CONSTITUTIONAL LIMITATIONS FACTS: Batas Pambansa 135 was enacted.
Sison, as
1. DUE PROCESS OF LAW
 There must be a valid law
 Tax measure should not be unconscionable
and unjust as to amount to confiscation of
property.
 Tax statute must not be arbitrary as to find
no support in the Constitution.
Sec. 1 Art. III 1987 - No person shall be deprived of
life, liberty, or property without due process of law,
nor shall any person be denied the equal protection
of the laws.
Tan v. Del Rosario, supra – (SNITS);
FACTS: Petitioners challenge the constitutionality of
RA 7496 or the simplified income taxation scheme
(SNIT) under Arts (26) and (28) and III (1). The SNIT
contained changes in the tax schedules and different
treatment in the professionals which petitioners assail
as unconstitutional for being isolative of the equal
protection clause in the constitution. Petitioner
contends that the tile of House Bill No. 34314
progenitor of RA 7496, is a misnomer or, at least,
deficient for being merely entitled, “Simplified Net
Income Taxation Scheme for the Self-Employed and
Professional Engaged in the Practice of their
Profession”.
HELD: Tax law is constitutional. Uniformity of
taxation, like the hindered concept of equal
protection, merely require that all subjects or objects
of taxation similarly situated are to be treated alike
both privileges and liabilities. Uniformity, does not
offend classification as long as it rest on substantial
distinctions, it is germane to the purpose of the law. It
is not limited to existing only and must apply equally
to all members of the same class. The due process
clause may correctly be invoked only when there is a
clear contravention of inherent or constitutional
limitations in the exercise of the tax power. No such
transgression is evident to us.
Sison v. Ancheta, supra – BP 135
taxpayer, alleged that its provision (Section 1) unduly
discriminated against him by the imposition of higher
rates upon his income as a professional, that it
amounts to class legislation, and that it transgresses
against the equal protection and due process clauses
of the Constitution as well as the rule requiring
uniformity in taxation.
Issue: Whether BP 135 violates the due process and
equal protection clauses, and the rule on uniformity
in taxation.
HELD:  No, there was no violation of the due process
and equal protection clause, since petitioner did not
made a case, only allegations.
 The Congress has the power to determine
the rates of taxation; thus,  the due process
clause may be invoked where a taxing
statute is so arbitrary that it finds no support
in the Constitution. An obvious example is
where it can be shown to amount to the
confiscation of property. That would be a
clear abuse of power. It then becomes the
duty of this Court to say that such an
arbitrary act amounted to the exercise of an
authority not conferred. That properly calls
for the application of the Holmes dictum.
 It has also been held that where the assailed
tax measure is beyond the jurisdiction of the
state, or is not for a public purpose, or, in
case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due
process grounds.
2. EQUAL PROTECTION OF THE LAWS
– Right to be treated under like circumstance.
 All persons subject to legislation shall be
treated alike under similar circumstances
and conditions both in the privileges
conferred and liabilities imposed.
 The doctrine does not require that persons
or properties different in fact be treated in
law as though they were the same. What it
prohibits is “Class Legislation” which
discriminates against some and favors
others.
  As long as there are rational or reasonable
grounds for so doing. Congress may group
persons or property to be taxed and it is
sufficient if all members of the same class
are subject to the same rate and the tax is
administered impartially upon them.
Requisites of a Valid Classification:
1. Must be based on Substantial
Distinctions.
2. Germane to the purpose of law
3. Classification must not be limited to
existing conditions only but must also
apply to future conditions substantially
identical to those of the present.
4. It must apply equally to all members of
the same class.
Application
Where the statute or ordinance in question
applies alike to all persons, firms, or
corporations placed in similar situations, or
differently to persons, firms, or corporations
belonging to different classes provided all those
belonging to one class are treated alike, there is
no infringement of the constitutional guarantee.
What the Constitution requires is equal
treatment under the law and this may involve
same or different treatment depending on the
circumstances.
Sison v. Ancheta, supra.
 There is a need for proof of such persuasive
character as would lead to a conclusion that
there was a violation of the due process and
equal protection clauses. Absent such
showing, the presumption of validity must
prevail.
 Equality and uniformity in taxation means
that all taxable articles or kinds of property
of the same class shall be taxed at the same
rate.
 The taxing power has the authority to make
reasonable and natural classifications for
purposes of taxation. Where the
differentiation conforms to the practical
dictates of justice and equity, similar to the
standards of equal protection, it is not
discriminatory within the meaning of the
clause and is therefore uniform.
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, he conditions nt being different,
both in the privileges conferred and liabilities
imposed.
It is inherent in the power to tax
that a state be free to select the subjects of
taxation and it has been repeatedly held that
inequalities which result from a singling out
of one particular class for taxation, or
exemption infringes no constitutional
limitation.
Villegas vs Hiu Chiong Tsai Pao Ho
FACTS: The Municipal Board of Manila enacted
Ordinance 6537 requiring aliens (except those
employed in the diplomatic and consular missions of
foreign countries, in technical assistance programs of
the government and another country, and members
of religious orders or congregations) to procure the
requisite mayor’s permit so as to be employed or
engage in trade in the City of Manila. The permit fee
is P50, and the penalty for the violation of the
ordinance is 3 to 6 months imprisonment or a fine of
P100 to P200, or both.
ISSUE: Whether the ordinance imposes a regulatory
fee or a tax.
HELD: The ordinance’s purpose is clearly to raise
money under the guise of regulation by exacting P50
from aliens who have been cleared for employment.
 The amount is unreasonable and excessive
because it fails to consider difference in
situation among aliens required to pay it, i.e.
being casual, permanent, part-time, rank-
and-file or executive.
 The Ordinance was declared invalid as it is
arbitrary, oppressive and unreasonable,
being applied only to aliens who are thus
 deprived of their rights to life, liberty and
property and therefore violates the due
process and equal protection clauses of the
Constitution.
 Further, the ordinance does not lay down
any criterion or standard to guide the Mayor
in the exercise of his discretion, thus
conferring upon the mayor arbitrary and
unrestricted powers.
Tan v. Del Rosario, supra.
 The said law is not arbitrary; it is germane to
the purpose of the law and; applies to all
things of equal conditions and of same class.
 It is neither violative of equal protection
clause due to the existence of substantial
difference between one who practice his
profession alone and one who is engaged to
proprietorship.
 Further, the SC said that RA 7496 is just an
amendatory provision of the code of
taxpayers where it classifies taxpayers in to
four main groups: Individuals, Corporations,
Estate under Judicial Settlement and
Irrevocable Trust. The court would have
appreciated the contention of the petitioner
if RA 7496 was an independent law. But since
it is attached to a law that has already
classified taxpayers, there is no violation of
equal protection clause.
CIR VS. CA AND ALHAMBRA 267 SCRA 557 (1997)
FACTS : Alhambra industries, Inc. (Alhambra) is a
domestic corporation engaged in the manufacture
and sale of cigar and cigarette products. On May 7,
1991 private respondent received a letter dated April
26, 1991 from the Commissioner of Internal Revenue
assessing its deficiency Ad Valorem Tax (AVT) in the
total amount of P488,396.62, inclusive of increments,
on the removals of cigarette products from their place
of production during the period Nov. 2, 1990 to
January 22, 1991.Alhambra filed protest against
amount assessed by the CIR, however, it was denied
by the latter at the same time increasing the amount
assessed to P520,835.29. Alhambra filed a petition for
review with the CTA, despite payment under protest
the amount of P520,835.29. On December 1, 1993,
CTA ordered petitioner to refund said amount to
Alhambra. CA affirming such decision, hence, this
appeal.
ISSUE: whether private respondent's reliance on a
void BIR ruling conferred upon the latter a vested
right to apply the same in the computation of its ad
valorem tax and claim for tax refund
HELD: The government is not stopped from
collecting taxes legally due because of mistake/errors
of its agents, this admits of exceptions in the interest
of justice and fair play, as where injustice will result to
the taxpayer. As regards, petitioner’s argument the
private respondent should have made consultations
with it before private respondent used the
computation mandated by BIR ruling 473-88 suffice it
to state that the BIR ruling was clear and categorical,
there leaving no room for interpretation. The failure
of private respondent to consult petitioner does not
imply bad faith on the part of the former.
Tiu v. Court of Appeals, 301 SCRA 278 (1999) – The
Subic Special Economic Zone case.
 The Constitutional right to equal protection
of the law is not violated by an executive
order, issued pursuant to law, granting tax
and duty incentives only to business within
the “secured area” of the Subic Special
Economic Zone and denying them to those
who live within the Zone but outside such
“fenced in” territory.
 The Constitution does not require absolute
equality among residents. It is enough that
all persons under like circumstances or
conditions are given the same privileges and
required to follow the same obligations. In
short, a classification based on valid and
reasonable standards does not violate the
equal protection clause.
 We find real and substantial distinctions
between the circumstances obtaining inside
and those outside the Subic Naval Base,
thereby justifying a valid and reasonable
classification.
Classification based on:
1. Valid & Does not violate
equal protection
clause
 2. Reasonable Standards  

