TAXATION Transcript Part 1 PDF

TAXATION 1 A.Y. 2014 - PART 1 (based on the syllabus and discussion of Atty.
Aranas)
By: RLB | DHB | TLD | RRM 1
I. HISTORY OF TAXATION spouses. The English and Dutch referred to the inheritance tax of Augustus in developing
their own inheritance taxes.
EGYPT
During the various reins of the Egyptian Pharaohs tax collectors were known as scribes. During During the time of Julius Caesar a 1 percent sales tax was imposed. During the time of Caesar
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one period the scribes imposed a tax on cooking oil. To insure that citizens were not avoiding Augustus the sales tax was 4 percent for slaves and 1 percent for everything else.
the cooking oil tax scribes would audit households to insure that appropriate amounts of
cooking oil were consumed and that citizens were not using leavings generated by other Saint Matthew was a publican (tax collector) from Capernaum during Caesar Augustus
cooking processes as a substitute for the taxed oil. reign. He was not of the old publicani but hired by the local government to collect taxes.

It started in a place back taxation in Egypt, in Ancient Egypt – where tax collectors were known Also during this period Caesar Augustus was considered by many as most brilliant tax
as scribes and even impost taxes on cooking oil. Because it was even said that during this strategist of the Roman Empire. For us Catholics we know Caesar Augustus, “give to Caesar
period this people even make audit if people are using the cooking oil na girasyon ug gihatag what is to Caesar, and give to God what is to God”. So they implemented 5% inheritance tax
sa ilaha. So that’s the base form of tax/ taxation. and 1% sales tax. So what is the purpose for the 5% inheritance tax? For retirement plan for
his soldiers. Tax collectors in this time were known as publican, example of it is Saint Matthew
GREECE (apostle of Christ).
In times of war the Athenians imposed a tax referred to aseisphora. No one was exempt from
the tax which was used to pay for special wartime expenditures. The Greeks are one of the GREAT BRITAIN
few societies that were able to rescind the tax once the emergency was over. When The first tax assessed in England was during occupation by the Roman Empire.
additional resources were gained by the war effort the resources were used to refund the tax.
Lady Godiva was an Anglo-‐Saxon woman who lived in England during the 11th century.
In this also, taxation/tax is referred to as aseisphora which is used to pay for special war time According to legend, Lady Godiva's husband Leofric, Earl of Mercia, promised to reduce the
expenditure. Different ang rates because during this time they engage in different wars so the high taxes he levied on the residents of Coventry when she agreed to ride naked through the
tax, if they engage in war they will have to collect the tax, if they have a loot in a while then streets of the town.
the loot will also be used, iuli ang gi.collect the tax to their citizens. So when additional
resources were gained by the war, the resources were used to refund the taxes to the people In Great Britain, the first tax was during the occupation of the Spanish Empire so, basically it
so sila ang nakauna sa concept of tax refund/credit/carry-‐over. the Roman Empire who brings the tax to Great Britain. The tax in the United States was
brought by the English. The legend of Lady Godiva, Lady Godiva is the wife of an Earl or Duke
Athenians imposed a monthly poll tax on foreigners, people who did not have both an in an area in Great Britain (you will have this area, manage this area and collect taxes in this
Athenian Mother and Father, of one drachma for men and a half drachma for women. The tax area). The earl/duke imposes very high taxes. Now Lady Godiva is for the people man daw, so
was referred to as metoikion nihangyo si Lady Godiva to her husband na i.demise ang tax. So and condition sa iyang
husband was he will minimize the tax if Lady Godiva will roam the town naked riding a horse.
Athenians imposed a monthly poll tax on foreigners. Poll/community tax imposed by the Lady Godiva roamed around the town naked riding a horse, the tax then was minimized.
Atheneans were poll tax on foreigners lang. In Philippines, poll taxes are applied to residents.
PHILIPPINES
ROMAN EMPIRE In the Philippines of course we trace our taxation during the Spanish Era or during the Spanish

The earliest taxes in Rome were customs duties on imports and exports calledportoria. Regime where several taxes and monopolies were established.

In Roman Empire, they usually use the taxation-‐-‐ they applied it in collecting for customs Tribute
duties on their imports and exports. They call it the portoria. What is the good thing in this It was the resident tax during the Spanish times. It may be paid in cash or kind, partly, or
Roman Empire is sila nakauna sa what you call Tax Haven, in every area there is a tax but for wholly. But in 1884, the tribute was replaced by the cedula personal or personal identity
this particular area there is no tax. So what they did is that there was this specific canal where paper, equivalent to the present community tax certificate.
there will be no taxes. Why? So that they can use it during war para dali ang pagsulod ug
gawas sa resources. In our case the tribute/buwis/dugyot during that Spanish period basically can still be paid in
kind and in cash. It can be paid using chicken, goose, wool blanket, cotton, rice or any other
Caesar Augustus was consider by many to be the most brilliant tax strategist of the Roman products depending of on the region.
Empire. During his reign as "First Citizen" the publicani were virtually eliminated as tax
collectors for the central government. During this period cities were given the responsibility Bandala System
for collecting taxes. Caesar Augustus instituted an inheritance tax to provide retirement funds It is a form of direct taxes that the Spaniards implemented in which the natives were coerced
for the military. The tax was 5 percent on all inheritances except gifts to children and to ell their products to the government at very low prices. It comes from the tagalog word
mandala, which is a round stock of rice stalks to be threshed.
TAXATION 1 A.Y. 2014 - PART 1 (based on the syllabus and discussion of Atty. Aranas)

We also had what we call as the bandala. It is an annual forced sale and requisitioning of ! forced labor; explains why in the Philippines we have so many churches; all male are
goods such as rice, customs duties and income tax were also collected. During the Spanish required at least 40-‐days/ 15days(reduced) of work in one year for a ration of rice only.
period, the collecting of taxes was specific in a particular area nga rebellious to the Spaniard. To be exempted from work, payment of falla must be made.
Basil(wine made with rice) Revolt, the source is the bandala. People in there were already ! Falla -‐ sum of money for exemption from polo y servicio.
making the Basil, when the Spaniards knew about it, they wanted to centralized everything
daw they implemented the bandala. What they did was there is this forced sale of the raw Different taxes UNDER THE NATIONAL INTERNAL REVENUE CODE:
materials for the making of the Basil to the government in the North Luzon. Then the North 1. Income tax -‐ FOCUS FOR THIS SEMETER
Luzon government gisugo nasad nila balik ang mga namaligya to it process to basil and then a. Individuals
they will have to resend the basil to the same people who sold to them the raw materials at a b. Corporation
much higher price. c. Other persons
2. Business Taxes – different from income tax
Cedula Personal a. Value-‐added tax
th
In 19 century, the cedula served as an identification card that had to be carried at all times. A b. Other percentage taxes
person who could not present his or her cedula to a guardia civil could then be detained for 3. Transfer taxes
being indocumentado. A legal identity document issued by cities and municipalities to all a. Donor’s tax
persons that have reached the age of majority and upon payment of a community tax, it is b. Estate tax
considered as a primary form of identification in the Philippines and is one of the closest single
document the Philippines has to a national system od identification, akin to a driver’s license Atty. A’s discussion:
and a passport. → Taxation is a destructive power of the state which interferes with personal and property
rights of the people and takes a portion of their property from them for the support of
Andres Bonifacio and other Katipuneros tore their cedulas in August 1896, signalling the start the government. Being a destructive power, it can be used to kill an activity or business if
of the Philippine Revolution. it wants to. Thus it must be exercised with caution.
→ And among the three inherent power of the state, the most powerful is? It is a battle
! Everyone over 18 yrs., but not more than 60 yrs. old, were required to pay for personal between police power and taxation. Both are supreme.
identification. Tax payers were responsible for Spanish authorities for payment for the → Taxation is more powerful if we are looking at coverage because taxation is plenary and
tax. If you cannot present the cedula receipt, the authorities can immediately arrest you. unlimited. So if we’re looking at object/subject to which we impose the power of
! Play a very important part in the Philippine history involving our hero Andres Bonifacio in taxation, then taxation is more powerful
a particular event—Pugad Lawin, where the Filipinos tore their cedula as a sign that they → But if we look at vested rights not being impaired, then police power is more powerful.
are not anymore adhering to the policies of the Spaniads. Because taxation cannot impair vested rights but police power can impair.
! Still existing until up to now, community tax certificate is still called cedula. Technically it
is not anymore the same cedula that was implemented during the Spanish period.
II. DEFINITION OF TAXATION
DEVELOPMENT OF THE COMMUNITY TAX
The cedula was imposed by the Americans on January 1, 1940, when Commonwealth Act. No. i. Taxation vis-‐à-‐vis Tax
465 went into effect, mandating the imposition of a base residence tax of 50 centavos and an Taxation
additional tax of one peso based on factors such as income and real estate holdings. The - Power wherein the sovereign raise revenue to defray the necessary expenses of
pyment of this tax would merit the issue of residence certificate. Corporations were also the government from among those who in some measure are privileged to
subject to the resident tax. enjoy its benefits and, therefore, must bear its burdens.
! Implemented to all the Indios. Eventually, it was abolished during the American regime. - Primary purpose is to raise revenue.
But it was reinstated under CA 465. Proof of payment is the residence tax. From cedula it - If the primary purpose of imposition by the government is to raise revenue, the
was changed from residence tax. Eventually, when we had our independence we passed power exercised by the government is the power of taxation. But if that
our local government code. The local government code mandated for the payment of amount imposed by the government is not primarily for revenue purposes like
Community Tax and proof of entries is the community tax certificate but it has one root for example if it is for regulation purposes, it may be police power. In police
source which is the cedula. power, the primary purpose is for regulation.
- Idea that taxation must be progressive
Polo Y Servicio
It was the forced labor for 40 days, of men ranging from 16 to 60 years of age who were Tax
obligated to give personal services to community projects. One could be exempted from the - Enforced proportional contributions from proeprerties and persons levied by
polo by paying a fee called falla (wich is worth one and a half real) the state by virtue of its sovereignty for the support of th govt and public needs
made by the legislative body in order to raise revenue despite the absence of - All revenue appropriations must originate in the house of representatives
constitutional provisions (inherent nature) (constitutional provision)
- General Rule: cannot be delegated
*Taxation is broader. - Exception:
o Local taxes by Local Government Units thru the Local government
Q: If the local government of cebu imposed amusement tax on local swimming pools, not code (Actually the constitution provides that taxation must be
provided for in the local govt code or other laws. Can it validly enact law imposing such delegated to LGUs but the congress merely set out the limitations)
tax? o Flexible tariff clause
o Administrative regulation (assessment and collection)
A: No. they cannot. Although it is an inherent power, for local government units, there
must be a delegation. Cebu city is not sovereign thus there is no inherent power of b. Scope: To determine—
taxation. Thus it cannot impose any tax only those delegated to it by the legislative 1. Purpose(s)
branch of the government. - must be for a public purpose
- The courts can inquire into whether the purpose is really public or private.
*Only the legislative branch (Congress) have an unlimited power to exercise the power to Judicial action is limited only to a review where it involves:
tax (a) the determination of the validity of the tax in relation to
constitutional precepts or provisions; or
Paseo Realty vs CA (b) the determination in an appropriate case of the application of
a tax law.
Pelizloy Realty vs Province of Benguet
2. Subjects and objects of taxation (within its jurisdiction)
- refer to the coverage and the kind or nature of the tax.
III. NATURE OF POWER OF TAXATION - They may be persons, (natural/juridical); property (real/personal,
tangible/intangible); businesses, transactions, rights, or privileges.
i. Inherent prerogative of the sovereignty - Inequalities which result from a singling out of one particular class for
a. Basis: Lifeblood theory taxation or exemption infringe no constitutional limitation so long as such
- The existence of the state is necessary exemption is reasonable and not arbitrary.
- If the government will not collect tax it becomes useless because it wont have
any money to finance its own operations 3. Amount and rate of tax
- As a general rule, the legislature may levy a tax of any amount or rate it
b. Manifestations sees fit. If the taxes are oppressive or unjust, the only remedy is the ballot
- Tax can be imposed even absence of constitutional provision box and the election of new representatives. Constitutionally, “the rule of
- The state can select the object and subject matter of taxation thus unlimited taxation shall be uniform and equitable.”
- No injunction in the collection of taxes, as a general rule, unless you have a
pending case filed in the CTA to enjoin the collection of tax. 4. Kind of tax to be collected
- Taxation is not subject to set-‐off or off-‐set. (Domingo vs Cardigon: although
general rule in taxation there is no off-‐setting, but when it is due and 5. Apportionment of the tax
demandable and has been fully liquidated, there can be offsetting. Will be
discussed later) 6. Manner and mode of enforcement and collection
- As a general rule, the power to tax is plenary and unlimited in its range,
acknowledging in its very nature no limits, so that the principal check against its 7. Situs of taxation
abuse is to be found only in the responsibility of the legislature (which imposes - you have to consider the nature of the taxes.
the tax) to its constituency who are to pay it. Nevertheless, it is circumscribed - Example: Community tax -‐ Residence of the taxpayer; Real property tax -‐
by constitutional limitations. Concurring and Dissenting Opinion of Justice Location of the property.
Leonen (Manila Memorial Park) - We can only impose property tax on the properties of a person whose
residence is in the Philippines.
ii. Legislative in Character -
a. Basis 8. Grant tax exemption or condonation
- Taxes are a grant of the people who are taxed and the grant must be made by
the immediate rep of the people 9. Provision of administrative and judicial remedies that may be availed by the
- It should be our representatives who must levy and impose the tax taxpayers and government
iii. Secondary: Non-‐revenue Raising
Q: Can the mayor impose tax? a. Regulation—e.g. to protect local industries against unfair competition

