Domestic corporations owe their corporate existence and their privilege to do business to the

government. It is therefore fair for the government to require them to make a reasonable contribution
to the public expenses. They also benefit from the efforts of the government to improve the financial
market and to ensure a favorable business climate. It is therefore fair for the government to require
them to make a reasonable contribution to the public expenses.

As a tax on gross income, Minimum Corporate Income Tax (MCIT) prevents tax evasion and
minimizes tax avoidance schemes achieved through sophisticated and artful manipulations of
deductions and other stratagems.
The primary purpose of any legitimate business is to earn a profit. Continued and repeated losses
after operations of a corporation or consistent reports of minimal net income render its financial
statements and its tax payments suspect. For sure, certain tax avoidance schemes resorted to by
corporations are allowed in our jurisdiction. The MCIT serves to put a cap on such tax shelters. As a
tax on gross income, it prevents tax evasion and minimizes tax avoidance schemes achieved through
sophisticated and artful manipulations of deductions and other stratagems. Since the tax base was
broader, the tax rate was lowered.
Taxes are the lifeblood of the government. Without taxes, the government can neither exist nor
endure. The exercise of taxing power derives its source from the very existence of the State whose
social contract with its citizens obliges it to promote public interest and the common good. Taxation is
an inherent attribute of sovereignty. It is a power that is purely legislative. It has the authority to
prescribe a certain tax at a specific rate for a particular public purpose on persons or things within its
jurisdiction. In other words, the legislature wields the power to define what tax shall be imposed, why
it should be imposed, how much tax shall be imposed, against whom (or what) it shall be imposed
and where it shall be imposed.
As a general rule, the power to tax is plenary and unlimited in its range, acknowledging in its very
nature no limits, so that the principal check against its abuse is to be found only in the responsibility of
the legislature to its constituency who are to pay it. Nevertheless, it is circumscribed by constitutional
limitations. At the same time, like any other statute, tax legislation carries a presumption of
constitutionality.
Court will not strike down a revenue measure as unconstitutional. There must be a factual foundation
to such an unconstitutional taint. This merely adheres to the authoritative doctrine that, where the due
process clause is invoked, considering that it is not a fixed rule but rather a broad standard, there is a
need for proof of such persuasive character.
The Minimum Corporate Income Tax (MCIT) is not a tax on capital; The Minimum Corporate Income
Tax (MCIT) is imposed on gross income. Certainly, an income tax is arbitrary and confiscatory if it
taxes capital because capital is not income. In other words, it is income, not capital, which is subject
to income tax. However, the MCIT is not a tax on capital. The MCIT is imposed on gross income
which is arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e., the
cost of goods and other direct expenses from gross sales. Clearly, the capital is not being taxed.
Minimum Corporate Income Tax (MCIT) is not an additional tax imposition. It is imposed in lieu of the
normal net income tax and only if the normal income tax is suspiciously low. Furthermore, the MCIT is
not an additional tax imposition. It is imposed in lieu of the normal net income tax, and only if the
normal income tax is suspiciously low. The MCIT merely approximates the amount of net income tax
due from a corporation, pegging the rate at a very much reduced 2% and uses as the base the
corporation’s gross income.
The method of withholding tax at source is a procedure of collecting income tax which is sanctioned
by our tax laws; Three primary lessons why the withholding tax system was devised.
The withholding tax system was devised for three primary reasons: (1)first, to provide the taxpayer a
convenient manner to meet his probable income tax liability; (2)second, to ensure the collection of
income tax which can otherwise be lost or substantially reduced through failure to file the
corresponding returns and (3)third, to improve the government’s cash flow.
The creditable withholding tax (CWT) does not impose new taxes nor does it increase taxes; It relates
entirely to the method and time of payment.
It is stressed that the CWT is creditable against the tax due from the seller of the property at the end
of the taxable year. The seller will be able to claim a tax refund if its net income is less than the taxes
withheld. Nothing is taken that is not due so there is no confiscation of property repugnant to the
constitutional guarantee of due process. More importantly, the due process requirement applies to the
power to tax. The CWT does not impose new taxes nor does it increase taxes. It relates entirely to
the method and time of payment.
An heir is liable for the assessment as an heir and as a holder-transferee of property belonging to the
estate/taxpayer. As an heir, he is individually answerable for the part of the tax proportionate to the
share he received from the inheritance. His liability, however, cannot exceed the amount of his share.
