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GENERAL PRINCIPLES OF TAXATION Fundamental Principles in Taxation Taxation

the police power of the State. The oil industry is greatly imbued with public interest as it vitally affects the general welfare. Sumptuary purpose of taxation

the legislature, to impose burdens upon subjects and objects within its jurisdiction for the purpose of raising revenues to carry out the legitimate objects of government.

More popularly known as the non-revenue or regulatory purpose of taxation. While the primary purpose of taxation is to raise revenue for the support of the government, taxation is often employed as a devise for regulation by means of which certain effects or conditions envisioned by the government may be achieved. For example, government may provide tax incentives to protect and promote new and pioneer industries. The imposition of special duties, like dumping duty, marking duty, retaliatory duty, and countervailing duty, promote the non-revenue or sumptuary purpose of taxation. Theory and basis of taxation The power of taxation proceeds upon the theory that the existence of government is a necessity; that it cannot continue without means to pay its expenses; and that for these means, it has a right to compel all its citizens and property within its limits to contribute. The basis of taxation is found in the reciprocal duties of protection and support between the State and its inhabitants. In return for his contribution, the taxpayer received benefits and protection from the government. This is the so-called “benefits received principle.” Life blood or necessity theory The life blood theory constitutes the theory of taxation, which provides that the existence of government is a necessity; that government cannot continue without means to pay its expenses; and that for these means it has a right to compel its citizens and property within its limits to contribute. In Commissioner v. Algue, the Supreme Court said that taxes are the lifeblood of the government and should be collected without unnecessary hindrance. They are what we pay for a civilized society. Without taxes, the government would be paralyzed for lack of motive power to activate and operate it. 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. Illustrations of lifeblood theory 1. Collection of taxes cannot be enjoined by injunction. Taxes could not be the subject of compensation or set off. A valid tax may result in destruction of the taxpayer’s property. Taxation is an unlimited and plenary power.

means by which the sovereign, through its law-making body, raises income to defray the necessary expenses of government. It is a method of apportioning the cost of government among those who, in some measure, are privileged to enjoy its benefits and must therefore bear its burdens. Taxes Taxes are the enforced proportional contributions from persons and property levied by the law-making body of the State by virtue of its sovereignty for the support of the government and all public needs. Essential elements of a tax 1. 2. 3. It is an enforced contribution. It is generally payable in money. It is proportionate in character.

4. It is levied on persons, property, or the exercise of a right or privilege. 5. It is levied by the State which has jurisdiction over the subject or object of taxation. 6. 7. It is levied by the law-making body of the State. It is levied for public purpose or purposes.

Purposes of taxation 1. Revenue or fiscal: The primary purpose of taxation on the part of the government is to provide funds or property with which to promote the general welfare and the protection of its citizens and to enable it to finance its multifarious activities. 2. Non-revenue or regulatory: Taxation may also be employed for purposes of regulation or control. a) Imposition of tariffs on imported goods to protect local industries.

2. 3. 4.

b) The adoption of progressively higher tax rates to reduce inequalities in wealth and income. c) The increase or decrease of taxes to prevent inflation or ward off depression. PAL v. Edu, 164 SCRA 320 The legislative intent and purpose behind the law requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of highways and, to a much lesser degree, pay for the operating expenses of the administering agency. It is possible for an exaction to be both a tax and a regulation. License fees are charges, looked to as a source of revenue as well as a means of regulation. The fees may properly be regarded as taxes even though they also serve as an instrument of regulation. If the purpose is primarily revenue, or if revenue is at least one of the real and substantial purposes, then the exaction is properly called a tax. Tio v. Videogram, 151 SCRA 208 PD 1987 which created the Videogram Regulatory Board also imposed a 30% tax on the gross receipts payable to the local government. SC upheld the validity of the law ruling that the tax imposed is not only a regulatory, but also a revenue, measure prompted by the realization that earnings of videogram establishments of around P600 million annually have not been subjected to tax, thereby depriving the government of an additional source of revenue. It is a user tax imposed on retailers for every video they make available for public viewing. The 30% tax also served a regulatory purpose: to answer the need for regulating the video industry, particularly the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. Caltex v. Commissioner, 208 SCRA 755

Benefit-received principle This principle serves as the basis of taxation and is founded on the reciprocal duties of protection and support between the State and its inhabitants. Also called “symbiotic relation” between the State and its citizens. In return for his contribution, the taxpayer receives the general advantages and protection which the government affords the taxpayer and his property. One is compensation or consideration for the other; protection for support and support for protection. However, it does not mean that only those who are able to and do pay taxes can enjoy the privileges and protection given to a citizen by the government. In fact, from the contribution received, the government renders no special or commensurate benefit to any particular property or person. The only benefit to which the taxpayer is entitled is that derived from the enjoyment of the privileges of living in an organized society established and safeguarded by the devotion of taxes to public purpose. The government promises nothing to the person taxed beyond what may be anticipated from an administration of the laws for the general good. [Lorenzo v. Posadas] Taxes are essential to the existence of the government. The obligation to pay taxes rests not upon the privileges enjoyed by or the protection afforded to the citizen by the government, but upon the necessity of money for the support of the State. For this reason, no one is allowed to object to or resist payment of taxes solely because no personal benefit to him can be pointed out as arising from the tax. [Lorenzo v. Posadas] Tax differentiated from other terms Taxation is no longer a measure merely to raise revenue to support the existence of 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

Tariff / Duties

are enforced proportional contributions from persons and property levied by the State by virtue of its sovereignty for the support of the government and all public needs. Imposition must relate to an occupation or activity which involves the health. The duties payable on goods imported or exported. a tax cannot. Customs duties. Edu: This involves the imposition of motor vehicle registration fees which the Supreme Court ruled as taxes. That each one of the obligor be bound principally. When the license fee is collected to regulate a non-useful occupation Special assessment v. while a tax is governed by the special prescriptive periods provided for in the NIRC. That the two debts be due. A person cannot be imprisoned for non-payment of tax. That they be liquidated and demandable. The proceeds thereof may be devoted to the specific purpose for which the assessment was authorized. tariff may be used in one of three senses: 1. It is not a tax measure intended to raise revenues for the government. safety and development of the people and which needs regulation for the protection and promotion of the public interest. License fee involves the exercise of police power. Bacolod Murcia. they be of the same kind and also of the same quality if the latter has been stated. pay the assessment. a tax has general application. A debt draws interest when it is so stipulated or where there is default. while a tax does not draw interest except only when delinquent. Fees may be regarded as taxes even though they also serve as instruments of regulation because taxation may be made the implement of the State’s police power. 2. and that he be at the same time a principal creditor of the other. taxes are generally intended to generate revenue. 3. License or regulatory fee v. on the other hand. 4. or simply duties. or the like. Some rules: An exemption from taxation does not include exemption from a special assessment. License fee is imposed for regulation. A special assessment is levied only on land. while tax is levied for revenue. A book of rates drawn usually in alphabetical order containing the names of several kinds of merchandise with the corresponding duties to be paid for the same. Amount of license fee should be limited to the necessary expenses of inspection and regulation. 7. unreasonable. tax of the taxing power. while a tax cannot generally be assigned. while there is no limit on the amount collected as tax as long as it is not excessive. Toll may be imposed by the government or by private individuals or entities. Requisites of compensation 1. 3. morals. License fee is legal compensation or reward of an officer for specific services while a tax is an enforced contribution from persons or property by the law-making body by virtue of its sovereignty and for the support of the government and all public needs. A special assessment is not a personal liability of the person assessed. one of the real and substantial purposes. 3. Its purpose is to finance such improvement. Rules re: set off or compensation of debts . regulation of non-useful occupations PAL v. 2. Taxes. taxes are enforced proportional contributions from persons and property levied by the State by virtue of its sovereignty for the support of the government and all public needs. or confiscatory. That over neither of them there be any retention or controversy. That both debts consist in a sum of money. or if the things due are consumable. A debt is assignable. Failure to pay a license fee makes the act or business illegal. Penalty is any sanction imposed as a punishment for violation of law or for acts deemed injurious. sugar levy. Penalty may be imposed by the government or by private individuals or entities. 4. obligation to pay tax 1. or A special assessment is a levy on property which derives some special benefit from the improvement. tax may be imposed only by the government. coconut levy. 4. Toll is a sum of money for the use of something. Toll is a demand of proprietorship. tax 1. after all. Republic v. taking into account the costs of direct regulation as well as the incidental expenses. at least. 4. tax 1. 1. 5. 3. Imposition must also bear a reasonable relation to the probable expenses of regulation. except poll tax. On the other hand. License fee is imposed only on the right to exercise a privilege. while tax is imposed also on persons and property. tax 3. A debt is governed by the ordinary periods of prescription. A debt is generally based on contract. The amount paid as toll depends upon the cost of construction or maintenance of the public improvement used. 5. Criteria for determining license fees 1. it is limited to the land. Obligation to pay debt v. 2. not necessity. Tax v. When the collection or the license fee is authorized under both the power of taxation and police power 2. are taxes imposed on goods exported from or imported into a country. Regulatory tax Examples: motor vehicle registration fee. 4. The system or principle of imposing duties on the importation or exportation of goods. 2. 5. Custom duties are really taxes but the latter term is broader in scope. But if the purpose is primarily revenue. Penalty is designed to regulate conduct. express or implied. bridge. thus accruing only to the owners thereof who. Toll is paid for the use of another’s property. A debt may be paid in kind. or 2. while a tax is based on laws.The term tariff and custom duties are used interchangeably in the Tariff and Customs Code or PD No. 2. 2. 2. 1464. 6. A special assessment is exceptional both as to time and place. control or administration 1. Instances when license fees could exceed cost of regulation. 3. while there is generally no limit on the amount of the tax to be imposed. tax is paid for the support of government. tax is a demand of sovereignty. 17 SCRA 632 5. of a public nature. A special assessment is based wholly on benefits. It is the consideration which is paid for the use of a road. 6. then the exaction is properly called a tax. taxes only by the government. 3. penalty 1. 5. A special assessment is an enforced proportional contribution from owners of lands specially or peculiarly benefited by public improvements. The power to tax carries with it the power to levy a special assessment. commenced by third persons and communicated in due time to the debtors. or if revenue is. while a tax is generally paid in money. Toll v. A debt may be the subject of set off or compensation. while failure to pay a tax does not necessarily make the act or business illegal.

