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2017 BAR EXAMINATION Treatise on Tax Principles and Remedies

LAW ON TAXATION (2009), p.5) [hereinafter RECALDE]

PART I. GENERAL PRINCIPLES OF TAXATION Illustration: Taxes imposed to rehabilitate and


stabilize a threatened industry, which is affected
A. DEFINITION, CONCEPT, AND PURPOSE OF with public interest, like the oil industry (Caltex
TAXATION Philippines v. COA, G.R. No. 92585, May 8,
1992).
Definition
Taxation is the power by which the c. Reduction of social inequality/compensatory
sovereign, through its lawmaking body, raises purpose- to implement the social justice
revenue to defray the necessary expenses of the provisions of the Constitution through the
government. It is merely a way of apportioning the progressive system of taxation, which would
costs of government among those who in some result to equal distribution of wealth
measure are privileged to enjoy its benefits and must (Southern Cross Cement Corporation v.
bear its burdens (51 Am. Jur. 34). Cement Manufacturers Association of the
It is described as destructive, that which Philippines, G. R. No. 158540, August 3,
interferes with the personal and property rights of the 2005).
people and takes from them a portion of their
property for the support of the government (Paseo Illustration: The tax imposed on a person gets
Realty and Development and Development higher as his income gets higher.
Corporation v. CA, G.R. No. 119286).
d. Encourage economic growth- as illustrated
Three Elements of Taxation: by the grant of preferential tax treatment for
1. It is an enforced proportional contribution from businesses that are registered with
persons and properties; Philippine Economic Zone Authority (PEZA),
2. It is imposed by the State by virtue of its Subic Bay Metropolitan Authority (SBMA)
sovereignty; and and the like (RECALDE, supra at 5).
3. It is levied for the support of the government e. Protectionism- as illustrated by the
(PCGG v. Cojuangco, G. R. No. 147062, imposition of special tariffs
December 14,2001)
B. NATURE AND CHARACTERISTICS OF
Two Concepts of Taxation: TAXATION
1. Power to tax; and
2. The act or process by which the taxing power is Nature of Taxation
exercised (VITUG & ACOSTA, Tax Law and The nature of the states power to tax is two-
Jurisprudence (2014), p.1) (hereinafter VITUG & fold. It is both an inherent power and legislative
ACOSTA) power.

Purposes and Objectives: 1. Inherent power


1. Revenue-raising- revenues derived from taxes Taxation is inherent in nature, being an
are intended primarily to finance the government attribute of sovereignty. (Chamber of Real Estate
and its activities (VITUG & ACOSTA, supra) and Builders Association, Inc. v. Romulo, 614
2. Non-revenue/Sumptuary purposes SCRA 605 (2010))
a. Promotion of General Welfare- taxation may As an incident of sovereignty, the power to
be used as an implement of police power in tax has been described as unlimited in its range,
order to promote the general welfare of the acknowledging in its very nature no limits, so
people (ABAN, Law of Basic Taxation in the that security against its abuse is to be found only
Philippines, Revised Edition, p.5) in the responsibility of the legislature which
[ hereinafter ABAN] imposes the tax on the constituency who are to
pay it. (Mactan Cebu International Airport
Illustration: Sugar Adjustment Act was Authority v. Marcos, 261 SCRA 667 (1996))
imposed to strengthen the economic sugar The power of taxation is an essential and
industry (Lutz v. Araneta, G.R. No. L-7859, inherent attribute of sovereignty, belonging as a
December 22,1955). matter of right to every independent
government, without being expressly conferred
b. Regulation- to discourage certain business by the people. (Pepsi-Cola Bottling Company of
or the use of certain products that are not the Phil. V. Mun. of Tanauan, Leyte, 69 SCRA
illegal but considered as inimical to the 460)
society-as illustrated by the high taxes, on The power to tax is inherent in the State,
tobacco and alcohol products (RECALDE, A such power being inherently legislative, based
on the principle that taxes are a grant of the
people who are taxed, and the grant must be 2. Amount of Exaction:
made by the immediate representative of the a. Taxation- No limit, but as much as
people, and where the people have laid the possible, must be equal to the needs of
power, there it must remain and be exercised. the government in order to avoid a
(Commissioner of Internal Revenue v. Fortune deficit scenario for the State.
