I.

GENERAL PRINCIPLS OF TAXATION

A. Definition and Concept of Taxation
Taxation- power by which sovereign raises revenue to defray the necessary
expenses of the state.
Taxes- enforced proportional contribution from the person and property by the state
by virtue of its sovereignty for the support of the government and all its needs.
B. Characteristics of Taxation
1.
2.
3.
4.

it is an enforced contribution;
proportional in character;
levied by authority of the law; and
for the support of the government and all its public needs.

C. Power of Taxation compared with Police Power and Power of Eminent

Domain
1. Taxation vs Police Power:
a. as to purpose- taxation is to raise revenue; police power is exercise to
promote public welfare through regulation.
b. as to amount of exaction- taxation has no limits; police power is limited
to cost of exaction.
c. as to benefits received by the taxpayers- taxation has no direct
benefit aside from the protection received by the citizens from the state; same with
police power, no direct benefit aside from a healthy economic standard of society is
maintained.
d. as to superiority of contracts- taxation recognized the obligations
imposed by contracts; police power does not.
e. as to transfer of property rights- taxes forms part of public funds;
police power allows merely the restraint on the exercise of property rights.
2. Taxation vs Eminent Domain:
a. as to purpose- taxation is to raise revenue; eminent domain it taking of
property for public use.
b. as to compensation- taxes accrue to general benefit of the public; in
eminent domain just compensation is given to the owner.
c. as to persons affected- taxation applies to all persons; eminent domain
only on particular property.
D. Theory and Basis of Taxation
1. Lifeblood doctrine- power of taxation is essential because the government
cannot exist nor endure without taxation.

2. Necessity Theory- power of taxation is predicated upon necessity. It is a

necessary burden to preserve the states sovereignty.
3. Benefits- Protection Theory- the power of the state to demand and receive
taxes on the reciprocal duties of support and protection. Also similar with doctrine
of symbiotic relationship.
E. Nature of Taxing power (two-fold nature of taxation)
1. Taxation as an inherent attribute of sovereignty- it is considered inherent in
every state because it is necessary attribute of sovereignty.
2. Taxation as Legislative in character- the power of taxation is exclusively
vested in the Legislature, except where the Constitution provides otherwise.
F. Purposes of Taxation
Primary purpose:to raise revenues.
Secondary or NON-REVENUE PURPOSE/ SUMPTUARY PURPOSES
1. reduction of social inequality- our present tax system adopted the
progressive system of taxation which aims to reduce the inequality in distribution of
wealth by preventing its undue concentration in the hands of few individuals.
2. encourage the growth of local industries- tax exemptions and tax reliefs
serve as incentives to encourage investment in our local industry and thereby
promote economic growth.
3. protect our local industries against unfair competition- allows the
imposition of certain taxes on imported goods or articles to further protect our local
industry.
4. as an implement of police power of the state.
G. Principles of a Sound Tax System
1. Fiscal adequacy- sources of revenues must be adequate to meet the
government expenditures and other public needs.
2. Administrative feasibility- tax laws must be capable of effective and efficient
enforcement. They must not obstruct business growth and economic development.
3. Theoretical justice- a sound tax system must be based on taxpayers ability to
pay.
*Will a violation of these principles invalidate a tax law? IT DEPENDS. A tax law
will retain its validity even if it is not in consonance with the principles of fiscal
adequacy and administrative feasibility because the Constitution does not expressly

require so. These principles are only designed to make our tax system sound.
However, if a tax law runs contrary to the principle of theoretical justice, such
violation will render the law unconstitutional considering that under the
Constitution, the rule of taxation should be uniform and equitable.
H. Inherent limitations of the Power of Taxation:
1. Public purpose- taxes are exacted only for public purpose.
2. International comity- base on international principle of sovereign equality
among state.
3. Territoriality- taxing power is limited only to persons and properties within its
jurisdiction.
4. Exemption from taxation of government agencies and instrumentalitiesproperties of the national government as well as those of local government are not
subject to tax.
5. Non-delegation of the power of taxation- power to tax is exclusively vested
in legislature;
Exemptions:
a. 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 development program
of the Government.
b. Art. X, Sec. 5 of the Constitution- Each local government units (LGU) shall have
the power to create its own sources of revenue, fees, charges, subject to the
guidelines and limitations as the congress may provide consistent with the basic
policy of local autonomy.
I. Constitutional Limitations of Power of Taxation:
1. Due process of law
Art. III, sec. 1- no person shall be deprived of life, liberty or property without due
process of law
2. Equal protection of the law
Art. III, sec. 1- nor shall any person be denied by the equal protection of law.
-our constitution requires uniformity, not equality, in taxation.
-valid classification; requisites:

