows the tax rate increases. Ex.
Individual income tax 5%-32%
3. Regressive tax- tax rate increases as the
tax base decreases
4. Degressive tax- increase in tax rate is not
proportionate to the increase in tax base
5. Mixed tax- at certain point it is
progressive, then regressive.
f) As to authority
1. National tax- taxes imposed by natl govt
2. Local tax- imposed by local govt
Meralco Securities vs. Central Board of
Assessment Appeals- The real property tax
under the then Property Tax Code is a
national tax since tax always been imposed
by the national govt and enforced through
out the Philippines.
DISTINGUISHED FROM CERTAIN EXACTIONS
TAX
LICENSE
Purpose
Revenue
Purposes
of
purposes
regulation
Source
of Taxing power of Police power of
power
the govt
the govt
Amount
No limit
Has
limit
based
on
necessity
to
carry
out
regulation
Subject
or Person,
Required
for
object
of properties,
commencemen
imposition
business,
t of business or
rights,
profession or to
interests,
exercise
a
privileges, acts right/privilege
and
transactions
Revocability
Nature
of Always
permanence
revocable
Scope

Power

to

tax

Does

not

Basis
of
computation

includes
the
power
to
license
Current data

Nature

Self-assessing

Limitation

Subject
to
constitutional,
Inherent
and
contractual
limitations

When
imposed
Exemption

Post-activity
imposition
Exemption from
tax does not
include
exemption from
regulatory fees

include
the
power to tax
Preceding
years quarters
data. If new
business, based
on
capitalization
Not
selfassessing
Not subject to
the
3
limitations
because it is an
exercise
of
police power to
guard
and
safeguard the
interest
and
welfare of the
public;
Pre-activity
imposition
Exemption from
regulatory fees
is not allowed.

Victorias Milling vs. PPA- An imposition by the

ports authority of 10% govt share on
earnings of arrastre and stevedoring
operators was held to be a contractual
compensation rather than tax.
Sambrano vs. CTA; Republic vs. Far East; CIR
vs. Prieto- For certain purposes, tax may be
considered debts, in the generic sense, such
as their (taxes) collection being enforceable
by court action in the application of certain
statutes of limitation and in the matter of
deductible items from gross income.
Factors that determine whether an imposition is a
tax or a license:
1. Amount of the imposition
2. Intent of the imposition
3. Effect of the imposition
Tax
Demand of sovereignty
Ones support for the

Toll
Demand
proprietorship
Compensation

of
for

the

govt
Imposed only by the
govt
Based on governmental
needs

Tax
Based on law
Not assignable
Non-payment
covers
imprisonment,
except
poll tax
Payable in money
Not subject to set-off
Does not earn interest,
except when delinquent
NIRC

use of somebody elses

property
Imposed by govt or by
private individuals
Determined by the cost
of
property
or
improvement thereon
Debt
Based on contract
Assignable
No imprisonment
non-payment

for

Payable in cash or kind

Subject to set-off
Draws interest when
stipulated or in default
Civil Code or Rules of
Court

When a tax is considered a debt?

a) When secured by a bond
b) When collection is enforced by court action
c) When tax is the subject of a compromise
agreement validly entered into between the
govt and the taxpayer
d) Interest on tax delinquency is considered as
interest on indebtedness.
Tax
Levied on business,
interests, transactions,
rights,
persons,
properties or privileges
May
be
made
a
personal
liability
of
person assessed

Based on necessity
with no hope for direct
or immediate benefit
Power to tax carries
with it right to levy
special assessment
Exemption does not
include exemption from
special assessments
Imposition of a charge
on all property, real
and personal in a

Special Assessment
Levied on land

Cannot be made the

personal liability of the
person
assessed,
because it is the land
that answers for the
liability
Based
wholly
on
benefits received

Exemption is qualified

Imposed by the natl or

local govt

prescribed area is a tax

and
not
an
assessment, although
the purpose is to make
local improvement on a
street or highway
Is
of
general
application

Exceptional
in
application
for
the
recovery of cost and/or
maintenance
of
improvement

INTERPRETATION AND CONTRUCTION OF TAX

STATUTES
CIR vs. Firemens Insurance Co.- the
primordial consideration is, every time, is the
legislative intent. But where doubts exists in
determining that intent, the doubt must be
resolved liberally in favor of taxpayers and
strictly against the taxing authority.
CIR vs. Central Vegetable Manufacturing- Tax
burdens are not to be imposed beyond what
the statute expressedly and clearly imports,
tax statutes being construed strictissimi juris
against the govt.
Floro Cement vs. Gorospe- The exemptions
(or equivalent provisions such as tax
amnesties) are not presumed.
Luzon Stevedoring vs. CTA; People vs.
Castaneda; CIR vs Mitsubishi; Republic vs
IAC; CIR vs Guerrero - The exemptions when
granted are strictly construed against the
grantee.
Manila Electric Co vs. Vera- such provisions
being highly disfavored and may almost be
said to be odious to the law. Thus, a
provision in a treaty (Mutual Defense
Agreement) between the United States and
the Philippines, stating that no tax of any
kind or description will be levied on any
material equipment or supplies which may
be purchased or otherwise acquired in
connection with a construction project, was
held not to exempt the oil used by private
contractors of that project in the operation of
their machines or other equipment in
pursuance of their contracts.
CIR vs. J. Kiener Co, Ltd- The exception
contained in the tax statute must be strictly
construed against the one claiming the
exemption because the law does not look
with favor on tax exemptions and that he