As a holder of the property belonging to the estate, he is liable for the tax up to the amount of the
property in his possession. The reason is that the Government has a lien on such property. But after
payment of such amount, he will have a right to contribution from his co-heirs.
The Government has two ways of collecting the taxes in question. One, by going after all the heirs
and collecting from each one of them the amount of the tax proportionate to the inheritance received,
Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and
rights to property belong to the taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of the tax due the estate.
Police power is the power of the state to promote public welfare by restraining and regulating the use
of liberty and property. It is the most pervasive, the least limitable, and the most demanding of the
three fundamental powers of the State. The theory behind the exercise of the power to tax emanates
from necessity, without taxes, government cannot fulfill its mandate of promoting the general welfare
and well-being of the people. That the power to “regulate” means the power to protect, foster,
promote, preserve, and control, with due regard for the interests, first and foremost, of the public, then
of the utility and of its patrons.
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 that is to pay it. It is based on the principle that
taxes are the lifeblood of the government, and their prompt and certain availability is an imperious
need.
If generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a
tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised does not make
the imposition a tax.
In exacting the assailed Universal Charge through Sec. 34 of the Electric Power Industry Reform Act
of 2001 (EPIRA), the State’s police power, particularly its regulatory dimension, is invoked.The
conservative and pivotal distinction between these two powers rests in the purpose for which the
charge is made. In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State’s
police power, particularly its regulatory dimension, is invoked. Such can be deduced from Sec. 34
which enumerates the purposes for which the Universal Charge is imposed and which can be amply
discerned as regulatory in character.
Nowhere is the aforestated rule more true than in the field of taxation. It is axiomatic that the
Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the
lifeblood of the nation through which the government agencies continue to operate and with which the
State effects its functions for the welfare of its constituents. The errors of certain administrative
officers should never be allowed to jeopardize the Government’s financial position, especially in the
case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to
be prejudiced just because of bureaucratic lethargy.
To award tax refund despite the existence of deficiency assessment is an absurdity. The fact of such
deficiency assessment is intimately related to and inextricably intertwined with the right of respondent
bank to claim for a tax refund for the same year. To award such refund despite the existence of that
deficiency assessment is an absurdity and a polarity in conceptual effects. Herein private respondent
cannot be entitled to refund and at the same time be liable for a tax deficiency assessment for the
same year.
The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated
therein are true and correct. The deficiency assessment, although not yet final, created a doubt as to
and constitutes a challenge against the truth and accuracy of the facts stated in said return which, by
itself and without unquestionable evidence, cannot be the basis for the grant of the refund.
Tax payer and government must be given equal opportunities to avail of remedies under the law. This
would necessarily include the determination of the correct liability of the taxpayer and, certainly, a
determination of this case would constitutes judicata on both parties as to all the matters subject
thereof or necessarily involved therein.
A tax cannot be imposed unless it is supported by the clear and express language of a statute. Once
the tax is unquestionably imposed, “a claim of exemption from tax payments must be clearly shown
and based on language in the law too plain to be mistaken.
There is no tax exemption solely on the ground of equity.
Due process of law under the Constitution does not require judicial proceedings in tax cases. It is of
utmost importance that the modes adopted to enforce the collection of taxes levied should be
summary and interfered with as little as possible. Basic is the principle that “taxes are the lifeblood of
the nation.” The primary purpose is to generate funds for the State to finance the needs of the
citizenry and to advance the common weal. Due process of law under the Constitution does not
require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that
the government chiefly relies to obtain the means to carry on its operations and it is of utmost
importance that the modes adopted to enforce the collection of taxes levied should be summary and
interfered with as little as possible.
Claim for refund or tax credit should be exercised within the time fixed by law because the BIR being
an administrative body enforced to collect taxes, its functions should not be unduly delayed or
hampered by incidental matters.
The taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within
two (2) years after payment of tax, before any suit in CTA is commenced. The rule states that the
taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two
(2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive
period provided, should be computed from the time of filing the Adjustment Return and final payment
of the tax for the year.
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.
On the other hand, such collection should be made in accordance with law as any arbitrariness will
negate the very reason for government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is
the promotion of the common good, may be achieved.
