f.
It is levied by the law-making body of
CHAPTER I
GENERAL PRINCIPLES
Taxation – act of laying a tax, i.e., the process or
means by which the sovereign, through its law-
making body, raises income to defray the
necessary expenses of government.
It refers to the inherent power of the state to
demand enforced contributions for public
purpose or purposes.
The primary purpose of taxation on the part of
the government is to provide funds or property
with which to promote the general welfare and
protection of its citizens.
It includes every imposition of charge or burden
by the sovereign power upon persons, property,
or property rights for the use and support of the
government and to enable it to discharge its
appropriate functions.
The rationale of taxation is the symbiotic
relationship which should dispel the erroneous
notion that it is an arbitrary method of exaction
by those in the seat of power.
Taxes – these are enforced proportional and
pecuniary contributions from persons and
property levied by the law-making body of the
state having jurisdiction over the subject of the
burden for the support of the government and
all public needs.
ESSENTIAL CHARACTERISTICS OF TAX
a. It is an enforced contribution – it is not
a voluntary payment or donation.
b. It is proportionate in character – based
on ability to pay.
c. It is generally payable in money
d. It is levied on persons or property
e. It is levied by the state which has
jurisdiction over the person or property
TAXATION
the state – legislative power.
g. It is levied for public purpose/s
THEORY AND BASIS OF TAXATION
The power of taxation proceeds upon the theory
that:
a. the existence of government is a
necessity;
b. it cannot continue without means to
pay its expenses; and
c. it has a right to compel all its citizens and
property within its limits to contribute.
“The power to tax is an attribute of
sovereignty xxx emanating from necessity. It
is a necessary burden to preserve the State’s
sovereignty and a means to give the citizenry
an army to resist an aggression, a navy to
defend its shores from invasion, a corps of
civil servants to serve, , public improvements
designed for the enjoyment of the citizenry
and those which come within the State’s
territory, and facilities and protection which
a government is supposed to provide.” (Phil.
Guaranty Co., Inc. v. Comm., 13 SCRA 775
[1965].)
The basis of taxation is found in the reciprocal
duties of protection and support between the
state and its inhabitants. (Benefits-Received
Principle)
NATURE OF THE POWER OF TAXATION
a. It is inherent in sovereignty – exists
apart from constitutions and without
being expressly conferred by the
people.
b. It is legislative in character.
c. It is subject to constitutional and
inherent limitations.
Page 1 of 15

ASPECTS OF TAXATION
a. Levying or imposition of the tax which is
a legislative act; (taxation) and
b. Collection of the tax levied which is
essentially administrative in character.
(tax administration)
c. Payment of taxes
LEGISLATIVE POWER TO TAX
A state is free to select the subject of taxation
and it has been repeatedly held that the
inequalities which result from a singling out of
one particular class for taxation or exemption
infringe no constitutional limitation so long as
such exemption is reasonable and not arbitrary.
The power to tax carries with it the power to
grant exemption or exclusion therefrom.
The legislative body can levy a tax or make an
appropriation provided it is for a public purpose.
Its determination on the question of what is a
public purpose is not conclusive. The decision
on the question is not a legislative but a judicial
function. Once it can be settled that the purpose
is public, the courts can make no other inquiry
into the objective of the legislature in imposing
a tax.
Judicial action is limited to a review, it involves:
a. Determination of the validity of the tax
in relation to constitutional precepts or
provisions; or
b. Determination in an appropriate case of
the application of a tax law.
The legislature may levy a tax of any amount or
rate it sees fit, as a general rule.
“The power to tax involves the power to
destroy.” (McCulloch v. Maryland)
NON-REVENUE OBJECTIVES OF TAXATION
TAXATION
a. Taxation can strengthen anemic
enterprises or provide incentive to
greater production through grant of tax
exemptions or the creation of
conditions conducive to their growth.
b. Taxes on imports may be increased to
protect local industries against foreign
competition or decreased to encourage
foreign trade.
c. Taxes on imported goods may also be
used as a bargaining tool by a country
by setting tariff rates first at a relatively
high level before trade negotiations are
entered into with another country to
enhance its bargaining power.
