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USJ-R LAW

TAXATION I
Syllabus

I. General Principles of Taxation

A. Definition and concept of taxation


-The inherent power of the sovereign, exercised through the legislature to impose burdens
upon subjects and objects within its jurisdiction for the purpose of raising revenues to
carry out the legitimate objects of government.
-It is the power vested in the legislature to impose burdens or charges upon persons and
property for the purpose of raising revenue for public purposes. (Malcolm)
B. Nature of taxation (Its nature is two-fold. It is inherent and legislative)
 Inherent attribute of Sovereignty
-Pepsi-Cola Bottling company of the Philippines, Inc. Vs. Municipality of
Tanauan, Leyte, 69 SCRA 460
-National Power corporation v. City of Cabanatuan, G.R. No. 149110, April 9,
2003
-Mactan Cebu International Airport Authority v. Marcos, et al., 261 SCRA 667

 Inherently legislative
-Commissioner of Internal Revenue v. Fortune Tobacco corporation, 559 SCRA
160 (2008)
Lutz v. Araneta, 98 Phil. 148
Gomez v. Palomar, 25 SCRA 827
Punsalan v. Mun. Board of the City of Manila, 95 Phil. 46
 The power to tax includes the power to destroy (Chief Justice Marshall in
McCulloch vs. Maryland, 4 Wheat, 316 4L ed. 579, 607)
 “The power to tax is not the power to destroy while this court sits” (Justice
Holmes in Panhandle Oil Co. vs. Mississippi, 277 US 218)
-Sison, Jr. vs. Ancheta, et al., GR No. L-59431, July 25, 1984
-Mactan Cebu International Airport Authority vs. Marcos, etc., et al., G.R. No.
120082, Sept. 11, 1996
-Luzon Stevedoring Corp. vs. CTA, et al., L-30232, July 29, 1988
-National Power Corporation vs. Albay, 186 SCRA 198
-Chamber of Real Estate and Builders’ Association, Inc. v. Romulo, 614 SCRA
605 (2010)
-Tan v. Del Rosario Jr.; Carag, et al. v. Del Rosario Jr. 237 SCRA 324

 The Power to Tax involves the power to destroy so it must be exercised with
caution. In order to maintain the general public’s trust and confidence in the
government, this power must be used justly and not treacherously.
-Commissioner of Internal Revenue v. SM Prime Holdings, Inc. 613 SCRA
774 (2010)
-Commissioner of Internal Revenue v. Tokyo Shipping C., Ltd, et.al., 244
SCRA 332
 NOTE: While the courts may invalidate tax measures that run counter to the
Constitution, it bears emphasis that deeply ingrained in our jurisprudence is the time-
honored principle that a statute is presumed to be valid.’
-Coconut Oil Refiners Association, Inc., etc., et al., v. Torres, etc., et al., G.R.
No. 132527, July 29, 2005
-Basco v. Phil. Amusements and Gaming Corporation, G.R. No. 91649, May 14,
1991, 197 SCRA 52

C. Characteristics of taxation

D. Power of taxation compared with other powers


1. Police power
-Metropolitan Manila Development Authority v. Garin, G.R. No. 130,230, April
15, 2005
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2. Power of eminent domain

E. Purpose of taxation
1. Revenue-raising
2. Non-revenue/special or regulatory
 Caltex Philippines, Inc. vs. Commission on Audit, et al., G.R. No. 92585, May 8,
1992
 Lutz vs. Araneta (98 Phil. 148)
 Osmena vs. Orbos, etc., et al. G.R. No. 99886, Mar. 31, 1993

F. Principles of sound tax system


1. Fiscal adequacy
2. Administrative feasibility
3. Theoretical justice

G. Theory and basis of taxation


1. Lifeblood theory
CIR v. BPI, 521 SCRA 373, 387-388
CIR v. Pineda, 21 SCRA 105
Vera v. Fernandez, 89 SCRA 199
CIR v. CTA, 234 SCRA 348
Commissioner v. Algue, Inc., 158 SCRA 9
YMCA v. CIR, 298 SCRA 83
Davao Gulf Lumber Corp. v. CIR, 293 SCRA 77
Marcos II v. CA, 273 SCRA 322
Reyes v. almanzor, 196 SCRA 322
PB Com v. CIR, 302 SCRA 250
Phil Guaranty, co., Inc. v. CIR, 13 SCRA 775
Philex Mining Corp. vs. CIR, 294 SCRA 687
North Camarines Lumber Co. v. CIR, 109 Phil. 511
2. Necessity theory
3. Benefits-protection theory (Symbiotic relationship)
CIR vs. Algue, No. L-28896 Feb. 17, 1988
Lorenzo vs. Posadas, etc., 64 Phil. 353
4. Jurisdiction over subject and objects

