POWER OF TAXATION

TAXATION Tax 3 INHERENT POWER

-inherent power by which the sovereign through its law-making body raises revenue to -enforced proportional contibutions from the persons and property levied by the law- TAXATION POLICE POWER EMINENT DOMAIN
defray the necessary expenses of government. making body of the state by virtue of its sovereignty in support of government and for Definition raises revenue to defray interferes with private take private property upon
public needs. the necessary expenses of rights to promote general payment of just
Characteristics: Characteristics
govt welfare compensation forpublic
/ Inherent power of the sovereign state / Forced charged use
/ Exclusively lodged with the legislature / Generally payable in money Purpose raise revenue promote general welfare facilitate the state's need
/ Subject to inherent, constitutional and contractual limitations / Exclusively levied by the legislature thru regulations of property for public use
/ Assessed in accordance w/ some reasonable rule of apportionment
Natures: / Imposed by the state within its jurisdiction Amount of exaction no limit limited to the cost of no exaction; but private
/ Plenary / Levied for a public purpose regulation, issuance of the property is taken for public
license or surveillance purposes
/ Comprehensive
/ Awesome power that could destroy Classifications
As to subject matter Benefits received No special or direct No direct benefit is direct benefit results in
Purposes and Objectives: / Personal Tax -taxes are of fixed amount upon all person of certain class within the benefit is received by the received; a healthy the form of just
jurisction without regard to property, occupation or business in which they may be taxpayer; merely general economic standard of compensation to the
/ RAISE REVENUE benefit of protection society is attained property owner
engaged e.g Community Tax Certificate
-basically, its purpose is to provide funds or property with which the state promotes
the general welfare and protection of its citizens / Property Tax-assessed on property of a certain class e.g Real Property Tax
/ NON-REVENUE / Excise Tax-imposed on the exercise of a privilege e.g Income Tax, Donors and Estate Non-impairment of Contracts may not be Contracts may be impared Contracts may be impared
Promotion of general welfare Tax contracts impared
Regulation / Custom Duties-duties charged upon the commodities on their being imported into or
Reduction of social inequality exported from a country e.g Tariffs Transfer of property rights Taxes paid become part of No transfer but only Transfer is effected in favor
Encourage economic growth As to burden the public funds restraint in its exercise of the state
Protectionism / Direct Tax-both the incidence of or liability for the payment of the tax as well as the
impact or burden of the tax falls on the same person e.g Income Tax Scope All persons, property, All persons, property, Only upon a particular
Theories and bases: / Indirect Tax-the incidence of or the liability for the payment of the tax falls on one rights and priveledge. rights and priveledge. property
/ LIFEBLOOD THEORY (Importance of taxation) person but the burden thereof can be shifted or passed on to another e.g VAT
-taxes are what we pay to civilized society.
-without taxes, the government would be paralyzed for lack of motive power to As to purpose TAX SPECIAL ASSESSMENT
activate and operate it. / General Tax-levied for the general or ordinary purposes of the govt Imposed on persons, property, rights and priveleges. Levied only on land.
/ NECESSITY THEORY (Theory of taxation) / Special Tax-levied for special purposes
-tax is an attribute of sovereignty emnating from necessity. As to measure of application Personal liability attaches on the person assessed in Cannot be made a personal liability of the person
-it is a necessary burden to preserve the state's sovereignty and a means to give the / Specific Tax-imposes a specific sum by the head or number or by some standard of the case of non-payment. assessed.
citizenry an army to resist an aggression, a navy to defend its shore from invasion, a weight or measurement Not based on any special or direct benefits. Based wholly on benefit.
corps of civil servants to serve, public improvements designed for enjoyment of the
citizenry and those which comes within the state's teritory, and facilities and / Ad Valorem Tax-tax upon the value of the article or thing subject to tax'n Levied and paid annually. Exceptional both as to time and locality.
protection which a government is supposed to provide. As to taxing theory Exemptions granted is applicable. (Art. VI Sec. 28 (3) Exception does no apply. NB If property is exempt
