I.
GENERAL PRINCIPLES OF TAXATION subject to such guidelines and limitations as the Congress may
A. Definition, Concept and Purpose of Taxation
CASES:
• CIR v. ALGUE
Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance On the other hand, such
collection should be made in accordance with law as any arbitrariness
will negate the very reason for government itself. It is therefore
necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which
is the promotion of the common good, may be achieved.
It is said that taxes are what we pay for civilization society. Without
taxes, the government would be paralyzed for lack of the motive
power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing
authorities, every person who is able to must contribute his share in the
running of the government. The government for its part, is expected
to respond in the form of tangible and intangible benefits intended
to improve the lives of the people and enhance their moral and
material values. This symbiotic relationship is the rationale of
taxation and should dispel the erroneous notion that it is an arbitrary
method of exaction by those in the seat of power.
• CIR v. FORTUNE TOBACCO CORP
The power to tax is inherent in the State, such power being inherently
legislative, based on the principle that taxes are a grant of the people
who are taxed, and the grant must be made by the immediate
representatives of the people; and where the people have laid the
power, there it must remain and be exercised
• TIO v. VIDEOGRAM REGULATORY BOARD
The levy of the 30% tax is also for a public purpose. It was imposed
primarily to answer the 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
video tapes. And while it was also an objective of the law to protect
the movie industry, the tax remains a valid imposition.
Taxation as a revenue and regulatory measure
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 million per annum have not
been subjected to tax, thereby depriving the Government of an
additional source of revenue. . . . The levy of the 30% tax is for a
public purpose. It was imposed primarily to answer the 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 video tapes. And while it was
also an objective of the DECREE to protect the movie industry, the tax
remains a valid imposition.
• PAMBANSANG KOALISYON NG MGA SAMAHANG
MAGSASAKA v. EXECUTIVE SECRETARY
The Court of course grants that there is no hard-and-fast rule for
determining what constitutes public purpose. It is an elastic concept
that could be made to fit into modern standards. Public purpose, for
instance, is no longer restricted to traditional government functions
like building roads and school houses or safeguarding public health
and safety. Public purpose has been construed as including the
promotion of social justice. Thus, public funds may be used for
relocating illegal settlers, building low-cost housing for them, and
financing both urban and agrarian reforms that benefit certain poor
individuals. Still, these uses relieve volatile iniquities in society and,
therefore, impact on public order and welfare as a whole.
• BATANGAS POWER CORPORATION v. BATANGAS CITY
In recent years, the increasing social challenges of the times expanded
the scope of state activity, and taxation has become a tool to realize
social justice and the equitable distribution of wealth, economic
progress and the protection of local industries as well as public welfare
and similar objectives. Taxation assumes even greater significance
with the ratification of the 1987 Constitution. Thenceforth, the power
to tax is no longer vested exclusively on Congress; local legislative
bodies are now given direct authority to levy taxes, fees and other
charges pursuant to Article X, section 5 of the 1987 Constitution, viz:
Section 5. - Each Local Government unit shall have the power to
create its own sources of revenue, to levy taxes, fees and charges
provide, consistent with the basic policy of local autonomy. Such
taxes, fees and charges shall accrue exclusively to the Local
Governments.
The only way to shatter this culture of dependence is to give the LGUs
a wider role in the delivery of basic services, and confer them
sufficient powers to generate their own sources for the purpose. To
achieve this goal, x x x the 1987 Constitution mandates Congress to
enact a local government code that will, consistent with the basic
policy of local autonomy, set the guidelines and limitations to this
grant of taxing powers.
B. Nature and Characteristics of Taxation
• C H A M B E R O F R E A L E S TAT E A N D B U I L D E R S '
ASSOCIATIONS v. ROMULO
Taxes are the lifeblood of the government. Without taxes, the
government can neither exist nor endure. The exercise of taxing power
derives its source from the very existence of the State whose social
contract with its citizens obliges it to promote public interest and the
common good.33
Taxation is an inherent attribute of sovereignty.34 It is a power that is
purely legislative.35 Essentially, this means that in the legislature
primarily lies the discretion to determine the nature (kind), object
(purpose), extent (rate), coverage (subjects) and situs (place) of
taxation.36 It has the authority to prescribe a certain tax at a specific
rate for a particular public purpose on persons or things within its
jurisdiction. In other words, the legislature wields the power to define
what tax shall be imposed, why it should be imposed, how much tax
shall be imposed, against whom (or what) it shall be imposed and
