Sultan Ali Akbar G. Sinenggayan, Jr.
Taxation Law 1
Atty. Kyndell Hilario
Based on Tax Made Less Taxing by Atty. Ingles
Golden Notes Reviewer 2015
Part 1: Principles of Taxation
A. Taxation- it is the inherent power of the sovereign
exercised through its legislature to impose burdens upon
its subjects and objects within its jurisdiction for the
purpose of raising revenues to carry out the legitimate
objectives of the government.
B. Purposes of Taxation-
1. Revenue- to raise funds or property to enable the
State to promote the general welfare and protection of
the people.
2. Non- revenue-
A. Promotion of the general welfare- taxation may be
used as an implement of police power to promote the
general welfare of the people. License fees can be
imposed on the business massage clinics in order to
forestall possible immorality which might grow out of the
construction of separate rooms for massage of
customers.
(Velasco v. Villegas, 1983)
B. Regulation of activities/industries- royalty fees may be
imposed on the deliveries of fuel products as it affects the
public interest in general and is a highly combustible
products which, if left unchecked, poses a serious threat
to life and property. For regulatory purpose of imposed
fees, it must relate to an occupation or activity that so
engages the public interest, morals, safety and
development as to require regulation for the protection
and promotion of such public interest; it must also be a
reasonable relation to the probable expenses of
regulation, taking into account not only the cost of direct
regulation, but also its incidental consequences as well.
(Chevron Philippines v. BCDA, 2010)
C. Reduction of Social Inequality- a progressive system of
taxation prevents the undue concentration of wealth in
the hands of the few individuals. Progressivity are based
on the principle that those who are able to pay more
should shoulder the bigger portion of tax burden.
D. Encourage economic growth- the grant of exemption
or incentives encourage investment thereby simulating
economic activity. License taxation must not be so
onerous to show a purpose to prohibit a business which is
not injurious to health or morals. (Terminal Facilities v.
PPA, 2002)
E. Protectionism- in case of foreign importations,
protective tariffs and customs are imposed to protect
local industries.
C. Basis of Taxation
1. Lifeblood Doctrine- taxation is a governmental
necessity for indeed, without taxation, a government can
neither exist nor endure. It is a principal attribute of
sovereignty. The exercise of the taxing power derives its
source from the very existent of the State whose social
contract with its citizens obliges it to promote public
interest and the public good. (CIR v. BPI, 158 SCRA 9)
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2. Benefits Protection Theory- taxation is the power of
the State to demand and receive taxes based on the
reciprocal duties of support a protection between the
State and its citizens.
3. Necessity Theory- the theory behind the State's
power to tax emanates from necessity for, without
taxes, a government cannot fulfil its mandate of
promoting the general welfare and well- being of the
people. (Gerochi v. Department of Energy, 2007)
D. Characteristics of a Sound Tax System
1. Fiscal Adequacy- the sources of revenue must be
adequate to meet government expenditures and their
variations. (Chavez v. Ongpin,1990)
2. Administrative Feasibility- the tax system should be
capable of being effectively administered and enforced
with the least inconvenience to the taxpayer.
3. Theoretical justice- the tax system should be fair to
the average taxpayer and based upon the ability to pay.
E. Nature of the Taxing Power-
1. Inherent- the power to tax is an incident of the
sovereign and is unlimited in its range, acknowledging
in its very nature no limits, so that security against
abuses is to be fund only on the responsibility of the
legislature which imposes the tax on the constituency
who are to pay it. (MCIAA v. Marcos, 261 SCRA 667)
2. Legislative- it involves the promulgation of laws. The
legislature determines the Coverage, Objects, Nature,
Extent and Situs of tax to be imposed.
F. Q: Is the power to tax a power to destroy?
A: Yes, it involves a power to destroy since the power
to tax includes the power to regulate even to the extent
of prohibition or destruction, when it is used validly as
an implement of police power.
However, if it is employed solely to raise revenues,
it cannot be allowed to confiscate or destroy. (Cruz,
2007)
G. Comparison of Power of Taxation, Police Power and
Eminent Domain
The three inherent powers of the state may be
distinguished in the following ways;
In TX and PP, it is the government or its political
subdivisions who exercise it, while in ED, it is the
government as well as service companies and public
utilities.
The purpose of TX is to raise revenues while PP
aims to promote general welfare through regulations.
ED, on the other hand, aims to facilitate the taking of
private property for public purpose.
In TX, contracts are generally not impaired
UNLESS government is party to contract granting
exemption for a consideration. In PP and ED, contracts
may be impaired.

