Chapter I
because the government can neither
GENERAL PRINCIPLES
Taxation
- is a mode of raising revenue for
public purposes
Taxes
- are enforced proportional
contributions from persons and
property, levied by the state by
virtue of its sovereignty for the
support of the government and for
all its public needs.
- are not arbitrary exactions but
contributions levied by authority of
law, and by some rule of proportion
which is intended to insure
uniformity of contribution and a just
apportionment of the burdens of
government
THUS:
1. Taxes are enforced contributions.
- Taxes are obligations created by law
- Taxes are never founded on contract
or agreement, and are not
dependent for their validity upon
the individual consent of the
persons taxed
2. Taxes are proportional in character,
since taxes are based on one's ability to
pay.
3. Taxes are levied by authority of the law
- The power to impose taxes is a
legislative power; it cannot be
imposed by the executive
department nor by the courts.
4. Taxes are for the support of the
government and all its public needs
BASIS OF TAXATION
A. Taxation and the Lifeblood Doctrine
- Taxation has been defined as the
power by which the sovereign raises
revenue to defray the necessary
expenses of government.
- It is a way of apportioning the cost of
government among those who in
some measure are privileged to
enjoy the benefits and must
therefore bear its burdens.
- The power of taxation is essential
exist nor endure without taxation.
- Taxes are the lifeblood of the
government and their prompt and
certain availability is an imperious
need.
- The collection of taxes must be
made without hindrance if the state
is to maintain its orderly existence
- Taxes are what we pay for a civilized
society
CIR v. BPI 521 SCRA 373,387-388
- xxx (T)he public will suffer if
taxpayers will not be held liable for
the proper taxes assessed against
them: "Taxes are the lifeblood of the
government, for without taxes, the
government can neither exist nor
endure." A principal attribute of
sovereignty, the exercise of taxing
power derives its source from the
very existence of the state whose
social contract with its citizens
obliges it to promote public interest
and common good. The theory
behind the exercise of the power to
tax emanates from necessity;
without taxes, government cannot
fulfill its mandate of promoting the
general welfare and wellbeing of the
people.
CIR v. PINEDA 21 SCRA 105*
- The Government resorted to the
administrative remedy of
enforcement of tax lien in trying to
collect deficiency income tax of the
estate of Atanasio Pineda. Manuel B.
Pineda, the eldest son of the
deceased, who was made to pay the
full amount of the taxes assessed
questioned the assessment on the
ground that as an heir he is liable for
unpaid income tax due the estate
only up to the extent of and in
proportion to any share he received.
HELD:
The Government can require
Manuel B. Pineda to pay the full
amount of the taxes assessed.
Pineda is liable for the assessment as
an heir and as a holder-transferee of
 property belonging to the
estate/taxpayer.
As an heir, he is individually
answerable for the part of the tax
proportionate to the share he
received from the inheritance. His
liability, however, cannot exceed the
amount of his share.
As a holder of property belonging to
the estate, Pineda is liable for the tax
up to the amount of the property in
his possession. The reason is that the
Government has a lien on the P2,500
received by him from the estate as
his share in the inheritance for
unpaid taxes for which the estate is
liable, pursuant to the last
paragraph of Section 315 of the Tax
Code (now Section 219, NIRC). By
virtue of such lien, the Government
has the right to subject the property
in Pineda's possession, i.e., the
P2,500 to satisfy the income tax
assessment in the amount of
P760.28.
The second remedy (tax lien) is the
very avenue the Government took in
this case to collect the tax. The
Bureau of Internal Revenue should
be given, in instances like the case at
bar, the necessary discretion to avail
itself of the most expeditious way to
collect the tax as may be envisioned
in the particular provision of the Tax
Code above-quoted, because TAXES
ARE THE LIFEBLOOD OF THE
GOVERNMENT AND THEIR PROMPT
AND CERTAIN AVAILABILITY IS AN
IMPERIOUS NEED.
MISAEL P. VERA, et al. v. HON. JOSE F.
FERNANDEZ, et al. 89 SCRA 199
The Government of the Republic of
the Philippines claimed deficiency
income taxes against the Estate of
the late Luis D. Tongoy. The
Administrator argued that the
claim was barred under Section 5,
Rule 86 of the Rules of Court.