where it shall be imposed.
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 abuse is to be found only in the responsibility of the
legislature (which imposes the tax) to its constituency who are to pay
it. Nevertheless, it is circumscribed by constitutional limitations. At the
same time, like any other statute, tax legislation carries a presumption
of constitutionality.
• SECRETARY OF FINANCE v. LAZATIN
Finally, the State's inherent power to tax is vested exclusively in the
Legislature.91 We have since ruled that the power to tax includes
the power to grant tax exemptions.92 Thus, the imposition of taxes,
as well as the grant and withdrawal of tax exemptions, shall only be
valid pursuant to a legislative enactment.
C. POWER OF TAXATION AS DISTINGUISHED FROM
POLICE POWER AND POWER OF EMINENT DOMAIN
• PLANTERS PRODUCTS v. FERTIPHIL
Police power and the power of taxation are inherent powers of the
State. These powers are distinct and have different tests for validity.
Police power is the power of the State to enact legislation that may
interfere with personal liberty or property in order to promote the
general welfare, while the power of taxation is the power to levy
taxes to be used for public purpose. The main purpose of police
power is the regulation of a behavior or conduct, while taxation is
revenue generation.
The "lawful subjects" and "lawful means" tests are used to determine
the validity of a law enacted under the police power.
The power of taxation, on the other hand, is circumscribed by inherent
and constitutional limitations.
While it is true that the power of taxation can be used as an
implement of police power,41 the primary purpose of the levy is
revenue generation. If the purpose is primarily revenue, or if revenue
is, at least, one of the real and substantial purposes, then the exaction is
properly called a tax.
The ₱10 levy under LOI No. 1465 is too excessive to serve a mere
regulatory purpose. The levy, no doubt, was a big burden on the seller
or the ultimate consumer.
Taxes are exacted only for a public purpose. The ₱10 levy is
unconstitutional because it was not for a public purpose. The levy
was imposed to give undue benefit to PPI.
An inherent limitation on the power of taxation is public purpose.
Taxes are exacted only for a public purpose. They cannot be used for
purely private purposes or for the exclusive benefit of private
persons.46 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 for a public purpose. It would be a
robbery for the State to tax its citizens and use the funds generated
for a private purpose.
PUBLIC PURPOSE: The term "public purpose" is not defined. It is
an elastic concept that can be hammered to fit modern standards.
Jurisprudence states that "public purpose" should be given a broad
interpretation. It does not only pertain to those purposes which are
traditionally viewed as essentially government functions, such as
building roads and delivery of basic services, but also includes those
purposes designed to promote social justice. Thus, public money may
now be used for the relocation of illegal settlers, low-cost housing and
urban or agrarian reform.
While the categories of what may constitute a public purpose are
continually expanding in light of the expansion of government
functions, the inherent requirement that taxes can only be exacted for a
public purpose still stands. Public purpose is the heart of a tax law.
When a tax law is only a mask to exact funds from the public when its
true intent is to give undue benefit and advantage to a private
enterprise, that law will not satisfy the requirement of "public
purpose.”
• CIR v. CENTRAL LUZON DRUG CORPORATION
The concept of public use is no longer confined to the traditional
notion of use by the public, but held synonymous with public
interest, public benefit, public welfare, and public convenience.
• DRUGSTORES ASSOCIATION OF THE PHILIPPINES v.
NATIONAL COUNCIL ON DISABILITY AFFAIRS
Property rights must bow to the primacy of police power because
property rights, though sheltered by due process, must yield to general
welfare.
Police power as an attribute to promote the common good would be
diluted considerably if on the mere plea of petitioners that they will
suffer loss of earnings and capital, the questioned provision is
invalidated. Moreover, in the absence of evidence demonstrating the
alleged confiscatory effect of the provision in question, there is no
basis for its nullification in view of the presumption of validity which
every law has in its favor.
Police power is the power of the state to promote public welfare by
restraining and regulating the use of liberty and property.
On the other hand, the power of eminent domain is the inherent right
of the state (and of those entities to which the power has been lawfully
delegated) to condemn private property to public use upon payment of
just compensation.
In the exercise of police power, property rights of private individuals
are subjected to restraints and burdens in order to secure the general
comfort, health, and prosperity of the state.30 A legislative act based on
the police power requires the concurrence of a lawful subject and a
lawful method. In more familiar words,
(a) the interests of the public generally, as distinguished from those of
a particular class, should justify the interference of the state; and
(b) the means employed are reasonably necessary for the
accomplishment of the purpose and not unduly oppressive upon
individuals.
