Taxation 2019 TSN

TAXATION LAW
From the lectures of Atty. Percy Donalvo

Ateneo de Davao University | 3-Manresa | S.Y. 2019-2020
June 18, 2019 tax, that is in the form of taxation and technically speaking, it
ends up right after you die, because under our existing laws,
INTRODUCTION there is still this one year period within which the estate would
So we’re still in the easy portion of Taxation, my advice to you be settled and estate taes will be paid to the government.
guys, before we begin with everything, please bank on the first
exam, because the first exam will always be the easiest. The So you can see from the start to the end of our lives, we will be
trend will always be pataas then pababa because when you encountering taxation. So why does it matter? If you will have
reach the end portion of Taxation, it’s quite, I don’t know what your own businesses later on, you will pay tax. You will pay
happens, probably (…) exam, or probably hindi niyo na income tax, probably if there will be transactions between you
maintindihan. So that’s natural, normal lang yan so do not be guys, you will buy property and meron kayong babayaran na
afraid, okay. You will only lose this subject once you give up. Capital Gains tax, you also have Documentary Stamp Tax, what
is that sh*t? We all have to pay those, and what is the reason
Alright, since I started teaching Taxation even way back in the behind that? Why do we have to pay our taxes? It’s because
undergrad, the first thing that I would ask my students is Why the law says so, wala tayong ibang reason but because that is
is it that we need to study Taxation? Do we really need to study the provision of the law, we have to pay that and that is our
Taxation? Apart from the fact that this is a bar exam subject, obligation to the State. It is a burden that we must all bear from
what is that, you know, if it’s like, Earth Science in the the time we are born to the time that we will die. And for you
undergrad, walay pulos, anong kinalaman ng Earth Science sa guys, this is actually one of the killer bar subjects, Taxation. Mas
Accounting? For me, I believe that we should study tax not just maraming bumabagsak sa Tax kaysa sa Commercial Law and it’s
because this is a subject in this institution and we need this for a yearly thing. Akala niyo blackhorse na yung Labor Law, no
the bar exam, but for practical purposes and because this there will always be the second Sunday.
Taxation is actually one of the things that you cannot do away
from life. Why is it so difficult to understand Tax? That’s why we have the
term diba, my God this is too taxing, dba? It is difficult because,
From the start, from the time you are born, you will already number one, I think its kinda difficult because we cannot
experience Taxation, the hospitals that you were, the money imagine Tax. Hindi natin siya maimagine just like your Criminal
that you pay, mga gatas niyo, those are subject to taxation. Laws or Civil Laws, in Criminal Laws, you can imagine someone
Even now as students, probably you bought that ballpen sa stabbing someone, Civil Law, we can imagine what would
mall, or probably when you ate sa Jollibee, pagmakita niyo ang breach the contract, the parties, we can imagine that, but
resibo, diba makita niyo you have the Value Added Tax. taxation, wala eh. And on top of that, there are numbers,
believe it or not, I don’t know why I became an accountant, but
Value Added Tax is an indirect tax, which means that the I really hate, im bad in math. But why am I teaching Tax when
(inaudible) of taxation is upon Jollibee, the one who is selling I’m bad in math? Actually Taxation is not about numbers,
the product, and the incidence of Taxation may be transferred Taxation is a matter of law and the numbers will just follow the
to another person, and that person is us, the buyers. So laws so my advice to you guys, when you encounter a problem
indirectly speaking, we are paying the taxes already, if you have concerning taxation you do not look at the number, you
cars, sino ba may car dito? If you have cars, diba may remember the provision of law, the numbers will only follow
binabayaran man kayong VAT sa gasoline. If you have the law. That’s why I would say that taxation is a class of itself,
boyfriends or maybe some of you are married already, what if iba siya sa ibang batas natin. But the application stays the
you give something for free to your loved one, boylet or girlet, same, there’s a provision of law, there’s a particular set of facts,
what kind of contract is that? That’s donation right? Magbigay you apply the law to the facts, and there you have it you will
ka nalang libre, you will be subjected to tax, and what do you have your legal opinion, you will have your own answer and in
call that kind of tax? That’s donor’s tax. So practically if you give that way, we can try to make this taxing subject relatively easier
out that much, it becomes not free already because you will for us.
pay taxes. Even if the one giving it to you, is probably, if your
parents give you a car. Technically speaking, it is not just a gift, And on top of that, if you really read the provision, have you
it is a taxable gift. And if you die? Or even after you die, you will read the National Internal Revenue Code? Nabasa niyo na ba
be subjected to taxation, mamatay ka nalang, meron ka paring ang provisions niyan? May nabasa, may binasa ba kayo? If you
Apostol | Baban | Bajao | Bentayao | Codilla | Emuy | Honorico | Ulangkaya 1

TAXATION LAW
read the provisions of the National Revenue Code, most of The power of tax is not just existing in its own, it is a power
them don’t make any sense. It’s pretty much like your wielded and there is a process to wield it. From the time that it
commercial laws, diba nakita niyo yung mga securities and is put into law, and from the time that it is already enforced
regulations code, sino ba ang securities and regulation code and taxes are collected, it is actually a process. The state
niyo? Father Gus or Atty Ong? Nagtuturo ba si Father Gus undergoes a process before it can collect from persons or
ngayon? Sayang naabutan niyo sana si father gus mababaliw individuals. Its an entire process from the making and
kayo sa 1 unit. (Proceeds with story about social legislation collection.
teacher during law school)
Taxation is a means
You will come to realize later on that even if Taxation is a class Why do we say it’s a means? It’s a way for the government to
its own, the application remains the same. collect money in order for it to survive. That’s the basic essence
of it. It’s a way for the government to collect money in order
Definition of Taxation for it to survive.
So let’s begin formally with Taxation. How do we define
Taxation? Or the power to tax or the power of taxation? If you But in defining Tax, I like the definition of Domondon better.
have read a couple of books, if meron kayong mga textbook na Why do I like this definition? Because basically if you put this
ginafollow marami yang definition: definition to heart, you will realize that you will hit a lot of
concepts already, the nature and characteristics of Taxation. So
Aban: It’s the power which the sovereign through its law- what is the definition of Domondon?
making body, raises revenue to defray the necessary expenses
of the Government. Domondon: Taxation is the inherent power of the State,
exercised through the legislature, to impose burdens upon
Legal Dictionary: a process or an act imposing a charge by a subjects and objects within its jurisdiction, for the purpose
governmental authority on property, individuals or of raising revenues to carry out the legitimate objects of
transactions to raise money for public purposes. the government.
De Leon: A means by which the State, through its law-making Nature and Characteristics of the Power to Tax
body, raises income to defray the necessary expenses of the So let’s proceed with the nature and characteristics of the
government. power to tax. What’s the nature of Taxation by the way? Most
books would say na dalawa ang nature niyan, most books
But if you look at those rough definitions by the different would say that:
authors, you can come into the conclusion that there are
basically 3 ideas of taxation. 1. It is an inherent power; and
2. It is a legislative power;
1. Taxation is a power
2. Taxations is also a process But some books would include:
3. Taxation is a means
3. It’s subject to limitations of inherent and
Taxation is a power wielded by the State constitutional limitations.
The state has the power to demand taxes from its constituents.
We cannot do anything about that, once the government will If youre asked, ano ba dapat isagot ditto? I would suggest itatlo
enact a law providing for tax provisions, levying taxes to niyo nalang tatlo lang to eh, syaro naman di niyo maalala,
persons, property or rights, we cannot do anything about it as maalala niyo gani yung… okay, wag na.
a general rule.
The power to tax is one of the inherent powers of the state. If
you go back to your Constitutional Law, so what are the 3
Taxation is also a process. inherent powers of the State?

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1. Power to Tax about student Korean student who doesn’t understand

2. Police Power bisaya)
3. Power of Eminent Domain
Why is it the most powerful? The power to tax is the most
INHERENT POWER powerful because of its scope. Basically, if you come to
think about it, the power to tax is all-encompassing.
Basic Principles of Taxation Basically, the State can tax anything under the sun. What
are the scope or what are the subjects or objects of
1. Taxation is an Inherent Power of the State taxation? What are the 3 broad subjects or objects of
taxation?
Why do we call this as inherent? Ano bang ibig sabihin pag
sinabing inherent? You say that this is inherent because 1. Persons
these powers immediately exist once the state comes into 2. Rights
being. You don’t need any laws, you don’t need the 3. Property
Constitution before these inherent powers may be
wielded by the State. All that is needed is for the State to The government can tax a person, pwede ba by merely
exist and voila, there is already an inherent power. existing or residing in the locality, the government can tax
you? YES, it is entirely possible in the form of poll taxes
That is the first principle, the power to tax is inherent to that’s why we pay our community tax certificate and
the State, you don’t need the Constitution for it to exist, karaan pangalan niana, Cedula, kumuha ba kayo niyan?
you only need the State to come into being and it comes Required ba kayo? We will be talking about the community
along with it the 3 inherent powers of the government. tax certificate when and if you reach Tax 2.
In Pepsi Cola vs Municipality of Tanauan, the SC held that Property tax, you have the Real property tax. When the
the “The power of taxation is an essential and inherent government taxes your income, the government taxes not
attribute of sovereignty belonging as a matter of right to the money that you earn but actually the right to earn
every independent government, without being expressly money. Pretty much the same with business taxes, its not
conferred by the people.” about the money collected because you are engaging in
business but because the very act of conducting a
2. The power to tax is said to be the most powerful of the business, the government is actually taxing the right of
inherent powers of the state. engaging that business or profession.
The power to tax is plenary, all-encompassing and So both tangible and intangible, so if you can see, its really
unlimited. Now question, why is it the most powerful? plenary and all encompassing such that the government
can tax practically anything, person property or right. All it
What’s the most pervasive inherent power of the State? Is needs is an existing valid tax law for the government to
it the power to tax? No. It’s the police power. collect taxes from such subject or object.
Why is it considered the most powerful? So theoretically speaking, can the government say, okay
Pervasive (Police power) yet not the most powerful, and from now on all car owners will be taxed at 90% based on
yet we have the power to tax which is the most powerful, the fair market value of the car, can the government do
why? Why do you think? What about police power? When that? Yes, because the power to tax is plenary, all-
is the police power needed? Kelan ba siya kailangan? encompassing, and unlimited. It covers the objects and
When will the State wield the police power? Generally the subjects of taxation, the jurisdiction, the amount of tax
State exercises police power when there is a need of that may be collected from the tax (???)
regulation, right? Yan lang man, when there is nothing to
regulate, nganong mag police-police pa man? (Tells story So it also comes along with it the selection of the subjects
and objects of taxation, scope, kasali na sa scope eh, one

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example of that is the Tio vs Videogram. Have you read the Now sino ba si Tio dito? Dati videogram yan eh, ngayon
case? Magrecit tayo be, o bat nakarinig ako ng …. Anyway, DVD. Videogram diba yun man yong betamax, VHS, yung
next meeting nalang ako magparecit. (Proceeds with story kailangan irewind, tas meron ka pang rewinder. Tas pag
about Atty. A) pumunta ka sa bahay ng classmate mo tas meron silang
ganyan, diba feeling mo grabe datua ninyo bay oy. Pero
Tio vs Videogram Regulatory Board ngayon uso na man ang DVD, nandyan pa ba sila ngayon?
Diba kasi meron ng Netflix, diba internet speed ngayon is
Facts: grabe na, but anyway going back.
This petition was filed by Valentin Tio assailing the
constitutionality of Presidential Decree No. 1987 entitled Tio here is a videogram operator, he challenged this
"An Act Creating the Videogram Regulatory Board" with provision, this new law imposing new taxes on videogram
broad powers to regulate and supervise the videogram operators.
industry. Presidential Decree No. 1994 amended the
National Internal Revenue Code providing, inter alia: What was the contention of Tio here? According to him the
tax imposed is harsh, confiscatory, oppressive and
SEC. 134. Video Tapes. — There shall be collected on each unlawful restraint of trade in violation of the due process
processed video-tape cassette, ready for playback, clause of the Constitution.
regardless of length, an annual tax of five pesos; Provided,
That locally manufactured or imported blank video tapes (Effect of the challenged law) Videogram operators will be
shall be subject to sales tax. taxed 20% based on the gross receipts, imagine mo, naa
kay kita and then 20% muadto dayun sa gobyerno. But if
The petitioner claims that the tax imposed is harsh, you come to think of it if we look at the income tax table,
confiscatory, oppressive and/or in unlawful restraint of actually ganon yun eh, if youre on the higher bracket, its
trade in violation of the due process clause of the practically what 32%, so under sa old law, right now I don’t
Constitution know, 30% ata pinakamataas I’m not sure, but that’s still
30%. In other words, the constitutionality of the said law
Issue: was challenged on the ground that the tax imposed is
May the court strike down the law for being a harsh tax harsh, confiscatory and restraint in trade.
measure?
The issue is can the court strike down this law because this
Ruling: NO. is a harsh tax measure? How did the Supreme Court rule
It is beyond serious question that a tax does not cease to here? Essentially the SC said that yes, this is actually a
be valid merely because it regulates, discourages, or even harsh law, it is very harsh 30% gud yan, but it doesn’t
definitely deters the activities taxed. The power to impose mean, or the mere fact that the tax measure is harsh does
taxes is one so unlimited in force and so searching in not mean that it is already unconstitutional.
extent, that the courts scarcely venture to declare that it is
subject to any restrictions whatever, except such as rest in In the words of the SC “However, it is beyond serious
the discretion of the authority which exercises it. In question that a tax does not cease to be valid merely
imposing a tax, the legislature acts upon its constituents. because it regulates, discourages, or even definitely deters
This is, in general, a sufficient security against erroneous the activities taxed. The power to impose taxes is one so
and oppressive taxation. unlimited in force and so searching in extent, that the
courts scarcely venture to declare that it is subject to any
So going back, whats this case? Essentially, there was a law restrictions whatever, except such as rest in the discretion
that was passed creating the Videogram regulatory board, of the authority which exercises it.”
and then after another law was passed which amended a
portion of the national internal revenue code. This law To summarize, ang sabi ng Supreme Court, the law is harsh
practically imposed an additional tax on videogram but it is the law. Diba, if you come to think of it? If the
operators. legislature thinks that high tax is necessary, then the