4. Classification of Taxes 3. . Tax Systems A charge imposed upon the performance of an act. As to the determination of amount 1. The fact that the court having jurisdiction of the estate had found that the claim of the estate against the government has been appropriated for the purpose by a corresponding law shows that both the claim of the government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well as fully liquidated. i. b. As to scope of the tax Philex Mining Corporation wants to set off its claims for VAT input credit/refund for the excise taxes due from it. Excise tax 2. Compensation therefore takes place by operation of law. the collection of a tax cannot await the results of a lawsuit against the government. Estate Tax Donor’s Tax An ad valorem tax is a tax of a fixed proportion of the value of the property with respect to which the tax is assessed. D. b. whether citizens or not. The two processes together constitute the taxation system. Levying or imposition of the tax which is a legislative act. Indirect tax An indirect tax is demanded from a person in the expectation and intention that he or she shall indemnify himself or herself at the expense of another. Garlitos [8 SCRA 443] re. 3. community tax. Finally. It requires the intervention of assessors or appraisers to estimate the value of such property before the amount due from each taxpayer can be determined. while taxes are due to the government in its sovereign capacity. Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. National tax A national tax is imposed by the national government. Local tax A local tax is imposed by municipal corporations or local government units (LGUs). while the second may be referred to as tax administration. This is so because the government and the tax delinquent are not mutually creditors and debtors. As to gradation or rate Percentage taxes a. taxes are not in the nature of contracts but grow out of a duty to. Example: income tax. 2. Progressive or graduated tax Tax the rate of which increases as the tax base or bracket increases. As to purpose Constitutional mandate 1. [Francia v. Survey of Philippine Taxes 1. 162 SCRA 754 and Republic v. 2. The Supreme Court disallowed such set off or compensation. Ad valorem tax a. Personal. Article VI. Debts are due to the government in its corporate capacity. government to the making and enforcing of which the personal consent of the taxpayer is not required. Digressive tax rate: progressive rate stops at a certain point. Collection of the tax levied which is essentially administrative in character. 3. 2. Value Added Tax Other Percentage Taxes 1. 2.e. There is no such tax in the Philippines. As to who bears the burden 1. There is a material distinction between a tax and a debt. Constitution] A general/fiscal/revenue tax is that imposed for the purpose of raising public funds for the service of the government. and are the positive acts of the. Direct tax A direct tax is demanded from the person who also shoulders the burden of the tax. Regressive tax Tax the rate of which decreases as the tax base or bracket increases. C. General/fiscal/revenue tax The rule of taxation shall be uniform and equitable. It requires no assessment other than the listing or classification of the objects to be taxed. 4 SCRA 622] Exception: SC allowed set off in the case of Domingo v. 294 SCRA 687 (1998) 2. Mambulao Lumber. 2. poll or capitation tax Aspects of Taxation Processes that are included or embodied in the term “taxation” 1. 2. As to subject matter or object 1. 1. [Section 28(1). B. The Congress shall evolve a progressive system of taxation. Philex Mining Corporation v.General rule: A tax delinquency cannot be extinguished by legal compensation. or the engaging in an occupation. Moreover. falling finally upon the ultimate purchaser or consumer. Tax of a fixed amount imposed on persons residing within a specified territory. claim for payment of unpaid services of a government employee vis-a-vis the estate taxes due from his estate. It is a tax which the taxpayer is directly or primarily liable and which he or she cannot shift to another. Excise taxes Documentary stamp tax Local/Municipal Taxes Tariff and Customs Duties Taxes/Tax incentives under special laws Proportional tax Tax based on a fixed percentage of the amount of the property receipts or other basis to be taxed. Internal revenue taxes imposed under the NIRC Income tax Transfer taxes A specific tax is a tax of a fixed amount imposed by the head or number or by some other standard of weight or measurement. without regard to their property or the occupation or business in which they may be engaged. Neither is a tax obligation an ordinary debt. the enjoyment of a privilege. in proportion to its value or in accordance with some other reasonable method of apportionment. A tax which the taxpayer can shift to another. Example: real estate tax. Specific tax A. 5. Property tax Tax imposed on property. The first is taxation. Progression halts at a particular stage. real or personal. strictly speaking. IAC. Special/regulatory tax A special or regulatory tax is imposed primarily for the regulation of useful or non-useful occupation or enterprises and secondarily only for the purpose of raising public funds. Commissioner.

Santos. not as judicially enforceable rights. Nature and Limitations of the Power of Taxation Nature of the power of taxation Nature or characteristics of the State’s power to tax 1.” 3. Matters within the competence of the legislature 1. it should be exercised with caution to minimize injury to the proprietary rights of the taxpayer. 23 SCRA 276] Justice Holmes seemingly contradicted the Marshallian view by declaring in Panhandle Oil Company v. It is inherent in the power to tax that the State be free to select the subjects of taxation. Power to tax v. [Chavez v. Police power v. Ongpin. Maryland.g. regressive system of taxation A progressive system of taxation means that tax laws shall place emphasis on direct taxes rather than on indirect taxes.Tolentino v. 4. The subject or object to be taxed. this power must be used justly and not treacherously. just and effective administration. extent (rate). This is the so-called “ability to pay principle.” Domondon’s reconciliation of Marshall and Holmes The imposition of a valid tax could not be judicially restrained merely because it would prejudice taxpayer’s property. 2. just like the directive to it to give priority to the enactment of laws for the enhancement of human dignity. Secretary of Finance: Regressivity is not a negative standard for courts to enforce. 2. The manner. Regressive tax rates should be differentiated from a regressive system of taxation which exists when there are more indirect taxes imposed than direct taxes.” This is a directive to Congress. It is inherent in sovereignty. It is legislative in character. 3. and agencies of collection of the tax. Marshall’s view refers to a valid tax while Holmes’ view refers to an invalid tax. and the general welfare of the public Only the government or its political subdivisions Use of property is regulated for the purpose of promoting the general welfare Operates upon a community or class of individuals EMINENT DOMAIN Power of the State to take private property for public use upon paying to the owner a just compensation to be ascertained according to law May be granted to public service companies of public utilities Property is taken for public use Operates on an individual as the owner of a particular Commissioner v. safety. and it has been repeatedly held that . Therefore. 186 SCRA 331] 2. morals. Equality or theoretical justice Relationship to the Constitution Subject to certain Constitutional limitations It means that the tax burden should be proportionate to the taxpayer’s ability to pay. only the legislature can impose taxes (although the power may be delegated). A regressive system of taxation exists when there are more indirect taxes imposed than direct taxes. [Chief Justice Marshall in McCulloch v. it may be exercised although it is not expressly granted by the Constitution. 3. hence. object (purpose). hence. There are no regressive taxes in the Philippine jurisdiction. CTA. Hence. inferior to impairment of contracts clause) Power to tax involves the power to destroy so it must be exercised with caution Chief Justice Marshall declared that the power to tax is also called the power to destroy. coverage (subjects). Administrative feasibility Subject to certain Constitutional limitations (e. 277 SCRA 617 (1997) The Supreme Court held that it is within the province of the legislature whether to tax jewelry or not. It means that tax laws should be capable of convenient. The provisions are put in the Constitution as moral incentives to legislation. and situs (place) of taxation. Power of eminent domain TAXATION DEFINITION Power of the State to demand enforced contributions for public purposes Authority Exercising the Power PURPOSE Persons Affected Only the government or its political subdivisions Enforced contribution is demanded for the support of the government Operates upon a community or class of individuals POLICE POWER Power of the State to enact such laws in relation to persons and property as may promote public health. Three basic principles of a sound tax system 1. What Congress is required by the Constitution to do is to “evolve a progressive system of taxation. reiterated in Roxas v. hence. The amount or rate of the tax. there is restraint on injurious use of the property Person affected receives no direct and immediate benefit but only such as may arise from the maintenance of a healthy economic standard of society Amount imposed should not be more than that sufficient to cover the cost of the license and the necessary expenses of regulation Relatively free from Constitutional limitations and is superior to the impairment provisions property Transfer of the right to property whether it be ownership or a lesser right Person affected receives the market value of the property taken from him No amount imposed but rather the owner is paid the market value of the property taken It means that the sources of revenue should be sufficient to meet the demands of public expenditures. It must be exercised fairly. With the legislature primarily lies the discretion to determine the nature (kind). The purpose of the tax so long as it is a public purpose. Fiscal adequacy EFFECT Money contributed in the concept of taxes becomes part of public funds Assumed that the individual receives the equivalent of the tax in the form of protection. equally and uniformly. it is not an absolute power that can be exercised by the legislature anyway it pleases. less the tax collector kills the “hen that lays the golden egg. Regressive tax rates Tax the rate of which decreases as the tax base or bracket increases. and benefits received from the government as such BENEFITS RECEIVED AMOUNT OF IMPOSITION Generally limit on amount of that may imposed no the tax be (usually) No transfer of title. means. with ability to pay as the principal criterion. Mississippi that “the power to tax is not the power to destroy while this court sits. Power to tax is exclusively legislative in nature The power to tax is peculiarly and exclusively legislative and cannot be exercised by the executive or judicial branches of the government. Progressive system of taxation v. only Congress can impose taxes. at most. It is subject to Constitutional and inherent limitations.” And in order to maintain the general public’s trust and confidence in the government. An illegal tax could be judicially declared invalid and should not work to prejudice a taxpayer’s property.

