General Principles of Taxation
A. Taxation in General
a.1. Taxation concept inherent power of the
State, through the legislative body, to raise
revenues for the purpose of defraying the
expenses of government
Q: Does the Constitution contain a provision
granting taxation power to the State?
A: There is no provision in the Constitution
granting such power. The power to tax is
inherent in the State and therefore requires no
constitutional grant in order to exercise the
same. What the Constitution contains are
provisions limiting such power of taxation.
Q: What is meant by the power to tax is the
power to destroy and is it applicable in the
Philippine jurisdiction?
A: The power to tax is the power to destroy is
in reference to the fact that taxation is plenary
and therefore generally unlimited, so that it
applies to anything that can be subjected to tax,
even income arising from an illegal enterprise
and even to the extent that it becomes
confiscatory. However, while the power to tax is
the power to destroy, this is not so while the
Supreme Court sits, because such power is still
subject to judicial review. So that, in sum, the
principle that the power to tax is the power to
destroy refers to the vigor with which the power
may be exercised and not to its purpose.
Moreover, this theory only applies in Philippine
jurisdiction on the presumption that such power
is validly exercised. Such power is validly
exercised if it does not contravene the
limitations imposed by the Constitution and by
law.
a.2. Nature and Scope of the Power of
Taxation
Art. V, Section 28(20): Legislative Powers
(Plenary)
Art. X, Section 5: Taxation Power of LGU
NATURE:
o an attribute of sovereignty
o inherent
o legislative in character
SCOPE:
Legislative taxing power extends to the
following:
o subject of taxation (person, property or
occupation, excises and privileges)
o rates or amount
o kinds
o purpose (must be for a public purpose)
o situs (jurisdiction)
o method of collection
Churchill and Tait v. Concepcion, G.R. No.
11572, Sept. 22, 1916
The power to impose taxes is one so
unlimited in force and so searching in extent,
that the courts scarcely venture to declare that
it is subject to any restrictions whatever, except
such as rest in the discretion of the authority
which exercises it. It reaches to every trade or
occupation; to every object of industry, use, or
enjoyment; to every species of possession; and
it imposes a burden which, in case of failure to
discharge it, may be followed by seizure and
sale or confiscation of property. No attribute of
sovereignty is more pervading, and at no point
does the power of the government affect more
constantly and intimately all the relations of life
than through the exactions made under it."
(Cooley's Constitutional Limitations, 6th Edition,
p. 587.)
a.3. Theory of Taxation, Basis or Rationale
of Taxation
THEORY:
o Necessity Theory the government is
necessary since the exercise of
governmental functions redounds to the
benefit of society; this can only be
achieved by raising revenues
o Symbiotic Theory (Benefits-Protection)
government needs revenues to defray
expenses; the public benefit from
government
BASIS: Life-blood Theory (taxes are necessary)
RATIONALE:
o Symbiotic relationship between State
and tax-paying public
o State has jurisdiction over the taxpayer
NPC v. City of Cabanatuan, G.R. No. 149110,
April 9, 2003
Taxes are the lifeblood of the government, for
without taxes, the government can neither exist
nor endure. A principal attribute of sovereignty,
the exercise of taxing power derives its source
from the very existence of the state whose
social contract with its citizens obliges it to
promote public interest and common good. The
theory behind the exercise of the power to tax
emanates from necessity; without taxes,
government cannot fulfill its mandate of
promoting the general welfare and well-being of
the people.
CIR v. Algue, G.R. No. L-28896, Feb. 17, 1988
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.
But even as we concede the inevitability and
indispensability of taxation, it is a requirement in
all democratic regimes that it be exercised
reasonably and in accordance with the
prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts
will then come to his succor. For all the
awesome power of the tax collector, he may still
be stopped in his tracks if the taxpayer can
demonstrate, as it has here, that the law has
not been observed.
Phil. Bank of Communications v. CIR, G.R. No.
112024, Jan. 28, 1999
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. [Napocor vs. Province of Albay,
186 SCRA 198 (1990), at p. 207.] 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. [Teodoro and de Leon, Law on
Income Taxation, 1993 ed., at 485.]
fundamental is the rule that the State cannot
be put in estoppel by the mistakes or errors of
its officials or agents.
a.4. Extent of the Taxing Power
Tio v. Videogram Regulatory Board, G.R. No. L-
75697, June 18, 1987
a tax does not cease to be valid merely
because it regulates, discourages, or even
definitely deters the activities taxed. The power
to impose taxes is one so unlimited in force and
so searching in extent, that the courts scarcely
venture to declare that it is subject to any
restrictions whatever, except such as rest in the
discretion of the authority which exercises it. In
imposing a tax, the legislature acts upon its
constituents. This is, in general, a sufficient
security against erroneous and oppressive
taxation.
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 inequities which
result from a singling out of one particular class
for taxation or exemption infringe no
constitutional limitation. Taxation has been
made the implement of the states police power.
a.5. Purpose and Objectives of Taxation
1. raise revenue
2. regulate
3. promote general welfare
4. reduce social inequality
5. encourage economic growth
compensatory because the power to tax
necessarily includes the power to grant
tax exemption, providing tax incentives
for investors
6. implement of eminent domain
Sumptuary Purpose of Taxation non-
revenue raising purpose of taxation; refers to
regulatory purpose
Caltex Philippines, Inc. v. COA, G.R. No.
92585, May 8, 1992
POLICE POWER: 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.
NO OFFSET: It is settled that a taxpayer may
not offset taxes due from the claims that he
may have against he 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.
Batangas Power Corp. v. Batangas City, G.R.
No. 152675, April 28, 2004
SOCIAL JUSTICE AND EQUITABLE
DISTRIBUTION OF WEALTH: In recent years,
the increasing social challenges of the times
expanded the scope of state activity, and
taxation has become a tool to realize social
justice and the equitable distribution of wealth,
economic progress and the protection of local
industries as well as public welfare and similar
objectives. Taxation assumes even greater
significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no
longer vested exclusively on Congress; local
legislative bodies are now given direct authority
to levy taxes, fees and other charges pursuant
to Article X, section 5 of the 1987 Constitution.
Southern Cross Cement Corp. v. Cement
Manufacturers Association of the Phils., G.R.
No. 158540, Aug. 3, 2005
(HOLY CRAP, CHECK OUT THE INTRO!!!! ^.^)
Cement is hardly an exciting subject for
litigation. Still, the parties in this case have
done their best to put up a spirited advocacy of
their respective positions, throwing in
everything including the proverbial kitchen sink.
At present, the burden of passion, if not proof,
has shifted to public respondents Department of
Trade and Industry (DTI) and private
respondent Philippine Cement Manufacturers
Corporation (Philcemcor),[1] who now seek
reconsideration of our Decision dated 8 July
2004 (Decision), which granted the petition of
petitioner Southern Cross Cement Corporation
(Southern Cross).
This case, of course, is ultimately not just about
cement. For respondents, it is about love of
country and the future of the domestic industry
in the face of foreign competition. For this
Court, it is about elementary statutory
construction, constitutional limitations on the
executive power to impose tariffs and similar
measures, and obedience to the law. Just as
much was asserted in the Decision, and the
same holds true with this present Resolution.
POWER OF PRESIDENT TO IMPOSE TARIFF
RATES: Without Section 28(2), Article VI, the
executive branch has no authority to impose
tariffs and other similar tax levies involving the
importation of foreign goods. Assuming that
Section 28(2) Article VI did not exist, the
enactment of the SMA by Congress would be
voided on the ground that it would constitute an
undue delegation of the legislative power to tax.
The constitutional provision shields such
delegation from constitutional infirmity, and
should be recognized as an exceptional grant of
legislative power to the President, rather than
the affirmation of an inherent executive power.
QUALIFIERS: This being the case, the
qualifiers mandated by the Constitution on this
presidential authority attain primordial
consideration: (1) there must be a law; (2) there
must be specified limits; and (3) Congress may
impose limitations and restrictions on this
presidential authority.
POWER EXERCISED BY ALTER EGOS OF
PRES: The Court recognizes that the authority
delegated to the President under Section 28(2),
Article VI may be exercised, in accordance with
legislative sanction, by the alter egos of the
President, such as department secretaries.
Indeed, for purposes of the Presidents exercise
of power to impose tariffs under Article VI,
Section 28(2), it is generally the Secretary of
Finance who acts as alter ego of the President.
The SMA provides an exceptional instance
wherein it is the DTI or Agriculture Secretary
who is tasked by Congress, in their capacities
as alter egos of the President, to impose such
measures. Certainly, the DTI Secretary has no
inherent power, even as alter ego of the
President, to levy tariffs and imports.
TARIFF COMMISSION AND DTI SEC ARE
AGENTS: Concurrently, the tasking of the Tariff
Commission under the SMA should be likewise
construed within the same context as part and
parcel of the legislative delegation of its
inherent power to impose tariffs and imposts to
the executive branch, subject to limitations and
restrictions. In that regard, both the Tariff
Commission and the DTI Secretary may be
regarded as agents of Congress within their
limited respective spheres, as ordained in the
SMA, in the implementation of the said law
which significantly draws its strength from the
plenary legislative power of taxation. Indeed,
even the President may be considered as an
agent of Congress for the purpose of imposing
safeguard measures. It is Congress, not the
President, which possesses inherent powers to
impose tariffs and imposts. Without legislative
authorization through statute, the President has
no power, authority or right to impose such
safeguard measures because taxation is
inherently legislative, not executive.
When Congress tasks the President or his/her
alter egos to impose safeguard measures under
the delineated conditions, the President or the
alter egos may be properly deemed as agents
of Congress to perform an act that inherently
belongs as a matter of right to the legislature. It
is basic agency law that the agent may not act
beyond the specifically delegated powers or
disregard the restrictions imposed by the
principal. In short, Congress may establish the
procedural framework under which such
safeguard measures may be imposed, and
assign the various offices in the government
bureaucracy respective tasks pursuant to the
imposition of such measures, the task
assignment including the factual determination
of whether the necessary conditions exists to
warrant such impositions. Under the SMA,
Congress assigned the DTI Secretary and the
Tariff Commission their respective functions in
the legislatures scheme of things.
There is only one viable ground for challenging
the legality of the limitations and restrictions
imposed by Congress under Section 28(2)
Article VI, and that is such limitations and
restrictions are themselves violative of the
Constitution. Thus, no matter how distasteful or
noxious these limitations and restrictions may
seem, the Court has no choice but to uphold
their validity unless their constitutional infirmity
can be demonstrated.
What are these limitations and restrictions that
are material to the present case? The entire
SMA provides for a limited framework under
which the President, through the DTI and
Agriculture Secretaries, may impose safeguard
measures in the form of tariffs and similar
imposts.
POWER BELONGS TO CONGRESS: the
cited passage from Fr. Bernas actually states,
Since the Constitution has given the President
the power of control, with all its awesome
implications, it is the Constitution alone which
can curtail such power. Does the President
have such tariff powers under the Constitution
in the first place which may be curtailed by the
executive power of control? At the risk of
redundancy, we quote Section 28(2), Article VI:
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. Clearly the power to impose
tariffs belongs to Congress and not to the
President.
CIR v. Central Luzon Drug Corp., G.R. No.
159647, April 15, 2005
EMINENT DOMAIN: The concept of public use
is no longer confined to the traditional notion of
use by the public, but held synonymous with
public interest, public benefit, public welfare,
and public convenience. The discount privilege
to which our senior citizens are entitled is
actually a benefit enjoyed by the general public
to which these citizens belong. The discounts
given would have entered the coffers and
formed part of the gross sales of the private
establishments concerned, were it not for RA
7432. The permanent reduction in their total
revenues is a forced subsidy corresponding to
the taking of private property for public use or
benefit.
As a result of the 20 percent discount imposed
by RA 7432, respondent becomes entitled to a
just compensation. This term refers not only to
the issuance of a tax credit certificate indicating
the correct amount of the discounts given, but
also to the promptness in its release. Equivalent
to the payment of property taken by the State,
such issuance -- when not done within a
reasonable time from the grant of the discounts
-- cannot be considered as just compensation.
Besides, the taxation power can also be
used as an implement for the exercise of the
power of eminent domain. Tax measures are
but enforced contributions exacted on pain of
penal sanctions and clearly imposed for a
public purpose. In recent years, the power to
tax has indeed become a most effective tool to
realize social justice, public welfare, and the
equitable distribution of wealth.
a.6. Characteristics of a Sound Tax System
1. Fiscal Adequacy meet requirements of
government
2. Theoretical Justice progressivity;
based on taxpayers ability to pay
3. Administrative Feasibility enforcement
should be effective and simple
a.7. Aspects of Taxation
1. Levy determine persons, property or
excises to be taxed, their amount and
due date, time and manner (taxation
proper)
2. Collection manner of enforcement;
includes assessment and administration
by BIR (subordinate legislation) (tax
administration)
a.8. Taxation distinguished
v. POLICE POWER (code: PABAT)
1. As to purpose Taxation is to raise
revenue; Police Power is to promote
public welfare.
2. As to amount Taxation has no limit;
Police Power is limited to the cost of
regulation, issuance of license or
surveillance
3. As to benefits Taxation offers no
special or direct benefit other than
benefit to the general public; Police
Power is to promote a healthy economic
standard.
4. As to applicability of non-impairment of
contracts clause It applies in taxation;
It does not apply in police power,
EXCEPT if the grant of franchise was for
a valuable consideration.
5. As to transfer of property rights
Taxation involves transfer of public
funds or money; Police Power does not
contemplate a transfer but merely
restraint on property taken or destroyed.
v. POWER OF EMINENT DOMAIN (code:
NCAPA)
1. As to nature Taxation is the power to
raise revenue; Eminent Domain is the
taking of property for public use.
2. As to compensation Compensation for
taxation takes the form of a general
benefit to the public; in eminent domain,
there must be just compensation.
3. As to applicability of non-impairment of
contracts clause It applies in taxation;
it does not apply in eminent domain.
4. As to persons affected Taxation
affects all subject to the States
jurisdiction; eminent domain affects only
the particular property.
5. As to authority Taxation is exercised
by the government; Eminent Domain
may be exercised by private entities
exercising public functions.
B. Limitations of the Taxing Power
b.1. Inherent Limitations
(1) Public Purpose this is presumed
Gomez v. Palomar, G.R. No. L-23645, Oct. 29,
1968
The eradication of a dreaded disease is a public
purpose, but if by public purpose the petitioner
means benefit to a taxpayer as a return for what
he pays, then it is sufficient answer to say that
the only benefit which the taxpayer is
constitutionally entitled is that derived from his
enjoyment of the privileges of living in an
organized society, established and safeguarded
by the devotion of taxes to public purposes
Pascual v. Secretary of Public Works, G.R. No.
L-10405, Dec. 29, 1960
In accordance with the rule that the taxing
power must be exercised for public purposes
only, money raised by taxation can be
expanded only for public purposes and not for
the advantage of private individuals.
Public funds may be used for a public
purpose. The right of the legislature to
appropriate funds is correlative with its right to
tax, under constitutional provisions against
taxation except for public purposes and
prohibiting the collection of a tax for one
purpose and the devotion thereof to another
purpose, no appropriation of state funds can be
made for other than a public purpose.
(2) Observe International Comity there
must be reciprocity
Art. II, Section 2. The Philippines renounces
war as an instrument of national policy, adopts
the generally accepted principles of
international law as part of the law of the land
and adheres to the policy of peace, equality,
justice, freedom, cooperation, and amity with all
nations.
Sec. 32(B)(7)(a), NIRC: Income Derived by
Foreign Government. - Income derived from
investments in the Philippines in loans, stocks,
bonds or other domestic securities, or from
interest on deposits in banks in the Philippines
by (i) foreign governments, (ii) financing
institutions owned, controlled, or enjoying
refinancing from foreign governments, and (iii)
international or regional financial institutions
established by foreign governments.
(3) No Improper Delegation, exceptions
- under Flexible Tariff Clause, President may
fix:
o tariff rates
o import-export quotas
o tonnage and wharfage duties
o other duties and imposts within the
framework of the national government
program
- LGU (General Welfare Clause)
- administrative agencies:
o fix the value of property
o assess and collect taxes
o perform details of computation
o appraisement and adjustment
(4) Limited to the Territorial Jurisdiction
SITUS (Sec. 23, NIRC)
Citizens
o Resident Citizens taxed on all sources
of income inside or outside the
Philippines (based on nationality
principle)
o Non-resident Citizens taxed on all
sources within the Philippines
Aliens
o Resident Aliens taxed on all sources
within the Philippines
o Non-resident Aliens (whether engaged
in business or not) taxed on all
sources within the Philippines
NOTA BENE: Only resident citizens are taxed
on all sources of income within or without the
Philippines.
FACTORS AFFECTING SITUS OF TAXATION:
o kind or classification of tax
o situs of the thing or property taxed
o domicile or residence of the person
taxed
o citizenship or nationality of the person
taxed
o source of the income taxed
o situs of the excise, privilege, business or
occupation being taxed
NOTA BENE: Situs of taxation for personal
property follows the principle of mobilia
sequuntur personam (personal property follows
the person), EXCEPT shares of stock the situs
of which is based on where the corporation has
its principal place of business. Situs of taxation
for real property is lex rei sitae (where the
property is located).
CIR v. Japan Airlines, Inc., G.R. No. 60714,
Oct. 4, 1991
The source of 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. In BOACs case, the sale of tickets
in the Philippines is the activity that produces
the income. The tickets exchanged hands here
and payments for fares were also made here in
the Philippine currency. The situs of the source
of payments is the Philippines. The flow of
wealth proceeded from, and occurred within,
Philippine territory, enjoying the protection
accorded by the Philippine government. In
consideration of such protection, the flow of
wealth should share the burden of supporting
the government.
The absence of flight operations to and from the
Philippines is not determinative of the source of
income or the situs of income taxation. The test
of taxability is the source; and the source of an
income is that activity which produced the
income.
South African Airways v. CIR, CTA 6760, June
9, 2005
It has been consistently ruled that the source of
income is the property, activity or service that
produced the income and, in order that the
source of income to be considered as coming
from the Philippines, it is enough that the
income is derived from activity within the
Philippines.
The absence of flight operations to and from the
Philippines is not determinative of the source of
income or the situs of income taxation.
Petitioner admitted that it sells passage
documents in the Philippines through its sales
agent. Petitioner, thus, is deriving revenues
from the conduct of its business activity
regularly pursued within the Philippines.
Petitioner is therefore a resident foreign
corporation engaged in trade or business in the
country within the purview of our tax law and is
therefore subject to tax. As held in
Commissioner of Internal Revenue vs.
American Airlines, Inc.:
xxx foreign airline companies which sold
tickets in the Philippines through their local
agents, whether called liaison offices, agencies
or branches, were considered resident foreign
corporations engaged in trade or business in
the country. Such activities show continuity of
commercial dealings or arrangements and
performance of acts or works or the exercise of
some functions normally incident to and in
progressive prosecution of commercial gain or
for the purpose and object of the business
organization.
National Development Co. v. CIR, G.R. No. L-
53961, June 30, 1987
The Japanese shipbuilders were liable to tax on
the interest remitted to them. The petitioner
argues that the Japanese shipbuilders were not
subject to tax under the above provision
because all the related activities the signing of
the contract, the construction of the vessels, the
payment of the stipulated price, and their
delivery to the NDC were done in Tokyo. The
law, however, does not speak of activity but of
source, which in this case is the NDC. This is
a domestic and resident corporation with
principal offices in Manila.
The Governments right to levy and collect
income tax on interest received by foreign
corporations not engaged in trade or business
within the Philippine sis not planted upon the
condition that the activity or labor and the
sale form which the (interest) income flowed
had its situs in the Philippines. The law
specifies: interest derived from sources within
the Philippines. Nothing there speaks of the
act or activity of non-resident corporations in
the Philippines, or place where the contract is
signed. The residence of the obligor who pays
the interest rather than the physical location of
the securities, bonds, or notes or the place of
payment, is the determining factor of the source
of interest income.
(5) Exemption of Government Entities
inherent exemption, but Government may tax
itself
Sec. 27(C), NIRC: Government-owned or
Controlled-Corporations, Agencies or
Instrumentalities. - The provisions of existing
special or general laws to the contrary
notwithstanding, all corporations, agencies, or
instrumentalities owned or controlled by the
Government, except the Government Service
Insurance System (GSIS), the Social Security
System (SSS), the Philippine Health Insurance
Corporation (PHIC), the Philippine Charity
Sweepstakes Office (PCSO) and the Philippine
Amusement and Gaming Corporation
(PAGCOR), shall pay such rate of tax upon
their taxable income as are imposed by this
Section upon corporations or associations
engaged in s similar business, industry, or
activity.
Sec. 32(B)(7)(b), NIRC: Income Derived by the
Government or its Political Subdivisions. -
Income derived from any public utility or from
the exercise of any essential governmental
function accruing to the Government of the
Philippines or to any political subdivision
thereof.
Sec. 30(1), NIRC

b.2. Constitutional Limitations
(1) Indirect
a) Due Process and Equal Protection Clause
Art. III, Section 1. 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.
b) Freedom of the Press
Art. III, Section 4. 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.
c) Religious Freedom
Art. III, Section 5. 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.
d) Non-impairment Clause
Art. III, Section 10. No law impairing the
obligation of contracts shall be passed.
Art. XII, Section 11. No franchise, certificate, or
any other form of authorization for the operation
of a public utility shall be granted except to
citizens of the Philippines or to corporations or
associations organized under the laws of the
Philippines, at least sixty per centum of whose
capital is owned by such citizens; nor shall such
franchise, certificate, or authorization be
exclusive in character or for a longer period
than fifty years. Neither shall any such franchise
or right be granted except under the condition
that it shall be subject to amendment, alteration,
or repeal by the Congress when the common
good so requires. The State shall encourage
equity participation in public utilities by the
general public. The participation of foreign
investors in the governing body of any public
utility enterprise shall be limited to their
proportionate share in its capital, and all the
executive and managing officers of such
corporation or association must be citizens of
the Philippines.
e) Law-Making Process
Art. VI, Section 26. (1) Every bill passed by the
Congress shall embrace only one subject which
shall be expressed in the title thereof.
(2) No bill passed by either House shall be
come a law unless it has passed three readings
on separate days, and printed copies thereof in
its final form have been distributed to its
Members three days before its passage, except
when the President certifies to the necessity of
its immediate enactment to meet a public
calamity or emergency. Upon the last reading of
a bill, no amendment thereto shall be allowed,
and the vote thereon shall be taken immediately
thereafter, and the yeas and nays entered in
the Journal.
(2) Direct
a) Non-Imprisonment
Art. III, Section 20. No person shall be
imprisoned for debt or non-payment of a poll
tax.
b) Uniform & Equitable
Art. VI, Section 28. (1) The rule of taxation shall
be uniform and equitable. The Congress shall
evolve a progressive system of taxation.
(2) The Congress may, by law, authorize the
President to fix within specified limits, and
subject to such limitations and restrictions as it
may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the
national development program of the
Government.
(3) 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.
(4) No law granting any tax exemption shall be
passed without the concurrence of a majority of
all the Members of the Congress.
c) Progressive System (Sec. 28 (1), Art. VI)
d) ART Bill
Art. VI, Section 24. 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.
e) Presidents Power to Veto
Art. VI, Section 27 (2) 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.
f) Delegated Authority of the President (Sec.
28 (2), Art. VI)
g) Exemption from Tax (Sec. 28 (3), Art. VI)
h) Congress concurrence (Sec. 28 (4), Art.
VI)
i) No religious purpose
Art. VI, Sec. 29 (2): No public money or
property shall be appropriated, applied, paid, or
employed, directly or indirectly, for the use,
benefit, or support of any sect, church,
denomination, sectarian institution, or system of
religion, or of any priest, preacher, minister,
other religious teacher, or dignitary as such,
except when such priest, preacher, minister, or
dignitary is assigned to the armed forces, or to
any penal institution, or government orphanage
or leprosarium.
j) Special purpose
Art. VI, Sec. 29 (3): All money collected on any
tax levied for a special purpose shall be treated
as a special fund and paid out for such purpose
only. If the purpose for which a special fund
was created has been fulfilled or abandoned,
the balance, if any, shall be transferred to the
general funds of the Government.
k) Judicial Review
Art. VIII, Section 5. The Supreme Court shall
have the following powers:
1) Exercise original jurisdiction over cases
affecting ambassadors, other public ministers
and consuls, and over petitions for certiorari,
prohibition, mandamus, quo warranto, and
habeas corpus.
(2) 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:
(a) All cases in which the constitutionality or
validity of any treaty, international or executive
agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or
regulation is in question.
(b) All cases involving the legality of any tax,
impost, assessment, or toll, or any penalty
imposed in relation thereto.
(c) All cases in which the jurisdiction of any
lower court is in issue.
(d) All criminal cases in which the penalty
imposed is reclusion perpetua or higher.
(e) All cases in which only an error or question
of law is involved.
(3) Assign temporarily judges of lower courts to
other stations as public interest may require.
Such temporary assignment shall not exceed
six months without the consent of the judge
concerned.
(4) Order a change of venue or place of trial to
avoid a miscarriage of justice.
(5) Promulgate rules concerning the protection
and enforcement of constitutional rights,
pleading, practice, and procedure in all courts,
the admission to the practice of law, the
integrated bar, and legal assistance to the
under-privileged. Such rules shall provide a
simplified and inexpensive procedure for the
speedy disposition of cases, shall be uniform
for all courts of the same grade, and shall not
diminish, increase, or modify substantive rights.
Rules of procedure of special courts and quasi-
judicial bodies shall remain effective unless
disapproved by the Supreme Court.
(6) Appoint all officials and employees of the
Judiciary in accordance with the Civil Service
Law.
TAX PAYERS SUIT proper when there is
illegal disbursement of public funds derived
from taxation. But note that even if the taxpayer
questions the constitutionality of the law, he is
not excused from paying his taxes because of
the life-blood theory.
l) Delegated authority to LGU
Art. X, Section 5. 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.
Art. X, Section 6. Local government units shall
have a just share, as determined by law, in the
national taxes which shall be automatically
released to them.
m) Tax exemptions
Art. XIV, Sec. 4 (3): 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.
Sec. 30(H), NIRC: Exemptions from Tax on
Corporations -- A nonstock and nonprofit
educational institution.
NOTA BENE: Income from school canteens
and bookstores which is incidental to the
schools primary purpose is included in the
exemption. But such school canteens and
bookstores must be owned by the school and
located in the school campus.
ABAKADA Guro Party List v. Ermita, G.R. No.
168056, Sept. 1, 2005
Is there undue delegation of legislative
power since the law gives the President
stand-by authority to raise the VAT rate to
12%? The authority does not refer to the power
of the President to fix tariff rates. Neither is it a
delegation of legislative power. It is simply a
delegation of ascertainment of facts upon which
enforcement and administration of the increase
rate under the law is contingent. The legislature
has made the operation of the 12% rate
effective Jan. 1, 2006, contingent upon a
specified fact or condition. It leaves the entire
operation or non-operation of the 12% rate
upon factual matters outside the control of the
executive. It is the ministerial duty of the
President to immediately impose the 12% rate
upon the existence of any of the conditions
specified by Congress.
Is there violation of due process clause as it
imposes an unfair and additional tax burden
on the people?Petitioners argue that the law
imposes an unfair and additional tax burden on
the people as the law does not provide for the
rate to revert to the original 10% in case the
conditions set forth are no longer satisfied and
as such, people wont know how much is the
rate from year to year. SC said that the law is
clear and unambiguous. The fears of petitioner
is merely speculative as the law itself does not
provide that the rate would go back to 10%.
Does it violate the rule that ART bills should
exclusively originate from the House of
Representatives? No violation. According to
petitioners, the amendments introduced to the
NIRC did not come from the House, but from
the Senate. SC said that 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. A
bill originating from 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. To a insist that a revenue statute
and not only the bill which initiated the
legislative process culminating in the enactment
of the law must substantially be the same as
the House bill would be to deny the Senates
power not only to concur with amendments
but also to propose amendments. It would
violate the coequality of legislative power of the
two houses of Congress and in fact make the
House superior to the Senate. What the
Constitution means is that the initiative for filing
revenue, tariff or tax bills, bills authorizing an
increase of 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. On the other
hand, the senators, who are elected at large,
are expected to approach the same problems
from the national perspective. Both views are
thereby made to bear on the enactment of such
laws.
Does the imposition of limitations on the
amount of input tax that may be claimed
constitute a deprivation of property without
due process of law? There is no deprivation of
property because the input tax in excess of the
output tax is carried over to succeeding quarter
or quarters. In addition, a tax credit certificate
may be applied for any unused input taxes, to
the extent that such input taxes have not been
applied against the input taxes. Such unused
input tax may be used in payment of his other
internal revenue taxes. Moreover, input tax is
not property under the purview of the
Constitution. It is merely a statutory privilege.
Does it violate the equal protection clause
as the limitation on the creditable input tax
is not based on real and substantial
differences to meet a valid
classification? The equal protection clause
does not require the universal application of the
laws on all persons or things without distinction.
This might in fact sometimes result in unequal
protection. What the clause requires is equality
among equals as determined according to a
valid classification. By classification is meant
the grouping of persons or things similar to
each other in certain particulars and different
from all others in these same particulars.
Does violate the progressivity of tax
laws? By its very nature, the VAT is regressive.
Nevertheless, the Constitution does not really
prohibit the imposition of indirect taxes, like the
VAT. What it simply provides is that Congress
shall evolve a progressive system of taxation.
The constitutional provision has been
interpreted to mean simply that direct taxes are
to be preferred and as much as possible,
indirect taxes should be minimized.
Does it violate the principle that tax
collection and revenue should be solely
allocated for public purposes and
expenditures since VAT-registered
establishments are allowed to retain a
portion of the taxes they collect? No
violation. The input tax is the tax paid by a
person, passed on to him by the seller, when he
buys goods. Output tax meanwhile is the tax
due to the person when he sells the goods. In
computing the variables, there are three
possible scenarios: (1) if the input and output
taxes charged are equal, then there is no
payment required; (2) when output taxes
exceed the input taxes, the person shall be
liable for the excess; and (3) if the input taxes
exceed the output taxes, the excess shall be
carried over to the succeeding quarter or
quarters. The 70% limitation on input taxes
does not mean that the establishments retain
the input tax in excess of 70%. It only means
that they can only credit their input tax up to the
extent of 70% of their output tax.
Does it violate uniformity and equitable
taxation? Uniformity in taxation means that all
taxable articles or kinds of property of the same
class shall be taxed at the same rate. Different
articles may be taxed different amounts
provided that the rate is uniform on the same
class everywhere with all people at all times.
The law is uniform as it provides a standard
rate of 0% or 10% (or 12%) on all goods and
services. The law is also equitable as it is
equipped with a threshold margin. Thus the
VAT rate of 0% or 10% (or 12%) does not apply
to sales of goods or services with gross annual
sales or receipts not exceeding P1,500,000.00.
C. Tax
c.1. Tax Defined, Characteristics
Tax enforced proportional contributions,
generally payable in money, from persons,
property, rights and privileges levied by the
legislative body of the State by virtue of its
sovereignty for the support of government and
for public needs.
c.2. Kinds of Taxes
As to subject or object
personal>
propertyAs to who bears the burden
o direct
o indirect
CIR v. PLDT, G.R. No. 140230, Dec. 15, 2005
DIRECT v. INDIRECT TAX: based on the
possibility of shifting the incidence of taxation.
Direct taxes are those that are exacted from the
very person who, it is intended or desired,
should pay them; impositions for which a
taxpayer is directly liable on the transaction or
business he is engaged in. Indirect taxes are
those that are demanded, in the first instance,
from, or are paid by, one person in the
expectation and intention that he can shift the
burden to someone else; liability for the
payment falls on one person but the burden can
be shifted or passed on to another person, such
as when the tax is imposed ex. VAT, advance
sales tax, compensating tax upon goods
before reaching the consumer who ultimately
pays for it. When the seller passes on the tax to
his buyer, he, in effect, shifts the tax burden,
not the liability to pay it, to the purchaser as part
of the price of goods sold or services rendered.
By tacking the VAT due to the selling price, the
seller remains the person primarily and legally
liable for the payment of the tax. What is shifted
only to the intermediate buyer and ultimately to
the final purchaser is the burden of the tax.
Stated differently, a seller who is directly and
legally liable for payment of an indirect tax,
such as VAT on goods and services, is not
necessarily the person who ultimately bears the
burden of the same tax. It is the final purchaser
or end-user of such goods or services who,
although not directly and legally liable for the
payment thereof, ultimately bears the burden of
the tax.
As to determination of amount
o specific
o ad valorem
As to purpose
o general
o special
As to rate
o progressive
o regressive
o proportional
As to imposing authority
o national
o local
c.3. Tax distinguished from other
impositions
v. SPECIAL ASSESSMENT
1. As to subject matter Tax is imposed
on persons, property and excises;
Special Assessment is levied only on
land
2. As to liability imposed upon taxpayer
Tax can be a personal liability or liability
on property of the taxpayer; Special
Assessment cannot be made a personal
liability of the person assessed
3. As to purpose Tax is to generate
revenue; Special Assessment is based
wholly on benefit.
4. As to application Tax is of general and
uniform application; Special Assessment
is exceptional both as to time and
locality.
v. LICENSE
1. As to power Tax is levied in the
exercise of taxation power; License Fee
emanates from police power.
2. As to purpose Tax is to generate
revenue; License Fee is regulatory.>
3. As to amount to be charged Tax is
unlimited; License Fee must be of an
amount sufficient to cover the expenses
of: a) issuing the license; and b) cost of
necessary inspection or police
surveillance
v. TOLL
1. As to nature - Tax is a demand of
sovereignty for the purpose of raising
public revenue; Toll is a demand of
ownership to defray the cost and
maintenance of the property.
v. PENALTY
1. As to kind of liability Tax is a civil
liability; Penalty is a punishment for the
commission of a crime.
v. DEBT
1. As to source Tax is imposed by law;
Debt is imposed by obligation created
by contract.
 2. As to penalty for non-payment Non-
payment of tax may cause a person to
be criminally prosecuted; Non-payment
of debt does not generally give rise to
criminal action or cause a person to be
imprisoned.
3. In Tax there is generally no
compensation because the government
and the taxpayer are not creditors and
debtors as to each other. BUT if both
the tax and the tax refund due to the
taxpayer are due and demandable,
compensation may be proper. In Debt,
compensation may be proper.
DOCTRINE OF EQUITABLE RECOUPMENT
c.4. Sources of Tax Laws, Nature of Tax
Laws
1. NIRC
2. Constitution
3. Tariff and Tax Code
4. Local Government Code
NOTA BENE: Tax laws are civil in nature,
therefore, the rule on ex post facto law
prohibition does not apply. Tax laws may not be
given retroactive effect, even if they are
favorable to the taxpayers. Tax laws are
likewise not political, therefore, they still apply
even if there is a change in government to a
belligerent.
c.5. Interpretation of Tax Laws
Strictissimi juris strictly interpreted against
the government and liberally in favor of the
taxpayer because it involves the imposition of a
tax burden
- EXCEPTION: Tax exemptions are strictly
interpreted against the taxpayer and liberally in
favor of the government because of the life-
blood theory and the equal protection clause
(exemptions are privileges, therefore,
encourages inequality among taxpayers)
Sea Land Service v. CA, G.R. No. 122605, April
30, 2001
STRICTISSIMI JURIS in TAX EXEMPTION:
Laws granting exemption from tax are
construed strictissimi juris against the taxpayer
and liberally in favor of the taxing power.
Taxation is the rule and exemption is the
exception. The law does not look in favor on tax
exemptions and that he who would seek to be
thus privileged must justify it by words too plain
to be mistaken and to categorical to be
misinterpreted.
PURPOSE OF TAX EXEMPTION: Some public
benefit or interest, which the lawmaking body
considers sufficient to affect the monetary loss
entailed in the grant of the exemption.
CIR v. CA, G.R. No. 107135, Feb. 23, 1999
RULE ON EXCEPTIONS: Exceptions, as a
general rule, should be strictly but reasonably
construed. They extend only so far as their
language fairly warrants, and all doubts should
be resolved in favor of the general provisions
rather than the exception. Where the general
rule is established by statute with exceptions,
the court will not curtail the former nor add to
the latter by implication.
STRICTISSIMI JURIS in TAX LAWS: Tax
burdens are not to be imposed, nor presumed
to be imposed beyond what the statute
expressly and clearly imports, tax statutes
being construed strictissimi juris against the
government.
Maceda v. Macaraig, 197 SCRA 771
(Exception to the Exception) STRICTISSIMI
JURIS in GOVERNMENT: It is recognized
principle that the rule on strict interpretation
does not apply in the case of exemptions in
favor of government political subdivisions or
instrumentalities. In the case of property owned
by the state or city or other public corporation,
the express exception should not be construed
with the same degree of strictness that applies
to exemptions contrary to the policy of the state,
since as to such property exception is the rule
and taxation the exception.
c.6. Tax Exemptions
KINDS
(1) express; (2) implied; (3) total; (4) partial; (5)
constitutional; (6) statutory
Art. VI, Sec. 28 (3): 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.
Art. XIV, Sec. 4(3): 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.
NOTA BENE: School canteens and bookstores
are considered as incidental income and are
therefore included in the exemption.
Question:
(1) Is a vacant lot adjacent to a school building
owned by the non-profit, non-stock educational
institution subject to real property taxation,
considering that it is not used actually, directly
and exclusively for educational purposes?
(2) Is the exemption under Art. VI, Sec. 28(3)
regardless of ownership, so that if the land used
by the religious or charitable institution is owned
by a private person, it is still exempted from real
property tax?
Art. XIV, Sec. 4 (4): Subject to conditions
prescribed by law, all grants, endowments,
donations, or contributions used actually,
directly, and exclusively for educational
purposes shall be exempt from tax.
CONSTITUTIONAL RESTRICTIONS
Art. VI, Sec. 28(4): No law granting any tax
exemption shall be passed without the
concurrence of a majority of all the Members of
the Congress.
NOTA BENE: Therefore, the President cannot
grant tax exemptions through executive
agreement. Tax treaties are entered into with
concurrence of the Senate.
EXCEPTIONS
Art. VI, Sec. 28(2): The Congress may, by law,
authorize the President to fix within specified
limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues,
and other duties or imposts within the
framework of the national development program
of the Government.
Art. X, Section 5. 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.
REVOCATION, RESTRICTION
NOTA BENE:
o Tax pyramiding (tax on tax) is
prohibited.
o Tax exemptions are mere privileges so
they can be revoked at any time,
EXCEPT if there was a contract granting
such tax exemption and such contract
was entered into for a valid
consideration.
Coconut Oil Refiners v. Torres, G.R. No.
132527, July 29, 2005
WHO HAS AUTHORITY: It is the legislature,
unless limited by a provision of a state
constitution, that has full power to exempt any
person or corporation or class of property from
taxation, its power to exempt being as broad as
its power to tax. Other than Congress, the
Constitution may itself provide for specific tax
exemptions, or local governments may pass
ordinance on exemption only from local taxes.
v. TAX AMNESTY
1. Tax exemption is prospective. Tax
amnesty is retrospective.
2. Tax exemption is civil. Tax amnesty is
civil and criminal.
3. Tax exemptions cannot be granted
without the concurrence of majority of
Congress. Tax amnesty is the
intentional overlooking by the
 government of tax unpaid and is o Indirect double taxation one or more of
generally considered an executive act. the elements of double taxation are
absent
CIR v. Marubeni Corp., G.R. No. 137377, Dec.
18, 2001 NOTA BENE: Double taxation may be avoided
through various credit schemes specified under
TAX AMNESTY general pardon or intentional the NIRC and exemptions under tax treaties
overlooking by the State of its authority to entered into with foreign governments.
impose penalties on persons otherwise guilty of
evasion or violation of a revenue or tax law;
partakes of an absolute forgiveness or waiver
by the government of its right to collect what is
due it and to give tax evaders a chance to start
with a clean slate; never favored nor presumed
in law; construed strictly against the taxpayer
and liberally in favor of government.

NOTA BENE: In both tax exemptions and tax

amnesties, the rule on strictissimi juris is the
same.

c.7. Tax Avoidance vs. Tax Evasion

1. Tax avoidance is the minimization of tax

liabilities through legal means.
2. Tax evasion is the minimization of tax
liabilities through illegal means with
intent in bad faith or the attendance of
fraud.

Tax Credit vs. Tax Exemption

1. Tax credit contemplates two or more

taxing authorities. Tax exemption
contemplates only one taxing authority.<
2. Tax credit is based on the principle of
reciprocity. Tax exemption is an inherent
power of the sovereign state.

c.8. Concept of Double Taxation; Kinds;

Modes of Eliminating Double Taxation

Double Taxation (Duplicate Taxation)

taxing the same property twice when it should
be taxed only once.

KINDS:

o Direct double taxation same subject,

same purpose, same taxing authority,
same taxing period, same character of
tax (elements of double taxation)