PRINCIPLES OF TAXATION

FUNDAMENTAL PRINCIPLES OF TAXATION

Definition:
Taxation – is the process or means by which the sovereign, through its lawmaking body, raises income to defray the necessary
expenses of the government.

Taxation
1. As a power – refers to the inherent power of the state to demand enforced contribution for public purpose to support the
government.
2. As a process – the legislative act of laying a tax to raise income for the government to defray its necessary expenses
3. As a mode of cost allocation – taxation is a means of allocating government burden to the people

Purpose of Taxation
1. Primary – to raise revenue
2. Secondary
a. Regulatory
b. Compensatory

According to Purpose:
1. Fiscal/General/Revenue/Primary Levied without a specific or pre-determined purpose. Tax imposed solely
Purpose for the general purpose of the government, i.e., to raise revenue for
government purposes (e.g. income tax, donor’s tax and estate tax)
2. Tax imposed for specific purpose, i.e, to achieve some social or economic
Regulatory/Special/Sumptuary/Secondary goals irrespective of whether revenue is actually raised or not (e.g. tariff
Purpose and certain duties on imports)

A. Primary Purpose- To raise revenue/funds to defray the necessary expenses of the government (also called Revenue
/Fiscal Purpose).

Examples of taxes imposed for raising revenues are income and business taxes.

B. Secondary Purpose- As a tool for general, social and economic welfare (also called
Regulatory/Sumptuary/Compensatory Purpose).
Compensatory purposes Sumptuary or regulatory purposes
1. To reduce excessive inequalities of wealth. 1. To implement the police power of the state to
2. To maintain high level of employment. promote the general welfare.
3. To control inflation.

Examples of taxes imposed for regulation:

1. Excise taxes for sin products such as cigarettes and alcohols
2. Amusement taxes for amusement places such as night and day clubs, cockpits and race tracks

Examples of means of attaining some social or economic objectives through taxation:

1. Increasing taxes in periods of prosperity to curb spending power and halt inflation
2. Granting tax incentives to promote new/pioneer industries and encourage growth of local industries.

Impact of Taxes in Nation-Building

Taxes are use to support government in nation-building. It is levied for public purpose such as:
1. Construction of roads and bridges
2. Pensions to retired government employees and their widows and children.
3. Assistance to victims of calamities.
4. Social welfare and health projects.

How exercised:
- Legislation of laws by Congress and tax ordinances by the Local Sangguanian
- Tax collection by the administrative branch of the government

Scope of the Power of Taxation

Taxation is supreme, comprehensive, unlimited and plenary. It includes the power to destroy

Comprehensive As it covers persons, businesses, activities, professions, rights and privileges.

Unlimited In the absence of limitations prescribed by law or the constitution, the power to tax is
unlimited and comprehensive. Its force is so searching to the extent that the courts scarcely
venture to declare that it is subject to any restrictions.
Plenary As it is complete; BIR may avail of certain remedies to ensure collection of taxes.
Supreme In so far as the selection of the subject of taxation.

Nature of Taxation
a. Plenary – full and complete in all respect
b. Comprehensive – it covers persons, businesses, activities, professions, rights and privileges.
c. Supreme – it is supreme ONLY insofar as the selection of the subject of taxation is concerned
d. Not Absolute – it is subject to limitations

Discretion of the Taxing Power- this extends to:

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1. amount or rate of the tax 5. situs of taxation
2. kinds of tax to be collected 6. method of collection
3. apportionment of the tax 7. purposes for its levy, provided for public purpose
4. the person, property and excises to be taxed, provided within it jurisdiction

Objects of Taxation
1. businesses 5. acts
2. interests 6. persons
3. transactions 7. properties
4. rights 8. privileges

Aspects of Taxation
1. Levy – the imposition or making of tax laws
2. Assessment – similar to audit
3. Collection – enforcement of tax
Note:
a. Levy is often called as tax legislation.
b. Assessment and collection are collectively termed as tax administration.
c. Levy comprise the impact of taxation, while assessment and tax collection comprise the incidence of taxation.
d. An impact of taxation is a point on which tax is originally imposed.
e. An incident of taxation is a point on which the tax burden finally rests or settles down.

Phases of Stages of Taxation

a. Levy or Imposition Impact of taxation Aspects of
b. Assessment of tax
Taxation
c. Collection of the tax Incidence of Taxation
- these all comprise the taxation system

Levy or imposition
This process involves the enactment of a tax law by Congress and is called impact of taxation. It is also referred to as the
legislative act in taxation.

Congress is composed of two bodies:

1. The House of Representative, and
2. The Senate

As mandated by the Constitution, tax bills must originate from the House of Representative. Each may, however, have their own
versions of a proposed law which is approved by both bodies, but tax bills cannot originate exclusively from the Senate.

Matters of legislative discretion in the exercise of taxation

1. Determining the object of taxation
2. Setting the tax rate or amount to be collected
3. Determining the purpose by the levy which must be public use
4. Kind of tax to be imposed
5. Apportionment of the tax between the national and local government
6. Situs of taxation
7. Method of collection

Assessment and Collection

The tax law is implemented by the administrative branch of the government. Implementation involves assessment or the
determination of the tax liabilities of taxpayers and collection. This stage is referred to as incidence of taxation of the
administrative act of taxation. This process involves the act of administration and implementation of tax laws by the executive
through its administrative agencies such as the Bureau of Internal revenue or Bureau of Customs.

1. Levying (Legislative Function)

2. Assessment (Executive Function)

3. Collection (Executive Function)

4) Payment – an incidence of taxation. This is the compliance phase. (This process involves the act of compliance by the taxpayer
in contributing his share to pay the expenses of the government.)

The impact of taxation corresponds to the imposition of the tax, shifting refers to transfer of tax and incidence consist of the
payment of tax.

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Note:

How the Philippine Government Is Organized?

The Philippines is a republic with a presidential form of government wherein power is equally divided among its three branches:
executive, legislative, and judicial.

One basic corollary in a presidential system of government is

the principle of separation of powers wherein legislation
belongs to Congress, execution to the Executive, and
settlement of legal controversies to the Judiciary.
• The Legislative branch is authorized to make
laws, alter, and repeal them through the power
vested in the Philippine Congress. This institution is
divided into the Senate and the House of
Representatives.
• The Executive branch carries out laws. It is
composed of the President and the Vice President
who are elected by direct popular vote and serve a
term of six years. The Constitution grants the
President authority to appoint his Cabinet. These
departments form a large portion of the country’s
bureaucracy.
• The Judicial branch evaluates laws. It holds the
power to settle controversies involving rights that
are legally demandable and enforceable. This
branch determines whether or not there has been a
grave abuse of discretion amounting to lack or
excess of jurisdiction on the part and
instrumentality of the government. It is made up of
a Supreme Court and lower courts.

Each branch of government can change acts of the other branches as follows:
• The President can veto laws passed by Congress.
• Congress confirms or rejects the President's appointments and can remove the President from office in exceptional
circumstances.
• The Justices of the Supreme Court, who can overturn unconstitutional laws, are appointed by the President and
confirmed by the Senate.

The Philippine government seeks to act in the best interests of its citizens through this system of checks and balances.
The Constitution expressly grants the Supreme Court the power of Judicial Review as the power to declare a treaty, international
or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance or regulation unconstitutional.

Legislative Department

The Legislative Branch enacts legislation, confirms or rejects Presidential appointments, and has the authority to declare war.
This branch includes Congress (the Senate and House of Representatives) and several agencies that provide support services to
Congress.
• Senate – The Senate shall be composed of twenty-four Senators who shall be elected at large by the qualified voters of
the Philippines, as may be provided by law.
• House of Representatives – The House of Representatives shall be composed of not more than two hundred and fifty
members, unless otherwise fixed by law, who shall be elected from legislative districts apportioned among the
provinces, cities, and the Metropolitan Manila area in accordance with the number of their respective inhabitants, and
on the basis of a uniform and progressive ratio, and those who, as provided by law, shall be elected through a party-list
system of registered national, regional, and sectoral parties or organizations.

The party-list representatives shall constitute twenty per cent of the total number of representatives including those under the
party list. For three consecutive terms after the ratification of this Constitution, one-half of the seats allocated to party-list
representatives shall be filled, as provided by law, by selection or election from the labor, peasant, urban poor, indigenous
cultural communities, women, youth, and such other sectors as may be provided by law, except the religious sector.

Executive Department

The executive branch carries out and enforces laws. It includes the President, Vice President, the Cabinet, executive
departments, independent agencies, and other boards, commissions, and committees.
Key roles of the executive branch include:
• President – The President leads the country. He/she is the head of state, leader of the national government, and
Commander in Chief of all armed forces of the Philippines. The President serves a six-year term and cannot be re-
elected.
• Vice President – The Vice President supports the President. If the President is unable to serve, the Vice President
becomes President. He/she serves a six-year term.
• The Cabinet – Cabinet members serve as advisors to the President. They include the Vice President and the heads of
executive departments. Cabinet members are nominated by the President and must be confirmed by the Commission of
Appointments.

Judicial Department

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The judicial branch interprets the meaning of laws, applies laws to individual cases, and decides if laws violate the Constitution.
The judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law.
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the Government. The judicial branch interprets the meaning
of laws, applies laws to individual cases, and decides if laws violate the Constitution.

Legislation of Tax Laws

Under the 1987 Philippine Constitution, all revenue and tariff bills shall originate from the House of Representative. A
revenue bill is one that levies taxes and raises funds for the government, while a tariff bill specifies the rates or duties to be
imposed on imported articles.

1. Concurrence by a Majority of all Concurrence by a Majority of all Members of the Congress for the Passage of
Members of the Congress to Pass Law Granting Tax Exemptions [Art. VI, Sec 28 (4)];
Tax Exemption
2. Appropriation, Revenue or Tariff All Appropriation, Revenue or Tariff Bills Shall Originate Exclusively from the
Bills Originate from House of House of Representatives. (Art. VI, Sec. 24)
Representatives
3. Senate May Propose or Concur The senate may Propose or Concur with Amendments (Art. VI, Sec. 24)
4. Conference Committee The committee will harmonize the bill introduced by the House Representative
and a parallel bill introduced in the Senate.
5. President’s Approval The harmonized bill signed by the president becomes law.
6. President’s Veto 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. VI, Sec. 27 (2)]
7. Congress May Authorize President The congress may Authorize the President to Fix Tariff Rates, Import and
to Fix Certain Items Export Quotas, Tonnage and Wharfage Dues and other Duties or Imposts [Art.
VI, Sec. 28 (2)];
8. Congress May Provide Incentives Congress May Provide for Incentives Including Tax Deductions to Encourage
Private Participation in Programs of Basic and Applied Scientific Research (Art.
XIV, Sec. 11).

Steps in the Legislative Process

Under the 1987 Philippine Constitution, all revenue and tariff bills shall originate from the House of Representative. A
revenue bill is one that levies taxes and raises funds for the government, while a tariff bill specifies the rates or duties to be
imposed on imported articles.

The steps in the legislative process are as follows:

1. A tax bill is introduced in the House of Representative and is referred to the House Committee on Ways and Means. This
is known as the first reading. The first reading involves only a reading of the number and title of the measure.

2. The proposal is considered by the Committee on Ways and Means, committee hearings as well as public hearings are
held. If there are several bills of the same nature or purpose, they shall all be consolidated in the conduct of the
hearings. Moreover, the committee may introduce amendments or propose substitute bill.

3. The tax bill is voted on by the Committee and, if approved, is reported out to the House of Representative for a vote.
Deliberations, interpretations and even amendment by the members of the House are held. This is known as the second
reading in the House.

4. If passed by the House, the bill is transmitted to the Senate for consideration by the Senate Committee on Ways and
Means, and public hearings are held. This is known as the second reading in the senate. The bill undergoes the same
legislative process in the Senate.

5. Upon approval by the Senate, both the Senate and House versions are sent to the Bicameral Conference Committee
consisting of representatives of the House and of the Senate.

6. The two versions are generally dissimilar. Thus, the conflict is reconciled in the Bicameral Conference Committee. This
process of ironing out the difference generally involves substantial compromise.

7. A final bill, as approved by the Bicameral Conference Committee, is then resubmitted to the House and Senate for
approval. This is known as the third reading. Generally, it shall only be the reading of title. No deliberations will be
allowed.

8. If the Bicameral Conference Committee bill is approved by the House and Senate, it is sent to the President for approval
or veto. This is known as the “enrolled bill”.

9. If the president approves the bill, he shall sign it and the bill becomes a law. When the President vetoes it, both Houses
may override the veto by two-thirds vote of all the members of each house.

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Principles or Canons of a Sound Taxation System (FAT)

a. Fiscal Adequacy – sufficiency to meet government expenditures and other public needs (Government Budget
Balance). This is in consonance of the Lifeblood Theory.

a.1. Budget Deficit = Government Revenues < Government Expenditures

a.2. Budget Surplus = Government Revenues > Government Expenditures

b. Administrative Feasibility – capability of being effectively enforced. Tax laws should not obstruct business growth
and economic development.

c. Theoretical Justice (Equality) – based on the taxpayer’s ability to pay; must be progressive

a. Fiscal Adequacy The sources of government revenue must be sufficient to meet government expenditures and other
public needs.

b. Administrative Tax laws must be capable of convenient, just and effective administration free from confusion and
Feasibility uncertainty.

Examples:
1. Establishment of Revenue District Offices
2. Introduction of electronic Filing (Electronic Filing and Payment System (EFPS) or e-BIR
Forms Package)
3. Accreditation of Authorized Agent Banks
4. Substituted Filing of Qualified Compensation Income Earners
5. Payment of tax thru credit/debit/prepaid cards/G-Cash
6. Electronic Tax Payment System (eTPS)/Land Bank Remittance System (LBRS)

(RR 3-2016) Prescribing the Policies and Guidelines on Credit/Debit/Prepaid Card

Payments as Additional of Internal Revenue Taxes: One of the principles. of a sound tax
system is administrative feasibility. This means that tax laws must be capable of effective and efficient
implementation and enforcement. In order to ease the burden to the taxpayers in the payment of
internal revenue taxes, it is imperative that alternative modes of tax payments to cover full or partial
payment of internal revenue taxes, including interest, penalties, surcharges and other applicable fees,
must be provided for the convenience of both the tax administration and the taxpaying public. These

Regulations are hereby promulgated in order to:

1. Make available to taxpayers an additional mode of payment of taxes;
2. Reduce the burden and difficulties experienced by taxpayers in the payment of internal revenue
taxes and other applicable fees; and
3. Prescribe the policies and guidelines in the implementation of the Credit/Debit/Prepaid Card
Payment System as an additional mode of payment of taxes and other applicable fees.

c. Theoretical A good tax system must be based on the taxpayer’s ability to pay. This suggests that taxation must
Justice be progressive conformably with the constitutional mandate that congress shall evolve a progressive
system of taxation. (Ability to pay principle)

- Non-observance of the principles does not necessarily render a tax levy unconstitutional.

Theory of Taxation

1. The Life Blood Doctrine. Taxes are indispensable to the existence of the state. Without taxation the state cannot raise
revenue to support is operations

2. Principles of Necessity – the existence of the government is a necessity and it cannot continue without means to support
itself – this is the Theory of Taxation

Basis of Taxation

Benefit Received Theory – the government and the people have the reciprocal and mutual duties of support and protection –
this is the Basis of Taxation

Note:

1. Necessity Theory (Theory of Taxation) – the power to tax is an attribute of sovereignty emanating from necessity
(national defense, health, education, public facilities, etc.).

2. Lifeblood Theory (Importance of Taxation) – without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it.

3. Benefits – Protection Theory/ Reciprocal Duties (Basis of Taxation) – there is a symbiotic relationship between
the State and the citizens whereby in exchange of the protection and benefits that the citizens received from the
State, taxes are paid.

