TAX1 – Midterm Reviewer
taxation which means that the higher the tax base,
I. General Principles of Taxation
a. Definition, Concept, and Purpose of Taxation
Definition
- Inherent power of the state or sovereign
- To impose burdens upon persons, property, or
rights within its jurisdiction
- For the purpose of raising revenues in order to
defray the legitimate expenditures of the
government.
Concept
-It is purely legislative.
Purpose
- Primary Purpose: Raise revenue to defray
legitimate business expenses of the government to
promote the general welfare and to protect its
citizens.
- Secondary Purposes (5) (SG-REP)
1. Special or Regulatory
- Taxes may be levied with a regulatory purpose to
provide means for the rehabilitation and
stabilization of a threatened industry
- Provided, the same is affected with public interest
as to be within the police power of the state.
- Example: In Lutz v. Araneta, tax is levied with a
regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened sugar
industry.
2. Promotion of General Welfare
3. Reduction of Social Inequity
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- The Philippines adopts the progressive system of
the higher the tax one must pay.
- This system aims to reduce the social inequity by
preventing the concentration of wealth in the hands
of few individuals.
4. Encourage Economic Growth
- Tax also covers the grant of tax exemptions and
reliefs in order to encourage investments here in
the Philippines.
- With more investments coming in because of
attractive tax incentive package, jobs are created –
this increases the purchasing power of workers
which promotes the country’s overall economic
growth.
- Foreign corporations coming to the Philippines to
avail of the said package have the same effect.
5. Protectionism
- Taxation also serves for the imposition of
emergency measures, including tariffs, to protect
domestic industries and producers from increased
imports which inflict or could inflict serious injury on
them.
- Example: Imposition of anti-dumping duty when
the price of the imported article is deliberately or
continually fixed at less than the fair market value
or cost of production and importation and would
cause or likely cause an injury to the concerned
industries.
b. Nature and Characteristics of Taxation
Nature- It is an attribute of sovereignty and is
legislative in character.
- Rationale for legislative character: The legislature
primarily lies the discretion to determine the nature
(kind), object (purpose), extent (rate), coverage
(subjects), and situs (place) of taxation.
Characteristics
-It is generally plenary and unlimited.
- It is inherent in the State.
2. Necessity Theory
c. Power of Taxation as distinguished from - It is a necessary burden to preserve the State’s
Police Power and Power of Eminent Domain sovereignty. (The Philippine Guaranty Co., Inc v.
CIR)

Taxation Police Eminent

Power Domain 3. Benefits-Protection Theory (Doctrine of
Purpose Raise revenue Promote Take private
to defray public welfare property for Symbiotic Relationship)
government through public use
expenditures regulations - The government, for its part, is expected to
Scope All persons, All persons, Only the respond in the form of tangible and intangible
property, and property, particular benefits intended to improve the lives of the people
rights privileges, property
and even comprehended and enhance their moral and material values.
rights
Basis Public Public Public -This symbiotic relationship is the rationale of
necessity necessity and necessity, taxation and should dispel the erroneous notion
the right of private that it is an arbitrary method of exaction by those in
the state to property taken
self- for public use the seat of power. (CIR v. Algue)
protection
and self-
preservation
Exaction No limit Limited to No exaction 4. Favorable Business Climate Theory
amount regulations
cost - Domestic corporations owe their corporate
Benefits No special or No direct Direct benefit existence and their privilege to do business to the
derived direct benefits benefits but a via just
government.
received but healthy compensation
the enjoyment economic
of the standard of
- It is therefore fair for the government to require
privileges of society or them to make a reasonable contribution to the
living in an “damnum public expenses. (Chamber of Real Estate v.
organized absque
society injuria” is
Romulo)
attained (i.e.,
loss or
damage
without injury) e. Principles of a Sound Tax System (3) (FAT)
Non- Inferior Superior Superior
impairment 1. Fiscal Adequacy
of contract
Exercising The State and The State The State, its - The taxes collected by the government must be
Authority its political and its political sufficient, adequate or at least approximate to
subdivisions political subdivisions, government expenditures. (Total revenues = total
(LGUs) subdivisions and may be
granted to expenses)
public service
companies or
public utilities
2. Administrative Feasibility