Hence, the issue as to whether or
not the Statute of Non-Claims —
Sec. 5, Rule 86 of the New Rules of
Court — barred the claim of the
government for unpaid taxes,
though it was filed within the
period of limitation prescribed in
Sections 331 and 332 of the NIRC.
HELD:
The Supreme Court ruled in the
negative, citing the case of
Pineda v. CFI of Tayabas which
gave exception to the claim for
taxes from being filed as other
claims. The reason for the more
liberal treatment of claims for
taxes against a decedent's
estate is because (T)axes are
the lifeblood of the
Government and their prompt
and certain availability are an
imperious need." Upon
taxation depends the
Government's ability to serve
the people for whose benefit
taxes are collected."
Furthermore, as held in CIR v.
Pineda, supra, payment of
income tax shall be a lien in
favor of the Government of the
Philippines from the time the
assessment was made by the
Commissioner of Internal
Revenue until paid with
interests, penalties, etc. By
virtue of such lien, the SC held
that the property of the estate
already in the hands of an heir
or transferee may be subject to
the payment of the tax due the
estate.
CIR v. CTA" 234 SCRA 348
A petition for review of the
decision of the BIR denying the
tax refund of Citytrust was filed
with the CTA. It was submitted
for decision based solely on the
pleadings and evidence
submitted by Citytrust. CIR
could not present any evidence
by reason of the repeated
failure of the Tax Credit/Refund
Division of the BIR to transmit
the records of the case, as well
as the investigation report
thereon, to the Solicitor
COMMISSIONER v. ALGUE, INC. 158 SCRA 9
General. The CTA rendered its
decision ordering BIR to grant a
refund to Citytrust in the
amount of PI3,314,506.14. The
CA affirmed the judgment of
the CTA.
HELD:
It is a long and firmly settled
rule of law that the
Government is not bound by
the errors committed by its
agents. In the performance of
its government functions, the
State cannot be estopped by
the neglect of its agents and
officers. Although the
Government may generally be
estopped through the
affirmative acts of public
officers acting within their
authority, their neglect or
omission of public duties as
exemplified in this case will not
and should not produce that
effect.
Nowhere is the aforestated rule
more true than in the field of
taxation. It is axiomatic that the
Government cannot and must
not be estopped particularly in
matters involving taxes. Taxes
are the lifeblood of the nation
through which the government
agencies continue to operate
and with which the State
effects its functions for the
welfare of its constituents. The
errors of certain administrative
officers should never be
allowed to jeopardize the
Government's financial
position, especially in the case
at bar where the amount
involves millions of pesos the
collection whereof, if justified,
stands to be prejudiced just
because of bureaucratic
lethargy.
Judgment of CA is SET ASIDE
and the case is REMANDED to
the CTA for further proceedings
and appropriate action.
The Commissioner of Internal
Revenue contends that the
claimed deduction was
properly disallowed because it
was not an ordinary,
reasonable or necessary
business expense. The Court of
Tax Appeals, however, agreed
with Algue, Inc. in holding that
the said amount had been
legitimately paid by Algue, Inc.
as promotional fees for their
work in the formation of
Vegetable Oil Investment
Corporation of the Philippines
and its subsequent purchase of
the properties of the Philippine
Sugar Estate Development
Corporation.
HELD:
Ruling in favor of Algue, Inc.,
the Supreme Court held that
Algue, Inc. has proved that the
payment of fees was necessary
and reasonable in the light of
efforts exerted by the payees in
inducing investors and
prominent businessmen to
venture in an experimental
enterprise and involve
themselves in a new business
requiring millions of pesos. This
was no mean feat and should
be, as it was, sufficiently
recompensed.