A: No. only the sangunian. In short in so far as local government units are concerned, Holmes Dictum: McCulloch vs Maryland
imposition of taxes are still made by the legislative branch—sangunians. → The power of taxation involves the power to destroy

iii. Subject to constitutional and inherent limitations Marshall Dictum: Panhandle Oil vs Mississippi
→ The power of taxation does not involve the power to destroy as long as this (SC)
court sits
IV. BASIS OF TAXATION
- Necessity Theory: existence of state is a necessity therefore there is a need to levy and How are they reconciled? Reyes vs Almanzor
impose taxes for the countenance of the state, to defray the expenses. → The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all
i. Necessity to serve the people the powers of government. But for all its plenitude the power to tax is not
ii. Necessity to protect the people unconfined as there are restrictions. Adversely effecting as it does property
rights, both the due process and equal protection clauses of the Constitution
may properly be invoked to invalidate in appropriate cases a revenue measure.
V. IMPORTANCE OF TAXES (Lifeblood Doctrine) If it were otherwise, there would be truth to the 1903 dictum of Chief Justice
Marshall that "the power to tax involves the power to destroy." The web or
unreality spun from Marshall's famous dictum was brushed away by one stroke
VI. THEORIES OF TAXATION of Mr. Justice Holmes pen, thus: "The power to tax is not the power to destroy
i. Lifeblood Theory while this Court sits.” So it is in the Philippines.
- Taxes are lifeblood of the government and should be collected without hindrance. It → In the same vein, the due process clause may be invoked where a taxing statute
is said that taxes are what we pay for a civilized society, without taxes, the is so arbitrary that it finds no support in the Constitution. An obvious example is
government will be paralyzed for the lack of motive to operate. CIR vs Metro Star where it can be shown to amount to confiscation of property. That would be a
Superama Inc. clear abuse of power.
- But even if we concede as to the indispensability of taxation, it is a requirement in all → The taxing power has the authority to make a reasonable and natural
democratic regime that it be exercised reasonably and in accordance with the classification for purposes of taxation but the government's act must not be
prescribed procedure. (Prescriptive Periods to assess/collect) prompted by a spirit of hostility, or at the very least discrimination that finds no
support in reason. It suffices then that the laws operate equally and uniformly
ii. Necessity Theory on all persons under similar circumstances or that all persons must be treated
in the same manner, the conditions not being different both in the privileges
iii. Benefits received Theory/Reciprocity Theory/Symbiotic Theory (Doctrine of Symbiotic conferred and the liabilities imposed.
Relationship) → Verily, taxes are the lifeblood of the government and so should be collected
a. Support by the taxpayers without unnecessary hindrance. However, such collection should be made in
b. Protection and benefits by the government accordance with law as any arbitrariness will negate the very reason for
government itself It is therefore necessary to reconcile the apparently
Atty. A: Mutual Benefits; There exist reciprocal duties of protection and support between conflicting interests of the authorities and the taxpayers so that the real
the state and its inhabitants. TAKE NOTE: state and inhabitants, not citizens, because purpose of taxations, which is the promotion of the common good, may be
even if you’re an alien and an inhabitant here, you are still taxed. The protection is in the achieved. Consequently, it stands to reason that petitioners who are burdened
form of security (either tangible/intangible aspects) by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20)
under the principle of social justice should not now be penalized by the same
government by the imposition of excessive taxes petitioners can ill afford and
VII. PURPOSE AND OBJECTIVE OF TAXATION eventually result in the forfeiture of their properties.
i. 4 R’s of Taxation
a. Revenue b. Promotion of general welfare—implementation of the police power
b. Redistribution - primary purpose is police power; secondary purpose is power of taxation
c. Re-‐pricing—i.e. sin taxes, as a way to change behavior - power of taxation can be a tool in exercising police power
d. Representation—demand for accountability from the government on taxes collected
c. Reduction of social inequalities (redistribution)
ii. Primary: Revenue Raising

- progressive system of taxation prevents the undue concentration of wealth in million per annum have not been subjected to tax, thereby depriving the Government of
the hands of a few individuals. an additional source of revenue. It is an end-‐user tax, imposed on retailers for every
- Progressivity is the keystone on the principle that those who are able to pay, videogram they make available for public viewing. It is similar to the 30% amusement tax
shoulders the bigger portion of the tax burden. imposed or borne by the movie industry which the theater-‐owners pay to the
government, but which is passed on to the entire cost of the admission ticket, thus
d. Encourage economic growth shifting the tax burden on the buying or the viewing public. It is a tax that is imposed
- by granting incentives and exemptions, giving lower taxes uniformly on all videogram operators.
- encourage business investments; → The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the
i.e. PEZA, IT Park, Cebu Business Park – given lower tax rates need for regulating the video industry, particularly because of the rampant film piracy,
the flagrant violation of intellectual property rights, and the proliferation of pornographic
e. Protectionism video tapes. And while it was also an objective of the DECREE to protect the movie
- to protect local industries from foreign competition. industry, the tax remains a valid imposition.
→ The public purpose of a tax may legally exist even if the motive which impelled the
legislature to impose the tax was to favor one industry over another. It is inherent in the
VIII. SCOPE OF TAXATION power to tax that a state be free to select the subjects of taxation, and it has been
i. Unlimited repeatedly held that "inequities which result from a singling out of one particular class for
- unlimited with regards to the object or subject of the power of taxation taxation or exemption infringe no constitutional limitation". Taxation has been made the
- subject to the inherent limitations implement of the state's police power.
ii. Comprehensive → At bottom, the rate of tax is a matter better addressed to the taxing legislature.
iii. Plenary
iv. Supreme
IX. ASPECT OF TAXATION
Pepsi Cola vs Municipality of Tanauan i. Levy or Imposition (Legislation)
→ The power of taxation is an essential and inherent attribute of sovereignty, belonging as a - refers to the enactment of a law by Congress, imposing a tax
matter of right to every independent government, without being expressly conferred by - Need to determine who will be taxed, how much will be taxed, the manner of
the people. It is a power that is purely legislative and which the central legislative body collecting the tax, who has the responsibility in the levy or imposition of the tax
cannot delegate either to the executive or judicial department of the government
without infringing upon the theory of separation of powers. ii. Assessment
→ The exception, however, lies in the case of municipal corporations, to which, said theory - applying the law passed by congress to the specific person, property or activity
does not apply. Legislative powers may be delegated to local governments in respect of covered by it.
matters of local concern. This is sanctioned by immemorial practice. By necessary - Assess/compute how much is the tax
implication, the legislative power to create political corporations for purposes of local
self-‐government carries with it the power to confer on such local governmental agencies iii. Collection
the power to tax. • Agencies Involved:
→ Under the New Constitution, local governments are granted the autonomous authority to - BIR
create their own sources of revenue and to levy taxes. Section 5, Article XI provides: - BOC
"Each local government unit shall have the power to create its sources of revenue and to - Provincial, City, and Municipal Assessor and Treasurers
levy taxes, subject to such limitations as may be provided by law." Withal, it cannot be
said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the *In Assessment and Collection, it is considered the administration of tax wherein the
legislative power to enact and vest in local governments the power of local taxation. administration and implementation of the tax law by the executive department through
administrative agencies; assessment and collection.
Tio vs Videogram Regulatory Board
→ a tax does not cease to be valid merely because it regulates, discourages, or even * Only Levy must be done by the legislative. The other may be delegated to others like BIR and
definitely deters the activities taxed. The power to impose taxes is one so unlimited in Bureau of Customs.
force and so searching in extent, that the courts scarcely venture to declare that it is
subject to any restrictions whatever, except such as rest in the discretion of the authority iv. Payment
which exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in - Taxpayer’s responsibility
general, a sufficient security against erroneous and oppressive taxation.
→ The tax imposed by the DECREE is not only a regulatory but also a revenue measure
prompted by the realization that earnings of videogram establishments of around P600 X. BASIC PRINCIPLE OF A SOUND TAX SYSTEM (F-‐A-‐T-‐E)
i. Fiscal Adequacy compensation individual receives market value of the receives indirect
- means that the sources of revenue, that is, receipts therefrom, taken as whole, (benefits) the equivalent of the property taken from benefits as may arise
should be sufficient to meet the demands of public expenditure. It means also that tax in the form of him. from the
the revenues should be elastic or capable of expanding or contracting annually in protection and maintenance of a
response to variations in public expenditures. benefits he receives healthy economic
from the government. standard of society.
ii. Theoretical Justice or Equity – Ability to pay doctrine (Sec. 28(1), Art. VI, 1987 Consti) As to persons Operates upon Operates on an Operates upon
- means that the tax burden should be distributed in proportion to the taxpayer’s affected (1) A community; or individual as the (1) A community; or
ability to pay. Similarly situated taxpayers should pay equal taxes, while those who (2) Class of owner of a particular (2)Class of individuals.
have more should pay more. Taxation should be uniform as well as equitable. individuals. property.
- Most important principle; if tax law does not adhere to theoretical justice it is As to the May be exercised May be: May be exercised
defective and void; without fiscal adequacy, administrative feasibility and economic authority which only by the (1) Exercised by the only by the
efficiency the tax law is merely defective but does not make it void. exercises the government or its government or its government or its
power political subdivisions. political subdivisions; political subdivisions.
iii. Administrative Feasibility (2) Granted to public
- means that tax laws should be capable of conveniently, effectively enforced by the service companies or
government public utilities.
- a question of cost-‐benefit As to the Generally, there is no No amount imposed Amount imposed
- assessment and collection must not be more costly than what can be collected and amount of limit on the amount but rather the owner should not be more
assessed (i.e. if all taxpayer’s will be audited, it will be costly. Thus, taxpayer’s are imposition of tax that may be is paid the market than sufficient to
grouped into big and (small) taxpayers; it is not feasible for the government to audit (amount of imposed. value of property cover the cost of the
all taxpayers) exaction) taken. license and necessary
expenses.
iv. Economic Efficiency As to the Is subject to certain Inferior to the Relatively free from
- combination of fiscal adequacy and administrative feasibility relationship to constitutional impairment constitutional
- to make sure that the economy will be stable. the Constitution limitations. prohibition; limitations.
government cannot
XI. TAXATION DISTINGUISHED FROM POLICE POWER AND EMINENT DOMAIN -‐inherent expropriate private -‐inherent
property, which
Taxation Eminent Domain Police Power under a contract it
As to purpose The property The property is The use of the had previously bound
(generally money) is “taken” for public property is itself to purchase
taken for the support use; it must be “regulated” for the from the other
of the government. compensated purpose of promoting contracting party.
the general welfare; it
-‐to raise revenue -‐facilitate the state’s is not compensable. -‐inherent
need for property for Effect Including the There is a transfer of Is superior to the
public purpose prohibition against the right to property. impairment of
Amount of -‐unlimited -‐none; there is just -‐limited to the cost of impairment of the contract provision.
exaction compensation rendering the service obligation of
(license-‐payment contracts.
must only cover the
cost)
As to benefits -‐direct/indirect -‐there is direct -‐GR:no direct benefit Planters Products vs FertiPhil
benefit; tangible or benefit in the form of → The LOI is still unconstitutional even if enacted under the police power; it did not
intangible just compensation; promote public interest.
As to non-‐ -‐cannot impair -‐ cannot impair -‐can impair existing → Taxes are exacted only for a public purpose. The P10 levy is unconstitutional because it
impairment of existing contracts existing contracts contracts was not for a public purpose. The levy was imposed to give undue benefit to PPI.
contracts → An inherent limitation on the power of taxation is public purpose. Taxes are exacted only
As to It is assumed that the He receives the The person affected for a public purpose. They cannot be used for purely private purposes or for the exclusive
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benefit of private persons. The reason for this is simple. The power to tax exists for the
general welfare; hence, implicit in its power is the limitation that it should be used only Atty. A: Motor vehicle registration fee and chauffeur’s license fee are power of taxation,
for a public purpose. It would be a robbery for the State to tax its citizens and use the whereas the special permit fee and additional fee for change of registration, because it’s
funds generated for a private purpose. As an old United States case bluntly put it: "To lay just minimal, hence an example of exercise of police power. These are some things class
with one hand, the power of the government on the property of the citizen, and with the that you have to remember.
other to bestow it upon favored individuals to aid private enterprises and build up private
fortunes, is nonetheless a robbery because it is done under the forms of law and is called CIR vs Central Luzon
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taxation." → the privilege enjoyed by senior citizens does not come directly from the State, but rather
→ The term "public purpose" is not defined. It is an elastic concept that can be hammered from the private establishments concerned. Accordingly, the tax credit benefit granted to
to fit modern standards. Jurisprudence states that "public purpose" should be given a these establishments can be deemed as their just compensation for private property
broad interpretation. It does not only pertain to those purposes which are traditionally taken by the State for public use.
viewed as essentially government functions, such as building roads and delivery of basic → The concept of public use is no longer confined to the traditional notion of use by the
services, but also includes those purposes designed to promote social justice. Thus, public public, but held synonymous with public interest, public benefit, public welfare, and public
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money may now be used for the relocation of illegal settlers, low-‐cost housing and urban convenience. The discount privilege to which our senior citizens are entitled is actually a
or agrarian reform. benefit enjoyed by the general public to which these citizens belong. The discounts given
would have entered the coffers and formed part of the gross sales of the private
Atty. A: there is also a discussion here on the use of the power of taxation to implement establishments concerned, were it not for RA 7432. The permanent reduction in their
the police power. total revenues is a forced subsidy corresponding to the taking of private property for
→ Police power and the power of taxation are inherent powers of the State. These public use or benefit.
powers are distinct and have different tests for validity. Police power is the power of → As a result of the 20 percent discount imposed by RA 7432, respondent becomes entitled
the State to enact legislation that may interfere with personal liberty or property in to a just compensation. This term refers not only to the issuance of a tax credit certificate
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order to promote the general welfare, while the power of taxation is the power to indicating the correct amount of the discounts given, but also to the promptness in its
levy taxes to be used for public purpose. The main purpose of police power is the release. Equivalent to the payment of property taken by the State, such issuance -‐-‐ when
regulation of a behavior or conduct, while taxation is revenue generation. The not done within a reasonable time from the grant of the discounts -‐-‐ cannot be
"lawful subjects" and "lawful means" tests are used to determine the validity of a considered as just compensation. In effect, respondent is made to suffer the
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law enacted under the police power. The power of taxation, on the other hand, is consequences of being immediately deprived of its revenues while awaiting actual
circumscribed by inherent and constitutional limitations. receipt, through the certificate, of the equivalent amount it needs to cope with the
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→ We agree with the RTC that the imposition of the levy was an exercise by the State reduction in its revenues.
of its taxation power. While it is true that the power of taxation can be used as an → Besides, the taxation power can also be used as an implement for the exercise of the
41 80
implement of police power, the primary purpose of the levy is revenue generation. power of eminent domain. Tax measures are but "enforced contributions exacted on
81 82
If the purpose is primarily revenue, or if revenue is, at least, one of the real and pain of penal sanctions" and "clearly imposed for a public purpose." In recent years,
substantial purposes, then the exaction is properly called a tax. the power to tax has indeed become a most effective tool to realize social justice, public
welfare, and the equitable distribution of wealth.
Atty. A: there is also a discussion here class on Motor Vehicle registration fee and
chauffeur’s license fee. Pwede bya ni mugawas sa MCQ, dba? Atty. A: who won in this case? Central Luzon. In short, Central Luzon was given the refund.
→ Taxation may be made the implement of the state's police power. If the purpose is Just a quick background, the last 3 cases—Central Luzon, Superdrug and Manila Memorial
primarily revenue, or if revenue is, at least, one of the real and substantial purposes, park—are inter-‐related cases. For the Central Luzon case, this happened when the Senior
then the exaction is properly called a tax. Such is the case of motor vehicle Citizens Act was not yet expanded and it provided that the discount can still be claimed as tax
registration fees. The same provision appears as Section 59(b) in the Land credit. But later on (referring to the 2 later cases), we will realize that Congress change it.
Transportation Code. It is patent therefrom that the legislators had in mind a Instead as tax credit, the tax deduction scheme is changed and the discount was deducted to
regulatory tax as the law refers to the imposition on the registration, operation or the gross sales as part of the COS (Cost of Sales). In short, this case (Central Luzon) is already
ownership of a motor vehicle as a "tax or fee." x x x Simply put, if the exaction under not controlling.
Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need
not be an "additional" tax. Rep. Act 4136 also speaks of other "fees" such as the Carlos Superdrug Corp. vs DSWD (expanded Seniors Citizen Act)
special permit fees for certain types of motor vehicles (Sec. 10) and additional fees → the law grants a twenty percent discount to senior citizens for medical and dental
for change of registration (Sec. 11). These are not to be understood as taxes because services, and diagnostic and laboratory fees; admission fees charged by theaters, concert
such fees are very minimal to be revenue-‐raising. Thus, they are not mentioned by halls, circuses, carnivals, and other similar places of culture, leisure and amusement; fares
Sec. 59(b) of the Code as taxes like the motor vehicle registration fee and chauffeurs’ for domestic land, air and sea travel; utilization of services in hotels and similar lodging
license fee. Such fees are to go into the expenditures of the Land Transportation establishments, restaurants and recreation centers; and purchases of medicines for the
Commission as provided for in the last proviso of Sec. 61. exclusive use or enjoyment of senior citizens. As a form of reimbursement, the law
provides that business establishments extending the twenty percent discount to senior an exercise of police power or eminent domain. The 20% discount is intended to improve
citizens may claim the discount as a tax deduction. the welfare of senior citizens who, at their age, are less likely to be gainfully employed,
→ The law is a legitimate exercise of police power which, similar to the power of eminent more prone to illnesses and other disabilities, and, thus, in need of subsidy in purchasing
domain, has general welfare for its object. Police power is not capable of an exact basic commodities. It may not be amiss to mention also that the discount serves to honor
definition, but has been purposely veiled in general terms to underscore its senior citizens who presumably spent the productive years of their lives on contributing
comprehensiveness to meet all exigencies and provide enough room for an efficient and to the development and progress of the nation. As to its nature and effects, the 20%
22
flexible response to conditions and circumstances, thus assuring the greatest benefits. discount is a regulation affecting the ability of private establishments to price their
Accordingly, it has been described as "the most essential, insistent and the least limitable products and services relative to a special class of individuals, senior citizens, for which
23 76
of powers, extending as it does to all the great public needs." It is "[t]he power vested in the Constitution affords preferential concern.
the legislature by the constitution to make, ordain, and establish all manner of → In turn, this affects the amount of profits or income/gross sales that a private
wholesome and reasonable laws, statutes, and ordinances, either with penalties or establishment can derive from senior citizens. In other words, the subject regulation
without, not repugnant to the constitution, as they shall judge to be for the good and affects the pricing, and, hence, the profitability of a private establishment. However, it
24
welfare of the commonwealth, and of the subjects of the same." does not purport to appropriate or burden specific properties, used in the operation or
→ For this reason, when the conditions so demand as determined by the legislature, conduct of the business of private establishments, for the use or benefit of the public, or
property rights must bow to the primacy of police power because property rights, though senior citizens for that matter, but merely regulates the pricing of goods and services
sheltered by due process, must yield to general welfare. relative to, and the amount of profits or income/gross sales that such private
→ The Court is not oblivious of the retail side of the pharmaceutical industry and the establishments may derive from, senior citizens.
competitive pricing component of the business. While the Constitution protects property → The 20% discount may be properly viewed as belonging to the category of price
rights, petitioners must accept the realities of business and the State, in the exercise of regulatory measures which affect the profitability of establishments subjected thereto.
police power, can intervene in the operations of a business which may result in an On its face, therefore, the subject regulation is a police power measure.
impairment of property rights in the process. → we find that there are at least two conceivable bases to sustain the subject regulation’s
validity absent clear and convincing proof that it is unreasonable, oppressive or
Atty. A: Ingun sila (Superdrug Corp.) nga alkansi mi because there is no just compensation confiscatory. Congress may have legitimately concluded that business establishments
of the discount we give to the senior’s citizen kay dili peso-‐to-‐peso deduction. But then in have the capacity to absorb a decrease in profits or income/gross sales due to the 20%
this case the SC declared that the basic reason of the passage of the Senior Citizens Act is discount without substantially affecting the reasonable rate of return on their
social justice, general welfare of the senior citizens. And the power that is actually investments considering (1) not all customers of a business establishment are senior
exercised is not the power of eminent domain but it’s the police power. But it was not citizens and (2) the level of its profit margins on goods and services offered to the general
reconciled in this case, conflicting ang decision sa Central Luzon and Superdrug. So take public.
note ha? In the Central Luzon, it was declared eminent domain and the existing law there → Concurrently, Congress may have, likewise, legitimately concluded that the
was tax credit pa tu. Here in this case, it was declared police power and the existing law is establishments, which will be required to extend the 20% discount, have the capacity to
that the 20% discount will be deducted as part of the cost. Do you follow? So SC revise their pricing strategy so that whatever reduction in profits or income/gross sales
reconciled these 2 cases in Manila Memorial Park case. that they may sustain because of sales to senior citizens, can be recouped through higher
mark-‐ups or from other products not subject of discounts. As a result, the discounts
Manila Memorial Park vs Sec. of DSWD resulting from sales to senior citizens will not be confiscatory or unduly oppressive. In
52 88
→ A fair reading of Carlos Superdrug Corporation would show that we categorically ruled sum, we sustain our ruling in Carlos Superdrug Corporation that the 20% senior citizen
therein that the 20% discount is a valid exercise of police power. Thus, even if the current discount and tax deduction scheme are valid exercises of police power of the State
law, through its tax deduction scheme (which abandoned the tax credit scheme under absent a clear showing that it is arbitrary, oppressive or confiscatory.
the previous law), does not provide for a peso for peso reimbursement of the 20%
discount given by private establishments, no constitutional infirmity obtains because, Atty. A: How did SC settled the arguments of the petitioners? Nagpalaban lng ang SC sa
being a valid exercise of police power, payment of just compensation is not warranted. nature of taxation that its plenary in nature. So the SC said that you cannot do anything
→ In the exercise of police power (as distinguished from eminent domain), although the about it because that’s the decision of the legislative in exercising the power of taxation.
regulation affects the right of ownership, none of the bundle of rights which constitute Such that, being plenary, they can decide what tax deduction scheme they want to adapt.
ownership is appropriated for use by or for the benefit of the public. On the other hand, Dba? And in this case, it was cleared out that the 20% senior citizen discount was an
in the exercise of the power of eminent domain, property interests are appropriated and exercise of police power.
applied to some public purpose which necessitates the payment of just compensation
therefor. Normally, the title to and possession of the property are transferred to the Unsa pa man imu nakat-‐unan in this case? The central Luzon case was a mere obiter
expropriating authority. Examples include the acquisition of lands for the construction of dictum.
public highways as well as agricultural lands acquired by the government under the
agrarian reform law for redistribution to qualified farmer beneficiaries.
→ We now look at the nature and effects of the 20% discount to determine if it constitutes XII. TAXES, DEFINED
vii. LEVIED FOR PUBLIC PURPOSE/S
TAX
- enforced proportional contributions from persons and property levied by the lawmaking Requisites of a Valid tax (PUJ-‐DL / ang ma.jeep ma-‐dean’s lister)
body of the State by virtue of its sovereignty for the support of government and for all a) it must be for public purpose
public needs. b) the rule on taxation should be uniform
- when we talk about uniform, it should be for the same tax, same subject or
DIFFERENT KINDS OF TAXES object, and should belong to the same class.
c) Either the person the property taxed must be within the jurisdiction of the taxing
i. INTERNAL REVENUE TAXES (provided under NIRC) authority
- Income tax d) That the assessment and collection be in consonance with the due process clause
- Business tax e) The tax must not fringed the inherent and constitutional limitations of the power of
- Transfer tax taxation
- Donors and estate tax
- Percentage tax
- Excise tax XIV. CLASSIFICATION OF TAXES
- Documentary stampt tax
i. AS TO SUBJECT MATTER OR OBJECT
ii. LOCAL/MUNICIPAL TAXES 1) Personal, poll or Capitation
- provided under the LGC - tax of a fixed amount imposed on persons residing within a specified
territory, whether citizens or not, without regard to their property or the
iii. TARIFF AND CUSTOMS DUTIES occupation of business which they may be engaged.
- provided under the TCC - Being personal, you cannot shift the burden to another person. Ex.
Community tax
iv. TAXES AND TAX INCENTIVES UNDER SPECIAL LAWS 2) Property
- common example: PEZA law which provides 5% tax in lieu of all taxed for businesses - Levied on the property. Ex. Real property tax
catered within its territory. 3) Excise
- A charge imposed upon the performance of an act for the enjoyment of
the privilege or the engagement in an occupation.
XIII. ESSENTIAL CHARACTERISTICS AND ATTRIBUTES OF TAXES (please memorize)
→ for a tax to be valid, it must have all these essential characteristics ii. AS TO WHO BEARS THE BURDEN
1) Direct
i. ENFORCED CONTRIBUTION - tax for which the taxpayer is directly or primarily liable or which he cannot
- A tax is not a voluntary payment or donation and its imposition is in no way shift to another.
dependent upon the will or assent, open or implied, or the person taxed. 2) Indirect
- tax which is demanded from one person in the expectation and intention
ii. GENERALLY PAYABLE IN MONEY that he shall indemnify himself at the expense of another
• can you go the BIR and pay tax in kind? NO.
- GR: it must be payable in money. iii. AS TO DETERMINATE OF AMOUNT
- Exception: Backpay Certificate; Tax Credit Certificate 1) Specific
- tax of a fixed amount imposed by the head or number, or by some
iii. PROPORTIONATE IN CHARACTER standard of weight or measurement
- Taxpayer’s ability to pay (the more you have, the more you should pay) - so long as the item falls within the classification being taxed then it is
- Take note: proportionate is not progressive (we will discuss this later on) subject to that particular tax; no need for an appraisal
2) Ad valorem
iv. LEVIED ON PERSON, PROPERTY OR THE EXERCISE OF A RIGHT OR PRIVILEGE - tax of a fixed proportion of the value of the property with respect to which
the tax is assessed
v. LEVIED BY THE STATE WHICH HAS JURISDICTION OVER THE SUBJECT OR OBJECT OF - since this involves the value of the property, it needs an appraisal by
TAXATION appraisers

