♥ TAXATION NOTES ni daga ♥
General Principles of Taxation only in the responsibility of the legislature
I. Definition of Taxation
- City of Milwaukee v. Milwaukee STC
- Power by which the sovereign raises
revenue to defray the necessary expenses
of government
- Way of apportioning the cost of
government among those who in some
measure are privileged to enjoy its benefits
and must bear its burdens
- Its purpose is to provide funds or property
with which to promote the general welfare
and protection of its citizens
- Includes every charge or burden imposed
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, and
in that broad definition there is included a
proportionate levy upon persons or
property and all the various other methods
and devices by which revenue is exacted
from persons and property for public
purposes
- Mactan Cebu International Airport
Authority v. Marcos
- The power to tax is an incident of
sovereignty and is unlimited in its range,
acknowledging in its very nature no limits,
so that security against its abuse is to be
found only in the responsibility of the
legislature which imposes the tax on the
constituency who are to pay it
- Taxation is a destructive power which
interferes with the personal and property
for the support of the government
II. Characteristics of Taxation
1) Comprehensive - It covers persons,
businesses, activities, professions, rights and
privileges.
3)
2) Unlimited - The power to tax is an incident of
sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so
that security against its abuse is to be found
which imposes the tax on the constituency
who are to pay it (Mactan Cebu International
Airport Authority v. Marcos)
- The power of taxation is sometimes called also
the power to destroy. Therefore, it should be
exercised with caution to minimize injury to
the proprietary rights of a taxpayer. It must
be exercised fairly, equally and uniformly, lest
the tax collector kill the "hen that lays the
golden egg". (Philippine Health Care
Providers, Inc. Vs. CIR)
- it is inherent in the power to tax that a state
be free to select the subjects of taxation, and
it has been repeatedly held that 'inequalities
which result from a singling out of one
particular class for taxation, or exemption
infringe no constitutional limitation (Sison v.
Ancheta)
- It is so unlimited in force and searching
in extent that courts scarcely venture to
declare that it is subject to any restrictions,
except those that such rests in the discretion
of the authority which exercises it (Tio v.
Videogram Regulatory Board)
- Since the law granted the press a privilege,
the law could take back the privilege anytime
without offense to the Constitution. The
reason is simple: by granting exemptions, the
State does not forever waive the exercise of
its sovereign prerogative. (Tolentino v.
Secretary of Finance)
- Taxation is no longer envisioned as a measure
merely to raise revenue to support the
existence of the government. Taxes may be
levied with a regulatory purpose to provide a
means for the rehabilitation and stabilization
of a threatened industry which is affected with
public interest as to be within the police power
of the state (Caltex v. COA)
Plenary - - It is complete. Under NIRC, the
BIR may avail of certain remedies to ensure
the collection of taxes. Taxes, being the
lifeblood of the government, that should be
collected without unnecessary hindrance,
 ♥ TAXATION NOTES ni daga ♥
every precaution must be taken not to unduly
suppress it
4) Supreme - It is supreme insofar as the
selection of the subject of taxation is
concerned, but it does not mean that it is
superior to the other inherent powers of the
State
III. Theories in Taxation
1) Lifeblood Theory
- Taxes are what we pay for a civilized
society. Without taxes, the State would be
paralyzed (CIR v. Algue)
- Taxation is an essential attribute of
sovereignty and the lifeblood of every
nation are doctrines well-entrenched in our
jurisdiction. Taxes are the government's
primary means to generate funds needed
to fulfill its mandate of promoting the
general welfare and well-being of the
people and so should be collected without
unnecessary hindrance. (CIR v. PSPC)
- In matters of taxation, the government
cannot be estopped by the mistakes, errors
or omissions of its agents for upon it
depends the ability of the government to
serve the people for whose benefit taxes
are collected. (CIR v. Nippon)
- Collection of taxes cannot be curtailed by
injunction or any like action, otherwise the
State shall be crippled in dispensing the
needed services to the people and its
machinery gravely disabled. Thus before
you can protest a tax, you must first pay
the tax.
- Taxes are construed strictissimi juris
against the taxpayer because of the
lifeblood doctrine.
2) Necessity Theory – The exercise of the
power to tax emanates from necessity.
Without taxes, the government cannot
fulfill its mandate of promoting the general
welfare and wellbeing of the people.
- It is a necessary burden to preserve the
State’s sovereignty and a means to give
the citizenry an army to resist aggression,
a navy to defend its shores from invasion,
a corps of civil servants to serve, public
improvements for the enjoyment of the
citizenry, and those which come within the
State’s territory and facilities and
protection which a government is supposed
to provide
3) Benefits-Protection Theory – taxes are
what we pay for a civilized society – we
pay, the government protects
- Taxes are what we pay for a civilized
society. Without taxes, the government
would be paralyzed for lack of motive
power to activate and operate it. Hence,
despite the natural reluctance to surrender
part of one’s earned income to the taxing
authorities, every person who is able must
contribute his share in the running of the
government. The government, for its part,
is expected to respond in the form of
tangible and intangible benefits intended to
improve the lives of the people and
enhance their material and moral values
(CIR v. Algue)
4) Symbiotic Relationship Theory –
taxpayers and the government have
reciprocal obligations: the taxpayer to pay
taxes and the government to provide
protection and benefits
IV. Nature of Taxation
1) Attribute of Sovereignty
- The power to tax is an attribute of
sovereignty. It is a power 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 improvement designed for the
enjoyment of the citizenry and those which
come within the State's territory, and
facilities and protection which a government
 ♥ TAXATION NOTES ni daga ♥
is supposed to provide. (Phil Guaranty v.
Bengzon)
- The power to tax "is an attribute of
sovereignty," and as such, inheres in the
State. Such, however, is not true for
provinces, cities, municipalities and
barangays as they are not the sovereign;
rather, there are mere "territorial and
political subdivisions of the Republic of the
Philippines." (Batangas City v. PSPC)
- The power of taxation, being an essential
and inherent attribute of sovereignty,
belongs, as a matter of right, to every
independent government, and needs no
express conferment by the people before it
can be exercised. (FDCP v. Colon)
2) Legislative
- Taxation is a power that is purely legislative
and which the central legislative body cannot
delegate either to the executive or judicial
department of the government without
infringing upon the theory of separation of
powers. The exception, however, lies in the
case of municipal corporations, to which, said
theory does not apply. (Pespsi v. Municipality
of Tanauan)
- the general principle against delegation of
legislative powers, in consequence of the
theory of separation of powers is subject to
one well-established exception, namely:
legislative powers may be delegated to local
governments — to which said theory does not
apply — in respect of matters of local concern.
(Pepsi v. Butuan)
- Taxes are a grant of the people who are
taxed, and the grant must be made by the
immediate representative of the people, and
where the people have laid the power, there it
must remain and be exercised (CIR v. Fortune
Tobacco)
3) Non-delegable
- The delegation of power to tax would