d. Theories and Bases of Taxation (4) (LN-BF) - The tax system should be capable of being
effectively administered and enforced with the least
1. Lifeblood Theory inconvenience to the taxpayer. Mere inconvenience
will not render a tax imposition invalid “except to the
- Without taxes, the government would be
extent that specific constitutional or statutory
paralyzed for lack of motive power to activate and
operate it. (CIR v. Algue)
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limitations are impaired.” (Diaz v. Secretary of
Finance)
- Example: In Diaz, the tollway operations VAT may
seem burdensome to implement but it is not
necessarily invalid unless some aspect of it is
shown to violate any law or the Constitution.
3. Theoretical Justice
- The tax burden should be proportional to the
taxpayer’s ability to pay.
- The rule of taxation shall be uniform and
equitable. (Section 28 [1], Article 6, 1987
Constitution)
Note: Only the violation of theoretical justice will
render the law invalid for being unconstitutional.
Fiscal adequacy and administrative feasibility will
not render the law invalid
f. Scope and Limitation of Taxation
i. Inherent Limitations (lecture)
1. Territoriality or Situs of Taxation
2. International comity
3. Exemption of government entities
from taxes
a. Commercial/Proprietary
Taxable
b. Governmental = Exempted
i. SSS = Exempted
ii. GSIS = Exempted
iii. LBP = Taxable
iv. Pag-ibig = Exempted
v. Philhealth = Exempted
vi. PNR = Taxable
1. BSP
i. Inherent Limitations (book)
- emanate from the very nature,
characteristics, and rationale of taxation.
1. Public Purpose
- They cannot be used purely for private
purposes or for the exclusive benefit of
private persons.
- Rationale: The power to tax exists for the
general welfare. Hence, implicit in its power
is the limitation that is should be used only
for a public purpose.
- The term “public purpose” is not defined. It
is an elastic concept that can be hammered
to fit modern standards. Jurisprudence
states that “public purpose” should be given
a broad interpretation.
- Heart of tax law.
Tests in Determining Public Purpose in
Taxation (DP) (2)
a. Duty Test – whether the thing to be
threatened by the appropriation of public
revenue is something which is the duty of
the State as a government.
b. Promotion of General Welfare Test –
whether the law providing the tax directly
promotes the welfare of the community in
= equal measure.
2. Inherently Legislative
- Taxation is purely legislative, and
Congress cannot delegate the power to
others.
- This arises from the doctrine of separation
of powers among the three (3) branches of
the government.
- However, delegation is not absolute and is
subject to the following exceptions:
a. Delegation to Local Government Units
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 - This is no longer by virtue of a valid
delegation of authority by Congress but
pursuant to a direct authority as conferred
by Section 5, Article 10 of the 1987
Constitution:
ARTICLE X
Local Government
General Provisions
xxx xxx xxx
SECTION 5. Each local government unit shall have the power
to create its own sources of revenues and to levy taxes, fees,
and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments.
xxx xxx xxx
-However, this power is still subject to guidelines
and limitations which Congress may provide which
must be consistent with the basic policy of local
autonomy.
Exception of the Exception
- For LGUs within the autonomous regions, their
power to tax remains to be a valid delegation of
authority of Congress. The Congress needs to
enact an organic act for each autonomous region
which act shall include the power to create its own
sources of revenue.
ARTICLE X
Local Government
xxx xxx
Autonomous Region
xxx xxx
SECTION 18. The Congress shall enact an organic act for
each autonomous region with the assistance and participation
of the regional consultative commission composed of
representatives appointed by the President from a list of
nominees from multisectoral bodies. The organic act shall
define the basic structure of government for the region
consisting of the executive department and legislative
assembly, both of which shall be elective and representative of
the constituent political units. The organic acts shall likewise
provide for special courts with personal, family, and property
law jurisdiction consistent with the provisions of this
Constitution and national laws.
The creation of the autonomous region shall be effective when
approved by majority of the votes cast by the constituent units
in a plebiscite called for the purpose, provided that only
provinces, cities, and geographic areas voting favorably in
such plebiscite shall be included in the autonomous region.
xxx xxx xxx
SECTION 20. Within its territorial jurisdiction and subject to the
provisions of this Constitution and national laws, the organic
act of autonomous regions shall provide for legislative powers
over:
(1) Administrative organization;
(2) Creation of sources of revenues;
(3) Ancestral domain and natural resources;
(4) Personal, family, and property relations;
(5) Regional urban and rural planning development;
(6) Economic, social, and tourism development;
(7) Educational policies;
(8) Preservation and development of the cultural heritage; and
(9) Such other matters as may be authorized by law for the
promotion of the general welfare of the people of the region.
xxx xxx xxx
b. Delegation to the President
- Section 28 (2), Article 6 of the 1987 Constitution
provides that Congress may, by law, authorize the
President to fix within specified limits, and subject
to such limitations and restrictions as it may
impose, tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or
imposts within the framework of the national
development program of the Government.
xxx
- Section 401 of the Tariff and Customs Code
establishes general standards with the exercise of
xxx the authority delegated by that provision to the
President must be consistent: that authority must
be exercised in “the interest of national economy,
general welfare and/or national security.”
- Requisites (Sec. 401):
1. Public hearing
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2. National Economic and Development Authority
(NEDA) Recommendation
3. Territoriality
- Tax laws cannot operate beyond a State’s
- ABAKADA v. Executive Secretary: The SC territorial limits.
resolved the issue as to whether there is a valid
- However, a person may be taxed, even if he is
delegation of authority to the President in Sections
outside the taxing state, where there is between
4,5, and 6 of RA 9337 states:
him and the taxing state, a privity of relationship
“That the President, upon the recommendation of the Secretary justifying the levy.
of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied:
a. Situs of Taxation
(i) Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two and - Place or authority of taxation (CIR v. Marubeni)
four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP of the

previous year exceeds one and one-half percent (1 ½%).”
b. Situs of Different Taxes (4) (IP-EB)
1. Income Tax
The Supreme Court ruled: - Whether from sources within or without the
xxx xxx xxx Philippines is determined by the nationality,
residence of the taxpayer, and source of income.
Thus, it is the ministerial duty of the President to immediately
impose the 12% rate upon the existence of any of the - For income partly within and partly without the
conditions specified by Congress. This is a duty which cannot
be evaded by the President. Inasmuch as the law specifically Philippines, it is allocated to sources within or
uses the word shall, the exercise of discretion by the President without the Philippines.
does not come into play. It is a clear directive to impose the
12% VAT rate when the specified conditions are present. The
time of taking into effect of the 12% VAT rate is based on the
happening of a certain specified contingency, or upon the 2. Property Taxes (2) (RP)
ascertainment of certain facts or conditions by a person or
body other than the legislature itself. a. Taxes on Real Property

xxx xxx xxx - Lex loci rei sitae or the law of the place where the
property is situated.

c. Delegation of Administrative Agencies

b. Taxes on Personal Property (2) (TI)
- In these cases, there really is no delegation such
as power to value property, power to assess and i. Tangible – physical location of personal
collect taxes, and power to perform details of although the owner resides in another
computation, appraisement, or adjustments. jurisdiction.