vi. LEVIED BY THE LAWMAKING BODY OF THE STATE iv. AS TO PURPOSE
1) General, fiscal or revenue
- tax imposed for the general purposes of the government and to raise
revenue for governmental needs. Tax Toll
2) Specific or regulatory Definition Enforced proportional A sum of money for the use of
- tax imposed for a special purpose. contributions from persons something, a consideration which is
- To achieve some social or economic and irrespective of whether revenue is and property paid for the use of a property which
actually generated raised or not. is of a public nature; e.g., road,
bridge
v. AS TO THE SCOPE OR AUTHORITY IMPOSING THE TAX Basis A demand of sovereignty A demand of proprietorship
1) National Amount No limit as to the amount Amount of toll depends upon the
- Imposed by the national government. To be specific, it is imposed by the cost of construction or maintenance
legislative department and implemented by the executive department of the public improvement used
through the BIR. Authority May imposed only by the May be imposed by the government
2) Municipal or local government or private individuals or entities
- It must be provided in the LGC and is imposed by the local executive body,
Sangguniang Panglungsod or Panlalawigan. iii. COMPROMISE PENALTY

vi. AS TO GRADUATE OR RATE Tax Penalty
1) Proportion Definition Enforced proportional Sanction imposed as a punishment
- Tax is based on a fixed percentage of the amount of the property, receipts, contributions from persons for violation of a law or acts deemed
or other basis to be taxed. Ex: real estate tax and property injurious; violation of tax laws may
2) Progressive give rise to imposition of penalty
- The tax rate increases as the tax base or bracket increases
Purpose Intended to raise revenue Designed to regulate conduct
3) Regressive
Authority May be imposed only by the May be imposed by:
- The tax rate decreases as the tax base or bracket increases
government (a) Government; or

(b) Private individuals or entities

XV. TAXES DISTINGUISHED FROM OTHER IMPOSITIONS (From Tiu Notes)
iv. SPECIAL ASSESSMENT

i. LICENSE OR PERMIT FEE
Tax Special Assessment

Definition Enforced proportional An enforced proportional
Tax License Fee
contributions from persons contribution from owners of lands
Purpose Imposed for revenue Imposed for regulatory purposes
and property especially benefited by public
purposes
improvements
Basis Imposed under the power of Imposed under the police power of the
Basis Based on necessity Based wholly on benefits
taxation State
Subject Levied on: Levied only on land
Amount No limit as to the amount of Amount of license fee that can be
(a) Persons;
tax collected is limited to the cost of the
(b) Property; or
license and the expenses of police
(c) Acts.
surveillance and regulation
Scope Has general application It is exceptional both to the time and
Time of Normally paid after the start Normally paid before the
place
payment of business commencement of the business
Person It is a personal liability of the Not a personal liability of the person
Effect of Failure to pay the tax does Failure to pay a license fee makes the
Liable taxpayer assessed; his liability is limited only to
non-‐ not make the business illegal business illegal
the land involved
payment