TAXATION LAW
Courts will not touch it anymore. Because the entity of the 4. Holmes Doctrine: (The power to tax is not the power to
government who determines the va… no not the validity, destroy)
the necessity of the tax measure is actually the Legislative
department. Now you read this case, kasi maganda tong However, we also have this Holmes Doctrine which
kaso na to. Anong mga example nito? Yung mga essentially says that the power to tax is not the power to
masyadong mataas ang tax pay, like yung yosi, diba? Sino destroy while this court sits. Now this is somewhat a
nagasmoke dito? If I continue discussing mabibitin tayo, modification of the first principle that the power to tax is
ayoko mabitin. the power to destroy. It says that, No, the power to tax is
not the power to destroy as long there is an operative
court.
June 25, 2019
Now, how do we reconcile these two principles? (From
Continuation on: The power to tax tends to be the most 2018 TSN)
powerful among the inherent powers of the State.
1. When we say that the power to tax is the power
We have already discussed few principles relative to this to destroy, it refers to a valid tax law.
inherent nature of taxation. The next principle is that the
power to tax tends to be the strongest inherent power of 2. When we say that the power to tax is NOT the
the state. Why? It is because, tax power is basically: power to destroy, it refers to an invalid tax law;
meaning it violated some inherent limitations or
1. plenary, constitutional limitations.
2. all encompassing; and
3. unlimited. What are the implications of these two principles?
1. The power to tax is subject to limitations. It is
Essentially, the government can tax anything under the limited by the:
sun. Now, one of the manifestations why we can say that
taxation is the strongest among the inherent power a. Constitution; and
relates to police power. b. Inherent limitations of the power to
tax.
When will the government wield police power?
If there needs to be a regulation of some conduct or act. If a tax measure violates the constitution, it can
However, when it comes to taxing power, it is anything be struck down by the courts.
under the sun. If the government wants to tax persons,
properties, or rights then we cannot do anything about it. 2. If it is an invalid tax law then the courts will not
hesitate to strike down an invalid tax law.
3. Marshall Doctrine: (The power to tax is the power to
destroy) Which brings us to the more or less middle
ground of these two principles (referring to the
Another principle relative to the inherent nature of Marshall and Holmes Doctrine)
taxation is that the power to tax is the power to destroy.
This is actually what we call the Marshall Doctrine This is 5. The power to tax is involves the power to destroy so it
based on a U.S case, McCulloch v. Maryland which Justice must be exercised with great caution.
Marshall said: (Sir presents the excise tax on yosi as an example of the
power to destroy of taxes)
“The power to tax is a destructive power which interferes
with the property or property rights of persons. The power The Case in point here is the case of Philhealth Care v.
to tax essentially takes a portion of the property of the Commission.
people for the governments own use. “

TAXATION LAW
Philippine Health Care vs Commissioner legitimate business. As aptly held in Roxas, et al. v. CTA, et
al:
Facts:
On January 27, 2000, CIR assessed against petitioner The power of taxation is sometimes called also the power
deficiency tax and DST (documentary stamp tax). to destroy. Therefore it should be exercised with caution
Petitioner filed a petition for review with CTA which to minimize injury to the proprietary rights of a taxpayer.
cancelled the DST assessment. Petitioner claims that the It must be exercised fairly, equally and uniformly, lest the
assessed DST to date which amounts to P376 million is way tax collector kill the “hen that lays the golden egg.”
beyond its net worth of P259 million.
CA held that petitioner’s health care agreement was in the Legitimate enterprises enjoy the constitutional protection
nature of a non-life insurance contract subject to DST. not to be taxed out of existence. Incurring losses because
I of a tax imposition may be an acceptable consequence
ssue: WON it was proper to impose DST on petitioner. but killing the business of an entity is another matter and
should not be allowed. It is counter-productive and
Held: NO. ultimately subversive of the nation’s thrust towards a
From the language of Section 185, it is evident that two better economy which will ultimately benefit the majority
requisites must concur before the DST can apply, namely: of our people.
(1) the document must be a policy of insurance or an
obligation in the nature of indemnity and (2) the maker Golden Egg Principle
should be transacting the business of accident, fidelity, The power of taxation is sometimes called also the power
employer’s liability, plate, glass, steam boiler, burglar, to destroy. Therefore it should be exercised with caution
elevator, automatic sprinkler, or other branch of insurance to minimize injury to the proprietary rights of a taxpayer.
(except life, marine, inland, and fire insurance). It must be exercised fairly, equally and uniformly, lest the
tax collector kill the “hen that lays the golden egg.”
In construing this provision, we should be guided by the
principle that tax statutes are strictly construed against Lifeblood theory
the taxing authority. This is because taxation is a Taxes are the lifeblood of the state, without which the
destructive power which interferes with the personal and government cannot endure or survive.
property rights of the people and takes from them a
portion of their property for the support of the But how is it Physically manifested?
government. Hence, tax laws may not be extended by
implication beyond the clear import of their language, nor Manifestations of the lifeblood doctrine
their operation enlarged so as to embrace matters not
specifically provided. 1. NO INJUNCTION PRINCIPLE
As a general rule, the power to tax is an incident of GR: The collection of national taxes cannot be enjoined.
sovereignty and is unlimited in its range, acknowledging in You should read the case of Republic v. Caguioa, just focus
its very nature no limits, so that security against its abuse on the propriety of the judge in issuing the writ of
is to be found only in the responsibility of the legislature preliminary injunction.
which imposes the tax on the constituency who is to pay it.
So potent indeed is the power that it was once opined that EXPN: The exception is the CTA Law. Upon compliance
“the power to tax involves the power to destroy.” with certain requirements, the CTA may enjoin the
Given the realities on the ground, imposing the DST on collection of taxes.
petitioner would be highly oppressive. It is not the purpose
of the government to throttle private business. On the What is the reason behind the no injunction principle?
contrary, the government ought to encourage private “THE POWER TO TAX EMANATES FROM NECESSITY;
enterprise. Petitioner, just like any concern organized for a without taxes, government cannot fulfill its mandate of
lawful economic activity, has a right to maintain a promoting the general welfare and well-being of the

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people. That the enforcement of tax laws and the They allege that great and irreparable loss and injury would
collection of taxes are of paramount importance for the befall them as a consequence of the imposition of taxes on
sustenance of government has been repeatedly observed. alcohol and tobacco products brought into the SBF. The
Taxes being the lifeblood of the government that should honorable Judge Caguioa issued the writ of preliminary
be collected without unnecessary hindrance, every injunction.
precaution must be taken not to unduly suppress it.”
(Republic v. Caguioa) Issue: Whether or not the issuance of the preliminary
injunction by Judge Caguioa is proper.
2. STRICT CONSTRUCTION OF TAX EXEMPTION LAWS.
Held: NO.
“As a general rule, tax exemptions are construed It cannot be overemphasized that any injunction that
strictissimi juris against the taxpayer and liberally in favor restrains the collection of taxes, which is the inevitable
of the taxing authority. The burden of proof rests upon the result of the suspension of the implementation of the
party claiming exemption to prove that it is in fact covered assailed Section 6 of R.A. No. 9334, is a limitation upon the
by the exemption so claimed. In case of doubt, non- right of the government to its lifeline and wherewithal.
exemption is favored.” ( Republic v. Caguioa)
The POWER TO TAX EMANATES FROM NECESSITY; without
Republic vs Caguioa taxes, government cannot fulfill its mandate of promoting
the general welfare and well-being of the people. That the
Facts: enforcement of tax laws and the collection of taxes are of
In 1992, R.A No. 7227 or the BASES CONVERSION AND paramount importance for the sustenance of government
DEVELOPMENT ACT OF 1992 was enacted which, among has been repeatedly observed. Taxes being the lifeblood of
other things, created the Subic Special Economic and the government that should be collected without
Freeport Zone (SBF) and the Subic Bay Metropolitan unnecessary hindrance, every precaution must be taken
Authority (SBMA). This law provided that no taxes, local not to unduly suppress it.
and national, shall be imposed within the SBF.
Let us go now to the next Characteristic.
Pursuant to R.A. No. 7227, private respondents Indigo et.
al, which are all domestic corporations doing business at THE POWER OF TAXATION IS A LEGISLATIVE FUNCTION
the SBF, applied for and were granted Certificates of The power to tax is legislative in nature. Who wields the power
Registration and Tax Exemption by the SBMA. These to tax? It is the legislative, or our congress. How about the BIR?
certificates allowed them to engage in the business either BIR does not wield the power to tax they are the one enforcing
of trading, retailing or wholesaling, import and export, the tax laws.
warehousing, distribution and/or transshipment of general
merchandise, including alcohol and tobacco products, and What is the scope of the legislative taxing power?
uniformly granted them tax exemptions for such It basically defines the whole spectrum of Taxation. According
importations. to the case of CIR v. Santos, The legislature is given the
However, Congress subsequently passed R.A. No. 9334, discretion to determine:
effective on January 1, 2005, which now subjects the
importation of cigars and cigarettes, distilled spirits, 1. The nature and kind of taxes;
fermented liquors and wines into the Philippines, even if 2. The object of taxation;
destined for tax and duty free shops, to all applicable 3. The extent or rate of that particular subject or object;
taxes, duties, charges, including excise taxes. 4. The coverage; and
5. The place or situs of taxation.
Indigo et. al later brought before the RTC a special civil
action for declaratory relief to have certain provisions of So basically, the congress has the power to determine these
R.A. No. 9334 declared as unconstitutional. They also things all for the purpose of raising income so that the
prayed for the issuance of a writ of preliminary injunction.

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government may collect to its constituents and in order for it What is the scope the legislative power of the Congress in the
to survive later on. taxation aspect? Basically, it covers the entire spectrum of
taxation. Like what?
PRINCIPLE OF NON-DELEGATION
Now under this characteristic, we have this principle of non- 1. The object of taxation;
delegation. Legislative powers cannot be delegated. 2. The nature and kind;
3. The extent or the rate of that particular subject or
What is the reason behind that non-delegation? object;
It is because the legislative power wielded by the congress is 4. The coverage of taxation.
merely a delegated power. Being merely delegated, it cannot 5. Place or Situs of Taxation.
be further re-delegated.
The Government or the Congress may have a particular subject
But there are at least five known exceptions: or object that will be subjected to tax. As you can see later on,
1. Delegation to the LGU even if you are a Filipino residing in the Philippines but you
2. Delegation to the President have income abroad it will still be taxed as part of your gross
3. Delegation to the administrative agencies income. So diba even if your income is outside in the
4. Delegation to the people at large Philippines it will still be covered by our Philippine taxation.
5. Emergency powers of the President And why is that? Because the law says so. There is no other
reason to it.
June 27, 2019 PRINCIPLE OF NON-DELEGATION

Again, as a GENERAL RULE, the power of taxation cannot be
Continuation on: The power of taxation is a legislative delegated.
function.
Basically, what the Congress has right now is just a delegated
It is legislative in character. It is the Congress, the Senate and power. If we take out Congress it is actually the people who has
House of Representatives, they are the one tasked in creating the power to negotiate. Because we inform the State. So the
our tax laws. So when you are asked the question, who wields power is delegated to the Senate and House of
the power to tax? It is the legislature. Representatives. Sadly, we elect idiots into those positions.
Pepsi Cola vs. Municipality of Tanauan - SC said that this is However, we have EXCEPTIONS to this GENERAL RULE.
a power purely legislative and which the central legislative
body cannot delegate either to the executive or judicial Those provided in Abakada vs. Ermita (According to sir, please
department. There is the separation of powers. read this case):
How are tax laws passed? First it is in the House of 1. Delegation to the LGU
Representative and then second it is submitted to the Congress 2. Delegation to the President
and the latter will make amendments and propose its 3. Delegation to the administrative agencies
amendments and then Senate and then that’s it the rest is 4. Delegation to the people at large
history. 5. Emergency powers of the President
As a GENERAL RULE: when we say that the power of taxation is DELEGATION TO THE LGU
legislative in character, we still follow the rule in your What is our legal basis for the delegation to the LGUs? Is it a
Constitution Law which tells us that the power of taxation delegation to begin with?
cannot be delegated. This is a basic precept.
The basis is:
ARTICLE X, SECTION 5

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“Each LGU shall have the power to create its own sources of Remember class, the LGU has no inherent power to tax. That’s
revenues and to levy taxes, fees and charges subject to such the very principle you have to remember. Why? Because the
guidelines and limitations as Congress may provide consistent power to tax is lodged in the National Government.
with the basic policy of local autonomy. Such taxes, fees and
charges shall accrue exclusively to the local governments”. But what is LGU? Is it a government in itself? Is it a State in
itself? The LGU is a municipal corporation. They are
Questions: what is the nature of the LGU’s power to tax? Is it corporations created by law with special functions, with special
delegated or direct grant? Delegated by who or by what? Or is purpose, etc. And they have been given the power to tax by
it a direct grant from where? virtue of this Constitutional provision.
Is the power of the LGU to Tax inherent in nature? No. First, it is merely a DELEGATED POWER. Without the
Constitution, the LGU has no authority to tax at all. It can tax
If you have looked at the cases, you will see that there are only because of that particular provision. This keeps us thinking
conflicting pronouncements from the SC. Even the SC cannot that the Constitution is supposed to be there to limit the power
make up its mind. Some cases say it’s a delegated power. Some of taxation. In our current set up, it seems that the 1987
cases say it’s a direct power. Constitution would expand the power tax. It would not be
limited to the national government only. But the national
Let’s take a look at what the Supreme Court said in Ferrer, government may delegate the same to the LGU or municipal
Jr. vs. Bautista: corporations. So that is one way to argue.
“Indeed, Local Government Units have no inherent power to Second, it is a DIRECT GRANT from the Constitution. Once it is
tax except to the extent that such power might in the Constitution, we do not need any enabling law for that
be delegated to them either by the basic law or by the to happen. Automatically, the LGU has the power to tax already
statute. Under the now prevailing Constitution, where there because of that Constitutional provision. The Congress may
is neither a grant nor a prohibition by statute, the tax power then set forth the limits of the LGU’s power to tax and you can
must be deemed to exist although Congress may provide see that in our Local Government Code.
statutory limitations and guidelines. The basic rationale for
the current rule is to safeguard the viability and self- What if you are asked this in the Bar Exam? What is the Nature
sufficiency of local government units by directly granting of the LGUs power to tax? Whatever school of thought you
them general and broad tax powers.” choose to follow, always remember - still the LGU do not have
the inherent power to tax.
Now, look at the case of Manila Electric Co vs Province of
Laguna: In this case, the SC said that LGUs do not have the The LGUs power to tax is not so broad because it comes with
inherent power to tax except to the extent that the powers the limitations that Congress may provide. So right now, the
may be delegated to them either by the basic law or statute. basic law that guides the LGU’s power to tax is the Local
Government Code. If you will check the LGC with respect to the
But after this Manila Electric Co decision, look at what the SC LGUs power to tax, it covers (a) Business Taxes & (b) Real
said in Batangas Power vs Batangas City: The power of the Property Taxes. That’s all. And there is a provision in the LGC
LGUs to tax is a direct grant by the Constitution and not just which says that once a particular object has been subjected to
a mere delegated power. National Tax, the LGC can no longer impose the same tax of the
same nature over the same subject matter.
Whenever I hear the case of Ferrer, Jr. vs. Bautista, I will always Is the power to tax of the LGUs under the Constitution self-
remember this as the SHIT and Garbage Collection case. We will executing?
go back to this case later on and discuss it more thoroughly.
Hence, it is purely delegated power. Looking back on the case of Ferrer, Jr. vs. Bautista: “Where
there is neither a grant nor a prohibition by statute, the tax