It is said that taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard-earned income to the taxing authorities, every person who
is able to must contribute his share in the 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 moral and material values, This symbiotic relationship is the rationale of
taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in
the seat of power.
The act of subdividing a farm land and selling them to the farmers-occupants on installment in
response to the Government’s policy to allocate lands to the landless is not subject to real estate
dealer’s tax. The business activity of the landowner in selling the land involves an isolated transaction
with its peculiar circumstances and not to be considered as an act of a dealer even though there were
hundreds of vendees.
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”.
Representation expenses are deductible from gross income as expenditures incurred in carrying on a
business or trade provided that they are reasonable in amount, ordinary and necessary, and incurred
in connection with the taxpayer’s business.
Contributions to a government entity is deductible when used exclusively for public purpose.
A tax credit is not specifically defined in our Tax Code, but Art. 21 of EO 226 defines a tax credit as
“any of the credits against taxes and/or duties equal to those actually paid or would have been paid to
evidence which a tax credit certificate shall be issued by the Secretary of Finance or his
representative, or the Board (of Investments), if so delegated by the Secretary of Finance.” A tax
credit generally refers to an amount that may be “subtracted directly from one’s total tax liability.” It is
therefore an “allowance against the tax itself” or “a deduction from what is owed” by a taxpayer to the
government. A TCC is a certification, duly issued to the taxpayer named therein, by the
Commissioner or his duly authorized representative, reduced in a BIR Accountable Form in
accordance with the prescribed formalities, acknowledging that the grantee taxpayer named therein
is legally entitled a tax credit, the money value of which may be used in payment or in satisfaction of
any of his internal revenue tax liability (except those excluded), or may be converted as a cash
refund, or may otherwise be disposed of in the manner and in accordance with the limitations, if any,
as may be prescribed by the provisions of these Regulations.
From the above definitions, it is clear that a TCC is an undertaking by the government through the
BIR or DOF, acknowledging that a taxpayer is entitled to a certain amount of tax credit from either an
overpayment of income taxes, a direct benefit granted by law or other sources and instances granted
by law such as on specific unused input taxes and excise taxes on certain goods. As such, tax credit
is transferable in accordance with pertinent laws, rules, and regulations. Therefore, the TCCs are
immediately valid and effective after their issuance.
The foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to pay or settle
tax liabilities of the grantee or transferee, as they do not make the effectivity and validity of the TCC
dependent on the outcome of a post-audit. Clearly, a tax payment through a TCC cannot be both
effective when made and dependent on a future event for its effectivity. Our system of laws and
procedures abhors ambiguity.
The inescapable conclusion is that the TCCs are not subject to post-audit as a suspensive condition,
and are thus valid and effective from their issuance. As such, in the present case, if the TCCs have
already been applied as partial payment for the tax liability of PSPC, a postaudit of the TCCs cannot
simply annul them and the tax payment made through said TCCs. Payment has already been made
and is as valid and effective as the issued TCCs. The subsequent post-audit cannot void the TCCs
and allow the respondent to declare that utilizing canceled TCCs results in nonpayment on the part of
PSPC.
PSPC cannot be blamed for relying on the Center’s approval for the transfers of the subject TCCs
and the Center’s acceptance of the TCCs for the payment of its excise tax liabilities. Likewise, PSPC
cannot be faulted in relying on the BIR’s acceptance of the subject TCCs as payment for its excise
tax liabilities. This reliance is supported by the fact that the subject TCCs have passed through
stringent reviews starting from the claims of the transferors, their issuance by the Center, the Center’s
approval for their transfer to PSPC, the Center’s acceptance of the TCCs to pay PSPC’s excise tax
liabilities through the issuance of the Center’s TDM, and finally the acceptance by the BIR of the
subject TCCs as payment through the issuance of its own TDM and ATAPETs. Therefore, PSPC
cannot be prejudiced by the Center’s turnaround in assailing the validity of the subject TCCs which it
issued in due course.
