You are on page 1of 5

TAX LAW AND JURISPRUDENCE

Vitug and Acosta

PART I GENERAL PRINCIPLES

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


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

A.

Concept, Underlying Basis, and Purpose

Taxation - mode by which governments make exactions for revenue


in order to support their existence and carry out their
legitimate objectives.
may refer to either or both the power to tax or the act
or process by which the taxing power is exercised
Governmental necessity theory or underlying basis of taxation
Commissioner vs. Pineda (21 SCRA 105)
Taxes are the lifeblood of the Government and their prompt and
certain availability are an imperious need.
Vera vs Fernandez (89 SCRA 199)
Upon taxation depends the Governments ability to serve the
people whose benefit taxes are collected.
Commissioner vs. Algue, Inc. (158 SCRA 9)
Taxation is the indispensable and inevitable price for civilized
society; without taxes, the government would be paralyzed.
Mun. of Makati vs CA (190 SCRA 206)
Revenues derived from taxes are intended primarily to finance the
government and its activities and are thus exempt from execution.
B.

Principles of a Sound Tax System

1.

Fiscal Adequacy

2.) Taxation is inherently legislative

It is also legislative in character and a legislative


prerogative. (NAPOCOR vs Albay)
These powers are not inherent in, but merely delegated by
constitutional mandate or by law to, local governments.

Legislative taxing power includes authority:


To determine the:

Nature (kind)

Object (purpose

Extent (amount or rate)

Coverage (subjects and objects)

Situs (place) of tax imposition


To grant tax exemptions or condonations
To specify or provide for the administrative, as well as
judicial remedies that either the government or the
taxpayers may avail themselves of in the proper
implementation of the tax measure.
Exemptions in tax delegation:
To local governments (to be exercised by the local
legislative bodies thereof) or political subdivisions
When allowed by the Constitution; or
When the delegation relates merely to administrative
implementation that may call for some degree of
discretionary powers under a set of sufficient
standards expressed by law

The sources (proceeds) of tax revenue should coincide with


and approximate the needs of government expenditures.
2.

Theoretical Justice
The tax system should be fair to the average taxpayer and
based upon his ability to pay.

3.

Administrative Feasibility
The tax system should be capable of being properly and
efficiently administered by the government and enforced with
the least inconvenience to the taxpayer.

C.

The non-observance of these canons will not render the


tax impositions by the taxing authority invalid.
o XPN: when the specific constitutional limitations
are impaired

Scope and Limitation of Taxation

reaches to every trade or occupation, to every object of industry,


use or enjoyment, to every species of possession; and it imposes a
den which, in case of failure to discharge, may be followed seizure
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.
As Cooley has described the wide spectrum of the power
to tax
SCOPE OF TAXATION
TAXATION IS:
Unlimited,
Far-reaching,
Plenary
Comprehensive
Supreme
INHERENT LIMITATIONS
1.) Taxation must be for a Public purpose
The proceeds of the tax must be used:
o for the support of the State or
o some recognized objects of government or
directly to promote the welfare of the community.
The public purpose of a tax may legally exist even if the
motive which impelled the legislature to impose the tax
was to favor one industry over another.

Taxation may exceptionally be delegated under the following


well-settled limitations:
The delegation shall not contravene any constitutional
provision or the inherent limitations of taxation;
The delegation is effected either by the Constitution or
by validly enacted legislative measures or statue; and
The delegated levy power, except when the delegation
is by an express provision of the Constitution itself,
should only be in favor of the local legislative body of
the local or municipal government concerned.
The power of taxation may be delegated to local governments
in respect of matters of local concern.
In delegating authority, the State is not limited to the exact
measure of the power which is exercised by itself. When it is
said that the taxing power may be delegated to municipalities
and the like, it is meant that there may be delegated such
measure of power to impose and collect taxes as the
legislature may deem expedient. Thus, municipalities may be
permitted to tax subjects, which for reasons of public policy the
State has not deemed wise to tax for general proposes (Pepsi
Cola vs. Mun. of Tanauan 69 SCRA 460).
The assessment and collection of taxes duly levied are
executive or administrative functions, and these aspects of
taxation are not covered by the non-delegation rule.
3.) Taxation is territorial.