H. Definition of Taxes
Taxes- these are enforced proportional contributions from
persons and properties, levied by the State by virtue of
its sovereignty for the support of the government and for
all its public needs.
I. Classification of Taxes
i. As to OBJECT/ SUBJECT
(a) Personal/ Poll or Capitation Tax- a fixed amount
imposed upon all persons, or upon all persons of
ascertain class, residents within a specified territory,
without regard to their property of occupation.
(b) Property Tax- tax imposed on property, whether
real or personal, in proportion either to its value, or in
accordance with some other reasonable method of
apportionment.
(c) Privilege or Excuse Tax- a charge upon the
performance of an act, the enjoyment of a privilege, or
the engaging in an occupation. An excise tax is a tax that
does not fall as property tax (VAT).
ii. As to BURDEN or INCIDENCE
(i) Direct- one that is demanded from the person
who also shoulders the burden of tax. It is a tax for which
the taxpayer is directly liable on the transaction or
business he engages.
(ii) Indirect- tax is primarily paid by persons who can
shift the burden to another.
iii. As to Purpose
(a) General/ Fiscal or Revenue- tax imposed solely
for the general purpose of the government.
(ii) Special/ Regulatory or Sumptuary- tax is levied
for specific purpose i.e. to achieve some social or
economic ends.
iv. As to Determination of Amount/ Graduation
(a) Progressive- a tax rate which increases as the
tax base or bracket increases.
(b) Regressive- the tax rate decreases as the tax
base or rate increases.
v. As to Authority to impose
(a) National- tax levied by the national government.
(b) Local/ Municipal- a tax levied by the local
government.
vi. As to Tax Rate
(a) Specific- tax of a fixed amount imposed by the
head or number, or by some standard of weight or
measurement.
(b) Ad Valorem- tax based on the value of the
property with respect to which the tax is assessed. It
requires the intervention of assessors or appraisers to
estimate the value of such property before the amount
due can be determined.
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(c) Mixed- a choice between Ad Valorem and
Specific depending on the condition attached.
J. Difference of Tax from Other Exactions
Tax vs Debt
A tax is an obligation created by law while a debt
is an obligation created by contract, expressed or
implied. Tax is not assignable while a debt is
assignable. Tax is not subject to set- off unlike debt.
Non- payment of tax may result to imprisonment unlike
debt.
Tax vs Toll
A tax is an enforced proportional contribution from
persons and property for public purpose. A toll is a
consideration paid for the use of a road, bridge, or the
like, of a public nature. Tax is demanded by sovereignty
while toll is demanded by proprietorship.
(See the note VAT on toll ways in page 40 of GN)
Tax vs Special Assessment
A tax is an enforced proportional contribution from
persons and property for public purpose. A special
assessment is an enforced proportional contribution
from owners of lands specially those who are peculiarly
benefited from public improvements. A tax is imposed
on property, rights, persons and transactions while SA
is imposed on lands only. A tax is a regular exaction
While SA is exceptional as to time and locality.
Tax vs License Fee
A tax is imposed to raise revenues while license fee
is for regulation and control. Tax is collected under
Taxation power while License fee is collected under
Police power. In taxation, generally, the amount is
unlimited. In license fee, the exaction is limited to the
necessary expenses of regulation and control.
Tax vs Penalty
A tax is an enforced proportional contribution from
persons and property for public purpose. A penalty is a
sanction imposed as a punishment for violation of laws
or acts deemed injurious. Tax is imposed to generate
revenues while the other is imposed to regulate
conduct.
Tax vs Tariff
A tax is an all- embracing term to include various
kinds of enforced contributions imposed upon persons
for the attainment of public purpose. A tariff is only a
kind of tax, hence, limited. A tax is imposed on persons
and property while tariff is imposed on goods imported
or exported.
Compromise penalty
Subsidy
Revenue
K. Set- off of Taxes
GR: No set- off is admissible against the demands for
taxes levied for general or local governmental
purposes.

