I.

GENERAL PRINCIPLES OF TAXATION

A. Definition
BASED ON DIMAAMPAO
 TAXATION- is a mode of raising revenue for public purposes.
 TAXES- are enforced proportional contributions from persons and
property, levied by the state by virtue of its sovereignty for the
support of the government and all of its public needs.
BASED ON VITUG
 TAXATION- is a mode by which governments make exaction for
revenue in order to support their existence and carry out their
legitimate objectives.
Nature and Concept of Taxation
BASED ON RECALDE
The power of Taxation is one of the inherent power of the state
exercised through its law making authority for the purpose of raising
revenue to support its existence and carry out its legitimate objectives. It
being inherent to the state, No constitutional conferment is necessary for
its exercise. The constitution merely provides the limitations on how the
same will exercised.
BASED ON DIMAAMPAO
NATURE OF TAXATION:
A. TAXATION AS AN INHERENT ATTRIBUTE OF SOVEREIGNTY
- The power of taxation is an incident of sovereignty as it is inherent in the
state, belonging as a matter of right to every independent government. It
does not need of constitutional conferment. Constitutional provisions
merely impose limitations on what would otherwise be an invincible
power.
- It is considered inherent in a sovereign state because it is a necessary
attribute of sovereignty. Without this power, no sovereign state can exist
nor endure.
B. TAXATION AS LEGISLATIVE IN CHARACTER
- The power to tax is inherent in the state, and the state is free to select the
object of taxation, such as power being exclusive vested in the legislature,
EXCEPT where the constitution provides otherwise. This is based upon 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 (LEGISLATIVE BODY). AND WHERE THE PEOPLE HAVE LAID THE
POWER, THERE IT MUST REMAIN AND BE EXERCISED‖.
B. CHARACTERISTICS OF TAXES
1. Taxes are enforced contributions.
-Taxes are obligations created by law. (Vera vs. Fernandez).
- Never founded on contract or agreement, and are not dependent for
their validity upon the individual consent of the person taxed.( 1 cooley
68)

2. Taxes are proportional in character, since taxes are based on one’s

ability to pay.

3. Taxes are levied by authority of the law.

-The power to impose taxes is legislative power; it cannot be imposed by
the executive department nor the courts.

4. Taxes are for the support of the government and all its public needs.

C. BASIS/THEORIES OF TAXATION
BASED ON DIMAAMPAO/RECALDE

1. NECESSITY THEORY
- It is necessary burden to preserve the state’s sovereignty and 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
improvements designed for the enjoyment of the citizenry and those
which come within the state’s territory and facilities and the protection
which the government supposed to provide.

2. BENEFITS-PROTECTION THEORY
- Power of state to demand and receive taxes on the reciprocal duties of
support and protection.

3. DOCTRINE OF SYMBIOTIC RELATIONSHIP

- w/out tax government would be paralyzed for lack of the motive power
to activate and operate it.
- Every person who is able to must contribute his share in the burden of
running gov’t. the gov’t 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 material and moral values.

4. PARTNERSHIP THEORY
- Right of the gov’t to take income emanates from its partnership in the
production of income by providing protection, resources, incentives and
proper climate for such production.

5. LIFE BLOOD THEORY

- Prompt and certain availability is an imperious need.
- Upon taxation depends the Gov’t ability to serve the people for whose
benefit taxes are collected.

D. PURPOSES OF TAXATION

1. PRIMARY PURPOSE OF TAXATION IS TO RAISE REVENUES.

-For the support of the Gov’t and for all public needs.
-To raise funds or property to enable the state to promote the general
welfare and protection of its citizens.

2. SECONDARY OR NON-REVENUE PURPOSES.

A.) REDUCTION OF SOCIAL INEQUALITY

- adopted the progressive system of taxation.,i.e.. the tax rate increases as
the tax base increases. This system aims at reducing the inequality in the
distribution of wealth by preventing its undue concentration in the hands
of few individuals.

Illustration: An estate tax is imposed upon the property left by the

decedent. The proceeds of that tax will be used to finance the projects of
the government such as building low-cost houses for the less privileged.

B.) ENCOURAGE THE GROWTH OF LOCAL INDUSTRIES

- It is settled rule that the power to tax carries with the power to grant tax
exemptions. Tax Exemptions and tax reliefs serve as incentives to
encourage investment in our local industry and thereby promote
economic growth.

C.) PROTECT LOCAL INDUSTRY AGAINST UNFAIR COMPETITION

- Tariff and customs code allows the imposition of certain taxes (
countervailing and dumping duties) upon imported goods or articles to
further protect our local industry. R.A. 8752 (Anti-Dumping Act) imposes
stricter conditions.

BASED ON RECALDE
 Dumping Duty- Imposed upon foreign products that will be sold
in the Philippines with value lower than their fair market value to
the detriment of local products.
 Countervailing Duty- Imposed upon foreign goods enjoying
subsidy thus allowing them to be sold in the Philippines at lower
prices to the detriment of local products similarly situated.
 Marking Duty- Imposed upon those imported goods not
properly marked as to place of origin of the goods.
 Discriminatory Duty- Imposed upon goods coming from
countries that discriminate against Philippine products.

D. AS AN IMPLEMENT OF THE POLICE POWER OF THE STATE (Regulatory

Measure)
- The power of Taxation may be used as an implement of the police
power of the state through the imposition of taxes with the end in view of
regulating regulating a particular activity.
(see comment and cases p. 23 soft copy of DIMAAMPAO)

E. SCOPE/EXTENT OF TAXING POWER

Power of taxation reaches to every trade or occupation; to every

object of industry, use, enjoyment; to every species of possession, and it
imposes a burden which in case of failure to discharge the same may be
followed by seizure, confiscation or forfeiture of the property.

1. TAXATION IS COMPREHENSIVE
- It covers persons, businesses, activities, professions, rights and privileges.

2. TAXATION IS UNLIMITED
- Tax does not cease to be valid merely because it regulates, discourages
or even definitely deters the activities taxed. The power to impose tax is
one unlimited in 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 authority which exercised it. (Tio vs. Video
Regulatory Board)

3. TAX IS PLENARY
- It is complete. Under NIRC, the BIR may avail of certain remedies to
ensure the collection of taxes.

4. TAX IS SUPREME
- Although referred to as the strongest of all the powers of the gov’t,
cannot be interpreted to mean that is superior to the other inherent
powers of the gov’t. It is supreme insofar as the selection of the subject of
the taxation is concerned.

F. INHERENT LIMITATIONS TO THE POWER OF STATE TO TAX

BASED ON VITUG p.4

1. PUBLIC PURPOSE
- The proceeds of the tax must be used (a) for the support of the state or
(b) for some recognized objects of government or directly to promote the
welfare of the community.
- In Pascual vs. Sec. of Public Works held that the legislature is without the
power to appropriate public revenues for anything but a public purpose.

2. INTERNATIONAL COMITY
- A state must recognize the generally accepted tenets of international
law, among which are the principles of sovereign equality among states
and their freedom from suit without their consent, that limit the authority of
a government to effectively impose taxes on a sovereign state and
instrumentalities, as well as on its property held, and activities undertaken,
in that capacity. Even where one enters the territory of another, there is
an implied understanding that the former does not thereby submit itself to
the authority and jurisdiction of the latter.
- Although the above principles have not all been covered by direct or
specific constitutional provisions or limitations, the Supreme court in Pepsi-
cola vs. Municipality of Tanauan has adopted the position that violation
thereof would contravene the general clause on due process (Sec. 1, Art.
III, Phil.Consti.) and any tax thereby levied shall amount to the taking of
property without due process of law.
Taking of property is lawful exercise of the taxing power, when:
a.) The tax is for a public purpose.
b.) The rule on uniformity of taxation is observed.
c.) either the person or property taxed is within the jurisdiction of the Gov’t
levying the tax; and
d.) The assessment and collection of certain kinds of taxes, notice and
opportunity for hearing are provided.
In a way, thereof, the due process clause can be said to be the
constitutional basis for these inherent limitations.

3. TERRITORIALITY
- Taxation may be exercised only within the territorial jurisdiction of the
taxing authority. Within the territorial jurisdiction, the taxing authority may
determine the ―Place of Taxation‖ (Tax Situs).

In fixing the Tax Situs , the following criteria are generally observed:
a.) For poll taxes, the possible tax situs is the RESIDENCE OF THE TAXPAYER,
it would be violative of the rule on territoriality for the Philippine poll tax to
be imposed even on its non-resident citizens.(see 51 Am. Jur.88)
b.) For property taxes, the tax situs can only be WHERE THE PROPERTY IS
SITUATED ; thus, the real property tax under the Real Property Tax code
cannot imposed on the real property located abroad, although owned
by Filipino citizens.
c.) For excise taxes, the tax situs can be the place:
1.) Where the privilege is exercised
2.) Where the taxpayer is a national of;
3.) Where he has his residence.
In the selection of the appropriate criteria, the taxing authority is wide
latitude; among the circumstances often considered are the nature of the
tax, the extent of benefit that may be derived by the taxpayer.

4. NON-DELEGATION OF POWERS TO TAX/TAXATION IS INHERENTLY

LEGISLATIVE
The legislative taxing power includes the authority to:
a.) Determine the nature (kind), object (purpose), extent (amount or rate),
coverage (subjects and objects) and situs (place) of the tax imposition.
b.) Grant tax exemptions or conditions (Petro vs. Pililla)
c.) To specify or provide for the administrative, as well as judicial remedies
that either the gov’t or the taxpayers may avail themselves of in the
proper implementation of the tax measure.

-In National Power Corporation vs. Province of Albay, the court held that
the Fiscal Incentives Review Board had no authority to impose taxes or
revoke existing ones which, under the constitution, is a legislative
prerogative.

Exceptions:

4.a) Delegation to the President

-When Delegation relates merely to administrative implementation that
may call for some degree of discretionary powers under a set of sufficient
standards expressed by law or implied from the policy purpose of the Act.

Stated in another way, Taxation may exceptionally be delegated,

subject to such well-settled limitations as:

i. The delegation shall not contravene any constitutional provision or

the inherent limitations of taxation;
ii. The delegation is effected either by the Constitution or by validly
enacted legislative measures or statute; and
iii. The delegated levy power, except when the delegation is by an
express provision of the Constitution itself, should only be in favor of the
local legislative body of the local or municipal government concerned.

-Power of Taxation, it has been said, may be delegated to local

governments in respect of local matters of local concern.
- Municipalities may be permitted to tax subjects, which for reasons of
public policy the has not deemed wise to tax for general purposes. (Pepsi
–Cola bottling company vs. Municipality of Tanuan)

4.b)Delegation to the local governments (To be exercised by the local

legislative bodies) or political subdivisions.(Cu Unjieng vs. Pastone)

4.c) When allowed by the constitution.

G. CONSTITUTIONAL LIMITATIONS
G 1. PROVISIONS DIRECTLY LIMITS TAXATION POWER
A. Art. III, Section 20 of the Constitution- ― No person shall be imprisoned
for non-payment of a poll tax.‖
POLL TAX- one levied on persons who are residents within the
territory of the taxing authority without regard to their property,
business or communication. COMMUNITY TAX under the Local
Government Code
 It is only a prohibition for imprisonment of non-payment of
poll/community tax; other taxes therein imposed may be subjected
by the law to imprisonment. Also, an imposition of a fine or even
imprisonment for any violation other that the non-payment is
constitutional.

B. Art. VI, Section 28, par.1- ―The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system of taxation.‖
UNIFORMITY- all subjects or objects of taxation, similarly situated are
to be treated alike or put on equal footing (taxed at the same rate) both
in privileges and liabilities (Juan Luna Subdivisions vs Sarmiento). A tax is
uniform when it operates with the same force and effect in every place
where the subject matter may be found (State Railroad Tax Case; Patton
vs Brady).
EQUALITY- accomplished when the burden of the tax falls equally
and impartially upon all the persons and property subject to it, so that no
higher rate or greater levy in proportion to value is imposed upon one
person or species or property other that upon others similarly situated or of
like character. Simply means that tax shall be strictly proportional to the
relative value of the property.
The call for uniformity does not call for perfect uniformity or perfect
equality because this is hardly attainable. It must only be equitable, which
means fair, just, reasonable and proportionate to one’s ability to pay.
The power to selects the subjects of taxation and apportion the
public burden among them includes the power to make classification.
When classification is proper:
1. Classification is based on substantial distinction, not arbitrary but
reasonable
2. It applies both to present and future conditions
3. Classification is germane to the purposes of the law
4. Applies equally to all members of the same class

C. Art. VI, Section 28, par.3- ―Charitable institutions, churches, parsonages

or convents appurtenant thereto, mosques, and 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.‖
Tax exemption covers property taxes ONLY, it can be subject to
transfer taxes. Special levies or assessments are not also covered for not
being taxes, but the Local Government Code, however, extends the
exemption to special assessments.
Exclusively means “primary” not total or absolute used nor solely
hence, it extends to activities/facilities incidental to and necessary for
the accomplishment of the purpose.
 Actually and directly(without any intervention) used for religious,
educational or charitable purposes. Thus, idle land of, or property let to
others for unlike purposes although owned by religious, educational and
charitable institutions could be subject to real estate tax. The test of
exemption is used (Abra Valley College Inc. vs Aquino) Also if it is used for
non-exempt purpose will be taxable.
Why cemeteries are exempt? Because of the difficulty of collecting
a tax thereon and the obvious impropriety of selling the graves of the
dead to defray the expenses of carrying on the government of the living.
Charity is a gift to an indefinite number of persons which lessens the
burden of government. Charitable institutions provide for free goods and
services to the public which would otherwise fall on the shoulders of
government thus the government foregoes taxes which should have been
spent to address public needs because certain private entities already
assume a part of the burden.
St. Louis Young Men’s Christian Association vs Gehner held that ―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.
What is meant by actual, direct and exclusive use of the property for
charitable institutions 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.”

D. Art VI, Section 28, par.4- ―No law granting any tax exemption shall be
passed without the concurrence of a majority of all the members of the
Congress.‖
It means concurrence of a majority not of the attendees
constituting a quorum but of all the members of the Congress. The
inherent powers of the state to impose taxes naturally carry with it the
power to grant tax exemptions.
TAX EXEMPTION is an immunity from the civil liability only, it is an
immunity or privilege, a freedom from a charge or burden of which others
are subjected. Exemptions from taxation may be created directly by the
Constitution or by an act of the legislature, subject to the limitations as the
constitution may place, expressly or by implication, upon the power of the
legislature. The intent to grant tax exemption must be clear since the rule
of construction applies that exemption from taxation are to be strictly
construed against exemption and in favor of the right to tax.
Tax amnesties, tax condonations and tax refunds are in the nature
of tax exemptions. Tax amnesty is immunity from all criminal and civil
obligations arising from non-payment of taxes, a general pardon given to
all taxpayers.
A constitutional grant of exemption may be self-executing or may
require an act of Congress for its operation. When it is self-executing, the
legislature can neither add nor detract from it; it only prescribe
procedures to determine if one can claim the exemption.

E. Art. VI, Section 29, par. 3- ―All money collected on any tax levied for a
special purpose shall be treated as a special fund and paid out for
such purpose only. If the purpose for which a special fund was created
has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the government.‖

Gaston vs Republic Planters Bank regarding the issue of stabilization

fees collected by the State (PHILSU-COM) for the promotion of the
sugar industry were in the nature of taxes and no implied trust was
created for the benefit of sugar producers. Thus, the revenues
derived therefrom are to be treated as a special fund to be
administered for the purpose intended. No part thereof may be used
for the exclusive benefit of any private person or entity but for the
benefit of the entire sugar industry. Once the purpose is achieved, is
to be transferred to the general funds of the government.

