General Principles of Taxation

0
A. Taxation in General
a.1. Taxation concept inherent power of the State,
through the legislative body, to raise revenues for the
purpose of defraying the expenses of government
Q: Does the Constitution contain a provision granting
taxation power to the State?
A: There is no provision in the Constitution granting such
power. The power to tax is inherent in the State and
therefore requires no constitutional grant in order to exercise
the same. What the Constitution contains are provisions
limiting such power of taxation.
Q: What is meant by the power to tax is the power to
destroy and is it applicable in the Philippine
jurisdiction?
A: The power to tax is the power to destroy is in reference
to the fact that taxation is plenary and therefore generally
unlimited, so that it applies to anything that can be subjected
to tax, even income arising from an illegal enterprise and
even to the extent that it becomes confiscatory. However,
while the power to tax is the power to destroy, this is not so
while the Supreme Court sits, because such power is still

subject to judicial review. So that, in sum, the principle that

the power to tax is the power to destroy refers to the vigor
with which the power may be exercised and not to its
purpose. Moreover, this theory only applies in Philippine
jurisdiction on the presumption that such power is validly
exercised. Such power is validly exercised if it does not
contravene the limitations imposed by the Constitution and
by law.
a.2. Nature and Scope of the Power of Taxation
Art. V, Section 28(20): Legislative Powers (Plenary)
Art. X, Section 5: Taxation Power of LGU
NATURE:
o
o
o

an attribute of sovereignty
inherent
legislative in character
SCOPE:
Legislative taxing power extends to the following:

subject of taxation (person, property or occupation,

excises and privileges)

o
rates or amount
o
kinds
o
purpose (must be for a public purpose)

o
o

situs (jurisdiction)
method of collection
Churchill and Tait v. Concepcion, G.R. No. 11572, Sept. 22,
1916
The power to impose taxes is one so unlimited in force
and so searching in extent, that the courts scarcely venture
to declare that it is subject to any restrictions whatever,
except such as rest in the discretion of the authority which
exercises it. It reaches to every trade or occupation; to every
object of industry, use, or enjoyment; to every species of
possession; and it imposes a burden which, in case of failure
to discharge it, may be followed by seizure and sale or
confiscation of property. No attribute of sovereignty is more
pervading, and at no point does the power of the government
affect more constantly and intimately all the relations of life
than through the exactions made under it." (Cooley's
Constitutional Limitations, 6th Edition, p. 587.)

a.3. Theory of Taxation, Basis or Rationale of Taxation

THEORY:
o

Necessity Theory the government is necessary since

the exercise of governmental functions redounds to the

benefit of society; this can only be achieved by raising

revenues
o
Symbiotic Theory (Benefits-Protection) government
needs revenues to defray expenses; the public benefit from
government
BASIS: Life-blood Theory (taxes are necessary)
RATIONALE:
o

Symbiotic relationship between State and tax-paying

public
o
State has jurisdiction over the taxpayer
NPC v. City of Cabanatuan, G.R. No. 149110, April 9, 2003
Taxes are the lifeblood of the government, for without taxes,
the government can neither exist nor endure. A principal
attribute of sovereignty, the exercise of taxing power derives
its source from the very existence of the state whose social
contract with its citizens obliges it to promote public interest
and common good. The theory behind the exercise of the
power to tax emanates from necessity; without taxes,
government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.
CIR v. Algue, G.R. No. L-28896, Feb. 17, 1988

It is said that taxes are what we pay for civilized society.

Without taxes, the government would be paralyzed for lack of
the motive power to activate and operate it. Hence, despite
the natural reluctance to surrender part of one's hard-earned
income to the taxing authorities, every person who is able to
must contribute his share in the running of the government.
The government for its part, is expected to respond in the
form of tangible and intangible benefits intended to improve
the lives of the people and enhance their moral and material
values. This symbiotic relationship is the rationale of taxation
and should dispel the erroneous notion that it is an arbitrary
method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability
of taxation, it is a requirement in all democratic regimes that
it be exercised reasonably and in accordance with the
prescribed procedure. If it is not, then the taxpayer has a
right to complain and the courts will then come to his succor.
For all the awesome power of the tax collector, he may still
be stopped in his tracks if the taxpayer can demonstrate, as
it has here, that the law has not been observed.
Phil. Bank of Communications v. CIR, G.R. No. 112024, Jan.
28, 1999
Basic is the principle that "taxes are the lifeblood of the
nation." The primary purpose is to generate funds for the
State to finance the needs of the citizenry and to advance
the common weal. [Napocor vs. Province of Albay, 186 SCRA

198 (1990), at p. 207.] Due process of law under the

Constitution does not require judicial proceedings in tax
cases. This must necessarily be so because it is upon
taxation that the government chiefly relies to obtain the
means to carry on its operations and it is of utmost
importance that the modes adopted to enforce the collection
of taxes levied should be summary and interfered with as
little as possible. [Teodoro and de Leon, Law on Income
Taxation, 1993 ed., at 485.]
fundamental is the rule that the State cannot be put in
estoppel by the mistakes or errors of its officials or agents.

a.4. Extent of the Taxing Power

Tio v. Videogram Regulatory Board, G.R. No. L-75697, June
18, 1987
a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities
taxed. The power to impose taxes is one so unlimited in force
and so searching in extent, that the courts scarcely venture
to declare that it is subject to any restrictions whatever,
except such as rest in the discretion of the authority which
exercises it. In imposing a tax, the legislature acts upon its
constituents. This is, in general, a sufficient security against
erroneous and oppressive taxation.