TAXATION LAW
power must be deemed to exist although Congress may Atty. Donalvo: When you answer my exams, please keep your
provide statutory limitations and guidelines”. answers short. I’m not Atty. Valencia. This is not an essay
writing contest.
This means the LGU need not wait for any legislation from the
Congress before it can exercise any power to tax. If the National Government: Power to tax is plenary.
Congress would provide for a legislation, that would end up
limiting the LGUs power of taxation. Local Government: Power to tax is not plenary because it is
limited by the Local Government Code.
Going back to Ferrer, Jr. vs. Bautista:
The power of the LGU to tax is limited, not plenary.
Atty. Donalvo: Diba Bautista is the former lover of Kris
Aquino? Chismis. Anyway, in this case, the QC enacted 2 DELEGATION TO THE PRESIDENT
ordinances. The first was for the imposition of the Special ART. VI, SEC 28 (2)
Assessment tax. This is related to the real property tax. “The Congress may, by law, authorize the President to fix
Special assessment of the assessed value of the land and the within specified limits, and subject to such limitations and
money will be for socialized housing program. So it’s called restrictions as it may impose, tariff rates, import and export
the Socialized Housing Tax, for short SHT. Aside from the quotas, tonnage and wharfage dues, and other duties or
SHT, there’s the Garbage Fees. imposts within the framework of the national development
program of the Government”.
The case of Ferrer cited Batangas CATV vs. Court of Appeals:
“True, there are certain notable innovations in the Personally, I would say that the powers of the President to tax
Constitution, like the direct conferment on the local is purely delegated only. The President has no inherent power
government units of the power to tax, which cannot now be to tax. Who delegates it? Not the Constitution. Its is the
withdrawn by mere statute”. Congress. Hence, that provision is not self-executing. There
must be a specific law enacted by Congress before the
For short it says here it is a delegated power. President can exercise his limited power to tax.
But the case of Ferrer also cited National Power Corporation
vs. City of Cabanatuan: Here, the SC said that LGUs are able Remember: the power to tax is inherently legislative in nature
to exercise such through a mere delegated power. while the nature of the function of the President is executive.
His power is necessarily related to the enforcement of the laws.
The main point of the SC is this, there is no inherent power But his power is limited to the SCOPE of “tariff rates, import
on the part of the Local Government to tax except through and export quotas, tonnage and wharfage dues, and other
the extent that such power may be delegated to them either duties or imposts.”
by the basic law or statute.
For short, the president’s power is limited only to Import and
Export taxes. This power is given to the president because you
What if you are asked this Question: How do you reconcile the need to look at it from the view point of foreign relations. If we
two principles of the delegation of taxation powers? are not in good terms with a certain country, we can make it
It is a mere delegated power. Without the Constitution, the difficult for their products to enter our territory. The president
LGU’s will not have the power to tax. It is not an inherent can increase the importation taxes of their goods.
power. Nonetheless, it is a direct grant by the Constitution. The
express provision of the Constitution, the LGU’s have the There are 2 REQUIREMENTS FOR THE VALID EXERCISE OF THE
power to tax without having to wait for an executing law. The PRESIDENT OF THE POWER TO TAX:
purpose of the Local Government Code is merely to limit the 1. There must be a law promulgated by Congress
powers to tax. authorizing the President to do such thing.
2. The exercise must be within the limits set forth in the
law.

TAXATION LAW
What is the law that authorizes the President to The rules and regulations issued by administrative bodies must
adjust/remove the rates? Formerly it was the Tariff and conform to the law. It can neither expand nor constrict what is
Customs Code. Now, it is the Customs Modernization and Tariff written in the red letter of the law.
Act.
If there is discrepancy between the law and the revenue
Let’s look at the case of SOUTHERN CROSS VS. CEMENT regulation, it is the law which will prevail.
MANUFACTURERS
In the case of ABAKADA VS. ERMITA
This is about the Safeguard Measures Act. If you read the
facts, you won’t understand a thing. But, the principles laid This involves RA 9337 (amended the NIRC) particularly the
down in the case is actually easy to understand. There are stand-by powers of the President. The stand-by powers of
BASIC POSTULATES INGRAINED IN ART. VI, SECTION 28(2): the President if exercised will raise the VAT percentage.
First, It is the Congress which authorizes the President to RA 9337 contains a proviso authorizing the President, upon
impose tariff rates import and export quotas, tonnage and recommendation of the Secretary of Finance to raise the VAT
wharfage dues, and other duties or imposts within the rate to 12% effective Jan 1, 2006 after the following
framework of the national development program of the conditions are met:
Government. 1) VAT collection as a percentage of GDP of
Meaning this is a pure delegation to the President the previous year exceeds 2 4/5%; or
2) National Government deficit as a
Second, It’s not enough for the Congress to allow the percentage of GDP of the previous year
President to exercise such power. That delegation must be exceeds 1 1/2%
embodied in a law.
There was a contention here that this violated the
Third, The authorization of the President may only be Constitution because what is delegated to the president is
exercised within the specified limits in the law and is further only limited to the power to tax under tariff and customs.
subject to limitations and restrictions which Congress may This stand-by power is basically allowing the president to
impose. increase the tax rates.
Once there is a law allowing the President, he may never The SC said that there was no delegation of legislative power
have a vested right over such power. Because it may be to the President. This is because the President is mandated
adjusted later on or taken away. We go back to the basic to increase VAT percentage upon the happening or existence
principle that the Congress as the legislative body has the of any of the conditions. It’s simply a delegation of
inherent power to tax. ascertainment of facts upon which enforcement and
administration of the increased rate under the law is
DELEGATION TO THE ADMINISTRATIVE AGENCIES contingent. The president is given the power to merely
This is also known as subordinate legislation. ascertain facts. It has nothing to do with legislation but has
something to do with enforcement. If the conditions are
2 TESTS FOR A VALID DELEGATION: complied with, the government is given the incentive to
1. Completeness Test increase the VAT rate.
2. Sufficient Standards Test
Does the President have the option to not exercise the
Without passing these tests, there is no valid delegation. standby power?
What is basic principle when we talk about delegation to Answer: Wala daw discretion kasi once na the conditions will
administrative bodies? happen, the President has no authority to not follow the
increase of the VAT rate.

TAXATION LAW
So isipin nyo, sometimes its delegation, this is one case that I Answer: Tax Examption.
found it difficult to understand. The law says na, the President
may increase the VAT rate upon the happening of the This is through Initiative and Referendum. We will not delve
conditions. deeper into that. This is not Election Laws. Because it is actually
impossible for people to exercise Tax powers through Initiative
Dissenting opinion of the case: and Referendum. This is a very difficult thing to do as you
The argument there is that it is still discretionary on the part of already know in your Constitutional law and Elections law.
the President whether or not he or she will apply or exercise
his or her standby powers. (At this point, it felt like sir was rushing the lecture. This is
supplemented with the 2018 lectures on Tax 1.)
CIR VS FORTUNE TOBACCO
TAX IS A BURDEN
RA 8240 increased the tax rates on cigarettes from 10% to Tax power involves the imposition of Burdens.
11%. By virtue of that law, the BIR issued a Revenue
Regulation No.17-99 which provided (t)hat the new specific What are the subjects of taxation? Persons, Property and
tax rate for any existing brand of cigars, cigarettes packed by Rights, right? It is all encompassing.
machine, distilled spirits, wines and fermented liquor shall
not be lower than the excise tax that is actually being paid The state can tax anything under the sun. There is almost no
prior to January 1, 2000. exception.
Essentially, what the BIR is saying that by virtue of that On top of that, it is a Forced Contribution. Pugson ka nga
revenue regulation, hanggang dito lang yan. There is already mubayad. You pay your taxes otherwise there will be sanctions.
a floor. You cannot go below these even if there is an You may even go to prison. You pay your taxes and you will not
increase in the excise tax rates. Your taxes that you should immediately feel the benefits given by the government. Bayad
pay will not go below a certain threshold. ka ngayon, yung taxes mo para sa mga roads na iconstruct sa
Ilocos, pano yan? Can you avail of that? NO.
Question: So what’s the issue in this case?
What about let’s put it in the context of, you know, senior
Answer: The issue in this case is W/N the BIR exceed in citizen discounts and vat exemption?
exercising its delegated power?
Alam nyo ba kung gano kalaki yan? 20% discount plus 12% vat
Ruling: The SC ruled in the affirmative. By setting the floor exemption.
for excise tax on cigarettes you have already exceeded what
was provided by law. What was provided for by law is that So sa 200 pesos, ang babayaran mo lang ay nasa around 150 or
you just adjust the rates. 160. So, malaki di ba? So order lang kayo ng order (HAHA). But
you cannot say that you know because you are paying your
Principle: taxes and you can now avail of the senior citizen discount.
The Rule is that administrative regulations must be in Because you are not yet a Senior Citizen. Basically what the
harmony with the provisions of the law. The revenue government offers, is really a chance for all of us to avail of the
regulations must not expand, modify, alter or amend the government services later on. Hindi na pag may binigay ka,
basic law which it seeks to implement. kailangan meron din ibigay.
DELEGATION TO THE PEOPLE AT LARGE Can one refuse to pay the tax because he doesn’t derive any
This is basically the power of the people to enact laws. benefits from it? The person cannot actually refuse that. You
can refuse, kung ayaw na nya, ayaw na nyang magbayad, but
Question: Can you think of an instance wherein tax-payers will there will be sanctions later on.
enact laws that will benefit them?

TAXATION LAW
As one SC decision would say: Tax is the price we pay for a What do you mean by situs of taxation? It means place of
civilized society. There is no need that one must seen an actual taxation.
or direct consideration. Because remember that it is enough
that the money made for taxation is for profit, for cost and for It doesn’t mean that if a particular tax subject or object is
the benefit of the public in general. Tax is a burden to be used here in the Philippines, it is already covered. No. Because
as a power to destroy and at the same time it can also be used you also have to look at the situs of taxation, the rules on
as a power to build. situs of taxation.
JURISDICTION The rules on situs of taxation are the general rules that
Let’s begin with Jurisdiction. When you talk about Jurisdiction states or taxing authorities follow when it comes to taxation
in the concept of taxation, you talk about territory. schemes and most of them, if not all, are applicable to the
Philippine taxation setting.
1. TERRITORIALITY
FACTORS CONSIDERED IN DETERMINING WHETHER OR
When you say that taxation is jurisdictional in nature, it NOT A TAX SUBJECT OR OBJECT IS SUBJECT TO PHILIPPINE
means the power of taxation operates only within the TAXATION:
territorial limits of the taxing authority. 1. Kind of tax being imposed or levied;
2. The place where the thing or property is located;
GENERAL RULE, once the object or subject is already 3. Residence of the person being taxed;
outside the Philippines, it is no longer subject to Philippine 4. Citizenship of the person being taxed;
taxation. 5. Source of the tax subject or object; and
6. Place where the excise or privilege or business or
EXCEPTION: If there is a privity of relationship between the occupation is being performed (the place of
taxing authority and the tax subject or object. exercise of these rights)
How do you determine if there is a privity of relationship Must all these factors go together? Not necessarily. It is
between the taxing authority and the tax subject or enough that one or some of the factors exist in order that
object? There is a privity of relationship between the taxing the tax subject or object may be covered by Philippine
authority and the tax subject or object if the taxing taxation.
authority can afford protection to the tax subject or object.
So everything boils down to protection. DIFFERENT TYPES OF TAX SUBJECTS
Please take note that we’re still in the general principles.
Now, how do you specifically determine if the government Pag mag-exam na tayo sa general principles I don’t want
can afford protection to the tax subject or object? people to answer in the context of the NIRC provisions. I
want you to answer in the context of the general principles.
It devolves upon THREE FACTORS:
1. CITIZENSHIP of the tax subject or object; I. INCOME TAX
2. RESIDENCE or LOCATION of the tax subject or object;
and What are the considerations that must be looked into in
3. SOURCE of the tax subject or object. order to determine the situs of taxation of income tax?
When you talk about jurisdiction, you are also talking about There are three considerations:
the territorial limits of the power to tax pursuant to its 1. CITIZENSHIP of the taxpayer;
territorial in nature. This also has something to do with the 2. RESIDENCE or LOCATION of the taxpayer; and
SITUS of taxation. 3. SOURCE of the income.
2. SITUS OF TAXATION So those are the three factors. So parang “mix-and-match”

siya.

TAXATION LAW
Examples: Filipino and the source of my income is here in the

Philippines, then it will be subjected to Philippine taxation.
1) Resident of the Davao and earning income in the Davao.
Taxable here. So those are the three considerations that you have to look into
to determine the situs of taxation of income tax.
You don’t have any problem with me when it comes to
Philippine taxation because I am residing here in Davao, II. PROPERTY TAX
and I am earning income here. What type of income? It’s
compensation income, coming from an employer- It’s easier to understand property tax because we can see
employee relationship. it. What is the situs of taxation when it comes to property?
The first thing you have to consider is to determine what
2) Resident of Davao but earning income abroad. Income type of property is subject to tax?
abroad taxable in the Philippines.
We have 2 KINDS OF PROPERTY UNDER PROPERTY LAW:
Now, suppose I own a restaurant in Hong Kong, and I am 1. Real Properties
living here in Davao City. I am a Filipino citizen operating a 2. Personal Properties
Filipino restaurant in Hong Kong.
A. Real properties - the situs is where the property is located.
Because of the fact that I am a Filipino citizen who is Here in the Philippines our real property tax is governed by the
residing here in the Philippines, even my income from Local Government Code, it is the Local Government Unit that
abroad are taxable under Philippine laws. Why? Because imposes real property tax.
the government can afford protection on my part.
For example, you have a land here in Davao City, it will be
3) Non-resident Foreigner earning income in the Philippines. subject to the real property taxes imposed or levied by the local
Her income made in the Philippines is taxable in the government of Davao. Properties outside the jurisdiction of the
Philippines. city cannot be levied by them, so we still apply the territoriality
principle.
Let’s twist the problem a little bit further. What if si Maria
Ozawa, a Japanese citizen working as a model here in the B. Personal property- distinguish first what kind of personal
Philippines. She’s not even residing here, but she earns property:
income here in the Philippines.
1. Tangible
Does it mean that if she is not a resident here in the 2. Intangible
Philippines, her income here are not subject to Philippine
income tax? a) Tangible personal property –
No, because there is still the source of income. Where is
the source of her income from her modelling? Here in the GR: the situs is where the property is located.
Philippines. That’s why even if she is not a resident and a
citizen of the Philippines, the government can still afford However some authors would say that the thing follows
her protection because she earns here and she is the owner, but Dean Quibod follows the general rule
contributing to the community. where the property is found. But usually when it comes to
personal properties the thing follows the owner.
4) Filipino residing abroad; has properties in the Philippines
b) Intangible personal property –
What about if I am a Filipino and I am residing abroad, and
I own a number of properties in the Philippines? So even if GR: mobilia sequntur personam –the thing follows it’s
I am not physically here but the mere fact that I am a owner.

