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Tax Reviewer: Law of Basic Taxation in The Philippines Chapter 1: General Principles
Tax Reviewer: Law of Basic Taxation in The Philippines Chapter 1: General Principles
CABANEIRO) A2011 1
ILLUSTRATION OF LIFEBLOOD THEORY the citizenry, and those which come within the State’s territory
1. Collection of taxes cannot be enjoined by injunction. and facilities and protection which a government is supposed to
2. Taxes could not be the subject of compensation or set off. provide.
3. A valid tax may result in the destruction of the taxpayer’s 2) BENEFITS – PROTECTION THEORY
property. This theory bases the power of the State to demand and receive
4. Taxation is an unlimited and plenary power. taxes on the reciprocal duties of support and protection. The
citizen supports the State by paying the portion from his
TAXES,PERSONAL TO TAXPAYER property that is demanded in order that he may, by means
A corporation’s tax delinquency cannot be enforced against its thereof, be secured in the enjoyment of the benefits of an
stockholders except for unpaid taxes of a dissolved corporation if it organized society.
appears that the corporate assets have passed into their hands (Tan No one is allowed to object to or resist payment of taxes solely
Tiong Bio vs CIR). because no personal benefit to him can be pointed out as arising
Estate taxes accruing upon transmission of the decedent’s estate to from the tax, [Lorenzo v. Posadas].
his heirs are not liabilities which can be enforced against heirs.
SCOPE OF THE LEGISLATIVE TAXING POWER
NATURE OF THE TAXING POWER 1) The persons, property and excises to be taxed, provided it is within
1) Inherent in sovereignty its jurisdiction
2) Legislative in character 2) Amount or rate of tax
3) Purposes for its levy, provided it be for a public purpose
PURPOSES AND OBJECTIVES OF TAXATION 4) Kind of tax to be collected
PRIMARY 5) Apportionment of the tax
1. To raise revenue in order to support the government (Revenue) 6) Situs of taxation
SECONDARY 7) Method of collection
2. Used for regulatory purposes (Regulation)
3. Used to reduce social inequality (Reduction of Social Inequality) IS THE POWER TO TAX THE POWER TO DESTROY? /
4. Utilized to implement the police power of the State (Promotion of CONSTITUTIONAL RESTRAINTS RE: TAXATION IS THE POWER TO
General Welfare) DESTROY
5. Used to protect our local industries against unfair competition The power to tax "is an attribute of sovereignty". In fact, it is the
(Protectionism) strongest of all the powers of government. But for all its plenitude,
6. Utilized by the government to encourage the growth of local the power to tax is not unconfined as there are restrictions.
industries (Encourage Economic Growth) Adversely effecting as it does property rights, both the due process
and equal protection clauses of the Constitution may properly be
THEORY AND BASIS OF TAXATION invoked to invalidate in appropriate cases of a revenue measure. If it
1) NECESSITY THEORY were otherwise, there would be truth to the 1903 dictum of Chief
Taxation as stated in the case of Phil. Guaranty Co., Inc. v. Justice Marshall that "the power to tax involves the power to
Commissioner [13 SCRA 775], is a power predicated upon destroy." The web or unreality spun from Marshall's famous dictum
necessity. It is a necessary burden to preserve the State’s was brushed away by one stroke of Mr. Justice Holmes' pen, thus:
sovereignty and a means to give the citizenry an army to resist "The power to tax is not the power to destroy while this Court sits."
aggression, a navy to defend its shores from invasion, a corps of "So it is in the Philippines." It is because of the constitutional
civil servants to serve, public improvements for the enjoyment of restraints placed on a taxing power that violates fundamental rights.