d. Taxes may be increased in periods of
prosperity to curb spending power and
halt inflation or lowered in periods of
slump to expand business and ward off
depression.
e. Taxes may be levied to reduce
inequalities in wealth and incomes
f. Taxes may be levied to promote science
and invention or to finance educational
activities or to improve the efficiency of
local police forces in the maintenance
of peace and order through grant of
subsidy.
g. Taxation may be made as an implement
of the police power to promote general
welfare.
h. Tax provisions may be enacted so that
low income individuals pay little or no
income taxes through a system of
exclusions, exemptions, deductions, and
tax credits.
i. Tax provisions may provide incentives
for certain desirable activities to
encourage investments in productive
assets or facilities that will lead to
increased employment of particularly
low- and middle-income workers.
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PRINCIPLES OF A SOUND TAX SYSTEM
a. Fiscal Adequacy – sources of revenue
should be sufficient to meet the
demands of public expenditure
b. Equality or Theoretical Justice – tax
burden should be distributed in
proportion to the taxpayer’s ability to
pay (Ability-to-pay Principle)
c. Administrative Feasibility – tax laws
should be capable of convenient, just
and effective administration or
enforcement at a reasonable cost
ERRORS OF TAX OFFICIALS
Errors of tax officials or officers of the
government do not bind the government or
prejudice its right to collect the taxes legally due
from taxpayers.
The government is never estopped by the
mistakes or errors on the part of its agents or
unauthorized or illegal acts of public officials.
CLASSIFICATION OF TAXES
As to subject matter or object:
a. Personal, poll, or capitation – tax of a
fixed amount imposed on persons
residing within a specified territory,
whether citizens or not, without regard
to their property or the occupation or
business in which they may be engaged.
(Example: Community tax)
b. Property – tax imposed on property,
whether real or personal, in proportion
either to its value, or in accordance with
some other reasonable methods of
apportionment. The obligation is
absolute and unavoidable. (Example:
Real estate tax)
c. Excise – tax which does not fall within
the classification of a poll tax or a
property tax. It is a charge imposed
upon the performance of an act, the
enjoyment of a privilege, or the
TAXATION
engaging in an occupation, profession,
or business. (Example: Income tax,
Value-added tax, Estate tax, Donor’s
tax)
As to who bears the burden:
a. Direct – tax which is demanded or
exacted from the very person who also
shoulders the burden of the tax; or tax
for which the taxpayer is directly or
primarily liable or which he cannot shift
to another. (Example: Corporate and
individual income tax, Community tax,
Estate tax, Donor’s tax)
b. Indirect – tax which is demanded from,
or are paid by, one person in the
expectation and intention that he shall
indemnify himself at the expense of
another by passing on the burden to the
latter, falling finally upon the ultimate
purchaser or consumer. (Example:
Value-added tax, Percentage tax,
Customs duties)
(NOTE: indirect taxes cannot be
“deemed” as withholding taxes because
the incidence and burden of taxation fall
on the same entity, the statutory
taxpayer or the person required by law
to pay the tax)
As to determination of amount:
a. Specific – tax of a fixed amount imposed
by the head or number, or by some
standard of weight or measurement. It
requires no assessment other than a
listing or classification of the objects to
be taxed. (Example: Taxes on wines,
cigars, etc.)
b. Ad valorem – tax of a fixed proportion
of the value of the property with respect
to which the tax is assessed; it requires
the intervention of assessors or
appraisers to estimate the value of such
property before the amount due from
each taxpayer can be determined.
Literally means “according to value.”
Page 3 of 15
 (Example: Real estate tax, excise taxes in Amount depends Generally there is no
automobiles, customs duties) upon the cost of limit on the amount
construction or of tax that may be
maintenance of the imposed
public improvement
As to purpose: May be imposed by May be imposed only
a. General, fiscal, or revenue – tax either the by the government
imposed for the general purposes of the government or
government (Examples: Income tax, private individuals or
Value-added tax) entities, as an
b. Special or regulatory – tax imposed for attribute of
a special purpose to achieve some social ownership
or economic ends irrespective of
whether revenue is actually raised or
not TAX VS. PENALTY
Penalty – any sanction imposed as a punishment
As to scope: for violation of law or acts deemed injurious.
