TAXATION LAW Three Powers of the State

TAXATION POLICE POWER EMINENT DOMAIN

Taxation Exercising Authority
 It is an inherent power by which the sovereign: Gov’t Gov’t Gov’t and Private Utilities
1) Through its law-making body Purpose
2) Raises income to defray the necessary expenses of the gov’t To support the gov’t To protect the general For public use
3) By apportioning the cost among those who, in some measure are privileged welfare of the people
to enjoy its benefits and, therefore, must bear its burden Persons Affected
Community and class of Community and class of Owner of the property
Note: Simply means, Power to impose burdens on subject and object within its individuals individuals
jurisdiction Amount of imposition
Unlimited Limited No amount imposed
Nature: (tax is based in gov’t (limited to cover cost of (gov’t pays just
1) Inherent – because its exercise is guaranteed by the mere existence of the needs) regulation) compensation)
state. Benefits Received
Protection of a secured Maintenance of healthy The person receives the
2) Legislative – it is the legislature which determines the coverage, object, nature, organized society, economic standard of fair market value of the
extent and situs of the tax impose. benefits received from society / No direct benefit property taken from him /
gov’t / No direct benefit direct benefit results
Taxing Authorities: Non-impairment of contracts
a) National Gov’t – Inherent Tax laws generally do not Contracts may be Contracts may be
b) Local Gov’t – Not Inherent, since it is merely an agency instituted by the impair contracts. impaired impaired
state for the purpose of carrying out in detail the objects of the gov’t. Can Unless: gov’t is party to
only impose taxes when there is: contract granting
1. Constitutionally mandated grant exemption for a
2. Legislative grant, derived from the 1987 Constitution consideration
Limitations
Characteristics: Constitution and inherent Public interest and due Public purpose and just
1) Comprehensive – it covers persons, business, activities, profession, rights and limitations process compensation
privileges
2) Unlimited – unlimited in force and searching in extent that courts scarcely
venture to declare that it is subject to any restriction.
Except: those rests in the discretion of the authority which exercise it.
3) Plenary – it is complete. Under NIRC. The BIR may avail of certain remedies to
ensure the collection of taxes.
4) Supreme – it is supreme insofar as the selection of the subject of taxation is
concerned.
Purpose: 2. Doctrine of Imprescriptibility - Taxes are imprescriptible as they are the
1. Revenue – to raise funds or property to enable the State to promote the lifeblood of the government. However, tax statutes may provide for statute of
general welfare and protection of the people. limitations.
2. Non-Revenue
a) Promotion of General Welfare – taxation may be used as an implement of Note: Although the NIRC provides for the limitation in the assessment and collection
police power to promote the general welfare of the people of taxes imposed, such prescriptive period will only be applicable to those taxes that
b) Reduction of Social Inequality – a progressive system of taxation prevents were returnable.
the undue concentration of wealth in the hands of few individuals. The prescriptive period shall start from the time the taxpayer files the tax return and
Progressivity is based on the principle that those who are able to declares his liability. (Collector v. Bisaya Land Transportaion Co., 1958)
pay more should shoulder the bigger portion of the tax burden.
c) Encourage Economic Growth - the grant of incentives or exemptions 3. Double Taxation - direct duplicate taxation, the two taxes must be imposed on
encourage investment thereby stimulating economic activity. the:
d) Protectionism – In case of foreign, importations, protective tariffs and  Same subject matter
customs are imposed to protest local industries.  same purpose,
 same taxing authority,
Principles of Sound Tax System:  within the same jurisdiction, during the same taxing period; and
1) Fiscal Adequacy – The sources of revenue must be adequate to cover gov’t  must be of the same kind or character. (City of Manila v. Coca Cola Bottlers
expenses. Philippines, G.R. No. 181845, Aug. 4, 2009)
2) Administrative Feasibility – the system should be at least capable of being
effectively administered.
3) Theoretical Justice – Should be fair and be based on a taxpayer’s ability to pay. As to Validity
Direct Double Taxation (Strict Sense) Indirect Double Taxation (Broad Sense)
Theory and Basis of Taxation:  It is prohibited since it violates the  This is allowed, if taxes are:
1) Lifeblood Theory – Taxes are the lifeblood of the state, without taxes, gov’t will equal protection clause of the - Of different nature
not operate Constitution. - Character imposed by different
2) Necessity Theory – Gov’t cannot continue to operate without taxes to pay for  Elements: taxing authorities
expenses; It can compel citizens to pay up. - Same Subject Matter  There are two or more pecuniary
3) Benefits-Protection Theory (Symbiotic Relationship) – Taxes are what we pay - Same Purpose imposition in the same subject
for a civilized society. We Pay, the gov’t protects. - Same Jurisdiction during same matter
Taxpayer – Pay Taxes taxing period
Government – Provide protection and benefits - Same taxing Authority
4) Favorable Business Climate Theory – Domestic corporations owe their - Must be of same kind and
corporate existence and privilege to do business to the gov’t; Gov’t can require character
them to make a reasonable contribution to the public expense. As to Scope
Domestic Double Taxation International Double Taxation
DOCTRINES IN TAXATION  When the taxes are imposed by the  occurs when there is an imposition
local and national government of comparable taxes in two or more
1. Prospectivity of Tax laws within the same State. states on the same taxpayer in
GR: Taxes must only be imposed prospectively. respect of the same subject matter
XPN: If the law expressly provides for retroactive imposition. Retroactive and for identical periods.
application of revenue laws may be allowed if it will not amount to denial of due
process.
Methods to ease the burden of double taxation 4. Tax Avoidance 5. Tax Evasion
Local legislation and tax treaties may provide for: Definition