The power to tax includes the power to destroy if it is used as an TAXATION DISTINGUISHED FROM POLICE POWER AND EMINENT
implement of the police power (regulatory) of the State. However, it DOMAIN
does not include the power to destroy if it is used solely for the TAXATION POLICE POWER EMINENT
purpose of raising revenue. (ROXAS vs. CTA) DOMAIN
If the purpose of taxation is regulatory in character, taxation is used AS TO PURPOSE For the purpose To promote For public use
raising revenue general welfare
to implement the police power of the state through
If the power of taxation is used to destroy things, businesses, or regulations
enterprises and the purpose is to raise revenue, the court will come AS TO Protection and The maintenance Just compensation,
in because there will be violation of the inherent and constitutional COMPENSATION benefits received of a healthy not to exceed the
limitations and it will be declared invalid. from the economic standard market value by the
government. of society owner or
(damnum absque administrator or
POWER OF JUDICIAL REVIEW IN TAXATION injuria) anyone having legal
Courts cannot inquire into the wisdom of a taxing act. (CIR vs interest in the
Lingayen Gulf Electric Power Co) property, or as
Court’s power in taxation is limited only to the application and determined by the
interpretation of the law. assessor, whichever
is lower.
It is not within the province of the court to inquire into the
AS TO PERSONS Operate upon community or a class of Operates on the
wisdom of the law for indeed courts are bound by the words in AFFECTED individuals individual property
the mouth of the lawmaker. “A verbo legis non est recedendum” owner
(Commissioner of Customs vs Manila Star Ferry inc.) AS TO AUTHORITY Exercised only by the government or its May be exercised
WHICH EXERCISES political subdivisions. by public services
BASIC PRINCIPLE OF A SOUND TAX SYSTEM THE POWER corp or public
utilities if granted
1) FISCAL ADEQUACY
by law
The sources of revenues must be adequate to meet gov’t AS TO AMOUNT OF Generally no limit Limited to the cost There is no
expenditures. (Chavez v. Ongpin, 186 SCRA 331). IMPOSITION to the amount of of regulation imposition; rather,
Even if a tax law violates the principle of Fiscal Adequacy tax that may be it is the owner of
and the proceeds may not be sufficient to satisfy the needs imposed the property taken
of the government, still the tax law is valid who is paid just
compensation.
2) THEORETICAL JUSTICE
AS TO THE Subject to certain Relatively free Subject to certain
The tax burden should be in proportion to the taxpayers RELATIONSHIP TO constitutional from constitutional constitutional
ability to pay (ABILITY TO PAY PRINCIPLE) THE CONSTITUTION limitations, limitations and limitations, NOT
Equitable taxation has been mandated by our constitution; including the superior to the including the
as if taxes are unjust and unreasonable then they are not prohibition against non-impairment prohibition against
equitable, thus invalid. impairment of the provisions impairment of the
obligation of obligation of
3) ADMINISTRATIVE FEASIBILITY
contracts contracts
The tax law must be capable of effective or efficient AS TO TRANSFER Taxes paid become No transfer, but
enforcement. OF PROPERTY part of the public only restraint on
There is no law that requires compliance with this principle, RIGHTS funds the exercise, of
so even if the tax law violates this principle; such tax law is property right
valid. exists
ASPECTS OF TAXATION Toll is paid for the used of another’s property; tax is paid for the
1) LEVY or IMPOSITION support of government.
enactment of tax laws The amount paid as toll depends upon the cost of construction or
legislative in character maintenance of the public improvements used; while there is no
2) ASSESSMENT limit on the amount collected as tax as long as it is not excessive,
collection unreasonable, or confiscatory.
administrative in character Toll may be imposed by the government or by private individuals or
entities; tax may be imposed only by the government.
TAXES DISTINGUISHED FROM OTHER IMPOSITIONS
1) toll – amount charged for the cost and maintenance of property Penalty v. Tax
used; Penalty is any sanction imposed as a punishment for violation of law
2) penalty – punishment for the commission of a crime or for acts deemed injurious; taxes are enforced proportional
3) compromise penalty – amount collected in lieu of criminal contributions from persons and property levied by the State by
prosecution in cases of tax violations; virtue of its sovereignty for the support of the government and all
4) special assessment – levied only on land based wholly on the public needs.
benefit accruing thereon as a result of improvements of public works Penalty is designed to regulate conduct; taxes are generally
undertaken by government within the vicinity. intended to generate revenue.
5) license fee – regulatory imposition in the exercise of the police Penalty may be imposed by the government or by private individuals
power of the State; or entities; taxes only by the government.