·                     The concept of equity in taxation requires

that the apportionment of the tax burden be,
3. UNIFORMITY AND EQUITY IN TAXATION
more or less, just in the light of the
- same class, same rate
taxpayer’s ability to shoulder the tax burden
and, if warranted, on the basis of the
- classification of taxpayers, subject or items
benefits received from the government.  Its
to be taxed
cornerstone is the taxpayer’s ability to pay.
 The rule of taxation shall be uniform and
Tolentino v. Sec. of Finance, supra, -
equitable (Sec.28 (1), Art. III, 1987
Constitution).
 Equity and uniformity in taxation means that
 The tax is uniform when it operates with
all the taxable articles or kinds of properties
the same force and effect in every place
of the same class be taxed at the same rate.
where the subject of it is found.
The taxing power has the authority to make
"Uniformity" means all property
reasonable and natural classifications for
belonging to the same class shall be
purposes of taxation. To satisfy this
taxed alike. It does not signify an
requirement, it is enough that the statute or
intrinsic, but simply a geographic,
ordinance applies equally to all persons,
uniformity (Churchill & Tait vs.
firms, and corporations placed in a similar
Conception, 34 Phil. 969). Uniformity
situation.
does not require the same treatment; it
 It is inherent in the power to tax that the
simply requires reasonable basis for
state be free to select the subjects of
classification.
taxation & it has been repeatedly held that
 The concept of equality in taxation
the inequalities which result from a singling
requires that the apportionment of the
out of 1 particular class for taxation or
tax burden be more or less just in the
exception infringe no constitutional
light of the taxpayer’s ability to shoulder
limitation.
the tax burden and if warranted, on the
basis of the benefits received from the
Manila Race Horse v. Dela Fuente – No arbitrary
government. Its cornerstone is the
classification
taxpayer’s ability to pay.
 it was said there is equality and uniformity in
Uniformity v. equity in taxation taxation if all articles or kinds of property of
the same class are taxed at the same rate.