/ National Tax-levied by the National Government 1987 Constitution) from RPT, it is also exempt from SA.
/ Local Tax-levied by the local government
/ BENEFITS-PROTECTION THEORY (Basis of taxation) As to rate TAX LICENCED FEE
-taxation is a symbiotic relationship whereby in exchange of the benefits and / Progressive Tax-rate or amount of tax increases as the amount of income or earning to Based on power of taxation. Emanates from police power.
protection that the citizen gets from the government, taxes are paid. be taxed increases To generate revenue. Regulatory.
/ Regressive Tax-tax rate decreases as the amount of income to be taxed increases Amount is unlimited. Amount is limited to the cost of (1) issuing the license,
and (2) inspection and surveillance.
Aspects: / Proportionate Tax- based on the fixed proportion of the value of the property Non-payment does not make business illegal but Non-payment makes the business illegal.
/ Levy or imposition of the tax (tax legislation/function of congress) assessed. maybe a ground for criminal prosecution.
/ Enforcement or tax administration (tax collection/function of executives e.g BIR) Other Impositions than taxes
/ Toll-amount charged for the cost and maintenance of the property used TAX DEBT
/ Penalty-punishment for the commission of a crime Obligation imposed by law. Created by contract.
Scopes of Legislative Taxing Power / Compromise Penalty-amount collected in lieu of criminal prosecution in cases of tax Due to govt in its sovereign capacity Maybe due to govt but in its corporate capacity.
/ Amount or rate of tax violations Payable in money. Payable in money, property or services.
/ Apportionment of tax / Special Assessment-levied only on land based wholly on benefit accruing thereon as a Does not draw interest except in case of deliquency. Draws interest if stipulated or delayed.
/ Kind of tax result of improvements or public works undertaken by government within the vicinity
/ Method of collection Not assignable. Assignable
/ Purpose/s of its levy, provided it is for public purpose / License Fee-regulatory imposition in the exercise of the police power Not subject to compensation or set off. Subject to compensation or set off.
/ Subject to be taxed, provided it is within its jurisdiction / Margin Fee-exaction designated to stabilize the currency Non-payment is punished by imprisonment except No imprisonment in case of non-payment (Art. III, Sec
/ Situs of taxation Debt-sum of money due upon contract or one which is evidenced by judgement poll tax. 20 1987 Constitution)
Imposed only by public authority. Can be imposed by private individual.
May the COURT interfere with tax legislation? / Subsidy-legislative grant of money in aid of a private enterprise deemed to promote
/ As long as the legislatue, in imposing a tax, does not violate applicable constitutional the public welfare Is the DOCTRINE OF EQUITABLE RECOUPMENT followed in the Philippines?
limitations or restrictions, it is not within the province of the courts to inquire into the / Custom Duties and fees-duties charged upon the commodities on their being /NO. A tax presently being assessed against a taxpayer may not be recouped or set-off against an overpaid tax
wisdom or policy of the exaction, the motives behind it, the amount to be raised or imported into or exported from a country refundof which is already barred by prescription.
the persons, property or other priveledge to be taxed.
/ Revenue-a broad term that included taxes and income from other sources as well
May a TAX be subject of COMPENSATION or SET-OFF?
/ The court's power in taxation is LIMITED only to the application and interpretation of / Impost-in general, it signifies any tax, tribute or duty; in limited, it is a duty on /NO. Taxes cannot be subject of compensation or set-off. Taxes are not contractual obligations but arise out of
the law. imported goods and merchandise duty to the government.
/ TITHE-imposes by a church or sect.
BASIC PRINCIPLES OF SOUND TAX SYSTEM / TRIBUTE-imposes by a monarch
/ Fiscal Adequacy -sufficiency to meet govt expdture and other pub needs PUBLIC FINANCE VS TAXATION
/ Administrative Feasibility -capibility of being effectively enforced. TAX is a mere level of public finance.
/ Theoretical Justice -based on taxpayer's ability to pay; progressive PUBLIC FINANCE refers to the financial operation of all government levels. Such operations include
budgeting, taxing, appropriating, purchasing, borrowing, disbursing funds, and regulatimg currency.
 PUBLIC FINANCE refers to the financial operation of all government levels. Such operations include
/ Consistency with Economic Goals budgeting, taxing, appropriating, purchasing, borrowing, disbursing funds, and regulatimg currency.