violate the principle of separation of powers
Exceptions:
1. Taxing power of local governments
“Each local government unit shall have the
power to create its own sources of revenues and
to levy taxes, fees and charges subject to such
guidelines and limitations as the Congress may
provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local governments.”
(Sec. 5, Art X of the 1987 Constitution)
2. When allowed by the constitution
“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.” (Sec. 28 (2), Article VI of the
1987 Constitution)
3. Administrative Implementation
- There is no undue delegation provided that
the law lays down and the standard and
fixes the policy. (Cervantes v. Auditor
General)
Tests in determining whether delegation of
legislative power is valid:
a. Completeness test – Law is complete in itself
and sets the policy to be executed
b. Sufficiency of Standard Test – Congress must
fix the standard, the limits of which the delegate
must conform to in the performance of his
functions
- A delegating law must be complete in itself,
setting forth the policy to be carried out and
fixing the standard to which the delegate had
to conform in the performance of his functions
(Maceda v. Macaraig)
- Administrative regulations cannot amend or
revoke the law. A revenue regulation that
 ♥ TAXATION NOTES ni daga ♥
withdraws or modifies a tax credit granted by
law is void. (CIR v. Central Luzon Drug)
- A revenue regulation that imposes tax upon a
tax-exempt entity effectively amends the law
and thus encroaches upon the legislative
authority of Congress. Such regulation is void.
(Secretary v. Lazatin)
- The legislative does not abdicate its functions
when it describes what job must be done, who
is to do it, and what is the scope of his
authority. A distinction has rightfully been
made between delegation of power to make
the laws which necessarily involves a
discretion as to what it shall be, which
constitutionally may not be done, and
delegation of authority or discretion as to its
execution to be exercised under and in
pursuance of the law, to which no valid
objection can be made. (ABAKADA Guro Party
list v. Hon. Executive Secretary)
- A municipal corporation does not have the
inherent power of taxation. Its charter or
statute must plainly show an intent to confer
that power. If not the municipality cannot
assume it.
The power to tax when granted to a province
is to be construed in strictissimi juris. Any
doubt or ambiguity arising out of the term
used in granting that power must be resolved
against the province. Inferences, implications,
deductions – all these – have no place in the
interpretation of the taxing power of a
province. (Icard v. City Council of Baguio)
- The power of a province to tax is limited to
the extent that such power is delegated to it
either by the Constitution or by statute.
(Pelizloy v. The Province of Benguet)
- It is the power to tax that may not be
delegated. Under the “no let principle”, the
appraisal, assessment, levy and collection of
RPT, cannot be delegated to any private
person. The collection however, may be
delegated to a private individual.
4) It is not the contract between the State
and its citizens
- A taxpayer cannot refuse to pay his tax when
called upon by the collector because he has a
claim against the government body. Taxes are
not in the nature of contracts thus there can
be no set-off against demands for taxes levied
for general or local governmental purposes.
(Francia v. IAC)
Taxes may not be subject to setoff or
compensation because:
a) Taxes are not ordinary obligations
governed under the Civil Code
b) Taxes are based on legal impositions, not
contract, debt or judgment
c) The government and the taxpayer are not
creditors and debtors of each other
5) It is not political in nature
- Internal revenue laws are not political in
nature. A law once established continues until
changed by some competent legislative
power. It is not changed merely by change of
sovereignty. (Hilado v. CIR)
6) Subject to Constitution and Inherent
Limitations
I. Inherent Limitations (PINES )
1. Public Purpose
A tax is considered for public purpose if:
1. It is for the welfare of the nation and/or for
greater portion of the population;
2. It affects the area as a community rather
than as individuals; and
3. It is designed to support the services of the
government for some of its recognized
objects.
- An inherent limitation on the power of
taxation is public purpose. Taxes are exacted
only for a public purpose. They cannot be
used for purely private purposes or for the
exclusive benefit of private persons. The
reason for this is simple. The power to tax
exists for the general welfare; hence, implicit
in its power is the limitation that it should be
 ♥ TAXATION NOTES ni daga ♥
used only for a public purpose (PPI v.
Fertiphil)
- The right to tax depends upon the ultimate
use, purpose and object for which the fund is
raised. It is not dependent on the nature or
character of the person or corporation whose
intermediate agency is to be used in applying
it. The people may be taxed for a public
purpose, although it be under the direction of
an individual or private corporation.
(Bagatsing v. Ramirez)
- The only benefit to which a taxpayer is
constitutionally entitled for what he pays is
the enjoyment of privileges of living in an
organized society established and safeguarded
by the devotion of taxes to public purpose.
(Gomez v. Palomar)
- Money raised by taxation can be expended
only for public purpose and not for the
advantage of private individuals.
The test of the constitutionality of a statute
requiring the use of public funds is whether
the statute is designed to promote the public
interest, as opposed to the furtherance of the
advantage of individuals, although each
advantage to individuals might incidentally
serve the public. (Pascual v. Secretary of
Public Works)
- Taxation may be used as an exercise of police
power. The protection of a large industry
constituting one of the great sources of the
state’s wealth and therefore affecting the
welfare of a portion of the population of the
State is affected by public interests as to be
within the police power of the sovereign (Lutz
v. Araneta)
- Public purpose of a tax may legally exist even
if the motive to impose the tax favor one over
another. It is inherent in the power to tax that
a State is free to select the subjects of
taxation. Inequities which result from a
singling out of one particular class for taxation
or exemption infringe no constitutional
limitation (Ferrer v. Bautista)
Taxpayer’s suit
Requisites:
a) Public funds derived from taxation are
disbursed by a political subdivision or
instrumentality and in doing so, a law is
violated or some irregularity is committed;
b) The petitioner is directly affected by the
alleged act. (Landbank v. Cacayuran)
- The interest of taxpayers in the lawful
expenditure of public money sufficiently clothes
them with that personality to litigate the
validity of the decrees appropriating said funds.
The Supreme Court has the discretion to
entertain them or not (Sanidad v. Comelec)
- A taxpayer need not be a party to a contract to
challenge its validity. Parties suing as taxpayers
must specifically prove interest in preventing
the illegal expenditure of money raised by
taxation. (Jumamil v. Café)
- The expenditure of public funds by an officer of
the State for the purpose of administering an
unconstitutional act constitutes a misapplication
of such funds which may be enjoined at the
request of a taxpayer. (Pascual v. Secretary of
Public Works)
Citizen Suit
- Rule whereby any Filipino citizen in
representation of others, including minors,
or generations yet unborn may file an
action to enforce rights or obligations
under environmental laws
Requisites of citizen suit
a) Actual or threatened injury to the petitioner
because of the statute or act complained of
b) Injury is fairly traceable to the challenged
action
c) Injury is likely to be redressed by a
favorable action (Tolentino v. Comelec)
2. Non-delegability (same as in nature)
3. Exemption of the Government
 ♥ TAXATION NOTES ni daga ♥