6) margin fee – exaction designed to stabilize the currency
7) debt – a tax is not a debt but is an obligation imposed by law. Special assessment v. Tax
8) regulatory fees – exaction designed to regulate industries A special assessment tax is an enforced proportional contribution
9) subsidy – legislative grant of money in aid of a private enterprise from owners of lands especially benefited by public improvements
deemed to promote the public welfare. A special assessment is levied only on land; tax is imposed on
10) custom duties and fees – duties charged upon commodities on persons, property and excises.
their being imported into or exported from a country; A special assessment is not a personal liability of the person
11) revenue – broad term that includes not only taxes but income from assessed; it is limited to the land.
other sources as well. A special assessment is based wholly on benefits, not necessity.
12) Tribute – synonymous with tax A special assessment is exceptional both as to time and place; a tax
13) Impost – signifies any tax, tribute or duty. has general application.
Some rules:
Toll v. Tax An exemption from taxation does not include exemption
Toll is a sum of money for the use of something. It is the from a special assessment.
consideration which is paid for the use of a road, bridge, or the like, The power to tax carries with it the power to levy a special
of a public nature. Taxes, on the other hand, are enforced assessment.
proportional contributions from persons and property levied by the
State by virtue of its sovereignty for the support of the government
and all public needs.
Toll is a demand of proprietorship; tax is a demand of sovereignty.
AS TO THE DETERMINATION OF AMOUNT A taxpayer has no legal standing to question executive acts that do
10. Specific tax not involve the use of public funds. (GONZALES vs. MARCOS)
A specific tax is a tax of a fixed amount imposed by the head or It is only when an act complained of which may include a legislative
number or by some other standard of weight or measurement. It enactment of a statute, involves the illegal expenditure of public
requires no assessment other than the listing or classification of the money that the so-called taxpayers suit may be allowed. LOZADA vs.
objects to be taxed. COMELEC
11. Ad valorem tax Taxpayers may be levied with a regulatory purpose to provide
An ad valorem tax is a fixed proportion of the value of the property means for the rehabilitation and stabilization of a threatened
with respect to which the tax is assessed. It requires the industry which is affected with the public interest as to be within the
intervention of assessors or appraisers to estimate the value of such police power of the State. CALTEX vs. COA
property before due from each taxpayer can be determined. The Supreme Court has discretion whether or not to entertain
12. Customs Duties taxpayers suit and could brush aside lack of locus standi. KILOS
Duties charged upon the commodities on theor being imported into BAYAN vs. GUINGONA
or exported from a country.
REQUISITES FOR A TAXPAYERS PETITION
AS TO GRADUATION OR RATE 1) That money is being extracted and spent in violation of specific
13. Proportional tax constitutional protections against abuses of legislative power
Tax based on a fixed percentage of the amount of the property 2) That public money is being deflected to any improper purpose
receipts or other basis to be taxed. Example: real estate tax. 3) That the petitioner seeks to restrain respondents from wasting
14. Progressive or graduated tax public funds through the enforcement of an invalid or
Tax the rate of which increases as the tax base or bracket increases. unconstitutional law.
Digressive tax rate: progressive rate stops at a certain point.
Progression halts at a particular stage. CASES:
15. Regressive tax
Tax the rate of which decreases as the tax base or bracket Commissioner vs. Algue
increases. There is no such tax in the Philippines. GRL-28890, 17 February 1988.First Division, Cruz (J); 4 concur
TAXPAYER’S SUIT Facts: The Philippine Sugar Estate Development Company (PSEDC)
One where a taxpayer who feels aggrieved by the implication of a appointed Algue Inc. as its agent, authorizing it to sell its land, factories, and
tax law goes now via judicial review to the SC and asks for a oil manufacturing process. The Vegetable Oil Investment Corporation
nullification of the law. (VOICP) purchased PSEDC properties. For the sale, Algue received a
In availing judicial review as a taxpayer, the only option one can commission of P125,000 and it was from this commission that it paid
look into are the inherent and constitutional limitations on taxation. Guevara, et. al. organizers of the VOICP, P75,000 in promotional fees. In
Taxpayers have sufficient interest of preventing the illegal 1965, Algue received an assessment from the Commissioner of Internal
expenditures of money raised by taxation ( NOT DONATIONS AND Revenue in the amount of P83,183.85 as delinquency income tax for years
CONTRIBUTIONS) 1958 amd 1959. Algue filed a protest or request for reconsideration which
A taxpayer is not relieved from the obligation of paying a tax was not acted upon by the Bureau of Internal Revenue (BIR). The counsel
because of his belief that it is being misappropriated by certain for Algue had to accept the warrant of distrant and levy. Algue, however,
officials filed a petition for review with the Coourt of Tax Appeals.