Tobacco Corporation, 559 SCRA 160 (2008)) b. Police Power- Limited to the cost of
regulation, issuance of the license or
2. Legislative power surveillance fee, except for non-usfeul
The power of taxation is essentially a legislative occupations wherein the exaction may
function. The power to tax includes the authority be very large (Physical Theraphy
to: Organization of the Philippines, Inc. v.
(1) determine the Municipality Board of the City of Manila,
(a) nature (kind); G. R. No. L-10448, August 30, 1957).
(b) object (purpose); c. Eminent Domain- No amount imposed;
(c) extent (amount of rate); just compensation is given the owner of
(d) coverage (subjects and objects); the expropriated property.
(e) apportionment of the tax (general or 3. Benefits Received:
limited application); a. Taxation- No direct benefit is received
(f) situs (place) of the imposition; and by the taxpayer, merely general benefit
(g) method of collection; of protection and promotion of public
(2) grant tax exemptions or condonations; and welfare
(3) specify or provide for the administrative as b. Police Power- No direct benefit is
well as judicial remedies that either the received, yet a healthy economic
government or the taxpayer may avail standard of society is maintained.
themselves in the proper implementation of the c. Eminent Domain- A direct benefit
tax measure. (Petron v. Pililla, GR No. 158881, results in the form of just compensation
April 16, 2008) to the property owner
In other words, the legislature wields the 4. Non-impairment of Contracts:
power to define what tax shall be imposed, why a. Taxation- Contracts may not be
it should be imposed, how much tax shall be impaired
imposed, against whom (or what) it shall be b. Police Power- Contracts may be
imposed and where it shall be imposed. impaired
(Chamber of Real Estate and Builders c. Eminent Domain- Contracts may be
Association, Inc. v. Romulo, 614 SCRA 605 impaired
(2010)) 5. Transfer of Property Rights:
a. Taxation- Taxes paid form part of public
Characteristics of Taxation funds
1. Comprehensive- It covers persons, businesses, b. Police Power- No transfer but only
activities, professions, rights and privileges. restraint on the exercise of property
2. Unlimited- It is so unlimited in force and rights
searching in extent that courts scarcely venture c. Eminent Domain- Transfer is effected
to declare that it is subject to any restrictions, in favor of the State
except those that such rests in the discretion of 6. Scope:
the authority which exercises it (Tio v. a. Taxation- Covers all persons, property
Videogram Regulatory Board, G.R. No. 75697, and excises
June 18, 1987). b. Police Power- Covers all persons,
3. Plenary- It is complete. Under the NIRC, the property, rights and privileges
BIR may avail of certain remedies to ensure the c. Eminent Domain- Covers only a
collection of taxes. particular property
4. Supreme- It is supreme insofar as the selection 7. Who exercises the Power:
of the subject of taxation is concerned. a. Taxation- May be exercised only by the
government or its political subdivisions
C. POWER OF TAXATION AS DISTINGUISHED b. Police Power- May be exercised only
FROM POLICE POWER AND POWER OF the government or its political
EMINENT DOMAIN subdivisions
c. Eminent Domain- May be:
1. Purpose: i. Exercised by the government or
a. Taxation- To raise revenue its political subdivisions; or
b. Police Power- To promote public ii. Granted to public service,
welfare through regulations companies or public utilities
c. Eminent Domain- To facilitate the
taking of private property for public use D. THEORY AND BASIS OF TAXATION
1. Life- blood theory- taxation is the 1. Fiscal Adequacy- sources of government
indispensable and inevitable price for civilized revenue must be sufficient to meet government
society; without taxes, the government would be expenditures and other public needs (Chavez v.
paralyzed for lack of the motive power to Ongpin, G.R. No. 76778, June 6, 1990; Abakada
activate and operate it (CIR v. Algue, G.R. No. L- Guro Party List v. Ermita, G.R.No. 168056,
28896, February 17, 1988). Thus, the collection September 1, 2005). This is in consonance with
of taxes must be made without hindrance if the the doctrine that taxes are the lifeblood of the
State is to maintain its orderly existence. government.