- Under the Real Property Tax Code, real
property is classified for assessment purposes
on the basis of actual use, which is defined as
"the purpose for which the property is
principally or predominantly utilized by the
person in possession of the property."
Real property owned by the Republic of the
Philippines is exempt from real property taxes
except when the beneficial use of these
properties are granted, for consideration or
otherwise, to a taxable entity (LRTA v. CBAA)
privilege outside the taxing district (CIR v.
Marubeni)
- The test if taxability is the source, and the
source of an income is that activity which
produced the income. The source of an
income is the property, activity or service that
produced the income. For the source of
income to be considered as coming from the
Philippines, it is sufficient that the income is
derived from activity within the Philippines
(Commissioner v. BOAC)

- Government instrumentalities are agencies Within Outside

not integrated within the department Income Taxes
PH PH
framework of the government. Resident Citizen ✓ ✓
Instrumentalities that are not GOCC’s are Non-resident Citizen ✓ x
exempt from the payment of real property Overseas Contract Worker ✓ x
taxes except when the beneficial use of these Aliens ✓ x
properties have been granted to a taxable Domestic Corporations ✓ ✓
entity (MIAA v. Parañaque) Foreign Corporations ✓ x

Characteristics of government instrumentalities: Within Outside

1) Not integrated within the department Transfer Taxes
PH PH
network Citizen ✓ ✓
2) Vested with special functions or jurisdiction Resident Alien ✓ ✓
by law Non-resident Alien ✓ x
3) Endowed with some, if not all, corporate
powers *basis of transfer taxes is the RESIDENCY of the
4) Administering some special fund taxpayer
5) Enjoying operational autonomy, usually
through a charter Within Outside
Business Taxes
PH PH
4. International Comity Citizen ✓ x
Alien ✓ x
- Involves the interplay of tax laws and
reciprocity between nations *basis of business taxes is the destination
principle doctrine and cross-border doctrine
- A resolution passed in the First National Tax
Association stated that “The principles of Destination Principle Doctrine – goods and
international and interstate comity require services are taxed only in the country where they
that the same property should not be taxed are consumed
by two jurisdictions at the same time.”
Cross Border Doctrine – No VAT shall be imposed
5. Territorial Jurisdiction or Situs to form part of the cost of the goods destined for
consumption outside the territorial border of the
- An excise tax can be levied by the taxing taxing authority
authority only when the acts, privileges or
business are done or performed within the
jurisdiction of the taxing authority. Like
property taxes, it cannot be imposed on a
 ♥ TAXATION NOTES ni daga ♥
II. Constitutional Limitations
1. Due Process Clause
“No person shall be deprived of life, liberty, or
property without due process of law, nor shall any
person be denied the equal protection of the
laws.” – Sec. 1, Art III of the 1987 Constitution
Substantive Due Process – The law must be
reasonable and must be for a public purpose
Procedural Due Process – There must be no
arbitrariness in the assessment and collection; the
prescribed rules must be followed before
assessment and collection
- A tax regulation that is oppressive, arbitrary,
unreasonable and confiscatory is void for
being violative of due process (Villegas v. Hiu
Chiong Tsai Pao Ho)
- A revenue measure does not violate the due
process clause on the mere allegation of
arbitrariness by the taxpayer. There must be
a factual foundation to such unconstitutional
taint. When nothing is taken that is not due,
there is no confiscation of property thus no
violation of due process. (CREBA v. Exec Sec
Romulo)
- Double taxation is not violative of due
process. The argument against double
taxation may not be invoked where one tax is
imposed by the state and the other is imposed
by the city. There is nothing inherently
obnoxious in the requirement that license fees
or taxes be exacted with respect to the same
occupation, calling or activity, by both the
state and the political subdivisions thereof.
(City of Baguio v. De Leon)
- Administrative rules that substantially
increases the burden of those governed are in
the nature of a legislative rule. The agency
must at least accord those directly affected the
chance to be heard and inform them before the
new issuance is given the force and effect of
law. The due observance of the requirements
of notice, hearing, and publication should not
be ignored. (CIR v. MJ Lhuillier)
- Exemption from taxation is not favored and
never presumed. It must be strictly construed
against the taxpayer. Proof is necessary to
demonstrate that there is compliance with the
constitutional provision allowing an
exemption. (Province of Abra v. Hernando)
- The taxpayer must prove that a tax is
confiscatory otherwise the presumption that
the law passed was valid will prevail (Churchill
v. Concepcion)
- When there is a claim of breach of the due
process and equal protection clauses, there is
need for proof of such persuasive character as
would lead to such a conclusion. Absent such
a showing, the presumption of validity must
prevail. (British American Tobacco v.
Camacho)
Rational Basis Test – Legislative classification is
valid, provided that it is rationally related to
achieving some legitimate State interest
Side topic: Creditable Withholding Tax
Creditable withholding tax is a tax withheld which
can be claimed as a tax credited from the amount
of income taxes to be paid later on.
In the event that the tax withheld turns out to be
higher than the tax to be paid, the taxpayer can
claim a refund.
Illustrative Example:
Kiwi rents out a building for 100,000 a month to
Melon. Rentals are subject to 5% withholding tax
(WHT). Assume that Kiwi’s income is purely from
the rentals of the building.
Rentals Due 100,000.00
Withholding Tax (5%) (5,000.00)
Amount received by Kiwi 95,000.00
The 5,000 WHT is not pocketed by Melon. Melon
has to remit this amount to the BIR monthly.
Gross income for the year is 1,200,000. Income
tax due based on TRAIN rates would be 250,000.
At the end of the year Kiwi’s income tax payable
would look like this:
 ♥ TAXATION NOTES ni daga ♥

Income tax due 250,000.00 Side topic: Minimum Corporate Income Tax
Creditable withholding tax (60,000.00) At the 4th year of operations of a corporation, it is
Income tax payable 190,000.00 taxed by the higher of the normal corporate income
tax rate of 30% or the minimum corporate income
The withholding tax is treated as an advance of tax (MCIT) of 2%.
income taxes to be paid at the end of the taxable
year. Gross Sales
(Cost of Goods Sold)
Assume that Kiwi rented out the building to Melon Gross Income
for only 2 months. Kiwi did not have any other Allowable Deductions
income for the year. Taxable Income

Based on TRAIN rates, Kiwi is not liable for any
income taxes for the year. Kiwi can claim a tax
refund for the 10,000 withheld by Melon.
Ratio*: On the side of the government, CWHT is
good because it helps ensure payment by taxpayer.
The government matches the tax remitted by the
withholding agent to the income declared by the
taxpayer.
In connection to the lifeblood theory, CWHT
ensures a steady stream of revenue. Since income
taxes are computed based on annual income,
government operations would be hindered if it only
collected taxes at the end of each taxable year.
The normal corporate tax is computed by
multiplying the rate of 30% to the taxable income.
The MCIT is computed by multiplying 2% to the
Gross Income.
Any excess of MCIT over the normal tax is carried
forward and credited against the normal tax for
the succeeding 3 years.
MCIT is not a tax on capital but a tax on income,
making it constitutional. It is imposed on Gross
Income which is computed by deducting the Cost
of Goods Sold from Gross Sales. Cost of Goods
Sold represents the capital spent in arriving at the
sale. (CREBA v. Romulo)

On the side of the taxpayer: It eases the burden of Illustration: Kiwi Corporation
paying by matching the timing of collection of taxes
to the timing of receipt example. Year 4 Year 5 Year 6
Normal Tax - 100.00 400.00
To illustrate: MCIT 100.00 200.00 100.00