- For the delegation to be constitutionally valid, the

law must be complete in itself and must set forth
ii. Intangible – location of owner. This
sufficient standards.
follows mobilia sequuntur personam or
- The BIR is the primary government agency in movables follow the owner’s domicile.
charge in the collection of taxes imposed under the
Tax Code. Tax collection is not legislative in nature
and thus, can be properly delegated to an 3. Estate and Donor’s Tax
administrative agency like the BIR.

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- Determined by the nationality and residence of the
decedent or donor
- As well as the place where the property is located
and supreme and the State can impose tax on
almost everything within its jurisdiction.
- The State can tax itself since there is no
prohibition in the Constitution for such act.
However, Congress chooses not to impose tax on
those performing governmental functions.

4. Business Tax (3) (RPV) Agencies performing Agencies performing

governmental functions proprietary functions
- The place where the act or business is performed General rule: Tax- General rule: Subject
or occupation is engaged in. exempt to tax
a. Real Property Sale – Place or location of real Exception: Expressly Exception: Expressly
property. taxed exempted

b. Personal Property Sale – Place of sale.
c. VAT – Where the goods, property or services are
destined, used, or consumed.
4. International Comity
- Under this principle, the property or income of a
state or foreign government may not be taxed by
another state where the said income is derived or
sourced or the property is located.
- Section 2, Article 2, 1987 Constitution:
ARTICLE II
- GOCCs, agency and instrumentality may be
distinguished as follows:
a. GOCC
- Any agency organized as a stock or non-stock
corporation, vested with functions relating to public
needs whether governmental or proprietary in
nature, and
- owned by the government directly or through its
instrumentalities either wholly or where applicable
as in the case of stock corporations
- to the extent of at least 51% of its capital stock
(Section 2 [13], 1987 Administrative Code)

Declaration of Principles and State Policies b. Agency

Principles - Any of the various units of the government,
including a department, bureau, office,
xxx xxx xxx
instrumentality, or GOCC, or a local government or
SECTION 2. The Philippines renounces war as an instrument a distinct unit therein. (Section 2[4], 1987
of national policy, adopts the generally accepted principles of
Administrative Code)
international law as part of the law of the land and adheres to
the policy of peace, equality, justice, freedom, cooperation, and
amity with all nations.

xxx xxx xxx c. Instrumentality

5. Exemption of Government Entities, Agencies,
and Instrumentalities
a. National Government
- The taxing power of the State or the national
government is comprehensive, plenary, unlimited,
-Any agency of the National Government, not
integrated within the department framework vested
within special functions or jurisdiction by law,
- endowed with some if not all corporate powers,
administering special funds, and enjoying
operational autonomy, usually through a charter.

