Atty.
Galeon - Consti2 Pre-Midterm Coverage:MRBKZ
Taxation as a power defined
 Power of the state to demand from us, members of the society our contribution for
the maintenance and operation of the government.
Taxation as a process of raising income defined
 Means by which the sovereign, through its law-making body or Congress raises
income to defray the necessary expenses of the government and for support of all
public needs.
ATTRIBUTES of the Power of Taxation
1. Inherent in the state – goes with the very existence of the state
2. Legislative in character – primarily lodged in Congress
3. Pervasive but subject to some limitations – Either inherent or constitutional
limitations
Taxes – income or revenue raised by the state
Taxes defined
 Enforced proportional and pecuniary contributions from persons or things levied by
the law-making body of the state having jurisdiction over the same or over the
persons or things subject of some impositions to defray the expenses of the
Government.
Taxation – the process of raising revenue and product or proof of such exercise of power.
Primary purpose of taxation
 to defray the expenses of the government
ESSENTIAL CHARACTERISTIC S OF A TAX
1. Enforced contribution – imposition is not dependent to our will but to the will of
Congress
2. Proportionate in character – it is based on one’s capacity to pay or the
proportionate value of the property
3. Normally payable in money – if in default, there’s a chance that his property may be
levied by the state and be sold at a public auction
4. Imposed/levied on persons (natural/juridical) or properties
5. Imposed/levied by the state having jurisdiction over the persons/properties
6. Normally levied by law-making body (Congress) of the state
7. Should be utilized for public purpose/s
HOW IMPORTANT IS TAX?
 It is very important as it is regarded as the “lifeblood of the government”
 Without taxes, we cannot expect our government to deliver basic services or pay
the salaries of government employees, etc.
POWER TO TAX IS COERCIVE and PERVASIVE
 Coercive because it is an enforced contribution
 Pervasive because even income derived elsewhere or abroad by Filipino citizens
who are residents of the Philippines is subject to our taxing power (Manny
Pacquiao’ case over his winnings in boxing abroad)
1. Sec. 23(a) of the NIRC – incomes derived inside or outside of the Philippines
is taxable
 Pervasive that it includes the “power to destroy” (McCulloch vs Maryland {US Case})
– Justice Marshall
1. BUT in Panhandle Oil Company vs. Mississippi, US SC decreed that power to
tax does not include power to destroy – Justice Holmes
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WHICH IS CONTROLLING? POWER TO TAX INCLUDES THE POWER TO DESTROY OR NOT? 2. reduce social inequality
 higher tax for higher income earners
 IT DEPENDS 3. to spur economic growth or progress
1. If utilized as a tool or an implement of police power, POWER TO TAX MAY INCLUDE  granting tax holidays
“POWER TO DESTROY” 4. to afford protection or protectionism
2. If merely used to raise revenue, it does not include the “power to destroy”  higher tax is imposed on imported goods to protect local producers
PURPOSES OF THE EXERCISE OF THE POWER OF TAXATION or manufacturers
5. promotion of general welfare
 Primary purpose is to raise revenue or income for the operation or maintenance of
the government
 Non-revenue purpose LIMITATIONS ON THE TAXING POWER OF THE STATE
1. To regulate or Regulation
 Gerochi vs. DOE  Inherent limitations
 if primary purpose is regulation and raising revenue is 1. Public purpose
merely incidental – collection is pursuant to the exercise of  Planters Product vs Fertiphil
Police of Power (Universal charge under EPIRA)  30% tax imposition for every sale of a sack of fertilizers is
 if primary purpose is to raise revenue and incidental thereto invalid for it was not for a public purpose but solely for the
is the regulation – collection is pursuant to the Taxing benefit of Planters Products which was a private
Power of the State corporation
o Police Power  But, in Lutz vs. Araneta
 license fee  Tax imposition for the sale of sugar was declared valid for it
 cost for issuance of permit and was for the rehabilitation of the failing sugar industry and
regulation not just for a particular sugar entity
 payment for the exercise  Cojuangco vs. Sandiganbayan
 business permits  Tax in the form of coconut levy was declared as invalid
 building permits because it was not for public purpose because of the
o tax – power of taxation contract entered into by Danding and the Republic of the
 unlimited, provided that it is not Philippines under Marcos granting Danding the power to
confiscatory administer the Coconut levy fund as if it was his.
 to raise revenue 2. Potestas delegata non delegari potest
Atty. Galeon - Consti2 Pre-Midterm Coverage:MRBKZ
 What the people have delegated to Congress should not be further
delegated.
 General Rule: Congress cannot delegate the power of
taxation
 Exceptions:
o Sec. 28(2), Article VI, 1987 Constitution – allows
congress to delegate the imposition of tariff rates in
favor of the President
Article VI, Sec. 28 (2) of the 1987 Constitution
“(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.”
o Delegation of taxing power to administrative bodies
like BIR ( only the power to administer and/or
enforce tax laws or regulations, but not the power
to promulgate)
 TAXING POWER OF LGUs, is this delegated by Congress? – NO. It is