Kiwi receives a salary of 50,000 monthly. The Tax payable 100.00 200.00 400.00
withholding tax would be 6,666.75. Based on her Excess MCIT 100.00 300.00 -
income of 600,000 for the whole year, she would
be liable to pay 80,000 in income taxes. In the given example, Kiwi Corp. paid the MCIT for
the 4th year and the 5th year. At its 6th year of
Because her employer properly withheld from her operations, the normal tax was higher than the
salary, Kiwi does not have to pay anything by the MCIT.
end of the year. Assuming there was no withholding
tax system in place, Kiwi would have fully received Kiwi Corporation’s income tax payable is
the 50,000 every month but would have to pay the computed as:
80,000 in one go. Not everyone would have the
foresight to set aside such an amount especially Income tax due 400.00
after the Christmas section. Less: MCIT
Year 4 (100.00)
*this section on ratio is the opinion of daga, if proven wrong… Year 5 (200.00)
n_nV Income tax payable 100.00
 ♥ TAXATION NOTES ni daga ♥
Side topic: Rules on publication
GR: All laws are required to be published in full.
This is to satisfy the requirement of due process.
XPNs:
1. Municipal Ordinances
2. Internal rules and regulations
3. Letters of instruction issued by
administrative supervisors on internal rules
and guidelines
4. Interpretative regulations regulating only
the personnel of administrative agency
XPNs to the XPNs: Administrative rules and
regulations require publication when:
1. The purpose is to implement or enforce
existing laws pursuant to a valid delegation
2. The rules are penal in nature
3. It diminishes existing rights of certain
individuals
Side topic: BIR Issuances
1. Revenue Regulations (RRs) – issuances
signed by Sec. of Finance upon
recommendation of CIR. Specifies,
prescribes or defines rules for effective
enforcement of NIRC
2. Revenue Memorandum Orders (RMOs) –
issuances providing directives or
instructions and guidelines for the
implementation of the programs of BIR in
all areas except auditing
3. Revenue Memorandum Rulings (RMRs) –
rulings, opinions and interpretations of the
CIR of provisions of tax code. May be
issued even without precedent. BIR Rulings
cannot contravene RMRs, otherwise they
are void.
4. Revenue Memorandum Circulars (RMCs) –
issuances by the CIR that consolidate the
BIR’s position on certain issues of law or
administration for the guidance of the
public
5. BIR Rulings – official position of the Bureau
to queries raised by taxpayers relative to
interpretation of tax laws
2. Equal Protection Clause
Requisites of a valid classification:
i. The classification is based on substantial
distinctions
ii. It is germane to the purpose of the law
iii. It is not limited to existing conditions only
iv. The classification applies equally to all
members of the same class
- The equal protection clause means that no
person or class of persons shall be deprived of
the same protection of laws enjoyed by other
persons or other classes in the same place in
like circumstances. (Commissioner of Customs
v. Hypermix Feeds Corporation)
- The standard of equal protection is satisfied if
the classification or distinction is based on a
reasonable foundation or rational basis and is
not palpably arbitrary. (ABAKADA Guro Party
List v. Purisima)
- The test to determine if the requirement of
equal protection is satisfied is whether or not
the law applies equally to all persons, firms and
corporations placed in similar situations.
(Kapatiran v. Tan)
- Between equality and uniformity, uniformity is
preferred* (Tan v. Del Rosario)
- The requirement on equal protection is satisfied
when the same treatment is applied to the same
class* (ABAKADA Guro Party List v. Honorable
Executive Secretary)
*ayon sa discussion ni sir n_nV
3. Uniformity and Equality of Taxation and
Progressive System of Taxation
“The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive
system of tax” – Sec. 28 (1), Article VI, 1987
Constitution
 ♥ TAXATION NOTES ni daga ♥
- Uniformity means that persons similarly
situated must be taxed similarly
- Uniformity does not call for perfect uniformity
or perfect equality; reasonable classifications do
not violate the uniformity and equality of
taxation (Sison v. Ancheta)
- Equality and uniformity of taxation means that
all taxable articles or kinds of property of the
same class be taxed at the same rate. The
taxing power has the authority to make
reasonable and natural classifications for
purposes of taxation. To satisfy this
requirement it is enough that the statute or
ordinance applies equally to all persons, forms
and corporations placed in similar situation.
(Tolentino v. Secretary of Finance)
- Administrative concerns may provide a
legitimate, rational basis for legislative
classification. Thus, a classification freeze
provision which imposes a different tax base
depending on the date of introduction of a
product in the market has been held to be valid
because it simplified tax administration and
eliminated potential abuse and corruption in tax
collection (British American Tobacco v.
Camacho)
- An ordinance exacting tax upon all motor
vehicles operating within a City which does not
distinguish those operating privately from those
for hire, or those registered in Manila from those
who occasionally come to Manila, violates the
rule on equality and uniformity (Association of
Customs Brokers v. Municipality Board)
- VAT is admittedly regressive because it is
imposed on persons regardless of income. It is
still valid because the Constitution’s mandate
is simply to evolve a progressive system of
taxation. It does not prohibit a regressive
system. (ABAKADA Guro Party List v. Ermita)
- A tax is uniform when it operates with the same
force and effect in every place where the
subject of it is found. Different articles may be
taxed at different amounts, provided the rate is
uniform on the same class everywhere, with all
people, and at all times. (Churchill v.
Concepcion)
Side topic: Value Added Tax (VAT)
VAT is a tax on consumption, levied on the sale,
barter, exchange or lease of goods or properties
and services in the Philippines and the importation
of goods into the Philippines.
GR: VAT is imposed on the seller, not the buyer
XPN: Importation
But who pays for VAT? Essentially it is the buyer or
the end consumer. The seller collects VAT and
remits it to the BIR.
This is because VAT is an indirect tax. An indirect
tax is a tax that may be passed on to another
individual.
The amount of VAT payable is computed as:
Output VAT
(Input VAT)
VAT payable
In simple terms, Output VAT is VAT that which you
pass onto others. Input VAT is that which was
passed onto you.
In cases where the Input VAT paid exceeds Output
VAT, the taxpayer may file for a tax refund.
4. Non-impairment of Contracts
“No law impairing the obligation of contracts shall
be passed” – Sec. 10, Art. III, 1987 Constitution
In taxation contracts refer to those which are
entered into with the government. There are two
kinds:
I. Without consideration – refer to franchises
and tax exemptions which are not
contractual in nature. The non-impairment
clause does NOT apply
II. With consideration – those entered into by
the government in its private capacity.
When the government acts in its private
 ♥ TAXATION NOTES ni daga ♥
capacity, it sheds its cloak of authority and
immunity. Thus the non-impairment clause
applies.
- Where the exemption was granted to private
parties based on material consideration of a
mutual nature, which then becomes contractual
and is thus covered by the non-impairment
clause of the Constitution. (MCIAA v. Marcos)
- The legislature of a State may, in the absence
of special restrictions in its constitution, make a
valid contract with a corporation in respect to
taxation, and that such contract can be
enforced against the State at the instance of the
corporation. (Casanovas v. Hord)
- The Local Government Code withdrew all the
tax exemptions existing at the time of its
passage with respect to local taxes like RPT. The
existing legislative policy is against the revival
of “in lieu of all taxes” clauses. The non-
impairment of contract clause cannot be
invoked because no right was violated.
*congress can grant, congress can revoke*
(RCPI v. Provincial Assessor of South Cotabato)
- The grant of taxing powers to local government
units under the Constitution and the LGC does
not affect the power of Congress to grant
exemptions to certain persons, pursuant to a
declared national policy. The legal effect of the
constitutional grant to local governments simply
means that in interpreting statutory provisions
on municipal taxing powers, doubts must be
resolved in favor of municipal corporations.
(City Government of Quezon City v. Bayantel)
- The "in lieu of all taxes" clause in a legislative
franchise should categorically state that the
exemption applies to both local and national
taxes; otherwise, the exemption claimed should
be strictly construed against the taxpayer and
liberally in favor of the taxing authority. (Smart
Communications v. City of Davao)
- Claims for tax exemption must be based on
language in law too plain to be mistaken. It
cannot be made out of inference or implication.
(Quezon City v. ABS-CBN)
5. No imprisonment for non-payment of poll
tax
“No person shall be imprisoned for debt or non-
payment of a poll tax” – Sec. 20, Art III, 1987
Constitution
- Poll tax refers to cedula or residence tax
- For purpose of a taxpayer’s suit, payment of
cedula is sufficient
- The protection against imprisonment applies
only to non-payment of poll taxes. People may
be still imprisoned for non-payment of other
kinds of taxes when provided for by the law
6. Freedom of religion
“No law shall be made respecting an establishment
of religion, or prohibiting the free exercise thereof.
The free exercise and enjoyment of religious
profession and worship, without discrimination or
preference, shall forever be allowed. No religious
test shall be required for the exercise of civil or
political rights.” – Sec. 5, Art. III, 1987 Constitution