TAXATION LAW
This is because these properties have to form and they are implement police power. Example is the excise tax on
essentially rights which follows the owner. liquors.
XPN: When the law specifically provides for the situs of the 2. Compensatory. An example of this is the discounts given
personal property. to Senior Citizens. If I am a businessman I should provide
20 % discount to Senior Citizens. But what do I get out from
Example is the shares of stocks in a corporation. Under the giving this discount? Diba parang lugi naman? I am forced
NIRC we have to first determine whether or not the stocks to give a portion of my income.
is here in the Philippines or outside to determine if they
are subject to Philippine income taxation. So as a form of relief, the government considers this as a
tax credit. Tax credit is that amount which directly reduces
There’s this old case mentioned in the De Leon book, here the income tax. So this is one way for the government to
the decedent died outside the Philippines but he owned a compensate. This is deemed as just compensation. That is,
stock from a Philippine corporation. The question there is for the discounts that businessmen are giving to the Senior
whether or not the stocks from the Philippine corporation Citizens. So what is the incentive here? Minus sa tax. Kunti
is subject to estate tax, the SC said yes. Normally we follow nalang ang tax na babayaran ko.
mobilia sequntur personam, but the exception is when the
rights to intangible property is exercisable in the This was the discussion in the case of CIR vs. Sta. Luzon.
Philippines, so because it is a stock from a Philippine
Corporation, the owner will exercise his rights here in the 3. To implement Eminent Domain powers of the
Philippine jurisdiction. government.
III. TAX ON PERSONS We all know that public purpose is the heart of taxation. How
do we know that a tax measure is actually for public purpose?
When you say tax on persons, this is actually a Poll Tax. A Public purpose is public welfare in general.
state may impose taxes on a person subject to its
sovereignty. There is only one Poll Tax operative here in Public purpose is any purpose for use directly available to the
the Philippines. In the Philippines we have community tax public as a matter of right. It is also defined as an activity that
or the Cedula, if you are a resident in a particular locality will serve as a benefit to the community as a body and which is
you should pay your community tax for that. the same time directly related to the function of the
government.
July 2, 2019 But subsequently, however, the Supreme Court expanded the
definition of Public Purpose in such a way that, at some point,
So we are still in the purpose taxation. What is the primary it is saying that there is actually no exact definition of what
purpose of taxation? Of course, it is to raise income. For the public purpose is.
government to raise income so that it would have something
to spend on. But make no mistake about it because raising Like in the case of Planters Products vs. Fertiphil
income is not the sole purpose of taxation. Taxation may be The Supreme Court said that “public purpose” is not defined. It
used to implement the powers of the government. It may be is an elastic concept that can be hammered to fit modern
used probably to implement the police power or the power to standards. Jurisprudence states that public purpose should be
eminent domain. given a broad interpretation. It does not only pertain to those
purposes which are traditionally viewed as essentially
SECONDARY PURPOSES OF TAXATION government functions, such as building roads and delivery of
basic services, but also includes those purposes designed to
1. Regulatory or Sumptuary. The regulatory purpose for promote social justice.
these taxes is for the general welfare. For health, peace
and order. Basically, the power of taxation can be used to

TAXATION LAW
So if you put it simply, when you say public purpose or public President Ferdinand Marcos, exercising his legislative
use, this is already equated with public interest. Hindi lang sya powers, issued LOI No. 1465 which provided, among others,
general welfare. But it is a broader term. But how do we define for the imposition of a capital recovery component (CRC) on
Social Justice? Why is it related to something that is public the domestic sale of all grades of fertilizers which resulted
diba? in having Fertiphil paying P 10/bag sold to the Fertilizer and
Perticide Authority (FPA).
Planters Products vs. Fertiphil
Planters and Fertiphil are both private corporations. They are FPA remits its collection to Far East Bank and Trust Company
both engaged in the importation and distribution of fertilizers who applies to the payment of corporate debts of Planters
and other chemical products. But during the time of Marcos Products Inc. (PPI)
there was a letter of instruction (LOI) which provides for the
imposition of capital recovery component of domestic sales of After the Edsa Revolution, FPA voluntarily stopped the
all fertilizers. And in that letter of instruction, there was a imposition of the P10 levy. Upon return of democracy,
capital contribution of P10 per bag. So nagbabayad ngayon Fertiphil demanded a refund but PPI refused. Fertiphil filed
yong Fertiphil. And then EDSA happened, Marcos was toppled a complaint for collection and damages against FPA and PPI
down. Fertiphil stopped paying the P10. So kinasuhan sila. with the RTC on the ground that LOI No. 1465 is unjust,
Okay, so there are two issues here. unreaonable oppressive, invalid and unlawful resulting to
denial of due process of law.
First, what is the nature of that levy? This question is very
important. What is the nature of the exaction? Is it the exercise FPA answered that it is a valid exercise of the police power
of the power to tax or is it the exercise of police power? of the state in ensuring the stability of the fertilizing industry
in the country and that Fertiphil did NOT sustain damages
The Supreme Court said that it is in the nature of tax. Way back since the burden imposed fell on the ultimate consumers.
din kasi sa time ni Marcos, na sa kanya lahat. Pati yung power
to legislate. LOI was in the nature of a tax. Why? Because the RTC and CA favored Fertiphil holding that it is an exercise of
primary purpose for that is to raise income. Basically, the the power of taxation ad is as such because it is NOT for
primary purpose for this is to save another corporation. public purpose as PPI is a private corporation.
Magbayad tayo para ma save tong corporation na ito. So the
purpose is revenue in nature. Issue:
1. W/N Fertiphil has locus standi
Now, next is, why did the Supreme Court here ruled that it is in 2. W/N LOI No. 1465 is an invalid exercise of the power of
the nature of Tax and not for Regulation (police power)? The taxation rather the police power
value itself P10 during that time is so high. Because if it is for
the regulatory function, the amount collected must be enough Held:
just to cover the cost for regulation. If it exceeds to that, then 1. Yes. In private suits, locus standi requires a litigant to
your primary motive in making that measure is already for tax. be a "real party in interest" or party who stands to be
benefited or injured by the judgment in the suit. In
Second, is it valid? No, it is not because it violates one of the public suits, there is the right of the ordinary citizen to
inherent limitation of taxation, and that is, the money collected petition the courts to be freed from unlawful
from the taxes must be for public purpose. In this case, the government intrusion and illegal official action subject
beneficiary for the P10 exaction is a private corporation. Taxes to the direct injury test or where there must be
is exacted only for a public purpose. Public purpose is the heart personal and substantial interest in the case such that
of taxation. he has sustained or will sustain direct injury as a
result. Being a mere procedural technicality, it has also
Planters Product V. Fertiphil Corp. (2008) been held that locus standi may be waived in the public
G.R. No. 166006 March 14, 2008 interest such as cases of transcendental importance or
with far-reaching implications whether private or
Facts: public suit, Fertiphil has locus standi.

TAXATION LAW
As a seller, it bore the ultimate burden of paying the orders of the martial law era relating to the raising and use
levy which made its products more expensive and harm of coco-levy funds.
its business. It is also of paramount public importance
since it involves the constitutionality of a tax law and Coco Levy Funds are Prima Facie Public Funds
use of taxes for public purpose. The Court was satisfied that the coco-levy funds were raised
pursuant to law to support a proper governmental purpose.
2. Yes. Police power and the power of taxation are They were raised with the use of the police and taxing
inherent powers of the state but distinct and have powers of the State for the benefit of the coconut industry
different tests for validity. Police power is the power of and its farmers in general. The COA reviewed the use of the
the state to enact the legislation that may interfere with funds. The Bureau of Internal Revenue (BIR) treated them
personal liberty on property in order to promote as public funds and the very laws governing coconut levies
general welfare. While, the power of taxation is the recognize their public character.
power to levy taxes as to be used for public
purpose. The main purpose of police power is the The Court has also recently declared that the coco-levy
regulation of a behavior or conduct, while taxation is funds are in the nature of taxes and can only be used for
revenue generation. The lawful subjects and lawful public purpose. Taxes are enforced proportional
means tests are used to determine the validity of a law contributions from persons and property, levied by the
enacted under the police power. The power of State by virtue of its sovereignty for the support of the
taxation, on the other hand, is circumscribed by government and for all its public needs.
inherent and constitutional limitations.
Here, the coco-levy funds were imposed pursuant to law,
In this case, it is for purpose of revenue. But it is a namely, R.A. 6260 and P.D. 276. The funds were collected
robbery for the State to tax the citizen and use the funds and managed by the PCA, an independent government
generation for a private purpose. Public purpose does corporation directly under the President. And, as the
NOT only pertain to those purpose which are respondent public officials pointed out, the pertinent laws
traditionally viewed as essentially governmental used the term levy, which means to tax, in describing the
function such as building roads and delivery of basic exaction.
services, but also includes those purposes designed to
promote social justice. Thus, public money may now be Of course, unlike ordinary revenue laws, R.A. 6260 and P.D.
used for the relocation of illegal settlers, low-cost 276 did not raise money to boost the government’s general
housing and urban or agrarian reform. funds but to provide means for the rehabilitation and
stabilization of a threatened industry, the coconut industry,
Then you have PAMBANSANG KOALISYON vs. EXECUTIVE which is so affected with public interest as to be within the
SECRETARY. police power of the State. The funds sought to support the
coconut industry, one of the main economic backbones of
This is about the coco levy funds. Kasi maraming cases about the country, and to secure economic benefits for the
coco levy funds. What is really the nature of that funds being coconut farmers and farm workers.
collected? Pabalik balik yan sa Supreme Court, maraming kaso
yan. But in all those cases, the SC has always said, even if it is Fund Not Private Property of Farmers; Not Public Purpose
just for a particular segment which comprises of farmers, we Notably, the raising of money by levy on coconut farm
cannot deny the fact that it is in the exercise of government’s production, a form of taxation as already stated, began in
power to tax and same time to implement police power. 1971 for the purpose of developing the coconut industry
and promoting the interest of coconut farmers. The use of
PAMBANSANG KOALISYON v. EXECUTIVE SECRETARY the fund was expanded in 1973 to include the stabilization
GR 147036-37, 685 Phil. 295, April 10, 2012 of the domestic market for coconut-based consumer goods
and in 1974 to divert part of the funds for obtaining direct
These are consolidated petitions to declare benefit to coconut farmers. After five years or in 1976,
unconstitutional certain presidential decrees and executive however, P.D. 961 declared the coco-levy funds private

TAXATION LAW
property of the farmers. P.D. 1468 reiterated this so should be beneficiaries of the taxes raised from their
declaration in 1978. But neither presidential decree actually earnings.
turned over. The government continued to wield It would altogether be different of course if the laws
undiminished authority over the management and mentioned set apart a portion of the coco-levy fund for
disposition of those funds. improving the lives of destitute coconut farm owners or
workers for their social amelioration to establish a proper
In any event, such declaration is void. An owner is free to government purpose.
exercise all attributes of ownership: the right, among
others, to possess, use and enjoy, abuse or consume, and The support for the poor is generally recognized as a public
dispose or alienate the thing owned.[64] The owner is of duty and has long been an accepted exercise of police
course free to waive all or some of these rights in favor of power in the promotion of the common good.
others. But in the case of the coconut farmers, they could
not, individually or collectively, waive what have not been But the declarations do not distinguish between wealthy
and could not be legally imparted to them. coconut farmers and the impoverished ones. And even if
they did, the Government cannot just embark on a
Section 2 of P.D. 755, Article III, Section 5 of P.D. 961, and philanthropic orgy of inordinate dole-outs for motives
Article III, Section 5 of P.D. 1468 completely ignore the fact political or otherwise.
that coco-levy funds are public funds raised through
taxation. And since taxes could be exacted only for a public Consequently, such declarations are void since they
purpose, they cannot be declared private properties of appropriate public funds for private purpose and, therefore,
individuals although such individuals fall within a distinct violate the citizens’ right to substantive due process.
group of persons.
PRINCIPAL PURPOSE TEST
The Court of course grants that there is no hard-and-fast So you should be able to compare if a measure is an exercise of
rule for determining what constitutes public purpose. It is police power or power to tax. Basically you look at the primary
an elastic concept that could be made to fit into modern purpose of that exaction. Our guiding principle to determine is
standards. Public purpose, for instance, is no longer the principal purpose of that exaction. If your principal purpose
restricted to traditional government functions like building is to raise income, it is an exercise of power to tax. And if your
roads and schoolhouses or safeguarding public health and principal purpose is to regulate, the fact that there is a
safety. corresponding income is immaterial, it is an exercise of police
power.
Public purpose has been construed as including the
promotion of social justice. Thus, public funds may be used Sometimes it is easy to distinguish, sometimes it is difficult. In
for relocating illegal settlers, building low-cost housing for those difficult moments, laging sinasabi ng Supreme Court na
them, and financing both urban and agrarian reforms that it is a power to tax and at the same time a power to regulate.
benefit certain poor individuals. Still, these uses relieve Let us go now to cases. This case of Republic vs. Bacolod
volatile iniquities in society and, therefore, impact on public Murcia.
order and welfare as a whole.
This the sugar central case. So now, Philippine Sugar Institute
But the assailed provisions, which removed the coco-levy (PHILSUGIN) a corporation created by law RA 632. This was
funds from the general funds of the government and created to conduct research for the sugar industry. Part of the
declared them private properties of coconut farmers, do law provides for the capitalization of PHILSUGIN. One day
not appear to have a color of social justice for their purpose. PHILSUGIN decided to purchase a refinery but after buying
The levy on copra that farmers produce appears, in the first that, tremendous losses was incurred by PHILSUGIN. Because
place, to be a business tax judging by its tax base. The of that Bacolod Murcia Sugar stopped paying the taxes. So
concept of farmersbusinessmen is incompatible with the what is the nature of the exaction here? What is a special
idea that coconut farmers are victims of social injustice and assessment?

