TAX REVIEWER

GENERAL PRINCIPLES (ONLY):

BY: Rene Callanta

DEFINITION OF TAXATION
Taxation is the inherent power of the sovereign, exercised through the legislature, to
impose burdens upon the subjects and objects within its jurisdiction, for the purpose of raising
revenues to carry out the legitimate objects of the government.

TAXES
Enforced proportional contributions from properties and persons levied by the State by
virtue its sovereignty for the support of the government and for public needs.

BASIS OF TAXATION
> GOVERNMENTAL NECESSITY
* The existence of the government depends upon its capacity to perform its two (2)
basic functions:
A.. to serve the people
B.. to protect the people

THEORY OF TAXATION
>RECIPROCAL DUTIES OF SUPPORT AND PROTECTION
1) Support on the part of the taxpayers
2) Protection and benefits on the part of the government

BENEFITS RECEIVED PRINCIPLE

(CIR vs. ALGUE)
 Despite the natural reluctance to surrender part of ones hard earned income to the
taxing authority, every person who is able to must contribute his share in the running of
the government.
 The government is expected to respond in the form of tangible or intangible benefits
intended to improve the lives of the people and enhanced their material and moral
values.
 In return for his contribution, the taxpayer receives the general advantages and
protection which the government affords the taxpayer and his property. One is
compensation or consideration for the other. Protection for support and support for
protection.
However, it does not mean that only those who are able to
pay taxes can enjoy the privileges and protection
given to a citizen by the government.

LORENZO vs. POSADAS

 > The only benefit to which the taxpayer is entitled is that derived form the enjoyment of
the privileges of living in an organized society established and safeguarded by the
devotion of taxes to public purpose. The government promises nothing to the person
taxed beyond what maybe anticipated from an administration of the laws for the general
good.
 > Taxes are essential to the existence of the government. The
obligation to pay taxes rests not upon the privileges enjoyed by or the protection
afforded to the citizen by the government, but upon the necessity of money for the
support of the State. For this reason, no one is allowed to object to or resist payment of
taxes solely because no personal benefit to him can be pointed out as arising from the
tax.

ESSENTIAL ELEMENTS OF A TAX

1) It is an enforced contribution
2) It is generally payable in money
3) It is proportionate in character
4) It is levied on persons, property, or the exercise of a right or privilege
5) It is levied by the State which has jurisdiction over the subject or object of taxation
6) It is levied by the law-making body of the State
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7) It is levied for publics purpose or purposes

REQUISITES of a VALID TAX code: [P, U, J, A, N]

1) It should be for a public purpose
2) The rule of taxation should be uniform
3) That either the person or property taxed be within the jurisdiction of the taxing authority
4) That the assessment and collection be in consonance with the due process clause
5) The tax must not infringe on the inherent and constitutional limitations of the power of
taxation

*> Taxes are the lifeblood of the government and should be collected without unnecessary
hindrance. But their collection should not be tainted with arbitrariness

NATURE OF TAXATION
1) Inherent in sovereignty
2) Legislative in character

SCOPE OF TAXATION
1) Comprehensive
2) Unlimited
3) Plenary
4) Supreme

TOLENTINO vs. SEC. Of FINANCEcompensation

 > In the selection of the object or subject of taxation the courts have no power to
inquire into the wisdom, objectivity, motive, expediency or necessity of such tax law.
(WOMEN)

PURPOSES OF TAXATION

PRIMARY
- To raise revenue in order to support the government

SECONDARY
1) Used to reduce social inequality
2) Utilized to implement the police power of the State
3) Used to protect our local industries against unfair competition
4) Utilized by the government to encourage the growth of local industries

PAL vs. EDU

 > It is possible for an exaction to be both a tax and a regulation. License fees and
charges, looked to as a source of revenue as well as a means regulation. The fees may
properly regarded as taxes even though they also serve as an instrument of regulation. If
the purpose is primarily revenue, or if revenue is at least one of the real and substantial
purposes, then the exaction is properly called a tax.

CALTEX vs.. CIR

 > Taxation is no longer a measure merely to raise revenue to support the existence of
the government. Taxes may be levied with a regulatory purpose to provide means for
rehabilitation and stabilization of a threatened industry which is affected with public
interest as to be within the police power of the State.

LIFEBLOOD DOCTRINE
 > Taxes are the lifeblood of the nation

 > Without revenue raised from taxation, the government will not survive, resulting in
detriment to society. Without taxes, the government would be paralyzed for lack of
motive power to activate and operate it. (CIR vs. ALGUE)
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 > Taxes are the lifeblood of the government and there prompt and certain availability is
an imperious need.

 > Taxes are the lifeblood of the nation through which the agencies of the government
continue to operate and with which the state effects its functions for the benefit of its
constituents

ILLUSTRATIONS OF THE LIFEBLOOD THEORY

1) Collection of the taxes may not be enjoined by injunction
2) Taxes could not be the subject of compensation or set off
3) A valid tax may result in destruction of the taxpayer’s property
4) Taxation is an unlimited and plenary power

POWER TO TAX AND POWER TO DESTROY

* > The power to tax includes the power to destroy if it is used as an implement of the police
power (regulatory) of the State. However, it does not include the power to destroy if it is used
solely for the purpose of raising revenue. (ROXAS vs. CTA)

NOTES:
 > If the purpose of taxation is regulatory in character, taxation is used to implement the
police power of the state

 > If the power of taxation is used to destroy things, businesses, or enterprises and the
purpose is to raise revenue, the court will come in because there will be violation of the
inherent and constitutional limitations and it will be declared invalid.

NATURE OF THE TAXING POWER

1) Attribute of sovereignty and emanates from necessity, relinquishment of which is never
presumed
2) Legislative in character, and
3) Subject to inherent and constitutional limitations

NECESSITY THEORY
 > Existence of a government is a necessity and cannot continue without any means to
pay for expenses

BENEFITS – PROTECTION THEORY

 > Reciprocal duties of protection and support between State and inhabitants. Inhabitants
pay taxes and in return receive benefits and protection from the State

SCOPE OF LEGISLATIVE TAXING POWER

1) The persons, property and excises to be taxed, provided it is within its jurisdiction
2) Amount or rate of tax
3) Purposes for its levy, provided it be for a public purpose
4) Kind of tax to be collected
5) Apportionment of the tax
6) Situs of taxation
7) Method of collection

ASPECTS OF TAXATION
1) LEVY or IMPOSITION
 enactment of tax laws
 legislative in character
2) ASSESSMENT
 collection
 administrative in character

NOTES:
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 > It is inherent in the power to tax that the State is free to select the object of taxation

 > The power of the legislature to impose tax includes the power
1) what to taxcompensation
2) whom to taxcompensation
3) how much to tax

BAGATSING vs. RAMIREZ

 > What cannot be delegated is the legislative enactment of a tax measure but as regards
to the administrative implementation of a tax law that can be delegated.

> The collection may be entrusted to a private corporation.

 > The rule that the power of taxation cannot be delegated does not apply to the
administrative implementation of a tax law

> There is no violation because what is delegated or entrusted is the collection and not
the enactment of such laws

 > The issuance of regulations or circulars by the BIR or the Secretary of Finance should
not go beyond the scope of the tax measure

BASIC PRINCIPLES OF A SOUND TAX SYSTEM

1) THEORETICAL JUSTICE
2) FISCAL ADEQUACY
3) ADMINISTRATIVE FEASIBILITY

NOTES:
FISCAL ADEQUACY
- VIOLATION – VALID
 > Sources of revenue should be sufficient to meet the demands of public expenditure

> Revenues should be elastic or capable of expanding or contracting annually in

response to variations in public expenditure

>Elasticity may be obtained without creating annually any new taxes or any new tax
machinery but merely by changes in the rates applicable to existing taxes

 > Even if a tax law violates the principle of Fiscal Adequacy , in other words, the
proceeds may not be sufficient to satisfy the needs of the government, still the tax law is
valid

ADMINISTRATIVE FEASIBILITY
- VIOLATION – VALID
 > The tax law must be capable of effective or efficient enforcement
> Tax laws should be capable of convenient, just and effective administration

 > Tax laws should close-up the loopholes for tax evasion and deter unscrupulous officials
from committing fraud
 > There is no law that requires compliance with this principle, so even if the tax law
violates this principle; such tax law is valid.

THEORETICAL JUSTICE
- VIOLATION – INVALID
 > This principle mandates that taxes must be just, reasonable and fair
 Taxation shall be uniform and equitable

 > Equitable taxation has been mandated by our constitution, as if taxes are unjust and
unreasonable then they are not equitable, thus invalid.

 > The tax burden should be in proportion to the taxpayers ability to pay ( ABILITY TO
PAY PRINCIPLE)
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DISTINCTIONS:

TAXATION vs. POLICE POWER vs. EMINENT DOMAIN

1) As to purpose:
Taxation – for the support of the government
Eminent Domain_- for public use
Police Power – to promote general welfare, public health, public morals, and public
safety.

2) As to compensation:
Taxation – Protection and benefits received from the government.
Eminent Domain – just compensation, not to exceed the market value declared by the
owner or administrator or anyone having legal interest in the property, or as determined
by the assessor, whichever is lower.
Police Power – The maintenance of a healthy economic standard of society.

3) As to persons affected:
Taxation and Police Power – operate upon a community or a class of individuals
Eminent Domain – operates on the individual property owner.

4) As to authority which exercises the power:

Taxation and Police Power – Exercised only by the government or its political
subdivisions.
Eminent Domain – may be exercised by public services corporation or public utilities if
granted by law.

5) As to amount of imposition:
Taxation – Generally no limit to the amount of tax that may be imposed.
Police Power – Limited to the cost of regulation
Eminent Domain – There is no imposition; rather, it is the owner of the property taken
who is just paid compensation.

6) As to the relationship to the Constitution :

Taxation and Eminent Domain – Subject to certain constitutional limitations, including the
prohibition against impairment of the obligation of contracts.
Police Power – Relatively free from constitutional limitations and superior to the non-
impairment provisions thereof.

TAX DISTINGUISHED FROM LICENSE FEE:

a) PURPOSE: Tax imposed for revenue WHILE license fee for regulation. Tax for general
purposes WHILE license fee for regulatory purposes only.

b) BASIS: Tax imposed under power of taxation WHILE license fee under police power.

c) AMOUNT: In taxation, no limit as to amount WHILE license fee limited to cost of the
license and expenses of police surveillance and regulation.

d) TIME OF PAYMENT: Taxes normally paid after commencement of business WHILE

license fee before.

e) EFFECT OF PAYMENT: Failure to pay a tax does not make the business illegal WHILE
failure to pay license fee makes business illegal.
f) SURRENDER: Taxes, being lifeblood of the state, cannot be surrendered except for
lawful consideration WHILE a license fee may be surrendered with or without
consideration.

IMPORTANCE OF DISTINCTION BETWEEN TAXES AND LICENSE FEES.

It is necessary to determine whether a particular imposition is a tax or a license fee,
because some limitations apply only to one and not to the other.
Furthermore, exemption from taxes does not include exemption from license fees
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TAXES DISTINGUISHED FROM OTHER IMPOSITIONS:

1) toll – amount charged for the cost and maintenance of property used;

2) compromise penalty – amount collected in lieu of criminal prosecution in cases of tax

violations;

3) special assessment – levied only on land based wholly on the benefit accruing thereon
as a result of improvements of public works undertaken by government within the
vicinity.

4) license fee – regulatory imposition in the exercise of the police power of the State;

5) margin fee – exaction designed to stabilize the currency

6) custom duties and fees – duties charged upon commodities on their being imported
into or exported from a country;

7) debt – a tax is not a debt but is an obligation imposed by law.