Taxes are the lifeblood of the
government and so should be
collected without unnecessary
hindrance. On the other hand,
such collection should be made
in accordance with law as any
arbitrariness will negate the
very reason for government
itself. It is, therefore, necessary
to reconcile the apparently
conflicting interests of the
authorities and the taxpayers
so that the real purpose of
taxation, which is the
 promotion of the common
good, may be achieved. (See
also 'The Doctrine of Symbiotic
Relationship')
DAVAO GULF LUMBER CORP. v. CIR 293 SCRA 77
Because taxes are the lifeblood
of the nation, statutes that
allow exemptions are
construed strictly against the
grantee and liberally in favor of
the government. Otherwise
stated, any exemption from the
payment of a tax must be
clearly stated in the language of
the law; it cannot be merely
implied therefrom.
FERDINAND R. MARCOS II v. CA, et al 273 SCRA
47"
Ferdinand R. Marcos II assailed
the decision of the Court of
Appeals declaring the
deficiency income tax
assessments and estate tax
assessments upon the estate
and properties of his late father
final despite the pendency of
the probate proceedings of the
will of the late President. On
the other hand, the BIR argued
that the State's authority to
collect internal revenue taxes is
paramount.
HELD:
The approval of the court,
sitting in probate or as a
settlement tribunal over the
deceased's estate, is not a
mandatory requirement in the
collection of estate taxes.
The enforcement of tax laws
and the collection of taxes are
of paramount importance for
the sustenance of government.
Taxes are the lifeblood of the
government and should be
collected without unnecessary
hindrance. However, such
collection should be made in
accordance with law as any
arbitrariness will negate the
very reason for government
itself. It is, therefore, necessary
to reconcile the apparently
conflicting interests of the
authorities and the taxpayers
so that the real purpose of
taxation, which is the
promotion of common good,
may be achieved.
JOSE REYES v. PEDRO ALMANZOR 196 SCRA 322
Verily, taxes are the lifeblood of
the government and so should
be collected without
unnecessary hindrance.
However, such collection
should be made in accordance
with law as any arbitrariness
will negate the very reason for
government itself. It is
therefore necessary to
reconcile the apparently
conflicting interests of the
authorities and the taxpayers
so that the real purpose of
taxation, which is the
promotion of the common
good, may be achieved. (CIR v.
Algue, Inc., 158 SCRA 9 [1988])
Consequently, it stands to
reason that petitioners who are
burdened by the government
by its Rental Freezing Laws (R.A.
No. 6359 and P.D. No. 20) under
the same principle of social
justice should not now be
penalized by the same
government by the imposition
of excessive taxes petitioners
can ill afford and eventually
result in the forfeiture of their
properties.
PHILIPPINE BANK OF COMMUNICATIONS v. CIR
302 SCRA 250
Basic is the principle that "taxes
are the lifeblood of the nation."
The primary purpose is to
generate funds for the State to
finance the needs of the
citizenry and to advance the
common weal. Due process of
law under the Constitution
 does not require judicial
proceedings in tax cases. This
must necessarily be so because
it is upon taxation that the
government chiefly relies to
obtain the means to carry on its
operations and it is of utmost
importance that the modes
adopted to enforce the
collection of taxes levied should
be summary and interfered
NORTH CAMARINES LUMBER CO. v. CIR 109
with as little as possible.
Phil. 511
From the same perspective,
claims for refund or tax credit
should be exercised within the
time fixed by law because the
BIR being an administrative
body enforced to collect taxes,
its functions should not be
unduly delayed or hampered by
incidental matters.
PHILIPPINE GUARANTY CO., INC. v. CIR 13 SCRA
775
The defense of reliance in good
faith on rulings of the CIR
requiring no withholding of the
tax due on reinsurance
premiums may free the
taxpayer from the payment of
surcharge or penalties imposed
for failure to pay the
corresponding withholding tax,
but it certainly would not
exculpate it from liability to pay
such withholding tax. The
Government is not estopped
from collecting taxes by the
mistakes or errors of its agents.
PHILEX MINING CORPORATION v. CIR 294 SCRA
687
Philex posits the theory that it
had no obligation to pay the
excise tax liabilities within the
prescribed period since, after
B. Theories on Taxation
all, it still has pending claims for
VAT input credit/refund with
BIR.
We fail to see the logic of
Philex's claim for this is an
outright disregard of the basic
principle in tax law that taxes
are the lifeblood of the
government and so should be
collected without unnecessary
hindrance. Evidently, to
countenance Philex's whimsical
reason would render
ineffective our tax collection
system. Too simplistic, it finds
no support in law or in
jurisprudence.