 The concept of uniformity in taxation implies
that all taxable articles or properties of the
same class shall be taxed at the same rate.  It
requires the uniform application and
operation, without discrimination, of the tax
in every place where the subject of the tax is
found. It does not, however, require
absolute identity or equality under all
circumstances, but subject to reasonable
classification.
 The owners of boarding stables for race
horses and, for that matter, the race horse
owners themselves, who in the scheme of
shifting may carry the taxation burden, are a
class by themselves and appropriately taxed
where owners of other kinds of horses are
taxed less or not at all, considering that
equity in taxation is generally conceived in
terms of ability to pay in relation to the
benefits received by the taxpayer and by the
public from the business or property taxed.
  Taking everything into account, the
differentiation against which the plaintiffs
complain conforms to the practical dictates
of justice and equity and is not
discriminatory within the meaning of the
Constitution.
 Equity in taxation is generally conceived in
terms of liability to pay in relation to the
benefits received by the taxpayer and by the
public from the business or property taxed.
Eastern Theatrical Co. Inc., vs. Alfonso
 there is equality and uniformity in taxation if
all articles or kinds of property of the same
class are taxed at the same rate. Thus, it was
held in that case, that "the fact that some
places of amusement are not taxed while
others, such cinematographs, theaters,
vaudeville companies, theatrical shows, and
boxing exhibitions and other kinds of
amusements or places of amusement are
taxed, is not argument at all against the
equality and uniformity of tax imposition."
 The taxing power has the authority to make
reasonable and natural classifications for
purposes of taxation.
PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs.
CITY OF BUTUAN
FACTS:  The ordinance imposes taxes for every case of
soft drinks, liquors and other carbonated beverages,
regardless of the volume of sales, shipped to the
agents and/or consignees  by outside dealers or any
person or company having its actual business outside
the City.
ISSUE: Does the tax ordinance violate the uniformity
requirement of taxation?
HELD: Yes. The tax levied is discriminatory.
 Even if the burden in question were regarded
as a tax on the sale of said beverages, it
would still be invalid, as discriminatory, and
hence, violative of the uniformity required by
the Constitution and the law therefor, since
only sales by "agents or consignees" of
outside dealers would be subject to the tax.
Sales by local dealers, not acting for or on
behalf of other merchants, regardless of the
volume of their sales, and even if the same
exceeded those made by said agents or
consignees of producers or merchants
established outside the City of Butuan,
would be exempt from the disputed tax.
 It is true that the uniformity essential to the
valid exercise of the power of taxation does
not require identity or equality under all
circumstances, or negate the authority to
classify the objects of taxation.
 The classification made in the exercise of this
authority, to be valid, must, however, be
reasonable and this requirement is not
deemed satisfied unless:
o (1) it is based upon substantial
distinctions which make real
differences;
o (2) these are germane to the
purpose of the legislation or
ordinance;
o (3) the classification applies, not
only to present conditions, but, also,
to future conditions substantially
identical to those of the present;
and
o (4) the classification applies equally
to all those who belong to the same
class.
Shell Company of P.I, Ltd. Vs. Vano, etc. 94 Phil 387
FACTS: The municipal council of Cordova, Cebu
adopted several ordinances among which Ordinance
10 imposing an annual tax of P150 on occupation or
the exercise of the privilege of installation manager.
Shell Co., a foreign corporation, filed suit for the
refund of the taxes paid by it on the ground that the
ordinance imposing such tax is ultra vires for being
discriminatory and hostile because there is no other
person in the locality who exercise such designation
or occupation.
HELD: A tax on “installation manager” is not
discriminatory just because at the time said tax was
imposed, there was no other person in the locality
who exercised such occupation. The tax is and will be
applicable to any person or firm who exercises such
calling or occupation designated as “installation
manager”.
CITY OF BAGUIO vs. DE LEON 25 SCRA 938
FACTS: The City of Baguio passed an ordinance
imposing a license fee on any person, entity or
corporation doing business in the City. De Leon was
assessed for P50 annual fee it being shown that he
was engaged in property rental and deriving income
therefrom. The latter assailed the validity of the
ordinance arguing that it is ultra vires for there is no
statutory authority which expressly grants the City of
Baguio to levy such tax, and that there it imposed
double taxation, and violates the requirement of
uniformity.
HELD: No.
 First, RA 329 was enacted amending Section
2553 of the Revised Administrative Code
empowering the City Council not only to
impose a license fee but to levy a tax for
purposes of revenue, thus the ordinance
cannot be considered ultra vires for there is
more than ample statutory authority for the
enactment thereof.
 Second, an argument against double taxation
may not be invoked where one tax is
imposed by the state and the other is
imposed by the city.
 And third, violation of uniformity is out of
place it being widely recognized that there is
nothing inherently obnoxious in the
requirement that license fees or taxes be
exacted with respect to the same
occupation, calling or activity by both the
state and the political subdivisions thereof.
 A tax is considered uniform when it operates
with the same force and effect in every place
where the object may be found.
Kapatiran vs. Tan
FACTS: EO 273 amended the Revenue Code,
adopting the (VAT) effective 1 January 1988. Four
petitions assailed the validity of the VAT Law for being
beyond the President to enact; for being oppressive,
discriminatory, regressive, and violative of the due
process and equal protection clauses, among others,
of the Constitution. The Integrated Customs Brokers
Association particularly contend that it unduly
discriminate against customs brokers (Section 103 [r])
as the amended provision of the Tax Code provides
that “service performed in the exercise of profession
or calling(except custom brokers) subject to
occupational tax under the Local Tax Code, and
professional services performed by registered general
professional partnerships are exempt from VAT.
ISSUE: Whether the E-VAT law discriminates against
customs brokers.
HELD: The phrase “except custom brokers” is not
meant to discriminate against custom brokers but to
avert a potential conflict between Sections 102 and
103 of the Tax Code, as amended.
 The distinction of the customs brokers from
the other professionals who are subject to
occupation tax under the Local Tax Code is
based upon material differences, in that the
activities of customs brokers partake more of
a business, rather than a profession and
were thus subjected to the percentage tax
under Section 174 of the Tax Code prior to its
amendment by EO 273. EO 273 abolished the
percentage tax and replaced it with the VAT.
Villanueva vs. City of Iloilo, supra:
The ordinance is not violative of the rule of uniformity
in taxation.
 The Supreme Court has already ruled that
tenement houses constitute a distinct class
of property. It has likewise ruled that "taxes
are uniform and equal when imposed upon
all property of the same class or character
within the taxing authority."
 The fact, therefore, that the owners of other
classes of buildings in the City of Iloilo do not
pay the taxes imposed by the ordinance in
question is no argument at all against
uniformity and equality of the tax imposition.
 Neither is the rule of equality and uniformity
violated by the fact that tenement taxes are
not imposed in other cities, for the same rule
does not require that taxes for the same
purpose should be imposed in different
territorial subdivisions at the same time.
 So long as the burden of the tax falls equally
and impartially on all owners or operators of
tenement houses similarly classified or
situated, equality and uniformity of taxation
is accomplished. 
Association of Custom Brokers v. Mun.Board, supra:
Facts: The Association of Customs Brokers, Inc., which
is composed of all brokers and public service
operators of motor vehicles in the City of Manila
challenge the validity Ordinance No. 3379 on the
ground that (1xxx (2) said ordinance offends against
the rule of uniformity of taxation; and (3) xxx.
 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. This is
an inequality which the Court finds in the
ordinance, and which renders it offensive to
the Constitution.
4. PROHIBITION AGAINST IMPRISONMENT FOR
NON-PAYMENT OF POLL TAX
Section 20, Article III, Constitution. No person shall
be imprisoned for debt or non-payment of poll tax.
The non-imprisonment rule applies to non-payment
of poll tax which is punishable only by a surcharge,
but not to other violations like falsification of
community tax certificate and non-payment of other
taxes.
Community Tax v. Poll Tax
 Poll tax is a tax of fixed amount imposed on
residents within a specific territory
regardless of citizenship, business or
profession. Example is community tax.
 Community tax – Cities or municipalities may
levy a community tax in accordance with the
provisions of this article. 156 RA 7160.
Section 157. Individuals Liable to Community Tax. -
(18) or over who has been regularly employed on a
wage or salary basis for at least thirty (30)
consecutive working days, or who is engaged in
business or occupation, or who owns real property
with an aggregate assessed value of One thousand
pesos (P1,000.00) or more, or who is required by law
to file an income tax return shall pay an annual
additional tax of Five pesos (P5.00) and an annual
additional tax of One peso (P1.00) for every One
thousand pesos (P1,000.00) of income regardless of
whether from business, exercise of profession or from
property which in no case shall exceed Five thousand
pesos (P5,000.00).
In the case of husband and wife, the additional tax
herein imposed shall be based upon the total
property owned by them and the total gross receipts
or earnings derived by them.
Section 158. Juridical Persons Liable to Community
Tax. - Every corporation no matter how created or
organized, whether domestic or resident foreign,
engaged in or doing business in the Philippines shall
pay an annual community tax of Five hundred pesos
(P500.00) and an annual additional tax, which, in no
case, shall exceed Ten thousand pesos (P10,000.00) in
accordance with the following schedule:
(1) For every Five thousand pesos (P5,000.00) worth
of real property in the Philippines owned by it during
the preceding year based on the valuation used for
the payment of real property tax under existing laws,
found in the assessment rolls of the city or
municipality where the real property is situated - Two
pesos (P2.00); and
(2) For every Five thousand pesos (P5,000.00) of gross
receipts or earnings derived by it from its business in
the Philippines during the preceding year - Two pesos
(P2.00).
The dividends received by a corporation from another
corporation however shall, for the purpose of the
additional tax, be considered as part of the gross
receipts or earnings of said corporation.
Section 159. Exemptions. - The following are exempt
from the community tax:
(1) Diplomatic and consular representatives; and
(2) Transient visitors when their stay in the Philippines
does not exceed three (3) months.
Section 160. Place of Payment. - The community tax
shall be paid in the place of residence of the
individual, or in the place where the principal office of
the juridical entity is located.
164 (c) The proceeds of the community tax actually
and directly collected by the city or municipal
treasurer shall accrue entirely to the general fund of
the city or municipality concerned. However,
proceeds of the community tax collected through the
barangay treasurers shall be apportioned as follows:
(1) (50%) shall accrue to the general fund of
the city or municipality concerned; and
(2) (50%) shall accrue to the barangay where
the tax is collected.
5. PROHIBITION AGAINST IMPAIRMENT OF
OBLIGATION OF CONTRACTS
No law impairing the obligation of contracts shall be
passed. [Section 10, Article III, Constitution]
The power of taxation cannot be exercised in a
manner that would impair the obligation of contracts.
What is prohibited is that a taxing statute be passed
that would alter the relative rights of the parties with
each other.
The mere fact that a tax makes the conduct of a
business more expensive or makes an activity more
difficult does not result in the impairment of the
obligation of contracts. Contract is impaired only if
the relative position of the parties to a contract (i.e.
equality that is assumed when the contract was
entered into) is disturbed by the operation of a taxing
statute.
 The obligation of a contract is impaired when
its terms or conditions are changed by law or
by a party without the consent of the other,
thereby weakening the position or rights of
the latter.
 An example of impairment by law is when a
later taxing statute revokes a tax exemption
based on a contract. But this only applies
when the tax exemption has been granted
for a valid consideration.
 A later statute may revoke exemption from
taxation provided for in a franchise because
the Constitution provides that a franchise is
subject to amendment, alteration or repeal.
Note: A latter statue may revoke exemption from
taxation provided for in a franchise because the
Constitution provides that a franchise is subject to
amendment, alteration or repeal. [Sec. 11 Art. XII]
OPOSA vs. FACTORAN
 Police power prevails over the non-
impairment clause
LA INSULAR vs. MANCHUCA
 A lawful tax on a new subject or an increased
tax on an old one, does not interfere with a
contract or impairs its obligation.
 The constitutional guarantee of the non-
impairment clause can only invoked in the
grant of tax exemption.
RULES:
1. If the exemption was granted for valuable
consideration and it is granted on the basis
of a contract.
 cannot be revoked
2. If the exemption is granted by virtue of a
contract, wherein the government enters
into a contract with a private corporation
 cannot be revoked unilaterally by
the government
3. If the basis of the tax exemption is a
franchise granted by Congress and under the
franchise or the tax exemption is given to a
particular holder or person
can be unilaterally revoked by the
government (Congress)
 The non-impairment clause applies
only to contracts and not to a
franchise.
 The non-impairment clause applies
to taxation but not to police power
and eminent domain.
 Furthermore, it applies only where
one party is the government and
the other, a private individual.
 As a rule, the obligation to pay tax is
based on law. But when, for
instance, a taxpayer enters into a
compromise with the BIR, the
obligation of the taxpayer becomes
one based on contract.
Tolentino v. Sec. of Finance, supra:
1 issue that was raised was whether the imposition of
the VAT on sales & leases on real estate by virtue of
contract s entered into prior to the efectivity of the
law would violate the non-impairment of contracts
rule in the constitution.
HELD:
 It is enough to say that parties to a contract
cannot, through the exercise of prophetic
discernment, fetter the exercise of the taxing
power of the state.
 For not only are existing laws read into
contracts in order to fix obligations as
between parties, but the reservation of
essential attributes of sovereign power is
also read into contracts as a basic postulate
of the legal order.
 The policy of protecting contracts against
impairment presupposes the maintenance of
a government which retains adequate
authority to secure the peace & good order
of society.
6. PROHIBITION AGAINST INFRINGEMENT OF
RELIGIOUS FREEDOM
HELD: The payment of license fees for the
distribution and sale of bibles suppresses the
constitutional right of free exercise of religion.
 A tax ordinance is considered violative of the
free exercise of religion when it becomes a
prior restraint to the exercise thereof. In this
case, the business permit is a prior restraint
to the exercise of one's religion since the
constitutional guaranty of the free exercise
and enjoyment of religious profession and
worship carries with it the right to
disseminate religious information.
 It is one thing to impose a tax on the income
or property of a preacher, and another to
exact a tax for him for the privilege of
delivering a sermon.
 The power to tax the exercise of a privilege
is the power to control or suppress its
enjoyment
7. PROHIBITION AGAINST APPROPRIATION OF
PROCEEDS OF TAXATION
Section 29, Article VI, Constitution