F. Art. VI, Section 27, par 2. – ―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.‖
The item or items vetoed shall be returned to the Lower House of
Congress together with the objections of the President. If after a
reconsideration 2/3 of all the members of such House shall agree to pass
the bill, it shall be sent, together with the objection, to the other House by
which it shall likewise be reconsidered, and if approved by 2/3 of all the
Members of that House, it shall become a law.

G. Art. VI, Section 28, par. 2- ―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 the national development program of the government.‖
The president is vested with authority by law to increase tariff
rates, even for revenue purposes only (flexible tariff rates under Section
401 of the Tariff and Customs Code)
Custom duties which are assessed at the prescribed tariff rates
are very much like taxes which are imposed for both revenue raising
and regulatory purpose.

H. Art. VIII, Section 5, par. 2(b)- ―The Supreme Court shall have the power
to review, revise, reverse, modify or affirm on appeal or certiorari, as
the law or the Rules of Court may provide, final judgments and orders of
 lower courts in xxx all cases involving the legality of any tax, impost,
assessment or toll or any penalty imposed in relation thereto.‖
The Supreme Court exercises exclusive appellate jurisdiction over
certain judgments or orders of the lower courts involving the legality of
a tax impost, assessment, fee or penalty imposed in relation thereto.
Decisions of the BIR are appealable to the Court of Tax Appeals
(CTA). Decisions of CTA may be appealed to the Court of Appeals
(CA). Decisions rendered by the CA may be elevated to the Supreme
Court. Congress cannot pass a law declaring that the decisions of the
CTA shall be final and executory. However, CTA decisions appealable
directly to SC are valid.

I. Art. X, Section 5 – ―Each local government unit shall have the power to
create its own sources of revenues and levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes,
fees and charges shall accrue exclusively to the local governments.‖

Art. X, Section 6 – “Local government units shall have a just share, as

determined by law, in the national taxes which shall be
automatically released to them.”
This is an exception to the general rule that the constitution designs
limitations on taxation as this is a grant of taxing powers. Provinces, cities,
municipalities and barangays are mere territorial and political subdivisions
of the country hence they are not clothed with inherent power of
taxation. The 1987 Constitution broadly delegates that power subject only
to such limitations as the statutes may prescribe.
Delegation of legislative taxing power to local governments is
justified by the necessary implication that the power to create political
corporations for purposes of local self-government carries with it the
power to confer on such local government agencies the authority to tax.
(Pepsi-Cola v. Municipality ofTanauan, Leyte, L-31156, February 27,1976)
However, despite the grant of taxing power to local governments,
judicial admonition is given to the effect that the tax so levied must be for
a public purpose, uniform, and must not transgress any constitutional
provision nor repugnant to a controlling statute. (Villanueva v. City oflloilo,
L-26521, December 28, 1968)
Nevertheless, Congress cannot abolish the local government's
power to tax as it cannot abrogate what is expressly granted by the
fundamental law. The only authority conferred to Congress is to provide
the guidelines and limitations on the local government's exercise of the
power to tax.
 R.A. 7160 (Local Government Code) gives flesh to the
guidelines and limitations mentioned in the aforesaid constitutional
provision as follows:

SECTION 130. Fundamental Principles. — The following

fundamental principles shall govern the exercise of the taxing and
other revenue-raising powers of local government units:
(a) Taxation shall be uniform in each local government unit;
(b) Taxes, fees, charges and other impositions shall:
(1) be equitable and based as far as practicable on the
taxpayer's ability to pay;
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or confiscatory;
(4) not be contrary to law, public policy, national
economic policy, or in restraint of trade;
(c) The collection of local taxes, fees, charges and other
impositions shall in no case be let to any private person;
(d) The revenue collected pursuant to the provisions of this
Code shall inure solely to the benefit of, and be subject to the
disposition by, the local government unit levying the tax, fee,
charge or other imposition unless otherwise specifically provided
herein; and
(e) Each local government unit shall, as far as practicable,
evolve a progressive system of taxation.

SECTION 133. Common Limitations on the Taxing Powers of

Local Government Units. — Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
(a) Income tax, except when levied on banks and other
financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on
wharves, tonnage dues, and all other kinds of customs fees, charges
and dues except wharfage on wharves constructed and
maintained by the local government unit concerned;
(e) Taxes, fees, and charges and other impositions upon goods
carried into or out of, or passing through, the territorial jurisdictions of
local government units in the guise of charges of wharfage, tolls for
bridges or otherwise, or other taxes, fees, or charges in any form
whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products
when sold by marginal farmers or fishermen;
 (g) Taxes on business enterprises certified to by the Board of
Investments as pioneer or non-pioneer for a period of six (6) months
and four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National
Internal Revenue Code, as amended, and taxes, fees or charges on
petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or
exchanges or similar transactions on goods or services except as
otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors
and persons engaged in the transportation of passengers or freight
by hire and common carriers by air, land or water, except as
provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or
retrocession;
(I) Taxes, fees or charges for the registration of motor vehicles
and for the issuance of all kinds of licenses or permits for the driving
thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products
actually exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay
Business Enterprises and cooperatives duly registered under R.A. No.
6810 and R.A. No. 6938 otherwise known as the "Cooperatives Code
of the Philippines" respectively; and
(o) Taxes, fees, or charges of any kind on the National
Government, its agencies and instrumentalities, and local
government units.

SECTION 198. Fundamental Principles. — The appraisal,

assessment, levy and collection of real property tax shall be guided
by the following fundamental principles:
(a) Real property shall be appraised at its current and fair
market value;
(b) Real property shall be classified for assessment purposes on
the basis of its actual use;
(c) Real property shall be assessed on the basis of a uniform
classification within each local government unit;
(d) The appraisal, assessment, levy and collection of real
property tax shall not be let to any private person; and
(e) The appraisal and assessment of real property shall be
equitable.
The local government's power to tax is the most effective instrument
to raise the needed revenues. The right of local government units to
collect taxes due must always be upheld to avoid severe tax erosion. This
consideration is consistent with the State policy to guarantee the
autonomy of local governments and the objective of the Local
Government Code that they enjoy genuine and meaningful local
autonomy to empower them to achieve their fullest development as self-
reliant communities and make them effective partners in the attainment
of national goals.
The power to tax is the most potent instrument to raise the needed
revenues to finance and support myriad activities of the local government
units for the delivery of basic services essential to the promotion of the
general welfare and the enhancement of peace, progress, and
prosperity of the people. (National Power Corporation v. Central Board of
Assessment Appeal [CBAA], 577 SCRA 418, 440 [2009])

J. Art. XIV, Section 4, par. 3&4 – ―All revenues and assets of non-stock,
non-profit educational institutions used actually, directly and
exclusively for educational purposes shall be exempt from taxes and
duties. Upon the dissolution or cessation of the corporate existence of
such institutions, their assets shall be disposed of in the manner
provided by law.
Proprietary educational institutions, including those cooperatively-
owned, may likewise be entitled to such exemptions subject to the
limitations provided by law including restrictions on dividends and
provisions for reinvestment.
Subject to the conditions prescribed by law, all grants, endowments,
donations or contributions used actually, directly and exclusively for
educational purposes shall be exempt from tax.‖
It covers all internal revenue taxes, customs duties and other
taxes(property taxes) imposed by either both the national government or
political subdivisions on 9 revenues and assets of non-stock, non-profit
educational institutions, used actually, directly and exclusively for
educational purposes. It does not cover revenues derived from, or assets
used in, unrelated activities or enterprise. It is not also tax exempt from
payment of estate tax, but transfers to social welfare, cultural and
charitable institutions are exempt.
Exclusively here means solely; possessed and enjoyed to the
exclusion of others.
Under Rev. Reg. No. 6-97, once non-stock, nonprofit educational
institutions engage in business, they are subject to value added tax.
However, they shall be subject to internal revenue taxes on income from
trade, business or other activity, the conduct of which is not related to the
exercise or performance by such educational institutions of their
educational purposes or functions (Sec.2, Finance Department Order No.
137-87 as amended by Finance Department Order No. 92-88) i.e., rental
payment from their building/premises.
 Unlike non-stock, non-profit corporations, their interest income from
currency bank deposits and yield from deposit substitute instruments used
actually, directly and exclusively in pursuance of their purposes as an
educational institution, are exempt from the 20% final tax and 7 1/2% tax
on interest income under the expanded foreign currency deposit system
imposed under Section 27(D)[1] of the Tax Code of 1997, subject to
compliance with the conditions that as a tax-exempt educational
institution, they shall on an annual basis submit to the Revenue District
Office concerned an annual information return and duly audited financial
statement together with the following:
(a) Certification from their depository banks as to the amount of
interest income earned from passive investment not subject to the 20%
final withholding tax and 7 1/2% tax on interest income under the
expanded foreign currency deposit system imposed by Section 27(D)[1] of
the Tax Code of 1997;
(b) Certification of actual utilization of the said income; and
(c) Board Resolution by the school administration on proposed
projects (i.e., construction and/or improvement of school buildings and
facilities, acquisition of equipment, books and the like) to be funded out
of the money deposited in banks or placed in money markets, on or
before the 14th day of the fourth month following the end of its taxable
year. (Sec. 3, Finance Department Order No. 137-87)
Finally, the exemption does not cover withholding taxes. As an
educational institution, they are constituted as withholding agents for the
government required to withhold the tax on compensation income of
their employees, or the withholding tax on income payments to persons
subject to tax pursuant to Section 57 of the Tax Code of 1997.

G. 2. PROVISIONS INDIRECTLY AFFECTING TAXATION

A. Due Process of Law under Art III, Section 1 – “No person shall be
deprived of life, liberty or property without due process of law.‖
This may be invoked where a taxing statue is so arbitrary that it finds
no support in the Constitution, as where it can be shown to amount to a
confiscation of property. One may be deprived of property as long as the
requirement of due process- notice and hearing- has been complied with.
Due process is also violated where the tax imposed is for a private
purpose other than a public purpose; tax imposed on property outside the
State; extra-territorial taxation; violation of the inherent limitations and
arbitrary or oppressive methods are used in assessing and collecting taxes.
Due process does not require that the property subject to the tax or
the amount to be raised should be determined by judicial inquiry, and a
notice and hearing as to the amount of the tax and manner in which it
shall be apportioned are generally not necessary to due process of law.
B. Equal Protection – Art. III, Section 1 – ―… nor shall any person be denied
the equal protection of the law.‖
Our Constitution requires uniformity, not equality, in taxation.
However, equality is accomplished when the burden of the tax falls
equally and impartially upon all persons and property subject to it, so that
no higher rate or greater levy in proportion to value is imposed upon one
person or property than upon others similarly situated or of like character.
Equal protection does not require equal rates of taxation on
different classes of property, nor prohibit unequal taxation so long as the
inequality is not based upon arbitrary classification. Inequality of taxes
means substantial differences. Practical equality is constitutional equality,
not absolute equality.
It does not require universal application of the laws on all persons or
things without distinction. What the clause requires is equality among
equals as determined according to a valid classification. (see discussion
on when classification is proper on page 1)
The principle of equality admits of classification or distinction as long
as they are based upon real and substantial differences between the
persons, property, or privileges and those not taxed must bear some
reasonable relation to the object of purpose of legislation or to some
permissible governmental policy or legitimate end of government.

C. Religious Freedom, Article III, Section 5 – ―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.
No religious test shall be required for the exercise of civil or political
rights.‖
In the case of American Bible Society v. City of Manila,"' the
Supreme Court ruled that a municipal license tax on the sale of bibles and
religious articles by a non-stock, non-profit missionary organization at
minimal profit constitutes a curtailment of religious freedom and worship
which is guaranteed by the Constitution.
However, the income of such organizations from any activity
conducted for profit or from any of their property, real or personal,
regardless of the disposition made of such income, is taxable.

D. Non-impairment Clause, Article III, Section 10 – ―No law shall be

passed impairing the obligations of contract.‖
A contract is the law between the contracting parties. The
obligation of a contract is the law which binds the parties to perform their
agreement. Any law which enlarges, or in any manner changes the
intention of the parties discoverable in it, necessarily impairs the contract
itself. If the basis of the tax exemption is by virtue of a franchise granted by
Congress, the exemption may be revoked. (Art. Xll, Sec. 11).
 On the other hand, if the tax exemption constitutes a binding
contract and for valuable consideration, the government cannot
unilaterally revoke the tax exemption. The charter of a private corporation
is a contract between the corporation and the state, based on a
consideration and accepted by a corporation. However, the grant of a
franchise to a corporation does not imply a contract exempting the
property from taxation or from increased taxation; and there is no
contract created by a provision in a charter or franchise that the
corporation shall pay annually a certain tax.
When the government enters into a contract, it descends to the
level of an ordinary individual. It cannot invoke state immunity.
Contractual tax exemptions, in the real sense of the term and where the
non-impairment clause of the Constitution can rightly be invoked, are
those agreed to by the taxing authority in contracts, such as those
contained in government bonds or debentures, lawfully entered into by
them under enabling laws in which the government, acting in its private
capacity, sheds its cloak of authority and waives its governmental
immunity. Truly, tax exemptions of this kind may not be revoked without
impairing the obligations of contracts. These contractual tax exemptions,
however, are not to be confused with tax exemptions granted under
franchises. A franchise partakes of the nature of a grant which is beyond
the purview of the non-impairment clause of the Constitution.

CASES:
JUAN LUNA SUBDIVISION, INC. v. SARMIENTO, et al.
91 Phil. 371
FACTS: Juan Luna Subdivision, Inc. brought a suit against the City Treasurer
and the Philippine Trust Company as defendants in the alternative to
determine which of the two defendants is liable for plaintiff's check. It
appears that plaintiff issued to the City Treasurer of Manila a check to be
applied to plaintiff's land tax for the second semester of 1941, the exact
amount of which was yet undetermined. On February 20,1942, after the
amount had been verified, which was P341.60, the balance of Pl,868.92,
covered by voucher no. 1487 of the City Treasurer's Office, was noted in
the ledger as a credit to the Juan Luna Subdivision, Inc. Thereafter, the
books of the Philippine Trust Company revealed that plaintiff's check was
deposited by the City Treasurer with the Philippine National Bank, and the
latter was paid the cash equivalent thereof by the Philippine Trust
Company which debited the amount against Juan Luna Subd., Inc.
However, the City Treasurer refused after liberation to refund the plaintiff's
deposit or apply it to such future taxes as might be found due.

