IMPORTANCE OF TAXATION AS
ATTRIBUTE TO SOVEREIGNTY:
The power of taxation is an
essential an inherent attribute to
sovereignty, belonging as a matter of
right to every independent government
without being expressly granted by the
people. Tax is an attribute to
sovereignty, which emanates from
necessity upon which the very existence
of the government is dependent. Without
tax money, the government would not
be able to undertake for the purposes of
which it was organized, thus negating
the need of its existing.
Being derogatory to sovereignty,
the governing principle is that the tax
exemptions are to be construed in
strictissimi juris against the taxpayer and
liberally in favor of the taxing authority;
and he who claims an exemption must
be able to justify his claim by the
clearest grant of statute.
BASIC PRINCIPLE OF SOUND TAX
SYSTEM (FAT):
1. Fiscal Adequacy sources of
government revenue must be
sufficient to meet government
expenditures and other public
needs.
2. Administrative Feasibility tax
laws must be capable of
effective and efficient
enforcement.
3. Theoretical Justice a sound
tax system must take into
consideration the taxpayers
ability to pay.
THEORIES ON TAXATION:
1. Lifeblood theory
2. Necessity theory
3. Benefits-Protection/ Reciprocity
Theory (symbiotic relationship)
4. Jurisdiction over the subjects
and objects (SITUS)
ESSENTIAL CHARACTERISTICS OF
A TAX:
1. It is an enforced contribution;
2. It is generally payable in money;
3. It is proportionate in character;
4. It is levied on person, on rights
and on property;
5. It is levied by the state which has
the jurisdiction over the person
or property;
6. It is levied by the law making
body of the state;
7. It is levied for public purpose.
REQUISITES FOR A VALID TAX:
1. Should be for a public purpose;
2. The rule of taxation shall be
uniform;
3. That either the person or the
property taxed should be within
the jurisdiction of the taxing
authority;
4. That the assessment and the
collection of a certain kinds of
taxes guarantees against
injustice to individuals, especially
by way of notice and opportunity
for hearing is provided;
5. The tax must not impinge on the
inherent and Constitutional
limitations on the power of
taxations.
DOCTRINE OF IMPRESCRIPTIBILITY:
As a rule, taxes are
imprescriptible as they are lifeblood of
the government. However, tax statute
may provide for statute limitations.
Rules have been adopted are as
follows:
a. National Internal Revenue
Code
b. Tariff and Customs Code
c. Local Government Code
DOUBLE TAXATION:

Means taxing the same property TAX AVOIDANCE V. TAX EVASION:

twice when it should be taxed once.
ELEMENTS:
1. The same property or subject
matter is taxed twice when is
should be taxed once;
2. Both taxes are levied for the
same purpose;
3. Imposed by the same taxing
authority;
4. Imposed within the same
jurisdiction;
5. During the same taxing period;
6. Covering the same kind or
character of tax.
METHODS IN REDUCING THE
RIGORS OF DOUBLE TAXATION:
TAX AVOIDANCE refers to the
action taken by the taxpayer to minimize
the payment or altogether eliminate his
tax liability by lawful means, while TAX
EVASION refers to the willful and
deliberate attempt done by a taxpayer to
reduce or altogether eliminate his tax
liability by unlawful means or device.
FACTORS IN FRAUD OR EVASIONS:
1. The end to be achieved;
2. The accompanying state of
mind;
3. The overt act done or
scheme used by the
taxpayer.

1. Tax credits
2. Tax reductions
3. Reduction of the Philippines
income tax rates TWO CLASSES OF LIMITATIONS OF
4. Tax exemptions TAXATIONS:
5. Tax treaties
1. The Constitutional limitations
Q: When an item of income taxed in 2. The inherent limitations
the Philippines and the same income
is taxed in another country, is there a
case of double taxation? CONTITUTIONAL LIMITATIONS:
Answer: Generally yes, but being
indirectly a double taxation imposed Bill of Rights ARTICLE III
different taxing authority, it is not
prohibited. However, to avoid the impact SECTION 1. No person shall be
of double taxation, some countries have deprived of life, liberty or property
considered it as allowable deduction as without due process of law, nor shall be
a tax credit. denied the equal protection of the law.