a. National – tax imposed by the national
government PENALTY TAX
b. Municipal or local – tax imposed by Designed to regulate Generally intended
municipal corporations or local conduct to raise revenue
government units May be imposed by May be imposed only
the government or by the government
As to graduation or rate: private individuals or
a. Proportional – tax based in a fixed entities
percentage of the amount of the
property, receipts, or other basis to be
taxed. (flat or uniform tax) TAX VS. SPECIAL ASSESSMENT
b. Progressive or graduated – tax the rate Special assessment – an enforced proportional
of which increases as the tax base or contribution from owners of lands especially or
bracket increases peculiarly benefited by public improvements.
c. Regressive – tax the rate of which
decreases as the tax base or bracket Characteristics of Special Assessment:
increases a. Special assessment is levied only on
land;
TAX VS. TOLL b. It is not a personal liability of the person
assessed;
Toll – a sum of money for the use of something, c. It is based wholly on benefits; and
generally applied to the consideration which is d. It is exceptional both as to the time and
paid for the use of a road, bridge, or the like, of place.
a public nature.

TOLL TAX TAX VS. LICENSE/PERMIT FEE

A demand for A demand of License or permit fee – a charge imposed under
proprietorship sovereignty the police power for purposes of regulation.
Paid for the use of Paid for the support
another’s property of the government

TAXATION
Page 4 of 15
 LICENSE/PERMIT FEE TAX
Legal compensation An enforced
or reward of an contribution
officer for specific assessed by
services sovereign authority
to defray public
expenses
Imposed for Levied for revenue
regulation
Involves an exercise Involves the exercise
of police power of the taxing power
Its amount should be Generally, there is no
limited to the limit on the amount
necessary expenses of tax that may be
of inspection and imposed
regulation
Imposed on the right Imposed also on
to exercise a privilege persons and property
Failure to pay makes Failure to pay does
the act or business not necessarily make
illegal the act or business
illegal
a person cannot be Imprisonment is a
imprisoned for non- sanction for non-
payment payment
Governed by the Governed by the
ordinary periods of special prescriptive
prescription periods provided by
the Tax Code
Draws interest when Does not draw
it is so stipulated or interest except only
when there is default when delinquent
Subsidy – a pecuniary aid directly granted by the
government to an individual or private
commercial enterprise deemed beneficial to the
public.
Internal Revenue – taxes imposed by the
legislature other than duties on imports and
exports.
Customs Duties – taxes imposed on goods
exported from or imported into a country.

(NOTE: General Rule is that the imposition is a Tariff – a book of rates drawn usually in
tax if its primary purpose is to generate revenue, alphabetical order containing the names of
and regulation is merely incidental; but if the several kinds of merchandise; the duties payable
purpose is primarily to regulate, then it is on goods imported or exported; or system or
deemed a regulation and an exercise of the principle of imposing duties on the importation
police power of the State and the fact that of goods.
incidental revenue is also obtained does not
make the imposition a tax) TAXES NOT GENERALLY SUBJECT TO SET-
OFF
TAX VS. DEBT • Taxes cannot be the subject to legal
DEBT TAX compensation or set-off for the simple
Generally based on Based on law reason that the government and the
contract taxpayer are not mutually creditors and
Assignable Cannot generally be debtors of each other.
assigned
May be paid in kind Generally payable in Obligations in the nature of debts are
money due to the government in its corporate
May be the subject of Generally cannot be capacity, while taxes are due to the
set-off or the subject of set-off government in its sovereign capacity.
compensation or compensation (Philex Mining Corp. vs. Comm. Of
Internal Revenue, 294 SCRA 687 [1998]).