ISSUE: Whether or not plaintiff is entitled for the claim of the whole amount
of the check contending that taxes for the last semester of 1941 had been
remitted by C.A. No. 703?
HELD: Section 1 of this Act, which was approved on November 1, 1945,
provides:
"All land taxes and penalties due and payable for the years
nineteen hundred and forty-two, nineteen hundred and forty-three,
nineteen hundred and forty-four and fifty per cent of the tax due for
nineteen hundred and forty-five, are hereby remitted. The land taxes and
penalties due and payable for the second semester of the year nineteen
hundred and forty-one shall also be remitted if the remaining fifty per cent
corresponding to the year nineteen hundred and forty-five shall have
been paid on or before December thirty-first, nineteen hundred and forty-
five."
There is no ambiguity in the language of the law. It says "taxes and
penalties due and payable," the literal meaning of which is taxes owed or
owing. (See Webster's New International Dictionary.) Note that the
provision speaks of penalties, and note that penalties accrue only when
taxes are not paid on time. The word "remit" underlined by the appellant
does not help its theory, for to remit is to desist or refrain from exacting,
inflicting, or enforcing something as well as to restore what has already
been taken. We do not see that literal interpretation of Commonwealth
Act No. 703 runs counter and does violence to its spirit and intention, nor
do we think that such interpretation would be "constitutionally bad" in that
"it would unduly discriminate against taxpayers who had paid in favor of
delinquent taxpayers."
The remission of taxes due and payable to the exclusion of taxes
already collected does not constitute unfair discrimination. Each set of
taxes is a class by itself, and the law would be open to attack as class
legislation only if all taxpayers belonging to one class were not treated
alike. They are not. As to the justification of the measure, the confinement
of the condonation to delinquent taxes was not without good reason. The
property owners who had paid their taxes before liberation and those
who had not were not on the same footing on the need of material relief.
It is true that the ravages and devastations brought by war operations
had rendered the bulk of the people destitute or impoverished and that it
was this situation which prompted the passage of C.A. 703. But it is also
true that the taxpayers who had been in arrears in their obligation would
have to satisfy their liability with genuine currency, while the taxes paid
during the occupation had been satisfied in Japanese military notes,
many of them at a time when those notes were well-nigh worthless. To
refund those taxes with the restored currency, even if the government
could afford to do so, would be to unduly enrich many of the payers at a
greater expense of the people at large. What is more, the process of
refunding would entail a tremendous amount of work and difficulties,
what with the destruction of the tax records and the great
number of claimants who would take advantage of such grace. It is said
that the plaintiff's check was in the nature of a deposit, held in trust by the
City Treasurer, and that, for this reason, plaintiff's taxes are to be regarded
as still due and payable. The argument is well-taken, but only to the extent
of Pl,868.92. The amount of P341.60 as early as February 20,1942, had
been applied to the second half of plaintiff's 1941 tax and become part of
the general fund of the city treasury. From that date that tax was legally
and actually paid and settled.

CITY OF BAGUIO v. FORTUNATO DE LEON

25 SCRA 938
FACTS: Defendant-appellant De Leon, a real estate dealer, assailed the
validity of an ordinance of the City of Baguio imposing a license fee on
any person, firm, entity, or corporation doing business in the City of
Baguio.

HELD: Republic Act No. 329 was enacted amending Section 2553 of the
Revised Administrative Code, empowering the City Council not only to
impose a license fee but also to levy a tax for purposes of revenue. Thus,
the City Council of Baguio now has the power to tax, to license, and to
regulate all businesses, trades, and occupations therein. The ordinance
under consideration, therefore, cannot be considered ultra vires.

G.R. No. L-6093, February 24, 1954

THE SHELL COMPANY OF P. I. LTD., PLAINTIFF AND APPELLANT, VS. E. E.
VAÑO, AS MUNICIPAL TREASURER OF THE MUNICIPALITY OF CORDOVA,
PROVINCE OF CEBU, DEFENDANT AND APPELLEE.
PADILLA, J.:

FACTS: The Municipal Council of Cordova, Province of Cebu, adopted the

following ordinances: No. 10, series of 1946, which imposes an annual tax
of P150 on occupation or the exercise of the privilege of installation
manager; No. 9, series of 1947, which imposes an annual tax of P40 for
local deposits in drums of combustible and inflammable materials and an
annual tax of P200 for tin can factories; and No. 11, series of 1948, which
imposes an annual tax of P150 on tin can factories having a maximum
annual output capacity of 30,000 tin cans. The Shell Company of P. I. Ltd.,
a foreign corporation, filed suit for the refund of the taxes paid by it, on
the ground that the ordinances imposing such taxes are ultra vires(issue).

HELD: The municipal ordinance imposing an annual tax of P40 for "minor
local deposit in drums of combustible and inflammable materials," and of
P200 "for tin factory" was adopted under and pursuant to section 2244 of
the Revised Administrative Code, which provides that the municipal
council in the exercise of regulative authority may require any person
engaged in any business or occupation, such as "storing combustible or
explosive materials" or "the conducting of any other business of an
unwholesome, obnoxious, offensive, or dangerous character," to obtain a
permit for which a reasonable fee, in no case to exceed P10 per annum,
may be charged, the annual tax of P40 and P200 are unauthorized and
illegal. The permit and the fee referred to may be required and charged
by the Municipal Council of Cordova in the exercise of its regulative
authority, whereas the ordinance which imposes the taxes in question was
adopted under and pursuant to the provisions of Commonwealth Act No.
472, which authorizes municipal councils and municipal district councils
"to impose municipal license taxes upon persons engaged in any
occupation or business, or exercising privileges in the municipality or
municipal district, by requiring them to secure licenses at rates fixed by the
municipal council or municipal district council," which shall be just and
uniform but not "percentage taxes and taxes oh specified articles."
Likewise, Ordinance No. 10, series of 1946, which imposes an annual tax of
P150 on "installation manager" comes under the provisions of
Commonwealth Act No. 472. But it is claimed that "installation manager" is
a designation made by the plaintiff and such designation cannot be
deemed to be a "calling" as defined in section 178 of the National Internal
Revenue Code (Com. Act No. 466), and that the installation manager
employed by the plaintiff is a salaried employee which may not be taxed
by the municipal council under the provisions of Commonwealth Act No.
472. This contention is without merit, because even if the installation
manager is a salaried employee of the plaintiff, still it is an occupation
"and one occupation or line of business does not become exempt by
being conducted with some other occupation or business for which such
tax has been paid and the occupation tax must be paid "by each
individual engaged in a calling subject thereto." And pursuant to section
179 of the National Internal Revenue Code, "The payment of * * *
occupation tax shall not exempt any person from any tax, * * * provided
by law or ordinance in places where such * * * occupation in * * *
regulated by municipal Jaw, nor shall the payment of any such tax be
held to prohibit any municipality from placing a tax upon the same * * *
occupation, for local purposes, where the imposition of such tax is
authorized by law." It is true that, according to the stipulation of facts,
Ordinance No. 10, series of 1946, was approved by the Provincial Board of
Cebu in its Resolution No. 1070, series of 1946, and that it does not appear
that if was approved by the Department of Finance, as provided for and
required in section 4, paragraph 2, of Commonwealth Act No. 472, the
rate of municipal tax being in excess of P50 per annum.
Ordinance No. 11, series of 1948, which imposes a municipal tax of
P150 on tin can factories having a maximum annual output capacity of
30,000 tin cans which, according to the stipulation of facts, was approved
by the Provincial Board of Cebu and the Department of Finance, is valid
and lawful, because it is neither a percentage tax nor one on specified
articles which are the only exceptions provided for in section 1,
Commonwealth Act No. 472. Neither does it fall under any of the
prohibitions provided for in section 3 of the same Act. Specific taxes
enumerated in the National Internal Revenue Code are those that are
imposed upon "things manufactured or produced in the Philippines for
domestic sale or consumption" and upon "things imported from the United
States and foreign countries," such as distilled spirits, domestic denatured
alcohol, fermented liquors, products of tobacco, cigars and cigarettes,
matches, mechanical lighters, firecrackers, skimmed milk, manufactured
oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic
films, playing cards, sacharine. And it is not a percentage tax because it is
tax on business and the maximum annual output capacity is not a
percentage, because it is not a share or a tax based on the amount of
the proceeds realized out of the sale of the tin cans manufactured therein
but on the business of manufacturing tin cans having a maximum annual
output capacity of 30,000 tin cans.
In an action for refund of municipal taxes claimed to have been
paid and collected under an illegal ordinance, the real party in interest is
not the municipal treasurer but the municipality concerned that is
empowered to sue and be sued.

ASSOCIATION OF CUSTOM BROKERS, INC. v. MUN. BOARD, CITY OF

MANILA, et al.
93 Phil. 107
FACTS: This is a petition for declaratory relief to test the validity of
Ordinance No. 3379 passed by the Municipal Board of the City of Manila
on March 24, 1950. The Association of Customs Brokers, Inc., which is
composed of all brokers and public service operators of motor vehicles in
the City of Manila, and G. Manlapit, Inc., a member of said association,
also a public service operator of trucks in said City, challenge the validity
of said ordinance on the ground that (1) while it levies a so-called
property tax it is in reality a license tax which is beyond the power of the
Municipal Board of the City of Manila; (2) said ordinance offends against
the rule of uniformity of taxation; and (3) it constitutes double taxation.

HELD: "If a tax is in its nature an excise, it does not become a property tax
because it is proportioned in amount to the value of the property used in
connection with the occupation, privilege or act which is taxed. Every
excise necessarily must finally fall upon and be paid by property and so
may be indirectly a tax upon property; but if it is really imposed upon the
performance of an act, enjoyment of a privilege, or the engaging in an
occupation, it will be considered an excise." (26 R. C. L., 35-36.) It has also
been held that "The character of a tax as a property tax or a license or
occupation tax must be determined by its incidents, and from the natural
and legal effect of the language employed in the act or ordinance, and
not by the name by which it is described, or by the mode adopted in
fixing its amount. If it is clearly a property tax, it will be so regarded, even
though nominally and in form it is a license or occupation tax; and, on the
other hand, if the tax is levied upon persons on account of their business, it
will be construed as a license or occupation tax, even though it is
graduated according to the property used in such business, or on the
gross receipts of the business." (37 C. J., 172.) The ordinance in question
falls under the foregoing rules. While it refers to property tax and it is fixed
ad valorem yet we cannot reject the idea that it is merely levied on motor
vehicles operating within the City of Manila with the main purpose of
raising funds to be expended exclusively for the repair, maintenance and
improvement of the streets and bridges in said city. This is precisely what
the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason
that, under said Act, municipal corporations already participate in the
distribution of the proceeds that are raised for the same purpose of
repairing, maintaining and improving bridges and public highways
(section 73 of the Motor Vehicle Law). This prohibition is intended to
prevent duplication in the imposition of fees for the same purpose. It is for
this reason that we believe that the ordinance in question merely imposes
a license fee although under the cloak of an ad valorem tax to
circumvent the prohibition above adverted to.
It is also our opinion that the ordinance infringes the rule of uniformity
of taxation ordained by our Constitution. Note that the ordinance exacts
the tax upon all motor vehicles operating within the City of Manila. It does
not distinguish between a motor vehicle for hire and one which is purely
for private use. Neither does it distinguish between a motor vehicle
registered in the City of Manila and one registered in another place but
occasionally comes to Manila and uses its streets and public
highways. The distinction is important if we note that the ordinance
intends to burden with the tax only those registered in the City of Manila
as may be inferred from the word "operating" used therein. The word
"operating" denotes a connotation which is akin to a registration, for
under the Motor Vehicle Law no motor vehicle can be operated without
previous payment of the registration fees. There is no pretense that the
ordinance equally applies to motor vehicles who come to Manila for a
temporary stay or for short errands, and it cannot be denied that they
contribute in no small degree to the deterioration of the streets
and public highways. The fact that they are benefited by their use
they should also be made to share the corresponding burden. And yet
such is not the case. This is an inequality which we find in the ordinance,
and which renders it offensive to the Constitution.

G.R. Nos. L-49839-46, April 26, 1991

JOSE B. L. REYES AND EDMUNDO A. REYES, PETITIONERS, VS. PEDRO
ALMANZOR, VICENTE ABAD SANTOS, JOSE RONO, IN THEIR CAPACITIES AS
APPOINTED AND ACTING MEMBERS OF THE CENTRAL BOARD OF
ASSESSMENT APPEALS; TERESITA H. NOBLEJAS ROMULO M. DEL ROSARIO,
RAUL C. FLORES, IN THEIR CAPACITIES AS APPOINTED AND ACTING
MEMBERS OF THE BOARD OF ASSESSMENT APPEALS OF MANILA; AND
NICOLAS CATIIL, IN HIS CAPACITY AS CITY ASSESSOR OF MANILA,
 RESPONDENTS.
PARAS, J.:

FACTS: Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of
parcels of land situated in Tondo and Sta. Cruz Districts, City of Manila,
which are leased and entirely occupied as dwelling sites by tenants. Said
tenants were paying monthly rentals not exceeding three hundred pesos
(P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted
Republic Act No. 6359 prohibiting for one year from its effectivity, an
increase in monthly rentals of dwelling units or of lands on which another’s
dwelling is located, where such rentals do not exceed three hundred
pesos (P300.00) a month but allowing an increase in rent by not more than
10% thereafter. The said Act also suspended paragraph (1) of Article 1673
of the Civil Code for two years from its effectivity thereby disallowing the
ejectment of lessees upon the expiration of the usual legal period of
lease. On October 12, 1972, Presidential Decree No. 20 amended R.A.
No. 6359 by making absolute the prohibition to increase monthly rentals
below P300.00 and by indefinitely suspending the aforementioned
provision of the Civil Code, excepting leases with a definite
period. Consequently, the Reyeses, petitioners herein, were precluded
from raising the rentals and from ejecting the tenants. In 1973, respondent
City Assessor of Manila re-classified and reassessed the value of the
subject properties based on the schedule of market values duly reviewed
by the Secretary of Finance. The revision, as expected, entailed an
increase in the corresponding tax rates prompting petitioners to file a
Memorandum of Disagreement with the Board of Tax Assessment
Appeals. They averred that the reassessments made were "excessive,
unwarranted, inequitable, confiscatory and unconstitutional‖ considering
that the taxes imposed upon them greatly exceeded the annual income
derived from their properties. They argued that the income approach
should have been used in determining the land values instead of the
comparable sales approach which the City Assessor adopted. The Board
of Tax Assessment Appeals, however, considered the assessments valid.

ISSUE: THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE

SALES APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF
APPELLANTS' PROPERTIES.

HELD: Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced,
the rule of taxation must not only be uniform, but must also be equitable
and progressive. Uniformity has been defined as that principle by which all
taxable articles or kinds of property of the same class shall be taxed at the
same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]). Taxation is said to
be equitable when its burden falls on those better able to pay. Taxation is
progressive when its rate goes up depending on the resources of the
person affected.
 The taxing power has the authority to make a reasonable and
natural classification for purposes of taxation but the government's act
must not be 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 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 conferred and the liabilities imposed.
Verily, taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. However, 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 taxations, which is the promotion of the common
good, may be achieved (Commissioner of Internal Revenue v. Algue, Inc.,
et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that
petitioners who are burdened 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 eventually result in the
forfeiture of their properties.
By the public respondents’ own computation the assessment by
income approach would amount to only P10.00 per sq. meter at the time
in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed
decisions of public respondents are REVERSED and SET ASIDE; and (c) the
respondent Board of Assessment Appeals of Manila and the City Assessor
of Manila are ordered to make a new assessment by the income
approach method to guarantee a fairer and more realistic basis of
computation.

MAYOR ANTONIO J. VILLEGAS v. HIU

CHIONG TSAl PAO HO and JUDGE ARCA
86 SCRA 270 (1978)
FACTS: Respondent Hui Chiong Tsai Pao Ho challenged the validity of
Ordinance No. 6537 passed by the Municipal Board of Manila. The said
ordinance prohibited aliens from being employed or to engage or
participate in any position, occupation or business enumerated therein,
whether permanent, temporary or casual, without first securing an
employment permit from the Mayor of Manila and paying the permit fee.
Respondent judge declared the ordinance null and void.