Is the power to tax the power to destroy? Maybe yes, maybe not
LIMITATION OF TAXING POWER
(3) Government Educational Institutions CONTRACTUAL LIMITATIONS(RULES)
LIMITATIONS OF TAXATION Property or real estate tax -property actually, directly and exclusively used for / When the exemption is bilaterally agreed upon between the government and the taxpayer - it cannot be
/ Inherent -not embodied in constitution, these are limitation based on its very nature educational purposes- EXEMPT but income of whatever kind and character from any of withdrawn without violating the non-impairment clause.
their properties, real or personal, regardless of the disposition, is TAXABLE.
/ Constitutiional -those expressly found in the Constitution or iplied from its provision / When it is unilaterally granted by the law, and the same is withdrawn by virtue of another law.
/ Contractual -based o contract entered between the state and another / When the exemption is granted under a franchise - it may be withdrawn at anytime.
Incomes received by them as such are exempt from taxes. However, their income
TAXPAYER SUIT from any of their activities conducted for profit regardless of the disposition is taxable. DOUBLE TAXATION
/ A case filed by a bonafide taxpayer impugning the validity, legality or constitutionality of a / Taxing the same property twice when it shoud be taxed but once.
tax law or its implementation.
International comity Kinds:
INHERENT LIMITATIONS These principles limit the authority of the government to effectively impose taxes on a Direct Duplicate Taxation - OBNOXIOUS
/ Public purpose of taxes sovereign state and its instrumentalities, as well as on its property held and activities -double taxation in the objectionable or prohibited sense.
undertaken in that capacity. International laws dictates peace and harmony among
/ Non-delegability of the taxing power states, hence, no state shall assert superiority over the other by imposing taxation. -this constitutes a violation of substantive due process
/ Territoriality or Situs of taxation Elements:
/ Tax exemption of the government (1) same property or subject matter taxed twice when it should be taxed only once
/ International comity (2) both taxes are levied for the same purpose
CONSTITUTIONAL LIMITATIONS (3) imposed by the same taxing authority
Test in determining Public Purpose / Due process clause (Art. III, Sec. 1, 1987 Constitution) (4) within the same jurisdiction
Duty Test (Opportunity to be heard/fair play/substance and form) (5) during the same taxing period
Promotion of General Welfare Test Any deprivation of life, liberty or property is with due process if it is done under the (6) covering the same kind or character of tax
authority of a law (substance) that is valid (not contrary to the Constitution) and after Indirect Duplicate Taxation - LEGAL/PERMISSIBLE
compliance with fair and reasonable methods of procedure (form) prescribed.
Non-Delegability of the Taxing Power -in the absence of one or more elements of direct taxation
General Rule: The power of taxation is peculiarly and exclusively exercised by the
legislature. For the power emanatesfrom, through, and by the people. Hence, a delegated / Equal protection clause (Art. III, Sec. 1, 1987 Constitution) REMEDIES AGAINST DOUBLE TAXATION
authority could no longer be further delegated.
All persons subject to legislation shall be treated alike under the circumstance and / Tax sparing rule e.g Sec. 28(B)(5)(b) NIRC
Exceptions to Non-delegability: conditions both in the privileges conferred and liabilities imposed. / Tax deductions e.g vanishing deductions
/ Authority of the President to fix tariff rates, import and export quotas, tonnage and / Tax credits
wharfage dues, and other duties and other duties or imposts. (Art. VI Sec. 28 (2) 1987 / Freedom of speech and of the press (Art. III, Sec. 4, 1987 Constitution) / Exemptions
Constitution)
There is curtailment of press freedom and freedom of thought and expression if a tax / Treaties with other states
/ Power of local government units to levy taxes, fees, and charges ( Art. X Sec. 5 1987 is levied in order to suppress this basic right and impose a prior restraint. / Principle of reciprocity e.g intangible properties of NRA in estate and donor's tax
Constitution)
/ Delegation to administrative agencies for implementation and collection. / Non-infringement of religious freedom and worship. (Art. III, Sec. 5, 1987 Constitution) FORMS OF ESCAPING TAXATION
/ Non-imprisonment for debt or non-payment of poll tax. (Art. III, Sec. 20, 1987 Constitution) / Shifting - process by which the tax burden is transferred from the statutory taxpayer (impact of taxation) to
Situs of Taxation / Rule requiring that appropriations, revenue and tariff bills shall originate exclusively from the House of another (incident of taxation) without violating the law.
The power to tax is limited only to persons, property or businesss within the Representatives. (Art. III, Sec. 1,1987 Constitution) IMPACT - point on which tax is originally imposed
