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Taxation 1 upon the subjects of the tax so the money that will be

raised from taxation will be used for the support of the


June 18, 2013 government. Therefore, REVENUE is the PRINICIPAL
Taxation has been defined as the power of the OBJECTIVE OF TAXATION.
sovereign to impose burdens or charges upon persons, There are three inherent powers of the State:
properties or property rights for the use and support of
the government for it to be able to discharge. 1. Police Power

Taxation is also the power to create revenue to defray 2. Eminent Domain


necessary governmental expenses.
3. Power to Tax.
Attributes of Taxation
SOURCES OF REVENUE OF THE GOVERNMENT- Charges,
1. I t is an inherent power of the sovereign it taxes and fees.
exists and independent from the Constitution; it
exist independent from any act of legislation. In
other words, taxation exists when there is
government or of a state. Taxation as a power
emanates from the people. Theory of Taxation: Taxes proceed from the theory
of the existence of the government is a necessity. This
is the principle which states that TAXES ARE THE
2. It is legislative in character- because this power LIFEBLOOD OF THE GOVERNMENT. That the existence
is given to the legislature or the law-making of the government is a necessity because the
government will not be able to discharge its functions
body. WHY? Because from the very beginning,
taxation is a power of the sovereign ad who is without taxes (NECESSITY THEORY.)
the sovereign? The people. And when the The other basis would be the PROTECTION-BENEFIT
people exercise this power it is done through PRINCIPLE (Basis of taxation) - The reciprocal obligation
their representatives and who are the or the symbiotic obligation between the State and the
representatives of the people? You have the citizens. The obligation of the State is to extend
legislature. protection to the citizens and on the other hand the
obligation of the citizens is to support the government
3. It is subject to Inherent and Constitutional
Limitations- Since the power of taxation is so by paying their taxes.
comprehensive and unlimited The power to Under this principle, if a citizen pays more taxes, is
tax involves the power to destroy-this power is there an obligation on the part of the State to afford
so comprehensive in scope therefore, it should more protection to the said citizen? No. Whether you
be subjected to limitations. These limitations pay more or less the government shall give similar
are divided into two: Inherent Limitations and protection and benefits among its citizens. This is based
Constitutional Limitations. on the other principle of taxation which is the ABILITY
TO PAY.

Then taxation the power to impose burdens or charges Aspects or Phases of Taxation:
upon persons, properties, or property rights for the use 1. Levying or the assessment stage- It is the
and support of the government to support and to exercise of the power of taxation through its
enable the government to discharge its functions. This legislative body. The Congress does not
tells us the purpose of taxation. The purpose of taxation implement the tax law.
is that these charges and burdens that will be imposed
2. Collection and payment of taxes-TAX ****Lutz vs Araneta- It involves the imposition of CA
ADMINISTRATION- Executive in character. The 567 or the Sugar Adjustment Act. It was questioned
executive shall implement the tax laws. how come such act was only imposed upon the sugar
industry when the purpose of taxation is public
What is the extent of the Power of the Law-making
purpose. According the SC, the Sugar Adjustment Act ,
body with regards to taxation? the tax which will be collected is a tax levied with a
1. Determination of what would be the subject of regulatory purpose, to provide means for the
tax. rehabilitation and stabilization of the threatened sugar
industry. In other words, the act is primarily an exercise
2. Determination of the purpose for the said tax so of the police power. The protection and promotion of
long as it is for public purpose. the sugar industry is a matter of public concern, it
follows that the Legislature may determine within
3. Determination of the tax amount or rate.
reasonable bounds what is necessary for its protection
4. Determination of the manner, the means and expedient for its promotion. Here, the legislative
agencies of the collection of tax. discretion must be allowed fully play, subject only to
the test of reasonableness; and it is not contended that
Can one go to the Court and question the motive of the the means provided in section 6 of the law (above
legislature on the levy? quoted) bear no relation to the objective pursued or are
oppressive in character. If objective and methods are
In one case, a certain person filed before the
alike constitutionally valid, no reason is seen why the
RTC of Manila questioning on the imposition of tax
state may not levy taxes to raise funds for their
under the NIRC on the jewellery industry. Because
prosecution and attainment. Taxation may be made the
according to him the jewellers from Thailand, Vietnam
implement of the state's police power. So CA 567 is a
and other Asian countries are taxed less how come they
tax measure in aid and in support for the Sugar
are taxed with a higher rate. Going back to the
Industry. So if a tax law is addressed only for the
question, can one go to the Court and question the
benefit of a particular industry it does not mean that it
motive of the legislature on the levy? The answer is NO!
will violate public purpose because tax power may go
Because the wisdom upon determining the subject of
hand with hand with police power.
tax is upon the legislature for as long as it is for public
purpose. ****Tio vs ERB- This is prior to the Optical Media Board,
the video industry was taxed under PD 1987 or An Act
However, if the question involves the inherent or
Creating the Videogram Regulatory Board" with broad
constitutional limitations of the tax law then you go to
powers to regulate and supervise the videogram
the Court.
industry. So it was asked in that case whether taxing the
Power to Tax involves the Power to Destroy-This video industry was a tax or a regulatory measure. The
principle came out because of the extent of the power SC said that taxing the video industry is both a tax and a
of the State which is very comprehensive and unlimited regulatory and revenue measure. Likewise, the
BUT the said principle was debunked when another imposition is also for public purpose. The taxation the
principle came out- Power to tax is not the Power to video industry is to regulate and rationalize the
Destroy while the Supreme Court sits. uncontrolled distribution of videograms. PD 1987 is not
only a regulatory measure but also a revenue measure
Non-Revenue Objectives of Taxation: prompted to realize earnings from videograms
establishment around 600 million per annum which was
1. Taxation can be used as a device for Regulation-
not subject to tax which deprived the government of
Taxation may go hand with hand with the police
additional sources of revenue. It is an end-users tax
power. Police power could be used to exercise
imposed on retailers for every videogram they make
the power of taxation.
available for public viewing. It was imposed due to
rampant piracy, violations of IPs and proliferation of compensation ng drug store? So now they will be given
porno tapes. what we call as TAX CREDIT in other words yung 20
pesos ng drug store ay puwede niyang gamitin as a tax
2. The tax maybe used to strengthen industries or credit against its tax dues. So that is the just
enterprises providing incentives. Remember
compensation. So this case shows that power of
that taxation is not just about imposing taxes eminent domain can go hand with hand with tax power
but also it is about providing tax exemptions, whereby there is taking of property due to that 20%
tax deductions. These are acts of taxation. discount and the just compensation is given through tax
3. Taxes on imports may be increased to protect credit. Under the amendment the discount now is no
local industries against foreign competition or longer use as tax credit but as tax deductions.
decreased to encourage foreign trade- The tariff Principles or Cannons of a Sound Tax System
on Customs Code, when an imported article is
brought in the country and these articles are 1. There must be fiscal adequacy- Sources of
sold in the Philippines for a cheaper price and it revenue taken as a whole should be sufficient
affects the local industry-then the DTI or DA to meet the varying levels of expenditures of
will impose an ANTI-DUMPING DUTY whereas if the government regardless of business
the imported articles were made by industries conditions or problems of economic
subsidized by their government and were adjustments. In short, the tax system within a
brought in Philippines, the DTI or DA may state is one where the state has sufficient
imposed a SPECIAL CUSTOMS DUTY upon the resources of revenue , how is the sources of
said articles. To protect our local industries. revenue determined? By the sufficiency of tax
SAFEGUARD if the articles are not subsidized by laws to meet the expenditures of the
the government where they are made likewise government. The expenditures of the
such articles do not violate the anti-dumping government may expand or contract under
law but there is a heavy importation of the said economic conditions of the state despite the
articles then DTI or DA will imposed a economic conditions of the state the revenue of
SAFEGUARD MEASURE. the state should expand and contract to the
needs of the government. In short, if there is a
4. It may be used as a bargaining tool shortfall on the revenue of the government it is
5. It may be used to halt inflation or lowered in not wise to go directly to the Congress and ask
periods of slump to expand business and ward them enact laws which will raise the tax rates
off depression. (Last resort). Because your sources of revenue
requires for the purposes of fiscal adequacy
6. To reduce inequalities in wealth and incomes. should be able and contract to the levels of
expenditures of the government regardless the
May the power of taxation be used as an implement of
economic conditions.
the power of eminent domain?
****Chavez vs Ongpin- After EDSA, Cory Aquino came
****CIR vs Central Luzon Drug Corp. - Where the senior
out with this EO 73 wherein it authorizes local
citizens law. The senior citizens law grants discount of
government units to revise real property assessments
20% so when the senior citizen pays, he or she only pays
for the purposes of real property taxation because the
the 80% so this law was challenged. So the question
valuations used by the LGUs were 1978 valuations and
now is how will the pharmacies recover the discount?
it was 1986 so purposes for fiscal adequacy LGUs were
By the reason of the discount there is the taking of
not able to update their valuations so Cory came out
ones property. In eminent domain, it is required that
with such EO 73. It was challenged as unconstitutional.
when there is a lawful taking of property there should
The SC upheld that EO 73 is Constitutional- Without
be just compensation. So paano na yung just
Executive Order No. 73, the basis for collection of real property levied by the law-making body of the Sate by
property taxes win still be the 1978 revision of property virtue of its sovereignty for the support of the
values. Certainly, to continue collecting real property government and for public needs.
taxes based on valuations arrived at several years ago,
in disregard of the increases in the value of real Characteristics of Tax:
properties that have occurred since then, is not in 1. It is an enforced contribution
consonance with a sound tax system. Fiscal adequacy,
which is one of the characteristics of a sound tax 2. It is generally payable in money
system, requires that sources of revenues must be
3. It is proportionate in character
adequate to meet government expenditures and their
variations. 4. It is levied upon person, property or property
rights.
****ABAKADA vs Ermita-This is in connection with the
imposition of VAT. First it was 10% then later it became 5. It is levied by the law-making body
12% in 2005 under RA 9337. RA 9337 was challenged
for being unconstitutional for violation of due process 6. It is levied by the State which has jurisdiction
etc. One of the issues raised there was the application
7. It is levied for public purpose.
of fiscal adequacy. One of the issues there is the validity
of the imposition of 12% VAT rate being constitutional- Classifications:
raising the VAT from 10 to 12 % is not valid therefore
unconstitutional. The SC said that increasing the VAT a. Subject-matter
from 10 to 12% is the demand of the principle of fiscal
1. Poll Tax/ Personal Tax
adequacy. Sources of revenues must be adequate to
meet the government expenditures. There is a need of 2. Property Tax
proof to show that there is indeed violation of due
process and equal protection. The Court will not 3. Excise Tax
interfere absent a showing of arbitrariness,
b. Who bears the burden
unreasonableness and discrimination. RA 9337 is
equitable and uniformed within a particular class. The 1. Direct Tax-Whereby the statutory taxpayer
VAT is the anti-thesis of progressive taxation by its very pays the tax and shoulders burden of tax
nature it is regressive. Progressive taxation has no like income tax etc.
relation with the VAT system as the VAT is paid by the
consumers or the business regardless of its nature. The 2. Indirect Tax- Where the statutory tax payer,
Court could not strike down a law simply because of its the person who is liable to pay the tax s
looks. allowed to pass or shift the burden of tax to
another like VAT
2. There must be Theoretical Justice-Taxes levied
must be based on ones ability to pay.

3. Administrative Feasibility- It tells us that taxes Tax June 19, 2013


being burdens that system of assessment of
where you pay your tax etc. must be
CONVENIENT TO THE TAXPAYER. It should also Among others the important distinctions as of classes:
be just and it must be uniform in enforcement
by governmental officials etc. As to who bears the burden:

TAX- The burdens or charges imposed by the State. It is (a) Direct


an enforced proportional burden from person or
(b) Indirect

As to determination of amount: A regressive system is one where you have


more indirect taxes than direct taxes.
(a) Specific based on a certain
standard of rate or measurement.
Like in the case of liquors/alcohol
Tax as distinguished from other terms:
products.

(b) Ad Valorem based on value


TOLL- different from a Tax (enforced burden or
As to purpose:
contribution imposed by the State)
(a) General
- The reconsideration you pay for the use of
(b) Special/ Regulatory property. When you pay a toll it does not mean
you are paying a tax.
As to scope:

(a) National
PENALTY where one is made to pay a penalty it does
(b) Municipal/ Local not have a similar concept as payment of the tax.

As to rates: A penalty is one that is imposed for violation of a law or


a certain regulation within which you are made to pay a
(a) Progressive
penalty whether the penalty would take into a form of
(b) Regressive imprisonment or payment of a fine or both. It is an
imposition of a certain sanction imposed by law or by a
(c) Proportional regulation. While a tax does not operate as a penalty, it
is an exaction or a burden but it is not an imposition of
As to the basis of ability to pay:
penalty it is an enforced contribution.
(a) Progressive tax

(b) Regressive tax


SPECIAL ASSESSMENT operates different from a tax;
special levy/ special assessment tax are terms not
actually in its technical sense a tax.
System of Taxation