Special assessment v. tax

1. A special assessment tax is an enforced proportional contribution from owners of

lands especially benefited by public improvements
2. A special assessment is levied only on land.
3. A special assessment is not a personal liability of the person assessed; it is limited to
the land.
4. A special assessment is based wholly on benefits, not necessity.
5. A special assessment is exceptional both as to time and place; a tax has general
application.

Republic v. Bacolod, 17 SCRA 632

 A special assessment is a levy on property which derives some special benefit from the
improvement. Its purpose is to finance such improvement. It is not a tax measure
intended to raise revenues for the government. The proceeds thereof may be devoted to
the specific purpose for which the assessment was authorized, thus accruing only to the
owners thereof who, after all, pay the assessment.

Some Rules:

 An exemption from taxation does not include exemption from a special treatment.

 The power to tax carries with it a power to levy a special assessment.

Toll v. tax

1. Toll is a sum of money for the use of something. It is the consideration which is paid for
the use of a road, bridge, or the like, of a public nature. Taxes, on the other hand, are
enforced 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.

2. Toll is a demand of proprietorship; tax is a demand of sovereignty.

3. Toll is paid for the used of another’s property; tax is paid for the support of government.

4. The amount paid as toll depends upon the cost of construction or maintenance of the
public improvements used; while there is no limit on the amount collected as tax as long
as it is not excessive, unreasonable, or confiscatory.
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5. Toll may be imposed by the government or by private individuals or entities; tax may be
imposed only by the government.

Tax v. penalty

1. Penalty is any sanction imposed as a punishment for violation of law or for acts
deemed injurious; taxes are enforced 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.

2. Penalty is designed to regulate conduct; taxes are generally intended to generate

revenue.

3. Penalty may be imposed by the government or by private individuals or entities ;

taxes only by the government.

Obligation to pay debt v. obligation to pay tax

1. A debt is generally based on contract, express or implied, while a tax is based on laws.

2. A debt is assignable, while a tax cannot generally be assigned.

3. A debt may be paid in kind, while a tax is generally paid in money.

4. A debt may be the subject of set off or compensation, a tax cannot.

5. A person cannot be imprisoned for non-payment of tax, except poll tax.

6. A debt is governed by the ordinary periods of prescription, while a tax is governed by

the special prescriptive periods provided for in the NIRC.

7. A debt draws interest when it is so stipulated or where there is default, while a tax does
not draw interest except only when delinquent.

Requisites of compensation

1. That each one of the obligor be bound principally, and that he be at the same time a
principal creditor of the other.

2. That both debts consist in a sum of money, or if the things due are consumable, they be
of the same kind and also of the same quality if the latter has been stated.

3. That the two (2) debts be due.

4. That they be liquidated and demandable.

5. That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtors.

Rules re: set off or compensation of debts

 General rule: A tax delinquency cannot be extinguished by legal compensation. This is

so because the government and the tax delinquent are not mutually creditors and
debtors. Neither is a tax obligation an ordinary act. Moreover, the collection of a tax
cannot await the results of a lawsuit against the government. Finally, taxes are not in the
nature of contracts but grow out of the duty to, and are the positive acts of the
government to the making and enforcing of which the personal consent of the taxpayer
is not required. (Francia v. IAC, 162 SCRA 754 and Republic v. Mambulao Lumber, 4
SCRA 622)
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 Exception: SC allowed set off in the case of Domingo v. Garlitos [8 SCRA 443 ] re: claim
for payment of unpaid services of a government employee vis-à-vis the estate taxes due
from his estate. The fact that the court having jurisdiction of the estate had found that
the claim of the estate against the government has been appropriated for the purpose by
a corresponding law shows that both the claim of the government for inheritance taxes
and the claim of the intestate for services rendered have already become overdue and
demandable as well as fully liquidated. Compensation therefore takes place by operation
of law.

Philex Mining Corporation v. Commissioner, 294 SCRA 687 (1998)

Philex Mining Corporation was to set off its claims for VAT input credit/refund for the
excise taxes due from it. The Supreme Court disallowed such set off or compensation.

Survey of Philippine Taxes

A. Internal Revenue taxes imposed under the NIRC.

1. Income tax
2. Transfer taxes
a) Estate tax
b) Donor’s tax
3. Percentage taxes
a) Value Added Tax
b) Other Percentage Taxes
4. Excise taxes
5. Documentary stamp tax

B. Local/ Municipal Taxes

C. Tariff and Customs Duties

D. Taxes / Tax Incentives under special laws

CLASSIFICATION OF TAXES

AS TO SUBJECT MATTER OR OBJECT

1. Personal, poll or capitation tax

Tax of a fixed amount imposed on persons residing within a specified territory, whether
citizens or not, without regard to their property or the occupation or business in which they may
be engaged, i.e. community tax.

2. Property tax

Tax imposed on property, real or personal, in proportion to its value or in accordance with
some other reasonable method of apportionment.

3. Excise tax

A charge impose upon the performance of an act, the enjoyment of privilege, or the
engaging in an occupation.

AS TO PURPOSE

General/fiscal revenue tax is that imposed for the purpose of raising public funds for the
service of the government.
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A special or regulatory tax is imposed primarily for the regulation of useful or non-useful
occupation or enterprises and secondarily only for the purpose of raising public funds.

AS TO WHO BEARS THE BURDEN

1. Direct tax

A direct tax is demanded from the person who also shoul,ders the burden of the tax. It is a
tax which the taxpayer is directly or primarily liable and which he or she cannot shift to another.

2. Indirect tax

An indirect tax is demanded from a person in the expectation and intention that he or she
shall indemnify himself or herself at the expense of another, falling finally upon the ultimate
purchaser or consumer. A tax which the taxpayer can shift to another.

AS TO THE SCOPE OF THE TAX

1. National tax

A national tax is imposed by the national government.

2. Local tax

A local tax is imposed by the municipal corporations or local government units (LGUs).

AS TO THE DETERMINATION OF AMOUNT

1. Specific tax

A specific tax is a tax of a fixed amount imposed by the head or number or by some other
standard of weight or measurement. It requires no assessment other than the listing or
classification of the objects to be taxed.

2. Ad valorem tax

An ad valorem tax is a fixed proportion of the value of the property with respect to which the
tax is assessed. It requires the intervention of assessors or appraisers to estimate the value of
such property before due from each taxpayer can be determined.

AS TO GRADUATION OR RATE

1. Proportional tax

Tax based on a fixed percentage of the amount of the property receipts or other basis to be
taxed. Example: real estate tax.

2. Progressive or graduated tax

Tax the rate of which increases as the tax base or bracket increases.

Digressive tax rate: progressive rate stops at a certain point. Progression halts at a particular
stage.

3. Regressive tax

Tax the rate of which decreases as the tax base or bracket increases. There is no such tax in
the Philippines.
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TAX SYSTEMS

Constitutional mandate

 The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation. [Section 28 (1), Article VI, Constitution]

 Regressivity is not a negative standard for courts to enforce. What Congress is required
by the Constitution to do is to “evolve a progressive system of taxation.” This is a
directive to Congress, just like the directive to it to give priority of the enactment of law
for the enhancement of human dignity. The provisions are put in the Constitution as
moral incentives to legislation, not as judicially enforceable rights. (Tolentino v. Secretary
of Finance.)

Progressive system of taxation v. regressive system of taxation

 A progressive system of taxation means that tax laws shall place emphasis on direct
taxes rather than on indirect taxes, with ability to pay as the principal criterion.

 A regressive system of taxation exists when there are more indirect taxes imposed than
direct taxes.

 No regressive taxes in the Philippine jurisdiction

CLASSIFICATION OF TAXES:

1. personal tax – also known as capitalization or poll tax;

2. property tax – assessed on property of a certain class;

3. direct tax – incidence and impact of taxation falls on one person and cannot be shifted
to another;

4. indirect tax – incidence and liability for the tax falls on one person but the burden
thereof can be passed on to another;

5. excise tax – imposed on the exercise of a privilege;

6. general taxes – taxes levied for ordinary or general purpose of the government;

7. special tax – levied for a special purpose;

8. specific taxes – imposed on a specific sum by the head or number or by some standards
of weight or measurement;

9. ad valorem tax – tax imposed upon the value of the article;

10. local taxes – taxes levied by local government units pursuant to validly delegated power
to tax;

11. progressive taxes – rate increases as the tax base increases; and

12. regressive taxes – rate increases as tax base decreases.

GENERAL RULE:
- Taxes are personal to the taxpayer. Corporation’s tax delinquency cannot be enforced on
the stockholder or transfer taxes on the estate be assessed on the heirs.
EXCEPTIONS
1. stockholders may be held liable for unpaid taxes of a dissolved corporation if the
corporate assets have passed into their hands; and
2. heirs may be held liable for the transfer taxes on the estate, if prior to the payment
of the same, the properties of the decedent have been distributed to the heirs.
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LIMITATIONS ON THE POWER OF TAXATION

Inherent Limitations

1. It must be imposed for a public purpose.

2. If delegated either to the President or to a L.G.U., it should be validly delegated.

3. It is limited to the territorial jurisdiction of the taxing authority.

4. Government entities are exempted.

5. International comity is recognized i.e. property of foreign sovereigns are not subject to
tax.

Constitutional limitations –

Indirect –

a) Due process clause

b) Equal protection clause

c) Freedom of the press

d) Religious freedom

e) Non-impairment clause

f) Law-making process –

1. One-subject – One-title Rule

2. 3 readings on 3 separate days Rule except when there is a

Certificate of Emergency

3. Distribution of copies 3 days before the 3rd reading.

g) Presidential power to grant reprieves, commutations and pardons, and remit fines and
forfeitures after conviction by final judgment.

Direct –

a) Revenue bill must originate exclusively in H.R. but the Senate may propose with amendments.

b) Non-imprisonment for non-payment of poll tax.

c) Taxation shall be uniform and equitable.

d) Congress shall evolve a progressive system of taxation.

e) Tax exemption of charitable institutions, churches and personages or convents appurtenant

thereto, mosques, non-profit cemeteries, and all lands, buildings and improvements ADE
(actually, directly , exclusively) used for charitable, religious, and educational purposes.

f) Tax exemption of all revenues and assets used ADE for educational purposes of –

1. Non-profit non-stock educational institutions.

2. Proprietary or cooperative educational institutions subject to limitations provided by

law including –
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a) restriction on dividends

b) provisions for re-investments.

g) Tax exemption of grants, endowments, donations or contributions ADE for educational

purposes, subject to conditions prescribed by law.

h) No tax exemption without the concurrence of a majority of all members of Congress.

i) SC power to review judgments or orders of lower courts in all cases involving – Legality of any
tax. Impost or toll, Legality of any penalty imposed in relation thereto.

INHERENT LIMITATIONS
NOTES: PUBLIC PURPOSE –

GOVERNMENTAL PURPOSE

RULE:

 “The Legislature is without the power to appropriate revenues for anything but for public
purposes.”

RULE:

 “Public money can only be spent for a public purpose.”