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.
[Section 5, Article III, Constitution]
American Bible Society v. City of Manila
FACTS: In the course of its ministry, the Philippine
agency of the American Bible Society has been
distributing
and selling bibles and/or gospel portions thereof
throughout the Philippines and translating the same
into several Philippine dialets. The acting City
Treasurer of Manila required the society to secure the  
corresponding Mayor’s permit and municipal license
fees, together with compromise covering the period
from the 4th quarter of 1945 to the 2nd quarter of
1953. The society paid such under protest, and filed
suit questioning the legality of the ordinances under
which the fees are being collected.
Use of tax levied for a special purpose:
1.       No money shall be paid out of the Treasury
except in pursuance of an appropriation
made by law.
2.       No public money or property shall be
appropriated, applied, paid, or employed
directly or indirectly, for the use, benefit, or
support of any church, denomination,
sectarian institution or system of religion, or
of any priest, preacher, minister or other
religious teacher, or dignitary as such except
when such priest, preacher, minister or
dignitary is assigned to the armed forces, or
to any penal institution, or government
orphanage or leprosarium.
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.
Osmena v. Orbos, supra - It seems clear that while
the funds collected may be referred to as taxes, they
are exacted in the exercise of the police power of the
State. Moreover, that the OPSF as a special fund is
plain from the special treatment given it by E.O. 137.
It is segregated from the general fund; and while it is
placed in what the law refers to as a "trust liability
account," the fund nonetheless remains subject to
the scrutiny and review of the COA. The Court is
satisfied that these measures comply with the
constitutional description of a "special fund."  
8. Prohibition against taxation of real property
actually, directly and exclusively used for
religious, charitable and educational purposes
 Charitable institutions, churches and
parsonages or convents appurtenant
thereto, mosques, non-profit
cemeteries, and all lands, buildings, and
improvements, actually, directly, and
exclusively used for religious, charitable,
or educational purposes shall be exempt
from taxation. [Section 28 (3) , Article VI,
Constitution]
 This is an exemption from real property
tax only.
Abra Valley College vs. Aquino
Facts: Abra Valley College rents out the ground floor
of its college building to Northern Marketing
Corporation while the second floor thereof is used by
the Director of the College for residential purposes.
The municipal and provincial treasurers served upon
the College a “notice of seizure” and later a “notice of
sale” due to the alleged failure of the College to pay
real estate taxes and penalties thereon. The school
filed suit to annul said notices, claiming that it is tax-
exempt.
Issue: Whether the College is exempt from taxes
HELD:
 While the Court allows a more liberal and
non-restrictive interpretation of the phrase
“exclusively used for educational purposes,”
reasonable emphasis has always been made
that exemption extends to facilities which
are incidental to and reasonably necessary
for the accomplishment of the main
purposes.
 While the second floor’s use, as residence of
the director, is incidental to education; the
lease of the first floor cannot by any stretch
of imagination be considered incidental to
the purposes of education.
 The test of exemption from taxation is the
use of the property for purposes mentioned
in the Constitution.
 “Use” overrides “ownership”.
 If a property is incidentally used for the
aforementioned purposes, it is clear from
decided cases that tax exemption still
subsist.
9. Prohibition against taxation of the revenues
and assets of non-stock, non-profit educational
institutions
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. [Section 4, Article XIV,
Constitution]
This exemption from corporate income tax is
embodied in Section 30 of the NIRC which includes a
non-stock, non-profit educational institution.
Note: however the last paragraph of Section 30
which states: “Notwithstanding the provisions in the
preceding paragraphs, the income of whatever kind
and character of the foregoing organizations from any
of their property, real or personal, or from any of
their activities conducted for profit, regardless of the
disposition made of such income, shall be subject to
tax imposed under this Code.”
Charitable institutions, churches and parsonages or
convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively used
for religious, charitable, or educational purposes shall
be exempt from taxation. [Section 28 (3) , Article VI,
Constitution]
  This is an exemption from real
property tax only.
The exemption in favor of property
used exclusively for charitable or
educational purposes is not limited
to property actually indispensable
therefore, but extends to facilities
which are incidental to and
reasonably necessary for the
accomplishment of said purposes.
[Abra Valley College v. Aquino, 162
SCRA 106]
Department of Finance Order 145-85
 Non-stock, non-profit educational
institutions are exempt from taxes
on all their revenues and assets
used actually, directly and
exclusively for educational
purposes.
 However, they shall be subject to
internal revenue tax on income
from trade, business or other
activity, the conduct of which is not
related to the exercise or
performance by such educational
institution of its educational
purposes or functions.
 Interest income shall be exempt
only when used directly and
exclusively for educational
purposes. To substantiate this claim,
the institution must submit an
annual information return and duly
audited financial statement. A
certification of actual utilization and
the Board resolution or the
proposed project to be funded out
of the money deposited in banks
shall also be submitted.
Department of Finance Order 137-87
 An educational institution means a
non-stock, non-profit corporation or
association duly registered under
Philippine law, and operated
exclusively for educational
purposes, maintained and
administered by a private individual
or group offering formal education,
and with an issued permit to
operate by the DECS.
 Revenues derived from and assets
used in the operation of
cafeteria/canteens, dormitories,
and bookstores are exempt from
taxation provided they are owned
and operated by the educational
institution as ancillary activities and
the same are located within the
school premises.
CIR v. Court of Appeals, et.al., 298 SCRA 83 (1998)
 FACTS: The Young Men’s Christian Association of
the Philippines, Inc. (YMCA) was established as “a
welfare, educational and charitable non-profit
corporation.” It conducts various programs and
activities that are beneficial to the public, especially
the young people, pursuant to its religious,
educational and charitable objectives.
HELD:  In this case, the Supreme Court held that the
income derived by YMCA from leasing out a portion of
its premises to small shop owners, like restaurant and
canteen operators, and from parking fees collected
from non-members are taxable income.
 First, the constitutional tax exemption granted to
non-stock, non-profit educational institutions does
not find application because YMCA is not an
educational institution. The term “educational
institution” or “institution of learning” has acquired a
well known technical meaning. Under the Education
Act of 1982, such term refers to schools. 
Second, even if it be exempt under Section 30 of the
NIRC as a non-profit, non-stock educational
corporation, the income from the rent of its premises
and parking fees is not covered by the exemption,
according to the last paragraph of the same section.
Section 30 provides that income of whatever kind and
character from any of its properties, real or personal,
or from any of its activities for profit are not exempt
from income tax.
 Finally, Section 28(3), Article VI of the Constitution
does not apply as it extends exemption only from real
property taxes – not from income taxes.
CIR v. CA, CTA, and ATENEO
 The Supreme Court denied the petition and
affirmed the assailed Decision of the Court
of Appeals. The Court ruled that the private
respondent is not a contractor selling its
services for a fee but an academic institution
conducting these researches pursuant to its
commitments to education and, ultimately,
to public service.
 For the institute to have tenaciously
continued operating for so long despite its
accumulation of significant losses, we can
only agree with both the Court of Tax
Appeals and the Court of Appeals that
“education and not profit is motive for
undertaking the research projects
10. Other Constitutional Limitations
 1.       Grant of tax exemption
 No law granting any tax exemption shall be passed
without the concurrence of a majority of all Members
of Congress. [Section 28 (4), Article VI, Constitution]
CHAVEZ VS PCGG
 The General and Supplemental Agreement
dated December 28, 1993, which PCGG and
the Marcos heirs entered into are hereby
declared NULL AND VOID for being contrary
to law and the Constitution.
 Under Item No. 2 of the General Agreement,
the PCGG commits to exempt from all forms
of taxes the properties to be retained by the
Marcos heirs. This is a clear violation of the
Construction.
 The power to tax and to grant tax
exemptions is vested in the Congress and, to
a certain extent, in the local legislative
bodies.
 Section 28 (4), Article VI of the Constitution,
specifically provides: "No law granting any
tax exemption shall be passed without the
concurrence of a majority of all the Member
of the Congress."
 The PCGG has absolutely no power to grant
tax exemptions, even under the cover of its
authority to compromise ill-gotten wealth
cases. Even granting that Congress enacts a
law exempting the Marcoses form paying
taxes on their properties, such law will
definitely not pass the test of the equal
protection clause under the Bill of Rights.
Any special grant of tax exemption in favor
only of the Marcos heirs will constitute class
legislation. It will also violate the
constitutional rule that "taxation shall be
uniform and equitable."
2.       Veto of appropriation, revenue, or tariff bills
by the President
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. [Section 27 (2)
Article VI, Constitution]
 An item in a bill refers to particulars, details,
the distinct and severable parts of a bill. In
budgetary legislation, an item is an
individual sum of money dedicated to a
stated purpose. [Gonzales v. Macaraig, 191
SCRA 452]
3.       Non-impairment of the jurisdiction of the
Supreme Court
 Congress cannot take away from the
Supreme Court the power given to it by the
Constitution as the final arbiter of tax cases.
 Section 5 (2) (b), Article VIII, Constitution - The
Supreme Court shall have the following powers:
 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:
 All cases involving the legality of any tax, impost,
assessment, or toll, or any penalty imposed in
relation thereto.
CIR v. Santos
 The policy of the courts is to avoid ruling on
constitutional questions and to presume that
the acts of the political departments are
valid in the absence of a clear and
unmistakable showing to the contrary.
 This is not to say that RTC has no power
whatsoever to declare a law
unconstitutional, but this authority does not
extend to deciding questions which pertain
to legislative policy.