HELD: The P50.00 fee is unreasonable not only because it is excessive but
because it fails to consider valid substantial differences in situation among
individual aliens who are required to pay it. Although the equal protection
clause of the Constitution does not forbid classification, it is imperative
that the classification should be based on real and substantial differences
having a reasonable relation to the subject of the particular legislation.
The same amount of P50.00 is being collected from every employed alien,
whether he is casual or permanent, part time or full time or whether he is a
lowly employee or a highly paid executive.
Ordinance No. 6537 does not lay down any criterion or standard to
guide the Mayor in the exercise of his discretion. It has been held that
where an ordinance of a municipality fails to state any policy or to set up
any standard to guide or limit the mayor's action, expresses no purpose to
be attained by requiring a permit, enumerates no conditions for its grant
or refusal, and entirely lacks standard, thus conferring upon the Mayor
arbitrary and unrestricted power to grant or deny the issuance of building
permits, such ordinance is invalid, being an undefined and unlimited
delegation of power to allow or prevent an activity per se lawful. Thus the
ordinance violates the due process of law and equal protection rule of
the Constitution.
Requiring a person before he can be employed to get a permit
from the City Mayor of Manila who may withhold or refuse it at will is
tantamount to denying him the basic right of the people in the Philippines
to engage in a means of livelihood. While it is true that the Philippines as a
State is not obliged to admit aliens within its territory, once an alien is
admitted, he cannot be deprived of life without due process of law. This
guarantee includes the means of livelihood. The shelter of protection
under the due process and equal protection clause is given to all persons,
both aliens and citizens.

TOLENTINO VS SECRETARY OF FINANCE CASE

FACTS: Arturo Tolentino et al are questioning the constitutionality of RA

7716 otherwise known as the Expanded Value Added Tax (EVAT) Law.
Tolentino averred that this revenue bill did not exclusively originate from
the House of Representatives as required by Section 24, Article 6 of the
Constitution. Even though RA 7716 originated as HB 11197 and that it
passed the 3 readings in the HoR, the same did not complete the 3
readings in Senate for after the 1st reading it was referred to the Senate
Ways & Means Committee thereafter Senate passed its own version
known as Senate Bill 1630. Tolentino averred that what Senate could have
done is amend HB 11197 by striking out its text and substituting it with the
text of SB 1630 in that way ―the bill remains a House Bill and the Senate
version just becomes the text (only the text) of the HB‖. (It’s ironic however
to note that Tolentino and co-petitioner Raul Roco even signed the said
Senate Bill.)
ISSUE:
1. Whether or not the EVAT law is procedurally infirm.
Held: The argument that RA 7716 did not originate exclusively in the House
of Representatives as required by Art. VI, Sec. 24 of the Constitution will
not bear analysis. To begin with, it is not the law but the revenue bill which
is required by the Constitution to originate exclusively in the House of
Representatives. To insist that a revenue statute and not only the bill which
initiated the legislative process culminating in the enactment of the law
must substantially be the same as the House bill would be to deny the
Senate’s power not only to concur with amendments but also to propose
amendments. Indeed, what the Constitution simply means is that the
initiative for filing revenue, tariff or tax bills, bills authorizing an increase of
the public debt, private bills and bills of local application must come from
the House of Representatives on the theory that, elected as they are from
the districts, the members of the House can be expected to be more
sensitive to the local needs and problems. Nor does the
Constitutionprohibit the filing in the Senate of a substitute bill in
anticipation of its receipt of the bill from the House, so long as action by
the Senate as a body is withheld pending receipt of the House bill.

The next argument of the petitioners was that S. No. 1630 did not pass 3
readings on separate days as required by the Constitution because the
second and third readings were done on the same day. But this was
because the President had certified S. No. 1630 as urgent. The presidential
certification dispensed with the requirement not only of printing but also
that of reading the bill on separate days. That upon the certification of a
billby the President the requirement of 3 readings on separate days and of
printing and distribution can be dispensed with is supported by the
weightof legislative practice.

2. Whether RA 7166 violates the principle of progressive system of taxation

RULING: No. Lacking empirical data on which to base any conclusion

regarding these arguments, any discussion whether the VAT is regressive in
the sense that it will hit the poor and middle income group in society
harder than it will the rich is largely an academic exercise.
Regressivity is not a negative standard for courts to enforce. ―Evolve
a progressive system of taxation‖ is a directive to Congress. These
provisions are placed in the Constitution as moral incentives to legislation,
not as judicially enforceable rights.

COMMISSIONER OF INTERNAL REVENUE v. HON. COURT OF APPEALS, HON.

COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION. G.R. No.
119761. August 29, 1996]

FACTS: Fortune Tobacco Corporation is engaged in the manufacture of

different brands of cigarettes.
On various dates, the Philippine Patent Office issued to the corporation
separate certificates of trademark registration over "Champion," "Hope,"
and "More" cigarettes.
The CIR initially classified 'Champion,' 'Hope,' and 'More' as foreign
brands since they were listed in the World Tobacco Directory as belonging
to foreign companies. However, Fortune changed the names of 'Hope' to
Hope Luxury' and 'More' to 'Premium More,' thereby removing the said
brands from the foreign brand category. Fortune also submitted proof the
BIR that 'Champion' was an original register and therefore a local brand.
Ad Valorem taxes were imposed on these brands.
RA 7654 was passed in it was provided that 55% ad valorem tax will
be imposed on local brands carrying a foreign name. Two days before
the effectivity of RA 7654, the BIR issued Revenue Memorandum Circular
No. 37-93, in which Fortune was to be imposed 55% ad valorem tax on
the three brands classifying them as local brands carrying a foreign name.
Fortune filed a petition with the CTA which was granted finding the
RMC as defective. The CIR filed a motion for reconsideration with the CTA
which was denied, then to the CA, an appeal, which was also denied.

ISSUE: Whether the RMC was valid.

RULING: NO. The RMC was made to place the three brands as locally
made cigarettes bearing foreign brands and to thereby have them
covered by RA 7654. Specifically, the new law would have its amendatory
provisions applied to locally manufactured cigarettes which at the time of
its effectivity were not so classified as bearing foreign brands. Prior to the
issuance of the RMC, the brands were subjected to 45% ad valorem tax.
In so doing, the BIR not simply interpreted the law but it legislated under its
quasi-legislative authority. The due observance of the requirements of
notice, of hearing, and of publication should not have been then ignored.
The Court is convinced that the hastily promulgated RMC 37-93 has
fallen short of a valid and effective administrative issuance.

Lung Center of the Philippines vs. Quezon City and Constantino

Rosas
G.R. No. 144104 June 29, 2004

FACTS:
Petitioner is a non-stock, non-profit entity established by virtue of PD
No. 1823, seeks exemption from real property taxes when the City Assessor
issued Tax Declarations for the land and the hospital building. Petitioner
predicted on its claim that it is a charitable institution. The request was
denied, and a petition hereafter filed before the Local Board of
Assessment Appeals of Quezon City (QC-LBAA) for reversal of the
resolution of the City Assessor. Petitioner alleged that as a charitable
institution, is exempted from real property taxes under Sec 28(3) Art VI of
the Constitution. QC-LBAA dismissed the petition and the decision was
likewise affirmed on appeal by the Central Board of Assessment Appeals
of Quezon City. The Court of Appeals affirmed the judgment of the CBAA.

ISSUE:
1. Whether or not petitioner is a charitable institution within the
context of PD 1823 and the 1973 and 1987 Constitution and Section 234(b)
of RA 7160.

2. Whether or not petitioner is exempted from real property taxes.

RULING:
1. Yes. The Court hold that the petitioner is a charitable institution
within the context of the 1973 and 1987 Constitution. Under PD 1823, the
petitioner is a non-profit and non-stock corporation which, subject to the
provisions of the decree, is to be administered by the Office of the
President with the Ministry of Health and the Ministry of Human
Settlements. The purpose for which it was created was to render medical
services to the public in general including those who are poor and also
the rich, and become a subject of charity. Under PD 1823, petitioner is
entitled to receive donations, even if the gift or donation is in the form of
subsidies granted by the government.

2. Partly No. Under PD 1823, the lung center does not enjoy any
property tax exemption privileges for its real properties as well as the
building constructed thereon.
The property tax exemption under Sec. 28(3), Art. VI of the
Constitution of the property taxes only. This provision was implanted by
Sec.243 (b) of RA 7160.which provides that in order to be entitled to the
exemption, the lung center must be able to prove that: it is a charitable
institution and; its real properties are actually, directly and exclusively used
for charitable purpose. Accordingly, the portions occupied by the hospital
used for its patients are exempt from real property taxes while those
leased to private entities are not exempt from such taxes.

Commissioner of Internal Revenue vs Algue Inc., and Court of Tax Appeals

GR No. L-28896 February 17, 1988

Facts: The Philippine Sugar Estate Development Company had earlier

appointed Algue Inc., as its agent, authorizing it to sell its land, factories
and oil manufacturing process.As such,the corporation worked for the
formation of the Vegetable Oil Investment Corporation, until they were
able to purchased the PSEDC properties. For this sale, Algue Inc., received
as agent a commission of P126, 000.00, and it was from this commission
that the P75, 000.00 promotional fees were paid to Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez.
 Commissioner of Internal Revenue contends that the claimed
deduction is not allowed because it was not an ordinary reasonable or
necessary business expense. The Court of Tax Appeals had seen it
differently. Agreeing with Algue Inc., it held that the said amount had
been legitimately paid by the private respondent for actual services
rendered. The payment was in the form of promotional fees.

Issue: Whether or not the Collector of Internal Revenue correctly

disallowed the P75, 000.00 deduction claimed by private respondent
Algue Inc., as legitimate business expenses in its income tax returns.

Ruling: No, The Supreme Court agrees with the respondent court that the
amount of the promotional fees was not excessive. The P75,000.00 was
60% of the total commission. This was a reasonable proportion,
considering that it was the payees who did practically everything, from
the formation of the Vegetable Oil Investment Corporation to the actual
purchase by it of the Sugar Estate properties.
The claimed deduction by the private respondent was permitted
under the Internal Revenue Code and should therefore not have been
disallowed by the petitioner.

Tio vs Videogram Regulatory Commission (G.R. No. 75697)

FACTS: In 1985, Presidential Dedree No. 1987 entitled ―An Act Creating the
Videogram Regulatory Board‖ was enacted which gave broad powers to
the VRB to regulate and supervise the videogram industry. The said law
sought to minimize the economic effects of piracy. There was a need to
regulate the sale of videograms as it has adverse effects to the movie
industry. The proliferation of videograms has significantly lessened the
revenue being acquired from the movie industry, and that such loss may
be recovered if videograms are to be taxed. Section 10 of the PD imposes
a 30% tax on the gross receipts payable to the LGUs.
In 1986, Valentin Tio assailed the said PD as he averred that it is
unconstitutional on the following grounds:

1. Section 10 thereof, which imposed the 30% tax on gross receipts, is

a rider and is not germane to the subject matter of the law.

2. There is also undue delegation of legislative power to the VRB, an

administrative body, because the law allowed the VRB to deputize, upon
its discretion, other government agencies to assist the VRB in enforcing the
said PD.

ISSUE: Whether or not the Valentin Tio’s arguments are correct.

HELD: No.
 1. The Constitutional requirement that ―every bill shall embrace only
one subject which shall be expressed in the title thereof‖ is sufficiently
complied with if the title be comprehensive enough to include the
general purpose which a statute seeks to achieve. In the case at bar, the
questioned provision is allied and germane to, and is reasonably
necessary for the accomplishment of, the general object of the PD, which
is the regulation of the video industry through the VRB as expressed in its
title. The tax provision is not inconsistent with, nor foreign to that general
subject and title. As a tool for regulation it is simply one of the regulatory
and control mechanisms scattered throughout the PD.

2. There is no undue delegation of legislative powers to the VRB. VRB

is not being tasked to legislate. What was conferred to the VRB was the
authority or discretion to seek assistance in the execution, enforcement,
and implementation of the law. Besides, in the very language of the
decree, the authority of the BOARD to solicit such assistance is for a ―fixed
and limited period‖ with the deputized agencies concerned being
―subject to the direction and control of the [VRB].‖

H. DOCTRINES/PRINCIPLES IN TAXATION

READ FIRST: VITUG PAGE 40-42

DIMAAMPAO PAGE 153-155

PROSPECTIVITY OF TAX LAWS

General rule: Tax laws are prospective in operation.

Reason: Nature and amount of the tax could not be foreseen and
understood by the taxpayer at the time the transaction.

Exception: Tax laws may be applied retroactively provided it is expressly

declared or clearly the legislative intent. (e.g increase taxes on income
already earned) It is a cardinal rule that laws shall have no retroactive
effect, unless the contrary is provided (citing Art. 4 of the Civil
Code).[Hydro Resources v.CA]The language of the statute must clearly
demand or press that it shall have a retroactive effect.[Lorenzo
v.Posadas]

Exception to the exception: when retroactive

application would be so harsh and oppressive
(Republic v. Fernandez).
Collection of interest in tax cases is not penal in
nature; it is but a just compensation to the State. The constitutional
prohibition against ex post facto laws is not applicable to the collection of
interest on back taxes. [Central Azucarera v.CTA]

NON-RETROACTIVITY OF RULINGS (SEC. 246)

General rule: Any revocation, modification or reversal of rules and
regulations promulgated in accordance with Sections 244 and 245 of the
Tax Code and rulings or circulars promulgated by the CIR, that is
prejudicial to the taxpayer, as a general rule, shall NOT be given
retroactive effect.
Exceptions:
(1) Where the taxpayer deliberately misstates or omits material facts from
his return or any document required of him by BIR;
(2) Where the facts subsequently gathered by the
BIR are materially different from the facts on which the ruling is based; OR
(3) Where the taxpayer acted in bad faith. (Sec. 246, NIRC)

SOURCE: UP COLLEGE OF LAW TAXATION 1 BAR REVIEWER 2013

H.1 IMPRESCRIPTIBILITY

Unless otherwise provided by the tax itself, taxes are imprescriptible. (CIR
v. Ayala Securities Corporation)

The law on prescription, being a remedial measure, should be liberally

construed in order to afford such protection. As a corollary, the
exceptions to the law on prescription should perforce be strictly
construed.
[Commissioner v. C.A., G.R.No. 104171 (1999)]
Prescriptions found in statutes
(1) National Internal Revenue Code- statute of limitations (see Section 203
and 222) in the assessment and collection of taxes therein imposed.
(2) Tariff and Customs Code- does not express any general statute of
limitation; it provides, however, that ―when articles have been entered
and passed free of duty or final adjustments of duties made, with
subsequent delivery, such entry and passage free of duty or settlements of
duties will, after the expiration of one (1) year, from the date of the final
payment of duties, in the absence of fraud or protest or compliance audit
pursuant to the provisions of this Code, be final and conclusive upon all
parties, unless the liquidation of the import entry was merely tentative.‖
(Sec.1603)
(3) Local Government Code- prescribes prescriptive periods for the
assessment (5 years) and collection (5 years) of taxes. (seeSections 194
and 270, Rep. Act No. 7160).

SOURCE: UP COLLEGE OF LAW TAXATION 1 BAR REVIEWER 2013

H.2 DOUBLE TAXATION

READ FIRST: VITUG PAGE 42-43, DIMAAMPAO PAGE 145-147

Means taxing twice for the same tax period the same thing or activity,
when it should be taxed but once, for the same purpose and with the
same kind of character of tax.

H.3 A. KINDS OF DOUBLE TAXATION

Strict sense (Direct duplicate Taxation)

(1) the same property must be taxed twice when it should be taxed once;
(2) both taxes must be imposed on the same property or subject matter;
(3) for the same purpose;
(4) by the same State, Government, or taxing
authority;
(5) within the same territory, jurisdiction or taxing
district;
(6) during the same taxing period; and
(7) of the same kind or character of tax.