who would seek to be, thus, privileged must

justify it by words too plain to be mistaken
and too categorical to be misinterpreted.
Luzon Stevedoring vs. CTA- An exemption
from tax in the importation of engines and
spare parts to be used by passenger or cargo
vessels has been held not to include taxes on
the importation of engines and parts used by
tugboats which are neither passenger nor
cargo vessels.
Wonder Mechanical vs. CTA- Neither does a
grant of tax exemption for the manufacture
and sale of certain type of machine include
the manufacture and sale of articles
produced by said machine. There is no way
to dispute the cardinal rule in taxation that
exemptions therefrom are highly disfavored
in law and he who claims tax exemption
must be able to justify his claim or right. The
exemption cannot be established by mere
implication but it must be clearly expressed.
CIR vs Gotamco & Sons- Tax exemption of
World Health Organization from direct to
indirect taxes was held to preclude the
imposition of the contractors tax on the
construction
of
its
building
by
an
independent contractor since the burden of
the tax, said the court, is invariably shifted to
the owner.
CIR vs. CA, CTA & AteneoSC states
Petitioner CIR erred in applying the
principles of tax exemption without first
applying the well-settled doctrine of strict
interpretation in the imposition of taxes. It is
obviously both illogical and impractical to
determine who are exempted without first
determining who are covered by the
aforesaid provisions. The Commissioner
should have determined first if private
respondent was covered by Sec. 205,
applying the rule of strict interpretation of
laws imposing taxes and other burdens on
the populace, before asking Ateneo to prove
its exemption therefor. The Court takes this
occasion to reiterate the hornbook doctrine
in the interpretation of tax laws that statute
will not be construed as imposing a tax
unless it does so clearly, expressedly, and
unambiguously. Tax cannot be imposed
without clear and express words for that
purpose accordingly. The general rule of
requiring adherence to the letter in
construing statutes applies with peculiar

strictness to tax laws and the provisions of

taxing act are not be extended by
application.
CLASSIFICATION OF TAX EXEMPTIONS
A. Express (by exemption provisions in the
Constitution, statutes, treaties, franchises or
similar legislative acts)
NPC vs RIC- P.D. 1177 (confirmed by PD
1931) which withdrew the exemption of
government-owned
or
controlled
corporations from income tax, custom
duties, and other taxes or fees as are
imposed by revenue laws was held to cover
both national and local taxes.
B. Implied of by Omission
SSS vs Bacolod City- There is no tax by
silence but, but where the law levies a tax,
so also must the tax exemption be explicit in
the law. While exemptions are not presumed,
the govt however, unless otherwise
expressed, is deemed not subject to a law
imposing taxes.
Bisaya Land Transportation vs CIR- No
prohibition against the govt taxing itself.
There is no tax exemption solely on the
ground of equity, but equity can be used as
basis for a statutory exemption; thus, at
times the law authorizes the condonation of
taxes on equitable considerations.
C. Contractual- those agreed to by the taxing
authority in contracts lawfully entered into
by them under enabling laws.
Cagayan Electric vs CIR; Prov. Of Mismis
Oriental vs Cagayan- these exemptions must
not be confused with tax exemptions granted
under franchises which are not contracts
within the purview of the non-impairment
clause of the Constitution.
Casanova
vs
HordContractual
tax
exemptions covering the matters that are
not essentially government in nature, such
as those contained in government bonds or
debentures, unlike in franchises, may not be
revoked without impairing the obligations of
contracts.
CIR vs CTA- In the case of legislative
franchises, the Court stated A legislative
franchise partakes of the nature of a
contract.
Carcar Electric & Ice Plant vs CIR- So was
the exemption upheld in favor of Carcar
Electric when it was required to pay the
corporate franchise tax under Sec. 259 of the

D.
E.
F.
G.

Internal Revenue Code, as amended by RA

39.
Penid vs Virata- To sustain otherwise is to
derogate from the basic tenet that statutes
offering rewards must be liberally construed
in favor of informers with mere technicality
yielding to the substantive purpose of the
law.
Constitutional
Statutory
Total
Partial

CONSTRUCTION OF TAX LAWS

Tax law must be strictly construed against
the State, liberally construed in favor of the
tax payer.
Tax exemption must be strictly construed
against the tax payer and liberally in favor of
the govt.
Exceptions:
1) Exemptions in favor of the govt
2) Exemptions in favor of traditional
exemptees
3) When law itself provides
4) Retirement laws
GROUND FOR TAX EXEMPTIONS
1) May be taxed based on a contract
2) May be based on the ground of public policy
3) May be based on some ground to foster
charitable and other benevolent institutions
4) May be created under a treaty on grounds of
reciprocity
5) May be created to lessen the rigors of
International or Multiple taxation.
Tax Amnesty- general pardon or intentional
overlooking by the state of its authority to impose
penalties on persons otherwise guilty of tax
evasion or violation of a tax law.
Tax Exemption
Immunity from tax

Grantee need not pay

anything
Can be availed by any
qualified taxpayer
Prospective
in
application
Liability
does
not

Tax Amnesty
Condonation
from
payment of existing tax
liability
Grantee pays a portion
Not always available
Retroactive
in
application
Tax liability attaches to

attach top one enjoying

a privilege of tax
exemption
Immunity from civil
liability only
Requires no payment
of tax

a taxpayer who wants

to avail of tax amnesty
Immunity
from
criminal,
civl
and
administrative liability
Requires the payment
of certain percentage
of unpaid taxes

CIR vs CA, ROH Auto Products- It should be

understandable then that those who
ultimately took over the reigns of the govt
following the successful revolution would
promptly provide for a broad, and not a
confined tax amnesty.
Banez, Jr. vs CA- To avail a tax amnesty
granted by the govt, and to be immune from
suit on its delinquencies, the taxpayer must
have voluntarily disclosed his previously
untaxed income and must have paid the
corresponding tax on such previously
untaxed income.
People vs Castaneda- Tax amnesty, much like
tax exemption, is never favored nor
presumed in law and if granted by statute,
the terms of the amnesty like that of a tax
exemption must be construed strictly against
the taxpayer and liberally in favor of the
taxing authority.
Asia Intl Auctioners vs CIR-The exclusion of
withholding taxes for the tax benefit of the
Tax Amnesty Program does not cover indirect
taxes such as VAT and excise tax.
CERTAIN DOCTRINES IN TAXATION
1) Prospectivity of Tax Laws-prospective in
character and in application
Hyro Resources vs CA- Taxes may be
imposed retroactively by law but unless so
expessed by such law, these taxes must only
be imposed prospectively.
Hilado vs Collector- Tax laws are neither
political nor penal in nature, and they are
deemed laws o the occupied territory rather
than the occupying enemy.
Central Azucarera de Don Pedro vs CTA- ex
post facto rule, except for the penalty
imposed (not the interest), would be
inapplicable. A harsh retroactivity of the law,
however, may make it inequitable and
violative of the constitution; similarly, due
process is violated if the tax is oppressive.