PUBLIC PURPOSE – A purpose affecting the inhabitants of the State or taxing district as a
community and not merely as individuals

> Public purpose includes not only direct benefits or advantage, it also includes indirect
benefits or advantage

TIO vs. VIDEOGRAM

 > It is not the immediate result but the ultimate result that determines, whether the
purpose is public or not

 > It is not the number of persons benefited but it is the character of the purpose that
determines the public character of such tax law

 > What is not allowed is that if it has no link to public welfare

 > Public purpose is determined by the use to which the tax money is devoted

> If it benefits the community in general then it is for a public purpose no matter who
collects it

TEST

1. If the public advantage or benefit is merely incidental in the promotion of a particular

enterprise, that will render the law INVALID

2. If what is incidental is the promotion of a private enterprise, the tax law is still for a
public purpose(VALID)

 > A tax levied for a private, not public purpose constitutes taking of property without due
process of law as it is beyond the powers of the government to impose it.
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 > Although private individuals are directly benefited, the tax would still be valid, provided
such benefit is only incidental

 > If what is incidental is the promotion of a private enterprise, as long as there is a link
to the public welfare, the purpose is still public

 > The test is not as to who receives the money, but the character of the purpose for
which it is expended

> Not the immediate result of the expenditure, but rather the ultimate

 > The test that must be applied in determining whether the purpose is public or private

1) The character of the direct object

2) The ultimate result not the immediate result

3) The general welfare for public good

TEST OF RIGHTFUL TAXATION

- Proceeds of a tax must be used

1) for the support of the government

2) for any of the recognized objects of the government

3) to promote the welfare of the community

LEGISLATIVE PREROGATIVE

RULE: It is Congress which has the power to determine whether the purpose is public or
private

 > You can always question the validity of such tax measure on the ground that it is not
for a public purpose before the courts. But once it is settled that it is for a public
purpose, you can no longer inquire on such tax measure

TAXPAYERS SUIT

- a case where the act complained of directly involves the illegal disbursement of public
funds derived from taxation

> courts discretion to allow

 > Taxpayers have sufficient interest of preventing the illegal expenditures of money
raised by taxation (NOT DONATIONS AND CONTRIBUTIONS)

 > A taxpayer is not relieved from the obligation of paying a tax because of his belief that
it is being misappropriated by certain officials

 > A taxpayer has no legal standing to question executive acts that do not involve the use
of public funds. (GONZALES vs. MARCOS)

LOZADA vs. COMELEC

 > It is only when an act complained of which may include a legislative enactment of a
statute, involves the illegal expenditure of public money that the so-called taxpayers suit
may be allowed.
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CALTEX vs. COA

 > Taxpayers may be levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry which is affected with the public
interest as to be within the police power of the State.

 > A law imposing burdens may be both a tax measure and an exercise of the police
power in which case the license fee may exceed the necessary expenses of police
surveillance and regulation.

REQUISITES FOR A TAXPAYERS PETITION

1) That money is being extracted and spent in violation of specific constitutional

protections against abuses of legislative power

2) That public money is being deflected to any improper purpose

3) That the petitioner seeks to restrain respondents from wasting public funds through the
enforcement of an invalid or unconstitutional law.

KILOS BAYAN vs. GUINGONA

 > The Supreme Court has discretion whether or not to entertain taxpayers suit and could
brush aside lack of locus standi

CONCEPTS RELATIVE TO PUBLIC PURPOSE

1) Inequalities resulting from the singling out of one particular class for taxation or
exemption infringe no constitutional limitation

 It is inherent in the power to tax that the legislature is free to select the subject
of taxation

2) An individual taxpayer need not derive direct benefits from the tax

 The paramount consideration is the welfare of the greater portion of the

population

3) Public purpose is continually expanding. Areas formerly left to private initiative now loose
their boundaries and may be undertaken by the government, if it is to meet the
increasing social challenges of the times

4) Public purpose is determined at the time of enactment of the tax law and not at the time
of implementation

NOTES: INTERNATIONAL COMITY

- Based on tradition, practice or custom

DOCTRINE OF INCORPORATION

 > The Philippines adopts the generally accepted principles of international law as part of
the law of the land

 > If a tax law violates certain principles of international law, then it is not only invalid but
also unconstitutional
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GROUNDS FOR TAX EXEMPTION OF FOREIGN GOVERNMENT PROPERTY

1) Sovereign equality of States

2) Usage among States

3) Immunity from suit of a State

NOTES: NON-DELEGATION OF THE POWER TO TAX

GENERAL RULE:

- The power of taxation is peculiarly and exclusively legislative, therefore, it may not be
delegated

EXCEPTIONS:

1) Delegation to the President

2) Delegation to local government units

3) Delegation to administrative units

POWERS WHICH CANNOT BE DELEGATED

1) Determination of the subjects to be taxed

2) Purpose of the tax

3) Amount or rate of the tax

4) Manner, means and agencies of collection

5) Prescription of the necessary rules with respect thereto

DELEGATION TO THE PRESIDENT

 > Congress may authorize, by law, the President to fix, within specified limits and subject
to such limitations and restrictions as it may impose

1) Tariff rates

2) Import and export quotas

3) Tonnage and wharfage dues

4) Other duties and import within the national development program of the government

 > There must be a law authorizing the President to fix tariff rates

 > The delegation of power must impose limitations and restrictions and specify the
minimum as well as the maximum tariff rates.
 16

FLEXIBLE TARIFF CLAUSE (SEC. 401 TCC)

- In the interest of national economy, general welfare and/or national security, the
President upon the recommendation of the National Economic and Development
Authority is empowered:

1) To increase, reduce or remove existing protective rates of import duty, provided that the
increase should not be higher than 100% ad valorem

2) To establish import quota or to ban imports of any commodity

3) To impose additional duty on all imports not exceeding 10% ad valorem

DELEGATION TO LOCAL GOVERNMENT UNITS

 > Each local government unit has the power to create its own revenue and to levy taxes,
fees and charges subject to such guidelines and limitations as the Congress may provide
(ART X Sec 5)

 > Local government units have no power to further delegate said constitutional grant to
raise revenue, because what is delegated is not the enactment or the imposition of a tax,
it is the administrative implementation

BASCO vs. PAGCOR

 > The power of local government units to impose taxes and fees is always subject to the
limitations which Congress may provide, the former having no inherent power to tax.

 > Municipal corporations are mere creatures of Congress which has the power to create
and abolish municipal corporations. Congress therefore has the power to control over
local government units. If Congress can grant to a municipal corporation the power to
tax certain matters, it can also provide for exemptions or even take back the power

DELEGATION TO ADMINISTRATIVE AGENCIES

 > For the delegation to be constitutionally valid, the law must be complete in itself and
must set forth sufficient standards

 > Certain aspects of the taxing process that are not really legislative in nature are vested
in administrative agencies. In these cases, there really is no delegation, to wit:

A) power to value property

B) power to assess and collect taxes

C) power to perform details of computation, appraisement or adjustments.

NOTES: EXEMPTION OF GOVERNMENT AGENCIES

1) Agencies performing governmental functions

> TAX EXEMPT

2) Agencies performing proprietary functions

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> SUBJECT TO TAX

* > The exemption applies only to governmental entities through which the government
immediately and directly exercises its sovereign powers.

NDC vs. CEBU CITY

 > Tax exemption of property owned by the Republic of the Philippines refers to the
property owned by the government and its agencies which do not have separate and
distinct personality.

> Those with ORIGINAL CHARTERS (incorporated agencies)

 > Those created by SPECIAL CHARTER (incorporated agencies) are not covered by the
exemption

GOVERNMENT ENTITIES EXEMPT FROM INCOMING TAX

1) GSIS

2) SSS

3) PHIC

4) PCSO

5) PAGCOR

REASON FOR EXEMPTIONS

1) Government will be taxing itself to raise money for itself.

2) Immunity is necessary in order that governmental functions will not be impeded.

NOTES: TERRITORIAL JURISDICTION

RULES:

 > Tax laws cannot operate beyond a State’s territorial limits

 > The government cannot tax a particular object of taxation which is not within its
territorial jurisdiction.

 > Property outside ones jurisdiction does not receive any protection of the State

 > If a law is passed by Congress, Congress must always see to it that the object or
subject of taxation is within the territorial jurisdiction of the taxing authority

SITUS OF TAXATION

 Place of taxation

RULE:

- The State where the subject to be taxed has a situs may rightfully levy and collect the
tax
 18

 > In determining the situs of taxation, you have to consider the nature of the taxes

Example:

1) POLL TAX, CAPITATION TAX, COMMUNITY TAX

> Residence of the taxpayer

2) REAL PROPERTY TAX OR PROPERTY TAX

> Location of the property

 > We can only impose property tax on the properties of a person whose residence is in
the Philippines.

EXCEPTIONS TO THE TERRITORIALITY RULE

A) Where the tax laws operate outside territorial jurisdiction

1) TAXATION of resident citizens on their incomes derived from abroad

B) Where tax laws do not operate within the territorial jurisdiction of the State

1) When exempted by treaty obligations

2) When exempted by international comity

SITUS OF TAX ON REAL PROPERTY

- LEX REI SITUS or where the property is located

REASON:

 The place where the real property is located gives protection to the real
property, hence the property or its owner should support the government of that
place

SITUS OF PROPERTY TAX ON PERSONAL PROPERTY

- MOBILIA SEQUNTUR PERSONAM

= movables follow the owner

= movables follow the domicile of the owner

RULES:

1) TANGIBLE PERSONAL PROPERTY

- Where located, usually the owners domicile

2) INTANGIBLLE PERSONAL PROPERTY

G. R. – Domicile of the owner

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EXCEPTION: The situs location not domicile

> Where the intangible personal property has acquired a business situs in another jurisdiction

* > The principle of “Mobilia Sequntur Personam” is only for purposes of convenience. It
must yield to the actual situs of such property.

* > Personal intangible properties which acquires business situs here in the Philippines

1) Franchise which is exercised within the Philippines

2) Shares, obligations, bonds issued by a domestic corporation

3) Shares, obligations, bonds issued by a foreign corporation, 85% of its business is conducted in
the Philippines

4) Shares, obligations, bonds issued by a foreign corporation which shares of stock or bonds
acquire situs here

5) Rights, interest in a partnership, business or industry established in the Philippines

> These intangible properties acquire business situs here in the Philippines, you cannot apply the
principle of “Mobilia Sequntur Personam” because the properties have acquired situs here.

SITUS OF INCOME TAX

A) DOMICILLARY THEORY

- The location where the income earner resides in the situs of taxation

B) NATIONALITY THEORY

- The country where the income earner is a citizen is the situs of taxation

C) SOURCE RULE

- The country which is the source of the income or where the activity that produced
the income took place is the situs of taxation.

SITUS OF SALE OF PERSONAL PROPERTY

 > The place where the sale is consummated and perfected

SITUS OF TAX ON INTEREST INCOME

 > The residence of the borrower who pays the interest irrespective of the place where
the obligation was contracted

CIR vs. BOAC

 > Revenue derived by an of-line international carrier without any flight from the
Philippines, from ticket sales through its local agent are subject to tax on gross Philippine
billings

SITUS OF EXCISE TAX

 20

> Where the transaction performed

HOPEWELL vs. COM. OF CUSTOMS

 > The power to levy an excise upon the performance of an act or the engaging in an
occupation does not depend upon the domicile of the person subject to the exercise, nor
upon the physical location of the property or in connection with the act or occupation
taxed, but depends upon the place on which the act is performed or occupation engaged
in.

Thus, the gauge of taxability does not depend on the location of the office, but attaches
upon the place where the respective transaction is perfected and consummated

CONSTITUTIONAL LIMITATIONS
I. DUE PROCESS

 > Due process mandates that no person shall be deprived of life, liberty, or property
without due process of law.