Taxation may be exercised only within the territorial


jurisdiction of the taxing authority (determination of place
of taxation or tax situs).

Poll Taxes residence of the taxpayer


Property Taxes where the property is situated
Excise Taxes
o Where the privilege is exercised
o Where the taxpayer is a national
o Where he has residence

4.) Taxation is subject to international comity.

The Philippine Constitution, indeed, has expressly


adopted the generally accepted principles of international
law as part of the law of the land.

Principle of sovereign equality among states


Principle of their freedom from suit without their
consent, that limit the authority of a government
to effectively impose taxes on a sovereign state
and its instrumentalities, as well as on its
property held, and activities undertaken, in that
capacity.

The constitutional injunction against deprivation of property


without due process of law may not be passed over under
guise of the taxing powers, except when the taking of the
property is in the lawful exercise of the taxing power, as when:
The tax is for public purpose
The rule on uniformity of taxation is observed
Either the person or property taxed is within the
jurisdiction of the government levying the tax
In the assessment and collection of certain kinds of taxes,
notice and opportunity for hearing are provided
Therefore, the due process clause can be said to be the
constitutional basis for these inherent limitations.
CONSTITUTIONAL LIMITATIONS
A. Direct
1) Due process

Should not be harsh, oppressive, or confiscatory


(Substantive)

By authority of valid law (Substantive)

Must be for a public purpose (Substantive)

Imposed within territorial jurisdiction (Substantive)

No arbitrariness in assessment and collection (Procedural)

Right to notice and hearing (Procedural)


2) Equal protection

All persons subject to legislation shall be treated alike,


under like circumstances and conditions both in privileges
conferred and liabilities imposed.

Power to tax includes power to classify provided:


a. Based on substantial distinction
b. Apply to present and future conditions
c. Germane to purpose of law
d. Apply equally to all members of the same class
3) Non-impairment clause
Rules
(a) When government is party to contract granting exemption
cannot be withdrawn without violating non-impairment
clause
(b) When exemption generally granted by law
withdrawal does not violate
(c) When exemption granted under a franchise
may be revoked because the constitution provides that
franchise is subject to amendment, alteration, or repeal by
Congress.
4) Must be uniform and equitable
(Art VI, Sec 28, par 1)
Uniform - all articles or properties of the same class taxed
at same rate
Tax operates with the same force and effect in
every place where the subject may be found
Classification is permitted:
1) If the standards used therefor are not arbitrary but
reasonable and substantial
2) If the classification is germane to achieve the purpose
of the legislation
3) If that classification applies to both present and future
conditions, other circumstances being equal
4) If the classification applies equally to all those
belonging to the same class

Taxpayer may be imprisoned for non-payment of other


kinds of taxes where the law so expressly provides.
An imposition of a fine (but no subsidiary imprisonment) or
even imprisonment for any violation other than nonpayment would not be unconstitutional.

6) Congress shall evolve a progressive system of taxation


(Art VI, Sec 28, par 1)
As resources of the taxpayer becomes higher, his tax rate
likewise increases (ex. Income tax)
Constitution does not prohibit regressive taxes; this is a
directive upon Congress, not a justiciable right.
7) All appropriation, revenue or tariff bills shall originate exclusively
in the House of Representatives, but the Senate may propose or
concur with amendments

It is the bill, not the law that must originate from House; bill
may undergo extensive changes in Senate

Rationale: members of House are more sensitive to local


needs.
8) Charitable institutions, churches, and parsonages or convents
appurtenant thereto, mosques and non-profit cemeteries and all
lands, buildings and improvements ACTUALLY, DIRECTLY and
EXCLUSIVELY USED for charitable, religious and educational
purposes shall be exempt from taxation
(Art VI, Sec 28, par 3)

Pertains only to real estate tax.

Test of exemption: actual use of the property, not


ownership

Use of word exclusively means primarily rather than


solely.