Broad sense

There is double taxation in the broad sense or there is indirect duplicate

taxation if any of the elements for direct duplicate taxation is absent.
It extends to all cases in which there is a burden of two or more pecuniary
impositions. For example, a tax upon the same property imposed by two
different states.

Double taxation, standing alone and not being forbidden by our

fundamental law, is not a valid defense against the legality of a tax
measure (Pepsi Cola v. Mun. of Tanauan). But from it might emanate such
defenses against taxation as oppressiveness and inequality of the tax.

B.) INDIRECT- is permissible double taxation. This is allowed if the taxes are
of different nature or character, imposed by different taxing authorities. It
has been held that a real estate tax and the tenement tax imposed by
the same taxing authority, are not of the same kind or character.
(Villanueva v. Iloilo City 26 scra 578)

SOURCE: DIMAAMPAO PAGE 146

SEE ALSO VITUG PAGE 27 NO. 2 a and b

Constitutionality of double taxation

There is no constitutional prohibition against double taxation in the

Philippines. It is something not favored, but is permissible, provided some
other constitutional requirement is not thereby
violated. [Villanueva v. City of Iloilo (1968)]
If the tax law follows the constitutional rule on uniformity, there can be no
valid objection to taxing the same income, business or property
twice.[China Banking Corp. v. CA, G.R.No. 146749 (2003)]
Double taxation in its narrow sense is undoubtedly unconstitutional but
that in the broader sense is not necessarily so. (De Leon, citing 26 R.C.L
264- 265). Where double taxation (in its narrow sense) occurs, the
taxpayer may seek relief under the uniformity rule or the equal protection
guarantee.
(De Leon, citing 84 C.J.S.138).

H.3 B. Modes of eliminating double taxation

EXEMPTION METHOD- the income or capital which is taxable in the state of

source or situs is exempted in the state of residence, although in some
instances it may be taken into account in determining the rate of tax
applicable to the taxpayer’s remaining income or capital.

CREDIT METHOD- The tax paid in the state of source is credited against the
tax levied in the state of residence.

SOURCE: DIMAAMPAO PAGE 147-148

Modes of eliminating double taxation

(1) Allowing reciprocal exemption either by law or by treaty;

(2) Allowance of tax credit for foreign taxes paid
(3) Allowance of deduction for foreign taxes paid
(4) Reduction of Philippine tax rate.
SOURCE: UP COLLEGE OF LAW TAXATION 1 BAR REVIEWER 2013

ALSO FOUND IN VITUG PAGE 43

H.3 ESCAPE FROM TAXATION

TAX AVOIDANCE VS TAX EVASION

Tax avoidance

The exploitation by the taxpayer of legally permissible alternative tax rates

or methods of assessing taxable property or income in order to avoid or
reduce tax liability. It is politely called ―tax minimization‖ and is not
punishable by law.

Example: A person refrains from engaging in some activity or enjoying

some privilege in order to avoid the incidental taxation or to lower his tax
bracket for a taxable year.

Tax evasion
TAX EVASION - is the use by the taxpayer of illegal or fraudulent means to
defeat or lessen the payment of a tax. It is also known as ―tax dodging.‖ It
is punishable by law.

Example: Deliberate failure to report a taxable income or property;

deliberate reduction of income that has been received.

Elements of Tax Evasion

(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) An accompanying state of mind described as being ―evil,‖ ―in bad
faith,‖ ―willful‖ or ―deliberate and not accidental.‖
(3) A course of action (or failure of action) which is unlawful.
Since fraud is a state of mind, it need not be proved by direct evidence
but may be inferred from the circumstances of the case. Thus:
(1) The failure of the taxpayer to declare for taxation purposes his true and
actual income derived from his business for two consecutive years has
been held as an indication of his fraudulent intent to cheat the
government of its due taxes. (Republic v. Gonzales, 13 SCRA 633 [1965]).
(2) The substantial under declaration of income in the income tax returns
of the taxpayer for four (4) consecutive years coupled with his intentional
overstatement of deductions justifies the finding of fraud.

SOURCE: UP COLLEGE OF LAW TAXATION 1 BAR REVIEWER 2013

READ: VITUG PAGE 45, SEE ALSO DIMAAMPAO PAGE 148-152

CIR v. Estate of Benigno Toda Jr.

G.R. No. 147188. September 14, 2004
DAVIDE, JR., C.J.

Lessons Applicable: Tax evasion v. Tax avoidance

Laws Applicable:

FACTS:

March 2, 1989: Cibeles Insurance Corp. (CIC) authorized Benigno P. Toda

Jr., President and Owner of 99.991% of outstanding capital stock, to sell
the Cibeles Building and 2 parcels of land which he sold to Rafael A.
Altonaga on August 30, 1987 for P 100M who then sold it on the same day
to Royal Match Inc. for P 200M.
CIC included gains from sale of real property of P 75,728.021 in its annual
income tax return while Altonaga paid a 5% capital gains tax of P 10M
July 12, 1990: Toda sold his shares to Le Hun T. Choa for P 12.5M evidenced
by a deed of ale of shares of stock which provides that the buyer is free
from all income tax liabilities for 1987, 1988 and 1989.
Toda Jr. died 3 years later.
March 29, 1994: BIR sent an assessment notice and demand letter to CIC
for deficiency of income tax of P 79,099, 999.22
January 27, 1995: BIR sent the same to the estate of Toda Jr.
Estate filed a protest which was dismissed - fraudulent sale to evade the
35% corporate income tax for the additional gain of P 100M and that
there is in fact only 1 sale.
Since it is falsity or fraud, the prescription period is 10 years from the
discovery of the falsity or fraud as prescribed under Sec. 223 (a) of the
NIRC
CTA: No proof of fraudulent transaction so the applicable period is 3 years
after the last day prescribed by law for filing the return
CA: affirmed
CIR appealed

ISSUE:

W/N there is falsity or fraud resulting to tax evasion rather than tax
avoidance so the period for assessment has not prescribed.

HELD:

YES. Estate shall be liable since NOT yet prescribed.

Tax avoidance and tax evasion are the two most common ways used by
taxpayers in escaping from taxation. ax avoidance is the tax saving
device within the means sanctioned by law. This method should be used
by the taxpayer in good faith and at arms length. Tax evasion, on the
other hand, is a scheme used outside of those lawful means and when
availed of, it usually subjects the taxpayer to further or additional civil or
criminal liabilities.
Tax evasion connotes the integration of three factors:
(1) the end to be achieved, i.e., the payment of less than that known by
the taxpayer to be legally due, or the non-payment of tax when it is
shown that a tax is due
(2) an accompanying state of mind which is described as being evil, in
bad faith, willfull,or deliberate and not accidental; and
(3) a course of action or failure of action which is unlawful.
All are present in this case. The trial balance showed that RMI debited P
40M as "other-inv. Cibeles Building" that indicates RMI Paid CIC (NOT
Altonaga)
Fraud in its general sense, is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a
breach of legal or equitable duty, trust or confidence justly reposed,
resulting in the damage to another, or by which an undue and
unconscionable advantage is taken of another.
Here, it is obvious that the objective of the sale to Altonaga was to reduce
the amount of tax to be paid especially that the transfer from him to RMI
would then subject the income to only 5% individual capital gains tax,
and not the 35% corporate income tax.
Generally, a sale of or exchange of assets will have an income tax
incidence only when it is consummated but such tax incidence depends
upon the substance of the transaction rather them mere formalities.

H.4 POWER TO TAX INVOLVES POWER TO DESTROY

1. “Power to tax is the power to destroy” (Marshall Dictum) – refers to the

unlimitedness and the degree or vigor with which the taxing power may
be employed to raise revenue.
- the financial needs of the State may outrun any human calculation, so
the power to meet those needs by taxation must not be limited even
though taxes become burdensome or confiscatory. 2. ―Power to tax is not
the power to destroy while the Supreme Court sits‖ (Holmes Dictum) – the
power to tax knows no limit except those expressly stated in the
Constitution.

Marshall and Holmes Dictum Reconciled

Although the power to tax is almost unlimited, it must not be exercised in
an arbitrary manner. If the abuse is so great so as to destroy the natural
and fundamental rights of people, it is the duty of the judiciary to hold
such an act unconstitutional.

SOURCE: SAN BEDA REVIEWER

See also: DIMAAMPAO PAGE 20

H.5 DOCTRINE OF EQUITABLE RECOUPMENT

READ VITUG PAGE 46 NO. 6

-A claim for refund barred by prescription may be allowed to offset

unsettled tax liabilities should be pertinent only to taxes arising from the
same transaction on which an overpayment is made and underpayment
is due. The doctrine finds no sound application to cases where the taxes
involved are totally unrelated.

DOCTRINE OF EQUITABLE RECOUPMENT NOT FOLLOWED IN THE PHILIPPINES

A tax presently being assessed against a taxpayer which has prescribed
may not be recouped or set-off against an overpaid tax the refund of
which is also barred by prescription. It is against public policy since both
parties are guilty of negligence.

SOURCE: SAN BEDA REVIEWER

H.6 COMPENSATION AND SET-OFF TAXES

READ: VITUG PAGE 46-47

General rule: Taxes cannot be the subject of set-off or compensation
(Republic v. Mambulao Lumber).

Reasons:
(1) This would adversely affect the government revenue system (Philex
Mining v. CA).
(2) Government and the taxpayer are not creditors and debtors of each
other. The payment of taxes is not a contractual obligation but arises out
of a duty to pay. (Republic v. Mambulao)

Exception: If the claims against the government have been recognized

and an amount has already been appropriated for that purpose. Where
both claims have already become due and demandable as well as fully
liquidated, compensation takes place by operation of law under Art. 1200
in relation to Articles
1279 and 1290 of the NCC, and both debts are extinguished to the
concurrent amount.[Domingo v. Garlitos]

SOURCE: UP COLLEGE OF LAW TAXATION 1 BAR REVIEWER 2013

REPUBLIC V. MAMBULAO G.R. No. L-17725 February 28, 1962

FACTS:

By virtue of RA 115 (which provides that there shall be collected, in

addition to the regular forest charges, the amount of P0.50 on each cubic
meter of timber cut out and removed from any public forest for
commercial purposes), Mambulao Lumber paid the Republic P9,127.50 as
reforestation charges. The amount collected shall be expended by the
director of forestry for reforestation and afforestation of watersheds,
denuded areas, and other public forest lands, which upon investigation,
are found needing reforestation or afforestation. However, the Republic
has not made use of those reforestation charges for reforesting the
denuded area of the land covered by Mambulao Lumber’s license. This is
why Mambulao Lumber was asking for a refund or, if the amount could
not be refunded, at least it should be compensated with what Mambulao
Lumber Company owed the Republic for reforestation charges.

ISSUE:
Whether or not the reforestation charges which has not been used is
refundable or may be appliedin compensation of the forest charges
Mambulao Lumber still owes to the government.

HELD:
No. The amount paid by a licensee as reforestation charges is in the
nature of a tax which forms a part of the Reforestation Fund, payable
by him irrespective of whether the area covered by his license is
reforested or not. Said fund, as the law expressly provides, shall be
expended in carrying out the purposes provided for thereunder, namely,
the reforestation or afforestation, among others, of denuded areas
needing reforestation or afforestation. A claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off under the
statutes of set-off, which are construed uniformly, in the light of public
policy, to exclude the remedy in an action or any indebtedness of the
state or municipality to one who is liable to the state or municipality for
taxes. Neither are they a proper subject of recoupment since they do not
arise out of the contract or transaction sued on. The general rule, based
on grounds of public policy is well-settled that no set-off is admissible
against demands for taxes levied for general or local governmental
purposes. The reason on which the general rule is based, is that taxes are
not in the nature of contracts between the party and party but grow out
of a duty to, and are the positive acts of the government, to the making
and enforcing of which, the personal consent of individual taxpayers is
not required. ... If the taxpayer can properly refuse to pay his tax when
called upon by the Collector, because he has a claim against the
governmental body which is not included in the tax levy, it is plain that
some legitimate and necessary expenditure must be curtailed. If the
taxpayer’s claim is disputed, the collection of the tax must await and
abide the result of a lawsuit, and meanwhile the financial affairs of the
government will be thrown into great confusion.

[G.R. No. 125704. August 28, 1998]

PHILEX MINING CORPORATION

vs. COMMISSIONER OF INTERNAL REVENUE

FACTS:

On August 5, 1992, the BIR sent a letter to Philex asking it to settle its excise
tax liabilities amounting to P123, 821,982.52. Philex protested the demand
for payment of the tax liabilities stating that it has pending claims for VAT
input credit/refund for the taxes it paid for the years 1989 to 1991 in the
amount of P119, 977,037.02 plus interest. Therefore, these claims for tax
credit/refund should be applied against the tax liabilities. In reply, the BIR
held that since these pending claims have not yet been established
or determined with certainty, it follows that no legal compensation can
take place. Hence, the BIR reiterated its demand that Philex settle the
amount plus interest within 30 days from the receipt of the letter.

Philex raised the issue to the Court of Tax Appeals and in the course of the
proceedings, the BIR issued a Tax Credit Certificate SN 001795 in the
amount of P13,144,313.88 which, applied to the total tax liabilities of Philex
of P123,821,982.52; effectively lowered the latter’s tax obligation
of P110,677,688.52.

Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay
the remaining balance of P110, 677,688.52 plus interest, elucidating its
reason that ―taxes cannot be subject to set-off on compensation since
claim for taxes is not a debt or contract.

Philex appealed the case before the Court of Appeals. Nonetheless, the
Court of Appeals affirmed the Court of Tax Appeals observation.

Philex filed a motion for reconsideration which was again denied.

However, a few days after the denial of its motion for reconsideration,
Philex was able to obtain its VAT input credit/refund not only for the
taxable year 1989 to 1991 but also for 1992 and 1994, computed
amounting to205, 595,289.20.

In view of the grant of its VAT input credit/refund, Philex now contends
that the same should, ipso jure, off-set its excise tax liabilities since both
had already become ―due and demandable, as well as fully liquidated;‖
hence, legal compensation can properly take place.

ISSUE:
Whether or not the petitioner is correct in its contention that tax liability
and VAT input credit/refund can be subjected to legal compensation.

HELD:

The Supreme Court has already made the pronouncement that taxes
cannot be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors of each
other. There is a material distinction between a tax and debt. Debts are
due to the Government in its corporate capacity, while taxes are due to
the Government in its sovereign capacity.
Philex’s claim is an outright disregard of the basic principle in tax law that
taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance.
Evidently, to countenance Philex’s whimsical reason would render
ineffective our tax collection system. Philex is not allowed to refuse the
payment of its tax liabilities on the ground that it has a pending tax claim
for refund or credit against the government which has not yet been
granted. It must be noted that a distinguishing feature of a tax is that it is
compulsory rather than a matter of bargain. Hence, a tax does not
depend upon the consent of the taxpayer. If any payer can defer the
payment of taxes by raising the defense that it still has a pending claim for
refund or credit, this would adversely affect the government revenue
system. A taxpayer cannot refuse to pay his taxes when they fall due
simply because he has a claim against the government or that the
collection of the tax is contingent on the result of the lawsuit it filed against
the government. Moreover, Philex's theory that would automatically apply
its VAT input credit/refund against its tax liabilities can easily give rise to
confusion and abuse, depriving the government of authority over the
manner by which taxpayers credit and offset their tax liabilities.

"The power of taxation is sometimes called also the power to destroy.