Fernandez vs Fernandez- Property taxes and

benefits assessments on real estate,
retroactively, are not open to the objection
that they infringe upon the due process of
law clause of the Constitution; that taxes on
income are not subject to the constitutional
objection because of their retroactivity.
2) Imprescriptibility of taxes- imprescriptible
unless the law itself provides for prescription.
CIR vs Ayala Securities Corp- Unless
otherwise provided by the tax law itself,
taxes are imprescriptible. NIRC provides for
statutes of limitation in the assessment and
collection of taxes therein imposed.
Collector vs. Bisaya Land Transportationprescriptive periods therein contained were
considered to be applicable only to those
taxes that were thereunder required to be
reported or returned by the tax payer for tax
purposes. The Court thus held that the then
25% surtax imposed on unreasonably
accumulated surplus profits of corporations
is imprescriptible and there is no time limit
on the right of the Commissioner to assess
the same. Where, however, the taxpayer,
although not required, files a return and
declares
his
tax
liability,
then
the
prescriptive periods may become operative.
CIR vs CA- For the purpose of safeguarding
taxpayers
from
any
unreasonable
examination, investigation, or assessment,
our tax law provides a statute of limitations
in the collection of taxes. Thus, the law on
prescription; being a remedial measure,
should be liberally construed in order to
afford such protection.
3) Double Taxation- taxing the object/subject
within the territorial jurisdiction twice, by the
same taxing authority for the same period,
purpose, and involving the same kind of tax.
Two kinds:
1) Direct
duplicate
taxationobjectionable and prohibited because it
violates the constitutional provision on
uniformity
and
equality.
Same
subject/object is taxed twice when it
should be taxed once.
2) Indirect
duplicate
taxationNo
constitutional violation. Such as: taxing
the same property by 2 different taxing
authorities.

Domestic Double Taxation- Subject matter

of taxation is taxed by both the national and
local govt at the same time within the same
period.
REMEDIES/MEASURES AGAINST DOUBLE OR
MULTIPLICITY OF TAXATION
a) Provision for tax exemption
b) Allowance of tax credit for foreign taxes paid;
c) Allowance of deduction for foreign taxes
paid;
d) Application of Principle of Reciprocity;
e) Enter into treaties and/or agreement with
foreign government;
f) Allowance
and/or
application
for
tax
incentives, and
g) Reduction of Philippine Tax rate
Villanueva vs City of Iloilo- There would be no
double taxation where a lessor of property
has to reckon with and pays a real estate tax
on the leased premises, a real estate
dealers tax based on rental receipts, and an
income on such rentals, these impositions of
being of different character and purposes.
Proctor & Gamble, Phils vs Mun. of JagnaThere is also no double taxation when a tax
is imposed on soap and other similar
products of taxpayer and another tax on the
storage of copra, a raw material for the the
taxpayers product.
CIR vs Lednicky- Double Taxation is one of
direct duplicate taxation when the levies are
made by the same taxing authority;
otherwise, the case is merely indirect
duplicate taxation.
Pepsi Cola vs Tanauan- Standing alone and
not being forbidden by our fundamental law,
double taxation is not a valid defense
against the validity of a tax measure. But
from it might emanate such defenses aganst
taxation as oppressiveness and inequality of
the tax.
4) POWER TO TAX INVOLVES THE POWER TO
DESTROY
Sison vs Ancheta- The power to tax is not
the power to destroy while this court sitsJustice Holmes
Roxas vs CTA- (a) The power to tax must be
exercised with caution to minimize injury to
the proprietary rights of a taxpayer; but (b) if
the tax is lawful and not violative of any of
the inherent and constitutional limitations,

the fact alone that it may destroy an activity

or object of taxation will not entirely permit
the courts to afford any relief; and (c) a
subject or object that may not be destroyed
by the taxing authority may not likewise be
taxed. Thus, a tax may not be imposed on
the exercise of a fundamental right since to
otherwise permit it would amount to
destroying that fundamental right.
McCulloch vs Maryland- The doctrine was
used to support the holding that stats of the
union are prohibited from taxing the U.S.
Federal Government. It is from this latter
context or, in general, when taxation
disregards its own limitations that the phrase
the power to tax is not the power to destroy
while the court sits. Had perhaps correctly
evolved (Panhandle Oil Co.vs. Mississippi).
CIR vs Tokyo Shipping- Where the SC
remarked that after 15 long years and the
expenses of litigation the money that will be
finally refunded to the private respondent is
just worth a damaged nickel.
Standard Oil vs Posadas- While ordinarily the
govt does not tax its own political
subdivisions or its other entities, it may,
however do so by providing for it explicitly.

5) ESCAPE FROM TAXATION

TAX
EVASION
(tax
dodging)
Scheme used outside
those of lawful means to
escape
payment
of
taxes and when availed
usually
subjects
taxpayer to penalties.
Accomplished
by
breaking the law;

Connotes fraud, deceit

and malice;

TAX AVOIDANCE (tax

minimization)
Tax saving device within
means sanctioned by
law. Not punishable.