Surrender Taxes, being the lifeblood of License fee may with or without
Republic vs Bacolod
the State, cannot be consideration
→ The purpose of s special assessment is to finance the improvement of particular
surrendered excepts for
properties, with the benefits of the improvement accruing or inuring to the
lawful considerations
owners thereof who, after all, pay the assessment. The purpose of an ordinary

tax, on the other hand, is to provide the Government with revenues needed for
ii. TOLL FEE
the financing of state affairs. Thus, while the refusal of a citizen to pay his
ordinary taxes may not indeed be sanctioned because it would impair
government functions, the same would not hold true in the case of a refusal to XVI. LIMITATION OF THE POWER OF TAXATION
comply with a special assessment.
i. INHERENT LIMITATIONS
v. DEBT 1. Public purpose
- The term "public purpose" is not defined. It is an elastic concept that
Tax Debt can be hammered to fit modern standards. Jurisprudence states that
Basis Based on law Based on contract or judgement "public purpose" should be given a broad interpretation. It does not
Effect of non-‐ Taxpayer may be No imprisonment for failure to pay only pertain to those purposes which are traditionally viewed as
payment imprisoned for his failure a debt essentially government functions, such as building roads and delivery
to pay the tax (except poll of basic services, but also includes those purposes designed to
tax) promote social justice. Thus, public money may now be used for the
Mode of Generally payable in May be payable in money, property relocation of illegal settlers, low-‐cost housing and urban or agrarian
payment money or services reform. Planters vs Fertiphil
Assignability Not assignable Can be assigned (you can let the - General rule, public money can only be spent for a public purpose.
other person pay the debt on your Although private individuals are directly benefited, the tax would still
behalf) be valid provided that such benefit is only incidental. Pascual vs Sec.
Interest Does not draw interest Draws interest if stipulated or of Public Works
unless delinquent delayed
Authority Imposed by public Can be imposed by private Determination that tax is for a public purpose:
authority individuals • Proceeds of the tax must be use for the support of the government,
Prescription Prescriptive periods for Civil code governs the prescriptive specifically on its governmental function
tax are determined under period of debts • Proceeds of the tax must be for any of the recognized objects of the
the NIRC government
• Proceeds of the tax must be to promote the welfare of the
vi. SUBSIDY community
- A sum of money granted by the government or a public body to assist an industry or
business so that the price of a commodity or service may remain low or competitive. Atty. A:
- a pecuniary aid or directly granted by the government to an individual or private - As long as there is still link to the public welfare, the purpose is still
commercial enterprise deemed beneficial to the public. Tax, on the other hand, not given public.
or granted by the government, rather, it is collected by the government form its - The test is not as to who receives the money but the character of the
inhabitants. purpose of which it is expected and not the immediate result of the
expenditure but rather the ultimate result.
vii. REVENUE - For you to determine if its public purpose, it must be reckoned on the
- refers to all the funds or income derived by the government, whether from tax or from date when the law is passed.
whatever source and whatever manner
CASES: (for public purpose although it is for a specific industry)
viii. INTERNAL REVENUE Lutz vs Araneta
- taxes imposed by the legislature other than duties on imports and exports. → Analysis of the Act will show that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization of the
ix. CUSTOMS DUTIES threatened sugar industry. In other words, the act is primarily an exercise
- taxes imposed on goods exported from or imported into a country. of the police power.
→ sugar production is one of the great industries of our nation, sugar
x. TARIFF occupying a leading position among its export products; it is a great source
- customs duties, toll, or tributes payable upon a merchandise to the government. of the state's wealth, is one of the important sources of foreign exchange
needed by our government. Its promotion, protection and advancement,
Atty. A: what is important here, from no. 1 to no. 10, of the things enumerated is that all therefore redounds greatly to the general welfare. Hence it was
are not considered taxes. If they are not considered taxes then it is not a requirement competent for the legislature to find that the general welfare demanded
that those enumerated should be for PUJ-‐DL (the requirements for a valid tax). that the sugar industry should be stabilized in turn; and in the wide field of
its police power, the lawmaking body could provide that the distribution of
benefits therefrom be readjusted among its components to enable it to
resist the added strain of the increase in taxes that it had to sustain. Caltex vs COA
→ the protection and promotion of the sugar industry is a matter of public → money due the government, either in the form of taxes or other dues, is its
concern, it follows that the Legislature may determine within reasonable lifeblood and should be collected without hindrance. Thus, instead of
bounds what is necessary for its protection and expedient for its giving petitioner a reason for compensation or set-‐off, the Revised
promotion. Here, the legislative discretion must be allowed fully play, Administrative Code makes it the respondents' duty to collect petitioner's
subject only to the test of reasonableness. If objective and methods are indebtedness to the Oil Price Stabilization Fund (OPSF).
alike constitutionally valid, no reason is seen why the state may not levy → Taxation is no longer envisioned as a measure merely to raise revenue to
taxes to raise funds for their prosecution and attainment. Taxation may be support the existence of the government; taxes may be levied with a
made the implement of the state's police power. regulatory purpose to provide means for the rehabilitation and
→ it appears rational that the tax be obtained precisely from those who are stabilization of a threatened industry which is affected with public interest
to be benefited from the expenditure of the funds derived from it. At any as to be within the police power of the state.
rate, it is inherent in the power to tax that a state be free to select the → There can be no doubt that the oil industry is greatly imbued with public
subjects of taxation, and it has been repeatedly held that "inequalities interest as it vitally affects the general welfare. Any unregulated increase
which result from a singling out of one particular class for taxation, or in oil prices could hurt the lives of a majority of the people and cause
exemption infringe no constitutional limitation". economic crisis of untold proportions. It would have a chain reaction in
terms of, among others, demands for wage increases and upward
Atty. A: Why only those people engaged in the sugar industry business will be spiralling of the cost of basic commodities. The stabilization then of oil
the one to carry the burden of paying the tax? prices is of prime concern which the state, via its police power, may
- So long as there is valid classification, even if it would result to inequality properly address.
to some people or affect individuals, the law cannot be considered invalid → Also, a taxpayer may not offset taxes due from the claims that he may
per se. These people in the sugar industry business are the ones who will have against the government. Taxes cannot be the subject of
directly benefit from the said imposition of tax. compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such a
Ormoc Sugar Co. vs Conejos debt, demand, contract or judgment as is allowed to be set-‐off.
→ The point remains to be determined, however, whether constitutional
limits on the power of taxation, specifically the equal protection clause Atty. A: As a general rule, there can be no offsetting of tax payables, unlike
and rule of uniformity of taxation, were infringed. debts. We will discuss this more as we go forward. Aside from this, the SC
→ The Constitution in the bill of rights provides: ". . . nor shall any person be discussed whether OPSF is a public purpose or not, it ruled that it is still for
denied the equal protection of the laws." (Sec. 1 [1], Art. III) In Felwa vs. public purpose (ang reason kay highlighted above). Lastly, you have to
5
Salas, We ruled that the equal protection clause applies only to persons remember on the Consti provision Art. 6, Sec. 29(3).
or things identically situated and does not bar a reasonable classification
of the subject of legislation, and a classification is reasonable where (1) it is TAKE NOTE: Art. VI, Sec. 29 (3) of the Consti: All money collected on any tax
based on substantial distinctions which make real differences; (2) these levied for a special purpose shall be treated as a special fund and paid out for
are germane to the purpose of the law; (3) the classification applies not such purpose only. If the purpose for which a special fund was created has been
only to present conditions but also to future conditions which are fulfilled or abandoned, the balance, if any, shall be transferred to the general
substantially identical to those of the present; (4) the classification applies funds of the Government.
only to those who belong to the same class.
→ A perusal of the requisites instantly shows that the questioned ordinance CONCEPTS RELATIVE TO PUBLIC PURPOSE
does not meet them, for it taxes only centrifugal sugar produced and 1) Inequalities resulting from the singling out of one particular class for
exported by the Ormoc Sugar Company, Inc. and none other. At the time taxation or exemption must infringe no constitutional limitation
of the taxing ordinance's enactment, Ormoc Sugar Company, Inc., it is true, 2) An individual taxpayer need not derive direct benefits from tax
was the only sugar central in the city of Ormoc. Still, the classification, to 3) Public purpose is continually expanding, areas formerly left to private
be reasonable, should be in terms applicable to future conditions as well. initiative are now maybe undertaken by the government, if it is to meet
The taxing ordinance should not be singular and exclusive as to exclude the increasing social challenges of the time. Ex: Senior Citizens discount
any subsequently established sugar central, of the same class as plaintiff, 4) Public pupose is determined at the time of the enactment of the tax law
for the coverage of the tax. As it is now, even if later a similar company is and not at the time its implementation.
set up, it cannot be subject to the tax because the ordinance expressly
points only to Ormoc City Sugar Company, Inc. as the entity to be levied What is a TAXPAYER’S SUIT?
upon. - Basically, you’re questioning whether the public money is used for public
purpose or not. delegated by the legislature. And in the Phis., it is already been
- It’s a case where the act complained of is directly involved in the illegal delegated to the BIR.
disbursement of public funds. However, the public funds must be derived from
taxation. EXCEPTIONS:
- Taxpayers have sufficient interest of preventing the illegal expenditures of 1) Delegation to the President
money raised by taxation, although this does not apply to donations and - Flexible Tariff clause provided under Sec. 401(a) of TCC which
contributions made by public individuals or private entities. states that:
- A taxpayer is not relieved from the obligation of paying tax because for his • In the interest of national economy, general welfare and/or
belief that it is being misappropriated by certain officials. national security, and subject to the limitations herein
- A taxpayer has no legal standing to question executive acts that do not involve prescribed, the President, upon recommendation of the
the use of public funds. Gonzales vs Marcos National Economic and Development Authority (hereinafter
referred to as N EDA), is hereby empowered:
Lozada vs COMELEC (1) to increase, reduce or remove existing protective
→ As taxpayers, petitioners may not file the instant petition, for nowhere therein rates of import duty (including any necessary change in
is it alleged that tax money is being illegally spent. The act complained of is the classification). The existing rates may be increased or
inaction of the COMELEC to call a special election, as is allegedly its ministerial decreased to any level, in one or several stages but in
duty under the constitutional provision above cited, and therefore, involves no no case shall the increased rate of import duty be
expenditure of public funds. It is only when an act complained of, which may higher than a maximum of one hundred (100) per cent
include a legislative enactment or statute, involves the illegal expenditure of ad valorem;
public money that the so-‐called taxpayer suit may be allowed.
(2) to establish import quota or to ban imports of any
Q: If the government receives a donation from Henry See and Henry See specified commodity, as may be necessary; and
that his donation will be used for the construction of a hospital named after him.
Can you file a taxpayer’s suit questioning why the hospital should be named in favor (3) to impose an additional duty on all imports not
of the Donor? exceeding ten (10) per cent ad valorem whenever
necessary: Provided : That upon periodic investigations
A: No, because although the donation became a public fund, the source of it is not by the Tariff Commission and recommendation of the
from taxation but rather from donation. NEDA, the President may cause a gradual reduction of
protection levels granted in Section One Hundred and
2. Non-‐delegation of the legislative power to tax Four of this Code, including those subsequently
- the power of taxation is peculiarly and exclusively belongs to the granted pursuant to this section.
legislative, therefore it may not be delegated, as a rule. - who passed this TCC? Diba Congress. So the congress even made
- General Rule: the power of taxation is vested to the legislative branch guidelines for the president in exercising such power.
of the government and it cannot be delegated to other branches of
government. 2) Delegation to LGU
- Exception: - Our Constitution, under Art. X, Sec. 5, provides:
• President • Each local government unit shall have the power to create
• LGU its own sources of revenues and to levy taxes, fees and
• Administrative units charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of
Powers which cannot be delegated: (these powers lies exclusively under local autonomy. Such taxes, fees, and charges shall accrue
the legislative department) exclusively to the local governments.
o the determination of the subject to be taxed - But this provision is not enough so the Congress passed the LGC
o purpose the tax which embodies the guidelines on how to exercise such power.
o amount of rate of the tax - Basco vs PAGCOR
o manner, means and agencies of collection → A mere Municipal corporation has no inherent right to
o prescription of the necessary rules with respect thereto impose taxes. Thus, "the Charter or statute must plainly
show an intent to confer that power or the municipality
TAKE NOTE: what cannot be delegated strictly is the imposition or the cannot assume it". Its "power to tax" therefore must always
levy of tax. While administration, collection and regulation can be yield to a legislative act which is superior having been
passed upon by the state itself which has the "inherent • PHIC
power to tax". • PCSO
→ "municipal corporations are mere creatures of Congress" • PAGCOR (but not exempted from business tax)
which has the power to "create and abolish municipal
corporations" due to its "general legislative powers". REASONS FOR EXEMPTION (why are they exempted):
Congress, therefore, has the power of control over Local • So that it would not hinder in their operations
governments. And if Congress can grant the City of Manila
the power to tax certain matters, it can also provide for 4. International comity
exemptions or even take back the power. - The property of a foreign state or government may not be taxed by
another under the principle of sovereign equality among states by
3) Delegation to the Administrative Bodies virtue of which one state cannot exercise its sovereign powers over
- BIR and Bureau of Customs another.
- This principle is based on any of the following grounds:
3. Exemption from taxation of government entities • Sovereign equality among states – under international law
- So long as the government is performing its governmental functions, by virtue of which one state cannot exercise it sovereign
there will be no tax. But if the government is performing a proprietary powers over another.
function, it is taxable. • Usage among states – when one enters the territory of
- Proprietary function: when the property is rented out to another another, there is an implied understanding that the former
entity for commercial/business purposes (Phil. Lung Center case). does not intend to degrade its dignity by placing itself under
- Exemption applies only to governmental entities thru which the the jurisdiction of the latter.
government immediately and directly exercises its sovereign power. • A foreign government may not be sued without its consent
Meaning those gov’t entities that are exercising governmental – it is useless to assess a tax since anyway it cannot be
functions. collected.
- NDA vs Cebu City
→ The Republic, like any individual, may form a corporation with 5. Territorial jurisdiction
personality and existence distinct from its own. The separate - A state may not tax property lying outside its border or lay an excise or
personality allows a GOCC to hold and possess properties in its privilege tax upon the exercise or enjoyment of a right or privilege derived
own name and, thus, permit greater independence and flexibility from the laws of another state and therein exercised. Persons, properties,
in its operations. It may, therefore, be stated that tax exemption businesses, activities, and other transactions within the territorial
of property owned by the Republic of the Philippines "refers to boundary of the State, which, and persons outside it, who, received
properties owned by the Government and by its agencies which benefits and protection from the government, are subject to tax.
do not have separate and distinct personalities (unincorporated - What about foreign embassy? Not subject to tax because they are
entities). considered extension of the sovereign of the foreign country they
→ GOCC with original charter (attached to the gov’t; represent.
unincorporated) – exempted from tax - PEZA, why give special tax rate when in fact they still within the territorial
→ GOCC with special charter (personality distinct from the gov’t) – jurisdiction of the Philippines or the taxing authority? In a case it was
subject to tax explained that since it the legislature who exercises the power of taxation,
→ In this case, NDA is exempted from tax because it does not have it could choose to whom it may impose the tax and it can choose also to
a separate personality from the gov’t but rather its duty to whom it will exempt or give special incentive insofar as taxation is concern.
administer the questioned reserved land, which is owned by the - Property outside one’s jurisdiction does not receive any protection of the
government and thus exempted from tax while the State. That’s the reason why these properties (foreign embassies,
improvements, which were done by NDA, subject to tax. consulates, etc.) will not be subject to tax anymore in the Philippines.
- If the law is passed by the Congress, the Congress must see to it that the
Atty. A: but remember here that what is exempted is real estate tax. object or subject of taxation is within the territorial jurisdiction of the
So kung sa exam kay income tax ang g.ingun out of the rent of that taxing authority.
land, that would be a different a story. • Example: GROSS ORDER DOCTRINE(??? Wa ku sure sa name) which
we apply under value-‐added taxation. Because in VAT, if
GOVERNMENT ENTITIES EXEMPTED FROM INCOME TAX: importation—there will be VAT; if exportation—no VAT;
• GSIS
• SSS Atty. A: what will happen if the tax law violates the inherent limitation? What’s the
consequence? VOID. Not just mere defective. IT’S VOID. (actually this is vague because it does not specify whether all the
members of both houses vote together or separately).
ii. CONSTITUTIONAL LIMITATIONS - Required for tax exemption is ABSOLUTE majority (majority of all the
1. Direct members) however if it refers to a law withdrawing any tax
a. Revenue bill must originate exclusively in the House but the Senate may exemption it only requires RELATIVE majority (majority of the
propose with amendments – lawmaking process quorum) during the session.
- This is more on the law making process. - Tax exemptions, amnesties and refunds are considered in the nature
- To Remember: what will originate from the house is the BILL, not the of tax exemptions, a grant thereof needs the approval of the absolute
law or the statute. majority of the members of congress.
- What is the difference between a bill and a statute?
- When is it considered as statute? When it is already passed by the c. Rule of uniformity and equity in taxation
congress and bi-‐cameral committee, and/or approved by the - Uniformity: it implies that “all taxable articles or properties of the
president. same class shall be taxed at the same rate.”
- The bill is just a proposition then it undergoes three (3) readings. - Equity: uniformity in taxation is effected through the apportionment
Eventually if it passed in the House of Representative, it will be of the tax burden among the taxpayers which under the Constitution
submitted in the senate. And there, they might have their own must be equitable; based on the ability of the taxpayer to pay the tax.
version. If they have their own version and if it is different form the
one submitted, they will have to combine it and form a committee d. Progressive system of taxation
who will have to resolve it. Then if it passes to the senate, and then - tax laws shall place emphasis on direct rather than indirect taxation,
signed by the president, senate president and the speaker of the with ability to pay as the principal criterion. As income increases, so
house. Then it became a statute. as the tax rate
- Is progressive system of taxation directory or mandatory? It is merely
Tolentino vs Secretary of Finance directory not mandatory because we even have regressive taxes (ex.
→ to insist that a revenue statute and not only the bill which initiated VAT)
the legislative process culminating in the enactment of the law must - VAT – the lesser money you have the more you can feel the impact
substantially be the same with the house bill would be to deny impact.
senate’s power not only to concur with amendments but also to
propose amendments e. Exemption of religious, charitable and educational entities, non-‐profit
→ This case involves the question on the validity of the VAT. One of the cemeteries, and churches from property taxation
questions is that the VAT did not originate in the House of - covers only property taxes and not other taxes;
Representatives but rather, in the senate. SC explained that it is not - it is the use of the property that is exempt, not the ownership;
the statute that must originate in the house but the BILL. Otherwise if - property must be used actually, directly, and exclusively for religious,
you require that the statute must originate from the house, what charitable, or educational purposes;
would be the purpose for the statement regarding the senate’s power - exemption extends to facilities which are incidental to or necessary
to propose amendments. The Constitution simply requires that there for the accomplishment of said purposes
must be that initiative coming from the house of representatives - self-‐executing provision of the Constitution (Art. 6, Sec. 28[3]):
relative to appropriation, revenue and tariff bills. The constitution • “(3) Charitable institutions, churches and personages or convents
does not also prohibit the filling in the senate of a substitute bill in appurtenant thereto, mosques, non-‐profit cemeteries, and all
anticipation of its receipt of the bill from the house as long as action lands, buildings, and improvements, actually, directly, and
by the senate is withheld until receipt of the bill coming from the exclusively used for religious, charitable, or educational purposes
house of representatives shall be exempt from taxation.”