1.
2.
3.
4.

must
must
must
must

be based on substantial distinction;

apply to both present and future conditions;
be germane to the purpose of law; and
apply equally to all members of the same class.

3. Uniformity of taxation.
Art. VI, sec. 28 (1)- the rule of taxation shall be uniform and equitable...
-uniformity means that all the taxable articles of the same class shall be taxed at
the same rate.
4. Progressive taxation.
Art. VI, sec. 28 (1)- The congress shall evolve a progressive system of taxation.
5. Non-impairment clause.
Art. III, sec. 10- no law shall be passed impairing the obligations of contracts.
*is tax exemption revocable? It depends. If the grant of exemption is not based on
contract, but merely a concession by the legislature, it is revocable. However, if
the exemption constitutes a binding contract and for valuable consideration, the
government cannot unilaterally revoke tax exemption.
6. Non-imprisonment for non-payment of poll tax.
Art. III, sec. 20- No person shall be imprisoned for non-payment of debt or poll tax.
7. Bills to originate from the house of representatives. (A RT PLP)
Art. VI, sec. 24- All appropriation, revenue or tariff bills, bills authorizing the increase
of the public debt, bills of local application and private bills, shall originate
exclusively in the House of Representatives, but the Senate may propose or concur
with amendments.
8. Veto power of the President.
Art. VI, sec. 27 (2)- The President shall have the power to veto any particular item
or items in an appropriation, revenue, or tariff bill, but the veto shall not affect the
item or items to which he does not object.
9. Presidents power to tax.
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 development program of the
Government.

10. Taxation and the freedom of press.

Art. III, sec. 4- No law shall be passed abridging the freedom of speech, of
expression, or of the press, or the right of the people peaceably to assemble and
petition the government for redress of grievances.
11. Taxation and freedom of religion.
Art. III, sec. 5- No law shall be made respecting an establishment of religion, or
prohibiting the free exercise thereof. The free exercise and enjoyment of religious
profession and worship, without discrimination or preference, shall forever be
allowed. No religious test shall be required for the exercise of civil or political rights.
12. Tax exemptions of properties actually, directly, and exclusively used
for religious, charitable and educational purposes.
Art. VI, sec. 28 (3)- Charitable institutions, churches and personages 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.
13. Tax exemptions
institutions.

granted

to

non-stock,

non-profit

educational

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 the 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.
Art. VI, sec. 28 (4)- Subject to conditions prescribed by law, all grants, endowments,
donations, or contributions used actually, directly, and exclusively for educational
purposes shall be exempt from tax
14. Appropriations of public money.
Art. VI, sec. 29 (2)- No public money or property shall be appropriated, applied,
paid, or employed, directly or indirectly, for the use, benefit, or support of any sect,
church, denomination, sectarian institution, or system of religion, or of any priest,
preacher, minister, other religious teacher, or dignitary as such, except when such
priest, preacher, minister, or dignitary is assigned to the armed forces, or to any
penal institution, or government orphanage or leprosarium.
15. Grant of Tax exemptions.

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.
16. Local Taxation.
Art. X, sec. 5- Each local government unit shall have the power to create its own
sources of revenues and to levy taxes, fees and charges subject to such guidelines
and limitations as the Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments.
17. Special fund.
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 Government.
18. Supreme courts jurisdiction over tax cases.
Art. VIII, sec. 5 (2-b)- All cases involving the legality of any tax, impost, assessment,
or toll, or any penalty imposed in relation thereto.
J. Concept of Double Taxation.
Double Taxation- when the same subject matter is taxed twice.
Kinds:
1. direct- the same property is taxed twice. Both taxes is imposed on the same
property or subject matter, for the same purpose, by the same state or
taxing authority, within the same jurisdiction, during the same period, and
they must be of the same kind or character of tax.
2. Indirect- permissible double taxation; allowed if the tax are of different nature or
character, imposed by different state or taxing authority.
3. Domestic- taxes are imposed by local government or national government
within the same state.
4. International- imposition of comparable taxes in 2 or more states on the same
taxpayers in respect to the same subject matter and the same period.
Constitutionality of Double taxation- SC declared double taxation in general not
prohibited by our constitution. Direct double taxation is prohibited.
Modes of eliminating double taxation:
1. tax exemption- the income or capital which is taxable in the state of source or
situs is exempted in the state residence.
2. tax credit method- tax paid in the state of source is credited against the tax
levied in the state of residence.