jurisdiction or territory of the taxing power. / Uniformity, equitability and progressivity of taxation. (Art. VI, Sec. 28(1), 1987 Constitution) INCIDENT - point on which the tax burden finally rests or settles down.
Uniformity -all taxable articles or kind of property of the same class are taxed at the / Capitalization - mere increase in the value of the property is not income but merely an unrealized increase in
Factors that determine the Situs of taxation same rate. capital. No income until after the actual sale or other disposition of the property in excess of its original cost.
Kind/classification of tax being levied Equitability -all burden falls to those who are more capable to pay
Situs of the thing or property taxed Progressivity -rate increases as the tax bases increases / Tax Avoidance - the exploitation by the taxpayer of legally permissible alternative tax rates or methods of
Citizenship of the taxpayer / Limitations on the congressional power to delegate to the President the authority to impose tariff assessing taxable property or income, in order to avoid or reduce tax liability.
Residence of the taxpayer rates, import export quotas, etc. (Art. VI, Sec. 28(2), 1987 Constitution) / Transformation - the manufacturer or producer upon whom the tax has been imposed, fearing the loss of his
Source of the income tax / Tax exemption of properties actually, directly and exclusively used for religious, charitable and market if he should add the tax to the price, pays the tax and endeavors to recoup himself by improving his
educational purposes. (Art. VI, Sec. 28(3), 1987 Constitution) process of production, thereby turning out his units at a lower cost.
Situs of the excise, privelege, business or occupation being taxed
Before a property may be excuse from payment of a tax, it must not only be actually / Tax Evasion - use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of the tax
Application of Situs of Taxation used for religious, charitable and educational purpose but it must be directly and
exclusively used for the same purpose as well.
Personal or community tax - Residence or domicile of Taxpayer / Tax Exemption - a grant of immunity to particular persons or corporations from the obligation to pay taxes.
Real property tax -Location of property (Lex rei sitae) / Voting requirement in connection with the legislative grant of tax exemption (Art. VI, Sec. 28(4), 1987
Personal property tax - Tangible - where it is physically located (Lex rei sitae) Constitution)
Personal property tax - Intangible - Sec. 104 of NIRC;Mobilia sequuntur personam / Non-impairment of the jurisdiction of the Supreme Court in tax cases. (Art. VIII, Sec. 2 and 5(2)(b), KINDS OF TAX EXEMPTIONS:
Business tax-Place of business 1987 Constitution) As to basis
Excise or privilege tax-where the act is performed or where occcupation is pursued / Exemption from taxes of the revenues and assets of educational institutions, including grants, Constitutional - immunities from the taxation which originate from the constitution
Sales tax -Where sale is consummated endownments, donations and contributions. (Art. XIV, Sec. 4(3) and (4), 1987 Constitution) Statutory - those which emanate from legislation
Income tax-Consider(1)citizenship(2)residence(3)source of income(Sec. 42 1997 NIRC) As to form
Transfer tax-Residence or citizenship of the taxpayer or location of property Requisites: Express - expressly granted by organic or statute law.
Franchise tax-State which granted the franchise (1) Non-Stock; non-profit organization Implied - when particular persons, property or excises are deemed exempt as they fall outside
Corparate Tax-Law of incorporation (2) No profit will inure to the benefits of any member of the organization the scope of the taxing provision itself.
/ Power of the President to veto any particular item or items in an appropriation, revenue, or tariff bill. As to extent
Non-taxability of the government (Art VI, Sec. 27(2), 1987 Constitution) Total - absolutrimmunity
General rule: The government is tax exempt. / Necessity of an appropriation before money may be paid out of the public treasury. (Art. VI, Sec. 29(1), Partial - one where a collection of a part of the tax is dispensed with
Exception: It may tax itself by enacting a law. 1987 Constitution) As to object
/ Non-appropriation of public money or property for the use, benefits, or support of any sect, church, or Personal - granted directly in favor of certain person
Rules governing tax immunity of the government: system of religion. (Art. VI, Sec. 29(2), 1987 Constitution) Impersonal - granted directly in favor of a certain class of property
(1) Admistrative Agencies / Treatment of taxes levied for a special purpose. (Art. VI, Sec. 29(3), 1987 Constitution)
Government function - tax exempt unless when law expressly provided for tax / Internal revenue allotment to local government units. (Art. X, Sec. 6, 1987 Constitution)
Proprietary function - taxable unless exempted by law
 (2) GOCC
General rule: Income is taxable at rate imposed upon corporations or associations
engaged in a similat business, industry or activity.
Exception: GSIS, SSS.PHIC,PCSO are tax exempt (Sec. 27(C.), NIRC)
however, PAGCOR exemption was lifted by RA9337.