H. Doctrines in taxation
1. Prospectivity of tax laws
-Commissioner of Internal Revenue v. Acosta, 529 SCRA 177 (2007)
2. Imprescriptibility
3. Double taxation
a) Strict sense
b) Broad sense
c) Constitutionality of double taxation
d) Modes of eliminating double taxation
4. Escape from taxation
a) Shifting of tax burden
(i) Ways of shifting the tax burden
(ii) Taxes that can be shifted
(iii) Meaning of impact and incidence of taxation
b) Tax avoidance
c) Tax evasion
5. Exemption from taxation
a) Meaning of exemption from taxation
b) Nature of tax exemption
c) Kinds of tax exemption
(i) Express
(ii) Implied
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(iii) Contractual
d) Rationale/grounds for exemption
e) Revocation of tax exemption
 MERALCO vs. Province of Laguna, GR No. 131359, May 5, 1999
 MERALCO Vs. Vera, GR No. L-23847, Oct. 22, 1975
6. Compensation and set-off
 Domingo vs. Garlitos G.R. No. L-18994, June 29, 1963
 Republic vs. Mambulao, G.R. No. L-17725, Feb 28, 1962
 Francia vs. IAC, L-67649, June 28, 1988
 CIR vs. Itogon-Suyoc Mines, Inc., 28 SCRA 867
 Solinap vs. Judge del Rosario, G.R. 50638, July 23, 1983
 Sycip vs. CA, L-38711, January 31, 1985
 Caltex Philippines vs. COA, G.R. No. 9285, May 8, 1992
 Cordero vs. gonad, 18 SCRA 331 (1966)
7. Compromise
8. Tax amnesty
a) Definition
b) Distinguished from tax exemption
 LG ELECTRONICS PHILIPPINES, INC. vs. COMMISSIONER OF INTERNAL REVENUE [G.R.
No. 165451. December 3, 2014.]

9. Construction and interpretation of:


a) Tax laws
(i) General rule
(ii) Exception
b) Tax exemption and exclusion
(i) General rule
(ii) Exception
 PLDT vs. City of Davao & Barcelona, GR No. 143867, March 25, 2003
 Greenfield vs. Meer, 77 Phil. 394, 1946
 Asiatic Petroleum Co. vs Llanes, 49 Phil. 466, 471-472, 1926
 City of Baguio vs. Busuego, L-29772, Sept. 18, 1980
 Commissioner of Customs vs. Phil., Acetylene Co., L-22443, May 29,
1971
 Light and Power Co. vs. Commissioner of Customs, L-28739 & L-28902,
May 29, 1972
c) Tax rules and regulations
(i) General rule only
d) Penal provisions of tax laws
e) Non-retroactive application to taxpayers
(i) Exceptions

I. Scope and limitation of taxation


1. Inherent limitations
a) Public purpose
 COCOFED ET AL VS. REPUBLIC OF THE PHILIPPINES (Nov. 27, 2012)

b) Inherently legislative
(i) General rule – “Non-delegation of taxing power”
(ii) Exceptions
(a) Delegation to local governments
Cu Unjieng vs. Patstone, 42 Phil. 818
Pepsi-Cola Bottling Company of the Philippines vs. Municipality of
Tanauan, 69 SCRA 460
LUCENA D. DEMAALA vs. COMMISSION ON AUDIT, represented by its
Chairperson Commissioner MA. GRACIA M. PULIDO TAN (G.R.
No. 199752. February 17, 2015)

(b) Delegation to the President


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(c) Delegation to administrative agencies
Cervantes vs. Auditor General, 91 Phil. 359
Maceda vs. Macaraig, 197 SCRA 77

c) Territorial
(i) Situs of taxation
(a) Meaning
(b) Situs of income tax
(1) From sources within the Philippines