2. Administrative Feasibility- tax laws must be
For this reason: capable of being effectively enforced with the
a. Injunction generally does not lie against least inconvenience to the taxpayer.
the collection of taxes (CIR v. Cebu The principle requires that each tax should
Portland Cement Company, G. R. No. L- be clear and plain to the taxpayers, capable of
29059, December 15,1987); enforcement by an adequate and well-trained
b. Taxes are not subject to set-off, as a rule staff of public officials, convenient as to time and
(Republic v. Mambulao, G. R. No. L- manner of payment and not duly burdensome
17725, February 28,1962); upon or discouraging to business activity
c. The State is not estopped from (Report of the Tax Commission of the
collecting taxes by the mistakes or Philippines, February 1939, Vol. 1, pp. 23-31).
errors of its agents (Philippine Guaranty However, even if the imposition is burdensome
Co., Inc. v. CIR, G. R. No. L-22074, April to the taxpayer, the tax imposition is not
30,1965) necessarily invalid unless some aspect of it is
d. Tax exemptions are never presumed shown to violate any law or the Constitution
and are strictly construed against the (Diaz v. Secretary of Finance, G.R. No.193007,
taxpayer (Smart Communications, Inc. v. July 19, 2011).
City of Davao, G.R. No. 155491, 3. Theoretical Justice- a sound tax system must
September 16,2008); be based on the taxpayers ability to pay (Ability-
e. Taxation is plenary and unlimited in its to-pay Theory). Our laws mandate that taxes
range (Chamber of Real Estate and must be reasonable, just, fair, and conscionable.
Builders Associations, Inc. v. Romulo, Taxation must be uniform and equitable
G.R. No. 160756, March 9,2010; and (CONST. Art. VI, Sec. 28, par. 1).
f. A valid tax may result in the destruction
of the taxpayers property Effects of Violation of the Principles
2. Necessity theory- the existence of the A tax law will retain its validity even if it is not
government is a necessity. It cannot continue in consonance with the principles of fiscal
without a means to pay its expenses and adequacy and administrative feasibility because
therefore has a right to compel all citizens and the Constitution does not expressly require so.
property within its power to contribute (51 Am. These principles are only designed to make our
Jur. 42) tax system sound. However, if a tax law runs
3. Benefit- protection/ Reciprocity theory contrary to the principle of theoretical justice,
(Doctrine of Symbiotic Relationship)- taxes such violation will render the law unconstitutional
are paid for the enjoyment of the benefits of considering that under the Constitution, the rule
organized society. Such enjoyment as well of taxation should be uniform and equitable
extends to those members of a State who do not (DIMAAMPAO, Tax Principles and Remedies
pay taxes because they are not able to do so (2015), p.30) [hereinafter DIMAAMPAO].
(51 Am. Jur. 42-43).
A person cannot object to or resist the F. SCOPE AND LIMITATIONS OF TAXATION
payment of taxes solely because no personal 1. INHERENT LIMITATIONS
benefit to him can be pointed out arising from 2. CONSTITUTIONAL LIMITATIONS
the tax (Lorenzo v. Posadas, et.al G.R. No. L-
43082, June 18, 1937). G. STAGES OR ASPECTS OF TAXATION
4. Jurisdiction over subject and objects- the
power to tax can only be exercised within the 1. Tax Legislation (Levy)- enactment of a law
territorial jurisdiction of a taxing authority (51 Am by Congress authorizing the imposition of
Jur. 88), except when there exists privity of tax on persons, property or excises. It
relationship between the taxing State and the includes:
object of tax. a. Determination of the subject of
taxation;
b. Determination of the purposes for
which taxes shall be levied;
E. PRINCIPLES OF A SOUND TAX SYSTEM c. Fixing the rate of taxation; and
d. Discretion as to the manner, means payment of tax ( Borja v. Gella, G.R. No. L-
and agencies of collection 18330(July 31,1963);
(DIMAAMPAO, supra at 19).