1. Tax credit – an amount subtracted from taxpayer’s tax liability in order to arrive  It is the scheme where the taxpayer  It is the scheme where the taxpayer
at the net tax due. uses legally permissible alternative uses illegal or fraudulent means to
2. Tax deduction – an amount subtracted from the gross amount on which a tax is method of assessing taxable defeat or lessen payment of a tax.
calculated. property or income, in order to  Tax evasion is a scheme used
3. Tax exemption – a grant of immunity to particular persons or entities from the avoid or reduce tax liability. outside of those lawful means and
obligation to pay taxes.  is the tax saving device within the when availed of, it usually subjects
4. Imposition of a rate lower than the normal domestic rate means sanctioned by law. This the taxpayer to further or additional
method should be used by the civil or criminal liabilities
taxpayer in good faith and at arms (Commissioner v. Estate of Benigno
Escape from Taxation length. (Commissioner v. Estate of Toda Jr. G.R. No. 30554, Feb. 28,
1. Shifting - The transfer of the burden of tax by the original payer or the one on Benigno Toda Jr., G.R. No. 30554, 1983). Tax evasion is somestimes
whom the tax was assessed or imposed to another or someone else without Feb 28, 1983) referred to as Tax Dodging
violating the law.  Effect: Minimization of taxes  Effect: Almost always results in
absence of tax payment.
Kinds of Shifting: Validity
a) Forward shifting – When the burden of tax is transferred from a factor of Legal and not subject to criminal penalty Illegal and subject to criminal penalty
production through the factors of distribution until it finally settles on the Elements:
ultimate purchaser or consumer. 1. End to be achieved,
b) Backward shifting – When the burden is transferred from the consumer 2. Accompanying State of mind which
through the factors of distribution to the factors of production is described as being evil, in bad
c) Onward shifting – When the tax is shifted two or more times either faith, willful or deliberate and not
forward or backward. accidental; and
3. Course of action which is unlawful.
Note: Evidence to prove tax evasion
 Examples of taxes when shifting may apply are VAT, percentage tax, excise tax 1. Failure of taxpayer to declare for
on excisable articles, ad valorem tax that oil company pays to BIR upon removal taxation purposes his true and actual
of petroleum products from its refinery. income derived from business for (2)
 It applies to indirect taxes since the law allows the burden of the tax to be consecutive years;
transferred. In case of direct tax, the shifting of burden can only be via a 2. Substantial under declaration of
contractual provision. income in the income tax return for (4)
consecutive years coupled intentional
2. Capitalization - It is the reduction in the price of the taxed object equal to the overstatement of deductions.
capitalized value of future taxes which the purchaser expects to be called upon
to pay. Impact of taxation - Otherwise known as the burden of taxation, it is the economic
cost of the tax. The impact of taxation may fall on another person not statutorily
3. Transformation - It is the scheme where the manufacturer or producer upon liable to pay the tax.
whom the tax has been imposed, fearing the loss of his market if he should add
the tax to the price, pays the tax and endeavors to recoup himself by improving Incidence of taxation - The incidence of taxation is upon the person
his process of production, thereby turning out his units of products at a lower statutorily liable to pay the tax.
cost.
Note: Where the burden of the tax is shifted to the purchaser, the amount passed on
to it is no longer a tax but becomes an added cost on the goods purchased, which
constitutes a part of the purchase price.
Tax Treaty – They are entered to minimize, if not to eliminate, the harshness of
international juridical double taxation; Also known as Double tax treaty or Double
Tax Agreement (Deutsche Bank AG manila Branch vs. CIR, G.R. 188550, August 19,
2013)
6. Exemption from Taxation - It is the grant of immunity, express or implied, to
particular persons or corporations, from a tax upon property or an excise tax
which persons or corporations generally within the same taxing districts are
obliged to pay.
Nature of tax exemptions:
1. Personal in nature and covers only taxes for which the grantee is directly liable.
Note: It cannot be transferred or assigned by the person to whom it is given without
the consent of the State.
2. Strictly construed against the taxpayer.
3. Exemptions are not presumed. But when public property is involved, exemption
is the rule, and taxation, the exception.
kinds of tax exemptions:
As to basis
1. Constitutional – Immunities from taxation which originate from the Constitution.
2. Statutory – Those which emanate from legislation.
3. Contractual – Agreed to by the taxing authority in contracts lawfully entered into
by them under enabling laws.
4. Treaty
5. Licensing ordinance
As to form
1. Express – Expressly granted by organic or statute law.
2. Implied – When particular persons, properties or excises are deemed exempt as
they fall outside the scope of the taxing provision.
As to extent
1. Total – Connotes absolute immunity.
2. Partial – One where a collection of a part of the tax is dispensed with.
As to object
1. Personal – Granted directly in favor of certain persons.
2. Impersonal – Granted directly in favor of a certain class of property.
Principles governing tax exemptions:
1. Tax exemptions are highly disfavored in law.
2. Tax exemptions are personal and non- transferable.
3. He who claims an exemption must justify that the legislature intended to
exempt him by words too plain to be mistaken. He must convincingly prove that
he is exempted.
4. It must be strictly construed against the taxpayer.
5. Constitutional grants of tax exemptions are self-executing.
Note: Deductions for income tax purposes partake of the nature of tax exemptions,
hence, they are also be strictly construed against the taxpayer.
6. Tax exemption is generally revocable.
7. In order to be irrevocable, the tax exemption must be founded on a contract or
granted by the Constitution.
8. The congressional power to grant an exemption necessarily carries with it the