TAXATION LAW
The Supreme Court said that, the special assessment may be the “assessment” or that the proceeds are misapplied to
considered an exercise of police power. This means the amount their prejudice, the authority to insist payment ceases.
collected is not for revenue purpose but for the general Issue: What is the nature of the special assessments being
welfare. Kung isipin mo naman yung facts is not so more on the imposed under Section 15 of RA 632?
income but on the capitalization of PHILSUGIN.
It is not a tax nor special assessment but an exaction for
REPUBLIC v. BACOLOD-MURCIA MILLING, ET AL. regulation as an exercise of police power for the general
GR L-19824-26, July 9, 1966 En Banc welfare of the country as it will aid the sugar industry.
Facts: RA 632 is the carter for Philsugin (Phil. Sugar Held: In Lutz v. Araneta, there was a similar question
Institute) a semi-public corporation made to conduct involving a special assessment under CA 567 for the Sugar
research work for the sugar industry, improve existing Adjustment Act, where a 12% tax on the assessed value of
methods, promote effective merchandising of sugar and by the land devoted to the cultivation of sugar was questioned
product in domestic and foreign markets and improve the as unconstitutional for it was devoted exclusively to sugar
living and economic conditions of laborers engaged in sugar industry exclusively and thus not for public purpose.
industry.
The Court ruled in the Lutz case that, the petitioner
To achieve these objectives RA 632 provides that under assumes that the levy was a pure exercise of taxing power,
Section 15, in order to raise the necessary funds to carry out which upon analysis reveals that it was a tax levied for a
provisions of the law, there shall be levied on the annual regulatory purpose, to provide means for the
sugar production a tax of 10 centavos per picul of sugar to rehabilitations and for the stabilization of the threatened
be collected for a period of five years beginning from copy sugar industry. In other words, the act is primarily an
year 1951-1952. The amount shall be borne by sugar cane exercise of police power.
planters and sugar centrals in the proportion of their
corresponding milling share and said levy shall constitute a With such ruling, the special assessment at bar may be
lien on their sugar quedans and/or warehouse receipts. considered as similarly as in the case of Lutz. The levy for
the Philsugin Fund is not so much an exercise of the power
In 1951, Philsugin acquired the Insular Sugar Refinery for of taxation, nor the imposition of a special assessment, but,
P3M by 3 installments from the process of the sugar tax to the exercise of the police power for the general welfare of
be collected. It was shown later that the operation of that the entire country. It is, therefore, an exercise of a
refinery turned out as disastrous where Philsugin incurred sovereign power which no private citizen may lawfully
tremendous losses. resist.
Contending that the purchase of the refinery from the The acquisition of the refinery is justified for the conduct of
Philsugin fund was not authorized and that the continued the research work for the sugar industry in all its phases and
operation of such were inimical to their interests, the sugar to achieve greater efficiency. The operation of the sugar
centrals (BacolodMurcia Milling, Ma-ao Sugar Central and refinery is a phase of sugar production and that from such
Talisay-lisay Milling) refused to pay their contribution to the operation may be learned methods of reducing the cost of
said fund. They argued that the obligation subsists to the sugar manufactured, or opportunity to discover more
limited they are benefited. effective means of achieving progress in the sugar industry.
This is because they argue RA 632 is not a revenue measure The experience of running a sugar industry alone is a gain to
but an act which establishes a “Special assessments”. Thus the entire industry. Thus, from its financially unsuccessful
they posit that the “10 centavo per picul of sugar” venture, the Philsugin could very well have advanced in its
authorized to be collected under Sec. 15 is a special appreciation of the problems of management faced by sugar
assessment, the proceeds thereof to be devoted for special centrals. It could have understood more clearly the
purpose. Arguing that once it has been determined that no difficulties of marketing sugar products.
benefit accrues or inures to the property owners by paying

TAXATION LAW
In addition, the imposition of the Universal Charge on all

Then you have GEROCHI vs. DEPARTMENT OF ENERGY. endusers is oppressive and confiscatory. They contend that
If you notice in your Davao Light receipts, you can see there there is no regulatory purpose of the charges imposed
universal charges. Ito yung issue charge. What is the nature of therein.
this universal charge? Is it in the exercise of power to tax or for
regulation? Because if it is in the nature of taxation power, then On the other hand, respondents contend that the Universal
the collection is illegal. Charge is levied for the specific regulatory purpose which is
to ensure the viability of the country’s electric power
The Supreme Court here, your read this case, the court industry thus they argue that it was an exaction in the
discussed the nature of police and taxation powers. The exercise of the State’s police power.
Supreme Court said that the conservative and pivotal
distinction between these two powers rests in the purpose for Issue: Whether or not the Universal Charge imposed
which the charge is made. If the generation of revenue is the under
primary purpose and regulation is merely incidental, the Section 34 of EPIRA is a tax.
imposition is a tax. But if the regulation is the primary purpose
and the tax is merely incidental then it does not make the No, it is an exaction under the State’s police power.
collection a tax. Again, you look at the primary purpose.
Distinction between Police Power and Taxation
Here the Supreme Court said that the exaction is regulatory. The power to tax is an incident of sovereignty and is
How did it come up with this conclusion? If you look at the unlimited in its range, acknowledging in its very nature no
declaration of policy of the law, you can immediately discern limits, so that security against its abuse is to be found only
the purpose of the universal charge. Ano ba yang policies nay in the responsibility of the legislature which imposes the tax
an? Basahin natin ha, to ensure total electrification of the on the constituency that is to pay it. It is based on the
country, to ensure the quality, reliability and affordability of principle that taxes are the lifeblood of the government,
electric power, etc. There is no mention of income. If you look and their prompt and certain availability is an imperious
at the entirety of the law, the main purpose is more on the need. Thus, the theory behind the exercise of the power to
electricity and the general welfare of the country. It is not more tax emanates from necessity; without taxes, government
on the collection of money. In the end it merely incidental cannot fulfill its mandate of promoting the general welfare
(referring to the collection). Let us continue with the cases next and well-being of the people.
meeting.
On the other hand, police power is the power of the state
GEROCHI v. DEPARTMENT OF ENERGY to promote public welfare by restraining and regulating the
GR 159796, July 17, 2007, En Banc use of liberty and property. It is the most pervasive, the
least limitable, and the most demanding of the three
Facts: Gerochi and others sought to declare as fundamental powers of the State. The justification is found
unconstitutional Section 34 of RA 9136 or the Electric in the Latin maxims salus populi est suprema lex (the
Power Industry Reform Act of 2001, or EPIRA which welfare of the people is the supreme law) and sic utere tuo
imposes the Universal Charge as well as Rule 18 of IRR; and ut alienum non laedas (so use your property as not to injure
that the universal charge imposed be refunded. the property of others). As an inherent attribute of
sovereignty which virtually extends to all public needs,
It was challenged because the universal charge was alleged police power grants a wide panoply of instruments through
to be a tax which is to be collected from all electric end-users which the State, as parens patriae, gives effect to a host of
and self-generating entities. The petitioners argue that the its regulatory powers. We have held that the power to
power to tax is purely legislative and that the delegation to "regulate" means the power to protect, foster, promote,
ERC for the determination of such is unconstitutional for the preserve, and control, with due regard for the interests,
Universal Charge is to be determined, fixed and approved by first and foremost, of the public, then of the utility and of
ERC. its patrons.

TAXATION LAW
The conservative and pivotal distinction between these (e) To ensure fair and non-discriminatory treatment
two powers rests in the purpose for which the charge is of public and private sector entities in the process of
made. If generation of revenue is the primary purpose and restructuring the electric power industry;
regulation is merely incidental, the imposition is a tax; but (f) To protect the public interest as it is affected by
if regulation is the primary purpose, the fact that revenue is the rates and services of electric utilities and other
incidentally raised does not make the imposition a tax. providers of electric power; (g) To assure socially and
environmentally compatible energy sources and
Police Power was Invoked for the Universal Charge infrastructure;
In exacting the assailed Universal Charge through Sec. 34 of (h) To promote the utilization of indigenous and new
the EPIRA, the State's police power, particularly its and renewable energy resources in power generation in
regulatory dimension, is invoked. Such can be deduced order to reduce dependence on imported energy;
from Sec. 34 which enumerates the purposes for which the
Universal Charge is imposed and which can be amply To provide for an orderly and transparent privatization of
discerned as regulatory in character. the assets and liabilities of the National Power Corporation
(NPC); (j) To establish a strong and purely independent
This can be also gleaned from Section 2, Declaration of regulatory body and system to ensure consumer protection
Policy where it enumerates the policy of the states towards and enhance the competitive operation of the electricity
the total electrification of the country and other matters of market; and (k) To encourage the efficient use of energy and
public interest and general welfare. [See next page for the other modalities of demand side management
policies].
From the aforementioned purposes, it can be gleaned that

the assailed Universal Charge is not a tax, but an exaction July 4, 2019.
in the exercise of the State's police power. Public welfare
is surely promoted. Moreover, it is a well-established Discussion on exams/scheduling. There will be 4 exams:
doctrine that the taxing power may be used as an 1. General Principles
implement of police power. 2. Gross Income
3. Deductions
Under the EPIRA Law, the declaration of state policy 4. Comprehensive Income Taxation except General
provides that the imposition of the universal charge was an Principles
exaction for the public welfare of the country: RA 9136 –
EPIRA Law Alright, let’s begin. The last case I discussed is Gerochi v. DOE.
SECTION 2. Declaration of Policy. – It is hereby declared the What is the case of Ferrer v. Bautista?
policy of the State:
(a) To ensure and accelerate the total electrification of the JOSE J. FERRER v. MAYOR BAUTISTA
country; (b) To ensure the quality, reliability, security and G.R. No. 210551, June 30, 2015
affordability of the supply of electric power;
(c) To ensure transparent and reasonable prices of FACTS: Quezon City enacted Ordinance No. SP- 2095, S-2011,
electricity in a regime of free and fair competition and full or the Socialized Housing Tax of Quezon City and Ordinance
public accountability to achieve greater operational and No. SP-2235, S-2013 on Garbage Fees.
economic efficiency and enhance the competitiveness of ISSUE NO. 1: WHAT IS THE POWER BEING EXERCISED IN THE
Philippine products in the global market; (d) To enhance IMPOSITION OF THE SHT?
the inflow of private capital and broaden the ownership
base of the power generation, transmission and HELD: IT IS BOTH AN EXERCISE OF THE POWER TO TAX AND
distribution sectors; POLICE POWER.

TAXATION LAW
Police power is the plenary power vested in the legislature to In Progressive Development Corporation v. Quezon City, the
make statutes and ordinances to promote the health, morals, Court declared that “if the generating of revenue is the primary
peace, education, good order or safety and general welfare of purpose and regulation is merely incidental, the imposition is
the people. In this jurisdiction, it is well-entrenched that a tax; but if regulation is the primary purpose, the fact that
taxation may be made the implement of the state’s police incidentally revenue is also obtained does not make the
power. imposition a tax.”
Ordinance No. SP-2095 imposes a Socialized Housing Tax In Victorias Milling Co., Inc. v. Municipality of Victoria, the
equivalent to 0.5% on the assessed value of land in excess of Court reiterated that “the purpose and effect of the imposition
Php100,000.00. determine whether it is a tax or a fee, and that the lack of any
standards for such imposition gives the presumption that the
The SHT charged by the Quezon City Government is a tax. The same is a tax.”
collections made accrue to its socialized housing programs and
projects. The tax is not a pure exercise of taxing power or We accordingly say that the designation given by the municipal
merely to raise revenue; it is levied with a regulatory purpose. authorities does not decide whether the imposition is properly
a license tax or a license fee. The determining factors are the
The levy is primarily in the exercise of the police power for the purpose and effect of the imposition as may be apparent from
general welfare of the entire city. It is greatly imbued with the provisions of the ordinance.
public interest. Removing slum areas in Quezon City is not only
beneficial to the underprivileged and homeless constituents ISSUE NO. 3: IS THE IMPOSITION OF THE GARBAGE FEES
but advantageous to the real property owners as well. The VALID?
situation will improve the value of the their property
investments, fully enjoying the same in view of an orderly, HELD: NO.
secure, and safe community, and will enhance the quality of
life of the poor, making them law-abiding constituents and Nonetheless, although a special charge, tax, or assessment
better consumers of business products. may be imposed by a municipal corporation, it must be
reasonably commensurate to the cost of providing the garbage
Notably, the public purpose of a tax may legally exist even if service. To pass judicial scrutiny, a regulatory fee must not
the motive which impelled the legislature to impose the tax produce revenue in excess of the cost of the regulation
was to favor one over another. It is inherent in the power to because such fee will be construed as an illegal tax when the
tax that a State is free to select the subjects of taxation. revenue generated by the regulation exceeds the cost of the
Inequities which result from a singling out of one particular regulation.
class for taxation or exemption infringe no constitutional
limitation. Why is it important to determine the nature of the exaction?
If it is in the exercise of Police Power, what is the extent of the
ISSUE NO. 2: WHAT IS THE POWER BEING EXERCISED IN THE collection that may be made for regulatory purposes? What is
IMPOSITION OF GARBAGE FEES? the nature of the SHT? Is solely for Taxation purposes? Or is
this an exercise of Police Power?
HELD: POLICE POWER (REGULATION PURPOSES ONLY)
So, the SHT is a Tax. Be careful with your terms because a
The fee imposed for garbage collections under Ordinance No. special assessment does not mean it is a tax. The SHT is an
SP-2235 is a charge fixed for the regulation of an activity. The exercise of both power to tax and police power because it
basis for this could be discerned from the foreword of said would benefit the poor who are living in the slums and also the
Ordinance. rich people who are land owners. To put it simply, this is for
the general welfare. We get money in order to raise income
Certainly, as opposed to petitioner’s opinion, the garbage fee but we put this income for socialized housing purposes, for the
is not a tax. general welfare of the people.