As the petitioner had consumed
thirty-three days, its appeal
was clearly filed out of time. It
is argued, however, that in
computing the 30-day period
fixed in Section 11 of Republic
Act No. 1125, the letter of the
respondent Collector dated
January 30, 1956, denying the
second request for
reconsideration, should be
considered as the final decision
contemplated in Section 7, and
not the letter of demand dated
August 30,1955.
This contention is untenable.
We cannot countenance the
theory that would make the
commencement of the
statutory 30-day period solely
dependent on the will of the
taxpayer and place the latter in
a position to put off indefinitely
and at his convenience the
finality of the tax assessment.
Such an absurd procedure
would be detrimental to the
interest of the Government, for
'taxes are the lifeblood of the
government, and their prompt
and certain availability is an
imperious need.'
Taxation, as stated in the case of
Phil. Guaranty Co., Inc. v.
Commissioner, is a power
predicated upon necessity
(Necessity Theory). It is a
necessary burden to preserve
the State's sovereignty and a
means to give the citizenry an
army to resist aggression, a navy
to defend its shores from
invasion, a corps of civil servants
to serve, public improvements
for the enjoyment of the
citizenry, and those which come
within the State's territory and
facilities and protection which a
government is supposed to
provide.
The Benefits-Protection Theory,
on the other hand, bases the
power of the State to demand
and receive taxes on the
reciprocal duties of support and
protection. The citizen supports
the State by paying the portion
from his property that is
demanded in order that he may,
by means thereof, be secured in
the enjoyment of the benefits of
an organized society. Thus, the
taxpayer cannot question the
validity of the tax law on the
ground that payment of such tax
will render him impoverished, or
lessen his financial or social
standing, because the obligation
to pay taxes is involuntary and
compulsory, in exchange for the
protection and benefits one
receives from the government.
This theory spawned the
DOCTRINE OF SYMBIOTIC
RELATIONSHIP, a term culled
from the ruling of the Supreme
Court in the celebrated case of
Commissioner of Internal
Revenue v. Algue, Inc., supra,"
which stressed that:
'Taxes are what we pay for
civilized society. Without taxes,
the government would be
paralyzed for lack of the motive
power to activate and operate it.
Hence, despite the natural
reluctance to surrender part of
one's hard-earned income to
the taxing authorities, every
person who is able to must
contribute his share in the
burden of running the
government. The government,
for its part, is expected to
respond in the form of tangible
and intangible benefits intended
to improve the lives of the
people and enhance their
material and moral values."
C. Liabilities Involved
TAXES ARE PERSONAL TO THE
TAXPAYER. A corporation's tax
delinquency cannot, for
instance, be enforced against its
stockholders because not only
would this run counter to the
principle that taxes are
personal, but it would also not
be in accord with the rule that a
corporation is vested by law
with a personality that is
separate and distinct from those
of the persons composing it as
well as from that of any other
legal entity to which it may be
related.
Nevertheless, stockholders may
be held liable for the unpaid
taxes of a dissolved corporation
if it appears that the corporate
assets have passed into their
hands. (Doctrine of Piercing the
Corporate Veil)'*
A tax creates CIVIL LIABILITY on
the part of the delinquent
taxpayer although the non-
payment thereof (due to failure
or refusal to pay) creates a
CRIMINAL LIABILITY which could
be the subject of criminal
prosecution under existing laws.
To sum, in taxation, it is one's
failure to comply with the civil
liability to pay taxes which gives
rise to the criminal liability.
III. NATURE OF THE TAXING POWER
A. Taxation as an Inherent
Attribute of Sovereignty
The power of taxation is an
incident of sovereignty as it is
inherent in the State, belonging
 as a matter of right to every
independent government. It
does not need of constitutional
conferment. Constitutional
provisions do not give rise to the
power to tax but merely impose
limitations on what would
otherwise be an invincible
power. No attribute of
sovereignty is more pervading
and at no point does the power
of government affect more
constantly and intimately all the
relations of life than through the
exactions made under it.