 RTC have the power to declare the law
unconstitutional but this authority does not
extend to deciding questions which pertain
to legislative policy.
 RTC can only look into the validity of a
provision, that is whether or not it has been
passed according to the provisions laid down
by law, and thus cannot inquire as to the
reasons for its existence.
 RULING ON THE EXTENT OF LEGISLATIVE
POWER TO TAX : SC held that it is within the
power of the legislature whether to tax
jewelry or not. With the legislature primarily
lies the discretion to determine the nature
(kind), object(purpose), extent (rate),
coverage (subject) and situs (place) of
taxation
San Miguel Corp. v. Avelino
FACTS: City Treasurer, on April 1, 1974, demanded
from SMC payment of the made specific tax on the
total volume of beer it produced in the City of
Mandaue. SMC on April 8,1974, contested the
correction of said specific tax "on the ground that
Section 12(e) (7) in relation to Section 12(e) (1) and
(2), Mandaue City Ordinance No. 97, is illegal and void
because it imposed a specific tax beyond its territorial
jurisdiction.”
In an opinion the City Fiscal upheld its validity which
was reversed by the Secretary of Justice,
saying the ordinance was of “doubtful validity. City of
Cebu then filed a suit for collection where it squarely
put in issue the validity of such ordinance.
Issue: Can City’s act of filing suit after the Secretary
of Justice’s opinion was rendered be considered "an
appeal" under the Presidential Decree?  
HELD: Yes, action by City valid. The writs prayed for,
certiorari and prohibition, cannot issue.
 The validity of a statute, an executive order
or ordinance is a matter for the judiciary to
decide and whenever in the disposition of a
pending case such a question becomes
unavoidable then it is not only the power but
the duty of the Court to resolve such a
question.
 It is undoubted that under the Constitution,
even the legislative body cannot deprive this
Court of its appellate jurisdiction over all
cases coming from inferior courts where the
constitutionality or validity of an ordinance
or the legality of any tax, impost,
assessment, or toll is in question.
 Since it is likewise expressly provided in
Section 43 of the Judiciary Act that the
original jurisdiction over all civil actions
involving the legality of any tax, impost or
assessment appertains to the Court of First
Instance, it takes a certain degree of
ingenuity to allege that the lower court was
bereft of such authority.
 Both under the Constitution and the
Judiciary Act, respondent Judge is vested
with jurisdiction to make a declaration
regarding an ordinance’s validity
 It would be therefore premature for the
corrective power of this Tribunal to be
interposed, just because he did not grant the
motion to dismiss on the allegation that
there was lack of jurisdiction. Authorities
support the municipal power to impose
specific taxes on beverages manufactured
within its territorial boundaries.
4.       Revenue bills shall originate exclusively from
the House of Representatives
Section 24, Article VI, Constitution - All
appropriation, revenue or tariff bills, bills authorizing
an increase of the public debt, bills of local
application, and private bills shall originate exclusively
in the House of Representatives, but the Senate may
propose or concur with amendments.
 Tolentino v. Secretary of Finance
 The Constitution simply means that the
initiative for the filing of bills 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.
 It is not the law – but the revenue bill –
which is required by the Constitution to
originate exclusively in the House of
Representatives, because a bill originating in
the House may undergo such extensive
changes in the Senate that the result may be
a rewriting of the whole, and a distinct bill
may be produced.
 The Constitution does not also prohibit the
filing in the Senate of a substitute bill in
anticipation of its receipt of the bill from the
House, as long as action by the Senate is
withheld until receipt of said bill. [Tolentino
v. Secretary of Finance]
 Senate can endorse an entirely new bill.
5.       Infringement of Press Freedom
 This limitation does not mean that the press
is exempt from taxation.
 Taxation constitutes an infringement of
press freedom when it operates as a prior
restraint to the exercise of this
constitutional right.
 When the tax is imposed on the receipts or
the income of the press it is a valid exercise
of the sovereign prerogative.
Tolentino v. Sec. of Finance, supra
 Petitioners claim that the R.A. violates their
press freedom and religious liberty, having
removed them from the exemption to pay
VAT. Suffice it to say that since the law
granted the press a privilege, the law could
take back the privilege anytime without
offense to the Constitution. By granting
exemptions, the State does not forever
waive the exercise of its sovereign
prerogative.
6.       Grant of franchise
 Tax exemptions included in the grant of a franchise
may be revoked by another law as it is specifically
provided in the Constitution that the grant of any
franchise is always subject to amendment, alteration,
or repeal by the Congress when the common good so
requires.
 Petitioners claim that the R.A. violates their
press freedom and religious liberty, having
removed them from the exemption to pay
VAT. Suffice it to say that since the law
granted the press a privilege, the law could
take back the privilege anytime without
offense to the Constitution. By granting
exemptions, the State does not forever
waive the exercise of its sovereign
prerogative. [Tolentino v. Sec. of Finance]
C. SITUS OF TAXATION & DOUBLE TAXATION
 Meaning of Situs – The source of the tax, or
the place of taxation. Literally, situs of
taxation means place of taxation. It is the
State or political unit which has jurisdiction
to impose a particular tax.
 The determination of the situs of taxation
depends on various factors including the:
1. Nature of the tax;
2. Subject matter thereof (i.e. person,
property, act or activity;
 3. Possible protection and benefit that
may accrue both to the government
and the taxpayer;
4. Residence or citizenship of the
taxpayer; and
5. Source of the income.
A. Situs of tax on persons (poll tax)
 Poll tax may be properly levied upon persons
who are inhabitants or residents of the State,
whether or not they are citizens.
B. Situs of tax on real property
 Situs is where the property is located
pursuant to the principle of lex rei sitae. This
applies whether or not the owner is a
resident of the place where the property is
located.
 This is so because the taxing authority has
control over the property which is of a fixed
and stationary character.
 The place where the real property is located
gives protection to the real property, hence,
the owner must support the government of
that place.
 Lex rei sitae - This is a principle followed in
fixing the situs of taxation of a property.  This
means that the property is taxable in the
State where it has its actual situs, specifically
in the place where it is located, even though
the owner resides in another jurisdiction.
 With respect to property taxes, real property
is subject to taxation in the State where it is
located and taxable only there.  Lex rei sitae
has also been adopted for tangible personal
property under Article 16 of the Civil Code. A
different rule applies to intangible personal
property, specifically, mobilia sequuntur
personam.
C. Situs of tangible personal property  elsewhere.
 It is taxable in the State where it has actual
situs although the owner resides in another
jurisdiction.
 As stated above, lex rei sitae has also been
adopted for tangible personal property
under Article 16 of the Civil Code.
D. Situs of taxation of intangible personal property
 General rule: Situs is the domicile of the
owner pursuant to the principle of mobilia
sequuntur personam. This rule is based on
the fact that such property does not admit of
any actual location and that such property
receives the protection and benefits of the
law where they are located.
 Exceptions:
1. When it is inconsistent with the express
provisions of the statute.
2. When the property has acquired a
business situs in another jurisdiction.
Mobilia sequuntor personam
 This Latin maxim literally means that the
property follows the person.  Thus, the
place where the owner is found is the
situs of taxation under the rule that
movables follow the person.  This is
generally where the owner resides.
 In taxation, this principle is applied to
intangible personal property the situs of
which is fixed by the domicile of the
owner.  The reason is that this type of
property rarely admits of actual location.
 However, there are two exceptions to
the rule.  One is when it is inconsistent
with the express provisions of a statute. 
Two, when the interests of justice
demand that it should not be applied,
i.e. where the property has in fact a situs
Theories re: Situs of Income tax
1. Domicilliary theory
  The location where the income earner
resides is the situs of taxation. This is where
he is given protection, hence, he must
support it.
2. Nationality theory
The country of citizenship is the situs of
taxation. This is so because a citizen is given
protection by his country no matter where
he is found or no matter where he earns his
income.
3. Source law
 The country which is the source of the
income or where the activity that produced
the income is the situs of taxation.
Wells Fargo v. Collector, 70 Phil 325
 This case involves the collection of inheritance
taxes on shares of stock issued by the Benguet
Consolidated Mining Corporation and owned by
Lillian Eye. Said shares were already subjected to
inheritance taxes in California and are now being
taxed by Philippine authorities.
Originally, the settled law in the United States is
that intangibles have only one situs for the
purpose of inheritance tax – the domicile of the
decedent at the time of death. But this rule has,
of late, been relaxed. The maxim mobilia
sequuntur personam, upon which the rules rests,
has been decried as a mere fiction of law having
its origin in considerations of general
convenience and public policy and cannot be
applied to limit or control the right of the State to
tax property within its jurisdiction. It must yield
to established fact of legal ownership, actual
presence and control elsewhere, and cannot be
applied if to do so would result in inescapable
and patent injustice.  located.
The relaxation of the original rule rests on either
of two fundamental considerations:
 1.       Upon the recognition of the inherent
power of each government to tax persons,
properties and rights within its jurisdiction and
enjoying the protection of its laws; or
2.       Upon the principle that as to intangibles, a
single location in space is hardly possible,
considering the multiple, distinct relationships
which may be entered into with respect thereto.
The actual situs of the shares of stock is in the
Philippines, the corporation being domiciled
therein. And besides, the certificates of stock
have remained in this country up to the time
when the deceased died in California, and they
were in the possession of the secretary of the
Benguet Corporation. The secretary had the right
to vote, collect dividends, among others. For all
practical purposes, the secretary had legal title to
the certificates of stock held in trust for Eye. Eye
extended in the Philippines her activities re: her
intangible personal property so as to avail herself
of the protection and benefits of the Philippine
laws.