TAXATION
Page 5 of 15
 The exception to the general rule EMINENT POLICE
TAXATION
regarding set-off is where both the DOMAIN POWER
claims of the government and the Exercised Exercise may Exercised
taxpayer against each other have only by the be granted to only by the
already become due and demandable as government public government
well as fully liquidated. or its political service or its political
subdivisions companies or subdivisions
public
• It is also the general rule not to allow the utilities
setting off of excess taxes paid against Property is Property is Use of the
other taxes payable to the government. taken for the taken for property is
support of public use or regulated for
the benefit, must the purpose
POWER OF EMINENT DOMAIN
government be of promoting
Power of eminent domain – power of the state compensate the general
or those to whom the power has been delegated d welfare, not
to take private property for public use upon compensable
paying to the owner a just compensation to be Operate Operates on Operate
ascertained according to law. upon a an entity or upon a
community individual as community
or a class of the owner of or a class of
POLICE POWER
entities or a particular entities or
Police power – power of the state to enact such individuals property individuals
laws in relation to persons and property as may Money There is a There is no
promote public health, public morals, public contributed transfer of transfer of
safety, and the general prosperity and welfare of in the the right to title, at most
its inhabitants. concept of the property there is
taxes whether it be restraint on
EMINENT POLICE becomes part of ownership the injurious
TAXATION
DOMAIN POWER of public or a lesser use of the
They all rest upon necessity because there can funds right property
be no effective government without them It is assumed Person Person
They all underlie and exist independently of that the affected affected
the Constitution although the conditions for person receives the receives no
their exercise may be prescribed by the affected market value direct and
Constitution and by law receives the of the immediate
They are ways by which the State interferes equivalent of property benefit but
with private rights and property the tax in the taken from only such as
They are legislative in nature and character, form of him may arise
although the actual exercise of the powers is protection from the
given to the executive authorities and benefits maintenance
They all presuppose an equivalent it receives of a healthy
compensation received by the persons from the economic
affected by the exercise of these powers by government standard of
the government society

TAXATION
Page 6 of 15
 Generally There is no The amount cemeteries, and churches from property
there is no amount impose taxation;
limit on the imposed but should not be i. Exemption of non-stock, non-profit
amount of rather the more than educational institutions from taxation;
tax that may owner is paid sufficient to j. Concurrence by a majority of all the
be imposed the market cover the members of Congress for the passage of
value of the cost of the a law granting tax exemption;
property license and k. Power of the President to veto any
taken the necessary particular item or items in a revenue or
expenses of tariff bill; and
police l. Non-impairment of the jurisdiction of
surveillance the Supreme Court in tax cases.
Subject to The Relatively
certain government free from Inherent Limitations – those which restrict the
constitutiona cannot constitutiona power although they are not embodied in the
l limitations expropriate l limitations Constitution.
including the property and is a. Requirement that levy must be for a
prohibition which under superior to public purpose;
against the a contract it the b. Non-delegation of the legislative power
impairment had impairment to tax;
of the previously of provisions c. Exemption from taxation of government
obligation of bound itself entities;
contracts to purchase d. International comity; and
from the e. Territorial jurisdiction.
other
contracting
DUE PROCESS OF LAW
party
“No person shall be deprived of life, liberty, or
property without due process of law, nor shall
LIMITATIONS ON THE POWER OF any person be denied the equal protection of the
TAXATION laws.” (Sec. 1, Article III, 1987 Constitution)
Constitutional Limitations – those expressly
found in the Constitution or implied from its Substantive Due Process – under the authority of
provisions. a law that is valid or of the Constitution
a. Due process of law;
b. Equal protection of the law; Procedural Due Process – after compliance with
c. Rule of uniformity and equity in fair and reasonable methods of procedure
taxation; prescribed by law
d. No imprisonment for non-payment of a
poll tax; If a law is judicially declared invalid, any tax
e. Non-impairment of the obligation of levied under it cannot be enforced as this will
contracts; also infringe due process. If the tax has already
f. Non-infringement of religious freedom; been paid, it should be refunded to the taxpayer
g. No appropriation for religious purposes; in accordance with the general principle that no
h. Exemption from religious, charitable, one else shall unjustly enrich himself at the
and educational entities, non-profit expense of another.

TAXATION
Page 7 of 15
A taxpayer may not be deprived of his property
for non-payment of taxes without giving notice
to him as required by law of his tax liability as
well as of the sale at public auction of such
property to satisfy the taxes as this will amount
to a denial of due process.
EQUAL PROTECTION OF THE LAWS
“All persons subject to legislation shall be
treated alike under like circumstances and
conditions both in privileges conferred and
liabilities imposed.” (1 Cooley 824-825)
There is no violation of the protection where
those with different amounts of incomes are
made to pay different rates for taxes.