Progressive system of taxation it is different


from a progressive tax or a progressive rate and when A special assessment or in local taxation they call it
we talk about a regressive system it is also different special levy imposed by LGUs is a method or a mode
from a regressive tax or a regressive rate because what of recovery or reimbursement on the part of the
we are talking about is a system of taxation. government when government would introduce
infrastructure development or public works projects.
Example of that is that in a far-flung place, government
would introduce a bridge or a road which before that
A progressive system is one where the system
place could not be reached through a mode of
of taxation is that it has more direct taxes than indirect
transportation then the government now constructed
taxes. Most of the taxes in the system are direct than
public works project or infrastructure development.
indirect.
Now as a result of that development, property owners
in that area were benefited by that project. The amount reforestation and the cost of reforestation
spent by the government for that project is recovered could be reimbursed against the government.
through the process or the method of the imposition of You have Mambulao Lumber having obligations
a special assessment or a special levy for purposes or taxes by way of forestry charges on account
that the government would be able to recover the cost of its activity as a logging concessionaire. On the
of the investment or the cost of the project. The other hand, it has a claim against the
government now after completing the project would government for reimbursement on the cost of
impose what we call as a special assessment. the reforestation it has been doing on its
logging concession. So Mambulao now asks if
they could have a set-off or compensation. The
Special assessment is therefore imposed to those real SC said that there can be no set-off or
property owners who will be benefited by the project. If compensation because the forestry charges/
you are not benefited by the project, the assessment taxes are not subject to set off or
would not apply on you. Another characteristic of compensation. There is no debtor-creditor
special assessment there is a period within which to relationship between the taxpayer and the
collect; normally a period of 10 years while tax the government. SC disallowed set-off and
imposition, the assessment or the collection of the tax compensation. This ruling has been reiterated
continues until the tax would be repealed or the rate/ in the case of Rep vs. Erita(?) (172 s 63) and
law be amended. For as long as the tax law or the tax is Franciavs IAC (162 s 753).
there enforced then the collection and the payment - In the case of Franciavs IAC, Francias property
continues but not in the case of a special assessment - was subject to expropriation proceedings by the
there is a limit as to time, it is only imposed only upon City of Pasay and Francia had obligations by way
the land and to the property owners benefited by the of real property taxes. Since she has a claim
improvement. over the government of just compensation on
account of expropriation proceedings. Then she
now asks for set-off or compensation. The SC
DEBT arises from a contract (express or implied) while did not allow set-off or compensation for the
taxis written by law same principle that taxes cannot be subject to
set-off or compensation.
- Non-payment of a debt, no person is
imprisoned but the person may be imprisoned - Later, this ruling was reiterated in the case of
for non-payment of tax except the poll tax/ Caltex Phil vs. COA (208 S 727), San Carlos
cedula/ residence tax Milling vs CIR (228 S 135), Philex Mining vs CIR
(294 S 687).
- As a matter of set-off or compensation: Debt
may be subject to set-off or compensation but a - In the case of Philex Mining vs CIR, Philex filed
tax cannot be subject to set-off or an application for tax refund or tax credit
compensation because there is no debtor- because it overpaid for taxes- it asked for a
creditor relationship between the taxpayer and refund or tax credit. Philex also had obligations
the State. for the taxes on its mining activity. Philex asks
to set-off the refund claim and the obligations
- Republic vs. Mambulao (4 S 622): Mambulao
for taxes since both are taxes. The SC ruled that
Lumber operates a logging concession which
even in a tax refund claim there is still no set-off
under its concession was subject to forestry
or compensation.
charges on account of the business it was
engaged in being a logging operator. Part of its - Have that application for tax refund/ issuance
obligation as a logging concessionaire is to do of tax credit certificate been approved, can you
now ask for a set-off or compensation? It could - License fees can only be imposed on legal
be YES because at that time (Philex) it was a businesses or activities; taxes can be imposed
pending application but if it had been approved whether you are on a legal or an illegal
then it can now invoke set-off or compensation. businesses or activities. License fees are
imposed to make your business activity legal or
- The only instance where the court allowed set- because the purpose is to regulate so the
off or compensation is in the case of Domingo license fees are imposed on legal activities but
vs. Garlitos (8 S 443), the estate had a claim for for purposes of taxation whether you are
unpaid services by the estate of rice and there engaged in kidnapping, ransom or a drug lord -
was a liability or a tax to be paid on the part of you have the obligation to pay taxes because
the government. Considering that the claim had taxes are imposed either on legal or illegal
already been approved or money was already
activities.
appropriated to pay the estate then the court
allowed set-off or compensation because the - Failure to pay a license fee makes the business
claim of the estate for the payment of the illegal but failure to pay a tax does not make the
services was already been approved and money business illegal because whether you are
was already appropriated and set aside. engaged in a lawful or unlawful business you
are in an obligation to pay taxes.
- When the claim of the government or taxes and
the taxpayer for services rendered had already
become due and demandable as well as fully
liquidated then compensation takes place by (26:35) Diyankana time magsimulamanisan.
operation of law in accordance with Art 1279
and Art 1290 of the Civil Code. Both debts are
extinguished in the concurrent amounts. What are the important distinctions between License
Fee and Tax:

1. Determination as to the amount


LICENSE AND FEEStaxes arise from the exercise of the
taxing power while license fees arise from the exercise a. License Fee- the restriction for the
of police power imposition of the license fee is an amount
that is reasonable to cover the cause of
- Purpose: Taxes are for revenue; license fees are regulation. In the context of a license fee,
for regulation there are 3 kinds of license fees:
- License fees cannot exceed the reasonable cost 3 Kinds of License Fees:
of regulation; taxes are not so limited
1. License Tax this is purely a tax. The
- In other words, to make a burden or a charge or purpose is to raise revenue. Example: motor
an imposition or an exaction in the nature of a vehicle registration fees. They are called fees but they
license fee the amount that is to be collected are not in the nature of regulation or police power but
should be a reasonable amount to cover the they are taxes.
cost of regulation, inspection and police
surveillance because if you go higher than that 2. License Fee to regulate a useful
then it is not anymore a license fee because the occupation police power. The purpose is to
amount of the license fee is regulated, must be regulate. The state is to observe that the amount of
a reasonable cost. In the case of taxes, the fees that is to be imposed for purposes of regulation
legislative body has the discretion in should be reasonable amount to cover the cost of
determining the amount of the rate of the tax. inspection, surveillance or regulation.
3. License Fee to regulate a non-
useful occupation police power. The purpose is
to regulate.It could go over and above the requirement Q: How do you determine whether the exaction or
of reasonableness because the purpose of a license fee imposition is an act of taxation or an act of regulation
to regulate a non-useful occupation is to discourage (License Fee)?
people from going into a non-useful occupation. The A: The determination is made by going into the
guideline as to the reasonable amount is no longer primary purpose of the exaction. If the primary or
applicable. Such in the case of: principal purpose of the imposition is to regulate, while
incidental revenue may be generated from that
imposition, it is still an exercise of police
Physical Therapists Organization vs. City of Manila power.Therefore, it is a license fee.Police power can go
(Aug. 30, 1957) along with the power of taxation. When the principal
purpose is to raise revenue, even if there is an
P 100 license fee was questioned because it was incidental act of regulation, it is an act of taxation.What
too much. According to them, it was equivalent to an is to be determined is the principal or the primary
act of taxation. The imposition of P 100 license fee for purpose of the imposition.
that profession, aside from the constitutional limitation
on equality and due process, it was more of a nature of
a tax than a license fee.
Such in the case of Progressive DevtCorp vs Quezon
The Supreme Court said: NO, the license fee City 172 SCRA 629
imposed here is not to regulate a useful occupation but
to regulate a non-useful occupation. If the purpose of The QC enacted an ordinance imposing a 5% fee
the regulation is to regulate a non-useful occupation, on rentals of lessees in QC as supervision fee.
then, you can go over and above the reasonable costs ProgessiveDevt Corporation, the operator of Farmers
of regulation and occupation to discourage people from Market in Cubao, owned by the Aranetas, questioned
going into that kind of activity. The City of Manila is the validity of the ordinance, claiming that the exaction
preventing that the masseurs will be used as a house of imposed by QC is not in the nature of a license fee but a
prostitution. Under the General Welfare Clause, the tax, and therefore it is prohibited and the ordinance is
LGU is authorized to enact ordinances to provide for the null and void.
health and safety and to promote morality, peace and Issue: W/ the exaction imposed is a tax?
general welfare of its inhabitants. The amount charged
was properly considered in determining whether it is a Held: the 5% supervision fee is for regulation and
tax or an exercise of police power. The amount maybe therefore not a tax. The purpose of the exaction is
so large as to itself show that the purpose is to raise clearly to supervise the operation of a public market is
revenue and not to regulate. But in regard this matter, an activity which involves public interest. There is a
there is a marked distinction between the fees imposed reasonable relation between the fee collected and the
on useful and beneficial occupationwhich the sovereign probable cost of regulation because ordinarily the
wishes to regulate and strict to those which are inimical higher the amount of stall rentals, the higher the
and dangerous to public health, in which case, the state aggregate of food stocks and related item sold in the
can impose fees so high without necessarily being a tax. privately owned market and the higher the volume sold
The practice of aesthetic and unhygienic massage is not from that privately owned market, the greater the
as useful occupation which will promote and is extent and frequency of inspection. Thus the
conducive to public health and morals. There is no supervision reasonably required is for the general
violation insofar as due process and equality of the public.
treatment of that imposition.
Remember that in the principle that the amount for the the power to tax is subject to limitations. We can
purposes of license fee is that it should be a reasonable classify these limitations into:
amount to cover the cost of inspection and regulation.
Is the 5% supervision fee a reasonable amount to cover 1. Inherent
the cost of inspection and regulation? The SC said, YES, 2. Constitutional
because if you pay more rent then the 5% of that is
greater. If you pay a lesser rent, the 5% of that is also So these limitations posed restrictions in the exercise of
less. Now, you are paying a higher rent because you are that power. So we go back to that principle that the
occupying a bigger space and the bigger space you have power to tax involves the power to destroy. To
the more food stocks you sell then the cost of safeguard the exercise of this power it was subject to
inspection and regulation will be higher. Therefore, it is some limitations.
reasonable probable cost of the inspection, regulation
So what are the INHERENT LIMITATIONS?
and inspection. Therefore, it is a license fee.
1. You have the requirement of PUBLIC PURPOSE.
This means that taxes must be levied for public
In the cases of in Gaston v. Republic Planters Bank (158 purpose. So when the power of taxation is
SCRA 626) and PAL v. Edu (164 SCRA 320), An exaction exercised for public purpose. The requirement
maybe both considered as a tax and a license fee. of public purpose is the heart and soul of the
However the imposition is a tax if the primary purpose power to tax. So if the power to tax is exercised
is for revenue and regulation is merely incidental, but if for public purpose then whatever will be
the primary purpose is for regulation and the incidental enacted that would be the inherent limitation.
revenue is also being paid then it is not a tax but a
license fee.
So what is this concept of public purpose? Anything that
is related to governmental purpose; a purpose affecting
Revenue- the funds generated by the government from the inhabitants of the state or taxing district as a
taxes, fees and charges. community and not merely as individuals. Because the
concept of purpose is very broad we could dissect this
through decisions which would determine whether or
not such law complies with the requirement of public
Taxes at its generic sense, refers to internal revenue
taxes and customs duties or tariff. purpose.

Assignment next week is on the limitations. ***Lutz vs. Araneta-This case involves the enactment of
CA 567 or the Sugar Adjustment Act. The taxes imposed
under CA 567 are funds collected which are used for the
rehabilitation and stabilization of the Sugar Industry.
June 25, 2013 The purpose of the exaction is for public purpose.
LIMITATIONS OF THE POWER OF TAXATION Although such law was enacted for the Sugar industry it
does not violate the idea of public purpose because it
Remember that the power of taxation or the power to was enacted for the rehabilitation and stabilization of
tax is inherent in the sovereign. That this power is the Sugar Industry which is also a national concern.
legislative in character but the power to tax is subject to
limitations. Where the power to tax has a
comprehensive scope and far-reaching still having said
We also have the case of Gaston vs Republic Planters funds they have were private funds. So the issue here is
Bank. whether or not the COCO levy funds are public funds.
The Nature of the COCO levy funds are in the nature of
public funds. The proper management of the COCO
***Gaston vs Republic Planters Bank- This time it is levy funds are within the government they were
about the fee collected by the Planters Bank from the collected through the police and taxing power of the
millers. And the issue that was brought is whether or State. It cannot be denied that it is the welfare of the
not such fee is for public purpose. It is for public entire nation which is one of the main factors of the
purpose since the stabilization fees in question are imposition of the COCO levy fund. It could not be
levied by the State upon sugar millers, planters and denied that the Coconut industry is one of the major
producers for a special purpose that of "financing the industries supporting the national economy. It is not
growth and development of the sugar industry and all only a livelihood of a significant segment of the
its components, stabilization of the domestic market population but also the export earnings which is one of
including the foreign market the fact that the State has the imperatives of economic stability which clearly
taken possession of moneys pursuant to law is sufficient affects the public industry. The Court ruled that the
to constitute them state funds, even though they are COCO levy funds are subject to sequestration
held for a special purpose. The tax collected is not in a proceedings (Please read the full text of the case for
pure exercise of the taxing power. It is levied with a more details on the ruling because the recording for this
regulatory purpose, to provide means for the part is not that audible).
stabilization of the sugar industry. The levy is primarily
in the exercise of the police power of the State.
***Planters Product Inc. vs. FertiPhil (548 SCRA 485)-
Planters Products Inc. and FertiPhil are private
***Citizens Alliance vs. ERB-The issue of this case is corporations which import pesticides, fertilizers and the
whether or not the establishment of the Oil Price like. Marcos came out with a Letter of Instruction
Stabilization Fund is for public purpose. And what is the directing the FPA (Fertilizers and Pesticides Authority)
justification for it? The establishment of the OPSF is to impose a 10-peso levy for every bag of fertilizer being
within the pervasive power of the government and its sold. The proceeds of such levy will go to PPI. FertiPhil
responsibility to secure to secure the of the pays 10 pesos per bag for every sale of fertilizer. The
community. That comprehensive sovereign authority FPA will give the amount (10 peso levy) to PPI. Now
may designate . The reduction of the price of after the 1986 EDSA, FertiPhil now demanded the
the petroleum, crude oil etc. clearly critical in return of the amount it paid to PPI under the LOI but
importance considering among other things the PPI refused. So the issue here is whether or not the 10-
continuing dependence to such commodity as a public peso levy under the LOI was a valid tax collection?
purpose. Now if it benefited the oil companies because Remember now that you will go back to the basics that
of the continuing high level of dependence of the no matter whether the president has the taxing power
country to crude oil then it does not mean that the like in the case of Marcos it must be remembered that
OPSF was not created for public purpose (Please read in the imposition of tax it should always be for public
the full text of the case because the recording for this purpose. So the 10-peso levy was not a valid tax
part is not that audible) . imposition nor was it regulatory (Please read the full
text of the case for more details on the ruling because
the recording for this part is not that audible).