It is inherent in the power to tax that a state be free to select

the subjects of taxation, and it has been repeatedly held that
inequities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional
limitation. Taxation has been made the implement of the
states police power.

a.5. Purpose and Objectives of Taxation

1.
2.
3.
4.
5.

raise revenue
regulate
promote general welfare
reduce social inequality
encourage economic growth compensatory because
the power to tax necessarily includes the power to grant tax
exemption, providing tax incentives for investors
6.
implement of eminent domain
Sumptuary Purpose of Taxation non-revenue raising
purpose of taxation; refers to regulatory purpose
Caltex Philippines, Inc. v. COA, G.R. No. 92585, May 8, 1992
POLICE POWER: Taxation is no longer envisioned as a
measure merely to raise revenue to support the existence of
the government; taxes may be levied with a regulatory
purpose to provide means for the rehabilitation and

stabilization of a threatened industry which is affected with

public interest as to be within the police power of the state.
NO OFFSET: It is settled that a taxpayer may not offset taxes
due from the claims that he may have against he
government. Taxes cannot be the subject of compensation
because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is
not such a debt, demand, contract or judgment as is allowed
to be set-off.
Batangas Power Corp. v. Batangas City, G.R. No. 152675,
April 28, 2004
SOCIAL JUSTICE AND EQUITABLE DISTRIBUTION OF WEALTH:
In recent years, the increasing social challenges of the times
expanded the scope of state activity, and taxation has
become a tool to realize social justice and the equitable
distribution of wealth, economic progress and the protection
of local industries as well as public welfare and similar
objectives. Taxation assumes even greater significance with
the ratification of the 1987 Constitution. Thenceforth, the
power to tax is no longer vested exclusively on Congress;
local legislative bodies are now given direct authority to levy
taxes, fees and other charges pursuant to Article X, section 5
of the 1987 Constitution.
Southern Cross Cement Corp. v. Cement Manufacturers
Association of the Phils., G.R. No. 158540, Aug. 3, 2005

(HOLY CRAP, CHECK OUT THE INTRO!!!! ^.^)

Cement is hardly an exciting subject for litigation. Still, the parties in this
case have done their best to put up a spirited advocacy of their
respective positions, throwing in everything including the proverbial
kitchen sink. At present, the burden of passion, if not proof, has shifted to
public respondents Department of Trade and Industry (DTI) and private
respondent Philippine Cement Manufacturers Corporation (Philcemcor),[1]
who now seek reconsideration of our Decision dated 8 July 2004
(Decision), which granted the petition of petitioner Southern Cross
Cement Corporation (Southern Cross).
This case, of course, is ultimately not just about cement. For respondents,
it is about love of country and the future of the domestic industry in the
face of foreign competition. For this Court, it is about elementary
statutory construction, constitutional limitations on the executive power
to impose tariffs and similar measures, and obedience to the law. Just as
much was asserted in the Decision, and the same holds true with this
present Resolution.

POWER OF PRESIDENT TO IMPOSE TARIFF RATES: Without

Section 28(2), Article VI, the executive branch has no
authority to impose tariffs and other similar tax levies
involving the importation of foreign goods. Assuming that
Section 28(2) Article VI did not exist, the enactment of the
SMA by Congress would be voided on the ground that it
would constitute an undue delegation of the legislative power

to tax. The constitutional provision shields such delegation

from constitutional infirmity, and should be recognized as an
exceptional grant of legislative power to the President, rather
than the affirmation of an inherent executive power.
QUALIFIERS: This being the case, the qualifiers mandated by
the Constitution on this presidential authority attain
primordial consideration: (1) there must be a law; (2) there
must be specified limits; and (3) Congress may impose
limitations and restrictions on this presidential authority.
POWER EXERCISED BY ALTER EGOS OF PRES: The Court
recognizes that the authority delegated to the President
under Section 28(2), Article VI may be exercised, in
accordance with legislative sanction, by the alter egos of the
President, such as department secretaries. Indeed, for
purposes of the Presidents exercise of power to impose
tariffs under Article VI, Section 28(2), it is generally the
Secretary of Finance who acts as alter ego of the President.
The SMA provides an exceptional instance wherein it is the
DTI or Agriculture Secretary who is tasked by Congress, in
their capacities as alter egos of the President, to impose such
measures. Certainly, the DTI Secretary has no inherent
power, even as alter ego of the President, to levy tariffs and
imports.
TARIFF COMMISSION AND DTI SEC ARE AGENTS:
Concurrently, the tasking of the Tariff Commission under the

SMA should be likewise construed within the same context as

part and parcel of the legislative delegation of its inherent
power to impose tariffs and imposts to the executive branch,
subject to limitations and restrictions. In that regard, both the
Tariff Commission and the DTI Secretary may be regarded as
agents of Congress within their limited respective spheres, as
ordained in the SMA, in the implementation of the said law
which significantly draws its strength from the plenary
legislative power of taxation. Indeed, even the President may
be considered as an agent of Congress for the purpose of
imposing safeguard measures. It is Congress, not the
President, which possesses inherent powers to impose tariffs
and imposts. Without legislative authorization through
statute, the President has no power, authority or right to
impose such safeguard measures because taxation is
inherently legislative, not executive.
When Congress tasks the President or his/her alter egos to
impose safeguard measures under the delineated conditions,
the President or the alter egos may be properly deemed as
agents of Congress to perform an act that inherently belongs
as a matter of right to the legislature. It is basic agency law
that the agent may not act beyond the specifically delegated
powers or disregard the restrictions imposed by the principal.
In short, Congress may establish the procedural framework
under which such safeguard measures may be imposed, and
assign the various offices in the government bureaucracy
respective tasks pursuant to the imposition of such