Therefore it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the 'hen that lays the golden egg.' And,
in the order to maintain the general public's trust and confidence in the
Government this power must be used justly and not treacherously."

The petition is hereby dismissed.

H.7 TAXPAYER SUIT

READ VITUG PAGE 48, DIMAAMPAO PAGE 156

TAXPAYERS’ SUIT A case where the act complained of directly involves the
illegal disbursement of public funds derive from taxation (Justice Melo,
dissenting in Kilosbayan, Inc vs Guingona, Jr.)

TAXPAYERS AND PUBLIC OFFCIALS HAVE LOCUS STANDI REQUISITES FOR

TAXPAYERS’ SUIT

a. The tax money is being extracted and spent in violation of specific

constitutional protections against abuses of legislative power.
b. That public money is being deflected to any improper purpose
(Pascual vs Secretary of Public Works)
c. That the petitioner seeks to restrain respondents from wasting public
funds through the enforcement of an invalid or unconstitutional law

SOURCE: SAN BEDA REVIEWER

H.8 COMPROMISES

READ: VITUG PAGE 48-49 NO. 9

As a general principle, a tax compromise may be entered into and made

binding when (a) the subject matter thereof is not exactly prohibited from
being compromised, and (b) the public official entering into it is
authorized by law.

H.9 ISSUES NOT RAISED ON ADMINISTRATIVE LEVEL CANNOT BE RAISED ON

APPEAL.
COMMISSIONER OF INTERNAL REVENUE V. PROCTER AND GAMBLE
PHILIPPINE MANUFACTURING CORPORATION
(160 SCRA 560)

Topic: Tax on dividends remitted to foreign corporations

Facts:

Procter and Gamble Philippines, a domestic corporation wholly owned by

Procter and Gamble USA, is invoking thetax-sparing credit provision in
Section 24(b) and is claiming a refund or tax credit of the 20 percentage-
point portionof the 35 percentage-point whole tax on dividends that it
had previously paid to the Bureau of Internal Revenue.

Issue and Ruling:

1. W/N Procter and Gamble Philippines is entitled to the preferential 15%
tax rate on dividends declared andremitted to its parent corporation.

NO. Procter and Gamble Philippines failed to meet certain conditions

necessary in order that the dividends received by the non-resident parent
company in the US may be subject to the preferential 15% tax instead of
35%, among which are:

(a) To show the actual amount credited by the US government

against the income tax due from Procter andGamble USA;

(b) To present the income tax return of its mother company for the
years the dividends were received; and

(c) To submit any duly authenticated document showing that the

US government credited the 20% tax deemedpaid in the Philippines.

Notes:

The State can never be in estoppel, and this is particularly true in matters
involving taxation. The errors of certain administrative officers should never
be allowed to jeopardize the government’s financial position.

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.
KER & COMPANY, LTD.

FACTS:
On March 1, 1956 Ker & Co., Ltd. filed with the Court of Tax Appeals a
petition for review with preliminary injunction. No preliminary injunction
was issued, for said court dismissed the appeal for having been instituted
beyond the 30-day period provided for in Section 11 of Republic Act 1125.
We affirmed the order of dismissal of L-12396. 1
On March 15, 1962, the Bureau of Internal Revenue demanded payment
of the aforesaid assessments together with a surcharge of 5% for late
payment and interest at the rate of 1% monthly. Ker & Co., Ltd. refused to
pay, instead in its letters dated March 28, 1962 and April 10, 1962 it set up
the defense of prescription of the Commissioner's right to collect the tax.
Subsequently, the Republic of the Philippines filed on March 27, 1962 a
complaint with the Court of First Instance of Manila seeking collection of
the aforesaid deficiency income tax for the years 1947, 1948, 1949 and
1950. The complaint did not allege fraud in the filing of any of the income
tax returns for the years involved, nor did it pray for the payment of the
corresponding 50% surcharge, but it prayed for the payment of 5%
surcharge for late payment and interest of 1% per month without however
specifying from what date interest started to accrue.
Summons was served not on the defendant taxpayer but upon Messrs.
Leido and Associates, its counsel in the proceedings before the Bureau of
Internal Revenue and the Court of Tax Appeals.

On March 6, 1963 Ker & Co., Ltd. also filed a motion for reconsideration
reiterating its assertion that the Court of First Instance did not acquire
jurisdiction over its person, and maintaining that since the complaint was
filed nine years, one month and eleven days after the deficiency
assessments for 1948, 1949 and 1950 were made and since the filing of its
petition for review in the Court of Tax Appeals did not stop the running of
the period of limitations, the right of the Commissioner of Internal Revenue
to collect the tax in question has prescribed.
The two motions for reconsideration having been denied, both parties
appealed directly to this Court.

ISSUE:
2. Did the filing of a petition for review by the taxpayer in the Court of Tax
Appeals suspend the running of the statute of limitations to collect the
deficiency income for the years 1948, 1949 and 1950?

RULING:

Ker & Co., Ltd. impresses upon Us that since the Republic of the Philippines
filed the complaint for the collection of the deficiency income tax for the
years 1948, 1949 and 1950 only on March 27, 1962, or nine years, one
month and eleven days from February 16, 1953, the date the tax was
assessed, the right to collect the same has prescribed pursuant to Section
332 (c) of the Tax Code. The Republic of the Philippines however contends
that the running of the prescriptive period was interrupted by the filing of
the taxpayer's petition for review in the Court of Tax Appeals on March 1,
1956.
If the period during which the case was pending in the Court of Tax
Appeals and in the Supreme Court were not counted in reckoning the
prescriptive period, less than five years would have elapsed, hence, the
right to collect the tax has not prescribed.
The taxpayer counters that the filing of the petition for review in the Court
of Tax Appeals could not have stopped the running of the prescriptive
period to collect because said court did not have jurisdiction over the
case, the appeal having been interposed beyond the 30-day period set
forth in Section 11 of Republic Act 1125. Precisely, it adds, the Tax Court
dismissed the appeal for lack of jurisdiction and said dismissal was
affirmed by the Supreme Court in L-12396 aforementioned.
Under Section 333 of the Tax Code, quoted hereunder:
SEC. 333. Suspension of running of statute.—The running of the statute of
limitations provided in Section 331 or three hundred thirty-two on the
making of assessments and the beginning, of distraint or levy or a
proceeding in court for collection, in respect of any deficiency, shall be
suspended for the period during which the Collector of Internal Revenue is
prohibited from making the assessment or beginning distraint or levy or a
proceeding in court, and for sixty days thereafter.
the running of the prescriptive period to collect the tax shall be
suspended for the period during which the Commissioner of Internal
Revenue is prohibited from beginning a distraint and levy or instituting a
proceeding in court, and for sixty days thereafter.
Did the pendency of the taxpayer's appeal in the Court of Tax Appeals
and in the Supreme Court have the effect of legally preventing the
Commissioner of Internal Revenue from instituting an action in the Court of
First Instance for the collection of the tax? Our view is that it did.
From March 1, 1956 when Ker & Co., Ltd. filed a petition for review in the
Court of Tax Appeals contesting the legality of the assessments in
question, until the termination of its appeal in the Supreme Court, the
Commissioner of Internal Revenue was prevented, as recognized in this
Court's ruling in Ledesma, et al. v. Court of Tax Appeals, 10 from filing an
ordinary action in the Court of First Instance to collect the tax. Besides, to
do so would be to violate the judicial policy of avoiding multiplicity of suits
and the rule on lis pendens. 11
It would be interesting to note that when the Commissioner of Internal
Revenue issued the final deficiency assessments on January 5, 1954, he
had already lost, by prescription, the right to collect the tax (except that
for 1950) by the summary method of warrant of distraint and levy. Ker &
Co., Ltd. immediately thereafter requested suspension of the collection of
the tax without penalty incident to late payment pending the filing of a
memorandum in support of its views. As requested, no tax was collected.
On May 22, 1954 the projected memorandum was filed, but as of that
date the Commissioner's right to collect by warrant of distraint and levy
the deficiency tax for 1950 had already prescribed. So much so, that on
March 1, 1956 when Ker & Co., Ltd. filed a petition for review in the Court
of Tax Appeals, the Commissioner of Internal Revenue had but one
remedy left to collect the tax, that is, by judicial action. 12 However, as
stated, an independent ordinary action in the Court of First Instance was
not available to the Commissioner pursuant to Our ruling in Ledesma, et
al. v. Court of Tax Appeals, supra, in view of the pendency of the
taxpayer's petition for review in the Court of Tax Appeals. Precisely he
urgently filed a motion to dismiss the taxpayer's petition for review with a
view to terminating therein the proceedings in the shortest possible time in
order that he could file a collection case in the Court of First Instance
before his right to do so is cut off by the passage of time. As moved, the
Tax Court dismissed the case and Ker & Co., Ltd. appealed to the
Supreme Court. By the time the Supreme Court affirmed the order of
dismissal of the Court of Tax Appeals in L-12396 on January 31, 1962 more
than five years had elapsed since the final assessments were made on
January 5, 1954. Thereafter, the Commissioner of Internal Revenue
demanded extra-judicially the payment of the deficiency tax in question
and in reply the taxpayer, by its letter dated March 28, 1962, advised the
Commissioner of Internal Revenue that the right to collect the tax has
prescribed pursuant to Section 332 (c) of the Tax Code.1awphîl.nèt
Thus, did the taxpayer produce the effect of temporarily staying the
hands of the Commissioner of Internal Revenue simply through a choice
of remedy. And, if We were to sustain the taxpayer's stand, We would be
encouraging taxpayers to delay the payment of taxes in the hope of
ultimately avoiding the same.
Under the circumstances, the Commissioner of Internal Revenue was in
effect prohibited from collecting the tax in question. This being so, the
provisions of Section 333 of the Tax Code will apply.

H.10 NON-ESTOPPEL AGAINST GOVERNMENT, EXCEPTIONS

General Rule:
The Government is not estopped by the mistakes or errors of its agents;
erroneous application and enforcement of law by public officers do not
bar the subsequent correct application of statutes. (E. Rodriguez, Inc. vs.
Collector, L-23041, July 31, 1969)

Exception: In the interest of justice and fair play, as where injustice will
result to the taxpayer. (see CIR vs. CA, GR No. 117982, Feb. 6, 1997; CIR vs.
CA, GR No. 107135, Feb. 3, 1999)

Same case cited in H.9

SOURCE: SAN BEDA REVIEWER

H.11 UNGAB DOCTRINE

READ: DIMAAMPAO PAGE 153 CASE STUDY

UNGAB vs. CUSI

DOCTRINE: An assessment of a deficiency is not necessary to a criminal

prosecution for willful attempt to defeat and evade the income tax.

FACTS:
Sometime in July 1974, BIR Examiner Ben Garcia examined the income tax
returns of Ungab for the calendar year ending December 31, 1973. · In
the course of his examination, he discovered that the petitioner failed to
report his income derived from sales of banana saplings. As a result, the
BIR District Revenue Officer at Davao City sent a "Notice of Taxpayer" to
the petitioner informing him that there is due from him (petitioner) the
amount of P104,980.81 Upon receipt of the notice, Ungab wrote to the BIR
District Revenue Officer protesting the assessment made against him. He
contends that he was a mere dealer earning on a commission basis and
that his returns were not fraudulent. · Garcia forwarded the Fraud
Referral Report to the Tax Fraud Unit of BIR which forwarded the report to
the Special Investigation Division of BIR. · BIR endorsed the case to the
Chief of the Prosecution Division where State Prosecutor filed 6
informations of tax evasion against Ungab. Ungab filed a motion to dismiss
on the ground that there was still a pending protest with the BIR. His
motion was denied.

ISSUE:

WON Ungab may be charged for tax evasion even when there is a
pending protest with the BIR.

HELD: Yes.

RATIO: What is involved here is not the collection of taxes where the
assessment of the Commissioner of Internal Revenue may be reviewed by
the Court of Tax Appeals, but a criminal prosecution for violations of the
National Internal Revenue Code which is within the cognizance of courts
of first instance. While there can be no civil action to enforce collection
before the assessment procedures provided in the Code have been
followed, there is no requirement for the precise computation and
assessment of the tax before there can be a criminal prosecution under
the Code. The crime is complete when the violator has, as in this case,
knowingly and willfully filed fraudulent returns with intent to evade and
defeat a part or all of the tax. An assessment of a deficiency is not
necessary to a criminal prosecution for willful attempt to defeat and
evade the income tax. A crime is complete when the violator has
knowingly and willfuly filed a fraudulent return with intent to evade and
defeat the tax. The perpetration of the crime is grounded upon
knowledge on the part of the taxpayer that he has made an inaccurate
return, and the government's failure to discover the error and promptly to
assess has no connections with the commission of the crime.

I. Taxation Compared with Police Power and Power of Eminent

Domain and other Impositions (Dimaampao)

Taxation Police Power

As to Purpose Levied for the purpose Promote public welfare through
of raising revenue regulation
As to Amount Amount gathered in its Amount is limited to the cost of
of Exaction exercise contemplates regulation, issuance of the
no limit license or surveillance
As to Benefits No special or direct No direct benefits yet a
Received by benefit is received by healthy economic standard of
the Taxpayer the taxpayer society is maintained
-general benefit:
protection of his person
and property and the
welfare of all
As to Recognizes the This limitation does not apply to
Superiority of obligations imposed by Police Power.
Contracts contracts
As to Transfer The taxes paid form Police power allows merely the
of Property part of the public funds restraint on the exercise of
Rights property rights.

Taxation Eminent Domain

As to Purpose Exercised in order to Eminent domain or
raise public revenue; expropriation is the taking of
property for public use.
As to Payment of taxes Just compensation is given the
Compensation accrue to the general owner of the expropriated
benefit property
of the citizens of the
taxing state
As to Persons Taxation applies to all Only particular property is
Affected persons, property comprehended.
and excises that may
be subject thereto

J. Principles of Construction of Tax Laws (Recalde)

J.1 STRICT CONSTRUCTION AGAINST THE STATE

Primordial Consideration is the legislative intent. Where doubts exists in

determining that intent, the doubt must be resolved liberally in favor of
the taxpayers and strictly against the taxing authority.=> This does not
extend to cases involving the issue of the validity of the tax law itself,
which in every case, is presumed valid.

No person or property is subject to taxation unless they fall within the terms
or plain import of a taxing statute.

Commissioner of Internal Revenue (CIR) vs. Ateneo De Manila University

(ADMU)
G.R. No. 115349, April 18, 1997

Facts: ADMU is a non-stock, non-profit educational institution with auxiliary

units and branches all over the Philippines. One such auxiliary unit is the
Institute of Philippine Culture (IPC), which has no legal personality
separate and distinct from that of private respondent and is engaged in
social science studies of Philippine society and culture. In 1983, private
respondent received from petitioner CIR a demand letter assessing
private respondent for alleged deficiency contractor’s tax, and an
assessment for alleged deficiency income tax, both for the fiscal year
ended March 31, 1978. ADMU sent petitioner a letter-protest and
subsequently filed with the latter a memorandum contesting the validity
of the assessments. Petitioner then canceled the assessment for the
deficiency of income tax but increased the assessment on deficiency
contractor’s tax.

Issue: Whether or not ADMU is an independent contractor pursuant to

Section 205 of the NIRC thus, subject to 3% contractor’s Tax?