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Briefly explain the following doctrines: lifeblood doctrine; necessity the benefits received principle; and, doctrine of
symbiotic relationship

The following doctrines, explained:

✓ 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 v. Algue, Inc., G.R.
No. L-28896, February 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 v. Bank of Philippine Islands, G.R. No.
134062, April 17, 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 V. Algue, Inc., G.R. No.
L-28896, February 17, 1988, 158 SCRA 9).

✓ Doctrine of symbiotic relationship – Taxation arises because of the reciprocal relation of protection and support between the
state and taxpayers. The state gives protection and for it to continue giving protection, it must be supported by the taxpayers in
the form of taxes. (CIR v. Algue, Inc., GR. No. L-28896, February 17, 1988, 158 SCRA 9).

Note:
a. Theory (authority) Life Blood Theory or Necessity Theory- Taxes are the lifeblood of the government
without which it can neither exist nor endure.

Manifestation of the Lifeblood Theory:

a. Rule of “No Estoppel against the Government”. It means that in the performance of
its governmental functions: the state cannot be stopped by the neglect of its agents and
officers. Erroneous application and enforcement of law by public officers do not block the
subsequent correct application of statutes.

b. Collection of taxes cannot be enjoined (stopped) by injunction. Under section 218 of

the tax code (as amended), no court, except the Court of Tax Appeals (CTA), shall have
the authority to grant an injunction to restrain the collection of any national internal
revenue tax, fee or charge imposed by the tax code.
This prohibition shall apply to all collection activities, including imposition and collection of
taxes, issuance of warrants of distraint and garnishment, and/or levy on final decisions of
the BIR on disputed assessment, cases filed before the CTA, and the sale of property
distrained or garnished (RMO 42-2010)

c. Taxes could not be the subject of compensation or set – off.

b. Basis of taxation The Benefits-Protection Theory- Taxes are what we pay for a civilized society. The
government and the people have a reciprocal and mutual duties of support and protection
to one another (symbiotic relationship between the government and the taxpayer).

Public Services
Government People

Taxes

The Inherent Powers of the State (Government)

1. Power of Taxation – the power to take property for the support of the government and for public purpose
2. Police Power – the power to enact laws to promote the general welfare of the people. It is wider in application because it is
the general power to make laws.
3. Power of Eminent Domain – the power to take private property for public use upon payment of just compensation
Elements:
a. Permanent taking of private property (not temporary)
b. Payment of Just Compensations (Market value / zonal / assessed)
c. Public use

Point of Differences of the Inherent Powers of the State

a. As to authority which exercises the power

Taxation Government only
Police power Government only
Power of eminent domain Government, public service companies and public utilities

b. As to purpose
Taxation Support of government
Police power Promote public welfare
Power of eminent domain Public purpose

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c. As to Affected
Taxation Community or class of individuals
Police power Community or class of individuals
Power of eminent domain Individuals as owner of a particular property

d. As to Effect
Taxation Taxes become part of public funds
Police power No transfer of title, there is restraint on the injurious use of property
Power of eminent domain There is transfer of the right to property, either ownership or a lesser right

e. As to Benefits Received
Taxation Equivalent of tax in the form of protection and benefit
Police power No direct and immediate benefit, only such as may arise from the maintenance of a
healthy economic standard of society (damnum absque injuria or damage without
injury)
Power of eminent domain Market value of the property taken from him
f. As to Amount of Imposition
Taxation No limit
Police power Limited to the cost of the license and the necessary expenses of police surveillance
and regulation
Power of eminent domain No imposition, the owner is paid the fair market value of his property

g. As to Relationship to the Non-Impairment of Obligations Clause of the Constitution

Taxation Inferior to the clause
Police power Superior to the clause
Power of eminent domain Inferior to the clause

h. As to Compensation
Taxation For the protection and benefits received from the government
Police power The maintenance of a good economic standard of society
Power of eminent domain Just compensation for the property taken

Similarities of the Three Powers

1. All three powers are necessary attributes of sovereignty, resting upon necessity
2. All are inherent powers of the State
3. All are legislative in nature
4. They are ways in which the State interferes with private rights and property
5. They exist independently with the Constitution although the condition for their exercise may be prescribed or limited by the
Constitution
6. They all presuppose an equivalent compensation received by the persons affected by the exercise of the power, whether
directly, indirectly or remote.
7. The exercise of these powers by the local government units may be limited by national legislature
*Police power can be used to raise revenue for the government (ex: license fee)

Note:

POLICE TAXATION EMINENT DOMAIN

Power to MAKE and IMPLEMENT laws for Power to ENFORCE contribution to raise Power to TAKE private property for public
the general welfare government funds use with just compensation

Plenary, comprehensive, and supreme BUT

Broader in application Merely to take private property
NOT ABSOLUTE

Property is taken or destroyed to promote

Money is taken to support the government Property is taken for public use
general welfare

Cannot be delegated, if delegated, it

Can be expressly delegated should be to the legislative department of Can be expressly delegated
the LGU (e.g. to make ordinances)

No imposition as to amount, instead, it is

Limited to the cost of regulation, license and
Generally, NO limit on amount the Government which is to compensate the
other necessary expense
property taken.

Relatively FREE from Constitutional Subject to Constitutional and Inherent Superior to and may override Constitutional
limitations limitations impairment provision

Superior to Non-Impairment Clause Inferior to Non-Impairment Clause Inferior to Non-Impairment Clause

Note:

Eminent Domain is generally SUPERIOR to

may override the Constitutional impairment
provision because the welfare of the state is
superior to any private contract.

As an exception, eminent domain is

inferior to the impairment provision because
the government cannot expropriate a
property that has previously bound itself to
be purchased from the other contracting

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 parties.
POWER OF TAXATION COMPARED WITH OTHERS POWERS

Taxation as distinguished from eminent domain and police power

As to concept

Taxation refers to the power of imposing enforced proportional contribution from persons and property by the sovereign to
accumulate revenue in order to support its existence and carry out its legitimate objectives.

While in Eminent domain refers to the power of the state to take private property for public use upon payment of just
compensation ascertained by law. It is sometimes called expropriation. To exercise the power of eminent domain, the
Constitution provides for the following conditions. First, the taking of property should be for public use; second there must be
a just compensation for the property, and the third, there must be observance of due process in the taking.

While Police power is the power of the state make and implement laws in relation to persons or property to promote public
health, public morals, public safety and the general welfare of the people.

As to scope

Police Power is broader in application because it is general power to make and implement laws on taxation is the power to raise
money for the use and support of the government and eminent domain is merely the power to take private property for public
use upon payment of just compensation.

As to Authority

The power of eminent domain may be granted by the law to public service or public utility companies while the power of
taxation and police power are both to be exercised only by the government or its political subdivisions.

As to Purpose

In Taxation, the property is generally in the form of money which is taken for the support of the government while in police
power, the property is taken or destroyed to promote general welfare. On the other hand, in Eminent Domain, the private
property is taken for public use.

As to Necessity of Delegation

The exercise of the power of eminent domain and police power can be expressed delegated to the local government units by
the law making.

On the other hand, Congress cannot delegate the power of taxation.

As to Person Affected

In Eminent Domain, its power operates on the particular private property of an individual.

However, Taxation and Police Power operate on the community or class of individual.

As to Benefits

In Taxation, an individual receives a benefit in the form of protection afforded by the government.

For Eminent Domain, the benefit received by the individual concerned is the market value of the specific property taken from
him.

Through Police Power, an individual receives indirect benefits through a healthy economic standard of society.

As to Amount of Imposition

Taxation has generally no limit on the amount of tax which may be imposed.

In Eminent Domain, there is no imposition because the owner of the private property taken is paid at its market value.

The amount imposed under Police Power should only be sufficient to cover the cost of the regulation, issuance of the license
and the necessary expenses of police surveillance.

As to Importance

Taxation is an indispensable function of existence of the government. Without it, there shall be no revenue to effect and
permanently exercise the Eminent Domain and Police Power.

As to Relationship to the Constitution

The power to tax is subject to certain constitutional constraints and inherent limitations. It is INFERIOR to the “Non-
impairment Clause” in the sense that taxation should not violate the impairment clause of obligations and contracts.

Police Power is relatively free from constitutional limitations. It is SUPERIOR to Non-impairment clause in the sense that it may
override the said clause.

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 Eminent Domain is generally SUPERIOR to may override the Constitutional impairment provision because the welfare of the
state is superior to any private contract.

As an exception, eminent domain is inferior to the impairment provision because the government cannot expropriate a
property that has previously bound itself to be purchased from the other contracting parties.

Police Power and Eminent Domain ca defeat the constitutional rights of a person because these inherent powers subordinate
the constitutional provisions except those directly affecting them.

As to Property Taken

In taxation, there is no specific property being taken by the government for it is generally payable in the form of money.

In Eminent Domain, there is a specific private property being taken by the government.

In Police Power, there is a restriction in the use of property.

Nature or Characteristics of the Power of Taxation

Elements/Characteristic of Tax Nature of the State’s Power to Tax

1. It is an enforced contribution 1. It is inherent in sovereignty
2. It is generally payable in money 2. It is legislative in character
3. It is proportionate in character 3. Exemption of government entities, agencies
4. It is levied on persons, property or exercise of a right or instrumentalities
privilege 4. International comity
5. It is levied by the law-making body of the state 5. Limitation on territorial jurisdiction
6. It is levied for public purpose 6. Strongest among the inherent powers of the state

Note:
1. Nature of Taxation- It is civil in nature.

2. Characteristics of Taxation (ILS)

a. Inherent power of the state.
b. Exclusively lodged with the legislative body
c. Subject to inherent and constitutional limitations

• Taxation is an attribute of sovereignty. This is described as unlimited in its range, acknowledging in its very nature no
limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax
on the citizen who are to pay it.

Nature/ Characteristics of the State’s Power to Tax

1. It is inherent in The state, having sovereignty, can enforce contribution tax even in the absence of a
sovereignty constitutional provision because the state has the supreme power to command and enforce to its
will from the people within its jurisdiction.

2. It is legislative in The power to tax (levying or imposition) is peculiarly and exclusively legislative in nature. It
character cannot be exercised or judicial branches of the government.

Exceptions to non-delegation rule:

a. Delegation as provide for in the 1987 Constitution such as “ Delegation to the President”
under Section 28 Article VI stating that the Congress may authorize, by law, 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 duties; and
• Other duties or imposts within the framework of the national development program of
the government.
b. Delegation to local government units as provided under Section 5, Art. X of the Constitution.
The power of local government units to impose taxes and fees is always subject to limitations
which Congress may provide, the former having no inherent power to tax.
c. Delegation to administrative agencies. Certain aspects of the taxing process that are not
really legislative in nature are vested in administrative agencies such as:
• Power to value property
• Power to assess and collect taxes
• Power to perform details of computation, appraisement or adjustment among others

3. It is subject to
Constitutional and
Inherent Limitation
Constitutional limitations- are those which are expressly found in the Constitution or implied
from its provisions.
Inherent limitations – are those which restrict the power although they are not embodied in
the Constitution.

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 Note: Not absolute being subject to constitutional and inherent limitations

4. Exemption of Immunity is necessary in order that governmental functions will not be impeded. Otherwise, the
government entities, government will be taxing itself to raise money for itself. The following rules shall apply in
agencies and determining whether or not government entities and agencies are subject to tax:
instrumentalities a. Agencies performing governmental function are tax exempt unless expressly taxed
b. Agencies performing proprietary functions are subject to tax unless expressly exempted
c. GOCCs performing proprietary functions are subject to tax, however the following were
granted tax exemptions:
• GSIS (Government Service Insurance System)
• SSS (Social Security System)
• PHIC (Philippine Health Insurance Corporation)
• Local Water Districts (R..A. N0. 10026)
• Home Development Mutual Fund (HDMF) (RA 11534)

5. International Polite and friendly agreement among nations. Under international law, property of a foreign
comity state may not be taxes by another state due to:
• Sovereign equality of states
• When one state enters the territory of another state, there is an implied understanding
that the former does not intend to denigrate its dignity by placing itself under the
jurisdiction of the other state.
• Immunity from suit of a state.

6. Limitation of Tax laws cannot operate beyond a state’s territorial limits. Property outside one’s jurisdiction
territorial does not receive any protection from the state.
jurisdiction
7. Strongest among
the inherent powers
of the state

Limitations of Taxation Power

A. Inherent Limitations- inherent limitations proceed from the very nature of the taxing power itself. The taxing power has
very distinct and positive limitations some of which inherent in its very nature and exist whether declared or not declared in the
written constitution. (D-PINES)

1. Double Taxation Double taxation referred to direct double taxation or direct duplicate
taxation.

Definition. Taxing twice, for the 1same purpose, 2in the same year or period,
3
the same subject by the same taxing jurisdiction, 4same authority.

There is no direct double taxation in the following:

a. A tax on a mortgage as personal property when the mortgage property is also
taxed at its full value as real estate.
b. A tax on the same property imposed by two different states.
2. Public Purpose This one is synonymous to “government purpose.” A tax must always be imposed
for a public purpose, otherwise, it will be declared as invalid. No tax law may be
enacted for the purpose of raising revenue for private purposes. The purpose
should affect the inhabitants of the state or taxing district as a community and not
merely as individuals. It has been said that the best test of rightful taxation is
that the proceeds of the tax must be used:
a. For the support of the government
b. For some of the recognized objects of government
c. To promote the welfare of the community

Effect of incidental benefit to private interest - The purposes to be accomplished

by taxation need not be exclusively public. Although private individuals are
directly benefited, the tax would still be valid provided such benefit is only
incidental.

Legislative Prerogative – It is the congress which has the power to determine

3. International comity of treaty
whether the purpose is public or private. A question on the validity of such tax
measure may be raised before the courts on the ground that it is not for public
purpose. However, once it is settled that it is for a public purpose, it can no
longer be a subject of inquiry.
International comity means courteous and friendly agreement and interaction
between nations.