measures, the task assignment including the factual

determination of whether the necessary conditions exists to
warrant such impositions. Under the SMA, Congress assigned
the DTI Secretary and the Tariff Commission their respective
functions in the legislatures scheme of things.
There is only one viable ground for challenging the legality of
the limitations and restrictions imposed by Congress under
Section 28(2) Article VI, and that is such limitations and
restrictions are themselves violative of the Constitution.
Thus, no matter how distasteful or noxious these limitations
and restrictions may seem, the Court has no choice but to
uphold their validity unless their constitutional infirmity can
be demonstrated.
What are these limitations and restrictions that are material
to the present case? The entire SMA provides for a limited
framework under which the President, through the DTI and
Agriculture Secretaries, may impose safeguard measures in
the form of tariffs and similar imposts.
POWER BELONGS TO CONGRESS: the cited passage from
Fr. Bernas actually states, Since the Constitution has given
the President the power of control, with all its awesome
implications, it is the Constitution alone which can curtail
such power. Does the President have such tariff powers
under the Constitution in the first place which may be
curtailed by the executive power of control? At the risk of

redundancy, we quote Section 28(2), Article VI: The

Congress may, by law, authorize the President to fix within
specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development
program of the Government. Clearly the power to impose
tariffs belongs to Congress and not to the President.
CIR v. Central Luzon Drug Corp., G.R. No. 159647, April 15,
2005
EMINENT DOMAIN: The concept of public use is no longer
confined to the traditional notion of use by the public, but
held synonymous with public interest, public benefit, public
welfare, and public convenience. The discount privilege to
which our senior citizens are entitled is actually a benefit
enjoyed by the general public to which these citizens belong.
The discounts given would have entered the coffers and
formed part of the gross sales of the private establishments
concerned, were it not for RA 7432. The permanent reduction
in their total revenues is a forced subsidy corresponding to
the taking of private property for public use or benefit.
As a result of the 20 percent discount imposed by RA 7432,
respondent becomes entitled to a just compensation. This
term refers not only to the issuance of a tax credit certificate
indicating the correct amount of the discounts given, but also
to the promptness in its release. Equivalent to the payment

of property taken by the State, such issuance -- when not

done within a reasonable time from the grant of the
discounts -- cannot be considered as just compensation.
Besides, the taxation power can also be used as an
implement for the exercise of the power of eminent domain.
Tax measures are but enforced contributions exacted on
pain of penal sanctions and clearly imposed for a public
purpose. In recent years, the power to tax has indeed
become a most effective tool to realize social justice, public
welfare, and the equitable distribution of wealth.

a.6. Characteristics of a Sound Tax System

1.
2.

Fiscal Adequacy meet requirements of government

Theoretical Justice progressivity; based on taxpayers
ability to pay
3.
Administrative Feasibility enforcement should be
effective and simple
a.7. Aspects of Taxation

1.

Levy determine persons, property or excises to be

taxed, their amount and due date, time and manner (taxation
proper)

2.

Collection manner of enforcement; includes

assessment and administration by BIR (subordinate
legislation) (tax administration)
a.8. Taxation distinguished
v. POLICE POWER (code: PABAT)

1.

As to purpose Taxation is to raise revenue; Police Power

is to promote public welfare.
2.
As to amount Taxation has no limit; Police Power is
limited to the cost of regulation, issuance of license or
surveillance
3.
As to benefits Taxation offers no special or direct
benefit other than benefit to the general public; Police Power
is to promote a healthy economic standard.
4.
As to applicability of non-impairment of contracts clause
It applies in taxation; It does not apply in police power,
EXCEPT if the grant of franchise was for a valuable
consideration.
5.
As to transfer of property rights Taxation involves
transfer of public funds or money; Police Power does not
contemplate a transfer but merely restraint on property taken
or destroyed.
v. POWER OF EMINENT DOMAIN (code: NCAPA)

1.

As to nature Taxation is the power to raise revenue;

Eminent Domain is the taking of property for public use.
2.
As to compensation Compensation for taxation takes
the form of a general benefit to the public; in eminent
domain, there must be just compensation.
3.
As to applicability of non-impairment of contracts clause
It applies in taxation; it does not apply in eminent domain.
4.
As to persons affected Taxation affects all subject to
the States jurisdiction; eminent domain affects only the
particular property.
5.
As to authority Taxation is exercised by the
government; Eminent Domain may be exercised by private
entities exercising public functions.
B. Limitations of the Taxing Power
b.1. Inherent Limitations
(1) Public Purpose this is presumed
Gomez v. Palomar, G.R. No. L-23645, Oct. 29, 1968
The eradication of a dreaded disease is a public purpose, but
if by public purpose the petitioner means benefit to a
taxpayer as a return for what he pays, then it is sufficient
answer to say that the only benefit which the taxpayer is
constitutionally entitled is that derived from his enjoyment of
the privileges of living in an organized society, established
and safeguarded by the devotion of taxes to public purposes

Pascual v. Secretary of Public Works, G.R. No. L-10405, Dec.

29, 1960
In accordance with the rule that the taxing power must be
exercised for public purposes only, money raised by taxation
can be expanded only for public purposes and not for the
advantage of private individuals.
Public funds may be used for a public purpose. The right of
the legislature to appropriate funds is correlative with its
right to tax, under constitutional provisions against taxation
except for public purposes and prohibiting the collection of a
tax for one purpose and the devotion thereof to another
purpose, no appropriation of state funds can be made for
other than a public purpose.