Accomplished by legal
procedures and do not
violate the letter of the
law.
No fraud involved;

Elements of Tax Evasion:

1. Payment of an amount of tax less than what
is known to be legally due;

2. Accompanying state of mind, which is evil,

bad faith, deliberate, willful or intentional,
and not merely incidental;
3. Cause of action or failure of action which is
unlawful;
Tax Condonation- to remit or to desist or
refrain from exacting or imposing a tax. It
cannot extend to refund of taxes already
paid when obtaining.
FORMS OR ESCAPE FROM TAXATION
1) Shifting- process of transferring the tax
burden from statutory taxpayer to another
without violating the law;
2) Capitalization- Seller is willing to lower the
price of commodity provided the taxes will
be shouldered by the buyer;
3) Transformation- Manufacturer absorbs the
additional taxes imposed by the govt
without passing it to the buyers for fear of
lost of his market. Instead, he increases
quantity of production, thereby turning their
units of production at a lower cost resulting
to the transformation of the tax into a gain
through the medium of production.
Norton and Harrison vs CIR- The organization
of a corporation prompted more on the
mitigation of tax liabilities than for legitimate
business purposes could, for example,
constitute one of tax evasion.
Delpher Traders vs IAC- An estate planning
within the means sanctioned by Sec 35 of
the Tax Code hs been held to be one of tax
avoidance.
6) DOCTRINE OF EQUITABLE RECOUPMENTRefund of taxes are barred by prescription
which can no longer be claimed by taxpayer
but there is a present tax being assessed
against the said taxpayer, such present tax
may be recoup or set-off against the tax, the
refund of which has been barred.
Collector vs UST- The SC altogether
rejected the doctrine, saying that it was
not convinced of the wisdom and
propriety thereof, and that it may work to
tempt both the collecting agency and the
taxpayer to delay and neglect their
respective pursuits of legal action within
the period set by law.
7) Set-off Taxes

General Rule: Taxes are not subject to Set-off

or Legal Compensation because tax is not a
debt.
A tax is not a debt for the reason that a tax
does not depend upon the consent of the
taxpayer and there is no express or implied
contract to pay taxes.
Exceptions:
1) Tax is secured by a bond
2) Collection is enforced by court action
3) Compromise agreement validly entered into
between the govt and the taxpayer
4) Interest on tax delinquency is considered as
interest on indebtedness
Requisites of Set-Off
1) Both obligations from the govt and the
taxpayer are due and demandable
2) It is fully liquidated
Reasons why taxes are not subject to legal
compensation:
1) Lifeblood doctrine
2) Govt and taxpayer are not creditor and
debtor.
3) Taxes are not in the nature of contracts.
Republic vs Mambulao Lumber- The SC
enunciated the rule that taxes are not
subject to set-off or legal compensation.
(1) taxes are of distinct kind, essence and
nature, and these impositions cannot be
so classed in merely the same category
as ordinary obligations; (2) the applicable
laws and principles governing each are
peculiar, not necessarily common to
each; and (3) public policy is better
subserved
if
the
integrity
and
independence of taxes be maintained.
Domingo vs Garlitos- tribunal reversed
itself when it ruled that where the taxes
and the taxpayers claim are fully
liquidated, due and demandable, legal
compensation under Art. 1279 of the Civil
Code can take place by operation of law,
and both debts are extinguished to the
concurrent amount.
Francia
vs
IACAlthough
legal
compensation was clearly inapplicable
since the tax sought to be the object of
set-off was due to a city, whereas the
other liability was the compensation due
the taxpayer from the natl govt arising

from the latters exercise of eminent

domain, the Court nonetheless expressed
that taxes are not subject to legal
compensation in an apparent step to
revert to the Mambulao Lumber doctrine.
Philex Mining Corp vs CIR- We have
consistently ruled that there can be no
offsetting of taxes against the claims that
the taxpayer may have against the govt.
A person cannot refuse to pay tax on the
ground that the govt owes him an
amount equal to or greater than the tax
being collected. The collection of tax
cannot await the results of a lawsuit
against the govt.
Republic vs Sampaguita Pictures- The SC
allowed taxes due from the taxpayer to
be considered paid through the delivery
of negotiable certificate of indebtedness
issued by the Philippine Govt which had
theretofore already been presented and
surrendered to the National Treasurer.
CIR vs Esso Standard Eastern- The SC
affirmed the Tax Courts decision applying
a tax credit approved in 1964 for
overpayment of Essos 1959 income tax
to its 1960 deficiency income tax and,
thus sanctioned the imposition of penalty
interest only on the balance thereof. The
obligation to return the excess, said the
court, arose from he time of payment and
not when the payee admitted the
obligation. Any contrary rule would be
unjust and absurd considering that the
money overpaid was all the while with the
govt.
8) TAXPAYERS SUIT- Class suit brought by
one or more taxpayerson behalf of
themselves and as representation of a class
of taxpayers situated within a taxing district
and for the purpose of seeking relief from
illegal or unauthorized acts of the govt or its
tax officials which acts are injurious to their
common interest as taxpayers.
REQUISITES OF TAXPAYERS SUIT
a) Tax money is being exacted and spent in
violation of specific constitutional protections
against abuses of legislative power;
b) Public money is being deflected to any
improper purpose;
c) Petitioners seek to restrain the respondents
from wasting public funds through an

enforcement of an invalid or unconstitutional

law;
Pascual vs Sec of Public Works- It is only
when an act complained of, which may
include a legislative enactment, directly
involves the illegal disbursement of public
funds derived from taxation that the
taxpayers suit may be allowed.
Lozada and Igot vs Comelec- The suit would
be improper to question the inaction of the
Commission on Elections to call a special
election.
Dumlao vs Comelec- The suit would be
improper to stop said Commission from
holding an exercise of suffrage.
Gonzales vs Marcos- The suit would be
improper where the disbursement does not
involve funds raised by taxation.
Maceda vs Macaraig Jr.- The petitioner
alleged that he was instituting the suit in his
capacity as a taxpayer and a duly-elected
Senator of the Phils. Public respondent, on
the other hand, argued that in a taxpayers
suit, the petitioner must show that he had
sustained direct injury as a result of the
action and that it is not sufficient for him to
have a mere general interest common to all
members of the public. The Court disagreed
and ruled that the petitioner could file the
petition since it involves an issue on the
legality of the tax refund to NPC by way of
tax credit certificates and the use of said
assigned tax credits by respondent oil
companies to pay for their tax duty liabilities
to the BIR and BOC or what could thus be a
case of illegal expenditure of tax money.
9) DOCTRINE
OF
TRANSCENDAL
IMPORTANCE- Ordinary citizens and/or
taxpayers are allowed to sue
or file a
taxpayers suit even if the failed to show
direct injury to them or the assailed irregular
expenditure of public funds sourced from
taxation provided they can show paramount
public
interest
or
the
far-reaching
implications of such disbursement.
TAX
PAYERS
SUIT
Complainant or
plaintiff
is
affected by the