• SOUTHERN LUZON DRUG CORPORATION v. DSWD
Police power is the power of the state to promote public welfare by
restraining and regulating the use of liberty and property. It is the most
pervasive, the least limitable, and the most demanding of the three
fundamental powers of the State.
In the exercise of police power, "property rights of private
individuals are subjected to restraints and burdens in order to
secure the general comfort, health, and prosperity of the
State." Even then, the State's claim of police power cannot be
arbitrary or unreasonable. After all, the overriding purpose of the
exercise of the power is to promote general welfare, public health
and safety, among others. (Lawful means + Lawful subject)
Eminent Domain:
Five circumstances that must be present in order to qualify "taking" as
an exercise of eminent domain.
First, the expropriator must enter a private property.
Second, the entrance into private property must be for more than a
momentary period.
Third, the entry into the property should be under warrant or color of
legal authority.
Fourth, the property must be devoted to a public use or otherwise
informally appropriated or injuriously affected.
Fifth, the utilization of the property for public use must be in such a
way as to oust the owner and deprive him of all beneficial enjoyment
of the property.
There are two different types of taking that can be identified:
A "possessory" taking occurs when the government confiscates or
physically occupies property. (Eminent domain)
A "regulatory" taking occurs when the government's regulation leaves
no reasonable economically viable use of the property. (Police power)
Equal protection:
For a classification to be valid:
(1) it must be based upon substantial distinctions,
(2) it must be germane to the purposes of the law,
(3) it must not be limited to existing conditions only, and
(4) it must apply equally to all members of the same class.
D. THEORY AND BASIS OF TAXATION
• CIR v. ALGUE, supra (Lifeblood doctrine)
Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance On the other hand, such
collection should be made in accordance with law as any arbitrariness
will negate the very reason for government itself. It is therefore
necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which
is the promotion of the common good, may be achieved.
• A N G E L E S C I T Y v. A N G E L E S C I T Y E L E C T R I C
CORPORATION
A principle deeply embedded in our jurisprudence is that taxes being
the lifeblood of the government should be collected
promptly,26 without unnecessary hindrance27 or delay.28 In line with
this principle, the National Internal Revenue Code of 1997 (NIRC)
expressly provides that no court shall have the authority to grant an
injunction to restrain the collection of any national internal revenue
tax, fee or charge imposed by the code.29 An exception to this rule
obtains only when in the opinion of the Court of Tax Appeals
(CTA) the collection thereof may jeopardize the interest of the
government and/or the taxpayer.
The situation, however, is different in the case of the collection of
local taxes as there is no express provision in the LGC prohibiting
courts from issuing an injunction to restrain local governments
from collecting taxes.
Unlike the National Internal Revenue Code, the Local Tax Code31 does
not contain any specific provision prohibiting courts from enjoining
the collection of local taxes. Such statutory lapse or intent, however it
may be viewed, may have allowed preliminary injunction where local
taxes are involved but cannot negate the procedural rules and
requirements under Rule 58.32
Nevertheless, it must be emphasized that although there is no
express prohibition in the LGC, injunctions enjoining the
collection of local taxes are frowned upon. Courts therefore should
exercise extreme caution in issuing such injunctions.
Two requisites must exist to warrant the issuance of a writ of
preliminary injunction, namely:
(1) the existence of a clear and unmistakable right that must be
protected; and
(2) an urgent and paramount necessity for the writ to prevent serious
damage.
• SPOUSES PACQUIAO v. CTA
• PHIL. GUARANTY CO. v. CIR (Necessity Theory)
The power to tax is an attribute of sovereignty. It is a power emanating
from necessity. It is a necessary burden to preserve the State's
sovereignty and a means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a corps of civil
servants to serve, public improvement designed for the enjoyment of
the citizenry and those which come within the State's territory, and
facilities and protection which a government is supposed to provide.
E. PRINCIPLES OF A SOUND TAX SYSTEM
• CHAVEZ v. ONGPIN
We agree with the observation of the Office of the Solicitor General
that without Executive Order No. 73, the basis for collection of real
property taxes win still be the 1978 revision of property values.
Certainly, to continue collecting real property taxes based on
valuations arrived at several years ago, in disregard of the increases in
the value of real properties that have occurred since then, is not in
consonance with a sound tax system. Fiscal adequacy, which is one
of the characteristics of a sound tax system, requires that sources
of revenues must be adequate to meet government expenditures
and their variations.
• DIAZ v. SECRETARY OF FINANCE
Administrative feasibility is one of the canons of a sound tax
system.
It simply means that the tax system should be capable of being
effectively administered and enforced with the least inconvenience