2. Tax Administration- act of administration Reason: The taxpayer is not allowed to
and implementation of the tax law by the settle his tax liability by conveying property
executive department through its in view of the problem of assigning value to
administrative agencies. It includes: such property (MAMALATEO, Reviewer on
a. Assessment; and Taxation (2008), p.8 [hereinafter
b. Collection MAMALATEO, Reviewer].
Rules on Assessment and Collection: 5. It is proportionate in character- taxes must
a. The ltax law must designate which be based on ability to pay in accordance
agency will collect the taxes; and with the constitutional mandate to Congress
b. The circulars and regulations issued to evolve a progressive system of taxation;
by the Secretary of Finance or the 6. It is levied on persons, property, and excise;
BIR Commissioner must be in 7. It is levied for public purpose/s;
accordance with the tax measures 8. It is paid at regular periods or intervals; and
imposed by Congress Examples:
(DIMAAMPAO, supra at 22). a. Income Taxes are paid quarterly and
3. Payment- act of compliance by the annually;
taxpayer, including such options, schemes b. Value-Added Taxes are paid
or remedies as may be legally available to monthly and quarterly
him (VITUG & ACOSTA, supra at 26). 9. It is personal to the taxpayer
4. Refund- the recovery of any tax alleged to Examples:
have been erroneously or illegally assessed a. Restitution by the heirs in case of
or collected, or of any penalty claimed to estate tax deficiency (NIRC,
have been collected without authority, or of Sec.91(c)); and
any sum alleged to have been excessively, b. Exemption from liability of
or in any manner wrongfully collected. stockholders in case of the
corporations tax delinquency
If what is delegated is tax legislation, the Exceptions:
delegation is invalid. If what is delegated is tax i. Stockholders may be held liable
administration, the delegation is valid (ABAN, for the unpaid taxes of a
supra at 56). dissolved corporation if it
appears that the corporate
H. DEFINITION, NATURE AND assets have passed into their
CHARACTERISTICS OF TAXES hands (Tan Tiong Bio v. CIR,
Taxes G.R. No. L-15778, April 23,1962)
Enforced proportional contributions from ii. When stockholders have unpaid
persons and property levied by the law-making body subscriptions to the capital of the
of the State by virtue of its sovereignty for the corporation, they can be made
support of the government and for public needs (1 liable to the extent of their unpaid
Cooley 62). subscriptions (ABAN, supra at 4).
They are not arbitrary exactions by contributions
levied by authority of law, and by some rule of I. REQUISITED OF A VALID TAX
proportion which is intended to insure uniformity of
contribution and a just apportionment of the burdens 1. That either the person or property taxed be
of government (1 Cooley 64; Question No. 1(A), within the jurisdiction of the taxing authority;
2004 Bar Examination). 2. That the assessment and collection of
certain kinds of taxes guarantee against
Characteristics of Taxes: injustice to individuals, especially by
1. It is imposed by the State which has providing notice and opportunity for hearing;
jurisdiction over the person, property, or 3. That it should be for a public purpose;
excises; 4. The rule of taxation shall be uniform; and
2. It is levied by the law-making body of the 5. The tax must not impinge on the inherent
State; and constitutional limitations on the power of
3. It is an enforced contribution- not dependent taxation
on the will of the person taxed, not a
contract but a positive act of the J. TAX AS DISTINGUISHED FROM OTHER
government; FORMS OF EXACTIONS
4. It is generally payable in money- generally, it
is a pecuniary burden payable in money, bt Tax v. Debt
backpay certificates may be used in 1. Basis:
a. Tax- an obligation based on law 1. Basis:
b. Debt- an obligation based on contract or a. Tax- levied in the exercise of the taxing
judgment power
2. Effect on Non- Payment: b. License fee- emanates from police
a. Tax- failure to pay tax (other than poll power
tax may result in imprisonment 2. Purpose:
b. Debt- no imprisonment for non-payment a. Tax- primarily for revenue
of debt b. License fee- for regulation
3. Mode of Payment 3. Limitation on Amount
a. Tax- generally payable in money a. Tax- no limit
b. Debt- payable in money, property, or b. License Fee- limited to the cost of:
service i. Issuance of license; and
4. Assignability ii. Inspection and surveillance,
a. Tax- not assignable except for non-useful
b. Debt- assignable occupation (Physical Theraphy
5. Payment Organization of the Philippines,
a. Tax- generally, not subject to Inc. v. Municipality Board of the
compensation or set-off City of Manila, G.R. No. L-
b. Debt- may be subject to compensation 10448, August 30, 1957).