TAXATION LAW
What about the Garbage Collection Fees? By merely looking at ISSUE: WON THE ROYALTY FEES ARE TAXES.
the ‘whereas’ clause of the ordinance, you can immediately
determine the purpose. Is it to raise revenue? Or is it for HELD: NO.
regulation? Now, what if a law provides for an exaction of
certain amounts and yet it is not stated in that law or In distinguishing tax and regulation as a form of police power,
ordinance the purpose for that exaction? What is our the determining factor is the purpose of the implemented
presumption as to the power being exercised by the measure. If the purpose is primarily to raise revenue, then it
Government? In this case the Court cited the Victorias Milling will be deemed a tax even though the measure results in some
v. Municipality of Victoria. In essence, the Supreme Court said form of regulation. On the other hand, if the purpose is
that if the law is silent as to the nature of that exaction, then primarily to regulate, then it is deemed a regulation and an
there is a strong presumption that the money being collected exercise of the police power of the state, even though
is in the form of a tax. incidentally, revenue is generated. Thus, in Gerochi v.
Department of Energy, the Court stated: “The conservative and
What about the Chevron case? pivotal distinction between these two (2) powers rests in the
purpose for which the charge is made. If generation of revenue
CHEVRON PHILIPPINES v. BCDA is the primary purpose and regulation is merely incidental, the
G.R. No. 173863, September 15, 2010 imposition is a tax; but if regulation is the primary purpose, the
fact that revenue is incidentally raised does not make the
FACTS: Clark Development Corporation (CDC) issued Policy imposition a tax.”
Guidelines on the Movement of Petroleum Fuel to and from
the Clark Special Economic Zone (CSEZ) which provided for In the case at bar, we hold that the subject royalty fee was
payment of Royalty Fees of Php0.50 per liter for those imposed primarily for regulatory purposes, and not for the
delivering Coastal petroleum fuel to CSEZ locators not generation of income or profits as petitioner claims.
sanctioned by CDC & Php1.00 per liter for those bringing-in
petroleum fuel from outside sources. The Policy Guidelines was issued to ensure the safety, security,
and good condition of the petroleum fuel industry within the
Petitioner argues that the royalty fees imposed had no CSEZ. The questioned royalty fees form part of the regulatory
reasonable relation to the probable expenses of regulation and framework to ensure "free flow or movement" of petroleum
that the imposition on a per unit measurement of fuel sales fuel to and from the CSEZ.
was for a revenue generating purpose, thus, akin to a "tax".
Petitioner stresses that the royalty fee imposed by CDC is not Being the administrator of CSEZ, the responsibility of ensuring
regulatory in nature but a revenue generating measure to the safe, efficient and orderly distribution of fuel products
increase its profits and to further enhance its exclusive right to within the Zone falls on CDC. Addressing specific concerns
market and distribute fuel in CSEZ. Petitioner would also like demanded by the nature of goods or products involved is
this Court to note that the fees imposed, assuming arguendo encompassed in the range of services which CDC is expected to
they are regulatory in nature, are unreasonable and are grossly provide under the law, in pursuance of its general power of
in excess of regulation costs. supervision and control over the movement of all supplies and
equipment into the CSEZ.
Respondents argue that the purpose of the royalty fees is to
regulate the flow of fuel to and from the CSEZ. Such being its In relation to the regulatory purpose of the imposed fees, this
main purpose, and revenue is just an incidental product, the Court in Progressive Development Corporation v. Quezon City,
imposition cannot be considered a tax. It is their position that stated that " the imposition questioned must relate to an
the regulation is a valid exercise of police power since it is occupation or activity that so engages the public interest in
aimed at promoting the general welfare of the public. They health, morals, safety and development as to require
claim that being the administrator of the CSEZ, CDC is regulation for the protection and promotion of such public
responsible for the safe distribution of fuel products inside the interest; the imposition must also bear a reasonable relation
CSEZ. to the probable expenses of regulation, taking into account not

TAXATION LAW
only the costs of direct regulation but also its incidental 1. Fiscal Adequacy
consequences as well." 2. Administrative Feasibility
3. Theoretical Justice
In the case at bar, there can be no doubt that the oil industry
is greatly imbued with public interest as it vitally affects the FISCAL ADEQUACY
general welfare. In addition, fuel is a highly combustible Q: What does this mean?
product which, if left unchecked, poses a serious threat to life A: Tax system must be able to provide sufficient revenues in
and property. Also, the reasonable relation between the order to provide for the needs of our government.
royalty fees imposed on a "per liter" basis and the regulation Fiscal Adequacy means the Tax System must be able to
sought to be attained is that the higher the volume of fuel provide submission revenues in order to meet the legitimate
entering CSEZ, the greater the extent and frequency of needs of the government, adequate or sufficient.
supervision and inspection required to ensure safety, security,
and order within the Zone. The sources of income taken as a whole must be sufficient to
meet the ever expanding needs or expenditures of the
Respondents submit that increased administrative costs were government regardless of conditions, export taxes, and
triggered by security risks that have recently emerged. problems of economic adjustments.
Explaining the regulatory feature of the charges imposed
under the Policy Guidelines, then BCDA President stressed: The taxes being collected by the government must be enough
to answer the government expenditures – even in cases where
“The need for regulation is more evident in the light of the there will be a deficit despite a 100% collection on the internal
9/11 tragedy considering that what is being moved from one revenue taxes.
location to another are highly combustible fuel products that
could cause loss of lives and damage to properties.” Dean Quibod: The sources of revenue should be sufficient to
meet varying levels of government expenditures regardless of
We are therefore constrained to sustain the imposition of the business conditions and problems of economy. In other words,
royalty fees on deliveries of CPI's fuel products to Nanox your tax laws must be able to expand and contract regardless
Philippines. of business conditions. It is not correct that if there are
shortages in revenue collection, the revenue will go back to
As to the issue of reasonableness of the amount of the fees, congress and add more taxes or increase the rates. That is the
we hold that no evidence was adduced by the petitioner to requirement of fiscal adequacy. The sources of revenue should
show that the fees imposed are unreasonable. be able to address the varying economic conditions within the
state. Problems with the collection and enforcement of the law
Let’s go to the monetary aspect of this case. What was being should not be resolved through legislating or enacting more
collected by the issued guidelines? How much is the royalty taxes. The state, through the executive branch in charge of tax
fee? Magkano per liter? What now if the royalty fee is administration, should be able to enforce the tax laws. You
excessive? What is the nature of this exaction? Is this a tax? Or should not go to Congress every now and then, kung bakit ito
is it for regulation? Chevron is also contending that this is not lang ang nakokolekta? So increase na agad ang tax rates? No,
really for regulation, since what is being collected from us is it defeats the purpose of fiscal policy.
really huge. How did the Supreme Court debunk that
contention? The cost of the regulation is high because of the ADMINISTRATIVE FEASIBILITY
nature of the products here, you’re talking about petroleum. Q: What does this mean?
Pero kanang makita ninyo sa movie na match na ihulog sa A: Taxes should be easier for Government to collect. Also, it
gasolina that’s bullshit. Try nyo yan. Ang magliyab lang kay should be easy for the taxpayer to pay.
kerosene.
Q: How is this different from fiscal adequacy?
PRINCIPLES OF A SOUND TAX SYSTEM A: Fiscal adequacy relates to how much the government
Q: What are the 3 principles of a sound tax system? collects as fees and it should be adequate to provide funds for
A: the purpose of the tax.

TAXATION LAW
Feasible meaning doable. A tax measure should be easily imposition invalid except to the extent that specific
implemented in order to assure the smooth flow into the constitutional or statutory limitations are impaired.
treasury the fiscally adequate amounts. This means that the
tax system should be capable of being effectively administered Dean Quibod: It is simply the ability to pay. So when the taxes
and enforced with the least inconvenience to the taxpayer. are levied, or the Congress exercises its power to tax, it must
be made on the basis of the ability to pay. Those who are able
Administrative feasibility requires easy tax collection on the to pay more should be taxed more because of this principle.
part of the government and easy tax payment of the tax.
THEORY AND BASIS OF TAXATION
Dean Quibod: This follows the principle of convenience. Each Q: What is the difference between the Theory of Taxation and
tax should be clear and plain to the taxpayers, capable of Basis of Taxation.
enforcement by adequate and well-trained staff of public A: The Theory of Taxation explains why there is a need to
officials, convenient as to time and manner of payment and impose taxes while the basis or rationale for taxation explains
not unduly burdensome or discouraging to business activity. the reason why a State may impose taxes. The theory of
Now, you can pay online or through banks. Dili na mano-mano taxation refers to the lifeblood theory and the necessity theory
ang filing and submit personally sa BIR. is an extension of the lifeblood theory. The Basis or Rationale
of Taxation refers to (1) the symbiotic relationship and (2)
THEORETICAL JUSTICE jurisdiction by the state over persons and property within its
Q: What’s this all about? territory.
A: It’s a theory wherein the tax is based on the ability of the
taxpayer to pay. THEORY OF TAXATION:
NECESSITY THEORY
Q: How is this manifested in our Tax System? Q: What is the Theory of taxation.
A: By some laws wherein there is a certain bracket for this A: Based on the Necessity Theory.
certain of people earning a certain amount of income.
As stated in the case of PHILIPPINE GUARANTY v. CIR, taxation
Q: What happens if the income is higher? is a necessary burden to preserve the States sovereignty and a
A: They will pay more. means to give the citizenry an army to resist aggression, a navy
to defend its shores from invasion, a corps of civil servants to
The complete manifestation of that is the higher the income, serve, public improvements for the enjoyment of the citizenry,
the higher the taxes. and those which come within the State’s territory and facilities
and protection which a government is supposed to provide.
This is the ability-to-pay theory. The tax system must be based
on the taxpayer’s ability to pay. It must not be so burdensome. Q: What is the Lifeblood Theory?
Those who have more shall pay more and those who have less A: The lifeblood theory means taxes are the lifeblood of the
shall pay less. government and it is necessary for the government to provide
Q: Will a violation of the abovementioned principles render a for its constituents. Taxes are the lifeblood of the government
tax law unconstitutional? and so should be collected without unnecessary hindrance.
A: It depends.
Dean Quibod: Taxation proceeds upon the theory that the
This was settled in the case of DIAZ v. SEC. OF FINANCE. The existence of government is a necessity. It brings us to the
imposition of VAT on the collection of toll way operators discussion that taxes are the lifeblood of the government.
supposedly violated the principle of administrative feasibility.
Particularly, the petitioner asserted that the substantiation Manifestations of the lifeblood theory:
requirements for claiming the input VAT were impractical and (1) The collection of taxes may not be enjoined by an
incapable of implementation. The Supreme Court held that injunction, as a general rule.
while administrative feasibility is a canon of a sound tax (2) The taxes cannot be subject of a compensation or set-off
system, the non-observance thereof will not render a tax (3) The power to tax is unlimited and plenary

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(4) The power to tax may also involve the power to destroy. Dean Quibod: On why taxes are the lifeblood of the
government, why taxes is a necessity- is because of that
GR: The collection of taxes cannot be enjoined by the courts. Reciprocal duty between the subject of taxation and the state.
So it gives the State the obligation to give protection, and for
Exceptions: the subjects of taxation, who are the citizens of the state, their
(1) Local Taxes can be enjoined by the courts. obligation to support the state, to support the government.
The no-injunction rule only applies to national taxes. In the OTHER DOCTRINES
collection of local taxes, there is no express prohibition in the
LGC that prohibits courts from issuing an injunction to restrain PROSPECTIVITY OF TAXES
local governments from collecting taxes. GR: Tax laws do not have retroactive application.
(2) Under the CTA Law, RA 1125 as amended by RA 9282. To give retroactive effect to tax laws will violate the right of the
tax payer to due process. A taxpayer should always know when
An injunction may be issued to restrain the collection of taxes to pay his obligations.
“when in the opinion of the Court the collection may
jeopardize the interest of the Government and/or the Now, what if there is a repeal of a certain Tax law and that
taxpayer, the Court at any stage of the proceeding may repealed Tax law previously imposed taxes on certain
suspend the said collection and require the taxpayer either to individuals, so upon it’s repeal, these individuals are already
deposit the amount claimed or to file a surety bond for not tax exempt.
more than double the amount with the Court.” (Section 11, RA
1125, as amended by RA 9282). Q: How will the Government go about the taxes not yet paid
or uncollected prior to the repeal of this tax law?
BASIS OF TAXATION: A: The Government will still collect the unpaid taxes prior to
BENEFITS-PROTECTION THEORY OR SYMBIOTIC the repeal of the tax law.
RELATIONSHIP
This is characterized by the relationship between the taxpayer Q: Because?
and the government. There is a reciprocal duty between the A: Although tax laws are prospective, the exception is that
taxpayer and the government to support each other. when tax laws specifically provides otherwise. If the new law
does not expressly say so, the government will still collect
According to this principle, the basis of taxation is found in the those which have not yet been paid prior to the repeal of the
reciprocal duties of protection and support between the State tax law which are already collectible.
and its inhabitants. In return for his contribution, the taxpayer Okay, what happened in the case of Commissioner v. Acosta?
receives the general advantages and protection which the
government affords the taxpayer and his property. COMMISSIONER OF INTERNAL REVENUE v. ROSEMARIE
ACOSTA
In CIR v. ALGUE, the Supreme Court stated that taxes are what G.R. NO. 154068, August 03, 2007
we pay for civilized society. Hence, despite the natural
reluctance to surrender part of one’s hard-earned income, FACTS: For the period January 1, 1996 to December 31, 1996,
every person who is able must contribute his share in the Acosta was assigned in a foreign country by Intel. During that
running of the government and the latter, for its part, is period, Intel withheld the taxes due on Acosta’s compensation
expected to respond in the form of tangible and intangible income and remitted to the Bureau of Internal Revenue (BIR)
benefits intended to improve the lives of the people and the amount of P308,084.56.
enhance their moral and material values. This symbiotic
relationship is the rationale of taxation and should dispel the On March 21, 1997, respondent and her husband filed with the
erroneous notion that it is an arbitrary method of exaction by BIR their Joint Individual Income Tax Return for the year 1996.
those in the seat of power Later, on June 17, 1997, respondent, through her
representative, filed an amended return and a Non-Resident

TAXATION LAW
Citizen Income Tax Return, and paid the BIR P17,693.37 plus We cannot agree that the amended return filed by respondent
interests in the amount of P14,455.76. On October 8, 1997, she constitutes the written claim for refund required by the old Tax
filed another amended return indicating an overpayment of Code, the law prevailing at that time.
P358,274.63.
In the interim, the 1997 Tax Code took effect, repealing the Petitioner argues that the 1997 NIRC cannot be applied
1993 Tax Code. retroactively as the instant case involved refund of taxes
withheld on a 1996 income.
Claiming that the income taxes withheld and paid by Intel
resulted in an overpayment, respondent filed on April 15, 1999 Acosta points out that when the petition was filed with the CTA
a petition for review with the Court of Tax Appeals. on April 15, 1999, the 1997 NIRC was already in effect.
The CTA ruled that respondent failed to file a written claim for After a thorough consideration of this matter, we find that we
refund with the CIR, a condition precedent under the 1993 Tax cannot give retroactive application to the new Tax Code. We
Code. have to stress that tax laws are prospective in operation,
unless the language of the statute clearly provides otherwise.
The Court of Appeals reversed the CTA and applied the 1997
Tax Code. Moreover, at the time respondent filed her amended return,
the 1997 NIRC was not yet in effect. Hence, respondent had no
ISSUE: CAN THE 1997 TAX CODE BE APPLIED RETROACTIVELY? reason at that time to think that the filing of an amended
return would constitute the written claim for refund required
HELD: NO. by applicable law.
The applicable law on refund of taxes pertaining to the 1996 We cannot agree with the Court of Appeals' finding that the
compensation income is the old Tax Code, which was the law nature of the instant case calls for the application of remedial
then in effect, and not the new Tax Code of 1997, which was laws. Revenue statutes are substantive laws and in no sense
effective starting only on January 1, 1998. must their application be equated with that of remedial laws.
Revenue laws are not intended to be liberally construed.
The 1993 Tax Code law is clear. A claimant must first file a Considering that taxes are the lifeblood of the government and
written claim for refund, categorically demanding recovery of in Holmes's memorable metaphor, the price we pay for
overpaid taxes with the CIR, before resorting to an action in civilization, tax laws must be faithfully and strictly
court. This obviously is intended, first, to afford the CIR an implemented.
opportunity to correct the action of subordinate officers; and
second, to notify the government that such taxes have been Nangayo si Acosta og refund. Under the old law, the
questioned, and the notice should then be borne in mind in requirement to be entitled to a refund is that there must be a
estimating the revenue available for expenditure. written claim for a refund before it will be granted by the BIR.
And then the new law, if you want a refund, it’s either you
Entrenched in our jurisprudence is the principle that tax make a written claim for an application or you just indicate in
refunds are in the nature of tax exemptions which are your Income Tax Return that there is an overpayment. Si
construed strictissimi juris against the taxpayer and liberally in Acosta, nagka overpayment daw siya during the time the old
favor of the government. As tax refunds involve a return of law was in effect. What she did was nag claim siya og refund
revenue from the government, the claimant must show gamit ang provisions sa new law, in short, wala na siya nag
indubitably the specific provision of law from which her right sulat og written claim. So ingon ang BIR na dili siya maka refund
arises; it cannot be allowed to exist upon a mere vague kay Tax Laws are prospective in nature. Dapat nag written
implication or inference. Strict compliance with the conditions claim siya. The Court of Appeals said that this is a matter of
imposed for the return of revenue collected is a doctrine procedure, Remedial Law, thus it can be given retroactive
consistently applied in this jurisdiction. effect. The Supreme Court held otherwise. It cannot give
retroactive application to the aforecited tax because Tax Laws
are prospective in application unless the language of the