consequent power to revoke the same.
9. Revocation are constitutional even though the corporate do not have to
perform a reciprocal duty for them to avail of tax exemptions.
Other grants are in the nature of tax exemptions:
1. Tax amnesties
2. Tax condonations
3. Tax refunds
Q: Are all refunds in the nature of tax exemptions?
A: No. A tax refund may only be considered as a tax exemption when it is based
either on a tax- exemption statute or a tax-refund statute. Tax refunds or tax credits
are not founded principally on legislative grace, but on the legal principle of quasi-
contracts against a person’s unjust enrichment at the expense of another
Compensation or Set-Off - Compensation or set-off take place when two persons, in Persons allowed to enter into compromise of tax obligations
their own right, are creditors and debtors of each other (Article 1278, Civil Code). The law allows the following persons to do compromise in behalf of the
government:
Rules governing compensation or set-off as applied in taxation 1. BIR Commissioner, as expressly authorized by the NIRC, and subject to the
GR: No set-off is admissible against the demands for taxes levied for general or local following conditions:
governmental purposes. a) When a reasonable doubt as to validity of the claim against the taxpayer
exists; or
Note: Taxes are not in the nature of contracts between the parties but grow out of b) The financial position of the taxpayer demonstrates a clear inability to pay
duty to, and are positive acts of the government to the making and enforcing of the assessed tax. (Sec.204[A], NIRC)
which, the personal consent of the individual taxpayer is not required. (Francia v. 2. Collector of Customs, with respect to customs duties limited to cases where the
IAC, A.M. No. 3180, June 29, 1988) legitimate authority is specifically granted such as in the remission of duties
(Sec. 709, TCC)
XPN: Where both of the claims of the government and the taxpayer against each 3. Customs Commissioner, subject to the approval of the Secretary of Finance, in
other have already become due, demandable, and fully liquidated, compensation cases involving the imposition of fines, surcharges, and forfeitures. (Sec.2316,
takes place by operation of law and both obligations are extinguished to their TCC
concurrent amounts. In the case of the taxpayer’s claim against the government, the
government must have appropriated the amount thereto. (Domingo vs. Garlitos, Tax Amnesty - being a general pardon or intentional overlooking by the state of its
G.R. No. L-18849, June 29, 1963) authority to impose penalties on persons otherwise guilty of evasion or violation of
a revenue or tax law, partakes of an absolute forgiveness or waiver by the
government of its right to collect what otherwise would be due to it, and in this
Doctrine of Equitable Recoupment - It is a principle which allows a taxpayer, sense, prejudicial thereto, particularly to give tax evaders, who wish to relent or are
whose claim for refund has been barred due to prescription, to recover said tax by willing to reform a chance to do so and become a part of the new society with a
setting off the prescribed refund against a tax that may be due and collectible from clean slate. (Republic v. IAC, 1991)
him. Under this doctrine, the taxpayer is allowed to credit such refund to his existing
tax liability. Distinguish tax amnesty from tax exemption.
TAX AMNESTY TAX EXEMPTION
Note: The Supreme Court, rejected this doctrine in Collector v. UST (G.R. No. L- Scope of immunity
11274, Nov. 28, 1958), since it may work to tempt both parties to delay and neglect Immunity from all criminal, civil and Immunity from civil liability only
their respective pursuits of legal action within the period set by law. administrative obligations arising from
non- payment of taxes
Compromise Grantee
 It is an agreement between two or more persons who, to avoid lawsuit, General pardon given to all erring A freedom from a charge or burden to
amicably settle their differences on such terms and conditions as they may taxpayers which others are subjected
agree on. How applied
 It implies the mutual agreement by the parties in regard to the thing or Applied retroactively Applied prospectively
subject matter which is to be compromised. Presence of actual revenue loss
 It is a contract whereby the parties, by reciprocal concessions avoid There is revenue loss since there was None, because there was no actual taxes
litigation or put an end to one already commenced. actually taxes due but collection was due as the person or transaction is
waived by the government protected by tax exemption.
Note: Compromises are generally allowed and enforceable when the subject matter
thereof is not prohibited from being compromised and the person entering such
compromise is duly authorized to do so.
CONSTRUCTION AND INTERPRETATION OF TAX LAWS Q: Are the tax exemptions strictly construed against government political
subdivision or instrumentality?
Nature of tax laws
1. Not political A: No. It is a recognized principle that the rule on strict interpretation does not apply
2. Civil in nature in the case of exemptions in favor of a government political subdivision or
3. Not penal in character instrumentality. The reason for the strict interpretation does not apply in the case of
exemptions running to the benefit of the government itself or its agencies. In such a
case, the practical effect of an exemption is merely to reduce the amount that has to
Tax laws construed as: be handled by government in the course of its operations. For these reasons,
1. Generally, no person or property is subject to tax unless within the terms or provisions granting exemptions to government agencies may be construed liberally,
plain import of a taxing statute. in favor of non-taxability of such agencies. (Maceda vs. Macaraig, 197 SCRA 771)
2. Tax laws are generally prospective in nature.
3. Where the language is clear and categorical, the words employed are to be Q: How are tax rules and regulations construed?
given their ordinary meaning. A: The construction placed by the office charged with implementing and enforcing
4. When there is doubt, tax laws are strictly construed against the Government the provisions of a Code should be given controlling weight unless such
and liberally in favor of the taxpayer. interpretation is clearly erroneous.