K. Aspects or Phases of Taxation

1. levy
2. assessment and collection
3. payment
Extent of Taxing Powers: (CUPS)
-Comprehensive
-Unlimited
-Plenary
-Supreme
L. Tax avoidance and Tax evasion.
Tax Avoidance- legal means used by taxpayers to reduce tax.
Tax Evasion- connotes fraud through the use of pretenses and forbidden devices to
lessen or defeat taxes.
3 factors in tax evasion:
1. the end to be achieved;
2. presence of bad faith;
3. cause of action is unlawful.
M. Tax exemption and Tax Amnesty.
Tax exemption- immunity from civil liability. It is an immunity or privilege, a
freedom from a charge or burden of which others are subjected.
Tax amnesty- immunity from civil and criminal obligations arising from nonpayment of tax. It is a general pardon given to all taxpayers. It applies to past tax
periods, hence retroactive in application.
N. Construction and Interpretation of Tax Laws and Tax Exemptions.
*tax laws must be strictly against the government and liberally construed in favor of
taxpayers.
*tax exemption must be strictly construed against the claimant, except:
1. when statute granting exemption expressly provides for liberal construction;
2. special taxes relating to special cases and affecting special classes of persons;
3. exemption in favor of public property;
4. in favor of religious and charitable institutions;
5. in favor of government or any of its political subdivisions;
O. Definition, nature and characteristic of taxes.

P. Tax distinguished from other forms of exactions:

1. tax and special assessment- special assessment is in a nature of tax levied
according to the benefits conferred on the property. Special assessment can be
levied only on land.
2. tax and licensea. tax is levied in the exercise of taxing power; license emanates from police
power.
b. tax is to raise revenues, license is for regulatory purpose.
c. the amount of exaction of license must be limited to the expenses of
issuing the license.
3. Tax and Toll- tax is a demand from sovereignty, a toll is demand of
proprietorship, the amount charged is for the cost and maintenance or property
used.
4. Tax and Penalty- Tax is a civil liability; Penalty is the punishment for the
commission of a crime.
5. Tax and debta. tax are not contracts, debts arouse from contracts.
b. tax cannot be assigned, unlike debts;
c. are not subject to set-off unlike debts;
d. do not draw interests, unlike debts.
Q. types of taxes: (BAROPS)
B - as to burden:
1. direct tax
2. indirect tax
A - as to amount:
1. specific
2. ad valorem
R - as to rate:
1. progressive
2. regressive
O - as to object:
1. personal
2. property
3. excise
P - as to purpose:
1. general
2. special
S - as to scope:
1. national
2. local
R. Situs of Taxation
S. Compensation and Set-off

Taxes cannot be the subject of compensation because the government and

taxpayer are not mutually creditors and debtors of each other and a claim for taxes
is not such debt, demand, contract or judgment as is allowed to be set-off.
T. Doctrine of Equitable Recoupment- allows the taxpayers whose claim for
refund has prescribed to offset tax liabilities with his claim for overpayment.
U. Taxpayers suit- allows the taxpayers to question contracts entered into by the
national government or GOCCs allegedly in contravention with the law.
Allowed when there is:
1. claim that public funds are illegally disbursed;
2. public money is being deflected to any improper purpose;
3. there is wastage of public funds through the enforcement of an invalid or
unconstitutional law.