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- This includes regulatory agencies, chartered
institutions, and GOCCs. (Section 2[10], 1987
Administrative Code).
- Section 27 (C), NIRC -
- General Rule: All GOCCs, agencies,
instrumentalities are subject to income tax
- Exception:
i. GSIS
ii. SSS
iii. PHIC (Philippine Health Insurance
Corporation)
iv. PCSO*
v. Local water districts**
vi. Government educational institution***
*PCSO now subject to income tax as of January 1, 2018 per
RA 10963 or the Tax Reform for Acceleration and Inclusion
(TRAIN) Law.
**RA 10026 (March 11, 2010) amended Section 27 (C) to add
local water districts as one of the exceptions.
*** Per Section 30 (I), NIRC. This is also exempted from VAT
(Section 109 [H], NIRC)
b. Local Government
- General Rule: Local government cannot impose
tax, fee, or charge to the national government and
its properties due to the “supremacy” of the national
government over local government. (Section 133
[o]) of RA 7160 or the Local Government Code)
- Exception: LGUs are allowed to fix rates for the
operation of public utilities owned, operated, and
maintained by the LGUs within their jurisdiction.
- Example of GOCC: Philippine Amusement and
Gaming Corporation (PAGCOR) [Basco v.
PAGCOR]
- MIAA v. CA: Manila International Airport Authority
is not a GOCC.
ii. Constitutional Limitations
-Taxation is an inherent power of the State that
does not need a constitution or a law to be
exercised.
- Constitutional provisions do not give rise to the
power to tax but merely impose limitations on what
or
would otherwise be an invincible power. (Churchill
v. Concepcion)
1. Section 1, Article 3
SECTION 1. No person shall be deprived of life, liberty, or
property without due process of law, nor shall any person be
denied the equal protection of the laws.
a. Due Process Clause
Two (2) Aspects of Due Process (2) (SP)
i. Substantive due process
- Enactment of tax law must be within the powers of
Congress granted by the Constitution.
- The tax law must be valid before any right may
arise or liability is imposed.
ii. Procedural due process
-Right to be informed and heard.
- The taxpayer must be duly informed of the nature
and basis of the assessment, and must be given an
opportunity to respond or challenge the
assessment.
- This rule also applies in local tax, real property
tax, and tariff and customs duty assessments.
b. Equal Protection Clause
- Persons similarly situated should be treated alike
as to rights and obligations.
- This clause does not guarantee absolute equality,
but only equality among equals.
- Thus, a different treatment is allowed when there
is a substantial distinction among the taxpayers.
Essential requisites for a valid classification (4)
(SG-NA) [People v. Cayat]
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a. rest on substantial distinctions;
b. be germane to the purpose of the law;
c. not limited to existing conditions only; and
d. applies equally to all members of the same class.
2. Section 5, Article 3
SECTION 5. No law shall be made respecting an
establishment of religion, or prohibiting the free exercise
thereof. The free exercise and enjoyment of religious
profession and worship, without discrimination or preference,
shall forever be allowed. No religious test shall be required for
the exercise of civil or political rights.
-This provision contains two (2) clauses:
(1) the non-establishment clause; and
(2) the free-exercise clause. (This is the basis of tax
exemptions granted to religious institutions)
Lecture:
Old case law – Sale at cost sans profit. Mormons
selling bible for P5.00 each violative of the free-
exercise clause.
New case law – P2500 each at a profit. Not
violative.
3. Section 10, Article 3
No law impairing the obligation of contracts shall be passed.
-The non-impairment clause applies to the power of
taxation but not to police power and power of
eminent domain. This is what it means by power of
taxation being inferior to the non-impairment
clause.
- However, it must be emphasized that the non-
impairment clause only covers obligations of
contract. If obligation arises from other sources, like
law, this limitation does not apply.
- If a tax exemption is contractual, a law revoking
such exemption impaired the obligation of contract.
However, a tax exemption provided under a
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franchise may be revoked by Congress because no
franchise or right be granted except under the
condition that it shall be subject to amendment,
alteration, or repeal by Congress when the
common good so requires. (Sec. 11, Art. 12, 1987
Constitution)
4. Section 20, Article 3
No person shall be imprisoned for debt or non-payment of a
poll tax.
- Poll tax is 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. (e.g., community tax or cedula)
5. Section 24, Article 6
SECTION 24. All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application,
and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with
amendments.
-Tolentino v. Secretary of Finance (origin of E-VAT
case)
“To begin with, it is not the law — but the revenue bill — which
is required by the Constitution to "originate exclusively" in the
House of Representatives. It is important to emphasize this,
because a bill originating in the House may undergo such
extensive changes in the Senate that the result may be a
rewriting of the whole…It would be to violate the coequality of
legislative power of the two houses of Congress and in fact
make the House superior to the Senate.
xxx xxx xxx
Indeed, what the Constitution simply means is that the initiative
for filing revenue, tariff, or tax bills, bills authorizing an increase
of the public debt, private bills and bills of local application
must come from the House of Representatives on the theory
that, elected as they are from the districts, the members of the
House can be expected to be more sensitive to the local needs
and problems. On the other hand, the senators, who are
elected at large, are expected to approach the same problems
from the national perspective. Both views are thereby made to
bear on the enactment of such laws.”
6. Section 28 (1), Article 6
SECTION 28. (1) The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system of
taxation.
- Uniformity in taxation means that all taxable
articles or kinds of property of the same classes
shall be taxed at the same rate.
- Equality and uniformity of taxation means that all
taxable articles or kinds of property of the same
class be taxed at the same rate.
- Lecture: Equitable means the taxpayer’s ability to
pay.
- With respect to progressive system, a tax is
progressive when the rate increases as the tax
base increases. This simply means that “direct
taxes are to be preferred and as much as possible,
indirect taxes should be minimized.”
7. Section 28 (2), Article 6
SECTION 28.
xxx xxx xxx
(2) The Congress may, by law, authorize the President to fix
within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development
program of the Government.
xxx xxx xxx
-This provision is also known as the Flexible Tariff
Clause under the Tariff and Customs Code.
- Section 401 of the Tariff and Customs Code
establishes general standards with which the
exercise of the authority delegated by that provision
to the President must be consistent: that authority
must be exercised in “the interest of national
economy, general welfare and/or national security”.
8. Section 28 (3), Article 6
SECTION 28.
xxx xxx xxx
(3) Charitable institutions, churches and parsonages or
convents appurtenant thereto, mosques, non-profit cemeteries,
and all lands, buildings, and improvements, actually, directly,
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and exclusively used for religious, charitable, or educational
purposes shall be exempt from taxation.
xxx xxx xxx
- Abra Valley College v. Aquino:
- A two-story building owned by an educational
institution became subject of the tax occupied by a
private corporation for commercial purpose, while
the second floor was occupied by the Director of
Abra Valley College and his family for residential
purposes.
- Adopting its previous ruling in Jose Herrera, the
SC held that the second floor is exempt from real
property tax its use being incidental and reasonably
necessary for the accomplishment of the main
purposes of an educational institution.
- The first floor, however, cannot by any stretch of
the imagination be considered incidental to the
purpose of education.
- Thus, only the first floor became subject to real
property tax.
- “Exclusive” is defined as possessed and enjoyed
to the exclusion of others; debarred from
participation or enjoyment; and
- “Exclusively” is defined, “in a manner to exclude;
as enjoying a privilege exclusively.”
- If real property is used for one or more
commercial purposes, it is not exclusively used for
the exempted purposes but is subject to taxation.
9. Section 28 (4), Article 6
SECTION 28.
xxx xxx xxx
(4) No law granting any tax exemption shall be passed without
the concurrence of a majority of all the Members of the
Congress.
-This pertains to the total membership of the
Congress and not simply the majority of the quorum
in a given business day.
- 24 Senators, 304 Representatives
10. Section 5, Article 10
SECTION 5. Each local government unit shall have the power
to create its own sources of revenues and to levy taxes, fees,
and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments.
11. Section 4(3)(4), Article 14.
xxx xxx xxx
SECTION 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.
(4) Subject to conditions prescribed by law, all grants,
endowments, donations, or contributions used actually,
directly, and exclusively for educational purposes shall be
exempt from tax.
*Lecture: income tax
- Section 27 (B) of the Tax Code states that
“proprietary educational institutions which are
nonprofit shall pay a tax of 10% on their taxable
income provided, that if the gross income from
unrelated trade, business or other activity exceeds
50% of the total gross income derived by such
educational institutions [the regular corporate
income tax of thirty percent] shall be imposed on
the entire taxable income.”
g. Stages or Aspects of Taxation (4) (LA-PR)
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a. Levy – determination of the persons, property, or
excises to be taxed, the sum or sums to be raised,
the due date thereof, and the time and manner of
levying and collecting taxes.
b. Assessment and Collection – The manner and
enforcement of the obligation on the part of those
who are taxed.
c. Payment – the act of compliance by the
taxpayer, including such options, schemes, or
remedies as may be legally available.
d. Refund – the recovery of any tax alleged to have
been erroneously or illegally assessed or collected,
or of any penalty claimed to have been collected
without authority, or of any sum alleged to have
been excessively, or in any manner wrongfully
collected.
h. Definition, Nature and Characteristics of
Taxes
Definition and Nature
- Taxes are enforced proportional contributions
exacted by the State from persons and properties
pursuant to its sovereignty
- in order to support the Government and
- to defray all the public needs.
Elements (3) (ESS)
a. it is an enhanced proportional contribution from
persons and properties;
b. it is imposed by the State by virtue of its
sovereignty; and
c. it is levied for the support of the Government.
(Mandanas v. Executive Secretary)
Lecture: Characteristics (5) (EL-PPP)
1. Enforced contribution;
2. Legal obligation;
3. Personal liability; government functions.
- Generally, unlimited as to
4. Payable in money; and amount.
5. Proportional.
- Imposed on persons,
property and to exercise a
privilege.
- Failure to pay does not
necessarily make the act or
business illegal.
- Penalty for nonpayment:
surcharges or imprisonment
i. Requisites of a Valid Tax (5) (PUJ-DI) (except poll tax)
a. It should be for a public purpose;
b. Uniform;
Taxes
c. Either the person or property taxed within the - Levied not only on land
- Imposed regardless of
jurisdiction of the taxing authority; public improvements
d. Assessment and collection be in consonance
with the due process clause; and - Contribution of a taxpayer
for the support of the
e. The tax must not infringe on the inherent and government.
constitutional limitations of the power of taxation. - General application both
as to time and place
- Should not unreasonably
exceed the expenses of
issuing the license and of
supervision.
- Imposed only on the right
to exercise a privilege.
- Failure to pay makes the
act or business illegal
Special Assessment
- Levied only on land
- Imposed because of an
increase in value of land
benefited by public
improvement.
- Contribution of a person for
the construction of a public
improvement.
- Exceptional both as to time
and locality