FORMS OF ESCAPE FROM

TAXATION: SECTION 4. No law shall be pass
abridging the freedom of speech, of
1. Shifting expression or of press or the right of the
2. Capitalization people peaceably to assemble and
3. Transformation petition of the government for redress or
4. Tax avoidance grievances.
5. Tax evasions
6. Tax fraud
SECTION 5. No law shall be made SECTIOON 6. Local government units
respecting an establishment of religion shall have a just share, as determined
or prohibiting the free exercise thereof. by law, in the national taxes which shall
The free exercise and enjoyment of be automatically released by them.
religious profession and worship, without
discrimination or preference, shall
forever be allowed. No religious test SECTION 34 OF NIRC. ALLOWABLE
shall be required for the exercise of civil DEDUCTIONS: (LITO BAD PED PRC)
and political rights.
1. Expenses
SECTION 10. No law impairing the 2. Interest
obligations and contracts shall be 3. Taxes
passed. 4. Losses
5. Bad Debts
SECTION 20. No person shall be 6. Depreciation
imprisoned for debt or non payment of 7. Depletion of Oil and Gas
poll tax. Wells and Mines
8. Charitable and Other
Legislative Department ARTICLE VI Contributions
9. Research and Development
SECTIONS 25, 26, 27, 28, 29 10. Pension Trusts
11. Additional Requirements for
Judiciary Department ARTICLE VIII Deductibility of Certain
Payments
SECTION 2. The Congress shall have 12. Optional Standard Deduction
the power to define, prescribe and 13. Premium Payments on
apportion the jurisdictions of the various Health and/or Hospitalization
courts but may not deprive the Supreme Insurance of an Individual
Court of its jurisdiction over cases Taxpayer
enumerated in Section 5 hereof.
SECTION 21 OF NIRC. SOURCES OF
SECTION 5. The Supreme Court shall REVENUE.
have the following powers.
1. Income tax;
2. Estate and donors tax;
Local Government ARTICLE X 3. Value-added tax;
4. Other percentage taxes;
SECTION 2. The territorial and political 5. Excise taxes;
subdivision shall enjoy local autonomy. 6. Documentary stamp taxes; and
7. Such other taxes as are or
SECTION 5. Each local government unit hereafter maybe imposed and
shall have the power to create its owns collected by the Bureau of
sources of revenues and to levy taxes, Internal Revenue. (a)
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.
STAGES OR ASPECTS OF
TAXATION:
1. Levy - refers to the enactment of
the laws of the Congress.,
imposing tax.
2. Assessment and collection the
act of administration and
implementation of the tax law by
the executive department
through the administrative
agencies.
3. Payment act of compliance by
taxpayer, including such options,
schemes or remedies as may be
legally available to him.
PURPOSES AND OBJECTIVES OF
TAXATION:
1. Revenue to raise revenue to
promote the general welfare and
protection of its citizens.
2. Regulatory to provide means
for the rehabilitation and
stabilization of a threatened
industry which is affected by
public interest as to be within the
police power of the state.
3. Promotion of general welfare-
may be use as implement of the
police power to promote the
general welfare of the people.
4. Reduction of social equality
progressive system of taxation
prevents the undue
concentration of wealth in the
few individuals.
5. Encourage the economic growth
by granting incentives and
exemptions the power to tax
and the power to exempt are
inherent in the State and in Local
Governments.
6. Protectionism to protect local
industries from foreign
competition.
NOTE: Taxes and debts cannot be the
subject of compensation the government
and the taxpayer are not mutually
creditors and debtors of each other and
a claim for taxes is not a debt, demand
contract, or judgment as is allowable to
be set off.
NOTE: The term tax applies generally
to al kinds of exactions which become
public funds.
NOTE: Sin Tax progressive income
taxes alleviate the margin between rich
and poor.
NOTE: Taxation is distinguished from
police power as to the means employed
to implement public good goals.
REQUISITES FOR VALIDITY OF
REGULATIONS:
1. It is issued under the authority of