Exemption extends to property incidental to or reasonably


necessary for the accomplishment of the purposes
mentioned.
9) Tax exemption of all revenues and assets of
a. non-stock, non-profit educational institutions
b. used ACTUALLY, DIRECTLY AND EXCLUSIVELY for
educational purposes

Exemption covers income, property, donors tax, and


customs duties (distinguish from previous which pertains
only to property tax)

Revenue must both be


a) derived from an activity in pursuance of educational
purpose; and
b) proceeds must be used for the same purpose (ex. hospital
adjunct to medical school tax exempt)
(ex. Interest income not exempt).

Income exempt provided it is used for maintenance or


improvement of institution.

Distinguish from tax treatment of


(a) proprietary educational institutions (Preferential Tax);
and
(b) government educational institutions (exempt, ex. UP)
10) Delegated authority of President to impose tariff rates, import
and export quotas, tonnage and wharfage dues

delegated by Congress

through a law

subject to Congressional limits and restrictions

within the framework of national development program


11) Law granting tax exemption (includes amnesties, condonations
and refunds) shall be passed with concurrence of Congress majority of all members voting separately
Relative majority (majority of quorum) is sufficient to
withdraw exemption.
12) No use of public money or property for religious purposes
except if priest is assigned to armed forces, penal institutions,
government orphanage or leprosarium

Equity - apportionment must be more or less just in the


light of taxpayers ability to shoulder tax burden
Means fair, just, reasonable and proportionate to
ones ability to pay.

13) Special purpose - special fund for said purpose, balance goes
to general funds

5) Non-imprisonment for non-payment of poll tax


No person shall be imprisoned for non-payment of a poll tax (Art
II, Sec 20)
Poll Tax/Community Tax one levied on persons
who are residents within the territory of the taxing
authority without regard to their property, business or
occupation.

15) Power of review, revise, reverse, modify or affirm on appeal or


certiorari of the SC Rules of Court
(Art VIII, Sec 5, par 2)

14) Veto power of the President - revenue/tariff bill


(Art. VI Sec 27, second par)

16) Power of Local Government to create their own sources and


levy taxes, fees, charges

(Art X, Sec 6)
17) Just share of local government in national revenue which shall
be automatically released.
18) Tax exemption of all revenues and assets of
(a) proprietary or cooperative educational institutions
(b) subject to limitations provided by law
(Art XIV, Sec 4(3))
19) Tax exemption of grants, endowments, donations or
contributions USED ACTUALLY, DIRECTLY and EXCLUSIVELY for
educational purposes
B. Indirect
Freedom of religion

Activities simply and purely for propagation of faith are


exempt (e.g. sale of bibles and religious articles by nonstock, non-profit organization at minimal profit).

Tax is unconstitutional if it operates as a prior restraint on


exercise of religion

Income even of religious organizations from any activity


conducted for profit or from any of their property, real or
personal, regardless of disposition of such income, is
taxable
Freedom of press/expression

Tax that operates as a prior restraint invalid.

If fee is only for purpose of defraying cost of registration


and not for exercise of privilege, no violation.
Mandatory Character of Constitutional Provision
The established rule is that constitutional provisions are to be
considered as mandatory unless by express provision or by
necessary implication.
A directory provision is generally intended merely for
expediency or convenience such that to have it enforced
strictly may cause more harm than by disregarding it.
In case of statutory enactments, those dealing on the aspects
of levy and compliance are generally treated as mandatory
and those that are intended merely for administrative
feasibility as directory.
Aspects of Taxation
(Phases, Processes, Stages/Steps in Taxation)

Levy act of imposition by the legislature such as by its


enactment of the law.
include not only the mandate on when and how the
tax is imposed but also, whenever it may be
appropriate, the grant of tax exemptions, tax
amnesties or tax condonations.

