TAXATION 1 – MODULE 2 cedula.
Although technically, it’s now known as the
GENERAL PRINCIPLES OF TAXATION
HISTORY OF TAXATION
2.1
(transcript based on video presentation)
Ancient Filipino started the practice of paying taxes. The
purpose of paying taxes was simple: it was for the
protection they received from the Datu. The collected Tax
was called buwis. Except from the Chieftain household,
everyone from the community was required to pay their
taxes. Non- payment of which was already punishable
during this period.
The arrival of the Spaniards ushered in modern concepts
of taxation. The native Filipinos aged between 16 to 60
years old were compelled to pay tribute to the king of
Spain through the colonial government worth 8 reals or 1
peso per year. Other forms of payment came in gold,
chickens, textile, cotton, rice and forced labor or servicio
y bolo.
In 884, the tribute was abolished and was replaced by the
Cedula, a certificate identifying the taxpayer.
Q. Why is tax especially critical for a nation?
Money provided by taxation has been used by States in
their functional equivalents throughout history to carry
out many functions Some of this include, expenditures on
war, the enforcement of law in public order, protection of
property, economic infrastructure, public works, social
engineering, subsidies and operation of government itself.
Governments also use taxes to fund welfare and public
services. These services can include education systems,
healthcare systems, pensions for the elderly,
unemployment benefits and public transportation.
Energy, water and waste management systems are also
common public utilities. This is where your taxes go.
*end of video presentation*
If you look at that presentation, it basically encapsulated
how taxation started, specifically in the Philippines.
Taxation existed even prior to the formal imposition of
national taxes. It’s just that, before when they pay the
buwis, it’s not being done on a national scale. Rather, it’s
more on a territorial scale. Nevertheless, the purpose why
they pay the so-called buwis is the very same purpose or
still exists as of this day and that is to be given some
protection and benefits by the State, with which
we pay tax.
Eventually, when the Spaniards came in it morphed into
a tribute and then the Polo y Servicio, which is why we
have the big churches now and the infrastructures during
the Spanish period. Then it became cedula, which to this
day we still have that; to which our parents still call
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
community tax, which does not have the same value or
effect of the cedula back then which is basically used as
basis of your allegiance to Spaniards or to the King of
Spain. Now, it’s more on helping the LGU in the payment
of the so-called community tax when entering into
transactions with the government. Anyhow, that’s your
taxation way back then.
Now, our tax laws are not anymore based on the tax laws
implemented/imposed by the Spaniards, Greeks, or kung
kinsa pana diha. But it’s heavily based on tax laws
implemented by the US when we were colonized also by
the US. But we did not follow the Spanish because usually
diba mga monarchy and there were too many grey areas
in that version.
BASIC PRINCIPLES AND CONCEPTS OF TAXATION
Taxation is one of the inherent power of the States
together with powers of eminent domain and police
power. When we talk about the power of taxation, this is
defined roughly as:
The power by which a sovereign raises revenue to
defray the necessary expenses of the government
from among those who in some measure are
privileged to enjoy its benefits and must bear its
burden
This alone tells us that these powers can only be exercised
by a sovereign state.
Sovereign State – independent from external control. It
means that you have your own government which
implements the project for the benefit general public or
your constituents.
The very first thing that you have to look at:
“Is this State sovereign for it to exercise power of
taxation?”
Because after all, power of taxation is an inherent right of
a sovereign state.
Q. When does a state exist?
You go back to the elements of a state. One of these
elements of state is sovereignty, other than
government, territory, etc. It is the power by which a
sovereign raises revenue.
“RAISES REVENUE”
The main objective in the exercise of taxation is revenue
generation. This is where the primary difference of other
government power lies:
For police power the primary purpose is for regulation.
For eminent domain, it’s more on the acquisition of
property, but here, the main purpose is revenue-raising.
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Q. What is the purpose of raising revenue?
It is to defray the necessary expenses of the government.
“NECESSARY EXPENSES OF THE GOVERNMENT”
The purpose of collecting the tax should be for public or
governmental purpose. If you disburse public money to
benefit a private entity, it can be a ground for you to file
a tax payer’s suit.
From among those who in some measure are privileged
to enjoy this benefit and must carry this burden.
THE OBJECT/SUBJECT OF THIS POWER MUST BE
CAPABLE OF PAYING THE POWER OF TAXATION
Which is why it is very important to take into consideration
the equity. As required in the constitution, that equity
must be observed, it must be equitable, and it must be
uniform in order to follow the common adage that “he who
has more must pay more” and “those who have less in life
must have more in law”.
Those who are more privileged in life, must bear the
burden; they will pay more. The purpose of which is to
basically benefit those who have less in life.
DEFINITION
Power by which the sovereign raises revenue to
defray the necessary expenses of the government from
among those who in some measures are privileged to
enjoy its benefits and must bear its burden.
Paseo Realty & DevCorp vs CA
Taxation is a destructive power which interferes with
the personal and property rights of the people and
takes from them a portion of their property for the
support of the government.
Paseo Realty Corporation (GR NO. 119286)
Other than raising revenue, taxation is a
destructive power which could interfere with the
personal and property rights of the people and
takes from them a portion of their property for the
support of the government.
THE POWER OF TAXATION HAS TWO FACES:
1. To Raise revenue
2. Used to destroy a particular industry, not necessarily
raising revenue
If that particular activity is not necessary, it’s more of
luxury, or bad for the general public, bad for the health,
taxation could come in to discourage that
industry, if not to destroy.
If it is really prohibited/illegal to put up that business,
then the primary power of the State to exercise against
that activity is the police power.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
If it is not illegal per se, it is just not healthy or necessary,
ex: smoking, cigarettes, luxurious articles, alcohol. That’s
where taxation comes in, not to make it illegal, but to
discourage the public. The more taxes you impose on
that, the higher will be the purchase price. That’s where
the sin taxes come in.
The power of taxation must be exercised taking into
consideration its limitations. Although taxation is
unlimited, plenary, it does not mean that it does not have
any limitation at all. Otherwise, if these limitations are not
in place then destruction happens even in those industries
that are considered essential/legitimate.
TAXATION vs. TAX
TAXATION TAX
Refers to the Refers to what is being
process/power to collect collected through the
‘tax.’ exercise of ‘taxation.’
• Taxation – refers to the inherent power of the state,
the process of collecting tax.
• Tax – enforced proportional contribution
(pursuant to the burden characterization of taxation)
from properties and persons levied by the state by
virtue of its sovereignty for the support of government
and for public needs.
You cannot refuse to pay taxes for the purpose of
collecting tax is essentially for social justice which is not
to directly benefit you but to be used for those lesser than
you or those who are in need.
What is the prime distinction between taxation
and tax?
PRIME DISTINCTION
Enforced proportional contribution – the taxpayer’s ability
to pay must be taken into consideration. The more that
you have in life, the more you should be paying. The
lesser that you have, the lesser you should be paying.
The definition is more or less the same to the power of
taxation. The difference is the first phrase which is
“enforced proportional contribution”.
“From properties and persons” – objects and subjects
“Levied by the state” – inherent powers of the state
“For the support of government and public needs”
– to raise revenue in order to meet the legitimate needs
or purposes of the government.
Take note: memorize the definition of the power to
taxation to answer objective questions.
To reiterate:
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Taxation is the inherent power of the sovereign state. It
is the process of collecting, the basis why tax is collected.
Tax is an enforced proportional contribution.
Q. How are we to distinguish it?
As much as possible, break down the definition of the
power of taxation and the definition of tax.
They differ primarily on the first line. Taxation being the
“power” and “tax” as the enforced, proportional
contribution. The rest they are more or less related
because there can be no tax if the power of taxation
cannot be exercised in the first place.
Taxes: Enforced proportional contribution from
properties and persons levied by the State by virtue of its
sovereignty for the support of government and for public
needs.
ACTUAL BAR KWEZCHANS
May the legislative body enact laws to raise
revenue despite the absence of constitutional
provision?
Yes, because it is an inherent power of the state, there’s
no need for permission to grant to raise revenue.
Even if there is no constitutional provision -- there is no
need to grant to the government or to the legislative body
the right or authority to impose tax or to exercise the
power of taxation. Basta ang tan-awon ni exist ba ang
state. Kung present ba ang elements sa state;
Government, Population, Territory and etc. If a state
exists even if there is no formal grant in a constitutional
provision, then the legislative body may still enact laws to
raise revenues.
May the Sangguniang Panlalawigan of Cebu enact
law imposing a tax not provided under the local
government code or other laws?
A big fat no. we have to distinguish the legislative body
v. the sangguniang panlalawigan. The legislative body
refers to the Congress, House of reps of the national
government. Sangguniang Panlalawigan Cebu is just a
local government unit known as Municipal Corporation
created pursuant to a constitutional provision and
pursuant to law known as the Local Government Code.
The power to collect local tax is delegated only from the
Legislative Body to Sangguniang Panlalawigan. Since it is
just delegated, they are at the mercy of the delegating
authority. In short, kung unsa lang ang gihatag sa ilaha,
mao lang ang sad to ang pwede nila i-exercise. If that
particular type of tax is not given or is not delegated to
the Sangguniang Panlalawigan then the LGU or the SP
cannot collect that type of tax. It is considered as void ab
initio. The imposition thereof is null and void.
The power to tax "is an attribute of sovereignty,"
and as such, inheres in the State. Such, however, is not
true for provinces, cities, municipalities and barangays as
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
they are not the sovereign; rather, they are mere
"territorial and political subdivisions of the Republic of the
Philippines". (Pelizloy Realty Corporation v. Province of
Benguet, G.R. No. 183137, April 10, 2013.)
Pelizloy case involves an issue on collection of amusement
tax by the province of Benguet. (Read this case
assignment for oral recits)
Pelizloy Realty Corporation vs Province of
Benguet
The power to tax "is an attribute of sovereignty,"
and as such, inheres in the State. Such, however, is not
true for provinces, cities, municipalities and barangays
as they are not the sovereign;8 rather, they are mere
"territorial and political subdivisions of the Republic of
the Philippines".
NATURE OF TAXATION
1. IT IS AN INHERENT POWER OF THE
SOVEREIGN
Inherent - so long as the sovereign state exists, the
power of taxation will also exist, provided it has a
population which becomes the subject of the power of
taxation.
As an inherent power of the sovereign, this power of
taxation need not be granted expressly via a
constitutional provision or a statutory provision. It’s
automatic or it’s already up to the sovereign state to make
that power formal and written or to impose it informally.
Especially in the Philippines, although it is inherent, the
power of taxation is likewise specified in our constitution.
2. IT IS EXERCISED THROUGH THE LEGISLATURE
It is legislative in nature. These first two, being an
inherent power of the state and is exercised through the
legislature or is a legislative power of the State.
These are what we call as the nature of taxation. The
nature or the main characteristic of the power of taxation.
It is the legislature who will think what type of tax will be
imposed, how much is the tax, who is covered for the
tax, when will it be paid, etc. The legislature is primarily
responsible when it comes to the levy or imposition of tax
through the exercise of the power of taxation.
In the implementation or administration aspect, that’s
when the Executive Department comes in -- the Office of
the President through the Department of Finance,
ultimately the Bureau of Internal Revenue or the Bureau
of Customs.
It is the legislature which will pass the law on taxation,
not the president nor the mayor, in so far as the
Philippines is concerned because as we all know we are a
Republican State. Being a Republican State, the power
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resides in the people, so it is the people who will decide.
But we cannot decide individually with 105 million people,
so we elected our representatives. Our members in the
House of Representatives will be the one to start the ball
rolling when it comes to the revenue raising function of
the government or the exercise of the power of taxation.
And the HOR being the representative of the people.
When the power of taxation is exercised, it imposes a
burden because you have to pay, your property which is
monetary in nature is taken away from you, which is why
the power of taxation is also characterized as a
destructive power.
Thus, taxation is subject to several limitations because if
the collection and the imposition of the tax becomes
arbitrary without taking into consideration the taxpayers
capability to pay, without taking into consideration the
due processes in place, that's when the taxpayer can ask
for help from the court and question the legality thereof.
Q. Who is burdened in paying the tax?
It is the subjects and objects within the jurisdiction of the
state. When we say jurisdiction of the state, it could either
be:
1. Geographical jurisdiction
2. Nexus/jural jurisdiction.
Geographical jurisdiction
The usual territorial jurisdiction that you know, the land
mass, the seas. So long as you’re located here you are
considered within the geographical jurisdiction of the
state, geographically.
Nexus or jural jurisdiction
Income taxation for income earned by resident citizens
and domestic corporation even if they are not
geographically here in the Philippines. In short, the bond
between the taxing authority on the subject or the object
of the power of taxation. It simply means that even if
you are not within the territorial jurisdiction of the
Philippines, but as a resident citizen or domestic
corporation, even if you are abroad, you can still expect
the usual protection and service from the Philippine
government or from the State. Then, it follows that
whatever earnings you have abroad or outside the
physical or territorial jurisdiction of the Philippines, it can
be subjected to tax here in the Philippines not due to
being within the geographical jurisdiction but because
of the nexus or the jural or the bond between the
imposing state, which is the Philippines, and the taxpayer.
Subjects and objects
Subject – e.g taxpayers.
It is not necessary for it to be a person, whether natural
or juridical, to be subject to taxation. It could even be an
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
activity/privilege. There are different tax types which
covers these non-personal objects of the power of
taxation.
1. INHERENT PREROGATIVE OF
SOVEREIGNTY
BASIS: LIFEBLOOD THEORY (?)
HOW IS THIS MANIFESTED?
MANIFESTATION:
1. Imposition even in the absence of constitutional
grant;
2. State can select the object and subject of
taxation;
3. No injunction in the collection of taxes asa
general rule. Exc: CTA
4. Could not be subject to set-off. Exc. To No. 4
when both claims are due and demandable and
fully liquidated (Domingo vs Garlitos)
5. Taxation is an unlimited and plenary power
Concurring and Dissenting Opinion of Justice Leonen
in Manila Memorial Park Inc. et. al v. Secretary
of DSWD and DOF, G.R. No. 175356, December
3, 2013.
The power to tax is "a principal attribute of
sovereignty."
Such inherent power of the State anchors on its "social
contract with its citizens [which] obliges it to promote
public interest and common good."
The scope of the legislative power to tax necessarily
includes not only the power to determine the rate of
tax but the method of its collection as well. ***
In fact, the State has the power "to make reasonable
and natural classifications for the purposes of taxation
*** whether it relates to the subject of taxation, the
kind of property, the rates to be levied, or the amounts
to be raised, the methods of assessment, valuation and
collection, the State’s power is entitled to presumption
of validity ***."
This means that the power to tax also allows Congress
to determine matters as whether tax rates will be
applied to gross income or net income and whether
costs such as discounts may be allowed as a deduction
from gross income or a tax credit from net income after
tax. While the power to tax has been considered the
strongest of all of government’s powers with taxes as
the "lifeblood of the government," this power has its
limits.
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 2. LEGISLATIVE IN CHARACTER
Basis: Taxes are a grant of the people who are taxed, and
the grant must be made by the immediate representatives
of the people. And where the people have laid the power,
there it must remain and be exercised. (Cooley)
EXCEPTION TO THE GENERAL RULE:
1. LGU under the LGC and constitution
2. As provided under the constitution – flexible tariff
clause;
3. Administrative regulation i.e. assessment and
collection
(nibalik siyag discuss ani nga part about nature of
taxation)
NATURE OF TAXATION
1. Inherent power of the sovereign
2. Legislative in character or exercised through the
legislature
Basic concepts in a nutshell:
It is the state that has the inherent power to levy. the
municipal corporation not being a state (but part of the
government) does not have the inherent power to impose
tax. Limited lang ilang power to impose tax based on the
provisions of the law.
Nature of Taxation
Two things you need to remember:
1. It is an inherent prerogative of sovereignty
-It becomes inherent because our primary basis is the so
called “Life Blood Theory” wherein the state will not
necessarily be able to function without taxes/money.
Atty: Tax is as if a “gasolina” to your vehicle. Tax as if it’s
an ink to your printer. The apple to my pie, straw to my
berry. This tax the state or the government is deemed
useless. Imagine it kung ang gobyerno is based lang on
volunteers, naa ba kahay mu volunteer? Dapat naa tay
sweldo, dapat naa tay kwarta.
2.It is legislative in character
When it comes to the levying or imposition or revenue
generation, it must start from the representatives of the
people being a Republican state, that is the house of
representatives.
Atty: In relation to the Nature of Taxation, this Nature of
Taxation is discussed by the SC in the case of Chamber
of Real Estate and Builders Association Inc. vs
Secretary Romulo et. al. (2010 case but the discussion
there of what’s the Nature of the Power of Taxation in
support of the resolution of the SC is quite good and quite
comprehensive.
We have to base some of our discussions on that
discussion there by the SC. As to what happened in the
case of Chamber of Real Estate and Builders Association
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Inc., we reserve that when we will be having our live
lecture synchronous discussion but for now please do
read that. That is an important case, ayaw lang sa
problemaha class ang what is Tax Deduction, what is Tax
Credits. You can skip as of now the distinction between
the two, just focus lang usa on the how to the SC
discussed the Nature of Taxation on that particular case.
Leave it to me ang pag explain as to the difference of tax
credits and tax deduction but you know try to
UNDERSTAND unsa ang ISSUE and unsa ang
RESOLUTION sa SC because that is is more of passing a
law and here is a type of tax payer who is not [subject to]
apprehensive in following that law and they are raising
several issues which the court is trying to justify without
necessarily questioning the wisdom of the legislature.
Ayaw lang usa problemaha but make it a point where you
understand whether nakadaog ba and petitioners or wala
and if nakadaog, unsa nga method ang na follow; credit,
deduction, equitable withholding. Etc.
2.2 (ni start siya balik sa topic na nature of
taxation)
JURISDICTION
This is two (2) folds - so we are looking at either
geographical jurisdiction or the ural or nexus or the bond
between taxing authority and the taxpayer.
Then we move on to distinguish the power of taxation
versus tax. We said that, when it comes to taxation - it's
the power, it's the process of imposing the tax. The tax is
the enforced proportional contribution, it is the burden
akin to taking of private properties.
We have distinguished also the taxing power of the State,
the Sovereign State which has the inherent power to tax
versus the taxing power of the so-called Local
Government Units or the so called Municipal Corporations.
So, we said that these Municipal Corporations do not have
the inherent power to tax so the tax they can only enforce
are the taxes delegated to them under the Local
Government Code and under the Constitution.
NATURE OF TAXATION
• Inherent power of the state.
• Legislative in Nature/Character
Inherent power of the state - it simply means to say
that, pursuant to the Lifeblood Doctrine, without Taxes
the State or the Government cannot perform its function
properly.
Legislative in Character - Simply means that the
levying or imposition must be done by the representatives
of the people. Primarily because the Philippines is a
Republican State. Since we are a Republican State, then
the authority emanates from the people and this is
exercised by the representatives of the people.
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Under the direct constitutional limitations, when it comes
to revenue - bills, tariff bills - the proposal thereof, must
begin with the House of Representative.
Nature of Taxation as Inherent Power
This is an attribute of sovereignty.
"Does the taxing authority have sovereignty? Is it
free from external control, therefore can impose
and exercise the power of taxation?".
Again, the basis of this is Lifeblood Doctrine. When we
talk about lifeblood doctrine, the taxes must be collected,
and must be enforced proportionally without delay as
much as possible. Which is why when we talk about
Lifeblood Doctrine, there are manifestations to this. This
is manifested in several instances:
MANIFESTATIONS: (5)
1. The imposition of taxes even in the absence
of constitutional grant - essentially because it
is an inherent power of the sovereign.
2. The State can select the object and subject
of taxation - when it comes to the scope and
coverage of the power of taxation, it is
comprehensive,unlimited, plenary and supreme.
Anything and everything may be subject to tax by
the State or by legislature, if it wants to.
It’s just that, insofar as our laws are concerned, the
limitations must be properly observed for it not to be
considered null and void.
3. Because of the “Lifeblood Doctrine” which
is akin to non-delay in the collection and
imposition of these tax, as a rule it comes
to taxation, there can be NO INJUNCTION,
NO TEMPORARY RESTRAINING ORDER in
the collection of taxes.
TN: Imposition is different from collection. If you question
the legality of the law, you’re basically questioning the
levying or the imposition aspect. But when we talk of
collection, you are not questioning the legality. Rather,
you’re questioning the assessment or the computation.
RULE: what should not be delayed by an injunction or a
TRO is the collection of taxes.
XPNS: the only body which can issue injunction which is
considered as an ancillary to the main petition or main
appeal is the CTA - COURT OF TAX APPEALS, NOT the
MTC, RTC, CA nor Sandiganbayan.
Why? Because it’s a matter of collection. You’re
questioning the way the tax was computed. This is a bit
technical so it requires a specialized body which is within
the jurisdiction of the CTA.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
What are the grounds for the CTA to issue the
injunction?
GR: 2 grounds:
1) If upon the evaluation of the CTA, there’s a
finding that the collection of taxes is prejudicial to
the taxpayer or to the government.
EXAMPLE: if the collection tax results to bankruptcy of
that company, 5,000 people will lose their jobs. So that
will be taken into consideration.
2) PROVIDED, the taxpayer is able to post a bond
which is equivalent to twice/double the basic
deficiency tax assessment.
You might ask, that doesn’t make sense dili gani
makabayad maong magpa injunction and then require n
hinuon to post a bond? Well, it’s NOT NECESSARILY a
cash bond. Although of course you can post a cash bond
there, but most of these taxpayers avail the services of a
bonding company. Wherein they just pay a certain
premium, mura ug bill ba, to that bonding company. The
purpose of the bond
4. Tax could not be subject to set-off.
In essence, when we talk of set-off or offset, utangan ka
sa government or you have an unpaid tax and the
government also has a liability to you and you will just
say “oh government I will not collect nalang my
receivable from you and offset sa tax ga payable nako sa
imo”. In short, quits nata.
As a rule, it cannot be done; the principle of offsetting is
not applicable. Why? Because usually when we talk
of the government owing something to the
taxpayer, it’s not necessarily pursuant to the
power of taxation.
In one case, it’s pursuant to the power of Eminent
Domain in the payment of just compensation but wala pa
na bayaran so naay receivable and at the same time the
taxpayer has a tax payable to the government.
TN: however, in one exceptional case, and I say
exceptional case because this is quite an old case.
Domingo v Garlitos (GR No. L-18849) Off-setting can be
done under two conditions:
1) When both claims are due and demandable;
2) Both claims are fully liquidated.
Fully liquidated
- it means the amount is already set. No more
question as to the propriety of the assessment or
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 computation. It is final, due, demandable, and
liquidated.
In practice, when it comes to off-setting, I have not seen
the BIR applying this offsetting. Why? Because it’s very
seldom that BIR mautangan nimo – if nautangan ka, it is
in the sense na nasobrahan ka ug bayad. And if sobra imo
gibayad, then you can actually ask for a refund.
There are specific conditions and qualifications
when you can ask for refund. There are also instances
when you can ask for tax credit. BIR can also issue for a
tax credit certificate, but BIR, under the recent
amendment on tax code, DOF to be specific, DOF does
not look in much favour in the issuance of these tax credit
certificates (TCT) because it is sometimes abused by tax
payers as these are transferrable.
The other one is Carry over, but not all types of taxes
can be carried over. Again, there are conditions there. It
does not necessarily mean na masobrahan ang bayad
then utangan ang government nimo. Because ultimately,
you will be asked to pay tax man in the future. So, you
can either carry over that claim for credit or claim for
refund. Depending on the situation, on what type of tax
and the documents presented to the government. So,
there are conditions.
By the end of income taxation, you must understand
when it is proper to carry over, to claim it as credit, and
to claim for refund.
5. Taxation is an unlimited and plenary
power.
Then, manifestation of lifeblood doctrine. Meaning to say,
related to our previous discussion in number 2 of the
manifestation that the state can select the object and
subject of taxation.
Because you know, the primary purpose of taxation is
revenue raising. Government has to think of ways how to
raise revenue and one this way is to increase the rate,
but in some point of time, raising the rate is
counterproductive and mureklamo ang tax payers
eventually. So, the best way is to look for some other
items that can be subjected to tax, look for some other
privileges that may be subjected to tax.
Became more apparent when the TRAIN law was passed.
Unsa ang mga transaction or activity na dili taxable prior
to TRAIN law. For example: cosmetic surgeries were not
taxable before, but they have to think to raise revenue to
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
fund for their Build Build Build, that’s why they subjected
it to tax. Vehicles and automobiles – they increased the
tax. Cigarettes, they increased the tax. So these are some
examples where dili taxable sa una but gi subject to tax
or exempted sa tax sa una but gi remove ila exemption.
Usually daghan ni sa business taxes, mga negosyante ang
gigukod.
If you’ve been hearing the news, Congress basically
passed the DETA Bill (Digital Economy Taxation Act of
2020).
The digital economy obviously, the digital service
providers, the online sellers through these online
platforms—the BIR is doing its best to tax these
transactions because currently it’s not yet being strictly
monitored by the DOF who thinks of ways to tax these
businesses to raise the revenue of the government. The
DOF, basically, works with the congressman to sponsor a
bill and eventually a senator to sponsor a bill in the senate
and eventually pass it to tax laws. So, these are the
manifestation of the lifeblood doctrine, all for the purpose
of raising revenues, imposing tax being the lifeblood of
the state or the government.
So, just to highlight, in the case of MANILA MEMORIAL
PARK INC. V SECRETARY OF DSWD AND DOF (see
page 4) , this is also a very good case so please read this
case. The discussion is good especially on the part of
social justice provision of the tax code, the issue basically
surrounds on the ground of the 20% discount under the
expanded Senior Citizens Act. The Cemetery companies
complained because before they are exempted but to
raise the revenue, eventually the exemption was stricken
out so they questioned. The SC’s concurring opinion of
Justice Leonen, thoroughly that the power of tax is a
principal attribute of sovereignty. In short, it is an
inherent power of the state. It anchors with social
contract with its citizens to promote public interest and
common good. According to Justice, the scope of the
legislative power to tax necessarily includes not only the
power to determine the rate of the tax but the method of
its collection as well. So, if the legislatures will say that
this tax will be collected through tax credit or through
withholding or through deduction, its part of the authority
of the legislature.
He further said that the state has the power to make
reasonable and natural classification for the purpose of
taxation whether it relates to the subject of taxation, the
kind of property, the rates to be levied, or the amounts
7
to be raised, the methods of assessment, valuation and
collections, the State’s power is entitled to presumption
of validity. Meaning, the congress will be the one to
decide what is subject to tax. If it’s gross income or if it’s
net income.
What is the difference between the gross income
and net income?
Net Income
from the word net, it’s a net of all expenses as well as
costs, usually the indirect expenses.
Gross Income
pertains to the cost, considers the discounts, and cost of
sales of service.
READ THE CASE OF MANILA MEMORIAL AND
UNDERSTAND THE ISSUE.
The second nature of taxation is that it is legislative in
character. We discussed this already where the levy or
imposition of tax is exercised by the legislature. This is
exercise of high prerogative of sovereignty. The basis is
the promulgation of the rules by the legislature. Take
note, as a Republican State, the people laid down their
power to their representatives. So taxes are grant of the
people and the grant must be made by the immediate
representatives of the people. When we talked of
immediate representatives we are referring specifically
to the House of Representatives. And where the people
have laid the power, there it must remain and the
exercise was still in relation to the requirement that these
revenue raising bills must start with the House of
Representatives
WHAT IS THE MANIFESTATION THEN?
The manifestation of this nature or characteristic of the
power of taxation is that there should be no improper
delegation of legislative power to tax as a rule. In short,
it should be the legislature which must impose or
levy this tax, but that's a rule because there is an
exception as provided no less than by a
constitutional provision which is the devolution of
powers to the local government unit.
DEVOLUTION OF POWERS TO THE LOCAL
GOVERNMENT UNITS
The Constitution requires that as much as possible, LGUs
must be fiscally independent or at least, fiscally
sustainable, independent from the national government.
This is why, pursuant to said provision on local
government units, the Local Government Code of 1991
was passed into law. In that Local Government Code of
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
1991, it specified there what type of taxes a particular
LGU can collect -- if you are a province, or a city or
municipality or a barangay plus whether you are located
in Metro Manila or not. So there are specific taxes. As a
rule, the LGU can only collect these taxes. So it is really
the legislative who can exercise the power to tax, the
Sanggunian cannot levy or impose tax which is beyond
the law passed by the legislature. Moreover, the
Department of Finance (DOF) is really the agency which
pushes for amendments regarding the levy or imposition
of tax because it is the one who knows the performance
of its collecting agencies. It is also the DOF who reports
it to the House, the President, etc. The DOF has a
division which specializes on what legislative actions can
be done in order to improve the fiscal condition of the
country. Previously, that division was headed by
Undersecretary Carl Chua.
There should be no improper delegation of power but
there is an exception. Meaning these are the instances
where there is proper delegation and that is allowed
under the law.
EXCEPTIONS TO THE GENERAL RULE:
1) LGU under the LGC and Constitution;
2) As provided under the Constitution flexible
tariff clause- where the president is given the power to
adjust tariff rates. When we talk of tariff, a tariff is
actually a species of tax. Tariff is basically collected by
the bureau of customs pertaining to imports and exports
transactions unlike tax, it could pertain to anything and
everything that is taxable and and it is being collected by
the bureau of internal revenue but nevertheless, a
species of tax gihapon for revenue raising.
3) Administrative Regulation I.e. assessment and
collection - what is strictly required is that the
imposition or levying is legislative but the assessment
meaning to say the computation of the tax payable in the
collection once the computation is being made it may be
delegated to the administrative body and this is being
handled by the bureau of internal revenue.
In summary, when it comes to the nature of the power of
taxation, it’s an inherent power pursuant to the lifeblood
doctrine.
8
MANIFESTATIONS OF THIS LIFEBLOOD General Rule: Authority of the legislature to determine
DOCTRINE: the object and the subject matter of Taxation CANNOT be
It can be imposed even in the absence of delegated.
constitutional grant;
The state can select the object and subject of Exceptional Cases: LGU, Flexible Tariff Clause,
taxation; Administrative Regulation
There can be no injunction in collection of taxes National Internal National Taxes
as a general rule except for CTA; Revenue Taxes
It could not be subject to set-off. Except when a) Income tax; National Revenue Taxes
both claims are due and demandable and fully b) Estate and donor’s + Customs Duties
liquidated; taxes;
c) Value-added tax;
Note: Doctrine of Equitable Recoupment - A claim for
d) Other percentage
refund barred by prescription may be allowed to offset
taxes;
unsettled tax liabilities arising from the same transaction.
e) Excise taxes;
f) Documentary stamp
This doctrine is laid down in a US case. Why are we
taxes; and
referring to the US case? Primarily because our tax laws
g) Such other taxes as
are heavily based in US tax laws. The SC REJECTED this
are or hereafter may
doctrine in Collector v UST, since it may work to tempt
be imposed and
both parties to delay and neglect their respective
pursuits of legal action within the period set by law. collected by the
Bureau of Internal
Ang logic sa equitable recoupment is from the word Revenue
equitable, pursuant to equity. Kana bitawng, in refund
man gud there is a deadline for you to claim for refund. BAR Question 1980 and 1988
Generally, that’s two years. If you cannot claim the refund What are the characteristics of the taxation?
within that period, dili naka refundan. Because you are (Suggested answer/s)
Relate to Lifeblood Theory.
given the time but wala ka nag pakabana.
Attribute of sovereignty (inherent in nature) -
excludes the power to destroy
There were some before who relied on this doctrine of Legislative in nature
equitable recoupment out of equity because of the huge Imprescriptible
amount, instead of it being refunded because it’s already Applies prospectively
prescribed na, beyond na sa prescriptive period they’re Subservient to the non-impairment clause of
just asking it be offsetted against their existing tax liability. the Constitution
They’re arguing ngano walay mogawas nga kwarta sa May be exercised jointly with police power
government, and it’s equitable on our part for whatsoever
TAKE NOTE: Characteristics of Tax is different from
reason. The SC formally rejected that in that old case in
Characteristics of Taxation. When you are asked about
Collector v UST, and the explanation of the Supreme Court the Characteristics of Taxation, go back to the definition
is that it may work to tempt both parties to delay of taxation and eventually go back to the nature of the
and neglect their respective pursuits of legal action power of taxation - an inherent power of the sovereignty
within the period set by law. and it is legislative in nature. You do not say it is an
enforced and proportional contribution because when
The cases in “Tax 2 remedies” are consistent in its ruling you say “enforced and proportional contribution paid in
that if you file for refund or credit beyond the prescriptive money…etc.” you are talking about the Characteristics of
Tax.
period or time limit that will be automatically denied by the
BIR and CTA.
MANDANAS v. OCHOA, G.R. Nos. 199802 &
208488, July 3, 2018
Taxation is legislative in character and the authority of the (LGUs JUST SHARE IN IRA IS NOT LIMITED TO NIRC
legislature to determine the object and the subject matter TAXES BUT MAY ALSO INCLUDE CUSTOMS DUTIES)
is comprehensive, unlimited, plenary, and supreme Where the Constitution provides that LGU shall have
(CUPS). just share in the “national taxes,” but LGC provides that
LGU shall have share in the “national internal revenue

TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa 9
 taxes,” Congress has exceeded its constitutional
boundary by limiting to the latter the base from which
to compute the just share of the LGUs. The phrase
“national internal revenue taxes” is undoubtedly more
restrictive than the term national. Such departure is
impermissible. Verba legis non est recedendum (from
the word of a statute that should be no departure).
Equally impermissible is that Congress has also thereby
curtailed the guarantee of fiscal autonomy in favor of
the LGUs under the 1987 Constitution. It is clear from
the foregoing clarification that the exclusion of the
other national taxes like customs duties from the base
for determining the just share of the LGUs contravened
the express constitutional edict.
Congress cannot disobey the express mandate of
Section 6, Article X of the 1987 Constitution for the just
share of the LGUs to be derived from the national
taxes. The phrase as determined by law in Section 6
follows and qualifies the phrase just share, and cannot
be construed as qualifying the succeeding phrase in the
national taxes. The intent of the people in respect of
Section 6 is really that the base for reckoning the just
share of the LGUs should include all national taxes. To
read Section 6 differently as requiring that the just
share of LGUs in the national taxes shall be determined
by law is tantamount to the unauthorized revision of
the 1987 Constitution.
GENERAL PRINCIPLES OF TAXATION
THEORIES OF TAXATION
LIFEBLOOD THEORY
Taxes are the lifeblood of the government and so should
be collected without unnecessary hindrance.
It is said that taxes are what we pay for civilized society.
Without taxes, the government would be paralyzed for
the lack of the motive power to activate and operate it.**
CIR vs Metro Star Suprema Inc.
But even as we concede the inevitability and
indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably
and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right
to complain and the courts will then come to his succor.
For all the awesome power of the tax collector, he may
still be stopped in his tracks if the taxpayer can
demonstrate *** that the law has not been observed
NECESSITY THEORY
BENEFITS-PROTECTION THEORY
There exist reciprocal duties of protection and support
between State and its inhabitants. Inhabitants pay taxes
and in return receive benefits and protection from the
State.
- Support by the taxpayer
- Protection and benefits by the government
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
BENEFITS RECEIVED THEORY / DOCTRINE OF
SYMBIOTIC RELATIONSHIP
Without taxes, the government would be paralyzed for
lack of the motive power to activate and operate it.
Hence, despite the natural reluctance to surrender part of
one's hard-earned income to the taxing authorities, every
person who is able to must contribute his share in the
running of the government. The government, for its
part, is expected to respond in the form of tangible
and intangible benefits intended to improve the
lives of the people and enhance their moral and
material values. This symbiotic relationship is the
rationale of taxation and should dispel the erroneous
notion that it is an arbitrary method of exaction by those
in the seat of power.
LIFEBLOOD THEORY
Taxes are the lifeblood of the government and so should
be collected without unnecessary hindrance.
It is said that taxes are what we pay for civilized society.
Without taxes, the government would be paralyzed for
the lack of the motive power to activate and operate it.
But even as we concede the inevitability and
indispensability of taxation, it is requirement in all
democratic regimes that it be exercised reasonable and in
accordance with the prescribed procedure.
If it is not, then the taxpayer has a right to complain and
the courts will then come to his succor. for all the
awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate . . .
that the law has not been observed. (CIR v. Metro Star
Superama Inc. GR. No. 185371 December 8, 2010 citing
CIR v. Algur GR. No. L-28896 February 17, 1988)
Note: Without due process and limitation it leads to
destruction and what is inherent power is not to destroy
the taxpayer but rather to raise revenue.
The technicality involved is quite different as compared to
the usual civil or criminal technical procedures.
NECESSITY THEORY AND BENEFITS-PROTECTION
THEORY
The existence of a government is a necessity, therefore
there is a need to levy and impose taxes for the
countenance of the state, to defray the expenses.
i. Necessity to serve the people
ii. Necessity to protect the people
There exists reciprocal duties of protection and support
between the State and its inhabitants. The State supports
the taxpayer and the government grants us protection
and benefit. This need not to be directly given to the
taxpayer. Part of imposition of tax is social justice wherein
those who have less in life will be given more.
10
BENEFITS RECEIVED THEORY/DOCTRINE OF
SYMBIOTIC RELATIONSHIP
Without taxes, the government would be paralyzed for
lack of the motive power to activate and operate it.
Hence, despite the natural reluctance to surrender part of
one's hard-earned income to the taxing authorities, every
person who is able to. must contribute his share in the
running of the government. The government, for its part,
is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the
people and enhance their moral and material values. This
symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary
method of exaction by those in the seat of power.
In this time, the examiners were asked to
distinguish Lifeblood Doctrine, Necessity Theory,
and Benefits Received Principle. These are just
suggested answers based on the SC on these cases.
BAR Q 2016:
Briefly explain the following doctrines: Lifeblood
Doctrine; Necessity theory; Benefits received principle;
and Doctrine of symbiotic relationship.
LIFEBLOOD DOCTRINE - Without revenue raised
from taxation, the government will not survive,
resulting in detriment to society. Without taxes, the
government would be paralyzed for lack of motive
power to activate and operate it. (CIR vs. Algue, Inc.
GR No. L-28896, Feb, 17, 1988, 158 SCRA 9)
NECESSITY THEORY – The exercise of the power to
tax emanates from necessity , because without taxes,
government cannot fulfill its mandate of promoting the
general welfare and well-being of the people. ( CIR vs.
Bank of the Philippine Islands, GR no. 134062, April 12,
2007, 521 SCRA 373)
BENEFITS RECEIVED PRINCIPLE – Taxpayers
receive benefits from taxes through the protection the
State affords to them. For the protection they get arises
their obligation to support the government through the
payment of taxes. (CIR vs. Algue, Inc. GR No. L-28896,
Feb, 17, 1988, 158 SCRA 9)
Atty: So, this is where it is more or less the same with the
doctrine of symbiotic relationship. both the taxpayer and
the government benefit from each other. Of course, that
is as a rule because the power of taxation is still based a
person’s ability ti pay man diba? So, di sad kinahanglan
na tanan gyud taw na mu agi sa kalsada na mu gamit sa
public market dapat nag bayad ug tax because there are
many Filipinos who are not capable of paying taxes. That
should be taken in consideration.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
2.3
BASIC PRINCIPLES OD A SOUND TAX SYSTEM
1. Fiscal adequacy – sufficient to meet
governmental expenditures; revenues should be
elastic or capable of expanding or contracting
annually in response to variations in public
expenditure. economic elasticity
2. Theoretical justice or equity - (sec. 28 [1],
Art. VI) based on the taxpayer’s ability to pay.
3. Administrative Feasibility – capable of being
effectively enforced; Tax laws should close-up the
loopholes for tax evasion and deter unscrupulous
officials from committing fraud.
Basic Principles of a Sound Tax System
We have discussed so far the definition, the nature, the
characteristic in relation thereto and the underlying
theories to the power of taxation.
So now, we go to the basic principles of a sound tax
system. When we say, Principles - a guide to our
government or to our legislators in coming up with Tax
laws and the implementation or administration of these
laws.
3 Basic Principles of A Sound Tax System
You can say the mnemonic, FAT (para di malimtan
because this is the favorite item in the Bar):
F - Fiscal Adequacy
A - Administrative Feasibility
T - Theoretical Justice or Equity
FISCAL ADEQUACY
Simply means that if a tax law is passed, it should be
sufficient to meet the financial needs of the government.
It should be elastic or capable of expanding or contracting
in response to the variations in public expenditure.
If you are familiar with the proceedings in Congress, the
usual issue really before the Congress, is the passage of
the budget of the government for the next fiscal year or
the following Congress.
Why do they need to make this budget? Why do they need
to make these appropriations as early as possible?
It's because that will serve as the target of the
Department of Finance in generating its revenue. So, if
appropriation stands at trillions of pesos then it will be
divided among the revenue generating agencies of the
government, how much is budgeted? How much is the
target for the BIR? How much is the target for the BOC?
and from other government agencies? That sets the tone,
basically.
Now, if based on that appropriations, if based on that
budget, the forecast on the other hand, of these revenues
generating agency is dili enough ang magenerate nila,
then that's the time when the government need to look
at the other side and to think which of these taxes needs
11
to be increased or if new tax law needs to be increased
etc. That's all part of the Fiscal Adequacy principle, in
short, it's not a hard and short law that once you've
passed it, that's it, that's the end.
What are some illustrations of these provisions in
sharing Fiscal Adequacy?
Common illustration is when the tax law is amended
imposing the VAT. When the VAT was initially
implemented, the rate was initially 10%, however,
pursuant to certain conditions that must be met, the
President was empowered to increase the rate from 10%
to 12%. It was done in the time of President Gloria, during
the time when these conditions were met.
That’s one way of ensuring Fiscal Adequacy. Wherein
some point in time, you really need to adjust the tax rate;
you need to increase it. Not only to address the needs of
the government but also to address the inflation or
valuation of money as time passes by.
Recently, the government did not just increase some of
the tax rates. Rather, the government pursuant to the
passage of the TRAIN Law, imposed new taxes, new tax
rates and that is expected to still happen once the CREATE
bill becomes a law. The government continues to amend
the law by removing exempting provisions.
Before, all government agencies were exempted,
including GOCCs. Eventually when it was amended,
GOCCs became taxable. Only very few remain to be
exempted. These are some ways in ensuring that the
revenues generated by the government is fiscally
adequate for the appropriation of the budget of the
government.
ADMINISTRATIVE FEASIBILITY
Simply means that law (tax law) must be capable of being
effectively enforced; must close-up the loopholes for tax
evasion and deter unscrupulous officials from committing
fraud.
Simply put: COST-BENEFIT ANALYSIS.
THE BENEFIT generated by the government SHOULD
ALWAYS BE HIGHER THAN THE COST of implementation
thereof. This is the very reason why the BIR has to classify
taxpayers into: Large or Non-large Taxpayers, Top
Withholding or Non Top Withholding agents.
Why classify and separate from the registration n the
revenue office? Nganong pabalhinon kas Large
Taxpayer’s division?
Maybe because you‘ve been continuously paying high tax
rates/payments for the last few years or you’ve
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
consistently earned so much that you need to be strictly
monitored by the BIR.
Pursuant to this principle, the BIR cannot just monitor
each and every individual because there are some who
don’t even earn income, niya gukodgukoron paka, that's
simply against the basic principle of Admin Feasibility.
In short, BIR has no enough manpower and no enough
capacity to go against all the taxpayers. That’s why it has
to make a sound classification of taxpayers, esp as to who
will be prioritized in the audit, assessment and monitoring.
The rest are just sampling or if there's an anonymous
complaint raised to the BIR, usually that’s the case where
the BIR will go after you even if you say, gamay raman
ko or wala man koy gi declare pursuant again to Admin
Feasibility.
Also, pursuant to this principle, the BIR is also empowered
to issue revenue memorandum circulars and revenue
memorandum orders.
What’s the purpose? To clarify gray areas in the law
and in the regulation, all for the purpose of making the
implementation practical as much possible. Easy to
comply on the part of the taxpayers and easy to monitor
for the BIR officials.
THEORETICAL JUSTICE OR EQUITY
An important principle that is expressly provided in the
Constitution, Sec. 28(1), Art. VI. where it requires that in
passing tax laws, legislators must take into consideration
the taxpayer’s ability to pay, “equity”.
TN: Equity is different from equality.
EQUITY vs EQUALITY (referring to that popular meme
on FB)
EQUALITY – three of them were given the same box of
the same height but not everyone can see.
EQUITY
EQUALITY – we take into consideration their situation
and their height.
For taxation, it simply means, we take into consideration
the tax payer’s ability to pay. Meaning, the more
privileged that you are or more income that you generate,
the more tax that you pay to the government.
In connection with theoretical justice is the requirement
in Tax. If you call the definition of Tax, it is the enforced
proportional, it is based on equity or taxpayer’s ability to
pay. Proportional and progressive.
Of these three basic principles, in case this is
violated, which of these basic principles make the
12
tax law null and void? Which of these three can
nullify the tax law?
If it is violative of the basic principle of theoretical justice
or equity because this is what is expressly stated in the
Constitution. So automatic, that law or regulation
becomes unconstitutional, thus it follows that it becomes
null and void.
If that law or regulation merely violated the principles of
fiscal adequacy or administrative feasibility, then it does
not necessarily make the law or regulation null and void,
rather, it merely makes the law or regulation defective
and not unconstitutional. So, what can be done is to
amend the law or regulation to make it fiscally adequate
or administratively feasible.
This is very common labi na ni administrative feasibility.
Common ni sa mga circular nga gi-issue then gibawi nsad
ni BIR for the simple reason na di nya maimplemnt. Or for
the simple reason na walay expertise or walay manpower
si BIR.
Very basic example of admin feasibility is the
implementation or regulation or the requirement of
transfer pricing documentation (technical term).
When we say transfer pricing, this simply means to say
that if two entities are related or two corporations, the
other corporation is the parent of a subsidiary. Meaning
to say that the other corporation owns the 99% of the
other corporate entity and these related entities transact
with each other. The subsidiary purchases from the
parent, the subsidiary manufactures it, and then
eventually the subsidiary sales that product back to the
parent. Murag ragud nag managsoon. Huna-hunaa
managsoon mo, kung managsoon mo, sobra pa sa
inamigo ang pricing, usahay libre, diba? For taxation
purposes, for BIR purposes, that should not be the case,
even if you are a related entity, as much as possible, you
should treat both parties or that transaction as if you are
purchasing from a third party. Why? Because if you don’t
treat it independently, you will have no profit to report to
the Bureau or to the government. In that sense, alkansi
ang government. So, there must be a reasonable profit. I
say reasonable meaning it is acceptable in industry
practice—that is the very concept of transfer pricing
documentation.
So in short, way back 2013, it is required to document
what is the reasonable price if this transaction is entered
into with your related party. But I tell you, it was only
strictly implemented this year for the simple fact that the
technical team who crafted the regulation for the transfer
pricing documentation regulation all resigned when
Henares went out of office. And that is called
administrative feasibility. Why? It is useless. Even though
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
the government will issue a regulation but they cannot
implement it for the simple reason that it is costly to
implement. When we talk about cost, we are not talking
about the money that will be incurred by the BIR but we
are talking about the man power—if the BIR has the
capacity or if the BIR has the power to implement the law
or the regulation, that should all be taken into
consideration pursuant to the principle of administrative
feasibility. The BIR, as much as possible, wants to tax all
the online transactions, etc. etc. But the question is, is it
administratively feasible, right? Naa ba silay technical
expert, IT expert who can do IT audit, etc and some of
the technical staff. All of these are taken into
consideration such that if kailangan pa ta mag training or
we don’t have the manpower, shift gear ka, so diri ta sa
kaya natu na dili na natu gukuron. So that’s all pursuant
to the principle of Administrative Feasibility.
NATURE OF TAXATION
Scope: To determine—
1. Purpose(s)
2. Subjects and objects of taxation (within its
jurisdiction)
3. Amount and rate of tax
4. Kind of tax to be collected
5. Apportionment of the tax
6. Manner and mode of enforcement and collection
7. Situs of taxation
8. Grant tax exemption or condonation
9. Provision of administrative and judicial remedies
that may be availed by the taxpayers and
government
Again, just to emphasize, the power to tax is legislative in
character and the legislature can determine essentially
the scope of the tax.
This scope of the power of taxation is related supposed
to be to the nature of taxation that it is legislative in
character. The power of taxation is legislative in character
and the legislature can essentially determine the scope of
the tax.
Scope of the tax:
1. Purpose(s)
2. Subjects and objects of taxation (within its
jurisdiction)
3. Amount and rate of tax
4. Kind of tax to be collected
5. Apportionment of the tax
6. Manner and mode of enforcement and collection
7. Situs of taxation
8. Grant tax exemption or condonation
9. Provision of administrative and judicial remedies
that may be availed by the taxpayers and
government
All of these things can be determined or specified by
Congress. If you recall the concurring decision of Justice
13
Leonen in the case of Manila Memorial Park, it is
mentioned there the scope of the legislative power to tax;
sila ang maka-determine onsa ang e-subject to tax,
whether it’s gross income or net income. That’s all within
the power of the Legislature.
(ang discussion dire sa “purpose” kay sa 2.1 ni nga part
nga discussion so overview ni siya and ang 2.3 nga part
is “purpose and objective of taxation”)
PURPOSE
The purpose again is to raise revenue, so that should
be the primary purpose for it to be called as the power
of taxation.
NOTE: The purpose of raising revenue is only deemed
primary because in so far as the power of taxation, it also
has a secondary purpose.
Q. What is this secondary purpose to this to the
power of taxation?
It could either be regulatory or it could either be
compensatory.
Q. Why do we need to know that raising revenue is
the primary purpose?
Because there could be questions in the bar and in your
examination which will ask you to determine whether this
is power of taxation or police power. Not much of an
issue on power of eminent domain because eminent
domain is quite straightforward. There is taking of
private property, there is paying of just compensation, the
taking is for public purpose etc.
But the usual issue that could come in is:
“is this taxation or is this police power?”
Q. Nganong magka intertwined man sometimes
ang kaning duha ka power?
Because of the secondary purpose of taxation which is
regulatory. Meaning to say, the power of taxation
somehow is used in aid of the police power of the state.
Q. Why do we need to delineate if its power of
taxation or if its police power?
For the primary reason that the limitations applicable to
the power of taxation is different from the limitations
applicable to the police power of the state.
Q. Which is the most powerful inherent power of
the state?
The usual answer there is police power because it is
subject to very few limitations unlike the power of
taxation where it is subject to several limitations-
Constitutional, statutory and even inherent limitations.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
However, if that same question is asked in taxation
subject, particularly relation to the coverage, to the reach
or the scope of the power, then in such case, the most
powerful inherent power of the state is the power of
taxation because it could even go beyond the
geographical borders or beyond the territorial borders of
the Philippines.
So long as you are a resident citizen or you are a
domestic corporation, if you earn that income abroad,
that is already subject to tax. However, police power
when it comes to scope and coverage it is limited. It will
only be exercised if you violated a particular law and it
can be exercised within the geographical or territorial
jurisdiction of the Philippines. Because if a resident citizen
violates a law abroad, he is covered in the Criminal law or
police power of that state where she violated.
But for Power of Taxation he can still be covered by the
Power of Taxation even if he earned that income abroad.
So kung consti police power gyud ang most powerful pero
kung tax, be careful because the examiner might be
referring to scope.
• Most powerful inherent power of the State based on
“limitations” - Police Power
• Most powerful inherent power of the State based on
“scope” - Power of Taxation (for the Power of
Taxation is comprehensive, unlimited, plenary,
and supreme (CUPS))
PURPOSE OF THE REVENUE
To meet the legitimate objectives of the Government. In
short, the proceeds of the tax collected by the
government goes to the public fund and being a public
fund it is used for public purpose.
POWER OF TAXATION (MEMORIZE THE DEFINITION)
It is an inherent power of the sovereign exercised through
the legislature to impose burdens upon subjects and
objects within its jurisdiction to raise revenues, to meet
legitimate objects of the government.
PURPOSE AND OBJECTIVE OF TAXATION
The 4 R’s of Taxation:
1. REVENUE
2. REDISTRIBUTION
3. RE-PRICING
4. REPRESENTATION
Primary: revenue raising
Secondary: Non-revenue raising
1. Regulation and the Sumptuary Purpose of
Taxation
14
Holmes Dictum (McCulloch v. Maryland, 4 Wheat,
3164L ed. 579, 607) vis-à-vis Marshall Dictum
(Panhandle Oil C. v. Mississippi, 277 US 218).
Primary Purpose of taxation: Revenue Raising
(which is even detailed in the definition of the power of
taxation). But that is not the sole purpose.
Secondary Purpose of taxation: Non-revenue
Raising
Foremost of which is regulation or sumptuary purpose of
taxation. But in the process, still, taxes may be collected.
Together with the tax to be collected is the purpose to
regulate for the general welfare of the people.
Example: Sin Taxes imposed on cigarettes or alcohol, for
the general welfare because these are seen as non-
essential commodities and even harmful if abused. So,
pursuant to regulation, higher taxes may be collected for
these types of products from its manufacturer and seller.
Take into consideration Holmes Dictum and
Marshall Dictum.
Holmes and Marshall are associate justices of the
supreme court of the United States. They are famous in
the Philippines because these talk about the power of
taxation as the power to destroy.
Marshall Dictum:
- power to tax is the power to destroy -usually used
as basis of BIR, the taxing authority
Holmes Dictum:
- the power to tax is not necessarily the power to
destroy while this court sits.
- usually used as basis of the taxpayers
Resolution of Marshall v. Holmes Dictum
(Roxas v. CTA, GR No. L 25043, April 26, 1968)
The Supreme Court said that the power of taxation is
sometimes also called 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 order to maintain
the general public’s trust and confidence in the
Government, this power must be used justly and not
treacherously. It does not conform with Our sense of
justice in the instant case for the Government to persuade
the taxpayer to lend it a helping hand and later on to
penalize him for duly answering the urgent call.
So it must be exercised fairly, equally and uniformly lest
the tax collector which is now the commissioner kills the
hen that lays the golden egg. Further, the SC said in this
case that in order to maintain the general public’s trust
and confidence in the Government, this power must be
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
used justly and not treacherously. It does not conform
with our sense of justice in the instant case for the
Government to persuade the taxpayer to lend it a helping
hand and later on to penalize him for duly answering the
urgent call. In short, murag gi traydor ni government (this
is also a bar question before)
In relation to the regulatory purpose of taxation, we also
have the relevant case of PAL v EDU. In this case, this
involves the collection of tax pursuant to regulation or for
regulation purposes. The Supreme Court said that it is
possible for an exaction to be both a tax and regulation.
License fees and charges, looked to as a source of
revenue as well as a means regulation. The fees may
properly be regarded as taxes even though they also
serve as an instrument of regulation.
What we can get from here although there is really a
slight difference between licenses and the tax is that the
SC said that in ascertaining whether it's an exercise of the
police power of the state or the power of taxation of the
state what we need to look at is the purpose. If the
purpose is primarily revenue, or if revenue is at
least one of the real and substantial purposes, then
the exaction is property called tax. And since the
exaction is property called a tax, it becomes an exercise
of the power of taxation. Kay power of taxation man,
subject na siya to the limitations to the power of taxation.
Ngano man? Because kani nga particular line in this
discussion of the SC can be made to apply in the Manila
Memorial Case.
In the Manila Memorial Case, the SC is forced to decide
and to determine if kung unsa ang power nga gi exercise
sa government. When it requires a 20% discount for
purchases made by senior citizens and when the law
requires that the 20% discount can only be claimed by
the sellers’ tax deduction rather than tax credit. So the SC
in that case has to distinguish power of taxation, police
power and the power of eminent domain and ultimately
decide “Oh kani nga power gi exercise is this power,
therefore, dili subject ni siya to limitations applicable only
to this particular power of the state.”
Caltex v Coa, this was during the time of President Ramos,
right after the presidency of President Aquino, so medi
volatile ang price sa oil nganhi… So, the recent
requirement from the government established oil price
stabilization fund (OPSF).
How to reconcile the Holmes and Marshall Dictum?
Caltex vs COA
We find no merit in petitioner’s contention that the
OPSF (oil price stabilization fund) contributions are not
for a public purpose because they go to a special fund
of the government. Taxation is no longer envisioned as
15
 a measure merely to raise revenue to support the
existence of the government; taxes may be levied with
a regulatory purpose to provide means for
rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the
police power of the state. There can be no doubt that
the oil industry is greatly imbued with public
interest as it vitally affects the general welfare.
During the time of President Ramos, the price of oil was
very volatile. So, to avoid stark increase in the oil prices,
the government established the oil price stabilization fund
(OPSF) wherein distributors and manufacturers of these
oil and gasoline will contribute to such fund (more like a
sinking fund) so that when prices of oil in other countries
increase, they don’t need to raise their prices in the
Philippines because the difference in the increase of prices
will just be taken from the fund. This fund was questioned
by Caltex, one of the main players, by contending that
they won’t contribute for such fund is not for public
purpose and the beneficiaries are just the oil companies.
Caltex further contended that the fund is not for public
purpose because it goes to a special fund of the
government and not to the general fund. (Remember:
When we say tax, it goes to the general fund of the
government).
Remember: in this case, revenue is still generated.
However, other than the revenue that will be generated,
it’s more on the regulation of the price. Distinguish this
case from Manila Memorial Park Case.
Power of Taxation Police Power
Generates Does not generate
revenue. revenue.
However, if it does
generate revenue, it is
only enough for the cost
of the service given by
the government. It is only
commensurate to the
service given.
Example: Filing fees:
getting your PRC license,
getting your LTO license,
registering with the SEC.
(Kung wala kay direct na
makuha or direct benefit,
it could be a tax afterall)
Secondary: Non-Revenue Raising
1 Redistribution of wealth – the adoption of
progressively higher tax rates to reduce
inequalities in wealth and income.
2. Re-pricing – the increase or decrease of taxes
to prevent inflation or ward off depression.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
NON-REVENUE RAISING or SECONDARY PURPOSE
1. Redistribution of Wealth - the adoption of
progressively higher tax rates to reduce
inequalities in wealth and income.
So meaning today, kung gamay raka og income, gamay
ang tax rate. Kung milyon-milyon ang income nimo, dako
sad ang tax rate. This is perfectly illustrated in the
scheduler rate of individual income earners. Kay si
Individual income earner, and scheduler rate niya kay
ranges from a minimum of 5% up to a maximum of 35%.
If you are already earning more than 8M, you will be taxed
at a higher rate of 35% but if minimal lang, not even
exceeding 250K or nilapas lang ka gamay sa 250K, subject
lang ka to 5%. So the more that you have, the more you
should give which will understandably benefit those who
have less in life.
2. Re-pricing - the increase or decrease of taxes to
prevent inflation or ward off depression. Promote
economic progress and employment.
(These two are for Compensatory Purposes)
In sum: Primary purpose of taxation is revenue raising.
Secondary purpose is non-revenue raising; it could be
regulatory or sumptuary purpose for the general welfare
of the people, or compensatory purposes essentially
for the redistribution of wealth or for repricing.
The 4 R’s of taxation
These are already discussed:
1. Revenue
2. Redistribution
3. Re-pricing
4. Representation – is exercised by the
representative of the people. (House of
Representatives)
Bar Question
The Constitution provides – “The rule of taxation shall be
uniform and equitable. Congress shall evolve progressive
system of taxation. ***” Art. VI, Sec. 28(I) discuss the
rationale for its inclusion in 1987
Suggested answers:
Implementation of the social justice provisions of the
constitution is the rationale for the inclusion of the
progressive system of taxation in the 1987 Constitution.
Social justice is exemplified in the adage, he who has less
in life must have more in law. Under the progressive
system of taxation, the higher the net income the higher
is the tax to be paid.
However, irrespective of the amount of taxes paid, equal
access is to be had of the public services and
infrastructure resulting from the expenditure of public
funds.
16
(Tip in answering bar essay questions: presentation is
key. This particular answer is long but it is written in
separate paragraphs so dili tapolan si examiner mu check)
“Those who have less in life must have more in law” a
scene from Hidden Figures, 2016 (movie clip) This movie
will make you say “WOMEN!”
During the time of President Kennedy, this movie is a
glimpse on how black people were being discriminated
against by the white people. When it comes to taxation, I
surmised there just paying the same amount of tax.
*movie clip plays*
This is the reason why you can assert your right, that you
should be given the same treatment by the government.
Siguro from private institutions, private individuals, that’s
your viewpoint of the government nga di ba in the first
place, it should be the forerunner in treating them equally.
So if you have time, you try to watch that, that’s a good
movie although ma stress lang ka along the way because
there’s so many scenes na you can just imagine ba na kita
mga bisaya usually we have biases against the tagalogs
but those are only personal biases, those are not really
manifested by the government, unlike during this period
wherein everything by your mere color, you are being
discriminated and you are the same, you pay the same
tax. Okay? That’s the whole point there.
“Those who have less in life must have more in law.” What
happened in this movie is, White people think that they
are the only ones paying the tax or they are paying higher
taxes that they should only be the ones to benefit from
the services of the government and that they have the
right to just give a little to these Black people. That’s one
thing, the social justice involved in the imposition on the
Power of Taxation.
SCOPE OF TAXATION
1. Unlimited
2. Comprehensive
3. Plenary
4. Supreme
I repeatedly mentioned this already. You can use the
mnemonic CUPS.
These words are already understandable so I don’t have
to explain what they mean. What we will do is, we will
just illustrate this in various Supreme Court decisions
where the SC upheld the exercise of the power of taxation
for the simple reason, among others that the power of
taxation is CUPS.
Example is the case of Pepsi Cola Bottling Philippines
Company vs. Municipality of Tanauan. So in this case, it
involves the exaction of tax on bottles manufactured by
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Pepsi Cola. This is more on business tax, this is a 1976
case pa class ha? Wala pa nganhi ang Local Government
Code, so Medco different ang scenario but the point is
that in this case, the SC said:
The plenary nature of the taxing power thus delegated,
contrary to plaintiff-appellant’s pretense, would not suffice
to invalidate the said law as confiscatory and oppressive.
In delegating the authority, the State is not limited to the
exact measure of that which is exercised by itself. When it
is said that the taking power may be delegated to
municipalities and the like, it is meant that there may be
delegated measures of power to impose and collect taxes
as the legislature may deem expedient. Thus,
municipalities may be permitted to tax subjects which for
reasons of public policy the State has not deemed wise to
tax for more general purposes. (Pepsi Cola Bottling
Philippines Company vs. Municipality of Tanauan et. al. GR
No. L-31156, Feb. 27, 1976
Pepsi Cola Bottling Philippines Company vs
Mun. of Tanauan et.al.
The plenary nature of the taxing power thus
delegated, contrary to plaintiff-appellant’s pretense,
would not suffice to invalidate the said law as
confiscatory and oppressive. In delegating the
authority, the State is not limited to exact measure of
that which is exercised by itself. When it is said that the
taxing power may be delegated to municipalities and
the like, it is meant that there may be delegated such
measure of power to impose and collect taxes as the
legislature may deem expedient. Thus, municipalities
may be permitted to tax subjects which for
reasons of public policy the State has not
deemed wise to tax for more general purpose.
Although, applicable sa more on the local government
code naa man gud ta gi tawag class na Doctrine of
Preclusion insofar as these LGUs are concerned meaning
LGUs can only impose taxes that are not being imposed
by the national government, so long as it is delegated
power. So, in this case apparently business tax is within
the plenary power, ang computation lang niya ang gi base
niya is sa bottle ha? If I am not mistaken. So the SC said
that, that’s okay, it’s within the delegated power . The
LGU can basically think of ways on how to tax or how to
implement or impose the tax because the power of
taxation is plenary in nature.
In this case of Tio vs. Videogram Regulatory Board, I will
not discuss what this case is all about but the SC said, it
is beyond serious question that a tax does not cease to
be valid merely because it regulates, discourages, or even
definitely deters the activities taxed. The power to impose
taxes is one so 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 the authority which exercises it. In
17
imposing a tax, the legislature acts upon its constituents.
(Tio vs. Videogram Regulatory Board,GR. No. 75697, June
19, 1987)
Which is why the tax in this case is upheld or validated by
the SC. Nga kay na kay first tike man nay mga VHS or
VCD or DVDs during this time na gi subject siya into tax.
Tio vs Videogram Regulatory Board
“*** it is beyond serious question that a tax does not
cease to be valid merely because it regulates,
discourages, or even definitely deters the activites
taxed. The power to impose taxes is one so
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 the authority which exercises
it. In imposing a tax, the legislature acts upon its
constituents.
2.4
ASPECTS OF TAXATION
1. LEVY OR IMPOSITION (Legislation)
2. ADMINISTRATION (Tax Administration)
Agencies involved:
- Bureau of Internal Revenue (BIR)
- Bureau of Customs (BOC)
- Provincial, City, and Municipal Assessor and
Treasurers
When we talk of aspects of taxation, we are basically
referring to the sort of phases in the exercises of the
Power of taxation.
Take note: Although we said that the Power of Taxation
is legislative in character, when we talk about the aspects
of taxation, that the power doesn't stop by the mere act
of imposing, levying or passing a tax law, it goes beyond
that. What is important is the implementation or the
administration thereof. Which is why, when we talk the
aspects of taxation, we basically divide it into two (2)
major aspects:
1. Levy or imposition - being done by the legislative
body of the state.
2. Administration or implementation aspect - which
is being undertaken by the executive agency. In
the Philippines, this is primarily under the
supervision of the Department of Finance and the
assessment and collection is primarily the
responsibility of the Bureau of Internal Revenue.
AGENCIES INVOLVED IN THE ADMINISTRATION
1. Bureau of Internal Revenue (BIR) - headed by the
Commissioner of the Internal Revenue
2. Bureau of Customs (BOC) - headed by the
Commissioner of Customs
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
3. Provincial, City and Municipal Assessor and
Treasurer - pertaining to local taxes.
At this point, January and first quarter of the year, this is
usually a busy season for the assessor and treasurers for
the collection of local business taxes as well as real
property taxes.
In levy or imposition - that is strictly legislative,
although the legislators may delegate it to the Local
Government Unit. We will learn later on in Tax 2, the
division in the LGU which still exercises the passage of
these local taxes is also the legislative division which is
the Sanggunian Panlalawigan, Bayan, Panlungsod or the
Barangay Council.
For the tax administration - usually this involves
assessment or taxes. When we say assessment it means
to say that BIR or BOC will determine how much is the
correct tax liability based on the provisions of the law and
the regulation. Then, ultimately it involves collection, so
after that assessment, collection happens.
Now when it comes to assessment or computation of
taxes, remember at this point in the Philippines, the
general rule we used the self-assessment. It is more like
of voluntary declaration and voluntary computation on the
part of the taxpayer. Again, following the principle of
administrative feasibility. Kay dili man pwede nga gamay
na pangutana or ang computation buhaton sa of officers
sa BIR, that would be too burdensome on their part.
Then, ni abot sa tumoy ang result negative. So we follow
the self-assessment.
So if you are a taxpayer, you assess how much you think
is your tax payable. If you follow the legal way of
assessing it, then no problem. But if you purposely or
inadvertedly or negligently computed your tax liability
then that's when the penalty comes in, that's when
deficiency assessment will happen. This deficiency
assessment will be done by the Bureau or BOC, as the
case may be.
The collection, ang kapares ni collection is the payment.
The one who does the payment through valid channels is
the taxpayer.
COLLECTION OF NATIONAL TAXES
Take note when it comes to collection and payment of
National Taxes or taxes under NIRC. Remember the
Mandanas case, you have NIRC. So our focus is NIRC.
Side note: Local tax, tariff and customs duties are special
topics.
When it comes to National Internal Revenue tax, the
collection and the payment may be left to private persons
or private entities. Again, administrative feasibility
18
because if the BIR will be the only agency who will do the
collection, they will have to hire so many cashiers. It will
be open not only to corruption but also errors and
mistakes.
When it comes to national revenue taxes, you may pay to
the banks. These are known as the authorized agent
banks (AABs). You may pay them for a specific RDO. Dili
tanan bangko pwede ka mubayad. They have to be duly
authorized by the BIR.
Side note: We will have a discussion on this when we
reach filing of payment.
With the recent happenings, you can even pay online or
using debit cards or thru gcash. If you are an EFPS
(Electronic Filing and Payment System) filer, it’s
automatic, payment is automatically done to the account
of the BIR.
When it comes to these e-payments, this is beneficial
especially on the part of the State because this avoids
under the table corruption. Why? Because the transfer is
being done electronically or being done thru the bank,
wherein they’re quite strict with their protocols with
regards to these payments. The loopholes of opening the
possibility of corruption is at least being minimized if not
avoided.
If we elaborate the aspects of taxation start with the levy,
it becomes a law implemented by the BIR
assessment collection and payment.
Assessment and collection are under the sub major of
administration which is being handled by these 3
agencies: BIR, BOC, and Treasurers’ Office for local taxes.
TAXATION DISTINGUISHED FROM POLICE
POWER AND EMINENT DOMAIN
As to purpose.
• Taxation - for the support of the government
(where the gvt can raise revenue.)
• Eminent domain - to acquire private property for
public use (where the gvt will have to spend)
• Police Power - to promote general welfare, public
health, public morals and public safety (where the
gvt can ‘bawi’ the cost of its service)
As to compensation?
Taxation – protection and benefits received from the
government
Eminent Domain – just compensation, not to exceed
the market value declared by the owner or administrator
or anyone having legal interest in the property, or as
determined by the assessor, whichever is lower.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Police Power – the maintenance of a healthy economic
standard of society.
• Taxation - taxes go to the general fund and this
fund is being used by the govermentt for the
protection and benefit to its constituents. It’s the
protection of benefits received from the
government. It’s a functioning official.
So, mao na kung mangutana mo sa ako na do we really
have the right to criticise public official? Then, I say yes
because we paid them to do their job. But anyhow, that’s
beside the point that is just my person opinion.
Nevertheless, when it comes to taxation, do you really
need to feel directly the protection and benefit? Not
necessarily. Even if you only indirectly felt it, ang uban
man gud kay mudemand kay tax payer ko – dako kog
tax… abi abi hon ko. They expect to be given special
treatment. But can you really expect that? Not
necessarily. Because these benefits could come indirectly.
Not necessarily direct.
• Eminent Domain – just compensation, to exceed
the market value declared by the owner or
administrator or anyone having legal interest in the
property, or as determined by the assessor,
whichever is lower.
• Police Power – the maintenance of a healthy
economic standard of society.
As to persons affected.
This is where the scope comes in; the unlimited scope
comes in.
Taxation and Police Power – operate upon a
community or a class of individuals
When it comes to scoping, police power is more
dependent on the geographical jurisdiction of the country,
which is not the case for the exercise of the power of
taxation
Eminent Domain – operates on the individual
property owner
As to authority which exercises the power?
Taxation and Police Power – exercised only by the
government or its political subdivisions.
ED – may be exercised by public services corporation or
public utilities if granted by law.
• Taxation and Police Power – Exercised only by
the government or its political subdivisions.
If you will be asked, what power is exercised police power
or taxation? Check who is making the collection or
imposition. If it is the government, then you can
entertain the thought that it is either the taxation or
police power.
19
But definitely, if ang nicollect sa collection or exaction is
a private entity, then the power of taxation or police
power is beside the point. Maybe, the basis of that power
is through a contract or an agreement or through the
provisions of the law.
Usual case in point: service providers. Distributors,
electric distributors, water utilities, they ask for payment.
Do we still need to argue if they are in exercise of the
power to taxation or police power? Definitely not.
Because these entities are essentially private entities and
you are paying for a direct service that you get from
them.
• Eminent Domain – may be exercised by Public
Services Corporation or public utilities if granted by
law.
Especially those being granted franchises by the
legislature or legislative bodies. So, they can take or
purchase private properties for the construction of
roads, facilities or communication facilities, etc. as the
case may be. Even airport.
As to the amount of imposition.
• Taxation – generally no limit to the amount of
tax that may be imposed
• Police Power – limited to the cost of regulation
• Eminent Domain – There is no imposition;
rather, it is the owner of the property taken who
is just paid compensation.
Kung kani na aspect ato tanawon, taxation is the most
powerful because police power is limited lang to the
cost of regulation and as to the eminent domain, as a
matter of fact, it is the government who pays property
owner a just compensation.
As to the relationship to the constitution?
Taxation – subject to certain constitutional limitations,
including the prohibition against impairment of the
obligations of contracts.
PP – relatively free from constitutional limitations and
superior to the non-impairment provisions thereof.
ED – may override constitutional impairment provision
because the welfare of the state is superior to any private
contract.
TAXES: enforced proportional contributions from
properties and person levied by the State by virtue its
sovereignty for the support of the government and for
public needs.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
• Taxation – subject to certain constitutional
limitations, including the prohibition against
impairment of the obligation of contracts.
This is even divided to direct and indirect constitutional
limitations. The indirect constitutional limitations, these
are the types of limitations which are not only applied to
the power of taxation but also applied to the police
power, and at some extent the power of eminent domain.
In this aspect, if we look at the relationship to the
constitution, the power of taxation is weaker to the police
power, for the simple fact that the power to taxation is
subservient to the non-impairment of obligations and
contracts clause.
Side note: Non-impairment of obligations – we will
have more discussions on this.
• Police Power – relatively free from constitutional
limitations and superior to the non-impairment
provisions thereof.
• Eminent Domain – may override the Constitutional
impairment provision because the Welfare of the
State is superior to any private contract. More or less
discussed in Consti 1.
TAXES
We move on to taxes. More or less you already have an
idea what the power of taxation is all about. It’s important
to memorize its definition, the supporting theories of the
power of taxation, the nature of the power of taxation,
the basic principle of the tax system in exercising the
power of taxation, and of course the aspects of taxation.
Let’s now move on to the end product, or the one that’s
collected—the taxes.
As defined previously, taxes are enforced proportional
contributions from properties and persons levied by the
state by virtue of its sovereignty for the support of the
government and for public needs. Primarily when we say
enforced, we relate this to the definition of the power of
taxation wherein the power of taxation involves
imposition of burden of objects or subjects matter
thereof. It’s a burden that’s why it’s enforced proportional
contribution.
Meaning to say, if you belong to the same class and if
you’re subject to that particular tax, then you have to pay.
You cannot make the excuse that you will not pay tax
because the government officials are corrupt or you
cannot make any excuses that you will not pay tax since
anyhow, I will not use government facilities because it is
enforced—you have to pay because we don’t pay for the
direct benefit after all.
And then of course, proportional contribution, this is
related to taxes which has to be progressive.
20
Is there a difference between progressive and ii. OPT - Other Percentage Tax
proportional? d. Excise taxes - specific to taxes on non-
Yes and we will discuss that later on. In essence, they essential commodities
are just the same because the underlying logic in e. Documentary stamp taxes - documents
proportional and progressive contribution is one’s ability
being executed in order to transfer rights,
to pay which ultimately leads to equity when it comes to
the exercise to the power of taxation. obligations, etc.
2. Local/municipal taxes - primary reference is the
CONTRIBUTION Local Government Code
When we talk about contributions, taxes have to be paid 3. Tariff and customs duties - under the Customs
in money—you cannot pay taxes in kind or in service—it Modernization and Tariff Act (CMTA)Taxes and tax
has to be monetary. The concept of polo y servicio is not incentive under special laws.
practiced anymore which is used during the Spanish
Note: Income tax – Tax 1; Transfer taxes and others
regime. Taxes are now payable in money, from properties
and persons, these properties and persons are what you – Tax 2
call the object or subject matters by the state and that ESSENTIAL CHARACTERISTICS AND ATTRIBUTES
state must be sovereign. So, when it comes to the OF TAXES
sovereign state, primarily the levy or the imposition is 1. Enforced contribution
being exercised by its duly established legislature for the 2. Generally payable in money
support of the government and for public needs. 3. Proportionate in character
4. Levied on person, property or the exercise of a
right or privilege
The power exercised to collect the tax is called taxation.
5. Levied by the State which has jurisdiction over
The money collected is called taxes. If I will ask you to
the subject or object of taxation
distinguish, you have to define fully the power of taxation
6. Levied by the lawmaking body of the State
and distinguish that with taxes using the definition of
7. Levied for public purpose/s
taxes.

KINDS OF TAXES Just a more specified definition so if you have

Internal revenue taxes memorized the definition, you can answer what are the
o Income taxes characteristics.
o Transfer taxes
o Percentage taxes 1. Enforced contribution
o Excise taxes
o Documentary stamp taxes 2. Generally payable in money - this is termed
Local/municipal taxes generally because there is exception: application of
Tariff and customs duties the tax credit certificate (TCC).
Taxes and tax incentives under special laws
However, based on current practice and based on
Kinds of Taxes BIR practices they are gearing away from this tax
1. Internal revenue taxes - primary reference is the
credit certificate discouraging the application of tax
NIRC
credit certificate and per experience most of the
a. Income taxes - This is focused in Tax I for
application on TCC ma deny either due to lack of
the primary reason that this is a major
documentation or because nilapas naka sa
revenue-generating type of tax.
prescriptive period, and somehow si taxpayer kay
mahadlok mo apply for TCC kay based on BIR audit
The other taxes are also revenue-generating
programs, basta mo apply ka for that you’ll be subject
but not as large as income tax. Sa income
to tax verification or tax audit or examination. But
tax if sweldohan ka, automatic ang deduction
pwede ba na? Yes.
so walay evasion mahitabo. Unlike when you
have your own business, you can think of
3. It’s proportionate in character based on the
ways to minimize legally your tax liability.
taxpayers ability to pay
b. Transfer taxes
4. Levied on person, property or the exercise of
i. Donor’s tax
a privilege
ii. Estate tax
5. Levied by the State which has jurisdiction
c. Percentage taxes - known as business taxes
over the subject or object of taxation -
i. VAT - Value Added Tax

TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa 21
 basically that’s subject or object and when we talk
of jurisdiction, it can either be geographical
jurisdiction or the ural, nexus or bond.
6. Levied by the lawmaking body of the State -
which is the legislature
7. Levied for public purpose/s - which is for
government needs
Based on the characteristics of the definition of tax, what
then are the requisites of a Valid Tax?
REQUISITES of a VALID TAX (PUJDL)
1. It should be for a Public purpose
2. The rule of taxation should be Uniform
3. That either the person or property taxed be within
the Jurisdiction of the taxing authority
4. That the assessment and collection be in
consonance with the Due process clause
5. The tax must not infringe on the inherent and
constitutional Limitations of the power of
taxation.
Side note: You need to memorize in case you are
asked if taxable or not. These are the things you need
to consider first to determine whether it is a valid tax.
1. It should be for a Public Purpose
2. The rule of taxation should be Uniform - so long
as you belong to the same class. People v Cayat
where the SC discussed that there could be
different classes based on substantial distinctions.
Basta ni belong mo sa same class then there
should be uniform treatment, there should be
uniform imposition of tax and that requirement is
a Constitutional provision. You recall the
requirement of equity and uniformity, so kung dili
uniform ground na na to question the law and
request that it may be nullified.
Example: Peza registered companies kung magpa
register ka subject ka to 5% tax lang. Then here
comes a law gi specify nga ABC should be
subjected to this amount of tax higher than 5%
when in fact you are Peza registered, that alone
makes you different from the rest or from the
other Peza registered companies. So pwede na ba
nimo iquestion nga that’s an invalid tax? Yes.
3. The either the person or property taxed be within
the Jurisdiction of the taxing authority
4. That the assessment and collection be in
consonance with the Due process clause - dire
mosulod ang procedural as well as substantial due
process.
5. The tax must not infringe on the inherent and
constitutional Limitations of the power of taxation
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
unsa ang diperensya sa duha (inherent and
constitutional)? When we talk of inherent these
limitations are not necessary in the Constitution
but this attaches to the very power itself nga once
you exercise the power of taxation these
limitations automatically exist. The Constitutional
limitation these are the limitations expressly
provided under our Constitution.
Eventually in this study on general principle, we will
learn what are the inherent limitations and the
constitutional limitations. Why? Because if the tax
imposed violates either the inherent or constitutional
limitations, then that is a ground to nullify the
imposition because it is a requisite for there to be a
valid tax.
Note: In our succeeding topics, magbalik2 sa requisites
of a valid tax, mag branches2 nana sila. (LOL)
Requisites:
1. Public purpose
2. Uniform
3. Jurisdiction
4. Due Process clause – procedural and substantial
- remedies (Procedural Due Process failure to
follow the procedural rules may be a ground to
nullify the assessment)
- Substantial Due Process - legislature’s authority
to impose
- Common question regarding violation of due
process - violation on the direct constitutional
limitations
5. Limitations
Common question: if violation of due process is a violation
of the direct constitutional limitations?
If there is violation on inherent limitation, automatic
that is being interpreted to be a violation of the due
process clause. BASIN MU INGUN KAG SIR WA KO
KASABOT (HUHU srry atty) Kaning limitation, wala ni
necessarily express provision sa constitution and law.
Example of inherent limitation: territorial jurisdiction
and public purpose. There is no strict or express
prohibition in the Constitution about that.
Now, kung mu question ka sa legality sa tax law sa
court, again, when we question the legality, we are not
questioning the manner of computing the tax law, you
go to regular courts ie. RTC kung constitutionality or
legality diba? Incapable of pecuniary estimation. But if
we talk about computation, specific provisions of the
law, claims for refund CTA
22
In filing a judicial case, your claim must be based on a
particular law or provision in the Constitution. However,
inherent limitations are not expressly provided for. So, if
there is a violation of inherent limitation, that is deemed
as a violation of the due process clause. Specifically,
substantive due process. Further, substantive due process
tells us that the imposing authority must have the
authority to impose the tax or to pass the law. So it follows
that if the authority imposed a tax on someone or
something outside of its jurisdiction, then that is a
violation of inherent limitation which is automatically a
violation of due process clause.
In short, Inherent Limitations and Due Process is
interrelated. If ni violate sa inherent limitation, automatic
ni violate sa due process. In short, the levying authority
which is the legislature went beyond its authority.
CLASSIFICATION OF TAXES
As to subject matter or object?
1. Personal, poll or capitation tax
Tax of a fixed amount imposed on persons residing within
a specified territory, whether citizens or not, without
regard to their property or the occupation or business in
which they may be engaged, i.e. community tax.
2. Property tax
Tax imposed on property, real or personal, in
proportion to its value or in accordance with some other
reasonable method of apportionment.
3. Excise tax
A charge impose upon the performance of an act, the
enjoyment of privilege, or the engaging in an occupation.
As to subject matter or object
1. Personal, poll or capitation tax - Tax of a fixed amount
imposed on persons residing within a specified territory,
whether citizens or not, without regard to their property
or the occupation or business in which they may be
engaged, Ex. Community tax
Pwede ba ka ma priso for non-payment of pol tax?
Remember the constitutional limitation on that. Non-
imprisonment for non payment of poll tax but ofc, pwede
ka ma priso for if g peke nimo imong certificate for
example.
2. Property tax - Tax imposed on property, real or
personal, in proportion to its value or in accordance with
some other reasonable method of apportionment.
Example: Real property tax
3. Excise tax - A charge imposed upon the performance
of an act, the enjoyment of privilege or the engaging in
an occupation
Ang gipasabot nato diri is the umbrella term. Same with
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
percentage tax, these are umbrella terms. Ang excise tax,
na subdivide na siya into more specific taxes, such that
income tax is a specific tax time is characterized still as
being an excise tax. Ngano man? Bcs it is a tax imposed
if you enjoy an occupation or if you enjoy a privilege. But
if you look at the Tax Code there is a specific chapter for
excise taxes, mahulog nalang na sila as other excise
taxes. Pero ang uban types of tax income tax,
documentary stamp tax these will be classified as excise
taxes in essence.
As to who bears the burden?
1. DIRECT TAX
Taxpayer is directly or primarily liable.
2. INDIRECT TAX
A tax which the taxpayer can shift to another.
As to who bears the burden
1. Direct tax – taxpayer is directly or primarily liable
Ex. Income tax - income earning should be the
one who bears the burden. Ang income niya
makuhaan sa tax na ibayad to the govt.
2. Indirect tax – a tax which the taxpayer can shift to
another
Ex. Business tax – shifted to Value added tax.
E shift ang burden to the consumer
We have to understand nganong indirect or direct.
For income tax, ofc this is a tax on your privilege to earn
from your business or for your service or in your
employment.
Q. Nganong ang employer mu remit sa tax?
The issue here in classifying whether indirect or direct is
to look at who bears the burden. In short, kinsa ang
nakuhaan ug monetary property.
In an ER-EE relationship, it is the ER who remits the tax
to the BIR but the one who bears the burden there is still
the EE bcs the tax there is deducted from the EE. Very
seldom lang na ang Negosyo ang mu bear sa burden sa
sweldo sa EEs. But there are some companies who
shoulder but di na siya maayo. If it is being shouldered
by the company, it is as if the tax being shouldered by
the company is as if it is also a compensation to the EE
and that has several consequences… which ofc is
another set of discussion na
Ang VAT, e separate jud na. Kinsa ang ni bayad? Ang
consumer.
23
 As to the determination of amount?
1. SPECIFIC TAX
A specific tax is a tax of a fixed amount imposed by the
head or number or by some other standard of weight or
measurement.
2. AD VALOREM TAX
An ad valorem tax is a fixed proportion of the value of the
property with respect to which the tax is assessed.
As to the determination of amount
1. Specific Tax - a tax of a fixed amount imposed by
the head or number or by some other standard of
weight or measurement.
2. Ad Valorem Tax - a fixed proportion of the value of
the property with respect to which the tax is assessed
ex: real property tax, customs duties, tariffs –
depending on what type of object is being imported or
exported.
As to purpose?
1. GENERAL, FISCAL OR REVENUE
2. SPECIAL or REGULATORY – non-useful
occupation / activities / enterprises
As to purpose
1. General, Fiscal or revenue
2. Special or regulatory
If that is a legitimate business that has been subjected to
tax, not necessarily to discourage, the exercise thereof is
revenue purpose.
If that activity is harmful but not illegal per se and g
imposan lang ug mas dako na tax, purpose is more on
regulatory.
As to scope or authority imposing the Tax?
1. NATIONAL TAX – recall Mandanas case where
SC distinguished National vs NIRC.
2. LOCAL or MUNICIPAL TAX
As to Graduation or Rate?
1. PROPORTIONALTAX
Tax based on a fixed percentage of the amount of the
property receipts or other basis to be taxed. Example: real
estate tax.
2. PROGRESSIVE TAX
Tax the rate of which increases as the tax base or bracket
increases.
Digressive tax rate ???
3. REGRESSIVETAX
Tax the rate of which decreases as the tax base or bracket
increases.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
As to Graduation Or Rate
1. Proportional Tax - is based on a fixed percentage of
the amount of the property, receipts, or other basis to
be taxed. (Real Estate Tax, Compensatory Tax)
2. Progressive Tax- the tax rate of which increases as
the tax base or bracket increases.
Digressive Tax Rate — Started as progressive but
eventually remains fixed or constant at a particular
rate. (32% stagnant)
3. Regressive Tax - the tax rate of which decreases as
the tax base or bracket increases
When we say proportional tax, your rate here is fixed pero
your tax payment will increase the more you have.
Ang progressive you look at the tax rate and the tax base.
If the tax rate increases, tax base will also increase. If ang
tax rate mu decrease, tax base will also decrease.
Regressive is different. If the tax rate will increase, the
tax base will decrease mu gamay nuon.
If you look at proportional and progressive, they are the
same. They are equitable because they are based on the
ability to pay. Ngano man? Although fixed ang percentage
sa tax nimo, it is based on the amount of your receipts
etc, you saka sad ang payable nimo. Ofc, ang progressive,
mu saka ang tax rate, mu saka sad ang tax payable
because the computation of your tax is essentially, you
have the tax base could be the net income or gross
income, depending on the type of tax x the tax rate = tax
liability
Base x tax = liability rate
What’s the difference between progressive, digressive
and regressive?
Makita ninyo ang difference sa progressive and regressive
noh?
Pero ang digressive class, it started off as progressive but
eventually it stopped at a fixed rate so in essence it
becomes degressive.
*Illustration*
Ang Digressive ni start siya as Progressive but by
provision of the law, at a certain point in time, it becomes
fixed, the rate. I’m talking about the rate which becomes
fixed but nevertheless if the tax base will increase the tax
liability would still increase. If you look at Progressive tax
as well as Digressive tax in essence is proportional or
equitable but such is not the case for a Regressive tax kay
opposite ang mahitabo.
24

The more that you have, the lesser you will pay sa
Digressive and the lesser that you have, the more that
you will pay under Regressive which logically is unfair.
(di masabtan ang page 40-42)
2.5
RECAP: We have discussed the definition of tax, what
are the requisites for a valid tax, different types of taxes
and we ended our discussion on distinctions between
progressive type of tax, proportional type of tax,
regressive and digressive type of tax.
Quick illustration on the distinctions between
progressive type of tax, proportional type of tax,
regressive and digressive type of tax:
So long as the tax is characterized as progressive tax,
proportional tax, and even digressive tax it is compliant
with the requirement under the Constitution that it must
be... (nag stop si Atty.) So long as that type of tax is
proportional, progressive and digressive is deemed
equitable except if considered as a regressive type of tax.
To properly illustrate the distinction, we go back to
simplified manner of computing your tax liability.
Tax Base [TB]*Tax Rate [TR] = Tax Liability [TL]
• Tax base could either be:
o gross income
o net income
• Tax rate could either be:
o fixed tax rate
o graduated tax rate - there is a range and
tax rate changes as you fall on a different
range. That’s what we call as graduated
or schedular rate.
• Tax liability
Proportional Type of Tax
Technically the tax liability there increases as the tax base
increases even if the tax rate remains fixed or constant.
Q: Is it equitable?
A: Yes. Because the more that you have, which is your
Base, the more income that you have, even if the rate
[TR] remains to be fixed, your tax liability increases. The
more that you have, the more that you will pay to the
government.
Q: What’s an example of tax rate nga fixed?
A: COMMON EXAMPLE is the 12% VAT. Dili na mo
increase ang tax rate if dako ang amount sa gi purchase
nimo. But, what is clear is, the more that you purchase,
times 12%, your Tax Liability [TL] will also increase.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Kung VAT ang hisgutan nato, if you only purchase a ₱100
worth x 12%, you will be paying ₱12 Tax Liability. But if
you purchase ₱1,000 x 12%, you will be paying ₱120. Kay
nisaka man ang base nimo, nisaka sad ang liability nimo.
Equitable? Yes!
Progressive Tax
As the Tax Base increases, the Tax Rate will also increase,
and naturally your Tax Liability will increase.
TB ↑* TR ↑ = TL ↑
Another scenario: TB ↓* TR ↓ = TL ↓
This is a perfect illustration of what an equitable tax is.
But, the complication in this type of tax is the
implementation aspect. Why? Lisud siya hinumdoman.
Kailangan ka naay kodigs unless gi memorize nimo ang
tabular or schedule of tax rate. Whereas, if your rate is
fixed, all you have to do is know how much was purchased
times the fixed rate. But if it is schedular, tanawon pa
nimo how much is the base, asa ang na range masulod,
asa ang applicable TR. That alone takes too much time
and is not administratively feasible to some extent or
aspect. Especially if business. You purchase at a
supermarket and schedular rate ang business tax, pila
kaha ka ka oras maghulat ana? Unya discussan pa nimong
cashier like ing-ani ha ug musud ani nga range nga tax
rate?!? Mag hire naka ug CPA nga cashier! That
complicates everything.
Q: So naa gyud diay progressive?
A: Yes naa but dili kaayo daghan.
Q: What’s the most common?
A: Sweldo sa empleyado. Tax on compensation under
employer employee relationship - zero ka kung not
exceeding 250. But once you exceed 250, the Tax Rate
there could start at 5% and could go up ultimately to 35%
depende kung muabot ka sa 8M. Naay different range,
naa sd different rate, schedular. Meaning, when the Tax
Base increases up to 8M, the Tax Rate will also increase
up to a max rate of 35%.
But if you look at that scenario on the tax on
compensation of employees, it’s only progressive up to
this point: *nag ‘box’ si atty to emphasize*...Progressive
so long as wala ka ni exceed sa 8M. Because the higher
your income, magsaka ang rate up to 35%.
But the moment you reach the maximum amount of
taxable income nga subject to 35%, ultimately, the Tax
Rate is fixed at 35%. Meaning, if the compensation of
employer-employee or income nimo as individual or even
business income earners for individuals, you follow the
schedular rate. So, meaning, if your income as an
individual is naa na sa P10M, then 35% na ang fixed.
Same kung 10 or 15 or 20. At that point, fixed na sa 35%.
25
It is not anymore progressive. Kung tan-awon nimo, mura Proportional Progressive
na sya ug proportional. Pero di pud sya strictly the tax rate is fixed, As the tax base will increase,
proportional kay it started at progressive man, not fixed but as the tax base the tax rate will also increase,
rate. Mao na nga once it reaches this amount, and it goes increases, the tax so naturally, the tax liability will
on, musaka ang income and rate, mao na ang degressive. liability also also increase. Samot equitable.
increases. Equitable.
P8M ↑ - 35% ↑
Regressive Digressive
Digressive Tax As the tax base It started off as progressive but
Digressive tax is a tax which commenced or started off as increase, tax rate eventually it reached a
progressive but eventually reached a maximum threshold decrease, so the tax threshold whereas the tax base
where a fixed rate becomes applicable. liability decreases, increases, it’s being subjected
vice versa. to a fixed tax rate, which still
Example: income taxation on individual using the results to an increase in tax
schedular or graduated rate. liability, and vice versa. So, still,
equitable.
To encourage or simplify voluntary payment, naa na ka
option under train law to be taxed at 8%, but there are DISTINCTION
conditions there when it will apply, so kani, sa graduated If you look at the definition of that imposition or exaction,
rate lang mu apply. the power exercised by the government on imposing or
collecting those impositions or exactions is not really a
So long as your tax is degressive, progressive, and power of taxation but more of police power.
proportional, wala kay problema, that is considered
equitable. The issue is if it is regressive. Special Assessment/Special Levy
This is levied on land based wholly on the benefit accruing
Regressive Tax thereon as a result of improvements of public works
If it is regressive, ang mahitabo is your tax base and tax undertaken by government within the vicinity.
rates will not go along together.
The government is the LGU because it is the LGU who can
So, if your tax base will increase, ang tax rate mu basically impose the so-called special levy or special
decrease, so kung mu decrease and tax rate nimo, then assessment.
of course mo decrease ang tax liability nimo.
Republic v. Bacolod, 17 SCRA 632
TB ↑* TR ↓ = TL ↓ In the case of Republic v Bacolod, the SC further
explained that a special assessment is a levy on property
Another situation, if the tax base decreases, and the tax which derives some special benefit from the
rate increases, ang tax liability nimo mu increase. improvement. Its purpose is to finance such
improvement. It is not a tax measure intended to
TB ↓* TR ↑ = TL ↑ raise revenues for the government. The proceeds
thereof may be devoted to the specific purpose for
Which is definitely not in accordance with our discussion which the assessment was authorized, thus accruing
na equity in taxation is required under the constitution, only to the owners thereof, who, after all, pay the
not to mention, it is a basic principle in taxation that there assessment.
should be theoretical justice.
Q: What is this specific purpose?
In this case, it’s not. It is regressive. Kai ang nahitabo, the A: The logical specific purpose is to recover the cost of
more you have in life, the lesser you will pay. And the the infrastructure.
lesser that you have in life, the more that you will pay.
This should not happen. Example: You have a piece of land. Lot A, adjoining is Lot
B, you have Lot C – in short there is no road. Now, the
The three (proportional, progressive digressive) okay. LGU, we are talking about the LGU because this is being
Digressive, technical ra na, tanawon nimo once ma fix as used and delegated to the local government unit.
if proportional siya, but since it started as progressive,
technically, we call it digressive. Q: When you own this piece of land, just to be clear, unsa
nga tax ang bayaran nmu on the lot or on the property?
Kung muingon na padistinguishon mo sa tulo: A: You will pay the real property tax just by the simple
progressive, regressive, and digressive, okay lang. If apil fact that you own that lot.
and proportional, then you go back to that.

TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa 26
Now, for example the LGU eventually constructed a road, be the well-known people in the locality. If that is
the LGU will say “we will construct a road, eminent being imposed by the LGU, that could have a
domain, to benefit the public because there is no access negative impact on the political career of the
road which will traverse through Lot A, Lot B, and C.” So councilors and even the mayor.
gikuhaan ang portion sa yuta nmu, but the good thing is
when the road was built, there is already access to the It’s very seldom to impose a special levy or special
main road. Obviously, it will increase the value of your lot assessment to recover the cost of a financed
somehow because you can do business, you will also infrastructure or public work.
benefit from the infrastructure financed by the LGU.
Again, that’s a requirement before the LGU can collect the Kung dinagko na nga public work, like, kana kalsada, unya
so-called special levy or special assessment. It must be dili mka finance ang national kinahanglan si LGU and then
the LGU who constructed that work using its own fund or gnahan sila ma revcover ang cost, dinha usually mo sulod
using its own money. ang PPP or Private Public Partnership. It is the private
entity or corporation who will construct the road and to
So, the LGU will then say “naa naman tay road nganhi, recover the cost, such private entity will collect a toll. In
nisaka man ang value sa real property because as you this case, it is a toll not a special levy or special
know, it was classified before as purely agricultural and assessment. And after certain years, e turnover lng to the
now it became industrial because there factories that are LGU. Thus, the credit of constructing the road goes to the
being built, there’s already an access road. LGU but the collection, in the meantime, to recover the
cost, goes to the private corporation. So if there is a
Q: Pwede na ba maka collect ug special levy or special complaint as to why a toll is very expensive, LGU does not
assessment si LGU? get the blame, go to the private collecting corporation.
A: Yes, in order to recover the cost of the infrastructure.
Point: The special levy or special assessment, although,
Under the LGC, the maximum amount that the LGU can usually, built on top of a real property tax, IS NOT A TAX.
impose as a special levy or special assessment to the What is considered as tax is the RPT (real property tax)
owners benefited from the public work or infrastructure is on the lot owned by the owners thereof.
up to 60% of the cost.
Debt v Tax
If the cost of constructing the road is 1 million pesos. The DEBT TAX
LGU can recover 60% or 600k pesos, which will be Generally based on Based on laws
imposed as special levy or special assessment to the contract, express or
owners benefited (the owners of Lot A, Lot B and Lot C). implied.
The 600k will be prorated among them based on the area, Assignable Cannot generally be
and there has to have a public hearing to decide pila ka assigned (personal)
years na bayaran ni owners ni Lot A, B, C. This is what we May be paid in kind Generally paid in money
call a special levy or assessment. May be the subject of set Cannot be a subject of set
off or compensation off or compensation – do
Q: Is that different from the real property tax that the lot not even recognize the
owners are already paying? doctrine of equitable
A: Yes. Special levy or special assessment is usually recoupment
assessed on top of the basic real property tax. A person can be
Q: Is special levy or special assessment a tax? imprisoned for non-
A: No, because the usual logical purpose of a special levy payment of tax, except
or assessment is to recover a portion of the cost of the poll tax.
public work or the cost of the infrastructure. Considered as tax evasion
– criminal violation
TN: the road or the project must be financed by the Governed by ordinary Governed by special
LGU, not by the National Government prescriptive periods under
periods of prescription -
verbal or oral agreement the NIRC.
In reality, logic will tell us that it is not a good measure Presciptive periods:
on the part of the LGU because: 10 or 4 years *not sure si
Assessment - usually 2
1. Usually, road projects and other infrastructure atty*
years; Collection – usually
projects are in poblacion or in the barangay, 5 years under the NIRC.
where the mayor and other politicians are there But all these prescriptive
and they will not assess their own projects. periods can be extended
2. Special levy or special assessment means to 10 years if there is
additional payment to the lot owners who could evasion, non-filing, or

TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa 27
 omission to file and pay A: Technically speaking, dili, although tariffs are
the tax; 10 years from the considered species of tax because it eventually becomes
date of the discovery. revenue to the government. Pero lahi ang imposing
Draws interest when it is Does not draw interest authority, object, subject matter, and lahi ang concept ni
so stipulated or where except only when tax vs. tariff.
there is default - creditor delinquent (deficiency
Tariff
debtor relationship interest, as well as
custom duties, toll or tribute payable upon merchandise
delinquency interest) - to the government.
taxing authority-taxpayer
relationship Custom Duties
*If you fail to pay your tax Assessed at the prescribed tariff rates which are likely
despite valid demand and imposed for both revenue raising and for regulatory
assessment coming from purposes. It is the name given to taxes on the importation
the taxing authority, your and exportation of commodities, the tariff or tax assessed
relationship changes from upon merchandise imported from, or exported to, a
being taxing authority foreign country. (Gercia vs. Executive Sec., G.R. No.
taxpayer to that of debtor- 101273, July 3, 1992)
creditor relationship –
there is already interest License Fee
Regulatory imposition in the exercise of the police power
Atty: Pwede man duha ang nahitabo either wala lang of the State.
gyud ka ni bayad and gipaninglan ka sa government, wa
man ka ni bayad so delinquent ka, debtor-creditor lang Tax License Fee
ka, there is now delinquency interest (late payment) or Exercise of power of Exercise of police power
nibayad ka pero kulang unya gipaninglan ka sa taxation
government sa kuwang wa ka ni bayad, so there is what Purpose is revenue raising Regulatory imposition
we call deficiency interest (kulang ang gibayad) and then Tax is unlimited in Limited to the cost of the
kay wa ka ni bayad sa date nga pabayron unta ka, diha amount, as set validly by service
nasad mosulod ang gitawag nato nga delinquency interest the legislature
- late payment. So kung wa kay gibayad unya gipabayad
ka pero wala gihapon ka ni bayad - delinquency. Toll Fee
If e ask sa exam nga ipa distinguish, pwd daw e 1 Amount charged for the cost and maintenance of property
paragraph lng. Make sure lng imo distinction, you very used.
well presented, the kana?? Depende sd sa points, if only
3 points, then at least tulo ka distinction; 5 points, lima Not a tax, imposed or collected by private entities and that
ka distinction, if tanan 10 points, pakitang gilas na gyud in no way pertains to the exercise of the power of
ka. taxation.
Subsidy
A sum or money granted by the government or a public Compromise Penalty
body to assist an industry or business so that the price of Amount collected in lieu of criminal prosecution in cases
a commodity or service ramin low or competitive. of tax violations

Not a tax, rather it is an outflow insofar as the government
is concerned.
Revenue (Umbrella Term)
Inflow to the government. This could be internal revenue
under the NIRC, tariff, customs duties, payments for
services of the government.
Internal Revenue
If we refer to the taxes collected under the NIRC, then
that is the internal revenue under the NIRC, walay labot
ang tariffs and customs duties, payments for service of
the government.
Q: Tariffs and customs duties, is it the same as taxes?
Under the NIRC, if you violate one important provision
requiring you to either file or to pay, automatically, there
is a corresponding criminal violation. Pwd ka e criminally
prosecute ni BIR/DOJ, pero the mandate of the BIR is not
to file cases left and right but to raise revenue. If the
taxpayer made a criminal violation and taxpayer does not
want to be criminally prosecuted, in lieu thereof, the
taxpayer can pay compromise penalty voluntarily.
Monetary, so in that sense mka raise ug revenue samot si
BIR.
Naka range depende kung unsa ang violation, usually
based on graduated or schedular na amount, gross
receipts or sales ni taxpayer. More like a negotiation at
the administrative level.

TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa 28
 Although private individuals are directly benefited, the tax
Bar question: Distinguish a tax from a tariif. In distinction, would still be valid, provided such benefit is only
its best if you consider these basic elements: concept, incidental.
imposing authority, subject matter, collecting authority.
TAX If what is incidental is the promotion of a private
concept - generic term inclufding various kinds of enfroced contributions for public purpose
NOTE: Preferred
imposing authority - inbutanswering
- legislature may be delegatedenumerate
to LGU the basis for enterprise, as long as there is a link to the public
comparison
collecting authority -in
BIRparagraph
subject matter - unlimited
asa rule from presentation (vertical) if welfare, the purpose is still public
lacking
TARIFF basis/element, answer in continuous paragraph
c - encompasses duties or tolls payable upon s merchandise to the government
format (horizontal)
IA- legislature only Example: nag kolekta ka ug nag impose ka, and then
SM - imported / exported merchandise only
CA - BOC mosulod na sa special fund in order to stabilize the price
INHERENT LIMITATIONS of the oil or to rehabilitate the sugar industry. SC said that
TN: When it comes to limitation it could be inherent or the oil industry, sugar industry, although private ventures
constitutional. ni… kai wala man definition if mo ingon ta public, it
doesn’t mean, you know 51%, dapat mo benefit, of the
For inherent limitation there is no express provision population of the Phil, unsaon mana nmu pag monitor nga
thereof in the constitution or under the law, but in the first place the benefit from these projects would
nevertheless, if na violate and inherent limitation, it either be tangible or intangible. We look at if naa bay
means that Congress does not have the authority to pass public interest there, if there is then automatically, that is
that particular tax law. So if there is a violation under imposed for the general welfare of the people.
inherent limitation, automatic there is also a violation of
the due process clause under the constitution. The test is not as to who receives the money, but
the character of the purpose for which it is
Inherent limitations: MEMORIZE - PINET expended
1. Public purpose
2. Non-delegation of the legislative power to tax Lahi nasd if ang purpose nmu is for the Christmas party
3. Exemption from taxation of government entities of the company. Lahi nga issue.
4. International comity
5. Territorial jurisdiction Because when it comes to the question of whether that
exaction or imposition is for public purpose it is Not the
Public purpose immediate result of the expenditure, but rather
Pursuant to the adage that, “Public money can only be the ultimate result.
spent for a public purpose.”
Exactions that goes first to a special fund:
In short, one of the scope in imposition of tax by the 1. Sugar Stabilization Fund
legislature aside from identifying type of tax, rate of tax, 2. Oil price Stabilization Fund
who is the subject or object, is the purpose thereof, if the 3. Tax for Special Purpose (Sec 29 (30), Art. 6)
purpose is revenue raising – goes to the general pan of
the government to defray the expenses. Reason: It is for a Special Purpose, but these are imbued
with Public Interest.
But usually ang mga cases, Pascual, etc., the imposition
or the levy was made and the proceeds thereof goes to a So, ni ingon si SC that, directly they benefited but that’s
particular special body, which is why it is being only incidental, basically that’s also for general welfare.
questioned. Sc said, as provided by the Constitution, although it is
treated as special fund and spent for that purpose only.
Tests of rightful taxation: Once the purpose is done, once it served its purpose it
Proceeds of tax must be used will eventually revert gihapon to the General Funds of the
• For the support of the government government.
• For any of the recognized objects of the
government – would change from time to time, CONCEPTS RELATIVE TO PUBLIC PURPOSE (naa sa
or from one administration to another. cases nga g assign)
• To promote the welfare of the community
• Inequalities resulting from the singling out
If check, there should be not much of a problem in of one particular class for taxation or
questioning whether the tax imposed is for public purpose exemption infringe no Constitutional
or not. limitation.

Important jurisprudential principles: When we talk about singling out of a particular class, diri
mu sulod ang concept of Substantial Distinction. So long

TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa 29
as there is a Substantial Distinction, then there should be
no issues so long as katong mga elements sa PP v. Cayat?
Take note class, sa grant of exemption of taxation, ang
maka grant is ang Levying or Imposing Authority.
If it is the legislature who has the power to impose or to
levy the tax, it follows that it is also the legislature who
has the power to grant the exemption thereto, no more
no less. Dili pwede si BIR ang mu grant sa exemption, si
DOF or si Mr. President.
• An individual taxpayer need not derive
direct benefits from the tax.
• Public purpose is continually expanding.
Areas formerly left to private initiative now
lose their boundaries and may be
undertaken by the government, if it is to
meet the increasing social challenges of the
times.
• Public purpose is determined at the time of
enactment of the tax law and not at the
time of implementation.
Enactment of the tax law, pareho karon di ba? Nag collect
sila ug tax, unsa ang logic behind? If you look at the
whereas clauses of the Bills, more or less they are always
citing the Build, Build, Build Thrust or Program of the
government and there is nothing wrong with that because
this Build, Build, Build Thrust is for public purpose man.
Mao na kailangan sila mangolekta. Pero what if inig ka
wala ni President Duterte ma change ang Thrust sa
government? Imbis nga Build, Build, Build, ma Save,
Save, Save na? Pero na pasa na ang tax law, collecting
additional taxes, increasing the rates, etc. Pwede pa ba
ka mu ingon na i-revert na sa previous or i-reduce ang tax
because wala man lagi madayon ang Build, Build, Build
ninyo. Ni ingon mo nay Train gamiton na ninyo para mka
himug train connecting Visayas and Mindanao unya wa
man lagi, e reduce.
Q: COULD THAT BE A VALID LEGAL GROUND?
A: That is a WEAK GROUND, what is important is public
purpose at the time of the enactment of the law and not
at the time of the implementation of the law.
There is one case, eminent domain case, IT park sa
Lahug, when gipa hawa ang mga taw diha kay gipalit sa
government for the plan to build the airport there but then
they realized that it’s the center of the city. So, they
changed the plan, instead of Lahug, Lapu-Lapu. Naa man
to kaso na ni try ug bawi ang mga tagiya kay anyhow,
sauna pag ingon ninyo mag Airport pero wala di ay. So,
try to read that case also.
To question the disbursement of the tax coming from the
general fund, we have the taxpayer’s suit, involving a
complaint on the illegal disbursement of public funds
derived from taxation.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
TN: Taxpayer suit is improper if it pertains to donations
and contributions, questioning how it is being disbursed
because in the first place, maka buot baya si donor ug
unsaon niya pagpa disburse ang money di ba? Maka
question ka but not in a Taxpayer’s suit because it does
not involve disbursement of public funds or collected
taxes.
A taxpayer is not relieved from the obligation of
paying a tax because of his belief that it is being
misappropriated by a certain official
A taxpayer has no legal standing to question
executive acts that do not involve the use of public
funds. (GONZALES Vs. MARCOS)
Recent case, case ni Mayor Osmena vs. kani sa SRP
(consortium ni Ayala ba na?). He filed a taxpayer’s suit,
questioning the consortium and there were so many
reasons there but if you’ve read the recent news it was
denied by the court for the simple reason that a
Taxpayer’s suit is not a valid action in such case because
it did not involve disbursement of public funds.
Atty: to me that is appropriate. Ngano man? Kay wala
man public funds involve adto, it’s more of an agreement.
It could have been a different action other than a taxpayer
suit.
What is taxpayer’s suit?
a case where the act complained of directly
involves the illegal disbursement of public funds
derived from taxation; courts have the discretion
to allow taxpayers suit.
Taxpayers have sufficient interest of preventing
the illegal expenditures of money raised by
taxation (NOT DONATIONS AND
CONTRIBUTIONS)
A taxpayer is not relieved from the obligation of
paying a tax because of his belief that it is being
misappropriated by certain officials
A taxpayer has no legal standing to question
executive acts that do not involve the use of
public funds. (GONZALES vs. MARCOS)
2.6 (continuation)
INHERENT LIMITATIONS AND CONSTITUTIONAL
INHERENT LIMITATIONS
These limitations are those provided in the fundamental
law or implied therefrom, while the rest spring from the
nature of the taxing power itself although they may or
may not be provided in the Constitution.
Inherent limitations
1. Public purpose
2. International comity
3. Non-delegation of the legislative power to tax
4. Exemption from taxation of government entities
5. Territorial jurisdiction
30

This is the sixth video lecture based on the general
principles of taxation. In the last discussion that we had,
we discussed the inherent limitations to the power of
taxation. For the inherent limitations to the power of
taxation, we’ve discussed already:
IT MUST BE EXERCISED FOR PUBLIC PURPOSE.
Recall
The definition of the power of taxation, the purpose is to
raise revenue in order to defray the necessary expenses
of the government. It is pursuant to public purposes.
There is no specific definition as to what is public purpose.
There is no quantification as to when it is considered a
public purpose for taxation purposes. Even if it directly
affects a private entity or individual, so long as it is merely
incidental, that entity is imbued in public interest. It is still
considered for public purpose exaction or imposition.
INTERNATIONAL COMITY
“The Philippines adopts the generally accepted principles
of international law as part of the law of the land”
If a tax law violates certain principles of international law,
then it is not only invalid but also unconstitutional.
Which tells us that in the exercise of the power of
taxation, we have to take into consideration that it is
applicable only within the jurisdiction of the Philippines.
We do not subject to tax other independent states or
sovereignties. As provided expressly in our constitution,
the Philippine adapts the generally accepted
principles of international law as part of the law of the
land.
When it comes to sovereignty, we are independent from
other countries. The taxing power can only be exercised
within Philippine territory or within the reach of the
imposing authority. As provided also in a tax law that
violates certain principles of international law, it is not
only invalid but also unconstitutional. This is also valid in
property taxation because when it comes to taxation, it
could be person, property or activity.
• For a person - it can go beyond the jurisdiction
because there is what we call as bond/nexus/jural
between the imposing authority and that person.
• For property - once that property is situated in
another country such as real property, situs of
taxation tells us that we take into consideration the
place where the property is located. If the property is
located abroad, that should be beyond the taxing
jurisdiction of the Philippines. It is no longer subject
to Real Property taxation.
RPT is only one type of tax. Lahi ang income tax kay it is
characterized as an excise tax. It’s not a tax on the
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
property but rather it’s a tax on your privilege to earn
income if the one that is earning the income is the person.
If the one earning the income is the resident citizen or a
domestic corporation, that’s when the power of taxation
may come in.
GROUNDS FOR TAX EXEMPTION OF FOREIGN
GOVERNMENT PROPERTY
1. Sovereign equality of States
2. Usage among States
3. Immunity from suit of a State
Q. What are the ground for tax exemption of
foreign government properties?
• Sovereign equality of the states
• Usage among the states (because if we have
foreign properties abroad which is kaning mga
consular offices nato, sa mga diplomatic
representatives and we own properties there where
our diplomatic offices are located, likewise, usage
among states is dili man sad na i-subject into property
tax to the specific in that foreign country; Reciprocal
- if that foreign country owns a property here in the
Phil especially for those diplomatic purposes, we also
exempt that from taxation).
• Immunity from suit of a state (why? that will be
useless even if for example US has it’s embassy here
it owns its building and the lot if you will subject that
for real property tax, the US will say “I won’t pay”.
The next recourse that the government will do is that
to file a tax evasion case which is a criminal case and
if it is a criminal case, ultimately other than payment
of penalties and tax, it follows then imprisonment.
Kinsa may i-imprison nimo in that case? Si Biden?
That basically is impractical and administratively not
proper; which is why we exempt that from taxation to
make the Philippines friendly to the foreign nations
and making it more practical. Because if we do that
to a foreign country, they will do that also to us.
Q. But nevertheless, pwede ba na buhaton sa
Congress nato karon?
No, unless they amend the constitution because again,
there is this specific provision in our Constitution. so kung
buhaton na nila, then it becomes unconstitutional
NON-DELEGATION OF THE POWER TO TAX
“The power of taxation is peculiarly and exclusively
legislative, therefore, it may not be delegated.”
EXCEPTIONS:
1) Delegation to the President
2) Delegation to local government units
3) Delegation to administrative units
I think we’ve discussed this when we talked about the
nature of taxation and we said that it is legislative in
character and we quoted the Cooley doctrine, I don't
31
know whether it is doctrine or principle or concept lang,
wherein as Republican state the power resides with the
people. Therefore,
General Rule: The power of taxation is peculiarly and
exclusively legislative, it may not be delegated. This
makes it different from police power of the state and even
the power of eminent domain of the state. But despite
this general rule, there are exceptions where there could
be delegation of the power to tax.
Exceptions
1. Delegation to the President
2. Delegation to local government units
3. Delegation to administrative units
Take note naa pajud siyay in depth discussion ani sa ubos
kaduha niya gidiscuss (see next page)
Q. What has been delegated here?
Delegation of President
It does not mean that it is the President who will
determine the subject to be taxed, the purpose of the tax,
the amount or rate of the tax, the manner or the means
of collection of tax and even the prescription of tax.
Because the above powers here cannot be delegated.
Meaning before the legislature delegates it to the
President or before the legislature delegates it to the local
government unit, it must make specification kung kinsa’y
subject to tax and etc.
What the President will do, is only to follow the instruction
of the legislature. In short, kumpleto na daan ang
instruction ni legislature, naay na condition si Congress or
si legislature gi-set for the President to ascertain in the
interest of time. Because we very well know that, if it goes
back pa to Congress to determine when the rates, for
example will be increased or when the tariff rates will be
increased, in the interest of time kay naay pasulod na
cargos that could endanger our local industry, mag
assemble pa pila ka Congressman, making it impractical.
Example: Flexible tariff laws
The president can increase the tariff rates not exceeding
100% but even if there was a delegation there, the
President does not actually exercise the freedom to
determine unsa ang tariff rate or pila ang tariff, naa na
instruction.
Specific Instructions:
• If the situation calls for it then you increase it.
• Before the president can exercise that, there has to
be some sort of recommendation and there has to be
analysis or hearing made by the tariff commission.
there is a commission and there is NEDA that makes
recommendations before the President increases the
tariff rates, as a way of approving it. Usa ka tawo ang
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
ma approve, para dili mubalik sa Congress na mag
debate pa sila, mag hearing pa sila, mag reading pa
sila and etc.
• Congress instructed that the President can
increase the VAT rate from 10% to 12% (kato
kaso ni Gloria, in the amended NIRC)
But that’s the only instruction. Gi determine na daan ni
Congress pila ang rate. Wala niya gi leave how much is
the rate to the President. The latter can just increase it
from 10-12%, not on any rate he likes because that’s
basically unconstitutional; in effect it delegated the power
to determine the rate of the tax.
Conditions were already set by the Congress. Nga dapat
ma meet ni nga conditions. I think there are 4 mga ratio2x
for the President to increase the rate. I think you've read
that case. It just so happens that na meet to tanan na
conditions during the time of GMA, so she increased the
VAT from 10-12%.
In short, there is delegation there. But the 5 items that
cannot be delegated are all predetermined by the
legislature. Nothing is left for the President to determine
on his own.
POWERS WHICH CANNOT BE DELEGATED
1) Determination of the subjects to be taxed
2) Purpose of the tax
3) Amount or rate of the tax
4) Manner, means and agencies of collection
5) Prescription of the necessary rules with respect
thereto
Exception: Delegation to the President
FLEXIBLE TARIFF CLAUSE (SEC. 401 TCC)
In the interest of national economy, general welfare
and/or national security, the President upon the
recommendation of NEDA is empowered:
1) To increase, reduce or remove existing protective
rates of import duty, provided that the increase
should not be higher than 100% ad valorem
2) To establish import quota or to ban imports of
any commodity
3) To impose additional duty on all imports not
exceeding 10% ad valorem
Exception: Delegation to Local Government Units
“Each local government unit has the power to create its
own revenue and to levy taxes, fees and charges subject
to such guidelines and limitations as the Congress may
provide.”
(ART X, Sec 5)
32
 BASCO vs. PAGCOR (Consti Law Case)
The power of local government units to impose
taxes and fees is always subject to the
limitations which Congress may provide, the
former having no inherent power to tax.
Municipal corporations are mere creatures of
Congress which has the power to create and
abolish municipal corporations. Congress
therefore has the power to control over local
government units. If Congress can grant to a
municipal corporation the power to tax certain
matters, it can also provide for exemptions or
even take back the power.
Q. How about the LGUs?
Delegation to Local Government Units
For the delegation to LGUs, we have the so-called “Local
Tax”. But as to the determination of the subject, the
purpose, the amount/rate, the manner/means, the
prescription, LGUs DO NOT DETERMINE that.
That’s why delegation to the LGUs was made pursuant to
the LGC. It’s very specific under the LGC what type of tax,
rate, the subject/object. All that the LGUs will do is to
enact a specific ordinance adopting that
Delegation in the LGC: even the rate of the increase as to
pila pwede ang increase ni LGU on a year to year basis is
already determined by Congress & indicated in the LGC.
If you look at the local tax, different ang maimpose ni
province from the local tax na maimpose ni municipality.
Q. But when it comes to cities, they’re powerful.
Because?
The tax nga pwede icollect ni municipality, which is local
business tax, and the taxes na pwede icollect ni province,
which is real proerty tax among others, CAN BE
COLLECTED BY THE CITY. Mao na mas datu gyud si city.
Mao ang uban mas ganahan ma mayor sa syudad kaysa
sa ma-gobernor esp if gamay ra ang province.
We even have that, I think during the time of Tomas, the
Cebu City govt was trying to pass an ordinance simplifying
the local business tax rate to 2%. The business groups,
not necessarily opposed, but remindws the Sanggunian
that there’s a provision in the LGC. When it comes to the
rate, mao lang ni ang rate na pwede ninyo i-impose.
Anyhow, although Tax 2 na, di man gud flat rate na 2%
na. Ganahan sila na 2% - the intention is good, but
nevertheless, that would be useless if you don’t follow the
very provision of the Local Government Code.
In sum:
When we say delegation, it’s not the entire delegation
gyud na manugo na, “oh kamo nay bahala dira. Kamo nay
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
bahala determine. Be creative, think outside the box.” It’s
not the case. The legislature, in essence, creates the box
first before you can think within the box and do within the
box.
So, if ever there are fall back provisions, as illustrated in
the case of Pelizloy v Province of Benguet in the
imposition of amusement tax – because provinces can
also impose amusement tax, there is a fall back provision
in the enumeration of the LGC when it comes to the
imposition of amusement tax.
The SC said that you should follow the principle of
ejusdem generis, wherein, even if there is a fall back
provision, the other tax provision there should more or
less follow the previously enumerated item or the item
nature
thereof should be of the same nature as the previously
enumerated items. Di puydi na maghimo naka ug lain.
If previously enumerated item talks about theatre,
cinemas, which are subject to local amusement tax and
there is a fallback provision: and other similar business
etc. It does not mean that you can already subject to an
amusement tax a resort. Because a resort, in Pelizloy – to
simplify and save time-, is of different nature as compared
to theatre or cinemas or place or concerts following
ejusdem generis (READ)
Delegation to Administrative Unit
What is delegated to administrative unit is merely the
implementation, the levying and imposition has already
been made or done by the legislature.
!!!MORE IN DEPTH DISCUSSION ON THE
EXCEPTIONS!!!
So, focusing on some of these exceptions first is the
delegation to the President. In the Customs provisions,
we have the Flexible Tariff Clause. So, as provided:
Flexible Tariff Clause
Sec. 401, TCC
In the interest of national economy, general welfare
and/or national security, the President upon the
recommendation of NEDA is empowered:
Dili out of the blue, tripping-tripping lang ni President na
i-increase and tariff. There should be a recommendation
coming from the NEDA and NEDA will only be able to
come up with these recommendation upon its
coordination with the tariff commission. If the tariff
commission determines that you know there is a potential
shipment coming in and this could be harmful to the
industry so we have to you know, not necessarily prevent,
in short, it is not illegal per se because if it’s drugs, then
it is automatically banned. But if let’s say it’s second-hand
items which of course are much cheaper compared to
33
locally produced, before it was about rice, the rice
tariffication law was passed.
Meaning, if there is an imported rice coming in to that
country going through legitimate channels, the tariff rate
is quite high to protect our local rice producers. But what
happened was, because of the high tariff rate, imported
rice comes to the country still but through the backdoor.
So, in short, the losses of the government doubled
because it passed through backdoor, it means that the
government is not able to collect tariff rates and the price
of that imported rice is quite high, plus the local supply is
having a shortage so the readily available rice at the
market is the imported rice that has a very high price and
it contributed to high inflation rate because we are rice-
eaters. That is why other than prioritizing amendments to
tax laws, they also prioritized the passage of the rice
tariffication bill.
Now, another issue pops up because the burden is then
passed to the local producers—the tariff rate decreased
so the price of these imported products also decreased.
In short
“Time is of the essence”. That is why this has to be
exercised only or approved only by one person which is
the president.
Conditions:
• To increase, reduce, or remove existing protective
rate of import duty, (protective tariff) provided that
the increase should not be higher than 100% ad
valorem.
Note: The limit is already set by congress.
• To establish import quota or to ban imports of any
commodity.
This import quota or banned imports are dinalian or
rushed. This is more of a retaliatory act. Let’s say for
example, China, our products are banned. So, the
president can immediately retaliate by banning products
coming in from China. North Korea attacks another
foreign country, condemned by the international
community including members of the UN so UN says
impose import ban for products coming from North Korea.
So it has to be exercised medyo dinali-an. We have to
comply. So that will be done by the President. Of course
NEDA is there to analyze the pros and the cons if we do
that.
• To impose additional duty on all imports
not exceeding 10% ad valorem.
Again limit has already been set by the legislature “not
exceeding”. There is already a threshold such that if you
exceed that threshold, that is an issue on the legality of
that particular Executive Order issued by the President,
for example.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Delegation To Local Government Units.
This delegation is pursuant to the evolution of powers to
the local government under our Constitution. Take note
lang of this supreme court pronouncement in the case of:
Basco vs Pagcor
The power of local government units to impose
taxes and fees is always subject to the limitations
which Congress may provide, the former having no
inherent power to tax.
In short, when it comes to municipal corporations or local
government units, it has no inherent power because the
inherent power to tax applies only to a sovereign state
and these LGUs are not sovereign states based of course
on our governmental structure.
Municipal corporations are mere creatures of
Congress. In short, it is the Congress who created
them. Which has the power to create and abolish
municipal corporations. Congress therefore has
the power to control over local government units.
If Congress can grant to a municipal corporation
the power to tax certain matters, it can also
provide for exemptions or even take back the
power.
So meaning, kung mo ingon si Congress nga "O, kami
mag impose kani nga business tax." Aw, wala'y mabuhat
si LGU. I-amend ni Congress kumbaga ang Local
Government Code, all that LGUs could do is to lobby
against it.
Q. But as to whether if pwede ba gyud na buhaton
ni legislature.
Yes x2.
EXEMPTION FROM TAXATION OF GOVERNMENT
ENTITIES
The exemption applies only to governmental entities
through which the government immediately and directly
exercises its sovereign powers.
NDA v. Cebu City
“The Republic, like any individual, may form a
corporation with personality and existence distinct from
its own. The separate personality allows a GOCC to
hold and possess properties in its own name and, thus,
permit greater independence and flexibility in its
operations. It may, therefore, be stated that tax
exemption of property owned by the Republic of the
Philippines "refers to properties owned by the
Government and by its agencies which do not have
separate and distinct personalities
(unincorporated entities).”
Original Charter (unincorporated vs. Special Charter
Incorporated) ???
34
GOVERNMENT ENTITIES EXEMPT FROM TAX
1) GSIS During the time of Marcos and thereafter, many of these
2) SSS GOCCs were not earning any profit because it was made
3) PHIC into cash cows by politicians, the presidents or directors
4) PCSO of said GOCCs, receiving huge sums of money without
5) PAGCOR even doing anything.
REASON FOR EXEMPTIONS ???
Later, during the time of Ramos, there were only a few
(usahon ra nako insert ang transcript discussion under GOCCs left because these were privatized by law. The
aning exemption from taxation of govt enetities) reason is that because GOCCs, although they operate as
Again, administrative feasibility, practicality, diba? It's if they are corporations, they should still be delivering
the government who collects the tax. If you subject the some sort of public service or public utility like
collecting authority to tax, as they describe, it's useless. transportation, water distribution.
It will just create confusion and it will just open
opportunities for corruption. But it came to a point where there were so many GOCCs
created which had nothing to do with public service.
Q. Why? Consequently, such public services were no longer
As described by one author, it’s just like transferring your accessible to the public because it was monopolized by
money from one pocket to another pocket. And the GOCCs -- private companies can no longer compete.
danger there is in the act of transfer, some of these
money could fall to the ground or mawala so makuhaan Therefore
na hinuon. GOCCs are no longer exempted from taxation because
when the NIRC was amended, the provision exempting
In short, GOCCs for the fact that they were owned by the
Exemption from Taxation of Government Entities government was repealed/removed.
If you belong to the government structure, you are
exempted. The exemption only applies to governmental Q. What happened then?
entities through which the government immediately and When the blanket exemption of GOCC, I say blanket
directly exercise its sovereign powers. because all you need to do is show that majority of your
shares is being owned by the government or it’s the
Q. What is government entity? government who basically owns the corporation and you
(three branches of the government) remit your profit to the national treasury kung naa kay
1. Judiciary profit because again, lost kanunay, di nalang ta
2. Legislature maghisgot nganong lost because lahi ang padagan during
3. Executive that time.