Note: Taxes, being burdens, are not to be presumed beyond what the statute Q: How are penal provisions of tax laws construed?
expressly and clearly provides. A: Penal provisions are given strict construction so as not to extend the plain terms
thereof that might createoffenses by mere implication not so intended by the
5. Provisions of the taxing act are not to be extended by implication. legislative body. (RP v. Martin, G.R. No. L-38019, May 16, 1980)
6. Tax laws are special laws and prevail over general laws.
Q: What is meant by the strict construction rule?
Rule on construction of tax exemptions: A: When it is said that exemptions must be strictly construed in favor of the taxing
GR: Strict construction of tax exemptions against grantee. power, this does not mean that if there is a possibility of a doubt it is to be at once
XPN: resolved against the exemption. It simply means that if, after the application of all
1. If the statute granting exemption expressly provides for liberal interpretation; the rules of interpretation for the purpose of ascertaining the intention of the
2. In case of exemptions of public property; legislature, a well founded doubt exists, then the ambiguity occurs which may be
3. Those granted to traditional exemptees; settled by the rule of strict construction.
4. Exemptions in favor of the government;
5. Exemption by clear legislative intent. Note: Moreover, rulings are not the same as laws or rules and regulations. They only
6. In case of special taxes (relating to special cases affecting special persons) issue upon query by a taxpayer.