Ruling: No. Petitioner Commissioner of Internal Revenue erred in applying

the principles of tax exemption without first applying the well-settled
doctrine of strict interpretation in the imposition of taxes. It is obviously
both illogical and impractical to determine who are exempted without
first determining who are covered by the aforesaid provision. The
Commissioner should have determined first if private respondent was
covered by Section 205, applying the rule of strict interpretation of laws
imposing taxes and other burdens on the populace, before asking
Ateneo to prove its exemption therefrom. “(a) statute will not be
construed as imposing a tax unless it does so clearly, expressly, and
unambiguously. x x x (A) tax cannot be imposed without clear and
express words for that purpose. Accordingly, the general rule of requiring
adherence to the letter in construing statutes applies with peculiar
strictness to tax laws and the provisions of a taxing act are not to be
extended by implication.‖[8] Parenthetically, in answering the question of
who is subject to tax statutes, it is basic that ―in case of doubt, such
statutes are to be construed most strongly against the government and in
favor of the subjects or citizens because burdens are not to be imposed
nor presumed to be imposed beyond what statutes expressly and clearly
import.

To fall under its coverage, Section 205 of the National Internal Revenue
Code requires that the independent contractor be engaged in the
business of selling its services. Hence, to impose the three percent
contractor’s tax on Ateneo’s Institute of Philippine Culture, it should be
sufficiently proven that the private respondent is indeed selling its services
for a fee in pursuit of an independent business. And it is only after private
respondent has been found clearly to be subject to the provisions of Sec.
205 that the question of exemption therefrom would arise. Only after such
coverage is shown does the rule of construction -- that tax exemptions are
to be strictly construed against the taxpayer -- come into play, contrary to
petitioner’s position.

J.2 TAX LAWS ARE PROSPECTIVE IN NATURE

Tax laws are civil in nature. The General Rule that laws shall have
prospective application applies to tax laws. Taxes MAY be imposed
retroactively BY LAW BUT, unless so expressed by such law, these taxes
must only be imposed prospectively. The presumption applies whether the
tax law is in the form of an original enactment, an amendment or repeal.
Retroactive application of revenue laws MAY be allowed if it will not
amount to denial of due process. There is a violation of due process when
the tax law imposes harsh and oppressive tax.

ABS-CBN Broadcasting Corporation vs. CTA and CIR

G.R. No. L-52306, October 12, 1981

Facts: CIR assessed petitioner for deficiency withholding taxes for the
years 1965, 1966, 1967 and 1968 during which petitioner corporation was
engaged in the business of telecasting local as well as foreign films
acquired from foreign corporations not engaged in trade or business
within the Philippines, for which petitioner paid rentals after withholding
income tax of 30% of one-half of the film rentals pursuant to Section 24 (b)
of the National Internal Revenue Code and General Circular No. V-334
issued by the CIR. On June 27, 1968, Republic Act No. 5431 amended
Section 24(b) of the Tax Code increasing the tax rate from 30% to 35% and
revising the tax basis from "such amount" referring to rents, etc. to "gross
income”. On February 8, 1971, the CIR issued Revenue Memorandum
Circular No. 4-71, revoking General Circular No. V-334, and holding that
the latter was "erroneous for lack of legal basis," because "the tax therein
prescribed should be based on gross income without deduction
whatever,". On the basis of this new Circular, respondent Commissioner of
Internal Revenue issued against petitioner a letter of assessment and
demand dated April 15, 1971, but allegedly released by it and received
by petitioner on April 12, 1971, requiring them to pay deficiency
withholding income tax on the remitted film rentals for the years 1965
through 1968 and film royalty as of the end of 1968.

Issue: Whether or not respondent can apply General Circular No. 4-71
retroactively and issue a deficiency assessment against petitioner in the
amount of P525,897.06 as deficiency withholding income tax for the years
1965, 1966, 1967 and 1968.

Ruling: No. In point is Sec. 338-A (now Sec. 327) of the Tax Code. As
inserted by Republic Act No. 6110 on August 9, 1969, it provides:

"Sec. 338-A. Non-retroactivity of rulings. -- Any revocation,

modification, or reversal of any of the rules and regulations
 promulgated in accordance with the preceding section or
any of the rulings or circulars promulgated by the
Commissioner of Internal Revenue shall not be given
retroactive application if the revocation, modification, or
reversal will be prejudicial to the taxpayers, except in the
following cases: (a) where the taxpayer deliberately mis-
states or omits material facts from his return or any
document required of him by the Bureau of Internal
Revenue; (b) where the facts subsequently gathered by the
Bureau of Internal Revenue are materially different from the
facts on which the ruling is based; or (c) where the taxpayer
acted in bad faith." (Italics for emphasis)

The prejudice to petitioner of the retroactive application of Memorandum

Circular No. 4-71 is beyond question. It was issued only in 1971, or three
years after 1968, the last year that petitioner had withheld taxes under
General Circular No. V-334. The assessment and demand on petitioner to
pay deficiency withholding income tax was also made three years after
1968 for a period of time commencing in 1965. Petitioner was no longer in
a position to withhold taxes due from foreign corporations because it had
already remitted all film rentals and no longer had any control over them
when the new Circular was issued. And in so far as the enumerated
exceptions are concerned, admittedly, petitioner does not fall under any
of them.

J.3 TAX LAWS ARE NOT PENAL IN CHARACTER

Fernandez vs. Oasan vda. De Fernandez

G.R. No. L-9141, September 25, 1956

Facts: Olimpio Fernandez and his wife Angelina Oasan had a net worth
of P8,600 on December 8, 1941. During the Japanese occupation the
spouses acquired several real properties, and at the time of his death on
February 11, 1945 he had a net worth of P31,489. The Collector of Internal
Revenue assessed a war profits tax on the estate of the deceased at
P7,614.60, which his administratirx refused to pay. The case was brought
to the Court of Tax Appeals which sustained the validity and legality of the
assessment.

Issue: Whether or not the war profits tax law is unconstitutional for the
reason that it is retroactive?

Ruling: No. It is constitutional. Appellant's contention that the law is invalid

or unconstitutional because it acts retroactively, thus violating the due
process of law clause, is not supported by reason or authority. The tax,
insofar as applicable to the estate of the deceased Olimpio Fernandez,
is both a property tax and a tax on income. It is a property tax in
relation to the properties that Fernandez had in December, 1941; and it is
an income tax in relation to the properties which he purchased during
the Japanese occupation. In both cases, however, the war profits tax
may not be considered as unconstitutional.

The doctrine of unconstitutionally raised by appellant is based on the

prohibition against ex post facto laws. But this prohibition applies only
to criminal or penal matters, and not to laws which concern civil matters
or proceedings generally, or which affect or regulate civil or private
rights.

Those who were fortunate to increase their wealth during the troubulous
period of the war were made to contribute a portion of their newly-
acquired wealth for the maintenance of the government and defray its
expenses. Those who in turn were reduced to penury or whose incomes
suffered reductions could not be compelled to share in the expenses to
the same extent as those who grew rich. This in effect is what the
legislature did when it enacted the War Profits Tax Law, The law may not
be considered harsh and oppressive because the force of its impact fell
on those who had amassed wealth or increased their wealth during the
war, but did not touch the less fortunate, The policy followed is the same
as that which underlies the Income Tax Law, imposing the burden upon
those who have and relieving those who have not.

J.4 TAX LAWS ARE NOT POLITICAL IN NATURE

Internal Revenue laws are not political in nature and as such are
continued in force during the period of enemy occupation. Tax laws are
the laws of the occupied territory and not the occupying enemy. A law
once established continues until changed by some competent legislative
power. It is not changed merely by a change of sovereignty.

Hilado vs. CIR and CTA

G.R. No. L-9408, October 31, 1956

Facts:

In his 1951 tax return filed on March 31, 1952, petitioner, among other
things, claimed as deduction the amount of P12,837.65 as a loss consisting
in a portion of his war damage claim which had been duly approved by
the Philippine War Damage Commission under the Philippine
Rehabilitation Act of 1946 but which was not paid. Meanwhile, on August
30, 1952, the Secretary of Finance, through the Collector of Internal
Revenue, issued General Circular No. V-139 which not only revoked and
declared void his general Circular No. V-123 but laid down the rule that
losses of property which occurred during the period of World War II from
fires, storms, shipwreck or other casualty, or from robbery, theft, or
embezzlement are deductible in the year of actual loss or destruction of
said property.

Issue: Whether or not tax laws were suspended during the war?
Ruling: No. Petitioner's contention that during the last war and as a
consequence of enemy occupation in the Philippines "there was no
taxable year" within the meaning of our internal revenue laws because
during that period they were unenforceable, is without merit. It is well
known that our internal revenue laws are not political in nature and as
such were continued in force during the period of enemy occupation
and in effect were actually enforced by the occupation government. As
a matter of fact, income tax returns were filed during that period and
income tax payment were effected and considered valid and legal. Such
tax laws are deemed to be the laws of the occupied territory and not of
the occupying enemy.

'There can be no break or interregnun in law. From the time the law
comes into existence with the first-felt corporateness of a primitive people
it must last until the final disappearance of human society. Once created,
it persists until a change takes place, and when changed it continues in
such changed condition until the next change and so forever. Conquest
or colonization is impotent to bring law to an end; inspite of change of
constitution, the law continues unchanged until the new sovereign by
legislative act creates a change.'"

J.5 TAX LAWS AS SPECIAL LAWS

A special law such as the Tax Code prevails over a general law.
However, in case the provisions of a special law are deficient in a
particular situation, the Civil Code shall apply.

Philippine Bank of Communications vs. CIR, CTA and CA

G.R. No. 112024, January 28, 1999

Facts: Petitioner, Philippine Bank of Communications (PBCom), a

commercial banking corporation duly organized under Philippine laws,
filed its quarterly income tax returns for the first and second quarters of
1985. However, it incurred losses for the rest of 1985 and the year 1986.
During these periods, PBCom earned rental income from leased
properties. The lessees withheld and remitted to the BIR withholding
creditable taxes. Hence, petitioner filed for tax credit on the taxes paid
during the first two quarters of 1985 and tax refund for the creditable taxes
withheld from leased properties.

CTA denied the request of petitioner for a tax refund or credit on the taxes
paid on the ground that it was filed beyond the two-year reglementary
period provided for by law. The petitioner’s claim for refund om the taxes
withheld was likewise denied on the assumption that it was automatically
credited by PBCom against its tax payment in the succeeding year.
Issue: Whether or not the Court of Appeals erred in denying the plea for
tax refund or tax credits on the ground of prescription, despite petitioner’s
reliance on RMC No. 7-85, changing the prescriptive period of two years
to ten years?

Ruling: No. RMC No. 7-85 provides in part:

―In this regard, therefore, there is no need to file petitions for review in the
Court of Tax Appeals in order to preserve the right to claim refund or tax
credit within the two-year period. As already stated, actions hereon by
the Bureau are immediate after only a cursory pre-audit of the income tax
returns. Moreover, a taxpayer may recover from the Bureau of Internal
Revenue excess income tax paid under the provisions of Section 86 of the
Tax Code within 10 years from the date of payment considering that it is
an obligation created by law (Article 1144 of the Civil Code).‖

Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now
Sec. 229, NIRC of 1997). The rule states that the taxpayer may file a claim
for refund or credit with the Commissioner of Internal Revenue, within two
(2) years after payment of tax, before any suit in CTA is commenced. The
two-year prescriptive period provided, should be computed from the time
of filing the Adjustment Return and final payment of the tax for the year.

When the Acting Commissioner of Internal Revenue issued RMC 7-85,

changing the prescriptive period of two years to ten years on claims of
excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the
BIR did not simply interpret the law; rather it legislated guidelines contrary
to the statute passed by Congress.

It bears repeating that Revenue memorandum-circulars are considered

administrative rulings (in the sense of more specific and less general
interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose
duty is to enforce it, is entitled to great respect by the courts.
Nevertheless, such interpretation is not conclusive and will be ignored if
judicially found to be erroneous. Thus, courts will not countenance
administrative issuances that override, instead of remaining consistent and
in harmony with, the law they seek to apply and implement.

―It is likewise argued that the Commissioner of Internal Revenue, after

promulgating RMC No. 7-85, is estopped by the principle of non-
retroactivity of BIR rulings. Again We do not agree. The Memorandum
Circular, stating that a taxpayer may recover the excess income tax paid
within 10 years from date of payment because this is an obligation
created by law, was issued by the Acting Commissioner of Internal
Revenue. On the other hand, the decision, stating that the taxpayer
should still file a claim for a refund or tax credit and the corresponding
petition for review within the two-year prescription period, and that the
lengthening of the period of limitation on refund from two to ten years
would be adverse to public policy and run counter to the positive
mandate of Sec. 230, NIRC, - was the ruling and judicial interpretation of
the Court of Tax Appeals. Estoppel has no application in the case at bar
because it was not the Commissioner of Internal Revenue who denied
petitioner’s claim of refund or tax credit. Rather, it was the Court of Tax
Appeals who denied (albeit correctly) the claim and in effect, ruled that
the RMC No. 7-85 issued by the Commissioner of Internal Revenue is an
administrative interpretation which is out of harmony with or contrary to
the express provision of a statute (specifically Sec. 230, NIRC), hence,
cannot be given weight for to do so would in effect amend the
statute.‖[25]

J.6 PRINCIPLE OF LEGISLATIVE APPROVAL BY RE-ENACTMENT

When a statute is susceptible of the meaning placed upon it by a ruling of

the government agency charged with its enforcement and the legislature
therafter reenacts the provisions without substantial change, such action
is to some extent confirmatory that the ruling carries out the legislative
purpose.

ABS-CBN Broadcasting Corporation vs. CTA and CIR

G.R. No. L-52306, October 12, 1981

Facts: During the period pertinent to this case, petitioner corporation was
engaged in the business of telecasting local as well as foreign films
acquired from foreign corporations not engaged in trade or business
within the Philippines, for which petitioner paid rentals after withholding
income tax of 30% of one-half of the film rentals.

General Circular No. V-334, dated April 12, 1961, a circular issued in
furtherance of section 24 (b) of the National Internal Revenue Code, as
amended by Republic Act No. 2343 dated June 20, 1959 allowed for the
deduction of the proportionate cost of production or exhibition of motion
picture films from the rental income of non-resident foreign corporations
from the amount received which is the basis of the 30% withholding
income tax. On February 8, 1971, the CIR issued Revenue Memorandum
Circular No. 4-71, revoking General Circular No. V-334, and holding that
the latter was "erroneous for lack of legal basis," because "the tax therein
prescribed should be based on gross income without deduction
whatever. Thus an assessment and demand was made to Petitioner for
deficiency withholding tax.

Issue: Whether or not the tax base, ABS-CBN should pay the alleged
deficiency withholding tax on the basis of the erroneous ―tax base‖?
Ruling: No. Republic Act No. 2343, dated June 20, 1959, supra, which was
the basis of General Circular No. V-334, was just one in a series of
enactments regarding Sec. 24(b) of the Tax Code. Republic Act No. 3825
came next on June 22, 1963 without changing the basis (gross income less
cost of production) but merely adding a proviso. Republic Act No. 3841,
dated likewise on June 22, 1963, followed after, omitting the proviso and
inserting some words.

The principle of legislative approval of administrative interpretation by re-

enactment clearly obtains in this case. It provides that "the re-enactment
of a statute substantially unchanged is persuasive indication of the
adoption by Congress of a prior executive construction."Note should be
taken of the fact that this case involves not a mere opinion of the
Commissioner or ruling rendered on a mere query, but a Circular formally
issued to "all internal revenue officials" by the then Commissioner of
Internal Revenue.

It was only on June 27, 1968 under Republic Act No. 5431, supra, which
became the basis of Revenue Memorandum Circular No. 4-71, that Sec.
24(b) was amended to refer specifically to 35% of the "gross income."