not delegated by Congress but is directly conferred upon the LGUs by
Sec. 5, Article X, 1987 Constitution
Article X, Sec. 5 of the 1987 Constitution
“SECTION 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.”
3. Properties of the National Government or local political subdivisions are
exempt from taxation.
 MCIAA vs Marcos
 Properties owned by MCIAA are not exempt from the taxing
power of the LGUs because MCIAA is not an instrumentality
of the national government but a GOCC
 SC:
o tax exemptions granted under Sec. 234 (a) of the
LGC would only apply to the Republic of the
Philippines or properties owned by it and/or its
political subdivisions.
o “Rep. of the Phils.” Is not synonymous with the
term “national government”
 MIAA vs CA
 Properties owned by MIAA could not be taxed by the City of
Paranaque because MIAA is not a GOCC but an
instrumentality of the national government
 SC:
o Article 420 of the Civil Code – real properties owned
by the MIAA actually belong to or owned by the
Rep. of the Phil
o Sec. 234 (a) of the LGC – properties under Art. 420
of the CC are beyond the ambit of the taxing of the
LGUs
 Except: when beneficial use of such
property is transferred to a taxable person
WHICH IS CONTROLLING? MIAA because MCIAA was decided by a division of the SC decided
in 1996, while MIAA was decided in 2006 by the SC en banc.
Atty. Galeon - Consti2 Pre-Midterm Coverage:MRBKZ
 MCIAA vs City of Lapu-Lapu
 SC: real properties owned by airport corporations are
beyond the scope of the taxing power of LGUs
4. Subject to the rule of international comity
 Real properties owned by the foreign governments inside the Phils.
Like the embassy could not be imposed with real property taxes.
 Par in parem non habet imperium – there is equality among equals
5. Taxing laws of a state could only be enforced inside its territorial jurisdiction
with exceptions
 Phil. Gov’t cannot tax real properties owned by Filipinos abroad
(outside the taxing jurisdiction of our government)
 Except: income derived abroad by Filipino citizens who are
at the same time residents of the Philippines.
RECAP:
Inherent Limitations on the Power of Taxation
1. Public purpose
2. Non-delegability of the taxing power
- Except:
i. In favour of the President (Sec. 28 (2), Art. VI of the 1987
Constitution
ii. In favour of administrative bodies
iii. In favour of LGUs (Sec. 5, Art. X of the 1987 Constitution
3. Properties of the National Government or local political subdivisions are
exempt from taxation, except those properties where the beneficial use
thereof are transferred to taxable persons
4. Subject to the rule of international comity
5. Taxing laws may only be enforced within the territorial jurisdiction of the
state
 Constitutional Limitations
1. Sec. 1, Article III, 1987 Constitution (Due Process and Equal Protection)
 Tax rates imposed by laws must not be unjust, oppressive, and
confiscatory
Article III, Sec. 1 of the 1987 Constitution
“No person shall be deprived of life, liberty, or property without due process
of law, nor shall any person be denied the equal protection of the laws.”
2. Sec. 5, Article III, 1987 Constitution (free exercise of religion)
 American Bible Society vs. City of Manila
 City government of Manila could not impose a fee or a
license tax on the sale and distribution of religious articles
Article III, Sec. 5 of the 1987 Constitution
“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.”
3. Sec. 10, Article III, 1987 Constitution (ObliCon)
 Casanova vs. Hord
 SC:
o Tax privileges granted to Casanova could not be
withdrawn by the state as it would run afoul with
the proscription against enactment of laws that
would impair the obligations and contracts.
Atty. Galeon - Consti2 Pre-Midterm Coverage:MRBKZ
o Tax privilege with a reciprocal concession – cannot
be withdrawn by the state, otherwise it would
violate Sec. 10, Art. III, 1987 Constitution
o Tax privilege given without any reciprocal
concession – such tax privilege may be withdrawn
by the state even without a cause.
Article III, Sec. 10 of the 1987 Constitution
“No law impairing the obligation of contracts shall be passed.”
 PAGCOR vs. BIR
 Tax exemption given to PAGCOR was later on withdrawn by
Congress.
 SC:
o Such withdrawal was sustained as valid because
after all it was granted by the state for free
o Sec. 11, Art. XII of the 1987 Constitution
 franchise granted by the state is subject to
alteration, modification or even revocation
Article XII, Sec. 11 of the 1987 Constitution
“No franchise, certificate, or any other form of authorization for the operation
of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at
least sixty per centum of whose capital is owned by such citizens, nor shall
such franchise, certificate, or authorization be exclusive in character or for a
longer period than fifty years. Neither shall any such franchise or right be
granted except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good so requires.
The State shall encourage equity participation in public utilities by the general
public. The participation of foreign investors in the governing body of any
public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.”
LAW GIVING TAX EXEMPTION RULE
General Rule: Any such law granting tax exemption should be strictly construed against
the taxpayer or the grantee
Exception: when the grantee or the one given the tax privilege is an instrumentality or
agency of the national government.