by law. Lozada v. Delegation to local government units 3. the tax would still be valid provided such benefit is only incidental. If Congress can grant to a municipal corporation the power to tax certain matters. COMELEC In this case. and To establish import quota or to ban imports of any commodity. but rather the ultimate results. On the other hand. the law must be complete in itself and must set forth sufficient standards. agencies and The power of local government units to impose taxes and fees is always subject to the limitations which Congress may provide. general welfare and/or national security. therefore. 3. appraisement or adjustment. The test is not as to who receives the money. PAGCOR] Municipal corporations are mere creatures of Congress which has the power to create and abolish municipal corporations.“inequalities which result from a singling out of one particular class for taxation. 2. SC reiterated that it is only when an act complained of. reduce. Effect of incidental benefit to private interest . To increase. The essential point is that the purpose of the tax affects the inhabitants as a community and not merely as inhabitants. It has been said that the best test of rightful taxation is that the proceeds of the tax must be used: a) b) c) for the support of the government. Secretary of Public Works. [Pascual v. as in matters pertaining to tax exemptions. other duties or imposts within the national development program of the government. 2. 331] Exceptions to the non-delegation rule Delegation to local government units 1. Delegation to the President The purposes to be accomplished by taxation need not be exclusively public. International comity Limitation of territorial jurisdiction Public purpose in taxation This is one of the inherent limitations of the power to tax and is synonymous to “governmental purpose. The term “public purpose” has no fixed connotation.” Power to tax cannot be delegated The power of taxation. The task may be assigned to an administrative body like the Fiscal Incentives Review Board (FIRB). they are parties in interest who will be prejudiced or benefited by the avails of the suit. 110 Phil. But a taxpayer is not relieved from the obligation of paying a tax because of his belief that it is being misappropriated by certain officials. there really is no delegation. it will be declared as invalid. or remove existing protective rates of import duty. to wit: a) power to value property. and 4. to provide direct and efficacious solutions to many problems attendant upon present day undertakings. among others. Purpose must be public in nature Prohibition against delegation of the taxing power of government entities. infringe no Constitutional limitation. the President. Although private individuals are directly benefited. or exemption. They may. To impose additional duty on all imports not exceeding 10% ad valorem. Delegation to administrative agencies 2. 2. This authorization is embodied in Section 401 of the Tariff and Customs Code which is also called the flexible tariff clause. The Supreme Court held that this is not a taxpayer’s suit as nowhere is it alleged that tax is being illegally spent. it can also provide for exemptions or even to take back the power. 2. Delegation to local government units Delegation to administrative agencies Delegation to the President Taxpayer’s Suit 3. 3. The general rule is that not only persons individually affected but also taxpayers have sufficient interest of preventing the illegal expenditures of money raised by taxation. otherwise. within specified limits and subject to such limitations and restrictions as it may impose: 1. for otherwise. not the immediate result of the expenditure. Inherent Limitations Inherent limitations 1. but the character of the purpose for which it is expended. Certain aspects of the taxing process that are not really legislative in nature are vested in administrative agencies.” A tax must always be imposed for a public purpose. Taxpayer’s suit Delegation to the President A case where the act complained of directly involves the illegal disbursement of public funds derived from taxation. [Maceda v. c) power to perform details of computation. being purely legislative. This limitation arises from the doctrine of separation of powers among the three branches of government. collection of taxes would be hampered and this may result in the paralyzation of important governmental functions. provided that the increase should not be higher than 100% ad valorem. is empowered: 1. Exemption instrumentalities 4. 3. Congress may authorize. Flexible tariff clause In the interest of national economy. Macaraig. [Basco v. upon recommendation of the National Economic and Development Authority. In these cases. Delegation to administrative agencies With the growing complexities of modern life and the many technical fields of governmental functions. the former having no inherent power to tax. tariff rates. The legislature may not have the competence. Congress cannot delegate such power. or some of the recognized objects of government. question in the proper court the constitutionality of statutes requiring the expenditure of public funds. the President to fix. 196 SCRA 771] For delegation to be constitutionally valid. Exceptions to the non-delegation rule 1. In such cases. The appropriation of public money to construct a road on a private land is not a public purpose. Congress therefore has power of control over local government units. involves the illegal expenditure of public money that the so-called taxpayer suit may be allowed. or to promote the welfare of the community. Taxpayers have locus standi to question the validity of tax measures or illegal expenditures of public money. import and export quotas. b) power to assess and collect taxes. the petitioner filed a taxpayer’s suit to compel the COMELEC to schedule a special election for vacancies in the Batasang Pambansa. let alone the interest and the time. The legislature could not be expected to state all the detailed situations wherein the tax exemption privilege would be restored. public officials have locus standi because it is their duty to protect public interest. 5. tonnage and wharfage dues. delegation of legislative powers has become the rule and non-delegation the exception. which may include a legislative enactment of a statute.