to the taxpayer. Non-observance of the canon, however, will not
render a tax imposition invalid "except to the extent that specific
constitutional or statutory limitations are impaired."34 Thus, even if
the imposition of VAT on tollway operations may seem
burdensome to implement, it is not necessarily invalid unless some
aspect of it is shown to violate any law or the Constitution.
F. SCOPE AND LIMITATIONS OF TAXATION
1. INHERENT LIMITATIONS
(a) PUBLIC PURPOSE
• PASCUAL v. SECRETARY OF PUBLIC WORKS
It is a general rule that the legislature is without power to appropriate
public revenue for anything but a public purpose. . . . It is the essential
character of the direct object of the expenditure which must determine
its validity as justifying a tax, and not the magnitude of the interests to
be affected nor the degree to which the general advantage of the
community, and thus the public welfare, may be ultimately benefited
by their promotion. Incidental advantage to the public or to the state,
which results from the promotion of private interests and the
prosperity of private enterprises or business, does not justify their aid
by the use of public money.
In accordance with the rule that the taxing power must be exercised for
public purposes only, money raised by taxation can be expanded
only for public purposes and not for the advantage of private
individuals.
Generally, under the express or implied provisions of the constitution,
public funds may be used for a public purpose. The right of the
legislature to appropriate funds is correlative with its right to tax,
under constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one purpose and
the devotion thereof to another purpose, no appropriation of state
funds can be made for other than a public purpose. . .
The test of the constitutionality of a statute requiring the use of public
funds is whether the statute is designed to promote the public interests,
as opposed to the furtherance of the advantage of individuals, although
each advantage to individuals might incidentally serve the public. . . .”
• PAMBANSANG KOALISYON NG MGA SAMAHANG
MAGSASAKA v. EXECUTIVE SECRETARY, supra
(b) INHERENTLY LEGISLATIVE, NON-DELEGABILITY OF
THE POWER TO TAX; EXCEPTIONS
• LA SUERTE CIGAR v. CA
The power of taxation is inherently legislative and may be imposed or
revoked only by the legislature.168 Moreover, this plenary power of
taxation cannot be delegated by Congress to any other branch of
government or private persons, unless its delegation is authorized by
the Constitution itself.169 Hence, the discretion to ascertain the
following — (a) basis, amount, or rate of tax; (b) person or property
that is subject to tax; (c) exemptions and exclusions from tax; and (d)
manner of collecting the tax — may not be delegated away by
Congress.
However, it is well-settled that the power to fill in the details and
manner as to the enforcement and administration of a law may be
delegated to various specialized administrative agencies like the
Secretary of Finance in this case.
The latest in our jurisprudence indicates that delegation of legislative
power has become the rule and its non-delegation the exception.
The reason is the increasing complexity of modern life and many
technical fields of governmental functions as in matters pertaining
to tax exemptions. This is coupled by the growing inability of the
legislature to cope directly with the many problems demanding its
attention. The growth of society has ramified its activities and created
peculiar and sophisticated problems that the legislature cannot be
expected reasonably to comprehend. Specialization even in legislation
has become necessary. To many of the problems attendant upon
present day undertakings, the legislature may not have the
competence, let alone the interest and the time, to provide the required
directand efficacious, not to say specific solutions.172
Thus, rules and regulations implementing the law are designed to fill
in the details or to make explicit what is general, which otherwise
cannot all be incorporated in the provision of the law. Such rules and
regulations, when promulgated in pursuance of the procedure or
authority conferred upon the administrative agency by law,174"deserve
to be given weight and respect by the courts in view of the rule-
making authority given to those who formulate them and their specific
expertise in their respective fields.”
To be valid, a revenue regulation must be within the scope of
statutory authority or standard granted by the legislature.
Specifically, the regulation must:
(1) be germane to the object and purpose of the law;176
(2) not contradict, but conform to, the standards the law
prescribes;177 and
(3) be issued for the sole purpose of carrying into effect the general
provisions of our tax laws.178
• FILM DEVELOPMENT COUNCIL v. COLON HERITAGE
REALTY
The power of taxation, being an essential and inherent attribute of
sovereignty, belongs, as a matter of right, to every independent
government, and needs no express conferment by the people before it
can be exercised. It is purely legislative and, thus, cannot be delegated
to the executive and judicial branches of government without running
afoul to the theory of separation of powers. It, however, can be
delegated to municipal corporations, consistent with the principle that
legislative powers may be delegated to local governments in respect of
matters of local concern.19 The authority of provinces, cities, and