B. As to who bears the burden


1) Direct the tax is imposed on the person who also bears the
burden thereof
Ex. Income tax, community tax, estate tax, donors tax
2) Indirect imposed on the taxpayer who shifts the burden of the
tax to another
- levied upon transactions or activities before the articles subject
matter thereof reach the consumers to whom the burden of the tax
may ultimately be charged or shifted
Ex. VAT, specific tax, percentage tax, customs duties
C. As to determination of amount
1) Specific tax imposed and based on a physical unit of
measurement, as by head, number, weight, length or volume
Ex. Tax on distilled spirits, fermented liquors, cigars
2) Ad Valorem - tax of a fixed proportion of the value of property
with respect to which the tax is assessed; requires intervention of
assessor.
Ex. Real estate tax, excise tax on cars, nonessential
Goods
D. As to purpose
1) General, fiscal or revenue - imposed for the general purpose of
supporting the government
Ex. Income tax, percentage tax
2) Special or regulatory - imposed for a special purpose, to
achieve some social or economic objectives
Ex. Protective tariffs or customs duties on imported goods intended
to protect local industries
E. As to authority imposing the tax
1) National - imposed by the national government
Ex. National internal revenue taxes, custom duties
2) Municipal or local - imposed by the municipal corporations or
local governments
Ex. Real estate tax, occupation tax
F. As to graduation of rate (Three systems of taxation)
1) Proportional - based on a fixed percentage of the amount of the
property, income or other basis to be taxed
Ex. Real estate tax, VAT, percentage tax
2) Progressive or graduated - tax rate increases as the tax base
or bracket increases
Ex. Income tax, estate tax, donors tax
3) Regressive - tax rate decreases as the tax base increases

Assessment and Collection act of administration and


implementation of the tax law by the executive through its
administrative agencies.
means notice and demand for payment of a tax
liability
Payment act of compliance by the taxpayer including
such options, schemes or remedies as may be legally
open or available to him.

4) Degressive - increase of rate is not proportionate to the


increase of tax base
5) Mixed - partly progressive and partly regressive
SITUS OF TAXATION - the place of taxation, the country that has
the power to levy and collect the tax.
Distinction from Certain Kinds of Exactions

Classification of Taxes
A. As to subject matter of object
1) personal, poll, capitation tax
(a) fixed amount
(b) individuals residing within specified territory
(c) without regard to their property, occupation or business
Ex. Community Tax (Cedula)
2) property tax
(a) imposed on property, real or personal
(b) in proportion to its value or other reasonable method of
apportionment
Ex. Real estate tax

TAX DISTINGUISHED FROM POLICE POWER


TAX
Purpose
Amount
exaction

Raise revenue
of

Superiority
of contracts

3) excise, privilege tax


(a) imposed upon performance of an act, the enjoyment of a
privilege or the engaging in an occupation, profession or
business
Ex. Income tax, VAT, estate tax, donors tax

Transfer
Property
rights

of

No limit
Contracts may
be impaired unless
(a) government is
party to contract
granting
exemption; or (b)
involves franchise
Taxes paid
form part of the
public funds

POLICE POWER
(in the form of a FEE)
Exercise to promote public
welfare through regulation
Limited to the cost of
regulation, issuance of
license, or surveillance
Contracts may be
impaired

Allows merely the


restraint on the
exercise of property
rights

TAX DISTINGUISHED FROM EMINENT DOMAIN


TAX
Raise revenue

Purpose
Compensatio
n

Persons
affected

Payment of taxes
accrue
to the general
benefit of the
citizens of the
taxing State
Applies to all
persons, property
and
excises that
may be
subject
thereto

EMINENT DOMAIN
The taking of
property for public
use
Just compensation is given
the owner
of the expropriated
property
Only particular
property is
comprehended

2) Tax overpayment (BIRs obligation to refund or set-off arises


from time tax was paid)
3) If the case involves local government taxes
TAX DISTINGUISHED FROM SPECIAL ASSESSMENT
Imposed on
Why
imposed
Purpose
When
imposed

Regular exaction

Basis

Necessity

Source
Purpose
Object
Amount

LICENSE FEE
Emanate from the police
power of the State
Regulation
Right to exercise a
privilege
only necessary to carry out
regulation

Distinction lies in the primary purpose:


License fee if primary purpose is to regulate and the excess of
the amount collected from the cost to carry out the regulation is
minimal and incidental.
Tax if primary purpose, or at least one of the real and substantial
purposes is to raise revenue.
If amount is too high for regulation, it would be a tax; unless
imposed on non-useful occupations or businesses.
Purpose of distinction: limitations and exemptions apply only to
one and not to the other (ex. Exemption from taxation does not
include exemption from fee)