issued pursuant to law. Constitution] The non-imprisonment rule applies to non-payment of poll tax which is punishable only by a surcharge. 3. on the basis of the benefits received from the government. a classification based on valid and reasonable standards does not violate the equal protection clause. [Tiu v. 4. but not to other violations like falsification of community tax certificate and nonpayment of other taxes. We find real and substantial distinctions between the circumstances obtaining inside and those outside the Subic Naval Base. What government entities are exempt from income tax? 1. Poll tax 7. 301 SCRA 278 (1999)] Tiu v. 6. without discrimination. business or profession. benefit. Due process of law Equal protection of laws Rule of uniformity and equity in taxation Prohibition against imprisonment for non-payment of poll tax Prohibition against impairment of obligation of contracts Prohibition against infringement of religious freedom The Constitutional right to equal protection of the law is not violated by an executive order. It must be based on substantial distinctions which make real differences. a. Immunity from suit of a State Limitation of a territorial jurisdiction Tax laws cannot operate beyond a state’s territorial limits. The classification must not be limited to existing conditions only but must also apply to future conditions substantially identical to those of the present. The Constitution does not require absolute equality among residents. [Section 20. Article III. Prohibition against appropriation of proceeds of taxation for the use. 2. . of the tax in every place where the subject of the tax is found. But this only Due process of law There must be a valid law. Tax statute must not be arbitrary as to find no support in the Constitution. Article III. Prohibition against imprisonment for non-payment of poll tax No person shall be imprisoned for debt or non-payment of poll tax. Government Service Insurance System (GSIS) Social Security System (SSS) Philippine Health Insurance Corporation (PHIC) Philippine Charity Sweepstakes Office (PCSO) Equal protection of laws All persons subject to legislation shall be treated alike under similar circumstances and conditions both in the privileges conferred and liabilities imposed. Court of Appeals. b. property of a foreign State may not be taxed by another State. Sovereign equality of States 3. 4. 4. if warranted. Constitution] The obligation of a contract is impaired when its terms or conditions are changed by law or by a party without the consent of the other. Court of Appeals. Its cornerstone is the taxpayer’s ability to pay. [Section 10.” The concept of uniformity in taxation implies that all taxable articles or properties of the same class shall be taxed at the same rate. tariff bills by the President Non-impairment of the SC jurisdiction d. 3. revenue. The classification must apply equally to all members of the same class. Uniformity v. As long as there are rational or reasonable grounds for so doing. there is an implied understanding that the former does not intend to denigrate its dignity by placing itself under the jurisdiction of the other State 3. Tax measure should not be unconscionable and unjust as to amount to confiscation of property. It is enough that all persons under like circumstances or conditions are given the same privileges and required to follow the same obligations. Reasons for exception 1. The concept of equity in taxation requires that the apportionment of the tax burden be. c. The doctrine does not require that persons or properties different in fact be treated in law as though they were the same. Constitutional Limitations 1. Prohibition against taxation of non-stock. The classification must be germane to the purpose of the law. Article VI of the Constitution provides that “the rule of taxation shall be uniform and equitable. 5. but subject to reasonable classification. Congress may group persons or properties to be taxed and it is sufficient if all members of the same class are subject to the same rate and the tax is administered impartially upon them. thereby weakening the position or rights of the latter.Reasons for exempting governmental entities Government will be taxing itself to raise money for itself. It does not. Infringement of press freedom Grant of franchise Poll tax is a tax of fixed amount imposed on residents within a specific territory regardless of citizenship. An example of impairment by law is when a later taxing statute revokes a tax exemption based on a contract. International comity Courteous. friendly agreement and interaction between nations. non-profit educational institutions 10. 301 SCRA 278 (1999) 2. Property outside one’s jurisdiction does not receive any protection from the state. f. Immunity is necessary in order that governmental functions will not be impeded. just in the light of the taxpayer’s ability to shoulder the tax burden and. What it prohibits is class legislation which discriminates against some and favors others. Revenue bills shall originate exclusively from the House of Representatives e. In short. Prohibition against taxation of religious. thereby justifying a valid and reasonable classification. 2. It requires the uniform application and operation. Requisites of a valid classification Philippine Amusement and Gaming Corporation (PAGCOR) 1. 5. Example is community tax. more or less. When one State enters the territory of another State. Under international law. Prohibition against impairment of obligation of contracts No law impairing the obligation of contracts shall be passed. require absolute identity or equality under all circumstances. granting tax and duty incentives only to business within the “secured area” of the Subic Special Economic Zone and denying them to those who live within the Zone but outside such “fenced in” territory. 2. Others Grant of tax exemption Veto of appropriation. charitable and educational entities 9. however. or support of any church 8. equity in taxation Section 28 (c).

like restaurant and canteen operators. or prohibiting the free exercise thereof. [Gonzales v. actually. Article VI. and from parking fees collected from non-members are taxable income. the income of whatever kind and character of the foregoing organizations from any of their property.” Department of Finance Order 145-85 Non-stock. benefit. the income from the rent of its premises and parking fees is not covered by the exemption. charitable. or educational purposes shall be exempt from taxation. [Section 28 (3) . the balance. shall forever be allowed. charitable and educational purposes Charitable institutions. real or personal. Article VI of the Constitution does not apply as it extends exemption only from real property taxes – not from income taxes. Article XIV. the constitutional tax exemption granted to non-stock. [Section 5. non-stock educational corporation. even if it be exempt under Section 30 of the NIRC as a nonprofit. First.. or support of any church Section 29. No public money or property shall be appropriated. No money shall be paid out of the Treasury except in pursuance of an appropriation made by law. Article VI. Constitution] Under Section 27(B) of the NIRC. buildings. or from any of its activities for profit are not exempt from income tax. minister or dignitary is assigned to the armed forces. 101 Phil. or support of any church. If the purpose for which a special fund was created has been fulfilled or abandoned. The term “educational institution” or “institution of learning” has acquired a well known technical meaning. Veto of appropriation. and all lands. revenue.” It conducts various programs and activities that are beneficial to the public. if any. and exclusively used for religious. or tariff bills by the President The President shall have the power to veto any particular item or items in an appropriation. A perusal of the articles of incorporation of YMCA does not show that it established such a system. or to any penal institution. No religious test shall be required for the exercise of civil or political rights. mosques. An educational institution means a non-stock. 162 SCRA 106] Prohibition against taxation of the revenues and assets of nonstock. non-profit educational institutions used actually. and operated exclusively for educational purposes. 191 SCRA 452] .applies when the tax exemption has been granted for a valid consideration. and bookstores are exempt from taxation provided they are owned and operated by the educational institution as ancillary activities and the same are located within the school premises. minister or other religious teacher. Note however the last paragraph of Section 30 which states: “Notwithstanding the provisions in the preceding paragraphs. or dignitary as such except when such priest. non-profit educational institutions does not find application because YMCA is not an educational institution. Court of Appeals. Manila. alteration or repeal. Macaraig. especially the young people. non-profit educational institutions are exempt from taxes on all their revenues and assets used actually. benefit. non-profit educational institutions All revenues and assets of non-stock. The exemption in favor of property used exclusively for charitable or educational purposes is not limited to property actually indispensable therefore. Inc. 298 SCRA 83 (1998) The Young Men’s Christian Association of the Philippines. directly and exclusively used for religious. but the veto shall not affect the item or items to which he does not object. Section 28(3). the conduct of which is not related to the exercise or performance by such educational institution of its educational purposes or functions. [Section 27 (2) Article VI. without discrimination or preference. Grant of tax exemption No law granting any tax exemption shall be passed without the concurrence of a majority of all Members of Congress. (YMCA) was established as “a welfare. real or personal. educational and charitable non-profit corporation. directly and exclusively for educational purposes. they shall be subject to internal revenue tax on income from trade. sectarian institution or system of religion. the Supreme Court held that the income derived by YMCA from leasing out a portion of its premises to small shop owners. and with an issued permit to operate by the DECS. 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. regardless of the disposition made of such income. the institution must submit an annual information return and duly audited financial statement. applied. Under the Education Act of 1982. Prohibition against taxation of real property actually. In this case. Finally. The free exercise and enjoyment of religious profession and worship. Commissioner of Internal Revenue v. Revenues derived from and assets used in the operation of cafeteria/canteens. In budgetary legislation. non-profit corporation or association duly registered under Philippine law. or government orphanage or leprosarium. or tariff bill. the distinct and severable parts of a bill. 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. Other constitutional limitations 1. To substantiate this claim. pursuant to its religious. such term refers to schools. for the use. The school system is synonymous with formal education. shall be subject to tax imposed under this Code. preacher. educational and charitable objectives. et. Constitution] 2. 2. [Abra Valley College v. proprietary educational institutions and hospitals which are non-profit shall pay a tax of ten percent (10%) on their taxable income except for passive incomes which are subject to different tax rates. business or other activity. Constitution] An item in a bill refers to particulars. directly. A later statute may revoke exemption from taxation provided for in a franchise because the Constitution provides that a franchise is subject to amendment. including those cooperatively owned. or employed directly or indirectly. or from any of their activities conducted for profit. Section 30 provides that income of whatever kind and character from any of its properties. [Section 28 (4). shall be transferred to the general funds of the government. an item is an individual sum of money dedicated to a stated purpose. Taxation of proprietary educational institutions Proprietary educational institutions. paid. or of any priest. and improvements. Constitution] This is an exemption from real property tax only.al. However. Constitution 1. [Section 4. Constitution] The payment of license fees for the distribution and sale of bibles suppresses the constitutional right of free exercise of religion. 386] Prohibition against appropriation of proceeds of taxation for the use. 3. which “refers to the hierarchically structured and chronologically graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through the grades or move to the higher levels. Prohibition against infringement of religious freedom Interest income shall be exempt only when used directly and exclusively for educational purposes. according to the last paragraph of the same section. non-profit cemeteries. may likewise be entitled to such exemptions subject to the limitations provided by law including restrictions on dividends and provisions for investment. dormitories. revenue. Article III. Aquino. Article VI. Constitution] This exemption from corporate income tax is embodied in Section 30 of the NIRC which includes a non-stock. Department of Finance Order 137-87 No law shall be made respecting an establishment of religion. details. non-profit educational institution. maintained and administered by a private individual or group offering formal education. A certification of actual utilization and the Board resolution or the proposed project to be funded out of the money deposited in banks shall also be submitted. preacher. [American Bible Society v. Article XIV. denomination. churches and parsonages or convents appurtenant thereto. but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes. Second. their assets shall be disposed of in the manner provided by law. [Section 4 (3).