Note: The intent of the legislature to grant tax exemption must be in clear and
unmistakable terms. Exemptions are never presumed. The burden of establishing
right to an exemption is upon the claimant.

SCOPE AND LIMITATION OF TAXATION


1.) INHERENT LIMITATIONS
a) Public Purpose
 is for the welfare of the nation and/or for greater portion of the
population;
 affects the area as a community rather than as individuals;
 is designed to support the services of the government for some of its
recognized objects.
Tests in determining public purpose
1. Duty test - Whether the thing to be furthered by the appropriation of
public revenue is something which is the duty of the State as a government
to provide.
Note: The term “public purpose” is not defined. It is an elastic concept that can be
hammered to fit modern standards. Jurisprudence states that “public purpose”
should be given a broad interpretation. It does not only pertain to those purposes
which are traditionally viewed as essentially government functions, such as building
roads and delivery of basic services, but also includes those purposes designed to
promote social justice. Thus, public money may now be used for the relocation of
illegal settlers, low-cost housing and urban agrarian reform (Planters Products, Inc.
v. Fertiphil Corporation, G.R. No. 166006, Mar. 14, 2008)
2. Promotion of general welfare test - Whether the proceeds of the tax will
directly promote the welfare of the community in equal measure.
Q: Who determines the public purpose for which a tax law is enacted?
A: Congress. However, this will not prevent the court from questioning the propriety
of such statute on the ground that the law enacted is not for a public purpose; but
once it is settled that the law is for a public purpose, the court may no longer
inquire into the wisdom, expediency or necessity of such tax measure.
Note: If the tax measure is not for public purpose, the act amounts to confiscation
of property.
Principles relative to public purpose
1. Tax revenue must not be used for purely private purposes or for the exclusive
benefit of private persons.
2. Inequalities resulting from the singling out of one particular class for taxation or
exemption infringe no constitutional limitation because the legislature is free to
select the subjects of taxation.
Note: Legislature is not required to adopt a policy of “all or none” for the Congress
has the power to select the object of taxation. (Lutz v. Araneta, G.R. No. L-7859, 22
December 1955)
3. An individual taxpayer need not derive direct benefits from the tax.
4. Public purpose is continually expanding. Areas formerly left to private initiative
now lose their boundaries and may be undertaken by the government if it is to
meet the increasing social challenges of the times.
5. The public purpose of the tax law must exist at the time of its enactment.
(Pascual vs. Secretary of Public Works, G.R. No. L-10405. 29 December 1960)
b) INHERENTLY LEGISLATIVE
GR: The power to tax is exclusively vested in the legislative body; hence, it may not
be delegated. (Delegata potestas non potest delegari)
XPNs:
1. Delegation to Local Government – Refers to the power of local government
units to create its own sources of revenue and to levy taxes, fees and charges.
(Art. X, Sec. 5, 1987 Constitution)
2. Delegation to the President – The authority of the President to fix tariff rates,
import or export quotas, tonnage and wharfage dues or other duties and
imposts. (Art. VI, Sec. 28(2), 1987 Constitution)
3. Delegation to administrative agencies – When the delegation relates merely to
administrative implementation that calls for some degree of discretionary
powers under sufficient standards expressed by law or implied from the policy
and purposes of the Act.
a. Authority of the Secretary of Finance to promulgate the necessary rules
and regulations for the effective enforcement of the provisions of the law.
(Sec. 244, R.A.8424)
b. The Secretary of Finance may, upon the recommendation of the
Commissioner, require the withholding of a tax on the items of income
payable. (Sec. 57, R.A. 8424)
 c) Territoriality Rationale:
1. The taxing authority has control because of the
GR: The taxing power of a country is limited to persons and property within and stationary and fixed character of the property.
subject to its jurisdiction. 2. The place where the real property is situated
gives protection to the real property; hence the
Reasons: property or its owner should support the
1. Taxation is an act of sovereignty which could only be exercised within a government of that place.
country’s territorial limits. Personal Property Domicile of the owner (mobilia sequuntur personam)
2. This is based on the theory that taxes are paid for the protection and services
provided by the taxing authority which could not be provided outside the Rationale: The place where the tangible personal
territorial boundaries of the taxing State. property is found gives its protection.
XPNs:
1. Where tax laws operate outside territorial jurisdiction – i.e. Taxation of resident
citizens on their incomes derived abroad. Where the property is physically located although the
2. Where tax laws do not operate within the territorial jurisdiction of the State. Tangible Personal owner resides in another jurisdiction (51 Am Jur. 467)
a. When exempted by treaty obligations; or Property
b. When exempted by international comity.

Situs of taxation - It is the place or authority that has the right to impose and
collect taxes. (Commissioner v. Marubeni, G.R. No. 137377, Dec.18, 2001)