SPECIAL ASSIGNMENT
Only on land
Public improvement
that benefits the land
Contribution to cost
of public
improvement
Exceptional as to
time and locality
Benefits obtained

TAX DISTINGUISHED FROM TOLL

TAX DISTINGUISHED FROM LICENSE FEE


TAX
Exercise of
Taxing power
Raise revenue
Persons,
property and
privilege
no limit

TAX
persons,
properties, etc.
regardless of public
improvement
Support of
government

Kind
demand
Purpose
Amount

of

TAX
Demand of
sovereignty
support of
government
no limit depends
on need of the
government

TOLL
Demand of
ownership
Collection for the
use of property
Fair return of the
cost of the property
or improvement

TAX DISTINGUISHED FROM CUSTOMS DUTY


Coverage
Object

TAX
More
comprehensive
than customs duty
Persons,
property and
etc.

CUSTOMS DUTY
Kind of tax
Goods imported
or exported

TAX DISTINGUISHED FROM DEBT


Source

TAX
Law; legal
obligation
Personal
Generally not
subject to
compensation/setof
f
Imprisonment is
sanction for
nonpayment

DEBT
Based on contract
Assignable
May be the subject
of compensation/setoff

No imprisonment
for non-payment

GENERAL RULE: Taxes cannot be the subject of compensation or


set-off
* A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax
being collected. The collection of tax cannot await the results of a
lawsuit against the government.
Reasons:

lifeblood theory

taxes are not contractual obligation (absence of consent of


taxpayer)

taxpayer and government are not mutual debtors and


creditors of each other

Classification of Tax Exemptions


1. Express
by exemption provisions in the Constitution, statutes,
treaties, franchises or similar legislative acts
Examples of statutory exemptions are:
(a) Sec. 30, National Internal Revenue Code
(b) Sec. 105, Tariff and Customs Code
(c) Special laws
2.

Implied or by Omission
There is no tax by silence but, where the law levies a tax,
so also must the tax exemption be explicit in the law.
There is no tax exemption solely on the ground of equity,
but equity can be used as a basis for a statutory
exemption; thus, at times the law authorizes the
condonation of taxes on equitable considerations.

3.

Contractual
These are those agreed to by the taxing authority in
contracts lawfully entered into by them under enabling
laws.

EXCEPTIONS:
1) Both claims already became overdue and demandable as well
as fully liquidated
there must have already been an act of appropriation by
the government (legislative) of funds for payment of the
debt.

INTERPRETATION AND CONSTRUCTION


OF TAX STATUTES
Where the doubt exists in determining the legislative intent, the
doubt must be resolved liberally in favor of taxpayers and
strictly against the taxing authority.
The government is never estopped from collecting taxes
because of mistakes or errors on the part of its agents.
The 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.
The exemptions (or equivalent provisions such as tax
amnesties and tax condonations) are not presumed and when
granted, are strictly construed against the grantee.