(2) Observe International Comity there must be

reciprocity
Art. II, Section 2. The Philippines renounces war as an instrument of
national policy, adopts the generally accepted principles of international
law as part of the law of the land and adheres to the policy of peace,
equality, justice, freedom, cooperation, and amity with all nations.
Sec. 32(B)(7)(a), NIRC: Income Derived by Foreign Government. - Income
derived from investments in the Philippines in loans, stocks, bonds or
other domestic securities, or from interest on deposits in banks in the

Philippines by (i) foreign governments, (ii) financing institutions owned,

controlled, or enjoying refinancing from foreign governments, and (iii)
international or regional financial institutions established by foreign
governments.

(3) No Improper Delegation, exceptions

- under Flexible Tariff Clause, President may fix:
o
o
o
o

tariff rates
import-export quotas
tonnage and wharfage duties
other duties and imposts within the framework of the
national government program
- LGU (General Welfare Clause)
- administrative agencies:

o
o
o
o

fix the value of property

assess and collect taxes
perform details of computation
appraisement and adjustment
(4) Limited to the Territorial Jurisdiction
SITUS (Sec. 23, NIRC)
Citizens

Resident Citizens taxed on all sources of income inside

or outside the Philippines (based on nationality principle)

o
Non-resident Citizens taxed on all sources within the
Philippines
Aliens
o

Resident Aliens taxed on all sources within the

Philippines
o
Non-resident Aliens (whether engaged in business or
not) taxed on all sources within the Philippines
NOTA BENE: Only resident citizens are taxed on all sources of
income within or without the Philippines.
FACTORS AFFECTING SITUS OF TAXATION:
o
o
o
o
o
o

kind or classification of tax

situs of the thing or property taxed
domicile or residence of the person taxed
citizenship or nationality of the person taxed
source of the income taxed
situs of the excise, privilege, business or occupation
being taxed
NOTA BENE: Situs of taxation for personal property follows
the principle of mobilia sequuntur personam (personal
property follows the person), EXCEPT shares of stock the
situs of which is based on where the corporation has its

principal place of business. Situs of taxation for real property

is lex rei sitae (where the property is located).
CIR v. Japan Airlines, Inc., G.R. No. 60714, Oct. 4, 1991
The source of income is the property, activity or service that
produced the income. For the source of income to be
considered as coming from the Philippines, it is sufficient that
the income is derived from activity within the Philippines. In
BOACs case, the sale of tickets in the Philippines is the
activity that produces the income. The tickets exchanged
hands here and payments for fares were also made here in
the Philippine currency. The situs of the source of payments
is the Philippines. The flow of wealth proceeded from, and
occurred within, Philippine territory, enjoying the protection
accorded by the Philippine government. In consideration of
such protection, the flow of wealth should share the burden
of supporting the government.
The absence of flight operations to and from the Philippines
is not determinative of the source of income or the situs of
income taxation. The test of taxability is the source; and the
source of an income is that activity which produced the
income.
South African Airways v. CIR, CTA 6760, June 9, 2005
It has been consistently ruled that the source of income is
the property, activity or service that produced the income

and, in order that the source of income to be considered as

coming from the Philippines, it is enough that the income is
derived from activity within the Philippines.
The absence of flight operations to and from the Philippines
is not determinative of the source of income or the situs of
income taxation. Petitioner admitted that it sells passage
documents in the Philippines through its sales agent.
Petitioner, thus, is deriving revenues from the conduct of its
business activity regularly pursued within the Philippines.
Petitioner is therefore a resident foreign corporation engaged
in trade or business in the country within the purview of our
tax law and is therefore subject to tax. As held in
Commissioner of Internal Revenue vs. American Airlines, Inc.:
xxx foreign airline companies which sold tickets in the
Philippines through their local agents, whether called liaison
offices, agencies or branches, were considered resident
foreign corporations engaged in trade or business in the
country. Such activities show continuity of commercial
dealings or arrangements and performance of acts or works
or the exercise of some functions normally incident to and in
progressive prosecution of commercial gain or for the
purpose and object of the business organization.
National Development Co. v. CIR, G.R. No. L-53961, June 30,
1987
The Japanese shipbuilders were liable to tax on the interest

remitted to them. The petitioner argues that the Japanese

shipbuilders were not subject to tax under the above
provision because all the related activities the signing of
the contract, the construction of the vessels, the payment of
the stipulated price, and their delivery to the NDC were
done in Tokyo. The law, however, does not speak of activity
but of source, which in this case is the NDC. This is a
domestic and resident corporation with principal offices in
Manila.
The Governments right to levy and collect income tax on
interest received by foreign corporations not engaged in
trade or business within the Philippine sis not planted upon
the condition that the activity or labor and the sale form
which the (interest) income flowed had its situs in the
Philippines. The law specifies: interest derived from sources
within the Philippines. Nothing there speaks of the act or
activity of non-resident corporations in the Philippines, or
place where the contract is signed. The residence of the
obligor who pays the interest rather than the physical
location of the securities, bonds, or notes or the place of
payment, is the determining factor of the source of interest
income.