TAX LAWS BIR RULINGS

-sets of rules that provide means for the state to raise revenue / BIR issues a general interpretation of tax laws usually upon a request of a taxpayer to clarify a provision
of law (Quasi-judicial function)
How to make a tax law?
Generally, all revue bills (proposal) must originate from the House of Representatives. After passing 3 Distinction between Administrative and Judicial interpretation
readings by a majority vote in technical committee, deliberation and journals of congress, it shall be Interpretation at administrative level are given great weight but are not laws, unlike court's decisions
elevated to Senate, which needs to pass the same 3 readings. Normally, the President signs a bill into which are considered part of the law of the land.
law for its implementation.

TAX ENFORCEMENT AND COLLECTION

SOURCES OF TAX LAWS
/ Republic Act/ Statutes/ Tax Code (RA 8424)
/ Presidential Decrees
/ Executive Orders
/ Court Decisions
/ Revenue Regulations (least source of tax laws)

NATURE OF INTERNAL REVENUE LAWS

/ Internal revenue laws are not political in nature. In times of war, they are deemed to be the laws of the
occupied territory and not of the occupying enemy.
/ Tax laws are civil and not penal in nature although there are penalties provided for their violation.

MAJOR CLASSIFICATIONS OF TAX LAWS

/ Tax Imposition (one that provided a burden)
/ Tax Exemption (one that provides immunity)

RULES IN CONSTRUCTING TAX IMPOSING LAWS

/ Public purpose is always presumed.
/ Legislative intention must be considered(spirit of law)
/ Where the language is plain and there is no doubt tax las must be given their ordinary meaning.

/ A statute will not be construed as imposing a tax unless it does so clearly, expressly and unambigously.

/ In case of doubt, it is construed most strongly against the government, and liberally in favor of the
taxpayer.
/ Provisions of a taxing act are not to be extended by implication.
/ Tax laws operate prospectively unless the purpose of the legislature to give retrospective effect is
expressly declare or may be implied from the language used.
/ Tax laws are special laws and prevail over general law.
/ Tax laws are civil in nature, not political.
/ Neither are tax laws penal in nature. Hence, the rule on retoactive effect of penal laws find no
applicationin tax cases.
/ Neither can the Constitutional prohibition against passage of ex post facto laws be invoked in taxation.

DIFFERENT PRINCIPLES GOVERNING TAX EXEMPTIONS

/ Exemptions from taxation are highly disfavored in law and are not presumed.
/ He who claims as exemption must be able to justify his claims by the clearest grant of organic or
statute law by words too palin to be mistaken. If ambigous, there is no exemption.
/ He who claims exemption should prove by convincing proof that he is exempted.
/ Taxation is the RULE, tax exemption is the EXCEPTION.
/ Tax exemption must be strictly construed against the taxpayer.
/ Tax exemption are not presumed.
/ Constitutional grants of tax exemption are self-executing.
/ Tax exemptions are personal.

TAX/REVENUE REGULATIONS
-are interpretations of an administration body (BIR) intended to clarify or explain the tax laws and carry
into effect its general provisions by providing the details of administration and procedure. They are
deemed necessary to the proper enforcement and execution of tax laws.

Requisites of tax regulations

/ It must be reasonable - germane to the purpose of the law
/ Withi the authority conferred
/ Not contrary to law
/ Must be published
/ Prospective, unless it is beneficial to the taxpayer, which may be given retroactive.

Who has the authority to promulgate tax regulations?

It is provided that the Secretary of Finance, upon the recommendation of the Commissioner of
Internal Revenue, shall promulgate all needful rules and regulations of the tax code (Quasi-legislative
function)