CITIZENS
SUIT
Complainan
t or plaintiff
is a mere

CLASS SUIT
Complaint of a
group
of
individuals with

expenditure
public funds;

10)

of

instrument
of the public
concern;

common concern
against
a
respondent
for
an
alleged
violation of the
groups
individual rights;

COMPROMISES

Sec 204 NIRC. Authority of the Commissioner

to Compromise, Abate and Refund Tax
Credits- the Commissioner may
(A) Compromise the payment of any internal
revenue tax, when:
(1) a reasonable doubt as to the
validity of the claim against the
taxpayer exists; or
(2) The financial position of the
taxpayer demonstrates a clear
inability to pay the assessed tax.
Art. 2034 NCC- There may be a compromise
upon the civil liability arising from an
offense; but such compromise shall not
extinguish the public action for the
imposition of the legal penalty.
Art 2035 NCC- No compromise upon the
following questions shall be valid:
(1) The civil status of persons;
(2) The validity of marriage or a legal
separation;
(3) Any ground for legal separation;
(4) Future support;
(5) Jurisdiction of courts;
(6) Future legitime;
Sec 709, TCC- The power to compromise in
respect to customs duties is, at best, limited
to cases where potestive authority is
specifically granted such as in the remission
of duties by the Collector of Customs.
Sec 216, TCC- Cases involving the imposition
of fines, surcharges and forfeitures which
may be compromised by Commissioner
subject to the approval of the Secretary of
Finance.
11)
DOCTRINE
OF
PRIMARY
JURISDICTION- It precludes a court from
arrogating unto itself the authority to resolve
a controversy the jurisdiction over which is

initially lodged with an administrative body

of special competence.
Where the determination requires expertise,
specialized skills and knowledge of the
proper
administrative
bodies
because
technical matter or intricate questions of fact
are involved, the relief must first be obtained
in an administrative proceeding before a
remedy will be supplied by the Court even
though the matter is within the jurisdiction of
a court.
This doctrine does not require the issuance
of any warrant of arrest by the Courts but
the person arrested should be brought
before an official authorized to conduct
preliminary investigation.
12)
DOCTRINE OF JUDICIAL NONINTERFERENCE- The courts cannot inquire
into the wisdom of a taxing act or the
advisability or expediency of a tax measure.
13)
MOST FAVORED NATION CLAUSEThis concept is intended to establish the
principle
of
equality
of
international
treatment by providing that the citizens or
subjects of the contracting nations may
enjoy privileges accorded by either party to
those of the most favored nation.
This will allow the taxpayer of one state to
avail more liberal provisions granted in
another tax treaty to which the country of
residence or such taxpayer is also a party
provided that the subject matter of taxation
is the same as that in the tax treaty under
which the taxpayer is liable.
14)
DOCTRINE
OF
SOVEREIGN
EQUALITY- This international rule maintains
that the property or income of a foreign state
or govt may not be the subject of taxation
by another State.
If a tax law violates some international
treaty, laws or convention, it is not only
invalid but unconstitutional because the
Constitution provides that: Philippine adopts
the
generally
accepted
principles
of
international laws as part of the law of the
land.
15)
DOCTRINE OF ESTOPPEL- In the
performance of its governmental functions,
the State cannot be estopped by the neglect,
errors or mistakes of its agents or officers.

 The erroneous application and enforcement

of law by public officials do not block the
subsequent correct application of the
statutes.

BUREAU OF INTERNAL REVENUE

I.

Powers and Duties of the BIR

1. Assessment and collection of taxes;

2. Enforcement of all forfeitures, penalties,
fines and judgments in all cases decided in
its favor by the Courts;
3. Giving effects to and administering the
supervisory and police powers conferred to
by the NIRC and/or other laws;
4. Assignment of internal revenue officers and
other employees to other duties;
5. Provisions and distribution of proper officials
of forms, receipts, certificates, stamps, etc.
6. Issuance of receipts and clearancs;
7. Submits annual report, pertinent information
to Congress and reports to the Congressional
Oversight Committee in matters of taxation.
8. Authority of the internal revenue officers to
make arrest seizure;
9. Authority of the internal revenue to
administer oath and take testimony;
10.Authority of the tax officials in searching
taxable articles;
11.Remedy for enforcement of forfeiture;
12.Authority to sell and/or destroy forfeited
property.
Powers of the Commissioner of Internal
Revenue
1) Original and exclusive power to interpret the
provisions of the NIRC;
2) To recommend the implementing guidelines
of a tax law to the Secretary of Finance;
3) To decide cases relative to DROP (Sec.4)
4) To obtain information and to summon,
examine, and take testimony of persons to
effect tax collection;
5) To make assessment;
6) To make/amend a return for and in behalf of
a taxpayer; or to disregard one filed by a
taxpayer;
7) To change a tax period;
8) To conduct inventory or surveillance;
9) To prescribe presumptive gross
sales/receipts;
10)
To prescribe real estate values;

11)
To accredit tax agents;
12)
To inquire into bank deposits under
certain cases;
13)
To prescribe additional procedural or
documentary requirements for tax
administration and enforcement;
14)
To delegate his powers to any
subordinate officer with rank equivalent to a
division chief of an office;
15)
To compromise tax liabilities of
taxpayers;
16)
To refund cost of IR taxes;
17)
To abate or cancel tax liabilities in
certain cases;
18)
To examine tax returns and determine
tax due thereon;
19)
To administer oaths and take
testimony;
20)
To make arrest and seizure;
21)
To divide the Philippines into revenue
districts for administrative purposes upon
approval of the Sec. of Finance;
22)
To cause revenue officers and
employees to make a canvass from time to
time of any revenue district or region
concerning taxpayers;
Sy Po vs CTA- Assessements issued by the
Commissioner are presumed to be correct
and valid, and a taxpayer who disagrees not
only must prove that the assessment is
wrong but he must state the correct one.
Central Azucarerea de Don Pedro vs CTAWhen a report required by law for the
assessment of any internal revenue tax is
not forthcoming or when there is reason to
believe that any such report is false,
incomplete or erroneous, the Commissioner
shall assess the proper tax on the best
evidence obtainable.
Benepayo vs Collector- In order to pass the
test of judicial scrutiny, the assessment must
be based on actual facts and not itself, in
turn, based on mere presumptions no matter
how reasonable such presumptions appear
to be.
Collector vs Bohol Land TransportationWithin the applicable statute of limitation,
the Commission may re-examine or reassess the taxpayer, the govt not being
estopped by error or mistakes of its agents.
Meralco Securities vs Savellano- The Court
ruled that the Commissioner may not be
compelled by the courts through mandamus