PEPSI COLA vs. MUN. OF TANAUAN

- REQUIREMENTS OF DUE PROCESS IN TAXATION

1) Tax must be for a Public purpose

2) Imposed within the Territorial jurisdiction

3) No arbitrariness or oppression in

A) assessment, and

B) collection

DUE PROCESS IN TAXATION DOES NOT REQUIRE

1) Determination through judicial inquiry of

A) property subject to tax

B) amount of tax to be imposed

2) Notice of hearing as to:

A) amount of the tax

B) manner of apportionment

REQUISITES OF DUE PROCESS OF LAW

1) There must be a valid law

2) Tax measure should not be unconscionable and unjust as to amount to confiscation of

property
 21

3) Tax statute must not be arbitrary as to find no support in the constitution

 > When is deprivation of life, liberty or property done in accordance with due
process of law?

1) If done under authority of a law that is valid or of the constitution itself

2) After compliance with fair and reasonable methods of procedure prescribed by law.

 > If properties are taxed on the basis of an invalid law, such deprivation is a violation of
due process

REMEDY – ask for refund

 > To justify the nullification of a tax law, there must be a clear and unequivocal breach
of the constitution

> There must be proof of arbitrariness

INSTANCES WHEN THE TAX LAW MAYBE DECLARED AS UNCONSTITUTIONAL

[C, O, N, U]

1) If it amounts to confiscation of property without due process

2) If the subject of taxation is outside of the jurisdiction of the taxing state

3) The law maybe declared as unconstitutional if it is imposed not for a public

purpose

4) If a tax law which is applied retroactively, imposes unjust and oppressive taxes.

  A tax law which denies a taxpayer a fair opportunity to assert his substantial rights
before a competent tribunal is invalid

  A taxpayer must not be deprived of his property for non-payment of taxes without

1) notice of liability

2) sale of property at public auction

  The validity of statute maybe contested only by one who will sustain a direct injury in
consequence of its enforcement

  A violation of the inherent limitations on taxation would contravene the constitutional

injunctions against deprivation of property without due process of law

  There must be proof of arbitrariness, otherwise apply the presumption of

constitutionality

  Due process requires hearing before adoption of legislative rules by administrative

bodies of interpretative rulings. (Misamis vs. DFA)

  Compliance with strict procedural requirements must be followed effectively to avoid a

collision course between the states power to tax and the individual recognized rights
(CIR vs. Algue)

  The due process clause may correctly be invoked only when there is a clear
contravention of inherent or constitutional limitations in the exercise of tax power. ( Tan
vs. del Rosario)
 22

  SUBSTATNTIVE DUE PROCESS requires that a tax statute must be within the
constitutional authority of Congress to pass and that it be reasonable, fair and just

  PROCEDURAL DUE PROCESS requires notice and hearing or at least an opportunity to

be heard

II. EQUAL PROTECTION CLAUSE

 All persons, all properties, all businesses should be taxed at the same rate

 prohibits class legislation

 prohibits undue discrimination

EQUALITY IN TAXATION (UNIFORMITY)

 Equality in taxation requires that all subjects or objects of taxation similarly situated should
be treated alike or put on equal footing both on the privilege conferred and liabilities
imposed

 All taxable articles of the same class shall be taxed at the same rate

  The Doctrine does not require that persons or properties different in fact be treated in
law as though there were the same. What it prohibits is class legislation which
discriminates against some and favors others

  As long as there are rational or reasonable grounds for doing so, Congress may group
persons or properties to be taxed and it is sufficient if all members of the same class are
subject to the same rate and the tax is administered impartially upon them.

REQUISITES OF A VALID CLASSIFICATION (S A G E )

1) It must be based on substantial distinction

2) It must apply not only to the present condition, but also to future conditions

3) It must be germane to the purpose of the law

4) It must apply equally to all members of the same class

SUBSTANTIAL DISTINCTION

 It must be real, material and not superficial distinction

  What is not allowed is inequality resulting from singling out of a particular class which
violates the requisites of a valid classification

  There maybe inequality but as long as it does not violate the requisites of a valid
classification that such mere inequality is not enough to justify the nullification of a tax
law or tax ordinance

  Taxation is equitable when its burden falls on those better able to pay

 Although the equal protection clause does not forbid classification, it is imperative that
the substantial differences having a reasonable relation to the subject of the particular
legislation
 23

  Taxes are uniform and equal when imposed upon all property of the same class or
character within the taxing authority

  Tax exemptions are not violative of the equal protection clause, as long as there is
valid classification.

TIU vs. CA

The Constitutional right to equal protection of the law is not violated by an executive
order, issued pursuant to law, granting tax and duty incentives only to business within the
“secured area” of the Subic Special Economic Zone” and denying them to those who live
within the zone but outside such “fenced in” territory. The Constitution does not require the
absolute equality among residents. It is enough that all persons under like circumstances or
conditions are given the same privileges and required to follow the same obligations. In
short, a classification based on valid and reasonable standards does not violate the equal
protection clause.

We find real and substantial distinctions between the circumstances obtaining inside and
those outside the Subic Naval Base, thereby justifying a valid and reasonable classification.

TWO WAYS EQUAL PROTECTION CLAUSE CAN BE VIOLATED

1) When classification is made where there should be none

ex. When the classification does not rest upon substantial distinctions that make for real
difference

2) When no classification is made where a classification is called for

ex. When substantial distinctions exist but no corresponding classification is made on the
basis thereof

ORMOC SUGAR CENTRAL vs. CIR

  If the ordinance is intended to supply to a specific taxpayer and to no one else

regardless of whether or not other entities belonging to the same class are established in
the future, it is a violation of the equal protection clause, but if it is intended to apply
also to similar establishments which maybe established in the future, then the tax
ordinance is valid even if in the meantime, it applies to only one entity or taxpayer for
the simple reason that there is so far only one member of the class subject of the tax
measure

UNIFORMITY IN TAXATION

  The concept of uniformity in taxation implies that all taxable articles or properties of
the same class shall be taxed at the same rate.

It requires the uniform application and operation, without discrimination, of the tax in
every place where the subject of the tax is found. It does not, however, require absolute
identity or equality under all circumstances, but subject to reasonable classification.

EQUITY IN TAXATION

  The concept of equity in taxation requires that the apportionment of the tax burden be
more or less, just in the light of the taxpayer’s ability to shoulder to tax burden and if
warranted, on the basis of the benefits received from the government. Its cornerstone is
the taxpayers ability to pay.
 24

CRITERIA OF EQUAL PROTECTION

1) When the laws operate uniformly

A) on all persons

B) under similar circumstances

2) All persons are treated in the same manner

A) The conditions not being different

B) Both in privileges conferred and liabilities imposed

C) Favoritism and preference not allowed

REYES vs. ALMAZOR

  Taxation is equitable when its burden falls on those better able to pay

KAPATIRAN vs. TAN

  It is inherent in the power to tax that the state be free to select the subjects of
taxation and it has been repeatedly held that inequalities which result from a singling out
of one particular class of taxation or exemption infringe no constitutional limitation

III. FREEDOM OF THE PRESS

  The press is not exempt from taxation

  The sale of magazines or newspapers, maybe the subject of taxation

  What is not allowed is to impose tax on the exercise of an activity which has a
connection with freedom of the press (license fee)

 If we impose tax on persons before they can deliver or broadcast a particular news or
information, that is the one which cannot be taxed.

TOLENTINO vs. SEC. OF FINANCE

  What is prohibited by the constitutional guarantee of free press are laws which single
out the press or target a group belonging to the press for special treatment or which in
any way discriminates against the press on the basis of the content of the publication.

IV. FREEDOM OF RELIGION

  It is the activity which cannot be taxed

  activities which have connection with the exercise of religion

AMERICAN BIBLE SOCIETY vs. MANILA

  The payment of license fees for the distribution and sale of bibles suppresses the
constitutional right of free exercise of religion.
 25

JIMMY SWAGGART vs. BOARD OF EQUALIZATION

  The Free Exercise of Religion Clause does not prohibit imposing a generally applicable
sales and use tax on the sale of religious materials by a religious organization.

  The Sale of religious articles can be the subject of the VAT

  What cannot be taxed is the exercise of religious worship or activity

  The income of the priest derived from the exercise of religious activity can be taxed.

V. NON-IMPAIRMENT CLAUSE

  The parties to the contract cannot exercise the power of taxation.

  They cannot agree or stipulate that this particular transaction may be exempt from tax-
not allowed (except if government)

OPOSA vs. FACTORAN

  Police power prevails over the non-impairment clause

LA INSULAR vs. MANCHUCA

  A lawful tax on a new subject or an increased tax on an old one, does not interfere
with a contract or impairs its obligation.

  The constitutional guarantee of the non-impairment clause can only invoked

in the grant of tax exemption.

RULES:

1) If the exemption was granted for valuable consideration and it is granted on the basis of a
contract.

 cannot be revoked

2) If the exemption is granted by virtue of a contract, wherein the government enters into a
contract with a private corporation

 cannot be revoked unilaterally by the government

3) If the basis of the tax exemption is a franchise granted by Congress and under the franchise
or the tax exemption is given to a particular holder or person

 can be unilaterally revoked by the government (Congress)

  The non-impairment clause applies only to contracts and not to a franchise.

  The non-impairment clause applies to taxation but not to police power and eminent
domain. Furthermore, it applies only where one party is the government and the other, a
private individual.

  As a rule, the obligation to pay tax is based on law. But when, for instance, a taxpayer
enters into a compromise with the BIR, the obligation of the taxpayer becomes one
based on contract
 26

PROVINCE OF MISAMIS vs. CAGAYAN ELECTRIC

  Franchises with magic words, “shall be in lieu of all taxes” descriptive of the payment
of a franchise tax on their gross earnings are exempt from:
1) all taxes
2) the franchise tax under the NIRC
3) the franchise tax under the local tax code

JUAREZ vs. CA

  As long as the contract affects the public welfare one way or another so as to require
the interference of the state, then must the police power be asserted and prevail over
the impairment clause

RULES ON TAX AMNESTY

  Tax amnesty, like tax exemption, is never favored nor presumed in law and if granted
by statute must be construed strictly against the taxpayer, who must show compliance
with the law.

 The government is not estopped from questioning the tax liability even if amnesty tax
payments were already received

REASON: Erroneous application and enforcement of the law by public officers do not
block subsequent correct application of the statute. The government is never estopped
by mistakes or errors by its agents.

PP vs. CASTAÑEDA

  Defense of tax amnesty, like amnesty, is a personal defense

REASON: It relates to the circumstances of a particular accused and not the character of the
acts charged in the information

REPUBLIC vs. IAC

 In case of doubt, tax amnesty is to be strictly construed against the government

REASON: Taxes are not construed, for taxes being burdens are not to be presumed beyond
what the tax amnesty expressly and clearly declares

VI. LAW MAKING PROCESS

A) ONE SUBJECT – ONE TITLE RULE

 Every bill passed by the Congress shall embrace only one subject which shall be expressed in
the title thereof (Sec. 26 (1) ART II)

B) THREE READING RULE

 No bill passed by either House shall become a law unless it has passed three readings on
separate days and printed copies thereof in its final form have been distributed to its members
three days before its passage, EXCEPT when the President certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. (Sec. 26 (2) ART II)
 27

PHIL. JUDGES ASSOC. vs. PRADO

  A presidential certification dispenses with the requirement not only of printing but also
that of reading the bill on separate days.

 It is within the power of a Bicameral Conference Committee to include in its report an
entirely new provision that is not found either in the House Bill or Senate Bill, so long as
such amendment is germane to the subject of the bills before the committee. After all its
report was not final but needed the approval of both houses of Congress to become valid
as an act of the legislative department.