(5) Exemption of Government Entities inherent

exemption, but Government may tax itself

Sec. 27(C), NIRC: Government-owned or Controlled-Corporations,

Agencies or Instrumentalities. - The provisions of existing special or
general laws to the contrary notwithstanding, all corporations, agencies,
or instrumentalities owned or controlled by the Government, except the
Government Service Insurance System (GSIS), the Social Security System
(SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine
Charity Sweepstakes Office (PCSO) and the Philippine Amusement and
Gaming Corporation (PAGCOR), shall pay such rate of tax upon their
taxable income as are imposed by this Section upon corporations or
associations engaged in s similar business, industry, or activity.
Sec. 32(B)(7)(b), NIRC: Income Derived by the Government or its Political
Subdivisions. - Income derived from any public utility or from the exercise
of any essential governmental function accruing to the Government of the
Philippines or to any political subdivision thereof.
Sec. 30(1), NIRC

b.2. Constitutional Limitations

(1) Indirect
a) Due Process and Equal Protection Clause
Art. III, Section 1. No person shall be deprived of life, liberty, or property
without due process of law, nor shall any person be denied the equal
protection of the laws.

b) Freedom of the Press

Art. III, Section 4. No law shall be passed abridging the freedom of speech,
of expression, or of the press, or the right of the people peaceably to
assemble and petition the government for redress of grievances.

c) Religious Freedom
Art. III, Section 5. No law shall be made respecting an establishment of
religion, or prohibiting the free exercise thereof. The free exercise and
enjoyment of religious profession and worship, without discrimination or
preference, shall forever be allowed. No religious test shall be required for
the exercise of civil or political rights.

d) Non-impairment Clause
Art. III, Section 10. No law impairing the obligation of contracts shall be
passed.
Art. XII, Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except
to citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines, at least sixty per centum of whose
capital is owned by such citizens; nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under
the condition that it shall be subject to amendment, alteration, or repeal
by the Congress when the common good so requires. The State shall

encourage equity participation in public utilities by the general public. The

participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its capital,
and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.

e) Law-Making Process
Art. VI, Section 26. (1) Every bill passed by the Congress shall embrace
only one subject which shall be expressed in the title thereof.
(2) No bill passed by either House shall be come a law unless it has
passed three readings on separate days, and printed copies thereof in its
final form have been distributed to its Members three days before its
passage, except when the President certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. Upon the
last reading of a bill, no amendment thereto shall be allowed, and the
vote thereon shall be taken immediately thereafter, and the yeas and
nays entered in the Journal.

(2) Direct
a) Non-Imprisonment
Art. III, Section 20. No person shall be imprisoned for debt or nonpayment of a poll tax.

b) Uniform & Equitable

Art. VI, Section 28. (1) The rule of taxation shall be uniform and equitable.
The Congress shall evolve a progressive system of taxation.
(2) The Congress may, by law, authorize the President to fix within
specified limits, and subject to such limitations and restrictions as it may
impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of the national
development program of the Government.
(3) Charitable institutions, churches and personages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly, and exclusively used for
religious, charitable, or educational purposes shall be exempt from
taxation.
(4) No law granting any tax exemption shall be passed without the
concurrence of a majority of all the Members of the Congress.

c) Progressive System (Sec. 28 (1), Art. VI)

d) ART Bill
Art. VI, Section 24. All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application, and
private bills, shall originate exclusively in the House of Representatives,
but the Senate may propose or concur with amendments.

e) Presidents Power to Veto

Art. VI, Section 27 (2) The President shall have the power to veto any
particular item or items in an appropriation, revenue, or tariff bill, but the
veto shall not affect the item or items to which he does not object.

f) Delegated Authority of the President (Sec. 28 (2),

Art. VI)
g) Exemption from Tax (Sec. 28 (3), Art. VI)
h) Congress concurrence (Sec. 28 (4), Art. VI)
i) No religious purpose
Art. VI, Sec. 29 (2): No public money or property shall be appropriated,
applied, paid, or employed, directly or indirectly, for the use, benefit, or
support of any sect, church, denomination, sectarian institution, or
system of religion, or of any priest, preacher, minister, other religious
teacher, or dignitary as such, except when such priest, preacher, minister,
or dignitary is assigned to the armed forces, or to any penal institution, or
government orphanage or leprosarium.

j) Special purpose
Art. VI, Sec. 29 (3): All money collected on any tax levied for a special
purpose shall be treated as a special fund and paid out for such purpose
only. If the purpose for which a special fund was created has been fulfilled

or abandoned, the balance, if any, shall be transferred to the general

funds of the Government.

k) Judicial Review
Art. VIII, Section 5. The Supreme Court shall have the following powers:
1) Exercise original jurisdiction over cases affecting ambassadors, other
public ministers and consuls, and over petitions for certiorari, prohibition,
mandamus, quo warranto, and habeas corpus.
(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as
the law or the Rules of Court may provide, final judgments and orders of
lower courts in:
(a) All cases in which the constitutionality or validity of any treaty,
international or executive agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or regulation is in question.
(b) All cases involving the legality of any tax, impost, assessment, or toll,
or any penalty imposed in relation thereto.
(c) All cases in which the jurisdiction of any lower court is in issue.
(d) All criminal cases in which the penalty imposed is reclusion perpetua
or higher.
(e) All cases in which only an error or question of law is involved.

(3) Assign temporarily judges of lower courts to other stations as public

interest may require. Such temporary assignment shall not exceed six
months without the consent of the judge concerned.
(4) Order a change of venue or place of trial to avoid a miscarriage of
justice.
(5) Promulgate rules concerning the protection and enforcement of
constitutional rights, pleading, practice, and procedure in all courts, the
admission to the practice of law, the integrated bar, and legal assistance
to the under-privileged. Such rules shall provide a simplified and
inexpensive procedure for the speedy disposition of cases, shall be
uniform for all courts of the same grade, and shall not diminish, increase,
or modify substantive rights. Rules of procedure of special courts and
quasi-judicial bodies shall remain effective unless disapproved by the
Supreme Court.
(6) Appoint all officials and employees of the Judiciary in accordance with
the Civil Service Law.