to impose tax assessment which he believes

is not proper.
Samson vs Barrios- If the law imposes a
duty upon a public officer and gives him the
right to decide how or when the duty shall be
performed, such duty is discretionary and
not ministerial. The duty is ministerial only
when the discharge of the same requires
neither the exercise of official discretion nor
judgment.
People vs Rubio- The SC ruled that a search
warrant may not be used as a means of
gaining access to a mans house or office
solely for the purpose of making a search to
secure evidence to be used against him in a
criminal or penal proceeding.
Molo vs Yatco- A warrant would be proper to
search for and seize books of account,
invoices and records when so used as
instruments or agencies for perpetrating
fraud upon the govt. Records in custodial
egis cannot, however, be seized without
leave of court.
Bache & Co vs Ruiz- An application for a
search warrant stating that the person
named therein has committed a violation of
the Tax Code and Tariff and Customs Laws
without specifying the offense, and seeking
the seizure of all books of accounts and
records, defeats the major objectives of
eliminating general search warrants and
does not satisfy the constitutional
requirements. Documents that are thereby
illegally seized are inadmissible in evidence.
Frank Uyad Unifish Packing Corp vs BIRSearch warrant for seizure of book of
accounts, invoices, receipt and other
financial record may be done by the BIR with
the Regional Trial Court but the article to be
seized must be done with particularly.
Vera v Hon. Cuevas- As regards the exercise
of its police powers the BIR may do so only in
the enforcement of its tax collection duties
and not for any other purpose such as that
which entails promotion of health.
U.S. vs Viado- When making arrests and
seizures, revenue agents assume the
category of peace officers and they are in
that capacity entitled to the privileges of
such officers under penal and procedural
laws.

Non-delegable powers of the CIR

a) Power to recommend the promulgation of

rules and regulation to the Secretary of
Finance;
b) Power to issue rulings of first impression or
to reverse, revoke or modify any existing
ruling of the Bureau;
c) Power to compromise;
d) To abate any tax liability;
e) Power to assign and reassign internal
revenue officers to establishments where
articles subject to excise tax and produced or
kept;
Instances where authority to investigate is
dispensed with:
1) When taxpayer does not issue sales invoices
or receipts;
2) When taxpayer is found to keep private
books of accounts;
3) When taxpayer is not provided with the
necessary privilege tax receipts;
4) When taxpayer is in possession of unpaid tax
articles subject to excise tax;
Powers of Revenue Regional Directors
a) To implement tax laws, policies, plans,
programs, revenue regulations of the
department or agencies in the regional
areas;
b) Administer and enforce internal revenue
laws, rules and regulations;
c) Enforce assessment and collection of internal
revenue taxes, charges and fees;
d) Issue Letters of Authority for examination of
taxpayer within the region;
e) Provide economical, efficient and effective
service to the people in the area in matters
of taxation;
f) Coordinate with regional offices or other
departments, bureaus and agencies in the
area;
g) Exercise control and supervision over its
officers and employees; and
h) Perform other functions as may be provided
by law or delegated to him by the CIR.
2 KINDS OF POWERS OF ADMINISTRATIVE
AGENCIES:
1) Quasi-Legislative or Rule Making PowerPower to make rules and regulations which
results in delegated legislation that is within
the confines of the granting statute and the
doctrine of non-delegability and separability
of powers.

Includes issuance of the ff:

a) Supplementary or detailed legislation
b) Contingent legislation;
c) Interpretative rule
2) Quasi-judicial or Administrative
Adjudicatory Power- Power to adjudicate
the rights of persons before it. It is the power
to hear and determine questions of fact to
which the legislative policy is to apply and to
decide in accordance with the standards laid
down by the law itself in enforcing and
administering the same law. In the exercise
of this authority due process must be
afforded to concerned parties.
BIR RULES AND REGULATIONS
1) Consistent and in harmony with law;
2) Reasonable;
3) Useful and necessary;
4) Published in the Offical Gazette;
CIR vs CA, R.O.H. Auto Product & CTA- The
authority of the Sec of Finance, in
conjunction with the CIR, to promulgate all
needful rules and regulations for the
effective enforcement of internal revenue
laws cannot be controverted.
Arches vs Bellosillo- A revenue regulation,
the issuance of which is authorized by
stature, has the force and effect of law.
CIR vs CA, CTA, and Fortune Tobacco CorpInterpretative rule, one the 3 quasilegislative or rule-making power of the an
administrative agency refers to no single
person or party in particular, but concerns all
those belonging to the same class which
may be covered by the said interpretative
rule.
CIR vs Burroughs- Any revocation,
modification or reversal of such rules or
regulations, including rulings or circulars of
the Commissioner, shall not be given
retroactive effect if the same would be
prejudicial to the taxpayer, except in case of
rulings:
a) where the taxpayer deliberately
misstates or omits material facts;
b) where the facts subsequently
gathered by the BIR are materially
different from the facts on which
the ruling is based; or

c) where the taxpayer acted in bad

faith;
CIR vs Fortune Tobacco Corp- The due
observance of the requirements of notice, of
hearing and publication should not have
been ignored.
PBC vs CIR- It must be noted that a claim for
refund is in the nature of a claim for
exemption and should be construed in
strictissimi juris against the taxpayer.
Princple of Strictissimi Juris- Tax exemptions
must be strictly construed against the taxpayer and
liberally in favor of the government. Taxation is
the Rule and Exemption is the Exception.
FEATURES OF INCOME TAX LAW
1) Progressive and based on Ability-to-Pay
Principle
2) Global tax system is applicable to taxable
corporation, whereas, the schedular tax
system is applied to taxable individuals
3) Adopted the most comprehensive tax situs
Income tax- tax on all yearly profits, income,
gains emoluments and the like of persons
(individual and/or judicial) arising from property,
profession, trades, offices and activities whether
gross or depending on the class of taxpayer and
the kind of income.
Taxable income- refers to gross income less
allowable deductions and/or personal and
additional exemptions and health/hospitalization
premium allowances.
PURPOSE OF INCOME TAX
To ease the impact of continuing rise in oil
and food prices on the people, and
To provide relief and additional money to
spend for basic necessities especially for
minimum wage earners;
To simplify the application of the OSD
beginning July 1, 2008;
Nature of Income Tax
a) Self-assessing or self-computed;
b) National tax;
c) Regarded as an excise tax because it
actually levies upon the right to earn an
income;
d) Direct tax;
e) General tax;
f) Not covered by the Principle of Territoriality;