law
2. It must be within the scope and
purview of the law
3. It is reasonable
4. It must be published in the
official Gazette or in a
newspaper of general
circulations
5. Where the regulations impose
penal sanctions, the law itself
must declare as punishable the
violation of the administrative
rule or regulations and the law
should fix and define the penalty
for the violation of the rule or
regulation.
TAX EVASION is a scheme used
outside of those lawful means and when
availed of, it is usually subjects the
taxpayer to further or additional civil or
criminal liabilities.
TAX AVOIDANCE is the tax saving
device within the means sanctioned by
law. This method should be used by the
taxpayer in good faith and at arms
length.
CONSTITUTIONAL LIMITATIONS:
Sec. 29, Article VI. NO MONEY SHALL
BE PAID OUT OF THE TREASURY,
EXCEPT IN PURSUANCE OF AN
APPROPRIATION MADE BYLAW.
Sec. 5, Article X. Constitution has
given broad powers of taxation to
local government units, this
delegation, however, is subject to
such limitations as may be provided
by law.
The Local Tax Code only allows
provinces and cities to impose a tax
on the transfer of ownership of real
property.
Foreign corporations effecting a OBLIGATION OF CONTRACTS
donations are subject to donors tax only
if the property donated is located in the
Philippines.
Executive agreement has the force and
effect of treaty under the provision of
Revenue Code. Taxation is subject to
International Comity.
NO PERSON SHALL BE DEPRIVED
OF LIFE, LIBERTY AND PROPERTY
WITHOUT DUE PROCESS OF LAW.
(Sec. 1, Article III).
There can be no discrimination where
the tax bases and rates for self-
employed and professionals, on one
hand, and for salaried employees, on
the other hand, are different. (Sidon v.
Ancheta)
While it is true that the Philippines as a
State is not obliged to admit aliens
within its territory, once an alien is
admitted, he cannot be deprived of life
without due process of law. This
guarantee includes the means of
livelihood. The shelter of protection
under the due process and equal
protection clause is given to all persons
both aliens and citizens. (Villegas v. Hiu
Chong Tsai Pao Ho)
NOR SHALL ANY PERSON BE
DENIED THE EQUAL [ROTECTION OF
THE LAW:
For the classification to be reasonable, it
must be shown that:
1. It rests on substantial
distinctions;
2. It is germane to the purpose
of the law;
3. It is not limited to the
existing conditions only;
4. It applies equally to all
members of the same class.
NO LAW IMPAIRING THE
SHALL BE PASSED. (Sec. 10, Article
III).
What constitutes an impairment of the
obligation of contract is the revocation of
an exemption which is founded on a
valuable consideration because it takes
a form and essence of a contract.
THE FREE EXERCISE AND
ENJOYMENT OF RELIGIUS
PROFESSION AND WORSHP,
WITHOUT DISCRIMINATION OR
PREFERENCE, SHALL FOREVER BE
ALLOWED. (Sec. 5, Article III).

Requiring a person to secure a Mayors

permit before he can engage in
businesses, trade or occupation, does
not impair the plaintiff constitutional
right. (American Bible v. City of Manila)

TAX EXEMPTION OF PROPERTIES

FOR RELIGIOUS , CHARITABLE AND
EDUCATIONAL PURPOSES. ( Sec 28
[3], Article III).

The exemption applies only to property

taxes. What is exempted is not the
institution itself but the lands, buildings,
and improvements actually, directly and
exclusively used for religious, charitable,
and educational purposes.

The usage of the property and not the

ownership is the determining factor
whether or not the property is taxable.

ALL APPROPRIATION, REVENUE OR

TARIFF BILLS SHALL ORIGINATE
FROM HOUSE OF
REPRESENTATIVES, BUT THE
SENATE MAY PROPOSE OR
CONCUR WITH AMENDMENTS. (Sec.
24, Article VI)

What is prohibited is for the Senate to

enact revenue measures on is own
without a bill originating from the House.
But once the revenue bill was passed by
the House and sent to the Senate, the
latter can passed its on version on the
same subject matter consonant with the
latters power to propose or concur with
amendments. This follows from the co
equality of the two chambers of
Congress. (Tolentino v. Sec. of Finance)