TAX PAYERS SUIT proper when there is illegal

disbursement of public funds derived from taxation. But note
that even if the taxpayer questions the constitutionality of
the law, he is not excused from paying his taxes because of
the life-blood theory.

l) Delegated authority to LGU

Art. X, Section 5. Each local government unit shall have the power to
create its own sources of revenues and to levy taxes, fees and charges
subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local governments.
Art. X, Section 6. Local government units shall have a just share, as
determined by law, in the national taxes which shall be automatically
released to them.

m) Tax exemptions
Art. XIV, Sec. 4 (3): All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of such institutions,
their assets shall be disposed of in the manner provided by law.
Sec. 30(H), NIRC: Exemptions from Tax on Corporations -- A nonstock and
nonprofit educational institution.

NOTA BENE: Income from school canteens and bookstores

which is incidental to the schools primary purpose is
included in the exemption. But such school canteens and
bookstores must be owned by the school and located in the
school campus.

ABAKADA Guro Party List v. Ermita, G.R. No. 168056, Sept. 1,

2005
Is there undue delegation of legislative power since
the law gives the President stand-by authority to raise
the VAT rate to 12%? The authority does not refer to the
power of the President to fix tariff rates. Neither is it a
delegation of legislative power. It is simply a delegation of
ascertainment of facts upon which enforcement and
administration of the increase rate under the law is
contingent. The legislature has made the operation of the
12% rate effective Jan. 1, 2006, contingent upon a specified
fact or condition. It leaves the entire operation or nonoperation of the 12% rate upon factual matters outside the
control of the executive. It is the ministerial duty of the
President to immediately impose the 12% rate upon the
existence of any of the conditions specified by Congress.
Is there violation of due process clause as it imposes
an unfair and additional tax burden on the people?
Petitioners argue that the law imposes an unfair and
additional tax burden on the people as the law does not
provide for the rate to revert to the original 10% in case the
conditions set forth are no longer satisfied and as such,
people wont know how much is the rate from year to year.
SC said that the law is clear and unambiguous. The fears of
petitioner is merely speculative as the law itself does not
provide that the rate would go back to 10%.

Does it violate the rule that ART bills should

exclusively originate from the House of
Representatives? No violation. According to petitioners, the
amendments introduced to the NIRC did not come from the
House, but from the Senate. SC said that to begin with, it is
not the law but the revenue bill which is required by the
Constitution to originate exclusively in the House of
Representatives. A bill originating from the House may
undergo such extensive changes in the Senate that the result
may be a rewriting of the whole. At this point, what is
important to note is that, as a result of the Senate action, a
distinct bill may be produced. To a insist that a revenue
statute and not only the bill which initiated the legislative
process culminating in the enactment of the law must
substantially be the same as the House bill would be to deny
the Senates power not only to concur with amendments
but also to propose amendments. It would violate the
coequality of legislative power of the two houses of Congress
and in fact make the House superior to the Senate. What the
Constitution means is that the initiative for filing revenue,
tariff or tax bills, bills authorizing an increase of public debt,
private bills and bills of local application must come from the
House of Representatives on the theory that, elected as they
are from the districts, the members of the House can be
expected to be more sensitive to the local needs and
problems. On the other hand, the senators, who are elected
at large, are expected to approach the same problems from

the national perspective. Both views are thereby made to

bear on the enactment of such laws.
Does the imposition of limitations on the amount of
input tax that may be claimed constitute a deprivation
of property without due process of law? There is no
deprivation of property because the input tax in excess of the
output tax is carried over to succeeding quarter or quarters.
In addition, a tax credit certificate may be applied for any
unused input taxes, to the extent that such input taxes have
not been applied against the input taxes. Such unused input
tax may be used in payment of his other internal revenue
taxes. Moreover, input tax is not property under the purview
of the Constitution. It is merely a statutory privilege.
Does it violate the equal protection clause as the
limitation on the creditable input tax is not based on
real and substantial differences to meet a valid
classification? The equal protection clause does not require
the universal application of the laws on all persons or things
without distinction. This might in fact sometimes result in
unequal protection. What the clause requires is equality
among equals as determined according to a valid
classification. By classification is meant the grouping of
persons or things similar to each other in certain particulars
and different from all others in these same particulars.
Does violate the progressivity of tax laws? By its very

nature, the VAT is regressive. Nevertheless, the Constitution

does not really prohibit the imposition of indirect taxes, like
the VAT. What it simply provides is that Congress shall
evolve a progressive system of taxation. The constitutional
provision has been interpreted to mean simply that direct
taxes are to be preferred and as much as possible, indirect
taxes should be minimized.
Does it violate the principle that tax collection and
revenue should be solely allocated for public purposes
and expenditures since VAT-registered establishments
are allowed to retain a portion of the taxes they
collect? No violation. The input tax is the tax paid by a
person, passed on to him by the seller, when he buys goods.
Output tax meanwhile is the tax due to the person when he
sells the goods. In computing the variables, there are three
possible scenarios: (1) if the input and output taxes charged
are equal, then there is no payment required; (2) when
output taxes exceed the input taxes, the person shall be
liable for the excess; and (3) if the input taxes exceed the
output taxes, the excess shall be carried over to the
succeeding quarter or quarters. The 70% limitation on input
taxes does not mean that the establishments retain the input
tax in excess of 70%. It only means that they can only credit
their input tax up to the extent of 70% of their output tax.
Does it violate uniformity and equitable
taxation? Uniformity in taxation means that all taxable

articles or kinds of property of the same class shall be taxed

at the same rate. Different articles may be taxed different
amounts provided that the rate is uniform on the same class
everywhere with all people at all times. The law is uniform as
it provides a standard rate of 0% or 10% (or 12%) on all
goods and services. The law is also equitable as it is
equipped with a threshold margin. Thus the VAT rate of 0% or
10% (or 12%) does not apply to sales of goods or services
with gross annual sales or receipts not exceeding
P1,500,000.00.