b. Concurrence of a majority of ALL the members of Congress for the passage Example:
of a law granting tax exemption USC
- What is your idea of tax exemption? Tax exemption is given when the - School building/area – exempt from property tax
government withholds its power to enforce taxes. It is actually benefit Reason: used for educational purpose
or privilege given to a few. - Area rented by commercial establishments – taxable
- For example, the congress passes a law granting tax exemption and it
was voted upon by majority of the members during the quorum (50% Herrera vs QC
plus 1), is it a valid grant of tax exemption? NO, it must be voted by → the exemption in favor of property used exclusively for charitable or
majority of ALL MEMBERS of congress not only of the quorum educational purposes is "not limited to property actually indispensable"
therefor, but extends to facilities which are "incidental to and reasonably improvements actually, directly and exclusively used for religious,
necessary for" the accomplishment of said purposes, such as, in the case of charitable or educational purposes."
hospitals, "a school for training nurses, a nurses' home, property use to → We note that under the 1935 Constitution, "... all lands, buildings, and
provide housing facilities for interns, resident doctors, superintendents, improvements used ‘exclusively’ for … charitable … purposes shall be
and other members of the hospital staff, and recreational facilities for exempt from taxation.” However, under the 1973 and the present
student nurses, interns and residents", such as "athletic fields," including Constitutions, for "lands, buildings, and improvements" of the charitable
"a farm used for the inmates of the institution". institution to be considered exempt, the same should not only be
→ Within the purview of the Constitutional exemption from taxation, the St. "exclusively" used for charitable purposes; it is required that such property
Catherine's Hospital is, therefore, a charitable institution, and the fact that be used "actually" and "directly" for such purposes.
it admits pay-‐patients does not bar it from claiming that it is devoted → Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to
exclusively to benevolent purposes, it being admitted that the income be entitled to the exemption, the petitioner is burdened to prove, by clear
derived from pay-‐patients is devoted to the improvement of the charity and unequivocal proof, that:
wards, which represent almost two-‐thirds (2/3) of the bed capacity of the (a) it is a charitable institution; and
hospital, aside from "out-‐charity patients" who come only for consultation. (b) its real properties are
→ "all lands, building and improvements used exclusively for religious, ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.
charitable or educational purposes shall be exempt from taxation," → "Exclusive" is defined as possessed and enjoyed to the exclusion of others;
pursuant to the Constitution, regardless of whether or not material profits debarred from participation or enjoyment; and "exclusively" is defined, "in
are derived from the operation of the institutions in question. In other a manner to exclude; as enjoying a privilege exclusively.” If real property is
words, Congress may, if it deems fit to do so, impose taxes upon such used for one or more commercial purposes, it is not exclusively used for
"profits", but said "lands, buildings and improvements" are beyond its the exempted purposes but is subject to taxation. The words "dominant
taxing power. use" or "principal use" cannot be substituted for the words "used
exclusively" without doing violence to the Constitutions and the
42
Atty. A: But take note that this is now not controlling. This case lays down the law. Solely is synonymous with exclusively.
rule on incidental use but this was decided under the 1935 Constitution which → What is meant by actual, direct and exclusive use of the property for
had no provision yet on “actually, directly and exclusively used”. Nganu imu charitable purposes is the direct and immediate and actual application of
man mi gipabasa ana sir nga di nmn d.i na controlling? Well, what if mugawas the property itself to the purposes for which the charitable institution is
sa exam or mubalik? But of course, you base your answer on the recent ruling. organized. It is not the use of the income from the real property that is
Your reason will not be it is exempted because it’s incidental—that’s not determinative of whether the property is used for tax-‐exempt purposes.
anymore subsisting. but rather, you answer using the the Phil. Lung Center
ruling. Atty. A: As you can observe, in the Herrera case, the meaning of “exclusive use”
is the “principal” or “dominant” use. So long as it is related to the principal
Philippine Lung Center vs QC purpose, then it can be exempted. But here in Phil. Lung Center, “exclusively”
→ As a general principle, a charitable institution does not lose its character as here means it is synonymous to “solely”. Hence, to be exempted of real
such and its exemption from taxes simply because it derives income from property taxation, it should be SOLELY for charitable purpose not just mere
paying patients, whether out-‐patient, or confined in the hospital, or incidental to the principal purpose. So we follow the Phil. Lung Center case.
receives subsidies from the government, so long as the money received is
devoted or used altogether to the charitable object which it is intended to Abra Valley College vs Aquino
achieve; and no money inures to the private benefit of the persons → while this Court allows a more liberal and non-‐restrictive interpretation of
managing or operating the institution. the phrase "exclusively used for educational purposes" as provided for in
→ The fundamental ground upon which all exemptions in favor of charitable Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution,
institutions are based is the benefit conferred upon the public by them, reasonable emphasis has always been made that exemption extends to
and a consequent relief, to some extent, of the burden upon the state to facilities which are incidental to and reasonably necessary for the
care for and advance the interests of its citizens. accomplishment of the main purposes. Otherwise stated, the use of the
→ Even as we find that the petitioner is a charitable institution, we hold that school building or lot for commercial purposes is neither contemplated by
those portions of its real property that are leased to private entities are law, nor by jurisprudence. Thus, while the use of the second floor of the
not exempt from real property taxes as these are not actually, directly and main building in the case at bar for residential purposes of the Director
exclusively used for charitable purposes. and his family, may find justification under the concept of incidental use,
→ The tax exemption under this (Sec. 28(3), Art. 6) constitutional provision which is complimentary to the main or primary purpose—educational, the
covers property taxes only. “What is exempted is not the institution itself . lease of the first floor thereof to the Northern Marketing Corporation
. .; those exempted from real estate taxes are lands, buildings and cannot by any stretch of the imagination be considered incidental to the
purpose of education. purpose and not primary purpose which means that even if it is incidental, so
→ the school building as well as the lot where it is built, should be taxed, not long as it is commercial, it is subject to tax. But na-‐counter lang nila (Chong
because the second floor of the same is being used by the Director and his Hua), they were able to prove that it was no commercial purpose.
family for residential purposes, but because the first floor thereof is being
used for commercial purposes. However, since only a portion is used for f. Exemption of non-‐stock, non-‐profit education institution from taxation
purposes of commerce, it is only fair that half of the assessed tax be - covers income, property, and donor’s taxes, and customs duties;
returned to the school involved. - the revenue, assets, property or donations must be used actually,
directly, and exclusively for educational purposes;
City Assessor of Cebu vs Association of Benevola de Cebu - lands, buildings, and improvements actually, directly, and exclusively
→ We so hold that CHHMAC is an integral part of CHH. used for educational purposes are exempt from property tax whether
→ It is undisputed that the doctors and medical specialists holding clinics in the educational institution is proprietary or non-‐profit;
CHHMAC are those duly accredited by CHH, that is, they are consultants of - we’re after of the USE of the property, not the ownership
the hospital and the ones who can treat CHH’s patients confined in it. This - self-‐executing provision of the Constitution (Art. 14, Sec. 4[3,4])
fact alone takes away CHHMAC from being categorized as "commercial" • “(3) Establish and maintain a system of scholarship grants,
since a tertiary hospital like CHH is required by law to have a pool of student loan programs, subsidies, and other incentives which
physicians who comprises the required medical departments in various shall be available to deserving students in both public and
medical fields. private schools, especially to the under-‐privileged;
→ these physicians holding offices or clinics in CHHMAC, duly appointed or
accredited by CHH, precisely fulfill and carry out their roles in the (4) Encourage non-‐formal, informal, and indigenous learning
hospital’s services for its patients through the CHHMAC. The fact that they systems, as well as self-‐learning, independent, and out-‐of-‐school
are holding office in a separate building, like at CHHMAC, does not take study programs particularly those that respond to community
away the essence and nature of their services vis-‐à-‐vis the over-‐all needs;”
operation of the hospital and the benefits to the hospital’s patients. Their
transfer to a more spacious and, perhaps, convenient place and location Example:
for the benefit of the hospital’s patients does not remove them from being USC (non-‐stock, non-‐profit)
an integral part of the overall operation of the hospital. - Rent income – taxable
→ Finally, respondent’s charge of rentals for the offices and clinics its
accredited physicians occupy cannot be equated to a commercial venture, UC (proprietary)
which is mainly for profit. - not exempted but given a special rate of 10%
→ First, CHHMAC is only for its consultants or accredited doctors and medical - School building/area – exempted from property tax (under
specialists. Second, the charging of rentals is a practical necessity: (1) to exemption E)
recoup the investment cost of the building, (2) to cover the rentals for the - Rent income of UC – taxable @ 30% (normal corporate
lot CHHMAC is built on, and (3) to maintain the CHHMAC building and its income tax rate)
facilities. Third, as correctly pointed out by respondent, it pays the proper
taxes for its rental income. And, fourth, if there is indeed any net income Atty. A: where educational institution is private and non-‐profit but a stock
from the lease income of CHHMAC, such does not inure to any private or corporation, it is subject to income tax but a preferential rate of 10%. Same
individual person as it will be used for respondent’s other charitable thing is true for charitable hospital/institution, it is subject to 10% income tax.
projects.
→ Given the foregoing arguments, we fail to see any reason why the Requisite for the application of the 10% preferential rate:
CHHMAC building should be classified as "commercial" and be imposed 1) It must be private
the commercial level of 35% as it is not operated primarily for profit but as 2) It has permit to operate as an educational institution
an integral part of CHH. The CHHMAC, with operations being devoted for 3) It is non-‐profit
the benefit of the CHH’s patients, should be accorded the 10% special 4) Its gross income from unrelated trade or business must not exceed
assessment. 50% of its total gross income from all sources (otherwise, if it will
exceed the 50%, it will be subject to the 30% corporate income tax
Atty. A: What is the difference then with the Herrera case and the City Assessor rate)
case? One thing is, the former was decided based on the 1935 Consti wherein
we adhere to the principle that exclusivity means principal and dominant. That Atty. A: Para dali mahinumduman, for educational institution: (1) For non-‐stock
everything incidental to it, whether commercial or not, will be exempted. But in and non-‐profit, no tax; (2) Even if it’s for profit, so long as it is an educational
the latter, it was decided under the 1987 Consti wherein exclusivity means sole institution, preferential/special rate of 10%, provided the less than 50%...etc…