Issue: Whether the assessment was reasonable. Representatives. To insist that a revenuestatute and not only the bill which
Held: Taxes are the lifeblood of the government and so should be collected initiated the legislative process culminating in the enactment of the law must
without unnecessary hindrance. Every person who is able to pay must substantially be the same as the House bill would be to deny the Senate’s
contribute his share in the running of the government. The Government, for power not only to concur with amendments but also to propose
his part, is expected to respond in the form of tangible and intangible amendments. Indeed, what the Constitution simply means is that the
benefits intended to improve the lives of the people and enhance their moral initiative for filingrevenue, tariff or tax bills, bills authorizing an increase of
and material values. This symbiotic relationship is the rationale of taxation the public debt, private bills and bills of local application must come from the
and should dispel the erroneous notion that is an arbitrary method of House of Representatives on the theory that, elected as they are from
exaction by those in the seat of power. Tax collection, however, should be the districts, the members of the House can be expected to be more
made in accordance with law as any arbitrariness will negate the very reason sensitive to the local needs and problems. Nor does the Constitution
for government itself. For all the awesome power of the tax collector, he prohibit the filing in the Senate of a substitute bill in anticipation of its
may still be stopped in his tracks if the taxpayer can demonstrate that the receipt of the bill from the House, so long as action by the Senate as a body
law has not been observed. Herein, the claimed deduction (pursuant to is withheld pending receipt of the House bill.
Section 30 [a] [1] of the Tax Code and Section 70 [1] of Revenue Regulation
2: as to compensation for personal services) had been legitimately by Algue The next argument of the petitioners was that S. No. 1630 did not pass
Inc. It has further proven that the payment of fees was reasonable and 3 readings on separate days as required by the Constitution because the
necessary in light of the efforts exerted by the payees in inducing investors second and third readings were done on the same day. But this was because
(in VOICP) to involve themselves in an experimental enterprise or a business the President had certified S. No. 1630 as urgent. The presidential
requiring millions of pesos. The assessment was not reasonable. certification dispensed with the requirement not only of printing but also that
of reading the bill on separate days. That upon the certification of a bill by
Tolentino vs. Secetary of Finance the President the requirement of 3 readings on separate days and of printing
GR No. 115455. August 25, 1994 and distribution can be dispensed with is supported by the weight of
legislative practice.
Facts: The value-added tax (VAT) is levied on the sale, barter or exchange
of goods and properties as well as on the sale or exchange of services. RA EXERCISES:
7716 seeks to widen the tax base of the existing VAT system and enhance
its administration by amending the NationalInternal Revenue Code. There Discuss the importance of taxes
are various suits challenging the constitutionality of RA 7716 on various SUGGESTED ANSWER:
grounds. Taxes are the lifeblood of the government, for without taxes, the
One contention is that RA 7716 did not originate exclusively in the House of government can neither exist nor endure. A principal attribute of
Representatives as required by Art. VI, Sec. 24 of the Constitution, because sovereignty, the exercise of taxing power derives its source from the
it is in fact the result of the consolidation of 2distinct bills, H. No. 11197 and very existence of the state whose social contract with its citizens
S. No. 1630. There is also a contention that S. No. 1630 did not pass obliges it to promote public interest and common good. The theory
3 readings as required by the Constitution. behind the exercise of the power to tax emanates from necessity;
Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the without taxes, government cannot fulfill its mandate of promoting the
Constitution general welfare and well-being of the people. (NAPOCOR v. City of
Held: The argument that RA 7716 did not originate exclusively in the House Cabanatuan, G.R. No. 149110, April 9, 2003).