We are of the view that the subject TCCs cannot be canceled by the Center as these had already
been canceled after their application to PSPC’s excise tax liabilities. PSPC contends they are already
functus officio, not quite in the sense of being no longer effective, but in the sense that they have
been used up. When the subject TCCs were accepted by the BIR through the latter’s issuance of
TDM and the ATAPETs, the subject TCCs were duly canceled. The tax credit of a taxpayer
evidenced by a TCC is used up or, in accounting parlance, debited when applied to the taxpayer’s
internal revenue tax liability, and the TCC canceled after the tax credit it represented is fully debited
or used up. A credit is a payable or a liability. A tax credit, therefore, is a liability of the government
evidenced by a TCC. Thus, the tax credit of a taxpayer evidenced by a TCC is debited by the BIR
through a TDM, not only evidencing the payment of the tax by the taxpayer, but likewise deducting or
debiting the existing tax credit with the amount of the tax paid.
In the instant case, with due application, approval, and acceptance of the payment by PSPC of the
subject TCCs for its then outstanding excise tax liabilities in 1992 and 1994 to 1997, the subject
TCCs have been canceled as the money value of the tax credits these represented have been used
up. Therefore, the DOF through the Center may not now cancel the subject TCCs as these have
already been canceled and used up after their acceptance as payment for PSPC’s excise tax
liabilities. What has been used up, debited, and canceled cannot anymore be declared to be void,
ineffective, and canceled anew. Besides, it is indubitable that with the issuance of the corresponding
TDM, not only is the TCC canceled when fully utilized, but the payment is also final subject only to a
post-audit on computational errors.
Parenthetically, while a taxpayer is given the choice whether to claim for refund or have its excess
taxes applied as tax credit for the succeeding taxable year, such election is not final. Prior verification
and approval by the Commissioner of Internal Revenue is required. The availment of the remedy of
tax credit is not absolute and mandatory. It does not confer an absolute right on the taxpayer to avail
of the tax credit scheme if it so chooses. Neither does it impose a duty on the part of the government
to sit back and allow an important facet of tax collection to be at the sole control and discretion of the
taxpayer.
As clearly seen from this provision, the taxpayer is allowed three (3) options if the sum of its quarterly
tax payments made during the taxable year is not equal to the total tax due for that year: (a) pay the
balance of the tax still due; (b) carry-over the excess credit; or (c) be credited or refunded the amount
paid. If the taxpayer has paid excess quarterly income taxes, it may be entitled to a tax credit or
refund as shown in its final adjustment return which may be carried over and applied against the
estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years.
However, once the taxpayer has exercised the option to carry-over and to apply the excess quarterly
income tax against income tax due for the taxable quarters of the succeeding taxable years, such
option is irrevocable for that taxable period and no application for cash refund or issuance of a tax
credit certificate shall be allowed.
Taxation is a destructive power which interferes with the personal and property rights of the people
and takes from them a portion of their property for the support of the government. And since taxes are
what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions
from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. A claim of refund or exemption from tax
payments must be clearly shown and be based on language in the law too plain to be mistaken.
Elsewise stated, taxation is the rule, exemption therefrom is the exception.
This raises the question of whether the State, in promoting the health and welfare of a special group
of citizens, can impose upon private establishments the burden of partly subsidizing a government
program. The Court believes so. The Senior Citizens Act was enacted primarily to maximize the
contribution of senior citizens to nation-building, and to grant benefits and privileges to them for their
improvement and well-being as the State considers them an integral part of our society.
As the protection and promotion of the sugar industry is a matter of public concern, the Legislature
may determine within reasonable bounds what is necessary for its protection and expedient for its
promotion. Here, the legislative discretion must be allowed full play, subject only to the test of
reasonableness; and it is not contended that the means provided in section 6 of Commonwealth Act
No. 567 bear no relation to the objective pursued or are oppressive in character. If objective and
methods arealike constitutionally valid, no reason is seen why the state may not levy taxes to raise
funds for their prosecution and attainment. Taxation may be made the implement of the state’s police
power
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.
It is settled that a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of compensation because the government and taxpayer
are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off.

The legislature is not required to adhere to a policy of “all or none” in choosing the subject of taxation.

Indeed, regressivity is not a negative standard for courts to enforce. What Congress is required by the
Constitution to do is to “evolve a progressive system of taxation.” This is a directive to Congress, just
like the directive to it to give priority to the enactment of laws for the enhancement of human dignity
and the reduction of social, economic and political inequalities (Art. XIII, § 1), or for the promotion of
the right to “quality education” (Art. XIV, § 1). These provisions are put in the Constitution as moral
incentives to legislation, not as judicially enforceable rights.