II. Organization and Function of the Bureau of Internal Revenue

A. Powers and Duties of BIR (sec. 2)
*BIR shall be under supervision of Dept. of Finance
General powers and duties:
1. the remedies for collection of taxes;
2. execute judgment decided in its favor by court of tax appeals and ordinary
courts;
3. internal revenue officers have authority to make arrest and seizures;
4. BIR may claim police power only when necessary in the enforcement of its
principal powers and duties.
Composition of BIR:
1. Commissioner of Internal Revenue- commissioner
2. 4 deputy commissioners- each shall supervise:
a. operations group;
b. information system group;
c. resource mgt. group;
d. legal and inspection group
B. Rule making authority of the Sec. of Finance
C. Powers of the Commissioner of Internal Revenue (sec. 4-6)
SEC. 4- POWER OF COMMISSIONER TO INTERPRET TAS LAWS AND DECIDE
TAX CASES

*power to interpret tax laws -exclusive and

COMMISSIONER, subject to review by the Sec. of Finance

original

jurisdiction

of

*power to decide disputes arising this Code or other laws or portions

thereof administered by the BIR - vested in the COMMISSIONER, subject to
exclusive and appellate jurisdiction of Court of Tax Appeals
*BIR rulings:
1. rulings of first impression -refers to rulings, opinions and interpretations of
the commissioner of Internal Revenue with respect to the provisions of the tax code
w/o established precedents.
2. ruling with established precedents
3. revenue memorandum rulings -rulings, opinions and interpretation of
commissioner with respect to the provision of the tax code.
SEC. 5- POWER OF COMMISSIONER TO OBTAIN INFORMATION, AND
SUMMON, EXAMINE AND TESTIMONY OF PERSONS*Commissioner is authorized:
1. to examine any book, paper, record and other data w/c relevant to inquiry
2. obtain on a regular basis from any person whose internal revenue tax
liability is subject to audit or from any office or officer of the national and local
govt., agencies and instrumentalities, including BSP, and GOCCs, any INFORMATION
such as, but not limited to, cost and volume of production, receipts, or sales of gross
incomes of taxpayers, and names, addresses, and financial statements of
corporations, mutual fund companies, insurance companies etc.
3. summon the person liable for tax or required to file a return, or any
employee or officer of such person having custody of the books of accounts and
other accounting records
4. take such testimony of the person concerned, under oath, as may be
relevant or material to such inquiry
5. to cause revenue officers and employees to make canvass from time to
time of any revenue district or region and inquire after
SEC. 6- POWER OF COMMISSIONER TO MAKE ASSESSMENTS AND
PRESCRIBE ADDITIONAL REQUIREMENTS FOR TAX ADMINISTRATION AND
ENFORCEMENTa. examination of returns and determination of tax due
-after the return has been file, the Commissioner of his duly assigned rep.
may authorize the examination of any taxpayers and the assessment of the correct
amount of tax.
*provided however, that failure to file return shall not prevent the
authority of commissioner from authorizing the examination of any
taxpayer.
-tax or any deficiency tax so assessed shall be paid upon notice and demand
from the commissioner
-any return, statement or declaration filed in any office authorized to receive
shall not be withdrawn

*provided that w/in 3 yrs from date of such filing, the same may be
modified, changed or amended
**provided further that no notice for audit or investigation of such
return, statement or declaration has been actually served upon the
taxpayer.
b. failure to submit required returns, statements, reports and other
documents
-when report required by law as basis for assessment of any national internal
revenue tax shall not be forthcoming within the time fixed by law or when there is
reason to believe that any such report is false, incompetent or erroneous, the
COMMISSIONER shall assess the proper tax on the best evidence obtainable.
-in case person fails to file a required return or document prescribed by law,
or otherwise files a false return or doc. , the commissioner shall make or amend
the return from his own knowledge and of such information as he can obtain thru
testimony.
c. authority to conduct inventory-taking, surveillance and to prescribe
presumptive gross sales and receipts
-the COMMISSIONER may, at any time, order an inventory taking of goods of
any taxpayers as a basis for determining his internal revenue tax liabilities, or may
place the business operation of any person, natural or juridical, under observation
or surveillance if there is reason to believe that such person is not declaring his
correct income. The findings will be the basis for assessing taxes for the other
months or quarters of the same or different taxable years.
-when it is found that a person failed to issue receipts and invoices, or there
is reason to believe that the books of accounts are not correct, the COMMISSIOONER
may prescribe a minimum amount of such gross receipts, sales and taxable base,
and such amount so prescribed shall be prima facie correct for the purposes of
determining internal revenue tax liabilities of such person.
d. authority to terminate taxable period
-when it shall come to the knowledge of Commissioner that a taxpayer is
retiring from the business, or intending to leave the Phil. or to remove his property
therefrom, or to hide and conceal his property or performing acts tending to
obstruct proceeding from collection of tax for the past or current quarter or year,
the COMMISSIONER shall declare the tax period of such taxpayer terminated at any
time and shall send taxpayer a notice of such decision, together w/ the request of
immediate payment of the tax for period so declared terminated, and the tax
unpaid, subject to the penalties prescribed.
e. authority of the commissioner to prescribe real property values
-the commissioner is hereby authorized to divide the Phil. into different zones
or areas, and shall determine the fair market value of real properties located in
each zone or area.
-for the purpose of computing tax, the value of the property whichever is
higher of
1. fair market value as determined by commissioner;
2. fair market value as shown in the schedule of values of Provincial or
City Assessors