municipalities to create their own sources of revenue and to levy taxes,
therefore, is not inherent and may be exercised only to the extent that
such power might be delegated to them either by the basic law or by
statute.
Under the present Constitution, where there is neither a grant nor a
prohibition by statute, the tax power of municipal corporations must be
deemed to exist although Congress may provide statutory limitations
and guidelines.27 The basic rationale for the current rule on local fiscal
autonomy is the strengthening of LGUs and the safeguarding of their
viability and self-sufficiency through a direct grant of general and
broad tax powers. Nevertheless, the fundamental law did not intend the
delegation to be absolute and unconditional.
The legislature must still see to it that:
(a) the taxpayer will not be over-burdened or saddled with multiple
and unreasonable impositions;
(b) each LGU will have its fair share of available resources;
(c) the resources of the national government will not be unduly
disturbed; and
(d) local taxation will be fair, uniform, and just.
Section 130 of the LGC:
1. Taxation shall be uniform in each LGU.
2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the taxpayer's ability
to pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive, or confiscatory;
d. not be contrary to law, public policy, national economic policy, or in
the restraint of trade.
3. The collection of local taxes, fees, charges and other impositions
shall in no case be let to any private person.
4. The revenue collected pursuant to the provisions of the LGC shall
inure solely to the benefit of, and be subject to the disposition by, the
LGU levying the tax, fee, charge or other imposition unless otherwise
specifically provided by the LGC.
5. Each LGU shall, as far as practicable, evolve a progressive system
of taxation.
• ABAKADA GURO PARTY LIST
The principle of separation of powers ordains that each of the three
great branches of government has exclusive cognizance of and is
supreme in matters falling within its own constitutionally allocated
sphere. A logical corollary to the doctrine of separation of powers is
the principle of non-delegation of powers, as expressed in the Latin
maxim: potestas delegata non delegari potest which means "what has
been delegated, cannot be delegated." This doctrine is based on the
ethical principle that such as delegated power constitutes not only a
right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the intervening
mind of another.
The powers which Congress is prohibited from delegating are those
which are strictly, or inherently and exclusively, legislative. Purely
legislative power, which can never be delegated, has been described as
the authority to make a complete law – complete as to the time when it
shall take effect and as to whom it shall be applicable – and to
determine the expediency of its enactment. Thus, the rule is that in
order that a court may be justified in holding a statute
unconstitutional as a delegation of legislative power, it must
appear that the power involved is purely legislative in nature –
that is, one appertaining exclusively to the legislative department.
It is the nature of the power, and not the liability of its use or the
manner of its exercise, which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative
powers is subject to the following recognized limitations or
exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of
Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23
(2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that
the delegation itself is valid. It is valid only if the law:
(a) is complete in itself, setting forth therein the policy to be executed,
carried out, or implemented by the delegate;41 and
(b) fixes a standard — the limits of which are sufficiently determinate
and determinable — to which the delegate must conform in the
performance of his functions.
The legislature may delegate to executive officers or bodies the power
to determine certain facts or conditions, or the happening of
contingencies, on which the operation of a statute is, by its terms,
made to depend, but the legislature must prescribe sufficient standards,
policies or limitations on their authority.49 While the power to tax
cannot be delegated to executive agencies, details as to the
enforcement and administration of an exercise of such power may
be left to them, including the power to determine the existence of
facts on which its operation depends.
(c) INTERNATIONAL COMITY
• DEUTSCHE BANK AG MANILA BRANCH v. CIR
Our Constitution provides for adherence to the general principles of
international law as part of the law of the land.15The time-honored
international principle of pacta sunt servanda demands the
performance in good faith of treaty obligations on the part of the states
that enter into the agreement. Every treaty in force is binding upon the
parties, and obligations under the treaty must be performed by them in
good faith.16 More importantly, treaties have the force and effect of
law in this jurisdiction.
Tax treaties are entered into "to reconcile the national fiscal
legislations of the contracting parties and, in turn, help the taxpayer
avoid simultaneous taxations in two different jurisdictions.”
Tax treaties are entered into to minimize, if not eliminate the
harshness of international juridical double taxation, which is why
they are also known as double tax treaty or double tax agreements.
"A state that has contracted valid international obligations is bound to