As stated above. because a bill originating in the House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole. The Supreme Court shall have the following powers: Review. Nature of the tax. i. This case involves the collection of inheritance taxes on shares of stock issued by the Benguet Consolidated Mining Corporation and owned by Lillian Eye. there are two exceptions to the rule. the corporation being domiciled therein. or repeal by the Congress when the common good so requires. Said shares were already subjected to inheritance taxes in California and are now being taxed by Philippine authorities. Constitution] The Constitution simply means that the initiative for the filing of bills must come from the House of Representatives. bills authorizing an increase of the public debt. Lex rei sitae This is a principle followed in fixing the situs of taxation of a property. This means that the property is taxable in the State where it has its actual situs. 4. Article VIII. of late. Subject matter thereof (i. Article VI. Secretary of Finance] 5. or any penalty imposed in relation thereto. the members of the House can be expected to be more sensitive to the local needs and problems. whether or not they are citizens. In taxation. The determination of the situs of taxation depends on various factors including the: 1. reverse. actual presence and control elsewhere. But this rule has. and they were in the possession of the secretary of the Benguet Corporation. [Tolentino v.e. upon which the rules rests. A different rule applies to intangible personal property. The actual situs of the shares of stock is in the Philippines. real property is subject to taxation in the State where it is located and taxable only there. or 2. Collector. hence. person. 6. when the interests of justice demand that it should not be applied. It must yield to established fact of legal ownership. Originally. where the property has in fact a situs elsewhere. elected as they are from the districts. Situs of tangible personal property It is taxable in the State where it has actual situs although the owner resides in another jurisdiction. [Tolentino v.3. The secretary had the right to vote. And besides. alteration. final judgments and orders of lower courts in: All cases involving the legality of any tax. When it is inconsistent with the express provisions of the statute 2. 70 Phil 325 Tax exemptions included in the grant of a franchise may be revoked by another law as it is specifically provided in the Constitution that the grant of any franchise is always subject to amendment. properties and rights within its jurisdiction and enjoying the protection of its laws. Situs of taxation of intangible personal property General rule: Situs is the domicile of the owner pursuant to the principle of mobilia sequuntur personam. When the property has acquired a business situs in another jurisdiction Mobilia sequuntor personam This limitation does not mean that the press is exempt from taxation. [Section 5 (2) (b).e. Revenue bills shall originate exclusively from the House of Representatives All appropriation. Grant of franchise This Latin maxim literally means that the property follows the person. Thus. specifically. Possible protection and benefit that may accrue both to the government and the taxpayer. or toll. the owner must support the government of that place. Residence or citizenship of the taxpayer. this principle is applied to intangible personal property the situs of which is fixed by the domicile of the owner. the certificates of stock have remained in this country up to the time when the deceased died in California. or affirm on appeal or certiorari. Non-impairment of the jurisdiction of the Supreme Court Congress cannot take away from the Supreme Court the power given to it by the Constitution as the final arbiter of tax cases. The reason is that this type of property rarely admits of actual location. specifically in the place where it is located. Upon the principle that as to intangibles. act or activity. and private bills shall originate exclusively in the House of Representatives. This applies whether or not the owner is a resident of the place where the property is located. Wells Fargo v. . Constitution] 4. This rule is based on the fact that such property does not admit of any actual location and that such property receives the protection and benefits of the law where they are located. Lex rei sitae has also been adopted for tangible personal property under Article 16 of the Civil Code. lex rei sitae has also been adopted for tangible personal property under Article 16 of the Civil Code. as the law or the Rules of Court may provide. Situs of tax on real property Situs is where the property is located pursuant to the principle of lex rei sitae. 5. the place where the owner is found is the situs of taxation under the rule that movables follow the person. considering the multiple. and cannot be applied if to do so would result in inescapable and patent injustice. Exceptions: 1. The maxim mobilia sequuntur personam. impost. Situs of tax on persons (poll tax) Poll tax may be properly levied upon persons who are inhabitants or residents of the State. Taxation constitutes an infringement of press freedom when it operates as a prior restraint to the exercise of this constitutional right. However. and Source of the income. a single location in space is hardly possible. distinct relationships which may be entered into with respect thereto. but the Senate may propose or concur with amendments. The relaxation of the original rule rests on either of two fundamental considerations: 1. One is when it is inconsistent with the express provisions of a statute. situs of taxation means place of taxation. Two. has been decried as a mere fiction of law having its origin in considerations of general convenience and public policy and cannot be applied to limit or control the right of the State to tax property within its jurisdiction. It is not the law – but the revenue bill – which is required by the Constitution to originate exclusively in the House of Representatives. revise. revenue or tariff bills. [Section 24. With respect to property taxes. property. the settled law in the United States is that intangibles have only one situs for the purpose of inheritance tax – the domicile of the decedent at the time of death. mobilia sequuntur personam. It is the State or political unit which has jurisdiction to impose a particular tax. bills of local application. This is generally where the owner resides. Infringement of press freedom The place where the real property is located gives protection to the real property. even though the owner resides in another jurisdiction. 2. on the theory that. Secretary of Finance] The Constitution does not also prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the House. assessment. SITUS IN TAXATION Situs of taxation Literally. as long as action by the Senate is withheld until receipt of said bill. When the tax is imposed on the receipts or the income of the press it is a valid exercise of the sovereign prerogative. Upon the recognition of the inherent power of each government to tax persons. been relaxed. and a distinct bill may be produced. This is so because the taxing authority has control over the property which is of a fixed and stationary character. collect 3. modify.

in consideration of such protection. De Lara. If the borrower is a resident of the Philippines. therefore. City of Iloilo. by the same State. the sale of tickets in the Philippines is the activity that produces the income. 3. Collector. or taxing authority. whenever possible. he must support it. and of the same kind or character of tax. or At any rate. For all practical purposes. 6. [Commissioner v. the same property must be taxed twice when it should be taxed once. 2. or activity by both the State and a political subdivision thereof. This is. Domicilliary theory 2. Theories re: situs of income tax 1. 2. For the source of income to be considered as coming from the Philippines. 5. The absence of flight operations to and from the Philippines is not determinative of the source of income or the situs of income taxation. it is something not favored. during the same taxing period. The variance in the concept of domicile for tax purposes. Government. the interest payment paid by him can have no other source than within the Philippines. his estate is entitled to exemption from inheritance tax on the intangible personal property found in the Philippines. both taxes must be imposed on the same property or subject matter. The flow of wealth proceeded from and occurred in the Philippine territory. The location where the income earner resides is the situs of taxation. BOAC. it cannot alter the fact that income from the sale of the tickets was derived from the Philippines. 149 SCRA 395] Situs of tax on interest income is the residence of the borrower who pays the interest. The tickets exchanged hands here and payments for fares were also made in the Philippines. Multiplicity of situs Multiplicity of situs. within the same jurisdiction or taxing district. The word “source” conveys one essential idea. Collector v. enjoying the protection accorded by the Philippine government. irrespective of the place where the obligation was contracted. Double Taxation Double taxation in the strict sense v. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation. a license tax may be levied upon a business or occupation although the land used in connection therewith is subject to property tax. The remedy to avoid or reduce the consequent burden in case of multiplicity of situs is either to: 1. De Leon. which otherwise would subject a decedent’s intangible personal property to the inheritance tax both in his place of residence and domicile and the place where those properties are found. firms and corporations placed in a similar situation. 2. our Constitution does not prohibit double taxation. some of the property in the territory. or activity by both the State and a political subdivision thereof. [City of Baguio v. for the same purpose. among others. And where the statute or ordinance in questions applies equally to all persons. Situs of income tax in the Philippines The situs is where the income is derived. an exception to the decision of the Supreme Court in Wells Fargo v. In addition. The same tax may be imposed by the National Government as well as the local government. there may be a violation of the constitutional precepts of equal protection and uniformity in taxation. taxing twice. it is sufficient that income is derived from an activity within the Philippines. or 3. by the same taxing authority. Eye extended in the Philippines her activities re: her intangible personal property so as to avail herself of the protection and benefits of the Philippine laws. 3. 3. there is no constitutional prohibition against double taxation in the Philippines. arises from various factors: 1. 1. provided that some other constitutional requirement is not thereby violated. This exemption is granted to non-residents to reduce the burden of multiple taxation. Multiple distinct relationships that may arise with respect to intangible personal property. Further. 102 Phil 813 The Supreme Court did not subject to estate and inheritance taxes the shares of stock issued by Philippine corporations which were left by a non-resident alien after his death. The use to which the property may have been devoted all of which may receive the protection of the laws of jurisdictions other than the domicile of the owner thereto. it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation. 5. that of origin. hence. 265 SCRA 528 An ordinance imposing a municipal tax on tenement houses was challenged because the owners already pay real estate taxes and also income taxes under the NIRC. It is something not favored but is permissible. Even if the tickets sold covered the transport of passengers and cargo to and from foreign cities. The Supreme Court held that there was no double taxation. The test of taxability is the source of the income and the source is that activity which produced the income. within the same jurisdiction or taxing district. or the taxation of the same income or intangible subject in several taxing jurisdictions. referred to as indirect double taxation. Source law The country which is the source of the income or where the activity that produced the income is the situs of taxation. 25 SCRA 938] Villanueva v. Means of Avoiding or Minimizing the Burden of Taxation . while it is not forbidden. double taxation in the broad sense In its strict sense.dividends. and the origin of the income is here in the Philippines. 7. In BOAC’s cases. Enter into tax treaties with other States. Provide exemptions or allowance of deduction or tax credit for foreign taxes. This has since been incorporated in Section 104 of the NIRC. 6. Such taxation should. the flow of wealth should share the burden of supporting the government. for the same purpose. This is where he is given protection. The argument against double taxation may not be invoked where one tax is imposed by the State and the other is imposed by the city. in the same year or taxing period. calling. where there is direct double taxation. 4. the secretary had legal title to the certificates of stock held in trust for Eye. Nationality theory In its broad sense. 4. In order to constitute objectionable or prohibited sense: double taxation in the The country of citizenship is the situs of taxation. double taxation means: 1. calling. However. activity or service that produced the income. be avoided and prevented. referred to as direct duplicate taxation. 2. there is no infringement of the rule on equality. It extends to all cases in which there is a burden of two or more impositions. double taxation is taxation other than direct duplicate taxation. Considering that he is a resident of a foreign country. Constitutionality of double taxation Unlike the United States Constitution. The source of an income is the property. This is so because a citizen is given protection by his country no matter where he is found or no matter where he earns his income.