Thus, if your office belongs to any of the 3 branches, then
you are part of the government and should NOT be
subjected to tax.
The complications come in because we have the
government-owned and -controlled corporations, which
were very prevalent during the Marcos era.
Government-owned and controlled corporations
(GOCC)
Corporation v. Pure Government Entity
Corporation Pure
Government
Entity
Purpose: Earn profit Service
Thus, GOCCs were created in order to:
1. Perform corporate functions
2. Own corporate properties, and, in the process,
3. Earn profit. This profit will be remitted to the
national treasury of the government.
When the blanket provision was removed under the NIRC,
that’s when we need to determine if the GOCC is
incorporated or unincorporated.
• Unincorporated GOCC - it is considered attached to
the government; it means it has its own specific
charter passed by no less than the legislature.
• Incorporated GOCC - it is registered as a corporate
entity under the security and exchange commission.
NOTE: The manner of organizing the entity:
1. Through a special charter passed by Congress
2. Through our corporation code of the Philippines as if
a private corporation issuing shares and majority of
these shares are owned by the government
But when the privatization law came in or was passed,
most of these corporations registered with the SEC that
the majority of shares are owned by the government. Gi
privatize man, meaning gi baligya to private individuals.
So what remains nalang are the corporations having their
own charter passed by congress, kay it’s like a law man
ang kani nga charter passed by Congress, dili mana nimo

TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa 35
ma change by the mere amendment of a blanket
exemption under the NIRC unless gi specifically mention
didto nga this repeals the charter of a corporation.
That’s when the issue comes in because no question on
the corporations privatized already, taxable na gyud sila.
Dire nag-away sa corporations having its own charter.
Example
Issues came in involving PAGCOR, the National
Development Authority (NDA) issues also came in when
the NDA was being subjected to local tax by Cebu City.
Mactan International Airport Authority, Manila
International Airport Authority, the NAIA now, these are
entities having their own charters and in their charter,
there is a specific exemption from taxation.
So mao to nga of course kung ako si BIR or ako si local
government unit, BIR okay naman na masabtan na na.
Ang gi apas man gud sa LGU is the tax on the properties
owned by these Mactan Cebu International Airport, NAIA,
pila gud na ka hectares of yuta, the building etc. So the
argument is gikuha man ang exemption ninyo from
taxation, you can be subjected to tax but then these
corporate entities went back to their charters.
The exemption applies only to governmental entities
through which the government immediately and directly
exercises its sovereign powers.
NATIONAL DEVELOPMENT COMPANY, Plaintiff-
Appellee, v. CEBU CITY and AUGUSTO PACIS, as
Treasurer of Cebu City, Defendants-Appellants.
[G.R. No. 51593. November 5, 1992.]
FACTS: What the LGU is after is the tax of the properties
owned by Mactan-Cebu International Airport and Manila
International Airport. LGU’s argument is that since the tax
exemption of these airports have been revoked, they can
then be subjected to tax. But these corporate entities
went back to their charters. (Atty. KMA: We will have a
discussion about these different kinds of entities soon.)
RULING: The Republic, like any individual, may form a
corporation with personality and existence distinct from
its own. The separate personality allows a GOCC to hold
and possess properties in its own name and, thus, permit
greater independence and flexibility in its operations (2
ways: papasa ug charter sa Congress, register ug
corporate entity with SEC as a private entity). It may,
therefore, be stated that tax exemption of "property
owned by the Republic of the Philippines" refers to
properties owned by the Government and by its agencies
which do not have separate and distinct personalities
(unincorporated entities). This refers to corporate entities
having its own charter which are deemed
instrumentalities of the government.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
PHILIPPINE HEART CENTER, petitioner, v. THE
LOCAL GOVERNMENT OF QUEZON CITY, CITY
MAYOR OF QUEZON CITY, CITY TREASURER OF
QUEZON CITY AND CITY ASSESSOR OF QUEZON
CITY, respondent. [G.R. No. 225409, March 11, 2020
]
FACTS: PHC has its own charter and is considered as an
attached agency to the national government but the local
government of Quezon City wants to collect taxes from
PHC.
RULING: When local governments invoke the power to
tax on national government instrumentalities, such power
is construed strictly against local governments. The
rule is that a tax is never presumed and there must be
clear language in the law imposing the tax. Any doubt
whether a person, article or activity is taxable is resolved
against taxation. This rule applies with greater force when
local governments seek to tax national government
instrumentalities.
Main issue:
Philippine Lung Center Case (lahi nis PH heart)
Point of QC in imposing the Real Property Tax against PHC
is: You are leasing/renting some of your space to private
entities. As held in PLC, it was clarified what was meant
by “actually, directly and exclusively” used.
SO YOU HAVE TO READ BOTH. PLC & PHC.
Phil. Heart Center (PHC) v. Quezon City, G.R. No.
225409, March 20, 2020
Held – Quezon City could subject it to RP tax but it should
have gone after the private entities leasing/renting the
space for the collection of the property tax rather than the
instrumentality of the government. Because private
entities shoulder the burden and not the government
instrumentality. Dili iforeclose kay ma apektohan ang
instrumentality.
Government Entities exempt from tax:
• GSIS
• SSS
• PHIC
• PCSO (exemption on the entity but not on the
winnings)
Q. How about PAGCOR?
PAGCOR has its own charter also but there were so many
instances that it was subjected to tax.
Jurisprudence
(PAGCOR v. CIR, G.R. No. 210689 November 22,
2017)
In fine, we uphold our earlier ruling that Sec. 1 of R.A.
No. 9337, amending Sec. 27 (c) or R.A. 8424 by excluding
[PAGCOR] from the enumeration of GOCCs exempted
from corporate income tax, is valid and constitutional. In
addition, we hold that:
36
1. [PAGCOR’s] tax privilege of paying five percent (5%)
franchise tax in lieu of all other taxes with respect to
its income from gaming operations, pursuant to P.D.
1869 as amended, is not repealed or amended by
Sec I(c) if R.A. 9337
2. [PAGCOR’s] income from gaming operations is
subject to the five percent (5%) franchise tax only;
and
3. [PAGCOR’s] income from other related services is
subject to corporate income tax only.
Court said “taxable ka” and then eventually ni appeal then
niana napud si court “Ay dili diay ka taxable.” Ni appeal
nasad.
And then in a separate case ni file nag pass nasad og I
think RMC or RRC, etc na masubject to tax nasad si
PAGCOR, ni appeal nasad until it reached this decision
sometime in 2017, where the Supreme Court analyzed the
Presidential Decree or the law creating PAGCOR vs. the
amendments in the NRIC. Because eventually PAGCOR
was removed man sad. In the previous tax code listed
siya as an exempted entity, but it was amended on RA
9337 where PAGCOR was removed from the list of exempt
entities.
Ultimately, in this 2017 Resolution gikapoyan na guro si
Supreme Court, so Supreme Court said they will analyze
it because before in previous cases mga specific
provisions lang of the law ang gi analyze.
Maybe it reached this to a third case, so the Supreme
Court said they will analyze everything. This was actually
clarified in the previous resolution nga gi adopt or gi-
confirm nya in this 2017 case. So the Supreme Court said:
In fine, we uphold our earlier ruling that Section 1 that RA
No. 9337 (passed sometime in 2007 or 2005 if I’m not
mistaken) amending Section 27(c) of RA No. 8424, by
excluding PAGCOR from the enumeration of GOCC’s
exempted from the corporate income tax, is valid and
constitutional.
If ako ang BIR malipay ko kay taxable. Pero the Supreme
Court said tan-awon sa nato ang law creating PAGCOR,
kay wala man gi abolish ang law, gi remove lang sya from
the list sa tax code.
It’s more like between the tax code and the special law
creating PAGCOR, we very well know which one is
considered general, it’s the tax code. So the Supreme
Court said let’s look at PD 1869.
Then the Supreme Court clarified that PAGCOR in that
Presidential Decree is subject to 5% franchise tax in lieu
of all other taxes.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
But the Supreme Court said that it pertains to income
from gaming operations, and this is not repealed or
amended by Section 1(c) of RA No. 9337.
It would have been different if it was removed in the
enumeration and then RA 9337 specifically said it was
removed or repealed this provision in PD 1869 which the
legislature did. I mean ang kana nga style ba nga gi
specify nila nga kani mo amend or mo repeal, mao na ang
ginabuhat nila in the draft create bill kay corporate income
taxation man ang gi amend. So naa silay portion in the
draft of the bill nga specific special laws are being
amended in the passage of the package two (?).
SC said exempted ka pero bayad ka 5% franchise tax in
lieu of all other taxes pertaining to your gaming operation.
PAGACOR’s income from gaming operations therefore is
subject to 5% franchise tax but gaming operation only.
However, it has lots of other services (pareha anang
pagkaon). Kaning mga incidental transactions, proceeds,
income from snacks, lease income kung nay mag standee
which has nothing to do with the gaming operation.
It has been clarified that PAGCOR’s income from other
related services is subject to corporate income tax which
is 30% as of the moment.
Q. Is PAGCOR exempted from corporate income
taxation. Why?
It is clear that it is exempted from 30% corporate income
tax on its income from gaming operations. Pursuant to PD
No. 1869, it is subject to 5% franchise tax in lieu of all
taxes for its gaming operations.
However, income from other related services like from the
canteen, standee sponsorship and any of its related
activities that is already subject to the regular corporate
income tax for the simple reason that this is excluded
from the expressed provision of PD No. 1869.
In Exemption from Taxation of Government Entities, the
government must be exercising its governmental
functions, not proprietary. If proprietary, as implemented
by BIR, it is taxable.
This exemption applies only to governmental entities
through which the government immediately and directly
exercises its sovereign powers.
• If the agency is performing governmental
function = EXEMPTED
• If GOCC performs proprietary function = TAXABLE
Exemption:
If the Charter of the said GOCC expressly exempts from
paying taxes.
37