International comity is based on any of the following grounds:

a. Sovereign equality among states under the international law by virtue of
which one state cannot exercise its sovereign power over another.

b. The usage among states that when one enters the territory of another, there

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4. Non-delegability of the Taxing Power
5. Exemption of the government
agencies
6. Situs of taxation or territoriality
B. Constitutional Limitations on the Taxing Power- the following provisions may be said to be limitations prescribed in the
Constitution on the taxing power of the government.
1. Observance of due process of law
2. Equal protection of law
3. Uniformity in taxation
4. Progressive scheme of taxation
5. Non-imprisonment for non-payment of
is an implied understanding that the former does not intend to degrade its dignity
by placing itself under jurisdiction of the latter.
c. The rule of internal law that a foreign government may not be sued
without its consent so that it is useless to asses tax since anyway it cannot be
collected.
What cannot be delegated is the legislative “enactment/imposition/levying” of tax
measure. However, as regards to administrative implementation of a tax law
(i.e., assessment, collection, valuation of property for tax purposes), that can be
delegated.
Government agencies performing governmental functions are exempt from tax
unless expressly taxed.
Government agencies performing proprietary functions are subjected to tax unless
expressly exempted.
Situs – place of taxation, the country that has the power and jurisdiction to levy
and collect the tax.
The Situs will help in determining the source of an income, whether from within
the Philippines or from abroad or sources outside the Philippines. For taxpayers
other than resident citizen and domestic corporation which are taxable on incomes
from all sources, this will serve to identify income which are taxable in the
Philippines.
Subject Situs
Poll tax on persons Residence of the person
Real property tax State where the property is located whether
the owner is resident or not
Tax on tangible personal State where it is physically located although
properties the owner resides in another jurisdiction (lexi
rei sitae)
Tax on intangible personal Domicile of the owner (mobilia sequntur
properties pesonam)
Income Tax State where the taxpayer is a resident or
citizen
Business, occupation and Place where the business is done, or the
transaction tax occupation is engaged in or the transaction
took place
Gratuitous transfer of property State where the transferor is/was a citizen or
resident, or where the property is located
Multiplicity of situs – income or intangible personal properties may be subject
to taxation in several taxing authorities
Remedies against multiplicity of situs
1. Provisions of exemption
2. Allowance of deduction or tax credit for foreign taxes
3. Treaties with other states
There must be a valid law and the measure should not be unconscionable and
unjust as to amount to confiscation of property. Tax statute must not be
arbitrary as to find no support in the constitution. The power to tax should not be
harsh, oppressive or confiscatory. This limitation is also known as the right to
notice and hearing.
All persons subject to legislation shall be treated alike under similar
circumstances and conditions both in the privileges conferred and liabilities
imposed. The doctrine does not require that persons or properties different in
fact be treated in law as though they were the same. What it prohibits is class
legislation which discriminates against some and favors others. As long as there
are rational or reasonable grounds for so doing, Congress may group persons or
properties to be taxes and it is sufficient if all members of the same class are
subject to the same rate and the tax is administered impartially upon them.
The rule of taxation shall be uniform and equitable. 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. For
classification to be valid, the following must occur:
• It must be based on substantial distinction
• It must apply both to present and future conditions
• It must be germane to the purposes of the law
• It must apply equally to all members of the same class
A progressive system of taxation means that tax laws shall place emphasis on
direct taxes rather than on indirect taxes, with ability to pay as the principal
criterion.
No person shall be imprisoned for debt or non-payment of poll tax. The non-
P a g e | 11
poll tax imprisonment rule applies to non-payment of poll tax which is punishable only by
a surcharge, but not to other violations like falsification of community tax
certificate and non-payment of other taxes. Poll tax is a tax of fixed amount
imposed on residents within a specific territory regardless of citizenship business
or profession.
6. Non-impairment of the obligations of No law impairing the obligation of contracts shall be passed. The obligation of a
contracts contract is impaired when it terms or conditions are changed by law or by a party
without the consent of the other, thereby weakening the position or rights of the
latter. An example of impairment by law is when a later taxing statute revokes a
tax exemption based on a contract. But this only applies when the tax exemption
has been granted for a valid consideration. If the tax exemption pertains, for
instance, to a franchise tax, a later statue may revoke such exemption because
the constitution provides that a franchise tax is subject to amendment, alteration
or repeal.

Examples:
1. If the exemption was granted for valuable consideration and it is granted
on the basis of a contract
• Cannot be revoked
2. If the exemption is granted by virtue of a contract, wherein the
government enters into a contract with a private corporation.
• Cannot be revoked unilaterally by the government

3. If the basis of the tax exemption is a franchise granted by Congress and

under the franchise or the tax exemption is given to a particular holder
or person.
• Can be unilaterally revoked by the government (Congress)
• The non-impairment clause applies only to contracts and not to
a franchise
• The non-impairment clause applies to taxation but not to police
power and eminent domain.
7. Free-worship clause 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. The
payment of license fees for the distribution and sale of bibles suppresses the
constitutional right of free exercise of religion.
8. Exemption of charitable institutions, Charitable institutions, churches and parsonages or convents appurtenant
churches, parsonages, or convents thereto, mosques, non-profit cemeteries, and all lands, building and
appurtenant thereto, mosques, and non- improvements, actually, directly, and exclusively used for religious, charitable, or
profit cemeteries, and all lands, buildings, educational purposes shall be exempt from taxation. This is an exemption
improvements actually, directly and from real property only. The exemption in favor of property used exclusively
exclusively used for religious, charitable or for charitable or educational purposes is not limited to property actually
educational purposes indispensable therefore, but extends to facilities which are incidental to and
reasonably necessary for the accomplishment of said purposes. The test of
exemption refers to actual use, not ownership. The term “ exclusively” should be
interpreted as “primarily” rather than “solely”.
9. Exemption from taxes of the revenues All revenues and assets of non-stock, non-profit educational institutions used
and assets of non-profit, non-stock actually, directly and exclusively for educational purposes shall be exempt from
educational institutions including grants, taxes and duties. However, they shall be subject to internal revenue tax on
endowments, donations or contributions income from trade, business or other activity, the conduct of which is not related
for educational purposes to the exercise or performance by such educational institution of its educational
purposes or functions.
Note:
Who are exempt? Charitable, educational Non-stock, non-profit
and religious institutions educational institutions
What taxes are Property tax Income tax, property
exempt? tax, customs duties.
Tax exemptions are mere privileges granted by state - the principle would best
justify move by congress, congress passed a law revoking all tax exemption
status granted to some taxpayers except if covered by the non-impairment clause
of the constitution.

10. Non-appropriation of public funds or No public money or property shall be appropriated, applied, paid or employed
property for the benefit of any church, directly or indirectly, for the use, benefit, or support of any church, denomination,
sect or system of religion, etc sectarian institution or system of religion, or of any priest, preacher, minister or
other religious teacher, or dignitary as such except when such priest, preacher,
minister or dignitary is assigned to the armed forces, or to any penal institution,
or government orphanage or leprosarium.
11. No money shall be paid out of the
Treasury except in pursuance of an
appropriation made by law
12. Concurrence of a majority of all
members of Congress for the passage of
law granting tax exemption
13. Non-diversification of tax collections
14. The President shall have the power to The president shall have the power to veto any particular item or items in an
veto any particular item(s) in an appropriation, revenue or tariff bill, but the veto shall not affect the item or items
appropriation, revenue or tariff, but the to which he does not object. An item in a bill refers to particulars, details, the

P a g e | 12
 veto shall not affect the item(s) to which
no objection has been made
15. Non-impairment of the jurisdiction of
the Supreme Court to review tax cases
16. Appropriations, revenue or tariff bills
shall originate exclusively in the House of
Representatives but the Senate may
propose or concur with amendments
17. Each local government unit shall
exercise the power to create its own
sources of revenue and shall have a just
share in the national taxes
distinct and severable parts of a bill. In budgetary legislation, an item is an
individual sum of money dedicated to a stated purpose.
Congress cannot take away from the Supreme Court the power given to it by the
Constitution as the final arbiter of tax cases. The Supreme Court shall have the
following powers: review, revise, reverse, modify, or affirm on appeal or
certiorari, as the law or the Rules of Court may provide, final judgments and
orders of lower courts in all cases involving the legality of any tax, impost,
assessment, or toll, or any penalty imposed in relation thereto.
The constitution simply means that the initiative for the filing of bills must come
from the house of representatives, on the theory that, elected as they are from
the districts, the members of the house can be expected to be more sensitive to
the local needs and problems. Given the power of the Senate to propose
amendments, it can propose its own version even with respect to bills which are
required by the Constitution prohibit the filing in the Senate of a substitute bill in
anticipation of its receipt of the bill from the House, so long as action by the
Senate as a body is withheld pending receipt of the House bill.
National Local
Authority Inherent power Delegated power
Nature Legislative in nature through Legislative in nature through
enactment of tax laws by enactment of local
the Congress and the Senate ordinances by the local
legislative branch
Process 1. Levying = Congress 1. Levying = Legislative
2. Assessment/Collection = branch of the LGU
BIR and BOC 2. Assessment/Collection =
Treasurer
National Internal Revenue
Taxes under administration of
the BIR:
1. Income Tax
2. Estate and donor’s tax
3. Value-added tax
4. Other percentage taxes
5. Excise taxes
6. Documentary stamp taxes

NOTE: In the absence of inherent and constitutional limitations, the power to tax is comprehensive, plenary, supreme and
unlimited. It is so comprehensive that in the words of Justice Marshall, the power to tax includes the power to destroy. Where
the tax is a valid tax, this is so because a taxpayer could not seek the nullification of the valid tax solely upon the premise that
the tax will impoverish him. Likewise, the exercise of the power to tax is not destructive of taxpayer’s property where it is an
invalid tax, which violates the inherent and constitutional limitations. This is so because there is a sympathetic court that shall
come to the succor of the taxpayer and declare such tax as invalid.

Situs of Taxation

The place of taxation

Factors that determine the situs of taxation

1. nature, kind or classification of the tax 5. sources of income
2. subject matter of the tax 6. place of exercise, business or occupation being taxed
3. citizenship of the taxpayer 7. place where income-producing activity was held or done
4. residence of the taxpayer

Applications
1. persons – residence of the taxpayer
2. community development tax – residence or domicile of the taxpayer
3. business taxes – where the business was conducted or place where the transaction took place
4. privilege or occupation tax – where the privilege is exercised
5. real property tax – where the property is located
6. personal property taxes –
a. tangible – where they are physically located
b. intangible – domicile of the owner unless the property has acquired a situs elsewhere
7. Income – place where the income is earned or residence or citizenship of the taxpayer
8. Transfer Taxes – residence or citizenship of the taxpayer or location of the property
9. Franchise Taxes – State that grants the franchise
10. Corporate Taxes – depend on the law of incorporation

DOUBLE TAXATION

Taxing the object or subject within the territorial jurisdiction twice, for the same period, involving the same kind of tax by the

P a g e | 13
same taxing authority

Kinds of double taxation

A. As to validity
1. Direct Duplicate Taxation This is objectionable and prohibited because it violates the constitutional provision on
(Strict sense) uniformity and equality.

Elements of Direct Double Taxation:

1. The same property is taxes twice when it should be taxed only once; and
2. Both taxes are imposed
a. Taxing twice
b. Same object/subject
c. Same period
d. Same purpose
e. Same kind of tax
f. Same taxing authority
All the elements must be present in order to apply double taxation in its strict sense.
2. Indirect Duplicate This is not legally objectionable. It extends to all cases in which there is a burden of two or
Taxation (Broad sense) more pecuniary imposition but imposed by different taxing authorities.

B. As to scope
1. Domestic Double When the taxes are imposed by the local and national government within the same state.
Taxation
2. International Double Refers to the imposition of comparable taxes in two or more states on the same taxpayer in
Taxation respect of the same subject matter and for identical periods.

C. Modes of eliminating double taxation

1. Tax credit An amount subtracted from taxpayer’s tax liability in order to arrive at the net tax due.
2. Tax deduction An amount subtracted from the gross amount on which a tax is calculated.
(Vanishing deduction)
3. Tax exemption A grant of immunity to particular persons or entities from the obligation to pay taxes.
4. Imposition of a rate lower than the normal domestic rate

Note:

Kinds:
1. Direct Double Taxation/Direct Duplicate/Taxation in Strict Sense –
Elements:
a. Same object/subject (taxpayer)
b. Same type of tax
c. Same purpose
d. Same taxing authority
e. Same period
Note: If one of the elements is missing, then there is Indirect Double Taxation
2. Indirect Double Taxation/Indirect Duplicate/Taxation in Broad Sense –

International Double Taxation –a double taxation caused by two different taxing authorities, one domestic and one foreign

Remedies to Double Taxation

1. provision for tax exemption
2. allowance for tax credit
3. allowance for principle of reciprocity
4. enter into treaties with and agreement with foreign government

Escape from Taxation

1. Evasion or Dodging, the taxpayer uses unlawful means (Illegal or fraudulent) to evade or lessen the payment of tax.
2. Avoidance, also called Tax Minimization, it is the reduction of totally escaping payment of tax through legally permissible
means.
Tax avoidance Tax evasion
Validity Legal and not subject to criminal penalty Illegal and subject to criminal penalty
Effect Minimization of taxes Almost always results in absence of
tax payment

3. Shifting, basically, it is the transfer of tax burden to another. The imposition of tax is transferred from the statutory
taxpayer to another without violating the law.
• Impact- is the point at which a tax is originally imposed.
• Incidence- is the point at which the tax burden finally rests or settles down.

Impact of taxation Incidence of taxation

It refers to the statutory liability to pay the tax. It falls on It is the economic cost of tax. It is also known as burden of
the person originally assessed with a particular tax. taxation.

It is the imposition of tax. (liability)

It is the payment of tax. (burden)
It is on the seller upon whom the tax has been imposed. It is on the final consumer, the place at which the tax comes
to rest.

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Note: The amount of tax paid may be shifted from seller to buyer. What is transferred is not the liability for tax, but the tax
burden or incidence. Where the burden of the tax is shifted to the purchaser, the amount passed on to its is no longer a tax but
becomes an added cost on the goods purchased, which constitutes a part of the purchase price.

Three (3) Kinds of shifting

1. Forward Shifting – shifting of tax which follow the normal flow of distribution (i.e. from manufacturer to
wholesaler, retailers to consumers). Forward shifting is common with essential commodities and services such as
food and fuel.
2. Backward Shifting – the reverse of forward shifting, backward shifting is common with non-essential commodities
where buyers have considerable market power and commodities with numerous substitute products.
3. Onward Shifting – any tax shifting in the distribution channel that exhibits forward and backward.

Example:
Forward shifting – passing onto students 12% VAT.
Backward shifting – not passing into students 12% VAT.

Note: Only indirect taxes may be shifted. In case of direct taxes, the shifting of burden can only be made via
contractual provision.
Note:
Taxes that may be shifted: The impact of taxation corresponds to the imposition of the tax,
• VAT shifting refers to the transfer of tax and incidence consists of the
• Some other percentage taxes payment of the tax
• Excise taxes on excisable articles
• Ad-valorem taxes that oil companies pay to BIR upon removal of petroleum products from its refinery

Example: Manufacturer or producer may shift tax assessed to wholesaler, who in turn shifts it to the retailer, who also
shifts it to the final purchaser or consumer

4. Capitalization, the seller is willing to lower the price of the commodity provided the taxes will be shouldered by the buyer.
5. Transformation, the manufacturer absorbs the additional taxes imposed by the government without passing it to the buyers
for fear of lost of his/its market. Instead, he/it increases quantity of production, thereby turning units of production at a lower
cost resulting to the transformation of the tax into a gain through the medium of production.
6. Exemption, it is an immunity, privilege or freedom from payment of a charge or burden to which others are obliged to pay.
Exemption is allowed only if there is a clear provision therefor. It is not necessarily discriminatory as long as there is a
reasonable foundation or rational basis. In the construction of tax statues, exemptions are not favored and are construed
against the taxpayer.

Grounds for granting tax 1. May be based on contract. In such a case, the public which is represented by the
exemption government is supposed to receive a full equivalent therefore, i.e. charter of a
corporation.
2. May be based on some ground of public policy, i.e., to encourage new industries
or to foster charitable institutions. Here, the government need not receive any
consideration in return for the tax exemption.
3. May be based on grounds of reciprocity or to lessen the rigors of international
double or multiple taxation.
Nature of power to grant tax 1. National government. The power to grant tax exemptions is an attribute of
exemption sovereignty for the power to prescribe who or what persons or property shall be
taxed implies the power to prescribe who or what persons or property shall not be
taxed. It is inherent in the exercise of the power to tax that the sovereign state be
free to select the subjects of taxation and to grant exemptions therefrom.
2. Local government. Municipal corporations are clothed with no inherent power to
tax or to grant tax exemptions. But the moment the power to impose a particular tax
is granted, they also have the power to grant exemption therefrom unless forbidden
by some provision of the Constitution or the law. The legislature may delegate its
power to grant tax exemptions to the same extent that it may exercise the power to
exempt.

Note:

Forms of Escape from Taxation (ESCAPES = ESCATE)

A. Those that will not result in loss of revenue to the government

1. Shifting –the process of transferring the tax burden from the statutory taxpayer to another without violating the law.
2. Capitalization – the seller is willing to lower the price of the commodity provided the taxes will be shouldered by the
buyers / increase in capitalization
3. Transformation – the manufacturer absorbs the additional taxes imposed by the government without passing it to
the buyers for fear of lost of his market. Instead, it increases quantity of production, thereby turning their units of
production at a lower cost resulting to the transformation of the tax into a gain through the medium of productions.

B. Those that will result to loss of revenue to the government

1. Tax Evasion – tax dodging – resorting to acts and devices that illegally reduces or totally escape the payment of
taxes that are due to the taxpayer. They are prohibited and are therefore are subject to penalties.
2. Tax Avoidance –tax minimization scheme – the reduction or totally escaping payment of taxes through legally
permissible means, that are not prohibited and therefore are not subject to penalties.