It is not necessarily discriminatory as long as there is a reasonable foundation or rational basis. When the burden of the tax is transferred from a factor of production through factors of distribution until it finally settles on the ultimate purchaser or consumer. 2. Shifting Capitalization Evasion Exemption Transformation Avoidance Impact is the imposition of the tax. Exemption is allowed only if there is a clear provision Statutory taxpayer The statutory taxpayer is the person required by law to pay the tax or the one on whom the tax is formally assessed. shifting. the Pachecho co-owners saved on inheritance taxes. deliberate reduction of income that has been received. Example: the payment of less than that known by the taxpayer to be legally due. Impact and incidence of taxation Impact of taxation is the point on which a tax is originally imposed. Tax exemption It is the grant of immunity to particular persons or corporations or to persons or corporations of a particular class from a tax which persons and corporations generally within the same state or taxing district are obliged to pay. a private concessionaire engaged in the manufacturer of furniture inside the Clark Air Base. the Supreme Court affirmed the assessment of a deficiency tax against Gonzales. then to retailer. the statutory taxpayer is the one who pay the tax to the government but the burden can be passed to another person or entity. Forward shifting In Republic v. and from the latter to the wholesaler. Thus. By virtue of the deed of exchange. shifting is the transfer of the tax. Onward shifting Tax avoidance is the exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income in order to avoid or reduce tax liability. direct taxes cannot be shifted. 3.” “willful” or “deliberate and not accidental. It is also known as “tax dodging. 3. and if the tax is transferred again to the purchaser by the retailer. we have two shifts. 1 SCRA 160] Example: Deliberate failure to report a taxable income or property. from the producer to the wholesaler. for underdeclaration of his income. Relationship between impact. Taxes that can be shifted Evidence to prove evasion Only indirect taxes may be shifted. and finally to the manufacturer or producer. . it need not be proved by direct evidence but may be proved from the circumstances of the case. 2.” “in bad faith. In short. a transfer from the seller to the purchaser involves one shift. 6. who also shifts it to the final purchaser or consumer. It is not based on the idea of lessening the burden of the individual owners of property. Intermediate Appellate Court [157 SCRA 349]. he or she is the subject of the tax. Backward shifting Tax avoidance When the burden of the tax is transferred from the consumer or purchaser through the factors of distribution to the factor of production. An accompanying state of mind described as being “evil. In so far as the law is concerned. Grounds for granting tax exemptions Since fraud is a state of mind. Example: Consumer or purchaser may shift tax imposed on him to retailer by purchasing only after the price is reduced.Six basic forms of escape from taxation 1. the shifting is the intermediate process. 1. It is an immunity or privilege. It takes place when shifting has been effected from the statutory taxpayer to another. Tax evasion is a term that connotes fraud through the use of pretenses or forbidden devices to lessen or defeat taxes. and incidence of a tax The impact is the initial phenomenon. while incidence is the setting or coming to rest of the tax. Court of Tax Appeals.e. 5. Ways of shifting the tax burden 1. The end to be achieved. Rationale for granting tax exemptions Its avowed purpose is some public benefit or interest which the lawmaking body considers sufficient to offset the monetary loss entailed in the grant of the exemption. The theory behind the grant of tax exemptions is that such act will benefit the body of the people. The Supreme Court said the records do not point to anything wrong and objectionable about this estate planning scheme resorted to. or in paying no tax when such is due. the statutory taxpayer is the one who shoulders the burden of the tax while in indirect taxes. the impact in a sales tax (i.” It is punishable by law. In Delphers Traders Corp. He is the subject of the tax. When the tax is shifted two or more times either forward or backward. Thus. therefor. v. He is also termed as the statutory taxpayer – the one on whom the tax is formally assessed. who in turn shifts it to the retailer. Example: Manufacturer or producer may shift tax assessed to wholesaler. we have three shifts in all. Incidence of taxation is that point on which the tax burden finally rests or settle down. VAT) is on the seller (manufacturer) who shifts the burden to the customer who finally bears the incidence of the tax. it is freedom from a financial charge or burden to which others are subjected. It should be borne in mind that what is transferred is not the payment of the tax but the burden of the tax. [Yutivo v. It is politely called “tax minimization” and is not punishable by law. the taxpayer is the person who must pay the tax to the government. Tax avoidance 2. SC held that the failure of the taxpayer to declare for taxation purposes his true and actual income derived from his business for two (2) consecutive years is an indication of his fraudulent intent to cheat the government if its due taxes. the Supreme Court upheld the estate planning scheme resorted to by the Pacheco family in converting their property to shares of stock in a corporation which they themselves owned and controlled. Elements of tax evasion Note: With the exception of evasion. In direct taxes. The legal right of the taxpayer to decreased the amount of what otherwise could be his taxes or altogether avoid them by means which the law permits cannot be doubted. Tax evasion Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of a tax. all are legal means of escape. 4. Shifting Tax evasion connotes the integration of three factors: Shifting Shifting is the transfer of the burden of a tax by the original payer or the one on whom the tax was assessed or imposed to someone else. and the incidence is the result. Gonzales [13 SCRA 633].” 3. A course of action (or failure of action) which is unlawful.

inflicting or enforcing something as well as to restore what has already been taken. It is inherent in the exercise of the power to tax that the sovereign state be free to select the subjects of taxation and to grant exemptions therefrom. it can also provide for exemptions or even take back the power. The legislature may delegate its power to grant tax exemptions to the same extent that it may exercise the power to exempt. Kinds of tax exemption according to manner of creation 1. Taxation is the rule and exemption is the exemption. In such a case.e. the public which is represented by the government is supposed to receive a full equivalent therefor.1. exemptions are not favored and are construed strictissimi juris against the taxpayer.R. It is not necessarily discriminatory so long as the exemption has a reasonable foundation or rational basis.” Since the partial refund authorized under Section 5. it should be sustained only when expressly provided in the law. 09 December 1998 In a compromise agreement between the Philippine Government. charter of a corporation. 130716. 2. “a claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. The Supreme Court ruled that the PCGG has absolutely no power to grant tax exemptions. the legislative power to exempt is as broad as its power to tax. Here. [Surigao Consolidated Mining v. property or transactions are. Does provision in a statute granting exemption from “all taxes” include indirect taxes? NO. to encourage new industries or to foster charitable institutions. PCGG. National government A tax cannot be imposed unless it is supported by the clear and express language of a statute. i. expressly or implied. Express or affirmative exemption When certain persons. V. 2. But the moment the power to impose a particular tax is granted. Commissioner. and the Marcos heirs. Commissioner of Internal Revenue. property or transactions are exempted. partakes of an absolute forgiveness or waiver by the government of its right to collect what otherwise would be due it and. 91 Phil 370] The condonation of a tax liability is equivalent to and is in the nature of a tax exemption. Exceptions 1. In cases of exemptions granted to religious. [Maceda v. properties. exempted from all or certain taxes. the government need not receive any consideration in return for the tax exemption. it must be at least within its purview by clear legislative intent. is in the nature of a tax exemption. Total When certain persons. property or transactions are exempted. expressly or implied. 196 SCRA 335] Like tax exemption. petitioner’s claim of refund on the basis of the specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to be mistaken. tax amnesty is never favored nor presumed in law. Municipal corporations are mere creatures of Congress which has the power to create and abolish municipal corporations due to its general legislative powers. [Juan Luna Subd. In fact. thus giving them a chance to do so and thereby become a part of the new society with a clean slate. If . Thus. Partial When certain persons. 9 SCRA 728] Tax amnesty Tax amnesty. even under the cover of its authority to compromise ill gotten wealth cases. When the law itself expressly provides for a liberal construction thereof. It is granted particularly to tax evaders who wish to relent and are willing to reform. represented by the PCGG. Implied exemption or exemption by omission When a tax is levied on certain classes of persons. Strict interpretation does not apply to the government and its agencies Petitioner cannot invoke the rule on stritissimi juris with respect to the interpretation of statutes granting tax exemptions to the NPC. He who claims exemption must be able to justify his claim or right thereto by a grant express in terms “too plain to be mistaken and too categorical to be misinterpreted. Exemption is allowed only if there is a clear provision therefor. G. the PCGG granted tax exemptions to the assets which will be apportioned to the Marcos heirs. indirect taxes are not included in the grant of such exemption unless it is expressly stated. PAGCOR (196 SCRA 52): The power to tax municipal corporations must always yield to a legislative act which is superior. Tax remission or tax condonation The word “remit” means to desist or refrain from exacting. being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. they also have the power to grant exemption therefrom unless forbidden by some provision of the Constitution or the law. Basco v. May be based on grounds of reciprocity or to lessen the rigors of international double or multiple taxation Note: Equity is not a ground for tax exemption.. 2. Nature of power to grant tax exemption 1. Intermediate Appellate Court. RA 1435. from all taxes. and so is prejudicial thereto. 293 SCRA 76 (1998) 2. Local governments Municipal corporations are clothed with no inherent power to tax or to grant tax exemptions. 2. Sarmiento. The terms of the amnesty The power to grant tax exemptions is an attribute of sovereignty for the power to prescribe who or what persons or property shall be taxed implies the power to prescribe who or what persons or property shall not be taxed. It is a mere personal privilege of the grantee. The remission of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination. May be based on some ground of public policy. prejudicial thereto. It is generally revocable by the government unless the exemption is founded on a contract which is protected from impairment. in this sense. Kinds of tax exemptions according to scope or extent 1. once the tax is unquestionably imposed. on the other hand. The grant of tax exemptions is the exclusive prerogative of Congress. 3. or transactions without mentioning the other classes. Every tax statute makes exemptions because of omissions. Macaraig] Davao Gulf v.e. Interpretation of laws granting tax exemptions General rule In the construction of tax statutes. Chavez v. 3. The rule on strict interpretation does not apply in the case of exemptions in favor of a political subdivision or instrumentality of the government. May be based on contract. charitable and educational institutions or to the government or its agencies or to public property because the general rule is that they are exempt from tax. either entirely or in part. The fundamental theory is that all taxable property should bear its share in the cost and expense of the government. the Supreme Court even stated that Congress itself cannot grant tax exemptions in the case at bar because it will violate the equal protection clause of the Constitution.” If not expressly mentioned in the law. It is granted by statute. No. Nature of tax exemption 1. either entirely or in part. As a general rule. Congress can grant the power to tax. Unless restricted by the Constitution. by express provision. having been passed by the State itself. [Republic v. from certain taxes. it must be construed strictissimi juris against the grantee. Hence. 4. It implies a waiver on the part of the government of its right to collect what otherwise would be due to it. 2. i. Such a set of taxes is a class by itself and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike.