of Representatives as required by Art. VI, Sec. 24 of the Constitution will not
bear analysis. To begin with, it is not the law but the revenue bill which is
required by the Constitution to originate exclusively in the House of
Nature of the Power of Taxation (#1, 2000 Bar Exams) SUGGESTED ANSWER:
Justice Holmes once said: “The power to tax is not the power to Yes, the legislative body may enact laws even in the absence
destroy while this Court (the SC) sits.” Describe the power to tax and its of a constitutional provision because the power to tax is inherent in the
limitations. government and not merely a constitutional grant. The power of taxation is
SUGGESTED ANSWER: an essential and inherent attribute of sovereignty belonging as a matter
of right to every independent government without being expressly granted
The power to tax is an inherent power of the sovereignty which is
by the people. (Pepsi-Cola Bottling Company of the Philippines, Inc. v.
exercised through the legislature to impose burdens upon subjects and
Municipality of Tanauan, Leyte, G.R. No. L-31156)
objects within its jurisdiction for the purpose of raising revenues to
Taxation is the inherent power of a State to collect enforced proportional
carry out the legitimate objects of gov’t. The underlying basis for its
contribution to support the expenses of government. Taxation is the
exercise is governmental necessity for without it, no gov’t can exist nor power vested in the legislature to impose burdens or charges upon
endure. Accordingly, it has the broadest scope of all the powers of persons and property in order to raise revenue for public purposes.
government because in the absence of limitations, it is considered an The power to tax is so unlimited in force and so searching in extent that
unlimited, plenary, comprehensive and supreme. The two limitations courts scarcely venture to declare it is subject to any restrictions whatever,
on the power of taxation are the inherent and constitutional except such as rest in the discretion of the authority which exercises it. (Tio
limitations which are intended to prevent abuse on the exercise of the v. Videogram Regulatory Board, G.R. No. L-75697, June 18, 1987) So
otherwise plenary and unlimited power. It is the Court’s role to see to it potent is the power to tax that it was once opined that "the power to tax
that the exercise of the power does not transgress these limitations. involves the power to destroy."(C.J. Marshall in McCulloch v. Maryland)
Power of Taxation: Legislative in Nature (Bar 1994) Revocation of Exempting Statutes (Bar 1997)
The Secretary of Finance, upon recommendation of the "X" Corporation was the recipient in 1990 of two tax exemptions both from
Commissioner of Internal Revenue, issued a Revenue Regulation Congress, one law exempting the company's bond issues from taxes and
using gross income as the tax base for corporations doing business the other exempting the company from taxes in the operation of its
in the Philippines. Is the Rev.Reg.valid? public utilities. The two laws extending the tax exemptions were revoked
SUGGESTED ANSWER: by Congress before their expiry dates. Were the revocations constitutional?
The regulation establishing gross income as the tax base for
SUGGESTED ANSWER:
corporations doing business in the Philippines (domestic as well as Yes. The exempting statutes are both granted unilaterally by
resident foreign) is not valid. This is no longer implementation of the Congress in the exercise of taxing powers. Since taxation is the rule and
law but actually it constitutes legislation because among the powers tax exemption, the exception, any tax exemption unilaterally granted can be
that are exclusively within the legislative authority to tax is the power withdrawn at the pleasure of the taxing authority without violating the
to determine -the amount of the tax. (See 1 Cooley 176-184). Constitution (Mactan Cebu International Airport Authority v, Marcos,
Certainly, if the tax is limited to gross income without deductions of G.R No. 120082, September 11, 1996).
these corporations, this is changing the amount of the tax as said Neither of these were issued by the taxing authority in a contract lawfully
amount ultimately depends on the taxable base. entered by it so that their revocation would not constitute an
impairment of the obligations of contracts.
Power of Taxation; Inherent in a Sovereign State (2005)Describe ALTERNATIVE ANSWER:
the power of taxation. May a legislative body enact laws to raise No. The withdrawal of the tax exemption amounts to a
revenues in the absence of a constitutional provision granting said body deprivation of property without due process of law, hence
the power to tax? Explain. unconstitutional.