However, the 10% preferential tax rate does not apply to the following: income it seeks to be exempted from taxation is used actually, directly,
1) The passive income derived by the educational institution, which is and exclusively for educational purposes. However, the Court notes that
subject to final income tax. i.e. rent income or interest income not a scintilla of evidence was submitted by private respondent to prove
2) Engaged in unrelated trade or business or other activity with a gross that it met the said requisites.
income from such exceeds 50% of the total gross income derive by → YMCA is not an educational institution within the purview of Article XIV,
the school from all sources Section 4, par. 3 of the Constitution. The term "educational institution" or
"institution of learning" has acquired a well-‐known technical meaning, of
TAKE NOTE: where a donation is made in favor of an educational institution which the members of the Constitutional Commission are deemed
pursuant to sports competition or tournaments, the donor is also exempted cognizant. Under the Education Act of 1982, such term refers to schools.
from the payment of donor’s tax. The school system is synonymous with formal education, which "refers to
the hierarchically structured and chronologically graded learnings
Perpetual Succour Hospital vs CIR, CTA No. 7304, Dec. 1, 2010 organized and provided by the formal school system and for which
→ when a hospital is proprietary, or private, which is not for profit and its certification is required in order for the learner to progress through the
gross income from unrelated trade, business or other activity does not grades or move to the higher levels." The Court has examined the
exceed 50% of its total gross income from all sources, it is subject to 10% "Amended Articles of Incorporation" and "By-‐Laws” of the YMCA, but
tax rate. On the other hand, when a hospital is non-‐stock, meaning, its found nothing in them that even hints that it is a school or an educational
capital stock is not divided into shares, and is not authorized to distribute institution.
to the holders of such shares dividends, operated exclusively for religious → It is settled that the term "educational institution," when used in laws
or charitable purpose, no part of its net income or asset belong to or inure granting tax exemptions, refers to a ". . . school seminary, college or
to the benefit of any specific person, then the hospital will fall under the educational establishment . . . ." Therefore, the private respondent cannot
provision of Section 130(E) of the NIRC of1997, as amended. be deemed one of the educational institutions covered by the
→ It is well settled, in this connection, that the admission of pay-‐patients constitutional provision under consideration.
does not detract from the charitable character of a hospital, if all its funds
are devoted 'exclusively to the maintenance of the institution' as a 'public g. Non-‐impairment from non-‐payment of a poll tax
charity'. In other words, where rendering of charity is its primary object, - Sec. 20, Art. III, 1987 Consti: “No person shall be imprisoned for debt
and the funds derived from payments made by patients able to pay are or non-‐payment of a poll tax.”
devoted to the benevolent purposes of the institution, the mere fact that a
profit has been made will not deprive the hospital of its benevolent h. Non-‐impairment of the jurisdiction of the SC in tax cases
character. - Sec. 5 (2)(b), Art. VIII: “The Supreme Court shall have the following
powers:
CIR vs CA (2) Review, revise, reverse, modify, or affirm on appeal or
→ Is the Rental Income of the YMCA Taxable? certiorari, as the law or the Rules of Court may provide, final
→ The rent income derived by YMCA from leasing out a portion of its judgments and orders of lower courts in:
premises to small shop owners, like restaurants and canteen operators, (b) All cases involving the legality of any tax, impost,
and from parking fees collected from non-‐members are taxable income. assessment, or toll, or any penalty imposed in relation
→ the exemption claimed by the YMCA is expressly disallowed by the very thereto.”
wording of the last paragraph of then Section 27 of the NIRC which
mandates that the income of exempt organizations (such as the YMCA) 2. Indirect
from any of their properties, real or personal, be subject to the tax a. Due process of law
imposed by the same Code. Because the last paragraph of said section - Sec. 1, Art. III, 1987 Consti: “No person shall be deprived of life,
unequivocally subjects to tax the rent income of the YMCA from its real liberty, or property without due process of law…”
property, the Court is duty-‐bound to abide strictly by its literal meaning
and to refrain from resorting to any convoluted attempt at construction. Substantive due process
→ The phrase "any of their activities conducted for profit" does not qualify - requires that a tax statute must be within the constitutional
the word "properties." This makes from the property of the organization authority of Congress to pass
taxable, regardless of how that income is used — whether for profit or for - it must be reasonable, fair and just;
lofty non-‐profit purposes. - i.e. to grant exemption, the constitution mandates that it must
→ For the YMCA to be granted the exemption it claims under the aforecited be passed by a vote of ALL members of congress (absolute
provision, it must prove with substantial evidence that (1) it falls under the majority; not just those who are present)
classification non-‐stock, non-‐profit educational institution; and (2) the
Atty. A: therefore, everything nga mu-‐contradict with the direct
constitutional limitations that we have discussed awhile ago, there is now - What is prohibited is class legislation wherein there is no substantial
infringement of your substantive due process. distinction.

Procedural due process CRITERIA FOR EQUAL PROTECTION:
- requires notice and hearing, or at least, an opportunity to be 1) When the law operates uniformly:
heard. - on all persons
- under similar circumstances
INSTANCES OF VIOLATION OF DUE PROCESS: (please memorize) 2) All persons are treated in the same manner:
1) Where the law is in violation of the inherent limitations - the conditions not being different
2) If the tax amounts to a confiscation of property - both in privileges conferred and the liabilities imposed
- Like if there is no valid classification for imposing the tax for that - favoritism and preferences are not allowed
particular object or subject
3) if the subject of confiscation is outside the jurisdiction of the taxing People vs Cayat
authority → Requirements for valid classification: (FC si SG/Feeling Close si Security
4) if the law which is applied retroactively imposes unjust and Guard)
oppressive taxes 1) There must be a substantial distinction that make a real difference
5) if the law is imposed for a purpose other than a public purpose 2) It must be germane or relevant to the purpose of the law
3) It must apply not only to the present but also to future situation
POINTS TO REMEMBER WHEN IT COMES TO THE DUE PROCESS CLAUSE: 4) the distinction must apply to persons belonging to the same class
1) The validity of a statute may be contested only by one who sustained
direct injury in consequence of its performance Chamber of Real Estate and Builder’s Associations vs Romulo
EXCEPT: transcendental importance; taxpayer’s suit → The equal protection clause under the Constitution means that "no person
2) There must be proof of arbitrariness, otherwise, apply the or class of persons shall be deprived of the same protection of laws which
presumption of constitutionality is enjoyed by other persons or other classes in the same place and in like
3) Due process requires hearing before adoption of legislative rules by circumstances.”
administrative bodies of interpretative rulings → The taxing power has the authority to make reasonable classifications for
4) Compliance of strict procedural requirements must be followed to purposes of taxation. Inequalities which result from a singling out of one
avoid a collision course between the state’s power to tax and the particular class for taxation, or exemption, infringe no constitutional
individuals’ recognized rights limitation. The real estate industry is, by itself, a class and can be validly
5) Due process clause may correctly be invoked only when there is a treated differently from other business enterprises.
clear contravention of inherent or constitutional limitations
Ormoc Sugar vs Cornejos
Chamber of Real Estate and Builder’s Associations vs Romulo → A perusal of the requisites instantly shows that the questioned ordinance
→ In Sison, Jr. v. Ancheta, et al., we held that the due process clause may does not meet them, for it taxes only centrifugal sugar produced and
properly be invoked to invalidate, in appropriate cases, a revenue measure exported by the Ormoc Sugar Company, Inc. and none other. At the time
when it amounts to a confiscation of property. But in the same case, we of the taxing ordinance's enactment, Ormoc Sugar Company, Inc., it is true,
also explained that we will not strike down a revenue measure as was the only sugar central in the city of Ormoc. Still, the classification, to
unconstitutional (for being violative of the due process clause) on the be reasonable, should be in terms applicable to future conditions as well.
mere allegation of arbitrariness by the taxpayer. There must be a factual The taxing ordinance should not be singular and exclusive as to exclude
foundation to such an unconstitutional taint. This merely adheres to the any subsequently established sugar central, of the same class as plaintiff,
authoritative doctrine that, where the due process clause is invoked, for the coverage of the tax. As it is now, even if later a similar company is
considering that it is not a fixed rule but rather a broad standard, there is a set up, it cannot be subject to the tax because the ordinance expressly
need for proof of such persuasive character. points only to Ormoc City Sugar Company, Inc. as the entity to be levied
upon.
b. Equal protection of the laws
- Sec. 1, Art. III, 1987 Consti: “…nor shall any person be denied the Tiu vs CA
equal protection of the laws.” → Certainly, there are substantial differences between the big investors who
- All persons, all properties, all businesses should be taxed at the same are being lured to establish and operate their industries in the so-‐called
rate so long as they belong to the same classification. "secured area" and the present business operators outside the area. On
- This is where substantial distinction applies: that it must be real and the one hand, we are talking of billion-‐peso investments and thousands
not superficial
of new, jobs. On the other hand, definitely none of such magnitude. In the government to establish a national religion;
first, the economic impact will be national; in the second, only local. Even - In relation to the power of taxation, what is prohibited is no. 3.
more important, at this time the business activities outside the "secured
area" are not likely to have any impact in achieving the purpose of the law, Swaggart case (US case)
which is to turn the former military base to productive use for the benefit → The free exercise of religion clause does not prohibit imposing a generally
of the Philippine economy. There is, then, hardly any reasonable basis to applicable sales tax on the sale of religious materials by religious
extend to them the benefits and incentives accorded in RA 7227. organization.
→ It is well-‐settled that the equal-‐protection guarantee does not require → The sale of religious articles can be subject to VAT, what cannot be taxed is
territorial uniformity of laws. As long as there are actual and material the exercise of religious worship or activity.
differences between territories, there is no violation of the constitutional → The income of the priest from the exercise of a religious activity cannot
clause. also be taxed.

c. Non-‐impairment of the obligations of contracts e. No appropriation for religious purposes
- Sec. 10, Art. III, 1987 Consti: “No law impairing the obligation of - As a general rule, no appropriation, except for salary or payment of
contracts shall be passed.” priest or minister serving in AFP, penal insitutions, orphanage, and
- General Rule: the power of tax is pursuant to law therefore the leprosarium.
obligation to pay taxes is imposed by law. Thus, the non-‐impairment
clause does not apply because the non-‐impairment here refers to Q: Is the appropriation or budget given for the visit of the pope in the
obligations brought about by contracts, not law. Philippines valid or a violation to the separation of the church and the
- Exception: the non-‐impairment clause applies when— state?
" When the law merely provides for the fulfillment
of an obligation A: It is valid. The Pope is a head of the state. Being a head of the state, the
" When the law merely recognizes or acknowledges appropriation made by the government for the visit is justified.
the existence of an obligation created by
acts(????di masabtan) f. Non-‐infringement of the freedom of the press
Atty. A: only when the law establishes the obligation and also provides for - Sec. 4, Art, III, 1987 Consti: “No law shall be passed abridging the
its fulfillment that the law is the source of the obligation. freedom of speech, of expression or of the press.”
- Focus of press freedom not expression: there is curtailment of press
TAKE NOTE: the constitutional guarantee of the non-‐impairment clause freedom and freedom of thought and expression if a taxed is levied in
can only be invoked in the grant of tax exemption. order to supress this basic right and impose prior restraint.
- Example: impose a very high tax in order to prevent the press or the
RULES (para daw masabtan): freedom of expression – violates the constitutional provision, Non-‐
- If the exemption was granted for valuable infringement of the freedom of the press.
consideration on the basis of a contract—cannot be - However it does not mean that the press is exempted to tax. The
revoked by passing another law press is subject to tax but the tax should be reasonable not
- If the exemption is granted by virtue of a contract oppressive, not arbitrary.
between a private corporation and the gov’t—it cannot - The sale magazine or newspapers may be subject to taxation. What is
be revoked unilaterally by the gov’t not allowed is to impose tax on the exercise of an activity which has a
- If the basis of the tax exemption is mere franchise connection with freedom of the press. For example: collection of
granted by Congress—it can be unilaterally revoked by license fees before one can exercise that freedom.
the gov’t thru Congress
g. Power of the President to veto any particular item/s in a revenue or tariff
d. Non-‐infringement of religious freedom bill
- Sec. 5, Art. III, 1987 Consti: “No law shall be made respecting an - Sec. 27(b), Art. 6, 1987 Consti: “The President shall have the power to
establishment of religion, or prohibiting the free exercise thereof. The veto any particular item or items in an appropriate, revenue or tariff
free exercise and enjoyment of religious profession and worship, bill, but the veto shall not affect the item or items to which he does
without discrimination or preference, shall forever be allowed. No not object.”
religious test shall be required for the exercise of civil or political - What type of veto? Particular or specific veto
rights.”
- This provision has 3 coverage: (1) freedom to choose religion; (2)
freedom to exercise one’s religion; (3) Prohibition upon the national
XVII. SITUS OF TAXATION
- As a rule when it comes to persons , properties or activities it can only be taxed within *Even if owners are not domiciled in the Philippines they will still be taxed
the place of the taxing authority or within its territorial jurisdiction. in the Philippine, subject to Reciprocity Rule (citizen of such country which
- Remember: look at the geographical location for jurial concept or nexus or bond between grants exemption to the intangible personal properties Filipinos in their
the taxing authority and the tax payer. Example: A Filipino resident citizen earning country will also be exempted).
income abroad can still be a subject of tax in the Philippine not because of geographical
location but due to the jural concept or nexus or bond between the taxing authority and 3. Business tax -‐ place of business
the taxpayer.
- WHY is it important to know the situs/place of taxation? 4. Excise tax -‐ where the act is performed or the occupation is pursued.
1. To know it the taxing authority really has the authority to tax.
2. There are exceptions/exemptions which only applies to a specific locality. 5. Sales tax – where the ale is consummated. Presumption: sale of personal property