or set-off 4. When paid
6. Interest: a. Tax- normally paid after the start of
a. Tax- tax does not draw interest expect business operations
in case of delinquency b. License fee- normally paid before the
b. Debt- debt draws interest if stipulated or commencement of business operations
if the debtor incurs legal delay 5. Surrender
7. Authority a. Tax- taxes, being the lifeblood of the
a. Tax- imposed by public authority State, cannot be surrendered except for
b. Debt- imposed by private individuals lawful consideration
8. Prescription b. License fee- license fee may be with or
a. Tax- determined by NIRC without consideration
b. Debt- determined by the Civil Code 6. Effect of Non-payment
a. Tax- non-payment does not make the
Tax v. Special Assessment business illegal but may be ground for
1. Definition: criminal prosecution
a. Tax- enforced proportional contribution b. License fee- non-payment makes the
from persons or property business illegal
b. Special Assessments- enforced
proportional contributions from owners Tax v. Penalty
of lands especially or peculiarly 1. Definition:
benefited by public improvements a. Tax- enforced proportional
2. Subject: contribution from persons and
a. Tax- Taxes are levied on persons, property
property (which includes land), income, b. Penalty- sanction imposed as a
business, etc. punishment for violation of law or
b. Special Assessments- levied only on acts deemed injurious; violation of
land tax laws may give rise to imposition
3. Liability: of penalty
a. Tax- personal liability of the taxpayer 2. As to nature of burden:
b. Special Assessments- cannot be made a. Tax- tax is a civil liability. A person is
a personal liability of the person criminally liable in taxation only
assessed when he fails to satisfy his civil
4. Basis: obligation to pay taxes (Republic v.
a. Tax- based on necessity and partially on Patanao, G.R. No. L-22356, July
benefits 21,1967)
b. Special Assessments- based solely on b. Penalty- it is a punishment for the
benefits commission of a crime
5. Application 3. Purpose:
a. Tax- general application a. Tax- intended to raise
b. Special Assessments- special b. Penalty- designed to regulate
application only as to a particular time conduct
and place 4. Authority:
Tax v. License Fee
a. Tax- may be imposed only by the 9. KINDS OF TAXES
government
b. Penalty- may be imposed by the: Situs of Taxation
i. Government; or Construction and Interpretation of
ii. Private individuals or Tax Laws
entities Tax Exemption and Exclusion
Tax v. Tariff Tax Rules and Regulations
a. Tax- all embracing term to include Penal provisions of Tax Laws
various kinds of enforced contributions Non-retroactive application to Taxpayers
from persons for the attainment of public Sources of Tax Laws
purposes Doctrines in Taxation
b. Tariff- a kind of tax imposed on articles Prospectivity of Tax Laws
which are traded internationally Imprescriptibility of Taxes
Double Taxation
Tax v. Compromise Penalty Power to Tax involves Power to Destroy
a. Tax- basic imposition on persons, Escape from Taxation
property, and excises Shifting of Tax Burden
b. Compromise Penalty- collected as a Tax Avoidance
compromise in cases involving Tax Evasion
violations of the tax laws, rules or Exemption frm Taxation
regulations Doctrine of Equitable Recoupment
Compensation and Set-off
Tax v. Subsidy Compromise and Tax Amnesty
a. Tax- levied by the law-making body of Taxpayers Suit
the State for the support of the Nature and Concept
government and for public needs As distinguished from a citizen
b. Subsidy- a legislative grant of money in suit
aid of a private enterprise deemed to Requisites of a Taxpayers suit
promote the public welfare challenging the
constitutionality of a tax
Tax v. Revenue measure or act of a taxing
a. Tax- a source of revenue of the authority; concept of locus
government standi, doctrine of
b. Subsidy- a broad term that includes not transcendental importance and
only taxes but income from other ripeness for judicial
sources as well. determination