May not be revoked without impairing the obligations of


contracts

Tax exemptions are construed liberally in favor of the


grantee in the following cases:
When the law so provides for such liberal construction
Exemptions from certain taxes granted under special
circumstances to special classes of persons
Exemptions in favor of the government, its political
subdivisions or instrumentalities
Exemptions to traditional exemptees, such as those in
favor of religious and charitable institutions
Tax statutes offering rewards are liberally construed in
favor of awardees.
NATURE OF TAX AMNESTY
1) general 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) partakes of an absolute forgiveness or waiver of the
Government of its right to collect
3) to give tax evaders, who wish to relent & are willing to reform
a chance to do so
RULES ON TAX AMNESTY
1) Tax amnesty
(a) like tax exemption, never favored nor presumed
(b) construed strictly against the taxpayer (must show
complete compliance with the law)
2) Government not estopped from questioning the tax liability even
if amnesty tax payments were already received
Reason: Erroneous application and enforcement of the law by
public officers do not block subsequent correct application of the
statute. The government is never estopped by mistakes or errors of
its agents.
Basis: Lifeblood Theory
3) Defense of Tax amnesty, like insanity, is a personal defense.
Reason: Relates to the circumstances of a particular accused and
not the character of the acts charged in the information
CERTAIN DOCTRINES IN TAXATION
PROSPECTIVITY OF TAX LAWS
Taxes may be imposed retroactively by law but, unless so
expressed by such law, these taxes must only be imposed
prospectively.
Tax laws are neither political nor penal in nature and they
are deemed laws of the occupied territory rather than of
the occupying enemy, hence, the ex post facto rule,
except for the penalty imposed (not the interest), would be
inapplicable.
A harsh retroactivity of the law, however, may make it
inequitable and violative of the Constitution; similarly, due
process is violated if the tax is oppressive.
IMPRESCRIPTIBILITY OF TAXES
For the purpose of safeguarding taxpayers from any
unreasonable examination, investigation or assessment,
our tax law provides a statute of limitations in the
collection of taxes.
The law on prescription; being a remedial measure,
should be liberally construed in order to afford such
protection.
As a corollary, the exception to the law on prescription
should perforce be strictly construed.
DOCTRINE OF EQUITABLE RECOUPMENT
1) refund of a tax illegally or erroneously collected or overpaid
by a taxpayer
2) such tax refund is barred by prescription
3) tax presently being assessed against a taxpayer
4) may be recouped or set-off against the tax barred by
prescription not allowed in Philippines, reason - LIFE
BLOOD
CONCEPT OF DOUBLE TAXATION
Kinds of Double Taxation

A. DIRECT DUPLICATE

taxing same person, property or right twice

for the same purpose

by the same taxing authority

within the same jurisdiction or taxing district

within the same taxable period

and they must be of the same kind or character of tax


B. INDIRECT DUPLICATE

Exists if any of the elements for Direct taxation is not present

No constitutional prohibition on double taxation. However,


where there is direct duplicate taxation then there may be
violation of the constitutional precepts of equal protection
and uniformity in taxation.
Measures to avoid double taxation:
(a) Treaty provisions against double taxation
(b) Reciprocity provisions
(c) Tax credit provisions
TAX TREATY AS A MODE OF ELIMINATING DOUBLE
TAXATION:
1) EXEMPTION METHOD the income or capital which is taxable
in the state of source or situs is exempted in the state of residence,
although in some instances it may taken into account in
determining the rate of tax applicable to the tax payers remaining
income or capital (ex. Tax Sparing Credit scheme)
2) CREDIT METHOD the tax paid in the state of source is
credited against the tax levied in the state of residence
POWER TO TAX INVOLVES THE POWER TO DESTROY
The doctrine seeks to describe the consequential nature of
taxation and its resulting implications to wit:
(a) The power to tax must be exercised with caution to
minimize injury to the proprietary rights of a taxpayer
(b) If the tax is lawful and not violative of any of the inherent
and constitutional limitations, the fact alone that it may
destroy an activity or object of taxation will not entirely
permit the courts to afford any relief
(c) A subject or object that may not be destroyed by the
taxing authority may not not likewise be taxed
Thus, a tax may not be imposed on the exercise of a fundamental
right since to otherwise permit it would amount to destroying that
fundamental right.
ESCAPE FROM TAXATION
Tax Avoidance (Tax Minimization) tax saving device that is
legally permissible
Tax Evasion (Tax Dodging) connotes fraud through the use of
pretenses and forbidden devices to lessen or defeat taxes; must be
willful and intentional.
SET-OFF OF TAXES
Taxes are not subject to set-off or legal compensation.
Reasons:
1) Taxes are of a distinct kind, essence and nature and these
impositions cannot be so classed in merely the same
category as ordinary obligations
2) The applicable laws and principles governing each are
peculiar, not necessarily common to each
3) Public policy is better subserved if the integrity and
independence of taxes be maintained
TAXPAYER SUIT
It is only when an act complained of, which may include a
legislative enactment, directly involves the illegal
disbursement of public funds derived from taxation that
the taxpayers suit may be allowed.
COMPROMISES
These are allowed and enforceable when the subject
matter thereof is not prohibited from being compromised
and the person entering into it is duly authorized to do so.
No provisions exist under the Local Government Code,
while the tax (not criminal) liability is not prohibited from
being compromised; there is no specific authority,
however, given to any public official to execute the
compromise so as to render it effective.