UNIFORMITY AND EQUITY OF TAXATION
“The rule of taxation shall be uniform and
equitable. The Congress shall evolve a
progressive system of taxation.” (Sec. 28[1],
Article VI, 1987 Constitution)
The rule requires the uniform application and
operation, without discrimination, of tax in
every place where the subject is found.
(Churchill vs. Concepcion, 34 Phil. 696 [1916]).
Uniformity implies equality in burden, not
equality in amount or equality in its strict and
literal meaning.
Uniformity in taxation is effected through the
appointment of the tax burden among the
taxpayers which under the Constitution must be
equitable.
While the equal protection refers more to like
treatment of persons in like circumstances,
uniformity and equity refer to the proper
relative treatment for tax purposes in unlike
circumstances.
NON-PAYMENT OF POLL TAX
TAXATION
“No person shall be imprisoned for debt or non-
payment of a poll tax.” (Sec. 20, Article III, 1987
Constitution)
Under Sec. 161 of the LGC, the only penalty for
delinquency is the payment of surcharge in the
form of interest at the rate of 24% per annum
which shall be added to the unpaid amount,
from the due date until it is paid.
A person is only subject to imprisonment for
violation of the community tax law other than
for non-payment of the tax and for non-
payment of other taxes if so expressly provided
by the pertinent law.
IMPAIRMENT OF OBLIGATION OF
CONTRACTS
“No law impairing the obligation of contracts
shall be passed.” (Sec. 10, Article III, 1987
Constitution)
The obligation of a contract is impaired when its
terms and conditions are changed by law or by a
party without the consent of the other, thereby
weakening the position or rights of the latter.
INFRINGEMENT OF RELIGIOUS FREEDOM
“No law shall be made respecting an
establishment of religion, or prohibiting the free
exercise thereof. The free exercise and
enjoyment of religious profession and worship,
without discrimination or preference, shall
forever be allowed xxx.” (Sec. 5, Article III, 1987
Constitution)
The Constitution does not prohibit imposing a
generally acceptable tax on the sale of religious
materials by a religious organization. (Tolentino
v. Secretary of Finance, 235 SCRA 630 [1994].)
APPROPRIATION FOR RELIGIOUS PURPOSE
“No public money or property shall be
appropriated, applied, paid, or employed,
Page 8 of 15
directly or indirectly, for the use, benefit, or
support of any sect, church, denomination,
sectarian institution, or system of religion, or of
any priest, preacher, minister or other religious
teacher or dignitary as such, except when such
priest, preacher, minister, or dignitary, is
assigned to the armed forces, or to any penal
institution, or government orphanage or
leprosarium.” (Sec. 29[2], Article VI, 1987
Constitution)
Public property may be leased to a religious
group provided that the lease will be totally
under the same conditions as to private persons,
especially as to the amount of rent and that
there must be no discrimination against religious
sects or denominations.
TAXATION OF RELIGIOUS, CHARITABLE, &
EDUCATIONAL ENTITIES
“Charitable institutions, churches and
parsonages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands,
buildings, and improvements actually, directly,
and exclusively used for religious, charitable or
educational purposes shall be exempt from
taxation.” (Sec. 28[3]. Article VI, 1987
Constitution)
The exemption covers only property taxes and
not other taxes:
• Test of the exemption – it is the use of
the property and not the ownership.
A property leased by the owner to
another who uses it exclusively for
religious purposes is exempt from
property tax but the owner is subject to
income tax on rents received.
• Nature of use – to be exempt, the
property must be actually, directly, and
exclusively used for the purposes
mentioned.
TAXATION
• Scope of exemption – it is not limited to
property actually indispensable for
religious, charitable, or educational
purposes. It extends to facilities which
are incidental to or reasonably
necessary for the accomplishment of
said purposes.
TAXATION OF NON-STOCK, NON-PROFIT
EDUCATIONAL INSTITUTIONS
“All revenues and assets of non-stock, non-profit
educational institutions used actually, directly,
and exclusively for educational purposes shall be
exempt from taxes and duties x x x.” (Sec. 4[3],
Article XIV, 1987 Constitution)
“Subject to conditions prescribed by law, all
grants, endowments, donations or contributions
used actually, directly and exclusively for
educational purposes shall be exempt from tax.”
