CHAPTER 1: BASIC PRINCIPLES

Taxation as an Inherent Power of the State

power to tax is inherent in sovereignty (the moment the state exists, the power to tax
automatically exists)
the power is inherent in the national govt but NOT the LGUs (they can only impose taxed
when the power to tax is expressly granted to them by the Constitution or by laws enacted
by Congress)
CIR vs. Algue: the LIFEBLOOD THEORY: tax is necessary to meet the expenses of the govt
without which the latter cannot operated. The government would be paralyzed for lack of
the motive power to activate and operate it thus, every person who is able must contribute
his share in the running of the government
LGUs outside the autonomous regions (Muslim Mindanao and cordilleras) Sec. 5 of Art X
applies: that each LGU shall have the power to create its own sources of revenues and levy
taxes, fees and charges subj. to guidelines and limitations as the congress may provide
consistent with basic policy of local autonomy. Such taxes, fees and charges shall accrue
exclusively to the local governments. [the authority of LGUs to tax within them is not
delegated by the constitution but by the organic act creating them, provided for under Sec 20
Art X]
The provision merely authorizes the congress to pass the organic act of the autonomous
regions which shall provide for legislative powers to levy taxes upon their inhabitants

Phases and Scope of Taxation
1. levy where congress enacts a statute to impose taxes
2. collection

Inherent Limitations
1. Taxation should be for public purpose
- the legislature is without any power to appropriate public revenue for anything but for
public purpose
- it is the essential character of the direct object of expenditure which must determine its
validity and not the magnitude of the interest to be affected and it cannot be justified by
the degree to which the community will gain a general advantage (Pascual vs Sec. of
Public Works)
- public welfare should be the penultimate objective
- congress enacted a law imposing tax on the sugar industry. It was contended that the
proceeds shall only benefit a particular industry. It was ruled that the tax remains valid
bec. The protection and promotion of the sugar industry is a matter of public concern.
The legislature may determine within reasonable bound what is necessary for its
protection and expedient for the promotion of public interest. (lutz vs araneta)
legislative discretion should be allowed full play subject to the test of reasonableness.

2. Taxation is inherently legislative

3. Government is exempt from tax (may the government tax itself?)
a. if the taxing authority is the LGU: NO
- (RA 7160) prohibits LGUs from levying tax from the national government.
- (Sec 133) the taxing power of the LGU shall not extend taxes, fees, charges of any kind on
the national government except (Sec 154) when LGU may fix the rates for the operation
of public utilities owned, operated and maintained by the LGUs within their jurisdiction

b. if the taxing authority is the national government: YES
- national govt may levy taxes upon GOCCs, agencies and instrumentalities. BUT income
derived by the govt from the exercise of public utility and those in the exercise of
essential govt functions are exempt from tax

4. Territoriality
- taxing authority cannot impose taxes on subjects beyond its territorial jurisdiction
- the taxing authority may determine the tax situs.

Constitutional Limitations
(the constitution is NOT the source of the taxing power of the state bec the state exists independently
of the constitution. The constitution merely defines and limits the power to strike a balance bet. The
power of the got and the freedom of the governed and to safeguard the latter from abuse)
1. due process clause
- no person shall be deprived of life, liberty and property without due process of law
- the clause guarantees the protection of personal & property rights
- the people cannot be made without a law authorizing the same, otherwise, there will be
a violation of the constitution where tax collection is made without any law enacted by
legitimate govt authorizing such collection
- 2 aspects of due process:
a. substantive (requires that the tax statute msut be within the constitutional authority of
congress and that it be fair, just and reasonable) Sec. 28 Art IV: no law granting tax
exemption shall be passed without the concurrence of a majority of all the members of
congress
b. procedural (requires notice and hearing or the opportunity to be heard) it should also
be observed during public auction and compromise in an extrajudicial settlement.
- the requirements of due process applies to national legislature and LGUS which are the
local sanggunians who are also required to conduct public hearings prior to the
enactment of tax ordinances and revenue measures
- the national legislature has the discretion whether or not they would conduct public
hearings before the enactment of tax laws
- notice and hearing are only necessary when Expressly required by law. When there is no
requirement, they are dispensable.

2. equal protection clause


3. freedom of religion

4. non impairment of contracts


5. non imprisonment of non payment of taxes

Doctrine of Equitable Recoupment vs. Doctrine of Set Off


Double Taxation

Exemption from Real Estate Tax


CHAPTER 2: INCOME TAX
Individuals
1. resident citizens
2. non-resident citizens
3. overseas contract workers and seamen
4. resident alien
5. non-resident alien engaged in trade or business
6. non-resident alien not engaged in trade or business

Corporations


CHAPTER 3: KINDS OF INCOME TAXES
Net Income Tax
Gross Income Tax

Final Income Tax

Minimum Corporate Income Tax of 2% on Gross Income

Improperly Accumulated Earnings Tax of 10% its Taxable Income

Optional Corporate Income Tax of 15% on Gross Income