2 GR: Situs of intangible personal property is the

Factors that determine the situs of taxationReCiNS
1. Residence of the taxpayer domicile of the owner pursuant to the principle of
Intangible personal the mobilia sequntur personam.
2. Citizenship of the taxpayer
Property
3. Nature of the tax
XPN:
4. Subject matter of the tax 5.Source of income.
1. When the property has acquired a business situs
in another jurisdiction;
2. When an express provision of the statute provide
Rules in Fixing Tax Situs for another rule.
OBJECT SITUS EXCISE TAX/ DONOR’s TAX/ ESTATE TAX
INCOME TAX Nationality – applied to Taxed upon their properties wherever situated
Nationality – applied Upon sources of income derived within and without the RC, NRC
to RC. DC Philippines
Place – applied to NRA Taxed on properties situated within the Philippines
Place – applied to Upon sources of income derived within the Philippines
NRC, NRA, NRFC Residence – applied to Taxed upon their properties wherever situated
Upon sources of income derived within the Philippines RA
BUSINESS TAX Place where the act/ business is performed or
Residence – applied occupation is engaged in
to RA, RFC
VAT Where the goods, property or services are destined,
PROPERTY TAX used or consumed
Real Property Location of the property (lex rei sitae / lex situs)
For purposes of estate and donor’s taxes, what are the intangible properties with e) Rules on tax exemptions of government agencies or instrumentalities:
situs in the Philippines?
4 1. If the taxing authority is the National Government:
Fran-Sha (Organized-Established-85-Foreign Situs)
1. Franchise which must be exercised in the Philippines;
GR: The government is exempt from tax.
2. Shares, obligations or bonds issued by any corporation or
sociedadanonimaOrganized or constituted in the Philippines in accordance with
Reason: Otherwise, we would be “taking money from one pocket and putting it in
its laws;
another.” (Board of Assessment Appeals of Laguna v. CTA, G.R. No. L- 18125, May
3. Shares, obligations or bonds by any foreign corporation 85% of its business is
31, 1963)
located in the Philippines;
4. Shares, obligations or bonds issued by any Foreign corporation if such shares,
XPN: When it chooses to tax itself. Nothing prevents Congress from decreeing that
obligations or bonds have acquired a business Situs in the Philippines;
even instrumentalities or agencies of the government performing government
5. Shares or rights in any partnership, business or industry Established in the
functions may be subject to tax. Where it is done precisely to fulfill a constitutional
Philippines (Sec. 104, NIRC)
mandate and national policy, no one can doubt its wisdom. (MCIAA v. Marcos, G.R.
d) International comity - It refers to the respect accorded by nations to each
No. 120082, Sept. 11, 1996)
other because they are sovereign equals. Thus, the property or income of a
foreign state may not be the subject of taxation by another state.
Q: What is the rationale for government to tax itself notwithstanding that it only
incurs administrative cost in the process?
International comity as a limitation on the power to tax.
 The Philippine Constitution expressly adopted the generally accepted principles
A: Taxes, even those coming from the government, are shared with the local
of international law as part of the law of the land. (Sec. 2, Art. II, 1987
government units through the internal revenue allocation. On the other hand, the
Constitution)
increased income arising from the tax exemption translates to more revenues or
 Thus, a State must recognize such generally accepted tenets of International
dividends to the national government. However, in case of dividends, GOCCs are
Law that limit the authority of the government to effectively impose taxes upon
only required to remit 50% of their profits. These revenues need not be shared with
a sovereign State and its instrumentalities.
the local government units.
Reasons:
1. In par in parem non habet imperium. As between equals there is no sovereign.
2. If the taxing authority is the local government unit,
(Doctrine of Sovereign Equality)
RA 7160 expressly prohibits local government units from levying tax on the
2. The concept that when a foreign sovereign enters the territorial jurisdiction of
National Government, its agencies and instrumentalities and other LGUs.
another, it does not subject itself to the jurisdiction of the other.
3. The rule of international law that a foreign government may not be sued
Q: Will the mere fact that an entity is an agency or instrumentality of the national
without its consent so that it is useless to impose a tax which could not be
government make it exempt from local or national tax?
collected.
A: It depends:
May the government tax itself?
1. Agencies performing governmental functions are tax exempt unless expressly
A: Yes. One of the inherent limitations on the power of taxation is recognition of tax
taxed.
exemptions in favor of the government. This is premised on the concept that with
2. Agencies performing proprietary functions are subject to tax unless expressly
respect to the government, exemption is the rule and taxation is the exception in
exempted.
order to reduce administrative costs. But since sovereignty is absolute and taxation
is an act of high sovereignty, the state if so minded could tax itself, including its
political subdivisions. (Maceda v. Macaraeg, G.R. No. 88291, June 8, 1993)
Q: Are government educational institutions exempt from taxes?
GR: They shall not be taxed with respect to their income.
XPN: The income of whatever kind and character:
 from any of their properties, real or personal, or
 from any of their activities conducted for profit, regardless of the
disposition made of such income, shall be subject to tax imposed (Sec. 30
[1], NIRC)
Q: What about the constitutional tax exemption for non-stock non-profit
educational institutions?
A: 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.
The Constitution provides that as long as the revenue is used ADE for educational
purposes, the revenue remain tax exempt. It appears that Section 30 of the NIRC is
inconsistent with the Constitution. Constitution should still prevail. (See page 26 for
the illustrative case)
Note: Income derived from any public utility or from the exercise of any essential
governmental function accruing to the government or to any political subdivision
thereof is exempt from income tax. (Sec. 32[B][7][b], NIRC)
2.) CONSTITUTIONAL LIMITATIONS
a) Article 3, Sec. 1
“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.”
b) Article 3, 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.”
c) Article 3, Sec. 10
“No law impairing the obligation of contracts shall be passed.”
d) Article 3, Sec. 20
“No person shall be imprisoned for debt or non-payment of a poll tax.”
Poll Tax – it is a fixed amount upon all persons, or upon all persons of a certain class,
residents within a specified territory, without regard to their property or occupation;
It is a tax imposed on a per head basis; Present Poll tax is the community tax.
Imprisonment for non-payment of tax.
GR: A person may be imprisoned for non-payment of internal revenue taxes, such
as income tax as well as other taxes that are not poll taxes if expressly provided by
law.
XPN: A person cannot be sent to prison for failure to pay the community tax
e) Article 6, Sec. 24
“All appropriation, revenue or tariff bills, bills authorizing 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.”
f) Article 6, Sec. 28 par. 1
“The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation”
Uniformity – it means all taxable articles or kinds of property of the same class shall
be taxed at the same rate.
Equality – when the burden of the tax falls equally and impartially upon all the
person and property subject to it.
Equity - when its burden falls on those better able to pay
Note: TAXATION IS PROGRESSIVE when tax rate increases as the income of the
taxpayer increases.
g) Article 6, Sec. 28 par. 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”.
Requisites in order for the President to validly impose tariff rates, imports and
export quotas, tonnage and wharfage dues.
1) Delegated by Congress through law
2) Subject to Congressional limits and restrictions
3) Within the framework of national development program
h) Article 6, Sec. 28 par. 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.”
Exempted from the payment of property taxes
1) Charitable Institutions
2) Churches and arsonages or convents appurtenant thereto, mosques
3) Non-profit cemeteries, and
4) all lands, buildings, and improvements, actually, directly, and exclusively used
for religious, charitable, or educational purposes shall be exempt from
taxation
Note: To be entitled to the exemption, petitioner must prove that they are actually,
directly and exclusively used for charitable purpose
i) Article 6, Sec. 28 par. 4
“No law granting any tax exemption shall be passed without the concurrence of a
majority of all the Members of the Congress.”
j) Article 10, 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.”
k) Article 10, Sec. 18
“The Congress shall enact an organic act for each autonomous region with the
assistance and participation of the regional consultative commission composed of
representatives appointed by the President from a list of nominees from
multisectoral bodies. The organic act shall define the basic structure of government
for the region consisting of the executive department and legislative assembly, both
of which shall be elective and representative of the constituent political units. The
organic acts shall likewise provide for special courts with personal, family, and
property law jurisdiction consistent with the provisions of this Constitution and
national laws.
The creation of the autonomous region shall be effective when approved by
majority of the votes cast by the constituent units in a plebiscite called for the
purpose, provided that only provinces, cities, and geographic areas voting favorably
in such plebiscite shall be included in the autonomous region.
l) Article 10, Sec. 20 par.2
“Within its territorial jurisdiction and subject to the provisions of this Constitution
and national laws, the organic act of autonomous regions shall provide for legislative
powers over:
(2) Creation of sources of revenues;
m) Article 14, Sec. 4 par. 3 & 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.”
(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”
Stages of Taxation
 2. It should be uniform;
1. Tax Legislation (Levy or Imposition) – This refers to the enactment of a law by 3. That either the person or property being taxed be within the jurisdiction of the
Congress authorizing the imposition of tax. It further contemplates the taxing authority; and
determination of the subject of taxation, purpose for which the tax shall be 4. The tax must not impinge on the inherent and constitutional limitations on the
levied, fixing the rate of taxation and the rules of taxation in general. power of taxation