(Sec. 4[4], Article XIV, 1987 Constitution)
The exemption covers income, property, and
donor’s taxes, and customs duties.
a. To be exempt from tax or duty, the
revenue, assets, property or donations
must be used actually, directly, and
exclusively for educational purposes.
b. In the case of religious and charitable
entities and non-profit cemeteries, the
exemption is limited to property tax.
c. Lands, buildings, and improvements
actually, directly, and exclusively used
for educational purposes are exempt
from property tax, whether educational
institution is proprietary or non-profit.
OTHER CONSTITUTIONAL LIMITATIONS
• Granting of tax exemption:
“No law granting any tax exemption
shall be passed without the concurrence
of a majority of all the members of the
Congress.” (Sec. 28[4], Article VI, 1987
Constitution)
Page 9 of 15

• Veto of appropriation, revenue, or tariff
bills by the President:
“The President shall have the power to
veto any particular item or items in an
appropriation, revenue or tariff bill, but
the veto shall not affect the item or
items to which he does not object.” (Sec.
27[2], Article VI, 1987 Constitution)
• Non-impairment of the jurisdiction of
the Supreme Court:
“The Congress shall have the power to
define, prescribe, and apportion the
jurisdiction of the various courts but may
not deprive the Supreme Court of its
jurisdiction over cases enumerated in
Sec. 5 hereof.” (Sec. 2, Article VIII, 1987
Constitution)
“The Supreme Court shall have the
following powers: xxx (2) Review, revise,
reverse, modify, or affirm on appeal or
certiorari xxx final judgments and orders
of lower courts in xxx all cases involving
the legality of any tax, impost,
assessment, or toll, or any penalty
imposed in relation thereto.”
PUBLIC PURPOSE
A purpose affecting the inhabitants of the state
or taxing district as a community and not merely
as individuals.
The best test of rightful taxation is that the
proceeds of the tax must be used—
a. For the support of the government; or
b. For any of the recognized objects of
government; or
c. To promote the welfare of the
community.
The general rule is that not only persons
individually affected but also taxpayers have
TAXATION
sufficient interest of preventing the illegal
expenditures of money raised by taxation, and
may, question in the proper court the
constitutionality of statutes requiring the
expenditures of public funds.
DELEGATION OF TAXING POWER
The power of taxation being purely legislative,
Congress cannot delegate the power to others.
This limitation arises from the doctrine of
separation of powers among the three branches
of our government.
Exceptions to the rule against the delegation of
the taxing power:
• Delegation to the President
• Delegation to local governments
• Delegation to administrative agencies
The powers which are not legislative
include:
a. The power to value property for
purposes of taxation pursuant
to fixed rules;
b. The power to assess and collect
the taxes; and
c. The power to perform any of
the innumerable details of
computation, appraisement,
and adjustment, and the
delegation of such details.
Agencies and instrumentalities of the
government are generally exempt from
taxation.
• To levy a tax upon public property would
render necessary new taxes on other
public property for the payment of the
tax and the government would be taxing
itself to raise money to pay over itself.
• This immunity also rests upon
fundamental principles of government,
being necessary in order that the
Page 10 of 15
 functions of government shall not be
unduly impeded.
LIMITATION OF INTERNATIONAL COMITY
The property of a foreign state or government
may not be taxed by another. This principle is
based on any of the following grounds:
• Sovereign equality among states
• Usage among states
• Foreign government may not be sued
without its consent
LIMITATION OF TERRITORIAL JURISDICTION
A state may not tax property lying outside its
borders or lay an excise or privilege tax upon the
exercise or enjoyment of a right or privilege
derived from the laws of another state and
therein exercised and enjoyed.
Tax laws do not operate beyond a country’s
territorial limits.
SITUS OF TAXATION
Situs of taxation – place of taxation; the state
where the subject to be taxed has a situs may
rightfully levy and collect the tax; the situs is
necessarily in the state which has jurisdiction or
which exercises dominion over the subject in
question.
