Utive years coupled with his intentional overstatement of deductions justifies the finding of

fraud. (Perez vs. C.T.A. and Coll., 103 Phil. 1167 [1958].)

No proceeds in tax evasion.

Evasion of the tax takes place only when there are no proceeds. If the tax is evaded in
part, there are no proceeds as to the part which is evaded. Evasion of taxation is tantamount,
fiscally speaking, to the absence of taxation. In all other forms of escape from taxation, the
government still receives its due. (Seligman, op. cit., pp. 7-8.)

Thus, where the tax due or imposed by law is P10,000 and the taxpayer paid only P6,000,
there is evasion only with respect to P4,000. As to this amount which is evaded, there are no
proceeds.

Meaning of tax avoidance.

Tax avoidance, often called tax planning, is the use by the taxpayer of legally permissible
alternative tax rates or methods of assessing taxable property or income, in order to avoid or
reduce tax liability. Here, the taxpayer uses tax saving device or means sanctioned or allowed by
law. So the law is not violated in any way.
Tax avoidance is also more politely called “tax minimization.”
EXAMPLES: The term may be extended to include situations where a person refrains
from engaging in some activity or enjoying some privilege in order to avoid the incidental
taxation (Sloan & Zurcher, Dictionary of Economics [1953], p. 315, cited in J.F. Rivera, pp. 274-
275.) or to lower his tax bracket for a taxable year.
A man may change his residence to avoid taxation or change the form of his property by
putting his money into non-taxable securities. (71 Am. Jur. 2d 347.)

Tax avoidance not punishable by law.

A taxpayer has the legal right to decrease the amount of what otherwise would be his
taxes or altogether avoid them by means which the law permits.
A man may, therefore, perform an act that he honestly believes to be sufficient to exempt
him from taxes. He does not necessarily commit fraud thereby even if the act is thereafter found
to be insufficient especially where there is no suppression of the facts. (Yutivo & Sons Hardware
Co. vs. C.T.A., 1 SCRA 160 [1961]; Delpher Trades Corp. vs. Intermediate Appellate Court, 157
SCRA 349 [1988].)
 While tax avoidance schemes are not prohibited, tax law cannot be circumvented in order
to avoid payment of just taxes.
EXAMPLES: Under the law (Sec. 176, NIRC.), time deposit is subject to documentary
stamp tax (DST). Having a fixed term with a higher interest rate and reduction of interest rate in
case of pretermination or withdrawal are essentially the features of a time deposit. On the other
hand, a regular savings deposit with a passbook which is withdrawable at any time is not subject
to DST. Thus, a bank cannot claim that a fixed saving deposit (FSD) evidenced by a passbook
but which have all the features of a time deposit is not subject to DST. To disguise its time
deposits as a regular savings deposits is a clear evasion of the rule of an equality and uniformity
of taxation. (see International Exchange Bank vs. Comm., 520 SCRA 688 [2007].)

Distinction between tax evasion

and tax avoidance.
Evasion should be applied to the escape from taxation accomplished by breaking the
letter of the tax law – deliberate omission to report a taxable item, for example.
Avoidance, on the other hand, covers escape accomplished by legal procedures or means
which may be contrary to the intent of the sponsors of the tax law but nevertheless do not violate
the letter of the law. Whereas the tax evader breaks the law, the tax avoider sidesteps it. (Schultz
& Harris, op. cit., p, 210.)
The now classic distinction between the two (2) terms was given by a U.S. Senator as
follows: “A man approaches a river which can be crossed by two bridges, one a toll bridge and
the other a free bridge. If he passes on the toll bridge and fails to pay the toll, this is tax evasion.
If, however, he crosses by way of the free bridge, this is tax avoidance.”
In both cases, the gain of the tax evader or tax avoider, is the government’s loss. Both
seek the same objective. i.e., avoiding taxes or a larger tax liability but the means by which such
goal is sought are different.

F. EXEMPTION FROM TAXATION

Meaning of exemption from taxation.
Exemption from taxation is the grant of immunity to particular persons or corporations or
to persons or corporations of a particular class from a tax which persons and corporations
generally within the same state or taxing district are obliged to pay. (51 Am. Jur. 503.)
It is an immunity or privilege; it is freedom from a financial charge or burden to which
others are subjected. (Greenfield vs. Meer, 77 Phil. 394 [1946].)
Nature of power to grant tax exemption.
(1) National Government. – Like the inherent power to tax, the power to exempt from
taxation is an attribute of sovereignty for the power to prescribe who or what property
shall be taxed implies the power to prescribe who or what property shall not be taxed.
It is inherent in the exercise of the power to tax that the sovereign state be free