Taxes are of a distinct kind, nature, essence
these impositions cannot be so classified in merely
same category as ordinary obligations. Also,
governing principles and applicable laws in taxes
unique and different.
XPN: Where both the claims of the government and the
taxpayer against each other have already become due,
demandable and fully liquidated, compensation takes
place by operation of law and both obligations are
extinguished to their concurrent amounts. In the case
against taxpayer’s claim against the government, the
government must have appropriated the amount thereto.
(Domingo v Garlitos, 1963)
L. Taxpayer’s suit
To constitute taxpayer’s suit, the following requisites
must be present:
a. Public funds are disbursed by a political
subdivision or instrumentality, and in doing so, a law is
violated or irregularity committed; and
b. The petitioner is directly affected by the act.
LIMITATIONS OF TAXATION
INHERENT (SPINE)
Situs
GR: The taxing power of the government is limited to
persons and property within and subject to its
jurisdiction.
XPN: Where tax laws operate outside territorial
jurisdiction- taxation of resident citizens on their incomes
derived abroad.
Also, where tax laws do not operate within the
territorial jurisdiction of the State.
a. when exempted by treaty obligations.
b. when exempted by international comity.
Public Purpose
Tax is considered for public purpose if:
a. It is for the welfare of the nation and for greater
portion of the population;
b. It affects the area as a community rather than as
individuals;
c. It is designed to support the services of the
government for some of its recognized objects.
Tests in Determining Public Purpose
1. Duty Test- whether the thing to be furthered by the
appropriation of public revenue is something which is the
duty of the State as a government to provide.
The term public purpose is not defined. It is an elastic
concept that can be hammered to fit the 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, but also those
purposes designed to promote social justice. (Planters
products v Fertiphil, 2008)
2. Promotion of General Welfare Test- whether the
proceeds of the tax will directly promote the welfare of
and the community in equal measures.
the
the
are (The Congress determines when an enacted tax law is
for public purpose. HOWEVER, this will not prevent the
court from questioning the propriety of some statute on
the ground that the law enacted is not for a public
purpose; but once it is settled that the law is for public
purpose, the Court may no longer inquire into its
wisdom, expediency or necessity of such tax measure.
(see notes on page 21, GN)
International Comity
International Comity refers to the respect accorded by
nations to each other because they are sovereign
equals.
> The Philippine Constitution expressly adopted the
generally accepted principles of international law.
(Section 2, Article II, 1987 Constitution)
Thus, a State must recognize such generally
accepted tenets of international law that limit the
authority of the government to effectively impose taxes
upon a Sovereign State and its instrumentalities.
Non- Delegability of Taxing Power
GR: the power to tax is exclusively vested in the
legislative body, being inherent in nature; hence, it may
not be delegated. (delegatapotestas non
potestdelegari)
The non- delegable legislative powers are:
a. Selection of Subject to be taxed;
b. Determination of purpose for which taxes shall
be levied;
c. Fixing of the rate of taxation
d. Situs of Taxation;
e. Kind of Tax
XPN: LCA
1. Delegation to the LOCAL GOVERNMENT- refers to the
power of LGUs to create its own sources of revenue.
(Article X, Section 5, 1987 Phil Con)
2. Delegation to the President- the authority of the
President to fix tariff rates, import or export quotas,
tonnage and wharfage dues or other duties or imposts.
(Art. VI, Sect. 28 (2))
3. Delegation to Administrative Agencies- when the
delegation relates merely to administrative
implementation that calls for some degree of
discretionary powers under sufficient standards
expressed by law or implied from the policy and
purposes of the Act.
a. Authority of the Secretary of Finance to
promulgate the necessary rules and regulations for the
effective enforcement of the provisions of the law. (Sec.
244, RA 8424)
b. The Secretary of Finance may, upon the
recommendation of the Commissioner, require the
withholding of a Tax on the items of Income Payable.
(Sec. 57, RA 8424)
Exemption from Taxation of government entities
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Government may tax itself
Since sovereignty is absolute and taxation is an act of
high sovereignty, the State, if so minded, can tax itself,