***COCOFED vs. PCGG- Are the COCO levy funds public


funds? In this case, the PCGG wants to sequester the
funds of COCOFED but the COCOFED contends that such The Supreme Court said that public purpose is the heart
of tax law. It is the consent that can be hammered to fit
the modern standards and it does not only pertain to quotas, tonnage and wharfage dues, and
purposes which are traditionally considered as other duties or imposts within the
governmental functions such as construction of roads framework of the national development
delivery of public services etc. but it also includes social program of the Government (Sec. 28 (2),
justice like for the use of the relocation of squatters, Article VI, 1987 Constitution)
you have low-cost housing and urban housing as well as
agrarian reform. What constitutes public purpose is in
the light of the expansion of governmental functions. ***In the case of Garcia vs. Executive Secretary-
The meaning of public purpose continually evolves. The Congressman Garcia questioned the Executive Order on
meaning continues to expand. So it does not only refer importation levy implemented by its either President
to governmental functions. So this brings us to the case Ramos or Aquino. Garcia claimed that the President has
of Binay vs. Domingo. no taxing power because power of taxation is legislative
in character. So this was brought before the SC. The SC
said that the President has taxing powers under Article
***Binay vs. Domingo-Then the Mayor of Makati VI of the 1987 Constitution.
Jejomar Binay has this pauper burial assistance kung
saan kapag namatayan ay covered ng burial assistance.
This generous effort was put into question. COA co- The Tariff and Customs Code also provides the
objected with such expenditure claiming that it was an mechanism of the exercise of this taxing power. Which
illegal exaction of government funds and this was not is reflected by the flexible tariff laws. Under this the
for public purpose. So the matter went to the Supreme Congress may increase tariffs or decrease customs
Court. Whether or not the pauper burial assistance duties.
program was a valid program which is for public
purpose. According to the Supreme Court it is a valid
program within the scope of public purpose (Please
b. Another exception is in the case of the local
read the full text for the reason of the ruling of SC)
taxing power. The Constitution on this point
However, there is a caveat for the pauper burial
states: Each local government unit shall
assistance program of Makati to be within the scope of
have the power to create its own sources of
public purpose-it should only be applicable to the
revenues and to levy taxes, fees and
Municipality of Makati.
charges subject to such guidelines and
limitations as the Congress may provide,
consistent with the basic policy of local
2. The second limitation is the NON-DELEGATION autonomy. Such taxes, fees, and charges
OF THE LEGISLATIVE POWER OF TAXATION-In shall accrue exclusively to the local
other words the power of taxation is exclusively government (Sec. 5, Article X, 1987
legislative. Constitution)-The LGUs has the power to
So remember that this limitation is subject to some tax through a Constitutional grant. There
are two ways of granting the local
exceptions:
government units the power of taxation
either:

a. Under the Constitution: Congress may


expressly authorize the President to fix
within specified limits, and subject to such I. Constitutional Grant
limitations and restrictions as it may II. Legislative Grant.
impose, tariff rates, import and export
3. TERRITORIALITY OR SITUS OF TAXATION-Which
the power to tax is limited only within the
In our jurisdiction the power of taxation is granted to territory or boundary of jurisdiction to tax. In
the LGUs by Constitutional Grant. This is found in Article other words, the State has no extra-territorial
X, Section 5 of the 987 Constitution. jurisdiction because we go back to the rule that
it is the law-making body which has the
discretion in determining the situs of taxation.
So remember that tax laws are legislative in character However, this limitation admits an exception
once it is enacted the executive shall implement the the personal tax. The OFWs in 1998, we do not
said tax laws. Moreover, it is also the duty of the tax anymore the income of the OFWs because
executive to promulgate Implementing Rules and they are already classified as non-residents
Regulations regarding such law. So there is a need for Filipinos since they are in abroad and it was
tax laws to enacted by the legislative body so the stated in the new law that the State shall not
initiative should come from the Congress however there tax the income of non-residents so this is an
is another exception with this general rule that the example when the state exercises jurisdiction.
Congress has the sole power to initiate tax laws is the So even if the subject or object of tax is outside
Peoples Initiative and Referendum or RA 6735. Under State, the State can pursue or exercise personal
RA 6753 there are two ways whereby citizens can jurisdiction over that subject even if that
initiate laws particularly tax laws without violating the subject is outside the territory the State shall
non-delegation of the taxing power. When we talk afford to it similar protection and it should also
about RA 6735 when we proposed peoples initiative have similar benefits. So this is how the state
and referendum, initially we have to gather signatures, exercises jurisdiction.
now when it is enacted either revenue or a non-revenue
measure it is not merely taxation puwede other
initiatives. So whether you propose, you may amend or 4. INTERNATIONAL COMITY- This is in accordance
repeal a law through peoples initiative and with the principle that a sovereign cannot tax
referendum. So first you gather the needed signatures
another sovereign. Now Sec. 12 Art. II of our
then you go to the COMELEC after that if the signatures Constitution declares that the Philippines
were able to reach the required number by the adopts the generally accepted principles on
COMELEC then the COMELC will have a plebiscite. So international law as part of the law of the land
the proposal now is given to the electorate then there and adherence to the policy of peace, equality,
will be voting of whether they are in favour or not and if justice, freedom, cooperation and amity with all
theres yes vote that would become peoples initiative nations. Since the power of tax is inherent
and referendum. However, there is also another mean
among States then we could not tax other
provided by the same law however this one is not that sovereign. Moreover, there is also the principle
popular, the indirect initiative whereby there is this common usage among states that when one
certain group of people (Petitioners) who will file a
enters the territory of another, there is an
petition for indirect initiative with the House of implied understanding that the former does not
Representatives then such initiative bill will undergo the intend to degrade its dignity by placing itself
normal legislative measure but it will not be the under the jurisdiction of the latter and there is
Congressman who will be the sponsor of the said also the principle of the non-suability of states
initiative bill but the petitioners who submitted such where it is useless to assess tax. This is a self-
petition. So these are the two modes under RA imposed limitation due to public policy and for
6735. practical consideration. So yung mga income ng
diplomatic corps at dahil sa US-RP Agreement
yung mga income ng service men sa Subic are
not taxable.
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.
EXEMPTION OF THE GOVERNMENT AGENCIES OR
INSTRUMENTALITIES- In other words, the State does tax - This provision does not directly involves in taxation.
itself. This is a self-imposed limitation by reason of However, this is a limitation. WHY? It is because the
public policy and some practical considerations. While power of taxation is enforced contributions/burden
there is no law or prohibition that the State may not tax amounting to a taking of a property, which requires
itself, it is absurd and impractical for the State to tax to be afforded with just compensation and due
itself so there is this self-imposed limitation. This process.
immunity from taxation only applies for the
governmental functions whereby an agency exercises WHAT IS REQUIRED FOR A VALID TAKING? There must
governmental or sovereign functions. But when an be a law that provide for the basis of taking. Pursuant
agency exercises proprietary functions like the GOCCs thereto, enforced contribution from the people cannot
operates public utilities and the charter of such GOCC be made without a law authorizing the same. Otherwise
provides for a tax exemption then it has an immunity there will be a violation of the constitution where tax
from taxation but if the charter of any GOCCs which has collection is made without any law enacted by
proprietary function does not provide for tax exemption legislators authorizing such collection.
then such agency or instrumentality does not have any
immunity from paying taxes.
2 aspect that BOTH must exist

1. Substantive tax statute must be within the


Constitutional Limitation authority of congress and it must be fair, just
and reasonable. There must be a law allowing
the taking.
- The constitution is the a source of the taxing power
of the state. The constitution simply defines and 2. Procedural- the law provides for a mechanism
delimits this power to strike a balnce between the and relief where you can challenge the
power of the government and freedom of the assessment of the charge.
governed and to safeguard the latter from possible a. Ex. Non-payment of tax by a delinquent
abuse by the former. taxpayer. A delinquent taxpayer is
- These limitations are not grants of the taxing afforded with a notice and hearing or at
power, being the taxing power an inherent in the least an opportunity to be heard.
state.

WHEN CAN THERE BE A VIOLATION OF DUE PROCESS


Purpose: to provide safeguard or system of check and 1. When a tax law is made to apply outside the
balance in connection with the way the state will sovereign state
exercise the taxing power.
a. Could also be consider a violation of the
inherent limitation of territoriality. Tax
DUE PROCESS law should be applied within the
territory. In this case, there is also a WHAT IS EQUAL PROTECTION? All person subject of
violation of due process as well. legislation shall be treated alike, under like
circumstances and condition but in privileged conferred
2. When the tax law is not for public purpose and liability imposed. It does not require that person or
a. In the case of Pascual vs Secretary of property different in fact be classified under the law
works, government funds was although they were the same. What is prohibited is
appropriated for improvement of a class legislation or discrimination or favoritism.
private road which later on, was Congress has a leeway/ disposition to
subsequently donated to the determine who rae to be taxed or not without violating
government. Will the subsequent the equality so long there is no discrimination. Relate
donation cure the defect of absence of this principle to Artcile VI section 28(1) of the consti.
public purpose? SC RULED: No, that
money was set aside for publi8 purpose
for the benefit of private entities. Its
subsequent donation will not cure the EQUALITY vs UNIFORMITY
defect of lack of due process. Arcticle VI Section 28.
3. When a tax law is made to apply retroactively 1. The rule of taxation shall be uniform and
a. GR: Tax laws should be applied equitable. The Congress shall evolve a
prospectively progressive system of taxation.

b. Exception: 1. If retroactive is not harsh A. Uniformity- means all taxable articles or kinds or
and oppressive ( Castro vs Collector) . 2 property of the same class shall be taxed at the
If the law provides for its retroactivity same rate regardless of where they are found. A tax
is uniform when the same force and effect in every
such as there is a legislative intent.
place where the subject of it is found.
CASTRO vs Collector 4 scra 119
It does not signify an __ but a geographic uniformity.
Maria Castro also known as Madam X questions the Wherever the subject is found the tax shall be apply to
constitutionality of War Profit tax law for being made to the subject or object where it is found.
apply retroactively. SC RULED: WPTL, is valid although
made to apply retroactively. It can be given such effect IS THERE A DISTINCTION BETWEEN A UNIFORMITY AND
because it is not harsh and oppressive. EQUALITY?

For the purpose of taxation, jurisprudence would say;


no, there none.
EQUAL PROTECTION

It means that for the purpose of equality, the congress


Section 1. No person shall be deprived of life, liberty, or may validly calissify the subject or object provided the
property without due process of law, nor shall any classification to the following requirements:
person be denied the equal protection of the laws.
1. Substantial distinction;

2. Germane to the purpose of the law;


- This provision is not directly deals with tax. We
apply this because of the principle of equality 3. Must not be limited to existing circumstances
only;
4. Apply to all members if the same class. The Ordinance here pertains to the boarding
stables of race horses. It was question, Bakit boarding
stable lng mga race horses , bat wala ung ibang horses:
CASES SC ruled: there is a valid classification for there is a real
and substantial distinction. So valid sya and not
discriminatory.

Lutz vs Araneta

SC RULED: No violation

That the tax to be levied should burden the Association vs Municipal Board of Manila
sugar producers themselves can hardly be a ground of
the complaint. Indeed, it deprives rational that the tax SC RULED: there is a violation
be obtain precisely from those who are to be benefited Road users tax was only made to be paid by the
from the expenditure of the funds desired for it. At any registered drivers of manila. So it was question bakit
rate, it is inherent in the power to tax that a state be kami lng ang bumabayad? SC RULED, the said ordinace
free to select subject of taxation and it has been held
is null and void.
that inequalities which results from singeling out one of
the particular class for taxation on exemptions infringes
no constitutional limitation.
Ormoc vs __ February 17 1988

SC RULED: there is a violation

Sa pangalan pa lng ng ordinace here, it can seen


Shell Co of PI vs Vao 94 Phil 397 may discrimination na talaga. SC held that while at the
time the sugar deller is only the petitriuoner, it means
SC RULED: No violation that future or new producers are not to be covered. So
Pertains to occupation fee. SC ruled it is a valid here ,the ordinance is nuill and void. ( limited to existing
classification not only under present condition but also conditions lang)
to future with a substantial similar situation.

The contention here that the ordinance is Sison vs Ancheta


discriminatory and hostile because there is no other
person in the locality who exercise such designation or SC RULED: There is no violation
occupation is also without merit because the fact that
there is only one and no other person in the locality Pertains to gross qualified income tax scheme.
who exercise such designation or calling does not make Here there are 3 classifiacation namely: Purely
compensated income eraners, self-employed and
the ordinance discriminatory or hostile.
professionals. Mas mataas and tax ng mga professionals
and it was questioned by them. SC held that said
ordinace is Valid

Manila Race Horse vs De la Fuente


B. EQUALITY
SC RULED: No violation
Basis of taxation shall be the means of ones ability to
pay.
Note: our tax system is progressive. I means more direct Non-impairment clause applies to taxation but not to
tax than indirect dba. ED and PP. for the purposes of taxation, it does not
apply to private contracts. As a general rule , Non
impairment clause is superior to the power of taxation.
PROGRESSIVE SYSTEM OF TAXATION Taxing provisions cannot alter existing rights under a
contract.
Section 28. (1) The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive
system of taxation. Cassanova vs Hord
This concept is different form progressive rate. This pertains to tax exemption in a contract of
Progressive tax rate are based on ability to pay while natural exploitation. There was a tax law which was
regressive rate do not depend on the ability to pay, later enacted. SC ruled , no hindi mawawala ang tax
example VAT. exemption nya because to do so would be a violation of
NOTE: regressive rates/system of taxation is not non impairment clause.
prohibited in the constitution.

General rule: NIC is superior to taxation.


Tolentino vs SEC Exception: section 11 artcile 12 on franchise
EVAT is not a violation of SEC 28(1) article VI. The
constitution does not really prohibited the exposition of
indirect tax which are like VAT , that is regressive. What Section 11. No franchise, certificate, or any other form
is simply provides is that congress shall evolves a of authorization for the operation of a public utility shall
progressive system of taxation. It means that direct be granted except to citizens of the Philippines or to
taxes are to be preferred as much as possible, indirect corporations or associations organized under the laws of
tax should be minimized. 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
CAN YOU GO TO COURT TO COMPEL CONGRESS TO character or for a longer period than fifty years. Neither
HAVE A PROGRESSIVE SYSTEM OF TAXATION? NO. shall any such franchise or right be granted except
section 28(1) article VI is merely directive. The provision under the condition that it shall be subject to
is a moral incentive to legislation, so not mandatory. 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.
SECTION 10 ARTICLE III- Non impairment clause

Section 10. No law impairing the obligation of


contracts shall be passed. Tolentino vs SEC
PAL question the VAT because the contract not applicable in the case of franchise because franchise
according to PAL, hindi sya labot because of the NIC. SC is subject to amendment, alteration by Congress on
ruled that NIC is not applicable to PAL a being a public other words we could not invoke the non-impairment
franchise. Section 11 article 12 of the constitution clause when it involves franchises. Then you have also
provides that the congress as may be to require can the limitation on the non-payment of poll tax that no
alter, repeal contract involving franchises. person will be imprisoned for the non-payment of poll
tax.