a) Pre-activity measure – taxing of an activity that
BEFORE it is done; tax as a means of regulation
here is equivalent to censorship thus it is an
abridgement on the freedom of religion
Ex. Requiring of permit before you can sell
bibles
b) Post activity measure – taxing of an activity
AFTER it is done; it is considered a tax on a
commercial activity thus freedom of religion
cannot be invoked
Ex. Imposition of VAT on the sale of bibles
Religion – profession of faith to an active power that
binds and elevates man to its Creator
- The constitutional guaranty of the free exercise
and enjoyment of religious profession and
worship carries with it the right to disseminate
religious information
- Any restraints of such right can only be justified
like other restraints of freedom of expression on
the grounds that there is a clear and present
danger of any substantive evil which the State
has the right to prevent
 ♥ TAXATION NOTES ni daga ♥
- A license tax imposed and collected as a
condition to the pursuit of activities whose
enjoyment is guaranteed by the Constitution is
as potent as the power of censorship which
must be struck down. (American Bible Society
v. City of Manila)
- VAT is not a license tax imposed on the exercise
of a privilege. It is imposed on the sale, barter,
lease or exchange of goods or properties or the
sale or exchange of services and the lease of
properties purely for revenue purposes. Its
imposition cannot be construed as an
abridgement of the freedom of religion.
(Tolentino v. Secretary of Finance)
7. Freedom of the press
“No law shall be passed abridging the freedom of
speech, of expression, or of the press, or the right
of the people peaceably to assemble and petition
the government for redress of grievances.” – Sec.
4, 1987 Constitution
- VAT is not a tax on the press itself but rather on
the commercial activity of the press. The
publisher of a newspaper has no immunity from
the application of general laws. Like others, he
must pay equitable and nondiscriminatory taxes
on his business. (Philippine Press Institute v.
Chato)
8. Tax Exemption of Properties for Religious,
Charitable and Education Purposes
“Charitable institutions, churches and personages
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), Art. III, 1987 Constitution
Exclusive – possessed and enjoyed to the exclusion
of others; debarred from participation or
enjoyment; synonymous to solely
Charity – a gift, to be applied consistently with
existing laws, for the benefit of an indefinite
number of persons, either by bringing their minds
and hearts under the influence of education or
religion, by assisting them to establish themselves
in life or otherwise lessening the burden of
government
Test of Charity – whether or not an enterprise exists
to carry out a purpose reorganized in law as
charitable, as opposed to it being maintained for
gain, profit or advantage
Proprietary – private; maintained and administered
by private individuals or groups with a government
permit
Non-profit – no net income or asset accrues to or
benefits any member or specific person, with all the
net income or asset devoted to the institution’s
purposes and all its activities conducted not for
profit
Directly – in a direct way, without anything
intervention; not through secondary indirect means
Actually – truly in fact
Rationale for tax exemption: Charitable institutions
provide for free goods and services to the public
which would otherwise fall on the shoulder of the
government. The loss of taxes by the government
is compensated by its relief from doing public works
which would have been funded from the
appropriations from the treasury
- What is meant by actual, direct and exclusive
use of the property for charitable purposes is
the direct and immediate and actual application
of the property itself to the purposes for which
the charitable institution is organized. It is not
the use of the income from the real property
that is determinative of whether the property is
used for tax-exempt purposes; it is the ACTUAL
USE of the property (Lung Center v. Quezon
City)
- The making of profit does not destroy the tax
exemption of a charitable, benevolent or
educational institution. Needless to say, every
responsible organization must be so run as to at
least, insure its existence, by operating within
the limits of its own resources, especially its
regular income. In other words, it should always
strive, whenever possible, to have a surplus.
(Hospital de San Juan de Dios v. Pasay City)
 ♥ TAXATION NOTES ni daga ♥
- What is exempted is not the institution itself but
the lands, buildings and improvements actually,
directly and exclusively used for religious,
charitable or educational purposes. The tax
exemption covers property taxes only
(Commissioner v. Court of Appeals)
- If real property is used for one or more
commercial purposes, it is not exclusively used
for the exempted purposes but is subject to
taxation (Lung Center v. Quezon City)
- Use of the property for incidental and necessary
purposes for religious, charitable and
educational purposes is covered by exclusive
use. (Bishop of Nueva Segovia v. Provincial
Board of Ilocos Norte)
- The lease of a floor of a school to a marketing
company was not incidental to educational
purposes and is therefore not exempt from RPT
(Abra Valley College Inc., v. Aquino)
- Charitable institutions are not ipso facto entitled
to a tax exemption. The requirements for a tax
exemption are strictly construed against the
taxpayer because an exemption restricts the
collection of taxes necessary for the existence
of the government. (CIR v. St. Luke’s Medical
Center)
- Proprietary non-profit educational institutions
and proprietary non-profit hospitals are subject
to a 10% preferential tax rate provided that
they are proprietary and non-profit. A charitable
institution does not lose its tax exempt status
for engaging in not-for-profit activities. These
activities are subject to income tax. (CIR v. St.
Luke’s Medical Center)
- Idle land is taxable because what is required is
ACTUAL, direct and exclusive use. If its use can
be passed off as incidental then it may be tax
exempt*
*ayon sa discussion ni sir n_nV
9. Must originate from the House of
Representatives
“All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local
application, and private bills, shall originate
exclusively in the House of Representatives, but the
Senate may propose or concur with amendments.”
– Sec. 24, Art. VI, 1987 Constitution
- To begin with, it is not the law — but the
revenue bill — which is required by the
Constitution to "originate exclusively" in the
House of Representatives. It is important to
emphasize this, because a bill originating in the
House may undergo such extensive changes in
the Senate that the result may be a rewriting of
the whole … At this point, what is important to
note is that, as a result of the Senate action, a
distinct bill may be produced.
What the Constitution simply means is that the
initiative for filing revenue, tariff, or tax bills,
bills authorizing an increase of the public debt,
private bills and bills of local application must
come from the House of Representatives on the
theory that, elected as they are from the
districts, the members of the House can be
expected to be more sensitive to the local needs
and problems. (ABAKADA v. Ermita)
- It is the BILL, not the law, which must originate
exclusively from the House of Representatives.
- The constitution requires that the initiative
come from the House or Representatives
because, being elected by their own districts,
they are expected to be more sensitive to the
local needs and problems. The Senate, on the
other hand, are expected to approach these
problems from the national perspective.
10. Concurrence of majority of ALL the
members of Congress for the grant of a 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), Art. VI,
1987 Constitution
- An exemption granted by a Presidential
Proclamation and not by law is invalid (John Hay
Peoples Alternative Coalition v. Lim)
- This requirement also applies to tax amnesty. A
tax amnesty is a general pardon by the State of
 ♥ TAXATION NOTES ni daga ♥
its authority to punish those who violates a
revenue or tax law. (Republic v. IAC)
11. Every bill shall embrace only one subject
which shall be expressed in its title – Sec.
28(4), Art. VI, 1987 Constitution
- It is the bill which becomes a law that is
required to express in its title the subject of
legislation, not the law itself.
12. Congress shall evolve a progressive
system of taxation – Sec. 28(1), Art. VI, 1987
Constitution
- A progressive system of taxation is one where
an individual pays taxes in proportion to his
income. The higher his income, the higher his
taxes. This is in line with the ability to pay
principle wherein a tax must be imposed in
proportion to his ability to pay
- Direct taxes are to be preferred and indirect
taxes, as much as possible, should be
minimized
- VAT is admittedly regressive because it is
imposed on persons regardless of income. It is
still valid because the Constitution’s mandate
is simply to evolve a progressive system of
taxation. It does not prohibit a regressive
system. (ABAKADA Guro Party List v. Ermita)
13. Presidential veto
“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), Art. VI, 1987 Constitution
GR: A veto of a bill is a veto in its entirety
XPN: In vetoing appropriation, revenue or tariff
bills, only those objected to will be vetoed
Kinds of veto:
a) Pocket veto – Veto of the entire bill
b) Item veto – Veto of particular sections
only; applies to ART bills only
14. Delegated authority to the President to
impose taxes
“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.” – Sec.
28(2), Art. VI, 1987 Constitution
- Fix is the operative word. Such delegation
must be by law and comply with the
completeness test and the sufficiency of
standard test
15. Tax exemption 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. Upon the
dissolution or cessation of the corporate existence
of such institutions, their assets shall be disposed