Taxation being an attribute of
sovereignty, its relinquishment
is never presumed.1
It is considered inherent in a
sovereign State because it is a
necessary attribute of
sovereignty. Without this
power, no sovereign State can
exist nor endure. The power to
tax proceeds upon the theory
that the existence of a
government is a necessity and
this power is an essential and
inherent attribute of
sovereignty belonging as a
matter of right to every
independent State or
government. No sovereign State
can continue to exist without
the means to pay its expenses;
and that for those means, it has
the right to compel all citizens
and property within its limits to
contribute, hence, the
emergence of the power to tax."
B. Taxation as Legislative in Character
The power to tax is inherent in
the State, and the State is free to
select the object of taxation,
such power being exclusively
vested in the legislature, EXCEPT
where the Constitution provides
otherwise. (Art. VI, Sec. 28[2];
Art. X, Sec. 5) This is based upon
the principle that "taxes are a
grant of the people who are
taxed, and the grant must be
made by the immediate
representatives of the people.
And where the people have laid
the power, there it must remain
and be exercised."
ASPECTS, PROCESSES, PHASES OF TAXATION"
A. Levy/Imposition
The term "levy" or "imposition"
refers to the enactment of tax
laws or statutes.
In the case of Tolentino, et al. v.
Secretary of Finance, the
Supreme Court emphasized
that:
Courts have no power to inquire
into or interfere in the wisdom,
objective, motive or expediency
in the passage of a tax law, as
this is purely legislative in
character. To do so would be
tantamount to a violation of
both the letter and the spirit of
the organic laws by which the
Philippine Government was
brought into existence to invade
a coordinate and independent
department of the Government,
and to interfere with the
legitimate powers and functions
of the Legislature.
Scope of the legislative power to tax
(1) Discretion as to purposes for which taxes shall
be levied
The sole arbiter of the purposes
for which taxes shall be levied is
the legislature, provided the
purposes are public. The courts
may review the levy of the tax to
determine whether the purpose
is a public one but once that is
determined, the courts can
make no other inquiry as to the
purpose of the tax, as it affects
the power to impose it.
(2) Discretion as to subjects of taxation
The legislature has unlimited
scope as to the persons,
property or occupation to be
taxed, where there are no
 constitutional restrictions, Justice Malcolm believed that
provided the property is within the power to tax "is an attribute
the territorial jurisdiction of the of sovereignty. It is the strongest
taxing state. of all the powers of
government." This led Chief
In the case of Walter Lutz v. J.
Justice Marshall of the U.S.
Antonio Araneta, supra,1'
Supreme Court, in the
plaintiff Lutz assailed the
celebrated case of McCulloch v.
constitutionality of Sections 2
Maryland,27 to declare: "The
and 3, C.A. No. 567 which
power to tax involves the power
provided for an increase of the
to destroy." This might well be
existing tax on the manufacture
construed to mean that the
of sugar. The Supreme Court
power to tax includes the power
ruled that: "It is inherent in the
to regulate even to the extent of
power to tax that a state be free
prohibition or destruction, since
to select the subjects of
the inherent power to tax vested
taxation, and it has been
in the legislature includes the
repeatedly held that
power to determine who to tax,
'inequalities which result from a
what to tax and how much tax is
singling out of one particular
to be imposed.
class for taxation or exemption
infringe no constitutional
limitation.'"

(3) Discretion as to amount or rate of tax

The legislature has the right to

finally determine the amount or
rate of a tax, in the absence of
constitutional prohibitions. It
may levy a tax of any amount it
sees fit. Not only is the power to
tax unlimited in its reach as to
subjects, but in its very nature, it
acknowledges no limits and may
be carried even to the extent of
exhaustion and destruction,
thus becoming in its exercise a
power to destroy.

(4) Discretion as to the manner, means and

agencies of collection of taxes

The discretion of the legislature

in imposing taxes extends to the
mode, method or kind of tax. As
to the kind of taxes which may
be imposed, the legislature has
power to levy one or more of the
following: Property tax, excise,
license or occupation tax, a poll
or capitation tax, franchise tax,
income tax, inheritance tax,
stock transfer tax, etc.

Is the Power to Tax the Power to Destroy?1