C. Tax
c.1. Tax Defined, Characteristics
Tax enforced proportional contributions, generally payable
in money, from persons, property, rights and privileges levied
by the legislative body of the State by virtue of its
sovereignty for the support of government and for public
needs.
c.2. Kinds of Taxes
As to subject or object
personal>
propertyAs to who bears the burden

o
o

direct
indirect
CIR v. PLDT, G.R. No. 140230, Dec. 15, 2005
DIRECT v. INDIRECT TAX: based on the possibility of shifting
the incidence of taxation. Direct taxes are those that are
exacted from the very person who, it is intended or desired,
should pay them; impositions for which a taxpayer is directly
liable on the transaction or business he is engaged in.
Indirect taxes are those that are demanded, in the first
instance, from, or are paid by, one person in the expectation
and intention that he can shift the burden to someone else;
liability for the payment falls on one person but the burden
can be shifted or passed on to another person, such as when
the tax is imposed ex. VAT, advance sales tax,
compensating tax upon goods before reaching the
consumer who ultimately pays for it. When the seller passes
on the tax to his buyer, he, in effect, shifts the tax burden,
not the liability to pay it, to the purchaser as part of the price
of goods sold or services rendered.
By tacking the VAT due to the selling price, the seller remains
the person primarily and legally liable for the payment of the
tax. What is shifted only to the intermediate buyer and
ultimately to the final purchaser is the burden of the tax.
Stated differently, a seller who is directly and legally liable for
payment of an indirect tax, such as VAT on goods and
services, is not necessarily the person who ultimately bears

the burden of the same tax. It is the final purchaser or enduser of such goods or services who, although not directly and
legally liable for the payment thereof, ultimately bears the
burden of the tax.

As to determination of amount
o
o

specific
ad valorem
As to purpose

o
o

general
special
As to rate

o
o
o

progressive
regressive
proportional
As to imposing authority

o
o

national
local
c.3. Tax distinguished from other impositions
v. SPECIAL ASSESSMENT

1.

As to subject matter Tax is imposed on persons,

property and excises; Special Assessment is levied only on
land
2.
As to liability imposed upon taxpayer Tax can be a
personal liability or liability on property of the taxpayer;
Special Assessment cannot be made a personal liability of the
person assessed
3.
As to purpose Tax is to generate revenue; Special
Assessment is based wholly on benefit.
4.
As to application Tax is of general and uniform
application; Special Assessment is exceptional both as to
time and locality.
v. LICENSE
1.

As to power Tax is levied in the exercise of taxation

power; License Fee emanates from police power.
2.
As to purpose Tax is to generate revenue; License Fee
is regulatory.>
3.
As to amount to be charged Tax is unlimited; License
Fee must be of an amount sufficient to cover the expenses of:
a) issuing the license; and b) cost of necessary inspection or
police surveillance
v. TOLL

1.

As to nature - Tax is a demand of sovereignty for the

purpose of raising public revenue; Toll is a demand of
ownership to defray the cost and maintenance of the
property.

v. PENALTY

1.

As to kind of liability Tax is a civil liability; Penalty is a

punishment for the commission of a crime.
v. DEBT

1.

As to source Tax is imposed by law; Debt is imposed by

obligation created by contract.
2.
As to penalty for non-payment Non-payment of tax
may cause a person to be criminally prosecuted; Nonpayment of debt does not generally give rise to criminal
action or cause a person to be imprisoned.
3.
In Tax there is generally no compensation because the
government and the taxpayer are not creditors and debtors
as to each other. BUT if both the tax and the tax refund due
to the taxpayer are due and demandable, compensation may
be proper. In Debt, compensation may be proper.

DOCTRINE OF EQUITABLE RECOUPMENT

c.4. Sources of Tax Laws, Nature of Tax Laws

1.
2.
3.
4.

NIRC
Constitution
Tariff and Tax Code
Local Government Code
NOTA BENE: Tax laws are civil in nature, therefore, the rule
on ex post facto law prohibition does not apply. Tax laws may
not be given retroactive effect, even if they are favorable to
the taxpayers. Tax laws are likewise not political, therefore,
they still apply even if there is a change in government to a
belligerent.
c.5. Interpretation of Tax Laws
Strictissimi juris strictly interpreted against the
government and liberally in favor of the taxpayer because it
involves the imposition of a tax burden
- EXCEPTION: Tax exemptions are strictly interpreted against
the taxpayer and liberally in favor of the government because
of the life-blood theory and the equal protection clause
(exemptions are privileges, therefore, encourages inequality
among taxpayers)

Sea Land Service v. CA, G.R. No. 122605, April 30, 2001
STRICTISSIMI JURIS in TAX EXEMPTION: Laws granting
exemption from tax are construed strictissimi juris against
the taxpayer and liberally in favor of the taxing power.
Taxation is the rule and exemption is the exception. The law
does not look in favor on tax exemptions and that he who
would seek to be thus privileged must justify it by words too
plain to be mistaken and to categorical to be misinterpreted.
PURPOSE OF TAX EXEMPTION: Some public benefit or
interest, which the lawmaking body considers sufficient to
affect the monetary loss entailed in the grant of the
exemption.
CIR v. CA, G.R. No. 107135, Feb. 23, 1999
RULE ON EXCEPTIONS: Exceptions, as a general rule, should
be strictly but reasonably construed. They extend only so far
as their language fairly warrants, and all doubts should be
resolved in favor of the general provisions rather than the
exception. Where the general rule is established by statute
with exceptions, the court will not curtail the former nor add
to the latter by implication.
STRICTISSIMI JURIS in TAX LAWS: Tax burdens are not to be
imposed, nor presumed to be imposed beyond what the
statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government.