including rulings on the classification of articles for sales tax and similar purposes. Tax exemption are not favored and are construed strictissimi juris against the taxpayer. Philippine Chamber of Commerce and Industry. Copies of the tax issuance have been sent through registered mail to the following business and professional organizations: a. They must be published in the Official Gazette or a newspaper of general circulation. including: 1. 3. but must remain consistent with. Effectivity and Validity of a Tax Ordinance . Interpretation and Administration of Tax Laws Sources of tax laws 1. Unlike a tax exemption. Revenue rules and regulations and administrative rulings and opinions Tax treaty A tax treaty is one of the sources of our law on taxation. the law they seek to apply and implement. prejudicial thereto. They are usually rendered on request of taxpayers to clarify certain provisions of a tax law. Court of Tax Appeals. However. particularly to tax evaders who wish to relent and are willing to reform are given a chance to do so and therefore become a part of the society with a clean slate. inflicting or enforcing something as well as to restore what has already been taken. such successors are satisfied that a different construction of the law should be given. 240 SCRA 368 The authority of the Minister of Finance. Constitution National Internal Revenue Code Tariff and Customs Code Local Government Code (Book II) Local tax ordinances/ City or municipal tax codes Tax treaties and international agreements 3. neither to supplant nor to modify. A treaty has the force and effect of law. 2. Court of Appeals. ordinarily should deserve weight and respect by the courts. the law. 4. To carry into effect the law’s general provisions by providing details of administration and procedure Requisites for validity of rules and regulations 1. a tax amnesty has limited applicability as to cover a particular taxing period or transaction only. shall promulgate needful rules and regulations for the effective enforcement of the provisions of the NIRC. issuance. and is granted by statute. are the less general interpretation of tax laws being issued from time to time by the Commissioner of Internal Revenue. Purpose of rules and regulations 1. Effectivity date for enforcement of the new issuance shall take place thirty (30) days from the date the issuance has been sent to the above-enumerated organizations. The Philippine Government usually enters into tax treaties in order to avoid or minimize the effects of double taxation.must also be construed against the taxpayer and liberally in favor of the government. Federation of Filipino-Chinese Chamber of Commerce. 134 SCRA 29 When an administrative agency renders an opinion by means of a circular or memorandum. The Commissioner may revoke. Revenue Rules and Regulations and Administrative Rulings and Opinions Authority to promulgate rules and regulations and rulings and opinions The Secretary of Finance. the aforesaid revenue tax issuances shall not begin to be operative until after due notice thereof may be fairly assumed. 3. Tax amnesty v. Revenue Regulations. 8. 6. Revenue Memorandum Circulars and Revenue Memorandum Orders. to promulgate rules and regulations for the effective enforcement of internal revenue rules cannot be controverted. is the grant of immunity to particular persons or corporations or to person or corporations of a particular class from a tax which persons and corporations generally within the same state or taxing district are obliged to pay. tax condonation v. Tax exemption. is that all such issuances must not override. Much more fundamental than either of the above. tax exemption A tax amnesty. American Chamber of Commerce. The terms of the amnesty must be strictly construed against the taxpayer and liberally in favor of the government. Construction by an executive branch of the government of a particular law. Application. however. There is tax condonation or remission when the State desists or refrains from exacting. Thus. BIR rulings Administrative rulings. Philippine Institute of Certified Public Accountants. in conjunction with the Commissioner of Internal Revenue. La Suerte v. The Bureau of Internal Revenue shall issue a press release covering the highlights and features of the new tax issuance in any newspaper of general circulation. Integrated Bar of the Philippines. They must not be contrary to law and the Constitution. it should be sustained only when expressed in the law. 9. Like a tax exemption. Administrative rules and regulations are intended to carry out. and Special laws b. 2. upon recommendation of the Commissioner of Internal Revenue. Japanese Chamber of Commerce and Industry in the Philippines. Effectivity of revenue rules and regulations Revenue Memorandum Circular 20-86 was issued to govern the drafting. must be given weight as the construction came from the branch of the government which is called upon to implement the law. and implementation of revenue tax issuances. Commissioner v. 7. Revenue Audit Memorandum Orders. 2. known as BIR rulings. it merely interprets existing law and no publication is therefore necessary for its validity. To properly enforce and execute the laws To clarify and explain the law d. 2. repeal or abrogate the acts or previous rulings of his predecessors in office because the construction of the statute by those administering it is not binding on their successors if. Rulings in the form of opinions are also given by the Secretary of Justice who is the chief legal officer of the Government. 4. however. Neither can it be disputed that such rules and regulations. This is without prejudice to the power of the Commissioner of Internal Revenue to make rulings or opinions in connection with the implementation of the provisions of internal revenue laws. although not binding upon courts. partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it and. thereafter. f. as well as administrative opinions and rulings. other persons or entities may request a copy of the said issuances. on the other hand. in this sense. Decisions of the Supreme Court and the Court of Tax Appeals c. 3. a tax amnesty is never favored nor presumed in law. The condonation of a tax liability is equivalent to and is in the nature of a tax exemption. being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. 2. and Sources. Except when the law otherwise expressly provides. 5. These rulings may be revoked by the Secretary of Finance if the latter finds them not in accordance with law. Due notice of the said issuances may be fairly presumed only after the following procedures have been taken: 1. e.