Functions of Income Tax

Provides large amounts of revenue for the
support o the govt;
Offsets the regressive sales, consumption
and estate taxes;
Mitigates the evil arising from the
inequalities in the distribution of income
through the imposition of progressive,
graduated income tax rates.
Progressive System of Taxation- Application of
income tax rates to the taxable income of a
taxpayer which much be proportionate in character
and shall be used as an instrument to promote
social justice to achieve social equity and must not
be regressive
It is the constitutional mandate that will
correct the inequalities in taxation by
equitably distributing the tax burden based
upon the Ability-to-Pay Principle
This has been introduced in our tax system
as a measure of raising more revenues to
meet adequately the increased needs of the
Govt and at the same time to correct
inequities in taxation by equitably
distributing the tax burden based upon the
principle of ability to pay.
2 SYSTEMS OF INCOME TAXATION
1) Global System- taxpayer is required to
report all income earned during a taxable
period in one income tax return, which
income shall be taxed under the same rule of
income taxation.
2) Schedular System- requires a separate
return for each type of income and the tax is
computed on per return or per schedule
basis and it provides for different tax
treatment of different types of income.
Global Income
Taxation
System that taxes all
categories of income
except certain passive
income and capital
gains.

Taxpayer is required to
report all income
earned during a

Schedular Income
Taxation
System employed
where the income tax
treatment varies and is
made to depend on the
kind or category
taxable income of the
taxable. It has different
rates
Taxpayer is required to
file separate tax return
for each type of income

taxable period in one

income tax return;
Total allowable
deductions personal
and additional
exemptions are
deducted from the
gross income.
Based on the
aggregate income from
all sources that are not
subject to final income
tax.

Globalized income is
subject to a unitary but
progressive and
graduated rate of 0%
to 32%;
Corporate taxpayers
adopt this system. All
their income are
globalized and taxed at
32%.
No need to classify
taxable income;

and the tax is

computed on per return
or per schedule basis.
Separate returns are
filed by the recipient of
the income except for
passive income.

Income from different

sources are not
globalized, they are
treated separately and
are subject to different
sets of graduated or
flat income tax rates;
Itemizes the different
incomes and provides
for varied rate of taxes
are applied thereto. It
has different rates;
Individual taxpayers
follow this system.
Income from different
sources are classified
and treated differently;
There is need to
categorize income from
different sources.

Semi-schedular or Semi-global tax system- It

reduces the range of graduated tax rates applied
on the net taxable income of self-employed and
professional form 5% to 60% to 0% to 35%, the
same set of tax rates applied on compensation
income, but increased the preferential tax rates on
capital gains and passive investment incomes.
2 Kinds of Income Tax under RA 8424
a) Graduated income tax
1) Net income tax
2) Gross income tax
b) Normal corporate income tax;
c) Final withholding tax system on certain
passive investment income paid to residents;
d) Final withholding tax on income payments
made to non-residents;
e) Capital gains tax on sale or exchange of real
property classified as capital asset;
f) Branch profit remittance tax;
g) Tax on improperly accumulated earnings of
corporations;
h) Fringe benefit tax;

i) Preferential rates or special rates of income

tax on individuals or corporations;
j) Minimum corporate income tax;
k) Optional corporate income tax;
Gross Income- All income, gain or profit subject to
tax, whether the same is realized from legal or
illegal activities.
Net Income- Gross income less allowable
deductions and exemptions.
Gross Income Taxation
Fixed or computed
without allowable
deductions;
Applies to: (a)
compensation income
earners, (b) nonresident aliens not
engaged in trade or
business, (c) nonresident foreign
corporations.
A final tax is imposed
on the gross amount of
specific types of
income, such as
interest, royalties,
prize, dividend and
capital gains;
Grants no exemptions;
Tax base is gross
income;

Net Income Taxation

Reduced by allowable
deductions;
Applies to: (a) selfemployed taxpayers in
business or profession,
(b) domestic
corporations, (c)
resident corporations,
(d) special
corporations;
Certain deductions are
allowed and subtracted
from the aggregate
income not to final tax
and the tax is
computed on the
resulting net income
therefrom.
Exemptions are
granted;
Tax base is net income;

Advantages of Gross Income Taxation

a) Computation is simple;
b) Does away with wastage and supplies and
requires less manpower;
c) Less discretion is allowed the tax examiners;
d) Less probability of connivance between
taxpayer and tax examiners;
e) Substantial reduction in corruption and tax
evasion;
f) Examination and/or investigation of tax
return can be faster or even do away with;
g) Favorable to the authorities because they
may be able to collect more taxes;
h) Couple with an effective withholding tax
system, govt is assured to bigger revenue;
Disadvantages of Gross Income Taxation

a) No deductions and exemptions are allowed;

b) Taxpayer may derived gross income but
suffers net loss;
c) Susceptible to fraud in the absence of
general audit;
d) Rule on taxation may not be equitable and
uniform;
e) What could be taxed may not be income but
mere return of capital;
f) This system may serve as a disincentive to
further production and distribution of
essential commodities necessary for
economic development;
g) Taxpayers may lose interest to each more by
lessening their purchasing capacity;
h) Govt may end up collecting lesser taxes in
the absence of audit, because the taxpayers
may cheat on their sources of income;
Advantages of Net Income Taxation
a) Fair and just due to grant of deductions;
b) Presence of tax audit minimizes fraud;
c) Provides equitable relief in the form of
deductions, exemptions and tax credits;
Disadvantages of Net Income Taxation
a) Susceptible to corruption;
b) Confusing and complex process of filing of
income tax returns;
c) Costly and difficult to administer
Income- money earned without obligation to repay
the same or any restrictions attached thereto as to
its disposition. Includes earnings, lawfully or
unlawfully acquired.
Imputed Income- income in kinds given to income
earners as part of their compensation for services
rendered, such as: meals rice subsidy, living
quarters, etc.
Receipts- reference to all wealth that flows into
the taxpayer which includes return of capital.
What are the inclusions into the gross income
of a taxpayer?
Compensation;
Gross income derived from trade, business
or profession;
Gains derived from dealings in property;
Interest;
Rents;
Royalties;
Annuities;