E. Income – Income tax may properly be exacted
from persons who are residents or citizens in the
taxing jurisdiction and even from those who are
neither residents nor citizens provided the
income is derived from sources within the taxing
state.
F. Business, occupation and transaction – The
general rule is that the power to levy an excise
tax depend upon the place where the business is
done, or the occupation is engaged in, or the
transaction took place.
G. Gratuitous transfer of Property – The
transmission of property from a donor to a done
or from a decedent to his heirs may be subject to
taxation in the state where the transferor is or
was a citizen or resident, or where the property is
Commissioner vs. British Overseas Airways Corp.
 The source of an income is the property,
activity or service that produced the income.
 For the source of income to be considered
as coming from the Philippines, it is
sufficient that the income is derived from
activity within the Philippines. Herein, the
sale of tickets in the Philippines is the
activity that produced the income. The
tickets exchanged hands here and payments
for fares were also made here in Philippine
currency.
 The situs of the source of payments is the
Philippines. The flow of wealth proceeded
from, and occurred within, Philippine
territory, enjoying the protection accorded
by the Philippine Government. In
consideration of such protection, the flow of
wealth should share the burden of
supporting the government.
 PD 68, in relation to PD 1355, ensures that
international airlines are taxed on their
income from Philippine sources.
CIR v. Japan Airlines
 Citing the case of CIR v BOAC, the court
reiterated that the source of an income is
the property, activity or service that
produced the income.
 For the source of income to be considered as
coming from the Philippines, it is sufficient
that the income is derived from activity
within the Philippines.
 The absence of flight operations to and from
the Philippines is not determinative of the
source of income or the situs of income
taxation.
 The test of taxability is the source, and the
source of the income is that activity which
produced the income. In this case, as JAL
constitutes PAL as its agent, thesales of JAL
tickets made by PAL is taxable
Wells Fargo Bank v. Collector
 It is the identity or association of intangibles
with the person of their owner at his
domicile which gives jurisdiction to tax.
 But when the taxpayer extends his activities
with respect to his intangibles, so as to avail
himself of the protection and benefit of the
laws of another state, in such a way as to
bring his person or property within the reach
of the tax gatherer there, the reason for a
single place of taxation no longer obtains.
 In this case, the actual situs of the shares of
stock is in the Philippines, the corporation
being domiciled therein. The owner residing
in California has extended her activities with
respect to her intangibles so as to avail
herself of the protection and benefit of the
Philippine laws
3. MULTIPLICITY OF SITUS
 Multiplicity of situs, or the taxation of the
same income or intangible subject in several
taxing jurisdictions, arises from various
factors:
 1.       The variance in the concept of domicile for tax
purposes;
2.       Multiple distinct relationships that may arise
with respect to intangible personal property; or
3.       The use to which the property may have been
devoted all of which may receive the protection of
the laws of jurisdictions other than the domicile of
the owner thereto.
 The remedy to avoid or reduce the
consequent burden in case of multiplicity of
situs is either to:
1. Provide exemptions or allowance of
deduction or tax credit for foreign
taxes; or
2. Enter into tax treaties with other
States.
Collector v. De Lara
 The Supreme Court did not subject to estate
and inheritance taxes the shares of stock
issued by Philippine corporations which were
left by a non-resident alien after his death.
Considering that he is a resident of a foreign
country, his estate is entitled to exemption
 from inheritance tax on the intangible
personal property found in the Philippines.
This exemption is granted to non-residents
to reduce the burden of multiple taxation,
which otherwise would subject a decedent’s
intangible personal property to the
inheritance tax both in his place of residence
and domicile and the place where those
properties are found.
 This is, therefore, an exception to the
decision of the Supreme Court in Wells Fargo
v. Collector. This has since been incorporated
in Section 104 of the NIRC.
 As to the shares of stocks issued by
Philippine corporations, an exemption was
granted to the estate by virtue of Section 122
of the Tax Code, which provides as
follows:. . ."And Provided, however, That no
tax shall be collected under this Title in
respect of intangible personal property (a) if
the decedent at the time of his death was a
resident of a foreign country which at the
time of his death did not impose a transfer
tax or death tax of any character in respect
of intangible personal property of citizens of
the Philippines not residing in that country,
or (b) if the laws of the foreign country of
which the decedent was resident at the tune
of his death allow a similar exemption from
transfer taxes or death taxes of every
character in respect of intangible personal
property owned by citizen, of the Philippine
not residing in that foreign country.
4. Double Taxation
 In its strict sense, referred to as direct
duplicate taxation, double taxation means:
1. taxing twice;
2. by the same taxing authority;
3. within the same jurisdiction or
taxing district;
4. for the same purpose;
5. in the same year or taxing period;
6. some of the property in the
territory.
 In its broad sense, referred to as indirect
double taxation, double taxation is taxation
other than direct duplicate taxation. It
extends to all cases in which there is a
burden of two or more impositions.
Constitutionality of double taxation
 Unlike the United States Constitution, our
Constitution does not prohibit double
taxation.
 However, while it is not forbidden, it is
something not favored. Such taxation should,
whenever possible, be avoided and
prevented.
 In addition, where there is direct double
taxation, there may be a violation of the
constitutional precepts of equal protection
and uniformity in taxation.
CIR v. S.C. Johnson and Son, Inc.
The RP-US Tax Treaty is just one of a number of
bilateral treaties which the Philippines has entered
into for the avoidance of double taxation.
The purpose of these international agreements is to
reconcile the national fiscal legislations of the
contracting parties in order to help the taxpayer avoid
simultaneous taxation in two different jurisdictions.
More precisely, the tax conventions are drafted with a
view towards the elimination of international juridical
double taxation, which is defined as the imposition
of comparable taxes in two or more states on the
same taxpayer in respect of the same subject matter
and for identical periods.
The apparent rationale for doing away with double
taxation is of encourage the free flow of goods and
services and the movement of capital, technology and
persons between countries, conditions deemed vital
in creating robust and dynamic economies.
Double taxation usually takes place when a person is
resident of a contracting state and derives income
from, or owns capital in, the other contracting state
and both states impose tax on that income or capital.
In order to eliminate double taxation, a tax treaty
resorts to several methods. First, it sets out the
respective rights to tax of the state of source or situs
and of the state of residence with regard to certain
classes of income or capital. In some cases, an
exclusive right to tax is conferred on one of the
contracting states; however, for other items
of income or capital, both states are given the right to
tax, although the amount of tax that may be imposed
by the state of source is limited.
b. Double Taxation in its broadest sense.
In its broad sense, referred to as indirect double
taxation, double taxation is taxation other than direct
duplicate taxation. It extends to all cases in which
there is a burden of two or more impositions.
Villanueva v. City of Iloilo, 265 SCRA 528
 An ordinance imposing a municipal tax on
tenement houses was challenged because
the owners already pay real estate taxes and
also income taxes under the NIRC.
 The Supreme Court held that there was no
double taxation.
 The same tax may be imposed by the
National Government as well as the local
government.
 There is nothing inherently obnoxious in the
exaction of license fees or taxes with respect
to the same occupation, calling, or activity by
both the State and a political subdivision
thereof.
 Further, a license tax may be levied upon a
business or occupation although the land
used in connection therewith is subject to
property tax.
In order to constitute double taxation in the
objectionable or prohibited sense:
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 jurisdiction or taxing
district;
 6.       during the same taxing period; and
 7.       of the same kind or character of tax.
C. Constitutionality of Double Taxation
 Unlike the United States Constitution, our
Constitution does not prohibit double
taxation.
 However, while it is not forbidden, it is
something not favored. Such taxation should,
whenever possible, be avoided and
prevented.
 In addition, where there is direct double
taxation, there may be a violation of the
constitutional precepts of equal protection
and uniformity in taxation.
City of Baguio v. De Leon, 25 SCRA 938
 The argument against double taxation may
not be invoked where one tax is imposed by
the State and the other is imposed by the
city, it being widely recognized that there is
nothing inherently obnoxious in the
requirement that license fees or taxes be
exacted with respect to the same
occupation, calling, or activity by both the
State and a political subdivision thereof.
 And where the statute or ordinance in
questions applies equally to all persons, firms
and corporations placed in a similar
situation, there is no infringement of the rule
on equality.
Pepsi-Cola Bottling Co. vs. City of Butuan
The Ordinance, as amended, is discriminatory since
only sales by “agents or consignees” of outside
dealers would be subject to the tax. Sales by local
dealers, not acting for or on behalf of other
merchants, regardless of the volume of their sales ,
and even if the same exceeded those made by said Both a license fee and a tax may be imposed on the
agents or consignees of producers or merchants same business or occupation for selling the same
established outside the city, would be exempt from article and this is not in violation of the rules against
the tax. The classification made in the exercise of the
double taxation.
authority to tax, to be valid must be reasonable,
which would be satisfied if the classification is based
upon substantial distinctions which makes real
differences; these are germane to the purpose of Means of Avoiding or Minimizing the Burden of
legislation or ordinance; the classification applies not
Taxation:
only to present conditions but also to future
conditions substantially identical to those of the
present; and the classification applies equally to all 1. Shifting - is the transfer of the burden of a tax
those who belong to the same class. These conditions by the original payer or the one on whom the
are not fully met by the ordinance in question. tax was assessed or imposed to someone else.