C) ENROLLED BILL DOCTRINE

G.R. – An enrolled copy of a bill is conclusive not only of its provisions but also of its due
enactment

EXCEPTION: In ASTORGA vs. VILLEGAS, the Supreme Court “went behind” the enrolled bill
and consulted the journal to determine whether certain provisions of a state had been
approved by the Senate President’s admission of a mistake and withdrawal of his signature.

VII. PARDONING POWER OF THE PRESIDENT

 The President has the power to grant reprieves, commutations and pardons and remit fines
and forfeitures after conviction by final judgment. (Sec. 19, ART VII)

NATURE OF TAX AMNESTY

– A general pardon or intentional overlooking by the state of its authority to impose penalties
on persons otherwise guilty of evasion or violation of a revenue or tax law

- absolute forgiveness or waiver to collect

VIII. NO IMPRISONMENT FOR NON-PAYMENT OF POLL TAX

- No person shall be imprisoned for debt or non-payment of poll tax ( Sec. 20 ART III)

  The non-imprisonment rule applies to non-payment of poll tax which is punishable only
by a surcharge, but not to other violations like falsification of community tax certificate or
non-payment of other taxes

POLL TAX – tax of fixed amount imposed upon residents within a specific territory regardless of
citizenship, business or profession

Ex. Community tax

IX. TAXATION SHALL BE UNIFORM AND EQUITABLE

- The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation. (Sec. 28 (1) ART VI)

UNIFORMITY

- means that all taxable articles kinds of property of the same class shall be taxed at the
same rate
 28

 > A tax is uniform when it operates with the same force and effect in every place where
the subject of it is found

EQUITABILITY

 > Taxation is said to be equitable when its burden falls on those better able to pay

X. CONGRESS SHALL EVOLVE A PROGRESSIVE SYSTEM OF TAXATION

PROGRESSIVITY

 > Taxation is progressive when its rate goes up depending on the sources of the person
affected

SYTEMS OF TAXATION

1) PROPORTIONAL TAXATION

- where the tax increases or decreases in relation to the tax bracket

2) PROGRESSIVE or GRADUATED SYSTEM

- where the tax increases as the income of the taxpayer goes higher

3) REGRESSIVE SYSTEM

- where the tax decreases as the income of the taxpayer increases

PROGRESSIVITY IS NOT REPUGNANT TO UNIFORMITY and EQUALITY

A) Uniformity does not require the things which are not different be treated in the same manner

B) Differentiation, which is not arbitrary and conforms to the dictates of justice and equity is
allowed. Progressivity is one way of classification.

C) The State has the inherent right to select subjects of taxation

TOLENTINO vs. SEC. OF FINANCE

 > RA 7716 (EVAT), does not violate the constitutional mandate that Congress shall
“evolve a progressive system of taxation”

> The Constitution does not really prohibit the imposition of indirect taxes, which like the
VAT, are regressive. The constitutional provision means simply that indirect taxes shall be
minimized.

 > The mandate to Congress is not to prescribe, but to evolve, a progressive system of
taxation

 > Resort to indirect taxes should be minimized but not to be avoided entirely because it
is difficult, if not impossible to avoid them by imposing such taxes according to the
taxpayers ability to pay.

XI. ORIGIN OF REVENUE, TARIFF or TAX BILLS

 29

All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills
of local application, and private bills shall originate exclusively in the House of Representatives,
but the Senate may propose or concur with amendments. (Section 24, Article VI)

RULE:

- It is not the revenue statute but the revenue bill which is required by the constitution to
originate exclusively in the House of Representatives

REASON:

- To insist that a revenue statute and not only the bill which initiated the legislative
process culminating in the enactment of the law must substantially be the same as the
House bill would be to deny the Senate’s power not only to “concur with amendments”
but also to “propose amendments.” It would be to violate the co-equality of legislative
power of the two houses of Congress and in fact make the House superior to the Senate.
(Tolentino vs. Sec. of Finance)

 > The Constitution simply requires that there must be that initiative coming from the
House of Representatives relative to appropriation, revenue and tariff bills.

 >The Constitution does not also prohibit the filing in the Senate of a substitute bill in
anticipation of its receipt of the bill from the House, as long as action by the Senate is
withheld until receipt of said bill (Tolentino vs. Sec. of Finance)

XII. PRESIDENTIAL VETO

 > “The President shall have the power to veto any particular item or items in an
appropriation, revenue or tariff bill, but the veto shall not affect the item or items to
which he does not object” (Sec. 27 (2), ART VI)

XIII. TARIFF POWER OF THE PRESIDENT

 “The Congress may, by law, authorizing the President to fix within specific limits, and
subject to such limitations and restrictions as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, the other duties or imports within the
framework of the national development program of the Government” ( Sec. 28 (2), ART
VI)

REQUISITES:

1) There must be a law passed by Congress authorizing the President to impose tariff rates
and other fees.

2) Under the law, there must be limitations and restrictions on the exercise of such power

3) The taxes that may be imposed by the President are limited to:

A) Tariff rates

B) Import and export quotas

C) Tonnage and wharfage dues

D) Other duties (customs duties)

4) The imposition of these tariff and duties must be within the framework of the National
Development program of the government
 30

 > Congress “may not pass” a law authorizing the President to impose income tax, donors
tax, and other taxes which are not in the nature of customs duties.

> The Constitution allows only the imposition by the President of these custom duties

XIV. TAX EXEMPTION OF REAL PROPERTY

 “Charitable institutions, churches and personages or convents appurtenant thereto,

morgues, non-profit cemeteries and all lands, buildings and improvements, actually
directly and exclusively used for religious, charitable, or educational purposes shall be
exempt from taxation.” (Sec. 28 (3) ART VI)

APPLICATION:

> The exemption only covers property taxes and not other taxes

TEST OF EXEMPTION:

> It is the USE of the property and not ownership of the property

ABRA VALLEY COLLEGE vs. AQUINO (162 SCRA 106)

 > The exemption does not only extend to indispensable facilities but also covers
incidental facilities which are reasonably necessary to the accomplishment of said
purpose

 > A property leased by the owner to another who uses it exclusively for religious
purposes is exempt from property tax, but the owner is subject to income tax or rents
received.

 > Real property purchased by any religious sect to be used exclusively for religious
purposes are subject to the tax on the transfer of ownership or of title to real property
(also if donated- donor’s tax)

 > Property held for future use is not tax exempt

XV. LAW GRANTING TAX EXEMPTIONS

 “ No law granting any tax exemptions shall be passed without the concurrence of a
majority of all members of the Congress” (Sec. 28 (4) ART VI)

RULES ON VOTE REQUIREMENT

1) Law granting any tax exemption

> absolute majority

2) Law withdrawing any tax exemption

> Relative majority

 > Tax exemption, amnesties, refunds are considered in the nature of tax exemptions

> A law granting such needs approval of the absolute majority of the Congress
 31

XVI. NO USE OF PUBLIC MONEY OR PROPERTY FOR PUBLIC PURPOSES

 > “ No public money or property shall be appropriated, applied, paid, or employed,

directly or indirectly, for the use, benefit, or support of any sect, church, denomination,
sectarian, institution or system of religion, or of any priest, preacher, minister or other
religious teacher or dignitary as such, EXCEPT when such priest, preacher, minister or
dignitary is assigned to the armed forces, or to any penal institution, or government
orphanage or leprosarium as such” (Sec. 29 (2) ART VI)

 > Public property may be leased to a religious group provided that the lease will be
totally under the same conditions as that to private persons (amount of rent)

 > Congress is without power to appropriate funds for a private purpose.

XVII. TAX LEVIED FOR SPECIAL PURPOSES

“ All money collected or any tax levied for a special purpose shall be treated as a special fund and
paid out for such purpose only. If the purpose for which a special fund was created has been
fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the
Government.” (Sec. 29 (3) ART VI)

 > If a President of the Philippines spent a special fund for a general purpose, he can be
charged with culpable violation of the Constitution.

XVIII. SUPREME COURT’S POWER OF REVIEW

“The Supreme Court shall have the power to review, revise, reverse, modify or affirm on appeal
or certiorari, all cases involving the legality of any tax imposed, assessment, or toll, or any
penalty imposed in relation thereto.” (Sec. 5 (2B) ART VIII)

 > Congress cannot take away from the Supreme Court the power given to it by the
Constitution as the final arbiter of the tax cases.

XIX. DELEGATED AUTHORITY TO LOCAL GOVERNMENT UNITS

“ Each local government unit shall have the power to create its own sources of revenues and to
levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes, fees, charges shall have
exclusivity to the local government.” (Sec. 5, ART X)

LIMITATIONS ON POWER TO TAX (L.G.U.)

1) It is subject to such guidelines and limitations provided by Congress.

2) It must be consistent with the basic policy of local autonomy.

3) Such taxes, fees, and charges shall accrue exclusively to the local government.

RULES: NATIONAL GOV’T vs. LGU

 32

 IMPOSITION OF TAXES

1) The National Government may impose local taxes on articles or subjects which are within the
territorial jurisdiction of the local government unit.

2) The Local Government unit cannot impose tax on the national government.

> You can only tax those articles, which are within your jurisdiction

SEC. 6, ART X

“ local government units shall have a just share, as determined by law, in the national taxes
which shall be automatically released to them.”

XX. TAX EXEMPTIONS OF EDUCATIONAL INSTITUTIONS

“ All revenues and assets of non-stock, non-profit educational institutions used actually, directly,
and exclusively for educational purposes shall be exempt from taxes and duties.” (Sec. 4 (3) ART
XIV)

REQUISITES FOR EXEMPTION:

1) It must be a private educational institution

2) It must be non-stock and non-profit

3) It’s assets (property) and revenues (income) must be used actually, directly and exclusively for
educational purposes

RULES:

1) If the first requisite is absent (meaning, it’s a government educational institution), it is

nonetheless exempt from income tax

2) If the second requirement is absent (meaning, it is stock and profit) as long as the third
requirement is present, it is nonetheless exempt from real estate tax

3) If the third requirement is absent, as long as it is non-stock and non-profit, it is nonetheless

exempt from income tax

4) If the third requirement is absent, but it is private and non-profit, it is subject to income tax,
but at the preferential rate of ten percent (10%)

 > Under the present tax code, for a private educational institution to be exempt from the
payment of income tax, all it has to be is non-stock and non-profit. However, a
governmental educational institution is exempt from income tax without any condition

EXEMPTION DOES NOT EXTEND TO:

1) Income derived by these educational institutions from their property, real or personal, and
2) From activities conducted by them for profit regardless of the disposition made on such
income

MANILA POLO CLUB vs. CTA

 > Proceeds of the sale of real property by the Roman Catholic church is exempt from
income tax because the transaction was an isolated one

ST. PAUL HOSPITAL of ILOILO vs. CIR

 33

 > Income derived from the hospital pharmacy, dormitory and canteen was exempt from
income tax because the operation of those entities was merely incidental to the primary
purpose of the exempt corporation

 > Where the educational institution is private and non-profit (but a stock
corporation) it is subject to income tax but at the preferential rate of ten
percent (10%)

REQUISITES for APPLICATION of 10% PREFERENTIAL RATE

1) It is private;
2) It has permit to operate from the DECS, or CHED or TESDA;
3) It is non-profit;
4) Its gross income from unrelated trade or business must not exceed fifty percent (50%) of its
total gross income from all sources.