Now to cover other Constitutional limitations you have


WHAT ABOUT PRIVATE CONTRACTS? Lets say si Dara Article 6 Section 28 (3) of the Constitution provides that
buy candies to BOM the supplier with 10% included charitable institutions, churches and parsonages or
interest for the span 10 years. Subsequently a tax law convents appurtenant thereto, mosques, non-profit
was enacted that instead of 10% magiging 12 na sya, so cemeteries, and all lands, buildings, and improvements,
EVAT. BOM alleges that Dara should pay more kasi sa actually, directly, and exclusively used for religious,
bagong tax law. Can she do that? INC should apply? SC charitable, or educational purposes shall be exempt
ruled that no, INC should not apply, kasi in this case it from taxation. ***So this time we have a direct
involves a private contract relationship. provision in the Constitution in connection in taxation
however this time the provision, it grants tax-
exemptions. Now, when you dissect the provision you
NON IMPRISONMENT FOR FAILURE TO PAY TAX have here an enumeration of properties and you could
notice that these properties, in its generic sense are real
properties because it involves lands, buildings and
Section 20. No person shall be imprisoned for debt or improvements. Now the concept of real properties as
non-payment of a poll tax provided in the Constitution is the same as to your
property. In the study of property you have the
enumeration of what are immovables, what are the
kinds of real properties. So what is the grant of
Walang makukulong kapag di ka nagbayad ng cedula.
exemption here is the tax on the property but what is
The provision is a prohibition againt imprisonment for
the nature of the exemption? The property that would
non- payment of poll tax.
be exempted from tax, when will it be used? Actually,
directly and exclusively one for religious second for
charitable purpose and for educational purpose. In
July 2, 2013 8-9 PM other words, the grant of tax exemption refers to
property tax exemption. The property tax on these
Transcribed by: Mae Bungabong
immovables but the exemption may come in when they
Constitutional Limitations (PART 2) will be used for these purposes either for religious,
charitable or educational so that is the nature of the tax
We are still on the limitations on the power to tax. We exemption. Now remember while the power to tax is
have taken so far the constitutional limitations on due inherent that power involves also the power to grant
process, the limitation on equal protection for requiring tax exemptions. Now in the Constitution there is a grant
taxation, together with this limitation on the rule of of tax exemption. So what is the nature of tax
uniformity and equity of taxation and that directive that exemption grant in the Constitution? This does not
upon Congress to evolve a progressive system of need what we call an enabling law; there is no need for
taxation. We also covered the non-impairment clause- legislation. Tax exemptions in the Constitution are self-
this limitation is superior to the power of taxation executory. You dont have to go to Congress for them to
meaning the non-impairment clause yields or the have an enabling act of legislation to grant the
taxation laws yield to the non-impairment clause but exemption because the Constitution already grants the
exemption but take note of the restrictions of the limit And the case of Hospital de San de Dios vs. Pasay City
of the exemptions. In other words, in connection with (16 SCRA 226) wherein you have the charitable hospital
this exemption it is not the ownership that determines or institution which provides for living quarters,
the exemption so even if the building is owned by the recreational facilities for their doctors, nurses including
Archdiocese but it is being rented to others for a lease the medical staff so for their, for their goodwill of the
or for a rental or for a fee then that property despite hospital of the medical staff of the hospital they provide
ownership is by the religious is not covered by the tax playing facilities like swimming pool, living quarters so it
exemption because the use is not for religious it is being was whether these facilities were covered by the
rented for commercial use so it will be not given an exemption. The Supreme Court said yes they are
exemption. In the same way that a non-stock, non- because they are incidental to the purpose.
profit educational institution owning a piece of building
but some portions of the building are being rented for Now in the recent case of Lung Center where the
fees and lessees pay rentals for the use so even though Quezon City assessed the Lung Center for real property
owned by a non-stock, non-profit institution tax and within the Lung Center, you have the facilities of
educational institution which is engaged for educational the hospital and portions of the buildings were being
purposes still that property would not be covered by rented to the doctors of the hospital so they have their
the exemption because of the use it was not actually, clinics there and they pay rent to the institution so
directly and exclusively use for educational purpose, it is Quezon City assessed the Lung Center for real property
tax so the Lung Center claimed for the exemption under
not then covered by the exemption.
Section 28 (3) in the template the clinics, the portions
Now take note also, the grant of exemption while they being occupied are being used by the doctors as their
are or covers actually, directly and exclusively use for clinics are still covered by this section. The Supreme
religious, charitable or educational purposes the Court said no because the use of the clinics are for the
exemption extends to those incidental to the purpose. charitable purpose of the hospital and they are clinics
being rented by the doctors so they are subject to real
***You have that case of Abra Valley College vs.
property tax. They are not covered by the exemption.
Aquino (162 SCRA 106) where it has been asked in the
bar. Where the ground floor is being rented, the second We also have the case of YMCA. Wherein the YMCA a
floor is being used as residence of the School Director, charitable institution allows the non-member of YMCA
the third and the upper floors were used as classrooms to use the parking lot for a fee and it also grant lease to
so the question is the property exempted from real those interested lessees to rent out some portions of
property tax? In so far as to the third and the upper the YMCA building so the fees and the rentals were
floors they are covered by the tax exemption because collected and they claim the exemption so when this
the use is for educational. In so far as the second floor matter reached the Supreme Court, the Supreme Court
being used as the residence of the school director the said that they are not covered by the exemption and
Court said that it is still covered by the exemption they are not use for the purpose so they are subject to
because it includes those which are incidental to the tax.
purpose while being used as residence the or that
residential use is inclusive or incidental to the Now take note that the exemption again while the
educational purpose of the institution so it is still scope of property tax exemption covers those actually,
covered by the exemption. You also have the ground directly and exclusively use for religious, charitable or
floor; the ground floor will not be exempted because it educational purposes the extension of the exemption
is not educational nor even incidental for the includes those that are incidental to the purpose.
educational purpose. So it will be taxable. The same Now another grant of exemption but a constitutional
with the cases of Herrera vs. Quezon City Board of limitation, you have Article 6 28 (4) which provides that
Assessment (3 SCRA 186) no law granting any tax exemption shall be passed
without the concurrence of a majority of all the
Members of the Congress. ***This pertains now to the You have also Section 5 (2b) Article 8. This is the power
enactment of a tax exemption statute, this the of the Supreme Court in connection with tax cases
ratification requires upon Congress. Now the set-up in including other cases. This defines the extent of the
our case is that you have two houses, the Senate and power given by the Constitution the Supreme Court
the House of the Representatives so what is the under Article 8 Section 5 (2b). Now in this provision the
Constitutional requirement for ratification? In the event Supreme Court shall have the power to review, revise,
that a tax exemption is passed the voting requirement is reverse, modify, or affirm on appeal or certiorari, as the
the concurrence of the majority of all Members of law or the Rules of Court may provide, final judgements
Congress. To determine the majority, you dont have to and orders of lower courts in all cases involving the
add all the members of the Senate and the House and legality of any tax, imposts, assessment, or toll, or
determine the concurrence of the majority vote of all. penalty imposed in relation thereto. In other words, in
In other words, we are not talking about the majority of connection with tax cases it is still the Supreme Court
the quorum but the majority of all the members of which is the final arbiter. All tax cases whether it
Congress. Now if you did not construe the concurrence emanates administratively through the executive
of the majority of the members by adding the members branches or through the executive part of the
of the Senate and the House of Representatives but the government then it is brought from exhaustion of
two houses voting separately. So there must be a administrative remedies to the judicial action still the
concurrence of all the majority members of the House final say will be given to the Supreme Court. Because
of the Representatives as well as the concurrence of all they have that power to review, revise, reverse, modify,
the majority members of the Senate. To have this tax or affirm on appeal or certiorari as the law or the Rules
exemption statute to be allowed or to be passed of Court may provide, final judgements and orders of
otherwise, it will not become a law. It will not be apply lower courts all final judgement in all cases so this
because of that requirement. So that is the voting for include tax cases legality of any tax, imposts,
tax exemption. Now if it is just a regular revenue assessment, or toll, or penalty imposed in relation
measure you do not require anymore of the thereto. So all these matters should be brought before
concurrence of the majority members of the Congress the Supreme Court for its final adjudication unless the
but the majority of the members constituting its party did not bring it, it will attain its finality as law but
quorum because when the 2 houses meet there is a nevertheless anyone who bring it up ad pursue his
quorum then if there is a quorum then it will do cause for further remedies the Supreme Court will have
business. And it will pass that piece of bill or legislation the final say. In other words, for the purposes of
for approval it will require the majority of the vote assessment and collection of the payment of the tax
unlike a tax exemption. Congress therefore cannot legislate that whatever the
decision of the BIR in so far as in assessing how much
Now other Constitutional limitation is Section 19 Article tax will be paid by the taxpayer it will not legislate that
7 the power of the President. Except in cases of the decision of the BIR will be final and executory and
impeachment, or as otherwise provided in this no longer could not be appealed or even review for
Constitution, the President may grant reprieves,
certiorari because that will be an encroachment of
commutations, and pardons, and remit fines and Section 5 (2b) Article 8 of the Constitution. In other
forfeitures, after the conviction of final judgment. He words, the Supreme Court could not be deprived of that
shall also have the power to grant amnesty with the
power otherwise if you allowed that the executive that
concurrence of the majority of all the Members of the their decision involving tax would be final and could not
Congress. ***So a grant of amnesty may be done be longer appealed, review before the Supreme Court
through executive action or if the executive asks that is null and void because that is unconstitutional. A
permission under Section 19 Article 7 of the violation of that provision.
Constitution.
Now other Constitutional limitation is Article 3 Section
5.xxxxxxxxxxxxxxx. The free exercise and enjoyment of
religious profession and worship, without discrimination the exemption did not violate freedom of religion so
or preference, shall forever be allowed. when the VAT now under RA 7716 included the VAT on
xxxxxxxxxxxxxxxxx . In other words as ruled in American the sale of books, articles, including the Bibles such
Bible Society vs. City of Manila (101 PHIL 386) the withdrawal of exemption did not violate the freedom of
power of taxation yields to the free exercise of the religion. As in the case of the Philippine Bible Society on
religious profession and worship. So freedom of religion religious articles as the free exercise of the free religion
is superior to the power of taxation. Now in the clause does not prohibit imposing generally applicable
American Bible Society case the sale of Bibles and other sale of tax in the sale of religious materials by religious
religious literature by religious organizations although organization as held by the US Supreme Court in the
have a little profit could not be consider taxable case of Jimmy Swaggart Ministries vs. Court of
transaction for it will be violative of the Constitutional Equalization because in 1990 the US Supreme Court
provision which guarantees to freedom of religious ruled that the religious organizations in the US would be
profession and worship. Now when you relate the subject to tax as held by the US Supreme Court in the
American Bible Society case to Tolentino vs. Secretary case of Jimmy Swaggart Ministries vs. Court of
of Finance (235 SCRA 613) and the ruling for the MR is Equalization. So you could tax them without violating
249 SCRA 628. One of the petitioners in the case of freedom of religion because imposing a generally
Tolentino because there are 9 consolidated cases yung applicable sale or use of tax of the sale of religious
title lang is Tolentino vs. Secretary of Finance. These articles by religious organization is not violating the free
were also decided and related. So one of the petitioners exercise of religious laws so it will not result to a
there was the Philippine Bible Society and under RA prohibition following that US ruling. Now the VAT
7716 in the expansion of the Value Added Tax one of registration fee did not constitute censorship of such
the transactions which wherein it covered the taxation freedom of press and freedom of religion as held in the
on the imposition of the VAT on the sale of publications, American Bible Society case. The fee is mere
published works and articles, magazines and administrative fee and not imposed on the exercise of
newspapers and etc. together with the Philippine Bible privilege much less as a Constitutional right but for the
Society we also have the Philippine Press Club which purpose of mere cause of registration which is a
questioned the taxation or the imposition of the VAT on requirement and central picture of the VAT system so as
the sale of newspapers which will encroach upon the to provide tax records, tax credits because when you
freedom of speech. Now the case of Philippine Bible are under the VAT system the VAT taxpayers are
Society the tax imposition on the sales of the Bibles will required to register and they are made to pay a
now violate the Constitutional provision on the freedom registration fee so it was the contention by the
of religion against taxation. The ruling rendered in that Philippine Bible Society that the VAT registration fee
case of Tolentino, it abandoned the decision of the aside from the tax would also result for the violation of
American Bible Society case. Because this time the VAT the freedom of religion but imposing upon them the
now is imposed upon the sale of publications, articles, VAT registration fee which would render a violation of
magazines including the Bibles. See this now is a the free exercise of religion guaranteed by the
violation of the freedom of religion thus, you may now Constitution again the Supreme Court ruled otherwise
abandon the American Bible Society case. The Court that the registration fee does not constitute censorship
said no while it is directly not saying that we abandon to such freedom. The fee is a mere administrative fee
the American Bible Society case is still a valid ruling. In and not imposed on the exercise of freedom much less
other words, there was no abandonment of the ruling a Constitutional right but for the purpose of praying
of American Bible Society case but can we still tax cause of registration and a requirement of the VAT
without abandoning the American Bible Society case, system. Now, however, after this ruling the Congress
can the government still tax the sale of the Bibles by reviewed insofar as the VAT on books, newspapers and
PBS without violating the freedom of religion? Now other publications noh reviewed and removed from the
how did the Court rule on this? Now the withdrawal of VAT system the taxation on the sale of books instead
they came out with another legislation on the grant more exemption than the grant of exemption
treatment on the treatment of so far books and other under Article 6 Section 28 (3) on property tax on
publications, newspapers, printing and publication of educational institutions? Now, if educational
books etc. so they were taken out from the VAT system. institutions are removed from Section 28 (3) Article 6 do
they still enjoy property tax exemption under Section
Another Constitutional limitation is Section 29 (2) 4(3) of Article 14? Now, in so far as the scope of
Article 6 of the Constitution which provides for the exemption Section 4 (3) of Article 14 grants more
prohibition of appropriation for religious purposes. So exemptions in so far as non-stock, non-profit
cause for the separation between the Church and the educational institutions. Unlike in Section 28 (3) of
State, the State therefore could not appropriate money Article 6 yung exemption diyan is property tax lang pero
or set aside money for religious purposes because that yung grant ng non-stock, non-profit educational
would be unconstitutional so there is a prohibition institutions grants more kaysa yung nasa Article 6
against appropriation for religious purposes however Section 28 (3). Now, yung exemptions cover all
not in cases to those employed in the Armed Forces, to revenues so what are these assets? Mga properyt ng
the leprosariums, and other government facilities and mga non-stock, non-profit institutions if they are use for
institution. What about the payment of the wages does educational purposes exempted in other words, even if
this now infringe upon the Constitutional provision? The they were excluded insofar as educational institutions in
Supreme Court said no. Because the payment of wages Section 28 (3) Article 6 maski wala sila doon meron din
to the religious kasi nga may mga pari sa Armed Forces, naman sila dito sa Section 4 (3) they are entitled for
may mga pari sa mga penal colonies, sa mga property tax exemptions and more pa. It includes
leprosariums and other government facilities and income tax and others for long as the revenues and
institutions so may suweldo sila so money is assets are used for educational purposes. So does this
appropriated para bayaran sila and that is not within include indirect tax? So when a non-stock, non-profit
the context of the prohibition under Section 29 (2)
educational institution would purchase materials for the
because they are in payment for services rendered construction of building while they may be removed
without violating the prohibition. And of course, you from the VAT? The answer is no they are still covered by
have to pay their wages, their food, their shelter, their
the VAT because that is an indirect tax, it would be
clothing so they are payment for services rendered. charged and pass on to them. But not in the case of
So you have also Section 4 (3) and (4) Article 14 of the direct tax, insofar as direct taxes that is their
Constitution. The prohibition against taxation of non- exemption. For direct taxes they are covered by the
stock, non-profit educational institutions. Now that is exemptions but not for the indirect. Now, what about
under Article 14 the exemption of non-stock, non-profit importation, when they are made to pay customs duties
institutions now under Section 4 (3) of Article 14, all still it includes the generic for taxes so their exemption
revenues and assets of all non-stock, non-profit covers as well as tariffs and customs duties so when
institutions use actually, directly, and exclusively for they import for as long as they are for educational
educational purposes shall be exempt from taxes and purposes that is covered by the exemptions. Now the
duties. Upon the dissolution or cessation o]f the grant of exemption here, granted by the Constitution is
corporate existence of such institutions, their assets automatic even if you dont have any action of
shall be disposed of n the manner provided by law. The legislation to grant exemption but to avail of the
first paragraph deals with the non-stock, non-profit exemption you could not just go and invoke, I am
educational institution and it grants exemption from tax invoking Article 14 Section 4 (3) and I should be
on their revenues and assets and duties which are use exempted. No! But to apply for a tax ruling you write
actually, directly, and exclusively for education to the Secretary of Finance, let us say the school for
purposes. This is a grant of tax exemption for non-stock, their buildings instead of buying steels locally we would
non-profit educational institutions. Question: Is the like to import steels from abroad so their imports came
grant of tax exemption under this article or does this from abroad they will write now to the Department of
Finance and ask for a tax ruling that they are importing the use is for educational purposes then it is covered
as this much and they will ask for exemptions, the DOF according to this section otherwise if it is for other use
will reply of course the school will invoke Section 4 (3) then it will be taxable. At the end of the school year
Article 14 because this section refers to all revenues and insofar as non-stock, non-profit educational institutions
assets for the exemption of taxes and duties so they are, as part of their reportorial requirements when
whenever you import like for example bakal hindi they file income tax returns of course they are
naman yan for educational purpose yes, but we are exempted but they still have to file information return
putting up a building which is for educational purposes because when you are exempted from tax it does not
and that is covered by the exemptions the DOF would follow that you are exempted from filing an information
grant the tax ruling given the tax exemption so what return. When we go to the exemptions you will learn
they import now and if there is tax ruling then hindi na that exemptions are construed strictly so if exempted ka
kayo i-aasess for tax duties. The same way also what sa tax, yun lang ang exemption mo, it does not cover
about for income tax noh so you have now a building filing for the requirements. So you have still to file a
the ground floor and the second floor are used lease, return unless the law gives you that exemption from
pinaparentahan, pinapaupahan, incomes are earned, is filing tax returns so they file tax returns but they dont
their income taxable? So now, what is the grant of pay the tax because the utilization of all the income that
exemption? The grant of exemption refers to all they have derived from educational and non-
revenues and assets which to be used for educational educational income and if they are used for educational
purposes. So yung kita nila from commercial spaces and purposes then it will be covered by tax exemption. So
they are brought in back to the institution and used for that is the scope of tax exemption. Now big schools are
scholarships, used to purchase buses, used to construct assessed by BIR for income tax, for VAT, for etc. kasali
classrooms then it will be covered by the educational yata ang Ateneo, there were cases but all of these cases
purpose then it will be exempted but if the income will were dismissed because the schools were able to show
not be used for educational purposes then it will be the utilization even if you have earned income from
covered, it will be now taxable. Now in the YMCA case your non-educational activity, you have commercial
the Supreme Court laid down the 2 requisites for the spaces being rented by others for as long as the income
grant of exemption under Article 14 Section 4 (3): is utilized for educational purposes then it satisfies the
Constitutional grant of tax exemption.
1. It is a non-stock, non-profit educational
institution. JULY 03, 2013 Tax I Lecture