of in the manner provided by law.
Proprietary educational institutions, including
those cooperatively owned, may likewise be
entitled to such exemptions, subject to the
limitations provided by law, including restrictions
on dividends and provisions for reinvestment.”
– Sec. 4(3), Art. XIV, 1987 Constitution
Revenues – amounts earned by a person or entity
from the conduct of business operations. It may
refer to the sale of goods, rendition of services or
the return of an investment. In taxation, it is a
component of the tax base in income tax, VAT and
local business tax
Assets – tangible and intangible properties owned
by a person or entity from which the person or
entity may derive income or use to generate
income. The fair market value of a real property is
a component of the tax base in RPT
- The constitutional provision covers non-stock,
non-profit educational institutions and exempts
them from income tax, RPT, donor’s tax and
customs duties because the provision speaks
of “all revenues and assets”
 ♥ TAXATION NOTES ni daga ♥
- The test to determine the exemption is the use
of both revenues and assets. These must be
used actually, directly and exclusively for
educational purposes (CIR v. DLSU)
- To avail of the exemption, the NSNP taxpayer
must factually prove that it used actually,
directly and exclusively for educational
purposes the revenues or income sought to be
exempted. (CIR v. DLSU)
- While a non-stock, non-profit educational
institution is classified as a tax-exempt entity
under Section 30 (Exemptions from Tax on
Corporations) of the Tax Code, a proprietary
educational institution is covered by
preferential tax rates under Section 27 (Rates
of Income Tax on Domestic Corporations).
- The portion of the NIRC taxing NSNP’s for
income from for-profit activities, regardless of
its disposition, was declared void for being
contrary to the constitutional provision
16. Supremacy of the National Government
to the Local Government
- Even with the principle of local autonomy, it is
inherently noxious and self-defeatist for local
taxation to interfere with the sovereign
exercise of functions. (MIAA v. CA)
- The power of LGU’s to tax was granted by the
national government, thus it cannot tax the
national government
17. Judicial power to review Legality of Tax
“The Supreme Court shall have the power to
review, revise, reverse, modify, or affirm on
appeal or certiorari, as the law or the Rules of
Court may provide, final judgments and orders of
lower courts in:
(b) All cases involving the legality of any tax,
impost, assessment, or toll, or any penalty
imposed in relation thereto”
- Sec. 5, Art. VIII, 1987 Constitution
- While taxation is said to be the power to
destroy, it is by no means unlimited. If so
great an abuse is manifested as to destroy
natural and fundamental rights which no free
government could consistently violate, it is the
duty of the judiciary to hold such an act
unconstitutional. (Sison v. Ancheta)
V. Purposes and Objectives of Taxation
1. To Raise Revenue
2. Regulatory
- Taxation may be made the implement of the
state's police power (Lutz v. Araneta)
- Taxation is no longer envisioned as a measure
merely to raise revenue to support the
existence of the government; taxes may be
levied with a regulatory purpose to provide
means for the rehabilitation and stabilization of
a threatened industry which is affected with
public interest as to be within the police power
of the state (Caltex v. COA)
- Vehicle registration fees were originally
imposed in the exercise of the State’s police
power. However, as vehicular traffic exploded in
number, the registration of vehicles was found
to be a very convenient way of raising revenues.
From being “registration fees” they have
become “taxes” (PAL v. Edu)
3. Promotion of General Welfare
-INSERT OTHER STUFF HERE-
TAXES VS OTHER STUFF ♥
1) Taxation v. Police Power v. Eminent
Domain
As to purpose: The purpose of taxation is to raise
revenue in support of the government, whereas the
purpose of police power is the promotion of general
welfare, while the purpose if eminent domain is to
facilitate the taking of private property for public
purpose.
As to exercising authority: Both taxation and police
power are exercised by the government or its
political subdivision, whereas eminent domain is
 ♥ TAXATION NOTES ni daga ♥
exercised by the government or public service
companies and public utilities.
As to limit of amount: Taxation is not limited as to
amount imposed while police power is limited to the
cost of regulation. In eminent domain it is the
owner who is paid the fair market value of his
property.
As to non-impairment of contracts: The non-
impairment clause does not apply unless the tax
exemption given is for a consideration. Contracts
may be impaired by police power or eminent
domain.
As to benefits received: There is no direct benefit
received in taxation and police power while in
eminent domain, the person directly benefits from
the payment equivalent to the fair market value of
the property taken.
2) Tax v. Debt
As to basis: Taxes are based on obligations based
on law while debts are based on obligations based
on contract or judgment.
As to Effect of Non-payment: Failure to pay taxes
other than poll taxes may result in imprisonment
while failure to pay debt cannot result in
imprisonment.
As to Mode of Payment: Taxes are generally
payable in money while debts are payable in
money, property or service.
As to imposing authority: Taxes are imposed by
public authority while debts are imposed by private
individuals.
As to Assignability: Taxes are not assignable while
debts are assignable.
As to Payment: Taxes are generally not subject to
compensation or set-off while debts may be
subjected to compensation or set-off.
3) Tax v. Toll
As to who may impose: Taxes are imposed by the
State while toll fees are imposed by private
persons.
As to purpose: Taxes are imposed to raise revenues
while toll fees are imposed to reimburse the costs
and maintenance of the property used
As to basis: Taxes are based on the State’s
sovereign power while toll fees are demands of
proprietorship.
4) Tax v. License Fees
As to basis: Taxes are levied in the exercise of the
taxing power while license fees emanate from
police power.
As to purpose: Taxes are imposed primarily for
revenue while license fees are imposed for
regulation.
As to limitation on Amount: Taxes have no limit as
to the amount while license fees are limited to the
reasonable costs of regulation.
As to effect of non-payment: Non-payment of taxes
does not make the business illegal but may be
ground for criminal prosecution. On the other hand,
non-payment of license fees would make the
business illegal.
5) Tax v. Penalty
As to nature: Taxes are civil liabilities while
penalties are punishments for the commission of a
crime.
As to purpose: Taxes are intended to raise revenue
while penalties are designed to regulate conduct.
As to imposing authority: Only the government
may impose taxes while penalties may be imposed
by the government or private individuals.
6) Tax v. Special Assessment
As to subject: Taxes are levied on persons,
properties, income, businesses and privileges while
special assessments are levied only on land.
 ♥ TAXATION NOTES ni daga ♥
As to liability: Taxes are personal liabilities of the
taxpayer while special assessments cannot be
made a personal liability of the person assessed.
As to basis: Taxes are based on necessity and
partially on benefits while special assessments are
based solely on benefits.
As to purpose: Taxes are imposed to support the
government while special assessments are imposed
as contributions to the cost of public improvement
As to why imposed: Taxes are imposed regardless
of public improvement while special assessments
are imposed because public improvement benefits
the land and increases its value.
As to when imposed: Taxes are regular exactions
while special assessments are exceptional as to
time and locality.
Classification of Taxes
1) As to subject matter
a) Personal, Capitation or Poll – taxes of a
fixed amount upon all persons of a certain
class within the jurisdiction of the taxing
authority, regardless of their property,
occupations or business engaged in
b) Property Tax – taxes assessed on all
property or all property of a certain class
within the jurisdiction of the taxing power
c) Excise or Privilege – taxes that are
imposed on the manufacture, sale, or
consumption of commodities within the
country, and upon the license to pursue
certain occupations and upon corporate
privileges
d) Customs Duties – taxes collected on goods
that are entering the country or services
delivered by nonresidents to residents
2) As to purpose
a) General, Fiscal or Revenue – taxes
collected for general or ordinary purposes of
the government to raise revenue for
Governmental needs
b) Special or Regulatory – tax levied for
special purposes (ex. To benefit the sugar
industry such as in the case of Lutz v.
Araneta)
3) As to who bears the burden
a) Direct Tax – taxes wherein both the
incidence and the impact of taxes fall on the
same person
b) Indirect Tax – tax where the liability falls
on one person but the burden may be
shifted or passed on to another, not as a tax,
but as a part of the purchase price
4) As to graduation or rate
a) Proportional – tax rates are fixed in a flat
tax base, such as in amounts or in
percentage)
b) Progressive or graduated – tax rates or
amount increases as the amount of income
or earning to be taxed
c) Regressive – tax rate decreases as the
amount of income or earning to be taxed
increases
5) As to Taxing Authority
a) National Tax – those levied by the National
Government, through Congress, and
administered by the BIR or the BOC
b) Local or Municipal – levied by the LGU’s,
through their respective Sanggunians, and
administered by the local executive
government through the local treasurer
6. As to basis 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
valuation other than a listing or classification
of the objects to be taxed
 ♥ TAXATION NOTES ni daga ♥