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(2) From sources without the Philippines
(3) Income partly within and partly without the
Philippines
(c) Situs of property taxes
(1) Taxes on real property
(2) Taxes on personal property
(d) Situs of excise tax
(1) Estate tax
(2) Donor’s tax
(e) Situs of business tax
(1) Sale of real property
(2) Sale of personal property
(3) Value-Added Tax (VAT)
 Wells Fargo Bank & Union Trust Co. vs.
Collector, 70 Phil. 325
 Meralco vs. Yatco, 69 Phil 89
 CIR vs. Marubeni Corp. GR No. 137377 Dec. 18,
2001
d) International comity
 Pepsi-Cola vs. Municipality of Tanauan, 69SCRA 460
 Doctrine of Sovereign Equality
e) Exemption of government entities, agencies, and instrumentalities
 Maceda vs. Macaraig GR No. 88291 June 8, 1993
 Basco vs. PAGCOR GR No. 91649 May 14, 1991
 MCIAA vs. Marcos GR No. 120082 Sept 11, 1996
 Infantry Post Exchange vs. Posadas GR No. 33403 Sept. 4, 1930
 Board of Assessment Appeals of Laguna vs CTA, GR No. L-18125,
May 31, 1963
 PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs.
THE BUREAU OF INTERNAL REVENUE, represented by JOSE MARIO
BUÑAG, in his capacity as Commissioner of the Bureau of Internal
Revenue, and JOHN DOE and JANE DOE, who are persons acting for, in
behalf or under the authority of respondent (G.R. No. 215427.
December 10, 2014)
 CITY OF LAPU-LAPU vs. PHILIPPINE ECONOMIC ZONE AUTHORITY
[G.R. No. 187583. November 26, 2014.]

PROVINCE OF BATAAN, represented by GOVERNOR ENRIQUE T.


GARCIA, JR., and EMERLINDA S. TALENTO, in her capacity as
Provincial Treasurer of Bataan vs. PHILIPPINE ECONOMIC ZONE
AUTHORITY

2. Constitutional limitations
a) Provisions directly affecting taxation
(i) Prohibition against imprisonment for non-payment of poll tax

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(ii) Uniformity and equality of taxation
 City of Bagiuo vs. De Leon GR No. 24756, Oct. 31, 1968
 De Villata vs. Standley GR No. 8154 December 20, 1915
 Tolentino vs. Secretary of Finance, GR No. 115455,
August 25, 1994
(iii) Grant by Congress of authority to the president to impose tariff
rates
(iv) Prohibition against taxation of religious, charitable entities, and
educational entities
 Lung Center of the Philippines vs. Quezon City, GR
No. 144104, June 29, 2004
 Abra Valley College vs. Aquino, GR No. L-39086
June 15, 1988
(v) Prohibition against taxation of non-stock, non-profit institutions
 CIR VS. ST. LUKE’S MEDICAL CENTER, INC. (Sept. 26,
2012)

(vi) Majority vote of Congress for grant of tax exemption


(vii) Prohibition on use of tax levied for special purpose
(viii) President’s veto power on appropriation, revenue, tariff bills
(ix) Non-impairment of jurisdiction of the Supreme Court
(x) Grant of power to the local government units to create its own
sources of revenue
(xi) Flexible tariff clause
(xii) Exemption from real property taxes
(xiii) No appropriation or use of public money for religious purposes
b) Provisions indirectly affecting taxation
(i) Due process
(ii) Equal protection
Exceptions
 Villegas vs. Hiu Chiong Tsai Pao Ho, GR No. L-
29646, Nov. 10, 1978
(iii) Religious freedom
 American Bible Society vs. City of Manila No. L-
9637 April 30, 1957
(iv) Non-impairment of obligations of contracts
 Cassanova vs. Hord GR No. 3473, March 22, 1907
(v) Freedom of the press
 Tolentino vs. Secretary of Finance, GR No. 115455,
Oct. 30, 1995
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J. Stages of taxation

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1. Levy
2. Assessment and collection
3. Payment

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4. Refund

K. Definition, nature, and characteristics of taxes

L. Requisites of a valid tax

M. Tax as distinguished from other forms of exactions


1. Tariff
2. Toll
3. License fee
4. Special assessment
5. Debt

Francia v. IAC, 162 SCRA 753


Domingo v. Garlitos, 8 SCRA 443
Philex Mining Corp. v. CIR, 294 SCRA 687

N. Kinds of taxes
1. As to object
a) Personal, capitation, or poll tax
b) Property tax
c) Privilege tax
2. As to burden or incidence
a) Direct
b) Indirect
3. As to tax rates
a) Specific
b) Ad valorem
c) Mixed
4. As to purposes
a) General or fiscal
b) Special, regulatory, or sumptuary
5. As to scope or authority to impose
a) National – internal revenue taxes
b) Local – real property tax, municipal tax
6. As to graduation
a) Progressive
b) Regressive
c) Proportionate

Questions:
1. Define taxation.
2. Discuss comprehensively but briefly the basic purposes of taxation.
3. Define taxes.