Exception: While it is not favored. as such.f o r t h e p u r p o s e o f raising revenues to carry out the legitimate o b j e c t s o f t h e government. BASIS OF TAXATION > GOVERNMENTAL NECESSITY* The existence of the government depends upon its capacity to perform itstwo (2) basic functions:A. Income tax returns that were filed during that period and income tax payments made were considered valid and legal. Application of tax laws General rule: Tax laws are prospective in operation because the nature and amount of the tax could not be foreseen and understood by the taxpayer at the time the transactions which the law seeks to tax was completed.One is compensation or consideration for the other. For t his reason. Rule when there is doubt No person or property is subject to taxation unless within the terms or plain import of a taxing statute. Tax laws are civil in nature. The governm ent prom ises nothing to the person taxed beyond what m aybe anticipated from an administration of the laws for the general good. Theo b l i g a t i o n t o p a y t a x e s r e s t s n o t u p o n t h e p r i v i l e g e s e n j o y e d b y o r t h e protection afforded to the citizen by the government. In every case of doubt. Rafferty. LORENZO vs. are not to be presumed beyond what the statute expressly and clearly declares. Hilado v. Civil. But a tax law should not be given retroactive application when it would be harsh and oppressive. The omission to follow mandatory provisions renders invalid the act or proceeding to which it relates while the omission to follow directory provisions does not involve such consequence. 99 Phil 934: The war profits tax is not subject to the prohibition on ex post facto laws as the latter applies only to criminal or penal matters. Internal revenue laws are not political in nature. -The government is expected to respond in the form of tangible or intangibleb e n e f i t s i n t e n d e d t o i m p r o v e t h e l i v e s o f t h e p e o p l e a n d e n h a n c e d t h e i r material and moral values. POSADAS • The onl y benefit to which the taxpayer is entitled is t hat deri ved form theenjoyment of the privileges of living in an organized society established andsafeguarded b y the devotion of taxes to public purpose. a statute may nevertheless operate retroactively provided it is expressly declared or is clearly the legislative intent. it must be shown to have been enacted in accordance with the requirements of the Local Government Code. the taxpayer receives the general advantagesand protection which the government affords the taxpayer and his property. 2. They should not be construed as to permit the taxpayer easily to evade the payment of taxes. although there are penalties provided for their violation. 2. every person who is able to must contribute his sharein the running of the government. not penal. But their collection s h o u l d n o t b e t a i n t e d w i t h arbitrariness NATURE OF TAXATION 1)Inherent in sovereignty . 37 Phil 958] TAX REVIEWER GENERAL PRINCIPLES:BY: Rene Callanta DEFINITION OF TAXATION Taxation is the inherent power of the sovereign. in nature Tax laws are civil and not penal in nature. TAXES Enforced proportional contributions from properties and persons levied by theState b y virtue its soverei gnty for the support of t he governm ent and for public needs. e x e r c i s e d t h r o u g h t h e legislature. Republic v. no one is allowed toobject to or resist payment of taxes solely because no personal benefit to himcan be pointed out as arising from the tax. 212 SCRA 739 If the resolution is to be considered as a tax ordinance. but upon the necessityof m oney for t he support of the State. 100 Phil 288: It is well known that our internal revenue laws are not political in nature and. These would include the holding of a public hearing on the measure and its subsequent approval by the Secretary of Finance. Directory and mandatory provisions of tax laws Directory provisions are those designed merely for the information or direction of officers or to secure methodical and systematic modes of proceedings. it does not mean that only those who are able topay taxes can enjoy the privileges and protectiongiven to a citizen by the government. Taxes. Construction of tax laws 1.Tuazon v. Thus. being burdens. The purpose of tax laws in imposing penalties for delinquencies is to compel the timely payment of taxes or to punish evasion or neglect of duty in respect thereof. Oasan. Tax laws are civil and not penal in nature. Collector. property. or the exercise of a right or privilege 5)It is levied by the State which has jurisdiction o v e r t h e s u b j e c t o r o b j e c t o f taxation 6)It is levied b y the law-m aking body of the State 7)It is levied for publics purpose or purposes REQUISITES of a VALID TAX code: [P. • In return for his contribution.However. Mandatory provisions are those intended for the security of the citizens or which are designed to ensure equality of taxation or certainty as to the nature and amount of each person’s tax. [Roxas v. in addition to the usual requisites for publication of ordinances in general. continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. U. Protection for support andsupport for protection. Not political in nature Internal revenue laws are not political in nature. our tax laws continued in force during the Japanese occupation. They are deemed to be the laws of the occupied territory and not of the occupying enemy. to protect the people THEORY OF TAXATION >RECIPROCAL DUTIES OF SUPPORT AND PROTECTION1) Support on the part of the taxpayers2) Protection and benefits on the part of the government BENEFITS RECEIVED PRINCIPLE (CIR vs. • Taxes are essential to the existence of the government. N ]1 ) I t s h o u l d b e f o r a p u b l i c p u r p o s e 2)The rule of taxati o n shoul d be uniform 3)That either the person or property taxed be w i t h i n t h e j u r i s d i c t i o n o f t h e taxing authority 4)That the assessment and collection be in c o n s o n a n c e w i t h t h e d u e p r o c e s s clause  5)The tax m ust not infringe on the inherent and constitutional lim itations of thepower of taxation*> Taxes are the lifebl ood of the governm ent and should be collected without u n n e c e s s a r y hindrance. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy. J.. Provisions granting tax exemptions Such provisions are construed strictly against the taxpayer claiming tax exemption. to serve the peopleB. A. INTERPRETATION AND APPLICATION OF TAX LAWS Nature of internal revenue laws 1. Court of Appeals. ESSENTIAL ELEMENTS OF A TAX 1)It is an enforced contribution 2)It is generally payable in money 3)It is proportionate in character 4)It is levied on persons. ALGUE Despite the natural reluctance to surrender part of ones hard earned incometo the taxing authority.. Rule when legislative intent is clear Tax statutes are to receive a reasonable construction with a view to carrying out their purpose and intent. tax statutes are construed strictly against the government and liberally in favor of the taxpayer. to impose burdens upon the subjects and objects within its jurisdiction. 3.

the go vernm ent wou ld beparalyzed for lack of motive power to activate and operate it.. The fees may properly regarded as taxes even though they also serve as aninstrument of regulation. License feesand charges. th e g overnm ent wi ll not survi ve. and . CALTEX vs. it does not include the power todestroy if it is used solely for the purpose of raising revenue. p r o v i d e d i t i s w i t h i n i t s jurisdiction 2)Amount or rate of tax 3)Purposes for its levy.Inhabitants pay taxes and in return receive benefits and protection from theState SCOPE OF LEGISLATIVE TAXING POWER 1)The persons. SEC. businesses. provided it be for a public pu rpose 4)Kind of tax to be collected 5)Apportionment of the tax 6)Situs of taxation 7)Method of collection CIR vs. W ithout ta xes. expediency or necessityof such tax law. ALGUE •> Ta xes a re th e lifeb loo d of the go vernm ent and t here prom pt and certainavailability is an imperious need. LIFEBLOOD DOCTRINE > Taxes are the lifeblood of the nation • > W ithout re ve nue raise d f rom ta xation. CTA )NOTES: • > If the pu rpose of ta xati on is re gulato ry in character. NATURE OF THE TAXING POWER 1)Attribute of sovereignty and emanates f r o m n e c e s s i t y . or enterprisesand the purpose is to raise revenue. r e l i n q u i s h m e n t o f which is never presumed 2)Legislative in character. Of FINANCE • > In the selection of the object or subject of t a x a t i o n t h e c o u r t s h a v e n o power to inquire into the wisdom. ( 3)Subject limitations to inherent and constitutional NECESSITY THEORY • > Existence of a government is a necessity and cannot continue without anymeans to pay for expenses BENEFITS – PROTECTION THEORY • > Reciprocal duties of protection and support between State and inhabitants. or if revenue isat least one of the real and substantial purposes. ta xation is used toimplement the police power of the state • > If the power of taxation is used to destroy things. (WOMEN) PURPOSES OF TAXATION PRIMARY. ( ROXAS vs. then the exaction is properlycalled a tax. the court will come in because there willb e v i o l a t i o n o f t h e i n h e r e n t a n d c o n s t i t u t i o n a l l i m i t a t i o n s a n d i t w i l l b e declared invalid. CIR • > Ta xatio n is no longe r a measure m erel y to raise revenue to support th eexistence of the government. looked to as a source of revenue as well as a means regulation. motive. resulting in detrim ent to society.2)Legislative in character SCOPE OF TAXATION 1)Comprehensive 2 ) U n l i m i t e d 3 ) P l e n a r y 4 ) S u p r e m e TOLENTINO vs. Taxes may be levied with a regulatory purposeto provide means for rehabilitation and stabilization of a threatened industrywhich is affected with public interest as to be within the police power of theState. objectivity. EDU • > It is possible for an exaction to be both a tax and a regulation. property and excises to be t a x e d . • > Ta xes a re the life blo od of the nation th ro ugh which t he agencies of thegovernment continue to operate and with which the state effects its functionsfor the benefit of its constituents ILLUSTRATIONS OF THE LIFEBLOOD THEORY 1)Collection of the ta xes m ay not be e njoin ed b y injunction 2)Ta xes could n ot be the s ubject of com pensation or set off 3)A va lid ta x m ay result in destruction of the t a xpayer’s prop ert y 4)Ta xatio n is an unlim ited and plen ary po wer POWER TO TAX AND POWER TO DESTROY * > The po we r to ta x includ es the po we r to destroy if it is used as a n im plem ent of the police power (regulatory) of the State. However . If the purpose is primarily revenue.T o r a i s e r e v e n u e i n o r d e r t o s u p p o r t t h e government SECONDARY 1)Used to reduce social inequality 2)Utili zed to im plem ent the police po wer of the State 3)Used to protect our lo cal indus tries against unf air com petition4)Utilized b y the gove rnm ent to encourage t he gro wt h of local industri es PAL vs.