2. Tax Administration (Assessment and Collection) – This is the act of

administration and implementation of the tax law by executive through its
administrative agencies. TAX CUSTOMS DUTY
Coverage
The act of assessing and collecting taxes is administrative in character, and More comprehensive than customs duty Only a kind of tax therefore limited
therefore can be delegated. (Dimaampao, Tax Principles and Remedies 3rd Ed. coverage
2008, p.21) Object
Persons, property, etc. Goods imported or exported
3. Payment – The act of compliance by the taxpayer, including such options,
schemes or remedies as may be legally available.

4. Refund – The recovery of any tax alleged to have been erroneously or illegally TAX TOLL
assessed or collected, or of any penalty claimed to have been collected without Definition
authority, or of any sum alleged to have been excessively, or in any manner An enforced proportional contribution A consideration paid for the use of a
wrongfully collected. from persons and property for public road, bridge or the like, of a public
purpose/s. nature.
Note: If what is delegated is tax legislation, the delegation is invalid. If what is Basis
delegated is tax administration, the delegation is valid. (Then there is no delegation
Demand of sovereignty Demand of proprietorship
to speak of, because tax administration pertains to the executive or administrative
Amount
agencies)
Generally the amount is unlimited Amount is limited to the cost and
maintenance of public improvement
Taxes
Purpose
 These are enforced proportional contributions from persons and
properties, For the support of the government For the use of another’s property
 levied by the State by virtue of its sovereignty Authority
 for the support of the government and for all its public needs. (1Cooley 62). May be imposed by the State only May be imposed by private individuals
or entities
Characteristics of taxes (SLEP4)
1. It is levied by the State which has jurisdiction over the person or property
2. It is levied by the State through its Law-making body
3. It is an Enforced contribution not dependent on the will of the person taxed.
4. It is generally Payable in money
5. It is Proportionate in character
6. It is levied on Persons and property 7. It is levied for a Public purpose.

