ATTY. STEVE J.

PERALTA, CPA
PERALTA AND PERALTA LAW OFFICES
DAPROZA BUILDING, PENDATUN
GENERAL SANTOS CITY

LECTURE NOTES – Part 2

1. Bar Question: The PRINCIPLES of Sound Tax System

1. Fiscal Adequacy – Sources of Income must be sufficient to meet the needs of our Govt.

2. Administrative Feasibility - Ability of the Gov’t to collect, easy tax system and collection.

3. Theoretical Justice - Tax is based on the ability of the taxpayer to pay.

(Also known as the ability to pay theory)

2. Bar Question: Differentiate the Theory of Taxation and Basis of Taxation

The Theory of Taxation explains why there is a need to impose taxes while the basis or rationale for
taxation explains the reason why a Government may impose taxes. The theory of taxation refers to
the lifeblood theory and the necessity theory is an extension of the lifeblood theory. The Basis or
Rationale of Taxation refers to (A) the symbiotic relationship and (B) jurisdiction by the state over
persons and property within its territory.

ATTY. STEVE – Additional explanation as to the concept of necessity theory being an extension of the
lifeblood doctrine as enunciated in the case of PHILIPPINE GUARANTY v. CIR:

“Taxation is a necessary burden to preserve the States sovereignty and a means to give the
citizenry an army to resist aggression, a navy to defend its shores from invasion, a corps of
civil servants to serve, public improvements for the enjoyment of the citizenry, and those
which come within the State’s territory and facilities and protection which a government is
supposed to provide”.

Taxation proceeds upon the theory that the existence of government is a necessity; hence TAXES
being an essential tool of government survival must be collected without delay. Taxes is the
LIFEBLOOD of the State.

ATTY. STEVE – This being the case, the LIFEBLOOD doctrine may be best manifested as follows:

(We have discussed these cases already class)

 (1) The collection of taxes may not be enjoined by an injunction, as a general rule.

Exceptions: (1) Local Taxes can be enjoined by the courts.

(2) The taxes cannot be subject of a compensation or set-off

(3) The power to tax is unlimited and plenary

(4) The power to tax may also involve the power to destroy.

The no-injunction rule only applies to national taxes. In the collection of local taxes, there is no
express prohibition in the LGC that prohibits courts from issuing an injunction to restrain local
governments from collecting taxes. Please note however that under the CTA Law, RA 1125 as
amended by RA 9282.

An injunction may be issued to restrain the collection of taxes “when in the opinion of the Court the
collection may jeopardize the interest of the Government and/or the taxpayer, the Court at any stage
of the proceeding may suspend the said collection and require the taxpayer either to deposit the
amount claimed or to file a surety bond for not more than double the amount with the Court.”
(Section 11, RA 1125, as amended by RA 9282).

3. Bar Question: Explain the SYMBIOTIC RELATIONSHIP principle as basis of Taxation.

(We have discussed this already in various cases, yong CIR vs. Algue class )

The basis of taxation is found in the reciprocal duties of protection and support between the
State and its inhabitants. In return for his contribution, the taxpayer receives the general
advantages and protection which the government affords the taxpayer and his property.
The Supreme Court stated that taxes are what we pay for civilized society. Hence, despite the
natural reluctance to surrender part of one’s hard-earned income, every person who is able
must contribute his share in the running of the government and the latter, for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material values. This symbiotic relationship
is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary
method of exaction by those in the seat of power .

4. Possible Bar Question: Tax laws do not have retroactive application, it has PROSPECTIVE
application.

Exception is that when tax laws specifically provides otherwise.

ATTY. PERALTA – While tax laws are prospective, the right of the Gov’t to collect taxes is
imprescriptible.

Internal Revenue Taxes – 3 years, normally reckon from the last day of filing of ITR.
In case of Fraud or Non Filing – 10 years from discovery, the Gov’t may still assert its claim.

(NIRC)

5. BAR QUESTION: Concept of DOUBLE TAXATION

ATTY. PERALTA – It is taxing the same subject matter twice, for the same purpose. The concept of
double taxation is premise on the constitutional limitation.

Is it illegal? – Not necessarily, double taxation becomes illegal if it violates the constitution and the
same is contrary to law.

KINDS OF DOUBLE TAXATION

1. Direct Double Taxation

2. Indirect Double Taxation

ATTY. PERALTA – How to know if there is double taxation?

The taxpayer is taxed twice, when he should be only taxed once and the both charges are levied for:

1. Same subject matter;

2. Same purpose;

3. Same taxing authority;

4. Same jurisdiction;

5. Same taxing period.

6. Same kind and character.

ATTY. PERALTA – What is Indirect Double Taxation (Also known as LEGAL DOUBLE TAXATION)?

The absence of any item mentioned in Numbers 1-6, Indirect Double Taxation and hence allowed by
law.

What is Indirect Double Taxation? This is the “legal double taxation”. Absent one of the elements of
Direct Double taxation, there is INDIRECT DOUBLE TAXATION which is allowable by law.

6. Possible BAR QUESTION: How to eliminate DOUBLE TAXATION?

1. TAX TREATIES

2. TAX CREDITS

3. TAX DEDUCTION
4. TAX REDUCTION

Tax treaties would usually exempt aliens from local tax and also exempt our local nationals from
foreign taxation. Rule of RECIPROCITY, class this is a favorite BAR QUESTION. Have that knowledge
on the rule of reciprocity.

ATTY. PERALTA – Incentives are generally provided on businesses in order to encourage the inflow of
capital goods. Foreign Countries may provide tax relief for Filipino Corporation abroad and likewise
Philippine Govt’s provides similar incentives to Foreign Corporation. This is RECIPROCITY.

TAX CREDITS - This is a direct deduction from the tax liability of the tax pay.

TAX DEDUCTIONS – Allowable Expenses

TAX REDUCTION – Generally in the form of incentives.

7. Possible BAR QUESTION: Scope of the legislative taxing power.

ATTY. PERALTA – Class, we have discussed already the case of CIR Vs. SANTOS.

“ The legislative taxing power basically defines the whole spectrum of taxation as the Legislator is
given the discretion to determine the nature and kind of taxes, the object of taxation, the extent or
rate of that particular subject or object, the coverage and the place or situs of taxation”.

Class, bear in mind that the power of Congress cannot be delegated because the power wielded by
congress is merely delegated and cannot further be re-delagated.

8. Exception: (Possible BAR QUESTION)

1. Delegation to the LGU

2. Delegation to the President

3. Delegation to the administrative agencies

4. Delegation to the people at large

5. Emergency powers of the President

Class: This was the case of ABAKADA vs. ERMITA, we have discussed this already.

8. POSSIBLE BAR QUESTION – Differentiate the Power to Tax of the National and Local Government.

The Power to Tax of the National Government is PLENARY, while the Local Government is not due to
the limitation provided by the Local Government code; hence its power is limited and NOT PLENARY.
9. Possible BAR QUESTION - Class this may be asked in the Bar exam in the form of case question, as
the President’s power to tax is a favorite topic. Go back to the constitutional declaration which we
have discussed ART. VI, SECTION 28(2):

Two (2) requirements for the valid exercise of the PRESIDENT of the power to tax:

1. There must be a law promulgated by Congress authorizing the President to do such thing.

2. The exercise must be within the limits set forth in the law.