Taxes Debt
j. Tax as distinguished form other forms of
- Based on Laws - Generally based on
exaction (from PDF) Contract
- Generally, cannot be - Assignable
Taxes Tariff assigned
-All embracing term to - Kind of tax imposed on -Cannot be a subject of set -May be paid in kind
include various kinds of articles which are traded off or compensation
enforced contributions upon internationally (exported -A person cannot be - Can be a subject of set off
person for the attainment of from or imported to a imprisoned for non-payment or compensation
public purposes. country). Custom duties are of debt (except when from a
actually taxes but the latter crime)
is broader in scope. -Governed by the special -Governed by the ordinary
prescriptive periods periods of prescription
provided for in the NIRC.
Taxes Toll -Does not draw interest -Draws interest when it is so
- Paid for the support of the - Paid for the use of except only when delinquent stipulated or where there is
government. another’s property. default
- Demand of sovereignty - Demand of proprietorship -Imposed only by public - Can be imposed by private
- Generally, no limit on the - Amount paid depends authority individual
amount collected as long as upon the cost of
it is not excessive, construction or maintenance
unreasonable or of the public improvement Taxes Penalty
confiscatory. used. - Violation of tax laws may - Any sanction imposed as a
- Imposed only by the - Imposed by the give rise to imposition of punishment for violation of
government. government or by private penalty law or acts deemed injurious
individuals or entities. - Generally intended to raise - Designed to regulate
revenue conduct
- May be imposed only by - May be imposed by the
Taxes License and Regulatory the government government or private
Fee individuals or entities
- Imposed under the taxing - Levied under the police -Cannot be a subject of set -Can be a subject of set off
power of the state for power of the state. off or compensation or compensation (see Art.
purpose of revenue. 1279, Civil Code)
-Forced contributions for the - Exacted primarily to
purpose of maintaining regulate certain

11
k. Kinds of Taxes
1. As to object (3) (PPE)
a. Personal, Capitation, or Poll Tax
- Tax of a fixed amount imposed on person residing
within a specified territory, whether citizens or not.
- This is without regard to their property or the
occupation or business in which they may be
engaged.
b. Property Tax – tax imposed on property, real or
personal, in proportion to its value or in accordance
with some other reasonable method of
apportionment.
c. Excise Tax – a charge imposed upon the
performance of an act, the enjoyment of privilege or
the engagement in an occupation.
2. As to graduation (3) (PRP)
a. Progressive – tax rate or tax amount increases
as the income or earning amount to be taxed
increases. (↑rate = ↑income)
b. Regressive – tax rate decreases as the amount
income to be taxed increases. (↓rate = ↑income)
c. Proportionate – tax rate based on a fixed
percentage of the amount of the property receipts
or other basis to be taxed. (rate: amount)
3. As to tax rates (3) (SAM)
a. Specific Tax – tax computation or tax rates
already provided by law.
b. Ad valorem – tax upon the value of the article or
thing subject to taxation.
12
c. Mixed – tax rates are partly specific and partly ad
valorem. (law + value)
4. As to burden or incidence (2) (DI)
a. Direct Tax – it is a tax which the taxpayer is
directly or primarily liable and which he or she
cannot shift to another.
b. Indirect Tax – demanded for a person in the
expectation and intention that he or she shall
indemnify himself or herself at the expense of
another, falling finally upon the ultimate purchaser
or consumer. This can be shifted to another.
5. As to purpose (2) (GS)
a. General or fiscal – imposed for the purpose of
raising public funds for the service of the
government.
b. Special, regulatory or sumptuary – imposed
primarily for the regulation of useful or non-useful
occupation or enterprises and secondarily only for
the purpose of raising public funds.
6. As to scope or authority to impose (2) (NL)
a. National tax – imposed by the national
government
b. Local tax – imposed by the municipal
corporations or local government units.
l. Situs of Taxation
- CIR v. Marubeni: Place of taxation or place or
authority that has the right to impose and collect
taxes.
m. Construction and Interpretation of
i. Tax Laws
- Tax laws should be interpreted liberally in favor of
the taxpayer and strictly against the Government,
except in the matter of tax exemptions, in which
case the rule is reversed. (CIR v. Suyoc)