J.7 TAX LIABILITY IS PERSONAL TO TAXPAYERS; EXCEPTIONS

General Rule: tax liability is personal to the taxpayer.

Exceptions:

a. The stockholders of a dissolved corporation may be held liable for

the tax liability of such corporation up to the extent of their
respective interest in the distributable assets of the corporation at
the time of its dissolution.

Reason: The stockholders who received assets from the corporation

hold the same in trust for its creditors. Thus, when a stockholder
receives no assets at the time of dissolution, he cannot be held
liable for the corporation’s unpaid tax liability since he holds no asset
in trust for the benefit of the Government.

In case a stockholder has unpaid subscription owing the dissolved

corporation, the Government can run after such stockholder up to
the extent of the subscription as this represents an asset
(Receivable) of the corporation.

b. The heirs may be held liable for the tax that accrued against the
estate.

As the Civil Code provides, succession is a mode of acquisition by

virtue of which the property, rights and obligations to the extent of
 the value of the inheritance of the person are transmitted through
his death to another or others either by his will or by operation of
law. Thus, an heir of a decedent may be held liable for the tax that
accrued against the estate.

K. EXEMPTION FROM TAXATION

The inherent power of the state to impose taxes naturally carries with it the
power to grant tax exemptions. Both powers are essential attributes of
sovereignty and may be exercised in the a.) Constitution (Article VI,
Section 28 (3) e.g. tax exemptions to properties actually, directly and
exclusively used for religious, charitable and educational purposes) or b.)
in a statute, unless the Constitution expressly or by implication prohibits
action by the legislature on the subject.

If provided in the Constitution, it is self-executing, hence Congress cannot

add nor deduct from it. However, it may prescribe a procedure to
determine whether a claimant is entitled to the constitutional exemption.

Taxation is the rule and exemption the exception, the intention to make
an exception ought to be expressed in clear and unambiguous terms; it
cannot be taken to have been intended when the language of the
statute on which it depends is doubtful or uncertain; and the burden of
establishing it is upon him who claims it.

Strict interpretation of tax exemption laws. Taxes are what civilized people
pay for civilized society. They are the lifeblood of the nation. Thus, statutes
granting tax exemptions are construed stricissimi juris against the
taxpayer and liberally in favor of the taxing authority. A claim of tax
exemption must be clearly shown and based on language in law too
plain to be mistaken. Otherwise stated, taxation is the rule, exemption is
the exception. (Quezon City, et al., v. ABS-CBN Broadcasting Corporation,
G. R. No. 166408, October 6, 2008 citing Mactan Cebu International
Airport Authority v. Marcos, G.R. No. 120082, September 11, 1996, 261
SCRA 667, 680) The burden of proof rests upon the party claiming the
exemption to prove that it is in fact covered by the exemption so claimed.
(Quezon City, supra citing Agpalo, R.E., Statutory Construction, 2003 ed.,
p. 301)

Rationale for strict interpretation of tax exemption laws. The basis for the
rule on strict construction to statutory provisions granting tax exemptions or
deductions is to minimize differential treatment and foster impartiality,
fairness and equality of treatment among taxpayers. (Quezon City, et al.,
v. ABS-CBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008)
He who claims an exemption from his share of common burden must
justify his claim that the legislature intended to exempt him by
unmistakable terms. For exemptions from taxation are not favored in law,
nor are they presumed. They must be expressed in the clearest and most
unambiguous language and not left to mere implications. It has been
held that ―exemptions are never presumed the burden is on the claimant
to establish clearly his right to exemption and cannot be made out of
inference or implications but must be laid beyond reasonable doubt. In
other words, since taxation is the rule and exemption the exception, the
intention to make an exemption ought to be expressed in clear and
unambiguous terms. (Quezon City, supra citing Agpalo, R.E., Statutory
Construction, 2003 ed., p. 302)

K.1 KINDS OF TAX EXEMPTIONS

a. Express (by exemption provisions in the Constitution, statutes,

treaties, franchises or similar legislative acts)

Examples:
1. Section 30 NIRC
2. Section 105 Tariff and Customs Code
3. Section 234 of the Local Government Code
4. Special Laws such as the Omnibus Investments Code, Philippine
Overseas Shipping Act, Fertilizer Industry Act. Mineral Resources
Development Decree, Cottage Industry Act and exemptions in
―Housing for Low Income Group‖

b. Implied or by Omission
While exemptions are not presumed, the government however,
unless otherwise expressed, is deemed not subject to a law imposing
taxes but there is no prohibition against the government taxing itself.
There is no tax exemption solely on the ground of equity, but equity
can be used as basis for a statutory exemption; thus, at times the
law authorizes the condonation of taxes for equitable considerations
(Secs 276 and 277 LGC).

c. Contractual
Those agreed to by the taxing authority in contracts lawfully entered
into by them under enabling laws. Example: those contained in
debentures and government bonds.

Note: Tax exemptions granted under franchises ae not contractual

tax exemptions because franchises are not contracts within the
purview of the non-impairment clause of the Constitution. Franchise
is a special privilege conferred by governmental authority.

However, legislative franchise partakes of the nature of a contract.

Ratio: A charter is a private contract.

Unless otherwise expressed in the tax law, the government and its
political subdivisions are exempt therefrom.
 In the following cases however, the exemptions are construed in
favor of the grantee, viz:

1. When the law provides for such liberal construction;

2. Exemptions from certain taxes granted under special
circumstances to special classes of persons
3. Exemptions in favor of the government, its political subdivisions or
instrumentalities; and
4. Exemptions to traditional exemptees such as in favor of religious
and charitable institutions
5. Strict construction of exemption statues applies to exemptions of
property held in private ownership but not to exemptions of
public property
6. If the taxpayer falls within the purview of exemption by clear
legislative intent.

K.2 REVOCATION OF TAX EXEMPTIONS

L. PRINCIPLES OF A SOUND TAX SYSTEM

L.1 FISCAL ADEQUACY

Fiscal Adequacy Sources of revenues must be adequate to
meet government expenditures (Chavez v. Ongpin, 186 SCRA 331),
and other public needs. This is in consonance with the doctrine that
taxes are the lifeblood of the government.

L.2 ADMINISTRATIVE FEASIBILITY

Tax laws must be capable of effective and efficient
enforcement. They must not obstruct business growth and economic
development. In Kapatiran Ng Mga Naglilingkod sa Pamahalaan v.
Tan,° the Supreme Court, in upholding the validity of the VAT law,
held that the law "is principally aimed to rationalize the system of
taxes on goods and services; simplify tax administration, and make
the system more equitable to enable the country to attain
economic recovery." The principle requires that each tax should be
clear and plain to the taxpayers, capable of enforcement by an
adequate and well-trained staff of public officials, convenient as to
time and manner of payment, and not duly burdensome upon or
discouraging to business activity. (Report of the Tax Commission of
the Philippines, February 1939, Vol. 1, pp. 23-31)

L.3 THEORETICAL JUSTICE

A sound tax system must take into consideration the taxpayers'
ability to pay. Our laws mandate that taxes must be reasonable,
just, fair, conscionable. Under Art. VI, Section 28(1) of the
Constitution, the rule of taxation must be uniform and equitable. The
State must evolve a progressive system of taxation. Taxation is said
to be equitable when its burden falls on those better able to pay;
 taxation is progressive when its rate goes up depending on the
resources of the person affected.

Note: The Constitution does not prohibit the enactment of a

regressive tax.it only encourages progressive system of taxation. VAT
is regressive.

Will a violation of these principles invalidate a tax law? It depends. If

FISCAL ADEQUACY and ADMINISTRATIVE FEASIBILITY principles are
violated, the tax law is still valid.Why? because the Constitution does
not expressly require so. These principles are only designed to make
our tax system sound. BUT if the tax law is contrary to the principle of
THEORETICAL JUSTICE the tax law is invalid. Why? Because under the
Constitution, the rule of taxation should be uniform and equitable.

M. STAGES/ASPECTS/PHASES OF TAXATION

M.1 LEVY/IMPOSITION

The term "levy" or "imposition" refers to the enactment of tax

laws or statutes In the case of Tolentino, et al. v. Secretary of
Finance, the Supreme Court emphasized that: Courts have no
power to inquire into or interfere in the wisdom, objective, motive or
expediency in the passage of a tax law, as this is purely legislative in
character. To do so would be tantamount to a violation of both the
letter and the spirit of the organic laws by which the Philippine
Government was brought into existence to invade a coordinate
and independent department of the Government, and to interfere
with the legitimate powers and functions of the Legislature.

Scope of the legislative power to tax

(1) Discretion as to purposes for which taxes shall be levied.- The sole
arbiter of the purposes for which taxes shall be levied is the
legislature, provided the purposes are public. The courts may
review only the purpose whether it is public or not.

(2) Discretion as to subjects of taxation.- The legislature has unlimited

scope as to the persons, property or occupation to be taxed,
where there are no constitutional restrictions, provided the
property is within the territorial jurisdiction of the taxing state.

(3) Discretion as to amount or rate of tax.- The legislature has the

right to finally determine the amount or rate of a tax, in the
absence of constitutional prohibitions. It may levy a tax of any
amount it sees fit. In its very nature, power to tax acknowledges
no limits and may be carried even to the extent of exhaustion
and destruction, thus becoming in its exercise a power to
destroy.
 (4) Discretion as to the manner, means and agencies of collection of
taxes.- The discretion of the legislature in imposing taxes extends
to the mode, method or kind of tax. As to the kind of taxes which
may be imposed, the legislature has power to levy one or more
of the following: Property tax, excise, license or occupation tax, a
poll or capitation tax, franchise tax, income tax, inheritance tax,
stock transfer tax, etc.

M.2 B. ASSESSMENT AND COLLECTION

The act of assessing and collecting taxes is administrative in

character, and therefore can be delegated. Nonetheless, the
legislative body has laid down certain rules governing the
assessment and collection of taxes in order to prevent its abuse.

First, the tax law must designate which agency will collect the taxes.
Usually, the Bureau of Internal Revenue and/or the Secretary of
Finance wield this power.

Second, the circulars or regulations issued by the Secretary of

Finance or the Commissioner of the Internal Revenue must be in
accordance with the tax measures imposed by Congress.

Assessment here means notice and demand for payment of a tax

liability.

M.3 PAYMENT

This signifies an act of compliance by the taxpayer including such

options, schemes or rremedies as may be legally open or available
to him.

N. TAX AS DISTINGUISHED FROM OTHER FORMS OF EXACTIONS

Tax and Special Assessment

A special assessment is in the nature of tax upon property levied

according to benefits conferred on the property. The whole theory of a
special assessment is based on the doctrine that the property against
which it is levied derives some special benefit from the improvement.

The distinctions between a special assessment and a tax are:

a. a special assessment can be levied only on land;
b. a special assessment cannot, as a rule, be made a personal liability
of the persons assessed;
c. a special assessment is based wholly on benefits; and
 d. a special assessment is exceptional both as to time and locality. The
imposition of a charge on all property, real and personal, in a
prescribed area, is a tax, not an assessment, although the purpose is
to make a local improvement on a street or highway. A charge
imposed only on property owners benefited is a special assessment
rather than a tax. The power to levy such assessments is
undoubtedly an exercise of the taxing power, but the exercise of
the taxing power in imposing an assessment does not necessarily
make the
assessment a tax. (1 Cooley, 106- 107)

TAX SPECIAL ASSESSMENT

Purpose Imposed to cover the To cover cost of land or
expenses of the improvement
government
Imposed by National or Local Local government Only
Government
Levied on Person, property or Land only or its improvements
exercise of profession

TAX LICENSE FEE

Purpose Imposed to raise Imposed for regulation
revenue of the State
Basis Taxation Power Police Power
Authority to Congress Through delegated power
Levy given to LGUs
Effect of Non- Does not make the Makes the business or
Payment business or occupation occupation illegal
illegal
Amounts Usually material Usually covers cost of
Involved administration only

The imposition is a tax, if its primary purpose is to generate revenue, and

regulation is merely incidental; but if regulation is the primary purpose, the
fact that incidental revenue is also obtained does not make the
imposition a tax. (PDC v. Quezon City, 172 SCRA 629)

TAX TOLL
Purpose Imposed to raise revenue To cover cost of private
of the State property or improvement
Demand of Sovereignty Ownership
Imposed by Government Private entities

TAX PENALTY
Purpose Imposed to raise revenue Imposed to serve as a
of the State punishment for the
commission of a crime.
Imposed by The Government only The government ,private
entities or individuals
 TAX PENALTY
Arises from Law Law or Contract

Tax is a civil liability. A

person is criminally liable
in taxation only when he
fails to satisfy his
civil obligation to pay
taxes. (Republic v.
Patanao,
L-22356, July 21, 1967)

TAX DEBT
Basis Based on law Based on contract or
judgment
Failure to Pay May result in No imprisonment
imprisonment
Mode of generally payable in payable in money, property
Payment money or service
Assignability Not assignable assignable
As Payment Unless it becomes a may be a subject
debt, is not subject to
compensation or setoff
Interest does not draw interest draws interest if stipulated or
unless delinquent delayed
Authority imposed by public can be imposed by private
authority individuals
Tax and Debt

A tax is not a debt for the reason that a tax does not depend upon the
consent of the taxpayer and there is no express or implied contract to pay
taxes. Taxes:

1. are not contracts between the parties, either expressed or implied;

but they are the positive acts of the government through its various
agents, binding upon the inhabitants, and to the making and
enforcing of which their personal consent individually is not required;
2. cannot be assigned as debts, or be proved in bankruptcy as such;
nor, if uncollected, are the assets which can be seized by
attachment or other judicial processes, and subjected to the
payment of municipal indebtedness;
3. are not the subject of set-off either on behalf of the state or the
municipality for which they are imposed, or of the collector, or on
behalf of the person taxed, as against such state, municipality or
collector;
4. do not draw interest, as do sums of money owing upon a contract.

O. KINDS OF TAXES DIFFERENTIATED

*According to Burden or Incidence
1. Direct taxes -imposed on persons who are bound by taxation to
pay.Non-transferrable. (e,g. income tax, estate tax, donor’s tax)
2. Indirect taxes – Taxes levied upon transactions or activities before
the articles subject matter thereof reach the consumers to whom
the burden of the tax may ultimately be charged or shifted (e.g. VAT
.)

*According to determination of Amount

1. Specific-taxes based on certain unit of measurement like head or
number, weight, length, volume and which require no assessment
beyond a listing and classification of the subjects or articles to be
taxed. (e.g. certain excise taxes under the NIRC)
2. Ad Valorem- tax with fixed amount in relation to the value of the
article subject to tax (e.g. certain taxes on mineral products under
the NIRC)

*According to purpose
1. General/Fiscal - to raise revenue to defray government expenses
(e.g. income tax)
2. Special/Regulatory-for special purpose or a particular legitimate
objective of the government like achieving econ. & social growth
(Special Education Tax)

Note: if an imposition may partake both a revenue measure and a

regulatory fee, the real intendment and the primary and substantial
purpose of the law must be inquired int

*According to Scope or Authority imposing the tax

1. National-imposed by the national government and administered by
BIR & Customs (e.g. Internal Revenue Taxes and Custom Duties)
2. Local-imposed by the city and provincial governments.(e.g. business
taxes imposed under the LGC)

*According to Subject Matter or Object

1. Personal, capitation, or poll taxes- taes of fixed amounts upon
residents or persons of certain class without regard to their property
or business. (e.g. basic community tax)
2. Property Tax-based on the value of the property, personal or real
(e.g. real property taxes).