2. The income, the revenues and assets were


used for educational purposes.
Lets go back to the provision on the exemption on the
So having been utilized for education purposes then it is non- stock, non- profit educational institutions. Art. XIV,
covered by the exemption. Now tuition fees collected or Section 4 (3,4) is a grant of tax exemption given to non-
even rentals generated for its commercial activities co- stock, non- profit educational institutions.
mingled and deposited in the bank and earned
interests, that interest income will also be covered by xxxx
the tax exemption because the scope is very (3) All revenues and assets of non-stock, non-profit
comprehensive, all the revenues and assets it includes educational institutions used actually, directly, and
therefor its interests income from bank deposits, when exclusively for educational purposes shall be exempt
it uses their incomes to provide for its needs, buy shares from taxes and duties. Upon the dissolution or cessation
of stocks and they have their money market and income of the corporate existence of such institutions, their
is earned and the income is still use for educational assets shall be disposed of in the manner provided by
purpose then it is tax exempted because the key there law.
is ano ang utilization ng lahat ng kita, if the utilization or
Proprietary educational institutions, including those contributions used actually, directly, exclusively used
cooperatively owned, may likewise be entitled to such for educational purposes shall be exempt from tax. This
exemptions, subject to the limitations provided by law, refers to the donors tax. The NIRC on the provisions on
including restrictions on dividends and provisions for the donors tax will provide the scope of the exemption
reinvestment. on what conditions or restrictions on the exemptions
will be allowed. It is the law that will provide for the
(4) Subject to conditions prescribed by law, all grants, conditions for the exemptions. In other words, in the
endowments, donations, or contributions used actually, different set- up of educational institutions, it is the
directly, and exclusively for educational purposes shall non- stock, non- profit educational institutions which
be exempt from tax. enjoy the most exemptions. So it is practically
When the educational institution that would be exempted from direct taxes, including customs duties,
referred to here would be a proprietary educational as long as they are for educational services.
institution, the paragraph 1 of the provision will not
What are the other constitutional limitations?
apply. Even the 2nd paragraph. So proprietary
educational institutions are stock educational You have Section 24, Art. VI is in connection with the
institutions, example of which is those cooperatively ORIGIN of A REVENUE or TAX MEASURE. In Section 24,
owned or those organized by a cooperative, may be Art. VI, it provides that All appropriation, revenue or
subject to tax exemption with limitations provided by tariff bills, bills authorizing increase of the public debt,
law. So there must be a law defining the extend of the bills of local application, and private bills, shall originate
exemption of those proprietary educational institutions, exclusively in the House of Representatives, but the
including restrictions on the dividends and provisions on Senate may propose or concur with amendments.
investments. The law on the restrictions or the scope of
exemptions is in the NIRC, the National Internal So in Section 24, Art. VI, when it involves
Revenue Code. It is the NIRC in Section 27b which will appropriations, meaning when the government now fix
provide the scope of the limitation in connection with the budget or when there is a proposal for a tax
the exemptions of proprietary educational institutions. measure, we call this as revenue or a tariff bill in case of
customs duties. When we deal with taxation there is
Briefly, in so far as of proprietary educational
institutions, are not entitled to full exemptions but they revenue. It is required under the constitution that these
are entitled only under the law, the NIRC, of a bills shall originate exclusively from the House of
preferential tax rate. In other words, they are still Representatives. In other words no revenue measure or
taxable kasoyung rate nila is lower lang than the regular any proposal to amend, repeal any tax laws or the tariff
corporations. So they are entitled to a preferential tax and customs code, it is unconstitutional if they will be
rate. Under the condition that led pre- dominant introduced first by the Senate.
income are educational income. So if you are a With this constitutional provision, does this mean that
proprietary educational institution but your pre- the House is superior than the Senate? It does not mean
dominant income are non- tuition income, like rents, that the House is superior than the Senate. With the
over 50% of your income are non- educational then you last part of the said provision, despite the exclusive
will be subject to the regular corporate tax. But if the origin in the House, it does not deter the Senate to
proprietary educational institution has a pre-dominant propose or concur with amendments. In other words,
income of tuition income then you will enjoy the there will be a revenue measure in the House, then the
preferential treatment at 10%. So that is the law that Senate may do its counter- part.
will provide in so far as the privileges and benefits that
will be given to proprietary education. Going back to the case of Tolentino, there are several
constitutional issues and constitutional tax limitations
Then in Section 4, Art. XIV, subject to the conditions issues. In connection to Section 24, Art. VI, Sen.
prescribed by law, all grants, endowments, donations, Tolentino questioned the validity of RA 7716 or the E-
VAT, claiming that the VAT law did not originate from enacting clause and writing its own version up to the
the House of the Representatives. To put it simply, enacting clause and at the other hand, separating a bill
there was a tax measure introduced in the House. The of its own on the same subject matter. Kasi even if iba2x
Senate has its own version of the E- VAT. In the ang version nila for as long as it is a bill from same
constitution, since you have two houses in Congress, subject matter, this will not violate section 24 of Article
these two bills will eventually be consolidated and it will VI. In either case, the result will be two bills on the same
be called a bicam or a bicameral conference subject matter. The constitution simply means that the
committee. The bicam now will address the initiative for filing revenue, tariff or tax bills authorizing
consolidation of the bills so that one revenue measure for an increase of a public debt, bills of local application,
will be consolidated and its draft now will be presented and private bills, shall be from the House of
to the two houses. However, the draft that came out Representatives, but that does not prohibit the Senate
was different from the house version and from the of a substitute bill in its anticipation of a receipt of a bill
senate version. So the final draft bill which resulted from the House.
from the bicam was different from the house and
different from the senate. So when it was signed into This issue was raised when the VAT was further
law, Tolentino questioned the validity of that law expanded under RA 9237. They presented the same
because that law did not satisfy the requirements of issue. Take note of the ruling on the case of Tolentino,
section 24, article 6, because what was the contention no violation of Section 24, Article VI.
of Tolentino is that it was a third bill that come out from
the consolidation. So, is there a violation of this Section
24, Article VI? The SC ruled on this that the Congress You have Section 26 (1), Article VI, in connection with
has complied with the requirements of Article VI, the abovementioned, while it is generic in every bill as
Section 24, despite that the consolidated bill was we apply it to tax bills or revenue measures, every bill
different from that of the House and even the Senate. passed by the Congress shall embrace only one subject
A bill originating in the house will undergo such which shall be expressed in the title thereof.
extensive changes in the Senate that the result maybe a
Then you have presidential taxing power, Article VI,
rewriting of the whole. As a result of the Senate action,
Section 27 (2), the President shall have the power to
a distinct bill maybe produced and to insist that a
veto any particular item or items in an appropriation,
revenue statute maybe substantially the same as the
revenue, or tariff bill, but the veto shall not affect the
house bill will be to deny the senates power not only to
item or items to which he does not object.
concur on amendments but also to propose
amendments. It would be violative of its co- equal You have Article VI, Section 29 (3), All money collected
legislative power of the two houses or for to allow that on any tax levied for a special purpose shall be treated
would make the house superior to the Senate. In as a special fund and paid out for such purpose only. If
other words, even if the draft that came out was the purpose for which a special fund was created has
different or some of the features came from senate, still been fulfilled or abandoned, the balance, if any, shall be
it is valid since they are co- equal. For as long as the bill transferred to the general funds of the Government.
originated from the House this does not prevent the
senate from making amendments. It may concur with This is because there are revenue measures that are
the version or may have its own version for as long as it targeted for a specific subject or object of taxation
has the same title. where the money that will be raised will be set aside for
a special fund and for special purpose. So the revenue
There is no basis to compare the power of the two that will be generated will only be spent for that
houses. Legislative power is vested in Congress purpose. If the purpose for which that special fund is
consisting of a Senate and the House of the created has been fulfilled or abandoned, the balance
Representatives not in any particular manner. There is shall be transferred to the general funds of the
no difference the Senate reserving the up to the
government. Because ordinarily, any tax measure that purposes of reducing the impact of taxation, while it is a
has been enacted by the Congress, once it has been treaty or an international agreement, it is not of that
implemented, revenue will go to the coffers of the stricture that it will require Senate Ratification under
government, which is the general fund and from that Section 21, Article VII. Kasi executive agreement lang
general fund, there is now there then the government man xa. Unlike an international treaty, where even if we
will make an appropriations act, set up a budget on are signatory, it will not be binding if it is not ratified by
what will be the needs of the government. So where do the Senate. But not in a regular tax treaty. Tax treaty
they get the money? Of course from taxes, fees and will just be signed by the president or even the
charges.It is sourced out from the general fund. Secretary of Finance as alter ego of the President
without the need of Senate Ratification.
But if the revenue measure or tax law is for a special
purpose, it is for a special fund then hindiyangagalawin. In connection with Local Governments, we have
It will not go to the general funds of the government or discussed this already, in Article X, Section 5, Each local
coffers of the government but it will set aside. In other government unit shall have the power to create its own
words parang restricted naperayan for a special sources of revenues and to levy taxes, fees and charges
purpose. subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy
Then you have Article VII, Section 21, No treaty or of local autonomy. Such taxes, fees, and charges shall
international agreement shall be valid and effective accrue exclusively to the local governments. That is the
unless concurred in by at least two-thirds of all the
power of taxation given to LGU. That is a constitutional
Members of the Senate. grant. Now your Local Government Code operates as a
Now, a state may enter into a tax treaty with another guideline as to the scope and limitations not the grant
state, for purposes of reducing the effects of multiple or of power. The grant of taxing power of LGUs is given by
double taxation. It is because a subject of taxation the Constitution.
maybe taxed in the Philippines and at the same time Then you have Section 11, Article XIV. This requires
taxed in the place where that income raised. For legislation. It provides, The Congress may provide for
example, when the state now would invoke the national
incentives, including tax deductions, to encourage
jurisdiction on that subject person like before 1998, the private participation in programs of basic and applied
OFWs or the non- resident Filipinos who are earning scientific research. Scholarships, grants-in-aid, or other
income abroad will be taxed in the place where they are forms of incentives shall be provided to deserving
working and he will be taxed in the country where is a science students, researchers, scientists, inventors,
citizen of. So, if Pinoyxa, even if he is not in the technologists, and specially gifted citizens.
Philippines, he will still be taxed by the government and
in the country where he is residing, pwede i-tax pa Still we go back to that basic principle that the power of
rinxa. So, yung impact on that person will be he will be taxation is legislative because there must be an act by
taxed twice. He will be taxed in the country where is the Congress or legislation for an enactment of tax law.
residing and he will be taxed in the country where he is While the power of taxation is inherent, it still needs
a citizen. So you have the effects of double or multiple enactment of laws.
taxation. So reduce this burden, one of the remedies is
to enter into this tax treaty. The constitutional issue For next week we will take up Situs of Taxation, Double
now is, is a tax treaty subject to Senate ratification? Tax, Escape and the Exemptions.
Generally, tax treaties are mere executive agreements.
So they do not require section 21,article VII or senate
ratification. Unlike the Rome Statute or of WTO, these Taxation July 9 2013
require Senate ratification. But when the government
TAXATION SITUS
enters into a tax treaty with another sovereign for
Situs of taxation- It is the place of the taxation. The is the place where the right is
place where the state exercise jurisdiction to tax a exercise When is the right exercise?
person property or property rights. The difference Since the shares of stocks is subject to
subject or object of taxation, we have situs of taxation. Philippine protection, the shares of
stocks shall be subject to Philippine
It is the nature of lawmaking body which is the power taxation.
to determine situs on how the basis to tax or activity to
tax or the protection and benefit that it will afford still b. Income- Usually the situs is on the basis of
to the object or subject of taxation. The determination citizenship. If you are an alien and youre a
of the situs is also given to the legislature body. Of the resident in the Philippine, you will still be
difference subject or object of taxation, we have subject to Philippine tax be reason of your
residency. So for the purpose of income
Person, property and property rights taxation you will be taxed be reason of
1. Person- The place of taxation or situs is the your citizenship, second residency and the
residence. This is usually the basis of situs. third one by reason of the source of
income. This means that even you do not
2. Property- the situs of taxation is the place where reside in the hilipines for as long that your
the place is located. ( Lex rae sitae- ART 17 of CC) source of income is in the country, you will
be charged by Philippine tax.
a. Personal property
c. Business or exercising ones occupation or
i. Tangible The place where the
taxable transaction - the situs is where the
tangible personal property is located
business or occupation or transaction is
ii. Intangible ex.. shares of stocks. As a exercise.
GR, the rule follow is mobilia sequitor
d. Gratuitous transfer of property- Under our
the thing follows the owner.
tax code, there are 2 mode of transfer. 1st,
However, aside from such, another
is the transfer that takes effect upon by
rule for the purposes of determining
then (succession) and 2nd transfer by way
the situs of Intangible personal
of donation (act of liberality). For purposes
property, the place where the right is
of the situs of gratuitous transfer of
exercise. As the case of Forbes vs
property, the situs is on the basis of
bank, where there was a foreigner
citizenship. If you are a citizen in the
who died based abroad who has
Philippine and even if you died in abroad
stocks in the Phil, when the latter
and made a donation there, you property
died in abroad and among the
is subject to Philippine estate tax. If you
properties left behind is the shares of
are an alien, you will still be subject or your
stocks in the Philippine, there the
estate to tax in case of death, or you made
problem starts. If we follow the
a donation, you will be subject to the
mobilia rule, the thing follows the
Philippine by reason of residency. The 3rd is
owner. However that rule was not
the location of the property. Even if you
applied. They apply the rule in the
are a nonresident alien and you made a
place where the right is exercise.
donation over a property located in the
Despite the decedent was a
Philippines or upon you death one of the
nonresident alien but there was the
properties left behind is in the country,
property of the decedent behind in
such property shall be subject to donor or
the country, the Philippine tax is
estate by reason of its location in the
applied by applying the rule the situs
Philippines. In this case, the situs is either. 3. Tax credit- the foreign tax paid is creditable
1. Residency, 2 citizenship or 3 the against the Philippine income tax. since a part
location of the property. of that was already paid abroad by , the foreign
income tax will be creditable in the Philippine
MULTIPLICITY OF SITUS income tax. Similar in the Citizen case, 1st by
What about the principle or concept of Domicile? way of tax credit. Now what we apply is the tax
Wherein the object of taxation will be subjected to credit.
several taxing condition. That one subject or object will 4. Tax treaty On the basis of Reciprocity- a Filipino
be taxed twice. You have the effects of multiple situs or who residing/ earning in that country and
Multicilicity of situs by reason brought about by what citizen of that country residing / earning in the
you called in various domicile. As a consequence of Philippines may grant exemption or deduction
such, that subject or object will be taxed more than
on the basis of reciprocity.
once, or be taxed by different jurisdiction that causes
burdens. And that would burdensome on the part of the
taxpayer. For purposes that the state will reduced or
lessen the burden of the multiple situs, the state may
provide (some brought by legislation) remedies. The DOUBLE TAXATION
following are the remedies:
What is double or multiple taxation?
1. Tax exemption- Ex. Of this this the case of OFW.
OFW before 1998, their income is subject to Double taxation is
Philippine tax. So if they are working abroad as
- taxing twice
a nurse, their income is subject to US tax law
and that same income by reason of citizenship - by the same taxing authority
is subject to Philippine income tax. After 1998,
we grant now tax exemption. We will not - within the same taxing jurisdiction
covered anymore income tax by our
- for the same purpose
nonresident citizen or OFWs. Aside from that in
your NIRC, since the OFW sends money, and - for the same period or year; and
they set up foreign currencies, kung nandun
nayan sa banko sentral, that money there ,, - for the same property.
that is the law granting tax exemtion in order to
All the elements must be present and absence one one,
reduce the or lessens the burden of the
there would be no double taxation.
multiple situs.
Is double taxation prohibited? No our constitution is
2. Tax deduction- ex. Is to allow the tax you pay
not prohibited and not unconstitutional.
abroad to be deducted against your gross
income. Similarly, prior to 1998 when a In what way therefore can you attack the law that will
nonresident earn to income abroad I said a result to double taxation? You cannot attack the law on
while ago it will be subject to Philippine income basis of double taxation. You can attack the law on the
tax. Since a foreign income tax is paid, the basis of violation of constitutional or inherent
Philippines grants a tax deduction of the foreign limitation.
income. The income tax pay sa abroad, that will
be in a form of deduction to lessen the burden. When you enter into a deed of sale over a property, the
We allow the foreign tax pay as a deduction to taxable transaction that would resolve since that the
the gross income. same will be subject to 6% capital gain tax and the said
sale be subject to documentary tax ( Both found in the
NIRC), does it involves a double taxation? No, THE 6% When we talk about income tax / donor tax etc., this
capital gain stocks while the same taxing authority ( BIR) cannot be shift to other. You will be the one to shoulder
with the same jurisdiction for the same property does the burden.
not amount to double taxation. Absent ang element na
for the same purpose. The 6 % capital gain tax is a form Shifting may take form to