10% PREFERENTIAL TAX RATE DOES NOT APPLY TO THE FOLLOWING:

1) Passive incomes derived by the educational institution (subject to final income tax) and

2) Where the educational institution is engaged in unrelated trade, business or other activity, and
the gross income from such unrelated trade, business or other activities exceeds fifty percent
(50%) of the total gross income derived by the school from all sources

 > Where a donation is made in favor of an educational institution pursuant to sports

competition and tournaments, the donor is exempt from the payment of donor’s tax

CIR vs. CA (298 SCRA 83)

 > Income derived by YMCA from leasing out a portion of its premises to small shop
owners, like restaurant and canteen operators, and from parking fees collected from non-
members are taxable income

 YMCA is not an educational institution

XXI. TAX EXEMPTION OF DONATIONS for EDUCATIONAL PURPOSES

 > “Subject to conditions prescribed by law, all grants endowments, donations, or

contributions used actually, directly and exclusively for educational purposes shall be
exempt from tax.” (Sec. 4 (4) ART XIV)

XXII. NO EXPOST FACTO LAW PROHIBITION IN TAXATION

FERNANDEZ vs. FERNANDEZ

 > The prohibition against “ex post facto laws” applies only to criminal laws and not to
those that concern civil matters

 Our tax laws are civil in nature

 > The collection of interest on taxes is not penal in nature and the ex post facto law
prohibition does not apply to it.

DOUBLE TAXATION
 34

 > Taxing same property twice when it should be taxed but once. Taxing the same person
twice by the same jurisdiction over the same thing.

 Also known as duplicate taxation

PEPSI COLA vs. CITY OF BUTUAN

 > There is no constitutional prohibition against double taxation in the Philippines. It is

something not favored but is permissible, provided that the other constitutional
requirements is not thereby violated

KINDS OF DOUBLE TAXATION

1) DIRECT DOUBLE TAXATION

- Double taxation in the objectionable or prohibited sense

- Same property is taxed twice

REQUISITES:

A) The same property is taxed twice when it should only be taxed once;

B) Both taxes are imposed on the same property or subject matter for the same purpose;

C) Imposed by the same taxing authority;

D) Within the same jurisdiction;

E) During the same period; and

F) Covering the same kind or character of tax

2) INDIRECT DOUBLE TAXATION

- Not legally objectionable

- If taxes are not of the same kind, or the imposition are imposed for different taxing
authority and this may involve the same subject matter

EXAMPLES:

A) The taxpayers warehousing business although carried on in relation to the operation of its
sugar central is a distinct and separate taxable business

B) A license tax may be levied upon a business or occupation although the land or property used
in connection therewith is subject to property tax

C) Both a license fee and a tax may be imposed on the same business or occupation for selling
the same article and this is not in violation of the rules against double taxation

D) When every bottle or container of intoxicating beverages is subject to local tax and at the
same time the business of selling such product is also subject to liquors license

E) A tax imposed on both on the occupation of fishing and of the fishpond itself
 35

F) A local ordinance imposes a tax on the storage of copra where it appears that the finished
products manufactured out of the copra are subject to VAT

MEANS EMPLOYED TO AVOID DOUBLE TAXATION

1) Tax deductions
2) Tax credits
3) Provide for exemption
4) Enter into treatise with other states
5) Allowance on the principle of reciprocity

TAX CREDIT
- An amount allowed as a deduction of the Philippine Income tax on account of income
taxes paid or incurred to foreign countries. It is given to a taxpayer in order to provide a
relief from too onerous a burden of taxation in case where the same income is subject to
a foreign income tax and the Philippine Income tax.

WHO CAN CLAIM TAX CREDIT

1) Citizens of the Philippines

2) Domestic corporations

CITY OF BAGUIO vs. DE LEON

 > The argument against double taxation may not be invoked where one tax is imposed
by the state and the other imposed by the city, it being widely recognized that there is
nothing inherently obnoxious in the requirement that license fees or taxes be exacted
with respect to the same occupation, calling or activity by both the state and a political
subdivision thereof. And where the statute or ordinance in question applies equally to all
persons, firms and corporations placed in a similar situation, there is no infringement of
the rule on equality.

VILLANUEVA vs. CITY OF ILOILO

 > An ordinance imposing a municipal tax on tenement houses was challenged because
the owners already pay real estate taxes and also income taxes under the NIRC. The
Supreme Court held that there was no double taxation. The same tax may be imposed by
the National Government as well as the local government. There is nothing inherently
obnoxious in the exaction of license fees or taxes with respect to the same occupation,
calling or activity by both the state and a political subdivision thereof. Further, a license
tax may be levied upon a business or occupation although the land used in connection
therewith is subject to property tax.

DOCTRINES ON DOUBLE TAXATION

1) Direct Double Taxation (DDT) is not allowed because it amounts to confiscation of property
without due process of law

2) You can question the validity of double taxation if there is a violation of the Equal protection
clause or Equality or Uniformity of Taxation

3) All doubts as to whether double taxation has been imposed should be resolved in favor of the
taxpayer
 36

ESCAPE FROM TAXATION

BASIC FORMS OF ESCAPE FROM TAXATION
1) SHIFTING
2) CAPITALIZATION
3) TRANSFORMATION
4) AVOIDANCE
5) EXEMPTION
6) EVASION

I. SHIFTING

- Shifting is the transfer of the burden of a tax by the original payer or the one on whom
the tax was assessed or imposed to someone else

- Process by which such tax burden is transferred from statutory taxpayer to another
without violating the law

 > It should be borne in mind that what is transferred is not the payment of the tax, but
the burden of the tax

 > Only indirect taxes may be shifted; direct taxes cannot be shifted

WAYS OF SHIFTING THE TAX BURDEN

1) FORWARD SHIFTING

- When the burden of the tax is transferred from a factor of production through the factors
of distribution until it finally settles on the ultimate purchaser or consumer.

Example:

- Manufacturer or producer may shift tax assessed to wholesaler, who in turn shifts it to
the retailer, who also shifts it to the final purchaser or consumer

2) BACKWARD SHIFTING

- When the burden of the tax is transferred from the consumer or purchaser through the
factors of distribution to the factors of production

Example:

- Consumer or purchaser may shift tax imposed on him to retailer by purchasing only after
the price is reduced, and from the latter to the wholesaler, or finally to the manufacturer
or producer

2) ONWARD SHIFTING

- When the tax is shifted two or more times either forward or backward

Example:
 37

- Thus, a transfer from the seller to the purchaser involves one shift; from the producer to
the wholesaler, then to retailer, we have two shifts; and if the tax is transferred again to
the purchaser by the retailer, we have three shifts in all.

Impact and Incidence of Taxation

 Impact of taxation is the point on which a tax is originally imposed. In so far as the law is
concerned, the taxpayer is the person who must pay the tax to the government. He is
also termed as the statutory taxpayer-the one on whom the tax is formally assessed. He
is the subject of the tax

 Incidence of taxation is that point on which the tax burden finally rests or settle down. It
takes place when shifting has been effected from the statutory taxpayer to another.

Statutory Taxpayer

 The Statutory taxpayer is the person required by law to pay the tax or the one on whom
the tax is formally assessed. In short, he or she is the subject of the tax.

 In direct taxes, the statutory taxpayer is the one who shoulders the burden of the tax
while in indirect taxes, the statutory taxpayer is the one who pay the tax to the
government but the burden can be passed to another person or entity.

Relationship between impact, shifting, and incidence of a tax

 The impact is the initial phenomenon, the shifting is the intermediate process, and the
incidence is the result. Thus, the impact in a sales tax (i.e. VAT) is on the seller
(manufacturer) who shifts the burden to the customer who finally bears the incidence of
the tax.

 Impact is the imposition of the tax; shifting is the transfer of the tax; while incidence is
the setting or coming to rest of the tax.

II. CAPITALIZATION

- Reduction is the price of the taxed object equal to the capitalized value of future taxes on
the property sold

 > This is a special form of backward shifting, where the burden of future taxes which the
buyer may have to pay is shifted back to the seller in the form of reduction in the selling
price

III. TRANSFORMATION

- The manufacturer in an effort to avoid losing his customers, maintains the same selling
price and margin of profit, not by shifting the tax burden to his customers, but by
improving his method of production and cutting down or other production cost, thereby
transforming the tax into or earn through the medium of production.

IV. TAX AVOIDANCE

- Also known as “tax minimization”

- not punished by law

 38

- Tax avoidance is the exploitation of the taxpayer of legally permissible alternative tax
rates or methods of assessing taxable property or income in order to avoid or reduce tax
liability

DELPHERS TRADERS CORP vs. IAC (157 SCRA 349)

 > The Supreme Court upheld the estate planning scheme resorted to by the Pacheco
family in converting their property to shares of stock in a corporation which they
themselves owned and controlled. By virtue of the deed of exchange, the Pacheco co-
owners saved on inheritance taxes. The Supreme Court said the records do not point
anything wrong and objectionable about this estate planning scheme resorted to. The
legal right of the taxpayer to decrease the amount of what otherwise could be his taxes
or altogether avoid them by means which the law permits cannot be doubted.

Example:

Following the “holding period rule” in capital gains transaction, by postponing the sale of the
capital asset until after twelve months from date of acquisition you can reduce the tax on the
capital gains by 50%

V. TAX EXEMPTION

Tax Exemption

 It is the grant of immunity to particular persons or corporations or to persons or

corporations of a particular class from a tax which persons and corporations generally
within the same state or taxing district are obliged to pay. It is an immunity or privilege;
it is freedom from a financial charge or burden to which others are subjected.

 Exemption is allowed only if there is a clear provision there for.

 It is not necessarily discriminatory as long as there is a reasonable foundation or rational

basis.

 Exemptions are not presumed, but when public property is involved, exemption is the
rule and taxation is the exemption.

Rationale for granting tax exemptions

 Its avowed purpose is some public benefit or interests which the lawmaking body
considers sufficient to offset the monetary loss entailed in the grant of the exemption.

 The theory behind the grant of tax exemptions is that such act will benefit the body of
the people. It is not based on the idea of lessening the burden of the individual owners
of property.

Grounds for granting tax exemptions

1) May be based on contract. In such a case, the public, which is represented by the government
is supposed to receive a full equivalent therefor, i.e. charter of a corporation.

2) May be based on some ground of public policy, i.e., to encourage new industries or to foster
charitable institutions. Here, the government need not receive any consideration in return for the
tax exemption.

3) May be based on grounds of reciprocity or to lessen the rigors of international double or

multiple taxation

Note: Equity is not a ground for tax exemption. Exemption is allowed only if there is a clear
provision therefor.
 39

Nature of tax exemption

1) It is a mere personal privilege of the grantee.

2) It is generally revocable by the government unless the exemption is founded on a contract

which is contract which is protected from impairment.

3) It implies a waiver on the part of the government of its right to collect what otherwise would
be due to it, and so is prejudicial thereto.

4) It is not necessarily discriminatory so long as the exemption has a reasonable foundation or

rational basis.

5) It is not transferable except if the law expressly provides so.

Kinds of tax exemption according to manner of creation

1) Express or affirmative exemption

When certain persons, property or transactions are, by express provision, exempted from
all certain taxes, either entirely or in part.

2) Implied exemption or exemption by omission

When a tax is levied on certain classes of persons, properties, or transactions without
mentioning the other classes.

Every tax statute makes exemptions because of omissions.

 No tax exemption by implication

 It must be expressed in clear and unmistakable language

CALTEX vs. COA

 > In claiming tax exemption, the burden of proof lies upon the claimant

 It cannot be created by mere implication

 It cannot be presumed that you are entitled to tax exemption

 You must prove it

RULE:

- Taxation is the rule and exemption is the exception

PROPERTY TAX – GOVERNMENT PROPERTY

 > Properties owned by the government whether in their proprietary or governmental

capacity are exempt from real estate tax

TEST:

- OWNERSHIP

 > Once established that it belongs to the government, the nature of the use of the
property whether proprietary or sovereign becomes immaterial.