make in its legislations those modifications that may be necessary to
ensure the fulfillment of the obligations undertaken."20 Thus, laws and
issuances must ensure that the reliefs granted under tax treaties are
accorded to the parties entitled thereto.
(d) EXEMPTION OF GOVERNMENT ENTITIES, AGENCIES
AND INSTRUMENTALITIES
• MACEDA v. MACARAEG
2. CONSTITUTIONAL LIMITATIONS
(a) PROHIBITION AGAINST IMPRISONMENT FOR NON-
PAYMENT OF POLL TAX (ART. III, SEC. 2)
(b) UNIFORMITY AND EQUALITY OF TAXATION (ART. VI,
SEC 28)
• CIR v. DLSU
DLSU invokes the principle of uniformity in taxation, which mandates
that for similarly situated parties, the same set of evidence should be
appreciated and weighed in the same manner.49
DLSU misunderstands the concept of uniformity of taxation. Equality
and uniformity of taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate.147 A tax is
uniform when it operates with the same force and effect in every place
where the subject of it is found. The concept requires that all subjects
of taxation similarly situated should be treated alike and placed in
equal footing.
• WHITE LIGHT CORPORATION v. CITY OF MANILA
Rational basis test
Laws or ordinances are upheld if they rationally further a legitimate
governmental interest.
Strict scrutiny test
The focus is on the presence of compelling, rather than substantial,
governmental interest and on the absence of less restrictive means for
achieving that interest.
Intermediate review
Governmental interest is extensively examined and the availability of
less restrictive measures is considered.
• ABAKADA GURO PARTY LIST, supra
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. Different
articles may be taxed at different amounts provided that the rate is
uniform on the same class everywhere with all people at all times.86
• DRUGSTORES ASSOCIATION OF THE PHILIPPINES v.
NATIONAL COUNCIL ON DISABILITY AFFAIRS, supra
Under the equal protection clause, all persons or things similarly
situated must be treated alike, both in the privileges conferred and the
obligations imposed. Conversely, all persons or things differently
situated should be treated differently.
The Constitution does not require that things which are different in
fact be treated in law as though they were the same. The equal
protection clause does not forbid discrimination as to things that are
different. It does not prohibit legislation which is limited either in the
object to which it is directed or by the territory within which it is to
operate.
All that is required of a valid classification is that it be reasonable,
which means that the classification should:
(1) be based on substantial distinctions which make for real
differences,
(2) that it must be germane to the purpose of the law;
(3) that it must not be limited to existing conditions only; and
(4) that it must apply equally to each member of the class.
This Court has held that the standard is satisfied if the classification or
distinction is based on a reasonable foundation or rational basis and is
not palpably arbitrary.
(c) GRANT BY CONGRESS OF AUTHORITY TO THE
PRESIDENT TO IMPOSE TARIFF RATES (ART. VI, SEC. 28)
(d) PROHIBITION AGAINST TAXATION OF RELIGIOUS,
CHARITABLE AND EDUCATIONAL ENTITIES (ART. VI, SEC.
28)
(e) PROHIBITION AGAINST TAXATION OF NON-STOCK,
NON-PROFIT INSTITUTIONS (ART. XIV, SEC. 4)
• CIR v. DLSU, supra
The Court then significantly laid down the requisites for availing the
tax exemption under Article XIV, Section 4 (3), namely: (1) the
taxpayer falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be exempted
from taxation is used actually, directly and exclusively for
educational purposes.77
We now adopt YMCA as precedent and hold that:
1. The last paragraph of Section 30 of the Tax Code is without
force and effect with respect to non-stock, non-profit
educational institutions, provided, that the non-stock, non-
profit educational institutions prove that its assets and
revenues are used actually, directly and exclusively for
educational purposes.
2. The tax-exemption constitutionally-granted to non-stock,
non profit educational institutions, is not subject to
limitations imposed by law.
The tax exemption granted by the Constitution to non-stock, non-profit
educational institutions is conditioned only on the actual, direct and
exclusive use of their assets, revenues and income78for educational
purposes.
We find that unlike Article VI, Section 28 (3) of the Constitution
(pertaining to charitable institutions, churches, parsonages or convents,
mosques, and non-profit cemeteries), which exempts from
tax only the assets, i.e., "all lands, buildings, and improvements,
actually, directly, and exclusively used for religious, charitable, or
educational purposes...," Article XIV, Section 4 (3) categorically
states that "[a]ll revenues and assets... used actually, directly, and
exclusively for educational purposes shall be exempt from taxes and
duties.”
Thus, when a non-stock, non-profit educational institution proves that
it uses its revenues actually, directly, and exclusively for educational
purposes, it shall be exempted from income tax, VAT, and LBT. On the
other hand, when it also shows that it uses its assets in the form of real
property for educational purposes, it shall be exempted from RPT.
To be clear, proving the actual use of the taxable item will result in an
exemption, but the specific tax from which the entity shall be
exempted from shall depend on whether the item is an item of revenue