Sanchez v. Collector It should be borne in mind that what is

transferred is not the payment of the tax but
Sanchez has an accessoria building which she leases the burden of the tax.
out as an apartment. Searate tax levied upon a
business or occupation and the property used therein Only indirect taxes may be shifted; direct taxes
does not amount to double taxation. Income tax and cannot be shifted.
real estate dealer’s tax are different taxes.
  Ways of shifting the tax burden
Double taxation may not be invoked as a defense
against the validity of a tax law as where the real a. Forward shifting - When the burden of
estate dealer’s tax is imposed for engaging in the the tax is transferred from a factor of
business of leasing real estate in addition to the real production through factors of
estate tax on the property leased and the income tax distribution until it finally settles on the
on the income derived as it is a different kind of tax. ultimate purchaser or consumer.
i.  Example: Manufacturer or
City of Manila v. Interisland Gas Service producer may shift tax
assessed to wholesaler, who in
The City of Manila collects deficiency municipal tax turn shifts it to the retailer,
from interisland for liquefied flammable gas taxed as who also shifts it to the final
merchandise. Fees aid for storage, installation, use purchaser or consumer.
and transportation of compressed inflammable gas b. Backward shifting - when the burden of
are charged by way of license fees in the exercise of the tax is transferred from the
police power of the state. consumer or purchaser through the
factors of distribution to the factor of
Double Taxation may not be invoked as a defense
production.
against the validity of a tax law as where aside from
i.  Example: Consumer or
the tax, a license fee is imposed in the exercise of
purchaser may shift tax
police power. Here the license fee is imposed for a
imposed on him to retailer by
different purpose, i.e, as a regulatory measure.
purchasing only after the price
Compana General de Tabacos v. City of Manila, is reduced, and from the latter
supra; to the wholesaler, and finally
 to the manufacturer or
producer.
c. Onward shifting - when the tax is
shifted two or more times either
forward or backward.
i.  Thus, a transfer from the
seller to the purchaser
involves one shift; from the
producer to the
wholesaler, then to
retailer, we have two
shifts; and if the tax is
transferred again to the
purchaser by the retailer,
we have three shifts in all.
Persons Liable (Sec. 105) - Any person who, in the
course of trade or business, sells barters, exchanges,
leases goods or properties, renders services, and any
person who imports goods shall be subject to the
value-added tax (VAT)imposed in Sections 106 to 108
of this Code. The value-added tax is an indirect tax
and the amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise apply to
existing contracts of sale or lease of goods, properties
or services at the time of the effectivity of Republic
Act No.7716.
Impact and incidence of taxation
 Impact of taxation is the point on which a tax
is originally imposed. In so far as the law is
concerned, the taxpayer is the person who
must pay the tax to the government. He is
also termed as the statutory taxpayer – the
one on whom the tax is formally assessed.
He is the subject of the tax.
 Incidence of taxation is that point on which
the tax burden finally rests or settle down. It
takes place when shifting has been effected
from the statutory taxpayer to another.
Statutory taxpayer  -   The statutory taxpayer is the
person required by law to pay the tax or the one on
whom the tax is formally assessed.  In short, he or she
is the subject of the tax.
 In direct taxes, the statutory taxpayer is the
one who shoulders the burden of the tax
while in indirect taxes, the statutory taxpayer
is the one who pay the tax to the
government but the burden can be passed to
another person or entity.
Relationship between impact, shifting, and incidence
of a tax
 The impact is the initial phenomenon, the
shifting is the intermediate process, and the
incidence is the result. Thus, the impact in a
sales tax (i.e. VAT) is on the seller
(manufacturer) who shifts the burden to the
customer who finally bears the incidence of
the tax.
 Impact is the imposition of the tax; shifting is
the transfer of the tax; while incidence is the
setting or coming to rest of the tax.
2. 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.
 Tax evasion is a term that connotes fraud
through the use of pretenses or forbidden
devices to lessen or defeat taxes. [Yutivo v.
Court of Tax Appeals, 1 SCRA 160]
 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 property or income in order to avoid or
accidental.” reduce tax liability. It is politely called “tax
3. A course of action (or failure of action) minimization” and is not punishable by law.
which is unlawful.
Delphers Traders Corp. v. IAC[157 SCRA 349],

 SC upheld the estate planning scheme

resorted to by the Pacheco family in
converting their property to shares of stock
Evidence to prove evasion in a corporation which they themselves
owned and controlled. By virtue of the deed
 Since fraud is a state of mind, it need not be
of exchange, the Pachecho co-owners saved
proved by direct evidence but may be proved
on inheritance taxes. The Supreme Court
from the circumstances of the case.
said the records do not point to anything
wrong and objectionable about this estate
Republic v. Gonzales [13 SCRA 633]
planning scheme resorted to. The legal right
of the taxpayer to decreased the amount of
 SC affirmed the assessment of a deficiency
what otherwise could be his taxes or
tax against Gonzales, a private
altogether avoid them by means which the
concessionaire engaged in the manufacturer
law permits cannot be doubted.
of furniture inside the Clark Air Base, for
 What they really did was to invest their
underdeclaration of his income. SC held that
properties and change the nature of
the failure of the taxpayer to declare for
their ownership from unincorporated to
taxation purposes his true and actual income
incorporated form by organizing Delpher
derived from his business for two (2)
Trades Corporation to take control of
consecutive years is an indication of his
their properties and at the same time save
fraudulent intent to cheat the government if
on inheritance taxes. The "Deed of
its due taxes.
Exchange" of property between the
Pachecos and Delpher Trades Corporation
SEC. 254. Attempt to Evade or Defeat Tax. - Any
cannot be considered a contract of sale.
person who willfully attempts in any manner to evade
 There was no transfer of actual ownership
or defeat any tax imposed under this Code or the
interests by the Pachecos to a third party.
payment thereof shall, in addition to other penalties
The Pacheco family merely changed their
provided by law, upon conviction thereof, be
ownership from one form to another. The
punished by a fine not less than Thirty thousand
ownership remained in the same hands.
(P30,000) but not more than One hunderd thousand
Hence, the private respondent has no basis
pesos (P100,000) and suffer imprisonment of not less
for its claim of alight of first refusal under the
than two (2) years but not more than four (4) years:
lease contract.
Provided, That the conviction or acquittal obtained
under this Section shall not be a bar to the filing of a
Yutivo v. CTA
civil suit for the collection of taxes.  
Facts: Yutivo Sons Hardware Co. bought a number of
3. Tax Avoidance cars and trucks from General Motors Overseas
Corporation. As importer, GM paid sales tax
 Tax avoidance is the exploitation by the
prescribed by sections 184, 185and 186 of the Tax
taxpayer of legally permissible alternative tax Code on the basis of its selling price to Yutivo. Said
rates or methods of assessing taxable tax being collected only once on original sales, Yutivo
paid no further sales tax on its sales to the public.  Exemption is allowed only if there is a clear
Southern Motors, Inc. was organized to engage in the provision therefor.
business of selling cars, trucks and spare parts. After
the incorporation of SM and until the withdrawal of
 It is not necessarily discriminatory as long as
GM from the Philippines in the middle of 1947, the
cars and trucks purchased by Yutivo from GM were there is a reasonable foundation or rational
sold by Yutivo to SM which, in turn, sold them to the basis.
public in the Visayas and Mindanao.

Issue: Whether or not Southern Motors, Inc. was

organized as a tax evasion device.
 5.       Transformation
Held: NO.
 SM was organized in June, 1946 when it  6.       Avoidance
could not have caused Yutivo any tax savings.
From that date up to June 30, 1947, or a
period of more than one year, GM was the
importer of the cars and trucks sold to
Yutivo, which, in turn resold them to SM.
 During that period, it is not disputed that GM
as importer, was the one solely liable for
sales taxes. Neither Yutivo or SM was subject
to the sales taxes on their sales of cars and
trucks.
 The sales tax liability of Yutivo did notarize
until July 1, 1947 when it became the
importer and simply continued its practice of
selling to SM. The decision, therefore, of the
Tax Court that SM was organized purposely
as a tax evasion device runs counter to the
fact that there was no tax to evade
 Intention to minimize taxes used in the
context of fraud, must be proved by clear
and convincing evidence amounting to more
than mere preponderance and cannot be
justified by mere speculation. Fraud is never
presumed.

 4.      Exemption from Taxation

 It is the grant of immunity to particular

persons or corporations or to persons or
corporations of a particular class from a tax
which persons and corporations generally
within the same state or taxing district are
 
obliged to pay.

 It is an immunity or privilege; it is freedom

from a financial charge or burden to which
others are subjected.