f. authority of COMMISSIONER to inquire into bank deposit accounts

-the commissioner is authorized to inquire into bank deposits of:
(under RA 10021)
1. a decedent to determine his gross estate; and
2. taxpayer who has filed an application for compromise of his tax
liability by reason of financial incapacity to pay his tax liability.
*in case he files application to compromise tax liabilities on basis of
financial incapacity, his application shall not be considered until he
waives in writing his privilege under RA 1405 or Foreign Currency
Deposit Act.
3. A specific taxpayer or taxpayers subject of a request for the
supply of tax information from a foreign tax authority pursuant to an
international convention or agreement on tax matters to which the
Philippines is a signatory or a party of:
*Provided, That the information obtained from the banks and other
financial institutions may be used by the Bureau of Internal Revenue for tax
assessment, verification, audit and enforcement purposes.
g. authority to accredit and register tax agents
- the commissioner shall accredit and register, based on their professional
competence, integrity, and moral fitness, individuals and general partnerships and
their representatives.
-individuals, partnerships or their representative who are denied accreditation
by the commissioner may appeal such denial to Sec. of Finance, who shall rule w/in
60 days from receipt of such appeal.
h. authority of commissioner to prescribe additional procedural or
documentary requirements in connection with the submission or
preparation of financial statements accompanying tax returns.
D. Non-delegable powers of the Commissioner of Internal Revenue (sec. 7)
*sec. 7- authority of the commissioner to delegate power- a commissioner may
delegate the powers vested in him under this Code to any or such subordinate
officials with the rank equivalent to division chief or higher, subject to such
limitations and restrictions imposed by rules and regulations to be promulgated by
Sec. of Finance, upon recommendation of the Commissioner, provided that the ff.
powers of the Commissioner shall not be delegated:

(memorize) R-I-C-A
1. power to recommend the promulgation of rules and regulations by the Sec.
of Finance;
2. power to issue rulings of first impression or to reverse, revoke or modify
any existing ruling of the bureau;
3. power to compromise or arbitrate any tax liability.

4. power to assign or reassign internal revenue officer to establishments

where articles subject to excise tax are produced or kept.
E. Agents and deputies for collection of national internal revenue taxes
(sec. 12)
*The following are agents of the Commissioner: (CHB)
1. commissioner of customs and his subordinates with respect to
collection of tax on imported goods;
2. head of appropriate government office and his subordinates with
respect to collection of energy tax;
3. banks duly accredited by commissioner with respect to receipt of
payments of internal revenue taxes authorized to be made thru
banks.
F. Revenue Regulations, Revenue Memorandum Circulars and BIR Rulings
G. Non-retroactivity of Rulings (sec. 246)
SEC. 246. Non-Retroactivity of Rulings. -Any revocation, modification or reversal of
any of the rules and regulations promulgated in accordance with the preceding
Sections or any of the rulings or circulars promulgated by the Commissioner shall
not be given retroactive application if the revocation, modification or reversal
will be prejudicial to the taxpayers, except in the following cases:
(memorize)
(a) Where the taxpayer deliberately misstates or omits material facts
from his return or any document required of him by the Bureau of Internal
Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue
are materially different from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.