or asset.
• JACINTO-HENARES v. ST. PAUL COLLEGE OF MAKATI
It is clear and unmistakable from the aforequoted constitutional
provision that non-stock, non-profit educational institutions are
constitutionally exempt from tax on all revenues derived in pursuance
of its purpose as an educational institution and used actually, directly
and exclusively for educational purposes. This constitutional
exemption gives the non-stock, non-profit educational institutions a
distinct character. And for the constitutional exemption to be enjoyed,
jurisprudence and tax rulings affirm the doctrinal rule that there are
only two requisites: (1) The school must be non-stock and non-profit;
and (2) The income is actually, directly and exclusively used for
educational purposes. There are no other conditions and limitations.
In this light, the constitutional conferral of tax exemption upon non-
stock and non-profit educational institutions should not be
implemented or interpreted in such a manner that will defeat or
diminish the intent and language of the Constitution.
• LUNG CENTER OF THE PHILIPPINES v. QUEZON CITY
A charity may be fully defined as a gift, to be applied consistently
with existing laws, for the benefit of an indefinite number of persons,
either by bringing their minds and hearts under the influence of
education or religion, by assisting them to establish themselves in life
or otherwise lessening the burden of government.12 It may be applied
to almost anything that tend to promote the well-doing and well-being
of social man. It embraces the improvement and promotion of the
happiness of man.13 The word "charitable" is not restricted to relief of
the poor or sick.14 The test of a charity and a charitable organization
are in law the same. The test whether an enterprise is charitable or
not is whether it exists to carry out a purpose reorganized in law
as charitable or whether it is maintained for gain, profit, or private
advantage.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in
order to be entitled to the exemption, the petitioner is burdened to
prove, by clear and unequivocal proof, that
(a) it is a charitable institution; and
(b)itsreal properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for
charitable purposes.
"Exclusive" is defined as possessed and enjoyed to the exclusion of
others; debarred from participation or enjoyment; and "exclusively" is
defined, "in a manner to exclude; as enjoying a privilege
exclusively."40 If real property is used for one or more commercial
purposes, it is not exclusively used for the exempted purposes but
is subject to taxation.41 The words "dominant use" or "principal use"
cannot be substituted for the words "used exclusively" without doing
violence to the Constitutions and the law.42 Solely is synonymous with
exclusively.4
What is meant by actual, direct and exclusive use of the property for
charitable purposes is the direct and immediate and actual application
of the property itself to the purposes for which the charitable
institution is organized. It is not the use of the income from the real
property that is determinative of whether the property is used for tax-
exempt purposes
• CIR v. ST. LUKE’S MEDICAL CENTER
'Proprietary' means private, following the definition of a 'proprietary
educational institution' as 'any private school maintained and
administered by private individuals or groups' with a government
permit.
'Non-profit' means no net income or asset accrues to or benefits any
member or specific person, with all the net income or asset devoted to
the institution's purposes and all its activities conducted not for profit.
'Non-profit' does not necessarily mean 'charitable.'
An organization may be considered as non-profit if it does not
distribute any part of its income to stockholders or members. However,
despite its being a tax exempt institution, any income such institution
earns from activities conducted for profit is taxable, as expressly
provided in the last paragraph of Section 30.
The Constitution exempts charitable institutions only from real
property taxes. In the NIRC, Congress decided to extend the
exemption to income taxes. However, the way Congress crafted
Section 30(E) of the NIRC is materially different from Section 28(3),
Article VI of the Constitution. Section 30(E) of the NIRC defines the
corporation or association that is exempt from income tax. On the
other hand, Section 28(3), Article VI of the Constitution does not
define a charitable institution, but requires that the institution 'actually,
directly and exclusively' use the property for a charitable purpose.
Section 30(E) of the NIRC provides that a charitable institution must
be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
(4) No part of its net income or asset shall belong to or inure to the
benefit of any member, organizer, officer or any specific person.
To be exempt from real property taxes, Section 28(3), Article VI of the
Constitution requires that a charitable institution use the property
'actually, directly and exclusively' for charitable purposes.
To be exempt from income taxes, Section 30(E) of the NIRC
requires that a charitable institution must be 'organized and
operated exclusively' for charitable purposes. Likewise, to be
exempt from income taxes, Section 30(G) of the NIRC requires that
the institution be 'operated exclusively' for social welfare.
However, the last paragraph of Section 30 of the NIRC qualifies the
words 'organized and operated exclusively' by providing that:

Notwithstanding the provisions in the preceding paragraphs, the

income of whatever kind and character of the foregoing organizations
from any of their properties, real or personal, or from any of their
activities conducted for profit regardless of the disposition made of
such income, shall be subject to tax imposed under this Code.

In short, the last paragraph of Section 30 provides that if a tax exempt

charitable institution conducts 'any' activity for profit, such activity is
not tax exempt even as its not-for-profit activities remain tax exempt.
This paragraph qualifies the requirements in Section 30(E) that the
'[n]on-stock corporation or association [must be] organized and
operated exclusively for . . . charitable . . . purposes . . . . ' It likewise
qualifies the requirement in Section 30(G) that the civic organization
must be 'operated exclusively' for the promotion of social welfare.

Thus, even if the charitable institution must be 'organized and operated

exclusively' for charitable purposes, it is nevertheless allowed to
engage in 'activities conducted for profit' without losing its tax exempt
status for its not-for-profit activities. The only consequence is that the
'income of whatever kind and character' of a charitable institution
'from any of its activities conducted for profit, regardless of the
disposition made of such income, shall be subject to tax.' Prior to the
introduction of Section 27(B), the tax rate on such income from for-
profit activities was the ordinary corporate rate under Section 27(A).
With the introduction of Section 27(B), the tax rate is now 10%.

(f) MAJORITY VOTE OF CONRESS FOR GRANT OF TAX

EXEMPTIONS (ART. VI, SEC. 28)

(g) PROHIBITION ON USE OF TAX LEVIED FOR SPECIAL

PURPOSE (ART. VI, SEC. 29)

(h) PRESIDENT’S VETO POWER ON APPROPRIATION,

REVENUE AND TARIFF BILLS (ART. VI, SEC. 27)

• CIR v. CTA AND MANILA GOLF & COUNTRY CLUB

An "item" in a revenue bill does not refer to an entire section imposing

a particular kind of tax, but rather to the subject of the tax and the tax
rate.

In the portion of a revenue bill which actually imposes a tax, a section

identifies the tax and enumerates the persons liable therefor with the
corresponding tax rate. To construe the word "item" as referring to the
whole section would tie the President's hand in choosing either to
approve the whole section at the expense of also approving a provision
therein which he deems unacceptable or veto the entire section at the
expense of foregoing the collection of the kind of tax altogether. The
evil which was sought to be prevented in giving the President the
power to disapprove items in a revenue bill would be perpetrated
rendering that power inutile.