Q: Example of Proprietary function
Mamaligya ug yuta ang LGU. Let’s look at Cebu City. Cebu
City developed the SRP. Right? And then eventually that
South Road Properties, ginabaligya ni City of Cebu to
private entities. Ayala Land etc etc. for a profit.
Q: Is that governmental or is that proprietary?
Obviously, that’s proprietary.
It would have been a different situation kung niingon kog
“Gipapuy-an na niya. Gihatag na niya to the Cebuano
people etc etc to live there etc.” Well puydi pa unta na
mga social housing noh, mga socialized housing. But that
act alone, that’s proprietary.
Q: Kung ako si BIR pwede ba na nako isubject to
tax even if the one selling it is the City of Cebu?
Which is you know obviously an LGU, a
government entity.
Yes. Because that’s not pursuant anymore to its
governmental function.
Most not very recent case, mga late 2019 Involves the
Municipality of Oslob, whale watching. In the whale
watching activity, there is a fee collected by the
municipality and barangay. They basically share it.
Here comes the BIR noh.
Q. Kadyot sa. Unsa man ni na activity?
Governmental or proprietary?
Obviously, this has nothing to do with the mandated
functions of the government. You’re collecting fees so this
is proprietary. You should pay income tax. It’s not a
defense nga abi kay government ka, mamaligya lang ka
bisag unsa diha, exempted gihapon ka from taxation.
Otherwise it can be what? It can be abused by business
minded politicians.
Anyhow, I think it is still ongoing the assessment for that.
Last time I heard, nibalibad intawn si Oslob kay wala kuno
na sa budget nila. Ngano ibudget paman na nimo nga ang
imong income comes from the fees collected. Do you
follow?
Later on we will have a discussion on income taxation man
gud. You will learn there nga there is a provision that uhm
you don’t look at the disbursement or the use of the
funds. So long as it comes from a proprietary activity, it
can be subjected to income tax or income taxation. Do
you follow?
Q. Had it been fees lang for services rendered by
the LGU to the public, of course there’s no tax
there. Ngano man?
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Wala may profit gihisgutan. Pero kung fees na for these
activities which is usually undertaken by private entities,
that’s a different situation. That’s already proprietary.
uban LGUs dili sila ang muperform ana nga proprietary
function. They will either connect to a foundation who will
take charge of that, do the collection, disbursement and
the liquidation. Para clean hands si LGU. Wala siya’y
problema. Kung mudonate man gani siya, or mu
appropriate siya for a certain budget, it’s properly
documented by the legislature with all the whereas
clauses there. Mao bitaw na nga naa ta Sinulog
Foundation who takes charge of the proprietary activities
for Sinulog. Again ha, it’s proprietary. It’s not
governmental.
There are so many sponsors kung wala lang nag Covid,
millions of pesos could be generated out of that activity
which its why it is not being done gyud by the city itself.
The city is there but it is the foundation which basically
runs the entire activity or the entire exercise.
TERRITORIAL JURISDICTION
Property outside ones jurisdiction does not receive any
protection of the State.
If a law is passed by Congress, Congress must always see
to it that the other object or subject of taxation is within
the territorial jurisdiction of the taxing authority.
Illustration: cross-boarder doctrine in Vaue Added
Taxation.
When it comes to properties outside the jurisdiction which
does not receive any protection of the state, it should not
be subjected to tax by Congress. Such that if a law is
passed by Congress, it must see to it that the object or
subject of taxation is within the territorial jurisdiction.
Again, we are talking here of property and when we talk
of jurisdiction here, we are referring more to the
territorial of geographical jurisdiction of the Philippines.
Unlike if person ang hisgotan because for person we don’t
just look at the geographical territory but we look at the
bond or the nexus also because Unlike if person ang
hisgotan because for person we don’t just look at the
38
geographical territory but we look at the bond or the
nexus also because kung personal, resident citizen ka
class or domestic corporation, even if you are doing
business abroad, you are still entitled to the protection of
the Philippine government. So, it follows that whatever
income you earn abroad, you are still required to pay tax
in the Philippines but if it’s property, that’s not the case,
even if that property is owned by a Filipino citizen and
that property is located abroad, the one who needs to
primarily protect that property is the Foreign country
where the property is located, so wala na tay habol
nganha.
If naa tay domestic helper didto sa kuan di ba? Mangunay
gyud ang government nato ug adto if ever there are
issues, it’s a typical example of protection, we have the
OWA.
Q: So, what’s the application of this inherent
limitation?
We have the Cross-boarder doctrine in Value Added
Taxation.
You will learn in Value Added Taxation topic in Tax 2 that
if a particular property, good or item is exported outside
of the country, kung exported pasabot it is consumed
outside of the Philippines. So, we do not subject that VAT
but if a particular item is imported, mu sulod sa
Philippines, understandably it will be consumed here in
the Philippines, therefore we subject that to VAT. This is
pursuant to the Inherent Limitation on Territorial
Jurisdiction.
SUMMARY OF INHERENT LIMITATION:
1. Public purpose
2. Non-delegation of the legislative power to tax
(Levy Exceptions)
3. Exemption from taxation of government
entities (Governmental vs. Proprietary Functions)
4. International comity
5. Territorial jurisdiction
Public Purpose
1. An individual taxpayer need not derive direct
benefits from the tax
2. Public purpose is determined at the time of
enactment of the tax law and not at the time of
implementation.
Taxpayer’s suit. Again, this involves the illegal
disbursement of public funds generated through taxation
where the proceeds went through our general funds.
Where not the taxpayer’s suit in a sense that is not
appropriate if there is no disbursement of tax money
involved and if the disbursement comes from the
donations or contributions from private entities because
that does not go through our general funds, it goes to
special funds.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Non-delegation of the legislative power to tax
The levying aspect or the imposition aspect is being done
by the Legislature here and there are exceptions;
1. Delegation of the President;
2. Delegation to the LGU;
3. Delegation to Administrative bodies.
Exemption from taxation of government entities
Government entities could cover instrumentalities of the
government. Of course, agencies, bureaus and divisions
of the government.
But as a rule, they are only exempted so long as they are
performing Governmental functions. If it’s already a
Proprietary function, which is beyond its mandate, it’s
usual mandate to serve the public and the purpose of
doing so is to earn profit then taxation could come in.
International Comity
The grounds for tax exemption of foreign government
entity, just in case you will be asked.
Q: What’s the reason of this Inherent Limitation?
The sovereign equality of States, the usage among
States and Immunity from suit of a State.
Territorial jurisdiction
When it comes to properties, we only look at the
properties within the physical or geographical territory of
the Philippines. However, when it comes to persons, we
do not limit to physical territory but we also look at the
nexus, the jural, or the bond between the person and the
Philippine Taxing Authority. Of course, the cross- border
doctrine which is an example of applying this inherent
limitation.
So, on our next lecture video, we will be talking on the
Constitutional Limitations to the power of taxation. You
will learn there that when it comes to Constitutional
Limitations, we divide it into two (2). The Direct
Constitutional Limitation and the Indirect Constitutional
Limitations.
We call it direct because it applies only to the power of
taxation and not the other 2 inherent powers of the
state. For now, I will end here.
CONSTITUTIONAL LIMITATIONS
These are the limitations expressly provided under
the Constitution
1. Direct Constitutional Limitations
2. Indirect Constitutional Limitations
39
DIRECT CONSTITUTIONAL LIMITATIONS
A. Revenue bill must originate exclusively in the
House but the Senate may propose with
amendments – lawmaking process
B. Concurrence of a majority of ALL the members of
Congress for the passage of a law granting tax
exemption
C. Rule of uniformity and equity in taxation
D. Progressive system of taxation
E. Exemption of religious, charitable and educational
entities, non-profit cemeteries, and churches
from property taxation
F. Exemption of non-stock, non-profit educational
institutions from taxation
G. Non-imprisonment for non-payment of a poll tax
H. Non-impairment of the jurisdiction of the SC in
tax cases
A. Revenue bill must originate exclusively in the House
but the Senate may propose with amendments –
lawmaking process
Tolentino vs Sec. of Finance
“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.” It would be to violate the co-
equality of legislative power of the two houses of
Congress and in fact make the House superior to the
Senate.”
The Constitution simply requires that there must be
that initiative coming from the House of
Representatives relative to appropriation, revenue and
tariff bills.
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.
This pertains to the impositions or the levying, as we’ve
said, being a Republican state, the power is with the
people. When it comes to the imposition of tax, the
initiation must come from the House of Representatives,
eventually the Senate will either adapt or pass its own
version pertaining to that revenue bill.
B. Concurrence of a majority of ALL the members of
Congress for the passage of a law granting tax
exemption
1) Law granting any tax exemption - Absolute majority
(Substantive due process)
2) Law withdrawing any tax exemption- Relative
majority
NOTE: Tax exemption, amnesties, refunds are considered
in the nature of tax exemptions.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
A grant thereof, needs approval of the absolute
majority of the Congress
REMEMBER: kung kinsa ang authority nag impose or levy
sa tax, siya sad, as a rule, maka grant ug exception
If congress imposes a tax, it follows that it is only
congress who may grant an exemption to that particular
tax imposition. (NOT the BIR, DOF)
All the department of finance or BIR can do is
interpret the particular law that grants the
exemption as passed by Congress.
Exemptions passed by Congress may either be
generic or specific.
When it comes to tax code, it is GENERIC in
nature. No name will be specified in that particular
tax levy or imposition.
C. Rule of uniformity and equity in taxation
Uniformity in Taxation - 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.
Equity in Taxation - The concept of equity in taxation
requires that the apportionment of the tax burden be
more or less, just in the light of the taxpayer’s ability to
shoulder to tax burden and if warranted, on the basis of
the benefits received from the government. Its
cornerstone is the taxpayers ability to pay.
D. Progressive system of taxation
Tolentino vs Sec. of Finance
RA 7716 (EVAT), does not violate the constitutional
mandate that Congress shall “evolve a progressive
system of taxation”
The Constitution does not really prohibit the imposition
of indirect taxes, which like the VAT, are regressive.
The constitutional provision means simply that indirect
taxes shall be minimized.
The mandate to Congress is not to prescribe, but to
evolve, a progressive system of taxation.
Resort to indirect taxes should be minimized but not to
be avoided entirely because it is difficult, if not
impossible to avoid them by imposing such taxes
according to the taxpayers ability to pay.
in essence, it is a proportional system or is proportionate
to the taxpayers ability to pay.
40
 E. Exemption of religious, charitable and educational
entities, non-profit cemeteries, and churches from
property taxation
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.” (Sec. 28 (3) ART VI)
Application:
Test of applicability:
CASES:
1. Herrera vs. Quezon City Board of assessment
Appeals, G.R. No. No. L-15270, 3 SCRA 186 vs.
Philippine Lung Center v. Quezon City, G.R. No.
144104, June 29, 2004.
2. Abra Valley College Inc., v. Aquino, G.R. No. L-
39086 June 15, 1988
3. City Assessor of Cebu City v. Association of
Benevola de Cebu Inc., G.R. No. 152904, June 8,
2007
F. Exemption of non-stock, non-profit educational
institutions from taxation
“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.” (Sec. 4 (3) Art. XIV)
NOT APPLICABLE TO NON-STOCK, NON-PROFIT
EDUCATIONAL INSTITUTIONS
Where the educational institution is private and non-profit
(but a stock corporation) it is subject to income tax but at
the preferential rate of 10%.
CIR vs CA
Income derived by YMCA from leasing out a portion of
its premises to small shop onwers, like restaurant and
canteen operators, and from parking fees collected
from non-members are taxable income.
YMCA is not an educational institution.
LIMITATIONS TO THE POWER OF TAXATION
CIR vs De La Salle University
The last paragraph of Sec. 30 of the Tax code is: (1)
without force and effect with respect to nonstock, non-
profit educational institutions, provided, that the non-
stock, non-profit educational institutions prove that this
assets and revenues are used actually, directly and
exclusively for educational purposes and (2) the tax-
exemption constitutionally-granted to non-
stock, non-profit educational institutions, is not
subject to limitations imposed by law.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Revenues consist of the amounts earned by
a person or entity from the conduct of business
operations. It may refer to the sale of goods,
rendition of services, or the return of an
investment. Revenue is a component of the tax
base in income tax, VAT, and local business tax
(LBT).
Assets, on the other hand, are the tangible and
intangible properties owned by a person or
entity. It may refer to real estate, cash deposit
in a bank, investment in the stocks of a
corporation, inventory of goods, or any property
from which the person or entity may derive
income or use to generate the same. In Philippine
taxation, the fair market value of real property is
a component of the tax base in real property tax
(RPT). Also, the landed cost of imported goods is
a component of the tax base in VAT on
importation and tariff duties.
Thus, when a non-stock, non-profit educational
institution proves that it uses its revenues
actually, directly, and exclusively for educational
purposes, it shall be exempted from income tax,
VAT, and LBT. On the other hand, when it also
shows that it uses its assets in the form of real
property for educational purposes, it shall be
exempted from RPT. To be clear, proving the
actual use of the taxable item will result in an
exemption, but the specific tax from which the
entity shall be exempted from shall depend on
whether the item is an item of revenue or asset.
The tax exemption granted by the
Constitution to non-stock, non-profit
educational institutions, unlike the
exemption that may be availed of by
proprietary educational institutions, is not
subject to limitations imposed by law.
By the Tax Code's clear terms, a proprietary
educational institution is entitled only to the
reduced rate of 10% corporate income tax. The
reduced rate is applicable only if: (1) the
proprietary educational institution is non-profit
and (2) its gross income from unrelated trade,
business or activity does not exceed 50% of its
total gross income.
Consistent with Article XIV, Section 4 (3) of the
Constitution, these limitations do not apply to
non- stock, non-profit educational institutions.
G. Non-imprisonment for non-payment of a poll tax
“No person shall be imprisoned for debt or non-payment
of poll tax” (Sec. 20 Art III)
POLL TAX – tax of fixed amount imposed upon residents
within a specific territory regardless of citizenship,
business or profession
The non-imprisonment rule applies to non-payment of poll
tax which is punishable only by a surcharge, but not to
41
other violations like falsification of community tax
certificate or non-payment of other taxes.
H. Non-impairment of the jurisdiction of the SC in tax
cases
“The SC may review, revise, reverse, modify or affirm on
appeal or certiorari as the law or the Rules of Court may
provide all cases involving the legality of any tax,
impost, assessment or toll, or any penalty imposed in
relation thereto.” (Art. VIII, Sec. 5)
If you ask me, “Sir, of these constitutional limits, unsa ang
favorite when it comes the bar?”
Ans: The favorite is the exemption provision, specifically,
“there must be a concurrence of a majority of ALL the
members of Congress for the passage of a law granting
tax exemption”, “there is exemption of religious,
charitable and educational entities, non-profit cemeteries
and churches from property taxation”, and “exemption of
non-stock, non-profit educational institutions from
taxation.”
There are several recent jurisprudence which deals with
these constitutional exemptions. I have to emphasize
constitutional exemptions from taxation. Why?
Because there is what we call statutory exemptions.
Between a constitutional provision and a statutory
provision which should prevail in case both are in
conflict?
The constitutional provision. And we will have a
discussion on that especially on issues interpreting tax
exemption provision under the constitution vis-a vis the
provisions under the NIRC or the statute or the law itself.
(is now balik’2 nasad sha but sige nalang for the
learnings; Tax guardian angels help us)
DIRECT CONSTITUTIONAL LIMITATIONS
A.) revenue bill must originate exclusively in the House
but the Senate may propose with amendments lawmaking
process
Revenue Bill - this has something to do with the raising
of or it could be taxing a new activity or new object or a
subject matter subjecting it to tax. And again if we talk
about tax here, this could cover the writ and duties. What
must originate exclusively in the House of Representatives
is the Bill, the Initiatory Bill not the law. In the process of
what this so called “Revenue Bill” which either imposes a
new tax, or increases an existing tax, or increases the
coverage of the tax, the usual process that you can recall
is that it starts with the Committee on Ways and Means
before the House of Representative.
That Committee on Ways and Means will either pass
or deny a Bill which is being sponsored by a particular
Congressman.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Example: If we look at the passage of TRAIN 2, reality
wise, the suggestion to amend a particular provision or to
tax a new object or subject matter, usually comes from
the executive to be specific from the Department of
Finance.
It's the DoF who supervises the Implementing
Bureaus (BIR and BoC). It’s the DoF who in essence
knows how much is the current capacity based on the
current law ang ma generate nga money ni Government.
It’s the Dof also who thinks of ways in generating revenue
or generating funds.
The Secretary of finance, one of the Undersecretaries
before under Sec. Domingez is now the NEDA secretary.
He was in charge in looking for ways on how to rationalize
taxes existing on the Government and on how to raise
more taxes.
Then the DoF will eventually tap a certain
Congressman who can sponsor what they are
trying to propose.
Ofc class, it does not mean that the initiation can’t
be done by the Congressman himself. It’s not a hard
and fast rule that it must come from the DoF. If the
Congressman is really into revenue raising for the
government, he can very well make the bill or make a
proposition.
What I am trying to say is the usual thing is it’s the DoF
man gud who knows the current fiscal situation ba. So
initiation usually comes and they look for a Congressman
who can sponsor the bill. Then eventually if it passes
through the Committee on Ways and Means, then it goes
through readings and per second third and eventually it is
approved and it goes to the Senate and the DoF again will
look for a Senator who will have to Sponsor a Bill. It’s not
an easy task because each of this Congressman and
Senators are politicians and they are human being.
They have their own interest. And this interest, it
does not necessarily follow that what DOF is proposing
will eventually be the version that will be passed. After all,
they also exercise their own judgment. So, what is
required here is dapat magsugod sa House of
Representative, it does not necessarily follow nga ang
version sa House of Representative is the very same
version that will be passed into law. After all, the version
of the Senate could be a better version.
You may ask, "Sir, ngano ma revise revise man na?"
Answer:
1. They have their own interest
2. These politicians have their consultants, they usually
do roadshows. Taking it into consideration the sentiments
of affected stakeholders. They conduct hearings and they
accept position papers. And based on these position
42
papers, hearings and roadshows, they take it into
consideration the interest of all the stake stakeholders.
DOF, BIR or BOC, is just one of the stakeholders. Kung
maminaw lang sila sa DOF or BIR or BOC, of course
everything will be raised, everything will be subjected to
tax because the mandate is to raise revenue but that
cannot be the case. Remember our discussions on
inherent limitations and basic definition of taxation, it
could potentially become a destructive power. So the
legislator will take that into consideration, in short i-
mellow down ang mga provisions.
(chismis itey, pero murag important so ako lang gi keep)
And I've seen that first hand because I've monitored that
from TRAIN Law to CITIRA to CREATE. Kung kita lang mo
sa first version sang CITIRA, we prepared several position
papers on that. The provisions are really prejudicialto the
existing companies in PEZA. If you have heard the news,
many hearings nga nag clash gyud ang proponents of the
CITIRA back then with the PEZA Director General.
Eventually, because of these hearings, these position
papers, show of support and show of disgust, the
provisions eventually mellow down taking consideration
of the sides of the affected stakeholders. So now we have
the CREATE bill in the Senate.
Pwede ba ang version sa Senate masunod later
on? YES. It could purely be the version of the Senate or
it could be a combination of both. We recall the
bicameral committee, which is created in case the
versions of the bill coming from the House is different
from the Senate bill. So, they have to harmonize that
before passing it to the President for signature, so it
becomes a law. That's the use of it.
What is required under the Constitution is the bill
will just originate lang sa House not the law.That is
further explained in the case of Tolentino vs. Sec. of
Finance. This involves questions pertaining to the VAT.
Before, wala ang VAT, there is no such thing as Value
Added Tax. This was only imposed in the time of President
Corazon Aquino. Before it was only the so-called Sales
Tax. The petitioners in this case are questioning the final
version of the law imposing VAT because it was the
Senate version. One of the proponents there was late Sen.
Miriam Santiago. They are trying to invalidate that law in
citing this requirement that a "Revenue bill must originate
exclusively in the House and not necessarily from the
Senate''. They are saying that this version comes from the
Senate, this is not the version coming from the House of
Representatives. That it should be declared,
unconstitutional. In upholding the law or in validating the
law, the Supreme Court said that to insist that revenue
statute and not only the bill initiated in the legislative
process culminating in the enactment of the law must be
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". It
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
would be to violate the co equality of the legislative power
of the 2 houses of Congress and in fact make the House
superior to the Senate. The Constitution simply requires
that there must be initiative coming from the HoR relative
to Appropriation, Revenue and Tariff bills. The
Constitution does not prohibit the filing in the Senate of a
substitute bill in anticipation of its receipt of the bill
coming from the House; as long as the action by the
Senate is withheld until receipt of the bill coming from the
HoR.
If you notice, there is a main proponent in the HoR and
in the Senate who will sponsor (the bill). They can use
either version. If ever there are provisions inserted which
happened in the CREATE Bill that was passed in the
Senate. Some congressmen were opposing some
insertions that's why it was not yet passed into law...still
in the BiCam level.
B. CONCURRENCE OF A MAJORITY OF ALL THE
MEMBERS OF CONGRESS FOR THE PASSAGE OF
A LAW GRANTING TAX EXEMPTION
The imposing authority is also the authority to grant the
tax exemption, as well as the authority na bawion ang
exemption.
GR: Law granting any tax exemption - what is required
is ABSOLUTE MAJORITY of all members of Congress.
Why? When it comes to the power of taxation, taxation
is the rule because you have to raise revenue.
Exemption is the exception. In short, when there is a
grant of exemption, it means revenue forgone on the part
of the State which is why it is looked at with disfavor. As
required in the Constitution, it has to be approved by the
majority of all members of Congress.
Majority of all members of Congress = ABSOLUTE
MAJORITY, not just majority based on members present
constituting a quorum. Members present constituting
a quorum = RELATIVE MAJORITY only, that is
required if Tax Exemptions are withdrawn; making it
easier to withdraw rather than grant Tax exemptions.
EXAMPLE: If there are 200 total members of the
Congress.
ABSOLUTE MAJORITY = should be 101 affirmative
votes to grant tax exemptions. Even if during the session
ang present lang sad is 101 constituting a quorum.
RELATIVE MAJORITY = if withdrawal, out of the 200,
101 are present which they basically constitute a quorum.
Relative Majority should be at least 51 votes.
So, at least 51 votes. That’s what we call relative majority.
Majority of those members present constituting a
quorum. But when we say absolute majority that is
43
majority of all members of Congress – not necessarily
those constituting a quorum.
Take note: Tax exemption, amnesties, refunds are
considered in the nature of tax exemptions.
Exception to the general rule of taxation. That’s
why if it is inserted or granted in a particular bill,
supposedly imposing taxes, there has to have approval
of absolute majority of the congress. Pero kung I
withdraw na, relative majority is required
C. Rule of Uniformity and Equity in Taxation
Uniformity in Taxation – 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. Uniform in application and operation lang,
so long as you are situated at the same circumstances
subject to reasonable qualification.
Reasonable Qualification – we take into
consideration, whether there is or there are substantial
distinctions. If there is/are substantial distinction then,
absolute uniformity does not necessarily mean na
applicable.
Equity in Taxation – the concept of equity in taxation
requires that the apportionment of the tax burden be
more or less, just in light of the taxpayer’s ability to
shoulder to tax burden and if warranted, on the basis of
the benefits received from the government. Its
cornerstone is the taxpayers ability to pay.
We’ve already distinguished this with equality. If you
recall, this requisite of equity in taxation it is also one
of the basic principles of a sound taxation – (FAT):
Fiscal Adequacy, Administrative Feasibility, and
Theoretical Justice or Equity. We said that between
these three, if ma violate and theoretical justice or
equity, that makes the tax law unconstitutional.
However, if what is violated is merely fiscal
adequacy or administrative feasibility, it simply
makes the law defective which can be eventually be
cured.
We’ve also distinguished equity and equality. Atty went
on to describe a picture of three ladies watching a concert.
One of the ladies is tall that she can see the whole stage
from the back, the middle one, and then the smallest one
who finds it hard to watch the concert.
Ang mubo, taas kaayo na patunganan, and mubo mubo
di na kaayo taas, tapos and taas, di na nimo papatungon.
You take into consideration their height. Kay kung
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
equality, same na nimo sila papatungon and not take into
consideration their individual situations.
D. Progressive System of Taxation
Progressivity is not repugnant to uniformity and equity:
1. Uniformity does not require the things which are
not different be treated in the same manner
2. Differentiation, which is not arbitrary and
conforms to the dictates of justice and equity, is
allowed. Progressivity is one way of classification.
3. The State has the inherent right to select subjects
of taxation.
Progressivity is not necessarily in conflict with uniformity
and equity because we say progressive, it still means that
we take into consideration the tax payer’s ability to pay.
Kay diba sa progressive, as the tax base increases, the
tax rate will increase, and the tax liability will also
increase. So, ability to pay.
1. Uniformity does not require the things which are
not different be treated in the same manner
As we have discussed, so long as there is reasonable
classification then it does not mean that they will
necessarily be treated the same.
For taxation purposes, this is very apparent on the tax
type that you are made liable of. IF you are an employee
receiving compensation land, there is a different scheme
for that, but if you are earning income from your business,
then there is also different tax scheme.
Uniformity in short, should be applied based on
your classification and so long as you are similarly
situated under the same condition. • Differentiation,
which is not arbitrary and conforms to the dictates of
justice and equity is allowed. And progressivity is one
way of classification.
• The state has the inherent right to select subjects of
taxation.
(Di ni sha balik atehh, ni chika sha about sa
mandatory ba ni nga limitation)
CONSTITUTIONAL LIMITATIONS
A. REVENUE BILL-must originate exclusively in the
House but the Senate may propose with
amendments-law making process. Now, the next
question is, this direct constitutional limitation
because if you look at this, it is basically
mandatory. If any case it will not be followed,
violation of substantive due process and makes the
law unconstitutional.
B. Concurrence of a majority of all the members of
congress for the passage of a law granting tax
exemption.
This is also mandatory. Substantive due process.
44
C. Rule of uniformity and equity in taxation.
Of course, that’s also mandarory but take note that
there are exeptions: -reasonable classification or
inability to pay.
D. How about progressive system of taxation?
Because to recall, we already distinguished progressive,
proportional, and degressive. Is this a mandatory
requirement under the constitution that the scheme
should be schedular—if the tax base will rise, the tax rate
will also rise, because that is the technical definition of
being progressive. The answer is not necessarily.
As settled by the SC in the same case of Tolentino v
Sec. of Finance, still pertaining to the imposition of vat.
RA 7716 (EVAT) does not violate the constitutional
mandate that Congress shall evolve a progressive system
of taxation. The constitution does not really prohibit the
imposition of indirect taxes, which like the VAT, are
regressive. The constitutional provision means simply that
indirect taxes shall be minimized. The mandate is not to
prescribe, but to evolve, a progressive system of taxation.
Resort to indirect taxes should be minimized but not to be
avoided entirely because it is difficult, if not impossible to
avoid them by imposing such taxes according to the
taxpayer’s ability to pay.
For the benefit of those who have not yet read this case,
again, the issue of this case involves VAT. And aside from
the argument discussed earlier that the revenue bill must
originate exclusively from the house. Another argument
raised by the petitioners in this case is a fix rate. At this
time, the fix rate is at 10%. So, they are saying that it is
violative of the constitutional provision which states that
congress shall evolve a progressive system of taxation.
That is the argument. The next argument is that tax is
regressive, is not progressive because the less that I have
in life, the more that I have in law.
So, let’s go with their first argument, they said ‘shall’,
meaning, it is mandatory. But SC said that it is not
a violation because if you look at it, it’s not really
mandatory but it’s more like a directory. Why? Because
the express provision of the constitution means a
progressive system of taxation, not prescribe.
Meaning to say, it does not require imposition that it
should be progressive as a whole. In essence, you take
into consideration the taxpayer’s ability to pay, that
whatever he has will increase, his tax liability will also
increase.
Mao to gi-discuss gyud nako ang distinction ni progressive
ug ni proportional sa inyo so you will understand because
in this case, the Supreme Court said, it's okay ang VAT
nga fixed rate siya. Because even if fixed rate na, kung
mosaka ang tax base, remember that discussion ha - kung
mosaka ang tax base nimo, even if it's fixed at 12 karon,
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
10 back then, your tax liability will still increase man. So
it's still takes into consideration your ability to pay. So
kung daghan ka ug paliton, aw dako sad ang tax nga
bayaran nimo even if the rate is now fixed. Kay again
class, admin feasibility. Lisod i-implement ang business
tax na graduated or schedular unless you have cashiers
na maka memorize nganha. So you know, mag range pa
ka diha, tan-awon pa nimo asa na range ka nasud - ang
tax base and the corresponding tax rate. That simply goes
against the basic principle on admin feasibility.
If we look at the technical definition of regressive -
as the tax base increases, the tax rate decreases and vice
versa right?
Kung kana mahitabo, regressive gyud na. No question.
But the argument of the petitioner here is not
anchored on the structure or the rate of the tax
base of the tax. It's more on the effect of VAT to
the poor Filipinos. In essence, they are saying, the
effect is regressive. They focused on the effect. According
to them, the lesser I have in life, the more material 10%
will be to me. Imagine kung ako naa ko'y Php 100.00 lang,
and then impose-an pa gyud ko nimo ug VAT nga Php
12.00 (12% lang atong gamiton ha). Ang kanang Php
12.00 dako na nah for me owning only Php 100.00. But if
I have 1M, 12% of that is immaterial in so far as my
capacity is concerned. You get the point? The lesser you
have in life - makuhaan lang na ug piso ang kwarta nimo,
dako na nah ug effect sa imoha. So mao to ingon sila
regressive ang effect because the lesser I have, the more
burdened I will be. The more I have, the burden to me is
immaterial. The effect is regressive. But what did the
Supreme Court say? Ni agree si SC ha that the effect is
regressive but if we look at the techinical definition of
regressive tax, dili gyud. In essence, progressive gihapon
siya. Do you follow, class?
The constitution provision means simply that indirect
taxes shall be minimized. Ingon si SC na well, kung tan-
awon na nimo, even if it's fixed, mosaka man gihapon ang
tax liability. So really, we don't look at it as technically
regressive. But their effect perhaps that is regressive.
Pero relative man sad gud na, class.
What do I mean by relative?
Depende man sad na sa character sa tawo. If you have
less in life unya katkat ka (pa sosyal ka) - mokaon gyud
ka adto gyud ka sa Jollibee, mag grocery ka adto gyud ka
sa Rustan's and then you have very less in life, you will
really feel the 12% VAT. Maka feel ka sa kasakit sa VAT.
Do you follow?
But what is good in the VAT though there are
provisions and there are transactions exempted from
VAT. And these transactions exempted from VAT are
usually the essential transactions (purchase of
essential food, medication, education). These are all
45
exempted from Value Added Taxation. Do you follow?
So if you look at the entirety of this case, it's like the
SC saying well, if you don’t want to feel the effect of
VAT the regressive effect of VAT, you need to make
sure that the transaction you enter into is either subject
to 0% VAT or exempt from VAT. You will learn in Tax
2 that if you purchase agricultural food product in its
original state, in a wet or public market, for example,
that is exempted from VAT. But if you purchase
something that is already processed or from a VAT-
registered restaurant, then that is already VATable.
Example, if you buy dried fish in Taboan Market, then
there is no VAT. Meanwhile, if you order dried fish from
a restaurant, then that is already subject to the 12%
VAT because you are not only purchasing said food but
you are also purchasing the service.
Even If you go against said VAT, there is still tax
because prior to the imposition of VAT there is already
the imposition of the 3% sales tax which is an indirect
tax. Thus, the SC held that resort to indirect taxes
should be minimized but not to be avoided entirely
because it is difficult, if not impossible to avoid them
by imposing such taxes according to the taxpayers
ability to pay (Tolentino v. Sec. of Finance).
Question: Is VAT regressive?
Answer: Yes, the effect of VAT is regressive as held
in Tolentino v. Sec. of Finance. However, technically,
VAT is considered as a progressive tax because your
tax liability increases as the tax base also increases
despite the fact that the tax rate remains to be constant
or fixed.
E.) Exemption of religious, charitable and
educational entities, non-profit cemeteries, and
churches from property taxation
Sec.28(3), Art.VI, Constitution
- 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.
Note:
- Religious, charitable and educational entities, non-
profit cemeteries, and churches are exempted from
property tax only.
Property tax pertains to real property tax (RPT). RPT
can only be imposed by the LGU, specifically, the
provinces and cities. Thus, religious, charitable and
educational entities, non-profit cemeteries, and
churches are not exempted from income tax, donor’s
tax, etc.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
For educational entities, there is no qualification
whether they should be non-stock, non-profit or
proprietary or etc.. So long as the educational entity
uses the property actually, directly and exclusively for
education purposes, there is exemption from RPT.
Note: Only the land, the building and
improvements, and the condition is that it must be
actually, directly and exclusively (ADE) used for
religious, charitable or educational purposes.
Although mo ingon mo nga exempt from taxation man
lagi so sili diay na all tax types? No, because we have
to interpret this in relation to the objects mentioned
e.g. lands, buildings and improvements and these refer
to real properties.
Philippine LUNG Center v Quezon City, GR No
144104, June 29, 2004
FACTS:
The petitioner Lung Center is a non-stock and non-
profit entity.
It is the registered owner of a parcel of land. Erected
in the middle lot is a hospital known as the Lung Center
of the Philippines. A big space at the ground floor is
being leased to private parties, for canteen and small
store spaces, and to medical or professional
practitioners who use the same as their private clinics
for their patients whom they charge for their
professional services.
Almost one-half of the entire area on the left side of
the building along Quezon Avenue is vacant and idle,
while a big portion on the right side, at the corner, is
being leased for commercial purposes to a private
enterprise known as the Elliptical Orchids and Garden
Center.
The petitioner accepts paying and non-paying patients.
It also renders medical services to out-patients, both
paying and non-paying. Aside from its income from
paying patients, the petitioner receives annual
subsidies from the government.
Both the land and the hospital building of the petitioner
were assessed for real property taxes in the amount of
P4,554,860 by the City Assessor of Quezon City.
The petitioner filed a Claim for Exemption from real
property taxes with the City Assessor, predicated on its
claim that it is a charitable institution. The petitioner’s
request was denied.
RULING:
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:
46
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.
When we say exclusively it must be to the exclusion of
others meaning to the exclusion of other purposes. So
pasabot kung a portion of this land, this building or
improvement is not used for educational purpose, then
that portion may be subjected to already to property
tax or to real property tax.
Abra Valley College Inc v Aquino, GR No L
39086 June 15, 1988
FACTS:
Abra Valley Junior College, Inc. is the owner of the lot
and buildings thereon located in Bangued, Abra. A
portion of its lot is used as the permanent residence of
the President and Director thereof, Mr. Pedro V.
Borgonia, and for commercial purposes because the
ground floor of the college building is being used and
rented by a commercial establishment, the Northern
Marketing Corporation. Municipal Treasurer caused to
be served upon the college a Notice of Seizure on the
property of said school for the satisfaction of real
property taxes.
Issue: Whether or not the lot portion of the college
occupied by a commercial establishment and residence
of the director exempt from real estate tax?
Ruling:
Decision affirmed. 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. Otherwise
stated, the use of the school building or lot for
commercial purposes is neither contemplated by law,
nor by jurisprudence. Thus, while the use of the second
floor of the main building in the case at bar for
residential purposes of the Director and his family, may
find justification under the concept of incidental use,
which is complimentary to the main or primary
purpose—educational, the lease of the first floor
thereof to the Northern Marketing Corporation cannot
by any stretch of the imagination be considered
incidental to the purpose of education.
CITY ASSESSOR OF CEBU VS. ASSOCIATION
OF BENEVOLA DE CEBU G.R 152904 June 28,
2007
FACTS:
Benevola de Cebu is a non-stock non-profit
organization which in 1990, a medical arts building
was constructed and in 1998 was issued with a
certification classifying the building as commercial.
City assessor of Cebu assessed the building with a
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
market value of Php 28,060,520 and on assessed
value of Php 9,821,180 at the assessment level of 35%
and not 10% which is currently imposed on private
respondent herein. Petitioner claimed that the building
is used as commercial clinic/spaces for renting out to
physicians and thus classified as commercial. Benevola
de Cebu contended that the building is used actually,
directly and exclusively part of hospital and should
have an assessment level of 10%
Atty: The issue to this case pertains to the Chonghua
medical arts on whether the Chonghua medical arts is
subject to real property tax or it is considered as a
covered more or less in this exemption being owned
by a charitable institution.
PLEASE DO READ THESE CASES
When it comes to exemption from taxation in practice
because you might as that “How does the BIR
determine this one when the mandate of BIR is to
raise revenue?” So if you are trying to claim exemption,
the BIR is a bit strict on that and this applies not only to
the Constitutional exemption from taxation but also to
inherent exemption of taxation.
Two things as a rule ang gitan aw ni BIR:
1) Organizational test - how are you registered; are
you a registered institution, charitable or
educational entity ba ka or non-profit cemetery ba
ka
2) Operational test - where the issues come in; are
you operating as a
religious/charitable/educational/non-profit
cemetery or church.
Unsa usually ang tan awon ni BIR to verify that you are
operating as what you are being organized for within
the purpose of your organization? Usually it’s the
audited financial statements for the last three years in
operation of the entity. So meaning to say, kung ikaw
non-profit cemetery dapat sa articles nimo pagregister
mana nimo, it’s like mo promise ka nga mag operate ka
as non-profit pero lahi na in actual operation kay for all
we know, sa audited FS nimo nag issue kag dividends
or nag profit share ka sa trustees nimo or sa board
nimo, that could be interpreted by the BIR nga “you are
not non profit, you are for profit because after all, you
aim to generate profit and distribute this profit to
private entities.” So mao ng ikuyog na niya ang
operational and organizational as well. (inaudible)
...let’s say memorial parks or charitable institutions. It
is important to not just look at the articles but also to
look at how transactions are disclosed in financial
statements. Because sometimes, the bookkeeper or
accountant might have used a wrong or different
account title.
This exemption is Constitutional but there is also a
corresponding statutory exemption from income
taxation for religious, charitable and non-profit
47
cemeteries and churches, including educational
institutions.
• Constitutional exemption only pertains to property
tax.
• Statutory exemption also exempts the entities
enumerated in Sec. 30 of the NIRC from income tax.
NIRC, Chapter IV, Tax on Corporations SEC. 30.
Exemptions from Tax on Corporations. - The
following organizations shall not be taxed under this
Title in respect to income received by them as such:
(A) Labor, agricultural or horticultural organization not
organized principally for profit;
(B) Mutual savings bank not having a capital stock
represented by shares, and cooperative bank
without capital stock organized and operated for
mutual purposes and without profit;
(C) A beneficiary society, order or association,
operating for the exclusive benefit of the
members such as a fraternal organization
operating under the lodge system, or mutual aid
association or a nonstock corporation organized
by employees providing for the payment of life,
sickness, accident, or other benefits exclusively
to the members of such society, order, or
association, or nonstock corporation or their
dependents;
(D) Cemetery company owned and operated
exclusively for the benefit of its members;
(E) Nonstock corporation or association organized and
operated exclusively for religious, charitable,
scientific, athletic, or cultural purposes, or for the
rehabilitation of veterans, no part of its net
income or asset shall belong to or inure to the
benefit of any member, organizer, officer or any
specific person;
(F) Business league chamber of commerce, or board
of trade, not organized for profit and no part of
the net income of which inures to the benefit of
any private stock-holder, or individual;
(G) Civic league or organization not organized for
profit but operated exclusively for the promotion
of social welfare;
(H) A nonstock and nonprofit educational institution;
(I) Government educational institution; (J) Farmers' or
other mutual typhoon or fire insurance company,
mutual ditch or irrigation company, mutual or
cooperative telephone company, or like
organization of a purely local character, the
income of which consists solely of assessments,
dues, and fees collected from members for the
sole purpose of meeting its expenses; and
(K) Farmers', fruit growers', or like association
organized and operated as a sales agent for the
purpose of marketing the products of its
members and turning back to them the proceeds
of sales, less the necessary selling expenses on
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
the basis of the quantity of produce finished by
them;
Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and
character of the foregoing organizations from any of
their properties, real or personal, or from any of their
activities conducted for profit regardless of the
disposition made of such income, shall be subject to
tax imposed under this Code.
TAKE NOTE: It is important to emphasize the source or
basis for exemption because if the grant of exemption is
statutory, that is revocable by the congress or legislature
by merely amending the law. On the other hand, if the
exemption is constitutional, that would be difficult for the
legislature to change, much less the BIR, unless the
constitution itself is being amended.
Continuation
F.) Non-stock, non-profit educational institutions
are exempt from taxation.
1987 Philippine Constitution
SEC. 4 (3) 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.
The phrase “All revenues and assets…” covers not only
property tax but also income tax and even business tax
PROVIDED the institution actually, directly, and
exclusively using it for educational purposes.
TAKE NOTE: An institution can be identified as a non-
stock, non-profit educational institution by looking at the
articles of incorporation.
o The purpose of which should be “for education.”
o There must be an endorsement and certification
from either the CHED, DEPED, or even the TESDA.
o There must also be no shares of tax.
o And no declaration of distribution of dividends
among the stockholders.
Sec. 30 (par. 2), NIRC Income derived by
EXEMPT CORPORATIONS from their property,
real or personal, and from activities conducted
by them for profit regardless of the disposition
made on such income.
48
 - This provision can’t be applied to non-
stock, non-profit education institutions.
La Salle and Ateneo they operate canteens, they have a
bookstore. This canteen and bookstore they earn money,
they earn income.
So ingon si Henares, dili na na educational conducted na
man na for profit. So even if mu ingon ka La Salle nga you
use it for your operation as an educational institution, e-
subject na nako sha to tax.
Si Ateneo nakalusot because Ateneo owns the
canteen as well as the bookstore located within
their premises. Because nag issue man eventually og
RMC si Henares that if the canteen or the bookstore is
being owned by the constitution and located within
their premises then that should not be subject to tax.
Ang problema ani La Salle concessionaire man
ang canteen niya meaning private person ang
nag operate as canteen and then that private person
will just pay a percentage or whatsoever to La Salle and
I think that was also what’s happening in UST. Nagpa
rent na sila, Jollibee, etc., in their premises, anyhow La
Salle man ang kani na kaso so gi subject to tax ni
Henares. Because according to Henares, wala man ka
naka meet sa RMC nga ang requirement is dapat within
and owned by you. Dili man ikaw ang owner so taxable
ka under Par. 2, Sec. 30.
What La Salle did? La Salle protested. According to
La Salle that’s a violation of constitutional limitation
because here in the constitutional limitation it already
stated that all revenues of non-stock and nonprofit
actually directly and exclusively used for educational
purposes shall be exempt from taxes. So meaning, dapat
you do not apply to us BIR Sec. 30, because between
statutory provision and constitutional provision of course
it’s the constitutional provision that should prevail. In
constitutional limitation, there is not statement that is we
derive income from property real or personal from
activities conducted for profit regardless of disposition we
will be taxed. More so there is no condition in the
constitution which states that the bookstore or the
canteen must be located within our premises and owned
and operated by us nonstock and nonprofit education
institution. Ang condition lang is the proceeds, revenues,
and the assets must be actually directly and exclusively
use for educational purpose. So dapat eprove lang nimo
na gigamit namo ang proceeds for educational purpose.
Ultimately, La Salle won in this case. So the Supreme
Court said, the constitution will prevail. The condition that
will prevail is the condition lang sad sa constitution. The
Supreme Court said: that Par. 2, Sec. 30 in effect is not
applicable to non-stock and non-profit educational
institutions.
But for other entities exempted from income tax under
Sec. 30 including religious churches, parsonages and
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
charitable etc. and propriety mo apply ni ang Par. 2 sa
ilaha kay constitutional exemption nila is only for property
tax man. But not for non-stock and non-profit educational
institutions. And that is a very good development, a
matter of fact, murag 2016 and decision migawas dayun
ni sa exam sa 2017. Because for a long period of time
didto pa na finally settled ang issue. Because you know
what, other non-stock, non-profit educational institutions
are doing para lang gyud di ma technical, kay diba magpa
lease or magpa rent man jud na sila noh, kay mas maayo
man jud na magpadagan ang private entities.
USC before it has a canteen ran by SVDs, but then again
charitable medyo naglisod guro, na alakansi, it reverted
to lease agreements. Most of the lease non-stock, non-
profit educational institutions they don’t term it as a
lease, the amount that they receive from the owners of
this food stalls or canteen, they term it as the donation,
but the donation is fixed. In essence, that is simulated
rent income steam. Ngano gi ingon ana man na nila
before? Kay lage strict si BIR, na dapat located within
and owned by the institution. Which should not have
been the case. Now, all that these non-profit
education institutions will do is show nga ang
proceeds ani ng gipa lease nila was used for
educational purpose. So in the case of La Salle, dili
ang entire amount na gidisqualify ni Supreme Court
only a portion of the proceeds were granted the
exemption where granted the exemption equivalent
lang sa na prove niya nga gigamit for the construction
of a Sports Center for the school.
CIR v. De La Salle University, November 9, 2016
The last paragraph of Section 30 of the Tax Code
is:
(1) without force and effect with respect to non
stock, non-profit educational institutions,
provided, that the non-stock, non- profit
educational institutions prove that its assets
and revenues are used actually, directly and
exclusively for educational purposes, and
Atty: How will you prove that? Primarily you have the
audited financial statement.
(2) the tax-exemption constitutionally-granted to
non-stock, non-profit educational institutions,
is not subject to limitations imposed by law.
Revenues consist of the amounts earned by a person or
entity from the conduct of business operations. It may
refer to the sale of goods, rendition of services, or the
return of an investment. Revenue is a component of the
tax base in income tax, VAT, and local business tax (LBT).
Kung mu ingon ka “all revenue is exempted provided ADE
for educational purpose, then exempted nasad ka sa
income tax, VAT and LBT.
Assets, on the other hand, are the tangible and
intangible properties owned by a person or entity. It may
49
refer to real estate, cash deposit in a bank, investment in
the stocks of a corporation, inventory of goods, or any
property from which the person or entity may derive
income or use to generate the same. In Philippine
taxation, the fair market value of real property is a
component of the tax base in real property tax (RPT).
Also, the landed cost of imported goods is a component
of the tax base in VAT on importation and tariff duties.
Thus, when a non-stock, non-profit educational institution
proves that it uses its revenues actually, directly, and
exclusively for educational purposes, it shall be exempted
from income tax, VAT, and LBT. On the other hand, when
it also shows that it uses its assets in the form of real
property for educational purposes, it shall be exempted
from RPT. To be clear, proving the actual use of the
taxable item will result in an exemption, but the specific
tax from which the entity shall be exempted from shall
depend on whether the item is an item of revenue or
asset.
The tax exemption granted by the Constitution to
nonstock, non-profit educational institutions,
unlike the exemption that may be availed of by
proprietary educational institutions, is not subject
to limitations imposed by law.
Atty: Ngano man class? The exemption for proprietary
educational institution is merely statutory, naa ra sa Tax
Code. So pwede gyud bawion ni Congress by merely
amending the Tax Law.
By the Tax Code’s clear terms, a proprietary
educational institution is entitled only to the
reduced rate of 10% corporate income tax. The
reduced rate is applicable only if: (1) the
proprietary educational institution is non profit
and (2) its gross income from unrelated trade,
business or activity does not exceed 50% of its
total gross income.
Atty: This is merely a provision in the NIRC. So pwede b
ani e-change by passing the Create Bill into law? YES.
Consistent with Article XIV, Section 4 (3) of the
Constitution, these limitations do not apply to non-
stock, non-profit educational institutions or you
can be imprisoned and be subject to penalties for
non-payment of other types of taxes.
CIR v. CA G.R. No. 124043, October 14, 1998
TN: YMCA is not an educational institution 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.
SC: for you to qualify as an educational institution, you
must be authorized by the CHEd, DepEd to offer
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
curriculum and dapat ang end result, mu graduate ang
students with diploma from the school.
G.) Non-imprisonment for non-payment of poll tax
More detailed discussion under Tax 2
Just remember: although you cannot be imprisoned by
non-payment of poll tax you can be imprisoned if you
falsify a community tax certificate
H. Non-impairment of the jurisdiction of the SC in
tax cases
So, as provided under the Constitution:
“The Supreme Court may review, revise, reverse, modify,
or affirm on appeal or certiorari as the law of the Rules of
Court may provide all cases involving the legality of any
tax, impost, assessment or toll, or any penalty imposed in
relation thereto.” (Art. VIII, Sec. 5)
If you’re questioning, may it be the legality or may it be
the propriety of your tax assessment , the ultimate
appellate body is the Supreme Court. Although, kung ang
hisgotan nato is the correctness of the assessment or the
correctness of exclusively used for religious, charitable,
and educational purposes.
For the computation of the BIR, ang immediate appellate
court is the Court of Tax Appeals (CTA). Then, from CTA
in division you go to CTA en banc, and then ultimately you
go to the Supreme Court.
If you question the legality of a tax law, you follow the
usual regular courts and then ultimately you end up
before the Supreme Court. So, everything will be decided
by the SC, insofar as the justices nga na notice nako who
renders good tax decisions kani si Justice Leonen, he
renders good analysis. And kani si chairperson, Bernabe,
if I am not mistaken. So, they render good analysis and
decisions on issues pertaining to taxation.
INDIRECT CONSTITUTIONAL LIMITATIONS
1. Due process of law
a. Chamber of real estate and builders’
associations’ inc. vs Romulo et.al. GR
160756, March 9, 2010
2. Equal protection of the laws
a. People vs Cayat GR L-45987
b. Ormoc Sugar Company vs Conejos et.al.
GR L-23794, February 17, 1968
c. Tiu vs CA GR 127410, January 20, 1999
3. Non-impairment of the obligation of
contracts
4. Non-infringement of religious freedom
5. No appropriation for religious purposes
6. Non-infringement of the freedom of the
press
7. Power of the President to veto any
particular item/s in a revenue or tariff bill
*chika about direct constitutional limitation/previous
video*
50
 INSTANCES OF VIOLATIONS OF DUE PROCESS:
1. Where the law is in violation of inherent
limitations
2. If the tax amounts to a confiscation of property
3. If the subject of confiscation is outside the
jurisdiction of the taxing authority
4. If the law which is applied retroactively imposes
unjust and oppressive taxes
5. If the law is imposed for a purpose other than
public purpose
Points to remember:
The validity of statute maybe contested only by
one who will sustain a direct injury in
consequence of its enforcement.
There must be proof of arbitrariness,
otherwise apply the presumption of
constitutionality
Due process requires hearing before adoption
of legislative rules by administrative bodies of
interpretative rulings. (Misamis vs. DFA)
Compliance with strict procedural requirements
must be followed effectively to avoid a collision
course between the states power to tax and the
individual recognized rights (CIR vs. Algue)
The due process clause may correctly be invoked
only when there is a clear contravention of
inherent or constitutional limitations in the
exercise of tax power. (Tan vs. del Rosario)
Chamber of Real Estate and Builders’
Associations’ Inc. v. Romulo et. al., G.R. No.
160756, March 9, 2010
“In Sison, Jr. v. Ancheta, et al., we held that the due
process clause may properly be invoked to invalidate,
in appropriate cases, a revenue measure when it
amounts to a confiscation of property. But in the same
case, we also explained that we will not strike down a
revenue measure as unconstitutional (for being
violative of the due process clause) on the mere
allegation of arbitrariness by the taxpayer. There must
be a factual foundation to such an unconstitutional
taint. This merely adheres to the authoritative doctrine
that, where the due process clause is invoked,
considering that it is not a fixed rule but rather
a broad standard, there is a need for proof of
such persuasive character.”
DUE PROCESS
The provision in the Constitution tell us that no person
shall be deprived of life, liberty or property without due
process of law. When we discussed limitations, I have
Inherent
mentioned that the majority of the limitations, if not all,
are not expressly provided under the Constitution or
under the law but automatic they exist once the power of
taxation is being exercised by the state.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Since they are not provided, if there is a violation in any
of the inherent limitations, what particular legal provision
or Constitutional provision will you rely on or is deemed
violated? That is the due process clause of the
Constitution. That could be used as your legal basis in
questioning the Constitutionality of that particular tax law,
which basically violates any of the inherent limitations to
the power of tax.
There are two aspects of due process of law: Substantive
due process and procedural due process.
Again, violation of any of these whether Substantive or
ProceduralDue Process makes the law null and void.
Substantive due process requires that a tax statute
must be within the constitutional authority of Congress to
pass and that it be reasonable, fair and just.
Meaning to say that if the tax statute, laws is not for public
purpose, the purpose is to benefit a private entity, which
does not have any public interest at all, or it applies to all
objects or subjects beyond the territorial jurisdiction of
the Philippines, properties beyond the territorial
jurisdiction or it simply, does not take into consideration
international comity, so, this substantive due process is
deemed violated because it is beyond the authority of
congress already.
On the other hand, procedural due process simply
requires notice and hearing or at least the opportunity to
be heard. “Sir kaning procedural due process, when it
comes to tax laws, is this required? The answer is yes,
katong procedure laid down in the constitution and the
authority laid down by it, i- follow gihapon to how the law
will be passed; where the bill will start. But ofc, specific
man gyud to direct constitutional limitation, but this
procedural due process, this is more in line in the
implementation aspect when the BIR makes an
assessment into a taxpayer. Because when the BIR makes
an assessment, the BIR audits or examines the taxpayer,
it’s not like musulod sa BIR office and then ikaw mangita
sa mga libro, it's not. There is an entire provision or
procedure that the BIR must follow. Otherwise, if this
procedure is not strictly followed then it’s deemed a
violation of procedural due process. And because violation
of the procedural due process, it makes the assessment
null and void. There are so many cases na napildi si BIR
sa assessment niya to a particular taxpayer for the simple
reason that BIR forgot to follow the procedural due
process.
Notice and hearing. Meaning to say kung muask si BIR
formally ni taxpayer, there has to have proper notice.
Naay gitawag na Preliminary Assessment Notice, naay
gitawag na Issuance of Letter of Authority, naay gitawag
Final Assessment Notice.
51
We will discuss this in Tax 2. What I'm trying to say, is
naay sequencing, naay number of days when these notice
should be sent to the taxpayer, when the taxpayer should
respond to it, such that if it is not followed by the BIR
being the implementing authority that is considered as
violation to the procedural due process clause.
Substantive due process is more of the authority.
Procedural due process is naay na authority, gi- exercise
niya but wala nafollow ang required notice and hearing
requirement under the law. That's why muingon sila, "Tax
is complicated'' and somehow agree to that, simply
because the procedure, the notice and hearing
requirement for taxation purposes is a bit different
compared to Civil Procedure (katawa mga guinea
pig) or Criminal Procedure, which I know you will be
mastering also. So medyo lahi siya, unlike the regular civil
or criminal action, na you go to MTC, to RTC, then
eventually appeal to CA. For taxation, you got to the BIR
and then appeal to the CTA or the Court of Tax Appeals.
That alone makes it quiet alone and quite special.
Instances of violation of due process
1. The law is in violation of inherent limitations
2. If the tax amounts to a confiscation of property
Confiscation in the sense that taxes are arbitrary, that the
assessment of the tax did not follow the notice and the
hearing. Kay kung wa ka notice and hearing, confiscation
gyud na of the property. Confiscation is more akin to the
Police Power of the state rather than the power of
taxation. Lahi si power of taxation because prior to
garnishment or prior to furnishment, there has to have a
valid assessment, there has to have a specific demand
against the taxpayer. If the assessment is nullified in the
first place because it violated the procedural due process
then that is tantamount to the violation of due process.
3. If the subject of confiscation is outside the
jurisdiction of the taxing authority
If you recall, that is still part of the Inherent Limitations.
4. If the law which is applied retroactively imposes
unjust and oppressive taxes
Power of taxation is prospective in nature.
Q. Pwede ba mag retroactive ang application?
YES! After all,
Prospective application is just a general rule. The wisdom
of Congress always comes into play.
Requirement for retroactive application: It should
not impose unjust and oppressive taxes. It should be
beneficial to the taxpayer.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Meaning, if it iss retroactive, it must be beneficial to the
taxpayer.
EXAMPLE: Proposed provision in the CREATE bill wherein
it reduces the Corporate Income Tax Rate from 30% to
25%, effective July 2020. If that proposed provision
comes into play, and mapasar na before April 15, then
perhaps mo retroact. April 15 bec that’s generally the
deadline of filing these corporate income tax returns.
Q. Is that a potential violation of due process?
No, bec that does not entail additional tax to the taxpayer.
Rather, it’s a reduction of the tax from 30-25%.
5. If the law is imposed for a purpose other than
public purpose.
Same with the jurisdiction, this is also part of the inherent
limitations. Inherent limitations: MEMORIZE - PINET
1. Public purpose
2. Non-delegation of the legislative power to tax
*insert here inherent limitations for easy recall,
3. Exemption from taxation of government entities
4. International comity
please Vianca* 5. Territorial jurisdiction
POINTS TO REMEMBER IN DUE PROCESS
● If you’re going to question the constitutionality of the
provision for being violation of this clause, there
must be proof of arbitrariness; otherwise, we
apply the presumption of constitutionality.
Q. How are we going to prove arbitrariness?
Go back to what constitutes a violation of due process.
EXAMPLES:
If it violates public purpose, then you show proof that it’s
not intended that the fund generated is not for public
purpose.
If it is a violation of procedural due process, target what
procedure laid out under the law that was not followed by
the BIR in the implementation aspect.
If the law is applied retroactively, then present proof that
the tax is unjust and oppressive or it will lead to losses.
Note: Recap on the MANILA MEMORIAL PARK case,
where the SC ultimately resolved what power was
exercised by Congress, whether it’s taxation or police
power, because in that case, the petitioner is essentially
arguing that it’s violative of due process and even equal
protection. Because if that law is implemented, it would
lead to losses daw nila.
● Under the due process, remember also that
compliance of strict procedural requirement
must be followed effectively to avoid a collision
course between the state’s power to tax and
the individual recognized rights (CIR v Algue)
52
● The validity of statute may be contested only
by one who will sustain a direct injury in
consequence of its enforcement.
If you have legal standing to question that one. Which is
why if you are going to question it via taxpayer’s suit, you
have to prove your legal standing. You have to prove if it
involves disbursement of public funds, if you are a
taxpayer, if you will be affected by it, etc.
● Due process requires hearing before adoption
of legislative rules by administrative bodies of
interpretative rulings (Misamis v. DFA)
What do we mean by “hearing before adoption of
legislative rules by administrative bodies”, this simply
means that if we look at the current situation when we
are going to pass a tax law, it must pass first before the
ways and means committee; either of the House of
Representative or Senate. In short, it must follow the
protocols.
In terms of rulings, there should at least be hearing there,
but the hearing there need not be adversarial. When we
say hearing, it simply means that the taxpayer is given
opportunity to raise his position. Mao na nga if you are
going to request for a ruling before the BIR, let’s say for
example, kani ruling murag magpatambag ka ba. Naay
gray area sa balaud, and you are not very sure if this
provision applies to this transaction, so you are asking for
advice or ruling with the BIR and we call that a Revenue
Ruling. You should be able to present your position – you
should be able to provide an argument kung unsa sa tan-
aw nino ang sakto na interpretation sa law. Of course,
kung tax payer ka, magpa ruling jud ka for exemption or
exclusion. Di man gyud ka magparuling kung taxable.
Basically, you are asking, “oh BIR, is this transaction
taxable or not?” Then of course, you present your
position, you present your legal basis, the factual basis on
why you think that transaction is not subject to tax – why
it is exempted or excluded from tax.
So, not necessarily hearing na mag debate gyud mo didto
because it’s more like or administrative ruling.
● The due process clause may correctly be
invoked only when there is a clear
contravention of inherent or constitutional
limitations in the exercise of tax power (Tan v.
del Rosario)
Again, what is essential is that there must be proof of
arbitrariness. It is not enough, same with the requirement
on equity, equality, uniformity, it’s not enough that you
just present your feelings. So, you cannot just say that
this is violative of due process because the other person
is acquitted with, let’s say for example, when you are
being examined for potential tax violation—there should
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
be proof. Are you similarly situated in the first place?
That’s the question that you need to first settle and
answer.
Chamber of Real Estate and Builders’
Associations’ Inc. v. Romulo et. al., G.R. No.
160756, March 9, 2010
This involves several issues; tax credit, tax deduction,
etc. (Just peruse through it so that you will have
additional idea as early as now. But if you don’t
understand yet the concept of tax credit and tax
deduction, don’t bother too much yet.)
… the due process clause may properly be invoked to
invalidate, in appropriate cases, a revenue measure
when it amounts to a confiscation of property. But
in the same case, we also explained that we will not
strike down a revenue measures as unconstitutional for
being violative of the due process clause on the mere
allegation of arbitrariness by taxpayer – tax payer
must present proof. There must be a factual
foundation to such an unconstitutional taint. This
merely adheres to the authoritative doctrine that
where the due process clause is invoked,
considering that it is not a fixed rule but rather
a broad standard, there is need for proof of such
persuasive character.
This case is at the height of BIR’s implementation of
withholding taxes, where the buyer is required to withhold
the portion of the tax that the seller will pay—the income
earner. So, let’s say for example, I am the buyer and you
are the seller. It is not a tax type. Rather, it is a manner
of collecting the tax. When we say manner of collecting
the tax, the usual manner is of course, me, I earn income
and declare that income to the BIR—I compute my tax
liability, I pay the tax liability to the BIR under the self-
assessment process. But then again, it’s more like of
voluntary, so, it is subject to abuses because for example
I do not want to declare, then I can very well do it. So,
one way that the BIR saw is withholding. Meaning to say,
that if both of us are in contract, you are the seller and I
am the buyer, I will pay you pwede nga ang bayad nako
sa imoha is net of the tax. And what I will do is I will
withhold the tax. That's what we call withholding tax. and
I will remit that to the BIR.
Meaning to say, let's say for example I am the buyer, and
you are the seller. Let's say for example I am supposed
to pay you Php 100.00 in that transaction. Normal kung
wala'y withholding ikaw seller mo declare sa Php 100.00
compute ka's tax, bayad ka sa BIR.
But in the concept of withholding, if the contract price is
let's say for example in the contract price is Php 100.00.
But if gi-require na dapat withholdan na nako nga
53
transaction, example ang withholding tax is 10%, the
concept of withholding here is what we call Creditable
Withholding Tax (CWT). Meaning to say it's more of like
advance payment of the tax. Meaning to say if 10%, mag
withhold ko sa Php 100.00, ang ibayad nako sa imoha is
Php 90.00 and the Php 10.00 is the withholding tax. Kinsa
ang mo withhold ani? Ako as buyer. And this Php 10.00
asa man nako ni i-remit? I-remit ni nako derecho ni BIR.
Ang madayon ni seller kay Php90.00 lang pero ang
contract price nato is Php 100.00.So, inig declare nimo if
ikaw seller, ang i-declare nimo nga income is of course
Php 100.00 kay mao man na ang contract price. Ang i-
subject to tax if it's 30% let's say for example. So times
30. But since gi-withholdan man ko ug Php 10.00, that's
advance payment. And gi-remit na ni buyer to BIR. So i-
credit na nimo nganhi. So pasabot ang payable na lang
nimo ni BIR will only be Php 20.00. Do you follow? (ofc,
ang posc no na)
Of course this presupposes ha that net na ni ang Php
100.00 of all the expenses etc. That's just the concept
there. But anyhow, let's explain the logic.
Q. Nganu i-require man ni BIR nga mag
withholding?
Because that's a good way for BIR to counter check
whether the income earner or the seller declares the
correct amount of sales or receipts. Kay ang nahitabo, the
seller, the business men, even if they earn Php 100.00,
inig declaration na, kay wala lagi resibo, wala'y
withholding, ang i-declare lang Php 50.00. The other Php
50.00 goes away and there's no way for the BIR to verify
it. But if there is withholding, even if wala’y resibo, can
the BIR verify nganu Php 50.00 ra ang gi-declare nga Php
100.00 man ang sales nga gi-report ni buyer? The answer
is YES. Php 10.00 ang gi-withhold, 10/10% that's equals
to Php 100.00. So nganung Php 50.00 ra man? Sakpan na
si seller. Do you get the point? I hope you get that point.
(I hope sad, atty haha)
Now, of course, on the part of the buyer, there is a
consequence if he cannot withhold, which will be
discussed again when we deepen our study of taxation.
The buyer cannot claim since the seller’s income is 100,
on the side of the buyer, the 100 is an outflow. An outflow
means expense. This means that if the buyer has income,
that 100 which is an outflow will be subtracted to the
income of the buyer. And if the 100 will be subtracted
from the income of the buyer, is it beneficial to the buyer
taxation wise? Yes, because the more expense that the
buyer will deduct to his gross income, the lower will be
the net or taxable income. If the taxable income is lower,
then the tax payable by the buyer is also lower.
So, as a consequence, if the buyer fails to withhold that
could be the reason that the expense claimed by the
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
buyer will be disallowed by the BIR. Thus, in the example,
if the buyer fails to withhold the 100 pesos expense, then
the BIR may disallow the buyer from deducting the 100
pesos from the gross income of the buyer.
Q. What is the consequence of disallowing the
deduction of the expense from the gross income?
In the example, the gross income of the buyer will
increase by 100 pesos. If the gross income will increase,
there is also increase in tax income payable on the part
of the buyer.
This is what happened in the case of Chamber of Real
Estate v. Romulo. In this case, it was the first time that
real estate sellers were being subjected to withholding
tax, and they questioned it. One of their arguments is that
it is a violation of the due process clause, that is in
addition to their argument that it is in violation of the
equal protection clause. It is in violation to the due
process clause because it is arbitrary -- it will entail
additional cost on their part. The SC held that the sellers
did not present any proof of arbitrariness, it’s just a mere
allegation.
If we look at Manila Memorial case, they had also
raised that it is in violation of equal protection, due
process, it’s confiscatory, etc. What did they present
there? They presented estimated financial statements.
Going back to the case of Chamber of Real Estate v.
Romulo, the sellers could have presented estimated
financial statements, etc., showing the arbitrariness,
however, they failed to do so. Hence, the SC held that
that requirement of tax credit is constitutional and not
violative of the due process clause.
The sellers even raise the argument that retailers and
manufacturers (during that time) were not required to
withhold. The SC discussed that there is reasonable
classification or substantial distinction between the
players in the real estate industry and the manufacturers
or retailers.
The SC has to discuss that there is a reasonable
classification or substantial distinction between the
players in the real estate industry and the manufacturers
or retailers. [Chamber of Real Estate and Builders’
Association Inc v Romulo, GR no 160756, March 9,
2010]
EQUAL PROTECTION OF THE LAWS
CRITERIA OF EQUAL PROTECTION
1. When the laws operate uniformly
a. On all persons
b. Under similar circumstances
2. All persons are treated in the same manner
a. The conditions not being different
54
 b. Both in privileges conferred and liabilities
imposed
c. Favoritism and preference not allowed
People v. Cayat, G.R. No. L-45987
Requirements of Reasonable Classification: (FC si SG)
1. There must be substantial distinctions that
make a real difference.
2. It must be germane or relevant to the
purpose of the law.
3. The distinction or classification must apply not
only to the present but also to future
situations.
4. The distinction must apply to persons, things
and transactions belonging to the same class.
Chamber of Real Estate and Builders’
Associations’ Inc. v. Romulo et. al., G.R. No.
160756, March 9, 2010
“The equal protection clause under the Constitution
means that "no person or class of persons shall be
deprived of the same protection of laws which is
enjoyed by other persons or other classes in the same
place and in like circumstances.“ Stated differently, all
persons belonging to the same class shall be taxed
alike. It follows that the guaranty of the equal
protection of the laws is not violated by legislation
based on a reasonable classification. ***
The taxing power has the authority to make reasonable
classifications for purposes of taxation. Inequalities
which result from a singling out of one particular
class for taxation, or exemption, infringe no
constitutional limitation. The real estate industry is,
by itself, a class and can be validly treated differently
from other business enterprises. ***”
Ormoc Sugar Company v. Conejos et. al., G.R.
No. L-23794, February 17, 1968
“A perusal of the requisites instantly shows that the
questioned ordinance does not meet them, for it taxes
only centrifugal sugar produced and exported by the
Ormoc Sugar Company, Inc. and none other. At the
time of the taxing ordinance's enactment, Ormoc Sugar
Company, Inc., it is true, was the only sugar central in
the city of Ormoc. Still, the classification, to be
reasonable, should be in terms applicable to future
conditions as well. The taxing ordinance should not
be singular and exclusive as to exclude any
subsequently established sugar central, of the
same class as plaintiff, for the coverage of the tax. As
it is now, even if later a similar company is set up, it
cannot be subject to the tax because the ordinance
expressly points only to Ormoc City Sugar Company,
Inc. as the entity to be levied upon.”
Tiu v. CA, G.R. No. 127410 January 20, 1999
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
“It is well-settled that the equal-protection guarantee
does not require territorial uniformity of laws. As
long as there are actual and material differences
between territories, there is no violation of the
constitutional clause. And of course, anyone, including
the petitioners, possessing the requisite investment
capital can always avail of the same benefits by
channeling his or her resources or business operations
into the fenced-off free port zone.”
EQUAL PROTECTION OF LAWS
All persons, all properties, all businesses should be taxed
at the same rate.
The equal protection of the laws does not necessarily
mean uniformity in all aspects, this does not necessarily
mean that everyone should have the same tax rate
because we have to take into consideration whether there
is substantial distinction between these persons,
properties or businesses. In short, we consider their
classification.
Substantial distinction - it must be real, material and
not superficial distinction.
Class legislation is prohibited wherein you are going to
specify this particular tax for this particular class (specific
class) without taking into consideration their ability to
pay.
Criteria of Equal Protection
1) When the laws operate uniformly
a) On all persons
b) Under similar circumstances
Dapat concurrent ni nga condition on all persons having
the same circumstances. Meaning to say, dapat cocurret
ni nga condition. Basta we belong to the same class, we
have the same circumstances then we should be treated
uniformly.
2) All persons are treated in the same manner
a) The conditions not being different
b) Both in privileges conferred and liabilities
imposed
c) Favoritism and preference not allowed
Simply put, you are one class, you are similarly situated
in relation to your final grade. Pareha gyud kag grado and
scores, orals and wala mo nag cheat etc. so uniformly,
you should have the same grade.
However, even if you belong to the same class but in
computing the grade you base it lang, not on the class;
otherwise, class legislation. 301 - 1.0; 306 - 3.0 → unfair
55
 In case of People vs. Cayat, although uniformity must
be observed, it is required if you belong to the same
class. And in ascertaining whether there is reasonable
classification, these are the criteria laid down in the
case:
1. must rest on substantial distinctions
2. must be germane or relevant to the purposes
of the law
3. The distinction or classification must apply not
only to the present but also to future situations
4. The distinction must apply to persons, things
and transactions belonging to the same class.
Note: Memorize FC si SG. - feeling close si security
guard.
There are different kinds of ‘classes.’ Thus, different
classes have different tax rates.
Example of Classes (these classes have different tax
rates):
- Income taxation for compensation income earner
- Rules on income taxation for business income earner
- Income tax rules for individual taxpayers
- Income tax rules for corporate taxpayers
Note: Taxpayers of the same class should be taxed
uniformly, otherwise it will be a violation of the Right to
Equal Protection of laws.
In Chamber of Real Estate, they also raised violation
of the equal protection clause. SC said that the equal
protection clause under the Constitution means that
"no person or class of shall be of the same protection
of laws which is by other persons in the same place
and in the same circumstance.” Stated differently,
all persons belonging to the same class shall be taxed
alike. It follows that the guaranty of equal protection of
laws is not violated by legislation based on a reasonable
classification.
If you will be asked what are the requirements for the
classification to be reasonable, People vs. Cayat. - FC
si SG.
Ultimately SC said that the taxing power has the
authority to make reasonable classifications for
purposes of taxation, inequalities which result
from singling out of one particular class of
taxation, or exemption, infringe no
constitutional limitation.
Even if at that moment, ikaw nalang usa ang nag inusara
kay wala pay other person that could belong to the same
class.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Ormoc Sugar Company v. Conejos, G.R. No. L-
23794. February 17, 1968
Facts: Ormoc Municipality (at that time) passed an
Ordinance subjecting to tax Ormoc Sugar Company.
The ordinance specified the name of Ormoc Sugar
Company. Ormoc Sugar Company, Inc. said that this is
unfair, violative of the equal protection of the laws.
Defense of Municipality of Ormoc is kamo lng amo e
specify sa ordinance because you are the only company
currently operating here producing centrifugal sugar
and exporting the same, gi starring mo namu sa
ordinance
SC: Violation of equal protection because singled out
Ormoc Sugar Company, Inc. by expressly putting its
name in the ordinance that it will be subject to tax,
even if there are no other similar companies or
producers, it will not be applicable to future conditions
as well – violation of the reasonable classification. By
naming Ormoc Sugar Company, Inc. in the ordinance,
basically the Municipality of Ormoc, elevated it to a
class of its own. It would have been different kung ang
tax niya g specify lng niya, centrifugal sugar producer
and exporter.
“A perusal of the requisites instantly shows that the
questioned ordinance does not meet them, for it
taxes only centrifugal sugar produced and
exported by the Ormoc Sugar Company, Inc. and
none other. At the time of the taxing ordinance's
enactment, Ormoc Sugar Company, Inc., it is true, was
the only sugar central in the city of Ormoc. Still, the
classification, to be reasonable, should be in terms
applicable to future conditions as well.
The taxing ordinance should not be singular and
exclusive as to exclude any subsequently
established sugar central, of the same class as
plaintiff, for the coverage of the tax. As it is now, even
if later a similar company is set up, it cannot be subject
to the tax because the ordinance expressly points
only to Ormoc City Sugar Company, Inc. as the
entity to be levied upon.”
We also have the case of Tiu vs. CA, wherein the
petitioner Tiu questioned the establishment of the PEZA
zone early days pani of EPZA, changed to PEZA.
Petitioners questioned nganong kunong g tangaan ug
incentives ang locators within the secured area.
Unlike, sa PEZA nato diri, although naay fence ang PEZA
nato pero medyo katag ang sa Mactan. But in Subic it’s
really one whole big area. And the petitioners questioned
56
ngano sila ra ang naay incentive. Because generally if
magpa register ka, you will enjoy income tax holiday for
a certain period and you will be given a preferential tax
rate of 5% to your gross income in lieu of all taxes among
other incentives. So ingon ang taga gawas, ngano sila sila
raman, it’s violation of Equal Protection of the Laws kay
nag negosyo man sad mi and the only difference is naa
sila sa sulod unya kami naa sa gawas.
This is where the SC said, there is reasonable
classification between businesses located outside the
secured area and businesses lured to establish their
industries in the so called secured area.
SC said:
1. Those in the secured area pertains to billion-peso
investment and thousands of new jobs. Tinoud sad
baya. Because IPSA or PEZA even now requires a
minimum investment. Mura kag mag feasibility study.
Pangotan-on ka unsa ang technology na ebring in
nimo, pila ang estimated investment nimo, and if your
investment is way too small you will not be approved
for registration purposes and for incentive purposes.
Naa na silay minimum investment for you to avail of
income tax holiday or if dili na nimo ma meet, the
least is adto ka sa 5% in lieu of other taxes. So the
Supreme Court said, kamo sa gawas none of such
magnitude. There’s no requirement of minimum
amount of investment. In the first the economic
impact will be national. Because of course of the value
or the amount of the investment.
2. Those outside the secured area, it’s only local. Even
more important, at this time the business activities
outside the secured area are not likely to have any
impact in achieving the purpose of the law. Because
in the case Pres. Ramos passed a law converting the
military base into a free port zone. So naa nay law.
But iyang gi question is di man kato na balaod, ang
iyang gi question kay katong incentives given. So, the
law requiring the military base to be of productive use
for the benefit of the Philippine economy. And you
know finding ways to lure in investors and foreign
investors or industries to relocate on that location on
the base, that already created a substantial distinction
between those businesses within the secured area
and those businesses outside the secured area.
So, the Supreme court further went on to state that the
equal protection guarantee does not require territorial
uniformity of the laws. As long as there are actual and
material differences. Because of this issue actually, when
they changed IPSA to PEZA, when they passed the law
establishing the PEZA, they even specified in the law that
the area designated as an economic zone theoretically is
deemed as foreign territory. Which is why it could have
different tax sin schemes. Mao na nga lahi ang tax niya
compared to those areas outside the economic zone. Ang
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
kana outside sa economic zone, mao na ang customs
territory.
Tui v. CA, G.R. No. 127410 January 20, 1999
Petitioners questioned nganong kunong g tangaan ug
incentives ang locators within the secured area.
Unlike, sa PEZA nato diri, although naay fence ang
PEZA nato pero medyo katag ang sa Mactan. But in
Subic it’s really one whole big area. And the petitioners
questioned ngano sila ra ang naay incentive. Because
generally if magpa register ka, you will enjoy income
tax holiday for a certain period and you will be given a
preferential tax rate of 5% to your gross income in lieu
of all taxes among other incentives. So ingon ang taga
gawas, ngano sila sila raman, it’s violation of Equal
Protection of the Laws kay nag negosyo man sad mi
and the only difference is naa sila sa sulod unya kami
naa sa gawas.
This is where the SC said, there is reasonable
classification between businesses located outside the
secured area and businesses lured to establish their
industries in the so called secured area.
SC said:
1. Those in the secured area pertains to billion-
peso investment and thousands of new jobs.
Tinoud sad baya. Because IPSA or PEZA even
now requires a minimum investment. Mura kag
mag feasibility study. Pangotan-on ka unsa ang
technology na ebring in nimo, pila ang estimated
investment nimo, and if your investment is way
too small you will not be approved for
registration purposes and for incentive
purposes. Naa na silay minimum investment for
you to avail of income tax holiday or if dili na
nimo ma meet, the least is adto ka sa 5% in lieu
of other taxes. So the Supreme Court said, kamo
sa gawas none of such magnitude. There’s no
requirement of minimum amount of investment.
In the first the economic impact will be national.
Because of course of the value or the amount of
the investment.
2. Those outside the secured area, it’s only local.
Even more important, at this time the business
activities outside the secured area are not likely
to have any impact in achieving the purpose of
the law. Because in the case Pres. Ramos passed
a law converting the military base into a free
port zone. So naa nay law. But iyang gi question
is di man kato na balaod, ang iyang gi question
kay katong incentives given. So, the law
requiring the military base to be of productive
use for the benefit of the Philippine economy.
57
 And you know finding ways to lure in investors
and foreign investors or industries to relocate on
that location on the base, that already created a
substantial distinction between those businesses
within the secured area and those businesses
outside the secured area.
So, the Supreme court further went on to state that the
equal protection guarantee does not require territorial
uniformity of the laws. As long as there are actual and
material differences. Because of this issue actually,
when they changed IPSA to PEZA, when they passed
the law establishing the PEZA, they even specified in
the law that the area designated as an economic zone
theoretically is deemed as foreign territory. Which is
why it could have different tax sin schemes. Mao na
nga lahi ang tax niya compared to those areas outside
the economic zone. Ang kana outside sa economic
zone, mao na ang customs territory.
Those in the secured area pertains to billion-peso
investment and thousands of new jobs. Tinoud sad baya.
Because EPZA or PEZA even now requires a minimum
investment. Mura kag mag feasibility study. Pangotan-on
ka unsa ang technology na ebring in nimo, pila ang
estimated investment nimo, and if your investment is way
too small you will not be approved for registration
purposes and for incentive purposes. Naa na silay
minimum investment for you to avail of income tax
holiday or if dili na nimo ma meet, the least is adto ka sa
5% in lieu of all taxes. So the Supreme Court said, kamo
sa gawas none of such magnitude. There’s no
requirement of minimum amount of investment.
In the first the economic impact will be national. Because
of course of the value or the amount of the investment.
In the second, those outside the secured area, it’s only
local. Even more important, at this time the business
activities outside the secured area are not likely to have
any impact in achieving the purpose of the law. Because
in the case Pres. Ramos passed a law converting the
military base into a free port zone. So naa nay law. Nya
iyang gi question is di man kato na balaod, ang iyang gi
question kay katong incentives given. So, the law
requiring the military base to be of productive use for the
benefit of the Philippine economy. And you know finding
ways to lure in investors and foreign investors or
industries to relocate on that location on the base, that
already created a substantial distinction between those
businesses within the secured area and those businesses
outside the secured area.
So, the Supreme court further went on to state that the
equal protection guarantee does not require territorial
uniformity of the laws. As long as there are actual and
material differences. Because of this issue actually, when
they changed EPZA to PEZA, when they passed the law
establishing the PEZA, they even specified in the law that
the area designated as an economic zone theoretically is
deemed as foreign territory. Which is why it could have
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
different taxing schemes. Mao na nga lahi ang tax niya
compared to those areas outside the economic zone. Ang
kana outside sa economic zone, mao na ang customs
territory.
Famous case of Judy Ann Santos: Dli ni Civil case,
more of criminal case. Equal protection pwd mana dba,
power of taxation and police power of the state.
Santos vs. People of the Philippines & BIR G.R.
No. 173176, August 26, 2008
Facts: G kasuhan si Judy Ann ug tax evasion back then
because of the fact nga iya g declare nga income is
only P8M, but it was found out based on reports
submitted by accountants and third parties nga ang
income niya is around P14M (SANA ALL YAWA).. Ang g
declare niya nga income is only income earned from
ABS-CBN back then. In reality P14M including other
indorsements, advertisements, mga rackets ni Juday.
Led to filing of criminal cases for tax evasion.
Arguments ni Juday: Filing of criminal case against her
is a violation of the equal protection of the laws. Ana si
Juday, “nganu man lagi si Regine?”
Kai nakiha man sad si Regine ug tax evasion back then
but DOJ level, (Diba ang preparation is BIR, but the BIR
will not prosecute on their own – goes to DOJ – DOJ
finds probable cause – filing of the case in the regular
courts ) ang ka Regine kai na dismiss DOJ level kai dili
claro kung pila ang tax liab ni Regine. Kai Juday
nipadayun, ni abot sa SC kai na establish man pila ang
amount nga gi declare, therefore na establish ang
correct amount sa deficiency tax.
SC: The equal protection clause exists to prevent
undue favor or privilege. It is intended to eliminate
discrimination and oppression based on inequality.
Recognizing the existence of real differences among
men, the equal protection clause does not demand
absolute equality. It merely requires that all
persons shall be treated alike, under the
circumstances and conditions, both as to the
privileges conferred and liabilities enforced.
Petitioner (Judy Anne Santos) was not able to duly
establish to the satisfaction of this Court that
she and Velasquez were indeed similarly
situated, i.e. that they committed identical acts for
which they were charged with the violation of the
same provisions of the NIRC; and that they presented
similar arguments and evidence in their defense - yet
they were treated differently.
Ang kay Judy Ann na fixed ang liability, ang kay Regine
wala.
*chika minute na*
58
If you committed tax evasion, naa man gud range.
Kintahay if ang g declare nimo 1php lang and ang correct
income is 10 so there is 9php difference, 90%. Ang
acceptable kay BIR para maka ingun kag mere mistake,
walay intent on your part to evade is if the
underdeclaration of your income or overdeclaration of
expenses do not exceed 30%. Beyond 30%, considered
substantial already. There is already a presumption of
your intent to evade payment of tax which is considered
criminal offense.
In the case of Judy Ann, 8M-14M more than 30%. That’s
why na filan siya ug tax evasion case.
Even if gbayaran nim ang tax, magpadayon gihapon ang
case. So an advice to clients is as much as possible
cooperate with the BIR and legally settle the matte bcs
once everything has been finalized, there will always be a
threat or the BIR can always come up with a criminal case
against the taxpayer kay most violation man gud in the
tax code involves criminal punishment especially if the
underdeclaration exceeds 30% or is considered
substantial.
NON-IMPAIRMENT OF THE OBLIGATIONS OF
CONTRACTS
“No law impairing the obligation of contracts shall
be passed.” (ART 3, Sec. 10)
General Rule: The power to tax is pursuant to law,
therefore, the obligation to pay taxes is imposed by law,
thus the non- impairment clause does not apply. The
parties to the contract cannot exercise the power of
taxation.
EXCEPTION: (when the non-impairment clause applies
as limitation to taxation) ??
Review: Sources of Obligation ??
Exceptions:
When the law merely provides for the fulfillment
of the obligation
Law merely recognizes or acknowledges the
existence of an obligation created by an act
Only when the law establishes the obligation and also
provides for its fulfillment – the law is the source of the
obligation.
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
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
1. If the exemption was granted for valuable
consideration and it is granted on the basis of a
contract.
a. 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
a. 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
a. can be unilaterally revoked by the
government (Congress)
We are still on the principles of taxation. We are in the
middle of discussing the indirect constitutional limitations,
just a quick recap in our previous video lecture, we’ve
discussed the indirect constitutional limitations and we
said that these are indirect in a sense that it applies to
other inherent powers of the state. We’ve discussed the
due process clause and the requirements of uniformity
and equality as required by the Constitution. We now
move to non-impairment of the obligations of the contract
clause.
By its name, when we say non-impairment, it
means to say that a tax law, whenever passed by
Congress or exercised by the government, must
not diminish or impair any obligations that are
being contained in a contract. Take note, contract,
NOT another law. Definitely, the legislature can amend
another law. When we talk of obligation, there are
different sources. There are 5 sources of obligation. You
have a law, contract, quasi-contract, delicts and quasi-
delicts. What cannot be impaired through the exercise of
the power of taxation is the obligation stemming from a
contract. If that obligation of yours comes from a well,
law it
can very well be impaired and diminished upon the
wisdom of the legislature by merely passing an
amendatory law. If we’re talking about a contract, which
involves two private parties in essence that enter into an
agreement. The power of taxation cannot diminish or
impair whatever obligations they've agreed in a contract.
You may ask, “Sir, why is the power of taxation coming
into play now when we are talking about contracts
entered into by private parties?” In relation to the power
of taxation, the situation cannot be impaired or
diminished here pertains to a contract entered into by the
government in its private or proprietary capacity. Not
between two private entities because two private entities
cannot exercise power of taxation between each other. It
can’t relate to the power of taxation. But, between a
government entity entering into an agreement or contract
with another private entity or supplier, and in that
agreement let's say the government agreed it will assume
the tax liability of that private entity will incur, it is an
obligation pursuant to a contract. It cannot be merely
59
amended through the passage of a tax law or an
amendment on the current tax law because that’s a
separate source of obligation. And usually when we talk
of this phrase,or this constitutional limitation, this applies
more not on the imposition of tax but more on the grant
of tax exemption pursuant to a private agreement entered
into by the Government in its private capacity.
“Sir wa ko kasabot, pwede diay na? Yes to some extent
and as we move along our discussion, we will not only be
discussing tax exemption but also tax assumptions where
the executive Dept will promise. It’s a case involving
Mitsubishi, and then the executive dept through the Pres
promised the Engrs coming from Japan that if they will
be going to build a powerplant here in the Phils, part of
the incentives is the lure them to sponsor that project,
the executive dept will assume their tax liability. In that
sense, the government enters into a contract and the
government obliges itself to assume the tax liabilities of
this powerplant Engrs. We will eventually tackle that.
What’s the express provision under the Consti? The consti
provides that “No law impairing the obligation of
contracts shall be passed”
When we say impairment, we say diminishing the
obligation. So and nahitabo nganhi kay you enter into a
contract, agreement and based on that agreement,
you’ve laid down the responsibilities or the obligations of
both parties. If you want to diminish your obligation in
such case, you do not pass a law. Otherwise, traydor ang
style nimo. Instead, you amend the contract or the
agreement as the case may be. Although mostly when
we talk about contracts or agreement, this usually involve
bilateral agreement between the parties.
So the General rule in relation to Consti provision, “the
power to tax is pursuant to law,
And when we say the power to tax, we are referring to
the imposition or levy. therefore, the obligation to pay
taxes is imposed by law. If you notice, the non-
impairment clause applies to obligations pursuant to
contract. So walay labot ang imposition of tax pursuant
to a law. Mao na niingon ko ninyo in so far as power to
taxation is concerned, this constitutional provision is
applicable to the grant of exemptions or assumptions
pursuant to an agreement entered into by the
government thus the non-impairment clause does not
apply. The parties to the contract cannot exercise the
power of taxation because again when you impose or
exercise that power, you have to passed a law. There is
an obligation pursuant to a law.
Can it be changed, diminished or amended? Yes, through
the passage of another law. This limitation pertains to
agreed obligations pursuant to contractual agreement.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Not covered under limitations (exception to the
general rule):
1. When the law merely provides for the fulfillment
of the obligation and;
2. the law merely recognizes or acknowledges the
existence of an obligation created by an act.
Only when the law establishes the obligation and
also provides for its fulfillment - then, the law is
the source of obligation. This is not covered under
constitutional limitation, because this limitation applies
only to the obligation coming from pursuant to a contract.
A lawful tax on a new subject or an increase tax on
an old one, does not interfere with a contract or
impairs its obligation. So, pwede i-amend.
The constitutional guarantee of the non-impairment
clause can only be invoked in the grant of tax exemption.
If we further tax exemption, grant of tax incentives.
Example:
In the early days before Congress passed TRAIN 1, the
Congressmen who was the Chairman of ways and means
back then, came over to Cebu. They would have wanted
to fast track the passage of TRAIN 2 this is way back 2018
they want to pass the TRAIN 2 and eventually change it.
TRAIN 2 na actually ang first and eventually they change
it to CITIRA then to CREATE. While the Senate is trying
to decide the fate of TRAIN 1, these Congressmen are
already preparing for TRAIN 2. They are asking for
position papers, they are doing roadshows. There were
roadshows organized by means and ways committee,
roadshows organized by the Department of Finance and
roadshows by PEZA.
What's the purpose of these roadshows? Is to get
the sentiments of the public.
The roadshows I happened to attend, more or less you
already have the copy of the draft bill including the PEZA
companies or companies registered in PEZA.
Back then, the original proposal in TRAIN 2 is to remove
the tax incentives enjoyed by the PEZA Companies.
For PEZA Companies, they enjoy incentives. Currently,
they can either enjoy income tax holiday or ‘perpetual’
preferential tax rate of 5% on their gross income.
DOF did not want that. Based on the draft bills, they want
to take that out and subject them to the regular corporate
income tax. Bec. accdg. to the 1st proposition, the
corporate tax will be reduced to 20%.
60
The PEZA’s problem there, aside from the removal of
incentives, they need to deal with the LGUs.
The current incentives enjoyed by PEZA Co., that
preferential tax rate of 5% covers already national and
local tax. 3% goes to the BIR, 2% for LGU. In
short, medjo hands off si LGU. Medjo dili na madisturbo
si PEZA Co with whatsoever issues with the LGUs since all
that they need to do is to allocate 2% to it.
BUT IN THE PROPOSAL FOR TRAIN 2, it will be removed.
These PEZA Co. will have to deal back again, like normal
companies, to the LGUs. and some of them have issues
with LGUs. Instead of dealing only with the PEZA director,
they have to deal with local politicians which could create
issues insofar as their operations are concerned.
Fortunately now, that’s not the case under the CREATE.
It’s more win-win sitch for these PEZA co. But in the early
days, one of the arguments before the Congress and I
personally think it's the SC who can discuss that, there
concern is that if you outrightly change everything thru
the passage of an amendatory law, which is TRAIN 2 back
then, might as consider the constitutionality thereof as
early as now. If you don’t hear the sentiments of these
companies, there will be cases that will be filed before the
SC questioning the constitutionality of the proposal.
One of the things that I’ve raised personally in one forum
attended by presidents etc., was the possible violation of
the non-impairment of the obligations of contracts clause.
…the new conditions and new incentives will just be
applied to the new locators or the new registrants. Again,
this limitation applies only to obligations brought about by
a contract entered into by the government usually in its
private capacity applicable in the grant of exemptions or
incentives.
The rule then is, if the exemption was granted for a
valuable consideration, and it is granted on the basis of a
contract—cannot be revoked by the simple passage
of a tax law. So, this is what I said in the existing TESA
(not sure of the spelling) Locators, they were really
arguing that you cannot change halfway. Why? Because
we were required to make minimum investments, there
were conditions that we had to fulfill and so far, we are
fulfilling it. This is why the argument of non-impairment
of the obligations of contracts entered.
If the exemption is granted, however, by virtue of a
contract, wherein the government enters into a contract
with a private corporation—cannot be revoked
unilaterally by the government. This is what I have
been meaning when I mentioned a while ago that if it’s a
contract entered into by the government, it has to be
bilateral agreement that you are going to revoke that.
And, if the basis of the tax exemption however, is a
franchise. Is franchise a contract? They’re quite different
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
because it is more of a privilege that you are allowed to
do that particular business. And, that franchise is granted
by congress and under the tax exemption, is given to a
particular holder or person, take not that it can be
unilaterally revoked by the government by merely
revoking the franchise.
Fernandez (PART 9: 24:00-28:00)
I-change ni Congress nga - like sa PAGCOR nga case 5%
franchise tax in lieu of all taxes. Pwede ba mo ingon si
Congress nga - isaka na nato to 10%? The answer is yes,
it can be done. Because that is a franchise. That is not a
contract which involves valuable consideration between
two contracting parties. I hope I am clear with that.
NON-INFRINGEMENT OF RELIGIOUS FREEDOM
Jimmy Swaggart vs Board of Equalization
The free exercise of religion clause does not prohibit
imposing a generally applicable sales and use tax on
the sale of religious materials by a religious
organization. (payment of license fees for distribution
of bibles)
The sale of religious articles can be the subject of the
VAT
What cannot be taxed is the exercise of religious
worship or activity
The income of the priest derived from the exercise of
religious activity can be taxed.
This simply means that no law shall be made
respecting an establishment of a religion or
prohibiting the free exercise thereof.
Meaning to say, no tax law (kay tax man ta) should be
passed to benefit a particular religion. Maghimo ka diha
ug special fund for the Catholic religion kay wala na'y
collecta because of the pandemic, it cannot be done.
Or prohibiting the free exercise thereof
- You subject to tax the exercise of religion (going
to mass etc.), it cannot be done.
The free exercise and enjoyment of religious
profession and worship without discrimination or
preference shall forever be allowed. No religious
test shall also be required for the exercise of civil
or political rights.
So it covers:
1.) Freedom to choose religion
2.) Freedom to exercise one's religion
3.) Prohibition upon the national government
to establish a national religion
So in all these cases, taxes or the power of taxation must
not be exercised either to promote or to prohibit or
61
discourage the exercise of… So mao na diba the usual
separation of the church and the state.
Later on, we will be talking more on the exemptions of
these religious institutions from taxation.
Pursuant to non-infringement of religious freedom, the
case of American Bible Society, I think you have
discussed this I think Consti I pa lang, na master na ni
ninyo where the Supreme Court said that the
constitutional guaranty of the free exercise and
enjoyment of religious profession and worship
carries with it the right to disseminate religious
information. Any restraints of such right can only
be justified like other restraints of freedom of
expression on the grounds that there is a clear and
present danger of any substantive evil which the
State has the right to prevent.
This is an old case. This involves the sale of Bible for the
promotion of religion. And two issues ang involve nganhi:
1.) whether in the sale of Bible you can be held liable
to pay license fee. Business license man gud in
essence it's more like of paying a local business
tax.
2.) And the other one is whether you can be made
liable to pay the Mayor's Permit fee.
So kung karon na nato ibutang man gud, kung mag
negosyo ka ron, sa LGU, you will have to pay the local
business tax and you will have to pay the Mayor's Permit
fee.
In this case, the Supreme Court said nga dapat it
should not be subjected to tax. So there should be
no local business tax because in essence that
infringes the religious freedom to distribute these
Bibles basically. But pwede siya pangayo-an ug
Mayor's Permit fee for the conduct of that activity
in the locality.
But if you can research the old case involving Jimmy
Swaggart, a US case, which has something to do with the
sale of Bibles. If we base this in foreign jurisprudences,
they actually look at the venture. Example, if the venture
is proprietary in nature, like asking for contributions from
your members but you do not use it for humanitarian,
charitable or religious purpose, and there is a net proceed
there, usually it is subjected to sales tax -- like you are
selling these items in malls, then they subject that to
permit fee as well as sales tax. But if is in pursuant to
exercise of religion wherein the selling price of the article
corresponds to its cost, then this is the time where you
can ask for exemption from income taxation. We will have
more discussion on this in Section 30 of the NIRC.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
NO APPROPRIATION FOR RELIGIOUS PURPOSE
“No law shall be made respecting an establishment of a
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.” (Art.3, Sec. 5, of the
Constitution)
Relative to non-infringement of religious freedom is the
non-appropriation for religious purposes because it
carries with it the non-establishment of a national
religion.
Sec. 5, Art. III, 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.
This simply tells us that the government will not
appropriate a budget for religious purposes.
There was one case involving the visit of Pope John Paul
II in the Philippines where the government appropriated
a budget for such event. It was questioned for being a
violation of the non-appropriation clause. The SC held that
the appropriation for the event is allowed because the
Pope is considered as head of the state of Vatican. The
Pope being the head of the state, the event was
considered as an official state visit which is allowable.
Exceptions to the non-appropriation clause: the religious
entity renders public service like if a priest is considered
as the chaplain in prison camps, etc., then the priest may
be given salary or honorarium. But this is just minimal
appropriation. When we talk about prohibited
appropriation it is the appropriation in support of a
specific religion.
FREEDOM OF THE PRESS
“No law shall be passed abridging the freedom of speech,
of expression or of the press.” (Art. 3, Sec. 4)
There is curtailment of press freedom and freedom of
thought and expression if a tax is levied in order to
suppress this basic right and impose a prior restraint.
(Tolentino, et.al vs. secretary of Finance, 235 SCRA 630).
The press is not exempt from taxation
The sale of magazines or newspapers, maybe the subject
of taxation.
What is not allowed is to impose tax on the exercise of an
activity which has a connection with freedom of the press
(license fee)
62
Meaning to say, if media na or press, dili pasabot nga
isubject na nimo to higher tax rate as compared to other
media outlet in so far as taxation. Otherwise, that’s
considered as a violation to this indirect constitutional
limitations.
Example: ABS, GMA are listed in the Philippines tax
exchange. The usual tax there when you transfer the
change is .6 of 1%, dili pasabot nga kung kani ang shares
ni ABS or GMA ang itransfer, isubject nimo into a special
rate of tax which is a higher tax rate, that could be
considered as a violation of this indirect constitutional
limitations.
Tolentino v. Secretary of Finance
G.R. No. 115455; October 30, 1995
FACTS:
PPI contends that by removing the exemption of the
press from the VAT while maintaining those granted to
others, the law discriminates against the press. CREBA
asserts that R.A. No. 7716 impairs the obligations of
contracts, and violates the rule that taxes should be
uniform and equitable and that Congress shall “evolve
a progressive system of taxation”.
CUP argues that legislature was to adopt a definite
policy of granting tax exemption to cooperatives that
the present Constitution embodies provisions on
cooperatives. To subject cooperatives to the VAT
would, therefore, be to infringe a constitutional policy.
ISSUE:
Whether or not RA 7716 is unconstitutional.
RULING:
No. In withdrawing the exemption, the law merely
subjects the press to the same tax burden to which
other businesses have long ago been subject. The VAT
is not a license tax. It is imposed purely for revenue
purposes.
Equality and uniformity of taxation mean that all
taxable articles or kinds of property of the same class
be taxed at the same rate. It is enough that the statute
or ordinance applies equally to all persons, firms, and
corporations placed in similar situation.
There is curtailment of press freedom of thought and
expression if a tax is levied in order to suppress this
basic right and impose a prior restraint.
The press however is not exempt from taxation. The
sale of magazine or newspapers, maybe the subject of
taxation. What is not allowed is to impose tax on the
exercise of an activity which has a connection with
freedom of the press (license fee)
Kung mag rally rally ka, pwede ba ka pakuhaon ug
permit? YES. Because that is not power of taxation, that
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
is regulation, that is police power. But it’s different kung
mag rally ka before ka mag rally pabayaron ka ug tax even
if wala kay income that could be violative of this
Constitutional limitation.
VETO POWER OF 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.” (Art. 6, Sec. 27(2) of the
Constitution).
When it comes to tax laws, if we based it on the recent
passage of the train law, it could be a line-item veto by
the president or it could be a veto on the president on
the entire paragraph provision of the law . So, if we
look at the train law, most of the vetoes there being
exercised by the president is more of a line-item veto pero
na agyuy isa ka paragraph provision there nga gi-veto sa
president.
What is crucial here is to understand the effect of the veto
power of the president because ang logic ba ngano maka
veto man ang president? Because the president is the
head of the executive department and the executive
department is the branch of the government primarily
responsible in the implementation of the law that was
passed by Congress. Being a co-equal branch just like
congress, kung isimplify gyud nato to the lowest level, ang
logic ni veto power, it’s like Congress asking the President
to agree or to approve that law and the president will have
to think if makaya ba na niya i-implement
In the passage of tax laws, the executive and the
legislative coordinate firsthand.
Executive
o Provides the details
o Approves or veto the law
Legislative
o Passes it into law
o Forwards the final version of the law to
the Executive
EXAMPLE: TRAIN Law I
The Department of Finance (DOF) made its version in the
House. Discussions, debates, hearings, etc. were held.
BUT, there were last minute insertions. Upon reaching the
President, such insertions prompted the President to veto
the law. The congress also did not override the President’s
veto. Hence, the law was not implemented.
Looking at the original version of the TRAIN LAW I that
was passed by the congress, there were several line
items, paragraphs, and provisions that were vetoed by the
President and were not overridden by the congress. So,
upon implementation of the tax law by the DOF through
revenue regulations, only those items which were not
vetoed will be implemented.
63
The veto of the President is somewhat equivalent to
him/her saying “I will not implement this law.” HOWEVER,
the congress can override this veto by a voting of
⅔.
RULE: If it is a particular or an item veto, it shall not
affect the item/s to which he (the president) does not
object.
SUMMARY:
Indirect Constitutional Limitations:
1. Due process of law
2. Equal protection of the laws
3. Non-impairment of the obligation of contracts
4. Non-infringement of religious freedom
5. No appropriation of religious purposes
6. Non-infringement of the freedom of the press
7. Power of the President to veto any particular
item/s in a revenue or tariff bill
REMINDER: Our discussion focuses only on the power
of taxation despite the fact that these indirect
constitutional limitations also apply to other inherent
power of the State.
SITUS OF TAXATION
PLACE OF TAXATION
Rule: the State where the subject to be taxed has a
situs may rightfully levy and collect the tax
Situs / Territoriality pertains to either:
1. Geographical location; or
2. Jural concept or nexus or bond between the
taxing authority and taxpayers
This is an important topic, because one inherent limitation
of taxation is that it must be exercised within its
jurisdiction, therefore we have to understand the
Situs/place of taxation because of the different object and
subject matter of taxation and the different tax types.
Lahi-lahi d-ay ang situs or place of taxation of these tax
types sir? – Yes, because the purpose of these tax types
differs from one another. So lahi ang object, lahi ang
subject, lahi ang place of taxation, that’s why we need to
understand these concepts.
General rule: the state where the subject to be taxed
must has a situs may rightfully levy and collect the tax.
Place of Taxation
General Rule: The State where the subject to be taxed
has situs may rightfully levy and collect the tax.
Situs /Territoriality pertains to either:
Geographical location; or
Jural concept or nexus or bond between the
taxing authority and taxpayers.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
The first is applicable to real property
This second concept - the Jural concept. Is more
applicable to persons.
Rules Observed in Fixing Tax Situs
1. Poll/Capitation/Community tax – residence
of the taxpayer
2. Property Tax
a. Real Property – in the state or country
where it is located (lex rei sitae),
regardless of owner’s residency
b. Personal property
GR: Doctrine of Mobilia sequuntur personam
(movables follow the person) XPN: actual or
business situs (Sec 104, RA 8424)
Exception: Actual or business situs
1) Franchise exercised in the Philippines;
2) Shares of stock, obligations, bonds
issued by domestic corporations
organized and constituted in accordance
with Philippine laws;
3) Shares, obligation, bonds issued by
foreign corporation where 85% of its
business is located in the Philippines. It is
subject to donor’s tax and estate tax;
4) Shares/right in a partnership business or
industry established in
1. the Philippines;
5) Shares, obligations, bonds, issued by
foreign corporations which acquired
business situs, when such have been
used in the furtherance of the business
of the foreign corporation.
NB: subject to reciprocity rule
3. Business tax- place of business
4. Excise tax- Where the act is performed or where
occupation is pursued
5. Sales tax- where the sale is consummated;
personal property.
6. Income tax- consider citizenship [nationality
theory], residence [domicialiary theory] and
sources [source rule] of income (Sec. 42, R.A.
8424)
7. Transfer tax- residence or citizenship of the
taxpayer or location of property
8. Franchise tax- state which granted the
franchise
9. Value added tax- ‘Cross Boarder Doctrine’ is
followed
10. Tax on interest income - residence of the
borrower who pays the interest irrespective of the
place where the obligation was contracted.
64
*sawadeekhrap, okay ra ako e paste tanan ang discussion
each number below? O, okay ra way blema basta ikaw*
In fixing tax Situs we must first consider the tax type:
When it is a community tax generally it is the residence
of the taxpayer. However we can also take into
consideration the principal place of business of the
taxpayer or the principal place of employment. (si
employer ang gukoron kung employment)
PROPERTY TAXES
When real property – we follow the lex rei sitae,
regardless of the owner’s residency
kung Filipino citizen unya iya ibaligya ang balay
sa japan taxable na siya for income earned within
and out tax kay lahi mn ang property tax ug
income tax
When Personal Property - we follow Mobilia sequuntur
personam
Pero in practice pwedi ba in principal place of business or
principal place of employment? The answer is Yes.
Because if employee ka ang gukuron ana ni LGU is si
employer man. So si employer para automatic na walay
labad pwedi na nga pakuhaon nalang nya diha nga LGU
ang mga employees nya og community tax certificate.
Pabayron sa community tax which is usually based on
their gross receipts, gross income (will be discussed later)
In property taxes, the situs depends even if it’s a
real property or personal property. If it’s a real
property we follow the Lex Rei Sitae Principle
where the state or country where it is located will
have the authority to impose the tax regardless of
the owner’s residency. This is what I’ve been
illustrating in previous discussion. If Filipino citizen owns
a house, for example in Japan, the one who has the
authority to collect real property tax or property tax of
similar nature will be Japan, not the Philippines. Because
ang balay niya naa man sa Japan. But it’s a different story
if that Filipino citizen sells that house in Japan and in
selling naka earn sya og income. TAKE NOTE: Income
tax is different from property tax. You taxed the property
tax of your house, if naa sa gawas walay jurisdiction ang
Pinas. But if income tax and then you tax the income of
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
the earner or of the person and that person is a Filipino
citizen, taxable na sya for income earned within and
without. So pwedi na ba sya ma collectan og income tax
if nabaligya nato nya or naka earn nato sya of income out
of that transaction and Filipino citizen sya? YES. It can be
subjected to tax ni the Ph government.
For personal property however, we follow Mobilia
Sequuntur Personam (movables follow the
person) meaning to say if that personal property is
located within the Philippines then it has to be
declared for taxation purposes in the Ph. If it's
outside, then not necessarily subject to tax here in the
Philippines. Examples of personal property: Jewelries,
valuable paintings, shares of stocks. But for shares of
stocks it’s more of an exception to the General
Rule na Mobilia Sequuntur Personam meaning to
say what matters in determining the situs is the
actual or the business situs. Meaning to say if ang
business nag issue sa shares of stocks is domestic or is
registered incorporated here in the Philippines, even if the
physical shares of stocks is in the US for you to transfer
those shares tax must be collected here in the Philippines.
Because that’s an exception to the general rule. If
sapatos, bags, or jewelries and these items kay naa sa
gawas then dili ni sila ma subject to any property tax here
in the Philippines. Again, dili income atong gistoryaan diri,
wala na nimo gibaligya and wala ka mi earn as income,
on the property lang mismo.
Exceptions are those personal properties considered to
have actual or business situs here in the Philippines.
Personal property even outside the PH may be subjected to tax here in PH
Exception: Actual or Business Situs (Sec. 104, RA
8428) (Memorize this, favorite topic in the bar exams)
1. Franchise exercised in the Philippines
a. Ex. Royalties exercised in the Phils.
2. Shares of stock, obligations, bonds issued by
domestic corporations organized and
constituted in accordance with Philippine laws;
3. Shares of stocks, obligations, bonds issued by the
foreign corporation: 85% of its business is
located in the Philippines. It is subject to donor’s
and estate tax;
4. Shares or right in a partnership business or
industry established in the Philippines;
a. Same rule under domestic corporations,
it was registered under Philippine laws.
Hence, we do not look at the nationality
of the partners, nor its shareholders.
5. Shares, obligations, bonds issued by foreign
corporations used which acquired business situs
when sanction in the furtherance of the business
of the foreign corporation.
NOTE: Even if owners are not domiciled in the Philippines
they will still be taxed in the Philippine, subject to
Reciprocity Rule (citizen of such country which grants
65
exemption to the intangible personal properties Filipinos
in their country will also be exempted).
What is the difference between number 3 and 5?
What is meant by PE? -For number 3, it follows that it
is doing regular business here in the Philippines. Since
85% of its worldwide revenue (gross sales or revenue), is
derived here in the Philippines. For number 5, you do not
look at the amount generated here in the Philippines but
because they have a branch here in the Philippines, they
are deemed to have acquired business situs here.
A foreign corporation acquires business situs in the
country — if it has permanent establishment in the
Philippines. Either it maintains an office, a production
plant, or there is a continuous commercial activity in the
country. If it acquires business situs, we do not care
anymore about the percentage.
ACTUAL/BUSINESS SITUS
Section 104 of RA 8424 (enumeration under) even if they
are located outside of the Philippines, can still be subject
to tax; or even if the owner are foreigners but they are
located in the Philippines, they can still be subject to tax.
TRANSFER TAX.
For a common example of transfer tax is the so-called
Donor’s Tax (I don’t know if you’ve heard this) or kung na
matay ang original owner sa property, we have the so
called Estate Tax.
So, the situs is the residence or the citizenship of the
taxpayer or the location of the property. We will have
more discussion on transfer tax under Tax II.
FRANCHISE TAX,
The state which granted the franchise. So, if it is the
Philippine government who granted the franchise then the
Philippine government may collect the tax. Take note lang
ha, na for franchise tax, it could be in primary franchise
or it could be secondary franchise. If Primary, meaning
the legislature. If Secondary, meaning the province, it is
the LGU kay ig discuss nato sa tax II, you will hear again
about franchise. Like kana telecommunication, you will
have to ask for franchise from the legislature but for you
to, di ba ang cable nimo nganha kay i-cross mana nimo
for several municipalities or towns in the province, you
have to get another franchise in the Local Government.
VALUE ADDED TAX (VAT)
I’ve mentioned this already, that cross-border doctrine is
followed.
TAX ON INTEREST INCOME
Residence of the borrower who pays the interest
irrespective of the place where the obligation was
contracted. Take note of this, because when you say tax
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
on interest income class, what is involved here is “utang”
or debt with interest. I have to separately discuss this
because this came out in one BAR exam and many got it
wrong because ang thinking nila is na pareho siya sa
income tax na i-consider nimo ang citizenship, residence
or the source but this is a bit special. Why man?
- Because when it comes to interest income class,
the situs is the residence of the borrower who
pays the interest. It is the residence of the
borrower and not the residence of the creditor,
who pays the interest who pays the interest
irrespective of the place where the obligation is
contracted.
- Common example is: You have a creditor who is
based in the US and there is a debtor who is
based in the Philippines. They entered into a
contract or a loan agreement, let’s say for
example in UK.
PH DEBTOR
Q: Mandated ba siya to a certain portion of that
payment as tax payment to the Philippine
government?
A: YES.
Q: You will ask, Sir tua man sa gawas ang creditor,
unsaon man pag collect sa tax on the interest
income?
A: It is through withholding. Meaning to say, ang gi
withhold si debtor located here in the Philippines.
Q: Even if the loan is contracted/executed
abroad?
A: YES. Again, the situs or the place of taxation is the
residence of the borrower.
Take note ha, na is residence the same as citizenship?
The answer is not even.
When you talk about residence, the person is residing ka
diri sa Philippines. For Philippines to be able to collect tax
thereon.
Example:
Let’s change the situation, let’s say for example, you have
a creditor. The creditor is a resident here in the
Philippines, the creditor grants a loan, to a debtor who is
a resident in the US. The loan agreement, is executed in
the US.
Q: Mu matter ba ang place where the loan
agreement is executed?
A: NO.
Q:When the the debtor who pays the creditor who
is a resident in the Philippines, will it be subjected
to withholding tax for the Philippine government?
A: NO. The debtor is from the US, the tax on interest
income will not apply because the residence of the
borrower is the situs.
66