4. Sec. 20, Article III, 1987 Constitution (non-imprisonment for non-payment of
poll tax)
Article III, Sec. 20 of the 1987 Constitution
“No person shall be imprisoned for debt or non-payment of a poll tax.”
5. Sec. 28 (1), Article VI, 1987 Constitution (uniformity of taxation)
 Persons belonging to the same class be subject to the same tax rate
 Except:
 Classification is based on substantial differences
 Classification is germane to the purpose of the law
 Classification is not limited to the present condition
 All persons belonging to the same class shall be alike both
as to the rights conferred and responsibilities imposed.
o Example: State would pass a law making a
classification between imported cigarettes and
locally-manufactured cigarettes thereby imposing a
higher tax rate on imported cigarettes.
Article VI, Sec. 28 (1) of the 1987 Constitution
“(1) The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.”
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6. Sec. 28 (3), Article VI, 1987 Constitution

 Lung Center vs. Quezon City
 Only this portion which was not exclusively utilized for
charitable purposes should be assessed with a real property
tax and the remaining portion will still be tax exempt or
exempt for real property tax.
 If property is actually, directly, and exclusively used for
charitable purposes
o Exempt from taxation
 Not exclusively used
o should be imposed with a real property tax
 income derived from a church among others and donations
in favor of the church
o Lladoc vs. Commissioner of Internal Revenue (CIR)
 What is granted under Sec. 28 (3), Art. VI of
the 1987 Constitution is only exemption
from payment of real property tax, a tax on
the property itself
 Donation in favor of the church is not tax
exempt
 .

Article VI, Sec. 28 (3) of the 1987 Constitution

“(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.”

7.