13
- 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.
ii. Tax Exemption and Exclusion
- Tax exemptions must be construed strictly against
the taxpayer and liberally in favor of the taxing
authority; and he who claims an exemption must be
able to justify his claim by the clearest grant of
organic or statute law. An exemption from the
common burden cannot be permitted to exist upon
vague implications. (CIR v. General Foods)
- PLDT v. City of Davao: Exemption is an immunity
or privilege; it is freedom from a charge or burden
to which others are subjected.
- Lecture: It is not a right.
- Burden of proof is on party claiming the same.
- Exception of the Exception: The exemption may
thus be withdrawn at the pleasure of the taxing
authority.
- Exception of the Exception of the Exception: The
exemption was granted to private parties based on
material consideration of a mutual nature, which
then becomes contractual and is thus covered by
the non-impairment clause of the Constitution.
(Mactan Cebu International Airport Authority v.
Marcos)
- Taxation is legislative in nature, it is only
Congress which can grant tax exemption under the
Constitution.
iii. Tax Rules and Regulations (QUAMTO, 2017)
The construction placed by the office charged with
implementing and enforcing the provisions of a
Code should be given controlling weight unless
such interpretation is clearly erroneous.
It is of course axiomatic that a rule or regulation
must bear upon, and be consistent with, the
14
provisions of the enabling statute if such rule or
regulation is to be valid. In case of conflict between
a statute and an administrative order, the former
must prevail. To be valid, an administrative rule or
regulation must conform, not contradict, the
provisions of the enabling law. An implementing
rule or regulation cannot modify, expand, or
subtract from the law it is intended to implement.
Any rule that is not consistent with the statute itself
is null and void (Fort Bonifacio Development
Corporation v. CIR, G.R. No. 175707, November
19, 2014).
Revenue Memorandum Circulars (RMCs) must not
override, supplant, or modify the law, but must
remain consistent and in harmony with the law they
seek to apply and implement (CIR v. SM Prime
Holdings, Inc., 613 SCRA 774, 2010).
Admittedly the government is not estopped from
collecting taxes legally due because of mistakes or
errors of its agents. But like other principles of law,
this admits of exceptions in the interest of justice
and fair play, as where injustice will result to the
taxpayer (CIR v. CA, G.R. No. 117982, February 6,
1997).
iv. Penal provisions of tax laws
- In criminal cases, statutes of limitations are acts of
grace, a surrendering by the sovereign of its right to
prosecute. They receive strict construction in favor
of the Government and limitations in such cases
will not be presumed in the absence of clear
legislation (Lim v. CA, G.R. No. 48134-37, October
18, 1990).
v. Nonretroactive application to taxpayers
- Section 246, Tax Code
SEC. 246. Non- Retroactivity of Rulings. - Any revocation,
modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or any
of the rulings or circulars promulgated by the Commissioner
shall not be given retroactive application if the revocation,
modification or reversal will be prejudicial to the taxpayers,
except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material
facts from his return or any document required of him by the
Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on
which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
n. Sources of Tax Laws (from PDF)
1. 1987 Constitution
2. Laws
3. Treaties
4. Administrative Material
5. Case Law
6. Treatises
7. Periodicals
8. Local Government Tax Law
o. Doctrines in Taxation
i. Prospectivity of Tax Laws
- As a rule, laws have no retroactive effect, unless
the contrary is provided. (Article 4, New Civil Code)
- Lecture: Tax laws are generally prospective
unless the same is favorable to the taxpayer and is
curative/remedial in nature. Otherwise, substantive
due process is violated. (in re Sec. 246 of NIRC)
ii. Imprescriptibility of Taxes
- Taxes are imprescriptible except when provided
otherwise by the tax law itself. Different tax laws
such as the NIRC, the Tariff and Customs Code,
and the Local Government Code provided for the
different rules with respect to prescription of
assessment and collection of taxes.
- The prescriptive period of assessment and
collection of taxes are laid down in Sections 203
and 222 of the NIRC.
- Lecture on purpose of prescriptive period:
Expedite collection and speed up process as well
as efficient and effective BIR collection.
15
iii. Double taxation
- CIR v. Bank of Commerce: Double taxation
means taxing the same property twice when it
should be taxed only once; that is, “taxing the same
person twice by the same jurisdiction for the same
thing.” It is obnoxious when it should be but once.
Otherwise described as “direct duplicate taxation,”
the two taxes must be imposed on the same
subject matter, for the same purpose, by the same
taxing authority, within the same jurisdiction, during
the same taxing period and the taxes must be of
the same kind or character.
- Villanueva v. City of Iloilo: There is no
constitutional prohibition against double taxation in
the Philippines. It is something not favored, but is
permissible, provided some other constitutional
requirement is not thereby violated, such as the
requirement that taxes must be uniform.
iv. Power to Tax involves Power to Destroy
- Roxas v. CTA: The power of taxation is
sometimes called the power to destroy. Therefore,
it should be exercised with caution to minimize
injury to the proprietary rights of the taxpayer. It
must be exercised fairly, equally, and uniformly…
v. Escape from Taxation
1. Shifting of tax burden
- A direct tax is a tax where the impact and
incidence of taxation fall to one and the same
person because the burden of payment cannot be
shifted to another.
Example: income tax, estate tax, and donor’s tax.
- An indirect tax is a tax where impact of taxation is
on one person but the incidence of taxation is on
another person because the burden to pay the tax
is shifted to him.
Example: VAT and excise tax
2. Tax avoidance
- Tax-saving device within the means sanctioned by
law.
3. Tax evasion
- A scheme outside of those lawful means and
when availed of, it usually subjects the taxpayer to
further or additional civil or criminal liabilities.
Elements (3) (ESU)
a. Ends to be achieved
b. State of mind is in bad faith
c. Unlawful cause of action or failure of action
- CIR v. CA: There is no tax evasion if there is no
fraud in filing of the tax return.
vi. Exemption from Taxation – p.13
vii. Doctrine of Equitable Recoupment
- A case where a taxpayer has a claim for refund
but was not able to file a written claim due to the
lapse of the prescriptive period within which to
make a refund is allowed.
- Under this doctrine, the taxpayer is allowed to
credit such refund to his existing tax liability.
Recoupment is only allowed in common law
countries, not in the Philippines.
viii. Compensation and set-off
- Compensation is a civil law concept which takes
place when two persons, in their own right, are
creditors and debtors of each other. (Article 1278,
NCC)
- Compensation is a mode of extinguishing an
obligation.
Article 1279. In order that compensation may be proper, it is
necessary:
16
(1) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated
in due time to the debtor. (1196)
- Philex Mining Corp. v. CIR:
Settled is the rule that taxes cannot be subject to
compensation for the simple reason that the
government and the taxpayer are not creditors and
debtors of each other.
There is a material distinction between a tax and a
debt. Debts are due to the Government in its
corporate capacity, while taxes are due to the
Government in its sovereign capacity.
ix. Compromise and tax amnesty
- A compromise is a contract whereby the parties,
by making reciprocal concessions, avoid a litigation
or put an end to one already commenced. (Article
2028, New Civil Code)
- Compromise of tax cases is allowed considering
that it is not one of those prohibited to be
compromised under Article 2034 and 2035 of the
New Civil Code.
Article 2034. There may be a compromise upon the civil
liability arising from an offense; but such compromise shall not
extinguish the public action for the imposition of the legal
penalty. (1813)
Article 2035. No compromise upon the following questions
shall be valid:
(1) The civil status of persons;
(2) The validity of a marriage or a legal separation;
(3) Any ground for legal separation;
(4) Future support;
(5) The jurisdiction of courts;
(6) Future legitime. (1814a)