b) Ad valorem – tax based upon the value of Sales 3,000,000

the articles subject to tax. It requires the Cost of Sales (1,500,000)
intervention of assessors or appraisers to Gross Income 1,500,000
estimate the value of such property before Allowable Deductions (500,000)
the amount due can be determined Net Taxable Income 1,000,000
Multiply by rate 30%
J. Double Taxation Tax Liability 300,000

GR: Double taxation is not prohibited in view of the If the law would treat the discount to senior citizens
lifeblood doctrine as a TAX credit, then Kiwi would only have to pay
XPN: Direct double taxation, because of its 100,000 (liability of 300k less tax credit of 200k)
confiscatory nature
If the law would treat discount to senior citizens as
Kinds of Double Taxation a tax deduction, then:

1) Indirect duplicate taxation – Double taxation Sales 3,000,000

in the broad sense. Two or more pecuniary Cost of Sales (1,500,000)
impositions are levied on a subject matter. This is Gross Income 1,500,000
NOT prohibited Discount to Seniors (200,000)
Allowable Deductions (500,000)
2) Direct duplicate taxation – It is taxing twice Net Taxable Income 800,000
a subject matter, for the same purpose, by the Multiply by rate 30%
same authority, within the same jurisdiction, during Tax Liability 240,000
the same period, with the two taxes being of the
same kind or character. This is prohibited Treating it as a tax credit would be more
advantageous for the taxpayer. However, the
Schemes to avoid double taxation choice does not belong to the taxpayer. It must be
provided by the law itself. (Based on CIR v. Central
1) Tax credit – deduction from tax due Luzon Drug)
2) Tax deductions – deductions from gross
income International Juridical Double Taxation
3) Tax reduction – reduction in applicable rate - The imposition of comparable taxes in two or
4) Tax exemption – not subjected to tax more states on the same taxpayer in respect of
5) Tax Treaties – in line with reciprocity the same subject matter and for identical
periods
Illustration tax credit v. Tax deduction
Approaches to avoid IJDT:
Kiwi Corporation operates a drug store. Kiwi
granted 20% sales discount to qualified senior 1. Territorial based system – foreign source
citizens. The total sales discounts granted to income is normally exempted from domestic
seniors totaled 200,000. taxes
2. Imposition of tax on the worldwide income
Assuming that Kiwi’s sales is 3,000,000, Kiwi’s cost of their individual citizens and residents and
of sales is 50% of Kiwi’s sales, and allowable domestic corporations
deductions of 500,000 then:
Case Doctrines on Double Taxation

- Both a license fee and a tax may be imposed on

the same business or occupation, or for selling
the same article, this not being a violation of the
rule against double taxation. (Compania
 ♥ TAXATION NOTES ni daga ♥
General de Tabacos de Filipinas v. City of
Manila)
- An argument against double taxation may not
be invoked where one tax is imposed by the
state and the other is imposed by the city. (City
of Baguio v. De Leon)
- Regulation and taxation are two different
things, the first being an exercise of police
power, whereas taxation is not. Double taxation
is not prohibited in the Philippines (Serafica v.
City Treasurer of Ormoc)
- Where one person pays the tax for another, the
person so paying the tax may recover the tax if
it represents an overpayment (Hawaiian Phil v.
CIR)
K. Exemption from Taxation
1) Classifications
a) As to source:
1. Constitutional – self-executing
2. Statutory / Ordinance – granted by
the legislature.
GR: Revocable
XPN: If granted for a consideration.
(Non-impairment clause applies)
3. Treaty / Executive order
4. Contractual
b) As to Manner
1. Express – explicitly exempted by the
statute
2. Implied – those that fall outside the
scope of the taxing provision
c) As to scope
1. Total / Full – absolute
2. Partial
Cases Doctrines on Tax Exemption
- Taxation is the rule and exemption therefrom
the exception, the exemption may thus be
withdrawn at the pleasure of the taxing
authority. The only exception to this rule is
where the exemption was granted to private
parties based on material consideration of a
mutual nature, which then becomes contractual
and is thus covered by the non-impairment
clause of the Constitution (MCIAA v. Marcos)
- Exemptions from taxation are highly disfavored
in law, and he who claims exemption must be
able to justify his claim by the clearest grant of
organic or statute law. (Meralco v. Vera)
- A tax exemption is not to be presumed and that
if granted, it is to be most strictly construed.
(CIR v. A.D. Guerrero)
- Tax exemptions certainly cannot be granted by
implication or mere administrative regulation.
Thus, when an exemption is claimed, it must
indubitably be shown to exist, for every
presumption is against it, and a well-founded
doubt is fatal to the claim. (CIR v. Solidbank)
- Tax exclusions are likewise strictly construed
against the taxpayer. The phrase “in lieu of all
taxes” applies only to national taxes and not to
local taxes unless explicitly stated (Smart v.
City of Davao)
- A tax exemption is effectively a social subsidy
granted by the State because an exempt
institution is spared from sharing in the
expenses of government and yet benefits from
them. Tax exemptions for charitable institutions
should therefore be limited to institutions
beneficial to the public and those which improve
social welfare. A profit-making entity should not
be allowed to exploit this subsidy to the
detriment of the government and other
taxpayers. (CIR v. St. Luke’s)
- A tax amnesty, much like a tax exemption, is
never favored nor presumed in law. The grant
of a tax amnesty, similar to a tax exemption,
must be construed strictly against the taxpayer
and liberally in favor of the taxing authority.
(CIR v. Philippine-Aluminum Wheels)
- Exemptions from taxation are construed in
strictissimi juris against the taxpayer and
liberally in favor of the taxing authority (Esso
Standard v. Acting CIR)
 ♥ TAXATION NOTES ni daga ♥
M. Escape from Taxation
Forms:
1. Tax Shifting – transfer of the burden of
taxation
2. Tax Capitalization or Amortization
3. Tax Transformation
4. Transfer Pricing
5. Resorting to Tax Haven – Tax havens are
places without tax impositions
Ex. Cayman Islands
6. Tax Deferral
7. Tax Shelter – enactments of congress which
protect taxpayers from the payment of tax
- is a means for a taxpayer not to pay tax
Ex. Minimum wage earners
8. Doctrine of Equitable Recoupment – a tax
refund not filed within the prescriptive period can
be offset against a current tax liability; not
applicable in the Philippines
9. Tax Avoidance – minimizing or lessening the
tax payable through lawful means
10. Tax Dodging or Tax Evasion – use of illegal
means of escaping taxation
Elements - ESC
1) End to be achieved – the payment of tax
lesser than what is due
2) State of mind of being evil or in bad faith
3) Course of action or failure of action which
is unlawful (CIR v. Estate of Benigno Toda)
Cases
- PEZA registered entities are exempt from
internal revenue laws and regulations. This
exemption covers both direct and indirect
taxes. No taxes, local and national, shall be
imposed on business establishments operating
within the ecozone. (CIR v. Seagate)
- “In lieu of all other taxes” clause must be
construed according to the intent of the
legislature. (PLDT v. CIR)
- A Non-VAT taxpayer is exempt from VAT. As
an exempt VAT taxpayer, it is not allowed any
tax credit on input VAT previously paid.
(Contex v. CIR)
RATE Program (Run after Tax Evaders)
- Program of the BIR to identify and prosecute
high profile tax evaders
- Under RATE, the non-declaration of correct
expenses is an indicia of fraud; under this
presumption, up to 50% of expenses may be
disallowed*
*sabi sa lecture assuming tama naalala ko n_nV
II. PRESCRIPTION
Prescription
1. Acquisitive – acquisition of rights through the
lapse of time
2. Extinctive – extinction of rights through the
lapse of time; prescription in taxation refers
to extinctive prescription
GR: The right to assess and collect taxes is
imprescriptible
XPN: When provided by law
General Rule: The right to assess must be
exercised within 3 years from the day the return
was actually filed or the last day of filing of the
return, whichever is LATER (Sec. 203 of NIRC)
Exceptions:
1) False or fraudulent return, or failure or
omission to file taxes
- Applicable period is 10 years
False return – deviation from the truth,
usually because of mistake, carelessness or
ignorance
Fraudulent return – intentional or deceitful
entry to evade the taxes due (Aznar v. CTA)
2) Waiver of statute of limitations in
writing
- Prescription period is extended until the
period agreed upon
 ♥ TAXATION NOTES ni daga ♥