Situs of subjects of taxation:
a. Persons
b. Real property
c. Tangible personal property – taxable in
the state where it has actual situs
(where it was physically located)
d. Intangible personal property – general
rule is that the situs for the purposes of
property taxation is at the domicile of
the owner
e. Income
f. Business, occupation, and transaction –
general rule is that the power to levy an
excise tax depends upon the place
TAXATION
where the business is done, or the
occupation is engaged in, or the
transaction took place
g. Gratuitous transfer of property
MULTIPLICITY OF SUITS
To avoid this or at least to reduce the
consequent burden, the taxing jurisdiction may:
a. Provide for exemptions or allowance of
deduction or tax credit for foreign taxes
b. Enter into treaties with other states
DOUBLE TAXATION
Double taxation – taxing twice, by the same
taxing authority, within the same jurisdiction or
taxing district or locality, for the same purpose,
in the same year (or taxing period), some of the
property in the territory.
General Rule: Our Constitution does not prohibit
double taxation.
Exception: Should be avoided and prevented.
Doubts as to whether double taxation has been
imposed should be resolved in favor of the
taxpayer. Where there is double taxation, the
taxpayer may seek relief under the uniformity
rule or the equal protection guarantee.
FORMS OF ESCAPE FROM TAXATION
a. Shifting – transfer or passing on of the
burden of a tax by the original payer or
the one on whom the tax was assessed
or imposed to another or someone else.
Kinds of shifting:
i. Forward shifting – takes place
when the burden of the tax is
transferred from a factor of
production through the factors
Page 11 of 15
 of distribution until it finally
settles on the ultimate
purchaser or consumer
ii. Backward shifting – effected
when the burden of the tax is
transferred from the consumer
or purchaser through the
factors of distribution to the
factor of production
iii. Onward shifting – occurs when
the tax is shifted two or more
times either forward or
backward
b. Capitalization – reduction in the price of
the taxed object equal to the capitalized
value of future taxes which the
purchaser expects to be called upon to
pay
c. Transformation – method of escape
from taxation whereby the
manufacturer or producer upon whom
the tax has been imposed, fearing the
loss of his market if he should add the
tax to the price, pays the tax and
endeavors to recoup himself by
improving his process of production
thereby turning out his units of products
at a lower cost
d. Evasion – use by the taxpayer of illegal
or fraudulent means to defeat or lessen
the payment of a tax
Factors in tax evasion:
i. The end to be achieved,
payment of less than that
known by the taxpayer to
be legally due
ii. An accompanying state of
mind which is described as
“evil”
iii. A course of action which is
unlawful
e. Avoidance – use by the taxpayer of
legally permissible alternative tax rates
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or methods of assessing taxable
property or income, in order to avoid or
reduce tax liability
A taxpayer has the legal right to
decrease the amount of what otherwise
would be his taxes or altogether to avoid
them by means which the law permits.
f. Exemption – grant of immunity to
particular persons or corporations or to
persons or corporations of a particular
class from a tax which persons and
corporations generally within the same
state or taxing district are obliged to
pay.
Grounds for tax exemption:
i. Based on contract
ii. Based on some ground of public
policy
iii. Created in a treaty on grounds
of reciprocity, or to lessen the
rigors of double or multiple
taxation
An exemption from taxation is a mere personal
privilege of the grantee. Thus, one granted to a
corporation does not apply to its stockholders.
It is generally revocable by the government
unless the exemption is founded on a contract
which is protected from impairment.
It implies a waiver on the part of the government
of its right to collect what otherwise would be
due to it.
It is not necessarily discriminatory so long as the
exemption has a reasonable foundation or
rational basis.
Kinds of tax exemption:
i. As to manner of creation
a. Express or affirmative
exemption
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 b. Implied exemption or
exemption by omission – when
levied on certain classes of
persons, properties, or
transactions without
mentioning the other classes
ii. As to scope or extent:
a. Total exemption
b. Partial exemption
iii. As to object:
a. Personal
b. Impersonal
General Rule: In the construction of tax statutes,
exemptions are not favored and are strictly
construed against the taxpayer.
Exceptions:
a. When the law itself expressly provides
for a liberal construction—that it shall
be resolved in favor of exemption; and
b. When the exemption is in favor of the
government itself or its agencies, or of
religious, charitable, and educational
institutions because the general rule is
that they are exempt from tax.