of ___ and the documentary tax for entering into that - Forward
transaction. So different and purpose.
- Onward
To go further that same deed will be subject to tax in
the registered of deeds by the local government. Mga - Backward
maring tax dyan, now does this amount to multiple
Like if we say in the case of VAT when the tax is pass on
taxation? Nag tax ung BIR, LGU there are two
to the consumer as part of the selling price it is a
authorities. No double taxation kasi different
forward shifting. But when the tax is absorbed by the
authorities. One is a national government while the
person whom should be liable. That is a form of
other is in local government. Aslo different ang
backward shifting. But when you encounter as series of
purpose.
shifting whether continuous or not, that is what we
Principles or forms of escape from taxation called onward shifting even if the direction is in
backwards. It happen when the tax is shifted 2 or more
This is by reason that taxes are burdens. We want to times either backward or forward.
avoid taxes. Considering this being enforced, tax payers
finds ways of some mode to avoid it. Here you must How do we know the shifting process.. ( here comes the
note that these modes are peculiar or not true to all table)
transactions. They are only applicable to certain
transaction.
You have the producer and the selling price is 100 and
1. Shifting
the vat of %12. This 112 product. In the hands of the
2. Capitalization producer ito ung total cost. So sa distributer lalagyan
yan ng another mark-up to make a profit plus the VAT,
3. Transformation then that would be the new selling price. Now he sells
that now to the wholesaler. The same process lalagyan
4. Evasion
nya to make a profit plus the VAT, then that would be
5. Avoidance the new selling price. Next to the retailer. Of course he
has to make some profit plus the VAT again and then it
6. Tax amnesty would be the new selling price. The retailer now sell this
Shifting- transfer of tax burden by the person who it is to the consumer and not being the end consumer,
imposed by law to another person. It is peculiar to Malaki na ang price.
indirect taxes. It is only in the case of indirect taxes When the vat is passed on from the producer to the
where shifting is based. Ibig sabihin pinaasa mo ung distributer one shift lang yan. So when we talk about
taxe impact to other person. So peculiar or typical sya the shifting process it is between the seller and buyer
sa taxes Like vat, the vat is a tax liability of the statutory relationship so one shift lng yan. And ung series na sya,
payer which is the seller of such product. That sale will onward na sya.
be subject to the vat. However Being an indirect tax the
vat could be pass and added to the price, so the value If it is backward shifting, it is the producer which absorb
now of the product contains the tax because the the burden. This happen when there is so much
taxpayer is allowed to shift the burden of the tax to competition in the product.
another. It is peculiar but to the case of indirect taxes.
Usually what is asked in the bar is the distinction
between tax evasion and tax avoidance.
CAPITALIZATION
Tax evasion is the resort to illegal or unlawful means in
It is peculiar only to particular circumstances noh. It is a order to lessen with the payment of taxes or tax lodging
form of backward shifting whereby future taxes or punished by law. Tax avoidance on the other hand is the
property sold are capitalize at the time of purchase and use of legally method to reduce tax liability also called
deducted in lump some form the selling price. The as tax __. Like in choosing over a donation over deed of
capitalization therefore involves only in transaction if
sale.
the purchase thereof is in form of a real properties. Like
you looking for an area to expand your business and Tax exemption - It is a grant of immunity to tax. we will
inconsideration of finding that real property for that discuss it next meeting.
purpose there would be several factors which the buyer
would have to consider. Between the buyer and seller,
the buyer was able to purchase it only on 35 M so from July 10, 2013
50M. The buyer has 50 M. so from 50 M he was able to
buy it at 35. Meron syan 15 M na savings. What Lets continue our discussion on the principles on tax
happens to 15 M? that is what he will capitalize. It is a exemption.
form of a backward shifting whereby future taxes of the
The tax exemption as we mentioned is one of those
property sold are capitalize at the time of purchase and
forms of escape resorted to for purposes of reducing or
deducted in lump some from the selling price. Ung 15 M
perhaps avoiding tax liability.
na saving nya will be used to capitalize to answer to
future taxes to which the new owner now will be When the power to tax is granted whether inherently or
confronted as he becomes the owner of the property. by a constitutional or legislative grant because in the
Ung 15 M mabayad ng future taxes ng property. case of LGUs that power to tax may be given
legislatively through the law-making body or the
Constitution, remember, that once the power to tax is
TRANSFORMATION granted it would always carry with it inherent in that
grant is to grant tax exemption. When the power to
Ito ung transformer. The transformation is peculiar to tax is given, the power to exempt would always be
those in production or manufacturing process. You are there. The principles therefore that we apply in the
producing sardines or other consumer products power to tax are the same principles that we also apply
sabon, which are highly competitive products. This is in giving or granting tax exemption. So the tax
effective through the process of production. The exemption also adhere to the principles of the inherent
transformation is done by producing product at a lesser as well as constitutional limitations - such that the
cost by improving the method of production. How? Like exemption must conform with public purpose, should
in research development department, they invest in this be legislative in nature, must conform to territoriality,
to buy new machines and equipment to produce more must conform to the principle of international comity -
at a lesser expense. Locking for alternative, etc. By these would apply because of the power to exempt is
reason of that, the producer faces the tax, pati ang tax not for public purpose but for private purpose then that
ina-absrob na nya. The tax here is transferred into violates an inherent limitation. In the same way also in
gain(?) through the medium of production. the context of the constitutional limitations, the power
to exempt should also conform to the requirement of
due process, equal protection, equality and rule on
AVOIDANCE uniformity. So the exemption while it is a grant of
immunity to particular persons, group of persons or a
class from the tax which persons or properties or
property rights are generally would be taxable. The he was given tax exemption. If later on a law now there
State now instead of generating revenue, the State now will be enacted taxing now that activity, the tax payer in
would grant immunity or tax exemption. Rationale of so far that he was given tax exemption will now be
granting tax exemption: Principle of public policy/ public protected by the non- impairment clause because that
benefit/ public interest because in lieu of generating exemption was given in the nature of a contractual tax
revenue the State or the government is willing to exemption. Another is when the government would like
shoulder the monetary loss by reason of the exemption to promote of encourage the people to invest on
for as long as there would be public benefit or public government securities, yung mga government bonds.
interest that will provide by reason of the exemption. The feature of that is that the interest income earned
The exemption must be grounded on public policy and will be given tax exemption. Later a law now is enacted
will support public interest will be best served by giving that the interest income from government bonds/
it. When the State gives an exemption it notes that surety will be subject to tax. Will that new law affect
there would be loss of revenue but the government is and cover now and repeal the tax exemption given to
willing to sacrifice the loss for as long as there would be that government security which was given earlier a tax
a public benefit or public interest that would be served exemption? The answer is that it cannot. It is protected
by reason of that exemption. by the non- impairment clause. The tax exemption in
other words will prevail because you will be protected
The tax exemption may be granted from the State by the non- impairment clause. However, if that tax
through the act of Congress or by the national exemption is not affected by the non- impairment
government or it will be granted through the LGUs. Now clause, like in the case of franchise that is engaged in
remember that in our structure since the power to tax is public utility, in the course of the operation of the
given by the Constitution insofar as LGUs are concerned public utility either he will be given an exemption or he
then that power can also get the granting also of tax will be given a lesser tax rate. If later on the Congress
exemption. In other words, the tax exemption is also
will increase the tax rate or will now impose a tax, can
constitutionally granted. The principles therefore that that franchise grantee invoke the non- impairment
we study in the States power of taxation are the same clause? The answer is no. it is because in the
principles that will apply when we grant tax exemption. Constitution, there is a provision that franchises are no
Now, the tax exemption may be based on contract, prohibited by the non- impairment clause. They are
contained in a charter or the law creating the subject to amendments or modification in pursuit of
corporation or entity to which the exemption is public interest and public purpose. So the exemption
granted. As a rule, tax exemptions should be based on given is not in the nature of a contractual obligation. In
principles of public policy and that there must be a basis the case of Meralco v City of San Pablo, the Laguna
for the giving or the granting if tax exemption. In the area, including San Pablo, was part of the franchise area
context of the non-impairment clause, there are of Meralco. Meralco, under its franchise, was subject to
contracts which are not protected by the clause. When pay for a franchise tax for a certain percentage based
we connect non-impairment clause with tax on proceeds. That franchise tax, based on the
exemptions, not all are protected by the clause. We percentage of their gross sales, will be the tax to be paid
would ask what are therefore the exclusions that are in lieu of other taxes. In 1991, the LGC was enacted
protected by the non-impairment clause? These are imposing now a local franchise tax allowed to be
what we call contractual tax exemptions. When the tax imposed by cities and provinces. The city of San Pablo
exemptions are those what we call as the contractual and the Province of Laguna assessed the Meralco for a
tax exemption by reason that it was granted by the local franchise tax under the local government code.
state, remember the case of Cassanova vs Hord,, where Meralco opposed the assessment saying that they were
the State granted tax exemption to the person who was already liable for a legislative franchise tax by virtue of
allowed/authorized to exploit the natural resources and the Congressional grant given to them to operate as
because he engaged in that activity in exchange of that public utility provider, that under that franchise grant
they were already made to pay for a franchise tax in lieu and production of cement, the government assessed
of paying other taxes. So when the Local Government florocement for an excise tax on the manufacture of
now will assess Meralco of a local franchise tax they are cement. Florocement protested the assessment
not anymore liable, invoking also the non- impairment invoking equity as a ground for tax exemption because
clause. The SC said, NO. Meralco is still liable despite the mining activity is a tax exempt. The raw materials
the fact that they are liable to the national franchise tax emitted from that exempted activity are used as
for which it is granted by Congress, Meralco is still liable materials for the production of the cements. Walang
for a local franchise tax under the Local Government nagbago. Ang raw materials na ginamit sa production ng
Code because it is not protected by the non- cement ay galing dun sa exempted activity, thus the
impairment clause. Can you connect this with double production of cement should also be tax exempt
taxation? Is there double taxation? There is none because it came from those raw materials. The SC said
because you have two taxing authorities, while it is also NO. It is because the exemption that was given to you
a franchise tax, one is imposed by the National refers only to the mining activity and not on the
Government and the other is imposed by the Local manufacturing of cements. The mining activity is
Government. What we are saying here is that, tax different from your production of cement. So you
exemptions are generally reasonable tax. So the tax cannot invoke equity as a ground for tax exemption.
exemption is given by reason of a charter or a law
creating that entity or corporation which was granted Now, moving further, in your readings you have come
across how tax exemptions are to be construed. Tax
the tax exemption.
exemptions are to be construed strictly or construed
Another principle on tax exemption is EQUITY. Can a tax not against the government but against the one who
payer invoke equity for tax exemption? For example, A asserts exemption. What does that mean? It means that
is now exempted from tax so his neighbor now is the tax payer has the burden or the burden is
invoking equity that on the basis of equal protection I incumbent upon the tax payer to prove that the
should also get a similar exemption. Can you invoke exemption is granted to him. You cannot invoke
that? The answer is NO. You cannot invoke equity as a inference, you cannot invoke validation. The law on the
ground for tax exemption. The neighbor cannot invoke statute must provide the exemption that your activity is
similar exemption on the ground of equity and equal given an exemption otherwise if there is no law granting
protection. Remember that we have studied that it then you cannot invoke exemption because tax
singling out subjects or objects of taxation whether for exemptions statutes are given strict construction.
taxation or exemption does not violate equal protection
Tax exemptions are matters of personal privilege. It is
as long as it will comply with the requisites of a valid
and reasonable classification. So when you tax or not transferrable. That is also the reason why you
exemption group of persons, all these must comply with cannot invoke also because tax exemptions are personal
the requisites of a valid and reasonable classification, privilege given to the grantee. It cannot be transferred
that when you exempt or tax, there must be a or assigned without Congressional or Legislative
substantial distinction which makes a real legal consent. Tax exemptions are generally revocable unless
necessity. So the requisites must also be complied for founded on contracts which is protected by the non-
the purposes that it will conform to the requirements of impairment clause.
equality and uniformity. As to kinds of tax exemptions or classifications of tax
Now, going back on that rule on equity, in one case of exemptions.
Florocement v Gorospe, florcement was given the As to manner of creation, tax exemptions may be
authority to engage in mining and the raw materials express or implied. Meaning there is an affirmative
that they generate from mining, the raw materials were exemption if it is express or exemption by omission if it
used to produce cement. Now, the mining activity was is only implied exemption. Meanings, if this people are
given tax exemption. So, in the manufacturing activity taxable in this classification, meaning those people
outside that classification, are exempted from paying 3. Tariff and Customs Code
that tax. So there is exemption by omission.
4. Special laws
As to its subject, it maybe personal tax exemption or an
impersonal exemption. Meaning, if it is directed in favor 5. Tax Treaties-- like that in the ruling made by the
of 7 persons, then it is a personal exemption. But if it is US Supreme Court on Same- sex marriage in
directed to certain group or class then it is an striking the DOMA or the Domestic Marriage
impersonal exemption. Act or the Defense of Marriage Act, the case of
US v Hudson, the gay women entered into a
As to scope or extent, you have a total or a partial same sex marriage in Canada. They transferred
exemption. Generally, the exemption will be applicable in New York. Spouse of Edith Hudson died.
to tax payers who are subject to direct taxes. In other Under the Federal Estate Tax Law, the surviving
words, the exemptions will always refer to direct tax spouse is entitled to tax exemption from the
exemptions. You cannot invoke tax exemptions on estate of the deceased. Under the Federal Law
indirect taxes. So when we talk about total tax on DOMA, the spouse referred to is the
exemptions, it means that a non- stock, non- profit opposite sex. Like if the husband dies, the
institutions. They are practically given full exemption or surviving spouse is entitled or if the wife dies
total exemption to support them by exempting from the surviving husband is entitled. Now how
taxes. When you talk about partial tax exemptions, you about this gay spouses, like in the case of Edith
are given exemptions to a certain type of tax. Like the Hudson? This was recognized by the State of
property tax exemptions on property used in religious New York because by reason of comity,
and charitable purposes. Of course, this refers only to meaning that the principles of international law
property tax exemptions, thus, partial exemption. Is is part of the law of the land. The State denied
there an absolute tax exemption? Meaning you are the exemption because she was not the spouse
given exemption both on direct and indirect taxes. Now, defined by the DOMA. The IRS denied. This
in the old case of NPC, where the SC allowed practically went to US SC, invoking now that since the state
an absolute tax exemption, in the case of Maceda v now recognizes same sex marriage, the federal
Macaraig 197 SCRA 711. This is a taxpayer class suit, law therefore should not violate their marriage.
filed by Senator Maceda, questioning the exemption to You have a state law that recognizes same sex
NAPOCOR under PD 938. PD 938 grants exemption to marriage but your federal law does not, thus a
then NAPOCOR from all forms of taxes, whether violation of equal protection. So, now the US SC
national or local, whether direct or indirect. This tax now invalidates the DOMA and grant the
exemption granted to NAPOCOR was sustained by the recognition of a surviving spouse exemption. If
SC, which practically grants absolute exemption to the not, it will violate the equal protection and due
NAPOCOR. The exemption granted under PD 938 covers process. Such it says, no person shall be
all forms of taxes, whether national or local, whether deprived of its life, property or liberty.. there is
direct or indirect taxes. It is because generally, when no mention there as to the gender of the
you are tax exempt, you are exempted only on direct person even in our own Constitution. when
taxes, you could not claim exemption on indirect taxes. the DOMA refer to marriages between a man
Thus, this case is the exemption on the general rule. and a woman, then it would be a violation of
the equal protection. It is interesting how our
Now, you have the sources of taxation exemptions. SC might look at it. So now, the husband and
1. Constitution- such weve discussed on the wife or even same sex partners may now claim
limitations of taxations. exemptions. It is interesting how our SC would
look at it, for example as to same sex marriage,
2. NIRC (Tax Code) like foreigners working in multinational
company, who are married from a country
which recognizes same sex marriage. Then magbayad ng tax kasi sa penalty na nag- ipon2x na. So
theyre assigned in the Philippines and someone that now, they will come out into open, the government
dies, how will the exemption apply? This is now, through an act of Congress, enacts a tax amnesty
interesting. law. So generally, what you pay now is the basic tax to
the extent na ang dapat bayaran na due is 1M, pwede
6. Local tax ordinances promulgated and enacted na 50% nalang ang bayaran dahil the government
by LGUs. waives the penalties. This is not often. It is dependent
For purposes of construction, we have, exemptions are upon the government like during the time of Erap and
construed STRICTLY. Taxation is the rule and exemption Cory, to generate more fund. It legally operates as a
is the exception. condonation since you are only made to pay the basic
tax and the rest of the penalties or charges kay wala na,
Then you have CLASSIFICATION STATUES. Classification thus the government cannot run after you for the
tax statutes are those laws which specify those subject deficiency. TAX AMNESTY construed strictly.
and not subject to tax. Now, are classification statutes,
tax exemption statutes? They are not. Classification tax ---quiz na after----
statutes are not tax exemption statutes. When tax law
makes a classification, like ito yung taxable, ito yung
hindi, they are not tax exemption statutes. Thus, we do Taxation I
not apply strict statutory construction, we apply liberal
construction on classification statutes. July 16, 2013, 8-9 PM