Take note, that interest paid by the debtor to the
creditor is an income of C. And if C is a Filipino
citizen and a Philippine resident, then it can still
be subjected to tax here in the Philippines
because remember that if you are a resident of
the Philippines, you are taxable for your income
earned. This time, walay withholding involved
because the debtor is based abroad. He cannot
remit it to the BIR. The one who will declare it as
taxable income is si creditor, who is a Filipino
citizen, who is a resident citizen of the
Philippines.
Q: If both of them taga US. Si creditor is based in
US, si debtor is based in US but their loan
agreement was contracted in the Philippines, diri
gi execute sa Philippines, gipa notaryo diri because
they did it while vacationing here in the
Philippines. When B pays interest income to C, will
it be subjected to tax or interest income?
A: NO. The residence of the borrower is in the US.
Q: When C earned that income from the payment
of D, will pay C pay the income interest here in the
Philippines?
A: NO. He is considered as an alien in the Philippines
because he is a US citizen and is residing in the US, so
that is considered income earned in the US. Walay habol
is Philippines government, even if the place of execution
is the Philippines.
In the next video lecture, we will be discussing Double
Taxation.
DOUBLE TAXATION
Strictly, taxing twice the same object/subject,
same taxing jurisdiction, same purpose, same tax, same
year (“direct duplicate”)
☞ i. e., say not same year, then it is called (“indirect
duplicate”). In either case, there is not law which prohibits
the same. There is not even a prohibition by the
constitution as you say it.
However, in case of direct duplicate, if it amounts to
confiscation of property for being unjust, oppressive, or
unfair, then it is unconstitutional not on the ground of
double taxation but for being violative of the due process
clause.
Note: There is no constitutional prohibition against double
taxation. It is not favored but permissible.
Instances of Double Taxation:
1) STRICT SENSE (DIRECT DUPLICATE TAXATION)
Occurs when the same subject/object is taxed twice when
it should be taxed once, objectionable, or prohibited once
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
REQUISITES:
a) The same subject/object is taxed twice when it
should only be taxed once;
b) Both taxes are imposed for the same purpose;
c) Imposed by the same taxing authority;
d) Within the same jurisdiction;
e) During the same period; and
f) Covering the same kind or character of tax
Both taxes must be imposed on the same property or
subject matter.
* if one is missing, it is indirect duplicate taxation which
is valid
This is the tenth video lecture series for taxation, so, well
more or less, this is the last 2 or 3 video series before we
end this module on general principles of taxation. If
you’ve noticed, I gave this an equal amount of importance
with other topics in taxation 1 for the simple fact that this
lays down the foundation on taxation. Not to mention the
fact, these topics come out in the bar. Actually, ang igo
nato is duha, this could come out in political law such as
Consti, especially on the constitutional limitations, or it
could come out in taxation subjects. We have to master
and know the general principles of the inherent powers of
the state.
We’ve discussed the situs or place of taxation, we said it's
important to know the situs because it essentially
ascertains whether the taxing authority has jurisdiction
over the person, object or subject matter.
Another important concept in taxation that you need to
be familiar with is about double taxation. I know you’ve
heard this already in Consti 1, but to be more specific,
when it comes to double taxation, we are looking at two
types of double taxation. It is either direct double
taxation or indirect double taxation. You have to
master the distinction between the two.
DIRECT DOUBLE TAXATION
When we talk about direct double taxation, this
means that you are taxing twice the very same
object, subject for the same taxing jurisdiction,
same purpose, same tax, same year. In short,
everything is the same. The tax type, the purpose of the
tax, the taxing authority, the object as well as the subject
matter and the period the tax is collected is ALL THE
SAME.
When it comes to direct double taxation, it’s like paying
income tax twice for the same year and same income. It's
a no-brainer that if this happens, that amounts to
confiscation of private property and the power of
taxation there is exercised prejudicially as a
destructive power. Which is why, when it comes to
direct double taxation, or “direct duplicate”, this is
67
deemed as a violation of the due process clause of
the constitution.
Kung mi ingun ta “Is there a specific or express prohibition
on direct direct double taxation in the constitution?” There
is none in the statute. But automatically, this is deemed a
violation of due process because Congress may not do so.
Dili pwede e tax ang kaduha ang same object or subject
matter, but that pertains to direct double taxation or
“direct duplicate” taxation.
The other type of double taxation is the more common
type of double taxation, which is not prohibited as it is
situational and happens on a case-to-case basis, this is
what we call indirect double taxation or “indirect
duplicate.”
Before we move on to indirect double taxation, let us
understand the essential requisites of direct double
taxation, and all of this must exist in that particular
situation to say that there is “direct duplicate.” If it is an
essay examination, you have to be careful. Why? Not all
of these may be specified in that situation. And you may
be asked “Is there double taxation?”
If that question is being asked, that’s a tricky question
class because you still need to qualify if it's direct double
taxation or indirect double taxation.
Now, if all of this requisites are mentioned or indicated in
the situation, then you have to say that there is direct
double taxation but if any one or two of it is missing then
the most likely answer is there is still double taxation but
it’s indirect double taxation because the next question:
1st: is there double taxation?
2nd: is it prohibited?
So if your answer in the first question is “there is
direct double taxation simply because all these
requisites are present, then your next answer to
the question would be it is prohibited. It is
deemed a constitutional violation of the due
process clause.
But if your answer in the first question is yes there
is double taxation but it is only indirect, then your
answer to the succeeding question is to say no. it
is not prohibited because indirect double taxation
may happen from time to time and there are
actually mechanisms in order to minimize the
adverse effect of indirect double taxation.
When we say again direct double taxation, this occurs
when the same subject/object is taxed twice when it
should be taxed once only; objectionable or prohibited
sense.
REQUISITES:
1. The same subject/object is taxed twice when it
should only be taxed once
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
2. Both taxes are imposed from the same purpose
(if its tax on income borth ar tax on income or if
the tax is on property, both are taxes for
property)
3. Imposed by the same taxing authority( you have
to be careful here because when we say taxing
authorities, it could either be the national
government or the LGU.
So if the BIR is taxing you twice for income tax
for the same year, then you say that it is the same
taxing authority but it's a different situation if the
taxing authority is the national government and
the other taxing authority is the lgu but definitely
their taxes are based on your gross receipts or
gross sales, now that’s not anymore direct. It
becomes indirect/ why? Different man ang taxing
authority. Ang isa National pursuant to the NIRC
and the other one is the LGu pursuant to LGC of
the Phil. diff ang authority nila so most likely in
that sense, diff pud ang purpose ana nga tax nga
gi collect. While there is double taxation in a
sense, because the same gross receipts are
subjected to tax, but it's indirect.
Actually mao na ang concept class na di
masabtan sa most of the foreign investors
because there are some jurisdictions nga straight
forward ang taxation nila. If they pay income tax,
then that is only one income tax, if you say
business tax, then that’s one business tax, unlike
in the Phils, we have National tax and we have
local tax. That’s where problems came in
because most of the foreign investors don't get
the point why they still need to pay local business
tax when they are already paying VAT or OPT
which is also a business tax to the National
government that they still need to be explained
with just to entice them to invest here because
there are many ways man on how to be exempt
with these taxes kay di man sad kinahanglan nga
bayaran gyud na nimo under all circumstances.
There are incentives that may be availed of.
Although there are conditions that need to be
met. So imposed by the same authority
4. Within the same jurisdiction
5. During the same period; and
6. Covering the same kind or character of tax
So that’s direct double taxation.
Indirect double taxation again is when any one of these
requisites are absent, so if it’s not the same taxing
authority, it becomes indirect double taxation. So naa
gihapoy double taxation. If it’s not during the same
period, indirect double taxation.
68
Indirect double taxation is allowed if the taxes are of
different nature or character imposed by different taxing
authorities.
INDIRECT
Allowed it the taxes are of different nature or character,
imposed by different authority.
DOMESTIC
Arises when the taxes are imposed by the local or national
government
INTERNATIONAL
Refers to 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.
Indirect Double Taxation could be:
1. Domestic or;
2. International
DOMESTIC
Arises when the taxes are imposed by the local or national
government. Lahi ang taxing authority
A situation of indirect international double
taxation:
But if he is a resident citizen, for example Manny
Pacquiao. The fight of boxing in the US, he won, he
earned something out of that match. He is subject to tax
in the US simply because he earned that in the US. But
Manny Pacquiao is also a resident citizen. If you are a
resident citizen and you earn income within or outside the
country, you may be taxed here in the Philippines. In
Manny Pacquiao, in that income earned in that boxing
match that he won, he is being taxed in the US where he
earned and being taxed in the Philippines following the
nationality and domiciliary theory because he is a resident
Filipino citizen.
Is there double taxation? Yes, because what is
subjected to tax is the same price or the same winning.
But it is indirect because of different taxing authorities,
the other is the US and the other is Philippines. That is an
international double taxation.
INTERNATIONAL
Imposition of comparable taxes in two or more states on
the same taxpayer in respect of the same subject matter
and for identical periods.
Same in the sense nga both are income taxes, same
period kay same winning is subject to tax but only
different in taxing authority.
Is this allowed? Yes.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Is this not unfair? Not necessarily because in so far as our
tax laws are concerned, these taxes already paid abroad
provided you can present proof of payment may be
claimed as a tax credit or simply put, reduction against
tax liability here in the Philippines.
But in computing your total tax liability in the Philippines,
ang earnings abroad will have to be declared here in the
Philippines. Total nimo, in and outside, mao tu sya ang
computan sa total tax liability but that total tax liability of
yours will be reduced by whatever taxes paid abroad
provided there is proper documentation.
Doctrines of Double Taxation (based on
jurisprudence and previous Bar exam questions):
1. Direct Double Taxation (DDT) is not allowed
because it amounts to confiscation of property
without due process of law. In short, violation of due
process clause.
Then for you to confirm that, that is direct double
taxation, all these requisites we mentioned earlier must
be present in that situation, if there is missing then it is
just a case of indirect double taxation or indirect
duplicate.
2. You can question the validity of double taxation
if there is a violation of the Equal protection clause
or equality or uniformity of Taxation.
3. Doubts as to whether double taxation has been
imposed should be resolved in favor of the
taxpayer.
On the issues of double taxation, the Supreme Court will
simply have to determine if the requisites are present. It
need not be of the same amount, basta ma meet to ang
tanan na requisites then there is a direct double taxation
or direct duplicate.
Sample cases declared that there is double
taxation pero Indirect lang, so wala violation in
due process clause:
INDIRECT DOUBLE TAXATION
A. The taxpayers warehousing business although
carried on in relation to the operation of its sugar
central is a distinct and separate taxable
business
B. A license tax may be levied upon a business or
occupation although the land or property
used in connection therewith is subject to
property tax
C. Both a license fee and a tax may be imposed
on the same business or occupation for selling the
same article and this is not in violation of the rules
against double taxation
69
 D. When every bottle or container of intoxicating
beverages is subject to local tax and at the same
time the business of selling such product is
also subject ti liquor license.
E. A tax imposed on both on the occupation of
fishing and of the fishpond itself
F. A local ordinance imposes a tac on the storage
of copra where it appears that the finished
products manufactured out of the copra are
subject to VAT
*see below for transcript cheka of each letter*
A) The taxpayers warehousing business although
carried on in relation to the operation of its sugar
central is a distinct and separate taxable business.
Meaning ang warehousing nimo ma subject to tax, ang
sugar central nimo into production pwede sad ma subject
to separate tax -- business tax.
Q: Is there double taxation?
A: Yes! Bec same tax -- business tax.
Q: Is it direct?
A: No, indirect bec different object and subject matter --
the other one is the warehouse, the other is the sugar
central.
B) A license tax may be levied upon a business or
occupation although the land or property used in
connection therewith is subject to property tax.
License tax - basically a local business tax (LBT) which
may be levied upon a business or occupation although the
land/property used is subject to property tax.
If I have a business, a bakery, my sales there can be
subjected to LBT. While the lot or the bakery itself, can
be subject to another tax -- property tax.
Q: Is there double taxation?
A: Yes , bec all these taxes are being collected for that
operation.
Q: Is it direct?
A: No, indirect bec different object and even the purpose
-- the other is excise tax or your privilege to earn an
income from the bakery; while the other is for your
ownership of the real property.
C) Both a license fee and a tax may be imposed on
the same business/occupation for selling the same
article and this is not in violation of the rules
against double taxation.
Why? License fee is not a tax; it pertains to/for
regulatory purposes. Tax, on the other hand, revenue
raising.
Mao na ug magpa renew ka or magpa register ka sa LGU,
you will be paying LBT and permit fees and other
regulatory fees like garbage fees, fire safety fees etc.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
These are the license fees that you need to pay and
there's NO DOUBLE TAXATION there because the other
one is not a tax in the first place. Or the least, if it’s
interpreted as a tax, then INDIRECT DOUBLE TAXATION.
D) When every bottle/container of intoxicating
beverages is subject to local tax and at the same
time the business of selling such products is also
subject to liquor license.
E) Tax imposed on both on the occupation of
fishing and of the fishpond itself.
F) Local ordinance imposes a tax on the storage of
copra where it appears that the finished products
manufactured out of the copra are subject to VAT.
Indirect double taxation is not illegal or violative
of the Constitution per se. Why? Because there are
means employed to avoid indirect double taxation.
MEANS EMPLOYED TO AVOID DOUBLE TAXATION
1. Tax deductions
2. Tax credits
3. Provide for exemption
4. Enter into treaties with other states
5. Allowance on the principle of reciprocity
5 MEANS EMPLOYED TO AVOID (INDIRECT)
DOUBLE TAXATION:
1. You can claim that the taxes you paid are tax
deductions; or
2. tax credit against your income tax payable
kung taxable ka for your income earned
worldwide. or
3. there can be exempting provisions that you
can avail of. Here, they could apply for a ruling
specific to the entity or at least, secure a
certificate of exemption from the BIR. or
4. there could be treatises. Applies more to non-
resident foreign corporations. They can avail of
exempting provisions for lower tax rates as
provided in existing treaties. All that they need to
do is apply for TTRA (Tax Treaty Relief
Application). or
5. Allowance on the principle of reciprocity for
some other items. Concept is mura ug bawsanay.
If Filipino citizens earning something in foreign
jurisdiction are given a certain privilege of
taxation wise, we also give more/less similar
privilege to citizens of that foreign country giving
sort of favorable treatment to Filipinos. But then
again, most foreigh jurisdictions want to formalize
that into a treaty. Kay sa treaty there is a
specification there what type of income and
exempted, what types of income are subject to
lower rate, etc.
70