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4. Give the essential elements of a tax.
5. What is the theory and basis of taxation.
6. May a person legally refuse to pay a tax on the ground that he will derive no
personal benefit from the tax?
7. State the nature or characteristics of the State’s power to tax.
8. Give the processes that are included in the term taxation.
9. In the exercise of the power to tax, what matters are within the competence of the
legislature to determine?
10. Do taxpayers have sufficient interest to question or prevent illegal expenditures of
public funds?
11. What are the basic principles of a sound tax system? Explain each briefly.
12. Classify taxes as to subject matter or object.
13. Classify taxes as to who bears the burden.
14. Classify taxes as to determination of amount.
15. Classify taxes as to purpose.
16. Classify taxes as to authority or jurisdiction to impose.
17. Classify taxes as to graduation or rate.
18. Distinguish tax from toll.
19. Distinguish tax from penalty.
20. Distinguish tax from special assessment or special levy.
21. Distinguish tax from permit or license fee.
22. Distinguish tax from debt.
23. Distinguish tax from subsidy.
24. Distinguish tax from revenue.
25. .distinguish tax from customs duties.
26. Distinguish tax from tariff.
27. Name the sources of our law on taxation.
28. Give the three (30 basic tax laws of the Philippines.
29. State the force and effect of revenue regulations.
30. Are our internal revenue laws political in nature?
31. Are our internal revenue laws penal in nature?
32. May tax laws be made retroactive?
33. May taxes already assessed under the law before its repeal, be collected after such
repeal?
34. Give the similarities among the power of eminent domain, police power and power
of taxation.
35. Give the distinctions among the three (3) inherent powers.
36. Define tax evasion.
37. Define tax avoidance.
38. Is tax avoidance punishable by law?
39. Give the distinction between tax avoidance and tax evasion.
40. What is meant by “situs of taxation?”
41. What factors determine the situs of taxation?
42. Discuss briefly the application of situs of taxation.

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43. Define double taxation.
44. Give examples of double taxation in its broad sense.
45. Does our Constitution prohibit double taxation?
46. In general, how are the limitations or restrictions on the power of taxation
classified?
47. Enumerate the inherent limitations to the power to tax.
48. Enumerate the Constitutional limitations to the power to tax.
49. Discuss briefly the limitation that due process of law must be observed in the
imposition and/or collection of taxes.
50. Discuss briefly the limitation that equal protection of the laws must be observed in
the imposition and/or collection of taxes.
51. An ordinance imposes a property tax on motor vehicles using the streets of Manila.
The tax is payable only by the owners residing in Manila. Does it violate the
Constitutional rule of equality of taxation? (Association of Customs Brokers vs. Mun.
Board of Manila, 95 Phil. 107.)
52. A municipal council passed an ordinance imposing an occupation tax on the
profession or occupation of “installation manager.” X is the only salaried person
with such occupation in the municipality. Can he successfully challenge the validity
of the ordinance as being discriminatory since he is the only one adversely affected?
(The Shell Co. vs. Vano, 94 Phil. 382)
53. Discuss briefly the requirement of uniformity and equality in taxation as a limitation
in the imposition and/or collection of taxes.
54. The rule of uniformity permits the classification of the subjects to be taxed and the
imposition of the same rate of tax on the subjects belonging to the same class. Give
the requisites for a valid classification.
55. Does the legislature have the power to grant exemptions from payment of taxes
without violating the guarantee of equal protection of the laws or the rule of
uniformity and equity in taxation? (Lutz vs. Araneta, 98 Phil. 148; Cooley 343.)
56. Explain briefly the limitation against imprisonment for non-payment of poll tax.
57. Explain briefly the limitation against impairment of the obligation of contracts.
58. Explain briefly the limitation against infringement of religious freedom.
59. For what purpose shall public money be used?
60. What properties are constitutionally exempt from taxation?
61. State the cases when tax exemption is granted to educational institutions.
62. Explain briefly the limitation on the exercise of the power of Congress to grant tax
exemption.
63. May tax exemption be revoked?
64. How are tax exemptions construed?
65. May tax exemptions be created by implication?

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