Requisites of waiver (RMO 14-2016) Quarter Individual Corporation

a. The waiver is executed before the 1st May 15 July 15
expiration of the prescriptive period 2nd August 15 October 15
b. Date of execution is specifically 3rd November 15 January 15
indicated in the waiver 4th April 15 April 15
c. Expiry date of period agreed upon
should be specifically stated in the 2) Withholding taxes
waiver
d. The waiver is signed by the taxpayer Final withholding taxes & expanded withholding
or his duly authorized representative tax – last day of the month following the close
of the taxable quarter
3) Suspensions of running of the statute
of limitations Quarter Deadline
- Prescriptive period is tolled by the grant 1st April 30
or acting upon by the BIR of a request 2nd July 31
for reinvestigation 3rd October 30
4th January 31
Forms of protest:

1. Request for reinvestigation – plea for re- Withholding on compensation – 10th day of the
evaluation of an assessment on the basis of following MONTH
newly-discovered or additional evidence that a XPN: December – filed on the 15th day of
taxpayer intends to present January; Return must be annualized

2. Request for reconsideration – plea for re- 3) VAT and Percentage taxes
evaluation of an assessment on the basis of - Filed on the 25th of the month following
existing records without need of additional the close of the quarter (Sec. 114 & Sec.
evidence (BPI v. CIR) 125 of NIRC)

4) Taxpayer is out of the country Quarter Deadline

5) Taxpayer cannot be located
6) Issuance of warrant of distraint or levy
Deadlines for filing of taxes (Under TRAIN)
- For purposes of prescription, the reckoning
point is the deadline for the filing of the ANNUAL
return
1) Income taxes
For individuals – 15th day of the 2nd month
following the close of the taxable period
For corporation – 15th day of the 4th month
following the close of the taxable period
XPN: 4th quarter – April 15. Return filed must be
annualized
1st April 25
2nd July 25
3rd October 25
4th January 25
Doctrines on prescription
- Taxes are the lifeblood of the government. One
of the exceptions to the doctrine is where the
taxpayer has shown a clear and unmistakable
right to refuse or to hold in abeyance the
payment of taxes, such as on the ground of
prescription (Talento v. Escalada)
- The law on prescription, being a remedial
measure, should be liberally construed in order
to afford protection (CIR v. Goodrich)

- Falsity or fraud, as exceptions to the period of

prescription, must be proved (CIR v. Goodrich)
 ♥ TAXATION NOTES ni daga ♥
- The act of requesting a reinvestigation alone
does not suspend the period. The request
should first be granted, in order to effect
suspension. (CIR v. United Salvage and
Towage)
- The BIR has three years, counted from the date
of actual filing of the return or from the last date
prescribed by law for the filing of such return,
whichever comes later, to assess a national
internal revenue tax or to begin a court
proceeding for the collection thereof without an
assessment. In case of a false or fraudulent
return with intent to evade tax or the failure to
file any return at all, the prescriptive period for
assessment of the tax due shall be 10 years
from discovery by the BIR of the falsity, fraud,
or omission.
When the BIR validly issues an assessment,
within either the three-year or ten-year period,
whichever is appropriate, then the BIR has
another three years, or five years if in case of
false or fraudulent return, after the assessment
within which to collect the national internal
revenue tax due thereon by distraint, levy,
and/or court proceeding. The assessment of the
tax is deemed made and the three-year period
for collection of the assessed tax begins to run
on the date the assessment notice had been
released, mailed or sent by the BIR to the
taxpayer. (BPI v. CIR)
- Estoppel applies against a taxpayer who did not
only raise at the earliest opportunity its
representative's lack of authority to execute two
waivers of defense of prescription, but was also
accorded, through these waivers, more time to
comply with the audit requirements of the
Bureau of Internal Revenue. Nonetheless, a tax
assessment served beyond the extended period
is void. (CIR v. Transitions Optical Philippines)
- Section 203 of the NIRC prohibits two acts after
the expiration of the three-year period: First, an
assessment for the collection of the taxes in the
return, and second, initiating a court proceeding
on the basis of such return. Thus, a prescribed
tax return cannot be used as a basis for a
complaint of tax evasion (Republic v. GMCC)
- The waiver of the statute of limitations does not
mean that the taxpayer relinquishes the right to
invoke prescription unequivocally, particularly
where the language of the document is
equivocal. (CIR v. FMF)
- The law prescribing a limitation of actions for
the collection of the income tax is beneficial
both to the Government and to its citizens; to
the Government because tax officers would be
obliged to act promptly in the making of
assessment, and to citizens because after the
lapse of the period of prescription citizens would
have a feeling of security against unscrupulous
tax agents who will always find an excuse to
inspect the books of taxpayers, not to
determine the latter's real liability, but to take
advantage of every opportunity to molest
peaceful, law-abiding citizens. (CIR v. Stanley
Works)
- A waiver signed by an unauthorized company
representative is invalid (CIR v. Kudos Metal)
- A taxpayer is estopped from questioning the
waiver executed if it had impliedly admitted the
validity of the waiver through partial payment
of an assessment issued within the extended
period (RCBC v. CIR)
- If the taxpayer files an amended return, which
is substantially different from the original
return, the period of prescription of the right to
issue the deficiency assessment should be
counted from the filing of the amended return,
and not the original return (CIR v. Phoenix
Assurance Co.,)
- Actual fraud, not constructive fraud, is subject
to the 50% penalty surcharge. For the
surcharge to apply, it must be intentional fraud,
consisting of deception willfully and deliberately
done or resorted to in order to induce another
to give up some right. Fraud must be proven by
the government. (Aznar v. CTA)
- Negligence, whether slight or gross, is not
equivalent to fraud with intent to evade taxes
(Aznar v. CTA)
 ♥ TAXATION NOTES ni daga ♥

- A waiver of the statute of limitations is a

derogation of the taxpayer's right to security
against prolonged and unscrupulous
investigations and thus, it must be carefully and
strictly construed. The BIR cannot hide behind
the doctrine of estoppel to cover its failure to
comply with RMOs issued by the BIR itself (CIR
v. PDI)

- When there is a showing that a taxpayer has

substantially underdeclared its sales, receipt or
income, there is a presumption that it has filed
a false return. As such, the CIR need not
immediately present evidence to support the
falsity of the return. The 10-year prescription
period applies if the taxpayer fails to overcome
that presumption (CIR v. Asalus)

- A FAN or FDDA that doesn’t explicitly state that

the applicable prescriptive period was the 10-
year period is still valid if it makes reference to
the PAN which states that the 10-year period
applies. It is sufficient that the taxpayer is
substantially informed of the legal and factual
bases of the assessment enabling him to file an
effective protest (CIR v. Asalus)

- Fraud is a question of fact and must be alleged

and proved I the lower courts. (CIR v. Ayala
Securities)

- In the absence of express statutory provision,

the right of the government to assess unpaid
taxes is imprescriptible (CIR v. Ayala Securities,
referring to improperly accumulated earnings
tax)