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statute clearly provides otherwise. This is not just a matter of DOUBLE TAXATION
procedure but it is a substantive law. If one will file a refund,
that is not just remedial but that is substantive. Authors would say that double taxation is one of the inherent
limitations. I would say that it is not because of our basic
July 9, 2019 premise that the power to tax is plenary, all-encompassing and
unlimited. If the government would like to tax the same subject
IMPRESCRIPTIBILITY OF TAXES matter twice, for the same purpose, the can do so.
It is more of a constitutional limitation. Our basic premise is
General Rule: The right of the government to collect taxes is not all forms of double taxation is actually illegal. Double
imprescriptible. taxation is not illegal per se. You’re paying income taxes and
at the same time weekly percentage tax or VAT. It’s the same
Without a law which provides for a prescriptive period for the money and yet there are two types of tax being imposed by the
collection of taxes, the government can collect taxes and will government.
have an unlimited time to do so.
WHEN WILL THE DOUBLE TAXATION BECOME ILLEGAL?
With respect to the internal revenue taxes, the prescriptive • If it violates the constitution
period is usually 3 years from either the filing of it or the filing • If it violates any provision of the law.
of the income tax return or the return required by the NIRC or
date or the time of payment of the tax, whichever comes later. 2 FORMS OF DOUBLE TAXATION
Is the imprescriptibility of tax laws still applicable?
1. Direct Double Taxation/Direct Duplicate Taxation
NIRC will provide that there is a prescriptive period. Even if in 2. Indirect Double Taxation/Indirect Duplicate Taxation
cases of non-filing of tax returns, even in cases of fraud
employed by the taxpayer to defeat or refute taxes, the What is Direct Double Taxation?
government may have a 10 year prescriptive period. This is declared by law to be illegal. Another term for it is
Obnoxious Double Taxation according to Aban. Direct Double
Is the principle of imprescriptibility of taxes still applicable, Taxation happens when the same subject or property is taxed
even with this law? twice, by the same taxing authority, for the same tax purpose,
the same tax period and all tax subjects/objects or property
Yes. I think the principle of imprescriptibility of tax is still within the same territory for the first time without taxing them
applicable. for the second time.
1. When there is fraud involved.
2. If there is a failure to file the income tax return or the Aban’s Definition of Double Taxation:
income tax return filed is false. The same property is taxed twice, where it should be only
taxed once, and that both taxes are imposed to the same
The reason why is because even if the law provides the property or subject matter for the same purpose, same taxing
prescriptive period is 10 years, when will you reckon the 10 authority, within the same tax jurisdiction, covering the same
year period? tax period, for the same kind or character of tax.
From the time of discovery? So if there is no discovery, then the 6 ELEMENTS. The taxpayer is taxed twice, when he should be
government will have unlimited time to make an assessment only taxed once and the both TAXES ARE:
and demand for the payment of the taxes. So, I think, more or 1. For the same subject matter;
less, the doctrine of Imprescriptibility is still applicable up until 2. For the same purpose;
this point. 3. For the same taxing authority;
4. Within the samee jurisdiction;
5. During the same taxing period;
6. And the taxes are of the same kind and character.

TAXATION LAW
What is Indirect Double Taxation? 4. Within the city (same tax jurisdiction)
This is the “legal double taxation”. Absent one of the elements 5. Both are paid per calendar year (tax period)
of Direct Double taxation, there is INDIRECT DOUBLE 6. Local business tax imposed on gross sales or receipts
TAXATION which is allowable by law. of the business (kind or character)
CITY OF MANILA VS COCA-COLA SC: Yes, this is actually a DOUBLE TAXATION. All elements are
there. The question next is where is the law that was violated
This deals with 2 separate ordinances issued by the City of here. As we have said, double taxation is only illegal when
Manila. By virtue of this ordinance, coke had maintained there is a violation of the constitution or law.
business taxes (the manufacturer’s tax) under section 14.
There’s this certain provision in the tax ordinance 7794 The answer is section 143 (H) of the LGC. The said section
wherein the Coca Cola is paying the manufacturer’s tax. This provides that business taxes may be imposed on those articles
ordinance exempted the Coca-Cola from paying the business which are subject to VAT so long as they are not subject to any
tax, because the Coca-Cola is subjected to another kind of business taxes under the local government code. There is
business tax, the manufacturer’s tax. already manufacturer’s tax, so the other business tax should
not be imposed.
Subsequently, 7988 was enacted which withdrew the tax
exemption for the tax in Section 21 of the under 7794. This was Petitioner contends that Section 14 of Tax Ordinance No. 7794
struck down by the court. However, before it was declared null imposes local business tax on manufacturers, etc. of liquors,
and void, the City of Manila assessed Coca Cola under section distilled spirits, wines, and any other article of commerce,
21. pursuant to Section 143(a) of the LGC. On the other hand, the
So during the interim period between the time when the new local business tax under Section 21 of Tax Ordinance No. 7794
ordinance was enacted and the time when it was nullified, is imposed upon persons selling goods and services in the
Coca Cola was subject tax. We have this principle under the course of trade or business, and those importing goods for
constitution that before the law is nullified, it was effective. business or otherwise, who, pursuant to Section 143(h) of the
Those that were done prior to the nullification cannot be LGC, are subject to excise tax, value-added tax (VAT), or
invalidated. (maybe Doctrine of operative fact?) percentage tax under the National Internal Revenue Code
(NIRC). Thus, there can be no double taxation when
Under this principle, the City of Manila tried to collect taxes respondent is being taxed under both Sections 14 and 21 of
from Coke. During the interim period, there’s 2 taxes involved. Tax Ordinance No. 7794, for under the first, it is being taxed as
The Manufacturer’s tax under Section 14(the one that coke is a manufacturer; while under the second, it is being taxed as a
has been paying). The other is under Section 21 (the one person selling goods in the course of trade or business subject
where the exemption was lifted). to excise, VAT, or percentage tax.
Coke’s defense: its Double taxation
The distinction petitioners attempt to make between the taxes
City of Manila: this is not Double Taxation, because the under Sections 14 and 21 of Tax Ordinance No. 7794 is
purposes are different or the kind of tax is different. specious. The Court revisits Section 143 of the LGC, the very
source of the power of municipalities and cities to impose a
Issue: Is there Double taxation? local business tax, and to which any local business tax imposed
by petitioner City of Manila must conform. It is apparent from
Held: Yes a perusal thereof that when a municipality or city has already
Elements of Double taxation: imposed a business tax on manufacturers, etc. of liquors,
1. Both are imposed on the privilege on doing business distilled spirits, wines, and any other article of commerce,
(subject matter) pursuant to Section 143(a) of the LGC, said municipality or city
2. To make persons conducting business within the city may no longer subject the same manufacturers, etc. to a
of Manila contribute to the income or revenue business tax under Section 143(h) of the same Code. Section
(purpose) 143(h) may be imposed only on businesses that are subject to
3. City of Manila (taxing authority) excise tax, VAT, or percentage tax under the NIRC, and that

TAXATION LAW
are not otherwise specified in preceding paragraphs. In the The law is clear. Gross receipts include money or its
same way, businesses such as respondents, already subject to equivalent actually or constructively received in
a local business tax under Section 14 of Tax Ordinance No. consideration of services rendered or articles sold, exchanged
7794 [which is based on Section 143(a) of the LGC], can no or leased, whether actual or constructive.
longer be made liable for local business tax under Section 21
of the same Tax Ordinance [which is based on Section 143(h) --whatever you have received. It is not only limited to ACTUAL
of the LGC]. receipts but also includes those that are CONSTRUCTIVELY
received by the taxpayer – those which are placed in your
ERICSSON VS CITY OF PASIG control. Because what if the other party pays through the
bank, is it actually received? NO. But in effect, the payor loses
The city of Pasig assessed business taxes against Ericsson control of the money upon the deposit and the recipient of the
Telecom on the basis of Gross revenues. money has total control of that money and may do anything
he wants to do with it. --
Ericsson: the taxes should be based on the gross receipts _____________________________________
instead of the gross revenues.
Gross revenue covers money or its equivalent actually or
City of Pasig: gross revenues and gross receipts are actually constructively received, including the value of services
the same. rendered or articles sold, exchanged or leased, the payment of
which is yet to be received.
Issue: will the tax based on the gross revenues instead of gross This is a broader term because it includes money which you
receipts constitute Double Taxation? actually/constructively received and the money yet to be
received.
Held: Yes. The basis should be on gross receipts. The issue is _____________________________________
weird because under the double taxation, there’s 2 taxes Now where is double taxation?
imposed. Here, there is only 1 tax. Sc: “The imposition of local business tax based on petitioners
gross revenue will inevitably result in the constitutionally
Paragraph e, Section 143 of the Local Government Code proscribed double taxation taxing of the same person twice by
provides that the same jurisdiction for the same thing inasmuch as
“ petitioners revenue or income for a taxable year will definitely
The municipality may impose taxes on the following include its gross receipts already reported during the previous
businesses: (e) On contractors and other independent year and for which local business tax has already been paid.”
contractors, inaccordance with the following schedule:
This means that if the tax base is on the gross revenues for this
With gross receipts for the preceding calendar year in the year, it will include receivables (money actually received) and
amount of: -------- perceivables (money yet to be received). If the following year,
_____________________________________ those perceivalbles will be received, they will again be
Section 131 of LGC: included in the gross revenues. On the next year some items
Gross Sales or Receipts include the total amount of money or which have already been taxed in the prior year might also be
its equivalent representing the contract price, compensation included in the present year’s tax. The effect is similar to
or service fee, including the amount charged or materials double taxation even if it involves only one tax.
supplied with the services and the deposits or advance
payments actually or constructively received during the For me, I think the SC missed the fact that double taxation
taxable quarter for the services performed or to be performed involves 2 taxes. I think that the SC focused more on the effect.
for another person excluding discounts if determinable at the
time of sales, sales return, excise tax, and value-added tax Read also the case of CIR vs BPI, it’s in the outline. And also the
(VAT); case of Nursery Care vs Acevedo.

TAXATION LAW
WAYS OF ELIMINATING DOUBLE TAXATION: Where do you get this tax credits? This tax credits are normally
1. TAX TREATIES allowed if there is a law providing for it. Usually this is when
2. TAX CREDITS there’s a refund. If you want a specific provision of law, there
3. TAX DEDUCTION one in the NIRC. Tax Credits for Foreign Income Taxes Paid. Like
4. TAX REDUCTION for instance what happen to Pacquiao before, he was pursued
by Kim Henares. Henares claims that he is requesting for the
TAX TREATIES IRS (Internal Revenue Service) documents of Pacquiao so that
Entered between states mainly to avoid international double we can apply the tax credit. The tax liabilities of Pacquiao will
taxation. This is indirect double taxation because there are 2 be reduced by the foreign income taxes he has paid abroad. But
taxing authorities (missing element). what Pacquiao and his team did was they did not provide any
document. So according to Henares he has no other choice but
Example: Pacquiao – he earns income from boxing matches. to enforce the collection.
Because the match is done abroad, the host country will
impose income taxes on him. When he arrives in the Another is in Estate Taxation. There are some decedents who
Philippines, because of the fact that he is a resident citizen, he died with a will and they have properties all over the world.
will also be liable for taxes for the income he earned abroad. What about the estate taxes paid abroad? That can be used as
It’s practically the same – same money, same purpose, same deduction to the estate tax to be paid here. There is one found
earning, same type of tax, but then, the territory and the taxing in Donor’s Tax .
authority are different. This is international double taxation.
Another form of tax credit is VAT. The component of VAT. The
International Double Taxation takes place when a person who input VAT can be used as a tax credit against you output VAT.
is a resident of a contracting state and derives income from, or
own capital in another contracting state and both states TAX DEDUCTIONS
impose tax on the income or capital. (2 taxing authority for It is pretty much similar in intent with tax credits because it will
practically the same tax) reduce the tax liability of the taxpayer. This tax deductions
would reduce the tax base. If there is a lower tax base, there is
Tax treaties would usually exempt aliens from local tax and also lower tax to pay. In other words, there is an indirect reduction
exempt our local nationals from foreign taxation. This is a to the taxes paid. Compared to the tax credit which is a direct
principle of reciprocity. reduction of the tax liability.
What is the purpose of international tax treaties? (CIR vs SC Example: Section 34 (c) (1b) of NIRC. In the computation of
JOHNSON) income taxes, right now, if you provide for senior citizens’
1. The elimination of international juridical double discounts, you can avail of a deduction. Deduction which will
taxation; form part of your business expenses. If you have a lot of
2. To encourage the free-flow of goods and services expenses, your income will reduce, and smaller income would
movement of capital and technology between the two mean smaller taxes that you have to pay.
countries. (simply said to support international trade)
TAX REDUCTIONS.
TAX CREDITS This is more of a legislative side. This would just require
This is a direct deduction from the tax liability of the tax payer. enactments from the Congress that would reduce the tax
This is a peso-for-peso deduction. The amount of the tax credit liabilities of a taxpayer or the tax rate or the tax base of a
is also the very amount which will be deducted from the tax particular tax measure.
due.
Example: Train Law. There was an increase in a lot of excise
Example: .under the NIRC, if you have a tax credit certificate. taxes. There were new items which were already excisable but
You can use this as payment for your taxes. If you a tax credit the income tax rates and tax base were only adjusted.
certificate worth 30,000 and you have an income tax liability
of 100,000. You just pay 70,000 and the tax credit certificate.