Rules that need to be observe: 6. Income tax -‐ to consider:
1. Poll/community tax – situs/place of taxation is the residence of the taxpayer a. Citizenship – the nationality theory
regardless of citizenship. b. Residence – the domiciliary theory
c. Source – the source rule
2. Property tax -‐ real or personal
a. Real property -‐ lex rei sitae/ lex rei situs; levied in the country where the 7. Transfer tax – donor’s or estate tax; residence or citizenship of the taxpayer or the
real property is located. location of the property; case to case basis

b. Personal property -‐ principle mobilia sequuntur personam; movables 8. Franchise tax – the state which granted the franchise
follow the person; depends on the domicile of the owner of the property.
i. Tangible -‐ 9. Value-‐ added tax – cross-‐border doctrine or destination principle -‐ if the
ii. Intangible -‐ good/property is not to be consumed in the Philippines then it should not be taxed
1. EXCEPTION: Actual/Business situs – sec .104, RA 8424 in the Philippines; treated differently form business tax and sales tax because it has
(enumeration under) even if they are located outside a specific law applied to it..
of the Philippines, can still be subject to tax; or even if
the owner are foreigners but they are located in the 10. Interest Income – the domiciliary theory -‐ residence of the borrower who pays the
Philippines, they can still be subject to tax. Example: interest irrespective of the place where the obligation was contracted, not the
a. Franchise exercised in the Philippines even if residence of the creditor.
the franchise owner/ franchise holder is not
from the Philippines.
XVIII. DOUBLE TAXATION
b. Shares of stocks, obligations, bonds issued by i. Meaning of double taxation
domestic corporations: taxed in the a. Strict Sense (direct duplicate taxation/direct double taxation)— (a) taxing twice, (b)
Philippines by the same taxing authority, (c) within the same jurisdiction or taxing district, (d) for
the same purpose, (e) in the same year [or taxing period], (f) some of the property in
c. Shares of stocks, obligations, bonds issued by the territory. Both taxes must be imposed on the same property or subject matter.
the foreign corporation: 85% of its business is
located in the Philippines; subject to tax in b. Broad Sense (indirect duplicate taxation/indirect double taxation)— taxation other
the Philippines than direct duplicate. It extends to all cases in which there is a burden of two or
more pecuniary impositions.
d. Shares or right in a partnership business or
industry established in the Philippines: taxed Requisites for direct duplicate:
in the Philippines even if the holders or • Same subject/ object is taxed twice
owners thereof are not Filipino. • same purpose
• imposed by the same taxing authority
e. Shares, obligations, bonds issued by foreign • within the same jurisdiction
corporations used which acquired business • within the same period
situs when sanction in the furtherance of the • same kind or character of tax
foreign corporation: taxed in the Philippines
d) When every bottle or container of intoxicating beverages is subject to local tax
*if one is missing, it is indirect duplicate taxation which is valid. and at the same time the business of selling such product is also subject to
liquor’s license. – different taxing authority and purpose.
ii. Instances of double taxation e) A tax imposed in both the occupation of fishing and the fish pond. – different
(a) A tax on a mortgage as personal property when the mortgaged property is also object and subject.
taxed at its full value as real estate; f) A local ordinance imposing a tax in the storage of copra where it appears that
(b) A tax upon a corporation for its property and upon its shareholders for their shares; the finished products manufactured out of the copra is also subject to VAT. –
(c) A tax upon a corporation for its capital stock as a whole and upon the shareholders different subject matter and purpose.
for their shares;
(d) A tax upon depositors in a bank for their deposits and a tax upon the bank for the To avoid indirect double taxation:
property in which such deposits are invested; Avail of:
(e) An excise tax upon certain use of property and a property tax upon the same - tax deductions,
property; and - tax credits
(f) A tax upon the same property imposed by two different states. - tax exemptions provided under the law
- enter treaties with other states
o Domestic double taxation– arises when the taxes are imposed by the local or
the national government iii. Constitutionality of double taxation
a. General Rule: not prohibited by the Constitution, hence, it may not be invoked as a
o International double taxation – imposition of comparable taxes in two or more defense against the validity of a tax law.
states on the same taxpayer with respect to the same subject matter and for
identical period b. Exemption: though not forbidden, it is not favored. Such taxation, it has been held,
→ Allowed because they are imposed by different taxing authorities should, whenever possible, be avoided and prevented.
(domestic and international) - Doubts as to whether double taxation has been imposed should be resolved in
→ Measures allowed by the government are refund or credit, but not to favor of the taxpayer to avoid injustice or unfairness.
declare it invalid. - Where double taxation (in its narrow sense) occurs, the taxpayer may seek
Ex: Manny Pacquiao – subject to income tax by US and Philippines relief under the uniformity rule or the equal protection guarantee.

DOCTRINES of DOUBLE TAXATION: XIX. FORMS OF ESCAPE FROM TAXATION
" Only direct double taxation is not allowed because it amounts to confiscation of i. 6 Basic Forms
property without due process of law. It violates the due process clause. (1) shifting
" You can question the validity of double taxation if there is a violation of the (2) capitalization
equal protection clause, or equality or uniformity of taxation. (3) transformation
" Doubts as to whether double taxation has been imposed should be resolved in (4) evasion
favor of the taxpayer. (5) avoidance, and
(6) exemption.
Situation: TJ owns a beer house. He pays sales/business tax as well as the local tax
(ordinance) imposed on every bottle of beverage to be sold. Is there double taxation? ii. Definition of Terms
Yes. There is indirect double taxation because it is imposed by different taxing authority
and the purpose is different, one is the sales, the other is the fact of selling. Hence, it a) Shifting, in general – process where the tax burden is transferred from the statutory
does not make the local ordinance invalid. taxpayer to another without violation the law; applicable only to indirect taxes like
business taxes or percentage taxes.
Decided cases: there is only indirect double taxation
a) Taxpayers with warehousing business although carried on in relation to the *statutory taxpayer-‐ taxpayer required under the law to pay the tax or to remit the tax to
operation of its sugar central is a distinct and separate taxable business. – the government.
different subject, although the same owner.
b) A license tax may be levied upon a business or occupation although the land or 1. Impact of taxation– that point on which a tax is originally imposed. In so far as
the property use in connection therewith is subject to property tax. – license the law is concerned, the taxpayer is the person who must pay the tax to the
tax applies to the business, property tax is for the land; different subject, object government; referred to as the statutory taxpayer
or purpose although the burden is carried by one entity.
c) Both a license fee and a tax may be imposed in the same business or 2. Incidence of taxation– that point on which the tax burden finally rests or settles
occupation for selling the same article. – license fee is not a tax down. It takes place when shifting has been effected from the statutory taxpayer
to another or someone else who cannot pass the burden further. But there may order to avoid or reduce tax liability. Here, the taxpayer uses tax saving device or means
be incidence without shifting, as in transformation. In case of business taxes, sanctioned or allowed by law, so no law is violated in any way. (estate planning, the heirs
incidence of taxation falls on the final consumer. create a corporation and convert their inheritance to shares to avoid estate tax)
*direct taxes cannot be shifted – e.i. income tax
e) Exemption – the grant of immunity to particular persons or corporations or to persons or
3. Relations among impact, shifting and incidence – corporations of a particular class from a tax which persons and corporations generally
- IMPACT-‐ imposition of the tax; contain in the tax law; is the initial within the same state or taxing district are obliged to pay; an immunity or privilege;
phenomenon freedom from a financial charge or burden to which others are subjected; allowed only
- SHIFTING -‐ Transfer of the tax; is the intermediate process when there is a clear provision of the law;
- INCIDENCE -‐ Setting or coming to rest of the tax; the burden finally settles
down; is the result *double nexus rule:
Thus, the impact of sale tax is on the seller (manufacturer) who shifts the burden to the You must prove that:
customer who finally bears the incidence of the tax. 1. Law granting the exemption ‘
2. You fall under within the law or you qualify in the exemption
Forward shifting – takes place 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; from manufacturer/producer to wholesaler, then f) Tax evasion (tax dodging) – the use by the taxpayer of illegal or fraudulent means to
to the retailer and finally to the consumer. – demand is greater than supply. e.i. VAT defeat or lessen the payment of a tax; punishable by law, subjecting the taxpayer to civil
and criminal liabilities.-‐-‐-‐to be dicussed more .
Backward shifting– effected when the burden of the tax is transferred from the
consumer or purchaser through the factors of distribution to the factor of iii. Distinction b/w tax evasion and tax avoidance
production. (discounting) –supply is greater than demand
Tax Evasion
Onward shifting – occurs when the tax is shifted two or more time either forward or - Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or
backward. Thus, a transfer form producer to consumer or from seller to purchaser lessen the payment of a tax. It is also known as “tax dodging.” It is punishable by
involves one shift; from producer to wholesaler, then to retailer, we have two shifts; law.
and if the tax is transferred again to the purchaser by the retailer, we have three - Tax evasion is a term that connotes fraud through the use of pretenses or forbidden
shifts in all. devices to lessen or defeat taxes. [Yutivo v. Court of Tax Appeals, 1 SCRA 160]

b) Capitalization– the reduction in the price of the taxed object equal to the capitalized Example: Deliberate failure to report a taxable income or property; deliberate reduction
value of future taxes which the purchaser expects to be called upon to pay; occurs when of income that has been received.
the tax falls on an income-‐producing property (e.g., commercial building). The buyer
naturally takes into account the taxes that he will be paying on the property when he Tax Avoidance
becomes the owner thereof in determining whether the price is reasonable or not. The - Tax avoidance is the exploitation by the taxpayer of legally permissible alternative
burden of the tax rests on the present owner (seller) if he reduces the price because of tax rates or methods of assessing taxable property or income in order to avoid or
the tax; may be considered as a special form of backward shifting except that while the reduce tax liability. It is politely called “tax minimization” and is not punishable by
latter involves the throwing back of a whole series of taxes (e.g., real estate taxes which law.
are payable every year) and takes place before any of them, with the exception of the - In Delphers Traders Corp. v. Intermediate Appellate Court [157 SCRA 349], the
first is paid. 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
c) Transformation– the method of escape from taxation whereby the manufacturer or themselves owned and controlled. By virtue of the deed of exchange, the Pachecho
producer upon whom the tax has been imposed, fearing the loss of his market if he co-‐owners saved on inheritance taxes. The Supreme Court said the records do not
should add the tax to the price, pays the tax and endeavours to recoup himself by point to anything wrong and objectionable about this estate planning scheme
improving his process of production thereby turning out his units of products at a lower resorted to. The legal right of the taxpayer to decreased the amount of what
cost. In such a case, the loss occasioned by the tax may be offset by the gains resulting otherwise could be his taxes or altogether avoid them by means which the law
from the economics of production; the taxpayer escapes, not by shifting but by permits cannot be doubted.
transforming the tax into a gain through the medium of production. (supply is greater
than demand) illustration: videoke, the greater in number, the lesser is the cost(amot) iv. Elements of tax evasion