including its political subdivisions. (Maceda v Macaraig,
1993)
State the Rules on tax exemption of government agencies
or instrumentalities
GR: The government is exempt from tax.
XPN: When it chooses to tax itself. Nothing prevents
Congress from decreeing that even instrumentalities or
agencies of the government performing government
functions may be subject to tax. Where it is done
precisely to fulfil a constitutional mandate and national
policy, no one can doubt its wisdom. (MCIAA v Marcos,
1996)
Instrumentality v GOCC
Instrumentality refers to any agency of the national
government, not integrated within the department
framework, vested with special functions or jurisdiction
by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter.
GOCC refers to any agency organized as a stock or non-
stock corporation, vested with functions relating to public
needs whether governmental or proprietary in nature and
owned by the government directly or through its
instrumentalities, either wholly or where applicable as in
the case of stock corporations, to the extent of at least
51 per cent of its capital stock.
(see discussions on page 26 and 27 of GN)
CONSTITUTIONAL
1. Religious Worship (Sec. 5, Article III)
*No law shall be made respecting an establishment of
religion, or prohibiting the free exercise thereof. The free
exercise and enjoyment of religious profession and
worship, without discrimination or preference, shall
forever be allowed.
See discussion in GN page 37
2. Equal Protection (Sec. 1, Article III)
*No person shall be deprived of life, liberty or property
without due process of law, nor shall any person be
denied equal protection of the laws.
Equal protection means all persons subjected to such
legislation shall be treated alike, under like
circumstances, both in the privileges conferred and
liabilities imposed.
See discussion in GN page 36
3. Veto Power of the President (Sec. 27 (2), Article VI)
The president shall have the power to veto any particular
item or items in an appropriation, revenue, or tariff bill,
but the veto shall not affect the item or items to which he
does not object.
See discussion on GN page 34
4. Exemption from Real Property Tax (Section 28 (3), Art.
VI)
*Charitable institutions, churches and parsonages or
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convents appurtenant thereto, mosques, non- profit
cemeteries, and all lands, buildings and improvements,
actually, directly and exclusively used for religious,
charitable or educational purposes shall be exempt from
taxation.
See discussion; page 30 of GN
5. Non- impairment Clause
See discussion; Page 37 gn
6. Uniformity of Taxation (Sec. 28 (1), Art. VI)
*The rule of taxation shall be uniform and equitable.
The Congress shall evolve a progressive system of
taxation.
See page 28 of GN
7. Exemption Approval
*Art VI, Sec. 28 (4): No law granting any tax
exemption shall be passed without the concurrence of a
majority of all the members of Congress.
See discussion on Page 33, GN
8. Special Fund Purpose (Sec. 29 (3), Art. VI)
*It is treated as a special fund and paid out for such
purpose only. If the purpose for which the special fund
was created has been fulfilled or abandoned, the
balance, if any, shall be transferred to the general
funds of the government.
See discussion, Page 34
9. Supreme Court’s Review Power (Sec. 5 (b), Art. VIII)
*The Supreme Court can review judgments or orders of
lower courts in all cases involving:
a. The legality of any tax, impose, assessment, or
toll;
b. The legality of any penalty imposed in relation
thereto. (Sec 5 (2) (b), Art. VIII)
Discussion; page 34
10. Due process clause (Sec. 1, Article III)
See discussion; page 35
11. ART- BBP Originate in Lower House (Sec. 24, Art.
VI)
*All appropriation, revenue or tariff bills, bills
authorizing the increase of public debt, bills of local
application, and private bills shall originate exclusively
in the House of Representatives, but the senate may
propose or concur with amendments.
See discussion; page 34
12. No public money used for religious purpose (Sec. 28
and 29, Art. VI)
GR: No public money or property shall be used for a
religious purpose.
XPN: If a priest is assigned to the armed forces, penal
institutions, government orphanages or leprosarium.
13. Press Freedom ( Sec. 4, Art. III)
See discussion, page 38

14. Tariff Powers of President (Sec. 28 (2), Art. VI)

*The Congress may, by law, authorize the President to fix

within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of national
development program of the government.

See discussion; page 29

15. Non- payment of Poll Tax (Sec. 20, Art. III)

*No person shall be imprisoned for a debt or non-

payment of a poll tax.

Discussion; page 28