EXEMPTION FROM TAXATION
Exemption from taxation – grant of immunity to
particular persons or corporations or to persons
or corporations of a particular class from a tax
which persons and corporations generally within
the same state or taxing district are obliged to
pay.
Rationale of tax exemption:
a. Public interest will be subserved by the
exemption allowed;
b. Some public benefit or interest, which
the law-making body considers
sufficient to offset the monetary loss
entailed in the grant of the exemption.
Grounds for tax exemption:
a. May be based on contract
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b. May be based on some ground of public
policy
c. May be created in a treaty on grounds of
reciprocity, or to lessen the rigors of
international double or multiple
taxation
Equity is not a ground for tax exemption.
Nature of tax exemption:
a. It is a mere personal privilege of the
grantee
b. It is generally revocable by the
government unless the exemption is
founded on a contract which is
protected from impairment
c. It implies a waiver on the part of the
Government of its right to collect
d. It is not necessarily discriminatory so
long as the exemption has a reasonable
foundation or rational basis.
Kinds of tax exemption:
a. As to manner of creation
a. Express or affirmative
exemption – when certain
persons, property, or
transactions are, by express
provision, exempted from all or
certain taxes, either entirely or
in part.
b. Implied exemption or
exemption by omission – occurs
when a tax is levied on certain
classes of persons, properties,
or transactions without
mentioning the other classes.
b. As to scope or extent
a. Total exemption – when certain
persons, property, or
transactions are exempted,
expressly or impliedly, from all
taxes
b. Partial exemption – when
certain persons, property, or
transactions are exempted,
expressly or impliedly, from
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 certain taxes, either entirely or
in part
c. As to object
a. Personal – those granted
directly in favor of such persons
as are within the contemplation
of the law granting the
exemption
b. Impersonal – those granted
directly in favor of certain class
of property
General Rule: In the construction of tax statutes,
exemptions are not favored and are construed
strictissimi juris against the taxpayer.
TAX AMNESTY
Tax amnesty – a general pardon or intentional
overlooking by the State of its authority to
impose penalties on persons otherwise guilty of
tax evasion or violation of a revenue or tax law.
It partakes of an absolute forgiveness or waiver
by the government of its right to collect what is
due it and to give tax evaders who wish to relent
a chance to start with a clean slate.
TAX LAWS
Internal revenue laws are not political in nature.
Tax laws are civil and not penal in nature
although there are penalties provided for their
violation. The purpose of tax laws in imposing
penalties for delinquencies is to compel the
timely payment of taxes or to punish evasion or
neglect of duty in respect thereof.
Construction of tax laws:
a. Legislative intention must be considered
b. When there is doubt, no person or
property is subject to taxation unless
within the terms or plain import of a
taxing statute. Therefore, construed
strictly against the government and
liberally in favor of the taxpayer.
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c. The rule of strict construction as against
the government is not applicable where
the language of the tax statute is plain
and there is no doubt as to the
legislative intent.
General Rule: Tax laws or amendments thereof
are prospective in operation.
Exception: While it is not favored, a statute may
nevertheless operate retroactively provided it is
expressly declared or is clearly the legislative
intent.
Mandatory tax laws – those provisions intended
for the security of the citizens or which are
designed to insure equality of taxation or
certainty as to the nature and amount of each
person’s tax
Directory tax laws – those provisions designed
merely for the information or direction of
officers or to secure methodical and systematic
modes of proceedings
The distinction is important because:
• The omission to follow mandatory
provisions renders invalid the act or
proceeding to which it relates while the
omission to follow directory provisions
does not involve such consequence.
Sources of tax laws:
a. Legal rules on taxation:
a. Legislation or statutes;
b. Administrative rules and
regulations and rulings or
opinions of tax officials; and
c. Judicial decisions or decisions of
courts of justice.
CHAPTER II
NATIONAL TAXATION
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National taxes – those imposed by the national
government under the National Internal
Revenue Code and other laws

Local taxes – those which local governments

may impose for particular needs such as the
taxes imposed under the Local Government
Code

INTERNAL REVENUE TAXES

Kinds of national internal revenue taxes imposed
under the Tax Code:

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