d) Tax avoidance (tax planning or tax minimization) – the use by the taxpayer of legally Tax evasion connotes the integration of three factors:
permissible alternative tax rate or methods of assessing taxable property or income, in 1. The end to be achieved. Example: the payment of less than that known by the
taxpayer to be legally due, or in paying no tax when such is due. 2) Local Governments
2. An accompanying state of mind described as being “evil,” “in bad faith,” “willful” or - Municipal corporations are clothed with no inherent power to tax or to grant
“deliberate and not accidental.” tax exemptions. But the moment the power to impose a particular tax is
3. A course of action (or failure of action) which is unlawful. granted, they also have the power to grant exemption therefrom unless
forbidden by some provision of the Constitution or the law.
v. Evidence to prove tax evasion - The legislature may delegate its power to grant tax exemptions to the same
- Since fraud is a state of mind, it need not be proved by direct evidence but may be extent that it may exercise the power to exempt.
proved from the circumstances of the case. - Basco v. PAGCOR (196 SCRA 52): The power to tax municipal corporations must
- In Republic v. Gonzales [13 SCRA 633], the Supreme Court affirmed the assessment always yield to a legislative act which is superior, having been passed by the
of a deficiency tax against Gonzales, a private concessionaire engaged in the State itself. Municipal corporations are mere creatures of Congress which has
manufacturer of furniture inside the Clark Air Base, for underdeclaration of his the power to create and abolish municipal corporations due to its general
income. SC held that the failure of the taxpayer to declare for taxation purposes his legislative powers. If Congress can grant the power to tax, it can also provide for
true and actual income derived from his business for two (2) consecutive years is an exemptions or even take back the power.
indication of his fraudulent intent to cheat the government if its due taxes.
Chavez v. PCGG, G.R. No. 130716, 09 December 1998
XX. EXEMPTION FROM TAXATION → In a compromise agreement between the Philippine Government, represented by
the PCGG, and the Marcos heirs, the PCGG granted tax exemptions to the assets
i. Exemption, defined which will be apportioned to the Marcos heirs. The Supreme Court ruled that the
- It is the grant of immunity to particular persons or corporations or to persons or PCGG has absolutely no power to grant tax exemptions, even under the cover of its
corporations of a particular class from a tax which persons and corporations authority to compromise ill gotten wealth cases. The grant of tax exemptions is the
generally within the same state or taxing district are obliged to pay. It is an immunity exclusive prerogative of Congress.
or privilege; it is freedom from a financial charge or burden to which others are → In fact, the Supreme Court even stated that Congress itself cannot grant tax
subjected. exemptions in the case at bar because it will violate the equal protection clause of
- Exemption is allowed only if there is a clear provision therefor. the Constitution.
- It is not necessarily discriminatory as long as there is a reasonable foundation or
rational basis. iv. Rationale of tax exemption
- Its avowed purpose is some public benefit or interest which the lawmaking body
ii. Nature of tax exemption considers sufficient to offset the monetary loss entailed in the grant of the
a) personal privilege exemption.
- It is a mere personal privilege of the grantee. - The theory behind the grant of tax exemptions is that such act will benefit the body
b) generally revocable of the people. It is not based on the idea of lessening the burden of the individual
- It is generally revocable by the government unless the exemption is founded on owners of property.
a contract which is protected from impairment.
c) waiver on the part of the government v. Grounds for tax exemption
- 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. 1) May be based on contract. In such a case, the public which is represented by the
d) not necessarily discriminatory government is supposed to receive a full equivalent therefor, i.e. charter of a
- It is not necessarily discriminatory so long as the exemption has a reasonable corporation.
foundation or rational basis. 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
iii. Nature of the power to grant tax exemption return for the tax exemption.
3) May be based on grounds of reciprocity or to lessen the rigors of international double or
1) National Government multiple taxation.
- The power to grant tax exemptions is an attribute of sovereignty for the power
to prescribe who or what persons or property shall be taxed implies the power Note: Equity is not a ground for tax exemption. Exemption is allowed only if there is a clear
to prescribe who or what persons or property shall not be taxed. provision therefor.
- 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. vi. Kinds of Tax exemption
- Unless restricted by the Constitution, the legislative power to exempt is as
broad as its power to tax. As to manner of creation
1) Express or affirmative exemption
- When certain persons, property or transactions are, by express provision, interpretation of statutes granting tax exemptions to the NPC. The rule on strict
exempted from all or certain taxes, either entirely or in part. interpretation does not apply in the case of exemptions in favor of a political
2) Implied exemption or exemption by omission subdivision or instrumentality of the government. [Maceda v. Macaraig]
- When a tax is levied on certain classes of persons, properties, or - A tax cannot be imposed unless it is supported by the clear and express
transactions without mentioning the other classes. language of a statute; on the other hand, once the tax is unquestionably
- Every tax statute makes exemptions because of omissions. imposed, “a claim of exemption from tax payments must be clearly shown and
based on language in the law too plain to be mistaken.” Since the partial refund
As to scope or extent authorized under Section 5, RA 1435, is in the nature of a tax exemption, it
1) Total must be construed strictissimi juris against the grantee. Hence, petitioner’s
- When certain persons, property or transactions are exempted, expressly or claim of refund on the basis of the specific taxes it actually paid must expressly
implied, from all taxes. be granted in a statute stated in a language too clear to be mistaken. Davao
2) Partial Gulf v. Commissioner, 293 SCRA 76 (1998)
- When certain persons, property or transactions are exempted, expressly or
implied, from certain taxes, either entirely or in part. " Restrictions on Revocation of Tax Exemption
a) Non-‐impairment clause
vii. Examples of tax exemption - There is a contract but we need to qualify because not all instances that
the non-‐impairment clause will restrict the revocation of the tax
viii. Construction of tax exemption statutes exemption because if the tax exemption is provided by law, the non-‐
impairment clause will not apply. The non-‐impairment clause will apply
" General Rule only if the exemption is granted in a contract.
- In the construction of tax statutes, exemptions are not favored and are b) Adherence to form
construed strictissimi juris against the taxpayer. The fundamental theory is that - The rule is if the exemption is granted by the Constitution, then exemption
all taxable property should bear its share in the cost and expense of the can only be revoked upon Constitutional amendment. You cannot revoke
government. by mere passage of law.
- Taxation is the rule and exemption is the exemption. c) Where the tax-‐exempting grant is in the form of special law and not by a
- He who claims exemption must be able to justify his claim or right thereto by a general law, even if the terms of the general act are broad enough to include
grant express in terms “too plain to be mistaken and too categorical to be the intent to repeal or alter the special law, still there would be no revocation
misinterpreted.” If not expressly mentioned in the law, it must be at least of tax exemption.
within its purview by clear legislative intent. - So if you want to revoke the tax exemption in a special law then you must
pass another special law revoking it. It cannot be revoked by implied
" Exception to Application of Strictssimi Juris (instances where there is liberal revocation.
construction):
1) If there is an express provision that provides for liberal interpretation ix. Tax amnesty, defined
2) If it pertains to special taxes relating to special cases and affecting only special - A general pardon or intentional overlooking by the State of its authority to impose
classes of person penalties on persons otherwise guilty of evasion or violation of a revenue or tax law
3) If exemption refers to public property o There is already a finding that this person has already evaded the payment
- when it comes to public property, the rule is exemption and taxation is the of tax
exemption
4) In cases of exemptions granted to religious, charitable and educational - Partakes of an absolute forgiveness or waiver by the government of its right to
institutions or their property collect what otherwise would be due it and, in this sense, prejudicial thereto. It is
- This is provided than no less than the consti itself granted particularly to tax evaders who wish to relent and are willing to reform, thus
5) Exemptions in favor of the government, its political subdivisions or giving them a chance to do so and thereby become a part of the new society with a
instrumentalities clean slate. Republic v. Intermediate Appellate Court, 196 SCRA 335
6) If there is express mention by clear legislative intent o when we say of absolute forgiveness, this is retrospective. Meaning it
looks back to your previous liabilities and if you are given a tax amnesty, it
Atty. A: when will you apply the strict construction? You will only apply it if there is doubt as is as if you did not incur those previous liabilities.
to the interpretation of the law exempting the person or the property. If there is no doubt, no
need to apply the strict construction. - 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
NOTE: Strict interpretation does not apply to the government and its agencies and liberally in favor of the government.
- Petitioner cannot invoke the rule on stritissimi juris with respect to the
x. Tax remission of tax condonation, defined to be the laws of the occupied territory and not of the occupying enemy.
- 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 b) Civil, not penal, in nature
due and payable to the exclusion of taxes already collected does not constitute - Tax laws are civil and not penal in nature, although there are penalties provided
unfair discrimination. Such a set of taxes is a class by itself and the law would be for their violation.
open to attack as class legislation only if all taxpayers belonging to one class were - The purpose of tax laws in imposing penalties for delinquencies is to compel the
not treated alike. Juan Luna Subd. V. Sarmiento, 91 Phil 370 timely payment of taxes or to punish evasion or neglect of duty in respect
thereof.
Atty. A: from the word condonation, it simply means to say that you forgive the - Republic v. Oasan, 99 Phil 934: The war profits tax is not subject to the
taxpayer out of liberality. But as discussed in the Juan Luna case, if you are going to prohibition on ex post facto laws as the latter applies only to criminal or penal
remit or condoned a tax, you must not apply it to a specific person only but you matters. Tax laws are civil in nature.
need to apply it to the entire individual or property belonging to the same class.
Otherwise, it will amount to class legislation. ii. Construction of tax laws
1) Generally prospective in operation
- The condonation of a tax liability is equivalent to and is in the nature of a tax 2) Rule when legislative intent is clear: receive reasonable construction to carry out the
exemption. Thus, it should be sustained only when expressly provided in the law. purpose and intent
Surigao Consolidated Mining v. Commissioner of Internal Revenue, 9 SCRA 728 3) When there is doubt:
- In every case of doubt in tax statute imposing payment of tax, it shall be
Atty. A: it is still prospective in application. construed strictly against the government and liberally in favor of the taxpayer.
(reason: the tax law does not want to burden the inhabitants in the payment of
IN SUMMARY: tax)
- However, when it comes to exemption and deduction, the rule is strictissimi
Tax Amnesty Tax Exemption juris. Strictly against the taxpayer and liberally in favor of the government.
• Absolute forgiveness from all • only immune from your civil (reason: lifeblood doctrine)
criminal and civil obligation liability (prospective effect) - Taxes, being burdens, are not to be presumed beyond what the statute
arising from your non-‐payment expressly and clearly declares.
of taxes (retrospective effect) 4) Provisions granting tax exemption, when there is doubt, it is construed strictly
• General pardon given to all against the taxpayer claiming the tax exemption.
taxpayers to cover a particular 5) When the language is plain, rule on strict construction against the government does
taxing period or a particular not apply
transaction 6) Public purpose is always presumed
7) Provisions of the tax act are not to be extended by implication
8) Tax laws are special laws and they prevail over general laws
XXI. NATURE, CONSTRUCTION AND APPLICATION OF TAX LAWS
iii. Application of tax laws
i. Nature of internal revenue law
- Internal revenue laws are not political in nature. General rule: Tax laws are prospective in operation because the nature and amount
- Tax laws are civil and not penal in nature. of the tax could not be foreseen and understood by the taxpayer at the time the
transactions which the law seeks to tax was completed.
a) Not political in nature
- Internal revenue laws are not political in nature. They are deemed to be the Exception: While it is not favored, a statute may nevertheless operate retroactively
laws of the occupied territory and not of the occupying enemy. So even we are provided it is expressly declared or is clearly the legislative intent. But a tax law
occupied by another State, the taxation laws continue. It is as if there is no should not be given retroactive application when it would be harsh and oppressive.
stoppage of the tax law. Thus, our tax laws continued in force during the
Japanese occupation. iv. Mandatory and directory provisions of tax laws
- Hilado v. Collector, 100 Phil 288: It is well known that our internal revenue laws - Directory provisions are those designed merely for the information or direction of
are not political in nature and, as such, continued in force during the period of officers or to secure methodical and systematic modes of proceedings.
enemy occupation and in effect were actually enforced by the occupation - Mandatory provisions are those intended for the security of the citizens or which are
government. Income tax returns that were filed during that period and income designed to ensure equality of taxation or certainty as to the nature and amount of
tax payments made were considered valid and legal. Such tax laws are deemed 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 e) Federation of Filipino-‐Chinese Chamber of Commerce; and
such consequence. [Roxas v. Rafferty, 37 Phil 958] f) Japanese Chamber of Commerce and Industry in the Philippines.
2) However, other persons or entities may request a copy of the said
v. Authority of the Secretary of Finance to promulgate rules and regulations issuances.
- The Secretary of Finance, upon recommendation of the Commissioner of Internal 3) The Bureau of Internal Revenue shall issue a press release covering the
Revenue, shall promulgate needful rules and regulations for the effective highlights and features of the new tax issuance in any newspaper of
enforcement of the provisions of the NIRC. general circulation.
- This is without prejudice to the power of the Commissioner of Internal Revenue to 4) Effectivity date for enforcement of the new issuance shall take place thirty
make rulings or opinions in connection with the implementation of the provisions of (30) days from the date the issuance has been sent to the above-‐
internal revenue laws, including rulings on the classification of articles for sales tax enumerated organizations.
and similar purposes.
TAKE NOTE: IRR and admin regulation are NOT THE SAME. You have the law, then you pass the
TAKE NOTE: IRR and from the IRR, it now depends from the Commissioner kung kugihan xa kay he will now
- Promulgation: Sec. of Finance issue a revenue regulation but this revenue regulation is not to implement the whole IRR but
- Recommendation: Commissioner of Internal Revenue specific provisions only.
- Administative rulings: Commissioner of Internal Revenue
x. Administrative rulings and opinions (BIR RULINGS)
vi. Nature and power to make regulations - Known as BIR rulings
- Less general interpretation of tax laws being issued from time to time by the
vii. Necessity and function of regulations Commissioner of Internal Revenue. They are usually rendered on request of
- Purpose of IRR: taxpayers to clarify certain provisions of a tax law.
1) To properly enforce and execute the laws - These rulings may be revoked by the Secretary of Finance if the latter finds them not
2) To clarify and explain the law in accordance with law.
3) To carry into effect the law’s general provisions by providing details of - The Commissioner may revoke, repeal or abrogate the acts or previous rulings of his
administration and procedure predecessors in office because the construction of the statute by those
administering it is not binding on their successors if, thereafter, such successors are
viii. Requisites for validity and effectivity of regulations satisfied that a different construction of the law should be given.
a) Must be reasonable - Rulings in the form of opinions are also given by the Secretary of Justice who is the
b) Must be within the authority conferred chief legal officer of the Government.
c) They must not be contrary to law and the Constitution
d) They must be published in the Official Gazette or a newspaper of general circulation Atty. A: IF there is a provision in the tax law which is not clear, you can send a
clarification to the BIR. You just have to lay down all the facts and all the details that you
ix. Force and effect of regulations have and send it either to the Commissioner or Regional Director and they will address
- Revenue Memorandum Circular 20-‐86 was issued to govern the drafting, issuance, and clarify your concerns.
and implementation of revenue tax issuances, including:
1) Revenue Regulations; But when it comes to BIR rulings and admin rulings, it applies only to the entity asking for
2) Revenue Audit Memorandum Orders; and it. So even if you have the same condition, let’s say for example, Company A and
3) Revenue Memorandum Circulars and Revenue Memorandum Orders. Company B and Company A is asking if it is exempted then BIR declared in a ruling that
Company A is exempt. Company B, same economy conditions of Company A, cannot
- Except when the law otherwise expressly provides, the aforesaid revenue tax presumed that the it (Co. B) is also exempt. To be safe, Company B should also ask from
issuances shall not begin to be operative until after due notice thereof may be fairly the BIR a ruling pertaining to its own company, even if it has the same situation or
assumed. condition with Company A.

- Due notice of the said issuances may be fairly presumed only after the following xi. Administrative interpretation and the courts
procedures have been taken: - Different from the IRR
1) Copies of the tax issuance have been sent through registered mail to the - Rule: when it comes to admin interpretation, ruling or opinions are not binding to
following business and professional organizations: the courts. However, it is given great weight in making the decision.
a) Philippine Institute of Certified Public Accountants; - Commissioner v. Court of Appeals, 240 SCRA 368: The authority of the Minister of
b) Integrated Bar of the Philippines; Finance, in conjunction with the Commissioner of Internal Revenue, to promulgate
c) Philippine Chamber of Commerce and Industry; rules and regulations for the effective enforcement of internal revenue rules cannot
d) American Chamber of Commerce; be controverted. 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
such 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 Appeals, 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 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.

xii. Power of the Secretary of Finance to Revoke the Rulings of his predecessor
- The Sec. of Finance has the power to revoke, repeal or abrogate the acts or previous
rulings of his predecessors in office if the former becomes satisfied that a different
construction should be given.

xiii. Non-‐retroactivity of repeal of regulations or rulings, and its exceptions
- No retroactivity if the repeal, revocation, modification or reversal of regulations or
rulings is prejudicial to the taxpayer.
- Exception:
a) Where the taxpayer deliberately misstates or omits material facts from his
return or in any document required of him by the BIR;
b) Where the facts subsequently gathered by the BIR are materially different from
the facts on which the ruling is based; and
c) Where the taxpayer acted in bad faith.

xiv. Decisions of the SC and the CTA
- Follow the hierarchy of the courts
- If it is a question pertaining to the constitutionality of a ruling or IRR, raise it
immediately in the regular courts
- But if it pertains to questions on the tax payable computations, question it first with
the BIR (administrative level) then appeal it to the CIR (depends on the amount),
then after it can be appealed later on to the Sec. of Finance or CTA then after, that’s
the time you can go the SC.
- But in the SC, it should only be purely questions of law.

XXII. SOURCES OF TAX LAWS

i. Constitution

ii. Legislations/Statutes (R.A., P.D., E.O.)

iii. Administrative rules and regulations, rulings or opinions of tax officials

iv. Judicial decisions
- Stare decisis, meaning, only the decisions of the SC

v. Tax treaties or agreements

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TAXATION 1 A.Y. 2014 - PART 1 (based on the syllabus and discussion of Atty.

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