 > Exemption of public property from taxation does not extend to improvements therein
made by occupants or claimants at their own expense.

KINDS OF TAX EXEMPTIONS ACCORDING TO SCOPE OR EXTENT

1) TOTAL
 40

- When certain persons, property or transactions are exempted, expressly or impliedly

from all taxes

2) PARTIAL

- When certain persons, property or transactions are exempted, expressly or impliedly

from certain taxes, either entirely or in part.

3) There can be no simultaneous exemptions under two laws, when one grants partial exemption
while other grants total exemption.

Does provision in a statute granting exemption from “all taxes” include indirect taxes?

 NO. As a general rule, indirect taxes are not included in the grant of such exemption
unless it is expressly stated.

Nature of power to grant tax exemption

1) National government

The power to grant tax exemptions is an attribute of sovereignty for the power to prescribe
who or what persons or property shall not be taxed.
It is inherent in the exercise of the power to tax that the sovereign state be free to select
the subjects of taxation and to grant exemptions therefrom.
Unless restricted by the Constitution, the legislative power to exempt is as broad as its
power to tax.

2) Local governments

Municipal corporations are clothed with no inherent power to tax or grant tax exemptions. But
the moment the power to impose a particular tax is granted, they also have the power to grant
exemption therefrom unless forbidden by some provision of the Constitution or the law
The legislature may delegate its power to grant tax exemptions to the same extent that it
may exercise the power to exempt.

Basco vs. PAGCOR (196 SCRA 52): The power to tax municipal corporations must always
yield to a legislative act which is superior, having been passed by the State itself. Municipal
corporations are mere creatures of Congress which has the power to create and abolish
municipal corporations due to its general legislative powers. If Congress can grant the power to
tax, it can also provide for exemptions or even take back the power.

Chavez v. PCGG, G.R. No. 130716, 09 December 1998

 In a compromise agreement between the Philippine Government, represented by the

PCGG, and the Marcos heirs, the PCGG granted tax exemptions to the assets which will
be apportioned to the Marcos heirs. The Supreme Court ruled that the PCGG has
absolutely no power to grant tax exemptions, even under the cover of its authority to
compromise ill gotten wealth cases. The grant of tax exemptions is the exclusive
prerogative of the Congress.

 In fact, the Supreme Court even stated that Congress itself cannot grant tax exemptions
in the case at bar because it will violate the equal protection clause of the Constitution.

Interpretation of the laws granting tax exemptions

 General rule
 41

In the construction of tax statutes, exemptions are not favored and are construed strictissimi
juris against the taxpayer. The fundamental theory is that all taxable property should bear its
share in the cost and expense of the government.

Taxation is the rule and exemption is the exemption.

He who claims exemption must be able to justify his claim or right thereto by a grant express
in terms “too plain to be mistaken and too categorical to be misinterpreted.” If not expressly
mentioned in the law, it must be at least within its purview by clear legislative intent.

 Exceptions

1) When the law itself expressly provides for a liberal construction thereof.

2) In cases of exemptions granted to religious, charitable and educational institutions or to the

government or its agencies or to public property because the general rule is that they are exempt
from tax.

Strict interpretation does not apply to the government and its agencies

 Petitioner cannot invoke the rule on stritissimi juris with respect to the interpretation of
statutes granting tax exemptions to the NPC. The rule on strict interpretation does not
apply in the case of exemptions in favor of a political subdivision or instrumentality of the
government. [Maceda v. Macaraig]

Davao Gulf v. Commissioner, 293 SCRA 76 (1998)

 A tax cannot be imposed unless it is supported by the clear and express language of a
statute; on the other hand, once the tax is unquestionably imposed, “a claim of
exemption from tax payers must be clearly shown and based on language in the law too
plain to be mistaken.” Since the partial refund authorized under Section 5, RA 1435, is in
the nature of a tax exemption, it must be construed strictissimi juris against the grantee.
Hence, petitioner’s claim of refund on the basis of the specific taxes it actually paid must
expressly be granted in a statute stated in a language too clear to be mistaken.

 > Exemption of the buyer does not extend to the seller

 Exemption of the principal does not extend to the accessory

SURIGAO vs. COLLECTOR of CUSTOMS

 > Tax refunds, condonations and amnesties , they being in the nature of tax exemptions
must be strictly construed against the taxpayer and liberally in favor of the government.

Tax remission or tax condonation

 The word “remit” means to desist or refrain from exacting, inflicting or enforcing
something as well as to restore what has already been taken. The remission of taxes due
and payable to the exclusion of taxes already collected does not constitute unfair
discrimination. Such a set of taxes is a class by itself and the law would be open to
attack as class legislation only if all taxpayers belonging to one class were not treated
alike. [Juan Luna Subd. V. Sarmiento, 91 Phil 370]
 42

 The condition of a tax liability is equivalent to and is in the nature of a tax exemption.
Thus, it should be sustained only when expressly provided in the law. [ Surigao
Consolidated Mining v. Commissioner of Internal Revenue, 9 SCRA 728 ]

Tax amnesty

 Tax amnesty, being a general pardon or intentional overlooking by the State of its
authority to impose penalties on persons otherwise guilty of evasion or violation of a
revenue to collect what otherwise would be due it and, in this sense, prejudicial thereto.
It is granted particularly to tax evaders who wish to relent and are willing to reform, thus
giving them a chance to do so and thereby become a part of the new society with a
clean slate. [Republic v. Intermediate Appellate Court, 196 SCRA 335]

 Like tax exemption, tax amnesty is never favored nor presumed in law. It is granted by
statute. The terms of the amnesty must also be construed against the taxpayer and
liberally in favor of the government.

Tax amnesty v. tax condonation v. tax exemption

 A tax amnesty, being a general pardon or intentional overlooking by the Statute of its
authority to impose penalties on persons otherwise guilty of evasion or violation of a
revenue or tax law, partakes of an absolute forgiveness or waiver by the Government of
its right to collect what otherwise would be due it and, in this sense, prejudicial thereto,
particularly to tax evaders who wish to relent and are willing to reform are given a
chance to do so and therefore become a part of the society with a clean slate.

 Like a tax exemption, a tax amnesty is never favored nor presumed in law, and is
granted by statute. The terms of the amnesty must be strictly construed against the
taxpayer and literally in favor of the government. Unlike a tax exemption, however, a tax
amnesty has limited applicability as to cover a particular taxing period or transaction
only.

 There is a tax condonation or remission when the State desists or refrains from exacting,
inflicting or enforcing something as well as to reduce what has already been taken. The
condonation of a tax liability is equivalent to and is in the nature of a tax exemption.
Thus, it should be sustained only when expressed in the law.

 Tax exemption, on the other hand, is the grant of immunity to particular persons or
corporations of a particular class from a tax of which persons and corporations generally
within the same state or taxing district are obliged to pay. Tax exemptions are not
favored and are construed strictissimi juris against the taxpayer.

CIR vs. RIO TUBA

 > Law granting partial refund partakes the nature of a tax exemption and therefore must
be strictly construed against the taxpayer

CIR vs. TOUR SPECIALIST

 > Gross receipts subject to tax under the tax code do not include monies or receipts
entrusted to the taxpayer which do not belong to it and does not redound to the
taxpayers benefit, and it is not necessary that there must be a law or regulation which
would exempt such monies and receipts within the meaning of gross receipts.

CONSTITUTIONAL RESTRICTION:

“No law granting any tax exemption shall be passed without the concurrence of a majority of all
members of Congress.” (Sec. 28 (4) ART VI)
 43

PROV. OF NUEVA ECIJA vs. IMPERIAL MINING

 > Basis or test for real property taxation is use and not ownership. Thus, it does not
matter who the owner of the property is even if it is not tax exempt entity, as long as it
is being used for religious, charitable or educational purposes, then it is tax exempt.

Conversely, even if the property taxation is owned by the government if the beneficial
use has been granted, for consideration or otherwise, to a taxable person, then the property
is subject to tax.

VI. TAX EVASION

- It is also known as “tax dodging”

- It is punishable by law

- Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or lessen
the payment of tax.

YUTIVO vs. CTA

 > Tax evasion is a term that connotes fraud through the use of pretenses or forbidden
devices to lessen or defeat taxes

ELEMENTS OF TAX EVASION

- Tax evasion connotes the integration of three (3) factors:

1) The end to be achieved, i.e. payment of less than that known by the taxpayer to be legally
due, or paying no tax when it is shown that tax is due

2) An accompanying state of mind which is described as being “evil”, “in bad faith”, “willful”, or
“deliberate” and not “accidental”

3) A course of action (or failure of action) which is unlawful

INDICIA of FRAUD IN TAX EVASION

1) Failure to declare for taxation purposes true and actual income derived from business for two
(2) consecutive years; or

2) Substantial underdeclaration of income tax returns of the taxpayer for four (4) consecutive
years coupled with unintentional overstatement of deductions

EVIDENCE TO PROVE TAX EVASION

 > Since fraud is a state of mind, it need not be proved by direct evidence but may be
proved from the circumstances of the case.

REPUBLIC vs. GONZALES (13 SCRA 638)

 > Failure of the taxpayer to declare for taxation purposes his true and actual income
derived from his business for two (2) consecutive years is an indication of his fraudulent
intent to cheat the government of its due taxes.
 44

TAX ENFORCEMENT AND ADMINISTRATION

SOURCES OF TAX LAWS:
1) Statutes
2) Presidential decrees
3) Executive orders
4) Constitution
5) Court decisions
6) Tax code
7) Revenue regulations
8) Administrative issuances
9) BIR rulings
10) Local tax ordinances
11) Tax treaties and conventions with foreign countries

PROSPECTIVITY OF TAX LAWS (APPLICATION)

GENERAL RULE:

- Tax laws should be applied prospectively

EXCEPTION:

- It may be applied retroactively when the law expressly provides for such retroactive
application

EXCEPTION TO THE EXCEPTION:

- It may not be given retroactive application even if the tax law expressly so provides if it
imposes unjust and oppressive taxes.

IMPRESCRIPTIBILITY OF TAXES

GENERAL RULE:

- Taxes are imprescriptible

EXCEPTION:

- They are prescriptible if the tax laws provide for statute of limitations

PRESCRIPTIVE PERIODS:

1) Prescriptive periods for the assessment and collection of taxes

 10 years if return is tainted with falsity or fraud

 3 years if there is no fraud

2) TARIFF AND CUSTOMS CODE

- After the expiration of 1 year from the payment of final duties.

> You should impose those custom duties that are supposed to be imposed on the imported
articles within the 1 year period, except if it is in the nature of partial liquidation, if there is fraud
or protest

3) LOCAL GOVERNMENT CODE

 45

- Prescriptive periods for local taxes and real property tax

> 5 years

> 10 years if fraud has been employed

INTERPRETATION AND APPLICATION OF TAX LAWS

Nature of Internal revenue laws

1) Internal revenue laws are not political in nature.
2) Tax laws are civil and not penal in nature.

Not political in nature

Internal revenue laws are not political in nature. They are deemed to be laws of the occupied
territory and not of the occupying enemy.

Thus, our tax laws continued in force during the Japanese occupation. Hilado v. Collector, 100
Phil. 288): It is well known that our internal revenue laws are not political in nature and, as such,
continued in force during the period of enemy occupation and in effect were actually enforced by
the occupation government. Income tax returns that were filed during that period and income tax
payments made were considered valid and legal. Such tax laws are deemed to be the laws of the
occupied territory and not of the occupying enemy.

Civil not penal in nature

Tax laws are civil and not penal in nature, although there are penalties provided for their
violation.