Under the Tax Code, the CIR is authorized to enter
into compromise of the civil and criminal aspect of
taxes. With respect to local taxes and real property
taxes, there is no specific provision in the Local
Government Code regarding compromise of these
taxes.
x. Taxpayer’s suit
1. Nature and concept
It is a case where the act complained of directly
involves the illegal disbursement of public funds
collected through taxation.
In the case of Abaya v. Ebdane (515 SCRA 720),
the prevailing doctrine in the taxpayer’s suits is:
1. To allow the taxpayers to question contracts
entered into by the National Government or
government owned and controlled corporations
allegedly in contravention of law;
2. To allow the taxpayer to sue when there is a
claim that public funds are illegally disbursed or
public money is being deflected to any improper
purpose, or that there is a wastage of public funds
through the enforcement of an invalid or
unconstitutional law;
3. Significantly, a taxpayer need not be a party to
the contract to challenge its validity.
A taxpayer is allowed to sue where there is a claim
that public funds are illegally disbursed, or that
public money is being deflected to any improper
purpose, or that there is wastage of public funds
through the enforcement of an invalid or
unconstitutional law (Land Bank of the Philippines
v. Cacayuran, 696 SCRA 861, G.R. No. 191667,
April 17, 2013).
2. As distinguished from a citizen’s suit
The plaintiff in a taxpayer’s suit is in a different
category from the plaintiff in a citizen’s suit. In the
former, the plaintiff is affected by the expenditure of
public funds, while in the latter, he is but the mere
instrument of the public concern (David v.
17
Macapagal-Arroyo, 489 SCRA 160, G.R. No.
171409, May 3, 2006).
In the case of a taxpayer’s suit, plaintiff is allowed
to sue where there is a claim that public funds are
illegally disbursed, or that public money is being
deflected to any improper purpose, or that there is
a wastage of public funds through the enforcement
of an invalid or unconstitutional law (Francisco, Jr.
v. Nagmamalasakit na mga Manananggol ng mga
Manggagawang Pilipino, Inc., 415 SCRA 44, G.R.
No. 160262, November 10, 2003).
In a citizen’s suit, the interest of the petitioner
assailing the constitutionality of a statute must be
direct and personal. He must be able to show, not
only that the law or any government act is invalid,
but also that he sustained or is in imminent danger
of sustaining some direct injury as a result of its
enforcement, and not merely that he suffers
thereby in some indefinite way. It must appear that
the person complaining has been or is about to be
denied some right or privilege to which he is
lawfully entitled or that he is about to be subjected
to some burdens or penalties by reason of the
statute or act complained of (Francisco, Jr. v.
Nagmamalasakit na mga Manananggol ng mga
Manggagawang Pilipino, Inc., 415 SCRA 44, G.R.
No. 160262, November 10, 2003).
3. Requisites of a taxpayer’s suit challenging the
constitutionality of tax measure or act of taxing
authority.
a. Concept of locus standi
The party suing as a taxpayer must prove that he
has sufficient interest in preventing the illegal
expenditure of money raised by taxation. Thus,
taxpayers have been allowed to sue where there is
a claim that public funds are illegally disbursed or
that public money is being deflected to any
improper purpose, or that public funds are wasted
through the enforcement of an invalid or
unconstitutional law.
The taxpayer must establish that:
1. He has a personal and substantial interest in the
case; and
2. He has sustained or will sustain direct injury as a
result of its enforcement or that he stands to be
benefited or injured by the judgment in the case, or
is entitled to the avails of the suit (Public Interest
Center, Inc. v. Roxas, 513 SCRA 457, G.R. No.
125509, January 31, 2007).
NOTE: Being a mere procedural technicality, the
requirement of locus standi may be waived by the
Court in the exercise of its discretion (David v.
Macapagal-Arroyo, G.R. No. 171396, May 3,
2006).
b. Doctrine of transcendental importance
The following determines the importance of
transcendental importance:
1. The character of the funds or other assets
involved in the case;
2. The presence of a clear case of disregard of a
constitutional or statutory prohibition by the public
respondent agency or instrumentality of the
government;
3. The lack of any other party with a more direct
and specific interest in raising the questions being
raised (CREBA v. ERC, 624 SCRA 556, G.R. No.
174697, July 8, 2010).
In the exercise of its discretion, the Court may
brush aside these technicalities and take
cognizance of the petition considering the
(transcendental) importance to the public of the
case and in keeping with the duty to determine
whether the other branches of the government
have kept themselves within the limits of the
Constitution (Coconut Oil Refiners Association, Inc.
v. Torres, 465 SCRA 47, G.R. No. 132527, July 29,
2005).
c. Doctrine of ripeness of judicial determination
The constitutional question is ripe for adjudication
when the government’s act being challenged has a
direct adverse effect on the individual challenging it.
Personal injury or benefit must be shown for judicial
controversy to be ripe for judicial determination.
18
NOTE: However, where the public interest requires
the resolution of the constitutional issues raised by
the taxpayer, the doctrine of “ripe for judicial
determination” is within the Court’s discretion to set
aside (ABAKADA Guro Partylist v. Purisima, G.R.
No. 166715, August 14, 2008).
This doctrine is similar to that of exhaustion of
administrative remedies except that it applies to the
rule making and to administrative action which is
embodied neither in rules and regulations nor in
adjudication or final order.
It is applicable when the Interest of the plaintiff is
subjected to or imminently threatened with
substantial injury; if the statute is Self-executing;
when a party is immediately confronted with the
problem of complying or violating a statute and
there is a risk of Criminal penalties; or when plaintiff
is harmed by the Vagueness of the statute [VICS].
LECTURE NOTES:
- TRAIN Law progressive but not VAT and Estate
Tax
- SIN Tax = Constitutional
- If direct benefit private, unconstitutional.
- Government entities not exempt from taxes. In
fact, the Government can tax itself.
- Tax oppressiveness is relative per TRAIN Law.
- Situational: Pia Wurtzbach being tax exempt is
unconstitutional since the same is limited to existing
conditions only (i.e., only to Pia Wurtzbach). It is
constitutional if it applies to all Ms. Universe
winners and not just to Pia (i.e., applies equally to
the same class)
- A person may be imprisoned for non-payment of than EI
Reven
tax if due to tax evasion but not poll tax. ue =
(Small
Mediu
- Non-payment of tax moral turpitude for non- m
Entities
payment is inherently wrong. = 20
%) or
- Non-filing of tax return is likewise inherently wrong (Large
Entities
for moral turpitude. Rationale: Non-filing most likely = 25%)
no payment.
- Appropriation bill is a law for releasing for public - Retroactive even if oppressive as long as based
funds. on government error. Government never estopped.