P a g e | 15
 3. Tax Exemption- an immunity, privilege or freedom from payment of a charge or burden to which others are obliged
to pay.
Distinction between tax evasion and tax avoidance
Tax Evasion Tax Avoidance
It is a scheme used outside of those lawful means and It is a tax saving device within the means sanctioned by law
when availed of, it usually subjects the taxpayer to
penalties
It is accomplished by breaking the law (criminal in Accomplished by legal procedures and do not violate the law
nature)
It connotes fraud, deceit and malice No fraud is involved. Loophole in law is taken advantage

Tax Exemptions

➢ is not automatic
➢ is non-transferable
➢ is revocable by the government (except when granted under a valid contract or by the Constitution)
➢ rule shall be uniform
➢ does not contravene the Lifeblood Doctrine
➢ is always disfavored
➢ is allowed only under a clear and unequivocal provision of the law
➢ on real property tax will be based on the Doctrine of Usage and not Doctrine of Ownership, except for real properties owned
by the government which is absolutely exempt from taxation
➢ on real property tax cannot be granted by local governments but can condone real property tax liabilities in special cases
➢ on local taxes can be granted by local governments but they cannot condone existing liabilities on local taxes
➢ Strictly construed against the taxpayer and liberally in favor of taxing authority
➢ Incumbent upon the taxpayer to prove exemption

Kinds of Exemption
As to basis 1. Constitutional. Immunities from taxation which originate from the constitution.
2. Statutory. Immunities from taxation which emanates from legislation.
As to form 1. Express. Exemptions expressly granted by statute.
2. Implied. When particular persons, property, or rights are deemed exempt as they fall outside
the scope of the taxing provision itself.
As to extent 1. Total. Connotes absolute immunity.
2. Partial. One where a collection of a part of the tax is dispensed with.
As to object 1. Personal. Granted directly in favor of certain persons.
2. Impersonal. Granted directly in favor of a certain class of property.

Principles Governing Tax Exemptions

a. Tax exemptions are highly disfavored in law.
b. Tax exemptions are personal and non-transferable.
c. He who claims an exemption must justify that the legislature intended to exempt him by words too plain to be mistaken. He
must convincingly prove that he is exempted.
d. It must be strictly construed against the taxpayer.

Note: Deductions for income tax purposes partake of the nature of tax exemptions, hence, they are also be strictly construed
against the taxpayer.

e. Constitutional grants of tax exemptions are self-executing.

f. Tax exemption is generally revocable. Unless founded on contracts which are protected by the non-impairment clause.
g. In order to be irrevocable, the tax exemption must be founded on a contract or granted by the constitution.
h. The congressional power to grant an exemption necessarily carries with it the consequent power to revoke the same.
i. Revocations are constitutional even though the corporate do not have to perform a reciprocal duty for them to avail of tax
exemption.

Tax Amnesty
• It is the general 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.
• It partakes of an absolute forgiveness or waiver of the Government of its right to collect.
• It is a way to give tax evaders, who wish to relent and are willing to reform a chance to do so.
• Amnesty involves immunity from all criminal, civil and administrative liabilities from non-payment of taxes.

Tax Exemption Tax Amnesty

Scope of Immunity Immunity from civil liability only Immunity from all criminal, civil, and
administrative obligations arising from non-
payment of taxes
Grantee A freedom from a charge or burden to General pardon given to all erring taxpayers
which others are subjected
How applied Applied prospectively Applied retroactively
Presence of actual None, because there were no actual taxes There is revenue loss since there was actually
revenue loss due as the person or transaction is taxes due but collection was waived by the
protected by tax exemption government

P a g e | 16
Rules on Construction of income tax laws

1. Legislative intention must be considered.

2. Where there is doubt
a. On a tax statutes – they are constructed strictly against the government and liberally in favor of the
taxpayers.
b. On tax exemption – they are constructed strictly against the taxpayer and liberally in favor of the
government.
3. Where language is plain – if there is no doubt as to the legislative intent, then the words employed are to be given their
ordinary meaning.

Fundamental Doctrine in Taxation

1. G.R. No court may enjoin the collection of taxes. Exception: Court of Tax Appeals
2. Claim for exemptions shall be interpreted strictly against the taxpayer
3. A law that permit deduction from the tax base is strictly construed against the taxpayer
4. Deductions partake the nature of an exemption
5. Tax assessment are presumed to be correct and done in good faith (presumption of regularity, i.e. disputable presumption
only which can be overcome by evidence)
6. Tax laws are generally prospective in application. Exception: If the law so provides (e.g. Tax Amnesty Law)
7. Tax are not subject to compensation or set-off (excess payments can be carried-over and credit on same tax type, e.g.
income tax to income tax and not income tax to VAT. If the excess payment is converted to Tax Credit Certificate, the
taxpayer can use the TCC to pay internal revenue taxes except withholding taxes (expanded withholding tax
(EWT)/Withholding Tax on Compensation (WTC)/Final Withholding Taxes (FWT or FT)
8. Refund of taxes do not earn interest because interest do not run against the government

Distinction between Tax Amnesty and Tax Condonation

Tax Amnesty – a general pardon or intentional overlooking by the state of its authority to impose penalties on persons otherwise
guilty of tax evasion or violation of tax laws. The purpose is to give the erring taxpayer a chance to reform and become part of
the society with a clean slate.

Tax Condonation – means to remit or to desist or refrain form exacting or imposing a tax. It cannot extend to refund of taxes
already paid when obtaining condonation.

Tax Exemption Tax Amnesty

There is no tax liability at all Connotes condonation from payment of existing tax liability
The grantee need not pay anything The grantee pays a portion
Can be availed of by any qualified taxpayer Not always available

Tax
- An enforced proportionate contribution imposed upon persons, properties, businesses, rights, interests, privileges,
transactions and acts within the territorial jurisdiction of the taxing authority exercise by the legislature for a public purpose
and generally payable in money.
- It is a compulsory contribution to state revenue, levied by the government on workers' income and business profits or
added to the cost of some goods, services, and transactions.
- The enforced proportional contributions from persons and property levied by the lawmaking body of the State by virtue of
its sovereignty for the support of the government and all public needs:
- It is a sum of money demanded by a government for its support or for specific facilities or services, levied upon incomes,
property, sales, etc.
- An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance
government activities.
- A contribution for the support of a government required of persons, groups, or businesses within the domain of that
government.

Taxation
- It is the process or means by which the sovereign, through its lawmaking body, raises income to defray the necessary
expenses:
- A means by which governments finance their expenditure by imposing charges on citizens and corporate entities.
- It is the process or means by which the sovereign through its law-making body, imposes burdens upon subjects or objects
within its jurisdiction for the purpose of raising revenues to carry out the legitimate objects of the government.
- It refers to the act of a taxing authority actually levying tax.
- It is the practice of collecting taxes (money) from citizens based on their earnings and property.

Elements of a Valid Tax:

1. must not violate the constitutional, inherent and or contractual limitation of the power of taxation
2. must be uniform and equitable, not unjust, excessive, oppressive, confiscatory or discriminatory
3. must be for a public purpose
4. must be levied by the taxing power (legislature) having jurisdiction over the object of taxation
5. must be proportionate in character
6. generally payable in money, at regular interval (not regular in payment)
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Concept of a Tax

1. It is an enforced proportional contribution from the persons and property levied by the law-making body of the
State.

2. Taxation vs. Tax

a. Taxation is the process or means of imposing and enforcing contributions.
b. Tax is the enforced contribution, itself, which generally payable in money.

3. Characteristics of Taxes
a. Forced charge
b. Generally payable in money
c. Exclusively levied by the legislative body
d. Assessed in accordance with some reasonable rule of apportionment (ability-to-pay principle)
e. Imposed by the State within its jurisdiction
f. Levied for public purpose

4. Classification of Taxes
Classification of Taxes
A. As to purpose (P-FRS)
1. Fiscal – general, fiscal or revenue- tax imposed for the general purpose of the government or to raise
revenue for government needs ex: income tax
2. Regulatory – for purposes of regulation (exercise of police power), e.g. PRC and driver’s license
3. Special or sumptuary – tax imposed for a special purpose or to achieve some social or economic ends
ex: Road User’s Tax / Special Education Fund

B. As to subject matter (SM-PPE)

1. Personal, poll or capitation – tax of a fixed amount imposed on individuals residing within a specified
territory without regard to their property or the occupation in which they be engaged in. ex: community
tax certificate/cedula
2. Property tax – tax imposed on property, whether real or personal, in proportion, either to its value or in
accordance with some other reasonable method of apportionment. Ex: real estate tax / factory
machinery
3. Excise tax – tax on commodities/excisable articles e.g. sin products
(alcohol/cigarettes/automobiles/minerals/jewelries)
4. Privilege tax – tax imposed upon the performance of an act, the enjoyment of a privilege or the engaging
in an occupation. Ex: Professional tax (issued PTR)

C. As to incidence (I-DI)
1. Direct – the tax is demanded from one person in who is intended to pay it. Example: income tax (taxpayer
himself to pay), estate tax (estate to pay), donor’s tax (donor to pay)
2. Indirect – the tax is demanded from one person in the expectation and intention that he shall indemnify
himself at the expense of another by shifting the tax to another taxpayer. Example: Value-Added Tax,
customs duties and some percentage taxes

D. As to amount (ASA)
1. Specific tax – a tax of a fixed amount imposed by the head or number. Example: excise tax on distilled
spirits, cigars and wines (PX/piece)
2. Ad valorem – tax is imposed for a fixed proportion of the amount or value of the property to which the
tax is assessed. Examples: excise taxes on cigarettes and gasoline/petroleum, real property taxes and
certain customs duties (X% of selling price)

E. As to rate (MR-PP)
1. Proportional or flat rate – the tax is based on a fixed percentage of the amount of the property, income
or other basis to be taxed.
Example:
a. VAT (12%) and percentage taxes.
b. Under CREATE: Regular corporate income tax (25%/20%)
c. Under TRAIN: Donor’s tax and Estate tax (6%)
d. Capital gains tax on sale of real property classified as capital asset or creditable withholding tax on
sale of ordinary asset (6%)
e. Capital gains tax on sale of shares of stocks not listed in Stock Exchange (15%)
2. Progressive or graduated tax – the tax rate increases as the tax base increases. Progressive rate is
preferred in achieving vertical equity.
Example:
a. Income tax for individual taxpayers (retained under TRAIN)
3. Regressive tax – the tax the rate of which decreases as the tax base increases. The Philippines has no
regressive tax, but some indirect taxes manifest a regressive effect.
4. Mixed tax- mixture of proportional, progressive or regressive.
Example: Income tax for individuals (progressive/graduated) and for corporation (proportional/flat)

F. As to imposing authority
1. National tax – imposed by the National Government. National internal revenue taxes (DIVE-PESO)
Examples:
a. income taxes c. value-added tax e. other percentage taxes g. other taxes
b. estate and donors tax d. excise tax f. documentary stamp tax
2. Local tax – tax imposed municipal or local governments.

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 Examples:
a. real property tax d. community tax; and
b. professional tax e. tax on banks and other financial institutions
c. business taxes, fees and charges

Note:
• Payment of tax is compulsory to those who are covered by imposition
• Taxes are important because they are the lifeblood of the government.
• Taxes are personal. The burden of taxation cannot be transferred from one person to the other by
private agreement as this is determined by law
• While the power of taxation includes the power to destroy, it is not absolute. It is subject to limitation or
restrictions.

Differentiate Tax from Toll

Tax Toll
It is a demand of sovereignty It is a demand of proprietorship
It is one’s support for the government It is a compensation for the use of somebody else’s
property
It is imposed only by the government It may be imposed by the government or private
individuals
It is based on governmental needs It is determined by the cost of property or improvement
thereon

Differentiate Tax from Penalty

Tax Penalty
It is imposed to raise revenue It is imposed to regulate conduct through punishment
and suppression of injurious act
It is imposed only by the government May be imposed by the government or by private
individuals
It arises from law It may arise from law and contract
Generally, payable in money May be paid in money or in kind

Differentiate Tax from Special Assessment

Tax Special Assessment
Levied on business, interests, transactions, rights, Levied on land
persons, properties, or privileges
May be made a personal liability of the person Cannot be made the personal liability of the person
assessed assessed, because it is the land that answers for the
liability
Based on necessity with no hope of direct or Based wholly on benefits received
immediate benefit to the taxpayer
Taxation emanating from necessity – taxation is a
necessary burden to preserve the state’s sovereignty,
and a means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion,
a corps of civil servants to serve, public improvement
designed for the enjoyment of the citizenry and
protection which a government is supposed to
provide.
Is of general application It is exceptional in application for the recovery of cost
and/or maintenance of improvement

Differentiate Tax from Revenue

Tax Revenue
Amount imposed Amount collected

Differentiate Tax from License Fee

Tax
Tax is levied in the exercise of taxing power
The purpose of it is to generate revenue
Generally amount is unlimited
Imposed on person, property, rights or transaction
Non-payment does not make the business illegal
License Fee
License fee emanate from the police power of the state
The purpose of it is regulatory
Limited to the necessary expenses of regulation and
control
Imposed on the exercise of a right or privilege
Non-payment makes the business illegal

Differentiate Tax from Custom Duties

Tax Custom Duties
Imposed on person, property, rights or transaction Imposed on imported or exported goods
It comprehends more than the term custom duties It is also a tax

Differentiate Tax from Debt

Tax Debt
Based on law Based on contract
Not assignable Assignable
Payable in money Payable in kind or in money
Not subject to set-off Subject to set-off
Non-payment may result to imprisonment No imprisonment (except when debt arises from crime)

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 Bears interest only if delinquent Interest depend upon the stipulation of the parties

5. Impositions Other Than Tax

a. Toll – charged for the cost and maintenance of the property used
b. Penalty – punishment for the commission of a crime
c. Compromise Penalty – amount collected in lieu of criminal prosecution in cases of tax violation
d. Special Assessment – levied on land based entirely on the benefit accruing thereon as a result of the
improvements or public works undertaken by the government within the vicinity
e. License or Fee – regulatory imposition in the exercise of the police power
f. Margin Fee – exaction designed to stabilize the currency
g. Debt – a sum of money due upon contract or one which is evidenced by judgment
h. Subsidy – a legislative grant of money in aid of a private enterprise deemed to promote the public welfare
i. Custom Duties and fees – duties charged upon commodities on their being transported into or exported from the
country.
j. Impost – in general sense, it signifies any tax, tribute or duty; in limited sense, it means a duty on imported
goods and merchandise
k. Tithe– contributions given to a church or sect
l. Tribute – imposed by a monarch.

TAX LAW

Any law that provides for the assessment and collection of taxes for the support of the government and other public purposes

Sources of Tax Laws:

1. Constitution 5. Revenue Regulations issued by the DoF
2. Statutes and Presidential Decrees 6. Judicial Decisions
3. Executive Orders and Batas Pambansa 7. Local Ordinances
4. Tax Treaties and conventions with foreign countries

Revenue Regulations
Issuances signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue that specify,
prescribe or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code
(NIRC) and related statutes.

They have the force and effect of law. Generally, prospective in application. Also called Implementing Rules and Regulations.

Revenue Memorandum Order

Issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities, workflows,
methods and procedures necessary in the implementation of stated policies, goals, objectives, plans and programs of the
Bureau in all areas of operations, except auditing.

Generally pertain to internal rules of the BIR. Issued by the CIR. Prospective in application.

Revenue Memorandum Circular

Issuances that publish pertinent and applicable portions, as well as amplifications (clarifications/explanations/interpretations), of
laws, rules, regulations and precedents issued by the BIR and other agencies/offices.

Issued by the CIR. Generally, retroactive in application.

Revenue Administrative Orders (RAOs)

Issuances that cover subject matters dealing strictly with the permanent administrative set-up of the Bureau, more specifically,
the organizational structure, statements of functions and/or responsibilities of BIR offices, definitions and delegations of
authority, staffing and personnel requirements and standards of performance.

Revenue Delegation of Authority Orders (RDAOs)

Refer to functions delegated by the Commissioner to revenue officials in accordance with law.

BIR Rulings – these are the less general interpretations of the tax laws at the administrative levels, being issued upon the
request of the taxpayer. They are merely advisory or sort of an information service to the taxpayer such that, none of them are
binding except to the addressee and may be reversed by the BIR at anytime. Personal to the taxpayer.

NATURE OF PHILIPPINES TAX LAWS

Philippine Tax Laws are civil and nature and character. They remain effective even in times of war. They are not penal in nature
although penalties are provided for their violation because they do not define crimes and provide for their punishment. (Civil,
Not Penal, Not criminal)

FUNDAMENTAL DOCTRINES IN TAXATION

A. Marshall Dictum – “The power to tax includes the power to destroy” – US Justice John Marshall
- Constitutional if taxation power is used validly as an implement of police power in discouraging certain acts and
enterprises inimical to public welfare.
- Unconstitutional if in raising revenue, taxation is allowed to confiscate or destroy properties
B. Holmes Doctrine – “Taxation power is the power to build”, “The power to tax is not the power to destroy while

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 this court sits”– US Justice Oliver Wendell Holmes
The power to tax should not be the power to destroy. The power to destroy is merely a consequence of taxation.
C. Doctrine of Judicial Non-interference
General Rule: The courts cannot inquire into the wisdom of a taxing act or the advisability or expediency of at ax. The
impracticability and absurd consequences of a tax law should be addressed to the legislature and administrative authorities
and not the courts. Exception: Court of Tax Appeals where the collection of tax will cause undue hardship to the
government or taxpayer.
D. Prospectivity of Tax Laws – tax laws are prospective in character and application
Exceptions:
1. The law so provides
2. the retroactive application is necessarily implied from the provisions of the law
3. it involves income tax
4. the retroactive application is clearly the intent of the Congress
E. Imprescriptibility in Taxation – Taxes are imprescriptible unless the law itself provides for such prescription.
F. Principle of “Strictissimi Juris” – “Taxation is the rule and exemption is the exception”
Tax exemption must be strictly construed against the taxpayer and liberally in favor of the government.
G. Doctrine of Equitable Recoupment
- Where the refund of taxes are barred by prescription which can no longer be claimed by a taxpayer but there is a
present tax being assessed against the said taxpayer, such present tax may be recouped or set-off against the tax, the
refund of which has been barred.
- Basis: The government cannot enrich itself at the expense of the taxpayer.
*This doctrine is not applicable in the Philippines as it conflicts with prescription laws.
H. Non-compensation or Set-off Rule
The government and the taxpayer are not creditor and debtor to each other. Taxes are not in the nature of contracts
between the parties but grew out of a duty arising from law; hence, they cannot be set-off. Exception: Excess payment of
same tax type can be credited to succeeding period or when excess is converted to tax credit certificate, the TCC can be
used to pay other internal revenue taxes except CWT/FWT
I. Doctrine of Estoppel
The State cannot be estopped by the neglect, errors, or mistakes of its agents or officers. Thus, the erroneous application
and enforcement of law by public officials do not block the subsequent correct application of the statutes. The doctrine of
estoppel operates only against the taxpayer.

Doctrines of Taxation
1. May the court interfere with tax legislation?
Answer: As long as the legislature, in imposing a tax, does not violate applicable constitutional limitations or
restrictions, it is not within the province of the courts to inquire into the wisdom or policy of the exaction, the
motives behind it, the amount to be raised or the persons, property or other privileges to be taxed. The court’s
power is limited only to the application and interpretation of the law.

2. Is the doctrine of equitable recoupment followed in the Philippines?

Answer: No. A tax presently being assessed against a taxpayer may not be recouped or set-off against an
overpaid tax, the refund of which is already barred by prescription.

3. May a tax be subject of compensation or set-off?

Answer: Generally, no. Taxes cannot be the subject of compensation or set-off. Taxes are not contractual
obligations but one arising out of duty to the government.

4. What is a taxpayer suit?

Answer: It is a case filed by a bona fide taxpayer impugning the validity, legality or constitutionality of a tax law
or its implementation.

5. What is the nature of our tax laws?

Answer: Internal revenue laws are not political in nature. In times of war, they are deemed to be the laws of the
occupied territory and not of the occupying enemy. Tax laws are civil and not penal in nature, although there are
penalties provided for their violation.

6. A tax statute is construed against the government, liberally in favor of the taxpayer; while tax exemptions are
construed against the taxpayer and liberally in favor of the government.

7. Tax laws are special laws which prevail over a general law.

8. Tax laws operate prospectively unless the purpose of the legislature is to give a retrospective effect.

TAX ADMINISTRATION

The Bureau of Internal Revenue

The Bureau of Internal Revenue is tasked with tax administration function of the government. Together with the Bureau of
Customs, they are under the supervision and control of the Department of Finance.

Chief Officials of the Bureau

1. 1 chief officer: The Commissioner of Internal Revenue
2. 4 assistant chief: LINE Deputy Commissioners
3. 2 staff deputy commissioners (creation of Executive Orders)
Note: Tax Code mentioned 1 CIR and 4 Deputy Commissioners. The CIR and Line Deputy Commissioners are members of the
National Evaluation Board (NEB) who is responsible in application for compromise settlement.

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Powers of the Bureau
1. Assessment and collection of taxes
2. Enforcement of all forfeitures, penalties, and fines and judgments in all cases decided in its favor by the courts
3. Giving effects to and administering the supervisory and police powers conferred to it by the NIRC and or other laws
4. Assignment of internal revenue officers and other employees to other duties
5. Provisions and distribution to proper officials of forms, receipts, certificates, stamps; etc
6. Issuances of receipts and clearances
7. Submit annual report, pertinent information to Congress and reports to the Congressional Oversight Committee in matters
of taxation

Powers of the Commissioner of Internal Revenue*

1. To interpret the provisions of the NIRC (subject to review by the Secretary of Finance)
2. To decide tax cases (subject to the exclusive appellate jurisdiction of the Court of Tax Appeals)
3. To obtain information and to summon, examine and take testimony of persons to effect tax collection
a. Summon:
i. Sub poena duces tecum (SDT) – compels the taxpayer to produce the documents
ii. Sub poena ad testificandum – compel the taxpayer to produce documents and testify why there is a
failure to comply with the request to produce
b. Examination (when the BIR makes the audit, it issues notice of audit):
i. Electronic Letter of Authority (e-LOA) – formal document authorizing Revenue Officers (Assessment)
to examine taxpayer records.
ii. Tax Verfication Notice (TVN) – BIR authority to audit taxpayer records but is lower than eLOA
iii. Letter Notice (LN) – third party information. Result of computerized matching of income and expense.
Not equivalent to eLOA or TVN but has the effect of barring taxpayer to amend return. If issued, the LN if
protested must be converted to eLOA
Note: If taxpayer is served with notice of audit, taxpayer is barred from amending returns
4. To make assessment and prescribe additional requirement for tax administration and enforcement. (Note: The BIR can
issue assessment GR: 3 years from date of filing or deadline whichever is later, Exception: 10 years if there is fraud
reckoned from date of discovery). If already elapsed, the right of the BIR to collect has prescribed)
5. To make or amend a return for and in behalf of a taxpayer; or to disregard one filed by the taxpayer
6. To change a tax period
7. To compromise a tax liabilities of taxpayers
a. Doubtful validity – 40% of basic tax (the rate may be lower but with prior approval by the CIR)
b. Financial incapacity – 10% of basic tax (with required documentary requirements)
8. To conduct inventory-stock taking or surveillance (BIR to issue Mission Order(MO)
a. Covert surveillance – secret/posing as taxpayer/not known initially by taxpayer
b. Overt surveillance – known to the taxpayer
Note: The BIR also issues MO during tax mapping operations or Tax Compliance Verification Drive (TCVD)
9. To prescribe presumptive gross sales or receipts (Benchmarking)
10. To prescribe real estate values (zonal valuation)
The CIR is authorized to divide the Philippines into zones or areas and determine the fair market value of the real properties
located in each zones or area.
TRAIN: In exercising this authority, the following shall be observed:
a. Mandatory consultation with both private and public competent appraisers before division of the Philippines into zones.
b. Prior notice to affected taxpayers before the determination of fair market values of the real properties.
c. Publication or posting of adjustments in zonal value in a newspaper of general circulation in the province, city or
municipality concerned.
d. The basis of valuation and records of consultation shall be public records open to the inquiry of any taxpayer.
e. Zonal valuations shall be automatically adjusted once every three years.

11. To accredit tax agents

Individuals or general professional partnerships who have been denied their accreditation may appeal to the Secretary of
Finance who shall act on the appeal within 60 days from the receipt of such appeal. Failure by him to rule on the appeal
within the prescribed period shall be deemed approval of the application for accreditation.
12. To inquire into bank deposits under certain cases:
a. Estate tax purposes to determine gross estate
b. Application of compromise settlement based on financial incapacity
13. To prescribe additional procedures or documentary requirements
14. To delegate his powers to any subordinate officer with rank equivalent to a division chief of an office
15. To refund or credit internal revenue taxes
16. To abate or cancel tax liabilities in certain cases
a. Unjustly or excessively assessed (arbitrary, capricious and whimsical)
b. Cost of collection is higher than the amount to be collected (cost-benefit principle)
17. To examine tax returns and determine tax due thereon (must have an eLOA)
18. To cause revenue officers and employees to make a canvass from time to time of any revenue district or region concerning
taxpayers.

Powers of the CIR that cannot be delegated* (RR-CAAR)

1. The power to recommend the promulgation of rules and regulations to the Secretary of Finance.
2. The power to issue rulings of first impression or to reverse, revoke or modify any existing rulings of the Bureau.
3. The power to compromise or abate any tax liability
Exception: Compromise by Regional Evaluation Boards under the following requisites:
a. assessments are issued by the regional offices involving basic deficiency tax of P500,000.00, and
b. involves minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary
of Finance, upon recommendation of the CIR, discovered by regional and district officials
4. The power to assign and reassign internal revenue officers to establishment where articles subject to excise tax are
produced or kept. Revenue officers assigned to any such establishments shall in no case stay in his assignment for more
than 2 years.

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Rules in assignments to other duties
Revenue officers assigned to perform assessment and collection function shall not remain in the same assignment for more than
3 years. Assignment of internal revenue officers and employees of the Bureau to special duties shall not exceed 1 year.

Agents and Deputies for Collection of National Internal Revenue Taxes

1. The Commissioner of Customs and his subordinates with respect to collection of national internal revenue taxes on
imported goods.
2. The head of appropriate government offices and his subordinates with respect to the collection of energy tax.
3. Banks duly accredited by the Commissioner with respect to receipts of payments of internal revenue taxes authorized to the
made thru banks.

TAX ACCOUNTING PERIODS

Taxable year can be calendar or fiscal year

1. Calendar year – the 12-month period ending December 31 and is applicable to:
a. Individuals
b. taxpayers who do not keep books d. taxpayers with accounting periods other than the fiscal year
c. taxpayers with no annual accounting period
2. Fiscal period – any 12 months period ending the last day of any month other than December 31st. This is Not available to
non-corporate taxpayers.

Normally, accounting period are uniformly 12 months, however, short accounting period may arise in the following cases:
1. death of a taxpayer 3. dissolution of a business
2. newly organized business 4. changes in accounting period

TAX PAYMENTS
ANNUAL:
Individual taxpayers – on or before April 15 of each year covering income for the preceding taxable year (TRAIN)
Non-individual/corporate taxpayers – Return to be filed and tax paid on the 15th day of the fourth month following the close of
the taxpayer’s taxable year.

QUARTERLY
Individual
✓ First – May 15
✓ Second – August 15
✓ Third – November 15
✓ Fourth – on or before April 15 of the following calendar year when the final adjusted income tax return is due to be
filed.

Non-individual/Corporation (60 days after the close of quarter)

✓ First – May 30
✓ Second – August 29
✓ Third – November 29

TAX ACCOUNTING METHODS

A. Principal Methods
1. Cash Basis Method – income is recorded in the year it is actually or constructively received; expenses are generally
reported in the year it is paid
2. Accrual Method – income is reported in the year it is earned and expenses are deducted in the year incurred
3. Hybrid method – combination of both cash basis and accrual basis method
B. Deferred Payment Sales
1. Installment method – applicable in the following three cases only:
a. Sale of personal property by a dealer
b. Casual sale of personal property where:
a. selling price is over P1,000.00
b. initial payment do not exceed 25% of the selling price
c. property is of a kind which would be included in the taxpayer’s inventory if on hand at the close of the taxable
year
c. Sale of real property where the initial payment do not exceed 25% of the selling price
Initial Payment – refers to payments which the seller receives upon the execution of the instruments of sale and
those scheduled to be received in the year of sale or disposition. It simply means “total first year payments” but do
not include receipts of evidence of indebtedness of the buyer such as notes.
2. Deferred payment basis – applicable when the buyer has issued evidence of obligation (notes). The notes shall be
valued at its market value at the date of receipt. The difference between the fair value and the face value is reported
as interest income in future taxable period. This is an alternative to delaying tax payments when the installment
method is not available.
C. Long-term Construction Contracts
1. Percentage of completion – this is applicable only to long-term construction contracts covering a period in excess of
one year (Architect or engineer’s certification is required)
D. Farming income
Crop year basis – applicable only to farmers engaged in the production of crops which takes more than a year from the time
of planting to the process of gathering and disposal. Expenses paid or incurred are deductible in the year the gross income
from the sale of the crops is realized.
E. Leasehold improvement
1. Outright method – the value of the leasehold improvement attributable to the lessor is reported in taxable income at

P a g e | 23
 the time of completion of the leasehold
2. Spread-out method – the value of the leasehold improvement attributable to the lessor is recognized in taxable income
over the lease term

Change of Accounting Method

- Prior BIR approval is required

Systems of Taxation

1. Global System- All items of gross income, deductions are reported in one income tax return and the applicable tax rate is
applied on the tax base.
2. Schedular System- Different types of income are subject to different sets of graduated or flat income tax rates.

Global System Schedular System

Unitary or single tax rate Different tax rates
No need for classification as all taxpayers are subjected to a Different categories of taxable income
single rate
Applied to corporations Usually used in the income taxation of individuals
Business income, professional income, passive income, illegal Business income, professional income, passive income,
income. All of them will be added together and be subjected illegal income. You cannot add all of them together.
to one tax rate
Approach used in the Philippines: Party schedular (i.e. income for individual) partly global (i.e. income tax for
corporations).

Organization of the BIR, LGU, and FIRB

Bureau of Internal BIR- is an administrative agency which is involved in the administration and collection of national
Revenue (BIR) taxes. It is under the supervision and control of the Department of Finance. The power and duties
of BIR are the following:
a. Assessment and collection of all national internal revenue taxes, fees and charges.
b. Enforcement of all forfeitures, penalties and fines connected therewith.
c. Execution of judgments in all cases decided in its favour by the Court of Tax Appeals (CTA)
and the ordinary courts; and
d. Give effect to and administer the supervisory and police power conferred to it by the
National Internal Revenue Code (NIRC) or other laws.

Power of the Commissioner of Internal Revenue

The Commissioner has been given broad powers in order to enforce tax law and collect the needed
revenue. These include the following:
1. To interpret tax laws and to decide tax cases.
2. To obtain information and to summon, examine and take testimony of persons.
3. To make assessments and prescribe additional requirements for tax administration and
enforcement.

Local Government Tax LGU- includes provinces, cities, municipalities and barangays. They have the power to create its
Collecting Units own sources of revenue and to levy taxes, fees and charges, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units.

Fiscal Incentives The FIRB is the interagency government body given the authority by the Philippine law to grant tax
Review Board (FIRB) incentives to registered business enterprises. The FIRB has delegated to the country’s investment
promotion agencies the grant of tax incentives for registered projects or activities with investment
capital of one billion pesos (P1,000,000,000) and below. The FIRB also grants tax subsidies to
government-owned and -controlled corporations (GOCCs).

I. Power to Interpret Tax Laws and to Decide

Tax Cases (Sec. 4)
A. The power to interpret the provisions
of the Tax Code and other tax laws
shall be under the exclusive and
original jurisdiction of the
Commissioner, subject to review by
the Secretary of Finance;
B. The power to decide disputed
assessments, refunds of internal
revenue, taxes, fees and other
charges, penalties imposed in relation
thereto, or other matters arising under
the Tax Code or other laws or portions
thereof administered by the Bureau of
Internal Revenue is vested in the
Commissioner, subject to the exclusive
appellate jurisdiction of the Court of
Tax Appeals
P a g e | 24
II. Power to obtain information and to Summon, Examine, and Take Testimony of Persons (Sec. 5)
In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the
liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance,
the Commissioner is authorized:

A. To examine any book, paper, record, or data which may be relevant or material to such inquiry
B. To obtain on a regular basis any information such as, but not limited to, costs and volume of production, receipts
or sales and gross income of taxpayers, and the names, addresses, and financial statements of corporations and
other companies and their members;
TRAIN LAW
Additional provision: The Cooperative Development Authority shall submit a report on tax incentives
availed by cooperatives to the BIR and DOF. These information shall be included in the Tax Incentives
Management and Transparency Act (TIMTA) database.
C. To summon persons to appear before the Commissioner or his duly authorized representative at a time and place
specified in the summons and to produce books, papers, records or other data and to give testimony;
D. To take such testimony of the persons concerned, under oath, as may be relevant or material to such inquiry;
E. To cause revenue officers and employees to make a canvass from time to time of any revenue district or region
and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all
persons owning or having the care, management or possession of any object with respect to which a tax is
imposed.

III. Power to Make Assessments and Prescribe Additional requirements for Tax Administration and Enforcement
(Sec. 6)

A. Examination of Returns and Determination of Tax Due

1.) After a return has been filed or when there is failure to file a return, the Commissioner or his duly authorized
representative may authorize the examination of any taxpayer and the assessment of the correct amount of
tax, notwithstanding any law requiring the prior authorization of any government agency or
instrumentality: Provided, however, that failure to file a return shall not prevent the Commissioner from
authorizing the examination of any taxpayer;
2.) The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or
from his duly authorized representative;
3.) Any return, statement or declaration filed in any office authorized to receive the same shall not be withdrawn;
Provided, That within three (3) years from the date of such filing, the same may be modified /changed or
amended; Provided, further, That no notice or audit or investigation of such return, statement or declaration
has, in the meantime, been actually served to the taxpayer.

B. Failure to Submit Required Returns, Statements, Reports and other Documents

1.) When a report required by law as a basis for assessment of any national internal revenue tax shall not be
forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any
such report is false, incomplete, or erroneous, the Commissioner shall assess the proper tax on the best
evidence obtainable;
2.) In case a person fails to file a required return or other document at the time prescribed by law, or wilfully or
from his own knowledge and from such information as he can obtain through testimony or otherwise, which
shall be prima facie correct and sufficient for all legal purposes.

C. Authority to Conduct Inventory-Taking, Surveillance and to Prescribe Presumptive Gross Sales and
Receipts
1.) The Commissioner may, at any time during the taxable year, order inventory-taking of goods of any taxpayer
as a basis for determining his internal revenue tax liabilities, or may place the business operations of any
person, natural or juridical, under observation or surveillance if there is reason to believe that such person is
not declaring his correct income, sales or receipts for internal revenue tax purposes;
2.) The findings may be used as a basis for assessing the taxes for the other months or quarters of the same or
different taxable years and such assessment shall be deemed prima facie correct;
3.) When it is found that a person has failed to issue receipts and invoices in violation of the requirements of the
Tax Code, or when there is reason to believe that the books of accounts and other records do not correctly
reflect the declarations made or to be made in a return required to be filed under the provisions of the Tax
Code, the Commissioner, after taking into account the sales, receipts, income or other taxable base of other
persons engaged in similar business under similar situations or circumstances or after considering other
relevant information, may prescribe a minimum amount of such gross receipts, sales and taxable base, and
such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax
liabilities of such persons.

D. Authority to Terminate Taxable Period

1.) The Commissioner shall declare the period of a taxpayer terminated at any time when it shall come to his
knowledge:
a. That a person is retiring from business subject to tax, or

P a g e | 25
 b. Is intending to leave the Philippines or remove his property therefrom or to hide or conceal his property,
or
c. Is performing any act tending to obstruct the proceedings for the collection of the tax for the past or
current quarter or year or to render the same totally or partly ineffective unless such proceedings are
begun immediately.
2.) The Commissioner shall send the taxpayer a notice of his decision to terminate together with a request for
immediate payment of the tax for the period so declared terminated and the tax for the preceding year or
quarter, or such portion thereof as may be unpaid, and said taxes shall be due and payable immediately and
shall be subject to all penalties prescribed, unless paid within the time fixed in the demand made by the
Commissioner.

E. Authority to Prescribe Real Property Values

1.) The Commissioner is hereby authorized to divide the Philippines into different zones or areas and shall, upon
consultation with competent appraisers both from the private and public sectors, determine the fair market
value of real properties located in each zone or area.

In exercising this authority, the following shall be observed:

1. Mandatory consultation with both private and public competent appraisers before division of the Philippines
into zones.
2. Prior notice to affected taxpayers before the determination of fair market values of the real properties.
3. Publication or posting of adjustments in zonal value in a newspaper of general circulation in the province,
city or municipality concerned.
4. The basis of valuation and records of consultation shall be public records open to the inquiry of any taxpayer.
5. Zonal valuations shall be automatically adjusted once every three years

2.) For purposes of computing any internal revenue tax, the value of the property shall be, whichever is the higher
of:
a. the fair market value as determined by the Commissioner; or
b. the fair market value as shown in the schedule of values of the Provincial and City Assessors.

F. Authority to Inquire into Bank Deposit Accounts

1.) Notwithstanding any contrary provisions of R.A. No. 1405 and other general or special laws, the Commissioner
is hereby authorized to inquire into bank deposits of:
a. decedent to determine his gross estate; and
b. any taxpayer who has filed an application for compromise of his tax liability by reason of financial
incapacity to pay his liability.
2.) In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his
financial position demonstrates a clear inability to pay the tax assessed, his application shall not be considered
unless and until he waives in writing his privilege under R.A. No. 1405 or under other general or special laws,
and such waiver shall constitute and authority of the Commissioner to inquire into the bank deposits of the
taxpayer.

G. Authority to Accredit and Register Tax Agents

1.) The Commissioner shall accredit and register, based on their professional competence, integrity and moral
fitness, individuals and general professional partnerships and their representatives who prepare and file tax
returns, statements, reports, protests, and other papers with, or who appear before the Bureau for taxpayers;
2.) Individuals and general professional partnerships and their representatives who are denied accreditation by the
Commissioner and/or the national and regional accreditation boards may appeal such denial to the Secretary
of Finance, who shall rule on the Appeal within sixty (60) days from receipt of such appeal;
3.) Failure of the Secretary of Finance to rule on the appeal within the prescribed period shall be deemed as
approval of the application for accreditation of the appellant.

H. Authority to Prescribe Additional Procedural or Documentary Requirements

1.) The Commissioner may prescribe the manner of compliance with any documentary or procedural requirement
in connection with the submission or preparation of financial statements accompanying the tax returns.

IV. Authority of the Commissioner to Delegate Power (Sec. 7)

A. The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any
or such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations and
restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner;
B. The following powers of the Commissioner shall not be delegated;
1.) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;
2.) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;
3.) The power to compromise or abate any tax liability;
4.) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax
are produced or kept.

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V. Organization of the Bureau of Internal Revenue

Powers and Duties The Bureau of Internal Revenue shall be under the supervision and control of the Department of
of the Bureau of Finance and its powers and duties shall comprehend the assessment and collection of all national
Internal Revenue internal revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and
fines connected therewith, including the execution of judgments in all cases decided in its favor by
the Court of Tax Appeals
Chief Officials of The Bureau of Internal Revenue shall have a chief to be known as:
the Bureau of a. Commissioner of Internal Revenue, hereinafter referred to as the Commissioner, and
Internal Revenue b. Four deputy commissioners
1. Legal and inspection group
2. Information systems group
3. Operations group
4. Resources management group

VI. Local Tax Collecting Units

Scope of local The provision under Local Government Taxation shall govern the exercise by provinces, cities,
taxes municipalities, and Barangays of their taxing and other revenue-raising powers.

Local Taxing The power to impose a tax, fee, or charge or to generate revenue under this Code shall be exercised
Authority by the Sanggunian of the local government unit concerned through an appropriate ordinance.

Venue of Filing of All local taxes, fees, and charges shall be collected by the provincial, city, municipal, or Barangay
Return treasurer, or their duly authorized deputies.

Time of filing of Unless otherwise provided in this Code, all local taxes, fees, and charges shall be paid within the first
tax return twenty (20) days of January or of each subsequent quarter, as the case may be.

The Sanggunian concerned may, for a justifiable reason or cause, extend the time of payment of
such taxes, fees, or charges without surcharges or penalties, but only for a period not exceeding six
(6) months.

VII. FIRB (Fiscal Incentives Review Board)

CHAPTER III
"THE FISCAL INCENTIVES REVIEW BOARD

SEC. 297. Expanded Functions of the Fiscal Incentives Review Board. — The functions and powers of the Fiscal
Incentives Review Board created under Presidential Decree No. 776, as amended, shall be expanded as follows:

A. To exercise policy making and oversight functions on the administration and grant of tax incentives by the
Investment Promotion Agencies and other government agencies administering tax incentives. In particular, the
Fiscal Incentives Review Board shall:
1. Determine the target performance metrics as conditions to avail of tax incentives;
2. Review and audit the compliance of other government agencies administering tax incentives, with respect to the
administration and grant of tax incentives and impose sanctions such as, but not limited to, withdrawal, suspension,
or cancellation of their power to grant tax incentives;
3. Determine the minimum contiguous land area that vertical economic zones should comply with;
4. Conduct regular monitoring and evaluation of investment and non-investment tax incentives, such as using cost-
benefit analysis (CBA) to determine their impact on the economy and whether agreed performance targets are met;
and
5. Check and verify, as necessary, the compliance of registered business enterprises with the terms and conditions of
their availment, in particular the agreed target performance metrics, rules and regulations of this Act, and other
relevant laws or issuances;

B. To approve or disapprove, the grant of tax incentives to the extent of the registered project or activity upon the
recommendation of the Investment Promotion Agency: Provided, That the application for tax incentives shall be duly
accompanied by a cost-benefit analysis: Provided, further, That the Fiscal Incentives Review Board shall prescribe
the data requirements for the application of incentives to allow for the calculation of costs and benefits upon
application: Provided, further, That the grant of tax incentives to registered projects or activities with investment
capital of One billion pesos (P1,000,000,000.00) and below shall be delegated by the Fiscal Incentives

Review Board to the concerned Investment Promotion Agency to the extent of the registered project or activity:
Provided, furthermore, That the Fiscal Incentives Review Board may increase the threshold amount of One billion
pesos (P1,000,000,000.00): Provided, finally, That the application for tax incentives shall be deemed approved if not
acted upon within twenty (20) days from the date of submission of the application and complete relevant supporting
documents to the Fiscal Incentives Review Board or the Investment Promotion Agency, as the case may be;

C. To approve applications for tax subsidies to government-owned or -controlled corporations, government

instrumentalities, government commissaries, and state universities and colleges.

For this purpose, the other government agencies shall ensure complete submission of applications, documents,
records, books, or other relevant data or material;

P a g e | 27
 D. To formulate place-specific strategic investment plans during periods of recovery from calamities and post-conflict
situations and where the Fiscal Incentives Review Board determines that there is a need to attract many classes,
firms, that would accelerate the growth of a region's flagship industries, in accordance with the Medium-Term
Development Plan. The Fiscal Incentives Review Board may formulate and approve place-specific strategic
investment plans and recommend incentives to the President, following the same procedure in Section 297;

E. To cancel, suspend, or withdraw the enjoyment of fiscal incentives of concerned registered business enterprises on
its own initiative or upon the recommendation of the Investment Promotion Agency for material violations of any of
the conditions imposed in the grant of fiscal incentives, including, but not limited to, the non-compliance of the
agreed performance commitments and endorse registered business enterprises whose incentives are cancelled,
suspended, or withdrawn to the concerned revenue agencies for the assessment and collection of taxes and duties
due commencing from the first year of availment;

F. To cancel, suspend, or withdraw the enjoyment of tax subsidy of concerned government-owned or -controlled
corporations, government instrumentalities, government commissaries, and state universities and colleges, and
when necessary, endorse the same to the concerned revenue agencies for assessment and collection of taxes and
duties due, including fines or penalties, if warranted, for violations of any of the conditions imposed in the grant of
tax subsidy, or provisions of this Act, or applicable rules;

G. To require Investment Promotion Agencies and other government agencies administering tax incentives to submit,
regularly or when requested, summaries of approved investment and incentives granted, and firm- or entity-level
tax incentives and benefits data as input to the Fiscal Incentives Review Board's review and audit function, and
evaluation of performance of recipients of tax incentives. For this purpose, the Fiscal Incentives Review Board shall
maintain a masterlist of registered products and services for export or domestic consumption that are entitled to
incentives: Provided, That, to facilitate compliance with the foregoing, the Department of Trade and Industry, in
coordination with relevant regulatory bodies, shall cause the registration and reporting by registered business
enterprises of the types of services rendered whether domestically or to foreign clients; types of products
manufactured domestically, products imported and sold locally, and products exported;

H. To publish regularly, per firm, the data pertaining to the amount of tax incentives, tax payments, and other related
information, including benefits data;

I. To obtain information, summon, examine, inquire and receive from other government agencies administering tax
incentives, government-owned or -controlled corporations, government instrumentalities, government
commissaries, state universities and colleges, and local government units, documents, records, books, or other data
relevant or material to the resolution of issues arising from the approval, disapproval, cancellation, suspension,
withdrawal or forfeiture of tax subsidy, or in imposing penalties for violations of the terms and conditions on the
availment of tax subsidy, or any of the provisions of this Act;

J. To submit annual reports to the Office of the President, as part of the budget process, covering its policy and
activities in the administration of this Act, including recommendations on tax incentive policies and approval of tax
incentives;

K. To decide on issues, on its own initiative or upon the recommendation of the Investment Promotion Agency, after
due hearing, concerning the approval, disapproval, cancellation, suspension, withdrawal, or forfeiture of tax
incentives or tax subsidy in accordance with this Act. The Fiscal Incentives Review Board shall decide on the matter
within ninety (90) days from the date when the Fiscal Incentives Review Board declares the issues submitted for
resolution. A business enterprise adversely affected by the decision of the Fiscal Incentives Review Board may,
within thirty (30) days from receipt of the adverse decision, appeal the same to the Court of Tax Appeals;

L. To promulgate such rules and regulations as may be necessary to implement the intent and provisions of this
Section;

M. To recommend to the President the grant of appropriate non-fiscal incentives in accordance with the Strategic
Investment Priority Plan for highly desirable projects or very specific industrial activities and based on: (a) benefit-
cost analysis approved by the Fiscal Incentives Review Board; and (b) containing a schedule of budgets of
expenditures and sources of financing with magnitudes provisionally approved via resolution for inclusion in the
upcoming National Expenditure Plans by the Development Budget Coordination Committee;

N. To adopt policies for the development and expansion of the domestic supply chain in order to reduce dependence on
imports; promote diversification and sophistication of products produced and services offered, whether exported or
consumed locally; and cater to local market demand; and

O. To exercise all other powers necessary or incidental to attain the purposes of this Act and other laws vesting
additional functions on the Fiscal Incentives Review Board.

"The functions of the Fiscal Incentives Review Board under Sections 297(A)(1) and (5), (E), (G), (H), (J), and (K)
shall be exercised in relation to the grant of tax incentives to registered projects or activities with the total
investment capital of more than One billion pesos (P1,000,000,000.00), as provided herein.

Notwithstanding the provisions in the preceding paragraphs, tax and duty incentives granted through legislative
franchises shall be excepted from the foregoing expanded powers of the Fiscal Incentives Review Board to review,
withdraw, suspend, or cancel tax incentives and subsidies.

SEC. 298. Composition of the Fiscal Incentives Review Board. — The Fiscal Incentives Review Board shall be
reconstituted as follows:

Chairperson Secretary of Finance

Co-Chairperson Secretary of Trade and Industry

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 Members Executive Secretary of the Office of the President
Secretary of Budget and Management
Director General of the National Economic and Development Authority

The Board shall have a technical committee, which shall serve as its main support unit and perform functions as may be
assigned, and shall be composed of the following:

Chairperson Undersecretary of Finance

Members Undersecretary or Assistant Secretary of the Office of the Executive Secretary
Undersecretary of Trade and Industry and Board of Investments Managing Head or
Assistant Secretary of Trade and Industry
Undersecretary or Assistant Secretary of Budget and Management
Deputy or Assistant Director General of the National Economic and Development
Authority
Commissioner or Deputy Commissioner of Internal Revenue
Commissioner or Deputy Commissioner of Customs
Commissioner of the Philippine Competition Commission
Director General or Chairperson or Administrator of the Investment Promotion
Agencies: Provided, that the participation of the Investment Promotion Agency
representatives in deliberations and decision-making processes of the technical
committee shall be limited to the matters concerning their Investment Promotion
Agency
Secretariat The secretariat shall be headed by an Assistant Secretary of Finance and shall be
staffed by the National Tax Research Center

SEC. 299. Structure and Staffing Pattern. — To support the expanded functions of the Fiscal Incentives Review Board,
the National Tax Research Center, as secretariat thereof, shall create three (3) additional groups, namely, Fiscal
Incentives Management Group, Monitoring and Evaluation Group, and Legal Group. Each group shall be composed of at
least two (2) divisions, which will be headed by a deputy executive director. The existing administrative and financial
branch of the National Tax Research Center shall be converted into a group to be headed by a deputy executive director
and will be composed of four (4) divisions, namely, finance, human resource management and development, general
services, and management and information system.

Provided, That the Fiscal Incentives Review Board secretariat is authorized to determine its organizational structure and
staffing pattern, and create such services, divisions, and units, as it may require or deem necessary in the future, subject
to the approval by the Department of Budget and Management: Provided, finally, That nothing herein modifies the existing
organizational structure and staffing pattern of the Investment Promotion Agencies or affects their power to maintain or
determine their respective organizational structure and staffing pattern."

CHAPTER IV
QUALIFIED PROJECTS OR ACTIVITIES FOR TAX INCENTIVES

SEC. 300. Strategic Investment Priority Plan. — The Board of investments, in coordination with the Fiscal Incentives
Review Board, Investment Promotion Agencies, other government agencies administering tax incentives, and the private
sector, shall formulate the Strategic Investment Priority Plan to be submitted to the President for approval, which may
contain recommendations for types of non-fiscal support needed to create high-skilled jobs to grow a local pool of
enterprises, particularly micro, small and medium enterprises (MSMEs), that can supply to domestic and global value
chains, to increase the sophistication of products and services that are produced and/or sourced domestically, to expand
domestic supply and reduce dependence on imports, and to attract significant foreign capital or investment. The Strategic
Investment Priority Plan shall be valid for a period of three (3) years, subject to review and amendment every three (3)
years thereafter unless there would be a supervening event that would necessitate its review.

The Strategic Investment Priority Plan shall contain the following:

A. Priority projects or activities that are included in the Philippine Development Plan or its equivalent, or other
government programs, taking into account any of the following:
1. Substantial amount of investments;
2. Considerable generation of employment, especially towards less developed areas;
3. Considerable amount of net exports;
4. Use of modern, advance, or new technology;
5. Processes and innovations that will lead towards the attainment of the sustainable development goal's, shall
include, but not be limited to, adoption of adequate environmental protection systems and sustainability
strategies;
6. Addressing missing links and other gaps in the supply or value chain or otherwise moving up the value chain or
product ladder;
7. Promotion of market competitiveness;
8. Enhancement of the capabilities of Filipino enterprises and professionals to produce and offer increasingly
sophisticated products and services;
9. Contribution to Philippine food security and increase incomes in the agriculture and fisheries sector; or
10. Services and activities that can promote regional and global operations in the country.

B. Scope and coverage of location and industry tiers in Section 296; and
C. Terms and conditions on the grant of enhanced deductions under Section 294(C).

All sectors or industries that may be included in the Strategic Investment Priority Plan shall undergo an
evaluation process to determine the suitability and potential of the industry or the sector in promoting long-term
growth and sustainable development, and the national interest. In no case shall a sector or industry be included

P a g e | 29
 in the Strategic Investment Priority Plan unless it is supported by a formal evaluation process or report.

The projects or activities must comply with the specific qualification requirements or conditions for a particular
sector or industry and other limitations as set and determined by the Board of Investments, and in coordination
with the Fiscal Incentives Review Board.

In no case shall the Investment Promotion Agencies accept applications unless the project or activity is listed in
the Strategic Investment Priority Plan. Projects or activities not listed in the Strategic Investment Priority Plan
shall be automatically disapproved.

SEC. 301. Power of the President to Grant Incentives. — Notwithstanding the provisions of Sections 295 and 296,
the President may, in the interest of national economic development and upon the recommendation of the Fiscal
Incentives Review Board, modify the mix, period or manner of availment of incentives provided under this Code or craft
the appropriate financial support package for a highly desirable project or a specific industrial activity based on defined
development strategies for creating high-value jobs, building new industries to diversify economic activities, and attracting
significant foreign and domestic capital or investment, and the fiscal requirements of the activity or project, subject to
maximum incentive levels recommended by the Fiscal Incentives Review Board: Provided, That the grant of income tax
holiday shall not exceed eight (8) years and thereafter, a special corporate income tax rate of five percent (5%) may be
granted: Provided, further, That the total period of incentive availment shall not exceed forty (40) years.

The Fiscal Incentives Review Board shall determine whether the benefits that the Government may derive from such
investment are clear and convincing and far outweigh the cost of incentives that will be granted in determining whether a
project or activity is highly desirable.

The exercise by the President of his powers under this Section shall be based on a positive recommendation from the
Fiscal Incentives Review Board upon its determination that the following conditions are satisfied:

1. The project has a comprehensive sustainable development plan with clear inclusive business approaches, and
high level of sophistication and innovation; and
2. Minimum investment capital of Fifty billion pesos (P50,000,000,000.00) or its equivalent in US dollars, or a
minimum direct local employment generation of at least ten thousand (10,000) within three (3) years from the
issuance of the certificate of entitlement.

Provided, That the threshold shall be subject to a periodic review by the Fiscal Incentives Review Board every three (3)
years, taking into consideration international standards or other economic indicators: Provided, further, That if the
project fails to substantially meet the projected impact on the economy and agreed performance targets, the Fiscal
Incentives Review Board shall recommend to the President the cancellation of the tax incentive or financial support
package or the modified period or manner of availment of incentives, after due hearing and an adequate opportunity to
substantially comply with the agreed performance targets and outputs.

For this purpose, financial support includes utilization of government resources such as land use, water appropriation,
power provision, and budgetary support provision under the annual General Appropriations Act.

This power of the President, in as far as it commands additional public sector expenditures in support of investors, is
suspended during fiscal years when, an unimaginable fiscal deficit is declared by the President on the advice of the
Development Budget Coordination Committee with a consequence that even core budgetary obligations, such as, but not
limited to, mandatory revenue allotments for local government units and budget for the National Economic and
Development Authority's core public investments program, cannot be fully financed.

The President may, upon request of an Investment Promotion Agency, exempt the latter from the coverage of the
provisions of Title XIII of this Code with respect to the review and approval of applications for incentives, or modify the
policy on thresholds for Fiscal Incentives Review Board approvals, pursuant to Section 297, should any of the following
conditions exist:

A. When incentives system provided herein cause a significant, demonstrable, and attributable damage to the
performance of an Investment Promotion Agency;
B. When it is reasonably evident that the incentives granted are no longer adequate, necessary, or appropriate;
C. When there is need to modify incentive privileges in the light of technological, economic, and social changes; or
D. When there is need to redesign the tax incentive schemes to obviate unemployment and avoid economic and
social dislocation:

Provided, That the abovementioned request is approved by a majority vote of its governing board:

Provided, further, That such request is supported by a cost-benefit analysis reviewed by the Fiscal Incentives
Review Board, and other quantitative and qualitative evidence demonstrating the Investment Promotion Agency's
performance:

Provided, finally, That the Investment Promotion Agency shall abide by the incentives regime provided herein:

Notwithstanding the provisions in the preceding paragraphs, tax and duty incentives granted through legislative franchises
shall be excepted from the foregoing powers of the President to review, withdraw, suspend, or cancel tax incentives and
subsidies.

SEC. 302. Amendments to the Strategic Investment Priority Plan. — Subject to publication requirements and the
criteria for investment priority determination, the Board of Investments may include additional areas in the Strategic
Investment Priority Plan, alter any of the terms of the declaration of an investment area, and temporarily suspend projects
or activities on the Strategic Investment Priority Plan if it considers that such project or activity is no longer a priority
within the effectivity of the Strategic Investment Priority Plan.

SEC. 303. Publication — Upon approval of the Strategic Investment Priority Plan, in whole or in part, or upon approval

P a g e | 30
 of an amendment thereof, the Plan or the amendment, specifying and declaring the areas of investments shall be
published in at least one (1) newspaper of general circulation or in the Official Gazette: Provided, That all such areas in
the existing Strategic Investment Priority Plan shall be open for application until publication of an amendment or deletion
thereof.

SEC. 304. Qualifications of a Registered Business Enterprise for Tax Incentives. — In the review and grant of tax
incentives, the registered business enterprise must:
A. Be engaged in a project or activity included in the Strategic Investment Priority Plan;
B. Meet the target performance metrics after the agreed time period;
C. Install an adequate accounting system that shall identify the investments, revenues, costs and profits or losses of
each registered project or activity undertaken by the enterprise separately from the aggregate investments,
revenues, costs and profits or losses of the whole enterprise; or establish a separate corporation for each
registered project or activity if the Investment Promotion Agency should so require;
D. Comply with the e-receipting and e-sales requirement in accordance with Sections 237 and 237(a) of this Code;
and
E. Submit annual reports of beneficial ownership of the organization and related parties."

REVIEW QUESTIONS

1. They exist independent of the Constitution being fundamental powers of the State, except:
A. Taxation B. Police Power C. Eminent Domain D. People Power

2. The process or means by which the sovereign, through its law-making body raises income to defray the necessary expenses of
the government:
A. Toll B. Taxation C. License Fee D. Assessment

3. Which of the following inherent powers of the government is inferior to the non-impairment clause of the constitution?
A. Taxation B. Eminent Domain C. Police Power D. A and C

4. The power to acquire private property upon payment of just compensation for public purpose:
A. Taxation B. Eminent Domain C. Police Power D. Power of recall

5. Which of the following may not raise money for the government?
A. Power of Taxation
B. Police Power
C. Power of Eminent Domain
D. Privatization of government’s capital assets

6. The power to regulate liberty and property to promote the general welfare:
A. Taxation B. Eminent Domain C. Police Power D. Power of recall

7. The power to demand proportionate contributions from persons and property to defray the necessary expenses of the
government:
A. Taxation B. Eminent Domain C. Police Power D. Power of recall

8. Which statement is wrong?

A. The power of taxation is an inherent power of the State;
B. The power of taxation cannot be delegated as a rule;
C. License Fees may discriminate against not-useful activities;
D. Eminent domain can be made to apply to all properties within the State.

9. The power to tax is the power to destroy. Is this always so?

A. Yes. The tax collectors should enforce a tax law even if it results to the destruction of the property rights of a taxpayer.
B. Yes. The tax laws should always be enforced because, without taxes, they very existence of the State is endangered.
C. No. The Supreme Court may nullify a tax law. Hence, property rights are not affected.
D. No. The Executive Branch may decide not to enforce a tax law which it believes to be confiscatory.

10. Police power as distinguished from eminent domain.

A. Just compensation is received by the owner of the property.
B. May be exercised by private individuals.
C. Superior to non-impairment clause of the institution.
D. Property is taken by the government for public purposes.

11. The following are common to the inherent power of taxation, power of eminent domain and police power, except for which of the
following?
A. They are necessary attributes of sovereignty.
B. They interfere with public rights and property.
C. They affect all persons or the public.
D. They are legislative in implementation.

12. The principal purpose of taxation is:

A. To encourage the growth of home industries through the proper use of tax incentives
B. To implement the police power of the state
C. To reduce excessive inequalities of wealth
D. To raise revenue for the governmental needs

13. Which of the following is not a secondary purpose of taxation?

A. To serve as key instrument of social control
P a g e | 31
 B. To effect a more equitable distribution of wealth among people
C. To achieve social and economic stability
D. To raise revenue to defray the necessary expenses of the government

14. Which of the following is not a characteristic of the State’s power to tax?
A. It is inherent in sovereignty.
B. It is legislative in character.
C. It is based on the ability to pay.
D. It is subject to constitutional and inherent limitations.

15. Statement 1: The power of taxation is inherent in sovereignty being essential to the existence of every government. Hence,
even if not mentioned in the Constitution, the State can still exercise the power.

Statement 2: Taxation is essentially a legislative function. Even in the absence of any constitutional provision, taxation power
falls to Congress as part of the general power of lawmaking.
A. Both statements are false C. Both statements are true
B. Only statement 1 is false D. Only statement 1 is true

16. The power of taxation proceeds upon what theory?

A. Government is a necessity theory C. Benefits received theory
B. Ability to pay D. Severance Test

17. That taxation is based on the principle of reciprocal duties of protection and support between the State and its inhabitants.
A. Government is a necessity theory C. Benefits received theory
B. Ability to pay D. Severance Test

18. It is an enforced contribution levied by the State by virtue of the sovereignty on persons and property within its jurisdiction for
the support of the government and all public needs.
A. Tax B. Special Assessment C. Toll D. License

19. One of the following is not a characteristic or an element of tax:

A. It is levied by the legislature
B. It is proportionate in character
C. It is payable in money or in kind
D. It is an enforced contribution

20. One of the characteristics of tax is that:

A. It is generally based on contract
B. It is generally assignable
C. It is generally payable in money
D. Answer not given

21. All of the following, except one, are basic principles of a sound tax system:
A. Fiscal Adequacy
B. Theoretical Justice
C. Administrative Feasibility
D. Inherent in Sovereignty

22. Under this basic principle of a sound tax system, the government should not incur a deficit:
A. Theoretical justice
B. Fiscal Adequacy
C. Administrative Feasibility
D. None of the above

23. The basic principle of a sound tax system, where, “Taxes must be based on the taxpayer’s ability to pay” is called:
A. Equality in Taxation
B. Theoretical Justice
C. Ability to pay Theory
D. Equity in Taxation

24. These are part and parcel of the power of taxation and originate from the very nature of taxation.
A. Inherent Limitations B. Canons of Taxation C. Constitutional Limitations D. None of the choices

25. The religious congregation was organized as a corporation sole. It owns a 5,000 sq. m. Lot, registered in the name of the rector
and rented out for use as a school site of an educational institution organized for profit. The sect used the rentals for the
support and unkeep of its priests. Choose the most appropriate ruling about real property tax (RPT) exemption of the 5,000 sq.
m. Lot.
A. Exempt from the payment of RPT because it is actually, directly and exclusively used for religious purposes.
B. Not exempt from the payment of RPT because it is the proceeds, and not the property, that is actually, directly and
exclusively used for religious purposes.
C. Not exempt from the payment of RPT because the user is organized for profit.
D. Exempt from the payment of RPT because it is actually, directly and exclusively used for educational purposes.

26. The following constitute double taxation except one:

A. Both taxes are imposed in the same amount
B. Both taxes are levied for the same purpose
C. Both taxes are imposed by the same taxing authority
D. Both taxes are imposed upon the same person

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27. A tax must be imposed for a public purpose. Which of the following is not a public purpose?
A. National Defense B. Improvement of Sugar Industry C. Public Education D. None of the choices

28. A fundamental rule in taxation is that “the property of one country may not be taxed by another country”. This is known as:
A. International Law B. International Comity C. Reciprocity D. International Inhibition

29. Being legislative in nature, the power to tax may not be delegated, except:
A. To local governments or political subdivisions
B. When allowed by the Constitution
C. When delegation relates merely to administrative implementation that may call for some degree of discretionary powers
under a set of sufficient standards expressed by law or implied from the policy and purpose of the Act
D. All of the choices

30. “Government agencies performing governmental functions are exempt from tax unless expressly taxed while those performing
propriety functions are subject to tax unless expressly exempted” refers to:
A. The tax imposed should be for public purpose
B. There should be no improper delegation of the taxing power
C. The power to tax is limited to the territorial jurisdiction of the taxing government
D. Exemption of government entities from taxation

31. This stems from the principle that we pay taxes for the protection and services provided by the taxing authority which could not
be provided outside the territorial boundaries of the taxing state.
A. The tax imposed should be for public purpose
B. There should be no improper delegation of the taxing power
C. The power to tax is limited to the territorial jurisdiction of the taxing government
D. Exemption of government entities from taxation

32. These are restrictions imposed by the Constitution.

A. Inherent Limitations
B. Basic principles of sound tax system
C. Constitutional Limitations
D. None of the choices

33. No law granting any tax exemption shall be passed without the concurrence of
A. Majority of all member of the Congress
B. ¾ vote of all members of the Congress
C. 2/3 vote of all members of the Congress
D. Unanimous vote of all members of the Congress

34. Compliance with procedural requirements must be followed strictly to avoid collision course between the state’s power to tax and
the individual’s recognized rights.
A. Due process of law
B. Non-infringement of religious freedom
C. Equality in Taxation
D. Non-impairment of obligations and contracts

35. No person shall be imprisoned for non-payment of this

A. Property Tax
B. Poll Tax
C. Excise Tax
D. Income Tax

36. Which statement is WRONG? A revenue bill:

A. Must originate from the House of Representatives and on the same bill the Senate may propose amendments.
B. May originate from the Senate and on which same bill the House of Representatives may propose amendments.
C. May have a House version and a Senate version approved separately.
D. May be recommended by the President to Congress.

37. This requires that all subjects or objects of taxation, similarly situated are to be treated alike or put on equal footing both in
privileges and liabilities.
A. Due process B. Progressive Taxation C. Uniformity D. None of the Choices

38. The basis or test of exemption of real properties owned by religious, or charitable entities from real property taxes is:
A. Use of the real property
B. Ownership of the real property
C. Location of the real property
D. Ownership or location real property at the option of the government

39. Which of the following statements is not correct?

A. Taxes may be imposed to raise revenue or provide disincentives to certain activities within the state.
B. The state can have the power of taxation even if the Constitution does not expressly give it the power to tax.
C. For the exercise of the power of taxation, the state can tax anything at anytime.
D. The power of taxation in the Philippine Constitution are grants of power and not limitations on taxing powers.

40. A taxpayer gives the following reasons for refusing to pay a tax. Which of his reasons is not acceptable for legally refusing to pay
the tax?
A. That he has been deprived of due process of law.
B. That there is lack of territorial jurisdiction
C. That the prescriptive period for the tax has elapsed

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 D. That he will derive no benefit from the tax

41. Which of the following has no power of taxation?

A. Provinces B. Barangays C. Cities D. Barrios

42. One of the characteristics of our internal revenue laws is that they are:
A. Political in nature
B. Penal in nature
C. Generally prospective in operation although the tax statute may nevertheless operate retrospectively, provided it is clearly
the legislative intent.
D. Criminal in nature

43. In case of conflict between tax laws and generally accepted accounting principle (GAAP):
A. Both tax laws and GAAP shall be enforced
B. GAAP shall prevail over tax laws
C. Tax laws shall prevail over GAAP
D. The issue shall be resolved by the court

44. All of the following, except one, are sources of tax laws:
A. Legislations, tax treaties and tax ordinances
B. Judicial decisions
C. Opinion of Authors
D. Administrative rules and regulations

45. Which of the following is not an example of Excise Tax?

A. Transfer Tax B. Sales Tax C. Real Property Tax D. Income Tax

46. One is not a Direct Tax

A. Immigration Tax B. Transfer Tax C. Income Tax D. Value-added Tax

47. A tax in business is:

A. Direct Tax B. Property Tax C. Indirect Tax D. None of the choices

48. Guiller is a mining operator. His mineral lands are not covered by any lease contract. The tax Guiller has to pay based on the
actual value of the gross output or mineral products extracted is
A. Mining Tax B. Rental C. Royalties D. Ad Valorem Tax

49. Tax levied for particular or specific purpose irrespective of whether revenue is actually raised or not
A. Revenue Tax B. Specific Tax C. Regulatory Tax D. Ad Valorem Tax

50. Taxes imposed by a political subdivision of the state and is effective only within the territorial boundaries thereof
A. National Tax B. Progressive Tax C. Local tax D. Regressive Tax

51. Under the TRAIN LAW, which of the following taxes is not proportional?
A. Value-added Tax B. Estate tax C. Income Tax D. Donor’s Tax

52. Tax is distinguished from License Fee

A. Non-payment does not necessarily render the business illegal
B. A regulatory measure
C. Imposed in the exercise of Police Power
D. Limited to cover cost of regulation

53. The distinction of a tax from permit or license fee is that a tax is
A. Imposed for regulation
B. One which involves exercise of police power
C. One in which there is generally no limit on the amount that may be imposed
D. Answer not given

54. Which of the following terms describes this statement: “that the state has complete discretion on the amount to be imposed
after distinguishing between a useful and non-useful activity?
A. Tax B. Toll C. License fee D. Customs Duty

55. Which of the following is not a distinction or similarity of license fee from tax?
A. Imposed for regulation
B. Involves exercise of police power
C. Non-payment makes the business illegal
D. Legal compensation or reward of an officer for services

56. This is a demand of ownership

A. License Fee B. Toll C. Tax D. Franchise

57. Toll as distinguished from tax.

A. Demand of sovereignty
B. Imposed by government only
C. Amount is based on the cost of construction of public improvement used
D. Paid for the support of the government

58. Which statement is wrong?

A. A tax is a demand of sovereignty
B. A toll is a demand of ownership

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 C. A special assessment is a tax
D. Customs duty is a tax

59. Which of the following is not a characteristic of Debt?

A. Generally arises from contract
B. Payable only in money
C. Assignable
D. Imprisonment is not a sanction for non-payment

60. Debt as distinguished from tax.

A. Based on law
B. May be paid in kind
C. Does not draw interest except when delinquent
D. Generally not subject to set-off or compensation

61. Which of the following is designed to regulate conduct?

A. Tax B. Penalty C. Toll D. Special Assessment

62. “Schedular system of income taxation” means:

A. All types of income are added together to arrive at gross income.
B. Separate graduated rates are imposed on different types of income.
C. Capital gains are excluded in determining gross income.
D. Compensation income and business/professional income are added together in arriving at gross income.

63. When the refund of a tax supposedly due to the taxpayer has already been barred by prescription, and the said taxpayer is
assessed with a tax at present, the two taxes may be set-off with each other. This doctrine is called:
A. Set-off Doctrine
B. Tax sparring Doctrine
C. Doctrine of Reciprocity
D. Equitable Recoupment

64. Transfer of the tax burden by one whom the tax is assessed to another.
A. Shifting B. Transformation C. Capitalization D. Tax Exemption

65. Which of the following is not a scheme of shifting the incidence of tax burden?
A. The manufacturer transfers the tax to the consumer by adding the tax to the selling price of the goods sold.
B. The purchaser asks for a discount or refuses to buy at regular price unless it is reduced by an amount equal to the tax he will
pay.
C. Changing the terms of the sale like FOB shipping point in the Philippines to FOB Destination abroad, so that the title passes
abroad instead of in the Philippines.
D. The manufacturer transfers the sales tax to the distributor, then in turn to the wholesaler, to the retailer and finally to the
consumer.

66. The method by which the manufacturer or producer upon whom the tax is imposed pays the tax and strives to recover such
expense through lower production cost without sacrificing the quality of his product.
A. Shifting B. Transformation C. Capitalization D. Tax exemption

67. The reduction in the selling price of income producing property by an amount equal to the capitalized value of future taxes that
may be paid by the purchaser
A. Shifting B. Transformation C. Capitalization D. Tax exemption

68. In case of ambiguity, tax laws shall be interpreted

A. Strictly against the taxpayer
B. Liberally in favor of the taxpayer
C. Liberally in favor of the government
D. None of the choices

69. In cases of deductions and exemptions, doubts shall be resolved

A. Strictly against the taxpayer
B. Strictly against the government
C. Liberally in favor of the taxpayer
D. None of the choices

70. The use of illegal or fraudulent means to avoid or defeat the payment of tax.
A. Exemption B. Avoidance C. Shifting D. Evasion

REVIEW QUESTIONS

Problem 1: In the space provided for, indicate whether the statements relates to a Constitutional limitation (C) or inherent
limitation (I). If not a limitation to the taxing power, indicate (N)
Each local government shall have the power to create their own
1 sources of revenue c 11 Non-assignment of taxes n
Exemption from property taxes of religious, educational and
2 charitable entities c 12 Non-delegation of the taxing power i
Exemption of the property of religious institutions form income
3 tax n 13 Non-impairment of obligation and contracts c

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 Exemption of the revenues and assets of non-profit non-stock Non-impairment of the jurisdiction of the
4 educational institution c 14 Supreme Court to review tax cases c
Non-imprisonment for non-payment of tax
5 Government income and properties are not object of taxation i 15 or debt c
6 Guarantee of proportional system of taxation c 16 Taxes must be for public use i
Taxpayers under the same circumstance
should be treated equal in privileges and
7 Imprescriptibility in taxation n 17 obligation c
8 Imprisonment for non-payment of poll tax n 18 Territoriality of taxation i
9 International courtesy i 19 The government is not subject to estoppel n
The requirement of absolute majority in the
10 Non-appropriation for religious purpose c 20 passage of tax exemption law c

Each local government shall have the power to create their own
1 sources of revenue c 11 Non-assignment of taxes n
Exemption from property taxes of religious, educational and
2 charitable entities c 12 Non-delegation of the taxing power i
Exemption of the property of religious institutions form income
3 tax n 13 Non-impairment of obligation and contracts c
Exemption of the revenues and assets of non-profit non-stock Non-impairment of the jurisdiction of the
4 educational institution c 14 Supreme Court to review tax cases c
Non-imprisonment for non-payment of tax
5 Government income and properties are not object of taxation i 15 or debt c
6 Guarantee of proportional system of taxation c 16 Taxes must be for public use i
Taxpayers under the same circumstance
should be treated equal in privileges and
7 Imprescriptibility in taxation n 17 obligation c
8 Imprisonment for non-payment of poll tax n 18 Territoriality of taxation i
9 International courtesy i 19 The government is not subject to estoppel n
The requirement of absolute majority in the
10 Non-appropriation for religious purpose c 20 passage of tax exemption law c

Problem 2: Identify the type of tax that is described by the following:

1. Tax that is imposed based on the value of the tax object Ad valorem tax
2. Tax collected upon persons who are not the statutory taxpayers Indirect tax
3. Tax for general purpose Fiscal/general/revenue tax
4. Tax on residents of a country Community tax
5. Tax upon performance of an act or enjoyment of a privilege Excise tax or privilege tax
6. Tax is collected upon the statutory taxpayer Direct tax
7. Tax imposed to regulate businesses or profession Regulatory tax
8. Tax on gratuitous transfer of property by a living donor Donor’s tax
9. Tax that decreases in rates as the amount or value of the tax object increases Regressive tax
10. Tax imposed by the national government National tax
11. Tax on sin products or non-essential commodities Excise tax
12. Tax on gratuitous transfer of property upon death Estate tax
13. Consumption tax collected by non-VAT businesses Percentage tax
14. A tax that remains at flat rate regardless of the value of the tax object Propertional tax
15. Tax collected on a per unit basis Specific tax

Problem 2: Identify the type of tax that is described by the following:

1. Tax that is imposed based on the value of the tax object Ad valorem tax
2. Tax collected upon persons who are not the statutory taxpayers Indirect tax
3. Tax for general purpose Fiscal/general/revenue tax
4. Tax on residents of a country Community tax
5. Tax upon performance of an act or enjoyment of a privilege Excise tax or privilege tax
6. Tax is collected upon the statutory taxpayer Direct tax
7. Tax imposed to regulate businesses or profession Regulatory tax
8. Tax on gratuitous transfer of property by a living donor Donor’s tax
9. Tax that decreases in rates as the amount or value of the tax object increases Regressive tax
10. Tax imposed by the national government National tax
11. Tax on sin products or non-essential commodities Excise tax
12. Tax on gratuitous transfer of property upon death Estate tax
13. Consumption tax collected by non-VAT businesses Percentage tax
14. A tax that remains at flat rate regardless of the value of the tax object Proportional tax
15. Tax collected on a per unit basis Specific tax

Problem 3: Identify which item is described by the following:

1. An imposition intended to discourage an act Penalty
2. An imposition for the support of the government Tax
3. Imposed upon land adjacent to the public improvements Special assessment
4. Imposed on imported and exported commodities Customs duties
5. Imposed on post activity rather than a pre-activity Tax

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6. A charged imposed prior to the commencement of business or exercise of a profession License
7. It arises from contracts rather than from law Debt
8. A charge for the use of other’s property Toll
9. Refers to all income collections of the government Revenue
10. Can be subject to compensation or set-off Debt

Problem 3: Identify which item is described by the following:

1. An imposition intended to discourage an act Penalty
2. An imposition for the support of the government Tax
3. Imposed upon land adjacent to the public improvements Special assessment
4. Imposed on imported and exported commodities Customs duties
5. Imposed on post activity rather than a pre-activity Tax
6. A charged imposed prior to the commencement of business or exercise of a profession License
7. It arises from contracts rather than from law Debt
8. A charge for the use of other’s property Toll
9. Refers to all income collections of the government Revenue
10. Can be subject to compensation or set-off Debt

Problem 4: Indicate the criteria for the selection of large taxpayer for each of the following:

As to payment Criteria
1. Value Added Tax
2. Excise Tax
3. Income Tax
4. Withholding Tax
5. Percentage Tax
6. Documentary Stamp Tax
As to condition and operations
1. Gross receipts or sales
2. Net worth
3. Gross purchases

As to payment Criteria
1. Value Added Tax ≥ P200,000/quarter
2. Excise Tax ≥ P1,000,000/year
3. Income Tax ≥ P1,000,000/year
4. Withholding Tax ≥ P1,000,000/year
5. Percentage Tax ≥ P200,000/quarter
6. Documentary Stamp Tax ≥ P1,000,000/year
As to condition and operations
1. Gross receipts or sales ≥ P1,000,000,000 in a year
2. Net worth ≥ P300,000,000 at year end
3. Gross purchases ≥ P800,000,000 in the preceding year

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