Maceda v. Macaraig, 197 SCRA 771

(Exception to the Exception) STRICTISSIMI JURIS in
GOVERNMENT: It is recognized principle that the rule on strict
interpretation does not apply in the case of exemptions in
favor of government political subdivisions or
instrumentalities. In the case of property owned by the state
or city or other public corporation, the express exception
should not be construed with the same degree of strictness
that applies to exemptions contrary to the policy of the state,
since as to such property exception is the rule and taxation
the exception.

c.6. Tax Exemptions

KINDS
(1) express; (2) implied; (3) total; (4) partial; (5)
constitutional; (6) statutory
Art. VI, Sec. 28 (3): Charitable institutions, churches and personages or
convents appurtenant thereto, mosques, non-profit cemeteries, and all
lands, buildings, and improvements, actually, directly, and exclusively
used for religious, charitable, or educational purposes shall be exempt
from taxation.
Art. XIV, Sec. 4(3): All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and exclusively for

educational purposes shall be exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of such institutions,
their assets shall be disposed of in the manner provided by law.
Proprietary educational institutions, including those cooperatively owned,
may likewise be entitled to such exemptions, subject to the limitations
provided by law, including restrictions on dividends and provisions for
reinvestment.

NOTA BENE: School canteens and bookstores are considered

as incidental income and are therefore included in the
exemption.
Question:
(1) Is a vacant lot adjacent to a school building owned by the
non-profit, non-stock educational institution subject to real
property taxation, considering that it is not used actually,
directly and exclusively for educational purposes?
(2) Is the exemption under Art. VI, Sec. 28(3) regardless of
ownership, so that if the land used by the religious or
charitable institution is owned by a private person, it is still
exempted from real property tax?
Art. XIV, Sec. 4 (4): Subject to conditions prescribed by law, all grants,
endowments, donations, or contributions used actually, directly, and
exclusively for educational purposes shall be exempt from tax.

CONSTITUTIONAL RESTRICTIONS
Art. VI, Sec. 28(4): No law granting any tax exemption shall be passed
without the concurrence of a majority of all the Members of the Congress.

NOTA BENE: Therefore, the President cannot grant tax

exemptions through executive agreement. Tax treaties are
entered into with concurrence of the Senate.
EXCEPTIONS
Art. VI, Sec. 28(2): The Congress may, by law, authorize the President to
fix within specified limits, and subject to such limitations and restrictions
as it may impose, tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts within the framework of the
national development program of the Government.
Art. X, Section 5. Each local government unit shall have the power to
create its own sources of revenues and to levy taxes, fees and charges
subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local governments.

REVOCATION, RESTRICTION
NOTA BENE:

o
o

Tax pyramiding (tax on tax) is prohibited.

Tax exemptions are mere privileges so they can be
revoked at any time, EXCEPT if there was a contract granting
such tax exemption and such contract was entered into for a
valid consideration.
Coconut Oil Refiners v. Torres, G.R. No. 132527, July 29, 2005
WHO HAS AUTHORITY: It is the legislature, unless limited by a
provision of a state constitution, that has full power to
exempt any person or corporation or class of property from
taxation, its power to exempt being as broad as its power to
tax. Other than Congress, the Constitution may itself provide
for specific tax exemptions, or local governments may pass
ordinance on exemption only from local taxes.
v. TAX AMNESTY

1.

Tax exemption is prospective. Tax amnesty is

retrospective.
2.
Tax exemption is civil. Tax amnesty is civil and criminal.
3.
Tax exemptions cannot be granted without the
concurrence of majority of Congress. Tax amnesty is the
intentional overlooking by the government of tax unpaid and
is generally considered an executive act.
CIR v. Marubeni Corp., G.R. No. 137377, Dec. 18, 2001

TAX AMNESTY 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; partakes of an absolute forgiveness or waiver by the
government of its right to collect what is due it and to give
tax evaders a chance to start with a clean slate; never
favored nor presumed in law; construed strictly against the
taxpayer and liberally in favor of government.

NOTA BENE: In both tax exemptions and tax amnesties, the

rule on strictissimi juris is the same.
c.7. Tax Avoidance vs. Tax Evasion
1.

Tax avoidance is the minimization of tax liabilities

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

Tax Credit vs. Tax Exemption

1.

Tax credit contemplates two or more taxing authorities.

Tax exemption contemplates only one taxing authority.<

2.

Tax credit is based on the principle of reciprocity. Tax

exemption is an inherent power of the sovereign state.
c.8. Concept of Double Taxation; Kinds; Modes of
Eliminating Double Taxation
Double Taxation (Duplicate Taxation) taxing the
same property twice when it should be taxed only once.
KINDS:

Direct double taxation same subject, same purpose,

same taxing authority, same taxing period, same character of

tax (elements of double taxation)
o
Indirect double taxation one or more of the elements of
double taxation are absent

NOTA BENE: Double taxation may be avoided through various

credit schemes specified under the NIRC and exemptions
under tax treaties entered into with foreign governments.
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