- If there is no appropriation, there may be - Budget Preparation (BP) – President

reappropriation. However, this is dangerous to
- Budget Legislation (BL) – Enactment of the
economy. For example, if 2019 funds
General Appropriation Act
reappropriated in 2020, then there will be no
pandemic funds. - Budget Execution (BE) – President will execute
through DBM
- Uniformity/Equity pertains to taxpayer’s ability to
pay. (VAT = Senior’s discount = Age) - Budget Appropriation (BA)
- Taxability of real properties depend on purpose of
the same.
- Section 28 (3), Article 6, 1987 Constitution
Educati Real Income Value Donor’s
onal Property Tax Added Tax
Institutio Tax (Land (Incom Tax (Donation Lecture
ns (EI) Buildings e, (Reven to EI)
Improvem
ent) (Art.
Reven
ues,
ues)
(NIRC)
(NIRC) Situational:
6, Sec. Gains)
28, par. (Art. In the application of compensation of DPWH’s debt
3) 14,
Sec. 4, to BDO, the compensation may not be applied even
par. 3)
(NIRC)
if there is a debtor-creditor relationship between the
Non- Actually, ADE EI Donee – two.
stock directly, for EI = Revenu NSNPEI
Non- and Tax e and not
profit exclusivel Exempt (Tuition more than The rationale here is what if the P10 billion debt is
Educati
onal
y (ADE)
for EI =
Fee) =
Tax
30% for
administr
essential for the Philippines to survive?
Not
Institutio Tax Exempt ative
ADE
n Exempt
for EI =
purposes However, the effect will be the same since the
(NSNP = Tax
EI) Taxabl Other Exempt payment of debt shall undergo several stages (i.e.,
Not ADE e Revenu
(Baste)
for EI = (10%) e = from the BP the same will undergo BL before being
Taxable Taxable Not
NSNPEI transferred for BE until it reaches BA). Only after
and More
than 30%
the said process is complete may payment be
= Taxable made to the BDO
Profitabl ADE for EI EI Taxable
e EI = Tax Reven Revenu
Educati Exempt ue e - The Constitution should have flexibility regarding
onal
Institutio
more
than
(Tuition
Fee) =
this matter.
n (UE) Not ADE other Tax
for EI = revenu Exempt
Taxable e =
Taxabl
e Other
Revenu
(10%)
e =
Taxable
Other
revenu
e is
more

19