REQUISITES OF VALID TAX TAX SPECIAL ASSESSMENT

1. It should be for a public purpose; Nature
An enforced proportional contribution An enforced proportional contribution Obligation created by law Obligation based on contract, express or
from persons and property for public from owners of lands especially those implied
purpose/s. who are peculiarly benefited by public Assignability
improvements Not Assignable Assignable
Subject Mode of Payment
Imposed on persons, property rights or Levied only on land Payable in money or in kind Payable in kind or in money
transactions Set-off
Person Liable Not subject to set-off Subject to set-off
A personal liability of the taxpayer Not a personal liability of the person Effect of non-payment
assessed May result imprisonment No imprisonment (except when debt
Purpose arises from crime)
For the support of the government Contribution to the cost of public Interest
improvement Bears interest only if delinquent Interest depends upon the written
Scope stipulation of the parties
Regular exaction Exceptional as to time and locality Prescription
Governed by the special prescriptive Governed by the ordinary periods of
periods provided for in the NIRC prescription

TAX LICENSE FEE

Purpose
Imposed to raise revenue For regulation and control
Basis
Collected under the power of taxation Collected under police power
Amount
Generally, amount is unlimited Limited to the necessary expenses of
regulation and control
Subject
Imposed on persons, property, rights or Imposed on the exercise of a right or
transaction privilege
Effects of Non-Payment
Non-payment does not make the Non-payment makes the business illegal
business illegal
Time of Payment
Normally paid after the start of business Normally paid before the
commencement of the business
KINDS OF TAXES
1. As to object / subject matter
a. Personal/Poll or Capitation tax – A fixed amount imposed upon all
persons, or upon all persons of a certain class, residents within a specified
territory, without regard to their property or occupation.
E.g. Community tax
b. Property tax – Tax imposed on property, whether real or personal, in
proportion either to its value, or in accordance with some other reasonable
method of apportionment.
E.g. Real Property tax
c. Excise / Privilege tax – a charge upon the performance of an act, the
enjoyment of a privilege, or the engaging in an occupation. An excise tax is
a tax that does not fall as personal or property.
E.g. Income tax, Estate tax, Donor’s tax, VAT

Note: This is different from the excise tax under the NIRC which is a business tax
imposed on items such as cigars, cigarettes, wines, liquors, frameworks, mineral
products, etc.
TAX DEBT
2. As to who bears the burden:
Basis
 a. Direct – one that is demanded from the person who also shoulders the a. Progressive – A tax rate which increases as the tax base or bracket
burden of tax. increases. Income tax, Estate tax and Donor’s tax
E.g. Income tax, Estate tax and Donor’s tax
b. Regressive – The tax rate decreases as the tax base or bracket increases.
b. Indirect – one which is shifted by the taxpayer to someone else.
E.g. VAT and Other percentage taxes c. Proportional – A tax of a fixed percentage of amount of the base (value of
the property, or amount of gross receipts etc.)
3. As to determination of the amount / tax rates: E.g. VAT and Other Percentage taxes
a. Specific – tax of a fixed amount imposed by the head or number, or by
some standard of weight or measurement. 7. As to tax basis:
E.g. Excise tax on cigar, cigarettes and liquors a. Gross Taxation – does not admit of any deductions.

b. Ad valorem – tax based on the value of the property with respect to which b. Net Taxation – admits of deductions in arriving at the taxable base.
the tax is assessed. It requires the intervention of assessors or appraisers to
estimate the value of such property before the amount due can be
determined.
E.g. VAT, Income tax, Donor’s tax and Estate tax

4. As to purpose:
a. General/Fiscal or Revenue – tax imposed solely for the general purpose of
the government.
E.g. Income tax and Donor’s tax

b. Special / Regulatory or Sumptuary – tax levied for specific purpose, i.e. to

achieve some social or economic ends Tariff and certain duties on imports

5. As to scope/ or authority to impose:

a. National tax – Tax levied by the National Government.
E.g. Income tax, Estate tax, Donor’s tax, Value added tax, Other Percentage
taxes and Documentary Stamp taxes

b. Local or Municipal – A tax levied by a local government.

E.g. Real Estate tax and Community tax

6. As to proportionality or graduation: