Professional Documents
Culture Documents
The state policy looks into 3 entities: • To say that “the power to tax is the power to
1) The Government destroy” is to describe not the purpose for which the
2) The person or individual taxing power may be used but the degree of vigor
3) Businesses – taxes are important with which the taxing power may be employed in
considerations in entering a business. order to raise revenue. (1 Cooley 179-181)
• The power to tax is an incident of
3. Theories and Basis of Taxation sovereignty and is unlimited in its range,
a. Necessity Theory acknowledging in its very nature no limits, so that
• Existence of a government is a necessity security against its abuse is to be found only in the
and cannot continue without any means to pay responsibility of the legislature which imposes the
for expenses tax on the constituency who are to pay it.
• For those means, the government has the Nevertheless, effective limitations thereon may be
right to compel all citizens and property within imposed by the people through their Constitutions.
its limits to contribute. Our Constitution provides that the rule of taxation
b. Benefits-Protection Theory (Symbiotic) shall be uniform and equitable and Congress shall
• Reciprocal duties of protection and support evolve a progressive system of taxation. So potent
between State and inhabitants. Inhabitants pay indeed is the power that it was once opined that “the
taxes and in return receive benefits and power to tax involves the power to destroy.” Verily,
protection from the State taxation is a destructive power which interferes with
the personal and property rights of the people and
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takes from them a portion of their property for the Manifestations of the Lifeblood Doctrine
support of the government. (MCIAA v. Marcos GR a. Purpose and Objective of Taxation
120082, 11 September 1996) b. Revenue
c. Regulation
Power of Judicial Review in Taxation d. Reduction of Social Inequality
As long as the legislature, in imposing a tax, does e. Encourage Economic Growth
not violate applicable constitutional limitation f. Protectionism
restrictions, the courts have no concern with the wisdom
or policy of the exaction, the political or other collateral Taxes are Personal to the Taxpayer
motives behind it, the amount to be raised, or the 1. A corporation’s tax delinquency cannot be
persons, property or other privileges to be taxed. enforced against its stockholder. (Corporate Entity
The court’s power in taxation is limited only to the Doctrine).
application and interpretation of law. EXCEPT:
a. If it appears that the corporate
Judicial Review, Defined assets have passed into their hands; or
Judicial power includes the duty of the courts of b. When the stockholders have unpaid
justice to settle actual controversies involving rights subscriptions to the capital of the
which are legally demandable and enforceable, and to corporation.
determine whether or not there has been a grave abuse 2. Estate taxes are obligations that must be
of discretion amounting to lack or excess of jurisdiction paid by the executor or administrator out of the net
on the part of any branch or instrumentality of the assets and cannot be assessed against the heirs.
government. EXCEPT:
If prior to the payment of the estate tax
due, the properties of the deceased are
5. Importance of Taxes distributed to the heirs, then the latter is
Lifeblood Doctrine subsidiary liable for the payment of such portion
• Taxes are the lifeblood of the nation of the estate tax as his distributive share bears
• Without revenue raised from taxation, the to the total value of the ent estate.
government will not survive, resulting in detriment
to society. Without taxes, the government would be 6. Purpose and Objective of Taxation
paralyzed for lack of motive power to activate and
operate it. PRIMARY
• Taxes are the lifeblood of the government and there • Revenue – the purpose of taxation is to
prompt and certain availability is an imperious need.
provide funds or property with which the state
• Taxes are the lifeblood of the nation through which promotes the general welfare and protection of its
the agencies of the government continue to operate citizens
and with which the state effects its functions for the
benefit of its constituents • Taxes are for revenue, whereas fees are
• Taxes are the lifeblood of government, and their exactions for purposes of regulation and inspection,
prompt and certain availability an imperious need. and are for that reason limited in amount to what is
Time out of mind, therefore, the sovereign has necessary to cover the cost of the services rendered
resorted to more drastic means of collection. The in that connection. It is the object of the charge, and
assessment is given the force of a judgment, and if not the name, that determines whether a charge is a
the amount assessed is not paid when due, tax or a fee. (PAL v. EDU, GR L-41383, 15 August
administrative officials may seize the debtor's 1988)
property to satisfy the debt.
SECONDARY
In recognition of the fact that erroneous 1) Regulation - it has a regulatory purpose as in the
determinations and assessments will inevitably case of taxes levied on excises or privileges like
occur, the statutes, in a spirit of fairness, invariably those imposed on tobacco and alcoholic products, or
afford the taxpayer an opportunity at some stage to amusement places, etc.
have mistakes rectified (Bull v. US, 295 US 247) 2) Promotion of General Welfare
3) Reduction of Social Inequality – made possible
through the progressive system of taxation where
Illustrations of the Lifeblood Theory the objective is to prevent undue concentration of
Basic is the principle that "taxes are the lifeblood of wealth in the hands of a few individuals.
the nation." The primary purpose is to generate funds for
the State to finance the needs of the citizenry and to
4) Encourage Economic Growth – in the realm of tax
exemptions and tax reliefs, the purpose is to grant
advance the common weal. Due process of law under the
tax incentives or exemptions in order to promote the
Constitution does not require judicial proceedings in tax
country’s economic growth.
cases. This must necessarily be so because it is upon
taxation that the government chiefly relies to obtain the 5) Protectionism – in some sectors of the economy, as
means to carry on its operations and it is of utmost in the case of foreign importations, taxes sometimes
importance that the modes adopted to enforce the provide protection to local industries like protective
collection of taxes levied should be summary and tariffs and customs duties.
interfered with as little as possible. (PBCom v. CIR GR
112024, 28 January 1999) 7. Characteristics or Attributes of Taxes
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a. It is an enforced contribution – payment is Taxation and Eminent Domain – Subject to
mandatory not discretionary. certain constitutional limitations, including the
prohibition against impairment of the obligation of
b. It is generally payable in money – some contracts.
exceptions: (1) when law provides that backpay Police Power – Relatively free from constitutional
certificates or government bonds are acceptable limitations and superior to the non-impairment
for payment of taxes; (2) when property being provisions thereof.
sold at public auction because of delinquent
taxes is declared forfeited and applied to the b. Taxation From Other Monetary
payment of the tax. impositions
c. It is proportionate in character – the tax
burden should be allocated on some reasonable 1) toll – amount charged for the cost and maintenance
basis of apportionment, primarily on the basis of of property used;
ability to pay and secondarily on benefits
received.
2) penalty – punishment for the commission of a
d. It is levied on persons, property, or the crime.
exercise of a right or privilege 3) compromise penalty – amount collected in lieu of
e. It is levied by the State which has criminal prosecution in cases of tax violations;
jurisdiction over the subject or object of taxation 4) special assessment – levied only on land based
f. It is levied by the law-making body of the wholly on the benefit accruing thereon as a result of
State improvements of public works undertaken by
g. It is levied for publics purpose or purposes government within the vicinity.
8. Distinctions 5) license or fee – regulatory imposition in the
a. Taxation From Other Inherent Powers exercise of the police power of the State;
of the State 6) margin fee – exaction designed to stabilize the
TAXATION vs. POLICE POWER vs. EMINENT currency
DOMAIN
7) custom duties and fees – duties charged upon
1) As to purpose: commodities on their being imported into or
Taxation – for the support of the government exported from a country;
Eminent Domain_- for public use
Police Power – to promote general welfare, public
8) debt – a tax is not a debt but is an obligation
health, public morals, and public safety. imposed by law.
9) Subsidy – a legislative grant of money in aid of a
2) As to compensation: private enterprise deemed to promote public
Taxation – Protection and benefits received from the welfare.
government. 10) Revenue – a broad term that includes taxes and
Eminent Domain – just compensation, not to exceed income from other sources as well.
the market value declared by the owner or
administrator or anyone having legal interest in the 11) Impost – in its general sense, it signifies any tax,
property, or as determined by the assessor, tribute or duty. In its limited sense, it means a duty
whichever is lower. on imported goods and merchandise.
Police Power – The maintenance of a healthy
economic standard of society. License Fee v. Tax
If the purpose is primarily revenue, or if revenue is,
3) As to persons affected: at least, one of the real and substantial purposes, then the
Taxation and Police Power – operate upon a exaction is a tax.
community or a class of individuals If the purpose is regulatory in nature, it is a license.
Eminent Domain – operates on the individual
property owner. Special assessment v. tax
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virtue of its sovereignty for the support of the
government and all public needs.
• The amount of the fee or charge is properly
considered in determining whether it is a tax or an
2. Toll is a demand of proprietorship; tax is a demand exercise of the police power. The amount may be so
of sovereignty. large as to itself show that the purpose was to raise
3. Toll is paid for the used of another’s property; tax is revenue and not to regulate, but in regard to this
paid for the support of government. matter there is a marked distinction between license
fees imposed upon useful and beneficial occupations
4. The amount paid as toll depends upon the cost of which the sovereign wishes to regulate but not
construction or maintenance of the public restrict, and those which are inimical and dangerous
improvements used; while there is no limit on the to public health, morals or safety. In the latter case
amount collected as tax as long as it is not the fee may be very large without necessarily being
excessive, unreasonable, or confiscatory. a tax. (PHYSICAL THERAPY ORGANIZATION v.
5. Toll may be imposed by the government or by MUNICIPAL BOARD, 101 PHIL 114)
private individuals or entities; tax may be imposed • The Government and the taxpayer are not mutually
only by the government. creditors and debtors of each other under Article
1278 of the Civil Code and a claim of taxes is not
Tax vs. Penalty such a debt, demand, contract or judgment as is
allowed to be set-off. (FRANCIA VS. INTERMEDIATE
1. Penalty is any sanction imposed as a APPELLATE COURT, GR L-67649, 28 June 1988)
punishment for violation of law or for acts
deemed injurious; taxes are enforced
• Taxes cannot be subject to compensation for the
simple reason that the government and the taxpayer
proportional contributions from persons and
are not creditors and debtors of each other. There is
property levied by the State by virtue of its
a material distinction between a tax and debt. Debts
sovereignty for the support of the government
are due to the Government in its corporate capacity,
and all public needs.
while taxes are due to the Government in its
2. Penalty is designed to regulate conduct; taxes sovereign capacity. (PHILEX MINING v. CIR, GR
are generally intended to generate revenue. 125704 August 28 1998)
3. Penalty may be imposed by the government or • Claim for payment of unpaid services of a
by private individuals or entities; taxes only by government employee vis-à-vis the estate taxes due
the government. from his estate. The fact that the court having
jurisdiction of the estate had found that the claim of
Obligation to Pay Debt vs. Obligation to Pay Tax the estate against the government has been
appropriated for the purpose by a corresponding law
1. A debt is generally based on contract, express or
shows that both the claim of the government for
implied, while a tax is based on laws. inheritance taxes and the claim of the intestate for
2. A debt is assignable, while a tax cannot generally services rendered have already become overdue and
be assigned. demandable as well as fully liquidated.
3. A debt may be paid in kind, while a tax is generally Compensation therefore takes place by operation of
paid in money. law. (Domingo v. Garlitos 8 SCRA 443)
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AS TO SUBJECT MATTER OR OBJECT
1. Personal, poll or capitation tax - Tax of a fixed C. Limitations of Taxation
amount imposed on persons residing within a specified
territory, whether citizens or not, without regard to their Inherent Limitations
property or the occupation or business in which they 1. Legislative in Nature; Non-Delegability
may be engaged, i.e. community tax. of Taxing Power
2. Property tax - Tax imposed on property, real or As a general rule, taxing power may not be delegated. This
personal, in proportion to its value or in accordance with is the right to levy taxes (scope of the legislative power)
some other reasonable method of apportionment. which includes:
a. Object to be taxed
3. Excise tax - A charge impose upon the performance
b. Amount of rate to be taxed
of an act, the enjoyment of privilege, or the engaging in c. Purposes for which the tax is levied provided
an occupation. that it is for a public purpose
d. Kind of tax to be collected
AS TO PURPOSE e. Apportionment of tax
General/fiscal revenue tax is that imposed for the purpose f. Situs of taxation
of raising public funds for the service of the government. g. Method of collection.
A special or regulatory tax is imposed primarily for the
regulation of useful or non-useful occupation or enterprises EXCEPT:
and secondarily only for the purpose of raising public funds.
to the PRESIDENT – “The Congress may, by
law, authorize the President to fix within specified
AS TO WHO BEARS THE BURDEN
limits, and subject to such limitations and restrictions
1. Direct tax - A direct tax is demanded from the as it may impose, tariff rates, import and export
person who also shoulders the burden of the tax. It is a quotas, tonnage and wharfage dues, and other duties
tax which the taxpayer is directly or primarily liable and or imposts within the framework of the national
which he or she cannot shift to another. development program of the Government.” (Sec.
2. Indirect tax - An indirect tax is demanded from a 28[2], Art. VI, 1987 Constitution)
person in the expectation and intention that he or she
shall indemnify himself or herself at the expense of In the interest of national economy, general welfare
another, falling finally upon the ultimate purchaser or and/or national security, the President upon the
consumer. A tax which the taxpayer can shift to another. recommendation of the National Economic and
Development Authority is empowered:
• Transferring some or all of a tax burden of an entity
1) To increase, reduce or remove existing
(such as an employee) to another (such as the
employer). What is shifted is merely the burden of protective rates of import duty, provided that
paying but not the consequences when it is not paid. the increase should not be higher than 100% ad
valorem
2) To establish import quota or to ban imports of
AS TO THE SCOPE OF THE TAX any commodity
1. National tax - imposed by the national government. To impose additional duty on all imports not
2. Local tax - A local tax is imposed by the municipal exceeding 10% ad valorem (Flexible Tariff Clause, SEC.
corporations or local government units (LGUs). 401 Tariff and Customs Code)
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2. Territorial/Situs d. Shares, obligations, or bonds issued by any
The power to tax is limited only to persons, property foreign corporation if such shares, obligations or
or businesses within the jurisdiction or territory of the bonds have acquired a business situs in the
taxing power. Philippines; and
EXCEPT: e. Shares or rights in any partnership business or
A) Where the tax laws operate outside territorial industry established in the Philippines.
jurisdiction
1) TAXATION of resident citizens on their Factors that Determine Situs
incomes derived from abroad a. Kind or classification of the tax being levied
B) Where tax laws do not operate within the b. Situs of the thing or property taxed
territorial jurisdiction of the State c. Citizenship of the tax payer
1) When exempted by treaty obligations d. Residence of the taxpayer
2) When exempted by international comity e. Source of the income taxed
f. Situs of the excise, privilege, business or occupation
being taxed.
KIND OF TAX SITUS g. Method of collection.
Personal or Community Residence or domicile of the
Tax taxpayer 3. It must be imposed for a public purpose.
Real Property Tax Duty Test – whether the thing to be furthered by the
Location of the property appropriation of public revenue is something which is
Personal Property Tax TANGIBLE: where it is physically the duty of the State, as a government, to provide.
located or permanently kept (Waples v. Marrast, 108 Texas 5)
(Lex Rei Sitae)
Promotion of General Welfare Test – whether the
INTANGIBLE: Subject to Sec 104 proceeds of the tax will directly promote the welfare
of the NIRC * and the principle of the community in equal measure. The right to tax
of Mobilia Sequuntur Personam depends upon the ultimate use, purpose and object
** for which the funds is raised. There is no power to tax
Business Tax Place of Business an object which not within the purposes of which the
governments are established.
Excise or Privilege Tax Where the act is performed or
where occupation is pursued
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1) Agencies performing governmental functions >> thereby submit itself to the authority and
TAX EXEMPT, unless when the law expressly jurisdiction of the other.
provides for tax.
Constitutional Limitations
2) Agencies performing proprietary functions >>
TAXABLE, unless exempted by law. 1. Due Process of Law
3) GOCCs >> TAXABLE, at the rate imposed upon DUE PROCESS CLAUSE (Art III Sec 1, 1987 Constitution)
corporations or associations engaged in a similar “No person shall be deprived of life, liberty, or
business, industry or activity. property without due process of law, nor shall any
EXCEPT: GSIS, SSS, PHIC, PCSO, PAGCOR (Sec 27[C], person be denied the equal protection of the laws.”
NIRC)
Two Aspects of Due Process:
REASON FOR THE EXEMPTION:
Taxing itself would require administration
a. Substantive due process requires that laws
unnecessarily increasing its expenditures with in substance and content must be reasonable, fair
administrative expenses in the collection of payment of and just. It should not be oppressive.
such taxes, without an increase in total revenues. A tax is reasonable when the purpose is public
purpose and the means to achieve such purpose is
ILLUSTRATION: reasonable. The means is reasonable when taxes are
assessed on subjects affected by the purpose.
• In exempting from taxation "property owned by the
b. Procedural due process requires that the
Republic of the Philippines, any province, city,
manner of enforcing the law is likewise reasonable
municipality or municipal district . . .," said section
fair and just.
3(a) of Republic Act No. 470 makes no distinction
This requires notice and opportunity to be
between property held in a sovereign, governmental
heard before judgment is rendered.
or political capacity and those possessed in a
private, proprietary or patrimonial character. And
INSTANCES WHEN THE TAX LAW MAYBE DECLARED
where the law does not distinguish neither may we,
AS UNCONSTITUTIONAL FOR VIOLATING DUE
unless there are facts and circumstances clearly
PROCESS [C-O-N-U]
showing that the lawmaker intended the contrary,
but no such facts and circumstances have been 1) If it amounts to confiscation of property
brought to our attention. Indeed, the noun without due process
"property" and the verb "owned" used in said section 2) If the subject of taxation is outside of the
3(a) strongly suggest that the object of exemption is jurisdiction of the taxing state
considered more from the view point of dominion,
than from that of domain. Moreover, taxes are 3) The law maybe declared as unconstitutional
financial burdens imposed for the purpose of raising if it is imposed not for a public purpose
revenues with which to defray the cost of the 4) If a tax law which is applied retroactively,
operation of the Government, and a tax on property imposes unjust and oppressive taxes.
of the Government, whether national or local, would ILLUSTRATION:
merely have the effect of taking money from one Although taxes are the lifeblood of the government
pocket to put it in another pocket (Cooley on and should be collected without unnecessary hindrance,
Taxation, Sec. 621, 4th Edition.) Hence, it would not such collection should be made in accordance with law
serve, in the final analysis, the main purpose of as any arbitrariness will negate the very reason for
taxation. What is more, it would tend to defeat it, on government itself. As the Reyeses are burdened by the
account of the paper work, time and consequently, Rent Freeze Laws (RA 6359 and PD 20), they should not
expenses it would entail. (Board of Assessment be penalized by the same government by the imposition
Appeals of Laguna v. CTA 8 Phil 227) of excessive taxes they can ill afford and would
• MCIAA is a “taxable person” under its Charter, and eventually result in the forfeiture of their properties,
was only exempted from the payment of real under the principle of social justice. (Reyes v. Almazor
property taxes. The grant of the privilege only in GRS 49839-46, April 1991)
respect of this tax is conclusive proof of the
legislative intent to make it a taxable person subject 2. Equal Protection of the Law
to all taxes, except real property tax. Finally, even if EQUAL PROTECTION CLAUSE (Article III, Section 1)
the petitioner was originally not a taxable person for “No person shall be deprived of life, liberty, or property
purposes of real property tax, it had already without due process of law, nor shall any person be
become, even if it be conceded to be an “agency” or denied the equal protection of the laws.”
“instrumentality” of the Government, a taxable
person for such purpose in view of the withdrawal in All persons similarly situated must be
the last paragraph of Section 234 of exemptions similarly treated both as to rights conferred and
from the payment of real property taxes applies to responsibility imposed.
the MCIAA. (MCIAA v. Marcos 261 SCRA 667) Equality and uniformity in taxation requires
that taxable articles or kinds of property of the same
5. International comity class shall be taxed at the same rate.
These principles limit the authority of the authority
of the government to effectively impose taxes on a Requisites of a valid classification(S-A-G-E):
sovereign state and its instrumentalities, as well as on its
property held and activities undertaken in that capacity.
a. Based upon a Substantial distinction
Even where one enters the territory of another, there is b. Germane to the purposes of law
an implied understanding that the former does not c. Not limited to Existing conditions only
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d. Apply equally to all members of the class him for the privilege of delivering a sermon. The
power to tax the exercise of a privilege is the power to
TWO WAYS EQUAL PROTECTION CLAUSE CAN BE control or suppress its enjoyment.
VIOLATED The power to impose a license tax on the exercise of
1) When classification is made where there should be none these freedoms is indeed as potent as the power of
ex. When the classification does not rest upon censorship which this Court has repeatedly struck down.
substantial distinctions that make for real difference It is not a nominal fee imposed as a regulatory measure
to defray the expenses of policing the activities in
2) When no classification is made where a classification is question. It is in no way apportioned. It is flat license tax
called for levied and collected as a condition to the pursuit of
ex. When substantial distinctions exist but no activities whose enjoyment is guaranteed by the
corresponding classification is made on the basis thereof constitutional liberties of press and religion and
inevitably tends to suppress their exercise. Such is the
inherent vice and evil of a flat license tax. (American
• The fact that there is no other person in the locality Bible Society v. Manila GR L-9637, April 1957)
who exercises such a “designation” or calling does not
make the ordinance discriminatory and hostile, inasmuch 5. Non-Impairment of Contracts
as it is and will be applicable to any person or firm who NON IMPAIRMENT CLAUSE (Art III. Sec 10, 1987
exercises such calling or occupation named or Constitution)
designated as “installation manager”. (Shell Co. v. Vano, “No law impairing the obligation of contracts shall be
94 Phil 387) passed.”
There is curtailment of press freedom and freedom Some believe that the non-impairment
of thought and expression if a tax is levied in order to clause will only be violated if and when the taxing
suppress this basic right of the people under the authority was a party to the contract in person. The
constitution. reason for this is when tax laws are passed; it
imposes a new tax exemption or withdraws one.
• The VAT is, however, different. It is not a license tax. What essentially is being changed is the relationship
It is not a tax on the exercise of a privilege, much between the government and the private individual
less a constitutional right. It is imposed on the sale, and not between the two private individuals.
barter, lease or exchange of goods or properties or
the sale or exchange of services and the lease of RULES ON THE NON-IMPAIRMENT:
properties purely for revenue purposes. To subject 1) If the exemption was granted for valuable
the press to its payment is not to burden the consideration and it is granted on the basis of a
exercise of its right any more than to make the press contract.
pay income tax or subject it to general regulation is > cannot be revoked
not to violate its freedom under the Constitution. (PPI 2) If the exemption is granted by virtue of a contract,
v. de Ocampo GR 115931, 30 October 1995) wherein the government enters into a contract with a
private corporation
> cannot be revoked unilaterally by the government
4. Non-Infringement of Religious Freedom and
3) If the basis of the tax exemption is a franchise granted
Worship by Congress and under the franchise or the tax
(Art III, Sec 5, 1987 Constitution) exemption is given to a particular holder or person
“No law shall be made respecting an establishment
> can be unilaterally revoked by the government
of religion, or prohibiting the free exercise thereof. The
free exercise and enjoyment of religious profession and
worship, without discrimination or preference, shall • The rule does not apply to public utility
forever be allowed. No religious test shall be required for franchises. According to Sec 11, Art XI of the
the exercise of civil or political rights.” constitution, no public utility franchise or right shall
be granted except under the condition that it shall be
The constitutional guaranty of the free exercise and granted except under the condition that it is subject
enjoyment of religious profession and worship carries to amendment, alteration or repeal by the Congress
with it the right to disseminate religious information. Any when the common good so requires.
restraint of such right can only be justified like other
restraints of freedom of expression on the grounds that
• Congress could impair the company’s
legislative franchise by making it liable for income
there is a clear and present danger of any substantive
tax. The Constitution provides that a franchise is
evil which the State has the right to prevent.
subject to amendment, alteration or repeal by the
A tax on the income of one who engages in religious
Congress when the public interest so requires. RA
activities is different from a tax on property used or
3247 itself provides that the franchise is subject to
employed in connection with those activities. It is one
amendment, etc. by Congress. The enactment of RA
thing to impose a tax on the income or property of a
5431 had the effect of withdrawing the company’s
preacher. It is quite another thing to exact a tax from
exemption from income tax. The exemption was
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restored by the enactment of RA 6020. (Cagayan actually, directly, and exclusively used for
Electric Power & Light Co. v. Commissioner GR L- religious, charitable, or educational purposes shall be
60126, 25 September 1985) exempt from taxation.”
6. Non-Imprisonment for Non-Payment of Poll Tax • WHAT TAXES ARE COVERED?: The phrase
(Art. III, Sec 20): “No person shall be imprisoned for “exempt from taxation” should not be interpreted to
debt or non-payment of a poll tax.” mean exemption from all kinds of taxes. The
exemption is only from the payment of taxes
WHAT IS A POLL TAX? It is a nominal assessed on such properties as property taxes as
capitation tax imposed on inhabitants residing within contradistinguished from excise taxes. A donee’s gift
a territory, without regard to their property or tax is not a property tax but an excise tax imposed
occupation. on the transfer of property by way of gift inter vivos.
HISTORICAL ORIGIN: the predecessor of the (Lladoc v. CIR, GR L-19201, 16 June 1965)
poll tax is the cedula of the Spanish regime which • WHAT MUST BE PROVEN?: The 1935 and the
was deemed a symbol of oppression of the Filipinos 1973 Constitutions differ in language as to the
then. exemption of religious property from taxes as they
should not only be “exclusively” but also “actually”
7. Origin of Appropriation, Revenue, Tariff Bills and “directly” used for religious purposes.
(Art. VI, Section 24): Exemption from taxation is not favored and is never
“(1) Every bill passed by the Congress shall embrace presumed, so that if granted, it must be strictly
only one subject which shall be expressed in the title construed against the taxpayer. There must be proof
thereof. of the actual and direct use of the lands, buildings,
(2) No bill passed by either House shall become a law and improvements for religious (or charitable)
unless it has passed three readings on separate days, purposes to be exempted from taxation. (Abra v.
and printed copies thereof in its final form have been Hernando GR L-29336, 31 August 1981)
distributed to its Members three days before its passage,
• TEST OF EXEMPTION: While the Court allows
except when the President certifies to the necessity of its
a more liberal and non-restrictive interpretation of
immediate enactment to meet a public calamity or
the phrase “exclusively ised for educational
emergency. Upon the last reading of a bill, no
purposes,” reasonable emphasis has always been
amendment thereto shall be allowed, and the vote
made that exemption extends to facilities which are
thereon shall be taken immediately thereafter, and the
incidental to and reasonably necessary for the
yeas and nays entered in the Journal.”
accomplishment of the main purposes. While the
second floor’s use, as residence of the director, is
(Art. VI, Section 25[4]):
incidental to education; the lease of the first floor
“A special appropriations bill shall specify the purpose for
cannot by any stretch of imagination be considered
which it is intended, and shall be supported by funds
incidental to the purposes of education. The test of
actually available as certified by the National Treasurer,
exemption from taxation is the use of the property
or to be raised by a corresponding revenue proposal
for purposes mentioned in the Constititution. (Abra
therein.”
Valley College v. Aquino L-3906, 15 June 1988)
(Art. VI, Section 39 [3]): • The exemption in favor of the convent in the
“All money collected on any tax levied for a special payment of land tax refers to the home of the priest
purpose shall be treated as a special fund and paid out who presides over the church and who has to take
for such purpose only. If the purpose for which a special care of himself in order to discharge his duties. The
fund was created has been fulfilled or abandoned, the exemption includes not only the land actually
balance, if any, shall be transferred to the general funds occupied by the Church but also the adjacent ground
of the Government.” destined to the ordinary incidental uses of man. A
vegetable garden, thus, which belongs to a convent,
8. Veto Power of the President where its use is limited to the necessity of the priest,
(Art. VI, Section 27[2]): comes under the exemption. Further, land used as a
“The President shall have the power to veto any lodging house by the people who participate in
particular item or items in an appropriation, revenue, or religious festivities, which constitutes an incidental
tariff bill, but the veto shall not affect the item or items use in religious functions, likewise comes within the
to which he does not object.” exemption. It cannot be taxed according to its
former use, i.e. a cemetery. (Roman Catholic Bishop
9. Uniformity and Progressiveness of Nueva Segovia v. Provincial Board of Ilocos Norte,
(Art. VI, Section 28[1]): 51 Phil 352)
“The rule of taxation shall be uniform and equitable. • To determine whether an enterprise is a
The Congress shall evolve a progressive system of charitable institution/entity or not, the elements
taxation.” which should be considered include the statute
creating the enterprise, its corporate purposes, its
10. Exemption of Properties ACTUALLY, DIRECTLY constitution and by-laws, the methods of
and EXCLUSIVELY used for religious, charitable administration, the nature of the actual work
and educational purposes performed, the character of the services rendered,
the indefiniteness of the beneficiaries, and the use
(Art. VI, Section 28[1]): and occupation of the properties. a charitable
“Charitable institutions, churches and personages or institution does not lose its character as such and its
convents appurtenant thereto, mosques, non-profit exemption from taxes simply because it derives
cemeteries, and all lands, buildings, and improvements, income from paying patients, whether out-patient, or
Sotelo, MS NOTES |9
TAX1
confined in the hospital, or receives subsidies from a. Direct Double or Duplicate Taxation –
the government, so long as the money received is this is objectionable or prohibited because this
devoted or used altogether to the charitable object constitutes a violation of substantive due process.
which it is intended to achieve; and no money inures
to the private benefit of the persons managing or ELEMENTS:
operating the institution. (Lung Center of the
• Taxing twice
Philippines v. QC, GR 144104, 29 June 2004)
• The same subject or object
11. Grant of Tax Exemptions • By the same public authority
(Art. VI, Section 28[4]): • Within the same jurisdiction
“No law granting any tax exemption shall be passed • For the same purpose
without the concurrence of a majority of all the • In the same taxing period
Members of the Congress.”
b. Indirect Duplicate Taxation – not legally
12. Flexible Tariff Clause objectionable. The absence of one or more of the
(Sec. 28[2], Art. VI, 1987 Constitution) above-mentioned elements makes the double
“The Congress may, by law, authorize the President to taxation indirect.
fix within specified limits, and subject to such limitations
and restrictions as it may impose, tariff rates, import and c. Domestic – this arises when the taxes are
export quotas, tonnage and wharfage dues, and other imposed by the local or national government (within
duties or imposts within the framework of the national the same state)
development program of the Government.” d. International – refers to the imposition of
comparable taxes in two or more states on the same
(Flexible Tariff Clause, SEC. 401 Tariff and Customs taxpayer in respect of the same subject matter for
Code) identical periods
In the interest of national economy, general welfare
and/or national security, the President upon the 3. Means Employed to Avoid Double Taxation
recommendation of the National Economic and
Development Authority is empowered: 1) Tax deductions
1) To increase, reduce or remove existing 2) Tax credits
protective rates of import duty, provided that 3) Provide for exemption
the increase should not be higher than 100% ad 4) Enter into treatise with other states
valorem 5) Allowance on the principle of reciprocity
2) To establish import quota or to ban imports of
any commodity TAX CREDIT
To impose additional duty on all imports not EXAMPLES:
exceeding 10% ad valorem. • For VAT purposes, the tax on inputs or items that go
into the manufacture of finished products (which are
eventually sold) may be credited against or deducted
from the output tax on the finished products.
13. Tax Exemptions Granted to Non-Stock, Non-
• In the case of a resident citizen or domestic
Profit Educational Institutions
corporation whose income sources within a foreign
(Art XIV, Section 4[3]):
country is also taxable under Philippine law, the tax to be
“All revenues and assets of non-stock, non-profit
paid to such foreign country may, under certain
educational institutions used actually, directly, and
limitations, be claimed as a credit against the Philippine
exclusively for educational purposes shall be exempt
tax on the same income.
from taxes and duties. Upon the dissolution or cessation
of the corporate existence of such institutions, their • Foreign Tax Credit Method - An amount allowed as a
assets shall be disposed of in the manner provided by deduction of the Philippine Income tax on account of
law.” income taxes paid or incurred to foreign countries. It is
Double Taxation given to a taxpayer in order to provide a relief from too
1. Definition: Taxing the same person, property, onerous a burden of taxation in case where the same
business, object twice when it should only be taxed once. income is subject to a foreign income tax and the
Philippine Income tax.
IS DOUBLE TAXATION PROHIBITED IN THE PHILS?
No, there is no Constitutional prohibition How is the credit for foreign taxed paid arrived at?
against double taxation. It is not favored but
permissible. (Pepsi Cola Bottling Co. v. City of Step 1: Get the maximum allowable foreign tax credit under
Butuan, GR L-22814, 28 August 1968) the Philippine law
Double taxation becomes obnoxious only TAXABLE INCOME
LIMIT on
(Foreign Source) X PHILIPPINE TAX ON =
when the taxpayer is taxed twice for the benefit of THE TOTAL INCOME
FOREIGN TAX
TOTAL TAXABLE CREDIT
the same government entity. (Commissioner vs. INCOME (Total Taxable
Lednicky (GR L-18169, L-18286, L-21434; 31 July (Foreign + Phil Source) Income x 30%)
1964)
C. TAX REGULATIONS
- These are regulations promulgated by the Secretary
of Finance in order to implement the provisions of
the Tax Code.
D. TAX RULINGS
- They are the best guess of the moment and
incidentally often contain such well-considered and
sound law, but the courts have held that they do not
prevent an entire change of front at any time and
are merely advisory – sort of an information service
to the taxpayer (Quiazon and Lucban)
Doctrine of Implications
- what is plainly implied in the language of a statute is
as much a part of it as that which is expressed.