TAXATION LAW
July 18, 2019 3. Delegation to the Administrative Bodies

4. Delegation to the people at large
So we are now in limitation. So let’s go back to our general rule 5. Emergency Powers
that the power to tax is plenary, all-encompassing (Abakada vs. Ermita)
and unlimited. It’s an incident of sovereignty and its unlimited
in range, acknowledging in its very nature no limits, so that
security against its abuse is to be found only in the What are the sources of tax laws by the way?
responsibility of the legislature. The reason for this is that taxes 1. Constitution
are the lifeblood of the state. but even if its the lifeblood of the 2. Existing Statutes
state, it doesn’t mean it has no limits. 3. NIRC and other related laws
4. Previously the TCCP now amended into CMTA
So basically there two types of limitations to the power to tax. 5. Local tax laws or ordinance
6. Local Government Code
1. Inherent Limitations; and 7. Bases conversion (usually has tax implications)
2. Constitutional Limitations 8. International tax treaties
INHERENT LIMITATIONS Some books would include the revenue regulations, revenue
So what are the inherent limitations of the power to tax? memorandum orders issued by the BIR and other tax agencies.
But technically these are not laws diba. based on your
1. Public Purpose administrative laws these rules and regulations are designed to
2. Inherently Legislative implement the tax laws but they have the force and effects of
3. Territorial a tax law. But to say that they are laws, I have some
4. International Comity reservations to that.
5. Exception of Government Entities from taxation
Then you have BIR rulings. Strictly speaking I don’t think these
So if you have noticed these inherent limitations we have more are tax laws but these would guide us in interpreting a
or less discussed most of the inherent limitations. Sa definition particular tax provision or interpreting the rules and
pa lang so I will not discuss the again. regulations or memorandum orders issued by the BIR.
But there are some authors that would say that double taxation Then you jurisprudence. The basis for this is the Civil Code. Diba
is part of the inherent limitation—that i do not understand. remember from Maam Galas. Supreme Court decisions form
part of the law of the land.
I. Public purpose.
III. Territorial.
The power to tax is supposed to be for public purpose. In the
case of Fertiphil, I mentioned before that the public purpose is We have mentioned this last time. The operation of the power
the heart of taxation. Then we go back to the definition again, to tax is territorial in nature. So normally speaking, it operates
inherently legislative. only within the Philippines. The subject and object which are
found here in the Philippines. The exception is if there is privity
II. The power to tax is legislative in nature. of relationship between the taxing authority and the tax
subject or object. This can be manifested through residency,
It is the legislature that exercises the power to tax. Now, you nationality, location, source etc.
already know the exceptions right?
Situs of Taxation has something to do with the place of
What are the 5 exceptions? taxation. I’ll give it to you guys the situs of different tax subjects
or objects like for example income tax, what is the situs? What
1. Delegation to the President are the factors you have to consider? Also what about property
2. Delegation to the LGUs tax? What if the property is a real property? personal?

TAXATION LAW
intangible? Then you have excise taxes. The exercise of the Case of Mactan Cebu vs. Marcos
privileges like the right to sale, sales tax. What is the situs of
sales tax? What about donors tax? business tax? so dapat alam This case is about real property tax but it has something about
niyo yon. I will give it to you to read the cases: Iloilo bottlers, admin law.
BOAC rulings.
What is the nature of Mactan Cebu international Airport
IV. International Comity authority? Is it a GOCC or a government instrumentality? The
classification is important because according to the LGC, GOCC
International Comity has something to do with the respect are now subject to real property taxes. But if its considered as
accorded by one nation to another. Under International a government instrumentality, it is exempt from taxation.
Comity, the property of the foreign state or government may SC held here that MCAA is a government instrumentality.
not be taxed by another state. This is based on the following Therefore it is exempt from taxation.
reasons:
CONSTITUTIONAL LIMITATIONS
1. Concept of Sovereign Equality We have learned that the Constitution is there to limit the
2. There is also the concept when one enters the power of taxation.
territory of another. There is already an implied
understanding between these states that the entering Let us first discuss Due Process or Art. 3 Sect. 1.
state does not subject itself to the jurisdiction of the
other state or the host state. I. DUE PROCESS
3. There is also this rule in international law that foreign
government may not be sued without its consent. ARTICLE III, SECTION 1
No person shall be deprived of life, liberty, or property without
V. Exemption from taxes of Government entities, agencies due process of law, nor shall any person be denied the equal
and instrumentalities. protection of the laws.
This is a matter of public policy. The properties of the state or What is due process? My former Consti law professor, Atty.
any of its political subdivision devoted for government dela Banda, gave us a stupid-sounding definition of due
purposes are exempt from taxation. Pag dating natin sa process, but it actually works. According to him, due process is
government, the presumption is different. Normally, the when the process is due. So this just essentially means that if
presumption is taxation. But with respect to the there is a process provided for under the law, then that process
government, baliktad ang presumption (exemption is the must be followed otherwise the entire proceeding relative to
rule). that process becomes void. So this has something to do with
procedural due process. If the government wants to confiscate
Why is it that we have this principle? a property of another, then the process for such confiscation
The main reason is that it’s stupid. Because you are transferring must be followed. But this is only one aspect of due process or
your money from one pocket to another. But it doesn’t prevent the procedural due process.
the enacting of a law which actually provides for the taxation
of government agencies. Example is PAGCOR. Previously We have another or the substantive due process. This requires
PAGCOR in its original law, it is supposed to be tax exempt that there must be a valid law in place. Example in taxation, we
because it is a government instrumentality. But because of the all know taxation is a burden. Essentially the government is
amendments that came, what is exempt only are the income compelling u to pay money to avail of the benefits afforded by
coming from its gambling operations. But with respect to its the government. So what if the money is used to fix the bridge
income from outside gambling, it is subject to taxation in NIRC. in Manila? Will we be able to use that immediately? No. it’s just
a chance.
Case of PPA vs City of iloilo. “If the state taxes itself or any of
its agencies, it ultimately suffers no loss.” When is it considered that there is a violation of the substantive
due process?

TAXATION LAW
SC said that there was a violation of the procedural due

Case of Pepsi vs Municipality of Tanauan process. It is mandatory for the BIR to comply with the
procedure otherwise the entire process of the assessment will
This is not to say though that the constitutional injunction become null and void. in the end the BIR was not able to
against deprivation of property without due process of law may collect.
be passed over under the guise of the taxing power, except II. EQUAL PROTECTION
when the taking of the property is in the lawful exercise of the
taxing power, as when: ARTICLE III, SECTION 1
1. The tax is for a public purpose; No person shall be deprived of life, liberty, or property without
2. The rule on uniformity of taxation is observed; due process of law, nor shall any person be denied the equal
3. Either the person or property taxed is within the protection of the laws.
jurisdiction of the government levying the tax; and
4. In the assessment and collection of certain kinds of Read this provision together with the uniformity and
taxes notice and opportunity for hearing are provided. equitability of taxation under Art. VI, Sec. 28 (1), 1987 Phil.
Const. because these are related provisions.
Conversely, if it does not follow this simple guidelines, then,
most likely the tax measure is considered unconstitutional
ARTICLE VI, SECTION 28 (1)
because it violates the substantive due process. Example, what
The rule of taxation shall be uniform and equitable. The
happened in Fertiphil? Money was collected for a private
Congress shall develop a progressive system of taxation.
corporation. That is why it was struck down.
As of now there is no distinction between equity and uniformity

For procedural due process, read the case of CIR vs Metrostar.
of taxation. When we say equity of taxation, it means that it is
based on the taxpayer’s ability to pay. Equal protection and
In this case, there is this assessment of taxes. This means that
uniformity of taxation is essentially the same. But there is this
the government will audit the taxpayer and in the process of
one case that says that uniformity of taxation is essentially
audit the BIR will determine that there is a discrepancy
grant by geographical uniformity.
between the tax declared and the tax due per audit. So if kulang
and binayad, the tax payer is tax deficient. The process is there
What is the criteria to follow in equal protection and
will be a memorandum of authority etc.. The taxpayer will be
uniformity rule?
given the chance to be heard. That is why after the audit, a
The tax laws operate uniformly in all persons under similar
notice of informal conference. During the conference, the BIR
circumstance and all persons are treated the same manner in
will explain that there are deficiencies or discrepancies. If the
both the privileges conferred and the liabilities imposed.
taxpayer will not agree, the next step is the issuance of the
In other words there must be a valid and reasonable
preliminary assessment notice (PAN). After the PAN if the the
classification.
taxpayer still does not agree, then the BIR will issue a Final
assessment notice. This is some sort of demand letter on the
There are four requirements for a valid classification:
part of the government.
1. There must be a substantial distinction;
2. The classification must be germane to the purpose of
What happened here is shortcut. There was a letter of audit,
law;
there was a notice of informal conference and after that the
3. It must apply to future and existing conditions; and
BIR immediately sent the Final assessment notice. Wala yong
4. It must be applicable to all members of the same class.
PAN. So this was challenged by Metrostar. Metrostar says that
BIR did not follow the procedure. The PAN is essential under
the NIRC. BIR contended that Metrostar was already notified. Ferrer vs Bautista
They had already participated in every proceeding and it is
useless for them to issue the PAN because they already One of the issues raised in this case is the violation of the equal
received the Final Assessment notice. protection clause. According to the petitioner, the SHT levy
violates the equal protection clause because there is an

TAXATION LAW
arbitrary discrimination because the law favors the informal

settlers who occupied the property not their own over law When you say progressive tax rate, this means the tax rate
abiding real property owners. increases as the tax base increases. Kung mudako imong
income, mudako pud imong tax.
The Supreme Court said that the equal protection clause is not When you talk about the progressive system of taxation, we
violated. Equal protection clause requires that all persons and are talking about the system. More direct taxes dapat than
things similarly situated must be treated alike both as to rights indirect taxes.
conferred and responsibilities imposed. In this case, for the
purpose of undertaking and continuing urban development, The case Tolentino case and ABAKADA tackled this issue.
disparities between a real property owner and an informal
settler, as two distinct classes are too obvious, need not be The point of the SC here is that although value added tax (VAT)
discussed at length. is an indirect tax and it is regressive in nature, it doesn't mean
that the constitution prohibit the imposition of the same. The
Sison vs Ancheta constitutional provision was interpreted to simply mean that
direct taxes are to be preferred and indirect taxes should be
This includes the old income taxation. His point here is that minimized. This is not an absolute prohibition.
there is a difference in the taxation scheme between those
earning purely compensation income and those who are IV. ORIGIN OF APPROPRIATION, REVENUE AND TARIFF
earning business and professional income. Basically what he is BILLS
saying is that why the taxes from business man are are bigger
and smaller ang sa individual? ARTICLE VI, SECTION 24
All appropriation, revenue or tariff bills, bills authorizing
SC held that there is no violation of due process because there increase of the public debt, bills of local application, and private
was no abuse of power in this case. With respect to equal bills shall originate exclusively in the House of Representatives,
protection, there will be a violation if there is a discrimination but the Senate may propose or concur with amendments
which finds no support in reason. Basically in enacting a tax law,
discrimination is allowed. That’s why we have tax exemption. Extensive discussion of this provision is in ABAKADA vs Ermita.
The equal protection clause only demands that laws operate You read that case kay maraming matamaan.
equally and uniformly among persons under similar
circumstances or all persons must be treated in the same The principles that you have to remember is that
manner, the conditions not being different both in the 1. Revenue and tariff bills etc. must originate from the
privileges conferred and the liabilities imposed. This case HoR. Meaning it must be initiated first by the HoR.
discussed geographic uniformity. There is a uniformity and 2. The Senate is given the power to concur of propose
equity of taxation when tax operates with the same force and amendments to the revenue or tariff bills. The Senate
effect in very place where the subject may be found. can even propose its own version.
3. To insist that a revenue statute must be substantially
I leave to you the rest of the cases. the same with the house bill would be to deny the
Senate’s power not only to concur with amendments
III. PROGRESSIVE SYSTEM OF TAXATION but also to propose amendments. Other words this
will be in violation of the principle of co equality of
ARTICLE VI, SECTION 28(1) legislative power between the two houses of the
(1) The rule of taxation shall be uniform and equitable. The Congress.
Congress shall evolve a progressive system of taxation.
V. VOTING REQUIREMENT IN GRANTING TAX
EXEMPTION
It means that there are more direct taxes than indirect taxes.
Please do not confuse this term "the progressive system of
taxation" to progressive tax system or progressive tax rate. ARTICLE VI SECTION 28(4)

TAXATION LAW
No law granting any tax exemption shall be passed without the

concurrence of a majority of all the Members of the Congress.
Case in point here is John Hay vs Lim

This case is about the bases conversion and development act
or RA7227. . This law gives authority to the President to create
through an executive proclamation, a special economic zone in
the areas covered by the law. During the time of President
Ramos, he issued an executive order relating to the delineation
of the areas covered and there is this John Hay economic zone.
In this John Hay economic zone, the EO also provided for tax
incentives in the export processing zones in this area. But if you
compare this to the main law, RA 7227 only provides for
investment incentives within the Subic economic zones. The
issue in this case is W/N this proclamation is unconstitutional.
The SC held that the EO is unconstitutional.
There are actually 3 reasons here why the presidential

proclamation is void:
1. The implementing authority cannot exceed,
modify or supplant what was stated in the law.
The law itself says the only the Subic SEZ enjoys
those exemptions.
2. The nature of the assailed privileges is in the
nature of a tax exemption. Only the legislative
branch can grant exemptions. The president’s
power to grant exemptions is only limited to
tariff, custom duties, etc.
3. The grant of tax exemption is a circumvention of
the constitutional provision which requires a
concurrence of the majority of all the members of
congress.
VI. Delegation to the president to fix tariff rates etc.
ARTICLE VI SECTION 28(2)

The Congress may, by law, authorize the President to fix within
specified limits, and subject to such limitations and restrictions
as it may impose, tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the
Government.
This has something to do with non-delegability and one of the

exemption is the president. Remember there must a law
authorizing the President to adjust the tariff rates the scopes is
so limited it refers only to tariff rates, export and import duties
etc.

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TAXATION LAW

From the lectures of Atty. Percy Donalvo

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1. Power to Tax about student Korean student who doesn’t understand

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June 27, 2019 PRINCIPLE OF NON-DELEGATION

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2. SITUS OF TAXATION So those are the three factors. So parang “mix-and-match”

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Examples: Filipino and the source of my income is here in the

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In addition, the imposition of the Universal Charge on all

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From the aforementioned purposes, it can be gleaned that

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July 18, 2019 3. Delegation to the Administrative Bodies

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SC said that there was a violation of the procedural due

As of now there is no distinction between equity and uniformity

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arbitrary discrimination because the law favors the informal

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No law granting any tax exemption shall be passed without the

Case in point here is John Hay vs Lim

There are actually 3 reasons here why the presidential

VI. Delegation to the president to fix tariff rates etc.

ARTICLE VI SECTION 28(2)

This has something to do with non-delegability and one of the

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