FORMS OF ESCAPE FROM TAXATION
Basic forms of escape from taxation (caste2 or escate)
1. SHIFTING
2. CAPITALIZATION
3. TRANSFORMATION
4. AVOIDANCE
5. EXEMPTION
6. EVASION
SHIFTING
Process by which tax burden is transferred from statutory
tax payer (impact of taxation) to another (incident of
taxation) without violating the law.
impact of taxation – point on which tax is originally
imposed.
Incidents of taxation – point on which the tax burden
rests or settles down.
WAYS OF SHIFTING THE TAX BURDEN
1) FORWARD SHIFTING
When the burden of the tax is transferred from a factor
of production through the factors of distribution until it
finally settles on the ultimate purchaser or consumer.
(D>S)
2) BACKWARD SHIFTING
When the burden of the tax is transferred from the
consumer or purchaser through the factors of distribution
to the factors of production. (S>D)
3) ONWARD SHIFTING
When the tax is shifted two or more times either forward
or backward.
When we say shifting, it’s passing the ball from one
person to another. This is the process by which the tax
burden is transferred from statutory taxpayer (impact of
taxation) to another (incident of taxation) without
violating the law. This is the very escape from the burden
of taxation for business taxes. VAT, say for example, it
could be passed on to the final consumer.
For shifting, 2 aspects lang to remember because this was
asked in one bar exam before;
1. impact of taxation - point on which tax is
originally imposed
2. incident of taxation - point on which the tax
finally rests or settles down.
Usually when we talk of statutory taxpayer, we refer to
the seller and the point where the burden finally settles
or rests, this is what we call the incidence of taxation and
this is when the final consumer finally bears the burden
of paying the VAT.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
WAYS OF SHIFTING THE TAX BURDEN
a. Forward shifting (D>S) - When the burden of the
tax is transferred from a factor of production through the
factors of distribution until it finally settles on the ultimate
purchaser or consumer.
This usually happens when the demand is greater than
the supply. What is the consequence if you pass on the
tax? The consequence is the price—the total price
increases. The burden rests to the consumer, but the
seller who is the statutory tax payer to remit the 12% vat
to the government. (Nag talk sya about Jollibee as
example but inaudible man)
b. Backward shifting (S>D) - when the burden of the
tax is transferred from the consumer or purchaser
through the factors of distribution to the factors of
production.
Why is this so? Because this backward shifting usually
happens in the situation where the supplier is greater than
the demand—there is what we call a seller’s market. You
have so many competitors and usually the products that
you are selling are high-end, costly. This even applies to
services, the professional fees that are vatable. If
competition is quite stiff, sometimes the seller has no
choice but bear the burden of paying the VAT.
c. Onward sifting DDS (joke)- when the tax is shifted
two or more times either forward or backward. (inaudible)
CAPITALIZATION
Reduction in the price of the taxed object equal to
capitalized value of future taxes on the property sold.
- A special form of backward shifting
If you notice kato ni-mention ko ganina nga i-apil na sa
pricing ang tax (i-inclusive na sa tax). Technically that’s
what you call also *inaudible*.
In short class, inig costing nimo sa produkto nimo. Let's
say for example - condominium unit. Inig costing nimo
nganha, ang real cost let's say for example is 1M. 12% of
1M is Php 120,000,000. Ang profit unta nimo initially is
Php 500,000. So ang original pricing nimo is 1.5M. But if
you do capitalization, isud na nimo nganha ang tax
portion nga Php 120,000. Instead nga Php 500,000 ang
ma profit nimo sa 1.5M nimo, ma minusan na siya sa VAT
kay ikaw man ang mo shoulder sa VAT. So, ang ma profit
na lang nimo naa na lang sa Php 380,000.00 under
*inaudible* capitalized value of future taxes on the
property sold. *inaudible* It's as if ang costing nimo is
1.12M. Gi-apil na nimo sa costing ang VAT portion.
Although of course normally, karon, stricto na man ang
BIR nganha, kinahanglan na nah nimo ang VAT i-declare
separately. But the percentage tax, diba duha man tong
71
VAT and OPT? Kaning VAT karon, lisod nang ilusot. Nganu
man? Lisod nang i-capitalize kay you really have to specify
that in the receipt, in the invoice. But for OPT it can still
be done.
Generally, the OPT is 3%. Pwede i-capitalize nimo, i-apil
nimo sa costs sa property *inaudible* that you are trying
to sell.
TRANSFORMATION
The manufacturer or producer upon whom the tax has
imposed, fearing the loss of his market if he should add
the tax to the price, pays the tax and endeavors to recoup
himself by improving his process of production, thereby
turning out his units at a lower cost.
This is common, more or less pareha2x ra gihapon ni sa
backward. What happens here is the manufacturer or
producer upon whom the tax has been imposed, fearing
the loss of his market. Again, kana pa lang nga statement
- fearing the loss of his market - means that the supply is
greater than the demand (S>D). If pasakahon niya ang
price, the money producer pays the tax and endeavors to
recoup himself by improving his process thereby turning
out his units at a lower cost in manufacturing. Because
ang concept man gud sa manufacturing is the more that
you produce, the lower will be the cost per unit.
And if the tax is being shouldered by the manufacturer,
it's as if it will form part of its fixed cost. Kung daghan ka
ug na manufacture, daghan ka'g na produce, na-improve
ang production line nimo, it means dako ka ug halin. So I
think ma divide to among the *inaudible* that you were
able to produce. Do you follow?
In short, kung manglaag mo sa barkada, of course maayo
kung gamay mo unya naa'y manglibri. But if KKB, better
mas daghan mo. Because kung mas daghan mo, mas
daghan mo mag bahin sa gasto. So mao ra sad na ang
concept of transformation. The tax being deemed as a
fixed cost and absorbed or not shifted forward by the
manufacturer or producer. Adto niya bawi-on sa
production line niya or item niya. So that's one way of
escaping from taxation na dili ka ma alkansi sa baligya
nimo.
And the most common form of escape from taxation ---
kaning Capitalization ug Transformation, class, actually --
- forms of backward shifting lang ni siya. This goes back
to the costing methods *inaudible* and that is
encumbersome on our end to determine whether that is
capitalization or transformation. Kana that's more of a
concern of the accountants (cost accountants). In
practice, what you will meet and what you should at least
master is the last three -- avoidance, exemption and
evasion.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
AVOIDANCE
The exploitation of the taxpayer of legally permissible
alternative tax rates or methods of assessing taxable
property or income in order to avoid or reduce tax liability.
A.k.a “Tax Minimization”
e.g. estate planning schemes, donation schemes, capital
gains schemes
Emphasizing “legally”: avoidance is legal; you just
have to think which of the provisions in the law is most
advantageous to you. This is where simulation comes in
and this is what we will do when we discuss income
taxation for individual and corporate taxpayers because
there are options presented under the law and it is up to
you to analyze which among the options is most favorable
to your client or to you as a taxpayer. In essence, that is
tax avoidance.
Common example if you are an individual earning
business income, you have the option to be taxed at a
graduated rate, 5% to 35% or 8%. But the caveat is that
5%-35% is based (inaudible) multiplied by your net
income as the tax base (inaudible - video is lag from 36:34
- 36:49), 8% is exempted from business tax. Anyhow
these are the options. For the deductions, let’s say for
example, you can have itemized or optional, naa lang kay
percentage nga kuhaon, which is more advantageous tax
avoidance, a legally permissible method.
Also known as “tax minimization”.
This is where tax lawyers usually come in.
Examples: estate planning schemes, donation schemes,
capital gains schemes
Example situations:
Which is better, to contribute my properties to the
corporation or I will sell it to the corporation? The tax
schemes in one situation are different from the other.
Which is better for you, one person corporation or sole
proprietorship business? If you choose sole
proprietorship, you will have sole business income while
if you choose one person corporation, you will be subject
to corporate income tax. One has 5% tax while the other
has 5%-35%. If your income is already 20 million, which
is better?
Therefore, you just have to analyze which tax scheme is
better for you depending on your situation.
EVASION V. AVOIDANCE
Avoidance is legally permissible as mentioned,
this could be availment of incentives provided by
the government.
72
What if you use a tax haven? So let’s have a quick
understanding of how tax haven works.
*Watch a video on PEZA
https://www.youtube.com/watch?v=7NY2Ny50iig
That’s one way of legally avoiding tax: Avail of the
incentives provided by the investments
promotions agencies (IPAs) but most of which is
the PEZA which is responsible in inviting foreign
investors.
In 2019, problems started coming in because of the train
law and also because of some sort of inconsistency of the
government when it comes to fiscal policy.
Aside from PEZA, another investment promotions
agency also grants tax incentives is the board of
investments or the BOI, ang mga cooperatives, mga
micro insurance industries, etc., so each of these could
have incentives.
If you are a business person, you want to legally avoid
taxes then perhaps you take a look at the types of
businesses that these IPA’s handle wherein you can avail
of the incentives. Naa pa ning DOT, tourism industry
which could be registered under the BOI.
Talking about tax havens, although PH is not a tax haven
- you will see this in your practice, may it be tax or
corporate practice - that there are some local companies
nga naay investors coming from British Virgin Islands, the
US Virgin Islands, kini na mga gagamay na countries.
Even Singapore is considered a tax haven because they
have favorable tax rates for investors located in their
country. Vietnam slowly or has even surpassed the
Philippines when it comes to preferred countries by
foreign investors because the Philippines’ foreign policy is
restrictive for the protection of our citizens. Unlike in
Vietnam, for example, when an investor establishes a
factory, not only do they give tax incentives to these
investors but they also give the investor the land.
(YouTube Video 46:50-52-40)
TAX HAVENS EXPLAINED by TLDR News
https://www.youtube.com/watch?v=JRlndgfIpb4
On Tax Haven
So many people are doing that, even the Filipinos. Why
do I want you to understand the concept of tax haven?
Because although it’s not publicize, ultimately this is the
very reason why we want our corporate tax rates to be
lower down to 20% *inaudible* we are not competitive
even with our nearest ASEAN nation. No foreign investor
wants to invest here. Because of the concept of tax haven,
naa natay strict *inaudible*This requires our BIR to
correspond to an equal body to exchange information
because of the use of these tax havens.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Transfer pricing because if you have a related company in
a tax haven, kato iya gi-explain ganiha (video) there is a
fit subsidiary here in the Philippines who will use that, it
has to be fully documented in that transfer policy in order
to resolve that loophole. Avoidance na before but now,
there could be consequences.
I’ve also dealt with an individual located in Portugal
because the tax scheme in Portugal is favorable to
retirees, so he is situated there, but he is doing business
in Poland and in the Philippines. And then the income of
these countries go to Portugal. Mga ingon ana na situation
bitaw. So, if you're somebody who really looks at different
taxing jurisdictions you will see which of these
jurisdictions are considered tax havens either zero taxes
or very minimal taxes. And you can take advantage of it,
if you want to operate a multi-national company. And I
tell you, there are some companies in the Philippines na
wala kaayo nag improve for the simple path that our tax
laws are quite stiff as compared to other jurisdictions tax
laws. Another thing that I want you to remember in tax
haven. Tax rates, lower tax rates other than property
ownership, that should be taken into consideration. *lag*
That’s unless of course being held illegal in the
Philippines. Pero dili man kabuot ang Philippines, if ang
head office or parent company is based in British Virgin
Islands unya mubayad og dividend ang nag operate dira
sa Pilipinas.
EXEMPTION
It is the grant of immunity to particular perons 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.
Exemption is allowed only if there is a clear provision
there for.
Exemption is defined as 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. Meaning to say privilege,
it’s not a matter of right. Pwedi ba bawion sa government?
YES.
Exemption is however allowed only if there is a
clear provision there for. Which is why it’s say very
basic rule when it comes to availment of exemption to
follow the so called Double Nexus Rule when it comes
to availment of exemption. From the word double,
meaning if you are a taxpayer claiming for an exemption
you have to prove first that there is a clear
provision granting the exemption to you and you
have to prove that you fall under that exemption.
By presenting proof of how you are being organized and
how you are being operated.
73
 EVASION
ELEMENTS OF TAX EVASION
Tax evasion connotes the integration of three (3) factors:
1) The end to be achieved, i.e. payment of less than
that known by the taxpayer to be legally due, or
paying no tax when it is shown that tax is due
2) An accompanying state of mind which is
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
Lastly, we have EVASION. Of all the six what is
considered illegal. Tax evasion is the use by the
taxpayer of illegal or fraudulent means to defeat
or lessen the payment of tax. This is punishable by
law. In the US this is called “tax dodging”. (On tax haven,
the movie recommended to watch is “The Laundromat”)
When we talk of evasion there is an intent to evade
payment of tax. When we talk of intent that’s basically,
dili na nimo ma declare. There has to have many
manifestations. That before the BIR will recommend the
filing of the tax evasion case.
Evasion (Tax Dodging)
Tax evasion is the use by the taxpayer of illegal or
fraudulent means to defeat or lessen the payment of a
tax. It is punishable by law, and subject to criminal and
civil liabilities.
ELEMENTS OF TAX EVASION
Tax evasion connotes the integration of three factors:
a. 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.
Kabalo sya pila ang liability and then intentionally
niignon sya “kini lang akong bayaran natu or
worse, dili ta mubayad.”
b. An accompanying state of mind described as
being “evil,” “in bad faith,” “willful” or “deliberate
and not accidental.”
Mao ni sya ang medyo lisod. Why? Because you
cannot read the mind unless you have the
superpowers to read the mind of the taxpayer.
Dire musud ang :manifestations” that the BIR will
need to look at. When we talk of manifestations,
BIR will look at the figure vs. pila ang assessment
na gi-declare ni taxpayer. In practice however, it
is not deliberateness ngano gi-file-an of tax
evasion si tax papeyer, sometimes it’s mere
negligence, for the reason that he tax papers do
not know how to compute the correct tax.
c. A course of action (or failure of action) which is
unlawful.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
INDICIA of FRAUD IN TAX EVASION
1) Failure to declare for taxation purposes true and
actual income derived from business for two (2)
consecutive years; or
2) Substantial underdeclaration of income tax
returns of the taxpayer for four (4) consecutive
years coupled with unintentional overstatement
of deductions
Manifestations or the Indicia of Fraud in Tax
Evasion:
Usually being applied by the BIR in assessing whether the
taxpayer is guilty of evasion or simply mistake or
negligence
a. Failure to declare for taxation purposes true and
actual income derived from business for two
consecutive years; or
b. Substantial under-declaration of income tax
returns of the taxpayer for four (4) consecutive
years coupled with intentional overstatement of
deductions.
i. Example: Does substantial under-
declaration means more than 50%? The
answer is NO. If ang under-declaration
exceeds 30% like in the case of Judy Ann
Santos (declared 8M out of 14M income),
that is usually interpreted by the BIR as
substantial under-declaration.
EVIDENCE TO PROVE TAX EVASION
Since fraud is a state of mind, it need not be proved by
direct evidence but may be proved from the
circumstances of the case.
“Failure of the taxpayer to declare for taxation purposes
his true and actual income derived from his business for
two (2) consecutive years is an indication of his fraudulent
intent to cheat the government of its due taxes.”
[REPUBLIC vs. GONZALES (13 SCRA 638)]
Still, there has to be proof of fraud! Mao to ang case ni
Regine Velasquez, DOJ level, na dismiss kay wala man
determination, even the under-declaration is substantial
or not, kay wala man kahibalo or wala nacompute pila ang
tax liability.
Republic v. Gonzales [13 SCRA 633]
The Supreme Court affirmed the assessment of a
deficiency tax against Gonzales, a private
concessionaire engaged in the manufacture of furniture
inside the Clark Air Base, for under declaration of his
income. SC held that the failure of the taxpayer to
declare for taxation purposes his true and actual
income derived from his business for two (2)
consecutive years is an indication of his
fraudulent intent to cheat the government of its
due taxes.
74
Sir makit-an dei na? YES because if you do business you
register with the BIR, in your Certificate of Registration
(COR) onsa ang monthly, quarterly and yearly filings
nimo. So if you don't file any of those, that will be tagged
as open cases so far as BIR is concerned and you will have
to explain. But even if you do not start the business or
have no income, if you are required to file an income tax
return, you file! Because filing and paying tax are 2
different things.
SUMMARY ON TAX EVASION vs TAX AVOIDANCE
TAX EVASION TAX AVOIDANCE
Connotes fraud Legal means used by
through the use of the taxpayer to reduce
pretenses and taxes
forbidden devices to
lessen or defeat taxes
Scheme used outside Tax saving device
of those lawful means within the means
sanctioned by law
EXEMPTION FROM TAXATION
It is an immunity or privilege; it is freedom from a financial
charge or burden to which others are subjected,
Nature of tax exemption
A. Personal privilege
B. Generally revocable; Exemption
C. Waiver on the part of the government
D. Not necessarily discriminatory
Nature of the power to grant tax exemption:
Exemption is allowed only if there is a clear provision
there for.
Exemptions are not presumed, but when public property
is involved, exemption is the rule and taxation is the
exemption.
2.11
CONSTRUCTION & INTERPRETATION OF TAX
LAWS
This is the last video lecture series for the general
principles of taxation. Just take note, right after this video
lecture series, I’ve also uploaded preliminary notes on
income taxation in the next module. Right after viewing
this, you may already proceed to reading assignments for
the module on overview of income taxation. We will be
having a quick overview discussion on the definition of net
income and what is meant on schedular rates before we
focus on income taxation on individuals and income
taxation on corporate taxpayers.
To continue with our discussion, so far we’ve discussed
the indirect constitutional limitations, we’ve also discussed
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
the mechanisms to transfer the burden of taxation. We’ve
discussed it could be shifting, shifting could either
forward, backward or onward. When we talk about
backward shifting, it could be in the specific form of
capitalization or specific form of transformation. We’ve
also discussed the distinction between tax avoidance and
tax evasion. We’ve only introduced a bit on tax
exemption, as mentioned we will discuss that into detail
in this video discussion.
Again, of the six modes or mechanisms to ease the
burden of taxation, tax evasion is the prohibited
mode because it connotes intent not to pay the tax
which is a required obligation under the law.
So, this time around, we put special focus on tax
exemption because you will learn later on that other than
the provisions in the tax code which subject a person or
activity to tax, there are also what we call exempting
provisions. These exempting provisions enumerate
transactions which are not covered in that
particular provision. We have to understand the nature
or rationale of tax exemption. When we talk of tax
exemption, this is actually pursuant to a theory that the
grant of tax exemption will benefit the body of the people
based on the idea of lessening the burden of individual
owners and property.
Again, the inherent power to tax comes with it the
inherent power to grant tax exemption. So if it is the
legislature who has the power to impose or levy tax, it
follows that it is also the legislature who can grant tax
exemption through the passage of tax laws.
As what we’ve discussed, it usually requires an absolute
majority vote of the members of Congress. In relation to
that, since municipal corporations or LGU’s do not have
the inherent power to tax, it does not also have the
inherent power to grant tax exemption. However, if the
power to impose a particular tax is granted, then they can
also grant exemption pertaining only to that particular tax
unless forbidden by the Constitution or by the law.
This becomes more apparent when we discussed local
taxes. If the LGu is empowered to collect local business
tax say for example, the LGU through the Sangguniang
may passed also ordinance specifying who are exempted
therefrom or specifying nga isuspend usa ang collection
esp when there is national calamities.
But st ill the power to grant exemption pertains lang to
the tax delegated with in a very limited capacity.
So what are the grounds for exempting tax
exemptions?
1. may be based on contract or agreement (so mao
to atong discussion on non-impairment of
obligation in contracts clause especially the
75
 government enters into a contract in a private
capacity with valuable consideration.) in this case
the public which is represented by the
government is supposed to receive a full
equivalent therefore i.e charter of a corporation.
(in that charter of corporation, there is a
corresponding provision that will have to be
remitted or invested. _)
2. Ofc tax exemptions are based on the ground of
public policy i.e to encourage new
industries or foster charitable institutions.
This is very apparent on our need for foreign
investments say for example is granting
incentives and part of this incentives are grants
of tax exemptions or if the government wants to
encourage a particular industry nga dili makaya
ug finance ni government entirely like an
educational institution or school, or proliferation
of hospitals, for medical needs of the people, so
one way of encouraging so that private person or
entities will engage in this type of business is to
grant certain exemptions or certain incentives.
3. It may also be based on ground of reciprocity or
to lessen the rigors of international double or
multiple taxation. Which is why foreign countries
usually enters into treaties’ with the Phils so if
they have resident citizens nila ngadto, mu earn
ug income dire sa Pilipinas, which could not be a
regular income (one time income lang or
isolated), there could be cases where it is
exempted from income taxation for the simple
path that there is a treaty to it pursuant to the
reciprocity of that and it is vice versa.
As what we have discussed before pursuant to the grant
of tax exemption, it is necessary that there has to be pure
provision thereof and it is necessary that the tax payer
wanting to avail of the exemption must prove that it
qualifies to such. That’s what we call to Double Nexus
Rule.
Chavez vs PCGG
PCGG has absolutely no power to grant tax exemptions,
even under the cover of its authority to compromise ill-
gotten wealth cases. The grant of tax exemptions is the
exclusive prerogative of the congress.
Neither can congress itself grant tax exemptions in the
case at bar because it will violate the equal protection
clause of the constitution.
In one old case involving Chavez vs PCGG, during
this time, the PCGG was authorized to enter into a
compromise Agreement with the Marcoses’ in
order to recover the ill gotten wealth, PCGG issued
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
an issuance granting tax exemptions if they will return the
ill-gotten wealth.
The Supreme Court held that tha PCGG being a mere
commission under the Executive Department does not
have the power to grant tax exemption. We have to refer
to the direct Constitutional limitation on the power of
taxation. PCGG has absolutely no power to grant tax
exemptions, even under the cover of its authority
to compromise ill-gotten wealth cases. The grant
of tax exemptions is the exclusive prerogative of
the Congress. Neither can Congress itself grant tax
exemptions in the case at bar because it will
violate the equal protection clause of the
Constitution.
In short, what makes Marcoses different from other public
officials who may be guilty of graft and corruption, who
may have ill-gotten wealth cases. Ultimately, the attempt
to grant tax exemptions in this case was struck down by
the Supreme Court.
Continuation (exemption from taxation)
As to basis:
Constitutional: Immunities from taxation which
originate from constitution
Statutory: Those which emanate from legislation.
In the De Lasalle case, the constitutional
exemption is far superior than the statutory
exemption. If there is a similar provision in the statute
but a mere reiteration of an already given exemption in
the Constitution, then it is not intended to expand or add
additional conditions if its not provided under the
Constitution, unless the constitution itself has been
amended.
But if the tax exemption is provided in statute or law, in
can be very well amended, very well be expanded or
taken off or withdrawn by Congress by the passage of
amendatory law.
Contractual: i.e. government bonds and debentures.
As to form.:
Express: Expressly granted by organic or statute law
Implied: When particular persons, properties or excises
are deemed exempt as they fall outside the scope of the
taxing provision itself. Kaning implied exemption is
common to the delegated powers to collect tax by the
LGU, kay diba na enumerate naman didto kinsa or unsa
subject to tax by the LGU. So it follows that those entities
not specified in the Local Government Code, need not to
tax by the LGU unless there is the so-called fallback
provision.
76
And they under a similar character of the previously
enumerated entities, persons or activities being subject to
tax.
Being an implied exemption, not much on national
taxation. For national taxation, insofar as BIR Ruling is
concerned in the grant of tax exemption, the BIR really
looks at an express provision of the statute or of the
Constitution before granting exemption, whether it be
from income taxation or business taxation.
As to extent:
Total: Connotes absolutely immunity
Partial: One where a collection of a part of the tax is
dispensed with.
As to Object:
Personal: Granted directly in favor of certain persons
Impersonal: granted directly in favor of a certain class
of property
Examples: this may arise through pardon by the
government, reciprocity between states, contractual
agreement or mere generosity.
EXAMPLE: pardon by the govt or amnesty. Amnesty is of
the same nature with exemption but technically, they are
different.
Here, gi name gyod ka sa law it is stated that you’re
subject lang. Like in your charter, like PEZA Agreement, if
you qualify for income tax holiday, you will receive a
certification from PEZA that you’re exempted from
payment of taxes for 4yrs or 6 yrs, as the case may be.
Same thing also with BOI (Board of Investments)
registration. If you register, there is also a direct grant of
exemption after much evaluation by the Investment
Promotions Agency.
Impersonal: granted directly in favor of a certain class
of property.
So long as you belong to that class, you can ask for a
certificate of exemption.
EXAMPLE: Non-stock, non-profit educational institution.
That’s impersonal becof the nature or the class. So, if USC
wants to be exempted, it will essentially prove that it’s
organized as non-stock, non-profit educational institution
and none of its income goes to the benefit of private
persons/entities.
EXEMPTIONS TO APPLICATION OF STRICTISSIMI
JURIS
1. When the statue granting exemption provides for
liberal interpretation thereof;
Especially the grant of power since the power of taxation
is to raise revenue.
2. Special taxes relating to special cases and
affecting only special classes of persons;
3. If exemptions refer to public property;
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Because public property this is own by the government so
mao nang dili ka kinahanglan mag interpret strictly, why?
Because one of the inherent limitations to the power of
taxation is the exemption of the government from
taxation. All we need to do is to determine whether the
owner of the property legal as well as the beneficial owner
thereof there is government agency or government
instrumentality.
4. In cases of exemptions granted to religious,
charitable and educational institutions or their
property
Ngano man? Because their exception is provided under
the constitution
5. Exemptions in favor of the government, its
political subdivisions or instrumentalities;
Inherent limitations
6. If there is express mention or if the taxpayer falls
within the purview by clear legislative intent.
Again, to continue these are the exceptions to application
of strictissimi Juris in interpreting vague provisions
granting tax exemptions
CONSTRUCTION OF TAX EXEMPTION STATUES
In the construction of tax statutes, exemptions are not
favored and are construed stictissimi juris against
the taxpayer.
Taxation is the rule; Exemption is the exception.
If provision is clear, then construct based on what is
provided by the letter. If vague, construed strictly against
the taxpayer because exemptions are not favored.
He who claims exemption must be able to justify his claim
or right thereto by a grant express in terms “too plain
to be mistaken and too categorical to be
misinterpreted”. If not expressly mentioned in the law,
it must be at least within its purview by clear legislative
intent.
Point is, exceptions to application of Strictissimi Juris in
interpreting vague provisions granting tax exemptions
Restrictions on Revocation of Tax Exemption
1. Not violative of the non-impairment clause – if
grant is with material considerations.
2. Adherence to form -– if exemption is granted by
constitution.
3. Where the tax exemption grant is in the form of
a special law and not by a general law even if the
terms of the general act are broad enough to
include the intent to repeal or alter the special law,
then the special law will prevail.
77
 TAX EXEMPTION AND TAX AMNESTY,
DISTINGUISHED.
They are of the same nature in the sense that there is no
tax collection that will happen. But technically, they are
different because in exemption, you did not commit any
violation yet precisely because that particular transaction
is exempted. Amnesty, on the other hand presupposes
that you already had a violation in any of the provisions
of the tax code.
TAX AMNESTY
Tax amnesty, technically, is a general pardon or
intentional overlooking by the state of its authority to
impose penalties on persons otherwise guilty of evasion
or violation of a revenue or tax law. If the exemption is
more of public policy to minimize the burden of taxation,
the purpose of tax amnesty is to ramp up (?) the collection
or to at least raise the collection of the government
because in tax amnesty, what usually happens there is
there is what we call am amnesty rate or there is an
amount that the tax payer who wants to avail of the
amnesty must pay without need of any audit,
examination, or assessment coming from the BIR.
Partakes of an absolute forgiveness or waiver of the
government of its right to collect.
It is granted particularly to tax evaders who wish to relent
and are willing to reform, thus giving them chance to do
so and thereby become a part of the new society with a
clean slate. And usually this tax amnesty is being done
also if new tax rules or tax rates are bring passed by
congress or implemented by the government for them not
to be confused in applying or conducting an assessment
or audit using the old rate or conducting an assessment
using the new rate—that would be too confusing.
Example to tax amnesty:
Amnesty on delinquency or estate tax amnesty that was
passed by Congress when TRAIN law was passed. Why
did they see the need for that? Because rate for estate
tax for example was reduced to 6%, previous years, 2017
prior—schedular. So it would be useless if they will make
it prospective, the application of 6%. Lain man sad if i-
retroact nila ang 6%. So there was a separate law that
was passed and that is known as the estate tax amnesty.
Same, amnesty on delinquencies but it doesn't mean to
say nga wala'y bayaran or wala'y minimum amount nga i-
remit si taxpayer to the government. Still, there is a rate
(an applicable rate), there is a minimum amount that the
government will have to collect from the taxpayer. In a
way, mura na siya ug mo pump ug additional revenue to
the government. That’s the good side if the government
passes an amnesty. The bad side is mag anad si tax payer
and that's what legislators have to take into consideration
actually. Because if the government grants amnesty say
for example every two years or every three years,
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
tendency is that taxpayers will not just comply while
waiting for the amnesty. Mo ingon na dayon "Aw, mag
amnesty bitaw. Okay ra ni. Di lang sah ta mobayad karon
nga year nya avail na lang ta's amnesty later on." That's
what the government would not want to happen. That's
what the DOF would not want to happen. Mao na as much
as possible, amnesties are not given on a regular
basis. It is given if there is really an apparent need
to give that amnesty. Do you follow? Like kung kulang
na gyud ang budget sa government.
By the way, when we talk of amnesty also, who usually
grants the amnesty?
Of course class it's the legislator. The legislature can pass
a law.
Pero pwede ba sad si DOF or si BIR?
The answer is yes. And that's what we call Administrative
Amnesty. Although that's an informal term. Ang term ana
ni BIR is Voluntary Assessment and Payment. I don't
know if you've heard that. Siguro ang mga CPAs nato
nganhi you've heard that one.
The government passed a VAT and it's even extended late
last year (2020) - Voluntary Assessment and Payment
Program applying to potential tax violations in 2018. It's
in the nature of pardon (administrative pardon). In a
sense that the BIR will not anymore audit you for year
2018 if you are able to successfully avail and pay the
minimum settlement rate under the voluntary assessment
and payment program.
So again, the VAT, it's more of like administrative
amnesty. So in that sense, same purpose: with tax
payers availing of the VAT and paying the
minimum rates there (availment rate), it would
add additional source of revenue with the BIR. If
you've been hearing the news, BIR was very happy
because for year 2020, despite the pandemic, they were
able to exceed their target (115%). And they were saying
this is the highest so far from the late 2000 as compared.
What could have triggered that? To think diba last year
pandemic, wala'y income. What do you think is the reason
why they were able to reach the target? Because they
instituted effectively the Voluntary Assessment and
Payment Program.
So, there were many taxpayers. What happened last year
was that the BIR issued so many tax assessments or
conducted audits, not full audits, but conducted through
their relief system generated audits for potential violations
by taxpayers for the year 2018. So prior to the release of
the Voluntary Assessment and Payment Program, it is
almost everyday that BIR released Letter of Authority
(LOA) for year 2018, and the others are assessment for
78
the year 2018. In the third quarter of 2020, the Voluntary
Assessment and Payment Program was released for 2018.
So if a taxpayer receives assessment of 20 million for
potential tax violation for 2018, the taxpayer needs to
simulate or avoidance, where you can save more. Despite
the initial 20 million assessment, this 20 million may still
be legally argued. But the taxpayer does not want to go
to the hassle of analyzing each and every transactions. If
the taxpayer has the money, per VAT computation based
on the minimum amount, the taxpayer will just pay 10
million, then the taxpayer will just settle for the 10 million
legally and that is over the table, no under the table. So
that’s what happened. Some, they just even received LOA
and by the mere fact that they received LOA, it is like the
BIR saying that they will examine you for this year. So
you as taxpayer will always recall the things you did not
follow for the year 2018. The taxpayer will have a hard
time. So here we have the Voluntary Assessment and
Payment Program promising that if a taxpayer settles
without fraud, just simple negligence or mistake, the BIR
will issue a tax certificate and they will no longer audit the
taxpayer. So the BIR increased the collection. And that is
in the nature of amnesty basically. But, it is not
necessarily tax that was pardoned in VAT. It is more on
the BIR promising that the taxpayer will not be subject to
an audit because if a taxpayer is audited, there will be a
fine tax.
Republic vs IAC
A general pardon or international overlooking by the
State of its authority to impose penalties on perons
otherwise guilty of evasion or violation of a revenue or
tax law.
Partakes of an absolute forgiveness or waiver of the
government of its right to collect.
It is granted particularly to tax evaders who wish to
relent and are willing to reform, thus giving them a
chance to do so and thereby become a part of the new
society with a clean slate.
TAX REMISSION or TAX CONDONATION
The word “remit” means to desist or refrain from exacting,
inflicting or enforcing something as well as to restore what
has already been taken. The remission of taxes due and
payable to the exclusion of taxes already collected does
not constitute unfair discrimination. Such a 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. (Juan Luna Subd. v. Sarmiento)
The condonation of a tax liability is equivalent to and is in
the nature of a tax exemption. Thus, it should be
sustained only when expressly provided in the law.
(Surigao Consolidated Mining v. Commissioner of Internal
Revenue).
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
So when we say remission of condonation, meaning you
still have a payable...
When we say remission or condonation, meaning naa
gihapon kay payable. Naa kay payable pero gi condone sa
government, gi forgive sa government.
Restrictions on Revocation of Tax Exemption
1. Not violative of the non-impairment clause – if
grant is with material considerations.
2. Adherence to form -– if exemption is granted by
constitution.
3. Where the tax exemption grant is in the form of
a special law and not by a general law even if the
terms of the general act are broad enough to
include the intent to repeal or alter the special law,
then the special law will prevail.
Ang exception, wa pakay violation, wa pa kay payable dili
itax kana nga transaction or dili ka itax sa subentity. Ang
amnesty, ang tendency, naa nakay potential violation
pero gi hatagan ka ug pardon gipasaylo ka. This is given
to a particular class, this is not given specifically to a tax
payer.
Juan Luna Subd. V. Sarmiento, 91 Phil 370
The word “remit” means to desist or refrain from
exacting, inflicting or enforcing something as well as to
restore what has already been taken. The remission of
taxes due and payable to the exclusion of taxes already
collected does not constitute unfair discrimination.
Such a 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.
[Surigao Consolidated Mining v. Commissioner
of Internal Revenue, 9 SCRA 728]
The condonation of a tax liability is equivalent to and is
in the nature of a tax exemption. Thus, it should be
sustained only when expressly provided in the law.
Juan Luna Subdivision, Inc. v Sarmiento GR No.
L-3538, May 28, 1952
FACTS:
Plaintiff issued to the City Treasurer of Manila checks
amounting for P2,210.52 drawn upon the Philippine
Trust Company.
This check was to be applied to plaintiff’s land tax, the
exact amount of which was yet undetermined. The City
after liberation from Japanese to refund the plaintiff’s
deposit or apply it to such future taxes as might be
found due. Plaintiff, however, claims that the whole
amount of the check contending that taxes during
period have been remitted by Commonwealth Act No.
703.
ISSUE:
79
Does CA 703 cover taxes paid before its enactment as
the plaintiff maintains and the courts below held, or
does it refer, as the City Treasurer believes, only to
taxes which were still unpaid?
RULING:
The law is clear that it applies to “taxes and penalties
due and payable”, i.e. taxes owed and owing. The
remission of taxes due and payable to the exclusion of
taxes already collected does not constitute unfair
discrimination. The taxpayers who paid their taxes
before liberation and those who had not were not on
the same footing on the need of material relief.
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 War Notes, many of
them at a time when those notes were well-nigh
worthless. To refund those taxes with restored
currency would unduly enrich many of the payers at a
greater expense to the people at large.
Surigao Consolidated Mining v Commissioner of
Internal Revenue
Facts:
before the outbreak of World War II, the Surigao
Consolidated Mining Company... a domestic
corporation which then had its principal office in the
city of Iloilo, was operating its mining" concessions in
Mainit, Surigao.
Due to the interruption of communications at the
outbreak of the war, the principal office of Surigao
Consolidated lost contact with its mines and never
received the production reports for the fourth quarter
of 1941. In order to avoid incurring any tax penalty,
said company, on January 19, 1942 deposited a check
in the amount of P27,000.00 payable to and "indorsed
in favor of the City Treasurer (of Iloilo) in payment of
the ad valorem taxes (approximate adjustment to be
made when... circumstances allow it) for the fourth
quarter of 1941."
After the termination of the war, Commonwealth Act,
No. 722 was enacted, which provided for the filing of
returns for minerals removed during the last quarter of
1941 up to December 31, 1945 and the payment of ad
valorem tax on said minerals to February 28, 1946.
Availing of the provisions of the aforementioned Act,
the Surigao Consolidated, on December 28, 1945, filed
its ad valorem tax returns for the fourth quarter of
1941, declaring as its tax liability the amount of
P43.486.54. Applying the... amount of P27,0O0.0O
previously deposited with the City Treasurer of Iloilo,
the returns indicated an unpaid balance of P16.486.54
as the "tax subject to revision."
In the accompanying letter, a request was made, this
time not only for the reduction of tax, but for the refund
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
of the amount of P18,107.87. On October 19, 1946,
another statement of adjustment was filed reducing the
claim for refund to P17,158.01. Finally, on
March 15, 1947, a third statement of adjustment was
submitted further reducing the claim for refund to the
amount of P17,051.14.
the Collector of Internal Revenue denied the request
for the refund of the said P17,051.14 on the ground
that the money already paid as ad valorem tax was
legally due to the Government.
Petitioner argues that since the law condones the taxes
due from taxpayers who failed to pay their taxes, it
would be unfair to deny this benefit to those taxpayers
who had been prompt in paying theirs.
Under the second item, petitioner seeks to recover the
amount of P15,609.73 representing the ad valorem tax
paid on minerals extracted from its mines but alleged
to have been looted during the enemy occupation
Issues:
Whether or not Surigao Consolidated, petitioner herein,
is entitled to the refund of ad valorem tax in the total
amount of P17,051.14
Ruling:
The argument merits careful consideration. At first it
would seem to be sound and logical. But the
aforequoted section clearly refers to the condonation
of unpaid taxes only.
Going over the record, We find no reason to disturb the
above findings of the Court of Tax Appeals, there being
no showing that they are not substantiated by the
evidence. With this observation, it would be useless
ceremony to delve into the issue of whether ad...
valorem should be or should not be paid on minerals
extracted from the mines but not removed therefrom.
In this case, petitioner failed to show that the amount
of taxes sought to be refunded have been erroneously
collected.
Principles:
The condonation of a tax liability is equivalent and is in
the nature of a tax exemption. Being so, it should be
sustained only when expressed in explicit terms, and it
cannot be extended beyond the plain meaning of those
terms. It is the universal rule that he who claims an
exemption from his share of the common burden of
taxation must justify his claim by showing that the
Legislature intended to exempt him by words too plain
to be... mistaken.
It is a settled doctrine that in a suit for the recovery of
the payment of taxes or any portion thereof as having
been illegally or erroneously collected, the burden is
upon the taxpayer to establish the facts which show
80
 the illegality of the tax or that the... determination
thereof is erroneous.
Tax Condonation or remission, this is more taxpayers
specific which is why there is still application here but the
one who can condone or remit the tax is the
Commissioner of the Internal Revenue or the CIR. Usually
the condonation or remission, this is a last resort or
remedy of the taxpayer if all else fail and you ask the help
of the CIR to condone this amount perhaps because you
cannot afford to pay it and for whatsoever reason.
Ang kuyog sa condonation of taxes is compromise. Ang
kalahian sad nila is kung moingon ta compromise, naay
minimum compromise trait. Ang utang nimo one million
(1M), mo compromise ka, ang bayaran lang nimo 40% or
10% kay nagkalisod ka. Ang condonation on the other
hand, this is usually applied to surcharges as well as
penalties nga I-condone ni BIR, I-condone ni regional
director.
TAX AMNESTY vs TAX EXEMPTION
TAX AMNESTY TAX EXEMPTION
Is an immunity from all Is an immunity from the
criminal and civil civil liability only.
obligations arising from
non-payment of taxes.
It is a general pardon
given to all taxpayers to
cover a particular taxing
period or transaction.
The amnesty referred to here is the tax amnesty issued
by the tax imposing authority which is legislature. Do not
complicate this with VAP because VAP or Voluntary
Assessment and Payment it’s just of the same nature as
an administrative amnesty. It has nothing to do with
criminal or civil obligations, it’s more of the conduct of
audit or examination.
WHAT IS TAX ASSUMPTION?
The case of Mitsubishi corp – manila branch vs
CIR, GR 175772, June 5, 2017
On tax exemption, why civil liability lang? Pwede man gud
na mabaylo ninyo, ang hinumdoman ninyo sa exemption,
wala pa kay violation to speak of. So wala pay criminal
penalty supposedly mao na nga immunity ra siya from
civil liability. If you are immune from civil liability, it
follows nga wala sad kay criminal obligation.
Amnesty presupposes na you already have a violation. If
you have violated a provision of a tax code, automatic
that would be considered as a criminal offense.
TAKE NOTE: If you violated any provision of the tax
code, that is automatically considered a criminal offense.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
MITSUBISHI CORPORATION - MANILA
BRANCH, Petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, Respondent.
[G.R. No. 175772. June 5, 2017.]
(This case coined the term “Tax Assumption”.)
Overview of the case:
The President entered into an executive agreement
with the Prime Minister of Japan wherein Japan
promised to send Japanese engineers to the Philippines
in order to construct a power plant. Pursuant to that
agreement to encourage Japan to construct the power
plant in the Philippines, the executive department
promised that it will assume whatever tax liability the
power plant engineers will incur for the services that
they render here in the Philippines.
However, the document evidencing such is just a mere
executive agreement NOT a law. Eventually, Mitsubishi
was the one paying for the tax liabilities of the
Japanese engineers. Upon noticing the executive
agreement, Mitsubishi filed for a refund which was
denied by BIR.
BIR’s reason is that this is a case of tax exemption
because payment of tax is not required from the
income earned within the Philippines by the Japanese
engineers. And because this is an exemption, this can
only be granted by congress, even if there is an
executive agreement, there has to be a concurrence by
at least ⅔ vote of the members of congress. The
provision is invalid for it is in want of ratification of
congress. Thus, Mitsubishi cannot ask for a refund
pursuant to the agreement.
Mitsubishi appealed to the CTA. And eventually, the
case reached the Supreme Court.
RULING: Yes, such agreement is in the nature of a tax
exemption BUT it is not strictly a grant of exemption.
Thus, the japanese engineers are still liable for taxes
for the services they have rendered in the Philippines
BUT it will be assumed by a particular department or
agency.
In reply, please be informed that the aforequoted
provisions of Notes-NAIA and Notes-Calaca are not grants
of direct tax exemption privilege to Japanese firms,
Mitsubishi in this case, and Japanese nationals operating as
suppliers, contractors or consultants involved in either of
the two projects because the said provisions state that it is
the Government of the Republic of the Philippines that is
obligated to pay whatever fiscal levies or taxes they may
be liable to. Thus, there is no tax exemption to speak of
because the said taxes shall be assumed by the Philippine
Government; hence, the said provision is not violative of the
Constitutional prohibition against the grants of tax
exemption without the concurrence of the majority of the
members of Congress.
81
 Deduction
● these are the allowable deduction outlaws that
Tax Assumption - a particular division,
department, or agency of the can be used as a reduction to your gross income
national government in order to your taxable or net income which will
promised to shoulder the be multiplied to tax rate.
applicable taxes to a
particular governmental Nature of Internal Revenue Law
project What’s the nature of internal revenue law?
I. ● Not political in Nature
Tax Exemption - usually granted by congress ○ Internal revenue laws are not political in
pursuant to its power to levy
nature. They are deemed to be laws of
or impose tax
Tax Amnesty the occupied territory and not of the
occupying enemy. Thus, our tax laws
Tax Deduction continued in force during the Japanese
occupation.