Then also, we have this principle of TAX AMNESTY. Tax Transcribed by: Mae Bungabong
amnesty, like tax exemption, is construed strictly. It is G. Nature, Construction, Application of Tax Laws
because tax amnesty is the condonation of your tax
liabilities. In this case of Republic v IAC (196 SCRA 335), As to the nature of our tax laws, tax laws are civil in
a law granted tax amnesty. The tax payer availed the tax nature even if the taxing jurisdiction is occupied by the
amnesty. Now, complying and paying the tax under the enemy our tax laws will continue to be enforced
tax amnesty law, the BIR still ran after the PR for because they are civil in nature. So they are not in other
deficiency of the paid tax. So the question here is, can words political nor penal nor criminal in nature so in
the government still run after the tax payer after he has your readings you have encountered that the Bill of
availed of the tax amnesty? In the same way that when Attainder or the Ex Post Facto Law are not applicable in
the government pardons, can the government still run so far as in connection of the nature of our tax laws.
after you? In the same way as tax amnesty, the
Now lets go to the interpretation of tax laws. Now
government can no longer run against you for
construction refers to the manner within which tax laws
deficiency taxes when you have already availed of the
are being construed and we have set of rules which we
tax amnesty. What is therefore the nature of a tax
apply for the purposes of construing the tax provisions
amnesty? A tax amnesty operates as a general pardon
or tax statutes.
or the intentional overlooking of the government of its
authority to impose penalties on persons otherwise 1. Would be with regards to the legislative intent-
guilty of tax evasion or violation of the revenue or tax Now tax laws are to receive reasonable
law. Tax amnesty partakes of an absolute forgiveness or construction with the view of carrying out their
waiver by the government of its right to collect what is purpose and intent. So one aspect in
due it and to give tax evaders who wish to relent a determining the intention of the framers of the
chance to start with a clean slate. Tax amnesty, like tax law. In connection with a particular statute.
exemption, is not presumed in law nor never favored. Because the construction does not apply only,
Tax amnesty is actually a way of the government to the rules on construction does not apply only,
generate revenue. Kasi meron yung iba na takot
exclusively to tax laws. This rule can be applied literal meaning of that statute. The rule on
to other legislations or other statutes. Even in construction as against the government would
your political law you also have the use of not be applicable for the language of the tax
legislative intent and one way to determine law or the tax statute is plain and there is no
legislative intent is not only going over the doubt as to its legislative intent.
provisions of the law but also going over the
debates, the minutes, going over the arguments 4. Now we only apply strict construction when we
that were done in the course of Congress or in deal with tax exemptions or to the tax laws
the law-making body. So the minutes, the granting tax exemptions we apply the strict
deliberations , the debates these records are construction. Meaning it is strictly construed
kept in the law-making body or by the Congress against a tax payer and liberally in favour of the
so you can go back if you, these debates, these government. However if you remember there is
arguments made by the legislators on what was an exception to the strict construction meaning
their intention in coming up with that provision. we apply a liberal construction when it involves
So like for example in a tax law well they use or exemption in favour of religious, charitable, and
they refers tax payers as persons so when we educational purposes or when it is the
deal with persons so do we, what was the legislative intent we apply by way of exception
legislative intent? Does that refer only refer to the liberal construction in the case of tax
natural persons? And when we talk about exemptions. But as a rule we apply the strict
persons in its generic sense and what was the construction in connection with tax exemptions.
intention of the Congress and in our study you Then we have the application. Now we have taken this
will discover that when we talk about persons- up when we discuss about due process. And one of the
not only the natural, it also speak about the illustrations of what due process has to be applied in
juridical persons. But in our jurisdiction, in so the exercise of the power of taxation is that tax laws
far as taxes, the taxpayers are not only the should be applied PROSPECTIVELY. Tax laws -we dont
natural persons or individuals but we also have apply them retroactively in so far as tax laws. So
juridical persons like corporation and you have generally, we apply prospective application since the
partnerships so these are the tax persons that nature and amount thereof tax could not be foreseen
are refer to so far as a particular provision in a and understood by the tax payers at the time of the
statute. So now we go to one aspect of the rule transaction which the law seeks to tax was completed.
of construction by way of determining the So at the time of its enforcement we usually apply the
legislative intent. prospective application. The retroactivity is only applied
2. Now second rule is what if theres doubt as to by way of exception and we apply retroactivity so
the meaning and construction, then in case of theres a retroactive operation: 1. There is that
doubt tax laws are to be construed liberally in legislative intent or 2. When retroactivity is not harsh
favour of the tax payer. The reason why we and oppressive as illustrated in that case of Castro vs.
apply liberal construction in case of doubt is Collector- in the case of the war profits tax law where it
that taxes are burdens so we, the law even the allowed retroactivity because the law was not harsh and
courts that in construing our laws are, it is oppressive. The other one by way of exception is
stated more on the part of the tax payers and legislative intent. Meaning the law provides a
construed strictly against the government so retroactive application. This is illustrated in the case of
they are construed liberally in favour of the tax Umali vs. Estaneslao and Gorospe vs. CIR (29 SCRA
payers because taxes are burden. 446). Now briefly the issue involved in these two cases
was the application of the personal exemptions. Now
3. Then you have the rule that when the language under our income tax provision, individual tax payers
is plain and clear of the tax law so we take the are granted what we call personal exemptions to
answer the cost of living. Now the cost of living because then the exemption in 2001 shall be applicable. Now
we have to give, you have to pay rent etc. you have to the new Php30, 000.00 exemption could not be applied
pay for your family driver, your domestic expenses of retroactively in 2001 because tax laws are prospective,
which when you are engaged in business or you are this Php30, 000.00 exemption should be applicable to
practicing a profession you cant be charged of this the returns that will be due for 2002. So when the en
since there is no connection with your business or banc gather the law, the deliberations in Congress they
occupation unless the driver whom you hired is the found out that it was the legislative intent that it will
driver who drives you in the conduct of your profession have a retroactive effect so under that case of Umali vs.
or your business or occupation but if it is for your Estaneslao and Gorospe vs. CIR, the Supreme Court
personal comfort or the familys comfort like domestic decided that taxpayers are allowed to claim the new
help these expenses could not be charged as a exemption because of legislative intent. The law allows
deduction to the income of that individual taxpayer. So by way of legislative intent to give the higher exemption
the regular or daily expenses are not chargeable against of the new personal tax exemption again that is only by
income the law sets a limit which we call it personal and way of exception. It is still the prospective application
traditional exemptions. Additional exemptions if you that will follow. Unless the law or the retroactively and
have qualifying dependents for the tax payer who it is not harsh and oppressive.
engages in business or practice of occupation the cost
of living is chargeable to that account we call personal Then we have the provisions on mandatory and
exemption. Now, what happened here in this case is directory provisions of tax laws. Now we still go back to
that lets say in 2001 the personal exemption granted that principle that taxes are burdens. And the taxes are
lets say Php25, 000.00. Now during that year that the lifeblood of the government and the government
personal exemption was amended increasing it lets say would like that the taxes are to be collected on time.
Php30, 000.00. Let us say that the Congress in 2001 Then tax payers would comply to their obligations also
on time. So our tax laws will have mandatory and
increased the tax exemption to Php30, 000.00. Now
after publication etc. Sometime in February 2002, the directory provisions. Now MANDATORY PROVISIONS-
Php30, 000.00 personal became effective. For tax year are intended for the security of the citizens or which are
designed to ensure equality or certainty as to the
2001, the deadline for filing the income tax return is on
or before April 15, 2002 so when you talk about tax year nature and amount of each persons tax while
2001 the filing of the annual ITR, you are given up to DIRECTORY PROVISIONS are designed merely for the
April 15, 2002 to file the Income Tax Return. And as an information or direction of officers or to secure a
individual tax payer you are entitled to some personal methodical systematic moves for proceedings. Now
exemption, so what personal exemption are you what is the importance of having these mandatory and
entitled to? When you file Income Tax Return on or directory provisions? Now omission to follow
before April 15, 2002. So will it be the Php25, 000.00 or mandatory provision renders the act or proceeding
the new exemption at Php30, 000.00? So ito yung case invalid to which it relates while failure or omission to
that went up to Supreme Court. Does the tax payer follow directory provision will not have a similar
consequence. So walang kaso kung di mo sundin kung
entitled to claim the new exemption under the new law
when the return that he was filing cover a tax period directory ang provision. But there will be a possible
within which the lower exemption was then enforced so consequence when you failed to follow mandatory
provisions like deadline typical in our tax to have
this issue was brought up to the SC. According to the
Supreme Court, the tax payer is allowed to avail the deadline within which we have to pay our tax. If you fail
higher exemption even if the tax period covering that it to pay on time then there will be penalty, surcharges
return covered the previous tax year because at the and the like as a consequence for failure to follow
time the filing of the return the new exemption became mandatory provisions so like for example deadlines. You
effective but the argument here is that, isnt that tax also have period to appeal when a taxpayer is sent an
laws are prospective? Since this covered tax year 2001 assessment on a finding of a deficiency tax, he is given
30-days to protest the assessment so what will happen
if he fails to protest? Then that assessment will become addresses by our NIRC, by the Tariff and Customs Code
final then collection proceeding will follow to collect the and the procedural aspect is addressed by the creation
deficiency tax so thats the consequence if you fail to of the Court of Tax Appeals.
protest. So when you fail to protest, you failed to
You have these regulations, rulings and opinions. Now
appeal on time, so the period to appeal you will be now
caught in default and whatever assessment you in our jurisdiction the collective arm of the government
received, it will become final and executory. So these in charged in the collection of tax is the Department of
are what we call mandatory provisions. So what are Finance and under the DOF, you have these two
directory? Directory provisions are merely for agencies of government in charge of collection you have
convenience and for a systematic and a methodical the BIR- Internal revenue taxes and Bureau of Customs-
move in the conduct of the proceedings like the in the case for the tariff and customs duties on the
payment of taxes. We used to pay taxes to BIR but that importation and exportation. So these are the two
would be too burdensome because mahaba ang pila. S major government agencies in charge in the collection
payment of taxes would be done through banking of taxes and they are executive so the and the it is the
system. So banks are accredited by BIR so you dont thru the Secretary who promulgates regulations for the
have to go to BIR to pay your taxes. So now you just effective enforcement of our tax laws. Now the Internal
have to go to accredited banks to made payment for Revenue Code is the codification of our tax laws and
your taxes. The other is you have the electronic filing so every now and then there is a new tax law enacted by
there is an electronic filing of your taxes and the Congress as the amendment on provisions of the NIRC,