 Prizes and winnings;

Pensions;
Partners distributive share from net income;
Income
Fruit of capital, labor or
both
Amount of money
coming to a person or
corporation within a
specified time whether
as payment for services,
interests, or profits from
investments;
All wealth that flows into
taxpayer other than
mere return of capital
which includes a result
of wealth or as a
substitute for money
value for something
permanently lost;
Subject to income tax
Flow of service rendered
by capital or labor;

Capital
Tree or source of income
Fund or tool for the
production of health;

Section 2. Natural-born citizens are those who are

citizens of the Philippines from birth without having to
perform any act to acquire or perfect their Philippine
citizenship. Those who elect Philippine citizenship in
accordance with paragraph (3), Section 1 hereof shall
be deemed natural-born citizens.
Section 3. Philippine citizenship may be lost or
reacquired in the manner provided by law.
Section 4. Citizens of the Philippines who marry
aliens shall retain their citizenship, unless by their act
or omission they are deemed, under the law to have
renounced it.

Statement of the money

value of the property
actually used by the
enterprise, irrespective
of the persons who may
have contributed it;

Not subject to income

tax
Capital is wealth;

Requisites of Income to be taxable

There must be gain or profit;
Gain must be realized or received;
Gain must not be excluded or exempted by
law or treaty from income taxation;
INCOME TAXPAYERS
1. Resident citizens
ARTICLE IV
CITIZENSHIP
Section 1. The following are citizens of the
Philippines:
1. Those who are citizens of the Philippines at the
time of the adoption of this Constitution;
2. Those whose fathers or mothers are citizens of
the Philippines;
3. Those born before January 17, 1973, of Filipino
mothers, who elect Philippine Citizenship upon
reaching the age of majority; and
4. Those who are naturalized in the accordance
with law.

Section 5. Dual allegiance of citizens is inimical to

the national interest and shall be dealt with by law.
Resident Citizens- are individuals who are:
Engaged in trade or business
Exercise a profession;
Employed, earning purely compensation
income;
Not engaged in business or profession
but has income;
Mixed income

Non-resident citizens- are citizens of the

Philippines:
Who establishes to the satisfaction of the CIR
the fact of his physical presence abroad with
a definite intention to reside therein;
Who leaves the Philippines during the
taxable year to reside abroad, whether as an
immigrant or for employment on a
permanent basis;
Who works and derives income from abroad
and whose employment threat requires him
to be physically present abroad for at least
183 days during the taxable year;
Who has been previously considered as nonresident citizen and who arrives in the
Philippines at any time during the taxable
year to reside permanently in the Philippines.
3 types of Non-Resident Citizens
1) Immigrants;
2) Employees of a foreign entity on a
permanent basis;
3) OCW/Seamen
2. Overseas contract workers and seamen
An OCW is taxed only on his income
earned in the Philippines;

 A Filipino Seaman is considered an OCW if he

receives compensation income for services
rendered abroad as a member of the
complement of a vessel engaged exclusively
in international trade.
3. Resident aliens- individual whose residence
is within the Philippines and who is not a
citizen thereof.
4. Non-resident aliens engaged in trade or
business- An alien whose aggregate period
of stay in the Philippines is more than 180
days during any calendar year.
5. Non-resident alien not engaged in trade or
business- An alien whose aggregate period
of stay does not exceed 180 days during a
calendar year.
6. Special aliens- alien individuals employed by:
Regional headquarters of Multinational
Corporations;
Offshore banking units;
Foreign service contractors;
7. Estates under judicial settlement
8. Irrevocable trust
9. Co-ownership
Taxpayer- any natural or artificial person subject
to tax

Different tax base and tax rates applicable to

individual taxpayers
Individual
Tax Base
Tax Rates
Taxpayers
Resident citizen All income from Taxable net
whatever
income subject
sources;
to graduated
rate of 5-32%;
Non-resident
Income derived
-docitizen
from sources
within the
Philippines;
Overseas
Income derived
-doContract
within the
Workers/
Philippines only
Seamen
Resident aliens
-do-do(a) Aliens
Income derived 15% tax on
employed by
from salaries,
gross income
regional or area wages,
headquarters of annuities,
multinational
compensation
corporations;
received from

(b) Aliens
employed by
Offshore
Banking Units,
(c) Aliens
employed by
petroleum
service
contractors and
subcontractors,
(d) Filipinos
employed in
Asian Devt
Bank occupying
managerial of
technical
positions and
their alien
counterparts;
Non-resident
aliens not
engaged in
business
(a) Estate
under judicial
proceeding, (b)
Irrevocable
Trust

employer

Income derived
within the
Philippines only

25% tax on
gross income

Income derived
from whatever
sources

Taxable net
income subject
to graduated
rate of 5%-32%

Income Exempt from Income Tax:

1) Income received but enumerated under the
term exlusions.
2) Those considered mere return of capital;
3) Those exempted under laws, special laws or
treaties;
4) Gains realized from the sale, exchange or
retirement of bonds with maturity of more
than 5 years is exempt from income tax;
5) Those covered by Employers Convenience
Rule
Employers Convenience Rule- Allowances in
kind furnished to the employee for and as a
necessary incident to the performance of his duties
which directly benefits the employer more than it
does the employee.
6) Those already subjected to the final
withholding tax;