TAX ASSUMPTION
TAX EXEMTPION
TAX AMNESTY
TAX DEDUCTION
TAX ASSUMPTION
● particular division, department, agency,
international government promised to shoulder
the applicable taxes to a particular governmental
project.
The other three is granted by congress in its power to levy
and impose tax (2/3 votes).
The Supreme Court held in the case of Mitsubishi Corp.
Manila Branch v. Commission of Internal Revenue, G.R.
No. 175772, June 5, 2017, This is not a technical case of
tax exemption, rather as expressly provided in the
agreement it is a tax assumption- meaning to say the
Japanese engineers will be made liable for the
taxes and services rendered here in the agency, it is
the agency who will pay for it. Computan gihapon sila
pero dili sila ang pabayron out of that agreement and that
is a case of tax assumption, and since its tax
assumption there is tax collected, the government
just promised to pay for it, then there is no more
need for ratification or approval of congress. It not
need be pursuant to a law, what is required in the
constitution is grant of exemption not tax assumption.
Difference:
Tax assumption
● there is still tax liability but the other contracting
party obliges itself to pay for and settle that tax
payable by the income earner
Exemption exclusion
● immunity from taxation
Amnesty
● pardoning both civil as well as criminal liability
presuming you already have a violation.
“It is well known that out internal revenue laws are not
political in nature and, as such, continued in force
during the period of enemy occupation and in effect were
actually enforced by the occupation government. Income
tax returns that were filed during that period and income
tax payments made were considered valid and legal.
Such tax are deemed to be the laws of the occupied
territory and not of the occupying enemy.” (Hilado v.
Collector, 100 Phil. 288)
● Civil not penal in nature
○ Tax laws are civil and not penal in nature,
although there are penalties provided for
their violation.
The purpose of tax laws in imposing penalties for
delinquencies is to compel the timely payment of taxes or
to punish evasion or neglect of duty in respect thereof.
Republic v. Oasan, 99 Phil 934: The war profits tax is not
subject to the Prohibition on ex post facto laws as the
latter applied only to criminal or penal matters. Tax laws
are civil in nature.
When the Japanese went out of the country gibalikan siya
sa collector, gipaninglan siya. The collector will say Mickey
Mouse money (the term they use during the Japanese
occupation because deemed worthless). So collector said,
invalid man to, Mickey Mouse money man to ang gibayad,
naa kay payment pero kay under Japanese occupation
man ta. The petitioner on the other hand saying ni
continue man ang tax laws nato, etc. That’s when the
Supreme Court in this case discussed that our internal
revenue law is not political in nature.
*continuation*
NATURE, CONSTRUCTION AND APPLICATION OF
TAX LAWS
(idk asa ang no. I haha)
II. Civil not penal in nature
Tax laws are civil and not penal in nature, although there
are penalties provided for their violation.

TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa 82
The purpose of tax laws in imposing penalties for
occupying enemy. delinquencies is to compel the timely
payment of taxes or to punish evasion or neglect of duty
in respect Thus, our tax laws continued in force during
the Japanese thereof.
Republic vs Oasan, 99 phil 934: The war profits tax is
not subject to the prohibition on ex post facto laws as the
latter applies only to criminal or penal matters. Tax laws
are civil in nature.
It is also not penal in nature but it is civil nature.
Although there are corresponding criminal
penalties provided for every violation. The purpose
of tax law imposing penalties is for delinquencies to
compel the timely payment of the taxes. But it’s not a
primary purpose. Unlike sa penal when you commit a
violation, automatic penalty. For taxation again, the
primary purpose is not to regulate, but to raise the
revenue. Therefore, not being penal in nature or
criminal in nature it’s not covered under the
prohibition of ex post facto laws under the
constitution as it only applies to criminal or penal
matters, not tax laws which are civil in nature.
How do we construe tax law especially when there is
ambiguity?
CONSTRUCTION OF TAX LAWS
1. Tax laws are generally prospective in
operation
2. Rule when legislative intent is clear
Tax statutes are to receive a reasonable construction with
a view to carrying out their purpose and intent.
3. Rule when there is doubt
In every case of doubt, in tax statutes imposing payment
of tax, it shall be construed strictly against the
government and Liberally in favor of the taxpayer. Taxes,
being burdens, are not to be presumed beyond what the
statute expressly and clearly declares.
Of course as a rule we construe it to the letters, if clear
siya. And we construe that prospectively unless there is
an express provision in the law that it will retroact. By the
way, talking about create bill, PhilStar article just came
out today, Feb. 1, it stated that the bicameral committee
is already finalized and is already ready for signing. So
mao na nga medyo okay rasad nga na delay ta so that
hopefully before the end of our modular schedule that
create bill becomes a law so I can update my presentation
and my presentation will be based on the law itself. Again,
when the intent is clear, construe based on its purpose
and intent. When there is doubt however, tax
statutes imposing payment of tax shall be
construed strictly against the government and
liberally in favor of the taxpayer. Because taxes
being a burden are not presumed beyond what the
statute expressly and clearly provides.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
But that is different when it comes to exemption.
4. Provisions granting tax exemptions
Such provisions are construed strictly against the taxpayer
claiming tax exemption.
5. Where language is plain – rule on strict
construction against the government does not
apply.
6. Public Purpose is always presumed.
7. Provisions of the tax act are not to be
extended by implication.
8. Tax laws are special laws and prevail over
general laws.
Again ang gi discuss nato ganiha, if there is an
ambiguity in laws granting an exemption it will
have to be construed strictly against the taxpayer
and liberally in favor of the government.
Where the language is plain the rule on strict
construction against the government does not
apply.
Public Purpose is always presumed. Mao na if you
are a taxpayer questioning the purpose of the exercise of
the power of taxation you have to present proof that it is
not for public purpose.
Provisions of the tax act are not to be extended by
implication.
Tax laws are special laws and prevail over general
laws. For example although it is civil in nature but this is
a special law for the exercise of the power of taxation so
it prevails over the Civil Code on matters of taxation
APPLICATION OF TAX LAWS
General rule: Tax laws are prospective in operation
because the nature and amount of the tax could not be
foreseen and understood by the taxpayer at the time the
transactions which the law seeks to tax was completed.
EXCEPTION: While it is not favored, a statute may
nevertheless operate retroactively provided it is
expressly declared or is clearly the legislative intent.
But a tax law should not be given retroactive application
when it would be harsh and oppressive.
EXCEPTION TO THE EXCEPTION: A tax law should not
be given retroactive application when it would be so harsh
and oppressive, for in such case, the constitutional
limitation of due process would be violated.
MANDATORY & DIRECTORY PROVISIONS OF TAX
LAWS
Directory Provisions are those designed merely for the
information or direction of office or to secure methodical
and systematic modes of proceedings.
83

Mandatory Provisions are those intended for the
security of the citizens or which are designed to ensure
equality of taxation or certainty as to the nature and
amount of each person’s tax.
The omission to follow mandatory provisions renders
invalid the act or proceeding to which it relates while the
omission to follow directory provisions does not involve
such consequence. [Roxas vs Rafferty, 37 Phil 958]
Roxas v. Rafferty, 37 Phil 958.
The omission to follow mandatory provisions renders
invalid the act or proceeding to which it relates while
the omission to follow directory provisions does not
involve such consequence.
You will know if the provision is directory or mandatory
based on the issuances of the BIR. If it is mandatory, the
BIR usually includes it in a revenue regulation that it will
issue to implement that tax law. Directory provisions may
be disregarded in a revenue regulation, it may be issued
pursuant to circulars but nevertheless, it does not involve
any consequence.
AUTHORITY OF THE SECRETARY OF FINANCE TO
PROMULGATE RULES AND REGULATIONS
The Secretary of Finance, upon recommendation of the
Commissioner of Internal Revenue, shall promulgate
needful rules and regulations for the effective
enforcement of the provisions of the NIRC.
This is without prejudice to the power of the
Commissioner of Internal Revenue to make rulings or
opinions in connection with the implementation of the
provisions of internal revenue laws, including rulings on
the classification of articles for sales tax and similar
purposes.
Purpose of rules and regulations
1. To properly enforce and execute the laws
2. To clarify and explain the law
3. To carry into effect the law’s general provisions
by providing details of administration and
procedure.
Requisites for validity and effectivity of
regulations
1. Must be reasonable
2. Within the authority conferred
3. They must not be contrary to law and constitution
4. They must be published in the official Gazette or
a newspaper of general circulation.
The Bureau of Internal Revenue shall issue a press release
covering the highlights and features of the tax issuance in
any newspaper of general circulation.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Effectivity date for enforcement of the new issuance shall
take place 30 days from the date the issuance has been
sent to the above-enumerated organizations.
Who promulgates the implementing rulings again?
It is the secretary of finance it is not the commissioner of
the revenue.
The power of the commissioner internal revenue is to
make rulings or opinions of the provisions of internal
revenue rules. I think I mention this with you the exercise.
Usually it is the DOF who will oversee the fiscal situation
of the country.
DOF=>SUPERVISES=>BIR
Headed by the commissioner of internal revenue, so if
naay manguhit sa legislators nato you know its time to
pass a new tax law or to amend an existing tax law. It’s
the DOF who knows best. BIR siya ang naga field work,
siya ang naa sa field nangulecta, mu report rana siya ni
DOF.
Who is in the best position then to issue the
implementing rules and regulation?
It is the DOF okay which is why revenue regulations and
tawag ana diba IRR man na usually sa other special laws.
Ang tawag sa tax revenue regulation or RR. Don’t be
confuse naa sad laen RR revenue ruling. Ang kani ruling
mao ni ang gi issue ni CIR. Revenue regulations mao ni
ang signan ni secretary of finance ang the power of the
commissioner there is just recommendatory.
Recommending power lang si commissioner of internal
revenue. We have more discussion on this in tax 2 when
we will discuss the administrative rules when it comes to
the exercise of the power of taxation.
So the rules and regulations so the purpose is of
course:
To enforce and execute the law
To clarify and explain the law
To carry into effect general provisions of the law by
providing details of administration and procedure.
Ahm, again, same as other implementing rules and
regulation:
It must be reasonable
Within the authority
Not contrary to the law ang constitution
Ofcourse there has to have publication thereof.
The usual rule:
it must not expand,
it must not add new condition
it must not existing thereto.
So mao na nga very imporrtant ang secretary of finance
to have a good coordination with the commissioner of
internal revenue. Because kung ang commission of
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internal revenue class mu act as secretary of finance.
Tendency of the commissioner of internal revenue kai
diba dili man siya ka issue ug revenue regulation. Ang
tendency kung medyu hinay ang secretary of finance
nimu ug medyu ug medyu active mangulikta ang
commissioner nimu. Magsige ni siya issue ug circular
which is tantamount to a revenue regulation which could
tend to expand the coverage of the tax law and that is
why.
What happen during the time of commissioner, so I’m not
saying ha nga dili active ang secretary of finance at that
time. But during the time of Commissioner Henares, she
was very aggressive in raising the revenue. There were
several circulars issued by commissioner Henares which
is good to be fare which makes sense. However, not
within the ambit of revenue regulation and not within the
ambit of tax laws mao to nga gi invalidate. Okay, mao na
nga nanggawas ang De la Salle case, nanggawas ang mga
fresh metro case, we should gave credit to that to
commissioner Henares. Finally it settles down the big
questions before nga that will became a source of
corruption. I tell you. For the simple reason that the BIR
and the BOF failed to issue appropriate regulation. But
now, medyu nindut ang mga jurisprudences pertaining to
that. Okay.
Of course you have the revenue regulation which is
issued by the Secretary of Finance, you also have revenue
memorandum orders, revenue memorandum circulars
kani are RMCs. Of course you have the revenue ruling
or sometimes term as BIR ruling kani sila issued by the
CIR. The revenue regulation is issued by the Secretary
of finance.
Revenue Regulations 34-2020 which basically sets the
threshold and the coverage of the requirement to file BIR
forms 1709 and transfer documentation.
We have this RMC signed by the commissioner well this
pertains to the excess tax. This is the latest I think. And
we have this RMC 17-2021 pertaining to the extension of
filing BIR form 1604C and 1604F nga daghan ang na high
blood kai imagine ang deadline kai January 31. So ang
uban mu advance na ug himo January 29, 2021 palang
that’s Friday.
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Although dated January 26, gi release kani nga RMC
January 28 sa gabie, you can just imagine many of our
colligues nag cram and some of our clients nag cram na
ang then pagkabuntag gi extend ra diay so murag kanang
nag cram naka ug tuon tapos ready na unta kaayu ka
unya gi extend unya gi suspend. Ing ana ang feeling bitaw
nga dika kasabot. Kung malipay baka or maguol ka. So
that’s the latest. So I think naay karun na.
So this is ang example of BIR ruling or BIR opinion class
ahm.
ADMINISTRATIVE RULINGS
BIR RULINGS
Power of the Secretary of Finance to Revoke the Rulings
of his predecessor.
The Secretary of Finance as well as the CIR may revoke,
repeal or abrogate the acts or previous rulings of his
predecessors in office because the construction of the
statue by those administering it is not binding in their
successors if, thereafter, such successors are satisfied
that a different construction of the law should be given.
BIR rulings:
Administrative rulings, known as BIR rulings, are less
general interpretation of tax laws being issued from time
to time by the Commissioner of Internal Revenue. They
are usually rendered on request of taxpayers to clarify
certain provisions of a tax law. These rulings may be
revoked by the Secretary of Finance if the latter finds
them not in accordance with the law.
It is issued by the BIR, by the commissioner. These rulings
however, may be revoked by the Secretary of Finance, if
the latter do not find them in accordance with the law.
The BIR ruling does not involve assessments or
computations of tax liability, these usually involve gray
areas in tax laws and you are asking the BIR’s opinion
whether mu agree siya sa position nimo as taxpayer which
is of course, exemption for lower tax rate. Mao man gyud
na ang purpose nimo for asking for a ruling. If the decision
or the BIR there is quite adversary to you, meaning di siya
mu agree sa imoha, that’s when you go to the Secretary
of Finance. Because the Secretary of Finance being the
supervisor of the Commissioner of Internal Revenue, has
the power to revoke the rulings of his predecessor or even
revoke the rulings of the Commissioner of Internal
Revenue.
So, that is an example, sa BIR website ni nako mis of gi
kuha. This is an sample of a BIR ruling.
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There is a reference number, medyo dugay dugay ni issue
ug ruling si BIR kay based on current practice, centralized
tanan sa head office, sa law and legislative division. There
was a time that the Regional Directors were empowered
to issue rulings. However, it became chaotic and
problematic, and even a source of corruption. There were
some regional directors who issued rulings contradicting
the rulings of the Commissioner. So, during that time of
Henares nag lagot siya, wa na ang rulings sa regional, gi
national na tanan, centralized na pero dugay sad kaayo
ma release. So we have cases na 2015 pa na until now
pending, or 2012 until now na pending.
Now, this is an example of a DOF opinion. Which is
pursuant for a request for a review of BIR ruling. ITAD
stands for International Tax Affairs Division, that pertains
to rulings, pertaining to treatises or international
issuances on grants or exemptions or grants of lower
rates.
Then of course, Administrative Interpretation and the
Courts. This is the interpretation of the BIR, as well as the
interpretation of the DOF, pursuant to these rulings.
ADMINISTRATIVE INTERPRETATION AND THE
COURTS
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Commissioner v. Court of Appeals, 240 SCRA
368
The authority of the Minister of Finance, in conjunction
with the Commissioner of Internal Revenue, to
promulgate rules and regulations for the effective
enforcement of internal revenue rules cannot be
converted. Neither can it be disputed that such rules
and regulations, as well as administrative opinions and
rulings, ordinarily should deserve weight and respect
by the courts. Much more fundamental than either of
the above, however, is that all issuances must not
override, but must remain consistent with the
law they seek to apply and implement.
Administrative rules and regulations are intended to
carry out, neither to supplant nor to modify, the law.
Q: If you go to the regular courts, is it binding?
A: Not necessarily because these are considered
administrative agencies. Mao bitaw na naay appellate
court. However, even if it is not binding, it is given much
respect because these administrative rules and
regulations are intended to carry out neither to supplant
nor to modify the law.
Lahi na sad na issue kung gi apil na nimo and you’re
questioning the expanded coverage of the regulation
which is not provided under the law, as well as the
regulation. That’s another story but nevertheless it is not
binding to the CTA, it is not binding to the SC and to the
other regular courts, it is just given weight and respect.
ADMINISTRATIVE RULINGS AND OPINION
La Suerte vs CA, 134 SCRA 29
When an administrative agency renders an opinion by
means of a circular or memorandum, it merely
interprets existing law and no publication is therefore
necessary for its validity. Construction by an executive
branch of the government of a particular law, although
not binding upon courts, must be given weight as the
construction came from the branch of the government
which is called upon to implement the law.
So, when it comes to these tax laws, since the
construction or the interpretation came from a branch of
the government which is primarily tasked to implement.
When it comes to these tax laws, interpretation and
application, what’s the rule?
- The rule is, it is not retroactive.
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Non-retroactivity of repeal of regulations or
rulings, and its exceptions
Revocation, modification of revenue of any rules and
regulations promulgated by the Sec. of Finance or CIR
shall not have retroactive effect if it will be prejudicial to
the taxpayer, except:
1) where the taxpayer deliberately misstates or omits
material facts from his return or in any document
required of him by the BIR;
2) where the facts subsequently gathered by the BIR
are materially different from the facts on which the
ruling is based;
3) where the tax payer acted in bad faith
Meaning, PROSPECTIVE ni siya. Especially if it is
prejudicial to the taxpayer pero in exceptional cases and
take note this came also in the BAR.
“THERE COULD BE RETROACTIVE REPEAL OR
APPLICATION OF A RULING OR A REGULATION IF THE
TAXPAYER DELIBERATELY MISSTATES OR OMITS
MATERIAL FACTS THE RETURN (and of course, kani na
return mao ni siya gi consider ni BIR in issuing the ruling)
OR WHEN THE FACTS SUBSEQUENTLY GATHERED BY
THE BIR ARE MATERIALLY DIFFERENT FROM THE FACTS
ON WHICH THE RULING IS BASED OR WHERE THERE IS
BAD FAITH.”
In short, ang purpose nimo of asking the ruling is para
gisahon sa kaugalingong mantika mao na ang term, si
BIR, kung masakpan ka, aw pwede i-cancel to ang
favorable ruling and i-apply retroactive ang consequence
which is to subject you to efficiency tax assessment,
interest, penalties and charges.
DECISIONS OF THE SC & CTA
Under the modified appeal procedure, the decision of a
division of the CTA may be appealed to the CTA en banc.
The decision of the CTA en banc may in turn be directly
appealed to the SC only on a question of law.
The ultimate decider is of course the SC but prior to going
to the SC, when we talk about assessment or tax
computation, you have to go first to the CTA (Court of Tax
TAXATION 1 / ATTY. KMA | Alonzo, Evangelista, Garcia, Gregorio, Nacua, Panerio, Taucan, Villa
Appeals). So, take note that under the modified appeal
procedure, the decision of a division of the CTA may be
appealed to the CTA en banc. Then, the decision of the
CTA en banc may in turn be directly appealed to the
Supreme Court only on questions of law because usually
the SC on “questions of fact” will rely on the findings of
the CTA.
So, ang usual path nganha sa appeal nimo is, kung
assessment ang gi hisgotan nato, which means
computations of tax liability, you don’t agree to the
assessment. So, admin ka una, administration with the
BIR, if pildi ka you go to CTA in division, if pildi you go to
CTA en banc, if pildi you go to the SC.
Q: How about ruling?
A: Again, request for rulings does not involve an issue on
assessments but rather it involves a specific interpretation
of a provision in a tax law that is deemed applicable to
you as a taxpayer. So, if the ruling issued by the BIR is
adverse to you, your recourse is not to go to the CTA but
to the overseer or the supervisor of the BIR which is the
Secretary Department of Finance and if still adverse to
you, that’s when you go to the regular courts in
questioning the validity of propriety of their
interpretations.
SOURCES OF TAX LAWS
1. Constitution
2. Legislation / Statutes - includes PDs, Eos, tax
ordinances
3. Administrative IRR, ruling or opinions
4. Judicial Decisions
5. Tax treaties or agreements
In legislations/statues we currently have RA 424 amended
by RA 9337 and then RA 10907(*if I am not mistaken) as
amended by the TRAIN law and eventually ma amend na
sad na by the passage of the create bill into law. Again,
it’s national revenue code, codified na na and since
composed basically of previous legislations or previous
statutes. Mao na nga di maayo na magbasa lang ka sa
TRAIN law or magbasa lang ka RA 9337 because definitely
you will miss certain provisions thereof. Mao na kato gyud
codified version ang basahon nato as reference.
On top of the Tax Code, we have of course the Revenue
Rulings , the Revenue Regulations as guide on how the
BIR and the DOC implement the provisions of the law and
interpret the provision of the law.
We have the judicial decisions, primarily we refer to the
SC decisions but from time to time, I will be mentioning
CTA decisions also, just to give you a flavor on how the
CTA appreciates a particular issue involving tax
assessments. Of course we have tax treaties or
agreements. So I think that’s the end of our General
Principles of Taxation.
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