payment of the tax so you have to enrol to the the DOF upon the recommendation of BIR will
electronic filing system you make the crediting to your promulgate the necessary rules and regulations for the
bank to have that remitted to BIR so you dont have to enforcement of the law so you call these revenue
go to the banks and made payments because you can regulations. In Customs you call this Customs
Administrative Orders for these are regulations enacted
just do it through online. So these are new features
under our system on paying taxes so these are directory for upon the recommendation of the Commissioner of
provisions. Customs to the DOF for the enactment and
promulgation of regulations under the Tariff and
Then you have the matter on the sources of tax laws. Customs Code so in the case of regulations therefor, the
Our tax laws like tax exemptions, you can find them in regulations are inferior to the statute. The regulations
the Constitution, in the legislation, in the laws, the cannot alter, add or even subtract to the provisions of
statutes enacted by Congress. From regulations, rulings, the statute so in the case of conflict between the
opinions rendered by our tax authorities, judicial regulation and the statute, the statute will prevail, the
decisions and you also have tax treaties. regulation will become void if it will go beyond the
provision of the statute. If the law does not provide for
Now you have the Constitution the power to grant a penalty then a regulation is prohibited to impose one
taxation even to the local government units. The power because the law there is superior than the regulation.
to grant tax exemptions even to non-stock, non-profit Now our regulations are enacted and they are
educational institutions and to the property tax necessary for the proper enforcement and execution of
exemptions to real properties which are used for our tax laws. They are intended to clarify, to explain the
charitable, educational, or religious purposes. So these law and to carry its effect the general provisions by
are the sources of tax laws in the Constitution. providing details of administration and procedure.
From legislation you have NIRC, you also have the Local Remember go back to the study of principles when the
Government Code, you have the Tariff and Customs agencies of the government enforced the law and when
Code for taxes of importation and exportation, you also they promulgate rules and regulations they are not
have the law creating the Court of Tax Appeals so far as enacting a tax statute they are simply implementing the
the procedural aspect of our tax laws, the substantive is tax statute or tax law because these regulations are
intended for the convenience of tax payers and for the
purposes of validity, regulations must not be contrary to paying cash you will pay real property in exchange of
law and the Constitution; second requirement, there the shares of tax. So the Commissioner will now make a
must be publication either in the Official Gazette or reply and of course in your letter you will invoke the
newspaper of general circulation so requirement of exemption under Section 40 because the exemption is
publication. not self-executory hindi siya automatic kailiangan muna
ng ruling so when the BIR now will reply by the reason
Now we have rulings and opinions. Now rulings and of the facts presented then the transaction that you will
opinions to a certain extent will also have its own force enter into will be tax free under Section 40 so with that
and effect as a law. Now when a tax payer is confronted ruling you can now enter into that exchange so you will
with a tax problem the law allows him to make a query file a return, the capital gains tax return and attached to
to the BIR or BOC depending kung ano yung kanyang tax the return the ruling because your local BIR will not
query. Now usually, he writes to the Commissioner of accept the argument maski yung bring in there the NIRC
BIR or BOC that he is confronted with a tax issue and before the Revenue Collector and sasabihin mo under
ask for a ruling or opinion whether it is taxable or he is Section 40 and I am a third year law student, under
exempt for that transaction so the Commissioner makes Section 40, your local BIR will not believe you because
a reply on the basis of the facts presented to him that they will rely to the ruling even if the rule is there it is
the transaction he was going to enter to is taxable or not automatic so when you file your capital gains tax
the Commissioner may make a ruling or an opinion that return you attached the Commissioners ruling sa
the transaction he will enter to will not be taxable. So makita na ng local BIR that you are exempted so hindi
that will partake and will have a force and effect of the ka na magbayad eh kung walang ruling magbabayad ka
law rulings and opinions however, rulings and opinions talaga kasi nga hindi naman yan automatic. You will be
will be as good depending on the facts presented by the issued now a tax clearance and the certificate of
tax payer because there will always be a caveat at the authority to register the transfer now you will go now to
end of the ruling of commissioner that the ruling will
ROD dala dala with the ruling, the tax clearance that
stand so far as facts presented but if the facts will you are exempted from that transaction. So thats what
change then the Commissioner will make a reservation we do in practice of tax exemption in so far as to the
that the ruling may change. The rulings and opinions
application. So you have these rulings and opinions.
will stand valid as the facts and the circumstances
presented by the tax payer on a certain tax query. Now Then you have judicial decisions so judicial decisions of
in practice like you have Section 40 of the NIRC is course when you talk about judicial decision these are
provision on a NO gain or loss transaction an example of rulings made by our courts. Now the courts that do or
that is when you could create a corporation now address tax problems you have the Court of Tax Appeals
instead of putting cash you would put in real property in then the Supreme Court so decisions and rulings made
exchange of shares of stocks or you want to invest in by these courts will also have the force and effect of a
that corporation so instead of putting cash you put in law. Now in NIRC, tax cases under NIRC-so you have
real properties and in exchange of that bibigyan ka ng that CIR (Commissioner of Internal Revenue) who is the
shares of stocks so under Section 40 such exchange of head of BIR so all proceedings will start as an
real properties for shares of stock is a no gain or loss administrative process and when you have cases
transaction ibig sabihin hindi siya taxable na involving protesting assessments under our tax system
transaction. Now ordinarily if you pay with a real taxes under the NIRC are called self-assessing taxes so
property regardless of consideration whether the when we call them self-assessing taxes it is the taxpayer
consideration was in cash, in a barter or in a manner of himself who determines the tax liability we dont
exchange that transaction is subject to capital gains tax usually go to the BIR and ask the examiner the revenue
so to avoid the impact of the capital gains tax for reason district officer magkano ba yung tax na babayaran ko?
that under Section 40 that exchange is tax free you Because our taxes under NIRC are self-assessing so it is
write to the BIR and ask for ruling that you will be started to the filing of tax return so dyan nagsisimula.
buying some shares in that corporation and instead of We file tax returns and pay the tax on the basis of the
returns kaya nga self-assessing kasi ikae yung you will file that before the CIR then from the CIR if it is
nagdedetermine kung magkano ang tax na babayaran denied then you will go to CTA by division then CTA en
mo. Whether it is in the form of income tax, estate, banc then to the Supreme Court. But again it is pursued
donors, VAT etc. so you will pay your tax based on the administratively at first just make an appreciation kung
returns. So after you file your returns, these returns will saan ba ito galing itong mga judicial decisions na
be subjected to what we call assessment. The sinasabi dito. From the CTA decided by the division,
assessment is the process of audit, investigation, and from the CTA decided en banc and then finally by the
examination of your tax returns including your financial SC.
statements etc. to find out whether the amounts in
your tax returns are accurate. So your return is When we go to the Tariff and Customs Code, the Tariff
subjected to what we call assessment. After assessment and Customs Code naman well you have assessments of
you will be notified, there will be a notice of the findings the collector of the imports and customs duties the
made by the revenue examiner so you will be notified protest is filed before the collector of customs. From
so there will be what we call notice of assessment. So the collector you have the Commissioner of Customs
when the taxpayer now receives an assessment that the (COC) from the COC it is converted into a judicial action
BIR has found a tax deficiency your remedy unless you to the CTA division then CTA en banc then the Supreme
will just pay the liability there you will just pay the Court. Ganun din yung process when you deal with
deficiency tax but if you do not agree with the findings forfeiture proceedings. In the forfeiture proceedings
you will file a protest on the assessment, you bring that like yung seizure and forfeiture proceedings like yung
protest to the CIR, the CIR will make a decision on your there is an illegal importation of an article or articles are
protest whether he will grant or deny your protest. So brought in our country unlawfully so these articles will
when the Commissioner will grant your protest eh di be seized and will be subjected to forfeiture
tapos kasi the Commissioner agreed to you in rebutting proceedings the seizure and forfeiture proceedings will
be initiated before the collector of customs when
the findings like for example the BIR will say that you
will be paying 1 million pero ang sabi ni tax payer no articles are brought unlawfully or acts involving
and he protested that assessment and presented that smuggling or articles are brought in fraudulently,
misdelacaration or under declaration so these articles
his deficiency is 100,000.00 lang so the Commissioner
granted that protest. Now in case of denial the remedy will be seized including the mode of transport-yung
of the tax payer is to appeal to the Court of Tax Appeals. barko, eroplano, or land transportations. Yung mga
Now in the CTA, it is appealed first before the division taxable articles or ito yung mga contrabands so they will
then it is brought to the CTA en banc. Then finally to the be seized. So judicial decisions from this will also
Supreme Court. So thats the process in any tax emanaes from the CTA and the Supreme Court.
deficiency will govern. So the deficiency will start from Then you have tax treaties again tax treaties are
the returns that you have filed in the course of the executive agreement we dont require the
assessment so you have decisions along the way. The Congressional or Senate ratification when we talk about
decisions of the Commissioner which is administrative tax treaties these are mere executive agreements which
from an administrative it will be now converted into a the President or the Secretary of Finance as the alter
judicial action where you now appeal to the CTA ego to enter into treaties with other countries. So tax
actually this is a lengthy discussion but this one is a treaties entered into by way of reciprocity, again the
simple presentation because there is still the period 180 purpose is to reduce the multiple impacts of situs of
days basically when the CIR would deny your protest taxation.
your remedy is to appeal before the CTA to the division
then even if talo ang gobyerno the government would So we have this one aspect of the nature of tax laws
still appeal before the CTA en banc then from there to that tax laws are special laws they are not in a nature of
the Supreme Court. The other case is the claims for general laws. Ano ba yung mga general laws? Civil Code
refund ganun din yung process. In filing for a tax refund, it is a general law so when theres a conflict between
the provisions of special laws and general laws, which
will prevail? Tax laws as special laws shall prevail over
the general law. So when a tax law is enacted then for
the purposes of effectivity this will require publication
but the law does not require under the tax law the
manner of publication in most of the laws we always
see that the Congress will specify it will be published in
the OG or in a news paper of general publication. So the
law did not provide the manner of publication so the
law was published in the OG which is the requirement
under the Civil Code but tax laws are to be published in
the Official Gazette (OG) so that will also render the tax
law even if a special laws effective because having
satisfied the requirement of publication. Even if the law
does not provide where it would be published. So what
if it is published in a newspaper of general circulation?
Will the law now be invalid? Because under the general
law the publication should be on the OG so this might
be a problem in the future. Usually our tax laws and
other laws revenue or nonrevenue provide manner of
publication either they provide in the newspaper of
general circulation or in OG and newspaper of general
circulation.