The purpose of tax laws in imposing penalties for delinquencies is to compel the timely payment
of taxes or to punish evasion or neglect of duty in respect thereof.

Republic v. Oasan, 99 Phil 934: The war profits tax is not subject to the prohibition on ex post
facto laws as the latter applies only to criminal or penal matters. Tax laws are civil in nature.

Construction of tax laws

1) Rule when legislative intent is clear

Tax statutes are to receive a reasonable construction with a view to carrying out their
purpose and intent.

They should not be construed as to permit the taxpayer easily to evade the payment of
taxes.

2) Rule when there is doubt

No person or property is subject to taxation unless within the terms or plain import of a
taxing statute. In every case of doubt, tax statutes are construed strictly against the government
and liberally in favor of the taxpayer.

Taxes, being burdens, are not to be presumed beyond what the statute expressly and
clearly declares.

3) Provisions granting tax exemptions

Such provisions are construed strictly against the taxpayer claiming tax exemption.
 46

Application of tax laws

 General rule: Tax laws are prospective in operation because the nature and amount to
the tax could not be foreseen and understood by the taxpayer at the time the
transactions which the law seeks to tax was completed

 Exception: While it is not favored, a statute may nevertheless operate retroactively

provided it is expressly declared or is clearly the legislative intent. But a tax law should
not be given retroactive application when it would be harsh and oppressive.

Directory and mandatory provisions of tax laws

 Directory provisions are those designed merely for the information or direction of office
or to secure methodical and systematic modes of proceedings.

 Mandatory provisions are those intended for the security of the citizens or which are
designed to ensure equality of taxation or certainty as to the nature and amount of each
person’s tax.

 The omission to follow mandatory provisions renders invalid the act or proceeding to
which it relates while the omission to follow directory provisions does not involve such
consequence. [Roxas v. Rafferty, 37 Phil 958]

REQUISITES OF TAX REGULATIONS

1. reasonable

2. within the authority conferred

3. not contrary to law

4. must be published

EXCEPTIONS TO NON-RETROACTIVITY OF RULINGS

Revocation, modification of revenue of any rules and regulations promulgated by the

Sec. of Finance or CIR shall not have retroactive effect if it will be prejudicial to the taxpayer,
except:

1. where the taxpayer deliberately misstates or omits material facts from his return or in
any document required of him by the BIR

2. where the facts subsequently gathered by the BIR are materially different from the facts
on which the ruling is based

3. where the taxpayer acted in bad faith

AGENCIES INVOLVED IN TAX ADMINISTRATION

1. BIR

2. Bureau of Customs

3. Provincial, city, and municipal assessors and treasurers

POWERS AND DUTIES OF THE BIR

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1. Assessment and collection of all national internal revenue taxes, fees and charges

2. Give effect to and administer the supervisory and police power conferred to it by the Tax
Code or other laws

3. Enforcement of all forfeitures, penalties and fines in connection therewith

4. Execution of judgments in all cases decided in its favor by the Court of Tax Appeals and
the ordinary courts

CLASSIFFICATION OF ASSESSMENTS

1. Self-assessment – one in which the tax is assessed by the taxpayer himself.

2. Illegal and Void assessment – one wherein the tax assessor has no power to act at all.

3. Deficiency assessment – one made by the tax assessor himself whereby the correct
amount of the tax is determined by the examination or investigation is conducted. The
liability is determined and is thereafter assessed for the following reasons:

a. the amount ascertained exceeds that which is shown as the tax by the taxpayer
in his return

b. no amount of tax is shown in the return

c. the taxpayer did not file any return at all

4. Erroneous assessment – one wherein the assessor has the power to assess but errs in
the exercise of the power.

PRINCIPLES GOVERNING TAX ASSESSMENTS

1. assessments are prima facie presumed correct and made in good faith

2. assessment should be based on actual facts

3. assessment is discretionary on the part of the Commissioner to assess taxes may be

delegated

4. assessments must be directed to the right party.

MEANS EMPLOYED IN THE ASSESSMENT OF TAXES

1. Examination of tax returns

2. Use of the best evidence obtainable

3. Inventory taking, surveillance and use of presumptive gross sales and receipts

4. Termination of taxable period

5. Prescription of real property values

6. Examination of bank deposits to determine the correct amount of the gross estate

7. Accreditation and registration of tax agents

8. Prescription of additional procedural or documentary requirements

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GENERAL RULE:

Income tax returns are confidential

EXCEPTIONS:
1. when the inspection of the return is authorized upon written order of the President of the
Philippines
2. when inspection is authorized under Finance Regulations no. 33 of the Secretary of
Finance
3. when the production of the tax return is material evidence in a criminal case wherein the
Government is interested in the result
4. when the production or inspection thereof is authorized by the taxpayer himself

CASES WHEN COMMISSIONER MAY ASSESS TAXES ON THE BASIS OF THE BEST
EVIDENCE OBTAINABLE:

1. in case a person fails to file a return or other document at the time prescribed by law

2. he willfully or otherwise files a false or fraudulent return or other document

GROUNDS FOR TERMINATION OF TAXABLE PERIOD:

1. the taxpayer is retiring from business subject to tax

2. he intends to leave the Philippines or remove his property therefrom

3. he hides or conceals his property

4. he performs any act tending to obstruct the proceedings for the collection of the tax for
the past or current quarter or year or renders the same totally or partly ineffective unless
such proceedings are began immediately.

INSTANCES WHEN THE COMMISSIONER MAY INQUIRE INTO BANK DEPOSITS:

1. for the purpose of determining the gross estate of a decedent

2. where a taxpayer offers to compromise his tax liability on the ground of financial inability
in which case he must submit a waiver.

INSPECTION AND EXAMINATION OF BOOKS AND RECORDS SHALL BE MADE ONCE IN

A TAXABLE YEAR,

EXCEPT:

1. in cases of fraud, irregularity, or mistakes

2. when taxpayer requests a reinvestigation

3. to verify compliance with withholding tax laws and regulations

4. to verify capital gains tax liabilities

5. upon order of the Commissioner

25% SURCHARGE ON THE AMOUNT OF THE TAX DUE IS IMPOSED IN THE

FOLLOWING CASES:

1. failure to file any return required under the provisions of the Tax Code or regulations on
the date prescribed
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2. filing a return with an internal revenue officer other than those with whom the return is
required to be filed

3. failure to pay the tax within the time prescribed for its payment

4. failure to pay the full amount of tax shown on any return required to be filed under the
provisions of the Tax Code or regulations or the full amount of tax due for which no
return is required to be filed, on or before the date prescribed for its payment

REVENUE RULES AND REGULATIONS AND ADMINISTRATIVE RULINGS AND

OPINIONS

Authority to promulgate rules and regulations and rulings and opinions

 The Secretary of Finance, upon recommendation of the Commissioner of Internal

Revenue, shall promulgate needful rules and regulations for the effective enforcement of
the provisions of the NIRC.

 This is without the prejudice to the power of the Commissioner of Internal Revenue to
make rulings or opinions in connection with the implementation of the provisions of
internal revenue laws, including rulings on the classification of articles for sales tax and
similar purposes.

Purpose of rules and regulations

1. To properly enforce and execute the laws

2. To clarify and explain the law

3. To carry into effect the law’s general provisions by providing details of administration and
procedure

Requisites for validity of rules and regulations

1. They must not be contrary to law and the Constitution.

2. They must be published in the Official Gazette or a newspaper of general circulation.

Commissioner v. Court of Appeals, 240 SCRA 368

 The authority of the Minister of Finance, in conjunction with the Commissioner of Internal
Revenue, to promulgate rules and regulations for the effective enforcement of internal
revenue rules cannot be converted. Neither can it be disputed that such rules and
regulations, as well as administrative opinions and rulings, ordinarily should deserve
weight and respect by the courts. Much more fundamental than either of the above,
however, is that all issuances must not override, but must remain consistent with, the
law they seek to apply and implement. Administrative rules and regulations are intended
to carry out, neither to supplant nor to modify, the law.

La Suerte v. Court of Tax Appleals, 134 SCRA 29

 When an administrative agency renders an opinion by means of a circular or

memorandum, it merely interprets existing law and no publication is therefore necessary
for its validity. Construction by an executive branch of the government of a particular
 50

law, although not binding upon courts, must be given weight as the construction came
from the branch of the government which is called upon to implement the law.

Effectivity of revenue rules and regulations

 Revenue Memorandum Circular 20-86 was issued to govern the drafting, issuance and
implementation of revenue tax issuances including:

1. Revenue Regulations;

2. Revenue and Memorandum Orders; and

3. Revenue Memorandum Circulars and Revenue Memorandum Orders.

 Except when the law otherwise expressly provides, the aforesaid revenue tax issuances
shall not begin to be operative until after due notice thereof may be fairly assumed.

 Due notice of said issuances may be fairly presumed only after the following procedures
have been taken:

1. Copies of tax issuance have been sent through registered mail to the following business
and professional organizations:

a. Philippine Institute of Certified Public Accountants;;

b. Integrated Bar of the Philippines;

c. Philippine Chamber of Commerce and Industry;

d. American Chamber of Commerce;

e. Federation of Filipino-Chinese Chamber of Commerce; and

f. Japanese Chamber of Commerce and Industry in the Philippines.

2. The Bureau of Internal Revenue shall issue a press release covering the highlights and
features of the new tax issuance in any newspaper of general circulation.

3. Effectivity date for enforcement of the new issuance shall take place thirty (30) days
from the date the issuance has been sent to the above-enumerated organizations.

BIR rulings

 Administrative rulings, known as BIR rulings, are the less general interpretation of tax
laws being issued from time to time by the Commissioner of Internal Revenue. They are
usually rendered on request of taxpayers to clarify certain provisions of a tax law. These
rulings may be revoked by the Secretary of Finance if the latter finds them not in
accordance with the law.

 The Commissioner may revoke, repeal or abrogate the acts or previous rulings of his
predecessors in office because the construction of the statute by those administering it is
not binding on their successors if, thereafter, such successors are satisfied that a
different construction of the law should be given.

 Rulings in the forms of opinion are also given by the Secretary of Justice who is the chief
legal officer of the Government.
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EFFECTIVITY AND VALIDITY OF A TAX ORDINANCE

Tuazon v. Court of Tax Appleals, 212 SCRA 739

If the resolution is to be considered as a tax ordinance, it must be shown to have been

enacted in accordance with the requirements of the Local Government Code. These would
include the holding of a public hearing on the measure and its subsequent approval by the
Secretary of Finance, in addition to the usual requisites for publication of ordinances in
general.

BASIC POWERS OF THE BIR COMMISSIONER

- CODE: [E R A P]

1. Enforcement of forfeitures, fines, and penalties imposed in relation thereto, including the
enforcement execution of judgment rendered by the CTA or SC in favor of the BIR

2. Recommend needful rules and regulations to the Secretary of Finance for the effective
implementation of the provisions of the NIRC and special laws

3. Assessment and collection of internal revenue taxes, fees and other taxes.

4. Police power, to administer or to give effect to the police power conferred upon it by law.

CORROLARY POWERS OF THE BIR COMMISSIONER

CODE: [S I E O T A A T ]

1. Summon persons on certain cases pending investigation

2. Inquire into bank deposits

- Except: Secrecy of bank deposits law

> Only to determine the gross estate of decedent not to determine the income

3. Examine books of the accounts of the taxpayer and other documents

4. Obtain information

5. Take testimony of persons

6. Administer oaths

7. Arrest persons who have violated the provisions of the tax code

> should have warrant of arrest

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8. Take inventory